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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
[ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the Quarterly Period Ended March 31, 2003
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the Transition Period from ___________________ to _____________________
Commission File Number 1-4300
APACHE CORPORATION
-----------------------------------------------------
(Exact Name of Registrant as Specified in Its Charter)
Delaware 41-0747868
------------------------------ ----------------------
(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification Number)
Suite 100, One Post Oak Central 77056-4400
----------
2000 Post Oak Boulevard, Houston, TX (Zip Code)
- --------------------------------------
(Address of Principal Executive Offices)
Registrant's Telephone Number, Including Area Code: (713) 296-6000
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
YES X NO
----- ----
Number of shares of Registrant's common stock, outstanding as
of March 31, 2003................................................161,601,619
PART I - FINANCIAL INFORMATION
ITEM 1 - FINANCIAL STATEMENTS
APACHE CORPORATION AND SUBSIDIARIES
STATEMENT OF CONSOLIDATED OPERATIONS
(UNAUDITED)
FOR THE QUARTER ENDED MARCH 31,
-------------------------------------------
2003 2002
----------------- -----------------
(In thousands, except per common share data)
REVENUES:
Oil and gas production revenues...................................... $ 975,162 $ 529,389
Other revenues (losses).............................................. (8,553) (1,393)
--------------- ---------------
966,609 527,996
--------------- ---------------
OPERATING EXPENSES:
Depreciation, depletion and amortization............................. 214,349 211,039
Asset retirement obligation accretion................................ 5,313 -
International impairments............................................ - 4,600
Lease operating costs................................................ 134,135 112,304
Gathering and transportation costs................................... 11,861 8,233
Severance and other taxes............................................ 24,554 14,199
General and administrative........................................... 27,831 25,352
Financing costs:
Interest expense.................................................. 37,696 36,882
Amortization of deferred loan costs............................... 531 334
Capitalized interest.............................................. (11,232) (10,022)
Interest income................................................... (1,074) (1,169)
--------------- ---------------
443,964 401,752
--------------- ---------------
PREFERRED INTERESTS OF SUBSIDIARIES.................................... 3,362 3,533
--------------- ---------------
INCOME BEFORE INCOME TAXES............................................. 519,283 122,711
Provision for income taxes........................................... 206,986 42,039
--------------- ---------------
INCOME BEFORE CHANGE IN ACCOUNTING PRINCIPLE........................... 312,297 80,672
Cumulative effect of change in accounting principle, net of
income tax........................................................ 26,632 -
--------------- ---------------
NET INCOME.............................................................. 338,929 80,672
Preferred stock dividends............................................ 1,420 4,908
--------------- ---------------
INCOME ATTRIBUTABLE TO COMMON STOCK..................................... $ 337,509 $ 75,764
=============== ===============
BASIC NET INCOME PER COMMON SHARE:
Before change in accounting principle................................ $ 1.95 $ 0.53
Cumulative effect of change in accounting principle.................. 0.17 -
--------------- ---------------
$ 2.12 $ 0.53
=============== ===============
DILUTED NET INCOME PER COMMON SHARE:
Before change in accounting principle................................ $ 1.94 $ 0.52
Cumulative effect of change in accounting principle.................. 0.16 -
--------------- ---------------
$ 2.10 $ 0.52
=============== ===============
The accompanying notes to consolidated financial statements
are an integral part of this statement.
1
APACHE CORPORATION AND SUBSIDIARIES
STATEMENT OF CONSOLIDATED CASH FLOWS
(UNAUDITED)
FOR THE QUARTER ENDED MARCH 31,
---------------------------------
2003 2002
-------------- --------------
(In thousands)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income.................................................................... $ 338,929 $ 80,672
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation, depletion and amortization................................ 214,349 211,039
Asset retirement obligation accretion................................... 5,313 -
Provision for deferred income taxes..................................... 103,427 (348)
International impairments............................................... - 4,600
Cumulative effect of change in accounting principle..................... (26,632) -
Other................................................................... 8,579 (6,755)
Changes in operating assets and liabilities:
(Increase) decrease in receivables...................................... (229,087) (28,973)
(Increase) decrease in advances to oil and gas ventures and other....... (4,268) (18,533)
(Increase) decrease in product inventory................................ 1,009 28
(Increase) decrease in deferred charges and other....................... 2,368 (582)
Increase (decrease) in payables......................................... 98,551 12,774
Increase (decrease) in accrued expenses................................. 42,225 (42,464)
Increase (decrease) in advances from gas purchasers..................... (4,304) (3,903)
Increase (decrease) in deferred credits and noncurrent liabilities...... (12,418) (2,290)
------------- -------------
Net cash provided by operating activities........................... 538,041 205,265
------------- -------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to property and equipment........................................... (358,881) (245,084)
Acquisition of BP Gulf of Mexico properties................................... (512,912) -
Other, net.................................................................... (12,226) 13,848
------------- -------------
Net cash used in investing activities............................... (884,019) (231,236)
------------- -------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Long-term borrowings.......................................................... 64,753 377,939
Payments on long-term debt.................................................... (280,300) (344,331)
Dividends paid................................................................ (16,787) (18,256)
Common stock activity, net.................................................... 564,324 9,390
Treasury stock activity, net.................................................. 2,594 (856)
Cost of debt and equity transactions.......................................... (534) (18)
------------- -------------
Net cash provided by financing activities........................... 334,050 23,868
------------- -------------
NET DECREASE IN CASH AND CASH EQUIVALENTS........................................ (11,928) (2,103)
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR................................... 51,886 35,625
------------- -------------
CASH AND CASH EQUIVALENTS AT END OF PERIOD....................................... $ 39,958 $ 33,522
============= =============
The accompanying notes to consolidated financial statements
are an integral part of this statement.
2
APACHE CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
(UNAUDITED)
MARCH 31, DECEMBER 31,
2003 2002
--------------- ---------------
(In thousands)
ASSETS
CURRENT ASSETS:
Cash and cash equivalents............................................ $ 39,958 $ 51,886
Receivables.......................................................... 761,342 527,687
Inventories.......................................................... 113,658 109,204
Drilling advances.................................................... 42,824 45,298
Prepaid assets and other............................................. 40,384 32,706
--------------- ---------------
998,166 766,781
--------------- ---------------
PROPERTY AND EQUIPMENT:
Oil and gas, on the basis of full cost accounting:
Proved properties................................................. 13,914,265 12,827,459
Unproved properties and properties under
development, not being amortized............................... 817,509 656,272
Gas gathering, transmission and processing facilities................ 792,816 784,271
Other................................................................ 200,772 194,685
--------------- ---------------
15,725,362 14,462,687
Less: Accumulated depreciation, depletion and amortization.......... (6,082,411) (5,997,102)
--------------- ---------------
9,642,951 8,465,585
--------------- ---------------
OTHER ASSETS:
Goodwill, net........................................................ 189,252 189,252
Deferred charges and other........................................... 41,913 38,233
--------------- ---------------
$ 10,872,282 $ 9,459,851
=============== ===============
The accompanying notes to consolidated financial statements
are an integral part of this statement.
