-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, RP3QXw9CD58l3rp5vjSKH9i9GZ6ebCH6YmtaLe1DKp3PYnakvEZGK7Bx6MPEnANw Vuqb/ELBE0i47yX8gmw7rg== 0000950129-99-002240.txt : 19990517 0000950129-99-002240.hdr.sgml : 19990517 ACCESSION NUMBER: 0000950129-99-002240 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 19990331 FILED AS OF DATE: 19990514 FILER: COMPANY DATA: COMPANY CONFORMED NAME: APACHE CORP CENTRAL INDEX KEY: 0000006769 STANDARD INDUSTRIAL CLASSIFICATION: CRUDE PETROLEUM & NATURAL GAS [1311] IRS NUMBER: 410747868 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 001-04300 FILM NUMBER: 99623123 BUSINESS ADDRESS: STREET 1: 2000 POST OAK BLVD STREET 2: ONE POST OAK CENTER STE 100 CITY: HOUSTON STATE: TX ZIP: 77056-4400 BUSINESS PHONE: 7132966000 MAIL ADDRESS: STREET 1: 2000 POST OAK BLVD STREET 2: STE 100 CITY: HOUSTON STATE: TX ZIP: 77056-4400 FORMER COMPANY: FORMER CONFORMED NAME: APACHE OIL CORP DATE OF NAME CHANGE: 19660830 10-Q 1 APACHE CORPORATION - DATD 03/31/99 1 SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-Q [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the Quarterly Period Ended March 31, 1999 OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the Transition Period from ___________________ to _____________________ Commission File Number 1-4300 APACHE CORPORATION ------------------------------------------------------ (Exact Name of Registrant as Specified in Its Charter) Delaware 41-0747868 - ------------------------------- ---------------------- (State or Other Jurisdiction of (I.R.S. Employer Incorporation or Organization) Identification Number) Suite 100, One Post Oak Central 77056-4400 2000 Post Oak Boulevard, Houston, TX ---------- - ---------------------------------------- (Zip Code) (Address of Principal Executive Offices) Registrant's Telephone Number, Including Area Code: (713) 296-6000 Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. YES X NO ----- ----- Number of shares of Registrant's common stock, outstanding as of March 31, 1999..........................97,820,667
2 PART I - FINANCIAL INFORMATION ITEM 1 - FINANCIAL STATEMENTS APACHE CORPORATION AND SUBSIDIARIES STATEMENT OF CONSOLIDATED OPERATIONS (UNAUDITED)
FOR THE QUARTER ENDED MARCH 31, ------------------------------- 1999 1998 ------------ ------------ (In thousands, except per common share data) REVENUES: Oil and gas production revenues $ 162,303 $ 209,949 Gathering, processing and marketing revenues 24,594 32,096 Equity in loss of affiliates -- (873) Other revenues 818 4,769 ------------ ------------ 187,715 245,941 ------------ ------------ OPERATING EXPENSES: Depreciation, depletion and amortization 88,423 98,372 Operating costs 46,857 56,551 Gathering, processing and marketing costs 24,126 31,203 Administrative, selling and other 10,330 9,966 Financing costs: Interest expense 31,448 30,144 Amortization of deferred loan costs 1,114 1,262 Capitalized interest (12,916) (10,850) Interest income (421) (823) ------------ ------------ 188,961 215,825 ------------ ------------ INCOME (LOSS) BEFORE INCOME TAXES (1,246) 30,116 Provision for income taxes 922 12,760 ------------ ------------ NET INCOME (LOSS) (2,168) 17,356 Preferred stock dividends 1,420 -- ------------ ------------ INCOME (LOSS) ATTRIBUTABLE TO COMMON STOCK $ (3,588) $ 17,356 ============ ============ NET INCOME (LOSS) PER COMMON SHARE: Basic $ (.04) $ .18 ============ ============ Diluted $ (.04) $ .18 ============ ============
The accompanying notes to consolidated financial statements are an integral part of this statement. 1 3 APACHE CORPORATION AND SUBSIDIARIES STATEMENT OF CONSOLIDATED CASH FLOWS (UNAUDITED)
FOR THE QUARTER ENDED MARCH 31, ------------------------------- 1999 1998 ------------ ------------ (In thousands) CASH FLOWS FROM OPERATING ACTIVITIES: Net income (loss) $ (2,168) $ 17,356 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation, depletion and amortization 88,423 98,372 Amortization of deferred loan costs 1,114 1,262 Provision (benefit) for deferred income taxes (2,926) 5,265 Cash distributions in excess of earnings of affiliates -- 852 Changes in operating assets and liabilities: Decrease in receivables 3,150 43,431 Increase in advances to oil and gas ventures and other (10,350) (692) (Increase) decrease in deferred charges and other 201 (2,289) (Increase) decrease in product inventory (282) 37 Decrease in payables (20,829) (41,653) Decrease in accrued expenses (1,852) (9,895) Decrease in advance from gas purchaser (6,296) (4,507) Decrease in deferred credits and noncurrent liabilities (2,577) (1,647) ------------ ------------ Net cash provided by operating activities 45,608 105,892 ------------ ------------ CASH FLOWS FROM INVESTING ACTIVITIES: Additions to property and equipment (166,499) (192,565) Non-cash portion of net oil and gas property additions (54,428) (3,255) Acquisition of Novus, net of cash acquired (5,758) -- Proceeds from sales of oil and gas properties 4,344 107,549 Proceeds from sale of assets held for resale -- 62,998 Other, net 572 (6,583) ------------ ------------ Net cash used in investing activities (221,769) (31,856) ------------ ------------ CASH FLOWS FROM FINANCING ACTIVITIES: Long-term borrowings 335,451 228,750 Payments on long-term debt (147,127) (186,621) Dividends paid (8,264) (6,531) Common stock activity, net 645 834 Cost of debt and equity transactions -- (281) ------------ ------------ Net cash provided by financing activities 180,705 36,151 ------------ ------------ NET INCREASE IN CASH AND CASH EQUIVALENTS 4,544 110,187 CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR 14,537 9,686 ------------ ------------ CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 19,081 $ 119,873 ============ ============
The accompanying notes to consolidated financial statements are an integral part of this statement. 2 4 APACHE CORPORATION AND SUBSIDIARIES CONSOLIDATED BALANCE SHEET (UNAUDITED)
