<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the Quarterly Period Ended March 31, 1999
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the Transition Period from ___________________ to _____________________
Commission File Number 1-4300
APACHE CORPORATION
------------------------------------------------------
(Exact Name of Registrant as Specified in Its Charter)
Delaware 41-0747868
- ------------------------------- ----------------------
(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification Number)
Suite 100, One Post Oak Central 77056-4400
2000 Post Oak Boulevard, Houston, TX ----------
- ---------------------------------------- (Zip Code)
(Address of Principal Executive Offices)
Registrant's Telephone Number, Including Area Code: (713) 296-6000
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
YES X NO
----- -----
<TABLE>
<S> <C>
Number of shares of Registrant's common stock, outstanding as of March 31, 1999..........................97,820,667
</TABLE>
<PAGE> 2
PART I - FINANCIAL INFORMATION
ITEM 1 - FINANCIAL STATEMENTS
APACHE CORPORATION AND SUBSIDIARIES
STATEMENT OF CONSOLIDATED OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
FOR THE QUARTER ENDED MARCH 31,
-------------------------------
1999 1998
------------ ------------
(In thousands, except per common share data)
<S> <C> <C>
REVENUES:
Oil and gas production revenues $ 162,303 $ 209,949
Gathering, processing and marketing revenues 24,594 32,096
Equity in loss of affiliates -- (873)
Other revenues 818 4,769
------------ ------------
187,715 245,941
------------ ------------
OPERATING EXPENSES:
Depreciation, depletion and amortization 88,423 98,372
Operating costs 46,857 56,551
Gathering, processing and marketing costs 24,126 31,203
Administrative, selling and other 10,330 9,966
Financing costs:
Interest expense 31,448 30,144
Amortization of deferred loan costs 1,114 1,262
Capitalized interest (12,916) (10,850)
Interest income (421) (823)
------------ ------------
188,961 215,825
------------ ------------
INCOME (LOSS) BEFORE INCOME TAXES (1,246) 30,116
Provision for income taxes 922 12,760
------------ ------------
NET INCOME (LOSS) (2,168) 17,356
Preferred stock dividends 1,420 --
------------ ------------
INCOME (LOSS) ATTRIBUTABLE TO COMMON STOCK $ (3,588) $ 17,356
============ ============
NET INCOME (LOSS) PER COMMON SHARE:
Basic $ (.04) $ .18
============ ============
Diluted $ (.04) $ .18
============ ============
</TABLE>
The accompanying notes to consolidated financial statements
are an integral part of this statement.
1
<PAGE> 3
APACHE CORPORATION AND SUBSIDIARIES
STATEMENT OF CONSOLIDATED CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
FOR THE QUARTER ENDED MARCH 31,
-------------------------------
1999 1998
------------ ------------
(In thousands)
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $ (2,168) $ 17,356
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation, depletion and amortization 88,423 98,372
Amortization of deferred loan costs 1,114 1,262
Provision (benefit) for deferred income taxes (2,926) 5,265
Cash distributions in excess of earnings of affiliates -- 852
Changes in operating assets and liabilities:
Decrease in receivables 3,150 43,431
Increase in advances to oil and gas ventures and other (10,350) (692)
(Increase) decrease in deferred charges and other 201 (2,289)
(Increase) decrease in product inventory (282) 37
Decrease in payables (20,829) (41,653)
Decrease in accrued expenses (1,852) (9,895)
Decrease in advance from gas purchaser (6,296) (4,507)
Decrease in deferred credits and noncurrent liabilities (2,577) (1,647)
------------ ------------
Net cash provided by operating activities 45,608 105,892
------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to property and equipment (166,499) (192,565)
Non-cash portion of net oil and gas property additions (54,428) (3,255)
Acquisition of Novus, net of cash acquired (5,758) --
Proceeds from sales of oil and gas properties 4,344 107,549
Proceeds from sale of assets held for resale -- 62,998
Other, net 572 (6,583)
------------ ------------
Net cash used in investing activities (221,769) (31,856)
------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Long-term borrowings 335,451 228,750
Payments on long-term debt (147,127) (186,621)
Dividends paid (8,264) (6,531)
Common stock activity, net 645 834
Cost of debt and equity transactions -- (281)
------------ ------------
Net cash provided by financing activities 180,705 36,151
------------ ------------
NET INCREASE IN CASH AND CASH EQUIVALENTS 4,544 110,187
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR 14,537 9,686
------------ ------------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 19,081 $ 119,873
============ ============
</TABLE>
The accompanying notes to consolidated financial statements
are an integral part of this statement.
2
<PAGE> 4
APACHE CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
(UNAUDITED)
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
1999 1998
------------ ------------
(In thousands)
ASSETS
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents $ 19,081 $ 14,537
Receivables 156,830 159,806
Inventories 42,236 40,948
Advances to oil and gas ventures and other 22,273 11,679
------------ ------------
240,420 226,970
------------ ------------
PROPERTY AND EQUIPMENT:
Oil and gas, on the basis of full cost accounting:
Proved properties 6,021,552 5,901,863
Unproved properties and properties under
development, not being amortized 676,417 637,854
Gas gathering, transmission and processing facilities 370,323 354,506
Other 89,179 88,422
------------ ------------
7,157,471 6,982,645
Less: Accumulated depreciation, depletion and amortization (3,346,460) (3,255,104)
------------ ------------
3,811,011 3,727,541
------------ ------------
OTHER ASSETS:
Deferred charges and other 40,089 41,551
------------ ------------
$ 4,091,520 $ 3,996,062
============ ============
</TABLE>
The accompanying notes to consolidated financial statements
are an integral part of this statement.
