<PAGE> 1
UNITED STATES
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 September 30, 2000
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
--- ---
Number of shares of Registrant's common stock,
outstanding as of September 30, 2000................................123,511,157
<PAGE> 2
PART I - FINANCIAL INFORMATION
ITEM 1 - FINANCIAL STATEMENTS
APACHE CORPORATION AND SUBSIDIARIES
STATEMENT OF CONSOLIDATED OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
FOR THE QUARTER FOR THE NINE MONTHS
ENDED SEPTEMBER 30, ENDED SEPTEMBER 30,
------------------------ ------------------------
2000 1999 2000 1999
---------- ---------- ---------- ----------
(IN THOUSANDS, EXCEPT PER COMMON SHARE DATA)
<S> <C> <C> <C> <C>
REVENUES:
Oil and gas production revenues $ 623,543 $ 339,024 $1,557,866 $ 745,387
Equity in income (loss) of affiliates (446) -- 1,084 --
Other revenues 1,516 1,797 892 5,274
---------- ---------- ---------- ----------
624,613 340,821 1,559,842 750,661
---------- ---------- ---------- ----------
OPERATING EXPENSES:
Depreciation, depletion and amortization 153,905 119,189 422,392 313,010
Operating costs 82,531 60,505 222,567 158,316
Administrative, selling and other 18,089 15,221 49,331 37,685
Financing costs:
Interest expense 43,775 33,479 126,958 97,586
Amortization of deferred loan costs 487 1,101 2,219 3,316
Capitalized interest (16,011) (13,694) (44,852) (39,663)
Interest income (551) (572) (1,655) (1,396)
---------- ---------- ---------- ----------
282,225 215,229 776,960 568,854
---------- ---------- ---------- ----------
INCOME BEFORE INCOME TAXES 342,388 125,592 782,882 181,807
Provision for income taxes 136,210 52,814 315,063 78,429
---------- ---------- ---------- ----------
NET INCOME 206,178 72,778 467,819 103,378
Preferred stock dividends 4,908 4,947 15,080 9,503
---------- ---------- ---------- ----------
INCOME ATTRIBUTABLE TO COMMON STOCK $ 201,270 $ 67,831 $ 452,739 $ 93,875
========== ========== ========== ==========
NET INCOME PER COMMON SHARE:
Basic $ 1.67 $ .59 $ 3.90 $ .89
========== ========== ========== ==========
Diluted $ 1.61 $ .59 $ 3.78 $ .88
========== ========== ========== ==========
</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 NINE MONTHS ENDED
SEPTEMBER 30,
-------------------------
2000 1999
---------- ----------
(IN THOUSANDS)
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 467,819 $ 103,378
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation, depletion and amortization 422,392 313,010
Amortization of deferred loan costs 2,219 3,316
Provision for deferred income taxes and other 206,929 41,289
Cash distributions less than earnings of affiliates (654) --
Gain on sale of stock held for investment (753) --
Changes in operating assets and liabilities:
Increase in receivables (174,803) (116,188)
Increase in advances to oil and gas ventures and other (1,856) (8,388)
Increase in deferred charges and other (5,319) (3,701)
(Increase) decrease in product inventory (6,558) 569
Increase in payables 55,842 51,100
Increase in accrued expenses 18,260 14,798
Decrease in advances from gas purchasers (20,293) (17,808)
Increase (decrease) in deferred credits and noncurrent liabilities (2,104) 8,006
---------- ----------
Net cash provided by operating activities 961,121 389,381
---------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to property and equipment (679,338) (425,698)
Non-cash portion of net oil and gas property additions 10,586 (42,015)
Acquisition of Repsol properties (119,278) --
Acquisition of Collins & Ware properties (320,049) --
Acquisition of Occidental properties (332,020) --
Acquisition of Shell Offshore properties -- (687,632)
Acquisition of British-Borneo properties, net of cash acquired -- (83,590)
Proceeds from sales of oil and gas properties 20,124 149,737
Other, net (10,834) (9,983)
---------- ----------
Net cash used in investing activities (1,430,809) (1,099,181)
---------- ----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Long-term borrowings 619,849 733,758
Payments on long-term debt (541,706) (645,872)
Dividends paid (30,741) (29,331)
Issuance (repurchase) of preferred stock (2,613) 210,490
Issuance of common stock 457,475 456,459
Payments to acquire treasury stock (17,727) (12,072)
Cost of debt and equity transactions (739) (1,495)
---------- ----------
Net cash provided by financing activities 483,798 711,937
---------- ----------
NET INCREASE IN CASH AND CASH EQUIVALENTS 14,110 2,137
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR 13,171 14,537
---------- ----------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 27,281 $ 16,674
========== ==========
</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>
SEPTEMBER 30, DECEMBER 31,
2000 1999
------------- ------------
(IN THOUSANDS)
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 27,281 $ 13,171
Receivables 429,362 259,530
Inventories 54,930 45,113
Advances to oil and gas ventures and other 27,802 25,254
------------- ------------
539,375 343,068
------------- ------------
PROPERTY AND EQUIPMENT:
Oil and gas, on the basis of full cost accounting:
Proved properties 8,723,327 7,409,787
Unproved properties and properties under
development, not being amortized 982,282 869,108
Gas gathering, transmission and processing facilities 465,952 442,437
Other 113,287 105,635
------------- ------------
10,284,848 8,826,967
Less: Accumulated depreciation, depletion and amortization (4,119,941) (3,711,109)
------------- ------------
6,164,907 5,115,858
------------- ------------
OTHER ASSETS:
Deferred charges and other 46,654 43,617
------------- ------------
$ 6,750,936 $ 5,502,543
============= ============
</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>
SEPTEMBER 30, DECEMBER 31,
2000 1999
------------- ------------
(IN THOUSANDS)
<S> <C> <C>
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Current maturities of long-term debt $ 22,675 $ 6,158
