10-Q 1 e10-q.txt APACHE CORPORATION - DATED JUNE 30, 2000 1 SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-Q [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the Quarterly Period Ended June 30, 2000 OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the Transition Period from ___________________ to _____________________ Commission File Number 1-4300 APACHE CORPORATION ------------------------------------------------------ (Exact Name of Registrant as Specified in Its Charter) Delaware 41-0747868 ------------------------------ ------------------- (State or Other Jurisdiction of (I.R.S. Employer Incorporation or Organization) Identification Number) Suite 100, One Post Oak Central 77056-4400 2000 Post Oak Boulevard, Houston, TX ---------- ---------------------------------------- (Zip Code) (Address of Principal Executive Offices) Registrant's Telephone Number, Including Area Code: (713) 296-6000 Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. YES X NO --- --- Number of shares of Registrant's common stock, outstanding as of June 30, 2000............114,132,738
2 PART I - FINANCIAL INFORMATION ITEM 1 - FINANCIAL STATEMENTS APACHE CORPORATION AND SUBSIDIARIES STATEMENT OF CONSOLIDATED OPERATIONS (UNAUDITED)
FOR THE QUARTER FOR THE SIX MONTHS ENDED JUNE 30, ENDED JUNE 30, ------------------------ ------------------------ 2000 1999 2000 1999 --------- --------- --------- --------- (IN THOUSANDS, EXCEPT PER COMMON SHARE DATA) REVENUES: Oil and gas production revenues $ 488,206 $ 243,759 $ 934,323 $ 406,363 Equity in income of affiliates 310 -- 1,530 -- Other revenues (429) 2,659 (624) 3,477 --------- --------- --------- --------- 488,087 246,418 935,229 409,840 --------- --------- --------- --------- OPERATING EXPENSES: Depreciation, depletion and amortization 136,338 105,398 268,487 193,821 Operating costs 69,609 51,121 140,036 97,811 Administrative, selling and other 16,593 12,134 31,242 22,464 Financing costs: Interest expense 41,615 32,659 83,183 64,107 Amortization of deferred loan costs 453 1,101 1,732 2,215 Capitalized interest (14,824) (13,053) (28,841) (25,969) Interest income (564) (403) (1,104) (824) --------- --------- --------- --------- 249,220 188,957 494,735 353,625 --------- --------- --------- --------- INCOME BEFORE INCOME TAXES 238,867 57,461 440,494 56,215 Provision for income taxes 93,530 24,693 178,853 25,615 --------- --------- --------- --------- NET INCOME 145,337 32,768 261,641 30,600 Preferred stock dividends 4,908 3,136 10,172 4,556 --------- --------- --------- --------- INCOME ATTRIBUTABLE TO COMMON STOCK $ 140,429 $ 29,632 $ 251,469 $ 26,044 ========= ========= ========= ========= NET INCOME PER COMMON SHARE: Basic $ 1.23 $ .28 $ 2.21 $ .26 ========= ========= ========= ========= Diluted $ 1.19 $ .28 $ 2.15 $ .26 ========= ========= ========= =========
The accompanying notes to consolidated financial statements are an integral part of this statement. 1 3 APACHE CORPORATION AND SUBSIDIARIES STATEMENT OF CONSOLIDATED CASH FLOWS (UNAUDITED)
FOR THE SIX MONTHS ENDED JUNE 30, ------------------------ 2000 1999 --------- --------- (IN THOUSANDS) CASH FLOWS FROM OPERATING ACTIVITIES: Net income $ 261,641 $ 30,600 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation, depletion and amortization 268,487 193,821 Amortization of deferred loan costs 1,732 2,215 Provision for deferred income taxes and other 115,181 10,430 Cash distributions less than earnings of affiliates (947) -- Gain on sale of stock held for investment (751) -- Changes in operating assets and liabilities: Increase in receivables (110,697) (64,504) Increase in advances to oil and gas ventures and other (4,093) (9,094) Increase in deferred charges and other (4,028) (2,074) Increase in product inventory (3,674) (356) Increase (decrease) in payables 42,658 (5,600) Increase (decrease) in accrued expenses (15,056) 7,727 Decrease in advances from gas purchasers (13,785) (12,135) Increase in deferred credits and noncurrent liabilities 10,579 12,898 --------- --------- Net cash provided by operating activities 547,247 163,928 --------- --------- CASH FLOWS FROM INVESTING ACTIVITIES: Additions to property and equipment (425,738) (278,551) Non-cash portion of net oil and gas property additions (5,799) (41,931) Acquisition of Repsol YPF properties (117,322) -- Acquisition of Collins & Ware properties (316,906) -- Acquisition of Shell Offshore properties -- (686,539) Acquisition of British-Borneo, net of cash acquired -- (83,659) Proceeds from sales of oil and gas properties 21,224 103,172 Other, net (7,291) (7,057) --------- --------- Net cash used in investing activities (851,832) (994,565) --------- --------- CASH FLOWS FROM FINANCING ACTIVITIES: Long-term borrowings 537,438 630,799 Payments on long-term debt (198,581) (431,914) Dividends paid (25,795) (16,532) Issuance (repurchase) of preferred stock (2,613) 210,490 Proceeds from issuance of common stock 17,692 446,845 Payments to acquire treasury stock (17,727) -- Cost of debt and equity transactions (3) (1,161) --------- --------- Net cash provided by financing activities 310,411 838,527 --------- --------- NET INCREASE IN CASH AND CASH EQUIVALENTS 5,826 7,890 CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR 13,171 14,537 --------- --------- CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 18,997 $ 22,427 ========= =========
The accompanying notes to consolidated financial statements are an integral part of this statement. 2 4 APACHE CORPORATION AND SUBSIDIARIES CONSOLIDATED BALANCE SHEET (UNAUDITED)
JUNE 30, DECEMBER 31, 2000 1999 ----------- ------------ (IN THOUSANDS) ASSETS CURRENT ASSETS: Cash and cash equivalents $ 18,997 $ 13,171 Receivables 367,843 259,530 Inventories 51,546 45,113 Advances to oil and gas ventures and other 29,766 25,254 ----------- ----------- 468,152 343,068 ----------- ----------- PROPERTY AND EQUIPMENT: Oil and gas, on the basis of full cost accounting: Proved properties 8,111,859 7,409,787 Unproved properties and properties under development, not being amortized 1,002,738 869,108 Gas gathering, transmission and processing facilities 447,858 442,437 Other 110,191 105,635 ----------- ----------- 9,672,646 8,826,967 Less: Accumulated depreciation, depletion and amortization (3,972,636) (3,711,109) ----------- ----------- 5,700,010 5,115,858 ----------- ----------- OTHER ASSETS: Deferred charges and other 46,637 43,617 ----------- ----------- $ 6,214,799 $ 5,502,543 =========== ===========
