10-Q

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Form 10-Q

þ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the Quarterly Period Ended September 30, 2008

OR

o 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 incorporation or organization)	(I.R.S. Employer Identification No.)
Suite 100, One Post Oak Central
2000 Post Oak Boulevard, Houston, TX	77056-4400
(Address of principal executive offices)	(Zip Code)

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 þ      NO o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer þ	Accelerated filer o	Non-accelerated filer o	Smaller reporting company o
	(Do not check if a smaller reporting company)

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

YES o      NO þ

Number of shares of registrant’s common stock, outstanding as of September 30, 2008 334,670,227

TABLE OF CONTENTS

PART I — FINANCIAL INFORMATION
	ITEM 1 — FINANCIAL STATEMENTS
	ITEM 2 — MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
	ITEM 3 — QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
	ITEM 4 — CONTROLS AND PROCEDURES
PART II — OTHER INFORMATION
	ITEM 1. LEGAL PROCEEDINGS
	ITEM 1A. RISK FACTORS
	ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
	ITEM 3. DEFAULTS UPON SENIOR SECURITIES
	ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
	ITEM 5. OTHER INFORMATION
	ITEM 6. EXHIBITS
SIGNATURES
EXHIBIT 10.1
EXHIBIT 10.2
EXHIBIT 10.3
EXHIBIT 10.4
EXHIBIT 10.5
EXHIBIT 10.6
EXHIBIT 10.7
EXHIBIT 10.8
EXHIBIT 10.9
EXHIBIT 12.1
EXHIBIT 31.1
EXHIBIT 31.2
EXHIBIT 32.1

PART I — FINANCIAL INFORMATION

ITEM 1 — FINANCIAL STATEMENTS

APACHE CORPORATION AND SUBSIDIARIES
STATEMENT OF CONSOLIDATED OPERATIONS
(Unaudited)

	For the Quarter					For the Nine Months
	Ended September 30,					Ended September 30,
	2008			2007		2008		2007
	(In thousands, except per common share data)
REVENUES AND OTHER:
Oil and gas production revenues	$	3,368,882		$	2,498,594	$	10,450,949	$	6,965,692
Other		(3,998	)		6,364		1,867		14,685
		3,364,884			2,504,958		10,452,816		6,980,377
OPERATING EXPENSES:
Depreciation, depletion and amortization		600,887			600,796		1,849,044		1,722,816
Asset retirement obligation accretion		24,970			24,436		77,146		72,634
Lease operating expenses		488,166			409,528		1,389,542		1,198,302
Gathering and transportation		42,375			34,887		123,118		100,585
Taxes other than income		304,280			139,461		845,406		393,222
General and administrative		57,561			61,405		218,856		200,065
Financing costs, net		33,291			60,367		116,594		165,788
		1,551,530			1,330,880		4,619,706		3,853,412
INCOME BEFORE INCOME TAXES:		1,813,354			1,174,078		5,833,110		3,126,965
Current income tax provision		305,735			200,878		1,495,641		684,458
Deferred income tax provision		316,794			359,852		679,902		702,672
NET INCOME:		1,190,825			613,348		3,657,567		1,739,835
Preferred stock dividends		1,420			1,420		4,260		4,260
INCOME ATTRIBUTABLE TO COMMON STOCK:	$	1,189,405		$	611,928	$	3,653,307	$	1,735,575
NET INCOME PER COMMON SHARE:
Basic	$	3.55		$	1.84	$	10.93	$	5.23
Diluted	$	3.52		$	1.83	$	10.84	$	5.19

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 Nine Months Ended
	September 30,
	2008			2007
	(In thousands)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income	$	3,657,567		$	1,739,835
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation, depletion and amortization		1,849,044			1,722,816
Asset retirement obligation accretion		77,146			72,634
Provision for deferred income taxes		679,902			702,672
Unrealized loss on derivatives		35,586			—
Other		(11,231	)		39,502
Changes in operating assets and liabilities:
(Increase) decrease in receivables		251,920			(30,595	)
(Increase) decrease in drilling advances and other		27,891			(36,324	)
(Increase) decrease in inventories		(7,729	)		30,621
(Increase) decrease in deferred charges and other		(200,038	)		(53,464	)
Increase (decrease) in accounts payable		71,188			(12,799	)
Increase (decrease) in accrued expenses		(367,553	)		(231,327	)
Increase (decrease) in deferred credits and noncurrent liabilities		(35,125	)		(66,099	)
Net cash provided by operating activities		6,028,568			3,877,472
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to oil and gas property		(4,062,975	)		(3,405,682	)
Acquisition of U.S. Permian Basin properties		—			(1,004,581	)
Additions to gas gathering, transmission and processing facilities		(420,850	)		(301,226	)
Restricted cash		(13,844	)		—
Proceeds from sale of oil and gas properties		306,701			11,074
Other, net		(42,509	)		(131,780	)
Net cash used in investing activities		(4,233,477	)		(4,832,195	)
CASH FLOWS FROM FINANCING ACTIVITIES:
Commercial paper and money market borrowings, net		(169,042	)		(947,989	)
Fixed-rate debt borrowings		—			1,992,027
Payments on fixed-rate debt		(353	)		(3,000	)
Dividends paid		(187,735	)		(153,421	)
Common stock activity		31,207			22,707
Treasury stock activity, net		4,171			12,474
Cost of debt and equity transactions		(1,224	)		(18,000	)
Other		46,666			20,823
Net cash provided by (used in) financing activities		(276,310	)		925,621
NET INCREASE IN CASH AND CASH EQUIVALENTS		1,518,781			(29,102	)
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR		125,823			140,524
CASH AND CASH EQUIVALENTS AT END OF PERIOD	$	1,644,604		$	111,422
SUPPLEMENTARY CASH FLOW DATA:
Interest paid, net of capitalized interest	$	137,106		$	124,913
Income taxes paid, net of refunds		1,512,864			604,862

The accompanying notes to consolidated financial statements
are an integral part of this statement.

2

APACHE CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
(Unaudited)

	September 30,			December 31,
	2008			2007
	(In thousands)
ASSETS
CURRENT ASSETS:
Cash and cash equivalents	$	1,644,604		$	125,823
Receivables, net of allowance		1,680,031			1,936,977
Inventories		479,723			461,211
Drilling advances		83,444			112,840
Derivative instruments		12,929			20,889
Prepaid assets and other		271,561			94,511
		4,172,292			2,752,251
PROPERTY AND EQUIPMENT:
Oil and gas, on the basis of full cost accounting:
Proved properties		38,673,437			34,645,710
Unproved properties and properties under development, not being amortized		1,698,471			1,439,726
Gas gathering, transmission and processing facilities		2,627,304			2,206,453
Other		441,339			416,149
		43,440,551			38,708,038
Less: Accumulated depreciation, depletion and amortization		(15,321,733	)		(13,476,445	)
		28,118,818			25,231,593
OTHER ASSETS:
Restricted cash		13,844			—
Goodwill, net		189,252			189,252
Deferred charges and other		498,226			461,555
	$	32,992,432		$	28,634,651

The accompanying notes to consolidated financial statements
are an integral part of this statement.

3

APACHE CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
(Unaudited)

	September 30,			December 31,
	2008			2007
	(In thousands)
LIABILITIES AND SHAREHOLDERS’ EQUITY
CURRENT LIABILITIES:
Accounts payable	$	702,143		$	617,937
Accrued operating expense		110,036			112,453
Accrued exploration and development		787,129			600,165
Accrued compensation and benefits		129,998			172,542
Accrued interest		73,175			78,187
Accrued income taxes		137,157			73,184
Current debt		140,514			215,074
Asset retirement obligation		359,975			309,777
Derivative instruments		264,309			286,226
United Kingdom Petroleum Revenue Tax		153,805			117,028
Other		58,065			82,443
		2,916,306			2,665,016
LONG-TERM DEBT		3,917,327			4,011,605
DEFERRED CREDITS AND OTHER NONCURRENT LIABILITIES:
Income taxes		4,512,418			3,924,983
Asset retirement obligation		1,462,309			1,556,909
Derivative instruments		681,782			381,791
Other		739,184			716,368
		7,395,693			6,580,051
COMMITMENTS AND CONTINGENCIES (Note 6)
SHAREHOLDERS’ EQUITY:
Preferred stock, no par value, 5,000,000 shares authorized — Series B, 5.68% Cumulative, $100 million aggregate liquidation value, 100,000 shares issued and outstanding		98,387			98,387
Common stock, $0.625 par, 430,000,000 shares authorized, 342,738,124 and 341,322,088 shares issued, respectively		214,211			213,326
Paid-in capital		4,445,511			4,367,149
Retained earnings		14,927,178			11,457,592
Treasury stock, at cost, 8,067,897 and 8,394,945 shares, respectively		(228,981	)		(238,264	)
Accumulated other comprehensive loss		(693,200	)		(520,211	)
		18,763,106			15,377,979
	$	32,992,432		$	28,634,651

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)

																	Accumulated
				Series B													Other			Total
	Comprehensive			Preferred		Common		Paid-In			Retained			Treasury			Comprehensive			Shareholders’
	Income			Stock		Stock		Capital			Earnings			Stock			Income (Loss)			Equity
	(In thousands)
BALANCE AT DECEMBER 31, 2006				$	98,387	$	212,365	$	4,269,795		$	8,898,577		$	(256,739	)	$	(31,332	)	$	13,191,053
Comprehensive income (loss):
Net income	$	1,739,835			—		—		—			1,739,835			—			—			1,739,835
Commodity hedges, net of income tax expense of $82,848		(145,509	)		—		—		—			—			—			(145,509	)		(145,509	)
Comprehensive income	$	1,594,326
Dividends:
Preferred					—		—		—			(4,260	)		—			—			(4,260	)
Common ($.45 per share)					—		—		—			(149,433	)		—			—			(149,433	)
Common shares issued					—		834		38,154			—			—			—			38,988
Treasury shares issued, net					—		—		972			—			16,321			—			17,293
Compensation expense					—		—		34,571			—			—			—			34,571
FIN 48 Adoption					—		—		—			(48,502	)		—			—			(48,502	)
Other					—		—		(1,483	)		241			—			—			(1,242	)
BALANCE AT SEPTEMBER 30, 2007				$	98,387	$	213,199	$	4,342,009		$	10,436,458		$	(240,418	)	$	(176,841	)	$	14,672,794
BALANCE AT DECEMBER 31, 2007				$	98,387	$	213,326	$	4,367,149		$	11,457,592		$	(238,264	)	$	(520,211	)	$	15,377,979
Comprehensive income (loss):
Net income	$	3,657,567			—		—		—			3,657,567			—			—			3,657,567
Commodity hedges, net of income tax benefit of $89,376		(172,989	)		—		—		—			—			—			(172,989	)		(172,989	)
Comprehensive income	$	3,484,578
Dividends:
Preferred					—		—		—			(4,260	)		—			—			(4,260	)
Common ($.55 per share)					—		—		—			(183,735	)		—			—			(183,735	)
Common shares issued					—		885		36,109			—			—			—			36,994
Treasury shares issued, net					—		—		247			—			9,283			—			9,530
Compensation expense					—		—		65,645			—			—			—			65,645
FIN 48					—		—		(23,770	)					—			—			(23,770	)
Other					—		—		131			14			—			—			145
BALANCE AT SEPTEMBER 30, 2008				$	98,387	$	214,211	$	4,445,511		$	14,927,178		$	(228,981	)	$	(693,200	)	$	18,763,106

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

     Certain prior-period amounts have been reclassified to conform with current-year presentations.

1. DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITY

     Cash Flow Hedges We periodically use derivative instruments in connection with anticipated crude oil and natural gas sales to mitigate the variability of cash flows associated with commodity price fluctuations. While these instruments mitigate the cash flow risk of future reductions in commodity prices, they may also curtail benefits from future increases in commodity prices. We account for derivative instruments and hedging activities in accordance with Statement of Financial Accounting Standards (SFAS) 133 and typically elect to designate our commodity derivatives instruments as cash flow hedges. No new hedges were entered into during the third quarter of 2008.

     As of September 30, 2008, we had entered into the following crude oil derivative instruments:

	Fixed-Price Swaps				Call Options				Collars
			Weighted				Weighted				Weighted		Weighted
Production			Average				Average				Average		Average
Period	Mbbls		Fixed Price(1)		Mbbls		Strike Price(1)		Mbbls		Floor Price(1)		Ceiling Price(1)
2008		1,104	$	69.21		—	$	—		3,450	$	65.51	$	81.43
2009		368		67.95		—		—		9,321		63.39		80.14
2010		2,018		70.87		368		129.50		6,016		62.11		77.44
2011		3,285		71.16		1,095		134.17		4,377		65.83		84.41
2012		2,926		71.34		364		138.00		1,456		66.88		85.52
2013		1,086		71.34		—		—		—		—		—

⁽¹⁾ Crude oil prices primarily represent a weighted average of NYMEX WTI Cushing Index prices on contracts entered into on a per barrel (Bbl) basis.

     As of September 30, 2008, we had entered into the following natural gas derivative instruments:

Put Options					Collars
			Weighted								Weighted		Weighted
Production	MMBtu		Average		Production		MMBtu		GJ		Average		Average
Period	(in 000’s)		Strike Price(1)		Period		(in 000’s)		(in 000’s)		Floor Price(1)		Ceiling Price(1)
2008		1,840	$	8.75		2008		23,460		—	$	7.27	$	10.31
2009		—		—		2008		—		8,280		6.22		9.74
2010		—		—		2009		18,250		—		7.35		10.19
2011		—		—		2009		—		29,200		6.13		9.53
2012		—		—		2010		1,350		—		7.17		10.58

⁽¹⁾ U.S. natural gas prices represent a weighted average of several contracts entered into on a per million British thermal units (MMBtu) basis and are settled against a combination of indices, including NYMEX Henry Hub, Panhandle Eastern Pipe Line and Houston Ship Channel. The Canadian natural gas prices represent a weighted average of AECO Index prices. The Canadian gas collars are entered into on a per gigajoule (GJ) basis, are converted to U.S. dollars utilizing a September 30, 2008 exchange rate, and are settled against the AECO Index.

6

     Receivables/Payables Related to Crude Oil and Natural Gas Derivative Instruments The fair market value of the Company’s derivative assets and liabilities, including derivatives no longer qualifying for hedge accounting, are as follows:

	September 30,		December 31,
	2008		2007
	(In millions)
Current asset	$	13	$	21
Long-term asset		—		7
Current liability		264		286
Long-term liability		682		382

     Commodity Derivative Activity in Accumulated Other Comprehensive Income (OCI) Based on market prices as of September 30, 2008, the Company’s net unrealized loss in accumulated OCI for commodity derivatives designated as cash flow hedges totaled $901 million ($585 million after tax). Gains and losses on these hedges will be realized in future earnings contemporaneously with the related sales of natural gas and crude oil production applicable to specific hedges, which will occur through mid-2013. A reconciliation of the components of accumulated OCI in the Statement of Consolidated Shareholders’ Equity related to Apache’s cash flow hedges is presented in the table below:

	Before tax			After tax
	(In millions)
Unrealized loss on derivatives at December 31, 2007	$	(639	)	$	(412	)
Realized amounts reclassified into earnings		516			334
Unrealized amounts reclassified into earnings		36			23
Net change in derivative fair value		(814	)		(530	)
Unrealized loss on derivatives at September 30, 2008	$	(901	)	$	(585	)

2. DEBT

  Credit Facilities

     As of September 30, 2008, the Company had committed revolving credit facilities totaling $2.3 billion. The facilities consist of a $1.5 billion facility and a $450 million facility in the U.S., a $200 million facility in Australia and a $150 million facility in Canada. There were no outstanding loans under these facilities as of September 30, 2008.

     During March and April 2008, the Company amended its $1.5 billion U.S. five-year revolving credit facility to (a) extend the maturity date one year to May 28, 2013 and (b) remove certain restrictions on our Australian entities including their ability to incur liens and issue guarantees. The Company also amended its $450 million U.S. credit facility, $150 million Australian credit facility and $150 million Canadian credit facility to (a) extend the maturity date one year to May 12, 2013, (b) remove certain restrictions on our Australian entities including their ability to incur liens and issue guarantees, and (c) specific to the Australian credit facility, give the Company the option of increasing the size of the facility up to a maximum amount of $400 million from the current limit of $300 million by adding commitments from new or existing lenders. In April 2008, the Company increased the Australian credit facility by $50 million to $200 million.

7

Subsequent Events

     On October 1, 2008, the Company issued $400 million principal amount, $398 million net of discount, of senior unsecured 6.0-percent notes maturing September 15, 2013, and $400 million principal amount, $398 million net of discount, of senior unsecured 6.9-percent notes maturing September 15, 2018. The notes are redeemable, as a whole or in part, at Apache’s option, subject to a make-whole premium. The proceeds are presently invested in U.S. Treasury Notes and will be used for general corporate purposes.

  Financing Costs, Net

     Financing costs incurred during the periods noted are composed of the following:

	For the Quarter Ended						For the Nine Months Ended
	September 30,						September 30,
	2008			2007			2008			2007
	(In thousands)
Interest expense	$	66,055		$	82,939		$	201,690		$	230,487
Amortization of deferred loan costs		818			875			2,498			2,421
Capitalized interest		(24,032	)		(18,880	)		(68,419	)		(56,554	)
Interest income		(9,550	)		(4,567	)		(19,175	)		(10,566	)
Financing costs, net	$	33,291		$	60,367		$	116,594		$	165,788

3. INCOME TAXES

     The Company estimates its annual effective income tax rate in recording its quarterly provision for income taxes in the various jurisdictions in which the Company operates. Statutory tax rate changes, settlements with taxing authorities and other infrequent or unusual items are recognized as discrete items in the quarter in which they occur.

     Apache and its subsidiaries are subject to U.S. federal income tax as well as income tax in various state and foreign jurisdictions. The Company’s tax reserves are related to tax years that may be subject to examination by the relevant taxing authority.

     During the third quarter of 2008, the Company was in Administrative Appeals with the United States Internal Revenue Service (IRS) regarding the 2002 through 2005 tax years and under IRS audit for the 2006 tax year. The Company is also under audit in various states and in most of the Company’s foreign jurisdictions as part of its normal course of business.

     During the third quarter of 2008, the Company recorded a $22 million reduction in income taxes following completion of an income tax audit. This reduced tax contingency reserves established in accordance with Financial Accounting Standards Board Interpretation No. 48 (FIN 48), “Accounting for Uncertainty of Income Taxes — an Interpretation of SFAS No. 109.”

  Subsequent Event

     During the fourth quarter of 2008, the Company received notification from the Appeals Division of the Internal Revenue Service that the appeals process for the years 2002 and 2003 has been completed. As a result of the completion of this process, we expect a reduction in our deferred income taxes and FIN 48 tax reserves in the fourth quarter of 2008.

8

4. CAPITAL STOCK

  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 September 30,
	2008						2007
			Weighted						Weighted
			Average						Average
			Common						Common
			Shares						Shares
	Income		Outstanding		Per Share		Income		Outstanding		Per Share
	(In thousands, except per share amounts)
Basic:
Income attributable to common stock	$	1,189,405		334,825	$	3.55	$	611,928		332,668	$	1.84
Effect of Dilutive Securities:
Stock options and other		—		3,069				—		2,449
Diluted:
Income attributable to common stock, including assumed conversions	$	1,189,405		337,894	$	3.52	$	611,928		335,117	$	1.83

	For the Nine Months Ended September 30,
	2008						2007
			Weighted						Weighted
			Average						Average
			Common						Common
			Shares						Shares
	Income		Outstanding		Per Share		Income		Outstanding		Per Share
	(In thousands, except per share amounts)
Basic:
Income attributable to common stock	$	3,653,307		334,145	$	10.93	$	1,735,575		331,903	$	5.23
Effect of Dilutive Securities:
Stock options and other		—		3,006				—		2,183
Diluted:
Income attributable to common stock, including assumed conversions	$	3,653,307		337,151	$	10.84	$	1,735,575		334,086	$	5.19

     The diluted earnings per share calculations above exclude 357,884 and 4,000 shares of common stock that were anti-dilutive at September 30, 2008 and September 30, 2007, respectively.

  Common and Preferred Stock Dividends

     During the third quarter of 2008 and 2007, Apache paid $50 million in dividends on its common stock. For the nine-month periods ended September 30, 2008 and 2007, the Company paid $183 million and $149 million, respectively. Dividends paid during the 2008 nine-month period included a special cash dividend of 10 cents per common share, paid March 18, 2008. In addition, for the three-month and nine-month periods ended September 30, 2008 and 2007, Apache paid a total of $1.4 million and $4.3 million, respectively, in dividends on its Series B Preferred Stock.

9

  Stock-Based Compensation

     2005 Share Appreciation Plan On May 5, 2005, the Company’s stockholders approved the 2005 Share Appreciation Plan that provided 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 had to close at or above the stated threshold for 10 days out of any 30 consecutive trading days by the end of the stated period.

     On June 14, 2007, Apache’s share price exceeded the interim $81 threshold for the required 10-day period. As such, Apache will issue approximately one million shares of its common stock, after minimum tax withholding requirements, in four equal annual installments. The first and second installments have already been issued. Subsequent installments will be issued in 2009 and 2010 to eligible employees remaining with the Company during that period.

     On February 29, 2008, Apache’s share price exceeded the $108 threshold for the required 10-day period. As such, Apache will issue approximately two million shares of its common stock, after minimum tax withholding requirements, in four equal annual installments. The first installment was issued in March 2008. Subsequent installments will be issued in 2009, 2010 and 2011 to eligible employees remaining with the Company during that period.

     2008 Share Appreciation Program On May 7, 2008, the Stock Option Plan Committee of the Company’s Board of Directors, pursuant to the Company’s 2007 Omnibus Equity Compensation Plan, approved the 2008 Share Appreciation Program (the “Program”) that provides incentives for employees to double Apache’s share price to $216 by the end of 2012, with an interim goal of $162 to be achieved by the end of 2010. To achieve the payout, the Company’s stock price must close at or above the stated threshold for 10 out of any 30 consecutive trading days before the end of the stated period. Under the Program, if the first threshold is achieved, approximately 1.1 million shares would be awarded at an intrinsic cost of approximately $180 million. Achieving the second threshold would result in awards of approximately 1.7 million shares at an intrinsic cost of approximately $359 million. Shares issued to employees would be reduced by the required minimum tax withholding. Awards under the Program are payable in five equal annual installments, beginning on a date not more than 30 days after a threshold is attained for the required measurement period and on the four succeeding anniversaries of the attainment date. Over 90 percent of the value would benefit non-executive employees.

     Current accounting practices dictate that, regardless of whether these thresholds are ultimately achieved, the Company will recognize, over time, the fair value cost determined at the grant date based on numerous assumptions, including an estimate of the likelihood that Apache’s stock price will achieve these thresholds and the expected forfeiture rate. As a result, the Company will recognize expense and capitalized costs of approximately $193 million over the expected service life of the Program.

     The weighted-average fair value, based on a Monte Carlo Simulation Model, was $84.32 per share, determined by using expected volatility of 27.35 percent, an expected dividend yield of 0.52 percent, and a risk free interest rate of 3.03 percent.

     On May 7, 2008, the Stock Option Plan Committee of Apache’s Board of Directors awarded its Chief Executive Officer 250,000 restricted stock units, 50,000 of which will vest on July 1, 2009. The remaining 200,000 shares will vest ratably on the first business day of the years 2010, 2011, 2012 and 2013. Upon vesting, the Company will issue one share of the Company’s common stock as settlement for each restricted stock unit. Thirty thousand of the shares vesting each year will not be eligible for sale by the executive until such time as he retires or otherwise terminates employment with the Company. This award was made under the terms of the Company’s 2007 Omnibus Equity Compensation Plan.

     In August 2008, the Company established, pursuant to the Company’s 2007 Omnibus Equity Compensation Plan, the Non-Employee Directors’ Restricted Stock Units Program (the “RSU Program”). Each non-employee director was awarded 1,500 restricted stock units on August 14, 2008 under the RSU Program, with half of the restricted stock units vesting thirty days after the grant, and the other half vesting on the one-year anniversary date of the grant. Each year, all non-employee directors will be eligible to receive grants of restricted stock units comparable in value to the 2008 grant. Non-employee directors are required to choose, at the time of each award, whether such award will vest as 100 percent common stock or a combination of 40 percent cash and 60 percent common stock.

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5. ASSET RETIREMENT OBLIGATIONS

     The following table describes changes to the Company’s asset retirement obligation (ARO) liability for the nine months ended September 30, 2008:

	2008
	(In thousands)
Asset retirement obligation at December 31, 2007	$	1,866,686
Liabilities incurred		267,308
Liabilities settled		(471,923	)
Accretion expense		77,146
Revisions in estimated liabilities		83,067
Asset retirement obligation at September 30, 2008	$	1,822,284
Current portion	$	359,975
Long-term portion		1,462,309

     ARO reflects the estimated present value of the amount of dismantlement, removal, site reclamation and similar activities associated with our oil and gas properties. The Company utilizes current retirement costs to estimate the expected cash outflows for retirement obligations. To determine the current present value of this obligation, some key assumptions the Company must make include the ultimate productive life of the properties, a risk adjusted discount rate, and an inflation factor. To the extent future revisions to these assumptions impact the present value of the existing ARO liability, a corresponding adjustment is made to the oil and gas property balance.

     Liabilities settled primarily relate to individual properties plugged and abandoned during the period. Most of the current year abandonment activity was in the Gulf of Mexico, a portion of which relates to the continued abandonment of platforms destroyed in 2005 during Hurricanes Katrina and Rita.

     During the third quarter, four of the Company’s operated platforms and two non-operated platforms were destroyed as a result of Hurricane Ike. Upon completing an initial assessment of hurricane related damages, the Company increased the discounted ARO liability on the affected properties by $83 million. The revision reflects the increased costs and acceleration in expected timing to abandon the toppled or destroyed platforms.

6. COMMITMENTS AND CONTINGENCIES

Legal Matters

     Grynberg As more fully described in Note 9 of the financial statements in our annual report on Form 10-K for our 2007 fiscal year, in 2003, Jack J. Grynberg added Apache to lawsuits he began filing in 1997 against other natural gas producers, gatherers, and pipelines claiming that the defendants have underpaid royalty to the federal government and Indian tribes by mismeasurement of the volume and heating content of natural gas and are responsible for acts of others who mismeasured natural gas. The claims against Apache were dismissed, though Mr. Grynberg has appealed the dismissal. No material changes in this matter have occurred since the filing of our most recent annual report on Form 10-K.

     Argentine Environmental Claims In connection with the Pioneer acquisition in 2006, the Company acquired a subsidiary of Pioneer in Argentina (PNRA) that is involved in various administrative proceedings with environmental authorities in the Neuquén Province relating to permits for and discharges from operations in that province. In addition, PNRA was named in a suit initiated against oil companies operating in the Neuquén basin entitled Asociación de Superficiarios de la Patagonia v. YPF S.A., et. al., originally filed on August 21, 2003, in the Argentine National Supreme Court of Justice relating to various environmental and remediation claims. All of these matters are more fully described in Note 9 of the financial statements in our annual report on Form 10-K for our 2007 fiscal year. No material change in the status of these matters has occurred since the filing of our most recent annual report on Form 10-K.

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     Louisiana Restoration As more fully described in Note 9 of the financial statements in our annual report on Form 10-K for our 2007 fiscal year, numerous surface owners have filed claims or sent demand letters to various oil and gas companies, including Apache, claiming that, under either expressed or implied lease terms or Louisiana law, they are liable for damage measured by the cost of restoration of leased premises to their original condition as well as damages for contamination and cleanup. No material change in the status of these matters has occurred since the filing of our most recent annual report on Form 10-K.

     Hurricane Related Litigation As more fully described in Note 9 of the financial statements in our annual report on Form 10-K for our 2007 fiscal year, in a case styled Ned Comer, et al vs. Murphy Oil USA, Inc., et al, Case No: 1:05-cv-00436; U.S.D.C., United States District Court, Southern District of Mississippi, Mississippi property owners allege that hurricanes’ meteorological effects increased in frequency and intensity due to global warming, and there will be continued future damage from increasing intensity of storms and sea level rises. They claim this was caused by the various defendants (oil and gas companies, electric and coal companies, and chemical manufacturers). No material change in the status of this matter has occurred since the filing of our most recent annual report on Form 10-K.

     Australia Gas Pipeline Force Majeure As more fully described in Item 2 of this quarterly report on Form 10-Q, Company subsidiaries reported a pipeline explosion that interrupted deliveries of natural gas to customers under various long-term contracts. The subsidiaries and their joint venture participants have declared force majeure under those contracts. Although no litigation has been filed other than pre-action discovery proceedings by a single customer, a few customers have threatened to file suit challenging the declaration of force majeure under their contracts. Contract prices under their contracts are significantly below current spot prices for natural gas in Australia. If there were to be a successful challenge of the declaration of force majeure, approximately 90 percent of the natural gas volumes were sold by Company subsidiaries under long-term contracts that have liquidated damages provisions. Contractual liquidated damages under the long-term contracts with such provisions would not be expected to exceed $200 million AUD. No assurance can be given that customers would not assert claims in excess of contractual liquidated damages. While an adverse judgment against Company subsidiaries is possible if litigation is filed, Company subsidiaries do not believe any such claims would have merit and plan to vigorously pursue their defenses against any such claims. Exposure related to such claims is not currently determinable. Company subsidiaries believe that the event was a force majeure. In the event it is determined that the pipeline explosion was not a force majeure, Company subsidiaries believe that liquidated damages should be the extent of the damages under the long-term contracts with such provisions.

     By November 13, 2008, the Senate Economics Committee of the Parliament of Australia is expected to release its findings from public hearings to determine the economic impact of the gas shortage following the explosion on Varanus Island and the government’s response. The report will consist in part of losses alleged by some parties who have long-term contracts with Company subsidiaries (as described above), but also losses alleged by third parties who do not have contracts with Company subsidiaries (but who may have purchased gas that was re-sold by customers or who may have paid more for energy following the explosion or who lost wages or sales due to the inability to obtain energy or the increased price of energy). A timber industry group, whose members do not have a contract with Company subsidiaries, has announced that it intends to seek compensation for its members and their subcontractors from Company subsidiaries for $20 million AUD in losses allegedly incurred as a result of the gas supply shortage following the explosion. In Johnson Tiles Pty Ltd v. Esso Australia Pty Ltd [2003] VSC 27 (Supreme Court of Victoria, Gillard J presiding), which concerned a 1998 explosion at an Esso natural gas processing plant at Longford in East Gippsland, Victoria, the Court held that Esso was not liable for $1.3 billion AUD of pure economic losses suffered by claimants that had no contract with Esso, but was liable to such claimants for reasonably foreseeable property damage which Esso settled for $32.5 million plus costs. In reaching this decision the Court held that third-party claimants should have protected themselves from pure economic losses, through the purchase of insurance or the installation of adequate backup measures, in case of an interruption in their gas supply from Esso. While an adverse judgment against Company subsidiaries is possible if litigation is filed, Company subsidiaries do not believe any such claims would have merit and plan to vigorously pursue their defenses against any such claims. Exposure related to any such potential claims is not currently determinable.

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     On October 10, 2008, the Australia National Offshore Petroleum Safety Authority (NOPSA) released a self-titled “Final Report” of the findings of its investigation into the pipeline explosion, prepared at the request of the Western Australian Department of Industry and Resources (DoIR). NOPSA concluded in its report that the evidence gathered to date indicates that the main causal factors in the incident were: (1) ineffective anti-corrosion coating at the beach crossing section of the 12” sales gas pipeline, due to damage and/or dis-bondment from the pipeline; (2) ineffective cathodic protection of the wet-dry transition zone of the beach crossing section of the 12” sales gas pipeline; and (3) ineffective inspection and monitoring by Company subsidiaries of the beach crossing and shallow water section of the 12” sales gas pipeline. NOPSA further concluded that the investigation identified that Apache Northwest Pty Ltd and its co-licensees may have committed offences under the Petroleum Pipelines Act 1969, Sections 36A & 38(b) and the Petroleum Pipelines Regulations 1970, Regulation 10, and that some findings may also constitute non-compliance with pipeline license conditions. NOPSA states in its report that an application for renewal of the pipeline license covering the area of the Varanus Island facility was granted in May 1985 with 21 years validity, and an application for renewal of the license was submitted to DoIR by Company subsidiaries in December 2005 and remains pending.

     Company subsidiaries disagree with NOPSA’s conclusions and believe that the NOPSA report is premature, based on an incomplete investigation and misleading. In a July 17, 2008 media statement, DoIR acknowledged, “The pipelines and Varanus Island facilities have been the subject of an independent validation report [by Lloyd’s Register] which was received in August 2007. NOPSA has also undertaken a number of inspections between 2005 and the present.” These and numerous other inspections, audits and reviews conducted by top international consultants and regulators did not identify any warnings that the pipeline had a corrosion problem or other issues that could lead to its failure. Company subsidiaries believe that the explosion was an unforeseeable event, and will work thoroughly and methodically to determine the root cause of the explosion.

     Other Matters The Company is involved in other litigation and is subject to government and regulatory controls in the normal course of business. The Company has an accrued liability of approximately $14 million for other legal contingencies that are deemed to be probable of occurring and can be reasonably estimated. It is management’s opinion that the loss for any such other litigation matters and claims that are reasonably possible to occur will not have a material adverse affect on the Company’s financial position or results of operations.

Environmental Matters

     As of September 30, 2008, the Company had an undiscounted reserve for environmental remediation of approximately $25 million. The Company is not aware of any environmental claims existing as of September 30, 2008, which have not been provided for or would otherwise have a material impact on its financial position or results of operations. There can be no assurance, however, that current regulatory requirements will not change, or that past non-compliance with environmental laws will not be discovered on the Company’s properties.

Other Commitments

     In January 2008, Apache, BP plc and Chevron Corporation entered into a contract with Wild Well Control, Inc., to decommission certain downed platforms and related well facilities located offshore Louisiana in the Gulf of Mexico for a fixed fee of $750 million. Apache’s portion is 37.5 percent, or $281 million, which is included as part of the Company’s accrued ARO. We have spent $63 million of the $281 million as of September 30, 2008.

     Subsequent to the end of the third quarter, we extended the term of a drilling rig currently in use in our Australian drilling program representing a commitment of $328 million over a two-year period.

7. FAIR VALUE

  Fair Value Measurements

     The Company adopted SFAS No. 157, “Fair Value Measurements,” as of the beginning of 2008. SFAS No. 157 defines fair value and establishes disclosure requirements for assets and liabilities presented at fair value on the consolidated balance sheet. Fair value is the amount that would be received from the sale of an asset or paid for the transfer of a liability in an orderly transaction between market participants. A liability is quantified at the price it would take to transfer the liability to a new obligor, not at the amount that would be paid to settle the liability with the creditor.

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     To better quantify fair value, SFAS No. 157 establishes a three-level hierarchy, prioritizing and defining the types of inputs used to measure fair value. Level 1 inputs consist of unadjusted quoted prices for identical instruments in active markets. Level 2 inputs consist of quoted prices for similar instruments. Level 3 valuations are derived from inputs which are significant and unobservable, and have the lowest priority.

     The following table presents the Company’s material assets and liabilities measured at fair value for each hierarchy level as of September 30, 2008:

	As of September 30, 2008
			Fair Value Measurements Using
			Quoted Price				Significant
			in Active		Significant		Unobservable
	Total Fair		Markets		Other Inputs		Inputs
	Value		(Level 1)		(Level 2)		(Level 3)
	(In millions)
Assets:
Crude Oil and Natural Gas Options	$	13	$	—	$	13	$	—
Liabilities:
Oil and Gas Collars	$	604	$	—	$	604	$	—
Fixed-Price Oil Swaps		342		—		342		—

     Derivative instruments are valued using forward commodity price curves provided by reputable third-party brokers. The fair value of derivative instruments are not actively quoted in the open market, and are valued using Level 2 inputs.

8. RECENTLY ISSUED ACCOUNTING STANDARDS NOT YET ADOPTED

     In March 2008, the Financial Accounting Standards Board (FASB) issued SFAS No. 161 “Disclosures about Derivative Instruments and Hedging Activities.” The statement amends SFAS No. 133 “Accounting for Derivative Instruments and Hedging Activities.” SFAS No. 161 changes the disclosure requirements for derivative instruments and hedging activities. Entities are required to provide enhanced disclosures about how and why an entity uses derivative instruments, how derivative instruments and related hedged items are accounted for under SFAS No. 133 and how derivative instruments and related hedged items affect an entity’s financial position, financial performance, and cash flows. SFAS No. 161 is effective for financial statements issued for fiscal years beginning after November 15, 2008. We are currently evaluating the provisions of SFAS No. 161 and assessing the impact, if any, it may have on the Company.

     In December 2007, the FASB issued a revision to SFAS No. 141 “Business Combinations” (SFAS No. 141 (R)). The revision broadens the definition of a business combination to include all transactions or other events in which control of one or more businesses is obtained. Further, the statement establishes principles and requirements for how an acquirer recognizes assets acquired, liabilities assumed and any non-controlling interests acquired. SFAS No. 141 (R) is effective for business combination transactions for which the acquisition date is on or after the beginning of the first reporting period beginning on or after December 15, 2008. Early adoption is prohibited. Apache is currently evaluating the provisions of SFAS No. 141 (R) and assessing the impact, if any, it may have on the Company.

     Also in December 2007, the FASB issued SFAS No. 160 “Noncontrolling Interests in Consolidated Financial Statements.” This statement amends Accounting Research Bulletin No. 51 “Consolidated Financial Statements.” SFAS No. 160 establishes accounting and reporting standards for the noncontrolling interests in a subsidiary and for the deconsolidation of a subsidiary. It clarifies that a noncontrolling interest in a subsidiary, sometimes called a minority interest, is an ownership interest in the consolidated entity that should be reported as equity in the consolidated financial statements. Additionally, the amounts of consolidated net income attributable to both the parent and the noncontrolling interest must be reported separately on the face of the income statement. SFAS No. 160 is effective for fiscal years, and interim periods within those fiscal years, beginning on or after December 15, 2008. Early adoption is prohibited. We are currently evaluating the provisions of SFAS No. 160 and assessing the impact, if any, it may have on the Company.

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9. BUSINESS SEGMENT INFORMATION

     Apache has producing operations in six countries: the United States (Gulf Coast and Central regions), Canada, Egypt, Australia, offshore the United Kingdom (U.K.) in the North Sea, and Argentina. Early in the second quarter of 2008, we finalized contracts for two exploration blocks in Chile (reflected under “Other International”). Financial information by country is presented below:

	United								U.K.				Other
	States		Canada		Egypt		Australia		North Sea		Argentina		International		Total
							(In thousands)
For the Quarter Ended September 30, 2008
Oil and Gas Production Revenues	$	1,311,052	$	462,470	$	778,124	$	76,817	$	642,563	$	97,856	$	—	$	3,368,882
Operating Income(1)	$	734,907	$	245,126	$	606,142	$	20,297	$	286,704	$	15,028	$	—	$	1,908,204
Other Income (Expense)
Other																(3,998	)
General and administrative																(57,561	)
Financing costs, net																(33,291	)
Income Before Income Taxes															$	1,813,354
For the Nine Months Ended September 30, 2008
Oil and Gas Production Revenues	$	4,345,687	$	1,384,790	$	2,328,440	$	328,415	$	1,787,367	$	276,250	$	—	$	10,450,949
Operating Income(1)	$	2,587,714	$	721,435	$	1,870,362	$	134,398	$	806,239	$	46,545	$	—	$	6,166,693
Other Income (Expense)
Other																1,867
General and administrative																(218,856	)
Financing costs, net																(116,594	)
Income Before Income Taxes															$	5,833,110
Total Assets	$	13,689,943	$	7,824,649	$	4,481,858	$	2,443,667	$	2,736,426	$	1,792,951	$	22,938	$	32,992,432
For the Quarter Ended September 30, 2007
Oil and Gas Production Revenues	$	1,101,328	$	330,804	$	516,536	$	138,016	$	331,827	$	80,083	$	—	$	2,498,594
Operating Income(1)	$	563,395	$	107,753	$	391,307	$	61,236	$	152,708	$	13,087	$	—	$	1,289,486
Other Income (Expense)
Other																6,364
General and administrative																(61,405	)
Financing costs, net																(60,367	)
Income Before Income Taxes															$	1,174,078
For the Nine Months Ended September 30, 2007
Oil and Gas Production Revenues	$	3,023,617	$	1,009,517	$	1,382,778	$	383,820	$	942,334	$	223,626	$	—	$	6,965,692
Operating Income(1)	$	1,457,952	$	388,366	$	1,014,256	$	163,819	$	419,470	$	34,270	$	—	$	3,478,133
Other Income (Expense)
Other																14,685
General and administrative																(200,065	)
Financing costs, net																(165,788	)
Income Before Income Taxes															$	3,126,965
Total Assets	$	12,121,829	$	7,087,271	$	3,085,358	$	1,649,165	$	2,144,419	$	1,551,516	$	11,360	$	27,650,918

⁽¹⁾ Operating Income consists of oil and gas production revenues less depreciation, depletion and amortization, asset retirement obligation accretion, lease operating expenses, gathering and transportation costs, and taxes other than income.

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10. SUPPLEMENTAL GUARANTOR INFORMATION

     Apache Finance Pty Ltd. (Apache Finance Australia) and Apache Finance Canada Corporation (Apache Finance Canada) are subsidiaries of Apache that have issued publicly traded securities, and the following condensed consolidating financial statements are provided as an alternative to filing separate financial statements.

     Each of the Companies presented in the condensed consolidating financial statements has been fully consolidated in Apache’s consolidated financial statements. As such, these condensed consolidating financial statements should be read in conjunction with the financial statements of Apache Corporation and Subsidiaries and notes.