MARCH 31, DECEMBER 31, 1999 1998 ------------ ------------ (In thousands) ASSETS CURRENT ASSETS: Cash and cash equivalents $ 19,081 $ 14,537 Receivables 156,830 159,806 Inventories 42,236 40,948 Advances to oil and gas ventures and other 22,273 11,679 ------------ ------------ 240,420 226,970 ------------ ------------ PROPERTY AND EQUIPMENT: Oil and gas, on the basis of full cost accounting: Proved properties 6,021,552 5,901,863 Unproved properties and properties under development, not being amortized 676,417 637,854 Gas gathering, transmission and processing facilities 370,323 354,506 Other 89,179 88,422 ------------ ------------ 7,157,471 6,982,645 Less: Accumulated depreciation, depletion and amortization (3,346,460) (3,255,104) ------------ ------------ 3,811,011 3,727,541 ------------ ------------ OTHER ASSETS: Deferred charges and other 40,089 41,551 ------------ ------------ $ 4,091,520 $ 3,996,062 ============ ============
The accompanying notes to consolidated financial statements are an integral part of this statement. 3 5 APACHE CORPORATION AND SUBSIDIARIES CONSOLIDATED BALANCE SHEET (UNAUDITED)
MARCH 31, DECEMBER 31, 1999 1998 ------------ ------------ (In thousands) LIABILITIES AND SHAREHOLDERS' EQUITY CURRENT LIABILITIES: Current maturities of long-term debt $ 15,034 $ 15,500 Accounts payable 94,361 115,111 Accrued operating expense 18,379 18,990 Accrued exploration and development 66,491 120,855 Accrued compensation and benefits 5,908 10,692 Accrued interest 22,791 19,054 Other accrued expenses 5,378 5,572 ------------ ------------ 228,342 305,774 ------------ ------------ LONG-TERM DEBT 1,532,048 1,343,258 ------------ ------------ DEFERRED CREDITS AND OTHER NONCURRENT LIABILITIES: Income taxes 270,132 270,493 Advances from gas purchaser 199,172 205,468 Other 66,245 69,236 ------------ ------------ 535,549 545,197 ------------ ------------ SHAREHOLDERS' EQUITY: Preferred stock, no par value, 5,000,000 shares authorized, 100,000 shares of 5.68% Cumulative Series B issued and outstanding 98,387 98,387 Common stock, $1.25 par, 215,000,000 shares authorized, 99,834,557 and 99,790,337 shares issued, respectively 124,793 124,738 Paid-in capital 1,246,379 1,245,738 Retained earnings 392,662 403,098 Treasury stock, at cost, 2,013,890 and 2,021,215 shares, respectively (36,790) (36,924) Accumulated other comprehensive income (29,850) (33,204) ------------ ------------ 1,795,581 1,801,833 ------------ ------------ $ 4,091,520 $ 3,996,062 ============ ============
The accompanying notes to consolidated financial statements are an integral part of this statement. 4 6 APACHE CORPORATION AND SUBSIDIARIES STATEMENT OF CONSOLIDATED SHAREHOLDERS' EQUITY (UNAUDITED)
COMPREHENSIVE PREFERRED COMMON PAID-IN RETAINED TREASURY (IN THOUSANDS) INCOME STOCK STOCK CAPITAL EARNINGS STOCK ------------- ----------- ----------- ----------- ----------- ----------- BALANCE AT DECEMBER 31, 1997 $ -- $ 118,098 $ 1,085,063 $ 561,981 $ (15,506) Comprehensive income: Net income $ 17,356 -- -- -- 17,356 -- Currency translation adjustments 1,038 -- -- -- -- -- ----------- Comprehensive income $ 18,394 =========== Dividends ($.07 per common share) -- -- -- (6,902) -- Common shares issued -- 6,616 152,880 -- -- Treasury shares issued, net -- -- -- -- 7 ----------- ----------- ----------- ----------- ----------- BALANCE AT MARCH 31, 1998 $ -- $ 124,714 $ 1,237,943 $ 572,435 $ (15,499) =========== =========== =========== =========== =========== BALANCE AT DECEMBER 31, 1998 $ 98,387 $ 124,738 $ 1,245,738 $ 403,098 $ (36,924) Comprehensive income: Net loss $ (2,168) -- -- -- (2,168) -- Currency translation adjustments 3,354 -- -- -- -- -- ----------- Comprehensive income $ 1,186 =========== Dividends: Preferred -- -- -- (1,420) -- Common ($.07 per share) -- -- -- (6,848) -- Common shares issued -- 55 641 -- -- Treasury shares issued, net -- -- -- -- 134 ----------- ----------- ----------- ----------- ----------- BALANCE AT MARCH 31, 1999 $ 98,387 $ 124,793 $ 1,246,379 $ 392,662 $ (36,790) =========== =========== =========== =========== ===========
ACCUMULATED OTHER TOTAL COMPREHENSIVE SHAREHOLDERS' (IN THOUSANDS) INCOME EQUITY ------------- ------------- BALANCE AT DECEMBER 31, 1997 $ (20,459) $ 1,729,177 Comprehensive income: Net income -- 17,356 Currency translation adjustments 1,038 1,038 Comprehensive income Dividends ($.07 per common share) -- (6,902) Common shares issued -- 159,496 Treasury shares issued, net -- 7 ----------- ----------- BALANCE AT MARCH 31, 1998 $ (19,421) $ 1,900,172 =========== =========== BALANCE AT DECEMBER 31, 1998 $ (33,204) $ 1,801,833 Comprehensive income: Net loss -- (2,168) Currency translation adjustments 3,354 3,354 Comprehensive income Dividends: Preferred -- (1,420) Common ($.07 per share) -- (6,848) Common shares issued -- 696 Treasury shares issued, net -- 134 ----------- ----------- BALANCE AT MARCH 31, 1999 $ (29,850) $ 1,795,581 =========== ===========
The accompanying notes to consolidated financial statements are an integral part of this statement. 5 7 APACHE CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) These financial statements have been prepared by Apache Corporation (Apache or the Company) without audit, pursuant to the rules and regulations of the Securities and Exchange Commission, and reflect all adjustments which are, in the opinion of management, necessary for a fair statement of the results for the interim periods, on a basis consistent with the annual audited financial statements. All such adjustments are of a normal recurring nature. Certain information, accounting policies, and footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles have been omitted pursuant to such rules and regulations, although the Company believes that the disclosures are adequate to make the information presented not misleading. These financial statements should be read in conjunction with the financial statements and the summary of significant accounting policies and notes thereto included in the Company's most recent annual report on Form 10-K. 1. ACQUISITIONS In November 1998, the Company entered into agreements to acquire certain oil and gas interests and companies holding oil and gas interests in the Carnarvon Basin, offshore Western Australia, from subsidiaries of Novus Petroleum Limited (Novus) for approximately $55 million. The transaction closed in two stages, on December 18, 1998 (approximately $49 million) and on January 29, 1999 (approximately $6 million). On February 1, 1999, the Company acquired oil and gas properties located in the Gulf of Mexico from Petsec Energy Inc. (Petsec) for an adjusted purchase price of approximately $66.7 million. The Petsec transaction included estimated proved reserves of approximately 10.4 million barrels of oil equivalent (MMboe) as of the effective date. 2. NON-CASH INVESTING AND FINANCING ACTIVITIES There were no significant non-cash investing or financing activities for the three months ended March 31, 1999. The following table provides supplemental disclosure of cash flow information:
FOR THE QUARTER ENDED MARCH 31, ----------------------------------------- 1999 1998 ---------------- --------------- (In thousands) Cash paid during the period for: Interest (net of amounts capitalized) $ 14,795 $ 16,969 Income taxes (net of refunds) 3,813 7,495
3. DEBT In March 1999, Apache Finance Pty Ltd (Apache Finance) issued $100 million principal amount, $99.3 million net of discount, of senior unsecured 7-percent notes due March 15, 2009. The notes are irrevocably and unconditionally guaranteed by Apache. Apache Finance has the right to redeem the notes prior to maturity, under certain conditions related to changes in relevant tax laws. Also, upon certain changes in control, these notes are subject to mandatory repurchase. 6 8 4. NET INCOME (LOSS) PER COMMON SHARE A reconciliation of the components of basic and diluted net income (loss) per common share is presented in the table below:
FOR THE QUARTER ENDED MARCH 31, --------------------------------------------------------------------------- 1999 1998 ------------------------------------ ------------------------------------ INCOME SHARES PER SHARE INCOME SHARES PER SHARE --------- --------- --------- --------- ---------- --------- (In thousands, except per share amounts) BASIC: Income (loss) attributable to common stock $ (3,588) 97,788 $ (.04) $ 17,356 97,581 $ .18 ======== ========= EFFECT OF DILUTIVE SECURITIES: Stock option plans -- -- -- 391 6% convertible subordinated debentures -- -- 460 937 --------- --------- --------- ---------- DILUTED: Income attributable to common stock after assumed conversions $ (3,588) 97,788 $ (.04) $ 17,816 98,909 $ .18 ========= ========== ======== ========= ========== =========
The 6-percent convertible subordinated debentures were converted into shares of Apache common stock or redeemed in January 1998. 5. SUBSEQUENT EVENTS On April 7, 1999, the Company entered into an agreement to acquire a 10 percent interest in the East Spar Joint Venture and an 8.4 percent interest in the Harriet Joint Venture, both located in the Carnarvon Basin (offshore Western Australia), from British-Borneo Oil and Gas Plc (British-Borneo) in exchange for $80 million cash and 11 leases in the Gulf of Mexico. The British-Borneo transaction includes estimated proved reserves of approximately 16.7 MMboe as of the effective date. On April 29, 1999, Apache entered into an agreement with Shell Offshore Inc. and affiliated Shell entities (Shell) to purchase Shell's interest in 22 producing fields and 16 undeveloped blocks located in the Gulf of Mexico. The Shell transaction also includes certain production-related assets and proprietary 3D seismic data covering approximately 1,000 blocks in the Gulf of Mexico. The purchase price, subject to adjustment for production since March 1, 1999, is $715 million in cash and one million shares of the common stock of Apache, par value $1.25 per share (Apache Common Stock). The Shell transaction, which includes estimated proved reserves of approximately 127.3 MMboe as of the effective date, is expected to be completed in May 1999. On April 29, 1999, Apache also announced concurrent public offerings of shares of Apache Common Stock and depositary shares (Depositary Shares) representing Automatically Convertible Equity Securities, Conversion Preferred Stock, Series C. The offerings of Apache Common Stock and Depositary Shares are being made under separate prospectuses and are not conditional upon each other. These offerings were priced on May 12, 1999, at $31.00 per share for 13 million shares of Apache Common Stock (subject to a 15 percent over allotment option) and $31.00 per share for seven million Depositary Shares, and are expected to close on or about May 18, 1999. The proceeds from both offerings will be used for general corporate purposes, including funding of a portion of the purchase price for the pending Shell transaction. 7 9 6. BUSINESS SEGMENT INFORMATION Apache has five reportable segments which are primarily in the business of natural gas and crude oil exploration and production. The Company evaluates performance based on profit or loss from oil and gas operations before income and expense items incidental to oil and gas operations and income taxes. Apache's reportable segments are managed separately because of their geographic locations. Financial information by operating segment is presented below:
OTHER UNITED STATES CANADA EGYPT AUSTRALIA INTERNATIONAL TOTAL ------------- ----------- ----------- ----------- ------------- ----------- (IN THOUSANDS) FOR THE QUARTER ENDED MARCH 31, 1999 Oil and Gas Production Revenues.......... $ 98,085 $ 16,517 $ 28,630 $ 18,864 $ 207 $ 162,303 =========== =========== =========== =========== =========== =========== Operating Income (1)..................... $ 10,327 $ 4,006 $ 6,873 $ 6,192 $ 93 $ 27,491 =========== =========== =========== =========== =========== Other Income (Expense): Other revenues........................ 818 Administrative, selling and other..... (10,330) Financing costs, net.................. (19,225) ----------- Loss Before Income Taxes................. $ (1,246) =========== Total Assets............................. $ 2,081,025 $ 310,382 $ 878,274 $ 648,392 $ 173,447 $ 4,091,520 =========== =========== =========== =========== =========== =========== FOR THE QUARTER ENDED MARCH 31, 1998 Oil and Gas Production Revenues.......... $ 144,161 $ 14,130 $ 35,883 $ 15,775 $ - $ 209,949 =========== =========== =========== =========== =========== =========== Operating Income (1)..................... $ 33,479 $ 3,126 $ 15,409 $ 3,905 $ - $ 55,919 =========== =========== =========== =========== =========== Other Income (Expense): Equity in loss of affiliates.......... (873) Other revenues........................ 4,769 Administrative, selling and other..... (9,966) Financing costs, net.................. (19,733) ----------- Income Before Income Taxes............... $ 30,116 =========== Total Assets............................. $ 2,457,954 $ 291,829 $ 749,233 $ 536,095 $ 106,712 $ 4,141,823 =========== =========== =========== =========== =========== ===========
