UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q/A
(AMENDMENT NO. 1)
[ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the Quarterly Period Ended March 31, 2003
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the Transition Period from ___________________ to _____________________
Commission File Number 1-4300
APACHE CORPORATION
-----------------------------------------------------
(Exact Name of Registrant as Specified in Its Charter)
Delaware 41-0747868
------------------------------- ----------------------
(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification Number)
Suite 100, One Post Oak Central 77056-4400
2000 Post Oak Boulevard, Houston, TX ----------
--------------------------------------- (Zip Code)
(Address of Principal Executive Offices)
Registrant's Telephone Number, Including Area Code: (713) 296-6000
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
YES [X] NO [ ]
Number of shares of Registrant's common stock, outstanding as of March 31, 2003
.........................323,203,238
EXPLANATORY NOTE
We are filing this Amendment No. 1 to our Quarterly Report on Form 10-Q for
the quarter ended March 31, 2003 to respond to certain comments received by us
from the Staff of the Securities and Exchange Commission ("SEC") in connection
with its review of our Registration Statement on Form S-3 (File No. 333-105536).
Our consolidated financial position and consolidated results of operations for
the periods presented have not been restated from the consolidated financial
position and consolidated results of operations originally reported. Except
where otherwise indicated, all share amounts and per share amounts have been
adjusted to reflect the effects of the two-for-one stock split for our common
stock declared in September 2003.
For convenience and ease of reference we are filing this Quarterly Report
in its entirety with the applicable changes. Unless otherwise stated, all
information contained in this amendment is as of May 15, 2003, the filing date
of our Quarterly Report on Form 10-Q for the fiscal quarter ended March 31,
2003. Accordingly, this Amendment No. 1 to the Quarterly Report on Form 10-Q/A
should be read in conjunction with our subsequent filings with the SEC.
PART I - FINANCIAL INFORMATION
ITEM 1 - FINANCIAL STATEMENTS
APACHE CORPORATION AND SUBSIDIARIES
STATEMENT OF CONSOLIDATED OPERATIONS
(UNAUDITED)
FOR THE QUARTER ENDED MARCH 31,
----------------------------------------
2003 2002
--------------- ---------------
(In thousands, except per common share
data)
REVENUES AND OTHER:
Oil and gas production revenues...................................... $ 975,162 $ 529,389
Other................................................................ (8,553) (1,393)
--------------- ---------------
966,609 527,996
--------------- ---------------
OPERATING EXPENSES:
Depreciation, depletion and amortization............................. 214,349 211,039
Asset retirement obligation accretion................................ 5,313 -
International impairments............................................ - 4,600
Lease operating costs................................................ 134,135 112,304
Gathering and transportation costs................................... 11,861 8,233
Severance and other taxes............................................ 24,554 14,199
General and administrative........................................... 27,831 25,352
Financing costs:
Interest expense.................................................. 37,696 36,882
Amortization of deferred loan costs............................... 531 334
Capitalized interest.............................................. (11,232) (10,022)
Interest income................................................... (1,074) (1,169)
--------------- ---------------
443,964 401,752
--------------- ---------------
PREFERRED INTERESTS OF SUBSIDIARIES..................................... 3,362 3,533
--------------- ---------------
INCOME BEFORE INCOME TAXES.............................................. 519,283 122,711
Provision for income taxes........................................... 206,986 42,039
--------------- ---------------
INCOME BEFORE CHANGE IN ACCOUNTING PRINCIPLE............................ 312,297 80,672
Cumulative effect of change in accounting principle, net of income
tax.............................................................. 26,632 -
--------------- ---------------
NET INCOME.............................................................. 338,929 80,672
Preferred stock dividends............................................ 1,420 4,908
--------------- ---------------
INCOME ATTRIBUTABLE TO COMMON STOCK..................................... $ 337,509 $ 75,764
=============== ===============
BASIC NET INCOME PER COMMON SHARE:
Before change in accounting principle................................ $ .98 $ .26
Cumulative effect of change in accounting principle.................. .08 -
--------------- ---------------
$ 1.06 $ .26
=============== ===============
DILUTED NET INCOME PER COMMON SHARE:
Before change in accounting principle................................ $ .97 $ .26
Cumulative effect of change in accounting principle.................. .08 -
--------------- ---------------
$ 1.05 $ .26
=============== ===============
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 QUARTER ENDED MARCH 31,
-------------------------------
2003 2002
------------- -------------
(In thousands)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income.................................................................... $ 338,929 $ 80,672
Adjustments to reconcile net income to net cash provided by operating
activities:
Depreciation, depletion and amortization................................ 214,349 211,039
Asset retirement obligation accretion................................... 5,313 -
Provision for deferred income taxes..................................... 103,427 (348)
International impairments............................................... - 4,600
Cumulative effect of change in accounting principle..................... (26,632) -
Other................................................................... 9,368 334
Changes in operating assets and liabilities:
(Increase) decrease in receivables...................................... (229,087) (28,973)
(Increase) decrease in advances to oil and gas ventures and other....... (4,268) (18,533)
(Increase) decrease in product inventory................................ 1,009 28
(Increase) decrease in deferred charges and other....................... 2,368 (582)
Increase (decrease) in payables......................................... 98,551 12,774
Increase (decrease) in accrued expenses................................. 42,225 (42,464)
Increase (decrease) in advances from gas purchasers..................... (4,304) (3,903)
Increase (decrease) in deferred credits and noncurrent liabilities...... (13,207) (9,379)
------------- -------------
Net cash provided by operating activities........................... 538,041 205,265
------------- -------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to property and equipment........................................... (358,881) (245,084)
Acquisition of BP Gulf of Mexico properties................................... (512,912) -
Proceeds from sale of short-term investments.................................. - 17,006
Other, net.................................................................... (12,226) (3,158)
------------- -------------
Net cash used in investing activities............................... (884,019) (231,236)
------------- -------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Long-term borrowings.......................................................... 64,753 377,939
Payments on long-term debt.................................................... (280,300) (344,331)
Dividends paid................................................................ (16,787) (18,256)
Common stock activity......................................................... 564,324 9,390
Treasury stock activity, net.................................................. 2,594 (856)
Cost of debt and equity transactions.......................................... (534) (18)
------------- -------------
Net cash provided by financing activities........................... 334,050 23,868
------------- -------------
NET DECREASE IN CASH AND CASH EQUIVALENTS........................................ (11,928) (2,103)
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR................................... 51,886 35,625
------------- -------------
CASH AND CASH EQUIVALENTS AT END OF PERIOD....................................... $ 39,958 $ 33,522
============= =============
The accompanying notes to consolidated financial statements
are an integral part of this statement.
2
APACHE CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
(UNAUDITED)
MARCH 31, DECEMBER 31,
2003 2002
--------------- ---------------
(In thousands)
ASSETS
CURRENT ASSETS:
Cash and cash equivalents............................................ $ 39,958 $ 51,886
Receivables, net of allowance........................................ 761,342 527,687
Inventories.......................................................... 113,658 109,204
Drilling advances.................................................... 42,824 45,298
Prepaid assets and other............................................. 40,384 32,706
--------------- ---------------
998,166 766,781
--------------- ---------------
PROPERTY AND EQUIPMENT:
Oil and gas, on the basis of full cost accounting:
Proved properties................................................. 13,914,265 12,827,459
Unproved properties and properties under development, not being
amortized...................................................... 817,509 656,272
Gas gathering, transmission and processing facilities................ 792,816 784,271
Other................................................................ 200,772 194,685
--------------- ---------------
15,725,362 14,462,687
Less: Accumulated depreciation, depletion and amortization.......... (6,082,411) (5,997,102)
--------------- ---------------
9,642,951 8,465,585
--------------- ---------------
OTHER ASSETS:
Goodwill, net........................................................ 189,252 189,252
Deferred charges and other........................................... 41,913 38,233
--------------- ---------------
$ 10,872,282 $ 9,459,851
=============== ===============
The accompanying notes to consolidated financial statements
are an integral part of this statement.
3
APACHE CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
(UNAUDITED)
MARCH 31, DECEMBER 31,
2003 2002
--------------- ---------------
(In thousands)
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable..................................................... $ 315,453 $ 214,288
Accrued operating expense............................................ 46,505 47,382
Accrued exploration and development.................................. 180,110 146,871
Accrued compensation and benefits.................................... 12,988 32,680
Accrued interest..................................................... 42,260 30,880
Accrued income taxes................................................. 85,909 44,256
Other................................................................ 45,380 15,878
--------------- ---------------
728,605 532,235
--------------- ---------------
LONG-TERM DEBT.......................................................... 1,943,364 2,158,815
--------------- ---------------
DEFERRED CREDITS AND OTHER NONCURRENT LIABILITIES:
Income taxes......................................................... 1,227,178 1,120,609
Advances from gas purchasers......................................... 121,149 125,453
Asset retirement obligation.......................................... 450,040 -
Oil and gas derivative instruments................................... 7,884 3,507
Other................................................................ 153,874 158,326
--------------- ---------------
1,960,125 1,407,895
--------------- ---------------
PREFERRED INTERESTS OF SUBSIDIAIRES..................................... 437,088 436,626
--------------- ---------------
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
Common stock, $0.625 par, 430,000,000 shares authorized,
331,465,150 and 310,929,080 shares issued, respectively........... 207,166 194,331
Paid-in capital...................................................... 4,009,703 3,427,450
Retained earnings.................................................... 1,722,086 1,427,607
Treasury stock, at cost, 8,261,912 and 8,422,656 shares,
respectively...................................................... (108,447) (110,559)
Accumulated other comprehensive loss................................. (125,795) (112,936)
--------------- ---------------
5,803,100 4,924,280
--------------- ---------------
$ 10,872,282 $ 9,459,851
=============== ===============
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
(In thousands) INCOME STOCK STOCK STOCK CAPITAL
------------- ---------- ---------- ---------- ------------
BALANCE AT DECEMBER 31, 2001.............. $ 98,387 $ 208,207 $ 185,288 $ 2,803,825
Comprehensive income (loss):
Net income........................... $ 80,672 - - - -
Currency translation adjustments..... (1,115) - - - -
Commodity hedges, net of income tax
benefit of $3,069.................. (4,020) - - - -
Marketable securities, net of income
tax benefit of $67................. (125) - - - -
-------------
Comprehensive income................... $ 75,412
=============
Dividends:
Preferred............................ - - - -
Common ($.05 per share).............. - - - -
Common shares issued................... - (36) 344 10,393
Treasury shares issued, net............ - - - 595
Other.................................. - - - (119)
---------- ---------- ---------- ------------
BALANCE AT MARCH 31, 2002................. $ 98,387 $ 208,171 $ 185,632 $ 2,814,694
========== ========== ========== ============
BALANCE AT DECEMBER 31, 2002.............. $ 98,387 $ - $ 194,331 $ 3,427,450
Comprehensive income (loss):
Net income........................... $ 338,929 - - - -
Commodity hedges, net of income tax
benefit of $7,625.................. (12,859) - - - -
-------------
Comprehensive income................... $ 326,070
=============
Dividends:
Preferred............................ - - - -
Common ($.05 per share).............. - - - -
Five percent common stock dividend..... - - 607 25,307
Common shares issued................... - - 12,228 556,068
Treasury shares issued, net............ - - - 482
Other.................................. - - - 396
---------- ---------- ---------- ------------
BALANCE AT MARCH 31, 2003................. $ 98,387 $ - $ 207,166 $ 4,009,703
========== ========== ========== ============
ACCUMULATED
OTHER TOTAL
RETAINED TREASURY COMPREHENSIVE SHAREHOLDERS'
(In thousands) EARNINGS STOCK INCOME (LOSS) EQUITY
----------- ----------- --------------- -------------
BALANCE AT DECEMBER 31, 2001.............. $ 1,336,478 $ (111,885) $ (101,817) $ 4,418,483
Comprehensive income (loss):
Net income........................... 80,672 - - 80,672
Currency translation adjustments..... - - (1,115) (1,115)
Commodity hedges, net of income tax
benefit of $3,069.................. - - (4,020) (4,020)
Marketable securities, net of income
tax benefit of $67................. - - (125) (125)
Comprehensive income...................