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APACHE CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS
For the Quarter Ended September 30, 2008

											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	$	1,290,323		$	—		$	—	$	—	$	2,086,279		$	(7,720	)	$	3,368,882
Equity in net income (loss) of affiliates		842,215			36,760			27,015		124,596		(3,705	)		(1,026,881	)		—
Other		(51,534	)		(24,263	)		24,263		14,701		33,757			(922	)		(3,998	)
		2,081,004			12,497			51,278		139,297		2,116,331			(1,035,523	)		3,364,884
OPERATING EXPENSES:
Depreciation, depletion and amortization		257,091			—			—		—		343,796			—			600,887
Asset retirement obligation accretion		16,174			—			—		—		8,796			—			24,970
Lease operating expenses		229,018			—			—		—		259,148			—			488,166
Gathering and transportation costs		11,928			—			—		—		38,167			(7,720	)		42,375
Taxes other than income		57,863			—			—		—		246,417			—			304,280
General and administrative		43,661			—			—		—		14,822			(922	)		57,561
Financing costs, net		32,780			(2,777	)		4,523		14,152		(15,387	)		—			33,291
		648,515			(2,777	)		4,523		14,152		895,759			(8,642	)		1,551,530
INCOME (LOSS) BEFORE INCOME TAXES		1,432,489			15,274			46,755		125,145		1,220,572			(1,026,881	)		1,813,354
Provision (benefit) for income taxes		241,664			(7,628	)		9,995		141		378,357			—			622,529
NET INCOME		1,190,825			22,902			36,760		125,004		842,215			(1,026,881	)		1,190,825
Preferred stock dividends		1,420			—			—		—		—			—			1,420
INCOME ATTRIBUTABLE TO COMMON STOCK	$	1,189,405		$	22,902		$	36,760	$	125,004	$	842,215		$	(1,026,881	)	$	1,189,405

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APACHE CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS
For the Quarter Ended September 30, 2007

											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	$	1,086,882	$	—	$	—		$	—		$	1,430,813		$	(19,101	)	$	2,498,594
Equity in net income (loss) of affiliates		317,145		15,825		18,700			(11,167	)		(12,570	)		(327,933	)		—
Other		7,711		—		(51	)		409			2,907			(4,612	)		6,364
		1,411,738		15,825		18,649			(10,758	)		1,421,150			(351,646	)		2,504,958
OPERATING EXPENSES:
Depreciation, depletion and amortization		277,702		—		—			—			323,094			—			600,796
Asset retirement obligation accretion		17,768		—		—			—			6,668			—			24,436
Lease operating expenses		181,334		—		—			—			228,194			—			409,528
Gathering and transportation costs		16,241		—		—			—			37,747			(19,101	)		34,887
Taxes other than income		48,520		—		—			—			90,941			—			139,461
General and administrative		49,262		—		—			—			16,754			(4,611	)		61,405
Financing costs, net		46,894		—		4,514			14,112			(5,153	)		—			60,367
		637,721		—		4,514			14,112			698,245			(23,712	)		1,330,880
INCOME (LOSS) BEFORE INCOME TAXES		774,017		15,825		14,135			(24,870	)		722,905			(327,934	)		1,174,078
Provision (benefit) for income taxes		160,669		—		(1,690	)		(4,008	)		405,759			—			560,730
NET INCOME		613,348		15,825		15,825			(20,862	)		317,146			(327,934	)		613,348
Preferred stock dividends		1,420		—		—			—			—			—			1,420
INCOME ATTRIBUTABLE TO COMMON STOCK	$	611,928	$	15,825	$	15,825		$	(20,862	)	$	317,146		$	(327,934	)	$	611,928

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APACHE CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS
For the Nine Months Ended September 30, 2008

											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	$	4,267,293		$	—		$	—	$	—	$	6,230,045		$	(46,389	)	$	10,450,949
Equity in net income (loss) of affiliates		2,267,847			51,205			51,760		307,270		(4,893	)		(2,673,189	)		—
Other		(41,679	)		(16,880	)		16,804		44,024		2,365			(2,767	)		1,867
		6,493,461			34,325			68,564		351,294		6,227,517			(2,722,345	)		10,452,816
OPERATING EXPENSES:
Depreciation, depletion and amortization		845,486			—			—		—		1,003,558			—			1,849,044
Asset retirement obligation accretion		50,882			—			—		—		26,264			—			77,146
Lease operating expenses		644,344			—			—		—		745,198			—			1,389,542
Gathering and transportation costs		32,904			—			—		—		136,603			(46,389	)		123,118
Taxes other than income		173,689			—			—		—		671,717			—			845,406
General and administrative		176,373			—			—		—		45,250			(2,767	)		218,856
Financing costs, net		102,882			(8,272	)		13,518		42,378		(33,912	)		—			116,594
		2,026,560			(8,272	)		13,518		42,378		2,594,678			(49,156	)		4,619,706
INCOME (LOSS) BEFORE INCOME TAXES		4,466,901			42,597			55,046		308,916		3,632,839			(2,673,189	)		5,833,110
Provision (benefit) for income taxes		809,334			(3,056	)		3,841		432		1,364,992			—			2,175,543
NET INCOME		3,657,567			45,653			51,205		308,484		2,267,847			(2,673,189	)		3,657,567
Preferred stock dividends		4,260			—			—		—		—			—			4,260
INCOME ATTRIBUTABLE TO COMMON STOCK	$	3,653,307		$	45,653		$	51,205	$	308,484	$	2,267,847		$	(2,673,189	)	$	3,653,307

19

APACHE CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS
For the Nine Months Ended September 30, 2007

											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	$	2,977,123	$	—	$	—		$	—		$	4,082,417		$	(93,848	)	$	6,965,692
Equity in net income (loss) of affiliates		904,001		22,568		31,714			24,370			(39,099	)		(943,554	)		—
Other		21,533		—		(117	)		—			(3,964	)		(2,767	)		14,685
		3,902,657		22,568		31,597			24,370			4,039,354			(1,040,169	)		6,980,377
OPERATING EXPENSES:
Depreciation, depletion and amortization		775,454		—		—			—			947,362			—			1,722,816
Asset retirement obligation accretion		52,948		—		—			—			19,686			—			72,634
Lease operating expenses		573,525		—		—			—			624,777			—			1,198,302
Gathering and transportation costs		42,741		—		—			—			151,692			(93,848	)		100,585
Taxes other than income		130,705		—		—			—			262,517			—			393,222
General and administrative		162,650		—		—			—			40,182			(2,767	)		200,065
Financing costs, net		134,469		—		13,540			42,336			(24,557	)		—			165,788
		1,872,492		—		13,540			42,336			2,021,659			(96,615	)		3,853,412
INCOME (LOSS) BEFORE INCOME TAXES		2,030,165		22,568		18,057			(17,966	)		2,017,695			(943,554	)		3,126,965
Provision (benefit) for income taxes		290,330		—		(4,511	)		(12,383	)		1,113,694			—			1,387,130
NET INCOME		1,739,835		22,568		22,568			(5,583	)		904,001			(943,554	)		1,739,835
Preferred stock dividends		4,260		—		—			—			—			—			4,260
INCOME ATTRIBUTABLE TO COMMON STOCK	$	1,735,575	$	22,568	$	22,568		$	(5,583	)	$	904,001		$	(943,554	)	$	1,735,575

20

APACHE CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS
For the Nine Months Ended September 30, 2008

													All Other
							Apache			Apache			Subsidiaries
	Apache			Apache			Finance			Finance			of Apache			Reclassifications
	Corporation			North America			Australia			Canada			Corporation			& Eliminations			Consolidated
	(In thousands)
CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES	$	2,548,120		$	(12,424	)	$	(11,967	)	$	(26,375	)	$	3,531,214		$	—		$	6,028,568
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to oil and gas property		(1,663,706	)		—			—			—			(2,399,269	)		—			(4,062,975	)
Additions to gas gathering, transmission and processing facilities		—			—			—			—			(420,850	)		—			(420,850	)
Restricted cash		(13,844	)		—			—			—			—			—			(13,844	)
Proceeds from sale of oil & gas properties		206,748			—			—			—			99,953			—			306,701
Investment in subsidiaries, net		(230,924	)		(12,975	)		—			—			—			243,899			—
Other, net		(34,814	)		—			—			—			(7,695	)		—			(42,509	)
NET CASH USED IN INVESTING ACTIVITIES		(1,736,539	)		(12,975	)		—			—			(2,727,861	)		243,899			(4,233,477	)
CASH FLOWS FROM FINANCING ACTIVITIES:
Commercial paper and money market borrowings, net		(138,511	)		—			65			56			(30,652	)		—			(169,042	)
Payments on fixed-rate debt		—			—			—			—			(353	)		—			(353	)
Dividends paid		(187,735	)		4,940			(1,073	)		(2,130	)		143,313			(145,050	)		(187,735	)
Common stock activity		31,207			—			—			—			—			—			31,207
Treasury stock activity, net		4,171			19,975			12,975			26,699			39,200			(98,849	)		4,171
Cost of debt and equity transactions		(1,224	)		—			—			—			—			—			(1,224	)
Other		44,115			—			—			—			2,551			—			46,666
NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES		(247,977	)		24,915			11,967			24,625			154,059			(243,899	)		(276,310	)
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS		563,604			(484	)		—			(1,750	)		957,411			—			1,518,781
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR		3,626			484			1			1,751			119,961			—			125,823
CASH AND CASH EQUIVALENTS AT END OF PERIOD	$	567,230		$	—		$	1		$	1		$	1,077,372		$	—		$	1,644,604

21

APACHE CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS
For the Nine Months Ended September 30, 2007

													All Other
							Apache			Apache			Subsidiaries
	Apache			Apache			Finance			Finance			of Apache			Reclassifications
	Corporation			North America			Australia			Canada			Corporation			& Eliminations			Consolidated
	(In thousands)
CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES	$	2,692,991		$	—		$	(12,758	)	$	(1,021,084	)	$	2,218,323		$	—		$	3,877,472
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to oil and gas property		(1,486,331	)		—			—			—			(1,919,351	)		—			(3,405,682	)
Acquisition of Anadarko properties		(1,004,581	)		—			—			—			—			—			(1,004,581	)
Additions to gas gathering, transmission and processing facilities		—			—			—			—			(301,226	)		—			(301,226	)
Restricted cash
Proceeds from sale of oil & gas properties		4,623			—			—			—			6,451			—			11,074
Investment in subsidiaries, net		(1,061,800	)		(12,525	)		—			—			(1,034,017	)		2,108,342			—
Other, net		(51,011	)		—			—			—			(80,769	)		—			(131,780	)
NET CASH USED IN INVESTING ACTIVITIES		(3,599,100	)		(12,525	)		—			—			(3,328,912	)		2,108,342			(4,832,195	)
CASH FLOWS FROM FINANCING ACTIVITIES:
Commercial paper and money market borrowings, net		3,409,588			—			233			(2,426	)		85,982			(37,380	)		3,455,997
Payments on fixed-rate debt		(2,388,100	)		—			—			—			(26,859	)		—			(2,414,959	)
Dividends paid		(153,421	)		—			—			—			—			—			(153,421	)
Common stock activity		22,707			12,525			12,525			1,023,510			1,022,402			(2,070,962	)		22,707
Treasury stock activity, net		12,474			—			—			—			—			—			12,474
Cost of debt and equity transactions		(18,000	)		—			—			—			—			—			(18,000	)
Other		20,823			—			—			—			—			—			20,823
NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES		906,071			12,525			12,758			1,021,084			1,081,525			(2,108,342	)		925,621
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS		(38	)		—			—			—			(29,064	)		—			(29,102	)
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR		4,148			—			1			1			136,374			—			140,524
CASH AND CASH EQUIVALENTS AT END OF PERIOD	$	4,110		$	—		$	1		$	1		$	107,310		$	—		$	111,422

22

APACHE CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATING BALANCE SHEET
As of September 30, 2008

											All Other
						Apache			Apache		Subsidiaries
	Apache		Apache			Finance			Finance		of Apache			Reclassifications
	Corporation		North America			Australia			Canada		Corporation			& Eliminations			Consolidated
	(In thousands)
ASSETS
CURRENT ASSETS:
Cash and cash equivalents	$	567,230	$	—		$	1		$	1	$	1,077,273		$	—		$	1,644,504
Receivables, net of allowance		608,053		—			—			2,373		1,069,605			—			1,680,031
Inventories		42,246		—			—			—		437,477			—			479,723
Drilling advances and others		262,010		—			—			—		105,925			—			367,934
Short-term investments		—		—			—			—		100			—			100
		1,479,538		—			1			2,374		2,690,379			—			4,172,292
PROPERTY AND EQUIPMENT, NET		12,907,731		—			—			—		15,211,087			—			28,118,818
OTHER ASSETS:
Intercompany receivable, net		1,225,943		—			—			—		—			(1,225,943	)		—
Restricted cash		13,844		—			—			—		—			—			13,844
Goodwill, net		—		—			—			—		189,252			—			189,252
Equity in affiliates		12,821,112		484,889			692,281			2,003,426		(183,136	)		(15,818,572	)		—
Deferred charges and other		221,345		—			—			1,003,431		273,450			(1,000,000	)		498,226
		14,282,244		484,889			692,281			3,006,857		279,566			(18,044,515	)		701,322
	$	28,669,513	$	484,889		$	692,282		$	3,009,231	$	18,181,032		$	(18,044,515	)	$	32,992,432
LIABILITIES AND SHAREHOLDERS’ EQUITY
CURRENT LIABILITIES:
Short-term debt	$	—	$	—		$	99,955		$	—	$	40,559		$	—		$	140,514
Accounts payable		475,010		—			—			—		227,133			—			702,143
Other accrued expenses		1,194,450		4,493			158,959			311,786		1,629,903			(1,225,943	)		2,073,648
		1,669,460		4,493			258,914			311,786		1,897,595			(1,225,943	)		2,916,305
LONG-TERM DEBT		3,264,410		—			—			647,052		5,866			—			3,917,327
DEFERRED CREDITS AND OTHER NONCURRENT LIABILITIES:
Income taxes		2,013,286		(3,056	)		(34,641	)		4,394		2,532,435			—			4,512,418
Advances from gas purchasers		—		—			—			—		—			—			—
Asset retirement obligation		856,111		—			—			—		606,198			—			1,462,309
Derivative instruments		600,693		16,880			(16,880	)		—		81,089			—			681,782
Other		1,502,447		—			—			—		236,737			(1,000,000	)		739,184
		4,972,537		13,824			(51,521	)		4,394		3,456,459			(1,000,000	)		7,395,693
COMMITMENTS AND CONTINGENCIES:
SHAREHOLDERS’ EQUITY		18,763,106		466,572			484,889			2,045,999		12,821,112			(15,818,572	)		18,763,106
	$	28,669,513	$	484,889		$	692,282		$	3,009,231	$	18,181,032		$	(18,044,515	)	$	32,992,432

23

APACHE CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATING BALANCE SHEET
As of December 31, 2007

											All Other
					Apache			Apache			Subsidiaries
	Apache		Apache		Finance			Finance			of Apache			Reclassifications
	Corporation		North America		Australia			Canada			Corporation			& Eliminations			Consolidated
	(In thousands)
ASSETS
CURRENT ASSETS:
Cash and cash equivalents	$	3,626	$	—	$	1		$	1,751		$	120,445		$	—		$	125,823
Receivables, net of allowance		883,022		—		—			—			1,053,955			—			1,936,977
Inventories		25,445		—		—			—			435,766			—			461,211
Drilling advances and others		140,335		—		—			—			87,905			—			228,240
Short-term investments
		1,052,428		—		1			1,751			1,698,071			—			2,752,251
PROPERTY AND EQUIPMENT, NET		11,858,362		—		—			—			13,373,231			—			25,231,593
OTHER ASSETS:
InterCompany receivable, net		1,080,893		—		(170,000	)		(253,268	)		(657,625	)		—			—
Restricted cash
Goodwill, net		—		—		—			—			189,252			—			189,252
Equity in affiliates		10,512,679		451,161		670,908			2,137,603			(168,977	)		(13,603,374	)		—
Deferred charges and other		211,399		—		—			1,003,668			246,488			(1,000,000	)		461,555
	$	24,715,761	$	451,161	$	500,909		$	2,889,754		$	14,680,440		$	(14,603,374	)	$	28,634,651
LIABILITIES AND SHAREHOLDERS’ EQUITY
CURRENT LIABILITIES:
Short-term debt	$	139,100	$	—	$	—		$	—		$	75,974		$	—		$	215,074
Accounts payable		414,733		—		—			—			203,204			—			617,937
Other accrued expenses		1,170,670		—		(12,994	)		39,438			634,891			—			1,832,005
		1,724,503		—		(12,994	)		39,438			914,069			—			2,665,016
LONG-TERM DEBT		3,263,820		—		99,890			646,996			899			—			4,011,605
DEFERRED CREDITS AND OTHER NONCURRENT LIABILITIES:
Income taxes		1,582,346		—		(37,148	)		5,630			2,374,155			—			3,924,983
Advances from gas purchasers		12,004		—		—			—			—			—			12,004
Asset retirement obligation		962,287		—		—			—			594,622			—			1,556,909
Derivative instruments		346,408		—		—			—			35,383			—			381,791
Other		1,446,414		—		—			9,317			248,633			(1,000,000	)		704,364
		4,349,459		—		(37,148	)		14,947			3,252,793			(1,000,000	)		6,580,051
COMMITMENTS AND CONTINGENCIES:
SHAREHOLDERS’ EQUITY		15,377,979		451,161		451,161			2,188,373			10,512,679			(13,603,374	)		15,377,979
	$	24,715,761	$	451,161	$	500,909		$	2,889,754		$	14,680,440		$	(14,603,374	)	$	28,634,651

24

ITEM 2 — MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

     This discussion relates to Apache Corporation and its consolidated subsidiaries and should be read in conjunction with our consolidated financial statements as of September 30, 2008, and the period then ended and accompanying notes included under Part I, Item 1, of this Quarterly Report on Form 10-Q, as well as our consolidated financial statements as of December 31, 2007, and the year then ended, and the related Management’s Discussion and Analysis of Financial Condition and Results of Operations, both of which are contained in our Annual Report on Form 10-K for the year ended December 31, 2007.

     Apache Corporation (Apache) is an independent energy company whose principal business includes exploration, development and production of crude oil, natural gas and natural gas liquids. We operate in six countries: the United States, Canada, Egypt, Australia, offshore the United Kingdom in the North Sea and Argentina. Early in the second quarter of 2008, we finalized contracts for two exploration blocks in Chile.

     Third-quarter 2008 earnings were Apache’s second highest on record, surpassed only by earnings in the second quarter of 2008. Our 2008 earnings through September totaled $10.84 per diluted common share, $2.45 ahead of 2007 full-year earnings. Crude oil and natural gas prices remained strong through July but began weakening in August and September. Since the end of the third quarter, we have seen further price reduction with the perception of future demand being altered by turmoil in the financial markets and diminished economic outlook. Third-quarter production was impacted by four named storms in the Gulf of Mexico (discussed below) and production remaining shut-in because of the June 3, 2008 pipeline explosion and fire at the Varanus Island gas processing and transportation hub offshore Western Australia operated by subsidiaries of the Company.

Third Quarter 2008 compared to Third Quarter 2007

     Apache earned $1.2 billion, or $3.52 per diluted common share, in the third quarter of 2008, nearly double the $612 million ($1.83 per share) earned in the same quarter of 2007. Cash flow from operating activities totaled $2.3 billion, compared to $1.4 billion last year, an increase of 60 percent. The 2008 third-quarter effective tax rate and earnings were impacted by a $114 million non-cash tax benefit, primarily deferred taxes, related to the strengthening U.S. dollar. The 2007 third-quarter effective tax rate and earnings were impacted by a $114 million non-cash tax charge, primarily deferred taxes, related to the weakening U.S. dollar.

     Oil and gas production revenues totaled $3.4 billion, 35 percent higher than the 2007 comparable quarter, on substantially higher price realizations. Crude oil realizations averaged $101.04 a barrel, 43 percent above 2007 third-quarter prices, while natural gas realizations averaged $7.43 per thousand cubic feet (Mcf), up 49 percent. While these quarterly price realizations were substantially above year-ago prices, they were down from our second-quarter 2008 record price realizations and will fall further if recent market price trends continue throughout the fourth quarter of 2008. This quarter’s pre-tax margin was the second highest in our history, up 70 percent from the 2007 third quarter. For a more detailed discussion of our revenue and cost components, please refer to Results of Operations in this Item 2.

Pre-tax Margins
	For the Quarter Ended September 30,
	2008		2007
	(In thousands, except margin)
Income before Income Taxes	$	1,813,354	$	1,174,078
Barrels of oil equivalent produced		46,982		51,650
Pre-tax margin per boe produced	$	38.60	$	22.73

Year-to-Date 2008 compared to Year-to-Date 2007

     Apache earned a record $3.7 billion, or $10.84 per diluted common share, for the nine-month period ending September 30, 2008, more than double the $1.7 billion, or $5.19 per share, earned in the same period last year. Cash flow from operating activities totaled $6.0 billion for the nine-month period, compared to $3.9 billion last year, an increase of 55 percent. The 2008 period effective tax rate and earnings were impacted by a $127 million non-cash tax benefit, primarily on deferred taxes, related to the strengthening U.S. dollar. The 2007 period effective tax rate and earnings were impacted by a $182 million non-cash deferred tax charge related to the weakening U.S. dollar, partially offset by a $17 million Canadian tax rate reduction benefit.

25

     The Company generated $10.5 billion of oil and gas production revenues, surpassing 2007 full-year revenues and 50 percent higher than the 2007 nine-month period. Crude oil realizations averaged $100.17 a barrel, 57 percent above 2007 year-to-date prices, while natural gas realizations averaged $7.30 per Mcf, up 39 percent. Apache’s pre-tax margin for the period was nearly double the 2007 period margin. For a more detailed discussion of our revenue and cost components, please refer to Results of Operations in this Item 2.

Pre-tax Margins
	For the Nine Months Ended
	September 30,
	2008		2007
	(In thousands, except margin)
Income before Income Taxes	$	5,833,110	$	3,126,965
Barrels of oil equivalent produced		147,922		151,985
Pre-tax margin per boe produced	$	39.43	$	20.57

Third Quarter 2008 Operating Highlights

U.S. Gulf Coast

     During the third quarter of 2008, four named storms struck the Gulf of Mexico, impacting the Company’s U.S. Gulf Coast operations. Three of these storms, Hurricane Dolly, Tropical Storm Edouard and Hurricane Gustav, required only temporary curtailment of production and caused minor damage to the Company’s production platforms. Even though the other storm, Hurricane Ike, caused widespread damage to both onshore and offshore production and transportation facilities, the majority of the Company’s 459 offshore operated platforms escaped with minor damage. Three Company-operated and two non-operated platforms were toppled. One other platform was destroyed by fire and will not be repaired. Another four operated platforms sustained major damage that will require significant repair. All were minor producers and had no significant reserves. Additionally, third-party pipelines and processing facilities, on which the Company relies to transport and process the crude oil and natural gas it produces, were damaged. Restoration of full production is dependent on numerous factors, most of which are beyond the Company’s control. The majority of the production should be restored by the end of 2008. The impact on operations and results follows:

     Production — Substantially all of Apache’s net production shut-in during the third quarter occurred late in September and averaged approximately 112 million cubic feet per day (MMcf/d) of natural gas and 17,900 barrels per day of oil (b/d). As of early November 2008, the Gulf Coast region was producing a net 283 MMcf/d of natural gas and 42,000 b/d of oil.

     Financial Results — The impact of the hurricanes on the Company’s third-quarter 2008 financial results included $262 million of lower crude oil and natural gas revenues. As of the end of the quarter, the Company had not incurred any meaningful capital or repair expenditures. During the fourth quarter, Apache expects repair costs to range from $60 million to $80 million, in line with the Company’s estimated insurance coverage deductibles.

     Assessment of Damage — The Company is continuing its assessment of damage caused by Hurricane Ike and is unable to estimate the ultimate costs of abandonment and repair at this time. Four operated production platforms were destroyed and four were severely damaged during Hurricane Ike. Prior to Hurricane Ike, aggregate net production from destroyed and damaged platforms was approximately 1,400 b/d of oil and 9 MMcf/d of gas. Additionally, two non-operated structures at Eugene Island 330 were destroyed. All but approximately 1,100 barrels of oil equivalent (boe) per day of production will ultimately be restored.

     Insurance Coverage — The Company carries property damage insurance for windstorm in the Gulf of Mexico of $250 million, subject to a $100 million deductible, per event. The deductible will be prorated based on the Company’s working interest in the damaged properties. The $250 million in coverage is provided through Oil Insurance Ltd (OIL) and will be prorated down if total claims received by the insurer for a single event exceed $750 million. The Company carries another $150 million in aggregate for the policy year, purchased in the commercial market. As of early November, OIL has indicated that losses for Hurricane Ike could exceed their aggregate limit. The total impact will not be known until all claims are filed.

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Egypt

     During the third quarter, several notable wells were drilled in Egypt. The East Bahariya and East Beni Suef concession wells tested at 1,145 b/d and 930 b/d, respectively. These two discoveries potentially add to our inventory of water-flood projects. In the Khalda Offset concession, a gas-condensate wildcat discovery tested 11 MMcf/d of gas and 5,027 b/d of condensate. The Heqet-2 well, located in the Greater Khalda area of Egypt’s Western Desert, tested 2,100 b/d from a previously untested Jurassic Safa formation at a depth of 14,430–14,450 feet. We also announced that the Umbarka-174 well tested 4,300 b/d in the main Alem el Bueib (AEB) field in the north central portion of the Greater Khalda area.

     Subsequent to the end of the third quarter, we announced the WKAL-C-1X discovery on the West Kalabsha concession. The well tested 4,746 b/d and 4.4 MMcf/d of gas in the Jurassic Safa formation. The WKAL-C-1X discovery had similar characteristics to the Heqet-2 well and represents the westernmost oil ever discovered in Egypt, confirming our exploration model for this area of the Faghur Basin.

Australia

     Varanus Island — On June 3, 2008, subsidiaries of the Company reported a gas pipeline explosion and fire at the Varanus Island gas processing and transportation hub offshore Western Australia, which shut-in production at the John Brookes field and Harriet Joint Venture. The Island’s operations account for approximately 195 million cubic feet (MMcf) of natural gas and 5,400 barrels of oil per day (net to Apache subsidiaries). On August 5, 2008, partial production was reestablished from the John Brookes field. By the end of the quarter, the field was producing at the full capacity of the John Brookes facility. Production from the Harriet Joint Venture remains shut-in, awaiting facility repairs. The John Brookes field accounted for approximately 60 percent and 25 percent of the island’s pre-incident natural gas and oil production, respectively. Production from the Harriet Joint Venture, which accounted for the remaining 40 percent and 75 percent of the island’s pre-incident natural gas and oil production, respectively, is currently projected to be restored in the fourth quarter. The Harriet Joint Venture facilities are located adjacent to the pipeline explosion and will require significant repairs to restore production. Company subsidiaries operate the facilities and own a 68.5 percent interest in the Harriet Joint Venture and a 55 percent interest in the John Brookes field. Company subsidiaries maintain replacement cost insurance, subject to a deductible of approximately $7 million, with adequate limits to cover fully their share of the estimated cost of restoring the Varanus Island facilities.

     Drilling Results — During the third quarter of 2008, four wells reached total depth. Three of the wells found commercial quantities of hydrocarbons. The Lee-4 intersected four pay zones in the North Rankin, Brigadier, Mungaroo “A” and Mungaroo “B” formations and is currently being completed as a future gas producer. The Simpson-9 and Simpson-10 oil wells have been perforated and are waiting on repairs to the Harriet Joint Venture facilities to commence production.

North Sea

     Drilling successes and improved platform operating efficiencies enabled the region’s third-quarter 2008 production to reach 61,305 boe per day, the region’s best daily production average since the second quarter of 2006.

Argentina

     We completed our 2,500 square kilometer three dimensional seismic shoot in the Tierra del Fuego province and have identified over 100 potential features to drill in the future.

Chile

     During the third quarter of 2008, we commenced a seismic program on the two exploration blocks we acquired early in the second quarter of 2008.

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Results of Operations

  Revenues

	For the Quarter Ended September 30,								For the Nine Months Ended September 30,
	2008				2007				2008				2007
Revenues (in thousands):
Oil	$	2,253,270	67	%	$	1,627,467	65	%	$	6,979,894	67	%	$	4,261,017	61	%
Natural gas		1,057,040	31	%		819,351	33	%		3,290,342	31	%		2,568,847	37	%
Natural gas liquids		58,572	2	%		51,776	2	%		180,713	2	%		135,828	2	%
Total	$	3,368,882	100	%	$	2,498,594	100	%	$	10,450,949	100	%	$	6,965,692	100	%

     Effect of cash flow hedges included in oil and gas revenues were as follows:

	Three Months Ended						Nine Months Ended
	September 30,						September 30,
	2008			2007			2008			2007
	(In millions)
Increase (decrease) in crude oil revenues	$	(168	)	$	(40	)	$	(472	)	$	(30	)
Increase (decrease) in natural gas revenues		(19	)		35			(29	)		42
Total increase (decrease) in oil and gas revenues	$	(187	)	$	(5	)	$	(501	)	$	12
Percentage of oil and gas revenues		5	%		*			5	%		*

* Less than one percent

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  Production and Pricing

     The table below presents oil and gas production revenues, production and average prices realized from sales of natural gas, oil and natural gas liquids.

	For the Quarter Ended September 30,							For the Nine Months Ended September 30,
					Increase							Increase
	2008		2007		(Decrease)			2008		2007		(Decrease)
Oil Volume — Barrels per day:
United States		80,284		97,025		(17.25	)%		93,622		87,660		6.80	%
Canada		16,655		18,451		(9.73	)%		17,247		18,838		(8.45	)%
Egypt		64,803		60,395		7.30	%		64,082		60,219		6.41	%
Australia		7,083		14,685		(51.77	)%		8,286		14,308		(42.09	)%
North Sea		60,856		48,888		24.48	%		58,740		52,572		11.73	%
Argentina		12,729		11,708		8.72	%		12,342		11,266		9.55	%
Total (1)		242,410		251,152		(3.48	)%		254,319		244,863		3.86	%
Average Oil price — Per barrel:
United States	$	93.69	$	67.70		38.39	%	$	91.48	$	61.75		48.15	%
Canada		111.81		73.95		51.20	%		108.10		63.74		69.60	%
Egypt		105.60		74.04		42.63	%		110.01		66.50		65.43	%
Australia		99.66		76.65		30.02	%		111.86		73.30		52.61	%
North Sea		113.56		73.18		55.18	%		110.08		65.21		68.81	%
Argentina		50.95		49.70		2.52	%		48.76		45.52		7.12	%
Total (2)		101.04		70.43		43.46	%		100.17		63.74		57.15	%
Natural Gas Volume — Mcf per day:
United States		635,891		763,693		(16.73	)%		712,529		768,520		(7.29	)%
Canada		349,000		386,659		(9.74	)%		355,834		386,312		(7.89	)%
Egypt		287,231		241,919		18.73	%		254,786		239,951		6.18	%
Australia		54,726		194,520		(71.87	)%		124,888		195,242		(36.03	)%
North Sea		2,697		1,721		56.71	%		2,604		1,851		40.68	%
Argentina		217,091		196,168		10.67	%		193,257		203,524		(5.04	)%
Total (3)		1,546,636		1,784,680		(13.34	)%		1,643,898		1,795,400		(8.44	)%
Average Natural Gas price — Per Mcf:
United States	$	9.96	$	6.59		51.14	%	$	9.64	$	6.95		38.71	%
Canada		8.70		5.54		57.04	%		8.63		6.25		38.08	%
Egypt		5.62		4.72		19.07	%		5.68		4.42		28.51	%
Australia		2.36		1.93		22.28	%		2.18		1.83		19.13	%
North Sea		27.17		16.98		60.01	%		21.88		12.80		70.94	%
Argentina		1.41		0.93		51.61	%		1.53		1.03		48.54	%
Total (4)		7.43		4.99		48.70	%		7.30		5.24		39.31	%
Natural Gas Liquids (NGL)
Volume — Barrels per day:
United States		5,450		7,766		(29.82	)%		6,636		7,677		(13.56	)%
Canada		2,034		2,253		(9.72	)%		2,046		2,199		(6.96	)%
Argentina		3,005		2,794		7.55	%		2,877		2,749		4.66	%
Total		10,489		12,813		(18.14	)%		11,559		12,625		(8.44	)%
Average NGL Price — Per barrel:
United States	$	72.82	$	47.18		54.35	%	$	64.49	$	41.64		54.88	%
Canada		63.77		40.39		57.89	%		58.62		37.05		58.22	%
Argentina		36.63		37.74		(2.94	)%		38.81		35.07		10.66	%
Total		60.70		43.92		38.21	%		57.06		39.41		44.79	%

(1)	Approximately 20 percent and 19 percent of oil production was subject to financial derivative hedges for the third quarter and nine-month period of 2008, respectively; 20 percent and 18 percent for the 2007 third quarter and nine-month period, respectively.
(2)	Reflects a per barrel reduction of $7.54 and $6.77 for the 2008 third quarter and nine-month period, respectively; a decrease of $1.71 and $.44 for the 2007 third quarter and nine-month period, respectively.
(3)	Approximately 22 percent and 20 percent of natural gas production was subject to financial derivative hedges for the third quarter and nine-month period of 2008, respectively; 20 percent and 18 percent for the 2007 third quarter and nine-month period, respectively.
(4)	Reflects a per Mcf reduction of $.13 and $.06 for the 2008 third quarter and nine-month period, respectively, an increase of $.21 and $.09 the 2007 third quarter and nine-month period, respectively.

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Third Quarter 2008 compared to Third Quarter 2007

     Crude Oil Revenues Third-quarter 2008 crude oil revenues increased $626 million on a 43 percent increase in average realized price. Production was three percent lower.

     U.S. oil revenues were $88 million higher, driven by a 38 percent increase in realized crude oil prices. Revenue growth was restricted by the 17,900 b/d of estimated production shut-in from tropical storm and hurricane activity in the Gulf Coast region. Gulf Coast region production was 28 percent lower on a comparable basis, but would have been up three percent absent storm-related downtime. Production gains in the Gulf Coast region from drilling and recompletion activities were largely offset by natural decline and non-hurricane downtime. Central region production was down two percent following property divestitures.

     Egyptian crude oil revenues increased $218 million on a 43 percent increase in price realizations and a seven percent increase in production. Price realizations averaged $105.60 per barrel, up $31.56 from 2007. Oil production in Egypt increased 4,408 b/d as new discoveries and recompletion and workover activities combined to more than offset the impact that higher commodity prices have on cost recovery volumes. Production gains were made in several concessions, most notably from new wells in East Baharyia, Matruh and Umbarka, and successful recompletions in Matruh and El Diyur.

     North Sea crude oil revenues rose $307 million, nearly double last year’s third-quarter amount. Production was 24 percent higher primarily because of timing of annual maintenance and successful drilling and workover programs. Oil realizations increased 55 percent, averaging $113.56 per barrel.

     Canadian oil revenues rose $46 million on a 51 percent increase in price realizations. Prices increased $37.86 to $111.81 per barrel. Production was down 10 percent on natural decline and property divestitures, which more than offset gains from drilling and recompletion activities.

     Argentina’s crude oil revenues increased 11 percent, or $6 million from last year, on a nine percent increase in production and a three percent increase in realized prices. New wells in Tierra del Fuego area and successful recompletions in the El Santigueño field drove production gains. Price restrictions in Argentina limited oil price realizations and our ability to sell production at prevailing world prices.

     Australian oil revenues fell $39 million compared to the third quarter of 2007, primarily because production was 52 percent lower than the prior-year quarter. Output was severely impacted by the June 3, 2008, pipeline explosion and fire at Varanus Island which shut-in all production from the John Brookes and Harriet Joint Venture. In the month prior to the explosion, the fields were producing at an average net rate of 1,348 and 4,049 b/d, respectively. On August 5, 2008, partial production was restored at the John Brookes field, and in September, the field averaged 1,144 b/d. Production from the John Brookes field was fully restored in early October 2008. The Harriet Joint Venture remains shut-in awaiting repairs, and production is expected to come back online in the fourth quarter of 2008.

     Natural Gas Revenues Third-quarter natural gas revenues increased $238 million driven by a 49 percent increase in realized prices. Worldwide production was down 13 percent. All core gas producing regions, with the exception of Australia, realized higher natural gas revenues.

     U.S. natural gas revenues increased $119 million as natural gas price realizations averaged $9.96, up $3.37 per Mcf from the prior-year period. Gulf Coast daily production was 29 percent lower on natural decline and approximately 112 MMcf/d of estimated production shut-in from tropical storms and hurricane activity in the Gulf Coast region, which more than offset gains from drilling and recompletion activity. Central region production was up two percent on acquired properties and drilling and recompletion activity, which more than offset natural decline and downtime.

     Egyptian gas revenues were $43 million higher than the comparable 2007 quarter. A 19 percent increase in both price realizations and production led to stronger revenues. Production was higher at the Khalda concession where the prior year’s quarter was negatively impacted by non-recurring gas plant shut-ins at Obayied and Salam. Production also rose with new wells at our Northeast Abu Gharadig Concession.

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     Canadian gas revenues increased $82 million, or 42 percent, led by stronger prices. Third-quarter natural gas realizations averaged $8.70 per Mcf, 57 percent higher than the prior year. Natural decline and property divestitures lowered production by 10 percent.

     Argentina’s natural gas revenues increased $11 million, or 67 percent, over last year on a 52 percent increase in realized price and an 11 percent rise in production. A successful drilling and workover program in the Neuquén Basin more than offset export and pipeline restrictions at Tierra del Fuego.

     Third-quarter 2008 Australian gas revenues fell $23 million from prior year, with production down 72 percent. As discussed above, the John Brookes and Harriet Joint Venture were shut-in following the pipeline explosion and fire at Varanus Island. In the month prior to the explosion, the fields were producing at an average net rate of 116,310 Mcf/d and 78,796 Mcf/d, respectively. On August 5, 2008, partial production was restored at the John Brookes field, and in September, the field averaged a net 107,286 Mcf/d. Production was fully restored in early October 2008. The Harriet Joint Venture remains shut-in awaiting repairs, and production is expected to come back online in the fourth quarter of 2008.

Year-to-Date 2008 compared to Year-to-Date 2007

     Crude Oil Revenues Year-to-date crude oil revenues increased $2.7 billion on a 57 percent increase in average realized price and a four percent increase in daily production.

     U.S. oil revenues were $869 million higher, driven by a 48 percent increase in realized crude oil prices and a seven percent increase in daily production. Production increased six percent in the Gulf Coast region and seven percent in the Central region. Gulf Coast region production gains were associated with drilling and recompletion activity. Production shut-in because of the hurricanes averaged an estimated 6,000 b/d. Central region production was up from Permian Basin properties acquired at the end of March 2007. Prices in the U.S. averaged $91.48 per barrel in 2008 compared to $61.75 in 2007.

     Egypt’s crude oil revenues increased $838 million on a 65 percent increase in realized price and a six percent increase in daily crude oil production. Egypt’s 2008 price realizations were up $43.51 to $110.01 per barrel. Oil production in Egypt increased 3,863 b/d as new discoveries and recompletion and workover activities combined to more than offset the impact that higher commodity prices have on cost recovery volumes. Production rose on new wells at East Bahariya and development drilling at Umbarka.

     North Sea oil revenues increased $836 million, 89 percent higher than last year’s nine-month period. Revenue gains were driven by a 69 percent increase in realized price and a 12 percent increase in production. Oil price realizations averaged $110.08, up $44.87 per barrel. Production was higher with gains from new wells and workover activity more than offsetting natural decline.

     Canada’s oil revenues increased $183 million. Realized prices were up 70 percent and averaged $108.10 per barrel. Daily production declined eight percent on divested properties and natural decline in various fields, which more than offset drilling and recompletion activity.

     Argentina’s crude oil revenues increased $25 million with production up 10 percent and realized prices up seven percent. Higher production was related to successful drilling, workover and recompletion activities, particularly at Tierra del Fuego. Price restrictions in Argentina limited our oil price realizations and our ability to sell production at prevailing world prices.

     Australia’s oil revenues fell $32 million in the first nine months of 2008 compared to 2007. Production fell 6,022 b/d, a decline of 42 percent, on the Varanus Island pipeline explosion and fire previously mentioned.

     Natural Gas Revenues Year-to-date natural gas revenues increased $721 million, driven by a 39 percent increase in realized natural gas prices. Worldwide production was down eight percent from 2007. All core gas producing regions saw higher natural gas revenues.

     U.S. natural gas revenues increased $423 million. Natural gas prices averaged $9.64, up $2.69 per Mcf. Production declined seven percent. Central region daily production was up four percent on drilling and recompletion activities and incremental volumes from Permian Basin properties acquired at the end of March 2007.

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Gulf Coast daily production was 14 percent lower on natural decline as well as downtime related to the hurricanes, which more than offset gains from drilling and recompletion activities.

     Canada’s natural gas revenues increased $182 million on a 38 percent increase in realized natural gas prices. Gas price realizations climbed $2.38 to $8.63 per Mcf. Natural gas production decreased eight percent because of natural decline in various areas and property divestitures.

     Egyptian gas revenues rose $107 million over last year’s amount on a six percent rise in production and a 29 percent increase in price realizations. Production from new discoveries and recompletion activities more than offset the reduction in cost recovery barrels associated with higher commodity prices. The production growth came from new wells and less relative downtime at Northeast Abu Gharadig and recompletion activities at Matruh.

     Argentina’s natural gas revenues increased $23 million, driven by a 49 percent increase in realized price. Production was down five percent, negatively impacted by gas re-injections at Tierra del Fuego related to gas export and pipeline restrictions.

     Australia’s natural gas revenues were down $23 million year-over-year, with sales impacted by a 36 percent drop in production related to the Varanus Island pipeline explosion and fire previously discussed.

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 expenses either on a boe basis or on an absolute dollar basis, or both, depending on their relevance.

	For the Quarter Ended September 30,								For the Nine Months Ended September 30,
	2008		2007		2008		2007		2008		2007		2008		2007
	(In millions)				(Per boe)				(In millions)				(Per boe)
Depreciation, depletion and amortization (DD&A):
Oil and gas property	$	560	$	565	$	11.93	$	10.94	$	1,734	$	1,619	$	11.72	$	10.65
Other assets		41		36		.86		.70		115		104		.78		.68
Total DD&A		601		601						1,849		1,723
Asset retirement obligation accretion		25		24		.53		.47		77		73		.52		.48
Lease operating costs		488		410		10.39		7.93		1,390		1,198		9.39		7.88
Gathering and transportation costs		43		35		.90		.67		123		100		.83		.66
Taxes other than income		304		140		6.48		2.70		846		393		5.72		2.59
General and administrative expense		58		61		1.22		1.19		219		200		1.48		1.32
Financing costs, net		33		60		.71		1.17		116		166		.79		1.09
Total	$	1,552	$	1,331	$	33.02	$	25.77	$	4,620	$	3,853	$	31.23	$	25.35

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Third Quarter 2008 compared to Third Quarter 2007

     Depreciation, Depletion and Amortization (DD&A) The following table details the changes in depletion of oil and gas properties between the three-month periods ended September 30, 2008 and 2007.

	For the Quarter
	Ended
	September 30,
	(In millions)
2007 depletion	$	565
Volume change		(65	)
Rate change		60
2008 depletion	$	560

     Full-cost depletion expense of $560 million decreased $5 million on an absolute dollar basis; $65 million on lower volumes, partially offset by a $60 million rate increase. The Company’s full-cost depletion rate increased $.99 to $11.93 per boe. The increase in rate reflects drilling and finding costs that continue to exceed our historical cost basis. The higher industry-wide costs, which also impact estimates of future development costs, have been driven by increased demand for drilling services, a consequence of recent higher oil and gas prices.

     Lease Operating Expenses (LOE) LOE increased 19 percent on an absolute dollar basis. On a per unit basis LOE was up 31 percent, or $2.46 per boe, with $1.17 of the increase associated with production shut-in at Varanus Island and in our Gulf Coast region because of the hurricanes.

     Factors impacting our LOE rate follow:

• Overall production declines resulted in an increase of $.95, with the impact from a combined 22 percent production decrease in the U.S., Canada and Australia partially offset by production growth in Egypt, the North Sea and Argentina. Individually, the chief contributors were production shut-in at Varanus Island, $.50; and production shut-in because of the hurricanes, $.67.

• Non-recurring repairs and maintenance, primarily in the U.S. and to Australia’s Varanus Island facility, increased LOE by $.50. These costs do not include any repairs for 2008 hurricane damage, which will commence in the fourth quarter of 2008.

• Increased workover activity, primarily in the U.S. and Egypt, added $.38.

• Increased labor costs and usage of materials, primarily in the U.S., Egypt, and Argentina, added $.11.

• Higher relative power rates and usage tacked on another $.27.

The remaining increase is caused by other minor variances, including increased gas buybacks and lower stock-based compensation.

     Gathering and Transportation Gathering and transportation costs totaled $43 million, up $8 million. The following table presents gathering and transportation costs paid by Apache to third-party carriers for each of the periods presented.

	For the Quarter Ended
	September 30,
	2008		2007
	(In millions)
U.S.	$	12	$	10
Canada		16		15
North Sea		8		6
Egypt		6		3
Argentina		1		1
Total Gathering and Transportation	$	43	$	35

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     Higher transportation tariffs drove the increase in the U.S. Egypt was up on an increase in export volumes, while the North Sea increased on higher transportation tariffs and volumes.

     Taxes other than Income Taxes other than income increased $164 million from the corresponding prior-year period on higher product prices. A detail of these taxes follows:

	For the Quarter Ended
	September 30,
	2008		2007
	(In millions)
Ad Valorem taxes	$	16	$	15
Severance taxes		48		37
U.K. PRT		228		73
Canadian taxes		4		6
Other		8		9
Total Taxes other than Income	$	304	$	140

     North Sea Petroleum Revenue Tax (PRT) is assessed on net profits from subject fields in the United Kingdom (U.K.) North Sea. U.K. PRT was $155 million more than the 2007 period on a 208 percent increase in net profits, primarily driven by a significant increase in revenues. Severance taxes are incurred primarily on onshore properties in the U.S. and certain properties in Australia and Argentina. The increase in severance taxes resulted from higher taxable revenues in the U.S., consistent with the higher realized oil and natural gas prices. Ad valorem taxes are assessed on U.S. and Canadian properties. The $1 million increase resulted from higher taxable valuations associated with higher oil and natural gas prices.