The accompanying notes to consolidated financial statements are an integral part of this statement. 3 5 APACHE CORPORATION AND SUBSIDIARIES CONSOLIDATED BALANCE SHEET (UNAUDITED)
JUNE 30, DECEMBER 31, 2000 1999 ----------- ------------ (IN THOUSANDS) LIABILITIES AND SHAREHOLDERS' EQUITY CURRENT LIABILITIES: Current maturities of long-term debt $ 31,850 $ 6,158 Accounts payable 183,016 148,309 Accrued operating expense 20,315 18,226 Accrued exploration and development 95,465 101,490 Accrued compensation and benefits 12,725 22,631 Accrued interest 27,584 28,118 Other accrued expenses 4,482 11,846 ----------- ----------- 375,437 336,778 ----------- ----------- LONG-TERM DEBT 2,192,815 1,879,650 ----------- ----------- DEFERRED CREDITS AND OTHER NONCURRENT LIABILITIES: Income taxes 467,894 360,324 Advances from gas purchasers 167,171 180,956 Other 115,130 75,408 ----------- ----------- 750,195 616,688 ----------- ----------- SHAREHOLDERS' EQUITY: Preferred stock, no par value, 5,000,000 shares authorized - Series B, 5.68% Cumulative Preferred Stock, 100,000 shares issued and outstanding 98,387 98,387 Series C, 6.5% Conversion Preferred Stock, 138,482 and 140,000 shares issued and outstanding, respectively 208,207 210,490 Common stock, $1.25 par, 215,000,000 shares authorized, 117,004,319 and 116,403,013 shares issued, respectively 146,255 145,504 Paid-in capital 1,739,242 1,717,027 Retained earnings 802,229 558,721 Treasury stock, at cost, 2,871,581 and 2,406,549 shares, respectively (69,693) (52,256) Accumulated other comprehensive income (28,275) (8,446) ----------- ----------- 2,896,352 2,669,427 ----------- ----------- $ 6,214,799 $ 5,502,543 =========== ===========
The accompanying notes to consolidated financial statements are an integral part of this statement. 4 6 APACHE CORPORATION AND SUBSIDIARIES STATEMENT OF CONSOLIDATED SHAREHOLDERS' EQUITY (UNAUDITED)
SERIES B SERIES C COMPREHENSIVE PREFERRED PREFERRED COMMON (IN THOUSANDS) INCOME STOCK STOCK STOCK ------------- ----------- ----------- ----------- BALANCE AT DECEMBER 31, 1998 $ 98,387 $ -- $ 124,738 Comprehensive income: Net income $ 30,600 -- -- -- Currency translation adjustments 9,505 -- -- -- ----------- Comprehensive income $ 40,105 =========== Dividends: Preferred -- -- -- Common ($.14 per share) -- -- -- Preferred shares issued -- 210,490 -- Common shares issued -- -- 20,117 Treasury shares issued, net -- -- -- ----------- ----------- ----------- BALANCE AT JUNE 30, 1999 $ 98,387 $ 210,490 $ 144,855 =========== =========== =========== BALANCE AT DECEMBER 31, 1999 $ 98,387 $ 210,490 $ 145,504 Comprehensive income: Net income $ 261,641 -- -- -- Currency translation adjustments (19,700) -- -- -- Unrealized loss on marketable securities, net of applicable income tax benefits of $84 (129) -- -- -- ----------- Comprehensive income $ 241,812 =========== Dividends: Preferred -- -- -- Common ($.07 per share) -- -- -- Preferred stock repurchased -- (2,283) -- Common shares issued -- -- 751 Treasury shares purchased, net -- -- -- ----------- ----------- ----------- BALANCE AT JUNE 30, 2000 $ 98,387 $ 208,207 $ 146,255 =========== =========== ===========
ACCUMULATED OTHER TOTAL PAID-IN RETAINED TREASURY COMPREHENSIVE SHAREHOLDERS' (IN THOUSANDS) CAPITAL EARNINGS STOCK INCOME EQUITY ----------- ----------- ----------- ------------- ------------- BALANCE AT DECEMBER 31, 1998 $ 1,245,738 $ 403,098 $ (36,924) $ (33,204) $ 1,801,833 Comprehensive income: Net income -- 30,600 -- -- 30,600 Currency translation adjustments -- -- -- 9,505 9,505 Comprehensive income Dividends: Preferred -- (4,556) -- -- (4,556) Common ($.14 per share) -- (14,818) -- -- (14,818) Preferred shares issued -- -- -- -- 210,490 Common shares issued 454,190 -- -- -- 474,307 Treasury shares issued, net -- -- 142 -- 142 ----------- ----------- ----------- ----------- ----------- BALANCE AT JUNE 30, 1999 $ 1,699,928 $ 414,324 $ (36,782) $ (23,699) $ 2,507,503 =========== =========== =========== =========== =========== BALANCE AT DECEMBER 31, 1999 $ 1,717,027 $ 558,721 $ (52,256) $ (8,446) $ 2,669,427 Comprehensive income: Net income -- 261,641 -- -- 261,641 Currency translation adjustments -- -- -- (19,700) (19,700) Unrealized loss on marketable securities, net of applicable income tax benefits of $84 -- -- -- (129) (129) Comprehensive income Dividends: Preferred -- (9,842) -- -- (9,842) Common ($.07 per share) -- (7,961) -- -- (7,961) Preferred stock repurchased -- (330) -- -- (2,613) Common shares issued 21,990 -- -- -- 22,741 Treasury shares purchased, net 225 -- (17,437) -- (17,212) ----------- ----------- ----------- ----------- ----------- BALANCE AT JUNE 30, 2000 $ 1,739,242 $ 802,229 $ (69,693) $ (28,275) $ 2,896,352 =========== =========== =========== =========== ===========
The accompanying notes to consolidated financial statements are an integral part of this statement. 5 7 APACHE CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) These financial statements have been prepared by Apache Corporation (Apache or the Company) without audit, pursuant to the rules and regulations of the Securities and Exchange Commission, and reflect all adjustments which are, in the opinion of management, necessary for a fair statement of the results for the interim periods, on a basis consistent with the annual audited financial statements. All such adjustments are of a normal recurring nature. Certain information, accounting policies, and footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles have been omitted pursuant to such rules and regulations, although the Company believes that the disclosures are adequate to make the information presented not misleading. These financial statements should be read in conjunction with the financial statements and the summary of significant accounting policies and notes thereto included in the Company's most recent annual report on Form 10-K. Beginning in the first quarter 2000, the portion of gathering, processing and marketing margin related to oil and gas production revenues has been reported as a net addition to oil and gas production revenues and the portion related to gathering fee income has been reported as a reduction to operating costs in the accompanying statement of consolidated operations. Reclassifications have been made to reflect this change in the prior year statements of consolidated operations. 