Dividends:
Preferred............................ (4,908) - - (4,908)
Common ($.05 per share).............. (13,356) - - (13,356)
Common shares issued................... - - - 10,701
Treasury shares issued, net............ - 1,149 - 1,744
Other.................................. - - - (119)
----------- ---------- ------------- -------------
BALANCE AT MARCH 31, 2002................. $ 1,398,886 $ (110,736) $ (107,077) $ 4,487,957
=========== ========== ============= =============
BALANCE AT DECEMBER 31, 2002.............. $ 1,427,607 $ (110,559) $ (112,936) $ 4,924,280
Comprehensive income (loss):
Net income........................... 338,929 - - 338,929
Commodity hedges, net of income tax
benefit of $7,625.................. - - (12,859) (12,859)
Comprehensive income...................
Dividends:
Preferred............................ (1,420) - - (1,420)
Common ($.05 per share).............. (17,116) - - (17,116)
Five percent common stock dividend..... (25,914) - - -
Common shares issued................... - - - 568,296
Treasury shares issued, net............ - 2,112 - 2,594
Other.................................. - - - 396
----------- ---------- ------------- -------------
BALANCE AT MARCH 31, 2003................. $ 1,722,086 $ (108,447) $ (125,795) $ 5,803,100
=========== ========== ============= =============
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.
On December 18, 2002, the Company declared a five percent stock
dividend payable on April 2, 2003, to shareholders of record on March 12, 2003.
On September 11, 2003, the Company declared a two-for-one stock split, paid
January 14, 2004, to shareholders of record on December 31, 2003. Quarterly
share and per share information for 2002 and 2003 have been restated to reflect
this stock dividend and the two-for-one stock split.
Reclassifications
Certain prior period amounts have been reclassified to conform with
current year presentations.
1. ACQUISITIONS
On January 13, 2003, Apache announced that it had entered into
agreements to purchase producing properties in the North Sea and Gulf of Mexico
from subsidiaries of BP p.l.c. (referred to collectively as "BP") for $1.3
billion, with $670 million allocated to the Gulf of Mexico properties and the
remaining $630 million allocated to properties in the North Sea. The properties
included estimated proved reserves of 233.2 million barrels of oil equivalent
(MMboe), 147.6 MMboe located in the North Sea with the balance in the Gulf of
Mexico. The Gulf of Mexico properties were subject to normal closing adjustments
and preferential rights by third parties. Both purchase agreements were
effective as of January 1, 2003. As is customary, Apache assumed BP's
abandonment obligation for the properties, which was considered in determining
the purchase price. The purchase price for both BP transactions was paid in cash
funded by the sale of Apache common stock and borrowings under existing lines of
credit and commercial paper. The offering of Apache's common stock provided net
proceeds of approximately $554 million.
Apache and BP closed the transaction for the Gulf of Mexico properties
on March 13, 2003, which included BP's interest in 56 producing fields,
including 104 blocks. Upon closing, Apache paid a purchase price, adjusted for
normal closing and preferential rights exercised by third parties, of $509
million. The Gulf of Mexico purchase price and reserves were reduced by $73
million and 9.6 MMboe, respectively, primarily for the exercise of preferential
rights by third parties. As of January 1, 2003, the Gulf of Mexico properties
acquired from BP had estimated proved reserves of 76 MMboe.
The acquisition of the U.K. North Sea properties closed on April 2,
2003, at which time Apache paid a purchase price, adjusted for normal closing
and working capital adjustments, of $630 million. As of January 1, 2003, the
North Sea properties acquired from BP had estimated proved reserves of 147.6
MMboe. The acquisition of the North Sea properties includes a 96 percent
interest in the Forties Field and establishes a new core area for the Company.
In conjunction with the Forties acquisition, Apache may be required to issue a
letter of credit to BP to cover the present value of related asset retirement
obligations if the rating of our senior unsecured debt is lowered by both
Moody's and Standard and Poor's from the Company's current ratings of A- and A3,
respectively. Should this occur, the initial letter of credit amount would be
175 million British pounds. Apache has agreed to sell all of the North Sea
production from those properties over the next two years to BP at a combination
of fixed and market sensitive prices pursuant to a contract entered into in
connection with the North Sea purchase agreement.
6
Presented below is a breakdown of the cash consideration given for the
BP transactions:
U.S. - U.K. -
IN THOUSANDS GULF OF MEXICO NORTH SEA TOTAL*
----------------------------- ---------------- -------------- ------------
Proved Property $ 520,110 $ 854,835 $ 1,374,945
Unproved Property 57,500 65,000 122,500
Working Capital acquired, net - 10,957 10,957
Asset Retirement Obligation (69,000) (250,887) (319,887)
Deferred Tax Liability - (50,381) (50,381)
---------------- -------------- ------------
Cash consideration $ 508,610 $ 629,524 $ 1,138,134
================ ============== ============
* Property balance includes $12 million of transaction costs (U.S. - $4
million; North Sea - $8 million).
The following unaudited pro forma information shows the effect on the
Company's consolidated results of operations as if the Gulf of Mexico portion of
the BP acquisition occurred on January 1 of each period presented. The pro forma
information is based in part on data provided by BP and on numerous assumptions.
The information is not necessarily indicative of future results of operations.
FOR THE THREE MONTHS FOR THE THREE MONTHS
ENDED MARCH 31, 2003 ENDED MARCH 31, 2002
------------------------------ ------------------------------
AS REPORTED PRO FORMA AS REPORTED PRO FORMA
------------ ------------- ------------- -------------
(In thousands, except per common share data)
Revenues.................................... $ 966,609 $ 1,070,734 $ 527,996 $ 620,274
Net income.................................. 338,929 367,607 80,672 99,752
Preferred stock dividends................... 1,420 1,420 4,908 4,908
Income attributable to common stock......... 337,509 366,187 75,764 94,844
Net income per common share:
Basic................................... $ 1.06 $ 1.13 $ 0.26 $ 0.31
Diluted................................. 1.05 1.13 0.26 0.31
Average common shares outstanding (1)....... 318,509 322,910 288,318 308,121
(1) Pro forma shares assume the issuance of 19.8 million common shares,
adjusted for the five percent common stock dividend and the two-for-one
common stock split, as of the beginning of each period presented.
2. DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES
Apache uses a variety of strategies to manage its exposure to
fluctuations in commodity prices. As established by the Company's hedging
policy, Apache primarily enters into cash flow hedges in connection with certain
acquisitions to protect against commodity price volatility. The success of these
acquisitions is significantly influenced by Apache's ability to achieve targeted
production at forecasted prices. These hedges effectively reduce price risk on a
portion of the production from the acquisitions.
7
During the first quarter of 2003, in conjunction with the BP
acquisitions and during the fourth quarter of 2002, in conjunction with the
South Louisiana properties acquisition, Apache entered into, and designated as
cash flow hedges, natural gas and crude oil fixed-price swaps and natural gas
option collars. These positions were entered into in accordance with the
Company's hedging policy and involved several counterparties which are rated A+
or better. As of March 31, 2003, the outstanding positions of our cash flow
hedges were as follows:
PRODUCTION TOTAL VOLUMES WEIGHTED AVERAGE FAIR VALUE ASSET/
PERIOD INSTRUMENT TYPE (MMBTU/BBL) FLOOR/CEILING LIABILITY
---------- -------------------- ------------- ---------------- -----------------
(In thousands)
2003 Collars 13,750,000 $ 3.50 / 6.09 $ (3,142)
Gas Fixed-Price Swap 55,000,000 5.18 2,010
Oil Fixed-Price Swap 13,750,000 26.59 (12,903)
2004 Collars 18,300,000 3.25 / 5.81 (4,330)
Gas Fixed-Price Swap 51,240,000 4.52 (5,444)
Oil Fixed-Price Swap 1,550,000 26.59 1,319
2005 Collars 9,050,000 3.25 / 5.20 (2,407)
In addition to the fixed-price swaps and options, Apache entered into a
separate crude oil physical sales contract with BP. The sales contract qualifies
for the normal purchase and sale exemption of SFAS No. 133 and, therefore, the
Company has designated and accounted for the contract under the accrual method.
