0000950129-95-001072.txt : 19950829 0000950129-95-001072.hdr.sgml : 19950829 ACCESSION NUMBER: 0000950129-95-001072 CONFORMED SUBMISSION TYPE: S-3 PUBLIC DOCUMENT COUNT: 11 FILED AS OF DATE: 19950828 SROS: CSE SROS: NYSE FILER: COMPANY DATA: COMPANY CONFORMED NAME: APACHE CORP CENTRAL INDEX KEY: 0000006769 STANDARD INDUSTRIAL CLASSIFICATION: CRUDE PETROLEUM & NATURAL GAS [1311] IRS NUMBER: 410747868 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: S-3 SEC ACT: 1933 Act SEC FILE NUMBER: 033-62177 FILM NUMBER: 95567655 BUSINESS ADDRESS: STREET 1: 2000 POST OAK BLVD STREET 2: ONE POST OAK CENTER STE 100 CITY: HOUSTON STATE: TX ZIP: 77056-4400 BUSINESS PHONE: 7132966000 MAIL ADDRESS: STREET 1: 2000 POST OAK BLVD STREET 2: STE 100 CITY: HOUSTON STATE: TX ZIP: 77056-4400 FORMER COMPANY: FORMER CONFORMED NAME: APACHE OIL CORP DATE OF NAME CHANGE: 19660830 S-3 1 APACHE CORPORATION 1 AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON AUGUST 28, 1995. REGISTRATION NO. 33- =============================================================================== SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 --------------------- FORM S-3 REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 --------------------- APACHE CORPORATION (Exact name of registrant as specified in its charter) DELAWARE ONE POST OAK CENTRAL NO. 41-0747868 (State or other jurisdiction 2000 Post Oak Boulevard, Suite 100 (I.R.S. Employer of incorporation or Houston, Texas 77056-4400 Identification No.) organization) (713) 296-6000 (Address, including zip code, and telephone number, including area code, of registrant's principal executive offices)
Z. S. KOBIASHVILI VICE PRESIDENT AND GENERAL COUNSEL ONE POST OAK CENTRAL 2000 POST OAK BOULEVARD, SUITE 100 HOUSTON, TEXAS 77056-4400 (713) 296-6000 (Name, address, including zip code, and telephone number, including area code, of agent for service) COPIES TO: WILLIAM N. FINNEGAN, IV R. JOEL SWANSON ANDREWS & KURTH L.L.P. BAKER & BOTTS, L.L.P. TEXAS COMMERCE TOWER ONE SHELL PLAZA, 910 LOUISIANA HOUSTON, TEXAS 77002 HOUSTON, TEXAS 77002-4995 (713) 220-4200 (713) 229-1234
Approximate date of commencement of proposed sale to the public: As soon as practicable after this Registration Statement becomes effective. If the only securities being registered on this Form are being offered pursuant to dividend or interest reinvestment plans, please check the following box. / / If any of the securities being registered on this Form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933, other than securities offered only in connection with dividend or interest reinvestment plans, check the following box. / / If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, please check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. / / If this Form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. / / If delivery of the prospectus is expected to be made pursuant to Rule 434, please check the following box. / / --------------------- CALCULATION OF REGISTRATION FEE
=================================================================================================================== PROPOSED MAXIMUM PROPOSED MAXIMUM TITLE OF EACH CLASS OF AMOUNT TO BE OFFERING PRICE PER AGGREGATE OFFERING AMOUNT OF SECURITIES TO BE REGISTERED REGISTERED(1) SHARE(2) PRICE(2) REGISTRATION FEE ------------------------------------------------------------------------------------------------------------------- Common Stock, par value $1.25 per share(3)............... 7,820,000 Shares $26.75 $209,185,000 $72,133 ===================================================================================================================
(1) Includes 1,020,000 shares subject to the over-allotment option granted to the Underwriters. (2) Estimated pursuant to Rule 457(c) solely for the purpose of calculating the registration fee based on the average of the high and low reported sales prices for August 24, 1995, as reported on The New York Stock Exchange, Inc. Composite Transactions Reporting System. (3) Including associated common stock purchase rights. THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A), MAY DETERMINE. ================================================================================ 2 *************************************************************************** * * * INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A * * REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED * * WITH THE SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT * * BE SOLD NOR MAY OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE * * REGISTRATION STATEMENT BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT * * CONSTITUTE AN OFFER TO SELL OR THE SOLICITATION OF AN OFFER TO BUY * * NOR SHALL THERE BE ANY SALE OF THESE SECURITIES IN ANY STATE IN WHICH * * SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR TO * * REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH * * STATE. * * * *************************************************************************** SUBJECT TO COMPLETION PRELIMINARY PROSPECTUS DATED AUGUST 28, 1995 PROSPECTUS 6,800,000 SHARES [APACHE CORPORATION LOGO] COMMON STOCK ------------------------ All 6,800,000 shares of Common Stock, par value $1.25 per share (the "Common Stock"), offered hereby (the "Shares") are being sold by Apache Corporation ("Apache" or the "Company"). The Common Stock is listed on the New York Stock Exchange (the "NYSE") under the trading symbol "APA." On August 24, 1995, the last reported sale price of the Common Stock as reported on the NYSE was $26 5/8 per share. See "Price Range of Common Stock and Dividends." SEE "RISK FACTORS" AT PAGE 9 FOR CERTAIN CONSIDERATIONS RELEVANT TO AN INVESTMENT IN THE COMMON STOCK. ------------------------ THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION, NOR HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
============================================================================================= PRICE TO UNDERWRITING PROCEEDS TO PUBLIC DISCOUNT(1) COMPANY(2) --------------------------------------------------------------------------------------------- Per Share......................... $ $ $ --------------------------------------------------------------------------------------------- Total(3).......................... $ $ $ =============================================================================================
(1) The Company has agreed to indemnify the several Underwriters against certain liabilities under the Securities Act of 1933. See "Underwriting." (2) Before deducting expenses payable by the Company estimated at $450,000. (3) The Company has granted the several Underwriters a 30-day option to purchase up to an additional 1,020,000 shares to cover over-allotments, if any. If all such shares are purchased, the total Price to Public, Underwriting Discount and Proceeds to Company would be $ , $ and $ , respectively. See "Underwriting." ------------------------ The Shares are offered by the several Underwriters, subject to prior sale, when, as and if issued to and accepted by them, subject to approval of certain legal matters by counsel for the Underwriters and certain other conditions. The Underwriters reserve the right to withdraw, cancel or modify such offer and to reject orders in whole or in part. It is expected that delivery of certificates for the Shares will be made in New York, New York on or about , 1995. ------------------------ MERRILL LYNCH & CO. DEAN WITTER REYNOLDS INC. ------------------------ The date of this Prospectus is , 1995. 3 IN CONNECTION WITH THIS OFFERING, THE UNDERWRITERS MAY OVER-ALLOT OR EFFECT TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE COMPANY'S COMMON STOCK AT A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN MARKET. SUCH TRANSACTIONS MAY BE EFFECTED ON THE NEW YORK STOCK EXCHANGE, THE CHICAGO STOCK EXCHANGE OR OTHERWISE. SUCH STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME. INFORMATION INCORPORATED BY REFERENCE The following documents previously filed by the Company with the Securities and Exchange Commission (the "Commission") pursuant to the Securities Exchange Act of 1934, as amended (the "Exchange Act"), (Commission File No. 1-4300) are incorporated in and made a part of this Prospectus: (i) Annual Report on Form 10-K/A for the fiscal year ended December 31, 1994, filed August 2, 1995. (ii) Quarterly Report on Form 10-Q/A for the quarter ended March 31, 1995, filed August 4, 1995. (iii) Quarterly Report on Form 10-Q for the quarter ended June 30, 1995, filed August 14, 1995. (iv) Current Report on Form 8-K dated March 1, 1995, amended by Amendment No. 1 on Form 8-K/A, filed March 22, 1995. (v) Current Report on Form 8-K/A dated May 17, 1995, filed July 17, 1995. (vi) Current Report on Form 8-K dated June 30, 1995, filed July 24, 1995. (vii) Registration Statement on Form 8-A dated January 21, 1986, for the Common Stock purchase rights issued under the Company's Rights Agreement dated January 10, 1986. All documents which the Company files pursuant to Section 13(a), 13(c), 14 or 15(d) of the Exchange Act subsequent to the date of this Prospectus and prior to the termination of the offering described herein (the "Offering") shall be deemed to be incorporated by reference herein and to be a part hereof from the date of filing of such reports and documents. Any statement contained in a document incorporated by reference, or deemed to be incorporated by reference, shall be deemed to be modified or superseded for purposes of this Prospectus to the extent that a statement contained herein or in any other subsequently filed document or in any accompanying prospectus supplement modifies or supersedes such statement. Any such statement so modified or superseded shall not be deemed, except as so modified or superseded, to constitute a part of this Prospectus. The Company will provide without charge to each person to whom this Prospectus is delivered, upon written or oral request, a copy of any or all documents described above (other than exhibits thereto, unless such exhibits are specifically incorporated by reference into the documents that this Prospectus incorporates by reference). Requests should be addressed to Apache Corporation, One Post Oak Central, 2000 Post Oak Boulevard, Suite 100, Houston, Texas 77056-4400, Attention: Corporate Secretary (telephone (713) 296-6000). 2 4 PROSPECTUS SUMMARY The following summary is qualified in its entirety by reference to the more detailed information and the financial statements (including the notes thereto) appearing elsewhere in this Prospectus or incorporated by reference in this Prospectus. Unless otherwise indicated, information in this Prospectus assumes that the Underwriters' over-allotment option will not be exercised. See "Underwriting." Unless otherwise indicated, the information in this Prospectus includes the effects of (i) the acquisition on March 1, 1995 of certain U.S. oil and gas properties from Texaco Exploration and Production Inc. ("Texaco") from and after the acquisition date, and (ii) the restatement of the Company's financial, operating and reserve information to include DEKALB Energy Company ("DEKALB") on a combined basis effective for all periods as a result of the Company's May 17, 1995 acquisition of DEKALB, which was accounted for as a pooling of interests. Investors should carefully consider the information set forth under the heading "Risk Factors." THE COMPANY OVERVIEW Apache Corporation, a Delaware corporation formed in 1954, is an independent energy company that explores for, develops, produces, gathers, processes and markets crude oil and natural gas. In North America, Apache's exploration and production interests are spread over 15 states and two Canadian provinces, focusing on the Gulf of Mexico, the Anadarko Basin, the Permian Basin, the Gulf Coast, the Rocky Mountains and the Western Sedimentary Basin of Canada. Outside of North America, Apache has exploration and production interests offshore Western Australia and exploration interests in Egypt and Indonesia and offshore China and the Ivory Coast. Apache's Common Stock has been listed on the NYSE since 1969 and on the Chicago Stock Exchange (the "CSE") since 1960. As of December 31, 1994, on a pro forma basis giving effect to the completed Texaco and DEKALB transactions and the pending Aquila acquisition (discussed below), and net of completed and pending property dispositions in 1995, the Company's estimated proved reserves were 420 MMboe, of which approximately 62% was natural gas. Apache's growth strategy is to increase reserves, production and cash flow through a combination of acquisitions, moderate-risk drilling and development of its inventory of existing projects. The Company emphasizes reducing operating costs and selling marginal and non-strategic properties. An emerging aspect of Apache's strategy is its exploration and development activity in the international arena in pursuit of larger reserve targets than are generally available domestically. Several recent discoveries abroad have created an inventory of development projects to be drilled in the next several years. Property acquisition is only one phase in a continuing cycle of Apache's business growth. Apache's objective is to follow each material acquisition with a cycle of reserve enhancement, property consolidation and cash flow acceleration, facilitating asset growth and debt reduction. This approach requires well-planned and carefully executed property development and a commitment to a selective program of ongoing property dispositions. Apache targets acquisitions that have ascertainable additional reserve potential to which it applies an active drilling, workover and recompletion program to realize the potential of the undeveloped and partially developed properties. In 1994, the Company replaced over 114% of U.S. production through its drilling, workover and recompletion program. Apache prefers to operate its properties so that it can more efficiently influence their development and currently operates properties accounting for over 75% of its current production. 3 5 RECENT DEVELOPMENTS On August 28, 1995, the Company entered into a purchase and sale agreement with Aquila Energy Resources Corporation ("Aquila"), a wholly owned, indirect subsidiary of UtiliCorp United Inc. ("UtiliCorp"), to acquire substantially all the assets of Aquila (the "Aquila Assets") for approximately $198 million, subject to certain adjustments. The oil and gas properties included in the Aquila Assets are located primarily in the Anadarko Basin, the Gulf of Mexico and the Permian Basin, in many cases in close proximity to existing Apache properties. These properties are concentrated, with the largest seven fields representing approximately three quarters of proved reserves and the largest 15 fields representing more than 90% of proved reserves. Five of the largest seven fields are operated by Aquila. Based on information provided to the Company by Aquila, the Aquila Assets represented estimated proved reserves of approximately 26 MMboe at December 31, 1994. The composition of the estimated proved reserves included in the Aquila Assets was approximately 77% gas at December 31, 1994. The Aquila Assets also include a favorable long-term gas sales contract at escalating prices, with an allocated value under the purchase agreement of $28.7 million. The Company intends to finance the acquisition of the Aquila Assets with a portion of the net proceeds of the Offering and a deferred tax-free, like-kind exchange of properties. The Company has consummated two other significant acquisitions in 1995. On March 1, 1995, the Company purchased certain U.S. oil and gas properties from Texaco for an adjusted purchase price of $564 million, effective as of January 1, 1995. The Texaco properties comprised estimated proved reserves at the effective date of 105 MMboe (after adjustment for the exercise of preferential rights and properties excluded following due diligence, and using unescalated prices), of which approximately 70% was oil. Prior to the time of purchase, the average daily production of the acquired properties was approximately 20 Mbbls of oil and 85 MMcf of gas. On May 17, 1995, Apache acquired DEKALB, an oil and gas company engaged in the exploration for, and the development of, crude oil and natural gas in Canada, pursuant to a merger agreement under which Apache issued 8.4 million shares of Common Stock in exchange for all outstanding DEKALB capital stock and DEKALB employee stock options outstanding at the time of the merger and tendered to Apache. At year-end 1994, DEKALB's estimated proved reserves, located almost entirely in Canada, were 300 Bcf of natural gas and 11 MMbbls of hydrocarbon liquids, or a total of 61 MMboe. During the first half of 1995, Apache received $73 million from completed dispositions of oil and gas properties as part of its previously announced plans to sell lower-margin and non-strategic properties. On July 18, 1995, Apache entered into an agreement for the disposition of certain of its Rocky Mountain properties to Citation 1994 Investment Limited Partnership ("Citation") for consideration of $155 million, subject to adjustment. The assets subject to such agreement include Apache's interest in 138 fields with approximately 1,600 active wells located in Colorado, Montana, North Dakota, South Dakota, Utah and Wyoming, with average daily production of approximately 9 Mbbls of oil and 9 MMcf of natural gas. Estimated proved reserves attributable to completed and pending property dispositions in 1995 were 41 MMboe at December 31, 1994. 4 6 SUMMARY PRO FORMA OIL AND GAS RESERVE INFORMATION The following table sets forth summary pro forma information with respect to the Company's estimated proved oil and gas reserves as of December 31, 1994, giving effect to the completed DEKALB and Texaco transactions, the pending Aquila acquisition and certain completed and pending dispositions of non-strategic properties in 1995. The reserve information below is based on estimates calculated as of December 31, 1994 and does not reflect production and revisions since December 31, 1994 or changes in oil and gas prices, changes in expectations of developing and producing proved undeveloped reserves (including offshore), changes in marketing expectations and access to markets or changes in estimates of recoverable reserves resulting from price changes. The reserves attributable to the completed DEKALB and Texaco acquisitions and the pending Aquila acquisition were not owned by the Company on such date. The Company has made other acquisitions and dispositions of property interests during 1995 which in the aggregate are not material. All estimates of oil and gas reserves are subject to significant uncertainty. See "Risk Factors."
APACHE AND 1995 TOTAL DEKALB(1) TEXACO(2) AQUILA(3) DISPOSITIONS(4) PROVED ---------- --------- --------- --------------- ---------- Oil and natural gas liquids (Mbbls).... 110,624 73,597 6,035 29,166 161,090 Natural gas (MMcf)..................... 1,316,155 186,495 120,857 68,351 1,555,156 Equivalent reserves (Mboe)............. 329,983 104,680 26,178 40,558 420,283 Present value of estimated future net cash flows, before income taxes, discounted at 10% (in thousands)..... $1,600,927 $ 368,518 $ 110,120 $ 149,650 $1,929,915
--------------- (1) The Company acquired DEKALB by merger effective May 17, 1995. (2) On March 1, 1995, the Company acquired certain properties from Texaco, effective January 1, 1995. (3) The Company proposes to acquire certain properties from Aquila effective concurrently with and conditioned on the consummation of the Offering. Netherland, Sewell & Associates, Inc. ("Netherland, Sewell") estimated reserves owned by Aquila as of December 31, 1994. Since that time, Aquila has acquired additional property interests included in the amounts set forth above. Netherland, Sewell has estimated total proved reserves of Aquila as of December 31, 1994 in the approximate amounts of 2,781 Mbbls of oil, 106,535 MMcf of gas (totaling 20,537 Mboe) and $92 million of present value of estimated future net cash flows, before income taxes, discounted at 10% (which amounts exclude the properties acquired by Aquila in 1995). (4) The reserves shown give effect to the pending disposition of certain Rocky Mountain properties valued at approximately $155 million, the sale of $20 million in properties on April 1, 1995, the sale of $31 million in properties on May 1, 1995, and other smaller sales. 5 7 THE OFFERING Shares of Common Stock offered............... 6,800,000 shares Shares of Common Stock to be outstanding after the Offering(1)...................... 76,714,519 shares Use of Proceeds.............................. To provide a portion of the funds to acquire the Aquila Assets and to reduce amounts outstanding under the Company's principal revolving credit facility. The Company may subsequently reborrow under the facility to finance future acquisitions of additional oil and gas properties or for other corporate purposes. See "Use of Proceeds" and "Management's Discussion and Analysis of Financial Condition and Results of Operations." NYSE Symbol.................................. APA
--------------- (1) Based on shares outstanding as of June 30, 1995. Does not include the following shares of Common Stock reserved for issuance (subject to adjustment): 2,777,778 shares issuable on conversion of the 3.93% convertible notes at $27.00 per share; 5,622,555 shares issuable on conversion of the 6% Convertible Subordinated Debentures due 2002 at $30.68 per share; 122,606 shares reserved for the dividend reinvestment plan with respect to the Common Stock; 400,000 shares reserved for the retirement/401(k) savings plan; and 3,411,200 shares reserved under existing employee stock option plans, including 911,197 shares issuable on the exercise of employee stock options outstanding as of June 30, 1995 and 362,400 shares issuable on the exercise of employee stock options granted August 23, 1995. Does not include 2,000,000 shares of Common Stock issuable from time to time in connection with the Company's private merger program. The Company currently has a policy of reserving one share of Common Stock for each share outstanding or otherwise reserved to provide for any issuances under the Company's Rights Agreement. Quantities of natural gas are expressed in terms of thousand cubic feet ("Mcf"), million cubic feet ("MMcf") or billion cubic feet ("Bcf"). Oil (which includes condensate) is quantified in terms of barrels ("bbls"), thousands of barrels ("Mbbls") or millions of barrels ("MMbbls"). One barrel of oil is the energy equivalent of six Mcf of natural gas, expressed as a barrel of oil equivalent ("boe"). Natural gas is compared to oil in terms of thousand barrels of oil equivalents ("Mboe") and in million barrels of oil equivalents ("MMboe"). Oil and natural gas liquids are compared with natural gas in terms of million cubic feet equivalent ("MMcfe") and billion cubic feet equivalent ("Bcfe"). Daily oil and gas production is expressed in terms of barrels of oil per day ("bopd") and thousands of cubic feet per day ("Mcfd"), respectively. The Company's "net" working interest in wells or acreage is determined by multiplying gross wells or acreage by the Company's working interest therein. Unless otherwise specified, all references to wells and acres are gross. 6 8 SUMMARY CONSOLIDATED FINANCIAL, OPERATING AND RESERVE DATA The following sets forth certain information regarding Apache's consolidated results of operations, financial position and operating and reserve data as of and for the periods indicated. On May 17, 1995, Apache acquired DEKALB through a merger which was accounted for under the pooling of interests method. As a result, the financial, operating and reserve data presented below has been restated to present Apache and DEKALB on a combined basis, including certain conforming adjustments to depreciation, depletion and amortization and income taxes. The data presented below should be read in conjunction with the Company's consolidated financial statements and the notes thereto incorporated by reference in this Prospectus. The following financial information is not necessarily indicative of future results of the Company. See also "Selected Consolidated Financial, Operating and Reserve Data."
YEAR ENDED DECEMBER 31, ---------------------------------------- 1994 1993 1992(1) ---------- ---------- ---------- (DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) INCOME STATEMENT DATA: Oil and gas production revenues...................... $ 538,389 $ 481,848 $ 453,835 Consolidated revenues................................ 592,626 512,632 517,403 Net income (loss).................................... 45,583 46,755 (15,682) Net income (loss) per common share................... .65 .75 (.28) Cash dividends per common share(2)................... .28 .28 .28 CASH FLOW DATA: Net income (loss) from continuing operations......... $ 45,583 $ 41,421 $ (14,632) Depreciation, depletion and amortization............. 257,821 198,320 179,876 Impairments.......................................... 7,300 23,200 65,320 Amortization of deferred loan costs.................. 3,987 3,896 3,888 Provision for deferred income taxes.................. 24,385 20,539 (998) Gain on sale of investment in affiliate.............. -- -- (30,259) Change in working capital and other.................. 18,693 (31,385) 19,758 ---------- ---------- ---------- Net cash provided by operating activities....... $ 357,769 $ 255,991 $ 222,953 ========= ========= ========= BALANCE SHEET DATA (period end): Working capital (deficit)............................ $ (3,203) $ (55,538) $ (32,775) Total assets......................................... 2,036,627 1,759,203 1,774,767 Long-term debt....................................... 719,033 504,334 524,098 Shareholders' equity................................. 891,087 868,596 554,524 PRODUCTION DATA: Oil (Mbbls).......................................... 13,815 13,036 13,465 Natural gas (MMcf)................................... 176,397 131,591 119,962 Natural gas liquids (Mbbls).......................... 724 733 885 Equivalent production (Mboe)......................... 43,939 35,701 34,344 AVERAGE SALES PRICE: Oil (per bbl)........................................ $ 15.65 $ 16.74 $ 18.11 Natural gas (per Mcf)................................ 1.78 1.94 1.66 Natural gas liquids (per bbl)........................ 11.28 11.55 11.79 RESERVE DATA-PROVED (period end): Oil and natural gas liquids (Mbbls).................. 110,624 102,957 94,643 Natural gas (MMcf)................................... 1,316,155 1,125,630 919,642 Equivalent reserves (Mboe)........................... 329,983 290,562 247,917 Present value of estimated future net cash flows, before income taxes, discounted at 10%............ $1,600,927 $1,626,096 $1,272,952
--------------- (See notes on following page) 7 9
THREE MONTHS SIX MONTHS ENDED JUNE 30, ENDED JUNE 30, ------------------------ ------------------------ 1995(3)(4) 1994 1995(3)(4) 1994 ---------- ---------- ---------- ---------- (DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) INCOME STATEMENT DATA: Oil and gas production revenues............ $ 174,519 $ 134,440 $ 317,708 $ 259,418 Consolidated revenues...................... 206,052 147,054 373,770 279,775 Net income................................. 537 12,907 4,620 21,132 Net income per common share................ .01 .19 .07 .30 Cash dividends per common share(2)......... .07 .07 .14 .14 CASH FLOW DATA: Net income from continuing operations...... $ 537 $ 12,907 $ 4,620 $ 21,132 Depreciation, depletion and amortization ........................................ 78,830 61,969 148,625 122,226 Impairments................................ -- 2,800 -- 6,300 Amortization of deferred loan costs........ 1,150 965 2,373 1,744 Provision for deferred income taxes........ 17,358 7,721 19,773 12,252 Change in working capital and other........ (21,165) (6,587) (34,152) (22,964) ---------- ---------- ---------- ---------- Net cash provided by operating activities......................... $ 76,710 $ 79,775 $ 141,239 $ 140,690 ========= ========= ========= ========= BALANCE SHEET DATA (period end): Working capital (deficit).................. $ 21,511 $ (19,685) $ 21,511 $ (19,685) Total assets............................... 2,554,557 1,823,797 2,554,557 1,823,797 Long-term debt............................. 1,207,913 578,181 1,207,913 578,181 Shareholders' equity....................... 890,542 876,978 890,542 876,978 PRODUCTION DATA: Oil (Mbbls)................................ 5,122 3,381 9,152 6,690 Natural gas (MMcf)......................... 54,361 41,830 104,159 81,321 Natural gas liquids (Mbbls)................ 174 186 365 364 Equivalent production (Mboe)............... 14,356 10,539 26,878 20,607 AVERAGE SALES PRICE: Oil (per bbl).............................. $ 17.48 $ 15.98 $ 17.20 $ 14.42 Natural gas (per Mcf)...................... 1.52 1.87 1.50 1.96 Natural gas liquids (per bbl).............. 12.19 11.09 12.14 10.61
--------------- (1) Includes a $40.6 million after-tax writedown of DEKALB's oil and gas properties and a $25.6 million after-tax loss from the sale of substantially all of DEKALB's U.S. assets. Also includes a $19.8 million after-tax gain resulting from the sale by the Company of its 36.67% interest in Natural Gas Clearinghouse. (2) No cash dividends were paid on outstanding DEKALB common stock in 1995, 1994, 1993 or 1992. (3) The three months and six months ended June 30, 1995 include the effect of the acquisition of properties from Texaco on March 1, 1995. (4) Includes nonrecurring transaction costs totaling $8.7 million after tax relating to the DEKALB merger. 8 10 RISK FACTORS Prospective investors should carefully review the following factors together with the other information contained in this Prospectus prior to making an investment decision. EFFECT OF VOLATILE PRODUCT PRICES The Company's future financial condition and results of operations will depend upon the prices received for the Company's oil and natural gas production and the costs of acquiring, finding, developing and producing reserves. Prices for oil and natural gas are subject to fluctuations in response to relatively minor changes in supply, market uncertainty and a variety of additional factors that are beyond the control of the Company. These factors include worldwide political instability (especially in the Middle East and other oil-producing regions), the foreign supply of oil and gas, the price of foreign imports, the level of consumer product demand, government regulations and taxes, the price and availability of alternative fuels and the overall economic environment. A substantial or extended decline in oil and gas prices would have a material adverse effect on the Company's financial position, results of operations, quantities of oil and gas that may be economically produced and access to capital. In addition, the sale of the Company's production depends upon a number of factors beyond the Company's control, including the availability and capacity of transportation and processing facilities. Oil and natural gas prices have historically been volatile and are likely to continue to be volatile in the future. Such volatility makes it difficult to estimate the value of producing properties for acquisition and to budget and project the return on exploration and development projects involving the Company's producing properties. In addition, unusually volatile prices often disrupt the market for oil and gas properties, as buyers and sellers have more difficulty agreeing on the purchase price of properties. The Company engages in hedging activities with respect to some of its projected oil and gas production through a variety of financial arrangements designed to protect against price declines, including swaps, collars and futures agreements. To the extent that Apache engages in such activities, it may be prevented from realizing the benefits of price increases above the levels of the hedges. Because the Company's reserve base is approximately 66% natural gas on an energy equivalent basis as of December 31, 1994, it is more sensitive to fluctuations in the price of natural gas than to fluctuations in the price of oil. The Company periodically reviews the carrying value of its oil and gas properties under the full-cost accounting rules of the Commission. Under the full-cost accounting rules, capitalized costs of oil and gas properties on a country-by-country basis may not exceed the present value of estimated future net revenues from proved reserves, discounted at 10%, plus the lower of cost or fair market value of unproved properties as adjusted for related tax effects. The test is applied at the unescalated prices in effect at the applicable time and results in a write-down if the "ceiling" is exceeded, even if prices declined for only a short period of time. Many full-cost companies, including Apache, are concerned about the impact of prolonged unfavorable gas prices on their ceiling test calculations. A further deterioration of oil or gas prices from current levels could result in the Company recording a noncash charge to earnings related to its oil and gas properties in 1995. The Commission's rules permit the exclusion of capitalized costs and present value of recently acquired properties in performing ceiling test calculations. Pursuant to these rules, Apache has requested waivers and the Commission has granted one-year waivers with respect to the properties acquired from Texaco and certain properties acquired from Crystal Oil Company ("Crystal"). If the ceiling is exceeded on all U.S. properties, Apache is permitted to perform an additional ceiling test excluding the capitalized costs and present value of the properties acquired from Texaco and Crystal and required to record a write-down of carrying value if the ceiling is still exceeded. If a write-down is required, it would result in a one-time charge to earnings and would not impact net cash flow from operating activities. RELIANCE ON ESTIMATES OF PROVED RESERVES AND FUTURE NET REVENUES; DEPLETION OF RESERVES There are numerous uncertainties inherent in estimating quantities of proved reserves and in projecting future rates of production and timing of development expenditures, including many factors beyond the control of the producer. The reserve data set forth in this Prospectus or incorporated by reference herein represent 9 11 only estimates. In addition, the estimates of future net cash flow from proved reserves of the Company and the present value thereof are based upon various assumptions about future production levels, prices and costs that may prove to be incorrect over time. Any significant variance from the assumptions could result in the actual quantity of the Company's reserves and future net cash flow therefrom being materially different from the estimates set forth in this Prospectus or incorporated by reference herein. In addition, the Company's estimated reserves may be subject to downward or upward revision based upon production history, results of future exploration and development, prevailing oil and gas prices, operating and development costs and other factors. The rate of production from oil and gas properties declines as reserves are depleted. Except to the extent that the Company acquires additional properties containing proved reserves, conducts successful exploration and development activities or, through engineering studies, identifies additional behind-pipe zones or secondary recovery reserves, the proved reserves of the Company will decline as reserves are produced. Future oil and gas production is, therefore, highly dependent upon the Company's level of success in acquiring or finding additional reserves. ACQUISITION RISKS The Company intends to continue acquiring oil and gas properties. Although the Company performs a review of the acquired properties that it believes is consistent with industry practices, such reviews are inherently incomplete. It generally is not feasible to review in depth every individual property involved in each acquisition. Ordinarily, the Company will focus its review efforts on the higher-value properties and will sample the remainder. However, even a detailed review of records and properties may not necessarily reveal existing or potential problems, nor will it permit a buyer to become sufficiently familiar with the properties to assess fully their deficiencies and potential. Inspections may not always be performed on every well, and environmental problems, such as ground water contamination, are not necessarily observable even when an inspection is undertaken. Even when problems are identified, the Company often assumes certain environmental and other risks and liabilities in connection with acquired properties. There are numerous uncertainties inherent in estimating quantities of proved oil and gas reserves and actual future production rates and associated costs with respect to acquired properties, and actual results may vary substantially from those assumed in the estimates. In addition, there can be no assurance that acquisitions will not have an adverse effect upon the Company's operating results, particularly during the periods in which the operations of acquired businesses are being integrated into the Company's ongoing operations. OPERATING RISKS; AVAILABILITY OF INSURANCE Exploration for and production of oil and natural gas can be hazardous, involving unforeseen occurrences such as blowouts, cratering, fires and loss of well control, which can result in damage to or destruction of wells or production facilities, injury to persons, loss of life or damage to property or the environment. The Company maintains insurance against certain losses or liabilities arising from its operations in accordance with customary industry practices and in amounts that management believes to be prudent. However, insurance is not available to the Company against all operational risks, and the occurrence of a significant event that is not fully insured could have a material adverse effect on the Company's financial position. COMPETITION The oil and gas industry is highly competitive. As an independent oil and gas company, the Company frequently competes for reserve acquisitions, exploration leases, licenses, concessions and marketing agreements against companies having substantially larger financial and other resources than the Company possesses. GOVERNMENT REGULATIONS The Company's exploration, production and marketing operations are regulated extensively at the federal, state and local levels, as well as by other countries in which the Company does business. Oil and gas 10 12 exploration, development and production activities are subject to various laws and regulations governing a wide variety of matters. For example, most states in which Apache operates regulate the quantities of natural gas that may be produced from wells within their borders to prevent waste in the production of natural gas and to protect the correlative rights of competing interest owners. It is impossible at this time to determine what changes may occur with respect to such regulations and what effect, if any, such changes may have on the Company and the natural gas industry as a whole. As an owner and operator of oil and gas properties, the Company is also subject to various federal, state, local and foreign country environmental regulations, including air and water quality control laws. These laws and regulations may, among other things, impose liability on the lessee under an oil and gas lease for the cost of pollution cleanup resulting from operations, subject the lessee to liability for pollution damages, require suspension or cessation of operations in affected areas and impose restrictions on the injection of liquids into subsurface aquifers that may contaminate groundwater. Although the Company believes that it is in substantial compliance with existing applicable environmental laws and regulations, there can be no assurance that substantial costs for compliance will not be incurred in the future. Moreover, it is possible that other developments, such as stricter environmental laws, regulations and enforcement policies thereunder, could result in additional, presently unquantifiable, costs or liabilities to the Company. 11 13 USE OF PROCEEDS The net proceeds to be received by the Company from the sale of the 6,800,000 shares of Common Stock offered hereby are estimated to be $174 million ($200 million if the over-allotment option is exercised in full), assuming a price to public of $26 5/8 per share. The Company intends to use approximately $50 million of the net proceeds of the Offering to finance the pending acquisition of the Aquila Assets, which are to be acquired for an aggregate consideration of approximately $198 million in cash and certain other considerations, subject to adjustment. Approximately $148 million of the purchase price for certain Aquila Assets will be structured as a deferred tax-free, like-kind exchange of properties with Citation. See "Recent Developments." As a result, the remainder of the net proceeds of the Offering will be applied to reduce indebtedness under the Company's principal revolving credit facility. On August 25, 1995, the amount outstanding under the revolving credit facility was $754 million. Based upon the Company's public senior debt rating and its ratio of debt to total capital on such date, the facility bears interest at the First National Bank of Chicago's prime rate of interest plus .125%, or at London Interbank Offered Rates ("LIBOR") plus 1.125%, at the Company's option, and has a final maturity date of March 1, 2000. Amounts paid under the facility may subsequently be reborrowed to finance future acquisitions of oil and gas properties or for other corporate purposes. Advances under the revolving credit facility during the past year were used primarily for property acquisitions and working capital. As of August 25, 1995, the Company has $75 million available for borrowing under the credit facility. See "Management's Discussion and Analysis of Financial Condition and Results of Operations -- Subsequent Events." PRICE RANGE OF COMMON STOCK AND DIVIDENDS The Common Stock is listed on the NYSE and the CSE and traded under the symbol "APA." The following table sets forth, for the periods indicated, (i) the high and low sale prices of the Common Stock as reported on the NYSE Composite Transactions Reporting System, and (ii) the dividends paid on the Common Stock.