1. ACQUISITIONS AND DIVESTITURES Acquisitions - On January 24, 2000, Apache completed the acquisition of producing properties in Western Oklahoma and the Texas Panhandle, formerly owned by a subsidiary of Repsol YPF, for approximately $117.3 million, plus assumed liabilities of approximately $29.8 million. The acquisition included estimated proved reserves of approximately 199 billion cubic feet of natural gas equivalent (Bcfe) as of the acquisition date. On June 30, 2000, Apache completed the acquisition of long-lived producing properties in the Permian Basin and South Texas from Collins & Ware, Inc. (Collins & Ware) for approximately $316.9 million, subject to normal post closing adjustments. The acquisition included estimated proved reserves of approximately 502 Bcfe as of the acquisition date. One-third of the reserves are liquid hydrocarbons. On May 18, 1999, Apache acquired from Shell Offshore Inc. and affiliated Shell entities (Shell Offshore) its interest in 22 producing fields and 16 undeveloped blocks located in the Gulf of Mexico. The Shell Offshore acquisition also included certain production-related assets and proprietary 2-D and 3-D seismic data covering approximately 1,000 blocks in the Gulf of Mexico. The purchase price was $687.7 million in cash and one million shares of Apache common stock (valued at $28.125 per share). The Shell Offshore acquisition included approximately 123.2 million barrels of oil equivalent (MMboe) of proved reserves as of the acquisition date. On November 30, 1999, Apache acquired from Shell Canada Limited (Shell Canada) producing properties and other assets for C$761 million (US$517.8 million). The producing properties consisted of 150,400 net acres and comprised 20 fields with an average working interest of 55 percent and proved reserves of approximately 87.2 MMboe as of the acquisition date. Apache also acquired 294,294 net acres of undeveloped leaseholdings, a 100 percent interest in a gas processing plant with potential throughput capacity of 160 million cubic feet (MMcf) per day, and 52,700 square miles of 2-D seismic and 884 square miles of 3-D seismic. 6 8 The following unaudited pro forma information shows the effect on the Company's consolidated results of operations as if the Shell Offshore and Shell Canada acquisitions occurred on January 1, 1999. The pro forma information is based on numerous assumptions and is not necessarily indicative of future results of operations.
FOR THE SIX MONTHS ENDED JUNE 30, 1999 -------------------------------------- AS REPORTED PRO FORMA -------------- ------------------- (IN THOUSANDS, EXCEPT PER COMMON SHARE DATA) Revenues $409,840 $535,108 Net income 30,600 46,711 Preferred stock dividends 4,556 9,845 Income attributable to common stock 26,044 36,866 Net income per common share: Basic $ .26 $ .32 Diluted .26 .32 Average common shares outstanding 101,698 113,771
During the first six months of 2000, the Company also completed tactical regional acquisitions for cash consideration totaling $37.2 million. These acquisitions added approximately 9.6 MMboe to the Company's proved reserves. Divestitures - During the six months ended June 30, 2000, Apache sold 1.9 MMboe of proved reserves from largely marginal United States properties, collecting cash of $4.7 million. On March 14, 2000, Apache sold proprietary rights to its Canadian seismic data to Request Seismic Surveys Ltd., retaining license rights, for $16.5 million. 2. BUSINESS SEGMENT INFORMATION Apache has five reportable segments which are primarily in the business of natural gas and crude oil exploration and production. The Company evaluates performance based on profit or loss from oil and gas operations before income and expense items incidental to oil and gas operations and income taxes. Apache's reportable segments are managed separately because of their geographic locations. Financial information by operating segment is presented below:
OTHER UNITED STATES CANADA EGYPT AUSTRALIA INTERNATIONAL TOTAL ------------- ----------- ----------- ----------- ------------- ----------- (IN THOUSANDS) FOR THE SIX MONTHS ENDED JUNE 30, 2000 Oil and Gas Production Revenues ........ $ 514,474 $ 130,566 $ 186,673 $ 102,610 $ -- $ 934,323 =========== =========== =========== =========== =========== =========== Operating Income (Loss) (1) ............ $ 263,663 $ 73,437 $ 131,037 $ 57,687 $ (24) $ 525,800 =========== =========== =========== =========== ============ Other Income (Expense): Equity in income of affiliates ...... 1,530 Other revenues ...................... (624) Administrative, selling and other ... (31,242) Financing costs, net ................ (54,970) ----------- Income Before Income Taxes ............. $ 440,494 =========== Total Assets ........................... $ 3,409,038 $ 918,520 $ 923,421 $ 797,694 $ 166,126 $ 6,214,799 =========== =========== =========== =========== =========== ===========
7 9
OTHER UNITED STATES CANADA EGYPT AUSTRALIA INTERNATIONAL TOTAL ------------- ----------- ----------- ----------- ------------- ----------- (IN THOUSANDS) FOR THE SIX MONTHS ENDED JUNE 30, 1999 Oil and Gas Production Revenues ........ $ 252,291 $ 34,293 $ 74,597 $ 43,875 $ 1,307 $ 406,363 =========== =========== =========== =========== =========== =========== Operating Income (1) ................... $ 58,219 $ 10,077 $ 29,629 $ 16,365 $ 441 $ 114,731 =========== =========== =========== =========== =========== Other Income (Expense): Other revenues ...................... 3,477 Administrative, selling and other ... (22,464) Financing costs, net ................ (39,529) ----------- Income Before Income Taxes ............. $ 56,215 =========== Total Assets ........................... $ 2,731,207 $ 326,065 $ 894,033 $ 761,031 $ 182,633 $ 4,894,969 =========== =========== =========== =========== =========== ===========
(1) Operating income consists of oil and gas production revenues less depreciation, depletion and amortization (DD&A) expense and operating costs. 3. NET INCOME PER COMMON SHARE A reconciliation of the components of basic and diluted net income per common share is presented in the table below:
FOR THE QUARTER ENDED JUNE 30, ------------------------------------------------------------------------- 2000 1999 ---------------------------------- ---------------------------------- INCOME SHARES PER SHARE INCOME SHARES PER SHARE -------- -------- --------- -------- -------- --------- (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) BASIC: Income attributable to common stock $140,429 113,946 $ 1.23 $ 29,632 105,566 $ .28 ======== ======== EFFECT OF DILUTIVE SECURITIES: Stock options -- 1,069 -- 317 Series C Preferred Stock 3,488 5,676 -- -- -------- -------- -------- -------- DILUTED: Income attributable to common stock including assumed conversions $143,917 120,691 $ 1.19 $ 29,632 105,883 $ .28 ======== ======== ======== ======== ======== ========
FOR THE SIX MONTHS ENDED JUNE 30, ------------------------------------------------------------------------- 2000 1999 ---------------------------------- ---------------------------------- INCOME SHARES PER SHARE INCOME SHARES PER SHARE -------- -------- --------- -------- -------- --------- (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) BASIC: Income attributable to common stock $251,469 113,892 $ 2.21 $ 26,044 101,698 $ .26 ======== ======== EFFECT OF DILUTIVE SECURITIES: Stock options -- 802 -- 242 Series C Preferred Stock 7,332 5,676 -- -- -------- -------- -------- -------- DILUTED: Income attributable to common stock including assumed conversions $258,801 120,370 $ 2.15 $ 26,044 101,940 $ .26 ======== ======== ======== ======== ======== ========
The effect of the Series C Preferred Stock was not included in the computation of diluted net income per common share during 1999, because to do so would have been antidilutive. 8 10 4. NON-CASH INVESTING AND FINANCING ACTIVITIES In January 2000, the Company acquired producing properties formerly owned by a subsidiary of Repsol YPF for cash and the assumption of certain liabilities. The accompanying financial statements include the amounts detailed in Note 1. The following table provides supplemental disclosure of cash flow information:
FOR THE SIX MONTHS ENDED JUNE 30, --------------------------------- 2000 1999 ---------- ------------- (IN THOUSANDS) Cash paid during the period for: Interest (net of amounts capitalized) $54,876 $35,779 Income taxes (net of refunds) 64,053 15,185
5. SUBSEQUENT EVENTS On July 14, 2000, the Company signed a definitive agreement to acquire a Delaware limited liability company (LLC) owned by subsidiaries of Occidental Petroleum Corporation (Occidental) and the related natural gas production for a total purchase price of $385 million, subject to reduction for production since July 1, 2000 (the effective date) and other closing adjustments. A portion of the purchase price ($44 million) is expected to be paid ratably over the next four years. The Occidental properties are located in 32 fields on 93 blocks on the Outer Continental Shelf of the Gulf of Mexico, and the Company expects to operate half of the fields acquired. The Occidental properties have estimated proved reserves of approximately 56.8 MMboe as of the effective date, net to Apache, and the LLC owns proprietary 3-D seismic data on 113 blocks covering 1,022 square miles. The acquisition is expected to close August 15, 2000. A portion of the production for the first few years of this transaction was hedged. The hedges were structured to establish a minimum price floor while preserving some price upside potential. On July 14, 2000, Apache entered into a new $500 million, 364-day revolving credit agreement with a group of banks. The terms of the facility are substantially the same as those of Apache's global credit facility. The new facility will be used along with the U.S. portion of the global credit facility to support Apache's commercial paper program, which was increased from $700 million to $1.2 billion in late July 2000. On August 2, 2000, the Company completed a public offering of 9.2 million shares of Apache common stock, including 1.2 million shares for the underwriters' over-allotment option, for net proceeds of approximately $433.9 million. The proceeds will be used to fund the pending Occidental transaction and repay indebtedness under Apache's commercial paper program. 9 11 ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS OVERVIEW On a foundation of strong production combined with high oil and natural gas prices, Apache reported record earnings for the fourth consecutive quarterly period. Further, results for the first six months of 2000 surpassed the 1999 full-year period. Following are highlights for the first half of 2000: o Record income attributable to common stock of $251.5 million ($2.21 per share) was generated. These results exceeded 1999's record full year earnings of $186.4 million ($1.73 per share). Last year's first six months reflected income attributable to common stock of $26.0 million ($.26 per share). o In conjunction with substantially improved prices over last year, oil and gas production was up 44 percent and 26 percent, respectively. The improved production, net of additional DD&A expense and operating costs, added a combined $.76 to earnings per share. o Net cash provided by operating activities increased $383.3 million, or 234 percent, to $547.2 million from $163.9 million. Commodity Prices - Apache's average realized oil price increased $11.73 per barrel from $13.96 per barrel in the first six months of 1999 to $25.69 per barrel in the comparable 2000 period, increasing revenues by $167.6 million. The average realized price for natural gas increased $.93 per thousand cubic feet (Mcf) from $1.87 per Mcf in the first six months of 1999 to $2.80 per Mcf in 2000, positively impacting revenues by $100.9 million. Production - Oil production increased 44 percent during the first six months of 2000 when compared to the same period last year, which positively impacted revenues by $163.8 million. The increase was primarily due to the acquisition of producing properties from Shell Offshore in the U.S. and Shell Canada during 1999 and increased production from the Stag field in Australia. Gas production increased 26 percent during the first six months of 2000 compared to the same period last year, positively impacting revenues by $80.9 million. The increase was primarily due to 1999 producing property acquisitions from Shell Offshore in the U.S., Shell Canada and British-Borneo Oil and Gas Plc (British-Borneo) in Australia, and completion of the northern portion of the Western Desert Gas Pipeline on the Khalda Concession in Egypt with first sales commencing in August 1999. RESULTS OF OPERATIONS Apache reported 2000 second quarter income attributable to common stock of $140.4 million compared to income of $29.6 million in the prior year. Basic net income per common share of $1.23 