As of March 31, 2003, the outstanding terms of the contract were as follows:
CRUDE OIL FIXED-PRICE PHYSICAL SALES CONTRACT (BRENT)
-----------------------------------------------------
PRODUCTION TOTAL VOLUMES AVERAGE
PERIOD (BARRELS) FIXED PRICE
---------- ------------- -----------
2003 6,875,000 $ 25.32
2004 14,175,000 22.24
A reconciliation of the components of accumulated other comprehensive
income (loss) in the statement of consolidated shareholders' equity related to
Apache's derivative activities is presented in the table below (in thousands):
GROSS AFTER-TAX
------------ -----------
Unrealized loss on derivatives at December 31, 2002........ $ (7,141) $ (4,186)
Net losses realized into earnings.......................... 40,445 25,221
Net change in derivative fair value........................ (60,929) (38,080)
------------ -----------
Unrealized loss on derivatives at March 31, 2003........... $ (27,625) $ (17,045)
============ ===========
The unrealized loss in other comprehensive income of $27.6 million is
expected to be realized in future earnings contemporaneously with the related
sales of natural gas and crude oil production applicable to specific hedges.
Losses of $19.7 million ($12.1 million after tax) are expected to be realized
over the next twelve months; however, these amounts could vary materially as a
result of changes in market conditions. The contracts designated as hedges
qualified and continue to qualify for hedge accounting in accordance with SFAS
133, as amended.
3. CAPITAL STOCK
On January 22, 2003, the Company completed a public offering of 19.8
million shares of Apache common stock, adjusted for the five percent common
stock dividend and the two-for-one common stock split, including underwriters'
over-allotment option, for net proceeds of approximately $554 million. The
proceeds were used toward the purchase of Apache's acquisition from BP of
producing properties in the U.K. North Sea and the Gulf of Mexico.
8
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 MARCH 31,
---------------------------------------------------------------
2003 2002
------------------------------ ------------------------------
INCOME SHARES PER SHARE INCOME SHARES PER SHARE
-------- -------- ---------- -------- -------- ---------
(In thousands, except per share amounts)
BASIC:
Income attributable to common stock.. $337,509 318,509 $ 1.06 $ 75,764 288,318 $ .26
========== ========
EFFECT OF DILUTIVE SECURITIES:
Stock options and other.............. - 2,650 - 3,217
Series C Preferred Stock (1)......... - - - -
-------- -------- -------- --------
DILUTED:
Income attributable to common stock,
including assumed conversions....... $337,509 321,159 $ 1.05 $ 75,764 291,535 $ .26
======== ======== ========== ======== ======== ========
(1) The effect of the Series C Preferred Stock in 2002 was not included in
the computation of diluted net income per share, because to do so would
have been anti-dilutive.
5. STOCK-BASED COMPENSATION
At March 31, 2003, the Company had several stock-based employee
compensation plans. The Company accounts for those plans under the recognition
and measurement principles of Accounting Principals Board Opinion No. 25,
"Accounting for Stock Issued to Employees," and related interpretations. Under
this method, the Company records no compensation expense for stock options
granted when the exercise price of those options is equal to or greater than the
market price of the Company's common stock on the date of grant, unless the
awards are subsequently modified. The following table illustrates the effect on
income attributable to common stock and earnings per share if the Company had
applied the fair value recognition provisions of Statement of Financial
Accounting Standards (SFAS) No. 123, "Accounting for Stock-Based Compensation,"
as amended, to stock-based employee compensation for the Company's option and
performance plans.
FOR THE QUARTER ENDED MARCH 31,
-------------------------------
2003 2002
------------ -------------
(In thousands)
Income attributable to Common Stock, as reported... $ 337,509 $ 75,764
Add: Stock-based employee compensation expense
included in reported net income, net of related
tax effects..................................... 356 520
Deduct: Total stock-based employee compensation
expense determined under fair value based method
for all awards, net of related tax effects...... (4,501) (4,863)
------------ -------------
Pro forma Income Attributable to Common Stock...... $ 333,364 $ 71,421
============ =============
Net Income per Common Share:
Basic:
As reported................................... $ 1.06 $ 0.26
Pro forma..................................... 1.05 0.25
Diluted:
As reported................................... 1.05 0.26
Pro forma..................................... 1.03 0.25
9
The effects of applying SFAS No. 123, as amended, in this pro forma
disclosure should not be interpreted as being indicative of future effects. SFAS
No. 123, as amended, does not apply to awards prior to 1995, and the extent and
timing of additional future awards cannot be predicted.
On May 1, 2003, the Company issued stock appreciation rights to certain
employees in lieu of stock options. In future periods, the Company will record
compensation expense in respect to those stock appreciation rights as the price
of the Company's common stock fluctuates.
6. SUPPLEMENTAL CASH FLOW INFORMATION
The following table provides supplemental disclosure of cash flow
information:
FOR THE QUARTER ENDED MARCH 31,
-------------------------------
2003 2002
------------ -------------
(In thousands)
Cash paid during the period for:
Interest (net of amounts capitalized)............. $ 12,017 $ 13,683
Income taxes (net of refunds)..................... 61,948 32,656
7. 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
segment performance based on results from oil and gas sales and lease level
expenses. Apache's reportable segments are managed separately because of their
geographic locations. Financial information by operating segment is presented
below:
OTHER
UNITED STATES CANADA EGYPT AUSTRALIA INTERNATIONAL TOTAL
------------- ----------- ----------- ----------- ------------- -----------
(IN THOUSANDS)
FOR THE QUARTER ENDED MARCH 31, 2003
Oil and Gas Production Revenues......... $ 472,153 $ 223,403 $ 175,363 $ 102,274 $ 1,969 $ 975,162
============= =========== =========== =========== ============= ===========
Operating Income (1).................... $ 277,941 $ 136,575 $ 113,706 $ 56,059 $ 669 $ 584,950
============= =========== =========== =========== =============
Other Income (Expense):
Other revenues (losses).............. (8,553)
General and administrative........... (27,831)
Preferred interests of subsidiaries.. (3,362)
Financing costs, net................. (25,921)
-----------
Income Before Income Taxes.............. $ 519,283
===========
Total Assets............................ $ 5,345,524 $ 2,652,260 $ 1,749,675 $ 950,629 $ 174,194 $10,872,282
============= =========== =========== =========== ============= ===========
FOR THE QUARTER ENDED MARCH 31, 2002
Oil and Gas Production Revenues......... $ 223,326 $ 112,410 $ 117,777 $ 74,446 $ 1,430 $ 529,389
============= =========== =========== =========== ============= ===========
Operating Income (Loss) (1)............ $ 52,604 $ 35,947 $ 60,870 $ 33,635 $ (4,042) $ 179,014
============= =========== =========== =========== =============
Other Income (Expense):
Other revenues (losses).............. (1,393)
General and administrative........... (25,352)
Preferred interests of subsidiaries.. (3,533)
Financing costs, net................. (26,025)
-----------
Income Before Income Taxes.............. $ 122,711
===========
Total Assets............................ $ 4,089,657 $ 2,213,727 $ 1,597,582 $ 896,415 $ 166,944 $ 8,964,325
============= =========== =========== =========== ============= ===========
(1) Operating income (loss) consists of oil and gas production revenues
less depreciation, depletion and amortization, asset retirement
obligation accretion, international impairments, lease operating costs,
gathering and transportation costs, and severance and other taxes.
10
8. NEW ACCOUNTING PRONOUNCEMENTS
Effective January 1, 2003, the Company adopted SFAS No. 143,
"Accounting for Asset Retirement Obligations," which resulted in an increase to
net oil and gas properties of $410 million and additional liabilities related to
asset retirement obligations of $369 million. These entries reflect the asset
retirement obligation of Apache had the provisions of SFAS No. 143 been applied
since inception. This resulted in a non-cash cumulative-effect increase to
earnings of $27 million ($41 million pretax).
The following table describes all changes to the Company's asset
retirement obligation liability since adoption (in thousands):
Asset retirement obligation upon adoption on January 1, 2003..... $ 368,537
Liabilities incurred............................................. 74,030
Liabilities settled.............................................. (4,337)
Accretion expense................................................ 5,313
Revisions and foreign currency fluctuation....................... 6,497
---------------
Asset retirement obligation at March 31, 2003.................... $ 450,040
===============
Liabilities incurred during the period primarily relate to obligations
assumed in connection with the BP Gulf of Mexico property acquisition.
Liabilities settled during the period primarily relate to individually
immaterial properties plugged and abandoned or sold during the period. Prior to
adoption of this statement, such obligations were accrued ratably over the
productive lives of the assets through its depreciation, depletion and
amortization for oil and gas properties; therefore, had SFAS No. 143 not been
adopted, net income during the current period would not have been materially
different. In addition, the net income impact of applying SFAS No. 143 on the
comparable period in 2002 would not have resulted in a material difference,
however, the liability as of January 1, 2002 would have been approximately $334
million.
In January 2003, the FASB issued Interpretation No., 46, "Consolidation
of Variable Interest Entities, an Interpretation of Accounting Research Bulletin
No. 51." Interpretation No. 46 requires a company to consolidate a variable
interest entity (VIE) if the company has a variable interest (or combination of
variable interests) that is exposed to a majority of the entity's expected
losses if they occur, receive a majority of the entity's expected residual
returns if they occur, or both. In addition, more extensive disclosure
requirements apply to the primary and other significant variable interest owners
of the VIE. This interpretation applies immediately to VIEs created after
January 31, 2003, and to VIEs in which an enterprise obtains an interest after
that date. It is also effective for the first fiscal year or interim period
beginning after June 15, 2003, to VIEs in which a company holds a variable
interest that is acquired before February 1, 2003. The guidance regarding this
interpretation is extremely complex and, although we do not believe we have an
interest in a VIE, the Company continues to assess the impact, if any, this
interpretation will have on the Company's consolidated financial statements.