3
<PAGE> 5
APACHE CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
(UNAUDITED)
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
1999 1998
------------ ------------
(In thousands)
LIABILITIES AND SHAREHOLDERS' EQUITY
<S> <C> <C>
CURRENT LIABILITIES:
Current maturities of long-term debt $ 15,034 $ 15,500
Accounts payable 94,361 115,111
Accrued operating expense 18,379 18,990
Accrued exploration and development 66,491 120,855
Accrued compensation and benefits 5,908 10,692
Accrued interest 22,791 19,054
Other accrued expenses 5,378 5,572
------------ ------------
228,342 305,774
------------ ------------
LONG-TERM DEBT 1,532,048 1,343,258
------------ ------------
DEFERRED CREDITS AND OTHER NONCURRENT
LIABILITIES:
Income taxes 270,132 270,493
Advances from gas purchaser 199,172 205,468
Other 66,245 69,236
------------ ------------
535,549 545,197
------------ ------------
SHAREHOLDERS' EQUITY:
Preferred stock, no par value, 5,000,000 shares authorized,
100,000 shares of 5.68% Cumulative Series B issued
and outstanding 98,387 98,387
Common stock, $1.25 par, 215,000,000 shares authorized,
99,834,557 and 99,790,337 shares issued, respectively 124,793 124,738
Paid-in capital 1,246,379 1,245,738
Retained earnings 392,662 403,098
Treasury stock, at cost, 2,013,890 and 2,021,215 shares,
respectively (36,790) (36,924)
Accumulated other comprehensive income (29,850) (33,204)
------------ ------------
1,795,581 1,801,833
------------ ------------
$ 4,091,520 $ 3,996,062
============ ============
</TABLE>
The accompanying notes to consolidated financial statements
are an integral part of this statement.
4
<PAGE> 6
APACHE CORPORATION AND SUBSIDIARIES
STATEMENT OF CONSOLIDATED SHAREHOLDERS' EQUITY
(UNAUDITED)
<TABLE>
<CAPTION>
COMPREHENSIVE PREFERRED COMMON PAID-IN RETAINED TREASURY
(IN THOUSANDS) INCOME STOCK STOCK CAPITAL EARNINGS STOCK
------------- ----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
BALANCE AT DECEMBER 31, 1997 $ -- $ 118,098 $ 1,085,063 $ 561,981 $ (15,506)
Comprehensive income:
Net income $ 17,356 -- -- -- 17,356 --
Currency translation adjustments 1,038 -- -- -- -- --
-----------
Comprehensive income $ 18,394
===========
Dividends ($.07 per common share) -- -- -- (6,902) --
Common shares issued -- 6,616 152,880 -- --
Treasury shares issued, net -- -- -- -- 7
----------- ----------- ----------- ----------- -----------
BALANCE AT MARCH 31, 1998 $ -- $ 124,714 $ 1,237,943 $ 572,435 $ (15,499)
=========== =========== =========== =========== ===========
BALANCE AT DECEMBER 31, 1998 $ 98,387 $ 124,738 $ 1,245,738 $ 403,098 $ (36,924)
Comprehensive income:
Net loss $ (2,168) -- -- -- (2,168) --
Currency translation adjustments 3,354 -- -- -- -- --
-----------
Comprehensive income $ 1,186
===========
Dividends:
Preferred -- -- -- (1,420) --
Common ($.07 per share) -- -- -- (6,848) --
Common shares issued -- 55 641 -- --
Treasury shares issued, net -- -- -- -- 134
----------- ----------- ----------- ----------- -----------
BALANCE AT MARCH 31, 1999 $ 98,387 $ 124,793 $ 1,246,379 $ 392,662 $ (36,790)
=========== =========== =========== =========== ===========
</TABLE>
<TABLE>
<CAPTION>
ACCUMULATED
OTHER TOTAL
COMPREHENSIVE SHAREHOLDERS'
(IN THOUSANDS) INCOME EQUITY
------------- -------------
<S> <C> <C>
BALANCE AT DECEMBER 31, 1997 $ (20,459) $ 1,729,177
Comprehensive income:
Net income -- 17,356
Currency translation adjustments 1,038 1,038
Comprehensive income
Dividends ($.07 per common share) -- (6,902)
Common shares issued -- 159,496
Treasury shares issued, net -- 7
----------- -----------
BALANCE AT MARCH 31, 1998 $ (19,421) $ 1,900,172
=========== ===========
BALANCE AT DECEMBER 31, 1998 $ (33,204) $ 1,801,833
Comprehensive income:
Net loss -- (2,168)
Currency translation adjustments 3,354 3,354
Comprehensive income
Dividends:
Preferred -- (1,420)
Common ($.07 per share) -- (6,848)
Common shares issued -- 696
Treasury shares issued, net -- 134
----------- -----------
BALANCE AT MARCH 31, 1999 $ (29,850) $ 1,795,581
=========== ===========
</TABLE>
The accompanying notes to consolidated financial statements
are an integral part of this statement.
5
<PAGE> 7
APACHE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
These financial statements have been prepared by Apache Corporation
(Apache or the Company) without audit, pursuant to the rules and regulations of
the Securities and Exchange Commission, and reflect all adjustments which are,
in the opinion of management, necessary for a fair statement of the results for
the interim periods, on a basis consistent with the annual audited financial
statements. All such adjustments are of a normal recurring nature. Certain
information, accounting policies, and footnote disclosures normally included in
financial statements prepared in accordance with generally accepted accounting
principles have been omitted pursuant to such rules and regulations, although
the Company believes that the disclosures are adequate to make the information
presented not misleading. These financial statements should be read in
conjunction with the financial statements and the summary of significant
accounting policies and notes thereto included in the Company's most recent
annual report on Form 10-K.
1. ACQUISITIONS
In November 1998, the Company entered into agreements to acquire
certain oil and gas interests and companies holding oil and gas interests in the
Carnarvon Basin, offshore Western Australia, from subsidiaries of Novus
Petroleum Limited (Novus) for approximately $55 million. The transaction closed
in two stages, on December 18, 1998 (approximately $49 million) and on January
29, 1999 (approximately $6 million).
