-----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, AFV/Z5WfdHk50RcF3k6CRhboNA5PGMiBmi76J+lfT0M2/BwsTAphFxIrhoALESIs DLLepa9guqkxVrxaYxSkvQ== 0000950129-99-003728.txt : 19990817 0000950129-99-003728.hdr.sgml : 19990817 ACCESSION NUMBER: 0000950129-99-003728 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 19990630 FILED AS OF DATE: 19990816 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: 99691178 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 - DATED JUNE 30, 1999 1 SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-Q [ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the Quarterly Period Ended June 30, 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 June 30, 1999 ....................113,870,783 2 PART I - FINANCIAL INFORMATION ITEM 1 - FINANCIAL STATEMENTS APACHE CORPORATION AND SUBSIDIARIES STATEMENT OF CONSOLIDATED OPERATIONS (UNAUDITED)
FOR THE QUARTER FOR THE SIX MONTHS ENDED JUNE 30, ENDED JUNE 30, ------------------------------ ------------------------------ 1999 1998 1999 1998 ------------ ------------ ------------ ------------ (In thousands, except per common share data) REVENUES: Oil and gas production revenues $ 243,076 $ 197,856 $ 405,379 $ 407,805 Gathering, processing and marketing revenues 35,901 27,020 60,495 59,116 Other revenues 2,659 (4,744) 3,477 (848) ------------ ------------ ------------ ------------ 281,636 220,132 469,351 466,073 ------------ ------------ ------------ ------------ OPERATING EXPENSES: Depreciation, depletion and amortization 105,398 97,414 193,821 195,786 Operating costs 51,268 52,616 98,125 109,167 Gathering, processing and marketing costs 35,071 26,417 59,197 57,620 Administrative, selling and other 12,134 10,200 22,464 20,166 Financing costs: Interest expense 32,659 30,187 64,107 60,331 Amortization of deferred loan costs 1,101 1,046 2,215 2,308 Capitalized interest (13,053) (12,538) (25,969) (23,388) Interest income (403) (1,647) (824) (2,470) ------------ ------------ ------------ ------------ 224,175 203,695 413,136 419,520 ------------ ------------ ------------ ------------ INCOME BEFORE INCOME TAXES 57,461 16,437 56,215 46,553 Provision for income taxes 24,693 7,201 25,615 19,961 ------------ ------------ ------------ ------------ NET INCOME 32,768 9,236 30,600 26,592 Preferred stock dividends 3,136 -- 4,556 -- ------------ ------------ ------------ ------------ INCOME ATTRIBUTABLE TO COMMON STOCK $ 29,632 $ 9,236 $ 26,044 $ 26,592 ============ ============ ============ ============ NET INCOME PER COMMON SHARE: Basic $ .28 $ .09 $ .26 $ .27 ============ ============ ============ ============ Diluted $ .28 $ .09 $ .26 $ .27 ============ ============ ============ ============
The accompanying notes to consolidated financial statements are an integral part of this statement. 1 3 APACHE CORPORATION AND SUBSIDIARIES STATEMENT OF CONSOLIDATED CASH FLOWS (UNAUDITED)
FOR THE SIX MONTHS ENDED JUNE 30, ------------------------------ 1999 1998 ------------ ------------ (In thousands) CASH FLOWS FROM OPERATING ACTIVITIES: Net income $ 30,600 $ 26,592 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation, depletion and amortization 193,821 195,786 Amortization of deferred loan costs 2,215 2,308 Provision for deferred income taxes 10,430 4,981 Cash distributions in excess of earnings of affiliates -- 1,523 Changes in operating assets and liabilities: (Increase) decrease in receivables (64,504) 43,631 (Increase) decrease in advances to oil and gas ventures and other (9,094) 3,011 (Increase) decrease in deferred charges and other (2,074) 16,057 Increase in product inventory (356) (152) Decrease in payables (5,600) (39,429) Increase (decrease) in accrued expenses 7,727 (14,364) Decrease in advance from gas purchaser (12,135) (9,203) Increase in deferred credits and noncurrent liabilities 12,898 236 ------------ ------------ Net cash provided by operating activities 163,928 230,977 ------------ ------------ CASH FLOWS FROM INVESTING ACTIVITIES: Additions to property and equipment (278,551) (359,012) Acquisition of Shell properties (686,539) -- Acquisition of British-Borneo, net of cash acquired (83,659) -- Non-cash portion of net oil and gas property additions (41,931) (21,182) Proceeds from sales of oil and gas properties 103,172 105,216 Proceeds received from sale of assets held for resale -- 62,998 Other, net (7,057) (9,907) ------------ ------------ Net cash used in investing activities (994,565) (221,887) ------------ ------------ CASH FLOWS FROM FINANCING ACTIVITIES: Long-term borrowings 630,799 344,796 Payments on long-term debt (431,914) (261,821) Dividends paid (16,532) (13,433) Proceeds from issuance of preferred stock 210,490 -- Common stock activity, net 446,845 1,036 Cost of debt and equity transactions (1,161) (440) ------------ ------------ Net cash provided by financing activities 838,527 70,138 ------------ ------------ NET INCREASE IN CASH AND CASH EQUIVALENTS 7,890 79,228 CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR 14,537 9,686 ------------ ------------ CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 22,427 $ 88,914 ============ ============
The accompanying notes to consolidated financial statements are an integral part of this statement. 2 4 APACHE CORPORATION AND SUBSIDIARIES CONSOLIDATED BALANCE SHEET (UNAUDITED)
JUNE 30, DECEMBER 31, 1999 1998 ------------ ------------ (In thousands) ASSETS CURRENT ASSETS: Cash and cash equivalents $ 22,427 $ 14,537 Receivables 228,145 159,806 Inventories 47,481 40,948 Advances to oil and gas ventures and other 21,008 11,679 ------------ ------------ 319,061 226,970 ------------ ------------ PROPERTY AND EQUIPMENT: Oil and gas, on the basis of full cost accounting: Proved properties 6,676,564 5,901,863 Unproved properties and properties under development, not being amortized 817,901 637,854 Gas gathering, transmission and processing facilities 403,807 354,506 Other 93,506 88,422 ------------ ------------ 7,991,778 6,982,645 Less: Accumulated depreciation, depletion and amortization (3,457,343) (3,255,104) ------------ ------------ 4,534,435 3,727,541 ------------ ------------ OTHER ASSETS: Deferred charges and other 41,473 41,551 ------------ ------------ $ 4,894,969 $ 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)