9. RECENT ACCOUNTING DEVELOPMENTS
The Company has taken note of a July 2003 inquiry to the Financial
Accounting Standards Board regarding whether or not contract-based oil and gas
mineral rights held by lease or contract ("mineral rights") should be recorded
or disclosed as intangible assets. The inquiry presents a view that these
mineral rights are intangible assets as defined in SFAS No. 141, "Business
Combinations," and, therefore, should be classified separately on the balance
sheet as intangible assets. SFAS No. 141, and SFAS No. 142, "Goodwill and Other
Intangible Assets," became effective for transactions subsequent to June 30,
2001 with the disclosure requirements of SFAS No. 142 required as of January 1,
2002. SFAS No. 141 requires that all business combinations initiated after June
30, 2001 be accounted for using the purchase method and that intangible assets
be disaggregated and reported separately from goodwill. SFAS No. 142 established
new accounting guidelines for both finite lived intangible assets and indefinite
lived intangible assets. Under the statement, intangible assets should be
separately reported on the face of the balance sheet and accompanied by
disclosure in the notes to financial statements. SFAS No. 142 scopes out
accounting utilized by the oil and gas industry as prescribed by SFAS No. 19,
and is silent about whether or not its disclosure provisions apply to oil and
gas companies. Apache does not believe that SFAS No. 141 or 142 change the
classification of oil and gas mineral rights and the Company continues to
classify these assets as part of oil and gas
11
properties. The Emerging Issues Task Force (EITF) has added the treatment of oil
and gas mineral rights to an upcoming agenda, which may result in a change in
how Apache classifies these assets.
Should such a change be required, the amounts related to business
combinations and major asset purchases after June 30, 2001 that would be
classified as "intangible undeveloped mineral interest" was $127 million as of
March 31, 2003. The amounts related to business combinations and major asset
purchases after June 30, 2001 that would be classified as "intangible developed
mineral interest" was $729 million as of March 31, 2003. Intangible developed
mineral interest amounts are presented net of accumulated depletion,
depreciation and amortization (DD&A). Accumulated DD&A was estimated using
historical depletion rates applied proportionately to the costs of the
acquisitions to be classified as "intangible developed mineral interest". The
amounts noted above only include mineral rights acquired in business
combinations or major asset purchases, and exclude those acquired individually
or in groups as we have not historically tracked these in this manner. The
Company has also not historically tracked the amount of mineral rights in the
proved property balances related to producing leases or relinquished leases. We
are currently identifying a methodology to do so for transactions subsequent to
June 30, 2001.
The numbers above are based on our understanding of the issue before
the EITF, if all mineral rights associated with unevaluated property and
producing reserves were deemed to be intangible assets:
- mineral rights with proved reserves that were acquired after
June 30, 2001 and mineral rights with no proved reserves would
be classified as intangible assets and would not be included
in oil and gas properties on our consolidated balance sheet;
- results of operations and cash flows would not be materially
affected because mineral rights would continue to be amortized
in accordance with full cost accounting rules; and
- disclosures required by SFAS Nos. 141 and 142 relative to
intangibles would be included in the notes to our financial
statements.
If the accounting for mineral rights is ultimately changed,
transitional guidance for intangible assets permits the reclassification of only
amounts acquired after the effective date of SFAS Nos. 141 and 142 if records
were not previously maintained to track acquisition costs based on their
intangible or tangible nature. Lack of these records prior to the effective date
could result in the loss of comparability between historical balances of
tangible and intangible asset balances and among companies in the industry.
10. SUPPLEMENTAL GUARANTOR INFORMATION
Apache Finance Pty Ltd. (Apache Finance Australia) and Apache Finance
Canada Corporation (Apache Finance Canada) are subsidiaries of Apache, that have
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.
12
APACHE CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS
FOR THE QUARTER ENDED MARCH 31, 2003
APACHE APACHE
APACHE APACHE FINANCE FINANCE
CORPORATION NORTH AMERICA AUSTRALIA CANADA
----------- ------------- ----------- -----------
(IN THOUSANDS)
REVENUES AND OTHER:
Oil and gas production revenues............ $ 376,167 $ - $ - $ -
Equity in net income (loss) of affiliates.. 179,358 8,947 11,925 28,195
Other...................................... (3,616) - - -
----------- ------------ ----------- -----------
551,909 8,947 11,925 28,195
----------- ------------ ----------- -----------
OPERATING EXPENSES:
Depreciation, depletion and amortization... 67,618 - - -
Asset retirement obligation accretion...... 2,764 - - -
Lease operating costs...................... 58,767 - - -
Gathering and transportation costs......... 4,485 - - -
Severance and other taxes.................. 14,357 - - 42
General and administrative................. 23,703 - - -
Financing costs, net....................... 21,099 - 4,512 10,169
----------- ------------ ----------- -----------
192,793 - 4,512 10,211
----------- ------------ ----------- -----------
PREFERRED INTERESTS OF SUBSIDIARIES........... - - - -
----------- ------------ ----------- -----------
INCOME (LOSS) BEFORE INCOME TAXES............. 359,116 8,947 7,413 17,984
Provision (benefit) for income taxes....... 39,944 - (1,534) (4,112)
----------- ------------ ----------- -----------
INCOME (LOSS) BEFORE CHANGE IN
ACCOUNTING PRINCIPLE........................ 319,172 8,947 8,947 22,096
Cumulative effect of change in accounting
principle, net of income tax............ 19,757 - - -
----------- ------------ ----------- -----------
NET INCOME.................................... 338,929 8,947 8,947 22,096
Preferred stock dividends.................. 1,420 - - -
----------- ------------ ----------- -----------
INCOME ATTRIBUTABLE TO COMMON STOCK........... $ 337,509 $ 8,947 $ 8,947 $ 22,096
=========== ============ =========== ===========
ALL OTHER
SUBSIDIARIES
OF APACHE RECLASSIFICATIONS
CORPORATION & ELIMINATIONS CONSOLIDATED
----------- ----------------- ------------
(IN THOUSANDS)
REVENUES AND OTHER:
Oil and gas production revenues............ $ 654,267 $ (55,272) $ 975,162
Equity in net income (loss) of affiliates.. (9,077) (219,348) -
Other...................................... (4,937) - (8,553)
------------ ---------------- ------------
640,253 (274,620) 966,609
------------ ---------------- ------------
OPERATING EXPENSES:
Depreciation, depletion and amortization... 146,731 - 214,349
Asset retirement obligation accretion...... 2,549 - 5,313
Lease operating costs...................... 130,640 (55,272) 134,135
Gathering and transportation costs......... 7,376 - 11,861
Severance and other taxes.................. 10,155 - 24,554
General and administrative................. 4,128 - 27,831
Financing costs, net....................... (9,859) - 25,921
------------ ---------------- ------------
291,720 (55,272) 443,964
------------ ---------------- ------------
PREFERRED INTERESTS OF SUBSIDIARIES........... 3,362 - 3,362
------------ ---------------- ------------
INCOME (LOSS) BEFORE INCOME TAXES............. 345,171 (219,348) 519,283
Provision (benefit) for income taxes....... 172,688 - 206,986
------------ ---------------- ------------
INCOME (LOSS) BEFORE CHANGE IN
ACCOUNTING PRINCIPLE........................ 172,483 (219,348) 312,297
Cumulative effect of change in accounting
principle, net of income tax............ 6,875 - 26,632
------------ ---------------- ------------
NET INCOME.................................... 179,358 (219,348) 338,929
Preferred stock dividends.................. - - 1,420
------------ ---------------- ------------
INCOME ATTRIBUTABLE TO COMMON STOCK........... $ 179,358 $ (219,348) $ 337,509
============ ================ ============
13
APACHE CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS
FOR THE QUARTER ENDED MARCH 31, 2002
APACHE APACHE
APACHE APACHE FINANCE FINANCE
CORPORATION NORTH AMERICA AUSTRALIA CANADA
----------- ------------- ----------- -----------
(IN THOUSANDS)
REVENUES AND OTHER:
Oil and gas production revenues............ $ 161,869 $ - $ - $ -
Equity in net income (loss) of affiliates.. 68,616 4,502 7,480 14,438
Other...................................... 185 - - -
----------- ------------ ----------- -----------
230,670 4,502 7,480 14,438
----------- ------------ ----------- -----------
OPERATING EXPENSES:
Depreciation, depletion and amortization... 53,704 - - -
International impairments.................. - - - -
Lease operating costs...................... 50,967 - - -
Gathering and transportation costs......... 2,941 - - -
Severance and other taxes.................. 6,632 - - 9
General and administrative................. 21,475 - - -
Financing costs, net....................... 15,683 - 4,512 10,229
----------- ------------ ----------- -----------
151,402 - 4,512 10,238
----------- ------------ ----------- -----------
PREFERRED INTERESTS OF SUBSIDIARIES........... - - - -
----------- ------------ ----------- -----------
INCOME (LOSS) BEFORE INCOME TAXES............. 79,268 4,502 2,968 4,200
Provision (benefit) for income taxes....... (1,404) - (1,534) (4,464)
----------- ------------ ----------- -----------
NET INCOME.................................... 80,672 4,502 4,502 8,664
Preferred stock dividends.................. 4,908 - - -
----------- ------------ ----------- -----------
INCOME ATTRIBUTABLE TO COMMON STOCK........... $ 75,764 $ 4,502 $ 4,502 $ 8,664
=========== ============ =========== ===========
ALL OTHER
SUBSIDIARIES
OF APACHE RECLASSIFICATIONS
CORPORATION & ELIMINATIONS CONSOLIDATED
------------ ----------------- ------------
(IN THOUSANDS)
REVENUES AND OTHER:
Oil and gas production revenues............ $ 407,541 $ (40,021) $ 529,389
Equity in net income (loss) of affiliates.. (8,752) (86,284) -
Other...................................... (1,578) - (1,393)
------------ ---------------- ------------
397,211 (126,305) 527,996
------------ ---------------- ------------
OPERATING EXPENSES:
Depreciation, depletion and amortization... 157,335 - 211,039
International impairments.................. 4,600 - 4,600
Lease operating costs...................... 101,358 (40,021) 112,304
Gathering and transportation costs......... 5,292 - 8,233
Severance and other taxes.................. 7,558 - 14,199
General and administrative................. 3,877 - 25,352
Financing costs, net....................... (4,399) - 26,025
------------ ---------------- ------------
275,621 (40,021) 401,752
------------ ---------------- ------------
PREFERRED INTERESTS OF SUBSIDIARIES........... 3,533 - 3,533
------------ ---------------- ------------
