-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, UnNkVAG+brWhLD7mwRtfrL3k57xLrvmBbiGUG5YEvKMUztq9e7xPaM26x3Apirlt 6OXgPPaf/e/P/FnVVQfHew== 0000950129-05-005024.txt : 20050510 0000950129-05-005024.hdr.sgml : 20050510 20050510135252 ACCESSION NUMBER: 0000950129-05-005024 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 5 CONFORMED PERIOD OF REPORT: 20050331 FILED AS OF DATE: 20050510 DATE AS OF CHANGE: 20050510 FILER: COMPANY DATA: COMPANY CONFORMED NAME: APACHE CORP CENTRAL INDEX KEY: 0000006769 STANDARD INDUSTRIAL CLASSIFICATION: CRUDE PETROLEUM & NATURAL GAS [1311] IRS NUMBER: 410747868 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 001-04300 FILM NUMBER: 05815454 BUSINESS ADDRESS: STREET 1: 2000 POST OAK BLVD STREET 2: ONE POST OAK CENTER STE 100 CITY: HOUSTON STATE: TX ZIP: 77056-4400 BUSINESS PHONE: 7132966000 MAIL ADDRESS: STREET 1: 2000 POST OAK BLVD STREET 2: STE 100 CITY: HOUSTON STATE: TX ZIP: 77056-4400 FORMER COMPANY: FORMER CONFORMED NAME: APACHE OIL CORP DATE OF NAME CHANGE: 19660830 10-Q 1 h25218e10vq.txt APACHE CORPORATION - MARCH 31, 2005 UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-Q [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the Quarterly Period Ended March 31, 2005 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 [ ] Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act). YES [X] NO [ ] Number of shares of Registrant's common stock, outstanding as of March 31, 2005 ............328,188,619 PART I - FINANCIAL INFORMATION ITEM 1 - FINANCIAL STATEMENTS APACHE CORPORATION AND SUBSIDIARIES STATEMENT OF CONSOLIDATED OPERATIONS (UNAUDITED)
FOR THE QUARTER ENDED MARCH 31, ------------------------------------------ 2005 2004 --------------- --------------- (In thousands, except per common share data) REVENUES AND OTHER: Oil and gas production revenues...................................... $ 1,626,649 $ 1,152,754 Other................................................................ 35,639 (2,815) --------------- --------------- 1,662,288 1,149,939 --------------- --------------- OPERATING EXPENSES: Depreciation, depletion and amortization............................. 339,413 286,228 Asset retirement obligation accretion................................ 13,159 10,761 Lease operating costs................................................ 233,171 208,236 Gathering and transportation costs................................... 23,780 19,634 Severance and other taxes............................................ 72,186 8,948 General and administrative........................................... 50,411 46,057 Financing costs: Interest expense.................................................. 45,266 40,549 Amortization of deferred loan costs............................... 658 567 Capitalized interest.............................................. (13,409) (13,650) Interest income................................................... (927) (320) --------------- --------------- 763,708 607,010 --------------- --------------- INCOME BEFORE INCOME TAXES.............................................. 898,580 542,929 Provision for income taxes........................................... 338,097 196,604 --------------- --------------- NET INCOME.............................................................. 560,483 346,325 Preferred stock dividends............................................ 1,420 1,420 --------------- --------------- INCOME ATTRIBUTABLE TO COMMON STOCK..................................... $ 559,063 $ 344,905 =============== =============== NET INCOME PER COMMON SHARE: Basic................................................................ $ 1.70 $ 1.06 =============== =============== Diluted.............................................................. $ 1.67 $ 1.05 =============== ===============
The accompanying notes to consolidated financial statements are an integral part of this statement. 1 APACHE CORPORATION AND SUBSIDIARIES STATEMENT OF CONSOLIDATED CASH FLOWS (UNAUDITED)
FOR THE QUARTER ENDED MARCH 31, ------------------------------- 2005 2004 ------------- ------------- (In thousands) CASH FLOWS FROM OPERATING ACTIVITIES: Net income.................................................................... $ 560,483 $ 346,325 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation, depletion and amortization................................ 339,413 286,228 Asset retirement obligation accretion................................... 13,159 10,761 Provision for deferred income taxes..................................... 98,187 82,143 Other................................................................... 11,826 11,269 Changes in operating assets and liabilities: (Increase) decrease in receivables...................................... (177,175) (63,969) (Increase) decrease in advances to oil and gas ventures and other....... (17,410) (2,093) (Increase) decrease in product inventory................................ 4,697 5,894 (Increase) decrease in deferred charges and other....................... (7,665) (7,775) Increase (decrease) in payables......................................... 6,952 20,391 Increase (decrease) in accrued expenses................................. 19,908 (27,362) Increase (decrease) in advances from gas purchasers..................... (5,692) (4,833) Increase (decrease) in deferred credits and noncurrent liabilities...... (10,511) (4,647) ------------- ------------- Net cash provided by operating activities........................... 836,172 652,332 ------------- ------------- CASH FLOWS FROM INVESTING ACTIVITIES: Additions to property and equipment........................................... (790,350) (469,833) Other, net.................................................................... 32,448 (9,509) ------------- ------------- Net cash used in investing activities............................... (757,902) (479,342) ------------- ------------- CASH FLOWS FROM FINANCING ACTIVITIES: Long-term borrowings.......................................................... 6,862 251 Payments on long-term debt.................................................... (63,530) (135,300) Dividends paid................................................................ (27,631) (20,898) Common stock activity......................................................... 7,771 7,534 Treasury stock activity, net.................................................. (2,085) 3,746 Cost of debt and equity transactions.......................................... (78) (673) Other......................................................................... 10,679 - ------------- ------------- Net cash provided by/(used in) financing activities................. (68,012) (145,340) ------------- ------------- NET INCREASE/(DECREASE) IN CASH AND CASH EQUIVALENTS............................. 10,258 27,650 CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR................................... 111,093 33,503 ------------- ------------- CASH AND CASH EQUIVALENTS AT END OF PERIOD....................................... $ 121,351 $ 61,153 ============= =============
The accompanying notes to consolidated financial statements are an integral part of this statement. 2 APACHE CORPORATION AND SUBSIDIARIES CONSOLIDATED BALANCE SHEET (UNAUDITED)
MARCH 31, DECEMBER 31, 2005 2004 --------------- --------------- (In thousands) ASSETS CURRENT ASSETS: Cash and cash equivalents............................................ $ 121,351 $ 111,093 Restricted cash for acquisition settlement........................... 21,052 - Receivables, net of allowance........................................ 1,116,608 939,736 Inventories.......................................................... 172,537 157,293 Drilling advances.................................................... 156,418 82,889 Prepaid assets and other............................................. 1,041 57,771 --------------- --------------- 1,589,007 1,348,782 --------------- --------------- PROPERTY AND EQUIPMENT: Oil and gas, on the basis of full cost accounting: Proved properties................................................. 20,611,094 19,933,041 Unproved properties and properties under development, not being amortized............................... 854,541 777,690 Gas gathering, transmission and processing facilities................ 1,059,240 966,605 Other................................................................ 283,291 284,069 --------------- --------------- 22,808,166 21,961,405 Less: Accumulated depreciation, depletion and amortization.......... (8,438,713) (8,101,046) --------------- --------------- 14,369,453 13,860,359 --------------- --------------- OTHER ASSETS: Goodwill, net........................................................ 189,252 189,252 Deferred charges and other........................................... 109,356 104,087 --------------- --------------- $ 16,257,068 $ 15,502,480 =============== ===============
The accompanying notes to consolidated financial statements are an integral part of this statement. 3 APACHE CORPORATION AND SUBSIDIARIES CONSOLIDATED BALANCE SHEET (UNAUDITED)
MARCH 31, DECEMBER 31, 2005 2004 --------------- --------------- (In thousands) LIABILITIES AND SHAREHOLDERS' EQUITY CURRENT LIABILITIES: Accounts payable..................................................... $ 567,571 $ 542,074 Accrued operating expense............................................ 68,390 80,741 Accrued exploration and development.................................. 453,754 341,063 Accrued compensation and benefits.................................... 72,242 83,636 Accrued interest..................................................... 45,707 32,575 Accrued income taxes................................................. 99,142 78,042 Derivative instruments............................................... 127,827 21,273 Other................................................................ 136,814 103,487 --------------- --------------- 1,571,447 1,282,891 --------------- --------------- LONG-TERM DEBT.......................................................... 2,531,722 2,588,390 --------------- --------------- DEFERRED CREDITS AND OTHER NONCURRENT LIABILITIES: Income taxes......................................................... 2,151,966 2,146,637 Advances from gas purchasers......................................... 85,184 90,876 Asset retirement obligation.......................................... 943,348 932,004 Derivative instruments............................................... 134,209 31,417 Other................................................................ 215,243 225,844 --------------- --------------- 3,529,950 3,426,778 --------------- --------------- 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 Common stock, $0.625 par, 430,000,000 shares authorized, 335,378,171 and 334,912,505 shares issued, respectively........... 209,611 209,320 Paid-in capital...................................................... 4,126,127 4,106,182 Retained earnings.................................................... 4,550,164 4,017,339 Treasury stock, at cost, 7,189,552 and 7,455,002 shares, respectively...................................................... (93,861) (97,325) Accumulated other comprehensive loss................................. (266,479) (129,482) --------------- --------------- 8,623,949 8,204,421 --------------- --------------- $ 16,257,068 $ 15,502,480 =============== ===============
The accompanying notes to consolidated financial statements are an integral part of this statement. 4 APACHE CORPORATION AND SUBSIDIARIES STATEMENT OF CONSOLIDATED SHAREHOLDERS' EQUITY (UNAUDITED)
SERIES B COMPREHENSIVE PREFERRED COMMON PAID-IN RETAINED INCOME STOCK STOCK CAPITAL EARNINGS -------------- ---------- ---------- ------------ ----------- (In thousands) BALANCE AT DECEMBER 31, 2003.............. $ 98,387 $ 207,818 $ 4,038,007 $ 2,445,698 Comprehensive income (loss): Net income........................... $ 346,325 - - - 346,325 Commodity hedges, net of income tax benefit of $3,850.................. (6,417) - - - - -------------- Comprehensive income................... $ 339,908 ============== Dividends: Preferred............................ - - - (1,420) Common ($.06 per share).............. - - - (20,003) Common shares issued................... - 359 12,287 - Treasury shares issued, net............ - - 2,206 - Other.................................. - - 913 - ---------- ---------- ------------ ----------- BALANCE AT MARCH 31, 2004................. $ 98,387 $ 208,177 $ 4,053,413 $ 2,770,600 ========== ========== ============ =========== BALANCE AT DECEMBER 31, 2004.............. $ 98,387 $ 209,320 $ 4,106,182 $ 4,017,339 Comprehensive income (loss): Net income........................... $ 560,483 - - - 560,483 Commodity hedges, net of income tax benefit of $82,210................. (136,997) - - - - -------------- Comprehensive income................... $ 423,486 ============== Dividends: Preferred............................ - - - (1,420) Common ($.08 per share).............. - - - (26,238) Common shares issued................... - 291 19,781 - Treasury shares issued, net............ - - 98 - Other.................................. - - 66 - ---------- ---------- ------------ ----------- BALANCE AT MARCH 31, 2005................. $ 98,387 $ 209,611 $ 4,126,127 $ 4,550,164 ========== ========== ============ =========== ACCUMULATED OTHER TOTAL TREASURY COMPREHENSIVE SHAREHOLDERS' STOCK INCOME (LOSS) EQUITY ---------- ------------- ------------- BALANCE AT DECEMBER 31, 2003.............. $ (105,169) $ (151,943) $ 6,532,798 Comprehensive income (loss): Net income........................... - - 346,325 Commodity hedges, net of income tax benefit of $3,850.................. - (6,417) (6,417) Comprehensive income................... Dividends: Preferred............................ - - (1,420) Common ($.06 per share).............. - - (20,003) Common shares issued................... - - 12,646 Treasury shares issued, net............ 2,632 - 4,838 Other.................................. - - 913 ---------- ------------- ------------- BALANCE AT MARCH 31, 2004................. $ (102,537) $ (158,360) $ 6,869,680 ========== ============= ============= BALANCE AT DECEMBER 31, 2004.............. $ (97,325) $ (129,482) $ 8,204,421 Comprehensive income (loss): Net income........................... - - 560,483 Commodity hedges, net of income tax benefit of $82,210................. - (136,997) (136,997) Comprehensive income................... Dividends: Preferred............................ - - (1,420) Common ($.08 per share).............. - - (26,238) Common shares issued................... - - 20,072 Treasury shares issued, net............ 3,464 - 3,562 Other.................................. - - 66 ---------- ------------- ------------- BALANCE AT MARCH 31, 2005................. $ (93,861) $ (266,479) $ 8,623,949 ========== ============= =============