PRICE RANGE ------------- CASH HIGH LOW DIVIDENDS PAID ---- ---- -------------- 1993: First Quarter....................................... $26 1/4 $17 5/8 $.07 Second Quarter...................................... 30 1/4 24 3/8 .07 Third Quarter....................................... 33 1/2 26 3/8 .07 Fourth Quarter...................................... 31 1/4 20 3/8 .07 1994: First Quarter....................................... $26 7/8 $22 1/2 $.07 Second Quarter...................................... 29 22 1/4 .07 Third Quarter....................................... 29 1/4 23 .07 Fourth Quarter...................................... 28 7/8 23 5/8 .07 1995: First Quarter....................................... $27 1/4 $22 3/8 $.07 Second Quarter...................................... 30 7/8 25 3/4 .07 Third Quarter (through August 24)................... 27 7/8 26 .07
For a recent closing sale price for the Common Stock, as reported on the NYSE Composite Transactions Reporting System, see the cover page of this Prospectus. As of August 24, 1995, there were approximately 13,400 holders of record of Common Stock. Each share of Common Stock also represents one Common Stock purchase right that, under certain circumstances, would entitle the holder to acquire additional shares of Common Stock. See "Description of Capital Stock." The Company has paid cash dividends on its Common Stock for 114 consecutive quarters through July 31, 1995, and intends to continue the payment of dividends, although future dividend payments will depend upon the Company's level of earnings, financial requirements and other relevant factors. 12 14 CAPITALIZATION The following table sets forth the capitalization of the Company and its consolidated subsidiaries as of June 30, 1995, and as adjusted to give effect to the sale of the Common Stock offered hereby and the application of the estimated net proceeds thereof as described in "Use of Proceeds."
ACTUAL AS ADJUSTED(1) ---------- -------------- (IN THOUSANDS) Current maturities of long-term debt.............................. $ 7,000 $ 7,000 ========= =========== Long-term debt: Credit facility(2).............................................. $ 764,000 $ 640,189 9.25% notes, net of discount.................................... 99,727 99,727 3.93% convertible notes......................................... 75,000 75,000 6% convertible subordinated debentures.......................... 172,500 172,500 Other (including subsidiary debt)............................... 96,686 96,686 ---------- -------------- Total long-term debt(3).................................... 1,207,913 1,084,102 ---------- -------------- Shareholders' equity: Preferred stock, without par value, 5,000,000 shares authorized, none outstanding............................................. -- -- Common stock, $1.25 par value per share, 215,000,000 shares authorized, 71,033,559 and 77,833,559 shares issued, respectively(4).............................................. 88,792 97,292 Paid-in capital................................................. 501,033 666,344 Retained earnings............................................... 330,715 330,715 Currency translation adjustment................................. (16,544) (16,544) Treasury stock, at cost, 1,119,040 shares....................... (13,454) (13,454) ---------- -------------- Total shareholders' equity................................. 890,542 1,064,353 ---------- -------------- Total capitalization............................................ $2,098,455 $2,148,455 ========= ===========
--------------- (1) As adjusted to give effect to the sale of the 6,800,000 shares of Common Stock offered hereby, at an assumed price to public of $26 5/8 per share and the application of approximately $50 million of the net proceeds thereof to finance the pending Aquila acquisition and the application of the remaining $124 million of the net proceeds thereof to reduce indebtedness under the Company's principal revolving credit facility. (2) Certain information concerning the Company's revolving credit facility is set forth in Note 3 to the audited consolidated financial statements incorporated by reference in this Prospectus. As of August 25, 1995, the outstanding balance under the credit facility was $754 million. (3) Does not include certain contingent liabilities of the Company. See Note 9 to the audited consolidated financial statements incorporated by reference in this Prospectus. (4) Does not include the following shares of Common Stock reserved for issuance (subject to adjustment): 2,777,778 shares issuable on conversion of the 3.93% convertible notes at $27.00 per share; 5,622,555 shares issuable on conversion of the 6% Convertible Subordinated Debentures due 2002 at $30.68 per share; 122,606 shares reserved for the dividend reinvestment plan with respect to the Common Stock; 400,000 shares reserved for the retirement/401(k) savings plan; and 3,411,200 shares reserved under existing employee stock option plans, including 911,197 shares issuable on the exercise of employee stock options outstanding as of June 30, 1995 and 362,400 shares issuable on the exercise of employee stock options granted August 23, 1995. Does not include 2,000,000 shares of Common Stock issuable from time to time in connection with the Company's private merger program. The Company currently has a policy of reserving one share of Common Stock for each share outstanding or otherwise reserved to provide for any issuances under the Company's Rights Agreement. 13 15 SELECTED CONSOLIDATED FINANCIAL, OPERATING AND RESERVE DATA The following sets forth certain information regarding Apache's consolidated results of operations, financial position and operating and reserve data as of and for the periods indicated. On May 17, 1995, Apache acquired DEKALB through a merger which was accounted for under the pooling of interests method. As a result, the financial, operating and reserve data presented below has been restated to present Apache and DEKALB on a combined basis, including certain conforming adjustments to depreciation, depletion and amortization and income taxes. The data presented below should be read in conjunction with the Company's consolidated financial statements and the notes thereto incorporated by reference in this Prospectus. The following financial information is not necessarily indicative of future results of the Company.
YEAR ENDED DECEMBER 31, ------------------------------------------------------------------- 1994 1993 1992(1) 1991(2)(3) 1990 ---------- ----------- ---------- ---------- ---------- (DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) INCOME STATEMENT DATA: Oil and gas production revenues........... $ 538,389 $ 481,848 $ 453,835 $ 409,011 $ 335,450 Consolidated revenues..................... 592,626 512,632 517,403 457,872 386,688 Net income (loss) Continuing operations................... 45,583 41,421 (14,632) (35,216) 53,114 Discontinued operations................. -- -- (1,050) -- 11,633 Cumulative effect of change in accounting principle.................. -- 5,334 -- -- -- ---------- ----------- ---------- ---------- ---------- Net income (loss)..................... $ 45,583 $ 46,755 $ (15,682) $ (35,216) $ 64,747 ========== =========== ========== ========== ========== Net income (loss) per common share Continuing operations................... $ .65 $ .67 $ (.26) $ (.65) $ 99 Discontinued operations................. -- -- (.02) -- .21 Cumulative effect of change in accounting principle.................. -- .08 -- -- -- ---------- ----------- ---------- ---------- ---------- Net income (loss) per common share...... $ .65 $ .75 $ (.28) $ (.65) $ 1.20 ========== =========== ========== ========== ========== Cash dividends per common share(4)...... $ .28 $ .28 $ .28 $ .28 $ .28 CASH FLOW DATA: Net income (loss) from continuing operations............................ $ 45,583 $ 41,421 $ (14,632) $ (35,216) $ 53,114 Depreciation, depletion and amortization.......................... 257,821 198,320 179,876 188,410 160,693 Impairments............................. 7,300 23,200 65,320 94,241 -- Amortization of deferred loan costs..... 3,987 3,896 3,888 1,988 355 Provision for deferred income taxes..... 24,385 20,539 (998) (27,312) 17,773 Gain on sale of investment in affiliate............................. -- -- (30,259) -- -- Change in working capital and other..... 18,693 (31,385) 19,758 (21,122) 15,794 ---------- ----------- ---------- ---------- ---------- Net cash provided by operating activities......................... $ 357,769 $ 255,991 $ 222,953 $ 200,989 $ 247,729 ========== =========== ========== ========== ========== BALANCE SHEET DATA (period end): Working capital (deficit)............... $ (3,203) $ (55,538) $ (32,755) $ (57,593) $ 18,358 Total assets............................ 2,036,627 1,759,203 1,774,767 1,597,633 1,363,337 Long-term debt.......................... 719,033 504,334 524,098 658,395 386,580 Shareholders' equity.................... 891,087 868,596 554,524 601,181 622,489 Common shares outstanding............... 69,666 69,504 55,361 55,305 53,296 PRODUCTION DATA: Oil (Mbbls)............................. 13,815 13,036 13,465 10,063 5,988 Natural gas (MMcf)...................... 176,397 131,591 119,962 134,162 120,534 Natural gas liquids (Mbbls)............. 724 733 885 1,212 520 Equivalent production (Mboe)............ 43,939 35,701 34,344 33,635 26,597 AVERAGE SALES PRICE: Oil (per bbl)........................... $ 15.65 $ 16.74 $ 18.11 $ 18.61 $ 21.21 Natural gas (per Mcf)................... 1.78 1.94 1.66 1.55 1.68 Natural gas liquids (per bbl)........... 11.28 11.55 11.79 11.88 11.35 RESERVE DATA -- PROVED (period end): Oil and natural gas liquids (Mbbls)..... 110,624 102,957 94,643 105,891 52,002 Natural gas (MMcf)...................... 1,316,155 1,125,630 919,642 963,242 889,178 Equivalent reserves (Mboe).............. 329,983 290,562 247,917 266,431 200,198 Present value of estimated future net cash flows, before income taxes, discounted at 10%..................... $1,600,927 $ 1,626,096 $1,272,952 $1,334,532 $1,344,063
--------------- (See notes on following page) 14 16
THREE MONTHS SIX MONTHS ENDED JUNE 30, ENDED JUNE 30, ------------------------ ------------------------ 1995(5)(6) 1994 1995(5)(6) 1994 ---------- ---------- ---------- ---------- (DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) INCOME STATEMENT DATA: Oil and gas production revenues............ $ 174,519 $ 134,440 $ 317,708 $ 259,418 Consolidated revenues...................... 206,052 147,054 373,770 279,775 Net income................................. 537 12,907 4,620 21,132 Net income per common share................ .01 .19 .07 .30 Cash dividends per common share(4)......... .07 .07 .14 .14 CASH FLOW DATA: Net income from continuing operations...... $ 537 $ 12,907 $ 4,620 $ 21,132 Depreciation, depletion and amortization... 78,830 61,969 148,625 122,226 Impairments................................ -- 2,800 -- 6,300 Amortization of deferred loan costs........ 1,150 965 2,373 1,744 Provision for deferred income taxes........ 17,358 7,721 19,773 12,252 Change in working capital and other........ (21,165) (6,587) (34,152) (22,964) ---------- ---------- ---------- ---------- Net cash provided by operating activities............................ $ 76,710 $ 79,775 $ 141,239 $ 140,690 ========= ========= ========= ========= BALANCE SHEET DATA (period end): Working capital (deficit).................. $ 21,511 $ (19,685) $ 21,511 $ (19,685) Total assets............................... 2,554,557 1,823,797 2,554,557 1,823,797 Long-term debt............................. 1,207,913 578,181 1,207,913 578,181 Shareholders' equity....................... 890,542 876,978 890,542 876,978 PRODUCTION DATA: Oil (Mbbls)................................ 5,122 3,381 9,152 6,690 Natural gas (MMcf)......................... 54,361 41,830 104,159 81,321 Natural gas liquids (Mbbls)................ 174 186 365 364 Equivalent production (Mboe)............... 14,356 10,539 26,878 20,607 AVERAGE SALES PRICE: Oil (per bbl).............................. $ 17.48 $ 15.98 $ 17.20 $ 14.42 Natural gas (per Mcf)...................... 1.52 1.87 1.50 1.96 Natural gas liquids (per bbl).............. 12.19 11.09 12.14 10.61
--------------- (1) Includes $40.6 million after-tax writedown of DEKALB's oil and gas properties and $25.6 million after-tax loss from the sale of substantially all of DEKALB's U.S. assets. Also includes a $19.8 million after-tax gain resulting from the sale by the Company of its 36.67% interest in Natural Gas Clearinghouse. (2) Includes financial data for MW Petroleum Corporation after June 30, 1991. (3) Includes a $7.1 million after-tax charge resulting from the relocation of the Company's headquarters to Houston, Texas and a $66 million after-tax writedown of DEKALB's oil and gas properties. (4) No cash dividends were paid on outstanding DEKALB common stock in 1995, 1994, 1993 and 1992. Cash dividends paid on DEKALB common stock totaled $.8 million in 1991 and $2.9 million in 1990. (5) The three months and six months ended June 30, 1995 include the effect of the acquisition of properties from Texaco on March 1, 1995. (6) Includes nonrecurring transaction costs totaling $8.7 million after tax relating to the DEKALB merger. 15 17 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS OVERVIEW The Company has consummated two acquisitions in 1995. On March 1, 1995, the Company purchased certain U.S. oil and gas properties from Texaco for an adjusted purchase price of $564 million, effective January 1, 1995. On May 17, 1995, Apache acquired DEKALB, an oil and gas company engaged in the exploration for, and the development of, crude oil and natural gas in Canada, pursuant to a merger agreement under which Apache issued 8.4 million shares of Common Stock in exchange for all outstanding DEKALB capital stock and DEKALB employee stock options outstanding at the time of the merger and tendered to Apache. The merger was accounted for as a pooling of interests for financial accounting purposes. Accordingly, the following discussion and analysis has been prepared on a combined basis using the pooling of interests method of accounting. As a result of the Company's recent acquisitions, the Company's results of operations for the first two quarters of 1995 are not comparable to its historical results and are not necessarily indicative of results for the full year or future periods. Apache's financial performance during the first half of 1995 is best understood in light of the following factors: Production Increases; Commodity Prices. The Company's performance during the first two quarters of 1995 was affected by lower average natural gas prices, substantially offset by increases in natural gas production. Apache's natural gas production increased in the first half of 1995 by 28% over the prior year, attributable principally to acquisitions and favorable drilling results. The Company's average realized gas price of $1.50 per Mcf during the first half of 1995 was $.46 per Mcf below the price during the same period in the previous year, negatively impacting sales by $48 million. In the first half of 1995, Apache's oil production increased by 37% over the same period in 1994. Oil prices continued to improve from the five-year low experienced in the fourth quarter of 1993. Oil revenues were positively impacted by $25.5 million as a result of a $2.78 per barrel increase in average realized oil prices in the first half of 1995 as compared with the same period in 1994. Acquisitions. The Company consummated the DEKALB and Texaco acquisitions during the first half of 1995. The second quarter of 1995 reflects the ownership of the properties acquired from Texaco. All of the Company's financial statements have been restated as a result of the DEKALB merger, which was accounted for as a pooling of interests. Since the Aquila transaction has not been consummated, the discussion immediately following does not contemplate the effects of such transaction on the Company's operations or liquidity. For a discussion of the effects of the Aquila transaction, see "-- Subsequent Events" and "Recent Developments." FINANCIAL RESULTS Apache reported net income of $.5 million, or $.01 per share, for the second quarter of 1995 compared to $12.9 million, or $.19 per share, for the same period last year. Current quarter earnings were reduced by a nonrecurring pre-tax charge of approximately $10 million associated with Apache's acquisition of DEKALB (now known as DEK Energy Company). The merger costs reduced 1995 net income by $8.7 million, or $.12 per share. Apache's results of operations for the quarter were also negatively impacted by a 19% decline in gas prices which reduced revenues by $19 million and net income by $.16 per share. Earnings for the first six months of 1995 totaled $4.6 million, or $.07 per share, compared to $21.1 million, or $.30 per share, during the first half of 1994. Lower gas prices compared to a year ago negatively impacted revenues by $48 million and partially offset the impact of increased oil and gas production from acquisitions and drilling. 16 18 RESULTS OF OPERATIONS Volume and price information for the Company's 1995 and 1994 second quarter and first six months oil and gas production is summarized in the following tables:
FOR THE QUARTER FOR THE SIX MONTHS ENDED JUNE 30, ENDED JUNE 30, ------------------- INCREASE ------------------- INCREASE 1995 1994 (DECREASE) 1995 1994 (DECREASE) -------- -------- ---------- -------- -------- ---------- Gas Volume -- Mcf per day: U.S.............................. 519,147 402,765 29% 502,679 392,820 28% Canada........................... 73,683 53,057 39% 67,458 52,472 29% Australia........................ 4,542 3,850 18% 5,329 3,994 33% -------- -------- -------- -------- Total............................ 597,372 459,672 30% 575,466 449,286 28% ======== ======== ======== ======== Average Gas Price -- Per Mcf: U.S.............................. $ 1.59 $ 1.89 (16%) $ 1.56 $ 1.99 (22%) Canada........................... 1.02 1.71 (40%) 1.00 1.70 (41%) Australia........................ 1.87 1.96 (5%) 1.94 1.93 1% Total............................ 1.52 1.87 (19%) 1.50 1.96 (23%) Oil Volume -- Barrels per day: U.S.............................. 50,869 32,461 57% 45,334 32,233 41% Canada........................... 2,061 1,952 6% 2,014 2,035 (1%) Australia........................ 3,360 2,741 23% 3,217 2,693 19% -------- -------- -------- -------- Total............................ 56,290 37,154 52% 50,565 36,961 37% ======== ======== ======== ======== Average Oil Price -- Per barrel: U.S.............................. $ 17.36 $ 15.82 10% $ 17.07 $ 14.21 20% Canada........................... 17.81 16.63 7% 17.26 14.36 20% Australia........................ 19.16 17.42 10% 19.05 16.91 13% Total............................ 17.48 15.98 9% 17.20 14.42 19% NGL Volume -- Barrels per day: U.S.............................. 1,378 1,356 2% 1,470 1,340 10% Canada........................... 539 687 (22%) 549 669 (18%) -------- -------- -------- -------- Total............................ 1,917 2,043 (6%) 2,019 2,009 0% ======== ======== ======== ======== Average NGL Price -- Per barrel: U.S.............................. $ 13.29 $ 12.60 5% $ 13.01 $ 11.83 10% Canada........................... 9.39 8.10 16% 9.80 8.16 20% Total............................ 12.19 11.09 10% 12.14 10.61 14%
Oil and gas production revenues for the second quarter and first half of 1995 increased over the prior year by 30% and 22%, respectively, due to the March 1, 1995 acquisition of properties from Texaco, acquisitions completed by Apache during the fourth quarter of 1994 and favorable drilling results. The declines in Apache's second quarter and first half average realized gas price, reflecting significantly lower spot prices from a year ago, offset further increases in revenue. Second quarter gas sales increased to $82.8 million, up six percent from the same period last year. Apache's second quarter gas production was a record 597.4 MMcfd, an increase of 30% from last year. Of the 137.7 MMcfd increase in gas production in the second quarter of 1995, 68 MMcfd was a result of the acquisition of properties from Texaco and 22 MMcfd resulted from the acquisition of properties from Crystal in December 1994. Apache's average natural gas price declined 19% from second quarter 1994 to $1.52 per Mcf, negatively impacting revenues by $19 million. Gas sales for the first six months of 1995 of $155.8 million declined two percent compared to the six-month period in 1994 as the impact of lower gas prices more than offset production gains. Apache's production increased 126.2 MMcfd during the first half of 1995 as compared to the same period in 1994. The 28% 17 19 increase in gas production in the first six months of 1995 resulted largely from the acquisition of properties from Texaco and Crystal. The volume increase resulted in additional sales of $44.7 million. The Company's realized gas price of $1.50 per Mcf during the first half of 1995 was $.46 per Mcf lower than last year's price of $1.96 per Mcf during the same period. The 23% drop in the average realized price of gas negatively impacted sales by $48 million. Oil sales of $89.6 million for the 1995 second quarter were $35.5 million, or 66%, above the previous year as a result of higher production volumes. The 52% increase in oil production was primarily due to the acquisition of Texaco properties, which added 17.7 Mbopd to Apache's second quarter sales. The total increase in production favorably impacted sales by $27.8 million, while a $1.50 per barrel increase in realized oil prices compared to 1994 positively impacted 1995 sales by $7.7 million. For the first six months of 1995, oil sales increased 63% to $157.4 million, compared to $96.4 million for the same period a year ago. In the first half of 1995, oil production rose 13.6 Mbopd, or 37%. Oil revenues were positively impacted by $25.5 million as a result of a $2.78 per barrel increase in realized oil prices. Revenues from the sale of natural gas liquids totaled $2.1 million for the second quarter and $4.4 million for first half of 1995. Higher natural gas liquids prices contributed to the $.1 million quarter-to-quarter and $.6 million year-to-year increases in sales as compared to a year ago. Gathering, processing and marketing revenues of $28.4 million for the second quarter and $51.2 million for the first half of 1995 were 169% and 196%, respectively, higher than last year's revenues. Operating margins increased $.3 million from the second quarter of 1994 and $.6 million from the first six months of 1994, respectively. The activity reflects increased volumes of purchase and resale transactions by Apache's oil and gas marketing subsidiaries. These transactions generally carry a low margin. Depreciation, depletion and amortization expense of $78.8 million for the second quarter of 1995 and $148.6 million for the first half of the year increased 27% and 22%, respectively, over the comparable 1994 periods due to increased oil and gas production. Apache's domestic depreciation, depletion and amortization rate for the second quarter declined from $5.60 per boe in 1994 to $5.32 per boe in 1995 due to the impact of the Texaco acquisition. Operating costs rose $20 million, or 56%, to $55.5 million for the quarter and $29.3 million, or 41%, to $100.5 million year-to-date from the comparable periods last year due primarily to the impact of Apache's acquisitions. Operating costs include lifting costs, workover expense, production taxes and severance taxes. Based on an equivalent unit of production, operating costs increased 15% in the second quarter of 1995 to $3.87 per boe and eight percent in the first half period to $3.74 per boe, respectively. The increase in unit cost reflects the high percentage of oil properties included in the Texaco transaction, as oil properties typically have a higher per unit expense than gas properties. Administrative, selling and other costs in the second quarter of 1995 rose $.2 million, or two percent, from a year ago, while costs for the first half increased $.6 million, or three percent, due to costs of integrating the Texaco properties. On a boe basis, costs for the quarter and first six months dropped 25% and 21%, respectively, due to increased production from acquisitions and drilling. In connection with the DEKALB merger, nonrecurring transaction costs totaling approximately $10 million were charged to expense in the second quarter of 1995. Net financing costs increased 149% for the second quarter of 1995 to $20.3 million, and 132% for the first half of the year to $35.6 million. The increase in financing costs reflects an increase in debt outstanding and higher interest rates as compared to last year. Debt increased $496 million since December 31, 1994 and $696 million since December 31, 1993, as a result of increased borrowings to fund acquisitions. The increase in interest rates primarily reflects higher market rates. 18 20 CASH FLOW, LIQUIDITY AND CAPITAL RESOURCES Capital Commitments. Apache's primary needs for cash are for exploration, development and acquisition of oil and gas properties, repayment of principal and interest on outstanding debt and payment of dividends. The Company generally funds its exploration and development activities through internally generated cash flows. Apache budgets its capital expenditures based upon projected cash flows and routinely adjusts its capital expenditures in response to changes in oil and gas prices and corresponding changes in cash flow. Expenditures for exploration and development totaled $142.1 million during the first half of 1995 compared to $162.8 million during the same period last year. In the first six months of 1995, Apache completed 68 of 102 gross wells as producers, while the Company completed 149 of 183 gross wells as producers in the first half of 1994. While the Company reduced its exploration and development expenditures from a year ago so that additional cash from operating activities could be applied to reduce debt, Apache continued to drill in the Mid-Continent, Permian Basin and Gulf of Mexico regions of the United States. Internationally, the Company continued developmental drilling on the Harriet prospect in Australia and appraisal drilling on the Zhao Dong prospect in the Bohai Bay, People's Republic of China. Further evaluation is necessary to determine the commercial potential of the discovery offshore China. In Egypt, an appraisal well further delineated a discovery made on the Qarun prospect. This well confirmed the results of one of two earlier discoveries, which established the development potential of this area of the Qarun Concession. International exploration and development expenditures totaled $36.3 million in the first half of 1995 compared to $36.7 million in 1994. Apache's annual expenditures for exploration and development are expected to total approximately $275 million for 1995, not taking into account any capital expenditures associated with the properties to be acquired in the Aquila transaction. Acquisitions for cash during the first half of 1995 totaled $573.9 million as compared to $27 million for the same period of 1994. On March 1, 1995, Apache purchased certain oil and gas assets from Texaco for an adjusted purchase price of $564 million. In addition to the properties acquired for cash during the first six months of 1995, Apache issued 8.4 million shares of Common Stock to acquire DEKALB in a transaction accounted for as a pooling of interests. See "Acquisitions" in the Notes to the audited Consolidated Financial Statements incorporated herein by reference. Capital Resources and Liquidity. Apache's primary capital resources are net cash provided by operating activities, unused borrowing capacity under the Company's revolving bank credit facility and proceeds from the sale of non-strategic assets. Net cash provided by operating activities totaled $141 million for the first half of 1995 and 1994. On January 4, 1995, Apache completed the issuance of $172.5 million principal amount of its 6% Convertible Subordinated Debentures due 2002, which are convertible into Common Stock at a conversion price of $30.68 per share. The Company anticipates filing a registration statement on Form S-3 in September 1995 with respect to resales of underlying shares of Common Stock. Net proceeds were used to reduce bank debt, to provide funds for acquisitions and for general corporate purposes. The 6% debentures have not been registered under the Securities Act of 1933, as amended ("Securities Act"), and may not be offered or sold in the United States absent registration or an applicable exemption from such registration requirements. Costs associated with the issue of the 6% debentures totaled $4.1 million. On March 1, 1995, the Company's revolving bank credit facility was amended and restated, increasing it from $700 million to $1 billion. The facility matures on March 1, 2000, and may be extended in one-year increments with the lenders' consent. Based on the Company's ratio of debt to total capital, the interest rate margin over LIBOR at June 30, 1995 was 1.125%. The Company also pays a facility fee based on its ratio of debt to total capital. The facility fee at June 30, 1995 was .375% of the available portion of the commitment and .1875% of the unavailable portion of the commitment. As of June 30, 1995, the available portion of the commitment was $831 million, of which $764 million was outstanding. Costs associated with the amendment 19 21 of the credit facility totaled $7.2 million. At June 30, 1995, Apache had a total of $1.2 billion in long-term debt outstanding, up $496 million from the end of 1994. During the first half of 1995, Apache received $73.2 million from the disposition of oil and gas properties as part of its previously announced plans to sell lower-margin and non-strategic properties. On July 18, 1995, Apache entered into an agreement for the disposition of certain of its Rocky Mountain properties to Citation for consideration of $155 million, subject to adjustment. The assets subject to such agreement include Apache's interest in 138 fields with approximately 1,600 active wells located in Colorado, Montana, North Dakota, South Dakota, Utah and Wyoming. The Company had $17.3 million in cash equivalents on hand at June 30, 1995, down from $30 million at the end of 1994. The Company's ratio of current assets to current liabilities at quarter-end 1995 of 1.1:1 was improved from year-end 1994 when the ratio was 1.0:1. Management believes that cash on hand, net cash provided by operating activities and unused available borrowing capacity under the revolving bank credit facility will be adequate to meet future liquidity needs for the next two fiscal years, including satisfaction of the Company's financial obligations and funding of exploration and development operations and routine acquisitions. Future Trends. The Company plans to continue with implementation of several strategic initiatives designed to accelerate the integration of acquired properties, streamline operations and strengthen its balance sheet. As previously announced, Apache plans to accelerate the disposition of non-strategic assets and to close the Denver, Colorado office in 1995. In general, the proceeds from property dispositions will be used for debt reductions. Apache has continually followed a practice of expanding and upgrading its reserves through a combination of exploratory and development drilling, workovers and recompletions and upgrading its production base by disposing of lower-margin and non-strategic properties. Apache will continue to review acquisition opportunities which are additive to earnings and cash flow, and to review its capital structure to maximize shareholders' return and maintain financial flexibility. SUBSEQUENT EVENTS The Aquila Assets are concentrated, with the largest seven fields representing approximately three quarters of proved reserves, and many of the Aquila properties are located in close proximity to existing Apache properties. Accordingly, the Company believes that economies of scale will result from elimination of duplicative administrative and other expenses and the consolidation of nearby operations following the closing of the Aquila transaction. In the Gulf of Mexico, the Company expects to operate certain currently manned Aquila platforms as unmanned platforms, using the facilities and personnel located at nearby Apache platforms. In addition, the high percentage of gas properties included in the Aquila Assets can be expected to reduce operating costs on an equivalent unit of production basis, as gas properties typically have a lower per unit expense than oil properties. A significant portion of the net proceeds of the Offering will be applied to reduce indebtedness under the Company's principal revolving credit facility. See "Use of Proceeds." After giving effect to such repayment of debt, as of June 30, 1995, the Company would have a ratio of debt to total capitalization of approximately 51%. As of August 25, 1995, the Company has $75 million available for borrowing under the credit facility. The credit facility provides for periodic redeterminations of the borrowing base to reflect the Company's estimated proved reserves. The Company is currently evaluating alternatives to refinance a portion of its outstanding debt. In connection with its ongoing private merger program, the Company has filed an acquisition shelf registration statement on Form S-4 with respect to 2,000,000 shares of Common Stock to be offered from time to time in connection with the acquisition of privately held interests in oil and gas properties and related assets or in entities that hold such interests or assets. 