-----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, ARDH7+IyI4Cb2TS+1T9rjkI6urozsky4Dm/Mi3Ib0Qvxn/32aiEn4olOlInFl2Se HJO6WxlKsS8Wni02M5HDIw== 0000950129-96-000468.txt : 19960329 0000950129-96-000468.hdr.sgml : 19960329 ACCESSION NUMBER: 0000950129-96-000468 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 20 CONFORMED PERIOD OF REPORT: 19951231 FILED AS OF DATE: 19960327 SROS: CSE 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-K SEC ACT: 1934 Act SEC FILE NUMBER: 001-04300 FILM NUMBER: 96539412 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-K 1 APACHE CORPORATION 1 SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-K [MARK ONE] [X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 [FEE REQUIRED] FOR THE FISCAL YEAR ENDED DECEMBER 31, 1995, OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 [NO FEE REQUIRED] FOR THE TRANSITION PERIOD FROM _________ TO _________ COMMISSION FILE NUMBER 1-4300 APACHE CORPORATION A DELAWARE IRS EMPLOYER CORPORATION NO. 41-0747868 ONE POST OAK CENTRAL 2000 POST OAK BOULEVARD, SUITE 100 HOUSTON, TEXAS 77056-4400 TELEPHONE NUMBER (713) 296-6000 SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT:
NAME OF EACH EXCHANGE TITLE OF EACH CLASS ON WHICH REGISTERED ------------------- --------------------- Common Stock, $1.25 Par Value New York Stock Exchange Chicago Stock Exchange Preferred Stock Purchase Rights New York Stock Exchange Chicago Stock Exchange 9.25% Notes due 2002 New York Stock Exchange
SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT: NONE 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 ___ Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [ ] Aggregate market value of the voting stock held by non-affiliates of registrant as of February 29, 1996 $2,013,681,098 Number of shares of registrant's common stock outstanding as of February 29, 1996 77,449,273 DOCUMENTS INCORPORATED BY REFERENCE: Portions of registrant's proxy statement relating to registrant's 1996 annual meeting of shareholders have been incorporated by reference into Part III hereof. ================================================================================ 2 TABLE OF CONTENTS DESCRIPTION
ITEM PAGE - ---- ---- PART I 1. BUSINESS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2 2. PROPERTIES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12 3. LEGAL PROCEEDINGS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS . . . . . . . . . . . . . . . . . . . 16 PART II 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16 6. SELECTED FINANCIAL DATA . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA . . . . . . . . . . . . . . . . . . . . . . 27 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27 PART III 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT . . . . . . . . . . . . . . . . . . . 28 11. EXECUTIVE COMPENSATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS . . . . . . . . . . . . . . . . . . . . . 28 PART IV 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K . . . . . . . . . . . . 29
All defined terms under Rule 4-10(a) of Regulation S-X shall have their statutorily-prescribed meanings when used in this report. Quantities of natural gas are expressed in this report in terms of thousand cubic feet (Mcf), million cubic feet (MMcf) or billion cubic feet (Bcf). Oil is quantified in terms of barrels (bbls), thousands of barrels (Mbbls) and millions of barrels (MMbbls). Natural gas is compared to oil in terms of barrels of oil equivalent (boe) or million barrels of oil equivalent (MMboe). Oil and natural gas liquids are compared with natural gas in terms of million cubic feet equivalent (MMcfe) and billion cubic feet equivalent (Bcfe). One barrel of oil is the energy equivalent of six Mcf of natural gas. Daily oil and gas production is expressed in terms of barrels of oil per day (bopd) and thousands of cubic feet of gas per day (Mcfd) or millions of British thermal units per day (MMBtud), respectively. Gas sales volumes may be expressed in terms of one million British thermal units (MMBtu), which is approximately equal to one Mcf. With respect to information relating to the Company's working interest in wells or acreage, "net" oil and gas wells or acreage is determined by multiplying gross wells or acreage by the Company's working interest therein. Unless otherwise specified, all references to wells and acres are gross. 1 3 PART I ITEM 1. BUSINESS GENERAL Apache Corporation (Apache or the Company), a Delaware corporation formed in 1954, is an independent energy company that explores for, develops, produces, gathers, processes and markets natural gas, crude oil and natural gas liquids. In North America, Apache's exploration and production interests are focused on the Gulf of Mexico, the Anadarko Basin, the Permian Basin, the Gulf Coast, East Texas and the Western Sedimentary Basin of Canada. Outside of North America, Apache has exploration and production interests offshore Western Australia and in Egypt, and exploration interests in Indonesia, offshore China and offshore the Ivory Coast. Apache's common stock has been listed on the New York Stock Exchange since 1969, and on the Chicago Stock Exchange since 1960. Apache holds interests in many of its U.S., Canadian and international properties through operating subsidiaries, such as MW Petroleum Corporation (MW), DEK Energy Company (DEKALB, formerly known as DEKALB Energy Company), Apache Energy Limited (AEL, formerly known as Hadson Energy Limited), Apache International, Inc. and Apache Overseas, Inc. Properties referred to in this document may be held by those subsidiaries. Apache treats all operations as one segment of business. On May 17, 1995, Apache acquired DEKALB, an oil and gas company engaged in the exploration for, and the development of, crude oil and natural gas in Canada, through a merger which resulted in DEKALB becoming a wholly-owned subsidiary of Apache. The merger was accounted for as a "pooling of interests" for financial accounting purposes. As a result, this Form 10-K has been prepared to present information for 1995 and all preceding years on a combined basis using the pooling of interests method of accounting. 1995 RESULTS In 1995, Apache had net income of $20.2 million, or $.28 per share, on total revenues of $750.7 million. Net cash provided by operating activities during 1995 was $332.1 million. The year 1995 was Apache's 18th consecutive year of production growth and eighth consecutive year of oil and gas reserves growth. Apache's average daily production was approximately 50.2 Mbbls of oil and 577 MMcf of natural gas for the year. Giving effect to 1995 acquisitions and drilling activity, and $271.9 million in property dispositions, the Company's estimated proved reserves increased by 151.3 MMboe in 1995 over the prior year (prior to restatement for the DEKALB merger) to 420.6 MMboe, of which approximately 60 percent was natural gas. Based on 269.3 MMboe reported at year-end 1994 (which was increased to 330 MMboe when 1994 results were restated for the DEKALB merger), Apache's growth in reserves during the year reflects the replacement of 379 percent of the Company's 1995 production (267 percent based on the restated 1994 year-end reserves of 330 MMboe). In 1995, the Company replaced approximately 100 percent of its production through drilling, revisions, recompletions, workovers and other production enhancement projects. Apache's active drilling and workover program yielded 168 new producing U.S. and Canadian wells out of 222 attempts, and involved 539 North American workover and recompletion projects during the year. At December 31, 1995, Apache had interests in approximately 4,624 net oil and gas wells and 1,405,192 net developed acres of oil and gas properties. In addition, the Company had interests in 777,380 net undeveloped acres under U.S. and Canadian leases and 3,809,558 net undeveloped acres under international exploration and production rights. APACHE'S GROWTH STRATEGY Apache's growth strategy is to increase oil and gas reserves, production, and cash flow through a combination of acquisitions, moderate-risk drilling and development of its inventory of existing projects. The Company also emphasizes reducing operating costs per unit produced and selling marginal and non-strategic properties in order to increase its profit margins. 2 4 For Apache, property acquisition is only one phase in a continuing cycle of business growth. Apache's aim is to follow each acquisition cycle with a cycle of reserve enhancement, property consolidation and cash flow acceleration, facilitating asset growth and debt reduction. This approach requires well-planned and carefully executed property development and a commitment to a selective program of ongoing property dispositions. It motivates Apache to target acquisitions that have ascertainable additional reserve potential and to apply an active drilling, workover and recompletion program to realize the potential of the acquired undeveloped and partially developed properties. Apache prefers to operate its properties so that it can best influence their development; as a result, the Company operates properties accounting for over 75 percent of its production. Pursuing its acquire-and-develop strategy, Apache increased its total proved reserves by 383 MMboe, more than 10 fold in the last 10 years (before restatement of prior years as a result of the DEKALB merger). In addition to its acquisition strategy, Apache continues to develop and exploit its existing inventory of workover, recompletion and other development projects to increase reserves and production. During 1995 Apache acquired $820.9 million of additional properties (not including the DEKALB merger) and replaced 100 percent of its U.S. production through its drilling, workover and recompletion program. Apache's international investments supplement its long-term growth strategy. Although international exploration is recognized as higher-risk than most of Apache's U.S. and Canadian activities, it offers potential for greater rewards and significant reserve additions. Apache directed its international efforts in 1995 toward development of certain discoveries offshore Western Australia and in Egypt, and toward further exploration of its concessions in China, Indonesia, and the Ivory Coast of western Africa, where it believes that reserve additions may be made through higher-risk exploration and through improved production practices and recovery techniques. RECENT ACQUISITIONS AND DISPOSITIONS In September, 1995, the Company acquired substantially all of the oil and gas assets (the Aquila Assets) of Aquila Energy Resources Corporation (Aquila), a wholly owned, indirect subsidiary of UtiliCorp United Inc., for approximately $210 million, subject to adjustment. The Aquila Assets include: proved reserves totaling an estimated 157 Bcf of gas equivalent; approximately 107,000 developed and 49,000 undeveloped net acres located primarily in the Company's Anadarko-Basin and Gulf of Mexico core areas; a five-year, four-month premium gas contract effective September 1, 1995; and non-operated interests in four gas processing plants. The gas contract calls for Aquila Energy Marketing Corporation to purchase 20 to 25 MMcf of gas per day from the Company at a price of $2.70 per Mcf in 1996, escalating to $3.20 per Mcf in the year 2000. The Aquila Assets were accounted for under the purchase method of accounting. At the time of acquisition, the Aquila properties were producing approximately 67 MMcf of gas and 2,900 barrels of oil per day, with approximately 77 percent of proved reserves concentrated in seven fields and 77 percent of the properties' net production operated by the Company. Approximately $143 million of the consideration for the Aquila Assets was provided through deferred tax-free exchange of like-kind properties of qualifying use. The properties exchanged by the Company were primarily lower margin and non-strategic properties located in the Rocky Mountains that were previously selected for sale by the Company in connection with its ongoing program of selective property dispositions. The remainder of the consideration for the Aquila Assets was provided by a portion of the proceeds from the sale of 7.45 million shares of the Company's common stock on September 27, 1995. TRANSACTIONS IN EARLY 1995. On March 1, 1995, Apache purchased certain U.S. oil and gas properties from Texaco Exploration and Production Inc. (Texaco) for an adjusted purchase price of $567 million. The Texaco properties comprised estimated proved reserves at the effective date of approximately 105 MMboe (after adjustment for the exercise of preferential rights and properties excluded following due diligence and using unescalated prices), of which approximately 70 percent was oil. At the time of purchase, the daily production on the acquired properties was approximately 20 Mbbls of oil and 85 MMcf of gas. The Texaco properties are highly concentrated, with approximately two-thirds of the reserves located in 54 fields, and are in producing regions where Apache has existing operations: the Permian Basin, the Gulf Coast of Texas and Louisiana, western Oklahoma, East Texas, the Rocky Mountains and the Gulf of Mexico. Apache operates approximately two-thirds of the production and owns an average working interest of 70 percent in the operated 3 5 properties. The Texaco transaction also included the acquisition of approximately 500,000 net mineral acres, as well as a substantial quantity of seismic data. On May 17, 1995, Apache acquired DEKALB, an oil and gas company engaged in the exploration for, and the development of, crude oil and natural gas in Canada, through a merger which resulted in DEKALB's becoming a wholly owned subsidiary of Apache. Pursuant to the merger agreement, the Company issued 8.4 million shares of Apache Common Stock in exchange for all outstanding DEKALB capital stock and DEKALB employee stock options outstanding at the time of the merger and tendered to Apache. The merger was accounted for as a pooling of interests for financial accounting purposes. Through the DEKALB merger, Apache acquired an estimated 290 Bcf of gas and 10 MMbbls of liquid hydrocarbons, together with interests in 14 gas processing plants, six of which it operates, and 150,000 net undeveloped acres primarily in the Western Sedimentary Basin of Alberta. The DEKALB merger provided Apache with the infrastructure to conduct Canadian operations and an inventory of drilling prospects in North America's largest natural gas basin. The Canadian region, based on the DEKALB properties, became one of Apache's core focus areas in 1995. In early 1995, Apache announced plans to upgrade its properties through the disposition of lower margin and non-strategic properties, including the disposition of a substantial portion of its Rocky Mountain properties and non-strategic assets from its other regions. During 1995, Apache completed $271.9 million in property dispositions, including the disposition of $143 million of Rocky Mountain properties through a deferred tax-free, like-kind exchange in consideration for certain of the Aquila Assets. 1994 ACQUISITIONS. On December 30, 1994, Apache purchased substantially all of the U.S. oil and gas properties of Crystal Oil Company (Crystal) for approximately $95.8 million. The producing properties acquired from Crystal are located primarily along the Arkansas-Louisiana border and in southern Louisiana, and daily production at the time of acquisition was approximately 20 MMcf of gas and 2,700 bbls of oil. The acquisition also included approximately 32,000 net undeveloped mineral acres in southern Louisiana. Apache acquired an average 80-percent working interest in the properties overall, including a 97-percent working interest in two fields that account for approximately 60 percent of the value. During 1994, Apache also acquired approximately 16 MMboe of proved reserves through 90 smaller, tactical acquisitions for an aggregate consideration of $84.9 million. Apache also sold $19.6 million of its non-strategic properties during 1994. EXPLORATION AND PRODUCTION The Company's North American exploration and production activities are divided into five operating regions, the Gulf Coast, Gulf of Mexico, Midcontinent, Western and Canadian region. Approximately 95 percent of the Company's proved reserves are located in the five North American regions. Apache conducts its Australian exploration and production and its Indonesian exploration through its Australian region, while all other international interests are directed by the Company through its principal offices in Houston, Texas. Information concerning the amount of revenue, operating income and identifiable assets attributable to U.S., Canadian and international operations, respectively, is set forth in the Supplemental Oil and Gas Disclosures under Item 8 below, and incorporated herein by reference. GULF COAST. The Gulf Coast region encompasses the Texas and Louisiana coasts, central Texas and Mississippi. It was Apache's leading region in oil and gas sales in 1995, contributing approximately $158 million from production of 11.2 MMboe for the year. The region was one of the most prominent in the Company in the number of workover and recompletion projects completed and the number of wells drilled. The Company performed 327 workover and recompletion operations during 1995 in the Gulf Coast region and participated in 36 wells during the year, 20 of which were completed as producers, including 10 Austin Chalk wells in Central Texas, eight of which were productive. As of December 31, 1995, the region encompassed approximately 306,249 net acres, and accounted for 66.5 MMboe, or 16 percent, of the Company's year-end 1995 total proved reserves. 4 6 GULF OF MEXICO. The Gulf of Mexico region includes all of Apache's interests in properties offshore Texas, Louisiana and Alabama. It was Apache's leading region in production in 1995, producing approximately 12.7 MMboe and $129 million in revenue for the year. At December 31, 1995, the Gulf of Mexico region encompassed 342,179 net acres, located in both state and federal waters, and accounted for 41.9 MMboe, or 10 percent, of the Company's year-end 1995 reserves. Apache's operations in the Gulf of Mexico focused on workovers and recompletions, which totaled 59 in the region for 1995. Apache participated in 16 wells which were drilled in the region during the year, 14 of which were completed as producers. At year-end, Apache's production in the Gulf of Mexico was approximately 187 MMcf of gas per day. MIDCONTINENT. Apache's Midcontinent region is known for its sizable position in the Anadarko Basin. Apache has drilled and operated in the Anadarko Basin for nearly four decades, developing an extensive database of geologic information and a substantial acreage position. In 1995, Apache enhanced its position through the acquisition of the Aquila Assets and certain Texaco properties. The Midcontinent region produced approximately 10.9 MMboe for the year, creating $127 million in revenue for the Company. At December 31, 1995 Apache held an interest in 410,379 net acres in the region, which accounted for approximately 100.5 MMboe, or 24 percent, of Apache's total proved reserves. Apache participated in drilling 57 wells in the Midcontinent region during the year, 51 of which were completed as producing wells. The Company performed 40 workover and recompletion operations in the region during 1995. WESTERN. The Western region includes the former Permian Basin region and assets in the Green River Basin of Colorado and Wyoming and in the San Juan Basin of New Mexico which were previously included in Apache's Rocky Mountain region. In connection with its property rationalization program, Apache disposed of a substantial portion of its Rocky mountain properties on September 1, 1995, including 1,600 wells in six states with daily production of approximately 9 Mbls of oil and 9 MMcf of natural gas. See "Recent Acquisitions and Dispositions" above. As a result, Apache closed its Rocky Mountain region office and redeployed those employees to provide support for its Canadian, Western and Gulf Coast operations. The Western region properties are important producers for Apache, producing approximately 8.8 MMboe and $125 million in oil and gas sales, 19 percent of the Company's production revenues during 1995. At December 31, 1995, the Company held 692,967 net acres in the region, which accounted for 134.3 MMboe, or 32 percent of the Company's total estimated proved reserves. The Western region was also active in workovers and recompletions, which totaled 76 for the year. Compared with 1994, Apache nearly doubled its drilling activity in the region during 1995, with 53 of the 65 wells drilled in the region completed as producers. CANADA. Exploration and development activity in the Canadian region is concentrated in the Provinces of Alberta and British Columbia. The region produced approximately 4.8 MMboe, 85 percent of which was natural gas, and generated $39 million in oil and gas sales, six percent of the Company's production revenues in 1995. Apache participated in 48 wells in this region during the year, 30 of which were completed as producers. The Company performed 28 workovers and recompletions on operated wells during 1995. At December 31, 1995, the region encompassed approximately 415,943 net acres, and accounted for 57.9 MMboe, or 14 percent, of the Company's year-end 1995 total proved reserves. AUSTRALIA. The state of Western Australia became an important region for Apache following the completion of the AERC acquisition in November 1993. In 1995, the region generated four percent of the Company's production revenues for the year. Natural gas production in the region increased by 20 percent from the prior year to approximately 9.6 MMcfd in 1995. Average daily oil production decreased by 1.6 percent to approximately 3,080 bopd in 1995, primarily as a result of natural depletion. As of December 31, 1995, Apache held 52,550 net developed acres and 2,954,562 net undeveloped acres in Western Australia. Apache acts as operator for most of its properties in Western Australia through its wholly owned subsidiary, AEL. 5 7 During 1995, Apache's proved reserves in Australia increased by 81 percent to 19.6 MMboe, five percent of the Company's total proved reserves at year end. The increase in Australian reserves was primarily attributable to natural gas reserves booked at the East Spar discovery which were recorded only after the Company had entered agreements for the sale and delivery of such gas. See "Oil and Natural Gas Marketing." Through AEL and its subsidiaries, Apache also owns a 22.5-percent interest in and operates the Harriet Gas Gathering Project, a gas processing and compression facility with a throughput capacity of 80 MMcfd, and a 60-mile, 12-inch offshore pipeline with a throughput capacity of 175 MMcfd. The gas processing and compression facilities are located on Varanus Island in close proximity to AEL's producing properties offshore in the Carnarvon Basin. In 1995, the Company and its partners commenced development of the East Spar field from which gas will be transported to the Varanus Island site and, by agreement with the Harriet Joint Venture, processed and transported to the mainland where it will be delivered to gas pipelines connecting to the southwest and to the eastern goldfields of Western Australia. Apache also participated in the Wonnich discovery offshore Western Australia which tested at 27 MMcfd of gas and 1,375 bopd. The company holds a 22.5-percent interest in the Wonnich field and plans to drill appraisal wells during 1996 to determine the commercial potential of the discovery. Apache is operator of the appraisal program and is conducting a development feasibility study. In early 1994, operations for Indonesia were consolidated under AEL and directed from its offices in Perth, Western Australia. In 1995, tests were conducted on two fields in the Bentu Segat Block in Central Sumatra, Indonesia, confirming proven reserves of approximately 20 Bcf net to Apache. Apache is operator of the Block, holding a working interest of 39 percent. OTHER INTERNATIONAL OPERATIONS. Outside of Australia and Indonesia, Apache currently has exploration and production interests in Egypt and exploration interests in China and offshore the Ivory Coast. In 1995, Apache Overseas, Inc., Apache International, Inc. and their subsidiaries (excluding Australia and Indonesia as discussed above) drilled seven gross exploratory wells, resulting in four producers, and four development wells, all of which were productive. Apache holds a 25-percent interest in the two-million acre Qarun Block in the Western Desert of Egypt which is operated by Phoenix Resource Companies of Qarun. Development began at the Qarun field in 1995, with three exploratory and four development wells drilled. During development of the field, approximately 6,500 bbls per day are being sold to the Egyptian General Petroleum Corporation under terms of an early production agreement. Field development is expected to be complete in late 1996 with production expected to exceed 30,000 bbls of oil per day. Reserves will be booked in the first quarter of 1996. In early 1996 Apache was awarded the Darag Block in the extreme north of the Gulf of Suez. Apache has a 50-percent interest and will act as operator of the 460,000-acre Darag Block. Also in early 1996, Apache agreed to participate as a 50-percent interest holder in the East Beni Suef Block, a 6.8-million-acre concession in the Western Desert of Egypt adjoining the Qarun Block to the south. In 1995, Apache became the operator of the Zhao Dong Block in the Bohai Bay, offshore the People's Republic of China, where Apache increased its interest to 50 percent in a concession containing approximately 48,677 undeveloped acres. In 1994, a discovery well tested at a rate of over 2,000 bbls per day and was confirmed by an appraisal well which tested 4,000 bbls per day. In 1995, a second discovery well tested on pump at rates up to 1,300 bbls per day. The Company has elected to proceed with the second phase of exploration, commencing in May 1996, which involves a commitment to drill two additional exploratory wells. The Company is currently evaluating the discovery areas for commercial potential. OIL AND NATURAL GAS MARKETING During 1995, Apache sold approximately 85 percent of its U.S. natural gas on the spot market through Natural Gas Clearinghouse (NGC) or through market responsive contracts with other parties; the remaining 15 percent was sold through long-term, premium-priced contracts. Sales to NGC accounted for 27 percent of the Company's oil and gas revenues in 1995. On September 30, 1995, the Company's contract with NGC terminated and the Company began to 6 8 market all of its own natural gas, including the natural gas previously marketed by NGC. The Company believes the prices that it obtains through its own natural gas marketing activities are not substantially different from the prices that would have been received in marketing through NGC. On October 27, 1995, wholly-owned affiliates of each of Apache, Oryx Energy Company and Parker & Parsley Petroleum Company formed Producers Energy Marketing, LLC, a Delaware limited liability company (ProEnergy). Until operations of ProEnergy begin, the Company will continue to market its own natural gas. Once fully operational (which is expected to occur in the second quarter of 1996), ProEnergy will market substantially all of its members' domestic natural gas and natural gas liquids pursuant to member gas purchase agreements having an initial term of 10 years, subject to early termination following specified events. The price of gas purchased by ProEnergy from its members will be based upon agreed indexes. ProEnergy will also provide certain contract administration and other services. ProEnergy's limited liability company agreement provides that capital funding obligations, allocations of profit and loss and voting rights are calculated based upon the members' respective throughputs of natural gas sold to, or whose sales are managed by, ProEnergy. Each member's liability with respect to future capital funding obligations is subject to certain limitations. Natural gas throughputs will be calculated, profit distributed, and/or capital called on a quarterly basis. As of December 31, 1995, the Company was the holder of a majority interest in ProEnergy. Apache is delivering natural gas under several long-term supply contracts. In connection with the acquisition of the Aquila Assets in September 1995, the Company entered into a five-year, four-month premium-price gas contract under which Aquila Energy Marketing Corporation will purchase 20 to 25 MMcf of gas per day from Apache at a price of $2.70 per Mcf in 1996 escalating to $3.20 per Mcf in the year 2000. In August 1994, Apache signed a long-term gas supply agreement with a cogeneration company under which Apache will supply a minimum of 51.1 Bcf over 10 years for use in electric power generation from a cogeneration facility located in northeast Texas. Under the agreement, deliveries of approximately 20 MMcfd are scheduled to begin in early 1997. In December 1994, the Company signed a long-term gas contract under which Apache received an advance payment of $67.4 million. Apache will supply the purchaser with approximately 43 Bcf of gas over a six year period which began in January 1995, with volumes averaging 20 MMcfd. Apache assumed its own U.S. crude oil marketing operations in 1992. Most of Apache's crude oil production is sold through lease-level marketing to refiners, traders and transporters, generally under 30-day contracts that renew automatically until canceled. Oil produced from Canadian properties is sold to crude oil purchasers or refiners at market prices which depend on worldwide crude prices adjusted for location and quality of the oil. Natural gas produced from Canadian properties is sold to major aggregators of natural gas, gas marketers and direct users under long and short-term contracts. The oil and gas contracts provide for sales at specified prices, or at prices which are subject to change due to market conditions. The Company diversifies the markets for its Canadian gas production by selling directly or indirectly to customers through aggregators and brokers in the United States and Canada. The Company transports natural gas via the Company's firm transportation contracts to California (12 MMcfd) and to the Province of Ontario, Canada (four MMcfd) through end-users' firm transportation contracts. In 1994, the Company contracted for the sale of five MMcfd of natural gas to the Hermiston Cogeneration Project, located in the Pacific Northwest of the United States. The Hermiston Project is expected to commence purchases of natural gas in the third quarter of 1996. In Australia, the Company entered into two contracts to deliver 32 Bcf of gas from the East Spar field for industrial uses, including mining operations, a power station and a nickel refinery. The contracts provide for an average daily rate of 15 MMcfd net to the Company. To provide deliveries under the contracts while the East Spar development is under construction, the Harriet and East Spar joint ventures entered into a gas sales agreement under which the Harriet Joint Venture is supplying 42 MMcf of gas per day to East Spar's industrial customers. Apache operates the Harriet joint venture and acts as contractor for the East Spar Joint Venture, holding a 22.5-percent interest in Harriet and a 20-percent interest in East Spar. 7 9 In 1995, the Harriet Joint Venture entered into a take-or-pay contract to supply natural gas under which AEL has committed 14 Bcf of reserves for delivery over a 10 year period. Approximately 20 Bcf of AEL's proved gas reserves are dedicated to the Gas Corporation of Western Australia, a corporation owned by the government of Western Australia doing business as AlintaGas, under a long-term contract with a remaining period of 6-1/2 years. The agreement contains take-or-pay provisions that require AlintaGas to purchase a minimum of 35 MMcfd (approximately eight MMcfd net to AEL) through the remainder of the contract term. Payments received under this contract are in Australian dollars. AEL markets all oil and natural gas liquids produced from its interests in the Harriet field through a contract with Marubeni International Petroleum (Singapore) Pte Limited (Marubeni), which was extended in 1995. Pricing under the contract in 1995 represented a fixed premium to the quoted market prices of Tapis crude oil, with payment made in U.S. dollars. In 1995, production sold under this contract realized an average price of $18.59 per barrel (exclusive of the impact of hedging activities). The Company believes that if this contract were terminated, it would not have a material adverse effect on the Company due to the demand for Australian crude oil and the existence of alternative purchasers. OIL AND NATURAL GAS PRICES Natural gas prices remained volatile in 1995 with spot-market prices during the year ranging from $1.25 per Mcf in July to $2.07 per Mcf in December. Fluctuations are largely due to natural gas supply and demand perceptions. Apache's average realized gas price of $1.57 per Mcf for 1995 declined 12 percent from the prior-year average of $1.78 per Mcf. Apache's 1994 average realized natural gas price declined eight percent from the 1993 average of $1.94 per Mcf. Due to minimum price contracts which escalate at an average of 80% of the Australian consumer price index, AEL's natural gas production in Western Australia is not subject to the same degree of price volatility as is its domestic Apache's U.S. and Canadian gas production; however, natural gas sales under such Australian minimum price contracts represent only about two percent of the Company's total natural gas sales at year end. Total Australian gas sales in 1995, including long-term contracts and spot sales averaged $1.86 per Mcf, two percent below the 1994 average of $1.90 per Mcf. Oil prices remained vulnerable to unpredictable political and economic forces during 1995, but did not experience the wide fluctuations seen in natural gas prices during the year. Management believes that oil prices will continue to fluctuate in response to changes in the policies of the Organization of Petroleum Exporting Countries (OPEC), events in the Middle East and other factors associated with the world political environment. As a result of the many uncertainties associated with levels of production maintained by OPEC and other oil producing countries, the availabilities of world-wide energy supplies and the competitive relationships and consumer perceptions of various energy sources, management is unable to predict what changes will occur in crude oil and natural gas prices. Apache's world-wide crude oil price averaged $17.09 per barrel in 1995, up nine percent from the average price of $15.65 per barrel in 1994, and two percent higher than the average price of $16.74 per barrel in 1993. Apache's average crude oil price for its Australian production, including production sold under the Marubeni contract, was $18.59 per barrel in 1995, three percent higher than the average price in 1994. Terms of the acquisition of MW from Amoco Production Company (Amoco) included an oil and gas price sharing provision under which certain price sharing payments may be payable to Amoco. Pursuant to this provision, to the extent that oil prices exceed specified reference prices that rise to $33.12 per barrel over the eight-year period ending June 30, 1999, and to the extent that gas prices exceed specified reference prices that rise to $2.68 per Mcf over the five-year period ending June 30, 1996, Apache will share the excess price realization with Amoco on a portion of the MW production. From time to time, Apache buys or sells contracts to hedge a limited portion of its future oil and gas production against exposure to spot market price changes. See Note 9 to the Company's financial statements under Item 8 below. 8 10 The Company's business has been and will continue to be affected by future world-wide changes in oil and gas prices and the relationship between the prices of oil and gas. No assurance can be given as to the trend in, or level of, future oil and gas prices. RESERVE VALUE CEILING TEST Under the Securities and Exchange Commission's (SEC's) full cost accounting rules, the Company reviews the carrying value of its oil and gas properties each quarter on a country-by-country basis. Under full cost accounting rules, capitalized costs of oil and gas properties may not exceed the present value of estimated future net revenues from proved reserves, discounted at 10 percent, plus the lower of cost or fair market value of unproved properties, as adjusted for related tax effects and deferred tax reserves. Application of this rule generally requires pricing future production at the unescalated oil and gas prices in effect at the end of each fiscal quarter and requires a write-down if the "ceiling" is exceeded, even if prices declined for only a short period of time. If a write-down is required, the one-time charge to earnings would not impact cash flow from operating activities. The Company had no write-downs due to ceiling test limitations during 1995. The SEC's rules permit the exclusion of capitalized costs and present value of recently acquired properties in performing ceiling test calculations. Pursuant to these rules, Apache has requested waivers and the SEC has granted separate one-year waivers with respect to the properties acquired from Texaco and Aquila, effective from the date of closing, the last of which will expire in the third quarter of 1996. Under these waivers, if the ceiling is exceeded on all U.S. properties, Apache is permitted to perform an additional ceiling test excluding the capitalized costs and present value of the properties acquired from Texaco and Aquila and would be required to record a write-down of carrying value if the ceiling is still exceeded. If a write-down is required, it would result in a one-time charge to earnings but would not impact net cash flow from operating activities. GOVERNMENT REGULATION OF THE OIL AND GAS INDUSTRY The Company's exploration, production and marketing operations are regulated extensively at the federal, state and local levels, as well as by other countries in which the Company does business. Oil and gas exploration, development and production activities are subject to various laws and regulations governing a wide variety of matters. For example, hydrocarbon-producing states have statutes or regulations addressing conservation practices and the protection of correlative rights, and such regulations may affect Apache's operations and limit the quantity of hydrocarbons Apache may produce and sell. Other regulated matters include marketing, pricing, transportation, and valuation of royalty payments. At the U.S. federal level, the Federal Energy Regulatory Commission (FERC) regulates interstate transportation of natural gas under the Natural Gas Act. Effective January 1, 1993, the Natural Gas Wellhead Decontrol Act deregulated natural gas prices for all "first sales" of natural gas, which includes all sales by Apache of its own production. As a result, all sales of the Company's natural gas produced in the U.S. may be sold at market prices, unless otherwise committed by contract. Apache's gas sales are affected by regulation of intrastate and interstate gas transportation. In an attempt to promote competition, the FERC has issued a series of orders which have altered significantly the marketing and transportation of natural gas. The effect of these orders has been to enable the Company to market its natural gas production to purchasers other than the interstate pipelines located in the vicinity of its producing properties. The Company believes that these changes have generally improved the Company's access to transportation and have enhanced the marketability of its natural gas production. To date, Apache has not experienced any material adverse effect on gas marketing as a result of these FERC orders; however, the Company cannot predict what new regulations may be adopted by the FERC and other regulatory authorities, or what effect subsequent regulations may have on its future gas marketing. 9 11 ENVIRONMENTAL MATTERS Apache, as an owner or lessee and operator of oil and gas properties, is subject to various federal, provincial, state, local and foreign country laws and regulations relating to discharge of materials into, and protection of, the environment. These laws and regulations may, among other things, impose liability on the lessee under an oil and gas lease for the cost of pollution clean-up resulting from operations, subject the lessee to liability for pollution damages, require suspension or cessation of operations in affected areas. Apache maintains insurance coverage which it believes is customary in the industry, although it is not fully insured against all environmental risks. The Company is not aware of any environmental claims existing as of December 31, 1995, which would have a material impact upon the Company's financial position or results of operations. Apache has made and will continue to make expenditures in its efforts to comply with these requirements, which it believes are necessary business costs in the oil and gas industry. Apache has established policies for continuing compliance with environmental laws and regulations, including regulations applicable to its operations in Canada, Australia and other countries. Apache has also established operational procedures designed to limit the environmental impact of its field facilities. The costs incurred by these policies and procedures are inextricably connected to normal operating expenses such that the Company is unable to separate the expenses related to environmental matters; however, the Company does not believe any such additional expenses are material to its financial position or results of operations. Although environmental requirements do have a substantial impact upon the energy industry, generally these requirements do not appear to affect Apache any differently, or to any greater or lesser extent, than other companies in the industry. Apache does not believe that compliance with federal, state, local or foreign country provisions regulating the discharge of materials into the environment, or otherwise relating to the protection of the environment, will have a material adverse effect upon the capital expenditures, earnings or competitive position of the Company or its subsidiaries, but there is no assurance that changes in or additions to laws or regulations regarding the protection of the environment will not have such an impact. COMPETITION The oil and gas industry is highly competitive. Because oil and gas are fungible commodities, the principal form of competition with respect to product sales is price competition. Apache strives to maintain the lowest finding and production costs possible to maximize profits. As an independent oil and gas company, Apache frequently competes for reserve acquisitions, exploration leases, licenses, concessions and marketing agreements against companies with substantially larger financial and other resources than Apache possesses. Moreover, many competitors have established strategic long-term positions and maintain strong governmental relationships in countries in which the Company may seek new entry. Apache expects this high degree of competition to continue. EMPLOYEES On December 31, 1995, Apache had 1,285 full-time employees. OFFICES Apache's principal executive offices are located at One Post Oak Central, 2000 Post Oak Boulevard, Suite 100, Houston, Texas 77056-4400. At year-end 1995, the Company maintained regional exploration and production offices in Tulsa, Oklahoma; Houston, Texas; Calgary, Alberta; and Perth, Western Australia. In 1995, the Company closed its Denver, Colorado office and redeployed those employees to its remaining region offices in connection with the sale of a substantial portion of the Company's Rocky Mountain properties and the reorganization of the Rocky Mountain and Permian Basin regions as Apache's Western region. 10 12 ITEM 2. PROPERTIES OIL AND GAS EXPLORATION AND PRODUCTION PROPERTIES AND RESERVES ACREAGE The developed and undeveloped acreage, including both domestic leases and international production and exploration rights that Apache held as of December 31, 1995, are as follows:
Undeveloped Acreage Developed Acreage -------------------------- ------------------------ Gross Net Gross Net Acres Acres Acres Acres ----- ----- ----- ----- GULF COAST............................................. Alabama............................................ 7,789 1,375 -- -- Florida............................................ 162 14 -- -- Louisiana.......................................... 15,850 11,929 129,020 99,533 Mississippi........................................ 3,921 498 4,850 2,354 Texas.............................................. 106,242 47,842 291,635 142,704 --------- ------- --------- --------- Total.............................................. 133,964 61,658 425,505 244,591 --------- ------- --------- --------- GULF OF MEXICO Alabama............................................ -- -- 34,560 9,457 Louisiana.......................................... 96,433 48,613 294,855 128,377 Texas.............................................. 90,783 57,759 233,334 97,973 --------- ------- --------- --------- Total.............................................. 187,216 106,372 562,749 235,807 --------- ------- --------- --------- MIDCONTINENT Arkansas........................................... 699 327 5,548 3,667 Kansas............................................. 160 56 -- -- Louisiana.......................................... 6,750 4,505 49,394 34,112 Oklahoma........................................... 137,051 55,414 532,359 248,162 Pennsylvania....................................... -- -- 796 38 Texas.............................................. 25,301 14,335 136,372 49,763 --------- ------- --------- --------- Total.............................................. 169,961 74,637 724,469 335,742 --------- ------- --------- --------- WESTERN Colorado........................................... 41,299 36,181 18,938 19,387 Michigan........................................... 200 16 -- -- New Mexico ........................................ 100,357 51,699 122,406 58,936 North Dakota ...................................... 100 50 197 197 Texas.............................................. 130,242 66,986 282,377 210,799 Utah............................................... 2,797 1,091 4,647 4,432 Wyoming............................................ 433,154 226,321 34,820 16,872 --------- ------- --------- --------- Total.............................................. 708,149 382,344 463,385 310,623 --------- ------- --------- --------- TOTAL UNITED STATES 1,199,290 625,011 2,176,108 1,126,763 --------- ------- --------- ---------
11 13
Undeveloped Acreage Developed Acreage ---------------------- ------------------------ Gross Net Gross Net Acres Acres Acres Acres --------- --------- --------- --------- INTERNATIONAL Australia.......................................... 8,312,100 2,954,562 280,460 52,550 Canada............................................. 246,391 156,862 389,903 259,081 China.............................................. 48,677 24,339 -- -- Egypt.............................................. 1,909,080 447,270 18,300 4,575 Indonesia.......................................... 722,290 280,890 -- -- Ivory Coast........................................ 256,243 102,497 -- -- ---------- --------- --------- --------- TOTAL INTERNATIONAL.................................... 11,494,781 3,966,420 688,663 316,206 ---------- --------- --------- --------- TOTAL COMPANY.......................................... 12,694,071 4,591,431 2,864,771 1,442,969 ========== ========= ========= =========
PRODUCTIVE OIL AND GAS WELLS The number of productive oil and gas wells, operated and non-operated, in which Apache had an interest as of December 31, 1995, is set forth below.
Gas Oil -------------------- ---------------- Gross Net Gross Net ------ ----- ----- ----- Gulf of Mexico . . . . . . . . . . . . . . . . . . . . . . 227 76 66 24 Midcontinent . . . . . . . . . . . . . . . . . . . . . . . 1,478 534 1,465 364 Western . . . . . . . . . . . . . . . . . . . . . . . . . 250 125 3,977 1,982 Gulf Coast . . . . . . . . . . . . . . . . . . . . . . . . 328 262 1,083 866 Canada . . . . . . . . . . . . . . . . . . . . . . . . . . 437 301 649 85 Other International . . . . . . . . . . . . . . . . . . . . 5 1 22 4 ----- ----- ----- ----- Total . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,725 1,299 7,262 3,325 ===== ===== ===== =====
GROSS WELLS DRILLED The following table sets forth the number of gross exploratory and gross development wells drilled in the last three fiscal years in which the Company participated. The number of wells drilled refers to the number of wells commenced at any time during the respective fiscal year. "Productive" wells are either producing wells or wells capable of commercial production. At December 31, 1995, the Company was participating in 35 wells in the U.S., six Canadian wells and three international wells in the process of drilling.
Exploratory Developmental ------------------------ ------------------------- Productive Dry Total Productive Dry Total ---------- --- ----- ---------- --- ----- 1995 ---- United States . . . . . . . . . . . . . . . . . . . . 9 15 24 129 21 150 Canada . . . . . . . . . . . . . . . . . . . . . . . 16 13 29 14 5 19 International . . . . . . . . . . . . . . . . . . . . 8 12 20 4 2 6 -- -- -- --- -- --- Total . . . . . . . . . . . . . . . . . . . . . . . 33 40 73 147 28 175 == == == === == === 1994 ---- United States . . . . . . . . . . . . . . . . . . . . 20 17 37 223 39 262 Canada . . . . . . . . . . . . . . . . . . . . . . . 18 12 30 35 3 38 International . . . . . . . . . . . . . . . . . . . . 7 8 15 2 -- 2 Total . . . . . . . . . . . . . . . . . . . . . . . 45 37 82 260 42 302 == == == === == === 1993 ---- United States . . . . . . . . . . . . . . . . . . . . 12 19 31 198 37 235 Canada . . . . . . . . . . . . . . . . . . . . . . . 11 15 26 13 1 14 International . . . . . . . . . . . . . . . . . . . . 3 5 8 -- -- -- Total . . . . . . . . . . . . . . . . . . . . . . . . 26 39 65 211 38 249 == == == === == ===
12 14 NET WELLS DRILLED The following table sets forth, for each of the last three fiscal years, the number of net exploratory and net developmental wells drilled by Apache.
Exploratory Developmental ----------------------- -------------------------- Productive Dry Total Productive Dry Total ---------- --- ----- ---------- --- ----- 1995 ---- United States . . . . . . . . . . . . . . . . . . . . 3.7 6.2 9.9 57.3 14.0 71.3 Canada . . . . . . . . . . . . . . . . . . . . . . . 14.0 9.4 23.4 13.4 3.4 16.8 International . . . . . . . . . . . . . . . . . . . . 2.4 3.0 5.4 0.8 1.4 2.2 ---- ---- ---- ----- ---- ----- Total . . . . . . . . . . . . . . . . . . . . . . . . 20.1 18.6 38.7 71.5 18.8 90.3 ==== ==== ==== ===== ==== ===== 1994 ---- United States . . . . . . . . . . . . . . . . . . . . 10.7 10.4 21.1 100.1 27.0 127.1 Canada . . . . . . . . . . . . . . . . . . . . . . . 13.0 7.0 20.0 28.0 2.0 30.0 International . . . . . . . . . . . . . . . . . . . . 2.3 2.4 4.7 0.4 -- 0.4 - ---- ---- ---- ----- ---- ----- Total . . . . . . . . . . . . . . . . . . . . . . . . 26.0 19.8 45.8 128.5 29.0 157.5 ==== ==== ==== ===== ==== ===== 1993 ---- United States . . . . . . . . . . . . . . . . . . . . 4.2 10.4 14.6 90.4 22.2 112.6 Canada . . . . . . . . . . . . . . . . . . . . . . . 8.0 11.0 19.0 6.0 1.0 7.0 International . . . . . . . . . . . . . . . . . . . . 0.6 1.3 1.9 -- -- -- ---- ---- ---- ----- ---- ----- Total . . . . . . . . . . . . . . . . . . . . . . . . 12.8 22.7 35.5 96.4 23.2 119.6 ==== ==== ==== ===== ==== =====
PRODUCTION AND PRICING DATA The following table describes, for each of the last three fiscal years, oil, natural gas liquids (NGLs) and gas production for the Company, average production costs and average sales prices.
Production Average Sales Price ------------------------- Average ------------------------------------ Year Ended Oil NGLs Gas Production Oil NGLs Gas December 31, (Mbbls) (Mbbls) (MMcf) Cost per boe (per bbl) (per bbl) (per Mcf) - ------------- ------- ------- ------ ------------ --------- --------- --------- 1995 . . . . . . . . . . 18,324 763 210,632 $3.91 $17.09 $12.05 $1.57 1994 . . . . . . . . . . 13,815 724 176,396 3.40 15.65 11.28 1.78 1993 . . . . . . . . . . 13,036 733 131,591 3.94 16.74 11.55 1.94
ESTIMATED RESERVES AND RESERVE VALUE INFORMATION The following information relating to estimated reserve quantities, reserve values and discounted future net revenues is derived from, and qualified in its entirety by reference to, the more complete reserve and revenue information and assumptions included in the Company's financial statements under Item 8 below. The Company's estimates of proved reserve quantities of its U.S., Canadian and certain international properties have been subject to review by Ryder Scott Company Petroleum Engineers. There are numerous uncertainties inherent in estimating quantities of proved reserves and projecting future rates of production and timing of development expenditures. The following reserve information represents estimates only and should not be construed as being exact. See the Supplemental Oil and Gas Disclosures under Item 8 below. 13 15 The following table sets forth the Company's estimated proved developed and undeveloped reserves as of December 31, 1995, 1994 and 1993:
Oil, NGLs and Natural Gas Condensate (Bcf) (MMbbls) ----------- ------------- 1995 ---- Developed . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,298.5 137.5 Undeveloped . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 203.4 32.8 ------- ----- Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,501.9 170.3 ======= ===== 1994 ---- Developed . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,184.9 100.0 Undeveloped . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 131.3 10.6 ------- ----- Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,316.2 110.6 ======= ===== 1993 ---- Developed . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 983.7 92.6 Undeveloped . . . . . . . . . . . . . . . . . . . . . . . . . . . . 141.9 10.4 ------- ----- Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,125.6 103.0 ======= =====
The following table sets forth the estimated future value of all proved reserves of the Company, and proved developed reserves of the Company, as of December 31, 1995, 1994 and 1993. Future reserve values are based on year-end prices except in those instances where the sale of gas and oil is covered by contract terms providing for determinable escalations. Operating costs, production and ad valorem taxes, and future development costs are based on current costs with no escalations.
Present Value of Estimated Future Net Revenues Estimated Future Before Income Taxes Net Revenues (Discounted at 10 Percent) ---------------------- ------------------------------- Proved Proved Proved Developed Proved Developed --------- --------- --------- ---------- (In thousands) December 31, ------------ 1995 . . . . . . . . . . . . . . . . $4,043,024 $3,390,103 $2,344,357 $2,056,558 1994 . . . . . . . . . . . . . . . . 2,581,459 2,390,126 1,600,927 1,512,305 1993 . . . . . . . . . . . . . . . . 2,591,290 2,289,172 1,626,096 1,450,669
At December 31, 1995, estimated future net revenues expected to be received from all proved reserves of the Company, and from proved developed reserves of the Company, were as follows:
Proved Proved Developed --------- --------- (In thousands) December 31, ------------ 1996 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 457,946 $ 481,326 1997 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 441,549 418,612 1998 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 413,937 345,572 Thereafter . . . . . . . . . . . . . . . . . . . . . . . . . . 2,729,592 2,144,593 ---------- ---------- Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $4,043,024 $3,390,103 ========== ==========
The Company believes that no major discovery or other favorable or adverse event has occurred since December 31, 1995, which would cause a significant change in the estimated proved reserves reported herein. The estimates above are based on year-end pricing in accordance with the SEC guidelines and do not reflect current prices. Since January 1, 1995, no oil or gas reserve information has been filed with, or included in any report to, any U.S. authority or agency 14 16 other than the SEC and the Energy Information Administration (EIA). The basis of reporting reserves to the EIA for the Company's reserves is identical to that set forth in the foregoing table. TITLE TO INTERESTS The Company believes that its title to the various interests set forth above is satisfactory and consistent with the standards generally accepted in the oil and gas industry, subject only to immaterial exceptions which do not detract substantially from the value of the interests or materially interfere with their use in the Company's operations. The interests owned by the Company may be subject to one or more royalty, overriding royalty and other outstanding interests customary in the industry. The interests may additionally be subject to obligations or duties under applicable laws, ordinances, rules, regulations and orders of arbitral or governmental authorities. In addition, the interests may be subject to burdens such as net profits interests, liens incident to operating agreements and current taxes, development obligations under oil and gas leases and other encumbrances, easements and restrictions, none of which detract substantially from the value of the interests or materially interfere with their use in the Company's operations. ITEM 3. LEGAL PROCEEDINGS The information set forth under the caption "Litigation" in Note 10 to the Company's financial statements under Item 8 below is incorporated herein by reference. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS No matters were submitted for a vote of security holders during the fourth quarter of 1995. 15 17 PART II ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS Apache's common stock, par value $1.25 per share, is traded on the New York Stock Exchange and the Chicago Stock Exchange under the symbol APA. The table below provides certain information regarding Apache common stock for 1995 and 1994. Prices shown are from the New York Stock Exchange Composite Transactions Reporting System.
1995 1994 ---------------------------- ------------------------------ Price Range Price Range ------------- Dividends --------------- Dividends High Low per Share High Low per Share ---- --- --------- ---- --- --------- First Quarter . . . . . . . . . . . . . . . $27 3/8 $22 1/4 $ .07 $26 7/8 $22 1/2 $ .07 Second Quarter . . . . . . . . . . . . . . 31 25 3/8 $ .07 29 1/4 22 1/4 $ .07 Third Quarter . . . . . . . . . . . . . . . 30 1/4 25 3/4 $ .07 29 1/4 23 $ .07 Fourth Quarter . . . . . . . . . . . . . . 29 5/8 23 1/8 $ .07 28 7/8 23 5/8 $ .07
The closing price per share of Apache common stock, as reported on the New York Stock Exchange Composite Transactions Reporting System for February 29, 1996, was $26.00. At December 31, 1995, there were 77,378,958 shares of Apache common stock outstanding, held by approximately 12,000 shareholders of record and 30,000 beneficial owners. Each share of Apache common stock also represents one preferred share purchase right which, when exercisable, would entitle the holder to purchase one ten-thousandth of a share of Series A Junior Participating Preferred Stock for a purchase price of $100 and, under certain circumstances, would entitle the holder to acquire additional shares of Apache common stock. See Note 7 to the Company's financial statements under Item 8 below. The Company has paid cash dividends on its common stock for 116 consecutive quarters through December 31, 1995, and intends to continue the payment of dividends at current levels, although future dividend payments will depend upon the Company's level of earnings, financial requirements and other relevant factors. 16 18 ITEM 6. SELECTED FINANCIAL DATA The following table sets forth selected financial data of the Company and its consolidated subsidiaries for each of the years in the five-year period ended December 31, 1995, which information has been derived from the Company's audited financial statements. Apache's previously reported data for 1995 and prior years has been restated to reflect the merger with DEKALB under the pooling of interests method of accounting. This information should be read in connection with and is qualified in its entirety by the more detailed information in the Company's financial statements under Item 8 below.