The accompanying notes to consolidated financial statements are an integral part of this statement. 5 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 (SEC), 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 accounting principles generally accepted in the United States 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 included in the Company's most recent annual report on Form 10-K. Reclassifications The financial statement amounts applicable to the March 31, 2004 period presented in this Form 10-Q will not agree to the amounts originally reported in the Company's Form 10-Q filed May 10, 2004, because they have been restated to reflect early adoption of Statement of Financial Accounting Standards No. 123 (revised 2004) "Share-Based Payment" (SFAS No. 123-R) (see Note 6, Stock-Based Compensation). This restatement did not materially impact our results of operations. Certain other prior period amounts have also been reclassified to conform with current year presentations. 1. ACQUISITIONS 2005 ACQUISITIONS There were no material acquisitions in the three months ended March 31, 2005. 2004 ACQUISITIONS ANADARKO In August 2004, Apache signed a definitive agreement to acquire all of Anadarko Petroleum Corporation's (Anadarko) Gulf of Mexico Outer Continental Shelf properties (excluding certain deepwater properties) for $537 million, subject to normal post-closing adjustments, including preferential rights. The transaction was effective as of October 1, 2004, and included interests in 74 fields covering 232 offshore blocks (approximately 664,000 acres) and 104 platforms. Eighty-nine of the blocks were undeveloped at the time of the acquisition. Apache operates 49 of the fields comprising approximately 70 percent of the production. Prior to Apache's purchase from Anadarko, Morgan Stanley Capital Group, Inc. paid Anadarko $646 million to acquire an overriding royalty interest in these properties. For a complete discussion of this transaction, please refer to Item 7, Management's Discussion and Analysis of Financial Condition and Results of Operations, "Results of Operations, Acquisitions and Divestitures" and Note 2, Acquisitions and Divestitures of Item 15 in the Company's 2004 Form 10-K. EXXONMOBIL During the third quarter of 2004, Apache entered into separate arrangements with Exxon Mobil Corporation and its affiliates (ExxonMobil) that provided for property transfers and joint operating and exploration activity across a broad range of prospective and mature properties in (1) Western Canada, (2) West Texas and New Mexico, and (3) onshore Louisiana and the Gulf of Mexico-Outer Continental Shelf. Apache's participation included cash payments of approximately $347 million, subject to normal post-closing adjustments. For a complete discussion of these transactions, please refer to Item 7, Management's Discussion and Analysis of Financial Condition and Results of Operations, "Results of Operations, Acquisitions and Divestitures" and Note 2, Acquisitions and Divestitures of Item 15 in the Company's 2004 Form 10-K. 6 2. HEDGING AND DERIVATIVE INSTRUMENTS Apache uses a variety of strategies to manage its exposure to fluctuations in crude oil and natural gas commodity prices. As established by the Company's hedging policy, Apache enters into cash flow hedges in connection with selected acquisitions to protect against commodity price volatility. The success of these acquisitions is significantly influenced by Apache's ability to achieve targeted production at forecasted prices over the long-term. These hedges effectively reduce price risk on a portion of the production from the acquisitions. Apache entered into, and designated as cash flow hedges, various fixed-price swaps, option collars and puts in conjunction with the ExxonMobil and Anadarko property acquisitions completed in 2004. The Company also entered into and designated as cash flow hedges various option collars in conjunction with a 2003 acquisition of certain South Louisiana properties. These positions were entered into in accordance with the Company's hedging policy and involved several counterparties, all of which are rated A+ or better. As of March 31, 2005, the outstanding positions of our natural gas and crude oil cash flow hedges were as follows:
PRODUCTION TOTAL VOLUMES WEIGHTED AVERAGE FAIR VALUE ASSET/ PERIOD INSTRUMENT TYPE (MMBtu/Bbl) FLOOR/CEILING (LIABILITY) - ---------- -------------------- ------------- ---------------- ----------------- (In thousands) 2005 Gas Collars 23,800,000 $ 5.47 / $ 6.47 $ (34,330) Gas Fixed-Price Swap 5,682,000 6.22 (9,155) Oil Collars 2,695,000 33.51 / 41.72 (40,454) Oil Fixed-Price Swap 266,000 41.29 (4,021) Oil Put Option 1,155,000 28.00 4 2006 Gas Collars 32,850,000 5.50 / 6.66 (42,312) Gas Fixed-Price Swap 4,404,000 5.87 (7,917) Oil Collars 4,307,000 32.07 / 40.66 (61,618) Oil Fixed-Price Swap 224,000 38.50 (3,487) Oil Put Option 1,533,000 28.00 103 2007 Gas Collars 24,570,000 5.25 / 6.20 (28,432) Gas Fixed-Price Swap 1,761,000 5.57 (2,643) Oil Collars 1,911,000 33.00 / 39.25 (25,270) Oil Fixed-Price Swap 78,000 36.89 (1,127)
The natural gas and crude oil prices shown in the above table are based on the NYMEX index and have been valued using actively quoted prices and quotes obtained from reputable third-party financial institutions. The above prices represent a weighted average of several contracts entered into and are on a per million British thermal units (MMBtu) or per barrel (Bbl) basis for gas and oil derivatives, respectively. In November 2004, Apache began hedging a portion of its 2005 foreign currency exchange risk associated with its forecasted Canadian, Australian and North Sea lease operating expenditures by entering into forward purchase contracts. The Company purchased a total of 144 million Canadian dollars at an average exchange rate of .840, 22 million Australian dollars at an average exchange rate of .763 and 42 million British pounds at an average exchange rate of 1.853. The forward contracts mature from January through December 2005. The fair market value of these contracts as of March 31, 2005 was a loss of $243,000 ($181,000 after tax). Future changes in market value are recorded in other comprehensive income (loss) and the fair values of the foreign exchange contracts are based on quotes from either third-party financial institutions or published indices. A reconciliation of the components of accumulated other comprehensive income (loss) in the statement of consolidated shareholders' equity related to Apache's commodity and foreign currency derivative activities is presented in the table below:
GROSS AFTER TAX ------------ ------------ (In thousands) Unrealized loss on derivatives at December 31, 2004.................... $ (33,113) $ (20,732) Net losses realized into earnings...................................... 6,204 3,892 Net change in derivative fair value.................................... (225,411) (140,889) ------------ ------------ Unrealized loss on derivatives at March 31, 2005....................... $ (252,320) $ (157,729) ============ ============
7 Based on current market prices as of March 31, 2005, the Company recorded an unrealized loss in other comprehensive income (loss) of $252 million ($158 million after tax), primarily representing commodity derivative hedges. Losses on the commodity hedges will be realized in future earnings contemporaneously with the related sales of natural gas and crude oil production applicable to specific hedges. Gains and losses on the foreign exchange contracts will be realized in future earnings as the forecasted lease operating expenditures are incurred. Of the $252 million unrealized loss on derivatives at March 31, 2005, approximately $120 million ($75 million after tax) applies to the next 12 months; however, these amounts are likely to vary materially as a result of changes in market conditions. The contracts designated as hedges qualified and continue to qualify for hedge accounting in accordance with Statement of Financial Accounting Standards (SFAS) No. 133, as amended. 3. DEBT The Company is currently syndicating a new $450 million revolving bank credit facility for the U.S., a $150 million revolving bank credit facility for Australia and a $150 million revolving bank credit facility for Canada, which will replace the Company's existing credit facilities in the same amounts which are scheduled to mature in June 2007. The new facilities offer more favorable pricing and will mature in May 2010. The terms will be substantially the same as the existing credit facilities. 4. CAPITAL STOCK On January 26, 2004, Apache was approved for listing on the Nasdaq National Market (NASDAQ). Apache's common stock is now listed on the NASDAQ as well as the New York Stock Exchange and the Chicago Stock Exchange. During the first quarter of 2005 and 2004, Apache paid $26 million and $20 million, respectively, in dividends on its Common Stock. The increase in the first-quarter 2005 common stock dividends from the amount paid for the same period last year, reflects both a higher common stock dividend rate and an increase in common shares outstanding. On September 16, 2004, the Company announced that its Board of Directors voted to increase the quarterly cash dividend on its common stock to eight cents per share from six cents per share, effective with the November 2004 payment. In addition, in both periods, Apache paid a total of $1.4 million in dividends on its Series B Preferred Stock issued in August 1998. 5. NET INCOME PER COMMON SHARE A reconciliation of the components of basic and diluted net income per common share is presented in the table below:
FOR THE QUARTER ENDED MARCH 31, -------------------------------------------------------------------- 2005 2004 ------------------------------- -------------------------------- INCOME SHARES PER SHARE INCOME SHARES PER SHARE -------- ------- --------- -------- ------- --------- (In thousands, except per share amounts) BASIC: Income attributable to common stock..... $559,063 328,037 $ 1.70 $344,905 325,003 $ 1.06 ======== ======== EFFECT OF DILUTIVE SECURITIES: Stock options and other................. - 6,001 - 3,011 -------- ------- -------- ------- DILUTED: Income attributable to common stock, including assumed conversions.......... $559,063 334,038 $ 1.67 $344,905 328,014 $ 1.05 ======== ======= ======== ======== ======= ========
6. STOCK-BASED COMPENSATION During the fourth quarter of 2004, the Financial Accounting Standards Board (FASB) issued SFAS No. 123-R, which requires all companies to expense stock-based compensation. The pronouncement is effective for the first fiscal year that begins after June 15, 2005; however, during 2004 Apache elected to early adopt SFAS No. 123-R under the "Modified Retrospective Approach." Under this approach, the Company is required to expense all options 8 and other stock-based compensation that vest during the year based on the fair value determined at the date of grant. For the three-month periods ended March 31, 2005 and 2004, total stock-based compensation cost reflected in income was $19 million ($12 million after tax) and $10 ($6 million after tax), respectively. The related stock-based compensation cost capitalized as part of oil and gas properties was $10 million and $4 million for the three-month periods ended March 31, 2005 and 2004, respectively. On May 5, 2005, shareholders of the Company approved a new stock option plan and 1.7 million options were subsequently awarded to substantially all employees. The terms of the grant were consistent with prior-year awards and will be expensed on a straight-line basis over the four-year vesting term. The shareholders of the Company also approved a new targeted stock plan that provides incentives for employees to double Apache's share price to $108 by the end of 2008, with an interim goal of $81 to be achieved by the end of 2007. To achieve the trigger price, the Company's stock price must close at or above the stated threshold for 10 days out of any 30 consecutive trading days by the end of the stated period. Under the plan, if the first threshold is achieved, 1.3 million shares would be issued at approximately $81 per share for an intrinsic cost of $106 million. Achieving the second threshold would result in 2.0 million shares issued at approximately $108 per share for an intrinsic cost of $213 million. Upon achieving each threshold, one-fourth of the shares would be issued immediately and the remaining shares would be issued in equal installments over the next three years as employee's meet the service requirements of the plan. Over 90 percent of the benefit would accrue to non-executives. Accounting practices dictate that, regardless of whether these thresholds are achieved, the Company will recognize the fair value cost at grant date based on numerous assumptions, including an estimate of the likelihood that Apache's stock price will achieve these thresholds. As a result, Apache's current estimate of the expense and capitalized costs to be recognized over the expected service life of the plan is approximately $70 million. 7. SUPPLEMENTAL CASH FLOW INFORMATION The following table provides supplemental disclosure of cash flow information:
FOR THE QUARTER ENDED MARCH 31, ------------------------------- 2005 2004 ------------ ------------ (In thousands) Cash paid during the period for: Interest (net of amounts capitalized)...................................... $ 15,702 $ 11,308 Income taxes (net of refunds).............................................. 218,818 64,705
8. PENSION AND POST-RETIREMENT BENEFITS Apache has a non-contributory defined benefit pension plan that provides retirement benefits for certain North Sea employees meeting established age and service requirements. The pension plan is closed to new employees. Apache also has a postretirement benefit plan which provides benefits for substantially all of its U.S. employees. The postretirement benefit plan provides medical benefits up until the age of 65 and is contributory. 9 NET PERIODIC COST The following table presents the plans' net periodic benefit cost for the quarters ended March 31, 2005 and 2004.
