-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, K1eke/D5po+Ht0xaH7rdAYLM0EJBdqj1AmvQKvfZE1HXP8DyxEwHOijZAg0pnSAy KRjmNDt65s70L0AwmGQh4g== 0000950129-98-002046.txt : 19980514 0000950129-98-002046.hdr.sgml : 19980514 ACCESSION NUMBER: 0000950129-98-002046 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 4 CONFORMED PERIOD OF REPORT: 19980331 FILED AS OF DATE: 19980513 SROS: CSX SROS: NYSE FILER: COMPANY DATA: COMPANY CONFORMED NAME: APACHE CORP CENTRAL INDEX KEY: 0000006769 STANDARD INDUSTRIAL CLASSIFICATION: CRUDE PETROLEUM & NATURAL GAS [1311] IRS NUMBER: 410747868 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 001-04300 FILM NUMBER: 98617435 BUSINESS ADDRESS: STREET 1: 2000 POST OAK BLVD STREET 2: ONE POST OAK CENTER STE 100 CITY: HOUSTON STATE: TX ZIP: 77056-4400 BUSINESS PHONE: 7132966000 MAIL ADDRESS: STREET 1: 2000 POST OAK BLVD STREET 2: STE 100 CITY: HOUSTON STATE: TX ZIP: 77056-4400 FORMER COMPANY: FORMER CONFORMED NAME: APACHE OIL CORP DATE OF NAME CHANGE: 19660830 10-Q 1 APACHE CORPORATION 1 SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-Q [ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the Quarterly Period Ended March 31, 1998 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 2000 Post Oak Boulevard, Houston, TX 77056-4400 ---------------------------------------- ---------- (Address of Principal Executive Offices) (Zip Code) 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, 1998...............................................98,597,542 2 PART I - FINANCIAL INFORMATION ITEM 1 - FINANCIAL STATEMENTS APACHE CORPORATION AND SUBSIDIARIES STATEMENT OF CONSOLIDATED INCOME (UNAUDITED)
FOR THE QUARTER ENDED MARCH 31, ------------------------------ 1998 1997 ------------ ------------ (In thousands, except per common share data) REVENUES: Oil and gas production revenues $ 209,949 $ 262,395 Gathering, processing and marketing revenues 32,096 60,094 Equity in income (loss) of affiliates (873) 193 Other revenues 4,769 (854) ------------ ------------ 245,941 321,828 ------------ ------------ OPERATING EXPENSES: Depreciation, depletion and amortization 98,372 89,318 Operating costs 56,551 59,972 Gathering, processing and marketing costs 31,203 59,354 Administrative, selling and other 9,966 9,142 Financing costs: Interest expense 30,144 23,641 Amortization of deferred loan costs 1,262 1,327 Capitalized interest (10,850) (8,640) Interest income (823) (368) ------------ ------------ 215,825 233,746 ------------ ------------ INCOME BEFORE INCOME TAXES 30,116 88,082 Provision for income taxes 12,760 35,205 ------------ ------------ NET INCOME $ 17,356 $ 52,877 ============ ============ NET INCOME PER COMMON SHARE: Basic $ .18 $ .59 ============ ============ Diluted $ .18 $ .56 ============ ============
The accompanying notes to consolidated financial statements are an integral part of this statement. 1 3 APACHE CORPORATION AND SUBSIDIARIES STATEMENT OF CONSOLIDATED CASH FLOWS (UNAUDITED)
FOR THE QUARTER ENDED MARCH 31, ------------------------------ 1998 1997 ------------ ------------ (In thousands) CASH FLOWS FROM OPERATING ACTIVITIES: Net income $ 17,356 $ 52,877 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation, depletion and amortization 98,372 89,318 Amortization of deferred loan costs 1,262 1,327 Provision for deferred income taxes 5,265 26,782 Cash distributions in excess of (less than) earnings of affiliates 852 (167) Changes in operating assets and liabilities: Decrease in receivables 43,431 35,341 Increase in advances to oil and gas ventures and other (692) (6,688) Decrease in deferred charges and other (2,289) 1,301 Decrease in product inventory 37 55 Decrease in payables (41,653) (7,556) Increase (decrease) in accrued expenses (9,895) 101 Decrease in advance from gas purchaser (4,507) (2,389) Decrease in deferred credits and noncurrent liabilities (1,647) (3,504) ------------ ------------ Net cash provided by operating activities 105,892 186,798 ------------ ------------ CASH FLOWS FROM INVESTING ACTIVITIES: Additions to property and equipment (192,565) (175,537) Non-cash portion of net oil and gas property additions (3,255) (10,894) Proceeds received from sales of property and equipment 107,549 750 Proceeds received from sale of assets held for resale 62,998 -- Other, net (6,583) (2,290) ------------ ------------ Net cash used in investing activities (31,856) (187,971) ------------ ------------ CASH FLOWS FROM FINANCING ACTIVITIES: Long-term borrowings 228,750 255,512 Payments on long-term debt (186,621) (244,532) Dividends paid (6,531) (6,304) Common stock activity, net 834 3,869 Treasury stock activity, net -- (363) Cost of debt and equity transactions (281) (297) ------------ ------------ Net cash provided by financing activities 36,151 7,885 ------------ ------------ NET INCREASE IN CASH AND CASH EQUIVALENTS 110,187 6,712 CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR 9,686 13,161 ------------ ------------ CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 119,873 $ 19,873 ============ ============