At or for the Year Ended December 31, ----------------------------------------------------------------------- 1995 1994 1993(a) 1992(b) 1991(c) ----------- ---------- ---------- ---------- ---------- (In thousands, except per share amounts) INCOME STATEMENT DATA Total revenues $ 750,702 $ 592,626 $ 512,632 $ 517,403 $ 457,872 Income (loss) from continuing operations 20,207 45,583 41,421 (14,632) (35,216) Income (loss) per common share - continuing operations .28 .65 .67 (.26) (.65) Cash dividends per common share(d) .28 .28 .28 .28 .28 BALANCE SHEET DATA Working capital (deficit) $ (22,013) $ (3,203) $ (55,538) $ (32,775) $ (57,593) Total assets 2,681,450 2,036,627 1,759,203 1,774,767 1,597,633 Long-term debt 1,072,076 719,033 504,334 524,098 658,395 Shareholders' equity 1,091,805 891,087 868,596 554,524 601,181 Common shares outstanding at end of year 77,379 69,666 69,504 55,361 55,305
(a) Includes financial data for Hadson Energy Resources Corporation (subsequently Apache Energy Resources Corporation) after June 30, 1993, and for Hall-Houston Oil Company after July 31, 1993. See Note 1 to the Company's financial statements under Item 8 below. (b) The net loss in 1992 resulted from the sale of substantially all of DEKALB's U.S. assets for a loss of $25.6 million after-tax. DEKALB also reported Canadian ceiling test write-downs of $15.9 million after-tax and U.S. ceiling test write-downs of $24.7 million after-tax. (c) Includes financial data for MW after June 30, 1991. The net loss in 1991 resulted from DEKALB reporting U.S. ceiling test write-downs of $66 million after-tax. (d) No cash dividends were paid on outstanding DEKALB common stock in 1995, 1994, 1993 and 1992. Cash dividends paid on DEKALB common stock totaled $.8 million in 1991. Reference is made to Item 7, "MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS," for a discussion of significant acquisitions and to Note 2 to the Company's financial statements under Item 8 below. 17 19 ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS OVERVIEW Apache's results of operations and financial position during 1995 were significantly impacted by the following factors: PROPERTY ACQUISITIONS - Acquisitions continued to be a significant part of Apache's growth strategy in 1995, with the Company adding over 156 MMboe of proved reserves during the year through purchases. Led by the addition of interests from Texaco Exploration and Production Inc. (Texaco) and Aquila Energy Resources Corporation (Aquila), Apache spent $820.9 million on the acquisition of oil and gas properties during 1995. Acquisitions were a major force behind Apache posting its 18th consecutive year of production growth and record year-end reserves of 420.6 MMboe. The Texaco and Aquila properties, combined with properties acquired from Crystal Oil Company (Crystal) in late 1994, boosted Apache's 1995 production by nearly 92 MMcf/d of natural gas and 17 Mb/d of oil. DEKALB MERGER - On May 17, 1995, Apache acquired DEKALB Energy Company (DEKALB, now known as DEK Energy Company) through a merger which resulted in DEKALB becoming a wholly-owned subsidiary of Apache. Pursuant to the merger agreement, Apache issued 8.4 million shares of its common stock in exchange for outstanding DEKALB stock and DEKALB employee stock options that remained outstanding at the time of the merger. The merger was accounted for as a "pooling of interests." As a result, Apache's financial information for all preceding periods and the following management discussion have been prepared on a combined basis using the pooling of interests method of accounting. Apache's earnings for 1995 were reduced by a non-recurring pre-tax charge of approximately $10 million for investment banking fees, severance payments and other costs associated with the merger. The merger costs, which are largely non-deductible for income tax purposes, reduced Apache's 1995 net income by $8.7 million, or $.12 per share. COMMODITY PRICES - During 1995, natural gas spot prices remained volatile, fluctuating from a low of $1.25 per Mcf in July to a high of $2.07 per Mcf in December. Domestic spot prices during the first eight months of 1995 lagged behind comparable prices in 1994, then rebounded above 1994 levels during the last four months of the year. As a result, Apache's average gas price for 1995 was down 12 percent from a year ago, negatively impacting earnings by approximately $26 million. A nine-percent increase in the Company's average oil price from 1994 offset nearly $16 million of the impact of lower gas prices. On an equivalent basis, prices negatively impacted earnings by $.15 per share. HEDGING LOSS - In December 1995, Apache recorded a pre-tax hedging loss of $9.3 million resulting from the decoupling of New York Mercantile Exchange (NYMEX) natural gas futures prices and actual cash prices received by producers for natural gas delivered throughout most of the United States. The loss, which stems from contracts for January through March, 1996 deliveries, reduced Apache's 1995 net income by $5.9 million, or $.08 per share. RESULTS OF OPERATIONS NET INCOME AND REVENUE Apache reported 1995 net income of $20.2 million, or $.28 per share, compared with $45.6 million, or $.65 per share in 1994. The decline was due to the lower natural gas realizations and the non-recurring charges noted above. Absent one-time charges for the merger costs and hedging loss, 1995 earnings would have totaled $.48 per share. 18 20 Revenues for 1995 totaled $750.7 million, an increase of 27 percent from a year ago. Apache's oil and gas production revenues, boosted by record levels of oil and gas production and a $1.44 per barrel increase in Apache's average realized oil price, rose 21 percent from 1994. A 12 percent decline in the Company's average realized gas price dampened further improvement in Apache's oil and gas production revenues. Also during 1995, Apache more than doubled its gathering, processing and marketing revenues to $97.2 million. Volume and price information concerning the Company's oil and gas production is summarized below:
Selected Oil and Gas Operating Statistics 1995 1994 1993 - --------------------- ----------- ---------- --------- Natural Gas Volume - Mcf per day: United States . . . . . . . . . . . . . . 500,441 419,161 299,486 Canada . . . . . . . . . . . . . . . . . . 67,083 56,142 57,449 International . . . . . . . . . . . . . . 9,551 7,975 3,589 ---------- ---------- --------- Total . . . . . . . . . . . . . . . . . . 577,075 483,278 360,524 ========== ========== ========= Average Natural Gas Price - Per Mcf . . . . . $ 1.57 $ 1.78 $ 1.94 Oil Volume - Barrels per day: United States . . . . . . . . . . . . . . 45,084 32,669 31,809 Canada . . . . . . . . . . . . . . . . . . 1,999 2,003 2,033 International . . . . . . . . . . . . . . 3,120 3,177 1,874 ---------- ---------- --------- Total . . . . . . . . . . . . . . . . . . 50,203 37,849 35,716 ========== ========== ========= Average Oil Price - Per barrel . . . . . . . . $ 17.09 $ 15.65 $ 16.74 Natural Gas Liquids (NGL) - Barrels per day: . . . . . . . . . . . . . 2,090 1,985 2,008 Average NGL Price - Per barrel . . . . . . . . $ 12.05 $ 11.28 $ 11.55
Natural gas sales contributed $330.7 million to 1995 revenues, up five percent from 1994 as production gains from acquisitions and drilling more than offset the impact of a $.21 per Mcf decline in the Company's average realized gas price. Acquisitions boosted Apache's 1995 gas production by approximately 92 MMcf/d, while drilling additions outpaced the impact of property divestitures and natural depletion. Apache realized production gains in each of its three operating areas; the United States, Canada and Australia. In addition to production gains from drilling, the Australian sales benefited from new markets for its natural gas. The Company's average realized natural gas price declined 12 percent from 1994, negatively impacting sales by approximately $44 million. Reflecting an increase in both production and prices, oil sales jumped 45 percent in 1995 to $313.2 million. Apache's oil production rose 12.4 Mb/d, or 33 percent, from a year ago as property divestitures and natural depletion partially offset the 17 Mb/d of production added through acquisitions. The Company's average realized oil price increased nine percent in 1995 to $17.09 per barrel. Revenues from the sale of natural gas liquids totaled $9.2 million in 1995, up 13 percent from a year ago due to higher prices and a slight increase in volumes. 19 21 Gathering, processing and marketing revenues in 1995 more than doubled from a year ago to $97.2 million. The revenue increase primarily reflects additional volumes sold under crude oil and natural gas contracts, an activity that typically has low margins. Apache's gross margin from gathering, processing and marketing activities declined seven percent from a year ago due to the sale of the Company's interest in the Little Knife gas plant as part of Apache's divestiture of Rocky Mountain properties, reduced gathering volumes, and a lower per-barrel crude-oil margin resulting from a higher mix of low-margin sour-grade oil. Other revenues in 1995 of $.4 million reflects $4.3 million of contract settlement income, $2.2 million in gains from the sales of non-oil-and-gas assets, $1.1 million of Canadian royalty credits and $2.1 million of other income, offset by the $9.3 million hedging loss from the decoupling of NYMEX and wellhead prices. COSTS AND EXPENSES Operating costs increased $62.3 million, or 42 percent, in 1995 due to the impact of Apache's acquisitions. Based on an equivalent unit of production, operating costs increased $.51 per barrel to $3.91 per barrel for 1995. The 15- percent increase in unit cost reflects the high percentage of oil properties comprising the Texaco acquisition, as oil properties typically have a higher per-unit cost than gas properties. Depreciation, depletion and amortization (DD&A) expense rose 15 percent from a year ago due to the increase in oil and gas production. On a per unit basis, DD&A expense declined six percent to $5.49 per boe. Apache's full cost amortization rates fell in the United States, Canada and Australia due to the favorable impact of reserve additions and revisions. Administrative, selling and other costs declined $2.2 million, or six percent, in 1995 due primarily to the elimination of duplicate administrative functions following the merger of DEKALB into Apache. Apache integrated its 1995 acquisitions with minimal increases in administrative staff. On an equivalent unit of production basis, administrative, selling and other costs declined 24 percent from 1994 to $.67 per boe. Net financing costs of $70.6 million were slightly more than double the 1994 amount due to increased debt levels from acquisitions and due to higher interest rates. Apache's average interest rate increased from 6.3 percent in 1994 to 7.4 percent in 1995 due to higher market rates and Apache's higher debt to total capitalization rate following the acquisition of properties from Texaco. HEDGING ACTIVITY The Company periodically enters into hedging activities with respect to a portion of its projected oil and natural gas production through a variety of financial arrangements intended to support oil and natural gas prices at targeted levels and to minimize the impact of price fluctuations. Apache uses swaps, puts, collars and fixed-price contracts to hedge its commodity prices. As noted in the Company's significant accounting policies, normal recurring gains or losses on these activities are recognized in oil and gas production revenues when the hedged volumes are produced. In 1995, Apache recognized net recurring gains from hedging activities which boosted oil and gas production revenues by approximately $1.5 million and $3.5 million, respectively. These gains increased the Company's average realized oil and natural gas prices in 1995 by $.08 per barrel and $.02 per Mcf, respectively. Also in 1995, the Company realized $4.8 million of gains from hedging activities that relate to future production periods. These gains will be recognized in oil and gas production revenues over periods ranging from one to 60 months based on physical production. During the fourth quarter of 1995, Apache entered into swap agreements for January, February and March 1996 production under which the Company will receive a fixed price averaging $1.98 per Mcf on approximately 300 MMcf/d. The hedges, which covered approximately one-half of Apache's expected natural gas production, will limit the upside potential from the physical sale of Apache's natural gas during the first quarter of 1996. 20 22 In addition to limiting first quarter 1996 gas prices, the hedges on the 1996 production resulted in a charge to current year earnings. In late 1995, a marketing anomaly developed in which NYMEX natural gas futures prices, commonly used as the reference price in hedge agreements, lost their correlation to wellhead prices. Due to frigid temperatures in the northeastern United States and pipeline constraints in the nation's gas transportation system, NYMEX natural gas prices rose substantially higher than prices received by producers west of the Mississippi River. Producers, such as Apache, with large volumes of production in Texas and Oklahoma were unable to realize the record increases in NYMEX prices. As a result of this significant decoupling of NYMEX and wellhead prices, Apache recognized a pre-tax hedging loss of $9.3 million in 1995 which was reported as a reduction of Other Revenues on the Company's Statement of Consolidated Income. Effective with contracts covering April 1996 and subsequent deliveries, Apache has limited its hedges to production volumes deliverable to the northeastern United States. PRIOR YEAR COMPARATIVE INFORMATION Apache reported net income for 1994 of $45.6 million, a three-percent decrease from 1993 earnings of $46.8 million. The Company's 1993 net income included a one-time benefit of $5.3 million, or $.08 per share, for the cumulative effects of a change in accounting principle related to the adoption of the liability method of accounting for income taxes under Statement of Financial Accounting Standards (SFAS) No. 109. Significant factors contributing to the higher income from continuing operations were increased oil production and substantially increased natural gas production, partially offset by decreases in oil and natural gas prices. Revenues for 1994 totaled $592.6 million, or 16 percent higher than in 1993. Oil and gas production revenues in 1994 totaled $538.4 million, an increase of 12 percent over oil and gas production revenues of $481.8 million in the prior year. Oil and gas production revenues in 1994 were influenced by record natural gas production, declining natural gas prices, increased oil production and lower average oil prices for the year. In addition, Apache's gathering, processing and marketing revenues increased 71 percent to $44.3 million in 1994 from $25.9 million in 1993. Natural gas sales contributed $314 million to revenues, up 23 percent from 1993, the result of higher annual production partially offset by lower prices during 1994. Gas production for the year averaged 483 MMcf/d, up 34 percent from 1993, positively affecting gas sales by $87 million. This increase is principally the result of production increases from developmental drilling and the contribution of 12 months of operations from properties acquired in 1993, the most significant of which were the offshore properties acquired from Hall-Houston Oil Company (Hall-Houston) and the properties added through Apache's mid-1993 merger with Hadson Energy Resources Corporation (subsequently known as Apache Energy Resources Corporation or AERC). Acquisitions added approximately 50 MMcf/d of production increases for the year, whereas developmental drilling and recompletions accounted for nearly 73 MMcf/d. Apache's average realized price for its natural gas was $1.78 per Mcf during 1994, eight percent lower than the average price of $1.94 per Mcf during 1993, which negatively affected natural gas sales by $28.2 million. Natural gas prices remained depressed during the second half of 1994 due to warmer than usual weather in the northeastern United States and higher volumes of gas held in inventory by utilities and gas storage facilities. Hedging activities increased Apache's 1994 natural gas price by $.02 per Mcf ($3 million in sales) compared to a $.04 per Mcf decrease ($5.4 million in sales) in 1993. The impact of increased oil production was offset by lower oil prices in 1994. Oil production contributed $216.2 million to revenues during 1994, less than one percent below Apache's oil sales in 1993. Average daily oil production of approximately 37.9 Mbbls reflected a six percent increase over the prior year, positively affecting oil sales by $13 million, as acquisitions offset the effects of natural depletion. Oil sales represented 40 percent of total oil and gas production revenues in 1994 compared to 45 percent of total oil and gas production revenues in 1993. 21 23 The Company's average realized oil price for 1994 of $15.65 per barrel declined seven percent from 1993, negatively affecting oil sales by $15 million. Apache's average realized oil prices in 1994 ranged from $12.64 per barrel in March to $17.84 per barrel in July. Hedging activities increased Apache's average realized oil price by $.20 per barrel ($2.7 million in sales) as compared to a $.37 per barrel increase ($4.8 million in sales) in 1993. The 1994 hedges were in the form of floating for fixed price swap agreements with respect to the sale of oil, whereas 1993 sales hedges were due to the price support hedging agreement with Amoco Production Company. Revenues from the sale of natural gas liquids decreased four percent from 1993, to $8.2 million in 1994. Revenues from gas gathering, processing and marketing were $44.3 million in 1994, up 71 percent from 1993. The revenue increase primarily reflects additional volumes sold under crude oil and natural gas contracts, an activity that generally creates relatively low margins. Gross margins from gathering, processing and marketing were $6.4 million in 1994, an increase of 32 percent from 1993. Other revenues increased to $9.5 million in 1994, up from $4.3 million in 1993. Non-recurring revenues in 1994 included $4 million from the favorable resolution of take-or-pay contract issues, $2.2 million in gains from the sale of stock held for investment and $3.3 million of other income. Operating costs per equivalent unit of production declined 14 percent in 1994, as a 23-percent increase in production volumes more than offset a six-percent increase in operating costs. Aggregate operating costs increased from $140.6 million in 1993 to $149.5 million in 1994. On an equivalent unit of production basis, operating costs in 1994 declined to $3.40 per boe, down from $3.94 per boe in 1993. Apache's declining costs per boe reflect increasing natural gas production and lower production costs. DD&A expense rose 30 percent year-over-year to $257.8 million due to increased oil and natural gas production and a higher U.S. amortization rate expressed on a boe basis. Apache's U.S. amortization rate increased from $5.61 per boe in 1993 to $5.88 per boe in 1994 due to higher finding costs during the last two years. Recurring international DD&A expense increased as higher Australian production more than offset the impact of lower Canadian production. Although Apache increased its international exploration activity in 1994, international impairments declined to $7.3 million in 1994 from $23.2 million in 1993, reflecting the Company's successful international exploration efforts in China, Egypt and Indonesia during 1994. Administrative, selling and other costs increased $2.1 million in 1994, or six percent from 1993. These costs, on an equivalent unit of production basis, declined 15 percent from the prior year to $.88 per boe in 1994 from $1.03 per boe in 1993, reflecting the increase in production over the prior year and results of the Company's continuing efforts to contain costs. The Company integrated AERC and the Hall-Houston properties with minimal increases in administrative staff. Net financing costs of $34.7 million were 13 percent higher than 1993, primarily a result of increasing interest rates and increased debt from acquisitions. Effective interest rates on Apache's floating rate debt, which includes all advances under its bank credit facility, increased approximately 59 percent over year-end 1993, as market rates increased at six different times during the year. 22 24 CASH FLOW, LIQUIDITY AND CAPITAL RESOURCES CAPITAL COMMITMENTS Apache's primary needs for cash are for exploration, development and acquisition of oil and gas properties, repayment of principal and interest on outstanding debt, payment of dividends, and capital obligations for affiliated ventures. The Company generally funds its exploration and development activities through internally generated cash flows. Apache budgets its 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. CAPITAL EXPENDITURES - A summary of oil and gas capital expenditures over the last three years is presented below:
1995 1994 1993 ------------ ------------ ------------ (In thousands) Exploration and Development: United States . . . . . . . . . . . . . . . $ 216,430 $ 270,588 $ 200,924 Canada . . . . . . . . . . . . . . . . . . . 27,788 41,595 18,901 Other International . . . . . . . . . . . . 67,950 31,942 18,006 ------------ ------------ ------------ Total . . . . . . . . . . . . . . . . . . . $ 312,168 $ 344,125 $ 237,831 ============ ============ ============ Acquisitions of Oil and Gas Properties $ 820,918 $ 180,742 $ 326,676 ============ ============ ============
Expenditures for exploration and development totaled $312.2 million in 1995 compared to $344.1 million in 1994. Apache's drilling program in 1995 added 54 MMboe of reserves (including revisions), replacing 100 percent of production. In the U.S., Apache completed 138 gross wells as producers out of 174 gross wells drilled during the year compared with 210 gross producers out of 299 gross wells drilled in 1994. With DEKALB's merger into Apache in 1995 and a higher level of funds spent on acquisitions, the number of wells drilled in Canada declined from 68 gross wells in 1994 to 48 gross wells in 1995. Internationally, the Company had discoveries from 12 of 26 wells drilled in 1995 compared to nine of 17 wells in 1994. The international wells drilled in 1995 included six successful wells in Egypt, from which full production is expected to commence by mid 1996, and two wells with oil and gas shows in the People's Republic of China. Since 1994, Apache has spent approximately $25 million on exploratory wells in the Zhao Dong Block in China, with three successful wells. Apache, which recently announced plans to proceed with the second exploration phase under its contract with the People's Republic of China, is continuing to appraise the field. U.S. and Canadian expenditures for exploration and development in 1996, including workover and recompletion operations, are expected to be comparable to the 1995 expenditure level. The Company expects its other international exploration and development expenditures in 1996 to total approximately $120 million. Cash expenditures for acquisitions of oil and gas properties during 1995 totaled $820.9 million as the Company added 156 MMboe of oil and gas reserves through purchases. The most significant of the 59 transactions Apache completed during 1995 were the Company's acquisition of properties from Texaco and Aquila. 23 25 On March 1, 1995, Apache purchased certain U.S. oil and gas properties from Texaco for approximately $567 million in cash, subject to adjustment. Apache delivered a $25 million deposit, representing a portion of the purchase price, upon execution of the purchase and sale agreement with Texaco in December 1994, and delivered the balance, in cash, at closing. Funds for the Texaco transaction were obtained from several sources, including increased borrowing capacity under the Company's bank credit facility and proceeds of Apache's $172.5 million 6-percent Convertible Subordinated Debentures due 2002 (6-percent debentures), which were issued on January 4, 1995. In September 1995, Apache acquired substantially all of the oil and gas assets of Aquila for approximately $210 million. The oil and gas properties included approximately 107,000 developed and 49,000 undeveloped net acres located primarily in Apache's Anadarko Basin and Gulf of Mexico core areas. Also included in the transaction was the purchase of a five-year, four-month premium-gas contract and interests in four gas processing plants. Cash expenditures for acquisitions, excluding AERC, totaled $180.7 million in 1994 compared to $192.3 million in 1993. The most significant acquisition that Apache closed during 1994 was the purchase of substantially all of the U.S. oil and gas properties of Crystal for $95.8 million. Apache also acquired approximately $84.9 million of other oil and gas properties through a number of separate transactions during 1994. Funds for the 1994 acquisitions were obtained principally from borrowings under the Company's revolving bank credit facility. The aggregate cost of acquisitions in 1993, including the value of the shares issued and liabilities added through the acquisition of AERC, totaled $326.7 million. Apache's most significant transactions during 1993 were its acquisitions of oil and gas properties from Hall-Houston for $113.7 million in cash and the acquisition of AERC for approximately $98 million in cash and the issuance of 307,977 shares of Apache common stock. Apache also acquired more than $78.6 million of other properties during 1993, primarily representing purchases of additional working interests in properties in which Apache already held an interest. Other capital expenditures for 1993 include the purchase of Natural Gas Clearinghouse's (NGC) interest in a gas gathering system in Oklahoma, which Apache sold in March 1993, as described under "Capital Resources and Liquidity" below. DEBT AND INTEREST COMMITMENTS - At December 31, 1995, Apache had outstanding $620 million under its revolving bank credit facility and an aggregate of $455.1 million in principal amount of other debt, comprised principally of notes and debentures maturing in the years 1997 through 2002. Apache made cash payments on debt totaling $500.6 million in 1995, of which less than $1 million was scheduled under the Company's debt obligations. The 1995 payments on debt reflect the reduction of amounts outstanding on the Company's revolving credit facility after issuing $172.5 million of 6-percent debentures in January 1995, and the reduction of debt through property sales to achieve the Company's stated goal of maintaining a debt level below 50 percent of total capitalization. Interest payments on the Company's outstanding debt obligations during 1996 are projected (using weighted average balances for floating rate obligations) to be approximately $82 million, while scheduled principal payments for 1996 currently total $3 million. DIVIDEND PAYMENTS - Dividends paid during 1995 totaled $18.9 million, up 10 percent from 1994, primarily due to the issuance of 7.45 million shares of the Company's common stock in connection with the September 1995 common stock offering. The Company's dividend policy currently provides for the payment of regular quarterly dividends at the rate of $.28 per share annually, subject to the Company's cash requirements, applicable debt covenants and other factors deemed relevant by the Board of Directors. 24 26 CAPITAL RESOURCES AND LIQUIDITY The Company's primary capital resources are net cash provided by operating activities, proceeds from financing activities and proceeds from sales of non-strategic assets. NET CASH PROVIDED BY OPERATING ACTIVITIES - Apache's net cash provided by operating activities during 1995 totaled $332.1 million, down $25.6 million from 1994. The prior-year cash flow included a $67.4 million advance on future gas deliveries related to the Company's sale of approximately 43.8 Bcf of natural gas for delivery over a six-year period. Eliminating the effects of the forward sale transaction, net cash provided by operating activities in 1995 increased by five percent over 1994, reflecting the results of increased production partially offset by lower gas prices and non- recurring charges. Net cash provided by operating activities in 1994 was up $101.8 million from 1993 primarily due to increased natural gas production and the $67.4 million forward sale of gas. LONG-TERM BORROWINGS - On January 4, 1995, Apache completed the issuance of $172.5 million principal amount of its 6-percent debentures to reduce bank debt, provide funding for acquisitions and for general corporate purposes. The debentures are convertible at the option of the holder into Apache common stock at a conversion price of $30.68 per share. Costs associated with the issue of these debentures totaled $4.4 million. On March 1, 1995, in connection with the acquisition of certain oil and gas properties from Texaco, lenders increased the size of Apache's revolving credit facility from $700 million to $1 billion, subject to borrowing base availability. The borrowing base is the estimated loan value of the Company's oil and gas reserves, not including reserves outside the United States and subject to certain other exclusions, based upon forecast rates of production, as periodically redetermined by the lenders. Under terms of the credit agreement at December 31, 1995, the Company must (i) maintain a minimum consolidated tangible net worth of $816 million, which is adjusted quarterly for subsequent earnings and securities transactions, and (ii) maintain a ratio of (a) earnings before interest expense, state and federal taxes, and depreciation, depletion and amortization to (b) consolidated interest expense, of not less than 3.7:1. Restrictive covenants under the facility include certain limitations on indebtedness and contingent obligations, as well as certain restrictions on liens. The Company has complied with its financial ratios and restrictive covenants at all times since the inception of the revolving credit facility in July 1991. The facility matures on March 1, 2000, and may be extended in one-year increments with the lenders' consent. On February 27, 1996, Apache completed its offering of $100 million principal amount of unsecured 7.7% notes due March 15, 2026. Proceeds from the notes will be used to reduce amounts outstanding under the Company's revolving bank credit facility. STOCK TRANSACTIONS - On September 27, 1995, Apache closed an equity offering of 7.45 million shares of Apache common stock. Net proceeds of approximately $195.5 million were used to repay existing indebtedness under the Company's revolving bank credit facility, to finance the Aquila transaction and for general corporate purposes. In March 1993, Apache completed the public offering of approximately 5.8 million shares of Apache common stock for net proceeds of $131.8 million. Net proceeds of the offering were used to repay outstanding debt under Apache's revolving bank credit facility. In September 1993, Apache completed the conversion of its 7 1/2-percent convertible subordinated debentures due 2000, resulting in the issuance of approximately 7.8 million shares of Apache common stock. In addition to the public offerings, Apache issued 307,977 shares of Apache common stock in conjunction with its mid-1993 acquisition of AERC. 25 27 ASSET SALES - In early 1995, Apache announced plans to accelerate the disposition of lower-margin and non-strategic properties, including the sale of a substantial portion of its Rocky Mountain properties. During 1995, Apache received $271.9 million from the sale of such properties, utilizing the proceeds to reduce bank debt. Apache received $19.5 million and $10.3 million from the sale of non-strategic oil and gas properties during 1994 and 1993, respectively. In March 1993, Apache and NGC completed the sale of their respective interests in a gathering system located in western Oklahoma. Apache received gross cash proceeds of approximately $32.2 million in the transaction, of which $16.4 million was attributable to NGC's interest in the system. LIQUIDITY - The Company had $13.6 million in cash and cash equivalents on hand at December 31, 1995, down from $30 million at the end of 1994. Apache utilized available cash in 1995 to reduce its bank debt and resulting debt to total capitalization ratio, achieving a reduction in the Company's interest rates. Apache's ratio of current assets to current liabilities at year end of .90:1 declined slightly from a ratio of .98:1 at December 31, 1994. Management believes that cash on hand at year end, net cash generated from operations and available borrowing capacity under its revolving bank 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. FUTURE TRENDS Apache's growth strategy is to increase oil and gas reserves, production and cash flow through a combination of acquisitions, moderate-risk drilling and development of its inventory of existing properties. An emerging aspect of Apache's strategy is its exploration and development activity in the international arena where there are generally larger reserve targets than in North America. In 1996, Apache expects domestic exploration and development outlays to be comparable to those reported in 1995 as the Company focuses on reserve enhancement and cash flow acceleration on recently acquired properties. Internationally, the Company projects capital expenditures to nearly double from 1995 as Apache continues to exploit its concessions in Western Australia, Egypt, China and Indonesia. Proposed exploration and development expenditures in 1996 will be reviewed at least quarterly in light of fluctuating product prices and Apache's objective to fund operations through internally generated cash flow. NATURAL GAS MARKETING On September 30, 1995, the Company's contract with NGC terminated, and Apache began to market all of its own natural gas. The Company believes the prices that it obtains through its own marketing activities are not substantially different from the prices that would have been received through NGC. In October 1995, subsidiaries of Apache, Oryx Energy Company and Parker & Parsley Petroleum Company announced their formation of Producers Energy Marketing, LLC (ProEnergy), a natural gas marketing company organized to create a direct link between natural gas producers and purchasers. ProEnergy is designed to purchase and sell producer-owned gas directly into the marketplace at index prices substantially equivalent to spot market prices and provide expanded value to its customers. Until ProEnergy is fully operational, which is expected to occur in the second quarter of 1996, Apache will continue to market its own natural gas. Apache and other members of ProEnergy have agreed to fund the reasonably anticipated capital needs of ProEnergy. In January 1996, Apache paid $5.8 million to ProEnergy for Apache's share of capital-funding obligations for the start-up of ProEnergy. 26 28 ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA The financial statements and supplementary financial information required to be filed under this item are presented on pages F-1 through F-34 of this Form 10-K, and are incorporated herein by reference. ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE None. 27 29 PART III ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT The information set forth under the captions "Information About Nominees for Election as Directors," "Continuing Directors," "Executive Officers of the Company," and "Voting Securities and Principal Holders" in the Company's proxy statement relating to the Company's 1996 annual meeting of shareholders (the "Proxy Statement") is incorporated herein by reference. ITEM 11. EXECUTIVE COMPENSATION The information set forth under the captions "Summary Compensation Table," "Option/SAR Grants Table," "Option/SAR Exercises and Year-End Value Table," "Employment Contracts and Termination of Employment and Change-in-Control Arrangements," and "Director Compensation" in the Proxy Statement is incorporated herein by reference. ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT The information set forth under the caption "Voting Securities and Principal Holders" in the Proxy Statement is incorporated herein by reference. ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS The information set forth under the caption "Certain Business Relationships and Transactions" in the Proxy Statement is incorporated herein by reference. 28 30 PART IV ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K (a) Documents included in this report: 1. Financial Statements Report of independent public accountants . . . . . . . . . . . . . . . . . . . . . . F-1 Auditors' report . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . F-2 Report of management . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . F-3 Statement of consolidated income for each of the three years in the period ended December 31, 1995 . . . . . . . . . . . . . . . . . . . . . . F-4 Statement of consolidated cash flows for each of the three years in the period ended December 31, 1995 . . . . . . . . . . . . . . . . . . . . . . F-5 Consolidated balance sheet as of December 31, 1995 and 1994 . . . . . . . . . . . . F-6 Statement of consolidated shareholders' equity for each of the three years in the period ended December 31, 1995 . . . . . . . . . . . . . . . . F-8 Notes to consolidated financial statements . . . . . . . . . . . . . . . . . . . . . F-9 Supplemental oil and gas disclosures . . . . . . . . . . . . . . . . . . . . . . . . F-28 Supplemental quarterly financial data . . . . . . . . . . . . . . . . . . . . . . . F-34
2. Financial Statement Schedules Financial statement schedules have been omitted because they are either not required, not applicable or the information required to be presented is included in the Company's financial statements and related notes. 29 31 3. Exhibits
Exhibit No. Description ----------- ----------- 2.1 -- Stock Purchase Agreement, dated July 1, 1991, between Registrant and Amoco Production Company (incorporated by reference to Exhibit 10.1 to Registrant's Current Report on Form 8-K, dated July 1, 1991, SEC File No. 1-4300, filed July 19, 1991). 2.2 -- Purchase and Sale Agreement between Hall-Houston Oil Company, as seller, and Registrant, as buyer, dated as of June 2, 1993 (incorporated by reference to Exhibit 10.1 to Registrant's Current Report on Form 8-K, dated August 31, 1993, SEC File No. 1-4300, filed September 7, 1993). 2.3 -- Purchase and Sale Agreement between Hall-Houston Oil Company, as seller, and Registrant, as buyer, dated as of August 13, 1993 (incorporated by reference to Exhibit 10.2 to Registrant's Current Report on Form 8-K, dated August 31, 1993, SEC File No. 1-4300, filed September 7, 1993). 2.4 -- Form of Acquisition Agreement between Registrant, HERC Acquisition Corporation and Hadson Energy Resources Corporation, dated August 26, 1993, and amended September 28, 1993 (incorporated by reference to Exhibit 2.1 to Registrant's Registration Statement on Form S-4, Registration No. 33- 67954, filed September 29, 1993). 2.5 -- Purchase and Sale Agreement by and between Texaco Exploration and Production Inc., as seller, and Registrant, as buyer, dated December 22, 1994 (incorporated by reference to Exhibit 99.3 to Registrant's Current Report on Form 8-K, dated November 29, 1994, SEC File No. 1-4300, filed December 29, 1994). 2.6 -- Amended and Restated Agreement and Plan of Merger among Registrant, XPX Acquisitions, Inc. and DEKALB Energy Company, dated December 21, 1994 (incorporated by reference to Exhibit 2.1 to Amendment No. 3 to Registrant's Registration Statement on Form S-4, Registration No. 33-57321, filed April 14, 1995). 2.7 -- Matagorda Island 681 Field Purchase and Sale Agreement with Option to Exchange, dated November 24, 1992, between Shell Offshore Inc., SOI Royalties Inc., and Registrant (incorporated by reference to Exhibit 10.7 to Apache Offshore Investment Partnership's Annual Report on Form 10-K for year ended December 31, 1992, SEC File No. 0-13546). 3.1 -- Restated Certificate of Incorporation of Registrant, dated December 1, 1993, as filed with the Secretary of State of Delaware on December 16, 1993 (incorporated by reference to Exhibit 3.1 to Registrant's Annual Report on Form 10-K for year ended December 31, 1993, SEC File No. 1-4300). *3.2 -- Certificate of Ownership and Merger Merging Apache Energy Resources Corporation into Registrant, effective December 31, 1995, as filed with the Secretary of State of Delaware on December 21, 1995.
30 32
Exhibit No. Description ----------- ----------- *3.3 -- Certificate of Designations, Preferences and Rights of Series A Junior Participating Preferred Stock of Registrant, effective January 31, 1996, as filed with the Secretary of State of Delaware on January 22, 1996. *3.4 -- Bylaws of Registrant, dated as of February 9, 1996. *4.1 -- Form of Registrant's common stock certificate. 4.2 -- Rights Agreement, dated as of January 10, 1986, between Registrant and First Trust Company, Inc., rights agent, relating to the declaration of a rights dividend to Registrant's common shareholders of record on January 24, 1986 (incorporated by reference to Exhibit 4.9 to Registrant's Annual Report on Form 10-K for year ended December 31, 1985, SEC File No. 1-4300). 4.3 -- Rights Agreement, dated as of January 31, 1996, between Registrant and Norwest Bank Minnesota, N.A., rights agent, relating to the declaration of a rights dividend to Registrant's common shareholders of record on January 31, 1996 (incorporated by reference to Exhibit (a) to Registrant's Registration Statement on Form 8-A, dated January 24, 1996, SEC File No. 1-4300). 10.1 -- Second Amended and Restated Credit Agreement, dated April 30, 1994, among Registrant, the lenders named therein, and the First National Bank of Chicago and Chemical Bank, as Agents (incorporated by reference to Exhibit 10.1 to Registrant's Quarterly Report on Form 10-Q for quarter ended June 30, 1994, SEC File No. 1-4300). 10.2 -- Third Amended and Restated Credit Agreement, dated March 1, 1995, among Registrant, the lenders named therein, and the First National Bank of Chicago, as Administrative Agent and Arranger, and Chemical Bank, as Co-Agent and Arranger (incorporated by reference to Exhibit 10.2 to Registrant's Annual Report on Form 10-K for year ended December 31, 1994, SEC File No. 1-4300). 10.3 -- First Amendment to Third Amended and Restated Credit Agreement, dated April 14, 1995, among Registrant, the lenders named therein, and the First National Bank of Chicago, as Administrative Agent and Arranger, and Chemical Bank, as Co-Agent and Arranger (incorporated by reference to Exhibit 99.3 to Registrant's Registration Statement on Form S-3, Registration No. 33-63923, filed November 2, 1995). 10.4 -- Second Amendment to Third Amended and Restated Credit Agreement, dated October 23, 1995, among Registrant, the lenders names therein, and the First National Bank of Chicago, as Administrative Agent and Arranger, and Chemical Bank, as Co-Agent and Arranger (incorporated by reference to Exhibit 99.4 to Registrant's Registration Statement on Form S-3, Registration No. 33-63923, filed November 2, 1995). *10.5 -- Third Amendment to Third Amended and Restated Credit Agreement, dated December 18, 1995, among Registrant, the lenders named therein, and the First National Bank of Chicago, as Administrative Agent and Arranger, and Chemical Bank, as Co-Agent and Arranger. *10.6 -- Fourth Amendment to Third Amended and Restated Credit Agreement, dated December 22, 1995, among Registrant, the lenders named therein, and the First National Bank of Chicago, as Administrative Agent and Arranger, and Chemical Bank, as Co-Agent and Arranger.
31 33
Exhibit No. Description ----------- ----------- *10.7 -- Fifth Amendment to Third Amended and Restated Credit Agreement, dated January 22, 1996, among Registrant, the lenders named therein, and the First National Bank of Chicago, as Administrative Agent and Arranger, and Chemical Bank, as Co-Agent and Arranger. 10.8 -- Fiscal Agency Agreement, dated as of January 4, 1995, between Registrant and Chemical Bank, as fiscal agent (incorporated by reference to Exhibit 99.2 to Registrant's Current Report on Form 8- K, dated December 6, 1994, SEC File No. 1-4300, filed January 11, 1995.) +10.9 -- 1982 Employee Stock Option Plan, as updated in January 1987 to conform to the Tax Reform Act of 1986 (incorporated by reference to Exhibit 10.7 to Registrant's Annual Report on Form 10-K for year ended December 31, 1990, SEC File No. 1-4300). +10.10 -- Apache Corporation Corporate Administrative Group Incentive Plan, effective as of January 1, 1989 (incorporated by reference to Exhibit 10.8 to Registrant's Annual Report on Form 10-K for year ended December 31, 1990, SEC File No. 1-4300). +10.11 -- First Amendment to Apache Corporation Corporate Administrative Group Incentive Plan, effective January 1, 1990 (incorporated by reference to Exhibit 10.14 to Registrant's Annual Report on Form 10-K for year ended December 31, 1993, SEC File No. 1-4300). +10.12 -- Apache Corporation Retirement/401(k) Savings Plan, dated December 22, 1994, effective January 1, 1995 (incorporated by reference to Exhibit 10.7 to Registrant's Annual Report on Form 10-K for year ended December 31, 1994, SEC File No 1-4300). + 10.13 -- Amendments to the Apache Corporation Retirement/401(k) Savings Plan, each dated April 19, 1995 (incorporated by reference to Exhibit 4.6 to Registrant's Registration Statement on Form S-8, Registration No. 33-63817, filed October 31, 1995). +*10.14 -- Amendments to the Apache Corporation Retirement/401(k) Savings Plan, effective May 4, 1995 and May 17, 1995. +*10.15 -- Non-Qualified Retirement/Savings Plan of Apache Corporation, dated November 16, 1989. +*10.16 -- First Amendment to the Non-Qualified Retirement/Savings Plan of Apache Corporation, dated October 24, 1995. +10.17 -- Apache International, Inc. Common Stock Award Plan, dated February 12, 1990 (incorporated by reference to Exhibit 10.13 to Registrant's Annual Report on Form 10-K for year ended December 31, 1989, SEC File No. 1-4300). +10.18 -- Apache Corporation 1990 Phantom Stock Appreciation Plan, dated as of September 28, 1990 (incorporated by reference to Exhibit 10.17 to Registrant's Annual Report on Form 10-K for year ended December 31, 1990, SEC File No. 1-4300). +*10.19 -- Apache Corporation 1990 Stock Incentive Plan, as amended and restated February 9, 1996.
32 34
Exhibit No. Description ----------- ----------- +*10.20 -- Apache Corporation 1995 Stock Option Plan, as amended and restated February 9, 1996. +10.21 -- Apache Corporation Income Continuance Plan, as amended and restated February 24, 1988 (incorporated by reference to Exhibit 10.19 to Registrant's Annual Report on Form 10-K for year ended December 31, 1990, SEC File No. 1-4300). +10.22 -- Apache Corporation Directors' Deferred Compensation Plan, as amended and restated September 14, 1994 (incorporated by reference to Exhibit 10.15 to Registrant's Annual Report on Form 10-K for year ended December 31, 1994, SEC File No. 1-4300). +10.23 -- Apache Corporation Outside Directors' Retirement Plan, effective December 15, 1992 (incorporated by reference to Exhibit 10.25 to Registrant's Annual Report on Form 10-K for year ended December 31, 1992, SEC File No. 1-4300). +10.24 -- Apache Corporation Equity Compensation Plan for Non-Employee Directors, adopted February 9, 1994, and form of Restricted Stock Award Agreement (incorporated by reference to Exhibit 10.26 to Registrant's Annual Report on Form 10-K for year ended December 31, 1993, SEC File No. 1-4300). +10.25 -- Amended and Restated Employment Agreement, dated December 5, 1990, between Registrant and Raymond Plank (incorporated by reference to Exhibit 10.9 to Registrant's Annual Report on Form 10-K for year ended December 31, 1990, SEC File No. 1-4300). +10.26 -- Amended and Restated Employment Agreement, dated December 20, 1990, between Registrant and John A. Kocur (incorporated by reference to Exhibit 10.10 to Registrant's Annual Report on Form 10-K for year ended December 31, 1990, SEC File No. 1-4300). +10.27 -- Employment Agreement, dated June 6, 1988, between Registrant and G. Steven Farris (incorporated by reference to Exhibit 10.6 to Registrant's Annual Report on Form 10-K for year ended December 31, 1989, SEC File No. 1-4300). *10.28 -- Member Gas Purchase Agreement, dated March 1, 1996, by and among Apache Gathering Company, Apache Corporation, MW Petroleum Corporation, DEK Energy Company, Apache Transmission Corporation-Texas and Apache Marketing, Inc., as seller, and Producers Energy Marketing, LLC, as buyer. 10.29 -- Asset Purchase and Sale Agreement, dated July 8, 1992, between DEKALB and Louis Dreyfus Gas Holdings Inc. (incorporated by reference to Exhibit 10.10 to DEKALB's Current Report on Form 8-K, dated October 16, 1992, SEC File No. 0-2886). *11.1 -- Statement regarding computation of earnings per share of Registrant's common stock for the year ended December 31, 1995.
33 35
Exhibit No. ----------- Description ----------- *21.1 -- Subsidiaries of Registrant *23.1 -- Consent of Arthur Andersen LLP *23.2 -- Consent of Coopers & Lybrand *23.3 -- Consent of Ryder Scott Company Petroleum Engineers *27.1 -- Financial Data Schedule
- ------------------------- * Filed herewith. + Management contracts or compensatory plans or arrangements required to be filed herewith pursuant to Item 14 hereof. Note: Debt instruments of the Registrant defining the rights of long-term debt holders in principal amounts not exceeding 10 percent of the Registrant's consolidated assets have been omitted and will be provided to the Commission upon request. (b) Reports on Form 8-K The following reports on Form 8-K were filed by Apache during the fiscal quarter ended December 31, 1995: October 27, 1995 - Item 5. Other Events - Wholly owned affiliates of Apache, Oryx Energy Company and Parker & Parsley Petroleum Company formed Producers Energy Marketing, LLC ("ProEnergy"), which will market natural gas and natural gas liquids for such members pursuant to member gas purchase agreements having an initial term of ten years, subject to early termination following specified events. December 14, 1995 - Item 5. Other Events - Apache's board of directors (i) adopted a Rights Agreement, effective as of the close of business on January 31, 1996, to replace the existing Rights Agreement (adopted on January 10, 1986) which expired by its own terms as of the close of business on January 31, 1996, and (ii) declared a dividend on each outstanding share of Apache common stock held of record as of January 31, 1996 of one right to purchase, for $100, one ten-thousandth (1/10,000) of a share of Series A Junior Participating Preferred Stock or, under certain circumstances, Apache common stock or other securities. 34 36 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 Date: March 27, 1996 By: /s/ Raymond Plank ----------------------------------- Raymond Plank, Chairman and Chief Executive Officer POWER OF ATTORNEY The officers and directors of Apache Corporation, whose signatures appear below, hereby constitute and appoint Raymond Plank, G. Steven Farris, Z.S. Kobiashvili and Mark A. Jackson, and each of them (with full power to each of them to act alone), the true and lawful attorney-in-fact to sign and execute, on behalf of the undersigned, any amendment(s) to this report and each of the undersigned does hereby ratify and confirm all that said attorneys shall do or cause to be done by virtue thereof. Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.
Signature Title Date - --------- ----- ---- /s/ Raymond Plank Chairman and Chief Executive - ------------------------------ Officer (Principal Executive Raymond Plank Officer) March 27, 1996 /s/ Mark A. Jackson Vice President and Chief - ------------------------------ Financial Officer (Principal Mark A. Jackson Financial Officer) March 27, 1996 /s/ Thomas L. Mitchell Controller and Chief - ------------------------------ Accounting Officer (Principal Thomas L. Mitchell Accounting Officer) March 27, 1996
35 37
Signature Title Date - --------- ----- ---- /s/ Frederick M. Bohen Director - ------------------------------- Frederick M. Bohen March 27, 1996 /s/ Virgil B. Day Director - ------------------------------- Virgil B. Day March 27, 1996 /s/ G. Steven Farris Director - ------------------------------- G. Steven Farris March 27, 1996 /s/ Randolph M. Ferlic Director - ------------------------------- Randolph M. Ferlic March 27, 1996 /s/ Eugene C. Fiedorek Director - ------------------------------- Eugene C. Fiedorek March 27, 1996 /s/ W. Brooks Fields Director - ------------------------------- W. Brooks Fields March 27, 1996 /s/ Robert V. Gisselbeck Director - ------------------------------- Robert V. Gisselbeck March 27, 1996 /s/ Stanley K. Hathaway Director - ------------------------------- Stanley K. Hathaway March 27, 1996 /s/ John A. Kocur Director - ------------------------------- John A. Kocur March 27, 1996 /s/ Joseph A. Rice Director - ------------------------------- Joseph A. Rice March 27, 1996
38 REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS To The Shareholders of Apache Corporation: We have audited the accompanying consolidated balance sheet of Apache Corporation (a Delaware corporation) and Subsidiaries as of December 31, 1995 and 1994, and the related statements of consolidated income, shareholders' equity, and cash flows for each of the three years in the period ended December 31, 1995. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We did not audit the financial statements of DEKALB Energy Company, a company acquired during 1995 in a transaction accounted for as a pooling of interests, as of and for the years ended December 31, 1994 and 1993, as discussed in Note 2. Such financial statements are included in the consolidated financial statements of Apache Corporation and Subsidiaries and reflect total assets and total revenues of 10 percent and eight percent, respectively, of the related consolidated totals as of and for the year ended December 31, 1994, and total revenues of nine percent of the related consolidated total for the year ended December 31, 1993, after restatement to reflect certain adjustments as set forth in Note 2. The financial statements of DEKALB Energy Company, prior to those adjustments, were audited by other auditors whose report has been furnished to us and our opinion, insofar as it relates to pre-1995 amounts included for DEKALB Energy Company, is based solely upon the report of the other auditors. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits, and the report of other auditors, provide a reasonable basis for our opinion. In our opinion, based on our audits and the report of the other auditors, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Apache Corporation and Subsidiaries as of December 31, 1995 and 1994, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 1995, in conformity with generally accepted accounting principles. As explained in Note 5 to the Consolidated Financial Statements, effective January 1, 1993, the Company changed its method of accounting for income taxes. ARTHUR ANDERSEN LLP Houston, Texas February 27, 1996 F-1 39 AUDITORS' REPORT To the Shareholders and Board of Directors of DEKALB Energy Company: We have audited the consolidated balance sheets of DEKALB Energy Company as at December 31, 1994 and 1993, and the consolidated statements of operations, shareholders' equity and cash flows for each of the two years in the period ended December 31, 1994. These consolidated financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. In our opinion, these consolidated financial statements present fairly, in all material respects, the consolidated financial position of DEKALB Energy Company as at December 31, 1994, and the consolidated results of its operations and its cash flows for each of the two years in the period ended December 31, 1994, in accordance with United States generally accepted accounting principles. COOPERS & LYBRAND Calgary, Alberta February 13, 1995 F-2 40 REPORT OF MANAGEMENT The financial statements and related financial information of Apache Corporation and Subsidiaries were prepared by and are the responsibility of management. The statements have been prepared in conformity with generally accepted accounting principles and include amounts that are based on management's best estimates and judgments. Management maintains and places reliance on systems of internal control designed to provide reasonable assurance, weighing the costs with the benefits sought, that all transactions are properly recorded in the Company's books and records, that policies and procedures are adhered to and that assets are safeguarded. The systems of internal controls are supported by written policies and guidelines, internal audits and the selection and training of qualified personnel. The financial statements of Apache Corporation and Subsidiaries, except for DEKALB Energy Company prior to 1995, have been audited by Arthur Andersen LLP, independent public accountants. The financial statements of DEKALB Energy Company and its subsidiaries for 1994 and prior periods were audited by Coopers & Lybrand. Their audits included developing an overall understanding of each Company's accounting systems, procedures and internal controls and conducting tests and other auditing procedures sufficient to support their opinions on the fairness of the respective consolidated financial statements. The Apache Corporation Board of Directors exercises its oversight responsibility for the financial statements through its Audit Committee, composed solely of directors who are not employed by Apache. The Audit Committee meets periodically with management, internal auditors and the independent public accountants to ensure that they are successfully completing designated responsibilities. The internal auditors and independent public accountants have open access to the Audit Committee to discuss auditing and financial reporting issues. Raymond Plank Chairman of the Board and Chief Executive Officer Mark A. Jackson Vice President and Chief Financial Officer Thomas L. Mitchell Controller and Chief Accounting Officer F-3 41 APACHE CORPORATION AND SUBSIDIARIES STATEMENT OF CONSOLIDATED INCOME
For the Year Ended December 31, --------------------------------------------------- 1995 1994 1993 ------------ ------------- ------------- (In thousands, except per common share data) REVENUES: Oil and gas production revenues . . . . . . . . . . . $ 653,144 $ 538,389 $ 481,848 Gathering, processing and marketing revenues . . . . . 97,207 44,287 25,862 Equity in income of affiliates . . . . . . . . . . . . -- 459 624 Other revenues . . . . . . . . . . . . . . . . . . . . 351 9,491 4,298 ------------ ------------- ------------- 750,702 592,626 512,632 ------------ ------------- ------------- OPERATING EXPENSES: Depreciation, depletion and amortization . . . . . . . 297,485 257,821 198,320 Impairments . . . . . . . . . . . . . . . . . . . . . -- 7,300 23,200 Gain on disposal of assets . . . . . . . . . . . . . . -- -- (513) Operating costs . . . . . . . . . . . . . . . . . . . 211,742 149,474 140,580 Gathering, processing and marketing costs . . . . . . 91,243 37,866 21,010 Administrative, selling and other . . . . . . . . . . 36,552 38,729 36,629 Merger costs . . . . . . . . . . . . . . . . . . . . . 9,977 -- -- Financing costs: Interest expense . . . . . . . . . . . . . . . . . . 88,057 37,838 34,205 Amortization of deferred loan costs . . . . . . . . 4,665 3,987 3,896 Capitalized interest . . . . . . . . . . . . . . . . (19,041) (6,034) (6,279) Interest income . . . . . . . . . . . . . . . . . . (3,121) (1,048) (1,145) ------------ ------------- ------------- 717,559 525,933 449,903 ------------ ------------- ------------- INCOME BEFORE INCOME TAXES . . . . . . . . . . . . . . . 33,143 66,693 62,729 Provision for income taxes . . . . . . . . . . . . . . 12,936 21,110 21,308 ------------ ------------- ------------- INCOME FROM CONTINUING OPERATIONS . . . . . . . . . . . . 20,207 45,583 41,421 Cumulative effect of change in accounting principle . . . . . . . . . . . . . . . . -- -- 5,334 ------------ ------------- ------------- NET INCOME . . . . . . . . . . . . . . . . . . . . . . . $ 20,207 $ 45,583 $ 46,755 ============ ============= ============= INCOME PER COMMON SHARE: Continuing operations . . . . . . . . . . . . . . . . $ .28 $ .65 $ .67 Cumulative effect of change in accounting principle . . . . . . . . . . . . . . . . -- -- .08 ------------ ------------- ------------- NET INCOME PER COMMON SHARE . . . . . . . . . . . . . . . $ .28 $ .65 $ .75 ============ ============= ============= WEIGHTED AVERAGE COMMON SHARES OUTSTANDING . . . . . . . 71,792 69,715 62,013 ============ ============= =============
The accompanying notes to consolidated financial statements are an integral part of this statement. F-4 42 APACHE CORPORATION AND SUBSIDIARIES STATEMENT OF CONSOLIDATED CASH FLOWS
For the Year Ended December 31, --------------------------------------------------- 1995 1994 1993 ------------- ------------- ------------- (In thousands) CASH FLOWS FROM OPERATING ACTIVITIES: Income from continuing operations . . . . . . . . . . . . $ 20,207 $ 45,583 $ 41,421 Adjustments to reconcile income from continuing operations to net cash provided by operating activities: Depreciation, depletion and amortization . . . . . . . 297,485 257,821 198,320 Impairments . . . . . . . . . . . . . . . . . . . . . . -- 7,300 23,200 Amortization of deferred loan costs . . . . . . . . . . 4,665 3,987 3,896 Provision for deferred income taxes . . . . . . . . . 29,382 24,385 20,539 Other deferred credits . . . . . . . . . . . . . . . . 4,584 -- -- Gain on disposal of assets . . . . . . . . . . . . . . -- -- (513) Other . . . . . . . . . . . . . . . . . . . . . . . . . -- 46 140 Cash distributions less than earnings of affiliates . . . -- (459) (662) Gain on sale of stock held for investment . . . . . . . . (906) (2,178) -- Changes in operating assets and liabilities, net of effects of acquisitions: Increase in receivables . . . . . . . . . . . . . . . . (64,399) (12,128) (8,641) (Increase) decrease in advances to oil and gas ventures and other . . . . . . . . . . . . . . . (189) (2,281) 137 (Increase) decrease in deferred charges and other . . . (1,294) (3,238) 2,120 Increase (decrease) in payables . . . . . . . . . . . . 37,254 (17,288) (5,463) Increase (decrease) in accrued operating expenses . . . 15,236 541 (8,177) Advance from gas purchaser . . . . . . . . . . . . . . (7,038) 67,376 -- Decrease in deferred credits and noncurrent liabilities (2,864) (11,768) (11,166) ------------- ------------- ------------- Cash flows from continuing operations . . . . . . . . 332,123 357,699 255,151 Cash flows from discontinued operations . . . . . . . -- 70 840 ------------- ------------- ------------- NET CASH PROVIDED BY OPERATING ACTIVITIES . . . . 332,123 357,769 255,991 ------------- ------------- ------------- CASH FLOWS FROM INVESTING ACTIVITIES: Exploration and development expenditures . . . . . . . . . (312,168) (344,125) (237,831) Acquisition of oil and gas properties . . . . . . . . . . (820,918) (180,742) (192,256) Purchase of premium gas contract . . . . . . . . . . . . . (28,700) -- -- Non-cash portion of net oil and gas property additions . 5,092 5,480 8,789 Purchase of AERC stock, net of cash acquired . . . . . . . -- (13,885) (70,692) Purchase of stock held for investment . . . . . . . . . . (307) (5,051) -- Proceeds from sale of oil and gas properties . . . . . . . 271,937 19,525 10,342 Prepaid acquisition cost . . . . . . . . . . . . . . . . . 25,377 (25,377) -- Proceeds from sale of stock held for investment . . . . . 2,835 6,640 -- Proceeds from sale of gas gathering system . . . . . . . . -- -- 32,201 Other capital expenditures, net . . . . . . . . . . . . . (16,559) (11,968) (32,370) Other, net . . . . . . . . . . . . . . . . . . . . . . . . 3,307 (1,716) 1,145 ------------- ------------- ------------- NET CASH USED BY INVESTING ACTIVITIES: . . . . . . (870,104) (551,219) (480,672) ------------- ------------- ------------- CASH FLOWS FROM FINANCING ACTIVITIES: Long-term borrowings . . . . . . . . . . . . . . . . . . . 856,159 244,058 275,424 Payments on long-term debt . . . . . . . . . . . . . . . . (500,579) (38,019) (180,400) Net increase (decrease) in short-term borrowings . . . . . -- (5,478) 5,455 Dividends paid . . . . . . . . . . . . . . . . . . . . . . (18,915) (17,131) (14,919) Proceeds from issuance of common stock . . . . . . . . . . 197,006 4,599 134,224 Payments to acquire treasury stock . . . . . . . . . . . . (26) (3,389) (104) Cost of debt and equity transactions . . . . . . . . . . . (12,074) (875) (270) ------------- ------------- ------------- NET CASH PROVIDED BY FINANCING ACTIVITIES . . . . 521,571 183,765 219,410 ------------- ------------- ------------- NET DECREASE IN CASH AND CASH EQUIVALENTS . . . . . . . . . . (16,410) (9,685) (5,271) CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR . . . . . . . 30,043 39,728 44,999 ------------- ------------- ------------- CASH AND CASH EQUIVALENTS AT END OF YEAR . . . . . . . . . . $ 13,633 $ 30,043 $ 39,728 ============= ============= =============
The accompanying notes to consolidated financial statements are an integral part of this statement. F-5 43 APACHE CORPORATION AND SUBSIDIARIES CONSOLIDATED BALANCE SHEET
December 31, --------------------------------- 1995 1994 ------------- -------------- (In thousands) ASSETS CURRENT ASSETS: Cash and cash equivalents . . . . . . . . . . . . . . . . . . . . . . $ 13,633 $ 30,043 Receivables . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 175,949 111,310 Inventories . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9,764 8,868 Advances to oil and gas ventures and other . . . . . . . . . . . . . 8,990 10,093 ------------- -------------- 208,336 160,314 ------------- -------------- PROPERTY AND EQUIPMENT: Oil and gas, on the basis of full cost accounting: Proved properties . . . . . . . . . . . . . . . . . . . . . . . . 3,956,833 3,265,770 Unproved properties and properties under development, not being amortized . . . . . . . . . . . . . . . . 335,842 157,379 Gas gathering, transmission and processing facilities . . . . . . . . 33,088 25,809 Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 51,341 49,912 ------------- -------------- 4,377,104 3,498,870 Less: Accumulated depreciation, depletion and amortization . . . . . (1,975,543) (1,682,039) ------------- -------------- 2,401,561 1,816,831 ------------- -------------- OTHER ASSETS: Deferred charges and other . . . . . . . . . . . . . . . . . . . . . 71,553 59,482 ------------- -------------- $ 2,681,450 $ 2,036,627 ============= ==============
The accompanying notes to consolidated financial statements are an integral part of this statement. F-6 44 APACHE CORPORATION AND SUBSIDIARIES CONSOLIDATED BALANCE SHEET
December 31, ----------------------------- 1995 1994 ------------ ------------ (In thousands) LIABILITIES AND SHAREHOLDERS' EQUITY CURRENT LIABILITIES: Current maturities of long-term debt . . . . . . . . . . . . . . . . $ 3,000 $ 100 Accounts payable . . . . . . . . . . . . . . . . . . . . . . . . . . 138,269 92,861 Accrued operating expense . . . . . . . . . . . . . . . . . . . . . 26,863 16,722 Accrued exploration and development . . . . . . . . . . . . . . . . . 30,251 25,077 Accrued compensation and benefits . . . . . . . . . . . . . . . . . . 9,733 10,794 Other accrued expenses . . . . . . . . . . . . . . . . . . . . . . . 22,233 17,963 ------------ ------------ 230,349 163,517 ------------ ------------ LONG-TERM DEBT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,072,076 719,033 ------------ ------------ DEFERRED CREDITS AND OTHER NONCURRENT LIABILITIES: Income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . 181,575 151,216 Advance from gas purchaser . . . . . . . . . . . . . . . . . . . . . 60,338 67,376 Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45,307 44,398 ------------ ------------ 287,220 262,990 ------------ ------------ COMMITMENTS AND CONTINGENCIES (Note 10) SHAREHOLDERS' EQUITY: Common stock, $1.25 par, 215,000,000 shares authorized, 78,498,892 and 70,785,067 shares issued, respectively . . . . . . 98,124 88,482 Paid-in capital . . . . . . . . . . . . . . . . . . . . . . . . . . . 687,465 500,101 Retained earnings . . . . . . . . . . . . . . . . . . . . . . . . . . 335,470 335,293 Treasury stock, at cost, 1,119,934 and 1,118,975 shares, respectively . . . . . . . . . . . . . . . . . . (13,478) (13,452) Currency translation adjustments . . . . . . . . . . . . . . . . . . (15,776) (19,337) ------------ ------------ 1,091,805 891,087 ------------ ------------ $ 2,681,450 $ 2,036,627 ============ ============
The accompanying notes to consolidated financial statements are an integral part of this statement. F-7 45 APACHE CORPORATION AND SUBSIDIARIES STATEMENT OF CONSOLIDATED SHAREHOLDERS' EQUITY
Currency Total Common Paid-In Retained Treasury Translation Shareholders' Stock Capital Earnings Stock Adjustment Equity -------- --------- ---------- -------- ----------- ------------- (In thousands) BALANCE, DECEMBER 31, 1992 . . . . . . . . . . $ 70,912 $ 229,137 $ 276,039 $(15,339) $ (6,225) $554,524 Net income . . . . . . . . . . . . . . . . -- -- 46,755 -- -- 46,755 Dividends ($.28 per common share) . . . . . -- -- (15,902) -- -- (15,902) Common shares issued . . . . . . . . . . . 17,538 270,859 -- -- -- 288,397 Treasury shares issued . . . . . . . . . . -- (108) -- 950 -- 842 Treasury shares purchased . . . . . . . . . -- -- -- (104) -- (104) Treasury shares retired . . . . . . . . . . (8) (71) -- 79 -- -- Currency translation adjustments . . . . . -- -- -- -- (5,916) (5,916) -------- --------- ---------- -------- -------- --------- BALANCE, DECEMBER 31, 1993 . . . . . . . . . . 88,442 499,817 306,892 (14,414) (12,141) 868,596 Net income . . . . . . . . . . . . . . . . -- -- 45,583 -- -- 45,583 Dividends ($.28 per common share) . . . . . -- -- (17,182) -- -- (17,182) Common shares issued . . . . . . . . . . . 281 3,428 -- -- -- 3,709 Treasury shares issued . . . . . . . . . . -- -- -- 966 -- 966 Treasury shares purchased . . . . . . . . . -- -- -- (3,389) -- (3,389) Treasury shares retired . . . . . . . . . . (241) (3,144) -- 3,385 -- -- Currency translation adjustments . . . . . -- -- -- -- (7,196) (7,196) -------- --------- ---------- -------- -------- --------- BALANCE, DECEMBER 31, 1994 . . . . . . . . . . 88,482 500,101 335,293 (13,452) (19,337) 891,087 Net income . . . . . . . . . . . . . . . . -- -- 20,207 -- -- 20,207 Dividends ($.28 per common share) . . . . . -- -- (20,030) -- -- (20,030) Common shares issued . . . . . . . . . . . 9,642 187,364 -- -- -- 197,006 Treasury shares purchased . . . . . . . . . -- -- -- (26) -- (26) Currency translation adjustments . . . . . -- -- -- -- 3,561 3,561 -------- --------- ---------- -------- -------- --------- BALANCE, DECEMBER 31, 1995 . . . . . . . . . . $ 98,124 $ 687,465 $ 335,470 $(13,478) $(15,776) $1,091,805 ======== ========= ========== ======== ======== =========
The accompanying notes to consolidated financial statements are an integral part of this statement. F-8 46 APACHE CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES NATURE OF OPERATIONS - Apache Corporation (Apache or the Company) is an independent energy company that explores for, develops, produces, gathers, processes and markets natural gas, crude oil and natural gas liquids. The Company's North American exploration and production activities are divided into four U.S. operating regions, the Gulf of Mexico, Midcontinent, Gulf Coast and Western regions, plus a Canadian region. Approximately 95 percent of the Company's proved reserves are located in the four U.S. regions and Canada. Internationally, Apache has production interests in Australia and Egypt, and is currently focusing its international exploration efforts in Western Australia, Egypt, China and Indonesia. Apache holds interests in many of its properties through operating subsidiaries, such as MW Petroleum Corporation (MW), DEK Energy Company (DEK, formerly known as DEKALB Energy Company), Apache Energy Limited (AEL, formerly known as Hadson Energy Limited), Apache International, Inc. and Apache Overseas, Inc. Properties referred to in this document may be held by those subsidiaries. Apache treats all operations as one segment of business. The Company's future financial condition and results of operations will depend upon prices received for its oil and natural gas production and the costs of acquiring, finding, developing and producing reserves. A substantial portion of the Company's production is sold under market-sensitive contracts. Prices for oil and natural gas are subject to fluctuations in response to changes in supply, market uncertainty and a variety of factors beyond the Company's control. These factors include worldwide political instability (especially in the Middle East), the foreign supply of oil and natural gas, the price of foreign imports, the level of consumer demand, and the price and availability of alternative fuels. With natural gas accounting for 65 percent of Apache's 1995 production on an energy equivalent basis, the Company was affected more by fluctuations in natural gas prices than in oil prices. PRINCIPLES OF CONSOLIDATION - The accompanying consolidated financial statements include the accounts of Apache and its subsidiaries after elimination of intercompany balances and transactions. The Company's interests in oil and gas ventures and partnerships are proportionately consolidated. CASH EQUIVALENTS - The Company considers all highly liquid debt instruments purchased with an original maturity of three months or less to be cash equivalents. These investments are carried at cost, which approximates market. INVENTORIES - Inventories consist principally of tubular goods, production equipment and oil produced but not sold, all stated at the lower of weighted average cost or market. PROPERTY AND EQUIPMENT - The Company uses the full cost method of accounting for its investment in oil and gas properties. Under this method, the Company capitalizes all acquisition, exploration and development costs incurred for the purpose of finding oil and gas reserves, including salaries, benefits and other internal costs directly attributable to these activities. Exclusive of field level costs, Apache capitalized $12.5 million, $14.6 million and $12.2 million of internal costs in 1995, 1994 and 1993, respectively. Costs associated with production and general corporate activities are expensed in the period incurred. Internal costs attributable to the management of the Company's producing properties, before recoveries from industry partners, totaled $16.3 million, $13.2 million and $10.8 million in 1995, 1994, and 1993, respectively, and are included in operating costs on the Company's Statement of Consolidated Income. Interest costs related to development projects in progress for an extended period are also F-9 47 APACHE CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) capitalized to oil and gas properties. Unless a significant portion of the Company's reserve volumes are sold (greater than 25 percent), proceeds from the sale of oil and gas properties are accounted for as reductions to capitalized costs, and gains or losses are not recognized. Apache computes the provision for depreciation, depletion and amortization (DD&A) of oil and gas properties on a quarterly basis using the unit-of-production method based upon production and estimates of proved reserve quantities. Unevaluated costs and related capitalized interest costs are excluded from the amortization base until the properties associated with these costs are evaluated and determined to be productive. The amortizable base includes estimated future development costs and dismantlement, restoration and abandonment costs, net of estimated salvage values. These future costs are generally estimated by engineers employed by Apache. Apache limits, on a country-by-country basis, the capitalized costs of proved oil and gas properties, net of accumulated DD&A, to the estimated future net cash flows from proved oil and gas reserves, net of related tax effects, discounted at 10 percent. If capitalized costs exceed this limit, the excess is charged to DD&A expense. Included in the estimated future net cash flows are Canadian provincial tax credits expected to be realized beyond the date at which the legislation, under its provisions, could be repealed. To date, the Canadian provincial government has not indicated an intention to repeal this legislation. The costs of certain unevaluated leasehold acreage and wells in the process of being drilled are not being amortized. Costs not being amortized are periodically assessed for possible impairments or reductions in value. If a reduction in value has occurred, costs being amortized are increased or a charge is made against earnings for those international operations where a reserve base is not yet established. Buildings, equipment, gas gathering, transmission and processing facilities are depreciated on a straight-line basis over the estimated useful lives of the assets, which range from two to 20 years. Accumulated depreciation for these assets totaled $26.3 million and $25.7 million at December 31, 1995 and 1994, respectively. ACCOUNTS PAYABLE - Included in accounts payable at December 31, 1995 and 1994, are liabilities of approximately $48 million and $30.3 million, respectively, representing the amount by which checks issued but not presented to the Company's banks for collection exceeded balances in applicable bank accounts. REVENUE RECOGNITION - Apache uses the sales method of accounting for natural gas revenues. Under this method, revenues are recognized based on actual volumes of gas sold to purchasers. The volumes of gas sold may differ from the volumes to which Apache is entitled based on its interests in the properties. Differences between volumes sold and volumes based on entitlements create gas imbalances which are generally reflected as adjustments to reported gas reserves and future cash flows. Adjustments for gas imbalances totaled less than one percent of Apache's proved gas reserves at December 31, 1995. Revenue is deferred and a liability is recorded for those properties where the estimated remaining reserves will not be sufficient to enable the underproduced owner to recoup their entitled share through production. F-10 48 APACHE CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) HEDGING ACTIVITIES - The Company periodically enters into commodity derivative contracts in order to either fix or support oil and gas prices at targeted levels and to minimize the impact of price fluctuations. Apache uses swaps, puts or fixed-price contracts to hedge its commodity prices. Gains or losses on these hedging activities are recognized in oil and gas production revenues when the hedged volumes are produced. Estimates of future liabilities and receivables applicable to oil and gas commodity hedges are reflected in future cash flows from proved reserves in the supplemental oil and gas disclosures, with such estimates based on prices in effect as of the date of the reserve report. The Company also purchases interest rate caps and enters into interest rate swap transactions in its management of interest rate exposure. Interest rate swap agreements generally involve the exchange of fixed and floating interest payment obligations without the exchange of the underlying principal amounts. Gains or losses on these activities are recognized in interest expense in the period hedged by the agreements. INCOME TAXES - The Company provides deferred income taxes for all temporary differences between financial and income tax reporting. Effective January 1, 1993, the Company implemented the provisions of Statement of Financial Accounting Standards (SFAS) No. 109, "Accounting for Income Taxes." Under the liability method specified by SFAS No. 109, deferred taxes are determined based on the estimated future tax effect of differences between the financial statement and tax bases of assets and liabilities given the provisions of enacted tax laws. The adoption of SFAS No. 109 resulted in a one-time benefit of $5.3 million in the first quarter of 1993. FOREIGN CURRENCY TRANSLATION - The U.S. dollar is considered the functional currency for each of the Company's international operations except for the Canadian subsidiary whose functional currency is the Canadian dollar. Translation adjustments resulting from translating the Canadian subsidiary foreign currency financial statements into U.S. dollar equivalents are reported separately and accumulated in a separate component of shareholders' equity. For other international operations, translation gains or losses are recognized in current net income and were not material in any of the periods presented. INCOME PER COMMON SHARE - Amounts are based on the weighted average number of shares of common stock outstanding. The effects of common equivalent shares, which would include shares from the assumed conversion of the 3.93-percent notes, were immaterial or were not dilutive for each of the periods presented. Furthermore, fully diluted income per share, assuming conversion of certain of the convertible debentures, was not significantly different than primary income per share for all periods presented. STOCK-BASED COMPENSATION - The Company accounts for employee stock-based compensation using the intrinsic value method prescribed by Accounting Principles Board (APB) Opinion No. 25, "Accounting for Stock Issued to Employees." Accordingly, the adoption of SFAS No. 123, "Accounting for Stock-Based Compensation" in 1996 will have no effect on the Company's results of operations. USE OF ESTIMATES - The preparation of financial statements in conformity with generally accepting accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Significant estimates with regard to these financial statements include the estimate of proved oil and gas reserve volumes and the related present value of estimated future net revenues therefrom (see Supplemental Oil and Gas Disclosures). F-11 49 APACHE CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) 2. ACQUISITIONS AND DIVESTITURES ACQUISITIONS In September 1995, Apache acquired substantially all of the oil and gas assets of Aquila Energy Resources Corporation (Aquila) for approximately $210 million. The acquired assets included proved reserves totaling an estimated 157 Bcf of gas equivalent, approximately 107,000 developed and 49,000 undeveloped net acres located primarily in Apache's Anadarko Basin and Gulf of Mexico core areas, a five-year, four-month premium-price gas contract effective September 1, 1995, and non-operated interests in four gas processing plants. The gas contract calls for Aquila Energy Marketing Corporation, a wholly owned subsidiary of UtiliCorp, to purchase 20 to 25 MMcf of gas per day from Apache at a price of $2.70 per Mcf in 1996, escalating to $3.20 per Mcf in the year 2000. On May 17, 1995, Apache acquired DEKALB Energy Company (DEKALB, now known as DEK Energy Company), an oil and gas company engaged in the exploration for, and the development of, crude oil and natural gas in Canada, through a merger which resulted in DEKALB becoming a wholly owned subsidiary of Apache. Pursuant to the merger agreement, 8.4 million shares of Apache common stock were exchanged for the outstanding DEKALB stock and DEKALB employee stock options. Merger costs of approximately $10 million were charged to expense in the second quarter of 1995. The merger was accounted for as a "pooling of interests" and, as a result, the Company's consolidated financial statements for periods prior to the merger have been restated to include combined results with DEKALB. In connection with the DEKALB merger, the methods used by Apache and DEKALB in computing DD&A of proved oil and gas properties were conformed to the units-of-production method using physical units. This method was previously used by DEKALB and in conforming the methods used, Apache adopted the units-of-production method in lieu of the future gross revenue method. The conforming adjustments for DD&A have been reflected retroactively in the accompanying consolidated financial statements along with an adjustment to DEKALB's previously recorded deferred tax valuation allowance for U.S. operating loss carryforwards expected to be utilized by Apache in future periods. All other adjustments are reclassifications to conform financial statement presentation. Apache and DEKALB had no significant intercompany transactions prior to the merger. F-12 50 APACHE CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) A reconciliation of the previously separate results of Apache and DEKALB to the restated combined results is as follows:
For the Year Ended December 31, ---------------------------------- 1994 1993 ------------- ------------ (In thousands) Revenues: Apache . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 545,621 $ 466,638 DEKALB . . . . . . . . . . . . . . . . . . . . . . . . . . . 46,290 45,903 Reclassifications to conform presentation . . . . . . . . . . . . . . . . . . . 715 91 ------------- ------------ $ 592,626 $ 512,632 ============= ============ Income from continuing operations: Apache . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 42,837 $ 37,334 DEKALB . . . . . . . . . . . . . . . . . . . . . . . . . . . 6,813 5,672 Conforming adjustments: DD&A . . . . . . . . . . . . . . . . . . . . . . . . . . (6,682) (4,311) Income taxes . . . . . . . . . . . . . . . . . . . . . . 2,615 2,726 ------------- ------------ $ 45,583 $ 41,421 ============= ============ Net income: Apache . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 42,837 $ 37,334 DEKALB . . . . . . . . . . . . . . . . . . . . . . . . . . . 6,813 11,006 Conforming adjustments: DD&A . . . . . . . . . . . . . . . . . . . . . . . . . . (6,682) (4,311) Income taxes . . . . . . . . . . . . . . . . . . . . . . 2,615 2,726 ------------- ------------ $ 45,583 $ 46,755 ============= ============
On March 1, 1995, Apache completed the acquisition of 315 oil and gas fields from Texaco Exploration and Production Inc. (Texaco) for an adjusted purchase price of $567 million. The Texaco properties included estimated proved reserves at the effective date, after adjustment for the exercise of preferential rights and properties excluded following due diligence, of approximately 105 MMboe. In December 1994, Apache purchased substantially all of the U.S. oil and gas properties of Crystal Oil Company (Crystal) for approximately $95.8 million. The producing oil and gas properties acquired from Crystal are located primarily along the Arkansas-Louisiana border and southern Louisiana. The acquisition also included approximately 32,000 net undeveloped mineral acres in southern Louisiana. In 1993, Apache purchased the outstanding stock of Hadson Energy Resources Corporation (subsequently known as Apache Energy Resources Corporation, or AERC, which was merged into Apache in December 1995) for approximately $98 million through a series of privately negotiated transactions and a merger approved by AERC stockholders. In July 1993, Apache completed the purchase of 4.2 million shares of AERC's outstanding common stock, or approximately 68 percent of the AERC common stock then outstanding, for $59.2 million. The Company agreed to pay an additional $1.00 per share ($4.2 million) to the selling stockholders if the Company increased its ownership in AERC to 80 percent or more. Pursuant to the merger agreement approved by AERC stockholders on November 12, 1993, AERC stockholders other than Apache could elect to receive, for each share of AERC F-13 51 APACHE CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) common stock, either $15 in cash or .574 share of Apache common stock. Apache issued 307,977 shares of Apache common stock valued at $7.9 million and paid a total of $76.1 million to former stockholders of AERC as consideration for the merger. At December 31, 1993, Apache reflected a liability of $13.9 million accrued for AERC shares which had not yet been surrendered to Apache. During 1994, Apache completed the purchase of the remaining AERC shares for cash. Also in 1993, Apache entered into two agreements to purchase a total of 104 Bcfe of proved reserves from Hall- Houston Oil Company (Hall-Houston) for an aggregate consideration of $113.7 million. These transactions included interests in 63 producing fields and 12 fields under development or awaiting pipeline connections. Except for the DEKALB transaction, each transaction described above has been accounted for using the purchase method of accounting and has been included in the financial statements of Apache since the dates of acquisition. The following unaudited pro forma summary of the Company's consolidated results of operations were prepared as if the Texaco transaction, discussed above, occurred on January 1 of each of the years presented. The pro forma data is based on numerous assumptions and is not necessarily indicative of future operations.