On February 1, 1999, the Company acquired oil and gas properties
located in the Gulf of Mexico from Petsec Energy Inc. (Petsec) for an adjusted
purchase price of approximately $66.7 million. The Petsec transaction included
estimated proved reserves of approximately 10.4 million barrels of oil
equivalent (MMboe) as of the effective date.
2. NON-CASH INVESTING AND FINANCING ACTIVITIES
There were no significant non-cash investing or financing activities
for the three months ended March 31, 1999.
The following table provides supplemental disclosure of cash flow
information:
<TABLE>
<CAPTION>
FOR THE QUARTER ENDED
MARCH 31,
-----------------------------------------
1999 1998
---------------- ---------------
(In thousands)
<S> <C> <C>
Cash paid during the period for:
Interest (net of amounts capitalized) $ 14,795 $ 16,969
Income taxes (net of refunds) 3,813 7,495
</TABLE>
3. DEBT
In March 1999, Apache Finance Pty Ltd (Apache Finance) issued $100
million principal amount, $99.3 million net of discount, of senior unsecured
7-percent notes due March 15, 2009. The notes are irrevocably and
unconditionally guaranteed by Apache. Apache Finance has the right to redeem the
notes prior to maturity, under certain conditions related to changes in relevant
tax laws. Also, upon certain changes in control, these notes are subject to
mandatory repurchase.
6
<PAGE> 8
4. NET INCOME (LOSS) PER COMMON SHARE
A reconciliation of the components of basic and diluted net income
(loss) per common share is presented in the table below:
<TABLE>
<CAPTION>
FOR THE QUARTER ENDED MARCH 31,
---------------------------------------------------------------------------
1999 1998
------------------------------------ ------------------------------------
INCOME SHARES PER SHARE INCOME SHARES PER SHARE
--------- --------- --------- --------- ---------- ---------
(In thousands, except per share amounts)
<S> <C> <C> <C> <C> <C> <C>
BASIC:
Income (loss) attributable to common
stock $ (3,588) 97,788 $ (.04) $ 17,356 97,581 $ .18
======== =========
EFFECT OF DILUTIVE SECURITIES:
Stock option plans -- -- -- 391
6% convertible subordinated debentures -- -- 460 937
--------- --------- --------- ----------
DILUTED:
Income attributable to common stock
after assumed conversions $ (3,588) 97,788 $ (.04) $ 17,816 98,909 $ .18
========= ========== ======== ========= ========== =========
</TABLE>
The 6-percent convertible subordinated debentures were converted into
shares of Apache common stock or redeemed in January 1998.
5. SUBSEQUENT EVENTS
On April 7, 1999, the Company entered into an agreement to acquire a 10
percent interest in the East Spar Joint Venture and an 8.4 percent interest in
the Harriet Joint Venture, both located in the Carnarvon Basin (offshore Western
Australia), from British-Borneo Oil and Gas Plc (British-Borneo) in exchange for
$80 million cash and 11 leases in the Gulf of Mexico. The British-Borneo
transaction includes estimated proved reserves of approximately 16.7 MMboe as of
the effective date.
On April 29, 1999, Apache entered into an agreement with Shell Offshore
Inc. and affiliated Shell entities (Shell) to purchase Shell's interest in 22
producing fields and 16 undeveloped blocks located in the Gulf of Mexico. The
Shell transaction also includes certain production-related assets and
proprietary 3D seismic data covering approximately 1,000 blocks in the Gulf of
Mexico. The purchase price, subject to adjustment for production since March 1,
1999, is $715 million in cash and one million shares of the common stock of
Apache, par value $1.25 per share (Apache Common Stock). The Shell transaction,
which includes estimated proved reserves of approximately 127.3 MMboe as of the
effective date, is expected to be completed in May 1999.
On April 29, 1999, Apache also announced concurrent public offerings of
shares of Apache Common Stock and depositary shares (Depositary Shares)
representing Automatically Convertible Equity Securities, Conversion Preferred
Stock, Series C. The offerings of Apache Common Stock and Depositary Shares are
being made under separate prospectuses and are not conditional upon each other.
These offerings were priced on May 12, 1999, at $31.00 per share for 13 million
shares of Apache Common Stock (subject to a 15 percent over allotment option)
and $31.00 per share for seven million Depositary Shares, and are expected to
close on or about May 18, 1999. The proceeds from both offerings will be used
for general corporate purposes, including funding of a portion of the purchase
price for the pending Shell transaction.
7
<PAGE> 9
6. BUSINESS SEGMENT INFORMATION
Apache has five reportable segments which are primarily in the business
of natural gas and crude oil exploration and production. The Company evaluates
performance based on profit or loss from oil and gas operations before income
and expense items incidental to oil and gas operations and income taxes.