INCOME (LOSS) BEFORE INCOME TAXES............. 118,057 (86,284) 122,711
Provision (benefit) for income taxes....... 49,441 - 42,039
------------ ---------------- ------------
NET INCOME.................................... 68,616 (86,284) 80,672
Preferred stock dividends.................. - - 4,908
------------ ---------------- ------------
INCOME ATTRIBUTABLE TO COMMON STOCK........... $ 68,616 $ (86,284) $ 75,764
============ ================ ============
14
APACHE CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS
FOR THE QUARTER ENDED MARCH 31, 2003
APACHE APACHE
APACHE APACHE FINANCE FINANCE
CORPORATION NORTH AMERICA AUSTRALIA CANADA
------------- ------------- ------------- -------------
(IN THOUSANDS)
CASH PROVIDED BY (USED IN) OPERATING
ACTIVITIES....................................... $ (620,860) $ - $ (3,500) $ (4,333)
----------- ----------- ----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to property and equipment.............. (102,386) - - -
Acquisitions..................................... (512,912) - - -
Investment in subsidiaries, net.................. 113,844 (3,500) - -
Other, net....................................... (3,953) - - -
----------- ----------- ----------- -----------
NET CASH USED IN INVESTING ACTIVITIES.............. (505,407) (3,500) - -
----------- ----------- ----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Long-term borrowings............................. 859,508 - - (66)
Payments on long-term debt....................... (280,300) - - -
Dividends paid................................... (16,787) - - -
Common stock activity............................ 564,324 3,500 3,500 4,363
Treasury stock activity, net..................... 2,594 - - -
Cost of debt and equity transactions............. (534) - - -
----------- ----------- ----------- -----------
NET CASH PROVIDED BY FINANCING ACTIVITIES.......... 1,128,805 3,500 3,500 4,297
----------- ----------- ----------- -----------
NET INCREASE (DECREASE) IN CASH AND
CASH EQUIVALENTS................................. 2,538 - - (36)
CASH AND CASH EQUIVALENTS AT
BEGINNING OF YEAR................................ 224 - 2 127
----------- ----------- ----------- -----------
CASH AND CASH EQUIVALENTS AT
END OF PERIOD.................................... $ 2,762 $ - $ 2 $ 91
=========== =========== =========== ===========
ALL OTHER
SUBSIDIARIES
OF APACHE RECLASSIFICATIONS
CORPORATION & ELIMINATIONS CONSOLIDATED
------------ --------------- ------------
IN THOUSANDS
CASH PROVIDED BY (USED IN) OPERATING
ACTIVITIES....................................... $ 1,166,734 $ - $ 538,041
----------- ------------ -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to property and equipment.............. (256,495) - (358,881)
Acquisitions..................................... - - (512,912)
Investment in subsidiaries, net.................. (846,747) 736,403 -
Other, net....................................... (8,273) - (12,226)
----------- ------------ -----------
NET CASH USED IN INVESTING ACTIVITIES.............. (1,111,515) 736,403 (884,019)
----------- ------------ -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Long-term borrowings............................. (90,957) (703,732) 64,753
Payments on long-term debt....................... - - (280,300)
Dividends paid................................... - - (16,787)
Common stock activity............................ 21,308 (32,671) 564,324
Treasury stock activity, net..................... - - 2,594
Cost of debt and equity transactions............. - - (534)
----------- ------------ -----------
NET CASH PROVIDED BY FINANCING ACTIVITIES.......... (69,649) (736,403) 334,050
----------- ------------ -----------
NET INCREASE (DECREASE) IN CASH AND
CASH EQUIVALENTS................................. (14,430) - (11,928)
CASH AND CASH EQUIVALENTS AT
BEGINNING OF YEAR................................ 51,533 - 51,886
----------- ------------ -----------
CASH AND CASH EQUIVALENTS AT
END OF PERIOD.................................... $ 37,103 $ - $ 39,958
=========== ============ ===========
15
APACHE CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS
FOR THE QUARTER ENDED MARCH 31, 2002
APACHE APACHE
APACHE APACHE FINANCE FINANCE
CORPORATION NORTH AMERICA AUSTRALIA CANADA
------------- ------------- ----------- -------------
(IN THOUSANDS)
CASH PROVIDED BY (USED IN) OPERATING
ACTIVITIES.......................................... $ (524,773) $ - $ (3,545) $ (476)
----------- ----------- ----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to property and equipment................. (69,337) - - -
Proceeds from sales of oil and gas properties....... 650 - - -
Proceeds from sale of U.S. Government Agency Notes.. - - - -
Investment in subsidiaries, net..................... (69,435) (3,500) - -
Other, net.......................................... (846) - - -
----------- ----------- ----------- -----------
NET CASH USED IN INVESTING ACTIVITIES................. (138,968) (3,500) - -
----------- ----------- ----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Long-term borrowings................................ 730,467 - 45 476
Payments on long-term debt.......................... (62,805) - - -
Dividends paid...................................... (18,256) - - -
Common stock activity............................... 9,390 3,500 3,500 -
Treasury stock activity, net........................ (856) - - -
Cost of debt and equity transactions................ (18) - - -
----------- ----------- ----------- -----------
NET CASH PROVIDED BY FINANCING ACTIVITIES............. 657,922 3,500 3,545 476
----------- ----------- ----------- -----------
NET INCREASE (DECREASE) IN CASH AND
CASH EQUIVALENTS.................................... (5,819) - - -
CASH AND CASH EQUIVALENTS AT
BEGINNING OF YEAR................................... 6,383 - 2 -
----------- ----------- ----------- -----------
CASH AND CASH EQUIVALENTS AT
END OF PERIOD....................................... $ 564 $ - $ 2 $ -
=========== =========== =========== ===========
ALL OTHER
SUBSIDIARIES
OF APACHE RECLASSIFICATIONS
CORPORATION & ELIMINATIONS CONSOLIDATED
------------ --------------- -------------
IN THOUSANDS
CASH PROVIDED BY (USED IN) OPERATING
ACTIVITIES.......................................... $ 734,059 $ - $ 205,265
----------- ------------ -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to property and equipment................. (175,747) - (245,084)
Proceeds from sales of oil and gas properties....... 146 - 796
Proceeds from sale of U.S. Government Agency Notes.. 17,006 - 17,006
Investment in subsidiaries, net..................... (506,056) 578,991 -
Other, net.......................................... (3,108) - (3,954)
----------- ------------ -----------
NET CASH USED IN INVESTING ACTIVITIES................. (667,759) 578,991 (231,236)
----------- ------------ -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Long-term borrowings................................ 192,265 (545,314) 377,939
Payments on long-term debt.......................... (281,526) - (344,331)
Dividends paid...................................... - - (18,256)
Common stock activity............................... 26,677 (33,677) 9,390
Treasury stock activity, net........................ - - (856)
Cost of debt and equity transactions................ - - (18)
----------- ------------ -----------
NET CASH PROVIDED BY FINANCING ACTIVITIES............. (62,584) (578,991) 23,868
----------- ------------ -----------
NET INCREASE (DECREASE) IN CASH AND
CASH EQUIVALENTS.................................... 3,716 - (2,103)
CASH AND CASH EQUIVALENTS AT
BEGINNING OF YEAR................................... 29,240 - 35,625
----------- ------------ -----------
CASH AND CASH EQUIVALENTS AT
END OF PERIOD....................................... $ 32,956 $ - $ 33,522
=========== ============ ===========
16
APACHE CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATING BALANCE SHEET
AS OF MARCH 31, 2003
APACHE APACHE
APACHE APACHE FINANCE FINANCE
CORPORATION NORTH AMERICA AUSTRALIA CANADA
------------- ------------- ------------- -------------
(IN THOUSANDS)
ASSETS
CURRENT ASSETS:
Cash and cash equivalents...................... $ 2,762 $ - $ 2 $ 91
Receivables, net of allowance.................. 273,704 - - -
Inventories.................................... 13,585 - - -
Drilling advances and others................... 16,468 - - -
----------- ----------- ----------- -----------
306,519 - 2 91
----------- ----------- ----------- -----------
PROPERTY AND EQUIPMENT, NET...................... 4,247,546 - - -
----------- ----------- ----------- -----------
OTHER ASSETS:
Intercompany receivable, net................... 931,026 - (662) (253,785)
Goodwill, net.................................. - - - -
Equity in affiliates........................... 3,199,874 154,693 414,392 1,003,028
Deferred charges and other..................... 34,558 - - 2,450
----------- ----------- ----------- -----------
$ 8,719,523 $ 154,693 $ 413,732 $ 751,784
=========== =========== =========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable............................... $ 168,576 $ - $ - $ -
Other accrued expenses......................... 165,101 - 1,888 6,761
----------- ----------- ----------- -----------
333,677 - 1,888 6,761
----------- ----------- ----------- -----------
LONG-TERM DEBT................................... 1,294,926 - 268,842 297,027
----------- ----------- ----------- -----------
DEFERRED CREDITS AND OTHER
NONCURRENT LIABILITIES:
Income taxes................................... 767,866 - (11,691) (1,252)
Advances from gas purchasers................... 121,149 - - -
Asset retirement obligation.................... 261,667 - - -
Other.......................................... 137,138 - - -
----------- ----------- ----------- -----------
1,287,820 - (11,691) (1,252)
----------- ----------- ----------- -----------
PREFERRED INTERESTS OF SUBSIDIARIES.............. - - - -
----------- ----------- ----------- -----------
COMMITMENTS AND CONTINGENCIES
SHAREHOLDERS' EQUITY............................. 5,803,100 154,693 154,693 449,248
----------- ----------- ----------- -----------
$ 8,719,523 $ 154,693 $ 413,732 $ 751,784
=========== =========== =========== ===========
ALL OTHER
SUBSIDIARIES
OF APACHE RECLASSIFICATIONS
CORPORATION & ELIMINATIONS CONSOLIDATED
------------ --------------- -------------
(IN THOUSANDS)
ASSETS
CURRENT ASSETS:
Cash and cash equivalents...................... $ 37,103 $ - $ 39,958
Receivables, net of allowance.................. 487,638 - 761,342
Inventories.................................... 100,073 - 113,658
Drilling advances and others................... 66,740 - 83,208
----------- ------------ -----------
691,554 - 998,166
----------- ------------ -----------
PROPERTY AND EQUIPMENT, NET...................... 5,395,405 - 9,642,951
----------- ------------ -----------
OTHER ASSETS:
Intercompany receivable, net................... (676,579) - -
Goodwill, net.................................. 189,252 - 189,252
Equity in affiliates........................... (813,479) (3,958,508) -
Deferred charges and other..................... 4,905 - 41,913
----------- ------------ -----------
$ 4,791,058 $ (3,958,508) $10,872,282