For the Year Ended December 31, ----------------------------------- (Unaudited) 1995 1994 - ----------- ------------- ------------- (In thousands, except per common share data) Revenues and other income . . . . . . . . . . . . . . . . $ 774,477 $ 755,926 Net income . . . . . . . . . . . . . . . . . . . . . . . 18,914 35,359 Income per common share . . . . . . . . . . . . . . . . . .26 .51 Weighted average common shares outstanding . . . . . . . 71,792 69,715
DIVESTITURES In September 1995, Apache closed the sale of non-strategic oil and gas properties in its Rocky Mountain region for approximately $140 million net to Apache. The assets included Apache's interests in 138 fields with approximately 1,600 active wells in Colorado, Montana, North and South Dakota, Utah and Wyoming. The Company retained its interests in the Green River Basin of Colorado and Wyoming and in the San Juan Basin of Colorado and New Mexico. Proceeds from the sale of all oil and gas properties sold during 1995 totaled $271.9 million. 3. INVESTMENTS IN EQUITY SECURITIES Apache has certain investments in equity securities which are classified as "available-for-sale" pursuant to SFAS No. 115, "Accounting For Certain Investments iN Debt and Equity Securities." At December 31, 1995, the aggregate cost basis totaled $5.6 million and the related aggregate fair value approximated cost. The Company realized gross gains totaling $.9 million and $2.2 million from the sale of available-for-sale securities during 1995 and 1994, respectively. Apache utilizes the average cost method in computing realized gains or losses, which are included in other revenues on the accompanying Statement of Consolidated Income. F-14 52 APACHE CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) 4. DEBT
December 31, ---------------------------------- 1995 1994 ------------- ------------ (In thousands) LONG-TERM DEBT Apache debt: Revolving bank facility . . . . . . . . . . . . . . . . . . . $ 620,000 $ 454,000 6-percent subordinated debentures due 2002 . . . . . . . . . . 172,500 -- 9.25-percent notes due 2002, net of discount . . . . . . . . . 99,742 99,713 3.93-percent convertible notes due 1997 . . . . . . . . . . . 75,000 75,000 Money market lines . . . . . . . . . . . . . . . . . . . . . . 3,000 -- ------------- ------------ 970,242 628,713 ------------- ------------ Subsidiary and other obligations: Bank of Montreal facility . . . . . . . . . . . . . . . . . . 27,000 -- DEKALB 9.875-percent note due 2000 . . . . . . . . . . . . . . 29,225 29,225 DEKALB 10-percent note due 1998 . . . . . . . . . . . . . . . 22,100 22,100 Royal Bank of Canada facility . . . . . . . . . . . . . . . . -- 10,222 AEL acceptance facility . . . . . . . . . . . . . . . . . . . 24,200 25,800 Share of offshore partnership financing . . . . . . . . . . . 2,309 2,973 Other notes payable . . . . . . . . . . . . . . . . . . . . . -- 100 ------------- ------------ 104,834 90,420 ------------- ------------ Total debt . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,075,076 719,133 Less: Current maturities . . . . . . . . . . . . . . . . . . . . (3,000) (100) ------------- ------------ Long-term debt . . . . . . . . . . . . . . . . . . . . . . . . . $ 1,072,076 $ 719,033 ============= ============
At December 31, 1995, Apache had a $1 billion revolving bank facility funded by a group of banks. The maximum amount available is subject to periodic redetermination of a borrowing base, determined solely at the discretion of the banks, predicated upon the Company's oil and gas reserve values and forecast rate of production. As of December 31, 1995, the borrowing base was $706 million and the principal amount outstanding was $620 million. The bank facility is scheduled to mature on March 1, 2000, and the agreement provides for perpetual one-year extensions as requested year-by- year by the Company and is subject to the approval of the banks. Interest on amounts borrowed is charged at the First National Bank of Chicago's base rate or at the London Interbank Offered Rates (LIBOR) plus a margin determined by the Company's public senior debt rating and its ratio of debt to total capital. At December 31, 1995, the margin was .35 percent. The Company pays a facility fee of .15 percent on the available portion of the commitment and .075 percent on the unavailable portion of the commitment. On January 4, 1995, Apache completed the issue of $172.5 million of 6-percent Convertible Subordinated Debentures due 2002 (the 6-percent debentures). The 6-percent debentures are convertible at the option of the holder into Apache common stock at a price of $30.68 per share. The 9.25-percent notes totaling $100 million were issued by Apache in May 1992 and are not redeemable prior to their maturity in June 2002. In December 1992, Apache issued the 3.93-percent convertible notes. The 3.93-percent notes mature in November F-15 53 APACHE CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) 1997, and are not redeemable prior to maturity; however, they are convertible into Apache common stock at $27 per share, subject to adjustment under certain circumstances. The indentures for the 9.25-percent and 3.93-percent note issues impose substantially similar obligations on the Company, including limits on the Company's ability to incur debt secured by certain liens and on its ability to enter into certain sale and leaseback transactions. Upon certain changes in control of the Company, both issues are subject to mandatory repurchase (or conversion at the option of the noteholders in the case of the 3.93-percent notes). Financial covenants of the $1 billion bank facility require the Company to maintain a minimum consolidated tangible net worth of not less than $816 million at December 31, 1995. The minimum consolidated tangible net worth requirement is adjusted quarterly for subsequent earnings and equity transactions. The Company is also required to maintain a ratio of (i) earnings before interest expense, state and federal taxes and depreciation, depletion and amortization to (ii) consolidated interest expense of not less than 3.7:1. The Company was in compliance with all financial covenants at December 31, 1995. At December 31, 1995, the Company also had an aggregate borrowing capacity of $40 million under certain uncommitted money market lines of credit which the Company used from time to time for working capital purposes. As of December 31, 1995, an aggregate of $3 million was outstanding under such lines of credit. In connection with Apache's Canadian operations, Apache Canada Ltd., a wholly-owned subsidiary of DEK, also had a $30 million U.S. revolving term credit facility under which $27 million was outstanding at December 31, 1995. The size of this facility was increased to $45 million in January 1996. The DEKALB 10-percent and 9.875-percent notes mature on April 15, 1998 and July 15, 2000, respectively. The 10 percent notes are currently redeemable at par plus accrued interest. During 1994, Apache amended and restated the debt agreement of AERC's wholly-owned subsidiary, Apache Energy Limited (AEL, formerly known as Hadson Energy Limited). The AEL Acceptance Facility is a separate credit facility with the Bank of Montreal which provided funding for the construction of an offshore gas gathering project. The borrowing base is $30 million, of which $24.2 million was outstanding at December 31, 1995. The AEL credit facility is not guaranteed by Apache. A $35 million banking facility was established in 1992 by Apache on behalf of Apache Offshore Investment Partnership. At December 31, 1995, the commitment under this facility was $16.5 million, which is scheduled to reduce by $1.5 million on a quarterly basis. The amount outstanding at year-end was $8.6 million, of which Apache's share was $2.3 million. As of December 31, 1995 and 1994, the Company had approximately $19.3 million and $12 million, respectively, of unamortized costs associated with its various debt obligations. These costs are reflected as deferred charges on the accompanying Consolidated Balance Sheet and are being amortized over the life of the related debt. On February 27, 1996, Apache completed its offering of $100 million principal amount of unsecured 7.7-percent notes due March 15, 2026. F-16 54 APACHE CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) AGGREGATE MATURITIES OF DEBT
December 31, 1995 ----------------- (In thousands) 1996 . . . . . . . . . . . . . . . . . . . . . . $ 3,000 1997 . . . . . . . . . . . . . . . . . . . . . . 103,101 1998 . . . . . . . . . . . . . . . . . . . . . . 23,308 1999 . . . . . . . . . . . . . . . . . . . . . . 24,200 2000 . . . . . . . . . . . . . . . . . . . . . . 649,225 Thereafter . . . . . . . . . . . . . . . . . . . 272,242 ------------- $ 1,075,076 =============
5. INCOME TAXES Income(loss) before income taxes is composed of the following:
For the Year Ended December 31, ----------------------------------------------- 1995 1994 1993 ------------- ------------- ------------- (In thousands) United States . . . . . . . . . . . . . . . $ 28,155 $ 59,948 $ 74,279 International . . . . . . . . . . . . . . . 4,988 6,745 (11,550) ------------- ------------- ------------- Total . . . . . . . . . . . . . . . . . . $ 33,143 $ 66,693 $ 62,729 ============= ============= =============
The total provision for income taxes consists of the following:
For the Year Ended December 31, ----------------------------------------------- 1995 1994 1993 ------------- ------------- ------------- (In thousands) Current taxes: Federal . . . . . . . . . . . . . . . . $ (16,776) $ (3,890) $ 140 State . . . . . . . . . . . . . . . . . -- 100 50 Foreign . . . . . . . . . . . . . . . . 330 515 579 Deferred taxes . . . . . . . . . . . . . . . 29,382 24,385 20,539 ------------- ------------- ------------- 12,936 21,110 21,308 Cumulative effect of adoption of SFAS No. 109 . . . . . . . . . . . . . . -- -- (5,334) ------------- ------------- ------------- $ 12,936 $ 21,110 $ 15,974 ============= ============= =============
F-17 55 APACHE CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) The 1993 provision for income taxes includes a $3.5 million charge for the change in federal statutory rates from 34 percent to 35 percent enacted under the Omnibus Budget Reconciliation Act (OBRA) of 1993. Effective January 1, 1993, the Company adopted SFAS No. 109, resulting in a one-time benefit of $5.3 million. A reconciliation of the federal statutory income tax amounts to the effective amounts is as follows:
For the Year Ended December 31, --------------------------------------------- 1995 1994 1993 ------------ ------------ ----------- (In thousands) Statutory income tax . . . . . . . . . . . . . . . $ 11,600 $ 23,343 $ 21,955 State income tax, less federal benefit . . . . . . 1,282 1,013 965 Taxation of foreign operations . . . . . . . . . . 135 1,486 969 Utilization of federal income tax credits . . . . -- (1,545) (2,133) Increase in corporate income tax rate provided for in OBRA . . . . . . . . . . . . . . -- -- 3,500 Increase in foreign corporate income tax rates . . . . . . . . . . . . . . . . 1,757 -- -- DEKALB income tax benefit limitation recorded (reversed) . . . . . . . . . . . . . . . (1,200) (2,499) (1,769) All other, net . . . . . . . . . . . . . . . . . . (638) (688) (2,179) ------------ ------------ ----------- $ 12,936 $ 21,110 $ 21,308 ============ ============ ===========
Deferred taxes are determined based on the estimated future tax effects of differences between the financial statement and tax bases of assets and liabilities using the provisions of enacted tax laws. The net deferred tax liability is comprised of the following:
December 31, ---------------------------------- 1995 1994 --------------- --------------- (In thousands) Deferred tax assets: Deferred income . . . . . . . . . . . . . . . . . . . . . . $ (2,410) $ (30,343) Federal net operating loss carryforwards . . . . . . . . . (57,642) (27,448) State net operating loss carryforwards . . . . . . . . . . (10,126) (5,660) Alternative minimum tax credits . . . . . . . . . . . . . . (6,239) (20,792) Accrued expenses and liabilities . . . . . . . . . . . . . (9,136) (7,628) Other . . . . . . . . . . . . . . . . . . . . . . . . . . . (9,787) (9,392) --------------- --------------- Total deferred tax assets . . . . . . . . . . . . . . . (95,340) (101,263) Valuation allowance . . . . . . . . . . . . . . . . . . . . . 1,374 1,374 --------------- --------------- Net deferred tax assets . . . . . . . . . . . . . . . . . . . (93,966) (99,889) --------------- --------------- Deferred tax liabilities: Depreciation, depletion and amortization . . . . . . . . . 271,020 243,171 Other . . . . . . . . . . . . . . . . . . . . . . . . . . . 4,521 7,934 --------------- --------------- Total deferred tax liabilities . . . . . . . . . . . . . 275,541 251,105 --------------- --------------- Deferred income tax liability . . . . . . . . . . . . . . . . $ 181,575 $ 151,216 =============== ===============
F-18 56 APACHE CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) U.S. deferred taxes have not been provided on foreign earnings totaling $61 million, which are permanently reinvested abroad. Presently, limited foreign tax credits are available to reduce the U.S. taxes on such amounts if repatriated. At December 31, 1995, the Company has U.S. Federal net operating loss carryforwards of $158.8 million and statutory depletion carryforwards of $7 million available to reduce future U.S. Federal taxable income. The net operating loss carryforwards will expire unless otherwise utilized, beginning in 1996. The statutory depletion may be carried forward indefinitely. The Company has alternative minimum tax (AMT) credit carryforwards of $6.2 million and investment tax credits of approximately $1.6 million. AMT credits can be carried forward indefinitely and may only be used to reduce regular tax liabilities in excess of AMT liabilities. If the investment tax credits are not utilized, they will expire by 1996. The Company also has foreign net operating loss carryforwards of $5.9 million and foreign capital loss carryforwards of $6.3 million which may be carried forward indefinitely and may be utilized to reduce future foreign taxable income. Management believes it is more likely than not that the deferred tax assets, net of the valuation allowance, will be realized. 6. ADVANCE FROM GAS PURCHASER In December 1994, Apache received $67.4 million from a purchaser as an advance payment for future natural gas deliveries of 20,000 MMBtu per day over a six-year period commencing January 1995. As a condition of the arrangement with the purchaser, Apache entered into a gas price swap contract with a third party under which Apache became a fixed price payor at identical volumes and at prices starting at $1.81 per MMBtu in 1995 and escalating at $.10 per MMBtu per year through the year 2000. The net result of these related transactions is that gas delivered to the purchaser will be reported as revenue at prevailing spot prices in the future with Apache realizing a $.05 per MMBtu premium associated with a monthly fee to be paid by the purchaser. The Company, through its marketing subsidiaries, may purchase gas from third parties to satisfy gas delivery requirements of this arrangement. Contracted volumes relating to this arrangement are included in the Company's Supplemental Oil and Gas Disclosures. This payment has been classified as an advance on the balance sheet and is being reduced as gas is delivered to the purchaser under the terms of the contract. At December 31, 1995, $60.3 million was still outstanding. Gas volumes delivered to the purchaser are reported as revenue at prices used to calculate the amount advanced, before imputed interest, minus or plus amounts paid or received by Apache applicable to the price swap agreement. Interest expense is recorded based on a 9 1/2-percent rate. F-19 57 APACHE CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) 7. CAPITAL STOCK COMMON STOCK OUTSTANDING
1995 1994 1993 ---------- ---------- ---------- Balance, beginning of year . . . . . . . . . . . . 69,666,092 69,504,310 55,361,438 Treasury shares issued (acquired), net . . . . . . (959) 129,852 119,087 Treasury shares acquired and retired . . . . . . . -- (192,808) (6,302) Shares issued: DEKALB merger . . . . . . . . . . . . . . . . . 153,229 -- -- Public equity offerings . . . . . . . . . . . . 7,450,000 -- 5,795,000 Acquisition of AERC . . . . . . . . . . . . . . -- 2,974 305,003 Conversion of 7 1/2-percent debentures . . . . -- -- 7,816,453 Dividend reinvestment plan . . . . . . . . . . 26,809 13,789 -- Stock option plans 83,787 207,975 113,631 ---------- ---------- ---------- Balance, end of year . . . . . . . . . . . . . . . 77,378,958 69,666,092 69,504,310 ========== ========== ==========
Public Equity Offering -- In September 1995, Apache completed a public offering of approximately 7.5 million shares of Apache common stock for net proceeds of $195.5 million. In March 1993, Apache completed a public offering of approximately 5.8 million shares of Apache common stock for net proceeds of $131.8 million. Stock Option Plans -- At December 31, 1995, common shares totaling 3,376,070 were reserved for issuance under stock option plans for officers and key employees. The outstanding options expire at various dates through 2004 and are exercisable at prices ranging from $2.3927 to $29.00 with an aggregate exercise price of $29.1 million. The following table summarizes the changes in stock options for each year and the number of common shares available for option grants at year end:
1995 1994 1993 --------- --------- --------- Outstanding, beginning of year . . . . . . . . . 1,340,048 1,178,505 1,173,158 Exercised ($2.3927 to $26.875) . . . . . . . . . (130,513) (207,975) (129,085) Granted ($23.25 to $29.00) . . . . . . . . . . . 396,600 546,984 355,505 Canceled or expired ($8.432 to $27.25) . . . . . (387,768) (177,466) (221,073) --------- --------- --------- Outstanding, end of year . . . . . . . . . . . . 1,218,367 1,340,048 1,178,505 ========= ========= ========= Available for grant, end of year . . . . . . . 2,157,703 815,191 1,241,460 ========= ========= =========
Preferred Stock -- The Company has five million shares of no par preferred stock authorized, of which 25,000 shares have been "designated" Series A Junior Participating Preferred Stock and authorized for issuance pursuant to certain rights that trade with Apache common stock. There are no shares of preferred stock issued and outstanding; however, shares of preferred stock are reserved for issuance upon the exercise of the preferred stock purchase rights discussed below. F-20 58 APACHE CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) Rights to Purchase Preferred Stock -- In December 1995, the Company declared a dividend of one right (a Right) for each outstanding share of Apache common stock effective on January 31, 1996. Each Right entitles the registered holder to purchase from the Company one ten-thousandth (1/10,000) of a share of Series A Junior Participating Preferred Stock at a price of $100 per one ten-thousandth of a share, subject to adjustment. The Rights are exercisable 10 calendar days following a public announcement that certain persons or groups acquired 20 percent or more of the outstanding shares of Apache common stock or 10 business days following commencement of an offer for 30 percent or more of the outstanding shares of Apache common stock. Unless and until the Rights become exercisable, they will be transferred with and only with the shares of Apache common stock. If the Company engages in certain business combinations or a 20- percent shareholder engages in certain transactions with the Company, the Rights become exercisable for Apache common stock or common stock of the corporation acquiring the Company (as the case may be) at 50 percent of the then-market price. Any Rights that are or were beneficially owned by a person who has acquired 20 percent or more of the outstanding shares of Apache common stock and who engages in certain transactions or realizes the benefits of certain transactions with the Company will become void. The Company may redeem the Rights at $.01 per Right at any time until 10 business days after public announcement that a person has acquired 20 percent or more of the outstanding shares of Apache common stock. The Rights will expire on January 31, 2006, unless earlier redeemed by the Company. Unless the Rights have been previously redeemed, all shares of Apache common stock issued by the Company will include Rights. 8. NON-CASH INVESTING AND FINANCING ACTIVITIES A summary of non-cash investing and financing activities is presented below. In 1993, Apache acquired Hadson Energy Resources Corporation (now AERC) for approximately $98 million in cash and Apache common stock. The accompanying financial statements include the following attributable to the acquisition:
(In thousands) Value of properties acquired, including gathering facilities . . . . . . . . . . . . . $ 159,996 Common stock issued (305,003 shares) . . . . . . . . . . . . . . . . . . . . . . (7,777) Liability for AERC shares not surrendered as of December 31, 1993 . . . . . . . . (13,906) Cash paid, net of cash acquired . . . . . . . . . . . . . . . . . . . . . . . . . (70,692) --------------- Net AERC liabilities added through consolidation . . . . . . . . . . . . . . . . $ 67,621 ===============
During the first quarter of 1994, the Company issued 2,974 shares of Apache common stock and paid $13.9 million for AERC shares that had not been surrendered by the end of 1993. In September 1993, Apache called for redemption of its 7 1/2-percent convertible subordinated debentures due 2000. Approximately 99 percent of the holders of the debentures elected to convert the principal amount of their debentures into shares of Apache common stock, with the balance electing to receive cash ($.1 million).
(In thousands) Long-term debt converted into common stock . . . . . . . . . . . . . . . . . . $ 149,900 Unamortized debt issue costs charged to equity . . . . . . . . . . . . . . . . (2,686) --------------- Increase to shareholders' equity (7.8 million shares of common stock issued) . . . . . . . . . . . . . . . . . $ 147,214 ===============
F-21 59 APACHE CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
For the Year Ended December 31, ---------------------------------------- 1995 1994 1993 ---------- ---------- ---------- (In thousands) Cash paid (received) during the year for: Interest, net of amounts capitalized . . . . . . . $ 64,365 $ 30,909 $ 35,336 Income and other taxes, net of refunds . . . . . . (15,225) 6,874 (86)
9. FINANCIAL INSTRUMENTS AND OFF-BALANCE-SHEET RISK The following table presents the carrying amounts and estimated fair values of the Company's financial instruments at December 31, 1995 and 1994.
1995 1994 -------------------------- ------------------------- Carrying Fair Carrying Fair Amount Value Amount Value ----------- ----------- ----------- ---------- (In thousands) Cash and cash equivalents . . . . . . . . . . $ 13,633 $ 13,633 $ 30,043 $ 30,043 Investment securities . . . . . . . . . . . . 5,620 6,084 7,242 7,422 Long-term debt: Bank debt . . . . . . . . . . . . . . . . . (671,200) (671,200) (490,022) (490,022) 6-percent subordinated debentures . . . . . (172,500) (198,375) -- -- 9.25-percent notes due 2002 . . . . . . . . (99,742) (113,750) (99,713) (100,213) 3.93-percent convertible notes due 1997 . . (75,000) (88,733) (75,000) (79,928) 9.875-percent notes due 2000 . . . . . . . (29,225) (33,217) (29,225) (29,079) 10-percent notes due 1998 . . . . . . . . . (22,100) (22,199) (22,100) (21,934) Other debt . . . . . . . . . . . . . . . . . ( 5,309) ( 5,309) (3,073) (3,073) Hedging financial instruments: Interest rate swap . . . . . . . . . . . . -- (40) -- (181) Foreign currency rate contracts . . . . . . -- 81 -- -- Commodity price swaps (1) . . . . . . . . . (9,326) (30,631) -- (1,190)
(1) Includes $(7.9) million in 1995 for fixed to floating price swaps where there is an offsetting position with a physical contract. See Commodity Price Hedges below. The following methods and assumptions were used to estimate the fair value of the financial instruments summarized in the table above. The carrying values of trade receivables and trade payables included in the accompanying Consolidated Balance Sheet approximated market value at December 31, 1995 and 1994. Cash and Cash Equivalents -- The carrying amounts approximated fair value due to the short maturity of these instruments. Investment Securities -- The fair value of investments are based on quoted market prices at year end. Debt -- The fair value of the 9.25-percent notes was based on the quoted market price for that issue, while the fair value of the 3.93-percent notes was estimated based on quotes obtained from private investment firms. The fair values of the 6-percent debentures and 9.875-percent and 10-percent notes are based upon estimates provided to the Company by independent sources. F-22 60 APACHE CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) Interest Rate Instruments -- The Company periodically enters into various financial instruments to manage its interest rate exposure. At December 31, 1995, the Company had one outstanding interest rate swap agreement with a notional principal amount totaling $6 million. The notional amount reduces by $2 million each quarter through July 1996, with interest fixed at 8.15 percent. The fair value of the open interest rate swap was the estimated amount that the Company would pay to terminate the swap agreement, taking into account current interest rates and the credit worthiness of the swap counterparties. Foreign Currency Rate Contracts -- The Company periodically enters into forward foreign currency exchange contracts to reduce the impact of foreign currency fluctuations on operating results. At December 31, 1995, Apache had open forward contracts for $2.5 million of Australian dollars. The fair value of these contracts was based on rates quoted from financial institutions. Commodity Price Hedges -- The Company enters into certain commodity derivative contracts to reduce the risk caused by fluctuations in the prices of oil and natural gas. During the last three years, Apache has used swaps, puts and fixed-price contracts to hedge its commodity prices. Apache's hedging activities are primarily conducted with major investment and commercial banks which the Company believes are minimal credit risks. The agreements call for Apache to receive, or make, payments based upon the differential between a fixed and a variable commodity price as specified in the contract. As a result of these activities, Apache recognized net hedging losses in 1995 and 1993 of $4.3 million and $.6 million, respectively, while recognizing a net gain of $5.7 million in 1994. The 1995 net loss reflected a $9.3 million pre-tax charge to earnings resulting from the loss of correlation of New York Mercantile Exchange (NYMEX) prices from actual wellhead prices for certain positions in January through March 1996 production, reported as a reduction of other revenues; offset by $5 million of commodity pricing gains which increased 1995 oil and gas production revenues. The 1994 net hedging gain and 1993 net hedging loss were recognized in oil and gas production revenues during each of the respective years. At December 31, 1995, Apache's Consolidated Balance Sheet included deferred credits totaling $4.8 million for gains realized on the early termination of commodity price hedges in 1995 and prior years. The hedging gains will be recognized into oil and gas production revenues over periods ranging from one to 60 months as the hedged production occurs. F-23 61 APACHE CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) The following table and notes thereto cover the Company's pricing and notional volumes on open natural gas commodity hedges as of December 31, 1995:
Production Periods ----------------------------------------------- 1996 1997 1998 1999 2000 ------ ------ ------ ------- ------ NYMEX Based Swap Positions: Receive fixed price (thousand MMBtu/d)(1) 162.1 -- -- -- -- Average swap price, per MMBtu(1) 1.89 -- -- -- -- Pay fixed price (thousand MMBtu/d)(2) 48.2 46.4 40.0 40.0 40.0 Average swap price, per MMBtu(2) 1.85 1.92 2.02 2.11 2.21
(1) The Company receives a payment in the event the swap price is above the NYMEX settlement price and, conversely, makes a payment if the NYMEX settlement price is greater than the swap price. To reduce its exposure to a non- correlation of NYMEX prices and the cash markets for natural gas during the first quarter of 1996, the Company entered into reverse swap transactions. Volumes and pricing relating to the reverse swap positions, which are not reflected in the above table, equated to 34.1 thousand MMBtu/d with an average fixed swap price of $2.77 per MMBtu. The Company will make payments if the swap prices are greater than NYMEX settlement prices on these positions the first quarter of 1996. (2) The Company has various contracts to supply gas at fixed prices. In order to lock in a margin on a portion of the volumes, the Company is a fixed price payor on swap transactions. The average physical contract price ranges from $2.24 in 1996 to $2.78 in 2000. The fair value of these hedges was a negative $7.9 million at December 31, 1995, with most of the negative value related to the arrangement discussed in Note 6. At December 31, 1995, the Company had price swaps in place for the year 1996 for 100,000 barrels of Australian crude oil production at an average TAPIS crude oil price of $19.23 per barrel and for 532,500 barrels of its domestic production at an average NYMEX price of $18.54 per barrel. In connection with the purchase of MW in mid-1991, the Company and Amoco Production Company (Amoco) entered into a hedging agreement. Under the terms of this agreement, Apache would receive support payments in the event oil prices fell below specified reference prices for any year during the two-year period ended June 30, 1993, and Amoco will receive payments in the event oil prices rose above specified reference prices for any year during the eight-year period ending June 30, 1999, or in the event gas prices exceeded specified reference prices for any year during the five-year period ending June 30, 1996. In the event price sharing payments are due to Amoco, the volumes listed below would be doubled until Amoco recovers its net payments to Apache ($5.8 million through the contract year ended June 30, 1995) plus interest. The notional volumes and the reference prices specified in the Amoco price support agreement are summarized below:
Oil Gas ------------------ ----------------- Year Ended June 30: MMbbls Price Bcf Price ------------------- ------ ----- --- ----- 1996 . . . . . . . . . . . 2.4 $27.80 10.5 $2.68 1997 . . . . . . . . . . . 2.0 29.48 -- -- 1998 . . . . . . . . . . . 1.7 31.25 -- -- 1999 . . . . . . . . . . . 1.4 33.12 -- --
Based on the Company's projection of oil and gas prices for the years noted above, Apache will not be liable to Amoco for future price sharing payments. F-24 62 APACHE CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) 10. COMMITMENTS AND CONTINGENCIES Litigation -- The Company is involved in litigation and is subject to governmental and regulatory controls arising in the ordinary course of business. It is the opinion of the Company's management that all claims and litigation involving the Company are not likely to have a material adverse effect on its financial position or results of operations. Environmental -- Apache, as an owner and operator of oil and gas properties, is subject to various federal, state, local and foreign country laws and regulations relating to discharge of materials into, and protection of, the environment. These laws and regulations may, among other things, impose liability on the lessee under an oil and gas lease for the cost of pollution clean-up resulting from operations, subject the lessee to liability for pollution damages, require suspension or cessation of operations in affected areas and impose restrictions on the injection of liquids into subsurface aquifers that may contaminate ground water. Apache maintains insurance coverage which it believes are customary in the industry, although it is not fully insured against all environmental risks. As part of the Company's due diligence review for acquisitions, Apache conducts an extensive environmental evaluation of purchased properties. Depending on the extent of an identified environmental problem, the Company may exclude the property from the acquisition, or agree to assume liability for remediation of the property. As of December 31, 1995, Apache had a reserve for environmental remediation of approximately $8 million. The Company is not aware of any environmental claims existing as of December 31, 1995, which have not been provided for or would otherwise have a material impact on its financial position or results of operations. There can be no assurance, however, that current regulatory requirements will not change, or past non-compliance with environmental laws will not be discovered on the Company's properties. International Commitments -- The Company, through its subsidiaries, has acquired or has been conditionally or unconditionally granted exploration rights in Australia, The Congo, Egypt, China, Indonesia and the Ivory Coast. In order to comply with the contracts and agreements granting these rights, the Company, through various wholly owned subsidiaries, is committed to expend approximately $81.8 million through 1998. Retirement and Deferred Compensation Plans -- The Company provides a retirement/401(k) savings plan and a non- qualified retirement/savings plan for employees. These plans allow participating employees to elect to contribute up to 10 percent of their salaries, with Apache making matching contributions up to a maximum of six percent of each employee's salary. In addition, the Company annually contributes a percentage of each participating employee's compensation, as defined, to the plan. Vesting in the Company's contributions occurs at the rate of 20 percent per year. Additionally, DEK maintains a separate retirement plan. Total expenses under all plans were $7 million, $5.8 million and $5.6 million for 1995, 1994 and 1993, respectively. The unfunded liability for all plans has been accrued in the Consolidated Balance Sheet. Lease Commitments -- The Company has leases for office space and equipment with varying expiration dates through 2007. Net rental expense was $5.2 million, $4.4 million and $5.0 million for 1995, 1994 and 1993, respectively. F-25 63 APACHE CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) As of December 31, 1995, minimum rental commitments under long-term operating leases and long-term pipeline transportation commitments, ranging from 15 to 30 years, are as follows:
Net Minimum Pipeline Net Rental Sublease Rental Transportation Minimum Commitments Rentals Commitments Commitments Commitments ------------ ---------- ------------ -------------- ------------ (In thousands) 1996 . . . . . . . $ 8,922 $ (1,539) $ 7,383 $ 3,926 $ 11,309 1997 . . . . . . . 7,545 (798) 6,747 3,187 9,934 1998 . . . . . . . 7,349 (228) 7,121 2,831 9,952 1999 . . . . . . . 7,089 (147) 6,942 2,813 9,755 2000 . . . . . . . 6,413 (147) 6,266 2,796 9,062 Thereafter . . . . 36,093 (86) 36,007 51,937 87,944 ------------ ---------- ------------ ------------ ------------ $ 73,411 $ (2,945) $ 70,466 $ 67,490 $ 137,956 ============ ========== ============ ============ ============
11. CUSTOMER INFORMATION Major Purchasers -- Natural Gas Clearinghouse (NGC) was the principal purchaser of Apache's spot market gas production from April 1990 through September 30, 1995. On September 30, 1995, the Company's contract with NGC was terminated, and Apache began marketing its own natural gas. Sales to NGC accounted for 27 percent, 37 percent and 33 percent of the Company's oil and gas revenues in 1995, 1994 and 1993, respectively. Sales to Amoco represented 11 percent of the Company's 1993 oil and gas revenues and were less than 10 percent for 1995 and 1994. Apache will sell substantially all of its natural gas production to ProEnergy upon commencement of full operations of ProEnergy (which is anticipated to occur in the second quarter of 1996). As of December 31, 1995, Apache, by agreement, owned a 57.91 percent interest in ProEnergy. Apache's interest, however, will fluctuate as its throughput of natural gas varies. Sales of natural gas by Apache to ProEnergy will be made at agreed index prices, which indices are based generally upon prevailing spot market prices at the relevant delivery points. Concentration of Credit Risk -- The Company's revenues are derived principally from uncollateralized sales to customers in the oil and gas industry; therefore, customers may be similarly affected by changes in economic and other conditions within the industry. Apache has not experienced significant credit losses on such sales. Sales of natural gas by Apache to ProEnergy will similarly be uncollateralized. Apache and the other members of ProEnergy have agreed to fund the reasonably anticipated future capital needs of ProEnergy. In addition, ProEnergy announced on February 1, 1996, that it had executed a $150 million, three-year revolving credit facility with a syndicate of banks to finance its operations. ProEnergy will, however, be subject to the risks inherent in the natural gas marketing industry. F-26 64 APACHE CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) 12. BUSINESS SEGMENT INFORMATION The Company's operations are primarily related to natural gas and crude oil exploration and production. Accordingly, such operations are classified as one business segment. Financial information by geographic area is presented below:
1995 1994 1993 ------------ ------------ ------------ (In thousands) Gross Operating Revenues: United States . . . . . . . . . . . . . . . . . . . $ 682,432 $ 518,735 $ 450,517 Canada . . . . . . . . . . . . . . . . . . . . . . . 40,508 47,005 45,994 Other International . . . . . . . . . . . . . . . . 27,762 26,427 15,497 Equity in income of affiliates and gain on sale of investment in affiliate . . . . . . . . . -- 459 624 ------------ ------------ ------------ Total revenues . . . . . . . . . . . . . . . . . . . . . $ 750,702 $ 592,626 $ 512,632 ============ ============ ============ Operating Income (Loss): United States . . . . . . . . . . . . . . . . . . . $ 131,888 $ 119,764 $ 130,008 Canada . . . . . . . . . . . . . . . . . . . . . . . 11,077 20,748 18,385 Other International . . . . . . . . . . . . . . . . 7,267 (806) (18,982) ------------ ------------ ------------ Operating income . . . . . . . . . . . . . . . . . . . . 150,232 139,706 129,411 Equity in income of affiliates and gain on sale of investment in affiliate . . . . . . . . . . . . . -- 459 624 Administrative, selling and other . . . . . . . . . . . . (36,552) (38,729) (36,629) Merger costs . . . . . . . . . . . . . . . . . . . . . . (9,977) -- -- Financing costs . . . . . . . . . . . . . . . . . . . . . (70,560) (34,743) (30,677) ------------ ------------ ------------ Income before income taxes . . . . . . . . . . . . . . . $ 33,143 $ 66,693 $ 62,729 ============ ============ ============ Identifiable Assets: United States . . . . . . . . . . . . . . . . . . . $ 2,295,966 $ 1,717,058 $ 1,460,267 Canada . . . . . . . . . . . . . . . . . . . . . . . 216,216 196,589 187,574 Other International . . . . . . . . . . . . . . . . 169,268 122,980 111,362 ------------ ------------ ------------ Total . . . . . . . . . . . . . . . . . $ 2,681,450 $ 2,036,627 $ 1,759,203 ============ ============ ============
F-27 65 APACHE CORPORATION AND SUBSIDIARIES SUPPLEMENTAL OIL AND GAS DISCLOSURES (UNAUDITED) Oil and Gas Operations -- The following table sets forth revenue and direct cost information relating to the Company's oil and gas exploration and production activities. Apache has no long-term agreements to purchase oil or gas production from foreign governments or authorities.
For the Year Ended December 31, ---------------------------------------------- 1995 1994 1993 ------------ ------------ ------------ (In thousands) UNITED STATES Oil and gas revenues . . . . . . . . . . . . . . . . . $ 586,711 $ 467,161 $ 421,845 ------------ ------------ ------------ Operating costs: Depreciation, depletion and amortization . . . . . 262,689 222,935 170,128 Loss on disposal of assets . . . . . . . . . . . -- -- (513) Lease operating . . . . . . . . . . . . . . . . . 161,631 107,361 102,830 Production taxes . . . . . . . . . . . . . . . . . 26,936 22,280 21,218 Income tax . . . . . . . . . . . . . . . . . . . . 50,118 44,821 50,215 ------------ ------------ ------------ 501,374 397,397 343,878 ------------ ------------ ------------ Results of operations . . . . . . . . . . . . . . . . . $ 85,337 $ 69,764 $ 77,967 ============ ============ ============ Amortization rate per boe . . . . . . . . . . . . . . . $ 5.54 $ 5.88 $ 5.61 ============ ============ ============ CANADA Oil and gas revenues . . . . . . . . . . . . . . . . . $ 38,831 $ 44,889 $ 44,506 ------------ ------------- ------------ Operating costs: Depreciation, depletion and amortization . . . . . 15,475 14,603 15,142 Lease operating . . . . . . . . . . . . . . . . . 12,911 11,654 12,467 Income tax . . . . . . . . . . . . . . . . . . . . 4,658 8,833 8,164 ------------ ------------- ------------ 33,044 35,090 35,773 ------------ ------------- ------------ Results of operations . . . . . . . . . . . . . . . . . $ 5,787 $ 9,799 $ 8,733 ============ ============ ============ Amortization rate per boe . . . . . . . . . . . . . . . $ 3.08 $ 3.34 $ 3.38 ============ ============ ============ OTHER INTERNATIONAL Oil and gas revenues . . . . . . . . . . . . . . . . . $ 27,602 $ 26,339 $ 15,497 ------------ ------------ ------------ Operating costs: Depreciation, depletion and amortization . . . . . 10,225 11,754 7,214 Impairments . . . . . . . . . . . . . . . . . . . -- 7,300 23,200 Lease operating . . . . . . . . . . . . . . . . . 6,534 6,257 3,456 Production taxes . . . . . . . . . . . . . . . . . 1,957 1,922 609 Income tax (benefit) . . . . . . . . . . . . . . . 3,199 (295) (6,264) ------------ ------------ ------------ 21,915 26,938 28,215 ------------ ------------ ------------ Results of operations . . . . . . . . . . . . . . . . . $ 5,687 $ (599) $ (12,718) ============ ============ ============ Amortization rate per boe - recurring . . . . . . . . . $ 5.94 $ 7.15 $ 8.00 ============ ============ ============ TOTAL Oil and gas revenues . . . . . . . . . . . . . . . . . $ 653,144 $ 538,389 $ 481,848 ------------ ------------ ------------ Operating costs: Depreciation, depletion and amortization . . . . . 288,389 249,292 192,484 Impairments . . . . . . . . . . . . . . . . . . . -- 7,300 23,200 (Gain) loss on disposal of assets . . . . . . . . -- -- (513) Lease operating . . . . . . . . . . . . . . . . . 181,076 125,272 118,753 Production taxes . . . . . . . . . . . . . . . . . 28,893 24,202 21,827 Income tax . . . . . . . . . . . . . . . . . . . . 57,975 53,359 52,115 ------------ ------------ ------------ 556,333 459,425 407,866 ------------ ------------ ------------ Results of operations . . . . . . . . . . . . . . . . . $ 96,811 $ 78,964 $ 73,982 ============ ============ ============
F-28 66 APACHE CORPORATION AND SUBSIDIARIES SUPPLEMENTAL OIL AND GAS DISCLOSURES -- (CONTINUED) (UNAUDITED) Costs Not Being Amortized -- The following table sets forth a summary of oil and gas property costs not being amortized at December 31, 1995, by the year in which such costs were incurred:
1992 and Total 1995 1994 1993 Prior ----------- ---------- ---------- ---------- ---------- (In thousands) Leasehold and seismic . . . . . $ 241,138 $ 172,187 $ 29,956 $ 18,408 $ 20,587 Exploration and development . . 10,208 10,208 -- -- -- International . . . . . . . . . 84,496 57,739 16,765 8,810 1,182 ----------- ---------- ---------- ---------- ---------- Total . . . . . . . . . . . . . $ 335,842 $ 240,134 $ 46,721 $ 27,218 $ 21,769 =========== =========== ========== ========== ==========
Capitalized Costs Incurred -- The following table sets forth the capitalized costs incurred in oil and gas producing activities:
For the Year Ended December 31, ----------------------------------------- 1995 1994 1993 ----------- ----------- ----------- (In thousands) UNITED STATES Acquisition of proved properties(1) . . . . . . . . $ 818,682 $ 179,972 $ 242,659 Acquisition of unproved properties . . . . . . . . 21,446 32,526 14,342 Exploration . . . . . . . . . . . . . . . . . . . 23,520 16,722 16,979 Development . . . . . . . . . . . . . . . . . . . 156,845 216,451 164,839 Capitalized interest . . . . . . . . . . . . . . . 14,619 4,889 4,764 Property sales . . . . . . . . . . . . . . . . . . (271,937) (5,854) (9,430) ----------- ----------- ----------- 763,175 444,706 434,153 ----------- ----------- ----------- CANADA Acquisition of proved properties . . . . . . . . . 2,236 770 2,075 Acquisition of unproved properties . . . . . . . . 3,511 7,337 2,686 Exploration . . . . . . . . . . . . . . . . . . . 7,857 13,399 8,168 Development . . . . . . . . . . . . . . . . . . . . 15,105 19,714 6,532 Capitalized interest . . . . . . . . . . . . . . . 1,315 1,145 1,515 Property sales . . . . . . . . . . . . . . . . . . -- (13,671) (912) ----------- ----------- ----------- 30,024 28,694 20,064 ----------- ----------- ----------- OTHER INTERNATIONAL Acquisition of proved properties(2) . . . . . . . . -- -- 81,942 Exploration . . . . . . . . . . . . . . . . . . . 55,897 30,089 18,006 Development . . . . . . . . . . . . . . . . . . . . 8,946 1,853 -- Capitalized interest . . . . . . . . . . . . . . . 3,107 -- -- ----------- ----------- ----------- 67,950 31,942 99,948 ----------- ----------- ----------- TOTAL Acquisition of proved properties . . . . . . . . . 820,918 180,742 326,676 Acquisition of unproved properties . . . . . . . . 24,957 39,863 17,028 Exploration . . . . . . . . . . . . . . . . . . . 87,274 60,210 43,153 Development . . . . . . . . . . . . . . . . . . . 180,896 238,018 171,371 Capitalized interest . . . . . . . . . . . . . . . 19,041 6,034 6,279 Property sales . . . . . . . . . . . . . . . . . . (271,937) (19,525) (10,342) ----------- ----------- ----------- $ 861,149 $ 505,342 $ 554,165 =========== =========== ===========
- --------------------- (1) Acquisition of proved properties included unevaluated cost of $162.2 million, $12 million and $26.8 million for transactions completed in 1995, 1994 and 1993, respectively. (2) International acquisitions in 1993 included $16.8 million of unevaluated costs added through the merger of AERC. F-29 67 APACHE CORPORATION AND SUBSIDIARIES SUPPLEMENTAL OIL AND GAS DISCLOSURES -- (CONTINUED) (UNAUDITED) Capitalized Costs -- The following table sets forth the capitalized costs and related accumulated depreciation, depletion and amortization, including impairments, relating to the Company's oil and gas production, exploration and development activities:
December 31, ---------------------------------- 1995 1994 --------------- -------------- (In thousands) UNITED STATES Proved properties . . . . . . . . . . . . . . . . . . . . . . . . . . $ 3,434,170 $ 2,810,670 Unproved properties . . . . . . . . . . . . . . . . . . . . . . . . . 251,347 111,672 --------------- -------------- 3,685,517 2,922,342 Accumulated depreciation, depletion and amortization . . . . . . . . (1,700,228) (1,437,540) --------------- -------------- 1,985,289 1,484,802 --------------- -------------- CANADA Proved properties . . . . . . . . . . . . . . . . . . . . . . . . . . 346,547 312,649 Unproved properties . . . . . . . . . . . . . . . . . . . . . . . . . 15,957 11,454 --------------- -------------- 362,504 324,103 Accumulated depreciation, depletion and amortization . . . . . . . . (159,533) (139,555) --------------- -------------- 202,971 184,548 --------------- -------------- OTHER INTERNATIONAL Proved properties . . . . . . . . . . . . . . . . . . . . . . . . . . 176,116 142,451 Unproved properties . . . . . . . . . . . . . . . . . . . . . . . . . 68,538 34,253 --------------- -------------- 244,654 176,704 Accumulated depreciation, depletion and amortization . . . . . . . . (89,495) (79,270) --------------- -------------- 155,159 97,434 --------------- -------------- TOTAL Proved properties . . . . . . . . . . . . . . . . . . . . . . . . . . 3,956,833 3,265,770 Unproved properties . . . . . . . . . . . . . . . . . . . . . . . . . 335,842 157,379 --------------- -------------- 4,292,675 3,423,149 Accumulated depreciation, depletion and amortization . . . . . . . . (1,949,256) (1,656,365) --------------- -------------- $ 2,343,419 $ 1,766,784 =============== ==============
Oil and Gas Reserve Information -- Proved oil and gas reserve quantities are based on estimates prepared by the Company's engineers in accordance with guidelines established by the Securities and Exchange Commission (SEC). The Company's estimates of proved reserve quantities of its U.S., Canadian and certain international properties are subject to review by Ryder Scott Company Petroleum Engineers, independent petroleum engineers. Other international proved reserves, for all periods presented below, are located in Australia. There are numerous uncertainties inherent in estimating quantities of proved reserves and projecting future rates of production and timing of development expenditures. The following reserve data represents estimates only and should not be construed as being exact. F-30 68 APACHE CORPORATION AND SUBSIDIARIES SUPPLEMENTAL OIL AND GAS DISCLOSURES -- (CONTINUED) (UNAUDITED)
Crude Oil, Condensate and Natural Gas Liquids ---------------------------------------------- (In thousands of barrels) United Other States Canada Int'l Total ------- ------ ------ ------- Total proved reserves: Balance December 31, 1992 . . . . . . . . . . . . . . . 80,195 13,984 464 94,643 Extensions, discoveries and other additions . . . 10,885 397 -- 11,282 Purchases of minerals in-place . . . . . . . . . 9,871 188 5,095 15,154 Revisions of previous estimates . . . . . . . . . (3,215) (300) 1,125 (2,390) Production . . . . . . . . . . . . . . . . . . . (12,096) (989) (684) (13,769) Sales of properties . . . . . . . . . . . . . . . (1,917) (46) -- (1,963) ------- ------ ------ ------- Balance December 31, 1993 . . . . . . . . . . . . . . . 83,723 13,234 6,000 102,957 Extensions, discoveries and other additions . . . 9,669 690 349 10,708 Purchases of minerals in-place . . . . . . . . . 9,232 83 -- 9,315 Revisions of previous estimates . . . . . . . . . 5,347 (2,239) 273 3,381 Production . . . . . . . . . . . . . . . . . . . (12,418) (962) (1,159) (14,539) Sales of properties . . . . . . . . . . . . . . . (1,108) (90) -- (1,198) ------- ------ ------ ------- Balance December 31, 1994 . . . . . . . . . . . . . . . 94,445 10,716 5,463 110,624 Extension, discoveries and other additions . . . 6,685 306 3,058 10,049 Purchases of minerals in-place . . . . . . . . . 99,148 119 -- 99,267 Revisions of previous estimates . . . . . . . . . 12,172 (388) 10 11,794 Production . . . . . . . . . . . . . . . . . . . (17,011) (937) (1,139) (19,087) Sales of properties . . . . . . . . . . . . . . . (42,318) -- -- (42,318) ------- ------ ------ ------- Balance December 31, 1995 . . . . . . . . . . . . . . . 153,121 9,816 7,392 170,329 ======= ====== ====== ======= Proved developed reserves: December 31, 1992 . . . . . . . . . . . . . . . . . . . 72,596 13,972 464 87,032 December 31, 1993 . . . . . . . . . . . . . . . . . . . 74,288 13,221 5,113 92,622 December 31, 1994 . . . . . . . . . . . . . . . . . . . 84,085 10,612 5,322 100,019 December 31, 1995 . . . . . . . . . . . . . . . . . . . 123,726 9,597 4,141 137,464 Natural Gas ------------------------------------------------ (Millions of cubic feet) United Other States Canada Int'l Total --------- ------- ------ --------- Total proved reserves: Balance December 31, 1992 . . . . . . . . . . . . . . . 643,299 276,343 -- 919,642 Extensions, discoveries and other additions . . . 119,210 19,094 -- 138,304 Purchases of minerals in-place . . . . . . . . . 174,115 4,405 33,343 211,863 Revisions of previous estimates . . . . . . . . . (7,335) 2,198 1,327 (3,810) Production . . . . . . . . . . . . . . . . . . . (109,312) (20,969) (1,310) (131,591) Sales of properties . . . . . . . . . . . . . . . (5,118) (3,660) -- (8,778) --------- ------- ------ --------- Balance December 31, 1993 . . . . . . . . . . . . . . . 814,859 277,411 33,360 1,125,630 Extensions, discoveries and other additions . . . 190,386 44,912 408 235,706 Purchases of minerals in-place . . . . . . . . . 158,309 2,710 -- 161,019 Revisions of previous estimates . . . . . . . . . (21,937) 6,880 1,114 (13,943) Production . . . . . . . . . . . . . . . . . . . (152,994) (20,491) (2,911) (176,396) Sales of properties . . . . . . . . . . . . . . . (4,335) (11,526) -- (15,861) --------- ------- ------ --------- Balance December 31, 1994 . . . . . . . . . . . . . . . 984,288 299,896 31,971 1,316,155 Extension, discoveries and other additions . . . 85,032 26,488 42,332 153,852 Purchases of minerals in-place . . . . . . . . . 335,865 4,662 -- 340,527 Revisions of previous estimates . . . . . . . . . 56,281 (18,141) 2,342 40,482 Production . . . . . . . . . . . . . . . . . . . (182,661) (24,485) (3,486) (210,632) Sales of properties . . . . . . . . . . . . . . . (138,464) -- -- (138,464) --------- ------- ------ --------- Balance December 31, 1995 . . . . . . . . . . . . . . . 1,140,341 288,420 73,159 1,501,920 ========= ======= ====== ========= Proved developed reserves: December 31, 1992 . . . . . . . . . . . . . . . . . . . 585,424 263,305 -- 848,729 December 31, 1993 . . . . . . . . . . . . . . . . . . . 696,421 263,070 24,251 983,742 December 31, 1994 . . . . . . . . . . . . . . . . . . . 888,039 274,611 22,265 1,184,915 December 31, 1995 . . . . . . . . . . . . . . . . . . . 1,003,853 274,306 20,308 1,298,467
F-31 69 APACHE CORPORATION AND SUBSIDIARIES SUPPLEMENTAL OIL AND GAS DISCLOSURES -- (CONTINUED) (UNAUDITED) Future Net Cash Flows -- Future revenues are based on year-end prices except in those instances where the sale of natural gas is covered by contract terms providing for determinable escalations. Operating costs, production and ad valorem taxes and future development costs are based on current costs with no escalation. The following table sets forth unaudited information concerning future net cash flows for oil and gas reserves, net of income tax expense. Income tax expense has been computed using expected future tax rates and giving effect to permanent differences and credits which, under current laws, relate to oil and gas producing activities. This information does not purport to present the fair market value of the Company's oil and gas assets, but does present a standardized disclosure concerning possible future net cash flows that would result under the assumptions used.
