10-Q 1 h96753e10-q.txt APACHE CORPORATION - DATED 3/31/2002 UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-Q [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the Quarterly Period Ended March 31, 2002 OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the Transition Period from ___________________ to _____________________ Commission File Number 1-4300 APACHE CORPORATION ------------------------------------------------------ (Exact Name of Registrant as Specified in Its Charter) Delaware 41-0747868 ------------------------------- -------------------- (State or Other Jurisdiction of (I.R.S. Employer Incorporation or Organization) Identification Number) Suite 100, One Post Oak Central 77056-4400 2000 Post Oak Boulevard, Houston, TX ---------- ---------------------------------------- (Zip Code) (Address of Principal Executive Offices) Registrant's Telephone Number, Including Area Code: (713) 296-6000 Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. YES X NO ----- ----- Number of shares of Registrant's common stock, outstanding as of March 31, 2002.........................137,412,151 PART I - FINANCIAL INFORMATION ITEM 1 - FINANCIAL STATEMENTS APACHE CORPORATION AND SUBSIDIARIES STATEMENT OF CONSOLIDATED OPERATIONS (UNAUDITED)
FOR THE QUARTER ENDED MARCH 31, --------------------------------- 2002 2001 ------------ ------------ (In thousands, except per common share data) REVENUES: Oil and gas production revenues ............... $ 521,729 $ 801,598 Other revenues (losses) ....................... (1,393) (6,455) ------------ ------------ 520,336 795,143 ------------ ------------ OPERATING EXPENSES: Depreciation, depletion and amortization ...... 211,039 172,530 International impairments ..................... 4,600 -- Lease operating costs ......................... 112,577 90,107 Severance and other taxes ..................... 14,499 21,293 Administrative, selling and other ............. 25,352 20,376 Financing costs: Interest expense ........................... 36,882 44,712 Amortization of deferred loan costs ........ 334 502 Capitalized interest ....................... (10,022) (15,085) Interest income ............................ (1,169) (877) ------------ ------------ 394,092 333,558 ------------ ------------ PREFERRED INTERESTS OF SUBSIDIARIES .............. 3,533 -- ------------ ------------ INCOME BEFORE INCOME TAXES ....................... 122,711 461,585 Provision for income taxes .................... 42,039 179,384 ------------ ------------ NET INCOME ....................................... 80,672 282,201 Preferred stock dividends ..................... 4,908 4,908 ------------ ------------ INCOME ATTRIBUTABLE TO COMMON STOCK .............. $ 75,764 $ 277,293 ============ ============ NET INCOME PER COMMON SHARE: Basic ......................................... $ 0.55 $ 2.03 ============ ============ Diluted ....................................... $ 0.55 $ 1.95 ============ ============
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, ------------------------------- 2002 2001 ------------ ------------ (In thousands) CASH FLOWS FROM OPERATING ACTIVITIES: Net income ................................................................. $ 80,672 $ 282,201 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation, depletion and amortization ............................. 211,039 172,530 Provision for deferred income taxes .................................. (348) 98,920 International impairments ............................................ 4,600 -- Amortization of derivative (gains)/losses ............................ (7,089) -- Other ................................................................ 334 3,376 Changes in operating assets and liabilities, net of effects of acquisitions: (Increase) decrease in receivables ................................... (28,973) 44,477 (Increase) decrease in advances to oil and gas ventures and other .... (18,533) (20,672) (Increase) decrease in product inventory ............................. 28 (107) (Increase) decrease in deferred charges and other .................... (582) (1,310) Increase (decrease) in payables ...................................... 12,774 58,364 Increase (decrease) in accrued expenses .............................. (42,464) 15,095 Increase (decrease) in advances from gas purchasers .................. (3,903) (3,547) Increase (decrease) in deferred credits and noncurrent liabilities ... (2,290) (6,782) ------------ ------------ Net cash provided by operating activities ........................ 205,265 642,545 ------------ ------------ CASH FLOWS FROM INVESTING ACTIVITIES: Additions to property and equipment ........................................ (208,111) (344,982) Non-cash portion of net oil and gas property additions ..................... (36,973) 65,274 Acquisition of Fletcher subsidiaries ....................................... -- (465,018) Acquisition of Repsol YPF properties ....................................... -- (446,933) Proceeds from sales of oil and gas properties .............................. 796 128,663 Proceeds from sale of short-term investments ............................... 17,006 -- Other, net ................................................................. (3,954) (39,333) ------------ ------------ Net cash used in investing activities ............................ (231,236) (1,102,329) ------------ ------------ CASH FLOWS FROM FINANCING ACTIVITIES: Long-term borrowings ....................................................... 377,939 1,176,159 Payments on long-term debt ................................................. (344,331) (645,800) Dividends paid ............................................................. (18,256) (4,870) Common stock activity, net ................................................. 9,390 4,153 Treasury stock activity, net ............................................... (856) 98 Cost of debt and equity transactions ....................................... (18) (294) ------------ ------------ Net cash provided by financing activities ........................ 23,868 529,446 ------------ ------------ NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS .......................... (2,103) 69,662 CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR ................................ 35,625 37,173 ------------ ------------ CASH AND CASH EQUIVALENTS AT END OF PERIOD .................................... $ 33,522 $ 106,835 ============ ============
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, 2002 2001 -------------- -------------- (In thousands) ASSETS CURRENT ASSETS: Cash and cash equivalents ....................................... $ 33,522 $ 35,625 Receivables ..................................................... 433,726 404,793 Inventories ..................................................... 101,995 102,536 Advances to oil and gas ventures and other ...................... 70,373 51,845 Short-term investments .......................................... 85,914 102,950 -------------- -------------- 725,530 697,749 -------------- -------------- PROPERTY AND EQUIPMENT: Oil and gas, on the basis of full cost accounting: Proved properties ............................................ 11,614,142 11,390,692 Unproved properties and properties under development, not being amortized .......................... 822,661 839,921 Gas gathering, transmission and processing facilities ........... 756,233 748,675 Other ........................................................... 172,938 168,915 -------------- -------------- 13,365,974 13,148,203 Less: Accumulated depreciation, depletion and amortization ..... (5,350,050) (5,135,131) -------------- -------------- 8,015,924 8,013,072 -------------- -------------- OTHER ASSETS: Goodwill ........................................................ 188,747 188,812 Deferred charges and other ...................................... 34,124 34,023 -------------- -------------- $ 8,964,325 $ 8,933,656 ============== ==============
The accompanying notes to consolidated financial statements are an integral part of this statement. 3 APACHE CORPORATION AND SUBSIDIARIES CONSOLIDATED BALANCE SHEET (UNAUDITED)
