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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(MARK ONE)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER 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
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A DELAWARE CORPORATION IRS EMPLOYER NO. 41-0747868
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ONE POST OAK CENTRAL
2000 POST OAK BOULEVARD, SUITE 100
HOUSTON, TEXAS 77056-4400
TELEPHONE NUMBER (713) 296-6000
Securities Registered Pursuant to Section 12(b) of the Act:
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NAME OF EACH EXCHANGE
TITLE OF EACH CLASS ON WHICH REGISTERED
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Common Stock, $1.25 par Value New York Stock Exchange
Chicago Stock Exchange
Preferred Stock Purchase Rights New York Stock Exchange
Chicago Stock Exchange
Automatically Convertible Equity Securities New York Stock Exchange
Conversion Preferred Stock, Series C Chicago Stock Exchange
9.25% Notes due 2002 New York Stock Exchange
Apache Finance Canada Corporation New York Stock Exchange
7.75% Notes Due 2029
Irrevocably and Unconditionally
Guaranteed by Apache Corporation
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Securities Registered Pursuant to Section 12(g) of the Act: NONE
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 [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ ]
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Aggregate market value of the voting stock held by
non-affiliates of registrant as of February 29, 1999...... $4,147,883,616
Number of shares of registrant's common stock outstanding as
of February 29, 1999...................................... 113,640,647
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DOCUMENTS INCORPORATED BY REFERENCE:
Portions of registrant's proxy statement relating to registrant's 2000
annual meeting of stockholders have been incorporated by reference into Part III
hereof.
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TABLE OF CONTENTS
DESCRIPTION
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ITEM PAGE
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PART I
1. BUSINESS.................................................... 1
2. PROPERTIES.................................................. 11
3. LEGAL PROCEEDINGS........................................... 15
4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS......... 15
PART II
5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS......................................... 15
6. SELECTED FINANCIAL DATA..................................... 17
7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS................................... 18
8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA................. 28
9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
AND FINANCIAL DISCLOSURE.................................... 28
PART III
10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.......... 29
11. EXECUTIVE COMPENSATION...................................... 29
12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT.................................................. 29
13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.............. 29
PART IV
14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM
8-K......................................................... 29
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All defined terms under Rule 4-10(a) of Regulation S-X shall have their
statutorily prescribed meanings when used in this report. Quantities of natural
gas are expressed in this report in terms of thousand cubic feet (Mcf), million
cubic feet (MMcf) or billion cubic feet (Bcf). Oil is quantified in terms of
barrels (bbls); thousands of barrels (Mbbls) and millions of barrels (MMbbls).
Natural gas is compared to oil in terms of barrels of oil equivalent (boe) or
million barrels of oil equivalent (MMboe). Oil and natural gas liquids are
compared with natural gas in terms of million cubic feet equivalent (MMcfe) and
billion cubic feet equivalent (Bcfe). One barrel of oil is the energy equivalent
of six Mcf of natural gas. Daily oil and gas production is expressed in terms of
barrels of oil per day (b/d) and thousands or millions of cubic feet of gas per
day (Mcf/d and MMcf/d, respectively) or millions of British thermal units per
day (MMBtu/d), respectively. Gas sales volumes may be expressed in terms of one
million British thermal units (MMBtu), which is approximately, equal to one Mcf.
With respect to information relating to the Company's working interest in wells
or acreage, "net" oil and gas wells or acreage is determined by multiplying
gross wells or acreage by the Company's working interest therein. Unless
otherwise specified, all references to wells and acres are gross.
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PART I
ITEM 1. BUSINESS
GENERAL
Apache Corporation (Apache or the Company), a Delaware corporation formed
in 1954, is an independent energy company that explores for, develops and
produces natural gas, crude oil and natural gas liquids. In North America,
Apache's exploration and production interests are focused on the Gulf of Mexico,
the Anadarko Basin, the Permian Basin, the Gulf Coast and the Western
Sedimentary Basin of Canada. Outside of North America, Apache has exploration
and production interests offshore Western Australia and in Egypt and exploration
interests in Poland and offshore The People's Republic of China (China). Apache
common stock, par value $1.25 per share, has been listed on the New York Stock
Exchange since 1969, and on the Chicago Stock Exchange since 1960.
Apache holds interests in many of its U.S., Canadian and international
properties through operating subsidiaries, such as Apache Canada Ltd., DEK
Energy Company (DEKALB, formerly known as DEKALB Energy Company), Apache Energy
Limited (formerly known as Hadson Energy Limited), Apache International, Inc.,
and Apache Overseas, Inc. Properties referred to in this document may be held by
those subsidiaries. Apache treats all operations as one line of business.
1999 RESULTS
In 1999, Apache had record net income attributable to common stock of
$186.4 million, or $1.73 per share, on total revenues of $1.3 billion. Net cash
provided by operating activities during 1999 was $638.2 million, a 35 percent
increase from 1998.
Apache reported its 22nd consecutive year of production growth (up 17
percent) and 12th consecutive year of oil and gas reserves growth (up 32
percent) in 1999. Apache's average daily production was 95 Mbbls of oil and
natural gas liquids and 656 MMcf of natural gas for the year. Giving effect to
1999 production, acquisitions, dispositions, revisions and drilling activity,
the Company's estimated proved reserves increased by 194 MMboe in 1999 over the
prior year to 807 MMboe, of which approximately 49 percent was natural gas.
Based on 613 MMboe reported at year-end 1998, Apache's reserve additions
(including revisions) during the year reflect replacement of 416 percent of the
Company's 1999 production. Apache's drilling and production-enhancement program
yielded 190 new producing wells out of 252 attempts and involved 579 major North
American workover and recompletion projects during the year.
At December 31, 1999, Apache held interests in approximately 4,307 net oil
and gas wells and 2,148,620 net developed acres of oil and gas properties
worldwide. In addition, the Company had approximately 977,292 net undeveloped
acres under North American leases and 18,755,419 net undeveloped acres under
international exploration and production rights.
APACHE'S GROWTH STRATEGY
Apache's growth strategy is to increase oil and gas reserves, production,
cash flow and earnings through a combination of exploratory drilling,
development of its inventory of existing projects, and property acquisitions
meeting defined financial parameters. The Company's drilling program emphasizes
reserve additions through low to moderate-risk drilling primarily on its North
American interests, and exploratory and subsequent development drilling
primarily on its international interests. The Company also emphasizes reducing
operating costs per unit produced and selling marginal and non-strategic
properties in order to enhance its profit margins.
Apache's international exploration activities are an emerging component of
its long-term growth strategy. In addition to active, low to moderate-risk
drilling and exploration activities in Apache's North American focus areas,
higher-risk international exploration offers potential for greater rewards and
significant reserve additions. Apache directed its international efforts in 1999
toward development of certain discoveries offshore Western Australia and in
Egypt and toward further exploration efforts in those areas and on its
concessions in
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Poland. Apache believes that reserve additions in these international areas are
likely to continue through higher-risk exploration and through appraisal and
development drilling of prior exploratory discoveries.
For Apache, property acquisition is only one phase in a continuing cycle of
business growth. Apache's aim is to follow each acquisition with a cycle of
reserve enhancement, property consolidation and cash flow acceleration,
facilitating asset growth and debt reduction. This approach requires a well
planned and carefully executed property development program and, where
appropriate, a selective program of property dispositions. It motivates Apache
to target acquisitions that have ascertainable additional reserve potential and
to apply an active drilling, workover and recompletion program to realize the
potential of the acquired undeveloped and partially developed properties. Apache
prefers to operate its properties so that it can best influence their
development; as a result, the Company operates properties accounting for 82
percent of its production.
1999 ACQUISITIONS AND DISPOSITIONS
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 $67.7 million. The Petsec transaction included estimated proved
reserves of approximately 10.2 MMboe as of the acquisition date.
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 transaction 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 million). The Shell Offshore acquisition included approximately 123.2
MMboe of proved reserves as of the acquisition date.
On June 18, 1999, Apache acquired 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) for $83.6 million cash and working interests in
11 leases in the Gulf of Mexico. The British-Borneo transaction included
approximately 16.8 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
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
a potential throughput capacity of 160 MMcf per day, and 52,700 square miles of
2-D seismic and 884 square miles of 3-D seismic.
In 1999, the Company also completed tactical regional acquisitions for cash
consideration totaling $17.7 million. These acquisitions added approximately 8.8
MMboe to the Company's proved reserves.
On September 3, 1999, Apache sold its holdings in the Ivory Coast by
selling its wholly owned subsidiary, Apache Cote d'Ivoire Petroleum LDC, for a
total sales price of $46.1 million to a consortium consisting of Mondoil Cote
d'Ivoire LLC and Saur Energie Cote d'Ivoire. The sale consisted of 13.7 MMboe of
proved reserves and a gain was recorded to other revenues in the accompanying
statement of consolidated operations. Also, during 1999, Apache sold 27.9 MMboe
of proved reserves in several transactions from largely marginal North American
properties for $110 million.
EXPLORATION AND PRODUCTION
The Company's North American exploration and production activities are
diversified among four operating regions: Offshore, Midcontinent, Southern and
Canada. In July 1999, the Company combined its former Western region and the
onshore properties from its former Gulf region to form the new Southern region,
leaving its offshore properties in the renamed Offshore region. Approximately 73
percent of the Company's proved reserves are located in these North American
regions. Egypt and Australia are the Company's most important international
regions. The Company's Egyptian operations are headquartered in Cairo, and
Apache conducts its Australian exploration and production operations from Perth.
Information concerning the amount of revenue, operating income (loss) and total
assets attributable to U.S., Canadian and
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international operations is set forth in Note 12 to the Company's consolidated
financial statements under Item 8 below.
Offshore. The Offshore region comprises the Company's interests in the Gulf
of Mexico, offshore Louisiana and Texas. In 1999, the Offshore region was
Apache's leading region for production and production revenues contributing
approximately $346.2 million in revenues from production of 21.3 MMboe for the
year. The Company performed 110 workover and recompletion operations during 1999
in the offshore region and participated in drilling 24 wells, 16 of which were
completed as producers. As of December 31, 1999, the region encompassed 482,204
net acres, and accounted for 146.8 MMboe, or 18 percent, of the Company's
year-end 1999 total estimated proved reserves.
Midcontinent. Apache's Midcontinent region operates in Oklahoma, eastern
and northern Texas, Arkansas and northern Louisiana. The region has focused
operations on its sizable position in the Anadarko Basin of western Oklahoma.
Apache has drilled and operated in the Anadarko Basin for over four decades,
developing an extensive database of geologic information and a substantial
acreage position. In 1999, the Midcontinent region had approximately 10.5 MMboe
of production generating $143.7 million in revenue for the Company.
At December 31, 1999, Apache held an interest in 391,935 net acres in the
region, which accounted for approximately 88.1 MMboe, or 11 percent, of Apache's
total estimated proved reserves. Apache participated in drilling 48 wells in the
Midcontinent region during the year, 40 of which were completed as producing
wells. The Company performed 50 workover and recompletion operations in the
region during 1999.
Southern. The Southern region includes assets in the Permian Basin of
western Texas and New Mexico, the San Juan Basin of New Mexico, Central Texas,
and the Texas and Louisiana coasts. In 1999, the Southern region produced
approximately 14.1 MMboe and generated $212.3 million in production revenue. At
December 31, 1999, the Company held 626,241 net acres in the region, which
accounted for 206.3 MMboe, or 26 percent, of the Company's total estimated
proved reserves. Apache participated in drilling 58 wells in the Southern
region, 52 of which were productive wells. Apache performed 350 workovers and
recompletions in the Southern region during the year.
Canada. Exploration and development activity in the Canadian region is
concentrated in the Provinces of Alberta and British Columbia. The region
produced approximately 7.4 MMboe and generated $86.9 million in production
revenue in 1999. Apache participated in drilling 49 wells in this region during
the year, 32 of which were completed as producers. The Company performed 69
workovers and recompletions on operated wells during 1999. At December 31, 1999,
the region encompassed approximately 896,701 net acres, and accounted for 150.9
MMboe, or 19 percent, of the Company's year-end 1999 total estimated proved
reserves.
Egypt. At year end, Apache held 11,803,569 net acres in Egypt with 65.1
MMboe of estimated proved reserves or eight percent of Apache's total estimated
proved reserves. In 1999, Apache had 12.6 MMboe of production in Egypt, which
generated $235.9 million in production revenues. Apache owns a 75 percent
interest in the Qarun Block and a 40 percent interest in the Khalda Block, both
located in the Western Desert of Egypt. Production of gas from Khalda is
delivered for sale to the Egyptian General Petroleum Corporation (EGPC) at a
point west of Alexandria, Egypt, via a 34-inch gas pipeline, construction of
which commenced in 1997 and was completed in August 1999. Additional gas will be
delivered via a southern line expected to be completed mid-year 2000. The costs
of building the pipeline were borne by Apache, the other Khalda participants,
and the owners of a neighboring block and are recoverable from oil and gas
production from the Khalda Block.
In addition to the Qarun and Khalda Blocks, Apache holds interests in the
East Beni Suef and Asyout Blocks to the south of the Qarun Block, and three
other blocks in the Western Desert of Egypt, the North East Abu Gharadig Block,
the East Bahariya Block, and the West Mediterranean Block No. 1 (partly onshore
and partly offshore). Apache also acquired interests in the Ras El Hekma and Ras
Kanayes concessions from Repsol Exploracion Egipto S.A. in December 1997.
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On November 30, 1999 Apache acquired from Amoco Egypt 100 percent of the
working interest in the WD-19 area in the Western Desert. This area has produced
oil in the past, but is currently inactive. Apache intends to drill additional
wells and, if successful, to tie them into adjoining Qarun facilities.
Both the Khalda and Qarun Concession Agreements provide that Apache and its
partners in the concessions will pay all of the operating and capital costs for
developing the concessions, while the production will be split between EGPC and
the partners. Up to 40 percent of the oil and gas produced from each of the
concessions is available to the Company and its partners to recover operating
and capital costs for the applicable concession. To the extent eligible costs
exceed 40 percent of the oil and gas produced and sold from a concession in any
given quarter, such excess costs may be carried into future quarters without
limit. The remaining 60 percent of all oil and gas produced from the concessions
is divided between EGPC and Apache and its partners, with the percentage
received by Apache and its partners reducing as the gross daily average of oil
and gas produced on a quarterly basis increases. Under the Khalda Agreement,
capital costs are amortized over four years, while the Qarun agreement provides
for a five-year amortization.
Australia. Western Australia became an important region for Apache after
the 1993 acquisition of Hadson Energy Resources Corporation (subsequently known
as Apache Energy Resources Corporation). In 1999, natural gas production in the
region increased by 51 percent from the prior year to approximately 76 MMcf/d.
Apache acts as operator for most of its Western Australian properties through
its wholly-owned subsidiary, Apache Energy Limited (AEL). During 1999, Apache
had 8.5 MMboe of production generating $118.5 million of production revenue.
Estimated proved reserves in Australia increased by 13 percent to 150.1 MMboe,
or 19 percent of the Company's year-end total estimated proved reserves. The
increase reflects, among other matters, the 1999 acquisition from British-Borneo
of holdings in the East Spar and Harriet fields. As of December 31, 1999, Apache
held 259,240 net developed acres and 1,664,440 net undeveloped acres offshore
Western Australia. Through AEL and its subsidiaries, Apache also operates the
Varanus Island gas hub with a throughput capacity of 240 MMcf/d and two 60-mile
(12-inch and 16-inch) pipelines from Varanus Island to connections with the
Dampier to Bunbury and Goldfields Gas Transmission pipelines. See "1999
Acquisitions and Dispositions" and "Oil and Natural Gas Marketing."
Other International Operations. Outside of Canada, Egypt and Australia,
Apache currently has exploration interests in Poland and offshore China.
Apache obtained its first properties in Poland on April 16, 1997, when the
Company assumed operatorship and a 50 percent interest in over 5.5 million acres
in Poland located near Lublin, southeast of Warsaw, from FX Energy, Inc. (FX
Energy). The Company has since acquired additional acreage in Poland, including
approximately 1.8 million acres in the Carpathian area near the southern border
of Poland and participation in a further 2.275 million acres in the Pomeranian
area of northwest Poland, giving Apache interests in 11,468,335 total gross
undeveloped acres and 5,734,169 net undeveloped acres as of December 31, 1999.
Apache is obligated to drill at least ten wells and to shoot at least 1,250
miles of seismic data in Poland. At year end, drilling operations on the first
five exploratory wells had been completed, and all were determined to be
exploratory dry holes. Subsequent to year end, a sixth well, known as the Wilga
well, tested at a combined rate of 16.9 MMcf of gas and 570 barrels of
condensate per day. The well is located on Block 255 of the Vistula Concession
in the Lublin basin. Apache and FX Energy plan to enter into further exploration
and production agreements with the Polish Oil and Gas Company (POGC), the
national oil company of Poland. Apache's operations in Poland are headquartered
in Warsaw.
Apache is also the operator, with a 50 percent interest, of the Zhao Dong
Block in Bohai Bay, offshore China. In 1994 and 1995, discovery wells tested at
rates between 1,300 and 4,000 b/d of oil. The Company elected to proceed with
the second exploration phase, commencing in May 1996, which involved a
commitment to drill two additional exploratory wells. In early 1997, one well
tested at rates up to 11,571 b/d of oil and another tested at rates up to 15,359
b/d. An overall development plan for the C and D Fields in the Zhao Dong Block
was submitted to Chinese authorities in late 1997 and is awaiting approval.
On May 28, 1999, Apache China Corporation LDC (Apache China, an indirect
wholly owned subsidiary of the Company) sent a notice of default to XCL-China,
Ltd. (XCL-China), a participant with Apache China in the Zhao Dong Block
offshore the People's Republic of China, and its parent company, XCL, Ltd.,
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for the failure to pay approximately $10 million of costs pursuant to the
agreements governing the project. Prior to the expiration of the cure period,
XCL-China and XCL, Ltd. filed petitions initiating arbitration proceedings
against Apache China. The actions seek to disallow approximately $17 million in
costs expended by Apache China related to developing the Zhao Dong Block,
including the $10 million in costs billed by Apache China to XCL-China that have
not been paid. In addition, XCL-China has advised Apache China of XCL-China's
intent to seek the removal of Apache China as operator of the Block. Apache
China has denied the allegations made by XCL-China in its petition and is
vigorously contesting them. On November 30, 1999 the arbitration proceedings
were stayed in connection with the bankruptcy proceeding described below.
On June 25, 1999, Apache China filed a petition in U.S. Bankruptcy Court in
Opelousas, Louisiana, to place XCL-China into involuntary bankruptcy under
Chapter 7 of the Bankruptcy Code on account of XCL-China's failure to pay its
share of costs related to development of the Zhao Dong Block. On December 21,
1999, the holders of XCL, Ltd.'s senior secured notes, acting through their
Trustee, exercised their remedial rights under their indenture and removed the
existing Board of Directors of XCL-China, electing a new Board. The new Board of
Directors of XCL-China voted to withdraw XCL-China's opposition to Apache
China's Chapter 7 bankruptcy petition filed against XCL-China and on December
22, 1999 obtained an order of the Court converting the proceeding into a
voluntary Chapter 11 bankruptcy proceeding.
Apache China has entered into negotiations with the Chinese authorities
concerning the terms and conditions of the development of the Zhao Dong Block
including, among other things the portion of XCL-China's future development
costs to be paid by the Chinese. Apache China is prepared to move forward as
soon as these negotiations are satisfactorily concluded.
In September 1999, Apache sold its interests in the Ivory Coast as detailed
in "1999 Acquisitions and Dispositions" above.
OIL AND NATURAL GAS MARKETING
On October 27, 1995, wholly owned affiliates of each of Apache, Oryx Energy
Company and Parker & Parsley Petroleum Company (Parker & Parsley) formed
Producers Energy Marketing LLC (ProEnergy), a Delaware limited liability
company. ProEnergy became fully operational on April 1, 1996, and marketed
substantially all of its members' domestic natural gas pursuant to member gas
purchase agreements having an initial term of 10 years, subject to early
termination following specified events. The price of gas purchased by ProEnergy
from its members was based upon agreed to published indexes. Effective January
1, 1998, Parker & Parsley withdrew from ProEnergy. In June 1998, Apache sold its
interest in ProEnergy to Cinergy Corp. (Cinergy) and formed a strategic alliance
with Cinergy to market substantially all the Company's natural gas production
from North America. ProEnergy, renamed Cinergy Marketing & Trading, LLC in June
1999, will continue to market Apache's North American natural gas production for
10 years, with an option to terminate after six years, under an amended and
restated gas purchase agreement effective July 1, 1998. During this period,
Apache is generally obligated to deliver most of its North American gas
production to Cinergy and, under certain circumstances, may have to make
payments to Cinergy if certain gas throughput thresholds are not met.
Separate from its arrangements with Cinergy, Apache is also delivering
natural gas under several long-term supply agreements with terms greater than
one year.
Apache assumed its own U.S. crude oil marketing operations in 1992. Most of
Apache's U.S. crude oil production is sold through lease-level marketing to
refiners, traders and transporters, generally under 30 day contracts that renew
automatically until canceled. Oil produced from Canadian properties is sold to
crude oil purchasers or refiners at market prices, which depend on worldwide
crude prices adjusted for transportation and crude quality. Natural gas produced
from Canadian properties is sold to major aggregators of natural gas, gas
marketers and direct users under long-term and short-term contracts. The oil and
gas contracts provide for sales at specified prices, or at prices that are
subject to change due to market conditions.
The Company diversifies the markets for its Canadian gas production not
presently committed to Cinergy by selling directly or indirectly to customers
through aggregators and brokers in the United States and Canada.
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Apache transports natural gas via the Company's firm transportation contracts to
California (12 MMcf/d) and to the Province of Ontario, Canada (four MMcf/d)
through end-users' firm transportation contracts. Pursuant to an agreement
entered into in 1994, the Company is also selling five MMcf/d of natural gas to
the Hermiston Cogeneration Project, located in the Pacific Northwest of the
United States. In 1996, the Company entered into an agreement with Westcoast Gas
Services, Inc. for the sale of 5,000 MMBtu/d for delivery in the United States
for a 10 year term.
In Australia, the Company entered into two gas sales contracts during 1999,
bringing its total to 18 contracts, with terms of four to 12 years to deliver
323 Bcf of AEL's gas from its Harriet and East Spar fields for mining, power
generation, nickel refining, ammonia production and other industrial and
domestic uses. Under these contracts AEL is required to deliver its gas at
contract rates of approximately 111 MMcf/day increasing to 135 MMcf/d by mid
2000, with take or pay provisions, net to AEL, of approximately 28 Bcf/year
increasing to 49 Bcf/year by the end of 2001. Apache operates both the Harriet
and East Spar Joint Ventures, holding a 68.5 percent interest in Harriet and a
55 percent interest in East Spar.
In Egypt, oil from the Qarun Block is delivered by pipeline to tanks owned
by the Company and its partners in the Qarun Concession at the Dashour pumping
station northeast of the Qarun Block or by truck to the Tebbin refinery south of
Alexandria, Egypt. At the discretion of the operator of the pipelines, oil from
the Qarun Block is put into the two 42-inch diameter SUMED pipelines, which
transport significant quantities of Egyptian and other crude oil from the Gulf
of Suez to Sidi Kherir, west of Alexandria, Egypt, on the Mediterranean Coast.
All Qarun and Khalda crude oil is currently sold to EGPC. In 1996, the Company
and its partners in the Khalda Block entered into a take or pay contract with
EGPC, which obligates EGPC to pay for 75 percent of 200 MMcf/d of future
production of gas from the Khalda Block. Sales of gas under the contract began
in 1999 upon completion of a gas pipeline from the Khalda Block. In late 1997,
the same sellers entered into a supplement to the contract with EGPC to sell an
additional 50 MMcf/d through a southern gas line being constructed by the
Company and its partners from the Khalda Block to a point near the Qarun Block
to tie into an existing gas pipeline. This southern line is expected to complete
tie-in in mid-year 2000.
OIL AND NATURAL GAS PRICES
Natural gas prices remained volatile during 1999, with Apache's realized
prices ranging from $1.60 per Mcf in March to $2.74 per Mcf in November.
Fluctuations are largely due to market perceptions about natural gas supply and
demand. Apache's average realized gas price of $2.16 per Mcf for 1999 was up 13
percent from the prior-year average of $1.92 per Mcf, and its 1998 average
realized natural gas price was 16 percent lower than the 1997 average price of
$2.28 per Mcf.
As a result of minimum price contracts which escalate at an average of 80
percent of the Australian consumer price index, AEL's natural gas production in
Western Australia is not subject to price volatility as is Apache's U.S. and
Canadian gas production; however, natural gas sales under such Australian
minimum price contracts represented approximately 10.3 percent of the Company's
total natural gas sales at the end of 1999. Total Australian gas sales in 1999,
including long-term contracts and spot sales averaged $1.51 per Mcf, equal to
the 1998 average.
In Egypt, all oil production from the East Beni Suef, Khalda, West
Mediterranean and Qarun Blocks is currently sold to EGPC on a spot basis at a
"Western Desert" price, which is applied to virtually all production from the
area and is announced periodically by EGPC. In 1999, the average price was
$18.63 per barrel. Discussions with EGPC regarding the possibility of exporting
Qarun oil production are continuing. Gas sales from the Khalda Block commenced
in 1999 based on a contract price that is equivalent to 85 percent of the price
of Suez Blend crude oil, FOB Mediterranean.
Oil prices remained subject to unpredictable political and economic forces
during 1999 and experienced fluctuations similar to those seen in natural gas
prices for the year, but showing a significant upward trend. Apache believes
that oil prices will continue to fluctuate in response to changes in the
policies of the Organization of Petroleum Exporting Countries (OPEC), demand
from Asian countries, events in the Middle East and other factors associated
with the world political and economic environment. As a result of the many
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uncertainties associated with levels of production maintained by OPEC and other
oil producing countries, the availabilities of worldwide energy supplies and the
competitive relationships and consumer perceptions of various energy sources,
the Company is unable to predict what changes will occur in crude oil and
natural gas prices.
In 1999, Apache's realized worldwide crude oil price ranged from $10.09 per
barrel in February to $24.11 per barrel in December. The average crude oil price
of $18.43 per barrel in 1999 was up 46 percent from the average price of $12.66
per barrel in 1998, and four percent lower than the average price of $19.20 per
barrel in 1997. The Company's average crude oil price for its Australian
production was $19.70 per barrel in 1999, 51 percent more than the average price
in 1998.
From time to time, Apache buys or sells contracts to hedge a limited
portion of its future oil and gas production against exposure to spot market
price changes. See Note 9 to the Company's consolidated financial statements
under Item 8 below.
The Company's business has been and will continue to be affected by future
worldwide changes in oil and gas prices and the relationship between the prices
of oil and gas. No assurance can be given as to the trend in, or level of,
future oil and gas prices.
WRITE-DOWNS UNDER THE FULL COST CEILING TEST RULES
Under the full cost accounting rules of the Securities and Exchange
Commission (SEC), the Company reviews the carrying value of its proved oil and
gas properties each quarter on a country-by-country basis. Under these rules,
capitalized costs of proved oil and gas properties, net of accumulated
depreciation, depletion and amortization, and deferred income taxes, may not
exceed the present value of estimated future net cash flows from proved oil and
gas reserves, discounted at 10 percent, plus the lower of cost or fair value of
unproved properties included in the costs being amortized, net of related tax
effects. These rules generally require pricing future oil and gas production at
the unescalated oil and gas prices in effect at the end of each fiscal quarter
and require a write-down if the "ceiling" is exceeded, even if prices declined
for only a short period of time. The Company recorded a write-down in 1998, but
had no write-downs due to ceiling test limitations in 1999. Given the volatility
of oil and gas prices, it is reasonably possible that the Company's estimate of
discounted future net cash flows from proved oil and gas reserves could change
in the near term. If oil and gas prices decline significantly in the future,
even if only for a short period of time, it is possible that additional
write-downs of oil and gas properties could occur. Write-downs required by these
rules do not impact cash flow from operating activities.
VOLATILE PRICES CAN MATERIALLY AFFECT THE COMPANY
The Company continually analyzes, forecasts and updates its estimates of
energy prices for its internal use in planning, budgeting, and estimating and
valuing reserves. The Company's future financial condition and results of
operations will depend upon the prices received for the Company's oil and
natural gas production and the costs of acquiring, finding, developing and
producing reserves. Prices for oil and natural gas are subject to fluctuations
in response to relatively minor changes in supply, market uncertainty and a
variety of additional factors that are beyond the control of the Company. These
factors include worldwide political instability (especially in the Middle East
and other oil-producing regions), the foreign supply of oil and gas, the price
of foreign imports, the level of drilling activity, the level of consumer
product demand, government regulations and taxes, the price and availability of
alternative fuels and the overall economic environment. A substantial or
extended decline in oil and gas prices would have a material adverse effect on
the Company's financial position, results of operations, quantities of oil and
gas that may be economically produced, and access to capital. Oil and natural
gas prices have historically been and are likely to continue to be volatile.
This volatility makes it difficult to estimate with precision the value of
producing properties in acquisitions and to budget and project the return on
exploration and development projects involving the Company's oil and gas
properties. In addition, unusually volatile prices often disrupt the market for
oil and gas properties, as buyers and sellers have more difficulty agreeing on
the purchase price of properties.
7
<PAGE> 10
UNCERTAINTY IN CALCULATING RESERVES; RATES OF PRODUCTION; DEVELOPMENT
EXPENDITURES; CASH FLOWS
There are numerous uncertainties inherent in estimating quantities of oil
and natural gas reserves of any category and in projecting future rates of
production and timing of development expenditures, which underlie the reserve
estimates, including many factors beyond the Company's control. Reserve data
represent only estimates. In addition, the estimates of future net cash flows
from the Company's proved reserves and their present value are based upon
various assumptions about future production levels, prices and costs that may
prove to be incorrect over time. Any significant variance from the assumptions
could result in the actual quantity of the Company's reserves and future net
cash flows from them being materially different from the estimates. In addition,
the Company's estimated reserves may be subject to downward or upward revision
based upon production history, results of future exploration and development,
prevailing oil and gas prices, operating and development costs and other
factors.
ACQUISITION OR DISCOVERIES OF ADDITIONAL RESERVES IS NEEDED TO AVOID A MATERIAL
DECLINE IN RESERVES AND PRODUCTION
The rate of production from oil and gas properties generally declines as
reserves are depleted. Except to the extent that the Company acquires additional
properties containing proved reserves, conducts successful exploration and
development activities or, through engineering studies, identifies additional
behind-pipe zones or secondary recovery reserves, the Company's proved reserves
will decline materially as reserves are produced. Future oil and gas production
is, therefore, highly dependent upon the Company's level of success in acquiring
or finding additional reserves.
SUBSTANTIAL COSTS INCURRED TO CONFORM TO GOVERNMENT REGULATION OF THE OIL AND
GAS INDUSTRY
The Company's exploration, production and marketing operations are
regulated extensively at the federal, state and local levels, as well as by
other countries in which the Company does business. The Company has made and
will continue to make large expenditures in its efforts to comply with the
requirements of environmental and other regulations. Further, the oil and gas
regulatory environment could change in ways that might substantially increase
these costs. Hydrocarbon-producing states regulate conservation practices and
the protection of correlative rights. These regulations affect the Company's
operations and limit the quantity of hydrocarbons the Company may produce and
sell. In addition, at the U.S. federal level, the Federal Energy Regulatory
Commission regulates interstate transportation of natural gas under the Natural
Gas Act. Other regulated matters include marketing, pricing, transportation and
valuation of royalty payments.
SUBSTANTIAL COSTS INCURRED RELATED TO ENVIRONMENTAL MATTERS
The Company, as an owner or lessee and operator of oil and gas properties,
is subject to various federal, provincial, state, local and foreign country laws
and regulations relating to discharge of materials into, and protection of, the
environment. These laws and regulations may, among other things, impose
liability on the lessee under an oil and gas lease for the cost of pollution
clean-up resulting from operations, subject the lessee to liability for
pollution damages, and require suspension or cessation of operations in affected
areas.
The Company maintains insurance coverage, which it believes is customary in
the industry, although it is not fully insured against all environmental risks.
The Company is not aware of any environmental claims existing as of December 31,
1999, which would have a material impact upon the Company's financial position
or results of operations.
The Company has made and will continue to make expenditures in its efforts
to comply with these requirements, which it believes are necessary business
costs in the oil and gas industry. The Company has established policies for
continuing compliance with environmental laws and regulations, including
regulations applicable to its operations in Canada, Australia and other
countries. Apache also has established operational procedures and training
programs designed to minimize the environmental impact of its field facilities.
The costs incurred by these policies and procedures are inextricably connected
to normal operating expenses such
8
<PAGE> 11
that the Company is unable to separate the expenses related to environmental
matters; however, the Company does not believe any such additional expenses are
material to its financial position or results of operations.
Although environmental requirements have a substantial impact upon the
energy industry, generally these requirements do not appear to affect Apache any
differently, or to any greater or lesser extent, than other companies in the
industry. The Company does not believe that compliance with federal, state,
local or foreign country provisions regulating the discharge of materials into
the environment, or otherwise relating to the protection of the environment,
will have a material adverse effect upon the capital expenditures, earnings or
competitive position of the Company or its subsidiaries; however, there is no
assurance that changes in or additions to laws or regulations regarding the
protection of the environment will not have such an impact.
COMPETITION WITH OTHER COMPANIES COULD HARM THE COMPANY
The oil and gas industry is highly competitive. The Company's business
could be harmed by competition with other companies. Because oil and gas are
fungible commodities, the Company's principal form of competition is price
competition. The Company strives to maintain the lowest finding and production
costs possible to maximize profits. In addition, as an independent oil and gas
company, the Company frequently competes for reserve acquisitions, exploration
leases, licenses, concessions and marketing agreements against companies with
financial and other resources substantially larger than the Company possesses.
Many of the Company's competitors have established strategic long-term positions
and maintain strong governmental relationships in countries in which the Company
may seek new entry.
INSURANCE DOES NOT COVER ALL RISKS
Exploration for and production of oil and natural gas can be hazardous,
involving unforeseen occurrences such as blowouts, cratering, fires and loss of
well control, which can result in damage to or destruction of wells or
production facilities, injury to persons, loss of life, or damage to property or
the environment. The Company maintains insurance against certain losses or
liabilities arising from its operations in accordance with customary industry
practices and in amounts that management believes to be prudent; however,
insurance is not available to the Company against all operational risks.
HEDGING MAY PREVENT THE COMPANY FROM FULLY BENEFITING FROM PRICE INCREASES
To the extent that the Company engages in hedging activities, it may be
prevented from realizing the benefits of price increases above the levels of the
hedges. In addition, the Company is subject to basis risk when it engages in
hedging transactions, particularly where transportation constraints restrict the
Company's ability to deliver oil and gas volumes at the delivery point to which
the hedging transaction is indexed.
RISKS ARISING FROM THE FAILURE TO FULLY IDENTIFY POTENTIAL PROBLEMS RELATED TO
ACQUIRED RESERVES OR TO PROPERLY ESTIMATE THOSE RESERVES
The Company from time to time acquires oil and gas properties. Although the
Company performs a review of the acquired properties that it believes is
consistent with industry practices, such reviews are inherently incomplete. It
generally is not feasible to review in depth every individual property involved
in each acquisition. Ordinarily the Company will focus its review efforts on the
higher-value properties and will sample the remainder. However, even a detailed
review of records and properties may not necessarily reveal existing or
potential problems, nor will it permit a buyer to become sufficiently familiar
with the properties to assess fully their deficiencies and potential.
Inspections may not always be performed on every well, and environmental
problems, such as ground water contamination, are not necessarily observable
even when an inspection is undertaken. Even when problems are identified, the
Company often assumes certain environmental and other risks and liabilities in
connection with acquired properties. There are numerous uncertainties inherent
in estimating quantities of proved oil and gas reserves and actual future
production rates and associated costs with respect to acquired properties, and
actual results may vary substantially from those assumed in the estimates (see
above). In addition, there can be no assurance that acquisitions will not have
an adverse effect
9
<PAGE> 12
upon the Company's operating results, particularly during the periods in which
the operations of acquired businesses are being integrated into the Company's
ongoing operations.
GENERAL ECONOMIC CONDITIONS
Virtually all of the Company's operations are subject to the risks and
uncertainties of adverse changes in general economic conditions (domestically,
in specific regions of the United States and Canada, and internationally), the
outcome of pending and/or potential legal or regulatory proceedings, changes in
environmental, tax, labor and other laws and regulations to which the Company is
subject, and the condition of the capital markets utilized by the Company to
finance its operations.
RISKS OF NON-U.S. OPERATIONS
The Company's non-U.S. oil and natural gas exploration, development and
production activities are subject to: political and economic uncertainties,
including, among others, changes, sometimes frequent or marked, in governmental
energy policies or the personnel administering them; expropriation of property;
cancellation or modification of contract rights; foreign exchange restrictions;
currency fluctuations; risks of loss due to civil strife, acts of war, guerrilla
activities and insurrection; royalty and tax increases; and other risks arising
out of foreign governmental sovereignty over the areas in which the Company's
operations are conducted. These risks may be higher in the developing countries
in which the Company conducts these activities. Consequently, the Company's
non-U.S. exploration, development and production activities may be substantially
affected by factors beyond the Company's control, any of which could materially
adversely affect the Company's financial position or results of operations.
Furthermore, in the event of a dispute arising from non-U.S. operations, the
Company may be subject to the exclusive jurisdiction of courts outside the
United States or may not be successful in subjecting non-U.S. persons to the
jurisdiction of the courts in the United States, which could adversely affect
the outcome of the dispute.
EFFECT OF CHANGES IN FOREIGN EXCHANGE RATES ON THE COMPANY'S CASH FLOW
The Company's cash flow stream relating to certain international operations
is based on the U.S. dollar equivalent of cash flows measured in foreign
currencies. Australian gas production is sold under fixed-price Australian
dollar contracts and over half the costs incurred are paid in Australian
dollars. Revenue and disbursement transactions denominated in Australian dollars
are converted to U.S. dollar equivalents based on the exchange rate on the
transaction date. Reported cash flow relating to Canadian operations is based on
cash flows measured in Canadian dollars converted to the U.S. dollar equivalent
based on the average of the Canadian and U.S. dollar exchange rates for the
period reported. Substantially all of the Company's international transactions,
outside of Canada and Australia, are denominated in U.S. dollars. The Company's
Polish and Australian subsidiaries have net financial assets that are
denominated in a currency other than the functional reporting currency of the
subsidiaries. The Company considers its current risk exposure to exchange rate
movements, based on net cash flows, to be immaterial.
EMPLOYEES
On December 31, 1999, Apache had 1,429 employees.
OFFICES
Apache's principal executive offices are located at One Post Oak Central,
2000 Post Oak Boulevard, Suite 100, Houston, Texas 77056-4400. At year-end 1999,
the Company maintained regional exploration and/or production offices in Tulsa,
Oklahoma; Houston, Texas; Calgary, Alberta; Cairo, Egypt; Perth, Western
Australia; Beijing, China; and Warsaw, Poland.
10
<PAGE> 13
ITEM 2. PROPERTIES
OIL AND GAS EXPLORATION AND PRODUCTION PROPERTIES AND RESERVES
Acreage
The undeveloped and developed acreage including both domestic leases and
international production and exploration rights that Apache held as of December
31, 1999, are as follows:
<TABLE>
<CAPTION>
UNDEVELOPED ACREAGE DEVELOPED ACREAGE
----------------------- ---------------------
GROSS NET GROSS NET
ACRES ACRES ACRES ACRES
---------- ---------- --------- ---------
<S> <C> <C> <C> <C>
OFFSHORE
Louisiana.............................. 190,259 138,863 378,885 245,075
Texas.................................. 46,992 22,301 151,200 75,965
---------- ---------- --------- ---------
Total........................ 237,251 161,164 530,085 321,040
---------- ---------- --------- ---------
MIDCONTINENT
Arkansas............................... 3,004 2,122 4,299 3,190
Kansas................................. 200 93 -- --
Louisiana.............................. 8,600 5,922 38,088 26,254
Michigan............................... 4,937 4,262 -- --
Oklahoma............................... 148,562 54,032 477,622 185,449
Pennsylvania........................... -- -- 796 38
Texas.................................. 60,939 39,605 132,854 70,968
---------- ---------- --------- ---------
Total........................ 226,242 106,036 653,659 285,899
---------- ---------- --------- ---------
SOUTHERN
Alaska................................. 14,262 -- -- --
Colorado............................... 13,974 12,228 10,979 10,715
Illinois............................... 140 56 -- --
Louisiana.............................. 75,352 71,120 86,722 66,196
New Mexico............................. 79,704 44,465 84,818 43,593
Texas.................................. 188,819 85,660 418,429 270,162
Utah................................... 140 35 60 15
Wyoming................................ 29,076 21,769 680 227
---------- ---------- --------- ---------
Total........................ 401,467 235,333 601,688 390,908
---------- ---------- --------- ---------
Total United States.......... 864,960 502,533 1,785,432 997,847
---------- ---------- --------- ---------
INTERNATIONAL
Australia.............................. 3,234,060 1,664,440 445,050 259,240
Canada................................. 785,189 474,759 604,083 421,942
China.................................. 42,678 21,384 5,911 1,448
Egypt.................................. 22,821,527 11,335,426 842,863 468,143
Ivory Coast............................ -- -- -- --
Poland................................. 11,468,335 5,734,169 -- --
---------- ---------- --------- ---------
Total International.......... 38,351,789 19,230,178 1,897,907 1,150,773
---------- ---------- --------- ---------
Total Company................ 39,216,749 19,732,711 3,683,339 2,148,620
========== ========== ========= =========
</TABLE>
11
<PAGE> 14
Productive Oil and Gas Wells
The number of productive oil and gas wells, operated and non-operated, in
which Apache had an interest as of December 31, 1999, is set forth below:
<TABLE>
<CAPTION>
GAS OIL
------------- -------------
GROSS NET GROSS NET
----- ----- ----- -----
<S> <C> <C> <C> <C>
Offshore............................................... 209 111 316 230
Midcontinent........................................... 1,692 571 532 141
Southern............................................... 417 230 3,518 1,895
Canada................................................. 654 468 851 562
Egypt.................................................. 20 8 150 75
Australia.............................................. 8 5 20 11
----- ----- ----- -----
Total........................................ 3,000 1,393 5,387 2,914
===== ===== ===== =====
</TABLE>
Gross Wells Drilled
The following table sets forth the number of gross exploratory and gross
development wells drilled in the last three fiscal years in which the Company
participated. The number of wells drilled refers to the number of wells
commenced at any time during the respective fiscal year. "Productive" wells are
either producing wells or wells capable of commercial production. At December
31, 1999, the Company was participating in 27 wells in the U.S., 23 Canadian
wells, seven Egyptian wells, one Australian well and one Polish well in the
process of drilling.