JUNE 30, DECEMBER 31, 1999 1998 ------------ ------------ (In thousands) LIABILITIES AND SHAREHOLDERS' EQUITY CURRENT LIABILITIES: Current maturities of long-term debt $ 18,378 $ 15,500 Accounts payable 113,044 115,111 Accrued operating expense 24,408 18,990 Accrued exploration and development 79,088 120,855 Accrued compensation and benefits 10,454 10,692 Accrued interest 21,413 19,054 Other accrued expenses 6,040 5,572 ------------ ------------ 272,825 305,774 ------------ ------------ LONG-TERM DEBT 1,539,265 1,343,258 ------------ ------------ DEFERRED CREDITS AND OTHER NONCURRENT LIABILITIES: Income taxes 300,501 270,493 Advances from gas purchaser 193,333 205,468 Other 81,542 69,236 ------------ ------------ 575,376 545,197 ------------ ------------ SHAREHOLDERS' EQUITY: Preferred stock, no par value, 5,000,000 shares authorized -- Series B, 5.68% Cumulative Preferred Stock, 100,000 shares issued and outstanding 98,387 98,387 Series C, 6.5% Conversion Preferred Stock, 140,000 shares issued and outstanding 210,490 -- Common stock, $1.25 par, 215,000,000 shares authorized, 115,884,232 and 99,790,337 shares issued, respectively 144,855 124,738 Paid-in capital 1,699,928 1,245,738 Retained earnings 414,324 403,098 Treasury stock, at cost, 2,013,449 and 2,021,215 shares, respectively (36,782) (36,924) Accumulated other comprehensive income (23,699) (33,204) ------------ ------------ 2,507,503 1,801,833 ------------ ------------ $ 4,894,969 $ 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)
PREFERRED PREFERRED COMPREHENSIVE STOCK STOCK COMMON PAID-IN (In thousands) INCOME SERIES B SERIES C STOCK CAPITAL --------------- ------------ ------------ ------------ -------------- BALANCE AT DECEMBER 31, 1997 $ -- $ -- $ 118,098 $ 1,085,063 Comprehensive income: Net income $ 26,592 -- -- -- -- Currency translation adjustments (3,321) -- -- -- -- Unrealized gain on marketable securities, net of applicable income taxes of $181 302 -- -- -- -- -------------- Comprehensive income $ 23,573 ============== Dividends ($.14 per common share) -- -- -- -- Common shares issued -- -- 6,625 153,077 Treasury shares issued, net -- -- -- -- ---------- ---------- ---------- ------------- BALANCE AT JUNE 30, 1998 $ -- $ -- $ 124,723 $ 1,238,140 ========== ========== ========== ============= BALANCE AT DECEMBER 31, 1998 $ 98,387 $ -- $ 124,738 $ 1,245,738 Comprehensive income: Net income $ 30,600 -- -- -- -- Currency translation adjustments 9,505 -- -- -- -- -------------- Comprehensive income $ 40,105 ============== Dividends: Preferred -- -- -- -- Common ($.14 per share) -- -- -- -- Preferred shares issued -- 210,490 -- -- Common shares issued -- -- 20,117 454,190 Treasury shares issued, net -- -- - -- ---------- ---------- ---------- ------------- BALANCE AT JUNE 30, 1999 $ 98,387 $ 210,490 $ 144,855 $ 1,699,928 ========== ========== ========== =============
ACCUMULATED OTHER TOTAL RETAINED TREASURY COMPREHENSIVE SHAREHOLDERS' (In thousands) EARNINGS STOCK INCOME EQUITY ------------ ------------ --------------- -------------- BALANCE AT DECEMBER 31, 1997 $ 561,981 $ (15,506) $ (20,459) $ 1,729,177 Comprehensive income: Net income 26,592 -- -- 26,592 Currency translation adjustments -- -- (3,321) (3,321) Unrealized gain on marketable securities, net of applicable income taxes of $181 -- -- 302 302 Comprehensive income Dividends ($.14 per common share) (13,804) -- -- (13,804) Common shares issued -- -- -- 159,702 Treasury shares issued, net -- 9 -- 9 ---------- ---------- --------------- ------------- BALANCE AT JUNE 30, 1998 $ 574,769 $ (15,497) $ (23,478) $ 1,898,657 ========== ========== ============== ============= BALANCE AT DECEMBER 31, 1998 $ 403,098 $ (36,924) $ (33,204) $ 1,801,833 Comprehensive income: Net income 30,600 -- -- 30,600 Currency translation adjustments -- -- 9,505 9,505 Comprehensive income Dividends: Preferred (4,556) -- -- (4,556) Common ($.14 per share) (14,818) -- -- (14,818) Preferred shares issued -- -- -- 210,490 Common shares issued -- -- -- 474,307 Treasury shares issued, net -- 142 -- 142 ---------- ---------- -------------- ------------- BALANCE AT JUNE 30, 1999 $ 414,324 $ (36,782) $ (23,699) $ 2,507,503 ========== ========== ============== =============
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 AND DIVESTITURES Acquisitions - 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 10.2 million barrels of oil equivalent (MMboe) as of the effective date. On May 18, 1999, Apache acquired from Shell Offshore Inc. and affiliated Shell entities (Shell) its interest in 22 producing fields and 16 undeveloped blocks located in the Gulf of Mexico. The Shell transaction also included certain production-related assets and proprietary 3D seismic data covering approximately 1,000 blocks in the Gulf of Mexico. The purchase price, subject to post closing adjustments, was $686.5 million in cash and one million shares of Apache common stock (valued at $28.125 per share). The Shell transaction included estimated proved reserves of approximately 123.2 MMboe as of the effective date. The Shell transaction has been accounted for using the purchase method of accounting and is included in the Company's financial statements from the date the transaction was completed. The following unaudited pro forma information shows the effect of the Shell transaction on the Company's consolidated results of operations assuming the transaction occurred on January 1, 1999. The pro forma information is based on numerous assumptions and is not necessarily indicative of future results of operations.