(1) Operating income consists of oil and gas production revenues and net gathering, processing and marketing activity less depreciation, depletion and amortization (DD&A) expense and operating costs. 8 10 ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS OVERVIEW Early in 1998, when the cost of drilling for and acquiring oil and gas reserves was rising rapidly, Apache implemented a two-phase strategy designed to reduce debt and pursue larger acquisitions after the prices of oil and gas properties had turned down. By the end of 1998, Apache had paid down approximately $160 million in debt and added approximately $73 million to shareholders' equity as compared to year-end 1997 levels. These results were achieved in part by selling and trading non-strategic properties, curtailing capital expenditures, and converting debentures into common stock. Apache's strengthened balance sheet put the company in a better position to endure the impact of low oil and gas prices in 1998 and the first quarter of 1999, and to negotiate an agreement with Shell to acquire a large package of properties located offshore in the Gulf of Mexico. That acquisition, which is currently scheduled to close in May, would constitute the largest transaction in the company's history in terms of purchase price and quantity of proved reserves acquired. Apache's results of operations and financial position for the first three months of 1999 were significantly impacted by the following factors: Commodity Prices - Apache's average realized oil price decreased $2.64 per barrel from $14.07 per barrel in the first quarter of 1998 to $11.43 per barrel in the comparable 1999 period, reducing revenues by $18.6 million. The average realized price for natural gas decreased $.29 per thousand cubic feet (Mcf) from $1.98 per Mcf in the first quarter of 1998 to $1.69 per Mcf in 1999, negatively impacting revenues by $16.0 million. Operations - Oil and gas production decreased nine percent and six percent, respectively, during the first quarter of 1999 when compared to the same period last year. The decrease was due in part to efforts by Apache to sell low margin properties at the end of the first quarter of 1998. The decrease in oil and gas production negatively impacted revenues by $6.9 million and $6.0 million, respectively. Earnings for the first quarter of 1999 were positively impacted by a $9.7 million, or 17 percent, decrease in operating costs compared to the same period of 1998. RESULTS OF OPERATIONS Apache reported a 1999 first quarter loss attributable to common stock of $3.6 million versus income of $17.4 million in the prior year. Basic net loss per common share of $.04 for the first quarter of 1999 was significantly lower than income per common share of $.18 in 1998. Lower operating costs and DD&A expense were offset by a sharp decline in oil and gas prices and decreased oil and gas production. For the first quarter of 1999, revenues decreased 24 percent to $187.7 million compared to $245.9 million in 1998, driven by a 23 percent decrease in oil and gas production revenues. The decrease in oil and gas production revenues was the result of a 19 percent decrease in the average realized oil price, a 15 percent decrease in the average realized price for natural gas, a nine percent decrease in oil production and a six percent decrease in natural gas production. Crude oil, including natural gas liquids, contributed 46 percent and natural gas contributed 54 percent of oil and gas production revenues. 9 11 Volume and price information for the Company's oil and gas production is summarized in the following table:
FOR THE QUARTER ENDED MARCH 31, --------------------------- INCREASE 1999 1998 (DECREASE) ------------ ------------ ------------ Natural Gas Volume - Mcf per day: United States 397,685 467,123 (15%) Canada 109,099 96,520 13% Egypt 3,445 450 666% Australia 60,062 46,973 28% Ivory Coast 1,214 -- -- ------------ ------------ Total 571,505 611,066 (6%) ============ ============ Average Natural Gas price - Per Mcf: United States $ 1.79 $ 2.18 (18%) Canada 1.43 1.24 15% Egypt 1.93 1.78 8% Australia 1.48 1.60 (8%) Ivory Coast 1.77 -- -- Total 1.69 1.98 (15%) Oil Volume - Barrels per day: United States 32,202 39,634 (19%) Canada 2,180 2,075 5% Egypt 26,707 29,252 (9%) Australia 10,255 7,130 44% Ivory Coast 12 -- -- ------------ ------------ Total 71,356 78,091 (9%) ============ ============ Average Oil price - Per barrel: United States $ 11.16 $ 14.33 (22%) Canada 10.90 15.75 (31%) Egypt 11.66 13.60 (14%) Australia 11.75 14.06 (16%) Ivory Coast 14.00 -- -- Total 11.43 14.07 (19%) Natural Gas Liquids (NGL) Volume - Barrels per day: United States 2,390 1,910 25% Canada 632 604 5% ------------ ------------ Total 3,022 2,514 20% ============ ============ Average NGL Price - Per barrel: United States $ 7.42 $ 9.14 (19%) Canada 5.36 7.26 (26%) Total 6.99 8.68 (19%)