December 31, --------------------------------------------------------- 1995 1994 1993 --------------- --------------- -------------- (In thousands) UNITED STATES Cash inflows . . . . . . . . . . . . . . . . $ 5,617,297 $ 3,401,300 $ 3,062,525 Production and development costs . . . . . . (2,126,984) (1,294,801) (1,085,205) Income tax expense . . . . . . . . . . . . . (753,425) (376,932) (362,353) --------------- --------------- -------------- Net cash flows . . . . . . . . . . . . . . . 2,736,888 1,729,567 1,614,967 10-percent annual discount rate . . . . . . . (1,105,629) (628,408) (550,887) --------------- --------------- -------------- Discounted future net cash flows . . . . . . 1,631,259 1,101,159 1,064,080 --------------- --------------- -------------- CANADA Cash inflows (1) . . . . . . . . . . . . . . 550,627 536,463 672,023 Production and development costs . . . . . . (186,388) (156,589) (155,238) Income tax expense . . . . . . . . . . . . . (82,124) (91,740) (135,319) --------------- --------------- -------------- Net cash flows . . . . . . . . . . . . . . . 282,115 288,134 381,466 10-percent annual discount rate . . . . . . . (124,835) (128,558) (179,046) --------------- --------------- -------------- Discounted future net cash flows . . . . . . 157,280 159,576 202,420 --------------- --------------- -------------- OTHER INTERNATIONAL Cash inflows . . . . . . . . . . . . . . . . 287,817 163,303 154,466 Production and development costs . . . . . . (99,345) (68,217) (57,281) Income tax expense . . . . . . . . . . . . . (53,520) (27,910) (24,680) --------------- --------------- -------------- Net cash flows . . . . . . . . . . . . . . . 134,952 67,176 72,505 10-percent annual discount rate . . . . . . . (53,932) (15,366) (21,209) --------------- --------------- -------------- Discounted future net cash flows . . . . . . 81,020 51,810 51,296 --------------- --------------- -------------- TOTAL Cash inflows . . . . . . . . . . . . . . . . 6,455,741 4,101,066 3,889,014 Production and development costs . . . . . . (2,412,717) (1,519,607) (1,297,724) Income tax expense . . . . . . . . . . . . . (889,069) (496,582) (522,352) --------------- --------------- -------------- Net cash flows . . . . . . . . . . . . . . . 3,153,955 2,084,877 2,068,938 10-percent annual discount rate . . . . . . . (1,284,396) (772,332) (751,142) --------------- --------------- -------------- Discounted future net cash flows (2) . . . . $ 1,869,559 $ 1,312,545 $ 1,317,796 =============== =============== ==============
- --------------- (1) Included in cash inflows is approximately $25.3 million, $25.7 million and $39.4 million ($9.8 million, $9.8 million and $12.0 million after discount at 10 percent per annum) for 1995, 1994 and 1993, respectively, of Canadian provincial tax credits expected to be realized beyond the date at which the legislation, under its provisions, could be repealed. (2) Estimated future net cash flows before income tax expense, discounted at 10 percent per annum, totaled approximately $2.34 billion, $1.60 billion and $1.63 billion as of December 31, 1995, 1994 and 1993, respectively. F-32 70 APACHE CORPORATION AND SUBSIDIARIES SUPPLEMENTAL OIL AND GAS DISCLOSURES -- (CONTINUED) (UNAUDITED) The following table sets forth the principal sources of change in the discounted future net cash flows:
For the Year Ended December 31, ---------------------------------------- 1995 1994 1993 ----------- ----------- ---------- (In thousands) Sales, net of production costs . . . . . . . . . . . . . . . $ (443,175) $ (388,915) $ (341,268) Net change in prices and production costs . . . . . . . . . . 201,723 (173,059) (25,742) Discoveries and improved recovery, net of related costs . . . 210,151 211,358 227,500 Change in future development costs . . . . . . . . . . . . . 74,047 24,065 2,236 Revision of quantities . . . . . . . . . . . . . . . . . . . 127,939 13,167 (26,752) Purchases . . . . . . . . . . . . . . . . . . . . . . . . . . 726,240 165,273 352,918 Accretion of discount . . . . . . . . . . . . . . . . . . . . 160,093 159,302 124,599 Change in income taxes . . . . . . . . . . . . . . . . . . . (186,415) 16,517 (67,242) Sales of properties . . . . . . . . . . . . . . . . . . . . . (232,629) (21,497) (7,698) Change in production rates and other . . . . . . . . . . . . (80,960) (11,462) 47,372 ----------- ----------- ---------- $ 557,014 $ (5,251) $ 285,923 =========== =========== ==========
Impact of Pricing -- The estimates of cash flows and reserve quantities shown above are based on year-end oil and gas prices, except in those cases where future gas sales are covered by contracts at specified prices. Estimates of future liabilities and receivables applicable to oil and gas commodity hedges are reflected in future cash flows from proved reserves with such estimates based on prices in effect as of the date of the reserve report. Fluctuations are largely due to supply and demand perceptions for natural gas and volatility in oil prices. Under SEC rules, companies that follow full cost accounting methods are required to make quarterly "ceiling test" calculations. Under this test, capitalized costs of oil and gas properties may not exceed the present value of estimated future net revenues from proved reserves, discounted at 10 percent, plus the lower of cost or fair market value of unproved properties, as adjusted for related tax effects and deferred tax reserves. Application of these rules during periods of relatively low oil and gas prices, even if of short-term duration, may result in write-downs. Many full cost companies, including Apache, are concerned about the impact of prolonged unfavorable gas prices on their ceiling test calculations. A deterioration of gas or oil prices from year-end levels could result in the Company recording a non-cash charge to earnings related to its oil and gas properties. SEC rules permit the exclusion of capitalized costs and present value of recently acquired properties in performing ceiling test calculations. Pursuant to these rules, Apache has requested waivers and the SEC has granted two separate one-year waivers with respect to the properties acquired from Texaco and Aquila. If the ceiling is exceeded on all U.S. properties, Apache will be required to perform an additional ceiling test excluding the Texaco and Aquila properties and record a write-down of carrying value if the ceiling is still exceeded. F-33 71 APACHE CORPORATION AND SUBSIDIARIES SUPPLEMENTAL QUARTERLY FINANCIAL DATA (UNAUDITED)
First Second Third Fourth Total ---------- --------- --------- ---------- ---------- (In thousands, except per share amounts) 1995 Revenues . . . . . . . . . . . . . . . . . . $ 167,718 $ 206,052 $ 181,247 $ 195,685 $ 750,702 Expenses, net . . . . . . . . . . . . . . . . 163,635 205,515 174,205 187,140 730,495 ---------- --------- --------- ---------- ---------- Net income . . . . . . . . . . . . . . . . . $ 4,083 $ 537 $ 7,042 $ 8,545 $ 20,207 ========== ========= ========= ========== ========== Net income per common share . . . . . . . . . $ .06 $ .01 $ .10 $ .11 $ .28 ========== ========= ========= ========== ========== 1994 Revenues . . . . . . . . . . . . . . . . . . $ 132,721 $ 147,054 $ 152,971 $ 159,880 $ 592,626 Expenses, net . . . . . . . . . . . . . . . . 124,496 134,147 140,582 147,818 547,043 ---------- --------- --------- ---------- ---------- Net income $ 8,225 $ 12,907 $ 12,389 $ 12,062 $ 45,583 ========== ========= ========= ========== ========== Net income per common share . . . . . . . . . $ .12 $ .19 $ .18 $ .17 $ .65 ========== ========= ========= ========== ==========
- ------------------ The sum of the individual quarterly earnings per share may not agree with year-to-date earnings per share as each period's computation is based on the weighted average number of common shares outstanding during that period. F-34 72 APACHE CORPORATION AND SUBSIDIARIES SUPPLEMENTAL QUARTERLY FINANCIAL DATA -- (CONTINUED) (UNAUDITED) The 1994 quarterly data shown above was restated to combine the operations of DEKALB with Apache in accordance with the "pooling of interests" method of accounting. Additionally, as described in Note 2 to the consolidated financial statements, conforming adjustments relative to DD&A and income taxes were made along with certain reclassifications. A reconciliation of the separate results, as previously reported in Apache's and DEKALB's 1994 quarterly reports on Form 10-Q, to the combined results is an follows:
First Second Third Fourth Total ---------- ---------- --------- --------- --------- (In thousands, except per share amounts) Revenues: Apache . . . . . . . . . . . . . . . . . . . . $ 121,591 $ 134,947 $ 140,765 $ 148,318 $ 545,621 DEKALB . . . . . . . . . . . . . . . . . . . . 11,130 12,107 12,206 10,847 46,290 Reclassification to conform presentation . . . -- -- -- 715 715 ---------- ---------- --------- --------- --------- $ 132,721 $ 147,054 $ 152,971 $ 159,880 $ 592,626 ========== ========== ========= ========= ========= Income from continuing operations: Apache . . . . . . . . . . . . . . . . . . . . $ 9,407 $ 10,196 $ 10,574 $ 12,660 $ 42,837 DEKALB . . . . . . . . . . . . . . . . . . . . 1,750 2,416 1,890 757 6,813 Conforming adjustments . . . . . . . . . . . . (2,932) 295 (75) (1,355) (4,067) ---------- ---------- --------- --------- --------- $ 8,225 $ 12,907 $ 12,389 $ 12,062 $ 45,583 ========== ========== ========= ========= ========= Net income: Apache . . . . . . . . . . . . . . . . . . . . $ 9,407 $ 10,196 $ 10,574 $ 12,660 $ 42,837 DEKALB . . . . . . . . . . . . . . . . . . . . 1,750 2,416 1,890 757 6,813 Conforming adjustments . . . . . . . . . . . . (2,932) 295 (75) (1,355) (4,067) ---------- ---------- --------- --------- --------- $ 8,225 $ 12,907 $ 12,389 $ 12,062 $ 45,583 ========== ========== ========= ========= ========= Income per common share from continuing operations: Apache . . . . . . . . . . . . . . . . . . . . $ .15 $ .17 $ .17 $ .21 $ .70 ---------- ---------- --------- --------- --------- DEKALB . . . . . . . . . . . . . . . . . . . . $ .18 $ .25 $ .20 $ .08 $ .71 ---------- ---------- --------- --------- --------- As combined . . . . . . . . . . . . . . . . . $ .16 $ .19 $ .18 $ .19 $ .71 Conforming adjustments . . . . . . . . . . . . (.04) -- -- (.02) (.06) ---------- ---------- --------- --------- --------- $ .12 $ .19 $ .18 $ .17 $ .65 ========== ========== ========= ========= ========= Net income per common share: Apache . . . . . . . . . . . . . . . . . . . . $ .15 $ .17 $ .17 $ .21 $ .70 ---------- ---------- --------- --------- --------- DEKALB . . . . . . . . . . . . . . . . . . . . $ .18 $ .25 $ .20 $ .08 $ .71 ---------- ---------- --------- --------- --------- As combined . . . . . . . . . . . . . . . . . $ .16 $ .19 $ .18 $ .19 $ .71 Conforming adjustments . . . . . . . . . . . . (.04) -- -- (.02) (.06) ---------- ---------- --------- --------- --------- $ .12 $ .19 $ .18 $ .17 $ .65 ========== ========== ========= ========= =========
F-35 73 INDEX TO EXHIBITS
Exhibit No. Description ----------- ----------- 3.2 -- Certificate of Ownership and Merger Merging Apache Energy Resources Corporation into Registrant, effective December 31, 1995, as filed with the Secretary of State of Delaware on December 21, 1995. 3.3 -- Certificate of Designations, Preferences and Rights of Series A Junior Participating Preferred Stock of Registrant, effective January 31, 1996, as filed with the Secretary of State of Delaware on January 22, 1996. 3.4 -- Bylaws of Registrant, dated as of February 9, 1996. 4.1 -- Form of Registrant's common stock certificate. 10.5 -- Third Amendment to Third Amended and Restated Credit Agreement, dated December 18, 1995, among Registrant, the lenders named therein, and the First National Bank of Chicago, as Administrative Agent and Arranger, and Chemical Bank, as Co-Agent and Arranger. 10.6 -- Fourth Amendment to Third Amended and Restated Credit Agreement, dated December 22, 1995, among Registrant, the lenders named therein, and the First National Bank of Chicago, as Administrative Agent and Arranger, and Chemical Bank, as Co-Agent and Arranger. 10.7 -- Fifth Amendment to Third Amended and Restated Credit Agreement, dated January 22, 1996, among Registrant, the lenders named therein, and the First National Bank of Chicago, as Administrative Agent and Arranger, and Chemical Bank, as Co-Agent and Arranger. 10.14 -- Amendments to the Apache Corporation Retirement/401(k) Savings Plan, effective May 4, 1995 and May 17, 1995. 10.15 -- Non-Qualified Retirement/Savings Plan of Apache Corporation, dated November 16, 1989 . 10.16 -- First Amendment to the Non-Qualified Retirement/Savings Plan of Apache Corporation, dated October 24, 1995. 10.19 -- Apache Corporation 1990 Stock Incentive Plan, as amended and restated February 9, 1996. 10.20 -- Apache Corporation 1995 Stock Option Plan, as amended and restated February 9, 1996. 10.28 -- Member Gas Pruchase Agreement, dated March 1, 1996, by and among Apache Gathering Company, Apache Corporation, MW Petroleum Corporation, DEK Energy Company, Apache Transmission Corporation-Texas and Apache Marketing, Inc., as seller, and Producers Energy Marketing, LLC, as buyer. 11.1 -- Statement regarding computation of earnings per share of Registrant's common stock for the year ended December 31, 1995. 21.1 -- Subsidiaries of Registrant 23.1 -- Consent of Arthur Andersen LLP 23.2 -- Consent of Coopers & Lybrand 23.3 -- Consent of Ryder Scott Company Petroleum Engineers 27.1 -- Financial Data Schedule
EX-3.2 2 CERTIFICATE OF OWNERSHIP AND MERGER 1 EXHIBIT 3.2 Page 1 STATE OF DELAWARE OFFICE OF THE SECRETARY OF STATE ________________________________ I, EDWARD J. FREEL, SECRETARY OF STATE OF THE STATE OF DELAWARE, DO HEREBY CERTIFY THE ATTACHED IS A TRUE AND CORRECT COPY OF THE CERTIFICATE OF OWNERSHIP, WHICH MERGES: "APACHE ENERGY RESOURCES CORPORATION", A DELAWARE CORPORATION, WITH AND INTO "APACHE CORPORATION" UNDER THE NAME OF "APACHE CORPORATION", A CORPORATION ORGANIZED AND EXISTING UNDER THE LAWS OF THE STATE OF DELAWARE, AS RECEIVED AND FILED IN THIS OFFICE THE TWENTY-FIRST DAY OF DECEMBER, A.D. 1995, AT 12 O'CLOCK P.M. /s/ Edward J. Freel ----------------------------------- Edward J. Freel, Secretary of State [SEAL] AUTHENTICATION: 7762929 DATE: 12-21-95 2 CERTIFICATE OF OWNERSHIP AND MERGER MERGING APACHE ENERGY RESOURCES CORPORATION INTO APACHE CORPORATION Apache Corporation, a corporation organized and existing under the laws of the State of Delaware, DOES HEREBY CERTIFY: FIRST: That Apache Corporation was incorporated on the 6th day of December, 1954, pursuant to the General Corporation Law of the State of Delaware. SECOND: That Apache Corporation owns all of the issued and outstanding shares of the capital stock of Apache Energy Resources Corporation, a corporation formerly known as Hadson Energy Resources Corporation and which was incorporated on the 26th day of October, 1989, pursuant to the General Corporation Law of the State of Delaware. THIRD: That Apache Corporation, by the following resolutions of its Board of Directors, duly adopted at a meeting held on the 14th day of December, 1995, determined to and did merge into itself said Apache Energy Resources Corporation: RESOLVED that Apache Energy Resources Corporation ("AERC"), a wholly owned subsidiary of Apache Corporation, be merged with and into Apache Corporation ("Apache"), with Apache being the surviving corporation. FURTHER RESOLVED that the merger shall be effective as of midnight on December 31, 1995. FURTHER RESOLVED that all of the shares of the capital stock of AERC issued and outstanding as of the effective date of the merger shall be cancelled without consideration. FURTHER RESOLVED that upon the merger taking effect, Apache shall thereupon and thereafter possess all the rights, privileges, immunities, and franchises, of a public as well as a private nature, of each of Apache and AERC; that all property, real, personal, and mixed, and all debts due on whatever account, including subscriptions to shares, and all other chooses in action, and every other interest of or belonging to or due to AERC shall be deemed to be transferred to and vested in Apache without further act or deed; that the title to any real estate, or any interest therein vested in either of Apache or AERC shall not revert or be in any way impaired by reason of the merger; and that such transfer to and vesting in Apache shall be deemed to occur by operation of law, and no consent or approval of any other person shall be required in connection with any such transfer or vesting unless such consent or approval is specifically required in the event of merger by law or by 3 express provision in any contract, agreement, decree, order, or other instrument to which either of Apache or AERC is a party or by which either is bound. FURTHER RESOLVED that upon the merger taking effect, Apache shall be responsible and liable for all the liabilities and obligations of AERC; that any claim existing or action or proceeding, whether civil or criminal, pending by or against AERC may be prosecuted as if the merger had not taken place; and that neither the rights of creditors nor any liens upon the property of either of Apache or AERC shall be impaired by such merger. FURTHER RESOLVED that the proper officers of Apache are hereby authorized and directed, in the name and on behalf of Apache, to prepare and execute a Certificate of Ownership and Merger setting forth a copy of the resolutions authorizing the merger of AERC with and into Apache and the assumption by Apache of the liabilities and obligations of AERC, and the date of adoption thereof, and to cause such Certificate of Ownership and Merger to be filed with the Delaware Secretary of State and a certified copy of same recorded in the office of the Recorder of Deeds of New Castle County. FURTHER RESOLVED that the proper officers of Apache be, and they hereby are, authorized and directed to take such further action and to execute such certificates and other documents as they, in their discretion, shall deem necessary or advisable to consummate the merger and effect the foregoing resolutions. FOURTH: Anything herein or elsewhere to the contrary notwithstanding, this merger may be amended or terminated and abandoned by the Board of Directors of Apache Corporation at any time prior to the date of filing the merger with the Delaware Secretary of State. IN WITNESS WHEREOF, Apache Corporation has caused this Certificate of Ownership and Merger to be executed by its duly authorized officers as of this 20th day of December, 1995. APACHE CORPORATION By: /s/ G. Steven Farris ------------------------------------- G. Steven Farris President and Chief Operating Officer ATTEST: /s/ Cheri L. Peper - -------------------------------- Cheri L. Peper Corporate Secretary 2 4 STATE OF TEXAS COUNTY OF HARRIS The foregoing instrument was acknowledged before me this 20th day of December, 1995, on behalf of Apache Corporation, by G. Steven Farris, President and Chief Operating Officer of Apache Corporation, a Delaware corporation. /s/ Valencia A. McNeil ---------------------------------------- Valencia A. McNeil, Notary Public in and for the State of Texas [SEAL] VALENCIA A. MCNEIL My Commission Expires April 16, 1998 3 EX-3.3 3 CERTIFICATE OF DESIGNATIONS - JUNIOR PREFERRED STK 1 EXHIBIT 3.3 Page 1 STATE OF DELAWARE OFFICE OF THE SECRETARY OF STATE ________________________________ I, EDWARD J. FREEL, SECRETARY OF STATE OF THE STATE OF DELAWARE, DO HEREBY CERTIFY THE ATTACHED IS A TRUE AND CORRECT COPY OF THE CERTIFICATE OF DESIGNATION OF "APACHE CORPORATION", FILED IN THIS OFFICE ON THE TWENTY-SECOND DAY OF JANUARY, A.D. 1996, AT 10 O'CLOCK A.M. A CERTIFIED COPY OF THIS CERTIFICATE HAS BEEN FORWARDED TO THE NEW CASTLE COUNTY RECORDER OF DEEDS FOR RECORDING. /s/ Edward J. Freel ----------------------------------- Edward J. Freel, Secretary of State [SEAL] AUTHENTICATION: 7798054 DATE: 01-23-96 2 CERTIFICATE OF DESIGNATIONS, PREFERENCES AND RIGHTS OF SERIES A JUNIOR PARTICIPATING PREFERRED STOCK OF APACHE CORPORATION PURSUANT TO SECTION 151 OF THE GENERAL CORPORATION LAW OF THE STATE OF DELAWARE Apache Corporation, a corporation organized and existing under the General Corporation Law of the State of Delaware, in accordance with the provisions of Section 103 thereof, DOES HEREBY CERTIFY: That pursuant to the authority vested in the Board of Directors in accordance with the provisions of the Restated Certificate of Incorporation of the said Corporation, the said Board of Directors at a meeting duly held on December 14, 1995, adopted the following resolution creating a series of twenty-five thousand (25,000) shares of Preferred Stock designated as "Series A Junior Participating Preferred Stock": RESOLVED: That, pursuant to the authority granted to and vested in the Board of Directors of the Corporation in accordance with the provisions of its Restated Certificate of Incorporation, the Board of Directors hereby creates a series of Preferred Stock of the Corporation and hereby states the designation and number of shares, and fixes the relative rights, preferences and limitations thereof (in addition to the provisions set forth in the Restated Certificate of Incorporation of the Corporation, which are applicable to all series of the Corporation's preferred stock) as follows: SERIES A JUNIOR PARTICIPATING PREFERRED STOCK 1. Designation and Amount. There shall be a series of Preferred Stock, no par value per share, that shall be designated as "Series A Junior Participating Preferred Stock," and the number of whole shares constituting such series shall be 25,000. Such number of shares may be increased or decreased by resolution of the Board of Directors; provided, however, that no decrease shall reduce the number of shares of Series A Junior Participating Preferred Stock to less than the number of shares then issued and outstanding plus the number of shares issuable upon exercise of outstanding rights, options or warrants, or upon conversion of outstanding securities issued by the Corporation. 1 3 2. Dividends and Distribution. (A) Subject to the prior and superior rights of the holders of any shares of any series of Preferred Stock ranking prior and superior to the shares of Series A Junior Participating Preferred Stock with respect to dividends, the holders of record of shares of Series A Junior Participating Preferred Stock as of the close of business on the last Business Day of December, March, June and September in each year, in preference to the holders of shares of any class or series of stock of the Corporation ranking junior to the Series A Junior Participating Preferred Stock, shall be entitled to receive, when, as and if declared by the Board of Directors out of funds legally available for the purpose, quarterly dividends payable in cash on the last Business Day of January, April, July and October in each year (each such date being referred to herein as a "Quarterly Dividend Payment Date"), commencing on the first Quarterly Dividend Payment Date after the first issuance of a share or fraction of a share of Series A Junior Participating Preferred Stock, in an amount per share (rounded to the nearest cent) equal to the greater of (a) $100 or (b) the Adjustment Number (as defined below) times the aggregate per share amount of all cash dividends, and the Adjustment Number times the aggregate per share amount (payable in kind) of all non-cash dividends or other distributions other than a dividend payable in shares of Common Stock or a subdivision of the outstanding shares of Common Stock (by reclassification or otherwise), declared on the Common Stock, par value $1.25 per share, of the Corporation (the "Common Stock") since the immediately preceding Quarterly Dividend Payment Date, or, with respect to the first Quarterly Dividend Payment Date, since the first issuance of any share or fraction of a share of Series A Junior Participating Preferred Stock. The "Adjustment Number" shall initially be 10,000. In the event the Corporation shall at any time after January 31, 1995 (the "Effective Date") (i) declare any dividend on Common Stock payable in shares of Common Stock, (ii) subdivide the outstanding Common Stock or (iii) combine the outstanding Common Stock into a smaller number of shares, then in each such case the Adjustment Number in effect immediately prior to such event shall be adjusted by multiplying such Adjustment Number by a fraction the numerator of which is the number of shares of Common Stock outstanding immediately after such event and the denominator of which is the number of shares of Common Stock that were outstanding immediately prior to such event. (B) The Corporation shall declare a dividend or distribution on the Series A Junior Participating Preferred Stock as provided in paragraph (A) above immediately after it declares a dividend or distribution on the Common Stock (other than a dividend payable in shares of Common Stock). (C) Dividends shall begin to accrue and be cumulative on outstanding shares of Series A Junior Participating Preferred Stock from the Quarterly Dividend Payment Date next preceding the date of issue of such shares of Series A Junior Participating Preferred Stock, unless the date of issue of such shares is prior to the record date for the first Quarterly Dividend Payment Date, in which case dividends on such shares shall begin to accrue from the date of issue of such shares, or unless the date of issue is a Quarterly Dividend Payment Date or is a date after the record date for the determination of holders of shares of Series A Junior Participating Preferred Stock entitled to receive a quarterly dividend and before such Quarterly Dividend Payment Date, in either of which events such dividends shall begin to accrue and be cumulative from such Quarterly 2 4 Dividend Payment Date. Accrued but unpaid dividends shall not bear interest. Dividends paid on the shares of Series A Junior Participating Preferred Stock in an amount less than the total amount of such dividends at the time accrued and payable on such shares shall be allocated pro rata on a share-by-share basis among all such shares at the time outstanding. The Board of Directors may fix a record date for the determination of holders of shares of Series A Junior Participating Preferred Stock entitled to receive payment of a dividend or distribution declared thereon, which record date shall be no more than 60 days prior to the date fixed for the payment thereof. 3. Voting Rights. The holders of shares of Series A Junior Participating Preferred Stock shall have the following voting rights: (A) Each share of Series A Junior Participating Preferred Stock shall entitle the holder thereof to a number of votes equal to the Adjustment Number on all matters submitted to a vote of the stockholders of the Corporation. (B) Except as required by law and by Section 10 hereof, holders of Series A Junior Participating Preferred Stock shall have no special voting rights and their consent shall not be required (except to the extent they are entitled to vote with holders of Common Stock as set forth herein) for taking any corporate action. 4. Certain Restrictions. (A) Whenever quarterly dividends or other dividends or distributions payable on the Series A Junior Participating Preferred Stock as provided in Section 2 are in arrears, thereafter and until all accrued and unpaid dividends and distributions, whether or not declared, on shares of Series A Junior Participating Preferred Stock outstanding shall have been paid in full, the Corporation shall not (i) declare or pay dividends on, make any other distributions on, or redeem or purchase or otherwise acquire for consideration any shares of stock ranking junior (either as to dividends or upon liquidation, dissolution or winding up) to the Series A Junior Participating Preferred Stock; (ii) declare or pay dividends on or make any other distributions on any shares of stock ranking on a parity (either as to dividends or upon liquidation, dissolution or winding up) with the Series A Junior Participating Preferred Stock, except dividends paid ratably on the Series A Junior Participating Preferred Stock and all such parity stock on which dividends are payable or in arrears in proportion to the total amounts to which the holders of all such shares are then entitled; or (iii) purchase or otherwise acquire for consideration any shares of Series A Junior Participating Preferred Stock, or any shares of stock ranking on a parity with the Series A Junior Participating Preferred Stock, except in accordance with a purchase offer made in writing or by publication (as determined by the Board of Directors) to all holders of Series A Junior Participating Preferred Stock, or to such holders and holders of any such shares ranking on a parity therewith, upon such terms as the Board of Directors, after consideration of the respective annual 3 5 dividend rates and other relative rights and preferences of the respective series and classes, shall determine in good faith will result in fair and equitable treatment among the respective series or classes. (B) The Corporation shall not permit any subsidiary or other affiliate controlled by the Corporation to purchase or otherwise acquire for consideration any shares of stock of the Corporation unless the Corporation could, under paragraph (A) of this Section 4, purchase or otherwise acquire such shares at such time and in such manner. 5. Reacquired Shares. Any shares of Series A Junior Participating Preferred Stock purchased or otherwise acquired by the Corporation in any manner whatsoever shall be retired promptly after the acquisition thereof. All such shares shall upon their retirement become authorized but unissued shares of Preferred Stock and may be reissued as part of a new series of Preferred Stock to be created by resolution or resolutions of the Board of Directors, subject to any conditions and restrictions on issuance set forth herein. 6. Liquidation, Dissolution or Winding Up. (A) Upon any liquidation (voluntary or otherwise), dissolution or winding up of the Corporation, no distribution shall be made to the holders of shares of stock ranking junior (either as to dividends or upon liquidation, dissolution or winding up) to the Series A Junior Participating Preferred Stock unless, prior thereto, the holders of shares of Series A Junior Participating Preferred Stock shall have received $100 per share, plus an amount equal to accrued and unpaid dividends and distributions thereon, whether or not declared, to the date of such payment (the "Series A Liquidation Preference"). Following the payment of the full amount of the Series A Liquidation Preference, no additional distributions shall be made to the holders of shares of Series A Junior Participating Preferred Stock unless, prior thereto, the holders of shares of Common Stock shall have received an amount per share (the "Common Adjustment") equal to the quotient obtained by dividing (i) the Series A Liquidation Preference by (ii) the Adjustment Number. Following the payment of the full amount of the Series A Liquidation Preference and the Common Adjustment in respect of all outstanding shares of (1) Series A Junior Participating Preferred Stock and (2) Common Stock, respectively, (a) holders of Series A Junior Participating Preferred Stock and (b) holders of shares of Common Stock shall, subject to the prior rights of all other series of Preferred Stock, if any, ranking prior thereto, receive their ratable and proportionate share of the remaining assets to be distributed in the ratio of the Adjustment Number to 1 with respect to (x) the Series A Junior Participating Preferred Stock and (y) the Common Stock, on a per share basis, respectively. (B) In the event, however, that there are not sufficient assets available to permit payment in full of the Series A Liquidation Preference and the liquidation preferences of all other series of Preferred Stock, if any, that rank on a parity with the Series A Junior Participating Preferred Stock, then such remaining assets shall be distributed ratably to the holders of such parity shares in proportion to their respective liquidation preferences. In the event, however, that there are not sufficient assets available to permit payment in full of the Common Adjustment, then such remaining assets shall be distributed ratably to the holders of Common Stock. (C) Neither the merger or consolidation of the Corporation into or with another corporation nor the merger or consolidation of any other corporation into or with the Corporation 4 6 shall be deemed to be a liquidation, dissolution or winding up of the Corporation within the meaning of this Section 6. 7. Consolidation, Merger, Etc. In case the Corporation shall enter into any consolidation, merger, combination or other transaction in which the shares of Common Stock are exchanged for or changed into other stock or securities, cash and/or any other property, then in any such case each share of Series A Junior Participating Preferred Stock shall at the same time be similarly exchanged or changed in an amount per share equal to the Adjustment Number times the aggregate amount of stock, securities, cash and/or any other property (payable in kind), as the case may be, into which or for which each share of Common Stock is changed or exchanged. 8. No Redemption. Shares of Series A Junior Participating Preferred Stock shall not be subject to redemption by the Company. 9. Ranking. The Series A Junior Participating Preferred Stock shall rank junior to all other series of the Corporation's Preferred Stock as to the payment of dividends and the distribution of assets, unless the terms of any such series shall provide otherwise, and shall rank senior to the Common Stock as to such matters. 10. Amendment. At any time that any shares of Series A Junior Participating Preferred Stock are outstanding, the Restated Certificate of Incorporation of the Corporation shall not be amended in any manner which would materially alter or change the powers, preferences or special rights of the Series A Junior Participating Preferred Stock so as to affect them adversely without the affirmative vote of the holders of two-thirds of the outstanding shares of Series A Junior Participating Preferred Stock, voting separately as a class. 11. Fractional Shares. Series A Junior Participating Preferred Stock may be issued in fractions of a share that shall entitle the holder, in proportion to such holder's fractional shares, to exercise voting rights, receive dividends, participate in distributions and to have the benefit of all other rights of holders of Series A Junior Participating Preferred Stock. This Certificate shall be effective as of January 31, 1996. IN WITNESS WHEREOF, said Apache Corporation has caused this Certificate to be signed by Raymond Plank, its Chairman and Chief Executive Officer, this 18th day of January, 1996. APACHE CORPORATION By: /s/ Raymond Plank ----------------------------------- Name: Raymond Plank Title: Chairman and Chief Executive Officer 5 EX-3.4 4 BYLAWS OF REGISTRANT 1 EXHIBIT 3.4 BYLAWS OF APACHE CORPORATION (AS OF FEBRUARY 9, 1996) ARTICLE I. NAME OF CORPORATION The name of the corporation is Apache Corporation. ARTICLE II. OFFICES SECTION 1. The principal office of the corporation shall be in the City of Wilmington, County of New Castle, State of Delaware, and the name of its resident agent in charge thereof is The Corporation Trust Company. SECTION 2. The corporation may have such other offices either within or without the State of Delaware as the board of directors may designate or as the business of the corporation may from time to time require. ARTICLE III. SEAL The corporate seal shall have inscribed upon it the name of the corporation and other designations as the board of directors from time to time determine. There may be alternate seals of the corporation. Page 1 2 ARTICLE IV. MEETINGS OF STOCKHOLDERS SECTION 1. PLACE OF MEETINGS. All meetings of the stockholders of the corporation shall be held at the office of the corporation in the City of Houston, Texas, or at any other place within or without the State of Delaware that shall be stated in the notice of the meeting. SECTION 2. ANNUAL MEETINGS. The annual meeting of stockholders of the corporation shall be held at the place and time within or without the State of Delaware that may be designated by the board of directors, on the first Thursday in May in each year if not a legal holiday, and if a legal holiday, then at the same time on the next succeeding business day for the purpose of electing directors and for the transaction of any other business that may properly come before the meeting. SECTION 3. SPECIAL MEETINGS OF THE STOCKHOLDERS. Special meetings of the stockholders of the corporation, for any purpose or purposes, unless otherwise prescribed by statute, may be called by the chairman of the board and shall be called by the chairman of the board or secretary at the request in writing of a majority of the board of directors. The request shall state the purpose or purposes of the proposed meeting. SECTION 4. NOTICE OF MEETING. Written or printed notice stating the place, day and hour of the meeting and in the case of special meeting, the purpose or purposes for which the meeting is called, shall be delivered not less than ten nor more than 50 days before the date of the meeting either personally, by mail or other lawful means by or at the direction of the chairman of the board or the secretary to each stockholder of record entitled to vote at the meetings. If mailed, the notice shall be deemed to be delivered when deposited in the United States Postal Service, addressed to the stockholder at his address as it appears on the stock transfer books of the corporation with postage thereon prepaid. SECTION 5. CLOSING OF TRANSFER BOOKS FOR FIXING OF RECORD DATE. For the purpose of determining stockholders entitled to notice of or to vote at any meeting of stockholders or adjournment thereof, the board of directors may close the stock transfer books of the corporation for a period not exceeding 50 days preceding the date of any meeting of stockholders. In lieu of closing the stock transfer books, the board of directors may fix in advance a date, not exceeding 50 days preceding the date of any meeting of stockholders, as a record date for the determination of the stockholders entitled to notice of and to vote at the meeting and any adjournment thereof, and only the stockholders as shall be stockholders of record on the date so fixed shall be entitled to the notice of and to vote at the meeting and any adjournment thereof. SECTION 6. VOTING LISTS. The officer or agent having charge of the stock transfer books for shares of the corporation shall prepare and make, at least ten days before every meeting Page 2 3 of the stockholders, a complete list of the stockholders entitled to vote at the meeting, arranged in alphabetical order, and showing the address of each stockholder and the number of shares registered in the name of each stockholder. The list shall be open to the examination of any stockholder during ordinary business hours, for a period of at least ten days prior to the meeting, either at a place within the city where the election is to be held and which place shall be specified in the notice of the meeting, or, if not so specified, at the place where the meeting is to be held, and the list shall be produced and kept at the time and place of the meeting during the whole time thereof, and subject to the inspection of any stockholder who may be present. Upon the willful neglect or refusal of the board of directors of the corporation to produce a list at any meeting of the stockholders at which an election is to be held in accordance with this Section 6, they shall be ineligible to hold any office at such election. SECTION 7. VOTING RIGHTS. At each meeting of the stockholders of the corporation, every stockholder having the right to vote thereat shall be entitled to vote in person or by proxy, but no proxy shall be voted after three years from its date unless the proxy provides for a longer period. Except as otherwise provided by law or the Certificate of Incorporation, each stockholder shall have one vote for each share of stock having voting power registered in his name. The vote at an election for directors, and upon the demand of any stockholder, the vote upon any question before a meeting of the stockholders, shall be by written ballot. All elections shall be had and all questions decided by a plurality vote except where by statute, by provision in the Certificate of Incorporation or these bylaws it is otherwise provided. Prior to any meeting, but subsequent to the date fixed by the board of directors pursuant to Section 5 of Article IV of these bylaws, any proxy may submit his proxy to the secretary for examination. The certificate of the secretary as to the regularity of the proxy and as to the number of shares held by the persons who severally and respectively executed such proxies shall be received as prima facie evidence of the number of shares represented by the holder of the proxy for the purpose of establishing the presence of a quorum at the meeting and of organizing the same. SECTION 8. QUORUM. The holders of a majority of the stock issued and outstanding and entitled to vote thereat, initially present in person or represented by proxy, shall be requisite, and shall constitute a quorum of all meetings of the stockholders for the transaction of business except as otherwise provided by law, by the Certificate of Incorporation, or by these bylaws. If, however, a majority shall not be present or represented at any meeting of the stockholders, the stockholders entitled to vote thereat, present in person or by proxy, shall have power to adjourn the meeting from time to time, without notice, other than announcement at the meeting, until the requisite amount of voting stock shall be present. At the adjourned meeting at which the requisite amount of voting stock shall be represented, any business may be transacted which might have been transacted at the meeting as originally notified. SECTION 9. INSPECTORS. At each meeting of the stockholders, the polls shall be opened and closed. The proxies and the ballots shall be received and taken in charge and all questions touching the qualifications of voters and the validity of proxies and the acceptance or Page 3 4 rejection of votes shall be decided by three inspectors. The inspectors shall be appointed by the board of directors before or at the meeting, or if no appointment shall have been made, then by the presiding officer at the meeting. If, for any reason any of the inspectors previously appointed shall fail to attend or refuse or be unable to serve, inspectors in place of any so failing to attend or refusing or unable to serve shall be appointed in like manner. SECTION 10. WAIVER OF NOTICE. Whenever any notice whatever is required to be given pursuant to the provisions of a statute, the Certificate of Incorporation or these bylaws of the corporation, a waiver thereof in writing signed by the person or persons entitled to the notice, whether before or after the time stated therein, shall be deemed equivalent thereto. SECTION 11. STOCKHOLDER ACTION. Any action required or permitted to be taken by the stockholders must be effected at a duly called annual or special meeting of stockholders and may not be effected by any consent in writing by stockholders. SECTION 12. NOTICE OF STOCKHOLDER BUSINESS. At an annual meeting of the stockholders, only business shall be conducted that has been properly brought before the meeting. To be properly brought before an annual meeting, business must be (a) specified in the notice of meeting (or any supplement thereto) given by or at the direction of the board of directors, (b) otherwise properly brought before the meeting by or at the direction of the board of directors, or (c) otherwise properly brought before the meeting by a stockholder, which stockholder must have given timely notice thereof in writing to the secretary of the corporation. To be timely, a stockholder's notice must be delivered to or mailed and received at the principal executive offices of the corporation, not less than 60 days nor more than 90 days prior to the meeting; provided, however, that in the event that less than 70 days' notice or prior public disclosure of the date of the meeting is given or made to stockholders, notice by the stockholder to be timely, must be so received not later than the close of business on the tenth day following the day on which the notice of the date of the annual meeting was mailed or public disclosure was made. A stockholder's notice to the secretary shall set forth as to each matter the stockholder proposes to bring before the annual meeting (w) a brief description of the business desired to be brought before the annual meeting, (x) the name and address, as they appear on the corporation's books, of the stockholder proposing the business, (y) the class and number of shares of the corporation which are beneficially owned by the stockholder, and (z) any material interest of the stockholder in the business. Notwithstanding anything in these bylaws to the contrary, no business shall be conducted at an annual meeting except in accordance with the procedures set forth in this Section 12. The chairman of an annual meeting shall, if the facts warrant, determine and declare to the meeting that business was not properly brought before the meeting in accordance with the provisions of this Section 12, and if he should so determine, he shall so declare to the meeting and any business not properly brought before the meeting shall not be transacted. This section sets forth only the procedure by which business may be properly brought before an annual meeting of stockholders and does not in any way grant additional rights to stockholders beyond those currently afforded them by law. Page 4 5 SECTION 13. NOTICE OF STOCKHOLDER NOMINEES. Only persons who are nominated in accordance with the procedures set forth in this Section 13 shall be eligible for election as directors. Nominations of persons for election to the board of directors of the corporation may be made at a meeting of stockholders, by or at the direction of the board of directors or by any stockholder of the corporation entitled to vote for the election of directors at the meeting who complies with the notice procedures set forth in this Section 13. Any nominations, other than those made by or at the direction of the board of directors, shall be made pursuant to timely notice in writing to the secretary of the corporation. To be timely, a stockholder's notice shall be delivered to or mailed and received at the principal executive offices of the corporation not less than 60 days nor more than 90 days prior to the meeting; provided, however, that in the event that less than 70 days' notice or prior public disclosure of the date of the meeting is given or made to stockholders, notice by the stockholder to be timely must be so received not later than the close of business on the tenth day following the day on which the notice of the date of the meeting was mailed or public disclosure was made. The stockholder's notice shall set forth (a) as to each person whom the stockholder proposes to nominate for election or reelection as a director (i) the name, age, business address and residence address of the person, (ii) the principal occupation or employment of the person, (iii) the class and number of shares of the corporation which are beneficially owned by the person, and (iv) any other information relating to the person that is required to be disclosed in solicitations of proxies for election of directors, or is otherwise required, in each case pursuant to Regulation 14A under the Securities Exchange Act of 1934, as amended (including without limitation the person's written consent to being named in the proxy statement as a nominee and to serving as a director if elected); and (b) as to the stockholder giving the notice (i) the name and address, as they appear on the corporation's books, of the stockholder and (ii) the class and number of shares of the corporation which are beneficially owned by the stockholder. At the request of the board of directors, any person nominated by the board of directors for election as a director shall furnish to the secretary of the corporation that information required to be set forth in a stockholder's notice of nomination which pertains to the nominee. No person shall be eligible for election as a director of the corporation unless nominated in accordance with the procedures set forth in this Section 13. The chairman of the meeting shall, if the facts warrant, determine and declare to the meeting that a nomination was not made in accordance with the procedures prescribed by these bylaws, and if he should so determine, he shall so declare to the meeting and the defective nomination shall be disregarded. This section sets forth only the procedure by which nominations for directors may be made and does not in any way grant additional rights to stockholders beyond those currently afforded them by law. ARTICLE V. DIRECTORS SECTION 1. GENERAL POWERS. The property, business and affairs of the corporation shall be managed by its board of directors which may exercise all powers of the corporation and do Page 5 6 all lawful acts and things as are not by statute or by the Certificate of Incorporation or by these bylaws directed or required to be exercised or done by the stockholders. SECTION 2. NUMBER, TENURE AND QUALIFICATIONS. The board of directors shall consist of not less than seven nor more than 13 members. The directors shall be elected in the manner set forth in Article Ninth of the Certificate of Incorporation of the corporation. The term of office of directors shall be three years except as provided in Article Ninth of the Certificate of Incorporation of the corporation. Directors need not be stockholders or residents of the State of Delaware. SECTION 3. VACANCIES AND NEWLY CREATED DIRECTORSHIPS. Any vacancies on the board of directors or any newly created directorships shall be filled by the board of directors in the manner set forth in Article Ninth of the Certificate of Incorporation of the corporation. If the directors then in office shall constitute less than a majority of the whole board (as constituted immediately prior to any increase therein), then upon application, any stockholder or stockholders holding at least ten percent of the total number of shares of the capital stock of the corporation at the time outstanding having the right to vote for directors may require the board of directors to call a special meeting of the stockholders for the purpose of electing directors to fill the vacancy or vacancies or newly created directorships or to replace the director or directors chosen by the directors then in office as aforesaid. The person or persons elected at a special meeting of the stockholders shall serve as director or as directors until the next annual meeting of stockholders and until their successors are duly elected and qualified and shall displace any person or persons who may theretofore have been appointed by the directors then in office as aforesaid. SECTION 4. CATASTROPHE. During any emergency period following a national catastrophe due to enemy attack, or act of God, a majority of the surviving members of the board who have not been rendered incapable of acting due to physical or mental incapacity or due to the difficulty of transportation to the place of the meeting shall constitute a quorum for the purpose of filling vacancies on the board of directors and among the elected and appointed officers of the corporation. SECTION 5. PLACE OF MEETINGS. The directors of the corporation may hold their meetings, both regular and special, at a place or places within or without the State of Delaware that the board of directors may from time to time determine. SECTION 6. FIRST MEETING. The first meeting of the board of directors following the annual meeting of stockholders shall be held at the time and place that shall be fixed by the chairman of the board and shall be called in the same manner as a special meeting. SECTION 7. REGULAR MEETINGS. Regular meetings of the board of directors may be held without notice at the time and place that shall from time to time be determined by the board of directors. Page 6 7 SECTION 8. SPECIAL MEETINGS. Special meetings of the board of directors may be called by the chairman of the board on three days notice to each director, either personally or by mail, by telegram, or by facsimile or other lawful means; special meetings of the board of directors shall be called by the chairman of the board or secretary in like manner and upon like notice upon the written request of two directors. SECTION 9. QUORUM. At all meetings of the board of directors, a majority of the directors shall be necessary and sufficient to constitute a quorum for the transaction of business, and the act of a majority of the directors present at any meeting, at which there is a quorum present, shall be the act of the board of directors, except as may be otherwise specifically provided by statute, the Certificate of Incorporation or by these bylaws. If at any meeting of the board of directors there shall be less than a quorum present, a majority of those present may adjourn the meeting from time to time without notice, other than by announcement at the meeting, until a sufficient number of directors to constitute a quorum shall attend. At any adjourned meeting at which a quorum shall be present, any business may be transacted which might have been transacted at the original meeting as originally notified. SECTION 10. BUSINESS TO BE CONDUCTED. Unless otherwise indicated in the notice, any and all business may be transacted at a regular or special meeting of the board of directors. In the event a special meeting of the board of directors is held without notice, any and all business may be transacted at the meeting provided all directors are present. SECTION 11. ORDER OF BUSINESS. At all meetings of the board of directors, business shall be transacted in the order that from time to time the board may determine by resolution. At all meetings of the board of directors the chairman of the board or in his absence the vice chairman shall preside. In the absence of the chairman and vice chairman of the board, the directors present shall elect any director as chairman of the meeting. SECTION 12. COMPENSATION OF DIRECTORS. Directors of the corporation shall receive the compensation for their services that the board of directors may from time to time determine and all directors shall be reimbursed for their expenses of attendance at each regular or special meeting of the board or any committee thereof. SECTION 13. COMMITTEES. The board of directors may by resolution passed by a majority of the board, in addition to the executive committee, designate one or more committees, each committee to consist of one or more of the directors of the corporation. Any committee, to the extent provided in the resolution, shall have and may exercise the powers of the board of directors in the management of the business and affairs of the corporation, and may authorize the seal of the corporation to be affixed to all papers which may require it. Any committee or committees shall have the name or names that may be determined from time to time by resolution adopted by the board of directors. Other than for a committee of one director, the chairman of the board shall be an ex officio member of any board committee except the audit committee, the management development and compensation committee, and the stock option plan committee. Page 7 8 SECTION 14. EXECUTIVE COMMITTEE. A. MEMBERS. The executive committee shall consist of not less than four nor more than five members of the board of directors, as is fixed by the board of directors, and shall include the chairman and vice chairman of the board as ex officio members, together with the two or three members of the board of directors, as may be the case, elected by the board of directors. B. TERM OF OFFICE. Each of the elected members of the executive committee shall be elected for a one year term and shall serve until his successor shall have been duly elected and qualified. C. ELECTION. The election of members of the executive committee shall be held each year at the first meeting of the board of directors following the annual meeting of stockholders. Should a member of the executive committee for any reason be unable to serve for the term to which he was elected, the vacancy shall be filled by the board of directors at its next meeting following the occurrence of such vacancy. D. COMPENSATION. Each member of the executive committee shall receive the compensation that the board of directors shall from time to time determine and shall be reimbursed for their expenses of attendance at regular or special meetings. E. CHAIRMAN AND SECRETARY OF THE EXECUTIVE COMMITTEE. The chairman and secretary of the executive committee shall be elected by members of the executive committee. F. MEETINGS. Regular meetings of the executive committee may be held without call or notice of the time and place that the executive committee determines. Special meetings of the executive committee may be called by any member, either personally or by mail, by telegram, by facsimile or other lawful means forwarded not later than 48 hours prior to the date and time set forth for the meeting. Upon request of any member, the secretary of the corporation shall give the required notice calling the meeting. G. QUORUM. At any meeting of the executive committee, three members shall constitute a quorum. Any action of the executive committee to be effective must be authorized by not less than three affirmative votes. H. RULES. The executive committee shall fix its own rules of procedure, provided the same do not contravene the provisions of the law, the Certificate of Incorporation or these bylaws. Page 8 9 I. AUTHORITY AND RESPONSIBILITY. (a) The executive committee is vested with the authority to exercise the full power of the board of directors, within the policies established by the board of directors to govern the conduct of the business of the corporation, in the intervals between meetings of the board of directors. (b) The executive committee, in addition to the general authority vested in it, may be vested with other specific powers and authority by resolution of the board of directors. J. REPORTS. All action by the executive committee shall be reported to the board of directors at its meeting next succeeding the action, and shall be subject to revision or alteration by the board of directors; provided, however, that no rights or acts of third parties shall be affected by any such revision or alteration. SECTION 15. AUDIT COMMITTEE. A. MEMBERS. The audit committee shall consist of not less than three nor more than five members of the board of directors, determined by the board of directors, and shall include only outside directors of the corporation. B. TERM OF OFFICE. Each of the elected members of the audit committee shall be elected for a one year term and shall serve until a successor shall have been duly elected and qualified. C. ELECTION. The election of members of the audit committee shall be held each year at the first meeting of the board of directors following the annual meeting of stockholders. Should a member of the audit committee for any reason be unable to serve for the term to which he was elected, the vacancy shall be filled by the board of directors at its next meeting. D. COMPENSATION. Each member of the audit committee shall receive the compensation the board of directors determines and shall be reimbursed for their expenses for attendance at regular or special meetings. E. CHAIRMAN AND SECRETARY OF THE AUDIT COMMITTEE. The chairman and secretary of the audit committee shall be elected by the members of the audit committee. F. MEETINGS. Regular meetings of the audit committee may be held without call or notice of the time and place that the audit committee determines. Special meetings of the audit committee may be called by any member, either personally or by mail, by telegram, by facsimile or other lawful means forwarded not later than 48 hours prior to the date and time set forth for the Page 9 10 meeting. Upon request of any member, the secretary of the corporation shall give the required notice calling the meeting. G. QUORUM. At any meeting of the audit committee, a majority of committee members shall constitute a quorum. Any action of the audit committee to be effective must be authorized by the affirmative votes of a majority of committee members. H. RULES. The audit committee shall determine its own rules of procedure, provided the rules do not contravene the provisions of the law, the Certificate of Incorporation or these bylaws. I. AUTHORITY AND RESPONSIBILITY. (a) The audit committee is vested with the authority to (i) review with the independent and internal auditors of the corporation their respective audit and review programs and procedures; (ii) review the corporation's financial statements; (iii) review the adequacy of the corporation's system of internal accounting controls and the scope and results of internal audit engagements, special services provided by them and related fees; and (iv) make recommendations to the board of directors regarding the independence of the independent auditors and their engagement or discharge. (b) The audit committee, in addition to the authority vested in it under subsection (a) above, may be vested with other specific powers and authority by resolution of the board of directors. J. REPORTS. All action by the audit committee shall be reported to the board of directors at its next meeting, and shall be subject to revision or alteration by the board of directors. SECTION 16. MANAGEMENT DEVELOPMENT AND COMPENSATION COMMITTEE A. MEMBERS. The management development and compensation committee shall consist of not less than three nor more than five members of the board of directors, determined by the board of directors, and shall include only outside directors of the corporation. B. TERM OF OFFICE. Each of the elected members of the management development and compensation committee shall be elected for a one year term and shall serve until a successor shall have been duly elected and qualified. C. ELECTION. The election of members of the management development and compensation committee shall be held each year at the first meeting of the board of directors following the annual meeting of stockholders. Should a member of the management development and compensation committee for any reason be unable to serve for the term to which he was elected, the vacancy shall be filled by the board of directors at its next meeting. Page 10 11 D. COMPENSATION. Each member of the management development and compensation committee shall receive the compensation the board of directors determines and shall be reimbursed for their expenses for attendance at regular or special meetings. E. CHAIRMAN AND SECRETARY OF THE MANAGEMENT DEVELOPMENT AND COMPENSATION COMMITTEE. The chairman and secretary of the management development and compensation committee shall be elected by the members of the management development and compensation committee. F. MEETINGS. Regular meetings of the management development and compensation committee may be held without call or notice of the time and place that the management development and compensation committee determines. Special meetings of the management development and compensation committee may be called by any member, either personally or by mail, by telegram, by facsimile or other lawful means forwarded not later than 48 hours prior to the date and time set forth for the meeting. Upon request of any member, the secretary of the corporation shall give the required notice calling the meeting. G. QUORUM. At any meeting of the management development and compensation committee, a majority of committee members shall constitute a quorum. Any action of the management development and compensation committee to be effective must be authorized by the affirmative votes of a majority of committee members. H. RULES. The management development and compensation committee shall determine its own rules of procedure, provided the rules do not contravene the provisions of the law, the Certificate of Incorporation or these bylaws. I. AUTHORITY AND RESPONSIBILITY. The management development and compensation committee has two principal responsibilities: (a) to monitor the corporation's management resources, structure, succession planning, development, and selection process, and the performance of key executives; (b) to review and approve executive compensation and changes; and (c) to make such reports on executive compensation as appropriate or required. The management development and compensation committee also serves as the committee administering all incentive compensation plans other than the corporation's stock option plans. Page 11 12 J. REPORTS. All action by the management development and compensation committee shall be reported to the board of directors at its next meeting, and shall be subject to revision or alteration by the board of directors. SECTION 17. STOCK OPTION PLAN COMMITTEE A. MEMBERS. The stock option plan committee shall consist of not less than two nor more than five members of the board of directors, determined by the board of directors. It is intended that the members of the stock option plan committee shall include only directors of the corporation who qualify as "outside directors" pursuant to Section 162(m) or any successor section(s) of the Internal Revenue Code of 1986, as amended, and the rules and regulations promulgated thereunder. B. TERM OF OFFICE. Each of the elected members of the stock option plan committee shall be elected for a one year term and shall serve until a successor shall have been duly elected and qualified. C. ELECTION. The election of members of the stock option plan committee shall be held each year at the first meeting of the board of directors following the annual meeting of stockholders. Should a member of the stock option plan committee for any reason be unable to serve for the term to which he was elected, the vacancy shall be filled by the board of directors at its next meeting. D. COMPENSATION. Each member of the stock option plan committee shall receive the compensation the board of directors determines and shall be reimbursed for their expenses for attendance at regular or special meetings. E. CHAIRMAN AND SECRETARY OF THE STOCK OPTION PLAN COMMITTEE. The chairman and secretary of the stock option plan committee shall be elected by the members of the stock option plan committee. F. MEETINGS. Regular meetings of the stock option plan committee may be held without call or notice of the time and place that the stock option plan committee determines. Special meetings of the stock option plan committee may be called by any member, either personally or by mail, by telegram, by facsimile or other lawful means forwarded not later than 48 hours prior to the date and time set forth for the meeting. Upon request of any member, the secretary of the corporation shall give the required notice calling the meeting. G. QUORUM. At any meeting of the stock option plan committee, a majority of committee members shall constitute a quorum, provided that such quorum shall not be less than two members. Any action of the stock option plan committee to be effective must be authorized by the affirmative votes of a majority of committee members. Page 12 13 H. RULES. The stock option plan committee shall determine its own rules of procedure, provided the rules do not contravene the provisions of the law, the Certificate of Incorporation or these bylaws. I. AUTHORITY AND RESPONSIBILITY. The stock option plan committee has two principal responsibilities: (a) to monitor and report on the corporation's stock option plans; and (b) to establish any performance goals under which compensation in the form of stock option grants is paid to employees of the corporation, and to make such grants of stock options, in the discretion of the stock option plan committee, on the terms and conditions set forth in the option plans or otherwise established by the stock option plan committee. J. REPORTS. All action by the stock option plan committee shall be reported to the board of directors at its next meeting, and is subject to ratification by the board of directors. SECTION 18. NOMINATING COMMITTEE. A. MEMBERS. The nominating committee shall consist of not less than three nor more than five members of the board of directors, determined by the board of directors. B. TERM OF OFFICE. Each of the elected members of the nominating committee shall be elected for a one year term and shall serve until a successor shall have been duly elected and qualified. C. ELECTION. The election of members of the nominating committee shall be held each year at the first meeting of the board of directors following the annual meeting of stockholders. Should a member of the nominating committee for any reason be unable to serve for the term to which he was elected, the vacancy shall be filled by the board of directors at its next meeting. D. COMPENSATION. Each member of the nominating committee shall receive the compensation the board of directors determines and shall be reimbursed for their expenses for attendance at regular or special meetings. E. CHAIRMAN AND SECRETARY OF THE NOMINATING COMMITTEE. The chairman and secretary of the nominating committee shall be elected by the members of the nominating committee. F. MEETINGS. Regular meetings of the nominating committee may be held without call or notice of the time and place that the nominating committee determines. Special meetings of the nominating committee may be called by any member, either personally or by mail, by telegram, by Page 13 14 facsimile or other lawful means forwarded not later than 48 hours prior to the date and time set forth for the meeting. Upon request of any member, the secretary of the corporation shall give the required notice calling the meeting. G. QUORUM. At any meeting of the nominating committee, a majority of committee members shall constitute a quorum. Any action of the nominating committee to be effective must be authorized by the affirmative votes of a majority of committee members. H. RULES. The nominating committee shall determine its own rules of procedure, provided the rules do not contravene the provisions of the law, the Certificate of Incorporation or these bylaws. I. AUTHORITY AND RESPONSIBILITY. (a) The nominating committee is vested with the authority and responsibility to (i) recommend to the board of directors criteria for selection of candidates to serve on the board of directors; (ii) recommend to the board of directors qualified candidates to fill any newly created directorships or vacancies on the board of directors which occur between annual meetings of stockholders without regard to race, sex, age, religion or physical disability; (iii) recommend candidates for election to the committees of the board of directors; (iv) periodically review, assess, and make recommendations to the board of directors with regard to the size and composition of the board of directors, and its evaluation of incumbent directors; (v) cause the names of all director candidates that are approved by the board of directors to be listed in the corporation's proxy materials and support the election of all candidates so nominated by the board of directors to the extent permitted by law; (vi) evaluate and recommend to the board of directors potential candidates to serve in the future on the board of directors to assure the continuity and succession of the board of directors; and (vii) otherwise aid in attracting qualified candidates to the board of directors. (b) Only candidates recommended by the nominating committee shall be eligible for nomination by the board of directors for election, or to fill a vacancy or any newly created directorship, but if the board does not approve one or more of the candidates recommended by the nominating committee, the nominating committee shall submit a recommendation of other candidates. If for any reason the nominating committee shall fail to act or determines not to make a recommendation, the board of directors shall fill any vacancy or newly created directorship in the manner that it deems appropriate. (c) The nominating committee, in addition to the authority vested in it under subsections (a) and (b) above, shall have all additional powers necessary to carry out its responsibilities, and may be vested with other specific powers and authority by resolution of the board of directors. Page 14 15 J. REPORTS. All action by the nominating committee shall be reported to the board of directors at its next meeting, and shall be subject to revision or alteration by the board of directors. K. RIGHTS OF STOCKHOLDERS. Nothing in this Section 18 shall affect or restrict the right of any stockholder to nominate any person for election as a director where such nomination is otherwise authorized by law and made in accordance with Section 13 of Article IV of these bylaws. SECTION 19. ELECTION OF OFFICERS. At the first meeting of the board of directors in each year, at which a quorum shall be present, following the annual meeting of the stockholders of the corporation, the board of directors shall proceed to the election of the officers of the corporation. SECTION 20. ACTION WITHOUT MEETING. Any action required or permitted to be taken at any meeting of the board of directors or of any committee thereof may be taken without a meeting, if prior to the action a written consent thereto is signed by all members of the board of directors or of the committee, as the case may be, and such written consent is filed with the minutes of the proceedings of the board of directors or committee. SECTION 21. WAIVER OF NOTICE. Whenever any notice whatever is required to be given pursuant to the provisions of a statute, the Certificate of Incorporation or these bylaws of the corporation, a waiver thereof in writing signed by the person or persons entitled to the notice, whether before or after the time stated therein, shall be deemed equivalent thereto. ARTICLE VI. OFFICERS SECTION 1. OFFICERS. The officers of the corporation shall be a chairman of the board, vice chairman of the board, president, one or more executive vice presidents, one or more senior vice presidents, one or more vice presidents, secretary, treasurer, controller and such assistant vice presidents, assistant secretaries, assistant treasurers and assistant controllers as the board of directors may provide for and elect. The chairman of the board and the vice chairman of the board shall be members of the board of directors. Any two or more offices may be held by the same person. The board of directors may appoint such other officers as they shall deem necessary, who shall have the authority and shall perform the duties that from time to time may be prescribed by the board of directors. In its discretion, the board of directors by a vote of a majority thereof may leave unfilled for any period that it may fix by resolution any office except those of president, treasurer and secretary. SECTION 2. ELECTION. The board of directors at their first meeting after each annual meeting of the stockholders or at any regular or special meeting shall elect, as may be required, a chairman of the board, vice chairman of the board, president, and one or more executive vice Page 15 16 presidents, senior vice presidents, vice presidents, a secretary, treasurer, controller, and assistant vice presidents, assistant secretaries, assistant treasurers, and assistant controllers. SECTION 3. TENURE. The officers of the corporation elected by the board of directors shall hold office for one year and until their successors are chosen and qualify in their stead. Any officer elected or appointed by the board of directors may be removed at any time by the affirmative vote of a majority of the board of directors. SECTION 4. SALARIES. The salaries of the officers of the corporation shall be recommended by the management development and compensation committee and approved by the board of directors. SECTION 5. VACANCIES. If the office of any officer of the corporation becomes vacant by reason of death, resignation, disqualification or otherwise, the directors by a majority vote, may choose his successor or successors. SECTION 6. RESIGNATION. Any officer may resign his office at any time, such resignation to be made in writing and take effect at the time of receipt by the corporation, unless some time be fixed in the resignation and then from that time. The acceptance of a resignation shall not be required to make it effective. SECTION 7. DELEGATION OF DUTIES. Duties of officers may be delegated in case of the absence of any officer of the corporation or for any reason that the board of directors may deem sufficient. The board of directors may delegate the powers or duties of the officer to any other officer or to any director, except as otherwise provided by statute, for the time being, provided a majority of the entire board of directors concurs therein. SECTION 8. CHAIRMAN OF THE BOARD. The chairman of the board shall be the chief executive officer and shall have, subject to the direction of the board of directors, general control and management of the corporation's business and affairs and shall see that all the policies and resolutions of the board of directors are carried into effect, subject, however, to the right of the board of directors to delegate any specific powers, except such as may be by statute exclusively conferred on the president, to any other officer or officers of the corporation. He shall preside at all meetings of stockholders and the board of directors at which he may be present. SECTION 9. VICE CHAIRMAN OF THE BOARD. The vice chairman shall preside at all meetings of the board of directors and stockholders from which the chairman of the board may be absent, and shall perform such other duties that shall be specifically assigned to him from time to time by the board of directors or the chairman of the board. SECTION 10. PRESIDENT. The president shall be the chief operating officer and shall perform those duties that shall be specifically assigned to him from time to time by the board of directors. In the absence of the chief executive officer or in the event of his death, inability or Page 16 17 refusal to act, the president shall perform the duties of the chief executive officer, and when so acting shall have the powers of and be subject to all the restrictions upon the chief executive officer. SECTION 11. EXECUTIVE VICE PRESIDENTS, SENIOR VICE PRESIDENTS, AND VICE PRESIDENTS. In the absence of the president or in the event of his death, inability or refusal to act, the senior executive vice president present shall perform the duties of the president, and when so acting, shall have all the powers of and be subject to all the restrictions upon the president. In the absence of the president and all executive or senior vice presidents, or in the event of their deaths, inability or refusal to act, a vice president designated by the board of directors, or in case the board of directors has failed to act, designated by the chief executive officer, shall perform the duties of the president and when so acting shall have all the powers of and be subject to all the restrictions upon the president. The executive vice presidents, the senior vice presidents, and all other vice presidents shall perform those duties consistent with these bylaws and that may be specifically designated by the president or by the board of directors. SECTION 12. ASSISTANT VICE PRESIDENTS. The assistant vice presidents shall perform those duties, not inconsistent with these bylaws, the Certificate of Incorporation or statute and that may be specifically designated by the board of directors or the president. In the absence of the executive vice presidents, senior vice presidents, or vice presidents, an assistant vice president (or in the event there be more than one assistant vice president, the assistant vice presidents in the order designated at the time of their election, or in the absence of any designation, then in the order of their election) shall perform the duties of the executive vice presidents, senior vice presidents or vice presidents, and when so acting, shall have all the powers of and be subject to all restrictions upon the executive vice presidents, the senior vice presidents, and vice presidents. SECTION 13. SECRETARY. The secretary shall attend and keep all the minutes of all meetings of the board of directors and all meetings of the stockholders and, when requested by the board of directors, of any committees of the board of directors. He shall give, or cause to be given, notice of all meetings of the stockholders and board of directors and when so ordered by the board of directors, shall affix the seal of the corporation thereto; he shall have charge of all of those books and records that the board of directors may direct, all of which shall, at all reasonable times, be open to the examination of any director at the office of the corporation during business hours; he shall, in general, perform all of the duties incident to the office of secretary subject to the control of the board of directors or of the president, under whose supervision he shall be, and shall do and perform any other duties that may from time to time be assigned to him by the board of directors. SECTION 14. ASSISTANT SECRETARIES. In the absence of the secretary or in the event of his death, inability or refusal to act, the assistant secretary (or in the event there be more than one assistant secretary, the assistant secretaries in the order designated at the time of their election, or in the absence of any designation, then in the order of their election) shall perform the duties of the secretary, and when so acting shall have all the powers of and be subject to all the restrictions upon the secretary and shall perform any other duties that may from time to time be assigned to him by the board of directors, the president or the secretary. Page 17 18 SECTION 15. TREASURER. The treasurer shall have custody of and be responsible for all funds and securities of the corporation, receive and give receipts for money due and payable to the corporation from any source whatsoever, and deposit all such moneys in the name of the corporation in those banks or depositories that shall be selected and designated by the board of directors and shall in general perform all of the duties incident to the office of treasurer and any other duties that may be assigned to him by the president or by the board of directors. If required by the board of directors, the treasurer shall give bond for the faithful discharge of his duties in the sum and with the surety or sureties as the board of directors shall determine. SECTION 16. ASSISTANT TREASURERS. In the absence of the treasurer or in the event of his death, inability or refusal to act, the assistant treasurer (or in the event there be more than one assistant treasurer, the assistant treasurers in the order designated at the time of their election, or in the absence of any designation, then in the order of their election) shall perform the duties of the treasurer and when so acting shall have all the powers and be subject to all the restrictions upon the treasurer, and shall perform any other duties that from time to time may be assigned to him by the president, treasurer or the board of directors. The assistant treasurers shall, if required by the board of directors, give bonds for the faithful discharge of their duties in the sums and with the surety or sureties that the board of directors shall determine. SECTION 17. CONTROLLER. The controller shall maintain adequate records of all assets, liabilities and transactions of the corporation; see that adequate audits thereof are currently and regularly made; and, in conjunction with other officers and department heads, initiate and enforce measures and procedures whereby the business of the corporation shall be conducted with the maximum safety, efficiency and economy. Except as otherwise determined by the board of directors, or lacking a determination by the board of directors, then by the president, his duties and powers shall extend to all subsidiary corporations and, so far as may be practicable, to all affiliate corporations. He shall have any other powers and perform other duties that may be assigned to him by the president or by the board of directors. If required by the board of directors, the controller shall give bond for the faithful discharge of his duties in the sum and with the surety or sureties as the board of directors shall determine. SECTION 18. ASSISTANT CONTROLLERS. In the absence of the controller or in the event of his death, inability or refusal to act, the assistant controller (or in the event there be more than one assistant controller, the assistant controllers, in the order designated at the time of their election, or in the absence of