3
APACHE CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
(UNAUDITED)
MARCH 31, DECEMBER 31,
2003 2002
--------------- ---------------
(In thousands)
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable..................................................... $ 315,453 $ 214,288
Accrued operating expense............................................ 46,505 47,382
Accrued exploration and development.................................. 180,110 146,871
Accrued compensation and benefits.................................... 12,988 32,680
Accrued interest..................................................... 42,260 30,880
Accrued income taxes................................................. 85,909 44,256
Other................................................................ 45,380 15,878
--------------- ---------------
728,605 532,235
--------------- ---------------
LONG-TERM DEBT.......................................................... 1,943,364 2,158,815
--------------- ---------------
DEFERRED CREDITS AND OTHER NONCURRENT LIABILITIES:
Income taxes......................................................... 1,227,178 1,120,609
Advances from gas purchasers......................................... 121,149 125,453
Asset retirement obligation.......................................... 450,040 -
Oil and gas derivative instruments................................... 7,884 3,507
Other................................................................ 153,874 158,326
--------------- ---------------
1,960,125 1,407,895
--------------- ---------------
PREFERRED INTERESTS OF SUBSIDIAIRES..................................... 437,088 436,626
--------------- ---------------
SHAREHOLDERS' EQUITY:
Preferred stock, no par value, 5,000,000 shares authorized -
Series B, 5.68% Cumulative Preferred Stock,
100,000 shares issued and outstanding.......................... 98,387 98,387
Common stock, $1.25 par, 215,000,000 shares authorized,
165,732,575 and 155,464,540 shares issued, respectively........... 207,166 194,331
Paid-in capital...................................................... 4,009,703 3,427,450
Retained earnings.................................................... 1,722,086 1,427,607
Treasury stock, at cost, 4,130,956 and 4,211,328 shares,
respectively...................................................... (108,447) (110,559)
Accumulated other comprehensive loss................................. (125,795) (112,936)
--------------- ---------------
5,803,100 4,924,280
--------------- ---------------
$ 10,872,282 $ 9,459,851
=============== ===============
The accompanying notes to consolidated financial statements
are an integral part of this statement.
4
APACHE CORPORATION AND SUBSIDIARIES
STATEMENT OF CONSOLIDATED SHAREHOLDERS' EQUITY
(UNAUDITED)
SERIES B SERIES C
COMPREHENSIVE PREFERRED PREFERRED COMMON PAID-IN
(In thousands) INCOME STOCK STOCK STOCK CAPITAL
--------------- ------------- ------------ ------------ --------------
BALANCE AT DECEMBER 31, 2001.............. $ 98,387 $ 208,207 $ 185,288 $ 2,803,825
Comprehensive income (loss):
Net income........................... $ 80,672 - - - -
Currency translation adjustments..... (1,115) - - - -
Commodity hedges..................... (4,020) - - - -
Marketable securities................ (125) - - - -
--------------
Comprehensive income................... $ 75,412
==============
Dividends:
Preferred............................ - - - -
Common ($.10 per share).............. - - - -
Common shares issued................... - (36) 344 10,393
Treasury shares issued, net............ - - - 595
Other.................................. - - - (119)
---------- ---------- ---------- ------------
BALANCE AT MARCH 31, 2002................. $ 98,387 $ 208,171 $ 185,632 $ 2,814,694
========== ========== ========== ============
BALANCE AT DECEMBER 31, 2002.............. $ 98,387 $ - $ 194,331 $ 3,427,450
Comprehensive income (loss):
Net income........................... $ 338,929 - - - -
Commodity hedges..................... (12,859) - - - -
--------------
Comprehensive income................... $ 326,070
==============
Dividends:
Preferred............................ - - - -
Common ($.10 per share).............. - - - -
Five percent common stock dividend..... - - 607 25,307
Common shares issued................... - - 12,228 556,068
Treasury shares issued, net............ - - - 482
Other.................................. - - - 396
---------- ---------- ---------- ------------
BALANCE AT MARCH 31, 2003................. $ 98,387 $ - $ 207,166 $ 4,009,703
========== ========== ========== ============
OTHER TOTAL
RETAINED TREASURY COMPREHENSIVE SHAREHOLDERS'
(In thousands) EARNINGS STOCK INCOME (LOSS) EQUITY
------------- ------------ --------------- --------------
BALANCE AT DECEMBER 31, 2001.............. $ 1,336,478 $ (111,885) $ (101,817) $ 4,418,483
Comprehensive income (loss):
Net income........................... 80,672 - - 80,672
Currency translation adjustments..... - - (1,115) (1,115)
Commodity hedges..................... - - (4,020) (4,020)
Marketable securities................ - - (125) (125)
Comprehensive income...................
Dividends:
Preferred............................ (4,908) - - (4,908)
Common ($.10 per share).............. (13,356) - - (13,356)
Common shares issued................... - - - 10,701
Treasury shares issued, net............ - 1,149 - 1,744
Other.................................. - - - (119)
----------- ---------- ------------- ------------
BALANCE AT MARCH 31, 2002................. $ 1,398,886 $ (110,736) $ (107,077) $ 4,487,957
=========== ========== ============= ============
BALANCE AT DECEMBER 31, 2002.............. $ 1,427,607 $ (110,559) $ (112,936) $ 4,924,280
Comprehensive income (loss):
Net income........................... 338,929 - - 338,929
Commodity hedges..................... - - (12,859) (12,859)
Comprehensive income...................
Dividends:
Preferred............................ (1,420) - - (1,420)
Common ($.10 per share).............. (17,116) - - (17,116)
Five percent common stock dividend..... (25,914) - - -
Common shares issued................... - - - 568,296
Treasury shares issued, net............ - 2,112 - 2,594
Other.................................. - - - 396
----------- ---------- ------------- ------------
BALANCE AT MARCH 31, 2003................. $ 1,722,086 $ (108,447) $ (125,795) $ 5,803,100
=========== ========== ============= ============
The accompanying notes to consolidated financial statements
are an integral part of this statement.
5
APACHE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
These financial statements have been prepared by Apache Corporation (Apache
or the Company) without audit, pursuant to the rules and regulations of the
Securities and Exchange Commission, and reflect all adjustments which are, in
the opinion of management, necessary for a fair statement of the results for the
interim periods, on a basis consistent with the annual audited financial
statements. All such adjustments are of a normal recurring nature. Certain
information, accounting policies, and footnote disclosures normally included in
financial statements prepared in accordance with accounting principles generally
accepted in the United States have been omitted pursuant to such rules and
regulations, although the Company believes that the disclosures are adequate to
make the information presented not misleading. These financial statements should
be read in conjunction with the financial statements and the summary of
significant accounting policies and notes thereto included in the Company's most
recent annual report on Form 10-K.
On December 18, 2002, the Company declared a five percent stock dividend
payable on April 2, 2003, to shareholders of record on March 12, 2003. Quarterly
share and per share information for 2002 have been restated to reflect this
stock dividend.
Reclassifications
Certain prior period amounts have been reclassified to conform with current
year presentations.
1. ACQUISITIONS
On January 13, 2003, Apache announced that it had entered into agreements
to purchase producing properties in the North Sea and Gulf of Mexico from
subsidiaries of BP p.l.c. (referred to collectively as "BP") for $1.3 billion,
with $670 million allocated to the Gulf of Mexico properties and the remaining
$630 million allocated to properties in the North Sea. The properties included
estimated proved reserves of 233.2 million barrels of oil equivalent (MMboe),
147.6 MMboe located in the North Sea with the balance in the Gulf of Mexico. The
Gulf of Mexico properties were subject to normal closing adjustments and
preferential rights by third parties. Both purchase agreements were effective as
of January 1, 2003. As is customary, Apache assumed BP's abandonment obligation
for the properties, which was considered in determining the purchase price. The
purchase price for both BP transactions was paid in cash funded by the sale of
Apache common stock and borrowings under existing lines of credit and commercial
paper. The offering of Apache's common stock provided net proceeds of
approximately $554 million.