<TABLE>
<CAPTION>
EXPLORATORY DEVELOPMENTAL
------------------------ ------------------------
PRODUCTIVE DRY TOTAL PRODUCTIVE DRY TOTAL
---------- --- ----- ---------- --- -----
<S> <C> <C> <C> <C> <C> <C>
1999
United States................................ 11 13 24 97 9 106
Canada....................................... 2 3 5 30 14 44
Australia.................................... 2 12 14 5 1 6
Egypt........................................ 3 2 5 38 3 41
Other International.......................... -- 5 5 2 -- 2
-- -- --- --- -- ---
Total.............................. 18 35 53 172 27 199
== == === === == ===
1998
United States................................ 20 16 36 163 34 197
Canada....................................... 17 12 29 30 7 37
Egypt........................................ 11 24 35 27 5 32
Australia.................................... 7 8 15 -- -- --
Other International.......................... -- 1 1 1 -- 1
-- -- --- --- -- ---
Total.............................. 55 61 116 221 46 267
== == === === == ===
1997
United States................................ 27 25 52 234 32 266
Canada....................................... 19 14 33 41 7 48
Egypt........................................ 7 19 26 23 4 27
Australia.................................... 3 6 9 6 1 7
Other International.......................... 1 2 3 1 -- 1
-- -- --- --- -- ---
Total.............................. 57 66 123 305 44 349
== == === === == ===
</TABLE>
12
<PAGE> 15
Net Wells Drilled
The following table sets forth, for each of the last three fiscal years,
the number of net exploratory and net developmental wells drilled by Apache:
<TABLE>
<CAPTION>
EXPLORATORY DEVELOPMENTAL
------------------------- -------------------------
PRODUCTIVE DRY TOTAL PRODUCTIVE DRY TOTAL
---------- ---- ----- ---------- ---- -----
<S> <C> <C> <C> <C> <C> <C>
1999
United States..................................... 4.1 8.2 12.3 59.1 4.8 63.9
Canada............................................ 1.3 2.3 3.6 26.2 12.1 38.3
Australia......................................... 2.0 5.4 7.4 2.6 .2 2.8
Egypt............................................. 1.6 1.2 2.8 15.6 1.2 16.8
Other International............................... -- 1.6 1.6 .5 -- .5
---- ---- ---- ----- ---- -----
Total................................... 9.0 18.7 27.7 104.0 18.3 122.3
==== ==== ==== ===== ==== =====
1998
United States..................................... 9.9 11.1 21.0 64.0 18.8 82.8
Canada............................................ 16.2 11.0 27.2 28.3 6.1 34.4
Egypt............................................. 5.6 13.5 19.1 11.9 2.8 14.7
Australia......................................... 3.5 3.4 6.9 -- -- --
Other International............................... -- .2 .2 .2 -- .2
---- ---- ---- ----- ---- -----
Total................................... 35.2 39.2 74.4 104.4 27.7 132.1
==== ==== ==== ===== ==== =====
1997
United States..................................... 11.5 11.9 23.4 107.5 19.0 126.5
Canada............................................ 14.5 10.1 24.6 29.0 6.0 35.0
Egypt............................................. 3.7 12.3 16.0 14.4 2.0 16.4
Australia......................................... 1.0 1.0 2.0 1.8 .2 2.0
Other International............................... .5 1.4 1.9 .5 -- .5
---- ---- ---- ----- ---- -----
Total................................... 31.2 36.7 67.9 153.2 27.2 180.4
==== ==== ==== ===== ==== =====
</TABLE>
Production and Pricing Data
The following table describes, for each of the last three fiscal years,
oil, natural gas liquids (NGL) and gas production for the Company, average
production costs (excluding severance taxes) and average sales prices.
<TABLE>
<CAPTION>
PRODUCTION AVERAGE SALES PRICE
--------------------------- AVERAGE ---------------------------------
OIL NGL GAS PRODUCTION OIL NGL GAS
YEAR ENDED DECEMBER 31, (MBBLS) (MBBLS) (MMCF) COST PER BOE (PER BBL) (PER BBL) (PER MCF)
- ----------------------- ------- ------- ------- ------------ --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
1999..................... 33,223 1,437 239,484 $2.56 $18.43 $9.42 $2.16
1998..................... 26,611 1,052 215,389 2.88 12.66 7.94 1.92
1997..................... 24,291 843 222,237 3.07 19.20 14.08 2.28
</TABLE>
Estimated Reserves and Reserve Value Information
The following information relating to estimated reserve quantities, reserve
values and discounted future net revenues is derived from, and qualified in its
entirety by reference to, the more complete reserve and revenue information and
assumptions included in the Company's Supplemental Oil and Gas Disclosures under
Item 8 below. The Company's estimates of proved reserve quantities of its U.S.,
Canadian and international properties have been subject to review by Ryder Scott
Company, L.P. Petroleum Consultants. There are numerous uncertainties inherent
in estimating quantities of proved reserves and projecting future rates of
production and timing of development expenditures. The following reserve
information represents estimates only and should not be construed as being
exact.
13
<PAGE> 16
The following table sets forth the Company's estimated proved developed and
undeveloped reserves as of December 31, 1999, 1998 and 1997:
<TABLE>
<CAPTION>
OIL, NGL
NATURAL AND
GAS CONDENSATE
(BCF) (MMBBLS)
------- ----------
<S> <C> <C>
1999
Developed................................................... 1,873.7 302.0
Undeveloped................................................. 477.9 113.2
------- -----
Total............................................. 2,351.6 415.2
======= =====
1998
Developed................................................... 1,450.1 178.0
Undeveloped................................................. 722.1 73.0
------- -----
Total............................................. 2,172.2 251.0
======= =====
1997
Developed................................................... 1,554.3 203.1
Undeveloped................................................. 317.5 70.7
------- -----
Total............................................. 1,871.8 273.8
======= =====
</TABLE>
The following table sets forth the estimated future value of all the
Company's proved reserves, and proved developed reserves, as of December 31,
1999, 1998 and 1997. Future reserve values are based on year-end prices except
in those instances where the sale of gas and oil is covered by contract terms
providing for determinable escalations. Operating costs, production and ad
valorem taxes, and future development costs are based on current costs with no
escalations.
<TABLE>
<CAPTION>
PRESENT VALUE OF ESTIMATED
FUTURE NET REVENUES
ESTIMATED FUTURE BEFORE INCOME TAXES
NET REVENUES (DISCOUNTED AT 10 PERCENT)
------------------------ ---------------------------
PROVED PROVED
DECEMBER 31, PROVED DEVELOPED PROVED DEVELOPED
- ------------ ----------- ---------- ------------ ------------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
1999................................ $10,392,116 $8,638,015 $6,068,013 $4,890,340
1998................................ 3,994,612 2,793,698 2,395,888 1,764,887
1997................................ 5,347,892 4,301,768 3,272,618 2,728,747
</TABLE>
At December 31, 1999, estimated future net revenues expected to be received
from all the Company's proved reserves and proved developed reserves were as
follows:
<TABLE>
<CAPTION>
PROVED
DECEMBER 31, PROVED DEVELOPED
------------ ----------- ----------
(IN THOUSANDS)
<S> <C> <C>
2000........................................................ $ 1,128,516 $1,178,935
2001........................................................ 1,136,113 1,081,851
2002........................................................ 1,077,281 902,930
Thereafter.................................................. 7,050,206 5,474,299
----------- ----------
Total............................................. $10,392,116 $8,638,015
=========== ==========
</TABLE>
The Company believes that no major discovery or other favorable or adverse
event has occurred since December 31, 1999, which would cause a significant
change in the estimated proved reserves reported herein. The estimates above are
based on year-end pricing in accordance with the SEC guidelines and do not
reflect current prices. Since January 1, 2000, no oil or gas reserve information
has been filed with, or included in any report to, any U.S. authority or agency
other than the SEC and the Energy Information Administration
14
<PAGE> 17
(EIA). The basis of reporting reserves to the EIA for the Company's reserves is
identical to that set forth in the foregoing table.
Title to Interests
The Company believes that its title to the various interests set forth
above is satisfactory and consistent with the standards generally accepted in
the oil and gas industry, subject only to immaterial exceptions which do not
detract substantially from the value of the interests or materially interfere
with their use in the Company's operations. The interests owned by the Company
may be subject to one or more royalty, overriding royalty and other outstanding
interests customary in the industry. The interests may additionally be subject
to obligations or duties under applicable laws, ordinances, rules, regulations
and orders of arbitral or governmental authorities. In addition, the interests
may be subject to burdens such as net profits interests, liens incident to
operating agreements and current taxes, development obligations under oil and
gas leases and other encumbrances, easements and restrictions, none of which
detract substantially from the value of the interests or materially interfere
with their use in the Company's operations.
ITEM 3. LEGAL PROCEEDINGS
The information set forth under the caption "Litigation" in Note 10 to the
Company's financial statements under Item 8 below is incorporated herein by
reference.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted for a vote of security holders during the fourth
quarter of 1999.
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS
Apache's common stock, par value $1.25 per share, is traded on the New York
Stock Exchange and the Chicago Stock Exchange under the symbol APA. The table
below provides certain information regarding Apache common stock for 1999 and
1998. Prices shown are from the New York Stock Exchange Composite Transactions
Reporting System.
<TABLE>
<CAPTION>
1999 1998
----------------------------- -----------------------------
PRICE RANGE PRICE RANGE
---------------- DIVIDENDS ---------------- DIVIDENDS
HIGH LOW PER SHARE HIGH LOW PER SHARE
------ ------ --------- ------ ------ ---------
<S> <C> <C> <C> <C> <C> <C>
First Quarter......................... $28 9/16 $17 5/8 $.07 $38 3/4 $31 3/16 $.07
Second Quarter........................ 39 7/8 25 1/16 .07 38 1/8 30 3/8 .07
Third Quarter......................... 49 15/16 37 .07 32 3/8 22 1/2 .07
Fourth Quarter........................ 44 30 .07 29 5/16 21 3/8 .07
</TABLE>
The closing price per share of Apache common stock, as reported on the New
York Stock Exchange Composite Transactions Reporting System for February 29,
2000, was $36 1/2. At December 31, 1999, there were 113,996,464 shares of Apache
common stock outstanding, held by approximately 10,000 shareholders of record
and 45,000 beneficial owners.
The Company has paid cash dividends on its common stock for 132 consecutive
quarters through December 31, 1999, and expects to continue the payment of
dividends at current levels. During 2000, the Company will implement a change in
the payment dates for the dividends on its common stock from a quarterly basis
to an annual basis. When, and if, declared by the Company's board of directors,
future dividend payments will depend upon the Company's level of earnings,
financial requirements and other relevant factors.
In December 1995, the Company declared a dividend of one right (a Right)
for each share of Apache common stock outstanding on January 31, 1996. Each
Right entitles the registered holder to purchase from
15
<PAGE> 18
the Company one ten-thousandth (1/10,000) of a share of Series A Preferred Stock
at a price of $100 per one ten-thousandth of a share, subject to adjustment. The
Rights are exercisable 10 calendar days following a public announcement that
certain persons or groups have acquired 20 percent or more of the outstanding
shares of Apache common stock or 10 business days following commencement of an
offer for 30 percent or more of the outstanding shares of Apache common stock.
In addition, if a person or group becomes the beneficial owner of 20 percent or
more of Apache's outstanding common stock (flip in event), each Right will
become exercisable for shares of Apache's common stock at 50 percent of the then
market price of the common stock. If a 20 percent shareholder of Apache acquires
Apache, by merger or otherwise, in a transaction where Apache does not survive
or in which Apache's common stock is changed or exchanged (flip over event), the
Rights become exercisable for shares of the common stock of the company
acquiring Apache at 50 percent of the then market price for Apache common stock.
Any Rights that are or were beneficially owned by a person who has acquired 20
percent or more of the outstanding shares of Apache common stock and who engages
in certain transactions or realizes the benefits of certain transactions with
the Company will become void. The Company may redeem the Rights at $.01 per
Right at any time until 10 business days after public announcement of a flip in
event. The Rights will expire on January 31, 2006, unless earlier redeemed by
the Company. Unless the Rights have been previously redeemed, all shares of
Apache common stock issued by the Company after January 31, 1996 will include
Rights. Unless and until the Rights become exercisable, they will be transferred
with and only with the shares of Apache common stock.
In August 1998, the Company issued 100,000 shares of 5.68 percent Series B
Cumulative Preferred Stock (the Series B Preferred Stock) in the form of one
million depositary shares, each representing one-tenth ( 1/10) of a share of
Series B Preferred Stock. Neither the shares of Series B Preferred Stock nor the
depositary shares are traded on any stock exchange. The shares of Series B
Preferred Stock are not convertible into common equity. Holders of the
depositary shares are entitled to receive cumulative cash dividends at an annual
rate of $5.68 per depositary share when, and if, declared by the Company's board
of directors.
In May 1999, the Company issued 14,950,000 shares of its common stock and
140,000 shares of 6.5 percent Automatically Convertible Equity Securities,
Conversion Preferred Stock, Series C (Series C Preferred Stock) in the form of
seven million depositary shares each representing 1/50th of a share of Series C
Preferred Stock. The depositary shares are traded on the New York Stock Exchange
and the Chicago Stock Exchange. The Series C Preferred Stock is not subject to a
sinking fund or mandatory redemption. On May 15, 2002, each depositary share
will automatically convert, subject to adjustments, into not more than one share
and not less than 0.8197 of a share of the Company's common stock, depending on
the market price of the common stock at that time. At any time prior to May 15,
2002, holders of the depositary shares may elect to convert each of their
shares, subject to adjustments, into not less than 0.8197 of a share of the
Company's common stock (5,737,900 common shares). Holders of the depositary
shares are entitled to receive cumulative cash dividends at an annual rate of
$2.015 per depositary share when, and if, declared by the Company's board of
directors.
16
<PAGE> 19
ITEM 6. SELECTED FINANCIAL DATA
The following table sets forth selected financial data of the Company and
its consolidated subsidiaries for each of the years in the five-year period
ended December 31, 1999, which information has been derived from the Company's
audited financial statements. This information should be read in connection
with, and is qualified in its entirety by, the more detailed information in the
Company's financial statements under Item 8 below.
<TABLE>
<CAPTION>
AS OF OR FOR THE YEAR ENDED DECEMBER 31,
--------------------------------------------------------------
1999(1) 1998(2) 1997(3) 1996(4) 1995(5)
---------- ---------- ---------- ---------- ----------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA
Total revenues....................... $1,300,505 $ 875,715 $1,176,273 $ 977,151 $ 750,702
Net income (loss).................... 200,855 (129,387) 154,896 121,427 20,207
Income (loss) attributable to common
stock.............................. 186,406 (131,391) 154,896 121,427 20,207
Net income (loss) per common share:
Basic.............................. 1.73 (1.34) 1.71 1.42 .28
Diluted............................ 1.72 (1.34) 1.65 1.38 .28
Cash dividends per common share...... .28 .28 .28 .28 .28
BALANCE SHEET DATA
Working capital (deficit)............ $ 6,290 $ (78,804) $ 4,546 $ (41,501) $ (22,013)
Total assets......................... 5,502,543 3,996,062 4,138,633 3,432,430 2,681,450
Long-term debt....................... 1,879,650 1,343,258 1,501,380 1,235,706 1,072,076
Shareholders' equity................. 2,669,427 1,801,833 1,729,177 1,518,516 1,091,805
Common shares outstanding at end of
year............................... 113,996 97,769 93,305 90,059 77,379
</TABLE>
For a discussion of significant acquisitions, reference is made to Item 7,
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and to Note 2 to the Company's consolidated financial statements
under Item 8 below.
- ---------------
(1) Includes the results of the acquisitions of certain oil and gas properties
from Petsec, Shell Offshore, British-Borneo and Shell Canada after February
1, 1999, May 18, 1999, June 18, 1999 and November 30, 1999, respectively.
(2) Includes the results of the acquisitions of certain subsidiaries and oil and
gas properties from Novus Petroleum Limited (Novus) after December 18, 1998.
Also includes a $243.2 million pre-tax ($158.1 million net of tax) non-cash
write-down of the carrying value of the Company's U.S. proved oil and gas
properties due to ceiling test limitations.
(3) Includes financial data after November 20, 1997, relating to the acquisition
from Mobil Exploration & Producing Australia Pty Ltd (Mobil) of three
companies owning interests in certain oil and gas properties and production
facilities offshore Western Australia (the Ampolex Group Transaction).
(4) Includes financial data after May 20, 1996, for Apache PHN Company, Inc.
(Phoenix, formerly known as The Phoenix Resource Companies, Inc.).
(5) Includes the results of the acquisitions of certain oil and gas properties
from Texaco Exploration and Production, Inc. and Aquila Energy Resources
Corporation after March 1, 1995 and September 1995, respectively, and the
sale of a substantial portion of the Company's Rocky Mountain properties in
September 1995.
17
<PAGE> 20
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
OVERVIEW
Apache's considerable progress in 1999 and favorable outlook for continued
growth were not fully reflected in the Company's stock price at year-end. While
Wall Street turned its attention to technology stocks, Apache recorded its best
year ever, paving the way for its 23rd consecutive year of production growth in
2000.
1999 performance highlights include record:
- Production of 204.3 thousand barrels of oil equivalent per day, up 17
percent.
- Proved reserves of 807.2 MMboe, up 32 percent.
- Net cash provided by operating activities of $638.2 million, up 35
percent.
- Net income attributable to common stock of $186.4 million, up $31.5
million over our 1997 record.
More important than these milestones is the position they have left Apache
for continued progress ahead.
- $1.8 billion of capital expenditures brought into our fold quality assets
with low operating costs and high margins. The two acquisitions from
Shell coupled with first production from major development projects in
Egypt and Australia contributed to a $.32 per boe decline in Apache's
lease operating expense per equivalent barrel produced.
- Record 1999 earnings coupled with $654.8 million of equity offerings
reduced Apache's debt to 41.4 percent of capitalization, among the
strongest in our sector and capable of funding substantial growth
opportunities.
- Rising production will generate substantial cash flow. While prices are
always a wildcard, should they approximate levels indicated by the
current New York Mercantile Exchange, Apache has the potential to achieve
$1 billion of cash flow in 2000, adding fuel with which to act on
opportunities that many of Apache's competitors are unable to capture.
In short, despite only partial recognition in our stock price, Apache's
progress in 1999 puts the company in its strongest financial position ever to
carry out its business strategy and continue to build lasting shareholder value.
Apache's results of operations and financial position for 1999 were also
significantly impacted by the following factors:
Commodity Prices -- Apache's average realized oil price increased $5.77 per
barrel from $12.66 per barrel in 1998 to $18.43 per barrel in 1999, increasing
revenues by $153.6 million. The average realized price for natural gas increased
$.24 per Mcf from $1.92 per Mcf in 1998 to $2.16 per Mcf in 1999, positively
impacting revenues by $50.7 million.
Operations -- Oil production increased 25 percent in 1999 compared to the
prior year. The increase was primarily due to the acquisition of certain blocks
in the Gulf of Mexico from Shell Offshore, included since mid-May of 1999, the
full-period impact of the acquisition of certain oil and gas interests in the
Carnarvon Basin, offshore Western Australia, from Novus in November 1998 and
production from Australia's Stag field which began in May 1998. The increase in
oil production positively impacted revenues by $121.9 million. Gas production
increased 11 percent, which increased revenues by $52.0 million. As with oil,
gas increased in the U.S. due to the Shell Offshore acquisition. In Egypt, the
Western Desert Gas Pipeline in the Khalda concession was completed and first
sales commenced in August 1999.
RESULTS OF OPERATIONS
Apache reported 1999 income attributable to common stock of $186.4 million,
up from a loss attributable to common stock of $131.4 million in 1998. A
significant increase in oil and gas production revenues was
18
<PAGE> 21
partially offset by higher recurring depreciation, depletion and amortization
(DD&A) expense, operating costs, preferred stock dividends, and administrative,
selling and other (G&A) expense. Basic net income (loss) per common share was
$1.73 for 1999, as compared to $(1.34) in 1998. A loss attributable to common
stock of $131.4 million was reported in 1998 as opposed to income attributable
to common stock of $154.9 million in 1997. The 1998 loss resulted from a
full-cost ceiling write-down at year end. Results for 1998 were further hampered
by sharp declines in oil and gas prices. Basic net income (loss) per common
share was $(1.34) for 1998, as compared to basic net income per share of $1.71
in 1997.
Oil and gas production revenues increased 50 percent in 1999 to $1.1
billion as compared to $759.0 million in 1998. The increase resulted from a 46
percent increase in the average realized oil price, a 13 percent increase in the
average realized natural gas price, a 25 percent increase in oil production and
an 11 percent increase in natural gas production. Crude oil, including natural
gas liquids, contributed 55 percent and natural gas contributed 45 percent of
total oil and gas production revenues during 1999. Oil and gas production
revenues decreased 23 percent in 1998 to $759.0 million as compared to $983.8
million in 1997. The decrease resulted from a 34 percent decrease in the average
realized oil price, a 16 percent decrease in the average realized price for
natural gas and a three percent decrease in gas production. Crude oil, including
natural gas liquids, contributed 45 percent and natural gas contributed 55
percent of oil and gas production revenues during 1998.
19
<PAGE> 22
The table below presents, for the years indicated, the oil and gas
production revenues, production and average prices received from sales of
natural gas, oil and natural gas liquids.
<TABLE>
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31,
--------------------------------
1999 1998 1997
---------- -------- --------
<S> <C> <C> <C>
Revenues (in thousands):
Natural gas............................................... $ 516,503 $413,870 $505,604
Oil....................................................... 612,298 336,813 466,291
Natural gas liquids....................................... 13,535 8,355 11,878
---------- -------- --------
Total............................................. $1,142,336 $759,038 $983,773
========== ======== ========
Natural Gas Volume -- Mcf per day:
United States............................................. 461,444 432,059 492,594
Canada.................................................... 99,791 105,871 89,699
Egypt..................................................... 15,916 1,554 563
Australia................................................. 76,220 50,624 26,016
Ivory Coast............................................... 2,749 -- --
---------- -------- --------
Total............................................. 656,120 590,108 608,872
========== ======== ========
Average Natural Gas Price -- Per Mcf:
United States............................................. $ 2.31 $ 2.11 $ 2.47
Canada.................................................... 1.73 1.36 1.33
Egypt..................................................... 3.45 1.91 2.94
Australia................................................. 1.51 1.51 1.78
Ivory Coast............................................... 1.72 -- --
Total............................................. 2.16 1.92 2.28
Oil Volume -- Barrels per day:
United States............................................. 45,556 34,067 40,638
Canada.................................................... 3,053 2,090 2,120
Egypt..................................................... 31,751 27,911 19,372
Australia................................................. 10,624 8,838 4,417
Ivory Coast............................................... 37 -- --
---------- -------- --------
Total............................................. 91,021 72,906 66,547
========== ======== ========
Average Oil Price -- Per barrel:
United States............................................. $ 17.94 $ 12.63 $ 19.31
Canada.................................................... 19.35 12.55 19.27
Egypt..................................................... 18.63 12.57 18.65
Australia................................................. 19.70 13.07 20.51
Ivory Coast............................................... 15.68 -- --
Total............................................. 18.43 12.66 19.20
NGL Volume -- Barrels per day:
United States............................................. 3,308 2,267 1,684
Canada.................................................... 630 616 627
---------- -------- --------
Total............................................. 3,938 2,883 2,311
========== ======== ========
Average NGL Price -- Per barrel:
United States............................................. $ 9.37 $ 8.38 $ 14.50
Canada.................................................... 9.64 6.32 12.98
Total............................................. 9.42 7.94 14.08
</TABLE>
The Company's future financial condition and results of operations will
depend upon prices received for its oil and natural gas production and the costs
of finding, acquiring, developing and producing reserves. A
20
<PAGE> 23
substantial portion of the Company's production is sold under market-sensitive
contracts. Prices for oil and natural gas are subject to fluctuations in
response to changes in supply, market uncertainty and a variety of other factors
beyond the Company's control. These factors include worldwide political
instability (especially in the Middle East), the foreign supply of oil and
natural gas, the price of foreign imports, the level of consumer demand, and the
price and availability of alternative fuels.
Natural gas revenues increased by 25 percent from 1998 to 1999 as a result
of increased production volumes and realized prices. The average realized gas
price increased 13 percent in 1999 positively affecting revenues by $50.7
million. U.S. natural gas production, which comprised 70 percent of the
Company's worldwide gas production, sold at an average price of $2.31 per Mcf,
nine percent higher than in 1998, positively impacting natural gas sales by
$32.4 million. The Company periodically engages in hedging activities, including
fixed-price physical contracts and financial contracts. Gains under long-term
fixed-price physical contracts increased the gas price by $.02 per Mcf in 1999
while realized losses from open hedging positions negatively impacted the gas
price by $.01 per Mcf in 1999.
Natural gas production increased 66 million cubic feet per day (MMcf/d), or
11 percent, on a worldwide basis, favorably impacting revenue by $52.0 million
in 1999. In the United States, gas production increased 29.4 MMcf/d due to
acquisition activities, primarily the Shell Offshore acquisition in 1999.
Development activities and the impact of producing property acquisitions during
late 1998 increased natural gas production in Australia by 25.6 MMcf/d. Egyptian
gas production increased ten fold in 1999 as a result of the completion of the
northern portion of the Western Desert Gas Pipeline in the Khalda concession,
with first sales commencing in August.
Natural gas revenues decreased by 18 percent from 1997 to 1998 due to lower
natural gas prices and production. The average realized gas price received in
1998 was $1.92 per Mcf, 16 percent lower than 1997, negatively affecting revenue
by $78.6 million. The Company periodically engages in hedging activities,
including fixed-price physical contracts and financial contracts. Apache
realized gains from open hedging positions favorably impacting the gas price by
$.01 per Mcf in 1998. Gains under long-term fixed-price physical contracts
increased the gas price by $.05 per Mcf in 1998. Prices declined in the United
States due to unfavorable market conditions. Natural gas prices in Australia
declined 15 percent from 1997 resulting from the devaluation of the Australian
dollar.
Natural gas production for the United States decreased 12 percent from 1997
to 1998 due to the impact of property sales in the Southern and Midcontinent
regions, tropical storms in the Gulf of Mexico and natural depletion. In
Australia, natural gas production increased 95 percent driven by a full year of
incremental production from properties acquired in the year-end 1997 Ampolex
Group Transaction. The 18 percent uplift in Canadian production resulted from
development activity and Alberta royalty recoupments received for 1998. Alberta
allows reduction in royalty for costs to build processing and transportation
facilities.
Crude oil revenues totaled $612.3 million in 1999, an 82 percent increase
from 1998 due to higher average realized oil prices and production increases. On
a worldwide basis, average oil prices increased 46 percent to $18.43 per barrel
positively impacting oil sales by $153.6 million. Realized losses from open
hedging positions negatively impacted the oil price by $.16 per barrel in 1999.
Oil production increased 18,115 barrels per day, or 25 percent, in 1999 due
primarily to increases in the United States. Domestic oil production increased
11,489 barrels per day, or 34 percent, primarily due to the Shell Offshore
acquisition. Australian oil production increased 1,786 barrels per day, or 20
percent, over 1998 with additional full-year production from the Stag field.
Egyptian oil production increased 3,840 barrels per day, or 14 percent, as a
result of the price-driven dynamics of certain production sharing contracts and
development activity.
Crude oil revenues totaled $336.8 million in 1998, a 28 percent decrease
from 1997 due to lower average realized oil prices, which were partially offset
by production increases. On a worldwide basis, average oil prices decreased 34
percent to $12.66 per barrel negatively impacting oil revenues by $158.9
million. Oil production increased 6,359 barrels per day (approximately 10
percent), in 1998 due to increases in Egypt and Australia. Australian oil
production increased 4,421 barrels per day over 1997 with additional production
from the Ampolex Group Transaction and initial sales from the Stag field.
Egyptian oil production increased 8,539 barrels per day, or 44 percent, as a
result of the price-driven dynamics of certain production sharing
21
<PAGE> 24
contracts and to a lesser extent, drilling and development activity. U.S. oil
production decreased by 6,571 barrels per day, or 16 percent, primarily due to
marginal property sales in the first half of 1998 and natural reservoir
depletion of mature fields.
Natural gas liquids revenues in 1999 increased 62 percent from 1998.
Natural gas liquids production increased 1,055 barrels per day, or 37 percent
and natural gas liquids prices increased by $1.48 per barrel, or 19 percent, due
to improved market conditions. Natural gas liquids revenues decreased 30 percent
in 1998. Natural gas liquids production increased 572 barrels per day, or 25
percent, while natural gas liquids prices declined by $6.14 per barrel, or 44
percent, due to deteriorating market conditions.
Other Revenues and Operating Expenses
Gas gathering, processing and marketing revenues increased 33 percent to
$155.6 million in 1999 from 1998. Higher gas prices in 1999 contributed to the
increase. Gas gathering, processing and marketing costs increased by 34 percent
to $153.4 million resulting in a slight decrease to 1999 margins. During 1998,
gas gathering, processing and marketing revenues decreased 40 percent to $117.4
million. Slightly higher margins were realized in 1998 as compared to 1997.
Recurring DD&A expense increased to $442.8 million in 1999 from $382.8
million in 1998. On an equivalent barrel basis, recurring full cost DD&A expense
decreased $.09 per boe, from $5.66 per boe in 1998 to $5.57 per boe in 1999. The
decrease in the overall DD&A rate was the result of substantial increases in
United States production volumes during 1999 and the ceiling test write-down in
1998, which lowered the carrying amount of those properties being depleted. The
Company's recurring DD&A expense increased to $382.8 million in 1998 from $381.4
million in 1997. On an equivalent barrel basis, recurring full cost DD&A expense
decreased $.11 per boe, from $5.77 per boe in 1997 to $5.66 per boe in 1998.
Apache limits, on a country-by-country basis, the capitalized cost of oil
and gas properties, net of accumulated DD&A and deferred income taxes, to
estimated future net cash flows from proved oil and gas reserves discounted at
10 percent, net of related tax effects, plus the lower of cost or fair value of
unproved properties included in the costs being amortized. As a result of low
oil and gas prices in the United States at December 31, 1998, Apache's
capitalized costs of oil and gas properties exceeded the ceiling limitation and
the Company reported a $243.2 million pre-tax ($158.1 million net of tax)
non-cash write-down as additional DD&A expense. No additional DD&A expense was
recorded during 1999 or 1997. Write-downs required by these rules do not impact
cash flow from operating activities.
Apache's operating costs increased six percent in 1999 to $223.6 million
from $211.6 in 1998. Lease operating expense (LOE), excluding severance taxes,
increased from $182.9 million in 1998 to $191.2 million in 1999. On an
equivalent barrel basis, LOE for 1999 averaged $2.56 per boe, a $.32 decline
from $2.88 per boe in 1998. Domestic per unit costs were significantly reduced
due to lower Southern region repairs, maintenance, power and fuel costs
resulting from the sale of marginal properties partially offset by increases in
the Offshore region due to workover costs associated with acquired properties
located in the Gulf of Mexico from Petsec and Shell Offshore. Operating costs
decreased nine percent to $211.6 million in 1998 from $231.4 million in 1997.
LOE, excluding severance taxes, decreased from $190.8 million in 1997 to $182.9
million in 1998. On an equivalent barrel basis, LOE for 1998 averaged $2.88 per
boe, a $.19 decline from $3.07 per boe in 1997. Domestic per unit costs were
significantly reduced from the sale of marginal North American properties, and
by lower Southern region repairs and maintenance costs.
G&A expense increased $13.2 million, or 32 percent, from 1998 to 1999. The
Company's overall infrastructure was enlarged to properly handle increased
responsibilities associated with 1999 North American producing property
acquisitions. On an equivalent barrel basis, G&A expense increased to $.72 per
boe in 1999 compared to $.64 per boe in 1998. G&A expense increased $2.5
million, or seven percent from 1997 to 1998. On an equivalent barrel basis, G&A
expense increased to $.64 per boe in 1998 compared to $.62 per boe in 1997. The
increase in G&A expense was primarily the result of employee separation payments
associated with the sale of marginal North American properties.
22
<PAGE> 25
Net financing costs for 1999 increased $11.7 million, or 17 percent, from
1998 primarily due to higher interest expense and lower interest income,
partially offset by higher capitalized interest. Gross interest expense
increased $13.3 million resulting from higher average outstanding debt in 1999.
The weighted average interest rate on outstanding debt increased to 7.5 percent
at December 31, 1999 from 7.2 percent at December 31, 1998. The increase in
capitalized interest is associated with Egyptian pipeline projects under
construction. The decrease in interest income was due to a lower average cash
balance during 1999. Net financing costs for 1998 decreased $1.8 million, or two
percent, from 1997 primarily due to higher capitalized interest. Gross interest
expense increased $14.6 million due to a slightly higher interest rate on
average outstanding debt in 1998 compared to 1997 and higher imputed interest on
advances from gas purchasers. This was offset by an increase in capitalized
interest, interest income and lower amortization of deferred loan costs. The
Company's weighted average interest rate on outstanding debt was 7.2 percent at
December 31, 1998 compared to 7.1 percent at December 31, 1997.
MARKET RISK
Commodity Risk
The Company's major market risk exposure is in 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 and price
volatility is expected to continue. Monthly oil price realizations ranged from a
low of $10.09 per barrel to a high of $24.11 per barrel during 1999. Gas price
realizations ranged from a monthly low of $1.60 per Mcf to a monthly high of
$2.74 per Mcf during the same period.
The Company periodically enters into hedging activities on a portion of its
projected oil and natural gas production through a variety of financial and
physical arrangements intended to support oil and natural gas prices at targeted
levels and to manage its exposure to oil and gas price fluctuations. Apache may
use futures contracts, swaps, options and fixed-price physical contracts to
hedge its commodity prices. Realized gains or losses from the Company's price
risk management activities are recognized in oil and gas production revenues
when the associated production occurs. Apache does not hold or issue derivative
instruments for trading purposes. In 1999, Apache recognized a net loss of $3.1
million from hedging activities that decreased oil and gas production revenues.
The net loss in 1999 includes $6.7 million in derivatives losses and $3.6
million in gains from fixed-price physical gas contracts. Gains or losses on
derivative contracts are expected to be offset by sales at the spot market price
or to preserve the margin on existing physical gas contracts.
At December 31,1999, the Company had open natural gas price swap positions
with a positive fair value of $11.1 million. A 10 percent increase in natural
gas prices would increase the fair value by $19.7 million. A 10 percent decrease
in prices would decrease the fair value by $19.7 million. The Company also had
open oil price swap positions at December 31, 1999 with a negative fair value of
$(9.4) million. A 10 percent increase in oil prices would decrease the fair
value by $18.3 million. A 10 percent decrease in oil prices would increase the
fair value by $18.3 million. Discount rates used in arriving at fair values
range from 6.5 percent for 2000 to 7.3 percent for 2008.
At December 31, 1999, the Company also had natural gas commodity collars
with a fair value of $.8 million and oil commodity collars with a fair value of
$(4.9) million. A 10 percent increase in oil and gas prices would change the
fair values of the gas collars and the oil collars by $(.9) million and $(5.2)
million, respectively. A 10 percent decrease in oil and gas prices would change
the fair values of the gas collars and the oil collars by $1.6 million and $3.9
million, respectively. The model used to arrive at the fair values for the
commodity collars is based on the Black commodity pricing model. Changes in fair
value, assuming 10 percent price changes, assume non-constant volatility with
volatility based on prevailing market parameters at December 31,1999.
Notional volumes associated with the Company's derivative contracts are
shown in Note 9 to the Company's consolidated financial statements.
23
<PAGE> 26
Interest Rate Risk
The Company considers its interest rate risk exposure to be minimal as a
result of fixing interest rates on approximately 83 percent of the Company's
debt. Total debt at December 31, 1999, included $318.7 million of floating-rate
debt. As a result, Apache's annual interest costs in 2000 will fluctuate based
on short-term interest rates on approximately 17 percent of its total debt
outstanding at December 31, 1999. The impact on annual cash flow of a 10 percent
change in the floating rate (approximately 69 basis points) would be
approximately $2.2 million. The Company did not have any open derivative
contracts relating to interest rates at December 31, 1999.
Foreign Currency Risk
The Company's cash flow stream relating to certain international operations
is based on the U.S. dollar equivalent of cash flows measured in foreign
currencies. Australian gas production is sold under fixed-price Australian
dollar contracts and over half the costs incurred are paid in Australian
dollars. Revenue and disbursement transactions denominated in Australian dollars
are converted to U.S. dollar equivalents based on the exchange rate on the
transaction date. Reported cash flow relating to Canadian operations is based on
cash flows measured in Canadian dollars converted to the U.S. dollar equivalent
based on the average of the Canadian and U.S. dollar exchange rates for the
period reported. Substantially all of the Company's international transactions,
outside of Canada and Australia, are denominated in U.S. dollars.
The Company's Polish and Australian subsidiaries have net financial assets
that are denominated in a currency other than the functional reporting currency
of the subsidiaries. A decrease in value of 10 percent in the Australian dollar
and Polish zloty relative to the U.S. dollar from the year-end exchange rates
would result in a foreign currency loss of approximately $.7 million, based on
December 31, 1999 amounts. The Company considers its current risk exposure to
exchange rate movements, based on net cash flows, to be immaterial. The Company
did not have any open derivative contracts relating to foreign currencies at
December 31, 1999.
CASH FLOW, LIQUIDITY AND CAPITAL RESOURCES
Capital Commitments
Apache's primary needs for cash 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. The Company funds its exploration and development activities primarily
through internally generated cash flows. Apache budgets capital expenditures
based upon projected cash flows. The Company routinely adjusts its capital
expenditures in response to changes in oil and natural gas prices and cash flow.
The Company cannot accurately predict future oil and gas prices.
Capital Expenditures -- Apache's oil and gas capital expenditures over the
last three years are summarized below:
<TABLE>
<CAPTION>
1999 1998 1997
---------- -------------- --------
(IN THOUSANDS)
<S> <C> <C> <C>
Exploration and Development:
United States.................................. $ 217,476 $222,750 $359,272
Canada......................................... 45,691 69,757 56,263
Egypt.......................................... 59,808 105,431 139,938
Australia...................................... 60,976 80,099 68,563
Ivory Coast.................................... 2,553 23,527 556
Other International............................ 18,835 39,856 24,335
---------- -------- --------
405,339 541,420 648,927
Capitalized Interest........................... 45,722 49,279 36,493
---------- -------- --------
Total.................................. $ 451,061 $590,699 $685,420
========== ======== ========
Acquisitions of Oil and Gas Properties........... $1,391,206 $ 58,402 $225,934
========== ======== ========
</TABLE>
24
<PAGE> 27
Expenditures for exploration and development totaled $405.3 million in 1999
compared to $541.4 million in 1998. Apache's drilling program in 1999 added 64.1
MMboe of proved reserves (including revisions) and replaced 86 percent of
production. In the United States, Apache completed 108 gross wells as producers
out of 130 gross wells drilled during the year, compared with 183 gross
producers out of 233 gross wells drilled in 1998. In Canada, Apache completed 32
gross wells as producers out of 49 gross wells drilled during the year, compared
with 47 gross producers out of 66 gross wells drilled in 1998.
Internationally, the Company completed 50 gross producers out of 73 gross
wells drilled in 1999, compared to 46 gross producers out of 84 gross wells in
1998. Successful international wells drilled in 1999 included 41 in Egypt and
seven in Australia.
The total capital expenditures budget for 2000 is $597.5 million, including
$384.9 million for North America. Estimated North American exploration and
development expenditures include $56.4 million in the Southern region, $67.1
million in the Midcontinent region, $151.5 million in the Offshore region and
$109.9 million in Canada. The Company has estimated its other international
exploration and development expenditures in 2000, exclusive of facilities, to
total approximately $212.6 million. Capital expenditures will be reviewed and
possibly adjusted throughout the year in light of changing industry conditions.
On February 1, 1999, the Company acquired oil and gas properties located in
the Gulf of Mexico from Petsec for an adjusted purchase price of $67.7 million.
The Petsec transaction included estimated proved reserves of approximately 10.2
MMboe as of the acquisition date.
On May 18, 1999, Apache acquired from 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 2D and 3D 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 MMboe of proved reserves as of the
acquisition date.
On June 18, 1999, the Company acquired 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 in exchange for $83.6 million cash and working interests in 11
leases in the Gulf of Mexico. The British-Borneo transaction included
approximately 16.8 MMboe of proved reserves as of the acquisition date.
On November 30, 1999, Apache acquired from Shell Canada producing
properties and other assets for C$761 million (US$517.8 million). The producing
properties consist of 150,400 net acres and comprise 20 fields with an average
working interest of 55 percent and proved reserves of 87.2 MMboe as of the
acquisition date. Apache also acquired 294,294 net acres of undeveloped
leaseholdings, 100 percent interest in a gas processing plant with a potential
throughput capacity of 160 million cubic feet (MMcf) per day, and 52,700 square
miles of 2D seismic and 884 square miles of 3D seismic.
In 1999, the Company also completed tactical regional acquisitions for cash
consideration totaling $17.7 million. These acquisitions added approximately 8.8
MMboe to the Company's proved reserves.
In January 2000, Apache completed the acquisition of producing properties
in Western Oklahoma and the Texas Panhandle, formerly owned by a subsidiary of
Repsol YPF, for approximately $119 million, plus assumed liabilities of
approximately $30 million. The acquisition included estimated proved reserves of
206 Bcfe as of the acquisition date.
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 for
approximately $55 million. The interests have proved reserves of approximately
5.8 MMboe and daily production of 2,400 barrels of oil equivalent. They are
within the Apache-operated Harriet Joint Venture (which includes production,
processing and pipeline infrastructure associated with the Varanus Island hub),
the Airlie Joint Venture (in which the Company held a prior interest and became
operator) and three other
25
<PAGE> 28
exploration permit areas. The transaction closed in two stages, in December 1998
for approximately $49 million and in January 1999 for approximately $6 million.
In 1998, the Company also completed tactical regional acquisitions for cash
consideration totaling $19.4 million. These acquisitions added approximately 9.1
MMboe to the Company's reserves.
In November 1997, the Company acquired, in the Ampolex Group Transaction,
all the capital stock of three companies owning interests in certain oil and gas
properties (including 31.9 MMboe of proved oil and natural gas reserves) and
production facilities offshore Western Australia for approximately $300 million
pursuant to three agreements with subsidiaries of Mobil. The Ampolex Group
Transaction acquisition, net of the sale of certain properties to Hardy
Petroleum Limited (Hardy), increased the Company's interest to 47.5 percent from
22.5 percent in the Carnarvon Basin's Harriet area, which included the Varanus
Island pipeline, processing and production complex and eight existing oil and
gas fields. In addition, the Company's interest in the East Spar field, which
produces through the Varanus Island facilities, increased to 45 percent from 20
percent. Apache operates both the Harriet and East Spar properties.
In conjunction with the closing of the Ampolex Group Transaction, in
December 1997, the Company entered into an agreement under which Hardy agreed to
purchase a 10 percent interest in the Company's East Spar gas field and related
production facilities in Western Australia. The transaction closed in January
1998 with a total sales price of approximately $63 million in cash.
Debt and Interest Commitments -- At December 31, 1999, Apache had
outstanding debt of $116 million under its global credit facility and an
aggregate of $1.8 billion of other debt. This other debt included notes and
debentures maturing in the years 2000 through 2096. Debt outstanding at December
31, 1999 of $1.9 billion was higher as compared to the $1.4 billion outstanding
at December 31, 1998, due to the Company's significant acquisition activity
during 1999. Even so, the Company's debt-to-capitalization ratio improved from
43.0 percent at December 31, 1998 to 41.4 percent at December 31, 1999. Interest
payments on the Company's debt for 2000 are projected to be $162.0 million
(using weighted average balances for floating rate obligations). Anticipated
principal payments for 2000 total $6.2 million.