The accompanying notes to consolidated financial statements are an integral part of this statement. 2 4 APACHE CORPORATION AND SUBSIDIARIES CONSOLIDATED BALANCE SHEET (Unaudited)
(In thousands) MARCH 31, DECEMBER 31, 1998 1997 ------------ ------------ ASSETS CURRENT ASSETS: Cash and cash equivalents $ 119,873 $ 9,686 Receivables 180,707 224,025 Inventories 37,895 36,041 Advances to oil and gas ventures and other 16,286 15,579 Assets held for resale -- 62,998 ------------ ------------ 354,761 348,329 ------------ ------------ PROPERTY AND EQUIPMENT: Oil and gas, on the basis of full cost accounting: Proved properties 5,529,865 5,530,991 Unproved properties and properties under development, not being amortized 517,125 453,556 International concession rights, not being amortized 79,000 79,000 Gas gathering, transmission and processing facilities 278,790 246,049 Other 75,011 71,067 ------------ ------------ 6,479,791 6,380,663 Less: Accumulated depreciation, depletion and amortization (2,746,404) (2,647,478) ------------ ------------ 3,733,387 3,733,185 ------------ ------------ OTHER ASSETS: Deferred charges and other 53,675 57,119 ------------ ------------ $ 4,141,823 $ 4,138,633 ============ ============
The accompanying notes to consolidated financial statements are an integral part of this statement. 3 5 APACHE CORPORATION AND SUBSIDIARIES CONSOLIDATED BALANCE SHEET (Unaudited)
(In thousands) MARCH 31, DECEMBER 31, 1998 1997 ------------ ------------ LIABILITIES AND SHAREHOLDERS' EQUITY CURRENT LIABILITIES: Current maturities of long-term debt $ 11,800 $ 17,200 Accounts payable 138,596 178,361 Accrued operating expense 17,546 20,153 Accrued exploration and development 79,200 82,392 Accrued compensation and benefits 7,440 17,600 Accrued interest 22,922 20,598 Other accrued expenses 8,027 7,479 ------------ ------------ 285,531 343,783 ------------ ------------ LONG-TERM DEBT 1,393,330 1,501,380 ------------ ------------ DEFERRED CREDITS AND OTHER NONCURRENT LIABILITIES: Income taxes 360,235 355,619 Advances from gas purchaser 150,039 154,546 Other 52,516 54,128 ------------ ------------ 562,790 564,293 ------------ ------------ SHAREHOLDERS' EQUITY: Common stock, $1.25 par, 215,000,000 shares authorized, 99,771,253 and 94,478,788 shares issued, respectively 124,714 118,098 Paid-in capital 1,237,943 1,085,063 Retained earnings 572,435 561,981 Treasury stock, at cost, 1,173,711 and 1,174,247 shares, respectively (15,499) (15,506) Accumulated other comprehensive income (19,421) (20,459) ------------ ------------ 1,900,172 1,729,177 ------------ ------------ $ 4,141,823 $ 4,138,633 ============ ============
The accompanying notes to consolidated financial statements are an integral part of this statement. 4 6 APACHE CORPORATION AND SUBSIDIARIES STATEMENT OF CONSOLIDATED SHAREHOLDERS' EQUITY (UNAUDITED)
COMPREHENSIVE COMMON PAID-IN RETAINED (In thousands) INCOME STOCK CAPITAL EARNINGS --------------- ------------ -------------- ------------ BALANCE AT DECEMBER 31, 1996 $ 114,030 $ 1,002,540 $ 432,588 Comprehensive income Net income $ 52,877 - - 52,877 Foreign currency translation adjustments, net of applicable income tax benefit of $766 (1,277) - - - -------------- Comprehensive income $ 51,600 ============== Dividends ($.07 per common share) - - (6,318) Common shares issued 252 3,617 - Treasury shares purchased - - - ---------- ------------- ---------- BALANCE AT MARCH 31, 1997 $ 114,282 $ 1,006,157 $ 479,147 ========== ============= ========== BALANCE AT DECEMBER 31, 1997 $ 118,098 $ 1,085,063 $ 561,981 Comprehensive income Net income $ 17,356 - - 17,356 Foreign currency translation adjustments, net of applicable income taxes of $623 1,038 - - - -------------- Comprehensive income $ 18,394 ============== Dividends ($.07 per common share) - - (6,902) Common shares issued 6,616 152,880 - Treasury shares issued - - - ---------- ------------- ---------- BALANCE AT MARCH 31, 1998 $ 124,714 $ 1,237,943 $ 572,435 ========== ============= ========== ACCUMULATED OTHER TOTAL TREASURY COMPREHENSIVE SHAREHOLDERS' (In thousands) STOCK INCOME EQUITY ------------ --------------- -------------- BALANCE AT DECEMBER 31, 1996 $ (15,152) $ (15,490) $ 1,518,516 Comprehensive income Net income - - 52,877 Foreign currency translation adjustments, net of applicable income tax