     General and Administrative Expenses (G&A) G&A expenses were $3 million lower. On a boe basis, G&A averaged $1.22, up $.03 per boe, with the impact from lower costs more than offset by reduced volumes. The decreased volumes added $.11 per boe to the rate, while costs reduced the rate $.08. Stock-based compensation was down because of a lower stock price, which impacts the Company’s Stock Appreciation Rights (SARs) value. This lower value offset higher incentive-based compensation and additional stock-based expense associated with new grants, reducing the 2008 rate $.15 per boe on a comparable basis. Higher legal fees along with other miscellaneous costs added $.07.

     Financing Costs, Net Financing costs incurred during the periods noted are composed of the following:

	For the Quarter Ended
	September 30,
	2008			2007
	(In millions)
Interest expense	$	66		$	83
Amortization of deferred loan costs		1			1
Capitalized interest		(24	)		(19	)
Interest income		(10	)		(5	)
Financing costs, net	$	33		$	60

     Interest expense decreased $17 million on lower average debt balances, which decreased 21 percent. Capitalized interest was up primarily because of higher expenditures associated with long-term construction projects that are under development. Interest income increased because of higher average cash balances.

     Provision for Income Taxes During interim periods, income tax expense is based on the estimated effective income tax rate that is expected for the entire fiscal year. There were no significant changes in statutory tax rates in the major jurisdictions in which the Company operates during the third quarter of 2008 or 2007.

     The provision for income taxes increased $62 million to $623 million, 11 percent higher than the prior-year period taxes, as income before taxes increased 54 percent on significantly higher oil and gas production revenues. The effective income tax rate in the third quarter of 2008 was 34.3 percent compared to 47.8 percent in the third quarter of 2007. In the third quarter of 2008, Apache recorded a $114 million non-cash tax benefit, primarily on deferred taxes, related to the effect of the strengthening U.S. dollar on re-measurement of our foreign tax liabilities, compared to $114 million of additional tax expense from currency fluctuations during the third quarter of 2007.

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Year-to-Date 2008 compared to Year-to-Date 2007

     Depreciation, Depletion and Amortization The following table details the changes in depletion of oil and gas properties between the nine-month periods ended September 30, 2008 and 2007.

	For the Nine
	Months Ended
	September 30,
	(In millions)
2007 depletion	$	1,619
Volume change		(52	)
Rate change		167
2008 depletion	$	1,734

     Full-cost depletion expense increased $115 million, $167 million on rate offset by $52 million on lower volumes. The Company’s full-cost depletion rate increased $1.07 to $11.72 per boe. The increase in rate reflects drilling and finding costs that continue to exceed our historical cost basis. The higher industry-wide costs, which also impact estimates of future development costs, have been driven by increased demand for drilling services, a consequence of recent higher oil and gas prices.

     Lease Operating Expenses LOE increased 16 percent on an absolute dollar basis. On a per unit basis LOE was up 19 percent, or $1.51 per boe, with $.44 of the increase associated with production shut-in at Varanus Island and in our Gulf Coast region because of the hurricanes.

     Factors impacting our LOE rate follow:

• Higher operating costs in all regions, including increased power costs in the U.S. and Egypt and increased labor costs in our North American regions, drove the rate up $.44.

• Increased workover activity, primarily in the U.S. and Egypt, resulted in an increase of $.39.

• Overall production declines resulted in an increase of $.26, with the impact from a combined 7 percent production decline in the U.S., Canada, Australia and Argentina partially offset by increased production in Egypt and the North Sea. The main contributors were production shut-in at Varanus Island, $.23; and production shut-in because of the hurricanes, $.21.

• The weakening U.S. dollar added $.17 to the rate. Over the past 12 months, the U.S. dollar weakened against the Australian and Canadian dollars and strengthened against the British Pound. Beginning in late September 2008 and continuing into October 2008, the U.S. dollar strengthened substantially against major currencies.

     These increases were partially offset by other minor variances, including a decrease in non-recurring repairs and maintenance.

     Gathering and Transportation Gathering and transportation costs totaled $123 million, up $23 million. The following table presents gathering and transportation costs paid by Apache to third-party carriers for each of the periods presented.

	For the Nine Months Ended
	September 30,
	2008		2007
	(In millions)
U.S.	$	33	$	29
Canada		49		39
North Sea		23		19
Egypt		15		11
Argentina		3		2
Total Gathering and Transportation	$	123	$	100

35

     The increase in Canada resulted primarily from the impact of higher transportation tariffs and foreign exchange rates. North Sea costs were up on increased volumes and higher transportation tariffs, while the U.S. costs were up on higher volumes and transportation tariffs.

     Taxes other than Income Taxes other than income totaled $846 million, an increase of $453 million on higher product prices. A detail of these taxes follows:

	For the Nine Months Ended
	September 30,
	2008		2007
	(In millions)
Ad Valorem taxes	$	55	$	40
Severance taxes		141		104
U.K. PRT		613		215
Canadian taxes		13		16
Other		24		18
Total Taxes other than Income	$	846	$	393

     U.K. PRT was $398 million more than the 2007 period on a 178 percent increase in net profits, primarily driven by higher oil revenues. The increase in severance taxes resulted from higher taxable revenues in the U.S., consistent with the higher realized oil and natural gas prices. The $15 million increase in ad valorem taxes resulted from higher taxable valuations associated with increases in oil and natural gas prices and the acquisition of Permian Basin properties late in the first quarter of 2007.

     General and Administrative Expenses G&A was $19 million higher. On a boe basis, G&A averaged $1.48, up $.16 per boe with the impact of a combination of increased costs and lower volumes. The higher costs added $.12 to the rate, while decreased volumes added an additional $.04 per boe. The cost increase was related to higher employee incentive-based bonuses, insurance and legal fees.

     Financing Costs, Net Financing costs incurred during the periods noted are composed of the following:

	For the Nine Months Ended
	September 30,
	2008			2007
	(In millions)
Interest expense	$	201		$	230
Amortization of deferred loan costs		2			2
Capitalized interest		(68	)		(56	)
Interest income		(19	)		(10	)
Financing costs, net	$	116		$	166

     Interest expense was down $29 million on lower average debt, which decreased $658 million. Capitalized interest was up primarily because of higher expenditures associated with long-term construction projects that are under development.

     Provision for Income Taxes There were no significant changes in statutory tax rates in the major jurisdictions in which the Company operates during the first nine months of 2008 or 2007.

     The provision for income taxes increased $788 million from 2007 to $2.2 billion, as income before taxes increased 87 percent on significantly higher oil and gas production revenues. The effective income tax rate for the first nine months of 2008 was 37.3 percent compared to 44.4 percent for the first nine months of 2007. The 2008 rate was lower because of a $127 million non-cash tax benefit, primarily on deferred taxes, related to the effect of the strengthening U.S. dollar on re-measurement of our foreign tax liabilities. The 2007 period included a $182 million non-cash tax charge, primarily on deferred taxes, from currency fluctuations.

36

Capital Resources and Liquidity

  Sources and Uses of Cash

     The following table presents the sources and uses of our cash and cash equivalents for the nine-month periods ended September 30, 2008 and 2007. The table presents capital expenditures on a cash basis; therefore, the amounts differ from capital expenditures referred to elsewhere in this document, which include accruals.

	For the Nine Months Ended
	September 30,
	2008		2007
	(In millions)
Sources of Cash and Cash Equivalents:
Net cash provided by operating activities	$	6,029	$	3,877
Sales of property and equipment		307		11
Fixed-rate debt borrowings		—		1,992
Common stock issuances		31		23
Other		50		33
		6,417		5,936
Uses of Cash and Cash Equivalents:
Oil and gas property		3,907		3,406
Acquisitions		156		1,005
Gas gathering, transmission and processing facilities		421		301
Restricted cash		14		—
Net commercial paper and money market repayments		169		948
Payments of fixed-rate debt		—		3
Dividends		188		153
Cost of debt and equity transactions		1		18
Other		42		131
		4,898		5,965
Increase (decrease) in Cash and Cash Equivalents	$	1,519	$	(29	)

     Net Cash Provided by Operating Activities Apache’s net cash provided by operating activities for the first nine months of 2008 totaled $6.0 billion, up $2.2 billion from the same period in 2007. For a detailed discussion of commodity prices, production, costs and expenses, refer to the “Results of Operations” of this Item 2, 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. 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.

37

     Capital Expenditures Capital expenditures totaled $5.0 billion for the first nine months of 2008, compared to $4.8 billion for the comparable period last year. The following table presents a summary of the Company’s capital expenditures.

	For the Nine Months Ended
	September 30,
	2008		2007
	(In millions)
Exploration and Development:
United States	$	1,606	$	1,401
Canada		526		467
Egypt		624		435
Australia		662		366
North Sea		369		412
Argentina		235		186
Chile		11		—
		4,033		3,267
Acquisitions — Oil and Gas Properties		156		1,028
Asset Retirement Costs		350		155
Capitalized Interest		69		57
Gathering Transmission and Processing Facilities		406		299
Total Capital Expenditures	$	5,014	$	4,806

     Exploration and development (E&D) expenditures were $4.0 billion, up $766 million, or 23 percent, from the 2007 comparable period. The U.S. accounted for 40 percent of total E&D activity in the first nine months of 2008, down from 43 percent in the prior-year comparable period. Expenditures in the U.S. were up $205 million on higher drilling activity and less investment in platforms and production facilities located in the Gulf of Mexico. Canada accounted for 13 percent of worldwide E&D expenditures down from 14 percent in 2007. Canada’s E&D expenditures were up $59 million on increased drilling activity. Australia’s E&D expenditures totaled $662 million, nearly double 2007 spending. Australia’s portion of 2008 activity jumped to 16 percent from 11 percent in the comparable 2007 period. Australia’s higher expenditures related to increased exploration activity, development drilling on our Van Gogh property, and infrastructure spending on our Pyrenees project. Egypt spent $189 million more in the 2008 period on higher levels of drilling activity. North Sea E&D expenditures were down $43 million driven mainly by lower drilling activity.

     Dividends Common stock dividends paid during the first nine months of 2008 rose to $183 million from $149 million in 2007, driven by a special cash dividend of 10 cents per common share paid on March 18, 2008. During the first nine months of 2008 and 2007, Apache paid $4.3 million in dividends on its Series B Preferred Stock issued in August 1998.

Liquidity

	September 30,			December 31,
	2008			2007
Millions of dollars except as indicated
Cash		1,645			126
Restricted cash		14			—
Total debt		4,058			4,227
Shareholders’ equity		18,763			15,378
Available committed borrowing capacity		2,300			2,115
Floating-rate debt/total debt		1	%		5	%
Percent of total debt to capitalization		18	%		22	%

     Cash and Cash Equivalents We had $1.6 billion in cash and cash equivalents at September 30, 2008, compared with $126 million at December 31, 2007. Nearly two-thirds of this cash is in our foreign subsidiaries ($570 million was in U.S.) and is subject to additional U.S. income taxes if repatriated. Almost all of the cash is denominated in U.S. dollars and, at times, is invested in highly liquid, investment-grade securities, with maturities of three months or less at the time of purchase. We intend to use cash from our international subsidiaries to fund international projects.

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     Most of our cash is invested in obligations of the U.S. Government. Thus far, our liquidity and financial position have not been affected by recent events in the credit markets. We believe that losses from non-performance are unlikely to occur; however, we are not able to predict sudden changes in the creditworthiness of the financial institutions with which we do business.

     Restricted Cash The Company classifies cash balances as restricted cash when it is restricted as to withdrawal or usage. As of September 30, 2008, the Company had approximately $14 million of property divestiture proceeds classified as restricted cash and held in escrow available for use in a like-kind exchange under Section 1031 of the U.S. federal income tax code. The Company seeks to use these funds to acquire noncurrent assets. Accordingly, the restricted cash is classified as long-term on our consolidated balance sheet.

     Derivatives Our commodity derivative instruments are designated as cash flow hedges in accordance with SFAS 133. Under SFAS 133, unrealized gains and losses related to changes in fair value of cash flow hedges are deferred in other comprehensive income. Earnings and cash flows are not impacted until the derivatives are settled (when we either pay cash to, or receive cash from, our counterparties), which occurs contemporaneously with the hedged production. At settlement, if commodity prices exceed the fixed or ceiling price in our derivative instruments, our cash flows provided by the hedged production will be lower than if we had no derivative instruments. As of September 30, 2008, we had a net liability of $933 million, which represented the fair value of our unrealized commodity derivative instruments as of that date, $85 million of which relates to positions settling in the last three months of 2008. These unsettled positions, combined with the $517 million of derivative liabilities settled during the first nine months of the year, would reduce 2008 projected revenues by roughly four percent, assuming no change in quarter-end prices. The remaining liability would reduce projected future revenues over the periods 2009 through mid-2013 by two percent in 2009, 2010 and 2011, and less than one percent in 2012 and 2013. We expect future settlements of these liabilities to be funded by proceeds from the sale of the underlying production.

     Debt and Credit Facilities In February 2008, the Company requested amendments to its existing $1.5 billion U.S. five-year revolving credit facility to (a) extend the maturity date one year to May 28, 2013 and (b) remove certain restrictions on our Australian entities including their ability to incur liens and issue guarantees. The Company also requested amendments to its $450 million U.S. credit facility, $150 million Australian credit facility and $150 million Canadian credit facility to (a) extend the maturity date one year to May 12, 2013, (b) remove certain restrictions on our Australian entities including their ability to incur liens and issue guarantees, and (c) specific to the Australian credit facility, give the Company the option of increasing the size of the facility up to a maximum amount of $400 million from the current limit of $300 million by adding commitments from new or existing lenders.

     Lenders approved the amendments removing certain restrictions on our Australian entities, including their ability to incur liens and issue guarantees, as well as the amendment allowing the Company to increase the size of Australian credit facility to a maximum of $400 million. The lenders also extended the maturity date on all of the credit facilities except for $50 million of the $1.5 billion U.S. credit facility and $40 million of the $450 million U.S. credit facility. In April 2008, the Company increased the Australian credit facility by $50 million to $200 million, half of the maximum amount, and as of April 30, lenders had extended the maturity dates on all of the credit facilities.

     The Company has available a $1.95 billion commercial paper program, which generally enables Apache to borrow funds for up to 270 days at competitive interest rates.

     As of September 30, 2008, Apache had no commercial paper outstanding. Our weighted-average interest rate for commercial paper was 3.85 percent and 5.45 percent for the first nine months of 2008 and 2007, respectively. 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 Company had available borrowing capacity under our total credit facilities of approximately $2.3 billion at September 30, 2008.

     As of September 30, 2008, current debt includes $100 million of notes due March 2009 and $41 million borrowed under uncommitted overdraft lines in Argentina.

     The Company was in compliance with the terms of all credit facilities as of September 30, 2008.

     Subsequent Events On October 1, 2008, the Company issued $400 million principal amount, $398 million net of discount, of senior unsecured 6.0-percent notes maturing September 15, 2013, and $400 million principal amount, $398 million net of discount, of senior unsecured 6.9-percent notes maturing September 15, 2018. The notes are

39

redeemable, as a whole or in part, at Apache’s options, subject to a make-whole premium. The proceeds will be used for general corporate purposes.

     Pricing Trends For the first nine months of the year, the Company’s average realized prices have been substantially higher than the previous year’s prices. In fact, prices continued a general upward trend until July of this year, at which time prices began to decline significantly. While our third-quarter realizations were higher than those for the same quarter last year, they were lower than our record realizations in the second quarter of 2008. Crude oil trades in a global market; consequently, prices for all types and grades of crude oil generally move in the same direction. Natural gas has a limited global transportation system and, therefore, is subject to local supply and demand conditions. Approximately two-thirds of our natural gas is sold in the North American market, which tracks New York Merchantile Exchange (NYMEX) prices, while the remaining is sold under fixed-price contracts in regulated markets. Following is a table of the published monthly average NYMEX prices in 2008:

	October		September		August		July
Crude Oil	$	76.77	$	104.41	$	116.73	$	134.42
Natural Gas	$	6.73	$	7.50	$	8.30	$	11.20

     While we are presently in a strong financial position, continued lower prices would negatively impact our future oil and gas production revenues, earnings and liquidity. Commodity prices are volatile and future prices cannot be accurately predicted. Apache’s investment decisions are based on longer-term commodity prices. For these reasons, we have historically based our capital expenditure budget on projected cash flows, modifying initial budgets in the event of significant changes in commodity prices. For the remainder of 2008, we expect some downward adjustments to our capital plans. Given the recent commodity price levels, our initial 2009 budgeted expenditures are likely to be substantially less than projected 2008 levels. We also believe that certain service costs will be reduced, but historically there has been a lag between a precipitous drop in commodity prices and the underlying service costs necessary to find, develop and produce oil and natural gas.

     Canadian Royalties The government of the Province of Alberta proposed increases to the royalty rates on oil and natural gas production beginning in 2009. The proposed changes are likely to be enacted and since they are price dependent, they could adversely impact future earnings and cash flows. As a result, we may limit our Alberta capital spending to shallow drilling activity, while reallocating remaining budgeted capital to other areas.

ITEM 3 — QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Commodity Risk

     We periodically enter into hedging activities on a portion of our projected oil and natural gas production through a variety of financial and physical arrangements intended to support oil and natural gas prices at targeted levels and to manage our overall exposure to oil and gas price fluctuations. Apache may use future contracts, swaps, options and fixed-price physical contracts to hedge its commodity prices. Realized gains or losses from the Company’s price risk management activities that qualify for hedge treatment are generally recognized in oil and gas production revenues when the associated production occurs. Apache does not generally hold or issue derivative instruments for trading purposes.

     For the first nine months of 2008, approximately 20 percent of our natural gas production and 19 percent of our crude oil production for the nine-month period was subjected to financial derivative hedges. Hedges in place for the remainder of 2008 are expected to cover similar percentages of production.

     On September 30, 2008, the Company had open natural gas derivative hedges in an asset position with a fair value of $40 million. A 10 percent increase in natural gas prices would reduce the fair value by approximately $27 million, while a 10 percent decrease in prices would increase the fair value by approximately $31 million. The Company also had open oil derivatives in a liability position with a fair value of $973 million. A 10 percent increase in oil prices would decrease the fair value by approximately $316 million, while a 10 percent decrease in prices would increase the fair value by approximately $311 million. These fair value changes assume volatility based on prevailing market parameters at September 30, 2008. See Note 1 — Derivative Instruments and Hedging Activity of the Notes to consolidated financial statements in this quarterly report Form 10-Q for notional volumes and terms associated with the Company’s derivative contracts.

40

Interest Rate Risk

     The Company considers its interest rate risk exposure to be minimal as a result of fixing interest rates on approximately 99 percent of the Company’s debt. At September 30, 2008, total debt included $41 million of floating-rate debt. As a result, Apache’s annual interest costs in 2008 will fluctuate based on short-term interest rates on what is presently approximately one percent of our total debt outstanding at September 30, 2008. The impact on cash flow of a 10 percent change in the floating interest rate would be approximately $0.2 million per quarter on September 30, 2008.

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 the majority of the gas production is sold under fixed-price Australian dollar contracts. Approximately half of the costs incurred for Australian operations are paid in U.S. dollars. In Canada, the majority of oil and gas production is sold under Canadian dollar contracts. The majority of the costs incurred are paid in Canadian dollars. The North Sea production is sold under U.S. dollar contracts and the majority of costs incurred are paid in U.K. pounds. In Egypt, all oil and gas production is sold under U.S. dollar contracts and the majority of the costs incurred are denominated in U.S. dollars. Argentine revenues and expenditures are largely denominated in U.S. dollars but converted into Argentine pesos at the time of payment. Revenue and disbursement transactions denominated in Australian dollars, Canadian dollars, British pounds, Egyptian pounds and Argentine pesos are converted to U.S. dollar equivalents based on the average exchange rates during the period.

     Foreign currency gains and losses also arise when monetary assets and monetary liabilities denominated in foreign currencies are translated at the end of each month. Currency gains and losses are included as either a component of “Other” under “Revenues and Other,” or, as is the case when we re-measure our foreign tax liabilities, as a component of the Company’s provision for income tax expense on the Statement of Consolidated Operations.

Forward-Looking Statements and Risk

     Certain statements in this quarterly report on Form 10-Q, 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 costs 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 September 30, 2008, 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 and procedures were effective, providing effective means to ensure that information we are required to disclose under applicable laws and regulations is recorded, processed, summarized and reported within the time periods specified in the Commission’s rules and forms and communicated to our management, including our chief executive officer and chief financial officer, to allow timely decisions regarding required disclosure.

41

     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 actions, if our reviews identify deficiencies or weaknesses in our controls.

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.

42

PART II — OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

Please refer to Part I, Item 3 of our Annual Report on Form 10-K for the year ended December 31, 2007 (filed with the SEC on February 29, 2008) for a description of material legal proceedings.

ITEM 1A. RISK FACTORS

During the quarter ending September 30, 2008, there were no material changes from the risk factors as previously disclosed in the Company’s Annual Report on Form 10-K for the year ended December 31, 2007.

ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

None

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

None

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

None

ITEM 5. OTHER INFORMATION

None

ITEM 6. EXHIBITS

†*10.1	—	Apache Corporation 1995 Stock Option Plan, as amended and restated August 14, 2008.
†*10.2	—	Apache Corporation 1996 Performance Stock Option Plan, as amended and restated August 14, 2008
†*10.3	—	Apache Corporation 1998 Stock Option Plan, as amended and restated August 14, 2008.
†*10.4	—	Apache Corporation 2000 Stock Option Plan, as amended and restated August 14, 2008.
†*10.5	—	Apache Corporation 2003 Stock Appreciation Rights Plan, as amended and restated August 14, 2008.
†*10.6	—	Apache Corporation 2005 Stock Option Plan, as amended and restated August 14, 2008.
†*10.7	—	Apache Corporation 2005 Share Appreciation Plan, as amended and restated August 14, 2008.
†*10.8	—	Apache Corporation Executive Restricted Stock Plan, as amended and restated August 14, 2008.
†*10.9	—	Apache Corporation Non-Employee Directors’ Restricted Stock Units Program Specifications.
*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.

†	Management contracts or compensation plans or arrangements.
*	Filed herewith

43

SIGNATURES

     Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.

	APACHE CORPORATION
Dated: November 10, 2008	/s/ ROGER B. PLANK
	Roger B. Plank
	Executive Vice President and Chief Financial Officer
Dated: November 10, 2008	/s/ REBECCA A. HOYT
	Rebecca A. Hoyt
	Vice President and Controller
	(Chief Accounting Officer)

44

EX-10.1

Exhibit 10.1

APACHE CORPORATION
1995 STOCK OPTION PLAN

(Amended and Restated August 14, 2008)

Section 1

Introduction

1.1 Establishment. Apache Corporation, a Delaware corporation (hereinafter referred to, together with its Affiliated Corporations (as defined in Section 2.1 hereof) as the “Company” except where the context otherwise requires), hereby establishes the Apache Corporation 1995 Stock Option Plan (the “Plan”) for certain key employees of the Company. The Plan permits the grant of stock options to certain key employees of the Company.

1.2 Purposes. The purposes of the Plan are to provide the key management employees selected for participation in the Plan with added incentives to continue in the long-term service of the Company and to create in such employees a more direct interest in the future success of the operations of the Company by relating incentive compensation to increases in stockholder value, so that the income of the key management employees is more closely aligned with the interests of the Company’s stockholders. The Plan is also designed to attract key employees and to retain and motivate participating employees by providing an opportunity for investment in the Company.

1.3 Effective Date. The Effective Date of the Plan (the “Effective Date”) is May 4, 1995. This Plan and each option granted hereunder is conditioned on and shall be of no force or effect until approval of the Plan by the holders of the shares of voting stock of the Company unless the Company, on the advice of counsel, determines that stockholder approval is not necessary. The Committee (as defined in Section 2.1 hereof) may grant options the exercise of which shall be expressly subject to the condition that the Plan shall have been approved by the stockholders of the Company.

Section 2

Definitions

2.1 Definitions. The following terms shall have the meanings set forth below:

1

     (a) “Administrative Agent” means any designee or agent that may be appointed by the Committee pursuant to Section 3.1(b) hereof.

     (b) “Affiliated Corporation” means any corporation or other entity (including but not limited to a partnership) which is affiliated with Apache Corporation through stock ownership or otherwise and is treated as a common employer under the provisions of Sections 414(b) and (c) or any successor section(s) of the Internal Revenue Code.

     (c) “Board” means the Board of Directors of the Company.

     (d) “Committee” means the Stock Option Plan Committee of the Board, which is empowered hereunder to take actions in the administration of the Plan. The Committee shall be constituted at all times as to permit the Plan to comply with: (i) Rule 16b-3 or any successor rule(s) promulgated under the Securities Exchange Act of 1934, as amended (the “1934 Act”), and (ii) Section 162(m) or any successor section(s) of the Internal Revenue Code and the regulations promulgated thereunder.

     (e) “Deferred Delivery Plan” means the Company’s Deferred Delivery Plan, effective as of February 10, 2000 and as it may be amended from time to time, or any successor plan.

     (f) “Depositary Shares” means the depositary shares representing the Company’s preferred stock convertible into Stock.

     (g) “Eligible Employees” means those full-time key employees (including, without limitation, officers and directors who are also employees) of the Company or any division thereof, upon whose judgment, initiative and efforts the Company is, or will become, largely dependent for the successful conduct of its business.

     (h) “Fair Market Value” means the per share closing price of the Stock as reported on The New York Stock Exchange, Inc. Composite Transactions Reporting System for a particular date or, if the Stock is not so listed on such date, as reported on NASDAQ or on such other exchange or electronic trading system which, on the date in question, reports the largest number of traded shares of Stock, provided, however, that if on the date Fair Market Value is to be determined there are no transactions in the Stock, Fair Market Value shall be determined as of the immediately preceding date on which there were transactions in the Stock; provided further, however, that if the foregoing provisions are not applicable, the fair market value of a share of the Stock as determined by the Committee by the reasonable application of such reasonable valuation method, consistently applied, as the Committee deems appropriate.

2

     (i) “Internal Revenue Code” means the Internal Revenue Code of 1986, as it may be amended from time to time.

     (j) “Option” means a right to purchase shares of Stock at a stated price for a specified period of time. All Options granted under the Plan shall be Options which are not “incentive stock options” as described in Section 422 or any successor section(s) of the Internal Revenue Code.

     (k) “Option Price” means the price at which shares of Stock subject to an Option may be purchased, determined in accordance with subsection 7.2(b) hereof.

     (l) “Participant” means an Eligible Employee designated by the Committee from time to time during the term of the Plan to receive one or more Options under the Plan.

     (m) “Stock” means the $0.625 par value Common Stock of the Company.

     (n) “Stock Units” means investment units under the Deferred Delivery Plan, each of which is deemed to be equivalent to one share of Stock.

2.2 Headings; Gender and Number. The headings contained in the Plan are for reference purposes only and shall not affect in any way the meaning or interpretation of the Plan. Except when otherwise indicated by the context, the masculine gender shall also include the feminine gender, and the definition of any term herein in the singular shall also include the plural.

Section 3

Plan Administration

3.1 Administration by the Committee.

     (a) The Plan shall be administered by the Committee. In accordance with the provisions of the Plan, the Committee shall, in its sole discretion, select the Participants from among the Eligible Employees, determine the Options to be granted pursuant to the Plan, the number of shares of Stock to be issued thereunder, the time at which such Options are to be granted, fix the Option Price, and establish such other terms and requirements as the Committee may deem necessary, or desirable and consistent with the terms of the Plan. The Committee shall determine the form or forms of the agreements with Participants which shall evidence the particular provisions, terms, conditions, rights and

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duties of the Company and the Participants with respect to Options granted pursuant to the Plan, which provisions need not be identical except as may be provided herein.

     (b) The Committee may from time to time adopt such rules and regulations for carrying out the purposes of the Plan as it may deem proper and in the best interests of the Company. The Committee may appoint an Administrative Agent, who need not be a member of the Committee or an employee of the Company, to assist the Committee in administration of the Plan and to whom it may delegate such powers as the Committee deems appropriate, except that the Committee shall determine any dispute. The Committee may correct any defect, supply any omission or reconcile any inconsistency in the Plan, or in any agreement entered into hereunder, in the manner and to the extent it shall deem expedient and it shall be the sole and final judge of such expediency. No member of the Committee shall be liable for any action or determination made in good faith. The determination, interpretations and other actions of the Committee pursuant to the provisions of the Plan shall be binding and conclusive for all purposes and on all persons.

3.2 Compliance with Section 162(m).

The Plan is intended to comply with the requirements of Section 162 or any successor section(s) of the Internal Revenue Code (“Section 162”) as to any “covered employee” as defined in Section 162, and shall be administered, interpreted and construed consistently therewith. In accordance with this intent, the amount of income a Participant may receive from Options granted under the Plan shall be based solely on an increase in the value of the Stock after the date of the grant of the Option, or such other bases as may be permitted by applicable law. The Committee is authorized to take such additional action, if any, that may be required to ensure that the Plan satisfies the requirements of Section 162 and the regulations promulgated or revenue rulings published thereunder.

Section 4

Stock Subject to the Plan

4.1 Number of Shares. Subject to Section 7.1 and to adjustment pursuant to Section 4.3 hereof, 2,500,000 shares of Stock (adjusted to 5,775,000 shares of Stock for (i) the Company’s ten-percent stock dividend, record date December 31, 2001, paid January 21, 2002, (ii) the Company’s five-percent stock dividend, record date March 12, 2003, paid April 2, 2003, and (iii) the Company’s two-for-one stock split, record date December 31, 2003, distributed January 14, 2004) are authorized for issuance under the Plan in accordance with the provisions of the Plan and subject to such restrictions or other provisions as the Committee may from time to time deem necessary. This authorization may

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be increased from time to time by approval of the Board and the stockholders of the Company if, on the advice of counsel for the Company, such stockholder approval is required. Shares of Stock which may be issued upon exercise of Options shall be applied to reduce the maximum number of shares of Stock remaining available for use under the Plan. The Company shall at all times during the term of the Plan and while any Options are outstanding retain as authorized and unissued Stock, or as Stock in the Company’s treasury, at least the number of shares from time to time required under the provisions of the Plan, or otherwise assure itself of its ability to perform its obligations hereunder.

4.2 Other Shares of Stock. Any shares of Stock that are subject to an Option which expires, is forfeited, is cancelled, or for any reason is terminated unexercised, and any shares of Stock that for any other reason are not issued to a Participant or are forfeited shall automatically become available for use under the Plan.

4.3 Adjustments for Stock Split, Stock Dividend, etc. If the Company shall at any time increase or decrease the number of its outstanding shares of Stock or change in any way the rights and privileges of such shares by means of the payment of a Stock dividend or any other distribution upon such shares payable in Stock, or through a Stock split, subdivision, consolidation, combination, reclassification or recapitalization involving the Stock then in relation to the Stock that is affected by one or more of the above events, the numbers, rights and privileges of the following shall be, in each case, equitably and proportionally adjusted to take into account the occurrence of any of the above events, (i) the shares of Stock as to which Options may be granted under the Plan; (ii) the shares of Stock then included in each outstanding Option granted hereunder; and (iii) the Option Price for each outstanding Option granted hereunder.

4.4 Dividend Payable in Stock of Another Corporation, Etc. If the Company shall at any time pay or make any dividend or other distribution upon the Stock payable in securities or other property (except money or Stock), a proportionate part of such securities or other property shall be set aside and delivered to any Participant then holding an Option for the particular type of Stock for which the dividend or other distribution was made, upon exercise thereof. Prior to the time that any such securities or other property are delivered to a Participant in accordance with the foregoing, the Company shall be the owner of such securities or other property and shall have the right to vote the securities, receive any dividends payable on such securities, and in all other respects shall be treated as the owner. If securities or other property which have been set aside by the Company in accordance with this Section are not delivered to a Participant because an Option is not exercised, then such securities or other property shall remain the property of the Company and shall be dealt with by the Company as it shall determine in its sole discretion.

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4.5 Other Changes in Stock. In the event there shall be any change, other than as specified in Sections 4.3 and 4.4 hereof, in the number or kind of outstanding shares of Stock or of any stock or other securities into which the Stock shall be changed or for which it shall have been exchanged, and if the Committee shall in its discretion determine that such change equitably requires an adjustment in the number or kind of shares subject to outstanding Options or which have been reserved for issuance pursuant to the Plan but are not then subject to an Option, then such adjustments shall be made by the Committee and shall be effective for all purposes of the Plan and on each outstanding Option that involves the particular type of stock for which a change was effected.

4.6 Rights to Subscribe. If the Company shall at any time grant to the holders of its Stock rights to subscribe pro rata for additional shares thereof or for any other securities of the Company or of any other corporation, there shall be reserved with respect to the shares then under Option to any Participant of the particular class of Stock involved the Stock or other securities which the Participant would have been entitled to subscribe for if immediately prior to such grant the Participant had exercised his entire Option. If, upon exercise of any such Option, the Participant subscribes for the additional shares or other securities, the aggregate Option Price shall be increased by the amount of the price that is payable by the Participant for such additional shares or other securities.

4.7 General Adjustment Rules. No adjustment or substitution provided for in this Section 4 shall require the Company to sell a fractional share of Stock under any Option, or otherwise issue a fractional share of Stock, and the total substitution or adjustment with respect to each Option shall be limited by deleting any fractional share. In the case of any such substitution or adjustment, the aggregate Option Price for the shares of Stock then subject to the Option shall remain unchanged but the Option Price per share under each such Option shall be equitably adjusted by the Committee to reflect the greater or lesser number of shares of Stock or other securities into which the Stock subject to the Option may have been changed.

4.8 Determination by the Committee, Etc. Adjustments under this Section 4 shall be made by the Committee, whose determinations with regard thereto shall be final and binding upon all parties.

Section 5

Reorganization or Liquidation

In the event that the Company is merged or consolidated with another corporation and the Company is not the surviving corporation, or if all or substantially all of the assets or more than 20 percent of the outstanding voting

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stock of the Company is acquired by any other corporation, business entity or person, or in case of a reorganization (other than a reorganization under the United States Bankruptcy Code) or liquidation of the Company, and if the provisions of Section 8 hereof do not apply, the Committee, or the board of directors of any corporation assuming the obligations of the Company, shall, as to the Plan and outstanding Options either (i) make appropriate provision for the adoption and continuation of the Plan by the acquiring or successor corporation and for the protection of any such outstanding Options by the substitution on an equitable basis of appropriate stock of the Company or of the merged, consolidated or otherwise reorganized corporation which will be issuable with respect to the Stock, provided that no additional benefits shall be conferred upon the Participants holding such Options as a result of such substitution, and the excess of the aggregate Fair Market Value of the shares subject to the Options immediately after such substitution over the aggregate Option Price thereof is not more than the excess of the aggregate Fair Market Value of the shares subject to such Options immediately before such substitution over the aggregate Option Price thereof, or (ii) upon written notice to the Participants, provide that all unexercised Options shall be exercised within a specified number of days of the date of such notice or such Options will be terminated. In the latter event, the Committee shall accelerate the vesting dates of outstanding Options so that all Options become fully vested and exercisable prior to any such event.

Section 6

Participation

Participants in the Plan shall be those Eligible Employees who, in the judgment of the Committee, are performing, or during the term of their incentive arrangement will perform, vital services in the management, operation and development of the Company or an Affiliated Corporation, and significantly contribute, or are expected to significantly contribute, to the achievement of the Company’s long-term corporate economic objectives. Participants may be granted from time to time one or more Options; provided, however, that the grant of each such Option shall be separately approved by the Committee, and receipt of one such Option shall not result in automatic receipt of any other Option. Upon determination by the Committee that an Option is to be granted to a Participant, written notice shall be given to such person, specifying the terms, conditions, rights and duties related thereto. Each Participant shall, if required by the Committee, enter into an agreement with the Company, in such form as the Committee shall determine and which is consistent with the provisions of the Plan, specifying such terms, conditions, rights and duties. Options shall be deemed to be granted as of the date specified in the grant resolution of the Committee, which date shall be the date of any related agreement with the Participant. In the event of any inconsistency between the provisions of the Plan and any such agreement entered into hereunder, the provisions of the Plan shall govern.

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Section 7

Stock Options

7.1 Grant of Stock Options. Coincident with or following designation for participation in the Plan, an Eligible Employee may be granted one or more Options. Grants of Options under the Plan shall be made by the Committee. In no event shall the exercise of one Option affect the right to exercise any other Option or affect the number of shares of Stock for which any other Option may be exercised, except as provided in subsection 7.2(j) hereof. During the life of the Plan, no Eligible Employee may be granted Options which in the aggregate pertain to in excess of 25 percent of the total shares of Stock authorized under the Plan.

7.2 Stock Option Agreements. Each Option granted under the Plan shall be evidenced by a written stock option agreement which shall be entered into by the Company and the Participant to whom the Option is granted (the “Stock Option Agreement”), and which shall contain the following terms and conditions, as well as such other terms and conditions, not inconsistent therewith, as the Committee may consider appropriate in each case.

     (a) Number of Shares. Each Stock Option Agreement shall state that it covers a specified number of shares of Stock, as determined by the Committee.

     (b) Price. The price at which each share of Stock covered by an Option may be purchased shall be determined in each case by the Committee and set forth in the Stock Option Agreement, but in no event shall the price be less than the Fair Market Value of the Stock on the date the Option is granted.

     (c) Duration of Options; Employment Required For Exercise. Each Stock Option Agreement shall state the period of time, determined by the Committee, within which the Option may be exercised by the Participant (the “Option Period”). The Option Period must end, in all cases, not more than ten years from the date an Option is granted. Except as otherwise provided in Sections 5 and 8 and subsection 7.2(d)(iv) hereof, each Option granted under the Plan shall become exercisable in increments such that 25 percent of the Option will become exercisable on each of the four subsequent one-year anniversaries of the date the Option is granted, but each such additional 25-percent increment shall become exercisable only if the Participant has been continuously employed by the Company from the date the Option is granted through the date on which each such additional 25-percent increment becomes exercisable.

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     (d) Termination of Employment, Death, Disability, Etc. Each Stock Option Agreement shall provide as follows with respect to the exercise of the Option upon termination of the employment or the death of the Participant:

          (i) If the employment of the Participant by the Company is terminated within the Option Period for cause, as determined by the Company, the Option shall thereafter be void for all purposes. As used in this subsection 7.2(d), “cause” shall mean a gross violation, as determined by the Company, of the Company’s established policies and procedures, provided that the effect of this subsection 7.2(d) shall be limited to determining the consequences of a termination and that nothing in this subsection 7.2(d) shall restrict or otherwise interfere with the Company’s discretion with respect to the termination of any employee.

          (ii) If the Participant retires from employment by the Company on or after attaining age 60, the Option may be exercised by the Participant within 36 months following his or her retirement (provided that such exercise must occur within the Option Period), but not thereafter. In the event of the Participant’s death during such 36-month period, each Option may be exercised by those entitled to do so in the manner referred to in (iv) below. In any such case, the Option may be exercised only as to the shares as to which the Option had become exercisable on or before the date of the Participant’s retirement.

          (iii) If the Participant becomes disabled (as determined pursuant to the Company’s Long-Term Disability Plan or any successor plan), during the Option Period while still employed, or within the three-month period referred to in (v) below, or within the 36-month period referred to in (ii) above, the Option may be exercised by the Participant or by his or her guardian or legal representative, within twelve months following the Participant’s disability, or within the 36-month period referred to in (ii) if applicable and if longer (provided that such exercise must occur within the Option Period), but not thereafter. In the event of the Participant’s death during such twelve-month period, each Option may be exercised by those entitled to do so in the manner referred to in (iv) below. In any such case, the Option may be exercised only as to the shares of Stock as to which the Option had become exercisable on or before the date of the Participant’s disability.

          (iv) In the event of the Participant’s death while still employed by the Company, each Option of the deceased Participant may be exercised by those entitled to do so under the Participant’s will or under the laws of descent and distribution within twelve months following the Participant’s death (provided that in any event such exercise must occur within the Option Period), but not thereafter, as to all shares of Stock which are subject to such Option, including each 25-percent increment of the Option, if any, which has not yet become exercisable at the time of the Participant’s death. In the event of the Participant’s

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death within the 36-month period referred to in (ii) above or within the twelve-month period referred to in (iii) above, each Option of the deceased Participant that is exercisable at the time of death may be exercised by those entitled to do so under the Participant’s will or under the laws of descent and distribution within twelve months following the Participant’s death or within the 36-month period referred to in (ii), if applicable and if longer (provided that in any event such exercise must occur within the Option Period). The provisions of this paragraph (iv) of subsection 7.2(d) shall be applicable to each Stock Option Agreement as if set forth therein word for word. Each Stock Option Agreement executed by the Company prior to the adoption of this provision shall be deemed amended to include the provisions of this paragraph and all Options granted pursuant to such Stock Option Agreements shall be exercisable as provided herein.

          (v) If the employment of the Participant by the Company is terminated (which for this purpose means that the Participant is no longer employed by the Company or by an Affiliated Corporation) within the Option Period for any reason other than cause, the Participant’s retirement on or after attaining age 60, the Participant’s disability or death, the Option may be exercised by the Participant within three months following the date of such termination (provided that such exercise must occur within the Option Period), but not thereafter. In any such case, the Option may be exercised only as to the shares as to which the Option had become exercisable on or before the date of termination of the Participant’s employment.

     (e) Transferability. Each Stock Option Agreement shall provide that the Option granted therein is not transferable by the Participant except by will or pursuant to the laws of descent and distribution, and that such Option is exercisable during the Participant’s lifetime only by him or her, or in the event of the Participant’s disability or incapacity, by his or her guardian or legal representative.

     (f) Agreement to Continue in Employment. Each Stock Option Agreement shall contain the Participant’s agreement to remain in the employment of the Company, at the pleasure of the Company, for a continuous period of at least one year after the date of such Stock Option Agreement, at the salary rate in effect on the date of such agreement or at such changed rate as may be fixed, from time to time, by the Company.

     (g) Exercise, Payments, Etc.

          (i) Each Stock Option Agreement shall provide that the method for exercising the Option granted therein shall be by delivery to the Office of the Secretary of the Company or to the Administrative Agent of written notice specifying the number of shares of Stock with respect to which such Option is exercised and payment to the Company of the aggregate Option Price. Such

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notice shall be in a form satisfactory to the Committee and shall specify the particular Options (or portions thereof) which are being exercised and the number of shares of Stock with respect to which the Options are being exercised. The exercise of the Option shall be deemed effective on the date such notice is received by the Office of the Secretary or by the Administrative Agent and payment is made to the Company of the aggregate Option Price (the “Exercise Date”); however, if payment of the aggregate Option Price is made pursuant to a sale of shares of Stock as contemplated by subsection 7.2(g)(iii)(F) below, the Exercise Date shall be deemed to be the date of such sale. If requested by the Company, such notice shall contain the Participant’s representation that he or she is purchasing the Stock for investment purposes only and his or her agreement not to sell any Stock so purchased in any manner that is in violation of the Securities Act of 1933, as amended, or any applicable state law, and such restriction, or notice thereof, shall be placed on the certificates representing the Stock so purchased. The purchase of such Stock shall take place upon delivery of such notice to the Office of the Secretary of the Company or to the Administrative Agent, at which time the aggregate Option Price shall be paid in full to the Company by any of the methods or any combination of the methods set forth in 7.2(g)(iii) below.

          (ii) Except as referenced below in connection with the Deferred Delivery Plan, the shares of Stock to which the Participant is entitled as a result of the exercise of the Option shall be issued by the Company and (A) delivered by electronic means to an account designated by the Participant, or (B) delivered to the Participant in the form of a properly executed certificate or certificates representing such shares of Stock. If shares of Stock and/or Depositary Shares are used to pay all or part of the aggregate Option Price, the Company shall issue and deliver to the Participant the additional shares of Stock, in excess of the aggregate Option Price or portion thereof paid using shares of Stock or Depositary Shares, to which the Participant is entitled as a result of the Option exercise. If the Participant exercising an Option (x) is eligible for participation in the Deferred Delivery Plan, (y) pays the aggregate Option Price pursuant to 7.2(g)(iii)(A), (B), (C), (D) or (E) below, and (z) has made an irrevocable election at least six months prior to the Exercise Date as required under the Deferred Delivery Plan, the income resulting from the Option exercise shall be deferred into the Participant’s Deferred Delivery Plan account and no additional shares of Stock shall be delivered to the Participant. The income resulting from the Option exercise may not be deferred into the Participant’s Deferred Delivery Plan account except to the extent that the Option was vested by December 31, 2004, the deferral election was made by December 31, 2004, and the deferral into the Deferred Delivery Plan occurs before January 1, 2006.