Accounts payable 224,926 148,309
Accrued operating expense 24,981 18,226
Accrued exploration and development 111,647 101,490
Accrued compensation and benefits 19,703 22,631
Accrued interest 31,581 28,118
Other accrued expenses 21,948 11,846
------------- ------------
457,461 336,778
------------- ------------
LONG-TERM DEBT 1,941,276 1,879,650
------------- ------------
DEFERRED CREDITS AND OTHER NONCURRENT
LIABILITIES:
Income taxes 564,355 360,324
Advances from gas purchasers 160,663 180,956
Other 128,736 75,408
------------- ------------
853,754 616,688
------------- ------------
SHAREHOLDERS' EQUITY:
Preferred stock, no par value, 5,000,000 shares authorized -
Series B, 5.68% Cumulative Preferred Stock,
100,000 shares issued and outstanding 98,387 98,387
Series C, 6.5% Conversion Preferred Stock, 138,482 and
140,000 shares issued and outstanding, respectively 208,207 210,490
Common stock, $1.25 par, 215,000,000 shares authorized,
126,377,402 and 116,403,013 shares issued, respectively 157,972 145,504
Paid-in capital 2,161,330 1,717,027
Retained earnings 986,208 558,721
Treasury stock, at cost, 2,866,245 and 2,406,549 shares,
respectively (69,565) (52,256)
Accumulated other comprehensive income (44,094) (8,446)
------------- ------------
3,498,445 2,669,427
------------- ------------
$ 6,750,936 $ 5,502,543
============= ============
</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>
SERIES B SERIES C
COMPREHENSIVE PREFERRED PREFERRED COMMON PAID-IN RETAINED
(IN THOUSANDS) INCOME STOCK STOCK STOCK CAPITAL EARNINGS
------------- --------- --------- --------- ----------- ---------
<S> <C> <C> <C> <C> <C> <C>
BALANCE AT DECEMBER 31, 1998 $ 98,387 $ -- $ 124,738 $ 1,245,738 $ 403,098
Comprehensive income:
Net income $ 103,378 -- -- -- -- 103,378
Currency translation adjustments 9,932 -- -- -- -- --
Unrealized gain on marketable securities,
net of applicable income taxes of $293 488 -- -- -- -- --
-------------
Comprehensive income $ 113,798
=============
Dividends:
Preferred -- -- -- -- (9,503)
Common ($.21 per share) -- -- -- -- (22,804)
Preferred shares issued -- 210,490 -- -- --
Common shares issued -- -- 20,750 463,138 --
Treasury shares purchased, net -- -- -- -- --
--------- --------- --------- ----------- ---------
BALANCE AT SEPTEMBER 30, 1999 $ 98,387 $ 210,490 $ 145,488 $ 1,708,876 $ 474,169
========= ========= ========= =========== =========
BALANCE AT DECEMBER 31, 1999 $ 98,387 $ 210,490 $ 145,504 $ 1,717,027 $ 558,721
Comprehensive income:
Net income $ 467,819 -- -- -- -- 467,819
Currency translation adjustments (35,344) -- -- -- -- --
Unrealized loss on marketable
securities, net of applicable income
tax benefits of $174 (304) -- -- -- -- --
-------------
Comprehensive income $ 432,171
=============
Dividends:
Preferred -- -- -- -- (14,750)
Common ($.21 per share) -- -- -- -- (25,252)
Preferred stock repurchased -- (2,283) -- -- (330)
Common shares issued -- -- 12,468 443,889 --
Treasury shares purchased, net -- -- -- 414 --
--------- --------- --------- ----------- ---------
BALANCE AT SEPTEMBER 30, 2000 $ 98,387 $ 208,207 $ 157,972 $ 2,161,330 $ 986,208
========= ========= ========= =========== =========
<CAPTION>
ACCUMULATED
OTHER TOTAL
TREASURY COMPREHENSIVE SHAREHOLDERS'
(IN THOUSANDS) STOCK INCOME EQUITY
--------- ------------- -------------
<S> <C> <C> <C>
BALANCE AT DECEMBER 31, 1998 $ (36,924) $ (33,204) $ 1,801,833
Comprehensive income:
Net income -- -- 103,378
Currency translation adjustments -- 9,932 9,932
Unrealized gain on marketable securities,
net of applicable income taxes of $293 -- 488 488
Comprehensive income
Dividends:
Preferred -- -- (9,503)
Common ($.21 per share) -- -- (22,804)
Preferred shares issued -- -- 210,490
Common shares issued -- -- 483,888
Treasury shares purchased, net (11,812) -- (11,812)
--------- ------------- -------------
BALANCE AT SEPTEMBER 30, 1999 $ (48,736) $ (22,784) $ 2,565,890
========= ============= =============
BALANCE AT DECEMBER 31, 1999 $ (52,256) $ (8,446) $ 2,669,427
Comprehensive income:
Net income -- -- 467,819
Currency translation adjustments -- (35,344) (35,344)
Unrealized loss on marketable
securities, net of applicable income
tax benefits of $174 -- (304) (304)
Comprehensive income
Dividends:
Preferred -- -- (14,750)
Common ($.21 per share) -- -- (25,252)
Preferred stock repurchased -- -- (2,613)
Common shares issued -- -- 456,357
Treasury shares purchased, net (17,309) -- (16,895)
--------- ------------- -------------
BALANCE AT SEPTEMBER 30, 2000 $ (69,565) $ (44,094) $ 3,498,445
========= ============= =============
</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.
Beginning in the first quarter 2000, the portion of gathering, processing
and marketing margin related to oil and gas production revenues has been
reported as a net addition to oil and gas production revenues and the portion
related to gathering fee income has been reported as a reduction to operating
costs in the accompanying statement of consolidated operations.
Reclassifications have been made to reflect this change in the prior year
statements of consolidated operations.
1. ACQUISITIONS AND DIVESTITURES
Acquisitions - On January 24, 2000, Apache completed the acquisition of
producing properties in Western Oklahoma and the Texas Panhandle, formerly owned
by a subsidiary of Repsol YPF (Repsol), for approximately $119.3 million, plus
assumed liabilities of approximately $29.8 million. The acquisition included
estimated proved reserves of approximately 199 billion cubic feet of natural gas
equivalent (Bcfe) as of the acquisition date.
On June 30, 2000, Apache completed the acquisition of long-lived producing
properties in the Permian Basin and South Texas from Collins & Ware, Inc.
(Collins & Ware) for approximately $320.0 million. The acquisition included
estimated proved reserves of approximately 502 Bcfe as of the acquisition date.