any designation, then in the order of their election) shall perform the duties of the controller and when so acting shall have all the powers and be subject to all the restrictions upon the controller, and shall perform any other duties that from time to time may be assigned to him by the president, controller or the board of directors. The assistant controllers shall, if required by the board of directors, give bonds for the faithful discharge of their duties in the sums and with the surety or sureties that the board of directors shall determine. Page 18 19 ARTICLE VII. INDEMNIFICATION OF OFFICERS, DIRECTORS, EMPLOYEES AND AGENTS SECTION 1. The board of directors shall indemnify any person (and that person's heirs and personal representatives) who was or is a party or is threatened or expected to be made a party to any threatened, pending or completed action, suit, arbitration or proceeding, whether civil, criminal, administrative or investigative (other than an action by or in the right of the corporation) by reason of the fact that he is or was a director, officer, employee or agent of the corporation, or is or was serving at the request of the corporation as a director, officer, employee, partner or agent of another corporation, partnership (including a partnership in which the corporation is a partner), joint venture, trust or other enterprise, against expenses (including, but not limited to, attorneys' fees, expert fees, bonds, prospective or retroactive insurance premiums or costs, litigation, appeal and court costs and out-of-pocket expenses of such person during any investigation hearing, arbitration, trial, or appeal of any such action, suit or proceeding, including any interest payable thereon), judgments, damages, arbitration awards, fines and amounts paid in settlement actually and reasonably incurred by him in connection with such action, suit, arbitration or proceeding, including any interest payable thereon, if he acted in good faith and in a manner he reasonably believed to be in or not opposed to the best interests of the corporation, and, with respect to any criminal action or proceeding, had no reasonable cause to believe his conduct was unlawful. The termination of any action, suit or proceeding by judgment, order, settlement, conviction, or upon a plea of nolo contendere or its equivalent, shall not, of itself, create a presumption that the person did not act in good faith and in a manner which he reasonably believed to be in or not opposed to the best interests of the corporation, and, with respect to any criminal action or proceeding, had reasonable cause to believe that his conduct was unlawful. SECTION 2. The board of directors shall indemnify any person (and that person's heirs and personal representatives) who was or is a party or is threatened or expected to be made a party to any threatened, pending or completed action or suit by or in the right of the corporation to procure a judgment in its favor by reason of the fact that he is or was a director, officer, employee or agent of the corporation or is or was serving at the request of the corporation as a director, officer, employee, partner or agent of another corporation, partnership (including a partnership in which the corporation is a partner), joint venture, trust or other enterprise against expenses (including, but not limited to, attorneys' fees, expert fees, bonds, prospective or retroactive insurance premiums or costs, litigation, appeal and court costs, and out-of-pocket expenses of such person during any investigation, hearing, trial or appeal of any such action or suit, including any interest payable thereon), actually and reasonably incurred by him in connection with the defense or settlement of such action or suit if he acted in good faith and in a manner he reasonably believed to be in or not opposed to the best interests of the corporation and except that no indemnification shall be made in respect of any claim, issue or matter as to which such person shall have been adjudged Page 19 20 to be liable for negligence or misconduct in the performance of his duty to the corporation unless and only to the extent that the Court of Chancery or the court in which such action or suit was brought shall determine upon application that, despite the adjudication of liability but in view of all the circumstances of the case, such person is fairly and reasonably entitled to indemnity for such expenses which the Court of Chancery or such other court shall deem proper. SECTION 3. To the extent that a present or past director, officer, employee or agent of the corporation has been successful on the merits or otherwise in defense of any action, suit, arbitration or proceeding referred to in Sections 1 and 2, or in defense of claim, issue or matter therein, he shall be indemnified against expenses (including, but not limited to, attorneys' fees, expert fees, bonds, prospective or retroactive insurance premiums or costs, litigation, appeal, and court costs, and out-of-pocket expenses of such person during any investigation, hearing, arbitration, trial or appeal of any such action, suit or proceeding) actually and reasonably incurred by him in connection therewith, including any interest payable thereon. SECTION 4. The board of directors shall cause the corporation to advance to any person covered by Sections 1 or 2 the expenses (including, but not limited to, attorneys' fees, expert fees, bonds, prospective or retroactive insurance premiums or costs, litigation, appeal, and court costs and out-of-pocket expenses, of such person during any investigation, hearing, arbitration, trial or appeal of any such action, suit, arbitration or proceeding) incurred by that person in defending a threatened, pending, or completed civil, criminal, administrative, or investigative action suit, arbitration, or proceeding, including any interest payable thereon, in advance of the final disposition of such action, suit or proceeding. SECTION 5. Any advance by the board of directors under Section 4 above to any employee or agent who is not a present or past director or officer of the corporation shall be conditional upon evidence of compliance with the terms and conditions, if any, deemed appropriate and specified by the board of directors for such advance if such employee or agent is determined ultimately to be not legally entitled to indemnification from the corporation. SECTION 6. Any advance authorized by the board of directors under Section 4 above to a present or past officer or director shall be conditional upon prior receipt by the corporation of a written undertaking from that officer or director to repay such advance if he is determined ultimately to be not legally entitled to indemnification from the corporation. Such undertaking shall be in the form of a simple agreement by the officer or director to repay advances made to him in the event that it is determined ultimately that he is not legally entitled to indemnification by the corporation. Such undertaking shall specifically state that no bond, collateral or other security shall be required by the officer or director to insure its performance and that no interest on any amount advanced shall be required to be paid to the corporation if the officer or director is determined ultimately to be not legally entitled to indemnification from the corporation. SECTION 7. The board of directors, in its sole discretion, may establish and may fund in advance and from time to time, in whole or in part, a separate provision or provisions, which may Page 20 21 be in the form of a trust fund, periodic or advance retainers to counsel, or otherwise as the board of directors may determine in each instance, to be used as payment and/or advances of indemnification obligations under this Article VII to officers, directors, employees and agents of the corporation; provided, however, that any amount which is contributed to such fund shall not in any way be construed to be a limitation on the amount of indemnification and/or advances of the corporation. SECTION 8. The board of directors shall cause the corporation to pay to any director, officer, employee or agent all expenses (including, but not limited to, attorneys' fees, expert fees, bonds, prospective or retroactive insurance premiums or costs, litigation, appeal, and court costs, and out-of-pocket expenses of such person during any investigation, hearing, arbitration, trial or appeal of any such action, suit, arbitration or proceeding, including any interest payable thereon), which may be incurred by such director, officer, employee or agent in enforcing his rights to indemnification (as set forth herein in Sections 1, 2 and 3) and/or advances (as set forth herein in Section 4) whether or not such director, officer, employee or agent is successful in enforcing such rights and whether or not suit or other proceedings are commenced. SECTION 9. Any amendment to this Article VII shall only apply prospectively and shall in no way affect the corporation's obligations to indemnify and make advances to officers, directors, employees and agents as set forth in this Article VII for actions or events which occurred before any such amendment, and provided that any amendment to this Article VII shall require affirmative vote of four-fifths of the entire board of directors. SECTION 10. Any indemnification granted under the provisions of Sections 1, 2, 3 and 8 above shall be subject to the provisions of subsections (d), (e), (f) and (g) of Section 145 of the General Corporation Law of the State of Delaware. ARTICLE VIII. CONTRACTS, LOANS, CHECKS AND DEPOSITS SECTION 1. CONTRACTS. The board of directors may authorize any officer or officers, agent or agents to enter into any contract or execute and deliver any instrument in the name of and on behalf of the corporation. Such authority may be general or confined to specific instances. SECTION 2. LOANS. No loan shall be contracted on behalf of the corporation and no evidences of indebtedness shall be issued in its name, unless authorized by resolution of the board of directors. Such authority may be general or confined to specific instances. SECTION 3. CHECKS, DRAFTS, ETC. All checks, drafts or other order or other orders for the payment of money, notes or other evidences of indebtedness issued in the name of the corporation shall be signed by such officer or officers, agent or agents and in such manner that shall from time to time be determined by resolution of the board of directors. Page 21 22 SECTION 4. DEPOSITS. All funds of the corporation not otherwise employed shall be deposited from time to time to the credit of the corporation in the bank or banks or other depositories that the board of directors may elect. ARTICLE IX. VOTING OF STOCK OF OTHER CORPORATIONS Unless otherwise ordered by the board of directors, the chairman of the board shall have full power and authority on behalf of the corporation to act and vote at any meeting of stockholders of any corporation in which the corporation may hold stock, and at any such meeting, shall possess, and may exercise, any and all of the rights and powers incident to the ownership of the stock, which, as the owner thereof, the corporation might have possessed and exercised if present. The board of directors by resolution from time to time, may confer like powers upon any other person or persons. ARTICLE X. NOTICES SECTION 1. FORM OF NOTICE. Whenever under the provisions of the statutes, the Certificate of Incorporation, or these bylaws, notice is required to be given to any director or stockholder, it shall not be construed to mean personal notice, but the notice may be given in writing by mail, which shall mean depositing same in a United States Postal Service post office or letter box, in a postage paid, sealed envelope, addressed to the stockholder or director at the address that appears on the books of the corporation or, in default of other address, to such director or stockholder at the United States Postal Service general post office in the City of Wilmington, Delaware, and the notice shall be deemed to be given at the time when the same shall be thus mailed or by any other means expressly provided for in these bylaws. SECTION 2. WAIVER OF NOTICE. Whenever any notice is required to be given under the provision of the statutes, the Certificate of Incorporation or these bylaws, a waiver thereof in writing signed by the person or persons entitled to the notice whether before or after the time stated therein shall be deemed equivalent thereto. Page 22 23 ARTICLE XI. STOCK CERTIFICATES SECTION 1. CERTIFICATES FOR SHARES. The certificates for shares of the capital stock of the corporation shall be in the form, not inconsistent with the Certificate of Incorporation, that shall be approved by the board of directors. The certificate shall be signed by the chairman of the board, president or a vice president, and either the treasurer or an assistant treasurer, or the secretary or an assistant secretary, but where the certificate is signed by a transfer agent or an assistant transfer agent and a registrar, the signatures of the chairman of the board, president, vice president, treasurer, assistant treasurer, secretary or assistant secretary may be facsimiles. All certificates shall be consecutively numbered, and the name of the person owning the shares represented thereby, with the number of shares and the date of issue shall be entered in the corporation's books. No certificate shall be valid unless it is signed by the chairman of the board, president, or a vice president, and either the treasurer or an assistant treasurer, or the secretary or an assistant secretary, but where the certificate is signed by a transfer agent or an assistant transfer agent and a registrar, the signatures of the chairman of the board, president, vice president, treasurer, assistant treasurer, secretary or assistant secretary may be facsimiles. All certificates surrendered to the corporation shall be canceled, and no new certificates shall be issued until the former certificate for the same number of shares of the same class shall have been surrendered and canceled. SECTION 2. TRANSFER OF SHARES. Shares of the capital stock of the corporation shall be transferred only on the books of the corporation by the holder thereof in person or by his attorney upon surrender and cancellation of certificates for the same number of shares. SECTION 3. REGULATIONS. The board of directors shall have authority to make any rules and regulations that they may deem expedient concerning the issue, transfer and registration of certificates for shares of the capital stock of the corporation. The board of directors may appoint one or more transfer agents or assistant transfer agents and one or more registrars of transfers and may require all certificates to bear the signature of the transfer agent or assistant transfer agent and a registrar of transfers. The board of directors may at any time terminate the appointment of any transfer agent or any assistant transfer agent or any registrar of transfers by the vote of a majority of the board of directors. Page 23 24 SECTION 4. FIXING DATE FOR DETERMINATION OF STOCKHOLDERS' RIGHTS. The board of directors may close the stock transfer books of the corporation for a period not exceeding 50 days preceding the date of any meeting of stockholders, or the date for payment of any dividend, or the date for the allotment of rights, or the date when any change or conversion or exchange of capital stock shall go into effect, or for a period not exceeding 50 days in connection with obtaining the consent of stockholders for any purpose. In lieu of closing the stock transfer books as aforesaid, the board of directors may fix a date not exceeding 50 days preceding the date of any meeting of stockholders, or the date for the payment of any dividend, or the date for the allotment of rights, or the date when any change or conversion or exchange of capital stock shall go into effect, or a date in connection with obtaining such consent, as a record date for the determination of the stockholders entitled to notice of, and to vote at, any meeting and any adjournment thereof, or entitled to receive payment of any dividend, or to any allotment of rights, or to exercise the rights in respect of any change, conversion or exchange of capital stock, or to give such consent, and in such case the stockholders and only the stockholders that shall be stockholders of record on the date so fixed shall be entitled to the notice or to receive payment of the dividend, or to receive the allotment of rights, or to exercise the rights or to give such consent, as the case may be, notwithstanding any transfer of any stock on the books of the corporation after any record date fixed as aforesaid. SECTION 5. REGISTERED STOCKHOLDERS. The corporation shall be entitled to treat the holder of record of any share or shares of stock as the holder in fact thereof and accordingly shall not be bound to recognize any equitable or other claim to or interest in the share or shares on the part of any other person whether or not it shall have express or other notice thereof except as otherwise provided by the laws of the State of Delaware. SECTION 6. LOST CERTIFICATES. The board of directors may direct a new certificate or certificates to be issued in place of any certificate or certificates theretofore issued by the corporation alleged to have been lost or destroyed, upon the making of an affidavit of that fact with the person claiming the certificate of stock to be lost or destroyed. When authorizing the issue of a new certificate or certificates, the board of directors may, in its discretion and as a condition precedent to the issuance thereof, require the owner of the lost or destroyed certificate or certificates, or his legal representative, to advertise the same in a manner that it shall require for each share of stock having voting power registered in his name and to give the corporation a bond in the sum that it may direct as indemnity against any claim that may be made against the corporation with respect to the certificate alleged to have been lost or destroyed. SECTION 7. DIVIDENDS. The board of directors may from time to time declare, and the corporation may pay, dividends on its outstanding shares in the manner and upon the terms and conditions provided by law and the Certificate of Incorporation. Page 24 25 SECTION 8. RESERVE FUNDS. Before payment of any dividend there may be set aside out of any funds of the corporation available for dividends the sum or sums that the board of directors may from time to time in their absolute discretion think proper as a reserve fund to meet contingencies, or for equalizing dividends, or for repairing or maintaining any property of the corporation, or for any other purpose that the directors shall think conducive to the interest of the corporation and the board of directors may modify or abolish the reserve in the manner in which it was created. ARTICLE XII. GENERAL PROVISIONS SECTION 1. FISCAL YEAR. The fiscal year of the corporation shall begin on the first day of January in each year. SECTION 2. INSPECTION OF BOOKS. The board of directors shall determine from time to time whether, and if allowed, when and under what conditions and regulations, the accounts and books of the corporation (except as may be by statute specifically open to inspection) or any of them, shall be open to the inspection of the stockholders, and a stockholder's rights in this respect are, and shall be, restricted and limited accordingly. SECTION 3. GENDER. The use of the masculine gender in these bylaws shall be deemed to include the feminine gender. ARTICLE XIII. AMENDMENTS TO AND SUSPENSION OF BYLAWS SECTION 1. AMENDMENTS. Subject to the provisions of Section 12 of Article IV, these bylaws may be altered or repealed at any regular meeting of the stockholders or at any special meeting of the stockholders at which a quorum is present or represented, provided notice of the proposed alteration or repeal be contained in the notice of the special meeting, by the affirmative vote of a majority of the stockholders entitled to vote at the meeting and present or represented thereat, or by the affirmative vote of a majority of the board of directors at any regular meeting of the board of directors or at any special meeting of the board of directors, if notice of the proposed alteration or repeal be contained in the notice of the special meeting. SECTION 2. SUSPENSION. Any provision of these bylaws may be suspended by vote of two-thirds of the votes cast upon the motion to suspend except that the suspension of the bylaw provision might be in contravention of any provision of any statute or of the Certificate of Incorporation. * * * Page 25 EX-4.1 5 FORM OF REGISTRANT'S COMMON STOCK CERTIFICATE 1 EXHIBIT 4.1 NUMBER [VIGNETTE] ____________ SSP ______ SHARES THIS CERTIFICATE IS TRANSFERABLE APACHE INCORPORATED UNDER THE LAWS IN MINNEAPOLIS, MINNESOTA OR CORPORATION OF THE STATE OF DELAWARE NEW YORK, NEW YORK COMMON STOCK COMMON STOCK This Certifies that _________________________ CUSIP 037411 10 5 SEE REVERSE FOR CERTAIN DEFINITIONS PAR VALUE $1.25 EACH CERTIFICATE OF STOCK is the owner of _________________________ FULLY PAID AND NON-ASSESSABLE SHARES OF THE COMMON STOCK OF Apache Corporation, transferable on the books of the Corporation by the holder hereof in person or by duly authorized attorney upon surrender of this certificate properly endorsed. This certificate is not valid until countersigned by the Transfer Agent and registered by the Registrar. Witness the signatures of its duly authorized officers. Countersigned and Registered: NORWEST BANK MINNESOTA, N.A. TRANSFER AGENT /s/ Raymond Plank AND REGISTRAR - ----------------- CHAIRMAN /s/ C. L. Peper --------------- By _________________ SECRETARY DATED: _________________________ AUTHORIZED SIGNATURE
2 APACHE CORPORATION The following abbreviations, when used in the inscription on the face of this certificate, shall be construed as though they were written out in full according to applicable laws or regulations: TEN COM --- as tenants in common UNIF TRF MIN ACT --- ______ Custodian ______________ TEN ENT --- as tenants by the entireties (Cust) (Minor) JT TEN --- as joint tenants with right of under Uniform Transfers to Minors survivorship and not as tenants Act _________________ in common (State)
Additional abbreviations may also be used though not in the above list. This certificate also evidences and entitles the holder hereof to certain rights (the "Rights") as set forth in a Rights Agreement between Apache Corporation and Norwest Bank Minnesota, N.A., as Rights Agent, dated as of January 31, 1996 as the same may be amended from time to time (the "Rights Agreement"), the terms of which are hereby incorporated herein by reference and a copy of which is on file at the principal executive offices of Apache Corporation. Under certain circumstances, as set forth in the Rights Agreement, such Rights will be evidenced by separate certificates and will no longer be evidenced by this certificate. Apache Corporation will mail to the holder of this certificate a copy of the Rights Agreement without charge after receipt of a written request therefor. Under certain circumstances, as set forth in the Rights Agreement, Rights owned by or transferred to any Person who is or becomes an Acquiring Person (as defined in the Rights Agreement) and certain transferees thereof will be come null and void and will no longer be transferable. For value received, ________________ hereby sell, assign and transfer unto PLEASE INSERT SOCIAL SECURITY OR OTHER IDENTIFYING NUMBER OF ASSIGNEE ________________________________________________________________________________ ________________________________________________________________________________ PLEASE PRINT OR TYPEWRITE NAME AND ADDRESS INCLUDING POSTAL ZIP CODE OF ASSIGNEE ________________________________________________________________________________ ________________________________________________________________________________ _________________________________________________________________________ Shares of the capital stock represented by the within Certificate, and do hereby irrevocably constitute and appoint _____________________________________________ ________________________________________________________________________________ Attorney to transfer the said stock on the books of the within-named Corporation with full power of substitution in the premises. Dated, _________________________ NOTICE: THE SIGNATURE(S) TO ______________________________________________ THIS ASSIGNMENT MUST CORRESPOND WITH THE NAME(S) AS WRITTEN UPON THE FACE OF THE CERTIFICATE IN EVERY PARTICULAR, WITHOUT AL- TERATION OR ENLARGEMENT OR ANY CHANGE WHATEVER. ______________________________________________ THE SIGNATURE(S) SHOULD BE GUARANTEED BY ELIGIBLE GUARANTOR INSTITUTION, (Banks, Stockbrokers, Savings and Loan Associations and Credit Unions) WITH MEMBERSHIP IN AN APPROVED SIGNATURE GUARANTEE MEDALLION PROGRAM PURSUANT TO S.E.C. RULE 17Ad-15. EX-10.5 6 3RD AMEND. TO 3RD AMENDED CREDIT AGREEMENT 1 EXHIBIT 10.5 ________________________________________________________________________________ THIRD AMENDMENT TO THIRD AMENDED AND RESTATED CREDIT AGREEMENT dated as of December 18, 1995 among APACHE CORPORATION and VARIOUS COMMERCIAL LENDING INSTITUTIONS, and THE FIRST NATIONAL BANK OF CHICAGO, as Administrative Agent and Arranger and CHEMICAL BANK, as Co-Agent and Arranger ________________________________________________________________________________ 2 THIRD AMENDMENT TO THIRD AMENDED AND RESTATED CREDIT AGREEMENT THIS THIRD AMENDMENT TO THIRD AMENDED AND RESTATED CREDIT AGREEMENT, dated as of December 18, 1995, (the "Third Amendment"), is among APACHE CORPORATION, a Delaware corporation (the "Company"), the various commercial lending institutions as are or may become parties hereto (the "Lenders"), THE FIRST NATIONAL BANK OF CHICAGO, as Administrative Agent (in such capacity, the "Administrative Agent") and Arranger (in such capacity, an "Arranger") and CHEMICAL BANK, as Co-Agent (in such capacity, the "Co-Agent") and Arranger (in such capacity, an "Arranger"). W I T N E S S E T H: 1. The Company, the Lenders, the Arrangers, the Co-Agent and the Administrative Agent have heretofore entered into that certain Third Amended and Restated Credit Agreement, dated as of March 1, 1995, as previously amended (the "Credit Agreement"). 2. The Company, the Lenders, the Arrangers, the Co-Agent and the Administrative Agent now intend to amend the Credit Agreement (i) to permit Apache Oil Egypt, Inc. to finance its share of the cost to develop a recent discovery in the Qarun Concession in the Western Desert of the Arab Republic of Egypt by entering into a $25 million loan to be arranged by the International Finance Corporation, (ii) to clarify certain provisions of the Credit Agreement relating to permitted Contingent Obligations, (iii) to adjust the pricing under the Credit Agreement, (iv) to remove two of the current Lenders and to reduce the Commitments of two of the current Lenders under the Third Amended and Restated Credit Agreement and to adjust the Commitments and percentages of the remaining Lenders to reflect such removals and reductions and (v) to address various other issues in connection therewith as follows: I. AMENDMENTS TO THIRD AMENDED AND RESTATED CREDIT AGREEMENT. A. Section 1.1 of the Credit Agreement is hereby amended by adding the following definitions of "Apache Egypt" and "IFC" in appropriate alphabetical order: "Apache Egypt" means Apache Oil Egypt, Inc., a Delaware corporation. "IFC" means the International Finance Corporation. B. The definition of "Lenders" appearing in Section 1.1 of the Credit Agreement is hereby amended in its entirety to the following: 3 "Lenders" means the financial institutions listed on Exhibit "A" to the Third Amendment to Third Amended and Restated Credit Agreement dated as of December 14, 1995 and their respective successors and assigns in accordance with Section 17.3 (including any commercial lending institution becoming a party hereto pursuant to an Assignment Agreement) or otherwise by operation of law. C. Section 11.1 of the Credit Agreement is hereby amended (i) by amending subsection 11.1(a) in its entirety to the following: " (a) The Obligations arising under the Loan Documents, Contingent Obligations permitted under Section 11.4, and intercompany Indebtedness pursuant to Investments by the Company permitted by Sections 11.12(d), (e), (g), (h) and (i);"; (ii) by deleting from subsection 11.1(i) the letter "(h)" from the second line thereof and by replacing it with the letter "(i)"; (iii) by relettering subsection 11.1(i) as subsection 11.1(j); and (iv) by inserting the following after subsection 11.1(h) thereof: " (i) Other Indebtedness of Apache Egypt to IFC in a maximum aggregate principal amount of $25,000,000, together with interest, fees and expenses related thereto; and". D. Section 11.4 of the Credit Agreement is hereby amended (i) by deleting "$30,000,000" from the fifth line of Section 11.4 and by replacing it with "45,000,000"; (ii) by amending subsection 11.4(d) in its entirety to the following: "(d) (i) net Contingent Obligations of International and Apache Overseas, Inc. and any Subsidiaries of Apache Overseas, Inc. consisting of foreign work commitments or other similar obligations (but not including obligations under authorizations for expenditures and other joint operating arrangements) under exploration or production licenses or agreements entered into by International or Apache Overseas, Inc. or any Subsidiaries of Apache Overseas, Inc. in the ordinary course of business not to exceed net at any one time outstanding for all such Contingent Obligations of $85,000,000 and (ii) Contingent Obligations of International and Apache Overseas, Inc. and any Subsidiaries of Apache Overseas, Inc. consisting of obligations under authorizations for expenditures and other joint operating arrangements entered into by International or Apache Overseas, Inc. or any Subsidiaries of Apache Overseas, Inc. in the ordinary course of business; provided that for purposes of clause (d)(i), net Contingent Obligations shall be deemed to be 2 4 the difference between the aggregate for all such Contingent Obligations in respect of foreign work commitments or other similar obligations in which International or Apache Overseas, Inc. or any Subsidiaries of Apache Overseas, Inc. is required to perform or pay a certain amount (but not including obligations under authorizations for expenditures and other joint operating arrangements) less the aggregate of such Contingent Obligations in respect of which another industry partner (which the Company reasonably believes is capable of performing such commitments or obligations) has become obligated to perform,"; (iii) by deleting the word "and" at the end of subsection 11.4(g); and (iv) by deleting subsection 11.4(h) in its entirety and inserting the following: "(h) Contingent Obligations in respect of obligations of partnerships, corporations or limited liability companies of which the Company or its Subsidiaries are partners, shareholders or members, respectively, pursuant to any oil, gas and/or mineral leases, farm-out agreements, division orders, contracts for the sale, delivery, purchase, exchange, or processing of oil, gas and/or other hydrocarbons, unitization and pooling declarations and agreements, operating agreements, development agreements, area of mutual interest agreements, marketing agreement or arrangements, and other agreements which are customary in the oil, gas and other mineral exploration, development and production business and in the business of processing of gas and gas condensate production for the extraction of products therefrom, and (i) Contingent Obligations of the Company to IFC relating to Apache Egypt not exceeding $25,000,000 in the aggregate principal amount, together with interest, fees and expenses related thereto." E. Section 11.5 of the Credit Agreement is hereby amended by inserting the following after subsection 11.5(i) thereof: "(j) Liens securing the Indebtedness permitted in connection with Section 11.1(i)." F. Subsection 11.7(c) of the Credit Agreement is hereby amended in its entirety to the following: " (c) the Company will not and will not permit any of its Subsidiaries to make any optional payment or prepayment on, or redemption of, or redeem, purchase or defease prior to its stated maturity, any Indebtedness other than Indebtedness incurred under this Agreement, the other Loan Documents, or the repurchase of any 3 5 remarketed notes under the Remarketed Note Program, Indebtedness of Offshore, Indebtedness evidenced by the DEKALB Notes or Indebtedness to the IFC in connection with Apache Egypt; provided with respect to Indebtedness of Offshore, that the optional payment or prepayment be made with proceeds of the facility described in item A.1 of Schedule 11.1; provided with respect to Indebtedness of DEKALB evidenced by the DEKALB Notes, that the optional payment or prepayment be made with proceeds of the facility described in item B.1 or B.2 of Schedule 11.1, with cash on hand at DEKALB or with proceeds of Investments permitted pursuant to Section 11.12(i); and provided that DEKALB may borrow, repay and reborrow pursuant to the facilities described as item B.1, B.2 and B.3 of Schedule 11.1;". G. Section 11.12 of the Credit Agreement is hereby amended (i) by amending subsection 11.12(e) in its entirety to the following: " (e) in the ordinary course of business, Investments in Subsidiaries, including, without limitation, International, Apache Energy Limited, Apache Overseas, Inc. or any of their Subsidiaries, for (i) the acquisition, exploration, drilling or development of Properties which are located outside the United States of America and are not included in the Borrowing Base, or (ii) costs incurred in connection with gathering, processing, transporting and marketing production from such Properties;"; (ii) by amending subsection 11.12(f) in its entirety to the following: " (f) [Intentionally Omitted];"; and (iii) by amending subsection 11.12(h) in its entirety to the following: " (h) Investments in Persons which (A) Persons arise as a result of joint operations of oil and gas properties wherever located, pursuant to joint operating agreements, partnership agreements, or joint venture agreements containing terms and provisions customary in the oil and gas business and entered into in the ordinary course of business, and (B) Investments are in respect of the joint operations of such Properties pursuant to such joint operating agreements, partnership agreements or joint venture agreements;". H. Schedule B to the Credit Agreement is hereby replaced by Schedule B to this Third Amendment, and the definition of Alternate 4 6 Base Rate Spread in the Credit Agreement shall be amended in its entirety to the following: "Alternate Base Rate Spread means 0.00 for all purposes of this Agreement." II. EFFECTIVENESS. This Third Amendment shall become effective as of the date hereof when the Administrative Agent shall have received (a) counterparts hereof duly executed by the Company, the Lenders, the Administrative Agent and the Co-Agent (or, in the case of any party as to which an executed counterpart shall not have been received, telegraphic, telex, or other written confirmation from such party of execution of a counterpart hereof by such party), (b) duly executed promissory notes substantially in the form of Exhibits A-1 to the Third Amended and Restated Credit Agreement payable to the order of The First National Bank of Chicago, Bank of Montreal, NationsBank, Banque Paribas, The Chase Manhattan Bank, N.A., Christiania Bank og Kreditkasse, The Long-Term Credit Bank of Japan, Ltd. and Royal Bank of Canada, Grand Cayman (North American #1) Branch, each in a principal amount equal to the Commitment of such Lender set forth in Exhibit "A" hereto, and (c) payments by any Lenders which may be required as a result of the adjustment of the Commitments of such Lenders pursuant to this Third Amendment. Upon effectiveness of this Third Amendment, each Lender shall have the Commitment and percentage set forth in Exhibit "A" hereto. III. REAFFIRMATION OF REPRESENTATIONS AND WARRANTIES. To induce the Lenders, the Administrative Agent, the Co-Agent and the Arrangers to enter into this Third Amendment, the Company hereby reaffirms, as of the date hereof, its representations and warranties in their entirety contained in Article VIII of the Credit Agreement and in all other documents executed pursuant thereto (except to the extent such representations and warranties relate solely to an earlier date) and additionally represents and warrants as follows: (i) The Company is a corporation duly incorporated, validly existing and in good standing under the laws of its jurisdiction of incorporation and has all requisite authority, permits and approvals, and is in good standing to conduct its business in each jurisdiction in which its business is conducted. (ii) The Company has the corporate power and authority and legal right to execute and deliver this Third Amendment and to perform its obligations hereunder. The execution and delivery by the Company of this Third Amendment and the performance of its obligations hereunder have been duly authorized by proper corporate proceedings, and this Third Amendment and the Credit Agreement, as amended hereby, constitute the legal, valid and binding obligations of the 5 7 Company, enforceable against the Company in accordance with their terms, except as enforceability may be limited by bankruptcy, insolvency or similar laws affecting the enforcement of creditors' rights generally. (iii) No Default or Unmatured Default has occurred and is continuing as of the date hereof. (iv) There has been no material adverse change (a) in the businesses, assets, properties, operations, condition (financial or otherwise) or results of operations or prospects of the Company and its Subsidiaries from March 1, 1995, (b) affecting the rights and remedies of the Lenders under and in connection with this Third Amendment and the Credit Agreement, as amended by this Third Amendment, or (c) in the ability of the Company to perform its obligations under this Third Amendment or the Credit Agreement, as amended by this Third Amendment. (v) There is no litigation, arbitration, governmental investigation, proceeding or inquiry pending or, to the knowledge of any of their officers threatened against or affecting the Company or its Subsidiaries which is or could have a Material Adverse Effect. IV. DEFINED TERMS. Except as amended hereby, terms used herein when defined in the Credit Agreement shall have the same meanings herein unless the context otherwise requires. V. REAFFIRMATION OF CREDIT AGREEMENT. This Third Amendment shall be deemed to be an amendment to the Credit Agreement, and the Credit Agreement, as amended hereby, is hereby ratified, approved and confirmed in each and every respect. All references to the Credit Agreement herein and in any other document, instrument, agreement or writing shall hereafter be deemed to refer to the Credit Agreement as amended hereby. VI. GOVERNING LAW. THIS THIRD AMENDMENT SHALL BE CONSTRUED IN ACCORDANCE WITH THE INTERNAL LAWS (AND NOT THE LAW OF CONFLICTS) OF THE STATE OF ILLINOIS, BUT GIVING EFFECT TO FEDERAL LAWS APPLICABLE TO NATIONAL BANKS. All obligations of the Company and rights of the Lenders, the Administrative Agent, the Co-Agent and the Arrangers and any other holders of the Notes expressed herein shall be in addition to and not in limitation of those provided by applicable law. VII. SEVERABILITY OF PROVISIONS. Any provision in this Third Amendment that is held to be inoperative, unenforceable, or invalid in any jurisdiction shall, as to that jurisdiction, be inoperative, unenforceable, or invalid without affecting the remaining provisions in that jurisdiction or the operation, enforceability, or validity of that provision in any other jurisdiction, and to 6 8 this end the provisions of this Third Amendment are declared to be severable. VIII. COUNTERPARTS. This Third Amendment may be executed in any number of counterparts, all of which taken together shall constitute one agreement, and any of the parties hereto may execute this Third Amendment by signing any such counterpart. IX. HEADINGS. Article and section headings in this Third Amendment are for convenience of reference only, and shall not govern the interpretation of any of the provisions of this Third Amendment. X. SUCCESSORS AND ASSIGNS. This Third Amendment shall be binding upon and inure to the benefit of the parties hereto and their respective successors and assigns. XI. NOTICE. THIS WRITTEN THIRD AMENDMENT TOGETHER WITH THE THIRD AMENDED AND RESTATED CREDIT AGREEMENT AND THE OTHER LOAN DOCUMENTS REPRESENT THE FINAL AGREEMENT BETWEEN THE PARTIES AND MAY NOT BE CONTRADICTED BY EVIDENCE OF PRIOR, CONTEMPORANEOUS OR SUBSEQUENT ORAL AGREEMENTS OF THE PARTIES. THERE ARE NO UNWRITTEN ORAL AGREEMENTS BETWEEN THE PARTIES. [SIGNATURES BEGIN ON FOLLOWING PAGE] 7 9 IN WITNESS WHEREOF, the Company, the Lenders, the Administrative Agent, the Co-Agent and the Arrangers have executed this Third Amendment as of the date first above written. APACHE CORPORATION By:/s/ Clyde E. McKenzie ------------------------------------ Name: Clyde E. McKenzie Title: Vice President and Treasurer THE FIRST NATIONAL BANK OF CHICAGO, Individually, as Administrative Agent and as Arranger By:/s/ Christine Frank ------------------------------------ Name: Christine Frank Title: Vice President CHEMICAL BANK, Individually, as Co-Agent and as Arranger By:/s/ R. Potter ------------------------------------ Name: Ronald Potter Title: Managing Director BANK OF MONTREAL, Individually and as Lead Manager By:/s/ Robert Roberts ------------------------------------ Name: Robert L. Roberts Title: Director, U.S. Corporate Banking S-1 10 CIBC INC., Individually and as Lead Manager By:/s/ Gary C. Gaskill ------------------------------------ Name: Gary C. Gaskill Title: Vice President NATIONSBANK, Individually and as Lead Manager By:/s/ Jo A. Tamalis ------------------------------------ Name: Jo A. Tamalis Title: Senior Vice President BANK OF AMERICA NATIONAL TRUST & SAVINGS ASSOCIATION By:/s/ Laura B. Shepard ------------------------------------ Name: Laura B. Shepard Title: Vice President BANQUE PARIBAS By:/s/ Charles K. Thompson ------------------------------------ Name: Charles K. Thompson Title: Group Vice President By:/s/ G.J. Jeram ------------------------------------ Name: G.J. Jeram Title: Vice President SOCIETE GENERALE, SOUTHWEST AGENCY By:/s/ R.A. Erbert ------------------------------------ Name: Richard A. Erbert Title: Vice President S-2 11 MIDLAND BANK PLC, NEW YORK BRANCH By:/s/ John A. Cleveland ------------------------------------ Name: John A. Cleveland Title: Senior Vice President MORGAN GUARANTY TRUST COMPANY OF NEW YORK By:/s/ P.W. McNeal ------------------------------------ Name: Philip W. McNeal Title: Vice President ABN-AMRO BANK N.V. - HOUSTON AGENCY By:/s/ Michael N. Oakes ------------------------------------ Name: Michael N. Oakes Title: Vice President By:/s/ H. Gene Shiels ------------------------------------ Name: H. Gene Shiels Title: Vice President THE FIRST NATIONAL BANK OF BOSTON By:/s/ J.R. Vaughan, Jr. ------------------------------------ Name: J.R. Vaughan, Jr. Title: Vice President and Director Energy & Utilities Division THE BANK OF NOVA SCOTIA, SAN FRANCISCO AGENCY By:/s/ F.C.H. Ashby ------------------------------------ Name: F.C.H. Ashby Title: Senior Manager Loan Operations S-3 12 THE CHASE MANHATTAN BANK, N.A. By:/s/ Bettylou J. Robert ------------------------------------ Name: Bettylou J. Robert Title: Vice President CITIBANK, N.A. By:/s/ Arezoo Jafari ------------------------------------ Name: Arezoo Jafari Title: Assistant Vice President THE FUJI BANK, LIMITED - HOUSTON AGENCY By:/s/ Soichi Yoshida ------------------------------------ Name: Soichi Yoshida Title: Vice President & Senior Manager UNION BANK OF SWITZERLAND, HOUSTON AGENCY By:/s/ E. Swann ------------------------------------ Name: Evans Swann Title: Managing Director By:/s/ Kelly Boots ------------------------------------ Name: Kelly Boots Title: Assistant Treasurer S-4 13 UNION BANK By:/s/ Richard P. DeGrey ------------------------------------ Name: Richard P. DeGrey Title: Vice President By:/s/ Walter M. Roth ------------------------------------ Name: Walter M. Roth Title: Vice President CHRISTIANIA BANK OG KREDITKASSE By:/s/ Jahn O. Roising ------------------------------------ Name: Jahn O. Roising Title: First Vice President By:/s/ Peter M. Dodge ------------------------------------ Name: Peter M. Dodge Title: Vice President COLORADO NATIONAL BANK By:/s/ Monte E. Deckerd ------------------------------------ Name: Monte E. Deckerd Title: Vice President THE LONG-TERM CREDIT BANK OF JAPAN, LTD. By:/s/ S. Otsubo ------------------------------------ Name: Satoru Otsubo Title: Joint General Manager S-5 14 NBD BANK By:/s/ George R. Schanz ------------------------------------ Name: George R. Schanz Title: Vice President ROYAL BANK OF CANADA, GRAND CAYMAN (NORTH AMERICAN #1) BRANCH By:/s/ J.D. Frost ------------------------------------ Name: J.D. Frost Title: General Manager S-6 15 SCHEDULE B EURODOLLAR SPREAD
- -------------------------------------------------------------------------------- Debt/Capitalization Ratio Less than .55 .55 or greater - -------------------------------------------------------------------------------- A-/A3 or Higher* Floating Spread .250% .500% - -------------------------------------------------------------------------------- BBB/Baa2 or Higher* Floating Spread .350% .600% - -------------------------------------------------------------------------------- BBB-/Baa3 or Higher* Floating Spread .425% .675% - -------------------------------------------------------------------------------- Lower than BBB-/Baa3* Floating Spread .625% .875% - -------------------------------------------------------------------------------- FACILITY FEE RATES - -------------------------------------------------------------------------------- Debt/Capitalization Ratio Less than .55 .55 or greater - -------------------------------------------------------------------------------- A-/A3 or Higher* Floating Spread .125% .125% - -------------------------------------------------------------------------------- BBB/Baa2 or Higher* Floating Spread .150% .150% - -------------------------------------------------------------------------------- BBB-/Baa3 or Higher* Floating Spread .200% .200% - -------------------------------------------------------------------------------- Lower than BBB-/Baa3* Floating Spread .250% .250% - --------------------------------------------------------------------------------
*Rating of the Company's Long-Term Debt by (2) two or more Rating Agencies Schedule B - Page 1 16 EXHIBIT "A"
COMMITMENT NAME OF LENDER $ MILLIONS PERCENTAGE - -------------- ---------- ---------- The First National Bank of Chicago (Administrative Agent) $100 10.0% Chemical Bank (Co-Agent) 65 6.5% Bank of Montreal 65 6.5% NationsBank 65 6.5% CIBC Inc. 50 5.0% Royal Bank of Canada, Grand Cayman (North America #1) Branch 50 5.0% Bank of America National Trust & Savings Association 45 4.5% Christiania Bank og Kreditkasse 45 4.5% Societe Generale, Southwest Agency 45 4.5% Morgan Guaranty Trust Company of New York 45 4.5% ABN-AMRO Bank N.V. - Houston Agency 40 4.0% The Bank of Nova Scotia, San Francisco Agency 40 4.0% Bank of Switzerland 40 4.0% CitiBank, N.A. 40 4.0% The First National Bank of Boston 40 4.0% The Fuji Bank, Limited - Houston Agency 40 4.0% The Long-Term Credit Bank of Japan, Ltd. 40 4.0%
Exhibit "A" - Page 1 17 Union Bank 40 4.0% Banque Paribas 35 3.5% The Chase Manhattan Bank, N.A. 35 3.5% Colorado National Bank 35 3.5% ------ ---- TOTAL $1,000 100%
Exhibit "A" - Page 2 EX-10.6 7 4TH AMEND TO 3RD AMENDED CREDIT AGREEMENT 1 EXHIBIT 10.6 ________________________________________________________________________________ FOURTH AMENDMENT TO THIRD AMENDED AND RESTATED CREDIT AGREEMENT dated as of December 22, 1995 among APACHE CORPORATION and VARIOUS COMMERCIAL LENDING INSTITUTIONS, and THE FIRST NATIONAL BANK OF CHICAGO, as Administrative Agent and Arranger and CHEMICAL BANK, as Co-Agent and Arranger ________________________________________________________________________________ 2 FOURTH AMENDMENT TO THIRD AMENDED AND RESTATED CREDIT AGREEMENT THIS FOURTH AMENDMENT TO THIRD AMENDED AND RESTATED CREDIT AGREEMENT, dated as of December 22, 1995, (the "Fourth Amendment"), is among APACHE CORPORATION, a Delaware corporation (the "Company"), the various commercial lending institutions as are or may become parties hereto (the "Lenders"), THE FIRST NATIONAL BANK OF CHICAGO, as Administrative Agent (in such capacity, the "Administrative Agent") and Arranger (in such capacity, an "Arranger") and CHEMICAL BANK, as Co-Agent (in such capacity, the "Co-Agent") and Arranger (in such capacity, an "Arranger"). W I T N E S S E T H: 1. The Company, the Lenders, the Arrangers, the Co-Agent and the Administrative Agent have heretofore entered into that certain Third Amended and Restated Credit Agreement, dated as of March 1, 1995, as previously amended (the "Credit Agreement"). 2. The Company, the Lenders, the Arrangers, the Co-Agent and the Administrative Agent now intend to amend the Credit Agreement (i) to permit Apache Gathering Company to become a member of Producers Energy Marketing, LLC, (ii) to permit the Company to guarantee the payment of obligations of Apache Gathering Company to Producers Energy Marketing, LLC and (iii) to address various other issues in connection therewith as follows: I. AMENDMENTS TO THIRD AMENDED AND RESTATED CREDIT AGREEMENT. A. Section 1.1 of the Credit Agreement is hereby amended by adding the following definition of "Producers Energy" in appropriate alphabetical order: "Producers Energy" means Producers Energy Marketing, LLC, a Delaware limited liability company. B. The definitions of "Contingent Obligation", "Indebtedness" and "Subsidiary" appearing in Section 1.1 of the Credit Agreement are hereby amended in their entirety to the following: "Contingent Obligation" means, with respect to any Person as of the time a determination thereof is to be made, any obligation, contingent or otherwise, of any such Person, directly or indirectly, guaranteeing, endorsing or otherwise becoming contingently liable (by direct or indirect agreement, contingent or otherwise, to provide funds for payment, to supply funds to, or otherwise invest in, a debtor, or otherwise to assure a 3 creditor against loss) for any Indebtedness of itself or of any other Person (other than by endorsements of instruments in the course of business). "Indebtedness" means, with respect to a Person, such Person's (i) obligations for borrowed money, (ii) obligations representing the deferred purchase price of property or services, including obligations payable out of Hydrocarbon production, other than accounts payable arising in the ordinary course of such Person's business payable on terms customary in the trade, (iii) obligations, whether or not assumed, secured by Liens (other than Liens permitted by Section 11.5, clauses (a) through (d) or clauses (f) through (h)) or payable out of the proceeds of production from property now or hereafter owned or acquired by such Person, (iv) obligations which are evidenced by notes, bonds, debentures, acceptances, or other instruments, (v) Capitalized Lease Obligations, (vi) liabilities under interest rate swap, exchange, collar or cap agreements and all other agreements or arrangements designed to protect such Person against fluctuations in interest rates or currency exchange rates, (vii) liabilities under commodity hedge, commodity swap, exchange, collar or cap agreements, fixed price agreements and all other agreements or arrangements designed to protect a person against fluctuations in oil or gas prices, and (viii) obligations, contingent or otherwise, relative to the amount of all letters of credit, whether or not drawn, and (ix) all Contingent Obligations of such Person in respect of any of the foregoing; provided, however, that such term shall not include any amounts included as deferred credits on the financial statements of such Person or of a consolidated group including such Person, determined in accordance with Agreement Accounting Principles; provided furtherthat for purposes of the foregoing clauses (ii), (iii) and (ix), obligations pursuant to any oil, gas and/or mineral leases, farm-out agreements, division orders, contracts for the exchange or processing of oil, gas and/or other hydrocarbons, unitization and pooling declarations and agreements, operating agreements, development agreements, area of mutual interest agreements, marketing agreements or arrangements, and other agreements which are customary in the oil, gas and other mineral exploration, development and production business and in the business of processing of gas and gas condensate production for the extraction of products therefrom shall not be Indebtedness. "Subsidiary" means, with respect to any Person, any other Person more than 50% of the outstanding voting securities of which shall at the time be owned or 2 4 controlled, directly or indirectly, by such Person; provided, that with respect to the Company, Subsidiaries shall include MW Petroleum, MWJR, each Drilling Partnership and any other Person more than 50% of the outstanding voting securities of which shall at the time be owned or controlled, directly or indirectly, by the Company or by one or more Subsidiaries or by the Company and one or more Subsidiaries; further provided, that, notwithstanding the foregoing, Subsidiaries of the Company shall not include, for the purposes of Article VIII (except for Sections 8.10, 8.15 and 8.16), Article IX, Article XI (except for Sections 11.2 and 11.9) and Article XII (except for Section 12.1 insofar as the representation or warranty which is breached or shall be false was made pursuant to Section 8.10, Section 8.15 or Section 8.16), Apache Energy Limited and its Subsidiaries; further provided, that, notwithstanding the foregoing, Subsidiaries of the Company shall not include Producers Energy except for the purposes of Sections 8.10, 8.15, 8.16 and 12.1 (insofar as the representation or warranty which is breached or shall be false was made pursuant to Sections 8.10, 8.15 or 8.16). C. Section 11.1 of the Credit Agreement is hereby amended by deleting subsection 11.1(a) in its entirety and inserting the following before the semicolon: "(a) The Obligations arising under the Loan Documents, Contingent Obligations permitted under Section 11.4 (whether or not then payable), and intercompany Indebtedness pursuant to Investments by the Company permitted by Sections 11.12(d), (e), (g), (h) and (i)". D. Section 11.4 of the Credit Agreement is hereby amended (i) by deleting "$45,000,000" from the fifth line of Section 11.4 and by replacing it with "30,000,000"; (ii) by deleting subsection 11.4(h) in its entirety and inserting the following before the comma: "(h) Contingent Obligations of the Company or any of its Subsidiaries in respect of itself or in respect of obligations of partnerships, corporations or limited liability companies of which the Company or its Subsidiaries are partners, shareholders or members, respectively, pursuant to any oil, gas and/or mineral leases, farm-out agreements, division orders, contracts for the sale, delivery, purchase, exchange, or processing of oil, gas and/or other hydrocarbons, unitization and pooling declarations and agreements, operating agreements, development agreements, area of mutual interest agreements, marketing agreements or 3 5 arrangements, and other agreements which are customary in the oil, gas and other mineral exploration, development and production business and in the business of processing of gas and gas condensate production for the extraction of products therefrom"; and (iii) by inserting the following after subsection 11.4(i) thereof before the period: ", and (j) Contingent Obligations of the Company and any of its Subsidiaries to or in respect of Producers Energy which when aggregated with the Investments of the Company and any of its Subsidiaries permitted with respect to Producers Energy pursuant to subsection 11.12(c) do not exceed $30,000,000 in the aggregate". E. Section 11.12 of the Credit Agreement is hereby amended by deleting subsection 11.12(c) in its entirety and inserting the following before the semicolon: "(c) without duplication, Investments permitted as Indebtedness pursuant to Section 11.1 and Investments permitted as Contingent Obligations pursuant to Section 11.4 (including, without limitation, Investments of the Company and any of its Subsidiaries in Producers Energy which when aggregated with the Contingent Obligations of the Company and any of its Subsidiaries permitted pursuant to subsection 11.4(j) do not exceed $30,000,000 in the aggregate)". F. Section 14.7 of the Credit Agreement is hereby amended (i) by deleting the word "or" at the end of subsection 14.7(b)(vi) and (ii) by inserting the following after subsection 14.7(b)(vii) thereof: "or (viii) any investigation, litigation or proceeding related to any Investment by the Company, any of its Subsidiaries, Apache Energy Resources, Apache Energy Limited or Producers Energy in any Person, whether or not any Agent or any Lender is party thereto;". II. EFFECTIVENESS. This Fourth Amendment shall become effective as of the date hereof when the Administrative Agent shall have received counterparts hereof duly executed by the Company, the Required Lenders, the Administrative Agent and the Co-Agent (or, in the case of any party as to which an executed counterpart shall not have been received, telegraphic, telex, or other written confirmation from such party of execution of a counterpart hereof by such party). III. REAFFIRMATION OF REPRESENTATIONS AND WARRANTIES. To induce the Lenders, the Administrative Agent, the Co-Agent and the 4 6 Arrangers to enter into this Fourth Amendment, the Company hereby reaffirms, as of the date hereof, its representations and warranties in their entirety contained in Article VIII of the Credit Agreement and in all other documents executed pursuant thereto (except to the extent such representations and warranties relate solely to an earlier date) and additionally represents and warrants as follows: (i) The Company is a corporation duly incorporated, validly existing and in good standing under the laws of its jurisdiction of incorporation and has all requisite authority, permits and approvals, and is in good standing to conduct its business in each jurisdiction in which its business is conducted. (ii) The Company has the corporate power and authority and legal right to execute and deliver this Fourth Amendment and to perform its obligations hereunder. The execution and delivery by the Company of this Fourth Amendment and the performance of its obligations hereunder have been duly authorized by proper corporate proceedings, and this Fourth Amendment and the Credit Agreement, as amended hereby, constitute the legal, valid and binding obligations of the Company, enforceable against the Company in accordance with their terms, except as enforceability may be limited by bankruptcy, insolvency or similar laws affecting the enforcement of creditors' rights generally. (iii) No Default or Unmatured Default has occurred and is continuing as of the date hereof. (iv) There has been no material adverse change (a) in the businesses, assets, properties, operations, condition (financial or otherwise) or results of operations or prospects of the Company and its Subsidiaries from March 1, 1995, (b) affecting the rights and remedies of the Lenders under and in connection with this Fourth Amendment and the Credit Agreement, as amended by this Fourth Amendment, or (c) in the ability of the Company to perform its obligations under this Fourth Amendment or the Credit Agreement, as amended by this Fourth Amendment.1 (v) There is no litigation, arbitration, governmental investigation, proceeding or inquiry pending or, to the knowledge of any of their officers threatened against or affecting the Company or its Subsidiaries which is or could have a Material Adverse Effect. IV. DEFINED TERMS. Except as amended hereby, terms used herein when defined in the Credit Agreement shall have the same meanings herein unless the context otherwise requires. 5 7 V. REAFFIRMATION OF CREDIT AGREEMENT. This Fourth Amendment shall be deemed to be an amendment to the Credit Agreement, and the Credit Agreement, as amended hereby, is hereby ratified, approved and confirmed in each and every respect. All references to the Credit Agreement herein and in any other document, instrument, agreement or writing shall hereafter be deemed to refer to the Credit Agreement as amended hereby. VI. GOVERNING LAW. THIS FOURTH AMENDMENT SHALL BE CONSTRUED IN ACCORDANCE WITH THE INTERNAL LAWS (AND NOT THE LAW OF CONFLICTS) OF THE STATE OF ILLINOIS, BUT GIVING EFFECT TO FEDERAL LAWS APPLICABLE TO NATIONAL BANKS. All obligations of the Company and rights of the Lenders, the Administrative Agent, the Co-Agent and the Arrangers and any other holders of the Notes expressed herein shall be in addition to and not in limitation of those provided by applicable law. VII. SEVERABILITY OF PROVISIONS. Any provision in this Fourth Amendment that is held to be inoperative, unenforceable, or invalid in any jurisdiction shall, as to that jurisdiction, be inoperative, unenforceable, or invalid without affecting the remaining provisions in that jurisdiction or the operation, enforceability, or validity of that provision in any other jurisdiction, and to this end the provisions of this Fourth Amendment are declared to be severable. VIII. COUNTERPARTS. This Fourth Amendment may be executed in any number of counterparts, all of which taken together shall constitute one agreement, and any of the parties hereto may execute this Fourth Amendment by signing any such counterpart. IX. HEADINGS. Article and section headings in this Fourth Amendment are for convenience of reference only, and shall not govern the interpretation of any of the provisions of this Fourth Amendment. X. SUCCESSORS AND ASSIGNS. This Fourth Amendment shall be binding upon and inure to the benefit of the parties hereto and their respective successors and assigns. XI. NOTICE. THIS WRITTEN FOURTH AMENDMENT TOGETHER WITH THE THIRD AMENDED AND RESTATED CREDIT AGREEMENT AND THE OTHER LOAN DOCUMENTS REPRESENT THE FINAL AGREEMENT BETWEEN THE PARTIES AND MAY NOT BE CONTRADICTED BY EVIDENCE OF PRIOR, CONTEMPORANEOUS OR SUBSEQUENT ORAL AGREEMENTS OF THE PARTIES. THERE ARE NO UNWRITTEN ORAL AGREEMENTS BETWEEN THE PARTIES. [SIGNATURES BEGIN ON FOLLOWING PAGE] 6 8 IN WITNESS WHEREOF, the Company, the Lenders, the Administrative Agent, the Co-Agent and the Arrangers have executed this Fourth Amendment as of the date first above written. APACHE CORPORATION By:/s/ Clyde E. McKenzie ------------------------------------ Name: Clyde E. McKenzie Title: Vice President and Treasurer THE FIRST NATIONAL BANK OF CHICAGO, Individually, as Administrative Agent and as Arranger By:/s/ Christine Frank ------------------------------------ Name: Christine Frank Title: Vice President CHEMICAL BANK, Individually, as Co-Agent and as Arranger By:/s/ R. Potter ------------------------------------ Name: Ronald Potter Title: Managing Director BANK OF MONTREAL, Individually and as Lead Manager By:/s/ Robert Roberts ------------------------------------ Name: Robert L. Roberts Title: Director, U.S. Corporate Banking S-1 9 CIBC INC., Individually and as Lead Manager By: ------------------------------------ Name: Title: NATIONSBANK, Individually and as Lead Manager By:/s/ Jo Tamalis ------------------------------------ Name: Jo A. Tamalis Title: Senior Vice President BANK OF AMERICA NATIONAL TRUST & SAVINGS ASSOCIATION By:/s/ Laura B. Shepard ------------------------------------ Name: Laura B. Shepard Title: Vice President BANQUE PARIBAS By:/s/ Charles K. Thompson ------------------------------------ Name: Charles K. Thompson Title: Group Vice President By:/s/ G.J. Jeram ------------------------------------ Name: G.J. Jeram Title: Vice President SOCIETE GENERALE, SOUTHWEST AGENCY By:/s/ R.A. Erbert ------------------------------------ Name: Richard A. Erbert Title: Vice President S-2 10 MORGAN GUARANTY TRUST COMPANY OF NEW YORK By:/s/ P.W. McNeal ------------------------------------ Name: Philip W. McNeal Title: Vice President ABN-AMRO BANK N.V. - HOUSTON AGENCY By:/s/ Michael N. Oakes ------------------------------------ Name: Michael N. Oakes Title: Vice President By:/s/ H. Gene Shiels ------------------------------------ Name: H. Gene Shiels Title: Vice President THE FIRST NATIONAL BANK OF BOSTON By:/s/ Michael Kane ------------------------------------ Name: Michael Kane Title: Managing Director THE BANK OF NOVA SCOTIA, SAN FRANCISCO AGENCY By:/s/ A.S. Norsworthy ------------------------------------ Name: A.S. Norsworthy Title: Assistant Agent THE CHASE MANHATTAN BANK, N.A. By:/s/ Bettylou J. Robert ------------------------------------ Name: Bettylou J. Robert Title: Vice President S-3 11 CITIBANK, N.A. By:/s/ Carolyn R. Bodmer ------------------------------------ Name: Carolyn R. Bodmer Title: Vice President THE FUJI BANK, LIMITED - HOUSTON AGENCY By:/s/ Soichi Yoshida ------------------------------------ Name: Soichi Yoshida Title: Vice President & Senior Manager UNION BANK OF SWITZERLAND, HOUSTON AGENCY By:/s/ E. Swann ------------------------------------ Name: Evans Swann Title: Managing Director By:/s/ Kelly Boots ------------------------------------ Name: Kelly Boots Title: Assistant Treasurer UNION BANK By:/s/ Richard P. DeGrey ------------------------------------ Name: Richard P. DeGrey Title: Vice President By:/s/ W.M. Roth ------------------------------------ Name: Walter M. Roth Title: Vice President S-4 12 CHRISTIANIA BANK OG KREDITKASSE By:/s/ Peter M. Dodge ------------------------------------ Name: Peter M. Dodge Title: Vice President By:/s/ Hans Chr. Kjelsrud ------------------------------------ Name: Hans Chr. Kjelsrud Title: Vice President COLORADO NATIONAL BANK By: ------------------------------------ Name: Title: THE LONG-TERM CREDIT BANK OF JAPAN, LTD. By:/s/ S. Otsubo ------------------------------------ Name: Satoru Otsubo Title: Joint General Manager ROYAL BANK OF CANADA, GRAND CAYMAN (NORTH AMERICAN #1) BRANCH By:/s/ J.D. Frost ------------------------------------ Name: J.D. Frost Title: Senior Manager S-5 EX-10.7 8 5TH AMEND. TO 3RD AMENDED CREDIT AGREEMENT 1 EXHIBIT 10.7 ________________________________________________________________________________ FIFTH AMENDMENT TO THIRD AMENDED AND RESTATED CREDIT AGREEMENT dated as of January 22, 1996 among APACHE CORPORATION and VARIOUS COMMERCIAL LENDING INSTITUTIONS, and THE FIRST NATIONAL BANK OF CHICAGO, as Administrative Agent and Arranger and CHEMICAL BANK, as Co-Agent and Arranger ________________________________________________________________________________ 2 FIFTH AMENDMENT TO THIRD AMENDED AND RESTATED CREDIT AGREEMENT THIS FIFTH AMENDMENT TO THIRD AMENDED AND RESTATED CREDIT AGREEMENT, dated as of January 22, 1996, (the "Fifth Amendment"), is among APACHE CORPORATION, a Delaware corporation (the "Company"), the various commercial lending institutions as are or may become parties hereto (the "Lenders"), THE FIRST NATIONAL BANK OF CHICAGO, as Administrative Agent (in such capacity, the "Administrative Agent") and Arranger (in such capacity, an "Arranger"), and CHEMICAL BANK, as Co-Agent (in such capacity, the "Co-Agent") and Arranger (in such capacity, an "Arranger"). W I T N E S S E T H: 1. The Company, the Lenders, the Arrangers, the Co-Agent and the Administrative Agent have heretofore entered into that certain Third Amended and Restated Credit Agreement, dated as of March 1, 1995, as previously amended (the "Credit Agreement"). 2. The Company, the Lenders, the Arrangers, the Co-Agent and the Administrative Agent now intend to amend the Credit Agreement (i) to permit negative pledges by Apache Canada Ltd. (formerly known as DEKALB Energy Canada Ltd.), Apache Qarun Corporation LDC and Apache Oil Egypt, Inc., (ii) to permit the increase in the maximum availability under the Apache Canada Ltd. revolving credit facility from $30,000,000 to $45,000,000, and (iv) to address various other issues in connection therewith as follows: I. AMENDMENTS TO THIRD AMENDED AND RESTATED CREDIT AGREEMENT. A. Section 1.1 of the Credit Agreement is hereby amended by adding the following definition of "Apache Canada" in appropriate alphabetical order: "Apache Canada" means Apache Canada Ltd. (formerly known as DEKALB Energy Canada Ltd.), a corporation organized under the laws of Alberta, Canada. B. The definition of "Apache Egypt" appearing in Section 1.1 of the Credit Agreement is hereby amended in its entirety to the following: "Apache Egypt" means Apache Oil Egypt, Inc., a Delaware corporation, and Apache Qarun Corporation LDC, a Cayman Islands company formed under the Companies Law of the Cayman Islands, British West Indies. 3 C. Section 11.4 of the Credit Agreement is hereby amended by deleting subsections 11.4(i) and 11.4(j) in their entirety and inserting the following before the period: " (i) Contingent Obligations of the Company to IFC relating to Apache Egypt not exceeding $25,000,000 in the aggregate principal amount, together with interest, fees and expenses related thereto, (j) Contingent Obligations of DEKALB in respect of the facility described as item 1 of Part B of Schedule 11.1, and (k) Contingent Obligations of the Company and any of its Subsidiaries to or in respect of Producers Energy which when aggregated with the Investments of the Company and any of its Subsidiaries permitted with respect to Producers Energy pursuant to subsection 11.12(c) do not exceed $30,000,000 in the aggregate". D. Section 11.7 of the Credit Agreement is hereby amended by deleting subsection 11.7(c) in its entirety and inserting the following before the semicolon: " (c) the Company will not and will not permit any of its Subsidiaries to make any optional payment or prepayment on, or redemption of, or redeem, purchase or defease prior to its stated maturity, any Indebtedness other than Indebtedness incurred under this Agreement, the other Loan Documents, or the repurchase of any remarketed notes under the Remarketed Note Program, Indebtedness of Offshore, Indebtedness evidenced by the DEKALB Notes or Indebtedness to the IFC in connection with Apache Egypt; provided with respect to Indebtedness of Offshore, that the optional payment or prepayment be made with proceeds of the facility described in item A.1 of Schedule 11.1; provided with respect to Indebtedness of DEKALB evidenced by the DEKALB Notes, that the optional payment or prepayment be made with proceeds of the facility described in item B.1 of Schedule 11.1, with cash on hand at DEKALB or with proceeds of Investments permitted pursuant to Section 11.12(i); and provided that DEKALB may borrow, repay and reborrow pursuant to the facilities described as item B.1 and B.2 of Schedule 11.1;". E. Section 11.10 of the Credit Agreement is hereby amended in its entirety to the following: 11.10 Negative Pledges, etc. The Company will not, and will not permit any of its Subsidiaries to, enter into, on or at any time after the Effective Date, any agreement (excluding this Agreement and any other Loan Document) directly or indirectly prohibiting the creation, assumption or perfection of any Lien upon its 2 4 properties, revenues or assets, whether now owned or hereafter acquired, restricting any loans, advances or other Investments to or in the Company or any of its Subsidiaries, restricting the capitalization of the Company or any Subsidiary, restricting the ability of any Subsidiary to make dividend payments or other distributions or payments (by way of dividends, advances, repayments of loans or advances, reimbursements or otherwise) or restricting the ability of the Company or any Subsidiary to amend or otherwise modify this Agreement or any other Loan Document; provided, however, that, notwithstanding the foregoing, this section shall not apply to Apache Canada, Apache Egypt or any of their Subsidiaries or to any restrictions on the creation, assumption or perfection of any Lien on, or any transfer or sale of, any of their respective securities. F. Part B of Schedule 11.1 of the Third Amended and Restated Credit Agreement is hereby amended to read in its entirety as follows: Indebtedness of DEKALB 1. A revolving credit facility with a maximum aggregate principal amount of up to $45 million (U.S.) pursuant to that certain Credit Agreement, dated as of May 17, 1995, among Apache Canada Ltd. (formerly known as DEKALB Energy Canada, Ltd.), various financial institutions and the Bank of Montreal, as Agent, as may be amended from time to time. 2. An overdraft facility of Apache Canada Ltd. (formerly known as DEKALB Energy Canada Ltd.) at Royal Bank of Canada not to exceed $5 million (U.S.) in amount to facilitate check clearing. 3. 10% Notes of DEKALB due April 15, 1998 (approximately $22.1 million (U.S.) in outstanding principal amount as of March 1, 1995). 4. 9 7/8% Notes of DEKALB due July 15, 2000 (approximately $29.2 million (U.S.) in outstanding principal amount as of March 1, 1995). II. EFFECTIVENESS. This Fifth Amendment shall become effective as of the date hereof when the Administrative Agent shall have received counterparts hereof duly executed by the Company, the Required Lenders, the Administrative Agent and the Co-Agent (or, in the case of any party as to which an executed counterpart shall not have been received, telegraphic, telex, or other written confirmation from such party of execution of a counterpart hereof by such party). 3 5 III. REAFFIRMATION OF REPRESENTATIONS AND WARRANTIES. To induce the Lenders, the Administrative Agent, the Co-Agent and the Arrangers to enter into this Fifth Amendment, the Company hereby reaffirms, as of the date hereof, its representations and warranties in their entirety contained in Article VIII of the Credit Agreement and in all other documents executed pursuant thereto (except to the extent such representations and warranties relate solely to an earlier date) and additionally represents and warrants as follows: (i) The Company is a corporation duly incorporated, validly existing and in good standing under the laws of its jurisdiction of incorporation and has all requisite authority, permits and approvals, and is in good standing to conduct its business in each jurisdiction in which its business is conducted. (ii) The Company has the corporate power and authority and legal right to execute and deliver this Fifth Amendment and to perform its obligations hereunder. The execution and delivery by the Company of this Fifth Amendment and the performance of its obligations hereunder have been duly authorized by proper corporate proceedings, and this Fifth Amendment and the Credit Agreement, as amended hereby, constitute the legal, valid and binding obligations of the Company, enforceable against the Company in accordance with their terms, except as enforceability may be limited by bankruptcy, insolvency or similar laws affecting the enforcement of creditors' rights generally. (iii) No Default or Unmatured Default has occurred and is continuing as of the date hereof. (iv) There has been no material adverse change (a) in the businesses, assets, properties, operations, condition (financial or otherwise) or results of operations or prospects of the Company and its Subsidiaries from March 1, 1995, (b) affecting the rights and remedies of the Lenders under and in connection with this Fifth Amendment and the Credit Agreement, as amended by this Fifth Amendment, or (c) in the ability of the Company to perform its obligations under this Fifth Amendment or the Credit Agreement, as amended by this Fifth Amendment. (v) There is no litigation, arbitration, governmental investigation, proceeding or inquiry pending or, to the knowledge of any of their officers threatened against or affecting the Company or its Subsidiaries which is or could have a Material Adverse Effect. 4 6 IV. DEFINED TERMS. Except as amended hereby, terms used herein when defined in the Credit Agreement shall have the same meanings herein unless the context otherwise requires. V. REAFFIRMATION OF CREDIT AGREEMENT. This Fifth Amendment shall be deemed to be an amendment to the Credit Agreement, and the Credit Agreement, as amended hereby, is hereby ratified, approved and confirmed in each and every respect. All references to the Credit Agreement herein and in any other document, instrument, agreement or writing shall hereafter be deemed to refer to the Credit Agreement as amended hereby. VI. GOVERNING LAW. THIS FIFTH AMENDMENT SHALL BE CONSTRUED IN ACCORDANCE WITH THE INTERNAL LAWS (AND NOT THE LAW OF CONFLICTS) OF THE STATE OF ILLINOIS, BUT GIVING EFFECT TO FEDERAL LAWS APPLICABLE TO NATIONAL BANKS. All obligations of the Company and rights of the Lenders, the Administrative Agent, the Co-Agent and the Arrangers and any other holders of the Notes expressed herein shall be in addition to and not in limitation of those provided by applicable law. VII. SEVERABILITY OF PROVISIONS. Any provision in this Fifth Amendment that is held to be inoperative, unenforceable, or invalid in any jurisdiction shall, as to that jurisdiction, be inoperative, unenforceable, or invalid without affecting the remaining provisions in that jurisdiction or the operation, enforceability, or validity of that provision in any other jurisdiction, and to this end the provisions of this Fifth Amendment are declared to be severable. VIII. COUNTERPARTS. This Fifth Amendment may be executed in any number of counterparts, all of which taken together shall constitute one agreement, and any of the parties hereto may execute this Fifth Amendment by signing any such counterpart. IX. HEADINGS. Article and section headings in this Fifth Amendment are for convenience of reference only, and shall not govern the interpretation of any of the provisions of this Fifth Amendment. X. SUCCESSORS AND ASSIGNS. This Fifth Amendment shall be binding upon and inure to the benefit of the parties hereto and their respective successors and assigns. XI. NOTICE. THIS WRITTEN FIFTH AMENDMENT TOGETHER WITH THE THIRD AMENDED AND RESTATED CREDIT AGREEMENT AND THE OTHER LOAN DOCUMENTS REPRESENT THE FINAL AGREEMENT BETWEEN THE PARTIES AND MAY NOT BE CONTRADICTED BY EVIDENCE OF PRIOR, CONTEMPORANEOUS OR SUBSEQUENT ORAL AGREEMENTS OF THE PARTIES. THERE ARE NO UNWRITTEN ORAL AGREEMENTS BETWEEN THE PARTIES. 5 7 IN WITNESS WHEREOF, the Company, the Lenders, the Administrative Agent, the Co-Agent and the Arrangers have executed this Fifth Amendment as of the date first above written. APACHE CORPORATION By:/s/ Clyde E. McKenzie ------------------------------------ Name: Clyde E. McKenzie Title: Vice President and Treasurer THE FIRST NATIONAL BANK OF CHICAGO, Individually, as Administrative Agent and as Arranger By:/s/ Steven P. Capouch ------------------------------------ Name: Steven P. Capouch Title: Vice President CHEMICAL BANK, Individually, as Co-Agent and as Arranger By:/s/ R. Potter ------------------------------------ Name: Ronald Potter Title: Managing Director BANK OF MONTREAL, Individually and as Lead Manager By:/s/ Robert Roberts ------------------------------------ Name: Robert L. Roberts Title: Director, U.S. Corporate Banking S-1 8 CIBC INC., Individually and as Lead Manager By:/s/ Gary C. Gaskill -------------------------------- Name: Gary C. Gaskill Title: Authorized Signatory NATIONSBANK, Individually and as Lead Manager By:/s/ Jo A. Tamalis -------------------------------- Name: Jo A. Tamalis Title: Senior Vice President BANK OF AMERICA NATIONAL TRUST & SAVINGS ASSOCIATION By:/s/ C. Paige DiMaggio -------------------------------- Name: C. Paige DiMaggio Title: Vice President BANQUE PARIBAS By:/s/ Charles K. Thompson -------------------------------- Name: Charles K. Thompson Title: Group Vice President By:/s/ David P. Lee -------------------------------- Name: David P. Lee Title: Vice President SOCIETE GENERALE, SOUTHWEST AGENCY By:/s/ Richard A. Erbert -------------------------------- Name: Richard A. Erbert Title: Vice President S-2 9 MORGAN GUARANTY TRUST COMPANY OF NEW YORK By:/s/ P.W. McNeal -------------------------------- Name: Philip W. McNeal Title: Vice President ABN-AMRO BANK N.V. - HOUSTON AGENCY By: ABN AMRO North America, Inc., as Agent By:/s/ Michael Oakes -------------------------------- Name: Michael N. Oakes Title: Vice President and Director By:/s/ W. Bryan Chapman -------------------------------- Name: W. Bryan Chapman Title: Vice President and Director THE FIRST NATIONAL BANK OF BOSTON By:/s/ Michael Kane -------------------------------- Name: Michael Kane Title: Managing Director THE BANK OF NOVA SCOTIA, SAN FRANCISCO AGENCY By:/s/ A.S. Norsworthy -------------------------------- Name: A.S. Norsworthy Title: Assistant Agent THE CHASE MANHATTAN BANK, N.A. By:/s/ Bettylou J. Robert -------------------------------- Name: Bettylou J. Robert Title: Vice President S-3 10 CITIBANK, N.A. By:/s/ Arezoo Jafari -------------------------------- Name: Arezoo Jafari Title: Assistant Vice President THE FUJI BANK, LIMITED - HOUSTON AGENCY By:/s/ Soichi Yoshida -------------------------------- Name: Soichi Yoshida Title: Vice President & Senior Manager UNION BANK OF SWITZERLAND, HOUSTON AGENCY By:/s/ Evans Swann -------------------------------- Name: Evans Swann Title: Managing Director By:/s/ Kelly Boots -------------------------------- Name: Kelly Boots Title: Assistant Treasurer UNION BANK By:/s/ Richard P. DeGrey -------------------------------- Name: Richard P. DeGrey Title: Vice President By: -------------------------------- Name: Title: S-4 11 CHRISTIANIA BANK OG KREDITKASSE By:/s/ Jahn O. Roising -------------------------------- Name: Jahn O. Roising Title: First Vice President By:/s/ Peter M. Dodge -------------------------------- Name: Peter M. Dodge Title: Vice President COLORADO NATIONAL BANK By:/s/ Kathryn A. Gaiter -------------------------------- Name: Kathryn A. Gaiter Title: Vice President THE LONG-TERM CREDIT BANK OF JAPAN, LTD. By:/s/ S. Otsubo -------------------------------- Name: Satoru Otsubo Title: Joint General Manager ROYAL BANK OF CANADA, GRAND CAYMAN (NORTH AMERICAN #1) BRANCH By:/s/ Linda M. Stephens -------------------------------- Name: Linda M. Stephens Title: Manager S-5 EX-10.14 9 AMENDMENTS TO APACHE CORP. RETIREMENT/401(K) 1 EXHIBIT 10.14 AMENDMENT TO APACHE CORPORATION RETIREMENT/401(k) SAVINGS PLAN Apache Corporation ("Apache") maintains the Apache Corporation Retirement/401(k) Savings Plan (the "Plan"). Pursuant to section 10.4 of the Plan, Apache has retained the right to amend the Plan. Apache hereby exercises that right by amending the Plan as follows. 1. Effective as of May 4, 1995, paragraph 1.13(d)(ii) shall be amended by inserting the following subparagraph (H), and renumbering existing paragraphs (H) and (I). (H) any amounts relating to the granting of a stock option under the Apache Corporation 1995 Stock Option Plan, the exercise of such a stock option, or the sale or deemed sale of any shares thereby acquired; 2. Effective as of May 17, 1995, Appendix A shall be replaced in its entirety by the following Appendix A. APPENDIX A PARTICIPATING COMPANIES The following Affiliated Entities were actively participating in the Plan as of the following dates:
Business Participation Participation Began As Of Ended As Of Apache International, Inc. September 22, 1987 N/A Apache Energy Resources Corporation January 1, 1994 December 31, 1995 (known as Hadson Energy Resources Corporation before January 1, 1995) Apache Energy Limited (known as January 1, 1994 N/A Hadson Energy Limited before January 1, 1995) Apache Canada Ltd. May 17, 1995 N/A