          (iii) the aggregate Option Price shall be paid by any of the following methods or any combination of the following methods:

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               (A) in cash, including the wire transfer of funds in U.S. dollars to one of the Company’s bank accounts located in the United States, with such bank account to be designated from time to time by the Company;

               (B) by personal, certified or cashier’s check payable in U.S. dollars to the order of the Company;

               (C) by delivery to the Company or the Administrative Agent of certificates representing a number of shares of Stock then owned by the Participant, the aggregate Fair Market Value of which (as of the Exercise Date) is not greater than the aggregate Option Price of the Option being exercised, properly endorsed for transfer to the Company; provided that the shares of Stock used for this purpose must have been owned by the Participant for a period of at least six months;

               (D) by certification or attestation to the Company or the Administrative Agent of the Participant’s ownership as of the Exercise Date of the number of shares of Stock and/or Depositary Shares, the aggregate Fair Market Value of which (as of the Exercise Date) is not greater than the aggregate Option Price of the Option being exercised, provided that the shares of Stock and/or Depositary Shares used for this purpose have been owned by the Participant for a period of at least six months;

               (E) if the income resulting from the Option exercise is to be deferred into the Participant’s Deferred Delivery Plan account, by certification or attestation to the Company or the Administrative Agent of the Participant’s ownership (as of the Exercise Date) of a number of vested Stock Units held in the Participant’s Deferred Delivery Plan account, the equivalent aggregate Fair Market Value of which (as of the Exercise Date) is not greater than the aggregate Option Price of the Option being exercised, provided that the Stock Units used for this purpose were vested as of the Exercise Date; or

               (F) by delivery to the Company or the Administrative Agent of a properly executed notice of exercise together with irrevocable instructions to a broker to promptly deliver to the Company, by wire transfer or check as noted in (A) and (B) above, the amount of the proceeds of the sale of all or a portion of the Stock or of a loan from the broker to the Participant necessary to pay the aggregate Option Price.

          (iv) For purposes of the Plan, the income resulting from an Option exercise shall be based on the Fair Market Value of the Stock for the Exercise Date; however, if payment of the aggregate Option Price is made pursuant to a sale of shares of Stock as contemplated by subsection 7.2(g)(iii)(F) hereof, the Fair Market Value shall be deemed to be the per share sale price and the Exercise Date shall be deemed to be the date of such sale.

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     (h) Date of Grant. An Option shall be considered as having been granted on the date specified in the grant resolution of the Committee.

     (i) Tax Withholding. Each Stock Option Agreement shall provide that, upon exercise of the Option, the Participant shall make appropriate arrangements with the Company to provide for the amount of tax withholding required by Sections 3102 and 3402 or any successor section(s) of the Internal Revenue Code and applicable state and local income tax laws, including payment of such taxes in cash, by check or as provided in Section 13.2 hereof.

     (j) Adjustment of Options. Subject to the provisions of Sections 4, 5, 7, 8 and 12 hereof, the Committee may make any adjustment in the number of shares of Stock covered by, or the terms of an outstanding Option and a subsequent granting of an Option, by amendment or by substitution for an outstanding Option; however, except as provided in Sections 4, 5, 8 and 12 hereof, the Committee may not adjust the Option Price of any outstanding Option. Such amendment or substitution may result in terms and conditions (including the number of shares of Stock covered, vesting schedule or Option Period) that differ from the terms and conditions of the original Option. The Committee may not, however, adversely affect the rights of any Participant to previously granted Options without the consent of such Participant. If such action is effected by amendment, the effective date of such amendment will be the date of grant of the original Option.

7.3 Stockholder Privileges. No Participant shall have any rights as a stockholder with respect to any shares of Stock covered by an Option until the Participant becomes the holder of record of such Stock. Except as provided in Section 4 hereof, no adjustments shall be made for dividends or other distributions or other rights as to which there is a record date preceding the date on which such Participant becomes the holder of record of such Stock.

Section 8

Change of Control

8.1 In General. In the event of the occurrence of a change of control of the Company, as defined in Section 8.3 hereof, all outstanding Options shall become automatically vested, without further action by the Committee or the Board, so as to make all such Options fully vested and exercisable as of the date of such change of control.

8.2 Limitation on Payments. If the provisions of this Section 8 would result in the receipt by any Participant of a payment within the meaning of Section 280G or any successor section(s) of the Internal Revenue Code, and the regulations

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promulgated thereunder, and if the receipt of such payment by any Participant would, in the opinion of independent tax counsel of recognized standing selected by the Company, result in the payment by such Participant of any excise tax provided for in Sections 280G and 4999 or any successor section(s) of the Internal Revenue Code, then the amount of such payment shall be reduced to the extent required, in the opinion of independent tax counsel, to prevent the imposition of such excise tax; provided, however, that the Committee, in its sole discretion, may authorize the payment of all or any portion of the amount of such reduction to the Participant.

8.3 Definition. For purposes of the Plan, a “change of control” shall mean any of the events specified in the Company’s Income Continuance Plan or any successor plan which constitute a change of control within the meaning of such plan.

Section 9

Rights of Employees, Participants

9.1 Employment. Nothing contained in the Plan or in any Option granted under the Plan shall confer upon any Participant any right with respect to the continuation of his or her employment by the Company or any Affiliated Corporation, or interfere in any way with the right of the Company or any Affiliated Corporation, subject to the terms of any separate employment agreement to the contrary, at any time to terminate such employment or to increase or decrease the level of the Participant’s compensation from the level in existence at the time of the grant of an Option. Whether an authorized leave of absence, or absence in military or government service, shall constitute a termination of employment shall be determined by the Committee at the time.

9.2 Nontransferability. No right or interest of any Participant in an Option granted pursuant to the Plan shall be assignable or transferable during the lifetime of the Participant, either voluntarily or involuntarily, or subjected to any lien, directly or indirectly, by operation of law, or otherwise, including execution, levy, garnishment, attachment, pledge or bankruptcy. In the event of a Participant’s death, a Participant’s rights and interests in Options shall, to the extent provided in Section 7 hereof, be transferable by testamentary will or the laws of descent and distribution, and payment of any amounts due under the Plan shall be made to, and exercise of any Options may be made by, the Participant’s legal representatives, heirs or legatees. If in the opinion of the Committee, a person entitled to payments or to exercise rights with respect to the Plan is disabled from caring for his or her affairs because of mental condition, physical condition or age, payment due such person may be made to, and such rights shall be exercised by, such person’s guardian, conservator or other legal

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personal representative upon furnishing the Committee with evidence of such status satisfactory to the Committee.

Section 10

General Restrictions

10.1 Investment Representations. The Company may require a Participant, as a condition of exercising an Option, to give written assurances in substance and form satisfactory to the Company and its counsel to the effect that such person is acquiring the Stock subject to the Option for his own account for investment and not with any present intention of selling or otherwise distributing the same, and to such other effects as the Company deems necessary or appropriate in order to comply with federal and applicable state securities laws.

10.2 Compliance with Securities Laws. Each Option shall be subject to the requirement that, if at any time counsel to the Company shall determine that the listing, registration or qualification of the shares of Stock subject to such Option upon any securities exchange or under any state or federal law, or the consent or approval of any governmental or regulatory body, is necessary as a condition of, or in connection with, the issuance or purchase of shares of Stock thereunder, such Option may not be accepted or exercised in whole or in part unless such listing, registration, qualification, consent or approval shall have been effected or obtained on conditions acceptable to the Committee. Nothing herein shall be deemed to require the Company to apply for or to obtain such listing, registration, qualification, consent or approval.

Section 11

Other Employee Benefits

The amount of any income deemed to be received by a Participant as a result of an Option exercise shall not constitute “earnings” or “compensation” with respect to which any other employee benefits of such Participant are determined including, without limitation benefits under any pension, profit sharing, life insurance or salary continuation plan.

Section 12

Plan Amendment, Modification and Termination

The Board may at any time terminate, and from time to time may amend or modify the Plan provided, however, that no amendment or modification may become effective without approval of the amendment or modification by the Company’s stockholders if stockholder approval is required to enable the Plan to

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satisfy any applicable statutory or regulatory requirements unless the Company, on the advice of counsel, determines that stockholder approval is otherwise necessary or desirable.

No amendment, modification or termination of the Plan shall in any manner adversely affect any Option theretofore granted under the Plan, without the consent of the Participant holding such Option.

The Committee shall have the authority to adopt such modifications, procedures and subplans as may be necessary or desirable to comply with the provisions of the laws (including, but not limited to, tax laws and regulations) of countries other than the United States in which the Company may operate, so as to assure the viability of the benefits of the Plan to Participants employed in such countries.

Section 13

Withholding

13.1 Withholding Requirement. The Company’s obligations to deliver shares of Stock upon the exercise of an Option, or to defer income resulting from an Option exercise into the Deferred Delivery Plan, shall be subject to the Participant’s satisfaction of all applicable federal, state and local income and other tax withholding requirements.

13.2 Satisfaction of Required Withholding. At the time the Committee grants an Option, it may, in its sole discretion, grant the Participant an election to pay all such amounts of required tax withholding, or any part thereof:

     (a) by the delivery to the Company or the Administrative Agent of a number of shares of Stock then owned by the Participant, the aggregate Fair Market Value of which (as of the Exercise Date) is not greater than the amount required to be withheld, provided that such shares have been held by the Participant for a period of at least six months;

     (b) by certification or attestation to the Company or the Administrative Agent of the Participant’s ownership (as of the Exercise Date) of a number of shares of Stock and/or Depositary Shares, the aggregate Fair Market Value of which (as of the Exercise Date) is not greater than the amount required to be withheld, provided that such shares of Stock and/or Depositary Shares have been owned by the Participant for a period of at least six months;

     (c) if the income resulting from the Option exercise is to be deferred into the Participant’s Deferred Delivery Plan account, by certification or attestation to the Company or the Administrative Agent of the Participant’s ownership (as of the Exercise Date) of a number of vested Stock Units held in the Participant’s

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Deferred Delivery Plan account, the equivalent aggregate Fair Market Value of which (as of the Exercise Date) is not greater than the amount required to be withheld, provided that such Stock Units were vested as of the Exercise Date; or

     (d) by the Company or the Administrative Agent withholding from the shares of Stock otherwise issuable to the Participant upon exercise of the Option, a number of shares of Stock, the aggregate Fair Market Value of which (as of the Exercise Date) is not greater than the amount required to be withheld. Any such elections by Participants to have shares of Stock withheld for this purpose will be subject to the following restrictions:

          (i) all elections shall be made on or prior to the Exercise Date; and

          (ii) all elections shall be irrevocable.

13.3 Excess Withholding. At the time the Committee grants an Option, it may, in its sole discretion, grant the Participant an election to pay additional or excess amounts of tax withholding, beyond the required amounts and up to the Participant’s marginal tax rate:

     (a) by delivery to the Company or the Administrative Agent of a number of Shares of Stock then owned by the Participant, the aggregate Fair Market Value of which (as of the Exercise Date) is not greater than such excess withholding amount, provided that such shares of Stock have been owned by the Participant for a period of at least six months; or

     (b) by certification or attestation to the Company or the Administrative Agent of the Participant’s ownership (as of the Exercise Date) of a number of shares of Stock and/or Depositary Shares, the aggregate Fair Market Value of which (as of the Exercise Date) is not greater than such excess withholding amount, provided that such shares of Stock and/or Depositary Shares have been owned by the Participant for a period of at least six months.

13.4 Section 16 Requirements. If the Participant is an officer or director of the Company within the meaning of Section 16 or any successor section(s) of the 1934 Act (“Section 16”), the Participant must satisfy the requirements of such Section 16 and any applicable rules and regulations thereunder with respect to the use of shares of Stock, Depositary Shares and/or Stock Units to satisfy such tax withholding obligation.

Section 14

Requirements of Law

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14.1 Requirements of Law. The issuance of Stock and the payment of cash pursuant to the Plan shall be subject to all applicable laws, rules and regulations.

14.2 Federal Securities Laws Requirements. If a Participant is an officer or director of the Company within the meaning of Section 16, Options granted hereunder shall be subject to all conditions required under Rule 16b-3, or any successor rule(s) promulgated under the 1934 Act, to qualify the Option for any exception from the provisions of Section 16 available under such Rule. Such conditions are hereby incorporated herein by reference and shall be set forth in the Stock Option Agreement with the Participant which describes the Option.

14.3 Governing Law. The Plan and all Stock Option Agreements hereunder shall be construed in accordance with and governed by the laws of the State of Texas.

Section 15

Duration of the Plan

The Plan shall terminate at such time as may be determined by the Board, and no Option shall be granted after such termination. If not sooner terminated under the preceding sentence, the Plan shall fully cease and expire at midnight on May 4, 2000. Options outstanding at the time of the Plan termination shall continue to be exercisable in accordance with the Stock Option Agreement pertaining to each such Option, as such Stock Option Agreement may be modified pursuant to Section 12.

Dated: August 14, 2008

	APACHE CORPORATION
ATTEST:
/s/ Cheri L. Peper Cheri L. Peper	By:	/s/ Margery M. Harris Margery M. Harris
Corporate Secretary		Vice President, Human Resources

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EX-10.2

Exhibit 10.2

APACHE CORPORATION
1996 PERFORMANCE STOCK OPTION PLAN
(Amended and Restated August 14, 2008)

Section 1

Introduction

1.1 Establishment. Apache Corporation, a Delaware corporation (hereinafter referred to, together with its Affiliated Corporations (as defined in Section 2.1 hereof) as the “Company” except where the context otherwise requires), hereby establishes the Apache Corporation 1996 Performance Stock Option Plan (the “Plan”) for certain employees of the Company.

1.2 Purposes. The primary purpose of this Plan is to provide the participating employees of the Company with added incentives to focus their energies on achieving significant stock price appreciation for the balance of the decade by providing a meaningful stock based performance plan which provides accelerated vesting incentives to attain the prices of $50 and $60 per share of Apache Corporation common stock, respectively, before January 1, 2000. Additional purposes of this Plan include the retention of existing valued employees and as an additional inducement in the recruitment of talented personnel in a competitive environment.

1.3 Effective Date. The Effective Date of the Plan (the “Effective Date”) is October 31, 1996.

Section 2

Definitions

2.1 Definitions. The following terms shall have the meanings set forth below:

     (a) “Administrative Agent” means any designee or agent that may be appointed by the Committee pursuant to Section 3.1(b) hereof.

     (b) “Affiliated Corporation” means any corporation or other entity (including but not limited to a partnership) which is affiliated with Apache Corporation through stock ownership or otherwise and is treated as a common

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employer under the provisions of Sections 414(b) and (c) or any successor section(s) of the Internal Revenue Code.

     (c) “Base Salary” means, with regard to any Participant, such Participant’s base compensation as an employee of the Company at the date of grant of an Option, without regard to any bonus, pension, profit sharing, stock option, life insurance or salary continuation plan which the Participant either receives or is otherwise entitled to have paid on his behalf.

     (d) “Board” means the Board of Directors of the Company.

     (e) “Committee” means the Stock Option Plan Committee of the Board.

     (f) “Depositary Shares” means the depositary shares representing the Company’s preferred stock convertible into Stock.

     (g) “Eligible Employees” means any full-time employee of the Company or any division thereof who is not a participant under the Apache Corporation 1996 Share Price Appreciation Plan.

     (h) “Exercise Date” has the meaning set forth in Section 7.3(i).

     (i) “Fair Market Value” means the per share closing price of the Stock as reported on The New York Stock Exchange, Inc. Composite Transactions Reporting System for a particular date or, if the Stock is not so listed on such date, as reported on NASDAQ or on such other exchange or electronic trading system which, on the date in question, reports the largest number of traded shares of Stock, provided, however, that if on the date Fair Market Value is to be determined there are no transactions in the Stock, Fair Market Value shall be determined as of the immediately preceding date on which there were transactions in the Stock; provided further, however, that if the foregoing provisions are not applicable, the fair market value of a share of the Stock as determined by the Committee by the reasonable application of such reasonable valuation method, consistently applied, as the Committee deems appropriate.

     (j) “Final Amount” has the meaning set forth in Section 7.2.

     (k) “Final Price Threshold Date” means the last of any 10 trading days (which need not be consecutive) during any period of 30 consecutive trading days occurring prior to January 1, 2000, but not thereafter, on each of which 10 days the closing price of the Stock as reported on The New York Stock Exchange, Inc. Composite Transactions Reporting System has equaled or exceeded $60 per share. If the above trading criteria is met more than once, the first occurrence shall be deemed to be the Final Price Threshold Date.

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     (l) “First Category” has the meaning set forth in Section 7.2.

     (m) “Initial Amount” has the meaning set forth in Section 7.2.

     (n) “Initial Price Threshold Date” means the last of any 10 trading days (which need not be consecutive) during any period of 30 consecutive trading days occurring prior to January 1, 2000, but not thereafter, on each of which 10 days the closing price of the Stock as reported on The New York Stock Exchange, Inc. Composite Transactions Reporting System has equaled or exceeded $50 per share. If the above trading criteria is met more than once, the first occurrence shall be deemed to be the Initial Price Threshold Date.

     (o) “Internal Revenue Code” means the Internal Revenue Code of 1986, as it may be amended from time to time.

     (p) “Option” means a right to purchase shares of Stock at a stated price for a specified period of time. All Options granted under the Plan shall be Options which are not “incentive stock options” as described in Section 422 or any successor section(s) of the Internal Revenue Code.

     (q) “Option Agreement” has the meaning set forth in Section 7.1.

     (r) “Option Period” has the meaning set forth in Section 7.3(c).

     (s) “Option Price” means the price at which shares of Stock subject to an Option may be purchased, determined in accordance with Section 7.3(b) hereof.

     (t) “Participant” means an Eligible Employee designated by the Committee from time to time during the term of the Plan to receive an Option under the Plan.

     (u) “Price Threshold Date” means either the Initial Price Threshold Date or the Final Price Threshold Date, as the context may require.

     (v) “Second Category” has the meaning set forth in Section 7.2.

     (w) “Stock” means the $1.25 par value Common Stock of the Company.

2.2 Headings; Gender and Number. The headings contained in the Plan are for reference purposes only and shall not affect in any way the meaning or interpretation of the Plan. Except when otherwise indicated by the context, the

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masculine gender shall also include the feminine gender, and the definition of any term herein in the singular shall also include the plural.

Section 3

Plan Administration

3.1 Administration by the Committee.

     (a) The Plan shall be administered by the Committee. In accordance with the provisions of the Plan, the Committee shall, in its sole discretion, select the Participants from among the Eligible Employees, determine the Options to be granted pursuant to the Plan, the time at which such Options are to be granted, and establish such other terms and requirements as the Committee may deem necessary or desirable and consistent with the terms of the Plan. The Committee shall determine the form or forms of the Option Agreements with Participants which shall evidence the particular provisions, terms, conditions, rights and duties of the Company and the Participants with respect to Options granted pursuant to the Plan, which provisions need not be identical except as may be provided herein.

     (b) The Committee may from time to time adopt such rules and regulations for carrying out the purposes of the Plan as it may deem proper and in the best interests of the Company. The Committee may appoint an Administrative Agent, who need not be a member of the Committee or an employee of the Company, to assist the Committee in administration of the Plan and to whom it may delegate such powers as the Committee deems appropriate, except that the Committee shall determine any dispute. The Committee may correct any defect, supply any omission or reconcile any inconsistency in the Plan, or in any agreement entered into hereunder, in the manner and to the extent it shall deem expedient and it shall be the sole and final judge of such expediency. No member of the Committee shall be liable for any action or determination made in good faith. The determinations, interpretations and other actions of the Committee pursuant to the provisions of the Plan shall be binding and conclusive for all purposes and on all persons.

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Section 4

Stock Subject to the Plan

4.1 Number of Shares. Subject to Section 7.1 and Section 4.3, one million three hundred thousand (1,300,000) shares of Stock are authorized for issuance under the Plan in accordance with its terms and subject to such restrictions or other provisions as the Committee may from time to time deem necessary. This authorization may be increased from time to time by approval of the Board and the stockholders of the Company if, on the advice of counsel for the Company, such stockholder approval is required. Shares of Stock which may be issued pursuant to the terms of the Options granted hereunder shall be applied to reduce the maximum number of shares of Stock remaining available for use under the Plan. The Company shall at all times during the term of the Plan and while any Options are outstanding retain as authorized and unissued Stock and/or Stock in the Company’s treasury, at least the number of shares from time to time required under the provisions of the Plan, or otherwise assure itself of its ability to perform its obligations hereunder.

4.2 Other Shares of Stock. Any shares of Stock that are subject to an Option which expires, is forfeited, is canceled, or for any reason is terminated, and any shares of Stock that for any other reason are not issued to a Participant or are forfeited shall automatically become available for use under the Plan.

4.3 Adjustments for Stock Split, Stock Dividend, etc. If the Company shall at any time increase or decrease the number of its outstanding shares of Stock or change in any way the rights and privileges of such shares by means of the payment of a Stock dividend or any other distribution upon such shares payable in Stock, or through a Stock split, subdivision, consolidation, combination, reclassification or recapitalization involving the Stock, then in relation to the Stock that is affected by one or more of the above events, the numbers, rights and privileges of the following shall be increased, decreased or changed in like manner as if they had been issued and outstanding, fully paid and nonassessable at the time of such occurrence: (i) the shares of Stock as to which Options may be granted under the Plan; and (ii) the shares of the Stock then included in each outstanding Option granted hereunder.

4.4 Dividend Payable in Stock of Another Corporation. If the Company shall at any time pay or make any dividend or other distribution upon the Stock payable in securities or other property (except money or Stock), a proportionate part of such securities or other property shall be set aside and delivered to any Participant then holding an Option for the particular type of Stock for which the dividend or other distribution was made, upon exercise thereof. Prior to the time that any such securities or other property are delivered to a Participant in

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accordance with the foregoing, the Company shall be the owner of such securities or other property, and in all other respects shall be treated as the owner. If securities or other property which have been set aside by the Company in accordance with this Section are not delivered to a Participant because an Option is not exercised, then such securities or other property shall remain the property of the Company and shall be dealt with by the Company as it shall determine in its sole discretion.

4.5 Other Changes in Stock. In the event there shall be any change, other than as specified in Sections 4.3 and 4.4 hereof, in the number or kind of outstanding shares of Stock or of any stock or other securities into which the Stock shall be changed or for which it shall have been exchanged, and if the Committee shall in its discretion determine that such change equitably requires an adjustment in the number or kind of shares subject to outstanding Options or which have been reserved for issuance pursuant to the Plan but are not then subject to an Option, then such adjustments shall be made by the Committee and shall be effective for all purposes of the Plan and on each outstanding Option that involves that particular type of stock for which a change was effected.

4.6 Rights to Subscribe. If the Company shall at any time grant to the holders of its Stock rights to subscribe pro rata for additional shares thereof or for any other securities of the Company or of any other corporation, there shall be reserved with respect to the shares then under Option to any Participant of the particular class of Stock involved the Stock or other securities which the Participant would have been entitled to subscribe for if immediately prior to such grant the Participant had exercised his entire Option. If, upon exercise of any such Option, the Participant subscribes for the additional shares or other securities, the aggregate Option Price shall be increased by the amount of the price that is payable by the Participant for such additional shares or other securities.

4.7 General Adjustment Rules. No adjustment or substitution provided for in this Section 4 shall require the Company to sell a fractional share of Stock under any Option, or otherwise issue a fractional share of Stock, and the total substitution or adjustment with respect to each Option shall be limited by deleting any fractional share. In the case of any such substitution or adjustment, the aggregate Option Price for the shares of Stock then subject to the Option shall remain unchanged but the Option Price per share under each such Option shall be equitably adjusted by the Committee to reflect the greater or lesser number of shares of Stock or other securities into which the Stock subject to the Option may have been changed.

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4.8 Determination by the Committee, etc. Adjustments under this Section 4 shall be made by the Committee, whose determinations with regard thereto shall be final and binding upon all parties.

Section 5

Reorganization or Liquidation

In the event that the Company is merged or consolidated with another corporation and the Company is not the surviving corporation, or if all or substantially all of the assets or more than 20 percent of the outstanding voting stock of the Company is acquired by any other corporation, business entity or person, or in case of a reorganization (other than a reorganization under the United States Bankruptcy Code) or liquidation of the Company, and if the provisions of Section 8 hereof do not apply, the Committee, or the board of directors of any corporation assuming the obligations of the Company, shall, as to the Plan and outstanding Options either (i) make appropriate provision for the adoption and continuation of the Plan by the acquiring or successor corporation and for the protection of any such outstanding Options by the substitution on an equitable basis of appropriate stock of the Company or of the merged, consolidated or otherwise reorganized corporation which will be issuable with respect to the Stock, provided that no additional benefits shall be conferred upon the Participants holding such Options as a result of such substitution, and the excess of the aggregate Fair Market Value of the shares subject to such Options immediately after such substitution over the aggregate Option Price thereof is not more than the excess of the aggregate Fair Market Value of the shares subject to such Options immediately before such substitution over the aggregate Option Price thereof, or (ii) upon written notice to the Participants, provide that all unexercised Options shall be exercised within a specified number of days of the date of such notice or such Options will be terminated. In the latter event, the Committee shall accelerate the vesting dates of outstanding Options so that all Options become fully vested and exercisable prior to any such event.

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Section 6

Participation

Participants in the Plan receiving First Category Options may be any Eligible Employee in the discretion of the Committee. Participants in the Plan receiving Second Category Options shall be those Eligible Employees who, in the judgment of the Committee, are performing, or during the term of their incentive arrangement are expected to perform, important services in the management, operation and development of the Company or an Affiliated Corporation, and contribute, or are expected to contribute, to the achievement of the Company’s long-term corporate economic objectives. Upon determination by the Committee that an Option is to be granted to a Participant, written notice shall be given to such person, specifying the terms, conditions, rights and duties related thereto. Options shall be deemed to be granted as of the date specified in the granting resolution of the Committee, which date also shall be the date of the Option Agreement with the Participant. In the event of any inconsistency between the provisions of the Plan and any Option Agreement, the provisions of the Plan shall govern.

Section 7

Options

7.1 Grants. Each Participant may be granted only one Option under this Plan. Each Option granted by the Committee shall be evidenced by a written agreement entered into by the Company and the Participant to whom the Option is granted (the “Option Agreement”), which shall contain the terms and conditions set out in this Section 7, as well as such other terms and conditions, not inconsistent therewith, as the Committee may consider appropriate.

7.2 Option Agreements. There shall be two categories of Options issued under this Plan as follows:

     (a) The first category of Option (“First Category”) shall have a total of two hundred (200) shares of Stock issuable to a Participant upon exercise; and

     (b) The second category of Option (“Second Category”) shall vary by Participant and, as to any Participant, shall have a total number of shares of Stock issuable upon exercise which equals the sum of the Initial Amount and the Final Amount.

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For purposes of this Plan, the term “Initial Amount” means such number of shares (rounded to the nearest full share) which equals not more than one (1) times such Participant’s Base Salary divided by the difference between $50 and the Option Price. The term “Final Amount” means such number of shares (rounded to the nearest full share) which equals not more than one and one-half (1.5) times such Participant’s Base Salary divided by the difference between $60 and the Option Price.

7.3 Common Terms. Subject to Section 7.2 and Section 7.5, each Option Agreement entered into by the Company and the Participants shall contain at least the following terms and conditions:

     (a) Number of Shares. Each Option Agreement shall set forth a specified number of shares of Stock issuable upon exercise of the Option, as determined by the Committee pursuant to Section 7.2 hereof.

     (b) Price. The exercise price (the “Option Price”) at which each share of Stock covered by an Option may be purchased shall be the price specified in the granting resolution of the Committee.

     (c) Duration. Each Option Agreement shall state the period of time, determined by the Committee, within which the Option may be exercised (the “Option Period”), which in no event may be greater than ten (10) years.

     (d) Vesting. Subject to the provisions of Section 7.3(e) and Section 7.3(f), each Option shall become exercisable in full on the date occurring nine years and six months from the date of grant or such earlier date as the Committee may determine.

     (e) Acceleration. Each Option may become exercisable earlier, in increments, upon the occurrence of a Price Threshold Date as follows:

          (i) If the Initial Price Threshold Date occurs prior to January 1, 2000:

               (A) One-half of the shares of Stock subject to the First Category Options become immediately exercisable as of such date, and

               (B) The Initial Amount of shares of Stock subject to each Second Category Option become immediately exercisable as of such date.

          (ii) If the Final Price Threshold Date occurs prior to January 1, 2000, the remaining portion of shares of Stock under each category of Option becomes immediately exercisable as of such date.

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     (f) Termination of Employment, Death, Disability, etc. Subject to the following provisions, each Option Agreement shall state that each Option and the right to acquire stock thereunder shall be subject to the condition that the Participant has remained a full-time employee of the Company from the date of grant of an Option until the applicable exercise date:

          (i) If the employment of the Participant by the Company is terminated (which for this purpose means that the Participant is no longer employed by the Company or by an Affiliated Corporation) within the Option Period for any reason other than cause, the Participant’s retirement on or after attaining age 60, or the Participant’s disability or death, the Option may be exercised by the Participant within three months following the date of such termination (provided that such exercise must occur within the Option Period), but not thereafter. In any such case, the Option may be exercised only as to the shares as to which the Option had become exercisable on or before the date of termination of the Participant’s employment. If the employment of the Participant is terminated within the Option Period for cause, as determined by the Company, any portion of any Option not previously exercised in accordance with this Section 7 shall thereafter be void for all purposes. As used in this subsection, “cause” shall mean a gross violation, as determined by the Company, of the Company’s established policies and procedures, provided that the effect of this subsection 7.3(f) shall be limited to determining the consequences of a termination and that nothing in this subsection shall restrict or otherwise interfere with the Company’s discretion with respect to the termination of any employee.

          (ii) If the Participant retires from employment by the Company on or after attaining age 60, the Option may be exercised by the Participant within 36 months following his or her retirement (provided that such exercise must occur within the Option Period), but not thereafter. In the event of the Participant’s death during such 36-month period, each Option may be exercised by those entitled to do so in the manner referred to in (iv) below. In any such case:

               (A) If the Participant is holding a First Category Option and the Participant’s retirement occurs on or after January 1, 2000, the Option may be exercised as to all shares of Stock which are subject to the Option, including an increment of the Option, if any, which had not otherwise become exercisable on or before the date of the Participant’s retirement, or

               (B) If the Participant is holding a First Category Option and the Participant’s retirement occurs prior to January 1, 2000, the Option may be exercised only as to the shares of Stock as to which the Option had become exercisable on or before the date of the Participant’s retirement, or

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               (C) If the Participant is holding a Second Category Option, the Option may be exercised only as to the shares of Stock as to which the Option had become exercisable on or before the date of the Participant’s retirement.

          (iii) If the Participant becomes disabled (as determined pursuant to the Company’s Long-Term Disability Plan or any successor plan), during the Option Period while still employed, or within the 36-month period referred to in (ii) above, the Option may be exercised by the Participant or by his or her guardian or legal representative, within twelve months following the Participant’s disability, or within the 36-month period referred to in (ii) if applicable and if longer (provided that such exercise must occur within the Option Period), but not thereafter. In the event of the Participant’s death during such twelve-month period, each Option may be exercised by those entitled to do so in the manner referred to in (iv) below. In any such case, the Option may be exercised only as to the shares of Stock as to which the Option had become exercisable on or before the date of the Participant’s disability.

          (iv) In the event of the Participant’s death while still employed by the Company, each Option of the deceased Participant may be exercised by those entitled to do so under the Participant’s will or under the laws of descent and distribution within twelve months following the Participant’s death (provided that in any event such exercise must occur within the Option Period), but not thereafter, as to all shares of Stock which are subject to such Option, including any increment of the Option, if any, which has not yet become exercisable at the time of the Participant’s death. In the event of the Participant’s death within the 36-month period referred to in (ii) above or within the twelve-month period referred to (iii) above, each Option of the deceased Participant that is exercisable at the time of death may be exercised by those entitled to do so under the Participant’s will or under the laws of descent and distribution within twelve months following the Participant’s death or within the 36-month period referred to in (ii), if applicable and if longer (provided that in any event such exercise must occur within the Option Period).

     (g) Transferability. Each Option Agreement shall state that the Option granted thereunder is not transferable by the Participant, except by will or pursuant to the laws of descent and distribution, and that such Option is exercisable during the Participant’s lifetime only by him or her, or in the event of the Participant’s disability or incapacity, by his or her guardian or legal representative.

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(h) Exercise, Payments, etc.

          (i) Each Option Agreement shall provide that the method for exercising the Option granted therein shall be by delivery to the Office of the Secretary of the Company or the Administrative Agent of written notice specifying the number of shares of Stock with respect to which such Option is exercised and payment to the Company of the aggregate Option Price. Such notice shall be in a form satisfactory to the Committee and shall specify the particular Option (or portion thereof) which is being exercised and the number of shares of Stock with respect to which the Option is being exercised. The exercise of the Option shall be deemed effective on the date such notice is received by the Office of the Secretary or the Administrative Agent and payment is made to the Company of the aggregate Option Price (the “Exercise Date”); however, if payment of the aggregate Option Price is made pursuant to a sale of shares of Stock as contemplated by subsection 7.2(b)(iii)(E) below, the Exercise Date shall be deemed to be the date of such sale. If requested by the Company, such notice shall contain the Participant’s representation that he or she is purchasing the Stock for investment purposes only and his or her agreement not to sell or otherwise distribute any Stock so purchased in any manner that is in violation of the Securities Act of 1933, as amended, or any applicable state law, and such restriction, or notice thereof, shall be placed on the certificates representing the Stock so purchased. The purchase of such Stock shall take place upon delivery of such notice to the Office of the Secretary of the Company or to the Administrative Agent, at which time the Option Price shall be paid in full to the Company by any of the methods or any combination of the methods set forth in 7.2(h)(iii) below.

          (ii) The shares of Stock to which the Participant is entitled as a result of the exercise of the Option shall be issued by the Company and (A) delivered by electronic means to an account designated by the Participant, or (B) delivered to the Participant in the form of a properly executed certificate or certificates representing such shares of Stock. If shares of Stock and/or Depositary Shares are used to pay all or part of the aggregate Option Price, the Company shall issue and deliver to the Participant the additional shares of Stock, in excess of the aggregate Option Price or portion thereof paid using shares of Stock or Depositary Shares, to which the Participant is entitled as a result of the Option exercise.

          (iii) The aggregate Option Price shall be paid by any of the following methods or any combination of the following methods:

               (A) in cash, including the wire transfer of funds in U.S. dollars to one of the Company’s bank accounts located in the United States, with such bank account to be designated from time to time by the Company;

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               (B) by personal, certified or cashier’s check payable in U.S. dollars to the order of the Company;

               (C) by delivery to the Company or the Administrative Agent of certificates representing a number of shares of Stock then owned by the Participant, the aggregate Fair Market Value (as of the Exercise Date) of which is not greater than the aggregate Option Price of the Option being exercised, properly endorsed for transfer to the Company; provided that the shares of Stock used for this purpose must have been owned by the Participant for a period of at least six months;

               (D) by certification or attestation to the Company or the Administrative Agent of the Participant’s ownership as of the Exercise Date of the number of (1) shares of Stock and/or (2) Depositary Shares, the aggregate Fair Market Value (as of the Exercise Date) of which is not greater than the aggregate Option Price of the Option being exercised; provided that the shares of Stock and/or Depositary Shares used for this purpose must have been owned by the Participant for a period of at least six months; or

               (E) by delivery to the Company or the Administrative Agent of a properly executed notice of exercise together with irrevocable instructions to a broker to promptly deliver to the Company, by wire transfer or check as noted in (A) and (B) above, the amount of the proceeds of the sale of all or a portion of the Stock or of a loan from the broker to the Participant necessary to pay the aggregate Option Price.

          (iv) For purposes of the Plan, the income resulting from an Option exercise shall be based on the Fair Market Value of the Stock for the Exercise Date; however, if payment of the aggregate Option Price is made pursuant to a sale of shares of Stock as contemplated by subsection 7.2(h)(iii)(E) hereof, the Fair Market Value shall be deemed to be the per share sale price and the Exercise Date shall be deemed to be the date of such sale.

7.4 Tax Withholding. Each Option Agreement shall provide that, upon exercise of the Option, the Participant shall make appropriate arrangements with the Company to provide for the amount of additional tax withholding required by Sections 3102 and 3402 or any successor section(s) of the Internal Revenue Code and applicable state and local income tax laws, including payment of such taxes in cash, by check or as provided in Section 13.2 hereof.

7.5 Subsequent Option Agreements. Following the initial grant of Options in 1996, additional Participants may be designated by the Committee for grant of Options substantially in accordance with the above terms and conditions, subject

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to such changes and modifications to reflect the circumstances of any subsequent grant as the Committee, in its discretion, deems appropriate.

7.6 Stockholder Privileges. No Participant shall have any rights as a stockholder with respect to any shares of Stock covered by an Option until the Participant becomes the holder of record of such Stock. No adjustments shall be made for dividends or other distributions or other rights as to which there is a record date preceding the date on which such Participant becomes the holder of record of such Stock.

Section 8

Change of Control

8.1 In General. In the event of the occurrence of a change of control of the Company, as defined in Section 8.3 hereof, all outstanding Options shall become automatically vested, without further action by the Committee or the Board, so as to make all such Options fully vested and exercisable as of the date of such change of control.

8.2 Limitation on Payments. If the provisions of this Section 8 would result in the receipt by any Participant of a payment within the meaning of Section 280G or any successor section(s) of the Internal Revenue Code, and the regulations promulgated thereunder, and if the receipt of such payment by any Participant would, in the opinion of independent tax counsel of recognized standing selected by the Company, result in the payment by such Participant of any excise tax provided for in Sections 280G and 4999 or any successor section(s) of the Internal Revenue Code, then the amount of such payment shall be reduced to the extent required, in the opinion of independent tax counsel, to prevent the imposition of such excise tax; provided, however, that the Committee, in its sole discretion, may authorize the payment of all or any portion of the amount of such reduction to the Participant.

8.3 Definition. For purposes of the Plan, a “change of control” shall mean any of the events specified in the Company’s Income Continuance Plan or any successor plan which constitute a change of control within the meaning of such plan.

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Section 9

Rights of Employees, Participants

9.1 Employment. Nothing contained in the Plan or in any Option granted under the Plan shall confer upon any Participant any right with respect to the continuation of his or her employment by the Company or any Affiliated Corporation, or interfere in any way with the right of the Company or any Affiliated Corporation, subject to the terms of any separate employment agreement to the contrary, at any time to terminate such employment or to increase or decrease the level of the Participant’s compensation from the level in existence at the time of the grant of an Option. Whether an authorized leave of absence, or absence in military or government service, shall constitute a termination of employment shall be determined by the Committee at the time.

9.2 Nontransferability. No right or interest of any Participant in an Option granted pursuant to the Plan shall be assignable or transferable during the lifetime of the Participant, either voluntarily or involuntarily, or subjected to any lien, directly or indirectly, by operation of law, or otherwise, including execution, levy, garnishment, attachment, pledge or bankruptcy. In the event of a Participant’s death, a Participant’s rights and interests in Options shall, to the extent provided in Section 7 hereof, be transferable by testamentary will or the laws of descent and distribution, and payment of any amounts due under the Plan shall be made to, and exercise of any Options may be made by, the Participant’s legal representatives, heirs or legatees. If in the opinion of the Committee, a person entitled to payments or to exercise rights with respect to the Plan is disabled from caring for his or her affairs because of mental condition, physical condition or age, payment due such person may be made to, and such rights shall be exercised by, such person’s guardian, conservator or other legal personal representative upon furnishing the Committee with evidence of such status satisfactory to the Committee.

Section 10

General Restrictions

10.1 Investment Representations. The Company may require a Participant, as a condition of exercising an Option, to give written assurances in substance and form satisfactory to the Company and its counsel to the effect that such person is acquiring the Stock subject to the Option for his own account for investment and not with any present intention of selling or otherwise distributing the same, and to such other effects as the Company deems necessary or appropriate in order to comply with federal and applicable state securities laws.

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10.2 Compliance with Securities Laws. Each Option shall be subject to the requirement that, if at any time counsel to the Company shall determine that the listing, registration or qualification of the shares of Stock subject to such Option upon any securities exchange or under any state or federal law, or the consent or approval of any governmental or regulatory body, is necessary as a condition of, or in connection with, the issuance or purchase of shares of Stock thereunder, such Option may not be accepted or exercised in whole or in part unless such listing, registration, qualification, consent or approval shall have been effected or obtained on conditions acceptable to the Committee. Nothing herein shall be deemed to require the Company to apply for or to obtain such listing, registration, qualification, consent or approval.

Section 11

Other Employee Benefits

The amount of any income deemed to be received by a Participant as a result of an Option exercise shall not constitute “earnings” or “compensation” with respect to which any other employee benefits of such Participant are determined including, without limitation, benefits under any pension, profit sharing, life insurance or salary continuation plan.

Section 12

Plan Amendment, Modification and Termination

The Board may at any time terminate, and from time to time may amend or modify the Plan provided, however, that no amendment or modification may become effective without approval of the amendment or modification by the Company’s stockholders if stockholder approval is required to enable the Plan to satisfy any applicable statutory or regulatory requirements, unless the Company, on the advice of counsel, determines that stockholder approval is otherwise necessary.

No amendment, modification or termination of the Plan shall in any manner adversely affect any Option theretofore granted under the Plan, without the consent of the Participant holding such Option.

The Committee shall have the authority to adopt such modifications, procedures and subplans as may be necessary or desirable to comply with the provisions of the laws (including, but not limited to, tax laws and regulations) of countries other

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than the United States in which the Company may operate, so as to assure the viability of the benefits of the Plan to Participants employed in such countries.

Section 13

Withholding

13.1 Withholding Requirement. The Company’s obligations to deliver shares of Stock upon the exercise of an Option shall be subject to the Participant’s satisfaction of all applicable federal, state and local income and other tax withholding requirements.

13.2 Satisfaction of Required Withholding. At the time the Committee grants an Option, it may, in its sole discretion, grant the Participant an election to pay all such amounts of required tax withholding, or any part thereof:

     (a) by the delivery to the Company or the Administrative Agent of a number of shares of Stock then owned by the Participant, the aggregate Fair Market Value (as of the Exercise Date) of which is not greater than the amount required to be withheld, provided that such shares have been held by the Participant for a period of at least six months;

     (b) by certification or attestation to the Company or the Administrative Agent of the Participant’s ownership as of the Exercise Date of a number of shares of Stock and/or Depositary Shares, the aggregate Fair Market Value (as of the Exercise Date) of which is not greater than the amount required to be withheld, provided that such shares of Stock and/or Depositary Shares have been owned by the Participant for a period of at least six months; or

     (c) by the Company or the Administrative Agent withholding from the shares of Stock otherwise issuable to the Participant upon exercise of the Option, a number of shares of Stock, the aggregate Fair Market Value (as of the Exercise Date) of which is not greater than the amount required to be withheld. Any such elections by Participants to have shares of Stock withheld for this purpose will be subject to the following restrictions:

     (i) all elections shall be made on or prior to the Exercise Date; and

     (ii) all elections shall be irrevocable.

13.3 Excess Withholding. At the time the Committee grants an Option, it may, in its sole discretion, grant the Participant an election to pay additional or excess

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amounts of tax withholding, beyond the required amounts and up to the Participant’s marginal tax rate:

     (a) by delivery to the Company or the Administrative Agent of a number of Shares of Stock then owned by the Participant, the aggregate Fair Market Value (as of the Exercise Date) of which is not greater than such excess withholding amount, provided that such shares of Stock have been owned by the Participant for a period of at least six months; or

     (b) by certification or attestation to the Company or the Administrative Agent of the Participant’s ownership as of the Exercise Date of a number of shares of Stock and/or Depositary Shares, the aggregate Fair Market Value (as of the Exercise Date) of which is not greater than such excess withholding amount, provided that such shares of Stock and/or Depositary Shares have been owned by the Participant for a period of at least six months.

13.4 Section 16 Requirements. If the Participant is an officer or director of the Company within the meaning of Section 16 or any successor section(s) of the 1934 Act (“Section 16”), the Participant must satisfy the requirements of such Section 16 and any applicable rules and regulations thereunder with respect to the use of shares of Stock and/or Depositary Shares to satisfy such tax withholding obligation.