MARCH 31, DECEMBER 31, 2002 2001 ------------ ------------ (In thousands) LIABILITIES AND SHAREHOLDERS' EQUITY CURRENT LIABILITIES: Accounts payable .................................................................... $ 192,537 $ 179,778 Accrued operating expense ........................................................... 38,299 50,584 Accrued exploration and development ................................................. 138,955 175,943 Accrued compensation and benefits ................................................... 15,175 30,947 Accrued interest .................................................................... 38,364 28,592 Accrued income taxes ................................................................ 16,915 40,030 Other ............................................................................... 23,403 16,584 ------------ ------------ 463,648 522,458 ------------ ------------ LONG-TERM DEBT ......................................................................... 2,277,965 2,244,357 ------------ ------------ DEFERRED CREDITS AND OTHER NONCURRENT LIABILITIES: Income taxes ........................................................................ 985,832 991,723 Advances from gas purchasers ........................................................ 136,124 140,027 Other ............................................................................... 172,099 175,925 ------------ ------------ 1,294,055 1,307,675 ------------ ------------ PREFERRED INTERESTS OF SUBSIDIARIES .................................................... 440,700 440,683 ------------ ------------ SHAREHOLDERS' EQUITY: Preferred stock, no par value, 5,000,000 shares authorized - Series B, 5.68% Cumulative Preferred Stock, 100,000 shares issued and outstanding ......................................... 98,387 98,387 Series C, 6.5% Conversion Preferred Stock, 138,458 and 138,482 shares issued and outstanding, respectively ........................... 208,171 208,207 Common stock, $1.25 par, 215,000,000 shares authorized, 141,434,298 and 141,171,793 shares issued, respectively .......................... 176,793 176,465 Paid-in capital ..................................................................... 2,823,533 2,812,648 Retained earnings ................................................................... 1,398,886 1,336,478 Treasury stock, at cost, 4,022,147 and 4,068,614 common shares, respectively ..................................................................... (110,736) (111,885) Accumulated other comprehensive loss ................................................ (107,077) (101,817) ------------ ------------ 4,487,957 4,418,483 ------------ ------------ $ 8,964,325 $ 8,933,656 ============ ============
The accompanying notes to consolidated financial statements are an integral part of this statement. 4 APACHE CORPORATION AND SUBSIDIARIES STATEMENT OF CONSOLIDATED SHAREHOLDERS' EQUITY (UNAUDITED)
SERIES B SERIES C COMPREHENSIVE PREFERRED PREFERRED COMMON PAID-IN RETAINED (In thousands) INCOME STOCK STOCK STOCK CAPITAL EARNINGS ------------- --------- --------- ------- -------- --------- BALANCE AT DECEMBER 31, 2000 ............... $ 98,387 $ 208,207 $ 173,939 $ 2,157,370 $ 1,226,531 Comprehensive income: Net income ............................ $ 282,201 -- -- -- -- 282,201 Currency translation adjustments ...... (56,515) -- -- -- -- -- Unrealized loss on derivatives, net of income tax benefit of $31,427 .... (48,991) -- -- -- -- -- Unrealized loss on marketable securities, net of applicable income tax benefit of $163 ................. (316) -- -- -- -- -- ----------- Comprehensive income .................... $ 176,379 =========== Preferred dividends ..................... -- -- -- -- (4,908) Common shares issued .................... -- -- 2,399 102,618 -- Treasury shares issued, net ............. -- -- -- 974 -- ----------- ----------- ----------- ----------- ----------- BALANCE AT MARCH 31, 2001 .................. $ 98,387 $ 208,207 $ 176,338 $ 2,260,962 $ 1,503,824 =========== =========== =========== =========== =========== BALANCE AT DECEMBER 31,2001 ................ $ 98,387 $ 208,207 $ 176,465 $ 2,812,648 $ 1,336,478 Comprehensive income: Net income ............................ $ 80,672 -- -- -- -- 80,672 Currency translation adjustments ...... (1,115) -- -- -- -- -- Reclassification of unrealized gains into earnings: Derivatives, 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 ............................. -- -- -- -- (4,908) Common ($.10 per share) ............... -- -- -- -- (13,356) Common shares issued .................... -- (36) 328 10,409 -- Treasury shares issued, net ............. -- -- -- 595 -- Other ................................... -- -- -- (119) -- ----------- ----------- ----------- ----------- ----------- BALANCE AT MARCH 31, 2002 .................. $ 98,387 $ 208,171 $ 176,793 $ 2,823,533 $ 1,398,886 =========== =========== =========== =========== =========== ACCUMULATED OTHER TOTAL TREASURY COMPREHENSIVE SHAREHOLDERS' (In thousands) STOCK INCOME (LOSS) EQUITY -------- -------------- ------------- BALANCE AT DECEMBER 31, 2000 ............... $ (69,562) $ (40,232) $ 3,754,640 Comprehensive income: Net income ............................ -- -- 282,201 Currency translation adjustments ...... -- (56,515) (56,515) Unrealized loss on derivatives, net of income tax benefit of $31,427 .... -- (48,991) (48,991) Unrealized loss on marketable securities, net of applicable income tax benefit of $163 ................. -- (316) (316) Comprehensive income .................... Preferred dividends ..................... -- -- (4,908) Common shares issued .................... -- -- 105,017 Treasury shares issued, net ............. 663 -- 1,637 ----------- ----------- ----------- BALANCE AT MARCH 31, 2001 .................. $ (68,899) $ (146,054) $ 4,032,765 =========== =========== =========== BALANCE AT DECEMBER 31,2001 ................ $ (111,885) $ (101,817) $ 4,418,483 Comprehensive income: Net income ............................ -- -- 80,672 Currency translation adjustments ...... -- (1,115) (1,115) Reclassification of unrealized gains into earnings: Derivatives, net of income tax benefit of $3,069 ................. -- (4,020) (4,020) Marketable securities, net of income tax benefit of $67 ......... -- (125) (125) Comprehensive income .................... Dividends: Preferred ............................. -- -- (4,908) Common ($.10 per share) ............... -- -- (13,356) Common shares issued .................... -- -- 10,701 Treasury shares issued, net ............. 1,149 -- 1,744 Other ................................... -- -- (119) ----------- ----------- ----------- BALANCE AT MARCH 31, 2002 .................. $ (110,736) $ (107,077) $ 4,487,957 =========== =========== ===========
The accompanying notes to consolidated financial statements are an integral part of this statement. 5 APACHE CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) These financial statements have been prepared by Apache Corporation (Apache or the Company) without audit, pursuant to the rules and regulations of the Securities and Exchange Commission, and reflect all adjustments which are, in the opinion of management, necessary for a fair statement of the results for the interim periods, on a basis consistent with the annual audited financial statements. All such adjustments are of a normal recurring nature. Certain information, accounting policies, and footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States have been omitted pursuant to such rules and regulations, although the Company believes that the disclosures are adequate to make the information presented not misleading. These financial statements should be read in conjunction with the financial statements and the summary of significant accounting policies and notes thereto included in the Company's most recent annual report on Form 10-K. In September 2001, the Company declared a 10 percent stock dividend to shareholders of record on December 31, 2001. Quarterly share and per share information for 2001 have been restated to reflect the stock dividend. 1. ACQUISITIONS In March 2001, the Company completed two significant acquisitions. Apache acquired substantially all of Repsol YPF's (Repsol) oil and gas concession interests in Egypt for approximately $447 million in cash, and subsidiaries of Fletcher Challenge Energy (Fletcher) for approximately $465 million in cash and 1.8 million restricted shares of Apache common stock issued to Shell Overseas Holdings (valued at $55.49 per share). The following unaudited pro forma information shows the effect on the Company's consolidated results of operations as if the Fletcher and Repsol acquisitions occurred on January 1, 2001. The pro forma information is based on numerous assumptions and is not necessarily indicative of future results of operations.
