UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the Quarterly Period Ended June 30, 2002
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, 2002..........................143,799,455
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,
------------------------------ ------------------------------
2002 2001 2002 2001
------------ ------------ ------------ ------------
(In thousands, except per common share data)
REVENUES:
Oil and gas production revenues ............ $ 641,722 $ 796,045 $ 1,163,451 $ 1,597,643
Other revenues (losses) .................... 4,051 4,398 2,658 (2,057)
------------ ------------ ------------ ------------
645,773 800,443 1,166,109 1,595,586
------------ ------------ ------------ ------------
OPERATING EXPENSES:
Depreciation, depletion and amortization ... 210,790 208,652 421,829 381,182
International impairments .................. -- 65,000 4,600 65,000
Lease operating costs ...................... 114,191 101,420 226,768 191,527
Severance and other taxes .................. 15,811 20,248 30,310 41,541
Administrative, selling and other .......... 28,015 23,193 53,367 43,569
Financing costs:
Interest expense ........................ 41,451 49,254 78,333 93,966
Amortization of deferred loan costs ..... 466 532 800 1,034
Capitalized interest .................... (10,442) (13,783) (20,464) (28,868)
Interest income ......................... (1,043) (1,375) (2,212) (2,252)
------------ ------------ ------------ ------------
399,239 453,141 793,331 786,699
------------ ------------ ------------ ------------
PREFERRED INTERESTS OF SUBSIDIARIES ............ 5,129 -- 8,662 --
------------ ------------ ------------ ------------
INCOME BEFORE INCOME TAXES ..................... 241,405 347,302 364,116 808,887
Provision for income taxes ................. 95,095 141,557 137,134 320,941
------------ ------------ ------------ ------------
NET INCOME ..................................... 146,310 205,745 226,982 487,946
Preferred stock dividends .................. 3,081 4,877 7,989 9,785
------------ ------------ ------------ ------------
INCOME ATTRIBUTABLE TO COMMON STOCK ............ $ 143,229 $ 200,868 $ 218,993 $ 478,161
============ ============ ============ ============
NET INCOME PER COMMON SHARE:
Basic ...................................... $ 1.02 $ 1.46 $ 1.57 $ 3.49
============ ============ ============ ============
Diluted .................................... $ 1.00 $ 1.41 $ 1.55 $ 3.35
============ ============ ============ ============
The accompanying notes to consolidated financial statements
are an integral part of this statement.
1
APACHE CORPORATION AND SUBSIDIARIES
STATEMENT OF CONSOLIDATED CASH FLOWS
(UNAUDITED)
FOR THE SIX MONTHS ENDED
JUNE 30,
------------------------------
2002 2001
------------ ------------
(In thousands)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income .................................................................. $ 226,982 $ 487,946
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation, depletion and amortization .............................. 421,829 381,182
Provision for deferred income taxes ................................... 38,153 192,158
International impairments ............................................. 4,600 65,000
Amortization of derivative (gains)/losses and other ................... (14,146) (20,745)
Changes in operating assets and liabilities:
(Increase) decrease in receivables .................................... (22,013) 30,530
(Increase) decrease in advances to oil and gas ventures and other ..... (15,134) (14,011)
(Increase) decrease in product inventory .............................. (1,127) 869
(Increase) decrease in deferred charges and other ..................... (293) 290
Increase (decrease) in payables ....................................... 39,898 (25,658)
Increase (decrease) in accrued expenses ............................... (48,678) 22,394
Increase (decrease) in advances from gas purchasers ................... (7,279) (6,558)
Increase (decrease) in deferred credits and noncurrent liabilities .... 1,293 (23,318)
------------ ------------
Net cash provided by operating activities ......................... 624,085 1,090,079
------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to property and equipment ......................................... (465,910) (678,069)
Acquisition of Fletcher subsidiaries ........................................ -- (465,018)
Acquisition of Repsol YPF properties ........................................ -- (446,933)
Proceeds from sales of oil and gas properties ............................... -- 238,715
Proceeds from sale of short-term investments ................................ 17,006 --
Other, net .................................................................. (13,229) (46,452)
------------ ------------
Net cash used in investing activities ............................. (462,133) (1,397,757)
------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Long-term borrowings ........................................................ 1,105,859 1,531,281
Payments on long-term debt .................................................. (1,144,970) (1,111,613)
Dividends paid .............................................................. (37,257) (9,778)
Common stock activity, net .................................................. 15,542 7,125
Treasury stock activity, net ................................................ 1,715 (16,006)
Cost of debt and equity transactions ........................................ (6,487) (1,181)
------------ ------------
Net cash provided by financing activities ......................... (65,598) 399,828
------------ ------------
NET INCREASE IN CASH AND CASH EQUIVALENTS ...................................... 96,354 92,150
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR ................................. 35,625 37,173
------------ ------------
CASH AND CASH EQUIVALENTS AT END OF PERIOD ..................................... $ 131,979 $ 129,323
============ ============
The accompanying notes to consolidated financial statements
are an integral part of this statement.
2
APACHE CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
(UNAUDITED)
JUNE 30, DECEMBER 31,
2002 2001
------------ ------------
(In thousands)
ASSETS
CURRENT ASSETS:
Cash and cash equivalents .................................... $ 131,979 $ 35,625
Receivables .................................................. 429,835 404,793
Inventories .................................................. 106,074 102,536
Advances to oil and gas ventures and other ................... 67,180 51,845
Short-term investments ....................................... 85,364 102,950
------------ ------------
820,432 697,749
------------ ------------
PROPERTY AND EQUIPMENT:
Oil and gas, on the basis of full cost accounting:
Proved properties ......................................... 11,989,287 11,390,692
Unproved properties and properties under
development, not amortized ............................. 754,573 839,921
Gas gathering, transmission and processing facilities ........ 775,240 748,675
Other ........................................................ 179,677 168,915
------------ ------------
13,698,777 13,148,203
Less: Accumulated depreciation, depletion and amortization .. (5,586,894) (5,135,131)
------------ ------------
8,111,883 8,013,072
------------ ------------
OTHER ASSETS:
Goodwill, net ................................................ 193,792 188,812
Deferred charges and other ................................... 39,841 34,023
------------ ------------
$ 9,165,948 $ 8,933,656
============ ============
The accompanying notes to consolidated financial statements
are an integral part of this statement.
3
APACHE CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
(UNAUDITED)
JUNE 30, DECEMBER 31,
2002 2001
------------ ------------
(In thousands)
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable ............................................. $ 224,616 $ 179,778
Accrued operating expense .................................... 39,362 50,584
Accrued exploration and development .......................... 114,513 175,943
Accrued compensation and benefits ............................ 22,204 30,947
Accrued interest ............................................. 37,767 28,592
Accrued income taxes ......................................... 21,325 40,030
Other ........................................................ 12,551 16,584
------------ ------------
472,338 522,458
------------ ------------
LONG-TERM DEBT .................................................. 2,205,246 2,244,357
------------ ------------
DEFERRED CREDITS AND OTHER NONCURRENT LIABILITIES:
Income taxes ................................................. 1,041,298 991,723
Advances from gas purchasers ................................. 132,748 140,027
Other ........................................................ 176,547 175,925
------------ ------------
1,350,593 1,307,675
------------ ------------
PREFERRED INTERESTS OF SUBSIDIARIES ............................. 436,017 440,683
------------ ------------
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, 138,482 shares
issued and outstanding for 2001 ........................ -- 208,207
Common stock, $1.25 par, 215,000,000 shares authorized,
147,824,624 and 141,171,793 shares issued, respectively ... 184,781 176,465
Paid-in capital .............................................. 3,029,692 2,812,648
Retained earnings ............................................ 1,528,368 1,336,478
Treasury stock, at cost, 4,025,169 and 4,068,614 shares,
respectively .............................................. (110,957) (111,885)
Accumulated other comprehensive loss ......................... (28,517) (101,817)
------------ ------------
4,701,754 4,418,483
------------ ------------
$ 9,165,948 $ 8,933,656
============ ============
The accompanying notes to consolidated financial statements
are an integral part of this statement.
4
APACHE CORPORATION AND SUBSIDIARIES
STATEMENT OF CONSOLIDATED SHAREHOLDERS' EQUITY
(UNAUDITED)
SERIES B SERIES C
COMPREHENSIVE PREFERRED PREFERRED COMMON PAID-IN RETAINED
(In thousands) INCOME STOCK STOCK STOCK CAPITAL EARNINGS
------------ ----------- ----------- ----------- ----------- -----------
BALANCE AT DECEMBER 31, 2000 ................ 0 $ 98,387 $ 208,207 $ 173,939 $ 2,157,370 $ 1,226,531
Comprehensive income:
Net income ............................. $ 487,946 -- -- -- -- 487,946
Currency translation adjustments ....... 8,284 -- -- -- -- --
Unrealized gain on derivatives, net
of applicable income tax provision
of $13,961 ........................... 15,580 -- -- -- -- --
Unrealized loss on marketable
securities, net of applicable income
tax benefit of $228 .................. (443) -- -- -- -- --
-----------
Comprehensive income ..................... $ 511,367
===========
Preferred dividends ...................... -- -- -- -- (9,785)
Common shares issued ..................... -- -- 2,495 106,740 --
Treasury shares issued, net .............. -- -- -- -- --
----------- ----------- ----------- ----------- -----------
BALANCE AT JUNE 30, 2001 .................... $ 98,387 $ 208,207 $ 176,434 $ 2,264,110 $ 1,704,692
=========== =========== =========== =========== ===========
BALANCE AT DECEMBER 31, 2001 ................ $ 98,387 $ 208,207 $ 176,465 $ 2,812,648 $ 1,336,478
Comprehensive income:
Net income ............................. $ 226,982 -- -- -- -- 226,982
Currency translation adjustments ....... 80,488 -- -- -- -- --
Reclassification of unrealized gains
into earnings:
Derivatives, net of income tax
benefit of $5,232 .................. (7,063) -- -- -- -- --
Marketable securities, net of income
tax benefit of $67 ................. (125) -- -- -- -- --
-----------
Comprehensive income ..................... $ 300,282
===========
Dividends:
Preferred .............................. -- -- -- 13 (7,989)
Common ($.10 per share) ................ -- -- -- -- (27,103)
Common shares issued ..................... -- -- 513 16,808 --
Conversion of Series C Preferred Stock ... -- (208,207) 7,803 200,402 --
Treasury shares issued, net .............. -- -- -- 28 --
Other .................................... -- -- -- (207) --
----------- ----------- ----------- ----------- -----------
BALANCE AT JUNE 30, 2002 .................... $ 98,387 $ -- $ 184,781 $ 3,029,692 $ 1,528,368
=========== =========== =========== =========== ===========
ACCUMULATED
OTHER TOTAL
TREASURY COMPREHENSIVE SHAREHOLDERS'
(In thousands) STOCK INCOME (LOSS) EQUITY
----------- ------------ -----------
BALANCE AT DECEMBER 31, 2000 ................ $ (69,562) $ (40,232) $ 3,754,640
Comprehensive income:
Net income ............................. -- -- 487,946
Currency translation adjustments ....... -- 8,284 8,284
Unrealized gain on derivatives, net
of applicable income tax provision
of $13,961 ........................... -- 15,580 15,580
Unrealized loss on marketable
securities, net of applicable income
tax benefit of $228 .................. -- (443) (443)
Comprehensive income .....................