Apache and BP closed the transaction for the Gulf of Mexico properties on
March 13, 2003, which included BP's interest in 56 producing fields, including
104 blocks. Upon closing, Apache paid a purchase price, adjusted for normal
closing and preferential rights exercised by third parties, of $509 million. The
Gulf of Mexico purchase price and reserves were reduced by $73 million and 9.6
MMboe, respectively, primarily for the exercise of preferential rights by third
parties. As of January 1, 2003, the Gulf of Mexico properties acquired from BP
had estimated proved reserves of 76 MMboe.
The acquisition of the U.K. North Sea properties closed on April 2, 2003,
at which time Apache paid a purchase price, adjusted for normal closing and
working capital adjustments, of $630 million. As of January 1, 2003, the North
Sea properties acquired from BP had estimated proved reserves of 147.6 MMboe.
The acquisition of the North Sea properties includes a 96 percent interest in
the Forties Field and establishes a new core area for the Company. In
conjunction with the Forties acquisition, Apache may be required to issue a
letter of credit to BP to cover the present value of related asset retirement
obligations if the rating of our senior unsecured debt is lowered by both
Moody's and Standard and Poor's from the Company's current ratings of A- and A3,
respectively. Should this occur, the initial letter of credit amount would be
175 million British pounds. Apache has agreed to sell all of the North Sea
production from those properties over the next two years to BP at a combination
of fixed and market sensitive prices pursuant to a contract entered into in
connection with the North Sea purchase agreement.
6
The following unaudited pro forma information shows the effect on the
Company's consolidated results of operations as if the Gulf of Mexico portion of
the BP acquisition occurred on January 1 of each period presented. The pro forma
information is based in part on data provided by BP and on numerous assumptions.
The information is not necessarily indicative of future results of operations.
FOR THE THREE MONTHS FOR THE THREE MONTHS
ENDED MARCH 31, 2003 ENDED MARCH 31, 2002
--------------------------------- ---------------------------------
AS REPORTED PRO FORMA AS REPORTED PRO FORMA
---------------- --------------- --------------- ----------------
(In thousands, except per common share data)
Revenues.................................... $ 966,609 $ 1,070,734 $ 527,996 $ 620,274
Net income.................................. 338,929 367,607 80,672 99,752
Preferred stock dividends................... 1,420 1,420 4,908 4,908
Income attributable to common stock......... 337,509 366,187 75,764 94,844
Net income per common share:
Basic................................... $ 2.12 $ 2.27 $ 0.53 $ .62
Diluted................................. 2.10 2.25 0.52 .61
Average common shares outstanding(1)........ 159,255 161,455 144,159 154,061
- --------------
(1) Pro forma shares assume the issuance of 9.9 million shares as of the
beginning of each period presented.
2. DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES
Apache uses a variety of strategies to manage its exposure to fluctuations
in commodity prices. As established by the Company's hedging policy, Apache
primarily enters into cash flow hedges in connection with certain acquisitions
to protect the economics of the transaction. The success of these acquisitions
is significantly influenced by Apache's ability to achieve targeted production
at forecasted prices. These hedges effectively reduce price risk on a portion of
the production from the acquisitions.
During the first quarter of 2003, in conjunction with the BP acquisitions
and during the fourth quarter of 2002, in conjunction with the South Louisiana
properties acquisition, Apache entered into, and designated as cash flow hedges,
natural gas and crude oil fixed-price swaps and natural gas option collars.
These positions were entered into in accordance with the Company's hedging
policy and involved several counterparties which are rated A+ or better. As of
March 31, 2003, the outstanding positions of our cash flow hedges were as
follows:
PRODUCTION TOTAL VOLUMES WEIGHTED AVERAGE FAIR VALUE ASSET/
PERIOD INSTRUMENT TYPE (MMBtu/Bbl) FLOOR/CEILING LIABILITY
- --------------- ------------------------ ----------------- ------------------- -------------------
(In thousands)
2003 Collars 13,750,000 $ 3.50 / 6.09 $ (3,142)
Gas Fixed-Price Swap 55,000,000 5.18 2,010
Oil Fixed-Price Swap 13,750,000 26.59 (12,903)
2004 Collars 18,300,000 3.25 / 5.81 (4,330)
Gas Fixed-Price Swap 51,240,000 4.52 (5,444)
Oil Fixed-Price Swap 1,550,000 26.59 1,319
2005 Collars 9,050,000 3.25 / 5.20 (2,407)
In addition to the fixed-price swaps and options, Apache entered into a
separate crude oil physical sales contract with BP. The sales contract qualifies
for the normal purchase and sale exemption of SFAS No. 133 and, therefore, the
Company has designated and accounted for the contract under the accrual method.
As of March 31, 2003, the outstanding terms of the contract were as follows:
CRUDE OIL FIXED-PRICE PHYSICAL SALES CONTRACT (BRENT)
-----------------------------------------------------
PRODUCTION TOTAL VOLUMES AVERAGE
PERIOD (BARRELS) FIXED PRICE
----------- ------------- -----------
2003 6,875,000 $ 25.32
2004 14,175,000 22.24
7
A reconciliation of the components of accumulated other comprehensive
income (loss) in the statement of consolidated shareholders' equity related to
Apache's derivative activities is presented in the table below (in thousands):
GROSS AFTER-TAX
------------ ------------
Unrealized loss on derivatives at December 31, 2002.................. $ (7,141) $ (4,186)
Net losses realized into earnings.................................... 40,445 25,221
Net change in derivative fair value.................................. (60,929) (38,080)
------------ ------------
Unrealized loss on derivatives at March 31, 2003..................... $ (27,625) $ (17,045)
============ ============
The unrealized loss in other comprehensive income of $27.6 million is
expected to be realized in future earnings contemporaneously with the related
sales of natural gas and crude oil production applicable to specific hedges.
Losses of $19.7 million ($12.1 million after tax) are expected to be realized
over the next twelve months; however, these amounts could vary materially as a
result of changes in market conditions. There was no material ineffectiveness
associated with the hedges during the period.
3. CAPITAL STOCK
On January 22, 2003, the Company completed a public offering of 9.9 million
shares of Apache common stock, adjusted for the five percent common stock
dividend, including underwriters' over-allotment option, for net proceeds of
approximately $554 million. The proceeds were used toward the purchase of
Apache's acquisition from BP of producing properties in the U.K. North Sea and
the Gulf of Mexico.
4. NET INCOME PER COMMON SHARE
A reconciliation of the components of basic and diluted net income per
common share is presented in the table below:
FOR THE QUARTER ENDED MARCH 31,
---------------------------------------------------------------------------
2003 2002
------------------------------------ ------------------------------------
INCOME SHARES PER SHARE INCOME SHARES PER SHARE
---------- ---------- ----------- ----------- ---------- ----------
(In thousands, except per share amounts)
BASIC:
Income attributable to common stock. $337,509 159,255 $ 2.12 $ 75,764 144,159 $ 0.53
======== ========
EFFECT OF DILUTIVE SECURITIES:
Stock options and other............. - 1,325 - 1,608
Series C Preferred Stock (1)........ - - - -
-------- ------- -------- -------
DILUTED:
Income attributable to common stock,
including assumed conversions...... $337,509 160,580 $ 2.10 $ 75,764 145,767 $ 0.52
======== ======= ======== ======== ======= ========
- ---------
(1) The effect of the Series C Preferred Stock in 2002 was not included in the
computation of diluted net income per share, because to do so would have
been anti-dilutive.