FOR THE QUARTER ENDED MARCH 31, 2001 ----------------------------- AS REPORTED PRO FORMA ----------- --------- (In thousands, except per common share data) Revenues .............................. $ 795,143 $ 902,098 Net income ............................ 282,201 304,683 Preferred stock dividends ............. 4,908 4,908 Income attributable to common stock ... 277,293 299,775 Net income per common share: Basic ............................. $ 2.03 $ 2.17 Diluted ........................... 1.95 2.08 Average common shares outstanding ..... 136,268 137,975
2. DERIVATIVE INSTRUMENTS AND FIXED-PRICE PHYSICAL CONTRACTS Due to the uncertainty of how the collapse of Enron Corp. would impact the derivative markets, Apache closed out all of its derivative positions and certain fixed-price physical contracts during October and November 2001 (the "Unwind"). The Unwind of Apache's hedging activities and acquired derivative contracts resulted in a net unrealized gain recorded to accumulated other comprehensive income. This deferred gain will be reclassified into earnings over the remaining periods of the original hedge contracts (approximately two years). The remaining unrealized gain related to these contracts was $13 million and $20 million at March 31, 2002 and December 31, 2001, respectively. As part of the Unwind, Apache also terminated the gas price swap associated with its advances from gas purchasers, receiving proceeds of $78 million. These proceeds will be realized into earnings over the original life of the contracts and effectively increase the original contract's fixed prices by approximately 51 percent. As of March 6 31, 2002 and December 31, 2001, the Company had an unamortized gain of $76 million and $78 million related to the Unwind of the contracts. 3. 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, --------------------------------------------------------------------------- 2002 2001 ------------------------------------ ------------------------------------ INCOME SHARES PER SHARE INCOME SHARES PER SHARE ---------- ---------- ---------- ---------- ---------- ---------- (In thousands, except per share amounts) BASIC: Income attributable to common stock .... $ 75,764 137,293 $ .55 $ 277,293 136,268 $ 2.03 ========== ========== EFFECT OF DILUTIVE SECURITIES: Stock options and other ................ -- 1,532 -- 1,338 Series C Preferred Stock ............... -- -- 3,488 6,243 ---------- ---------- ---------- ---------- DILUTED: Income attributable to common stock, including assumed conversions ......... $ 75,764 138,825 $ .55 $ 280,781 143,849 $ 1.95 ========== ========== ========== ========== ========== ==========
4. SUPPLEMENTAL CASH FLOW INFORMATION The following table provides supplemental disclosure of cash flow information:
FOR THE QUARTER ENDED MARCH 31, ------------------------------- 2002 2001 ----------- ----------- (In thousands) Cash paid during the period for: Interest (net of amounts capitalized) ...... $ 17,088 $ 23,945 Income taxes (net of refunds) .............. 32,656 33,306
5. SHORT-TERM INVESTMENTS At December 31, 2001, Apache had $103 million of U.S. Government Agency Notes, $17 million of which were designated as "available for sale" securities. In January 2002, the Company sold all of the "available for sale" securities for approximately $17 million. The remaining $86 million is designated as "held to maturity" and is carried at amortized cost. These notes pay interest at rates from 6.25 percent to 6.375 percent and mature on October 15, 2002. 6. IMPAIRMENTS During the first quarter of 2002, the Company recorded a nonrecurring $5 million impairment ($3 million after tax) of unproved property costs in Poland. The Company will continue to evaluate its operations in Poland, which may result in additional impairments during 2002. 7. SUBSEQUENT EVENTS In April 2002, the Company issued $400 million principal amount, $397 million net of discount, of senior unsecured 6.25-percent notes maturing on April 15, 2012. The notes are redeemable, as a whole or in part, at our option, subject to a make-whole premium. The proceeds were used to repay a portion of the Company's outstanding commercial paper and for general operations. 7 8. BUSINESS SEGMENT INFORMATION Apache has five reportable segments which are primarily in the business of natural gas and crude oil exploration and production. The Company evaluates performance based on profit or loss from oil and gas operations before income and expense items incidental to oil and gas operations and income taxes. Apache's reportable segments are managed separately because of their geographic locations. Financial information by operating segment is presented below:
UNITED OTHER STATES CANADA EGYPT AUSTRALIA INTERNATIONAL TOTAL ------------ ------------ ------------ ------------ ------------- ------------ (IN THOUSANDS) FOR THE QUARTER ENDED MARCH 31, 2002 Oil and Gas Production Revenues ........... $ 220,252 $ 107,824 $ 117,777 $ 74,446 $ 1,430 $ 521,729 ============ ============ ============ ============ ============ ============ Operating Income (Loss) (1) .............. $ 52,604 $ 35,947 $ 60,870 $ 33,635 $ (4,042) $ 179,014 ============ ============ ============ ============ ============ Other Income (Expense): Other revenues (losses) ................ (1,393) Administrative, selling and other ...... (25,352) Financing costs, net ................... (26,025) Preferred interests of subsidiaries .... (3,533) ------------ Income Before Income Taxes ................ $ 122,711 ============ Total Assets .............................. $ 4,089,657 $ 2,213,727 $ 1,597,582 $ 896,415 $ 166,944 $ 8,964,325 ============ ============ ============ ============ ============ ============ FOR THE QUARTER ENDED MARCH 31, 2001 Oil and Gas Production Revenues ........... $ 532,563 $ 142,970 $ 76,729 $ 49,336 $ -- $ 801,598 ============ ============ ============ ============ ============ ============ Operating Income (Loss) (1) ............... $ 353,465 $ 91,025 $ 45,744 $ 27,445 $ (11) $ 517,668 ============ ============ ============ ============ ============ Other Income (Expense): Other revenues (losses) ................ (6,455) Administrative, selling and other ...... (20,376) Financing costs, net ................... (29,252) ------------ Income Before Income Taxes ................ $ 461,585 ============ Total Assets .............................. $ 4,209,502 $ 2,155,500 $ 1,443,559 $ 862,151 $ 185,582 $ 8,856,294 ============ ============ ============ ============ ============ ============
(1) Operating income (loss) consists of oil and gas production revenues less depreciation, depletion and amortization, international impairments, lease operating costs and severance and other taxes. 9. NEW ACCOUNTING PRONOUNCEMENTS The Company adopted Statement of Financial Accounting Standards (SFAS) No. 142 "Goodwill and Other Intangible Assets" effective January 1, 2002. SFAS 142 addresses financial accounting and reporting for acquired goodwill and other intangible assets and supersedes APB Opinion No. 17 "Intangible Assets". As a result of this pronouncement, goodwill is no longer subject to amortization. Rather, goodwill is subject to at least an annual assessment for impairment by applying a fair-value-based test. Apache had goodwill of $189 million at March 31, 2002, representing the excess of the purchase price over the estimated fair value of the assets acquired and liabilities assumed in the Fletcher and Repsol acquisitions. The initial fair-value-based goodwill impairment assessment is required to be completed by June 30, 2002. The Company is currently evaluating the impairment test and its impact on the consolidated financial statements, if any. In June 2001, the FASB issued SFAS No. 143 "Accounting for Asset Retirement Obligations." SFAS No. 143 addresses financial accounting and reporting for obligations associated with the retirement of tangible long-lived assets and the associated asset retirement costs. This statement requires companies to record the fair value of legal obligations associated with the retirement of tangible long-lived assets in the period in which it is incurred. The liability is capitalized as part of the related long-lived asset's carrying amount. Over time, accretion of the liability is recognized as an operating expense and the capitalized cost is depreciated over the expected useful life of the 8 related asset. SFAS No. 143 is effective for fiscal years beginning after June 15, 2002, with earlier adoption encouraged. The Company's asset retirement obligations relate primarily to the dismantlement of offshore platforms. The Company expects to adopt this new standard effective January 1, 2003. The Company is currently evaluating the impact of adopting this new standard and accordingly has not quantified the impact on the consolidated financial statements. 10. SUPPLEMENTAL GUARANTOR INFORMATION Apache Finance Pty Ltd. (Apache Finance Australia) and Apache Finance Canada Corporation (Apache Finance Canada) are subsidiaries of Apache, which have issuances of publicly traded securities and require the following condensed consolidating financial statements be provided as an alternative to filing separate financial statements. Each of the companies presented in the condensed consolidating financial statements has been fully consolidated in Apache Corporation's consolidated financial statements. As such, the condensed consolidating financial statements should be read in conjunction with the financial statements of Apache Corporation and subsidiaries and notes thereto of which this note is an integral part. 9 APACHE CORPORATION AND SUBSIDIARIES CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS FOR THE QUARTER ENDED MARCH 31, 2002