Preferred dividends ...................... -- -- (9,785)
Common shares issued ..................... -- -- 109,235
Treasury shares issued, net .............. (25,117) -- (25,117)
----------- ----------- -----------
BALANCE AT JUNE 30, 2001 .................... $ (94,679) $ (16,811) $ 4,340,340
=========== =========== ===========
BALANCE AT DECEMBER 31, 2001 ................ $ (111,885) $ (101,817) $ 4,418,483
Comprehensive income:
Net income ............................. -- -- 226,982
Currency translation adjustments ....... -- 80,488 80,488
Reclassification of unrealized gains
into earnings:
Derivatives, net of income tax
benefit of $5,232 .................. -- (7,063) (7,063)
Marketable securities, net of income
tax benefit of $67 ................. -- (125) (125)
Comprehensive income .....................
Dividends:
Preferred .............................. -- -- (7,976)
Common ($.10 per share) ................ -- -- (27,103)
Common shares issued ..................... -- -- 17,321
Conversion of Series C Preferred Stock ... -- -- (2)
Treasury shares issued, net .............. 928 -- 956
Other .................................... -- -- (207)
----------- ----------- -----------
BALANCE AT JUNE 30, 2002 .................... $ (110,957) $ (28,517) $ 4,701,754
=========== =========== ===========
The accompanying notes to consolidated financial statements
are an integral part of this statement.
5
APACHE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
These financial statements have been prepared by Apache Corporation (Apache
or the Company) without audit, pursuant to the rules and regulations of the
Securities and Exchange Commission, and reflect all adjustments which are, in
the opinion of management, necessary for a fair statement of the results for the
interim periods, on a basis consistent with the annual audited financial
statements. All such adjustments are of a normal recurring nature. Certain
information, accounting policies, and footnote disclosures normally included in
financial statements prepared in accordance with accounting principles generally
accepted in the United States have been omitted pursuant to such rules and
regulations, although the Company believes that the disclosures are adequate to
make the information presented not misleading. These financial statements should
be read in conjunction with the financial statements and the summary of
significant accounting policies and notes thereto included in the Company's most
recent annual report on Form 10-K.
In September 2001, the Company declared a 10 percent stock dividend to
shareholders of record on December 31, 2001. Quarterly share and per share
information for 2001 have been restated to reflect the stock dividend.
1. ACQUISITIONS
In March 2001, the Company completed two significant acquisitions. Apache
acquired substantially all of Repsol YPF's (Repsol) oil and gas concession
interests in Egypt for approximately $447 million in cash, and subsidiaries of
Fletcher Challenge Energy (Fletcher) for approximately $465 million in cash and
1.8 million restricted shares of Apache common stock issued to Shell Overseas
Holdings (valued at $55.49 per share).
The following unaudited pro forma information shows the effect on the
Company's consolidated results of operations as if the Fletcher and Repsol
acquisitions occurred on January 1, 2001. 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, 2001
----------------------------------------
AS REPORTED PRO FORMA
--------------- ---------------
(In thousands, except per common share data)
Revenues ................................................... $ 1,595,586 $ 1,702,541
Net income ................................................. 487,946 513,523
Preferred stock dividends .................................. 9,785 9,785
Income attributable to common stock ........................ 478,161 503,738
Net income per common share:
Basic .................................................. $ 3.49 $ 3.65
Diluted ................................................ 3.35 3.51
Average common shares outstanding .......................... 137,133 137,982
2. DEBT
In April 2002, the Company issued $400 million principal amount, $397
million net of discount, of senior unsecured 6.25-percent notes maturing on
April 15, 2012. The notes are redeemable, as a whole or in part, at Apache's
option, subject to a make-whole premium. The proceeds were used to repay a
portion of the Company's outstanding commercial paper and for general corporate
purposes.
On June 3, 2002, Apache entered into a new $1.5 billion global credit
facility to replace its existing global and 364-day credit facilities. The new
global credit facility consists of four separate bank facilities: a $750 million
364-day facility in the United States; a $450 million five-year facility in the
United States; a $150 million five-year facility in Australia; and a $150
million five-year facility in Canada. The financial covenants of the global
credit
6
facility require the company to: (i) maintain a consolidated tangible net worth,
as defined, of at least $2.1 billion as of June 30, 2002, adjusted for
subsequent earnings, (ii) maintain an aggregate book value for assets of Apache
and certain subsidiaries, as defined, on an unconsolidated basis of at least $2
billion as of June 30, 2002, and (iii) maintain a ratio of debt to
capitalization of not greater than 60 percent at the end of any fiscal quarter.
The company was in compliance with all financial covenants at June 30, 2002.
The five-year facilities are scheduled to mature on June 3, 2007 and the
364-day facility is scheduled to mature on June 1, 2003. The 364-day facility
allows the Company to convert outstanding revolving loans at maturity into
one-year term loans. The Company may request extensions of the maturity dates
subject to approval of the lenders. At the Company's option, the interest rate
is based on (i) the greater of (a) The JPMorgan Chase Bank prime rate or (b) the
federal funds rate plus one-half of one percent, (ii) the London Interbank
Offered Rate (LIBOR) plus a margin determined by the Company's senior long-term
debt rating, or (iii) in the case of the U.S. $450 million five-year facility, a
margin that is determined by competitive bids from participating banks. At June
30, 2002, the margin over LIBOR for committed loans was .30 percent on the
five-year facilities and .32 percent on the 364-day facility. If the total
amount of the loans borrowed under all of the facilities equals or exceeds 33
percent of the total facility commitments, then an additional .125 percent will
be added to the margins over LIBOR. The Company also pays a quarterly facility
fee of .10 percent on the total amount of each of the five-year facilities and
..08 percent on the total amount of the 364-day facility. The facility fees vary
based upon the Company's senior long-term debt rating.
The $450 million U.S. five-year facility and the $750 million U.S. 364-day
credit facility are used to support Apache's commercial paper program. The
available borrowing capacity under the global credit facility at June 30, 2002
was $1.18 billion.
3. DERIVATIVE INSTRUMENTS AND FIXED-PRICE PHYSICAL CONTRACTS
Due to the uncertainty of how the collapse of Enron Corp. might impact the
derivative markets, Apache closed out all of its derivative positions and
certain fixed-price physical contracts during October and November 2001 (the
"Unwind"). The Unwind of Apache's hedged position and acquired derivative
contracts resulted in a net gain recorded to accumulated other comprehensive
income. This deferred gain will be reclassified into earnings over the remaining
periods of the original hedge contracts (approximately 18 months). The remaining
deferred gain related to these contracts was $8 million and $20 million at June
30, 2002 and December 31, 2001, respectively.
As part of the Unwind, Apache also terminated the gas price swap associated
with its advances from gas purchasers, receiving proceeds of $78 million. These
proceeds will be realized into earnings over the original life of the contracts
and effectively increase the original contract's fixed prices by approximately
51 percent. As of June 30, 2002 and December 31, 2001, the Company had an
unamortized gain of $74 million and $78 million related to the Unwind of the
contracts.
7
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,
-------------------------------------------------------------------------------------
2002 2001
---------------------------------------- ----------------------------------------
INCOME SHARES PER SHARE INCOME SHARES PER SHARE
---------- ---------- ---------- ---------- ---------- ----------
(In thousands, except per share amounts)
BASIC:
Income attributable to common stock .... $ 143,229 140,776 $ 1.02 $ 200,868 137,988 $ 1.46
========== ==========
EFFECT OF DILUTIVE SECURITIES:
Stock options and other ................ -- 1,032 -- 1,113
Series C Preferred Stock(1) ........... 1,661 3,016 3,488 6,244
---------- ---------- ---------- ----------
DILUTED:
Income attributable to common stock,
including assumed conversions ......... $ 144,890 144,824 $ 1.00 $ 204,356 145,345 $ 1.41
========== ========== ========== ========== ========== ==========
FOR THE SIX MONTHS ENDED JUNE 30,
-------------------------------------------------------------------------------------
2002 2001
---------------------------------------- ----------------------------------------
INCOME SHARES PER SHARE INCOME SHARES PER SHARE
---------- ---------- ---------- ---------- ---------- ----------
(In thousands, except per share amounts)
BASIC:
Income attributable to common stock .... $ 218,993 139,045 $ 1.57 $ 478,161 137,133 $ 3.49
========== ==========
EFFECT OF DILUTIVE SECURITIES:
Stock options and other ................ -- 1,266 -- 1,227
Series C Preferred Stock(1) ........... 5,149 4,621 6,976 6,244
---------- ---------- ---------- ----------
DILUTED:
Income attributable to common stock,
including assumed conversions ......... $ 224,142 144,932 $ 1.55 $ 485,137 144,604 $ 3.35
========== ========== ========== ========== ========== ==========
(1) The Series C preferred stock converted to Apache common stock on May 15,
2002.
5. SUPPLEMENTAL CASH FLOW INFORMATION
The following table provides supplemental disclosure of cash flow
information:
FOR THE SIX MONTHS ENDED JUNE 30,
---------------------------------
2002 2001
-------------- --------------
(In thousands)
Cash paid during the period for:
Interest (net of amounts capitalized) ..... $ 48,694 $ 56,722
Income taxes (net of refunds) ............. 86,641 89,428
6. SHORT-TERM INVESTMENTS
At December 31, 2001, Apache had $103 million of U.S. Government Agency
Notes, $17 million of which were designated as "available for sale" securities.
In January 2002, the Company sold all of the "available for sale" securities for
approximately $17 million. The remaining balance is designated as "held to
maturity" and is carried at amortized cost. These notes pay interest at rates
from 6.25 percent to 6.375 percent and mature on October 15, 2002.
8
7. IMPAIRMENTS
During the first quarter of 2002, the Company recorded a $5 million
impairment ($3 million after tax) of unproved property costs in Poland. No
impairment was recorded in the second quarter. At June 30, 2002, Apache had $28
million in unproved property costs remaining in Poland. The Company will
continue to evaluate its operations, which may result in additional impairments
during the remainder of 2002.
8. 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, 2002
Oil and Gas Production Revenues .......... $ 506,118 $ 247,216 $ 254,203 $ 152,952 $ 2,962 $ 1,163,451
=========== =========== =========== =========== =========== ===========
Operating Income (Loss)(1)(2) ............ $ 172,278 $ 100,579 $ 139,725 $ 71,000 $ (3,638) $ 479,944
=========== =========== =========== =========== ===========
Other Income (Expense):
Other revenues (losses) ............... 2,658
Administrative, selling and other ..... (53,367)
Financing costs, net .................. (56,457)
Preferred interests of subsidiaries ... (8,662)
-----------
Income Before Income Taxes ............... $ 364,116
===========
Total Assets ............................. $ 4,100,006 $ 2,318,998 $ 1,632,287 $ 948,496 $ 166,161 $ 9,165,948
=========== =========== =========== =========== =========== ===========
FOR THE SIX MONTHS ENDED JUNE 30, 2001
Oil and Gas Production Revenues .......... $ 918,732 $ 333,679 $ 225,558 $ 119,674 $ -- $ 1,597,643
=========== =========== =========== =========== =========== ===========
Operating Income (Loss)(1)(2) ............ $ 568,523 $ 199,951 $ 148,092 $ 66,851 $ (65,024) $ 918,393
=========== =========== =========== =========== ===========
Other Income (Expense):
Other revenues (losses) ............... (2,057)
Administrative, selling and other ..... (43,569)
Financing costs, net .................. (63,880)
-----------
Income Before Income Taxes ............... $ 808,887
===========
Total Assets ............................. $ 4,279,718 $ 2,178,399 $ 1,519,549 $ 861,657 $ 126,070 $ 8,965,393
=========== =========== =========== =========== =========== ===========
(1) Operating income (loss) consists of oil and gas production revenues less
depreciation, depletion and amortization, international impairments, lease
operating costs and severance and other taxes.