Section 14

Requirements of Law

14.1 Requirements of Law. The issuance of Stock and the payment of cash pursuant to the Plan shall be subject to all applicable laws, rules and regulations.

14.2 Federal Securities Laws Requirements. If, subsequent to the date of grant, a Participant becomes an officer or director of the Company within the meaning of Section 16, Options granted hereunder shall be subject to all conditions required under Rule 16b-3, or any successor rule(s) promulgated under the 1934 Act, to qualify the Option for any exemptions from the provisions of Section 16 available under such Rule. Such conditions are hereby incorporated herein by reference and shall be set forth in the Stock Option Agreement with the Participant which describes the Option.

14.3 Governing Law. The Plan and all Stock Option Agreements hereunder shall be construed in accordance with and governed by the laws of the State of Texas.

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Section 15

Duration of the Plan

The Plan shall terminate at such time as may be determined by the Board, and no Option shall be granted after such termination. If not sooner terminated under the preceding sentence, the Plan shall fully cease and expire at midnight on December 31, 1998. Any Options outstanding at the time of the Plan termination shall continue to be exercisable in accordance with the Stock Option Agreement pertaining to each such Option.

Dated: August 14, 2008

	APACHE CORPORATION
ATTEST:
/s/ Cheri L. Peper Cheri L. Peper	By:	/s/ Margery M. Harris Margery M. Harris
Corporate Secretary		Vice President, Human Resources

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EX-10.3

Exhibit 10.3

APACHE CORPORATION
1998 STOCK OPTION PLAN
(Amended and Restated August 14, 2008)

Section 1

Introduction

1.1 Establishment. Apache Corporation, a Delaware corporation (hereinafter referred to, together with its Affiliated Corporations (as defined in Section 2.1 hereof) as the “Company” except where the context otherwise requires), hereby establishes the Apache Corporation 1998 Stock Option Plan (the “Plan”) for Eligible Employees (as defined in Section 2.1 hereof). The Plan permits the grant of stock options to Eligible Employees selected by the Committee (as defined in Section 2.1 hereof).

1.2 Purposes. The purposes of the Plan are to provide the Eligible Employees designated by the Committee for participation in the Plan with added incentives to continue in the long-term service of the Company and to create in such employees a more direct interest in the future success of the operations of the Company by relating incentive compensation to increases in stockholder value, so that the income of those employees is more closely aligned with the interests of the Company’s stockholders. The Plan is also designed to attract outstanding individuals and to retain and motivate Eligible Employees by providing an opportunity for investment in the Company.

1.3 Effective Date. The Effective Date of the Plan (the “Effective Date”) is February 6, 1998. This Plan and each option granted hereunder is conditioned on and shall be of no force or effect until approval of the Plan by the holders of the shares of voting stock of the Company unless the Company, on the advice of counsel, determines that stockholder approval is not necessary. The Committee may grant options the exercise of which shall be expressly subject to the condition that the Plan shall have been approved by the stockholders of the Company.

Section 2

Definitions

2.1 Definitions. The following terms shall have the meanings set forth below:

     (a) “Administrative Agent” means any designee or agent that may be appointed by the Committee pursuant to Section 3.1(b) hereof.

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     (b) “Affiliated Corporation” means any corporation or other entity (including but not limited to a partnership) which is affiliated with Apache Corporation through stock ownership or otherwise and is treated as a common employer under the provisions of Sections 414(b) and (c) or any successor section(s) of the Internal Revenue Code.

     (c) “Board” means the Board of Directors of the Company.

     (d) “Committee” means the Stock Option Plan Committee of the Board, which is empowered hereunder to take actions in the administration of the Plan. The Committee shall be constituted at all times as to permit the Plan to comply with: (i) Rule 16b-3 or any successor rule(s) promulgated under the Securities Exchange Act of 1934, as amended (the “1934 Act”), and (ii) Section 162(m) or any successor sections(s) of the Internal Revenue Code and the regulations promulgated thereunder.

     (e) “Deferred Delivery Plan” means the Company’s Deferred Delivery Plan, effective as of February 10, 2000 and as it may be amended from time to time, or any successor plan.

     (f) “Depositary Shares” means the Depositary shares representing the Company’s preferred stock convertible into Stock.

     (g) “Eligible Employees” means full-time employees (including, without limitation, officers and directors who are also employees), and certain part-time employees, of the Company or any division thereof.

     (h) “Fair Market Value” means the per share closing price of the Stock as reported on The New York Stock Exchange, Inc. Composite Transactions Reporting System for a particular date or, if the Stock is not so listed on such date, as reported on NASDAQ or on such other exchange or electronic trading system which, on the date in question, reports the largest number of traded shares of Stock, provided, however, that if on the date Fair Market Value is to be determined there are no transactions in the Stock, Fair Market Value shall be determined as of the immediately preceding date on which there were transactions in the Stock; provided further, however, that if the foregoing provisions are not applicable, the fair market value of a share of the Stock as determined by the Committee by the reasonable application of such reasonable valuation method, consistently applied, as the Committee deems appropriate.

     (i) “Internal Revenue Code” means the Internal Revenue Code of 1986, as it may be amended from time to time.

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     (j) “Option” means a right to purchase shares of Stock at a stated price for a specified period of time. All Options granted under the Plan shall be Options which are not “incentive stock options” as described in Section 422 or any successor section(s) of the Internal Revenue Code.

     (k) “Option Price” means the price at which shares of Stock subject to an Option may be purchased, determined in accordance with subsection 7.2(b) hereof.

     (l) “Participant” means an Eligible Employee designated by the Committee from time to time during the term of the Plan to receive one or more Options under the Plan.

     (m) “Stock” means the $0.625 par value Common Stock of the Company.

     (n) “Stock Units” means investment units under the Deferred Delivery Plan, each of which is deemed to be equivalent to one share of Stock.

2.2 Headings; Gender and Number. The headings contained in the Plan are for reference purposes only and shall not affect in any way the meaning or interpretation of the Plan. Except when otherwise indicated by the context, the masculine gender shall also include the feminine gender, and the definition of any term herein in the singular shall also include the plural.

Section 3

Plan Administration

3.1 Administration by the Committee.

     (a) The Plan shall be administered by the Committee. In accordance with the provisions of the Plan, the Committee shall, in its sole discretion, select the Participants from among the Eligible Employees, determine the Options to be granted pursuant to the Plan, the number of shares of Stock to be issued thereunder, the time at which such Options are to be granted, fix the Option Price, and establish such other terms and requirements as the Committee may deem necessary or desirable and consistent with the terms of the Plan. The Committee shall determine the form or forms of the agreements with Participants which shall evidence the particular provisions, terms, conditions, rights and duties of the Company and the Participants with respect to Options granted pursuant to the Plan, which provisions need not be identical except as may be provided herein.

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     (b) The Committee may from time to time adopt such rules and regulations for carrying out the purposes of the Plan as it may deem proper and in the best interests of the Company. The Committee may appoint an Administrative Agent, who need not be a member of the Committee or an employee of the Company, to assist the Committee in administration of the Plan and to whom it may delegate such powers as the Committee deems appropriate, except that the Committee shall determine any dispute. The Committee may correct any defect, supply any omission or reconcile any inconsistency in the Plan, or in any agreement entered into hereunder, in the manner and to the extent it shall deem expedient and it shall be the sole and final judge of such expediency. No member of the Committee shall be liable for any action or determination made in good faith. The determination, interpretations and other actions of the Committee pursuant to the provisions of the Plan shall be binding and conclusive for all purposes and on all persons.

3.2 Compliance with Section 162(m).

The Plan is intended to comply with the requirements of Section 162(m) or any successor section(s) of the Internal Revenue Code (“Section 162(m)”) as to any “covered employee” as defined in Section 162(m), and shall be administered, interpreted and construed consistently therewith. In accordance with this intent, the amount of income a Participant may receive from Options granted under the Plan shall be based solely on an increase in the value of the Stock after the date of the grant of the Option, or such other bases as may be permitted by applicable law. The Committee is authorized to take such additional action, if any, that may be required to ensure that the Plan satisfies the requirements of Section 162(m) and the regulations promulgated or revenue rulings published thereunder.

Section 4

Stock Subject to the Plan

4.1 Number of Shares. Subject to Section 7.1 and to adjustment pursuant to Section 4.3 hereof, 2,500,000 shares of Stock (adjusted to 5,775,000 shares of Stock for (i) the Company’s ten-percent stock dividend, record date December 31, 2001, paid January 21, 2002, (ii) the Company’s five-percent stock dividend, record date March 12, 2003, paid April 2, 2003, and (iii) the Company’s two-for-one stock split, record date December 31, 2003, distributed January 14, 2004) are authorized for issuance under the Plan in accordance with the provisions of the Plan and subject to such restrictions or other provisions as the Committee may from time to time deem necessary. This authorization may be increased from time to time by approval of the Board and the stockholders of the Company if, on the advice of counsel for the Company, such stockholder approval is required. Shares of Stock which may be issued upon exercise of Options shall be applied to reduce the maximum number of shares of Stock remaining available for use under the Plan. The Company shall at all times

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during the term of the Plan and while any Options are outstanding retain as authorized and unissued Stock, or as Stock in the Company’s treasury, at least the number of shares from time to time required under the provisions of the Plan, or otherwise assure itself of its ability to perform its obligations hereunder.

4.2 Other Shares of Stock. Any shares of Stock that are subject to an Option which expires, is forfeited, is cancelled, or for any reason is terminated unexercised, and any shares of Stock that for any other reason are not issued to a Participant or are forfeited shall automatically become available for use under the Plan.

4.3 Adjustments for Stock Split, Stock Dividend, etc. If the Company shall at any time increase or decrease the number of its outstanding shares of Stock or change in any way the rights and privileges of such shares by means of the payment of a Stock dividend or any other distribution upon such shares payable in Stock, or through a Stock split, subdivision, consolidation, combination, reclassification or recapitalization involving the Stock then in relation to the Stock that is affected by one or more of the above events, the numbers, rights and privileges of the following shall be, in each case, equitably and proportionally adjusted to take into account the occurrence of any of the above events, (i) the shares of Stock as to which Options may be granted under the Plan; (ii) the shares of Stock then included in each outstanding Option granted hereunder; and (iii) the Option Price for each outstanding Option granted hereunder.

4.4 Dividend Payable in Stock of Another Corporation, Etc. If the Company shall at any time pay or make any dividend or other distribution upon the Stock payable in securities or other property (except money or Stock), a proportionate part of such securities or other property shall be set aside and delivered to any Participant then holding an Option for the particular type of Stock for which the dividend or other distribution was made, upon exercise thereof. Prior to the time that any such securities or other property are delivered to a Participant in accordance with the foregoing, the Company shall be the owner of such securities or other property and shall have the right to vote the securities, receive any dividends payable on such securities, and in all other respects shall be treated as the owner. If securities or other property which have been set aside by the Company in accordance with this Section are not delivered to a Participant because an Option is not exercised, then such securities or other property shall remain the property of the Company and shall be dealt with by the Company as it shall determine in its sole discretion.

4.5 Other Changes in Stock. In the event there shall be any change, other than as specified in Sections 4.3 and 4.4 hereof, in the number or kind of outstanding shares of Stock or of any stock or other securities into which the Stock shall be changed or for which it shall have been exchanged, and if the Committee shall in its discretion determine that such change equitably requires an adjustment in the number or kind of shares subject to outstanding Options or

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which have been reserved for issuance pursuant to the Plan but are not then subject to an Option, then such adjustments shall be made by the Committee and shall be effective for all purposes of the Plan and on each outstanding Option that involves the particular type of stock for which a change was effected.

4.6 Rights to Subscribe. If the Company shall at any time grant to the holders of its Stock rights to subscribe pro rata for additional shares thereof or for any other securities of the Company or of any other corporation, there shall be reserved with respect to the shares then under Option to any Participant of the particular class of Stock involved the Stock or other securities which the Participant would have been entitled to subscribe for if immediately prior to such grant the Participant had exercised his entire Option. If, upon exercise of any such Option, the Participant subscribes for the additional shares or other securities, the aggregate Option Price shall be increased by the amount of the price that is payable by the Participant for such additional shares or other securities.

4.7 General Adjustment Rules. No adjustment or substitution provided for in this Section 4 shall require the Company to sell a fractional share of Stock under any Option, or otherwise issue a fractional share of Stock, and the total substitution or adjustment with respect to each Option shall be limited by deleting any fractional share. In the case of any such substitution or adjustment, the aggregate Option Price for the shares of Stock then subject to the Option shall remain unchanged but the Option Price per share under each such Option shall be equitably adjusted by the Committee to reflect the greater or lesser number of shares of Stock or other securities into which the Stock subject to the Option may have been changed.

4.8 Determination by the Committee, Etc. Adjustments under this Section 4 shall be made by the Committee, whose determinations with regard thereto shall be final and binding upon all parties.

Section 5

Reorganization or Liquidation

In the event that the Company is merged or consolidated with another corporation and the Company is not the surviving corporation, or if all or substantially all of the assets or more than 20 percent of the outstanding voting stock of the Company is acquired by any other corporation, business entity or person, or in case of a reorganization (other than a reorganization under the United States Bankruptcy Code) or liquidation of the Company, and if the provisions of Section 8 hereof do not apply, the Committee, or the board of directors of any corporation assuming the obligations of the Company, shall, as to the Plan and outstanding Options either (i) make appropriate provision for the

6

adoption and continuation of the Plan by the acquiring or successor corporation and for the protection of any such outstanding Options by the substitution on an equitable basis of appropriate stock of the Company or of the merged, consolidated or otherwise reorganized corporation which will be issuable with respect to the Stock, provided that no additional benefits shall be conferred upon the Participants holding such Options as a result of such substitution, and the excess of the aggregate Fair Market Value of the shares subject to the Options immediately after such substitution over the aggregate Option Price thereof is not more than the excess of the aggregate Fair Market Value of the shares subject to such Options immediately before such substitution over the aggregate Option Price thereof, or (ii) upon written notice to the Participants, provide that all unexercised Options shall be exercised within a specified number of days of the date of such notice or such Options will be terminated. In the latter event, the Committee shall accelerate the vesting dates of outstanding Options so that all Options become fully vested and exercisable prior to any such event.

Section 6

Participation

Participants in the Plan shall be those Eligible Employees who, in the judgment of the Committee, are performing, or during the term of their incentive arrangement will perform, vital services in the management, operation and development of the Company or an Affiliated Corporation, and significantly contribute, or are expected to significantly contribute, to the achievement of the Company’s long-term corporate economic objectives. Participants may be granted from time to time one or more Options; provided, however, that the grant of each such Option shall be separately approved by the Committee, and receipt of one such Option shall not result in automatic receipt of any other Option. Upon determination by the Committee that an Option is to be granted to a Participant, written notice shall be given to such person, specifying the terms, conditions, rights and duties related thereto. Each Participant shall, if required by the Committee, enter into an agreement with the Company, in such form as the Committee shall determine and which is consistent with the provisions of the Plan, specifying such terms, conditions, rights and duties. Options shall be deemed to be granted as of the date specified in the grant resolution of the Committee, which date shall be the date of any related agreement with the Participant. In the event of any inconsistency between the provisions of the Plan and any such agreement entered into hereunder, the provisions of the Plan shall govern.

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Section 7

Stock Options

7.1 Grant of Stock Options. Coincident with or following designation for participation in the Plan, an Eligible Employee may be granted one or more Options. Grants of Options under the Plan shall be made by the Committee. In no event shall the exercise of one Option affect the right to exercise any other Option or affect the number of shares of Stock for which any other Option may be exercised, except as provided in subsection 7.2(j) hereof. During the life of the Plan, no Eligible Employee may be granted Options which in the aggregate pertain to in excess of 25 percent of the total shares of Stock authorized under the Plan.

7.2 Stock Option Agreements. Each Option granted under the Plan shall be evidenced by a written stock option agreement which shall be entered into by the Company and the Participant to whom the Option is granted (the “Stock Option Agreement”), and which shall contain the following terms and conditions, as well as such other terms and conditions, not inconsistent therewith, as the Committee may consider appropriate in each case.

     (a) Number of Shares. Each Stock Option Agreement shall state that it covers a specified number of shares of Stock, as determined by the Committee.

     (b) Price. The price at which each share of Stock covered by an Option may be purchased shall be determined in each case by the Committee and set forth in the Stock Option Agreement, but in no event shall the price be less than the Fair Market Value of the Stock on the date the Option is granted.

     (c) Duration of Options; Employment Required For Exercise. Each Stock Option Agreement shall state the period of time, determined by the Committee, within which the Option may be exercised by the Participant (the “Option Period”). The Option Period must end, in all cases, not more than ten years from the date an Option is granted. Except as otherwise provided in Sections 5 and 8 and subsection 7.2(d)(iv) hereof, each Option granted under the Plan shall become exercisable in increments such that 25 percent of the Option will become exercisable on each of the four subsequent one-year anniversaries of the date the Option is granted, but each such additional 25-percent increment shall become exercisable only if the Participant has been continuously employed by the Company from the date the Option is granted through the date on which each such additional 25-percent increment becomes exercisable.

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     (d) Termination of Employment, Death, Disability, Etc. Each Stock Option Agreement shall provide as follows with respect to the exercise of the Option upon termination of the employment or the death of the Participant:

          (i) If the employment of the Participant by the Company is terminated within the Option Period for cause, as determined by the Company, the Option shall thereafter be void for all purposes. As used in this subsection 7.2(d), “cause” shall mean a gross violation, as determined by the Company, of the Company’s established policies and procedures, provided that the effect of this subsection 7.2(d) shall be limited to determining the consequences of a termination and that nothing in this subsection 7.2(d) shall restrict or otherwise interfere with the Company’s discretion with respect to the termination of any employee.

          (ii) If the Participant retires from employment by the Company on or after attaining age 60, the Option may be exercised by the Participant within 36 months following his or her retirement (provided that such exercise must occur within the Option Period), but not thereafter. In the event of the Participant’s death during such 36-month period, each Option may be exercised by those entitled to do so in the manner referred to in (iv) below. In any such case, the Option may be exercised only as to the shares as to which the Option had become exercisable on or before the date of the Participant’s retirement.

          (iii) If the Participant becomes disabled (as determined pursuant to the Company’s Long-Term Disability Plan or any successor plan), during the Option Period while still employed, or within the three-month period referred to in (v) below, or within the 36-month period referred to in (ii) above, the Option may be exercised by the Participant or by his or her guardian or legal representative, within twelve months following the Participant’s disability, or within the 36-month period referred to in (ii) above if applicable and if longer (provided that such exercise must occur within the Option Period), but not thereafter. In the event of the Participant’s death during such twelve-month period, each Option may be exercised by those entitled to do so in the manner referred to in (iv) below. In any such case, the Option may be exercised only as to the shares of Stock as to which the Option had become exercisable on or before the date of the Participant’s disability.

          (iv) In the event of the Participant’s death while still employed by the Company, each Option of the deceased Participant may be exercised by those entitled to do so under the Participant’s will or under the laws of descent and distribution within twelve months following the Participant’s death (provided that in any event such exercise must occur within the Option Period), but not thereafter, as to all shares of Stock which are subject to such Option, including each 25-percent increment of the Option, if any, which has not yet become exercisable at the time of the Participant’s death. In the event of the Participant’s

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death within the 36-month period referred to in (ii) above or within the twelve-month period referred to in (iii) above, each Option of the deceased Participant that is exercisable at the time of death may be exercised by those entitled to do so under the Participant’s will or under the laws of descent and distribution within twelve months following the Participant’s death or within the 36-month period referred to in (ii) above, if applicable and if longer (provided that in any event such exercise must occur within the Option Period). The provisions of this paragraph (iv) of subsection 7.2(d) shall be applicable to each Stock Option Agreement as if set forth therein word for word. Each Stock Option Agreement executed by the Company prior to the adoption of this provision shall be deemed amended to include the provisions of this paragraph and all Options granted pursuant to such Stock Option Agreements shall be exercisable as provided herein.

          (v) If the employment of the Participant by the Company is terminated (which for this purpose means that the Participant is no longer employed by the Company or by an Affiliated Corporation) within the Option Period for any reason other than cause, the Participant’s retirement on or after attaining age 60, or the Participant’s disability or death, the Option may be exercised by the Participant within three months following the date of such termination (provided that such exercise must occur within the Option Period), but not thereafter. In any such case, the Option may be exercised only as to the shares as to which the Option had become exercisable on or before the date of termination of the Participant’s employment.

     (e) Transferability. Each Stock Option Agreement shall provide that the Option granted therein is not transferable by the Participant except by will or pursuant to the laws of descent and distribution, and that such Option is exercisable during the Participant’s lifetime only by him or her, or in the event of the Participant’s disability or incapacity, by his or her guardian or legal representative.

     (f) Agreement to Continue in Employment. Each Stock Option Agreement shall contain the Participant’s agreement to remain in the employment of the Company, at the pleasure of the Company, for a continuous period of at least one year after the date of such Stock Option Agreement, at the salary rate in effect on the date of such agreement or at such changed rate as may be fixed, from time to time, by the Company.

     (g) Exercise, Payments, Etc.

          (i) Each Stock Option Agreement shall provide that the method for exercising the Option granted therein shall be by delivery to the Office of the Secretary of the Company or to the Administrative Agent of written notice specifying the number of shares of Stock with respect to which such Option is

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exercised and payment to the Company of the aggregate Option Price. Such notice shall be in a form satisfactory to the Committee and shall specify the particular Options (or portions thereof) which are being exercised and the number of shares of Stock with respect to which the Options are being exercised. The exercise of the Option shall be deemed effective on the date such notice is received by the Office of the Secretary or by the Administrative Agent and payment is made to the Company of the aggregate Option Price (the “Exercise Date”); however, if payment of the aggregate Option Price is made pursuant to a sale of shares of Stock as contemplated by subsection 7.2(g)(iii)(F) below, the Exercise Date shall be deemed to be the date of such sale. If requested by the Company, such notice shall contain the Participant’s representation that he or she is purchasing the Stock for investment purposes only and his or her agreement not to sell any Stock so purchased in any manner that is in violation of the Securities Act of 1933, as amended, or any applicable state law, and such restriction, or notice thereof, shall be placed on the certificates representing the Stock so purchased. The purchase of such Stock shall take place upon delivery of such notice to the Office of the Secretary or to the Administrative Agent, at which time the aggregate Option Price shall be paid in full to the Company by any of the methods or any combination of the methods set forth in 7.2(g)(iii) below.

          (ii) Except as referenced below in connection with the Deferred Delivery Plan, the shares of Stock to which the Participant is entitled as a result of the exercise of the Option shall be issued by the Company and (A) delivered by electronic means to an account designated by the Participant, or (B) delivered to the Participant in the form of a properly executed certificate or certificates representing such shares of Stock. If shares of Stock and/or Depositary Shares are used to pay all or part of the aggregate Option Price, the Company shall issue and deliver to the Participant the additional shares of Stock, in excess of the aggregate Option Price or portion thereof paid using shares of Stock or Depositary Shares, to which the Participant is entitled as a result of the Option exercise. If the Participant exercising an Option (x) is eligible for participation in the Deferred Delivery Plan, (y) pays the aggregate Option Price pursuant to 7.2(g)(iii)(A), (B), (C), (D) or (E) below, and (z) has made an irrevocable election at least six months prior to the Exercise Date as required under the Deferred Delivery Plan, the income resulting from the Option exercise shall be deferred into the Participant’s Deferred Delivery Plan account and no additional shares of Stock shall be delivered to the Participant. The income resulting from the Option exercise may not be deferred into the Participant’s Deferred Delivery Plan account except to the extent that the Option was vested by December 31, 2004, the deferral election was made by December 31, 2004, and the deferral into the Deferred Delivery Plan occurs before January 1, 2006.

          (iii) the aggregate Option Price shall be paid by any of the following methods or any combination of the following methods:

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               (A) in cash, including the wire transfer of funds in U.S. dollars to one of the Company’s bank accounts located in the United States, with such bank account to be designated from time to time by the Company;

               (B) by personal, certified or cashier’s check payable in U.S. dollars to the order of the Company;

               (C) by delivery to the Company or the Administrative Agent of certificates representing a number of shares of Stock then owned by the Participant, the aggregate Fair Market Value of which (as of the Exercise Date) is not greater than the aggregate Option Price of the Option being exercised, properly endorsed for transfer to the Company; provided that the shares of Stock used for this purpose must have been owned by the Participant for a period of at least six months;

               (D) by certification or attestation to the Company or the Administrative Agent of the Participant’s ownership (as of the Exercise Date) of a number of shares of Stock and/or Depositary Shares, the aggregate Fair Market Value of which (as of the Exercise Date) is not greater than the aggregate Option Price of the Option being exercised, provided that the shares of Stock and/or Depositary Shares used for this purpose have been owned by the Participant for a period of at least six months;

               (E) if the income resulting from the Option Exercise is to be deferred into the Participant’s Deferred Delivery Plan account, by certification or attestation to the Company or the Administrative Agent of the Participant’s ownership (as of the Exercise Date) of a number of vested Stock Units held in the Participant’s Deferred Delivery Plan account, the equivalent aggregate Fair Market Value of which (as of the Exercise Date) is not greater than the aggregate Option Price of the Option being exercised, provided that the Stock Units used for this purpose were vested as of the Exercise Date; or

               (F) by delivery to the Company or the Administrative Agent of a properly executed notice of exercise together with irrevocable instructions to a broker to promptly deliver to the Company, by wire transfer or check as noted in (A) and (B) above, the amount of the proceeds of the sale of all or a portion of the Stock or of a loan from the broker to the Participant necessary to pay the aggregate Option Price.

          (iv) For purposes of the Plan, the income resulting from an Option exercise shall be based on the Fair Market Value of the Stock for the Exercise Date; however, if payment of the aggregate Option Price is made pursuant to a sale of shares of Stock as contemplated by subsection 7.2(g)(iii)(F) hereof, the

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Fair Market Value shall be deemed to be the per share sale price and the Exercise Date shall be deemed to be the date of such sale.

     (h) Date of Grant. An Option shall be considered as having been granted on the date specified in the grant resolution of the Committee.

     (i) Tax Withholding. Each Stock Option Agreement shall provide that, upon exercise of the Option, the Participant shall make appropriate arrangements with the Company to provide for the amount of tax withholding required by Sections 3102 and 3402 or any successor section(s) of the Internal Revenue Code and applicable state and local income tax laws, including payment of such taxes in cash, by check, or as provided in Section 13.2 hereof.

     (j) Adjustment of Options. Subject to the provisions of Sections 4, 5, 7, 8 and 12 hereof, the Committee may make any adjustment in the number of shares of Stock covered by, or the terms of an outstanding Option and a subsequent granting of an Option, by amendment or by substitution for an outstanding Option; however, except as provided in Sections 4, 5, 8 and 12 hereof, the Committee may not adjust the Option Price of any outstanding Option. Such amendment or substitution may result in terms and conditions (including the number of shares of Stock covered, vesting schedule or Option Period) that differ from the terms and conditions of the original Option. The Committee may not, however, adversely affect the rights of any Participant to previously granted Options without the consent of such Participant. If such action is effected by amendment, the effective date of such amendment will be the date of grant of the original Option.

7.3 Stockholder Privileges. No Participant shall have any rights as a stockholder with respect to any shares of Stock covered by an Option until the Participant becomes the holder of record of such Stock. Except as provided in Section 4 hereof, no adjustments shall be made for dividends or other distributions or other rights as to which there is a record date preceding the date on which such Participant becomes the holder of record of such Stock.

Section 8

Change of Control

8.1 In General. In the event of the occurrence of a change of control of the Company as defined in Section 8.3 hereof, all outstanding Options shall become automatically vested, without further action by the Committee or the Board, so as to make all such Options fully vested and exercisable as of the date of such change of control.

8.2 Limitation on Payments. If the provisions of this Section 8 would result in the receipt by any Participant of a payment within the meaning of Section 280G

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or any successor section(s) of the Internal Revenue Code, and the regulations promulgated thereunder, and if the receipt of such payment by any Participant would, in the opinion of independent tax counsel of recognized standing selected by the Company, result in the payment by such Participant of any excise tax provided for in Sections 280G and 4999 or any successor section(s) of the Internal Revenue Code, then the amount of such payment shall be reduced to the extent required, in the opinion of independent tax counsel, to prevent the imposition of such excise tax; provided, however, that the Committee, in its sole discretion, may authorize the payment of all or any portion of the amount of such reduction to the Participant.

8.3 Definition. For purposes of the Plan, a “change of control” shall mean any of the events specified in the Company’s Income Continuance Plan or any successor plan which constitute a change of control within the meaning of such plan.

Section 9

Rights of Employees, Participants

9.1 Employment. Nothing contained in the Plan or in any Option granted under the Plan shall confer upon any Participant any right with respect to the continuation of his or her employment by the Company or any Affiliated Corporation, or interfere in any way with the right of the Company or any Affiliated Corporation, subject to the terms of any separate employment agreement to the contrary, at any time to terminate such employment or to increase or decrease the level of the Participant’s compensation from the level in existence at the time of the grant of an Option. Whether an authorized leave of absence, or absence in military or government service, shall constitute a termination of employment shall be determined by the Committee at the time.

9.2 Nontransferability. No right or interest of any Participant in an Option granted pursuant to the Plan shall be assignable or transferable during the lifetime of the Participant, either voluntarily or involuntarily, or subjected to any lien, directly or indirectly, by operation of law, or otherwise, including execution, levy, garnishment, attachment, pledge or bankruptcy. In the event of a Participant’s death, a Participant’s rights and interests in Options shall, to the extent provided in Section 7 hereof, be transferable by testamentary will or the laws of descent and distribution, and payment of any amounts due under the Plan shall be made to, and exercise of any Options may be made by, the Participant’s legal representatives, heirs or legatees. If, in the opinion of the Committee, a person entitled to payments or to exercise rights with respect to the Plan is disabled from caring for his or her affairs because of mental condition, physical condition or age, payment due such person may be made to, and such rights shall be exercised by, such person’s guardian, conservator or other legal personal representative upon furnishing the Committee with evidence of such status satisfactory to the Committee.

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Section 10

General Restrictions

10.1 Investment Representations. The Company may require a Participant, as a condition of exercising an Option, to give written assurances in substance and form satisfactory to the Company and its counsel to the effect that such person is acquiring the Stock subject to the Option for his own account for investment and not with any present intention of selling or otherwise distributing the same, and to such other effects as the Company deems necessary or appropriate in order to comply with federal and applicable state securities laws.

10.2 Compliance with Securities Laws. Each Option shall be subject to the requirement that, if at any time counsel to the Company shall determine that the listing, registration or qualification of the shares of Stock subject to such Option upon any securities exchange or under any state or federal law, or the consent or approval of any governmental or regulatory body, is necessary as a condition of, or in connection with, the issuance or purchase of shares of Stock thereunder, such Option may not be accepted or exercised in whole or in part unless such listing, registration, qualification, consent or approval shall have been effected or obtained on conditions acceptable to the Committee. Nothing herein shall be deemed to require the Company to apply for or to obtain such listing, registration, qualification, consent or approval.

Section 11

Other Employee Benefits

The amount of any income deemed to be received by a Participant as a result of an Option exercise shall not constitute “earnings” or “compensation” with respect to which any other employee benefits of such Participant are determined including, without limitation benefits under any pension, profit sharing, life insurance or salary continuation plan.

Section 12

Plan Amendment, Modification and Termination

The Board may at any time terminate, and from time to time may amend or modify the Plan provided, however, that no amendment or modification may become effective without approval of the amendment or modification by the Company’s stockholders if stockholder approval is required to enable the Plan to satisfy any applicable statutory or regulatory requirements unless the Company, on the advice of counsel, determines that stockholder approval is otherwise necessary or desirable.

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No amendment, modification or termination of the Plan shall in any manner adversely affect any Option theretofore granted under the Plan, without the consent of the Participant holding such Option.

The Committee shall have the authority to adopt such modifications, procedures and subplans as may be necessary or desirable to comply with the provisions of the laws (including, but not limited to, tax laws and regulations) of countries other than the United States in which the Company may operate, so as to assure the viability of the benefits of the Plan to Participants employed in such countries.

Section 13

Withholding

13.1 Withholding Requirement. The Company’s obligations to deliver shares of Stock upon the exercise of an Option, or to defer income resulting from an Option exercise into the Deferred Delivery Plan, shall be subject to the Participant’s satisfaction of all applicable federal, state and local income and other tax withholding requirements.

13.2 Satisfaction of Required Withholding. At the time the Committee grants an Option, it may, in its sole discretion, grant the Participant an election to pay all such amounts of required tax withholding, or any part thereof:

     (a) by the delivery to the Company or the Administrative Agent of a number of shares of Stock then owned by the Participant, the aggregate Fair Market Value of which (as of the Exercise Date) is not greater than the amount required to be withheld, provided that such shares have been held by the Participant for a period of at least six months;

     (b) by certification or attestation to the Company or the Administrative Agent of the Participant’s ownership (as of the Exercise Date) of a number of shares of Stock and/or Depositary Shares, the aggregate Fair Market Value of which (as of the Exercise Date) is not greater than the amount required to be withheld, provided that such shares of Stock and/or Depositary Shares have been owned by the Participant for a period of at least six months;

     (c) if the income resulting from the Option exercise is to be deferred into the Participant’s Deferred Delivery Plan account, by certification or attestation to the Company or the Administrative Agent of the Participant’s ownership (as of the Exercise Date) of a number of vested Stock Units held in the Participant’s Deferred Delivery Plan account, the equivalent aggregate Fair Market Value of

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which (as of the Exercise Date) is not greater than the amount required to be withheld, provided that such Stock Units were vested as of the Exercise Date; or

     (d) by the Company or the Administrative Agent withholding from the shares of Stock otherwise issuable to the Participant upon exercise of the Option, a number of shares of Stock, the aggregate Fair Market Value of which (as of the Exercise Date) is not greater than the amount required to be withheld. Any such elections by Participants to have shares of Stock withheld for this purpose will be subject to the following restrictions:

     (i) all elections shall be made on or prior to the Exercise Date; and

     (ii) all elections shall be irrevocable.

13.3 Excess Withholding. At the time the Committee grants an Option, it may, in its sole discretion, grant the Participant an election to pay additional or excess amounts of tax withholding, beyond the required amounts and up to the Participant’s marginal tax rate:

     (a) by delivery to the Company or the Administrative Agent of a number of Shares of Stock then owned by the Participant, the aggregate Fair Market Value of which (as of the Exercise Date) is not greater than such excess withholding amount, provided that such shares of Stock have been owned by the Participant for a period of at least six months; or

     (b) by certification or attestation to the Company or the Administrative Agent of the Participant’s ownership (as of the Exercise Date) of a number of shares of Stock and/or Depositary Shares, the aggregate Fair Market Value of which (as of the Exercise Date) is not greater than such excess withholding amount, provided that such shares of Stock and/or Depositary Shares have been owned by the Participant for a period of at least six months.

13.4 Section 16 Requirements. If the Participant is an officer or director of the Company within the meaning of Section 16 or any successor section(s) of the 1934 Act (“Section 16”), the Participant must satisfy the requirements of such Section 16 and any applicable rules and regulations thereunder with respect to the use of shares of Stock, Depositary Shares and/or Stock Units to satisfy such tax withholding obligation.

Section 14

Requirements of Law

14.1 Requirements of Law. The issuance of Stock and the payment of cash pursuant to the Plan shall be subject to all applicable laws, rules and regulations.

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14.2 Federal Securities Laws Requirements. If a Participant is an officer or director of the Company within the meaning of Section 16, Options granted hereunder shall be subject to all conditions required under Rule 16b-3, or any successor rule(s) promulgated under the 1934 Act, to qualify the Option for any exception from the provisions of Section 16 available under such Rule. Such conditions are hereby incorporated herein by reference and shall be set forth in the Stock Option Agreement with the Participant which describes the Option.

14.3 Governing Law. The Plan and all Stock Option Agreements hereunder shall be construed in accordance with and governed by the laws of the State of Texas.

Section 15

Duration of the Plan

The Plan shall terminate at such time as may be determined by the Board, and no Option shall be granted after such termination. If not sooner terminated under the preceding sentence, the Plan shall fully cease and expire at midnight on February 6, 2003. Options outstanding at the time of the Plan termination shall continue to be exercisable in accordance with the Stock Option Agreement pertaining to each such Option, as such Stock Option Agreement may be modified pursuant to Section 12.

Dated: August 14, 2008

	APACHE CORPORATION
ATTEST:
/s/ Cheri L. Peper Cheri L. Peper	By:	/s/ Margery M. Harris Margery M. Harris
Corporate Secretary		Vice President, Human Resources

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EX-10.4

Exhibit 10.4

APACHE CORPORATION
2000 STOCK OPTION PLAN
(Amended and Restated August 14, 2008)

Section 1

Introduction

1.1 Establishment. Apache Corporation, a Delaware corporation (hereinafter referred to, together with its Affiliated Corporations (as defined in Section 2.1 hereof) as the “Company” except where the context otherwise requires), hereby establishes the Apache Corporation 2000 Stock Option Plan (the “Plan”) for Eligible Employees (as defined in Section 2.1 hereof). The Plan permits the grant of stock options to Eligible Employees selected by the Committee (as defined in Section 2.1 hereof).

1.2 Purposes. The purposes of the Plan are to provide the Eligible Employees designated by the Committee for participation in the Plan with added incentives to continue in the long-term service of the Company and to create in such employees a more direct interest in the future success of the operations of the Company by relating incentive compensation to increases in stockholder value, so that the income of those employees is more closely aligned with the interests of the Company’s stockholders. The Plan is also designed to attract outstanding individuals and to retain and motivate Eligible Employees by providing an opportunity for investment in the Company.

1.3 Effective Date. The Effective Date of the Plan (the “Effective Date”) is February 10, 2000.

Section 2

Definitions

2.1 Definitions. The following terms shall have the meanings set forth below:

     (a) “Administrative Agent” means any designee or agent that may be appointed by the Committee pursuant to Section 3.1(b) hereof.

     (b) “Affiliated Corporation” means any corporation or other entity (including but not limited to a partnership) which is affiliated with Apache Corporation through stock ownership or otherwise and is treated as a common

1

employer under the provisions of Sections 414(b) and (c) or any successor section(s) of the Internal Revenue Code.

     (c) “Board” means the Board of Directors of the Company.

     (d) “Committee” means the Stock Option Plan Committee of the Board, which is empowered hereunder to take actions in the administration of the Plan. The Committee shall be constituted at all times as to permit the Plan to comply with Rule 16b-3 or any successor rule(s) promulgated under the Securities Exchange Act of 1934, as amended (the “1934 Act”).

     (e) “Deferred Delivery Plan” means the Company’s Deferred Delivery Plan, effective as of February 10, 2000, as it may be amended from time to time, or any successor plan.

     (f) “Depositary Shares” means the Depositary shares representing the Company’s preferred stock convertible into Stock.

     (g) “Eligible Employees” means full-time employees (including, without limitation, officers and directors who are also employees), and certain part-time employees, of the Company or any division thereof.

     (h) “Expiration Date” means the date on which the Option Period (as defined in subsection 7.2(c) hereof) ends.

     (i) “Fair Market Value” means the per share closing price of the Stock as reported on The New York Stock Exchange, Inc. Composite Transactions Reporting System for a particular date or, if the Stock is not so listed on such date, as reported on NASDAQ or on such other exchange or electronic trading system which, on the date in question, reports the largest number of traded shares of Stock, provided, however, that if on the date Fair Market Value is to be determined there are no transactions in the Stock, Fair Market Value shall be determined as of the immediately preceding date on which there were transactions in the Stock; provided further, however, that if the foregoing provisions are not applicable, the fair market value of a share of the Stock as determined by the Committee by the reasonable application of such reasonable valuation method, consistently applied, as the Committee deems appropriate.

     (j) “Internal Revenue Code” means the Internal Revenue Code of 1986, as it may be amended from time to time.

     (k) “Option” means a right to purchase shares of Stock at a stated price for a specified period of time. All Options granted under the Plan shall be Options which are not “incentive stock options” as described in Section 422 or any successor section(s) of the Internal Revenue Code.

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     (l) “Option Price” means the price at which shares of Stock subject to an Option may be purchased, determined in accordance with subsection 7.2(b) hereof.

     (m) “Participant” means an Eligible Employee designated by the Committee from time to time during the term of the Plan to receive one or more Options under the Plan.

     (n) “Reload Option” has the meaning set forth in subsection 7.4 hereof.

     (o) “Stock” means the U.S. $0.625 par value Common Stock of the Company.

     (p) “Stock Units” means investment units under the Deferred Delivery Plan, each of which is deemed to be equivalent to one share of Stock.

2.2 Headings; Gender and Number. The headings contained in the Plan are for reference purposes only and shall not affect in any way the meaning or interpretation of the Plan. Except when otherwise indicated by the context, the masculine gender shall also include the feminine gender, and the definition of any term herein in the singular shall also include the plural.

Section 3

Plan Administration

3.1 Administration by the Committee.

     (a) The Plan shall be administered by the Committee. In accordance with the provisions of the Plan, the Committee shall, in its sole discretion, select the Participants from among the Eligible Employees, determine the Options to be granted pursuant to the Plan, the number of shares of Stock to be issued thereunder, the time at which such Options are to be granted, fix the Option Price, and establish such other terms and requirements as the Committee may deem necessary or desirable and consistent with the terms of the Plan. The Committee shall determine the form or forms of the agreements with Participants which shall evidence the particular provisions, terms, conditions, rights and duties of the Company and the Participants with respect to Options granted pursuant to the Plan, which provisions need not be identical except as may be provided herein.

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     (b) The Committee may from time to time adopt such rules and regulations for carrying out the purposes of the Plan as it may deem proper and in the best interests of the Company. The Committee may appoint an Administrative Agent, who need not be a member of the Committee or an employee of the Company, to assist the Committee in administration of the Plan and to whom it may delegate such powers as the Committee deems appropriate, except that the Committee shall determine any dispute. The Committee may correct any defect, supply any omission or reconcile any inconsistency in the Plan, or in any agreement entered into hereunder, in the manner and to the extent it shall deem expedient and it shall be the sole and final judge of such expediency. No member of the Committee shall be liable for any action or determination made in good faith. The determination, interpretations and other actions of the Committee pursuant to the provisions of the Plan shall be binding and conclusive for all purposes and on all persons.

Section 4

Stock Subject to the Plan

4.1 Number of Shares. Subject to Sections 7.1 and 7.4 hereof and to adjustment pursuant to Section 4.3 hereof, 3,000,000 shares of Stock (adjusted to 6,300,000 shares of Stock for (i) the Company’s ten-percent stock dividend, record date December 31, 2001, paid January 21, 2002, (ii) the Company’s five-percent stock dividend, record date March 12, 2003, paid April 2, 2003, and (iii) the Company’s two-for-one stock split, record date December 31, 2003, distributed January 14, 2004) are authorized for issuance under the Plan in accordance with the provisions of the Plan and subject to such restrictions or other provisions as the Committee may from time to time deem necessary. This authorization may be increased from time to time by approval of the Board and the stockholders of the Company if, on the advice of counsel for the Company, such stockholder approval is required. Shares of Stock which may be issued upon exercise of Options shall be applied to reduce the maximum number of shares of Stock remaining available for use under the Plan. The Company shall at all times during the term of the Plan and while any Options are outstanding retain as authorized and unissued Stock, or as Stock in the Company’s treasury, at least the number of shares from time to time required under the provisions of the Plan, or otherwise assure itself of its ability to perform its obligations hereunder.

4.2 Other Shares of Stock. Any shares of Stock that are subject to an Option which expires, is forfeited, is cancelled, or for any reason is terminated unexercised, and any shares of Stock that for any other reason are not issued to a Participant or are forfeited shall automatically become available for use under the Plan.

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4.3 Adjustments for Stock Split, Stock Dividend, etc. If the Company shall at any time increase or decrease the number of its outstanding shares of Stock or change in any way the rights and privileges of such shares by means of the payment of a Stock dividend or any other distribution upon such shares payable in Stock, or through a Stock split, subdivision, consolidation, combination, reclassification or recapitalization involving the Stock then in relation to the Stock that is affected by one or more of the above events, the numbers, rights and privileges of the following shall be, in each case, equitably and proportionally adjusted to take into account the occurrence of any of the above events, (i) the shares of Stock as to which Options may be granted under the Plan; (ii) the shares of Stock then included in each outstanding Option granted hereunder; and (iii) the Option Price for each outstanding Option granted hereunder.