ALL OTHER APACHE APACHE SUBSIDIARIES APACHE APACHE FINANCE FINANCE OF APACHE CORPORATION NORTH AMERICA AUSTRALIA CANADA CORPORATION ------------ ------------- ------------ ------------ ------------- (IN THOUSANDS) REVENUES: Oil and gas production revenues ............. $ 158,928 $ -- $ -- $ -- $ 402,822 Equity in net income (loss) of affiliates ... 68,616 4,502 7,480 14,438 (8,752) Other revenues (losses) ..................... 185 -- -- -- (1,578) ------------ ------------ ------------ ------------ ------------ 227,729 4,502 7,480 14,438 392,492 ------------ ------------ ------------ ------------ ------------ OPERATING EXPENSES: Depreciation, depletion and amortization .... 53,704 -- -- -- 157,335 International impairments ................... -- -- -- -- 4,600 Lease operating costs ....................... 50,967 -- -- -- 101,631 Severance and other taxes ................... 6,632 -- -- 9 7,858 Administrative, selling and other ........... 21,475 -- -- -- 3,877 Financing costs, net ........................ 15,683 -- 4,512 10,229 (4,399) ------------ ------------ ------------ ------------ ------------ 148,461 -- 4,512 10,238 270,902 ------------ ------------ ------------ ------------ ------------ PREFERRED INTERESTS OF SUBSIDIARIES ............ -- -- -- -- 3,533 ------------ ------------ ------------ ------------ ------------ INCOME (LOSS) BEFORE INCOME TAXES .............. 79,268 4,502 2,968 4,200 118,057 Provision (benefit) for income taxes ........ (1,404) -- (1,534) (4,464) 49,441 ------------ ------------ ------------ ------------ ------------ NET INCOME ..................................... 80,672 4,502 4,502 8,664 68,616 Preferred stock dividends ................... 4,908 -- -- -- -- ------------ ------------ ------------ ------------ ------------ INCOME ATTRIBUTABLE TO COMMON STOCK ............ $ 75,764 $ 4,502 $ 4,502 $ 8,664 $ 68,616 ============ ============ ============ ============ ============ RECLASSIFICATIONS & ELIMINATIONS CONSOLIDATED ----------------- ------------ (IN THOUSANDS) REVENUES: Oil and gas production revenues ............. $ (40,021) $ 521,729 Equity in net income (loss) of affiliates ... (86,284) -- Other revenues (losses) ..................... -- (1,393) ------------ ------------ (126,305) 520,336 ------------ ------------ OPERATING EXPENSES: Depreciation, depletion and amortization .... -- 211,039 International impairments ................... -- 4,600 Lease operating costs ....................... (40,021) 112,577 Severance and other taxes ................... -- 14,499 Administrative, selling and other ........... -- 25,352 Financing costs, net ........................ -- 26,025 ------------ ------------ (40,021) 394,092 ------------ ------------ PREFERRED INTERESTS OF SUBSIDIARIES ............ -- 3,533 ------------ ------------ INCOME (LOSS) BEFORE INCOME TAXES .............. (86,284) 122,711 Provision (benefit) for income taxes ........ -- 42,039 ------------ ------------ NET INCOME ..................................... (86,284) 80,672 Preferred stock dividends ................... -- 4,908 ------------ ------------ INCOME ATTRIBUTABLE TO COMMON STOCK ............ $ (86,284) $ 75,764 ============ ============
10 APACHE CORPORATION AND SUBSIDIARIES CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS FOR THE QUARTER ENDED MARCH 31, 2001
APACHE APACHE APACHE APACHE FINANCE FINANCE CORPORATION NORTH AMERICA AUSTRALIA CANADA -------------- -------------- -------------- -------------- (IN THOUSANDS) REVENUES: Oil and gas production revenues ............... $ 549,905 $ -- $ -- $ -- Equity in net income (loss) of affiliates ..... 69,121 2,047 3,040 16,764 Other revenues (losses) ....................... 529 -- 3,078 -- -------------- -------------- -------------- -------------- 619,555 2,047 6,118 16,764 -------------- -------------- -------------- -------------- OPERATING EXPENSES: Depreciation, depletion and amortization ...... 102,821 -- -- -- Lease operating costs ......................... 57,519 -- -- -- Severance and other taxes ..................... 18,659 -- -- -- Administrative, selling and other ............. 18,033 -- -- -- Financing costs, net .......................... 17,384 -- 4,582 6,609 -------------- -------------- -------------- -------------- 214,416 -- 4,582 6,609 -------------- -------------- -------------- -------------- INCOME (LOSS) BEFORE INCOME TAXES ................ 405,139 2,047 1,536 10,155 Provision (benefit) for income taxes .......... 122,938 -- (511) (2,882) -------------- -------------- -------------- -------------- NET INCOME ....................................... 282,201 2,047 2,047 13,037 Preferred stock dividends ..................... 4,908 -- -- -- -------------- -------------- -------------- -------------- INCOME ATTRIBUTABLE TO COMMON STOCK .............. $ 277,293 $ 2,047 $ 2,047 $ 13,037 ============== ============== ============== ============== ALL OTHER SUBSIDIARIES OF APACHE RECLASSIFICATIONS CORPORATION & ELIMINATIONS CONSOLIDATED -------------- ----------------- -------------- (IN THOUSANDS) REVENUES: Oil and gas production revenues ............... $ 420,526 $ (168,833) $ 801,598 Equity in net income (loss) of affiliates ..... (4,720) (86,252) -- Other revenues (losses) ....................... (10,062) -- (6,455) -------------- -------------- -------------- 405,744 (255,085) 795,143 -------------- -------------- -------------- OPERATING EXPENSES: Depreciation, depletion and amortization ...... 69,709 -- 172,530 Lease operating costs ......................... 201,421 (168,833) 90,107 Severance and other taxes ..................... 2,634 -- 21,293 Administrative, selling and other ............. 2,343 -- 20,376 Financing costs, net .......................... 677 -- 29,252 -------------- -------------- -------------- 276,784 (168,833) 333,558 -------------- -------------- -------------- INCOME (LOSS) BEFORE INCOME TAXES ................ 128,960 (86,252) 461,585 Provision (benefit) for income taxes .......... 59,839 -- 179,384 -------------- -------------- -------------- NET INCOME ....................................... 69,121 (86,252) 282,201 Preferred stock dividends ..................... -- -- 4,908 -------------- -------------- -------------- INCOME ATTRIBUTABLE TO COMMON STOCK .............. $ 69,121 $ (86,252) $ 277,293 ============== ============== ==============
11 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 debt activity, net ........................... 667,662 -- 45 476 Dividends paid ......................................... (18,256) -- -- -- Common stock activity, net ............................. 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 debt activity, net ........................... (89,261) (545,314) 33,608 Dividends paid ......................................... -- -- (18,256) Common stock activity, net ............................. 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 ============== ============== ==============
12 APACHE CORPORATION AND SUBSIDIARIES CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS FOR THE QUARTER ENDED MARCH 31, 2001