Dividend Payments -- Apache paid a total of $12.6 million in dividends
during 1999 on its Series B Preferred Stock issued in August 1998 and its Series
C Preferred Stock issued in May 1999. Common dividends paid during 1999 totaled
$29.7 million, up nine percent from 1998, due to the increased number of common
shares outstanding. The Company has paid cash dividends on its common stock for
132 consecutive quarters through December 31, 1999. The Company expects to
continue payment of dividends at current levels on an annual basis. Future
dividend payments will depend on the Company's level of earnings, financial
requirements and other relevant factors.
Capital Resources and Liquidity
The Company's primary capital resources are net cash provided by operating
activities, proceeds from financing activities and proceeds from sales of
non-strategic assets.
Net Cash Provided by Operating Activities -- Apache's net cash provided by
operating activities during 1999 totaled $638.2 million, an increase of 35
percent over the $471.5 million reported in 1998. This increase was due
primarily to higher oil and gas production and prices in 1999. Net cash provided
by operating activities during 1998 declined $252.3 million from 1997 due
primarily to lower oil and gas prices and lower gas production in 1998, offset
by the receipt of $71.8 million from a purchaser as an advance. The advance was
for future natural gas deliveries over a ten-year period commencing in August
1998.
Long-Term Borrowings -- In March 1999, Apache Finance Pty Ltd, the
Company's Australian finance subsidiary, 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. The
Company 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 would be subject to mandatory repurchase. The proceeds
were used to reduce outstanding indebtedness under the Australian portion of the
global credit facility.
26
<PAGE> 29
In June 1999, the Company issued $150 million principal amount, $149.1
million net of discount, of senior unsecured 7.625-percent notes due July 1,
2019. The Company does not have the right to redeem the notes prior to maturity.
Upon certain changes in control, these notes would be subject to mandatory
repurchase. The proceeds were used to reduce the Company's outstanding amounts
of commercial paper.
In December 1999, Apache Finance Canada Corporation, the Company's Canadian
finance subsidiary, issued $300 million principal amount, $296.9 million net of
discount, of senior unsecured 7.75-percent notes due December 15, 2029. The
notes are irrevocably and unconditionally guaranteed by Apache. The Company 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 would be subject to mandatory repurchase. The proceeds were used to
repay commercial paper issued to finance the Shell Canada acquisition.
Stock Transactions -- In May 1999, Apache issued 14,950,000 shares of
Apache common stock for net proceeds of $444.3 million and 140,000 shares ($217
million) of Series C Preferred Stock in the form of seven million depositary
shares each representing one-fiftieth (1/50th) of a share of Series C Preferred
Stock for net proceeds of $210.5 million. The Series C Preferred Stock is not
subject to a sinking fund or mandatory redemption. On May 15, 2002, each
depositary share will automatically convert, subject to adjustments, into not
more than one share and not less than 0.8197 of a share of Apache common stock,
depending on the market price of Apache common stock at that time.
At any time prior to May 15, 2002, holders of the depositary shares may
elect to convert each of their shares, subject to adjustments, into not less
than 0.8197 of a share of Apache common stock (5,737,900 common shares). Holders
of the shares are entitled to receive cumulative cash dividends at an annual
rate of $2.015 per depositary share when, and if, declared by Apache's board of
directors.
The net proceeds from both offerings were used for general corporate
purposes, including funding a portion of the purchase price for the Shell
Offshore acquisition.
Asset Sales -- Apache received $110 million in 1999 and $131.1 million in
1998 from the sale of non-strategic oil and gas properties in a number of
separate transactions. An additional $46.1 million in proceeds was received in
1999 due to Apache disposing of its holdings in the Ivory Coast by selling its
wholly-owned subsidiary, Apache Cote d'Ivoire Petroleum LDC to a consortium
consisting of Mondoil Cote d'Ivoire LLC and Saur Energie Cote d'Ivoire. The
proceeds were used to reduce debt.
Liquidity -- The Company had $13.2 million in cash and cash equivalents on
hand at December 31, 1999, down from $14.5 million at December 31, 1998.
Apache's ratio of current assets to current liabilities increased from .74:1 at
December 31, 1998, to 1.02:1 at December 31, 1999.
Management 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 December 31, 1999, Apache's
available borrowing capacity under its global credit facility was $884 million.
IMPACT OF THE YEAR 2000 ISSUE
The Company has not experienced any Year 2000 related computer failures or
problems. The cost to achieve Year 2000 compliance did not exceed the estimated
$4 million.
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:
- exploiting our existing asset base;
- acquiring properties to which we can add incremental value; and
- investing in high-potential exploration prospects.
27
<PAGE> 30
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 pursue 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 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
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 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.
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.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The financial statements and supplementary financial information required
to be filed under this item are presented on pages F-1 through F-37 of this Form
10-K, and are incorporated herein by reference.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
28
<PAGE> 31
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The information set forth under the captions "Nominees for Election as
Directors," "Continuing Directors," "Executive Officers of the Company," and
"Securities Ownership and Principal Holders" in the proxy statement relating to
the Company's 2000 annual meeting of stockholders (the Proxy Statement) is
incorporated herein by reference.
ITEM 11. EXECUTIVE COMPENSATION
The information set forth the captions "Summary Compensation Table",
"Option/SAR Grants Table," "Option/SAR Exercises and Year-End Value Table",
"Employment Contracts and Termination of Employment and Change-in-Control
Arrangements," and "Director Compensation" in the Proxy Statement is
incorporated herein by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information set forth under the caption "Securities Ownership and
Principal Holders" in the Proxy Statement is incorporated herein by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information set forth under the caption "Certain Business Relationships
and Transactions" in the Proxy Statement is incorporated herein by reference.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(a) Documents included in this report:
1. Financial Statements
<TABLE>
<S> <C>
Report of management........................................ F-1
Report of independent public accountants.................... F-2
Statement of consolidated operations for each of the three
years in the period ended December 31, 1999............... F-3
Statement of consolidated cash flows for each of the three
years in the period ended December 31, 1999............... F-4
Consolidated balance sheet as of December 31, 1999 and
1998...................................................... F-5
Statement of consolidated shareholders' equity for each of
the three years in the period ended December 31, 1999..... F-6
Notes to consolidated financial statements.................. F-7
Supplemental oil and gas disclosures........................ F-31
Supplemental quarterly financial data....................... F-37
</TABLE>
2. Financial Statement Schedules
Financial statement schedules have been omitted because they are
either not required, not applicable or the information required to be
presented is included in the Company's financial statements and related
notes.
29
<PAGE> 32
3. Exhibits
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
------- -----------
<C> <S>
2.1 -- Purchase and Sale Agreement by and between Texaco
Exploration and Production Inc., as seller, and
Registrant, as buyer, dated December 22, 1994
(incorporated by reference to Exhibit 99.3 to
Registrant's Current Report on Form 8-K, dated November
29, 1994, SEC File No. 1-4300).
2.2 -- Amended and Restated Agreement and Plan of Merger among
Registrant, XPX Acquisitions, Inc and DEKALB Energy
Company, dated December 21, 1994 (incorporated by
reference to Exhibit 2.1 to Amendment No. 3 to
Registrant's Registration Statement on Form S-4,
Registration No. 33-57321, filed April 14, 1995)
2.3 -- Agreement and Plan of Merger among Registrant, YPY
Acquisitions, Inc. and The Phoenix Resource Companies,
Inc., dated March 27, 1996 (incorporated by reference to
Exhibit 2.1 to Registrant's Registration Statement on
Form S-4, Registration No. 333-02305, filed April 5,
1996).
3.1 -- Restated Certificate of Incorporation of Registrant,
dated December 16, 1999, as filed with the Secretary of
State of Delaware on December 17, 1999 (incorporated by
reference to Exhibit 99.1 to Registrant's Current Report
on Form 8-K, dated December 17, 1999, SEC File No.
1-4300).
3.2 -- Bylaws of Registrant, as amended July 14, 1999
(incorporated by reference to Exhibit 3.1 to Amendment
No. 1 on Form 8-K/A to Registrant's Current Report on
Form 8-K, dated May 18, 1999, SEC File No. 1-4300).
4.1 -- Form of Certificate for Registrant's Common Stock
(incorporated by reference to Exhibit 4.1 to Registrant's
Annual Report on Form 10-K for year ended December 31,
1995, SEC File No. 1-4300).
4.2 -- Form of Certificate for Registrant's 5.68% Cumulative
Preferred Stock, Series B (incorporated by reference to
Exhibit 4.2 to Amendment No. 2 on Form 8-K/A to
Registrant's Current Report on Form 8-K, dated August 18,
1998, SEC File No. 1-4300).
4.3 -- Form of Certificate for Registrant's Automatically
Convertible Equity Securities, Conversion Preferred
Stock, Series C (incorporated by reference to Exhibit
99.8 to Amendment No. 1 on Form 8-K/A to Registrant's
Current Report on Form 8-K, dated April 29, 1999, SEC
File No. 1-4300).
4.4 -- Rights Agreement, dated January 31, 1996, between
Registrant and Norwest Bank Minnesota, N.A., rights
agent, relating to the declaration of a rights dividend
to Registrant's common shareholders of record on January
31, 1996 (incorporated by reference to Exhibit (a) to
Registrant's Registration Statement on Form 8-A, dated
January 24, 1996, SEC File No. 1-4300).
10.1 -- Credit Agreement, dated June 12, 1997, among the
Registrant, the lenders named therein, Morgan Guaranty
Trust Company, as Global Documentation Agent and U.S.
Syndication Agent, The First National Bank of Chicago, as
U.S. Documentation Agent, NationsBank of Texas, N.A., as
Co-Agent, Union Bank of Switzerland, Houston Agency, as
Co-Agent, and The Chase Manhattan Bank, as Global
Administrative Agent (incorporated by reference to
Exhibit 10.1 to Registrant's Current Report on Form 8-K,
dated June 13, 1997, SEC File No. 1-4300).
</TABLE>
30
<PAGE> 33
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
------- -----------
<C> <S>
10.2 -- Credit Agreement, dated June 12, 1997, among Apache
Canada Ltd., a wholly-owned subsidiary of the Registrant,
the lenders named therein, Morgan Guaranty Trust Company,
as Global Documentation Agent, Royal Bank of Canada, as
Canadian Documentation Agent, The Chase Manhattan Bank of
Canada, as Canadian Syndication Agent, Bank of Montreal,
as Canadian Administrative Agent, and The Chase Manhattan
Bank, as Global Administrative Agent (incorporated by
reference to Exhibit 10.2 to Registrant's Current Report
on Form 8-K, dated June 13, 1997, SEC File No. 1-4300).
10.3 -- Credit Agreement, dated June 12, 1997, among Apache
Energy Limited and Apache Oil Australia Pty Limited,
wholly-owned subsidiaries of the Registrant, the lenders
named therein, Morgan Guaranty Trust Company, as Global
Documentation Agent, Bank of America National Trust and
Savings Association, Sydney Branch, as Australian
Documentation Agent, The Chase Manhattan Bank, as
Australian Syndication Agent, Citisecurities Limited, as
Australian Administrative Agent, and The Chase Manhattan
Bank, as Global Administrative Agent (incorporated by
reference to Exhibit 10.3 to Registrant's Current Report
on Form 8-K, dated June 13, 1997, SEC File No. 1-4300).
10.4 -- Fiscal Agency Agreement, dated January 4, 1995, between
Registrant and Chemical Bank, as fiscal agent, relating
to Registrant's 6% Convertible Subordinated Debentures
due 2002 (incorporated by reference to Exhibit 99.2 to
Registrant's Current Report on Form 8-K, dated December
6, 1994, SEC File No. 1-4300)
10.5 -- Concession Agreement for Petroleum Exploration and
Exploitation in the Khalda Area in Western Desert of
Egypt by and among Arab Republic of Egypt, the Egyptian
General Petroleum Corporation and Phoenix Resources
Company of Egypt, dated April 6, 1981 (incorporated by
reference to Exhibit 19(g) to Phoenix's Annual Report on
Form 10-K for year ended December 31, 1984, SEC File No.
1-547).
10.6 -- Amendment, dated July 10, 1989, to Concession Agreement
for Petroleum Exploration and Exploitation in the Khalda
Area in Western Desert of Egypt by and among Arab
Republic of Egypt, the Egyptian General Petroleum
Corporation and Phoenix Resources Company of Egypt
incorporated by reference to Exhibit 10(d)(4) to
Phoenix's Quarterly Report on Form 10-Q for quarter ended
June 30, 1989, SEC File No. 1-547).
10.7 -- Farmout Agreement, dated September 13, 1985 and relating
to the Khalda Area Concession, by and between Phoenix
Resources Company of Egypt and Conoco Khalda
Inc(incorporated by reference to Exhibit 10.1 to
Phoenix's Registration Statement on Form S-1,
Registration No. 33-1069, filed October 23, 1985).
10.8 -- Amendment, dated March 30, 1989, to Farmout Agreement
relating to the Khalda Area Concession, by and between
Phoenix Resources Company of Egypt and Conoco Khalda
Inc(incorporated by reference to Exhibit 10(d)(5) to
Phoenix's Quarterly Report on Form 10-Q for quarter ended
June 30, 1989, SEC File No. 1-547).
</TABLE>
31
<PAGE> 34
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
------- -----------
<C> <S>
10.9 -- Amendment, dated May 21, 1995, to Concession Agreement
for Petroleum Exploration and Exploitation in the Khalda
Area in Western Desert of Egypt between Arab Republic of
Egypt, the Egyptian General Petroleum Corporation, Repsol
Exploracion Egipto S.A., Phoenix Resources Company of
Egypt and Samsung Corporation (incorporated by reference
to exhibit 10.12 to Registrant's Annual Report on Form
10-K for year ended December 31, 1997, SEC File No.
1-4300).
10.10 -- Concession Agreement for Petroleum Exploration and
Exploitation in the Qarun Area in Western Desert of
Egypt, between Arab Republic of Egypt, the Egyptian
General Petroleum Corporation, Phoenix Resources Company
of Qarun and Apache Oil Egypt, Inc., dated May 17, 1993
(incorporated by reference to Exhibit 10(b) to Phoenix's
Annual Report on Form 10-K for year ended December 31,
1993, SEC File No. 1-547).
10.11 -- Agreement for Amending the Gas Pricing Provisions under
the Concession Agreement for Petroleum Exploration and
Exploitation in the Qarun Area, effective June 16, 1994
(incorporated by reference to Exhibit 10.18 to
Registrant's Annual Report on Form 10-K for year ended
December 31, 1996, SEC File No. 1-4300).
+10.12 -- 1982 Employee Stock Option Plan, as updated in January
1987 to conform to the Tax Reform Act of 1986
(incorporated by reference to Exhibit 10.7 to
Registrant's Annual Report on Form 10-K for year ended
December 31, 1990, SEC File No. 1-4300).
+10.13 -- Apache Corporation Corporate Incentive Compensation Plan
A (Senior Officers' Plan), dated July 16, 1998
(incorporated by reference to Exhibit 10.13 to
Registrant's Annual Report on Form 10-K for year ended
December 31, 1998, SEC File No. 1-4300).
+10.14 -- Apache Corporation Corporate Incentive Compensation Plan
B (Strategic Objectives Format), dated July 16, 1998
(incorporated by reference to Exhibit 10.14 to
Registrant's Annual Report on Form 10-K for year ended
December 31, 1998, SEC File No. 1-4300).
+10.15 -- Apache Corporation 401(k) Savings Plan, dated August 1,
1997, effective January 1, 1997 (incorporated by
reference to Exhibit 10.1 to Registrant's Current Report
on Form 8-K, dated August 8, 1997, SEC File No. 1-4300).
+*10.16 -- Amendments to Apache Corporation 401(k) Savings Plan,
dated October 21, 1999, effective as of January 1, 1997
and 1999, and amendment dated December 31, 1999,
effective as of January 1, 2000.
+10.17 -- Apache Corporation Money Purchase Retirement Plan, dated
December 31, 1997, effective January 1, 1997
(incorporated by reference to Exhibit 10.19 to
Registrant's Annual Report on Form 10-K for year ended
December 31, 1997, SEC File No. 1-4300).
+*10.18 -- Amendments to Apache Corporation Money Purchase
Retirement Plan, dated October 21, 1999, effective as of
January 1, 1997 and 1998.
+10.19 -- Non-Qualified Retirement/Savings Plan of Apache
Corporation, restated as of January 1, 1997, and
amendments effective as of January 1, 1997, January 1,
1998 and January 1, 1999 (incorporated by reference to
Exhibit 10.17 to Registrant's Annual Report on Form 10-K
for year ended December 31, 1998, SEC File No. 1-4300).
</TABLE>
32
<PAGE> 35
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
------- -----------
<C> <S>
+10.20 -- Amendment to Non-Qualified Retirement/Savings Plan of
Apache Corporation, dated February 22, 2000, effective as
of January 1, 1999 (incorporated by reference to Exhibit
4.7 to Registrant's Registration Statement on Form S-8,
Registration No. 333-31092, filed February 25, 2000).
+10.21 -- Apache International, Inc. Common Stock Award Plan, dated
February 12, 1990 (incorporated by reference to Exhibit
10.13 to Registrant's Annual Report on Form 10-K for year
ended December 31, 1989, SEC File No. 1-4300).
+10.22 -- Apache Corporation 1990 Stock Incentive Plan, as amended
and restated February 10, 2000 (incorporated by reference
to Exhibit 4.5 to Amendment No. 1 to Registrant's
Registration Statement on Form S-8, Registration No.
33-37402, filed March 2, 2000).
+*10.23 -- Apache Corporation 1995 Stock Option Plan, as amended and
restated February 10, 2000.
+10.24 -- Apache Corporation 1996 share Price Appreciation Plan, as
amended and restated January 14, 1997 (incorporated by
reference to Appendix A to Registrant's definitive 14A
Proxy Statement, SEC File No. 1-4300, filed March 28,
1997).
+10.25 -- Apache Corporation 1996 Performance Stock Option Plan, as
amended and restated September 23, 1999 (incorporated by
reference to Exhibit 10.1 to Registrant's Current Report
on Form 8-K, dated November 30, 1999, SEC File No.
1-4300).
+*10.26 -- Apache Corporation 1998 Stock Option Plan, as amended and
restated February 10, 2000.
+10.27 -- 1990 Employee Stock Option Plan of The Phoenix Resource
Companies, Inc., as amended through September 29, 1995,
effective April 9, 1990 (incorporated by reference to
Exhibit 10.33 to Registrant's Annual Report on Form 10-K
for year ended December 31, 1996, SEC File No. 1-4300).
+10.28 -- Apache Corporation Income Continuance Plan, as amended
and restated February 24, 1988 (incorporated by reference
to Exhibit 10.19 to Registrant's Annual Report on Form
10-K for year ended December 31, 1990, SEC File No.
1-4300).
+10.29 -- Apache Corporation Deferred Delivery Plan, effective as
of February 10, 2000 and election forms (incorporated by
reference to Exhibit 4.5 to Registrant's Registration
Statement on Form S-8, Registration No. 333-31092, filed
February 25, 2000).
+10.30 -- Apache Corporation Non-Employee Directors' Compensation
Plan, as amended and restated December 17, 1998
(incorporated by reference to Exhibit 10.26 to
Registrant's Annual Report on Form 10-K for year ended
December 31, 1998, SEC File No. 1-4300).
+10.31 -- Apache Corporation Outside Directors' Retirement Plan, as
amended and restated September 11, 1997 (incorporated by
reference to Exhibit 10.31 to Registrant's Annual Report
on Form 10-K for year ended December 31, 1997, SEC File
No. 1-4300).
+10.32 -- Apache Corporation Equity Compensation Plan for
Non-Employee Directors, adopted February 9, 1994, and
form of Restricted Stock Award Agreement (incorporated by
reference to Exhibit 10.26 to Registrant's Annual Report
on Form 10-K for year ended December 31, 1993, SEC File
No. 1-4300).
</TABLE>
33
<PAGE> 36
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
------- -----------
<C> <S>
+10.33 -- Amended and Restated Employment Agreement, dated December
5, 1990, between Registrant and Raymond Plank
(incorporated by reference to Exhibit 10.39 to
Registrant's Annual Report on Form 10-K for year ended
December 31, 1996, SEC File No. 1-4300).
+10.34 -- First Amendment, dated April 4, 1996, to Restated
Employment Agreement between Registrant and Raymond Plank
(incorporated by reference to Exhibit 10.40 to
Registrant's Annual Report on Form 10-K for year ended
December 31,1996, SEC File No. 1-4300).
+10.35 -- Amended and Restated Employment Agreement, dated December
20, 1990, between Registrant and John A. Kocur
(incorporated by reference to Exhibit 10.10 to
Registrant's Annual Report on Form 10-K for year ended
December 31, 1990, SEC File No. 1-4300).
+10.36 -- Employment Agreement, dated June 6, 1988, between
Registrant and G. Steven Farris (incorporated by
reference to Exhibit 10.6 to Registrant's Annual Report
on Form 10-K for year ended December 31, 1989, SEC File
No. 1-4300).
+10.37 -- Conditional Stock Grant Agreement, dated December 17,
1998, between Registrant and G. Steven Farris
(incorporated by reference to Exhibit 10.33 to
Registrant's Annual Report on Form 10-K for year ended
December 31, 1998, SEC File No. 1-4300).
10.38 -- Amended and Restated Gas Purchase Agreement, effective
July 1, 1998, by and among Registrant and MW Petroleum
Corporation, as Seller, and Producers Energy Marketing,
LLC, as Buyer (incorporated by reference to Exhibit 10.1
to Registrant's Current Report on Form 8-K, dated June
18, 1998, SEC File No. 1-4300).
*12.1 -- Statement of Computation of Ratios of Earnings to Fixed
Charges and Combined Fixed Charges and Preferred Stock
Dividends
*21.1 -- Subsidiaries of Registrant
*23.1 -- Consent of Arthur Andersen LLP
*23.2 -- Consent of Ryder Scott Company, L.P. Petroleum
Consultants
*23.3 -- Consent of Netherland, Sewell & Associates, Inc.
*24.1 -- Power of Attorney (included as a part of the signature
pages to this report)
*27.1 -- Financial Data Schedule
</TABLE>
- ---------------
* Filed herewith.
+ Management contracts or compensatory plans or arrangements required to be
filed herewith pursuant to Item 14 hereof.
NOTE: Debt instruments of the Registrant defining the rights of
long-term debt holders in principal amounts not exceeding 10 percent of the
Registrant's consolidated assets have been omitted and will be provided to
the Commission upon request.
(b) Reports on Form 8-K
The following current reports on Form 8-K were filed by Apache during the
fiscal quarter ended December 31, 1999:
October 5, 1999 -- Item 5. Other Events
Apache signed a definitive agreement to acquire, through its wholly-owned
subsidiary Apache Canada Ltd, certain producing properties and other assets
located in Canada from Shell Canada Limited,
34
<PAGE> 37
including proved reserves of 87.5 MMboe, 294,294 net acres of undeveloped
leaseholdings, 100-percent interest in a gas processing plant, and proprietary
2-D and 3-D seismic data.
November 30, 1999 -- Item 2. Acquisition or Disposition of Assets; Item
5. Other Events
Apache closed the purchase from Shell Canada Limited of certain producing
properties and other assets located in Canada for Cdn $761 million (US $517
million at then current exchange rates) with an effective date of November 1,
1999.
Offering to the public by Apache Finance Canada Corporation of US $300
million principal amount of 7.75% Notes due December 15, 2029, guaranteed by
Apache, issued under an indenture dated November 23, 1999, and registered
pursuant to a registration statement on Form S-3 (Registration Nos. 333-90147
and 333-90147-01).
35
<PAGE> 38
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
/s/ RAYMOND PLANK
------------------------------------
Raymond Plank
Chairman and Chief Executive Officer
Dated: March 28, 2000
POWER OF ATTORNEY
The officers and directors of Apache Corporation, whose signatures appear
below, hereby constitute and appoint Raymond Plank, G. Steven Farris, Z. S.
Kobiashvili and Roger B. Plank, and each of them (with full power to each of
them to act alone), the true and lawful attorney-in-fact to sign and execute, on
behalf of the undersigned, any amendment(s) to this report and each of the
undersigned does hereby ratify and confirm all that said attorneys shall do or
cause to be done by virtue thereof.
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
NAME TITLE DATE
---- ----- ----
<C> <S> <C>
/s/ RAYMOND PLANK Chairman and Chief Executive March 28, 2000
- ----------------------------------------------------- Officer (Principal Executive
Raymond Plank Officer)
/s/ ROGER PLANK Vice President and Chief March 28, 2000
- ----------------------------------------------------- Financial Officer (Principal
Roger Plank Financial Officer)
/s/ THOMAS L. MITCHELL Vice President and Controller March 28, 2000
- ----------------------------------------------------- (Principal Accounting Officer)
Thomas L. Mitchell
</TABLE>
<PAGE> 39
<TABLE>
<CAPTION>
NAME TITLE DATE
---- ----- ----
<C> <S> <C>
/s/ FREDERICK M. BOHEN Director March 28, 2000
- -----------------------------------------------------
Frederick M. Bohen
/s/ G. STEVEN FARRIS Director March 28, 2000
- -----------------------------------------------------
G. Steven Farris
/s/ RANDOLPH M. FERLIC Director March 28, 2000
- -----------------------------------------------------
Randolph M. Ferlic
/s/ EUGENE C. FIEDOREK Director March 28, 2000
- -----------------------------------------------------
Eugene C. Fiedorek
/s/ A. D. FRAZIER, JR. Director March 28, 2000
- -----------------------------------------------------
A. D. Frazier, Jr.
Director
- -----------------------------------------------------
Stanley K. Hathaway
/s/ JOHN A. KOCUR Director March 28, 2000
- -----------------------------------------------------
John A. Kocur
/s/ GEORGE D. LAWRENCE JR. Director March 28, 2000
- -----------------------------------------------------
George D. Lawrence Jr.
/s/ MARY RALPH LOWE Director March 28, 2000
- -----------------------------------------------------
Mary Ralph Lowe
/s/ F. H. MERELLI Director March 28, 2000
- -----------------------------------------------------
F. H. Merelli
/s/ RODMAN D. PATTON Director March 28, 2000
- -----------------------------------------------------
Rodman D. Patton
/s/ JOSEPH A. RICE Director March 28, 2000
- -----------------------------------------------------
Joseph A. Rice
</TABLE>
<PAGE> 40
REPORT OF MANAGEMENT
The financial statements and related financial information of Apache
Corporation and subsidiaries were prepared by and are the responsibility of
management. The statements have been prepared in conformity with accounting
principles generally accepted in the United States and include amounts that are
based on management's best estimates and judgments.
Management maintains and places reliance on systems of internal control
designed to provide reasonable assurance, weighing the costs with the benefits
sought, that all transactions are properly recorded in the Company's books and
records, that policies and procedures are adhered to, and that assets are
safeguarded. The systems of internal controls are supported by written policies
and guidelines, internal audits and the selection and training of qualified
personnel.
The consolidated financial statements of Apache Corporation and
subsidiaries have been audited by Arthur Andersen LLP, independent public
accountants. Their audits included developing an overall understanding of the
Company's accounting systems, procedures and internal controls and conducting
tests and other auditing procedures sufficient to support their opinion on the
fairness of the consolidated financial statements.
The Apache Corporation Board of Directors exercises its oversight
responsibility for the financial statements through its Audit Committee,
composed solely of directors who are not current or former employees of Apache.
The Audit Committee meets periodically with management, internal auditors and
the independent public accountants to ensure that they are successfully
completing designated responsibilities. The internal auditors and independent
public accountants have open access to the Audit Committee to discuss auditing
and financial reporting issues.
Raymond Plank
Chairman of the Board
and Chief Executive Officer
Roger B. Plank
Vice President and Chief Financial
Officer
Thomas L. Mitchell
Vice President and Chief Accounting
Officer
Houston, Texas
March 3, 2000
F-1
<PAGE> 41
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Shareholders of Apache Corporation:
We have audited the accompanying consolidated balance sheet of Apache
Corporation (a Delaware corporation) and subsidiaries as of December 31, 1999
and 1998, and the related consolidated statements of operations, shareholders'
equity, and cash flows for each of the three years in the period ended December
31, 1999. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with auditing standards generally
accepted in the United States. Those standards require that we plan and perform
the audit to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Apache
Corporation and subsidiaries as of December 31, 1999 and 1998, and the results
of their operations and their cash flows for each of the three years in the
period ended December 31, 1999, in conformity with accounting principles
generally accepted in the United States.
ARTHUR ANDERSEN LLP
Houston, Texas
March 3, 2000
F-2
<PAGE> 42
APACHE CORPORATION AND SUBSIDIARIES
STATEMENT OF CONSOLIDATED OPERATIONS
<TABLE>
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31,
---------------------------------------------
1999 1998 1997
------------- ------------- -------------
(IN THOUSANDS, EXCEPT PER COMMON SHARE DATA)
<S> <C> <C> <C>
REVENUES:
Oil and gas production revenues........................ $1,142,336 $ 759,038 $ 983,773
Gathering, processing and marketing revenues........... 155,562 117,395 196,951
Equity in income (loss) of affiliates.................. 153 (1,558) (1,683)
Other revenues......................................... 2,454 840 (2,768)
---------- ---------- ----------
1,300,505 875,715 1,176,273
---------- ---------- ----------
OPERATING EXPENSES:
Depreciation, depletion and amortization:
Recurring........................................... 442,844 382,807 381,416
Additional.......................................... -- 243,178 --
Operating costs........................................ 223,561 211,554 231,370
Gathering, processing and marketing costs.............. 153,367 114,471 194,279
Administrative, selling and other...................... 53,894 40,731 38,243
Financing costs:
Interest expense.................................... 132,986 119,703 105,148
Amortization of deferred loan costs................. 4,854 4,496 6,438
Capitalized interest................................ (53,231) (49,279) (36,493)
Interest income..................................... (2,343) (4,383) (2,768)
---------- ---------- ----------
955,932 1,063,278 917,633
---------- ---------- ----------
INCOME (LOSS) BEFORE INCOME TAXES........................ 344,573 (187,563) 258,640
Provision (benefit) for income taxes................... 143,718 (58,176) 103,744
---------- ---------- ----------
NET INCOME (LOSS)........................................ 200,855 (129,387) 154,896
Preferred stock dividends.............................. 14,449 2,004 --
---------- ---------- ----------
INCOME (LOSS) ATTRIBUTABLE TO COMMON STOCK............... $ 186,406 $ (131,391) $ 154,896
========== ========== ==========
NET INCOME (LOSS) PER COMMON SHARE:
Basic.................................................. $ 1.73 $ (1.34) $ 1.71
========== ========== ==========
Diluted................................................ $ 1.72 $ (1.34) $ 1.65
========== ========== ==========
</TABLE>
The accompanying notes to consolidated financial statements are an integral part
of this statement.
F-3
<PAGE> 43
APACHE CORPORATION AND SUBSIDIARIES
STATEMENT OF CONSOLIDATED CASH FLOWS
<TABLE>
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31,
-------------------------------------
1999 1998 1997
----------- --------- -----------
(IN THOUSANDS)
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss)......................................... $ 200,855 $(129,387) $ 154,896
Adjustments to reconcile net income (loss) to net cash
provided by operating activities:
Depreciation, depletion and amortization.............. 442,844 625,985 381,416
Amortization of deferred loan costs................... 4,854 4,496 6,438
Provision (benefit) for deferred income taxes......... 77,494 (81,856) 68,280
Other................................................. 1,533 -- --
Cash distributions (less than) in excess of earnings of
affiliates.............................................. (153) 1,523 1,768
Loss (gain) on sale of stock held for investment.......... (234) 364 (13)
Changes in operating assets and liabilities, net of
effects of acquisitions:
(Increase) decrease in receivables...................... (103,167) 65,487 12,556
(Increase) decrease in advances to oil and gas ventures
and other............................................. (15,330) 3,879 (7,728)
(Increase) decrease in deferred charges and other....... (2,356) 13,238 447
Increase (decrease) in payables......................... 24,912 (65,851) 1,920
Increase (decrease) in accrued expenses................. 26,233 (12,161) 9,579
(Decrease) increase in advances from gas purchasers..... (24,512) 50,922 102,748
Increase (decrease) in deferred credits and noncurrent
liabilities........................................... 5,201 (5,128) (8,499)
----------- --------- -----------
NET CASH PROVIDED BY OPERATING ACTIVITIES.......... 638,174 471,511 723,808
----------- --------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to property and equipment....................... (591,316) (699,509) (771,419)
Non-cash portion of net oil and gas property additions.... (19,884) 38,774 6,208
Acquisition of Shell Offshore properties.................. (687,677) -- --
Acquisition of Shell Canada properties.................... (517,815) -- --
Acquisition of British-Borneo interests, net of cash
acquired................................................ (83,590) -- --
Acquisition of Novus, net of cash acquired................ (5,758) (48,499) --
Acquisition of Ampolex Group, net of cash acquired........ -- -- (299,852)
Proceeds from sales of oil and gas properties............. 155,226 131,149 30,134
Purchase of stock held for investment..................... (5,282) -- (1,170)
Proceeds from sale of stock held for investment........... -- 26,147 1,183
Proceeds from sale of assets held for resale.............. -- 62,998 --
Other, net................................................ (13,655) (23,180) (31,309)
----------- --------- -----------
NET CASH USED IN INVESTING ACTIVITIES.............. (1,769,751) (512,120) (1,066,225)
----------- --------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Long-term borrowings...................................... 1,602,871 551,897 1,168,201
Payments on long-term debt................................ (1,075,821) (556,141) (812,327)
Proceeds from issuance of common stock.................... 455,381 1,240 11,623
Proceeds from issuance of preferred stock................. 210,490 98,630 --
Dividends paid............................................ (42,264) (28,204) (25,275)
Payments to acquire treasury stock........................ (15,603) (21,418) (386)
Cost of debt and equity transactions...................... (4,843) (544) (2,894)
----------- --------- -----------
NET CASH PROVIDED BY FINANCING ACTIVITIES.......... 1,130,211 45,460 338,942
----------- --------- -----------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS........ (1,366) 4,851 (3,475)
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR.............. 14,537 9,686 13,161
----------- --------- -----------
CASH AND CASH EQUIVALENTS AT END OF YEAR.................... $ 13,171 $ 14,537 $ 9,686
=========== ========= ===========
</TABLE>
The accompanying notes to consolidated financial statements are an integral part
of this statement.
F-4
<PAGE> 44
APACHE CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------------
1999 1998
----------- -----------
(IN THOUSANDS)
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents................................. $ 13,171 $ 14,537
Receivables............................................... 259,530 159,806
Inventories............................................... 45,113 40,948
Advances to oil and gas ventures and other................ 25,254 11,679
----------- -----------
343,068 226,970
----------- -----------
PROPERTY AND EQUIPMENT:
Oil and gas, on the basis of full cost accounting:
Proved properties....................................... 7,409,787 5,901,863
Unproved properties and properties under development,
not being amortized.................................... 869,108 637,854
Gas gathering, transmission and processing facilities..... 442,437 354,506
Other..................................................... 105,635 88,422
----------- -----------
8,826,967 6,982,645
Less: Accumulated depreciation, depletion and
amortization............................................ (3,711,109) (3,255,104)
----------- -----------
5,115,858 3,727,541
----------- -----------
OTHER ASSETS:
Deferred charges and other................................ 43,617 41,551
----------- -----------
$ 5,502,543 $ 3,996,062
=========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Current maturities of long-term debt...................... $ 6,158 $ 15,500
Accounts payable.......................................... 148,309 115,111
Accrued operating expense................................. 18,226 18,990
Accrued exploration and development....................... 101,490 120,855
Accrued compensation and benefits......................... 22,631 10,692
Accrued interest.......................................... 28,118 19,054
Other accrued expenses.................................... 11,846 5,572
----------- -----------
336,778 305,774
----------- -----------
LONG-TERM DEBT.............................................. 1,879,650 1,343,258
----------- -----------
DEFERRED CREDITS AND OTHER NONCURRENT LIABILITIES:
Income taxes.............................................. 360,324 270,493
Advances from gas purchasers.............................. 180,956 205,468
Other..................................................... 75,408 69,236
----------- -----------
616,688 545,197
----------- -----------
COMMITMENTS AND CONTINGENCIES (Note 10)
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, 140,000
shares issued and outstanding.......................... 210,490 --
Common stock, $1.25 par, 215,000,000 shares authorized,
116,403,013 and 99,790,337 shares issued,
respectively............................................ 145,504 124,738
Paid-in capital........................................... 1,717,027 1,245,738
Retained earnings......................................... 558,721 403,098
Treasury stock, at cost, 2,406,549 and 2,021,215 shares,
respectively............................................ (52,256) (36,924)
Accumulated other comprehensive income.................... (8,446) (33,204)
----------- -----------
2,669,427 1,801,833
----------- -----------
$ 5,502,543 $ 3,996,062
=========== ===========
</TABLE>
The accompanying notes to consolidated financial statements are an integral part
of this statement.
F-5
<PAGE> 45
APACHE CORPORATION AND SUBSIDIARIES
STATEMENT OF CONSOLIDATED SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
SERIES B SERIES C
COMPREHENSIVE PREFERRED PREFERRED COMMON PAID-IN RETAINED TREASURY
INCOME STOCK STOCK STOCK CAPITAL EARNINGS STOCK
------------- --------- --------- -------- ---------- --------- --------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE, DECEMBER 31, 1996................. $ -- $ -- $114,030 $1,002,540 $ 432,588 $(15,152)
Comprehensive income:
Net income............................. $ 154,896 -- -- -- -- 154,896 --
Currency translation adjustments....... (4,969) -- -- -- -- -- --
---------
Comprehensive income..................... $ 149,927
=========
Dividends ($.28 per common share)........ -- -- -- -- (25,503) --
Common shares issued..................... -- -- 4,068 82,523 -- --
Treasury shares purchased, net........... -- -- -- -- -- (354)
------- -------- -------- ---------- --------- --------
BALANCE, DECEMBER 31, 1997................. -- -- 118,098 1,085,063 561,981 (15,506)
Comprehensive income:
Net loss............................... $(129,387) -- -- -- -- (129,387) --
Currency translation adjustments....... (12,745) -- -- -- -- -- --
---------
Comprehensive loss....................... $(142,132)
=========
Dividends:
Preferred.............................. -- -- -- -- (2,004) --
Common ($.28 per share)................ -- -- -- -- (27,492) --
Preferred shares issued.................. 98,387 -- -- -- -- --
Common shares issued..................... -- -- 6,640 160,675 -- --
Treasury shares purchased, net........... -- -- -- -- -- (21,418)
------- -------- -------- ---------- --------- --------
BALANCE, DECEMBER 31, 1998................. 98,387 -- 124,738 1,245,738 403,098 (36,924)
Comprehensive income:
Net income............................. $ 200,855 -- -- -- -- 200,855 --
Currency translation adjustments....... 24,543 -- -- -- -- -- --
Unrealized gain on marketable
securities, net of applicable income
taxes of $129........................ 215 -- -- -- -- -- --
---------
Comprehensive income..................... $ 225,613
=========
Dividends:
Preferred.............................. -- -- -- -- (14,449) --
Common ($.28 per share)................ -- -- -- -- (30,783) --
Preferred shares issued.................. -- 210,490 -- -- -- --
Common shares issued..................... -- -- 20,766 471,289 -- --
Treasury shares purchased, net........... -- -- -- -- -- (15,332)
------- -------- -------- ---------- --------- --------
BALANCE, DECEMBER 31, 1999................. $98,387 $210,490 $145,504 $1,717,027 $ 558,721 $(52,256)
======= ======== ======== ========== ========= ========
<CAPTION>
ACCUMULATED
OTHER TOTAL
COMPREHENSIVE SHAREHOLDERS'
INCOME EQUITY
------------- -------------
(IN THOUSANDS)
<S> <C> <C>
BALANCE, DECEMBER 31, 1996................. $(15,490) $1,518,516
Comprehensive income:
Net income............................. -- 154,896
Currency translation adjustments....... (4,969) (4,969)
Comprehensive income.....................
Dividends ($.28 per common share)........ -- (25,503)
Common shares issued..................... -- 86,591
Treasury shares purchased, net........... -- (354)
-------- ----------
BALANCE, DECEMBER 31, 1997................. (20,459) 1,729,177
Comprehensive income:
Net loss............................... -- (129,387)
Currency translation adjustments....... (12,745) (12,745)
Comprehensive loss.......................
Dividends:
Preferred.............................. -- (2,004)
Common ($.28 per share)................ -- (27,492)
Preferred shares issued.................. -- 98,387
Common shares issued..................... -- 167,315
Treasury shares purchased, net........... -- (21,418)
-------- ----------
BALANCE, DECEMBER 31, 1998................. (33,204) 1,801,833
Comprehensive income:
Net income............................. -- 200,855
Currency translation adjustments....... 24,543 24,543
Unrealized gain on marketable
securities, net of applicable income
taxes of $129........................ 215 215
Comprehensive income.....................
Dividends:
Preferred.............................. -- (14,449)
Common ($.28 per share)................ -- (30,783)
Preferred shares issued.................. -- 210,490
Common shares issued..................... -- 492,055
Treasury shares purchased, net........... -- (15,332)
-------- ----------
BALANCE, DECEMBER 31, 1999................. $ (8,446) $2,669,427
======== ==========
</TABLE>
The accompanying notes to consolidated financial statements are an integral part
of this statement.
F-6
<PAGE> 46
APACHE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Nature of Operations -- Apache Corporation (Apache or the Company) is an
independent energy company that explores for, develops and produces natural gas,
crude oil and natural gas liquids. The Company's North American exploration and
production activities are divided into three U.S. operating regions (Offshore,
Southern and Midcontinent) and a Canadian region. Approximately 73 percent of
the Company's proved reserves are located in North America. Internationally,
Apache has exploration and production interests in Egypt and offshore Western
Australia, and exploration interests in Poland and offshore The People's
Republic of China (China).
Apache holds interests in many of its U.S., Canadian and international
properties through operating subsidiaries, such as Apache Canada Ltd., DEK
Energy Company (DEKALB, formerly known as DEKALB Energy Company), Apache Energy
Limited (formerly known as Hadson Energy Limited), Apache International, Inc.,
and Apache Overseas, Inc.
The Company's future financial condition and results of operations will
depend upon prices received for its oil and natural gas production and the costs
of finding, acquiring, developing and producing reserves. A substantial portion
of the Company's production is sold under market-sensitive contracts. Prices for
oil and natural gas are subject to fluctuations in response to changes in
supply, market uncertainty and a variety of other factors beyond the Company's
control. These factors include worldwide political instability (especially in
the Middle East), the foreign supply of oil and natural gas, the price of
foreign imports, the level of consumer demand, and the price and availability of
alternative fuels. With natural gas accounting for 54 percent of Apache's 1999
production on an energy equivalent basis, the Company is affected more by
fluctuations in natural gas prices than in oil prices.