Apache's reportable segments are managed separately because of their geographic
locations. Financial information by operating segment is presented below:
<TABLE>
<CAPTION>
OTHER
UNITED STATES CANADA EGYPT AUSTRALIA INTERNATIONAL TOTAL
------------- ----------- ----------- ----------- ------------- -----------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
FOR THE QUARTER ENDED MARCH 31, 1999
Oil and Gas Production Revenues.......... $ 98,085 $ 16,517 $ 28,630 $ 18,864 $ 207 $ 162,303
=========== =========== =========== =========== =========== ===========
Operating Income (1)..................... $ 10,327 $ 4,006 $ 6,873 $ 6,192 $ 93 $ 27,491
=========== =========== =========== =========== ===========
Other Income (Expense):
Other revenues........................ 818
Administrative, selling and other..... (10,330)
Financing costs, net.................. (19,225)
-----------
Loss Before Income Taxes................. $ (1,246)
===========
Total Assets............................. $ 2,081,025 $ 310,382 $ 878,274 $ 648,392 $ 173,447 $ 4,091,520
=========== =========== =========== =========== =========== ===========
FOR THE QUARTER ENDED MARCH 31, 1998
Oil and Gas Production Revenues.......... $ 144,161 $ 14,130 $ 35,883 $ 15,775 $ - $ 209,949
=========== =========== =========== =========== =========== ===========
Operating Income (1)..................... $ 33,479 $ 3,126 $ 15,409 $ 3,905 $ - $ 55,919
=========== =========== =========== =========== ===========
Other Income (Expense):
Equity in loss of affiliates.......... (873)
Other revenues........................ 4,769
Administrative, selling and other..... (9,966)
Financing costs, net.................. (19,733)
-----------
Income Before Income Taxes............... $ 30,116
===========
Total Assets............................. $ 2,457,954 $ 291,829 $ 749,233 $ 536,095 $ 106,712 $ 4,141,823
=========== =========== =========== =========== =========== ===========
</TABLE>
(1) Operating income consists of oil and gas production revenues and net
gathering, processing and marketing activity less depreciation,
depletion and amortization (DD&A) expense and operating costs.
8
<PAGE> 10
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
OVERVIEW
Early in 1998, when the cost of drilling for and acquiring oil and gas
reserves was rising rapidly, Apache implemented a two-phase strategy designed to
reduce debt and pursue larger acquisitions after the prices of oil and gas
properties had turned down. By the end of 1998, Apache had paid down
approximately $160 million in debt and added approximately $73 million to
shareholders' equity as compared to year-end 1997 levels. These results were
achieved in part by selling and trading non-strategic properties, curtailing
capital expenditures, and converting debentures into common stock.
Apache's strengthened balance sheet put the company in a better
position to endure the impact of low oil and gas prices in 1998 and the first
quarter of 1999, and to negotiate an agreement with Shell to acquire a large
package of properties located offshore in the Gulf of Mexico. That acquisition,
which is currently scheduled to close in May, would constitute the largest
transaction in the company's history in terms of purchase price and quantity of
proved reserves acquired.
Apache's results of operations and financial position for the first
three months of 1999 were significantly impacted by the following factors:
Commodity Prices - Apache's average realized oil price decreased $2.64
per barrel from $14.07 per barrel in the first quarter of 1998 to $11.43 per
barrel in the comparable 1999 period, reducing revenues by $18.6 million. The
average realized price for natural gas decreased $.29 per thousand cubic feet
(Mcf) from $1.98 per Mcf in the first quarter of 1998 to $1.69 per Mcf in 1999,
negatively impacting revenues by $16.0 million.
Operations - Oil and gas production decreased nine percent and six
percent, respectively, during the first quarter of 1999 when compared to the
same period last year. The decrease was due in part to efforts by Apache to sell
low margin properties at the end of the first quarter of 1998. The decrease in
oil and gas production negatively impacted revenues by $6.9 million and $6.0
million, respectively. Earnings for the first quarter of 1999 were positively
impacted by a $9.7 million, or 17 percent, decrease in operating costs compared
to the same period of 1998.
RESULTS OF OPERATIONS
Apache reported a 1999 first quarter loss attributable to common stock
of $3.6 million versus income of $17.4 million in the prior year. Basic net loss
per common share of $.04 for the first quarter of 1999 was significantly lower
than income per common share of $.18 in 1998. Lower operating costs and DD&A
expense were offset by a sharp decline in oil and gas prices and decreased oil
and gas production.
For the first quarter of 1999, revenues decreased 24 percent to $187.7
million compared to $245.9 million in 1998, driven by a 23 percent decrease in
oil and gas production revenues. The decrease in oil and gas production revenues
was the result of a 19 percent decrease in the average realized oil price, a 15
percent decrease in the average realized price for natural gas, a nine percent
decrease in oil production and a six percent decrease in natural gas production.
Crude oil, including natural gas liquids, contributed 46 percent and natural gas
contributed 54 percent of oil and gas production revenues.
9
<PAGE> 11
Volume and price information for the Company's oil and gas production
is summarized in the following table:
<TABLE>
<CAPTION>
FOR THE QUARTER
ENDED MARCH 31,
--------------------------- INCREASE
1999 1998 (DECREASE)
------------ ------------ ------------
<S> <C> <C> <C>
Natural Gas Volume - Mcf per day:
United States 397,685 467,123 (15%)
Canada 109,099 96,520 13%
Egypt 3,445 450 666%
Australia 60,062 46,973 28%
Ivory Coast 1,214 -- --
------------ ------------
Total 571,505 611,066 (6%)
============ ============
Average Natural Gas price - Per Mcf:
United States $ 1.79 $ 2.18 (18%)
Canada 1.43 1.24 15%
Egypt 1.93 1.78 8%
Australia 1.48 1.60 (8%)
Ivory Coast 1.77 -- --
Total 1.69 1.98 (15%)
Oil Volume - Barrels per day:
United States 32,202 39,634 (19%)
Canada 2,180 2,075 5%
Egypt 26,707 29,252 (9%)
Australia 10,255 7,130 44%
Ivory Coast 12 -- --
------------ ------------
Total 71,356 78,091 (9%)
============ ============
Average Oil price - Per barrel:
United States $ 11.16 $ 14.33 (22%)
Canada 10.90 15.75 (31%)
Egypt 11.66 13.60 (14%)
Australia 11.75 14.06 (16%)
Ivory Coast 14.00 -- --
Total 11.43 14.07 (19%)
Natural Gas Liquids (NGL)
Volume - Barrels per day:
United States 2,390 1,910 25%
Canada 632 604 5%
------------ ------------
Total 3,022 2,514 20%
============ ============
Average NGL Price - Per barrel:
United States $ 7.42 $ 9.14 (19%)
Canada 5.36 7.26 (26%)
Total 6.99 8.68 (19%)
</TABLE>
FIRST QUARTER 1999 COMPARED TO FIRST QUARTER 1998
Natural gas sales for the first quarter of 1999 totaled $87.0 million,
20 percent lower than the first quarter of 1998. Average realized natural gas
prices decreased 15 percent, negatively affecting revenue by $16.0 million.