20 22 THE COMPANY OVERVIEW Apache Corporation, a Delaware corporation formed in 1954, is an independent energy company that explores for, develops, produces, gathers, processes and markets crude oil and natural gas. In North America, Apache's exploration and production interests are spread over 15 states and two Canadian provinces, focusing on the Gulf of Mexico, the Anadarko Basin, the Permian Basin, the Gulf Coast, the Rocky Mountains and the Western Sedimentary Basin of Canada. Outside of North America, Apache has exploration and production interests offshore Western Australia and exploration interests in Egypt and Indonesia and offshore China and the Ivory Coast. Apache's Common Stock has been listed on the NYSE since 1969 and on the CSE since 1960. As of December 31, 1994, on a pro forma basis giving effect to the completed Texaco and DEKALB transactions and the pending Aquila acquisition, and net of completed and pending property dispositions in 1995, the Company's estimated proved reserves were 420 MMboe, of which approximately 62% was natural gas. As of December 31, 1994, Apache (including DEKALB) had approximately 4,085 net oil and gas wells and 1,032,982 net developed acres of oil and gas properties. In addition, the Company had interests in 760,270 net undeveloped acres under U.S. and Canadian leases and 4,239,290 net undeveloped acres under international exploration and production rights. The Company completed 296 of 367 North American wells during 1994 as producers, and completed 415 workover and recompletion projects. For the second quarter of 1995, which included results from the Texaco and DEKALB transactions, the Company's daily average oil and gas production was approximately 56 Mbbls and 597 MMcf, respectively. The Company holds interests in many of its U.S., Canadian and international properties through operating subsidiaries, such as MW Petroleum Corporation ("MW"), DEK Energy Company (formerly known as DEKALB), Apache Energy Resources Corporation ("AERC," formerly known as Hadson Energy Resources Corporation), Apache Energy Limited ("AEL," formerly known as Hadson Energy Limited), Apache International, Inc. and Apache Overseas, Inc. Properties referred to in this Prospectus may be held by those subsidiaries. The Company treats all operations as one segment of business. On May 17, 1995, Apache acquired DEKALB, an oil and gas company engaged in the exploration for, and the development of, crude oil and natural gas in Canada, through a merger which resulted in DEKALB's becoming a wholly owned subsidiary of Apache. The merger was accounted for as a pooling of interests for financial accounting purposes. As a result, Apache's financial information has been restated to include DEKALB on a combined basis. On March 1, 1995, the Company acquired certain oil and gas properties from Texaco for an adjusted purchase price of $564 million. See "Recent Developments." The Company is a Delaware corporation with its principal executive offices at One Post Oak Central, 2000 Post Oak Boulevard, Suite 100, Houston, Texas 77056-4400. The Company's telephone number is (713) 296-6000. STRATEGY Apache's growth strategy is to increase oil and gas reserves, production and cash flow through a combination of acquisitions, moderate-risk drilling and development of its inventory of existing projects. Apache also emphasizes reducing operating costs per unit produced and selling marginal and non-strategic properties in order to increase its profit margins. An emerging aspect of Apache's strategy is its exploration and development activity in the international arena in pursuit of larger reserve targets than are generally available domestically. Several recent discoveries abroad have created an inventory of development projects to be drilled in the next several years. Because production of oil and gas results in depletion of reserves, future oil and gas production is highly dependent upon Apache's level of success in adding reserves. Apache adds reserves by acquisition, active exploration and development, and identification, through engineering studies, of additional behind-pipe zones or secondary recovery reserves. 21 23 In conjunction with Apache's ongoing property acquisitions, the Company has recently initiated the Apache private merger program to acquire privately held interests in oil and gas properties. The primary focus of this program will be to acquire interests in properties in areas where the Company operates. To enable the Company to use Common Stock as well as cash in such acquisitions, the Company has filed a Common Stock acquisition shelf registration statement on Form S-4 with respect to 2,000,000 shares of Common Stock. Property acquisition is only one phase in a continuing cycle of Apache's business growth. Apache's objective is to follow each material acquisition with a cycle of reserve enhancement, property consolidation and cash flow acceleration, facilitating asset growth and debt reduction. This approach requires well-planned and carefully executed property development and a commitment to a selective program of ongoing property dispositions. Apache targets acquisitions that have ascertainable additional reserve potential to which it applies an active drilling, workover and recompletion program to realize the potential of undeveloped and partially developed properties. In 1994, the Company replaced over 114% of U.S. production through its drilling, workover and recompletion program. Apache prefers to operate its properties so that it can more efficiently influence their development and currently operates properties accounting for over 75% of its production. NORTH AMERICAN OPERATIONS The Company's North American exploration and production activities are divided into four U.S. operating regions, the Gulf of Mexico, Mid-Continent, Western and Gulf Coast regions, and a Canadian region. At December 31, 1994, approximately 97% of the Company's total estimated proved reserves (prior to any dispositions in 1995) was located in the four U.S. regions and Canada. Gulf of Mexico. As a result of Apache's acquisition of Matagorda Island Blocks 681 and 682 in late 1992 and the Hall-Houston transactions in 1993, the Gulf of Mexico became Apache's largest producing region. The Gulf of Mexico region encompasses all of Apache's interests in properties offshore Texas, Louisiana and Alabama. By year-end 1994, Apache increased its production in the Gulf of Mexico to approximately 203 MMcf of gas per day. At December 31, 1994, the Gulf of Mexico region encompassed 282,302 net acres, located in both state and federal waters, and accounted for 48 MMboe, or 15%, of Apache's total estimated proved reserves. Mid-Continent. Apache's Mid-Continent region is known for its sizable position in the Anadarko Basin. Apache has drilled and operated in the Anadarko Basin for over three decades, developing an extensive database of geologic information and a substantial acreage position. In 1993, Apache enhanced its position through the acquisition of AERC with its significant acreage and producing interests in the Anadarko Basin. At December 31, 1994, Apache held an interest in 271,770 net acres in the region, which accounted for approximately 76 MMboe, or 23%, of Apache's total estimated proved reserves. Western. In July 1995, Apache announced its intention to dispose of a substantial portion of its Rocky Mountain properties in connection with its property rationalization program. The Company has agreed to engage in a deferred tax-free, like-kind exchange of such Rocky Mountain properties for certain Aquila Assets located in the Mid-Continent, Gulf of Mexico and Gulf Coast areas. See "Recent Developments." In connection with this disposition, the Company is closing its Rocky Mountain regional office, located in Denver, Colorado, and redeploying those employees to provide support for its Gulf Coast, Permian Basin and Canadian operations. The Rocky Mountain properties to be exchanged by Apache comprise interests in 138 fields and approximately 1,600 active wells in six states with daily production of approximately 9 Mbbls of oil and 9 MMcf of natural gas. At December 31, 1994, these properties accounted for estimated proved reserves of 28 MMboe, which includes certain reserves acquired in the Texaco transaction. Apache will retain its assets in the Green River Basin of Colorado and Wyoming and in the San Juan Basin of New Mexico, and will operate those properties through its former Permian Basin region, which has been renamed the Western region to reflect the integration of the remaining Rocky Mountain properties. The other properties comprising the Western region are located in the Permian Basin of West Texas and New Mexico and have been important producers for Apache, generating 16% of the Company's production revenues during 1994. As of December 31, 1994, the properties that comprise the Western region, after giving 22 24 effect to completed and pending dispositions in 1995, accounted for 70 MMboe, or 21%, of the Company's total estimated proved reserves. Gulf Coast. Apache's Gulf Coast region encompasses the Texas and Louisiana coasts, central Texas, Mississippi and Alabama. At year-end 1994, the region encompassed approximately 194,107 net acres, and accounted for 43 MMboe, or 13%, of the Company's total estimated proved reserves. Canada. The Canadian region concentrates its exploration and development activity in the Provinces of Alberta and British Columbia. The region generated eight percent of the Company's revenues in 1994. At December 31, 1994, the region encompassed approximately 408,114 net acres, and accounted for 61 MMboe, or 18%, of the Company's total estimated proved reserves. AUSTRALIAN AND INDONESIAN OPERATIONS Australia. The state of Western Australia has become an important region for Apache following the completion of the AERC acquisition. In the fourth quarter of 1993, Apache consolidated the operations of its Australian properties with AERC's Australian subsidiary, AEL, headquartered in Perth, Western Australia. Average production in the region was approximately 3,500 bopd during June 1995. At December 31, 1994, Apache held 3,373,150 net developed and undeveloped acres in Western Australia. Australian reserves accounted for 11 MMboe, or 3%, of the Company's total proved reserves at year-end 1994. Apache also owns a 22.5% interest in and operates the Harriet Gas Gathering Project, a gas processing and compression facility with a throughput capacity of 80 MMcfd, and a 60-mile, 12-inch offshore pipeline with a throughput capacity of 175 MMcfd. The facilities are located in close proximity to AEL's producing properties offshore in the Carnarvon Basin. During 1994, AEL produced and sold 2.9 Bcf of natural gas. Indonesia. In early 1993, Apache took over as operator and increased its interest in the Java Sea IV Block, offshore Indonesia, and the Padang Panjang Block on the island of Sumatra, Indonesia. In early 1994, operations for Indonesia were consolidated under the direction of AEL out of its offices in Perth, Western Australia. In 1994, two exploratory wells were drilled in Indonesia, one of which was a discovery that is currently being appraised for commerciality. OTHER INTERNATIONAL OPERATIONS Egypt. Apache and its partners are developing two adjacent fields in the Western Desert of Egypt. Apache holds a 25% interest in the two-million acre Qarun Concession in the Western Desert of Egypt which is operated by Phoenix Resource Companies of Qarun. In February 1995, Apache and its partners announced a discovery in the Qarun Concession that tested at rates up to 1,370 bopd. In May 1995, Apache and its partners announced a second discovery in the Qarun Concession in which the discovery well tested at cumulative rates of up to 11,957 bopd. Development of the Qarun Concession is currently underway, and oil sales are expected to commence as early as the fourth quarter of 1995. China. Apache and its partner are evaluating a discovery in the Bohai Bay, offshore the People's Republic of China. Apache has a 50% interest in, and acts as operator of, a concession containing approximately 48,677 undeveloped acres (24,339 acres net to Apache) in the Zhao Dong Block of the Bohai Bay, offshore the People's Republic of China. In 1994, the initial discovery well tested at a rate of over 2,000 bopd and was confirmed by an appraisal well which tested at over 3,500 bopd. An appraisal drilling program is currently being conducted to evaluate field development of the block. Other. The Company has an interest in the Foxtrot Concession offshore the Ivory Coast and is currently seeking a market for any gas that may be produced from such concession. 23 25 RECENT DEVELOPMENTS ACQUISITION OF AQUILA PROPERTIES On August 28, 1995, the Company entered into an agreement with Aquila, a wholly owned, indirect subsidiary of UtiliCorp, to acquire substantially all the assets of Aquila for approximately $198 million, subject to certain post-closing adjustments. The Aquila Assets include estimated proved reserves of 26 MMboe at year-end 1994 and a favorable long-term gas sales contract at escalating prices, with an allocated value under the purchase agreement of $28.7 million. Aquila will receive a 7.5% net profits interest in the Aquila Assets, effective after Apache has recovered an amount equivalent to the purchase price, costs incurred in connection with the Aquila Assets and fees and other transaction costs not to exceed $7 million in connection with the Offering and the Aquila transaction. The closing of the Offering is conditioned upon and is expected to occur concurrently with the closing of the Aquila transaction. The Aquila Assets are concentrated, with the largest seven fields representing approximately three quarters of proved reserves and the largest 15 fields representing more than 90% of proved reserves. Five of the largest seven fields are operated by Aquila. Based on information provided to the Company by Aquila, the Aquila Assets represented estimated proved reserves of approximately 26 MMboe at December 31, 1994, of which approximately 77% was gas. The Aquila Assets consist of interests in 63 fields (including 45 producing areas and fields) located on 250,000 gross acres in the Anadarko Basin, the Gulf of Mexico and the Permian Basin. In addition, the Aquila Assets include nonoperated minority interests in four gas plants in Oklahoma. The Aquila properties are in many cases located in close proximity to existing Apache properties. Accordingly, the Company believes that the acquisition of the Aquila properties will result in certain economies of scale for Apache. See "Management's Discussion and Analysis of Financial Condition and Results of Operations -- Subsequent Events." The long-term gas sales contract included in the Aquila Assets provides that Aquila's affiliate will agree to purchase approximately 43 Bcf of gas to be delivered by the Company over a period of five years and four months at a specified price commencing at $2.00 per MMBtu in 1995 and increasing to $2.70 in 1996, $2.80 in 1997, $2.90 in 1998, $3.10 in 1999 and $3.20 in 2000. The agreement provides that the Company and its wholly owned subsidiaries, MW and AERC, may effect a deferred tax-free exchange of like-kind properties of qualifying use for certain of the Aquila Assets. The like-kind properties to be exchanged by the Company primarily include lower margin and non-strategic properties located in the Rocky Mountains which were previously selected for sale by the Company in connection with its ongoing program of selective property dispositions. OTHER RECENT ACQUISITIONS On March 1, 1995, Apache purchased certain U.S. oil and gas properties from Texaco for an adjusted purchase price of $564 million, effective January 1, 1995. The Texaco properties comprised estimated proved reserves at the effective date of approximately 105 MMboe (after adjustment for the exercise of preferential rights and properties excluded following due diligence and using unescalated prices), of which approximately 70% was oil. At the time of purchase, the daily production of the acquired properties was approximately 20 Mbbls of oil and 85 MMcf of natural gas. The Texaco properties are concentrated, with approximately two-thirds of the reserves located in 54 fields, and are in producing regions where Apache has existing operations -- the Permian Basin, the Gulf Coast of Texas and Louisiana, western Oklahoma, eastern Texas and the Gulf of Mexico. Apache operates approximately two-thirds of the production and holds an average working interest of 70% in the operated properties. The Texaco transaction included approximately 500,000 net mineral acres, as well as a substantial quantity of seismic data. On May 17, 1995, Apache acquired DEKALB, an oil and gas company engaged in the exploration for, and the development of, crude oil and natural gas in Canada, through a merger which resulted in DEKALB's becoming a wholly owned subsidiary of Apache. Pursuant to the merger agreement, Apache issued 8.4 million 24 26 shares of its common stock in exchange for all outstanding DEKALB capital stock and DEKALB employee stock options outstanding at the time of the merger and tendered to Apache. The merger was accounted for as a pooling of interests for financial accounting purposes. At year-end 1994, DEKALB's estimated proved reserves, located almost entirely in Canada, were estimated to be approximately 300 Bcf of natural gas and 11 MMbbls of hydrocarbon liquids, or a total of 61 MMboe. The DEKALB acquisition provides Apache with a substantial presence in North America's largest natural gas basin and the infrastructure, including skilled professionals, to conduct Canadian operations. Apache believes that the DEKALB properties have significant potential for both exploration and further development. DISPOSITIONS In early 1995, Apache announced plans to accelerate the disposition of certain properties, including the sale of a substantial portion of its Rocky Mountain properties and lower margin and non-strategic properties. During the first half of 1995, Apache received approximately $73 million from completed sales of such properties. In July 1995, the Company signed an agreement to dispose of certain Rocky Mountain properties for approximately $155 million, subject to adjustment. The properties covered by this agreement had 28 MMboe of estimated proved reserves at December 31, 1994. The Rocky Mountain properties disposition, which is anticipated to close August 31, 1995, and the acquisition of the Aquila Assets have been structured in part as a deferred tax-free, like-kind exchange of properties. SUMMARY PRO FORMA OIL AND GAS RESERVE INFORMATION The following table sets forth summary pro forma information with respect to the Company's estimated proved oil and gas reserves as of December 31, 1994, giving effect to the completed DEKALB and Texaco transactions, the pending Aquila acquisition and certain completed and pending dispositions of non-strategic properties in 1995. The reserve information below is based on estimates calculated as of December 31, 1994 and does not reflect production and revisions since December 31, 1994 or changes in oil and gas prices, changes in expectations of developing and producing proved undeveloped reserves (including offshore), changes in marketing expectations and access to markets or changes in estimates of recoverable reserves resulting from price changes. The reserves attributable to the completed DEKALB and Texaco acquisitions and the pending Aquila acquisition were not owned by the Company on such date. The Company has made other acquisitions and dispositions of property interests during 1995 which in the aggregate are not material. All estimates of oil and gas reserves are subject to significant uncertainty. See "Risk Factors."
APACHE AND 1995 TOTAL DEKALB(1) TEXACO(2) AQUILA(3) DISPOSITIONS(4) PROVED ---------- --------- --------- --------------- ---------- Oil and natural gas liquids (Mbbls).... 110,624 73,597 6,035 29,166 161,090 Natural gas (MMcf)..................... 1,316,155 186,495 120,857 68,351 1,555,156 Equivalent reserves (Mboe)............. 329,983 104,680 26,178 40,558 420,283 Present value of estimated future net cash flows, before income taxes, discounted at 10% (in thousands)..... $1,600,927 $ 368,518 $ 110,120 $ 149,650 $1,929,915
--------------- (1) The Company acquired DEKALB by merger effective May 17, 1995. (2) On March 1, 1995, the Company acquired certain properties from Texaco, effective January 1, 1995. (3) The Company proposes to acquire certain properties from Aquila effective concurrently with and conditioned on the consummation of the Offering. Netherland, Sewell estimated reserves owned by Aquila as of December 31, 1994. Since that time, Aquila has acquired additional property interests included in the amounts set forth above. Netherland, Sewell has estimated total proved reserves of Aquila as of December 31, 1994 in the approximate amounts of 2,781 Mbbls of oil, 106,535 MMcf of gas (totaling 20,537 Mboe), and $92 million of present value of estimated future net cash flows, before income taxes, discounted at 10% (which amounts exclude the properties acquired by Aquila in 1995). 25 27 (4) The reserves shown give effect to the pending disposition of certain Rocky Mountain properties valued at approximately $155 million, the sale of $20 million in properties on April 1, 1995, the sale of $31 million in properties on May 1, 1995, and other smaller sales. NATURAL GAS MARKETING During 1994, Apache sold approximately 89% of its U.S. natural gas on the spot market through NGC Corporation (formerly Natural Gas Clearinghouse) ("NGC") or through market responsive contracts with other parties; the remaining 11% was sold through long-term, premium-priced contracts. Sales to NGC accounted for 37% of the Company's oil and gas revenues in 1994. Apache has notified NGC that it does not intend to continue its arrangement with NGC beyond its current term, which expires in September 1995. The Company believes that such termination will not have a material adverse effect on the Company due to the existence of alternative marketing arrangements and purchasers. The Company is exploring alternative means to market its gas following termination of such arrangement. DESCRIPTION OF CAPITAL STOCK The Company's authorized capital stock consists of 5,000,000 shares of preferred stock, none of which was outstanding as of June 30, 1995, and 215,000,000 shares of Common Stock, of which 69,914,519 shares were outstanding as of June 30, 1995. The descriptions set forth below of the Common Stock and preferred stock constitute brief summaries of certain provisions of the Company's Restated Certificate of Incorporation and Bylaws and are qualified in their entirety by reference to the relevant provisions of such documents, both of which are listed as exhibits to the Registration Statement of which this Prospectus is a part and are incorporated herein by reference. COMMON STOCK All outstanding shares of Common Stock are fully paid and nonassessable. All holders of Common Stock have full voting rights and are entitled to one vote for each share held of record on all matters submitted to a vote of the stockholders. The Board of Directors of the Company is classified into three groups of approximately equal size, one-third elected each year. Stockholders do not have the right to cumulate votes in the election of directors and have no preemptive or subscription rights. The Common Stock is neither redeemable nor convertible, and there are no sinking fund provisions relating to such stock. Subject to preferences that may be applicable to any shares of preferred stock outstanding at the time, holders of Common Stock are entitled to dividends when, as and if declared by the Board of Directors from funds legally available therefor and are entitled, in the event of liquidation, to share ratably in all assets remaining after payment of liabilities. The Company's current policy is to reserve one share of Common Stock for each share issued in order to provide for possible exercises of Common Stock purchase rights under the Company's existing Rights Agreement. The Common Stock and the Common Stock purchase rights are listed on the NYSE and the CSE. Norwest Bank Minnesota, National Association is the transfer agent and registrar for the Common Stock. The Company typically mails its annual report to stockholders within 120 days after the end of its fiscal year. Notices of stockholder meetings are mailed to record holders of Common Stock at their addresses shown on the books of the transfer agent and registrar. SECTION 203 OF THE DELAWARE GENERAL CORPORATION LAW Section 203 of the Delaware General Corporation Law ("DGCL") prevents an "interested stockholder" (defined in Section 203, generally, as a person owning 15% or more of a corporation's outstanding voting stock) from engaging in a "business combination" (as defined in Section 203) with a publicly-held Delaware corporation for three years following the time such person became an interested stockholder unless (i) before 26 28 such person became an interested stockholder, the board of directors of the corporation approved the transaction in which the interested stockholder became an interested stockholder or approved the business combination; (ii) upon consummation of the transaction that resulted in the interested stockholder's becoming an interested stockholder, the interested stockholder owned at least 85% of the voting stock of the corporation outstanding at the time the transaction commenced (excluding stock held by directors who are also officers of the corporation and by employee stock plans that do not provide participants with the rights to determine confidentially whether shares held subject to the plan will be tendered in a tender or exchange offer); or (iii) following the transaction in which such person became an interested stockholder, the business combination is approved by the board of directors of the corporation and authorized at a meeting of stockholders by the affirmative vote of the holders of two-thirds of the outstanding voting stock of the corporation not owned by the interested stockholder. The provisions of Section 203 may have the effect of delaying, deferring or preventing a change of control of the Company. RIGHTS On January 10, 1986, the Board of Directors declared a dividend of one right to purchase one share of Common Stock at $50 per share (subject to adjustment) on each outstanding share of Common Stock (the "Rights"). The Rights are exercisable only after a person (other than the Company or its employee benefit plans), together with all persons acting in concert with it, has acquired 20% or more of the Common Stock, or has commenced a tender offer for 30% or more of the Common Stock. If the Company engages in certain business combinations or a 20% shareholder engages in certain transactions with the Company, the Rights become exercisable for the Common Stock or common stock of the corporation acquiring the Company (as the case may be) at 50% of the then market price. Any Rights that are or were beneficially owned by a person who has acquired 20% or more of the Common Stock and who engages in certain transactions or realizes the benefits of certain transactions with the Company will become void. The Company may redeem the Rights at a specified price at any time until ten business days after public announcement that a person has acquired 20% or more of the outstanding shares of Common Stock. The Rights will expire on January 31, 1996, unless earlier redeemed by the Company. The Company is considering successor arrangements. Unless the Rights have been previously redeemed, all shares of Common Stock issued by the Company will include Rights, including the Common Stock offered hereby. PREFERRED STOCK No preferred stock is outstanding. Shares of preferred stock may be issued by the Board of Directors with such voting powers and in such classes and series, and with such designations, preferences, and relative, participating, optional or other special rights, qualifications, limitations or restrictions thereof, as may be stated and expressed in the resolution or resolutions providing for the issue of such stock. The Company has no current plans to issue any preferred stock. CHANGE OF CONTROL The Company's Restated Certificate of Incorporation includes provisions designed to prevent the use of certain tactics in connection with a potential takeover of the Company. Article Twelve of the Restated Certificate of Incorporation generally stipulates that the affirmative vote of 80% of the Company's voting shares is required to adopt any agreement for the merger or consolidation of the Company with or into any other corporation which is the beneficial owner of more than 5% of the Company's voting shares. Article Twelve further provides that such an 80% approval is necessary to authorize any sale or lease of assets between the Company and any beneficial holder of 5% or more of the Company's voting shares. Article Fourteen of the Restated Certificate of Incorporation contains a "fair price" provision which requires that any tender offer made by a beneficial owner of more than 5% of the outstanding voting stock of the Company in connection with any plan of merger, consolidation or reorganization, any sale or lease of substantially all of the Company's assets, or any issuance of equity securities of the Company to the 5% stockholder must provide at least as favorable terms to each holder of Common Stock other than the stockholder making the tender offer. Article Fifteen of the Restated Certificate of Incorporation contains an "anti-greenmail" mechanism which 27 29 prohibits the Company from acquiring any voting stock from the beneficial owner of more than 5% of the outstanding voting stock of the Company, except for acquisitions pursuant to a tender offer to all holders of voting stock on the same price, terms and conditions, acquisitions in compliance with Rule 10b-18 of the Exchange Act and acquisitions at a price not exceeding the market value per share. Article Sixteen of the Restated Certificate of Incorporation prohibits the stockholders of the Company from acting by written consent in lieu of a meeting. UNDERWRITING Subject to the terms and conditions set forth in an underwriting agreement (the "Purchase Agreement"), the Company has agreed to sell to each of the Underwriters named below, and each of the Underwriters, for whom Merrill Lynch, Pierce, Fenner & Smith Incorporated and Dean Witter Reynolds Inc. are acting as representatives (the "Representatives"), has severally agreed to purchase the shares set forth opposite its name below. In the Purchase Agreement, the several Underwriters have agreed, subject to the terms and conditions set forth therein, to purchase all the shares offered hereby if any of the shares are purchased. In the event of default by an Underwriter, the Purchase Agreement provides that, in certain circumstances, purchase commitments of the nondefaulting Underwriters may be increased or the Purchase Agreement may be terminated.