Principles of Consolidation -- The accompanying consolidated financial
statements include the accounts of Apache and its subsidiaries after elimination
of intercompany balances and transactions. The Company's interests in oil and
gas exploration and production ventures and partnerships are proportionately
consolidated. Apache's investment in Producers Energy Marketing LLC (ProEnergy)
and a pipeline partnership in Western Australia are accounted for using the
equity method for the periods of ownership.
Cash Equivalents -- The Company considers all highly liquid debt
instruments purchased with an original maturity of three months or less to be
cash equivalents. These investments are carried at cost, which approximates
market.
Inventories -- Inventories consist principally of tubular goods and
production equipment, stated at the lower of weighted average cost or market,
and oil produced but not sold, stated at current market value net of costs to
sell.
Property and Equipment -- The Company uses the full cost method of
accounting for its investment in oil and gas properties. Under this method, the
Company capitalizes all acquisition, exploration and development costs incurred
for the purpose of finding oil and gas reserves, including salaries, benefits
and other internal costs directly attributable to these activities. Exclusive of
field-level costs, Apache capitalized $14.2 million, $12.2 million and $11.9
million of internal costs in 1999, 1998 and 1997, respectively. Costs associated
with production and general corporate activities are expensed in the period
incurred. Internal costs attributable to the management of the Company's
producing properties, before recoveries from industry partners, totaled $24.4
million, $23.1 million and $22.5 million in 1999, 1998 and 1997, respectively,
and are included in operating costs in the Company's statement of consolidated
operations. Interest costs related to unproved properties and properties under
development are also capitalized to oil and gas properties. Unless a significant
portion of the Company's proved reserve quantities in a particular country are
sold (greater than 25 percent), proceeds from the sale of oil and gas properties
are accounted for as a reduction to capitalized costs, and gains and losses are
not recognized.
F-7
<PAGE> 47
APACHE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Apache computes the provision for recurring depreciation, depletion and
amortization (DD&A) of oil and gas properties on a quarterly basis using the
unit-of-production method based upon production and estimates of proved reserve
quantities. Unevaluated costs and related capitalized interest costs are
excluded from the amortization base until the properties associated with these
costs are evaluated. The amortizable base includes estimated future development
costs and dismantlement, restoration and abandonment costs, net of estimated
salvage values. These future costs are generally estimated by engineers employed
by Apache.
Apache limits, on a country-by-country basis, the capitalized costs of
proved oil and gas properties, net of accumulated DD&A and deferred income
taxes, to the estimated future net cash flows from proved oil and gas reserves
discounted at 10 percent, net of related tax effects, plus the lower of cost or
fair value of unproved properties included in the costs being amortized. If
capitalized costs exceed this limit, the excess is charged to additional DD&A
expense. Included in the estimated future net cash flows are Canadian provincial
tax credits expected to be realized beyond the date at which the legislation,
under its provisions, could be repealed. To date, the Canadian provincial
government has not indicated an intention to repeal this legislation.
As a result of low oil and gas prices at December 31, 1998, Apache's
capitalized costs of U.S. oil and gas properties exceeded the ceiling limitation
and the Company recorded a $243.2 million pre-tax ($158.1 million net of tax)
non-cash write-down in 1998. The write-down is reflected as additional DD&A
expense in the accompanying statement of consolidated operations. Given the
volatility of oil and gas prices, it is reasonably possible that the Company's
estimate of discounted future net cash flows from proved oil and gas reserves
could change in the near term. If oil and gas prices decline significantly, even
if only for a short period of time, it is possible that additional write-downs
of oil and gas properties could occur in the future.
The costs of certain unevaluated leasehold acreage and wells being drilled
are not being amortized. Costs not being amortized are periodically assessed for
possible impairments or reductions in value. If a reduction in value has
occurred, costs being amortized are increased or a charge is made against
earnings for those international operations where a reserve base is not yet
established.
Buildings, equipment and gas gathering, transmission and processing
facilities are depreciated on a straight-line basis over the estimated useful
lives of the assets, which range from three to 20 years. Accumulated
depreciation for these assets totaled $97.4 million and $70.0 million at
December 31, 1999 and 1998, respectively.
Accounts Payable -- Included in accounts payable at December 31, 1999 and
1998, are liabilities of approximately $41.6 million and $24.0 million,
respectively, representing the amount by which checks issued, but not presented
to the Company's banks for collection, exceeded balances in applicable bank
accounts.
Revenue Recognition -- Apache uses the sales method of accounting for
natural gas revenues. Under this method, revenues are recognized based on actual
volumes of gas sold to purchasers. The volumes of gas sold may differ from the
volumes to which Apache is entitled based on its interests in the properties.
Differences between volumes sold and entitled volumes create gas imbalances
which are generally reflected as adjustments to reported proved gas reserves and
future cash flows in the Company's supplemental oil and gas disclosures.
Adjustments for gas imbalances totaled less than one percent of Apache's proved
gas reserves at December 31, 1999. Revenue is deferred and a liability is
recorded for those properties where the estimated remaining reserves will not be
sufficient to enable the underproduced owner to recoup its entitled share
through production.
Derivative Instruments and Hedging Activities -- Apache periodically enters
into commodity derivatives contracts and fixed-price physical contracts to
manage its exposure to oil and gas price volatility. Commodity derivatives
contracts, which are usually placed with major financial institutions that the
Company believes are minimal credit risks, may take the form of futures
contracts, swaps or options. The oil and gas reference prices upon which these
commodity derivatives contracts are based reflect various market indices that
have a high degree of historical correlation with actual prices received by the
Company. The Company accounts for its
F-8
<PAGE> 48
APACHE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
commodity derivatives contracts using the hedge (or deferral) method of
accounting. Under this method, realized gains and losses from the Company's
price risk management activities are recognized in oil and gas production
revenues when the associated production occurs and the resulting cash flows are
reported as cash flows from operating activities. Gains and losses on commodity
derivatives contracts that are closed before the hedged production occurs are
deferred until the production month originally hedged. In the event of a loss of
correlation between changes in oil and gas reference prices under a commodity
derivatives contract and actual oil and gas prices, a gain or loss is recognized
currently to the extent the commodity derivatives contract has not offset
changes in actual oil and gas prices.
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, as amended, is required to be adopted on January 1, 2001, although earlier
adoption is permitted. The Company is analyzing the effects of SFAS No. 133, but
has not yet quantified the impact on its financial statements 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.
Income Taxes -- The Company follows the liability method of accounting for
income taxes under which deferred tax assets and liabilities are recognized for
the future tax consequences of (i) temporary differences between the tax bases
of assets and liabilities and their reported amounts in the financial statements
and (ii) operating loss and tax credit carryforwards for tax purposes. Deferred
tax assets are reduced by a valuation allowance when, based upon management's
estimates, it is more likely than not that a portion of the deferred tax assets
will not be realized in a future period.
Foreign Currency Translation -- The U.S. dollar is considered the
functional currency for each of the Company's international operations, except
for its Canadian subsidiary whose functional currency is the Canadian dollar.
Translation adjustments resulting from translating the Canadian subsidiary's
foreign currency financial statements into U.S. dollar equivalents are reported
separately and accumulated in other comprehensive income. For other
international operations, transaction gains and losses are recognized in net
income.
Net Income (Loss) Per Common Share -- Basic and diluted net income (loss)
per common share have been computed in accordance with SFAS No. 128, "Earnings
per Share." Basic net income (loss) per common share is computed by dividing
income (loss) attributable to common stock by the weighted average number of
common shares outstanding for the period. Diluted net income per common share
reflects the potential dilution that could occur if securities or other
contracts to issue common stock were exercised or converted into common stock.
Diluted net loss per common share does not reflect dilution from potential
common shares, because to do so would be antidilutive. Calculations of basic and
diluted net income (loss) per common share are illustrated in Note 7.
Stock-Based Compensation -- The Company accounts for employee stock-based
compensation using the intrinsic value method prescribed by Accounting
Principles Board (APB) Opinion No. 25, "Accounting for Stock Issued to
Employees" and related interpretations. Nonemployee stock-based compensation is
accounted for using the fair value method in accordance with SFAS No. 123,
"Accounting for Stock-Based Compensation."
F-9
<PAGE> 49
APACHE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Use of Estimates -- The preparation of financial statements in conformity
with accounting principles generally accepted in the U.S. requires management to
make estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those estimates.
Significant estimates with regard to these financial statements include the
estimate of proved oil and gas reserve quantities and the related present value
of estimated future net cash flows therefrom (see supplemental oil and gas
disclosures).
2. ACQUISITIONS AND DIVESTITURES
Acquisitions
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 $67.7 million. The Petsec transaction included estimated proved
reserves of approximately 10.2 million barrels of oil equivalent (MMboe) as of
the acquisition date.
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 3D 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 MMboe of proved reserves as of the acquisition date.
On June 18, 1999, the Company acquired 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 $83.6 million
cash and working interests in 11 leases in the Gulf of Mexico. The
British-Borneo transaction included approximately 16.8 MMboe of proved reserves
as of the acquisition date.
The purchase price was allocated to the assets purchased and the
liabilities assumed based upon the fair values on the date of acquisition, as
follows (in thousands):
<TABLE>
<S> <C>
Value of properties acquired, including gathering and
transportation facilities................................. $ 98,582
Value of Gulf of Mexico leases.............................. (3,209)
Working capital acquired, net............................... 4,123
Deferred income tax liability............................... (15,906)
--------
Cash paid, net of cash acquired............................. $ 83,590
========
</TABLE>
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
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
a potential throughput capacity of 160 million cubic feet (MMcf) per day, and
52,700 square miles of 2-D seismic and 884 square miles of 3-D seismic.
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 of each year
F-10
<PAGE> 50
APACHE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
presented. The pro forma information is based on numerous assumptions and is not
necessarily indicative of future results of operations.
<TABLE>
<CAPTION>
FOR THE YEAR ENDED FOR THE YEAR ENDED
DECEMBER 31, 1999 DECEMBER 31, 1998
------------------------ ------------------------
AS REPORTED PRO FORMA AS REPORTED PRO FORMA
----------- ---------- ----------- ----------
(UNAUDITED) (IN THOUSANDS, EXCEPT PER COMMON SHARE DATA)
<S> <C> <C> <C> <C>
Revenues...................................... $1,300,505 $1,482,499 $ 875,715 $1,219,945
Net income (loss)............................. 200,855 225,905 (129,387) (81,206)
Preferred stock dividends..................... 14,449 19,738 2,004 16,109
Income (loss) attributable to common stock.... 186,406 206,167 (131,391) (97,315)
Net income (loss) per common share:
Basic....................................... $ 1.73 $ 1.81 $ (1.34) $ (.85)
Diluted..................................... 1.72 1.80 (1.34) (.85)
Average common shares outstanding............. 107,936 113,923 98,066 114,016
</TABLE>
In 1999, the Company also completed tactical regional acquisitions for cash
consideration totaling $17.7 million. These acquisitions added approximately 8.8
MMboe to the Company's proved reserves.
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 interests have
estimated proved reserves of approximately 5.8 MMboe and daily production of
2,400 barrels of oil equivalent. They are within the Apache-operated Harriet
Joint Venture (which includes production, processing and pipeline infrastructure
associated with the Varanus Island hub), the Airlie Joint Venture (in which the
Company held a prior interest and became operator) and three other exploration
permit areas. The transaction closed in two stages, in December 1998
(approximately $49 million) and in January 1999 (approximately $6 million).
Under the terms of an agreement with Novus, the Company may be required to make
additional payments to Novus based on proved and probable recoverable oil and
condensate reserves, as determined by independent engineers, on a defined
geological structure in the Gipsy-Rose-Lee area, offshore Western Australia. If
required, such payments would be calculated using $2.50 for each barrel of
proved and $1.25 for each barrel of probable oil and condensate reserves. A
payment becomes due if and when a decision is made to construct facilities for
the production of oil or condensate from the designated area.
The total purchase price for the two stages of the transaction was
allocated to the assets purchased and the liabilities assumed based upon the
fair values on the date of acquisition, as follows (in thousands):
<TABLE>
<S> <C>
Value of properties acquired, including gathering and
transportation facilities................................. $ 62,657
Working capital acquired, net............................... 2,658
Deferred income tax liability............................... (11,058)
--------
Cash paid, net of cash acquired............................. $ 54,257
========
</TABLE>
In 1998, the Company also completed tactical regional acquisitions for cash
consideration totaling $19.4 million. These acquisitions added approximately 9.1
MMboe to the Company's proved reserves.
In November 1997, the Company acquired all the capital stock of three
companies owning interests in certain oil and gas properties (including 31.9
MMboe of proved oil and natural gas reserves) and production facilities offshore
Western Australia for approximately $300 million from subsidiaries of Mobil
Exploration & Producing Australia Pty Ltd (Ampolex Group Transaction). The
Ampolex Group Transaction, net of the subsequent sale of certain properties to
Hardy Petroleum Limited (Hardy), increased the Company's interest to 47.5
percent from 22.5 percent in the Carnarvon Basin's Harriet area, which includes
the Varanus Island
F-11
<PAGE> 51
APACHE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
pipeline, processing and production complex and eight existing oil and gas
fields. The transaction also increased the Company's interest in the East Spar
field, which produces through the Varanus Island facilities, to 45 percent from
20 percent. Apache operates the Harriet and East Spar properties.
The purchase price was allocated to the assets purchased and the
liabilities assumed based upon the fair values on the date of acquisition, as
follows (in thousands):
<TABLE>
<S> <C>
Value of properties acquired, including gathering and
transportation facilities................................. $264,539
Assets held for resale...................................... 63,058
Working capital acquired, net............................... 6,692
Deferred income tax liability............................... (34,437)
--------
Cash paid, net of cash acquired............................. $299,852
========
</TABLE>
In conjunction with the closing of the Ampolex Group Transaction, the
Company entered into an agreement with Hardy in December 1997, under which Hardy
agreed to purchase a 10 percent interest in the Company's East Spar field and
related production facilities. The transaction closed in January 1998, with a
total sales price of approximately $63 million in cash.
In 1997, the Company also completed tactical regional acquisitions for cash
consideration totaling $33.6 million. These acquisitions added approximately 6.6
MMboe to the Company's proved reserves.
Each transaction described above has been accounted for using the purchase
method of accounting and has been included in the financial statements of Apache
since the date of acquisition.
In January 2000, Apache completed the acquisition of producing properties
in Western Oklahoma and the Texas Panhandle, formerly owned by a subsidiary of
Repsol YPF, for approximately $119 million, plus assumed liabilities of
approximately $30 million. The acquisition included estimated proved reserves of
206 billion cubic feet of natural gas equivalent as of the acquisition date.
Divestitures
On September 3, 1999, Apache sold its holdings in the Ivory Coast by
selling its wholly-owned subsidiary, Apache Cote d'Ivoire Petroleum LDC, for a
total sales price of $46.1 million to a consortium consisting of Mondoil Cote
d'Ivoire LLC and Saur Energie Cote d'Ivoire. The sale consisted of 13.7 MMboe of
proved reserves and a gain was recorded to other revenues in the accompanying
statement of consolidated operations.
Additionally, during 1999, Apache sold 27.9 MMboe of proved reserves in
several transactions from largely marginal North American properties for $110
million.
In 1998, Apache sold marginal properties, primarily in North America,
containing 29.6 MMboe of proved reserves, for $131.1 million. Apache used the
sales proceeds to reduce bank debt.
Apache received $30.1 million in 1997 from the sale of non-strategic oil
and gas properties in a number of separate transactions.
3. INVESTMENTS IN EQUITY SECURITIES
Apache has certain investments in equity securities which are classified as
"available for sale" pursuant to SFAS No. 115, "Accounting for Certain
Investments in Debt and Equity Securities." At December 31, 1999, the aggregate
cost basis totaled $2.3 million. The related aggregate fair value approximated
$2.6 million and the unrealized gain at December 31, 1999 was approximately
$300,000. At December 31, 1998 and 1997, Apache had no investments in equity
securities.
F-12
<PAGE> 52
APACHE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The Company realized an aggregate gain from the sale of equity securities
totaling $234,000 during 1999, losses totaling $364,000 during 1998 and gains of
$13,000 during 1997. Apache utilizes the average cost method in computing
realized gains or losses, which are included in other revenues in the
accompanying statement of consolidated operations.
4. DEBT
Long-Term Debt
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------------
1999 1998
---------- ----------
(IN THOUSANDS)
<S> <C> <C>
Apache:
Money market lines of credit.............................. $ 6,158 $ 15,500
Commercial paper, expected to be refinanced............... -- 59,000
9.25-percent notes due 2002, net of discount.............. 99,882 99,842
7-percent notes due 2018, net of discount................. 148,291 148,246
7.625-percent notes due 2019, net of discount............. 149,063 --
7.7-percent notes due 2026, net of discount............... 99,646 99,642
7.95-percent notes due 2026, net of discount.............. 178,560 178,544
7.375-percent debentures due 2047, net of discount........ 147,993 147,988
7.625-percent debentures due 2096, net of discount........ 149,175 149,175
---------- ----------
978,768 897,937
---------- ----------
Subsidiary and other obligations:
Global credit facility -- Australia....................... 116,000 148,000
Global credit facility -- Canada.......................... -- 5,000
Revolving credit facility -- Egypt........................ 196,590 109,780
DEKALB 9.875-percent notes due 2000, expected to be
refinanced............................................. 29,225 29,225
Apache Finance Australia 6.5-percent notes due 2007, net
of discount............................................ 168,916 168,816
Apache Finance Australia 7-percent notes due 2009, net of
discount............................................... 99,376 --
Apache Finance Canada 7.75-percent notes due 2029, net of
discount............................................... 296,933 --
---------- ----------
907,040 460,821
---------- ----------
Total debt.................................................. 1,885,808 1,358,758
Less: current maturities.................................... (6,158) (15,500)
---------- ----------
Long-term debt.............................................. $1,879,650 $1,343,258
========== ==========
</TABLE>
In June 1997, Apache replaced its $1 billion global borrowing-base credit
facility with a new $1 billion global corporate credit facility (global credit
facility). The global credit facility consists of three separate bank
facilities: a $700 million facility in the United States; a $175 million
facility in Australia; and a $125 million facility in Canada. The global credit
facility enables Apache to draw on the entire $1 billion facility without
restrictions tied to periodic revaluation of the Company's oil and gas reserves.
As of December 31, 1999, Apache's available borrowing capacity under the global
credit facility was $884 million. Under the financial covenants of the global
credit facility, the Company must (i) maintain a consolidated tangible net
worth, as defined, of at least $1.2 billion as of December 31, 1999, which is
adjusted for subsequent earnings, and (ii) maintain a ratio of debt to
capitalization of not greater than 60 percent at the end of any fiscal quarter.
The Company was in compliance with all financial covenants at December 31, 1999.
The global credit facility is scheduled to mature on June 12, 2002, in the
amount of $30 million and the remaining $970 million on June 12, 2003. At the
Company's option, the interest rate is based on (i) the greater of (a) The Chase
Manhattan Bank's prime rate or (b) the federal funds rate plus one-half of one
percent, (ii) the London Interbank Offered Rate (LIBOR) plus a margin determined
by the Company's
F-13
<PAGE> 53
APACHE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
senior long-term debt rating, or (iii) a margin that is determined by
competitive bids from the participating banks. At December 31, 1999, the margin
over LIBOR for committed loans was .185 percent. The Company also pays a
quarterly facility fee of .09 percent on the total amount of each of the three
facilities, which fee varies based upon the Company's senior long-term debt
rating.
At December 31, 1999, the Company also had certain uncommitted money market
lines of credit which are used from time to time for working capital purposes.
As of December 31, 1999, an aggregate of $6.2 million was outstanding under such
credit lines.
In January 1997, the Company established a $300 million commercial paper
program which enables Apache to borrow funds for up to 270 days at competitive
interest rates. In June 1997, Apache expanded its commercial paper program to
$700 million from $300 million to provide access to additional low-cost, short-
term funds. Since its inception in January 1997, the Company's commercial paper
program has been rated A-2, Prime-2 and D-1- (D-One-Minus) by Standard & Poor's,
Moody's and Duff and Phelps, respectively. As of December 31, 1999, no amounts
were outstanding under Apache's commercial paper program. The commercial paper
balance at December 31, 1998 was classified as long-term debt in the
accompanying consolidated balance sheet as the Company had the ability and
intent to refinance such amounts on a long-term basis through either the
rollover of commercial paper or available borrowing capacity under the global
credit facility.
In January 1998, approximately 90 percent, or $155.6 million, of the
Company's 6-percent convertible subordinated debentures was converted into
approximately 5.1 million shares of Apache common stock at a conversion price of
$30.68 per share. The remaining $16.9 million of principal amount was redeemed
for $17.4 million in cash, plus accrued and unpaid interest. The Company
recorded a $.8 million loss on the early extinguishment of debt in January 1998.
In May 1992, Apache issued $100 million of 9.25-percent notes which mature
in June 2002. The Company does not have the right to redeem the notes prior to
maturity.
In February 1998, Apache issued $150 million principal amount, $148.2
million net of discount, of senior unsecured 7-percent notes maturing on
February 1, 2018. The Company does not have the right to redeem the notes prior
to maturity.
In June 1999, the Company issued $150 million principal amount, $149.1
million net of discount, of senior unsecured 7.625-percent notes due July 1,
2019. The Company does not have the right to redeem the notes prior to maturity.
In February 1996, Apache issued $100 million principal amount, $99.6
million net of discount, of senior unsecured 7.7-percent notes due March 15,
2026. In April 1996, the Company issued $180 million principal amount, $178.5
million net of discount, of senior unsecured 7.95-percent notes maturing on
April 15, 2026. The notes are not redeemable prior to maturity; however, under
certain conditions, Apache has the right to advance maturity of these notes.
In August 1997, Apache issued $150 million principal amount, $148 million
net of discount, of senior unsecured 7.375-percent debentures maturing on August
15, 2047. The debentures are not redeemable prior to maturity; however, Apache
has the right to advance maturity, under certain conditions.
In November 1996, Apache issued $150 million principal amount, $149.2
million net of discount, of senior unsecured 7.625-percent debentures maturing
on November 1, 2096. The debentures are not redeemable prior to maturity;
however, under certain conditions, Apache has the right to advance maturity of
these debentures.
Upon certain changes in control, the debt instruments described in the
preceding six paragraphs would be subject to mandatory repurchase.
F-14
<PAGE> 54
APACHE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
In October 1997, three of the Company's Egyptian subsidiaries entered into
a secured, revolving credit facility with a group of banks. The facility
provides for total commitments of $250 million, with availability determined by
a borrowing base formula predicated upon those subsidiaries' oil and gas reserve
quantities, forecast rates of production, and future oil and gas prices. The
borrowing base is $196.6 million at December 31, 1999 and will be redetermined
semi-annually. The total amount of commitments under the facility is currently
scheduled to be reduced by set increments every six months, beginning May 17,
2000. The facility is presently secured solely by assets associated with the
Company's Qarun and Khalda concessions and shares of stock of the Company's
subsidiaries holding those concessions, with provisions that will permit the
inclusion of other of the Company's Egyptian subsidiaries as borrowers with
security interests on such subsidiaries' assets and shares of stock. Interest is
assessed at LIBOR plus a margin of .375 percent, which is scheduled to increase
to .625 percent on January 3, 2001; however, if the facility is extended the
rate increase would occur two years from the end of the facility's extended
term. A quarterly fee of .375 percent is payable on the available portion of the
commitments, while a quarterly fee of .1875 percent is payable on the difference
between the borrowing base and the total amount of commitments under the
facility. The facility is scheduled to mature on January 3, 2003.
The DEKALB 9.875-percent notes mature on July 15, 2000 and are not
redeemable prior to their maturity. The DEKALB notes are classified as long-term
debt in the accompanying consolidated balance sheet because the Company has the
ability and intent to refinance such amounts on a long-term basis through
available borrowing capacity under the global credit facility.
In December 1997, Apache Finance Pty Ltd (Apache Finance Australia), the
Company's Australian finance subsidiary, issued $170 million principal amount,
$168.7 million net of discount, of senior unsecured 6.5-percent notes due
December 15, 2007.
In March 1999, Apache Finance Australia issued $100 million principal
amount, $99.3 million net of discount, of senior unsecured 7-percent notes due
March 15, 2009.
In December 1999, Apache Finance Canada Corporation (Apache Finance
Canada), the Company's Canadian finance subsidiary, issued $300 million
principal amount, $296.9 million net of discount, of senior unsecured
7.75-percent notes due December 15, 2029.
The Apache Finance Australia and Apache Finance Canada notes are
irrevocably and unconditionally guaranteed by Apache. Under certain conditions
related to changes in relevant tax laws, Apache Finance Australia and Apache
Finance Canada have the right to redeem the notes prior to maturity. In the case
of the 6.5-percent notes, Apache Finance Australia may also redeem the notes at
its option subject to an adjustment to keep investors whole. Also, upon certain
changes in control, these notes would be subject to mandatory repurchase.
As of December 31, 1999 and 1998, the Company had approximately $16.8
million and $17.0 million, respectively, of unamortized costs associated with
its various debt obligations. These costs are reflected as deferred charges in
the accompanying consolidated balance sheet and are being amortized over the
life of the related debt.
The indentures for the notes and debentures described above place certain
restrictions on the Company, including limits on Apache's ability to incur debt
secured by certain liens and its ability to enter into certain sale and
leaseback transactions.
F-15
<PAGE> 55
APACHE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Aggregate Maturities of Debt
<TABLE>
<CAPTION>
(IN THOUSANDS)
<S> <C>
2000................................................... $ 6,158
2001................................................... 71,590
2002................................................... 224,882
2003................................................... 145,225
2004................................................... --
Thereafter............................................. 1,437,953
----------
$1,885,808
==========
</TABLE>
5. INCOME TAXES
Income (loss) before income taxes is composed of the following:
<TABLE>
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31,
-------------------------------
1999 1998 1997
-------- --------- --------
(IN THOUSANDS)
<S> <C> <C> <C>
United States....................................... $143,680 $(241,861) $171,304
International....................................... 200,893 54,298 87,336
-------- --------- --------
Total..................................... $344,573 $(187,563) $258,640
======== ========= ========
</TABLE>
The total provision (benefit) for income taxes consists of the following:
<TABLE>
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31,
--------------------------------
1999 1998 1997
-------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C>
Current taxes:
Federal........................................... $ -- $ -- $ 300
Foreign........................................... 66,224 23,680 35,164
Deferred taxes...................................... 77,494 (81,856) 68,280
-------- -------- --------
Total..................................... $143,718 $(58,176) $103,744
======== ======== ========
</TABLE>
The deferred taxes shown above exclude amounts related to the compensation
component of non-qualified stock options exercised in each year for which the
benefit was credited directly to shareholders' equity.
A reconciliation of the federal statutory income tax amounts to the
effective amounts is shown below:
<TABLE>
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31,
--------------------------------
1999 1998 1997
-------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C>
Statutory income tax................................ $120,601 $(65,647) $ 90,524
State income tax, less federal benefit.............. 8,482 38 3,987
Taxation of foreign operations...................... 24,519 8,710 10,842
Decrease in Australia corporate income tax rate..... (16,979) -- --
U.S. taxes on repatriation of foreign earnings from
Egypt............................................. 7,136 -- --
All other, net...................................... (41) (1,277) (1,609)
-------- -------- --------
$143,718 $(58,176) $103,744
======== ======== ========
</TABLE>
F-16
<PAGE> 56
APACHE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The net deferred tax liability is comprised of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------
1999 1998
--------- ---------
(IN THOUSANDS)
<S> <C> <C>
Deferred tax assets:
Deferred income........................................... $ (6,238) $ (9,087)
Federal net operating loss carryforwards.................. (81,047) (88,411)
State net operating loss carryforwards.................... (8,989) (12,670)
Statutory depletion carryforwards......................... (4,075) (3,720)
Alternative minimum tax credits........................... (9,141) (9,141)
Accrued expenses and liabilities.......................... (6,970) (5,590)
Other..................................................... (13,332) (5,374)
--------- ---------
Total deferred tax assets......................... (129,792) (133,993)
Valuation allowance......................................... 1,704 1,704
--------- ---------
Net deferred tax assets........................... (128,088) (132,289)
--------- ---------
Deferred tax liabilities:
Depreciation, depletion and amortization.................. 485,428 391,624
Other..................................................... 2,984 11,158
--------- ---------
Total deferred tax liabilities.................... 488,412 402,782
--------- ---------
Net deferred income tax liability........................... $ 360,324 $ 270,493
========= =========
</TABLE>
U.S. deferred taxes have not been provided on foreign earnings totaling
$343.5 million, which are permanently reinvested abroad. Presently, limited
foreign tax credits are available to reduce the U.S. taxes on such amounts if
repatriated.
At December 31, 1999, the Company had U.S. federal net operating loss
carryforwards of $231.6 million that will expire beginning in 2000, and U.S. and
foreign statutory depletion carryforwards totaling $10.9 million that can be
carried forward indefinitely. The Company has alternative minimum tax (AMT)
credit carryforwards of $9.1 million that can be carried forward indefinitely,
but which can be used only to reduce regular tax liabilities in excess of AMT
liabilities. The Company has investment and other tax credit carryforwards of
$1.7 million that most likely will expire in 2000 and 2001, which have been
fully reserved through a valuation allowance.
6. ADVANCES FROM GAS PURCHASERS
In July 1998, Apache received $71.8 million from a purchaser as an advance
payment for future natural gas deliveries ranging from 6,726 MMBtu per day to
24,669 MMBtu per day, for a total of 45,330,949 MMBtu, over a ten-year period
commencing August 1998. As a condition of the arrangement with the purchaser,
Apache entered into three gas price swap contracts with a third party under
which Apache became a fixed price payor for identical volumes at prices ranging
from $2.34 per MMBtu to $2.56 per MMBtu. In addition, the purchaser pays Apache
a monthly fee of $.08 per MMBtu on the contracted volumes. The net result of
these related transactions is that gas delivered to the purchaser is reported as
revenue at prevailing spot prices with Apache realizing a premium associated
with the monthly fee paid by the purchaser.
In August 1997, Apache received $115.2 million from a purchaser as an
advance payment for future natural gas deliveries of 20,000 MMBtu per day over a
ten-year period commencing September 1997. As a condition of the arrangement
with the purchaser, Apache entered into two gas price swap contracts with a
third party under which Apache became a fixed price payor for identical volumes
at average prices starting at
F-17
<PAGE> 57
APACHE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
$2.19 per MMBtu in 1997 and escalating to $2.59 per MMBtu in 2007. In addition,
the purchaser pays Apache a monthly fee of $.07 per MMBtu on the contracted
volumes. The net result of these related transactions is that gas delivered to
the purchaser is reported as revenue at prevailing spot prices with Apache
realizing a premium associated with the monthly fee paid by the purchaser.
In December 1994, Apache received $67.4 million from a purchaser as an
advance payment for future natural gas deliveries of 20,000 MMBtu per day over a
six-year period commencing January 1995. As a condition of the arrangement with
the purchaser, Apache entered into a gas price swap contract with a third party
under which Apache became a fixed price payor for identical volumes at prices
starting at $1.81 per MMBtu in 1995 and escalating at $.10 per MMBtu per year
through 2000. The net result of these related transactions is that gas delivered
to the purchaser is reported as revenue at prevailing spot prices with Apache
realizing a $.05 per MMBtu premium associated with a monthly fee paid by the
purchaser.
The Company, through its marketing subsidiaries, may purchase gas from
third parties to satisfy gas delivery requirements under these arrangements.
Contracted volumes relating to these arrangements are included in the Company's
supplemental oil and gas disclosures.
These advance payments have been classified as advances from gas purchasers
on the accompanying consolidated balance sheet and are being reduced as gas is
delivered to the purchasers under the terms of the contracts. At December 31,
1999 and 1998, advances of $181.0 million and $205.5 million, respectively, were
outstanding. Gas volumes delivered to the purchaser are reported as revenue at
prices used to calculate the amount advanced, before imputed interest, plus or
minus amounts paid or received by Apache applicable to the price swap
agreements. Interest expense is recorded based on a rate of 8 percent on the
1998 and 1997 advances, and 9.5 percent on the 1994 advances.
7. CAPITAL STOCK
Common Stock Outstanding
<TABLE>
<CAPTION>
1999 1998 1997
----------- ---------- ----------
<S> <C> <C> <C>
Balance, beginning of year.............................. 97,769,122 93,304,541 90,058,797
Treasury shares acquired, net........................... (385,334) (846,968) (9,016)
Shares issued for:
Public offering(1).................................... 14,950,000 -- --
Shell Offshore acquisition............................ 1,000,000 -- --
Conversion of 6-percent convertible debentures........ -- 5,070,914 --
Acquisition of oil and gas property interests......... -- 176,836 --
Conversion of 3.93-percent convertible notes.......... -- -- 2,777,777
Dividend reinvestment plan............................ 12,436 -- 34,249
401(k) savings plan................................... 24,988 10,477 182,742
Stock option plans.................................... 625,252 53,322 259,992
----------- ---------- ----------
Balance, end of year.................................... 113,996,464 97,769,122 93,304,541
=========== ========== ==========
</TABLE>
- ---------------
(1) In May 1999, Apache completed a public offering of approximately 15.0
million shares of Apache common stock for net proceeds of $444.3 million.
F-18
<PAGE> 58
APACHE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Net Income (Loss) Per Common Share -- A reconciliation of the components of
basic and diluted net income (loss) per common share for the years ended
December 31, 1999, 1998 and 1997 is presented in the table below:
<TABLE>
<CAPTION>
1999 1998 1997
------------------------------ ------------------------------ -----------------------------
INCOME SHARES PER SHARE INCOME SHARES PER SHARE INCOME SHARES PER SHARE
-------- ------- --------- --------- ------ --------- -------- ------ ---------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Basic:
Income (loss) attributable to
common stock............... $186,406 107,936 $1.73 $(131,391) 98,066 $(1.34) $154,896 90,677 $1.71
===== ====== =====
Effect of Dilutive Securities:
Stock options................ -- 418 -- -- -- 519
3.93%-convertible notes...... -- -- -- -- 1,859 2,435
6%-convertible debentures.... -- -- -- -- 6,919 5,623
-------- ------- --------- ------ -------- ------
Diluted:
Income (loss) attributable to
common stock, including
assumed conversions........ $186,406 108,354 $1.72 $(131,391) 98,066 $(1.34) $163,674 99,254 $1.65
======== ======= ===== ========= ====== ====== ======== ====== =====
</TABLE>
The effect of stock options and the 6-percent convertible subordinated
debentures were not included in the computation of diluted net loss per common
share during 1998 and 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.
Stock Option Plans -- At December 31, 1999, officers and certain key
employees had been granted options to purchase the Company's common stock under
employee stock option plans adopted in 1990, 1995 and 1998 and under certain
predecessor plans (collectively, the Stock Option Plans). Under the Stock Option
Plans, the exercise price of each option equals the market price of Apache's
common stock on the date of grant. Options generally become exercisable ratably
over a four-year period and expire after 10 years. The Company may issue up to
6,485,231 shares of common stock under the Stock Option Plans, of which options
to acquire 1,276,279 shares of common stock remained available for grant at
December 31, 1999.
On October 31, 1996, the Company established the 1996 Performance Stock
Option Plan (the Performance Plan) for substantially all full-time employees,
excluding officers and certain key employees. Under the Performance Plan, the
exercise price of each option equals the market price of Apache common stock on
the date of grant. All options become exercisable after nine and one-half years
and expire ten years from the date of grant; however, exercisability will be
accelerated if share price goals of $50 and $60 per share are attained before
January 1, 2000. These share price goals were not attained before January 1,
2000. Under the terms of the Performance Plan, no grants could be made after
December 31, 1998.
F-19
<PAGE> 59
APACHE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
A summary of the status of the plans described above as of December 31,
1999, 1998, and 1997, and changes during the years then ended, is presented in
the table and narrative below (shares in thousands):
<TABLE>
<CAPTION>
1999 1998 1997
----------------- ----------------- -----------------
WEIGHTED WEIGHTED WEIGHTED
SHARES AVERAGE SHARES AVERAGE SHARES AVERAGE
UNDER EXERCISE UNDER EXERCISE UNDER EXERCISE
OPTION PRICE OPTION PRICE OPTION PRICE
------ -------- ------ -------- ------ --------
<S> <C> <C> <C> <C> <C> <C>
Outstanding, beginning of year.......... 4,421 $32.15 3,629 $32.20 2,885 $30.82
Granted................................. 849 37.41 1,243 32.53 1,228 34.59
Exercised............................... (533) 28.53 (20) 26.68 (145) 23.02
Forfeited............................... (213) 33.31 (431) 33.98 (339) 33.08
------ ------ ------
Outstanding, end of year(1)............. 4,524 33.49 4,421 32.15 3,629 32.20
====== ====== ======
Exercisable, end of year................ 1,392 30.64 1,223 28.86 729 26.96
====== ====== ======
Available for grant, end of year........ 1,276 2,006 603
====== ====== ======
Weighted average fair value of options
granted during the year(2)............ $13.93 $10.87 $11.73
====== ====== ======
</TABLE>
The following table summarizes information about stock options covered by
the plans described above that are outstanding at December 31, 1999 (shares in
thousands):
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
------------------------------------ ----------------------
NUMBER OF WEIGHTED NUMBER OF
SHARES AVERAGE WEIGHTED SHARES WEIGHTED
UNDER REMAINING AVERAGE UNDER AVERAGE
OUTSTANDING CONTRACTUAL EXERCISE EXERCISABLE EXERCISE
RANGE OF EXERCISE PRICES OPTIONS LIFE PRICE OPTIONS PRICE
- ------------------------ ----------- ----------- -------- ----------- --------
<S> <C> <C> <C> <C> <C>
$13.750 -- $19.625....................... 37 1.63 $15.67 37 $15.67
21.000 -- 29.875....................... 936 6.63 27.32 584 27.29
30.250 -- 35.500....................... 3,003 7.66 34.21 725 33.48
36.000 -- 43.188....................... 548 9.27 41.32 46 40.86
----- -----
4,524 1,392
===== =====
</TABLE>
- ---------------
(1) Excludes 219,000, 449,600 and 496,900 shares as of December 31, 1999, 1998
and 1997, respectively, issuable under stock options assumed by Apache in
connection with the 1996 merger with The Phoenix Resource Companies, Inc.
(2) The fair value of each option is estimated as of the date of grant using the
Black-Scholes option-pricing model with the following weighted-average
assumptions used for grants in 1999, 1998 and 1997, respectively: (i)
risk-free interest rates of 5.65, 5.46 and 6.33 percent; (ii) expected lives
of five years for the Stock Option Plans, and 2.5 years for the Performance
Plan; (iii) expected volatility of 33.87, 31.17 and 31.21 percent, and (iv)
expected dividend yields of .75, .88 and .82 percent.
F-20
<PAGE> 60
APACHE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
In May 1997, Apache's shareholders approved the 1996 Share Price
Appreciation Plan (the Appreciation Plan) for officers and certain key
employees. The Appreciation Plan provided for conditional grants denominated in
shares of Apache common stock that would have vested upon attainment of share
price goals of $50 and $60 per share before January 1, 2000. Since these share
price goals were not attained before January 1, 2000, the Appreciation Plan
terminated and all conditional grants were forfeited.
A summary of the status of the Appreciation Plan as of December 31, 1999,
1998 and 1997, and changes during the years then ended, is presented in the
table and narrative below (shares in thousands):
<TABLE>
<CAPTION>
SHARES SUBJECT TO CONDITIONAL GRANTS
--------------------------------------
1999 1998 1997
---------- --------- ---------
<S> <C> <C> <C>
Outstanding, beginning of year........................ 1,709 1,719 --
Granted............................................... -- 190 1,965
Forfeited............................................. (1,709) (200) (246)
------- ------ ------
Outstanding, end of year.............................. -- 1,709 1,719
======= ====== ======
Exercisable, end of year.............................. -- -- --
======= ====== ======
Available for grant, end of year...................... -- -- 281
======= ====== ======
Weighted average fair value of conditional
grants(1)........................................... $ -- $ 6.72 $13.50
======= ====== ======
</TABLE>
The Company accounts for its stock-based compensation plans under APB
Opinion No. 25 and related interpretations, under which no compensation cost has
been recognized for the Stock Option Plans, the Performance Plan, or the
Appreciation Plan. If compensation costs for these plans had been determined in
accordance with SFAS No. 123, the Company's net income and net income per common
share would approximate the following pro forma amounts:
<TABLE>
<CAPTION>
1999 1998 1997
----------- ------------ -----------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C>
Income (Loss) Attributable to Common Stock:
As reported.................................... $186,406 $(131,391) $154,896
Pro forma...................................... 177,518 (141,306) 147,152
Net Income (Loss) per Common Share:
Basic:
As reported.................................... $ 1.73 $ (1.34) $ 1.71
Pro forma...................................... 1.64 (1.44) 1.62
Diluted:
As reported.................................... $ 1.72 $ (1.34) $ 1.65
Pro forma...................................... 1.64 (1.44) 1.55
</TABLE>
The pro forma amounts shown above may not be representative of future
results, as the SFAS No. 123 method of accounting has not been applied to
options granted prior to January 1, 1995.
- ---------------
(1) The fair value of each conditional grant is estimated as of the date of
grant using a Monte Carlo simulation with the following weighted-average
assumptions used for grants in 1998 and 1997, respectively: (i) risk-free
interest rate of 5.37 and 6.45 percent; (ii) expected volatility of 33.11
and 28.63 percent; and (iii) expected dividend yields of .82 and .84
percent.
F-21
<PAGE> 61
APACHE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
In December 1998, the Company entered into a conditional stock grant
agreement with an executive of the Company which would award up to 100,000
shares of the Company's common stock in five annual installments. Each
installment has a five-year vesting period, 40 percent of the conditional grants
will be paid in cash at the market value of the stock on the date of payment and
the balance (60,000 shares) will be issued in Apache common stock.
Preferred Stock
The Company has five million shares of no par preferred stock authorized,
of which 25,000 shares have been "designated" as Series A Junior Participating
Preferred Stock (the Series A Preferred Stock), 100,000 shares have been
designated as the 5.68 percent Series B Cumulative Preferred Stock (the Series B
Preferred Stock) and 140,000 shares have been designated as Automatically
Convertible Equity Securities, Conversion Preferred Stock, Series C (the Series
C Preferred Stock). The shares of Series A Preferred Stock are authorized for
issuance pursuant to certain rights that trade with Apache common stock
outstanding and are reserved for issuance upon the exercise of the Rights as
defined and discussed below.
Rights to Purchase Series A Preferred Stock -- In December 1995, the
Company declared a dividend of one right (a Right) for each share of Apache
common stock outstanding on January 31, 1996. Each Right entitles the registered
holder to purchase from the Company one ten-thousandth (1/10,000) of a share of
Series A Preferred Stock at a price of $100 per one ten-thousandth of a share,
subject to adjustment. The Rights are exercisable 10 calendar days following a
public announcement that certain persons or groups have acquired 20 percent or
more of the outstanding shares of Apache common stock or 10 business days
following commencement of an offer for 30 percent or more of the outstanding
shares of Apache common stock. In addition, if a person or group becomes the
beneficial owner of 20 percent or more of Apache's outstanding common stock
(flip in event), each Right will become exercisable for shares of Apache's
common stock at 50 percent of the then market price of the common stock. If a 20
percent shareholder of Apache acquires Apache, by merger or otherwise, in a
transaction where Apache does not survive or in which Apache's common stock is
changed or exchanged (flip over event), the Rights become exercisable for shares
of the common stock of the company acquiring Apache at 50 percent of the then
market price for Apache common stock. Any Rights that are or were beneficially
owned by a person who has acquired 20 percent or more of the outstanding shares
of Apache common stock and who engages in certain transactions or realizes the
benefits of certain transactions with the Company will become void. The Company
may redeem the Rights at $.01 per Right at any time until 10 business days after
public announcement of a flip in event. The Rights will expire on January 31,
2006, unless earlier redeemed by the Company. Unless the Rights have been
previously redeemed, all shares of Apache common stock issued by the Company
after January 31, 1996 will include Rights. Unless and until the Rights become
exercisable, they will be transferred with and only with the shares of Apache
common stock.