for the second quarter of 2000 was more than four times the $.28 reported in 1999. A significant increase in oil and gas production revenues was partially offset by higher DD&A expense, operating costs, net financing costs and administrative, selling and other (G&A) costs. For the first half of 2000, income attributable to common stock of $251.5 million, or $2.21 per share, compared to $26.0 million, or $.26 per share, in the comparable year-earlier period. The increase resulted primarily from increased oil and gas production revenues partially offset by higher DD&A expense, operating costs, net financing costs, G&A costs and preferred stock dividends. For the second quarter of 2000, revenues increased 98 percent to $488.1 million compared to $246.4 million in 1999, driven by a 100 percent increase in oil and gas production revenues. The increase in oil and gas production revenues was the result of a 61 percent increase in the average realized oil price, a 30 percent increase in oil production, a 52 percent increase in the average realized price for natural gas and a 22 percent increase in natural gas production. Crude oil, including natural gas liquids, contributed 56 percent and natural gas contributed 44 percent of oil and gas production revenues during the second quarter of 2000. For the first six months of 2000, total revenues increased 128 percent to $935.2 million compared to $409.8 million for the same period in 1999. Revenues from oil and gas production increased 130 percent over the same period in 1999, with crude oil, including natural gas liquids, contributing 59 percent and natural gas contributing 41 percent of oil and gas production revenues. The increase in oil and gas production revenues was the result of an 84 percent increase in the average realized oil price, a 44 percent increase in oil production, a 50 percent increase in the average realized gas price and a 26 percent increase in gas production. 10 12 Volume and price information for the Company's oil and gas production is summarized in the following table:
FOR THE QUARTER ENDED JUNE 30, FOR THE SIX MONTHS ENDED JUNE 30, -------------------------------------------- -------------------------------------------- INCREASE INCREASE 2000 1999 (DECREASE) 2000 1999 (DECREASE) ----------- ----------- ---------- ----------- ----------- ---------- Natural Gas Volume - Mcf per day: United States 476,171 447,046 7% 480,530 422,502 14% Canada 131,641 98,540 34% 128,775 103,790 24% Australia 108,754 69,411 57% 98,860 64,762 53% Egypt 47,995 4,261 1,026% 46,007 3,855 1,093% Ivory Coast -- 6,314 -- -- 3,779 -- ----------- ----------- ----------- ----------- Total 764,561 625,572 22% 754,172 598,688 26% =========== =========== =========== =========== Average Natural Gas price - Per Mcf: United States $ 3.38 $ 2.19 54% $ 3.00 $ 2.00 50% Canada 2.87 1.62 77% 2.50 1.52 64% Australia 1.38 1.53 (10%) 1.42 1.51 (6%) Egypt 4.30 2.63 63% 4.51 2.32 94% Ivory Coast -- 1.72 -- -- 1.72 -- Total 3.07 2.02 52% 2.80 1.87 50% Oil Volume - Barrels per day: United States 54,085 43,420 25% 53,991 37,842 43% Canada 14,020 2,069 578% 13,836 2,124 551% Australia 15,760 9,526 65% 15,069 9,889 52% Egypt 28,656 31,302 (8%) 30,611 29,017 5% Ivory Coast -- 87 -- -- 49 -- ----------- ----------- ----------- ----------- Total 112,521 86,404 30% 113,507 78,921 44% =========== =========== =========== =========== Average Oil price - Per barrel: United States $ 25.65 $ 15.91 61% $ 25.57 $ 13.91 84% Canada 20.88 14.80 41% 21.28 12.81 66% Australia 29.22 17.70 65% 28.09 14.63 92% Egypt 26.93 15.78 71% 26.73 13.89 92% Ivory Coast -- 14.48 -- -- 14.43 -- Total 25.88 16.03 61% 25.69 13.96 84% Natural Gas Liquids (NGL) Volume - Barrels per day: United States 5,089 2,676 90% 4,836 2,534 91% Canada 1,019 598 70% 1,277 614 108% ----------- ----------- ----------- ----------- Total 6,108 3,274 87% 6,113 3,148 94% =========== =========== =========== =========== Average NGL Price - Per barrel: United States $ 18.18 $ 8.73 108% $ 17.86 $ 8.11 120% Canada 14.83 7.80 90% 15.38 6.56 134% Total 17.62 8.56 106% 17.34 7.81 122%
SECOND QUARTER 2000 REVENUES COMPARED TO SECOND QUARTER 1999 Natural gas sales for the second quarter of 2000 totaled $213.4 million, 85 percent higher than the second quarter of 1999. Average realized natural gas prices increased 52 percent, positively impacting revenues by $59.4 million. The Company periodically engages in hedging activities, including fixed price physical and financial contracts. The net result of these activities decreased the Company's realized gas price by $.06 per Mcf during the second quarter of 2000 and increased the Company's realized gas price by $.01 for the same period in 1999. Natural gas production increased 139 million cubic feet per day (MMcf/d), or 22 percent, on a worldwide basis, favorably impacting revenues by $38.8 million. The completion of the northern portion of the Western Desert Gas Pipeline on the Khalda Concession, with first sales commencing in August 1999, was the primary contributor to the 43.7 MMcf/d gas production increase in Egypt. Australia's gas production increased 57 percent due to new contracts, 11 13 spot sales and the acquisition of producing properties from British-Borneo in 1999. Gas production in Canada increased 34 percent primarily due to producing properties acquired from Shell Canada in 1999. The Company's crude oil sales for the second quarter of 2000 totaled $265.0 million, a 110 percent increase from the second quarter of 1999, due to increased average realized prices and production volumes. Average realized oil prices increased $9.85 per barrel, positively increasing revenues by $77.5 million. Realized losses from hedging positions negatively impacted the Company's realized oil price by $1.79 per barrel during the second quarter of 2000 and had no impact in the second quarter of 1999. Second quarter 2000 oil production increased 30 percent compared to the prior year, favorably impacting revenues by $61.5 million. Increases were driven by property acquisitions from Shell Offshore in the U.S. and Shell Canada during 1999 and increased production from the Stag field in Australia. Revenue from the sale of natural gas liquids totaled $9.8 million for the second quarter of 2000, compared to $2.6 million for the second quarter of 1999 in response to a 106 percent improvement in realized prices and an 87 percent increase in natural gas liquids production. YEAR-TO-DATE 