(2) During the second quarter of 2001, the Company recorded a $65 million
impairment ($41 million after-tax) of unproved property costs in Poland
and China. During the first quarter of 2002, the Company recorded an
additional $5 million impairment ($3 million after-tax) of unproved
property in Poland.
9. NEW ACCOUNTING PRONOUNCEMENTS
The Company adopted Statement of Financial Accounting Standards (SFAS) No.
142 "Goodwill and Other Intangible Assets" effective January 1, 2002. SFAS No.
142 addresses financial accounting and reporting for acquired goodwill and other
intangible assets and supersedes Accounting Principles Board (APB) Opinion No.
17 "Intangible Assets". As a result of this pronouncement, goodwill is no longer
subject to amortization. Rather, goodwill is subject to at least an annual
assessment for impairment by applying a fair-value-based test. Apache had
9
goodwill of $194 million at June 30, 2002, representing the excess of the
purchase price over the estimated fair value of the assets acquired and
liabilities assumed in the Fletcher and Repsol acquisitions adjusted for
currency fluctuations. The initial fair-value-based goodwill impairment
assessment completed by Apache upon adoption of this pronouncement did not
result in an impairment. Had the principles of SFAS No. 142 been applied to
prior years, goodwill amortization of $2 million ($1 million after tax) expensed
during the second quarter and first half of 2001 would not have been incurred.
Net income for the comparative interim period adjusted to exclude the effect of
goodwill amortization would have increased diluted earnings per share by $.01
for the three months and six months ended June 30, 2001.
In June 2001, the Financial Accounting Standards Board (FASB) issued SFAS
No. 143 "Accounting for Asset Retirement Obligations." SFAS No. 143 addresses
financial accounting and reporting for obligations associated with the
retirement of tangible long-lived assets and the associated asset retirement
costs. This statement requires companies to record the present value of
obligations associated with the retirement of tangible long-lived assets in the
period in which it is incurred. The liability is capitalized as part of the
related long-lived asset's carrying amount. Over time, accretion of the
liability is recognized as an operating expense and the capitalized cost is
depreciated over the expected useful life of the related asset. SFAS No. 143 is
effective for fiscal years beginning after June 15, 2002. The Company's asset
retirement obligations relate primarily to the dismantlement of offshore
platforms. The Company expects to adopt this new standard effective January 1,
2003. The Company is currently evaluating the impact of adopting this new
standard and accordingly has not quantified the impact on the consolidated
financial statements.
10. SUPPLEMENTAL GUARANTOR INFORMATION
Apache Finance Pty Ltd. (Apache Finance Australia) and Apache Finance
Canada Corporation (Apache Finance Canada) are subsidiaries of Apache, which
have issuances of publicly traded securities and require the following condensed
consolidating financial statements be provided as an alternative to filing
separate financial statements.
Each of the companies presented in the condensed consolidating financial
statements has been fully consolidated in Apache Corporation's consolidated
financial statements. As such, the condensed consolidating financial statements
should be read in conjunction with the financial statements of Apache
Corporation and subsidiaries and notes thereto of which this note is an integral
part.
10
APACHE CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS
FOR THE QUARTER ENDED JUNE 30, 2002
ALL OTHER
APACHE APACHE SUBSIDIARIES
APACHE APACHE FINANCE FINANCE OF APACHE RECLASSIFICATIONS
CORPORATION NORTH AMERICA AUSTRALIA CANADA CORPORATION & ELIMINATIONS CONSOLIDATED
----------- ------------- --------- --------- ------------ ----------------- ------------
(IN THOUSANDS)
REVENUES:
Oil and gas production
revenues .................... $ 209,823 $ -- $ -- $ -- $ 479,157 $ (47,258) $641,722
Equity in net income (loss)
of affiliates ............... 104,111 4,582 7,560 22,665 (8,751) (130,167) --
Other revenues (losses) ....... (90) -- -- -- 4,141 -- 4,051
--------- ------------ -------- --------- --------- ------------- --------
313,844 4,582 7,560 22,665 474,547 (177,425) 645,773
--------- ------------ -------- --------- --------- ------------- --------
OPERATING EXPENSES:
Depreciation, depletion and
amortization ................ 61,143 -- -- -- 149,647 -- 210,790
International impairments ..... -- -- -- -- -- -- --
Lease operating costs ......... 49,359 -- -- -- 112,090 (47,258) 114,191
Severance and other taxes ..... 8,501 -- -- 17 7,293 -- 15,811
Administrative, selling and
other ....................... 23,911 -- -- -- 4,104 -- 28,015
Financing costs, net .......... 20,359 -- 4,513 10,218 (4,658) -- 30,432
--------- ------------ -------- --------- --------- ------------- --------
163,273 -- 4,513 10,235 268,476 (47,258) 399,239
--------- ------------ -------- --------- --------- ------------- --------
PREFERRED INTERESTS OF
SUBSIDIARIES ................... -- -- -- -- 5,129 -- 5,129
--------- ------------ -------- --------- --------- ------------- --------
INCOME (LOSS) BEFORE INCOME
TAXES .......................... 150,571 4,582 3,047 12,430 200,942 (130,167) 241,405
Provision (benefit) for
income taxes ................ 4,261 -- (1,535) (4,462) 96,831 -- 95,095
--------- ------------ -------- --------- --------- ------------- --------
NET INCOME ....................... 146,310 4,582 4,582 16,892 104,111 (130,167) 146,310
Preferred stock dividends ..... 3,081 -- -- -- -- -- 3,081
--------- ------------ -------- --------- --------- ------------- --------
INCOME ATTRIBUTABLE TO COMMON
STOCK .......................... $ 143,229 $ 4,582 $ 4,582 $ 16,892 $ 104,111 $ (130,167) $143,229
========= ============ ======== ========= ========= ============= ========
11
APACHE CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS
FOR THE QUARTER ENDED JUNE 30, 2001
ALL OTHER
APACHE APACHE SUBSIDIARIES
APACHE APACHE FINANCE FINANCE OF APACHE
CORPORATION NORTH AMERICA AUSTRALIA CANADA CORPORATION
------------ ------------- ------------ ------------ -------------
(IN THOUSANDS)
REVENUES:
Oil and gas production revenues .............. $ 394,080 $ -- $ -- $ -- $ 530,076
Equity in net income (loss) of affiliates .... 82,250 5,599 8,578 30,633 (8,735)
Other revenues (losses) ...................... (1,031) -- -- -- 5,429
------------ ------------ ------------ ------------ ------------
475,299 5,599 8,578 30,633 526,770
------------ ------------ ------------ ------------ ------------
OPERATING EXPENSES:
Depreciation, depletion and amortization ..... 103,007 -- -- -- 105,645
International impairments .................... -- -- -- -- 65,000
Lease operating costs ........................ 53,444 -- -- -- 176,087
Severance and other taxes .................... 14,201 -- -- -- 6,047
Administrative, selling and other ............ 20,860 -- -- -- 2,333
Financing costs, net ......................... 19,574 -- 4,512 10,206 336
------------ ------------ ------------ ------------ ------------
211,086 -- 4,512 10,206 355,448
------------ ------------ ------------ ------------ ------------
INCOME (LOSS) BEFORE INCOME TAXES ............... 264,213 5,599 4,066 20,427 171,322
Provision (benefit) for income taxes ......... 58,468 -- (1,534) (4,449) 89,072
------------ ------------ ------------ ------------ ------------
NET INCOME ...................................... 205,745 5,599 5,600 24,876 82,250
Preferred stock dividends .................... 4,877 -- -- -- --
------------ ------------ ------------ ------------ ------------
INCOME ATTRIBUTABLE TO COMMON STOCK ............. $ 200,868 $ 5,599 $ 5,600 $ 24,876 $ 82,250
============ ============ ============ ============ ============
RECLASSIFICATIONS
& ELIMINATIONS CONSOLIDATED
----------------- ------------
(IN THOUSANDS)
REVENUES:
Oil and gas production revenues .............. $ (128,111) $ 796,045
Equity in net income (loss) of affiliates .... (118,325) --
Other revenues (losses) ...................... -- 4,398
------------ ------------
(246,436) 800,443
------------ ------------
OPERATING EXPENSES:
Depreciation, depletion and amortization ..... -- 208,652
International impairments .................... -- 65,000
Lease operating costs ........................ (128,111) 101,420
Severance and other taxes .................... -- 20,248
Administrative, selling and other ............ -- 23,193
Financing costs, net ......................... -- 34,628
------------ ------------
(128,111) 453,141
------------ ------------
INCOME (LOSS) BEFORE INCOME TAXES ............... (118,325) 347,302
Provision (benefit) for income taxes ......... -- 141,557
------------ ------------
NET INCOME ...................................... (118,325) 205,745
Preferred stock dividends .................... -- 4,877
------------ ------------
INCOME ATTRIBUTABLE TO COMMON STOCK ............. $ (118,325) $ 200,868
============ ============
12
APACHE CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS
FOR THE SIX MONTHS ENDED JUNE 30, 2002
ALL OTHER
APACHE APACHE SUBSIDIARIES
APACHE APACHE FINANCE FINANCE OF APACHE
CORPORATION NORTH AMERICA AUSTRALIA CANADA CORPORATION
------------ ------------- ------------ ------------ ------------
(IN THOUSANDS)
REVENUES:
Oil and gas production revenues ............ $ 368,751 $ -- $ -- $ -- $ 881,979
Equity in net income (loss) of affiliates .. 172,727 9,084 15,040 37,103 (17,503)
Other revenues (losses) .................... 95 -- -- -- 2,563
------------ ------------ ------------ ------------ ------------
541,573 9,084 15,040 37,103 867,039
------------ ------------ ------------ ------------ ------------
OPERATING EXPENSES:
Depreciation, depletion and amortization ... 114,847 -- -- -- 306,982
International impairments .................. -- -- -- -- 4,600
Lease operating costs ...................... 100,326 -- -- -- 213,721
Severance and other taxes .................. 15,133 -- -- 26 15,151
Administrative, selling and other .......... 45,386 -- -- -- 7,981
Financing costs, net ....................... 36,042 -- 9,025 20,447 (9,057)
------------ ------------ ------------ ------------ ------------
311,734 -- 9,025 20,473 539,378
------------ ------------ ------------ ------------ ------------
PREFERRED INTERESTS OF SUBSIDIARIES ........... -- -- -- -- 8,662
------------ ------------ ------------ ------------ ------------
INCOME (LOSS) BEFORE INCOME TAXES ............. 229,839 9,084 6,015 16,630 318,999
Provision (benefit) for income taxes ....... 2,857 -- (3,069) (8,926) 146,272
------------ ------------ ------------ ------------ ------------
NET INCOME .................................... 226,982 9,084 9,084 25,556 172,727
Preferred stock dividends .................. 7,989 -- -- -- --
------------ ------------ ------------ ------------ ------------
INCOME ATTRIBUTABLE TO COMMON STOCK ........... $ 218,993 $ 9,084 $ 9,084 $ 25,556 $ 172,727
============ ============ ============ ============ ============