PENSION BENEFITS POSTRETIREMENT BENEFITS ----------------------- ------------------------- FOR THE THREE MONTHS ENDED MARCH 31, ------------------------------------------------------- 2005 2004 2005 2004 --------- --------- --------- --------- (In thousands) Components of net periodic benefit cost: Service cost........................................... $ 1,638 $ 1,386 $ 275 $ 250 Interest cost.......................................... 1,163 921 175 150 Expected return on plan assets......................... (1,256) (911) - - Amortization of transition obligation.................. - - 13 - Amortization of actuarial (gain)/loss.................. - - 62 75 --------- --------- --------- --------- Net periodic benefit cost........................... $ 1,545 $ 1,396 $ 525 $ 475 ========= ========= ========= =========
EMPLOYER CONTRIBUTIONS As previously disclosed in our financial statements for the year ended December 31, 2004, we expect to contribute $5 million to the pension plan and $318,000 to the postretirement benefit plan in 2005. As of March 31, 2005, approximately $1.3 million of contributions have been made to the plans. 9. BUSINESS SEGMENT INFORMATION Apache has interests in seven countries: the United States, Canada, Egypt, Australia, the United Kingdom, China and Argentina. Our reportable segments are the United States, Canada, Egypt, Australia, North Sea, and Other International. The Company evaluates segment performance based on oil and gas sales and lease-level expenses. Apache's reportable segments are managed separately because of their geographic locations. Financial information by reportable segment is presented below:
UNITED OTHER STATES CANADA EGYPT AUSTRALIA NORTH SEA INTERNATIONAL TOTAL ---------- ----------- ---------- ---------- ---------- ------------- ----------- (IN THOUSANDS) FOR THE QUARTER ENDED MARCH 31, 2005 Oil and Gas Production Revenues..... $ 661,212 $ 278,721 $ 299,720 $ 94,780 $ 257,717 $ 34,499 $ 1,626,649 ========== =========== ========== ========== ========== ============= =========== Operating Income (1)................ $ 369,046 $ 153,644 $ 222,992 $ 49,928 $ 135,825 $ 13,505 $ 944,940 ========== =========== ========== ========== ========== ============= Other Income (Expense): Other............................ 35,639 General and administrative....... (50,411) Financing costs, net............. (31,588) ----------- Income Before Income Taxes.......... 898,580 =========== Total Assets........................ $7,467,839 $ 3,967,800 $2,103,270 $1,196,402 $1,363,273 $ 158,484 $16,257,068 ========== =========== ========== ========== ========== ============= =========== FOR THE QUARTER ENDED MARCH 31, 2004 Oil and Gas Production Revenues..... $ 530,756 $ 226,041 $ 188,007 $ 93,440 $ 92,216 $ 22,294 $ 1,152,754 ========== =========== ========== ========== ========== ============= =========== Operating Income (1)................ $ 285,854 $ 122,557 $ 117,613 $ 47,454 $ 37,436 $ 8,033 $ 618,947 ========== =========== ========== ========== ========== ============= Other Income (Expense): Other............................ (2,815) General and administrative....... (46,057) Financing costs, net............. (27,146) ----------- Income Before Income Taxes.......... $ 542,929 =========== Total Assets........................ $5,695,986 $ 3,123,622 $1,799,449 $1,000,008 $ 990,647 $ 175,998 $12,785,710 ========== =========== ========== ========== ========== ============= ===========
1) Operating Income consists of oil and gas production revenues less depreciation, depletion and amortization, asset retirement obligation accretion, lease operating costs, gathering and transportation costs, and severance and other taxes. 10 10. ASSET RETIREMENT OBLIGATIONS The following table describes changes to the Company's asset retirement obligation (ARO) liability for the quarter ended March 31, 2005 (in thousands): Asset retirement obligation as of December 31, 2004.................... $ 932,004 Liabilities incurred................................................... 10,513 Liabilities settled.................................................... (12,328) Accretion expense...................................................... 13,159 --------------- Asset retirement obligation as of March 31, 2005....................... $ 943,348 ===============
Liabilities incurred primarily relate to abandonment obligations assumed in connection with current drilling activity and various small acquisitions closed during the period. Liabilities settled during the period primarily relate to individually immaterial properties plugged and abandoned or sold during the period. 11. LITIGATION TEXACO CHINA B.V. Apache recorded a reserve in the second quarter of 2004 to fully reflect a pre-tax $71 million international arbitration award to Texaco China B.V. (Texaco China). The arbitration specifies that the award is subject to interest at nine percent. Apache also accrued $3.2 million and $1.6 million of interest expense in 2004 and the first quarter of 2005, respectively. In September 2001, Texaco China initiated an arbitration proceeding against Apache China Corporation LDC (Apache China), latter adding Apache Bohai Corporation LDC (Apache Bohai) to the arbitration. In the arbitration Texaco China claimed damages, plus interest, arising from Apache Bohai's alleged failure to drill three wells, prior to re-assignment of the interest to Texaco China. Apache believes that the finding of the arbitrator is unsupported by the facts and the law, and Apache filed an application to vacate the award in federal court. Texaco China filed an application to confirm the award in the same court. On May 5, 2005, the federal district court ruled in favor of Texaco China. The Company has appealed that decision to the circuit court of appeals. In January 2005, while awaiting the decision of the U.S. federal courts, Texaco China also filed a proceeding against Apache China and Apache Bohai in the People's Republic of China to recognize the award, apparently seeking the same relief as sought in U.S. federal court. Apache China has been served. Apache Bohai has not been served. PREDATOR In December 2000, certain subsidiaries of the Company and Murphy Oil Corporation (Murphy) filed a lawsuit in Canada charging The Predator Corporation Ltd. (Predator) and others with misappropriation and misuse of confidential well data to obtain acreage offsetting a significant natural gas discovery in the Ladyfern area of northeast British Columbia made by Apache Canada Ltd. (Apache Canada) and Murphy during 2000. In February 2001, Predator filed a counterclaim seeking more than C$6 billion and later reduced this amount to no more than C$4 billion. In September 2004, the court in Canada that is hearing this counterclaim granted Apache Canada's motion for summary judgment and dismissed more than C$3 billion of Predator's claims against the Company and Murphy, and dismissed all claims against both Murphy's president and Apache Canada's president. Predator has appealed the dismissal. The trial court also granted Apache Canada's request for costs and disbursements in the approximate amount of C$700,000, which Predator has paid. The trial court has also granted Predator's request to add some new mismanagement of operations claims to its counterclaim. At this time, only Predator's claims against Murphy and Apache Canada for mismanaging operations survive in the trial court. Those claims total approximately C$365 million, plus interest and attorneys' fees. While management believes Predator's claim against Apache Canada is without merit, an adverse judgment is possible. Exposure related to this lawsuit is not currently determinable. Apache and Murphy's claims against Predator, filed in December 2000, are still pending. 11 12. RECENTLY ISSUED ACCOUNTING STANDARDS During the first quarter 2005, the FASB issued Interpretation No. 47, "Accounting for Conditional Asset Retirement Obligations" (FIN No. 47). The interpretation clarifies the requirement to record abandonment liabilities stemming from legal obligations when the retirement depends on a conditional future event. FIN No. 47 requires that the uncertainty about the timing or method of settlement of a conditional retirement obligation be factored into the measurement of the liability when sufficient information exists. FIN No. 47 is effective for fiscal years ending after December 31, 2005, and the Company does not believe this interpretation will have any impact on financial results. In March 2005, the SEC issued Staff Accounting Bulletin No. 107, "Share-Based Payment" (SAB No. 107) to provide the staff's views and guidance in applying the provisions of SFAS No. 123-R. SAB No. 107 was issued to assist companies with the initial implementation of SFAS No. 123-R, express the SEC staff's views on the interaction between SFAS No. 123-R and certain SEC rules and regulations, and provide interpretations regarding the valuation of share-based payment arrangements for public companies. Apache will apply the new guidance provided in SAB No. 107 prospectively and the Company does not believe that applying the new guidance will have any impact on financial results. 13. SUPPLEMENTAL GUARANTOR INFORMATION Apache Finance Pty Ltd. (Apache Finance Australia) and Apache Finance Canada Corporation (Apache Finance Canada) are subsidiaries of Apache that have issuances of publicly traded securities and require the following condensed consolidating financial statements be provided as an alternative to filing separate financial statements. Each of the companies presented in the condensed consolidating financial statements have been fully consolidated in Apache's consolidated financial statements. As such, the condensed consolidating financial statements should be read in conjunction with the financial statements of Apache Corporation and Subsidiaries and notes. 12 APACHE CORPORATION AND SUBSIDIARIES CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS FOR THE QUARTER ENDED MARCH 31, 2005