One-third of the reserves are liquid hydrocarbons.
On August 17, 2000, Apache completed the acquisition of a Delaware limited
liability company (LLC) owned by subsidiaries of Occidental Petroleum
Corporation (Occidental) and the related natural gas production for
approximately $332.0 million, subject to normal post closing adjustments, plus
future payments of approximately $44.0 million over four years. The Occidental
properties are located in 32 fields on 93 blocks on the Outer Continental Shelf
of the Gulf of Mexico. The acquisition included estimated proved reserves of
approximately 318.7 Bcfe as of the acquisition date. A substantial portion of
the base production through December 2002 is hedged. The hedges are structured
to establish a minimum price floor while preserving some price upside potential.
On May 18, 1999, Apache acquired from Shell Offshore Inc. and affiliated
Shell entities (Shell Offshore) its interest in 22 producing fields and 16
undeveloped blocks located in the Gulf of Mexico. The Shell Offshore acquisition
also included certain production-related assets and proprietary 2-D and 3-D
seismic data covering approximately 1,000 blocks in the Gulf of Mexico. The
purchase price was $687.7 million in cash and one million shares of Apache
common stock (valued at $28.125 per share). The Shell Offshore acquisition
included approximately 123.2 million barrels of oil equivalent (MMboe) of proved
reserves as of the acquisition date.
On November 30, 1999, Apache acquired from Shell Canada Limited (Shell
Canada) producing properties and other assets for C$761 million (US$517.8
million). The producing properties consisted of 150,400 net acres and comprised
20 fields with an average working interest of 55 percent and proved reserves of
approximately 87.2 MMboe as of the acquisition date. Apache also acquired
294,294 net acres of undeveloped leaseholdings, a 100 percent interest in a gas
processing plant with potential throughput capacity of 160 million cubic feet
per day (MMcf/d), and 52,700 square miles of 2-D seismic and 884 square miles of
3-D seismic.
6
<PAGE> 8
The following unaudited pro forma information shows the effect on the
Company's consolidated results of operations as if the Shell Offshore and Shell
Canada acquisitions occurred on January 1, 1999. The pro forma information is
based on numerous assumptions and is not necessarily indicative of future
results of operations.
<TABLE>
<CAPTION>
FOR THE NINE MONTHS ENDED
SEPTEMBER 30, 1999
--------------------------------------------
AS REPORTED PRO FORMA
------------- -------------
(IN THOUSANDS, EXCEPT PER COMMON SHARE DATA)
<S> <C> <C>
Revenues $ 750,661 $ 910,122
Net income 103,378 125,615
Preferred stock dividends 9,503 14,792
Income attributable to common stock 93,875 110,823
Net income per common share:
Basic $ .89 $ .97
Diluted .88 .97
Average common shares outstanding 105,874 113,878
</TABLE>
During the first nine months of 2000, the Company also completed tactical
regional acquisitions for cash consideration totaling $45.9 million. These
acquisitions added approximately 10.4 MMboe to the Company's proved reserves.
Divestitures - During the nine months ended September 30, 2000, Apache sold
proprietary rights to certain Canadian seismic data and 1.9 MMboe of proved
reserves from largely marginal United States properties, collecting cash of
$20.1 million.
2. DEBT
On July 14, 2000, Apache entered into a new $500 million, 364-day revolving
credit agreement with a group of banks. The terms of this new facility are
substantially the same as those of Apache's global credit facility. The new
facility will be used, along with the U.S. portion of the global credit
facility, to support Apache's commercial paper program, which was increased from
$700 million to $1.2 billion in late July 2000.
3. SUPPLEMENTAL CASH FLOW INFORMATION
NON-CASH INVESTING AND FINANCING ACTIVITIES
In January 2000, the Company acquired producing properties formerly owned
by a subsidiary of Repsol for cash and the assumption of certain non-cash
liabilities as discussed in Note 1. The accompanying financial statements
include such assumed liabilities.
In August 2000, the Company acquired an LLC owned by subsidiaries of
Occidental for cash and future payments as discussed in Note 1. The accompanying
financial statements include a liability of $36.8 million for such payments.
7
<PAGE> 9
CASH PAID FOR INTEREST AND TAXES
The following table provides supplemental disclosure of cash flow
information:
<TABLE>
<CAPTION>
FOR THE NINE MONTHS ENDED
SEPTEMBER 30,
---------------------------
2000 1999
-------- --------
(IN THOUSANDS)
<S> <C> <C>
Cash paid during the period for:
Interest (net of amounts capitalized) $ 78,643 $ 51,488
Income taxes (net of refunds) 95,358 36,157
</TABLE>
4. CAPITAL STOCK
On August 2, 2000, the Company completed a public offering of 9.2 million
shares of Apache common stock, including 1.2 million shares for the
underwriters' over-allotment option, for net proceeds of approximately $433.9
million. The proceeds were used to fund a portion of the acquisitions made
during 2000 and repay indebtedness under Apache's commercial paper program.
5. NET INCOME PER COMMON SHARE
A reconciliation of the components of basic and diluted net income per
common share is presented in the table below:
<TABLE>
<CAPTION>
FOR THE QUARTER ENDED SEPTEMBER 30,
--------------------------------------------------------------------------
2000 1999
------------------------------------ ------------------------------------
INCOME SHARES PER SHARE INCOME SHARES PER SHARE
---------- ----------- ----------- ----------- ----------- ----------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C> <C>
BASIC:
Income attributable to common stock $ 201,270 120,197 $ 1.67 $ 67,831 114,088 $ .59
=========== ==========
EFFECT OF DILUTIVE SECURITIES:
Stock options -- 1,221 -- 735
Series C Preferred Stock 3,488 5,676 -- --
---------- ----------- ----------- -----------
DILUTED:
Income attributable to common
stock including assumed conversions $ 204,758 127,094 $ 1.61 $ 67,831 114,823 $ .59
========== =========== =========== =========== =========== ==========
</TABLE>
<TABLE>
<CAPTION>
FOR THE NINE MONTHS ENDED SEPTEMBER 30,
--------------------------------------------------------------------------
2000 1999
------------------------------------ ------------------------------------
INCOME SHARES PER SHARE INCOME SHARES PER SHARE
---------- ----------- ----------- ----------- ---------- -----------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C> <C>
BASIC:
Income attributable to common stock $ 452,739 116,009 $ 3.90 $ 93,875 105,874 $ .89
=========== ===========
EFFECT OF DILUTIVE SECURITIES:
Stock options -- 943 -- 408
Series C Preferred Stock 10,820 5,676 -- --
---------- ----------- ----------- -----------
DILUTED:
Income attributable to common
stock including assumed conversions $ 463,559 122,628 $ 3.78 $ 93,875 106,282 $ .88
========== =========== =========== =========== =========== ==========
</TABLE>
The effect of the Series C Preferred Stock was not included in the
computation of diluted net income per common share during 1999, because to do so
would have been antidilutive.