FIRST QUARTER 1999 COMPARED TO FIRST QUARTER 1998 Natural gas sales for the first quarter of 1999 totaled $87.0 million, 20 percent lower than the first quarter of 1998. Average realized natural gas prices decreased 15 percent, negatively affecting revenue by $16.0 million. Apache realized average natural gas price declines in the United States of 18 percent from $2.18 per Mcf in the 10 12 first quarter 1998, to $1.79 per Mcf in the same period in 1999. The United States represented 70 percent of total natural gas production for the first quarter of 1999. The weakening of the Australian currency relative to the U.S. dollar contributed to the eight percent decline in the Australian average natural gas price. The Company periodically engages in hedging activities, including fixed price physical and financial contracts. The net result of these activities increased the Company's realized gas price by $.07 per Mcf during the first quarter of 1999 and 1998. Natural gas production decreased 39.6 million cubic feet per day (MMcf/d), or six percent, on a worldwide basis, unfavorably impacting revenue by $6.0 million. Natural gas production in the United States decreased 15 percent due to sales of marginal properties in 1998 and natural declines from mature fields. Increases in natural gas production in Egypt, Canada and Australia were principally due to development activities. The Company's crude oil sales for the first quarter of 1999 totaled $73.4 million, a 26 percent decrease from the first quarter of 1998, due to lower average realized prices, which were partially offset by production increases in Australia and Canada. First quarter 1999 oil production decreased nine percent compared to the prior year primarily as a result of decreases in United States production, which were partially offset by increases in Australian and Canadian production. Australian oil production increased 44 percent in the first quarter of 1999 primarily due to the acquisition of certain oil and gas interests from Novus in November 1998. U.S. oil production decreased 19 percent in the first quarter of 1999 primarily due to sales of marginal properties and natural declines from mature fields. The Company's realized price for sales of crude oil in the first quarter of 1999 decreased $2.64 per barrel, or 19 percent, resulting in a decrease in revenue of $18.6 million compared to the same period in 1998. Revenue from the sale of natural gas liquids totaled $1.9 million for the first quarter of 1999, compared to $2 million for the first quarter of 1998. A 20 percent increase in natural gas liquids production was offset by a 19 percent decline in realized prices. Apache initiated production offshore the Ivory Coast in the first quarter of 1999. First sales of crude oil and natural gas were delivered in March 1999. OTHER REVENUES AND OPERATING EXPENSES During the first quarter of 1999, Apache's gas gathering, processing and marketing revenues and costs both decreased 23 percent as a result of lower prices and production volumes compared to the prior year period, decreasing margins by $.4 million, to $.5 million in 1999 from $.9 million in 1998. Other revenues for the first quarter of 1999 decreased $4 million compared to the same period in 1998. The first quarter of 1998 included $4 million in settlement proceeds from the resolution of issues with a gas purchaser. The Company's DD&A expense for the first quarter of 1999 totaled $88.4 million, compared to $98.4 million for the same period in 1998. On an equivalent barrel basis, full cost DD&A expense decreased $.18 per barrel of oil equivalent (boe), from $5.58 per boe in the first quarter of 1998 to $5.40 per boe in the same period in 1999. Reserve additions along with a full-cost ceiling write-down in the fourth quarter of 1998 drove the decrease from last year. Operating costs, including lease operating expense and severance taxes, decreased 17 percent from $56.6 million in the first quarter of 1998 to $46.9 million for the same period in 1999. For the first quarter of 1999, lease operating expense, excluding severance taxes, totaled $41.2 million, compared to $48.2 million for the comparable period in 1998. On an equivalent barrel basis, lease operating expense declined from $2.94 per boe in the first quarter of 1998 to $2.70 per boe in the first quarter of 1999. Domestic per unit costs were significantly reduced due to lower Gulf Coast region costs resulting from the sale of largely marginal properties in 1998, and by lower Western and Offshore region repairs and maintenance costs. 11 13 G&A expense in the first quarter of 1999 increased four percent from a year ago. The increase in G&A expense in the first three months of 1999 was primarily the result of reduced oil and natural gas production in the first quarter of 1999 compared to the same period in 1998. On an equivalent barrel basis, G&A expense for the first three months of 1999 increased to $.68 per boe compared to $.61 per boe for the same period in 1998. Net financing costs for the first quarter of 1999 decreased $.5 million, or three percent, from the prior year primarily due to higher capitalized interest. Additional capitalized interest associated with Egyptian pipeline projects under construction contributed to the increase. The Western Desert Gas Pipeline Project is in progress and scheduled for completion in June 1999. Gross interest expense increased $1.3 million due to a higher average outstanding debt balance. Although Apache posted a loss for the first quarter of 1999, no consolidated tax benefit was recognized. Benefits provided on U.S. losses were completely offset by taxes on foreign earnings at a higher effective tax rate. MARKET RISK COMMODITY RISK The Company's major market risk exposure continues to be the pricing applicable to its oil and gas production. Realized pricing is primarily driven by the prevailing worldwide price for crude oil and spot prices applicable to its United States and Canadian natural gas production. Historically, prices received for oil and gas production have been volatile and unpredictable. Price volatility is expected to continue. See "Results of Operations" above. The information set forth under "Market Risk - Interest Rate Risk and - Foreign Currency Risk" in Item 7 of the Company's annual report on Form 10-K for the year ended December 31, 1998, is incorporated herein by reference. CASH FLOW, LIQUIDITY AND CAPITAL RESOURCES CAPITAL COMMITMENTS Apache's primary cash needs are for exploration, development and acquisition of oil and gas properties, repayment of principal and interest on outstanding debt, payment of dividends and capital obligations for affiliated ventures. Apache budgets capital expenditures based upon projected cash flow and routinely adjusts its capital expenditures in response to changes in oil and natural gas prices and corresponding changes in cash flow. The Company is not in a position to predict future product prices. Capital expenditures, including acquisitions, for 1999 are expected to exceed internally generated cash flow. 12 14 Capital Expenditures - A summary of oil and gas capital expenditures during the first three months of 1999 and 1998 is presented below (in millions):