FOR THE SIX MONTHS ENDED JUNE 30, 1999 ----------------------------------------- AS REPORTED PRO FORMA --------------- ---------------- (In thousands, except per common share data) Revenues $ 469,351 $ 544,288 Net income 30,600 45,878 Preferred stock dividends 4,556 9,845 Income attributable to common stock 26,044 36,033 Net income per common share: Basic $ .26 $ .32 Diluted .26 .32 Average common shares outstanding 101,698 113,771
On June 18, 1999, the Company acquired 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 $83.7 million cash and working interests in 11 leases in 6 8 the Gulf of Mexico. The British-Borneo transaction included estimated proved reserves of approximately 15.9 MMboe as of the effective date. The purchase price was allocated to the assets purchased and the liabilities assumed based upon the fair values on the date of acquisition, as follows (in thousands): Value of properties acquired, including gathering and transportation facilities $ 98,582 Value of Gulf of Mexico leases (3,140) Working capital acquired, net 4,123 Deferred income tax liability (15,906) ---------- Cash paid, net of cash acquired $ 83,659 ==========
Divestitures - During the six months ended June 30, 1999, Apache sold 27.8 million equivalent barrels of proved reserves from largely marginal North American properties, collecting cash of $103.2 million. 2. NON-CASH INVESTING AND FINANCING ACTIVITIES A summary of non-cash investing or financing activities is presented below: In May 1999, the Company issued one million shares of Apache common stock valued at $28.1 million to Shell in connection with the transaction discussed in Note 1. In June 1999, the Company acquired certain oil and gas interests from British-Borneo for cash and the assumption of certain liabilities. The accompanying financial statements include the amounts detailed in Note 1. The following table provides supplemental disclosure of cash flow information:
FOR THE SIX MONTHS ENDED JUNE 30, ----------------------------------------- 1999 1998 --------------- ---------------- (In thousands) Cash paid during the period for: Interest (net of amounts capitalized) $ 35,779 $ 38,284 Income taxes (net of refunds) 15,185 14,980
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. The proceeds were used to reduce outstanding indebtedness under the Australian portion of the global credit facility. In June 1999, the Company issued $150 million principal amount, $149.1 million net of discount, of senior unsecured 7.625-percent notes due July 1, 2019. The Company does not have the right to redeem the notes prior to maturity. Upon certain changes in control, these notes are subject to mandatory repurchase. The proceeds were used to reduce the Company's outstanding amounts of commercial paper. 7 9 4. NET INCOME PER COMMON SHARE A reconciliation of the components of basic and diluted net income per common share is presented in the table below:
FOR THE QUARTER ENDED JUNE 30, --------------------------------------------------------------------------- 1999 1998 ------------------------------------ ------------------------------------ INCOME SHARES PER SHARE INCOME SHARES PER SHARE ---------- ---------- ----------- ---------- ----------- ---------- (In thousands, except per share amounts) BASIC: Income attributable to common stock $ 29,632 105,566 $ .28 $ 9,236 98,599 $ .09 ========= ========= EFFECT OF DILUTIVE SECURITIES: Stock option plans -- 317 -- 377 --------- --------- --------- ---------- DILUTED: Income attributable to common stock after assumed conversions $ 29,632 105,883 $ .28 $ 9,236 98,976 $ .09 ========= ========= ========= ========= ========== =========
FOR THE SIX MONTHS ENDED JUNE 30, --------------------------------------------------------------------------- 1999 1998 ------------------------------------ ------------------------------------ INCOME SHARES PER SHARE INCOME SHARES PER SHARE ---------- ---------- ----------- ----------- ----------- ---------- (In thousands, except per share amounts) BASIC: Income attributable to common stock $ 26,044 101,698 $ .26 $ 26,592 98,093 $ .27 ========= ========= EFFECT OF DILUTIVE SECURITIES: Stock option plans -- 242 -- 384 --------- --------- --------- ---------- DILUTED: Income attributable to common stock after assumed conversions $ 26,044 101,940 $ .26 $ 26,592 98,477 $ .27 ========= ========= ========= ========= ========== =========
The 6-percent convertible subordinated debentures were not included in the computation of diluted net income per common share for the six months ended June 30, 1998, because to do so would have been antidilutive. Such debentures were converted into shares of Apache common stock or redeemed in January 1998. The Conversion Preferred Stock, Series C, was not included in the computation of diluted net income per common share during 1999, because to do so would have been antidilutive. 5. CAPITAL STOCK In May 1999, Apache issued 14,950,000 shares ($463.5 million) of Apache common stock and 140,000 shares ($217 million) of Automatically Convertible Equity Securities, Conversion Preferred Stock, Series C (the Preferred Stock) in the form of seven million depositary shares each representing 1/50th of a share of Preferred Stock (Depositary Shares). The Preferred Stock is not subject to a sinking fund or mandatory redemption. On May 15, 2002, each Depositary Share will automatically convert, subject to adjustments, into not more than one share and not less than 0.8197 of a share of Apache common stock, depending on the market price of Apache common stock at that time. At any time prior to May 15, 2002, holders of the Depositary Shares may elect to convert each of their shares, subject to adjustments, into not less than 0.8197 of a share of Apache Common Stock (5,737,900 common shares). Holders of the shares are entitled to receive cumulative cash dividends at an annual rate of $2.015 per Depositary Share when, and if, declared by Apache's board of directors. The net proceeds from both offerings of 8 10 approximately $654.8 million were used for general corporate purposes, including funding of a portion of the purchase price for the Shell transaction. 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:
UNITED OTHER STATES CANADA EGYPT AUSTRALIA INTERNATIONAL TOTAL -------------------------- ------------ ------------ ------------ ----------- (IN THOUSANDS) FOR THE SIX MONTHS ENDED JUNE 30, 1999 Oil and Gas Production Revenues......... $ 251,307 $ 34,293 $ 74,597 $ 43,875 $ 1,307 $ 405,379 =========== =========== =========== =========== =========== ========== Operating Income (1).................... $ 58,219 $ 10,077 $ 29,629 $ 16,365 $ 441 $ 114,731 =========== =========== =========== =========== =========== Other Income (Expense): Other revenues....................... 3,477 Administrative, selling and other.... (22,464) Financing costs, net................. (39,529) ---------- Income Before Income Taxes.............. $ 56,215 ========== Total Assets............................ $ 2,731,207 $ 326,065 $ 894,033 $ 761,031 $ 182,633 $4,894,969 =========== =========== =========== =========== =========== ========== FOR THE SIX MONTHS ENDED JUNE 30, 1998 Oil and Gas Production Revenues......... $ 274,895 $ 28,918 $ 71,068 $ 32,924 $ - $ 407,805 =========== =========== =========== =========== =========== ========== Operating Income (1).................... $ 59,074 $ 5,883 $ 30,841 $ 8,550 $ - $ 104,348 =========== =========== =========== =========== =========== Other Income (Expense): Other revenues....................... (848) Administrative, selling and other.... (20,166) Financing costs, net................. (36,781) ---------- Income Before Income Taxes.............. $ 46,553 ========== Total Assets............................ $ 2,424,996 $ 298,440 $ 784,031 $ 553,046 $ 117,446 $4,177,959 =========== =========== =========== =========== =========== ==========
(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. 9 11 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 in 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 constituted the largest transaction in the Company's history in terms of purchase price and quantity of proved reserves acquired. Production from the acquired properties was first recorded in the second quarter of 1999. Apache's results of operations and financial position for the first half of 1999, were significantly impacted by the following factors: Commodity Prices - Apache's average realized oil price increased $.38 per barrel from $13.55 per barrel in the first six months of 1998 to $13.93 per barrel in the comparable 1999 period, increasing revenues by $5.3 million. The average realized price for natural gas decreased $.13 per thousand cubic feet (Mcf) from $1.99 per Mcf in the first six months of 1998 to $1.86 per Mcf in 1999, negatively impacting revenues by $13.6 million. Operations - Oil production increased four percent during the first six months of 1999 when compared to the same period last year. The increase was primarily due to the acquisition from Shell in the U.S., included for half of the second quarter, the acquisition of certain oil and gas interests in the Carnarvon Basin, offshore Western Australia, from subsidiaries of Novus Petroleum Limited (Novus) in November 1998 and the full-period impact of production from Australia's Stag field which began in May 1998. The increase in oil production positively impacted revenues by $7.0 million. Gas production decreased one percent which negatively impacted revenues by $1.8 million. RESULTS OF OPERATIONS Apache reported 1999 second quarter income attributable to common stock of $29.6 million versus income of $9.2 million in the prior year. Basic net income per common share of $.28 for the second quarter of 1999 was significantly higher than the $.09 reported in 1998. A significant increase in oil and gas production revenues was partially offset by higher DD&A, net financing costs, preferred stock dividends and administrative, selling and other (G&A) expense. For the first half of 1999, net income of $26.0 million, or $.26 per share, compared to $26.6 million, or $.27 per share, in the comparable 1998 period. The decrease resulted primarily from slightly lower oil and gas production revenues along with higher net financing costs, preferred stock dividends and G&A expense partially offset by declines in DD&A expense and operating costs. For the second quarter of 1999, revenues increased 28 percent to $281.6 million compared to $220.1 million in 1998, driven by a 23 percent increase in oil and gas production revenues. The increase in oil and gas production revenues was the result of a 23 percent increase in the average realized oil price, a 16 percent increase in oil production, a five percent increase in natural gas production and a two percent increase in the average realized price for natural gas. Crude oil, including natural gas liquids, contributed 53 percent and natural gas contributed 47 percent of oil and gas production revenues. For the first six months of 1999, total revenues increased one percent to $469.4 million as compared to $466.1 million for the same period 10 12 in 1998. Revenues from oil and gas production decreased one percent over the same period in 1998, with crude oil, including natural gas liquids, contributing 50 percent and natural gas contributing 50 percent of total oil and gas production revenues. Volume and price information for the Company's oil and gas production is summarized in the following table:
FOR THE QUARTER ENDED JUNE 30, FOR THE SIX MONTHS ENDED JUNE 30, ------------------------------------- -------------------------------------- INCREASE INCREASE 1999 1998 (DECREASE) 1999 1998 (DECREASE) ------------ ------------ --------- ------------- ------------- ---------- Natural Gas Volume - Mcf per day: United States 447,046 450,284 (1)% 422,502 458,657 (8)% Canada 98,540 99,014 -- 103,790 97,774 6% Egypt 4,261 446 855% 3,855 448 760% Australia 69,411 47,387 46% 64,762 47,181 37% Ivory Coast 6,314 -- -- 3,779 -- -- ----------- ----------- ------------ ------------ Total 625,572 597,131 5% 598,688 604,060 (1)% =========== =========== ============ ============ Average Natural Gas price - Per Mcf: United States $ 2.18 $ 2.18 -- $ 2.00 $ 2.18 (8)% Canada 1.62 1.36 19% 1.52 1.30 17% Egypt 2.63 2.21 19% 2.32 2.00 16% Australia 1.53 1.55 (1)% 1.51 1.57 (4)% Ivory Coast 1.72 -- -- 1.72 -- -- Total 2.02 1.99 2% 1.86 1.99 (7)% Oil Volume - Barrels per day: United States 43,420 34,752 25% 37,842 37,181 2% Canada 2,069 2,017 3% 2,124 2,046 4% Egypt 31,302 29,275 7% 29,017 29,263 (1)% Australia 9,526 8,201 16% 9,889 7,668 29% Ivory Coast 87 -- -- 49 -- -- ----------- ----------- ------------ ------------ Total 86,404 74,245 16% 78,921 76,158 4% =========== =========== ============ ============ Average Oil price - Per barrel: United States $ 15.80 $ 12.67 25% $ 13.84 $ 13.55 2% Canada 14.80 11.93 24% 12.81 13.85 (8)% Egypt 15.78 13.17 20% 13.89 13.39 4% Australia 17.70 14.04 26% 14.63 14.05 4% Ivory Coast 14.48 -- -- 14.43 -- -- Total 15.98 13.00 23% 13.93 13.55 3% Natural Gas Liquids (NGL) Volume - Barrels per day: United States 2,676 2,097 28% 2,534 2,004 26% Canada 598 658 (9)% 614 631 (3)% ----------- ----------- ------------ ------------ Total 3,274 2,755 19% 3,148 2,635 19% =========== =========== ============ ============ Average NGL Price - Per barrel: United States $ 8.73 $ 7.58 15% $ 8.11 $ 8.32 (3)% Canada 7.80 6.23 25% 6.56 6.72 (2)% Total 8.56 7.25 18% 7.81 7.93 (2)%
SECOND QUARTER 1999 COMPARED TO SECOND QUARTER 1998 Natural gas sales for the second quarter of 1999 totaled $114.9 million, six percent higher than the second quarter of 1998. Average realized natural gas prices increased two percent, positively affecting revenue by $1.5 million. 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 $.01 per Mcf during the second quarter of 1999 and $.05 for the same period in 1998. 11 13 Natural gas production increased 28 million cubic feet per day (MMcf/d), or five percent, on a worldwide basis, favorably impacting revenue by $5.2 million. Increases were driven by the Shell and Australian acquisition activity. To a lesser extent, initial production in the Ivory Coast along with Qarun concession gas sales contributed to the overall increase. The Company's crude oil sales for the second quarter of 1999 totaled $125.6 million, a 43 percent increase from the second quarter of 1998, due to increased average realized prices and production volumes. Second quarter 1999 oil production increased 16 percent compared to the prior year primarily the result of a 25 percent increase in the United States attributable to production from the Shell properties acquired in the second quarter of 1999. Australian oil production increased 16 percent in the second quarter of 1999 primarily due to the acquisition of Novus interests and the full-period impact of production from the Stag field. The Company's realized price for sales of crude oil in the second quarter of 1999 increased $2.98 per barrel, or 23 percent, resulting in an increase in revenue of $20.1 million compared to the same period in 1998. Revenue from the sale of natural gas liquids totaled $2.6 million for the second quarter of 1999, compared to $1.8 million for the second quarter of 1998 in response to a 19 percent increase in natural gas liquids production and an 18 percent improvement in realized prices. Apache initiated production offshore the Ivory Coast in the first quarter of 1999. First sales of natural gas were delivered in March 1999. YEAR-TO-DATE 1999 COMPARED TO YEAR-TO-DATE 1998 Natural gas sales for the first half of 1999 of $201.9 million decreased $15.4 million, or seven percent, from those recorded in the same period of 1998 primarily as a result of lower natural gas prices. Average realized natural gas prices decreased seven percent, negatively affecting revenue by $13.6 million. U.S. natural gas production, which comprised 71 percent of the Company's worldwide gas production, sold at an average price of $2.00 per Mcf, eight percent lower than in 1998, negatively impacting natural gas sales by $14.8 million. Natural gas production decreased 5 MMcf/d, or one percent, on a worldwide basis, unfavorably impacting revenue by $1.8 million. While U.S. natural gas production declined 36 MMcf/d, development activities and the impact of producing property acquisitions during late 1998 increased natural gas production in Australia and Canada by 18 MMcf/d and 6 MMcf/d, respectively. The weakening of the Australian currency relative to the U.S. dollar contributed to the four percent decrease 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 $.04 per Mcf during the first half of 1999 and by $.06 per Mcf during the same period of 1998. For the first half of 1999, oil revenues of $199.0 million increased $12.3 million, or seven percent, from the same period in 1998 due to improved production and higher oil prices. On a worldwide basis, average oil prices increased $.38 per barrel, or three percent, to $13.93 per barrel positively impacting oil sales by $5.3 million. Oil production increased 2,763 barrels per day, or four percent, for the first six months of 1999 primarily due to increases in Australia. Australian oil production increased by 2,221 barrels per day, or 29 percent, primarily due to the full-period impact of production from the Stag field and acquisition of the Novus interests. Natural gas liquid revenues for the first six months of 1999 of $4.5 million increased $.7 million, or 18 percent, from the same period in 1998. Natural gas liquid production increased 513 barrels per day, or 19 percent, while natural gas liquid prices declined by $.12 per barrel, or two percent. 