4.4 Dividend Payable in Stock of Another Corporation, Etc. If the Company shall at any time pay or make any dividend or other distribution upon the Stock payable in securities or other property (except money or Stock), a proportionate part of such securities or other property shall be set aside and delivered to any Participant then holding an Option for the particular type of Stock for which the dividend or other distribution was made, upon exercise thereof. Prior to the time that any such securities or other property are delivered to a Participant in accordance with the foregoing, the Company shall be the owner of such securities or other property and shall have the right to vote the securities, receive any dividends payable on such securities, and in all other respects shall be treated as the owner. If securities or other property which have been set aside by the Company in accordance with this Section are not delivered to a Participant because an Option is not exercised, then such securities or other property shall remain the property of the Company and shall be dealt with by the Company as it shall determine in its sole discretion.

4.5 Other Changes in Stock. In the event there shall be any change, other than as specified in Sections 4.3 and 4.4 hereof, in the number or kind of outstanding shares of Stock or of any stock or other securities into which the Stock shall be changed or for which it shall have been exchanged, and if the Committee shall in its discretion determine that such change equitably requires an adjustment in the number or kind of shares subject to outstanding Options or which have been reserved for issuance pursuant to the Plan but are not then subject to an Option, then such adjustments shall be made by the Committee and shall be effective for all purposes of the Plan and on each outstanding Option that involves the particular type of stock for which a change was effected.

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4.6 Rights to Subscribe. If the Company shall at any time grant to the holders of its Stock rights to subscribe pro rata for additional shares thereof or for any other securities of the Company or of any other corporation, there shall be reserved with respect to the shares then under Option to any Participant of the particular class of Stock involved the Stock or other securities which the Participant would have been entitled to subscribe for if immediately prior to such grant the Participant had exercised his entire Option. If, upon exercise of any such Option, the Participant subscribes for the additional shares or other securities, the aggregate Option Price shall be increased by the amount of the price that is payable by the Participant for such additional shares or other securities.

4.7 General Adjustment Rules. No adjustment or substitution provided for in this Section 4 shall require the Company to sell a fractional share of Stock under any Option, or otherwise issue a fractional share of Stock, and the total substitution or adjustment with respect to each Option shall be limited by deleting any fractional share. In the case of any such substitution or adjustment, the aggregate Option Price for the shares of Stock then subject to the Option shall remain unchanged but the Option Price per share under each such Option shall be equitably adjusted by the Committee to reflect the greater or lesser number of shares of Stock or other securities into which the Stock subject to the Option may have been changed.

4.8 Determination by the Committee, Etc. Adjustments under this Section 4 shall be made by the Committee, whose determinations with regard thereto shall be final and binding upon all parties.

Section 5

Reorganization or Liquidation

In the event that the Company is merged or consolidated with another corporation and the Company is not the surviving corporation, or if all or substantially all of the assets or more than 20 percent of the outstanding voting stock of the Company is acquired by any other corporation, business entity or person, or in case of a reorganization (other than a reorganization under the United States Bankruptcy Code) or liquidation of the Company, and if the provisions of Section 8 hereof do not apply, the Committee, or the board of directors of any corporation assuming the obligations of the Company, shall, as to the Plan and outstanding Options either (i) make appropriate provision for the adoption and continuation of the Plan by the acquiring or successor corporation and for the protection of any such outstanding Options by the substitution on an equitable basis of appropriate stock of the Company or of the merged, consolidated or otherwise reorganized corporation which will be issuable with

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respect to the Stock, provided that no additional benefits shall be conferred upon the Participants holding such Options as a result of such substitution, and the excess of the aggregate Fair Market Value of the shares subject to the Options immediately after such substitution over the aggregate Option Price thereof is not more than the excess of the aggregate Fair Market Value of the shares subject to such Options immediately before such substitution over the aggregate Option Price thereof, or (ii) upon written notice to the Participants, provide that all unexercised Options shall be exercised within a specified number of days of the date of such notice or such Options will be terminated. In the latter event, the Committee shall accelerate the vesting dates of outstanding Options so that all Options become fully vested and exercisable prior to any such event.

Section 6

Participation

Participants in the Plan shall be those Eligible Employees who, in the judgment of the Committee, are performing, or during the term of their incentive arrangement will perform, vital services in the management, operation and development of the Company or an Affiliated Corporation, and significantly contribute, or are expected to significantly contribute, to the achievement of the Company’s long-term corporate economic objectives. Participants may be granted from time to time one or more Options; provided, however, that the grant of each such Option shall be separately approved by the Committee, and receipt of one such Option shall not result in automatic receipt of any other Option. Upon determination by the Committee that an Option is to be granted to a Participant, written notice shall be given to such person, specifying the terms, conditions, rights and duties related thereto. Each Participant shall, if required by the Committee, enter into an agreement with the Company, in such form as the Committee shall determine and which is consistent with the provisions of the Plan, specifying such terms, conditions, rights and duties. Options shall be deemed to be granted as of the date specified in the grant resolution of the Committee, which date shall be the date of any related agreement with the Participant. In the event of any inconsistency between the provisions of the Plan and any such agreement entered into hereunder, the provisions of the Plan shall govern.

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Section 7

Stock Options

7.1 Grant of Stock Options. Coincident with or following designation for participation in the Plan, an Eligible Employee may be granted one or more Options. Grants of Options under the Plan shall be made by the Committee. In no event shall the exercise of one Option affect the right to exercise any other Option or affect the number of shares of Stock for which any other Option may be exercised, except as provided in subsection 7.2(j) hereof. During the duration of the Plan, no Eligible Employee may be granted Options which in the aggregate cover in excess of 25 percent of the total shares of Stock authorized under the Plan.

7.2 Stock Option Agreements. Each Option granted under the Plan shall be evidenced by a written stock option agreement which shall be entered into by the Company and the Participant to whom the Option is granted (the “Stock Option Agreement”), and which shall contain the following terms and conditions, as well as such other terms and conditions, not inconsistent therewith, as the Committee may consider appropriate in each case:

     (a) Number of Shares. Each Stock Option Agreement shall state that it covers a specified number of shares of Stock, as determined by the Committee.

     (b) Price. The price at which each share of Stock covered by an Option may be purchased shall be determined in each case by the Committee and set forth in the Stock Option Agreement, but in no event shall the price be less than the Fair Market Value of the Stock on the date the Option is granted.

     (c) Duration of Options; Employment Required For Exercise. Each Stock Option Agreement shall state the period of time, determined by the Committee, within which the Option may be exercised by the Participant (the “Option Period”). The Option Period must end, in all cases, not more than ten years from the date an Option is granted. Except as otherwise provided in Sections 5 and 8 and subsections 7.2(d)(iv) and 7.4(a) hereof, each Option granted under the Plan shall become exercisable in increments such that 25 percent of the Option becomes exercisable on each of the four subsequent one-year anniversaries of the date the Option is granted, provided that each such additional 25-percent increment shall become exercisable only if the Participant has been continuously employed by the Company from the date the Option is granted through the date on which each such additional 25-percent increment becomes exercisable.

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     (d) Termination of Employment, Death, Disability, Etc. Each Stock Option Agreement shall provide as follows with respect to the exercise of the Option upon termination of the employment or the death of the Participant:

          (i) If the employment of the Participant by the Company is terminated within the Option Period for cause, as determined by the Company, the Option shall thereafter be void for all purposes. As used in this subsection 7.2(d), “cause” shall mean a gross violation, as determined by the Company, of the Company’s established policies and procedures, provided that the effect of this subsection 7.2(d) shall be limited to determining the consequences of a termination and that nothing in this subsection 7.2(d) shall restrict or otherwise interfere with the Company’s discretion with respect to the termination of any employee.

          (ii) If the Participant retires from employment by the Company on or after attaining age 60, the Option may be exercised by the Participant within 36 months following his or her retirement (provided that such exercise must occur within the Option Period), but not thereafter. In the event of the Participant’s death during such 36-month period, each Option may be exercised by those entitled to do so in the manner referred to in (iv) below. In any such case, the Option may be exercised only as to the shares as to which the Option had become exercisable on or before the date of the Participant’s retirement.

          (iii) If the Participant becomes disabled (as determined pursuant to the Company’s Long-Term Disability Plan or any successor plan), during the Option Period while still employed, or within the three-month period referred to in subsection 7.2(d)(v) below, or within the 36-month period referred to in subsection 7.2(d)(ii) above, the Option may be exercised by the Participant or by his or her guardian or legal representative, within twelve months following the Participant’s disability, or within the 36-month period referred to in subsection 7.2(d)(ii) above if applicable and if longer (provided that such exercise must occur within the Option Period), but not thereafter. In the event of the Participant’s death during such twelve-month period, each Option may be exercised by those entitled to do so in the manner referred to in subsection 7.2(d)(iv) below. In any such case, the Option may be exercised only as to the shares of Stock as to which the Option had become exercisable on or before the date of the Participant’s disability.

          (iv) In the event of the Participant’s death while still employed by the Company, each Option of the deceased Participant may be exercised by those entitled to do so under the Participant’s will or under the laws of descent and distribution within twelve months following the Participant’s death (provided that in any event such exercise must occur within the Option Period), but not thereafter, as to all shares of Stock which are subject to such Option, including each 25-percent increment of the Option, if any, which has not yet become

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exercisable at the time of the Participant’s death. In the event of the Participant’s death within the 36-month period referred to in subsection 7.2(d)(ii) above or within the twelve-month period referred to in subsection 7.2(d)(iii) above, each Option of the deceased Participant that is exercisable at the time of death may be exercised by those entitled to do so under the Participant’s will or under the laws of descent and distribution within twelve months following the Participant’s death or within the 36-month period referred to in subsection 7.2(d)(ii) above, if applicable and if longer (provided that in any event such exercise must occur within the Option Period). The provisions of this paragraph (iv) of subsection 7.2(d) shall be applicable to each Stock Option Agreement as if set forth therein word for word. Each Stock Option Agreement executed by the Company prior to the adoption of this provision shall be deemed amended to include the provisions of this paragraph and all Options granted pursuant to such Stock Option Agreements shall be exercisable as provided herein.

          (v) If the employment of the Participant by the Company is terminated (which for this purpose means that the Participant is no longer employed by the Company or by an Affiliated Corporation) within the Option Period for any reason other than cause, the Participant’s retirement on or after attaining age 60, or the Participant’s disability or death, the Option may be exercised by the Participant within three months following the date of such termination (provided that such exercise must occur within the Option Period), but not thereafter. In any such case, the Option may be exercised only as to the shares as to which the Option had become exercisable on or before the date of termination of the Participant’s employment.

     (e) Transferability. Each Stock Option Agreement shall provide that the Option granted therein is not transferable by the Participant except by will or pursuant to the laws of descent and distribution, and that such Option is exercisable during the Participant’s lifetime only by him or her, or in the event of the Participant’s disability or incapacity, by his or her guardian or legal representative.

     (f) Agreement to Continue in Employment. Each Stock Option Agreement shall contain the Participant’s agreement to remain in the employment of the Company, at the pleasure of the Company, for a continuous period of at least one year after the date of such Stock Option Agreement, at the salary rate in effect on the date of such agreement or at such changed rate as may be fixed, from time to time, by the Company.

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     (g) Exercise, Payments, Etc.

          (i) Each Stock Option Agreement shall provide that the method for exercising the Option granted therein shall be by delivery to the Office of the Secretary of the Company or to the Administrative Agent of written notice specifying the number of shares of Stock with respect to which such Option is exercised and payment to the Company of the aggregate Option Price. Such notice shall be in a form satisfactory to the Committee and shall specify the particular Options (or portions thereof) which are being exercised and the number of shares of Stock with respect to which the Options are being exercised. The exercise of the Option shall be deemed effective on the date such notice is received by the Office of the Secretary or by the Administrative Agent and payment is made to the Company of the aggregate Option Price (the “Exercise Date”); however, if payment of the aggregate Option Price is made pursuant to a sale of shares of Stock as contemplated by subsection 7.2(g)(iii)(F) below, the Exercise Date shall be deemed to be the date of such sale. If requested by the Company, such notice shall contain the Participant’s representation that he or she is purchasing the Stock for investment purposes only and his or her agreement not to sell any Stock so purchased in any manner that is in violation of the Securities Act of 1933, as amended, or any applicable state law, and such restriction, or notice thereof, shall be placed on the certificates representing the Stock so purchased. The purchase of such Stock shall take place upon delivery of such notice to the Office of the Secretary of the Company or to the Administrative Agent, at which time the aggregate Option Price shall be paid in full to the Company by any of the methods or any combination of the methods set forth in subsection 7.2(g)(iii) below.

          (ii) Except as referenced below in connection with the Deferred Delivery Plan, the shares of Stock to which the Participant is entitled as a result of the exercise of the Option shall be issued by the Company and (A) delivered by electronic means to an account designated by the Participant, or (B) delivered to the Participant in the form of a properly executed certificate or certificates representing such shares of Stock. If shares of Stock and/or Depositary Shares are used to pay all or part of the aggregate Option Price, the Company shall issue and deliver to the Participant the additional shares of Stock, in excess of the aggregate Option Price or portion thereof paid using shares of Stock or Depositary Shares, to which the Participant is entitled as a result of the Option exercise. If the Participant exercising an Option (x) is eligible for participation in the Deferred Delivery Plan, (y) pays the aggregate Option Price pursuant to subsection 7.2(g)(iii)(A), (B), (C), (D) or (E) below, and (z) has made an irrevocable election at least six months prior to the Exercise Date as required under the Deferred Delivery Plan, the income resulting from the Option exercise shall be deferred into the Participant’s

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Deferred Delivery Plan account and no additional shares of Stock shall be delivered to the Participant. The income resulting from the Option exercise may not be deferred into the Participant’s Deferred Delivery Plan account except to the extent that the Option was vested by December 31, 2004, the deferral election was made by December 31, 2004, and the deferral into the Deferred Delivery Plan occurs before January 1, 2006.

          (iii) the aggregate Option Price shall be paid by any of the following methods or any combination of the following methods:

               (A) in cash, including the wire transfer of funds in U.S. dollars to one of the Company’s bank accounts located in the United States, with such bank account to be designated from time to time by the Company;

               (B) by personal, certified or cashier’s check payable in U.S. dollars to the order of the Company;

               (C) by delivery to the Company or the Administrative Agent of certificates representing a number of shares of Stock then owned by the Participant, the aggregate Fair Market Value of which (as of the Exercise Date) is not greater than the aggregate Option Price of the Option being exercised, properly endorsed for transfer to the Company, provided that the shares of Stock used for this purpose must have been owned by the Participant for a period of at least six months;

               (D) by certification or attestation to the Company or the Administrative Agent of the Participant’s ownership (as of the Exercise Date) of a number of shares of Stock and/or Depositary Shares, the aggregate Fair Market Value of which (as of the Exercise Date) is not greater than the aggregate Option Price of the Option being exercised, provided that the shares of Stock and/or Depositary Shares used for this purpose have been owned by the Participant for a period of at least six months;

               (E) if the income resulting from the Option exercise is to be deferred into the Participant’s Deferred Delivery Plan account, by certification or attestation to the Company or the Administrative Agent of the Participant’s ownership (as of the Exercise Date) of a number of vested Stock Units held in the Participant’s Deferred Delivery Plan account, the equivalent aggregate Fair Market Value of which (as of the Exercise Date) is not greater than the aggregate Option Price of the Option being exercised, provided that the Stock Units used for this purpose were vested as of the Exercise Date; or

               (F) by delivery to the Company or the Administrative Agent of a properly executed notice of exercise together with irrevocable instructions to a broker to promptly deliver to the Company, by wire transfer or check as noted in subsection 7.2(g)(iii)(A) and (B) above, the amount of the proceeds of the sale of all or a portion of the Stock or of a loan from the broker to the Participant necessary to pay the aggregate Option Price.

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          (iv) For purposes of the Plan, the income resulting from an Option exercise shall be based on the Fair Market Value of the Stock for the Exercise Date; however, if payment of the aggregate Option Price is made pursuant to a sale of shares of Stock as contemplated by subsection 7.2(g)(iii)(F) hereof, the Fair Market Value shall be deemed to be the per share sale price and the Exercise Date shall be deemed to be the date of such sale.

     (h) Date of Grant. An Option shall be considered as having been granted on the date specified in the grant resolution of the Committee.

     (i) Tax Withholding. Each Stock Option Agreement shall provide that, upon exercise of the Option, the Participant shall make appropriate arrangements with the Company to provide for the amount of tax withholding required by Sections 3102 and 3402 or any successor section(s) of the Internal Revenue Code and applicable state and local income and other tax laws, including payment of such taxes in cash, by check, or as provided in Section 13.2 hereof.

     (j) Adjustment of Options. Subject to the provisions of Sections 4, 5, 7, 8 and 12 hereof, the Committee may make any adjustment in the number of shares of Stock covered by, or the terms of an outstanding Option and a subsequent granting of an Option, by amendment or by substitution for an outstanding Option; however, except as provided in Sections 4, 5, 8 and 12 hereof, the Committee may not adjust the Option Price of any outstanding Option. Such amendment or substitution may result in terms and conditions (including the number of shares of Stock covered, vesting schedule or Option Period) that differ from the terms and conditions of the original Option. The Committee may not, however, adversely affect the rights of any Participant to previously granted Options without the consent of such Participant. If such action is effected by amendment, the effective date of such amendment will be the date of grant of the original Option.

7.3 Stockholder Privileges. No Participant shall have any rights as a stockholder with respect to any shares of Stock covered by an Option until the Participant becomes the holder of record of such Stock. Except as provided in Section 4 hereof, no adjustments shall be made for dividends or other distributions or other rights as to which there is a record date preceding the date on which such Participant becomes the holder of record of such Stock.

7.4 Reload Provisions.

     (a) The Committee shall have the authority, but not an obligation, to include as a part of any Stock Option Agreement provisions under which the Participant shall be granted a further option (a “Reload Option”) when the

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Participant exercises all or part of the Option represented by such Stock Option Agreement on or before February 10, 2005, and pays all or part of the aggregate Option Price and/or required or excess tax withholding pursuant to subsections 7.2(g)(iii)(C) (D) or (E), and/or subsections 13.2(a), (b) or (c), and/or subsections 13.3(a) or (b) hereof. Any Option including such reload provisions shall become exercisable in increments such that 25 percent of the Option becomes exercisable on the dates six months, 12 months, 18 months and 24 months following the date the Option is granted, provided that each such additional 25-percent increment shall become exercisable only if the Participant has been continuously employed by the Company from the date the Option is granted through the date on which such additional 25-percent increment becomes exercisable.

     (b) Any shares of Stock issued to a Participant as a result of an Option exercise which resulted in the grant of a Reload Option, may not be sold or otherwise disposed of until the term of the original Option has expired or the Participant is no longer employed by the Company or by an Affiliated Corporation. Any Stock Units acquired by a Participant as a result of the deferral of income (pursuant to subsection 7.2(g)(ii) hereof) in connection with an Option exercise which resulted in the grant of a Reload Option, may not be sold or otherwise disposed of until the shares of Stock relating to such Stock Units are distributed under the terms of the Deferred Delivery Plan.

     (c) A Reload Option shall be granted, without further action of the Committee or the Participant, if one or more of the payment provisions referenced in subsection 7.4(a) above are used and if all of the following are satisfied as of the date of exercise of the underlying Option:

          (i) the Participant has not previously been granted a Reload Option or there has been a period of more than six months since the Participant was last granted a Reload Option;

          (ii) no shares of Stock have been sold or otherwise disposed of in breach of the provisions of subsection 7.4(b) above;

          (iii) the Fair Market Value of the shares of Stock covered by the original Option being exercised is at least ten percent greater than the Option Price for such shares;

          (iv) the underlying Option is exercised on or before February 10, 2005; and

          (v) there is a period of more than six months remaining in the term of the original Option.

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     (d) Each Reload Option:

          (i) shall cover that certain number of shares of Stock equal to the shares or equivalent shares of Stock actually or constructively delivered to the Company as referenced in subsection 7.4(a) above;

          (ii) shall be deemed to be granted as of the date on which the original Option is exercised and shall have an Option Price of 100 percent of Fair Market Value on such date;

          (iii) shall become exercisable six months after the date of grant and shall have the same Expiration Date as the original Option; and

          (iv) except as set forth in subsections 7.4(d)(i), (ii) and (iii) above, and 7.4(e) below, shall have the same terms and conditions as those of the original Option.

     (e) The Participant may not defer the income from the exercise of a Reload Option into the Participant’s Deferred Delivery Plan account except to the extent that (i) the Reload Option was vested by December 31, 2004; (ii) the deferral election was made by December 31, 2004; and (iii) the deferral into the Deferred Delivery Plan occurs before January 1, 2006.

Section 8

Change of Control

8.1 In General. In the event of the occurrence of a change of control of the Company, as defined in Section 8.3 hereof, all outstanding Options shall become automatically vested, without further action by the Committee or the Board, so as to make all such Options fully vested and exercisable as of the date of such change of control.

8.2 Limitation on Payments. If the provisions of this Section 8 would result in the receipt by any Participant of a payment within the meaning of Section 280G or any successor section(s) of the Internal Revenue Code, and the regulations promulgated thereunder, and if the receipt of such payment by any Participant would, in the opinion of independent tax counsel of recognized standing selected by the Company, result in the payment by such Participant of any excise tax provided for in Sections 280G and 4999 or any successor section(s) of the Internal Revenue Code, then the amount of such payment shall be reduced to the extent required, in the opinion of independent tax counsel, to prevent the imposition of such excise tax; provided, however, that the Committee, in its sole

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discretion, may authorize the payment of all or any portion of the amount of such reduction to the Participant.

8.3 Definition. For purposes of the Plan, a “change of control” shall mean any of the events specified in the Company’s Income Continuance Plan or any successor plan which constitute a change of control within the meaning of such plan.

Section 9

Rights of Employees, Participants

9.1 Employment. Nothing contained in the Plan or in any Option granted under the Plan shall confer upon any Participant any right with respect to the continuation of his or her employment by the Company or any Affiliated Corporation, or interfere in any way with the right of the Company or any Affiliated Corporation, subject to the terms of any separate employment agreement to the contrary, at any time to terminate such employment or to increase or decrease the level of the Participant’s compensation from the level in existence at the time of the grant of an Option. Whether an authorized leave of absence, or absence in military or government service, shall constitute a termination of employment shall be determined by the Committee at the time.

9.2 Nontransferability. No right or interest of any Participant in an Option granted pursuant to the Plan shall be assignable or transferable during the lifetime of the Participant, either voluntarily or involuntarily, or subjected to any lien, directly or indirectly, by operation of law, or otherwise, including execution, levy, garnishment, attachment, pledge or bankruptcy. In the event of a Participant’s death, a Participant’s rights and interests in Options shall, to the extent provided in Section 7 hereof, be transferable by testamentary will or the laws of descent and distribution, and payment of any amounts due under the Plan shall be made to, and exercise of any Options may be made by, the Participant’s legal representatives, heirs or legatees. If, in the opinion of the Committee, a person entitled to payments or to exercise rights with respect to the Plan is disabled from caring for his or her affairs because of mental condition, physical condition or age, payment due such person may be made to, and such rights shall be exercised by, such person’s guardian, conservator or other legal personal representative upon furnishing the Committee with evidence of such status satisfactory to the Committee.

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Section 10

General Restrictions

10.1 Investment Representations. The Company may require a Participant, as a condition of exercising an Option, to give written assurances in substance and form satisfactory to the Company and its counsel to the effect that such person is acquiring the Stock subject to the Option for his own account for investment and not with any present intention of selling or otherwise distributing the same, and to such other effects as the Company deems necessary or appropriate in order to comply with federal and applicable state securities laws.

10.2 Compliance with Securities Laws. Each Option shall be subject to the requirement that, if at any time counsel to the Company shall determine that the listing, registration or qualification of the shares of Stock subject to such Option upon any securities exchange or under any state or federal law, or the consent or approval of any governmental or regulatory body, is necessary as a condition of, or in connection with, the issuance or purchase of shares of Stock thereunder, such Option may not be accepted or exercised in whole or in part unless such listing, registration, qualification, consent or approval shall have been effected or obtained on conditions acceptable to the Committee. Nothing herein shall be deemed to require the Company to apply for or to obtain such listing, registration, qualification, consent or approval.

Section 11

Other Employee Benefits

The amount of any income deemed to be received by a Participant as a result of an Option exercise shall not constitute “earnings” or “compensation” with respect to which any other employee benefits of such Participant are determined including, without limitation, benefits under any pension, profit sharing, life insurance or salary continuation plan.

Section 12

Plan Amendment, Modification and Termination

The Board may at any time terminate, and from time to time may amend or modify the Plan provided, however, that no amendment or modification may become effective without approval of the amendment or modification by the Company’s stockholders if stockholder approval is required to enable the Plan to satisfy any applicable statutory or regulatory requirements unless the Company,

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on the advice of counsel, determines that stockholder approval is otherwise necessary or desirable.

No amendment, modification or termination of the Plan shall in any manner adversely affect any Option theretofore granted under the Plan, without the consent of the Participant holding such Option.

The Committee shall have the authority to adopt such modifications, procedures and subplans as may be necessary or desirable to comply with the provisions of the laws (including, but not limited to, tax laws and regulations) of countries other than the United States in which the Company may operate, so as to assure the viability of the benefits of the Plan to Participants employed in such countries.

Section 13

Withholding

13.1 Withholding Requirement. The Company’s obligations to deliver shares of Stock upon the exercise of an Option, or to defer income resulting from an Option exercise into the Deferred Delivery Plan, shall be subject to the Participant’s satisfaction of all applicable federal, state and local income and other tax withholding requirements.

13.2 Satisfaction of Required Withholding. At the time the Committee grants an Option, it may, in its sole discretion, grant the Participant an election to pay all such amounts of required tax withholding, or any part thereof:

     (a) by the delivery to the Company or the Administrative Agent of a number of shares of Stock then owned by the Participant, the aggregate Fair Market Value of which (as of the Exercise Date) is not greater than the amount required to be withheld, provided that such shares have been held by the Participant for a period of at least six months;

     (b) by certification or attestation to the Company or the Administrative Agent of the Participant’s ownership (as of the Exercise Date) of a number of shares of Stock and/or Depositary Shares, the aggregate Fair Market Value of which (as of the Exercise Date) is not greater than the amount required to be withheld, provided that such shares of Stock and/or Depositary Shares have been owned by the Participant for a period of at least six months;

     (c) if the income resulting from the Option exercise is to be deferred into the Participant’s Deferred Delivery Plan account, by certification or attestation to the Company or the Administrative Agent of the Participant’s ownership (as of the Exercise Date) of a number of vested Stock Units held in the Participant’s

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Deferred Delivery Plan account, the equivalent aggregate Fair Market Value of which (as of the Exercise Date) is not greater than the amount required to be withheld, provided that such Stock Units were vested as of the Exercise Date; or

     (d) by the Company or the Administrative Agent withholding from the shares of Stock otherwise issuable to the Participant upon exercise of the Option, a number of shares of Stock, the aggregate Fair Market Value of which (as of the Exercise Date) is not greater than the amount required to be withheld. Any such elections by Participants to have shares of Stock withheld for this purpose will be subject to the following restrictions:

     (i) all elections shall be made on or prior to the Exercise Date; and

     (ii) all elections shall be irrevocable.

13.3 Excess Withholding. At the time the Committee grants an Option, it may, in its sole discretion, grant the Participant an election to pay additional or excess amounts of tax withholding, beyond the required amounts and up to the Participant’s marginal tax rate:

     (a) by delivery to the Company or the Administrative Agent of a number of Shares of Stock then owned by the Participant, the aggregate Fair Market Value of which (as of the Exercise Date) is not greater than such excess withholding amount, provided that such shares of Stock have been owned by the Participant for a period of at least six months; or

     (b) by certification or attestation to the Company or the Administrative Agent of the Participant’s ownership (as of the Exercise Date) of a number of shares of Stock and/or Depositary Shares, the aggregate Fair Market Value of which (as of the Exercise Date) is not greater than such excess withholding amount, provided that such shares of Stock and/or Depositary Shares have been owned by the Participant for a period of at least six months.

13.4 Section 16 Requirements. If the Participant is an officer or director of the Company within the meaning of Section 16 or any successor section(s) of the 1934 Act (“Section 16”), the Participant must satisfy the requirements of such Section 16 and any applicable rules and regulations thereunder with respect to the use of shares of Stock, Depositary Shares and/or Stock Units to satisfy such tax withholding obligation.

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Section 14

Requirements of Law

14.1 Requirements of Law. The issuance of Stock and the payment of cash pursuant to the Plan shall be subject to all applicable laws, rules and regulations.

14.2 Federal Securities Laws Requirements. If a Participant is an officer or director of the Company within the meaning of Section 16, Options granted hereunder shall be subject to all conditions required under Rule 16b-3, or any successor rule(s) promulgated under the 1934 Act, to qualify the Option for any exception from the provisions of Section 16 available under such Rule. Such conditions are hereby incorporated herein by reference and shall be set forth in the Stock Option Agreement with the Participant which describes the Option.

14.3 Governing Law. The Plan and all Stock Option Agreements hereunder shall be construed in accordance with and governed by the laws of the State of Texas.

Section 15

Duration of the Plan

The Plan shall terminate at such time as may be determined by the Board, and no Option shall be granted after such termination. If not sooner terminated under the preceding sentence, the Plan shall fully cease and expire at midnight on February 10, 2005. Any Options outstanding at the time of the Plan termination shall continue to be exercisable in accordance with the Stock Option Agreement pertaining to each such Option, as such Stock Option Agreement may be modified pursuant to Section 12.

Dated: August 14, 2008

	APACHE CORPORATION
ATTEST:
/s/ Cheri L. Peper Cheri L. Peper	By:	/s/ Margery M. Harris Margery M. Harris
Corporate Secretary		Vice President, Human Resources

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EX-10.5

Exhibit 10.5

APACHE CORPORATION
2003 Stock Appreciation Rights Plan
(Amended and Restated August 14, 2008)

Section 1

Introduction

1.1 Establishment. Apache Corporation, a Delaware corporation (hereinafter referred to, together with its Affiliated Corporations (as defined in Section 2.1 hereof) as the “Company” except where the context otherwise requires), hereby establishes the Apache Corporation 2003 Stock Appreciation Rights Plan (the “Plan”) for Eligible Employees (as defined in Section 2.1 hereof). The Plan permits the grant of stock appreciation rights to Eligible Employees selected by the Committee (as defined in Section 2.1 hereof).

1.2 Purposes. The purposes of the Plan are to provide the Eligible Employees designated by the Committee for participation in the Plan with added incentives to continue in the long-term service of the Company and to create in such employees a more direct interest in the future success of the operations of the Company by relating incentive compensation to increases in stockholder value, so that the income of those employees is more closely aligned with the interests of the Company’s stockholders. The Plan is also designed to retain and motivate Eligible Employees and attract talented personnel in a competitive environment.

1.3 Effective Date. The effective date of the Plan (the “Effective Date”) is May 1, 2003.

Section 2

Definitions

2.1 Definitions. The following terms shall have the meanings set forth below:

     (a) “Administrative Agent” means any designee or agent that may be appointed by the Committee pursuant to Section 3.1(b) hereof.

     (b) “Affiliated Corporation” means any corporation or other entity (including but not limited to a partnership) which is affiliated with Apache Corporation through stock ownership or otherwise and is treated as a common employer under the provisions of Sections 414(b) and (c) or any successor section(s) of the Internal Revenue Code.

     (c) “Board” means the Board of Directors of the Company.

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     (d) “Committee” means the Stock Option Plan Committee of the Board, which is empowered hereunder to take actions in the administration of the Plan. The Committee shall be constituted at all times as to permit the Plan to comply with Rule 16b-3 or any successor rule(s) promulgated under the Securities Exchange Act of 1934, as amended (the “1934 Act”).

     (e) “Eligible Employees” means full-time employees (including, without limitation, officers and directors who are also employees), and certain part-time employees, of the Company or any division thereof.

     (f) “Exercise Date” means the date of exercise determined in accordance with subsection 7.2(g) hereof.

     (g) “Expiration Date” means the date on which the Stock Appreciation Right Period (as defined in subsection 7.2(c) hereof) ends.

     (h) “Fair Market Value” means the per share closing price of the Stock as reported on The New York Stock Exchange, Inc. Composite Transactions Reporting System for a particular date or, if the Stock is not so listed on such date, as reported on NASDAQ or on such other exchange or electronic trading system which, on the date in question, reports the largest number of traded shares of Stock, provided, however, that if on the date Fair Market Value is to be determined there are no transactions in the Stock, Fair Market Value shall be determined as of the immediately preceding date on which there were transactions in the Stock; provided further, however, that if the foregoing provisions are not applicable, the fair market value of a share of the Stock as determined by the Committee by the reasonable application of such reasonable valuation method, consistently applied, as the Committee deems appropriate.

     (i) “Grant Date” means the date of grant determined in accordance with subsection 7.2(h) hereof.

     (j) “Internal Revenue Code” means the Internal Revenue Code of 1986, as it may be amended from time to time.

     (k) “Participant” means an Eligible Employee designated by the Committee from time to time during the term of the Plan to receive one or more Stock Appreciation Rights under the Plan.

     (l) “Stock Appreciation Right” means to receive an amount equal to the excess of the Fair Market Value as of the Exercise Date of one share of Stock over the SAR Price times the number of shares of Stock to which the Stock Appreciation Right relates.

     (m) “SAR Price” means the price at which the Stock Appreciation Right was granted determined in accordance with subsection 7.2(b) hereof.

     (n) “Stock” means the U.S. $1.25 par value Common Stock of the Company.

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2.2 Headings; Gender and Number. The headings contained in the Plan are for reference purposes only and shall not affect in any way the meaning or interpretation of the Plan. Except when otherwise indicated by the context, the masculine gender shall also include the feminine gender, and the definition of any term herein in the singular shall also include the plural.

Section 3

Plan Administration

3.1 Administration by the Committee.

     (a) The Plan shall be administered by the Committee. In accordance with the provisions of the Plan, the Committee shall, in its sole discretion, select the Participants from among the Eligible Employees, determine the Stock Appreciation Rights to be granted pursuant to the Plan, the number of shares of Stock to which each Stock Appreciation Right relates, the time at which such Stock Appreciation Rights are to be granted, fix the SAR Price, and establish such other terms and requirements as the Committee may deem necessary or desirable and consistent with the terms of the Plan. The Committee shall determine the form or forms of the agreements with Participants which shall evidence the particular provisions, terms, conditions, rights and duties of the Company and the Participants with respect to Stock Appreciation Rights granted pursuant to the Plan, which provisions need not be identical except as may be provided herein.

     (b) The Committee may from time to time adopt such rules and regulations for carrying out the purposes of the Plan as it may deem proper and in the best interests of the Company. The Committee may appoint an Administrative Agent, who need not be a member of the Committee or an employee of the Company, to assist the Committee in administration of the Plan and to whom it may delegate such powers as the Committee deems appropriate, except that the Committee shall determine any dispute. The Committee may correct any defect, supply any omission or reconcile any inconsistency in the Plan, or in any agreement entered into hereunder, in the manner and to the extent it shall deem expedient and it shall be the sole and final judge of such expediency. No member of the Committee shall be liable for any action or determination made in good faith. The determination, interpretations and other actions of the Committee pursuant to the provisions of the Plan shall be binding and conclusive for all purposes and on all persons.

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Section 4

Adjustments to or Other Changes in Stock

4.1 Adjustments for Stock Split, Stock Dividend, etc. If the Company shall at any time increase or decrease the number of its outstanding shares of Stock or change in any way the rights and privileges of such shares by means of the payment of a Stock dividend or any other distribution upon such shares payable in Stock, or through a Stock split, subdivision, consolidation, combination, reclassification or recapitalization involving the Stock then in relation to the Stock that is affected by one or more of the above events, the numbers, rights and privileges of the following shall be, in each case, equitably and proportionally adjusted to take into account the occurrence of any of the above events, (i) the shares of Stock to which each outstanding Stock Appreciation Right relates; and (ii) the SAR Price for each outstanding Stock Appreciation Right granted hereunder.

4.2 Other Changes in Stock. In the event there shall be any change, other than as specified in Section 4.1 hereof, in the number or kind of outstanding shares of Stock or of any stock or other securities into which the Stock shall be changed or for which it shall have been exchanged, and if the Committee shall in its discretion determine that such change equitably requires an adjustment in the number or kind of shares to which outstanding Stock Appreciation Rights relate, then such adjustments shall be made by the Committee and shall be effective for all purposes of the Plan and for each outstanding Stock Appreciation Right that involves the particular type of stock for which a change was effected.

4.3 Determination by the Committee, Etc. Adjustments under this Section 4 shall be made by the Committee, whose determinations with regard thereto shall be final and binding upon all parties.

Section 5

Reorganization or Liquidation

In the event that the Company is merged or consolidated with another corporation and the Company is not the surviving corporation, or if all or substantially all of the assets or more than 20 percent of the outstanding voting stock of the Company is acquired by any other corporation, business entity or person, or in case of a reorganization (other than a reorganization under the United States Bankruptcy Code) or liquidation of the Company, and if the provisions of Section 8 hereof do not apply, the Committee, or the board of directors of any corporation assuming the obligations of the Company, shall, as to the Plan and outstanding Stock Appreciation Rights either (i) make appropriate provision for the adoption and continuation of the Plan by the acquiring or successor corporation and for the protection of any such outstanding Stock Appreciation Rights by the substitution on an equitable basis of appropriate stock of the Company or of the merged, consolidated or otherwise reorganized corporation which will be issuable with respect to

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the Stock, provided that no additional benefits shall be conferred upon the Participants holding such Stock Appreciation Rights as a result of such substitution, and the excess of the aggregate Fair Market Value of the shares of Stock to which the Stock Appreciation Rights relate immediately after such substitution over the aggregate SAR Price thereof is not more than the excess of the aggregate Fair Market Value of the shares of Stock to which such Stock Appreciation Rights relate immediately before such substitution over the aggregate Unit Price thereof, or (ii) upon written notice to the Participants, provide that all unexercised Stock Appreciation Rights shall be exercised within a specified number of days of the date of such notice or such Stock Appreciation Rights will be terminated. In the latter event, the Committee shall accelerate the vesting dates of outstanding Stock Appreciation Rights so that all Stock Appreciation Rights become fully vested and exercisable prior to any such event.

Section 6

Participation

Participants in the Plan shall be those Eligible Employees who, in the judgment of the Committee, are performing, or during the term of their incentive arrangement will perform, vital services in the management, operation and development of the Company or an Affiliated Corporation, and significantly contribute, or are expected to significantly contribute, to the achievement of the Company’s long-term corporate economic objectives. Participants may be granted from time to time one or more Stock Appreciation Rights; provided, however, that the grant of each such Stock Appreciation Right shall be separately approved by the Committee, and receipt of one such Stock Appreciation Right shall not result in automatic receipt of any other Stock Appreciation Right. Upon determination by the Committee that a Stock Appreciation Right is to be granted to a Participant, written notice shall be given to such person, specifying the terms, conditions, rights and duties related thereto. Each Participant shall, if required by the Committee, enter into an agreement with the Company, in such form as the Committee shall determine and which is consistent with the provisions of the Plan, specifying such terms, conditions, rights and duties. Stock Appreciation Rights shall be deemed to be granted as of the date specified in the grant resolution of the Committee, which date shall be the date of any related agreement with the Participant. In the event of any inconsistency between the provisions of the Plan and any such agreement entered into hereunder, the provisions of the Plan shall govern.

Section 7

Stock Appreciation Rights

7.1 Grant of Stock Appreciation Rights. Coincident with or following designation for participation in the Plan, an Eligible Employee may be granted one or more Stock Appreciation Rights. Grants of Stock Appreciation Rights under the Plan shall be made by the Committee. In no event shall the exercise of one Stock Appreciation Right affect the right to exercise any other Stock Appreciation Right or affect the number of shares

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of Stock to which any other Share Appreciation Right relates, except as provided in subsection 7.2(j) hereof.

7.2 Stock Appreciation Right Agreements. Each Stock Appreciation Right granted under the Plan shall be evidenced by a written agreement which shall be entered into by the Company and the Participant to whom the Stock Appreciation Right is granted (the “Stock Appreciation Right Agreement”), and which shall contain the following terms and conditions, as well as such other terms and conditions, not inconsistent therewith, as the Committee may consider appropriate in each case:

     (a) Number of Shares. Each Stock Appreciation Right Agreement shall state that it relates to a specified number of shares of Stock, as determined by the Committee.

     (b) SAR Price. The price shall be determined in each case by the Committee at the time of grant and set forth in the Stock Appreciation Right Agreement, but in no event shall the SAR Price be less than the Fair Market Value of the Stock on the Grant Date.

     (c) Duration of Stock Appreciation Rights; Employment Required For Exercise. Each Stock Appreciation Right Agreement shall state the period of time, determined by the Committee, within which the Stock Appreciation Right may be exercised by the Participant (the “Stock Appreciation Right Period”). The Stock Appreciation Right Period must end, in all cases, not more than ten years from the Grant Date. Except as otherwise provided in Sections 5 and 8 and subsection 7.2(d)(iv) hereof, each Stock Appreciation Right granted under the Plan shall become exercisable in increments such that 25 percent of the Share Appreciation Right becomes exercisable on each of the four subsequent one-year anniversaries of the date the Stock Appreciation Right is granted, provided that each such additional 25-percent increment shall become exercisable only if the Participant has been continuously employed by the Company from the date the Stock Appreciation Right is granted through the date on which each such additional 25-percent increment becomes exercisable.

     (d) Termination of Employment, Death, Disability, Etc. Each Stock Appreciation Right Agreement shall provide as follows with respect to the exercise of the Stock Appreciation Right upon termination of the employment or the death of the Participant:

          (i) If the employment of the Participant by the Company is terminated within the Stock Appreciation Right Period for cause, as determined by the Company, the Stock Appreciation Right shall thereafter be void for all purposes. As used in this subsection 7.2(d), “cause” shall mean a gross violation, as determined by the Company, of the Company’s established policies and procedures, provided that the effect of this subsection 7.2(d) shall be limited to determining the consequences of a termination and that nothing in this subsection 7.2(d) shall restrict or otherwise interfere with the Company’s discretion with respect to the termination of any employee.

          (ii) If the Participant retires from employment by the Company on or after attaining age 60, the Stock Appreciation Right may be exercised by the Participant

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within 36 months following his or her retirement (provided that such exercise must occur within the Stock Appreciation Right Period), but not thereafter. In the event of the Participant’s death during such 36-month period, each Stock Appreciation Right may be exercised by those entitled to do so in the manner referred to in (iv) below. In any such case, the Stock Appreciation Right may be exercised only as to the increment(s) of the Stock Appreciation Right that have become exercisable on or before the date of the Participant’s retirement.

          (iii) If the Participant becomes disabled (as determined pursuant to the Company’s Long-Term Disability Plan or any successor plan), during the Stock Appreciation Right Period while still employed, or within the three-month period referred to in subsection 7.2(d)(v) below, or within the 36-month period referred to in subsection 7.2(d)(ii) above, the Stock Appreciation Right may be exercised by the Participant or by his or her guardian or legal representative, within twelve months following the Participant’s disability, or within the 36-month period referred to in subsection 7.2(d)(ii) above if applicable and if longer (provided that such exercise must occur within the Stock Appreciation Right Period), but not thereafter. In the event of the Participant’s death during such twelve-month period, each Stock Appreciation Right may be exercised by those entitled to do so in the manner referred to in subsection 7.2(d)(iv) below. In any such case, the Stock Appreciation Right may be exercised only as to the increment(s) of the Stock Appreciation Right that have become exercisable on or before the date of the Participant’s disability.