8
5. STOCK-BASED COMPENSATION
At March 31, 2003, the Company had several stock-based employee
compensation plans. The Company accounts for those plans under the recognition
and measurement principles of Accounting Principals Board Opinion No. 25,
"Accounting for Stock Issued to Employees," and related interpretations. Under
this method, the Company records no compensation expense for stock options
granted when the exercise price of those options is equal to or greater than the
market price of the Company's common stock on the date of grant, unless the
awards are subsequently modified. The following table illustrates the effect on
income attributable to common stock and earnings per share if the Company had
applied the fair value recognition provisions of Statement of Financial
Accounting Standards (SFAS) No. 123, "Accounting for Stock-Based Compensation,"
as amended, to stock-based employee compensation for the Company's option and
performance plans.
FOR THE QUARTER ENDED MARCH 31,
---------------------------------
2003 2002
-------------- ---------------
(In thousands)
Income attributable to Common Stock, as reported.................. $ 337,509 $ 75,764
Add: Stock-based employee compensation expense
included in reported net income, net of related
tax effects.................................................... 356 520
Deduct: Total stock-based employee compensation
expense determined under fair value based method
for all awards, net of related tax effects..................... (4,501) (4,863)
-------------- ---------------
Pro forma Income Attributable to Common Stock..................... $ 333,364 $ 71,421
============ ============
Net Income per Common Share:
Basic:
As reported.................................................. $ 2.12 $ 0.53
Pro forma.................................................... 2.09 0.50
Diluted:
As reported.................................................. 2.10 0.52
Pro forma.................................................... 2.06 0.49
The effects of applying SFAS No. 123, as amended, in this pro forma
disclosure should not be interpreted as being indicative of future effects. SFAS
No. 123, as amended, does not apply to awards prior to 1995, and the extent and
timing of additional future awards cannot be predicted.
On May 1, 2003, the Company issued stock appreciation rights to certain
employees in lieu of stock options. In future periods, the Company will record
compensation expense in respect to those stock appreciation rights as the price
of the Company's common stock fluctuates.
6. SUPPLEMENTAL CASH FLOW INFORMATION
The following table provides supplemental disclosure of cash flow
information:
FOR THE QUARTER ENDED MARCH 31,
---------------------------------
2003 2002
-------------- ---------------
(In thousands)
Cash paid during the period for:
Interest (net of amounts capitalized)........................ $ 12,017 $ 13,683
Income taxes (net of refunds)................................ 61,948 32,656
9
7. BUSINESS SEGMENT INFORMATION
Apache has five reportable segments which are primarily in the business of
natural gas and crude oil exploration and production. The Company evaluates
segment performance based on results from oil and gas sales and lease level
expenses. Apache's reportable segments are managed separately because of their
geographic locations. Financial information by operating segment is presented
below:
OTHER
UNITED CANADA EGYPT AUSTRALIA INTERNATIONAL TOTAL
STATES
----------- ----------- ----------- ---------- ------------- ----------
(IN THOUSANDS)
FOR THE QUARTER ENDED MARCH 31, 2003
Oil and Gas Production Revenues......$ 472,153 $ 223,403 $ 175,363 $ 102,274 $ 1,969 $ 975,162
=========== =========== =========== =========== =========== ===========
Operating Income (1).................$ 277,941 $ 136,575 $ 113,706 $ 56,059 $ 669 $ 584,950
=========== =========== =========== =========== ===========
Other Income (Expense):
Other revenues (losses)........... (8,553)
General and administrative........ (27,831)
Preferred interests of (3,362)
subsidiaries......................
Financing costs, net.............. (25,921)
-----------
Income Before Income Taxes........... $ 519,283
===========
Total Assets.........................$ 5,345,524 $ 2,652,260 $ 1,749,675 $ 950,629 $ 174,194 $10,872,282
=========== =========== =========== =========== =========== ===========
FOR THE QUARTER ENDED MARCH 31, 2002
Oil and Gas Production Revenues......$ 223,326 $ 112,410 $ 117,777 $ 74,446 $ 1,430 $ 529,389
=========== =========== =========== =========== =========== ===========
Operating Income (Loss) (1).........$ 52,604 $ 35,947 $ 60,870 $ 33,635 $ (4,042) $ 179,014
========== ========== ========== ========== ==========
Other Income (Expense):
Other revenues (losses)........... (1,393)
General and administrative........ (25,352)
Preferred interests of (3,533)
subsidiaries......................
Financing costs, net.............. (26,025)
-----------
Income Before Income Taxes........... $ 122,711
===========
Total Assets.........................$ 4,089,657 $ 2,213,727 $ 1,597,582 $ 896,415 $ 166,944 $ 8,964,325
========== ========== ========== ========== ========== ===========
- -----------
(1) Operating income (loss) consists of oil and gas production revenues less
depreciation, depletion and amortization, asset retirement obligation
accretion, international impairments, lease operating costs, gathering and
transportation costs, and severance and other taxes.
8. NEW ACCOUNTING PRONOUNCEMENTS
Effective January 1, 2003, the Company adopted SFAS No. 143, "Accounting
for Asset Retirement Obligations," which resulted in an increase to net oil and
gas properties of $410 million and additional liabilities related to asset
retirement obligations of $369 million. These entries reflect the asset
retirement obligation of Apache had the provisions of SFAS No. 143 been applied
since inception. This resulted in a non-cash cumulative-effect increase to
earnings of $27 million ($41 million pretax).
10
The following table describes all changes to the Company's asset retirement
obligation liability since adoption (in thousands):
Asset retirement obligation upon adoption on January 1, 2003......... $ 368,537
Liabilities incurred................................................. 74,030
Liabilities settled.................................................. (4,337)
Accretion expense.................................................... 5,313
Revisions and foreign currency fluctuation........................... 6,497
-------
Asset retirement obligation at March 31, 2003........................ $ 450,040
=========
Liabilities incurred during the period primarily relate to obligations
assumed in connection with the BP Gulf of Mexico property acquisition.
Liabilities settled during the period primarily relate to individually
immaterial properties plugged and abandoned or sold during the period. Prior to
adoption of this statement, such obligations were accrued ratably over the
productive lives of the assets through its depreciation, depletion and
amortization for oil and gas properties; therefore, had SFAS No. 143 not been
adopted, net income during the current period would not have been materially
different. In addition, the net income impact of applying SFAS No. 143 on the
comparable period in 2002 would not have resulted in a material difference,
however, the liability as of January 1, 2002 would have been approximately $334
million.
9. SUPPLEMENTAL GUARANTOR INFORMATION
Apache Finance Pty Ltd. (Apache Finance Australia) and Apache Finance
Canada Corporation (Apache Finance Canada) are subsidiaries of Apache, that have
issuances of publicly traded securities and require the following condensed
consolidating financial statements be provided as an alternative to filing
separate financial statements.
Each of the companies presented in the condensed consolidating financial
statements has been fully consolidated in Apache Corporation's consolidated
financial statements. As such, the condensed consolidating financial statements
should be read in conjunction with the financial statements of Apache
Corporation and subsidiaries and notes thereto of which this note is an integral
part.