RECLASSIFICATIONS
& ELIMINATIONS CONSOLIDATED
----------------- ------------
(IN THOUSANDS)
REVENUES:
Oil and gas production revenues ............ $ (87,279) $ 1,163,451
Equity in net income (loss) of affiliates .. (216,451) --
Other revenues (losses) .................... -- 2,658
------------ ------------
(303,730) 1,166,109
------------ ------------
OPERATING EXPENSES:
Depreciation, depletion and amortization ... -- 421,829
International impairments .................. -- 4,600
Lease operating costs ...................... (87,279) 226,768
Severance and other taxes .................. -- 30,310
Administrative, selling and other .......... -- 53,367
Financing costs, net ....................... -- 56,457
------------ ------------
(87,279) 793,331
------------ ------------
PREFERRED INTERESTS OF SUBSIDIARIES ........... -- 8,662
------------ ------------
INCOME (LOSS) BEFORE INCOME TAXES ............. (216,451) 364,116
Provision (benefit) for income taxes ....... -- 137,134
------------ ------------
NET INCOME .................................... (216,451) 226,982
Preferred stock dividends .................. -- 7,989
------------ ------------
INCOME ATTRIBUTABLE TO COMMON STOCK ........... $ (216,451) $ 218,993
============ ============
13
APACHE CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS
FOR THE SIX MONTHS ENDED JUNE 30, 2001
ALL OTHER
APACHE APACHE SUBSIDIARIES
APACHE APACHE FINANCE FINANCE OF APACHE
CORPORATION NORTH AMERICA AUSTRALIA CANADA CORPORATION
------------ ------------- ------------ ------------ -------------
(IN THOUSANDS)
REVENUES:
Oil and gas production revenues ............ $ 943,985 $ -- $ -- $ -- $ 950,602
Equity in net income (loss) of affiliates .. 151,371 7,646 11,618 47,397 (13,455)
Other revenues (losses) .................... (502) -- 3,078 -- (4,633)
------------ ------------ ------------ ------------ ------------
1,094,854 7,646 14,696 47,397 932,514
------------ ------------ ------------ ------------ ------------
OPERATING EXPENSES:
Depreciation, depletion and amortization ... 205,828 -- -- -- 175,354
International impairments .................. -- -- -- -- 65,000
Lease operating costs ...................... 110,963 -- -- -- 377,508
Severance and other taxes .................. 32,860 -- -- -- 8,681
Administrative, selling and other .......... 38,893 -- -- -- 4,676
Financing costs, net ....................... 36,958 -- 9,094 16,815 1,013
------------ ------------ ------------ ------------ ------------
425,502 -- 9,094 16,815 632,232
------------ ------------ ------------ ------------ ------------
INCOME (LOSS) BEFORE INCOME TAXES ............. 669,352 7,646 5,602 30,582 300,282
Provision (benefit) for income taxes ....... 181,406 -- (2,045) (7,331) 148,911
------------ ------------ ------------ ------------ ------------
NET INCOME .................................... 487,946 7,646 7,647 37,913 151,371
Preferred stock dividends .................. 9,785 -- -- -- --
------------ ------------ ------------ ------------ ------------
INCOME ATTRIBUTABLE TO COMMON STOCK ........... $ 478,161 $ 7,646 $ 7,647 $ 37,913 $ 151,371
============ ============ ============ ============ ============
RECLASSIFICATIONS
& ELIMINATIONS CONSOLIDATED
----------------- ------------
(IN THOUSANDS)
REVENUES:
Oil and gas production revenues ............ $ (296,944) $ 1,597,643
Equity in net income (loss) of affiliates .. (204,577) --
Other revenues (losses) .................... -- (2,057)
------------ ------------
(501,521) 1,595,586
------------ ------------
OPERATING EXPENSES:
Depreciation, depletion and amortization ... -- 381,182
International impairments .................. -- 65,000
Lease operating costs ...................... (296,944) 191,527
Severance and other taxes .................. -- 41,541
Administrative, selling and other .......... -- 43,569
Financing costs, net ....................... -- 63,880
------------ ------------
(296,944) 786,699
------------ ------------
INCOME (LOSS) BEFORE INCOME TAXES ............. (204,577) 808,887
Provision (benefit) for income taxes ....... -- 320,941
------------ ------------
NET INCOME .................................... (204,577) 487,946
Preferred stock dividends .................. -- 9,785
------------ ------------
INCOME ATTRIBUTABLE TO COMMON STOCK ........... $ (204,577) $ 478,161
============ ============
14
APACHE CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS
FOR THE SIX MONTHS ENDED JUNE 30, 2002
APACHE APACHE
APACHE APACHE FINANCE FINANCE
CORPORATION NORTH AMERICA AUSTRALIA CANADA
------------ ------------- ------------ ------------
(IN THOUSANDS)
CASH PROVIDED BY (USED IN) OPERATING
ACTIVITIES ......................................... $ (135,018) $ -- $ (9,025) $ (3,682)
------------ ------------ ------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to property and equipment ................ (120,785) -- -- --
Proceeds from sales of oil and gas properties ...... -- -- -- --
Proceeds from sale of U.S. Government Agency Notes . -- -- -- --
Investment in subsidiaries, net .................... (218,462) (9,025) -- --
Other, net ......................................... (4,291) -- -- --
------------ ------------ ------------ ------------
NET CASH USED IN INVESTING ACTIVITIES ................ (343,538) (9,025) -- --
------------ ------------ ------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Long-term debt activity, net ....................... 501,210 -- -- 3,682
Dividends paid ..................................... (37,257) -- -- --
Common stock activity, net ......................... 15,542 9,025 9,025 --
Treasury stock activity, net ....................... 1,715 -- -- --
Cost of debt and equity transactions ............... (6,487) -- -- --
------------ ------------ ------------ ------------
NET CASH PROVIDED BY FINANCING ACTIVITIES ............ 474,723 9,025 9,025 3,682
------------ ------------ ------------ ------------
NET INCREASE (DECREASE) IN CASH AND
CASH EQUIVALENTS ................................... (3,833) -- -- --
CASH AND CASH EQUIVALENTS AT
BEGINNING OF YEAR .................................. 6,383 -- 2 --
------------ ------------ ------------ ------------
CASH AND CASH EQUIVALENTS AT
END OF PERIOD ...................................... $ 2,550 $ -- $ 2 $ --
============ ============ ============ ============
ALL OTHER
SUBSIDIARIES
OF APACHE RECLASSIFICATIONS
CORPORATION & ELIMINATIONS CONSOLIDATED
------------- ----------------- ------------
(IN THOUSANDS)
CASH PROVIDED BY (USED IN) OPERATING
ACTIVITIES ......................................... $ 771,810 $ -- $ 624,085
------------ ------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to property and equipment ................ (345,125) -- (465,910)
Proceeds from sales of oil and gas properties ...... -- -- --
Proceeds from sale of U.S. Government Agency Notes . 17,006 -- 17,006
Investment in subsidiaries, net .................... (573,508) 800,995 --
Other, net ......................................... (8,938) -- (13,229)
------------ ------------ ------------
NET CASH USED IN INVESTING ACTIVITIES ................ (910,565) 800,995 (462,133)
------------ ------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Long-term debt activity, net ....................... 182,443 (726,446) (39,111)
Dividends paid ..................................... -- -- (37,257)
Common stock activity, net ......................... 56,499 (74,549) 15,542
Treasury stock activity, net ....................... -- -- 1,715
Cost of debt and equity transactions ............... -- -- (6,487)
------------ ------------ ------------
NET CASH PROVIDED BY FINANCING ACTIVITIES ............ 238,942 (800,995) (65,598)
------------ ------------ ------------
NET INCREASE (DECREASE) IN CASH AND
CASH EQUIVALENTS ................................... 100,187 -- 96,354
CASH AND CASH EQUIVALENTS AT
BEGINNING OF YEAR .................................. 29,240 -- 35,625
------------ ------------ ------------
CASH AND CASH EQUIVALENTS AT
END OF PERIOD ...................................... $ 129,427 $ -- $ 131,979
============ ============ ============
15
APACHE CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS
FOR THE SIX MONTHS ENDED JUNE 30, 2001
APACHE APACHE
APACHE APACHE FINANCE FINANCE
CORPORATION NORTH AMERICA AUSTRALIA CANADA
------------ ------------- ------------ ------------
(IN THOUSANDS)
CASH PROVIDED BY (USED IN) OPERATING
ACTIVITIES ..................................... $ 838,619 $ -- $ (1,550) $ (14)
------------ ------------ ------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to property and equipment ............ (372,520) -- -- --
Acquisitions ................................... -- -- -- --
Proceeds from sales of oil and gas properties .. 108,458 -- -- --
Investment in subsidiaries, net ................ (987,497) (5,568) (5,568) (250,724)
Other, net ..................................... (8,472) -- -- --
------------ ------------ ------------ ------------
NET CASH USED IN INVESTING ACTIVITIES ............ (1,260,031) (5,568) (5,568) (250,724)
------------ ------------ ------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Long-term debt activity, net ................... 530,072 -- 1,552 250,738
Dividends paid ................................. (9,778) -- -- --
Common stock activity, net ..................... 7,125 5,568 5,568 --
Treasury stock activity, net ................... (16,006) -- -- --
Cost of debt and equity transactions ........... (1,181) -- -- --
------------ ------------ ------------ ------------
NET CASH PROVIDED BY FINANCING ACTIVITIES ........ 510,232 5,568 7,120 250,738
------------ ------------ ------------ ------------
NET INCREASE (DECREASE) IN CASH AND
CASH EQUIVALENTS ............................... 88,820 -- 2 --
CASH AND CASH EQUIVALENTS AT
BEGINNING OF YEAR .............................. 5,257 -- -- --
------------ ------------ ------------ ------------
CASH AND CASH EQUIVALENTS AT
END OF PERIOD .................................. $ 94,077 $ -- $ 2 $ --
============ ============ ============ ============
ALL OTHER
SUBSIDIARIES
OF APACHE RECLASSIFICATIONS
CORPORATION & ELIMINATIONS CONSOLIDATED
------------ ----------------- ------------
(IN THOUSANDS)
CASH PROVIDED BY (USED IN) OPERATING
ACTIVITIES ..................................... $ 253,024 $ -- $ 1,090,079
------------ -------------- ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to property and equipment ............ (305,549) -- (678,069)
Acquisitions ................................... (911,951) -- (911,951)
Proceeds from sales of oil and gas properties .. 130,257 -- 238,715
Investment in subsidiaries, net ................ (256,292) 1,505,649 --
Other, net ..................................... (37,980) -- (46,452)
------------ -------------- ------------
NET CASH USED IN INVESTING ACTIVITIES ............ (1,381,515) 1,505,649 (1,397,757)
------------ -------------- ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Long-term debt activity, net ................... 614,183 (976,877) 419,668
Dividends paid ................................. -- -- (9,778)
Common stock activity, net ..................... 517,636 (528,772) 7,125