12 14 OTHER REVENUES AND OPERATING EXPENSES During the second quarter and first six months of 1999, Apache's gas gathering, processing and marketing revenues increased 33 percent and two percent, respectively, to $35.9 million and $60.5 million, as a result of increases in production and prices in both periods. While revenues increased with respect to these activities, there was a greater increase in gas gathering, processing and marketing costs for the first six months of 1999, thus lower margins were realized for this period as compared to 1998. Other revenues for the second quarter of 1999 were $2.7 million. This amount includes $1.2 million in reported foreign currency gains on Australian dollars due to the strengthening of the Australian currency relative to the U.S. dollar and $1.0 million in insurance dividends. For the first six months of 1999, other revenues were $3.5 million. This amount included $1.4 million in reported foreign currency gains on Australian dollars and $1.0 million in insurance dividends. The Company's DD&A expense for the second quarter and first six months of 1999 totaled $105.4 million and $193.8 million, respectively, compared to $97.4 million and $195.8 million for the comparable periods in 1998. On an equivalent barrel basis, full cost DD&A expense decreased $.01 per barrel of oil equivalent (boe), from $5.65 per boe to $5.64 per boe, in the second quarter of 1999 compared to the same period in 1998. For the six months ended June 30, 1999, the full cost DD&A rate totaled $5.53 per boe compared to $5.61 per boe in 1998. Production increases in Canada, Australia and Egypt, countries which have a lower DD&A rate per boe than the U.S., accounted for the decrease in the overall rate. The U.S. DD&A rate has stayed relatively constant at $6.06 per boe in the first half of 1999 compared to $6.05 per boe in the first half of 1998. U.S. production accounted for 61 percent of worldwide production in the first half of 1999 compared to 64 percent in the first half of 1998. Operating costs, including lease operating expense and severance taxes, decreased three percent from $52.6 million in the second quarter of 1998 to $51.3 million for the same period in 1999. For the first half of 1999, operating costs totaled $98.1 million, a decrease of $11.0 million, or 10 percent, compared to the same period in 1998. For the second quarter and first six months of 1999, lease operating expense, excluding severance taxes, totaled $44.4 million and $85.6 million, respectively, compared to $45.0 million and $93.2 million for the comparable periods in 1998. On an equivalent barrel basis, lease operating expense declined from $2.80 per boe in the second quarter of 1998 to $2.51 per boe in the second quarter of 1999. For the first six months of 1999, lease operating expense averaged $2.60 per boe, a nine percent decrease from $2.87 per boe, for the same period in 1998. Domestic per unit costs were significantly reduced due to lower Gulf Coast region repairs, maintenance, power and fuel costs resulting from the sale of marginal properties, and by lower Western and Mid-Continent region repairs and maintenance costs. G&A expense in the second quarter and first six months of 1999 increased $1.9 million or 19 percent, and $2.3 million or 11 percent, respectively, from a year ago. These increases were the result of planned spending increases. On an equivalent barrel basis, G&A expenses increased to $.68 per boe, for the first half of 1999 as compared to $.62 per boe for the same period in 1998. Net financing costs for the second quarter of 1999 increased $3.3 million, or 19 percent, from the prior year due to higher gross interest expense and reduced interest income, mitigated by higher capitalized interest. Gross interest expense increased $2.5 million due to a higher average outstanding debt balance. Net financing costs increased seven percent from $36.8 million in the first half of 1998 to $39.5 million in the comparable 1999 period due to higher average debt outstanding and reduced interest income, partially offset by an increase in capitalized interest. Additional capitalized interest associated with Egyptian pipeline projects under construction contributed to the increase. The decrease in interest income was due to a lower cash balance in the first half of 1999. 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 13 15 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. Capital Expenditures - A summary of oil and gas capital expenditures during the first six months of 1999 and 1998 is presented below (in millions):
FOR THE SIX MONTHS ENDED JUNE 30, ------------------------------------ 1999 1998 ------------ ------------ Exploration and development: United States $ 54.6 $ 114.3 Canada 15.2 40.4 Egypt 29.3 59.2 Australia 21.3 39.0 Other international 11.8 20.9 ----------- ----------- 132.2 273.8 Capitalized Interest 26.0 23.4 ----------- ----------- Total $ 158.2 $ 297.2 =========== =========== Acquisition of oil and gas properties $ 880.5 $ 19.3 =========== ===========