8
<PAGE> 10
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 NINE MONTHS ENDED
SEPTEMBER 30, 2000
Oil and Gas Production Revenues....... $ 893,563 $ 217,611 $ 277,646 $ 169,046 $ -- $ 1,557,866
============= ========== ========== ========== ============= ===========
Operating Income (Loss) (1)........... $ 490,044 $ 128,846 $ 195,042 $ 99,011 $ (36) $ 912,907
============= ========== ========== ========== =============
Other Income (Expense):
Equity in income of affiliates..... 1,084
Other revenues..................... 892
Administrative, selling and other.. (49,331)
Financing costs, net............... (82,670)
-----------
Income Before Income Taxes............ $ 782,882
===========
Total Assets.......................... $ 3,855,105 $ 923,975 $ 956,424 $ 844,735 $ 170,697 $ 6,750,936
============= ========== ========== ========== ============= ===========
FOR THE NINE MONTHS ENDED
SEPTEMBER 30, 1999
Oil and Gas Production Revenues....... $ 467,892 $ 54,791 $ 143,618 $ 77,149 $ 1,937 $ 745,387
============= ========== ========== ========== ============= ===========
Operating Income (1).................. $ 151,775 $ 18,472 $ 73,103 $ 30,279 $ 432 $ 274,061
============= ========== ========== ========== =============
Other Income (Expense):
Other revenues..................... 5,274
Administrative, selling and other.. (37,685)
Financing costs, net............... (59,843)
-----------
Income Before Income Taxes............ $ 181,807
===========
Total Assets.......................... $ 2,785,853 $ 332,301 $ 897,328 $ 766,164 $ 145,890 $ 4,927,536
============= ========== ========== ========== ============= ===========
</TABLE>
(1) Operating income consists of oil and gas production revenues less
depreciation, depletion and amortization (DD&A) expense and operating
costs.
7. SUBSEQUENT EVENTS
On October 9, 2000, Apache and Shell Overseas Holdings (Shell) signed a
definitive agreement to acquire Fletcher Challenge Energy (Fletcher). Apache is
acquiring subsidiaries of Fletcher with properties in Canada's Western
Sedimentary Basin and Argentina with proved reserves of 713 Bcfe for $600
million, subject to adjustments. A portion of the acquired gas production has
been hedged by Fletcher. In a separate transaction, Shell will purchase 1.64
million restricted shares of Apache common stock for $100 million. The
transaction is expected to close in the first quarter of 2001, with an effective
date of July 1, 2000, and is subject to various regulatory approvals.
9
<PAGE> 11
8. 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 fair value be recognized currently in earnings unless
specific hedge accounting criteria are met. Special accounting for qualifying
hedges allows gains and losses to offset related results on the hedged item.
SFAS No. 133, as amended, is required to be adopted on January 1, 2001. The
Company has estimated the cumulative, non-cash effect of SFAS No. 133, as
amended, on its statement of consolidated operations and, if adopted on
September 30, 2000, it would have reduced net income attributable to common
stock by approximately $12-18 million. The estimated reduction in net income is
primarily driven by the time value associated with the option contracts
(collars) put in place by the Company to manage its exposure to price
volatility. Should the Company hold these instruments to maturity, as intended,
this reduction in net income would be reversed and added to future net income as
this is merely an accounting adjustment required under SFAS 133 and not a true
economic loss. The Company does not estimate a significant impact on its
consolidated balance sheet at prevailing market prices on September 30, 2000.
10
<PAGE> 12
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
OVERVIEW
On a foundation of record production combined with high oil and natural gas
prices, Apache reported record earnings for the fifth consecutive quarterly
period. Further, the results for the first nine months of 2000 shattered all
previous records for revenues, earnings and net cash provided by operating
activities. Following are highlights for the first nine months of 2000:
o For the first time in Apache's 45 year history, oil and gas production
revenues surpassed the $1.5 billion threshold, more than doubling to $1.6
billion, from $745.4 million reported in the comparable year-earlier
period.
o Record income attributable to common stock of $452.7 million ($3.90 per
share) outpaced the $93.9 million ($.89 per share) earned in the comparable
period of 1999 and was 143 percent higher than record full year earnings
for 1999 of $186.4 million ($1.73 per share).
o Both substantially improved product prices and higher oil and gas
production contributed to the record results. Oil and gas production were
up 34 percent and 26 percent, respectively, reflecting the Company's
strategic acquisition and exploitation strategy initially undertaken in
1999 and continuing throughout 2000, including the acquisition of
properties from Shell Offshore, Shell Canada, British-Borneo Oil and Gas
Plc (British-Borneo), Repsol, Collins & Ware and Occidental. These acquired
properties contributed 14 percent of year-to-date production on an energy
equivalent basis. The full impact of these acquisitions will not be
realized until the fourth quarter of 2000.
o Net cash provided by operating activities increased $571.7 million, or 147
percent, to $961.1 million from $389.4 million for the comparable period of
1999.
Commodity Prices - Apache's average realized oil price increased $10.36 to
$26.86 per barrel in the first nine months of 2000 from $16.50 per barrel in the
comparable 1999 period, increasing revenues by $240.7 million. The average
realized price for natural gas increased $1.07 per thousand cubic feet (Mcf) to
$3.13 per Mcf in the first nine months of 2000 from $2.06 per Mcf in 1999,
positively impacting revenues by $185.1 million.