Treasury stock activity, net ................... -- -- (16,006)
Cost of debt and equity transactions ........... -- -- (1,181)
------------ -------------- ------------
NET CASH PROVIDED BY FINANCING ACTIVITIES ........ 1,131,819 (1,505,649) 399,828
------------ -------------- ------------
NET INCREASE (DECREASE) IN CASH AND
CASH EQUIVALENTS ............................... 3,328 -- 92,150
CASH AND CASH EQUIVALENTS AT
BEGINNING OF YEAR .............................. 31,916 -- 37,173
------------ -------------- ------------
CASH AND CASH EQUIVALENTS AT
END OF PERIOD .................................. $ 35,244 $ -- $ 129,323
============ ============== ============
16
APACHE CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATING BALANCE SHEET
AS OF JUNE 30, 2002
ALL OTHER
APACHE APACHE SUBSIDIARIES
APACHE APACHE FINANCE FINANCE OF APACHE
CORPORATION NORTH AMERICA AUSTRALIA CANADA CORPORATION
------------ ------------- ------------ ------------ ------------
(IN THOUSANDS)
ASSETS
CURRENT ASSETS:
Cash and cash equivalents .................... $ 2,550 $ -- $ 2 $ -- $ 129,427
Receivables .................................. 84,520 -- -- -- 345,315
Inventories .................................. 17,699 -- -- -- 88,375
Advances to oil and gas ventures and others .. 26,946 -- -- -- 40,234
Short-term investments ....................... -- -- -- -- 85,364
------------ ------------ ------------ ------------ ------------
131,715 -- 2 -- 688,715
------------ ------------ ------------ ------------ ------------
PROPERTY AND EQUIPMENT, NET .................... 3,088,782 -- -- -- 5,023,101
------------ ------------ ------------ ------------ ------------
OTHER ASSETS:
Intercompany receivable, net ................. 1,488,648 -- (25) (254,707) (1,233,916)
Goodwill, net ................................ -- -- -- -- 193,792
Equity in affiliates ......................... 2,734,228 206,945 470,080 1,149,190 (810,210)
Deferred charges and other ................... 33,283 -- -- 2,518 4,040
------------ ------------ ------------ ------------ ------------
$ 7,476,656 $ 206,945 $ 470,057 $ 897,001 $ 3,865,522
============ ============ ============ ============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable ............................. $ 91,338 $ -- $ -- $ -- $ 133,278
Other accrued expenses ....................... 113,308 -- 343 (2,214) 136,285
------------ ------------ ------------ ------------ ------------
204,646 -- 343 (2,214) 269,563
------------ ------------ ------------ ------------ ------------
LONG-TERM DEBT ................................. 1,571,582 -- 268,704 297,003 67,957
------------ ------------ ------------ ------------ ------------
DEFERRED CREDITS AND OTHER
NONCURRENT LIABILITIES:
Income taxes ................................. 704,913 -- (5,935) 97 342,223
Advances from gas purchasers ................. 132,748 -- -- -- --
Other ........................................ 161,013 -- -- -- 15,534
------------ ------------ ------------ ------------ ------------
998,674 -- (5,935) 97 357,757
------------ ------------ ------------ ------------ ------------
PREFERRED INTERESTS OF SUBSIDIARIES ............ -- -- -- -- 436,017
COMMITMENTS AND CONTINGENCIES
SHAREHOLDERS' EQUITY ........................... 4,701,754 206,945 206,945 602,115 2,734,228
------------ ------------ ------------ ------------ ------------
$ 7,476,656 $ 206,945 $ 470,057 $ 897,001 $ 3,865,522
============ ============ ============ ============ ============
RECLASSIFICATIONS
& ELIMINATIONS CONSOLIDATED
----------------- ------------
(IN THOUSANDS)
ASSETS
CURRENT ASSETS:
Cash and cash equivalents .................... $ -- $ 131,979
Receivables .................................. -- 429,835
Inventories .................................. -- 106,074
Advances to oil and gas ventures and others .. -- 67,180
Short-term investments ....................... -- 85,364
-------------- ------------
-- 820,432
-------------- ------------
PROPERTY AND EQUIPMENT, NET .................... -- 8,111,883
-------------- ------------
OTHER ASSETS:
Intercompany receivable, net ................. -- --
Goodwill, net ................................ -- 193,792
Equity in affiliates ......................... (3,750,233) --
Deferred charges and other ................... -- 39,841
-------------- ------------
$ (3,750,233) $ 9,165,948
============== ============
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable ............................. $ -- $ 224,616
Other accrued expenses ....................... -- 247,722
-------------- ------------
-- 472,338
-------------- ------------
LONG-TERM DEBT ................................. -- 2,205,246
-------------- ------------
DEFERRED CREDITS AND OTHER
NONCURRENT LIABILITIES:
Income taxes ................................. -- 1,041,298
Advances from gas purchasers ................. -- 132,748
Other ........................................ -- 176,547
-------------- ------------
-- 1,350,593
-------------- ------------
PREFERRED INTERESTS OF SUBSIDIARIES ............ -- 436,017
COMMITMENTS AND CONTINGENCIES
SHAREHOLDERS' EQUITY ........................... (3,750,233) 4,701,754
-------------- ------------
$ (3,750,233) $ 9,165,948
============== ============
17
APACHE CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATING BALANCE SHEET
AS OF DECEMBER 31, 2001
ALL OTHER
APACHE APACHE SUBSIDIARIES
APACHE APACHE FINANCE FINANCE OF APACHE
CORPORATION NORTH AMERICA AUSTRALIA CANADA CORPORATION
------------ ------------- ------------ ------------ ------------
(IN THOUSANDS)
ASSETS
CURRENT ASSETS:
Cash and cash equivalents .................... $ 6,383 $ -- $ 2 $ -- $ 29,240
Receivables .................................. 94,881 -- -- -- 309,912
Inventories .................................. 17,024 -- -- -- 85,512
Advances to oil and gas ventures and others .. 24,644 -- -- -- 27,201
Short-term investments ....................... -- -- -- -- 102,950
------------ ------------ ------------ ------------ ------------
142,932 -- 2 -- 554,815
------------ ------------ ------------ ------------ ------------
PROPERTY AND EQUIPMENT, NET .................... 3,098,485 -- -- -- 4,914,587
------------ ------------ ------------ ------------ ------------
OTHER ASSETS:
Intercompany receivable, net ................. 1,426,455 -- (25) (251,025) (1,175,405)
Goodwill, net ................................ -- -- -- -- 188,812
Equity in affiliates ......................... 2,566,969 188,925 455,039 1,082,328 (812,827)
Deferred charges and other ................... 27,688 -- -- 2,564 3,771
------------ ------------ ------------ ------------ ------------
$ 7,262,529 $ 188,925 $ 455,016 $ 833,867 $ 3,673,753
============ ============ ============ ============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable ............................. $ 75,164 $ -- $ -- $ -- $ 104,614
Other accrued expenses ....................... 165,858 -- 2,599 1,246 172,977
------------ ------------ ------------ ------------ ------------
241,022 -- 2,599 1,246 277,591
------------ ------------ ------------ ------------ ------------
LONG-TERM DEBT ................................. 1,605,201 -- 268,615 296,988 73,553
------------ ------------ ------------ ------------ ------------
DEFERRED CREDITS AND OTHER
NONCURRENT LIABILITIES:
Income taxes ................................. 696,441 -- (5,123) 18 300,387
Advances from gas purchasers ................. 140,027 -- -- -- --
Other ........................................ 161,355 -- -- -- 14,570
------------ ------------ ------------ ------------ ------------
997,823 -- (5,123) 18 314,957
------------ ------------ ------------ ------------ ------------
PREFERRED INTERESTS OF SUBSIDIARIES ............ -- -- -- -- 440,683
------------ ------------ ------------ ------------ ------------
COMMITMENTS AND CONTINGENCIES
SHAREHOLDERS' EQUITY ........................... 4,418,483 188,925 188,925 535,615 2,566,969
------------ ------------ ------------ ------------ ------------
$ 7,262,529 $ 188,925 $ 455,016 $ 833,867 $ 3,673,753
============ ============ ============ ============ ============
RECLASSIFICATIONS
& ELIMINATIONS CONSOLIDATED
----------------- ------------
(IN THOUSANDS)
ASSETS
CURRENT ASSETS:
Cash and cash equivalents .................... $ -- $ 35,625
Receivables .................................. -- 404,793
Inventories .................................. -- 102,536
Advances to oil and gas ventures and others .. -- 51,845
Short-term investments ....................... -- 102,950
-------------- ------------
-- 697,749
-------------- ------------
PROPERTY AND EQUIPMENT, NET .................... -- 8,013,072
-------------- ------------
OTHER ASSETS:
Intercompany receivable, net ................. -- --
Goodwill, net ................................ -- 188,812
Equity in affiliates ......................... (3,480,434) --
Deferred charges and other ................... -- 34,023
-------------- ------------
$ (3,480,434) $ 8,933,656
============== ============
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable ............................. $ -- $ 179,778
Other accrued expenses ....................... -- 342,680
-------------- ------------
-- 522,458
-------------- ------------
LONG-TERM DEBT ................................. -- 2,244,357
-------------- ------------
DEFERRED CREDITS AND OTHER
NONCURRENT LIABILITIES:
Income taxes ................................. -- 991,723
Advances from gas purchasers ................. -- 140,027
Other ........................................ -- 175,925
-------------- ------------
-- 1,307,675
-------------- ------------
PREFERRED INTERESTS OF SUBSIDIARIES ............ -- 440,683
-------------- ------------
COMMITMENTS AND CONTINGENCIES
SHAREHOLDERS' EQUITY ........................... (3,480,434) 4,418,483
-------------- ------------
$ (3,480,434) $ 8,933,656
============== ============
18
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
OVERVIEW
Both second-quarter and year-to-date results were solid despite lower
prices for both natural gas and oil, relative to the prior-year periods. For the
quarter, we generated income attributable to common stock of $143 million ($1.00
per diluted share) and cash from operating activities of $419 million. For the
first six months, income attributable to common stock was $219 million, while
cash from operating activities came in at $624 million.
Due to Apache's decision to pay down debt by selling properties in the
second half of 2001 and to curtail capital expenditures in the first half of
2002, our second-quarter natural gas production of 1.1 billion cubic feet per
day (Bcf/d) was seven percent lower than the second quarter of 2001. Australia
and Egypt's daily production both increased four percent, while North America
experienced a 10 percent decline in production. For the six-month period, gas
production averaged 1.1 Bcf/d, one percent higher than the comparable 2001
period, with Canada, Egypt and Australia seeing 25 percent, 40 percent and five
percent production gains, respectively. Production in the U.S. declined 15
percent due to property sales and natural depletion.