APACHE APACHE APACHE APACHE FINANCE FINANCE CORPORATION NORTH AMERICA AUSTRALIA CANADA -------------- -------------- -------------- -------------- (IN THOUSANDS) CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES ....................................... $ 564,946 $ -- $ (1,550) $ (8) -------------- -------------- -------------- -------------- CASH FLOWS FROM INVESTING ACTIVITIES: Additions to property and equipment .............. (150,819) -- -- -- Acquisitions ..................................... -- -- -- -- Proceeds from sales of oil and gas properties .... 81,434 -- -- -- Investment in subsidiaries, net .................. (894,794) (5,568) (5,568) (250,880) Other, net ....................................... (1,782) -- -- -- -------------- -------------- -------------- -------------- NET CASH USED IN INVESTING ACTIVITIES .............. (965,961) (5,568) (5,568) (250,880) -------------- -------------- -------------- -------------- CASH FLOWS FROM FINANCING ACTIVITIES: Long-term debt activity, net ..................... 468,535 -- 1,552 250,888 Dividends paid ................................... (4,870) -- -- -- Common stock activity, net ....................... 4,153 5,568 5,568 -- Treasury stock activity, net ..................... 98 -- -- -- Cost of debt and equity transactions ............. (294) -- -- -- -------------- -------------- -------------- -------------- NET CASH PROVIDED BY FINANCING ACTIVITIES .......... 467,622 5,568 7,120 250,888 -------------- -------------- -------------- -------------- NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS ................................. 66,607 -- 2 -- CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR ................................ 5,257 -- -- -- -------------- -------------- -------------- -------------- CASH AND CASH EQUIVALENTS AT END OF PERIOD .................................... $ 71,864 $ -- $ 2 $ -- ============== ============== ============== ============== ALL OTHER SUBSIDIARIES OF APACHE RECLASSIFICATIONS CORPORATION & ELIMINATIONS CONSOLIDATED -------------- ----------------- -------------- (IN THOUSANDS) CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES ....................................... $ 79,157 $ -- $ 642,545 -------------- -------------- -------------- CASH FLOWS FROM INVESTING ACTIVITIES: Additions to property and equipment .............. (128,889) -- (279,708) Acquisitions ..................................... (911,951) -- (911,951) Proceeds from sales of oil and gas properties .... 47,229 -- 128,663 Investment in subsidiaries, net .................. (256,448) 1,413,258 -- Other, net ....................................... (37,551) -- (39,333) -------------- -------------- -------------- NET CASH USED IN INVESTING ACTIVITIES .............. (1,287,610) 1,413,258 (1,102,329) -------------- -------------- -------------- CASH FLOWS FROM FINANCING ACTIVITIES: Long-term debt activity, net ..................... 700,239 (890,855) 530,359 Dividends paid ................................... -- -- (4,870) Common stock activity, net ....................... 511,267 (522,403) 4,153 Treasury stock activity, net ..................... -- -- 98 Cost of debt and equity transactions ............. -- -- (294) -------------- -------------- -------------- NET CASH PROVIDED BY FINANCING ACTIVITIES .......... 1,211,506 (1,413,258) 529,446 -------------- -------------- -------------- NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS ................................. 3,053 -- 69,662 CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR ................................ 31,916 -- 37,173 -------------- -------------- -------------- CASH AND CASH EQUIVALENTS AT END OF PERIOD .................................... $ 34,969 $ -- $ 106,835 ============== ============== ==============
13 APACHE CORPORATION AND SUBSIDIARIES CONDENSED CONSOLIDATING BALANCE SHEET AS OF MARCH 31, 2002
APACHE APACHE APACHE APACHE FINANCE FINANCE CORPORATION NORTH AMERICA AUSTRALIA CANADA ------------- ------------- ------------- ------------- (IN THOUSANDS) ASSETS CURRENT ASSETS: Cash and cash equivalents .................... $ 564 $ -- $ 2 $ -- Receivables .................................. 78,019 -- -- -- Inventories .................................. 18,198 -- -- -- Advances to oil and gas ventures and others .. 19,938 -- -- -- Short-term investments ....................... -- -- -- -- ------------- ------------- ------------- ------------- 116,719 -- 2 -- ------------- ------------- ------------- ------------- PROPERTY AND EQUIPMENT, NET .................... 3,086,035 -- -- -- ------------- ------------- ------------- ------------- OTHER ASSETS: Intercompany receivable, net ................. 1,429,083 -- (25) (251,493) Goodwill, net ................................ -- -- -- -- Equity in affiliates ......................... 2,048,416 196,882 462,520 1,095,202 Deferred charges and other ................... 27,378 -- -- 2,541 ------------- ------------- ------------- ------------- $ 6,707,631 $ 196,882 $ 462,497 $ 846,250 ============= ============= ============= ============= LIABILITIES AND SHAREHOLDERS' EQUITY CURRENT LIABILITIES: Accounts payable ............................. $ 76,325 $ -- $ -- $ 23 Other accrued expenses ....................... 112,748 -- 2,709 6,827 ------------- ------------- ------------- ------------- 189,073 -- 2,709 6,850 ------------- ------------- ------------- ------------- LONG-TERM DEBT ................................. 1,046,090 -- 268,660 296,996 ------------- ------------- ------------- ------------- DEFERRED CREDITS AND OTHER NONCURRENT LIABILITIES: Income taxes ................................. 691,312 -- (5,754) 77 Advances from gas purchasers ................. 136,124 -- -- -- Other ........................................ 157,075 -- -- -- ------------- ------------- ------------- ------------- 984,511 -- (5,754) 77 ------------- ------------- ------------- ------------- PREFERRED INTERESTS OF SUBSIDIARIES ............ -- -- -- -- ------------- ------------- ------------- ------------- COMMITMENTS AND CONTINGENCIES SHAREHOLDERS' EQUITY ........................... 4,487,957 196,882 196,882 542,327 ------------- ------------- ------------- ------------- $ 6,707,631 $ 196,882 $ 462,497 $ 846,250 ============= ============= ============= ============= ALL OTHER SUBSIDIARIES OF APACHE RECLASSIFICATIONS CORPORATION & ELIMINATIONS CONSOLIDATED ------------- ----------------- ------------- (IN THOUSANDS) ASSETS CURRENT ASSETS: Cash and cash equivalents .................... $ 32,956 $ -- $ 33,522 Receivables .................................. 355,707 -- 433,726 Inventories .................................. 83,797 -- 101,995 Advances to oil and gas ventures and others .. 50,435 -- 70,373 Short-term investments ....................... 85,914 -- 85,914 ------------- ------------- ------------- 608,809 -- 725,530 ------------- ------------- ------------- PROPERTY AND EQUIPMENT, NET .................... 4,929,889 8,015,924 ------------- ------------- ------------- OTHER ASSETS: Intercompany receivable, net ................. (1,177,565) -- -- Goodwill, net ................................ 188,747 -- 188,747 Equity in affiliates ......................... (818,513) (2,984,507) -- Deferred charges and other ................... 4,205 -- 34,124 ------------- ------------- ------------- $ 3,735,572 $ (2,984,507) $ 8,964,325 ============= ============= ============= LIABILITIES AND SHAREHOLDERS' EQUITY CURRENT LIABILITIES: Accounts payable ............................. $ 116,189 $ -- $ 192,537 Other accrued expenses ....................... 148,827 -- 271,111 ------------- ------------- ------------- 265,016 -- 463,648 ------------- ------------- ------------- LONG-TERM DEBT ................................. 666,219 -- 2,277,965 ------------- ------------- ------------- DEFERRED CREDITS AND OTHER NONCURRENT LIABILITIES: Income taxes ................................. 300,197 -- 985,832 Advances from gas purchasers ................. -- -- 136,124 Other ........................................ 15,024 -- 172,099 ------------- ------------- ------------- 315,221 -- 1,294,055 ------------- ------------- ------------- PREFERRED INTERESTS OF SUBSIDIARIES ............ 440,700 -- 440,700 ------------- ------------- ------------- COMMITMENTS AND CONTINGENCIES SHAREHOLDERS' EQUITY ........................... 2,048,416 (2,984,507) 4,487,957 ------------- ------------- ------------- $ 3,735,572 $ (2,984,507) $ 8,964,325 ============= ============= =============
14 APACHE CORPORATION AND SUBSIDIARIES CONDENSED CONSOLIDATING BALANCE SHEET AS OF DECEMBER 31, 2001