NUMBER UNDERWRITER OF SHARES ----------- --------- Merrill Lynch, Pierce, Fenner & Smith Incorporated......................................... Dean Witter Reynolds Inc.......................................... --------- Total................................................ 6,800,000 =========
The Representatives of the Underwriters have advised the Company that they propose initially to offer the shares of Common Stock to the public at the public offering price set forth on the cover page of this Prospectus, and to certain dealers at such price less a concession not in excess of $ per share. The Underwriters may allow, and such dealers may reallow, a discount not in excess of $ per share on sales to certain other dealers. After the initial public offering, the public offering price, concession and discount may be changed. The Company has granted to the Underwriters an option exercisable for 30 days after the date hereof to purchase up to 1,020,000 additional shares of Common Stock to cover over-allotments, if any, at the initial public offering price, less the underwriting discount. If the Underwriters exercise this option, each of the Underwriters will have a firm commitment, subject to certain conditions, to purchase approximately the same percentage thereof which the number of shares of Common Stock to be purchased by it shown in the foregoing table is of the 6,800,000 shares of Common Stock initially offered hereby. The Company has agreed to indemnify the several Underwriters against certain liabilities, including liabilities under the Securities Act, or to contribute to payments that the Underwriters may be required to make in respect thereof. The Company has agreed not to sell or otherwise dispose of any shares of Common Stock or securities convertible into or exchangeable or exercisable for Common Stock for a period of 90 days after the date of this Prospectus in a public offering or, subject to certain conditions, in a private offering, without the prior written consent of the Representatives, except for certain sales in connection with acquisitions of interests in oil and gas properties, issuances pursuant to the Company's employee benefit plans or issuances upon the conversion, exchange or exercise of outstanding securities convertible into or exchangeable or exercisable for Common 28 30 Stock. If any such consent is given, it would not necessarily be preceded or followed by a public announcement thereof. LEGAL MATTERS Certain legal matters regarding the Shares of Common Stock offered hereby under laws other than federal or state securities laws have been passed upon for the Company by its Vice President and General Counsel, Z. S. Kobiashvili. As of the date of this Prospectus, Mr. Kobiashvili owns 541 shares of Common Stock through the Company's retirement/401(k) savings plan and holds employee stock options to purchase 20,000 shares of Common Stock, of which 2,500 options are currently exercisable. Certain legal matters in connection with the Offering will also be passed upon for the Company by Andrews & Kurth L.L.P., Houston, Texas, and for the Underwriters by Baker & Botts, L.L.P., Houston, Texas. EXPERTS The audited consolidated financial statements of the Company and the audited statement of Combined Revenues and Direct Operating Expenses for the Oil and Gas Properties of Texaco Exploration and Production Inc. Sold to Apache Corporation, each incorporated by reference into this Prospectus, have been audited by Arthur Andersen LLP, independent public accountants, as indicated in their reports with respect thereto. In its report on the consolidated financial statements of the Company, that firm states that with respect to DEKALB its opinion is based on the report of other independent public accountants, namely Coopers & Lybrand. The financial statements referred to above have been incorporated by reference or included herein in reliance upon the authority of those firms as experts in accounting and auditing in giving said reports. The audited consolidated financial statements of DEKALB incorporated by reference in this Registration Statement have been audited by Coopers & Lybrand, Chartered Accountants, as indicated in their report with respect thereto, and are incorporated herein in reliance upon the authority of said firm as experts in accounting and auditing in giving said reports. The information included and incorporated by reference herein regarding the total proved reserves of the Company was prepared by the Company and reviewed by Ryder Scott Company Petroleum Engineers ("Ryder Scott") as stated in their letter report with respect thereto. The information included and incorporated by reference herein regarding the total estimated proved reserves acquired from Texaco was prepared by the Company and reviewed by Ryder Scott as stated in their letter with respect thereto. The information included and incorporated by reference herein regarding the total proved reserves of DEKALB was prepared by DEKALB and reviewed by Ryder Scott as stated in their letter report with respect thereto. The reserve review letters of Ryder Scott are filed as exhibits to the Registration Statement of which this Prospectus is a part, in reliance upon the authority of said firm as experts with respect to the matters covered by their reports and the giving of their reports. A portion of the information included herein regarding the total proved reserves of Aquila proposed to be acquired by the Company was prepared by Netherland, Sewell & Associates, Inc. ("Netherland, Sewell") as of December 31, 1994, as stated in their letter report with respect thereto. Netherland, Sewell has not reviewed any of the reserves of Aquila acquired during 1995, including those set forth in this Prospectus on a pro forma basis as of December 31, 1994. The reserve review letter of Netherland, Sewell is filed as an exhibit to the Registration Statement of which this Prospectus is a part in reliance upon the authority of said firm as experts with respect to the matters covered by their report and the giving of their report. 29 31 AVAILABLE INFORMATION Apache is subject to the informational requirements of the Exchange Act, and in accordance therewith, files periodic reports, proxy statements and other information with the Commission. The Company's filings may be inspected and copied or obtained by mail upon payment of the Commission's prescribed rates at the public reference facilities maintained by the Commission at 450 Fifth Street, N.W., Room 1024, Judiciary Plaza, Washington, D.C. 20549 and at the regional offices of the Commission located at Seven World Trade Center, 13th Floor, New York, New York 10048 and CitiCorp Center, 500 West Madison Street, Suite 1400, Chicago, Illinois 60661. The Common Stock and associated Rights are listed on the NYSE and the CSE. Although the Shares of Common Stock offered hereby are not currently admitted for trading on either exchange, applications have been made to list the Shares on both the NYSE and the CSE. The Company's 9.25% Notes due June 1, 2002 are listed on the NYSE. The Company's reports, proxy statements and other filings with the Commission are also available for inspection at the offices of the NYSE located at 20 Broad Street, New York, New York 10005 and the CSE, 440 S. LaSalle St., Chicago, Illinois 60605. The Company has filed with the Commission a Registration Statement on Form S-3 under the Securities Act with respect to the Common Stock offered hereby. This Prospectus does not contain all of the information set forth in the Registration Statement and in the amendments, exhibits and schedules thereto. For further information with respect to the Company and the Common Stock, reference is made to the Registration Statement, and to the exhibits and schedules filed therewith. All of these documents may be inspected without charge at the Commission's principal office in Washington, D.C., and copies thereof may be obtained from the Commission at the prescribed rates or may be examined without charge at the public reference facilities of the Commission. Any statements contained herein concerning the provisions of any document filed as an exhibit to the Registration Statement or otherwise filed with the Commission are not necessarily complete, and in each instance reference is made to the copy of such document so filed. Each such statement shall be qualified in its entirety by such reference. 30 32 ------------------------------------------------------------------------------- ------------------------------------------------------------------------------- NO DEALER, SALESPERSON OR OTHER INDIVIDUAL HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY REPRESENTATIONS OTHER THAN THOSE CONTAINED OR INCORPORATED BY REFERENCE IN THIS PROSPECTUS, AND IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY OR ANY UNDERWRITER. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL, OR A SOLICITATION OF AN OFFER TO BUY, THE COMMON STOCK IN ANY JURISDICTION WHERE, OR TO ANY PERSON TO WHOM, IT IS UNLAWFUL TO MAKE SUCH OFFER OR SOLICITATION IN SUCH JURISDICTION. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THE INFORMATION HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO THE DATE HEREOF OR THAT THERE HAS BEEN NO CHANGE IN THE AFFAIRS OF THE COMPANY SINCE SUCH DATE. --------------------- TABLE OF CONTENTS
PAGE Information Incorporated by Reference............................ 2 Prospectus Summary..................... 3 Risk Factors........................... 9 Use of Proceeds........................ 12 Price Range of Common Stock and Dividends............................ 12 Capitalization......................... 13 Selected Consolidated Financial, Operating and Reserve Data........... 14 Management's Discussion and Analysis of Financial Condition and Results of Operations........................... 16 The Company............................ 21 Recent Developments.................... 24 Description of Capital Stock........... 26 Underwriting........................... 28 Legal Matters.......................... 29 Experts................................ 29 Available Information.................. 30
------------------------------------------------------------------------------- ------------------------------------------------------------------------------- ------------------------------------------------------------------------------- ------------------------------------------------------------------------------- 6,800,000 SHARES LOGO COMMON STOCK --------------------------- PROSPECTUS --------------------------- MERRILL LYNCH & CO. DEAN WITTER REYNOLDS INC. , 1995 ------------------------------------------------------------------------------- ------------------------------------------------------------------------------- 33 PART II INFORMATION NOT REQUIRED IN PROSPECTUS ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION Registration fee................................................................ $ 72,133 NYSE additional listing fee..................................................... 27,370 Printing expenses............................................................... *150,000 Blue Sky fees and expenses...................................................... *10,000 Legal fees and expenses......................................................... *75,000 Accounting fees and expenses.................................................... *75,000 Transfer agent and registrar fees............................................... * 1,000 Miscellaneous fees and expenses................................................. 39,497 -------- Total................................................................. $450,000 ========
--------------- * Estimated ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS Section 145 of the Delaware General Corporation Law, inter alia, authorizes a corporation to indemnify any person who was or is a party or is threatened to be made a party to any threatened, pending or completed action, suit or proceeding (other than an action by or in the right of the corporation) because such person is or was a director, officer, employee or agent of the corporation or was serving at the request of the corporation as a director, officer, employee or agent of another corporation or other enterprise, against expenses (including attorneys' fees), judgments, fines and amounts paid in settlement actually and reasonably incurred by him in connection with such suit or proceeding if he acted in good faith and in a manner he reasonably believed to be in or not opposed to the best interests of the corporation, and, with respect to any criminal action or proceeding, had no reason to believe his conduct was unlawful. Similar indemnity is authorized for such persons against expenses (including attorneys' fees) actually and reasonably incurred in defense or settlement of any such pending, completed or threatened action or suit by or in the right of the corporation if such person acted in good faith and in a manner he reasonably believed to be in or not opposed to the best interests of the corporation, and provided further that (unless a court of competent jurisdiction otherwise provides) such person shall not have been adjudged liable to the corporation. Any such indemnification may be made only as authorized in each specific case upon a determination by the stockholders or disinterested directors that indemnification is proper because the indemnity has met the applicable standard of conduct. Section 145 further authorizes a corporation to purchase and maintain insurance on behalf of any person who is or was a director, officer, employee or agent of the corporation, or is or was serving at the request of the corporation as a director, officer, employee or agent of another corporation or enterprise, against any liability asserted against him and incurred by him in any such capacity, or arising out of his status as such, whether or not the corporation would otherwise have the power to indemnify him. The Company maintains policies insuring its and its subsidiaries' officers and directors against certain liabilities for actions taken in such capacities, including liabilities under the Securities Act. Article VII of the Company's Bylaws provides, in substance, that directors, officers, employees and agents of the Company shall be indemnified to the extent permitted by Section 145 of the Delaware General Corporation Law. Additionally, Article Seventeen of the Company's Restated Certificate of Incorporation eliminates in certain circumstances the monetary liability of directors of the Company for a breach of their fiduciary duty as directors. These provisions do not eliminate the liability of a director (i) for a breach of the director's duty of loyalty to the Company or its stockholders; (ii) for acts or omissions by the director not in good faith; (iii) for acts or omissions by a director involving intentional misconduct or a knowing violation of the law; (iv) under Section 174 of the Delaware General Corporation Law (relating to the declaration of dividends and purchase or redemption of shares in violation of the Delaware General Corporation Law); and (v) for transactions from which the director derived an improper personal benefit. II-1 34 ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES (a) Exhibits 1.1 -- Form of Purchase Agreement between Apache Corporation and the Underwriters named therein.(1) 4.1 -- Restated Certificate of Incorporation of Apache Corporation (incorporated by reference to Exhibit 3.1 to Apache's Annual Report on Form 10-K for the fiscal year ended December 31, 1993, Commission File No. 1-4300). 4.2 -- Bylaws of Apache Corporation as of July 31, 1995 (incorporated by reference to Exhibit 4.2 of Apache's Registration Statement on Form S-4, Registration No. 33-61669, filed with the Commission on August 8, 1995). 4.3 -- Form of common stock certificate (incorporated by reference to Exhibit 4.4 to Amendment No. 1 to Apache's Registration Statement on Form S-3, Registration No. 33-5097, filed with the Commission on May 16, 1986). 4.4 -- Rights Agreement dated as of January 10, 1986 between the Company and First Trust Company, Inc., rights agent, relating to the declaration of Rights to the Company's common stockholders of record on January 24, 1986 (incorporated by reference to Exhibit 4.9 of Apache's Annual Report on Form 10-K for the fiscal year ended December 31, 1985, Commission File No. 1-4300). 5.1 -- Opinion of legal counsel regarding legality of securities being registered.(1) 23.1 -- Consent of Arthur Andersen LLP.(1) 23.2 -- Consent of Coopers & Lybrand, Chartered Accountants.(1) 23.3 -- Consent of Ryder Scott Company Petroleum Engineers ("Ryder Scott").(1) 23.4 -- Consent of Netherland, Sewell & Associates, Inc.(1) 23.5 -- Consent of legal counsel (included in Exhibit 5.1).(1) 24.1 -- Power of Attorney (included in Part II as a part of the signature pages of the Registration Statement).(1) 99.1 -- Reports of Ryder Scott dated January 20 and January 23, 1995.(1) 99.2 -- Report of Ryder Scott dated February 6, 1995.(1) 99.3 -- Report of Ryder Scott dated August 21, 1995.(1) 99.4 -- Report of Netherland, Sewell & Associates, Inc., dated January 19, 1995.(1)
--------------- (1) Filed herewith. ITEM 17. UNDERTAKINGS The undersigned registrant hereby undertakes that, for purposes of determining any liability under the Securities Act of 1933, each filing of the registrant's annual report pursuant to Section 13(a) or Section 15(d) of the Securities Exchange Act of 1934 (and, where applicable, each filing of an employee benefit plan's annual report pursuant to Section 15(d) of the Securities Exchange Act of 1934) that is incorporated by reference in the registration statement shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof. The undersigned registrant hereby undertakes that: (1) For purposes of determining liability under the Securities Act of 1933, the information omitted from the form of prospectus filed as part of this registration statement in reliance upon Rule 430A and contained in a form of prospectus filed by the registrant pursuant to Rule 424(b)(1) or (4) or 497(h) under the Securities Act of 1933 shall be deemed to be part of this registration statement as of the time it was declared effective. II-2 35 (2) For the purpose of determining any liability under the Securities Act of 1933, each post-effective amendment that contains a form of prospectus shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof. Insofar as indemnification for liabilities arising under the Securities Act of 1933 may be permitted to directors, officers and controlling persons of the registrant pursuant to the foregoing provisions, or otherwise, the registrant has been advised that in the opinion of the Securities and Exchange Commission such indemnification is against public policy as expressed in the Securities Act of 1933 and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by the registrant of expenses incurred or paid by a director, officer or controlling person of the registrant in the successful defense of any action, suit or proceeding) is asserted by such director, officer or controlling person in connection with the securities being registered, the registrant will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by it is against public policy as expressed in the Securities Act of 1933 and will be governed by the final adjudication of such issue. II-3 36 SIGNATURES Pursuant to the requirements of the Securities Act of 1933, the Registrant certifies that it has reasonable grounds to believe that it meets all requirements for filing on Form S-3 and has duly caused this Registration Statement to be signed on its behalf by the undersigned, thereunto duly authorized in the City of Houston, State of Texas. APACHE CORPORATION Date: August 28, 1995 By: /s/ RAYMOND PLANK ------------------------------- Raymond Plank, Chairman and Chief Executive Officer POWER OF ATTORNEY The undersigned directors and officers of Apache Corporation do hereby constitute and appoint Raymond Plank, G. Steven Farris, Clyde E. McKenzie, Z.S. Kobiashvili and Mark A. Jackson, and each of them, with full power of substitution, our true and lawful attorneys-in-fact and agents to do any and all acts and things in our name and behalf in our capacities as directors and officers, and to execute any and all instruments for us and in our names in the capacities indicated below which such person may deem necessary or advisable to enable Apache Corporation to comply with the Securities Act of 1933, as amended, and any rules, regulations and requirements of the Securities and Exchange Commission, in connection with this Registration Statement, including specifically, but not limited to, power and authority to sign for us, or any of us, in the capacities indicated below any and all amendments (including post-effective amendments) hereto; and we do hereby ratify and confirm all that such person or persons shall do or cause to be done by virtue hereof. Pursuant to the requirements of the Securities Act of 1933, this Registration Statement has been signed by the following persons, in the capacities and on the dates indicated. (Apache Corporation does not have a Principal Financial Officer.)
SIGNATURE TITLE DATE --------- ----- ---- /s/ RAYMOND PLANK Chairman and Chief August 28, 1995 --------------------------------------------- Executive Officer (Raymond Plank) (Principal Executive Officer) /s/ MARK A. JACKSON Vice President, Finance August 28, 1995 --------------------------------------------- (Mark A. Jackson) /s/ R. KENT SAMUEL Controller and Chief August 28, 1995 --------------------------------------------- Accounting Officer (R. Kent Samuel) (Principal Accounting Officer)
II-4 37
SIGNATURE TITLE DATE --------- ----- ---- /s/ FREDERICK M. BOHEN Director August 28, 1995 --------------------------------------------- (Frederick M. Bohen) /s/ VIRGIL B. DAY Director August 28, 1995 --------------------------------------------- (Virgil B. Day) /s/ G. STEVEN FARRIS Director August 28, 1995 --------------------------------------------- (G. Steven Farris) /s/ RANDOLPH M. FERLIC Director August 28, 1995 --------------------------------------------- (Randolph M. Ferlic) /s/ EUGENE C. FIEDOREK Director August 28, 1995 --------------------------------------------- (Eugene C. Fiedorek) /s/ W. BROOKS FIELDS Director August 28, 1995 --------------------------------------------- (W. Brooks Fields) /s/ ROBERT V. GISSELBECK Director August 28, 1995 --------------------------------------------- (Robert V. Gisselbeck) /s/ STANLEY K. HATHAWAY Director August 28, 1995 --------------------------------------------- (Stanley K. Hathaway) /s/ JOHN A. KOCUR Director August 28, 1995 --------------------------------------------- (John A. Kocur) /s/ JOSEPH A. RICE Director August 28, 1995 --------------------------------------------- (Joseph A. Rice)
II-5 38 INDEX TO EXHIBITS
EXHIBIT DESCRIPTION OF EXHIBIT -------------------------------------------------------------------------------------------- 1.1 -- Form of Purchase Agreement between Apache Corporation and the Underwriters named therein.(1) 4.1 -- Restated Certificate of Incorporation of Apache Corporation (incorporated by reference to Exhibit 3.1 to Apache's Annual Report on Form 10-K for the fiscal year ended December 31, 1993, Commission File No. 1-4300). 4.2 -- Bylaws of Apache Corporation as of July 31, 1995 (incorporated by reference to Exhibit 4.2 of Apache's Registration Statement on Form S-4, Registration No. 33-61669, filed with the Commission on August 8, 1995). 4.3 -- Form of common stock certificate (incorporated by reference to Exhibit 4.4 to Amendment No. 1 to Apache's Registration Statement on Form S-3, Registration No. 33-5097, filed with the Commission on May 16, 1986). 4.4 -- Rights Agreement dated as of January 10, 1986 between the Company and First Trust Company, Inc., rights agent, relating to the declaration of Rights to the Company's common stockholders of record on January 24, 1986 (incorporated by reference to Exhibit 4.9 of Apache's Annual Report on Form 10-K for the fiscal year ended December 31, 1985, Commission File No. 1-4300). 5.1 -- Opinion of legal counsel regarding legality of securities being registered.(1) 23.1 -- Consent of Arthur Andersen LLP.(1) 23.2 -- Consent of Coopers & Lybrand, Chartered Accountants.(1) 23.3 -- Consent of Ryder Scott Company Petroleum Engineers ("Ryder Scott").(1) 23.4 -- Consent of Netherland, Sewell & Associates, Inc.(1) 23.5 -- Consent of legal counsel (included in Exhibit 5.1).(1) 24.1 -- Power of Attorney (included in Part II as a part of the signature pages of the Registration Statement).(1) 99.1 -- Reports of Ryder Scott dated January 20 and January 23, 1995.(1) 99.2 -- Report of Ryder Scott dated February 6, 1995.(1) 99.3 -- Report of Ryder Scott dated August 21, 1995.(1) 99.4 -- Report of Netherland, Sewell & Associates, Inc., dated January 19, 1995.(1)
--------------- (1) Filed herewith. EX-1.1 2 FORM OF PURCHASE AGREEMENT 1 EXHIBIT 1.1 DRAFT 8/24/95 ________________________________________________________________________________ APACHE CORPORATION 6,800,000 SHARES COMMON STOCK PURCHASE AGREEMENT MERRILL LYNCH & CO. DEAN WITTER REYNOLDS INC. ________________________________________________________________________________ 2 6,800,000 SHARES APACHE CORPORATION (A DELAWARE CORPORATION) COMMON STOCK (PAR VALUE $1.25 PER SHARE) PURCHASE AGREEMENT _______________ ___, 1995 MERRILL LYNCH & CO. Merrill Lynch, Pierce, Fenner & Smith Incorporated and DEAN WITTER REYNOLDS INC. as Representatives of the several Underwriters c/o MERRILL LYNCH & CO. Merrill Lynch, Pierce, Fenner & Smith Incorporated World Financial Center North Tower 250 Vesey Street New York, New York 10281 Dear Sirs: Apache Corporation, a Delaware corporation (the "Company"), confirms its agreement with you and each of the other underwriters named in Schedule A hereto (collectively, the "Underwriters," which term shall also include any underwriters substituted as hereinafter provided in Section 10 hereof), for whom Merrill Lynch & Co., Merrill, Lynch, Pierce, Fenner & Smith Incorporated ("Merrill Lynch") and Dean Witter Reynolds Inc. ("Dean Witter") are acting as representatives (in such capacity, Merrill Lynch and Dean Witter and shall hereinafter be collectively referred to as the "Representatives"), with respect to the sale by the Company of an aggregate of 6,800,000 shares of Common Stock, par value $1.25 per share, of the Company ("Common Stock"), and the purchase by the Underwriters, acting severally and not jointly, of the respective number of shares of Common Stock set forth in Schedule A hereto, and with respect to the grant by the Company to the Underwriters of the option described in Section 2 hereof to purchase all or any part of up to an additional 1,020,000 shares of Common Stock to cover over-allotments, in each case except as may otherwise be provided in the Pricing Agreement, as hereinafter defined. The 6,800,000 shares of Common Stock (the "Initial Securities") together with all or any part of the 1,020,000 shares of Common Stock subject to -1- 3 the option described in Section 2 hereof (the "Option Securities"), are collectively hereinafter called the "Securities." Prior to the purchase and public offering of the Securities by the several Underwriters, the Company and the Representatives, acting on behalf of the several Underwriters, shall enter into an agreement substantially in the form of Exhibit A hereto (the "Pricing Agreement"). The Pricing Agreement may take the form of an exchange of any standard form of written telecommunication between the Company and the Representatives and shall specify such applicable information as is indicated in Exhibit A hereto. The offering of the Securities will be governed by this Agreement, as supplemented by the Pricing Agreement. From and after the date of the execution and delivery of the Pricing Agreement, this Agreement shall be deemed to incorporate the Pricing Agreement. The Company has filed with the Securities and Exchange Commission (the "Commission") a registration statement on Form S-3 (No. 33-_______) and a related preliminary prospectus for the registration of the Securities and associated rights to purchase Common Stock (the "Rights") under the Securities Act of 1933, as amended (the "1933 Act"), and has filed such amendments thereto, if any, and such amended preliminary prospectus as may have been required to the date hereof, and will file such additional amendments thereto and such amended prospectuses as may hereafter be required. Such registration statement (as amended, if applicable) and the prospectus constituting a part thereof at the time such registration statement becomes effective (including in each case all documents incorporated by reference therein and the information, if any, deemed to be part thereof pursuant to Rule 430A(b) of the rules and regulations of the Commission under the 1933 Act (the "1933 Act Regulations")), as from time to time amended or supplemented pursuant to the 1933 Act, the Securities Exchange Act of 1934, as amended (the "1934 Act"), or otherwise, are hereinafter referred to as the "Registration Statement" and the "Prospectus," respectively, except that if any revised prospectus shall be provided to the Underwriters by the Company for use in connection with the offering of the Securities and the associated Rights which differs from the Prospectus on file at the Commission at the time the Registration Statement becomes effective (whether or not such revised prospectus is required to be filed by the Company pursuant to Rule 424(b) of the 1933 Act Regulations), the terms "Prospectus" shall refer to each such revised prospectus from and after the time it is first provided to the Underwriters for such use. All references in this Agreement to financial statements and schedules and other information which is "contained," "included," "described" or "stated" in the Registration Statement or the Prospectus (and all other references of like import) shall be deemed to mean and include all such financial statements and schedules and other information which is or is deemed to be incorporated by reference in the Registration Statement or the Prospectus, as the case may be; and all references in this Agreement to amendments or supplements to the Registration Statement or the Prospectus shall be deemed to mean and include the filing of any document under the 1934 Act which is or is deemed to be incorporated by reference in the Registration Statement or the Prospectus, as the case may be. -2- 4 The Company understands that the Underwriters propose to make a public offering of the Securities as soon as the Representatives deem advisable after the Registration Statement becomes effective and the Pricing Agreement has been executed and delivered. SECTION 1. Representations and Warranties. (a) The Company represents and warrants to each of the Underwriters as of the date hereof and as of the date of the Pricing Agreement (such latter date being hereinafter referred to as the "Representation Date") as follows: (i) At the time the Registration Statement becomes effective, the Registration Statement will comply in all material respects with the requirements of the 1933 Act and the 1933 Act Regulations and will not contain an untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements therein not misleading. The Prospectus, at the Representation Date (unless the term "Prospectus" refers to a prospectus which has been provided to the Underwriters by the Company for use in connection with the offering of the Securities and the associated Rights which differ from the Prospectus on file at the Commission at the time the Registration Statement becomes effective, in which case at the time it is first provided to the Underwriters for such use) and at Closing Time and each Date of Delivery referred to in Section 2 hereof, will not include an untrue statement of a material fact or omit to state a material fact necessary in order to make the statements therein, in the light of the circumstances under which they were made, not misleading; provided, however, that the representations and warranties in this subsection shall not apply to statements in or omissions from the Registration Statement or Prospectus made in reliance upon and in conformity with information furnished to the Company in writing by the Underwriters through the Representatives expressly for use in the Registration Statement or Prospectus. The Company meets all conditions required for the use of Form S-3 to effect the registration of the Securities and the associated Rights under the Securities Act. (ii) The accountants who certified the financial statements and supporting schedules included in the Registration Statement or incorporated by reference therein are independent public accountants with respect to the Company, DEKALB Energy Company, a Delaware corporation ("DEKALB"), and their respective subsidiaries and interests in oil and gas ventures and partnerships (the "Consolidated Subsidiaries") and Texaco Exploration and Production Inc., a Delaware corporation ("Texaco"), as required by the 1933 Act Regulations. (iii) The petroleum engineers who have consented to being named as having reviewed certain reserve data included in the Registration Statement or incorporated by reference therein are independent engineers with respect to the Company, DEKALB, Texaco and the Consolidated Subsidiaries. -3- 5 (iv) The financial statements, including the notes thereto, and supporting schedules included in the Registration Statement or incorporated by reference therein present fairly the financial position of the Company and the Consolidated Subsidiaries, DEKALB and Texaco as at the dates indicated and the results of their operations for the periods specified; except as otherwise stated in the Registration Statement, said financial statements have been prepared in conformity with generally accepted accounting principles applied on a consistent basis; and the supporting schedules included in the Registration Statement or incorporated by reference therein present fairly the information required to be stated therein. (v) The pro forma financial information included in the Registration Statement or incorporated by reference therein presents fairly the information shown therein, has been prepared on the basis of the assumptions described in the Registration Statement and the assumptions used in the preparation thereof are reasonable. (vi) The information on the basis of which the reserve estimates and related information included in the Registration Statement or incorporated by reference therein were prepared by the Company, its subsidiaries, Ryder Scott Company Petroleum Engineers or any other person is true and correct in all material respects. (vii) Since the respective dates as of which information is given in the Registration Statement and the Prospectus, except as otherwise stated therein, (A) there has been no material adverse change in the condition, financial or otherwise, or the earnings, affairs or business prospects of the Company and the Consolidated Subsidiaries considered as one enterprise, whether or not arising in the ordinary course of business, (B) there have been no transactions entered into by the Company or any of its Subsidiaries other than those in the ordinary course of business, which are material with respect to the Company and the Consolidated Subsidiaries considered as one enterprise, and (C) except for regular quarterly dividends, there has been no dividend or distribution of any kind declared, paid or made by the Company on any class of its capital stock. (viii) The Company has been duly incorporated and is validly existing as a corporation in good standing under the laws of the State of Delaware with corporate power and authority to own, lease and operate its properties and conduct its business as described in the Prospectus and to enter into and perform its obligations under this Agreement and the Pricing Agreement; and the Company is duly qualified as a foreign corporation to transact business and is in good standing in all jurisdictions in which such qualification is required, whether by reason of the ownership or leasing of property or the conduct of business, except where the failure so to qualify would not have a material adverse effect on the condition, financial or otherwise, or the earnings, affairs or business prospects of the Company and the Consolidated Subsidiaries considered as one enterprise. Neither the Company nor any of its affiliates is doing business with any person or entity located in Cuba or with the Government of Cuba. -4- 6 (ix) Each corporation in which the Company has an interest that constitutes a "significant subsidiary" of the Company as defined in the 1933 Act Regulations is specified in Schedule B hereto (the subsidiaries so specified being hereinafter collectively referred to as the "Corporate Subsidiaries"). Each Corporate Subsidiary has been duly incorporated and is validly existing as a corporation in good standing under the laws of the jurisdiction of its incorporation and is duly qualified as a foreign corporation to transact business and is in good standing in all jurisdictions in which such qualification is required, whether by reason of the ownership or leasing of property or the conduct of business, except where the failure so to qualify would not have a material adverse effect on the condition, financial or otherwise, or the earnings, affairs or business prospects of the Company and the Consolidated Subsidiaries considered as one enterprise; and all of the issued and outstanding capital stock of each Corporate Subsidiary has been duly authorized and validly issued, is fully paid and nonassessable and is owned by the Company, directly or indirectly, free and clear of any security interest, pledge, lien, encumbrance, claim or equity (except as described in the Prospectus). [(x) Each partnership in which the Company has an interest that constitutes a "significant subsidiary" of the Company as defined in the 1933 Act Regulations is specified in Schedule C hereto (the subsidiaries so specified being hereinafter collectively referred to as the "Partnership Subsidiaries," and together with the "Corporate Subsidiaries," the "Subsidiaries"). Each Partnership Subsidiary has been duly formed and is validly existing as a partnership in good standing under the laws of the jurisdiction of its formation and is duly qualified as a foreign partnership to transact business and is in good standing in all jurisdictions in which such qualification is required, whether by reason of the ownership or leasing of property or the conduct of business, except where the failure so to qualify would not have a material adverse effect on the