ALL OTHER APACHE APACHE SUBSIDIARIES APACHE APACHE FINANCE FINANCE OF APACHE RECLASSIFICATIONS CORPORATION NORTH AMERICA AUSTRALIA CANADA CORPORATION & ELIMINATIONS CONSOLIDATED ----------- ------------- ---------- ---------- ------------- ----------------- ------------ (IN THOUSANDS) REVENUES AND OTHER: Oil and gas production revenues.................... $ 650,906 $ - $ - $ - $ 1,046,614 $ (70,871) $ 1,626,649 Equity in net income (loss) of affiliates................ 345,079 9,485 12,462 50,260 (12,352) (404,934) - Other......................... 30,185 - - - 5,454 - 35,639 ----------- ------------ ---------- ----------- ------------- -------------- ----------- 1,026,170 9,485 12,462 50,260 1,039,716 (475,805) 1,662,288 ----------- ------------ ---------- ----------- ------------- -------------- ----------- OPERATING EXPENSES: Depreciation, depletion and amortization............ 149,384 - - - 190,029 - 339,413 Asset retirement obligation accretion................... 7,834 - - - 5,325 - 13,159 Lease operating costs......... 104,955 - - - 199,087 (70,871) 233,171 Gathering and transportation costs....................... 7,949 - - - 15,831 - 23,780 Severance and other taxes..... 20,077 - - - 52,109 - 72,186 General and administrative.... 40,317 - - - 10,094 - 50,411 Financing costs, net.......... 19,919 - 4,512 14,110 (6,953) - 31,588 ----------- ------------ ---------- ----------- ------------- -------------- ----------- 350,435 - 4,512 14,110 465,522 (70,871) 763,708 ----------- ------------ ---------- ----------- ------------- -------------- ----------- INCOME (LOSS) BEFORE INCOME TAXES.................. 675,735 9,485 7,950 36,150 574,194 (404,934) 898,580 Provision (benefit) for income taxes................ 115,252 - (1,535) (4,735) 229,115 - 338,097 ----------- ------------ ---------- ----------- ------------- -------------- ----------- NET INCOME..................... 560,483 9,485 9,485 40,885 345,079 (404,934) 560,483 Preferred stock dividends..... 1,420 - - - - - 1,420 ----------- ------------ ---------- ----------- ------------- -------------- ----------- INCOME ATTRIBUTABLE TO COMMON STOCK.................. $ 559,063 $ 9,485 $ 9,485 $ 40,885 $ 345,079 $ (404,934) $ 559,063 =========== ============ ========== =========== ============= ============== ===========
13 APACHE CORPORATION AND SUBSIDIARIES CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS FOR THE QUARTER ENDED MARCH 31, 2004
ALL OTHER APACHE APACHE APACHE SUBSIDIARIES APACHE NORTH FINANCE FINANCE OF APACHE RECLASSIFICATIONS CORPORATION AMERICA AUSTRALIA CANADA CORPORATION & ELIMINATIONS CONSOLIDATED ----------- --------- ---------- --------- ------------ ----------------- ------------ (IN THOUSANDS) REVENUES AND OTHER: Oil and gas production revenues ................... $ 529,038 $ - $ - $ - $ 701,891 $ (78,175) $1,152,754 Equity in net income (loss) of affiliates .............. 192,707 8,262 11,228 37,945 (9,586) (240,556) - Other ........................ (763) - - - (2,052) - (2,815) ---------- --------- ---------- --------- ----------- ---------- ---------- 720,982 8,262 11,228 37,945 690,253 (318,731) 1,149,939 ---------- --------- ---------- --------- ----------- ---------- ---------- OPERATING EXPENSES: Depreciation, depletion and amortization ............... 131,210 - - - 155,018 - 286,228 Asset retirement obligation accretion .................. 5,795 - - - 4,966 - 10,761 Lease operating costs ........ 85,384 - - - 201,027 (78,175) 208,236 Gathering and transportation costs ...................... 7,332 - - - 12,302 - 19,634 Severance and other taxes .... 13,380 - - 18 (4,450) - 8,948 General and administrative ... 36,939 - - - 9,118 - 46,057 Financing costs, net ......... 21,763 - 4,512 10,107 (9,236) - 27,146 ---------- --------- ---------- --------- ----------- ---------- ---------- 301,803 - 4,512 10,125 368,745 (78,175) 607,010 ---------- --------- ---------- --------- ----------- ---------- ---------- INCOME (LOSS) BEFORE INCOME TAXES ........................ 419,179 8,262 6,716 27,820 321,508 (240,556) 542,929 Provision (benefit) for income taxes ............... 72,854 - (1,546) (3,505) 128,801 - 196,604 ---------- --------- ---------- --------- ----------- ---------- ---------- NET INCOME ...................... 346,325 8,262 8,262 31,325 192,707 (240,556) 346,325 Preferred stock dividends .... 1,420 - - - - - 1,420 ---------- --------- ---------- --------- ----------- ---------- ---------- INCOME ATTRIBUTABLE TO COMMON STOCK ................. $ 344,905 $ 8,262 $ 8,262 $ 31,325 $ 192,707 $ (240,556) $ 344,905 ========== ========= ========== ========= =========== ========== ==========
14 APACHE CORPORATION AND SUBSIDIARIES CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS FOR THE QUARTER ENDED MARCH 31, 2005
ALL OTHER APACHE APACHE APACHE SUBSIDIARIES APACHE NORTH FINANCE FINANCE OF APACHE RECLASSIFICATIONS CORPORATION AMERICA AUSTRALIA CANADA CORPORATION & ELIMINATIONS CONSOLIDATED ----------- --------- ---------- --------- ------------ ----------------- ------------ (IN THOUSANDS) CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES.............. $ 345,817 $ - $ (3,624) $ (77) $ 494,056 $ - $ 836,172 ----------- --------- ---------- --------- ------------ ------------- ------------ CASH FLOWS FROM INVESTING ACTIVITIES: Additions to property and equipment...................... (220,438) - - - (569,912) - (790,350) Investment in subsidiaries, net............................ (103,628) (3,500) - - (3,689) 110,817 - Other, net...................... 49,147 - - - (16,699) - 32,448 ----------- --------- ---------- --------- ------------ ------------- ------------ NET CASH USED IN INVESTING ACTIVITIES........................ (274,919) (3,500) - - (590,300) 110,817 (757,902) ----------- --------- ---------- --------- ------------ ------------- ------------ CASH FLOWS FROM FINANCING ACTIVITIES: Long-term borrowings............ 6,793 - 124 77 98,943 (99,075) 6,862 Payments on long-term debt...... (62,700) - - - (830) - (63,530) Dividends paid.................. (27,631) - - - - - (27,631) Common stock activity........... 7,771 3,500 3,500 - 4,742 (11,742) 7,771 Treasury stock activity, net.... (2,085) - - - - - (2,085) Cost of debt and equity transactions................... (78) - - - - - (78) Other........................... 10,679 - - - - - 10,679 ----------- --------- ---------- --------- ------------ ------------- ------------ NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES.............. (67,251) 3,500 3,624 77 102,855 (110,817) (68,012) ----------- --------- ---------- --------- ------------ ------------- ------------ NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS.............. 3,647 - - - 6,611 - 10,258 CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR................. 597 - 2 3 110,491 - 111,093 ----------- --------- ---------- --------- ------------ ------------- ------------ CASH AND CASH EQUIVALENTS AT END OF PERIOD..................... $ 4,244 $ - $ 2 $ 3 $ 117,102 $ - $ 121,351 =========== ========= ========== ========= ============ ============= ============
15 APACHE CORPORATION AND SUBSIDIARIES CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS FOR THE QUARTER ENDED MARCH 31, 2004
ALL OTHER APACHE APACHE APACHE SUBSIDIARIES APACHE NORTH FINANCE FINANCE OF APACHE RECLASSIFICATIONS CORPORATION AMERICA AUSTRALIA CANADA CORPORATION & ELIMINATIONS CONSOLIDATED ----------- --------- ---------- --------- ------------ ----------------- ------------ (IN THOUSANDS) CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES.............. $ 315,934 $ - $ (3,704) $ 205 $ 339,897 $ - $ 652,332 ----------- --------- ---------- --------- ------------ ------------- ------------ CASH FLOWS FROM INVESTING ACTIVITIES: Additions to property and equipment...................... (120,615) - - - (349,218) - (469,833) Investment in subsidiaries, net............................ (15,778) (3,500) - - (3,816) 23,094 - Other, net...................... (8,109) - - - (1,400) - (9,509) ----------- --------- ---------- --------- ------------ ------------- ------------ NET CASH USED IN INVESTING ACTIVITIES........................ (144,502) (3,500) - - (354,434) 23,094 (479,342) ----------- --------- ---------- --------- ------------ ------------- ------------ CASH FLOWS FROM FINANCING ACTIVITIES: Long-term borrowings............ 187 - 204 (204) 12,658 (12,594) 251 Payments on long-term debt...... (135,300) - - - - - (135,300) Dividends paid.................. (20,898) - - - - - (20,898) Common stock activity........... 7,534 3,500 3,500 - 3,500 (10,500) 7,534 Treasury stock activity, net.... 3,746 - - - - - 3,746 Cost of debt and equity transactions................... (673) - - - - - (673) ----------- --------- ---------- --------- ------------ ------------- ------------ NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES.............. (145,404) 3,500 3,704 (204) 16,158 (23,094) (145,340) ----------- --------- ---------- --------- ------------ ------------- ------------ NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS.............. 26,028 - - 1 1,621 - 27,650 CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR................ - - 2 1 33,500 - 33,503 ----------- --------- ---------- --------- ------------ ------------- ------------ CASH AND CASH EQUIVALENTS AT END OF PERIOD.................... $ 26,028 $ - $ 2 $ 2 $ 35,121 $ - $ 61,153 =========== ========= ========== ========= ============ ============= ============
16 APACHE CORPORATION AND SUBSIDIARIES CONDENSED CONSOLIDATING BALANCE SHEET AS OF MARCH 31, 2005
ALL OTHER APACHE APACHE APACHE SUBSIDIARIES APACHE NORTH FINANCE FINANCE OF APACHE RECLASSIFICATIONS CORPORATION AMERICA AUSTRALIA CANADA CORPORATION & ELIMINATIONS CONSOLIDATED ------------ --------- ---------- ----------- ------------ ----------------- ------------ (IN THOUSANDS) ASSETS CURRENT ASSETS: Cash and cash equivalents....... $ 4,244 $ - $ 2 $ 3 $ 117,102 $ - $ 121,351 Restricted cash................. 21,052 - - - - - 21,052 Receivables, net of allowance... 429,910 - - - 686,698 - 1,116,608 Inventories..................... 28,056 - - - 144,481 - 172,537 Drilling advances and others.... 80,303 - - - 77,156 - 157,459 ------------ --------- ---------- ----------- ------------ ------------- ------------ 563,565 - 2 3 1,025,437 - 1,589,007 ------------ --------- ---------- ----------- ------------ ------------- ------------ PROPERTY AND EQUIPMENT, NET........ 6,698,126 - - - 7,671,327 - 14,369,453 ------------ --------- ---------- ----------- ------------ ------------- ------------ OTHER ASSETS: Intercompany receivable, net.... 1,206,228 - (1,277) (253,786) (951,165) - - Goodwill, net................... - - - - 189,252 - 189,252 Equity in affiliates............ 4,523,080 271,667 519,568 1,316,970 (1,192,430) (5,438,855) - Deferred charges and other...... 43,672 - - 4,538 61,146 - 109,356 ------------ --------- ---------- ----------- ------------ ------------- ------------ $ 13,034,671 $ 271,667 $ 518,293 $ 1,067,725 $ 6,803,567 $ (5,438,855) $ 16,257,068 ============ ========= ========== =========== ============ ============= ============ LIABILITIES AND SHAREHOLDERS' EQUITY CURRENT LIABILITIES: Accounts payable................ $ 301,148 $ - $ - $ - $ 266,423 $ - $ 567,571 Other accrued expenses.......... 457,110 - 2,922 44,086 499,758 - 1,003,876 ------------ --------- ---------- ----------- ------------ ------------- ------------ 758,258 - 2,922 44,086 766,181 - 1,571,447 ------------ --------- ---------- ----------- ------------ ------------- ------------ LONG-TERM DEBT..................... 1,611,137 - 269,245 646,813 4,527 - 2,531,722 ------------ --------- ---------- ----------- ------------ ------------- ------------ DEFERRED CREDITS AND OTHER NONCURRENT LIABILITIES: Income taxes.................... 1,062,578 - (25,541) 4,385 1,110,544 - 2,151,966 Advances from gas purchasers.... 85,184 - - - - - 85,184 Asset retirement obligation..... 571,252 - - - 372,096 - 943,348 Derivative instruments.......... 134,209 - - - - - 134,209 Other........................... 188,104 - - - 27,139 - 215,243 ------------ --------- ---------- ----------- ------------ ------------- ------------ 2,041,327 - (25,541) 4,385 1,509,779 - 3,529,950 ------------ --------- ---------- ----------- ------------ ------------- ------------ COMMITMENTS AND CONTINGENCIES SHAREHOLDERS' EQUITY............... 8,623,949 271,667 271,667 372,441 4,523,080 (5,438,855) 8,623,949 ------------ --------- ---------- ----------- ------------ ------------- ------------ $ 13,034,671 $ 271,667 $ 518,293 $ 1,067,725 $ 6,803,567 $ (5,438,855) $ 16,257,068 ============ ========= ========== =========== ============ ============= ============