=========== ============ ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable............................... $ 146,877 $ - $ 315,453
Other accrued expenses......................... 239,402 - 413,152
----------- ------------ -----------
386,279 - 728,605
----------- ------------ -----------
LONG-TERM DEBT................................... 82,569 - 1,943,364
----------- ------------ -----------
DEFERRED CREDITS AND OTHER
NONCURRENT LIABILITIES:
Income taxes................................... 472,255 - 1,227,178
Advances from gas purchasers................... - - 121,149
Asset retirement obligation.................... 188,373 - 450,040
Other.......................................... 24,620 - 161,758
----------- ------------ -----------
685,248 - 1,960,125
----------- ------------ -----------
PREFERRED INTERESTS OF SUBSIDIARIES.............. 437,088 - 437,088
----------- ------------ -----------
COMMITMENTS AND CONTINGENCIES
SHAREHOLDERS' EQUITY............................. 3,199,874 (3,958,508) 5,803,100
----------- ------------ -----------
$ 4,791,058 $ (3,958,508) $10,872,282
=========== ============ ===========
17
APACHE CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATING BALANCE SHEET
AS OF DECEMBER 31, 2002
APACHE
APACHE APACHE FINANCE APACHE
CORPORATION NORTH AMERICA AUSTRALIA FINANCE CANADA
------------ ------------- --------- --------------
(IN THOUSANDS)
ASSETS
CURRENT ASSETS:
Cash and cash equivalents....................... $ 224 $ - $ 2 $ 127
Receivables, net of allowance................... 121,410 - - -
Inventories..................................... 15,509 - - -
Drilling advances and others.................... 19,468 - - -
----------- ----------- ----------- -----------
156,611 - 2 127
----------- ----------- ----------- -----------
PROPERTY AND EQUIPMENT, NET....................... 3,403,716 - - -
----------- ----------- ----------- -----------
OTHER ASSETS:
Intercompany receivable, net.................... 1,146,086 - (662) (253,851)
Goodwill, net................................... - - - -
Equity in affiliates............................ 2,994,954 142,422 402,596 958,382
Deferred charges and other...................... 31,804 - - 2,472
----------- ----------- ----------- -----------
$ 7,733,171 $ 142,422 $ 401,936 $ 707,130
=========== =========== =========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable................................ $ 124,152 $ - $ - $ -
Other accrued expenses.......................... 134,191 - 2,229 1,263
----------- ----------- ----------- -----------
258,343 - 2,229 1,263
----------- ----------- ----------- -----------
LONG-TERM DEBT.................................... 1,550,645 - 268,795 297,019
----------- ----------- ----------- -----------
DEFERRED CREDITS AND OTHER
NONCURRENT LIABILITIES:
Income taxes.................................... 736,661 - (11,510) (1,205)
Advances from gas purchasers.................... 125,453 - - -
Oil and gas derivative instruments.............. 3,507 - - -
Other........................................... 134,282 - - -
----------- ----------- ----------- -----------
999,903 - (11,510) (1,205)
----------- ----------- ----------- -----------
PREFERRED INTERESTS OF SUBSIDIARIES............... - - - -
----------- ----------- ----------- -----------
COMMITMENTS AND CONTINGENCIES
SHAREHOLDERS' EQUITY.............................. 4,924,280 142,422 142,422 410,053
----------- ----------- ----------- -----------
$ 7,733,171 $ 142,422 $ 401,936 $ 707,130
=========== =========== =========== ===========
ALL OTHER
SUBSIDIARIES
OF APACHE RECLASSIFICATIONS
CORPORATION & ELIMINATIONS CONSOLIDATED
------------ ------------------ ------------
(IN THOUSANDS)
ASSETS
CURRENT ASSETS:
Cash and cash equivalents....................... $ 51,533 $ - $ 51,886
Receivables, net of allowance................... 406,277 - 527,687
Inventories..................................... 93,695 - 109,204
Drilling advances and others.................... 58,536 - 78,004
----------- ------------ -----------
610,041 - 766,781
----------- ------------ -----------
PROPERTY AND EQUIPMENT, NET....................... 5,061,869 - 8,465,585
----------- ------------ -----------
OTHER ASSETS:
Intercompany receivable, net.................... (891,573) - -
Goodwill, net................................... 189,252 - 189,252
Equity in affiliates............................ (808,503) (3,689,851) -
Deferred charges and other...................... 3,957 - 38,233
----------- ------------ -----------
$ 4,165,043 $ (3,689,851) $ 9,459,851
=========== ============ ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable................................ $ 90,136 $ - $ 214,288
Other accrued expenses.......................... 180,264 - 317,947
----------- ------------ -----------
270,400 - 532,235
----------- ------------ -----------
LONG-TERM DEBT.................................... 42,356 - 2,158,815
----------- ------------ -----------
DEFERRED CREDITS AND OTHER
NONCURRENT LIABILITIES:
Income taxes.................................... 396,663 - 1,120,609
Advances from gas purchasers.................... - - 125,453
Oil and gas derivative instruments.............. - - 3,507
Other........................................... 24,044 - 158,326
----------- ------------ -----------
420,707 - 1,407,895
----------- ------------ -----------
PREFERRED INTERESTS OF SUBSIDIARIES............... 436,626 - 436,626
----------- ------------ -----------
COMMITMENTS AND CONTINGENCIES
SHAREHOLDERS' EQUITY.............................. 2,994,954 (3,689,851) 4,924,280
----------- ------------ -----------
$ 4,165,043 $ (3,689,851) $ 9,459,851
=========== ============ ===========
18
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
OVERVIEW
Apache reported record financial results for the quarter. Led by solid
production and high commodity prices, we reported record first-quarter income
attributable to common stock of $338 million, including the $27 million
cumulative effect of a change in accounting principle regarding asset retirement
obligations (see Footnote 8). We also reported record net cash provided by
operating activities of $538 million for the quarter.
Following are additional highlights for the first three months of 2003:
- Oil and gas production revenues increased 84 percent over the
prior-year first quarter to a record $975 million.
- First-quarter production remained steady with 55 percent of our
equivalent production coming from outside the U.S., continuing a
multi-year trend to broaden geographic diversification.
- On January 13, 2003, we announced the acquisition of $1.3 billion
(subject to normal closing adjustments and exercise of preferential
rights by third parties) in properties from BP (see Footnote 1),
Apache's largest acquisition to date. We closed the Gulf of Mexico
portion of the transaction on March 13, 2003 and the U.K. North Sea
(Forties Field) portion on April 2, 2003. The North Sea assets provide
Apache with a new core area.
- On January 22, 2003, in conjunction with the BP transaction, we
completed a public offering of 19.8 million shares of common stock,
adjusted for the five percent common stock dividend and two-for-one
common stock split, raising net proceeds of $554 million.
- After announcing the BP transaction, Moody's, Standard and Poor's, and
Fitch rating agencies reaffirmed Apache's single-A credit ratings on
senior unsecured long-term debt.
We are encouraged by the outlook for the remainder of the year. While we
have seen some pullback in commodity prices since quarter-end, the overall
outlook remains relatively strong. With additional production from the BP
acquisition and first production expected during the third quarter from the Zhao
Dong development in China, we should see production growth in 2003.
The conditions that generated our first-quarter record results, coupled
with our equity offering, have enabled us to maintain the financial flexibility
necessary to act when opportunities arise. We are positioned to take advantage
of an acquisition environment that appears favorable, as major integrated
companies shed non-core assets. While the first quarter proved to be an active
one for the Company, the balance of the year holds a multitude of challenges and
opportunities.
CRITICAL ACCOUNTING POLICY
The Company has taken note of a July 2003 inquiry to the Financial
Accounting Standards Board regarding whether or not contract-based oil and gas
mineral rights held by lease or contract ("mineral rights") should be recorded
or disclosed as intangible assets. The inquiry presents a view that these
mineral rights are intangible assets as defined in SFAS No. 141, "Business
Combinations," and, therefore, should be classified separately on the balance
sheet as intangible assets. SFAS No. 141, and SFAS No. 142, "Goodwill and Other
Intangible Assets," became effective for transactions subsequent to June 30,
2001 with the disclosure requirements of SFAS No. 142 required as of January 1,
2002. SFAS No. 141 requires that all business combinations initiated after June
30, 2001 be accounted for using the purchase method and that intangible assets
be disaggregated and reported separately from goodwill. SFAS No. 142 established
new accounting guidelines for both finite lived intangible assets and indefinite
lived intangible assets. Under the statement, intangible assets should be
separately reported on the face of the balance sheet and accompanied by
disclosure in the notes to financial statements. SFAS No. 142 scopes out
accounting utilized by the oil and gas industry as prescribed by SFAS No. 19,
and is silent about whether or not its disclosure provisions apply to oil and
gas companies. Apache does not believe that SFAS No. 141 or 142 change the
classification of oil and gas mineral rights and the Company continues to
classify these assets as part of oil and gas
19
properties. The Emerging Issues Task Force (EITF) has added the treatment of oil
and gas mineral rights to an upcoming agenda, which may result in a change in
how Apache classifies these assets.
Should such a change be required, the amounts related to business
combinations and major asset purchases after June 30, 2001 that would be
classified as "intangible undeveloped mineral interest" was $127 million as of
March 31, 2003. The amounts related to business combinations and major asset
purchases after June 30, 2001 that would be classified as "intangible developed
mineral interest" was $729 million as of March 31, 2003. Intangible developed
mineral interest amounts are presented net of accumulated depletion,
depreciation and amortization (DD&A). Accumulated DD&A was estimated using
historical depletion rates applied proportionately to the costs of the
acquisitions to be classified as "intangible developed mineral interest". The
amounts noted above only include mineral rights acquired in business
combinations or major asset purchases, and exclude those acquired individually
or in groups as we have not historically tracked these in this manner. The
Company has also not historically tracked the amount of mineral rights in the
proved property balances related to producing leases or relinquished leases. We
are currently identifying a methodology to do so for transactions subsequent to
June 30, 2001.