FOR THE QUARTER ENDED MARCH 31, ------------------------------ 1999 1998 ----------- ----------- Exploration and development: United States $ 24.8 $ 60.2 Canada 10.7 24.1 Egypt 12.4 32.7 Australia 11.7 19.1 Other international 7.4 9.8 ----------- ----------- 67.0 145.9 Capitalized Interest 12.9 10.8 ----------- ----------- Total $ 79.9 $ 156.7 =========== =========== Acquisition of oil and gas properties $ 75.9 $ 9.1 =========== ===========
In North America, Apache completed 16 producing wells out of 24 wells drilled during the first quarter of 1999, while internationally the Company discovered one new producer out of three wells drilled. Worldwide, the Company was drilling or completing an additional 49 wells as of March 31, 1999. In addition, Apache completed 63 production enhancement projects, including 28 recompletions, during the first quarter of 1999. Property acquisitions in the first quarter of 1999, primarily represented acquisitions of additional interests in producing properties in the Company's existing focus areas including oil and gas properties located in the Gulf of Mexico from Petsec having estimated proved reserves of approximately 10.4 MMboe. On April 7, 1999, the Company entered into an agreement to acquire a 10 percent interest in the East Spar Joint Venture and an 8.4 percent interest in the Harriet Joint Venture, both located in the Carnarvon Basin (offshore Western Australia), from British-Borneo Oil and Gas Plc (British-Borneo) in exchange for $80 million cash and 11 leases in the Gulf of Mexico. The British-Borneo transaction includes estimated proved reserves of approximately 16.7 MMboe as of the effective date. On April 29, 1999, Apache entered into an agreement with Shell Offshore Inc. and affiliated Shell entities (Shell) to purchase Shell's interest in 22 producing fields and 16 undeveloped blocks located in the Gulf of Mexico. The Shell transaction also includes certain production-related assets and proprietary 3D seismic data covering approximately 1,000 blocks in the Gulf of Mexico. The purchase price, subject to adjustment for production since March 1, 1999, is $715 million in cash and one million shares of the common stock of Apache, par value $1.25 per share (Apache Common Stock). The Shell transaction, which includes estimated proved reserves of approximately 127.3 MMboe as of the effective date, is expected to be completed in May 1999. On April 29, 1999, Apache also announced concurrent public offerings of shares of Apache Common Stock and depositary shares (Depositary Shares) representing Automatically Convertible Equity Securities, Conversion Preferred Stock, Series C. The offerings of Apache Common Stock and Depositary Shares are being made under separate prospectuses and are not conditional upon each other. These offerings were priced on May 12, 1999, at $31.00 per share for 13 million shares of Apache Common Stock (subject to a 15 percent over allotment option) and $31.00 per share for seven million Depositary Shares, and are expected to close on or about May 18, 1999. The proceeds from both offerings will be used for general corporate purposes, including funding of a portion of the purchase price for the pending Shell transaction. 13 15 CAPITAL RESOURCES AND LIQUIDITY Net Cash Provided by Operating Activities - Apache's net cash provided by operating activities during the first three months of 1999 totaled $45.6 million, a decrease of 57 percent from $105.9 million in the first three months of 1998. This decrease was primarily due to lower oil and gas production and realized prices as compared to last year. Long-Term Borrowings - In March 1999, Apache Finance issued $100 million principal amount, $99.3 million net of discount, of senior unsecured 7-percent notes due March 15, 2009. The notes are irrevocably and unconditionally guaranteed by Apache. Apache Finance has the right to redeem the notes prior to maturity, under certain conditions related to changes in relevant tax laws. Also, upon certain changes in control, these notes are subject to mandatory repurchase. Liquidity - The Company had $19.1 million in cash and cash equivalents on hand at March 31, 1999, up from $14.5 million at December 31, 1998. Apache's ratio of current assets to current liabilities at March 31, 1999 was 1.05:1 compared to .74:1 at December 31, 1998. Apache believes that cash on hand, net cash generated from operations, and unused committed borrowing capacity under its global credit facility will be adequate to satisfy the Company's financial obligations to meet future liquidity needs for at least the next two fiscal years. As of March 31, 1999, Apache's available borrowing capacity under its global credit facility was $710.6 million. IMPACT OF THE YEAR 2000 ISSUE The inability of some computer programs and embedded computer chips to distinguish between the year 1900 and the year 2000 (the Year 2000 issue) poses a serious threat of business disruption to any organization that utilizes computer technology and computer chip technology in their business systems or equipment. Apache has formed a Year 2000 Task Force with representation from major business units to inventory and assess the risk associated with hardware, software, telecommunications systems, office equipment, embedded chip controls and systems, process control systems, facility control systems and dependencies on external trading partners. The project phases, expected completion dates and percentage complete as of March 1999 are as follows:
PERCENT PHASE COMPLETION DATE COMPLETE --------------------------------------- -------------------- -------------- Organization July 1998 100% Assessment November 1998 100% Desktop Computers Network Hardware Software Embedded Systems External Trading Partners Building/Infrastructure Systems Telecommunications Systems Implementation/Replacement September 1999 75% Computer Hardware Core Business Software Desktop Software Embedded Systems Building Systems Contact External Trading Partners March 1999 100% Contingency Planning May 1999 90%
14 16 To date, the Company is not aware of any significant Year 2000 issues that would cause problems in the area of safety, environmental or business interruption. The Company will assess the risks associated with hardware, software, infrastructure, embedded chips and external trading partners that are not Year 2000 compliant. While Apache is confident that Year 2000 remediation efforts will succeed in minimizing exposure to business disruption, plans are being developed that will allow continuation of business in all but the worst case scenarios. All remediation and replacement efforts and contingency planning are expected to be complete by September 1999. All critical external trading partners have been contacted to determine Year 2000 readiness and contingency plans will be developed where assurance of Year 2000 compliance was not received by March 31, 1999. In 1997, the Company initiated a project to replace existing business software as it relates to Apache's production, land, marketing, accounting and financial systems to more effectively and efficiently meet its business needs. Replacement computer systems selected by the Company from SAP America, Inc., PricewaterhouseCoopers LLP, Innovative Business Solutions and Landmark Graphics will properly recognize dates beyond December 31, 1999. The implementation of the business software project was completed and operational effective with January 1999 production. The Company expects the cost to achieve Year 2000 compliance will not exceed $4 million, excluding the cost of implementing business replacement systems. The Company presently believes that with conversions to new software and completion of efforts planned by the Year 2000 Task Force, the risk associated with Year 2000 will be significantly reduced. However, the Company is unable to assure that the consequences of Year 2000 failures of systems maintained by the Company or by third parties will not materially adversely impact the Company's results of operations, liquidity or financial condition. FUTURE TRENDS Apache's strategy is to increase its oil and gas reserves, production, cash flow and earnings through a balanced growth program that involves: 1. exploiting our existing asset base; 2. acquiring properties to which we can add incremental value; and 3. investing in high-potential exploration prospects. EXPLOITING EXISTING ASSET BASE We seek to maximize the value of our existing asset base by reducing operating costs per unit and increasing the amount of recoverable reserves. In order to achieve these objectives, we rigorously examine operations to cut costs, identify production enhancement initiatives such as workovers and recompletions, and divest marginal and non-strategic properties. ACQUIRING PROPERTIES TO WHICH WE CAN ADD INCREMENTAL VALUE We seek to purchase reserves at attractive prices by generally avoiding auction processes where we are competing against other buyers. Our aim is to follow each acquisition with a cycle of reserve enhancement, property consolidation and cash flow acceleration, facilitating asset growth and debt reduction. INVESTING IN HIGH-POTENTIAL EXPLORATION PROSPECTS We seek to concentrate our exploratory investments in a select number of international areas and to become the dominant operator in those regions. We believe that these investments, although higher-risk, offer the potential for significant reserve additions. Our international investments and exploration activities are a 15 17 significant component of our long-term growth strategy. They complement our North American operations, which are more development oriented. A critical component in implementing our three-pronged growth strategy is maintenance of significant financial flexibility. We are committed to preserving a strong balance sheet and credit position that gives us the foundation required to pursue our growth initiatives. CHANGES IN ACCOUNTING PRINCIPLES DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES In June 1998, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards (SFAS) No. 133, Accounting for Derivative Instruments and Hedging Activities. SFAS No. 133 establishes accounting and reporting standards requiring that every derivative instrument (including certain derivative instruments embedded in other contracts) be recorded in the balance sheet as either an asset or liability measured at its fair value, and requires that changes in a derivative's fair value be recognized currently in earnings unless specific hedge accounting criteria are met. Special accounting for qualifying hedges allows a derivative's gains and losses to offset related results on the hedged item in the statement of consolidated operations, and requires that a company formally document, designate, and assess the effectiveness of transactions that receive hedge accounting treatment. SFAS No. 133 is required to be adopted on January 1, 2000, although earlier adoption is permitted. The Company is analyzing the effects of SFAS No. 133, but has not yet quantified the potential financial statement impact, if any, or determined the timing or method of adoption. Management does not believe that the adoption of SFAS No. 133 will have a material impact on the Company's financial condition or results of operations. FORWARD-LOOKING STATEMENTS AND RISK Certain statements in this report are forward-looking statements. All statements other than statements of historical facts, including, among others, statements regarding our future financial position, business strategy, budgets, reserve information, projected levels of production, projected costs and plans and objectives of management for future operations, are forward-looking statements. We typically use words such as "expect", "anticipate", "estimate", "intend", "plan" and "believe" to identify our forward-looking statements. Although we believe our expectations reflected in forward-looking statements are based on reasonable assumptions, no assurance can be given that these expectations will prove to have been correct. Important factors that could cause actual results to differ materially from the expectations reflected in the forward-looking statements include, among others: 1. the market prices of oil and gas; 2. economic and competitive conditions; 3. inflation rates; 4. legislative and regulatory changes; 5. financial market conditions; 6. political and economic uncertainties of foreign governments; and 7. future business decisions. In light of these risks, uncertainties and assumptions, the events anticipated by our forward-looking statements might not occur. We undertake no obligation to update or revise our forward-looking statements, whether as a result of new information, future events or otherwise. 