- - END OF APPENDIX A -- 2 3. Effective as of May 17, 1995, the following Appendix F shall be added to the Plan. APPENDIX F DEKALB ENERGY COMPANY/APACHE CANADA LTD. Introduction Through a merger effective as of May 17, 1995, Apache now holds 100% of the stock of DEKALB Energy Company (which has been renamed Apache Canada Ltd.). Apache Canada Ltd. has adopted this Plan, and Apache has approved its adoption, as of May 17, 1995, for the eligible employees of Apache Canada Ltd. Capitalized terms in this Appendix have the same meanings as those given to them in the Plan. The regular terms of the Plan shall apply to the employees of Apache Canada Ltd., except as provided below. Eligibility to Participate Notwithstanding section 1.14, an employee of Apache Canada Ltd. shall be a Covered Employee only if (1) he or she is either a U.S. citizen or a U.S. resident, and (2) he or she was employed by Apache or another Company immediately before becoming an employee of Apache Canada Ltd. The provisions of Article II, which discuss when a Covered Employee may participate in the Plan, shall apply without modification to Covered Employees employed by Apache Canada Ltd. Compensation If the payroll of the Apache Canada Ltd. employee is handled in the United States, then the definitions of Compensation in section 1.13 shall apply. To the extent that the payroll of the Apache Canada Ltd. employee is handled outside of the United States, the following definitions of Compensation shall apply in lieu of the definitions found in subsections 1.13(a) and 1.13(b): (a) Code section 415 Compensation. For purposes of determining the limitation on Annual Additions under section 3.4 and the minimum contribution under section 12.4 when the Plan is top-heavy, Compensation shall mean foreign earned income (within the meaning of Code section 911(b)) paid by the Company or an Affiliated Entity, but shall not include any Participant Before-Tax Contributions or any other elective contributions that are not includable in the Employee's income pursuant to Code sections 125, 402(e)(3), 402(h), or 403(b). For purposes of section 3.4, Compensation shall be measured over a Limitation Year. For purposes of section 12.4, Compensation shall be measured over the portion of a Plan Year (i) after the Employee has satisfied an eligibility requirement of section 2.1 and (ii) while the Employee is a Covered Employee. (b) Code Section 414(q) Compensation. For purposes of identifying Highly Compensated Employees and Key Employees under sections 1.26, 1.28, and 1.47, Compensation shall mean foreign earned income (within the meaning of Code section 911(b)) paid by the Company or an Affiliated Entity, including elective contributions that are not includable in the Employee's income pursuant to Code sections 125, 402(e)(3), 402(h), or 403(b). For purposes of identifying Highly Compensated Employees, Compensation shall be measured over a Determination Year. Compensation shall include only amounts paid to the Employee, and shall not include any additional amounts accrued by the Employee. 3 -- END OF APPENDIX F -- IN WITNESS WHEREOF, this Amendment has been executed the date set forth below. APACHE CORPORATION /s/ Roger B. Rice --------------------------------------------------- Roger B. Rice Vice President, Human Resources and Administration EX-10.15 10 NON-QUALIFIED RETIREMENT/SAVINGS PLAN 1 EXHIBIT 10.15 NON-QUALIFIED RETIREMENT/SAVINGS PLAN OF APACHE CORPORATION EFFECTIVE NOVEMBER 16, 1989 2 TABLE OF CONTENTS
ARTICLE PAGE ------- ---- I. Definitions ----------- 1.01 Account 2 1.02 Committee 2 1.03 Company 2 1.04 Company Deferrals 2 1.05 Compensation 2 1.06 Deferred Contributions 3 1.07 Enrollment Agreement 3 1.08 Participant 3 1.09 Plan Year 3 1.10 Trust 3 1.11 Trust Agreement 3 1.12 Trustee 3 1.13 Valuation Date 4 II. Eligibility and Participation ----------------------------- 2.01 Eligibility and Participation 5 2.02 Enrollment 5 2.03 Failure of Eligibility 5 III. Contribution-Deferrals ---------------------- 3.01 Participant Deferrals 6 3.02 Company Deferrals 7 3.03 Increase in Contributions During Initial Plan Year 7 IV. Investment of Deferrals and Accounting -------------------------------------- 4.01 Investments 8 V. Distributions ------------- 5.01 Time of Distribution 9 5.02 Method and Amount of Distribution 10 5.03 Beneficiaries 10 5.04 Hardship Distributions 11
3 TABLE OF CONTENTS (CONTINUED)
ARTICLE PAGE ------- ---- VI. Administration -------------- 6.01 The Committee -- Plan Administrator 13 6.02 Committee to Administer and Interpret Plan 13 6.03 Organization of Committee 13 6.04 Indemnification 13 6.05 Agent for Process 13 6.06 Determination of Committee Final 14 VII. Trust ----- 7.01 Trust Agreement 15 7.02 Expenses of Trust 15 VIII. Amendment and Termination ------------------------- 8.01 Termination of Plan 16 8.02 Amendment by Company 16 IX. Miscellaneous ------------- 9.01 Funding of Benefits - No Fiduciary Relationship 17 9.02 Right to Terminate Employment 17 9.03 Inalienability of Benefits 17 9.04 Claims Procedure 17 9.05 Disposition of Unclaimed Distributions 18 9.06 Distributions Due Infants or Incompetents 19 9.07 Use and Form of Words 19 9.08 Headings 19 9.09 Governing Law 19
ii 4 NON-QUALIFIED RETIREMENT/SAVINGS PLAN OF APACHE CORPORATION Apache Corporation (the "Company") hereby establishes a Non-Qualified Retirement/Savings Plan (the "Plan") effective as of November 16, 1989. The Company previously established the Apache Corporation 401(k) Retirement/Savings Plan (the "Retirement/Savings Plan"). The Company intends that this Plan shall provide a select group of management or highly compensated employees of the Company with deferred retirement benefits in addition to the retirement benefits provided under the Retirement/Savings Plan, in cases where benefits under the Retirement/Savings Plan may be limited by Section 415 of the Internal Revenue Code of 1986, as amended (the "Code"), or in cases where participation in the Retirement/Savings Plan will otherwise be adversely affected by provisions of the Code, in consideration of the valuable services provided by such employees to the Company and to induce such employees to remain in the employ of the Company or its affiliates. The Company intends that the Plan shall not be treated as a "funded" plan for purposes of either the Internal Revenue Code of 1986 (the "Code") or the-Employee Retirement Income Security Act of 1974, as amended ("ERISA"). 5 ARTICLE I DEFINITIONS Defined terms used in this Plan shall have the meanings set forth below or the same meanings as in the Retirement/Savings Plan, as the case may be: 1.01 Account "Account" means the account maintained for each Participant to which shall be credited all Deferred Contributions made by a Participant, all Company Deferrals on behalf of a Participant, and all adjustments thereto. 1.02 Committee "Committee" means the administrative committee provided for in Section 6.01. 1.03 Company "Company" means (i) Apache Corporation, and (ii) any other corporation or unincorporated trade or business which, with approval of the Board of Directors of Apache Corporation, has adopted the Plan and is a member of the same controlled group of corporations or the same group of trades or businesses under common control (within the meaning of Sections 414(b) and 414(c) of the Code) as Apache Corporation, or an affiliated service group (as defined in Section 414(m) of the Code) which includes Apache Corporation or any other entity required to be aggregated with Apache Corporation pursuant to regulations under Section 414(o) of the Code. 1.04 Company Deferrals "Company Deferrals" means the amount of matching Company Deferrals allocated to a Participant's Account pursuant to Section 3.02. 1.05 Compensation "Compensation" means regular compensation paid from the Company including overtime pay and bonuses, but excluding commissions, credits, other contingent compensation, Company Deferrals, Company contributions under the Retirement/ Savings Plan and contributions to any other fringe benefit plan. Compensation shall be the amount determined prior to any salary reduction described in Section 3.01 of this Plan, Section 3.01 of the Retirement/Savings Plan and under Section 125 of the Code. 2 6 1.06 Deferred Contributions "Deferred Contributions" means the amounts of a Participant's Compensation which he elects to defer and have allocated to his Account pursuant to Section 3.01. 1.07 Enrollment Agreement "Enrollment Agreement" means an application for participation in the Plan, execution of which by an eligible employee is required under Article II for Plan participation. 1.08 Participant "Participant" means any eligible employee selected to participate in this Plan who has completed an Enrollment Agreement and is entitled to the distribution of benefits hereunder. 1.09 Plan Year "Plan Year" means the period during which the Plan records are kept. The initial Plan Year shall be a year commencing November 16, 1989 and ending December 31, 1989. Subsequent Plan Years shall be the calendar year. 1.10 Trust "Trust" means the trust or trusts, if any, created by the Company to provide funding for the distribution of benefits in accordance with the provisions of the Plan. The assets of any such Trust shall remain subject to the claims of the Company's general creditors in the event of the Company's insolvency. 1.11 Trust Agreement "Trust Agreement" means the written instrument pursuant to which each separate Trust is created. 1.12 Trustee "Trustee" means one or more banks, trust companies or insurance companies designated by the Company to hold and invest the Trust Fund and to pay benefits and expenses as authorized by the Committee in accordance with the terms and provisions of the Trust Agreement. 3 7 1.13 Valuation Date "Valuation Date" means the last day of the Plan Year or any other date specified by the Committee for the valuation of the Participants' Accounts. 4 8 ARTICLE II ELIGIBILITY AND PARTICIPATION 2.01 Eligibility and Participation The Committee shall from time to time in its sole discretion select those employees of the Company who are eligible to participate in the Plan from those employees who are (i) eligible to participate in the Retirement/Savings Plan; and (ii) are among a select group of management or highly compensated employees. 2.02 Enrollment Employees who have been selected by the Committee to participate in the Plan shall enroll in the Plan by (i) entering into an Enrollment Agreement with the Company, which shall contain the Participant's beneficiary designation under Section 5.03 and such other terms as the Company deems appropriate and necessary, and (ii) completing such other forms and furnishing such other information as the Company may reasonably require. 2.03 Failure of Eligibility No Deferred Contributions or Company Deferrals shall be added to a Participant's Account after the Participant ceases to meet the eligibility criteria as determined by the Committee for participation herein. The determination of the Committee with respect to the termination of participation in the Plan shall be final and binding on all parties affected thereby. Any benefits accrued hereunder, however, at the time of such change, shall remain distributable in accordance with the provisions of the Plan. 5 9 ARTICLE III CONTRIBUTION DEFERRALS 3.01 Participant Deferrals (a) A Participant may elect to defer a portion of his Compensation by filing an Enrollment Form with the Committee. The Enrollment Form must be filed on or before the first day of the Plan Year in which the deferral is to be made, unless the Participant was not eligible to participate in the Plan on such date, in which case the Enrollment Form must be filed within 30 days after the date on which such Participant became eligible to participate. (b) The amount of a Participant's Deferred Contributions made pursuant to the Plan shall equal the amount of Participant Deferrals which would have been credited to the Participant's Deferral Account pursuant to Section 3.01(a) of the Retirement/Savings Plan but could not be so credited due to restrictions imposed by the Code, including without limitation restrictions under Sections 401(a)(17), 401(k)(3), 402(g) and 415(c). The amount of a Participant's Deferred Contribution shall be determined by reference to the Participant's elected Deferral Percentage under the Retirement/Savings Plan as of the first day of the Plan Year or, if the Participant was not eligible to participate in this Plan on such date, on the first day on which the Participant was eligible to participate in this Plan, without regard to any change in the Participant's Deferral Percentage under the Retirement/Savings Plan which subsequently becomes effective in such Plan Year. An election to participate in this Plan for any Plan Year shall be irrevocable; provided, however, that a Participant's Deferred Contributions shall be suspended for a period of twelve (12) months following the date the Participant receives a hardship withdrawal pursuant to Section 5.01 of the Retirement/Savings Plan or Section 5.04 of the Plan. Notwithstanding anything herein to the contrary, a Participant shall not be permitted to defer Compensation which is earned or payable prior to the execution and delivery of the Participant's Enrollment Agreement. (c) Deferred Contributions shall be deducted through payroll withholding from the Participant's regular compensation payable by the Company and shall be credited to the Participant's Account on or about the date or dates such amount would have been credited to his account in the Retirement/Savings Plan, if such amounts had in fact been credited to his account in the Retirement/Savings Plan. 6 10 3.02 Company Deferrals The Company shall cause to be credited to a Participant's Account for each Plan Year an amount equal to the difference between (i) the Company contributions (including both automatic and matching contributions) that would have been made on the Participant's behalf under Section 3.03 of the Retirement/Savings Plan for such Plan Year if the Participant's contributions under the Retirement/Savings Plan for such Plan Year had included the Deferred Contributions to this Plan, without taking into account restrictions imposed by the Code, including without limitation restrictions under Sections 401(a)(17), 401(k)(3), 401(m), 402(g) and 415(c); and (ii) Company contributions actually made on the Participant's behalf under Section 3.03 of the Retirement/Savings Plan. All such amounts shall be credited to the Participant's Account on or about the date or dates such amounts would have been credited to his account in the Retirement/Savings Plan if such amounts had in fact been credited to his account in the Retirement/Savings Plan. 3.03 Increase in Contributions During Initial Plan Year For the initial Plan Year commencing November 16, 1989 and ending December 31, 1989 only, the amount of a Participant's Deferred Contributions and Company Deferrals shall include an amount equal to the income that would have been earned on Deferred Contributions and Company Deferrals had this Plan been in effect on January 1, 1989 and had the Deferred Contributions been invested in a money market fund from the date the Deferred Contributions would have been made. 7 11 ARTICLE IV INVESTMENT OF DEFERRALS AND ACCOUNTING 4.01 Investments All amounts credited to a Participant's Account, together with the earnings thereon, shall be credited with income and loss as if invested in one or more investment alternatives selected by the Committee. At such times and under such procedures as the Committee shall designate, each Participant shall have the right to elect among investment alternatives made available by the Committee, including without limitation the right to transfer all or a portion of the funds in the Participant's Account among such available investment alternatives. The Committee shall give written notice to the Participants of the investment alternatives, if any, available to them for election. The Committee may change, add to or subtract from the investment alternatives available at any time. Nothing contained in this Section shall be construed to give any Participant any power or control to make investment directions or otherwise influence in any manner the investment and reinvestment of assets contained within any investment alternative, such control being at all times retained in the full discretion of the Committee. Nothing contained in this Section shall be construed to require the Committee to make investment choices available to Participants, and in lieu thereof the investment alternative may be selected by the Committee. Cash may be deemed to remain uninvested for a reasonable period of time following payroll withdrawal, as determined from time to time by the Committee, without interest. Nothing contained in this Section shall be construed to require the Company or the Committee to fund any Participant's Account, and the investment alternatives discussed herein may be used solely as a means to establish income and loss without the actual funding of the Participants' Accounts. 8 12 ARTICLE V DISTRIBUTIONS 5.01 Time of Distribution (a) Retirement Benefits: The retirement benefit payable under the Plan in the case of a Participant whose employment with the Company is terminated on or after his Normal Retirement Age shall be equal to one hundred percent (100%) of the value of his Accounts on the Valuation Date immediately following his termination of employment. (b) Disability Benefits: The disability benefit payable under the Plan in the case of a Participant whose employment with the Company is terminated because he is Permanently and Totally Disabled shall be equal to one hundred percent (100%) of the value of his Accounts on the Valuation Date immediately following the date on which he is determined to be Permanently and Totally Disabled. (c) Death Benefits: The death benefit payable to a beneficiary under the Plan in the case of a Participant whose employment with the Company is terminated due to his death shall be equal to one hundred percent (100%) of the value of his Accounts on the Valuation Date immediately following the Participant's death. (d) Benefits Upon Termination of Employment: The benefit payable under the Plan in the case of a Participant whose employment with the Company is terminated for any reason other than retirement, Permanent and Total Disability or death shall be equal to: (i) the value of his Deferred Contributions, as adjusted, as of the Valuation Date immediately following his termination of employment; plus (ii) the value of the vested portion of his Company Deferrals, as adjusted, as of the Valuation Date immediately following his termination of employment, determined as follows: 9 13 Years of Completed Service at Date of Termination Vested Portion ---------------------- -------------- Less than 1 0% 1 20 2 40 3 60 4 80 5 and over 100 For purposes of the preceding table, years of completed service at date of termination shall be determined in the same manner as in the Retirement/Savings Plan. (e) Notwithstanding Section 5.01(d), the value of the Company Deferrals of all Participants shall be fully vested as of the effective date of a "Change of Control," as defined herein, and at all times thereafter. For purposes of this Section, a "Change of Control" shall mean the event occurring when a person, partnership or corporation together with all persons, partnerships or corporations acting in concert with such person, partnership or corporation, or any or all of them, acquires more than 20% of Apache Corporation's outstanding voting securities; provided that a Change of Control shall not occur if, prior to the acquisition of more than 20% of the voting securities, Apache Corporation's Board of Directors by majority vote designates the person, partnership or corporation as an approved acquiror and resolves that a Change of Control will not have occurred for purposes of this Plan. 5.02 Method and Amount of Distribution Amounts distributable pursuant to Section 5.01 shall be distributed in a single sum cash payment. Payment shall be made as soon as practicable, but in no case later than sixty (60) days following the end of the Plan Year in which the Participant terminates employment. 5.03 Beneficiaries Each Participant shall designate one or more persons, trusts or other entities as his beneficiary (the "Beneficiary") to receive any amounts distributable hereunder at the time of the Participant's death. Such designation shall be made by the Participant in his Enrollment Agreement and may be changed from time to time by the Participant. In the absence of an effective beneficiary designation as to part or all of a Participant's interest in the Plan, such amount shall be distributed to the personal representative of the Participant's estate. 10 14 5.04 Hardship Distributions A Participant may request, and the Committee may approve or disapprove in its sole discretion, a withdrawal of part or all of the vested portion of the Participant's Account, subject to the following: (a) The Participant must file a written request for withdrawal with the Committee at least fifteen (15) days in advance, along with such information as the Committee may request for this purpose. The Committee shall review the information filed as soon as practicable after it is received and shall promptly inform the Participant of the results of the Committee's determination. (b) Such withdrawal may be made only for the purpose of meeting an unforeseeable emergency, which shall be defined as a severe financial hardship to the Participant resulting from a sudden and unexpected illness or accident of the Participant or of a dependent (as defined in Section 152(a) of the Code) of the Participant, loss of the Participant's property due to casualty, or other similar extraordinary and unforeseeable circumstances arising as a result of events beyond the control of the Participant, and only if and to the extent other resources which could alleviate such need are not reasonably available to the Participant. (c) An unforeseeable emergency shall be determined to exist by the Committee based on all relevant facts and circumstances. (d) If the Committee determines that a hardship exists, the Participant must represent to the Committee by written certification that the need cannot be relieved through reimbursement or compensation by insurance or otherwise; by liquidation of the Participant's assets, to the extent that liquidation of such assets would not itself cause severe financial hardship; or by cessation of deferrals under the Plan and any other plans maintained by the Company. (e) If the Committee is satisfied that the foregoing requirements are satisfied and determines, in its sole discretion, to permit a hardship withdrawal, it will determine the amount of hardship withdrawal necessary to satisfy the need of the Participant and will distribute such amount to the Participant. 11 15 (f) The Participant's deferrals shall be suspended for twelve (12) months following the date the Participant receives a hardship withdrawal. 12 16 ARTICLE VI ADMINISTRATION 6.01 The Committee -- Plan Administrator The Committee members for the Plan shall be the same committee members as for the Retirement/Savings Plan. 6.02 Committee to Administer and Interpret Plan The Committee shall administer the Plan and shall have all powers necessary for that purpose, including, but not by way of limitation, power to interpret the Plan, to determine the eligibility, status and rights of all persons under the Plan and, in general, to decide any dispute. The Committee shall direct the Company, the Trustee, or both, as the case may be, concerning distributions in accordance with the provisions of the Plan. The Committee shall maintain all Plan records except records of any Trust. 6.03 Organization of Committee The Committee shall adopt such rules as it deems desirable for the conduct of its affairs and for the administration of the Plan. It may appoint agents (who need not be members of the Committee) to whom it may delegate such powers as it deems appropriate, except that any dispute shall be determined by the Committee. The Committee may make its determinations with or without meetings. It may authorize one or more of its members or agents to sign instructions, notices and determinations on its behalf. The action of a majority of the Committee shall constitute the action of the Committee. 6.04 Indemnification The Committee and all of the agents and representatives of the Committee shall be indemnified and saved harmless by the Company against any claims, and the expenses of defending against such claims, resulting from any action or conduct relating to the administration of the Plan, except claims judicially determined to be attributable to gross negligence or willful misconduct. 6.05 Agent for Process The Committee shall appoint an agent of the Plan for service of all process. 13 17 6.06 Determination of Committee Final The decisions made by the Committee shall be final and conclusive on all persons. 14 18 ARTICLE VII TRUST 7.01 Trust Agreement The Company may, but shall not be required to, adopt a separate Trust Agreement for the holding, investment and administration of the funds contributed to Accounts under the Plan. The Trustee shall maintain and allocate assets to a separate account for each Participant under the Plan. The assets of any such Trust shall remain subject to the claims of the Company's general creditors in the event of the Company's insolvency. 7.02 Expenses of Trust The parties expect that any Trust created pursuant to Section 7.01 will be treated as a "grantor" trust for federal and state income tax purposes and that, as a consequence, such Trust will not be subject to income tax with respect to its income. However, if the Trust should be taxable, the Trustee shall pay all such taxes out of the Trust. All expenses of administering any such Trust shall be a charge against and shall be paid from the assets of such Trust. 15 19 ARTICLE VIII AMENDMENT AND TERMINATION 8.01 Termination of Plan The Company expects to continue the Plan indefinitely, but the Company may terminate the Plan at any time. 8.02 Amendment by Company The Company may amend the Plan at any time and from time to time, retroactively or otherwise, but no amendment shall reduce any benefit that has accrued on the effective date of the amendment. 16 20 ARTICLE IX MISCELLANEOUS 9.01 Funding of Benefits -- No Fiduciary Relationship All benefits payable under the Plan shall be distributed in cash or in kind, in the discretion of the Committee. Benefits shall be paid either out of the Trust or, if no Trust is in existence or if the assets in the Trust are insufficient to provide fully for such benefits, then such benefits shall be distributed by the Company out of its general assets. Nothing contained in the Plan shall be deemed to create any fiduciary relationship between the Company and the Participants. Notwithstanding anything herein to the contrary, to the extent that any person acquires a right to receive benefits under the Plan, such right shall be no greater than the right of any unsecured general creditor of the Company, except to the extent provided in the Trust Agreement, if any. 9.02 Right to Terminate Employment The Company may terminate the employment of any Participant as freely and with the same effect as if the Plan were not in existence. 9.03 Inalienability of Benefits No Participant shall have the right to assign, transfer, hypothecate, encumber or anticipate his interest in any benefits under the Plan, nor shall the benefits under the Plan be subject to any legal process to levy upon or attach the benefits for payment for any claim against the Participant or his spouse. If, notwithstanding the foregoing provision, any Participant's benefits are garnished or attached by the order of any court, the Company may bring an action for declaratory judgment in a court of competent jurisdiction to determine the proper recipient of the benefits to be distributed pursuant to the Plan. During the pendency of the action, any benefits that become distributable shall be paid into the court as they become distributable, to be distributed by the court to the recipient it deems proper at the conclusion of the action. 9.04 Claims Procedure (a) All claims shall be filed in writing by the Participant, his spouse or the authorized representative of the claimant, by completing such procedures as the Committee shall require. Such procedures shall be reasonable and may 17 21 include the completion of forms and the submission of documents and additional information. (b) If a claim is denied, notice of denial shall be furnished by the Committee to the claimant within 90 days after the receipt of the claim by the Committee, unless special circumstances require an extension of time for processing the claim, in which event notification of the extension shall be provided to the Participant or beneficiary and the extension shall not exceed 90 days. (c) The Committee shall provide adequate notice, in writing, to any claimant whose claim has been denied, setting forth the specific reasons for such denial, specific reference to pertinent Plan provisions, a description of any additional material or information necessary for the claimant to perfect his claims and an explanation of why such material or information is necessary, all written in a manner calculated to be understood by the claimant. Such notice shall include appropriate information as to the steps to be taken if the claimant wishes to submit his claim for review. The claimant or the claimant's authorized representative may request such review within the reasonable period of time prescribed by the Committee. In no event shall such a period of time be less than 60 days. A decision on review shall be made not later than 60 days after the Committee's receipt of the request for review. If special circumstances require a further extension of time for processing, a decision shall be rendered not later than 120 days following the Committee's receipt of the request for review. If such an extension of time for review is required, written notice of the extension shall be furnished to the claimant prior to the commencement of the extension. The decision on review shall be furnished to the claimant. Such decision shall be in writing and shall include specific reasons for the decision, written in a manner calculated to be understood by the claimant, as well as specific references to the pertinent Plan provisions on which the decision is based. 9.05 Disposition of Unclaimed Distributions Each Participant must file with the Company from time to time in writing his post office address and each change of post office address. Any communication, statement or notice addressed to a Participant at his last post office address on file with the Company, or if no address is filed with the Company, then at his last post office address as shown on the Company's records, will be binding on the Participant and his spouse for all purposes of the Plan. The Company shall not be required to search for or locate a Participant or his spouse. 18 22 9.06 Distributions Due Infants or Incompetents If any person entitled to a distribution under the Plan is an infant, or if the Committee determines that any such person is incompetent by reason of physical or mental disability, whether or not legally adjudicated an incompetent, the Committee shall have the power to cause the distributions becoming due to such person to be made to another for his or her benefit, without responsibility of the Committee to see to the application of such distributions. Distributions made pursuant to such power shall operate as a complete discharge of the Company, the Trustee, if any, and the Committee. 9.07 Use and Form of Words When any words are used herein in the masculine gender, they shall be construed as though they were also used in the feminine gender in all cases where they would so apply, and vice versa. Whenever any words are used herein in the singular form, they shall be construed as though they were also used in the plural form in all cases where they would so apply, and vice versa. 9.08 Headings Headings of Articles and Sections are inserted solely for convenience and reference, and constitute no part of the Plan. 9.09 Governing Law The Plan shall be governed by and construed in accordance with the laws of the State of Colorado, without regard to its conflicts of laws principles. APACHE CORPORATION By: /s/ Raymond Plank ---------------------------------------------- Raymond Plank Title: Chairman of the Board ------------------------------------------- Date: November 16, 1989 -------------------------------------------- 19 EX-10.16 11 1ST AMEND. TO NON-QUALIFIED RETIREMENT/SAVINGS PLA 1 EXHIBIT 10.16 FIRST AMENDMENT TO NON-QUALIFIED RETIREMENT/SAVINGS PLAN OF APACHE CORPORATION RECITALS Effective as of November 16, 1989, Apache Corporation, a Delaware corporation, established the Non-Qualified Retirement/Savings Plan of Apache Corporation (the "Plan"). Under Section 8.02 of the Plan, Apache Corporation reserved the right and power to amend the Plan at any time and from time to time. Pursuant to that power, the Plan is hereby amended, effective as of the dates set forth below, as follows: AMENDMENTS 1. Effective as of January 1, 1995, the second sentence of the Preamble on page 1 shall be replaced in its entirety by the following: "The Company previously established the Apache Corporation Retirement/401(k) Savings Plan which was known as the Apache Corporation 401(k) Retirement/Savings Plan until January 1, 1995 (the "Retirement/Savings Plan")." 2. Effective as of November 16, 1989, Section 1.04 shall be replaced in its entirety by the following: "1.04 Company Deferrals "Company Deferrals" means the allocations to a Participant's Account made pursuant to Section 3.02." 3. Effective as of November 16, 1989 (except for Section 1.05(b)(ix)), Section 1.05 shall be replaced in its entirety by the following: "1.05 Compensation. "Compensation" shall generally mean regular compensation paid by the Company. (a) Specifically, Compensation shall include: (i) regular salary or wages, (ii) overtime pay, (iii) bonuses, 1 2 (iv) salary reductions pursuant to the Retirement/Savings Plan, (v) salary reductions that are excludable from an Employee's gross income pursuant to Code section 125, and (vi) amounts contributed as salary deferrals to this Plan. (b) Compensation shall exclude: (i) commissions, (ii) severance pay, (iii) moving expenses, (iv) any gross-up of moving expenses to account for increased income taxes, (v) foreign service premiums paid as an inducement to work outside of the United States, (vi) Company contributions under the Retirement/Savings Plan, (vii) other contingent compensation, (viii) contributions to any other fringe benefit plan (including, but not limited to, overriding royalty payments or any other exploration-related payments), and (ix) effective January 1, 1991, bonuses paid as an inducement to enter the employment of the Company. Compensation shall include only amounts actually paid to the Participant during that portion of a Plan Year while the Participant is eligible to participate in this Plan." 4. Effective as of November 16, 1989, Section 3.01(b) shall be replaced in its entirety by the following: "(b) The amount of a Participant's Deferred Contributions made pursuant to the Plan shall equal the amount of Participant Before-Tax Contributions that would have been credited to the Participant's Before-Tax Contributions Account pursuant to Section 3.2 of the Retirement/Savings Plan but could not be so credited due to restrictions imposed by the Code, including without limitation restrictions under Section 401(a)(17), 401(k)(3), 401(m), 402(g), 2 3 and 415(c). The amount of a Participant's Deferred Contribution shall be determined by reference to the Participant's elected Before-Tax Contribution percentage under the Retirement/Savings Plan as of the first day of the Plan Year or, if the Participant was not eligible to participate in this Plan on such date, as of the first day on which the Participant is eligible to participate in this Plan, without regard to any change in the Participant's Before-Tax Contribution percentage under the Retirement/Savings Plan which subsequently becomes effective in such Plan Year. An election to participate in this Plan for any Plan Year shall be irrevocable; provided, however, that a Participant's Deferred Contributions shall be suspended as specified in Section 5.04 following a hardship withdrawal from this Plan and shall also be suspended, for the number of months required by Section 7.1 of the Retirement/Savings Plan, following a hardship withdrawal from that plan. Notwithstanding anything herein to the contrary, a Participant shall not be permitted to defer compensation which is earned or payable prior to the execution and delivery of the Participant's enrollment agreement." 5. Effective as of November 16, 1989, Section 3.02 shall be amended by changing both occurrences of "Section 3.03 of the Retirement/Savings Plan" to "Section 3.1 of the Retirement/Savings Plan." 6. Effective as of July 1, 1992, the following new subsection shall be added to the end of Section 5.01: "(f) All Participants in the Plan who are employed by the Company on July 1, 1992 shall become 100% vested with respect to all Company Deferrals made to the Plan prior to or as of July 1, 1992. If a Participant was not previously 100% vested, then the amount that becomes 100% vested pursuant to this subsection shall be allocated to a special account and a new account shall be established for all Company Deferrals made with respect to such Participant subsequent to July 1, 1992. At such time as any such Participant becomes 100% vested in accordance with the rules of subsection (d) above, the Participant's two separate accounts shall be merged into one account." 7. Effective as of January 1, 1992, Section 5.04(f) shall be replaced in its entirety by the following: "(f) The Participant's deferrals shall be suspended for six (6) months following the date of his hardship withdrawal from this Plan. If a Participant makes a hardship withdrawal from this Plan and also makes a hardship withdrawal from the Retirement/Savings Plan, the suspension period under this Plan shall run concurrently with the suspension period under the Retirement/Savings Plan, if any, and the suspension period under this Plan shall be the longer of the suspension period provided under the Retirement/Savings Plan or the 6-month suspension provided by this Plan." 3 4 8. Effective as of January 1, 1992, the first sentence of Section 6.02 shall be replaced by the following: "The Committee shall administer the Plan and shall have all discretion and powers necessary for that purpose, including, but not by way of limitation, full discretion and power to interpret the Plan, to determine the eligibility, status and rights of all persons under the Plan and, in general, to decide any dispute." 9. Effective as of the date this amendment is executed, the following paragraph shall be added to the end of Section 8.02: "Each amendment shall be in writing. Each amendment shall be approved by Apache Corporation's board of directors or by an officer of Apache Corporation who is authorized by Apache Corporation's board of directors to amend the Plan. Each amendment shall be executed by an officer of Apache Corporation to whom Apache Corporation's board of directors has delegated the authority to execute the amendment." 10. Effective as of the date this amendment is executed, Section 9.09 shall be replaced in its entirety by the following: "9.09 Governing Law. The Plan shall be construed in accordance with ERISA, the Code, and, to the extent applicable, the laws of the State of Texas, excluding any conflicts-of-law provisions." IN WITNESS WHEREOF, this First Amendment has been executed this 24th day of October, 1995. APACHE CORPORATION /s/ Roger B. Rice --------------------------------------------------- Roger B. Rice Vice President, Human Resources and Administration 4 EX-10.19 12 1990 STOCK INCENTIVE PLAN 1 EXHIBIT 10.19 APACHE CORPORATION 1990 STOCK INCENTIVE PLAN (AS AMENDED AND RESTATED FEBRUARY 9, 1996) 2 TABLE OF CONTENTS
PAGE ---- Section 1 - Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1 1.1 Establishment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1 1.2 Purposes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1 1.3 Effective Date . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1 Section 2 - Definitions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1 2.1 Definitions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1 2.2 Gender and Number . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2 Section 3 - Plan Administration . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3 Section 4 - Stock Subject to the Plan . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3 4.1 Number of Shares . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3 4.2 Other Shares of Stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3 4.3 Adjustments for Stock Split, Stock Dividend, Etc . . . . . . . . . . . . . . . . . 4 4.4 Dividend Payable in Stock of Another Corporation, Etc . . . . . . . . . . . . . . 4 4.5 Other Changes in Stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4 4.6 Rights to Subscribe . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4 4.7 General Adjustment Rules . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5 4.8 Determination by the Committee, Etc . . . . . . . . . . . . . . . . . . . . . . . 5 Section 5 - Reorganization or Liquidation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5 Section 6 - Participation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6 Section 7 - Stock Options . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6 7.1 Grant of Stock Options . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6 7.2 Stock Option Agreements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6 7.3 Shareholder Privileges . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11 Section 8 - Change in Control . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11 8.1 In General . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11 8.2 Limitation on Payments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
-i- 3 8.3 Definition . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11 Section 9 - Rights of Employees; Participants . . . . . . . . . . . . . . . . . . . . . . . . . . 12 9.1 Employment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12 9.2 Nontransferability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12 Section 10 - General Restrictions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12 10.1 Investment Representations . . . . . . . . . . . . . . . . . . . . . . . . . . . 12 10.2 Compliance with Securities Laws . . . . . . . . . . . . . . . . . . . . . . . . 13 Section 11 - Other Employee Benefits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13 Section 12 - Plan Amendment, Modification and Termination . . . . . . . . . . . . . . . . . . . . 13 Section 13 - Withholding . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13 13.1 Withholding Requirement . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13 13.2 Withholding With Stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14 Section 14 - Requirements of Law . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14 14.1 Requirements of Law . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14 14.2 Federal Securities Law Requirements . . . . . . . . . . . . . . . . . . . . . . 14 14.3 Governing Law . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14 Section 15 - Duration of the Plan . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
-ii- 4 APACHE CORPORATION 1990 STOCK INCENTIVE PLAN SECTION 1 INTRODUCTION 1.1 Establishment. Apache Corporation, a Delaware corporation (hereinafter referred to, together with its Affiliated Corporations (as defined in subsection 2.1(a)) as the "Company" except where the context otherwise requires), hereby establishes the Apache Corporation 1990 Stock Incentive Plan (the "Plan") for certain key employees of the Company. The Plan permits the grant of stock options to certain key employees of the Company. 1.2 Purposes. The purposes of the Plan are to provide the key management employees selected for participation in the Plan with added incentives to continue in the long-term service of the Company and to create in such employees a more direct interest in the future success of the operations of the Company by relating incentive compensation to increases in shareholder value, so that the income of the key management employees is more closely aligned with the income of the Company's shareholders. The Plan is also designed to attract key employees and to retain and motivate participating employees by providing an opportunity for investment in the Company. 1.3 Effective Date. The Effective Date of the Plan (the "Effective Date") shall be September 19, 1990. This Plan and each option granted hereunder is conditioned on and shall be of no force or effect until approval of the Plan by the holders of the shares of voting stock of the Company unless the Company, on the advice of counsel, determines that shareholder approval is not necessary. SECTION 2 DEFINITIONS 2.1 Definitions. The following terms shall have the meanings set forth below: (a) "Affiliated Corporation" means any corporation or other entity (including but not limited to a partnership) which is affiliated with Apache Corporation through stock ownership or otherwise and is treated as a common employer under the provisions of Sections 414(b) and (c) of the Internal Revenue Code. -1- 5 (b) "Board" means the Board of Directors of the Company. (c) "Committee" means a committee consisting of members of the Board who are empowered hereunder to take actions in the administration of the Plan. The Committee shall be constituted at all times as to permit the Plan to comply with Rule 16b-3 or any successor rule promulgated under the Securities Exchange Act of 1934 (the "1934 Act"). Members of the Committee shall be appointed from time to time by the Board, shall serve at the pleasure of the Board and may resign at any time upon written notice to the Board. (d) "Effective Date" means the effective date of the Plan, September 19, 1990. (e) "Eligible Employees" means those full-time key employees (including, without limitation, officers and directors who are also employees) of the Company or any division thereof, upon whose judgment, initiative and efforts the Company is, or will become, largely dependent for the successful conduct of its business. (f) "Fair Market Value" means the closing price of the Stock on the composite tape on a particular date. If there are no Stock transactions on such date, the Fair Market Value shall be determined as of the immediately preceding date on which there were Stock transactions. (g) "Internal Revenue Code" means the Internal Revenue Code of 1986, as it may be amended from time to time. (h) "Option" means a right to purchase Stock at a stated price for a specified period of time. All Options granted under the Plan shall be Options which are not "incentive stock options" as described in Section 422A of the Internal Revenue Code. (i) "Option Price" means the price at which shares of Stock subject to an Option may be purchased, determined in accordance with subsection 7.2(b). (j) "Participant" means an Eligible Employee designated by the Committee from time to time during the term of the Plan to receive one or more Options under the Plan. (k) "Stock" means the $1.25 par value Common Stock of the Company. 2.2 Gender and Number. Except when otherwise indicated by the context, the masculine gender shall also include the feminine gender, and the definition of any term herein in the singular shall also include the plural. -2- 6 SECTION 3 PLAN ADMINISTRATION The Plan shall also be administered by the Committee. In accordance with the provisions of the Plan, the Committee shall, in its sole discretion, select the Participants from among the Eligible Employees, determine the Options to be granted pursuant to the Plan, the number of shares of Stock to be issued thereunder and the time at which such Options are to be granted, fix the Option Price, and establish such other terms and requirements as the Committee may deem necessary or desirable and consistent with the terms of the Plan. The Committee shall determine the form or forms of the agreements with Participants which shall evidence the particular provisions, terms, conditions, rights and duties of the Company and the Participants with respect to Options granted pursuant to the Plan, which provisions need not be identical except as may be provided herein. The Committee may from time to time adopt such rules and regulations for carrying out the purposes of the Plan as it may deem proper and in the best interests of the Company. The Committee may correct any defect, supply any omission or reconcile any inconsistency in the Plan or in any agreement entered into hereunder in the manner and to the extent it shall deem expedient and it shall be the sole and final judge of such expediency. No member of the Committee shall be liable for any action or determination made in good faith. The determination, interpretations and other actions of the committee pursuant to the provisions of the Plan shall be binding and conclusive for all purposes and on all persons. SECTION 4 STOCK SUBJECT TO THE PLAN 4.1 Number of Shares. Two Million Fifty Thousand (2,050,000) shares of Stock are authorized for issuance under the Plan in accordance with the provisions of the Plan and subject to such restrictions or other provisions as the Committee may from time to time deem necessary. This authorization may be increased from time to time by approval of the Board and by the shareholders of the Company if, in the opinion of counsel for the Company, such shareholder approval is required. Shares of Stock which may be issued upon exercise of Options shall be applied to reduce the maximum number of shares of Stock remaining available for use under the Plan. The Company shall at all times during the term of the Plan and while any Options are outstanding retain as authorized and unissued Stock, or as treasury Stock, at least the number of shares from time to time required under the provisions of the Plan, or otherwise assure itself of its ability to perform its obligations hereunder. 4.2 Other Shares of Stock. Any shares of Stock that are subject to an Option which expires or for any reason is terminated unexercised, and any shares of Stock that for any -3- 7 other reason are not issued to an Eligible Employee or are forfeited shall automatically become available for use under the Plan. 4.3 Adjustments for Stock Split, Stock Dividend, Etc. If the Company shall at any time increase or decrease the number of its outstanding shares of Stock or change in any way the rights and privileges of such shares by means of the payment of a stock dividend or any other distribution upon such shares payable in Stock, or through a stock split, subdivision, consolidation, combination, reclassification or recapitalization involving the Stock, then in relation to the Stock that is affected by one or more of the above events, the numbers, rights and privileges of the following shall be increased, decreased or changed in like manner as if they had been issued and outstanding, fully paid in nonassessable at the time of such occurrence: (i) the shares of Stock as to which Options may be granted under the Plan; and (ii) the shares of the Stock then included in each outstanding Option granted hereunder. 4.4 Dividend Payable in Stock of Another Corporation, Etc. If the Company shall at any time pay or make any dividend or other distribution upon the Stock payable in securities or other property (except money or Stock), a proportionate part of such securities or other property shall be set aside and delivered to any Participant then holding an Option for the particular type of Stock for which the dividend or other distribution was made, upon exercise thereof. Prior to the time that any such securities or other property are delivered to a Participant in accordance with the foregoing, the Company shall be the owner of such securities or other property and shall have the right to vote the securities, receive any dividends payable on such securities, and in all other respects shall be treated as the owner. If securities or other property which have been set aside by the Company in accordance with this Section are not delivered to a Participant because an Option is not exercised, then such securities or other property shall remain the property of the Company and shall be dealt with by the Company as it shall determine in its sole discretion. 4.5 Other Changes in Stock. In the event there shall be any change, other than as specified in Sections 4.3 and 4.4, in the number or kind of outstanding shares of Stock or of any stock or other securities into which the Stock shall be changed or for which it shall have been exchanged, and if the Committee shall in its discretion determine that such change equitably requires an adjustment in the number or kind of shares subject to outstanding Options or which have been reserved for issuance pursuant to the Plan but are not then subject to an Option, then such adjustments shall be made by the Committee and shall be effective for all purposes of the Plan and on each outstanding Option that involves the particular type of stock for which a change was effected. 4.6 Rights to Subscribe. If the Company shall at any time grant to the holders of its Stock rights to subscribe pro rata for additional shares thereof or for any other securities of the Company or of any other corporation, there shall be reserved with respect to the -4- 8 shares then under Option to any Participant of the particular class of Stock involved the Stock or other securities which the Participant would have been entitled to subscribe for if immediately prior to such grant the Participant had exercised his entire Option. If, upon exercise of any such Option, the Participant subscribes for the additional shares of other securities, the Option Price shall be increased by the amount of the price that is payable by the Participant for such Stock or other securities. 4.7 General Adjustment Rules. No adjustment or substitution provided for in this Section 4 shall require the Company to sell a fractional share of Stock under any Option, or otherwise issue a fractional share of Stock, and the total substitution or adjustment with respect to each Option shall be limited by deleting any fractional share. In the case of any such substitution or adjustment, the total Option Price for the shares of Stock then subject to the Option shall remain unchanged but the Option Price per share under each such Option shall be equitably adjusted by the Committee to reflect the greater or lesser number of shares of Stock or other securities into which the Stock subject to the Option may have been changed. 4.8 Determination by the Committee, Etc. Adjustments under this Section 4 shall be made by the Committee, whose determinations with regard thereto shall be final and binding upon all parties thereto. SECTION 5 REORGANIZATION OR LIQUIDATION In the event that the Company is merged or consolidated with another corporation and the Company is not the surviving corporation, or if all or substantially all of the assets or more than 20% of the outstanding voting stock of the Company is acquired by any other corporation, business entity or person, or in case of a reorganization (other than a reorganization under the United States Bankruptcy Code) or liquidation of the Company, and if the provisions of Section 9 do not apply, the Committee, or the board of directors of any corporation assuming the obligations of the Company, shall, as to the Plan and outstanding Options either (i) make appropriate provision for the adoption and continuation of the Plan by the acquiring or successor corporation and for the protection of any such outstanding Options by the substitution on an equitable basis of appropriate stock of the Company or of the merged, consolidated or otherwise reorganized corporation which will be issuable with respect to the Stock, provided that no additional benefits shall be conferred upon the Participants holding such Options as a result of such substitution, and the excess of the aggregate Fair Market Value of the shares subject to the Options immediately after such substitution over the Option Price thereof is not more than the excess of the aggregate Fair Market Value of the shares subject to such Options immediately before such substitution over the Option Price thereof, or (ii) upon written -5- 9 notice to the Participants, provide that all unexercised Options must be exercised within a specified number of days of the date of such notice or they will be terminated. In the latter event, the Committee shall accelerate the exercise dates of outstanding Options so that all Options become fully vested prior to any such event. SECTION 6 PARTICIPATION Participants in the Plan shall be those Eligible Employees who, in the judgment of the Committee, are performing, or during the term of their incentive arrangement will perform, vital services in the management, operation and development of the Company or an Affiliated Corporation, and significantly contribute, or are expected to significantly contribute, to the achievement of long-term corporate economic objectives. Participants may be granted from time to time one or more Options; provided, however, that the grant of each such Option shall be separately approved by the Committee, and receipt of one such Option shall not result in automatic receipt of any other Option. Upon determination by the Committee that an Option is to be granted to a Participant, written notice shall be given to such person, specifying the terms, conditions, rights and duties related thereto. Each Participant shall, if required by the Committee, enter into an agreement with the Company, in such form as the Committee shall determine and which is consistent with the provisions of the Plan, specifying such terms, conditions, rights and duties. Options shall be deemed to be granted as of the date specified in the grant resolution of the Committee, which date shall be the date of any related agreement with the Participant. In the event of any inconsistency between the provisions of the Plan and any such agreement entered into hereunder, the provisions of the Plan shall govern. SECTION 7 STOCK OPTIONS 7.1 Grant of Stock Options. Coincident with or following designation for participation in the Plan, a Participant may be granted one or more Options. In no event shall the exercise of one Option affect the right to exercise any other Option or affect the number of shares of Stock for which any other Option may be exercised, except as provided in subsection 7.2(j). 7.2 Stock Option Agreements. Each Option granted under the Plan shall be evidenced by a written stock option agreement which shall be entered into by the Company and the Participant to whom the Option is granted (the "Option Holder"), and which shall contain the following terms and conditions, as well as such other terms and conditions, not inconsistent therewith, as the Committee may consider appropriate in each case. -6- 10 (a) Number of Shares. Each stock option agreement shall state that it covers a specified number of shares of the Stock, as determined by the Committee. (b) Price. The price at which each share of Stock covered by an Option may be purchased shall be determined in each case by the Committee and set forth in the stock option agreement, but in no event shall the price be less than the Fair Market Value of the Stock on the date the Option is granted. (c) Duration of Options; Employment Required For Exercise. Each stock option agreement shall state the period of time, determined by the Committee, within which the Option may be exercised by the Option Holder (the "Option Period"). The Option Period must end, in all cases, not more than ten years from the date an Option is granted. Except as otherwise provided in Sections 5 and 8 and subsection 7.2(d)(iv) hereof, each Option granted under the Plan shall become exercisable in increments such that 25% of the Option will become exercisable on each of the four subsequent one- year anniversaries of the date the Option is granted, but each such additional 25% increment shall become exercisable only if the Option Holder has been continuously employed by the Company from the date the Option is granted through the date on which each such additional 25% increment becomes exercisable. (d) Termination of Employment, Death, Disability, Etc. Each stock option agreement shall provide as follows with respect to the exercise of the Option upon termination of the employment or the death of the Option Holder: (i) If the employment of the Option Holder is terminated within the Option Period for cause, as determined by the Company, the Option shall thereafter be void for all purposes. As used in this subsection 7.2(d), "cause" shall mean a gross violation, as determined by the Company, of the Company's established policies and procedures, provided that the effect of this subsection 7.2(d) (i) shall be limited to determining the consequences of a termination and that nothing in this subsection 7.2(d) (i) shall restrict or otherwise interfere with the Company's discretion with respect to the termination of any employee. (ii) If the Option Holder retires from employment by the Company or its affiliates on or after attaining age 65, the Option may be exercised by the Option Holder within 36 months following his or her retirement (provided that such exercise must occur within the Option Period), but not thereafter. In the event of the Option Holder's death during such 36-month period, each Option may be exercised by those entitled to do so in the manner referred to in (iv) below. In any such case, the Option may be exercised only as to the shares as to which the Option had become exercisable on or before the date of the Option Holder's retirement. -7- 11 (iii) If the Option Holder becomes disabled (as determined pursuant to the Company's Long-Term Disability Plan), during the Option Period while still employed, or within the three-month period referred to in (v) below, or within the 36-month period referred to in (ii) above, the Option may be exercised by the Option Holder or by his or her guardian or legal representative, within twelve months following the Option Holder's disability, or within the 36-month period referred to in (ii) if applicable and if longer (provided that such exercise must occur within the Option Period), but not thereafter. In the event of the Option Holder's death during such twelve-month period, each Option may be exercised by those entitled to do so in the manner referred to in (iv) below. In any such case, the Option may be exercised only as to the shares as to which the Option had become exercisable on or before the date of the Option Holder's disability. (iv) In the event of the Option Holder's death while still employed by the Company, each Option of the deceased Option Holder may be exercised by those entitled to do so under the Option Holder's will or under the laws of descent and distribution within twelve months following the Option Holder's death (provided that in any event such exercise must occur within the Option Period), but not thereafter, as to all shares of Stock which are subject to such Option, including each 25% increment of the Option, if any, which has not yet become exercisable at the time of the Option Holder's death. In the event of the Option Holder's death within the 36-month period referred to in (ii) above or within the twelve-month period referred to in (iii) above, each Option of the deceased Option Holder that is exercisable at the time of death may be exercised by those entitled to do so under the Option Holder's will or under the laws of descent and distribution within twelve months following the Option Holder's death or within the 36-month period referred to in (ii), if applicable and if longer (provided that in any event such exercise must occur within the Option Period). The provisions of this paragraph (iv) of subsection 7.2(d) shall be applicable to each Stock Option Agreement as if set forth therein word for word. Each Stock Option Agreement executed by the Company prior to the adoption of this provision shall be deemed amended to include the provisions of this paragraph and all Options granted pursuant to such Stock Option Agreements shall be exercisable as provided herein. (v) If the employment of the Option Holder by the Company is terminated (which for this purpose means that the Option Holder is no longer employed by the Company or by an Affiliated Corporation) within the Option Period for any reason other than cause, retirement on or after attaining age 65, disability or the Option Holder's death, the Option may be exercised by the Option Holder within three months following the date of such termination (provided that such exercise must occur within the Option Period), but not thereafter. In any such case, the Option may be exercised only as to the shares as to which the Option had become exercisable on or before the date of termination of employment. -8- 12 (e) Transferability. Each stock option agreement shall provide that the Option granted therein is not transferable by the Option Holder except by will or pursuant to the laws of descent and distribution, and that such Option is exercisable during the Option Holder's lifetime only by him or her, or in the event of disability or incapacity, by his or her guardian or legal representative. (f) Agreement to Continue in Employment. Each stock option agreement shall contain the Option Holder's agreement to remain in the employment of the Company, at the pleasure of the Company, for a continuous period of at least one year after the date of such stock option agreement, at the salary rate in effect on the date of such agreement or at such changed rate as may be fixed, from time to time, by the Company. (g) Exercise, Payments, Etc. (i) Each stock option agreement shall provide that the method for exercising the Option granted therein shall be by delivery to the Corporate Secretary of the Company of written notice specifying the number of shares with respect to which such Option is exercised and payment of the Option Price. Such notice shall be in a form satisfactory to the Committee and shall specify the particular Option (or portion thereof) which is being exercised and the number of shares with respect to which the Option is being exercised. The exercise of the Stock Option shall be deemed effective upon receipt of such notice by the Corporate Secretary and payment to the Company. If requested by the Company, such notice shall contain the Option Holder's representation that he or she is purchasing the Stock for investment purposes only and his or her agreement not to sell any stock so purchased in any manner that is in violation of the Securities Act of 1933, as amended, or any applicable state law. Such restriction, or notice thereof, shall be placed on the certificates representing the Stock so purchased. The purchase of such Stock shall take place at the principal offices of the Company upon delivery of such notice, at which time the purchase price of the Stock shall be paid in full by any of the methods or any combination of the methods set forth in (ii) below. A properly executed certificate or certificates representing the Stock shall be issued by the Company and delivered to the Option Holder. If certificates representing Stock are used to pay all or part of the exercise price, separate certificates for the same number of shares of Stock shall be issued by the Company and delivered to the Option Holder representing each certificate used to pay the Option Price, and an additional certificate shall be issued by the Company and delivered to the Option Holder representing the additional shares, in excess of the Option Price, to which the Option Holder is entitled as a result of the exercise of the Option. -9- 13 (ii) the exercise price shall be paid by any of the following methods or any combination of the following methods: (A) in cash; (B) by certified or cashier's check payable to the order of the Company; (C) by delivery to the Company of certificates representing the number of shares then owned by the Option Holder, the Fair Market Value of which equals the purchase price of the Stock purchased pursuant to the Option, properly endorsed for transfer to the Company; provided however, that shares of Stock used for this purpose must have been held by the Option Holder for such minimum period of time as may be established from time to time by the Committee; for purposes of this Plan, the Fair Market Value of any shares of Stock delivered in payment of the purchase price upon exercise of the Option shall be the Fair Market Value as of the exercise date; the exercise date shall be the day of delivery of the certificates for the Stock used as payment of the Option Price; or (D) by delivery to the Company of a properly executed notice of exercise together with irrevocable instructions to a broker to deliver to the Company promptly the amount of the proceeds of the sale of all or a portion of the Stock or of a loan from the broker to the Option Holder necessary to pay the exercise price. (h) Date of Grant. An option shall be considered as having been granted on the date specified in the grant resolution of the Committee. (i) Withholding. Each stock option agreement shall provide that, upon exercise of the Option, the Option Holder shall make appropriate arrangements with the Company to provide for the Amount of additional withholding required by Sections 3102 and 3402 of the Internal Revenue Code and applicable state income tax laws, including payment of such taxes through delivery of shares of Stock or by withholding Stock to be issued under the Option, as provided in Section 13. (j) Adjustment of Options. Subject to the limitations contained in Sections 7 and 12, the Committee may make any adjustment in the exercise price, the number of shares subject to, or the terms of an outstanding Option and a subsequent granting of an Option by amendment or by substitution of an outstanding Option. Such amendment, substitution, or regrant may result in terms and conditions (including exercise price, number of shares covered, vesting schedule or exercise period) that differ from the terms and conditions of the original Option. The Committee may not, however, adversely affect the rights of any Participant to previously granted Options without the consent of such -10- 14 Participant. If such action is effected by amendment, the effective date of such amendment will be the date of the original grant. 7.3 Shareholder Privileges. No Option Holder shall have any rights as a shareholder with respect to any shares of Stock covered by an Option until the Option Holder becomes the holder of record of such Stock, and no adjustments shall be made for dividends or other distributions or other rights as to which there is a record date preceding the date such Option Holder becomes the holder of record of such Stock, except as provided in Section 4. SECTION 8 CHANGE IN CONTROL 8.1 In General. In the event of a change in control of the Company as defined in Section 8.3, then the Committee may, in its sole discretion, without obtaining shareholder approval, to the extent permitted in Section 12, take any or all of the following actions: (a) accelerate the exercise dates of any outstanding Options or make all such Options fully vested and exercisable; (b) grant a cash bonus award to any Option Holder in an amount necessary to pay the exercise price of all or any portion of the Options then held by such Option Holder; (c) pay cash to any or all Option Holders in exchange for the cancellation of their outstanding Options in an amount equal to the difference between the exercise price of such Options and the greater of the tender offer price for the underlying Stock or the Fair Market Value of the Stock on the date of the cancellation of the Options; and (d) make any other adjustments or amendments to the outstanding Options. 8.2 Limitation on Payments. If the provisions of this Section 8 would result in the receipt by any Participant of a payment within the meaning of Section 280G of the Internal Revenue Code and the regulations promulgated thereunder and if the receipt of such payment by any Participant would, in the opinion of independent tax counsel of recognized standing selected by the Company, result in the payment by such Participant of any excise tax provided for in Sections 280G and 4999 of the Internal Revenue Code, then the amount of such payment shall be reduced to the extent required, in the opinion of independent tax counsel, to prevent the imposition of such excise tax; provided, however, that the Committee, in its sole discretion, may authorize the payment of all or any portion of the amount of such reduction to the Participant. 8.3 Definition. For purposes of the Plan, a "change in control" shall mean any of the events specified in the Company's Income Continuance Plan which constitute a change in control within the meaning of that Plan. -11- 15 SECTION 9 RIGHTS OF EMPLOYEES, PARTICIPANTS 9.1 Employment. Nothing contained in the Plan or in any Option granted under the Plan shall confer upon any Participant any right with respect to the continuation of his or her employment by the Company or any Affiliated Corporation, or interfere in any way with the right of the Company or any Affiliated Corporation, subject to the terms of any separate employment agreement to the contrary, at any time to terminate such employment or to increase or decrease the compensation of the Participant from the rate in existence at the time of the grant of an Option. Whether an authorized leave of absence, or absence in military or government service, shall constitute a termination of employment shall be determined by the Committee at the time. 9.2 Nontransferability. No right or interest of any Participant in an Option granted pursuant to the Plan shall be assignable or transferable during the lifetime of the Participant, either voluntarily or involuntarily, or subjected to any lien, directly or indirectly, by operation of law, or otherwise, including execution, levy, garnishment, attachment, pledge or bankruptcy. In the event of a Participant's death, a Participant's rights and interests in Options shall, to the extent provided in Section 7, be transferable by testamentary will or the laws of descent and distribution, and payment of any amounts due under the Plan shall be made to, and exercise of any Options may be made by, the Participant's legal representatives, heirs or legatees. If in the opinion of the Committee a person entitled to payments or to exercise rights with respect to the Plan is disabled from caring for his affairs because of mental condition, physical condition or age, payment due such person may be made to, and such rights shall be exercised by, such person's guardian, conservator or other legal personal representative upon furnishing the Committee with evidence satisfactory to the Committee of such status. SECTION 10 GENERAL RESTRICTIONS 10.1 Investment Representations. The Company may require any person to whom an Option is granted, as a condition of exercising such Option, to give written assurances in substance and form satisfactory to the Company and its counsel to the effect that such person is acquiring the Stock subject to the Option for his own account for investment and not with any present intention of selling or otherwise distributing the same, and to such other effects as the Company deems necessary or appropriate in order to comply with Federal and applicable state securities laws. -12- 16 10.2 Compliance with Securities Laws. Each Option shall be subject to the requirement that, if at any time counsel to the Company shall determine that the listing, registration or qualification of the shares subject to such Option upon any securities exchange or under any state or federal law, or the consent or approval of any governmental or regulatory body, is necessary as a condition of, or in connection with, the issuance or purchase of shares thereunder, such Option may not be accepted or exercised in whole or in part unless such listing, registration, qualification, consent or approval shall have been effected or obtained on conditions acceptable to the Committee. Nothing herein shall be deemed to require the Company to apply for or to obtain such listing, registration or qualification. SECTION 11 OTHER EMPLOYEE BENEFITS The amount of any compensation deemed to be received by a Participant as a result of the exercise of an Option shall not constitute "earnings" with respect to which any other employee benefits of such employee are determined, including without limitation benefits under any pension, profit sharing, life insurance or salary continuation plan. SECTION 12 PLAN AMENDMENT, MODIFICATION AND TERMINATION The Board may at any time terminate, and from time to time may amend or modify the Plan provided, however, that no amendment or modification may become effective without approval of the amendment or modification by the shareholders if shareholder approval is required to enable the Plan to satisfy any applicable statutory or regulatory requirements, or if the Company, on the advice of counsel, determines that shareholder approval is otherwise necessary or desirable. No amendment, modification or termination of the Plan shall in any manner adversely affect any Options theretofore granted under the Plan, without the consent of the Participant holding such Options. SECTION 13 WITHHOLDING 13.1 Withholding Requirement. The Company's obligations to deliver shares of Stock upon the exercise of an Option shall be subject to the Participant's satisfaction of all applicable federal, state and local income and other tax withholding requirements. -13- 17 13.2 Withholding With Stock. At the time the Committee grants an Option, it may, in its sole discretion, grant the Participant an election to pay all such amounts of tax withholding, or any part thereof, by electing to transfer to the Company, or to have the Company withhold from shares otherwise issuable to the Participant, shares of Stock having a value equal to the amount required to be withheld or such lesser amount as may be elected by the Participant. All elections shall be subject to the approval or disapproval of the Committee. The value of shares of Stock to be withheld shall be based on the Fair Market Value of the Stock on the date that the amount of tax to be withheld is to be determined (the "Tax Date"). Any such elections by Participants to have shares of Stock withheld for this purpose will be subject to the following restrictions: (a) All elections must be made prior to the Tax Date. (b) All elections shall be irrevocable. (c) If the Participant is an officer or director of the Company within the meaning of Section 16 of the 1934 Act ("Section 16"), the Participant must satisfy the requirements of such Section 16 and any applicable Rules thereunder with respect to the use of Stock to satisfy such tax withholding obligation. SECTION 14 REQUIREMENTS OF LAW 14.1 Requirements of Law. The issuance of stock and the payment of cash pursuant to the Plan shall be subject to all applicable laws, rules and regulations. 14.2 Federal Securities Law Requirements. If a Participant is an officer or director of the Company within the meaning of Section 16, Options granted hereunder shall be subject to all conditions required under Rule 16b-3, or any successor rule promulgated under the 1934 Act, to qualify the Option for any exception from the provisions of Section 16(b) of the 1934 Act available under that Rule. Such conditions are hereby incorporated herein by reference and shall be set forth in the agreement with the Participant which describes the Option. 14.3 Governing Law. The Plan and all agreements hereunder shall be construed in accordance with and governed by the laws of the State of Colorado. -14- 18 SECTION 15 DURATION OF THE PLAN The Plan shall terminate at such time as may be determined by the Board of Directors, and no Option shall be granted after such termination. If not sooner terminated under the preceding sentence, the Plan shall fully cease and expire at midnight on September 18, 1995. Options outstanding at the time of the Plan termination may continue to be exercised in accordance with their terms. Dated: February 9, 1996 APACHE CORPORATION ATTEST: /s/ Cheri L. Peper By: /s/ Roger B. Rice - -------------------------- ------------------------ Cheri L. Peper Roger B. Rice Corporate Secretary Vice President -15- EX-10.20 13 1995 STOCK OPTION PLAN 1 EXHIBIT 10.20 APACHE CORPORATION 1995 STOCK OPTION PLAN (AS AMENDED AND RESTATED FEBRUARY 9, 1996) 2 TABLE OF CONTENTS
PAGE ---- Section 1 - Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1 1.1 Establishment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1 1.2 Purposes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1 1.3 Effective Date . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1 Section 2 - Definitions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1 2.1 Definitions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1 2.2 Headings; Gender and Number . . . . . . . . . . . . . . . . . . . . . . . . . . . 3 Section 3 - Plan Administration . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3 Section 4 - Stock Subject to the Plan . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4 4.1 Number of Shares . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4 4.2 Other Shares of Stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4 4.3 Adjustments for Stock Split, Stock Dividend, Etc. . . . . . . . . . . . . . . . . 4 4.4 Dividend Payable in Stock of Another Corporation, Etc. . . . . . . . . . . . . . . 4 4.5 Other Changes in Stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5 4.6 Rights to Subscribe . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5 4.7 General Adjustment Rules . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5 4.8 Determination by the Committee, Etc. . . . . . . . . . . . . . . . . . . . . . . . 5 Section 5 - Reorganization or Liquidation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6 Section 6 - Participation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6 Section 7 - Stock Options . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7 7.1 Grant of Stock Options . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7 7.2 Stock Option Agreements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7 7.3 Stockholder Privileges . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11 Section 8 - Change in Control . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12 8.1 In General . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12 8.2 Limitation on Payments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
i 3 8.3 Definition . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12 Section 9 - Rights of Employees; Participants . . . . . . . . . . . . . . . . . . . . . . . . . . 12 9.1 Employment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12 9.2 Nontransferability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13 Section 10 - General Restrictions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13 10.1 Investment Representations . . . . . . . . . . . . . . . . . . . . . . . . . . . 13 10.2 Compliance with Securities Laws . . . . . . . . . . . . . . . . . . . . . . . . 13 Section 11 - Other Employee Benefits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14 Section 12 - Plan Amendment, Modification and Termination . . . . . . . . . . . . . . . . . . . . 14 Section 13 - Withholding . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14 13.1 Withholding Requirement . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14 13.2 Withholding With Stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14 Section 14 - Requirements of Law . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15 14.1 Requirements of Law . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15 14.2 Federal Securities Laws Requirements . . . . . . . . . . . . . . . . . . . . . . 15 14.3 Governing Law . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15 Section 15 - Duration of the Plan . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