benefit of $766 - (1,277) (1,277) Comprehensive income Dividends ($.07 per common share) - - (6,318) Common shares issued - - 3,869 Treasury shares purchased (363) - (363) ---------- -------------- ------------- BALANCE AT MARCH 31, 1997 $ (15,515) $ (16,767) $ 1,567,304 ========== ============== ============= BALANCE AT DECEMBER 31, 1997 $ (15,506) $ (20,459) $ 1,729,177 Comprehensive income Net income - - 17,356 Foreign currency translation adjustments, net of applicable income taxes of $623 - 1,038 1,038 Comprehensive income Dividends ($.07 per common share) - - (6,902) Common shares issued - - 159,496 Treasury shares issued 7 - 7 ---------- -------------- ------------- BALANCE AT MARCH 31, 1998 $ (15,499) $ (19,421) $ 1,900,172 ========== ============== =============
The accompanying notes to consolidated financial statements are an integral part of this statement. 5 7 APACHE CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) These financial statements have been prepared by Apache Corporation (Apache or the Company) without audit, pursuant to the rules and regulations of the Securities and Exchange Commission, and reflect all adjustments which are, in the opinion of management, necessary for a fair statement of the results for the interim periods, on a basis consistent with the annual audited financial statements. All such adjustments are of a normal recurring nature. Certain information, accounting policies, and footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles have been omitted pursuant to such rules and regulations, although the Company believes that the disclosures are adequate to make the information presented not misleading. These financial statements should be read in conjunction with the financial statements and the summary of significant accounting policies and notes thereto included in the Company's most recent annual report on Form 10-K. 1. DIVESTITURES During the first quarter of 1998 Apache sold 18.9 million barrels of reserves from largely marginal North American properties, collecting proceeds of $107.5 million. In addition, the Company completed the sale of a 10 percent interest in the East Spar gas field and related production facilities in Western Australia for a total sales price of $63 million in cash. 2. NON-CASH INVESTING AND FINANCING ACTIVITIES A summary of non-cash investing and financing activities is presented below: In March 1998, Apache acquired certain oil and gas property interests for approximately 0.2 million shares of Apache common stock. In January 1998, approximately 90 percent, or $155.6 million, of the Company's 6-percent convertible subordinated debentures was converted into approximately 5.1 million shares of Apache common stock at a conversion price of $30.68 per share. The following table provides supplemental disclosure of cash flow information:
FOR THE QUARTER ENDED MARCH 31, --------------------- 1998 1997 -------- ------- (In thousands) Cash paid during the period for: Interest (net of amounts capitalized) $16,969 $10,736 Income taxes (net of refunds) 7,495 8,418
6 8 3. DEBT In January 1998, approximately 90 percent, or $155.6 million, of the Company's 6-percent convertible subordinated debentures was converted into approximately 5.1 million shares of Apache common stock at a conversion price of $30.68 per share. The remaining $16.9 million of principal amount of the 6-percent debentures was redeemed for $17.4 million in cash, plus accrued and unpaid interest. The Company recorded a $.8 million loss on the early extinguishment of debt in January 1998. In February 1998, Apache issued $150 million principal amount, $148.2 million net of discount, of senior unsecured 7-percent notes maturing on February 1, 2018. The notes are not redeemable prior to maturity. 4. COMPREHENSIVE INCOME In the first quarter of 1998, the Company adopted Statement of Financial Accounting Standards (SFAS) No. 130, "Reporting Comprehensive Income," which requires companies to report the components of comprehensive income in a financial statement with the same prominence as other financial statements. The Company has chosen to disclose comprehensive income, which is comprised of net income and foreign currency translation adjustments, in the accompanying statement of consolidated shareholders' equity. This information is shown for all periods presented. 5. 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, --------------------------------------------------------------------------- 1998 1997 ------------------------------------ ------------------------------------ INCOME SHARES PER SHARE INCOME SHARES PER SHARE ----------- ---------- ----------- ----------- ----------- ---------- (In thousands, except per share amounts) BASIC: Net income $ 17,356 97,581 $ .18 $ 52,877 90,143 $ .59 ========= ========= EFFECT OF DILUTIVE SECURITIES: Stock option plans - 391 - 489 3.93% convertible notes - - 520 2,778 6% convertible subordinated debentures 460 937 1,698 5,623 DILUTED: --------- ------ ---------- ------ Net income including assumed conversions $ 17,816 98,909 $ .18 $ 55,095 99,033 $ .56 ========= ====== ========= ========== ====== =========