condition, financial or otherwise, or the earnings or business affairs of the Company and its Subsidiaries considered as one enterprise; and all the outstanding partnership interests in each Partnership Subsidiary have been duly authorized and validly issued, are fully paid and nonassessable and are owned by the Company, directly or indirectly, free and clear of any pledge, lien, encumbrance, claim or equity (except as described in the Prospectus).] (xi) The authorized, issued and outstanding capital stock of the Company is as set forth in the Prospectus under "Capitalization" (except for issuances, if any, subsequent to the date of the Prospectus pursuant to reservations, agreements, employee benefit plans or the conversion of convertible securities referred to in the Prospectus); the shares of issued and outstanding Common Stock have been duly authorized and validly issued and are fully paid and nonassessable; the Rights associated with such shares of Common Stock have been duly and validly issued by the Company in accordance with the Rights Agreement dated as of January 10, 1986 (the "Rights Agreement") between the Company and First Trust Company, Inc.; the Securities have been duly authorized for issuance and sale to the Underwriters pursuant to this -5- 7 Agreement and, when issued and delivered by the Company pursuant to this Agreement against payment of the consideration set forth in the Pricing Agreement, will be validly issued and fully paid and nonassessable; the issuance of the Securities is not subject to preemptive or other similar rights; and the Common Stock and associated Rights conform to all statements relating thereto contained in the Prospectus. (xii) This Agreement has been duly and validly authorized by the Company and constitutes a valid and binding obligation of the Company enforceable in accordance with its terms. At the Representation Date, the Pricing Agreement will be duly and validly authorized by the Company and will constitute a valid and binding obligation of the Company enforceable in accordance with its terms. (xiii) Neither the Company nor any of its Subsidiaries is in violation of its charter or by-laws or in default in the performance or observance of any obligation, agreement, covenant or condition contained in any contract, indenture, mortgage, loan agreement, note, lease or other instrument to which the Company or any of its Subsidiaries is a party or by which it or any of them may be bound, or to which any of the property or assets of any of them is subject where the consequences of such default would have a material adverse effect on the condition, financial or otherwise, or the earnings, affairs or business prospects of the Company and the Consolidated Subsidiaries considered as one enterprise; and the execution, delivery and performance of this Agreement and the Pricing Agreement and the consummation of the transactions herein and therein contemplated have been duly and validly authorized by all necessary corporate action and will not conflict with or constitute a breach or violation of, or default under, or result in the creation or imposition of any lien, charge or encumbrance upon any property or assets of the Company or any of its Subsidiaries pursuant to any contract, indenture, mortgage, loan agreement, note, lease or other instrument to which the Company or any of the Consolidated Subsidiaries is a party or by which it or any of them may be bound, or to which any of the property or assets of the Company or any of the Consolidated Subsidiaries is subject, nor will such action result in any breach or violation of, or default under, the provisions of the charter or by-laws of the Company or of any law, administrative regulation or administrative or court decree to which the Company or any of the Consolidated Subsidiaries is subject. (xiv) There is no action, suit or proceeding before or by any court or governmental agency or body, domestic or foreign, now pending, or, to the knowledge of the Company, threatened, against the Company or any of the Consolidated Subsidiaries that is required to be disclosed in the Registration Statement (other than as disclosed therein), or that might (A) result in any material adverse change in the condition, financial or otherwise, or the earnings, affairs or business prospects of the Company and the Consolidated Subsidiaries considered as one enterprise, (B) materially and adversely affect the properties or assets thereof or (C) materially and adversely affect the consummation by the Company of its obligations pursuant to this Agreement; there is no pending legal or governmental proceeding to which the Company or any of the -6- 8 Consolidated Subsidiaries is a party or to which any of their respective properties or assets is subject that is not described in the Registration Statement, including ordinary routine litigation incidental to the Company's business, that might result in any material adverse change in the condition, financial or otherwise, or the earnings, affairs or business prospects of the Company and the Consolidated Subsidiaries considered as one enterprise; and there are no contracts or documents of the Company or any of its Subsidiaries that are required to be filed as exhibits to the Registration Statement by the 1933 Act or the 1933 Act Regulations that have not been so filed. (xv) The Company and the Consolidated Subsidiaries, except as to their respective interests in oil and gas leases and other mineral rights and interests, have good and marketable title to all of the properties and assets, real or personal, owned by them, in each case free and clear of any security interests, mortgages, pledges, liens, encumbrances or charges of any kind, other than (A) those described in the Prospectus and (B) those that do not have a material adverse effect on the condition, financial or otherwise, or the earnings, affairs or business prospects of the Company and the Consolidated Subsidiaries considered as one enterprise. The Company and the Consolidated Subsidiaries have valid and defensible title to their respective interests in oil and gas leases, free and clear of any security interests, mortgages, pledges, liens, encumbrances or charges of any kind, other than (A) those described in the Prospectus, (B) obligations or duties under applicable laws, ordinances, rules, regulations and orders of tribal or governmental authority, (C) liens and encumbrances under operating agreements, unitization and pooling agreements, production sales contracts, farm-out agreements and other oil and gas exploration and production agreements, in each case that secure payment of amounts not yet due and payable or the performance of other inchoate obligations and are of a scope and nature customary in connection with similar drilling and producing operations, and (D) those that do not have a material adverse effect on the condition, financial or otherwise, or the earnings, affairs or business prospects of the Company and the Consolidated Subsidiaries considered as one enterprise. The Company and the Consolidated Subsidiaries have acquired their respective interests in oil and gas leases in such a manner as is customary in the oil and gas industry, and all oil and gas leases in which the Company or the Consolidated Subsidiaries have an interest are in full force and effect in accordance with their terms, except in the instances that do not have a material adverse effect on the condition, financial or otherwise, or the earnings, affairs or business prospects of the Company and the Consolidated Subsidiaries as one enterprise. (xvi) Each contract, agreement or arrangement to which the Company or any of its Subsidiaries is a party or by which it or any of them may be bound, or to which any of the property or assets of the Company or any of its Subsidiaries is subject, which is material to the condition, financial or otherwise, or the earnings or business affairs of the Company and the Consolidated Subsidiaries considered as one enterprise has been duly and validly authorized, executed and delivered and is in full force and effect in accordance with its terms; none of such contracts, agreements or arrangements -7- 9 has been assigned by the Company or any of its Subsidiaries, and the Company knows of no present condition or fact that would prevent compliance by the Company or any of its Subsidiaries or any other party thereto with the terms of any such contract, agreement or arrangement in accordance with its terms in all material respects; neither the Company nor any of its Subsidiaries has any present intention to exercise any right that it may have to cancel any such contract, agreement or arrangement or otherwise to terminate its rights and obligations thereunder, and none of them has any knowledge that any other party to any such contract, agreement or arrangement has any intention not to render full performance in all material respects as contemplated by the terms thereof. (xvii) The documents incorporated by reference into the Registration Statement or deemed to be incorporated therein, when they were filed (or, if an amendment was filed with respect to any such document, when such amendment was filed), conformed in all material respects to the requirements of the 1934 Act, and the rules and regulations of the Commission under the 1934 Act (the "1934 Act Regulations"), and any further documents hereafter incorporated by reference into the Registration Statement or deemed to be incorporated therein, when they are filed, will conform in all material respects to the requirements of the 1934 Act and the 1934 Act Regulations; none of such documents incorporated by reference into the Registration Statement or deemed to be incorporated therein, when it was filed (or, if an amendment was filed with respect to any such document, when such amendment was filed), contained an untrue statement of material fact or omitted to state a material fact required to be stated therein or necessary to make the statements therein not misleading, and no further documents hereafter incorporated by reference into the Registration Statement or deemed to be incorporated therein, when they are filed, will contain an untrue statement of material fact or omit to state a material fact required to be stated therein or necessary to make the statements therein not misleading. (xviii) No authorization, approval or consent of any court or governmental authority or agency is necessary in connection with the sale of the Securities hereunder, except such as may be required under the 1933 Act or state securities laws for the offering and sale of the Securities. (xix) The Company and the Consolidated Subsidiaries possess such licenses, permits, consents, orders, certificates or authorizations issued by the appropriate federal, state or local regulatory agencies or bodies necessary to conduct their respective businesses as now operated by them, except where the failure to possess such licenses, permits, consents, orders, certificates or authorizations would have a material and adverse effect on the condition, financial or otherwise, or the earnings or business affairs of the Company and the Consolidated Subsidiaries considered as one enterprise, and neither the Company nor the Consolidated Subsidiaries have received any notice of proceedings relating to the revocation or modification of any such licenses, permits, consents, orders, certificates or authorizations which, singly or in the aggregate, if the subject of an unfavorable decision, ruling or finding, would have a material and adverse -8- 10 effect on the condition, financial or otherwise, or the earnings or business affairs of the Company and the Consolidated Subsidiaries considered as one enterprise. (xx) The Company and the Consolidated Subsidiaries own or possess, or can acquire on reasonable terms, the patents, patent rights, licenses, inventions, copyrights, know-how (including trade secrets and other unpatented and/or unpatentable proprietary or confidential information, systems or procedures), trademarks, service marks and trade names presently employed by them in connection with the business now operated by them, and neither the Company nor any of the Consolidated Subsidiaries has received any notice or is otherwise aware of any infringement of or conflict with asserted rights of others with respect to any of the foregoing which infringement or conflict (if the subject of any unfavorable decision, ruling or finding), singly or in the aggregate, would result in any material adverse change in the condition, financial or otherwise, or in the earnings, affairs or business prospects of the Company and the Consolidated Subsidiaries considered as one enterprise. (xxi) None of the Company, its directors or officers or any person who controls the Company within the meaning of Section 15 of the 1933 Act has taken, directly or indirectly, any action designed to cause or result in, or which has constituted, stabilization or manipulation of the price of any security of the Company in order to facilitate the sale or resale of the Securities and the associated Rights. (xxii) No holder of securities of the Company has any rights to require the registration of such securities under the 1933 Act as a result of the filing of the Registration Statement or in connection with the offering of the Securities and the associated Rights. (xxiii) Except as described in the Prospectus, there has been no storage, disposal, generation, manufacture, spill, discharge, refinement, transportation, handling or treatment of toxic wastes, medical wastes, hazardous wastes or hazardous substances by the Company or any of its Subsidiaries (or to the knowledge of the Company, any of its predecessors in interest) at, upon or from any of the property now or previously owned or leased or under contract for purchase by the Company or any of its Subsidiaries in violation of any applicable law, ordinance, rule, regulation, order, judgment, decree or permit or which would require remedial action under any applicable law, ordinance, rule, regulation, order, judgment, decree or permit, except for any violation or remedial action which would not result in, or which would not be reasonably likely to result in, singularly or in the aggregate with all such violations and remedial actions, a material and adverse effect on the condition, financial or otherwise, or the earnings, affairs or business prospects of the Company and the Consolidated Subsidiaries considered as one enterprise; and the terms "hazardous wastes," "toxic wastes," "hazardous substances" and "medical wastes" shall have the meanings specified in any applicable local, state, federal and foreign laws or regulations with respect to environmental protection. -9- 11 (xxiv) The information underlying the estimates of oil and gas reserves described in the Prospectus is complete and accurate in all material respects; other than normal production of the reserves and intervening spot market product price fluctuations described in the Prospectus, the Company is not aware of any facts or circumstances that would result in a material and adverse change in the reserves or the present value of future net cash flows therefrom as described in the Prospectus. Estimates of such reserves and present values comply in all material respects to the applicable requirements of Regulation S-X and Industry Guide 2 under the 1933 Act. (b) Any certificate signed by any officer of the Company delivered to the Representatives or to counsel for the Underwriters after the date hereof pursuant to the terms of this Agreement shall be deemed a representation and warranty by the Company to each Underwriter as to the matters covered thereby. SECTION 2. Sale and Delivery to Underwriters; Closing. (a) On the basis of the representations and warranties herein contained and subject to the terms and conditions herein set forth, the Company agrees to sell to each Underwriter, severally and not jointly, and each Underwriter, severally and not jointly, agrees to purchase from the Company, at the price per share set forth in the Pricing Agreement, the number of Initial Securities set forth in Schedule A opposite the name of such Underwriter (except as otherwise provided in the Pricing Agreement) plus any additional number of Initial Securities that such Underwriter may become obligated to purchase pursuant to the provisions of Section 10 hereof, subject, in each case, to such adjustments as the Underwriters in their discretion shall make to eliminate any sales or purchases of fractional securities. In addition, on the basis of the representations and warranties herein contained and subject to the terms and conditions herein set forth, the Company hereby grants an option to the Underwriters, severally and not jointly, to purchase from it up to an additional 1,020,000 shares of Common Stock, at the purchase price per share set forth in the Pricing Agreement. The option hereby granted will expire on the 30th day after the date the Registration Statement becomes effective or, if the Company has elected to rely on Rule 430A of the 1933 Act Regulations, the 30th day after the Representation Date, and may be exercised in whole or in part from time to time only for the purpose of covering over-allotments which may be made in connection with the offering and distribution of the Initial Securities upon notice by the Representatives to the Company setting forth the number of Option Securities as to which the Underwriters are then exercising the option and the time, date, and place of payment and delivery for such Option Securities. Any such time and date of delivery for the Option Securities (a "Date of Delivery") shall be determined by the Representatives but shall be not earlier than two nor later than seven full business days after the exercise of said option, nor in any event prior to Closing Time (as hereinafter defined) unless otherwise agreed upon by the Representatives and the Company. If the option is exercised as to all or any portion of the Option Securities, each of the Underwriters, acting severally and not jointly, will purchase from the Company that proportion of the number of Option Securities that the number of Initial -10- 12 Securities set forth in Schedule A opposite the name of such Underwriter (plus any additional number of Initial Securities which such Underwriter may become obligated to purchase pursuant to the provisions of Section 10 hereof) bears to the total number of Initial Securities (except as otherwise provided in the Pricing Agreement), subject, in each case, to such adjustments as the Underwriters in their discretion shall make to eliminate any sales or purchases of fractional securities. (i) If the Company has elected not to rely upon Rule 430A of the 1933 Act Regulations, the initial public offering price of the Securities and the purchase price per share to be paid by the several Underwriters for the Securities have each been determined and set forth in the Pricing Agreement, dated the date hereof, and an amendment to the Registration Statement and the Prospectus will be filed before the Registration Statement becomes effective. (ii) If the Company has elected to rely upon Rule 430A of the 1933 Act Regulations, the purchase price per share to be paid by the Underwriters for the Securities shall be an amount equal to the initial public offering price, less an amount per share to be determined by agreement between the Representatives and the Company. The initial public offering price per share of the Securities shall be a fixed price to be determined by agreement between the Representatives and the Company. The initial public offering price per share and the purchase price, when so determined, shall be set forth in the Pricing Agreement. In the event that such prices have not been agreed upon and the Pricing Agreement has not been executed and delivered by the parties thereto by the close of business on the fourth business day following the date of this Agreement, this Agreement shall terminate forthwith, without liability of any party to any other party, unless otherwise agreed to by the Company and the Representatives. (b) Payment of the purchase price for, and delivery of certificates for, the Initial Securities to be purchased by the Underwriters shall be made at the office of Baker & Botts, L.L.P., 885 Third Avenue, New York, New York, or at such other place as shall be agreed upon by the Representatives and the Company, at 10:00 A.M., New York City time, on the third or fourth business day (as permitted under Rule 15c6-1 under the 1934 Act unless postponed in accordance with the provisions of Section 10 hereof) following the date of the execution of the Pricing Agreement or such other time not later than ten business days after such date as shall be agreed upon by the Representatives and the Company (such time and date of payment and delivery being herein called "Closing Time"). In addition, in the event that any or all of the Option Securities are purchased by the Underwriters, payment of the purchase price for, and delivery of certificates for, such Option Securities shall be made at the above-mentioned office of Baker & Botts, L.L.P., or at such other place as shall be mutually agreed upon by the Representatives and the Company, on each Date of Delivery as specified in the notice from the Representatives to the Company. Payment shall be made to the Company by certified or official bank check or checks drawn in New York Clearing House funds or similar next-day funds payable to the order of the Company against delivery to the Representatives for the respective accounts of the Underwriters of certificates for the Securities to be purchased by them. -11- 13 Certificates for the Initial Securities and the Option Securities shall be in such denominations and registered in such names as the Representatives may request in writing at least two business days before Closing Time or the Date of Delivery, as the case may be. It is understood that each Underwriter has authorized the Representatives, for its account, to accept delivery of, receipt for, and make payment of the purchase price for, the Securities that it has agreed to purchase. The Representatives individually and not as representatives of the Underwriters, may (but shall not be obligated to) make payment of the purchase price for the Securities to be purchased by any Underwriter whose check has not been received by Closing Time or the Date of Delivery, as the case may be, but such payment shall not relieve such Underwriter from its obligations hereunder. The certificates for the Initial Securities and the Option Securities to be purchased by the Underwriters will be made available in New York City for examination and packaging by the Representatives not later than 10:00 A.M. on the last business day prior to Closing Time or the Date of Delivery, as the case may be. SECTION 3. Covenants of the Company. The Company covenants with each of the Underwriters as follows: (a) The Company will notify the Representatives immediately, and confirm the notice in writing, (i) of the effectiveness of the Registration Statement and any amendment thereto (including any post-effective amendment), (ii) of the receipt of any comments from the Commission, (iii) of any request by the Commission for any amendment to the Registration Statement or any amendment or supplement to the Prospectus or for additional information, and (iv) of the issuance by the Commission of any stop order suspending the effectiveness of the Registration Statement or the initiation of any proceedings for that purpose. The Company will make every reasonable effort to prevent the issuance of any stop order and, if any stop order is issued, to obtain the lifting thereof at the earliest possible moment. (b) The Company will give the Representatives notice of its intention to file or prepare any amendment to the Registration Statement (including any post-effective amendment) or any amendment or supplement to the Prospectus (including any revised prospectus which the Company proposes for use by the Underwriters in connection with the offering of the Securities which differs from the prospectus on file at the Commission at the time the Registration Statement becomes effective, whether or not such revised prospectus is required to be filed pursuant to Rule 424(b) of the 1933 Act Regulations, whether pursuant to the 1933 Act, the 1934 Act or otherwise), will furnish the Representatives with copies of any such amendment or supplement a reasonable amount of time prior to such proposed filing or use, as the case may be, and will not file any such amendment or supplement to which the Underwriters shall reasonably object. (c) The Company will deliver to the Representatives four signed copies of the Registration Statement as originally filed and each amendment thereto (including exhibits filed therewith or incorporated by reference therein and documents incorporated or deemed to be incorporated by reference therein) and will also deliver to the Representatives a conformed copy -12- 14 of the Registration Statement as originally filed and of each amendment thereto (without exhibits) for each of the Representatives. (d) The Company will furnish to each Underwriter, from time to time during the period when the Prospectus is required to be delivered under the 1933 Act or 1934 Act, such number of copies of the Prospectus (as amended or supplemented) as such Underwriter may reasonably request for the purposes contemplated by the 1933 Act, the 1933 Act Regulations, the 1934 Act or the 1934 Act Regulations. (e) If any event shall occur as a result of which it is necessary, in the reasonable opinion of the Underwriters, to amend or supplement the Prospectus in order to make the Prospectus not misleading in the light of the circumstances existing at the time it is delivered to a purchaser, the Company will forthwith amend or supplement the Prospectus (in form and substance satisfactory to the Underwriters) and furnish to the Underwriters a reasonable number of copies of any amendment or amendments of or supplement or supplements to, the Prospectus, so that, as so amended or supplemented, the Prospectus will not contain an untrue statement of a material fact or omit to state a material fact necessary in order to make the statements therein, in the light of the circumstances existing at the time the Prospectus is delivered to a purchaser, not misleading. (f) The Company, during the period when the Prospectus is required to be delivered under the 1933 Act, will file promptly all documents required to be filed with the Commission pursuant to Section 13, 14 or 15 of the 1934 Act subsequent to the time the Registration Statement becomes effective. (g) The Company will endeavor, in cooperation with the Underwriters, to qualify the Securities and the associated Rights for offering and sale under the applicable securities laws of such states and other jurisdictions of the United States as the Representatives may designate; provided, however, that the Company shall not be obligated to qualify as a foreign corporation in any jurisdiction in which it is not so qualified. In each jurisdiction in which the Securities and the shares of Common Stock and associated Rights issuable upon the conversion thereof have been qualified as above provided, the Company will file such statements and reports as may be required by the laws of such jurisdiction in effect for a period of not less than one year from the effective date of the Registration Statement. (h) The Company will make generally available to its security holders as soon as practicable, but not later than 90 days after the close of the period covered thereby, an earnings statement (in form complying with the provisions of Rule 158 of the 1933 Act Regulations) covering a 12-month period beginning not later than the first day of the Company's fiscal quarter next following the "effective date" (as defined in said Rule 158) of the Registration Statement. (i) The Company will use the net proceeds received by it from the sale of the Securities in the manner specified in the Prospectus under "Use of Proceeds." -13- 15 (j) If, at the time that the Registration Statement becomes effective, any information shall have been omitted therefrom in reliance upon Rule 430A of the 1933 Act Regulations, then immediately following the execution of the Pricing Agreement, the Company will prepare, and file or transmit for filing with the Commission in accordance with such Rule 430A and Rule 424(b) of the 1933 Act Regulations, copies of an amended Prospectus, or, if required by such Rule 430A, a post-effective amendment to the Registration Statement (including an amended Prospectus), containing all information so omitted. (k) The Company will file with the New York Stock Exchange and the Chicago Stock Exchange all documents and notices required by the New York Stock Exchange of companies that have securities listed on such exchange and will use every reasonable effort to maintain the listing of the Securities on the New York Stock Exchange and the Chicago Stock Exchange. (l) During a period of 90 days from the date of the Pricing Agreement, the Company will not, without the prior written consent of the Representatives, directly or indirectly, sell, offer to sell, grant any option for the sale of, or otherwise dispose of, any Common Stock and associated Rights or any security convertible into or exercisable or exchangeable for Common Stock (i) in a public offering or (ii) in a private offering unless such private offering shall occur more than 30 days after the date of this Agreement and the recipient of such Common Stock shall agree not to sell, offer to sell, grant any option for the sale of, or otherwise dispose of, such Common Stock for the remaining portion of the 90-day period from the date of this Agreement (except for (i) Common Stock and associated Rights pursuant to reservations, agreements, employee benefit plans, the exercise of rights or the conversion of convertible securities referred to in the Prospectus and (ii) Common Stock and associated Rights issued pursuant to the Company's Registration Statement on Form S-4 (Reg. No. 33-61669) (the "Acquisition Shelf") in connection with acquisitions of properties or businesses by the Company following the date hereof, provided that, the Company will not issue any shares pursuant to the Acquisition Shelf during the period from the date hereof until ___ days following the Closing Time and will not issue more than 600,000 shares pursuant to the Acquisition Shelf during the period of ___ days from the date of the Pricing Agreement). SECTION 4. Payment of Expenses. The Company will pay all expenses incident to the performance of its obligations under this Agreement, including (i) the printing and filing of the Registration Statement as originally filed and of each amendment thereto, (ii) the preparation, issuance and delivery of the Securities to the Underwriters, (iii) the fees and disbursements of the Company's counsel, accountants and petroleum engineers, (iv) the expenses in connection with the qualification of the Securities under state securities laws in accordance with the provisions of Section 3(g) hereof, including filing fees and the fees and disbursements of counsel for the Underwriters in connection therewith and in connection with the preparation of the Blue Sky Survey, (v) the printing and delivery to the Underwriters of copies of the Registration Statement as originally filed and of each amendment thereto, of each of the preliminary prospectuses, and of the Prospectus and any amendments or supplements thereto, (vi) the delivery to the Underwriters of copies of Blue Sky Survey, (vii) the fees and expenses -14- 16 incurred in connection with any filings required to be made by the Underwriters with the National Association of Securities Dealers, Inc., and (viii) the fees and expenses incurred in connection with the listing of the Securities on the New York Stock Exchange and the Chicago Stock Exchange. If this Agreement is terminated by the Representatives in accordance with the provisions of Section 5 hereof or Section 9(a)(i) hereof, the Company shall reimburse the Underwriters for all of their out-of-pocket expenses, including the reasonable fees and disbursements of counsel for the Underwriters. The terms of this paragraph shall survive any such termination of this Agreement. SECTION 5. Conditions of Obligations of the Underwriters. The obligations of the Underwriters hereunder are subject to the accuracy of the representations and warranties of the Company herein contained at the date hereof and at Closing Time, to the performance by the Company of its obligations hereunder required to be performed prior to Closing Time, and to the following further conditions: (a) The Registration Statement shall have become effective not later than 5:30 P.M. on the date hereof or at such later time and date as may be approved by the Representatives; and at Closing Time and any Date of Delivery, as the case may be, no stop order suspending the effectiveness of the Registration Statement shall have been issued under the 1933 Act or proceedings therefor initiated or threatened by the Commission. If the Company has elected to rely upon Rule 430A of the 1933 Act Regulations, the initial public offering price per share of the Securities, the purchase price per share to be paid by the Underwriters, and any other price-related information previously omitted from the effective Registration Statement pursuant to such Rule 430A shall have been transmitted to the Commission for filing pursuant to Rule 424(b) of the 1933 Act Regulations within the prescribed time period, and prior to Closing Time the Company shall have provided evidence satisfactory to the Representatives of such timely filing, or a post-effective amendment providing such information shall have been promptly filed and declared effective in accordance with the requirements of Rule 430A of the 1933 Act Regulations. (b) At Closing Time the Representatives shall have received: (1) The favorable opinion, dated as of Closing Time, of Andrews & Kurth L.L.P., counsel for the Company, in form and substance reasonably satisfactory to the Underwriters, to the effect that: (i) The Company has been duly incorporated and is an existing corporation in good standing under the laws of the State of Delaware. (ii) This Agreement and the Pricing Agreement have each been duly authorized, executed and delivered by the Company. -15- 17 (iii) The Securities to be purchased by the Underwriters from the Company at the Closing Time have been duly authorized for issuance and sale to the Underwriters pursuant to this Agreement and, when issued and delivered by the Company pursuant to this Agreement against payment of the consideration set forth in the Pricing Agreement, such Securities will be validly issued and fully paid and nonassessable. (iv) The issuance of the Securities by the Company is not subject to preemptive or other similar rights arising by operation of law or under the charter or by-laws of the Company or, to the best of their knowledge, otherwise. (v) The Registration Statement has become effective under the 1933 Act and, to the best knowledge of such counsel, no stop order suspending the effectiveness of the Registration Statement has been issued under the 1933 Act and no proceeding for that purpose has been instituted or threatened by the Commission. (vi) The Registration Statement, as of its effective date, and the Prospectus, as of its date, and any supplements or amendments thereto (other than the financial statements and engineering reports and other financial and engineering data included therein, as to which no opinion need be rendered) appeared on their face to be appropriately responsive to the requirements of the 1933 Act and the 1933 Act Regulations. (vii) The Common Stock conforms to the description thereof contained in the Prospectus, and the form of certificate used to evidence the Common Stock is in due and proper form and complies with all applicable statutory requirements. In rendering the foregoing opinion or opinions, Andrews & Kurth, L.L.P. may state that such opinion or opinions are limited to the Federal laws of the United States, the laws of the States of New York and Texas and the General Corporation Law of the State of Delaware, and that they are expressing no opinion as to the effect of the laws of any other jurisdiction. In addition, such counsel may state that they have relied as to certain matters on information obtained from public officials, officers of the Company and other sources believed by them to be responsible. (2) The favorable opinion, dated as of Closing Time, of Zurab S. Kobiashvili, General Counsel of the Company, in form and substance satisfactory to counsel for the Underwriters with respect to the matters set forth in (ii) to (v) and (vii) of subsection (b)(1) of this Section, and to the further effect that: (i) To the best knowledge and information of such counsel, the Company is duly qualified as a foreign corporation to transact business and is in good standing in each jurisdiction in which such qualification is required, except -16- 18 where failure to so qualify would not have a material adverse effect on the condition, financial or otherwise, or the earnings, affairs or business prospects of the Company and the Consolidated Subsidiaries considered as one enterprise. (ii) The Company has the corporate power and authority to own, lease and operate its properties and conduct its business as described in the Prospectus. (iii) The authorized, issued and outstanding capital stock of the Company is as set forth in the Prospectus under "Capitalization" (except for issuances, if any, subsequent to the date of the Prospectus pursuant to reservations, agreements, employee benefit plans, the exercise of rights or the conversion of convertible securities referred to in the Prospectus) and the shares of issued and outstanding Common Stock have been duly authorized and validly issued and are fully paid and nonassessable. (iv) Each Corporate Subsidiary has been duly incorporated and is validly existing as a corporation in good standing under the laws of the jurisdiction of its incorporation, and, to the best knowledge and information of such counsel, is duly qualified as a foreign corporation to transact business and is in good standing in each jurisdiction in which such qualification is required, except where failure to so qualify would not have a material adverse effect on the condition, financial or otherwise, or the earnings or business affairs of the Company and the Consolidated Subsidiaries considered as one enterprise; and all of the issued and outstanding capital stock of each Corporate Subsidiary has been duly and validly issued, is fully