17 APACHE CORPORATION AND SUBSIDIARIES CONDENSED CONSOLIDATING BALANCE SHEET AS OF DECEMBER 31, 2004
ALL OTHER APACHE APACHE APACHE SUBSIDIARIES APACHE NORTH FINANCE FINANCE OF APACHE RECLASSIFICATIONS CORPORATION AMERICA AUSTRALIA CANADA CORPORATION & ELIMINATIONS CONSOLIDATED ------------ --------- ---------- ----------- ------------ ----------------- ------------ (IN THOUSANDS) ASSETS CURRENT ASSETS: Cash and cash equivalents....... $ 597 $ - $ 2 $ 3 $ 110,491 $ - $ 111,093 Receivables, net of allowance... 367,359 - - - 572,377 - 939,736 Inventories..................... 28,000 - - - 129,293 - 157,293 Drilling advances and other..... 82,837 - - - 57,823 - 140,660 ------------ --------- ---------- ----------- ------------ ------------- ------------ 478,793 - 2 3 869,984 - 1,348,782 ------------ --------- ---------- ----------- ------------ ------------- ------------ PROPERTY AND EQUIPMENT, NET........ 6,683,499 - - - 7,176,860 - 13,860,359 ------------ --------- ---------- ----------- ------------ ------------- ------------ OTHER ASSETS: Intercompany receivable, net.... 1,107,286 - (1,205) (253,724) (852,357) - - Goodwill, net................... - - - - 189,252 - 189,252 Equity in affiliates............ 4,173,788 258,437 506,806 1,250,590 (1,178,450) (5,011,171) - Deferred charges and other...... 43,460 - - 4,617 56,010 - 104,087 ------------ --------- ---------- ----------- ------------ ------------- ------------ $ 12,486,826 $ 258,437 $ 505,603 $ 1,001,486 $ 6,261,299 $ (5,011,171) $ 15,502,480 ============ ========= ========== =========== ============ ============= ============ LIABILITIES AND SHAREHOLDERS' EQUITY CURRENT LIABILITIES: Accounts payable................ $ 280,754 $ - $ - $ - $ 261,320 $ - $ 542,074 Other accrued expenses.......... 306,511 - 3,335 29,946 401,025 - 740,817 ------------ --------- ---------- ----------- ------------ ------------- ------------ 587,265 - 3,335 29,946 662,345 - 1,282,891 ------------ --------- ---------- ----------- ------------ ------------- ------------ LONG-TERM DEBT..................... 1,667,044 - 269,192 646,798 5,356 - 2,588,390 ------------ --------- ---------- ----------- ------------ ------------- ------------ DEFERRED CREDITS AND OTHER NONCURRENT LIABILITIES: Income taxes.................... 1,132,618 - (25,361) 4,233 1,035,147 - 2,146,637 Advances from gas purchasers.... 90,876 - - - - - 90,876 Asset retirement obligation..... 568,862 - - - 363,142 - 932,004 Oil and gas derivative instruments.................... 31,417 - - - - - 31,417 Other........................... 204,323 - - - 21,521 - 225,844 ------------ --------- ---------- ----------- ------------ ------------- ------------ 2,028,096 - (25,361) 4,233 1,419,810 - 3,426,778 ------------ --------- ---------- ----------- ------------ ------------- ------------ COMMITMENTS AND CONTINGENCIES SHAREHOLDERS' EQUITY............... 8,204,421 258,437 258,437 320,509 4,173,788 (5,011,171) 8,204,421 ------------ --------- ---------- ----------- ------------ ------------- ------------ $ 12,486,826 $ 258,437 $ 505,603 $ 1,001,486 $ 6,261,299 $ (5,011,171) $ 15,502,480 ============ ========= ========== =========== ============ ============= ============
18 ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS OVERVIEW Apache Corporation (Apache or the Company) reported record first-quarter 2005 earnings of $559 million, up 62 percent from the $345 million reported in the first quarter of 2004. In addition, the Company reported net cash provided by operating activities of $836 million, an increase of $184 million from the prior-year period. The improved results not only reflect higher price realizations for both crude oil and natural gas, but also production growth. Crude oil price realizations were up 51 percent over the comparable 2004 quarter to $46.05 per barrel, while gas realizations rose 11 percent to $5.30 per thousand cubic feet (Mcf). The Company's first quarter 2005 crude oil production increased 11 percent from the first quarter of 2004 to 240,543 barrels of oil per day (b/d). Our first quarter 2005 natural gas production of 1,259 million cubic feet of gas per day (MMcf/d) increased four percent from the year-earlier period, with both Egypt and Canada experiencing double-digit growth. Together, higher prices and production growth added $469 million to 2005 oil and gas production revenues and offset the impact of higher operating costs (discussed below). These financial statements should be read in conjunction with Management's Discussion and Analysis and financial statements, and the summary of significant accounting policies and notes included in the Company's 2004 Form 10-K. Highlights of the quarter include: - Record oil and gas production revenues of $1.6 billion, with nearly $1 billion in crude oil production revenues. - Following the expiration on December 31, 2004 of a $22.00 per barrel fixed-price contract on 40,000 b/d of our North Sea production, we began receiving market prices for all of our North Sea production resulting in additional revenues of $94 million in the first quarter of 2005, compared to the first quarter of 2004. - Daily equivalent production in the North Sea increased approximately 40 percent in the first quarter of this year as compared to the first quarter of 2004. Operating costs decreased 12 percent over the same period. - Oil production in Australia decreased 7,683 b/d compared to the first quarter of last year. Our Flag sandstone drilling program is now underway, which we believe will stabilize production until several larger discoveries in the Exmouth Basin come on stream in 2008. - First-quarter 2005 worldwide capital expenditures for exploration and development activity were $792 million. There were no significant acquisitions during the quarter. - Quarter-end debt as a percent of capitalization was 22.7 percent, down from 24.0 percent on December 31, 2004. - We continue to see higher industry-wide service costs, particularly in North America. The steady rise in commodity prices has driven up fuel, power and ad valorem costs, while other service costs are rising with greater demand resulting from increased activity. - On April 5, 2005, we announced two discoveries in Egypt. The Syrah 1X wildcat, on the Company's 100 percent-contractor-interest Khalda Concession, tested 46.5 MMcf/d of natural gas. The Tanzanite 1X located onshore on Apache's West Mediterranean Concession tested 5,296 b/d and 7.4 MMcf/d. Additional wells are planned for the Syrah structure, with initial production through the Company's Qasr field production facilities expected during the third quarter of 2005. Additional drilling is planned for the Tanzanite structure as well, with production commencing through the Company's North Alamein field and production facilities upon approval of a development plan by the Egyptian General Petroleum Corporation (EGPC). 19 RESULTS OF OPERATIONS REVENUES The table below presents oil and gas production revenues, production and average prices received from sales of natural gas, oil and natural gas liquids.
FOR THE QUARTER ENDED MARCH 31, --------------------------------------------------- INCREASE 2005 2004 (DECREASE) -------------- -------------- ---------- Revenues (in thousands): Oil.................................................. $ 996,997 $ 602,635 65% Natural gas.......................................... 600,950 526,854 14% Natural gas liquids.................................. 28,702 23,265 23% -------------- -------------- Total........................................... $ 1,626,649 $ 1,152,754 41% ============== ============== Oil Volume - Barrels per day: United States........................................ 73,630 67,255 9% Canada............................................... 23,277 25,266 (8%) Egypt................................................ 54,579 49,097 11% Australia............................................ 15,976 23,658 (32%) North Sea............................................ 61,870 44,299 40% China................................................ 10,507 7,440 41% Argentina............................................ 704 552 28% -------------- -------------- Total........................................... 240,543 217,567 11% ============== ============== Average Oil Price - Per barrel: United States........................................ $ 44.00 $ 32.36 36% Canada............................................... 47.14 33.00 43% Egypt................................................ 48.77 31.34 56% Australia............................................ 52.99 34.86 52% North Sea............................................ 46.10 22.72 103% China................................................ 33.91 30.12 13% Argentina............................................ 33.97 33.44 2% Total........................................... 46.05 30.44 51% Natural Gas Volume - Mcf per day: United States........................................ 637,803 644,462 (1%) Canada............................................... 346,742 314,064 10% Egypt................................................ 155,328 128,665 21% Australia............................................ 113,734 118,822 (4%) North Sea............................................ 2,178 1,602 36% China................................................ - - - Argentina............................................ 3,473 5,160 (33%) -------------- -------------- Total........................................... 1,259,258 1,212,775 4% ============== ============== Average Natural Gas Price - Per Mcf: United States........................................ $ 6.04 $ 5.35 13% Canada............................................... 5.59 5.09 10% Egypt................................................ 4.30 4.10 5% Australia............................................ 1.82 1.70 7% North Sea............................................ 5.30 4.34 22% China................................................ - - - Argentina............................................ 0.91 0.47 94% Total........................................... 5.30 4.77 11% Natural Gas Liquids (NGL) - Barrels per day: United States..................................... 9,104 8,128 12% Canada............................................ 2,419 2,598 (7%) -------------- -------------- Total........................................... 11,523 10,726 7% ============== ============== Average NGL Price - Per barrel: United States..................................... $ 28.26 $ 25.27 12% Canada............................................ 25.46 19.34 32% Total........................................... 27.68 23.83 16%
20 The following table presents each reportable segment's oil revenues and gas revenues as a percentage of total oil revenues and gas revenues, respectively.