The numbers above are based on our understanding of the issue before the
EITF, if all mineral rights associated with unevaluated property and producing
reserves were deemed to be intangible assets:
- mineral rights with proved reserves that were acquired after June 30,
2001 and mineral rights with no proved reserves would be classified as
intangible assets and would not be included in oil and gas properties
on our consolidated balance sheet;
- results of operations and cash flows would not be materially affected
because mineral rights would continue to be amortized in accordance
with full cost accounting rules; and
- disclosures required by SFAS Nos. 141 and 142 relative to intangibles
would be included in the notes to our financial statements.
If the accounting for mineral rights is ultimately changed, transitional
guidance for intangible assets permits the reclassification of only amounts
acquired after the effective date of SFAS Nos. 141 and 142 if records were not
previously maintained to track acquisition costs based on their intangible or
tangible nature. Lack of these records prior to the effective date could result
in the loss of comparability between historical balances of tangible and
intangible asset balances and among companies in the industry.
RESULTS OF OPERATIONS
Revenues
The following table presents each segment's oil revenues and gas revenues as a
percentage of total oil revenues and gas revenues, respectively.
OIL REVENUES GAS REVENUES
FOR THE QUARTER ENDED FOR THE QUARTER ENDED
MARCH 31, MARCH 31,
--------------------- ---------------------
2003 2002 2003 2002
------- ----- ------- --------
United States.................... 34% 35% 59% 51%
Canada........................... 16% 15% 29% 29%
--- --- --- ---
North America.................... 50% 50% 88% 80%
Egypt............................ 29% 29% 10% 14%
Australia........................ 21% 21% 2% 6%
Other International.............. - - - -
--- --- --- ---
Total......................... 100% 100% 100% 100%
=== === === ===
20
Crude Oil Contribution
Each segment's contribution to first quarter 2003 consolidated oil revenues
were relatively flat compared to their contribution in the first quarter 2002.
Natural Gas Contribution
In the first quarter of 2003, 88 percent of Apache's natural gas revenues
came from the North American market, 59 percent from the U.S. and 29 percent
from Canada. In the comparable 2002 quarter, 80 percent of Apache's natural gas
revenues were from North America, with the U.S. and Canada contributing 51 and
29 percent, respectively. The U.S. garnered a higher percentage of consolidated
natural gas revenues, as increases in the U.S. outpaced gains in Egypt and
Australia. Canada's contribution to consolidated revenues remained flat.
21
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 MARCH 31,
------------------------------------
INCREASE
2003 2002 (DECREASE)
---------- ---------- ----------
Revenues (in thousands):
Natural gas....................... $ 520,360 $ 225,982 130%
Oil............................... 438,343 294,137 49%
Natural gas liquids............... 16,459 9,270 78%
---------- ----------
Total......................... $ 975,162 $ 529,389 84%
========== ==========
Natural Gas Volume - Mcf per day:
United States..................... 552,783 540,433 2%
Canada............................ 309,205 314,659 (2%)
Egypt............................. 123,719 117,525 5%
Australia......................... 101,153 120,645 (16%)
Argentina......................... 6,788 3,856 76%
---------- ----------
Total......................... 1,093,648 1,097,118 -
========== ==========
Average Natural Gas Price - Per Mcf:
United States..................... $ 6.22 $ 2.35 165%
Canada............................ 5.35 2.33 130%
Egypt............................. 4.50 3.05 48%
Australia......................... 1.31 1.23 7%
Argentina......................... 0.42 0.64 (34%)
Total......................... 5.29 2.29 131%
Oil Volume - Barrels per day:
United States..................... 57,334 55,829 3%
Canada............................ 24,735 25,339 (2%)
Egypt............................. 45,710 44,378 3%
Australia......................... 30,439 32,941 (8%)
Argentina......................... 597 669 (11%)
---------- ----------
Total......................... 158,815 159,156 -
========== ==========
Average Oil Price - Per barrel:
United States..................... $ 28.97 $ 20.56 41%
Canada............................ 32.09 18.87 70%
Egypt............................. 30.46 21.42 42%
Australia......................... 33.00 20.60 60%
Argentina......................... 31.95 20.07 59%
Total......................... 30.67 20.53 49%
Natural Gas Liquids (NGL)
Volume - Barrels per day:
United States................... 6,083 6,895 (12%)
Canada.......................... 1,406 1,358 4%
---------- ----------
Total......................... 7,489 8,253 (9%)
========== ==========
Average NGL Price - Per barrel:
United States................... $ 24.34 $ 12.78 90%
Canada.......................... 24.75 10.95 126%
Total......................... 24.42 12.48 96%
22
Natural Gas Revenues
The Company's natural gas production declined 3 million cubic feet per
day (MMcf/d), which reduced first-quarter natural gas revenues by $2 million.
Production in the U.S. climbed 12 MMcf/d, as the Gulf Coast region's 22 MMcf/d
increase more than offset a 10 MMcf/d decline in the Central region. Production
in the Gulf Coast region benefited from a full quarter of production from
properties acquired in South Louisiana, 18 days of production from the Gulf of
Mexico properties acquired from BP and additional production from a successful
recompletion program. These increases offset natural declines in mature fields
and downtime associated with well performance. New discoveries in the Central
region, particularly the Loper field, partially offset natural declines in
mature fields. One of Australia's contracts with a Perth gas distribution
company expired in October 2002, resulting in 19 MMcf/d of lower production.
Rising natural gas prices contributed $296 million to first-quarter natural gas
revenues. Correspondingly, the Company has seen a rise in oil and gas revenue
receivables.
Apache uses a variety of strategies to manage its exposure to
fluctuations in natural gas prices, including fixed-price physical contracts and
derivatives. Approximately 11 percent of both our first quarter 2003 and first
quarter 2002 domestic natural gas production were subject to long-term
fixed-price physical contracts. We continue to amortize the unrealized gains and
losses of derivative positions closed in October and November 2001, which were
negligible in the first quarter of 2003 . The following table shows the impact
on average prices of each of these items:
FOR THE QUARTER ENDED MARCH 31,
---------------------------------------
2003 2002
--------------- --------------
Fixed-price physical......................... $(.15) $.05
Derivatives.................................. (.17) -
Amortization................................. - .06
Crude Oil Revenues
The Company's oil production declined 341 barrels per day (b/d), which
reduced first-quarter crude oil revenues by $1 million. Production growth in the
Gulf Coast region, up 2,377 b/d, and Egypt, up 1,332 b/d, was offset by 2,502
b/d and 871 b/d declines in Australia and the Central region, respectively. The
Gulf Coast region's growth is attributable to the South Louisiana and BP
acquisitions discussed above. Egypt saw production growth in several
concessions. The declines in Australia and the Central region were distributed
among numerous fields. The 49 percent increase in oil price contributed $145
million to crude oil revenues. Correspondingly, the Company has seen a rise in
oil and gas revenue receivables.
Apache also manages its exposure to fluctuations in crude oil prices
using derivatives. We continue to amortize the unrealized gains and losses over
the original production life of derivative positions closed in October and
November 2001. The following table shows the impact on prices of each of these
items.
FOR THE QUARTER ENDED MARCH 31,
---------------------------------------
2003 2002
--------------- --------------
Derivatives.................................. $(1.61) $ -
Amortization................................. .03 .08
23
Operating Expenses
The table below presents a detail of our expenses.
FOR THE QUARTER ENDED MARCH 31,
-----------------------------------------
2003 2002
---------------- ---------------
(In millions)
Depreciation, depletion and amortization (DD&A):
Oil and gas property and equipment.................. $ 198 $ 197
Other assets........................................ 16 14
Asset retirement obligation accretion................. 5 -
International impairments............................. - 5
Lease operating costs (LOE)........................... 134 113
Gathering and transportation costs.................... 12 8
Severance and other taxes............................. 25 14
General and administrative expense (G&A).............. 28 25
Financing costs, net.................................. 26 26
------------- -------------
Total....................................... $ 444 $ 402
============= =============
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, estimates of proved reserve quantities
and future development and abandonment costs.
First-quarter 2003 full-cost DD&A expense of $198 million is mainly
comprised of the U.S., $97 million, Canada, $37 million, Egypt, $38 million and
Australia, $25 million. Overall, full-cost DD&A expense was relatively flat
compared to the same period last year. Egypt and Australia's DD&A expense
increased $3 million and $2 million, respectively, while Canada's DD&A expense
fell $3 million. U.S. DD&A expense was flat to the 2002 first quarter.
On a boe basis, our full-cost DD&A rate increased $.07 from $6.24 in
the first quarter of 2002 to $6.31 in 2003. The increase in the consolidated
rate is related to Australia and Egypt. The impact from Australia is related to
costs incurred for several long-lead development projects and higher finding
costs. The impact from Egypt is driven by higher finding and development costs.
Lease Operating Costs
LOE increased $22 million from last year's first quarter driven by
increases in North America. Acquisitions in Canada and the U.S. in the latter
half of last year and the close of the acquisition of the Gulf of Mexico
properties from BP contributed to the increase on an absolute basis. The rate
increased $.72 per Boe compared to the prior year quarter. Higher commodity
prices increased the cost of power, fuel, and ad valorem and property taxes in
North America. The Company also increased workover activity in the U.S., Canada
and Egypt.
Gathering and Transportation Costs
Apache sells oil and natural gas under two types of transactions, both
of which include a transportation charge. One is a netback arrangement, under
which Apache sells oil or natural gas at the wellhead and collects a price, net
of transportation incurred by the purchaser. Under the other arrangement, Apache
sells oil or natural gas at a specific delivery point, pays transportation to a
third-party carrier and receives from the purchaser a price with no
transportation deduction. In both the U.S. and Canada, Apache sells oil and
natural gas under both types of arrangements. In Egypt and Australia, oil and
natural gas are sold under the netback arrangement. Gathering and transportation
costs paid to third-party carriers and disclosed here vary based on the volume
and distance shipped, and the fee charged by the transporter, which may be price
sensitive.
These costs are primarily related to the transportation of natural gas
in our North American operations. During the first quarter of 2003, the costs
totaled $7 million in Canada and $ 5 million in the U.S. compared to $ 5 million
and $ 3 million in Canada and the U.S., respectively in the first quarter of
2002.