2000 REVENUES COMPARED TO YEAR-TO-DATE 1999 Natural gas sales for the first half of 2000 of $384.2 million increased $181.8 million, or 90 percent, from those recorded in the same period of 1999. Average realized natural gas prices increased 50 percent, positively affecting revenues by $100.9 million. U.S. natural gas production, which comprised 64 percent of the Company's worldwide gas production, sold at an average price of $3.00 per Mcf, 50 percent higher than in 1999, positively impacting natural gas revenues by $76.1 million. Natural gas production increased 155 MMcf/d, or 26 percent, on a worldwide basis, favorably impacting revenues by $80.9 million. The gas production increase was primarily a result of property acquisitions from Shell Offshore in the U.S., Shell Canada and British-Borneo in Australia in 1999, along with completion of the Western Desert Gas Pipeline on the Khalda Concession in Egypt with first sales commencing in August 1999. The Company periodically engages in hedging activities, including fixed price physical and financial contracts. The net result of these activities decreased the Company's realized gas price by $.02 per Mcf during the first half of 2000 and increased the Company's realized gas price by $.04 per Mcf during the same period of 1999. For the first half of 2000, oil revenues of $530.8 million increased $331.3 million, or 166 percent, from the same period in 1999 due to higher oil prices and improved production. On a worldwide basis, average oil prices increased $11.73 per barrel, or 84 percent, to $25.69 per barrel positively impacting oil revenues by $167.6 million. Oil production increased 34,586 barrels per day, or 44 percent, for the first six months of 2000 primarily due to 1999 property acquisitions from Shell Offshore in the U.S. and Shell Canada along with increased production from the Stag field in Australia. Realized losses from hedging positions negatively impacted the Company's realized oil price by $1.77 per barrel during the first half of 2000 and had no impact in the first half of 1999. Natural gas liquids revenues for the first six months of 2000 of $19.3 million increased $14.8 million, or 333 percent, from the same period in 1999. Natural gas liquids prices increased by $9.53 per barrel, or 122 percent and natural gas liquids production increased 2,965 barrels per day, or 94 percent. OPERATING EXPENSES The Company's DD&A expense for the second quarter and first six months of 2000 totaled $136.3 million and $268.5 million, respectively, compared to $105.4 million and $193.8 million for the comparable periods in 1999. On an equivalent barrel basis, full cost DD&A expense increased $.05 per boe, from $5.64 per boe in the second quarter of 1999 to $5.69 per boe in 2000. For the six months ended June 30, 2000, the full cost DD&A rate totaled $5.62 per boe compared to $5.53 per boe in 1999. The increase is primarily due to an increased percentage of oil production, with a higher cost basis, in the Company's oil and gas product mix in Canada as a result of the Shell Canada acquisition. Canadian DD&A expense increased from $4.36 per boe in the first half of 1999 to $5.49 per boe in 2000. Operating costs, including lease operating expense (LOE) and severance taxes, increased 36 percent from $51.1 million in the second quarter of 1999 to $69.6 million for the same period in 2000 due primarily to increased production. For the first half of 2000, operating costs, including LOE and severance taxes, totaled $140.0 million, an increase of $42.2 million, or 43 percent, compared to the same period in 1999. For the second quarter and first six months of 2000, LOE, excluding severance taxes, totaled $58.5 million and $120.0 million, respectively, compared to $44.2 million and $85.3 million for the comparable periods in 1999. 12 14 On an equivalent barrel basis, LOE increased from $2.51 per boe in the second quarter of 1999 to $2.61 per boe in the second quarter of 2000. For the first six months of 2000, LOE averaged $2.69 per boe, a four percent increase from $2.59 per boe, for the same period in 1999. The boe rate in Canada increased due to the Shell Canada acquisition, which increased oil as a percentage of total production. The boe rate in Australia increased primarily due to higher production, workover activity and higher maintenance costs. The boe rate in Egypt decreased due to the Western Desert Gas Pipeline coming on line and increased volumes at Khalda due to development programs. Severance tax increased $7.5 million to $20.1 million for the first half of 2000 due to higher oil and gas production revenues and a special gross revenue tax on certain Canadian properties. G&A expense in the second quarter and first six months of 2000 increased $4.5 million or 37 percent, and $8.8 million or 39 percent, respectively, from a year ago. The Company's overall infrastructure was enlarged to properly handle increased responsibilities associated with 1999 and 2000 North American producing property acquisitions. On an equivalent barrel basis, G&A expenses increased to $.70 per boe, for the first half of 2000 as compared to $.68 per boe for the same period in 1999. Net financing costs for the second quarter and first six months of 2000 increased $6.4 million, or 31 percent, and $15.4 million, or 39 percent, respectively, compared to a year ago. This increase is primarily due to higher gross interest expense, the result of a higher average outstanding debt balance related to acquisition activity during 1999, partially offset by higher capitalized interest. MARKET RISK COMMODITY RISK The Company's major market risk exposure continues to be the pricing applicable to its oil and gas production. Realized pricing is primarily driven by the prevailing worldwide price for crude oil and spot prices applicable to its U.S. and Canadian natural gas production. Historically, prices received for oil and gas production have been volatile and unpredictable. Price volatility is expected to continue. See "Results of Operations" above. The information set forth under "Market Risk - Interest Rate Risk and - Foreign Currency Risk" in Item 7 of the Company's annual report on Form 10-K for the year ended December 31, 1999, is incorporated herein by reference. CASH FLOW, LIQUIDITY AND CAPITAL RESOURCES CAPITAL COMMITMENTS Apache's primary cash needs are for exploration, development and acquisition of oil and gas properties, repayment of principal and interest on outstanding debt, payment of dividends and capital obligations for affiliated ventures. Apache budgets capital expenditures based upon projected cash flow and routinely adjusts its capital expenditures in response to changes in oil and natural gas prices and corresponding changes in cash flow. The Company cannot accurately predict future oil and gas prices. 13 15 Capital Expenditures - A summary of oil and gas capital expenditures during the first six months of 2000 and 1999 is presented below:
FOR THE SIX MONTHS ENDED JUNE 30, --------------------------------- 2000 1999 -------- -------- (IN THOUSANDS) Exploration and development: United States $219,550 $ 54,612 Canada 59,778 15,160 Egypt 44,548 29,316 Australia 18,390 21,341 Other international 11,105 11,754 -------- -------- 353,371 132,183 Capitalized Interest 28,841 25,969 -------- -------- Total $382,212 $158,152 ======== ======== Acquisition of oil and gas properties $501,155 $880,485 ======== ========
In North America, Apache completed 83 producing wells out of 129 wells drilled during the first half of 2000, while internationally the Company discovered 11 new producers out of 21 wells drilled. Worldwide, the Company was drilling or completing an additional 158 wells as of June 30, 2000. In addition, Apache completed 526 production enhancement projects, including 240 recompletions, during the first half of 2000. On January 24, 2000, Apache completed the acquisition of producing properties in Western Oklahoma and the Texas Panhandle, formerly owned by a subsidiary of Repsol YPF, for approximately $117.3 million plus assumed liabilities of approximately $29.8 million. The acquisition included estimated proved reserves of approximately 199 Bcfe as of the acquisition date. On June 30, 2000, Apache completed the acquisition of long-lived producing properties in the Permian Basin and South Texas from Collins & Ware for approximately $316.9 million, subject to normal post closing adjustments. The acquisition included estimated proved reserves of approximately 502 Bcfe as of the acquisition date. One-third of the reserves are liquid hydrocarbons. On July 14, 2000, the Company signed a definitive agreement to acquire an LLC owned by subsidiaries of Occidental and the related natural gas production for a total purchase price of $385 million, subject to reduction for production since July 1, 2000 (the effective date) and other closing adjustments. A portion of the purchase price ($44 million) is expected to be paid ratably over the next four years. The Occidental properties are located in 32 fields on 93 blocks on the Outer Continental Shelf of the Gulf of Mexico, and the Company expects to operate half of the fields acquired. The Occidental properties have estimated proved reserves of approximately 56.8 MMboe as of the effective date, net to Apache, and the LLC owns proprietary 3-D seismic data on 113 blocks covering 1,022 square miles. The acquisition is expected to close August 15, 2000. CAPITAL RESOURCES AND LIQUIDITY Net Cash Provided by Operating Activities - Apache's net cash provided by operating activities during the first half of 2000 totaled $547.2 million, an increase of 234 percent from $163.9 million in the first half of 1999. This increase was primarily due to higher oil and gas production as a result of 1999 acquisitions and higher realized oil and gas prices as compared to last year. Credit Facility - On July 14, 2000, Apache entered into a new $500 million, 364-day revolving credit agreement with a group of banks. The terms of the facility are substantially the same as those of Apache's global credit facility. The new facility will be used along with the U.S. portion of Apache's global credit facility to support Apache's commercial paper program, which was increased from $700 million to $1.2 billion in late July 2000. Stock Transactions - In the first half of 2000, the Company bought back 75,900 depository shares, each representing one-fiftieth (1/50) of a share of Series C Preferred Stock, at an average price of $34.42 per share. The 14 16 excess of the purchase price to reacquire the depository shares over the original issuance price is reflected as a preferred stock dividend in the accompanying statement of consolidated operations. In the first half of 2000, the Company repurchased 478,100 shares of common stock to be held in treasury at an average price of $37.08 per share. On August 2, 2000, the Company completed the public offering of 9.2 million shares of Apache common stock, including 1.2 million shares for the underwriters' over-allotment option, for net proceeds of approximately $433.9 million. The proceeds will be used to fund the pending Occidental transaction and repay indebtedness under Apache's commercial paper program. Liquidity - The Company had $19.0 million in cash and cash equivalents on hand at June 30, 2000, up from $13.2 million at December 31, 1999. Apache's ratio of current assets to current liabilities at June 30, 2000 was 1.25:1 compared to 1.02:1 at December 31, 1999. Apache believes that cash on hand, net cash generated from operations, and unused committed borrowing capacity under its global credit facility will be adequate to satisfy the Company's financial obligations to meet future liquidity needs for at least the next two fiscal years. As of June 30, 2000, Apache's available borrowing capacity under its global credit facility was $498.1 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: o exploiting our existing asset base; o acquiring properties to which we can add value; and o investing in high-potential exploration prospects. EXPLOITING EXISTING ASSET BASE Apache seeks to maximize the value of our existing asset base by 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 VALUE Apache seeks to purchase reserves at appropriate prices by generally avoiding auction processes where we are competing against other buyers. Our aim is to follow each acquisition with a cycle of reserve enhancement, property consolidation and cash flow acceleration, facilitating asset growth and debt reduction. INVESTING IN HIGH-POTENTIAL EXPLORATION PROSPECTS Apache seeks to concentrate our exploratory investments in a select number of international areas and to become the dominant operator in those regions. We believe that these investments, although higher-risk, offer the potential for significant reserve additions. Our international investments and exploration activities are a significant component of our long-term growth strategy. They complement our U.S. operations, which are more development oriented. A critical component in implementing our three-pronged growth strategy is maintenance of significant financial flexibility. A strong balance sheet and credit position give us the foundation required to pursue our growth initiatives. 