OIL REVENUES GAS REVENUES FOR THE QUARTER ENDED FOR THE QUARTER ENDED MARCH 31, MARCH 31, --------------------- --------------------- 2005 2004 2005 2004 ---- ---- ---- ---- United States.......................................... 29% 33% 58% 59% Canada................................................. 10% 13% 29% 28% Egypt.................................................. 24% 23% 10% 9% Australia.............................................. 8% 13% 3% 4% North Sea.............................................. 26% 15% - - Other International.................................... 3% 3% - - --- --- --- --- Total............................................ 100% 100% 100% 100% === === === ===
Crude Oil Contribution The percentage of total crude oil revenues from outside the U.S. increased to 71 percent in the first quarter of 2005 from 67 percent in the first quarter of 2004. The increase in the contribution of our international operations to our consolidated oil revenues was driven by the North Sea, which contributed 26 percent in the first quarter of 2005 compared to 15 percent in the first quarter of 2004. Also, Egypt's share rose one percent to 24 percent. Crude Oil Revenues The Company added $394 million to first-quarter crude oil revenues with a $15.61 per barrel increase in our crude oil price realization generating an additional $309 million of revenues. An 11 percent increase in our production added the remaining $85 million in revenues. Each of our core operating segments reported a significant increase in realized oil price, with the North Sea, the U.S., Egypt and China also benefiting from production growth. The North Sea's price realization increased 103 percent generating $94 million of additional revenues when compared to the first quarter of 2004, following expiration of the physical fixed-price contract entered into in conjunction with our 2003 acquisition from BP p.l.c. (BP). North Sea production increased 17,571 b/d, to 61,870 b/d, adding $71 million of crude oil revenues. The production growth reflects the success of our drilling programs at Echo and Bravo and results from our Delta platform workover program. Egypt added approximately $78 million of revenues from a 56 percent increase in crude oil price realizations and an additional $22 million of revenues from an 11 percent, or 5,482 b/d, increase in production. The production growth was primarily the result of successful drilling and exploitation programs at our Khalda, East Bahariya and Northeast Abu Gharadig (NEAG) concessions. Oil revenues in the U.S. increased $93 million from the same period last year from a nine percent increase in production and a 36 percent increase in price. Higher realized prices, which were reduced $1.11 per barrel because of hedges on a portion of production acquired from Exxon Mobil Corporation and its affiliates (ExxonMobil) and Anadarko Petroleum Corporation (Anadarko), added $71 million to revenues. (See Note 2, Hedging and Derivative Instruments of this Form 10-Q.) Production was up 6,375 b/d, increasing revenues $22 million in the U.S., from the ExxonMobil and Anadarko acquisitions in the latter half of 2004, successful drilling and recompletion programs, and exploitation activities primarily on properties purchased from Shell Exploration and Production Company and BP in 2003. These increases more than offset production declines and an average of approximately 5,700 b/d shut-in because of Hurricane Ivan this quarter. We still had approximately 3,400 b/d shut-in at quarter's end from Hurricane Ivan, but we expect to have all of the shut-in production back on-line by the end of the third quarter of 2005. Canada's revenues increased $23 million, as the impact of a 43 percent increase in price from the comparable period was partially offset by an eight percent, or 1,989 b/d, decrease in oil production. Canada production was down on declines at Midale and Snipe Lake and a turnaround at Karr Simonette, which is non-operated. 21 China added $12 million to consolidated crude oil revenues primarily on 3,067 b/d increase in production. The production growth resulted from several new successful wells drilled over the last 12 months and the fact that production was still ramping up in the first quarter of 2004. Australia's quarter-over-quarter crude oil revenues were essentially flat as a 52 percent increase in realized prices was offset by a 32 percent decline in production. The lower production is related to natural decline and increasing water production from the Legendre and Stag fields and significant declines in condensate production at East Spar. These declines more than offset the positive impact of first production from several new wells that came on-line in 2004 and first production from the Albert-1 well which came on-line in March of this year. In April, we began a 15-well Flag sandstone program which we believe will stabilize oil production until our larger Exmouth Basin discoveries come on-line in 2008. Approximately six percent and eight percent of our worldwide crude oil production was subject to financial derivative hedging for first-quarter 2005 and 2004, respectively. (See Note 2, Hedging and Derivative Instruments of this Form 10-Q for a summary of the current derivative positions and terms.) These derivative financial instruments reduced our first-quarter 2005 and 2004 realized price $.34 per barrel and $.60 per barrel, respectively. Also, during 2004 we amortized specific unrealized gains and losses related to derivative positions closed in October and November 2001. This amortization had a negligible impact on first-quarter 2004 average realized prices. Natural Gas Contribution Our North America operations continue to contribute a significant portion of our consolidated natural gas revenues. In the first quarter of 2005, 87 percent of Apache's natural gas revenues came from North America, unchanged from the comparable prior-year quarter. The U.S. contributed 58 percent, down one percent, while Canada contributed 29 percent up one percent. Egypt's contribution to total gas revenues increased one percent to 10 percent on strong production growth and higher prices. Australia's contribution decreased one percent on lower production. Natural Gas Revenues Our first-quarter 2005 natural gas revenues increased $74 million from the prior-year quarter as a $.53 per Mcf increase in our average natural gas price realization generated an additional $58 million of revenues. Higher production added the remaining $16 million. While all of our operating segments reported an increase in realized natural gas prices, 93 percent of the additional revenues attributable to price came from the U.S. and Canada. The additional revenues attributable to production were generated in Egypt and Canada. Higher prices in the U.S. added $40 million to consolidated natural gas revenues, while a 6.7 MMcf/d decline in U.S. production lowered revenues $8 million. The lower U.S. production was focused in the Gulf Coast region where increased production from the Anadarko acquisition was offset by natural decline in mature fields and the lingering impact of Hurricane Ivan, which averaged 19.7 MMcf/d of shut-in production in the quarter. Canada's revenues increased $29 million, balanced between higher prices and production growth. Production increased 32.7 MMcf/d reflecting results of our drilling program, with the largest gains coming from Nevis, Hatton, Consort, Brownfield and the Exxon Grant Lands. Egypt added $12 million to consolidated revenues on a 26.7 MMcf/d increase in production and a five percent improvement in prices. The increase in production was attributable to new discoveries on the Khalda Concession which enabled higher utilization at the Salam and Tarek gas plants and first gas sales at the Northeast Abu Gharadig Concession following completion of the three phase pipeline and connection to the Badr el Din gas plant. Although a majority of our worldwide sales contracts are indexed to prevailing market prices, approximately 10 percent of our first-quarter production was subject to long-term, fixed-price physical contracts up from nine percent in the prior-year quarter. These contracts apply to a small portion of our U.S. future natural gas production and provide a measure of protection to the Company in the event of decreasing natural gas prices. These fixed-price contracts reduced our first-quarter realized prices for 2005 and 2004 by $.11 and $.09 per Mcf, respectively. Additionally, nearly all of our Australian natural gas production is subject to long-term, fixed-price supply contracts that are periodically adjusted for changes in Australia's consumer price index. They are also impacted by changes in the value of the Australian dollar relative to the U.S. dollar. 22 Approximately 12 percent and 16 percent of our worldwide natural gas production was subject to financial derivative hedges for first-quarter 2005 and 2004, respectively. These derivative financial instruments added $.02 per Mcf to our first - quarter 2005 realized price and reduced our first-quarter 2004 realized price $.07 per Mcf. (See Note 2, Hedging and Derivative Instruments, of this Form 10-Q for a summary of our current derivative positions and terms.) Also during the 2004 quarter, we amortized specific unrealized gains and losses related to derivative positions closed in October and November 2001. This amortization had a negligible impact on first-quarter 2004 average realized prices. COSTS The table below presents a comparison of our expenses on an absolute dollar basis and an equivalent unit of production (boe) basis. Our discussion may reference either expenses on a boe basis or expenses on an absolute dollar basis, or both, depending on their relevance. First-quarter 2005 costs reflect the impact of our ExxonMobil and Anadarko acquisitions closed in the latter half of 2004, whereas the first quarter of 2004 does not.
FOR THE QUARTER ENDED FOR THE QUARTER ENDED MARCH 31, MARCH 31, --------------------- --------------------- 2005 2004 2005 2004 -------- -------- -------- -------- (In millions) (Per Boe) Depreciation, depletion and amortization (DD&A): Oil and gas property and equipment....................... $ 320 $ 268 $ 7.69 $ 6.85 Other assets............................................. 20 18 .47 .46 Asset retirement obligation accretion......................... 13 11 .32 .27 Lease operating costs (LOE)................................... 233 208 5.61 5.32 Gathering and transportation costs............................ 24 20 .57 .50 Severance and other taxes..................................... 72 9 1.74 .23 General and administrative expense (G&A)...................... 50 46 1.21 1.18 Financing costs, net.......................................... 32 27 .76 .69 -------- -------- -------- -------- Total......................................... $ 764 $ 607 $ 18.37 $ 15.50 ======== ======== ======== ========
Depreciation, Depletion and Amortization First-quarter 2005 full-cost DD&A expense of $320 million is $52 million higher than 2004, one-third ($17 million) of which is attributable to volume growth. The balance was primarily attributable to higher drilling costs, as our first-quarter full-cost DD&A rate increased $.84 per boe, to $7.69, from the same quarter last year reflecting an increase in the rate per boe in all segments except for Egypt. The increase in costs impacted all segments, U.S. and Canada most heavily, and is primarily attributable to high commodity prices over the past year which have led to increased demand for drilling services and thus higher drilling and estimated future development costs. In addition, the cost of properties acquired from ExxonMobil and Anadarko were higher than our historical cost as high commodity prices have increased the costs of properties available for acquisition. Mitigating the impact of higher rates in all other segments was a decrease in the rate in Egypt, where several larger discoveries more than offset the impact of higher drilling costs in Egypt. Lease Operating Costs LOE increased $25 million from the first quarter of last year to $233 million in the first quarter of 2005. The increase was driven by acquisitions of producing properties from ExxonMobil and Anadarko, more workover activity in North America, primarily on the acquired properties, and higher service costs, as indicated in the LOE per boe discussion that follows. These increases were partially offset by a decrease in absolute costs in the North Sea, where initiatives to manage costs and increase efficiencies have paid off, and on lower workover activity in China. First quarter 2005 LOE per boe increased $.29 to $5.61 per boe from the same quarter last year with higher rates in North America and Australia increasing the worldwide rate $.62 and $.12 per boe, respectively, and rate decreases in the North Sea, Egypt and China lowering the worldwide rate $.34, $.07 and $.05 per boe, respectively. The increase in the North American per unit rate was primarily attributable to higher industry-wide service costs, driven by a steady rise in commodity prices since the first quarter of last year. Historically, electricity, fuel and ad valorem costs have been directly impacted by rising commodity prices. Other service costs have historically risen as a result of increased activity, and hence demand, in high commodity price environments. Also contributing to the higher rate was an increase in workover activity in North America, primarily on properties acquired from 23 ExxonMobil and Anadarko in the second half of last year. This combination led to higher absolute costs than the same period last year and more than offset the positive impact of higher North American production on the rate. In addition, lower production in Australia offset a slight decline in absolute costs, resulting in a higher rate per boe. Partially offsetting the impact of the higher rates in North America and Australia, were decreases in the rates in the Company's other operating areas. In the North Sea, the per unit rate declined as a result of the Company's ongoing investments aimed at increasing production and lower operating costs. Daily equivalent production in the North Sea increased approximately 40 percent in the first quarter of this year as compared to the first quarter of 2004, while absolute costs decreased 12 percent over the same period. In addition, our worldwide rate was favorably impacted by lower rates in Egypt resulting from a 14 percent increase in production compared to a three percent increase in absolute costs and in China where we had a 41 percent increase in production coupled with an 18 percent decrease in absolute costs. For more detailed discussion of production, refer to "Results of Operations - Revenues" of this Management's Discussion and Analysis of Financial Condition and Results of Operations. Gathering and Transportation Costs Gathering and transportation costs totaled $24 million in the first quarter of 2005, up $4 million from the 2004 comparative quarter. The following table presents gathering and transportation costs paid directly by Apache to third-party carriers for each of the periods presented.