ii 4 APACHE CORPORATION 1995 STOCK OPTION PLAN SECTION 1 INTRODUCTION 1.1 Establishment. Apache Corporation, a Delaware corporation (hereinafter referred to, together with its Affiliated Corporations (as defined in Section 2.1 hereof) as the "Company" except where the context otherwise requires), hereby establishes the Apache Corporation 1995 Stock Option Plan (the "Plan") for certain key employees of the Company. The Plan permits the grant of stock options to certain key employees of the Company. 1.2 Purposes. The purposes of the Plan are to provide the key management employees selected for participation in the Plan with added incentives to continue in the long-term service of the Company and to create in such employees a more direct interest in the future success of the operations of the Company by relating incentive compensation to increases in stockholder value, so that the income of the key management employees is more closely aligned with the interests of the Company's stockholders. The Plan is also designed to attract key employees and to retain and motivate participating employees by providing an opportunity for investment in the Company. 1.3 Effective Date. The Effective Date of the Plan (the "Effective Date") shall be May 4, 1995. This Plan and each option granted hereunder is conditioned on and shall be of no force or effect until approval of the Plan by the holders of the shares of voting stock of the Company unless the Company, on the advice of counsel, determines that stockholder approval is not necessary. The Committee (as defined in Section 2.1 hereof) may grant options the exercise of which shall be expressly subject to the condition that the Plan shall have been approved by the stockholders of the Company. SECTION 2 DEFINITIONS 2.1 Definitions. The following terms shall have the meanings set forth below: (a) "Affiliated Corporation" means any corporation or other entity (including but not limited to a partnership) which is affiliated with Apache Corporation through 1 5 stock ownership or otherwise and is treated as a common employer under the provisions of Sections 414(b) and (c) or any successor section(s) of the Internal Revenue Code. (b) "Board" means the Board of Directors of the Company. (c) "Committee" means the Stock Option Plan Committee of the Board, which is empowered hereunder to take actions in the administration of the Plan. The Committee shall be constituted at all times as to permit the Plan to comply with: (i) Rule 16b-3 or any successor rule(s) promulgated under the Securities Exchange Act of 1934, as amended (the "1934 Act"), and (ii) Section 162(m) or any successor section(s) of the Internal Revenue Code and the regulations promulgated thereunder. (d) "Eligible Employees" means those full-time key employees (including, without limitation, officers and directors who are also employees) of the Company or any division thereof, upon whose judgment, initiative and efforts the Company is, or will become, largely dependent for the successful conduct of its business. (e) "Fair Market Value" means the closing price of the Stock as reported on the New York Stock Exchange, Inc. Composite Transactions Reporting System for a particular date. If there are no Stock transactions on such date, the Fair Market Value shall be determined as of the immediately preceding date on which there were Stock transactions. (f) "Internal Revenue Code" means the Internal Revenue Code of 1986, as it may be amended from time to time. (g) "Option" means a right to purchase Stock at a stated price for a specified period of time. All Options granted under the Plan shall be Options which are not "incentive stock options" as described in Section 422 or any successor section(s) of the Internal Revenue Code. (h) "Option Price" means the price at which shares of Stock subject to an Option may be purchased, determined in accordance with subsection 7.2(b) hereof. (i) "Participant" means an Eligible Employee designated by the Committee from time to time during the term of the Plan to receive one or more Options under the Plan. (j) "Stock" means the $1.25 par value Common Stock of the Company. 2 6 2.2 Headings; Gender and Number. The headings contained in the Plan are for reference purposes only and shall not affect in any way the meaning or interpretation of the Plan. Except when otherwise indicated by the context, the masculine gender shall also include the feminine gender, and the definition of any term herein in the singular shall also include the plural. SECTION 3 PLAN ADMINISTRATION The Plan shall be administered by the Committee. In accordance with the provisions of the Plan, the Committee shall, in its sole discretion, select the Participants from among the Eligible Employees, determine the Options to be granted pursuant to the Plan, the number of shares of Stock to be issued thereunder, the time at which such Options are to be granted, fix the Option Price, and establish such other terms and requirements as the Committee may deem necessary, or desirable and consistent with the terms of the Plan. The Committee shall determine the form or forms of the agreements with Participants which shall evidence the particular provisions, terms, conditions, rights and duties of the Company and the Participants with respect to Options granted pursuant to the Plan, which provisions need not be identical except as may be provided herein. The Committee may from time to time adopt such rules and regulations for carrying out the purposes of the Plan as it may deem proper and in the best interests of the Company. The Committee may correct any defect, supply any omission or reconcile any inconsistency in the Plan, or in any agreement entered into hereunder, in the manner and to the extent it shall deem expedient and it shall be the sole and final judge of such expediency. No member of the Committee shall be liable for any action or determination made in good faith. The determination, interpretations and other actions of the Committee pursuant to the provisions of the Plan shall be binding and conclusive for all purposes and on all persons. The Plan is intended to comply with the requirements of Section 162 or any successor section(s) of the Internal Revenue Code ("Section 162") as to any "covered employee" as defined in Section 162, and shall be administered, interpreted and construed consistently therewith. In accordance with this intent, the amount of compensation a Participant may receive from Options granted under the Plan shall be based solely on an increase in the value of the Stock after the date of the grant of the Option, or such other bases as may be permitted by applicable law. The Committee is authorized to take such additional action, if any, that may be required to ensure that the Plan satisfies the requirements of Section 162 and the regulations promulgated or revenue rulings published thereunder. 3 7 SECTION 4 STOCK SUBJECT TO THE PLAN 4.1 Number of Shares. Subject to Section 7.1 and to adjustment pursuant to Section 4.3 hereof, two million five hundred thousand (2,500,000) shares of Stock are authorized for issuance under the Plan in accordance with the provisions of the Plan and subject to such restrictions or other provisions as the Committee may from time to time deem necessary. This authorization may be increased from time to time by approval of the Board and the stockholders of the Company if, in the opinion of counsel for the Company, such stockholder approval is required. Shares of Stock which may be issued upon exercise of Options shall be applied to reduce the maximum number of shares of Stock remaining available for use under the Plan. The Company shall at all times during the term of the Plan and while any Options are outstanding retain as authorized and unissued Stock, or as Stock in the Company's treasury, at least the number of shares from time to time required under the provisions of the Plan, or otherwise assure itself of its ability to perform its obligations hereunder. 4.2 Other Shares of Stock. Any shares of Stock that are subject to an Option which expires, is forfeited, is cancelled, or for any reason is terminated unexercised, and any shares of Stock that for any other reason are not issued to a Participant or are forfeited shall automatically become available for use under the Plan. 4.3 Adjustments for Stock Split, Stock Dividend, Etc. If the Company shall at any time increase or decrease the number of its outstanding shares of Stock or change in any way the rights and privileges of such shares by means of the payment of a Stock dividend or any other distribution upon such shares payable in Stock, or through a Stock split, subdivision, consolidation, combination, reclassification or recapitalization involving the Stock, then in relation to the Stock that is affected by one or more of the above events, the numbers, rights and privileges of the following shall be increased, decreased or changed in like manner as if they had been issued and outstanding, fully paid and nonassessable at the time of such occurrence: (i) the shares of Stock as to which Options may be granted under the Plan; and (ii) the shares of the Stock then included in each outstanding Option granted hereunder. 4.4 Dividend Payable in Stock of Another Corporation, Etc. If the Company shall at any time pay or make any dividend or other distribution upon the Stock payable in securities or other property (except money or Stock), a proportionate part of such securities or other property shall be set aside and delivered to any Participant then holding an Option for the particular type of Stock for which the dividend or other distribution was made, upon exercise thereof. Prior to the time that any such securities or other property are delivered to a Participant in accordance with the foregoing, the Company shall be the 4 8 owner of such securities or other property and shall have the right to vote the securities, receive any dividends payable on such securities, and in all other respects shall be treated as the owner. If securities or other property which have been set aside by the Company in accordance with this Section are not delivered to a Participant because an Option is not exercised, then such securities or other property shall remain the property of the Company and shall be dealt with by the Company as it shall determine in its sole discretion. 4.5 Other Changes in Stock. In the event there shall be any change, other than as specified in Sections 4.3 and 4.4 hereof, in the number or kind of outstanding shares of Stock or of any stock or other securities into which the Stock shall be changed or for which it shall have been exchanged, and if the Committee shall in its discretion determine that such change equitably requires an adjustment in the number or kind of shares subject to outstanding Options or which have been reserved for issuance pursuant to the Plan but are not then subject to an Option, then such adjustments shall be made by the Committee and shall be effective for all purposes of the Plan and on each outstanding Option that involves the particular type of stock for which a change was effected. 4.6 Rights to Subscribe. If the Company shall at any time grant to the holders of its Stock rights to subscribe pro rata for additional shares thereof or for any other securities of the Company or of any other corporation, there shall be reserved with respect to the shares then under Option to any Participant of the particular class of Stock involved the Stock or other securities which the Participant would have been entitled to subscribe for if immediately prior to such grant the Participant had exercised his entire Option. If, upon exercise of any such Option, the Participant subscribes for the additional shares or other securities, the Option Price shall be increased by the amount of the price that is payable by the Participant for such additional shares or other securities. 4.7 General Adjustment Rules. No adjustment or substitution provided for in this Section 4 shall require the Company to sell a fractional share of Stock under any Option, or otherwise issue a fractional share of Stock, and the total substitution or adjustment with respect to each Option shall be limited by deleting any fractional share. In the case of any such substitution or adjustment, the total Option Price for the shares of Stock then subject to the Option shall remain unchanged but the Option Price per share under each such Option shall be equitably adjusted by the Committee to reflect the greater or lesser number of shares of Stock or other securities into which the Stock subject to the Option may have been changed. 4.8 Determination by the Committee, Etc. Adjustments under this Section 4 shall be made by the Committee, whose determinations with regard thereto shall be final and binding upon all parties thereto. 5 9 SECTION 5 REORGANIZATION OR LIQUIDATION In the event that the Company is merged or consolidated with another corporation and the Company is not the surviving corporation, or if all or substantially all of the assets or more than 20 percent of the outstanding voting stock of the Company is acquired by any other corporation, business entity or person, or in case of a reorganization (other than a reorganization under the United States Bankruptcy Code) or liquidation of the Company, and if the provisions of Section 8 hereof do not apply, the Committee, or the board of directors of any corporation assuming the obligations of the Company, shall, as to the Plan and outstanding Options either (i) make appropriate provision for the adoption and continuation of the Plan by the acquiring or successor corporation and for the protection of any such outstanding Options by the substitution on an equitable basis of appropriate stock of the Company or of the merged, consolidated or otherwise reorganized corporation which will be issuable with respect to the Stock, provided that no additional benefits shall be conferred upon the Participants holding such Options as a result of such substitution, and the excess of the aggregate Fair Market Value of the shares subject to the Options immediately after such substitution over the Option Price thereof is not more than the excess of the aggregate Fair Market Value of the shares subject to such Options immediately before such substitution over the Option Price thereof, or (ii) upon written notice to the Participants, provide that all unexercised Options shall be exercised within a specified number of days of the date of such notice or such Options will be terminated. In the latter event, the Committee shall accelerate the exercise dates of outstanding Options so that all Options become fully vested prior to any such event. SECTION 6 PARTICIPATION Participants in the Plan shall be those Eligible Employees who, in the judgment of the Committee, are performing, or during the term of their incentive arrangement will perform, vital services in the management, operation and development of the Company or an Affiliated Corporation, and significantly contribute, or are expected to significantly contribute, to the achievement of the Company's long-term corporate economic objectives. Participants may be granted from time to time one or more Options; provided, however, that the grant of each such Option shall be separately approved by the Committee, and receipt of one such Option shall not result in automatic receipt of any other Option. Upon determination by the Committee that an Option is to be granted to a Participant, written notice shall be given to such person, specifying the terms, conditions, rights and duties related thereto. Each Participant shall, if required by the Committee, enter into an agreement with the Company, in such form as the Committee shall 6 10 determine and which is consistent with the provisions of the Plan, specifying such terms, conditions, rights and duties. Options shall be deemed to be granted as of the date specified in the grant resolution of the Committee, which date shall be the date of any related agreement with the Participant. In the event of any inconsistency between the provisions of the Plan and any such agreement entered into hereunder, the provisions of the Plan shall govern. SECTION 7 STOCK OPTIONS 7.1 Grant of Stock Options. Coincident with or following designation for participation in the Plan, an Eligible Employee may be granted one or more Options. Grants of Options under the Plan shall be made by the Committee. In no event shall the exercise of one Option affect the right to exercise any other Option or affect the number of shares of Stock for which any other Option may be exercised, except as provided in subsection 7.2(j) hereof. During the life of the Plan, no Eligible Employee may be granted Options which in the aggregate pertain to in excess of 25 percent of the total shares of Stock authorized under the Plan. 7.2 Stock Option Agreements. Each Option granted under the Plan shall be evidenced by a written stock option agreement which shall be entered into by the Company and the Participant to whom the Option is granted (the "Stock Option Agreement"), and which shall contain the following terms and conditions, as well as such other terms and conditions, not inconsistent therewith, as the Committee may consider appropriate in each case. (a) Number of Shares. Each Stock Option Agreement shall state that it covers a specified number of shares of Stock, as determined by the Committee. (b) Price. The price at which each share of Stock covered by an Option may be purchased shall be determined in each case by the Committee and set forth in the Stock Option Agreement, but in no event shall the price be less than the Fair Market Value of the Stock on the date the Option is granted. (c) Duration of Options; Employment Required For Exercise. Each Stock Option Agreement shall state the period of time, determined by the Committee, within which the Option may be exercised by the Participant (the "Option Period"). The Option Period must end, in all cases, not more than ten years from the date an Option is granted. Except as otherwise provided in Sections 5 and 8 and subsection 7.2(d)(iv) hereof, each Option granted under the Plan shall become exercisable in increments such that 25 percent of the Option will become exercisable on each of the four subsequent one-year 7 11 anniversaries of the date the Option is granted, but each such additional 25-percent increment shall become exercisable only if the Participant has been continuously employed by the Company from the date the Option is granted through the date on which each such additional 25-percent increment becomes exercisable. (d) Termination of Employment, Death, Disability, Etc. Each Stock Option Agreement shall provide as follows with respect to the exercise of the Option upon termination of the employment or the death of the Participant: (i) If the employment of the Participant by the Company is terminated within the Option Period for cause, as determined by the Company, the Option shall thereafter be void for all purposes. As used in this subsection 7.2(d), "cause" shall mean a gross violation, as determined by the Company, of the Company's established policies and procedures, provided that the effect of this subsection 7.2(d) shall be limited to determining the consequences of a termination and that nothing in this subsection 7.2(d) shall restrict or otherwise interfere with the Company's discretion with respect to the termination of any employee. (ii) If the Participant retires from employment by the Company on or after attaining age 65, the Option may be exercised by the Participant within 36 months following his or her retirement (provided that such exercise must occur within the Option Period), but not thereafter. In the event of the Participant's death during such 36-month period, each Option may be exercised by those entitled to do so in the manner referred to in (iv) below. In any such case the Option may be exercised only as to the shares as to which the Option had become exercisable on or before the date of the Participant's retirement. (iii) If the Participant becomes disabled (as determined pursuant to the Company's Long-Term Disability Plan or any successor plan), during the Option Period while still employed, or within the three-month period referred to in (v) below, or within the 36-month period referred to in (ii) above, the Option may be exercised by the Participant or by his or her guardian or legal representative, within twelve months following the Participant's disability, or within the 36-month period referred to in (ii) if applicable and if longer (provided that such exercise must occur within the Option Period), but not thereafter. In the event of the Participant's death during such twelve- month period, each Option may be exercised by those entitled to do so in the manner referred to in (iv) below. In any such case, the Option may be exercised only as to the shares of Stock as to which the Option had become exercisable on or before the date of the Participant's disability. (iv) In the event of the Participant's death while still employed by the Company, each Option of the deceased Participant may be exercised by those entitled to 8 12 do so under the Participant's will or under the laws of descent and distribution within twelve months following the Participant's death (provided that in any event such exercise must occur within the Option Period), but not thereafter, as to all shares of Stock which are subject to such Option, including each 25-percent increment of the Option, if any, which has not yet become exercisable at the time of the Participant's death. In the event of the Participant's death within the 36-month period referred to in (ii) above or within the twelve-month period referred to in (iii) above, each Option of the deceased Participant that is exercisable at the time of death may be exercised by those entitled to do so under the Participant's will or under the laws of descent and distribution within twelve months following the Participant's death or within the 36-month period referred to in (ii), if applicable and if longer (provided that in any event such exercise must occur within the Option Period). The provisions of this paragraph (iv) of subsection 7.2(d) shall be applicable to each Stock Option Agreement as if set forth therein word for word. Each Stock Option Agreement executed by the Company prior to the adoption of this provision shall be deemed amended to include the provisions of this paragraph and all Options granted pursuant to such Stock Option Agreements shall be exercisable as provided herein. (v) If the employment of the Participant by the Company is terminated (which for this purpose means that the Participant is no longer employed by the Company or by an Affiliated Corporation) within the Option Period for any reason other than cause, the Participant's retirement on or after attaining age 65, the Participant's disability or death, the Option may be exercised by the Participant within three months following the date of such termination (provided that such exercise must occur within the Option Period), but not thereafter. In any such case, the Option may be exercised only as to the shares as to which the Option had become exercisable on or before the date of termination of the Participant's employment. (e) Transferability. Each Stock Option Agreement shall provide that the Option granted therein is not transferable by the Participant except by will or pursuant to the laws of descent and distribution, and that such Option is exercisable during the Participant's lifetime only by him or her, or in the event of the Participant's disability or incapacity, by his or her guardian or legal representative. (f) Agreement to Continue in Employment. Each Stock Option Agreement shall contain the Participant's agreement to remain in the employment of the Company, at the pleasure of the Company, for a continuous period of at least one year after the date of such Stock Option Agreement, at the salary rate in effect on the date of such agreement or at such changed rate as may be fixed, from time to time, by the Company. 9 13 (g) Exercise, Payments, Etc. (i) Each Stock Option Agreement shall provide that the method for exercising the Option granted therein shall be by delivery to the Office of the Secretary of the Company of written notice specifying the number of shares of Stock with respect to which such Option is exercised and payment of the Option Price. Such notice shall be in a form satisfactory to the Committee and shall specify the particular Options (or portions thereof) which are being exercised and the number of shares of Stock with respect to which the Options are being exercised. The exercise of the Option shall be deemed effective on the date such notice is received by the Office of the Secretary and payment is made to the Company of the Option Price (the "Exercise Date"). If requested by the Company, such notice shall contain the Participant's representation that he or she is purchasing the Stock for investment purposes only and his or her agreement not to sell any Stock so purchased in any manner that is in violation of the Securities Act of 1933, as amended, or any applicable state law. Such restriction, or notice thereof, shall be placed on the certificates representing the Stock so purchased. The purchase of such Stock shall take place at the principal offices of the Company upon delivery of such notice, at which time the Option Price shall be paid in full by any of the methods or any combination of the methods set forth in (ii) below. A properly executed certificate or certificates representing the Stock shall be issued by the Company and delivered to the Participant. If certificates representing Stock are used to pay all or part of the Option Price, separate certificates for the same number of shares of Stock shall be issued by the Company and delivered to the Participant representing each certificate used to pay the Option Price, and an additional certificate shall be issued by the Company and delivered to Participant representing the additional shares of Stock, in excess of the Option Price, to which the Participant is entitled as a result of the exercise of the Option. (ii) the Option Price shall be paid by any of the following methods or any combination of the following methods: (A) in cash; (B) by personal, certified or cashier's check payable to the order of the Company; (C) by delivery to the Company of certificates representing a number of shares of Stock then owned by the Participant, the Fair Market Value of which equals the Option Price of the Stock purchased pursuant to the Option, properly endorsed for transfer to the Company; provided however, that shares of Stock used for this purpose must have been held by the Participant for such minimum period of time as may be established from time to time by the Committee; for purposes of this Plan, the Fair Market Value of any shares of Stock delivered in payment of the Option Price upon 10 14 exercise of the Option shall be the Fair Market Value as of the Exercise Date; the Exercise Date shall be the day of delivery of the certificates for the Stock used as payment of the Option Price; or (D) by delivery to the Company of a properly executed notice of exercise together with irrevocable instructions to a broker to deliver to the Company promptly the amount of the proceeds of the sale of all or a portion of the Stock or of a loan from the broker to the Participant necessary to pay the Option Price. (h) Date of Grant. An Option shall be considered as having been granted on the date specified in the grant resolution of the Committee. (i) Tax Withholding. Each Stock Option Agreement shall provide that, upon exercise of the Option, the Participant shall make appropriate arrangements with the Company to provide for the amount of additional tax withholding required by Sections 3102 and 3402 or any successor section(s) of the Internal Revenue Code and applicable state income tax laws, including payment of such taxes through delivery of shares of Stock or by withholding Stock to be issued under the Option, as provided in Section 13 hereof. (j) Adjustment of Options. Subject to the limitations contained in Sections 7 and 12 hereof, the Committee may make any adjustment in the Option Price, the number of shares of Stock subject to, or the terms of an outstanding Option and a subsequent granting of an Option, by amendment or by substitution for an outstanding Option. Such amendment, substitution, or regrant may result in terms and conditions (including Option Price, number of shares of Stock covered, vesting schedule or Option Period) that differ from the terms and conditions of the original Option. The Committee may not, however, adversely affect the rights of any Participant to previously granted Options without the consent of such Participant. If such action is effected by amendment, the effective date of grant of such amendment will be the date of grant of the original Option. 7.3 Stockholder Privileges. No Participant shall have any rights as a stockholder with respect to any shares of Stock covered by an Option until the Participant becomes the holder of record of such Stock. Except as provided in Section 4 hereof, no adjustments shall be made for dividends or other distributions or other rights as to which there is a record date preceding the date on which such Participant becomes the holder of record of such Stock. 11 15 SECTION 8 CHANGE IN CONTROL 8.1 In General. In the event of a change in control of the Company as defined in Section 8.3 hereof, then the Committee may, in its sole discretion, without obtaining stockholder approval, to the extent permitted in Section 12 hereof, take any or all of the following actions: (a) accelerate the dates on which any outstanding Options become exercisable or make all such Options fully vested and exercisable; (b) grant a cash bonus award to any Participant in an amount necessary to pay the Option Price of all or any portion of the Options then held by such Participant; (c) pay cash to any or all Participants in exchange for the cancellation of their outstanding Options in an amount equal to the difference between the Option Price of such Options and the greater of the tender offer price for the underlying Stock or the Fair Market Value of the Stock on the date of the cancellation of the Options; and (d) make any other adjustments or amendments to the outstanding Options. 8.2 Limitation on Payments. If the provisions of this Section 8 would result in the receipt by any Participant of a payment within the meaning of Section 280G or any successor section(s) of the Internal Revenue Code, and the regulations promulgated thereunder, and if the receipt of such payment by any Participant would, in the opinion of independent tax counsel of recognized standing selected by the Company, result in the payment by such Participant of any excise tax provided for in Sections 280G and 4999 or any successor section(s) of the Internal Revenue Code, then the amount of such payment shall be reduced to the extent required, in the opinion of independent tax counsel, to prevent the imposition of such excise tax; provided, however, that the Committee, in its sole discretion, may authorize the payment of all or any portion of the amount of such reduction to the Participant. 8.3 Definition. For purposes of the Plan, a "change in control" shall mean any of the events specified in the Company's Income Continuance Plan or any successor plan which constitute a change in control within the meaning of such plan. SECTION 9 RIGHTS OF EMPLOYEES, PARTICIPANTS 9.1 Employment. Nothing contained in the Plan or in any Option granted under the Plan shall confer upon any Participant any right with respect to the continuation of his or her employment by the Company or any Affiliated Corporation, or interfere in any way with the right of the Company or any Affiliated Corporation, subject to the terms of any separate employment agreement to the contrary, at any time to terminate such 12 16 employment or to increase or decrease the level of the Participant's compensation from the level in existence at the time of the grant of an Option. Whether an authorized leave of absence, or absence in military or government service, shall constitute a termination of employment shall be determined by the Committee at the time. 9.2 Nontransferability. No right or interest of any Participant in an Option granted pursuant to the Plan shall be assignable or transferable during the lifetime of the Participant, either voluntarily or involuntarily, or subjected to any lien, directly or indirectly, by operation of law, or otherwise, including execution, levy, garnishment, attachment, pledge or bankruptcy. In the event of a Participant's death, a Participant's rights and interests in Options shall, to the extent provided in Section 7 hereof, be transferable by testamentary will or the laws of descent and distribution, and payment of any amounts due under the Plan shall be made to, and exercise of any Options may be made by, the Participant's legal representatives, heirs or legatees. If in the opinion of the Committee a person entitled to payments or to exercise rights with respect to the Plan is disabled from caring for his or her affairs because of mental condition, physical condition or age, payment due such person may be made to, and such rights shall be exercised by, such person's guardian, conservator or other legal personal representative upon furnishing the Committee with evidence satisfactory to the Committee of such status. SECTION 10 GENERAL RESTRICTIONS 10.1 Investment Representations. The Company may require a Participant, as a condition of exercising an Option, to give written assurances in substance and form satisfactory to the Company and its counsel to the effect that such person is acquiring the Stock subject to the Option for his own account for investment and not with any present intention of selling or otherwise distributing the same, and to such other effects as the Company deems necessary or appropriate in order to comply with federal and applicable state securities laws. 10.2 Compliance with Securities Laws. Each Option shall be subject to the requirement that, if at any time counsel to the Company shall determine that the listing, registration or qualification of the shares of Stock subject to such Option upon any securities exchange or under any state or federal law, or the consent or approval of any governmental or regulatory body, is necessary as a condition of, or in connection with, the issuance or purchase of shares of Stock thereunder, such Option may not be accepted or exercised in whole or in part unless such listing, registration, qualification, consent or approval shall have been effected or obtained on conditions acceptable to the Committee. Nothing herein shall be deemed to require the Company to apply for or to obtain such listing, registration, qualification, consent or approval. 13 17 SECTION 11 OTHER EMPLOYEE BENEFITS The amount of any compensation deemed to be received by a Participant as a result of the exercise of an Option shall not constitute "earnings" with respect to which any other employee benefits of such Participant are determined, including without limitation benefits under any pension, profit sharing, life insurance or salary continuation plan. SECTION 12 PLAN AMENDMENT, MODIFICATION AND TERMINATION The Board may at any time terminate, and from time to time may amend or modify the Plan provided, however, that no amendment or modification may become effective without approval of the amendment or modification by the Company's stockholders if stockholder approval is required to enable the Plan to satisfy any applicable statutory or regulatory requirements, or if the Company, on the advice of counsel, determines that stockholder approval is otherwise necessary or desirable. No amendment, modification or termination of the Plan shall in any manner adversely affect any Option theretofore granted under the Plan, without the consent of the Participant holding such Option. SECTION 13 WITHHOLDING 13.1 Withholding Requirement. The Company's obligations to deliver shares of Stock upon the exercise of an Option shall be subject to the Participant's satisfaction of all applicable federal, state and local income and other tax withholding requirements. 13.2 Withholding With Stock. At the time the Committee grants an Option, it may, in its sole discretion, grant the Participant an election to pay all such amounts of tax withholding, or any part thereof, by the transfer to the Company, or to have the Company withhold from shares of Stock otherwise issuable to the Participant upon the exercise of an Option, shares of Stock having a value equal to the amount required to be withheld or such lesser amount as may be elected by the Participant. All such elections shall be subject to the approval or disapproval of the Committee. The value of shares of Stock to be withheld shall be based on the Fair Market Value of the Stock on the Exercise Date. 14 18 Any such elections by Participants to have shares of Stock withheld for this purpose will be subject to the following restrictions: (a) All elections shall be made on or prior to the Exercise Date. (b) All elections shall be irrevocable. (c) If the Participant is an officer or director of the Company within the meaning of Section 16 or any successor section(s) of the 1934 Act ("Section 16"), the Participant must satisfy the requirements of such Section 16 and any applicable rules and regulations thereunder with respect to the use of Stock to satisfy such tax withholding obligation. SECTION 14 REQUIREMENTS OF LAW 14.1 Requirements of Law. The issuance of Stock and the payment of cash pursuant to the Plan shall be subject to all applicable laws, rules and regulations. 14.2 Federal Securities Laws Requirements. If a Participant is an officer or director of the Company within the meaning of Section 16, Options granted hereunder shall be subject to all conditions required under Rule 16b-3, or any successor rule(s) promulgated under the 1934 Act, to qualify the Option for any exception from the provisions of Section 16 available under such Rule. Such conditions are hereby incorporated herein by reference and shall be set forth in the agreement with the Participant which describes the Option. 14.3 Governing Law. The Plan and all Stock Option Agreements hereunder shall be construed in accordance with and governed by the laws of the State of Texas. SECTION 15 DURATION OF THE PLAN The Plan shall terminate at such time as may be determined by the Board, and no Option shall be granted after such termination. If not sooner terminated under the preceding sentence, the Plan shall fully cease and expire at midnight on May 4, 2000. Options outstanding at the time of the Plan termination shall continue to be exercisable in accordance with the Stock Option Agreement pertaining to such Option. 15 19 Dated: February 9, 1996 APACHE CORPORATION ATTEST: /s/ Cheri L. Peper By: /s/ Roger B. Rice - -------------------------- ------------------------ Cheri L. Peper Roger B. Rice Corporate Secretary Vice President 16 EX-10.28 14 MEMBER GAS PURCHASE AGREEMENT 1 EXHIBIT 10.28 MEMBER GAS PURCHASE AGREEMENT DATED MARCH 1, 1996 BY AND AMONG APACHE GATHERING COMPANY, APACHE CORPORATION, MW PETROLEUM CORPORATION, DEK ENERGY COMPANY, APACHE TRANSMISSION CORPORATION - TEXAS AND APACHE MARKETING, INC. AS SELLER AND PRODUCERS ENERGY MARKETING, LLC AS BUYER 2 TABLE OF CONTENTS
PAGE ARTICLE I DEFINITIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1 ARTICLE II SUBJECT MATTER . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4 2.1 Generally . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4 2.2 Covenant to Cooperate on Transportation . . . . . . . . . . . . . . . . . . . . . . . 4 2.3 Covenant to Cooperate on Production . . . . . . . . . . . . . . . . . . . . . . . . . 4 ARTICLE III COMMITMENT OF GAS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4 3.1 Committed Gas . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4 3.2 Excluded Gas . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5 3.3 Disposition Gas . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5 3.4 Affiliates and Subsidiaries . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7 3.5 Seller's Estimate; Scheduling . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7 3.6 Operational Reservations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8 3.7 Lien Gas . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10 ARTICLE IV QUANTITY; SCHEDULING AND TRANSPORTATION OF DAILY VOLUMES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11 4.1 Purchase and Sale Obligation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11 4.2 Certain Events Related to the Delivery and Taking of Committed Gas . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11 4.3 Provision Regarding Output Contract Laws . . . . . . . . . . . . . . . . . . . . . . . 13 ARTICLE V DELIVERY POINT(S) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13 5.1 Generally . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13 ARTICLE VI QUALITY, PRESSURE AND MEASUREMENT . . . . . . . . . . . . . . . . . . . . . . . . . . 14 6.1 Generally . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14 6.2 Nonconforming Gas . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14 ARTICLE VII PRICE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15 7.1 Initial Price . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15 7.2 Alternate Price . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15 7.3 Costs of Delivery . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15 7.4 Redetermination of Index(es) and Index Price Adjustments . . . . . . . . . . . . . . . 15 ARTICLE VIII BILLING AND PAYMENT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16 8.1 Invoice . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16 8.2 Monthly Payment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16 8.3 Disputed Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17 8.4 Errors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17 8.5 Overdue Payments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17 8.6 Audits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17 8.7 INDEMNITIES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18 ARTICLE IX EFFECTIVE DATE AND TERM; RELEASE OF GAS . . . . . . . . . . . . . . . . . . . . . . . 19 9.1 Generally . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19 9.2 Restricted Gas; Release of Committed Gas . . . . . . . . . . . . . . . . . . . . . . . 20 9.3 Survival . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22 ARTICLE X FORCE MAJEURE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
i 3 10.1 Generally . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23 10.2 Exclusions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23 10.3 Labor Disputes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23 10.4 Marketing of Force Majeure Gas . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23 ARTICLE XI IMBALANCE RESOLUTION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24 11.1 Generally . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24 11.2 Cooperation of Parties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24 11.3 Liability for Penalties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24 11.4 Operational Flow Orders . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24 ARTICLE XII CERTAIN EVENTS AFFECTING PERFORMANCE . . . . . . . . . . . . . . . . . . . . . . . . . 25 12.1 Buyer and Seller Events . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25 12.2 Offset Rights . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26 ARTICLE XIII CERTAIN DEFINITIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27 13.1 Other Definitions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27 ARTICLE XIV MISCELLANEOUS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27 14.1 Seller's Title Warranty . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27 14.2 No Continuing Waiver . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27 14.3 Government Regulation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27 14.4 Exclusion of Consequential Damages . . . . . . . . . . . . . . . . . . . . . . . . . . 27 14.5 Notices . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27 14.6 Assignability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28 14.7 Choice of Law . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28 14.8 Integration . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29 14.9 Confidentiality . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29 14.10 Arbitration . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29 14.11 Taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30 14.12 Construction of Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31 14.13 Relationship of Parties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31 14.14 Representations and Warranties of the Seller . . . . . . . . . . . . . . . . . . . . . 31 14.15 Representations and Warranties of Buyer . . . . . . . . . . . . . . . . . . . . . . . 32 14.16 Seller's Agent . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33 14.17 No Third Party Beneficiaries . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33 14.18 Further Assurances . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33 14.19 Waiver of Consumer Rights . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
ii 4 MEMBER GAS PURCHASE AGREEMENT THIS MEMBER GAS PURCHASE AGREEMENT ("Agreement") is made and entered by and among APACHE GATHERING COMPANY, a Delaware corporation, APACHE CORPORATION, a Delaware corporation, MW PETROLEUM CORPORATION, a Colorado corporation, DEK ENERGY COMPANY, a Delaware corporation, APACHE TRANSMISSION CORPORATION - TEXAS, a Texas corporation, and APACHE MARKETING, INC., a Delaware corporation (together with all Affiliates (as hereinafter defined), collectively herein referred to as "Seller") and PRODUCERS ENERGY MARKETING, LLC ("Buyer" and sometimes referred to herein as "LLC"), a Delaware limited liability company. W I T N E S S E T H: WHEREAS, Seller desires to sell and Buyer desires to purchase Committed Gas (as hereinafter defined) in accordance with the terms of this Agreement. NOW, THEREFORE, in consideration of the covenants and agreements herein contained, Seller and Buyer do hereby contract and agree with each other as follows: ARTICLE I. DEFINITIONS For the purposes hereof, the following words, phrases and terms shall have meanings as defined below. Other words, phrases and terms are defined elsewhere in this Agreement. 1.1 "Affected Party" shall mean a party whose ability to perform its obligations under this Agreement has been affected by an Event. 1.2 "Affiliate" shall mean any individual, partnership, corporation, limited liability company, trust or other Entity or association, directly or indirectly, through one or more intermediaries, controlling, controlled by, or under common control with a person or Entity. The term "control," as used in the immediately preceding sentence, means, with respect to a corporation, the right to exercise, directly or indirectly, more than fifty (50%) percent of the voting rights attributable to the controlled corporation, and, with respect to any individual, partnership, trust, other Entity or association, the possession, directly or indirectly, of the power to direct or cause the direction of the management or policies of the controlled Entity. For purposes of this Agreement, (i) Buyer and Seller shall not be deemed Affiliates, and (ii) field-wide and individual well units created pursuant to 52 O.S. Section 287.8 (and like statutes in jurisdictions other than Oklahoma) shall not be deemed Affiliates of Buyer or Seller. 1.3 "Aggregation Area" shall mean zones, pooling points or other marketing aggregation areas established by the Tariff of a Transporter. The Aggregation Area(s), subject to revision in accordance with Section 5.1, are listed in EXHIBIT A. 1.4 "Alternate Price" shall have the meaning set forth in Section 7.2. 1.5 "BTU" shall mean British Thermal Unit. 1.6 "Business Day" means a day other than a Saturday, Sunday or a legal holiday or a day on which banking institutions are authorized by law to close in Houston, Texas. 5 1.7 "Committed Gas" shall have the meaning set forth in Section 3.1. 1.8 "Contract Price" shall mean the Initial Price or the Alternate Price, as applicable. 1.9 "C.T." shall mean Central Time. 1.10 "Day" shall mean a period of twenty-four (24) consecutive hours commencing at 7:00 a.m. C.T. on one calendar day and ending at 7:00 a.m. C.T. on the following calendar day. 1.11 "Deferred Amount" shall have the meaning set forth in Section 8.2. 1.12 "Delivery Point(s)" means the measuring station or other measurement facilities at the point of interconnection between the facilities of Seller (or Seller's Transporter, as the case may be) and the facilities of Buyer (or Buyer's Transporter, as the case may be) where Committed Gas is transferred by Seller to Buyer. The Delivery Point(s), subject to revision in accordance with Section 5.1, are described in EXHIBIT A. 1.13 "Effective Date" shall mean April 1, 1996. 1.14 "Event" shall mean a Buyer Event, as defined in Section 12.1(a), or a Seller Event, as defined in Section 12.1(b). 1.15 "Entity" shall mean any association, corporation, general partnership, limited partnership, limited liability company, joint stock association, joint venture, firm, trust, business trust, cooperative, and foreign associations of like structure. 1.16 "Excluded Gas" shall have the meaning set forth in Section 3.2. 1.17 "FERC" means the Federal Energy Regulatory Commission or any successor thereto having jurisdiction. 1.18 "Gas" or "gas" shall mean natural gas produced from gas wells, casinghead gas produced from oil wells, and residue gas resulting from the processing of such gas well gas or casinghead gas. 1.19 "Imbalance Penalties" means, for Committed Gas delivered to each Delivery Point(s), any imbalance penalty charges assessed against Buyer or Seller by a Transporter pursuant to such Transporter's Tariff for Buyer's failure to take or Seller's failure to deliver Seller's Estimate for such Delivery Point(s), or Buyer's failure to submit a timely and accurate nomination to such Transporter. 1.20 "Index" for a particular source of supply in the area where the applicable Delivery Point(s) is/are located shall be that published index(es) which has been determined by mutual agreement (or if there is no published index for the relevant Delivery Point(s), then suchother index(es) as may be selected by mutual agreement), to best represent the market price for Gas of like quantities and quality at the Delivery Point(s), after Index Price Adjustments. The initial Index(es) applicable to each Delivery Point(s) is (are) set forth on EXHIBIT A. 2 6 1.21 "Index Price" for any Delivery Point(s) shall be the price for Gas determined by the applicable Index on the first Day of the applicable Month. 1.22 "Index Price Adjustments" shall mean, with respect to an Index Price for any Delivery Point(s), all actual and reasonable net costs, and/or differentials, customarily taken into account in the natural gas marketing industry in determining basis, and necessary to adjust the Index Price for Gas to accurately reflect the market price for Gas of like quantities and quality at the Delivery Point(s). The initial Index Price Adjustments applicable to each Delivery Point(s) are listed on EXHIBIT A. 1.23 "Initial Price" shall have the meaning set forth in Section 7.1. 1.24 "Material Buyer Take Event" shall have the meaning set forth in Section 4.2(c). 1.25 "Month," as applicable, shall mean (i) the period beginning on the first Day of each calendar month and ending at the beginning of the first Day of the next succeeding calendar month or (ii) if the above-referenced definition of "Month" differs from the meaning of such term in the Tariff of the applicable Transporter in a context where such difference is applicable to the provision in question, then the term "Month" shall have the meaning set forth in such Tariff. 1.26 "MMBtu" shall mean one million (1,000,000) British Thermal Units. 1.27 "Net Profit Before Profit Sharing" shall have the meaning set forth in the Participant Profit Sharing Agreement. 1.28 "Operational Flow Order" or "OFO" shall have the meaning set forth in Section 11.4. 1.29 "Participating Producers" shall mean the parties (other than the LLC) to participant profit sharing agreements. 1.30 "Participant Profit Sharing Agreement" shall mean a Participant Profit Sharing Agreement between Buyer and Seller executed and delivered in accordance with Section 9.2(c)(i). 1.31 "Participant Aggregate Profit Sharing Amount" shall have the meaning set forth in the Participant Profit Sharing Agreement. 1.32 "Reference Rate" shall mean the lesser of (i) two percent (2%) above the per annum rate of interest announced from time to time as the "prime rate" for commercial loans by Chase Manhattan Bank of New York (or its successor), as such "prime rate" may change from time to time, or (ii) the maximum applicable nonusurious rate of interest. 1.33 "Restricted Gas" shall have the meaning set forth in Section 9.2. 1.34 "Seller's Estimate" means, with respect to each Delivery Point(s), Seller's good faith estimate under Section 3.5 of the quantity of Committed Gas that Seller expects to deliver at each such Delivery Point(s) for the relevant Month. 1.35 "Seller's Wells" means the wells described on EXHIBIT A, as such Exhibit may be revised from time to time in accordance with this Agreement. 3 7 1.36 "Tariff" means (i) the currently effective tariff of a Transporter, as filed from time to time with the FERC or any other governmental authority, or (ii) if a Transporter does not have a tariff on file with the FERC or any other governmental authority, such Transporter's currently effective operating policies and procedures, as such policies and procedures may change from time to time. 1.37 "Transporter" shall mean an interstate or intrastate pipeline, including, without limitation, a gathering pipeline, that transports Committed Gas. 1.38 "Unaffected Party" shall mean a party whose ability to perform its obligations under this Agreement has not been affected by an Event. 1.39 "Year" shall be a period of twelve (12) consecutive Months. ARTICLE II. SUBJECT MATTER 2.1 Generally. Subject to the other terms and conditions of this Agreement (including, without limitation, Article IV), Seller hereby agrees to sell to Buyer and Buyer hereby agrees to purchase from Seller deliverable Committed Gas. 2.2 Covenant to Cooperate on Transportation. Subject to the other terms and provisions of this Agreement, the parties understand and agree that Buyer shall make arrangements for the resale and the transportation of Committed Gas sold hereunder from the Delivery Point(s), and Seller agrees to provide reasonable cooperation as may be necessary to effectuate such resale and transportation. Notwithstanding the foregoing, however, neither party shall be obligated to build pipelines or other transportation facilities to effect the delivery or receipt of Committed Gas hereunder. 2.3 Covenant to Cooperate on Production. Subject to the other terms and conditions of this Agreement, Buyer will take Committed Gas in the manner that is least disruptive to Seller's operations. Without limiting the generality of the foregoing, Buyer shall give priority, to the fullest extent practicable, to accepting deliveries of Committed Gas (i) that is casinghead Gas and/or Gas that is produced from oil wells, (ii) the production of which is necessary to maintain Seller's leases in full force and effect, or (iii) the production of which is necessary to avoid injury to Seller's reservoirs or material diminution in the aggregate production therefrom. Seller will notify Buyer of anticipated operational considerations at the time Seller's Estimate is provided to Buyer in accordance with Section 3.5. Seller will notify Buyer of unanticipated operational considerations within 24 hours after Seller becomes aware of such considerations, and Buyer will respond to such notice as soon as it is commercially reasonable for Buyer to do so. ARTICLE III. COMMITMENT OF GAS 3.1 Committed Gas. During the term hereof and subject to any limitations herein set forth, Seller shall sell to Buyer and Buyer shall purchase from Seller all Gas production 4 8 owned or controlled (as defined in Article XIII) by Seller during the term of this Agreement in North America (onshore and offshore), excluding, however, Gas defined as Excluded Gas. All Gas described in the preceding sentence shall be hereinafter referred to as "Committed Gas." Buyer's obligations under this Section 3.1 with respect to Canada are contingent upon Buyer's creation of lawful and commercially reasonable legal structures for doing business in Canada, it being explicitly agreed and understood, without limitation of the foregoing, that such structures (a) shall minimize any and all taxes payable in the United States, Canada or any state or province or other governmental body thereof (including, without limitation, severance taxes, income taxes, franchise taxes, and obligations with respect to payment of provincial royalties in respect of Committed Gas), (b) shall comply with all applicable laws of the United States, Canada, or any state or province or other governmental body thereof (including, without limitation, all energy regulatory laws, all laws respecting the export or import of Gas, all laws respecting investment in Canada or its provinces, all laws respecting the operation of foreign-owned business organizations in Canada or its provinces and all laws governing business organizations), and (c) shall otherwise be operationally satisfactory and commercially reasonable, all the foregoing determinations with respect to such Canadian matters to be made by mutual agreement of Buyer and Seller. 3.2 Excluded Gas. "Excluded Gas" shall mean and include (a) at Seller's sole discretion, Gas owned or controlled by Seller that is being sold, on the Effective Date, on behalf of Seller under a joint operating agreement, unit operating agreement or similar agreement to which Seller is a party, (b) at Seller's sole discretion, Gas production commencing or acquired from a new source after the Effective Date which is owned or controlled by Seller and which Seller elects to have sold on its behalf under a joint operating agreement, unit operating agreement or similar agreement to which Seller is a party at any time after the Effective Date, provided that the quantity of such Gas, when available for initial delivery by Seller, does not exceed 150,000 cubic feet per Day per well, (c) at Seller's sole discretion, Gas sold under (i) any binding and enforceable Gas sales contracts existing on the Effective Date, and (ii) any binding and enforceable Gas sales contracts burdening properties acquired by Seller after the Effective Date (insofar as the same existed as of the date of acquisition) during the primary term thereof and any extensions of contracts described in (i) or (ii) above made in accordance with the terms of such contracts governing extensions or renewals (it being understood, however, that Seller, at its sole discretion, may have such contracts administered by Buyer in accordance with that certain Contract Administration Agreement of even date herewith between Seller and Buyer), and (iii) applicable calls on production, rights of first refusal or similar rights in favor of third parties with respect to Gas of the sort customarily found in joint operating agreements, unit agreements or other agreements typically entered into in connection with Gas exploration and production activities, to which agreements Seller is a party on the Effective Date, and (iv) applicable calls on production or reversionary rights to convert retained overriding royalties into working interests in favor of third parties with respect to Gas production commencing or acquired after the Effective Date, such rights being of the sort customarily found in farm-ins or other drill-to-earn agreements, (d) Gas subject to the reservations set forth in Sections 3.6 and 3.7, (e) Disposition Gas (as defined in Section 3.3, if released in accordance with Sections 3.3 and 9.2), (f) Lien Gas (as defined in Section 3.7, if released in accordance with such Section 3.7), (g) other Committed Gas released from this Agreement pursuant to the other terms hereof, (h) Withdrawal Gas (as defined in Section 9.2, if released in accordance with such Section 9.2), or (i) such other Gas as Buyer and Seller may mutually agree. 3.3 Disposition Gas. (a) Definition of Disposition Gas. "Disposition Gas" shall mean Committed Gas no longer owned or controlled by Seller as the result of a Disposition, INSOFAR, AND ONLY 5 9 INSOFAR, AS Buyer determines pursuant to Section 9.2 that such Gas is not Restricted Gas (and only such Gas which is not Restricted Gas shall be Disposition Gas and be excluded from the term "Committed Gas" in accordance with Section 9.2). For purposes hereof, the term "Disposition" means, with regard to Committed Gas, a sale, trade, exchange or other transaction (other than transactions governed by Section 3.7) whereby title and benefits of ownership of Committed Gas are directly or indirectly transferred to one or more third parties, including, without limitation, (i) a sale or transfer of properties from which Committed Gas is produced, except to the extent the same is sold or transferred to another Affiliate of such Seller (excluding, however, any Sold Company (as hereinafter defined)), (ii) a sale or transfer of a production payment in and from (or any other interest in or to the production from) properties from which Committed Gas is produced, except to the extent the same is sold or transferred to another Affiliate of such Seller, (iii) a sale or transfer of all of the stock owned, legally or beneficially, of an Affiliate of such Seller, except to the extent the same is sold or transferred to another Affiliate of such Seller, (iv) a sale or transfer of all or so much of the equity ownership, legally or beneficially owned or held, in and to an Affiliate ("Sold Company") of such Seller that, following the consummation of the sale or transfer, the Sold Company would no longer be an Affiliate of such Seller. For purposes of this Section 3.3, the term "third party" shall not include any Affiliate of Seller. Notwithstanding the foregoing, Disposition Gas sold, traded, exchanged or otherwise transferred in a Disposition (whether such Disposition is consummated in a single or in multiple related transactions) in which Seller receives cash or other consideration having an aggregate value of less than $1,000,000, shall not be subject to the provisions of Section 3.3 or 9.2, shall not be deemed Restricted Gas under any circumstances, and shall be sold, traded, exchanged or otherwise transferred free and clear of the requirements of this Agreement, without notice to Buyer and without Buyer's consent. (b) Notice and Determination. Seller shall provide Buyer with written notice of any intended Disposition as soon as practicable, but not less than forty (40) Days before closing a Disposition. In its notice to Buyer, Seller shall provide Buyer with a listing of the affected Delivery Point(s) and the quantities of such Committed Gas estimated in good faith to be producible from the properties to be subject to the Disposition. Seller shall also provide Buyer with such additional information regarding such Disposition as Buyer may reasonably request under the circumstances, but only if such information is material to Buyer's determination pursuant to Section 9.2(b) regarding its ability to satisfy its obligations to sell Gas to third parties. Upon receipt of the information necessary to make its determination pursuant to Section 9.2, Buyer shall immediately begin considering whether any of the Committed Gas subject to such contemplated Disposition shall be Restricted Gas (as defined in Section 9.2). Buyer shall make its determination regarding such Committed Gas in accordance with and subject to the terms of Section 9.2, not later than thirty (30) Days following receipt of a notice from Seller complying with the requirements of the second grammatical sentence of this Section 3.3(b). Such determination shall be in writing, shall be delivered to Seller within such 30- Day period, and shall either indicate that (i) such Committed Gas shall be sold, traded, exchanged or otherwise transferred free and clear of the requirements of this Agreement, or (ii) all or a portion of such Committed Gas shall be Restricted Gas, and set forth the information required pursuant to the second grammatical sentence of Section 3.3(b). Buyer's failure to respond within such period shall be deemed, for purposes of Section 9.2, an acknowledgement that none of the Disposition Gas is Restricted Gas, an all of the Committed Gas, subject to the proposed Disposition, shall be released from the terms of this Agreement in accordance with and subject to the terms of Section 9.2. THE CONSEQUENCES DESCRIBED IN THE PRECEDING GRAMMATICAL SENTENCE SHALL BE SELLER'S SOLE AND EXCLUSIVE REMEDY FOR BUYER'S FAILURE TO NOTIFY SELLER, IN ACCORDANCE WITH THE TERMS OF THIS AGREEMENT, OF BUYER'S DETERMINATION REGARDING THE EXISTENCE OF RESTRICTED GAS (IF ANY) IN CONNECTION WITH A DISPOSITION, AND ALL 6 10 OTHER REMEDIES OR DAMAGES AT LAW OR IN EQUITY ARE WAIVED IN RESPECT OF SUCH EVENT. Notwithstanding anything stated herein to the contrary, to the extent that Seller fails to consummate the proposed Disposition within one hundred eighty (180) Days following Buyer's receipt of Seller's notice provided in accordance with this Section 3.3(b), Seller shall be required to notify Buyer in writing of the status of such Disposition, and shall continue to provide such notification to Buyer at thirty (30) Day intervals thereafter until the Disposition is either consummated or abandoned (it being understood and agreed that Seller shall notify Buyer in writing within thirty (30) Days of the date on which such Disposition is consummated or abandoned). If the contemplated Disposition is abandoned, or if Seller fails timely to give the notices required by the preceding grammatical sentence, then Buyer's determination under Section 9.2 of how much of the Committed Gas, subject to the Disposition, is Restricted Gas and how much of it is Disposition Gas shall automatically terminate, and Seller shall once again be obligated to comply with all notice obligations under this Section 3.3, and will be subject to a new determination by Buyer under Section 9.2, in connection with any future proposed Disposition of all or any part of such Committed Gas. (c) Certain Exceptions. It is specifically understood and agreed that Seller's sale of Committed Gas to a third party in connection with a prepayment, conveyance of a production payment, or similar transaction in which Committed Gas is sold in place prior to production, shall not be subject to the requirements of Section 9.2, if and only if the contract(s) pursuant to which such Committed Gas is/are sold are administered by Buyer in accordance with the Contract Administration Agreement. Solely for purposes of facilitating Buyer's performance of its obligations under the Contract Administration Agreement, Seller shall give Buyer thirty (30) Days' written notice before the consummation of a transaction of the type described in this Section 3.3(c). 3.4 Affiliates and Subsidiaries. Each party included in the term "Seller" shall cause any and all of their current and future Affiliates (including subsidiaries) which own or control Gas production in North America, onshore or offshore (but excluding any Gas defined as Excluded Gas), to the extent not already parties to the Agreement and to the extent this Agreement is still in full force and effect, to ratify, approve, assume and agree to be bound by all of the terms, obligations, and provisions of this Agreement. 3.5 Seller's Estimate; Scheduling. (a) Seller's Estimate Generally. For each Month during the term of this Agreement, Seller shall provide Buyer with Seller's Estimate on or before 12 noon C.T. on the fourth Day preceding the close of the New York Mercantile Exchange gas futures contract for the applicable Month. Buyer shall make nominations to Transporters, and generally make all arrangements necessary for the receipt, transportation and delivery to market of the Committed Gas for the applicable Month, all in accordance with Seller's Estimate (it being understood that Buyer shall have no obligation to make arrangements for firm transportation of the Committed Gas unless specifically agreed to in writing by Buyer and Seller). If Seller fails to update Seller's Estimate for any Delivery Point(s) for the applicable Month, the Seller's Estimate for such Delivery Point(s) during the previous Month will serve as Seller's Estimate for the Month in question. (b) Reforecasts by Seller. The parties shall confer at either party's initiative during each Month to reforecast the quantities of Committed Gas scheduled to be delivered or taken pursuant to Seller's Estimate. Without limiting the generality of the foregoing, Seller shall advise Buyer of its intention to exercise its rights under Section 3.6(e) by the deadline set forth therein. Seller shall promptly notify Buyer of any material changes in the quantities of 7 11 Committed Gas scheduled to be delivered or taken pursuant to Seller's Estimate, as well as any condition or event that is reasonably likely to change such quantities in such Estimate. (c) Estimates of Additional Quantities of Committed Gas. Seller and Buyer are aware that additional quantities of Committed Gas from new sources of supply not included in Seller's Estimate will become available for delivery to Buyer at various times after the first Day of an applicable Month. At least two Business Days before the Day that Seller wishes to begin deliveries of such additional quantities of Committed Gas, Seller shall provide Buyer with a written notice setting forth (i) the Delivery Point(s) at which Seller wishes to make such deliveries, (ii) the quantities of Committed Gas that Seller estimates will be delivered to each such Delivery Point during the Month in which initial deliveries occur, (iii) the Index(es) applicable to such Delivery Point(s), (iv) any Index Price Adjustments applicable to the price determined in accordance with such Index(es) and (v) any other information set forth on Exhibit A. The Contract Price for such additional quantities shall be determined in accordance with the foregoing information, subject to the provisions of Article VII, including without limitation the rights of Buyer to propose other Index(es) or Index Price Adjustments in accordance with Section 7.4. Buyer shall take such additional Quantities of Committed Gas in accordance with, and subject to the terms of, Section 4.1. 3.6 Operational Reservations. Seller reserves unto itself, its successors, assigns and Affiliates the following rights and quantities of Gas sufficient to satisfy such rights: (a) To operate Seller's leaseholds, lands and/or interests therein, free from any control by Buyer, in such manner as Seller deems advisable for the development and operation of Seller's leases (or on any unit, including, without limitation, field-wide units), including the right (but never the obligation) to drill new wells, enhance production, to repair and rework Seller's Wells, to renew and extend (in whole or in part) any lease, to abandon any well or surrender any lease (in whole or in part) for any reason, to abandon, modify, extend or dispose of any production facilities owned or installed (in whole or in part) by Seller, to treat Gas, to use Gas as compressor fuel, to use Gas to generate power in connection with leasehold operations, to lift oil by repressuring, recycling or pressure maintenance operations, and to otherwise operate such leases and fields free from any control by Buyer. (b) To deliver Gas in quantities sufficient to fulfill Seller's royalty or lease obligations from time to time, Seller's agreements for easements, unit agreements, unit operating agreements, operating agreements or any similar agreements affecting Seller's wells. (c) To remove from its Gas all liquids, liquefiable hydrocarbons, oil and/or condensate, both by lease separation and/or processing in a plant prior to delivery at the Delivery Point(s). Seller, in its sole discretion, may have Buyer negotiate on Seller's behalf a processing agreement with the operator of a plant located upstream of the Delivery Point for the processing of Seller's Gas, or administer any such new processing agreement or an existing processing agreement for Seller, as part of the services Buyer provides to Seller pursuant to that certain Member Service Agreement, of even date herewith, between Seller and Buyer (the "Service Agreement"), for the fees specified therein. The liquids, liquefiable hydrocarbons, oil and/or 8 12 condensate removed (or the propanes, butanes, motor fuel or other products obtained) therefrom (collectively "Removed Products") shall not be deemed Committed Gas, nor shall such Removed Products otherwise be subject to this Agreement. Wherever Seller is causing the Gas to be processed for its own account prior to delivery at the Delivery Point(s), Seller shall use commercially reasonable efforts to reserve the right to take residue Gas in kind, and any residue Gas taken in kind shall be deemed Committed Gas subject to this Agreement with the Delivery Point for same being at the tailgate of the plant. If economically prudent, Buyer will use good faith efforts to cause the Gas to be processed for Buyer's account and at Buyer's sole cost at a plant located downstream of the Delivery Point under one or more processing agreements with terms of three (3) years or less unless Seller's consent to a longer processing agreement is obtained, and, in such event, (i) the quantity of the residue Gas redelivered to Buyer by the plant will be used to calculate the Committed Gas to be purchased and paid for hereunder and the Throughput under the Limited Liability Company Agreement dated October 27, 1995, which created Buyer (the "LLC Agreement"), (ii) Buyer will remit to Seller the net revenue derived from such processing determined as the remainder of (a) the revenues received from the sale of the Removed Products by Buyer or from the plant, as applicable, minus (b) the sum of (1) the total transportation costs incurred by Buyer for upstream transportation of the PVR or condensate, (2) all fees and charges paid to the plant for the processing services, (3) all taxes and other charges due on the Removed Products, the Gas (but only to the extent associated with the processing), or the act of processing or selling such items, and (4) the compensation due Buyer for negotiating and administering the processing agreement as provided in the Service Agreement; provided, however, it is expressly understood that if the net revenue for a Month is equal to or less than zero (0), Seller shall not owe Buyer any money under this clause (ii). The term "PVR" shall mean, with respect to each Month, the difference in (i) the quantity of Gas delivered by Seller to Buyer and tendered to the plant for processing, as measured at the plant inlet, and (ii) the quantity of residue Gas redelivered to Buyer after processing in the plant, which difference will represent the fuel, shrinkage and lost and unaccounted for quantities allocated to the quantity of the Gas tendered for processing. (d) To produce Gas without waste and in accordance with prudent oil and gas field practices. Seller shall not be required to produce any well at a rate in excess of the rate fixed by law or regulation or in excess of the rate of flow which Seller determines, in its discretion, exercised in good faith as a prudent operator, should be produced from such well. (e) To curtail or shut-in Gas due to prices that are unacceptable to Seller. Seller shall give Buyer notice of any curtailment or shut-in of Committed Gas before delivery of Seller's Estimate in Section 3.5. Each curtailment notice shall be in writing and shall identify the quantities of Committed Gas that Seller intends to curtail or shut-in, the Delivery Point(s) affected, and the expected duration of such curtailment or shut-in period. Seller shall not, 9 13 however, shut-in or curtail any quantities of Committed Gas hereunder during any Month in which such quantities have been included in Seller's Estimate. Seller shall notify Buyer at least two (2) Business Days prior to any applicable deadline in Transporter(s)' Tariffs for nominations (or nomination changes) of Seller's intent to resume Sales of Committed Gas for which Seller has previously given Buyer notice of Seller's intention to shut-in or curtail deliveries during the current applicable Month under this Section 3.6(e). Committed Gas reserved pursuant to this Section 3.6(e) shall not be sold to a third party during any shut-in period. (f) The right to pool or unitize Seller's leases with other leases of Seller or others located in the field in which Seller's Wells are located (it being understood that the Gas attributable or allocated to Seller's interest in the pool or unit so created will remain Committed Gas). (g) Gas required to be delivered to third parties under the common law governing relationships between cotenants, or under gas balancing agreements or similar arrangements affecting any of Seller's Wells. 3.7 Lien Gas. (a) Generally. Notwithstanding anything stated herein to the contrary, Seller shall in no way be prohibited or precluded from assigning or granting a security interest, lien or other encumbrance (collectively, referred to as "Liens") to secure the repayment of obligations that Seller owes to commercial banks, insurance companies or other financial or trade creditors (collectively, "Lenders") on any of the properties owned by Seller from which Committed Gas is produced. (b) Certain Rights. Seller shall use commercially reasonable efforts to obtain from its Lenders an agreement that their Liens shall be subordinate or otherwise subject to Buyer's rights and obligations under this Agreement. If Seller notifies Buyer in writing that Seller has been unsuccessful in obtaining such an agreement from its Lenders, Buyer hereby agrees to subordinate its rights and interests hereunder and shall execute and deliver to such Lenders such instruments or agreements in form and substance reasonably satisfactory to Lenders and Buyer, as may be necessary to evidence Buyer's subordination of its rights and interests in such Committed Gas. The Committed Gas in which Buyer's rights are so subordinated shall be herein referred to as "Lien Gas." Notwithstanding anything stated herein to the contrary, Lien Gas shall remain Committed Gas hereunder so long as Lenders permit such Committed Gas to be sold to Buyer, notwithstanding any provisions in the documents creating or evidencing the Liens that assign or purport to assign the Committed Gas to Lenders; but such Lien Gas shall be released from the terms of this Agreement if Lenders foreclose their Lien, or exercise any other remedy under the documents creating the Lien that would result in the transfer of the title and the benefits of ownership of the Lien Gas to such Lenders. Seller shall use commercially reasonable efforts in cooperating with Buyer to (i) subject such Lien Gas to the terms of this Agreement as Committed Gas hereunder, or (ii) continue sales of Lien Gas under this Agreement, or under another contract with terms and conditions substantially the same as those of this Agreement. 10 14 (c) Other Transactions. It is specifically understood and agreed that Seller may enter into financing transactions with a third party other than those pursuant to which a Lien is created, including, without limitation, transactions such as prepayments, conveyances of production payments, or conveyances of overriding royalty interests, so long as the Gas burdened by such transaction (including, without limitation, any Gas that was Committed Gas prior to the consummation of such transaction) shall be sold to Buyer as Committed Gas under the terms and conditions of this Agreement. ARTICLE IV QUANTITY; SCHEDULING AND TRANSPORTATION OF DAILY VOLUMES 4.1 Purchase and Sale Obligation. (a) Seller's Delivery Obligation. Commencing on the Effective Date and continuing through the term hereof, Seller agrees to sell and deliver, or cause to be delivered and sold (excepting an event of Force Majeure or any other reason excusing the performance of Seller's obligation to sell and deliver Committed Gas hereunder, and subject in all respects to the provisions of Sections 4.2(a) and 4.2(d)) to Buyer at the Delivery Point(s) one hundred percent (100%) of deliverable Committed Gas, including, without limitation, (i) one hundred percent (100%) of the quantities of Gas equal to Seller's Estimate as set forth in Section 3.5(a), and (ii) one hundred percent (100%) of additional Committed Gas as set forth in Section 3.5(c). It is specifically understood and agreed that Seller shall have no obligation to deliver (x) additional quantities of Committed Gas from new sources of supply described in Section 3.5(c), in the Month when such additional quantities become available for delivery, if such additional quantities were not previously included in Seller's Estimate for that Month and (y) quantities of Committed Gas for which Seller has given notice of its intention to curtail or shut-in pursuant to Section 3.6(e). (b) Buyer's Take Obligation. Commencing on the Effective Date and continuing through the term hereof, Buyer agrees to take and purchase (excepting an event of Force Majeure or any other reason excusing the performance of Buyer's obligation to purchase and take Committed Gas hereunder), and subject in all respects to the provisions of Sections 4.2(b) and 4.2(d)) from Seller at the Delivery Point(s) one hundred percent (100%) of deliverable Committed Gas, including, without limitation (a) one hundred percent (100%) of Committed Gas delivered in accordance with Seller's Estimate as set forth in Section 3.5(a), (b) one hundred percent (100%) of additional Committed Gas for which Seller has given written notice as set forth in Section 3.5(c), and (c) one hundred percent (100%) of Committed Gas previously shut-in, for which Seller has notified Buyer of Seller's intent to resume sales as provided in Section 3.6(e). It is specifically understood and agreed that Buyer shall have no obligation to take quantities of Committed Gas for which Seller has given notice of its intention to curtail or shut-in pursuant to Section 3.6(e). Buyer shall use commercially reasonable efforts to receive Committed Gas at uniform hourly and Daily rates of flow. 4.2 Certain Events Related to the Delivery and Taking of Committed Gas. (a) Seller Delivery Event. If, during any Month, Seller fails for any reason (other than Force Majeure or any other reason excusing performance of Seller's obligation to deliver Committed Gas hereunder) to deliver 100% of deliverable Committed Gas required to be delivered in accordance with Section 4.1 (subject in all respects to the next-to-last grammatical sentence of this Section 4.2(a), a "Seller Delivery Event"), and Buyer, acting in a commercially 11 15 reasonable manner, must purchase Gas to replace such quantities in order to satisfy Buyer's legal obligations to third parties for the Month in question, then Seller shall pay Buyer, in accordance with the provisions of Article VIII, an amount equal to the product of (i) the positive difference between (A) the price per MMBtu actually paid by Buyer for the replacement quantities and (B) the Contract Price that Buyer would have paid for the quantities of Committed Gas not delivered by Seller and (ii) the quantities of such replacement Gas purchased by Buyer. Seller shall also pay Buyer, in accordance with the provisions of Article VIII, the amount of any reasonably incurred incidental out-of-pocket costs incurred by Buyer (including, by way of example rather than enumeration, brokers' fees), less any expenses saved by Buyer, in consequence of such Seller Delivery Event. Notwithstanding the foregoing, no Seller's Delivery Event shall exist with respect to any Month so long as the quantity of Committed Gas (including, without limitation, any additional quantities of Committed Gas delivered pursuant to Sections 3.5(a), 3.5(c) or 3.6)) delivered at each Aggregation Area is within a variance (positive or negative) of the lesser of (y) five percent (5%) between quantities set forth in Seller's Estimate and quantities delivered by Seller, or (z) the tolerance permitted by the Tariff of the relevant Transporter. Nothing in the preceding grammatical sentence shall be construed as relieving Seller from liability for an Imbalance Penalty arising under Section 11.3 or amounts payable in respect of a violation of an OFO, as more particularly set forth in Section 11.4. (b) Buyer Take Event. If, during any Month, Buyer fails for any reason (other than Force Majeure or any other reason excusing performance of Buyer's obligation to take Committed Gas hereunder) to take at least ninety- eight percent (98%) of deliverable Committed Gas required to be taken in accordance with Section 4.1 (a "Buyer Take Event"), then such untaken Committed Gas shall be released to Seller for the remainder of such Month, and Buyer shall give Seller such notice as may be reasonably practicable under the circumstances to facilitate Seller's ability to sell such Committed Gas. Seller, acting in a commercially reasonable manner, may sell such untaken Gas to a third party and Buyer shall pay Seller, in accordance with the provisions of Article VIII, an amount equal to the product of (w) the positive difference between (A) the Contract Price that Buyer would have paid for the quantities of Committed Gas not taken by Buyer and (B) the price per MMBtu actually received by Seller for such untaken Committed Gas from such third party and (x) the positive difference between (A) the quantities of deliverable Committed Gas required to be taken in accordance with Section 4.1 and (B) the quantities of Committed Gas taken by Buyer. If Seller cannot sell such untaken Committed Gas to a third party, the Seller shall receive no payment whatsoever in accordance with the preceding grammatical sentence. Buyer shall also pay Seller the amount of any reasonably incurred incidental out-of-pocket costs incurred by Seller (including, by way of example rather than enumeration, brokers' fees), less any expenses saved by Seller, in consequence of a Buyer Take Event. (c) Material Buyer Take Event. Seller may, in its discretion, terminate this Agreement if a Material Buyer Take Event occurs and Seller gives Buyer written notice of Seller's intention to terminate this Agreement within 90 days after the last Day of the calendar Year or calendar quarter (as the case may be) in which a Material Buyer Take Event occurs (it being understood that such termination shall be effective upon the effective date of the lawful withdrawal of APACHE GATHERING COMPANY as a member of LLC). Seller's right to terminate this Agreement for a Material Buyer Take Event shall be waived if Seller fails to deliver to Buyer the notice described in the preceding grammatical sentence of this Section 4.2(c) within the 90-Day period set forth therein. The exercise of Seller's remedies for a Buyer Take Event in accordance with Section 4.2(b), after the occurrence of a Material Buyer Take Event, and termination of this Agreement in accordance with this Section 4.2(c), shall be Seller's sole and exclusive remedies for a Material Buyer Take Event. Such termination shall be treated as a lawful withdrawal of Seller from LLC for purposes of Section 9.2 of this Agreement, and will be 12 16 subject to all other provisions of such Section 9.2, including, without limitation, those provisions regarding Buyer's determination of Restricted Gas. "Material Buyer Take Event" shall mean Buyer's failure for any reason (other than Force Majeure or any other reason excusing performance of Buyer's obligation to take Committed Gas hereunder) to take (i) 95% of deliverable Committed Gas as set forth in Seller's Estimate during any calendar Year or (ii) 90% of deliverable Committed Gas as set forth in Seller's Estimate during any calendar quarter. (d) Exclusive Consequences of Seller Delivery Event, Buyer Take Event or Material Buyer Take Event. The sole consequences of a Seller Delivery Event are set forth in Section 4.2(a), the sole consequences of a Buyer Take Event are set forth in Section 4.2(b), and the sole consequences of a Material Buyer Take Event are set forth in Section 4.2(c). ALL OTHER REMEDIES OR DAMAGES AT LAW OR IN EQUITY ARE WAIVED IN RESPECT OF SUCH EVENTS. THE PARTIES ACKNOWLEDGE THAT THE CONSEQUENCES OF THE EVENTS SET FORTH IN THIS ARTICLE IV ARE DIFFICULT OR IMPOSSIBLE TO DETERMINE AND THAT THE CONSEQUENCES SET FORTH HEREIN RESPECTING SUCH EVENTS CONSTITUTE A REASONABLE APPROXIMATION OF THE HARM OR LOSS THAT WOULD BE SUFFERED BY EITHER PARTY AS A RESULT OF SUCH EVENT. 