Series B Preferred Stock -- In August 1998, Apache issued 100,000 shares
($100 million) of Series B Preferred Stock in the form of one million depositary
shares, each representing one-tenth (1/10) of a share of Series B Preferred
Stock, for net proceeds of $98.4 million. The Series B Preferred Stock has no
stated maturity, is not subject to a sinking fund and is not convertible into
Apache common stock or any other securities of the Company. Apache has the
option to redeem the Series B Preferred Stock at $1,000 per share on or after
August 25, 2008. Holders of the shares are entitled to receive cumulative cash
dividends at an annual rate of $5.68 per depositary share when, and if, declared
by Apache's board of directors.
Series C Preferred Stock -- In May 1999, Apache issued 140,000 shares ($217
million) of Series C Preferred Stock in the form of seven million depositary
shares each representing one-fiftieth (1/50) of a share of Series C Preferred
Stock, for net proceeds of $210.5 million. The Series C Preferred Stock is not
subject to a sinking fund or mandatory redemption. On May 15, 2002, each
depositary share will automatically convert,
F-22
<PAGE> 62
APACHE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
subject to adjustments, into not more than one share and not less than 0.8197 of
a share of Apache common stock, depending on the market price of Apache common
stock at that time.
At any time prior to May 15, 2002, holders of the depositary shares may
elect to convert each of their shares, subject to adjustments, into not less
than 0.8197 of a share of Apache common stock (5,737,900 common shares). Holders
of the shares are entitled to receive cumulative cash dividends at an annual
rate of $2.015 per depositary share when, and if, declared by Apache's board of
directors.
Comprehensive Income -- In the first quarter of 1998, the Company adopted
SFAS No. 130, "Reporting Comprehensive Income," which established standards for
reporting components of comprehensive income. Components of accumulated other
comprehensive income (loss) consist of the following (in thousands):
<TABLE>
<CAPTION>
UNREALIZED ACCUMULATED
CURRENCY GAIN ON OTHER
TRANSLATION MARKETABLE COMPREHENSIVE
ADJUSTMENTS SECURITIES INCOME
----------- ---------- -------------
<S> <C> <C> <C>
December 31, 1997................................ $(20,459) $ -- $(20,459)
======== ======== ========
December 31, 1998................................ $(33,204) $ -- $(33,204)
======== ======== ========
December 31, 1999................................ $ (8,661) $ 215 $ (8,446)
======== ======== ========
</TABLE>
The unrealized gain on marketable securities at December 31, 1999 is net of
income taxes of $129,000. The currency translation adjustments are not adjusted
for income taxes as they relate to an indefinite investment in a non-U.S.
subsidiary.
8. NON-CASH INVESTING AND FINANCING ACTIVITIES
A summary of non-cash investing and financing activities is presented
below:
In June 1999, the Company acquired certain oil and gas interests from
British-Borneo for cash and the assumption of certain liabilities. The
accompanying financial statements include the amounts detailed in Note 2.
In May 1999, the Company issued one million shares of Apache common stock
to Shell Offshore in connection with the transaction discussed in Note 2.
In December 1998 and January 1999, the Company acquired certain oil and gas
interests from subsidiaries of Novus for cash and the assumption of certain
liabilities. The accompanying financial statements include the amounts detailed
in Note 2.
In June 1998, Apache formed a strategic alliance with Cinergy Corp.
(Cinergy) and sold its 57 percent interest in ProEnergy for 771,258 shares of
Cinergy common stock valued at $26.5 million.
In March 1998, Apache acquired certain oil and gas property interests for
approximately 177,000 shares of Apache common stock valued at $6.1 million.
In January 1998, approximately 90 percent, or $155.6 million principal
amount, of the Company's 6-percent convertible subordinated debentures was
converted into approximately 5.1 million shares of Apache common stock at a
conversion price of $30.68 per share.
In November 1997, Apache acquired certain assets through the Ampolex Group
Transaction for cash and the assumption of certain liabilities. The accompanying
financial statements include the amounts detailed in Note 2.
In November 1997, the Company's $75 million principal amount of
3.93-percent convertible notes were converted into approximately 2.8 million
shares of Apache common stock at a conversion price of $27 per share.
F-23
<PAGE> 63
APACHE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Supplemental Disclosure of Cash Flow Information:
<TABLE>
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31,
---------------------------------
1999 1998 1997
--------- --------- ---------
(IN THOUSANDS)
<S> <C> <C> <C>
Cash paid during the year for:
Interest, net of amounts capitalized...................... $70,691 $71,968 $63,633
Income and other taxes, net of refunds.................... 66,224 23,680 35,464
</TABLE>
9. FINANCIAL INSTRUMENTS AND OFF-BALANCE-SHEET RISK
The following table presents the carrying amounts and estimated fair values
of the Company's financial instruments at December 31, 1999 and 1998.
<TABLE>
<CAPTION>
1999 1998
------------------- -------------------
CARRYING FAIR CARRYING FAIR
AMOUNT VALUE AMOUNT VALUE
-------- -------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Cash and cash equivalents.......................... $ 13,171 $ 13,171 $ 14,537 $ 14,537
Long-term debt:
Bank debt........................................ 312,590 312,590 262,780 262,780
Commercial paper................................. -- -- 59,000 59,000
7.95-percent notes............................... 178,560 176,760 178,544 195,624
7.625-percent debentures......................... 149,175 136,628 149,175 147,749
7.625-percent notes.............................. 149,063 144,075 -- --
7-percent notes.................................. 148,291 135,975 148,246 148,410
7.375-percent debentures......................... 147,993 136,755 147,988 152,055
9.25-percent notes............................... 99,882 104,170 99,842 109,290
7.7-percent notes................................ 99,646 95,470 99,642 105,660
Money market lines of credit..................... 6,158 6,158 15,500 15,500
Apache Finance Australia 6.5-percent notes....... 168,916 156,689 168,816 171,530
Apache Finance Australia 7-percent notes......... 99,376 95,238 -- --
DEKALB 9.875-percent notes....................... 29,225 29,655 29,225 30,589
Apache Finance Canada 7.75-percent notes......... 296,933 283,380 -- --
Hedging financial instruments:
Commodity price swaps:
-- Natural gas(1)............................. -- 11,073 -- (13,066)
-- Oil........................................ -- (9,369) -- 3
Commodity collars:
-- Natural gas................................ 183 846 -- --
-- Oil........................................ 425 (4,890) -- --
</TABLE>
- ---------------
(1) The fair value of natural gas price swaps at December 31, 1999 and 1998
reflects fixed-to-floating price swaps where there is an offsetting position
with a physical contract. See Commodity Price Hedges below.
F-24
<PAGE> 64
APACHE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The following methods and assumptions were used to estimate the fair value
of the financial instruments summarized in the table above. The carrying values
of trade receivables and trade payables included in the accompanying
consolidated balance sheet approximated market value at December 31, 1999 and
1998.
Cash and Cash Equivalents -- The carrying amounts approximated fair value
due to the short maturity of these instruments.
Long-Term Debt -- The fair values of the 7.625-percent debentures and the
Apache Finance Australia 7-percent notes are based upon estimates provided to
the Company by independent investment banking firms. The fair values of all
other notes and debentures are based on the quoted market prices. The carrying
amount of the bank debt, commercial paper and money market lines of credit
approximated fair value because the interest rates are variable and reflective
of market rates.
Commodity Price Hedges -- Apache periodically enters into commodity
derivative contracts and fixed-price physical contracts to manage its exposure
to oil and gas price volatility. Commodity derivatives contracts, which are
usually placed with major financial institutions that the Company believes are
minimal credit risks, may take the form of futures contracts, swaps or options.
The derivative contracts call for Apache to receive, or make, payments based
upon the differential between a fixed and a variable commodity price as
specified in the contract. As a result of these activities, Apache recognized
hedging losses of $6.7 million in 1999 and hedging gains of $1.3 million and
$14.5 million in 1998 and 1997, respectively. The hedging gains and losses are
included in oil and gas production revenues in the statement of consolidated
operations.
The following table and note thereto cover the Company's pricing and
notional volumes on open commodity derivative contracts as of December 31, 1999:
<TABLE>
<CAPTION>
2000 2001 2002 2003 2004 THEREAFTER
------ ------ ------ ----- ----- ----------
<S> <C> <C> <C> <C> <C> <C>
Natural Gas Swap Positions (FERC indexes):
Pay fixed price -- January 2000 to July 2008 (thousand
MMBtu/d)(1)......................................... 50 30 30 30 30 32
Average swap price, per MMBtu(1)...................... $ 2.27 $ 2.27 $ 2.31 $2.35 $2.39 $2.51
Oil Swap Positions (NYMEX):
Receive fixed price -- January to August 2000
(Mbbl/d)............................................ 5 -- -- -- -- --
Swap price, per bbl................................... $19.42 -- -- -- -- --
Oil Swap Positions (NYMEX):
Receive fixed price -- January 2000 to June 2002
(Mbbl/d)............................................ 10 9 8 -- -- --
Average swap price, per bbl........................... $20.52 $18.82 $18.45 -- -- --
Oil Collar Positions (NYMEX):
Volume -- January to August 2000 (Mbbl/d)............. 13 -- -- -- -- --
Average ceiling price, per bbl........................ $23.00 -- -- -- -- --
Average floor price, per bbl.......................... $17.73 -- -- -- -- --
Gas Collar Positions (NYMEX):
Volume -- January to August 2000 (thousand MMBtu/d)... 80 -- -- -- -- --
Average ceiling price, per MMBtu...................... $ 3.31 -- -- -- -- --
Average floor price, per MMBtu........................ $ 2.06 -- -- -- -- --
</TABLE>
- ---------------
(1) The Company has various contracts to supply gas at fixed prices. In order to
lock in a margin on a portion of the volumes, the Company is a fixed price
payor on swap transactions. The average physical contract price ranges from
$2.32 in 2000 to $2.56 in 2008. The fair value of these hedges was $11.1
million at December 31, 1999, all of which is related to the arrangements
discussed in Note 6.
F-25
<PAGE> 65
APACHE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
10. COMMITMENTS AND CONTINGENCIES
Litigation -- The Company is involved in litigation and is subject to
governmental and regulatory controls arising in the ordinary course of business.
It is the opinion of the Company's management that all claims and litigation
involving the Company are not likely to have a material adverse effect on its
financial position or results of operations.
Environmental -- Apache, as an owner and operator of oil and gas
properties, is subject to various federal, state, local and foreign country laws
and regulations relating to discharge of materials into, and protection of, the
environment. These laws and regulations may, among other things, impose
liability on the lessee under an oil and gas lease for the cost of pollution
clean-up resulting from operations and subject the lessee to liability for
pollution damages. Apache maintains insurance coverage, which it believes, is
customary in the industry, although it is not fully insured against all
environmental risks.
As part of the Company's due diligence review for acquisitions, Apache
conducts an extensive environmental evaluation of purchased properties.
Depending on the extent of an identified environmental problem, the Company may
exclude a property from the acquisition, require the seller to remediate the
property to Apache's satisfaction, or agree to assume liability for remediation
of the property. As of December 31, 1999, Apache had a reserve for environmental
remediation of approximately $7.7 million. The Company is not aware of any
environmental claims existing as of December 31, 1999, which have not been
provided for or would otherwise have a material impact on its financial position
or results of operations. There can be no assurance, however, that current
regulatory requirements will not change, or past non-compliance with
environmental laws will not be discovered on the Company's properties.
International Commitments -- The Company, through its subsidiaries, has
acquired or has been conditionally or unconditionally granted exploration rights
in Australia, Egypt, China and Poland. In order to comply with the contracts and
agreements granting these rights, the Company, through various wholly-owned
subsidiaries, is committed to expend approximately $95 million through 2003.
Retirement and Deferred Compensation Plans -- The Company provides a 401(k)
savings plan for employees which allows participating employees to elect to
contribute up to 12 percent of their salaries, with Apache making matching
contributions up to a maximum of six percent of each employee's salary. In
addition, the Company annually contributes six percent of each participating
employee's compensation, as defined, to a money purchase retirement plan. The
401(k) plan and the money purchase retirement plan are subject to certain
annually-adjusted, government-mandated restrictions which limit the amount of
each employee's contributions.
For certain eligible employees, the Company also provides a non-qualified
retirement/savings plan which allows the deferral of up to 50 percent of each
such employee's salary, and which accepts employee contributions and the
Company's matching contributions in excess of the above-referenced restrictions
on the 401(k) savings plan and money purchase retirement plan. Additionally,
Apache Energy Limited and Apache Canada Ltd. maintain separate retirement plans,
as required under the laws of Australia and Canada, respectively.
Vesting in the Company's contributions to the 401(k) savings plan, the
money purchase retirement plan and the non-qualified retirement/savings plan
occurs at the rate of 20 percent per year. Total expenses under all plans were
$7.8 million, $7.3 million and $6.3 million for 1999, 1998 and 1997,
respectively. The unfunded liability for all plans has been accrued in the
consolidated balance sheet.
China -- On May 28, 1999, Apache China Corporation LDC (Apache China, an
indirect wholly owned subsidiary of the Company) sent a notice of default to
XCL-China, Ltd. (XCL-China), a participant with Apache China in the Zhao Dong
Block offshore the People's Republic of China, and its parent company, XCL,
Ltd., for the failure to pay approximately $10 million of costs pursuant to the
agreements governing the
F-26
<PAGE> 66
APACHE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
project. Prior to the expiration of the cure period, XCL-China and XCL, Ltd.
filed petitions initiating arbitration proceedings against Apache China. The
actions seek to disallow approximately $17 million in costs expended by Apache
China related to developing the Zhao Dong Block, including the $10 million in
costs billed by Apache China to XCL-China that have not been paid. In addition,
XCL-China has advised Apache China of XCL-China's intent to seek the removal of
Apache China as operator of the Block. Apache China has denied the allegations
made by XCL-China in its petition and is vigorously contesting them. On November
30, 1999 the arbitration proceedings were stayed in connection with the
bankruptcy proceeding described below.
On June 25, 1999, Apache China filed a petition in U.S. Bankruptcy Court in
Opelousas, Louisiana, to place XCL-China into involuntary bankruptcy under
Chapter 7 of the Bankruptcy Code on account of XCL-China's failure to pay its
share of costs related to development of the Zhao Dong Block. On December 21,
1999, the holders of XCL, Ltd.'s senior secured notes, acting through their
Trustee, exercised their remedial rights under their indenture and removed the
existing Board of Directors of XCL-China, electing a new Board. The new Board of
Directors of XCL-China voted to withdraw XCL-China's opposition to Apache
China's Chapter 7 bankruptcy petition filed against XCL-China and on December
22, 1999 obtained an order of the Court converting the proceeding into a
voluntary Chapter 11 bankruptcy proceeding.
Apache China has entered into negotiations with the Chinese authorities
concerning the terms and conditions of the development of the Zhao Dong Block
including, among other things the portion of XCL-China's future development
costs to be paid by the Chinese. Apache China is prepared to move forward as
soon as these negotiations are satisfactorily concluded.
Lease Commitments -- The Company has leases for buildings, facilities and
equipment with varying expiration dates through 2007. Net rental expense was
$11.5 million, $8.1 million and $5.8 million for 1999, 1998 and 1997,
respectively.
As of December 31, 1999, minimum rental commitments under long-term
operating leases, net of sublease rentals, and long-term pipeline transportation
commitments, ranging from one to 24 years, are as follows:
<TABLE>
<CAPTION>
NET MINIMUM
COMMITMENTS
--------------
(IN THOUSANDS)
<S> <C>
2000.................................................. $ 16,891
2001.................................................. 14,591
2002.................................................. 14,029
2003.................................................. 13,693
2004.................................................. 13,200
Thereafter............................................ 70,579
--------
$142,983
========
</TABLE>
Partnership in Western Australia -- Apache is a partner in a partnership
formed to construct and operate a 62-mile pipeline from Varanus Island to
onshore facilities in Western Australia. Apache has a 50 percent interest in the
partnership and has guaranteed 50 percent of the partnership's share of any
related debt incurred by the partnership up to the time certain documentation
related to the partnership's debt is finalized. Thereafter, the partnership debt
will be non-recourse to Apache. The Company has dedicated the production volumes
of six take-or-pay gas sales contracts to the pipeline. Apache will be required
to prepay transportation tariffs in the event Apache receives payments under the
take-or-pay provisions of these contracts, or in the event the Company fails to
deliver the volumes required by the contracts and requested by the purchasers.
F-27
<PAGE> 67
APACHE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
11. TRANSACTIONS WITH RELATED PARTIES AND MAJOR CUSTOMERS
Strategic Alliance with Cinergy Corp. -- In June 1998, Apache formed a
strategic alliance with Cinergy to market substantially all the Company's
natural gas production from North America and sold its 57 percent interest in
ProEnergy for 771,258 shares of Cinergy common stock subsequently sold for $26.1
million. ProEnergy, renamed Cinergy Marketing and Trading LLC, will continue to
market Apache's North American natural gas production for 10 years, with an
option to terminate after six years, under an amended and restated gas purchase
agreement effective July 1, 1998. During this period, Apache is generally
obligated to deliver most of its North American gas production to Cinergy and,
under certain circumstances, reimburse Cinergy if certain gas throughput
thresholds are not met. Accordingly, Apache recorded a deferred gain of $20.0
million, subject to adjustment, on the sale of ProEnergy that is being amortized
over six years.
Related Parties -- F.H. Merelli, a member of the Company's board of
directors since July 1997, is chairman, president and chief executive officer of
Key Production Company, Inc. (Key). In the normal course of business, Key paid
to Apache during 1999 approximately $3.0 million for Key's proportionate share
of drilling and workover costs, mineral interests and routine expenses relating
to 380 oil and gas wells in which Key owns interests and for which Apache is the
operator. Key received approximately $6.3 million in 1999 for its proportionate
share of revenues from such interests, of which approximately $4.2 million was
paid directly to Key by Apache or related entities.
Major Purchasers -- In 1999, purchases by Cinergy and the Egyptian General
Petroleum Corporation (EGPC) accounted for 29 percent and 21 percent of the
Company's oil and gas production revenues, respectively. In 1998, purchases by
Cinergy/ProEnergy and EGPC accounted for 38 percent and 17 percent of the
Company's oil and gas production revenues, respectively. In 1997, purchases by
ProEnergy and EGPC accounted for 40 percent and 13 percent of the Company's oil
and gas production revenues.
Concentration of Credit Risk -- The Company's revenues are derived
principally from uncollateralized sales to customers in the oil and gas
industry; therefore, customers may be similarly affected by changes in economic
and other conditions within the industry. Apache has not experienced significant
credit losses on such sales. Sales of natural gas by Apache to Cinergy are
similarly uncollateralized.
F-28
<PAGE> 68
APACHE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
12. BUSINESS SEGMENT INFORMATION
Apache has five reportable segments which are primarily in the business of
natural gas and crude oil exploration and production. The accounting policies of
the segments are the same as those described in the summary of significant
accounting policies. 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>
1999
Oil and Gas Production
Revenues....................... $ 699,039 $ 86,901 $235,935 $118,524 $ 1,937 $1,142,336
Operating Expenses:
Depreciation, depletion and
amortization................ 290,771 34,560 74,736 41,716 1,061 442,844
Operating costs................ 151,090 19,962 26,444 25,216 849 223,561
Gathering, processing and
marketing, net.............. (2,195) -- -- -- -- (2,195)
---------- -------- -------- -------- -------- ----------
Operating Income................. $ 259,373 $ 32,379 $134,755 $ 51,592 $ 27 478,126
========== ======== ======== ======== ========
Other Income (Expense):
Equity in income of
affiliates.................. 153
Other revenues................. 2,454
Administrative, selling and
other....................... (53,894)
Financing costs, net........... (82,266)
----------
Income Before Income Taxes....... $ 344,573
==========
Total Long-Lived Assets.......... $2,548,413 $861,829 $845,873 $728,592 $131,151 $5,115,858
========== ======== ======== ======== ======== ==========
Total Assets..................... $2,760,163 $894,592 $908,502 $782,520 $156,766 $5,502,543
========== ======== ======== ======== ======== ==========
Additions to Long-Lived Assets... $1,053,285 $577,455 $111,534 $175,848 $ 28,286 $1,946,408
========== ======== ======== ======== ======== ==========
</TABLE>
F-29
<PAGE> 69
APACHE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
<TABLE>
<CAPTION>
OTHER
UNITED STATES CANADA EGYPT AUSTRALIA INTERNATIONAL TOTAL
------------- -------- -------- --------- ------------- ----------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
1998
Oil and Gas Production
Revenues....................... $ 496,238 $ 63,620 $129,123 $ 70,057 $ -- $ 759,038
Operating Expenses:
Depreciation, depletion and
amortization
Recurring................... 256,507 30,514 59,825 35,961 -- 382,807
Additional.................. 243,178 -- -- -- -- 243,178
Operating costs................ 154,264 17,216 23,436 16,638 -- 211,554
Gathering, processing and
marketing, net.............. (2,924) -- -- -- -- (2,924)
---------- -------- -------- -------- -------- ----------
Operating Income (Loss).......... $ (154,787) $ 15,890 $ 45,862 $ 17,458 $ -- (75,577)
========== ======== ======== ======== ========
Other Income (Expense):
Equity in loss of affiliates... (1,558)
Other revenues................. 840
Administrative, selling and
other....................... (40,731)
Financing costs, net........... (70,537)
----------
Loss Before Income Taxes......... $ (187,563)
==========
Total Long-Lived Assets.......... $1,892,020 $290,341 $809,075 $592,979 $143,126 $3,727,541
========== ======== ======== ======== ======== ==========
Total Assets..................... $2,046,628 $305,238 $853,561 $633,981 $156,654 $3,996,062
========== ======== ======== ======== ======== ==========
Additions to Long-Lived Assets... $ 274,395 $ 73,327 $219,162 $145,037 $ 70,251 $ 782,172
========== ======== ======== ======== ======== ==========
1997
Oil and Gas Production
Revenues....................... $ 740,037 $ 61,328 $132,493 $ 49,915 $ -- $ 983,773
Operating Expenses:
Depreciation, depletion and
amortization................ 292,531 26,028 43,945 18,912 -- 381,416
Operating costs................ 187,753 16,687 16,212 10,718 -- 231,370
Gathering, processing and
marketing, net.............. (2,672) -- -- -- -- (2,672)
---------- -------- -------- -------- -------- ----------
Operating Income................. $ 262,425 $ 18,613 $ 72,336 $ 20,285 $ -- 373,659
========== ======== ======== ======== ========
Other Income (Expense):
Equity in loss of affiliates... (1,683)
Other revenues................. (2,768)
Administrative, selling and
other....................... (38,243)
Financing costs, net........... (72,325)
----------
Income Before Income Taxes....... $ 258,640
==========
Total Long-Lived Assets.......... $2,243,489 $270,604 $649,758 $483,817 $ 85,517 $3,733,185
========== ======== ======== ======== ======== ==========
Total Assets..................... $2,492,233 $285,214 $687,784 $582,487 $ 90,915 $4,138,633
========== ======== ======== ======== ======== ==========
Additions to Long-Lived Assets... $ 409,167 $ 69,881 $205,001 $335,986 $ 29,365 $1,049,400
========== ======== ======== ======== ======== ==========
</TABLE>
F-30
<PAGE> 70
APACHE CORPORATION AND SUBSIDIARIES
SUPPLEMENTAL OIL AND GAS DISCLOSURES
(UNAUDITED)
Oil and Gas Operations -- The following table sets forth revenue and direct
cost information relating to the Company's oil and gas exploration and
production activities. Apache has no long-term agreements to purchase oil or gas
production from foreign governments or authorities.
<TABLE>
<CAPTION>
UNITED IVORY
STATES CANADA EGYPT AUSTRALIA COAST TOTAL
-------- ------- -------- --------- ------ ----------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
1999
Oil and gas production revenues...... $699,039 $86,901 $235,935 $118,524 $1,937 $1,142,336
-------- ------- -------- -------- ------ ----------
Operating costs:
Depreciation, depletion and
amortization.................... 280,033 33,671 74,695 40,952 309 429,660
Lease operating expenses........... 125,452 18,095 26,444 20,321 849 191,161
Production taxes................... 23,212 -- -- 4,895 -- 28,107
Income tax......................... 101,378 15,677 64,702 18,848 273 200,878
-------- ------- -------- -------- ------ ----------
530,075 67,443 165,841 85,016 1,431 849,806
-------- ------- -------- -------- ------ ----------
Results of operations................ $168,964 $19,458 $ 70,094 $ 33,508 $ 506 $ 292,530
======== ======= ======== ======== ====== ==========
Amortization rate per boe(1)......... $ 6.10 $ 4.54 $ 5.25 $ 4.12 $ 1.72 $ 5.57
======== ======= ======== ======== ====== ==========
1998
Oil and gas production revenues...... $496,238 $63,620 $129,123 $ 70,057 $ -- $ 759,038
-------- ------- -------- -------- ------ ----------
Operating costs:
Depreciation, depletion and
amortization
Recurring....................... 246,994 29,967 59,825 35,219 -- 372,005
Additional...................... 243,178 -- -- -- -- 243,178
Lease operating expenses........... 129,585 16,419 23,436 13,472 -- 182,912
Production taxes................... 21,503 -- -- 3,166 -- 24,669
Income tax (benefit)............... (54,383) 7,686 22,014 6,552 -- (18,131)
-------- ------- -------- -------- ------ ----------
586,877 54,072 105,275 58,409 -- 804,633
-------- ------- -------- -------- ------ ----------
Results of operations................ $(90,639) $ 9,548 $ 23,848 $ 11,648 $ -- $ (45,595)
======== ======= ======== ======== ====== ==========
Amortization rate per boe(1)......... $ 6.21 $ 4.03 $ 5.22 $ 4.86 $ -- $ 5.66
======== ======= ======== ======== ====== ==========
1997
Oil and gas production revenues...... $740,037 $61,328 $132,493 $ 49,915 $ -- $ 983,773
-------- ------- -------- -------- ------ ----------
Operating costs:
Depreciation, depletion and
amortization.................... 283,866 25,592 43,945 18,210 -- 371,613
Lease operating expenses........... 151,236 16,122 16,212 7,226 -- 190,796
Production taxes................... 33,539 -- -- 3,492 -- 37,031
Income tax......................... 101,774 8,748 34,721 7,555 -- 152,798
-------- ------- -------- -------- ------ ----------
570,415 50,462 94,878 36,483 -- 752,238
-------- ------- -------- -------- ------ ----------
Results of operations................ $169,622 $10,866 $ 37,615 $ 13,432 $ -- $ 231,535
======== ======= ======== ======== ====== ==========
Amortization rate per boe(1)......... $ 6.12 $ 3.96 $ 5.47 $ 5.23 $ -- $ 5.77
======== ======= ======== ======== ====== ==========
</TABLE>
- ---------------
(1) Amortization rate per boe reflects only depreciation, depletion and
amortization (DD&A) of capitalized costs of proved oil and gas properties
(and excludes the additional DD&A recorded in 1998).
F-31
<PAGE> 71
APACHE CORPORATION AND SUBSIDIARIES
SUPPLEMENTAL OIL AND GAS DISCLOSURES -- (CONTINUED)
(UNAUDITED)
Costs Not Being Amortized -- The following table sets forth a summary of
oil and gas property costs not being amortized at December 31, 1999, by the year
in which such costs were incurred:
<TABLE>
<CAPTION>
1996
TOTAL 1999 1998 1997 AND PRIOR
-------- -------- -------- -------- ---------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Property acquisition costs.............. $576,817 $260,434 $ 64,764 $ 84,469 $167,150
Exploration and development............. 292,291 85,611 92,029 70,636 44,015
-------- -------- -------- -------- --------
Total......................... $869,108 $346,045 $156,793 $155,105 $211,165
======== ======== ======== ======== ========
</TABLE>
Capitalized Costs Incurred -- The following table sets forth the
capitalized costs incurred in oil and gas producing activities:
<TABLE>
<CAPTION>
OTHER
UNITED STATES CANADA EGYPT AUSTRALIA IVORY COAST INTERNATIONAL TOTAL
------------- -------- -------- --------- ----------- ------------- ----------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
1999
Acquisition of proved
properties(1)............. $ 801,157 $503,771 $ -- $ 86,278 $ -- $ -- $1,391,206
Acquisition of unproved
properties................ 9,044 5,464 -- -- -- -- 14,508
Exploration................. 29,207 14,218 24,071 26,866 -- 17,097 111,459
Development................. 179,225 26,009 35,737 34,110 2,553 1,738 279,372
Capitalized interest........ 22,031 3,176 7,904 8,289 619 3,703 45,722
Property sales.............. (106,122) (3,872) -- -- (45,232) -- (155,226)
--------- -------- -------- -------- -------- -------- ----------
$ 934,542 $548,766 $ 67,712 $155,543 $(42,060) $ 22,538 $1,687,041
========= ======== ======== ======== ======== ======== ==========
1998
Acquisition of proved
properties(1)............. $ 13,240 $ 1,034 $ 2,249 $ 41,608 $ 271 $ -- $ 58,402
Acquisition of unproved
properties................ 20,819 5,458 -- -- -- -- 26,277
Exploration................. 27,482 20,054 65,696 39,578 -- 30,563 183,373
Development................. 174,449 44,245 39,735 40,521 23,527 9,293 331,770
Capitalized interest........ 15,390 1,710 19,226 6,354 829 5,770 49,279
Property sales.............. (123,861) (4,943) -- -- -- (12,645) (141,449)
--------- -------- -------- -------- -------- -------- ----------
$ 127,519 $ 67,558 $126,906 $128,061 $ 24,627 $ 32,981 $ 507,652
========= ======== ======== ======== ======== ======== ==========
1997
Acquisition of proved
properties(1)............. $ 21,927 $ 11,635 $ -- $192,372 $ -- $ -- $ 225,934
Acquisition of unproved
properties................ 34,487 6,061 7,744 7,975 -- 136 56,403
Exploration................. 55,997 21,270 41,910 18,744 67 24,199 162,187
Development................. 268,788 28,932 90,284 41,844 489 -- 430,337
Capitalized interest........ 15,743 1,406 12,626 2,239 521 3,958 36,493
Property sales.............. (24,609) (5,525) -- -- -- -- (30,134)
--------- -------- -------- -------- -------- -------- ----------
$ 372,333 $ 63,779 $152,564 $263,174 $ 1,077 $ 28,293 $ 881,220
========= ======== ======== ======== ======== ======== ==========
</TABLE>
- ---------------
(1) Acquisition of proved properties includes unevaluated costs of $256.4
million, $15.7 million and $53.8 million for transactions completed in 1999,
1998 and 1997, respectively.
F-32
<PAGE> 72
APACHE CORPORATION AND SUBSIDIARIES
SUPPLEMENTAL OIL AND GAS DISCLOSURES -- (CONTINUED)
(UNAUDITED)
Capitalized Costs -- The following table sets forth the capitalized costs
and associated accumulated depreciation, depletion and amortization, including
impairments, relating to the Company's oil and gas production, exploration and
development activities:
<TABLE>
<CAPTION>
OTHER
UNITED STATES CANADA EGYPT AUSTRALIA IVORY COAST INTERNATIONAL TOTAL
------------- ---------- --------- --------- ----------- ------------- -----------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
1999
Proved properties....... $ 5,291,247 $ 939,979 $ 543,132 $ 585,204 $ -- $ 50,225 $ 7,409,787
Unproved properties..... 211,576 156,600 215,582 155,160 -- 130,190 869,108
----------- ---------- --------- --------- ------- -------- -----------
5,502,823 1,096,579 758,714 740,364 -- 180,415 8,278,895
Accumulated DD&A........ (2,997,167) (260,573) (174,431) (131,296) -- (50,225) (3,613,692)
----------- ---------- --------- --------- ------- -------- -----------
$ 2,505,656 $ 836,006 $ 584,283 $ 609,068 $ -- $130,190 $ 4,665,203
=========== ========== ========= ========= ======= ======== ===========
1998
Proved properties....... $ 4,430,504 $ 480,836 $ 454,434 $ 465,009 $21,409 $ 49,671 $ 5,901,863
Unproved properties..... 137,775 21,996 236,568 119,812 13,497 108,206 637,854
----------- ---------- --------- --------- ------- -------- -----------
4,568,279 502,832 691,002 584,821 34,906 157,877 6,539,717
Accumulated DD&A........ (2,717,135) (213,615) (108,491) (96,229) -- (49,671) (3,185,141)
----------- ---------- --------- --------- ------- -------- -----------
$ 1,851,144 $ 289,217 $ 582,511 $ 488,592 $34,906 $108,206 $ 3,354,576
=========== ========== ========= ========= ======= ======== ===========
</TABLE>
F-33
<PAGE> 73
APACHE CORPORATION AND SUBSIDIARIES
SUPPLEMENTAL OIL AND GAS DISCLOSURES -- (CONTINUED)
(UNAUDITED)
Oil and Gas Reserve Information -- Proved oil and gas reserve quantities
are based on estimates prepared by the Company's engineers in accordance with
guidelines established by the Securities and Exchange Commission (SEC). The
Company's estimates of proved reserve quantities of its U.S., Canadian and
international properties are subject to review by Ryder Scott Company, L.P.
Petroleum Consultants, independent petroleum engineers. In 1996, the proved
reserve quantities of certain of the Company's Egyptian properties were subject
to review by Netherland, Sewell & Associates, Inc., independent petroleum
engineers.
There are numerous uncertainties inherent in estimating quantities of
proved reserves and projecting future rates of production and timing of
development expenditures. The following reserve data represents estimates only
and should not be construed as being exact.
<TABLE>
<CAPTION>
CRUDE OIL, CONDENSATE AND NATURAL GAS LIQUIDS
---------------------------------------------------------
(THOUSANDS OF BARRELS)
UNITED IVORY
STATES CANADA EGYPT AUSTRALIA COAST TOTAL
------- ------ ------- --------- ------ -------
<S> <C> <C> <C> <C> <C> <C>
PROVED DEVELOPED RESERVES:
December 31, 1996................. 129,551 10,351 38,213 5,106 -- 183,221
December 31, 1997................. 133,035 11,313 42,714 15,690 393 203,145
December 31, 1998................. 107,306 10,962 33,705 24,674 1,352 177,999
December 31, 1999................. 186,962 50,401 30,719 33,887 -- 301,969
TOTAL PROVED RESERVES:
Balance December 31, 1996.......... 158,923 10,366 46,579 19,426 -- 235,294
Extensions, discoveries and other
additions....................... 32,530 2,677 10,492 12,814 393 58,906
Purchases of minerals in-place.... 1,818 278 -- 9,116 -- 11,212
Revisions of previous estimates... (7,283) (379) 4,696 -- -- (2,966)
Production........................ (15,448) (1,003) (7,071) (1,612) -- (25,134)
Sales of properties............... (2,923) (611) -- -- -- (3,534)
------- ------ ------- ------ ------ -------
Balance December 31, 1997.......... 167,617 11,328 54,696 39,744 393 273,778
Extensions, discoveries and other
additions....................... 36,655 1,917 5,906 11,765 930 57,173
Purchases of minerals in-place.... 4,768 59 -- 1,214 -- 6,041
Revisions of previous estimates... (40,868) (155) 4,739 (3,121) 29 (39,376)
Production........................ (13,262) (988) (10,188) (3,225) -- (27,663)
Sales of properties............... (18,726) (219) -- -- -- (18,945)
------- ------ ------- ------ ------ -------
Balance December 31, 1998.......... 136,184 11,942 55,153 46,377 1,352 251,008
Extensions, discoveries and other
additions....................... 23,370 1,114 5,327 4,056 -- 33,867
Purchases of minerals in-place.... 76,493 70,640 -- 4,686 -- 151,819
Revisions of previous estimates... 27,615 772 (9,815) 3,225 (30) 21,767
Production........................ (17,836) (1,344) (11,589) (3,878) (13) (34,660)
Sales of properties............... (7,169) (81) -- -- (1,309) (8,559)
------- ------ ------- ------ ------ -------
Balance December 31, 1999.......... 238,657 83,043 39,076 54,466 -- 415,242
======= ====== ======= ====== ====== =======
<CAPTION>
NATURAL GAS TOTAL
---------------------------------------------------------------- -----------
(MILLIONS OF CUBIC FEET) (THOUSAND
BARRELS OF
UNITED IVORY OIL
STATES CANADA EGYPT AUSTRALIA COAST TOTAL EQUIVALENT)
--------- ------- ------- --------- ------- --------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
PROVED DEVELOPED RESERVES:
December 31, 1996................. 1,087,694 274,498 6,977 66,174 -- 1,435,343 422,445
December 31, 1997................. 1,009,080 326,237 8,825 183,962 26,208 1,554,312 462,197
December 31, 1998................. 869,464 322,576 4,790 173,764 79,515 1,450,109 419,684
December 31, 1999................. 1,004,844 397,704 106,830 364,369 -- 1,873,747 614,260
TOTAL PROVED RESERVES:
Balance December 31, 1996.......... 1,201,552 280,417 72,182 71,153 -- 1,625,304 506,178
Extensions, discoveries and other
additions....................... 187,270 68,877 58,685 42,936 26,208 383,976 122,902
Purchases of minerals in-place.... 13,295 13,897 -- 136,817 -- 164,009 38,547
Revisions of previous estimates... (56,632) 4,257 13,584 -- -- (38,791) (9,431)
Production........................ (179,796) (32,740) (205) (9,496) -- (222,237) (62,174)
Sales of properties............... (33,940) (6,500) -- -- -- (40,440) (10,274)
--------- ------- ------- ------- ------- --------- -------
Balance December 31, 1997.......... 1,131,749 328,208 144,246 241,410 26,208 1,871,821 585,748
Extensions, discoveries and other
additions....................... 146,112 60,660 31,201 267,533 50,406 555,912 149,825
Purchases of minerals in-place.... 25,188 599 -- 27,373 -- 53,160 14,901
Revisions of previous estimates... (43,778) (7,812) 19,550 (76) 2,901 (29,215) (44,245)
Production........................ (157,701) (38,643) (567) (18,478) -- (215,389) (63,561)
Sales of properties............... (52,995) (11,068) -- -- -- (64,063) (29,622)
--------- ------- ------- ------- ------- --------- -------
Balance December 31, 1998.......... 1,048,575 331,944 194,430 517,762 79,515 2,172,226 613,046
Extensions, discoveries and other
additions....................... 34,804 13,015 11,725 10,837 -- 70,381 45,597
Purchases of minerals in-place.... 393,716 99,535 -- 72,770 -- 566,021 246,156
Revisions of previous estimates... 27,221 1,835 (44,297) 40 (4,296) (19,497) 18,518
Production........................ (168,428) (36,424) (5,809) (27,820) (1,003) (239,484) (74,574)
Sales of properties............... (121,001) (2,852) -- -- (74,216) (198,069) (41,571)
--------- ------- ------- ------- ------- --------- -------
Balance December 31, 1999.......... 1,214,887 407,053 156,049 573,589 -- 2,351,578 807,172
========= ======= ======= ======= ======= ========= =======
</TABLE>
F-34
<PAGE> 74
APACHE CORPORATION AND SUBSIDIARIES
SUPPLEMENTAL OIL AND GAS DISCLOSURES -- (CONTINUED)
(UNAUDITED)
Future Net Cash Flows -- Future cash inflows are based on year-end oil and
gas prices except in those instances where future natural gas or oil sales are
covered by physical or derivative contract terms providing for higher or lower
amounts. Operating costs, production and ad valorem taxes and future development
costs are based on current costs with no escalation.
The following table sets forth unaudited information concerning future net
cash flows for oil and gas reserves, net of income tax expense. Income tax
expense has been computed using expected future tax rates and giving effect to
tax deductions and credits available, under current laws, and which relate to
oil and gas producing activities. This information does not purport to present
the fair market value of the Company's oil and gas assets, but does present a
standardized disclosure concerning possible future net cash flows that would
result under the assumptions used.
<TABLE>
<CAPTION>
UNITED STATES CANADA (1) EGYPT AUSTRALIA IVORY COAST TOTAL
------------- ---------- ---------- ---------- ----------- -----------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
1999
Cash inflows...................... $ 8,559,045 $2,635,191 $1,529,575 $2,227,818 $ -- $14,951,629
Production and development
costs........................... (2,820,412) (845,373) (254,287) (639,441) -- (4,559,513)
Income tax expense................ (1,527,499) (427,930) (428,608) (310,472) -- (2,694,509)
----------- ---------- ---------- ---------- -------- -----------
Net cash flows.................... 4,211,134 1,361,888 846,680 1,277,905 -- 7,697,607
10 percent discount rate.......... (1,815,462) (667,085) (252,379) (387,320) -- (3,122,246)
----------- ---------- ---------- ---------- -------- -----------
Discounted future net cash
flows(2)........................ $ 2,395,672 $ 694,803 $ 594,301 $ 890,585 $ -- $ 4,575,361
=========== ========== ========== ========== ======== ===========
1998
Cash inflows...................... $ 3,523,294 $ 763,349 $ 877,861 $1,208,235 $129,965 $ 6,502,704
Production and development
costs........................... (1,496,382) (240,166) (263,199) (479,627) (28,718) (2,508,092)
Income tax expense................ (327,470) (127,405) (166,751) (156,409) (29,211) (807,246)
----------- ---------- ---------- ---------- -------- -----------
Net cash flows.................... 1,699,442 395,778 447,911 572,199 72,036 3,187,366
10 percent discount rate.......... (675,035) (165,220) (127,723) (209,448) (45,889) (1,223,315)
----------- ---------- ---------- ---------- -------- -----------
Discounted future net cash
flows(2)........................ $ 1,024,407 $ 230,558 $ 320,188 $ 362,751 $ 26,147 $ 1,964,051
=========== ========== ========== ========== ======== ===========
1997
Cash inflows...................... $ 5,585,925 $ 610,359 $1,196,054 $1,108,969 $ 58,589 $ 8,559,896
Production and development
costs........................... (2,151,076) (186,328) (427,608) (415,282) (31,710) (3,212,004)
Income tax expense................ (776,649) (89,852) (235,560) (131,017) -- (1,233,078)
----------- ---------- ---------- ---------- -------- -----------
Net cash flows.................... 2,658,200 334,179 532,886 562,670 26,879 4,114,814
10 percent discount rate.......... (1,049,380) (145,899) (179,290) (157,385) (19,598) (1,551,552)
----------- ---------- ---------- ---------- -------- -----------
Discounted future net cash
flows(2)........................ $ 1,608,820 $ 188,280 $ 353,596 $ 405,285 $ 7,281 $ 2,563,262
=========== ========== ========== ========== ======== ===========
</TABLE>
- ---------------
(1) Included in cash inflows is approximately $30.8 million, $27.9 million and
$27.3 million ($9.7 million, $9.1 million and $9.3 million after discount at
10 percent per annum) for 1999, 1998 and 1997, respectively, of Canadian
provincial tax credits expected to be realized beyond the date at which the
legislation, under its provisions, could be repealed.