FOR THE QUARTER ENDED MARCH 31, --------------------- 2005 2004 ------- ------- (In millions) U.S........................................ $ 8 $ 8 Canada..................................... 8 7 North Sea.................................. 7 5 Egypt...................................... 1 - ------- ------- Total Gathering and Transportation......... $ 24 $ 20 ======= =======
For the first quarter of 2005 and 2004, these costs are primarily related to the transportation of natural gas in our North American operations and transportation of oil in the North Sea. The increase in costs from the first quarter of 2004 was driven by production growth in the North Sea and Canada and costs incurred to transport cargoes of Egyptian crude. These were the first exported cargoes from Egypt for which Apache arranged the shipping and paid transportation to a third-party, and received a price from our purchaser with no transportation deducts. Severance and Other Taxes First quarter 2005 severance and other taxes totaled $72 million, $63 million greater than the prior-year quarter. A detail of these taxes follows:
2005 2004 ------- -------- (In millions) Severance taxes.......................... $ 30 $ 20 U.K. PRT................................. 37 (17) Canadian taxes........................... 5 5 Other.................................... - 1 ------- -------- Total Severance and Other Taxes.......... $ 72 $ 9 ======= ========
Severance taxes are incurred in the U.S. and Australia and increased $6 million and $4 million, respectively. U.S. severance taxes are driven by higher prices and thus revenues, while the Australian increase primarily reflects excise tax on Legendre. North Sea Petroleum Revenue Tax (PRT) is assessed on net profits from subject fields in the United Kingdom (U.K.) North Sea. PRT increased $54 million quarter-over-quarter following expiration at 24 year-end 2004 of a $22 physical fixed-price contract on 40,000 b/d. The PRT credit, in 2004, reflected qualifying capital spending and lifting costs that exceeded associated revenues. General and Administrative Expense G&A costs were $4 million higher compared to the first quarter of 2004. The additional cost is related to the impact Apache's rising common stock price has on stock-based compensation expense. Provision for Income Taxes First-quarter 2005 income tax expense was $141 million greater than the prior-year quarter. The additional income tax expense was driven by higher taxable income related to the increased revenues. A slightly higher effective tax rate also contributed to the higher taxes. The current quarter effective tax rate was largely unaffected by foreign currency charges. CAPITAL RESOURCES AND LIQUIDITY FINANCIAL INDICATORS
MARCH 31, DECEMBER 31, 2005 2004 --------- ------------ Current ratio.................................... 1.01 1.05 Total debt (in millions)......................... $ 2,532 $ 2,588 Shareholders' equity (in millions)............... $ 8,624 $ 8,204 Percent of total debt to capitalization.......... 22.7% 24.0% Floating-rate debt/total debt.................... 13% 15%
OVERVIEW Apache's primary uses of cash are exploration, development and acquisition of oil and gas properties, costs and expenses necessary to maintain continued operations, repayment of principal and interest on outstanding debt and payment of dividends. The Company funds its exploration and development activities primarily through net cash provided by operating activities (cash flow) and budgets capital expenditures based on projected cash flow. Our cash flow, both in the short-term and long-term, is impacted by highly volatile oil and natural gas prices, production levels, industry trends impacting operating expenses and drilling costs and our ability to continue to acquire or find high-margin reserves at competitive prices. For these reasons, we only forecast, for internal use by management, an annual cash flow. Longer term cash flow and capital spending projections are not used by management to operate our business. The annual cash flow forecasts are revised monthly in response to changing market conditions and production projections. Apache routinely adjusts capital expenditure budgets in response to the adjusted cash flow forecasts and market trends in drilling and acquisitions costs. The Company has historically utilized internally generated cash flow, committed and uncommitted credit facilities and access to both debt and equity capital markets for all other liquidity and capital resources needs. Apache's ability to access the debt capital market is supported by its investment grade credit ratings. Apache's senior unsecured debt is currently rated investment grade by Moody's, Standard and Poor's and Fitch with ratings of A3, A- and A, respectively. Because of the liquidity and capital resources alternatives available to Apache, including internally generated cash flows, Apache's management believes that its short-term and long-term liquidity will be adequate to fund operations, including its capital spending program, repayment of debt maturities and any amounts that may ultimately be paid in connection with contingencies. The Company's ratio of current assets to current liabilities was 1.01 at March 31, 2005, compared to 1.05 at December 31, 2004. The decrease in the ratio is the result of an increase in current liabilities of $289 million at March 31, 2005 as compared to December 31, 2004, which exceeded an increase in current assets of $240 million for the same period. The increase in current liabilities was primarily attributable to higher accrued exploration and development costs, a result of increased drilling activity, and an increase in the accrued liability for derivative instruments stemming from higher commodity prices at March 31, 2005 than at December 31, 2004. The increase in current assets was driven by an increase in receivables and drilling advances. The increase in receivables was 25 primarily attributable to higher oil and gas revenue receivables, resulting from higher commodity prices, and higher joint owner receivables. The increase in joint owner receivables and drilling advances is associated with increased drilling activities and higher production and drilling costs. NET CASH PROVIDED BY OPERATING ACTIVITIES Apache's net cash provided by operating activities for the first quarter of 2005 totaled $836 million, up from $652 million for the same period in 2004. The increase in 2005 cash flow is attributed primarily to the significant increase in commodity prices, which generated additional oil and gas revenues. The Company's average realized crude oil price increased 51 percent, a reflection of generally higher worldwide prices. The Company also saw an 11 percent increase in natural gas prices. Additional revenues generated from an 11 percent increase in crude oil production and a four percent increase in gas production also contributed to the increased cash flows. These increases were partially offset by higher LOE, severance taxes, U.K. PRT and higher income taxes, all of which are generally up because of higher commodity prices. The Company reviews production costs for each core area on a monthly basis and pursues alternatives in maintaining efficient levels of costs and expenses. For a more detailed discussion of commodity prices, production, costs and expenses, refer to the "Results of Operations" of this Management's Discussion and Analysis of Financial Condition and Results of Operations. Historically, fluctuations in commodity prices have been the primary reason for the Company's short-term changes in cash flow from operating activities. Sales volume changes have also impacted cash flow in the short-term, but have not been as volatile as commodity prices have in the past. Apache's long-term cash flow from operating activities is dependent on commodity prices, reserve replacement and the level of costs and expenses required for continued operations. DEBT During the first quarter of 2005, we continued to strengthen our financial flexibility and build on our solid financial position. Our debt-to-capitalization ratio on March 31, 2005, declined to 22.7 percent from 24.0 percent on December 31, 2004, as a result of slightly lower debt and additional equity from earnings. On March 31, 2005, the Company had long-term debt of $2.5 billion, $57 million less than December 31, 2004. The Company's outstanding debt consisted of $340 million under our commercial paper program and a total of $2.19 billion of other debt. This other debt included notes and debentures maturing in the years 2006 through 2096. The Company has available a $1.2 billion commercial paper program which enables Apache to borrow funds for up to 270 days at competitive interest rates. The commercial paper balance of $340 million on March 31, 2005 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 its U.S. credit facilities. There was no commercial paper outstanding on March 31, 2004. If the Company is unable to issue commercial paper following a significant credit downgrade or dislocation in the market, the Company's U.S. credit facilities are available as a 100 percent backstop. The weighted-average interest rate for commercial paper was 2.52 percent and 1.07 percent for the first quarter of 2005 and 2004, respectively. As of March 31, 2005, available borrowing capacity under our credit facilities was $1.16 billion. We had $121 million in cash and cash equivalents on hand at March 31, 2005, up $10 million from the $111 million available at the end of 2004. The Company was in compliance with the terms of the credit facilities as of March 31, 2005. The Company is currently syndicating a new $450 million revolving bank credit facility for the U.S., a $150 million revolving bank credit facility for Australia and a $150 million revolving bank credit facility for Canada, which will replace the Company's existing credit facilities in the same amounts which are scheduled to mature in June 2007. The new facilities offer more favorable pricing and will mature in May 2010. The terms will be substantially the same as the existing credit facilities. STOCK TRANSACTIONS The Company has used access to equity capital markets to fund significant acquisitions. 26 OIL AND GAS CAPITAL EXPENDITURES The Company funded its exploration and production capital expenditures, including gathering, transportation and marketing facilities, of $904 million and $528 million in the first quarter of 2005 and 2004, respectively, primarily with internally generated cash flow of $836 million and $652 million, respectively, and its lines of credit and commercial paper program. The following table presents a summary of the Company's capital expenditures for each of our reportable segments for the three months ended March 31, 2005 and 2004.
FOR THE QUARTER ENDED MARCH 31, --------------------- 2005 2004 --------- --------- (In thousands) Exploration and development: United States............................................. $ 213,285 $ 149,335 Canada.................................................... 316,149 193,029 Egypt..................................................... 78,104 63,666 Australia................................................. 57,441 32,165 North Sea................................................. 118,856 67,005 Other International....................................... 7,946 1,238 --------- --------- $ 791,781 $ 506,438 ========= ========= Capitalized Interest............................................. $ 13,409 $ 13,650 ========= ========= Gas gathering, transmission and processing facilities............ $ 92,635 $ 20,321 ========= ========= Acquisitions: Oil and gas properties.................................... $ 19,949 $ 1,329 ========= =========
CASH DIVIDEND PAYMENTS The Company has paid cash dividends on its common stock for 40 consecutive years through 2004. Future dividend payments will depend on the Company's level of earnings, financial requirements and other relevant factors. Common dividends paid during the first quarter of 2005 rose to $26 million, reflecting the increase in common shares outstanding and the higher common stock dividend rate. The Company increased its quarterly cash dividend 33 percent, to eight cents per share from six cents per share, effective with the November 2004 dividend payment. During the first quarter of 2005, Apache paid a total of $1.4 million in dividends on its Series B Preferred Stock issued in August 1998. CONTRACTUAL OBLIGATIONS We are subject to various financial obligations and commitments in the normal course of operations. These contractual obligations represent known future cash payments that we are required to make and relate primarily to long-term debt, operating leases, pipeline transportation commitments and international commitments. The Company expects to fund these contractual obligations with cash generated from operating activities. Apache is also subject to various contingent obligations that become payable only if certain events or rulings were to occur. The inherent uncertainty surrounding the timing of and monetary impact associated with these events or rulings prevents any meaningful accurate measurement, which is necessary to assess any impact on future liquidity. Such obligations include environmental contingencies and potential settlements resulting from litigation. Apache's management believes that it has adequately reserved for its contingent obligations. The Company has reserved approximately $11 million for environmental remediation and approximately $11 million for various legal liabilities. In addition, the Company recorded $71 million, plus accrued interest of $4.8 million for the Texaco China B.V. litigation. The Company's future liquidity could be impacted by a significant downgrade of its credit ratings by Moody's, Standard and Poor's, and Fitch; however, we do not believe that such a sharp downgrade is reasonably likely. The Company's credit facilities do not require the Company to maintain a minimum credit rating. In addition, generally under our commodity hedge agreements, Apache may be required to post margin or terminate outstanding positions 27 if the Company's credit ratings decline significantly. The negative covenants associated with our debt are outlined in greater detail in Item 7, Management's Discussion and Analysis of Financial Condition and Results of Operations, "Capital Resources and Liquidity, Debt" in the Company's 2004 Form 10-K. OFF-BALANCE SHEET ARRANGEMENTS Apache does not currently utilize any off-balance sheet arrangements with unconsolidated entities to enhance liquidity and capital resource positions. ITEM 3 - QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK COMMODITY RISK The major market risk exposure is in the pricing applicable to our oil and gas production. Realized pricing is primarily driven by the prevailing worldwide price for crude oil and spot prices applicable to our United States and Canadian natural