Production - Oil production increased 34 percent during the first nine
months of 2000 when compared to the same period last year, which positively
impacted revenues by $217.2 million. The increase was primarily due to the
acquisition of producing properties from Shell Offshore in the U.S. and Shell
Canada during 1999 and increased production from the Stag field in Australia.
Gas production increased 26 percent during the first nine months of 2000
compared to the same period last year, positively impacting revenues by $143.5
million. The increase was primarily due to 1999 producing property acquisitions
from Shell Offshore in the U.S., Shell Canada, and British-Borneo in Australia,
and completion of the northern portion of the Western Desert Gas Pipeline on the
Khalda Concession in Egypt with first sales commencing in August 1999. The
Repsol, Collins & Ware and Occidental property acquisitions completed during
2000 also contributed to the increased production.
RESULTS OF OPERATIONS
Apache reported 2000 third quarter income attributable to common stock of
$201.3 million compared to $67.8 million in the prior year. Basic net income per
common share of $1.67 for the third quarter of 2000 was nearly three times the
$.59 per share reported in 1999. A significant increase in oil and gas
production revenues was partially offset by higher DD&A expense, operating
costs, net financing costs and administrative, selling and other (G&A) costs.
For the first nine months of 2000, income attributable to common stock of
$452.7 million, or $3.90 per share, compared to $93.9 million, or $.89 per
share, in the comparable year-earlier period. The increase resulted primarily
from increased oil and gas production revenues partially offset by higher DD&A
expense, operating costs, net financing costs, G&A costs and preferred stock
dividends.
For the third quarter of 2000, revenues increased 83 percent to $624.6
million compared to $340.8 million in 1999, driven by an 84 percent increase in
oil and gas production revenues. The increase in oil and gas production revenues
11
<PAGE> 13
was the result of a 42 percent increase in the average realized oil price, a 19
percent increase in oil production, a 55 percent increase in the average
realized price for natural gas and a 27 percent increase in natural gas
production. Crude oil, including natural gas liquids, contributed 52 percent and
natural gas contributed 48 percent of oil and gas production revenues during the
third quarter of 2000.
For the first nine months of 2000, total revenues increased 108 percent to
$1.6 billion compared to $750.7 million for the same period in 1999. Revenues
from oil and gas production increased 109 percent over the same period in 1999,
with crude oil, including natural gas liquids, contributing 56 percent and
natural gas contributing 44 percent of oil and gas production revenues. The
increase in oil and gas production revenues was the result of a 63 percent
increase in the average realized oil price, a 34 percent increase in oil
production, a 52 percent increase in the average realized gas price and a 26
percent increase in gas production.
Volume and price information for the Company's oil and gas production is
summarized in the following table:
<TABLE>
<CAPTION>
FOR THE QUARTER ENDED SEPTEMBER 30, FOR THE NINE MONTHS ENDED SEPTEMBER 30,
------------------------------------- ---------------------------------------
INCREASE INCREASE
2000 1999 (DECREASE) 2000 1999 (DECREASE)
----------- ----------- ---------- ------------ ------------ ----------
<S> <C> <C> <C> <C> <C> <C>
Natural Gas Volume - Mcf per day:
United States 571,728 495,226 15% 511,152 447,010 14%
Canada 134,363 92,885 45% 130,651 100,115 31%
Australia 121,833 85,603 42% 106,573 71,786 48%
Egypt 49,801 16,615 200% 47,281 8,155 480%
Ivory Coast -- 3,470 -- -- 3,674 --
----------- ----------- ------------ -----------
Total 877,725 693,799 27% 795,657 630,740 26%
=========== =========== ============ ===========
Average Natural Gas price - Per Mcf:
United States $ 4.22 $ 2.58 64% $ 3.46 $ 2.22 56%
Canada 3.28 1.89 74% 2.77 1.64 69%
Australia 1.32 1.52 (13%) 1.38 1.51 (9%)
Egypt 4.66 3.45 35% 4.56 3.10 47%
Ivory Coast -- 1.71 -- -- 1.72 --
Total 3.70 2.38 55% 3.13 2.06 52%
Oil Volume - Barrels per day:
United States 57,820 51,994 11% 55,276 42,611 30%
Canada 16,108 2,082 674% 14,599 2,110 592%
Australia 16,854 9,936 70% 15,668 9,905 58%
Egypt 25,091 33,163 (24%) 28,758 30,415 (5%)
Ivory Coast -- 51 -- -- 49 --
----------- ----------- ------------ -----------
Total 115,873 97,226 19% 114,301 85,090 34%
=========== =========== ============ ===========
Average Oil price - Per barrel:
United States $ 29.15 $ 19.83 47% $ 26.83 $ 16.34 64%
Canada 22.91 19.31 19% 21.88 14.98 46%
Australia 33.32 23.33 43% 29.98 17.57 71%
Egypt 30.17 20.90 44% 27.74 16.47 68%
Ivory Coast -- 18.11 -- -- 15.68 --
Total 29.11 20.54 42% 26.86 16.50 63%
Natural Gas Liquids (NGL)
Volume - Barrels per day:
United States 7,014 3,583 96% 5,567 2,887 93%
Canada 1,321 583 127% 1,292 605 114%
----------- ----------- ------------ -----------
Total 8,335 4,166 100% 6,859 3,492 96%
=========== =========== ============ ===========
Average NGL Price - Per barrel:
United States $ 19.18 $ 9.08 111% $ 18.42 $ 8.52 116%
Canada 19.88 12.80 55% 16.92 8.59 97%
Total 19.29 9.60 101% 18.14 8.53 113%
</TABLE>
12
<PAGE> 14
THIRD QUARTER 2000 REVENUES COMPARED TO THIRD QUARTER 1999
Natural gas sales for the third quarter of 2000 totaled $298.4 million, 97
percent higher than the third quarter of 1999. Average realized natural gas
prices increased 55 percent, positively impacting revenues by $84.3 million. The
Company periodically engages in hedging activities, including fixed price
physical and financial contracts. These activities decreased the Company's
realized gas price by $.12 per Mcf during the third quarter of 2000 and by $.02
per Mcf for the same period in 1999.