APACHE APACHE APACHE APACHE FINANCE FINANCE CORPORATION NORTH AMERICA AUSTRALIA CANADA ------------- ------------- ------------- ------------- (IN THOUSANDS) ASSETS CURRENT ASSETS: Cash and cash equivalents ...................... $ 6,383 $ -- $ 2 $ -- Receivables .................................... 94,881 -- -- -- Inventories .................................... 17,024 -- -- -- Advances to oil and gas ventures and others .... 24,644 -- -- -- Short-term investments ......................... -- -- -- -- ------------- ------------- ------------- ------------- 142,932 -- 2 -- ------------- ------------- ------------- ------------- PROPERTY AND EQUIPMENT, NET ...................... 3,098,485 -- -- -- ------------- ------------- ------------- ------------- OTHER ASSETS: Intercompany receivable, net ................... 1,426,455 -- (25) (251,025) Goodwill, net .................................. -- -- -- -- Equity in affiliates ........................... 2,566,969 188,925 455,039 1,082,328 Deferred charges and other ..................... 27,688 -- -- 2,564 ------------- ------------- ------------- ------------- $ 7,262,529 $ 188,925 $ 455,016 $ 833,867 ============= ============= ============= ============= LIABILITIES AND SHAREHOLDERS' EQUITY CURRENT LIABILITIES: Accounts payable ............................... $ 75,164 $ -- $ -- $ -- Other accrued expenses ......................... 165,858 -- 2,599 1,246 ------------- ------------- ------------- ------------- 241,022 -- 2,599 1,246 ------------- ------------- ------------- ------------- LONG-TERM DEBT ................................... 1,605,201 -- 268,615 296,988 ------------- ------------- ------------- ------------- DEFERRED CREDITS AND OTHER NONCURRENT LIABILITIES: Income taxes ................................... 696,441 -- (5,123) 18 Advances from gas purchasers ................... 140,027 -- -- -- Other .......................................... 161,355 -- -- -- ------------- ------------- ------------- ------------- 997,823 -- (5,123) 18 ------------- ------------- ------------- ------------- PREFERRED INTERESTS OF SUBSIDIARIES .............. -- -- -- -- ------------- ------------- ------------- ------------- COMMITMENTS AND CONTINGENCIES SHAREHOLDERS' EQUITY ............................. 4,418,483 188,925 188,925 535,615 ------------- ------------- ------------- ------------- $ 7,262,529 $ 188,925 $ 455,016 $ 833,867 ============= ============= ============= ============= ALL OTHER SUBSIDIARIES OF APACHE RECLASSIFICATIONS CORPORATION & ELIMINATIONS CONSOLIDATED ------------- ----------------- ------------- (IN THOUSANDS) ASSETS CURRENT ASSETS: Cash and cash equivalents ...................... $ 29,240 $ -- $ 35,625 Receivables .................................... 309,912 -- 404,793 Inventories .................................... 85,512 -- 102,536 Advances to oil and gas ventures and others .... 27,201 -- 51,845 Short-term investments ......................... 102,950 -- 102,950 ------------- ------------- ------------- 554,815 -- 697,749 ------------- ------------- ------------- PROPERTY AND EQUIPMENT, NET ...................... 4,914,587 -- 8,013,072 ------------- ------------- ------------- OTHER ASSETS: Intercompany receivable, net ................... (1,175,405) -- -- Goodwill, net .................................. 188,812 -- 188,812 Equity in affiliates ........................... (812,827) (3,480,434) -- Deferred charges and other ..................... 3,771 -- 34,023 ------------- ------------- ------------- $ 3,673,753 $ (3,480,434) $ 8,933,656 ============= ============= ============= LIABILITIES AND SHAREHOLDERS' EQUITY CURRENT LIABILITIES: Accounts payable ............................... $ 104,614 $ -- $ 179,778 Other accrued expenses ......................... 172,977 -- 342,680 ------------- ------------- ------------- 277,591 -- 522,458 ------------- ------------- ------------- LONG-TERM DEBT ................................... 73,553 -- 2,244,357 ------------- ------------- ------------- DEFERRED CREDITS AND OTHER NONCURRENT LIABILITIES: Income taxes ................................... 300,387 -- 991,723 Advances from gas purchasers ................... -- -- 140,027 Other .......................................... 14,570 -- 175,925 ------------- ------------- ------------- 314,957 -- 1,307,675 ------------- ------------- ------------- PREFERRED INTERESTS OF SUBSIDIARIES .............. 440,683 -- 440,683 ------------- ------------- ------------- COMMITMENTS AND CONTINGENCIES SHAREHOLDERS' EQUITY ............................. 2,566,969 (3,480,434) 4,418,483 ------------- ------------- ------------- $ 3,673,753 $ (3,480,434) $ 8,933,656 ============= ============= =============
15 ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS OVERVIEW Led by production growth in our core international areas, we reported solid first quarter results, generating income attributable to common stock of $76 million ($.55 per diluted share) and cash from operating activities of $205 million. We achieved these results despite a 61 percent decline in realized gas prices and a 21 percent decline in realized oil prices, relative to the first quarter of 2001. Quarterly oil production increased 37,660 barrels of oil per day (b/d) to 159,156, a 31 percent increase from the first quarter of 2001. Egypt, Australia and Canada oil production increased 71 percent, 110 percent and 26 percent, respectively. Oil production from these countries now totals 65 percent of our worldwide oil production, up from 51 percent in the prior-year quarter. Our natural gas production increased 109.4 million cubic feet per day (MMcf/d) to 1.1 billion cubic feet per day (Bcf/d) with production increases of 116 percent in Egypt and 73 percent in Canada leading the way. Gas production from countries outside the U.S. has grown to 51 percent of our natural gas production compared to 36 percent in the comparable 2001 quarter. Our oil and gas production gains are a direct result of our commitment to pursue opportunities outside of the U.S., while maintaining a strong domestic base. Production growth in Egypt and Canada include the strategic acquisitions and subsequent drilling activities on the properties we acquired from Repsol and Fletcher late in the first quarter of 2001, and from Novus in the fourth quarter of 2001. Australia had three significant development projects that began producing in 2001. The Gypsy/North Gypsy field began producing late in the first quarter of 2001, while the Legendre and Simpson fields commenced production in May and November 2001, respectively. Our international drilling program continued to show strong results during the first quarter of 2002. We reported three discoveries in Egypt and initiated production at the Ras Kanayes development lease. We also reported four Flag Sandstone oil discoveries in the Carnarvon Basin of Western Australia. Our first quarter capital expenditures (including exploration and development, and expenditures related to gathering, transmission, and processing facilities) of $206 million are 64 percent of the $320 million we expended (excluding acquisitions) during the first quarter of 2001, a reflection of the uncertainty surrounding commodity prices and difficulty oil and gas producers face when planning capital budgets. We also had $1.1 billion of acquisitions in the prior year quarter. We will continue to monitor commodity prices and allocate our cash flow accordingly, not hesitating to pay down debt in lieu of increasing capital expenditures. To increase our financial flexibility and take advantage of historically low interest rates, we issued $400 million of 10-year notes in early April at a 6.25 percent coupon rate. Although these notes carry a higher interest rate than the short-term commercial paper we had been utilizing, we felt it prudent to secure these long-term funds given the highly uncertain economic times in which we find ourselves. On May 15, 2002, the mandatory conversion of our Series C Preferred Stock into approximately 6.2 million common shares will occur. This estimated number of shares assumes our common stock price averages at least $35 per share (quarter-end stock price was $56.88 per share) in the weeks preceding the conversion date. The conversion will reduce our preferred dividends by approximately $14 million a year and be replaced with $2 million of common dividends for an annual savings of $12 million. If our stock price remains consistent, converted holders will have seen an annualized return well above market rates, while existing shareholders benefited from the growth facilitated by the initial proceeds. 16 RESULTS OF OPERATIONS Revenues The table below presents oil and gas production revenues, production and average prices received from sales of natural gas, oil and natural gas liquids.