gas production. Prices received for oil and gas production have been and remain volatile and unpredictable. Average monthly oil price realizations, including the impact of fixed-price contracts and hedges, ranged from a low of $42.63 per barrel to a high of $51.16 per barrel during the first quarter of 2005. Average monthly gas price realizations, including the impact of fixed-price contracts and hedges, ranged from a monthly low of $5.16 per Mcf to a monthly high of $5.44 per Mcf during the same period. Based on the Company's worldwide oil production levels, a $1.00 per barrel change in the weighted-average realized price of oil would increase or decrease revenues by $22 million. Based on the Company's worldwide gas production levels, a $.10 per Mcf change in the weighted-average realized price of gas would increase or decrease revenues by $11 million. We periodically enter into hedges in conjunction with selected acquisitions to protect against commodity price volatility. These hedges effectively reduce price risk on a portion of our projected oil and natural gas production from acquisitions. On March 31, 2005, the Company had open natural gas derivative positions with a fair value of $(125) million. A 10 percent increase in natural gas prices would change the fair value by $(44) million. A 10 percent decrease in prices would change the fair value by $42 million. The Company also had open oil derivative positions with a fair value of $(136) million on March 31, 2005. A 10 percent increase in crude oil prices would change the fair value by $(41) million. A 10 percent decrease in prices would change the fair value by $40 million. See Note 2, Hedging and Derivative Instruments of this Form 10-Q, for notional volumes associated with the Company's derivative contracts. INTEREST RATE RISK The Company considers its interest rate risk exposure to be minimal as a result of fixing interest rates on approximately 87 percent of the Company's debt. At March 31, 2005, total debt included $340 million of floating-rate debt. As a result, Apache's annual interest costs in 2005 will fluctuate based on short-term interest rates on approximately 13 percent of its total debt outstanding at March 31, 2005. The impact on cash flow of a 10 percent change in the floating interest rate would be approximately $250,000 per quarter. 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. In Australia, oil production is sold under U.S. dollar contracts and natural gas production is sold under fixed-price Australian dollar contracts. Over half the costs incurred for Australian operations are paid in Australian dollars. In Canada, the majority of oil and natural gas production is sold under Canadian dollar contracts. The majority of the costs incurred are paid in Canadian dollars. The North Sea oil production is sold under U.S. dollar contracts and the majority of costs incurred are paid in British pounds. In contrast, all oil and natural gas production in Egypt is sold for U.S. dollars and the majority of the costs incurred are denominated in U.S. dollars. Revenue and disbursement transactions denominated in Australian dollars, Canadian dollars and British pounds are converted to U.S. dollar equivalents based on the exchange rate as of the transaction date. 28 A 10 percent strengthening of the Australian and Canadian dollars and the British pound as of March 31, 2005 would result in a foreign currency net loss of approximately $101 million. This is primarily driven from foreign currency effects on the Company's deferred tax liability positions in its international operations. The Company hedged a portion of its foreign exchange risk associated with lease operating expenditures for 2005. For information on open derivative contracts, please see Note 2, Hedging and Derivative Instruments of this Form 10-Q. The information set forth under "Commodity Risk," "Interest Rate Risk" and "Foreign Currency Risk" in Item 7A of our annual report on Form 10-K for the year ended December 31, 2004, is incorporated herein by reference. Information about market risks for the quarter ended March 31, 2005, does not differ materially from the disclosure in our 2004 Form 10-K, except as noted above. 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 may make use of futures contracts, swaps, options and fixed-price physical contracts to mitigate risk, fluctuations in oil and natural gas prices or a prolonged continuation of low prices, may adversely affect the Company's financial position, results of operations and cash flows. ITEM 4 - CONTROLS AND PROCEDURES DISCLOSURE CONTROLS AND PROCEDURES G. Steven Farris, the Company's President, Chief Executive Officer and Chief Operating Officer, and Roger B. Plank, the Company's Executive Vice President and Chief Financial Officer, evaluated the effectiveness of our disclosure controls and procedures as of March 31, 2005, the end of the period covered by this report. Based on that evaluation and as of the date of that evaluation, these officers concluded that the Company's disclosure controls were effective, providing effective means to insure that information we are required to disclose under applicable laws and regulations is recorded, processed, summarized and reported in a timely manner. We also made no significant changes in internal controls over financial reporting during the quarter ending March 31, 2005, that have materially affected, or are reasonably likely to materially affect, the Company's internal control over financial reporting. We periodically review the design and effectiveness of our disclosure controls, including compliance with various laws and regulations that apply to our operations both inside and outside the United States. We make modifications to improve the design and effectiveness of our disclosure controls, and may take other corrective action, if our reviews identify deficiencies or weaknesses in our controls. MANAGEMENT'S REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING The management report called for by Item 308(a) of Regulation S-K is incorporated herein by reference to Report of Management on Internal Control Over Financial Reporting, included on Page F-1 in Item 15 of the Company's 2004 Form 10-K. The independent auditors attestation report called for by Item 308(b) of Regulation S-K is incorporated by reference to Report of Independent Registered Public Accounting Firm on Internal Control Over Financial Reporting, included on Page F-3 in Item 15 of the Company's 2004 Form 10-K. 29 CHANGES IN INTERNAL CONTROL OVER FINANCIAL REPORTING There was no change in our internal controls over financial reporting during the period covered by this quarterly Report on Form 10-Q that materially affected, or is reasonably likely to materially affect, our internal controls over financial reporting. 30 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, 2004 (filed with the SEC on March 16, 2005) is incorporated herein by reference. ITEM 2. CHANGES IN SECURITIES, USE OF PROCEEDS AND ISSUER PURCHASES OF EQUITY SECURITIES None ITEM 3. DEFAULTS UPON SENIOR SECURITIES None ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS None ITEM 5. OTHER INFORMATION None ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K (a) Exhibits 12.1 - Statement of computation of ratio of earnings to fixed charges and combined fixed charges and preferred stock dividends. 31.1 - Certification of Chief Executive Officer. 31.2 - Certification of Chief Financial Officer. 32.1 - Certification of Chief Executive Officer and Chief Financial Officer. (b) Reports filed on Form 8-K None. 31 SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. APACHE CORPORATION Dated: May 9, 2005 /s/ ROGER B. PLANK ------------------------------------ Roger B. Plank Executive Vice President and Chief Financial Officer Dated: May 9, 2005 /s/ THOMAS L. MITCHELL ------------------------------------ Thomas L. Mitchell Vice President and Controller (Chief Accounting Officer) EXHIBIT INDEX
Exhibits 12.1 - Statement of computation of ratio of earnings to fixed charges and combined fixed charges and preferred stock dividends. 31.1 - Certification of Chief Executive Officer. 31.2 - Certification of Chief Financial Officer. 32.1 - Certification of Chief Executive Officer and Chief Financial Officer.
EX-12.1 2 h25218exv12w1.txt COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES 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)
QUARTER ENDED MARCH 31, ----------------- 2005 2004 2004 2003 2002 2001 2000 -------- -------- ---------- ---------- ---------- ---------- ---------- EARNINGS Pretax income from continuing operations before preferred interests of subsidiaries................... $898,580 $542,929 $2,663,083 $1,930,925 $ 915,194 $1,206,863 $1,203,681 Add: Fixed charges excluding capitalized interest and preferred interest requirements of consolidated subsidiaries.......................................... 36,613 31,479 134,797 132,820 128,730 134,484 116,190 -------- -------- ---------- ---------- ---------- ---------- ---------- Adjusted Earnings....................................... $935,193 $574,408 $2,797,880 $2,063,745 $1,043,924 $1,341,347 $1,319,871 ======== ======== ========== ========== ========== ========== ========== FIXED CHARGES AND PREFERRED STOCK DIVIDENDS Interest expense including capitalized interest (1)..... $ 45,266 $ 40,549 $ 168,090 $ 173,045 $ 155,667 $ 178,915 $ 168,121 Amortization of debt expense............................ 658 567 2,471 2,163 1,859 2,460 2,726 Interest component of lease rental expenditures (2)..... 4,098 4,013 14,984 14,458 11,895 9,858 7,343 Preferred interest requirements of consolidated subsidiaries (3)...................................... - - - 11,805 19,581 8,608 - -------- -------- ---------- ---------- ---------- ---------- ---------- Fixed charges........................................... 50,022 45,129 185,545 201,471 189,002 199,841 178,190 Preferred stock dividend requirements (4)............... 2,277 2,226 9,058 9,968 17,540 32,495 33,386 -------- -------- ---------- ---------- ---------- ---------- ---------- Combined Fixed Charges and Preferred Stock Dividends.... $ 52,299 $ 47,355 $ 194,603 $ 211,439 $ 206,542 $ 232,336 $ 211,576 ======== ======== ========== ========== ========== ========== ========== Ratio of Earnings to Fixed Charges........................ 18.70 12.73 15.08 10.24 5.52 6.71 7.41 ======== ======== ========== ========== ========== ========== ========== Ratio of Earnings to Combined Fixed Charges and Preferred Stock Dividends............................... 17.88 12.13 14.38 9.76 5.05 5.77 6.24 ======== ======== ========== ========== ========== ========== ==========
- -------------------- (1) The Company did not receive a tax benefit for $5 million of transaction costs written off to interest expense when the Company retired its preferred interests of subsidiaries in September 2003. Given the non-deductibility of the charge, $9 million of pre-tax income was required to cover the $5 million write-off. Accordingly, interest expense has been grossed up by $4 million. (2) 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 percent applies to rental payments for all periods presented. (3) The Company did not receive a tax benefit for a portion of its preferred interests of consolidated subsidiaries. This amount represents the pre-tax earnings that would be required to cover preferred interests requirements of consolidated subsidiaries. In September 2003, the Company retired its preferred interests of subsidiaries. (4) The Company does not receive a tax benefit for its preferred stock dividends. This amount represents the pre-tax earnings that would be required to cover its preferred stock dividends. EX-31.1 3 h25218exv31w1.txt CERTIFICATION OF CEO EXHIBIT 31.1 CERTIFICATIONS I, G. Steven Farris, certify that: 1. I have reviewed this quarterly report on Form 10-Q of Apache Corporation; 2. Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report; 3. Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this quarterly report; 4. The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have: (a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; (b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; (c) Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and (d) Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and 5. The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions): (a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information ; and (b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting. /s/ G. Steven Farris - -------------------------------------- G. Steven Farris President, Chief Executive Officer and Chief Operating Officer Date: May 9, 2005 EX-31.2 4 h25218exv31w2.txt CERTIFICATION OF CFO EXHIBIT 31.2 CERTIFICATIONS I, Roger B. Plank, certify that: 1. I have reviewed this quarterly report on Form 10-Q of Apache Corporation; 2. Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report; 3. Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this quarterly report; 4. The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have: (a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; (b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; (c) Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and (d) Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and 5. The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions): (a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and (b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting. /s/ Roger B. Plank - ----------------------------------------------------- Roger B. Plank Executive Vice President and Chief Financial Officer Date: May 9, 2005 EX-32.1 5 h25218exv32w1.txt CERTIFICATION OF CEO & CFO EXHIBIT 32.1 APACHE CORPORATION CERTIFICATION OF CHIEF EXECUTIVE OFFICER AND CHIEF FINANCIAL OFFICER I, G. Steven Farris, certify that the Quarterly Report of Apache Corporation on Form 10-Q for the quarterly period ending March 31, 2005, fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934 (15 U.S.C. Section 78m or Section 78o (d)) and that information contained in such report fairly represents, in all material respects, the financial condition and results of operations of Apache Corporation. /s/ G. Steven Farris - ----------------------------------------- By: G. Steven Farris Title: President, Chief Executive Officer and Chief Operating Officer I, Roger B. Plank, certify that the Quarterly Report of Apache Corporation on Form 10-Q for the quarterly period ending March 31, 2005, fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934 (15 U.S.C. Section 78m or Section 78o (d)) and that information contained in such report fairly represents, in all material respects, the financial condition and results of operations of Apache Corporation. /s/ Roger B. Plank - ---------------------------------- By: Roger B. Plank Title: Executive Vice President and Chief Financial Officer -----END PRIVACY-ENHANCED MESSAGE-----