Second-quarter oil production of 151,480 barrels of oil per day (b/d) was
two percent lower than the prior year. Australia's oil production increased 25
percent, while North American production declined 11 percent. Egypt saw marginal
improvement in the second quarter relative to last year. First-half daily oil
production was 12 percent higher than the prior year with production increases
in Australia (up 60 percent) and Egypt (up 27 percent) offsetting a five percent
decline in North America.
Our second-quarter drilling program resulted in five discoveries in Egypt,
including two deepwater discoveries on our West Mediterranean concession, our
first venture into the deepwater arena. Year-to-date, we have made eight
discoveries in Egypt, 12 worldwide. In June, production commenced from our
Gibson and South Plato fields located in the Carnarvon Basin, offshore Northwest
Australia.
On June 3, 2002, we entered into a new $1.5 billion global credit facility
to replace our existing global and 364-day credit facility. As a result, we have
considerable liquidity, which together with our low debt-to-capitalization gives
us tremendous financial flexibility going forward. At quarter-end, our debt,
including preferred interest of subsidiaries and net of cash equivalents and
investments in U.S. government securities, was 34.4 percent of total
capitalization, which is a true indication of the strength of our balance sheet.
On May 15, 2002, we completed the mandatory conversion of our Series C
Preferred stock into approximately 6.2 million common shares. Beginning in the
third quarter, the quarterly impact will increase Net Income Available to Common
Stock by approximately $3.5 million. After consideration of the common dividends
on the additional shares issued, this economic impact will be reduced by
approximately $.6 million per quarter.
While our second-quarter earnings were down 29 percent from the 2001
quarter, they nearly doubled first-quarter 2002 earnings on strengthening oil
and natural gas prices. Cash from operating activities was up $218 million (106
percent) to the first quarter.
19
RESULTS OF OPERATIONS
Revenues
The table below presents oil and gas production revenues, production and
average prices received from sales of natural gas, oil and natural gas liquids.
FOR THE QUARTER ENDED JUNE 30, FOR THE SIX MONTHS ENDED JUNE 30,
------------------------------------ ------------------------------------
INCREASE INCREASE
2002 2001 (DECREASE) 2002 2001 (DECREASE)
---------- ---------- ---------- ---------- ---------- ----------
Revenues (in thousands):
Natural gas ......................... $ 290,031 $ 425,954 (32)% $ 509,484 $ 928,546 (45)%
Oil ................................. 340,230 355,310 (4)% 633,236 637,560 (1)%
Natural gas liquids ................. 11,461 14,781 (22)% 20,731 31,537 (34)%
---------- ---------- ---------- ----------
Total ........................... $ 641,722 $ 796,045 (19)% $1,163,451 $1,597,643 (27)%
========== ========== ========== ==========
Natural Gas Volume - Mcf per day:
United States ....................... 514,740 604,582 (15)% 527,516 620,475 (15)%
Canada .............................. 321,641 328,299 (2)% 318,169 255,550 25%
Egypt ............................... 118,101 113,616 4% 117,815 84,179 40%
Australia ........................... 126,670 121,266 4% 123,675 118,010 5%
Argentina ........................... 8,607 -- -- 6,244 -- --
---------- ---------- ---------- ----------
Total ........................... 1,089,759 1,167,763 (7)% 1,093,419 1,078,214 1%
========== ========== ========== ==========
Average Natural Gas price - Per Mcf:
United States ....................... $ 3.26 $ 4.46 (27)% $ 2.77 $ 5.56 (50)%
Canada .............................. 2.84 4.23 (33)% 2.52 4.72 (47)%
Egypt ............................... 3.63 3.99 (9)% 3.34 3.89 (14)%
Australia ........................... 1.31 1.19 10% 1.27 1.22 4%
Argentina ........................... .38 -- -- .46 -- --
Total ........................... 2.92 4.01 (27)% 2.57 4.76 (46)%
Oil Volume - Barrels per day:
United States ....................... 54,462 58,197 (6)% 55,142 58,962 (6)%
Canada .............................. 24,965 31,069 (20)% 25,150 25,615 (2)%
Egypt ............................... 43,945 43,379 1% 44,161 34,722 27%
Australia ........................... 27,515 22,073 25% 30,213 18,899 60%
Argentina ........................... 593 -- -- 631 -- --
---------- ---------- ---------- ----------
Total ........................... 151,480 154,718 (2)% 155,297 138,198 12%
========== ========== ========== ==========
Average Oil price - Per barrel:
United States ....................... $ 25.38 $ 25.49 0% $ 22.92 $ 26.44 (13)%
Canada .............................. 23.03 19.64 17% 20.78 20.58 1%
Egypt ............................... 24.36 27.24 (11)% 22.89 26.47 (14)%
Australia ........................... 25.34 28.50 (11)% 22.77 27.36 (17)%
Argentina ........................... 22.87 -- -- 21.39 -- --
Total ........................... 24.68 25.24 (2)% 22.53 25.49 (12)%
Natural Gas Liquids (NGL)
Volume - Barrels per day:
United States ..................... 6,869 7,871 (13)% 6,882 7,734 (11)%
Canada ............................ 1,614 860 88% 1,487 1,052 41%
---------- ---------- ---------- ----------
Total ........................... 8,483 8,731 (3)% 8,369 8,786 (5)%
========== ========== ========== ==========
Average NGL Price - Per barrel:
United States ..................... $ 15.50 $ 18.66 (17)% $ 14.15 $ 19.33 (27)%
Canada ............................ 12.05 18.06 (33)% 11.55 23.49 (51)%
Total ........................... 14.85 18.60 (20)% 13.69 19.83 (31)%
20
Natural Gas Revenues
Our natural gas production decreased by 78 million cubic feet per day
(MMcf/d), or seven percent, in the second quarter 2002 compared to the same
period last year, reducing our natural gas revenues by $21 million, while
natural gas prices declined $1.09 per thousand cubic feet (Mcf) (27 percent)
reducing natural gas revenues an additional $115 million. The decline in
second-quarter gas production relative to 2001 occurred primarily in the U.S.
(89.8 MMcf/d) due to natural decline, a reflection of our decision to reduce
capital expenditures, downtime in our Offshore region and property sales in the
second half of 2001.
Approximately 11 percent of our second-quarter 2002 and 2001 domestic
natural gas production is subject to long-term fixed-price physical contracts.
These contracts reduced our 2002 and 2001 worldwide realized price by $.03 per
Mcf and $.16 per Mcf, respectively. As discussed in Note 3 of the Notes to
Consolidated Financial Statements, the Company closed all of its derivative
positions during October and November 2001. The amortization of the unwind of
the Company's derivative positions, discussed in Note 3, increased gas prices by
$.06 per Mcf during the second quarter of 2002. During the second quarter of
2001, the net result of derivative instruments increased the Company's realized
gas price by $.07 per Mcf.
Our natural gas production increased 15.2 MMcf/d (one percent) in the first
half of 2002, contributing $7 million to our natural gas revenues, while natural
gas prices declined $2.19 per Mcf (46 percent) reducing natural gas revenues by
$426 million. First-half production rates in the U.S. declined 93.0 MMcf/d for
the reasons discussed above. Production gains in Canada (62.6 MMcf/d) and Egypt
(33.6 MMcf/d) resulted from acquisitions and subsequent drilling activity on
properties acquired in late March 2001 and successful drilling results at
Ladyfern field in Canada.
Approximately 11 percent of our first-half 2002 and 2001 domestic natural
gas production is subject to long-term fixed-price physical contracts. These
contracts did not impact our 2002 worldwide realized price and reduced our 2001
worldwide realized price by $.26 per Mcf. The amortization of the unwind of the
Company's derivative positions, discussed in Note 3, increased worldwide gas
prices by $.07 per Mcf during the first half of 2002. During the first half of
2001, the net result of derivative instruments impacted the Company's realized
gas price by a negative $.03 per Mcf.
Crude Oil Revenues
Oil production decreased 3,238 b/d (two percent) in the second quarter 2002
compared to the same period last year, reducing our oil sales by $7 million,
while oil prices declined $.56 per barrel (two percent), reducing oil sales by
an additional $8 million. Australia's 5,442 b/d increase was more than offset by
a 6,104 b/d decline in Canada and a 3,735 b/d decline in the U.S. The increase
in Australia was primarily due to completion of three development projects,
Legendre (May 2001), Simpson (late November 2001) and Gibson/South Plato (June
2001). Production declines at Stag due to encroaching water and mechanical
issues at Gipsy/North Gipsy, partially offset the increases in Australia. North
America's second-quarter comparative decline (9,839 b/d) was due to disposition
of heavy oil properties in Canada, and the natural decline and mechanical issues
in the U.S. discussed above.
As discussed in Note 3 of the Notes to Consolidated Financial Statements,
the Company closed all of its derivative positions during October and November
2001. The amortization of the unwind of the Company's derivative positions,
discussed in Note 3, increased oil prices by $.08 per barrel during the second
quarter of 2002. During the second quarter of 2001, realized losses from hedging
positions negatively impacted the Company's realized oil price by $.53 per
barrel.
Oil production in the first half of 2002 increased 17,099 b/d (12 percent),
contributing $70 million to oil sales, while oil prices declined $2.96 per
barrel (12 percent), reducing oil sales by $74 million. Australia's production
increased 11,314 b/d due to the reasons noted above. Egypt's production
increased 9,439 b/d related to the acquisition and subsequent drilling activity
on properties we acquired late in the first quarter of 2001. North America's
year-to-date comparative decline (4,285 b/d) was due to the factors noted above.
The amortization of the unwind of the Company's derivative positions,
discussed in Note 3, increased oil prices by $.08 per barrel during the first
half of 2002. During the first half of 2001, realized losses from hedging
positions negatively impacted the Company's realized oil price by a negative
$.62 per barrel.
21
Operating Expenses
The table below presents a detail of our expenses.
FOR THE QUARTER ENDED JUNE 30, FOR THE SIX MONTHS ENDED JUNE 30,
----------------------------- --------------------------------
2002 2001 2002 2001
------------ ------------ ------------ ------------
(In millions)
Depreciation, depletion and amortization (DD&A):
Oil and gas property and equipment ............... $ 196 $ 193 $ 393 $ 354
Other assets ..................................... 15 16 29 27
International impairments .......................... -- 65 5 65
Lease operating costs (LOE) ........................ 114 101 227 191
Severance and other taxes .......................... 16 20 30 42
General and administrative expense (G&A) ........... 28 23 53 44
Financing costs, net ............................... 30 35 56 64
------------ ------------ ------------ ------------
Total ....................................... $ 399 $ 453 $ 793 $ 787
============ ============ ============ ============
Depreciation, Depletion and Amortization
Apache's full-cost DD&A expense is driven by many factors including certain
costs incurred in the exploration, development, and acquisition of producing
reserves, production levels, and estimates of proved reserve quantities and
future developmental costs. On an equivalent barrel basis, full-cost DD&A
expense increased $.38 per barrel of oil equivalent (boe), from $5.92 per boe in
the second quarter of 2001 to $6.30 per boe in 2002. This increase was primarily
due to negative revisions for uneconomic reserves driven by lower commodity
prices (primarily gas) from second quarter 2001. Increases in service costs,
which resulted in higher drilling and finding costs in the U.S., plus transfers
of unevaluated costs to the full-cost pool also contributed to the increase in
rates. The DD&A rate for the U.S. increased $.51 per boe from $6.59 per boe, to
$7.10 per boe. U.S. DD&A accounts for almost half of the Company's full-cost
DD&A expense. For the first six months, our full-cost DD&A expense increased
$.28 per boe from $5.99 per boe to $6.27 per boe for the reasons discussed
above.