11
APACHE CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS
FOR THE QUARTER ENDED MARCH 31, 2003
ALL OTHER
APACHE APACHE SUBSIDIARIES
APACHE APACHE FINANCE FINANCE OF APACHE
CORPORATION NORTH AMERICA AUSTRALIA CANADA CORPORATION
------------- ------------- ------------- ------------- ------------
(IN THOUSANDS)
REVENUES:
Oil and gas production revenues ......... $ 376,167 $ -- $ -- $ -- $ 654,267
Equity in net income (loss) of affiliates 179,358 8,947 11,925 28,195 (9,077)
Other revenues (losses) ................. (3,616) -- -- -- (4,937)
--------- --------- --------- --------- ---------
551,909 8,947 11,925 28,195 640,253
--------- --------- --------- --------- ---------
OPERATING EXPENSES:
Depreciation, depletion and amortization 67,618 -- -- -- 146,731
Asset retirement obligation accretion ... 2,764 -- -- -- 2,549
Lease operating costs ................... 58,767 -- -- -- 130,640
Gathering and transportation costs ...... 4,485 -- -- -- 7,376
Severance and other taxes ............... 14,357 -- -- 42 10,155
General and administrative .............. 23,703 -- -- -- 4,128
Financing costs, net .................... 21,099 -- 4,512 10,169 (9,859)
--------- --------- --------- --------- ---------
192,793 -- 4,512 10,211 291,720
--------- --------- --------- --------- ---------
PREFERRED INTERESTS OF SUBSIDIARIES ........ -- -- -- -- 3,362
--------- --------- --------- --------- ---------
INCOME (LOSS) BEFORE INCOME TAXES .......... 359,116 8,947 7,413 17,984 345,171
Provision (benefit) for income taxes .... 39,944 -- (1,534) (4,112) 172,688
--------- --------- --------- --------- ---------
INCOME (LOSS) BEFORE CHANGE IN
ACCOUNTING PRINCIPLE ..................... 319,172 8,947 8,947 22,096 172,483
Cumulative effect of change in accounting
principle, net of income tax .......... 19,757 -- -- -- 6,875
--------- --------- --------- --------- ---------
NET INCOME ................................. 338,929 8,947 8,947 22,096 179,358
Preferred stock dividends ............... 1,420 -- -- -- --
--------- --------- --------- --------- ---------
INCOME ATTRIBUTABLE TO COMMON STOCK ........ $ 337,509 $ 8,947 $ 8,947 $ 22,096 $ 179,358
========= ========= ========= ========= =========
RECLASSIFICATIONS
& ELIMINATIONS CONSOLIDATED
----------------- -------------
(IN THOUSANDS)
REVENUES:
Oil and gas production revenues ......... $ (55,272) $ 975,162
Equity in net income (loss) of affiliates (219,348) --
Other revenues (losses) ................. -- (8,553)
--------- ---------
(274,620) 966,609
--------- ---------
OPERATING EXPENSES:
Depreciation, depletion and amortization -- 214,349
Asset retirement obligation accretion ... -- 5,313
Lease operating costs ................... (55,272) 134,135
Gathering and transportation costs ...... -- 11,861
Severance and other taxes ............... -- 24,554
General and administrative .............. -- 27,831
Financing costs, net .................... -- 25,921
--------- ---------
(55,272) 443,964
--------- ---------
PREFERRED INTERESTS OF SUBSIDIARIES ........ -- 3,362
--------- ---------
INCOME (LOSS) BEFORE INCOME TAXES .......... (219,348) 519,283
Provision (benefit) for income taxes .... -- 206,986
--------- ---------
INCOME (LOSS) BEFORE CHANGE IN
ACCOUNTING PRINCIPLE ..................... (219,348) 312,297
Cumulative effect of change in accounting
principle, net of income tax .......... -- 26,632
--------- ---------
NET INCOME ................................. (219,348) 338,929
Preferred stock dividends ............... -- 1,420
--------- ---------
INCOME ATTRIBUTABLE TO COMMON STOCK ........ $(219,348) $ 337,509
========= =========
12
APACHE CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS
FOR THE QUARTER ENDED MARCH 31, 2002
APACHE APACHE
APACHE APACHE FINANCE FINANCE
CORPORATION NORTH AMERICA AUSTRALIA CANADA
------------- ------------- ------------- -------------
(IN THOUSANDS)
REVENUES:
Oil and gas production revenues............... $ 161,869 $ - $ - $ -
Equity in net income (loss) of affiliates..... 68,616 4,502 7,480 14,438
Other revenues (losses)....................... 185 - - -
------------- ------------- ------------- -------------
230,670 4,502 7,480 14,438
------------- ------------- ------------- -------------
OPERATING EXPENSES:
Depreciation, depletion and amortization...... 53,704 - - -
International impairments..................... - - - -
Lease operating costs......................... 50,967 - - -
Gathering and transportation costs............ 2,941 - - -
Severance and other taxes..................... 6,632 - - 9
General and administrative.................... 21,475 - - -
Financing costs, net.......................... 15,683 - 4,512 10,229
------------- ------------- ------------- -------------
151,402 - 4,512 10,238
------------- ------------- ------------- -------------
PREFERRED INTERESTS OF SUBSIDIARIES.............. - - - -
------------- ------------- ------------- -------------
INCOME (LOSS) BEFORE INCOME TAXES................ 79,268 4,502 2,968 4,200
Provision (benefit) for income taxes.......... (1,404) - (1,534) (4,464)
------------- ------------- ------------- -------------
NET INCOME....................................... 80,672 4,502 4,502 8,664
Preferred stock dividends..................... 4,908 - - -
------------- ------------- ------------- -------------
INCOME ATTRIBUTABLE TO COMMON STOCK.............. $ 75,764 $ 4,502 $ 4,502 $ 8,664
============= ============= ============= =============
ALL OTHER
SUBSIDIARIES
OF APACHE RECLASSIFICATIONS
CORPORATION & ELIMINATIONS CONSOLIDATED
------------ ----------------- ------------
(IN THOUSANDS)
REVENUES:
Oil and gas production revenues............... $ 407,541 $ (40,021) $ 529,389
Equity in net income (loss) of affiliates..... (8,752) (86,284) -
Other revenues (losses)....................... (1,578) - (1,393)
------------ --------------- -------------
397,211 (126,305) 527,996
------------ --------------- -------------
OPERATING EXPENSES:
Depreciation, depletion and amortization...... 157,335 - 211,039
International impairments..................... 4,600 - 4,600
Lease operating costs......................... 101,358 (40,021) 112,304
Gathering and transportation costs............ 5,292 - 8,233
Severance and other taxes..................... 7,558 - 14,199
General and administrative.................... 3,877 - 25,352
Financing costs, net.......................... (4,399) - 26,025
------------ --------------- -------------
275,621 (40,021) 401,752
------------ --------------- -------------
PREFERRED INTERESTS OF SUBSIDIARIES.............. 3,533 - 3,533
------------ --------------- -------------
INCOME (LOSS) BEFORE INCOME TAXES................ 118,057 (86,284) 122,711
Provision (benefit) for income taxes.......... 49,441 - 42,039
------------ --------------- -------------
NET INCOME....................................... 68,616 (86,284) 80,672
Preferred stock dividends..................... - - 4,908
------------ --------------- -------------
INCOME ATTRIBUTABLE TO COMMON STOCK.............. $ 68,616 $ (86,284) $ 75,764
============ =============== =============
13
APACHE CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS
FOR THE QUARTER ENDED MARCH 31, 2003
APACHE APACHE
APACHE APACHE FINANCE FINANCE
CORPORATION NORTH AMERICA AUSTRALIA CANADA
------------- ------------- ------------- -------------
(IN THOUSANDS)
CASH PROVIDED BY (USED IN) OPERATING
ACTIVITIES....................................... $ (620,860) $ - $ (3,500) $ (4,333)
------------- ------------- ------------- -------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to property and equipment.............. (102,386) - - -
Acquisitions..................................... (512,912) - - -
Investment in subsidiaries, net.................. 113,844 (3,500) - -
Other, net....................................... (3,953) - - -
------------- ------------- ------------- -------------
NET CASH USED IN INVESTING ACTIVITIES.............. (505,407) (3,500) - -
------------- ------------- ------------- -------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Long-term debt activity, net..................... 579,208 - - (66)
Dividends paid................................... (16,787) - - -