          (iv) In the event of the Participant’s death while still employed by the Company, each Stock Appreciation Right of the deceased Participant may be exercised by those entitled to do so under the Participant’s will or under the laws of descent and distribution within twelve months following the Participant’s death (provided that in any event such exercise must occur within the Stock Appreciation Right Period), but not thereafter, as to all increments of each Stock Appreciation Right, including each 25-percent increment of the Stock Appreciation Right, if any, which has not yet become exercisable at the time of the Participant’s death. In the event of the Participant’s death within the 36-month period referred to in subsection 7.2(d)(ii) above, the increment(s) of or within the twelve-month period referred to in subsection 7.2(d)(iii) above, the increment(s) of each Stock Appreciation Right of the deceased Participant that are exercisable at the time of death may be exercised by those entitled to do so under the Participant’s will or under the laws of descent and distribution within twelve months following the Participant’s death or within the 36-month period referred to in subsection 7.2(d)(ii) above, if applicable and if longer (provided that in any event such exercise must occur within the Stock Appreciation Right Period).

          (v) If the employment of the Participant by the Company is terminated (which for this purpose means that the Participant is no longer employed by the Company or by an Affiliated Corporation) within the Stock Appreciation Right Period for any reason other than cause, the Participant’s retirement on or after attaining age 60, or the Participant’s disability or death, the Stock Appreciation Right may be exercised by the Participant within three months following the date of such termination (provided that such exercise must occur within the Stock Appreciation Right Period), but not thereafter. In any such case, the Stock Appreciation Right may be exercised only as to the

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increment(s) of the Stock Appreciation Right that have become exercisable on or before the date of termination of the Participant’s employment.

     (e) Transferability. Each Stock Appreciation Right Agreement shall provide that the Stock Appreciation Right granted therein is not transferable by the Participant except by will or pursuant to the laws of descent and distribution, and that such Stock Appreciation Right is exercisable during the Participant’s lifetime only by him or her, or in the event of the Participant’s disability or incapacity, by his or her guardian or legal representative.

     (f) Agreement to Continue in Employment. Each Stock Appreciation Right Agreement shall contain the Participant’s agreement to remain in the employment of the Company, at the pleasure of the Company, for a continuous period of at least one year after the date of such Stock Appreciation Right Agreement, at the salary rate in effect on the date of such agreement or at such changed rate as may be fixed, from time to time, by the Company.

     (g) Exercise, Payments, Etc.

          (i) Each Stock Appreciation Right Agreement shall provide that the method for exercising the Stock Appreciation Right granted therein shall be by delivery to the Administrative Agent or to the Office of the Secretary of the Company of written notice specifying the number of shares of Stock that relate to the Stock Appreciation Right being exercised. Such notice shall be in a form satisfactory to the Committee and shall specify the particular Stock Appreciation Rights (or portions thereof) which are being exercised and the number of shares of Stock that relate to the Stock Appreciation Rights being exercised. The exercise of the Stock Appreciation Right shall be deemed effective on the date such notice is received by the Administrative Agent or by the Office of the Secretary (the “Exercise Date”).

          (ii) Subject to subsection 7.2(i) and Section 12.1 hereof, the amount to which the Participant is entitled as a result of the exercise of the Stock Appreciation Right shall be paid through the Company’s payroll system, as part of the payroll cycle next following the Exercise Date, or through the Administrative Agent.

          (iii) For purposes of the Plan, the income resulting from a Stock Appreciation Right exercise shall be based on the Fair Market Value of the Stock for the Exercise Date.

     (h) Grant Date. A Stock Appreciation Right shall be considered as having been granted on the date specified in the grant resolution of the Committee.

     (i) Tax Withholding. Each Stock Appreciation Right Agreement shall provide that, upon exercise of a Stock Appreciation Right, minimum tax withholding required by Sections 3102 and 3402 or any successor section(s) of the Internal Revenue Code and applicable state and local income and other tax laws shall be deducted from the amount payable to the Participant.

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     (j) Adjustment of Stock Appreciation Rights. Subject to the provisions of Sections 4, 5, 7, 8 and 11 hereof, the Committee may make any adjustment in the number of shares of Stock to which an outstanding Stock Appreciation Right relates, or the terms of an outstanding Stock Appreciation Right and a subsequent granting of a Stock Appreciation Right, by amendment or by substitution for an outstanding Stock Appreciation Right; however, except as provided in Sections 4, 5, 8 and 11 hereof, the Committee may not adjust the SAR Price of any outstanding Stock Appreciation Right. Such amendment or substitution may result in terms and conditions (including the number of shares of Stock to which the Stock Appreciation Right relates, vesting schedule or Stock Appreciation Right Period) that differ from the terms and conditions of the original Stock Appreciation Right. The Committee may not, however, adversely affect the rights of any Participant to previously granted Stock Appreciation Rights without the consent of such Participant. If such action is effected by amendment, the effective date of such amendment will be the date of grant of the original Stock Appreciation Right.

7.3 Stockholder Privileges. No Participant shall have any rights as a stockholder with respect to any shares of Stock to which a Stock Appreciation Right relates.

Section 8

Change of Control

8.1 In General. In the event of the occurrence of a change of control of the Company, as defined in Section 8.3 hereof, all outstanding Stock Appreciation Rights shall become automatically vested, without further action by the Committee or the Board, so as to make all such Stock Appreciation Rights fully vested and exercisable as of the date of such change of control.

8.2 Limitation on Payments. If the provisions of this Section 8 would result in the receipt by any Participant of a payment within the meaning of Section 280G or any successor section(s) of the Internal Revenue Code, and the regulations promulgated thereunder, and if the receipt of such payment by any Participant would, in the opinion of independent tax counsel of recognized standing selected by the Company, result in the payment by such Participant of any excise tax provided for in Sections 280G and 4999 or any successor section(s) of the Internal Revenue Code, then the amount of such payment shall be reduced to the extent required, in the opinion of independent tax counsel, to prevent the imposition of such excise tax; provided, however, that the Committee, in its sole discretion, may authorize the payment of all or any portion of the amount of such reduction to the Participant.

8.3 Definition. For purposes of the Plan, a “change of control” shall mean any of the events specified in the Company’s Income Continuance Plan or any successor plan which constitute a change of control within the meaning of such plan.

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Section 9

Rights of Employees, Participants

9.1 Employment. Nothing contained in the Plan or in any Stock Appreciation Right granted under the Plan shall confer upon any Participant any right with respect to the continuation of his or her employment by the Company or any Affiliated Corporation, or interfere in any way with the right of the Company or any Affiliated Corporation, subject to the terms of any separate employment agreement to the contrary, at any time to terminate such employment or to increase or decrease the level of the Participant’s compensation from the level in existence at the time of the grant of an Stock Appreciation Right. Whether an authorized leave of absence, or absence in military or government service, shall constitute a termination of employment shall be determined by the Committee at the time.

9.2 Nontransferability. No right or interest of any Participant in an Stock Appreciation Right granted pursuant to the Plan shall be assignable or transferable during the lifetime of the Participant, either voluntarily or involuntarily, or subjected to any lien, directly or indirectly, by operation of law, or otherwise, including execution, levy, garnishment, attachment, pledge or bankruptcy. In the event of a Participant’s death, a Participant’s rights and interests in any Stock Appreciation Right shall, to the extent provided in Section 7 hereof, be transferable by testamentary will or the laws of descent and distribution, and payment of any amounts due under the Plan shall be made to, and exercise of any Stock Appreciation Right may be made by, the Participant’s legal representatives, heirs or legatees. If, in the opinion of the Committee, a person entitled to payments or to exercise rights with respect to the Plan is disabled from caring for his or her affairs because of mental condition, physical condition or age, payment due such person may be made to, and such rights shall be exercised by, such person’s guardian, conservator or other legal personal representative upon furnishing the Committee with evidence of such status satisfactory to the Committee.

Section 10

Other Employee Benefits

The amount of any income deemed to be received by a Participant as a result of a Stock Appreciation Right exercise shall not constitute “earnings” or “compensation” with respect to which any other employee benefits of such Participant are determined including, without limitation, benefits under any pension, profit sharing, life insurance or salary continuation plan.

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Section 11

Plan Amendment, Modification and Termination

The Committee or the Board may at any time terminate, and from time to time may amend or modify the Plan provided, however, that no amendment or modification may become effective without approval of the amendment or modification by the Company’s stockholders if stockholder approval is required to enable the Plan to satisfy any applicable statutory or regulatory requirements unless the Company, on the advice of counsel, determines that stockholder approval is otherwise necessary or desirable.

No amendment, modification or termination of the Plan shall in any manner adversely affect any Stock Appreciation Right theretofore granted under the Plan, without the consent of the Participant holding such Stock Appreciation Right.

The Committee shall have the authority to adopt such modifications, procedures and subplans as may be necessary or desirable to comply with the provisions of the laws (including, but not limited to, tax laws and regulations) of countries other than the United States in which the Company may operate, so as to assure the viability of the benefits of the Plan to Participants employed in such countries.

Section 12

Withholding

12.1 Withholding Requirement. The Company’s obligations to deliver the amounts payable to the Participant for the exercise of a Stock Appreciation Right, shall be subject to the Participant’s satisfaction of all applicable federal, state and local income and other tax withholding requirements.

12.2 Excess Withholding. At the time the Committee grants a Stock Appreciation Right, it may, in its sole discretion, grant the Participant an election to pay additional or excess amounts of tax withholding, beyond the required amounts and up to the Participant’s marginal tax rate. Such election must be specified in the written notice of exercise given in accordance with subsection 7.2(g) hereof.

Section 13

Requirements of Law

13.1 Requirements of Law. The payment of amounts pursuant to the Plan shall be subject to all applicable laws, rules and regulations.

13.2 Federal Securities Laws Requirements. If a Participant is an officer or director of the Company within the meaning of Section 16 of the 1934 Act, Stock Appreciation

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Rights granted hereunder shall be subject to all conditions required under Rule 16b-3, or any successor rule(s) promulgated under the 1934 Act, to qualify the Stock Appreciation Right for any exception from the provisions of Section 16 available under such rule. Such conditions are hereby incorporated herein by reference and shall be set forth in the Stock Appreciation Right Agreement with the Participant which describes the Stock Appreciation Right.

13.3 Governing Law. The Plan and all Stock Appreciation Right Agreements hereunder shall be construed in accordance with and governed by the laws of the State of Texas.

Section 14

Duration of the Plan

The Plan shall terminate effective as of May 2, 2007, and no Stock Appreciation Right shall be granted on or after such termination date. Any Stock Appreciation Rights outstanding at the time of the Plan termination shall continue to be exercisable in accordance with the Stock Appreciation Right Agreement pertaining to each such Stock Appreciation Right.

Dated: August 14, 2008

	APACHE CORPORATION
ATTEST:
/s/ Cheri L. Peper Cheri L. Peper	By:	/s/ Margery M. Harris Margery M. Harris
Corporate Secretary		Vice President, Human Resources

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EX-10.6

Exhibit 10.6

APACHE CORPORATION
2005 STOCK OPTION PLAN
(Amended and Restated August 14, 2008)

Section 1

Introduction

1.1 Establishment. Apache Corporation, a Delaware corporation (hereinafter referred to, together with its Affiliated Corporations (as defined in Section 2.1 hereof) as the “Company” except where the context otherwise requires), hereby establishes the Apache Corporation 2005 Stock Option Plan (the “Plan”) for Eligible Employees (as defined in Section 2.1 hereof). The Plan permits the grant of stock options to Eligible Employees selected by the Committee (as defined in Section 2.1 hereof).

1.2 Purposes. The purposes of the Plan are to provide the Eligible Employees designated by the Committee for participation in the Plan with added incentives to continue in the long-term service of the Company and to create in such employees a more direct interest in the future success of the operations of the Company by relating incentive compensation to increases in stockholder value, so that the income of those employees is more closely aligned with the interests of the Company’s stockholders. The Plan is also designed to attract outstanding individuals and to retain and motivate Eligible Employees by providing an opportunity for investment in the Company.

1.3 Effective Date. The Effective Date of the Plan (the “Effective Date”) is February 3, 2005. This Plan and each Option (as defined in Section 2.1 hereof) granted hereunder is conditioned on and shall be of no force or effect until the Plan is approved by the stockholders of the Company. The Committee may grant Options, the exercise of which shall be expressly subject to the condition that the Plan shall have been approved by the stockholders of the Company.

Section 2

Definitions

2.1 Definitions. The following terms shall have the meanings set forth below:

     (a) “Administrative Agent” means any designee or agent that may be appointed by the Committee pursuant to Section 3.1(b) hereof.

     (b) “Affiliated Corporation” means any corporation or other entity (including but not limited to a partnership) which is affiliated with Apache

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Corporation through stock ownership or otherwise and is treated as a common employer under the provisions of Sections 414(b) and (c) or any successor section(s) of the Internal Revenue Code.

     (c) “Board” means the Board of Directors of the Company.

     (d) “Committee” means the Stock Option Plan Committee of the Board, which is empowered hereunder to take actions in the administration of the Plan. The Committee shall be constituted at all times as to permit the Plan to comply with Rule 16b-3 or any successor rule(s) promulgated under the Securities Exchange Act of 1934, as amended (the “1934 Act”).

     (e) “Eligible Employees” means full-time employees (including, without limitation, officers and directors who are also employees), and certain part-time employees, of the Company or any division thereof.

     (f) “Expiration Date” means the date on which the Option Period (as defined in subsection 7.2(c) hereof) ends.

     (g) “Fair Market Value” means the per share closing price of the Stock as reported on The New York Stock Exchange, Inc. Composite Transactions Reporting System for a particular date or, if the Stock is not so listed on such date, as reported on NASDAQ or on such other exchange or electronic trading system which, on the date in question, reports the largest number of traded shares of Stock, provided, however, that if on the date Fair Market Value is to be determined there are no transactions in the Stock, Fair Market Value shall be determined as of the immediately preceding date on which there were transactions in the Stock; provided further, however, that if the foregoing provisions are not applicable, the fair market value of a share of the Stock as determined by the Committee by the reasonable application of such reasonable valuation method, consistently applied, as the Committee deems appropriate.

     (h) “Internal Revenue Code” means the Internal Revenue Code of 1986, as it may be amended from time to time, and any successor thereto.

     (i) “Option” means a right to purchase shares of Stock at a stated price for a specified period of time. All Options granted under the Plan shall be Options which are not “incentive stock options” as described in Section 422 or any successor section(s) of the Internal Revenue Code.

     (j) “Option Price” means the price at which shares of Stock subject to an Option may be purchased, determined in accordance with subsection 7.2(b) hereof.

     (k) “Participant” means an Eligible Employee designated by the Committee from time to time during the term of the Plan to receive one or more Options under the Plan.

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     (l) “Stock” means the U.S. $0.625 par value Common Stock of the Company or any security into which such Common Stock is converted or exchanged upon merger, consolidation, or any capital restructuring (within the meaning of Section 4.3) of the Company.

2.2 Headings; Gender and Number. The headings contained in the Plan are for reference purposes only and shall not affect in any way the meaning or interpretation of the Plan. Except when otherwise indicated by the context, the masculine gender shall also include the feminine gender, and the definition of any term herein in the singular shall also include the plural.

Section 3

Plan Administration

3.1 Administration by the Committee.

     (a) The Plan shall be administered by the Committee. In accordance with the provisions of the Plan, the Committee shall, in its sole discretion, select the Participants from among the Eligible Employees, determine the Options to be granted pursuant to the Plan, the number of shares of Stock to be issued thereunder, the time at which such Options are to be granted, fix the Option Price, and establish such other terms and requirements as the Committee may deem necessary or desirable and consistent with the terms of the Plan. The Committee shall determine the form or forms of the agreements with Participants which shall evidence the particular provisions, terms, conditions, rights and duties of the Company and the Participants with respect to Options granted pursuant to the Plan, which provisions need not be identical except as may be provided herein.

     (b) The Committee may from time to time adopt such rules and regulations for carrying out the purposes of the Plan as it may deem proper and in the best interests of the Company. The Committee may appoint an Administrative Agent, who need not be a member of the Committee or an employee of the Company, to assist the Committee in administration of the Plan and to whom it may delegate such powers as the Committee deems appropriate, except that the Committee shall determine any dispute. The Committee may correct any defect, supply any omission or reconcile any inconsistency in the Plan, or in any agreement entered into hereunder, in the manner and to the extent it shall deem expedient and it shall be the sole and final judge of such expediency. No member of the Committee shall be liable for any action or determination made in good faith. The determination, interpretations and other actions of the Committee pursuant to the provisions of the Plan shall be binding and conclusive for all purposes and on all persons.

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3.2 Compliance with Section 162(m). The Plan is intended to comply with the requirements of Section 162(m) or any successor section(s) of the Internal Revenue Code (“Section 162(m)”) as to any “covered employee” as defined in Section 162(m), and shall be administered, interpreted and construed consistently therewith. In accordance with this intent, the amount of income a Participant may receive from Options granted under the Plan shall be based solely on an increase in the value of the Stock after the date of the grant of the Option, or such other bases as may be permitted by applicable law. The Committee is authorized to take such additional action, if any, that may be required to ensure that the Plan and any Option granted under the Plan satisfy the requirements of Section 162(m), taking into account any regulations or other guidance issued by the Internal Revenue Service.

Section 4

Stock Subject to the Plan

4.1 Number of Shares. Subject to Section 7.1 hereof and to adjustment pursuant to Section 4.3 hereof, five million (5,000,000) shares of Stock are authorized for issuance under the Plan in accordance with the provisions of the Plan and subject to such restrictions or other provisions as the Committee may from time to time deem necessary. This authorization may be increased from time to time by approval of the Board and the stockholders of the Company if, on the advice of counsel for the Company, such stockholder approval is required. Shares of Stock which may be issued upon exercise of Options shall be applied to reduce the maximum number of shares of Stock remaining available for use under the Plan. The Company shall at all times during the term of the Plan and while any Options are outstanding retain as authorized and unissued Stock, or as Stock in the Company’s treasury, at least the number of shares from time to time required under the provisions of the Plan, or otherwise assure itself of its ability to perform its obligations hereunder.

4.2 Other Shares of Stock. Any shares of Stock that are subject to an Option which expires, is forfeited, is cancelled, or for any reason is terminated unexercised, and any shares of Stock that for any other reason are not issued to a Participant or are forfeited shall automatically become available for use under the Plan.

4.3 Adjustments for Stock Split, Stock Dividend, Etc. If the Company shall at any time increase or decrease the number of its outstanding shares of Stock or change in any way the rights and privileges of such shares by means of the payment of a Stock dividend or any other distribution upon such shares payable in Stock, or through a Stock split, subdivision, consolidation, combination, reclassification or recapitalization involving the Stock (any of the foregoing being herein called a “capital restructuring”), then in relation to the Stock that is affected

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by one or more of the above events, the numbers, rights and privileges of the following shall be, in each case, equitably and proportionally adjusted to take into account the occurrence of any of the above events, (i) the shares of Stock as to which Options may be granted under the Plan; (ii) the shares of Stock then included in each outstanding Option granted hereunder; and (iii) the Option Price for each outstanding Option granted hereunder.

4.4 Dividend Payable in Stock of Another Corporation, Etc. If the Company shall at any time pay or make any dividend or other distribution upon the Stock payable in securities or other property (except money or Stock), a proportionate part of such securities or other property shall be set aside and delivered to any Participant then holding an Option for the particular type of Stock for which the dividend or other distribution was made, upon exercise thereof. Prior to the time that any such securities or other property are delivered to a Participant in accordance with the foregoing, the Company shall be the owner of such securities or other property and shall have the right to vote the securities, receive any dividends payable on such securities, and in all other respects shall be treated as the owner. If securities or other property which have been set aside by the Company in accordance with this Section are not delivered to a Participant because an Option is not exercised, then such securities or other property shall remain the property of the Company and shall be dealt with by the Company as it shall determine in its sole discretion.

4.5 Other Changes in Stock. In the event there shall be any change, other than as specified in Sections 4.3 and 4.4 hereof, in the number or kind of outstanding shares of Stock or of any stock or other securities into which the Stock shall be changed or for which it shall have been exchanged, and if the Committee shall in its discretion determine that such change equitably requires an adjustment in the number or kind of shares subject to outstanding Options or which have been reserved for issuance pursuant to the Plan but are not then subject to an Option, then such adjustments shall be made by the Committee and shall be effective for all purposes of the Plan and on each outstanding Option that involves the particular type of stock for which a change was effected.

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4.6 Rights to Subscribe. If the Company shall at any time grant to the holders of its Stock rights to subscribe pro rata for additional shares thereof or for any other securities of the Company or of any other corporation, there shall be reserved with respect to the shares then under Option to any Participant of the particular class of Stock involved the Stock or other securities which the Participant would have been entitled to subscribe for if immediately prior to such grant the Participant had exercised his entire Option. If, upon exercise of any such Option, the Participant subscribes for the additional shares or other securities, the aggregate Option Price shall be increased by the amount of the price that is payable by the Participant for such additional shares or other securities.

4.7 General Adjustment Rules. No adjustment or substitution provided for in this Section 4 shall require the Company to sell a fractional share of Stock under any Option, or otherwise issue a fractional share of Stock, and the total substitution or adjustment with respect to each Option shall be limited by deleting any fractional share. In the case of any such substitution or adjustment, the aggregate Option Price for the shares of Stock then subject to the Option shall remain unchanged but the Option Price per share under each such Option shall be equitably adjusted by the Committee to reflect the greater or lesser number of shares of Stock or other securities into which the Stock subject to the Option may have been changed.

4.8 Determination by the Committee, Etc. Adjustments under this Section 4 shall be made by the Committee, whose determinations with regard thereto shall be final and binding upon all parties.

Section 5

Reorganization or Liquidation

In the event that the Company is merged or consolidated with another corporation and the Company is not the surviving corporation, or if all or substantially all of the assets or more than 20 percent of the outstanding voting stock of the Company is acquired by any other corporation, business entity or person, or in case of a reorganization (other than a reorganization under the United States Bankruptcy Code) or liquidation of the Company, and if the provisions of Section 8 hereof do not apply, the Committee, or the board of directors of any corporation assuming the obligations of the Company, shall, as to the Plan and outstanding Options make appropriate provision for the adoption and continuation of the Plan by the acquiring or successor corporation and for the protection of any such outstanding Options by the substitution on an equitable basis of appropriate stock of the Company or of the merged, consolidated or otherwise reorganized corporation which will be issuable with

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respect to the Stock, provided that no additional benefits shall be conferred upon the Participants holding such Options as a result of such substitution, and the excess of the aggregate Fair Market Value of the shares subject to the Options immediately after such substitution over the aggregate Option Price thereof is not more than the excess of the aggregate Fair Market Value of the shares subject to such Options immediately before such substitution over the aggregate Option Price thereof. Additionally, upon the occurrence of such an event and upon written notice to the Participants, the Committee may provide that all unexercised Options shall be exercised within a specified number of days of the date of such notice or such Options will be terminated. In the latter event, the Committee shall accelerate the vesting dates of outstanding Options so that all Options become fully vested and exercisable prior to any such event.

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Section 6

Participation

Participants in the Plan shall be those Eligible Employees who, in the judgment of the Committee, are performing, or during the term of their incentive arrangement will perform, vital services in the management, operation and development of the Company or an Affiliated Corporation, and significantly contribute, or are expected to significantly contribute, to the achievement of the Company’s long-term corporate economic objectives. Participants may be granted from time to time one or more Options; provided, however, that the grant of each such Option shall be separately approved by the Committee, and receipt of one such Option shall not result in automatic receipt of any other Option. Upon determination by the Committee that an Option is to be granted to a Participant, written notice shall be given to such person, specifying the terms, conditions, rights and duties related thereto. Each Participant shall, if required by the Committee, enter into an agreement with the Company, in such form as the Committee shall determine and which is consistent with the provisions of the Plan, specifying such terms, conditions, rights and duties. Options shall be deemed to be granted as of the date specified in the grant resolution of the Committee, which date shall be the date of any related agreement with the Participant. In the event of any inconsistency between the provisions of the Plan and any such agreement entered into hereunder, the provisions of the Plan shall govern.

Section 7

Stock Options

7.1 Grant of Stock Options. Coincident with or following designation for participation in the Plan, an Eligible Employee may be granted one or more Options. Grants of Options under the Plan shall be made by the Committee. In no event shall the exercise of one Option affect the right to exercise any other Option or affect the number of shares of Stock for which any other Option may be exercised, except as provided in subsection 7.2(j) hereof. During the duration of the Plan, no Eligible Employee may be granted Options which in the aggregate cover in excess of 25 percent of the total shares of Stock authorized under the Plan.

7.2 Stock Option Agreements. Each Option granted under the Plan shall be evidenced by a written stock option agreement which shall be entered into by the Company and the Participant to whom the Option is granted (the “Stock Option Agreement”), and which shall contain the following terms and conditions set out in this Section 7.2, as well as such other terms and conditions, not inconsistent therewith, as the Committee may consider appropriate. This requirement for

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delivery of a written Stock Option Agreement is satisfied by electronic delivery of such agreement provided that evidence of the Participant’s receipt of such electronic delivery is available to the Company and all applicable laws and regulations permit such delivery.

     (a) Number of Shares. Each Stock Option Agreement shall state that it covers a specified number of shares of Stock, as determined by the Committee.

     (b) Price. The price at which each share of Stock covered by an Option may be purchased shall be determined in each case by the Committee and set forth in the Stock Option Agreement, but in no event shall the price be less than the Fair Market Value of the Stock on the date the Option is granted.

     (c) Duration of Options; Employment Required For Exercise. Each Stock Option Agreement shall state the period of time, determined by the Committee, within which the Option may be exercised by the Participant (the “Option Period”). The Option Period must end, in all cases, not more than ten years from the date an Option is granted. Except as otherwise provided in Sections 5 and 8 and subsection 7.2(d)(iv) hereof, each Option granted under the Plan shall become exercisable in increments such that 25 percent of the Option becomes exercisable on each of the four subsequent one-year anniversaries of the date the Option is granted, provided that each such additional 25-percent increment shall become exercisable only if the Participant has been continuously employed by the Company from the date the Option is granted through the date on which each such additional 25-percent increment becomes exercisable.

     (d) Termination of Employment, Death, Disability, Etc. Each Stock Option Agreement shall provide as follows with respect to the exercise of the Option upon termination of the employment or the death or disability of the Participant:

          (i) If the employment of the Participant by the Company is terminated within the Option Period for cause, as determined by the Company, the Option shall thereafter be void for all purposes. As used in this subsection 7.2(d), “cause” shall mean a gross violation, as determined by the Company, of the Company’s established policies and procedures, provided that the effect of this subsection 7.2(d) shall be limited to determining the consequences of a termination and that nothing in this subsection 7.2(d) shall restrict or otherwise interfere with the Company’s discretion with respect to the termination of any employee.

          (ii) If the Participant retires from employment by the Company on or after attaining age 60, the Option may be exercised by the Participant within 36 months following his or her retirement (provided that such exercise must occur

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within the Option Period), but not thereafter. In the event of the Participant’s death during such 36-month period, each Option may be exercised by those entitled to do so in the manner referred to in (iv) below. In any such case, the Option may be exercised only as to the shares as to which the Option had become exercisable on or before the date of the Participant’s retirement.

          (iii) If the Participant becomes disabled (as determined pursuant to the Company’s Long-Term Disability Plan or any successor plan), during the Option Period while still employed, or within the three-month period referred to in subsection 7.2(d)(v) below, or within the 36-month period referred to in subsection 7.2(d)(ii) above, the Option may be exercised by the Participant or by his or her guardian or legal representative, within twelve months following the Participant’s disability, or within the 36-month period referred to in subsection 7.2(d)(ii) above if applicable and if longer (provided that such exercise must occur within the Option Period), but not thereafter. In the event of the Participant’s death during such twelve-month period, each Option may be exercised by those entitled to do so in the manner referred to in subsection 7.2(d)(iv) below. In any such case, the Option may be exercised only as to the shares of Stock as to which the Option had become exercisable on or before the date of the Participant’s disability.

          (iv) In the event of the Participant’s death while still employed by the Company, each Option of the deceased Participant may be exercised by those entitled to do so under the Participant’s will or under the laws of descent and distribution within twelve months following the Participant’s death (provided that in any event such exercise must occur within the Option Period), but not thereafter, as to all shares of Stock which are subject to such Option, including each 25-percent increment of the Option, if any, which has not yet become exercisable at the time of the Participant’s death. In the event of the Participant’s death within the 36-month period referred to in subsection 7.2(d)(ii) above or within the twelve-month period referred to in subsection 7.2(d)(iii) above, each Option of the deceased Participant that is exercisable at the time of death may be exercised by those entitled to do so under the Participant’s will or under the laws of descent and distribution within twelve months following the Participant’s death or within the 36-month period referred to in subsection 7.2(d)(ii) above, if applicable and if longer (provided that in any event such exercise must occur within the Option Period). The provisions of this paragraph (iv) of subsection 7.2(d) shall be applicable to each Stock Option Agreement as if set forth therein word for word. Each Stock Option Agreement executed by the Company prior to the adoption of this provision shall be deemed amended to include the provisions of this paragraph and all Options granted pursuant to such Stock Option Agreements shall be exercisable as provided herein.

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          (v) If the employment of the Participant by the Company is terminated (which for this purpose means that the Participant is no longer employed by the Company or by an Affiliated Corporation) within the Option Period for any reason other than cause, the Participant’s retirement on or after attaining age 60, or the Participant’s disability or death, the Option may be exercised by the Participant within three months following the date of such termination (provided that such exercise must occur within the Option Period), but not thereafter. In any such case, the Option may be exercised only as to the shares as to which the Option had become exercisable on or before the date of termination of the Participant’s employment.

     (e) Transferability. Each Stock Option Agreement shall provide that the Option granted therein is not transferable by the Participant except by will or pursuant to the laws of descent and distribution, and that such Option is exercisable during the Participant’s lifetime only by him or her, or in the event of the Participant’s disability or incapacity, by his or her guardian or legal representative.

     (f) Agreement to Continue in Employment. Each Stock Option Agreement shall contain the Participant’s agreement to remain in the employment of the Company, at the pleasure of the Company, for a continuous period of at least one year after the date of such Stock Option Agreement, at the salary rate in effect on the date of such agreement or at such changed rate as may be fixed, from time to time, by the Company. Termination of the Stock Option Agreement and all unvested Options granted under such Stock Option Agreement shall be the Company’s sole and exclusive remedy for an employee’s breach of this Section 7.2(f).

     (g) Exercise, Payments, Etc.

          (i) Each Stock Option Agreement shall provide that the method for exercising the Option granted therein shall be by delivery to the Office of the Secretary of the Company or to the Administrative Agent of written notice specifying the number of shares of Stock with respect to which such Option is exercised and payment to the Company of the aggregate Option Price. Such notice shall be in a form satisfactory to the Committee and shall specify the particular Options (or portions thereof) which are being exercised and the number of shares of Stock with respect to which the Options are being exercised. The Participant’s obligation to deliver written notice of exercise is satisfied by electronic delivery of such notice through means satisfactory to the Committee and prescribed by the Company. The exercise of the Option shall be deemed effective on the date such notice is received by the Office of the Secretary or by the Administrative Agent and payment is made to the Company of the aggregate Option Price (the “Exercise Date”); however, if payment of the aggregate Option Price is made pursuant to a sale of shares of Stock as contemplated by

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subsection 7.2(g)(iii)(E) below, the Exercise Date shall be deemed to be the date of such sale. If requested by the Company, such notice shall contain the Participant’s representation that he or she is purchasing the Stock for investment purposes only and his or her agreement not to sell any Stock so purchased in any manner that is in violation of the Securities Act of 1933, as amended, or any applicable state law, and such restriction, or notice thereof, shall be placed on the certificates representing the Stock so purchased. The purchase of such Stock shall take place upon delivery of such notice to the Office of the Secretary of the Company or to the Administrative Agent, at which time the aggregate Option Price shall be paid in full to the Company by any of the methods or any combination of the methods set forth in subsection 7.2(g)(iii) below.

          (ii) The shares of Stock to which the Participant is entitled as a result of the exercise of the Option shall be issued by the Company and (A) delivered by electronic means to an account designated by the Participant, or (B) delivered to the Participant in the form of a properly executed certificate or certificates representing such shares of Stock. If shares of Stock are used to pay all or part of the aggregate Option Price, the Company shall issue and deliver to the Participant the additional shares of Stock, in excess of the aggregate Option Price or portion thereof paid using shares of Stock, to which the Participant is entitled as a result of the Option exercise. The Company’s obligation to deliver the shares of Stock to which the Participant is entitled as a result of the exercise of the Option shall be subject to the payment in full to the Company of the aggregate Option Price and the required tax withholding.

          (iii) The aggregate Option Price shall be paid by any of the following methods or any combination of the following methods:

               (A) in cash, including the wire transfer of funds in U.S. dollars to one of the Company’s bank accounts located in the United States, with such bank account to be designated from time to time by the Company;

               (B) by personal, certified or cashier’s check payable in U.S. dollars to the order of the Company;

               (C) by delivery to the Company or the Administrative Agent of certificates representing a number of shares of Stock then owned by the Participant, the aggregate Fair Market Value of which (as of the Exercise Date) is not greater than the aggregate Option Price of the Option being exercised, properly endorsed for transfer to the Company, provided that the shares of Stock used for this purpose must have been owned by the Participant for a period of at least six months;

               (D) by certification or attestation to the Company or the Administrative Agent of the Participant’s ownership (as of the Exercise Date) of a number of shares of Stock, the aggregate Fair Market Value of which (as of the Exercise Date) is not greater than the aggregate Option Price of the Option being

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exercised, provided that the shares of Stock used for this purpose have been owned by the Participant for a period of at least six months; or

               (E) by delivery to the Company or the Administrative Agent of a properly executed notice of exercise together with irrevocable instructions to a broker to promptly deliver to the Company, by wire transfer or check as noted in subsection 7.2(g)(iii)(A) and (B) above, the amount of the proceeds of the sale of all or a portion of the Stock or of a loan from the broker to the Participant necessary to pay the aggregate Option Price.

          (iv) For purposes of the Plan, the income resulting from an Option exercise shall be based on the Fair Market Value of the Stock for the Exercise Date; however, if payment of the aggregate Option Price is made pursuant to a sale of shares of Stock as contemplated by subsection 7.2(g)(iii)(E) hereof, the Fair Market Value shall be deemed to be the per share sale price and the Exercise Date shall be deemed to be the date of such sale.

     (h) Date of Grant. An Option shall be considered as having been granted on the date specified in the grant resolution of the Committee.

     (i) Tax Withholding. Each Stock Option Agreement shall provide that, upon exercise of the Option, the Participant shall make appropriate arrangements with the Company to provide for the minimum amount of tax withholding required by law, including without limitation Sections 3102 and 3402 or any successor section(s) of the Internal Revenue Code and applicable state and local income and other tax laws, by payment of such taxes in cash (including wire transfer), by check, or as provided in Section 13.2 hereof.

     (j) Adjustment of Options. Subject to the provisions of Sections 4, 5, 7, 8 and 12 hereof, the Committee may make any adjustment in the number of shares of Stock covered by, or the terms of an outstanding Option and a subsequent granting of an Option, by amendment or by substitution for an outstanding Option; however, except as provided in Sections 4, 5, 8 and 12 hereof, the Committee may not adjust the Option Price of any outstanding Option. Such amendment or substitution may result in terms and conditions (including the number of shares of Stock covered, vesting schedule or Option Period) that differ from the terms and conditions of the original Option. The Committee may not, however, adversely affect the rights of any Participant to previously granted Options without the consent of such Participant. If such action is effected by amendment, the effective date of such amendment will be the date of grant of the original Option.

7.3 Stockholder Privileges. No Participant shall have any rights as a stockholder with respect to any shares of Stock covered by an Option until the Participant becomes the holder of record of such Stock. Except as provided in Section 4 hereof, no adjustments shall be made for dividends or other distributions or other rights as to which there is a record date preceding the date on which such Participant becomes the holder of record of such Stock.

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Section 8

Change of Control

8.1 In General. In the event of the occurrence of a change of control of the Company, as defined in Section 8.3 hereof, all outstanding Options shall become automatically vested, without further action by the Committee or the Board, so as to make all such Options fully vested and exercisable as of the date of such change of control.

8.2 Limitation on Payments. If the provisions of this Section 8 would result in the receipt by any Participant of a payment within the meaning of Section 280G or any successor section(s) of the Internal Revenue Code, and the regulations promulgated thereunder, and if the receipt of such accelerated vesting or payment by any Participant would, in the opinion of independent tax counsel of recognized standing selected by the Company, result in the payment by such Participant of any excise tax provided for in Sections 280G and 4999 or any successor section(s) of the Internal Revenue Code, then the amount of such accelerated vesting or payment shall be reduced to the extent required, in the opinion of independent tax counsel, to prevent the imposition of such excise tax; provided, however, that any payment or vesting of any Options shall occur as otherwise provided herein to the fullest extent possible without triggering such excise tax.

8.3 Definition. For purposes of the Plan, a “change of control” shall mean any of the events specified in the Company’s Income Continuance Plan or any successor plan which constitute a change of control within the meaning of such plan.

Section 9

Rights of Employees, Participants

9.1 Employment. Nothing contained in the Plan or in any Option granted under the Plan shall confer upon any Participant any right with respect to the continuation of his or her employment by the Company or any Affiliated Corporation, or interfere in any way with the right of the Company or any Affiliated Corporation, subject to the terms of any separate employment agreement to the contrary, at any time, to terminate such employment or to increase or decrease the level of the Participant’s compensation from the level in existence at the time of the grant of an Option. Whether an authorized leave of absence, or absence in military or government service, shall constitute a termination of employment shall be determined by the Committee at the time.

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9.2 Nontransferability. No right or interest of any Participant in an Option granted pursuant to the Plan shall be assignable or transferable during the lifetime of the Participant, either voluntarily or involuntarily, or subjected to any lien, directly or indirectly, by operation of law, or otherwise, including execution, levy, garnishment, attachment, pledge or bankruptcy. In the event of a Participant’s death, a Participant’s rights and interests in Options shall, to the extent provided in Section 7 hereof, be transferable by testamentary will or the laws of descent and distribution, and payment of any amounts due under the Plan shall be made to, and exercise of any Options may be made by, the Participant’s legal representatives, heirs or legatees. If, in the opinion of the Committee, a person entitled to payments or to exercise rights with respect to the Plan is disabled from caring for his or her affairs because of mental condition, physical condition or age, payment due such person may be made to, and such rights shall be exercised by, such person’s guardian, conservator or other legal personal representative upon furnishing the Committee with evidence of such status satisfactory to the Committee.

Section 10

General Restrictions

10.1 Investment Representations. The Company may require a Participant, as a condition of exercising an Option, to give written assurances in substance and form satisfactory to the Company and its counsel to the effect that such person is acquiring the Stock subject to the Option for his own account for investment and not with any present intention of selling or otherwise distributing the same, and to such other effects as the Company deems necessary or appropriate in order to comply with federal and applicable state securities laws.

10.2 Compliance with Securities Laws. Each Option shall be subject to the requirement that, if at any time counsel to the Company shall determine that the listing, registration or qualification of the shares of Stock subject to such Option upon any securities exchange or under any state or federal law, or the consent or approval of any governmental or regulatory body, is necessary as a condition of, or in connection with, the issuance or purchase of shares of Stock thereunder, such Option may not be accepted or exercised in whole or in part unless such listing, registration, qualification, consent or approval shall have been effected or obtained on conditions acceptable to the Committee. Nothing herein shall be deemed to require the Company to apply for or to obtain such listing, registration, qualification, consent or approval.

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Section 11

Other Employee Benefits

The amount of any income deemed to be received by a Participant as a result of an Option exercise shall not constitute “earnings” or “compensation” with respect to which any other employee benefits of such Participant are determined including, without limitation, benefits under any pension, profit sharing, life insurance or salary continuation plan.

Section 12

Plan Amendment, Modification and Termination

The Board may at any time terminate, and from time to time may amend or modify the Plan provided, however, that no amendment or modification may become effective without approval of the amendment or modification by the Company’s stockholders if stockholder approval is required to enable the Plan to satisfy any applicable statutory or regulatory requirements unless the Company, on the advice of counsel, determines that stockholder approval is otherwise necessary or desirable.

No amendment, modification or termination of the Plan shall in any manner adversely affect any Option theretofore granted under the Plan, without the consent of the Participant holding such Option.

The Committee shall have the authority to adopt such modifications, procedures and subplans as may be necessary or desirable to comply with the provisions of the laws (including, but not limited to, tax laws and regulations) of countries other than the United States in which the Company may operate, so as to assure the viability of the benefits of the Plan to Participants employed in such countries.

Section 13

Withholding

13.1 Withholding Requirement. The Company’s obligations to deliver shares of Stock upon the exercise of an Option shall be subject to the Participant’s satisfaction of all applicable federal, state and local income and other tax withholding requirements.

13.2 Satisfaction of Required Withholding. At the time the Committee grants an Option, it may, in its sole discretion, grant the Participant an election to pay all such amounts of required tax withholding, or any part thereof:

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     (a) by the delivery to the Company or the Administrative Agent of a number of shares of Stock then owned by the Participant, the aggregate Fair Market Value of which (as of the Exercise Date) is not greater than the amount required to be withheld, provided that such shares have been held by the Participant for a period of at least six months;

     (b) by certification or attestation to the Company or the Administrative Agent of the Participant’s ownership (as of the Exercise Date) of a number of shares of Stock, the aggregate Fair Market Value of which (as of the Exercise Date) is not greater than the amount required to be withheld, provided that such shares of Stock have been owned by the Participant for a period of at least six months; or

     (c) by the Company or the Administrative Agent withholding from the shares of Stock otherwise issuable to the Participant upon exercise of the Option, a number of shares of Stock, the aggregate Fair Market Value of which (as of the Exercise Date) is not greater than the amount required to be withheld. Any such elections by Participants to have shares of Stock withheld for this purpose will be subject to the following restrictions:

          (i) all elections shall be made on or prior to the Exercise Date; and

          (ii) all elections shall be irrevocable.

13.3 Section 16 Requirements. If the Participant is an officer or director of the Company within the meaning of Section 16 or any successor section(s) of the 1934 Act (“Section 16”), the Participant must satisfy the requirements of such Section 16 and any applicable rules and regulations thereunder with respect to the use of shares of Stock to satisfy such tax withholding obligation.

Section 14

Requirements of Law

14.1 Requirements of Law. The issuance of Stock and the payment of cash pursuant to the Plan shall be subject to all applicable laws, rules and regulations.

14.2 Federal Securities Laws Requirements. If a Participant is an officer or director of the Company within the meaning of Section 16, Options granted hereunder shall be subject to all conditions required under Rule 16b-3, or any successor rule(s) promulgated under the 1934 Act, to qualify the Option for any exception from the provisions of Section 16 available under such Rule. Such

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conditions are hereby incorporated herein by reference and shall be set forth in the Stock Option Agreement with the Participant which describes the Option.

14.3 Governing Law. The Plan and all Stock Option Agreements hereunder shall be construed in accordance with and governed by the laws of the State of Texas.

Section 15

Duration of the Plan

The Plan shall terminate effective as of May 2, 2007, and no Option shall be granted on or after termination date. Any Options outstanding at the time of the Plan termination shall continue to be exercisable in accordance with the Stock Option Agreement pertaining to each such Option.

Dated: August 14, 2008

	APACHE CORPORATION
ATTEST:
/s/ Cheri L. Peper Cheri L. Peper	By:	/s/ Margery M. Harris Margery M. Harris
Corporate Secretary		Vice President, Human Resources

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EX-10.7

Exhibit 10.7

APACHE CORPORATION
2005 SHARE APPRECIATION PLAN
(Amended and Restated August 14, 2008)

Section 1

Introduction

1.1 Establishment. Apache Corporation, a Delaware corporation (hereinafter referred to, together with its Affiliated Corporations (as defined below) as the “Company” except where the context otherwise requires), hereby establishes the Apache Corporation 2005 Share Appreciation Plan (the “Plan”).

1.2 Purposes. The primary purpose of this Plan is to focus the energies of the Company’s employees on significantly increasing shareholder wealth through stock price appreciation to share prices of $81 and $108. The share price goals of this Plan seek to increase shareholder wealth by approximately $7.6 to $18.2 billion with the Company’s employees sharing in less than one percent of the additional shareholder value created. Additional purposes of this Plan include the retention of existing key employees and as an additional inducement in the recruitment of talented personnel in a competitive environment.