(2) Estimated future net cash flows before income tax expense, discounted at 10
percent per annum, totaled approximately $6.1 billion, $2.4 billion and $3.3
billion as of December 31, 1999, 1998 and 1997, respectively.
F-35
<PAGE> 75
APACHE CORPORATION AND SUBSIDIARIES
SUPPLEMENTAL OIL AND GAS DISCLOSURES -- (CONTINUED)
(UNAUDITED)
The following table sets forth the principal sources of change in the
discounted future net cash flows:
<TABLE>
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31,
---------------------------------------
1999 1998 1997
----------- ----------- -----------
(IN THOUSANDS)
<S> <C> <C> <C>
Sales, net of production costs................ $ (923,068) $ (551,457) $ (755,946)
Net change in prices and production costs..... 2,619,118 (1,253,213) (1,904,236)
Discoveries and improved recovery, net of
related costs............................... 282,523 620,153 644,652
Change in future development costs............ 82,853 251,638 120,462
Revision of quantities........................ 90,221 (149,859) (40,121)
Purchases of minerals in-place................ 1,488,905 52,785 242,958
Accretion of discount......................... 239,589 327,262 456,848
Change in income taxes........................ (1,060,814) 277,518 545,424
Sales of properties........................... (136,453) (132,337) (48,353)
Change in production rates and other.......... (71,564) (41,701) (17,943)
----------- ----------- -----------
$ 2,611,310 $ (599,211) $ (756,255)
=========== =========== ===========
</TABLE>
Impact of Pricing -- The estimates of cash flows and reserve quantities
shown above are based on year-end oil and gas prices, except in those cases
where future natural gas or oil sales are covered by contracts at specified
prices. Estimates of future liabilities and receivables applicable to oil and
gas commodity hedges are reflected in future cash flows from proved reserves
with such estimates based on prices in effect as of the date of the reserve
report. Fluctuations are largely due to supply and demand perceptions for
natural gas and volatility in oil prices.
Under the full cost accounting rules of the SEC, the Company reviews the
carrying value of its proved oil and gas properties each quarter on a
country-by-country basis. Under these rules, capitalized costs of proved oil and
gas properties, net of accumulated DD&A and deferred income taxes, may not
exceed the present value of estimated future net cash flows from proved oil and
gas reserves, discounted at 10 percent, plus the lower of cost or fair value of
unproved properties included in the costs being amortized, net of related tax
effects. These rules generally require pricing future oil and gas production at
the unescalated oil and gas prices at the end of each fiscal quarter and require
a write-down if the "ceiling" is exceeded. Given the volatility of oil and gas
prices, it is reasonably possible that the Company's estimate of discounted
future net cash flows from proved oil and gas reserves could change in the near
term. If oil and gas prices decline significantly, even if only for a short
period of time, it is possible that write-downs of oil and gas properties could
occur in the future.
F-36
<PAGE> 76
APACHE CORPORATION AND SUBSIDIARIES
SUPPLEMENTAL QUARTERLY FINANCIAL DATA
(UNAUDITED)
<TABLE>
<CAPTION>
FIRST SECOND THIRD FOURTH (2) TOTAL
-------- -------- -------- ---------- ----------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C>
1999
Revenues.............................. $187,715 $281,636 $385,391 $ 445,763 $1,300,505
Expenses, net......................... 189,883 248,868 312,613 348,286 1,099,650
-------- -------- -------- --------- ----------
Net income (loss)..................... $ (2,168) $ 32,768 $ 72,778 $ 97,477 $ 200,855
======== ======== ======== ========= ==========
Income (loss) attributable to common
stock............................... $ (3,588) $ 29,632 $ 67,831 $ 92,531 $ 186,406
======== ======== ======== ========= ==========
Net income (loss) per common share (1)
Basic............................... $ (.04) $ .28 $ .59 $ .81 $ 1.73
======== ======== ======== ========= ==========
Diluted............................. $ (.04) $ .28 $ .59 $ .80 $ 1.72
======== ======== ======== ========= ==========
1998
Revenues.............................. $245,941 $220,132 $211,683 $ 197,959 $ 875,715
Expenses, net......................... 228,585 210,896 208,482 357,139 1,005,102
-------- -------- -------- --------- ----------
Net income (loss)..................... $ 17,356 $ 9,236 $ 3,201 $(159,180) $ (129,387)
======== ======== ======== ========= ==========
Income (loss) attributable to common
stock............................... $ 17,356 $ 9,236 $ 2,617 $(160,600) $ (131,391)
======== ======== ======== ========= ==========
Net income (loss) per common share (1)
Basic............................... $ .18 $ .09 $ .03 $ (1.64) $ (1.34)
======== ======== ======== ========= ==========
Diluted............................. $ .18 $ .09 $ .03 $ (1.64) $ (1.34)
======== ======== ======== ========= ==========
</TABLE>
- ---------------
(1) The sum of the individual quarterly net income (loss) per common share
amounts may not agree with year-to-date net income (loss) per common share
as each quarterly computation is based on the weighted average number of
common shares outstanding during that period. In addition, certain
potentially dilutive securities were not included in certain of the
quarterly computations of diluted net income (loss) per common share because
to do so would have been antidilutive.
(2) As a result of low oil and gas prices at December 31, 1998, the carrying
value of Apache's U.S. oil and gas properties exceeded the ceiling
limitation and the Company reported a $243.2 million pre-tax ($158.1 million
net of tax) non-cash write-down in the fourth quarter of 1998.
F-37
<PAGE> 77
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
------- -----------
<C> <S>
2.1 -- Purchase and Sale Agreement by and between Texaco
Exploration and Production Inc., as seller, and
Registrant, as buyer, dated December 22, 1994
(incorporated by reference to Exhibit 99.3 to
Registrant's Current Report on Form 8-K, dated November
29, 1994, SEC File No. 1-4300).
2.2 -- Amended and Restated Agreement and Plan of Merger among
Registrant, XPX Acquisitions, Inc and DEKALB Energy
Company, dated December 21, 1994 (incorporated by
reference to Exhibit 2.1 to Amendment No. 3 to
Registrant's Registration Statement on Form S-4,
Registration No. 33-57321, filed April 14, 1995)
2.3 -- Agreement and Plan of Merger among Registrant, YPY
Acquisitions, Inc. and The Phoenix Resource Companies,
Inc., dated March 27, 1996 (incorporated by reference to
Exhibit 2.1 to Registrant's Registration Statement on
Form S-4, Registration No. 333-02305, filed April 5,
1996).
3.1 -- Restated Certificate of Incorporation of Registrant,
dated December 16, 1999, as filed with the Secretary of
State of Delaware on December 17, 1999 (incorporated by
reference to Exhibit 99.1 to Registrant's Current Report
on Form 8-K, dated December 17, 1999, SEC File No.
1-4300).
3.2 -- Bylaws of Registrant, as amended July 14, 1999
(incorporated by reference to Exhibit 3.1 to Amendment
No. 1 on Form 8-K/A to Registrant's Current Report on
Form 8-K, dated May 18, 1999, SEC File No. 1-4300).
4.1 -- Form of Certificate for Registrant's Common Stock
(incorporated by reference to Exhibit 4.1 to Registrant's
Annual Report on Form 10-K for year ended December 31,
1995, SEC File No. 1-4300).
4.2 -- Form of Certificate for Registrant's 5.68% Cumulative
Preferred Stock, Series B (incorporated by reference to
Exhibit 4.2 to Amendment No. 2 on Form 8-K/A to
Registrant's Current Report on Form 8-K, dated August 18,
1998, SEC File No. 1-4300).
4.3 -- Form of Certificate for Registrant's Automatically
Convertible Equity Securities, Conversion Preferred
Stock, Series C (incorporated by reference to Exhibit
99.8 to Amendment No. 1 on Form 8-K/A to Registrant's
Current Report on Form 8-K, dated April 29, 1999, SEC
File No. 1-4300).
4.4 -- Rights Agreement, dated January 31, 1996, between
Registrant and Norwest Bank Minnesota, N.A., rights
agent, relating to the declaration of a rights dividend
to Registrant's common shareholders of record on January
31, 1996 (incorporated by reference to Exhibit (a) to
Registrant's Registration Statement on Form 8-A, dated
January 24, 1996, SEC File No. 1-4300).
10.1 -- Credit Agreement, dated June 12, 1997, among the
Registrant, the lenders named therein, Morgan Guaranty
Trust Company, as Global Documentation Agent and U.S.
Syndication Agent, The First National Bank of Chicago, as
U.S. Documentation Agent, NationsBank of Texas, N.A., as
Co-Agent, Union Bank of Switzerland, Houston Agency, as
Co-Agent, and The Chase Manhattan Bank, as Global
Administrative Agent (incorporated by reference to
Exhibit 10.1 to Registrant's Current Report on Form 8-K,
dated June 13, 1997, SEC File No. 1-4300).
</TABLE>
<PAGE> 78
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
------- -----------
<C> <S>
10.2 -- Credit Agreement, dated June 12, 1997, among Apache
Canada Ltd., a wholly-owned subsidiary of the Registrant,
the lenders named therein, Morgan Guaranty Trust Company,
as Global Documentation Agent, Royal Bank of Canada, as
Canadian Documentation Agent, The Chase Manhattan Bank of
Canada, as Canadian Syndication Agent, Bank of Montreal,
as Canadian Administrative Agent, and The Chase Manhattan
Bank, as Global Administrative Agent (incorporated by
reference to Exhibit 10.2 to Registrant's Current Report
on Form 8-K, dated June 13, 1997, SEC File No. 1-4300).
10.3 -- Credit Agreement, dated June 12, 1997, among Apache
Energy Limited and Apache Oil Australia Pty Limited,
wholly-owned subsidiaries of the Registrant, the lenders
named therein, Morgan Guaranty Trust Company, as Global
Documentation Agent, Bank of America National Trust and
Savings Association, Sydney Branch, as Australian
Documentation Agent, The Chase Manhattan Bank, as
Australian Syndication Agent, Citisecurities Limited, as
Australian Administrative Agent, and The Chase Manhattan
Bank, as Global Administrative Agent (incorporated by
reference to Exhibit 10.3 to Registrant's Current Report
on Form 8-K, dated June 13, 1997, SEC File No. 1-4300).
10.4 -- Fiscal Agency Agreement, dated January 4, 1995, between
Registrant and Chemical Bank, as fiscal agent, relating
to Registrant's 6% Convertible Subordinated Debentures
due 2002 (incorporated by reference to Exhibit 99.2 to
Registrant's Current Report on Form 8-K, dated December
6, 1994, SEC File No. 1-4300)
10.5 -- Concession Agreement for Petroleum Exploration and
Exploitation in the Khalda Area in Western Desert of
Egypt by and among Arab Republic of Egypt, the Egyptian
General Petroleum Corporation and Phoenix Resources
Company of Egypt, dated April 6, 1981 (incorporated by
reference to Exhibit 19(g) to Phoenix's Annual Report on
Form 10-K for year ended December 31, 1984, SEC File No.
1-547).
10.6 -- Amendment, dated July 10, 1989, to Concession Agreement
for Petroleum Exploration and Exploitation in the Khalda
Area in Western Desert of Egypt by and among Arab
Republic of Egypt, the Egyptian General Petroleum
Corporation and Phoenix Resources Company of Egypt
incorporated by reference to Exhibit 10(d)(4) to
Phoenix's Quarterly Report on Form 10-Q for quarter ended
June 30, 1989, SEC File No. 1-547).
10.7 -- Farmout Agreement, dated September 13, 1985 and relating
to the Khalda Area Concession, by and between Phoenix
Resources Company of Egypt and Conoco Khalda
Inc(incorporated by reference to Exhibit 10.1 to
Phoenix's Registration Statement on Form S-1,
Registration No. 33-1069, filed October 23, 1985).
10.8 -- Amendment, dated March 30, 1989, to Farmout Agreement
relating to the Khalda Area Concession, by and between
Phoenix Resources Company of Egypt and Conoco Khalda
Inc(incorporated by reference to Exhibit 10(d)(5) to
Phoenix's Quarterly Report on Form 10-Q for quarter ended
June 30, 1989, SEC File No. 1-547).
</TABLE>
<PAGE> 79
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
------- -----------
<C> <S>
10.9 -- Amendment, dated May 21, 1995, to Concession Agreement
for Petroleum Exploration and Exploitation in the Khalda
Area in Western Desert of Egypt between Arab Republic of
Egypt, the Egyptian General Petroleum Corporation, Repsol
Exploracion Egipto S.A., Phoenix Resources Company of
Egypt and Samsung Corporation (incorporated by reference
to exhibit 10.12 to Registrant's Annual Report on Form
10-K for year ended December 31, 1997, SEC File No.
1-4300).
10.10 -- Concession Agreement for Petroleum Exploration and
Exploitation in the Qarun Area in Western Desert of
Egypt, between Arab Republic of Egypt, the Egyptian
General Petroleum Corporation, Phoenix Resources Company
of Qarun and Apache Oil Egypt, Inc., dated May 17, 1993
(incorporated by reference to Exhibit 10(b) to Phoenix's
Annual Report on Form 10-K for year ended December 31,
1993, SEC File No. 1-547).
10.11 -- Agreement for Amending the Gas Pricing Provisions under
the Concession Agreement for Petroleum Exploration and
Exploitation in the Qarun Area, effective June 16, 1994
(incorporated by reference to Exhibit 10.18 to
Registrant's Annual Report on Form 10-K for year ended
December 31, 1996, SEC File No. 1-4300).
+10.12 -- 1982 Employee Stock Option Plan, as updated in January
1987 to conform to the Tax Reform Act of 1986
(incorporated by reference to Exhibit 10.7 to
Registrant's Annual Report on Form 10-K for year ended
December 31, 1990, SEC File No. 1-4300).
+10.13 -- Apache Corporation Corporate Incentive Compensation Plan
A (Senior Officers' Plan), dated July 16, 1998
(incorporated by reference to Exhibit 10.13 to
Registrant's Annual Report on Form 10-K for year ended
December 31, 1998, SEC File No. 1-4300).
+10.14 -- Apache Corporation Corporate Incentive Compensation Plan
B (Strategic Objectives Format), dated July 16, 1998
(incorporated by reference to Exhibit 10.14 to
Registrant's Annual Report on Form 10-K for year ended
December 31, 1998, SEC File No. 1-4300).
+10.15 -- Apache Corporation 401(k) Savings Plan, dated August 1,
1997, effective January 1, 1997 (incorporated by
reference to Exhibit 10.1 to Registrant's Current Report
on Form 8-K, dated August 8, 1997, SEC File No. 1-4300).
+*10.16 -- Amendments to Apache Corporation 401(k) Savings Plan,
dated October 21, 1999, effective as of January 1, 1997
and 1999, and amendment dated December 31, 1999,
effective as of January 1, 2000.
+10.17 -- Apache Corporation Money Purchase Retirement Plan, dated
December 31, 1997, effective January 1, 1997
(incorporated by reference to Exhibit 10.19 to
Registrant's Annual Report on Form 10-K for year ended
December 31, 1997, SEC File No. 1-4300).
+*10.18 -- Amendments to Apache Corporation Money Purchase
Retirement Plan, dated October 21, 1999, effective as of
January 1, 1997 and 1998.
+10.19 -- Non-Qualified Retirement/Savings Plan of Apache
Corporation, restated as of January 1, 1997, and
amendments effective as of January 1, 1997, January 1,
1998 and January 1, 1999 (incorporated by reference to
Exhibit 10.17 to Registrant's Annual Report on Form 10-K
for year ended December 31, 1998, SEC File No. 1-4300).
</TABLE>
<PAGE> 80
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
------- -----------
<C> <S>
+10.20 -- Amendment to Non-Qualified Retirement/Savings Plan of
Apache Corporation, dated February 22, 2000, effective as
of January 1, 1999 (incorporated by reference to Exhibit
4.7 to Registrant's Registration Statement on Form S-8,
Registration No. 333-31092, filed February 25, 2000).
+10.21 -- Apache International, Inc. Common Stock Award Plan, dated
February 12, 1990 (incorporated by reference to Exhibit
10.13 to Registrant's Annual Report on Form 10-K for year
ended December 31, 1989, SEC File No. 1-4300).
+10.22 -- Apache Corporation 1990 Stock Incentive Plan, as amended
and restated February 10, 2000 (incorporated by reference
to Exhibit 4.5 to Amendment No. 1 to Registrant's
Registration Statement on Form S-8, Registration No.
33-37402, filed March 2, 2000).
+*10.23 -- Apache Corporation 1995 Stock Option Plan, as amended and
restated February 10, 2000.
+10.24 -- Apache Corporation 1996 share Price Appreciation Plan, as
amended and restated January 14, 1997 (incorporated by
reference to Appendix A to Registrant's definitive 14A
Proxy Statement, SEC File No. 1-4300, filed March 28,
1997).
+10.25 -- Apache Corporation 1996 Performance Stock Option Plan, as
amended and restated September 23, 1999 (incorporated by
reference to Exhibit 10.1 to Registrant's Current Report
on Form 8-K, dated November 30, 1999, SEC File No.
1-4300).
+*10.26 -- Apache Corporation 1998 Stock Option Plan, as amended and
restated February 10, 2000.
+10.27 -- 1990 Employee Stock Option Plan of The Phoenix Resource
Companies, Inc., as amended through September 29, 1995,
effective April 9, 1990 (incorporated by reference to
Exhibit 10.33 to Registrant's Annual Report on Form 10-K
for year ended December 31, 1996, SEC File No. 1-4300).
+10.28 -- Apache Corporation Income Continuance Plan, as amended
and restated February 24, 1988 (incorporated by reference
to Exhibit 10.19 to Registrant's Annual Report on Form
10-K for year ended December 31, 1990, SEC File No.
1-4300).
+10.29 -- Apache Corporation Deferred Delivery Plan, effective as
of February 10, 2000 and election forms (incorporated by
reference to Exhibit 4.5 to Registrant's Registration
Statement on Form S-8, Registration No. 333-31092, filed
February 25, 2000).
+10.30 -- Apache Corporation Non-Employee Directors' Compensation
Plan, as amended and restated December 17, 1998
(incorporated by reference to Exhibit 10.26 to
Registrant's Annual Report on Form 10-K for year ended
December 31, 1998, SEC File No. 1-4300).
+10.31 -- Apache Corporation Outside Directors' Retirement Plan, as
amended and restated September 11, 1997 (incorporated by
reference to Exhibit 10.31 to Registrant's Annual Report
on Form 10-K for year ended December 31, 1997, SEC File
No. 1-4300).
+10.32 -- Apache Corporation Equity Compensation Plan for
Non-Employee Directors, adopted February 9, 1994, and
form of Restricted Stock Award Agreement (incorporated by
reference to Exhibit 10.26 to Registrant's Annual Report
on Form 10-K for year ended December 31, 1993, SEC File
No. 1-4300).
</TABLE>
<PAGE> 81
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
------- -----------
<C> <S>
+10.33 -- Amended and Restated Employment Agreement, dated December
5, 1990, between Registrant and Raymond Plank
(incorporated by reference to Exhibit 10.39 to
Registrant's Annual Report on Form 10-K for year ended
December 31, 1996, SEC File No. 1-4300).
+10.34 -- First Amendment, dated April 4, 1996, to Restated
Employment Agreement between Registrant and Raymond Plank
(incorporated by reference to Exhibit 10.40 to
Registrant's Annual Report on Form 10-K for year ended
December 31,1996, SEC File No. 1-4300).
+10.35 -- Amended and Restated Employment Agreement, dated December
20, 1990, between Registrant and John A. Kocur
(incorporated by reference to Exhibit 10.10 to
Registrant's Annual Report on Form 10-K for year ended
December 31, 1990, SEC File No. 1-4300).
+10.36 -- Employment Agreement, dated June 6, 1988, between
Registrant and G. Steven Farris (incorporated by
reference to Exhibit 10.6 to Registrant's Annual Report
on Form 10-K for year ended December 31, 1989, SEC File
No. 1-4300).
+10.37 -- Conditional Stock Grant Agreement, dated December 17,
1998, between Registrant and G. Steven Farris
(incorporated by reference to Exhibit 10.33 to
Registrant's Annual Report on Form 10-K for year ended
December 31, 1998, SEC File No. 1-4300).
10.38 -- Amended and Restated Gas Purchase Agreement, effective
July 1, 1998, by and among Registrant and MW Petroleum
Corporation, as Seller, and Producers Energy Marketing,
LLC, as Buyer (incorporated by reference to Exhibit 10.1
to Registrant's Current Report on Form 8-K, dated June
18, 1998, SEC File No. 1-4300).
*12.1 -- Statement of Computation of Ratios of Earnings to Fixed
Charges and Combined Fixed Charges and Preferred Stock
Dividends
*21.1 -- Subsidiaries of Registrant
*23.1 -- Consent of Arthur Andersen LLP
*23.2 -- Consent of Ryder Scott Company, L.P. Petroleum
Consultants
*23.3 -- Consent of Netherland, Sewell & Associates, Inc.
*24.1 -- Power of Attorney (included as a part of the signature
pages to this report)
*27.1 -- Financial Data Schedule
</TABLE>
- ---------------
* Filed herewith.
+ Management contracts or compensatory plans or arrangements required to be
filed herewith pursuant to Item 14 hereof.
<PAGE> 1
EXHIBIT 10.16
Amendment
To
Apache Corporation 401(k) Savings Plan
Apache Corporation ("Apache") maintains the Apache Corporation 401(k)
Savings Plan (the "Plan"). Pursuant to section 10.4 of the Plan, Apache has
retained the right to amend the Plan. Apache hereby exercises that right by
replacing subsection 6.6(b) of the Plan with the following, effective January 1,
1999.
(b) Definition of Eligible Rollover Distribution. For purposes
of this section only, an "eligible rollover distribution" is any
distribution or in-service withdrawal other than (i) distributions
required under Code section 401(a)(9), (ii) distributions of amounts
that have already been subject to federal income tax (such as defaulted
loans or after-tax voluntary contributions), (iii) installment payments
in a series of substantially equal payments made at least annually and
(A) made over a specified period of ten or more years, (B) made for the
life or life expectancy of the distributee, or (C) made for the joint
life or joint life expectancy of the distributee and his or her
designated beneficiary, (iv) a distribution to satisfy the limits of
Code section 415 or 402(g), (v) a distribution to satisfy ADP, ACP, or
multiple use tests, (vi) any other actual or deemed distribution
specified in the regulations issued under Code section 402(c); or (vii)
any hardship withdrawal by an Employee under age 59 1/2 pursuant to
subsection 7.1(c).
IN WITNESS WHEREOF, this Amendment has been executed the date set forth
below.
APACHE CORPORATION
By: /s/ Daniel L. Schaeffer
------------------------------------
Date: October 21, 1999 Title: Vice President, Human Resources
---------------- ---------------------------------
Page 1 of 1
<PAGE> 2
Amendment
To
Apache Corporation 401(k) Savings Plan
Apache Corporation ("Apache") maintains the Apache Corporation 401(k)
Savings Plan (the "Plan"). Apache filed the Plan with the IRS on September 15,
1998 in order to obtain a favorable determination as to the qualified status of
the Plan. The IRS granted the Plan a favorable determination letter dated August
13, 1999, contingent on certain amendments being made to the Plan. In section
10.4 of the Plan, Apache reserved the right to amend the Plan from time to time.
Apache hereby exercises such right as follows.
1. Effective as of January 1, 1999, section 1.14 shall be replaced in
its entirety by the following.
1.14 "Covered Employee" means any Employee of the Company, with the
following exceptions.
(a) Any individual directly employed by an entity other than
the Company shall not be a Covered Employee, even if such individual is
considered a common-law employee of the Company or is treated as an
employee of the Company pursuant to Code section 414(n).
(b) A non-resident alien shall not be a Covered Employee.
(c) An Employee included in a unit of Employees covered by a
collective bargaining agreement shall not be a Covered Employee unless
the collective bargaining agreement specifically provides for such
Employee's participation in the Plan.
(d) An Employee whose job is classified as "temporary" shall
be a Covered Employee only after he or she has worked for the Company
and Affiliated Entities for six consecutive months.
(e) An Employee shall not be a Covered Employee while he or
she is classified as an "intern," a "consultant," or an "independent
contractor." An Employee may be classified as an "intern" only if he or
she is currently enrolled (or the Company expects him or her to be
enrolled within the next 12 months) in a high school, college, or
university. An Employee may be classified as an intern even if he or
she does not receive academic course credit from his or her school for
this employment with the Company.
(f) An individual who is employed pursuant to a written
agreement with an agency or other third party for a specific job
assignment or project shall not be a Covered Employee.
Page 1 of 8
<PAGE> 3
2. Effective as of January 1, 1997, the last sentence of section 1.18
shall be replaced by the following sentence.
The term "Employee" shall also include any individual who provides
services to the Company or an Affiliated Entity pursuant to an
agreement between the Company or an Affiliated Entity and a third party
that employs the individual, but only if the individual has performed
such services for the Company or an Affiliated Entity on a
substantially full-time basis for at least one year and only if the
services are performed under the primary direction or control by the
Company or an Affiliated Entity; provided, however, that if the
individuals included as Employees pursuant to the first part of this
sentence constitute 20% or less of the Non-Highly Compensated Employees
of the Company and Affiliated Entities, then any such individuals who
are covered by a qualified plan that is a money purchase pension plan
that provides a nonintegrated employer contribution rate for each
participant of at least 10% of compensation, that provides for full and
immediate vesting, and that provides immediate participation for each
employee of the third party (other than those who perform substantially
all of their services for the third party and other than those whose
compensation from the third party during each of the four preceding
plan years was less than $1000) shall not be considered an Employee.
3. Effective as of January 1, 1997, section 1.23 shall be replaced in
its entirety by the following.
1.23 "Highly Compensated Employee" means, for each Plan Year, an
Employee who (a) had Compensation of $80,000 (as adjusted by the
Secretary of the Treasury) or more during the immediately preceding
Plan Year, or (b) is a Five-Percent Owner during the current Plan Year,
or (c) was a Five-Percent Owner during the immediately preceding Plan
Year. The term "Highly Compensated Employee" shall also include, where
the context so requires, any former Employee who was a Highly
Compensated Employee when he or she separated from service with the
Company and all Affiliated Entities, as well as any former Employee who
was a Highly Compensated Employee at any time after attaining age 55.
4. Effective as of January 1, 1999, the last sentence of subsection
3.5(b) shall be replaced in its entirety by the following.
The Committee may elect to exclude from the ADP test those Non-Highly
Compensated Employees who, at the end of the Plan Year, had not
attained age 21 and/or whose Period of Service was for less than one
year.
Page 2 of 8
<PAGE> 4
5. Effective as of January 1, 1997, subsection 3.5(e) shall be replaced
in its entirety by the following two subsections.
(e) Order of Correction. The method described in subsection
(c) shall be employed first, during the Plan Year. If that method is
not used during the Plan Year, or if the net effect of such method was
insufficient for the ADP test to be satisfied, the Company has the
discretion to use any one or more of the methods described in
paragraphs (d)(i), (d)(ii), and (d)(iii). If the Company does not
choose to make the corrections described in paragraphs (d)(i), (d)(ii),
and (d)(iii), or if such corrections are insufficient to satisfy the
ADP test, then the correction method described in paragraph (d)(iv)
shall be used.
(f) Calculating the Amounts Returned. If the ADP test is not
satisfied, and Participant Before-Tax Contributions are returned
pursuant to paragraph (d)(iv) above, the Committee shall determine the
amount to be returned pursuant to paragraph (i) below, and shall then
allocate that amount among the Highly Compensated Employees pursuant to
paragraph (ii) below. The amount actually returned to each Highly
Compensated Employee shall be adjusted to reflect as nearly as possible
the actual investment gains or losses thereon for the Plan Year,
determined pursuant to Article IV, but shall not be adjusted to reflect
any subsequent gains or losses.
(i) Calculation of Amount of Excess Contributions.
The amount of Participant Before-Tax Contributions to be
returned to the group of Highly Compensated Employees as a
whole (the "excess contributions") shall be equal to the
hypothetical reduction in the Participant Before-Tax
Contributions that are subject to the ADP test pursuant to
subsection (b) (the "relevant Participant Before-Tax
Contributions") that would be made under the following
procedure. The Highly Compensated Employee(s) with the highest
"actual deferral ratio" has an amount hypothetically returned
until his or her actual deferral ratio is reduced to the
actual deferral ratio of the Highly Compensated Employee with
the next highest actual deferral ratio; this process is
repeated to the extent necessary for the ADP test to be
satisfied. The term "actual deferral ratio" is a fraction, the
denominator of which is equal to the Participant's
Compensation, and the numerator of which is equal to
(A)+(B)+(C)-(D)-(E), where
(A) is equal to the Participant's Participant
Before-Tax Contributions for the Plan Year.
(B) is equal to that portion of the Participant's
QNECs and QMACs that are allocated to the Participant
as of any date
Page 3 of 8
<PAGE> 5
within the Plan Year, but only to the extent that the
Committee elects to include them in the ADP test.
(C) is equal to zero for a Non-Highly Compensated
Employee, and, for each Highly Compensated Employee
who participates in a cash or deferred arrangement
sponsored by the Company or an Affiliated Entity that
is permitted to be aggregated with this Plan, is
equal to the contributions to the other plan that are
subject to that plan's ADP test.
(D) is equal to any of the amounts in (A) that are
used in the ACP test pursuant to subsection (b).
(E) is equal to any of the amounts in (A) or (B) or
(C) that have been removed from the Participant's
Accounts pursuant to any other corrective mechanisms
described in this Article.
(ii) Allocation of Excess Contributions. The excess
contributions shall be allocated among the Highly Compensated
Employees as follows. The Highly Compensated Employee(s) with
the largest relevant Participant Before-Tax Contributions
shall have an amount returned until his or her remaining
employer contributions are equal to those of the Highly
Compensated Employee with the next largest relevant
Participant Before-Tax Contributions. This process is repeated
until the excess contributions have been completely returned
to the Highly Compensated Employees. For each Highly
Compensated Employee who receives a return of excess
contributions, the Plan shall first return his or her
unmatched Participant Before-Tax Contributions (if any) before
returning any of his or her matched Participant Before-Tax
Contributions. If a matched Participant Before-Tax
Contribution is returned, the corresponding Company Matching
Contribution shall be forfeited (unless returned to the
Participant pursuant to paragraph 3.6(c)(vi)).
6. Effective as of January 1, 1999, the last sentence of subsection
3.6(b) shall be replaced in its entirety by the following.
The Committee may elect to exclude from the ACP test those Non-Highly
Compensated Employees who, at the end of the Plan Year, had not
attained age 21 and/or whose Period of Service was for less than one
year.
Page 4 of 8
<PAGE> 6
5. Effective as of January 1, 1997, subsection 3.6(d) shall be replaced
in its entirety by the following two subsections.
(d) Order of Correction. The method described in subsection
3.5(c) shall be employed first, during the Plan Year. If that method is
not used during the Plan Year, or if the net effect of such method was
insufficient for the ACP test to be satisfied, the Company has the
discretion to use any one or more of the methods described in
paragraphs (c)(i), (c)(ii), and (c)(iii). If the Company does not
choose to make the corrections described in paragraphs (c)(i), (c)(ii),
and (c)(iii), or if such corrections are insufficient to satisfy the
ACP test, then the correction method described in paragraph (c)(v)
shall be used if the Plan is top-heavy; if the Plan is not top-heavy,
or if the corrections pursuant to (c)(v) are insufficient, the
correction methods described in paragraphs (c)(iv), (c)(vi), and
(c)(vii) shall be used, as described in subsection (e).
(e) Calculating the Corrective Reduction in Participants'
Accounts. If the ACP test is not satisfied, and the correction methods
described in paragraphs (c)(iv), (c)(vi), and (c)(vii) are to be used,
the Committee shall determine the amount of the correction pursuant to
paragraph (i) below, and shall then allocate that amount among the
Highly Compensated Employees pursuant to paragraph (ii) below. The
amount of the correction shall be adjusted to reflect as nearly as
possible the actual investment gains or losses thereon for the Plan
Year, determined pursuant to Article IV, but shall not be adjusted to
reflect any subsequent gains or losses.
(i) Calculation of Amount of Excess Aggregate
Contributions. The term "aggregate contributions" means those
Participant Before-Tax Contributions and Company Matching
Contributions that are taken into account for the ACP test
pursuant to subsection (b). The amount of the excess aggregate
contributions shall be equal to the hypothetical reduction in
the aggregate contributions that would be made under the
following procedure. The Highly Compensated Employee(s) with
the highest "actual contribution ratio" has his or her
aggregate contributions hypothetically reduced until his or
her actual contribution ratio is lowered to the actual
contribution ratio of the Highly Compensated Employee with the
next highest actual contribution ratio; this process is
repeated to the extent necessary for the ACP test to be
satisfied. The term "actual contribution ratio" is a fraction,
the denominator of which is equal to the Participant's
Compensation, and the numerator of which is equal to
(A)+(B)+(C)+(D)-(E), where
Page 5 of 8
<PAGE> 7
(A) is equal to the Participant's Company Matching
Contributions for the Plan Year.
(B) is equal to the Participant's Participant
Before-Tax Contributions that are used in the ACP
test pursuant to subsection (b).
(C) is equal to that portion of the Participant's
QNECs and QMACs that are allocated to the Participant
as of any date within the Plan Year, but only to the
extent that the Committee elects to include them in
the ACP test.
(D) is equal to zero for a Non-Highly Compensated
Employee, and, for each Highly Compensated Employee
who participates in a cash or deferred arrangement
sponsored by the Company or an Affiliated Entity that
is permitted to be aggregated with this Plan, is
equal to the contributions to the other plan that are
subject to that plan's ACP test.
(E) is equal to any of the amounts in (A) or (B) or
(C) or (D) that have been removed from the
Participant's Accounts pursuant to any other
corrective mechanisms described in this Article.
(ii) Allocation of Excess Aggregate Contributions.
The excess aggregate contributions shall be allocated among
the Highly Compensated Employees as follows. The Highly
Compensated Employee(s) with the largest aggregate
contributions shall have his or her aggregate contributions
reduced until his or her remaining aggregate contributions are
equal to those of the Highly Compensated Employee with the
next largest aggregate contributions. This process is repeated
until the excess aggregate contributions have been eliminated.
The reduction in aggregate contributions for each affected
Highly Compensated Employee shall be made in the following
order: unmatched Participant Before-Tax Contributions; then
matched Participant Before-Tax Contributions, together with
any associated Company Matching Contribution. Any reduction in
Company Matching Contributions shall be forfeited (to the
extent not vested) or paid to the Highly Compensated Employee
(to the extent vested).
Page 6 of 8
<PAGE> 8
6. Effective as of January 1, 1997, subsection 3.7(b) shall be replaced
in its entirety by the following.
(b) Corrections to Satisfy Multiple Use Test. If the multiple
use test is not satisfied, the Company shall cause the contributions to
the Accounts of the Highly Compensated Employees to be adjusted as
follows. First, the Company may make certain contributions, or may
designate certain contributions as QNECs or QMACs pursuant to
subsections 3.5(d) and 3.6(c). Second, if additional correction is
necessary, and the Plan is top-heavy, the correction method specified
in paragraph 3.6(c)(v) shall be used. Third, if additional correction
is necessary, the Committee shall make the following corrections for
the appropriate Highly Compensated Employees: (i) return unmatched
Participant Before-Tax Contributions; (ii) return matched Participant
Before-Tax Contributions, and, for the associated Company Matching
Contribution, forfeit it (to the extent not vested) or pay it to the
Highly Compensated Employee (to the extent vested).
7. Effective as of January 1, 1997, section 5.8 shall be replaced in
its entirety by the following.
A rehired Participant shall have two Company Contribution
Accounts, an "old" Company Contributions Account for the contributions
from his or her earlier episode of employment, and a "new" Company
Contributions Account for his or her later episode of employment. The
vested percentage applicable to such Accounts shall be determined
pursuant to sections 5.1 and 5.6, unless an amount was distributed from
the old Company Contributions Account before the Participant was
rehired, in which case the vested percentage of the old Company
Contributions Account, after any forfeiture has been restored to it,
shall be determined pursuant to subsection 5.3(c). If a Participant
becomes fully vested in both the old and the new Company Contributions
Accounts, they shall be merged into one Company Contributions Account.
8. Effective as of January 1, 1997, the last section 10.1 shall be
replaced in its entirety by the following.
Apache expects to continue the Plan indefinitely, but the
continuance of the Plan and the payment of contributions are not
assumed as contractual obligations. Apache may terminate the Plan or
discontinue contributions at any time. Upon the termination of the Plan
or the complete discontinuance of contributions, each Participant's
Accounts shall become fully vested. Upon the partial termination of the
Plan, the Accounts of all affected Participants shall become fully
vested. The only Participants who are affected by a partial termination
are those whose employment with the Company or Affiliated Entity is
terminated as a result of the corporate event causing the partial
termination;
Page 7 of 8
<PAGE> 9
Employees terminated for cause and those who leave voluntarily
are not affected by a partial termination.
EXECUTED this 21st day of October, 1999.
APACHE CORPORATION
By: /s/ Daniel L. Schaeffer
-------------------------------------
Title: Vice President, Human Resources
---------------------------------
Page 8 of 8
<PAGE> 10
Amendment
To
Apache Corporation 401(k) Savings Plan
Apache Corporation ("Apache") maintains the Apache Corporation 401(k)
Savings Plan (the "Plan"). Pursuant to section 10.4 of the Plan, Apache has
retained the right to amend the Plan. Apache hereby exercises that right by
replacing subsection 2.1(a) of the Plan with the following, effective January 1,
2000.
(a) Participant Before-Tax Contributions. A Covered Employee
shall be eligible to begin to make Participant Before-Tax Contributions
as of the first day of the first pay period of the month that begins
after the day the Employee becomes a Covered Employee.
IN WITNESS WHEREOF, this Amendment has been executed the date set forth
below.
APACHE CORPORATION
By: Daniel L. Schaeffer
------------------------------------
Date: December 30, 1999 Title: Vice President, Human Resources
----------------- ---------------------------------
Page 1 of 1
<PAGE> 1
EXHIBIT 10.18
Amendment
To
Apache Corporation Money Purchase Retirement Plan
Apache Corporation ("Apache") maintains the Apache Corporation Money
Purchase Retirement Plan (the "Plan"). In section 9.4 of the Plan, Apache
reserved the right to amend the Plan from time to time. Apache hereby exercises
such right by adding the following paragraph 3.1(a)(iv) to the Plan, effective
as of January 1, 1998.
(iv) Special Allocation for 1998. In addition to the
allocation provided in paragraph (ii), the two eligible Participants
who had the smallest "plan year compensation" (as defined below) in
1998 shall receive an additional allocation of Company Mandatory
Contributions equal to 3.138% of the eligible Participant's plan year
compensation in 1998. For purposes of this paragraph only, "plan year
compensation" means those amounts reported as "wages, tips, other
compensation" on Form W-2 by the Company or an Affiliated Entity and
elective contributions that are not includable in the Employee's income
pursuant to Code section 125 or 402(e)(3).
EXECUTED this 21st day of October 1999.
APACHE CORPORATION
By: /s/ Daniel L. Schaeffer
------------------------------------
Title: Vice President, Human Resources
---------------------------------
Page 1 of 1
<PAGE> 2
Amendment
To
Apache Corporation Money Purchase Retirement Plan
Apache Corporation ("Apache") maintains the Apache Corporation Money
Purchase Retirement Plan (the "Plan"). Apache filed the Plan with the IRS on
September 15, 1998 in order to obtain a favorable determination as to the
qualified status of the Plan. The IRS granted the Plan a favorable determination
letter dated July 23, 1999, contingent on certain amendments being made to the
Plan. In section 9.4 of the Plan, Apache reserved the right to amend the Plan
from time to time. Apache hereby exercises such right as follows, effective as
of January 1, 1997.
1. Section 1.12 shall be replaced in its entirety by the following.
1.12 "Covered Employee" means any Employee of the Company, with the
following exceptions.
(a) Any individual directly employed by an entity other than
the Company shall not be a Covered Employee, even if such individual is
considered a common-law employee of the Company or is treated as an
employee of the Company pursuant to Code section 414(n).
(b) A non-resident alien shall not be a Covered Employee.
(c) An Employee included in a unit of Employees covered by a
collective bargaining agreement shall not be a Covered Employee unless
the collective bargaining agreement specifically provides for such
Employee's participation in the Plan.
(d) An Employee whose job is classified as "temporary" shall
be a Covered Employee only after he or she has worked for the Company
and Affiliated Entities for six consecutive months.
(e) An Employee shall not be a Covered Employee while he or
she is classified as an "intern," a "consultant," or an "independent
contractor." An Employee may be classified as an "intern" only if he or
she is currently enrolled (or the Company expects him or her to be
enrolled within the next 12 months) in a high school, college, or
university. An Employee may be classified as an intern even if he or
she does not receive academic course credit from his or her school for
this employment with the Company.
(f) An individual who is employed pursuant to a written
agreement with an agency or other third party for a specific job
assignment or project shall not be a Covered Employee.
2. The last sentence of section 1.16 shall be replaced by the following
sentence.
Page 1 of 5
<PAGE> 3
The term "Employee" shall also include any individual who provides
services to the Company or an Affiliated Entity pursuant to an
agreement between the Company or an Affiliated Entity and a third party
that employs the individual, but only if the individual has performed
such services for the Company or an Affiliated Entity on a
substantially full-time basis for at least one year and only if the
services are performed under the primary direction or control by the
Company or an Affiliated Entity; provided, however, that if the
individuals included as Employees pursuant to the first part of this
sentence constitute 20% or less of the Non-Highly Compensated Employees
of the Company and Affiliated Entities, then any such individuals who
are covered by a qualified plan that is a money purchase pension plan
that provides a nonintegrated employer contribution rate for each
participant of at least 10% of compensation, that provides for full and
immediate vesting, and that provides immediate participation for each
employee of the third party (other than those who perform substantially
all of their services for the third party and other than those whose
compensation from the third party during each of the four preceding
plan years was less than $1000) shall not be considered an Employee.
3. Section 1.20 shall be replaced in its entirety by the following.
1.23 "Highly Compensated Employee" means, for each Plan Year, an
Employee who (a) had Compensation of $80,000 (as adjusted by the
Secretary of the Treasury) or more during the immediately preceding
Plan Year, or (b) is a Five-Percent Owner during the current Plan Year,
or (c) was a Five-Percent Owner during the immediately preceding Plan
Year. The term "Highly Compensated Employee" shall also include, where
the context so requires, any former Employee who was a Highly
Compensated Employee when he or she separated from service with the
Company and all Affiliated Entities, as well as any former Employee who
was a Highly Compensated Employee at any time after attaining age 55.
4. Subsection 6.1(c) shall be replaced in its entirety by the following.
(c) Waiver of QPSA.