Natural gas production increased 183.9 MMcf/d, or 27 percent, on a
worldwide basis, favorably impacting revenues by $62.5 million. All major
producing areas contributed to the increase in production. Sixty-four percent of
the increase (118.0 MMcf/d) came from North America, boosted by the impact of
the North American producing property acquisitions (Shell Canada, Repsol,
Collins & Ware and Occidental). Internationally, Egypt's production increased
200 percent to 49.8 MMcf/d from 16.6 MMcf/d due to completion of the northern
portion of the Western Desert Gas Pipeline on the Khalda Concession, with first
sales commencing in August 1999. Australia's gas production increased 42 percent
due to new contracts and spot sales.
The Company's crude oil sales for the third quarter of 2000 totaled $310.3
million, a 69 percent increase from the third quarter of 1999, due to both
increased average realized prices and production volumes. Average realized oil
prices increased $8.57 per barrel, positively impacting revenues by $76.7
million. Realized losses from hedging positions negatively impacted the
Company's realized oil price by $1.91 per barrel during the third quarter of
2000 and $.11 per barrel in the third quarter of 1999.
Third quarter 2000 oil production increased 19 percent compared to the
prior year, favorably impacting revenues by $49.9 million. Increases were
primarily driven by property acquisitions from Shell Canada during 1999, with a
small contribution from the Repsol, Collins & Ware and Occidental property
acquisitions completed during 2000. Also contributing was increased production
from the Stag field in Australia. These production increases were partially
offset by a decline in Egypt production primarily due to price effect on cost
recovery barrels.
Revenue from the sale of natural gas liquids totaled $14.8 million for the
third quarter of 2000, compared to $3.7 million for the third quarter of 1999 in
response to a 101 percent improvement in realized prices and a 100 percent
increase in natural gas liquids production.
YEAR-TO-DATE 2000 REVENUES COMPARED TO YEAR-TO-DATE 1999
Natural gas sales for the first nine months of 2000 of $682.7 million
increased $328.6 million, or 93 percent, from those recorded in the same period
of 1999. Average realized natural gas prices increased 52 percent, positively
affecting revenues by $185.1 million. U.S. natural gas production, which
comprised 64 percent of the Company's worldwide gas production, sold at an
average price of $3.46 per Mcf, 56 percent higher than in 1999, positively
impacting natural gas revenues by $150.8 million. Natural gas production
increased 164.9 MMcf/d, or 26 percent, on a worldwide basis, favorably impacting
revenues by $143.5 million. The gas production increase was primarily a result
of property acquisitions from Shell Offshore in the U.S., Shell Canada, and
British-Borneo in Australia in 1999, new contracts and spot sales in Australia
and completion of the Western Desert Gas Pipeline on the Khalda Concession in
Egypt with first sales commencing in August 1999. The Repsol, Collins & Ware and
Occidental property acquisitions completed during 2000 also contributed to the
increased production. The Company periodically engages in hedging activities,
including fixed price physical and financial contracts. The net result of these
activities decreased the Company's realized gas price by $0.06 per Mcf during
the first nine months of 2000 and increased the Company's realized gas price by
$.02 per Mcf during the same period of 1999.
For the first nine months of 2000, oil revenues of $841.1 million increased
$457.9 million, or 119 percent, from the same period in 1999 due to higher oil
prices and improved production. On a worldwide basis, average oil prices
increased $10.36 per barrel, or 63 percent, to $26.86 per barrel positively
impacting oil revenues by $240.7 million. Oil production increased 29,211
barrels per day (Bopd), or 34 percent, for the first nine months of 2000
primarily due to 1999 property acquisitions from Shell Offshore in the U.S. and
Shell Canada along with increased production from the Stag field in Australia.
The Repsol, Collins & Ware and Occidental property acquisitions completed during
2000 also contributed to the increase in production. Realized losses from
hedging positions negatively impacted the Company's realized oil price by $1.82
per barrel during the first nine months of 2000 and $.04 per barrel for the
first nine months of 1999.
13
<PAGE> 15
Natural gas liquids revenues for the first nine months of 2000 of $34.1
million increased $26.0 million, or 321 percent, from the same period in 1999.
Natural gas liquids prices increased by $9.61 per barrel, or 113 percent and
natural gas liquids production increased 3,367 Bopd, or 96 percent.
OPERATING EXPENSES
The Company's DD&A expense for the third quarter and first nine months of
2000 totaled $153.9 million and $422.4 million, respectively, compared to $119.2
million and $313.0 million for the comparable periods in 1999. On an equivalent
barrel basis, full cost DD&A expense increased $.20 per barrel of oil equivalent
(boe), from $5.62 per boe in the third quarter of 1999 to $5.82 per boe in 2000.
For the nine months ended September 30, 2000, the full cost DD&A rate totaled
$5.70 per boe compared to $5.56 per boe in 1999. The increase is primarily due
to an increased percentage of oil production, with a higher cost basis, in the
Company's oil and gas product mix in both Canada and the United States. The
change in product mix resulted primarily from the Shell Canada and Occidental
property acquisitions. Canadian DD&A expense increased from $4.40 per boe in the
first nine months of 1999 to $5.55 per boe in 2000.
Operating costs, including lease operating expense (LOE) and severance
taxes, increased 36 percent from $60.5 million in the third quarter of 1999 to
$82.5 million for the same period in 2000 primarily due to acquisition activity
during 1999 and 2000. For the first nine months of 2000, operating costs,
including LOE and severance taxes, totaled $222.6 million, an increase of $64.3
million, or 41 percent, compared to the same period in 1999. Excluding severance
taxes, LOE for the third quarter and first nine months of 2000 totaled $66.5
million and $186.5 million, respectively, compared to $51.0 million and $136.3
million for the comparable periods in 1999.
On an equivalent barrel basis, LOE increased from $2.55 per boe in the
third quarter of 1999 to $2.67 per boe in the third quarter of 2000. For the
first nine months of 2000, LOE averaged $2.68 per boe, a four percent increase
from $2.58 per boe for the same period in 1999. LOE per boe in Canada increased
due to the Shell Canada property acquisition, which increased oil as a
percentage of total production, and LOE per boe in Australia increased primarily
due to higher production, workover activity and maintenance costs. LOE per boe
in Egypt decreased due to the Western Desert Gas Pipeline coming on line and
increased volumes at Khalda due to development programs. Severance and other
taxes increased $14.1 million to $36.1 million for the first nine months of 2000
due to higher oil and gas production revenues.