Apache realized average natural gas price declines in the United States of 18
percent from $2.18 per Mcf in the
10
<PAGE> 12
first quarter 1998, to $1.79 per Mcf in the same period in 1999. The United
States represented 70 percent of total natural gas production for the first
quarter of 1999. The weakening of the Australian currency relative to the U.S.
dollar contributed to the eight percent decline in the Australian average
natural gas price. The Company periodically engages in hedging activities,
including fixed price physical and financial contracts. The net result of these
activities increased the Company's realized gas price by $.07 per Mcf during the
first quarter of 1999 and 1998.
Natural gas production decreased 39.6 million cubic feet per day
(MMcf/d), or six percent, on a worldwide basis, unfavorably impacting revenue by
$6.0 million. Natural gas production in the United States decreased 15 percent
due to sales of marginal properties in 1998 and natural declines from mature
fields. Increases in natural gas production in Egypt, Canada and Australia were
principally due to development activities.
The Company's crude oil sales for the first quarter of 1999 totaled
$73.4 million, a 26 percent decrease from the first quarter of 1998, due to
lower average realized prices, which were partially offset by production
increases in Australia and Canada.
First quarter 1999 oil production decreased nine percent compared to
the prior year primarily as a result of decreases in United States production,
which were partially offset by increases in Australian and Canadian production.
Australian oil production increased 44 percent in the first quarter of 1999
primarily due to the acquisition of certain oil and gas interests from Novus in
November 1998. U.S. oil production decreased 19 percent in the first quarter of
1999 primarily due to sales of marginal properties and natural declines from
mature fields.
The Company's realized price for sales of crude oil in the first
quarter of 1999 decreased $2.64 per barrel, or 19 percent, resulting in a
decrease in revenue of $18.6 million compared to the same period in 1998.
Revenue from the sale of natural gas liquids totaled $1.9 million for
the first quarter of 1999, compared to $2 million for the first quarter of 1998.
A 20 percent increase in natural gas liquids production was offset by a 19
percent decline in realized prices.
Apache initiated production offshore the Ivory Coast in the first
quarter of 1999. First sales of crude oil and natural gas were delivered in
March 1999.
OTHER REVENUES AND OPERATING EXPENSES
During the first quarter of 1999, Apache's gas gathering, processing
and marketing revenues and costs both decreased 23 percent as a result of lower
prices and production volumes compared to the prior year period, decreasing
margins by $.4 million, to $.5 million in 1999 from $.9 million in 1998.
Other revenues for the first quarter of 1999 decreased $4 million
compared to the same period in 1998. The first quarter of 1998 included $4
million in settlement proceeds from the resolution of issues with a gas
purchaser.
The Company's DD&A expense for the first quarter of 1999 totaled $88.4
million, compared to $98.4 million for the same period in 1998. On an equivalent
barrel basis, full cost DD&A expense decreased $.18 per barrel of oil equivalent
(boe), from $5.58 per boe in the first quarter of 1998 to $5.40 per boe in the
same period in 1999. Reserve additions along with a full-cost ceiling write-down
in the fourth quarter of 1998 drove the decrease from last year.
Operating costs, including lease operating expense and severance taxes,
decreased 17 percent from $56.6 million in the first quarter of 1998 to $46.9
million for the same period in 1999. For the first quarter of 1999, lease
operating expense, excluding severance taxes, totaled $41.2 million, compared to
$48.2 million for the comparable period in 1998. On an equivalent barrel basis,
lease operating expense declined from $2.94 per boe in the first quarter of 1998
to $2.70 per boe in the first quarter of 1999. Domestic per unit costs were
significantly reduced due to lower Gulf Coast region costs resulting from the
sale of largely marginal properties in 1998, and by lower Western and Offshore
region repairs and maintenance costs.
11
<PAGE> 13
G&A expense in the first quarter of 1999 increased four percent from a
year ago. The increase in G&A expense in the first three months of 1999 was
primarily the result of reduced oil and natural gas production in the first
quarter of 1999 compared to the same period in 1998. On an equivalent barrel
basis, G&A expense for the first three months of 1999 increased to $.68 per boe
compared to $.61 per boe for the same period in 1998.
Net financing costs for the first quarter of 1999 decreased $.5
million, or three percent, from the prior year primarily due to higher
capitalized interest. Additional capitalized interest associated with Egyptian
pipeline projects under construction contributed to the increase. The Western
Desert Gas Pipeline Project is in progress and scheduled for completion in June
1999. Gross interest expense increased $1.3 million due to a higher average
outstanding debt balance.
Although Apache posted a loss for the first quarter of 1999, no
consolidated tax benefit was recognized. Benefits provided on U.S. losses were
completely offset by taxes on foreign earnings at a higher effective tax rate.
MARKET RISK
COMMODITY RISK
The Company's major market risk exposure continues to be the pricing
applicable to its oil and gas production. Realized pricing is primarily driven
by the prevailing worldwide price for crude oil and spot prices applicable to
its United States and Canadian natural gas production. Historically, prices
received for oil and gas production have been volatile and unpredictable. Price
volatility is expected to continue. See "Results of Operations" above.
The information set forth under "Market Risk - Interest Rate Risk and -
Foreign Currency Risk" in Item 7 of the Company's annual report on Form 10-K for
the year ended December 31, 1998, is incorporated herein by reference.