paid and nonassessable and is, to the best knowledge and information of such counsel, owned by the Company, directly or indirectly, free and clear of any pledge, lien, encumbrance, claim or equity (except as described in the Prospectus). [(v) Each Partnership Subsidiary has been duly formed and is validly existing as a partnership in good standing under the laws of the jurisdiction of its formation and, to the best knowledge and information of such counsel, is duly qualified as a foreign partnership to transact business and is in good standing in all jurisdictions in which such qualification is required, except where failure to so qualify would not have a material adverse effect on the condition, financial or otherwise, or the earnings or business affairs of the Company and the Consolidated Subsidiaries considered as one enterprise; and all the outstanding partnership interests in each Partnership Subsidiary have been duly authorized and validly issued, are fully paid and nonassessable and are, to the best knowledge and information of such counsel, owned by the Company, directly or indirectly, free and clear of any pledge, lien, encumbrance, claim or equity (except as described in the Prospectus).] -17- 19 (vi) No authorization, approval, consent or order of any court or governmental authority or agency is required for the consummation of the transactions contemplated by this Agreement in connection with the sale by the Company of the Securities to the Underwriters hereunder, except such as may be required under the 1933 Act, the 1933 Act Regulations, the 1934 Act or the 1934 Act Regulations, and state securities laws for the offering and sale of the Securities; and the execution and delivery of this Agreement and the Pricing Agreement and the consummation of the transactions herein and therein contemplated will not conflict with or constitute a breach or violation of, or default under, the provisions of the charter or by-laws of the Company, or of any applicable law, administrative regulation or, to the best knowledge and information of such counsel, any administrative or court decree. (vii) To the best knowledge and information of such counsel, the execution and delivery of this Agreement and the Pricing Agreement and the consummation of the transactions herein and therein contemplated will not conflict with or constitute a breach or violation of, or a default under, or result in the creation or imposition of any lien, charge or encumbrance upon, any property or assets of the Company or any of its Subsidiaries pursuant to, any material contract, indenture, mortgage, loan agreement, note, lease or other instrument or agreement to which the Company or any of its Subsidiaries is a party or by which it or any of them may be bound, or to which any of the property or assets of the Company or any of its Subsidiaries is subject. (viii) To the best knowledge and information of such counsel, there are no contracts, indentures, mortgages, loan agreements, notes, leases or other instruments required to be described or referred to in the Registration Statement or to be filed or incorporated by reference as exhibits thereto other than those described or referred to in the Registration Statement or filed as exhibits thereto; and the descriptions thereof or references thereto are correct, and no default exists in the due performance or observance of any material obligation, agreement, covenant or condition contained in any contract, indenture, loan agreement, note, lease or other instrument so described, referred to, filed, or incorporated by reference where the consequences of such default would have a material adverse effect on the condition, financial or otherwise, or the earnings, affairs or business prospects of the Company and the Consolidated Subsidiaries considered as one enterprise. (ix) There are no legal or governmental proceedings pending or threatened to which such counsel has given substantive attention, or in which such counsel has been engaged to represent the Company or its Subsidiaries, that are required to be disclosed in the Prospectus, other than those disclosed therein. (x) The Company is not in violation of its charter or by-laws. -18- 20 (xi) To the best knowledge and information of such counsel, no holder of securities of the Company has rights to the registration under the 1933 Act of securities of the Company because of the filing of the Registration Statement that have not been satisfied or waived. (xii) Each document filed pursuant to the 1934 Act and incorporated or deemed to be incorporated by referenced in the Prospectus (other than financial statements, supporting schedules and other financial or statistical information as to which no opinion need be rendered) appeared on their face to be appropriately responsive when so filed to the requirements of the 1934 Act and the 1934 Act Regulations. In rendering the foregoing opinion or opinions, Mr. Kobiashvili may state that such opinion or opinions are limited to the Federal laws of the United States and the General Corporation Law of the State of Delaware, and that he is expressing no opinion as to the effect of the laws of any other jurisdiction. In addition, Mr. Kobiashvili may state that he has relied as to certain matters on information obtained from public officials, officers of the Company and other sources believed by him to be responsible. (3) The favorable opinion, dated as of Closing Time, of Baker & Botts, L.L.P., counsel for the Underwriters, with respect to the matters set forth in (i), (ii), (iii), (iv) (solely as to preemptive rights arising by operation of law or under the charter or by-laws of the Company), (v) and (vi) of subsection (b)(1) of this Section. (4) The written advice of Andrews & Kurth, L.L.P. and Zurab S. Kobiashvili to the effect that nothing has come to their attention that causes them to believe that the Registration Statement, at the time it became effective, contained an untrue statement of a material fact or omitted to state a material fact required to be stated therein or necessary to make the statements therein not misleading or that the Prospectus, at the date of the Prospectus (unless the term "Prospectus" refers to a prospectus which has been provided to the Underwriters by the Company for use in connection with the offering of the Securities and the associated Rights which differs from the Prospectus on file at the Commission at the date of the Prospectus, in which case at the time it is first provided to the Underwriters for such use) or at Closing Time, contained an untrue statement of a material fact or omitted to state a material fact necessary in order to make the statements therein, in the light of the circumstances under which they were made, not misleading; it being understood that such counsel need express no opinion as to the financial statements and engineering reports and other financial or engineering data contained in the Registration Statement or the Prospectus. (c) At Closing Time there shall not have been, since the date hereof or since the respective dates as of which information is given in the Prospectus, any material adverse change in the condition, financial or otherwise, or the earnings, affairs or business prospects of the Company or the Consolidated Subsidiaries considered as one enterprise, whether or not in -19- 21 the ordinary course of business, and the Representatives shall have received a certificate of the Chairman of the Board, the President or any Senior Vice President of the Company and of the chief financial or chief accounting officer of the Company, dated as of Closing Time, to the effect that (i) there has been no such material adverse change, (ii) the representations and warranties of the Company contained in Section 1(a) of this Agreement are true and correct with the same force and effect as though expressly made at and as of Closing Time, (iii) the Company has complied with all agreements and satisfied all conditions on its part to be performed or satisfied at or prior to Closing Time, and (iv) no stop order suspending the effectiveness of the Registration Statement has been issued and no proceedings for that purpose have been initiated or threatened by the Commission. As used in this Section 5(c), the term "Prospectus" means the Prospectus in the form first used to confirm sales of the Securities. (d) At the time of the execution of this Agreement, the Representatives shall have received from Arthur Andersen LLP a letter dated such date, in form and substance satisfactory to the Underwriters, to the effect that (i) they are independent public accountants with respect to the Company and its subsidiaries within the meaning of the 1933 Act and the 1933 Act Regulations; (ii) it is their opinion that the financial statements and supporting schedules included in the Registration Statement and covered by their opinions therein comply as to form in all material respects with the applicable accounting requirements of the 1933 Act and the 1933 Act Regulations; (iii) based upon their review of interim financial information of the Company and the Consolidated Subsidiaries as described in Statement on Auditing Standards No. 71 and inquiries of certain officials of the Company and the other procedures set forth in detail in such letter, nothing has come to their attention that causes them to believe that (A) the unaudited and other financial information of the Company and its subsidiaries included in the Registration Statement or incorporated by reference therein does not comply as to form in all material respects with the applicable accounting requirements of the 1933 Act and the 1933 Act Regulations or is not presented in conformity with generally accepted accounting principles applied on a basis substantially consistent with that of the audited financial statements included in the Registration Statement or incorporated by reference therein, or (B) at a specified date not more than five days prior to the date of this Agreement and not earlier than the effective date of the Registration Statement, there has been any change in the capital stock of the Company or any increase in the consolidated long term debt of the Company and the Consolidated Subsidiaries or any decrease in consolidated net current assets or net assets as compared with the amounts shown in the June 30, 1995 balance sheet included in the Registration Statement or, during the period from June 30, 1995 to a specified date not more than five days prior to the date of this Agreement, there were any decreases, as compared with the corresponding period in the preceding year, in consolidated revenues, net income or net income per share of the Company and its subsidiaries, except in all instances for changes, increases or decreases which the Registration Statement and the Prospectus disclose have occurred or may occur and for changes, increases or decreases set forth in such letter, in which case the letter shall be accompanied by an explanation by the Company as to the significance thereof unless said explanation is not deemed necessary by the Representatives; (iv) on the basis of a reading of the unaudited pro forma financial information of the Company and its subsidiaries, inquiries of officials of the Company who have responsibility for financial and accounting matters and -20- 22 proving the arithmetic accuracy of the application of the pro forma adjustments to the historical amounts in such unaudited pro forma combined financial information, nothing has come to their attention which caused them to believe that such unaudited pro forma combined financial information does not comply as to form in all material respects with the applicable accounting requirements of Rule 11-02 of Regulation S-X or that the pro forma adjustments have not been properly applied to the historical amounts in such statements; and (v) in addition to the examination referred to in their opinions and the limited procedures referred to in clause (iii) above, they have carried out certain specified procedures, not constituting an audit, with respect to certain amounts, percentages and financial information which are included in the Registration Statement and Prospectus and which are specified by the Representatives, and have found such amounts, percentages and financial information to be in agreement with the relevant accounting, financial and other records of the Company and its subsidiaries identified in such letter. (e) At Closing Time the Representatives shall have received from Arthur Andersen LLP a letter, dated as of Closing Time to the effect that they confirm the statements made in the letter furnished pursuant to subsection (d) of this Section, except that the specified date referred to in such letter shall be a date not more than five days prior to Closing Time and not earlier than the date of the Propsectus first used to confirm sales of the Securities. (f) At Closing Time counsel for the Underwriters shall have been furnished with such documents and opinions as they may require for the purpose of enabling them to pass upon the issuance and sale of the Securities as herein contemplated and related proceedings, or in order to evidence the accuracy of any of the representations or warranties, or the fulfillment of any of the conditions, herein contained; and all proceedings taken by the Company in connection with the issuance and sale of the Securities as herein contemplated shall be satisfactory in form and substance to the Underwriters. (g) At Closing Time all actions, proceedings, instruments, opinions and documents required in connection with the consummation of the transactions contemplated by this Agreement shall be reasonably satisfactory to the Representatives, and the Company shall have delivered to the Representatives such other certificates and documents as the Representatives shall reasonably request. (h) The New York Stock Exchange shall have approved the Securities for listing, subject to notice of issuance. (i) In the event the Underwriters exercise their option provided in Section 2 hereof to purchase all or any part of the Option Securities, and the Date of Delivery specified by the Underwriters for any such purchase is a date other than Closing Time, the obligation of the Underwriters to purchase all or any such portion of the Option Securities shall be subject, in addition to the foregoing conditions, to the accuracy of the representations and warranties of the Company at each Date of Delivery, to the performance by the Company of its obligations hereunder required to be performed prior to each Date of Delivery, and to the receipt by the Underwriters of the following: -21- 23 (1) A certificate, dated such Date of Delivery, of the Chairman of the Board, the President or any Senior Vice President of the Company and of the chief financial or chief accounting officer of the Company confirming that the certificate delivered at Closing Time pursuant to Section 5(c) hereof remains true as of such Date of Delivery. (2) The favorable opinion of Andrews & Kurth, L.L.P., counsel for the Company, in form and substance satisfactory to counsel for the Underwriters, dated such Date of Delivery relating to the Option Securities and otherwise to the same effect as the opinion required by Section 5(b)(1) hereof. (3) The favorable opinion of Zurab S. Kobiashvili, General Counsel of the Company, in form and substance satisfactory to counsel for the Underwriters, dated such Date of Delivery, relating to the Option Securities and otherwise to the same effect as the opinion required by Section 5(b)(2) hereof. (4) The written advice of Andrews & Kurth, L.L.P. and Zurab S. Kobiashvili to the same effect required by Section 5(b)(4) hereof. (5) The favorable opinion of Baker & Botts, L.L.P., counsel for the Underwriters, dated such Date of Delivery, relating to the Option Securities and otherwise to the same effect as the opinion required by Section 5(b)(3) hereof. (6) A letter, dated as of such Date of Delivery, from Arthur Andersen LLP, in form and substance satisfactory to the Underwriters, substantially the same in scope and substance as the letter furnished pursuant to Section 5(d), except that the "specified date" in such letter shall be a date not more than four days prior to such Date of Delivery. If any condition specified in this Section shall not have been fulfilled when and as required to be fulfilled, this Agreement may be terminated by the Representatives by notice to the Company at any time at or prior to Closing Time and such termination shall be without liability of any party to any other party except as provided in Section 4 hereof. SECTION 6. Indemnification. (a) The Company agrees to indemnify and hold harmless each Underwriter and each person, if any, who controls any Underwriter within the meaning of Section 15 of the 1933 Act as follows: (i) against any and all loss, liability, claim, damage and expense whatsoever, as incurred, arising out of any untrue statement or alleged untrue statement of a material fact contained in the Registration Statement (or any amendment thereto), including information deemed to be part of the Registration Statement pursuant to Rule 430A(b) of the 1933 Act Regulations, if applicable, or the omission or alleged omission -22- 24 therefrom of a material fact required to be stated therein or necessary to make the statements therein not misleading or arising out of any untrue statement or alleged untrue statement of a material fact contained in any preliminary prospectus or the Prospectus (or any amendment or supplement thereto) or the omission or alleged omission therefrom of a material fact necessary in order to make the statements therein, in the light of the circumstances under which they were made, not misleading, unless such untrue statement or omission or such alleged untrue statement or omission was made in reliance upon and in conformity with written information furnished to the Company by an Underwriter through the Representatives expressly for use in the Registration Statement (or any amendment thereto) or such preliminary prospectus or the Prospectus (or any amendment or supplement thereto); provided, however, that with respect to any untrue statement or omission or alleged untrue statement or omission made in any preliminary prospectus or the Prospectus the indemnity agreement contained in this Section (a) shall not inure to the benefit of any Underwriter from whom the person asserting any such loss, liability, claim, damage or expense purchased the Securities concerned, to the extent that any such loss, liability, claim, damage or expense of such Underwriter results from the fact that there was not sent or given to such person, at or prior to the written confirmation of the sale of such Securities to such person, a copy of the Prospectus (exclusive of material incorporated by reference) if the Company had previously furnished copies thereof to such Underwriter; (ii) against any and all loss, liability, claim, damage and expense whatsoever, as incurred, to the extent of the aggregate amount paid in settlement of any litigation, or any investigation or proceeding by any governmental agency or body, commenced or threatened, or of any claim whatsoever based upon any such untrue statement or omission, or any such alleged untrue statement or commission, if such settlement is effected with the written consent of the Company; and (iii) against any and all expense whatsoever, as incurred (including the fees and expenses of counsel chosen by the Representatives), reasonably incurred in investigating, preparing or defending against any litigation, or any investigation or proceeding by any governmental agency or body, commenced or threatened, or any claim whatsoever based upon any such untrue statement or omission, or any such alleged untrue statement or omission, to the extent that (x) the Company is required to do so under Section 6(c) below and (y) any such expense is not paid under (i) or (ii) above. (b) Each Underwriter agrees, severally and not jointly, to indemnify and hold harmless the Company, its directors, each of its officers who signed the Registration Statement and each person, if any, who controls the Company within the meaning of Section 15 of the 1933 Act against any and all loss, liability, claim, damage and expense described in the indemnity contained in subsection (a) of this Section, but only with respect to untrue statements or omissions, or alleged untrue statements or omissions, made in the Registration Statement (or any amendment thereto) or any preliminary prospectus or the Prospectus (or any amendment or supplement thereto) in reliance upon and in conformity with written information furnished to the -23- 25 Company by such Underwriter expressly for use in the Registration Statement (or any amendment thereto) or such preliminary prospectus or the Prospectus (or any amendment or supplement thereto). (c) Each indemnified party shall give notice as promptly as reasonably practicable to each indemnifying party of any action commenced against it in respect of which indemnity may be sought hereunder but failure to so notify any indemnifying party shall not relieve it from any liability which it may have otherwise than on account of this indemnity agreement. An indemnifying party may participate at its own expense in the defense of such action. If it so elects within a reasonable time after receipt of such notice, an indemnifying party, jointly with any other indemnifying parties receiving such notice, may assume the defense of such action with counsel chosen by it and approved by the indemnified parties defendant in such action, except to the extent such indemnified parties retain separate counsel (the "Separate Counsel") with respect to legal defenses available to them that are different from or in addition to those available to such indemnifying party and such defenses are in conflict with the interests of the indemnifying parties. If an indemnifying party assumes the defense of such action, the indemnifying parties shall not be liable for any fees and expenses of counsel for the indemnified parties incurred thereafter in connection with such action. In no event shall the indemnifying parties be liable for the reasonable fees and expenses of more than the Separate Counsel (in addition to any local counsel) separate from their own counsel for all indemnified parties in connection with any one action or separate but similar or related actions in the same jurisdiction arising out of the same general allegations or circumstances. SECTION 7. Contribution. In order to provide for just and equitable contribution in circumstances in which the indemnity agreement provided for in Section 6 hereof is for any reason held to be unenforceable by the indemnified parties although applicable in accordance with its terms, the Company and the Underwriters shall contribute to the aggregate losses, liabilities, claims, damages and expenses of the nature contemplated by said indemnity agreement incurred by the Company and one or more of the Underwriters in such proportions that the Underwriters are responsible for that portion represented by the percentage that the underwriting discount appearing on the cover page of the Prospectus bears to the initial public offering price appearing thereon and the Company is responsible for the balance; provided, however, that no person guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of the 1933 Act) shall be entitled to contribution from any person who was not guilty of such fraudulent misrepresentation. For purposes of this Section, each person, if any, who controls an Underwriter within the meaning of Section 15 of the 1933 Act shall have the same rights to contribution as such Underwriter, and each director of the Company, each officer of the Company who signed the Registration Statement, and each person, if any, who controls the Company within the meaning of Section 15 of the 1933 Act shall have the same rights to contribution as the Company. SECTION 8. Representations, Warranties and Agreements to Survive Delivery. All representations, warranties and agreements contained in this Agreement and the Pricing Agreement, or contained in certificates of officers of the Company submitted pursuant hereto, -24- 26 shall remain operative and in full force and effect, regardless of any investigation made by or on behalf of any Underwriter or controlling person, or by or on behalf of the Company, and shall survive delivery of the Securities to the Underwriters. SECTION 9. Termination of Agreement. (a) The Representatives may terminate this Agreement, by notice to the Company, at any time at or prior to Closing Time (i) if there has been, since the date of this Agreement or since the respective dates as of which information is given in the Prospectus, any material adverse change in the condition, financial or otherwise, or the earnings, business affairs or business prospects of the Company and the Consolidated Subsidiaries considered as one enterprise, whether or not arising in the ordinary course of business, or (ii) if there has occurred any material adverse change in the financial markets of the United States or any outbreak or escalation of hostilities or other calamity or crisis the effect of which is such as to make it, in the judgment of the Representatives, impracticable to market the Securities or enforce contracts for the sale of the Securities, or (iii) if trading in the Common Stock has been suspended by the Commission, or if trading generally on either the New York Stock Exchange or the American Stock Exchange has been suspended, or minimum or maximum prices for trading have been fixed, or maximum ranges for prices for securities have been required, by either of said exchanges or by order of the Commission or any other governmental authority, or if a banking moratorium has been declared by either federal or New York authorities. As used in this Section 9(a), the term "Prospectus" means the Prospectus in the form first used to confirm sales of the Securities. (b) If this Agreement is terminated pursuant to this Section, such termination shall be without liability of any party except as provided in Section 4 hereof. Notwithstanding any such termination, the provisions of Sections 6 and 7 shall remain in effect. SECTION 10. Default by an Underwriter. If any one of the Underwriters shall fail to purchase and pay for any of the Initial Securities agreed to be purchased by such Underwriter under this Agreement and the Pricing Agreement and such failure to purchase shall constitute a default in the performance of its obligations hereunder and thereunder, the remaining Underwriters shall have the right, within 24 hours thereafter, to make arrangements for one or more of the non-defaulting Underwriters or any other underwriters to purchase all, but not less than all, of Initial Securities not so purchased in such amounts as may be agreed upon and upon the terms herein set forth; if, however, the Underwriters shall not have completed such arrangements within said 24-hour period, then: (1) if the number of Initial Securities not so purchased does not exceed 10% of the Initial Securities, the non-defaulting Underwriters shall be obligated to purchase the full amount thereof in the proportions that their respective underwriting obligations hereunder bear to the underwriting obligations of all non-defaulting Underwriters, or -25- 27 (2) if the number of Initial Securities not so purchased exceeds 10% of the Initial Securities, this Agreement shall terminate without liability on the part of any non-defaulting Underwriter. No action taken pursuant to this Section shall relieve any defaulting Underwriter from any liability it may have hereunder in respect of its default. In the event of any such default that does not result in a termination of this Agreement, each of the Representatives shall have the right to postpone Closing Time for such period, not exceeding seven days, as they shall determine in order that the required changes in Registration Statement and the Prospectus or in any other documents or arrangements may be effected. SECTION 11. Notices. All notices and other communications hereunder shall be in writing and shall be deemed to have been duly given if mailed or transmitted by any standard form of telecommunication. Notices to the Underwriters shall be directed to the Representatives c/o Merrill Lynch & Co./Merrill Lynch, Pierce, Fenner & Smith Incorporated at World Financial Center, North Tower, 250 Vesey Street, New York, New York 10281, to the attention of Rodman D. Patton, Managing Director; and notices to the Company shall be directed to it at One Post Oak Central, 2000 Post Oak Boulevard, Suite 100, Houston, Texas 77056, to the attention of Zurab S. Kobiashvili, Vice President and General Counsel. SECTION 12. Parties. This Agreement and the Pricing Agreement shall each inure to the benefit of and be binding upon the Underwriters and the Company and their respective successors. Nothing expressed or mentioned in this Agreement or the Pricing Agreement is intended or shall be construed to give any person, firm or corporation, other than the Underwriters and the Company and their respective successors and the controlling persons and officers and directors referred to in Sections 6 and 7 hereof and their heirs and legal representatives, any legal or equitable right, remedy or claim under or in respect of this Agreement or the Pricing Agreement or any provision herein or therein contained. This Agreement and the Pricing Agreement and all conditions and provisions hereof and thereof are intended to be for the sole and exclusive benefit of the Underwriters and the Company and their respective successors, and said controlling persons and officers and directors and their heirs and legal representatives, and for the benefit of no other person, firm or corporation. No purchaser of Securities from any Underwriter shall be deemed to be a successor by reason merely of such purchase. SECTION 13. Governing Law and Time. This Agreement and the Pricing Agreement shall be governed by the laws of the State of New York applicable to agreements made and to be performed in said state. Except where otherwise provided, specified times of day refer to New York City time. -26- 28 If the foregoing is in accordance with your understanding of our agreement, please sign and return to us a counterpart hereof, whereupon this instrument along with all counterparts will become a binding agreement between the Company and each of the Underwriters in accordance with its terms. Very truly yours, APACHE CORPORATION By:__________________________________ Name: Title: CONFIRMED AND ACCEPTED, as of the date first above written: MERRILL LYNCH & CO. Merrill Lynch, Pierce, Fenner & Smith Incorporated and DEAN WITTER REYNOLDS INC. By: Merrill Lynch, Pierce, Fenner & Smith Incorporated By:________________________________________ Name: Title: For themselves and as Representatives of the Other Underwriters Named in Schedule A hereto. -27- 29 SCHEDULE A
Number of Initial Name of Underwriter Securities to be Purchased ------------------- -------------------------- Merrill Lynch, Pierce, Fenner & Smith Incorporated . . . . . . . . . . . . . . . . . . . . . . Dean Witter Reynolds Inc. . . . . . . . . . . . . . . . . . . . . . . . . --------- Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6,800,000 =========
-28- 30 SCHEDULE B MW Petroleum Corporation [Others] -29- 31 SCHEDULE C [APC Operating Partnership L.P. Apache 681/682 Joint Venture] -30- EX-5.1 3 OPINION OF LEGAL COUNSEL 1 EXHIBIT 5.1 [APACHE LETTERHEAD] August 28, 1995 Apache Corporation 2000 Post Oak Boulevard, Suite 100 Houston, Texas 77056-4400 Ladies and Gentlemen: I am General Counsel to Apache Corporation, a Delaware corporation (the "Company"), and am rendering this opinion in my capacity as such in connection with the registration under the Securities Act of 1933, as amended, of an aggregate of 7,820,000 shares of the Company's common stock, $1.25 par value ("Common Stock"), to be offered upon the terms and subject to the conditions set forth in a proposed Purchase Agreement by and between the Company and Merrill Lynch, Pierce Fenner & Smith Incorporated and Dean Witter Reynolds Inc. as representatives of the several underwriters (the "Purchase Agreement"). In connection therewith, I have examined the Registration Statement on Form S-3 (the "Registration Statement") covering the shares to be registered to be filed with the Securities and Exchange Commission, originals or copies certified or otherwise identified to my satisfaction of the Restated Certificate of Incorporation of the Company and the Bylaws of the Company, each as amended to date, the corporate proceedings with respect to the offering of shares and such other documents and instruments as I have deemed necessary or appropriate for the expression of the opinions contained herein. I have assumed the authenticity and completeness of all records, certificates and other instruments submitted to me as originals, the conformity to original documents of all records, certificates and other instruments submitted to me as copies, the authenticity and completeness of originals of those records, certificates and other instruments submitted to me as copies and the correctness of all statements of fact contained in all records, certificates and other instruments that I have examined. Based on the foregoing, and having regard for such legal considerations as I have deemed relevant, I am of the opinion that the 7,820,000 shares of Common Stock proposed to be issued have been duly and validy authorized for issuance and, when issued in accordance with the terms of the Purchase Agreement, which is to be filed as an exhibit to the Registration Statement, will be duly and validly issued, fully paid and nonassessable. 2 I hereby consent to the filing of this opinion as an exhibit to the Registration Statement and to the use of my name under the caption "Legal Matters" in the Prospectus included as part of the Registration Statement. Very truly yours, /s/ Z. S. KOBIASHVILI ---------------------- Z. S. Kobiashvili EX-23.1 4 CONSENT OF ARTHUR ANDERSEN LLP 1 EXHIBIT 23.1 CONSENT OF ARTHUR ANDERSEN LLP As independent public accountants, we hereby consent to the incorporation by reference in this registration statement of our report dated March 14, 1995 on the audited Statement of Combined Revenues and Direct Operating Expenses for the Oil and Gas Properties of Texaco Exploration and Production Inc. Sold to Apache Corporation and to the incorporation by reference in this registration statement of our report dated May 17, 1995 on the audited restated consolidated financial statements of Apache Corporation and subsidiaries included in Apache Corporation's Annual Report on Form 10-K/A for the year ended December 31, 1994, and to all references to our Firm included in this registration statement. ARTHUR ANDERSEN LLP Houston, Texas August 28, 1995 EX-23.2 5 CONSENT OF COOPERS & LYBRAND, CHARTERED ACCOUNTANT 1 EXHIBIT 23.2 [LETTERHEAD OF COOPERS & LYBRAND] CONSENT OF COOPERS & LYBRAND We consent to the incorporation by reference in this registration statement of Apache Corporation on Form S-3 of our report dated February 13, 1995 on our audits of the consolidated financial statements of DEKALB Energy Company as of December 31, 1994 and 1993 and for the years ended December 31, 1994, 1993 and 1992 and our report dated February 13, 1995 on our audit of the associated financial statement schedule of DEKALB Energy Company, which reports are incorporated by reference herein. We also consent to all references to our firm included in this registration statement of Apache Corporation on Form S-3. /s/ COOPERS & LYBRAND -------------------------------------- Coopers & Lybrand Chartered Accountants Calgary, Alberta, Canada August 28, 1995 EX-23.3 6 CONSENT OF RYDER SCOTT COMPANY PETROLEUM ENGINEERS 1 EXHIBIT 23.3 [RYDER SCOTT COMPANY PETROLEUM ENGINEERS LETTERHEAD] CONSENT As independent petroleum engineers, we hereby consent to the inclusion and/or incorporation by reference in this registration statement of Apache Corporation on Form S-3 of our Firm's review of the proved oil and gas reserve quantities of Apache Corporation, DEKALB Energy Company, and of certain properties acquired from Texaco Exploration and Production Inc. as of January 1, 1995, and to all references to our Firm's name and review included in this registration statement of Apache Corporation on Form S-3. /s/ RYDER SCOTT COMPANY PETROLEUM ENGINEERS Houston, Texas August 28, 1995 EX-23.4 7 CONSENT OF NETHERLAND, SEWELL & ASSOCIATES, INC. 1 EXHIBIT 23.4 [NETHERLAND, SEWELL & ASSOCIATES, INC. LETTERHEAD] CONSENT OF INDEPENDENT PETROLEUM ENGINEERS We hereby consent to the inclusion in this registration statement of Apache Corporation on Form S-3 to our Firm's report on proved oil and gas reserve quantities of Aquila Energy Resources Corporation, as of December 31, 1994, and to all references to our Firm's name and report included in this registration statement of Apache Corporation on Form S-3. NETHERLAND, SEWELL & ASSOCIATES, INC. By: /s/ DANNY D. SIMMONS ------------------------------------- Danny D. Simmons Senior Vice President Houston, Texas August 28, 1995 EX-99.1 8 REPORT OF RYDER SCOTT DATED JANUARY 20, 1995 1 EXHIBIT 99.1 [RYDER SCOTT COMPANY LETTERHEAD] January 20, 1995 Apache Corporation 2000 Post Oak Blvd., Suite 100 Houston, Texas 77056-4400 Gentlemen: At your request, Ryder Scott Company Petroleum Engineers (Ryder Scott) has reviewed estimates of proved hydrocarbon liquid and gas reserves as of January 1, 1995 attributable to interests of Apache Corporation (Apache) in the base properties and Crystal Oil Company in certain wells or locations. In our opinion, the overall proved reserves for the reviewed properties as estimated by Apache are reasonable. The estimates of reserves reviewed by Ryder Scott were prepared by engineers and geologists on the staff of Apache. The wells or locations for which estimates of reserves were reviewed by Ryder Scott were selected by Apache who informed Ryder Scott that these selected reserves compromised approximately 77.5 percent of the total discounted future net income at 10 percent attributable to the total interests of Apache including the 1994 Exploration Management System (EMS) wells. The summary tables below present the estimated net remaining proved reserves as of January 1, 1995 prepared by the staff of Apache and reviewed by Ryder Scott for both the Total Company, including EMS wells, and for the EMS wells only. Hydrocarbon liquid volumes are expressed in standard 42 gallon barrels. All gas volumes are expressed in millions of cubic feet (MMCF) at the offical temperature and pressure bases of the areas where the gas reserves are located.