G&A expense in the third quarter and first nine months of 2000 increased
$2.9 million or 19 percent, and $11.6 million or 31 percent, respectively, from
a year ago. The Company's overall infrastructure was enlarged in conjunction
with 1999 and 2000 North American producing property acquisitions. On an
equivalent barrel basis, G&A expenses remained steady at $.71 per boe, for the
first nine months of both 1999 and 2000.
Net financing costs for the third quarter and first nine months of 2000
increased $7.4 million, or 36 percent, and $22.8 million, or 38 percent,
respectively, compared to a year ago. This increase is primarily due to higher
gross interest expense, the result of a higher average outstanding debt balance
related to acquisition activity during 2000, partially offset by higher
capitalized interest.
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 U.S. 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, 1999, is incorporated herein by reference.
14
<PAGE> 16
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 cannot
accurately predict future oil and gas prices.
Capital Expenditures - A summary of oil and gas capital expenditures during
the first nine months of 2000 and 1999 is presented below:
<TABLE>
<CAPTION>
FOR THE NINE MONTHS ENDED
SEPTEMBER 30,
-----------------------------
2000 1999
---------- ----------
(IN THOUSANDS)
<S> <C> <C>
Exploration and development:
United States $ 347,783 $ 127,360
Canada 93,781 24,141
Egypt 66,518 42,458
Australia 42,902 41,101
Other international 14,289 17,440
---------- ----------
565,273 252,500
Capitalized Interest 44,852 39,663
---------- ----------
Total $ 610,125 $ 292,163
========== ==========
Acquisition of oil and gas properties $ 883,794 $ 893,761
========== ==========
</TABLE>
In North America, Apache completed 225 producing wells out of 289 wells
drilled during the first nine months of 2000, while internationally the Company
discovered 24 new producers out of 49 wells drilled. Worldwide, the Company was
drilling or completing an additional 161 wells as of September 30, 2000. In
addition, Apache completed 836 production enhancement projects, including 452
recompletions, during the first nine months of 2000.
On January 24, 2000, Apache completed the acquisition of producing
properties in Western Oklahoma and the Texas Panhandle, formerly owned by a
subsidiary of Repsol, for approximately $119.3 million, plus assumed liabilities
of approximately $29.8 million. The acquisition included estimated proved
reserves of approximately 199 Bcfe as of the acquisition date.
On June 30, 2000, Apache completed the acquisition of long-lived producing
properties in the Permian Basin and South Texas from Collins & Ware for
approximately $320.0 million, subject to normal post closing adjustments. The
acquisition included estimated proved reserves of approximately 502 Bcfe as of
the acquisition date. One-third of the reserves are liquid hydrocarbons.
On August 17, 2000, Apache completed the acquisition of an LLC owned by
subsidiaries of Occidental and the related natural gas production for
approximately $332.0 million, subject to normal post closing adjustments, plus
future payments of approximately $44.0 million over four years. The Occidental
properties are located in 32 fields on 93 blocks on the Outer Continental Shelf
of the Gulf of Mexico. The acquisition included estimated proved reserves of
approximately 318.7 Bcfe as of the acquisition date. A substantial portion of
the base production through December 2002 is hedged. The hedges are structured
to establish a minimum price floor while preserving some price upside potential.
On October 9, 2000, Apache and Shell signed a definitive agreement to
acquire Fletcher. Apache is acquiring subsidiaries of Fletcher with properties
in Canada's Western Sedimentary Basin and Argentina with proved reserves of 713
Bcfe for $600 million, subject to adjustments. A portion of the acquired gas
production has been hedged by Fletcher. In a separate transaction, Shell will
purchase 1.64 million restricted shares of Apache common stock for $100
15
<PAGE> 17
million. The transaction is expected to close in the first quarter of 2001, with
an effective date of July 1, 2000, and is subject to various regulatory
approvals.
CAPITAL RESOURCES AND LIQUIDITY
Net Cash Provided by Operating Activities - Apache's net cash provided by
operating activities during the first nine months of 2000 totaled $961.1
million, an increase of 147 percent from $389.4 million in the first nine months
of 1999. This increase was primarily due to higher realized oil and gas prices
as compared to last year and higher oil and gas production as a result of 1999
and 2000 property acquisitions.
Credit Facility - On July 14, 2000, Apache entered into a new $500 million,
364-day revolving credit agreement with a group of banks. The terms of this new
facility are substantially the same as those of Apache's global credit facility.
The new facility will be used, along with the U.S. portion of the global credit
facility, to support Apache's commercial paper program, which was increased from
$700 million to $1.2 billion in late July 2000.
Stock Transactions - In the first quarter of 2000, the Company bought back
75,900 depository shares, each representing one-fiftieth (1/50) of a share of
Series C Preferred Stock, at an average price of $34.42 per share. The excess of
the purchase price to reacquire the depository shares over the original issuance
price is reflected as a preferred stock dividend in the accompanying statement
of consolidated operations.
In the first nine months of 2000, the Company repurchased 478,100 shares of
common stock to be held in treasury at an average price of $37.08 per share.
On August 2, 2000, the Company completed the public offering of 9.2 million
shares of Apache common stock, including 1.2 million shares for the
underwriters' over-allotment option, for net proceeds of approximately $433.9
million. The proceeds were used to fund a portion of the acquisitions made
during 2000 and repay indebtedness under Apache's commercial paper program.
Liquidity - The Company had $27.3 million in cash and cash equivalents on
hand at September 30, 2000, up from $13.2 million at December 31, 1999. Apache's
ratio of current assets to current liabilities at September 30, 2000 was 1.18:1
compared to 1.02:1 at December 31, 1999.
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 September 30, 2000, Apache's
available borrowing capacity under its global credit facility and 364-day
revolving credit facility was $1.1 billion.
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:
o exploiting our existing asset base;
o acquiring properties to which we can add value; and
o investing in high-potential exploration prospects.
EXPLOITING EXISTING ASSET BASE
Apache seeks to maximize the value of our existing asset base by
maintaining low operating costs per unit and increasing the amount of
recoverable reserves. In order to achieve these objectives, we rigorously pursue
operations to cut costs, identify production enhancement initiatives such as
workovers and recompletions, and divest marginal and non-strategic properties.