16 18 PART II - OTHER INFORMATION ITEM 1. LEGAL PROCEEDINGS The information set forth in Note 10 to the Consolidated Financial Statements contained in the Company's annual report on Form 10-K for the year ended December 31, 1998 (filed with the SEC on March 25, 1999) is incorporated herein by reference. ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS None ITEM 3. DEFAULTS UPON SENIOR SECURITIES None ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS None ITEM 5. OTHER INFORMATION None ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K (a) Exhibits 12.1 - Statement of computation of ratio of earnings to fixed charges and combined fixed charges and preferred stock dividends. 27.1 - Financial Data Table (b) Reports filed on Form 8-K The following current report on Form 8-K was filed during the fiscal quarter ended March 31, 1999: March 2, 1999 - Item 5. Other Events Offering to the public by Apache Finance Pty Ltd of $100 million principal amount of 7% global notes due 2009, guaranteed by Apache, issuable under an indenture dated December 9, 1997, and registered pursuant to a registration statement on Form S-3 (Registration Nos. 333-39973 and 333-39973-01). 17 19 SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. APACHE CORPORATION Dated: May 14, 1999 /s/ Roger B. Plank ------------------------------------------ Roger B. Plank Vice President and Chief Financial Officer Dated: May 14, 1999 /s/ Thomas L. Mitchell ------------------------------------------ Thomas L. Mitchell Vice President and Controller (Chief Accounting Officer) 20 INDEX TO EXHIBITS
Exhibit Number Description - ------- ----------- 12.1 Statement of computation of ratio of earnings to fixed charges and combined fixed charges and preferred stock dividends 27.1 Financial Data Schedule
EX-12.1 2 COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES 1 EXHIBIT 12.1 APACHE CORPORATION STATEMENT OF COMPUTATION OF RATIOS OF EARNINGS TO FIXED CHARGES AND COMBINED FIXED CHARGES AND PREFERRED STOCK DIVIDENDS (IN THOUSANDS)
THREE MONTHS ENDED MARCH 31, ------------------------ 1999 1998 1998 1997 1996 1995 1994 --------- --------- --------- --------- --------- --------- --------- EARNINGS Pretax income (loss) from continuing operations (1) $ (1,246) $ 30,116 $(187,563) $ 258,640 $ 200,195 $ 33,143 $ 66,234 Add: Fixed charges excluding capitalized interest 20,942 21,416 78,728 78,531 68,091 77,220 39,008 --------- --------- --------- --------- --------- --------- --------- Adjusted Earnings $ 19,696 $ 51,532 $(108,835) $ 337,171 $ 268,286 $ 110,363 $ 105,242 ========= ========= ========= ========= ========= ========= ========= FIXED CHARGES AND PREFERRED STOCK DIVIDENDS Interest expense including capitalized interest (2) $ 31,448 $ 30,144 $ 119,703 $ 105,148 $ 89,829 $ 88,057 $ 37,838 Amortization of debt expense 1,114 1,262 4,496 6,438 5,118 4,665 3,987 Interest component of lease rental expenditures (3) 1,296 860 3,808 3,438 3,856 3,539 3,217 --------- --------- --------- --------- --------- --------- --------- Fixed charges 33,858 32,266 128,007 115,024 98,803 96,261 45,042 --------- --------- --------- --------- --------- --------- --------- Preferred stock requirements (4) 2,419 -- 2,905 -- -- -- -- --------- --------- --------- --------- --------- --------- --------- Combined fixed charges and preferred stock dividends $ 36,277 $ 32,266 $ 130,912 $ 115,024 $ 98,803 $ 96,261 $ 45,042 ========= ========= ========= ========= ========= ========= ========= Ratio of earnings to fixed charges --(5) 1.60 - (6) 2.93 2.72 1.15 2.34 ========= ========= ========= ========= ========= ========= ========= Ratio of earnings to combined fixed charges and preferred stock dividends --(5) 1.60 - (6) 2.93 2.72 1.15 2.34 ========= ========= ========= ========= ========= ========= =========
- ---------------- (1) Undistributed income of less-than-50%-owned affiliates is excluded. (2) Apache has guaranteed and is contingently liable for certain debt. Fixed charges, relating to the debt for which Apache is contingently liable, have not been included in the fixed charges for any of the periods shown above. (3) Represents the portion of rental expense assumed to be attributable to interest factors of related rental obligations determined at interest rates appropriate for the period during which the rental obligations were incurred. Approximately 32% to 34% applies for all periods presented. (4) Represents the amount of pre-tax earnings that would be required to cover preferred stock dividends. (5) Earnings were inadequate to cover fixed charges and combined fixed charges and preferred stock dividends by $14.2 million and $16.6 million, respectively, as a result of low oil and gas prices. (6) Earnings were inadequate to cover fixed charges and combined fixed charges and preferred stock dividends by $236.8 million and $239.7 million, respectively, due to the $243.2 million write-down of the carrying value of United States oil and gas properties. EX-27 3 FINANCIAL DATA SCHEDULE
5 3-MOS DEC-31-1999 MAR-31-1999 19,081 0 156,830 0 42,236 240,420 7,157,471 (3,346,460) 4,091,520 228,341 1,532,048 0 98,387 124,793 1,572,401 4,091,520 186,897 187,715 159,406 159,406 0 0 19,225 (1,246) 922 (2,168) 0 0 0 (2,168) (.04) (.04)
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