CASH FLOW, LIQUIDITY AND CAPITAL RESOURCES
CAPITAL COMMITMENTS
Apache's primary cash needs are for exploration, development and
acquisition of oil and gas properties, repayment of principal and interest on
outstanding debt, payment of dividends and capital obligations for affiliated
ventures. Apache budgets capital expenditures based upon projected cash flow and
routinely adjusts its capital expenditures in response to changes in oil and
natural gas prices and corresponding changes in cash flow. The Company is not in
a position to predict future product prices. Capital expenditures, including
acquisitions, for 1999 are expected to exceed internally generated cash flow.
12
<PAGE> 14
Capital Expenditures - A summary of oil and gas capital expenditures
during the first three months of 1999 and 1998 is presented below (in millions):
<TABLE>
<CAPTION>
FOR THE QUARTER ENDED
MARCH 31,
------------------------------
1999 1998
----------- -----------
<S> <C> <C>
Exploration and development:
United States $ 24.8 $ 60.2
Canada 10.7 24.1
Egypt 12.4 32.7
Australia 11.7 19.1
Other international 7.4 9.8
----------- -----------
67.0 145.9
Capitalized Interest 12.9 10.8
----------- -----------
Total $ 79.9 $ 156.7
=========== ===========
Acquisition of oil and gas properties $ 75.9 $ 9.1
=========== ===========
</TABLE>
In North America, Apache completed 16 producing wells out of 24 wells
drilled during the first quarter of 1999, while internationally the Company
discovered one new producer out of three wells drilled. Worldwide, the Company
was drilling or completing an additional 49 wells as of March 31, 1999. In
addition, Apache completed 63 production enhancement projects, including 28
recompletions, during the first quarter of 1999.
Property acquisitions in the first quarter of 1999, primarily
represented acquisitions of additional interests in producing properties in the
Company's existing focus areas including oil and gas properties located in the
Gulf of Mexico from Petsec having estimated proved reserves of approximately
10.4 MMboe.
On April 7, 1999, the Company entered into an agreement to acquire a 10
percent interest in the East Spar Joint Venture and an 8.4 percent interest in
the Harriet Joint Venture, both located in the Carnarvon Basin (offshore Western
Australia), from British-Borneo Oil and Gas Plc (British-Borneo) in exchange for
$80 million cash and 11 leases in the Gulf of Mexico. The British-Borneo
transaction includes estimated proved reserves of approximately 16.7 MMboe as of
the effective date.
On April 29, 1999, Apache entered into an agreement with Shell Offshore
Inc. and affiliated Shell entities (Shell) to purchase Shell's interest in 22
producing fields and 16 undeveloped blocks located in the Gulf of Mexico. The
Shell transaction also includes certain production-related assets and
proprietary 3D seismic data covering approximately 1,000 blocks in the Gulf of
Mexico. The purchase price, subject to adjustment for production since March 1,
1999, is $715 million in cash and one million shares of the common stock of
Apache, par value $1.25 per share (Apache Common Stock). The Shell transaction,
which includes estimated proved reserves of approximately 127.3 MMboe as of the
effective date, is expected to be completed in May 1999.
On April 29, 1999, Apache also announced concurrent public offerings of
shares of Apache Common Stock and depositary shares (Depositary Shares)
representing Automatically Convertible Equity Securities, Conversion Preferred
Stock, Series C. The offerings of Apache Common Stock and Depositary Shares are
being made under separate prospectuses and are not conditional upon each other.
These offerings were priced on May 12, 1999, at $31.00 per share for 13 million
shares of Apache Common Stock (subject to a 15 percent over allotment option)
and $31.00 per share for seven million Depositary Shares, and are expected to
close on or about May 18, 1999. The proceeds from both offerings will be used
for general corporate purposes, including funding of a portion of the purchase
price for the pending Shell transaction.
13
<PAGE> 15
CAPITAL RESOURCES AND LIQUIDITY
Net Cash Provided by Operating Activities - Apache's net cash provided
by operating activities during the first three months of 1999 totaled $45.6
million, a decrease of 57 percent from $105.9 million in the first three months
of 1998. This decrease was primarily due to lower oil and gas production and
realized prices as compared to last year.
Long-Term Borrowings - In March 1999, Apache Finance issued $100
million principal amount, $99.3 million net of discount, of senior unsecured
7-percent notes due March 15, 2009. The notes are irrevocably and
unconditionally guaranteed by Apache. Apache Finance has the right to redeem the
notes prior to maturity, under certain conditions related to changes in relevant
tax laws. Also, upon certain changes in control, these notes are subject to
mandatory repurchase.
Liquidity - The Company had $19.1 million in cash and cash equivalents
on hand at March 31, 1999, up from $14.5 million at December 31, 1998. Apache's
ratio of current assets to current liabilities at March 31, 1999 was 1.05:1
compared to .74:1 at December 31, 1998.
Apache believes that cash on hand, net cash generated from operations,
and unused committed borrowing capacity under its global credit facility will be
adequate to satisfy the Company's financial obligations to meet future liquidity
needs for at least the next two fiscal years. As of March 31, 1999, Apache's
available borrowing capacity under its global credit facility was $710.6
million.