(i) General. In order for the QPSA to be waived, the
Participant must be provided with an explanation of the QPSA
and then elect to waive the QPSA (which the Participant may do
by naming a beneficiary other than his or her Spouse) and the
Spouse must consent to the Participant's election.
(ii) Spouse's Consent. The Spouse's consent must be
in writing. The Spouse's signature must be witnessed by a
Committee member of by a notary public. The Spouse must
acknowledge the effect of the consent. The Spouse may limit
his or her consent to a specific beneficiary or may allow the
Participant to thereafter
Page 2 of 5
<PAGE> 4
designate a different beneficiary. The Spouse may limit his or
her consent to a specific form of benefit. (The Spouse's
consent is not needed if the Spouse cannot be located or in
certain other special circumstances identified in IRS
guidance.)
(iii) Timing of Waiver. The Participant may waive the
QPSA, or revoke the QPSA waiver, at any time; however, if the
Participant elects to waive the QPSA, with the consent of his
or her Spouse, before the first day of the Plan Year in which
the Participant attains age 35, the waiver shall become
invalid on the first day of the Plan Year in which the
Participant attains age 35.
(iv) Explanation. The Committee shall provide the
Participant with a written explanation that describes the
terms and conditions of the QPSA, the Participant's right to
choose another beneficiary, the rights of the Participant's
Spouse to insist upon a QPSA, and the Participant's right to
revoke his or her election. The written explanation must be
provided within the following time limits. If the Participant
terminates employment prior to age 35, the explanation must be
provided within the period beginning one year before and
ending one year after the termination of employment. If the
Participant terminates employment on or after age 35, the
explanation must be provided within the one of the following
periods (whichever period ends last): (i) the period beginning
on the first day of the Plan Year in which the Participant
attains age 32 and ending on the last day of the Plan Year in
which the Participant attains age 34; (ii) the period
beginning one year before, and ending one year after, the
Participant first becomes eligible to participate in the Plan;
and (iii) the period beginning one year before, and ending one
year after, a married Participant is fully or partially vested
in his or her Account (which will normally occur either when
the Participant gets married or when the Participant completes
one Year of Service).
5. Paragraphs 6.3(a)(iii) and 6.3(a)(iv) shall be replaced in their
entirety by the following.
(iii) Method of Spouse's Consent. The consent of a
Participant's Spouse must be in writing. The consent is not
valid unless the Committee has provided the written
explanation described in paragraph (iv). The Spouse must
acknowledge the affect of his or her consent. The Spouse's
consent must be witnessed by a Committee member or by a notary
public. The Spouse may limit his or her consent to a specific
beneficiary or may allow the Participant to thereafter
designate a different beneficiary. The Spouse may limit his or
her consent to a specific form of
Page 3 of 5
<PAGE> 5
benefit. (The Spouse's consent is not needed if the Spouse
cannot be located or in certain other special circumstances
identified in IRS guidance.)
(iv) Distribution Procedure.
(A) General. The Committee shall provide the
Participant with a written explanation that contains
the information required by the Code and Treasury
Regulations, as explained in subparagraph (B). The
timing of the explanation, the consent, and the
distribution are discussed in subparagraph (C). The
Participant may revoke his or her election at any
time before the distribution is processed.
(B) Contents of Explanation. The information
in the explanation shall include, at a minimum, the
terms and conditions of the QJSA, the Participant's
right to elect a single payment in lieu of a QJSA,
the effect of the Participant electing a single
payment in lieu of a QJSA, the right of the
Participant's Spouse to insist upon a QJSA, and the
Participant's right to revoke his or her distribution
election.
(C) Timing. The explanation shall be
provided no more than 90 days before the annuity
starting date. The explanation shall be provided no
fewer than 30 days before the annuity starting date,
unless all the following conditions are satisfied (1)
the Participant affirmatively elects a single sum
distribution (and the Participant's Spouse, if any,
consents), (2) the explanation mentions that the
Participant has a right to at least 30 days to
consider whether to waive the QJSA and consent to a
single sum, and (3) the Participant is permitted to
revoke an affirmative distribution election until the
annuity starting date (or, if later, the 8th day
after the Participant is provided with the
explanation).
(D) Annuity Starting Date. The annuity
starting date, for a single sum payment, is the date
the payment is processed, which may be any business
day. The annuity starting date for a QJSA is the day
as of which the annuity payments begin. The annuity
starting date for an annuity must be the first day of
a month, must occur on or after the Participant's
termination of employment or 65th birthday, must
occur after the date the explanation is provided, but
may precede the date the Participant provides any
Page 4 of 5
<PAGE> 6
affirmative distribution election. In any event, the
first payment from the annuity shall not precede the
8th day after the explanation is provided.
6. Section 5.8 shall be replaced in its entirety by the following.
A rehired Participant shall have two Accounts, an "old"
Account for the contributions from his or her earlier episode of
employment, and a "new" Account for his or her later episode of
employment. The vested percentage applicable to such Accounts shall be
determined pursuant to sections 5.1 and 5.6, unless an amount was
distributed from the old Account before the Participant was rehired, in
which case the vested percentage of the old Account, after any
forfeiture has been restored to it, shall be determined pursuant to
subsection 5.3(c). If a Participant becomes fully vested in both the
old and the new Accounts, they shall be merged into a single Account.
7. The last section 10.1 shall be replaced in its entirety by the
following.
Apache expects to continue the Plan indefinitely, but the
continuance of the Plan and the payment of contributions are not
assumed as contractual obligations. Apache may terminate the Plan or
discontinue contributions at any time. Upon the termination of the
Plan, each Participant's Account shall become fully vested. Upon the
partial termination of the Plan, the Accounts of all affected
Participants shall become fully vested. The only Participants who are
affected by a partial termination are those whose employment with the
Company or Affiliated Entity is terminated as a result of the corporate
event causing the partial termination; Employees terminated for cause
and those who leave voluntarily are not affected by a partial
termination.
EXECUTED this 21st day of October, 1999.
APACHE CORPORATION
By: Daniel L. Schaeffer
-------------------------------------
Title: Vice President, Human Resources
----------------------------------
Page 5 of 5
<PAGE> 1
EXHIBIT 10.23
APACHE CORPORATION
1995 STOCK OPTION PLAN
(AS AMENDED AND RESTATED FEBRUARY 10, 2000)
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C> <C>
Section 1 - Introduction.................................................................................1
1.1 Establishment..........................................................................1
1.2 Purposes...............................................................................1
1.3 Effective Date.........................................................................1
Section 2 - Definitions..................................................................................1
2.1 Definitions............................................................................1
2.2 Headings; Gender and Number............................................................3
Section 3 - Plan Administration..........................................................................3
Section 4 - Stock Subject to the Plan....................................................................4
4.1 Number of Shares.......................................................................4
4.2 Other Shares of Stock..................................................................4
4.3 Adjustments for Stock Split, Stock Dividend, Etc.......................................4
4.4 Dividend Payable in Stock of Another Corporation, Etc..................................5
4.5 Other Changes in Stock.................................................................5
4.6 Rights to Subscribe....................................................................5
4.7 General Adjustment Rules...............................................................5
4.8 Determination by the Committee, Etc....................................................6
Section 5 - Reorganization or Liquidation................................................................6
Section 6 - Participation................................................................................6
Section 7 - Stock Options................................................................................7
7.1 Grant of Stock Options.................................................................7
7.2 Stock Option Agreements................................................................7
7.3 Stockholder Privileges................................................................12
</TABLE>
i
<PAGE> 3
<TABLE>
<S> <C> <C>
Section 8 - Change in Control...........................................................................12
8.1 In General............................................................................12
8.2 Limitation on Payments................................................................13
8.3 Definition............................................................................13
Section 9 - Rights of Employees; Participants...........................................................13
9.1 Employment............................................................................13
9.2 Nontransferability....................................................................13
Section 10 - General Restrictions.......................................................................14
10.1 Investment Representations............................................................14
10.2 Compliance with Securities Laws.......................................................14
Section 11 - Other Employee Benefits....................................................................14
Section 12 - Plan Amendment, Modification and Termination...............................................15
Section 13 - Withholding................................................................................15
13.1 Withholding Requirement...............................................................15
13.2 Satisfaction of Required Withholding..................................................15
13.3 Excess Withholding....................................................................16
13.4 Section 16 Requirements...............................................................16
Section 14 - Requirements of Law........................................................................16
14.1 Requirements of Law...................................................................16
14.2 Federal Securities Laws Requirements..................................................17
14.3 Governing Law.........................................................................17
Section 15 - Duration of the Plan.......................................................................17
</TABLE>
ii
<PAGE> 4
APACHE CORPORATION
1995 STOCK OPTION PLAN
SECTION 1
INTRODUCTION
1.1 Establishment. Apache Corporation, a Delaware corporation (hereinafter
referred to, together with its Affiliated Corporations (as defined in Section
2.1 hereof) as the "Company" except where the context otherwise requires),
hereby establishes the Apache Corporation 1995 Stock Option Plan (the "Plan")
for certain key employees of the Company. The Plan permits the grant of stock
options to certain key employees of the Company.
1.2 Purposes. The purposes of the Plan are to provide the key management
employees selected for participation in the Plan with added incentives to
continue in the long-term service of the Company and to create in such employees
a more direct interest in the future success of the operations of the Company by
relating incentive compensation to increases in stockholder value, so that the
income of the key management employees is more closely aligned with the
interests of the Company's stockholders. The Plan is also designed to attract
key employees and to retain and motivate participating employees by providing an
opportunity for investment in the Company.
1.3 Effective Date. The Effective Date of the Plan (the "Effective Date") shall
be May 4, 1995. This Plan and each option granted hereunder is conditioned on
and shall be of no force or effect until approval of the Plan by the holders of
the shares of voting stock of the Company unless the Company, on the advice of
counsel, determines that stockholder approval is not necessary. The Committee
(as defined in Section 2.1 hereof) may grant options the exercise of which shall
be expressly subject to the condition that the Plan shall have been approved by
the stockholders of the Company.
SECTION 2
DEFINITIONS
2.1 Definitions. The following terms shall have the meanings set forth below:
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<PAGE> 5
(a) "Affiliated Corporation" means any corporation or other entity
(including but not limited to a partnership) which is affiliated with Apache
Corporation through stock ownership or otherwise and is treated as a common
employer under the provisions of Sections 414(b) and (c) or any successor
section(s) of the Internal Revenue Code.
(b) "Board" means the Board of Directors of the Company.
(c) "Committee" means the Stock Option Plan Committee of the Board,
which is empowered hereunder to take actions in the administration of the Plan.
The Committee shall be constituted at all times as to permit the Plan to comply
with: (i) Rule 16b-3 or any successor rule(s) promulgated under the Securities
Exchange Act of 1934, as amended (the "1934 Act"), and (ii) Section 162(m) or
any successor section(s) of the Internal Revenue Code and the regulations
promulgated thereunder.
(d) "Deferred Delivery Plan" means the Company's Deferred Delivery
Plan, effective as of February 10, 2000 and as it may be amended from time to
time, or any successor plan.
(e) "Depositary Shares" means the depositary shares representing the
Company's preferred stock convertible into Stock.
(f) "Eligible Employees" means those full-time key employees
(including, without limitation, officers and directors who are also employees)
of the Company or any division thereof, upon whose judgment, initiative and
efforts the Company is, or will become, largely dependent for the successful
conduct of its business.
(g) "Fair Market Value" means the closing price of the Stock as
reported on the New York Stock Exchange, Inc. Composite Transactions Reporting
System for a particular date. If there are no Stock transactions on such date,
the Fair Market Value shall be determined as of the immediately preceding date
on which there were Stock transactions.
(h) "Internal Revenue Code" means the Internal Revenue Code of 1986, as
it may be amended from time to time.
(i) "Option" means a right to purchase Stock at a stated price for a
specified period of time. All Options granted under the Plan shall be Options
which are not "incentive stock options" as described in Section 422 or any
successor section(s) of the Internal Revenue Code.
2
<PAGE> 6
(j) "Option Price" means the price at which shares of Stock subject to
an Option may be purchased, determined in accordance with subsection 7.2(b)
hereof.
(k) "Participant" means an Eligible Employee designated by the
Committee from time to time during the term of the Plan to receive one or more
Options under the Plan.
(l) "Stock" means the $1.25 par value Common Stock of the Company.
2.2 Headings; Gender and Number. The headings contained in the Plan are for
reference purposes only and shall not affect in any way the meaning or
interpretation of the Plan. Except when otherwise indicated by the context, the
masculine gender shall also include the feminine gender, and the definition of
any term herein in the singular shall also include the plural.
SECTION 3
PLAN ADMINISTRATION
The Plan shall be administered by the Committee. In accordance with the
provisions of the Plan, the Committee shall, in its sole discretion, select the
Participants from among the Eligible Employees, determine the Options to be
granted pursuant to the Plan, the number of shares of Stock to be issued
thereunder, the time at which such Options are to be granted, fix the Option
Price, and establish such other terms and requirements as the Committee may deem
necessary, or desirable and consistent with the terms of the Plan. The Committee
shall determine the form or forms of the agreements with Participants which
shall evidence the particular provisions, terms, conditions, rights and duties
of the Company and the Participants with respect to Options granted pursuant to
the Plan, which provisions need not be identical except as may be provided
herein. The Committee may from time to time adopt such rules and regulations for
carrying out the purposes of the Plan as it may deem proper and in the best
interests of the Company. The Committee may correct any defect, supply any
omission or reconcile any inconsistency in the Plan, or in any agreement entered
into hereunder, in the manner and to the extent it shall deem expedient and it
shall be the sole and final judge of such expediency. No member of the Committee
shall be liable for any action or determination made in good faith. The
determination, interpretations and other actions of the Committee pursuant to
the provisions of the Plan shall be binding and conclusive for all purposes and
on all persons.
The Plan is intended to comply with the requirements of Section 162 or any
successor section(s) of the Internal Revenue Code ("Section 162") as to any
"covered employee" as defined in Section 162, and shall be administered,
interpreted and construed consistently
3
<PAGE> 7
therewith. In accordance with this intent, the amount of income a Participant
may receive from Options granted under the Plan shall be based solely on an
increase in the value of the Stock after the date of the grant of the Option, or
such other bases as may be permitted by applicable law. The Committee is
authorized to take such additional action, if any, that may be required to
ensure that the Plan satisfies the requirements of Section 162 and the
regulations promulgated or revenue rulings published thereunder.
SECTION 4
STOCK SUBJECT TO THE PLAN
4.1 Number of Shares. Subject to Section 7.1 and to adjustment pursuant to
Section 4.3 hereof, two million five hundred thousand (2,500,000) shares of
Stock are authorized for issuance under the Plan in accordance with the
provisions of the Plan and subject to such restrictions or other provisions as
the Committee may from time to time deem necessary. This authorization may be
increased from time to time by approval of the Board and the stockholders of the
Company if, in the opinion of counsel for the Company, such stockholder approval
is required. Shares of Stock which may be issued upon exercise of Options shall
be applied to reduce the maximum number of shares of Stock remaining available
for use under the Plan. The Company shall at all times during the term of the
Plan and while any Options are outstanding retain as authorized and unissued
Stock, or as Stock in the Company's treasury, at least the number of shares from
time to time required under the provisions of the Plan, or otherwise assure
itself of its ability to perform its obligations hereunder.
4.2 Other Shares of Stock. Any shares of Stock that are subject to an Option
which expires, is forfeited, is cancelled, or for any reason is terminated
unexercised, and any shares of Stock that for any other reason are not issued to
a Participant or are forfeited shall automatically become available for use
under the Plan.
4.3 Adjustments for Stock Split, Stock Dividend, Etc. If the Company shall at
any time increase or decrease the number of its outstanding shares of Stock or
change in any way the rights and privileges of such shares by means of the
payment of a Stock dividend or any other distribution upon such shares payable
in Stock, or through a Stock split, subdivision, consolidation, combination,
reclassification or recapitalization involving the Stock, then in relation to
the Stock that is affected by one or more of the above events, the numbers,
rights and privileges of the following shall be increased, decreased or changed
in like manner as if they had been issued and outstanding, fully paid and
nonassessable at the time of such occurrence: (i) the shares of Stock as to
which Options may be granted under the Plan; and (ii) the shares of the Stock
then included in each outstanding Option granted hereunder.
4
<PAGE> 8
4.4 Dividend Payable in Stock of Another Corporation, Etc. If the Company shall
at any time pay or make any dividend or other distribution upon the Stock
payable in securities or other property (except money or Stock), a proportionate
part of such securities or other property shall be set aside and delivered to
any Participant then holding an Option for the particular type of Stock for
which the dividend or other distribution was made, upon exercise thereof. Prior
to the time that any such securities or other property are delivered to a
Participant in accordance with the foregoing, the Company shall be the owner of
such securities or other property and shall have the right to vote the
securities, receive any dividends payable on such securities, and in all other
respects shall be treated as the owner. If securities or other property which
have been set aside by the Company in accordance with this Section are not
delivered to a Participant because an Option is not exercised, then such
securities or other property shall remain the property of the Company and shall
be dealt with by the Company as it shall determine in its sole discretion.
4.5 Other Changes in Stock. In the event there shall be any change, other than
as specified in Sections 4.3 and 4.4 hereof, in the number or kind of
outstanding shares of Stock or of any stock or other securities into which the
Stock shall be changed or for which it shall have been exchanged, and if the
Committee shall in its discretion determine that such change equitably requires
an adjustment in the number or kind of shares subject to outstanding Options or
which have been reserved for issuance pursuant to the Plan but are not then
subject to an Option, then such adjustments shall be made by the Committee and
shall be effective for all purposes of the Plan and on each outstanding Option
that involves the particular type of stock for which a change was effected.
4.6 Rights to Subscribe. If the Company shall at any time grant to the holders
of its Stock rights to subscribe pro rata for additional shares thereof or for
any other securities of the Company or of any other corporation, there shall be
reserved with respect to the shares then under Option to any Participant of the
particular class of Stock involved the Stock or other securities which the
Participant would have been entitled to subscribe for if immediately prior to
such grant the Participant had exercised his entire Option. If, upon exercise of
any such Option, the Participant subscribes for the additional shares or other
securities, the Option Price shall be increased by the amount of the price that
is payable by the Participant for such additional shares or other securities.
4.7 General Adjustment Rules. No adjustment or substitution provided for in this
Section 4 shall require the Company to sell a fractional share of Stock under
any Option, or otherwise issue a fractional share of Stock, and the total
substitution or adjustment with respect to each Option shall be limited by
deleting any fractional share. In the case of any such substitution or
adjustment, the total Option Price for the shares of Stock then subject to the
Option shall remain unchanged but the Option Price per share under each such
5
<PAGE> 9
Option shall be equitably adjusted by the Committee to reflect the greater or
lesser number of shares of Stock or other securities into which the Stock
subject to the Option may have been changed.
4.8 Determination by the Committee, Etc. Adjustments under this Section 4 shall
be made by the Committee, whose determinations with regard thereto shall be
final and binding upon all parties thereto.
SECTION 5
REORGANIZATION OR LIQUIDATION
In the event that the Company is merged or consolidated with another corporation
and the Company is not the surviving corporation, or if all or substantially all
of the assets or more than 20 percent of the outstanding voting stock of the
Company is acquired by any other corporation, business entity or person, or in
case of a reorganization (other than a reorganization under the United States
Bankruptcy Code) or liquidation of the Company, and if the provisions of Section
8 hereof do not apply, the Committee, or the board of directors of any
corporation assuming the obligations of the Company, shall, as to the Plan and
outstanding Options either (i) make appropriate provision for the adoption and
continuation of the Plan by the acquiring or successor corporation and for the
protection of any such outstanding Options by the substitution on an equitable
basis of appropriate stock of the Company or of the merged, consolidated or
otherwise reorganized corporation which will be issuable with respect to the
Stock, provided that no additional benefits shall be conferred upon the
Participants holding such Options as a result of such substitution, and the
excess of the aggregate Fair Market Value of the shares subject to the Options
immediately after such substitution over the Option Price thereof is not more
than the excess of the aggregate Fair Market Value of the shares subject to such
Options immediately before such substitution over the Option Price thereof, or
(ii) upon written notice to the Participants, provide that all unexercised
Options shall be exercised within a specified number of days of the date of such
notice or such Options will be terminated. In the latter event, the Committee
shall accelerate the vesting dates of outstanding Options so that all Options
become fully vested and exercisable prior to any such event.
SECTION 6
PARTICIPATION
Participants in the Plan shall be those Eligible Employees who, in the judgment
of the Committee, are performing, or during the term of their incentive
arrangement will perform, vital services in the management, operation and
development of the Company or
6
<PAGE> 10
an Affiliated Corporation, and significantly contribute, or are expected to
significantly contribute, to the achievement of the Company's long-term
corporate economic objectives. Participants may be granted from time to time one
or more Options; provided, however, that the grant of each such Option shall be
separately approved by the Committee, and receipt of one such Option shall not
result in automatic receipt of any other Option. Upon determination by the
Committee that an Option is to be granted to a Participant, written notice shall
be given to such person, specifying the terms, conditions, rights and duties
related thereto. Each Participant shall, if required by the Committee, enter
into an agreement with the Company, in such form as the Committee shall
determine and which is consistent with the provisions of the Plan, specifying
such terms, conditions, rights and duties. Options shall be deemed to be granted
as of the date specified in the grant resolution of the Committee, which date
shall be the date of any related agreement with the Participant. In the event of
any inconsistency between the provisions of the Plan and any such agreement
entered into hereunder, the provisions of the Plan shall govern.
SECTION 7
STOCK OPTIONS
7.1 Grant of Stock Options. Coincident with or following designation for
participation in the Plan, an Eligible Employee may be granted one or more
Options. Grants of Options under the Plan shall be made by the Committee. In no
event shall the exercise of one Option affect the right to exercise any other
Option or affect the number of shares of Stock for which any other Option may be
exercised, except as provided in subsection 7.2(j) hereof. During the life of
the Plan, no Eligible Employee may be granted Options which in the aggregate
pertain to in excess of 25 percent of the total shares of Stock authorized under
the Plan.
7.2 Stock Option Agreements. Each Option granted under the Plan shall be
evidenced by a written stock option agreement which shall be entered into by the
Company and the Participant to whom the Option is granted (the "Stock Option
Agreement"), and which shall contain the following terms and conditions, as well
as such other terms and conditions, not inconsistent therewith, as the Committee
may consider appropriate in each case.
(a) Number of Shares. Each Stock Option Agreement shall state that it
covers a specified number of shares of Stock, as determined by the Committee.
7
<PAGE> 11
(b) Price. The price at which each share of Stock covered by an Option
may be purchased shall be determined in each case by the Committee and set forth
in the Stock Option Agreement, but in no event shall the price be less than the
Fair Market Value of the Stock on the date the Option is granted.
(c) Duration of Options; Employment Required For Exercise. Each Stock
Option Agreement shall state the period of time, determined by the Committee,
within which the Option may be exercised by the Participant (the "Option
Period"). The Option Period must end, in all cases, not more than ten years from
the date an Option is granted. Except as otherwise provided in Sections 5 and 8
and subsection 7.2(d)(iv) hereof, each Option granted under the Plan shall
become exercisable in increments such that 25 percent of the Option will become
exercisable on each of the four subsequent one-year anniversaries of the date
the Option is granted, but each such additional 25-percent increment shall
become exercisable only if the Participant has been continuously employed by the
Company from the date the Option is granted through the date on which each such
additional 25-percent increment becomes exercisable.
(d) Termination of Employment, Death, Disability, Etc. Each Stock
Option Agreement shall provide as follows with respect to the exercise of the
Option upon termination of the employment or the death of the Participant:
(i) If the employment of the Participant by the Company is
terminated within the Option Period for cause, as determined by the Company, the
Option shall thereafter be void for all purposes. As used in this subsection
7.2(d), "cause" shall mean a gross violation, as determined by the Company, of
the Company's established policies and procedures, provided that the effect of
this subsection 7.2(d) shall be limited to determining the consequences of a
termination and that nothing in this subsection 7.2(d) shall restrict or
otherwise interfere with the Company's discretion with respect to the
termination of any employee.
(ii) If the Participant retires from employment by the Company
on or after attaining age 65, the Option may be exercised by the Participant
within 36 months following his or her retirement (provided that such exercise
must occur within the Option Period), but not thereafter. In the event of the
Participant's death during such 36-month period, each Option may be exercised by
those entitled to do so in the manner referred to in (iv) below. In any such
case the Option may be exercised only as to the shares as to which the Option
had become exercisable on or before the date of the Participant's retirement.
8
<PAGE> 12
(iii) If the Participant becomes disabled (as determined
pursuant to the Company's Long-Term Disability Plan or any successor plan),
during the Option Period while still employed, or within the three-month period
referred to in (v) below, or within the 36-month period referred to in (ii)
above, the Option may be exercised by the Participant or by his or her guardian
or legal representative, within twelve months following the Participant's
disability, or within the 36-month period referred to in (ii) if applicable and
if longer (provided that such exercise must occur within the Option Period), but
not thereafter. In the event of the Participant's death during such twelve-month
period, each Option may be exercised by those entitled to do so in the manner
referred to in (iv) below. In any such case, the Option may be exercised only as
to the shares of Stock as to which the Option had become exercisable on or
before the date of the Participant's disability.
(iv) In the event of the Participant's death while still
employed by the Company, each Option of the deceased Participant may be
exercised by those entitled to do so under the Participant's will or under the
laws of descent and distribution within twelve months following the
Participant's death (provided that in any event such exercise must occur within
the Option Period), but not thereafter, as to all shares of Stock which are
subject to such Option, including each 25-percent increment of the Option, if
any, which has not yet become exercisable at the time of the Participant's
death. In the event of the Participant's death within the 36-month period
referred to in (ii) above or within the twelve-month period referred to in (iii)
above, each Option of the deceased Participant that is exercisable at the time
of death may be exercised by those entitled to do so under the Participant's
will or under the laws of descent and distribution within twelve months
following the Participant's death or within the 36-month period referred to in
(ii), if applicable and if longer (provided that in any event such exercise must
occur within the Option Period). The provisions of this paragraph (iv) of
subsection 7.2(d) shall be applicable to each Stock Option Agreement as if set
forth therein word for word. Each Stock Option Agreement executed by the Company
prior to the adoption of this provision shall be deemed amended to include the
provisions of this paragraph and all Options granted pursuant to such Stock
Option Agreements shall be exercisable as provided herein.
(v) If the employment of the Participant by the Company is
terminated (which for this purpose means that the Participant is no longer
employed by the Company or by an Affiliated Corporation) within the Option
Period for any reason other than cause, the Participant's retirement on or after
attaining age 65, the Participant's disability or death, the Option may be
exercised by the Participant within three months following the date of such
termination (provided that such exercise must occur within the Option Period),
but not thereafter. In any such case, the Option may be exercised only as to the
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<PAGE> 13
shares as to which the Option had become exercisable on or before the date of
termination of the Participant's employment.
(e) Transferability. Each Stock Option Agreement shall provide that the
Option granted therein is not transferable by the Participant except by will or
pursuant to the laws of descent and distribution, and that such Option is
exercisable during the Participant's lifetime only by him or her, or in the
event of the Participant's disability or incapacity, by his or her guardian or
legal representative.
(f) Agreement to Continue in Employment. Each Stock Option Agreement
shall contain the Participant's agreement to remain in the employment of the
Company, at the pleasure of the Company, for a continuous period of at least one
year after the date of such Stock Option Agreement, at the salary rate in effect
on the date of such agreement or at such changed rate as may be fixed, from time
to time, by the Company.
(g) Exercise, Payments, Etc.
(i) Each Stock Option Agreement shall provide that the method
for exercising the Option granted therein shall be by delivery to the Office of
the Secretary of the Company of written notice specifying the number of shares
of Stock with respect to which such Option is exercised and payment of the
Option Price. Such notice shall be in a form satisfactory to the Committee and
shall specify the particular Options (or portions thereof) which are being
exercised and the number of shares of Stock with respect to which the Options
are being exercised. The exercise of the Option shall be deemed effective on the
date such notice is received by the Office of the Secretary and payment is made
to the Company of the Option Price (the "Exercise Date"). If requested by the
Company, such notice shall contain the Participant's representation that he or
she is purchasing the Stock for investment purposes only and his or her
agreement not to sell any Stock so purchased in any manner that is in violation
of the Securities Act of 1933, as amended, or any applicable state law. Such
restriction, or notice thereof, shall be placed on the certificates representing
the Stock so purchased. The purchase of such Stock shall take place at the
principal offices of the Company upon delivery of such notice, at which time the
Option Price shall be paid in full by any of the methods or any combination of
the methods set forth in (iii) below.
(ii) Except as referenced below in connection with the
Deferred Delivery Plan, the shares of Stock to which the Participant is entitled
as a result of the exercise of the Option shall be issued by the Company and (A)
delivered by electronic means to an account designated by the Participant, or
(B) delivered to the Participant in the form of a properly executed certificate
or certificates representing such shares of Stock. If Shares of Stock and/or
Depositary Shares are used to pay all or part of the Option Price, the
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<PAGE> 14
Company shall issue and deliver to the Participant the additional shares of
Stock, in excess of the Option Price or portion thereof paid using shares of
Stock or Depositary Shares, to which the Participant is entitled as a result of
the Option exercise. If the Participant exercising an Option (x) is eligible for
participation in the Deferred Delivery Plan, (y) pays the Option Price pursuant
to (iii)(C) or (D) below, and (z) has made an irrevocable election at least six
months prior to the Exercise Date as required under the Deferred Delivery Plan,
the income resulting from the Option exercise shall be deferred into the
Participant's Deferred Delivery Plan account and no additional shares of Stock
shall be delivered to the Participant.
(iii) the Option Price shall be paid by any of the following
methods or any combination of the following methods:
(A) in cash, including the wire transfer of funds to
one of the Company's bank accounts located in the United States, with such bank
account to be designated from time to time by the Company;
(B) by personal, certified or cashier's check payable
to the order of the Company;
(C) by delivery to the Company of certificates
representing a number of shares of Stock then owned by the Participant, the Fair
Market Value (as of the Exercise Date) of which is not greater than the Option
Price of the Option being exercised, properly endorsed for transfer to the
Company; provided however, that the shares of Stock used for this purpose must
have been owned by the Participant for a period of at least six months;
(D) by certification or attestation to the Company of
the Participant's ownership as of the Exercise Date of the number of (1) shares
of Stock and/or (2) Depositary Shares, the Fair Market Value (as of the Exercise
Date) of which is not greater than the Option Price of the Option being
exercised; provided however, that the shares of Stock and/or Depositary Shares
used for this purpose must have been owned by the Participant for a period of at
least six months.
(E) by delivery to the Company of a properly executed
notice of exercise together with irrevocable instructions to a broker to
promptly deliver to the Company, by wire transfer or check as noted in (A) and
(B) above, the amount of the proceeds of the sale of all or a portion of the
Stock or of a loan from the broker to the Participant necessary to pay the
Option Price.
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(h) Date of Grant. An Option shall be considered as having been granted
on the date specified in the grant resolution of the Committee.
(i) Tax Withholding. Each Stock Option Agreement shall provide that,
upon exercise of the Option, the Participant shall make appropriate arrangements
with the Company to provide for the amount of tax withholding required by
Sections 3102 and 3402 or any successor section(s) of the Internal Revenue Code
and applicable state and local income tax laws including, as provided in Section
13 hereof, payment of such taxes (A) through delivery of shares of Stock, (B) by
certification or attestation of shares of Stock or Depositary Shares, or (C) by
withholding shares of Stock otherwise issuable upon exercise of the Option.
(j) Adjustment of Options. Subject to the provisions of Sections 4, 5,
7, 8 and 12 hereof, the Committee may make any adjustment in the number of
shares of Stock covered by, or the terms of an outstanding Option and a
subsequent granting of an Option, by amendment or by substitution for an
outstanding Option; however, except as provided in Sections 4, 5, 8 and 12
hereof, the Committee may not adjust the Option Price of any outstanding Option.
Such amendment or substitution may result in terms and conditions (including the
number of shares of Stock covered, vesting schedule or Option Period) that
differ from the terms and conditions of the original Option. The Committee may
not, however, adversely affect the rights of any Participant to previously
granted Options without the consent of such Participant. If such action is
effected by amendment, the effective date of grant of such amendment will be the
date of grant of the original Option.
7.3 Stockholder Privileges. No Participant shall have any rights as a
stockholder with respect to any shares of Stock covered by an Option until the
Participant becomes the holder of record of such Stock. Except as provided in
Section 4 hereof, no adjustments shall be made for dividends or other
distributions or other rights as to which there is a record date preceding the
date on which such Participant becomes the holder of record of such Stock.
SECTION 8
CHANGE IN CONTROL
8.1 In General. In the event of a change in control of the Company as defined in
Section 8.3 hereof, then the Committee may, in its sole discretion, without
obtaining stockholder approval, to the extent permitted in Section 12 hereof,
take any or all of the following actions: (a) accelerate the dates on which any
outstanding Options become exercisable or make all such Options fully vested and
exercisable; (b) grant a cash bonus
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award to any Participant in an amount necessary to pay the Option Price of all
or any portion of the Options then held by such Participant; (c) pay cash to any
or all Participants in exchange for the cancellation of their outstanding
Options in an amount equal to the difference between the Option Price of such
Options and the greater of the tender offer price for the underlying Stock or
the Fair Market Value of the Stock on the date of the cancellation of the
Options; and (d) make any other adjustments or amendments to the outstanding
Options.
8.2 Limitation on Payments. If the provisions of this Section 8 would result in
the receipt by any Participant of a payment within the meaning of Section 280G
or any successor section(s) of the Internal Revenue Code, and the regulations
promulgated thereunder, and if the receipt of such payment by any Participant
would, in the opinion of independent tax counsel of recognized standing selected
by the Company, result in the payment by such Participant of any excise tax
provided for in Sections 280G and 4999 or any successor section(s) of the
Internal Revenue Code, then the amount of such payment shall be reduced to the
extent required, in the opinion of independent tax counsel, to prevent the
imposition of such excise tax; provided, however, that the Committee, in its
sole discretion, may authorize the payment of all or any portion of the amount
of such reduction to the Participant.
8.3 Definition. For purposes of the Plan, a "change in control" shall mean any
of the events specified in the Company's Income Continuance Plan or any
successor plan which constitute a change in control within the meaning of such
plan.
SECTION 9
RIGHTS OF EMPLOYEES, PARTICIPANTS
9.1 Employment. Nothing contained in the Plan or in any Option granted under the
Plan shall confer upon any Participant any right with respect to the
continuation of his or her employment by the Company or any Affiliated
Corporation, or interfere in any way with the right of the Company or any
Affiliated Corporation, subject to the terms of any separate employment
agreement to the contrary, at any time to terminate such employment or to
increase or decrease the level of the Participant's compensation from the level
in existence at the time of the grant of an Option. Whether an authorized leave
of absence, or absence in military or government service, shall constitute a
termination of employment shall be determined by the Committee at the time.
9.2 Nontransferability. No right or interest of any Participant in an Option
granted pursuant to the Plan shall be assignable or transferable during the
lifetime of the Participant, either voluntarily or involuntarily, or subjected
to any lien, directly or
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indirectly, by operation of law, or otherwise, including execution, levy,
garnishment, attachment, pledge or bankruptcy. In the event of a Participant's
death, a Participant's rights and interests in Options shall, to the extent
provided in Section 7 hereof, be transferable by testamentary will or the laws
of descent and distribution, and payment of any amounts due under the Plan shall
be made to, and exercise of any Options may be made by, the Participant's legal
representatives, heirs or legatees. If in the opinion of the Committee, a person
entitled to payments or to exercise rights with respect to the Plan is disabled
from caring for his or her affairs because of mental condition, physical
condition or age, payment due such person may be made to, and such rights shall
be exercised by, such person's guardian, conservator or other legal personal
representative upon furnishing the Committee with evidence satisfactory to the
Committee of such status.
SECTION 10
GENERAL RESTRICTIONS
10.1 Investment Representations. The Company may require a Participant, as a
condition of exercising an Option, to give written assurances in substance and
form satisfactory to the Company and its counsel to the effect that such person
is acquiring the Stock subject to the Option for his own account for investment
and not with any present intention of selling or otherwise distributing the
same, and to such other effects as the Company deems necessary or appropriate in
order to comply with federal and applicable state securities laws.
10.2 Compliance with Securities Laws. Each Option shall be subject to the
requirement that, if at any time counsel to the Company shall determine that the
listing, registration or qualification of the shares of Stock subject to such
Option upon any securities exchange or under any state or federal law, or the
consent or approval of any governmental or regulatory body, is necessary as a
condition of, or in connection with, the issuance or purchase of shares of Stock
thereunder, such Option may not be accepted or exercised in whole or in part
unless such listing, registration, qualification, consent or approval shall have
been effected or obtained on conditions acceptable to the Committee. Nothing
herein shall be deemed to require the Company to apply for or to obtain such
listing, registration, qualification, consent or approval.
SECTION 11
OTHER EMPLOYEE BENEFITS
The amount of any income deemed to be received by a Participant as a result of
the exercise of an Option shall not constitute "earnings" or "compensation" with
respect to which any other employee benefits of such Participant are determined,
including without limitation benefits under any pension, profit sharing, life
insurance or salary continuation plan.
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SECTION 12
PLAN AMENDMENT, MODIFICATION AND TERMINATION
The Board may at any time terminate, and from time to time may amend or modify
the Plan provided, however, that no amendment or modification may become
effective without approval of the amendment or modification by the Company's
stockholders if stockholder approval is required to enable the Plan to satisfy
any applicable statutory or regulatory requirements, or if the Company, on the
advice of counsel, determines that stockholder approval is otherwise necessary
or desirable.
No amendment, modification or termination of the Plan shall in any manner
adversely affect any Option theretofore granted under the Plan, without the
consent of the Participant holding such Option.
SECTION 13
WITHHOLDING
13.1 Withholding Requirement. The Company's obligations to deliver shares of
Stock upon the exercise of an Option, or to defer income resulting from an
Option exercise into the Deferred Delivery Plan, shall be subject to the
Participant's satisfaction of all applicable federal, state and local income and
other tax withholding requirements.
13.2 Satisfaction of Required Withholding. At the time the Committee grants an
Option, it may, in its sole discretion, grant the Participant an election to pay
all such amounts of required tax withholding, or any part thereof:
(a) by the delivery to the Company of a number of shares of Stock then
owned by the Participant, the Fair Market Value (as of the Exercise Date) of
which is not greater than the amount required to be withheld, provided that such
shares have been held by the Participant for a period of at least six months;
(b) by certification or attestation to the Company of the Participant's
ownership as of the Exercise Date of a number of shares of Stock and/or
Depositary Shares, the Fair Market Value (as of the Exercise Date) of which is
not greater than the amount required
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<PAGE> 19
to be withheld, provided that such shares of Stock and/or Depositary Shares have
been owned by the Participant for a period of at least six months; or
(c) by the Company withholding from the shares of Stock otherwise
issuable to the Participant upon exercise of the Option, a number of shares of
Stock, the Fair Market Value (as of the Exercise Date) of which is not greater
than the amount required to be withheld. Any such elections by Participants to
have shares of Stock withheld for this purpose will be subject to the following
restrictions:
(i) all elections shall be made on or prior to the Exercise
Date; and
(ii) all elections shall be irrevocable.
13.3 Excess Withholding. At the time the Committee grants an Option, it may, in
its sole discretion, grant the Participant an election to pay additional or
excess amounts of tax withholding, beyond the required amounts and up to the
Participant's marginal tax rate:
(a) by delivery to the Company of a number of Shares of Stock then
owned by the Participant, the Fair Market Value (as of the Exercise Date) of
which is not greater than such excess withholding amount, provided that such
shares of Stock have been owned by the Participant for a period of at least six
months; or
(b) by certification or attestation to the Company of the Participant's
ownership as of the Exercise Date of a number of shares of Stock and/or
Depositary Shares, the Fair Market Value (as of the Exercise Date) of which is
not greater than such excess withholding amount, provided that such shares of
Stock and/or Depositary Shares have been owned by the Participant for a period
of at least six months.
13.4 Section 16 Requirements. If the Participant is an officer or director of
the Company within the meaning of Section 16 or any successor section(s) of the
1934 Act ("Section 16"), the Participant must satisfy the requirements of such
Section 16 and any applicable rules and regulations thereunder with respect to
the use of shares of Stock and/or Depositary Shares to satisfy such tax
withholding obligation.
SECTION 14
REQUIREMENTS OF LAW
14.1 Requirements of Law. The issuance of Stock and the payment of cash pursuant
to the Plan shall be subject to all applicable laws, rules and regulations.
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14.2 Federal Securities Laws Requirements. If a Participant is an officer or
director of the Company within the meaning of Section 16, Options granted
hereunder shall be subject to all conditions required under Rule 16b-3, or any
successor rule(s) promulgated under the 1934 Act, to qualify the Option for any
exception from the provisions of Section 16 available under such Rule. Such
conditions are hereby incorporated herein by reference and shall be set forth in
the agreement with the Participant which describes the Option.
14.3 Governing Law. The Plan and all Stock Option Agreements hereunder shall be
construed in accordance with and governed by the laws of the State of Texas.
SECTION 15
DURATION OF THE PLAN
The Plan shall terminate at such time as may be determined by the Board, and no
Option shall be granted after such termination. If not sooner terminated under
the preceding sentence, the Plan shall fully cease and expire at midnight on May
4, 2000. Options outstanding at the time of the Plan termination shall continue
to be exercisable in accordance with the Stock Option Agreement pertaining to
such Option.
Dated: February 10, 2000
APACHE CORPORATION
ATTEST:
/s/ Cheri L. Peper By: /s/ Daniel L. Schaeffer
- ----------------------- ----------------------------
Cheri L. Peper Daniel L. Schaeffer
Corporate Secretary Vice President
17
<PAGE> 1
EXHIBIT 10.26
APACHE CORPORATION
1998 STOCK OPTION PLAN
(AS AMENDED AND RESTATED
EFFECTIVE FEBRUARY 10, 2000)
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Section 1 - Introduction.................................................................................1
1.1 Establishment..........................................................................1
1.2 Purposes...............................................................................1
1.3 Effective Date.........................................................................1
Section 2 - Definitions..................................................................................1
2.1 Definitions............................................................................1
2.2 Headings; Gender and Number............................................................3
Section 3 - Plan Administration..........................................................................3
Section 4 - Stock Subject to the Plan....................................................................4
4.1 Number of Shares.......................................................................4
4.2 Other Shares of Stock..................................................................4
4.3 Adjustments for Stock Split, Stock Dividend, Etc.......................................4
4.4 Dividend Payable in Stock of Another Corporation, Etc..................................4
4.5 Other Changes in Stock.................................................................5
4.6 Rights to Subscribe....................................................................5
4.7 General Adjustment Rules...............................................................5
4.8 Determination by the Committee, Etc....................................................6
Section 5 - Reorganization or Liquidation................................................................6
Section 6 - Participation................................................................................6
Section 7 - Stock Options................................................................................7
7.1 Grant of Stock Options.................................................................7
7.2 Stock Option Agreements................................................................7
7.3 Stockholder Privileges................................................................12
Section 8 - Change in Control...........................................................................12
8.1 In General............................................................................12
8.2 Limitation on Payments................................................................13
8.3 Definition............................................................................13
</TABLE>
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<TABLE>
<S> <C>
Section 9 - Rights of Employees, Participants...........................................................13
9.1 Employment............................................................................13
9.2 Nontransferability....................................................................13
Section 10 - General Restrictions.......................................................................14
10.1 Investment Representations............................................................14
10.2 Compliance with Securities Laws.......................................................14
Section 11 - Other Employee Benefits....................................................................14
Section 12 - Plan Amendment, Modification and Termination...............................................14
Section 13 - Withholding................................................................................15
13.1 Withholding Requirement...............................................................15
13.2 Satisfaction of Required Withholding..................................................15
13.3 Excess Withholding....................................................................16
13.4 Section 16 Requirements...............................................................16
Section 14 - Requirements of Law........................................................................16
14.1 Requirements of Law...................................................................16
14.2 Federal Securities Laws Requirements..................................................16
14.3 Governing Law.........................................................................17
Section 15 - Duration of the Plan.......................................................................17
</TABLE>
ii
<PAGE> 4
APACHE CORPORATION
1998 STOCK OPTION PLAN
SECTION 1
INTRODUCTION
1.1 Establishment. Apache Corporation, a Delaware corporation (hereinafter
referred to, together with its Affiliated Corporations (as defined in Section
2.1 hereof) as the "Company" except where the context otherwise requires),
hereby establishes the Apache Corporation 1998 Stock Option Plan (the "Plan")
for Eligible Employees (as defined in Section 2.1 hereof). The Plan permits the
grant of stock options to Eligible Employees selected by the Committee (as
defined in Section 2.1 hereof).