SEC CASE Estimated Net Remaining Proved Reserves Attributable to the Interests of Apache Corporation (Including EMS) As of January 1, 1995 ---------------------------------------------------------------------------- Reviewed by Ryder Scott Not Reviewed Total ----------------------- ---------------------- ---------------------- Hydrocarbon Sales Hydrocarbon Sales Hydrocarbon Sales Liquids Gas Liquids Gas Liquids Gas MBarrels MMCF MBarrels MMCF MBarrels MMCF ----------- ----- ----------- ----- ----------- ----- Proved Reserves 69,038 730,131 25,123 260,133 94,161 990,264 Reserve** Adjustments 0 0 284 (5,976) 284 (5,976) ------- -------- ------- -------- ------- -------- Total Proved Reserves 69,038 730,131 25,407 254,157 94,445 984,288
** Gas Balancing, NPI After Payout, and Premium Pricing. 2 Apache Corporation January 20, 1995 Page 2 SEC CASE Estimated Net Remaining Proved Reserves Attributable to the Interests of The Apache 1994 Exploration Management System Wells Only As of January 1, 1995 ---------------------------------------------------------
Reviewed by Ryder Scott Not Reviewed Total ------------------------- ------------------------ -------------------- Hydrocarbon Sales Hydrocarbon Sales Hydrocarbon Sales Liquids Gas Liquids Gas Liquids Gas MBarrels MMCF MBarrels MMCF MBarrels MMCF ----------- ------- ----------- ------- ----------- ------- 6,444 170,091 0 0 6,444 170,091
The estimated quantities of reserves in this report are related to hydrocarbon prices. Apache has assured us that December 1994 hydrocarbon prices were used in the preparation of their projections as required by SEC guidelines; however, actual future prices may vary significantly from December 1994 prices. Therefore, quantities of reserves acutally recovered may differ significantly from the estimated quantities presented in this report. REVIEW PROCEDURE AND OPINION In our opinion, Apache's estimates of future reserves for the wells and locations reviewed by Ryder Scott were prepared in accordance with generally accepted procedures for the estimation of future reserves. In general, we were in acceptable agreement on an overall company net equivalent barrel basis (at 6 MCF per barrel) with the estimates prepared by Apache's staff. Certain technical personnel of Apache are responsible for the preparation of reserve estimates on new properties and for the preparation of revised estimates, when necessary, on old properties. These personnel assembled the necessary data and maintained the data and work papers in an orderly manner. Ryder Scott consulted with these technical personnel and had access to their work papers and supporting data in the course of our review. In performing our review, we relied upon data furnished by Apache with respect to property interests owned, production and well tests from examined wells, geological maps, well logs, core analyses, and pressure measurements. These data were accepted as authentic and sufficient for determining the reserves unless, during the course of our examination, a matter of question came to our attention in which case the data were not accepted until all questions were satisfactorily resolved. Our review included such tests and procedures as we considered necessary under the circumstances to render the conclusions set forth herein. RESERVE ESTIMATES In general, the reserves for the wells and locations reviewed by Ryder Scott were estimated by performance methods or the volumetric method; however, other methods were used in certain cases where characteristics of the data indicated such methods were more appropriate. The estimates of reserves by the performance method utilized extrapolations of various historical data in those cases where such data were definitive. Reserves were estimated by the volumetric method in those cases where there was inadequate historical data to establish a definitive trend or where the use of production performance data as a basis for the reserve estimates was considered to be inappropriate and the volumetric data were adequate for a reasonable estimate. RYDER SCOTT COMPANY PETROLEUM ENGINEERS 3 Apache Corporation January 20, 1995 Page 3 The reserves presented herein are estimates only and should not be construed as being exact quantities. Moreover, estimates of reserves may increase or decrease as a result of future operations. The proved reserves, which are attributable to the wells and locations reviewed by Ryder Scott, conform to the definition as set forth in the Securities and Exchange Commission's Regulation S-X Part 210.4-10 (a) as clarified by subsequent Commission Staff Accounting Bulletins and are based on the following definition and criteria: Proved reserves of crude oil, condensate, natural gas, and natural gas liquids are estimated quantities that geological and engineering data demonstrate with reasonable certainty to be recoverable in the future from known reservoirs under existing conditions. Reservoirs are considered proved if economic producibility is supported by actual production or formation tests. In certain instances, proved reserves are assigned on the basis of a combination of core analysis and electrical and other type logs which indicate the reservoirs are analogous to reservoirs in the same field which are producing or have demonstrated the ability to produce on a formation test. The area of a reservoir considered proved includes (1) that portion delineated by drilling and defined by fluid contacts, if any, and (2) the adjoining portions not yet drilled that can be reasonably judged as economically productive on the basis of available geological and engineering data. In the absence of data on fluid contacts, the lowest known structural occurrence of hydrocarbons controls the lower proved limit of the reservoir. Proved reserves are estimates of hydrocarbons to be recovered from a given date forward. They may be revised as hydrocarbons are produced and additional data become available. Proved natural gas reserves are comprised of non-associated, associated, and dissolved gas. An appropriate reduction in gas reserves has been made for the expected removal of natural gas liquids, for lease and plant fuel and the exclusion of non-hydrocarbon gases if they occur in significant quantities and are removed prior to sale. Reserves that can be produced economically through the application of improved recovery techniques are included in the proved classification when these qualifications are met: (1) successful testing by a pilot project or the operation of an installed program in the reservoir provides support for the engineering analysis on which the project or program was based, and (2) it is reasonably certain the project will proceed. Improved recovery includes all methods for supplementing natural reservoir forces and energy, or otherwise increasing ultimate recovery from a reservoir, including (1) pressure maintenance, (2) cycling, and (3) secondary recovery in its original sense. Improved recovery also includes the enhanced recovery methods of thermal, chemical flooding, and the use of miscible and immiscible displacement fluids. Estimates of proved reserves do not include crude oil, natural gas, or natural gas liquids being held in underground storage. GENERAL In general, the estimates of reserves for the wells and locations reviewed by Ryder Scott are based on data available through September 1994. Gas imbalances, if any, were not taken into account in the gas reserve estimates reviewed by Ryder Scott. Neither we nor any or our employees have any interest in the subject properties and neither the employment to do this work nor the compensation is contingent on our estimates of reserves for the properties which were reviewed. RYDER SCOTT COMPANY PETROLEUM ENGINEERS 4 Apache Corporation January 20, 1995 Page 4 This report was prepared for the exclusive use of Apache. The data and work papers used in the preparation of this report are available for examination by authorized parties in our offices. Please contact us if we can be of further service. Very truly yours, RYDER SCOTT COMPANY PETROLEUM ENGINEERS /s/ DON P. ROESLE Don P. Roesle, P.E. Group Vice President DPR/sw RYDER SCOTT COMPANY PETROLEUM ENGINEERS 5 [RYDER SCOTT COMPANY PETROLEUM ENGINEERS LETTERHEAD] January 23, 1995 Apache Corporation 2000 Post Oak Blvd., Suite 100 Houston, Texas 77056-4400 Gentlemen: At your request, Ryder Scott Company Petroleum Engineers (Ryder Scott) has reviewed estimates of proved hydrocarbon liquid and gas reserves prepared by Apache Corporation (Apache) as of January 1, 1995 attributable to interests of Apache Oil Australia PTY Ltd. (Apache Oil) and Hadson Energy Limited (Hadson Limited) in certain wells. In our opinion, the overall proved reserves for the reviewed properties as estimated by Apache are reasonable. The estimates of reserves reviewed by Ryder Scott were prepared by engineers and geologists on the staff of Apache. Apache has informed Ryder Scott that the estimates of reserves reviewed by Ryder Scott represent 100 percent of the total discounted future net income at 10 percent attributable to the interests of Apache Oil and Hadson Limited. The summary tables below present the estimated net remaining proved reserves as of January 1, 1995 prepared by the staff of Apache and reviewed by Ryder Scott. Hydrocarbon liquid volumes are expressed in standard 42 gallon barrels. SEC CASE Estimated Net Remaining Proved Reserves Attributable to the Interests of Apache Oil Australia PTY Ltd. And Hadson Energy Limited As of January 1, 1995 ------------------------------------------------------- Reviewed by Ryder Scott ----------------------- Hydrocarbon Sales Liquids Gas Barrels MMCF ----------- ------ Total Proved Reserves 5,463,093 31,971 The estimated quantities of reserves in this report are related to hydrocarbon prices. Apache has assured us that December 1994 hydrocarbon prices were used in the preparation of their projections as required by SEC guidelines; however, actual future prices may vary significantly from December 1994 prices. Therefore, quantities of reserves actually recovered may differ significantly from the estimated quantities presented in this report. Review Procedure and Opinion In our opinion, Apache's estimates of future reserves for the wells reviewed by Ryder Scott were prepared in accordance with generally accepted procedures for the estimation of future reserves. In general, we were in acceptable agreement on an overall company basis with the estimates prepared by Apache's staff. Certain technical personnel of Apache are responsible for the preparation of reserve estimates on new properties and for the preparation of revised estimates, when necessary, on old 6 Apache Corporation January 23, 1995 Page 2 properties. These personnel assembled the necessary data and maintained the data and work papers in an orderly manner. Ryder Scott consulted with these technical personnel and had access to their work papers and supporting data in the course of our review. In performing our review, we relied upon data furnished by Apache with respect to property interests owned, production and well tests from examined wells, geological maps, well logs, core analyses, and pressure measurements. These data were accepted as authentic and sufficient for determining the reserves unless, during the course of our examination, a matter of question came to our attention in which case the data were not accepted until all questions were satisfactorily resolved. Our review included such tests and procedures as we considered necessary under the circumstances to render the conclusions set forth herein. RESERVE ESTIMATES In general, the reserves for the wells and locations reviewed by Ryder Scott were estimated by performance methods or the volumetric method; however, other methods were used in certain cases where characteristics of the data indicated such methods were more appropriate. The estimates of reserves by the performance method utilized extrapolations of various historical data in those cases where such data were definitive. Reserves were estimated by the volumetric method in those cases where there was inadequate historical data to establish a definitive trend or where the use of production performance data as a basis for the reserve estimates was considered to be inappropriate and the volumetric data were adequate for a reasonable estimate. The reserves presented herein are estimates only and should not be construed as being exact quantities. Moreover, estimates of reserves may increase or decrease as a result of future operations. The proved reserves, which are attributable to the wells and locations reviewed by Ryder Scott, conform to the definition as set forth in the Securities and Exchange Commission's Regulation S-X Part 210.4-10(a) as clarified by subsequent Commission Staff Accounting Bulletins and are based on the following definition and criteria: Proved reserves of crude oil, condensate, natural gas, and natural gas liquids are estimated quantities that geological and engineering data demonstrate with reasonable certainty to be recoverable in the future from known reservoirs under existing conditions. Reservoirs are considered proved if economic producibility is supported by actual production or formation tests. In certain instances, proved reserves are assigned on the basis of a combination of core analysis and electrical and other type logs which indicate the reservoirs are analogous to reservoirs in the same field which are producing or have demonstrated the ability to produce on a formation test. The area of a reservoir considered proved includes (1) that portion delineated by drilling and defined by fluid contacts, if any, and (2) the adjoining portions not yet drilled that can be reasonably judged as economically productive on the basis of available geological and engineering data. In the absence of data on fluid contacts, the lowest known structural occurrence of hydrocarbons controls the lower proved limit of the reservoir. Proved reserves are estimates of hydrocarbons to be recovered from a given date forward. They may be revised as hydrocarbons are produced and additional data become available. Proved natural gas reserves are comprised of non-associated, associated, and dissolved gas. An appropriate reduction in gas reserves has been made for the expected removal of natural gas liquids, for lease and plant fuel and the exclusion of non-hydrocarbon gases if they occur in significant quantities and are removed prior to sale. Reserves that can 7 Apache Corporation January 23, 1995 Page 3 be produced economically through the application of improved recovery techniques are included in the proved classification when these qualifications are met: (1) successful testing by a pilot project or the operation of an installed program in the reservoir provides support for the engineering analysis on which the project or program was based, and (2) it is reasonably certain the project will proceed. Improved recovery includes all methods for supplementing natural reservoir forces and energy, or otherwise increasing ultimate recovery from a reservoir, including (1) pressure maintenance, (2) cycling, and (3) secondary recovery in its original sense. Improved recovery also includes the enhanced recovery methods of thermal, chemical flooding, and the use of miscible and immiscible displacement fluids. Estimates of proved reserves do not include crude oil, natural gas, or natural gas liquids being held in underground storage. General ------- In general, the estimates of reserves for the wells and locations reviewed by Ryder Scott are based on data available through October 1994. Neither we nor any of our employees have any interest in the subject properties and neither the employment to do this work nor the compensation is contingent on our estimates of reserves for the properties which were reviewed. This report was prepared for the exclusive use of Apache. The data and work papers used in the preparation of this report are available for examination by authorized parties in our offices. Please contact us if we can be of further service. Very truly yours, RYDER SCOTT COMPANY PETROLEUM ENGINEERS /s/ DON P. ROESLE Don P. Roesle, P.E. Group Vice President DPR/sw EX-99.2 9 REPORT OF RYDER SCOTT DATED FEBRUARY 6, 1995 1 EXHIBIT 99.2 [RYDER SCOTT COMPANY LETTERHEAD] February 6, 1995 DEKALB Energy Canada Ltd. 700 - 9th Avenue S.W. Calgary, Alberta T2P 3V4 Gentlemen: At your request, Ryder Scott Company Petroleum Engineers (Ryder Scott) has reviewed estimates of proved hydrocarbon liquid and gas reserves as of January 1, 1995 attributable to interests of DEKALB Energy Canada Ltd. (DEKALB) in certain wells or locations. In our opinion, the overall proved reserves for the reviewed properties as estimated by DEKALB are reasonable. The estimates of reserves reviewed by Ryder Scott were prepared by engineers and geologists on the staff of DEKALB. The wells or locations for which estimates of reserves were reviewed by Ryder Scott comprised approximately 83.9 percent of the total discounted future net income at 10 percent attributable to the total interests of DEKALB, according to economic forecasts supplied by DEKALB. The summary tables below present the estimated net remaining proved reserves as of January 1, 1995 prepared by the staff of DEKALB and reviewed by Ryder Scott for the total company. Hydrocarbon liquid volumes are expressed in standard 42 gallon barrels. All gas volumes are expressed in millions of cubic feet (MMCF) at the official temperature and pressure bases of the areas where the gas reserves are located.
SEC CASE Estimated Net Remaining Proved Reserves Attributable to the Interests of DEKALB Energy Canada Ltd. As of January 1, 1995 ---------------------------------------------------------------------------------- Reviewed by Ryder Scott Not Reviewed Total ----------------------- --------------------- ---------------------- Hydrocarbon Sales Hydrocarbon Sales Hydrocarbon Sales Liquids Gas Liquids Gas Liquids Gas MBarrels MMCF MBarrels MMCF MBarrels MMCF ----------- ----- ----------- ----- ----------- ------ Total Proved Reserves 8,473 249,689 2,243 50,207 10,716 299,896
The estimated quantities of reserves in this report are related to hydrocarbon prices. DEKALB has assured us that December 1994 hydrocarbon prices were used in the preparation of their projections as required by SEC guidelines; however, actual future prices may vary significantly from December 1994 prices. Therefore, quantities of reserves actually recovered may differ significantly from the estimated quantities presented in this report. Review Procedure and Opinion In our opinion, DEKALB's estimates of future reserves for the wells and locations reviewed by Ryder Scott were prepared in accordance with generally accepted procedures for the estimation of future reserves. In general, we were in acceptable agreement on an overall company net equivalent barrel basis (at 6 MCF per barrel) with the estimates prepared by DEKALB's staff. 2 DEKALB Energy Canada, Inc. February 6, 1995 Page 2 Certain technical personnel of DEKALB are responsible for the preparation of reserve estimates on new properties and for the preparation of revised estimates, when necessary, on old properties. These personnel assembled the necessary data and maintained the data and work papers in an orderly manner. Ryder Scott consulted with these technical personnel and had access to their work papers and supporting data in the course of our review. In performing our review, we relied upon data furnished by DEKALB with respect to property interests owned, production and well tests from examined wells, geological maps, well logs, core analyses, and pressure measurements. These data were accepted as authentic and sufficient for determining the reserves unless, during the course of our examination, a matter of question came to our attention in which case the data were not accepted until all questions were satisfactorily resolved. Our review included such tests and procedures as we considered necessary under the circumstances to render the conclusions set forth herein. RESERVE ESTIMATES In general, the reserves for the wells and locations reviewed by Ryder Scott were estimated by performance methods or the volumetric method; however, other methods were used in certain cases where characteristics of the data indicated such methods were more appropriate. The estimates of reserves by the performance method utilized extrapolations of various historical data in those cases where such data were definitive. Reserves were estimated by the volumetric method in those cases where there was inadequate historical data to establish a definitive trend or where the use of production performance data as a basis for the reserve estimates was considered to be inappropriate and the volumetric data were adequate for a reasonable estimate. The reserves presented herein are estimates only and should not be construed as being exact quantities. Moreover, estimates of reserves may increase or decrease as a result of future operations. The proved reserves, which are attributable to the wells and locations reviewed by Ryder Scott, conform to the definition as set forth in the Securities and Exchange Commission's Regulation S-X Part 210.4-10 (a) as clarified by subsequent Commission Staff Accounting Bulletins and are based on the following definition and criteria: Proved reserves of crude oil, condensate, natural gas, and natural gas liquids are estimated quantities that geological and engineering data demonstrate with reasonable certainty to be recoverable in the future from known reservoirs under existing conditions. Reservoirs are considered proved if economic producibility is supported by actual production or formation tests. In certain instances, proved reserves are assigned on the basis of a combination of core analysis and electrical and other type logs which indicate the reservoirs are analogous to reservoirs in the same field which are producing or have demonstrated the ability to produce on a formation test. The area of a reservoir considered proved includes (1) that portion delineated by drilling and defined by fluid contacts, if any, and (2) the adjoining portions not yet drilled that can be reasonably judged as economically productive on the basis of available geological and engineering data. In the absence of data on fluid contacts, the lowest known structural occurrence of hydrocarbons controls the lower proved limit of the reservoir. Proved reserves are estimates of hydrocarbons to be recovered from a given date forward. They may be revised as hydrocarbons are produced and additional data become available. Proved natural gas reserves are comprised of non-associated, associated, and RYDER SCOTT COMPANY PETROLEUM ENGINEERS 3 DEKALB ENERGY CANADA, LTD. February 6, 1995 Page 3 dissolved gas. An appropriate reduction in gas reserves has been made for the expected removal of natural gas liquids, for lease and plant fuel and the exclusion of non-hydrocarbon gases if they occur in significant quantities and are removed prior to sale. Reserves that can be produced economically through the application of improved recovery techniques are included in the proved classification when these qualifications are met: (1) successful testing by a pilot project or the operation of an installed program in the reservoir provides support for the engineering analysis on which the project or program was based, and (2) it is reasonably certain the project will proceed. Improved recovery includes all methods for supplementing natural reservoir forces and energy, or otherwise increasing ultimate recovery from a reservoir, including (1) pressure maintenance, (2) cycling, and (3) secondary recovery in its original sense. Improved recovery also includes the enhanced receovery methods of thermal, chemical flooding, and the use of miscible and immiscible displacement fluids. Estimates of proved reserves do not include crude oil, natural gas, or natural gas liquids being held in underground storage. GENERAL In general, the estimates of reserves for the wells and locations reviewed by Ryder Scott are based on data available through September 1994. Gas imbalances, if any, were not taken into account in the gas reserve estimates reviewed by Ryder Scott. Neither we nor any of our employees have any interest in the subject properties and neither the employment to do this work nor the compensation is contingent on our estimates of reserves for the properties which were reviewed. This report was prepared for the exclusive use of DEKALB. The data and work papers used in the preparation of this report are available for examination by authorized parties in our offices. Please contact us if we can be of further service. Very truly yours, RYDER SCOTT COMPANY PETROLEUM ENGINEERS /s/ KENT A. WILLIAMSON ------------------------ Kent A. Williamson, P.E. Group Vice President KAW/sw RYDER SCOTT COMPANY PETROLEUM ENGINEERS EX-99.3 10 REPORT OF RYDER SCOTT DATED AUGUST 21, 1995 1 EXHIBIT 99.3 [RYDER SCOTT COMPANY LETTERHEAD] August 21, 1995 Apache Corporation 2000 Post Oak Blvd., Suite 100 Houston, Texas 77056-4400 Gentlemen: At your request, Ryder Scott Company Petroleum Engineers (Ryder Scott) has reviewed estimates of proved hydrocarbon liquid and gas reserves as of January 1,1995 attributable to interests of Apache Corporation (Apache) in specified Texaco acquisition properties. In our opinion, the overall proved reserves for the reviewed properties as estimated by Apache are reasonable. The estimates of reserves reviewed by Ryder Scott were prepared by engineers and geologists on the staff of Apache. The wells or locations for which estimates of reserves were reviewed by Ryder Scott were selected by Apache who informed Ryder Scott that these selected reserves compromised approximately 85 percent of the total discounted future net income at 10 percent attributable to the total interests of Apache. The summary tables below present the estimated net remaining proved reserves as of January 1, 1995 prepared by the staff of Apache and reviewed by Ryder Scott. Hydrocarbon liquid volumes are expressed in standard 42 gallon barrels. All gas volumes are expressed in millions of cubic feet (MMCF) at the official temperature and pressure bases of the areas where the gas reserves are located.