1.3 Effective Date. The Effective Date of the Plan (the “Effective Date”) shall be February 3, 2005. This Plan and each Conditional Grant awarded hereunder are conditioned on and shall be of no force or effect until the Plan is approved by the stockholders of the Company. The Committee (as defined in Section 2.1 hereof) may award Conditional Grants, the entitlement to which shall be expressly subject to the condition that the Plan shall have been approved by the stockholders of the Company.

Section 2

Definitions

2.1 Definitions. The following terms shall have the meanings set forth below:

     “Affiliated Corporation” means any corporation or other entity (including but not limited to a partnership) which is affiliated with Apache Corporation through stock ownership or otherwise and is treated as a common employer under the provisions of Sections 414(b) and (c) or any successor section(s) of the Internal Revenue Code.

     “Base Salary” means, with regard to any Participant, such Participant’s annual base compensation as an employee of the Company at the date of award of a Conditional Grant, without regard to any bonus, pension, profit sharing, stock option, life insurance or salary continuation plan which the Participant either receives or is otherwise entitled to have paid on his behalf.

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     “Board” means the Board of Directors of the Company.

     “Category” means one of the three groupings of Participants in the Plan whose Conditional Grant represents the right to receive the same multiple of their base salary for each Payout Amount (before any pro-ration for late participation).

     “Committee” means the Stock Option Plan Committee of the Board or such other Committee of the Board that is empowered hereunder to administer the Plan. The Committee shall be constituted at all times so as to permit the Plan to be administered by “non-employee directors” (as defined in Rule 16b-3 of the Securities Exchange Act of 1934, as amended).

     “Conditional Grant” means the conditional entitlement, evidenced by an executed Conditional Grant Agreement between the Company and a Participant, to receive all or a portion of an Initial Amount and Final Amount, subject to and in accordance with the provisions of Section 6 and other provisions of this Plan.

     “Conditional Grant Agreement” has the meaning set forth in Section 6.1.

     “Eligible Employees” means those full-time employees of the Company (including, without limitation, the Company’s executive officers), and those part-time employees of the Company who are designated as Eligible Employees by the Committee.

     “Fair Market Value” means the per share closing price of the Stock as reported on The New York Stock Exchange, Inc. Composite Transactions Reporting System for a particular date or, if the Stock is not so listed on such date, as reported on NASDAQ or on such other exchange or electronic trading system which, on the date in question, reports the largest number of traded shares of Stock, provided, however, that if on the date Fair Market Value is to be determined there are no transactions in the Stock, Fair Market Value shall be determined as of the immediately preceding date on which there were transactions in the Stock; provided further, however, that if the foregoing provisions are not applicable, the fair market value of a share of the Stock as determined by the Committee by the reasonable application of such reasonable valuation method, consistently applied, as the Committee deems appropriate.

     “Final Amount” means with regard to any:

     (a) Category I Participant, such number of shares of Stock (rounded down to the nearest full share) which equals two (2) times such Participant’s Base Salary divided by $108;

     (b) Category II Participant, such number of shares of Stock (rounded down to the nearest full share) which equals one (1) times such Participant’s Base Salary divided by $108; and

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     (c) Category III Participant, such number of shares of Stock (rounded down to the nearest full share) which equals 50 percent (.50) times such Participant’s Base Salary divided by $108;

which amount, in each case, shall be fixed and not subject to adjustment due to market fluctuation.

     “Final Price Threshold Date” means the last of any 10 trading days (which need not be consecutive) during any period of 30 consecutive trading days occurring prior to January 1, 2009, but not thereafter, on each of which 10 days the Fair Market Value of the Stock equaled or exceeded $108 per share. If the above trading criteria are met more than once, the first occurrence shall be deemed to be the Final Price Threshold Date.

     “Initial Amount” means, with regard to any:

     (a) Category I Participant, such number of shares of Stock (rounded down to the nearest full share) which equals one (1) times such Participant’s Base Salary divided by $81;

     (b) Category II Participant, such number of shares of Stock (rounded down to the nearest full share) which equals 50 percent (.50) times such Participant’s Base Salary divided by $81; and

     (c) Category III Participant, such number of shares of Stock (rounded down to the nearest full share) which equals 25 percent (.25) times such Participant’s Base Salary divided by $81;

which amount, in each case, shall be fixed and not subject to adjustment due to market fluctuation.

     “Initial Price Threshold Date” means the last of any 10 trading days (which need not be consecutive) during any period of 30 consecutive trading days occurring prior to January 1, 2008, but not thereafter, on each of which 10 days the Fair Market Value of the Stock equaled or exceeded $81 per share. If the above trading criteria are met more than once, the first occurrence shall be deemed to be the Initial Price Threshold Date.

     “Internal Revenue Code” means the Internal Revenue Code of 1986, as it may be amended from time to time, and any successor thereto.

     “Participant” means an Eligible Employee designated by the Committee from time to time during the term of the Plan to receive one or more Conditional Grants under the Plan.

     “Payout Amounts” means the Initial Amount and/or the Final Amount.

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     “Price Threshold Date” means the Initial Price Threshold Date, and/or the Final Price Threshold Date, as the context may require.

     “Stock” means the $0.625 par value common stock of the Company and or any security into which such common stock is converted or exchanged upon merger, consolidation, or any capital restructuring (within the meaning of Section 4.3) of the Company.

2.2 Headings; Gender and Number. The headings contained in the Plan are for reference purposes only and shall not affect in any way the meaning or interpretation of the Plan. Except when otherwise indicated by the context, the masculine gender shall also include the feminine gender, and the definition of any term herein in the singular shall also include the plural.

Section 3

Plan Administration

3.1 Administration by the Committee. The Plan shall be administered by the Committee. In accordance with the provisions of the Plan, the Committee shall, in its sole discretion, adopt rules and regulations for carrying out the purposes of the Plan, including, without limitation, selecting the Participants from among the Eligible Employees and the Category of participation for each Participant, appointing designees or agents (who need not be members of the Committee or employees of the Company) to assist the Committee with the administration of the Plan, and establish such other terms and requirements as the Committee may deem necessary or desirable and consistent with the terms of the Plan. No member of the Committee shall be liable for any action or determination made in good faith. The determinations, interpretations and other actions of the Committee pursuant to the provisions of the Plan shall be binding and conclusive for all purposes and on all persons.

3.2 Compliance with Section 162(m). The Plan is intended to comply with the requirements of Section 162(m) or any successor section(s) of the Internal Revenue Code (“Section 162(m)”) as to any “covered employee” as defined in Section 162(m), and shall be administered, interpreted and construed consistently therewith. The Committee is authorized to take such additional action, if any, that may be required to ensure that the Plan and any Conditional Grant awarded under the Plan satisfy the requirements of Section 162(m), taking into account any regulations or other guidance issued by the Internal Revenue Service.

Section 4

Stock Subject to the Plan

     4.1 Number of Shares. Subject to Sections 4.3 and Section 6.1 hereof, up to 3,500,000 shares of Stock are authorized for issuance under the Plan in accordance

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with the Plan’s terms and subject to such restrictions or other provisions as the Committee may from time to time deem necessary. Shares of Stock which may be issued pursuant to the terms of the Conditional Grants awarded hereunder shall be applied to reduce the maximum number of shares of Stock remaining available for use under the Plan. The Company shall at all times during the term of the Plan and while any Conditional Grants are outstanding retain as authorized and unissued Stock and/or Stock in the Company’s treasury, at least the number of shares from time to time required under the provisions of the Plan, or otherwise assure itself of its ability to perform its obligations hereunder.

4.2 Other Shares of Stock. Any shares of Stock that are subject to a Conditional Grant which expires, is forfeited, is cancelled, or for any reason is terminated, and any shares of Stock that for any other reason are not issued to a Participant or are forfeited shall automatically become available for use under the Plan.

4.3 Certain Adjustments. If the Company shall at any time increase or decrease the number of its outstanding shares of Stock (other than by way of issuing Stock in a public or private offering for cash or property) or change in any way the rights and privileges of such shares by means of a Stock dividend or any other distribution upon such shares payable in Stock, or through a Stock split, subdivision, consolidation, combination, reclassification or recapitalization involving the Stock or a subscription for shares of Stock that has the effect of diluting the Company’s capital (hereinafter a “capital restructuring”), then for purposes of determining the entitlement to payments under Section 6, (i) the number of shares authorized for issuance under this Section 4, and (ii) the per share amounts referenced in Section 1 and contained in the definitions set forth in Section 2 hereof shall be, in each case, equitably and proportionally adjusted to take into account any capital restructuring. Any adjustment under this Section shall be made by the Committee, whose determination with regard thereto, including whether any adjustment is needed, shall be final and binding upon all parties.

Section 5

Reorganization or Liquidation

In the event that the Company is merged or consolidated with another corporation and the Company is not the surviving corporation, or if all or substantially all of the assets or more than 20 percent of the outstanding voting stock of the Company is acquired by any other corporation, business entity or person, or in case of a reorganization (other than a reorganization under the United States Bankruptcy Code) or liquidation of the Company, and if the provisions of Section 7 hereof do not apply, the Committee, or the board of directors of any corporation assuming the obligations of the Company, shall, as to the Plan and outstanding Conditional Grants make appropriate provision for the adoption and continuation of the Plan by the acquiring or successor corporation and for the protection of any holders of such outstanding Conditional Grants by the substitution on an equitable basis of appropriate stock of the Company or of the merged, consolidated or otherwise reorganized corporation which will be issuable with respect to the Stock, provided that no additional benefits shall be conferred upon the Participants holding

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such Conditional Grants as a result of such substitution. Additionally, upon the occurrence of such an event and provided that a Price Threshold Date has occurred, upon written notice to the Participants, the Committee may accelerate the vesting and payment dates of the entitlement to receive cash and Stock under outstanding Conditional Grants so that all such existing entitlements are paid prior to any such event. In the latter event, such acceleration shall only apply to entitlements to cash and Stock payable as the result of the occurrence of the most recent Price Threshold Date and shall not by such acceleration, deem the occurrence of a Price Threshold Date that has not occurred by the date of the notice.

Section 6

Conditional Grants

6.1 Grants. Each Participant may be awarded a Conditional Grant under this Plan by the Committee, which Conditional Grant shall be composed of one Initial Amount and one Final Amount. The Committee, in its sole discretion, on an exceptional basis, may award additional Conditional Grants to any Participant in connection with such Participant’s receiving a significant increase in salary and/or a promotion within the Company. Each Conditional Grant awarded by the Committee shall be evidenced by a written agreement entered into by the Company and the Participant to whom the Conditional Grant is awarded (the “Conditional Grant Agreement”), which shall contain the terms and conditions set out in this Section 6, as well as such other terms and conditions as the Committee may consider appropriate. This requirement for delivery of a written Conditional Grant Agreement is satisfied by electronic delivery of such agreement provided that evidence of the Participant’s receipt of such electronic delivery is available to the Company and all applicable laws and regulations permit such delivery.

6.2 Conditional Grant Agreements. Each Conditional Grant Agreement entered into by the Company and each Participant shall specify which Category applies for such Participant and contain at least the following terms and conditions. In the event of any inconsistency between the provisions of the Plan and any Conditional Grant Agreement, the provisions of the Plan shall govern.

     6.2.1 Conditional Grant Terms. Each Conditional Grant Agreement evidencing a Conditional Grant shall entitle the Participant to receive the indicated share amounts which shall convert into the right to receive (i) a conditional payment of cash to meet the employer’s minimum statutory tax withholding requirements, pursuant to Section 6.4, and (ii) issuance of Stock, upon the occurrence of one or more of the Price Threshold Dates, all as set forth below.

     (a) If, at any time prior to January 1, 2008, the Initial Price Threshold Date occurs, the Participant shall become entitled to receive a portion or all of the Initial Amount payable to Participants in such Category, as specified in the applicable Conditional Grant Agreement, in accordance with the payment schedule and as otherwise set out in Section 6.2.2.

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     (b) If, at any time prior to January 1, 2009, the Final Price Threshold Date occurs, the Participant shall become entitled to receive a portion or all of the Final Amount payable to Participants in such Category, as specified in the applicable Conditional Grant Agreement, in accordance with the payment schedule and as otherwise set out in Section 6.2.2.

     6.2.2 Payment of Payout Amounts. Subject to the provisions of Section 6.3, the Payout Amounts shall be payable in increments strictly in accordance with the following schedule:

     (a) The entitlement to receive the first one-fourth (1/4) of any Payout Amount shall vest on the applicable Price Threshold Date and shall be paid by the Company to the Participant within thirty (30) days of the applicable Price Threshold Date in the manner set out in Section 6.4 below.

     (b) The entitlement to receive the remainder of any Payout Amount shall vest and become payable in equal parts on the dates occurring, respectively, 12 months, 24 months, and 36 months after the applicable Price Threshold Date, in the same proportions and amounts as set forth in Section 6.4 below, and shall be paid by the Company to the Participant within thirty (30) days of such date.

     (c) No Initial Amount or portion thereof shall be payable under this Section 6.2.2 if the Initial Price Threshold Date has not occurred prior to January 1, 2008. No Final Amount or portion thereof shall be payable under this Section 6.2.2 if the Final Price Threshold Date has not occurred prior to January 1, 2009.

6.3 Termination of Employment, Death, Disability, etc. Except as set forth below, each Conditional Grant Agreement shall state that each Conditional Grant shall be subject to the condition that the Participant has remained an Eligible Employee from the initial award of a Conditional Grant until the applicable vesting date as follows:

     (a) If the Participant voluntarily leaves the employment of the Company, or if the employment of the Participant is terminated by the Company for cause or otherwise, any Conditional Grant not previously vested and the right to receive any Payout Amounts not yet paid in accordance with Section 6.2.2 shall thereafter be void and forfeited for all purposes.

     (b) A Participant shall become vested in all Payout Amounts on the date the Participant retires from employment with the Company on or after attaining age 65, on the date the Participant dies while employed by the Company, or on the date the Participant becomes disabled (as determined pursuant to the Company’s Long-Term Disability Plan or any successor plan) while employed by the Company. Such Participant shall not become entitled to any payment which may arise due to the occurrence of a Price Threshold Date after the Participant dies, becomes disabled, or retires. Payment shall occur as soon as administratively convenient following the date the Participant dies, becomes disabled, or retires, but in no event shall the payment occur later than March 15 in the calendar year immediately following the calendar year

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in which the Participant died, became disabled, or retired. If the Participant dies before receiving payment, the payment shall be made to those entitled under the Participant’s will or, if there is no will, by the laws of descent and distribution.

6.4 Payment and Tax Withholding. Each Conditional Grant Agreement shall provide that, upon payment of any entitlement under a Conditional Grant, the Participant shall make appropriate arrangements with the Company to provide for the amount of minimum tax withholding required by law, including without limitation Sections 3102 and 3402 or any successor section(s) of the Internal Revenue Code and applicable state and local income and other tax laws. Each payment of the Payout Amount shall be made in a proportion of cash and shares of Stock, determined by the Committee, such that the cash portion shall be sufficient to cover the withholding amount required by this Section. The cash portion of any payment of a Payout Amount shall be based on the Fair Market Value of the shares of Stock on the applicable date of vesting to which such tax withholding relates. Such cash portion shall be withheld by the Company to satisfy applicable tax withholding requirements.

6.5 Subsequent Conditional Grant Agreements. Following the award of Conditional Grants in 2005, additional Participants may be designated by the Committee for grant of Conditional Grants thereafter subject to the same terms and conditions set forth above for initial grants except that the Committee, in its sole discretion, may reduce the value of the Initial Amount and Final Amount to which subsequent Participants may become entitled and the applicable Conditional Grant Agreement shall be modified to reflect such reduction.

6.6 Stockholder Privileges. No Participant shall have any rights as a stockholder with respect to any shares of Stock covered by a Conditional Grant until the Participant becomes the holder of record of such Stock.

6.7 Limitations on Stock Issuable to Officers and Directors. Any provision of the Plan notwithstanding, the total number of shares of Stock issuable to Participants who are directors or officers of the Company (as defined for the purposes of Section 16 of the Securities Exchange Act of 1934, as amended) shall not exceed 49 percent of the total shares issuable under the Plan (the “D&O Limitation”). If the total number of shares of Stock issuable to all of the Company’s directors and officers who are Participants in the Plan shall exceed the D&O Limitation, then the total number of shares of Stock issuable to such Participants shall be reduced to a number equal to the D&O Limitation and the number of shares of Stock issuable to each such Participant shall be reduced pro rata.

Section 7

Change of Control

7.1 In General. In the event of the occurrence of a change of control of the Company as defined in Section 7.3 hereof, and assuming the occurrence of a Price Threshold Date, the entitlement to receive cash and Stock under any outstanding Conditional

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Grants shall vest automatically, without further action by the Committee or the Board, and shall become payable as follows:

     (a) If such change of control occurs subsequent to the occurrence of a Price Threshold Date, (i) the first one-fourth (1/4) of the applicable Payout Amount shall vest and be paid pursuant to Section 6.2.2(a) hereof and (ii) the remainder of such Payout Amount shall vest as of the date of such change of control and shall be paid by the Company to the Participant within thirty (30) days of the date of such change of control in the manner set out in Section 6.4 hereof.

     (b) If the occurrence of a Price Threshold Date occurs subsequent to the date of a change of control, the applicable Payout Amount shall vest in full as of such Price Threshold Date and shall be paid by the Company to the Participant within thirty (30) days of such Price Threshold Date in the manner set out in Section 6.4 hereof.

7.2 Limitation on Payments. If the acceleration of the payment or vesting of any Payout Amount under this Section 7 would result in the receipt by any Participant of a payment within the meaning of Section 280G or any successor section(s) of the Internal Revenue Code, and the regulations promulgated thereunder, and if the receipt of such accelerated payment or vesting by any Participant would, in the opinion of independent tax counsel of recognized standing selected by the Company, result in the payment by such Participant of any excise tax provided for in Sections 280G and 4999 or any successor section(s) of the Internal Revenue Code, then the amount of such accelerated payment or vesting shall be reduced to the extent required, in the opinion of independent tax counsel, to prevent payment of the remainder of all Payout Amounts shall be made on the previously scheduled dates for vesting and payment to the fullest extent possible without triggering such excise tax.

7.3 Definition. For purposes of the Plan, a “change of control” shall mean any of the events specified in the Company’s Income Continuance Plan or any successor plan which constitute a change of control within the meaning of such plan.

Section 8

Rights of Employees, Participants

8.1 Employment. Neither anything contained in the Plan or any Conditional Grant granted under the Plan shall confer upon any Participant any right with respect to the continuation of his or her employment by the Company or any Affiliated Corporation, or interfere in any way with the right of the Company or any Affiliated Corporation, at any time, to terminate such employment or to increase or decrease the level of the Participant’s compensation from the level in existence at the time of the award of a Conditional Grant.

8.2 Non-transferability. No right or interest of any Participant in a Conditional Grant granted pursuant to the Plan shall be assignable or transferable during the lifetime of

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the Participant, either voluntarily or involuntarily, or subjected to any lien, directly or indirectly, by operation of law, or otherwise, including execution, levy, garnishment, attachment, pledge or bankruptcy. In the event of a Participant’s death, a Participant’s rights and interests in any Conditional Grant shall, to the extent provided in Section 6.3 hereof, be transferable by testamentary will or the laws of descent and distribution, and payment of any entitlements due under the Plan shall be made to the Participant’s legal representatives, heirs or legatees. If in the opinion of the Committee a person entitled to payments or to exercise rights with respect to the Plan is disabled from caring for his or her affairs because of mental condition, physical condition or age, payment due such person may be made to, and such rights shall be exercised by, such person’s guardian, conservator or other legal personal representative upon furnishing the Committee with evidence satisfactory to the Committee of such status.

Section 9

Other Employee Benefits

The amount of any income deemed to be received by a Participant as a result of the payment under a Conditional Grant shall not constitute “earnings” or “compensation” with respect to which any other employee benefits of such Participant are determined, including without limitation benefits under any pension, profit sharing, life insurance or salary continuation plan.

Section 10

Plan Amendment, Modification and Termination

The Committee or the Board may at any time terminate, and from time to time may amend or modify the Plan. No amendment, modification or termination of the Plan shall in any manner adversely affect any Conditional Grant theretofore awarded under the Plan, without the consent of the Participant holding such Conditional Grant.

The Committee shall have the authority to adopt such modifications, procedures and subplans as may be necessary or desirable to comply with the provisions of the laws (including, but not limited to, tax laws and regulations) of countries other than the United States in which the Company may operate, so as to assure the viability of the benefits of the Plan to Participants employed in such countries.

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Section 11

Requirements of Law

11.1 Requirements of Law. The issuance of Stock and the payment of cash pursuant to the Plan shall be subject to all applicable laws, rules and regulations, including applicable federal and state securities laws. The Company may require a Participant, as a condition of receiving payment under a Conditional Grant, to give written assurances in substance and form satisfactory to the Company and its counsel to such effect as the Company deems necessary or appropriate in order to comply with federal and applicable state securities laws.

11.2 Section 16 Requirements. If a Participant is an officer or director of the Company within the meaning of Section 16, Grants awarded hereunder shall be subject to all conditions required under Rule 16b-3, or any successor rule(s) promulgated under the Securities Exchange Act of 1934, as amended, to qualify the Conditional Grant for any exemption from the provisions of Section 16 available under such Rule. Such conditions are hereby incorporated herein by reference and shall be set forth in the agreement with the Participant, which describes the Conditional Grant.

11.3 Governing Law. The Plan and all Conditional Grant Agreements hereunder shall be construed in accordance with and governed by the laws of the State of Texas.

Section 12

Duration of the Plan

The Plan shall terminate at such time as may be determined by the Committee, and no Conditional Grants shall be awarded after such termination. If not sooner terminated under the preceding sentence, the Plan shall fully cease and expire at midnight on December 31, 2008. Payout Amounts for which one or more of the Price Threshold Dates has occurred and which remain outstanding at the time of the Plan termination shall continue in accordance with the Conditional Grant Agreement pertaining to such Conditional Grant.

Dated: August 14, 2008

	APACHE CORPORATION
ATTEST:
/s/ Cheri L. Peper Cheri L. Peper	By:	/s/ Margery M. Harris Margery M. Harris
Corporate Secretary		Vice President

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EX-10.8

Exhibit 10.8

APACHE CORPORATION
EXECUTIVE RESTRICTED STOCK PLAN
(Amended and Restated August 14, 2008)

Section 1 Introduction

1.1	Establishment.
	Apache Corporation, a Delaware corporation (hereinafter referred to, together with its Affiliated Corporations (as defined below) as the “Company” except where the context otherwise requires), established the Apache Corporation Executive Restricted Stock Plan (formerly known as the Pilot Executive Restricted Plan), effective as of May 2, 2002 (the “Plan”).
1.2	Purposes.
	The primary purpose of the Plan is to focus the energies of the Company’s executive and regional officers on significantly increasing shareholder wealth by increasing such officers’ ownership of the Company’s equity. Additional purposes of the Plan include the retention of existing key employees and as an additional inducement in the recruitment of talented personnel in a competitive environment.

Section 2 Definitions

2.1 Definitions.

(a)	“Affiliated Corporation” means any corporation or other entity (including but not limited to a partnership) that is affiliated with Apache Corporation through stock ownership or otherwise and is treated as a common employer under the provisions of Sections 414(b) and (c) or any successor section(s) of the Internal Revenue Code.
(b)	“Board” means the Board of Directors of the Company.
(c)	“Committee” means the Stock Option Plan Committee of the Board or such other committee of the Board that is empowered hereunder to administer the Plan. The Committee shall be constituted at all times so as to permit the Plan to be administered by “non-employee directors” (as defined in Rule 16b-3 of the Securities Exchange Act of 1934, as amended).
(d)	“Deferred Delivery Plan” means the Company’s Deferred Delivery Plan, as it has been or may be amended from time to time, or any successor plan.
(e)	“Deferred Restricted Units” means investment units under the Deferred Delivery Plan.
(f)	“Eligible Employees” means executive and regional officers of the Company.
(g)	“Fair Market Value” means the per share closing price of the Stock as reported on The New York Stock Exchange, Inc. Composite Transactions Reporting System for a particular date or, if the Stock is not so listed on such date, as reported on NASDAQ or on such other exchange or electronic trading system which, on the date in question, reports the largest number of traded shares of Stock, provided, however, that if on the date Fair Market Value is to be determined there are no transactions in the Stock, Fair

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	Market Value shall be determined as of the immediately preceding date on which there were transactions in the Stock; provided further, however, that if the foregoing provisions are not applicable, the fair market value of a share of the Stock as determined by the Committee by the reasonable application of such reasonable valuation method, consistently applied, as the Committee deems appropriate.
(h)	“Grant” has the meaning set forth in Section 6 hereof.
(i)	“Grant Agreement” has the meaning set forth in Section 6 hereof.
(j)	“Grant Date” means for any Grant the date specified in the applicable resolutions of the Committee
(k)	“Internal Revenue Code” means the Internal Revenue Code of 1986, as it may be amended from time to time.
(l)	“Participant” means an Eligible Employee designated by the Committee from time to time during the term of the Plan to receive one or more Grants of Plan Units under the Plan.
(m)	“Plan Units” means investment units, each of which is equivalent in value to one share of Stock.
(n)	“Stock” means the $0.625 par value common stock of the Company.

2.2	Headings; Gender and Number.
	The headings contained in the Plan are for reference purposes only and shall not affect in any way the meaning or interpretation of the Plan. Except when otherwise indicated by the context, the masculine gender shall also include the feminine gender, and the definition of any term herein in the singular shall also include the plural.

Section 3 Plan Administration

The Plan shall be administered by the Committee. In accordance with the provisions of the Plan, the Committee shall, in its sole discretion, adopt rules and regulations for carrying out the purposes of the Plan, including, without limitation, selecting the Participants from among the Eligible Employees, appointing designees or agents (who need not be members of the Committee or employees of the Company) to assist the Committee with the administration of the Plan, and establishing such other terms and requirements as the Committee may deem necessary or desirable and consistent with the terms of the Plan. The Committee may correct any defect, supply any omission, or reconcile any inconsistency in the Plan or in any Grant Agreement entered into hereunder, in the manner and to the extent it shall deem expedient and the Committee shall be the sole and final judge of such expediency. No member of the Committee shall be liable for any action or determination made in good faith. The determinations, interpretations, and other actions of the Committee pursuant to the provisions of the Plan shall be binding and conclusive for all purposes and on all persons.

Section 4 Stock Subject to the Plan

4.1	Number of Shares.
	Subject to Sections 4.3 and 6.1 hereof, up to 450,000 shares of Stock (adjusted to 945,000 shares for (i) the Company’s five-percent stock dividend, record date March 12, 2003, paid April 2, 2003, and (ii) the Company’s two-for-one stock split, record date December 31,

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	2003, distributed January 14, 2004) are authorized for issuance under the Plan upon conversion of any Plan Units in accordance with the Plan’s terms and subject to such restrictions or other provisions as the Committee may from time to time deem necessary. Shares of Stock issued pursuant to the conversion of any Plan Units or related Deferred Restricted Units awarded hereunder shall be applied to reduce the maximum number of shares of Stock remaining available for use under the Plan. The Company shall at all times during the term of the Plan and while any Plan Units or related Deferred Restricted Units are outstanding retain as authorized and unissued Stock and/or Stock in the Company’s treasury, at least the number of shares from time to time required under the provisions of the Plan, or otherwise assure itself of its ability to perform its obligations hereunder.
4.2	Other Shares of Stock.
	Any shares of Stock that are subject to issuance upon conversion of a Plan Unit or related Deferred Restricted Unit that expires, is forfeited, is cancelled, or for any reason is terminated, and any shares of Stock that for any other reason are not issued to a Participant or are forfeited shall automatically become available for use under the Plan.
4.3	Certain Adjustments.
	If the Company shall at any time increase or decrease the number of its outstanding shares of Stock (other than by way of issuing Stock in a public or private offering for cash or property) or change in any way the rights and privileges of such shares by means of a dividend or any other distribution upon such shares payable in Stock, or through a split, subdivision, consolidation, combination, reclassification, or recapitalization involving the Stock or a subscription for shares of Stock that has the effect of diluting the Company’s capital (hereinafter a “capital restructuring”), then for purposes of determining the entitlement to payments under Section 6, the number of shares of Stock authorized for issuance under this Section 4 shall be equitably and proportionally adjusted to take into account any capital restructuring. Any adjustment under this Section shall be made by the Committee, whose determination with regard thereto, including whether any adjustment is needed, shall be final and binding upon all parties.

Section 5 Reorganization or Liquidation

In the event that the Company is merged or consolidated with another corporation and the Company is not the surviving corporation, or if all or substantially all of the assets or more than 20 percent of the outstanding voting stock of the Company is acquired by any other corporation, business entity or person, or in case of a reorganization (other than a reorganization under the United States Bankruptcy Code) or liquidation of the Company, and if the provisions of Section 7 hereof do not apply, the Committee, or the board of directors of any corporation assuming the obligations of the Company, shall, as to the Plan and outstanding Plan Units either (i) make appropriate provision for the adoption and continuation of the Plan by the acquiring or successor corporation and for the protection of any holders of such outstanding Plan Units by the substitution on an equitable basis of appropriate stock of the Company or of the merged, consolidated, or otherwise reorganized corporation that will be issuable with respect to the Stock, provided that no additional benefits shall be conferred upon the Participants holding such Plan Units as a result of such substitution, or (ii) provide that all Plan Units shall become immediately vested and convertible into shares of Stock.

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Section 6 Grant of Plan Units

6.1	Grants.
	From time to time each Participant may be awarded one or more grants (each, a “Grant”) of Plan Units under this Plan by the Committee. Each Grant shall be composed of a number of Plan Units as may be determined by the Committee in its sole discretion. Each Grant awarded by the Committee shall be evidenced by a written agreement entered into by the Company and the Participant to whom the Grant is awarded (the “Grant Agreement”), which shall contain the terms and conditions set out in this Section 6 (which may be modified in any manner as the Committee shall determine in its sole discretion), as well as such other terms and conditions as the Committee may consider appropriate.
6.2	Grant Agreements.
	Each Grant Agreement entered into by the Company and each Participant shall contain at least the following terms and conditions. In the event of any inconsistency between the provisions of the Plan and any Grant Agreement, the provisions of the Plan shall govern.

6.2.1 Grant Terms, 2005. Each Grant Agreement made during 2005 – even those made before December 14, 2005 (the date this Plan was retroactively amended) — shall evidence the Grant of Plan Units and conditionally entitle the Participant to receive the indicated Plan Units which shall vest, subject to Section 6.2.3 below, based on the following schedule:

June 1, 2006	25	%
May 4, 2007	25	%
May 4, 2008	25	%
May 4, 2009	25	%

6.2.2 Grant Terms, 2006 and After. Each Grant Agreement made after December 31, 2005 shall evidence the Grant of Plan Units and conditionally entitle the Participant to receive the indicated Plan Units which shall vest, subject to Section 6.2.3 below, based on the following schedule:

The first day of the month immediately following the first anniversary of the Grant Date	25	%
The second anniversary of the Grant Date	25	%
The third anniversary of the Grant Date	25	%
The fourth anniversary of the Grant Date	25	%

6.2.3 Deferral of Vested Units. A Participant may make an election during the month in which the Grant is made to defer all or a portion of the Grant to the Deferred Delivery Plan, subject to the rules and procedures described in the Deferred Delivery Plan. If a Participant elects such a deferral, on the date the deferred Plan Units vest, the Participant’s Account in the Deferred Delivery Plan shall be credited with Deferred Restricted Units that equal the value of the deferred Plan Units that vested less any taxes imposed and withheld when vesting occurred. At the time the Participant

4

makes the deferral election, he or she shall also make a payout election with respect to the deferred Plan Units, from among the choices provided in the Deferred Delivery Plan. Plan Units that are not deferred into the Deferred Delivery Plan shall be converted into Stock, and the Participant shall be issued the requisite number of shares, as soon as administratively convenient after vesting occurs.

6.3	Termination of Employment, Death, Disability, etc.
	Except as set forth below, each Grant Agreement shall state that each Grant, the Plan Units received thereunder and the right to receive any shares of Stock or Deferred Restricted Units, thereunder upon vesting of the Plan Units shall be subject to the condition that the Participant has remained an Eligible Employee from the initial award of a Grant until the applicable vesting date as follows:

(a)	If the employment of the Participant is terminated by the Company for cause, all Plan Units, vested and unvested, and any Deferred Restricted Units into which vested Plan Units have been converted shall thereafter be void and forfeited for all purposes.
(b)	If the Participant voluntarily leaves the employment of the Company, or if the employment of the Participant is terminated by the Company other than for cause, the Participant shall be entitled to receive the shares of Stock issueable in accordance with Section 5 or 6.2.3. Such Participant shall not be entitled to any shares of Stock issueable on account of Plan Units that were not vested prior to the effective date of such Participant’s leaving the employment of the Company. If the Participant dies before receiving all of the Stock to which he or she is entitled under this Section 6.3(b), such Stock shall be issued to those entitled under the Participant’s will or by the laws of descent and distribution.
(c)	If the Participant becomes disabled (as determined pursuant to the Company’s Long-Term Disability Plan or any successor plan), while still employed by the Company, the Participant shall be entitled to receive the shares of Stock issueable on account of vested Plan Units in accordance with Section 5 or 6.2.3. Such Participant shall not be entitled to any shares of Stock issueable on account of Plan Units that were not vested prior to the date such Participant’s became disabled. If the Participant dies before receiving all of the Stock to which he or she is entitled under this Section 6.3(c), such Stock shall be issued to those entitled under the Participant’s will or by the laws of descent and distribution.
(d)	If a Participant dies while still employed by the Company, all unvested Plan Units shall automatically vest and convert into the right to receive Stock, without conversion into Deferred Restricted Units and deferral into the Deferred Delivery Plan, and the shares of Stock issueable for vested Plan Units (including those vested pursuant to this Section 6.3(d)) will be issued in accordance with Section 5 or 6.2.3 and shall be made to those entitled under the Participant’s will or by the laws of descent and distribution.

6.4	Tax Withholding.
	Each Grant Agreement shall provide that, when the benefits under this Plan become subject to tax, the Participant shall make appropriate arrangements with the Company to provide for the tax withholding required under the Internal Revenue Code and applicable state and local income and other tax laws.

5

6.5	Stockholder Privileges.
	No Participant shall have any rights as a stockholder with respect to any shares of Stock into which a Plan Unit is convertible until the Participant becomes the holder of record of such Stock.

Section 7 Change of Control

7.1	In General.
	In the event of a change of control of the Company, as defined in Section 7.3 hereof, all unvested Plan Units shall automatically vest. The newly vested Plan Units shall be converted to Stock and the Participant shall be issued the requisite number of shares, after any withholding under Section 6.4, as soon as administratively practicable after the change of control occurs, unless the Participant had elected to defer such Plan Units to the Deferred Delivery Plan pursuant to Section 6.2.3, in which case the Participant’s account in the Deferred Delivery Plan shall be credited with Deferred Restricted Units as of the date of the change of control.
7.2	Limitation on Payments.
	If the provisions of this Section 7 would result in the receipt by any Participant of a payment within the meaning of Section 280G or any successor section(s) of the Internal Revenue Code, and the regulations promulgated thereunder, and if the receipt of such payment by any Participant would, in the opinion of independent tax counsel of recognized standing selected by the Company, result in the payment by such Participant of any excise tax provided for in Sections 280G and 4999 or any successor section(s) of the Internal Revenue Code, then the amount of such payment shall be reduced to the extent required, in the opinion of independent tax counsel, to prevent the imposition of such excise tax; provided, however, that the Committee, in its sole discretion, may authorize the payment of all or any portion of the amount of such reduction to the Participant.
7.3	Definition.
	For purposes of the Plan, a “change of control” shall mean any event specified in the Company’s Income Continuance Plan or any successor plan that constitutes a change of control within the meaning of such plan.

Section 8 Rights of Employees, Participants

8.1	Employment.
	Neither anything contained in the Plan or any Grant Agreement nor the granting of any Plan Units under the Plan shall confer upon any Participant any right with respect to the continuation of his or her employment by the Company or any Affiliated Corporation, or interfere in any way with the right of the Company or any Affiliated Corporation, at any time to terminate such employment or to increase or decrease the level of the Participant’s compensation from the level in existence at the time of the award of Plan Units.
8.2	Non-Transferability.
	No right or interest of any Participant in a Plan Unit granted pursuant to the Plan shall be assignable or transferable during the lifetime of the Participant, either voluntarily or involuntarily, or subjected to any lien, directly or indirectly, by operation of law, or otherwise, including execution, levy, garnishment, attachment, pledge or bankruptcy. In

6

the event of a Participant’s death, a Participant’s rights and interests in any Plan Unit shall, to the extent provided in Section 6.3 hereof, be transferable by testamentary will or the laws of descent and distribution, and payment of any entitlements due under the Plan shall be made to the Participant’s legal representatives, heirs or legatees. If, in the opinion of the Committee, a person entitled to payments or to exercise rights with respect to the Plan is disabled from caring for his or her affairs because of mental condition, physical condition or age, payment due such person may be made to, and such rights shall be exercised by, such person’s guardian, conservator or other legal personal representative upon furnishing the Committee with evidence satisfactory to the Committee of such status.

Section 9 Other Employee Benefits

The amount of any income deemed to be received by a Participant as a result of the payment upon conversion of a Plan Unit shall not constitute “earnings” or “compensation” with respect to which any other employee benefits of such Participant are determined, including without limitation benefits under any pension, profit sharing, life insurance or salary continuation plan.

Section 10 Plan Amendment, Modification and Termination

The Committee or the Board may at any time terminate and, from time to time, may amend or modify the Plan. No amendment, modification or termination of the Plan shall in any manner adversely affect any Plan Unit theretofore awarded under the Plan, without the consent of the Participant holding such Plan Unit.

The Committee shall have the authority to adopt such modifications, procedures and subplans as may be necessary or desirable to comply with the provisions of the laws (including, but not limited to, tax laws and regulations) of countries other than the United States in which the Company may operate, so as to assure the viability of the benefits of the Plan to Participants employed in such countries.

Section 11 Requirements of Law

11.1	Requirements of Law.
	The issuance of shares of Stock pursuant to the Plan shall be subject to all applicable laws, rules and regulations, including applicable federal and state securities laws. The Company may require a Participant, as a condition of receiving payment upon conversion of a Plan Unit, to give written assurances in substance and form satisfactory to the Company and its counsel to such effect as the Company deems necessary or appropriate in order to comply with federal and applicable state securities laws.
11.2	Section 16 Requirements.
	If a Participant is an officer or director of the Company within the meaning of Section 16, Grants awarded hereunder shall be subject to all conditions required under Rule 16b-3, or any successor rule(s) promulgated under the Securities Exchange Act of 1934, as amended, to qualify the Plan Units for any exemption from the provisions of Section 16 available under such Rule. Such conditions are hereby incorporated herein by reference and shall be set forth in the agreement with the Participant that describes the Grant.
11.3	Governing Law.
	The Plan and all Grant Agreements hereunder shall be construed in accordance with and governed by the laws of the State of Texas.

7

Section 12 Duration of the Plan

The Plan shall terminate effective as of May 2, 2007, and no Plan Units shall be awarded on or after such termination date. Plan Units that remain outstanding at the time of the Plan termination shall continue in accordance with the Grant Agreement pertaining to such Plan Units.

Dated: August 14, 2008

	APACHE CORPORATION
ATTEST:
/s/ Cheri L. Peper Cheri L. Peper	By:	/s/ Margery M. Harris Margery M. Harris
Corporate Secretary		Vice President

8

EX-10.9

Exhibit 10.9

Apache Corporation
Non-Employee Directors’ Restricted Stock Units Program Specifications

Share Plan:	2007 Omnibus Equity Compensation Plan (the “Omnibus Plan”), the terms of which are incorporated herein by reference.
Administration:	This Program will be administered by the Stock Option Plan Committee of the Company’s Board of Directors.
Eligible Participants:	Members of the Board of Directors of the Company who are neither officers nor employees of the Company
Objective:	The program is designed to be administered in conjunction with the provisions of the current Non-Employee Directors’ Compensation Plan as a means to recognize the non-employee directors for services rendered through the awarding of equity compensation.
Grant Date:	August 14, 2008, and annually thereafter
Grant*:	1,500 Restricted Stock Units in 2008, with comparable value annually thereafter
Program Term:	Until termination of the 2007 Omnibus Equity Compensation Plan
Vesting:	50% — 30 days after grant 50% — 12 months after grant
Payment:	Payment upon vesting shall be made, at the election of the director, either (i) 100 percent in shares of Apache common stock or (ii) 40 percent in cash and 60 percent in shares of Apache Common Stock. Election must be made at time of grant and will be applicable to both vestings.
Dividend Equivalents	On the unvested portion of the grant, the director receives amount equal to dividends on Apache common stock. Dividend equivalents are paid in cash.
Other Events:	Accelerated vesting upon death or termination without cause, including retirement.

* These grants do not result in any change to the cash retainers for board and committee service paid under the provisions of the Non-Employee Directors’ Compensation Plan.

August 14, 2008

EX-12.1

EXHIBIT 12.1

APACHE CORPORATION
STATEMENT OF COMPUTATION OF RATIOS OF EARNINGS TO FIXED CHARGES AND
COMBINED FIXED CHARGES AND PREFERRED STOCK DIVIDENDS
(In Thousands)

	Nine Months Ended
	September 30,
	2008		2007		2007		2006		2005		2004		2003
EARNINGS
Pretax income from continuing operations before preferred interests of subsidiaries	$	5,833,110	$	3,126,965	$	4,672,612	$	4,009,595	$	4,206,254	$	2,663,083	$	1,930,925
Add: Fixed charges excluding capitalized interest and preferred interest Requirements of consolidated subsidiaries		153,032		192,712		258,221		178,399		138,399		134,797		132,820
Adjusted Earnings	$	5,986,142	$	3,319,677	$	4,930,833	$	4,187,994	$	4,344,653	$	2,797,880	$	2,063,745
FIXED CHARGES AND PREFERRED STOCK DIVIDENDS
Interest expense including capitalized interest (1,5)	$	201,690	$	230,487	$	308,235	$	217,454	$	175,419	$	168,090	$	173,045
Amortization of debt expense		2,498		2,421		3,310		2,048		3,748		2,471		2,163
Interest component of lease rental expenditures (2)		17,263		16,358		22,424		20,198		16,220		14,984		14,458
Preferred interest requirements of consolidated subsidiaries (3)		—		—		—		—		—		—		11,805
Fixed charges		221,451		249,266		333,969		239,700		195,387		185,545		201,471
Preferred stock dividend requirements (4)		6,794		7,656		9,437		8,922		9,105		9,058		9,968
Combined Fixed Charges and Preferred Stock Dividends	$	228,245	$	256,922	$	343,406	$	248,622	$	204,492	$	194,603	$	211,439
Ratio of Earnings to Fixed Charges		27.03		13.32		14.76		17.47		22.24		15.08		10.24
Ratio of Earnings to Combined Fixed Charges and Preferred Stock Dividends		26.23		12.92		14.36		16.84		21.25		14.38		9.76

(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.
(5)	Interest expense related to the provisions of Financial Accounting Standards Board Interpretation No. 48 (FIN 48) “Accounting for Uncertainty in Income Taxes” is not included in the computation of ratios of earnings to fixed charges and combined fixed charges and preferred stock dividends.

EX-31.1

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 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 report;

3. Based on my knowledge, the financial statements, and other financial information included in this 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 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 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: November 10, 2008

EX-31.2

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 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 report;

3. Based on my knowledge, the financial statements, and other financial information included in this 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 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 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: November 10, 2008

  EX-32.1 14 h64541exv32w1.htm EXHIBIT 32.1

EXHIBIT 32.1

APACHE CORPORATION

Certification of Chief Executive Officer
and Chief Financial Officer

     I, G. Steven Farris, certify pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that, to my knowledge, the quarterly report on Form 10-Q of Apache Corporation for the quarterly period ending September 30, 2008, fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934 (15 U.S.C. §78m or §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

Date: November 10, 2008

     I, Roger B. Plank, certify pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that, to my knowledge, the quarterly report on Form 10-Q of Apache Corporation for the quarterly period ending September 30, 2008, fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934 (15 U.S.C. §78m or §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:	President, Chief Executive Officer and Chief Operating Officer

Date: November 10, 2008

EX-32.1

exv32w1