IMPACT OF THE YEAR 2000 ISSUE
The inability of some computer programs and embedded computer chips to
distinguish between the year 1900 and the year 2000 (the Year 2000 issue) poses
a serious threat of business disruption to any organization that utilizes
computer technology and computer chip technology in their business systems or
equipment. Apache has formed a Year 2000 Task Force with representation from
major business units to inventory and assess the risk associated with hardware,
software, telecommunications systems, office equipment, embedded chip controls
and systems, process control systems, facility control systems and dependencies
on external trading partners. The project phases, expected completion dates and
percentage complete as of March 1999 are as follows:
<TABLE>
<CAPTION>
PERCENT
PHASE COMPLETION DATE COMPLETE
--------------------------------------- -------------------- --------------
<S> <C> <C>
Organization July 1998 100%
Assessment November 1998 100%
Desktop Computers
Network Hardware
Software
Embedded Systems
External Trading Partners
Building/Infrastructure Systems
Telecommunications Systems
Implementation/Replacement September 1999 75%
Computer Hardware
Core Business Software
Desktop Software
Embedded Systems
Building Systems
Contact External Trading Partners March 1999 100%
Contingency Planning May 1999 90%
</TABLE>
14
<PAGE> 16
To date, the Company is not aware of any significant Year 2000 issues
that would cause problems in the area of safety, environmental or business
interruption. The Company will assess the risks associated with hardware,
software, infrastructure, embedded chips and external trading partners that are
not Year 2000 compliant. While Apache is confident that Year 2000 remediation
efforts will succeed in minimizing exposure to business disruption, plans are
being developed that will allow continuation of business in all but the worst
case scenarios. All remediation and replacement efforts and contingency planning
are expected to be complete by September 1999. All critical external trading
partners have been contacted to determine Year 2000 readiness and contingency
plans will be developed where assurance of Year 2000 compliance was not received
by March 31, 1999.
In 1997, the Company initiated a project to replace existing business
software as it relates to Apache's production, land, marketing, accounting and
financial systems to more effectively and efficiently meet its business needs.
Replacement computer systems selected by the Company from SAP America, Inc.,
PricewaterhouseCoopers LLP, Innovative Business Solutions and Landmark Graphics
will properly recognize dates beyond December 31, 1999. The implementation of
the business software project was completed and operational effective with
January 1999 production.
The Company expects the cost to achieve Year 2000 compliance will not
exceed $4 million, excluding the cost of implementing business replacement
systems.
The Company presently believes that with conversions to new software
and completion of efforts planned by the Year 2000 Task Force, the risk
associated with Year 2000 will be significantly reduced. However, the Company is
unable to assure that the consequences of Year 2000 failures of systems
maintained by the Company or by third parties will not materially adversely
impact the Company's results of operations, liquidity or financial condition.
FUTURE TRENDS
Apache's strategy is to increase its oil and gas reserves, production,
cash flow and earnings through a balanced growth program that involves:
1. exploiting our existing asset base;
2. acquiring properties to which we can add incremental value; and
3. investing in high-potential exploration prospects.
EXPLOITING EXISTING ASSET BASE
We seek to maximize the value of our existing asset base by reducing
operating costs per unit and increasing the amount of recoverable reserves. In
order to achieve these objectives, we rigorously examine operations to cut
costs, identify production enhancement initiatives such as workovers and
recompletions, and divest marginal and non-strategic properties.
ACQUIRING PROPERTIES TO WHICH WE CAN ADD INCREMENTAL VALUE
We seek to purchase reserves at attractive prices by generally avoiding
auction processes where we are competing against other buyers. Our aim is to
follow each acquisition with a cycle of reserve enhancement, property
consolidation and cash flow acceleration, facilitating asset growth and debt
reduction.
INVESTING IN HIGH-POTENTIAL EXPLORATION PROSPECTS
We seek to concentrate our exploratory investments in a select number
of international areas and to become the dominant operator in those regions. We
believe that these investments, although higher-risk, offer the potential for
significant reserve additions. Our international investments and exploration
activities are a
15
<PAGE> 17
significant component of our long-term growth strategy. They complement our
North American operations, which are more development oriented.
A critical component in implementing our three-pronged growth strategy
is maintenance of significant financial flexibility. We are committed to
preserving a strong balance sheet and credit position that gives us the
foundation required to pursue our growth initiatives.
CHANGES IN ACCOUNTING PRINCIPLES
DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES
In June 1998, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards (SFAS) No. 133, Accounting for Derivative
Instruments and Hedging Activities. SFAS No. 133 establishes accounting and
reporting standards requiring that every derivative instrument (including
certain derivative instruments embedded in other contracts) be recorded in the
balance sheet as either an asset or liability measured at its fair value, and
requires that changes in a derivative's fair value be recognized currently in
earnings unless specific hedge accounting criteria are met. Special accounting
for qualifying hedges allows a derivative's gains and losses to offset related
results on the hedged item in the statement of consolidated operations, and
requires that a company formally document, designate, and assess the
effectiveness of transactions that receive hedge accounting treatment.
SFAS No. 133 is required to be adopted on January 1, 2000, although
earlier adoption is permitted. The Company is analyzing the effects of SFAS No.
133, but has not yet quantified the potential financial statement impact, if
any, or determined the timing or method of adoption. Management does not believe
that the adoption of SFAS No. 133 will have a material impact on the Company's
financial condition or results of operations.
FORWARD-LOOKING STATEMENTS AND RISK
Certain statements in this report are forward-looking statements. All
statements other than statements of historical facts, including, among others,
statements regarding our future financial position, business strategy, budgets,
reserve information, projected levels of production, projected costs and plans
and objectives of management for future operations, are forward-looking
statements.
We typically use words such as "expect", "anticipate", "estimate",
"intend", "plan" and "believe" to identify our forward-looking statements.
Although we believe our expectations reflected in forward-looking
statements are based on reasonable assumptions, no assurance can be given that
these expectations will prove to have been correct. Important factors that
could cause actual results to differ materially from the expectations reflected
in the forward-looking statements include, among others:
1. the market prices of oil and gas;
2. economic and competitive conditions;
3. inflation rates;
4. legislative and regulatory changes;
5. financial market conditions;
6. political and economic uncertainties of foreign governments; and
7. future business decisions.
In light of these risks, uncertainties and assumptions, the events
anticipated by our forward-looking statements might not occur. We undertake no
obligation to update or revise our forward-looking statements, whether as a
result of new information, future events or otherwise.