7 9 ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS OVERVIEW Apache's results of operations and financial position for the first quarter of 1998 were significantly impacted by the following factors: Commodity Prices - Apache's average realized price for natural gas decreased $.61 per thousand cubic feet (Mcf) from $2.59 per Mcf in the first quarter of 1997 to $1.98 per Mcf in 1998, negatively impacting revenues by $32.2 million. The average realized oil price decreased $7.40 per barrel from $21.47 per barrel in the first quarter of 1997 to $14.07 per barrel in 1998, reducing revenues by $41.9 million. Operations - Daily oil production increased 24 percent for the first quarter of 1998 when compared to the same period last year. The increase favorably impacted revenues by $19.3 million. Daily gas production rose four percent for the first quarter of 1998 when compared to the same period last year, increasing revenues by $4.5 million. In addition to increasing production, first quarter earnings were positively impacted by a $3.4 million, or six percent, decrease in operating costs from the first quarter of 1997. RESULTS OF OPERATIONS Apache reported 1998 first quarter net income of $17.4 million versus $52.9 million in the prior year. Basic net income per common share of $.18 for the first quarter of 1998 was significantly lower than in 1997. Higher oil and gas production and lower operating costs were offset by a sharp decline in oil and gas prices, higher depreciation, depletion and amortization (DD&A) expense and higher financing costs. For the first quarter of 1998, revenues decreased 24 percent to $245.9 million as compared to $321.8 million in 1997, driven by a 20 percent decrease in crude oil and natural gas production revenues. Crude oil, including natural gas liquids, contributed 48 percent and natural gas contributed 52 percent of total oil and gas production revenues. 8 10 Volume and price information for the Company's first quarter 1998 and 1997 oil and gas production is summarized in the following table:
FOR THE QUARTER ENDED MARCH 31, ---------------------------------- INCREASE 1998 1997 (DECREASE) ------------- ------------- -------------- Natural Gas Volume - Mcf per day: United States 467,123 484,962 (4%) Canada 96,520 78,852 22% Egypt 450 471 (4%) Australia 46,973 21,403 119% ------------ ------------ Total 611,066 585,688 4% ============ ============ Average Natural Gas price - Per Mcf: United States $ 2.18 $ 2.77 (21%) Canada 1.24 1.69 (27%) Egypt 1.78 3.02 (41%) Australia 1.60 1.87 (14%) Total 1.98 2.59 (24%) Oil Volume - Barrels per day: United States 39,634 40,575 (2%) Canada 2,075 1,983 5% Egypt 29,252 17,254 70% Australia 7,130 3,041 134% ------------ ------------ Total 78,091 62,853 24% ============ ============ Average Oil price - Per barrel: United States $ 14.33 $ 21.78 (34%) Canada 15.75 21.51 (27%) Egypt 13.60 20.42 (33%) Australia 14.06 23.22 (39%) Total 14.07 21.47 (34%) Natural Gas Liquids (NGL) Volume - Barrels per day: United States 1,910 1,863 3% Canada 604 642 (6%) ------------ ------------ Total 2,514 2,505 - ============ ============ Average NGL Price - Per barrel: United States $ 9.14 $ 18.36 (50%) Canada 7.26 19.30 (62%) Total 8.68 18.60 (53%)
Natural gas sales for the first quarter of 1998 totaled $109.1 million, 20 percent lower than those recorded in the first quarter of 1997. Natural gas production increased 25.4 million cubic feet per day (MMcf/d), or four percent, on a worldwide basis, favorably impacting revenue by $4.5 million. In Canada and Australia, the increase in natural gas production was principally due to development activities and the impact of tactical acquisitions during late 1997. 