Impairments
During the second quarter of 2001, the Company recorded a $65 million
impairment ($41 million after-tax) of unproved property costs in Poland and
China.
During the first quarter of 2002, the Company recorded a $5 million
impairment ($3 million after tax) of unproved property costs in Poland. No
impairment was recorded in the second quarter. At June 30, 2002, Apache had $28
million in unproved property costs remaining in Poland. The Company will
continue to evaluate its operations, which may result in additional impairments
during the remainder of 2002.
Lease Operating Costs
LOE increased $13 million when compared to the second quarter of 2001.
Workover activity increased in all countries, accounting for $10 million of the
increase. The remaining increase is attributable to higher service costs and the
additional operating costs related to the three development projects brought
online in Australia over the past year. On an equivalent barrel basis, LOE
increased $.56 per boe to $3.67. Seventy-three percent of the increase on a boe
basis is attributable to the increase in absolute costs while the remaining
increase is the result of lower production.
LOE increased $35 million (18 percent) in the first half of 2002 for the
reasons discussed above and the additional costs related to Canadian and
Egyptian properties acquired late in the first quarter 2001. On an equivalent
barrel basis, LOE increased $.38 (12 percent) to $3.62. The increase in absolute
costs was partially offset by increased production.
Severance and Other Taxes
Severance and other taxes, which generally are based on a percentage of oil
and gas production revenues, decreased $4 million in the second quarter of 2002
when compared to the year-earlier period. The decrease was primarily due to a
decline in U.S. oil and gas production revenues which were partially offset by
an increase in
22
Australian oil and gas production revenues. Severance and other taxes decreased
$11 million in the first half of 2002 due to the lower U.S. oil and gas
production revenues discussed above.
Administrative, Selling and Other Expenses
G&A expense in the second quarter of 2002 increased from the year-ago
period by $.19 per boe ($5 million) to $.90 per boe. Seventy-nine percent or
$.15 per boe of the increase came from non-recurring expenses including employee
separation costs, legal fees and litigation related costs and higher medical
costs. Higher insurance costs also impacted the rate. The remaining $.04 per boe
resulted from lower production. For the six-month period, G&A expenses increased
$.11 per boe ($10 million) to $.85 per boe for the reasons stated above and
costs related to amendments to our stock option plans affecting certain retiring
employees.
Financing Costs, Net
Net financing costs for the second quarter of 2002 decreased $4 million (12
percent) from the prior-year quarter primarily due to lower gross interest
expense. Gross interest expense decreased $8 million due to lower average
outstanding debt, while capitalized interest decreased $3 million due to a lower
unproved property balance. Had financing costs included preferred interests in
subsidiaries, they would have been flat compared to the second quarter of 2001.
For the first half of 2002, net financing costs decreased 12 percent. Gross
interest decreased $16 million due to a lower average effective rate and lower
average outstanding debt, while capitalized interest decreased $8 million due to
a lower unproved property balance offset by a lower average interest rate. Had
financing costs included preferred interests of subsidiaries, they would have
been flat to the comparable 2001 period.
MARKET 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.
The information set forth under "Commodity Risk", "Interest Rate Risk" and
"Foreign Currency Risk" in Item 7A of the Company's annual report on Form 10-K
for the year ended December 31, 2001, is incorporated herein by reference.
23
OIL AND GAS CAPITAL EXPENDITURES
FOR THE SIX MONTHS ENDED JUNE 30,
--------------------------------
2002 2001
------------ ------------
(In thousands)
Exploration and development:
United States ............................................... $ 129,594 $ 430,453
Canada ...................................................... 123,639 194,766
Egypt ....................................................... 64,722 50,621
Australia ................................................... 42,522 41,023
Other International* ........................................ 11,335 4,072
------------ ------------
$ 371,812 $ 720,935
============ ============
Capitalized Interest ............................................ $ 20,464 $ 28,868
============ ============
Gas gathering, transmission and processing facilities ........... $ 19,527 $ 5,950
============ ============
Acquisitions:
Oil and gas properties ...................................... $ 4,253 $ 762,721
Gas gathering, transmission and processing facilities ....... -- 129,000
Goodwill .................................................... -- 197,200
------------ ------------
$ 4,253 $ 1,088,921
============ ============
* Includes reimbursement from the Chinese government in 2001 for
previously paid costs.
In March 2001, Apache completed the acquisition of substantially all of
Repsol's oil and gas concession interests in Egypt for approximately $447
million in cash, subject to normal post closing adjustments. The properties
include interests in seven Western Desert concessions and had estimated proved
reserves of 66 million barrels of oil equivalent (MMboe) as of the acquisition
date. The Company previously held interests in five of the seven concessions.
In March 2001, Apache also completed the acquisition of certain
subsidiaries of Fletcher for approximately $465 million in cash and 1.8 million
restricted shares of Apache common stock issued to Shell Overseas Holdings
(valued at $55.49 per share), subject to normal post closing adjustments. The
transaction included properties located primarily in Canada's Western
Sedimentary Basin. Estimated proved reserves totaled 120.8 MMboe as of the
acquisition date. Apache assumed a liability of $103 million representing the
fair value of derivative instruments and fixed-price commodity contracts entered
into by Fletcher.
CAPITAL RESOURCES
Apache's primary cash needs are for exploration, development and
acquisition of oil and gas properties, repayment of principal and interest on
outstanding debt and payment of dividends. The Company funds its exploration and
development activities primarily through internally generated cash flows. Apache
budgets capital expenditures based upon projected cash flows and routinely
adjusts its capital expenditures in response to changes in oil and natural gas
prices and corresponding changes in cash flow. The Company cannot accurately
predict future oil and gas prices.
Net Cash Provided by Operating Activities
Apache's net cash provided by operating activities during the first half of
2002 totaled $624 million, a decrease of 43 percent from $1.1 billion in the
first half of 2001. This decrease was due to lower oil and gas revenues as a
result of lower realized oil and gas prices as compared to last year, and to a
lesser extent, the impact of increases in LOE.
24
Preferred Interest of Subsidiaries
During 2001, several of our subsidiaries issued a total of $443 million
($441 million, net of issuance costs) of preferred stock and limited partner
interests to unrelated institutional investors. We pay a weighted average return
to the investors of 123 basis points above the prevailing LIBOR interest rate.
These subsidiaries are consolidated in the accompanying financial statements.
For the first half of 2002, the subsidiaries paid $9 million to investors, which
is reflected as Preferred Interest of Subsidiaries on the Statement of
Consolidated Operations.
Debt
In April 2002, the Company issued $400 million principal amount, $397
million net of discount, of senior unsecured 6.25-percent notes maturing on
April 15, 2012. The notes are redeemable, as a whole or in part, at our option,
subject to a make-whole premium. The proceeds were used to repay a portion of
the Company's outstanding commercial paper and for general corporate purposes.
On June 3, 2002, Apache entered into a new $1.5 billion global credit
facility to replace its existing global and 364-day credit facilities. The new
global credit facility consists of four separate bank facilities: a $750 million
364-day facility in the United States; a $450 million five-year facility in the
United States; a $150 million five-year facility in Australia; and a $150
million five-year facility in Canada. The financial covenants of the global
credit facility require the company to: (i) maintain a consolidated tangible net
worth, as defined, of at least $2.1 billion as of June 30, 2002, adjusted for
subsequent earnings, (ii) maintain an aggregate book value for assets of Apache
and certain subsidiaries, as defined, on an unconsolidated basis of at least $2
billion as of June 30, 2002, and (iii) maintain a ratio of debt to
capitalization of not greater than 60 percent at the end of any fiscal quarter.
The Company was in compliance with all financial covenants at June 30, 2002.
The five-year facilities are scheduled to mature on June 3, 2007 and the
364-day facility is scheduled to mature on June 1, 2003. The 364-day facility
allows the Company to convert outstanding revolving loans at maturity into
one-year term loans. The Company may request extensions of the maturity dates
subject to approval of the lenders. At the Company's option, the interest rate
is based on (i) the greater of (a) The JPMorgan Chase Bank prime rate or (b) the
federal funds rate plus one-half of one percent, (ii) the London Interbank
Offered Rate (LIBOR) plus a margin determined by the Company's senior long-term
debt rating, or (iii) in the case of the U.S. $450 million five-year facility, a
margin that is determined by competitive bids from participating banks. At June
30, 2002, the margin over LIBOR for committed loans was .30 percent on the
five-year facilities and .32 percent on the 364-day facility. If the total
amount of the loans borrowed under all of the facilities equals or exceeds 33
percent of the total facility commitments, then an additional .125 percent will
be added to the margins over LIBOR. The Company also pays a quarterly facility
fee of .10 percent on the total amount of each of the five-year facilities and
..08 percent on the total amount of the 364-day facility. The facility fees vary
based upon the Company's senior long-term debt rating.
The $450 million U.S. five-year facility and the $750 million U.S. 364-day
credit facility are used to support Apache's commercial paper program. The
available borrowing capacity under the global credit facility at June 30, 2002
was $1.18 billion.
LIQUIDITY
The Company had $132 million in cash and cash equivalents on hand at June
30, 2002, an increase of $96 million from December 31, 2001. Apache's ratio of
current assets to current liabilities at June 30, 2002 was 1.74 compared to 1.34
at December 31, 2001.
The Company had $85 million in short-term securities (U.S. Government
Agency Notes) at June 30, 2002, which will be available to reduce long-term
debt.
Apache believes that cash on hand, net cash generated from operations,
short-term investments 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 the foreseeable future. As of June 30, 2002,
Apache's available borrowing capacity under its global credit facility was $1.18
billion.
25
FUTURE TRENDS
Apache's objective is to build a company of lasting value by pursuing
profitable growth thru a combination of drilling and acquisitions. Our
investment decisions are subjected to strict rate of return criteria and
generally fall in the categories identified below, depending on which phase of
the price and cost cycle we may be in. Those categories include:
- exploiting our existing property base;
- acquiring properties to which we can add value; and
- drilling high potential exploration prospects.
Exploiting Existing Asset Base
Apache seeks to maximize the value of our existing asset base by increasing
production and reserves while reducing operating costs per unit. In order
to achieve these objectives, we rigorously pursue production enhancement
opportunities such as workovers, recompletions and moderate risk drilling,
while divesting marginal and non-strategic properties and identifying other
activities to reduce costs. Given the significant acquisitions completed
over the last few years, Apache has an abundant inventory of exploitation
opportunities.