16
<PAGE> 18
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
The information set forth in Note 10 to the Consolidated Financial
Statements contained in the Company's annual report on Form 10-K for
the year ended December 31, 1998 (filed with the SEC on March 25,
1999) is incorporated herein by reference.
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
None
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None
ITEM 5. OTHER INFORMATION
None
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
12.1 - Statement of computation of ratio of earnings to
fixed charges and combined fixed charges and
preferred stock dividends.
27.1 - Financial Data Table
(b) Reports filed on Form 8-K
The following current report on Form 8-K was filed during the
fiscal quarter ended March 31, 1999:
March 2, 1999 - Item 5. Other Events
Offering to the public by Apache Finance Pty Ltd of $100
million principal amount of 7% global notes due 2009,
guaranteed by Apache, issuable under an indenture dated
December 9, 1997, and registered pursuant to a registration
statement on Form S-3 (Registration Nos. 333-39973 and
333-39973-01).
17
<PAGE> 19
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned thereunto duly authorized.
APACHE CORPORATION
Dated: May 14, 1999 /s/ Roger B. Plank
------------------------------------------
Roger B. Plank
Vice President and Chief Financial Officer
Dated: May 14, 1999 /s/ Thomas L. Mitchell
------------------------------------------
Thomas L. Mitchell
Vice President and Controller
(Chief Accounting Officer)
<PAGE> 20
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
Exhibit
Number Description
- ------- -----------
<S> <C>
12.1 Statement of computation of ratio of earnings to fixed
charges and combined fixed charges and preferred stock
dividends
27.1 Financial Data Schedule
</TABLE>
<PAGE> 1
EXHIBIT 12.1
APACHE CORPORATION
STATEMENT OF COMPUTATION OF RATIOS OF EARNINGS TO FIXED CHARGES
AND COMBINED FIXED CHARGES AND PREFERRED STOCK DIVIDENDS
(IN THOUSANDS)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
------------------------
1999 1998 1998 1997 1996 1995 1994
--------- --------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
EARNINGS
Pretax income (loss) from continuing
operations (1) $ (1,246) $ 30,116 $(187,563) $ 258,640 $ 200,195 $ 33,143 $ 66,234
Add: Fixed charges excluding capitalized
interest 20,942 21,416 78,728 78,531 68,091 77,220 39,008
--------- --------- --------- --------- --------- --------- ---------
Adjusted Earnings $ 19,696 $ 51,532 $(108,835) $ 337,171 $ 268,286 $ 110,363 $ 105,242
========= ========= ========= ========= ========= ========= =========
FIXED CHARGES AND PREFERRED STOCK DIVIDENDS
Interest expense including capitalized
interest (2) $ 31,448 $ 30,144 $ 119,703 $ 105,148 $ 89,829 $ 88,057 $ 37,838
Amortization of debt expense 1,114 1,262 4,496 6,438 5,118 4,665 3,987
Interest component of lease rental
expenditures (3) 1,296 860 3,808 3,438 3,856 3,539 3,217
--------- --------- --------- --------- --------- --------- ---------
Fixed charges 33,858 32,266 128,007 115,024 98,803 96,261 45,042
--------- --------- --------- --------- --------- --------- ---------
Preferred stock requirements (4) 2,419 -- 2,905 -- -- -- --
--------- --------- --------- --------- --------- --------- ---------
Combined fixed charges and preferred
stock dividends $ 36,277 $ 32,266 $ 130,912 $ 115,024 $ 98,803 $ 96,261 $ 45,042
========= ========= ========= ========= ========= ========= =========
Ratio of earnings to fixed charges --(5) 1.60 - (6) 2.93 2.72 1.15 2.34
========= ========= ========= ========= ========= ========= =========
Ratio of earnings to combined fixed charges
and preferred stock dividends --(5) 1.60 - (6) 2.93 2.72 1.15 2.34
========= ========= ========= ========= ========= ========= =========
</TABLE>
- ----------------
(1) Undistributed income of less-than-50%-owned affiliates is excluded.
(2) Apache has guaranteed and is contingently liable for certain debt.
Fixed charges, relating to the debt for which Apache is contingently
liable, have not been included in the fixed charges for any of the
periods shown above.
(3) Represents the portion of rental expense assumed to be attributable to
interest factors of related rental obligations determined at interest
rates appropriate for the period during which the rental obligations
were incurred. Approximately 32% to 34% applies for all periods
presented.
(4) Represents the amount of pre-tax earnings that would be required to
cover preferred stock dividends.
(5) Earnings were inadequate to cover fixed charges and combined fixed
charges and preferred stock dividends by $14.2 million and $16.6
million, respectively, as a result of low oil and gas prices.
(6) Earnings were inadequate to cover fixed charges and combined fixed
charges and preferred stock dividends by $236.8 million and $239.7
million, respectively, due to the $243.2 million write-down of the
carrying value of United States oil and gas properties.
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-END> MAR-31-1999
<CASH> 19,081
<SECURITIES> 0
<RECEIVABLES> 156,830
<ALLOWANCES> 0
<INVENTORY> 42,236
<CURRENT-ASSETS> 240,420
<PP&E> 7,157,471
<DEPRECIATION> (3,346,460)
<TOTAL-ASSETS> 4,091,520
<CURRENT-LIABILITIES> 228,341
<BONDS> 1,532,048
0
98,387
<COMMON> 124,793
<OTHER-SE> 1,572,401
<TOTAL-LIABILITY-AND-EQUITY> 4,091,520
<SALES> 186,897
<TOTAL-REVENUES> 187,715
<CGS> 159,406
<TOTAL-COSTS> 159,406
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 19,225
<INCOME-PRETAX> (1,246)
<INCOME-TAX> 922
<INCOME-CONTINUING> (2,168)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (2,168)
<EPS-PRIMARY> (.04)
<EPS-DILUTED> (.04)
</TABLE>