FOR THE QUARTER ENDED MARCH 31, ------------------------------- INCREASE 2002 2001 (DECREASE) -------------- -------------- ---------- Revenues (in thousands): Natural gas ............................ $ 219,453 $ 502,592 (56)% Oil .................................... 293,006 282,250 4% Natural gas liquids .................... 9,270 16,756 (45)% -------------- -------------- Total ............................... $ 521,729 $ 801,598 (35)% ============== ============== Natural Gas Volume - Mcf per day: United States .......................... 540,433 636,547 (15)% Canada ................................. 314,659 181,992 73% Egypt .................................. 117,525 54,415 116% Australia .............................. 120,645 114,718 5% Argentina .............................. 3,856 -- -- -------------- -------------- Total ............................... 1,097,118 987,672 11% ============== ============== Average Natural Gas price - Per Mcf: United States .......................... $ 2.29 $ 6.63 (65)% Canada ................................. 2.19 5.62 (61)% Egypt .................................. 3.05 3.66 (17)% Australia .............................. 1.23 1.26 (2)% Argentina .............................. .64 -- -- Total ............................... 2.22 5.65 (61)% Oil Volume - Barrels per day: United States .......................... 55,829 59,736 (7)% Canada ................................. 25,339 20,100 26% Egypt .................................. 44,378 25,970 71% Australia .............................. 32,941 15,690 110% Argentina .............................. 669 -- -- -------------- -------------- Total ............................... 159,156 121,496 31% ============== ============== Average Oil price - Per barrel: United States .......................... $ 20.49 $ 27.38 (25)% Canada ................................. 18.54 22.04 (16)% Egypt .................................. 21.42 25.17 (15)% Australia .............................. 20.60 25.75 (20)% Argentina .............................. 20.07 -- -- Total ............................... 20.46 25.81 (21)% Natural Gas Liquids (NGL) Volume - Barrels per day: United States .......................... 6,895 7,595 (9)% Canada ................................. 1,358 1,247 9% -------------- -------------- Total ............................... 8,253 8,842 (7)% ============== ============== Average NGL Price - Per barrel: United States .......................... $ 12.78 $ 20.03 (36)% Canada ................................. 10.95 27.28 (60)% Total ............................... 12.48 21.06 (41)%
17 Natural Gas Revenues Our natural gas production increased 109.4 MMcf/d (11 percent), contributing $22 million to our natural gas revenues. The production growth mitigated the impact of the $3.43 per Mcf (61 percent) decline in natural gas prices, which accounted for a $305 million reduction in revenues. The primary drivers of the increase in gas production for the period were acquisition of and subsequent drilling and development activities on properties in Canada and Egypt acquired from Fletcher and Repsol late in the first quarter of 2001, and properties acquired from Novus in the fourth quarter of 2001. Successful drilling results at Ladyfern field in Canada also contributed to the increase. These increases more than offset decreases related to property sales in the U.S. and from natural decline on more mature properties. Approximately 11 percent and 12 percent of our first quarter 2002 and 2001 domestic natural gas production, respectively, is subject to long-term fixed-price physical contracts. These contracts added $.05 per Mcf to our 2002 worldwide realized price and reduced our 2001 worldwide realized price by $.38 per Mcf. Crude Oil Revenues A 31 percent increase (37,660 b/d) in production generated an additional $69 million in revenues, more than offsetting the impact of the $5.35 per barrel (21 percent) decline in oil prices. The primary drivers of the increase in oil production for the period were the acquisitions and subsequent drilling and development activities discussed above. Also positively impacting oil production relative to the first quarter of 2001 was production from the Gypsy/North Gypsy field in Australia, which began production late in the first quarter of 2001 and the Legendre and Simpson fields in Australia where production commenced in May and November of 2001, respectively. Legendre and Simpson each contributed 30 percent to the increase in first quarter 2002 oil production. These increases more than offset decreases related to property sales in the U.S. and from natural decline on more mature properties. Operating Expenses The table below presents a detail of our expenses.
FOR THE QUARTER ENDED MARCH 31, --------------------------------------- 2002 2001 ------------- ------------- (In millions) Depreciation, depletion and amortization (DD&A): Oil and gas property and equipment.................. $ 197 $ 161 Other assets........................................ 14 12 International impairments............................. 5 - Lease operating costs (LOE)........................... 113 90 Severance and other taxes............................. 14 21 General and administrative expense (G&A).............. 25 20 Financing costs, net.................................. 26 30 ------------- ------------- Total....................................... $ 394 $ 334 ============== =============
Depreciation, Depletion and Amortization Apache's full cost DD&A expense is driven by many factors including certain costs incurred in the exploration, development, and acquisition of producing reserves, production levels, and estimates of proved reserve quantities and future developmental costs. On an equivalent barrel basis, full cost DD&A expense increased $.17 per barrel of oil equivalent (boe), from $6.07 per boe in the first quarter of 2001 to $6.24 per boe in 2002. This increase was primarily due to negative revisions for uneconomic reserves driven by the significant decrease in commodity prices from first quarter 2001. Increases in service costs, which resulted in higher drilling and finding costs in the U.S., plus transfers of unevaluated costs to the full-cost pool also contributed to the increase in rates. The DD&A rate for the U.S. increased $.66 per boe from $6.40 per boe, to $7.06 per boe. U.S. DD&A accounts for almost half of the Company's full-cost DD&A expense. 18 Impairments During the first quarter of 2002, the Company recorded a nonrecurring $5 million impairment ($3 million after tax) of unproved property costs in Poland. The Company will continue to evaluate its operations in Poland, which may result in additional impairments during 2002. Lease Operating Costs LOE increased $23 million in the first quarter of 2002. The increase on an absolute dollar basis was partially attributable to the acquisition of Egyptian and Canadian properties late in the first quarter 2001 and overall growth in Canada. Increased oil production in Australia and higher costs on non-operated properties in the Offshore Region also added to the rise in costs compared to the year-earlier period. On an equivalent barrel basis, LOE increased $.18 per boe to $3.57 per boe in the first quarter of 2002. Higher costs on Offshore properties, primarily non-operated, accounted for the increase on a Boe basis. Severance and Other Taxes Severance and other taxes, which generally are based on a percentage of oil and gas production revenues, decreased in the first quarter of 2002 primarily due to a decline in U.S. and Australian oil and gas production revenues. Administrative, Selling and Other Expenses G&A expense in the first quarter of 2002 increased from a year ago primarily due to higher insurance costs, higher employee separation costs, and costs related to amendments to our stock option plans affecting certain retiring employees. On an equivalent barrel basis, G&A expense for the first three months of 2002 increased $.03 per boe, to $.80 per boe. Financing Costs, Net Net financing costs for the first quarter of 2002 decreased 11 percent from the prior year primarily due to lower gross interest expense. Gross interest expense decreased due to a lower average effective rate, partially offset by higher average debt outstanding. MARKET RISK The Company's major market risk exposure continues to be the pricing applicable to its oil and gas production. Realized pricing is primarily driven by the prevailing worldwide price for crude oil and spot prices applicable to its United States and Canadian natural gas production. Historically, prices received for oil and gas production have been volatile and unpredictable. The information set forth under "Commodity Risk", "Interest Rate Risk" and "Foreign Currency Risk" in Item 7A of the Company's annual report on Form 10-K for the year ended December 31, 2001, is incorporated herein by reference. 19 OIL AND GAS CAPITAL EXPENDITURES
FOR THE QUARTER ENDED MARCH 31, ------------------------------- 2002 2001 -------------- -------------- (In thousands) Exploration and development: United States ................................................ $ 55,132 $ 176,989 Canada ....................................................... 82,245 105,752 Egypt ........................................................ 32,624 17,719 Australia .................................................... 24,242 24,817 Other International* ......................................... 4,005 (1,308) -------------- -------------- $ 198,248 $ 323,969 ============== ============== Capitalized Interest ............................................. $ 10,022 $ 15,085 ============== ============== Gas gathering, transmission and processing facilities ............ $ 7,646 $ (3,933) ============== ============== Acquisitions: Oil and gas properties ....................................... $ 108 $ 752,511 Gas gathering, transmission and processing facilities ........ -- 129,000 Goodwill ..................................................... -- 197,200 -------------- -------------- $ 108 $ 1,078,711 ============== ==============