9 11 Average realized natural gas prices decreased 24 percent, negatively affecting revenue by $32.2 million. The majority of this decrease, and the resulting impact on natural gas sales, was realized in the U.S. where the Company sold 76 percent of its worldwide gas production at an average price of $2.18 per Mcf, $.59 per Mcf lower than 1997. In addition, the Company's natural gas sales were negatively impacted by lower spot prices in Canada where the Company sold 16 percent of its worldwide gas production at an average price of $1.24 per Mcf, compared to $1.69 per Mcf in 1997. The Company periodically engages in hedging activities, including fixed price physical and financial contracts. The net result of these activities increased the Company's realized gas price by $.07 per Mcf during the first quarter of 1998 and decreased the realized price by $.02 per Mcf in the first quarter of 1997. The Company's crude oil sales for the first quarter of 1998 totaled $98.9 million, a 19 percent decrease from the first quarter of 1997, due to lower average realized prices, which were partially offset by production increases. First quarter 1998 oil production increased 24 percent compared to the prior year primarily as a result of increases in Egyptian and Australian production. Egyptian oil production accounted for 37 percent of the Company's worldwide oil production, compared to 27 percent in the first quarter of 1997, resulting in an increase in revenues of $14.7 million. The increase in Egyptian production was primarily a result of drilling and development activity. In addition, Australian oil production increased 134 percent in the first quarter of 1998 due to the acquisition of all the capital stock of three companies (subsidiaries of Mobil Exploration & Producing Australia Pty Ltd) owning interests in certain oil and gas properties and production facilities offshore Western Australia on November 20, 1997. The Company's realized price for sales of crude oil in the first quarter of 1998 decreased $7.40 per barrel, or 34 percent, resulting in a decrease in revenue of $41.9 million compared to the same period in 1997. Revenue from the sale of natural gas liquids totaled $2.0 million for the first quarter of 1998, as compared to $4.2 million for the same period in 1997. A 53 percent decline in realized prices contributed to the decrease in revenues. OTHER REVENUES AND OPERATING EXPENSES During the first quarter of 1998, Apache's gas gathering, processing and marketing revenues decreased 47 percent to $32.1 million, due primarily to lower volumes compared to the prior year. Although revenues decreased with respect to these activities, there was a decrease in gas gathering, processing and marketing costs. Therefore, higher margins were realized for the first quarter of 1998 compared to the same period in 1997. Other revenues for the first quarter of 1998 included $4 million in settlement proceeds from the resolution of issues with a gas purchaser. This represents a significant increase over other revenues for the same period in the prior year due to a 1997 loss associated with declines in Canadian and Australian currency exchange rates. The Company's DD&A expense for the first quarter of 1998 totaled $98.4 million, compared to $89.3 million for the comparable period in 1997. On an equivalent barrel basis, full cost DD&A expense decreased $.15 per barrel of oil equivalent (boe), from $5.73 per boe to $5.58 per boe, in the first quarter of 1998 compared to the same period in 1997. The decrease is a function of first quarter reserve additions along with the favorable effects of North American property sales and exchanges. 10 12 Operating costs, including lease operating expense and severance taxes, decreased six percent from $60.0 million in the first quarter of 1997 to $56.6 million for the same period in 1998. For the first quarter of 1998, lease operating expense, excluding severance and other taxes, totaled $48.2 million, compared to $49.3 million for the comparable period in 1997. On an equivalent barrel basis, lease operating expense declined from $3.36 per boe in the first quarter of 1997 to $2.94 per boe in the first quarter of 1998. Domestic per unit costs were significantly reduced due to lower Gulf Coast region repairs, maintenance, power and fuel costs and lower Offshore region repairs and maintenance costs. In Egypt, there were significant reductions in oil trucking expense which contributed to the decrease. Australian per unit costs were less than 1997 due to incremental production with minimal lease operating expense increases. Administrative, selling and other costs (G&A) in the first quarter of 1998 increased $.8 million, or nine percent, from a year ago. On an equivalent barrel basis, G&A expenses declined slightly to $.61 per boe, for the first three months of 1998 as compared to $.62 per boe for the same period in 1997. G&A continues to trend toward lower levels due to the Company's ongoing efforts to control costs. Net financing costs for the first quarter of 1998 increased $3.8 million, or 24 percent, from the prior year due to higher gross interest expense, mitigated by lower amortization of deferred loan