In North America, Apache completed 43 producing wells out of 54 wells drilled during the first half of 1999, while internationally the Company discovered 21 new producers out of 31 wells drilled. Worldwide, the Company was drilling or completing an additional 51 wells as of June 30, 1999. In addition, Apache completed 152 production enhancement projects, including 93 recompletions, during the first half of 1999. Property acquisitions in the first half of 1999, primarily represented acquisitions of producing properties in the Company's existing focus areas. 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 10.2 million barrels of oil equivalent (MMboe) as of the effective date. On May 18, 1999, Apache acquired from Shell Offshore Inc. and affiliated Shell entities (Shell) its interest in 22 producing fields and 16 undeveloped blocks located in the Gulf of Mexico. The Shell transaction also included certain production-related assets and proprietary 3D seismic data covering approximately 1,000 blocks in the Gulf of Mexico. The purchase price, subject to post closing adjustments, was $686.5 million in cash and one million shares of Apache common stock (valued at $28.125 per share). The Shell transaction included estimated proved reserves of approximately 123.2 MMboe as of the effective date. 14 16 On June 18, 1999, the Company acquired 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 $83.7 million cash and working interests in 11 leases in the Gulf of Mexico. The British-Borneo transaction included estimated proved reserves of approximately 15.9 MMboe as of the effective date. CAPITAL RESOURCES AND LIQUIDITY Net Cash Provided by Operating Activities - Apache's net cash provided by operating activities during the first half of 1999 totaled $163.9 million, a decrease of 29 percent from $231.0 million in the first half of 1998. This decrease was primarily due to an increase in non-cash components of working capital. Stock Transactions - In May 1999, Apache issued 14,950,000 shares ($463.5 million) of Apache common stock and 140,000 shares ($217 million) of Automatically Convertible Equity Securities, Conversion Preferred Stock, Series C (the Preferred Stock) in the form of seven million depositary shares each representing 1/50th of a share of Preferred Stock (Depositary Shares). The Preferred Stock is not subject to a sinking fund or mandatory redemption. On May 15, 2002, each Depositary Share will automatically convert, subject to adjustments, into not more than one share and not less than 0.8197 of a share of Apache common stock, depending on the market price of Apache common stock at that time. 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. The proceeds were used to reduce outstanding indebtedness under the Australian portion of the global credit facility. In June 1999, the Company issued $150 million principal amount, $149.1 million net of discount, of senior unsecured 7.625-percent notes due July 1, 2019. The Company does not have the right to redeem the notes prior to maturity. Upon certain changes in control, these notes are subject to mandatory repurchase. The proceeds were used to reduce the Company's outstanding amounts of commercial paper. Liquidity - The Company had $22.4 million in cash and cash equivalents on hand at June 30, 1999, up from $14.5 million at December 31, 1998. Apache's ratio of current assets to current liabilities at June 30, 1999 was 1.17:1 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 June 30, 1999, Apache's available borrowing capacity under its global credit facility was $836 million. 15 17 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 June 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 August 1999 90%
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 has assessed 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. Such responses indicate they will be compliant by year-end. 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 16 18 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 pursue operations to cut costs, identify production enhancement initiatives such as workovers and recompletions, and divest marginal and non-strategic properties. ACQUIRING PROPERTIES TO WHICH WE CAN ADD INCREMENTAL VALUE We seek to purchase reserves at appropriate prices by generally avoiding auction processes where we are competing against other buyers. Our aim is to follow each acquisition with a cycle of reserve enhancement, property consolidation and cash flow acceleration, facilitating asset growth and debt reduction. INVESTING IN HIGH-POTENTIAL EXPLORATION PROSPECTS 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 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, 2001, 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. 17 19 CHINA On May 28, 1999, Apache China (an indirectly, wholly owned subsidiary of the Company) sent a notice of default to XCL-China, a participant with Apache China in the Zhao Dong Block offshore the People's Republic of China, and its parent company, XCL, Ltd., pursuant to the agreements governing the project. Prior to the expiration of the cure period, XCL-China and XCL, Ltd. filed petitions initiating arbitration proceedings against Apache China. The actions seek to disallow approximately $17 million in costs expended by Apache China to develop the Zhao Dong Block, including $10 million in costs billed by Apache China to XCL-China that have not been paid. In addition, XCL-China has advised Apache China of XCL-China's intent to seek the removal of Apache China as operator of the Block. Apache China has denied all of the allegations made by XCL-China in its petition and will vigorously contest them. On June 25, 1999, Apache China filed a petition in U.S. Bankruptcy Court in Opelousas, Louisiana, to place XCL-China into involuntary bankruptcy on account of XCL-China's failure to pay its share of costs related to development of the Zhao Dong Block. XCL-China has denied the allegations contained in Apache China's petition and has filed a motion to dismiss the petition. 