* Includes reimbursement from the Chinese government in 2001 for previously paid costs. In March 2001, Apache completed the acquisition of substantially all of Repsol's oil and gas concession interests in Egypt for approximately $447 million in cash, subject to normal post closing adjustments. The properties include interests in seven Western Desert concessions and had estimated proved reserves of 66 million barrels of oil equivalent (MMboe) as of the acquisition date. The Company previously held interests in five of the seven concessions. In March 2001, Apache also completed the acquisition of subsidiaries of Fletcher for approximately $465 million in cash and 1.8 million restricted shares of Apache common stock issued to Shell Overseas Holdings (valued at $55.49 per share), subject to normal post closing adjustments. The transaction included properties located primarily in Canada's Western Sedimentary Basin. Estimated proved reserves totaled 120.8 MMboe as of the acquisition date. Apache assumed a liability of $103 million representing the fair value of derivative instruments and fixed-price commodity contracts entered into by Fletcher. CAPITAL RESOURCES Apache's primary cash needs are for exploration, development and acquisition of oil and gas properties, repayment of principal and interest on outstanding debt and payment of dividends. The Company funds its exploration and development activities primarily through internally generated cash flows. Apache budgets capital expenditures based upon projected cash flows and routinely adjusts its capital expenditures in response to changes in oil and natural gas prices and corresponding changes in cash flow. The Company cannot accurately predict future oil and gas prices. Net Cash Provided by Operating Activities Apache's net cash provided by operating activities during the first three months of 2002 totaled $205 million, a decrease of 67 percent from $643 million in the first three months of 2001. This decrease was primarily due to lower oil and gas revenues as a result of lower realized oil and gas prices as compared to last year. 20 LIQUIDITY The Company had $34 million in cash and cash equivalents on hand at March 31, 2002, down from $36 million at December 31, 2001. Apache's ratio of current assets to current liabilities at March 31, 2002 was 1.56 compared to 1.34 at December 31, 2001. The Company had $86 million in short-term securities (U.S. Government Agency Notes) at March 31, 2002, which will be available to reduce long-term debt after August 2002. During 2001, several of our subsidiaries issued a total of $443 million ($441 million, net of issuance costs) of preferred stock and limited partner interests to unrelated institutional investors. We pay a weighted average return to the investors of 123 basis points above the prevailing LIBOR interest rate. These subsidiaries are consolidated in the accompanying financial statements. For the quarter ending March 31, 2002, the subsidiaries paid $4 million to investors which is reflected as Preferred Interest of Subsidiaries on the Statement of Consolidated Operations. In April 2002, the Company issued $400 million principal amount, $397 million net of discount, of senior unsecured 6.25-percent notes maturing on April 15, 2012. The notes are redeemable, as a whole or in part, at our option, subject to a make-whole premium. The proceeds were used to repay a portion of the Company's outstanding commercial paper and for general operations. Apache believes that cash on hand, net cash generated from operations, short-term investments and unused committed borrowing capacity under its global credit facility and 364-day credit facility will be adequate to satisfy the Company's financial obligations to meet future liquidity needs for the foreseeable future. As of March 31, 2002, Apache's available borrowing capacity under its global credit facility and 364-day credit facility was $811 million. FUTURE TRENDS Apache's strategy is to increase its oil and gas reserves, production, cash flow and earnings through a balanced growth program that involves: o exploiting our existing asset base; o acquiring properties to which we can add incremental value; and o investing in high-potential exploration prospects. In order to maximize financial flexibility during a period of highly volatile natural gas prices coupled with a faltering U.S. economy, Apache reduced initially planned 2002 worldwide capital expenditures for exploratory and development drilling to approximately $590 million from $1.4 billion in 2001. Any excess cash flow will be used to reduce debt until such time that we elect either to increase drilling expenditures or to pursue acquisition opportunities should they become available at reasonable prices. Exploiting Existing Asset Base Apache seeks to maximize the value of our existing asset base by increasing production and reserves while reducing operating costs per unit. In order to achieve these objectives, we rigorously pursue production enhancement opportunities such as workovers, recompletions and moderate risk drilling, while divesting marginal and non-strategic properties and identifying other activities to reduce costs. Given the significant acquisitions completed over the last two years, Apache's inventory of exploitation opportunities has never been larger. Acquiring Properties to Which We Can Add Incremental Value Apache seeks to purchase reserves at appropriate prices by generally avoiding auction processes where we are competing against other buyers. Our aim is to follow each acquisition with a cycle of reserve enhancement, property consolidation and cash flow acceleration, facilitating asset growth and debt reduction. Recently exorbitant acquisition prices have caused Apache to sideline its acquisition activities until appropriate opportunities arise at reasonable prices. 21 Investing in High-Potential Exploration Prospects Apache seeks to concentrate our exploratory investments in a select number of international areas and to become the dominant operator in those regions. We believe that these investments, although higher-risk, offer potential for attractive investment returns and significant reserve additions. Our international investments and exploration activities are a significant component of our long-term growth strategy. They complement our North American operations, which are more development oriented. A critical component in implementing our three-pronged growth strategy is maintenance of significant financial flexibility. "A-ratings" on Apache's senior unsecured long-term debt from Moody's and Standard & Poor's illustrate our commitment to preserving a strong balance sheet and building a solid foundation and competitive advantage with which to pursue our growth initiatives. 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. 22 PART II - OTHER INFORMATION ITEM 1. LEGAL PROCEEDINGS The information set forth in Note 11 to the Consolidated Financial Statements contained in the Company's annual report on Form 10-K for the year ended December 31, 2001 (filed with the SEC on March 22, 2002) is incorporated herein by reference. ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS None ITEM 3. DEFAULTS UPON SENIOR SECURITIES None ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS None ITEM 5. OTHER INFORMATION None ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K (a) Exhibits 3.1 - Bylaws of Registrant, as amended May 2, 2002. 10.1 - Amendment to Apache Corporation 401(k) Savings Plan, dated December 27, 2001, effective January 1, 2002. 10.2 - Amendment to Apache Corporation Money Purchase Retirement Plan, dated December 27, 2001, effective January 1, 2002. 12.1 - Statement of computation of ratio of earnings to fixed charges and combined fixed charges and preferred stock dividends. (b) Reports filed on Form 8-K The following current report on Form 8-K was filed by Apache during the fiscal quarter ended March 31, 2002: Item 4 - Changes in Registrant's Certifying Accountant - dated March 29, 2002, filed April 2, 2002. On March 29, 2002, Apache determined (i) not to engage Arthur Andersen LLP to act as Apache's independent public accountants and (ii) to engage Ernst & Young LLP to serve as Apache's independent public accountants for the fiscal year ending December 31, 2002. 23 SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this amendment to be signed on its behalf by the undersigned thereunto duly authorized. APACHE CORPORATION Dated: May 13, 2002 /s/ Roger B. Plank ----------------------------------------- Roger B. Plank Executive Vice President and Chief Financial Officer Dated: May 13, 2002 /s/ Thomas L. Mitchell ----------------------------------------- Thomas L. Mitchell Vice President and Controller (Chief Accounting Officer) INDEX TO EXHIBITS
EXHIBIT NUMBER DESCRIPTION ------- ----------- 3.1 - Bylaws of Registrant, as amended May 2, 2002. 10.1 - Amendment to Apache Corporation 401(k) Savings Plan, dated December 27, 2001, effective January 1, 2002. 10.2 - Amendment to Apache Corporation Money Purchase Retirement Plan, dated December 27, 2001, effective January 1, 2002. 12.1 - Statement of computation of ratio of earnings to fixed charges and combined fixed charges and preferred stock dividends.