costs and higher capitalized interest. Gross interest expense increased $6.5 million due to a higher average outstanding debt balance and a higher weighted average interest rate. MARKET RISK COMMODITY RISK The Company's major market risk exposure continues to be the pricing applicable to its oil and gas production. Realized pricing is primarily driven by the prevailing worldwide price for crude oil and spot prices applicable to its United States and Canadian natural gas production. Historically, prices received for oil and gas production have been volatile and unpredictable. Price volatility is expected to continue. CASH FLOW, LIQUIDITY AND CAPITAL RESOURCES CAPITAL COMMITMENTS Apache's primary cash needs are for exploration, development and acquisition of oil and gas properties, repayment of principal and interest on outstanding debt, and payment of dividends. The Company generally funds its exploration and development activities through internally generated cash flow. Apache budgets capital expenditures based upon projected cash flow and routinely adjusts its capital expenditures in response to changes in oil and natural gas prices and corresponding changes in cash flow. The Company is not in a position to predict future product prices. 11 13 Capital Expenditures - A summary of oil and gas capital expenditures during the first three months of 1998 and 1997 is presented below (in millions):
FOR THE QUARTER ENDED MARCH 31, ----------------------------- 1998 1997 ------------ ------------ Exploration and development: United States $ 60.2 $ 92.2 Canada 24.1 15.5 Egypt 32.7 30.6 Australia 19.1 11.1 Other international 9.8 6.5 ------------ ------------ Subtotal 145.9 155.9 Capitalized Interest 10.8 8.6 ------------ ------------ Total $ 156.7 $ 164.5 ============ ============ Acquisition of oil and gas properties $ 9.1 $ 6.8 ============ ============
In North America, Apache completed 47 producing wells out of 66 wells drilled during the first three months of 1998, while internationally the Company discovered four new producers out of 11 wells drilled. Worldwide, the Company was drilling or completing an additional 105 wells as of March 31, 1998. In addition, Apache completed 113 production enhancement projects, including 57 recompletions, during the first three months of 1998. Property acquisitions totaled $9.1 million in the first three months of 1998, primarily representing tactical acquisitions of properties in the Company's existing focus areas. CAPITAL RESOURCES AND LIQUIDITY Net Cash Provided by Operating Activities - Apache's net cash provided by operating activities during the first quarter of 1998 totaled $105.9 million, a decrease of 43 percent from $186.8 million in the first quarter of 1997. This decrease was due primarily to lower product prices, partially offset by higher production, as compared to last year. Long-Term Borrowings - In January 1998, approximately 90 percent, or $155.6 million, of the Company's 6-percent convertible subordinated debentures was converted into approximately 5.1 million shares of Apache common stock at a conversion price of $30.68 per share. The remaining $16.9 million of principal amount of the 6-percent debentures was redeemed for $17.4 million in cash, plus accrued and unpaid interest. The Company recorded a $.8 million loss on the early extinguishment of debt in January 1998. In February 1998, Apache issued $150 million principal amount, $148.2 million net of discount, of senior unsecured 7-percent notes maturing on February 1, 2018. The notes are not redeemable prior to maturity. Liquidity - The Company had $119.9 million in cash and cash equivalents on hand at March 31, 1998, up from $9.7 million at December 31, 1997. Apache's ratio of current assets to current liabilities at March 31, 1998 was 1.24:1 compared to 1.01:1 at December 31, 1997. Apache believes that cash on hand, net cash generated from operations and unused committed borrowing capacity under its global credit facility will be adequate to satisfy the Company's financial obligations to meet future liquidity needs for at least the next two fiscal years. As of March 31, 1998, Apache's available borrowing capacity under its global credit facility was $774 million. 