24
Severance and Other Taxes
Severance and other taxes are comprised primarily of severance taxes on
properties onshore and in state or provincial waters in the U.S. and Australia
and the Canadian Large Corporation Tax, Saskatchewan Capital Tax, Saskatchewan
Resource Surtax and Freehold Mineral Tax. Egyptian operations are not subject to
these various taxes.
In the first quarter of 2003, severance and other taxes totaled $25
million, comprised of U.S., $15 million, Australia, $7 million and Canada, $3
million. Overall, severance and other taxes increased $10 million from the first
quarter of 2002 with U.S. and Australia contributing $8 million and $2 million,
respectively. The increase in both the U.S. and Australia severance taxes were
primarily attributable to higher price-driven oil and gas production revenues.
The other tax components were relatively flat compared to the first quarter of
2002.
General and Administrative Expense
The Company's first-quarter 2003 G&A costs were $2 million, $.09 per
boe, higher than the year-ago quarter. The increase is related to higher overall
insurance costs following the events of September 11, 2001 and higher retirement
costs.
25
OIL AND GAS CAPITAL EXPENDITURES
FOR THE QUARTER ENDED MARCH 31,
---------------------------------
2003 2002
--------------- ---------------
(In thousands)
Exploration and development:
United States........................................... $ 87,280 $ 55,132
Canada.................................................. 165,047 82,245
Egypt................................................... 60,327 32,624
Australia............................................... 25,247 24,242
Other International..................................... 4,375 4,005
--------------- ---------------
$ 342,276 $ 198,248
=============== ===============
Capitalized Interest........................................ $ 11,232 $ 10,022
=============== ===============
Gas gathering, transmission and processing facilities....... $ 3,061 $ 7,646
=============== ===============
Acquisitions:
Oil and gas properties.................................. $ 544,371 $ 108
Gas gathering, transmission and processing facilities .. 5,484 -
Goodwill................................................ - -
--------------- ---------------
$ 549,855 $ 108
=============== ===============
CAPITAL RESOURCES
Apache's primary cash needs are for exploration, development and
acquisition of oil and gas properties, operating expenses, 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
three months of 2003 totaled $538 million, an increase of 162 percent from $205
million in the first three months of 2002. This increase reflects the impact of
higher prices on oil and gas production revenues.
Preferred Interests 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. These funds were used to pay
down debt which increased Apache's available borrowing capacity. 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 quarter of 2003, the
subsidiaries paid $3 million to investors, which is reflected as Preferred
Interests of Subsidiaries on the Statement of Consolidated Operations.
LIQUIDITY
The Company had $40 million in cash and cash equivalents on hand at
March 31, 2003, down from $52 million at December 31, 2002. Apache's ratio of
current assets to current liabilities at March 31, 2003 was 1.37 compared to
1.44 at December 31, 2002.
On January 22, 2003, the Company completed a public offering of 19.8
million shares of Apache common stock, adjusted for the five percent common
stock dividend and the two-for-one common stock split, including underwriters'
over-allotment option, for net
26
proceeds of approximately $554 million. The proceeds were used toward the
purchase of Apache's acquisition of producing properties in the U.K. North Sea
and the Gulf of Mexico from BP.
Apache believes that cash on hand, net cash generated from operations,
short-term investments, and unused committed borrowing capacity under its $1.5
billion global credit facility will be adequate to satisfy future financial
obligations and liquidity needs. The global credit facility includes a $750
million 364-day U.S. credit facility which we expect to extend on the same terms
for an additional one-year period at the end of May. As of March 31, 2003,
Apache's available borrowing capacity under its global credit facility was $1.5
billion.
Occasionally, the Company accesses capital markets to fund
acquisitions, repay debt, and enhance future liquidity. On May 8, 2003, we
priced a private offering of $350 million of 4.375 percent, 12-year, senior
unsecured notes. The notes are to be issued by Apache Finance Canada
Corporation, one of our subsidiaries, and guaranteed by us. We expect the sale
of the notes to close on May 15, 2003.
FUTURE TRENDS
Our objective is to build a company of lasting value by pursuing
profitable growth through 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
We seek 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 actively 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 and discoveries over the
last few years, including the recent properties acquired from BP, we have an
abundant inventory of exploitation opportunities.
Acquiring Properties to Which We Can Add Value
We seek to purchase reserves at appropriate prices by generally
avoiding auction processes, where we are competing against other buyers, and
attempting to time 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. The acquisition environment appears to be swinging our way as major
integrated companies shed non-core assets.
Investing in High-Potential Exploration Prospects
We seek 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 domestic
operations, which are more development oriented.
ITEM 3 - QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Major market risk exposure continues to be the pricing applicable to
our oil and gas production. Realized pricing is primarily driven by the
prevailing worldwide price for crude oil and spot prices applicable to our
United States and Canadian natural gas production. Historically, prices received
for oil and gas production have been volatile and unpredictable.
27
Apache sells all of its Egyptian crude oil and natural gas to the
Egyptian General Petroleum Corporation (EGPC) for U.S. dollars. Weak economic
conditions in Egypt continue to impact the timeliness of receipts from EGPC;
however, the situation has not deteriorated since year-end and Apache continues
to receive payments.
U.S. and Canadian energy markets continue to evolve into a single
energy market. In light of this ongoing transformation, we adopted the U.S.
dollar as our functional currency in Canada, effective October 1, 2002. The U.S.
dollar is now the functional currency for all of our foreign operations.
The information set forth under "Commodity Risk," "Interest Rate Risk"
and "Foreign Currency Risk" in Item 7A of our annual report on Form 10-K for the
year ended December 31, 2002, is incorporated herein by reference. Information
about market risks for the quarter ended March 31, 2003 does not differ
materially from our 2002 10-K disclosure except as noted below.
The Company considers its interest rate risk exposure to be minimal as
a result of fixing interest rates on approximately 95 percent of the Company's
debt. At March 31, 2003, total debt included $102 million of floating-rate debt.
As a result, Apache's annual interest costs in 2003 will fluctuate based on
short-term interest rates on approximately five percent of its total debt
outstanding at March 31, 2003. Additionally, our preferred interests of
subsidiaries of $437 million is subject to fluctuations in short-term interest
rates. The impact on annual cash flow of a 10 percent change in the floating
interest rate, including our preferred interests in subsidiaries, (approximately
25 basis points) would be approximately $1.4 million.
On March 31, 2003, the Company had open natural gas derivative
positions with a fair value of $(13.3) million. A 10 percent increase in natural
gas prices would change the fair value by $(59.3) million. A 10 percent decrease
in prices would change the fair value by $58.8 million. The Company also had
open oil price swap positions with a fair value of $(11.6) million. A 10 percent
increase in oil prices would change the fair value by $(50.7) million. A 10
percent decrease in oil prices would change the fair value by $50.7 million. See
Note 2 to the Company's consolidated financial statements for notional volumes
associated with the Company's derivative contracts.
ITEM 4 - CONTROLS AND PROCEDURES
G. Steven Farris, the Company's President, Chief Executive Officer and
Chief Operating Officer, and Roger B. Plank, the Company's Executive Vice
President and Chief Financial Officer, evaluated the effectiveness of our
disclosure controls and procedures within the last 90 days preceding the date of
this report. Based on that review and as of the date of that evaluation, the
Company's disclosure controls were found to be adequate, providing effective
means to insure that we timely and accurately disclose the information we are
required to disclose under applicable laws and regulations. Also, we made no
significant changes in internal controls or any other factors that could affect
our internal controls since our most recent internal controls evaluation.
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.
28
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, 2002 (filed with the SEC on March 25, 2003)
is incorporated herein by reference.
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
None
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None
ITEM 5. OTHER INFORMATION
During the quarterly period covered by this filing, the Company's Audit
Committee approved the engagement of Ernst & Young to act as the
Company's independent public auditors for the calendar year 2003,
including the annual financial statement audit.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
*12.1 - Statement of computation of ratio of earnings to
fixed charges and combined fixed charges and
preferred stock dividends.
31.1 - Certification of Chief Executive Officer.
31.2 - Certification of Chief Financial Officer.
32.1 - Certification of Chief Executive Officer and Chief
Financial Officer.
(b) Reports filed on Form 8-K
The following current reports on Form 8-K were filed during
the fiscal quarter ended March 31, 2003:
Item 5 - Other Events - dated January 13, 2003 (January 11,
2003), filed January 13, 2003
Apache filed a preliminary prospectus supplement for
offering to the public of up to 7,130,000 shares (14,973,000
shares adjusted for the five percent stock dividend and the
two-for-one common stock split) of Apache common stock, par
value $0.625 per share, registered pursuant to a registration
statement on Form S-3 (Registration No. 333-32580).
Apache announced the purchase (a) from BP Exploration
& Production, Inc. of BP's interests in 61 producing fields,
including 113 blocks, located in the Gulf of Mexico, and (b)
from BP Exploration Operating Company Limited of BP's
interests in two producing fields located in the North Sea.
-----------------------
* Previously filed.
29
Item 5 - Other Events - dated January 16, 2003, filed January
17, 2003
Apache filed a prospectus supplement for offering to
the public of up to 9,430,000 shares (19,803,000 shares
adjusted for the five percent stock dividend and two-for-one
common stock split) of Apache common stock, par value $0.625
per share, registered pursuant to registration statements on
Form S-3 (Registration Nos. 333-32580 and 333-75633).
30
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this amended report to be
signed on its behalf by the undersigned thereunto duly authorized.
APACHE CORPORATION
Dated: January 23, 2004 /s/ ROGER B. PLANK
-------------------------------------
Roger B. Plank
Executive Vice President and Chief
Financial Officer
Dated: January 23, 2004 /s/ THOMAS L. MITCHELL
-------------------------------------
Thomas L. Mitchell
Vice President and Controller
(Chief Accounting Officer)
EXHIBIT INDEX
*12.1 - Statement of computation of ratio of earnings to
fixed charges and combined fixed charges and
preferred stock dividends.
31.1 - Certification of Chief Executive Officer.
31.2 - Certification of Chief Financial Officer.
32.1 - Certification of Chief Executive Officer and Chief
Financial Officer.
------------
* Previously filed.