Acquiring Properties to Which We Can Add Incremental Value
Apache seeks to purchase reserves at appropriate prices by generally
avoiding auction processes where we are competing against other buyers and
timing our acquisitions to avoid the peak of the price cycle. 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. Recently inflated acquisition prices have caused Apache to
sideline its acquisition activities until appropriate opportunities arise
to earn adequate returns on acquired properties.
Investing in High-Potential Exploration Prospects
Apache seeks to concentrate our exploratory investments in a select number
of international areas and to become one of the dominant operators in those
regions. We believe that these investments, although higher-risk, offer
potential for attractive investment returns and 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.
As we entered 2002, natural gas prices were extremely volatile and the
impact of the September 11th attacks on an already faltering economy had created
tremendous uncertainty over demand for oil and gas. In order to maximize
Apache's financial flexibility and preserve our "A-ratings", we curtailed our
capital expenditure plans by over half from prior year levels in favor of
reducing debt. At the half-way point in the year, a combination of debt
reduction and strong earnings has reduced our debt as a percentage of
capitalization from 36.9 percent at year end to 34.4 percent. We have,
therefore, elected to increase our capital expenditures during the second half
of 2002. Annual capital expenditures are projected to exceed our original 2002
plan level of $600 million.
Because of recent volatility in commodity prices, the current state of our
economy, the dynamism of our industry, and Apache's history of acting
opportunistically, we do not believe that it is in the best interests of our
shareholders at this time to project our capital expenditures, which might
change rapidly as events unfold, or to forecast the production that might
result. We have, therefore, not been providing such projections or forecasts and
will not do so here, although we may discuss anticipated capital expenditures in
the future if we believe changed circumstances allow us to do so with greater
accuracy and reliability.
The above having been said, given stronger than anticipated oil and gas
prices and financial results in the first half of the year, we have increased
our drilling budget, which we believe, based on our current outlook for drilling
costs and opportunities, puts us in a position to achieve year-over-year
production growth.
26
FORWARD-LOOKING STATEMENTS AND RISK
Certain statements in this report, including statements of the future
plans, objectives, and expected performance of the Company, are forward-looking
statements that are dependent upon certain events, risks and uncertainties that
may be outside the Company's control, and which could cause actual results to
differ materially from those anticipated. Some of these include, but are not
limited to, the market prices of oil and gas, economic and competitive
conditions, inflation rates, legislative and regulatory changes, financial
market conditions, political and economic uncertainties of foreign governments,
future business decisions, and other uncertainties, all of which are difficult
to predict.
There are numerous uncertainties inherent in estimating quantities of
proved oil and gas reserves and in projecting future rates of production and the
timing of development expenditures. The total amount or timing of actual future
production may vary significantly from reserves and production estimates. The
drilling of exploratory wells can involve significant risks, including those
related to timing, success rates and cost overruns. Lease and rig availability,
complex geology and other factors can affect these risks. Although Apache may
make use of futures contracts, swaps, options and fixed-price physical contracts
to mitigate risk, fluctuations in oil and gas prices, or a prolonged
continuation of low prices, may adversely affect the Company's financial
position, results of operations and cash flows.
27
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
The information set forth in Note 11 to the Consolidated Financial
Statements contained in the Company's annual report on Form 10-K for
the year ended December 31, 2001 (filed with the SEC on March 22,
2002) 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 2, 2002. 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 137,359,148 shares of the Company's common stock
outstanding and entitled to vote, 117,772,651 shares were present at
the meeting in person or by proxy, representing 85.7 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 2005. The vote
tabulation with respect to each nominee was as follows:
AUTHORITY
NOMINEE FOR WITHHELD
------------------------- --------------- -------------
G. Steven Farris 116,659,013 1,113,638
Randolph M. Ferlic 116,663,698 1,108,953
A. D. Frazier, Jr. 111,363,773 6,408,878
John A. Kocur 115,966,122 1,806,529
ITEM 5. OTHER INFORMATION
None
28
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
10.1 - Apache Corporation Deferred Delivery Plan, as
amended and restated July 17, 2002.
10.2 - Form of Credit Agreement, dated as of June 3, 2002,
among Apache, the Lenders named therein, JPMorgan
Chase Bank, as Global Administrative Agent, Bank of
America, N.A., as Global Syndication Agent, Citibank,
N.A., as Global Documentation Agent, Bank of America,
N.A. and Wachovia Bank, National Association, as U.S.
Co-Syndication Agents, and Citibank, N.A. and Union
Bank of California, N.A., as U.S. Co-Documentation
Agents (excluding exhibits and schedules).
10.3 - Form of 364-Day Credit Agreement, dated as of June
3, 2002, among Apache, the Lenders named therein,
JPMorgan Chase Bank, as Global Administrative Agent,
Bank of America, N.A., as Global Syndication Agent,
Citibank, N.A., as Global Documentation Agent, Bank
of America, N.A. and BNP Paribas, as 364-Day
Co-Syndication Agents, and Deutsche Bank AG, New York
Branch, and Societe Generale, as 364-Day
Co-Documentation Agents (excluding exhibits and
schedules).
10.4 - Form of Credit Agreement, dated as of June 3, 2002,
among Apache Canada Ltd, a wholly-owned subsidiary of
Apache, the Lenders named therein, JPMorgan Chase
Bank, as Global Administrative Agent, Bank of
America, N.A., as Global Syndication Agent, Citibank,
N.A., as Global Documentation Agent, Royal Bank of
Canada, as Canadian Administrative Agent, The Bank of
Nova Scotia and The Toronto-Dominion Bank, as
Canadian Co-Syndication Agents, and BNP Paribas
(Canada) and Bayerische Landesbank Girozentrale, as
Canadian Co-Documentation Agents (excluding exhibits
and schedules).
10.5 - Form of Credit Agreement, dated as of June 3, 2002,
among Apache Energy Limited, a wholly-owned
subsidiary of Apache, the Lenders named therein,
JPMorgan Chase Bank, as Global Administrative Agent,
Bank of America, N.A., as Global Syndication Agent,
Citibank, N.A., as Global Documentation Agent,
Citisecurities Limited, as Australian Administrative
Agent, Bank of America, N.A., Sydney Branch, and
Deutsche Bank AG, Sydney Branch, as Australian
Co-Syndication Agents, and Royal Bank of Canada and
Bank One, NA, Australia Branch, as Australian
Co-Documentation Agents (excluding exhibits and
schedules).
10.6 - Form of Guaranty, dated as of June 3, 2002, made by
Apache Corporation and related to the Canadian Credit
Agreement.
10.7 - Form of Guaranty, dated as of June 3, 2002, made by
Apache Corporation and related to the Australian
Credit Agreement.
12.1 - Statement of computation of ratio of earnings to
fixed charges and combined fixed charges and
preferred stock dividends.
99.1 - Certification of Chief Executive Officer and Chief
Financial Officer.
99.2 - Statement Under Oath of Principal Executive Officer
of Apache Corporation Regarding Facts and
Circumstances Relating to Exchange Act Filings, dated
August 12, 2002.
99.3 - Statement Under Oath of Principal Financial Officer
of Apache Corporation Regarding Facts and
Circumstances Relating to Exchange Act Filings, dated
August 12, 2002.
(b) Reports filed on Form 8-K
The following current report on Form 8-K was filed by Apache
during the fiscal quarter ended June 30, 2002:
Item 5 - Other Events - dated April 8, 2002, filed April 11,
2002.
Offering to the public of $400 million principal amount of
Apache's 6 1/4% Notes due 2012, issuable under an indenture
dated February 16, 1996, and supplemented November 5, 1996,
and registered pursuant to Apache's Registration Statement on
Form S-3 (File No. 333-57785).
29
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 13, 2002 /s/ Roger B. Plank
----------------------------------------
Roger B. Plank
Executive Vice President and
Chief Financial Officer
Dated: August 13, 2002 /s/ Thomas L. Mitchell
----------------------------------------
Thomas L. Mitchell
Vice President and Controller
(Chief Accounting Officer)
EXHIBIT INDEX
10.1 - Apache Corporation Deferred Delivery Plan, as
amended and restated July 17, 2002.
10.2 - Form of Credit Agreement, dated as of June 3, 2002,
among Apache, the Lenders named therein, JPMorgan
Chase Bank, as Global Administrative Agent, Bank of
America, N.A., as Global Syndication Agent, Citibank,
N.A., as Global Documentation Agent, Bank of America,
N.A. and Wachovia Bank, National Association, as U.S.
Co-Syndication Agents, and Citibank, N.A. and Union
Bank of California, N.A., as U.S. Co-Documentation
Agents (excluding exhibits and schedules).
10.3 - Form of 364-Day Credit Agreement, dated as of June
3, 2002, among Apache, the Lenders named therein,
JPMorgan Chase Bank, as Global Administrative Agent,
Bank of America, N.A., as Global Syndication Agent,
Citibank, N.A., as Global Documentation Agent, Bank
of America, N.A. and BNP Paribas, as 364-Day
Co-Syndication Agents, and Deutsche Bank AG, New York
Branch, and Societe Generale, as 364-Day
Co-Documentation Agents (excluding exhibits and
schedules).
10.4 - Form of Credit Agreement, dated as of June 3, 2002,
among Apache Canada Ltd, a wholly-owned subsidiary of
Apache, the Lenders named therein, JPMorgan Chase
Bank, as Global Administrative Agent, Bank of
America, N.A., as Global Syndication Agent, Citibank,
N.A., as Global Documentation Agent, Royal Bank of
Canada, as Canadian Administrative Agent, The Bank of
Nova Scotia and The Toronto-Dominion Bank, as
Canadian Co-Syndication Agents, and BNP Paribas
(Canada) and Bayerische Landesbank Girozentrale, as
Canadian Co-Documentation Agents (excluding exhibits
and schedules).
10.5 - Form of Credit Agreement, dated as of June 3, 2002,
among Apache Energy Limited, a wholly-owned
subsidiary of Apache, the Lenders named therein,
JPMorgan Chase Bank, as Global Administrative Agent,
Bank of America, N.A., as Global Syndication Agent,
Citibank, N.A., as Global Documentation Agent,
Citisecurities Limited, as Australian Administrative
Agent, Bank of America, N.A., Sydney Branch, and
Deutsche Bank AG, Sydney Branch, as Australian
Co-Syndication Agents, and Royal Bank of Canada and
Bank One, NA, Australia Branch, as Australian
Co-Documentation Agents (excluding exhibits and
schedules).
10.6 - Form of Guaranty, dated as of June 3, 2002, made by
Apache Corporation and related to the Canadian Credit
Agreement.
10.7 - Form of Guaranty, dated as of June 3, 2002, made by
Apache Corporation and related to the Australian
Credit Agreement.
12.1 - Statement of computation of ratio of earnings to
fixed charges and combined fixed charges and
preferred stock dividends.
99.1 - Certification of Chief Executive Officer and Chief
Financial Officer.
99.2 - Statement Under Oath of Principal Executive Officer
of Apache Corporation Regarding Facts and
Circumstances Relating to Exchange Act Filings, dated
August 12, 2002.
99.3 - Statement Under Oath of Principal Financial Officer
of Apache Corporation Regarding Facts and
Circumstances Relating to Exchange Act Filings, dated
August 12, 2002.