16
<PAGE> 18
ACQUIRING PROPERTIES TO WHICH WE CAN ADD VALUE
Apache seeks to purchase reserves at appropriate 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
Apache seeks 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 significant component of our long-term growth strategy. They
complement our U.S. operations, which are more development oriented.
A critical component in implementing our three-pronged growth strategy is
maintenance of significant financial flexibility. A strong balance sheet and
credit position give us the foundation required to pursue our growth
initiatives.
CHINA
In June 2000, our subsidiary, Apache China Corporation LDC, filed a lawsuit
against PetroChina Company Limited, China National Petroleum Corporation and
China National Oil and Gas Exploration and Development Corporation in connection
with certain of our Chinese investments and operations. The Company filed
seeking damages and injunctive relief to prevent the Chinese parties from
declaring that Apache and XCL-China had relinquished some of our Chinese
exploratory acreage, and other claims. The lawsuit was filed in the U.S.
Bankruptcy Court in Opelousas, Louisiana, in connection with bankruptcy
proceedings of XCL-China, Ltd., the co-owner of our Chinese interests. On June
30, 2000, Apache and PetroChina Company Limited announced an agreement to
resolve most of the issues associated with development of portions of the Zhao
Dong Block. The agreement calls for PetroChina and the China National Petroleum
Corporation to obtain various governmental approvals including approval of the
overall development plan. On July 21, 2000, the bankruptcy court issued an order
approving the agreement reached between Apache and PetroChina. On July 31, 2000,
XCL Ltd., sole shareholder of XCL-China Ltd., appealed the Bankruptcy Court's
order to the U.S. District Court. On August 10, 2000, XCL Ltd. filed a motion to
withdraw its appeal, which has been dismissed. Apache has been advised that (i)
the bankruptcy court order of approval is now final and (ii) Chinese
governmental approval for effectiveness of the June 2000 agreement has been
received. Approval of the overall development plan, and some other Chinese
governmental approvals required to begin development work, have not yet been
received. If all necessary approvals are obtained, the June 2000 agreement will
resolve the issues raised in Apache's lawsuit and Apache, as operator, will
proceed with construction of production facilities and development drilling on
the shallow-water Zhao Dong Block.
FORWARD-LOOKING STATEMENTS AND RISK
Certain statements in this report, including statements of the future
plans, objectives, and expected performance of the Company, are forward-looking
statements that are dependent upon certain events, risks and uncertainties that
may be outside the Company's control, and which could cause actual results to
differ materially from those anticipated. Some of these include, but are not
limited to, the market prices of oil and gas, economic and competitive
conditions, inflation rates, legislative and regulatory changes, financial
market conditions, political and economic uncertainties of foreign governments,
future business decisions, and other uncertainties, all of which are difficult
to predict.
There are numerous uncertainties inherent in estimating quantities of
proved oil and gas reserves and in projecting future rates of production and the
timing of development expenditures. The total amount or timing of actual future
production may vary significantly from reserves and production estimates. The
drilling of exploratory wells can involve significant risks, including those
related to timing, success rates and cost overruns. Lease and rig availability,
complex geology and other factors can affect these risks. Although Apache makes
use of futures contracts, swaps, options and fixed-price physical contracts to
mitigate risk, fluctuations in oil and gas prices, or a prolonged continuation
of low prices, may substantially adversely affect the Company's financial
position, results of operations and cash flows.
17
<PAGE> 19
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, 1999 (filed with the SEC on March 29,
2000) 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
10.1 - Apache Corporation 1990 Stock Incentive Plan, as
amended and restated September 14, 2000.
10.2 - Apache Corporation 1995 Stock Option Plan, as amended
and restated September 14, 2000.
10.3 - Apache Corporation 1996 Performance Stock Option Plan,
as amended and restated July 20, 2000.
10.4 - Apache Corporation 1998 Stock Option Plan, as amended
and restated September 14, 2000.
12.1 - Statement of computation of ratios of earnings to fixed
charges and combined fixed charges and preferred stock
dividends.
27.1 - Financial Data Table
18
<PAGE> 20
(b) Reports filed on Form 8-K
The following current reports on Form 8-K were filed during
the fiscal quarter ended September 30, 2000:
Item 5 - Other Events - dated July 5, 2000, filed July 21,
2000
On July 5, 2000, Apache announced completion of the
previously-announced acquisition of oil and gas properties
from Collins & Ware, Inc.; and on July 20, 2000, Apache
announced (i) the signing of an agreement with Occidental
Petroleum to acquire interests in an Occidental subsidiary and
such subsidiary's natural gas production, (ii) the expected
commencement of an underwritten offering of seven million
shares of Apache common stock, and (iii) that second-quarter
2000 earnings would exceed analysts' expectations.
Item 5 - Other Events - dated July 27, 2000, filed July 27,
2000
On July 27, 2000, Apache announced earnings for the second
quarter 2000.
Item 5 - Other Events - dated July 27, 2000, filed August 1,
2000
Offering to the public of 9.2 million shares of Apache common
stock, par value $1.25 per share, registered pursuant to a
registration statement on Form S-3 (Registration No.
333-32580).
19
<PAGE> 21
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: November 13, 2000 /s/ Roger B. Plank
--------------------------------------------
Roger B. Plank
Executive Vice President and Chief Financial
Officer
Dated: November 13, 2000 /s/ Thomas L. Mitchell
--------------------------------------------
Thomas L. Mitchell
Vice President and Controller
(Chief Accounting Officer)
<PAGE> 22
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<S> <C>
*10.1 Apache Corporation 1990 Stock Incentive Plan, as amended and
restated September 14, 2000.
*10.2 Apache Corporation 1995 Stock Option Plan, as amended and
restated September 14, 2000.
*10.3 Apache Corporation 1996 Performance Stock Option Plan, as
amended and restated July 20, 2000.
*10.4 Apache Corporation 1998 Stock Option Plan, as amended and
restated September 14, 2000.
*12.1 - Statement of computation of ratios of earnings to fixed
charges and combined fixed charges and preferred stock
dividends.
*27.1 - Financial Data Table.
</TABLE>
----------
* filed herewith