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. 18 20 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 The Company's annual meeting of stockholders was held in Houston, Texas at 10:00 a.m. local time, on Thursday, May 6, 1999. Proxies for the meeting were solicited pursuant to Regulation 14 under the Securities Exchange Act of 1934, as amended. There was no solicitation in opposition to the nominees for election as directors as listed in the proxy statement, and all nominees were elected. Out of a total of 97,812,383 shares of the Company's common stock outstanding and entitled to vote, 86,791,406 shares were present at the meeting in person or by proxy, representing approximately 88.7 percent. Matters voted upon at the meeting were as follows: Election of four directors to serve on the Company's board of directors. Mr. Farris, Mr. Ferlic, Mr. Frazier and Mr. Kocur were elected to serve until the annual meeting in 2002. The vote tabulation with respect to each nominee was as follows:
AUTHORITY NOMINEE FOR WITHHELD ------------------------ ------------- -------------- G. Steven Farris 86,043,700 747,706 Randolph M. Ferlic 86,167,993 623,413 A. D. Frazier, Jr. 77,087,448 9,703,958 John A. Kocur 86,010,059 781,347
ITEM 5. OTHER INFORMATION None 19 21 ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K (a) Exhibits 12.1 - Statement of computation of ratios of earnings to fixed charges and combined fixed charges and preferred stock dividends. 27.1 - Financial Data Table (b) Reports filed on Form 8-K The following current reports on Form 8-K were filed during the fiscal quarter ended June 30, 1999: April 29, 1999 - Item 5. Other Events Offering to the public of (i) 14,950,000 shares of Apache common stock, par value $1.25 per share, and (ii) 7,000,000 depositary shares, representing Automatically Convertible Equity Securities, Conversion Preferred Stock, Series C, no par value. The shares of common stock and the depositary shares were registered pursuant to a registration statement on Form S-3 (Registration No. 333-75633). May 18, 1999 - Item 2. Acquisition or Disposition of Assets Apache closed the purchase from Shell Offshore Inc. and affiliates ("Shell") of (i) Shell's interest in 22 producing fields and 16 undeveloped blocks located in the Gulf of Mexico, (ii) certain production-related assets, and (iii) proprietary 3-D seismic data covering over 1,000 blocks in the Gulf of Mexico. June 22, 1999 - Item 5. Other Events Offering to the public of $150 million principal amount of 7.625% Senior Notes due 2019, issued under an indenture dated February 15, 1996 and supplemented November 5, 1996, and registered pursuant to a registration statement on Form S-3 (Registration No. 333-44731.) 20 22 SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. APACHE CORPORATION Dated: August 12, 1999 /s/ Roger B. Plank ------------------------------------------- Roger B. Plank Vice President and Chief Financial Officer Dated: August 12, 1999 /s/ Thomas L. Mitchell ------------------------------------------- Thomas L. Mitchell Vice President and Controller (Chief Accounting Officer) 23 INDEX TO EXHIBITS
Exhibit Number Description - ------- ----------- 12.1 - Statement of computation of ratios of earnings to fixed charges and combined fixed charges and preferred stock dividends. 27.1 - Financial Data Table
EX-12.1 2 STATEMENT OF COMPUTATION OF RATIO OF EARNINGS 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)
SIX MONTHS ENDED JUNE 30, -------------------- 1999 1998 1998 1997 1996 1995 1994 -------- -------- --------- -------- -------- -------- -------- EARNINGS Pretax income (loss) from continuing operations (1) $ 56,215 $ 46,553 $(187,563) $258,640 $200,195 $ 33,143 $ 66,234 Add: Fixed charges excluding capitalized interest 43,131 41,026 78,728 78,531 68,091 77,220 39,008 -------- -------- --------- -------- -------- -------- -------- Adjusted Earnings $ 99,346 $ 87,579 $(108,835) $337,171 $268,286 $110,363 $105,242 ======== ======== ========= ======== ======== ======== ======== FIXED CHARGES AND PREFERRED STOCK DIVIDENDS Interest expense including capitalized interest (2) $ 64,107 $ 60,331 $ 119,703 $105,148 $ 89,829 $ 88,057 $ 37,838 Amortization of debt expense 2,215 2,308 4,496 6,438 5,118 4,665 3,987 Interest component of lease rental expenditures (3) 2,778 1,775 3,808 3,438 3,856 3,539 3,217 -------- -------- --------- -------- -------- -------- -------- Fixed charges 69,100 64,414 128,007 115,024 98,803 96,261 45,042 -------- -------- --------- -------- -------- -------- -------- Preferred stock requirements (4) 8,370 - 2,905 - - - - -------- -------- --------- -------- -------- -------- -------- Combined fixed charges and preferred stock dividends $ 77,470 $ 64,414 $ 130,912 $115,024 $ 98,803 $ 96,261 $ 45,042 ======== ======== ========= ======== ======== ======== ======== Ratio of earnings to fixed charges 1.44 1.36 - (5) 2.93 2.72 1.15 2.34 ======== ======== ========= ======== ======== ======== ======== Ratio of earnings to combined fixed charges and preferred stock dividends 1.28 1.36 - (5) 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 $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-27.1 3 FINANCIAL DATA SCHEDULE
5 1,000 6-MOS DEC-31-1999 JUN-30-1999 22,427 0 228,145 0 47,481 319,061 7,991,778 (3,457,343) 4,894,969 272,825 1,539,265 210,490 98,387 144,855 2,053,771 4,894,969 465,874 469,351 351,143 351,143 0 0 39,529 56,215 25,615 30,600 0 0 0 30,600 0.26 0.26
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