12 14 IMPACT OF THE YEAR 2000 ISSUE The "Year 2000 Issue" is the result of computer software being written using two digits rather than four to define the applicable year. Any of the Company's computer programs that have date-sensitive software may recognize a date using "00" as the year 1900 rather than the year 2000. If left unremedied, this could result in a system failure or miscalculations causing disruptions of operations, including, among other things, a temporary inability to process transactions, send oil and gas revenue disbursement checks, or engage in similar normal business activities. The Company is in the process of replacing significant portions of its software to more effectively and efficiently meet its business needs. Replacement computer systems selected by the Company will properly recognize dates beyond December 31, 1999. The Company presently believes that with conversions to new software, the Year 2000 Issue will be eliminated. However, if such conversions are not made, or are not completed timely, the Year 2000 Issue could have a material impact on the operations of the Company. The Company plans to replace substantially all of its existing systems within 12 months or not later than March 31, 1999. The date on which the Company plans to complete installation of its new system is based on management's best estimates, which were derived using numerous assumptions of future events including the continued availability of certain resources. However, there can be no guarantee that these estimates will be achieved and actual results could differ materially from those plans. Specific factors that might cause such material differences include, but are not limited to, the availability and cost of personnel trained in this area, and similar uncertainties. FUTURE TRENDS Apache's strategy is to increase its oil and gas reserves, production, cash flow and earnings by continuing to explore on and develop its inventory of existing projects and making carefully targeted acquisitions of new assets. Robust oil and gas prices early in 1997 gave way to weaker prices later in the year and on into 1998. Crude oil prices have fallen near their lowest level of the 1990's. While lower prices have negatively impacted Apache's first quarter 1998 earnings and cash from operations (see "Market Risk-Commodity Risk" above), Apache has taken steps to improve its financial liquidity for the purpose of better positioning the Company to fund potential opportunities that might result from industry adversity. Specific actions that have been or may be taken which should impact the Company's activities in 1998 and beyond, include: 1. Selling and trading non-strategic properties to upgrade the Company's property portfolio and reduce debt. 2. Curtailing projected exploration and development expenditures. 3. Calling for redemption of $172.5 million of debentures of which 90 percent or, $155.6 million, were converted to equity in January 1998. The above steps help strengthen Apache's financial position and add liquidity. Should property acquisition prices fall from the premium price commanded in 1997 to what management believes to be more reasonable levels, Apache may seek to undertake a significant acquisition. Alternatively, if drilling costs retreat further from the levels to which they rose in 1997, Apache may expand its drilling activity. In either event, Apache will continue to review the level of its capital expenditures quarterly in light of financial results, product prices, drilling costs and prevailing industry conditions. Even at a reduced capital expenditure level, Apache expects to remain an active operator in North America drilling moderate-risk wells. 13 15 Apache's international properties should continue to grow in importance with respect to Apache's financial results and future growth prospects. Apache's international efforts in the coming year will be focused on development of its discoveries in Egypt, offshore Western Australia, offshore The People's Republic of China and offshore the Ivory Coast, and exploration efforts on the Company's concessions in Egypt and in Poland. While international exploration is recognized as higher risk than Apache's North American activities, the Company believes it offers potential for greater rewards and significant reserve additions. Apache also believes that reserve additions in these international areas may be made through higher risk exploration and through improved production practices and recovery techniques. Under the rules of the Securities and Exchange Commission, companies that follow the full cost method of accounting are required to perform country-by-country quarterly "ceiling test" calculations. Under this test, capitalized costs of oil and gas properties, net of accumulated DD&A and deferred income taxes, may not exceed the present value of estimated future net cash flows from proved oil and gas reserves discounted at 10 percent, net of related tax effects, plus the lower of cost or fair value of unproved properties included in the costs being amortized. Application of these rules during periods of relatively low oil and gas prices, even if of short-term duration, may result in writedowns. The Company did not have a writedown due to ceiling test limitations as of March 31, 1998. 