15 17 CHINA In June 2000, our subsidiary, Apache China Corporation LDC, filed a lawsuit against PetroChina Company Limited, China National Petroleum Corporation and China National Oil and Gas Exploration and Development Corporation in connection with certain of our Chinese investments and operations. The Company filed seeking damages and injunctive relief to prevent the Chinese parties from declaring that we had relinquished some of our Chinese exploratory acreage, and other claims. The lawsuit was filed in the U.S. Bankruptcy Court in Opelousas, Louisiana, in connection with bankruptcy proceedings of XCL-China, Ltd., the co-owner of some of our Chinese interests. On June 30, 2000, Apache and PetroChina Company Limited announced an agreement to resolve most of the issues that should permit all parties to proceed with development of portions of the 49,000-acre Zhao Dong Block. The agreement calls for PetroChina and the China National Petroleum Corporation to obtain final governmental approval of the overall development plan. Implementation of the agreement and the development plan is subject to these additional approvals. On July 21, 2000, the bankruptcy court issued an order approving the agreement reached between Apache and PetroChina. On July 31, 2000, XCL Ltd., sole shareholder of XCL-China Ltd., appealed the Bankruptcy Court's order to the U.S. District Court. On August 10, 2000, XCL Ltd. filed a motion to withdraw its appeal, which is subject to a further order of dismissal and has yet to be obtained. If all necessary approvals, including a final non-appealable order of approval, are obtained, the agreement will resolve the issues raised in our lawsuit and Apache, as operator, will proceed with construction of production facilities and development drilling on the shallow-water Zhao Dong Block. FORWARD-LOOKING STATEMENTS AND RISK Certain statements in this report, including statements of the future plans, objectives, and expected performance of the Company, are forward-looking statements that are dependent upon certain events, risks and uncertainties that may be outside the Company's control, and which could cause actual results to differ materially from those anticipated. Some of these include, but are not limited to, the market prices of oil and gas, economic and competitive conditions, inflation rates, legislative and regulatory changes, financial market conditions, political and economic uncertainties of foreign governments, future business decisions, and other uncertainties, all of which are difficult to predict. There are numerous uncertainties inherent in estimating quantities of proved oil and gas reserves and in projecting future rates of production and the timing of development expenditures. The total amount or timing of actual future production may vary significantly from reserves and production estimates. The drilling of exploratory wells can involve significant risks, including those related to timing, success rates and cost overruns. Lease and rig availability, complex geology and other factors can affect these risks. Although Apache makes use of futures contracts, swaps, options and fixed-price physical contracts to mitigate risk, fluctuations in oil and gas prices, or a prolonged continuation of low prices, may substantially adversely affect the Company's financial position, results of operations and cash flows. 16 18 PART II - OTHER INFORMATION ITEM 1. LEGAL PROCEEDINGS The information set forth in Note 10 to the Consolidated Financial Statements contained in the Company's annual report on Form 10-K for the year ended December 31, 1999 (filed with the SEC on March 29, 2000) is incorporated herein by reference. ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS None ITEM 3. DEFAULTS UPON SENIOR SECURITIES None ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS The Company's annual meeting of stockholders was held in Houston, Texas at 10:00 a.m. local time, on Thursday, May 4, 2000. Proxies for the meeting were solicited pursuant to Regulation 14 under the Securities Exchange Act of 1934, as amended. There was no solicitation in opposition to the nominees for election as directors as listed in the proxy statement, and all nominees were elected. Out of a total of 113,582,831 shares of the Company's common stock outstanding and entitled to vote, 99,681,250 shares were present at the meeting in person or by proxy, representing approximately 87.8 percent. Matters voted upon at the meeting were as follows: Election of five directors to serve on the Company's board of directors. Mr. Bohen, Mr. Lawrence, Mr. Patton and Mr. Rice were elected to serve until the annual meeting in 2003, and Mr. Pitman was elected to serve until the annual meeting in 2001. The vote tabulation with respect to each nominee was as follows:
AUTHORITY NOMINEE FOR WITHHELD ------- --- --------- Frederick M. Bohen 99,011,525 669,725 George D. Lawrence, Jr. 96,913,330 2,767,920 Rodman D. Patton 99,018,600 662,650 Charles J. Pitman 99,015,896 665,354 Joseph A. Rice 98,777,862 903,388
ITEM 5. OTHER INFORMATION None 17 19 ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K (a) Exhibits 12.1 - Statement of computation of ratios of earnings to fixed charges and combined fixed charges and preferred stock dividends. 27.1 - Financial Data Table (b) Reports filed on Form 8-K The following current reports on Form 8-K were filed during the fiscal quarter ended June 30, 2000: None 18 20 SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. APACHE CORPORATION Dated: August 14, 2000 /s/ Roger B. Plank ----------------------------- Roger B. Plank Executive Vice President and Chief Financial Officer Dated: August 14, 2000 /s/ Thomas L. Mitchell ----------------------------- Thomas L. Mitchell Vice President and Controller (Chief Accounting Officer) 21 EXHIBIT INDEX
EXHIBIT NUMBER DESCRIPTION ------- ----------- 12.1 - Statement of computation of ratios of earnings to fixed charges and combined fixed charges and preferred stock dividends 27.1 - Financial Data Table