Common stock activity, net....................... 564,324 3,500 3,500 4,363
Treasury stock activity, net..................... 2,594 - - -
Cost of debt and equity transactions............. (534) - - -
------------- ------------- ------------- -------------
NET CASH PROVIDED BY FINANCING ACTIVITIES.......... 1,128,805 3,500 3,500 4,297
------------- ------------- ------------- -------------
NET INCREASE (DECREASE) IN CASH AND
CASH EQUIVALENTS................................. 2,538 - - (36)
CASH AND CASH EQUIVALENTS AT
BEGINNING OF YEAR................................ 224 - 2 127
------------- ------------- ------------- -------------
CASH AND CASH EQUIVALENTS AT
END OF PERIOD.................................... $ 2,762 $ - $ 2 $ 91
============= ============= ============= =============
ALL OTHER
SUBSIDIARIES
OF APACHE RECLASSIFICATIONS
CORPORATION & ELIMINATIONS CONSOLIDATED
------------ --------------- -------------
(IN THOUSANDS)
CASH PROVIDED BY (USED IN) OPERATING
ACTIVITIES....................................... $ 1,166,734 $ - $ 538,041
------------ --------------- -------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to property and equipment.............. (256,495) - (358,881)
Acquisitions..................................... - - (512,912)
Investment in subsidiaries, net.................. (846,747) 736,403 -
Other, net....................................... (8,273) - (12,226)
------------ --------------- -------------
NET CASH USED IN INVESTING ACTIVITIES.............. (1,111,515) 736,403 (884,019)
------------ --------------- -------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Long-term debt activity, net..................... (90,957) (703,732) (215,547)
Dividends paid................................... - - (16,787)
Common stock activity, net....................... 21,308 (32,671) 564,324
Treasury stock activity, net..................... - - 2,594
Cost of debt and equity transactions............. - - (534)
------------ --------------- -------------
NET CASH PROVIDED BY FINANCING ACTIVITIES.......... (69,649) (736,403) 334,050
------------ --------------- -------------
NET INCREASE (DECREASE) IN CASH AND
CASH EQUIVALENTS................................. (14,430) - (11,928)
CASH AND CASH EQUIVALENTS AT
BEGINNING OF YEAR................................ 51,533 - 51,886
------------ --------------- -------------
CASH AND CASH EQUIVALENTS AT
END OF PERIOD.................................... $ 37,103 $ - $ 39,958
============ =============== =============
14
APACHE CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS
FOR THE QUARTER ENDED MARCH 31, 2002
APACHE APACHE
APACHE APACHE FINANCE FINANCE
CORPORATION NORTH AMERICA AUSTRALIA CANADA
------------- ------------- ------------- -------------
(IN THOUSANDS)
CASH PROVIDED BY (USED IN) OPERATING
ACTIVITIES............................................ $ (524,773) $ - $ (3,545) $ (476)
------------- ------------- ------------- -------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to property and equipment................... (69,337) - - -
Proceeds from sales of oil and gas properties......... 650 - - -
Proceeds from sale of U.S. Government Agency Notes.... - - - -
Investment in subsidiaries, net....................... (69,435) (3,500) - -
Other, net............................................ (846) - - -
------------- ------------- ------------- -------------
NET CASH USED IN INVESTING ACTIVITIES................... (138,968) (3,500) - -
------------- ------------- ------------- -------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Long-term debt activity, net.......................... 667,662 - 45 476
Dividends paid........................................ (18,256) - - -
Common stock activity, net............................ 9,390 3,500 3,500 -
Treasury stock activity, net.......................... (856) - - -
Cost of debt and equity transactions.................. (18) - - -
------------- ------------- ------------- -------------
NET CASH PROVIDED BY FINANCING ACTIVITIES............... 657,922 3,500 3,545 476
------------- ------------- ------------- -------------
NET INCREASE (DECREASE) IN CASH AND
CASH EQUIVALENTS...................................... (5,819) - - -
CASH AND CASH EQUIVALENTS AT
BEGINNING OF YEAR..................................... 6,383 - 2 -
------------- ------------- ------------- -------------
CASH AND CASH EQUIVALENTS AT
END OF PERIOD......................................... $ 564 $ - $ 2 $ -
============= ============= ============= =============
ALL OTHER
SUBSIDIARIES
OF APACHE RECLASSIFICATIONS
CORPORATION & ELIMINATIONS CONSOLIDATED
------------ --------------- -------------
(IN THOUSANDS)
CASH PROVIDED BY (USED IN) OPERATING
ACTIVITIES............................................ $ 734,059 $ - $ 205,265
------------ --------------- -------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to property and equipment................... (175,747) - (245,084)
Proceeds from sales of oil and gas properties......... 146 - 796
Proceeds from sale of U.S. Government Agency Notes.... 17,006 - 17,006
Investment in subsidiaries, net....................... (506,056) 578,991 -
Other, net............................................ (3,108) - (3,954)
------------ --------------- -------------
NET CASH USED IN INVESTING ACTIVITIES................... (667,759) 578,991 (231,236)
------------ --------------- -------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Long-term debt activity, net.......................... (89,261) (545,314) 33,608
Dividends paid........................................ - - (18,256)
Common stock activity, net............................ 26,677 (33,677) 9,390
Treasury stock activity, net.......................... - - (856)
Cost of debt and equity transactions.................. - - (18)
------------ --------------- -------------
NET CASH PROVIDED BY FINANCING ACTIVITIES............... (62,584) (578,991) 23,868
------------ --------------- -------------
NET INCREASE (DECREASE) IN CASH AND
CASH EQUIVALENTS...................................... 3,716 - (2,103)
CASH AND CASH EQUIVALENTS AT
BEGINNING OF YEAR..................................... 29,240 - 35,625
------------ --------------- -------------
CASH AND CASH EQUIVALENTS AT
END OF PERIOD......................................... $ 32,956 $ - $ 33,522
============ =============== =============
15
APACHE CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATING BALANCE SHEET
AS OF MARCH 31, 2003
APACHE APACHE
APACHE APACHE FINANCE FINANCE
CORPORATION NORTH AMERICA AUSTRALIA CANADA
------------- ------------- ------------- -------------
(IN THOUSANDS)
ASSETS
CURRENT ASSETS:
Cash and cash equivalents...................... $ 2,762 $ - $ 2 $ 91
Receivables.................................... 273,704 - - -
Inventories.................................... 13,585 - - -
Drilling advances and others................... 16,468 - - -
------------- ------------- ------------- -------------
306,519 - 2 91
------------- ------------- ------------- -------------
PROPERTY AND EQUIPMENT, NET...................... 4,247,546 - - -
------------- ------------- ------------- -------------
OTHER ASSETS:
Intercompany receivable, net................... 931,026 - (662) (253,785)
Goodwill, net.................................. - - - -
Equity in affiliates........................... 3,199,874 154,693 414,392 1,003,028
Deferred charges and other..................... 34,558 - - 2,450
------------- ------------- ------------- -------------
$ 8,719,523 $ 154,693 $ 413,732 $ 751,784
============= ============= ============= =============
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable............................... $ 168,576 $ - $ - $ -
Other accrued expenses......................... 165,101 - 1,888 6,761
------------- ------------- ------------- -------------
333,677 - 1,888 6,761
------------- ------------- ------------- -------------
LONG-TERM DEBT................................... 1,294,926 - 268,842 297,027
------------- ------------- ------------- -------------
DEFERRED CREDITS AND OTHER
NONCURRENT LIABILITIES:
Income taxes................................... 767,866 - (11,691) (1,252)