SEC CASE Estimated Net Remaining Proved Reserves Attributable to the Interests of Apache Corporation - Specified Texaco Acquisition Properties As of January 1, 1995 ---------------------------------------------------------------------------- Reviewed by Ryder Scott Not Reviewed Total ----------------------- ---------------------- ---------------------- Hydrocarbon Sales Hydrocarbon Sales Hydrocarbon Sales Liquids Gas Liquids Gas Liquids Gas MBarrels MMCF MBarrels MMCF MBarrels MMCF ----------- ----- ----------- ----- ----------- ----- Total Proved Reserves 57,923 144,920 15,674 41,575 73,597 186,495
The estimated quantities of reserves in this report are related to hydrocarbon prices. Apache has assured us that December 1994 hydrocarbon prices were used in the preparation of their projections as required by SEC guidelines; however, actual future prices may vary significantly from December 1994 prices. Therefore, quantities of reserves actually recovered may differ significantly from the estimated quantities presented in this report. 2 APACHE CORPORATION January 20, 1995 Page 2 REVIEW PROCEDURE AND OPINION In our opinion, Apache's estimates of future reserves for the wells and locations reviewed by Ryder Scott were prepared in accordance with generally accepted procedures for the estimation of future reserves. In general, we were in acceptable agreement on an overall company net equivalent barrel basis (at 6 MCF per barrel) with the estimates prepared by Apache's staff. Certain technical personnel of Apache are responsible for the preparation of reserve estimates on new properties and for the preparation of revised estimates, when necessary, on old properties. These personnel assembled the necessary data and maintained the data and work papers in an orderly manner. Ryder Scott consulted with these technical personnel and had access to their work papers and supporting data in the course of our review. In performing our review, we relied upon data furnished by Apache with respect to property interests owned, production and well tests from examined wells, geological maps, well logs, core analyses, and pressure measurements. These data were accepted as authentic and sufficient for determining the reserves unless, during the course of our examination, a matter of question came to our attention in which case the data were not accepted until all questions were satisfactorily resolved. Our review included such tests and procedures as we considered necessary under the circumstances to render the conclusions set forth herein. RESERVE ESTIMATES In general, the reserves for the wells and locations reviewed by Ryder Scott were estimated by performance methods or the volumetric method; however, other methods were used in certain cases where characteristics of the data indicated such methods were more appropriate. The estimates of reserves by the performance method utilized extrapolations of various historical data in those cases where such data were definitive. Reserves were estimated by the volumetric method in those cases where there was inadequate historical data to establish a definitive trend or where the use of production performance data as a basis for the reserve estimates was considered to be inappropriate and the volumetric data were adequate for a reasonable estimate. The reserves presented herein are estimates only and should not be construed as being exact quantities. Moreover, estimates of reserves may increase or decrease as a result of future operations. The proved reserves, which are attributable to the wells and locations reviewed by Ryder Scott, conform to the definition as set forth in the Securities and Exchange Commission's Regulation S-X Part 210.4-10 (a) as clarified by subsequent Commission Staff Accounting Bulletins and are based on the following definition and criteria: Proved reserves of crude oil, condensate, natural gas, and natural gas liquids are estimated quantities that geological and engineering data demonstrate with reasonable certainty to be recoverable in the future from known reservoirs under existing conditions. Reservoirs are considered proved if economic producibility is supported by actual production or formation tests. In certain instances, proved reserves are assigned on the basis of a combination of core analysis and electrical and other type logs which indicate the reservoirs are analogous to reservoirs in the same field which are producing or have demonstrated the ability to produce on a formation test. The area of a reservoir considered proved includes (1) that portion delineated by drilling and defined by fluid contacts, if any, and (2) the adjoining RYDER SCOTT COMPANY PETROLEUM ENGINEERS 3 APACHE CORPORATION January 20, 1995 Page 3 portions not yet drilled that can be reasonably judged as economically productive on the basis of available geological and engineering data. In the absence of data on fluid contacts, the lowest known structural occurrence of hydrocarbons controls the lower proved limit of the reservoir. Proved reserves are estimates of hydrocarbons to be recovered from a given date forward. They may be revised as hydrocarbons are produced and additional data become available. Proved natural gas reserves are comprised of non-associated, associated, and dissolved gas. An appropriate reduction in gas reserves has been made for the expected removal of natural gas liquids, for lease and plant fuel and the exclusion of non-hydrocarbon gases if they occur in significant quantities and are removed prior to sale. Reserves that can be produced economically through the application of improved recovery techniques are included in the proved classification when these qualifications are met: (1) successful testing by a pilot project or the operation of an installed program in the reservoir provides support for the engineering analysis on which the project or program was based, and (2) it is reasonably certain the project will proceed. Improved recovery includes all methods for supplementing natural reservoir forces and energy, or otherwise increasing ultimate recovery from a reservoir, including (1) pressure maintenance, (2) cycling, and (3) secondary recovery in its original sense. Improved recovery also includes the enhanced recovery methods of thermal, chemical flooding, and the use of miscible and immiscible displacement fluids. Estimates of proved reserves do not include crude oil, natural gas, or natural gas liquids being held in underground storage. GENERAL In general, the estimates of reserves for the wells and locations reviewed by Ryder Scott are based on data available through September 1994. Gas imbalances, if any, were not taken into account in the gas reserve estimates reviewed by Ryder Scott. Neither we nor any of our employees have any interest in the subject properties and neither the employment to do this work nor the compensation is contingent on our estimates of reserves for the properties which were reviewed. This report was prepared for the exclusive use of Apache. The data and work papers used in the preparation of this report are available for examination by authorized parties in our offices. Please contact us if we can be of further service. Very truly yours, RYDER SCOTT COMPANY PETROLEUM ENGINEERS /s/ DON P. ROESLE --------------------- Don P. Roesle, P.E. Senior Vice President DPR/sw RYDER SCOTT COMPANY PETROLEUM ENGINEERS EX-99.4 11 REPORT OF NETHERLAND, SEWELL & ASSOC. DATED , 1995 1 EXHIBIT 99.4 [NETHERLAND, SEWELL & ASSOCIATES, INC. LETTERHEAD] January 19, 1995 Mr. David L. Wilson Aquila Energy Resource Corporation Suite 700 10370 Richmond Avenue Houston, Texas 77042 Dear Mr. Wilson: In accordance with your request, we have estimated the proved reserves and future revenue, as of January 1, 1995, to the Aquila Energy Resources Corporation (Aquila) interest in certain oil and gas properties located in the United States as listed in the accompanying tabulations. This report is based on constant prices and costs in accordance with the guidelines of the Securities and Exchange Commission (SEC). As presented in the accompanying summary projections, Tables I through IV, we estimate the net reserves and future net revenue to the Aquila interest, as of January 1, 1995, to be:
Net Reserves Future Net Revenue ------------------------- ------------------------------ Oil Gas Present Worth Category (Barrels) (MCF) Total at 10% -------- --------- ----------- ------------ ------------- Proved Developed Producing 1,432,751 60,614,450 $ 62,871,600 $53,092,600 Non-Producing 678,905 22,560,062 30,563,700 20,363,000 Proved Undeveloped 669,335 23,359,988 29,413,300 18,411,700 --------- ----------- ------------ ----------- Total Proved 2,780,991 106,534,500 $122,848,600 $91,867,300
The oil reserves shown include crude oil and condensate. Oil volumes are expressed in barrels which are equivalent to 42 United States gallons. Gas volumes are expressed in thousands of standard cubic feet (MCF) at the contract temperature and pressure bases. As shown in the Table of Contents, this report includes summary projections of reserves and revenue for each reserve category along with one-line summaries of reserves, economics, and basic data by lease. For the purposes of this report, the term "lease" refers to a single economic projection. The estimated reserves and future revenue shown in this report are for proved developed producing, proved developed non-producing, and proved undeveloped reserves. In accordance with SEC Guidelines, our estimates do not 2 [NETHERLAND, SEWELL & ASSOCIATES, INC. LETTERHEAD] inlcude any value for probable or possible reserves which may exist for these properties. This report does not include any value which could be attributed to interests in undeveloped acreage beyond those tracts for which undeveloped reserves have been estimated. Future gross revenue to the Aquila interest is prior to deducting state production taxes and ad valorem taxes. Future net revenue is after deducting these taxes, future capital costs, and operating expenses, but before consideration of federal income taxes; future net revenue for the offshore properties is also after deducting abandonment costs. In accordance with SEC guidelines, the future net revenue has been discounted at an annual rate of 10 percent to determine its "present worth." The present worth is shown to indicate the effect of time on the value of money and should not be construed as being the fair market value of the properties. For the purposes of this report, a field inspection of the properties has not been performed nor has the mechanical operation or condition of the wells and their related facilities been examined. We have not investigated possible environmental liability related to the properties; therefore, our estimates do not include any costs which may be incurred due to such prossible liability. Our estimates of future revenue do not include any salvage value for the lease and well equipment nor the cost of abandoning the onshore properties. Future revenue estimates for offshore properties also do not include any salvage value for the lease and well equipment, but do include our estimates of the costs to abandon the wells, platforms, and production facilities. Abandonment costs for offshore properties are included with other capital investments. Oil prices used in this report are based on a January 1, 1995 West Texas Intermediate posted price of $16.00 per barrel, adjusted by lease for gravity, transportation fees, and regional posted price differentials. Gas prices used in this report are based on those prices received for each lease on January 1, 1995. Oil and gas prices are held constant in accordance with SEC guidelines. Lease and well operating costs are based on operating expense records of Aquila. These costs include the per-well overhead expenses allowed under joint operating agreements along with costs estimated to be incurred at and below the district and field levels. Headquarters general and administrative overhead expenses of Aquila are not included. Lease and well operating costs are held constant in accordance with SEC guidelines. Capital costs are included as required for workovers, new development wells, and production equipment. We have made no investigation of potential gas volume and value imbalances which may have resulted from overdelivery or underdelivery to the Aquila interest. Therefore, our estimates of reserves and future revenue do not include adjustments for the settlement of any such imbalances; our projections are based on Aquila receiving its net revenue interest share of estimated future gross gas production. 3 [NETHERLAND, SEWELL & ASSOCIATES, INC. LETTERHEAD] The reserves included in this report are estimates only and should not be construed as exact quantities. They may or may not be recovered; if recovered, the revenues therefrom and the costs related thereto could be more or less than the estimated amounts. The sales rates, prices received for the reserves, and costs incurred in recovering such reserves may vary from assumptions included in this report due to governmental policies and uncertainties of supply and demand. Also, estimates of reserves may increase or decrease as a result of future operations. In evaluating the information at our disposal concerning this report, we have excluded from our consideration all matters as to which legal or accounting, rather than engineering, interpretation may be controlling. As in all aspects of oil and gas evaluation, there are uncertainties inherent in the interpretation of engineering data; therefore, our conclusions necessarily represent only informed professional judgments. The titles to the properties have not been enamined by Netherland, Sewell & Associates, Inc., nor has the actual degree or type of interest owned been independently confirmed. The data used in our estimates were obtained from Aquila Energy Resources Corporation, other interest owners, various operators of the properties, and the nonconfidential files of Netherland, Sewell & Associates, Inc. and were accepted as accurate. We are independent petroleum engineers and geologists; we do not own an interest in these properties and are not employed on a contingent basis. Basic geologic and field performance data together with our engineering work sheets are maintained on file in our office. Very truly yours, /s/ FREDERIC D. SEWELL ------------------------------------ JJS: CLM 4 [NETHERLAND, SEWELL & ASSOCIATES, INC.] TABLE OF CONTENTS
Table/Page Number ---------- SUMMARY PROJECTIONS OF RESERVES AND REVENUE Total Proved Reserves I Proved Developed Producing Reserves II Proved Developed Non-Producing Reserves III Proved Undeveloped Reserves IV PROVED DEVELOPED PRODUCING RESERVES Summary Projection of Reserves and Revenue 1 Reserve, Economics, and Basic Data 2 PROVED DEVELOPED NON-PRODUCING RESERVES Summary Projection of Reserves and Revenue 50 Reserves, Economics, and Basic Data 51 PROVED UNDEVELOPED RESERVES Summary Projection of Reserves and Revenue 63 Reserves, Economics, and Basic Data 64
5 SUMMARY PROJECTION OF RESERVES AND REVENUE AS OF 1-1-95
AQUILA ENERGY RESOURCES CORPORATION INTEREST SUMMARY - ALL PROPERTIES AQUILA ENERGY RESOURCES CORP TOTAL PROVED RESERVES TOTAL PROVED RESERVES GROSS REVENUE INCL PROD+ADVAL TAXES PERIOD GROSS NET GROSS NET ------------------------ PROD+AV NET CAP OPERATING NET CUM P.W. ENDING OIL/COND OIL/COND GAS GAS OIL GAS TOTAL TAXES INVSTMT EXPENSE REVENUE 10.000% ------ MB------ MB------ MMF--- MMF--- M$--- M$--- M$---- M$----- M$----- M$----- M$----- M$------ 12-31-95 2405.315 800.887 69443.035 24484.763 12868.9 42605.2 55474.1 1957.8 16986.5 11476.5 25053.3 23797.7 12-31-96 1626.605 560.745 56815.623 19754.599 9054.6 34431.3 43485.9 1562.9 5915.7 10029.9 25977.4 46377.9 12-31-97 1684.970 497.389 43512.086 15305.463 8033.5 26683.0 34716.5 1375.8 5304.1 9040.9 18995.7 61267.1 12-31-98 1058.780 300.692 33891.808 11523.318 4867.2 20052.5 24919.7 1175.2 3370.4 6706.6 13667.5 71057.0 12-31-99 763.132 166.363 28138.691 8704.820 2673.6 15249.7 17923.3 915.0 423.5 4170.4 12414.4 79137.7 12-31- 0 472.304 102.864 18661.219 5607.933 1649.1 9706.2 11355.3 720.7 1476.1 3066.3 6092.2 82721.1 12-31- 1 392.726 88.385 14207.524 4368.328 1415.2 7527.9 8943.1 636.1 436.9 2595.4 5274.7 85557.0 12-31- 2 269.776 63.147 11567.229 3589.056 1010.8 6182.5 7193.3 503.4 77.3 2291.0 4321.6 87670.3 12-31- 3 258.739 59.093 9768.727 3056.334 945.8 5268.3 6214.1 439.0 103.7 2069.1 3602.3 89273.3 12-31- 4 198.381 45.871 7896.280 2485.928 733.9 4276.3 5010.2 352.6 590.1 1813.6 2253.9 90191.8 12-31- 5 62.889 19.162 5370.934 1839.349 306.6 3135.2 3441.8 230.5 39.2 1360.1 1812.0 90856.9 12-31- 6 51.862 16.182 4375.623 1555.694 259.2 2650.8 2910.0 193.6 0.0 1252.9 1463.5 91345.0 12-31- 7 42.197 13.603 3455.181 1289.663 217.5 2195.6 2413.1 160.3 30.0 1122.7 1100.1 91678.9 12-31- 8 36.646 14.095 2721.918 1104.689 225.6 1879.8 2105.4 141.5 0.0 1026.2 937.7 91937.8 12-31- 9 28.292 10.473 1904.692 761.036 167.7 1293.7 1461.4 98.8 0.0 888.4 474.2 92056.6 SUBTOTAL 9352.614 2758.951 311730.570 105430.973 44429.2 183138.0 227567.2 10463.2 34753.5 58910.0 123440.5 92056.6 REMAING 57.920 22.040 4793.915 1103.527 353.6 1869.7 2223.3 165.7 1675.0 974.5 -591.9 91867.3 TOTAL OF 29.2 YRS 9410.534 2780.991 316524.485 106534.500 44782.8 185007.7 229790.5 10628.9 36428.5 59884.5 122848.6 91867.3 CUM PROD 35229.436 1257152.726 ULTIMATE 44639.970 1573677.211
ALL ESTIMATES HEREIN ARE PART OF THE NETHERLAND, SEWELL REPORT AND ARE SUBJECT TO ITS PARAMETERS AND CONDITIONS. NETHERLAND, SEWELL & ASSOCIATES, INC. - DALLAS & HOUSTON BASED ON CONSTANT PRICES AND COSTS PRESENT WORTH PROFILE FOR 12.00 PCT, PRESENT WORTH M$ 87536.4 FOR 15.00 PCT, PRESENT WORTH M$ 81804.9 FOR 18.00 PCT, PRESENT WORTH M$ 76831.5 FOR 20.00 PCT, PRESENT WORTH M$ 73866.4 FOR 25.00 PCT, PRESENT WORTH M$ 67449.7 TABLE I 6 SUMMARY PROJECTION OF RESERVES AND REVENUE AS OF 1 -1 -95
AQUILA ENERGY RESOURCES CORPORATION INTEREST SUMMARY - ALL PROPERTIES AQUILA ENERGY RESOURCES CORP PROVED DVLPD PRODUCING RESERVES PROVED DEVELOPED PRODUCING RESERVES GROSS REVENUE INCL PROD+ADVAL TAXES PERIOD GROSS NET GROSS NET --------------------- PROD+AV NET CAP OPERATING NET CUM P.W. ENDING OIL/COND OIL/COND GAS GAS OIL GAS TOTAL TAXES INVSTMT EXPENSE REVENUE 10.000% -------- MB------ MB------ MMF------ MMF------ M$----- M$----- M$----- M$---- M$--- M$----- M$----- M$----- 12-31-95 2145.543 691.827 56062.564 19680.841 11120.5 33968.4 45088.9 1637.6 4447.6 11281.6 27722.1 26359.2 12-31-96 1110.483 375.781 35210.199 12427.767 6067.0 21495.2 27562.2 1075.4 4206.7 8735.8 13544.3 38119.0 12-31-97 499.914 126.350 22976.987 7592.431 2012.7 13097.8 15110.5 768.0 447.9 5225.3 8669.3 44946.6 12-31-98 282.549 66.233 16491.759 5077.541 1062.7 8722.0 9784.7 576.5 1224.7 3976.7 4006.8 47813.4 12-31-99 177.984 38.459 12628.717 3755.194 617.6 6420.2 7037.8 445.9 126.2 3159.8 3305.9 49963.9 12-31- 0 121.089 27.597 9289.123 2700.260 442.0 4605.4 5047.4 348.9 900.0 2217.1 1581.4 50884.5 12-31- 1 94.293 22.124 7511.223 2185.889 354.4 3726.1 4080.5 285.5 166.7 1839.0 1789.3 51844.9 12-31- 2 76.233 18.169 5992.724 1704.762 291.0 2904.1 3195.1 222.1 0.0 1544.4 1428.6 52543.0 12-31- 3 60.228 14.891 4802.977 1346.552 238.5 2294.1 2532.6 175.8 0.0 1354.6 1002.2 52988.6 12-31- 4 47.377 12.051 3892.776 1072.068 192.9 1826.3 2019.2 139.6 0.0 1214.4 665.2 53257.4 12-31- 5 39.234 10.093 3178.250 868.201 161.7 1478.4 1640.1 112.6 0.0 1125.1 402.4 53405.2 12-31- 6 33.387 8.602 2516.694 696.173 137.9 1185.0 1322.9 90.3 0.0 1044.7 187.9 53467.1 12-31- 7 27.456 7.056 1953.273 551.218 113.2 937.2 1050.4 72.0 0.0 972.1 6.3 53468.4 12-31- 8 20.829 5.296 1490.170 421.903 85.0 716.2 801.2 54.3 0.0 880.0 -133.1 53431.4 12-31- 9 16.958 3.909 1055.453 244.995 62.6 415.0 477.6 33.3 1400.0 483.1 -1438.8 53065.9 SUBTOTAL 4753.557 1428.438 185052.889 60325.795 22959.7 103791.4 126751.1 6037.8 12919.8 45053.7 62739.8 53065.9 REMAING 23.480 4.313 1874.758 288.655 69.3 473.2 542.5 39.0 0.0 371.7 131.8 53092.6 TOTAL OF 23.7 YRS 4777.037 1432.751 186927.647 60614.450 23029.0 104264.6 127293.6 6076.8 12919.8 45425.4 62871.6 53092.6 CUM PROD 34890.898 1245942.437 ULTIMATE 39667.935 1432870.084
ALL ESTIMATES HEREIN ARE PART OF THE NETHERLAND, SEWELL REPORT AND ARE SUBJECT TO ITS PARAMETERS AND CONDITIONS. NETHERLAND, SEWELL & ASSOCIATES, INC. - DALLAS & HOUSTON BASED ON CONSTANT PRICES AND COSTS PRESENT WORTH PROFILE FOR 12.00 PCT, PRESENT WORTH M$ 51543.7 FOR 15.00 PCT, PRESENT WORTH M$ 49421.6 FOR 18.00 PCT, PRESENT WORTH M$ 47508.7 FOR 20.00 PCT, PRESENT WORTH M$ 46334.7 FOR 25.00 PCT, PRESENT WORTH M$ 43707.6 Table II 7 SUMMARY PROJECTION OF RESERVES AND REVENUE AS OF 1-1-95
AQUILA ENERGY RESOURCES CORPORATION INTEREST SUMMMARY - ALL PROPERTIES AQUILA ENERGY RESOURCES CORP PROVED DVLPD NON-PRODG RESERVES PROVED DEVELOPED NON-PRODUCING RESERVES GROSS REVENUE INCL PROD+ADVAL TAXES PERIOD GROSS NET GROSS NET ----------------------- PROD+AV NET CAP OPERATING NET CUM P.W. ENDING OIL/COND OIL/COND GAS GAS OIL GAS TOTAL TAXES INVSTMT EXPENSE REVENUE 10.000% ----- MB-------- MB-------- MMF------ MMF----- M$---- M$---- M$----- M$----- M$------ M$------- M$----- M$------ 12-31-95 79.739 13.348 5487.305 1161.886 216.8 2036.4 2253.2 108.4 499.6 84.2 1561.0 1464.0 12-31-96 380.221 105.064 12766.849 3159.344 1708.6 5468.3 7176.9 210.8 347.0 1012.7 5606.4 6317.7 12-31-97 802.883 265.327 11723.500 4067.373 4329.4 7039.5 11368.9 246.1 2839.7 3450.7 4832.4 10078.4 12-31-98 372.950 140.720 10066.263 3715.490 2304.6 6457.1 8761.7 250.0 2145.7 2358.4 4007.6 12951.7 12-31-99 234.726 52.270 9718.133 2937.215 845.8 5257.0 6102.8 168.1 197.3 630.5 5106.9 16273.8 12-31- 0 87.383 21.850 5176.374 1613.970 352.5 2842.1 3194.6 131.2 520.6 492.6 2050.2 17480.8 12-31- 1 51.905 16.545 2970.818 1032.451 265.3 1793.2 2058.5 132.8 241.5 417.2 1267.0 18162.2 12-31- 2 32.803 11.533 2698.062 919.801 184.7 1601.1 1785.8 115.1 44.0 409.2 1217.5 18757.4 12-31- 3 20.935 7.984 2282.388 827.167 127.8 1437.8 1565.6 100.5 75.0 385.0 1005.1 19205.9 12-31- 4 12.878 5.237 2151.349 732.596 83.7 1272.6 1356.3 86.5 545.7 336.1 388.0 19370.1 12-31- 5 13.888 4.904 1212.250 497.724 78.4 850.0 928.4 61.7 39.2 127.8 699.7 19626.5 12-31- 6 10.597 4.044 1052.050 440.926 64.7 752.9 817.6 54.2 0.0 115.7 647.7 19842.9 12-31- 7 8.375 3.460 849.722 363.752 55.1 620.7 675.8 44.8 30.0 70.8 530.2 20004.2 12-31- 8 10.053 5.954 636.649 331.861 95.3 566.3 661.6 46.5 0.0 66.5 548.6 20155.8 12-31- 9 7.204 4.271 289.070 157.203 68.5 268.4 336.9 25.2 0.0 25.5 286.2 20227.7 SUBTOTAL 2126.540 662.511 69080.782 21958.759 10781.2 38263.4 49044.6 1781.9 7525.3 9982.9 29754.5 20227.7 REMAING 31.436 16.394 2469.285 601.303 263.0 1032.9 1295.9 102.4 125.0 259.3 809.2 20363.0 TOTAL OF 29.2 YRS 2157.976 678.905 71550.067 22560.062 11044.2 39296.3 50340.5 1884.3 7650.3 10242.2 30563.7 20363.0 CUM PROD 71.648 4076.843 ULTIMATE 2229.624 75626.910
ALL ESTIMATES HEREIN ARE PART OF THE NETHERLAND, SEWELL REPORT AND ARE SUBJECT TO ITS PARAMETERS AND CONDITIONS. NETHERLAND, SEWELL & ASSOCIATES, INC. - DALLAS & HOUSTON BASED ON CONSTANT PRICES AND COSTS PRESENT WORTH PROFILE FOR 12.00 PCT, PRESENT WORTH M$ 19048.3 FOR 15.00 PCT, PRESENT WORTH M$ 17343.2 FOR 18.00 PCT, PRESENT WORTH M$ 15897.6 FOR 20.00 PCT, PRESENT WORTH M$ 15050.8 FOR 25.00 PCT, PRESENT WORTH M$ 13254.5 TABLE III 8 SUMMARY PROJECTION OF RESERVES AND REVENUE AS OF 1-1-95
AQUILA ENERGY RESOURCES CORPORATION INTEREST SUMMARY - ALL PROPERTIES AQUILA ENERGY RESOURCES CORP PROVED UNDEVELOPED RESERVES PROVED UNDEVELOPED RESERVES GROSS REVENUE INCL PROD+ADVAL TAXES PERIOD GROSS NET GROSS NET --------------------- PROD+AV NET CAP OPERATING NET CUM P.W. ENDING OIL/COND OIL/COND GAS GAS OIL GAS TOTAL TAXES INVSTNT EXPENSE REVENUE 10.000% -------- MB----- MB----- MMF----- MMF----- M$---- M$----- M$----- M$----- M$----- M$---- M$----- M$------ 12-31-95 180.033 95.712 7893.166 3642.036 1531.6 6600.4 8132.0 211.8 12039.3 110.7 -4229.8 -4025.5 12-31-96 135.901 79.900 8838.575 4167.488 1279.0 7467.8 8746.8 276.7 1362.0 281.4 6826.7 1941.2 12-31-97 382.173 105.712 8811.599 3645.659 1691.4 6545.7 8237.1 361.7 2016.5 364.9 5494.0 6242.1 12-31-98 403.281 93.739 7333.786 2730.287 1499.9 4873.4 6373.3 348.7 0.0 371.5 5653.1 10291.9 12-31-99 350.422 75.634 5791.841 2012.411 1210.2 3572.5 4782.7 301.0 100.0 380.1 4001.6 12900.0 12-31- 0 263.832 53.417 4195.722 1293.703 854.6 2258.7 3113.3 240.6 55.5 356.6 2460.6 14355.8 12-31- 1 246.528 49.716 3725.483 1149.988 795.5 2008.6 2804.1 217.8 28.7 339.2 2218.4 15549.9 12-31- 2 160.740 33.445 2876.443 964.493 535.1 1677.3 2212.4 166.2 33.3 337.4 1675.5 16369.9 12-31- 3 177.576 36.218 2683.362 882.615 579.5 1536.4 2115.9 162.7 28.7 329.5 1595.0 17078.8 12-31- 4 138.126 28.583 1852.155 681.264 457.3 1177.4 1634.7 126.5 44.4 263.1 1200.7 17564.3 12-31- 5 9.767 4.165 980.434 473.424 66.5 806.8 873.3 56.2 0.0 107.2 709.9 17825.2 12-31- 6 7.878 3.536 806.879 418.595 56.6 712.9 769.5 49.1 0.0 92.5 627.9 18035.0 12-31- 7 6.366 3.087 652.186 374.693 49.2 637.7 686.9 43.5 0.0 79.8 563.6 18206.3 12-31- 8 5.764 2.845 595.099 350.925 45.3 597.3 642.6 40.7 0.0 79.7 522.2 18350.6 12-31- 9 4.130 2.293 560.169 358.838 36.6 610.3 646.9 40.3 -1400.0 379.8 1626.8 18763.0 SUBTOTAL 2472.517 668.002 57596.899 23146.419 10688.3 41083.2 51771.5 2643.5 14308.4 3873.4 30946.2 18763.0 REMAING 3.004 1.333 449.872 213.569 21.3 363.6 384.9 24.3 1550.0 343.5 -1532.9 18411.7 TOTAL OF 17.2 YRS 2475.521 669.335 58046.771 23359.988 10709.6 41446.8 52156.4 2667.8 15858.4 4216.9 29413.3 18411.7 CUM PROD 266.890 7133.446 ULTIMATE 2742.411 65180.217
ALL ESTIMATES HEREIN ARE PART OF THE NETHERLAND, SEWELL REPORT AND ARE SUBJECT TO ITS PARAMETERS AND CONDITIONS. NETHERLAND, SEWELL & ASSOCIATES, INC. - DALLAS & HOUSTON BASED ON CONSTANT PRICES AND COSTS PRESENT WORTH PROFILE FOR 12.00 PCT, PRESENT WORTH M$ 16944.4 FOR 15.00 PCT, PRESENT WORTH M$ 15040.1 FOR 18.00 PCT, PRESENT WORTH M$ 13425.2 FOR 20.00 PCT, PRESENT WORTH M$ 12480.9 FOR 25.00 PCT, PRESENT WORTH M$ 10487.6 Table IV