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 on certain events, risks and uncertainties that may be outside the Company's control which could cause actual results to differ materially from those anticipated. Some of these include, but are not limited to, 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 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. Future oil and gas prices also could affect results of operations and cash flows. Although Apache makes use of futures contracts, swaps, options and fixed-price physical contracts to mitigate risk, fluctuations in oil and gas prices may affect the Company's financial position and results of operations. 14 16 PART II - OTHER INFORMATION ITEM 1. LEGAL PROCEEDINGS The information set forth in Note 10 to the Consolidated Financial Statements contained in the Company's Form 10-K for the year ended December 31, 1997 (filed with the Securities and Exchange Commission on March 20, 1998) is incorporated herein by reference. ITEM 2. CHANGES IN SECURITIES None ITEM 3. DEFAULTS UPON SENIOR SECURITIES None ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS None. ITEM 5. OTHER INFORMATION None. ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K (a) Exhibits 27 - Financial Data Schedules (b) Reports filed on Form 8-K The following current report on Form 8-K was filed during the fiscal quarter ended March 31, 1998: January 29, 1998 - Item 5. Other Events Offering to the public of $150 million principal amount of Apache's 7% Senior Notes due 2018, issuable under an indenture dated February 15, 1996, and supplemented November 5, 1996, and registered pursuant to Apache's Registration Statement on Form S-3 (File No. 333-44731). 15 17 SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. APACHE CORPORATION Dated: May 12, 1998 /s/ Roger B. Plank ------------------------------------------ Roger B. Plank Vice President and Chief Financial Officer Dated: May 12, 1998 /s/ Thomas L. Mitchell ------------------------------------------ Thomas L. Mitchell Vice President and Controller (Chief Accounting Officer) 18 EXHIBIT INDEX
EXHIBIT NUMBER DESCRIPTION - ------- ----------- 27 FINANCIAL DATA SCHEDULES
EX-27 2 FINANCIAL DATA SCHEDULE
5 1,000 3-MOS DEC-31-1998 MAR-31-1998 119,873 0 180,707 0 37,895 354,761 6,479,791 2,746,404 4,141,823 285,531 1,393,330 0 0 124,714 1,775,458 4,141,823 209,949 245,941 186,126 186,126 9,966 0 19,733 30,166 12,760 17,356 0 0 0 17,356 .18 .18
EX-27.1 3 RESTATED FINANCIAL DATA SCHEDULES - 1995 & 1996
5 1,000 12-MOS 3-MOS 6-MOS 9-MOS DEC-31-1995 DEC-31-1996 DEC-31-1996 DEC-31-1996 DEC-31-1995 MAR-31-1996 JUN-30-1996 SEP-30-1996 13,633 19,591 16,151 13,235 0 0 0 0 175,949 179,323 191,579 182,810 0 0 0 0 9,764 11,853 13,648 15,687 208,336 221,877 236,190 234,498 4,377,104 4,498,750 4,994,781 5,198,527 (1,975,543) 2,044,415 2,118,560 2,198,674 2,681,450 2,746,007 3,180,162 3,297,259 230,349 213,948 249,575 256,881 1,072,076 1,137,697 1,156,781 1,225,794 98,124 98,274 113,655 113,748 0 0 0 0 0 0 0 0 993,681 1,006,843 1,334,923 1,361,085 2,681,450 2,746,007 3,180,162 3,297,259 653,144 171,921 363,355 670,869 750,702 206,470 430,126 672,510 500,131 124,373 317,347 485,438 600,470 156,783 317,347 485,438 0 8,858 17,129 26,049 0 0 0 0 88,057 16,102 31,780 44,994 33,143 25,406 65,288 116,029 12,936 9,751 25,196 45,800 20,207 15,655 40,092 70,229 0 0 0 0 0 0 0 0 0 0 0 0 20,207 15,655 40,092 70,229 .28 .20 .49 .83 .28 .20 .48 .81
EX-27.2 4 RESTATED FINANCIAL DATA SCHEDULES - 1996 & 1997
5 1,000 12-MOS 3-MOS 6-MOS 9-MOS DEC-31-1996 DEC-31-1997 DEC-31-1997 DEC-31-1997 DEC-31-1996 MAR-31-1997 JUN-30-1997 SEP-30-1997 13,161 19,873 14,182 25,596 0 0 0 0 234,646 199,166 201,431 220,820 0 0 0 0 13,963 16,047 17,664 30,191 268,156 248,155 249,250 287,798 5,381,313 5,551,657 5,750,873 5,937,101 2,281,252 2,366,731 2,458,790 2,554,317 3,432,430 3,493,616 3,599,782 3,726,414 309,657 288,509 268,680 282,851 1,235,706 1,248,686 1,349,099 1,312,595 114,030 114,282 114,369 114,522 0 0 0 0 0 0 0 0 1,404,486 1,453,022 1,474,279 1,501,539 3,432,430 3,493,616 3,599,782 3,726,414 976,032 322,489 481,128 714,196 977,151 321,828 580,669 857,417 679,439 208,644 398,774 596,352 679,439 208,644 398,774 596,352 35,911 9,142 18,083 26,790 0 0 0 0 61,606 15,960 32,101 51,048 200,195 88,082 131,711 183,227 78,768 35,205 53,088 73,819 121,427 52,877 78,623 109,408 0 0 0 0 0 0 0 0 0 0 0 0 121,427 52,877 78,623 109,408 1.42 .59 .88 1.22 1.38 .56 .84 1.17
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