1.2 Purposes. The purposes of the Plan are to provide the Eligible Employees
designated by the Committee for participation in the Plan with added incentives
to continue in the long-term service of the Company and to create in such
employees a more direct interest in the future success of the operations of the
Company by relating incentive compensation to increases in stockholder value, so
that the income of those employees is more closely aligned with the interests of
the Company's stockholders. The Plan is also designed to attract outstanding
individuals and to retain and motivate Eligible Employees by providing an
opportunity for investment in the Company.
1.3 Effective Date. The Effective Date of the Plan (the "Effective Date") shall
be February 6, 1998. This Plan and each option granted hereunder is conditioned
on and shall be of no force or effect until approval of the Plan by the holders
of the shares of voting stock of the Company unless the Company, on the advice
of counsel, determines that stockholder approval is not necessary. The Committee
may grant options the exercise of which shall be expressly subject to the
condition that the Plan shall have been approved by the stockholders of the
Company.
SECTION 2
DEFINITIONS
2.1 Definitions. The following terms shall have the meanings set forth below:
(a) "Affiliated Corporation" means any corporation or other entity
(including but not limited to a partnership) which is affiliated with Apache
Corporation through
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stock ownership or otherwise and is treated as a common employer under the
provisions of Sections 414(b) and (c) or any successor section(s) of the
Internal Revenue Code.
(b) "Board" means the Board of Directors of the Company.
(c) "Committee" means the Stock Option Plan Committee of the Board,
which is empowered hereunder to take actions in the administration of the Plan.
The Committee shall be constituted at all times as to permit the Plan to comply
with: (i) Rule 16b-3 or any successor rule(s) promulgated under the Securities
Exchange Act of 1934, as amended (the "1934 Act"), and (ii) Section 162(m) or
any successor section(s) of the Internal Revenue Code and the regulations
promulgated thereunder.
(d) "Deferred Delivery Plan" means the Company's Deferred Delivery
Plan, effective as of February 10, 2000 and as it may be amended from time to
time, or any successor plan.
(e) "Depositary Shares" means the Depositary shares representing the
Company's preferred stock convertible into Stock.
(f) "Eligible Employees" means full-time employees (including, without
limitation, officers and directors who are also employees) of the Company or any
division thereof.
(g) "Fair Market Value" means the closing price of the Stock or
Depositary Shares, as applicable, as reported on the New York Stock Exchange,
Inc. Composite Transactions Reporting System for a particular date. If there are
no Stock or Depositary Shares, as applicable, transactions on such date, the
Fair Market Value shall be determined as of the immediately preceding date on
which there were Stock or Depositary Shares, as applicable, transactions.
(h) "Internal Revenue Code" means the Internal Revenue Code of 1986, as
it may be amended from time to time.
(i) "Option" means a right to purchase Stock at a stated price for a
specified period of time. All Options granted under the Plan shall be Options
which are not "incentive stock options" as described in Section 422 or any
successor section(s) of the Internal Revenue Code.
(j) "Option Price" means the price at which shares of Stock subject to
an Option may be purchased, determined in accordance with subsection 7.2(b)
hereof.
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(k) "Participant" means an Eligible Employee designated by the
Committee from time to time during the term of the Plan to receive one or more
Options under the Plan.
(l) "Stock" means the $1.25 par value Common Stock of the Company.
2.2 Headings; Gender and Number. The headings contained in the Plan are for
reference purposes only and shall not affect in any way the meaning or
interpretation of the Plan. Except when otherwise indicated by the context, the
masculine gender shall also include the feminine gender, and the definition of
any term herein in the singular shall also include the plural.
SECTION 3
PLAN ADMINISTRATION
The Plan shall be administered by the Committee. In accordance with the
provisions of the Plan, the Committee shall, in its sole discretion, select the
Participants from among the Eligible Employees, determine the Options to be
granted pursuant to the Plan, the number of shares of Stock to be issued
thereunder, the time at which such Options are to be granted, fix the Option
Price, and establish such other terms and requirements as the Committee may deem
necessary or desirable and consistent with the terms of the Plan. The Committee
shall determine the form or forms of the agreements with Participants which
shall evidence the particular provisions, terms, conditions, rights and duties
of the Company and the Participants with respect to Options granted pursuant to
the Plan, which provisions need not be identical except as may be provided
herein. The Committee may from time to time adopt such rules and regulations for
carrying out the purposes of the Plan as it may deem proper and in the best
interests of the Company. The Committee may correct any defect, supply any
omission or reconcile any inconsistency in the Plan, or in any agreement entered
into hereunder, in the manner and to the extent it shall deem expedient and it
shall be the sole and final judge of such expediency. No member of the Committee
shall be liable for any action or determination made in good faith. The
determination, interpretations and other actions of the Committee pursuant to
the provisions of the Plan shall be binding and conclusive for all purposes and
on all persons.
The Plan is intended to comply with the requirements of Section 162(m) or any
successor section(s) of the Internal Revenue Code ("Section 162(m)") as to any
"covered employee" as defined in Section 162(m), and shall be administered,
interpreted and construed consistently therewith. In accordance with this
intent, the amount of income a Participant may receive from Options granted
under the Plan shall be based solely on an increase in the value of the Stock
after the date of the grant of the Option, or such other bases as may
3
<PAGE> 7
be permitted by applicable law. The Committee is authorized to take such
additional action, if any, that may be required to ensure that the Plan
satisfies the requirements of Section 162(m) and the regulations promulgated or
revenue rulings published thereunder.
SECTION 4
STOCK SUBJECT TO THE PLAN
4.1 Number of Shares. Subject to Section 7.1 and to adjustment pursuant to
Section 4.3 hereof, two million five hundred thousand (2,500,000) shares of
Stock are authorized for issuance under the Plan in accordance with the
provisions of the Plan and subject to such restrictions or other provisions as
the Committee may from time to time deem necessary. This authorization may be
increased from time to time by approval of the Board and the stockholders of the
Company if, in the opinion of counsel for the Company, such stockholder approval
is required. Shares of Stock which may be issued upon exercise of Options shall
be applied to reduce the maximum number of shares of Stock remaining available
for use under the Plan. The Company shall at all times during the term of the
Plan and while any Options are outstanding retain as authorized and unissued
Stock, or as Stock in the Company's treasury, at least the number of shares from
time to time required under the provisions of the Plan, or otherwise assure
itself of its ability to perform its obligations hereunder.
4.2 Other Shares of Stock. Any shares of Stock that are subject to an Option
which expires, is forfeited, is cancelled, or for any reason is terminated
unexercised, and any shares of Stock that for any other reason are not issued to
a Participant or are forfeited shall automatically become available for use
under the Plan.
4.3 Adjustments for Stock Split, Stock Dividend, Etc. If the Company shall at
any time increase or decrease the number of its outstanding shares of Stock or
change in any way the rights and privileges of such shares by means of the
payment of a Stock dividend or any other distribution upon such shares payable
in Stock, or through a Stock split, subdivision, consolidation, combination,
reclassification or recapitalization involving the Stock, then in relation to
the Stock that is affected by one or more of the above events, the numbers,
rights and privileges of the following shall be increased, decreased or changed
in like manner as if they had been issued and outstanding, fully paid and
nonassessable at the time of such occurrence: (i) the shares of Stock as to
which Options may be granted under the Plan; and (ii) the shares of the Stock
then included in each outstanding Option granted hereunder.
4.4 Dividend Payable in Stock of Another Corporation, Etc. If the Company shall
at any time pay or make any dividend or other distribution upon the Stock
payable in
4
<PAGE> 8
securities or other property (except money or Stock), a proportionate part of
such securities or other property shall be set aside and delivered to any
Participant then holding an Option for the particular type of Stock for which
the dividend or other distribution was made, upon exercise thereof. Prior to the
time that any such securities or other property are delivered to a Participant
in accordance with the foregoing, the Company shall be the owner of such
securities or other property and shall have the right to vote the securities,
receive any dividends payable on such securities, and in all other respects
shall be treated as the owner. If securities or other property which have been
set aside by the Company in accordance with this Section are not delivered to a
Participant because an Option is not exercised, then such securities or other
property shall remain the property of the Company and shall be dealt with by the
Company as it shall determine in its sole discretion.
4.5 Other Changes in Stock. In the event there shall be any change, other than
as specified in Sections 4.3 and 4.4 hereof, in the number or kind of
outstanding shares of Stock or of any stock or other securities into which the
Stock shall be changed or for which it shall have been exchanged, and if the
Committee shall in its discretion determine that such change equitably requires
an adjustment in the number or kind of shares subject to outstanding Options or
which have been reserved for issuance pursuant to the Plan but are not then
subject to an Option, then such adjustments shall be made by the Committee and
shall be effective for all purposes of the Plan and on each outstanding Option
that involves the particular type of stock for which a change was effected.
4.6 Rights to Subscribe. If the Company shall at any time grant to the holders
of its Stock rights to subscribe pro rata for additional shares thereof or for
any other securities of the Company or of any other corporation, there shall be
reserved with respect to the shares then under Option to any Participant of the
particular class of Stock involved the Stock or other securities which the
Participant would have been entitled to subscribe for if immediately prior to
such grant the Participant had exercised his entire Option. If, upon exercise of
any such Option, the Participant subscribes for the additional shares or other
securities, the Option Price shall be increased by the amount of the price that
is payable by the Participant for such additional shares or other securities.
4.7 General Adjustment Rules. No adjustment or substitution provided for in this
Section 4 shall require the Company to sell a fractional share of Stock under
any Option, or otherwise issue a fractional share of Stock, and the total
substitution or adjustment with respect to each Option shall be limited by
deleting any fractional share. In the case of any such substitution or
adjustment, the total Option Price for the shares of Stock then subject to the
Option shall remain unchanged but the Option Price per share under each such
Option shall be equitably adjusted by the Committee to reflect the greater or
lesser number of shares of Stock or other securities into which the Stock
subject to the Option may have been changed.
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<PAGE> 9
4.8 Determination by the Committee, Etc. Adjustments under this Section 4 shall
be made by the Committee, whose determinations with regard thereto shall be
final and binding upon all parties thereto.
SECTION 5
REORGANIZATION OR LIQUIDATION
In the event that the Company is merged or consolidated with another corporation
and the Company is not the surviving corporation, or if all or substantially all
of the assets or more than 20 percent of the outstanding voting stock of the
Company is acquired by any other corporation, business entity or person, or in
case of a reorganization (other than a reorganization under the United States
Bankruptcy Code) or liquidation of the Company, and if the provisions of Section
8 hereof do not apply, the Committee, or the board of directors of any
corporation assuming the obligations of the Company, shall, as to the Plan and
outstanding Options either (i) make appropriate provision for the adoption and
continuation of the Plan by the acquiring or successor corporation and for the
protection of any such outstanding Options by the substitution on an equitable
basis of appropriate stock of the Company or of the merged, consolidated or
otherwise reorganized corporation which will be issuable with respect to the
Stock, provided that no additional benefits shall be conferred upon the
Participants holding such Options as a result of such substitution, and the
excess of the aggregate Fair Market Value of the shares subject to the Options
immediately after such substitution over the Option Price thereof is not more
than the excess of the aggregate Fair Market Value of the shares subject to such
Options immediately before such substitution over the Option Price thereof, or
(ii) upon written notice to the Participants, provide that all unexercised
Options shall be exercised within a specified number of days of the date of such
notice or such Options will be terminated. In the latter event, the Committee
shall accelerate the vesting dates of outstanding Options so that all Options
become fully vested and exercisable prior to any such event.
SECTION 6
PARTICIPATION
Participants in the Plan shall be those Eligible Employees who, in the judgment
of the Committee, are performing, or during the term of their incentive
arrangement will perform, vital services in the management, operation and
development of the Company or an Affiliated Corporation, and significantly
contribute, or are expected to significantly contribute, to the achievement of
the Company's long-term corporate economic objectives. Participants may be
granted from time to time one or more Options; provided,
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<PAGE> 10
however, that the grant of each such Option shall be separately approved by the
Committee, and receipt of one such Option shall not result in automatic receipt
of any other Option. Upon determination by the Committee that an Option is to be
granted to a Participant, written notice shall be given to such person,
specifying the terms, conditions, rights and duties related thereto. Each
Participant shall, if required by the Committee, enter into an agreement with
the Company, in such form as the Committee shall determine and which is
consistent with the provisions of the Plan, specifying such terms, conditions,
rights and duties. Options shall be deemed to be granted as of the date
specified in the grant resolution of the Committee, which date shall be the date
of any related agreement with the Participant. In the event of any inconsistency
between the provisions of the Plan and any such agreement entered into
hereunder, the provisions of the Plan shall govern.
SECTION 7
STOCK OPTIONS
7.1 Grant of Stock Options. Coincident with or following designation for
participation in the Plan, an Eligible Employee may be granted one or more
Options. Grants of Options under the Plan shall be made by the Committee. In no
event shall the exercise of one Option affect the right to exercise any other
Option or affect the number of shares of Stock for which any other Option may be
exercised, except as provided in subsection 7.2(j) hereof. During the life of
the Plan, no Eligible Employee may be granted Options which in the aggregate
pertain to in excess of 25 percent of the total shares of Stock authorized under
the Plan.
7.2 Stock Option Agreements. Each Option granted under the Plan shall be
evidenced by a written stock option agreement which shall be entered into by the
Company and the Participant to whom the Option is granted (the "Stock Option
Agreement"), and which shall contain the following terms and conditions, as well
as such other terms and conditions, not inconsistent therewith, as the Committee
may consider appropriate in each case.
(a) Number of Shares. Each Stock Option Agreement shall state that it
covers a specified number of shares of Stock, as determined by the Committee.
(b) Price. The price at which each share of Stock covered by an Option
may be purchased shall be determined in each case by the Committee and set forth
in the Stock Option Agreement, but in no event shall the price be less than the
Fair Market Value of the Stock on the date the Option is granted.
7
<PAGE> 11
(c) Duration of Options; Employment Required For Exercise. Each Stock
Option Agreement shall state the period of time, determined by the Committee,
within which the Option may be exercised by the Participant (the "Option
Period"). The Option Period must end, in all cases, not more than ten years from
the date an Option is granted. Except as otherwise provided in Sections 5 and 8
and subsection 7.2(d)(iv) hereof, each Option granted under the Plan shall
become exercisable in increments such that 25 percent of the Option will become
exercisable on each of the four subsequent one-year anniversaries of the date
the Option is granted, but each such additional 25-percent increment shall
become exercisable only if the Participant has been continuously employed by the
Company from the date the Option is granted through the date on which each such
additional 25-percent increment becomes exercisable.
(d) Termination of Employment, Death, Disability, Etc. Each Stock
Option Agreement shall provide as follows with respect to the exercise of the
Option upon termination of the employment or the death of the Participant:
(i) If the employment of the Participant by the Company is
terminated within the Option Period for cause, as determined by the Company, the
Option shall thereafter be void for all purposes. As used in this subsection
7.2(d), "cause" shall mean a gross violation, as determined by the Company, of
the Company's established policies and procedures, provided that the effect of
this subsection 7.2(d) shall be limited to determining the consequences of a
termination and that nothing in this subsection 7.2(d) shall restrict or
otherwise interfere with the Company's discretion with respect to the
termination of any employee.
(ii) If the Participant retires from employment by the Company
on or after attaining age 65, the Option may be exercised by the Participant
within 36 months following his or her retirement (provided that such exercise
must occur within the Option Period), but not thereafter. In the event of the
Participant's death during such 36-month period, each Option may be exercised by
those entitled to do so in the manner referred to in (iv) below. In any such
case the Option may be exercised only as to the shares as to which the Option
had become exercisable on or before the date of the Participant's retirement.
(iii) If the Participant becomes disabled (as determined
pursuant to the Company's Long-Term Disability Plan or any successor plan),
during the Option Period while still employed, or within the three-month period
referred to in (v) below, or within the 36-month period referred to in (ii)
above, the Option may be exercised by the Participant or by his or her guardian
or legal representative, within twelve months following the Participant's
disability, or within the 36-month period referred to in (ii) above if
applicable and if longer (provided that such exercise must occur within the
8
<PAGE> 12
Option Period), but not thereafter. In the event of the Participant's death
during such twelve-month period, each Option may be exercised by those entitled
to do so in the manner referred to in (iv) below. In any such case, the Option
may be exercised only as to the shares of Stock as to which the Option had
become exercisable on or before the date of the Participant's disability.
(iv) In the event of the Participant's death while still
employed by the Company, each Option of the deceased Participant may be
exercised by those entitled to do so under the Participant's will or under the
laws of descent and distribution within twelve months following the
Participant's death (provided that in any event such exercise must occur within
the Option Period), but not thereafter, as to all shares of Stock which are
subject to such Option, including each 25-percent increment of the Option, if
any, which has not yet become exercisable at the time of the Participant's
death. In the event of the Participant's death within the 36-month period
referred to in (ii) above or within the twelve-month period referred to in (iii)
above, each Option of the deceased Participant that is exercisable at the time
of death may be exercised by those entitled to do so under the Participant's
will or under the laws of descent and distribution within twelve months
following the Participant's death or within the 36-month period referred to in
(ii) above, if applicable and if longer (provided that in any event such
exercise must occur within the Option Period). The provisions of this paragraph
(iv) of subsection 7.2(d) shall be applicable to each Stock Option Agreement as
if set forth therein word for word. Each Stock Option Agreement executed by the
Company prior to the adoption of this provision shall be deemed amended to
include the provisions of this paragraph and all Options granted pursuant to
such Stock Option Agreements shall be exercisable as provided herein.
(v) If the employment of the Participant by the Company is
terminated (which for this purpose means that the Participant is no longer
employed by the Company or by an Affiliated Corporation) within the Option
Period for any reason other than cause, the Participant's retirement on or after
attaining age 65, the Participant's disability or death, the Option may be
exercised by the Participant within three months following the date of such
termination (provided that such exercise must occur within the Option Period),
but not thereafter. In any such case, the Option may be exercised only as to the
shares as to which the Option had become exercisable on or before the date of
termination of the Participant's employment.
(e) Transferability. Each Stock Option Agreement shall provide that the
Option granted therein is not transferable by the Participant except by will or
pursuant to the laws of descent and distribution, and that such Option is
exercisable during the Participant's lifetime only by him or her, or in the
event of the Participant's disability or incapacity, by his or her guardian or
legal representative.
9
<PAGE> 13
(f) Agreement to Continue in Employment. Each Stock Option Agreement
shall contain the Participant's agreement to remain in the employment of the
Company, at the pleasure of the Company, for a continuous period of at least one
year after the date of such Stock Option Agreement, at the salary rate in effect
on the date of such agreement or at such changed rate as may be fixed, from time
to time, by the Company.
(g) Exercise, Payments, Etc.
(i) Each Stock Option Agreement shall provide that the method
for exercising the Option granted therein shall be by delivery to the Office of
the Secretary of the Company of written notice specifying the number of shares
of Stock with respect to which such Option is exercised and payment of the
Option Price. Such notice shall be in a form satisfactory to the Committee and
shall specify the particular Options (or portions thereof) which are being
exercised and the number of shares of Stock with respect to which the Options
are being exercised. The exercise of the Option shall be deemed effective on the
date such notice is received by the Office of the Secretary and payment is made
to the Company of the Option Price (the "Exercise Date"). If requested by the
Company, such notice shall contain the Participant's representation that he or
she is purchasing the Stock for investment purposes only and his or her
agreement not to sell any Stock so purchased in any manner that is in violation
of the Securities Act of 1933, as amended, or any applicable state law. Such
restriction, or notice thereof, shall be placed on the certificates representing
the Stock so purchased. The purchase of such Stock shall take place at the
principal offices of the Company upon delivery of such notice, at which time the
Option Price shall be paid in full by any of the methods or any combination of
the methods set forth in (iii) below.
(ii) Except as referenced below in connection with the
Deferred Delivery Plan, the shares of Stock to which the Participant is entitled
as a result of the exercise of the Option shall be issued by the Company and (A)
delivered by electronic means to an account designated by the Participant, or
(B) delivered to the Participant in the form of a properly executed certificate
or certificates representing such shares of Stock. If Shares of Stock and/or
Depositary Shares are used to pay all or part of the Option Price, the Company
shall issue and deliver to the Participant the additional shares of Stock, in
excess of the Option Price or portion thereof paid using shares of Stock or
Depositary Shares, to which the Participant is entitled as a result of the
Option exercise. If the Participant exercising an Option (x) is eligible for
participation in the Deferred Delivery Plan, (y) pays the Option Price pursuant
to (iii)(C) or (D) below, and (z) has made an irrevocable election at least six
months prior to the Exercise Date as required under the Deferred Delivery Plan,
the income resulting from the Option exercise shall be deferred
10
<PAGE> 14
into the Participant's Deferred Delivery Plan account and no additional shares
of Stock shall be delivered to the Participant.
(iii) the Option Price shall be paid by any of the following
methods or any combination of the following methods:
(A) in cash, including the wire transfer of funds to
one of the Company's bank accounts located in the United States, with such bank
account to be designated from time to time by the Company;
(B) by personal, certified or cashier's check payable
to the order of the Company;
(C) by delivery to the Company of certificates
representing a number of shares of Stock then owned by the Participant, the Fair
Market Value (as of the Exercise Date) of which is not greater than the Option
Price of the Option being exercised, properly endorsed for transfer to the
Company; provided however, that the shares of Stock used for this purpose must
have been owned by the Participant for a period of at least six months;
(D) by certification or attestation to the Company of
the Participant's ownership as of the Exercise Date of the number of (1) shares
of Stock and/or (2) Depositary Shares, the Fair Market Value (as of the Exercise
Date) of which is not greater than the Option Price of the Option being
exercised; provided however, that the shares of Stock and/or Depositary Shares
used for this purpose must have been owned by the Participant for a period of at
least six months.
(E) by delivery to the Company of a properly executed
notice of exercise together with irrevocable instructions to a broker to
promptly deliver to the Company, by wire transfer or check as noted in (A) and
(B) above, the amount of the proceeds of the sale of all or a portion of the
Stock or of a loan from the broker to the Participant necessary to pay the
Option Price.
(h) Date of Grant. An Option shall be considered as having been granted
on the date specified in the grant resolution of the Committee.
(i) Tax Withholding. Each Stock Option Agreement shall provide that,
upon exercise of the Option, the Participant shall make appropriate arrangements
with the Company to provide for the amount of tax withholding required by
Sections 3102 and 3402 or any successor section(s) of the Internal Revenue Code
and applicable state and local income tax laws including, as provided in Section
13 hereof, payment of such taxes
11
<PAGE> 15
(A) through delivery of shares of Stock, (B) by certification or attestation of
shares of Stock or Depositary Shares, or (C) by withholding shares of Stock
otherwise issuable upon exercise of the Option.
(j) Adjustment of Options. Subject to the provisions of Sections 4, 5,
7, 8 and 12 hereof, the Committee may make any adjustment in the number of
shares of Stock covered by, or the terms of an outstanding Option and a
subsequent granting of an Option, by amendment or by substitution for an
outstanding Option; however, except as provided in Sections 4, 5, 8 and 12
hereof, the Committee may not adjust the Option Price of any outstanding Option.
Such amendment or substitution may result in terms and conditions (including the
number of shares of Stock covered, vesting schedule or Option Period) that
differ from the terms and conditions of the original Option. The Committee may
not, however, adversely affect the rights of any Participant to previously
granted Options without the consent of such Participant. If such action is
effected by amendment, the effective date of grant of such amendment will be the
date of grant of the original Option.
7.3 Stockholder Privileges. No Participant shall have any rights as a
stockholder with respect to any shares of Stock covered by an Option until the
Participant becomes the holder of record of such Stock. Except as provided in
Section 4 hereof, no adjustments shall be made for dividends or other
distributions or other rights as to which there is a record date preceding the
date on which such Participant becomes the holder of record of such Stock.
SECTION 8
CHANGE IN CONTROL
8.1 In General. In the event of a change in control of the Company as defined in
Section 8.3 hereof, then the Committee may, in its sole discretion, without
obtaining stockholder approval, to the extent permitted in Section 12 hereof,
take any or all of the following actions: (a) accelerate the dates on which any
outstanding Options become exercisable or make all such Options fully vested and
exercisable; (b) grant a cash bonus award to any Participant in an amount
necessary to pay the Option Price of all or any portion of the Options then held
by such Participant; (c) pay cash to any or all Participants in exchange for the
cancellation of their outstanding Options in an amount equal to the difference
between the Option Price of such Options and the greater of the tender offer
price for the underlying Stock or the Fair Market Value of the Stock on the date
of the cancellation of the Options; and (d) make any other adjustments or
amendments to the outstanding Options.
12
<PAGE> 16
8.2 Limitation on Payments. If the provisions of this Section 8 would result in
the receipt by any Participant of a payment within the meaning of Section 280G
or any successor section(s) of the Internal Revenue Code, and the regulations
promulgated thereunder, and if the receipt of such payment by any Participant
would, in the opinion of independent tax counsel of recognized standing selected
by the Company, result in the payment by such Participant of any excise tax
provided for in Sections 280G and 4999 or any successor section(s) of the
Internal Revenue Code, then the amount of such payment shall be reduced to the
extent required, in the opinion of independent tax counsel, to prevent the
imposition of such excise tax; provided, however, that the Committee, in its
sole discretion, may authorize the payment of all or any portion of the amount
of such reduction to the Participant.
8.3 Definition. For purposes of the Plan, a "change in control" shall mean any
of the events specified in the Company's Income Continuance Plan or any
successor plan which constitute a change in control within the meaning of such
plan.
SECTION 9
RIGHTS OF EMPLOYEES, PARTICIPANTS
9.1 Employment. Nothing contained in the Plan or in any Option granted under the
Plan shall confer upon any Participant any right with respect to the
continuation of his or her employment by the Company or any Affiliated
Corporation, or interfere in any way with the right of the Company or any
Affiliated Corporation, subject to the terms of any separate employment
agreement to the contrary, at any time to terminate such employment or to
increase or decrease the level of the Participant's compensation from the level
in existence at the time of the grant of an Option. Whether an authorized leave
of absence, or absence in military or government service, shall constitute a
termination of employment shall be determined by the Committee at the time.
9.2 Nontransferability. No right or interest of any Participant in an Option
granted pursuant to the Plan shall be assignable or transferable during the
lifetime of the Participant, either voluntarily or involuntarily, or subjected
to any lien, directly or indirectly, by operation of law, or otherwise,
including execution, levy, garnishment, attachment, pledge or bankruptcy. In the
event of a Participant's death, a Participant's rights and interests in Options
shall, to the extent provided in Section 7 hereof, be transferable by
testamentary will or the laws of descent and distribution, and payment of any
amounts due under the Plan shall be made to, and exercise of any Options may be
made by, the Participant's legal representatives, heirs or legatees. If, in the
opinion of the Committee, a person entitled to payments or to exercise rights
with respect to the Plan is disabled from caring for his or her affairs because
of mental condition, physical condition
13
<PAGE> 17
or age, payment due such person may be made to, and such rights shall be
exercised by, such person's guardian, conservator or other legal personal
representative upon furnishing the Committee with evidence satisfactory to the
Committee of such status.
SECTION 10
GENERAL RESTRICTIONS
10.1 Investment Representations. The Company may require a Participant, as a
condition of exercising an Option, to give written assurances in substance and
form satisfactory to the Company and its counsel to the effect that such person
is acquiring the Stock subject to the Option for his own account for investment
and not with any present intention of selling or otherwise distributing the
same, and to such other effects as the Company deems necessary or appropriate in
order to comply with federal and applicable state securities laws.
10.2 Compliance with Securities Laws. Each Option shall be subject to the
requirement that, if at any time counsel to the Company shall determine that the
listing, registration or qualification of the shares of Stock subject to such
Option upon any securities exchange or under any state or federal law, or the
consent or approval of any governmental or regulatory body, is necessary as a
condition of, or in connection with, the issuance or purchase of shares of Stock
thereunder, such Option may not be accepted or exercised in whole or in part
unless such listing, registration, qualification, consent or approval shall have
been effected or obtained on conditions acceptable to the Committee. Nothing
herein shall be deemed to require the Company to apply for or to obtain such
listing, registration, qualification, consent or approval.
SECTION 11
OTHER EMPLOYEE BENEFITS
The amount of any income deemed to be received by a Participant as a result of
the exercise of an Option shall not constitute "earnings" or "compensation" with
respect to which any other employee benefits of such Participant are determined,
including without limitation benefits under any pension, profit sharing, life
insurance or salary continuation plan.
14
<PAGE> 18
SECTION 12
PLAN AMENDMENT, MODIFICATION AND TERMINATION
The Board may at any time terminate, and from time to time may amend or modify
the Plan provided, however, that no amendment or modification may become
effective without approval of the amendment or modification by the Company's
stockholders if stockholder approval is required to enable the Plan to satisfy
any applicable statutory or regulatory requirements, or if the Company, on the
advice of counsel, determines that stockholder approval is otherwise necessary
or desirable.
No amendment, modification or termination of the Plan shall in any manner
adversely affect any Option theretofore granted under the Plan, without the
consent of the Participant holding such Option.
SECTION 13
WITHHOLDING
13.1 Withholding Requirement. The Company's obligations to deliver shares of
Stock upon the exercise of an Option, or to defer income resulting from an
Option exercise into the Deferred Delivery Plan, shall be subject to the
Participant's satisfaction of all applicable federal, state and local income and
other tax withholding requirements.
13.2 Satisfaction of Required Withholding. At the time the Committee grants an
Option, it may, in its sole discretion, grant the Participant an election to pay
all such amounts of required tax withholding, or any part thereof:
(a) by the delivery to the Company of a number of shares of Stock then
owned by the Participant, the Fair Market Value (as of the Exercise Date) of
which is not greater than the amount required to be withheld, provided that such
shares have been held by the Participant for a period of at least six months;
(b) by certification or attestation to the Company of the Participant's
ownership as of the Exercise Date of a number of shares of Stock and/or
Depositary Shares, the Fair Market Value (as of the Exercise Date) of which is
not greater than the amount required to be withheld, provided that such shares
of Stock and/or Depositary Shares have been owned by the Participant for a
period of at least six months; or
(c) by the Company withholding from the shares of Stock otherwise
issuable to the Participant upon exercise of the Option, a number of shares of
Stock, the Fair Market
15
<PAGE> 19
Value (as of the Exercise Date) of which is not greater than the amount required
to be withheld. Any such elections by Participants to have shares of Stock
withheld for this purpose will be subject to the following restrictions:
(i) all elections shall be made on or prior to the Exercise Date; and
(ii) all elections shall be irrevocable.
13.3 Excess Withholding. At the time the Committee grants an Option, it may, in
its sole discretion, grant the Participant an election to pay additional or
excess amounts of tax withholding, beyond the required amounts and up to the
Participant's marginal tax rate:
(a) by delivery to the Company of a number of Shares of Stock then
owned by the Participant, the Fair Market Value (as of the Exercise Date) of
which is not greater than such excess withholding amount, provided that such
shares of Stock have been owned by the Participant for a period of at least six
months; or
(b) by certification or attestation to the Company of the Participant's
ownership as of the Exercise Date of a number of shares of Stock and/or
Depositary Shares, the Fair Market Value (as of the Exercise Date) of which is
not greater than such excess withholding amount, provided that such shares of
Stock and/or Depositary Shares have been owned by the Participant for a period
of at least six months.
13.4 Section 16 Requirements. If the Participant is an officer or director of
the Company within the meaning of Section 16 or any successor section(s) of the
1934 Act ("Section 16"), the Participant must satisfy the requirements of such
Section 16 and any applicable rules and regulations thereunder with respect to
the use of shares of Stock and/or Depositary Shares to satisfy such tax
withholding obligation.
SECTION 14
REQUIREMENTS OF LAW
14.1 Requirements of Law. The issuance of Stock and the payment of cash pursuant
to the Plan shall be subject to all applicable laws, rules and regulations.
14.2 Federal Securities Laws Requirements. If a Participant is an officer or
director of the Company within the meaning of Section 16, Options granted
hereunder shall be subject to all conditions required under Rule 16b-3, or any
successor rule(s) promulgated under the 1934 Act, to qualify the Option for any
exception from the provisions of
16
<PAGE> 20
Section 16 available under such Rule. Such conditions are hereby incorporated
herein by reference and shall be set forth in the agreement with the Participant
which describes the Option.
14.3 Governing Law. The Plan and all Stock Option Agreements hereunder shall be
construed in accordance with and governed by the laws of the State of Texas.
SECTION 15
DURATION OF THE PLAN
The Plan shall terminate at such time as may be determined by the Board, and no
Option shall be granted after such termination. If not sooner terminated under
the preceding sentence, the Plan shall fully cease and expire at midnight on
February 6, 2003. Options outstanding at the time of the Plan termination shall
continue to be exercisable in accordance with the Stock Option Agreement
pertaining to such Option.
Dated: February 10, 2000
APACHE CORPORATION
ATTEST:
/s/ Cheri L. Peper By: /s/ Daniel L. Schaeffer
- --------------------------- -----------------------
Cheri L. Peper Daniel L. Schaeffer
Corporate Secretary Vice President
17
<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>
1999 1998 1997 1996 1995
---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
EARNINGS
Pretax income (loss) from continuing operations (1) $ 344,573 $ (187,563) $ 258,640 $ 200,195 $ 33,143
Add: Fixed charges excluding capitalized interest 90,398 78,728 78,531 68,091 77,220
---------- ---------- ---------- ---------- ----------
Adjusted Earnings $ 434,971 $ (108,835) $ 337,171 $ 268,286 $ 110,363
========== ========== ========== ========== ==========
FIXED CHARGES AND PREFERRED STOCK DIVIDENDS
Interest expense including capitalized interest (2) $ 132,986 $ 119,703 $ 105,148 $ 89,829 $ 88,057
Amortization of debt expense 4,854 4,496 6,438 5,118 4,665
Interest component of lease rental expenditures (3) 5,789 3,808 3,438 3,856 3,539
---------- ---------- ---------- ---------- ----------
Fixed charges 143,629 128,007 115,024 98,803 96,261
---------- ---------- ---------- ---------- ----------
Preferred stock requirements (4) 24,788 2,905 -- -- --
---------- ---------- ---------- ---------- ----------
Combined fixed charges and preferred stock dividends $ 168,417 $ 130,912 $ 115,024 $ 98,803 $ 96,261
========== ========== ========== ========== ==========
Ratio of earnings to fixed charges 3.03 --(5) 2.93 2.72 1.15
========== ========== ========== ========== ==========
Ratio of earnings to combined fixed charges and
preferred stock dividends 2.58 --(5) 2.93 2.72 1.15
========== ========== ========== ========== ==========
</TABLE>
- -------------
(1) Undistributed income of less-than-50%-owned affiliates is excluded.
(2) Apache guaranteed and is contingently liable for certain debt. Fixed
charges, relating to the debt for which Apache was 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 of $14.4 million in 1999 and $2.0
million in 1998.
(5) 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.
<PAGE> 1
EXHIBIT 21.1
PAGE 1 OF 2
APACHE CORPORATION - LISTING OF SUBSIDIARIES
AS OF FEBRUARY 29, 2000
<TABLE>
<CAPTION>
EXACT NAME OF SUBSIDIARY AND NAME JURISDICTION OF
UNDER WHICH SUBSIDIARY DOES BUSINESS INCORPORATION OR ORGANIZATION
- ------------------------------------ -----------------------------
<S> <C>
Apache Corporation (New Jersey) New Jersey
Apache Delaware LLC Delaware
Apache Finance Louisiana Corporation Delaware
Apache Foundation Minnesota
Apache Gathering Company Delaware
Apache Holdings, Inc. Delaware
Apache International, Inc. Delaware
Apache Qarun Corporation LDC Cayman Islands
Apache Louisiana Holdings, LLC Delaware
Apache Overseas, Inc. Delaware
Apache Abu Gharadig Corporation LDC Cayman Islands
Apache Asyout Corporation LDC Cayman Islands
Apache Bohai Corporation LDC Cayman Islands
Apache China Corporation LDC Cayman Islands
Apache Darag Corporation LDC Cayman Islands
Apache East Bahariya Corporation LDC Cayman Islands
Apache Enterprises LDC Cayman Islands
Apache Faiyum Corporation LDC Cayman Islands
Apache Matruh Corporation LDC Cayman Islands
Apache Mediterranean Corporation LDC Cayman Islands
Apache Poland Holding Company Delaware
Apache Eastern Europe B.V. Netherlands
Apache Poland Sp. z o.o. Poland
Nagasco, Inc. Delaware
Apache Marketing, Inc. Delaware
Apache Transmission Corporation - Texas Texas
Apache Crude Oil Marketing, Inc. Delaware
Nagasco Marketing, Inc. Delaware
Apache Oil Corporation Texas
Burns Manufacturing Company Minnesota
Apache Energy Limited Western Australia
Apache Northwest Pty Ltd. Western Australia
Apache Carnarvon Pty Ltd. Western Australia
Apache Dampier Pty Ltd. Western Australia
Apache East Spar Pty Limited Western Australia
Apache Finance Pty Ltd Australian Capital Territory
Apache Harriet Pty Limited Victoria, Australia
Apache Kersail Pty Ltd Victoria, Australia
Apache Kitusa Pty Ltd Victoria, Australia
Apache Miladin Pty Ltd Victoria, Australia
Apache Nasmah Pty Ltd Victoria, Australia
Apache Oil Australia Pty Limited New South Wales, Australia
Apache Airlie Pty Limited New South Wales, Australia
Apache Varanus Pty Limited Queensland, Australia
Apache Pipeline Pty Ltd Western Australia
</TABLE>
<PAGE> 2
PAGE 2 OF 2
APACHE CORPORATION - LISTING OF SUBSIDIARIES
AS OF FEBRUARY 29, 2000
<TABLE>
<CAPTION>
EXACT NAME OF SUBSIDIARY AND NAME JURISDICTION OF
UNDER WHICH SUBSIDIARY DOES BUSINESS INCORPORATION OR ORGANIZATION
- ------------------------------------ -----------------------------
<S> <C>
Apache West Australia Holdings Limited Island of Guernsey
Apache UK Limited England and Wales
Apache Lowendal Pty Limited Victoria, Australia
Apache Transfer Company Delaware
DEK Energy Company Delaware
DEK Energy Texas, Inc. Delaware
DEK Exploration Inc. Delaware
Apache Finance Canada Corporation Nova Scotia, Canada
Apache Canada Management Ltd Alberta, Canada
Apache Canada Holdings Ltd Alberta, Canada
DEK Petroleum Corporation Illinois
Apache Canada Ltd. Alberta, Canada
DEPCO, Inc. Texas
Heinold Holdings, Inc. Delaware
Phoenix Exploration Resources, Ltd. Delaware
TEI Arctic Petroleum (1984) Ltd. Alberta, Canada
Texas International Company Delaware
Apache Khalda Corporation LDC Cayman Islands
Apache Khalda, Inc. Delaware
Apache Qarun Exploration Company LDC Cayman Islands
Phoenix Resources Company of Qarun Delaware
Apache North America, Inc. Delaware
</TABLE>
<PAGE> 1
EXHIBIT 23.1
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the incorporation by
reference of our report included in this Form 10-K into Apache Corporation's
previously filed Registration Statements on Form S-3 (Nos. 33-53129, 333-39973,
333-57785, 333-75633, 333-90147 and 333-32580), Form S-4 (No. 33-61669), and
Form S-8 (Nos. 33-31407, 33-37402, 33-53442, 33-59721, 33-59723, 33-63817,
333-04059, 333-25201, 333-26255, 333-32557, 333-36131, 333-53961 and 333-31092).
/s/ Arthur Andersen LLP
ARTHUR ANDERSEN LLP
Houston, Texas
March 24, 2000
<PAGE> 1
[Ryder Scott Letterhead]
EXHIBIT 23.2
Consent of Ryder Scott Company, L.P.
As independent petroleum engineers, we hereby consent to the incorporation by
reference in this Form 10-K of Apache Corporation to our Firm's name and our
Firm's review of the proved oil and gas reserve quantities of Apache Corporation
as of January 1, 2000, and to the incorporation by reference of our Firm's name
and review into Apache Corporation's previously filed Registration Statements on
Form S-3 (Nos. 33-53129, 333-39973, 333-57785, 333-75633, 333-90147 and
333-32580), on Form S-4 (No. 33-61669), and on Form S-8 (Nos. 33-31407,
33-37402, 33-53442, 33-59721, 33-59723, 33-63817, 333-04059, 333-25201,
333-26255, 333-32557, 333-36131, 333-53961 and 333-31092).
/s/ Ryder Scott Company, L.P.
Ryder Scott Company, L.P.
Houston, Texas
March 23, 2000
<PAGE> 1
EXHIBIT 23.3
[Letterhead of Netherland, Sewell & Associates, Inc.]
CONSENT OF INDEPENDENT PETROLEUM ENGINEERS AND GEOLOGISTS
As independent petroleum engineers, we hereby consent to the reference in this
Form 10-K of Apache Corporation to our Firm's name and our Firm's review of the
proved oil and gas reserve quantities as of January 1, 1997 for certain of
Apache Corporation's interests located in The Arab Republic of Egypt, and to the
incorporation by reference of our Firm's name and review into Apache
Corporation's previously filed Registration Statements on Form S-3 (Nos.
33-53129, 333-39973, 333-57785, 333-75633, 333-90147 and 333-32580), on Form S-4
(No. 33-61669), and on Form S-8 (Nos. 33-31407, 33-37402, 33-53442, 33-59721,
33-59723, 33-63817, 333-04059, 333-25201, 333-26255, 333-32557, 333-36131,
333-53961 and 333-31092).
NETHERLAND, SEWELL & ASSOCIATES, INC.
By: /s/ Clarence M. Netherland
---------------------------------
Clarence M. Netherland
Chairman
Houston, Texas
March 23, 2000
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210,490
98,387
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