Advances from gas purchasers................... 121,149 - - -
Asset retirement obligation.................... 261,667 - - -
Other.......................................... 137,138 - - -
------------- ------------- ------------- -------------
1,287,820 - (11,691) (1,252)
------------- ------------- ------------- -------------
PREFERRED INTERESTS OF SUBSIDIARIES.............. - - - -
------------- ------------- ------------- -------------
COMMITMENTS AND CONTINGENCIES
SHAREHOLDERS' EQUITY............................. 5,803,100 154,693 154,693 449,248
------------- ------------- ------------- -------------
$ 8,719,523 $ 154,693 $ 413,732 $ 751,784
============= ============= ============= =============
ALL OTHER
SUBSIDIARIES
OF APACHE RECLASSIFICATIONS
CORPORATION & ELIMINATIONS CONSOLIDATED
------------ --------------- -------------
(IN THOUSANDS)
ASSETS
CURRENT ASSETS:
Cash and cash equivalents...................... $ 37,103 $ - $ 39,958
Receivables.................................... 487,638 - 761,342
Inventories.................................... 100,073 - 113,658
Drilling advances and others................... 66,740 - 83,208
------------ --------------- -------------
691,554 - 998,166
------------ --------------- -------------
PROPERTY AND EQUIPMENT, NET...................... 5,395,405 - 9,642,951
------------ --------------- -------------
OTHER ASSETS:
Intercompany receivable, net................... (676,579) - -
Goodwill, net.................................. 189,252 - 189,252
Equity in affiliates........................... (813,479) (3,958,508) -
Deferred charges and other..................... 4,905 - 41,913
------------ --------------- -------------
$ 4,791,058 $ (3,958,508) $10,872,282
============ =============== =============
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable............................... $ 146,877 $ - $ 315,453
Other accrued expenses......................... 239,402 - 413,152
------------ --------------- -------------
386,279 - 728,605
------------ --------------- -------------
LONG-TERM DEBT................................... 82,569 - 1,943,364
------------ --------------- -------------
DEFERRED CREDITS AND OTHER
NONCURRENT LIABILITIES:
Income taxes................................... 472,255 - 1,227,178
Advances from gas purchasers................... - - 121,149
Asset retirement obligation.................... 188,373 - 450,040
Other.......................................... 24,620 - 161,758
------------ --------------- -------------
685,248 - 1,960,125
------------ --------------- -------------
PREFERRED INTERESTS OF SUBSIDIARIES.............. 437,088 - 437,088
------------ --------------- -------------
COMMITMENTS AND CONTINGENCIES
SHAREHOLDERS' EQUITY............................. 3,199,874 (3,958,508) 5,803,100
------------ --------------- -------------
$ 4,791,058 $ (3,958,508) $10,872,282
============ =============== =============
16
APACHE CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATING BALANCE SHEET
AS OF DECEMBER 31, 2002
APACHE APACHE
APACHE APACHE FINANCE FINANCE
CORPORATION NORTH AMERICA AUSTRALIA CANADA
------------- ------------- ------------- -------------
(IN THOUSANDS)
ASSETS
CURRENT ASSETS:
Cash and cash equivalents....................... $ 224 $ - $ 2 $ 127
Receivables..................................... 121,410 - - -
Inventories..................................... 15,509 - - -
Drilling advances and others.................... 19,468 - - -
------------- ------------- ------------- -------------
156,611 - 2 127
------------- ------------- ------------- -------------
PROPERTY AND EQUIPMENT, NET....................... 3,403,716 - - -
------------- ------------- ------------- -------------
OTHER ASSETS:
Intercompany receivable, net.................... 1,146,086 - (662) (253,851)
Goodwill, net................................... - - - -
Equity in affiliates............................ 2,994,954 142,422 402,596 958,382
Deferred charges and other...................... 31,804 - - 2,472
------------- ------------- ------------- -------------
$ 7,733,171 $ 142,422 $ 401,936 $ 707,130
============= ============= ============= =============
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable................................ $ 124,152 $ - $ - $ -
Other accrued expenses.......................... 134,191 - 2,229 1,263
------------- ------------- ------------- -------------
258,343 - 2,229 1,263
------------- ------------- ------------- -------------
LONG-TERM DEBT.................................... 1,550,645 - 268,795 297,019
------------- ------------- ------------- -------------
DEFERRED CREDITS AND OTHER
NONCURRENT LIABILITIES:
Income taxes.................................... 736,661 - (11,510) (1,205)
Advances from gas purchasers.................... 125,453 - - -
Oil and gas derivative instruments.............. 3,507 - - -
Other........................................... 134,282 - - -
------------- ------------- ------------- -------------
999,903 - (11,510) (1,205)
------------- ------------- ------------- -------------
PREFERRED INTERESTS OF SUBSIDIARIES............... - - - -
------------- ------------- ------------- -------------
COMMITMENTS AND CONTINGENCIES
SHAREHOLDERS' EQUITY.............................. 4,924,280 142,422 142,422 410,053
------------- ------------- ------------- -------------
$ 7,733,171 $ 142,422 $ 401,936 $ 707,130
============= ============= ============= =============
ALL OTHER
SUBSIDIARIES
OF APACHE RECLASSIFICATIONS
CORPORATION & ELIMINATIONS CONSOLIDATED
------------ --------------- -------------
(IN THOUSANDS)
ASSETS
CURRENT ASSETS:
Cash and cash equivalents....................... $ 51,533 $ - $ 51,886
Receivables..................................... 406,277 - 527,687
Inventories..................................... 93,695 - 109,204
Drilling advances and others.................... 58,536 - 78,004
------------ --------------- -------------
610,041 - 766,781
------------ --------------- ------------
PROPERTY AND EQUIPMENT, NET....................... 5,061,869 - 8,465,585
------------ --------------- -------------
OTHER ASSETS:
Intercompany receivable, net.................... (891,573) - -
Goodwill, net................................... 189,252 - 189,252
Equity in affiliates............................ (808,503) (3,689,851) -
Deferred charges and other...................... 3,957 - 38,233
------------ --------------- -------------
$ 4,165,043 $ (3,689,851) $ 9,459,851
============ =============== =============
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable................................ $ 90,136 $ - $ 214,288
Other accrued expenses.......................... 180,264 - 317,947
------------ --------------- -------------
270,400 - 532,235
------------ --------------- -------------
LONG-TERM DEBT.................................... 42,356 - 2,158,815
------------ --------------- -------------
DEFERRED CREDITS AND OTHER
NONCURRENT LIABILITIES:
Income taxes.................................... 396,663 - 1,120,609
Advances from gas purchasers.................... - - 125,453
Oil and gas derivative instruments.............. - - 3,507
Other........................................... 24,044 - 158,326
------------ --------------- -------------
420,707 - 1,407,895
------------ --------------- -------------
PREFERRED INTERESTS OF SUBSIDIARIES............... 436,626 - 436,626
------------ --------------- -------------
COMMITMENTS AND CONTINGENCIES
SHAREHOLDERS' EQUITY.............................. 2,994,954 (3,689,851) 4,924,280
------------ --------------- -------------
$ 4,165,043 $ (3,689,851) $ 9,459,851
============ =============== =============
17
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
OVERVIEW
Apache reported record financial results for the quarter. Led by solid
production and high commodity prices, we reported record first-quarter income
attributable to common stock of $338 million, including the $27 million
cumulative effect of a change in accounting principle regarding asset retirement
obligations (see Footnote 8). We also reported record net cash provided by
operating activities of $538 million for the quarter.