4.3 Provision Regarding Output Contract Laws. The parties acknowledge that deliveries of Committed Gas hereunder may increase or decrease significantly from Month to Month as a consequence of the routine conduct of the parties' operations and a variety of factors affecting the market for Gas generally. Accordingly, the parties agree that (a) the obligations of Seller (i) to sell and deliver Committed Gas and (ii) of Buyer to purchase and receive Committed Gas, and (b) the methods used by Buyer and Seller pursuant to Section 3.5 to estimate the quantities of Committed Gas to be sold by Buyer and purchased by Seller from Month to Month hereunder, are all commercially reasonable means, arrived at by both parties, acting in good faith, to minimize the severity of such increases and decreases in deliveries, consistent with the commercial realities of producing and marketing the Committed Gas and the realities of Gas markets generally. The parties agree that Section 2.306 of the Texas Business and Commerce Code, or any provision of any law with similar provisions (collectively, "Output Contract Laws"), is inapplicable to this Agreement and the transactions hereby contemplated. To the extent that any Output Contract Laws are held to apply to this Agreement and the transactions hereby contemplated, the parties hereby WAIVE AND RELINQUISH any defenses to the enforcement of this Agreement arising from such Output Contract Laws, and any claims that may be asserted by either party arising from such Output Contract Laws. ARTICLE V. DELIVERY POINT(S) 5.1 Generally. Committed Gas shall be delivered at the Delivery Point(s) set forth on EXHIBIT A hereto (the "Delivery Point(s)"), as such EXHIBIT A shall be updated from time to time by agreement of the parties, consistent with their obligations under this Agreement. Title to the Committed Gas shall pass to Buyer at the Delivery Point(s). As between the parties hereto, Seller shall be responsible for any damage or injury caused by the Committed Gas until it has been delivered to Buyer at the Delivery Point(s), after which Buyer shall be responsible for any damage or injury caused thereby. Either party may request in writing that the other party change 13 17 any Delivery Point(s) set forth in EXHIBIT A. The other party shall not unreasonably withhold its consent to the proposed change (it being specifically understood and agreed, however, that the withholding of such consent shall be reasonable if such other party would suffer economic detriment as a result of the proposed change). Changes in Aggregation Area(s) pursuant to changes in the Tariff of a Transporter shall also be reflected on EXHIBIT A within 30 Days after either Buyer or Seller has learned of such change. ARTICLE VI. QUALITY, PRESSURE AND MEASUREMENT 6.1 Generally. Unless otherwise provided elsewhere in this Agreement, all Committed Gas sold and purchased hereunder shall be of the same quality, delivered at the same pressure and measured in the same manner as provided from time to time in the then effective filed Tariff of the applicable Buyer's Transporter receiving and transporting the Gas for the Buyer at the applicable Delivery Point(s) (or such Transporter's other rules, guidelines, and policies to the extent applicable and in effect). EXCEPT AS MADE IN THIS SECTION 6.1 AND IN SECTION 14.1 (REGARDING SELLER'S TITLE), SELLER MAKES NO OTHER WARRANTIES, EXPRESS, IMPLIED, STATUTORY OR OTHERWISE, WITH RESPECT TO GAS SOLD HEREUNDER, INCLUDING, WITHOUT LIMITATION, WARRANTIES OF MERCHANTABILITY AND FITNESS FOR A PARTICULAR PURPOSE. 6.2 Nonconforming Gas. As to Committed Gas which fails to meet the quality or pressure specifications above set forth, Buyer at its option may refuse to accept any or all such Committed Gas (to be hereinafter referred to as "Nonconforming Gas"). Acceptance of any or all Nonconforming Gas shall not be deemed a waiver of Seller's obligations hereunder with respect to such Gas or Buyer's rights with respect to any future deliveries of Nonconforming Gas. Seller shall bring such Nonconforming Gas into conformity with the requirements of Section 6.1 and, if such efforts are successful, such Nonconforming Gas shall once again be Committed Gas and subject in all respects to the terms and conditions of this Agreement. If it would be uneconomical for Seller to bring such Nonconforming Gas into conformity with the requirements of Section 6.1, however, Seller shall notify Buyer in writing of that fact (providing, in such notice, Seller's reasons for such conclusion and the facts in support thereof), whereupon Buyer may, in its discretion (a) accept such Nonconforming Gas for delivery at a price mutually acceptable to Buyer and Seller, (b) have such Gas brought into conformity with Section 6.1 at its sole cost and expense or (c) release such Nonconforming Gas from this Agreement. Without limiting the generality of the foregoing provision, however, it is expressly agreed and understood that either party may, but neither shall be obligated to, install and operate facilities to bring the Gas into conformity with such specifications. Any such facilities shall be installed, operated and maintained at the sole cost, risk and expense of the party which elected to install such facilities. Either party may discontinue the operation of such facilities if, in the sole judgment of the party installing same, such operation is uneconomical. If neither party elects to install or continue the operation of such facilities, Nonconforming Gas shall be released from the terms hereof within thirty (30) Days of Buyer's or Seller's written request for such a release. The provisions of this Section 6.2 set forth the sole remedies for the delivery or non-acceptance, as applicable, of Nonconforming Gas. 14 18 ARTICLE VII. PRICE 7.1 Initial Price. Except as otherwise provided in Section 7.2, Buyer shall pay Seller one hundred percent (100%) of the Initial Price for all Committed Gas delivered hereunder during any Month. "Initial Price" shall mean the Index Price, after Index Price Adjustments. In the event more than one published index is listed on Exhibit "A" for use in determining the Index Price for Gas at a Delivery Point, then the Index Price will be calculated using an average of the published indices with appropriate Index Price Adjustments (hereinafter referred to as a "Basket Price"); provided, however, if the indices utilized in calculating the Basket Price in any Month differ by $0.15 per MMBtu or more, then the Basket Price will not be utilized for such Month in determining the Index Price and the Index Price for such Month will be determined for such source by applying the relevant indices to the actual volumes for the pipeline(s) on which the Gas actually flowed during such Month less any applicable Index Price Adjustments; provided, however, Buyer shall use its best efforts to sell the Gas to a customer on the pipeline that has the highest published index. 7.2 Alternate Price. (a) Generally. Notwithstanding the provisions of Section 7.1, Buyer shall pay Seller 100% of the Alternate Price (hereinafter defined) for the quantities of Committed Gas delivered for such Month at each Aggregation Area that exceed, for any reason (including, without limitation, the delivery of additional quantities of Committed Gas in accordance with Section 3.5(c)) 105% of the sum of the quantities of Committed Gas estimated for the Delivery Point(s) included in each such Aggregation Area, as set forth in Seller's Estimate for such Month. Such quantities of Committed Gas delivered in excess of 105% of Seller's Estimate for such Month shall be hereinafter referred to as the "Excess Quantities." The Alternate Price, however, shall be paid only if the difference between (i) the product of (a) the Initial Price and (b) the Excess Quantities and (ii) the product of (a) the Alternate Price and (b) the Excess Quantities, exceeds $5,000. (b) Definition of Alternate Price. "Alternate Price" means (i) the arithmetical average of Daily prices (to be computed from the Day on which initial deliveries of Excess Quantities takes place, until the final Day of the applicable Month) determined by the Gas Daily Index applicable to the Delivery Point(s) included in each Aggregation Area where such Excess Quantities are delivered, after (ii) Index Price Adjustments. 7.3 Costs of Delivery. Subject to the other provisions of this Agreement, Seller shall be responsible for, and shall pay all costs and expenses of, all arrangements necessary to deliver Committed Gas to the Delivery Point(s) and Buyer shall be responsible for, and shall pay all costs and expenses of, all arrangements necessary for the receipt, transportation and delivery to market of the Committed Gas. 7.4 Redetermination of Index(es) and Index Price Adjustments. If, during the term of this Agreement, (i) an Index used to determine the Index Price for any Delivery Point ceases to be available, (ii) either party believes that another Index more accurately reflects existing market conditions with respect to any Delivery Point(s) than the Index currently being used with respect to such Delivery Point(s), or (iii) either party believes that the Index Price Adjustments with respect to any Index Price for any Delivery Point(s) no longer accurately reflects all actual and reasonable net costs, and/or differentials, customarily taken into account in the natural gas marketing industry in determining basis, and necessary to adjust the Index Price applicable to 15 19 such Delivery Point(s), then either party may request the other to reconsider the currently-applicable Index or Index Price Adjustment. If the parties cannot agree on a replacement Index or an appropriate change to the Index Price Adjustment in question, then the dispute shall be subject to arbitration in accordance with Section 14.10. The parties shall review the appropriateness of all Index(es) and Index Price Adjustments used hereunder not less than semiannually. ARTICLE VIII. BILLING AND PAYMENT 8.1 Invoice. Unless otherwise agreed to by Buyer and Seller, by the fifteenth (15th) Day of each Month following the Month in which Committed Gas was delivered, Seller shall provide Buyer with a written or an electronically transmitted statement in respect of the preceding Month setting forth (a) the quantities of Committed Gas delivered at each Delivery Point(s), (b) the Contract Price applicable to such Committed Gas at each such Delivery Point(s), (c) any amounts due Seller in respect of any Buyer's Event (including reasonably satisfactory evidence of such amount), and (d) any amounts due Seller in respect of an Imbalance Penalty or violation of an OFO for which Buyer is responsible (including reasonably satisfactory evidence of such amounts), together with an invoice for payment based thereon. If actual quantities delivered at each of such Delivery Point(s) are not available by the fifteenth (15th) Day of the Month, Seller may furnish statements and invoices based on Seller's Estimate, which statements and invoices shall be adjusted to reflect actual deliveries as soon as practicable after such actual deliveries become known. Within five Business Days of the request of either party, the other party shall provide, to the extent it has a legal right of access thereto and/or such statement is then available, a copy of the Transporter's allocation or imbalance statement applicable to the Committed Gas for the requested period. Buyer shall cooperate with Seller in helping Seller obtain all information necessary or desirable to prepare Seller's statements and invoice in accordance with this Section 8.1. 8.2 Monthly Payment. By no later than the twenty-fifth (25th) Day of the Month following the Month in which Committed Gas was delivered, Buyer shall pay, in immediately available funds via wire transfer (or other mutually agreeable manner) and otherwise in accordance with Section 14.5, 50% of the amount due Seller, net of any amounts due Buyer in accordance with the terms of this Agreement. The remaining 50% of such amount shall be paid, in the manner set forth in the preceding grammatical sentence, on the final Day of the Month in question; PROVIDED, HOWEVER, THAT notwithstanding anything in this Agreement to the contrary, Buyer, at its sole election and discretion, shall have the right to defer payment to Seller of 20% of the remaining 50% of the amount due Seller (the "Deferred Amount") until the 15th Day of the Month following the end of the Month in question. If Seller provides Buyer with a written or electronically transmitted statement and accompanying invoice in accordance with Section 8.1, and if Buyer does not receive such statement and invoice until after the 15th Day of the Month, then (x) Buyer's initial 50% payment hereunder shall be due ten (10) Days after Buyer's receipt of such statement and invoice and (y) Buyer's final 50% payment hereunder shall be due five (5) Days after the initial payment was due in accordance with clause (x) (unless Buyer elects to defer payment of the Deferred Amount, in which case the Deferred Amount shall be due ten (10) Days after the initial payment was due in accordance with clause (x)). If Buyer and Seller have agreed, in accordance with Section 8.1, that it is unnecessary for Seller to provide Buyer with a statement and accompanying invoice hereunder, then Buyer's payments hereunder shall be payable in accordance with the first two grammatical sentences of this Section 8.2, and shall be based on (1) applicable Transporter statements or, (2) Seller's Estimate, but only if such 16 20 Transporter's statements are not available by the 15th Day of the Month in question (it being understood that such Seller's Estimate shall be adjusted to reflect actual deliveries as soon as practicable after such actual deliveries become known). Buyer shall submit to Seller with each Monthly payment a written or electronically transmitted schedule showing, for each Delivery Point(s) for such Month, (a) the quantity of Committed Gas delivered to such Delivery Point(s) and any reductions thereto due to downstream processing pursuant to Section 3.6(c), (b) the Contract Price applicable to such Committed Gas, indicating where appropriate the applicability of the Base Price or the Alternate Price, (c) the Index Price, (d) any Index Price Adjustments, (e) any amounts due Buyer in respect of any Seller's Event (including reasonably satisfactory evidence of such amounts), and (f) any amounts due Buyer in respect of an Imbalance Penalty or violation for which Seller is responsible (including reasonably satisfactory evidence of such amounts). If the Day on which payment is due under this Section 8.2 does not fall on a Business Day, then Buyer's payment shall be due on the next succeeding Business Day. Seller shall cooperate with Buyer in helping Seller obtain all information necessary or desirable to prepare Buyer's payment statements in accordance with this Section 8.2. 8.3 Disputed Statements. Should a statement be disputed by a party in good faith, the disputing party will pay any undisputed amount and will notify the other party in writing of the disputed amount and the basis for the dispute. Payment of the undisputed portion of a statement will not be deemed a waiver of the paying party's right to recoup any overpayment, and acceptance of such payment will not be deemed a waiver of the accepting party's right to recover any underpayment. The party that rendered the disputed statement will promptly investigate the dispute and will submit a corrected statement, if necessary, within thirty (30) Days after receiving notice of the dispute. If the parties cannot agree on the disputed amount within such 30-Day period, then, if upon resolution of the dispute, a party is determined to have underpaid the amount actually due, the party will remit the amount due, plus interest thereon from the date such amount should have been paid until such amount has been received by the underpaid party, calculated at the rate stated in Section 8.5 herein. If upon resolution of the dispute, a party is determined to have overpaid the amount actually due, the party to whom such overpayment was made will refund the excess paid, plus interest thereon calculated at the rate stated in Section 8.5 herein. 8.4 Errors. If an error is discovered in any statement rendered hereunder, such error shall be adjusted within thirty (30) Days after notice of the discovery of the error. Any dispute which is not timely resolved shall be subject to arbitration in accordance with Section 14.10. 8.5 Overdue Payments. Subject in all respects to Section 8.3, if either party fails to pay the amount due the other party when due hereunder as set forth in Section 8.2, then interest on any such unpaid and overdue amount shall accrue until paid at the Reference Rate. In addition, in the event that Buyer elects to defer the payment of the Deferred Amount, as permitted in Section 8.2, interest thereon shall not be incurred and shall not accrue until after the same is due. 8.6 Audits. Each party shall keep and maintain true and correct books, records, files and accounts of all information reasonably related to the transactions contemplated by this Agreement, including all measurement records, all information used to determine prices and calculate invoices, and all invoices, statements, and payment records (collectively, the "Records"). All such Records shall be maintained for at least thirty-six (36) Months after the Month to which they pertain. Either party may, at its own expense, audit and copy the other party's Records at any time during normal business hours upon at least fifteen (15) Days written notice. Any statement, charge or payment under this Agreement will be deemed final unless 17 21 disputed in accordance with Section 8.3 within twenty-four (24) Months from the final Business Day of the calendar year in which such statement, charge or payment is made or rendered, except for any adjustments to such statement, charge or payment due to volume adjustments of Committed Gas delivered at the Delivery Point(s) and other adjustments caused by Transporters' statements affecting payments for Committed Gas or Imbalance Penalties. 8.7 INDEMNITIES. (a) Seller's Indemnities. Seller shall, in accordance with this Section 8.7, indemnify, defend and hold Buyer harmless from and against any and all claims (including, without limitation, personal injury claims), costs, losses, causes of action, judgments, penalties, fines, damages, liabilities and expenses (including, without limitation, reasonable attorneys' fees and costs of court); of any kind whatsoever (all of the foregoing being hereinafter called "Losses") arising from or associated with (i) Gas prior to the delivery of the same to Buyer at the Delivery Point, (ii) any liabilities for which Seller is responsible and arising under Sections 11.3 or 11.4 hereof, (iii) a breach of Seller's warranties in Section 14.1, or (iv) Gas delivered by Seller hereunder, in respect of which claims of any type whatsoever are asserted by or on behalf of owners of landowners' royalties, overriding royalties, production payments, net profits interests or other types of non-operating interests in oil and gas leases. Notwithstanding anything stated in this Agreement to the contrary, the respective liability (under this Section 8.7 and under any other provision of this Agreement) of each of the undersigned parties executing this Agreement as a Seller shall be several, not joint, and shall be limited solely to those Losses (or the pro rata portion of such Losses) arising from or attributable to Gas delivered by such Seller hereunder (and each such Seller shall in no way be liable under this Section 8.7 for any Losses arising from or attributable to any Losses relating to Gas delivered hereunder by another Seller). (b) Buyer's Indemnities. Buyer shall, in accordance with this Section 8.7, indemnify, defend and hold each Seller harmless from and against any and all Losses arising from or associated with (i) Committed Gas after the delivery and receipt of the same to Buyer at the Delivery Point, or (ii) any liabilities for which Buyer is responsible and arising under Sections 11.3 or 11.4. (c) Claims for Indemnification. If either party seeks indemnification hereunder, the party seeking indemnification (the "Indemnified Party") shall give the party from whom indemnity is sought (the "Indemnifying Party") prompt written notice of any matters which may give rise to a claim for indemnification under this Section 8.7; provided, however, that failure or delay in notification shall not relieve the Indemnifying Party from liability hereunder unless (and only to the extent that delay in notifying the Indemnifying Party of such claim hinders or prevents the Indemnifying Party's defense of such claim or hinders or prevents the Indemnifying Party from obtaining the benefits of existing insurance coverage for some or all liability attributable to a Loss which would otherwise have been available to the Indemnifying Party but for said delay), in which case (and only to such limited extent), the Indemnified Party hereby WAIVES AND RELEASES the Indemnifying Party from any liability attributable to or arising from such claims, regardless of whether such claims were attributable to the negligence or strict liability of the Indemnifying Party. The Indemnifying Party shall have the right, in its own name or otherwise, to contest and defend by all appropriate legal or other proceedings any claim, provided, however, that: 18 22 (i) Notice of the Indemnifying Party's intention to so contest shall be delivered to the Indemnified Party within fifteen (15) Days from the date of the Indemnifying Party's receipt of the Indemnified Party's notice; (ii) The Indemnifying Party shall pay all costs and expenses which it incurs in connection with such contest, including but not limited to all attorneys', accountants' and expert witnesses' fees and the cost of any bond which the Indemnifying Party is required by law to post in connection with such contest; and (iii) The Indemnifying Party shall conduct such contest with attorneys approved by the Indemnified Party (which approval shall not be unreasonably withheld), but the Indemnified Party shall have the right to participate in such proceedings and to be represented by attorneys of its own choosing, at its own cost and expense. If the Indemnified Party does not elect to participate in any such proceedings, it shall be bound by the results obtained by the Indemnifying Party, but the Indemnifying Party shall not enter into any settlement or compromise of the claims being contested in such proceeding without the consent of the Indemnified Party, which consent shall not be unreasonably withheld. (d) Payment and Consent. Amounts which the Indemnifying Party must pay the Indemnified Party hereunder shall be due within thirty (30) Days after (i) the Indemnified Party has paid any Losses subject to the Indemnifying Party's indemnity hereunder and (ii) the Indemnified Party has presented the Indemnifying Party with reasonably satisfactory evidence that the amount of such Losses has been paid; provided, however, that notwithstanding anything stated herein to the contrary with regard to amounts paid in settlement of such Losses, the Indemnifying Party shall only be liable for Losses attributable to amounts paid in settlement of any claims to the extent that the Indemnifying Party has consented thereto in writing, and in the event the Indemnified Party settles or otherwise consents to liability on any claims without the prior written consent of the Indemnifying Party thereto, the Indemnified Party hereby WAIVES AND RELEASES the Indemnifying Party from any liability for such claims (and any Losses attributable to amounts paid in settlement thereof, regardless of whether such Losses are attributable (in whole or part) to the negligence or strict liability of the Indemnifying Party). Any amounts which the Indemnifying Party owes but does not pay when due under this Section 8.7 shall bear interest until paid at the Reference Rate. ARTICLE IX. EFFECTIVE DATE AND TERM; RELEASE OF GAS 9.1 Generally. This Agreement shall be effective as of the Effective Date and shall continue and remain in full force and effect until the first to occur of the following: (a) the tenth (10th) anniversary of the Effective Date (it being understood that, subject to the other terms and conditions of this Section 9.1, this Agreement shall be automatically extended for one Year, beginning with the tenth (10th) anniversary of the Effective Date, and continuing on each subsequent anniversary of the Effective Date thereafter, without necessity of further action of either party so long as APACHE GATHERING COMPANY remains a member of LLC), (b) termination of this Agreement pursuant to Section 9.2, (c) termination of this Agreement by Seller for a Material Buyer Take Event in accordance with Section 4.2(c), (d) termination of this Agreement upon occurrence of a Buyer Bankruptcy Event or a Seller Bankruptcy Event in accordance with Section 12.1(c)(i), (e) termination of this Agreement by Seller for a Buyer Payment Event in accordance with Section 12.1(c)(i), (f) Seller's dissolution, (g) Buyer's dissolution, or (h) December 31, 2020. 19 23 9.2 Restricted Gas; Release of Committed Gas. (a) Generally. The parties acknowledge that Buyer's loss of Committed Gas due to (i) the lawful withdrawal of APACHE GATHERING COMPANY as a member of LLC, or (ii) a Disposition of Gas designated hereunder as Committed Gas (the instances described in clauses (i) and (ii) being hereinafter referred to as "Restricted Gas Trigger Events" or a "RGTE") could jeopardize Buyer's ability to satisfy its contractual obligations to deliver Gas to third parties. The parties therefore agree that Buyer, acting in accordance with the provisions of this Section 9.2, may declare certain Committed Gas to be Restricted Gas (as defined in Section 9.2(b)), which Restricted Gas shall continue to be sold to Buyer notwithstanding the occurrence of a RGTE, pursuant to the terms of this Agreement or pursuant to a Restricted Gas Purchase Agreement (as defined below), as more particularly hereinafter set forth in this Section 9.2. Notwithstanding the continued sale of Restricted Gas to Buyer, Buyer shall release only the affected Committed Gas that is not Restricted Gas from the terms of this Agreement, effective (x) in the case of a Disposition, upon the closing of the Disposition, and (y) in the case of a lawful withdrawal of APACHE GATHERING COMPANY as a member of LLC, upon the effective date of such withdrawal. (b) Restricted Gas Defined; Restricted Gas Determinations. (i) "Restricted Gas" shall mean Committed Gas, the release of which, can reasonably be determined by Buyer to result in Buyer's being unable to fulfill its obligations to deliver Gas to third parties in a commercially reasonable manner and otherwise in accordance with the Buyer's then-existing contractual obligations at the time Buyer makes its determination that Committed Gas shall be Restricted Gas under this Section 9.2(b). Notwithstanding anything stated herein to the contrary, however, no contractual obligation of Buyer to deliver Gas to third parties that Buyer enters into on or after the RGTE Notice Date (hereinafter defined) may be considered by Buyer in connection with its Restricted Gas determination under this Section 9.2. "RGTE Notice Date" shall mean (x) in the case of a lawful withdrawal of APACHE GATHERING COMPANY as a member of LLC (herein sometimes a "Withdrawal RGTE"), on the date that Buyer receives notice of APACHE GATHERING COMPANY'S intent to withdraw as a member of the LLC, or (y) in the case of a Disposition (herein sometimes a "Disposition RGTE"), on the date that Buyer receives notice from Seller in accordance with the provisions of Section 3.3(b) hereof, relating to the proposed Disposition. (ii) Buyer shall determine whether Committed Gas shall be Restricted Gas as the result of a Restricted Gas Trigger Event (1) with respect to a Disposition RGTE, within the period set forth in Section 3.3(b), (2) with respect to a Withdrawal RGTE (including, without limitation, the withdrawal of APACHE GATHERING COMPANY in consequence of a Material Buyer Take Event), as soon as practicable, but in no case longer than sixty (60) Days following Buyer's receipt of Seller's notice of its intent to lawfully withdraw as a member of LLC. (iii) In connection with a Withdrawal RGTE, Buyer's Restricted Gas determination shall be made in writing, and shall describe the Restricted Gas that shall remain subject to the terms of this Agreement, as more particularly set forth in, and subject in all respects to, Section 9.2(c) below. (iv) In connection with a Disposition RGTE, Buyer's determination shall be made in writing, and shall set forth the terms on which such Restricted Gas shall 20 24 continue to be sold to Buyer pursuant to a Restricted Gas Purchase Agreement, subject in all respects to Sections 9.2(d) and 9.2(e) below. (v) If Buyer does not notify Seller of Buyer's determination as to the existence of Restricted Gas within the periods set forth in Section 9.2(b)(ii) above, Buyer shall be deemed to have agreed to release all Committed Gas from the terms of this Agreement, effective as of the dates set forth in Section 9.2(a)(x) or Section 9.2(a)(y), as applicable, and this Agreement shall terminate (1) with respect to Disposition Gas, only as to such Disposition Gas, but subject in all respects to Section 9.3, and (2) with respect to the lawful withdrawal of APACHE GATHERING COMPANY as a member of LLC, as to all Committed Gas sold hereunder, but subject in all respects to Section 9.3. THE CONSEQUENCES DESCRIBED IN THE PRECEDING GRAMMATICAL SENTENCE SHALL BE SELLER'S SOLE AND EXCLUSIVE REMEDY FOR BUYER'S FAILURE TO NOTIFY SELLER, IN ACCORDANCE WITH THE TERMS OF THIS AGREEMENT, OF BUYER'S DETERMINATION REGARDING THE EXISTENCE OF RESTRICTED GAS (IF ANY) IN CONNECTION WITH A DISPOSITION, AND ALL OTHER REMEDIES OR DAMAGES AT LAW OR IN EQUITY ARE WAIVED IN RESPECT OF SUCH EVENT. (vi) Seller shall continue to sell Committed Gas to Buyer under the terms of this Agreement until (x) in the case of a Disposition RGTE, the closing of the Disposition (subject to Sections 9.2(d) and 9.2(e)), and (y) in the case of a Withdrawal RGTE, the effective date of such withdrawal subject to Section 9.2(c). (c) Continuation of This Agreement as to Restricted Gas in Connection with Withdrawal. (i) After Buyer's Restricted Gas determination in connection with a Withdrawal RGTE, Seller shall continue to sell Committed Gas to Buyer pursuant to an amendment modifying this Agreement to conform in all material respects with gas purchase agreements then being entered into between the LLC and Participating Producers, and further modified to (A) reflect the release of all Withdrawal Gas (hereinafter defined) and/or Delivery Point(s) associated with such Withdrawal Gas, and (B) limit the otherwise applicable term of this Agreement to the period set forth in Buyer's Restricted Gas determination in connection with the applicable Withdrawal RGTE, such period not to exceed two (2) years from the date of such Restricted Gas determination. It is specifically understood and agreed that Buyer and Seller shall execute and deliver such amendment, which shall be consistent with the terms of this Section 9.2(c)(i) and otherwise reasonably satisfactory in form and substance to them both, within 30 days after the date of such Restricted Gas determination. Simultaneously with the execution and delivery of such amendment, Buyer and Seller shall also execute and deliver a Participant Profit Sharing Agreement with respect to Gas sold under such amendment, which shall have a Participant Aggregate Profit Sharing Amount equal to that which shall be applicable to participant profit sharing agreements in effect or entered into between the LLC and Participating Producers for the LLC fiscal year in which such Participant Profit Sharing Agreement is executed and delivered. (ii) Promptly following the notice of a lawful withdrawal (or a proposed lawful withdrawal) of APACHE GATHERING COMPANY as a member of LLC and the designation of any such Gas as Restricted Gas by Buyer, in accordance with Section 9.2(b), Buyer shall (A) release all Committed Gas from the terms of this Agreement, other than the Restricted Gas (such Committed Gas released in accordance with this Section 9.2(c) is referred to herein as "Withdrawal Gas"), (B) continue to purchase the Restricted Gas pursuant to the terms of this Agreement, as modified in accordance with Section 9.2(c)(i), (C) diligently seek to obtain 21 25 alternate sources of Gas from third parties on economic terms comparable, in Buyer's commercially reasonable judgment, to those under which Restricted Gas continues to be sold to Buyer hereunder pursuant to Section 9.2(c)(i), and (D) release any and all Restricted Gas promptly when (1) Buyer has obtained acceptable alternate sources of Gas as specified in Section 9.2(c)(ii)(C) or (2) Seller has given Buyer cash or other consideration satisfactory to Buyer in consideration of Buyer's release of the Restricted Gas. Upon Buyer's release of any and all Restricted Gas in accordance with (D) above (or upon the initial determination by Buyer in connection with Section 9.2(b) above that there is no Restricted Gas), this Agreement shall automatically terminate as between such Seller and Buyer (subject in all respects, however, to Section 9.3), without any further notice to or action by any party hereto. (d) Restricted Gas in Connection with a Disposition. Upon a proposed Disposition of Committed Gas by a Seller and the designation by Buyer (pursuant to the terms of Section 3.3 and this Section 9.2) of any Restricted Gas with respect to any Disposition Gas, Buyer shall (i) release all Disposition Gas, (ii) purchase the Restricted Gas under a Restricted Gas Purchase Agreement (as defined below), as more particularly set forth in Section 9.2(e), and (iii) release any and all Committed Gas that otherwise would have been deemed Restricted Gas in connection with such Disposition if, prior to the consummation of the Disposition, such Seller has given Buyer cash or other consideration satisfactory to Buyer in consideration of Buyer's release of the Restricted Gas. If a contemplated Disposition (whether such Disposition is consummated in a single or in multiple related transactions) involves a Disposition of substantially all of the assets of APACHE GATHERING COMPANY and APACHE GATHERING COMPANY contemplates withdrawing as a member of LLC in connection with such Disposition(s), then unless Buyer otherwise agrees in writing, each of such transactions shall be treated as a Disposition for purposes of Sections 9.2(d) and (e), rather than a withdrawal under Section 9.2(c) which terms shall include, among others, (w) a provision for the sale of the Restricted Gas to Buyer at a price equal to the price that Buyer pays hereunder to Seller (calculated on an MMBtu basis), (x) a provision for the quantity or quantities of Gas to be sold to Buyer thereunder to equal the quantity(-ies) of Restricted Gas determined by Buyer to be applicable to the Disposition in question, (y) a provision for the applicable Delivery Point(s), and (z) a provision for the term of Restricted Gas Purchase Agreement to continue for the applicable Term (as defined in the Restricted Gas Purchase Agreement). (e) Restricted Gas Purchase Agreement. On or before the closing of a Disposition with respect to which Buyer has determined that there is Restricted Gas, but not later than five (5) Days after the date of Buyer's Restricted Gas determination in respect of a Disposition RGTE, Buyer and Seller shall execute and deliver a separate gas purchase agreement in substantially the form attached hereto as EXHIBIT B (the "Restricted Gas Purchase Agreement"). Upon consummation of the applicable Disposition, such Restricted Gas Purchase Agreement shall be effective as of the effective date of the applicable Disposition (it being understood that Seller shall make as an express condition to the consummation of the Disposition, the assumption by the transferee of Seller's obligations pursuant to such Restricted Gas Purchase Agreement). Notwithstanding anything stated herein to the contrary, in the event that the Disposition is not consummated within one hundred eighty (180) days following Buyer's receipt of Seller's notice provided in accordance with Section 3.3(b), then the Restricted Gas Purchase Agreement shall automatically terminate, without further action by or notice to any party, and any Restricted Gas contemplated to be covered thereby shall continue to be Committed Gas under this Agreement. 9.3 Survival. Notwithstanding anything stated in this Agreement to the contrary, termination of this Agreement shall in no way relieve any party from any obligations or liabilities accrued as of the date of termination, and any imbalances in receipts or deliveries shall be 22 26 corrected to zero within 60 Days after such date. All indemnity obligations of the parties shall survive the termination of this Agreement. ARTICLE X. FORCE MAJEURE 10.1 Generally. In the event of either party hereto being rendered unable, wholly or in part, by Force Majeure (hereinafter defined) to carry out its obligations under this Agreement, other than the obligation to make payments due hereunder, such party shall notify the other party by telephone as soon as possible of the Force Majeure event and thereafter, as soon as practicable, provide full particulars of such Force Majeure in writing, by facsimile or other commercially reasonable means, to the other party within ten (10) Days after the occurrence of the cause relied on. The obligations of the parties, so far as they are affected by such Force Majeure, shall be suspended from the inception of such Force Majeure during the continuance of any inability so caused but for no longer period, and such cause shall be remedied with all reasonable dispatch. Upon termination of the event of Force Majeure, the party who had been affected by such event shall notify the other party by telephone of such termination, and thereafter, as soon as practicable, provide such other party with written notification of such termination by facsimile or other commercially reasonable means, and the parties shall resume performance under this Agreement as soon as practicable (it being understood, however, that Seller's obligation to resume performance hereunder is subject in all respects to the provisions of Section 10.4). The term "Force Majeure" as employed herein shall mean acts of God, strikes, lockouts or other industrial disturbances, acts of the public enemy, wars, blockades, insurrection, riots, epidemics, landslides, lightning, earthquakes, fires, hurricanes, tropical storms, floods, washouts, arrests and restraints of the government (federal, state or local), inability of any party hereto to obtain necessary materials, supplies or permits due to existing or future rules, orders and laws of governmental authorities (federal, state or local), interruptions by government or court orders, present and future orders of any regulatory body having proper jurisdiction, civil disturbances, explosions, sabotage, breakage or accident to machinery or lines of pipe, the necessity for making repairs or alterations to machinery or lines of pipe, freezing of wells or lines of pipe, partial or entire failure of wells (including, without limitation, well blowouts and well craterings), inability or refusal of any Transporter of Gas to receive, transport or deliver Gas sold and purchased hereunder (it being understood that an OFO issued for reasons not within the control of either party shall be considered an event of Force Majeure), and any other causes, whether of the kind herein enumerated or otherwise, not within the control of the party claiming suspension and which by the exercise of due diligence such party is unable to overcome. Force Majeure shall also include the inability to acquire, or the delays in acquiring, at reasonable cost and after the exercise of reasonable diligence, any servitudes, right-of-way grants, permits or licenses required to be obtained to enable a party hereto to fulfill its obligations hereunder. 10.2 Exclusions. The term "Force Majeure" does not include loss of Buyer's markets. 10.3 Labor Disputes. The settlement of strikes or lockouts shall be entirely within the discretion of the party having the difficulty and the above requirement of the use of diligence in restoring normal operating conditions shall not require the settlement of strikes or lockouts by acceding to the terms of the opposing party when such course is inadvisable in the discretion of the party having the difficulty. 10.4 Marketing of Force Majeure Gas. If Buyer is unable to take Committed Gas from any Delivery Point(s) due to the occurrence of Force Majeure, Seller, acting in a commercially 23 27 reasonable manner, may market and sell such Committed Gas from the affected Delivery Point(s) to any third parties free from this Agreement and without any obligation to Buyer during the continuance of the Force Majeure. As soon as the Force Majeure that rendered Buyer unable to take Committed Gas is remedied or terminated, Seller's obligation to thereafter commence selling the Committed Gas to Buyer shall commence following the expiration of any agreement between Seller and third parties for the purchase of Committed Gas that Buyer was unable to take and that Seller subsequently marketed and sold to such parties as permitted by this Section 10.4. It is specifically understood and agreed that any such agreement between Seller and third parties shall be terminable without penalty to Seller on not more than thirty (30) Days' notice, and Seller shall use commercially reasonable efforts to terminate any such agreement within a shorter period so that the Committed Gas being sold thereunder will be available for inclusion in the Seller's Estimate that follows the date on which Seller receives notice from Buyer pursuant to this Section 10.4 that such Force Majeure has been remedied or terminated. ARTICLE XI. IMBALANCE RESOLUTION 11.1 Generally. Seller agrees that Gas will be delivered as nearly as practicable at a relatively constant daily rate over the Month, but each party shall be entitled to operate within the tolerances in the applicable Tariff of a Transporter. 11.2 Cooperation of Parties. The parties recognize that imbalances may occur on Transporters. Accordingly, Buyer and Seller agree to make every reasonable effort to promptly eliminate or minimize such imbalances. The party which is the shipper under the applicable transportation agreement ("Shipper"), shall have the primary responsibility for eliminating or minimizing imbalances, it being understood, however, that the party who is not the Shipper shall cooperate with the Shipper's efforts in all reasonable respects. 11.3 Liability for Penalties. If any of the Transporter(s) of Committed Gas sold and purchased hereunder elects to transport in accordance with the general terms and conditions of its then applicable Tariff which allow the Transporter(s) to impose Imbalance Penalties, including, without limitation, cash-outs and overrun charges, Buyer and Seller shall be obligated to take such commercially reasonable action as may be necessary in order to avoid imposition of such charges. If, during any Month, Seller or Buyer receives an invoice from a Transporter which includes an Imbalance Penalty, the validity as well as the cause of such Imbalance Penalty shall be determined. If it is determined that the Imbalance Penalty was imposed as a result of acts or omissions of Buyer or Buyer's resale customer, then Buyer shall pay such Imbalance Penalty and/or shall indemnify Seller for any such Imbalance Penalty or cost as may be incurred by Seller. If it is determined that the Imbalance Penalty was imposed as a result of acts or omissions of Seller (including, without limitation, errors made in Seller's Estimate which are not corrected in time to reasonably permit Buyer to adjust nominations within any deadline established by the Tariff of a Transporter), then Seller shall pay such Imbalance Penalty and/or shall indemnify Buyer for any such Imbalance Penalty or cost as may be incurred by Buyer. 11.4 Operational Flow Orders. Should either party receive an operational flow order or other order or notice from a Transporter requiring action to be taken in connection with this Agreement or Gas flowing under this Agreement (an "Operational Flow Order" or "OFO"), such party shall notify the other party of the OFO as soon as practicable and simultaneously provide the other party a copy of such OFO by facsimile or other commercially reasonable means. The parties shall take all actions required by the OFO within the period(s) prescribed therein. 24 28 ARTICLE XII. CERTAIN EVENTS AFFECTING PERFORMANCE 12.1 Buyer and Seller Events. (a) Buyer Event Defined. Each of the following shall be deemed a "Buyer Event": (i) Buyer's failure to pay or cause to be paid any undisputed amount owing under this Agreement when due (including, without limitation, interest accrued thereon in accordance with Section 8.5) for fifteen (15) Days, subject in all respects to Buyer's rights under Section 8.3 (a "Buyer Payment Event"); (ii) a Buyer Take Event, as defined in Section 4.2(b); (iii) the occurrence of one or more of the following events with respect to Buyer: (A) the entry of a decree or order for relief against Buyer by a court of competent jurisdiction in any involuntary case brought against Buyer under any bankruptcy insolvency or other similar law (collectively, "Debtor Relief Laws") generally affecting the rights of creditors and relief of debtors now or hereafter in effect, (B) the appointment of a receiver, liquidator, assignee, custodian, trustee, sequestrator or other similar agent under applicable Debtor Relief Laws for Buyer or for any substantial part of its assets or property, (C) the ordering of the winding up or liquidation of the Buyer's affairs, (D) the filing of a petition in any such involuntary bankruptcy case, which petition remains undismissed for a period of 180 Days or which is not dismissed or suspended pursuant to Section 305 of the Federal Bankruptcy Code (or any corresponding provision of any future United States bankruptcy law) (E) the commencement by Buyer of a voluntary case under any applicable Debtor Relief Law now or hereafter in effect, (F) the consent by Buyer to the entry of an order for relief in an involuntary case under any such law or to the appointment of or the taking of possession by a receiver, liquidator, assignee, trustee, custodian, sequestrator or other similar agent under any applicable Debtor Relief Laws for the Member or for any substantial part of its assets or property, or (G) the making by Buyer of any general assignment for the benefit of its creditors (the events referred to in clauses (A) through (G) being collectively referred to as a "Buyer Bankruptcy Event"); (iv) the inaccuracy, in any material respect, of any representation or warranty made by Buyer in Section 14.15 (a "Buyer Representation Event"); or (v) Buyer's failure to perform any covenant or other obligation in this Agreement (other than those specified in clauses (i) through (iv) of this Section 12.1(a)), and if such failure is susceptible of cure before Seller suffers any costs or losses as a result of such Event, such failure is not remedied within thirty (30) Days of Buyer's receipt of a written notice describing the particulars of such failure in reasonable detail (a "Buyer Covenant Event"). (b) Seller Event Defined. Each of the following shall be deemed a "Seller Event": (i) Seller's failure to pay or cause to be paid any undisputed amount owing under this Agreement when due (including, without limitation, interest accrued thereon in accordance with Section 8.5) for a period of sixty (60) Days, subject in all respects to Seller's rights under Section 8.3 (a "Seller Payment Event"); (ii) a Seller Delivery Event, as defined in Section 4.2(a); (iii) the occurrence of one or more of the following events with respect to Seller: (A) the entry of a decree or order for relief against Seller by a court of competent jurisdiction in any involuntary case brought against Seller under any bankruptcy insolvency or other similar law (collectively, "Debtor Relief Laws") generally affecting the rights of creditors and relief of debtors now or hereafter in effect, (B) the appointment of a receiver, liquidator, assignee, custodian, trustee, sequestrator or other similar agent under applicable Debtor Relief Laws for Seller or for any substantial part of its assets or property, (C) the ordering of the winding up or liquidation of the Seller's affairs, (D) the filing of a petition in any such involuntary bankruptcy case, which petition remains undismissed for a period of 180 Days or which is not dismissed or suspended 25 29 pursuant to Section 305 of the Federal Bankruptcy Code (or any corresponding provision of any future United States bankruptcy law) (E) the commencement by Seller of a voluntary case under any applicable Debtor Relief Law now or hereafter in effect, (F) the consent by Seller to the entry of an order for relief in an involuntary case under any such law or to the appointment of or the taking of possession by a receiver, liquidator, assignee, trustee, custodian, sequestrator or other similar agent under any applicable Debtor Relief Laws for the Seller or for any substantial part of its assets or property, or (G) the making by Seller of any general assignment for the benefit of its creditors (the events referred to in clauses (A) through (G) being collectively referred to as a "Seller Bankruptcy Event"); (iv) the inaccuracy, in any material respect, of any representation or warranty made by Seller in Section 14.14 (a "Seller Representation Event"); or (v) Seller's failure to perform any covenant or other obligation in this Agreement (other than those specified in clauses (i) through (iv) of this Section 12.1(b)), and if such failure is susceptible of cure before Buyer suffers any costs or losses as a result of such Event, such failure is not remedied within thirty (30) Days of Seller's receipt of a written notice describing the particulars of such failure in reasonable detail (a "Seller Covenant Event"). (c) Consequences of Events. (i) Except as explicitly provided in this Agreement, and subject in all respects to the other terms and conditions hereof (including, without limitation, Sections 4.2, 4.3 and 14.4), an Unaffected Party may take such actions as it may be permitted to take under applicable law in consequence of an Event, including, without limitation, the exercise of offset rights under Section 12.2, the right to suspend further performance under this Agreement and the right to terminate this Agreement, but only (A) upon occurrence of a Buyer Bankruptcy Event or a Seller Bankruptcy Event (whereupon this Agreement shall terminate automatically and immediately), (B) upon occurrence of a Buyer Payment Event (whereupon this Agreement shall terminate immediately, but only at Seller's election, and only if Seller had previously given at least ten (10) Days' prior written notice to Buyer of Seller's intent to terminate this Agreement), or (C) upon occurrence of a Material Buyer Take Event, as provided in Section 4.2(c). (ii) An Unaffected Party shall use commercially reasonable efforts to mitigate costs or losses as a result of an Event, including, without limitation, exercising commercially reasonable efforts to find alternative markets for Committed Gas or alternative supplies of Gas, as applicable. (iii) Unless explicitly indicated to the contrary in this Agreement, the remedies provided for in this Section 12.1 (including, without limitation, termination of this Agreement) are cumulative of, and may be exercised without prejudice to, any other remedies, whether at law or in equity to which an Unaffected Party may be entitled under this Agreement for any Event. 12.2 Offset Rights. Without prejudice to the rights or remedies of either party hereunder, each party reserves to itself all rights, offsets, set-offs, counterclaims and like remedies and defenses which such party is or may be entitled to arising from or out of this Agreement or any other contract or agreement to which Buyer and Seller are parties, and Buyer is entitled to offset any payments due Seller hereunder against any payments owed to Buyer under any other contract or agreement to which Buyer and Seller are parties and for which the Seller against whom Buyer intends to exercise its offset rights has defaulted in making such payment under such contract or agreement. It is specifically understood and agreed that all rights, offsets, set-offs, counterclaims and like remedies reserved under this Section 12.2 by each party may be exercised against any Affiliate of the other party to the same extent as if such remedies could be exercised directly against the other party. 26 30 ARTICLE XIII. CERTAIN DEFINITIONS 13.1 Other Definitions. The phrases "Gas production owned or controlled by Seller" and "Gas production acquired or obtained by Seller," as used in this Agreement (including, but not limited to, Section 3.1 hereof), shall mean Gas that is either: (i) owned by Seller as and when it is produced at the wellhead (including, without limitation, residue Gas subject to Section 3.6(c)), (ii) purchased by Seller and resold by Seller to Buyer (such Gas being called "Third-Party Gas"), but only if such Third-Party Gas is (a) being gathered and commingled with Gas owned or controlled by Seller (within the meaning of clauses (i) or (iii) of this Section 13.1) and all such Gas is subsequently gathered, processed or otherwise treated in connection with the marketing of such Gas, or (b) residue Gas subject to Section 3.6(c), which has been commingled with and processed together with Gas owned or controlled by Seller (within the meaning of clauses (i) or (iii) of this Section 13.1), or (iii) Gas for which Seller has the written authority of the third party owner(s) thereof to act as such owner(s)' representative, agent, or attorney-in-fact in marketing such Gas (including, without limitation, under a joint operating agreement pursuant to which Seller is the operator), but only for the duration of such authorization. ARTICLE XIV. MISCELLANEOUS 14.1 Seller's Title Warranty. Seller warrants title to, or the right to sell, all Gas delivered to Buyer under this Agreement. Seller also warrants that all such Gas shall be free from all liens, encumbrances and adverse claims, other than (i) Liens as permitted under Section 3.7, and (ii) liens mandated by Section 9-319 of the Texas Business and Commerce Code and the statutes, if any, in other jurisdictions with like lien provisions of mandatory application. 14.2 No Continuing Waiver. The waiver by either party of any breach of any of the provisions of this Agreement shall not constitute a continuing waiver of other breaches of the same or other provisions of this Agreement. 14.3 Government Regulation. This Agreement is subject to all present and future valid laws, orders, rules and regulations of any regulatory body of the federal government or any state, county or local governmental body having jurisdiction. 14.4 Exclusion of Consequential Damages. IN NO EVENT SHALL EITHER PARTY BE LIABLE TO THE OTHER FOR ANY PUNITIVE, SPECIAL, CONSEQUENTIAL, OR INDIRECT DAMAGES, INCLUDING, WITHOUT LIMITATION, DAMAGES FOR LOST PROFITS. 14.5 Notices. Unless otherwise explicitly provided herein, all notices provided for in this Agreement shall be in writing and shall be (i) delivered in person or by messenger, (ii) mailed by Federal Express or similar private courier service, (iii) sent by United States certified mail (return receipt requested), postage prepaid, (iv) by facsimile, telex or telecopier, or (v) by any other commercially reasonable means, to the addresses of the parties set forth below or to such other addresses as either party may designate in writing to the other party. All notices given hereunder shall be effective on the date of actual receipt at the appropriate address. Notice given 27 31 pursuant to clause (iv) shall be effective (A) upon actual receipt if received during recipient's normal business hours, or (B) at the beginning of the next Business Day after receipt if received after the recipient's normal business hours. SELLER: Wire Transfer Payments: First Bank of Minneapolis ABA #091-000-022 Apache Corporation Master Account #1-502-5008-9953 For credit of (appropriate name of entity) Notices, Statements and Correspondence: Apache Gathering Company 2000 Post Oak Boulevard, Suite 100 Houston, Texas 77056-4400 Telephone: (713) 296-6000 Facsimile: (713) 296-6474 BUYER: Wire Transfer Payments: Producers Energy Marketing, LLC Texas Commerce Bank of Houston ABA No.: 113000609 Account No.: 001-00375832 Invoices: Producers Energy Marketing, LLC 616 F.M. 1960 West, Suite 800 Houston, Texas 77090 Attn: Manager Gas Accounting Telephone: (713) 583-6472 Facsimile: (713) 583-5252 Notices and Correspondence: Producers Energy Marketing, LLC 616 F.M. 1960 West, Suite 800 Houston, Texas 77090 Attn: Manager Producer Services Telephone: (713) 583-6252 Facsimile: (713) 583-5252 14.6 Assignability. This Agreement shall not be assigned by either party without the prior written consent of the other party. 14.7 Choice of Law. THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF TEXAS, WITHOUT REGARD TO ITS PRINCIPLES OF CONFLICTS OF LAWS. Any dispute 28 32 concerning the rights and obligations of Buyer and Seller hereunder, or the interpretation of any provision of this Agreement, shall be resolved in accordance with Section 14.10. 14.8 Integration. This Agreement sets forth all understandings of Buyer and Seller with respect to the purchase and sale of Committed Gas. All other agreements, oral or written, concerning such purchase and sale are merged into and superseded by this Agreement. No modification or amendment hereof shall be effective unless in writing and signed by both parties. 14.9 Confidentiality. (a) Parties' Obligations. The terms of this Agreement, including, but not limited to, the Contract Price and all other information exchanged by the parties hereunder, will be kept confidential by the parties unless such information becomes known to the public at large without breach of this Agreement, or a party is obligated to disclose such information to (i) a Transporter or other third party for the purpose of effectuating the sale and transportation of the Gas pursuant to this Agreement, (ii) to meet applicable securities or commodity exchange requirements, (iii) to meet regulatory filing requirements, (iv) to comply with mandatory document production requirements under federal or state Rules of Civil Procedure, a subpoena or other order of judicial or administrative tribunal, (v) to comply with contractual requirements with third parties or (vi) to comply with a request made by a Lender. Without limiting the generality of the foregoing, it is specifically understood and agreed that LLC may disclose a form of this Agreement (excluding EXHIBIT A and such other provisions hereof as may be mutually acceptable to the parties) for informational purposes to parties interested in joining LLC as members or participating producers. (b) Handling of Request for Disclosure. If either party believes that it may be required to disclose information concerning this Agreement that is to be kept confidential pursuant to Section 14.9(a), the disclosing party will notify the other party in writing as soon as practicable in advance of disclosure, specifying the nature of the request and the information to be disclosed. To the extent permitted under statutes, rules, regulations or contractual provisions applicable to the disclosure request, the party required to make disclosure will assert any available privilege permitting non-disclosure of the information that is to be kept confidential hereunder, or request confidential treatment of the disclosed information, including exemption from public disclosure under applicable "open records" and "freedom of information" statutes. The party disclosing information required to be kept confidential under Section 14.9(a) shall use commercially reasonable efforts to obtain from the person to whom disclosure of such information is made an agreement, to be signed by such person and any employee, agent, officer, director or independent contractor of such person to whom disclosure shall be made, such agreement to have terms and conditions substantially the same as those set forth in this Section 14.9. (c) Responsibility for Confidentiality. Each party will be deemed solely responsible and liable for the actions of its employees, independent contractors, officers, and agents for maintaining the confidentiality commitments of this Article, but will be required in that regard only to exercise such care in maintaining the confidentiality of this Agreement as it normally exercises in preserving the confidentiality of its other commercially sensitive documents. 14.10 Arbitration. (a) Generally. Subject to the provisions of this Section 14.10, all claims, controversies, disputes and other matters in question arising out of, or relating to, this Agreement 29 33 or the breach hereof shall be decided by arbitration proceedings before three (3) arbitrators in accordance with the Commercial Arbitration Rules of the American Arbitration Association then existing unless the parties mutually agree otherwise. This agreement to arbitrate shall bespecifically enforceable under the prevailing arbitration law. The demand for arbitration shall be made within a reasonable time after the claim, dispute or other matter in question has arisen, and in no event shall it be made when the institution of a legal or equitable proceeding based upon such claim, dispute or other matter in question would be barred by the applicable statute of limitations. The parties shall continue performing their obligations under this Agreement while any arbitration proceeding hereunder is pending. The proceeding shall be held in Houston, Texas or another location mutually agreeable to Buyer and Seller. The arbitrators shall be selected in accordance with the Commercial Arbitration Rules of the American Arbitration Association. The award rendered by a majority of the arbitrators shall be final, and judgment may be entered upon it in accordance with applicable law in any court having jurisdiction thereof, the parties hereto consenting to the jurisdiction of such courts for such purpose. The party prevailing in the arbitration shall also be awarded all reasonable attorneys' fees, costs and expenses of arbitration, including, without limitation, all arbitrators' fees, costs and expenses. (b) Special Provisions Applicable to Pricing Disputes. The provisions of this Section 14.10(b) shall apply to disputes relating to the determination of the Contract Price, including, without limitation, issues relating to the choice of an applicable Index, Index Price or the determination of Index Price Adjustments (all such disputes being hereinafter called "Price Disputes"). The arbitrators shall be selected in accordance with Section 14.10(a), it being understood, however, that at least one of the arbitrators shall have, prior to appointment, a minimum of five (5) Years' experience in the natural gas marketing industry. Each party shall deliver to the other party and to the arbitrators, within ten (10) Business Days of the appointment of the arbitrators, a written proposal stating such party's proposed outcome, together with supporting materials and documentation. Each party shall submit its response to the other party's proposal within ten (10) Business Days after the arbitrators' and other party's receipt of such proposal. The arbitrators, in their discretion, may request the submission of additional information, and may conduct a hearing on the subject matter of the dispute. Within forty-five (45) Days after the selection and appointment of the arbitrators, a majority of the arbitrators shall select and adopt either Seller's proposal or Buyer's proposal, without modification or compromise. The arbitrators shall make their decision as follows: (i) in any Price Dispute over an Index, the arbitrators shall decide which of the proposed Indexes presented to the arbitrators, after Index Price Adjustments, best represents the market price for Gas of like quantities and quality at the applicable Delivery Point(s), (ii) in any Price Dispute over Index Price Adjustments, the arbitrators shall decide which proposed Index Price Adjustment presented to the arbitrators best represents the actual and reasonable net costs, and/or differentials, customarily taken into account in the natural gas marketing industry in determining basis, and necessary to adjust the Index Price to the Delivery Point(s), and (iii) in all other Price Disputes, the arbitrators shall consider the terms and conditions of this Agreement and the requirements of applicable Texas law, including, without limitation, the Texas version of the Uniform Commercial Code in effect at the period relevant to the Price Dispute under consideration. The applicable Contract Price during the arbitration shall be the Contract Price offered by the Buyer. Upon the conclusion of the arbitration, such Contract Price, if it has changed as a result of the arbitrators' decision, shall be adjusted retroactive to the first Day of the Month in which the dispute resolved by the arbitration arose. Unless explicitly provided otherwise in this Section 14.10(b), the provisions of Section 14.10(a) shall be applicable to all arbitrations with respect to Price Disputes. 14.11 Taxes. The Contract Price to be paid by Buyer to Seller for Committed Gas purchased and sold hereunder is inclusive of the reimbursement of one hundred percent (100%) 30 34 of all state severance tax reimbursement. Production, severance, ad valorem, and/or similar taxes levied on the Committed Gas at or prior to the Delivery Point(s), and all such taxes, if due, shall be paid by Seller; provided, however, that where Buyer is required by law to be responsible for the payment of production, severance or similar taxes, Buyer shall make such payment and the Contract Price payable to Seller shall be correspondingly decreased by a like amount. If state law requires Buyer to remit such taxes to the collecting authority, then Buyer shall do so and deduct the taxes so paid on Seller's behalf from payments otherwise due to Seller hereunder. 14.12 Construction of Agreement. (a) General Principles. In construing this Agreement, the following principles shall be followed: (i) no consideration shall be given to the fact or presumption that one party had a greater or lesser hand in drafting this Agreement; (ii) examples shall not be construed to limit, expressly or by implication, the matter they illustrate; (iii) the word "includes" and its syntactical variants mean "includes, but is not limited to" and corresponding syntactical variant expressions; (iv) the plural shall be deemed to include the singular and vice versa, as applicable; (v) the term "party" shall refer to all Affiliates of such party unless the context specifically indicates to the contrary; and (vi) each exhibit, attachment, and schedule to this Agreement is a part of this Agreement, but if there is any conflict or inconsistency between the main body of this Agreement and any exhibit, attachment, or schedule, the provisions of the main body of this Agreement shall prevail. (b) Severability. If any provision of this Agreement is held to be illegal, invalid, or unenforceable under the present or future laws effective during the term of this Agreement, (a) such provision will be fully severable, (b) this Agreement will be construed and enforced as if such illegal, invalid, or unenforceable provision had never comprised a part of this Agreement, and (c) the remaining provisions of this Agreement will remain in full force and effect and will not be affected by the illegal, invalid, or unenforceable provision or by its severance from this Agreement. Furthermore, in lieu of such illegal, invalid, or unenforceable provision, there will be added automatically as a part of this Agreement a provision as similar in terms to such illegal, invalid, or unenforceable provision as may be possible and may be legal, valid and enforceable. 14.13 Relationship of Parties. This Agreement does not create a partnership, joint venture, or relationship of trust or agency between the parties. 14.14 Representations and Warranties of the Seller. Each party executing this Agreement as a Seller hereby represents and warrants to Buyer that as to such Seller on and as of the date hereof (and no party executing this Agreement as a Seller shall be liable to Buyer or another for any inaccuracy of any representation or warranty made hereunder by another party executing this Agreement as a Seller): 31 35 (a) It is duly formed and validly existing and, to the extent it is a corporation, in good standing under the laws of the state or jurisdiction of formation, with all requisite corporate, partnership or limited liability company, as the case may be, power and authority to carry on the business in which it is engaged and to perform its respective obligations under this Agreement; (b) The execution and delivery of this Agreement have been duly authorized and approved by all requisite corporate, partnership, limited liability company, or similar action; (c) It has all the requisite corporate, limited liability company, partnership or similar power and authority to enter into this Agreement and perform its obligations hereunder; (d) The execution and delivery of this Agreement do not, and consummation of the transactions contemplated herein will not, violate any of the material provisions of organizational documents, any material agreement pursuant to which such party or its properties are bound or, to its knowledge, any material applicable laws; (e) This Agreement is valid, binding, and enforceable against it in accordance with its terms, subject to bankruptcy, moratorium, insolvency and other laws generally affecting creditor's rights and general principles of equity (whether applied in a proceeding in a court of law or equity); and (f) It has assets of $5,000,000 or more according to its most recent financial statements prepared in accordance with generally accepted accounting principles, consistently applied, and knowledge and experience in financial matters and the oil and gas industry that enable Seller to evaluate the merits and risks of this Agreement. 14.15 Representations and Warranties of Buyer. Buyer hereby represents and warrants to each party executing this Agreement as a Seller that on and as of the date hereof: (a) It is duly formed and validly existing and in good standing under the laws of the state or jurisdiction of formation, with all requisite limited liability company power and authority to carry on the business in which it is engaged and to perform its respective obligations under this Agreement; (b) The execution and delivery of this Agreement have been duly authorized and approved by all requisite limited liability company, or similar action; (c) It has all the requisite limited liability company or similar power and authority to enter into this Agreement and perform its obligations hereunder; (d) The execution and delivery of this Agreement do not, and consummation of the transactions contemplated herein will not, violate any of the material provisions of organizational documents, any material agreement pursuant to which such party or its properties are bound or, to its knowledge, any material applicable laws; (e) This Agreement is valid, binding, and enforceable against it in accordance with its terms, subject to bankruptcy, moratorium, insolvency and other laws generally affecting creditor's rights and general principles of equity (whether applied in a proceeding in a court of law or equity); and 32 36 (f) It has assets of $5,000,000 or more according to its most recent financial statements prepared in accordance with generally accepted accounting principles, consistently applied, and knowledge and experience in financial matters and the oil and gas industry that enable Buyer to evaluate the merits and risks of this Agreement. 14.16 Seller's Agent. Each party executing this Agreement as a Seller hereby appoints APACHE GATHERING COMPANY as its agent, attorney-in-fact and representative ("Seller's Agent") for the purpose of (i) providing or receiving any other notices required or permitted hereunder, (ii) receiving any amounts or payments due any such Seller hereunder, (iii) making any elections or taking any actions required or permitted hereunder by Seller, including, without limitation, making any amendments to this Agreement or any Exhibit thereto. Buyer is entitled to assume that Seller's Agent is authorized to act on behalf of each Seller hereunder to avoid liability should any dispute as to the matters set forth in the preceding sentence arise. It is specifically understood and agreed, however, that (i) Buyer reserves the right to deal directly with any party upon Buyer's actual awareness of any dispute between a party and its Seller Agent and (ii) Buyer may interplead any amounts in dispute between a party and its Seller Agent in accordance with and subject to the terms of Section 8.7 and Section 14.17. 14.17 No Third Party Beneficiaries. Any agreement herein contained, expressed or implied, shall be only for the benefit of the parties and their respective legal representatives, successors, and assigns, and such agreements or assumptions shall not inure to the benefit of any other person whomsoever, it being the intention of the parties that no person shall be deemed a third party beneficiary of this Agreement. It is specifically understood and agreed that, in the performance of its duties hereunder, Buyer may interplead funds in its possession with respect to this Agreement if there is a dispute regarding the disposition of such funds between the Seller and a third person, or any party and its Seller's Agent, and Buyer shall be indemnified for all Losses in consequence of such interpleader in accordance with Section 8.7. 14.18 Further Assurances. Each party shall take such acts and execute and deliver such documents in form and substance reasonably satisfactory to each of them, in order to effectuate the purposes of this Agreement. 14.19. WAIVER OF CONSUMER RIGHTS. BUYER AND EACH PARTY EXECUTING THIS AGREEMENT AS A SELLER HEREBY WAIVE THEIR RESPECTIVE RIGHTS UNDER THE DECEPTIVE TRADE PRACTICES-CONSUMER PROTECTION ACT, SECTION 17.41 ET SEQ., TEXAS BUSINESS & COMMERCE CODE, A LAW THAT GIVES CONSUMERS SPECIAL RIGHTS AND PROTECTIONS. AFTER CONSULTATION WITH AN ATTORNEY OF ITS OWN SELECTION, BUYER AND EACH PARTY EXECUTING THIS AGREEMENT AS A SELLER VOLUNTARILY CONSENT TO THIS WAIVER. IN ADDITION, (i) BUYER HEREBY REPRESENTS AND WARRANTS TO SELLER THAT BUYER'S LEGAL COUNSEL WAS NOT DIRECTLY OR INDIRECTLY IDENTIFIED, SUGGESTED, OR SELECTED BY SELLER OR AN AGENT OF SELLER, AND (ii) EACH PARTY EXECUTING THIS AGREEMENT AS A SELLER HEREBY REPRESENTS AND WARRANTS TO BUYER THAT SUCH SELLER'S LEGAL COUNSEL WAS NOT DIRECTLY OR INDIRECTLY IDENTIFIED, SUGGESTED, OR SELECTED BY BUYER OR AN AGENT OF BUYER. 33 37 IN WITNESS WHEREOF, this Agreement has been executed in duplicate originals by the parties hereto as of the date set forth below the signature of each party, but effective as of the Effective Date. APACHE GATHERING COMPANY By: /s/ G. Steven Farris ------------------------------------------ Name: G. Steven Farris Title: President Date: March 1, 1996 --------------------------------------- SELLER APACHE CORPORATION By: /s/ G. Steven Farris ------------------------------------------ Name: G. Steven Farris Title: President and Chief Operating Officer Date: March 1, 1996 ---------------------------------------- SELLER MW PETROLEUM CORPORATION By: /s/ G. Steven Farris ------------------------------------------ Name: G. Steven Farris Title: President Date: March 1, 1996 ---------------------------------------- SELLER DEK ENERGY COMPANY By: /s/ G. Steven Farris ------------------------------------------ Name: G. Steven Farris Title: President Date: March 1, 1996 ---------------------------------------- SELLER 34 38 APACHE TRANSMISSION CORPORATION - TEXAS By: /s/ G. Steven Farris ------------------------------------------ Name: G. Steven Farris Title: President Date: March 1, 1996 ---------------------------------------- SELLER APACHE MARKETING, INC. By: /s/ G. Steven Farris ------------------------------------------ Name: G. Steven Farris Title: President Date: March 1, 1996 ---------------------------------------- SELLER PRODUCERS ENERGY MARKETING, LLC By: /s/ William P. Stokes, Jr. ------------------------------------------ Name: William P. Stokes, Jr. Title: Chief Executive Officer Date: February 29, 1996 ---------------------------------------- BUYER 35 EX-11.1 15 STATEMENT REGARDING COMPUTATION OF EARNINGS 1 EXHIBIT 11.1 APACHE CORPORATION AND SUBSIDIARIES COMPUTATION OF EARNINGS PER SHARE (IN THOUSANDS, EXCEPT PER SHARE DATA)
1995 1994 1993 ------------- ------------- ------------ Weighted Average Calculation: - ----------------------------- Net income $ 20,207 $ 45,583 $ 46,755 ============= ============= ============ Weighted average shares outstanding 71,792 69,715 62,013 ============= ============= ============ Net income per share, based on weighted average shares outstanding $ .28 $ .65 $ .75 ============= ============= ============ Primary Calculation: - -------------------- Net income $ 20,207 $ 45,583 $ 46,755 Assumed conversion of 3.93-percent debentures 2,162 2,121 2,145 ------------- ------------- ------------ Net income, as adjusted $ 22,369 $ 47,704 $ 48,900 ============= ============= ============ Common stock equivalents: Weighted average shares outstanding 71,792 69,715 62,013 Stock options, using the treasury stock method 106 115 242 Common stock equivalents assuming conversion of 3.93-percent debentures 2,778 2,778 2,778 ------------- ------------- ------------ 74,676 72,608 65,033 ============= ============= ============ Net income per common share primary $ .28 $ .65 $ .75 ============= ============= ============
The assumed conversion of other convertible debt would be insignificant or antidilutive for all the periods presented above. EX-21.1 16 SUBSIDIARIES OF REGISTRANT 1 EXHIBIT 21.1 APACHE CORPORATION LISTING OF SUBSIDIARIES
EXACT NAME OF SUBSIDIARY JURISDICTION OF AND NAME UNDER WHICH INCORPORATION OR SUBSIDIARY DOES BUSINESS ORGANIZATION ______________________________________________________________________________________________ Apache Foundation Minnesota Apache Gathering Company Delaware Apache Holdings, Inc. Delaware Apache International, Inc. Delaware Apache Cote d'Ivoire, Inc. Delaware Apache Oil Australia Pty Limited New South Wales, Australia Apache Oil Azerbaijan, Inc. Delaware Apache Oil Congo, Inc. Delaware Apache Oil Java Sea, Inc. Delaware Apache Oil Sumatra, Inc. Delaware Apache Qarun Corporation LDC Cayman Islands Apache Oil Egypt, Inc. Delaware Apache Overseas, Inc. Delaware Apache China Corporation LDC Cayman Islands Apache Cote d'Ivoire Petroleum LDC Cayman Islands Apache Darag Corporation LDC Cayman Islands Apache Faiyum Corporation LDC Cayman Islands MW Petroleum Corporation Colorado MWJR Petroleum Corporation Delaware Nagasco, Inc. Delaware Apache NGC, Inc. Delaware Apache Marketing, Inc. Delaware Apache Transmission Corporation - Texas Texas Apache Crude Oil Marketing, Inc. Delaware Nagasco Marketing, Inc. Delaware Apache Corporation (New Jersey) New Jersey Apache-Beals Corporation New York Apache Oil Corporation Texas Burns Manufacturing Company Minnesota Apache Bentu Limited Oklahoma Hadson Bunyu Limited Oklahoma Apache Energy Limited Western Australia Apache Northwest Pty Ltd. Western Australia Petro Energy Limited New South Wales, Australia Apache Beagle Pty Ltd. Western Australia Apache Carnarvon Pty Ltd. Western Australia Apache Dampier Pty Ltd. Western Australia Apache (WA 225) Pty Ltd. Western Australia Mid Equipment, Incorporated Delaware DEK Energy Company Delaware DEK Energy Texas, Inc. Delaware DEK Equipment Leasing Corporation #2 Delaware DEK Exploration Inc. Delaware DEK Gas Marketing, Inc. Delaware DEK International Sales Corporation Delaware DEK Petroleum Corporation Illinois Apache Canada Ltd. Alberta, Canada DEPCO, Inc. Texas Heinold Holdings, Inc. Delaware Kishwaukee Development Corporation Illinois Western Cattle Systems, Inc. Delaware
EX-23.1 17 CONSENT OF ARTHUR ANDERSEN LLP 1 EXHIBIT 23.1 CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS As independent public accountants, we hereby consent to the incorporation by reference of our report included in this Form 10-K into Apache Corporation's previously filed Registration Statements on Form S-3 (Nos. 33-51253, 33-53129, 33-62753 and 33-63923), Form S-4 (No. 33-61669) and Form S-8 (Nos. 33-31407, 33-37402, 33-53442, 33-59721, 33-59723 and 33-63817). ARTHUR ANDERSEN LLP Houston, Texas March 26, 1996 EX-23.2 18 CONSENT OF COOPERS & LYBRAND 1 EXHIBIT 23.2 CONSENT OF COOPERS & LYBRAND We hereby consent to the incorporation in this Form 10-K of Apache Corporation of our report dated February 13, 1995 on our audits of the consolidated financial statements of DEKALB Energy Company as of December 31, 1994 and 1993 and for the years ended December 31, 1994 and 1993, and the incorporation by reference of such report into Apache Corporation's previously filed Registration Statements on Form S-3 (Nos. 33-51253, 33-53129, 33-62753 and 33-63923), Form S-4 (No. 33-61669) and Form S-8 (Nos. 33-31407, 33-37402, 33-53442, 33-59721, 33-59723 and 33-63817). Coopers & Lybrand Chartered Accountants Calgary, Alberta, Canada March 27, 1996 EX-23.3 19 CONSENT OF RYDER SCOTT COMPANY PETRO. ENGINEERS 1 EXHIBIT 23.3 [Letterhead of Ryder Scott Company] As independent petroleum engineers, we hereby consent to the reference in this Amendment on Form 10-K of Apache Corporation to our Firm's name and our Firm's review of the proved oil and gas reserve quantities of Apache Corporation and of DEKALB Energy Company, as of January 1, 1995, and to the incorporation by reference of our Firm's name and review into Apache Corporation's previously filed Registration Statements on Form S-3 (Nos. 33-51253, 33-53129, 33-62753 and 33-63923), Form S-4 (No. 33-61669) and Form S-8 (Nos. 33-31407, 33-37402, 33-53442, 33-59721, 33-59723 and 33-63817). Ryder Scott Company Petroleum Engineers Houston, Texas March 27, 1996 EX-27 20 FINANCIAL DATA SCHEDULE
5 1,000 YEAR DEC-31-1995 DEC-31-1995 13,633 0 175,949 0 9,764 208,336 4,377,104 (1,975,543) 2,681,450 230,349 1,072,076 98,124 0 0 993,681 2,681,450 653,144 750,702 500,131 600,470 0 0 88,057 33,143 12,936 20,207 0 0 0 20,207 .28 .28
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