Following are additional highlights for the first three months of 2003:
o Oil and gas production revenues increased 84 percent over the
prior-year first quarter to a record $975 million.
o First-quarter production remained steady with 55 percent of our
equivalent production coming from outside the U.S., continuing a
multi-year trend to broaden geographic diversification.
o On January 13, 2003, we announced the acquisition of $1.3 billion
(subject to normal closing adjustments and exercise of preferential
rights by third parties) in properties from BP (see Footnote 1),
Apache's largest acquisition to date. We closed the Gulf of Mexico
portion of the transaction on March 13, 2003 and the U.K. North Sea
(Forties Field) portion on April 2, 2003. The North Sea assets provide
Apache with a new core area.
o On January 22, 2003, in conjunction with the BP transaction, we
completed a public offering of 9.9 million shares of common stock,
adjusted for the five percent common stock dividend, raising net
proceeds of $554 million.
o After announcing the BP transaction, Moody's, Standard and Poor's, and
Fitch rating agencies reaffirmed Apache's single-A credit ratings on
senior unsecured long-term debt.
We are encouraged by the outlook for the remainder of the year. While we
have seen some pullback in commodity prices since quarter-end, the overall
outlook remains relatively strong. With additional production from the BP
acquisition and first production expected during the third quarter from the Zhao
Dong development in China, we should see production growth in 2003.
The conditions that generated our first-quarter record results, coupled
with our equity offering, have enabled us to maintain the financial flexibility
necessary to act when opportunities arise. We are positioned to take advantage
of an acquisition environment that appears favorable, as major integrated
companies shed non-core assets. While the first quarter proved to be an active
one for the Company, the balance of the year holds a multitude of challenges
and opportunities.
18
RESULTS OF OPERATIONS
Revenues
The table below presents oil and gas production revenues, production and
average prices received from sales of natural gas, oil and natural gas liquids.
FOR THE QUARTER ENDED MARCH 31,
-------------------------------------------------------
INCREASE
2003 2002 (DECREASE)
---------------- --------------- ---------------
Revenues (in thousands):
Natural gas.................................. $ 520,360 $ 225,982 130%
Oil.......................................... 438,343 294,137 49%
Natural gas liquids.......................... 16,459 9,270 78%
---------------- ---------------
Total.................................... $ 975,162 $ 529,389 84%
================ ===============
Natural Gas Volume - Mcf per day:
United States................................ 552,783 540,433 2%
Canada....................................... 309,205 314,659 (2%)
Egypt........................................ 123,719 117,525 5%
Australia.................................... 101,153 120,645 (16%)
Argentina.................................... 6,788 3,856 76%
---------------- ---------------
Total.................................... 1,093,648 1,097,118 -
================ ===============
Average Natural Gas price - Per Mcf:
United States................................ $ 6.22 $ 2.35 165%
Canada....................................... 5.35 2.33 130%
Egypt........................................ 4.50 3.05 48%
Australia.................................... 1.31 1.23 7%
Argentina.................................... 0.42 0.64 (34%)
Total.................................... 5.29 2.29 131%
Oil Volume - Barrels per day:
United States................................ 57,334 55,829 3%
Canada....................................... 24,735 25,339 (2%)
Egypt........................................ 45,710 44,378 3%
Australia.................................... 30,439 32,941 (8%)
Argentina.................................... 597 669 (11%)
---------------- ---------------
Total.................................... 158,815 159,156 -
================ ===============
Average Oil price - Per barrel:
United States................................ $ 28.97 $ 20.56 41%
Canada....................................... 32.09 18.87 70%
Egypt........................................ 30.46 21.42 42%
Australia.................................... 33.00 20.60 60%
Argentina.................................... 31.95 20.07 59%
Total.................................... 30.67 20.53 49%
Natural Gas Liquids (NGL)
Volume - Barrels per day:
United States.............................. 6,083 6,895 (12%)
Canada..................................... 1,406 1,358 4%
---------------- ---------------
Total.................................... 7,489 8,253 (9%)
================ ===============
Average NGL Price - Per barrel:
United States.............................. $ 24.34 $ 12.78 90%
Canada..................................... 24.75 10.95 126%
Total.................................... 24.42 12.48 96%
19
Natural Gas Revenues
The Company's natural gas production declined 3 million cubic feet per day
(MMcf/d), which reduced first-quarter natural gas revenues by $2 million.
Production in the U.S. climbed 12 MMcf/d, as the Gulf Coast region's 22 MMcf/d
increase more than offset a 10 MMcf/d decline in the Central region. Production
in the Gulf Coast region benefited from a full quarter of production from
properties acquired in South Louisiana, 18 days of production from the Gulf of
Mexico properties acquired from BP and additional production from a successful
recompletion program. These increases offset natural declines in mature fields
and downtime associated with well performance. New discoveries in the Central
region, particularly the Loper field, partially offset natural declines in
mature fields. One of Australia's contracts with a Perth gas distribution
company expired in October 2002, resulting in 19 MMcf/d of lower production.
Rising natural gas prices contributed $296 million to first-quarter natural gas
revenues. Correspondingly, the Company has seen a rise in oil and gas revenue
receivables.
Apache uses a variety of strategies to manage its exposure to fluctuations
in natural gas prices, including fixed-price physical contracts and derivatives.
Approximately 11 percent of both our first quarter 2003 and first quarter 2002
domestic natural gas production were subject to long-term fixed-price physical
contracts. We continue to amortize the unrealized gains and losses of derivative
positions closed in October and November 2001, which were negligible in the
first quarter of 2003. The following table shows the impact on average prices
of each of these items:
FOR THE QUARTER ENDED MARCH 31,
-----------------------------------------
2003 2002
--------------- ----------------
Fixed-price physical......................... $ (.15) $ .05
Derivatives.................................. (.17) -
Amortization................................. - .06
Crude Oil Revenues
The Company's oil production declined 341 barrels per day (b/d), which
reduced first-quarter crude oil revenues by $1 million. Production growth in the
Gulf Coast region, up 2,377 b/d, and Egypt, up 1,332 b/d, was offset by 2,502
b/d and 871 b/d declines in Australia and the Central region, respectively. The
Gulf Coast region's growth is attributable to the South Louisiana and BP
acquisitions discussed above. Egypt saw production growth in several
concessions. The declines in Australia and the Central region were distributed
among numerous fields. The 49 percent increase in oil price contributed $145
million to crude oil revenues. Correspondingly, the Company has seen a rise in
oil and gas revenue receivables.
Apache also manages its exposure to fluctuations in crude oil prices using
derivatives. We continue to amortize the unrealized gains and losses over the
original production life of derivative positions closed in October and November
2001. The following table shows the impact on prices of each of these items.
FOR THE QUARTER ENDED MARCH 31,
-----------------------------------------
2003 2002
--------------- ----------------
Derivatives.................................. $ (1.61) $ -
Amortization................................. .03 .08
20
Operating Expenses
The table below presents a detail of our expenses.
FOR THE QUARTER ENDED MARCH 31,