Back to GetFilings.com
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 September 30, 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
2000 Post Oak Boulevard, Houston, TX 77056-4400
- ---------------------------------------- ----------
(Address of Principal Executive Offices) (Zip Code)
Registrant's Telephone Number, Including Area Code: (713) 296-6000
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
YES [X] NO [ ]
Indicate by check mark whether the registrant is an accelerated filer (as
defined in Rule 12b-2 of the Exchange Act).
YES [X] NO [ ]
Number of shares of Registrant's common stock, outstanding as of October 31,
2003 162,037,932
PART I - FINANCIAL INFORMATION
ITEM 1 - FINANCIAL STATEMENTS
APACHE CORPORATION AND SUBSIDIARIES
STATEMENT OF CONSOLIDATED OPERATIONS
(UNAUDITED)
FOR THE QUARTER FOR THE NINE MONTHS
ENDED SEPTEMBER 30, ENDED SEPTEMBER 30,
------------------------------- ----------------------------
2003 2002 2003 2002
------------ ------------ ------------ ------------
(In thousands, except per common share data)
REVENUES AND OTHER:
Oil and gas production revenues..................... $ 1,110,015 $ 655,917 $ 3,129,507 $ 1,837,570
Other............................................... (5,474) (10,728) (4,001) (8,070)
------------ ------------ ------------ ------------
1,104,541 645,189 3,125,506 1,829,500
------------ ------------ ------------ ------------
OPERATING EXPENSES:
Depreciation, depletion and amortization............ 292,885 208,788 779,590 630,617
Asset retirement obligation accretion............... 11,342 - 27,100 -
International impairments........................... - - - 4,600
Lease operating costs............................... 194,574 116,314 514,995 339,544
Gathering and transportation costs.................. 16,948 9,869 43,940 29,214
Severance and other taxes........................... 41,587 16,064 98,883 48,769
General and administrative.......................... 34,692 25,463 93,097 78,830
Financing costs:
Interest expense................................. 48,784 38,787 127,908 117,120
Amortization of deferred loan costs.............. 557 530 1,624 1,330
Capitalized interest............................. (14,222) (10,029) (38,072) (30,493)
Interest income.................................. (1,247) (1,215) (2,749) (3,427)
------------ ------------ ------------ ------------
625,900 404,571 1,646,316 1,216,104
------------ ------------ ------------ ------------
PREFERRED INTERESTS OF SUBSIDIARIES..................... 1,976 3,922 8,668 12,584
------------ ------------ ------------ ------------
INCOME BEFORE INCOME TAXES.............................. 476,665 236,696 1,470,522 600,812
Provision for income taxes.......................... 199,704 90,168 636,883 227,302
------------ ------------ ------------ ------------
INCOME BEFORE CHANGE IN ACCOUNTING
PRINCIPLE............................................. 276,961 146,528 833,639 373,510
Cumulative effect of change in accounting principle,
net of income tax................................ - - 26,632 -
------------ ------------ ------------ ------------
NET INCOME.............................................. 276,961 146,528 860,271 373,510
Preferred stock dividends........................... 1,420 1,406 4,260 9,395
------------ ------------ ------------ ------------
INCOME ATTRIBUTABLE TO COMMON STOCK..................... $ 275,541 $ 145,122 $ 856,011 $ 364,115
============ ============ ============ ============
BASIC NET INCOME PER COMMON SHARE:
Before change in accounting principle............... $ 1.70 $ 0.96 $ 5.15 $ 2.46
Cumulative effect of change in accounting principle. - - 0.17 -
------------ ------------ ------------ ------------
$ 1.70 $ 0.96 $ 5.32 $ 2.46
============ ============ ============ ============
DILUTED NET INCOME PER COMMON SHARE:
Before change in accounting principle............... $ 1.69 $ 0.95 $ 5.11 $ 2.42
Cumulative effect of change in accounting principle. - - 0.16 -
------------ ------------ ------------ ------------
$ 1.69 $ 0.95 $ 5.27 $ 2.42
============ ============ ============ ============
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 NINE MONTHS ENDED
SEPTEMBER 30,
-------------------------------
2003 2002
------------- -------------
(In thousands)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income.................................................................... $ 860,271 $ 373,510
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation, depletion and amortization................................ 779,590 630,617
Asset retirement obligation accretion................................... 27,100 -
Provision for deferred income taxes..................................... 352,479 83,271
International impairments............................................... - 4,600
Cumulative effect of change in accounting principle..................... (26,632) -
Other................................................................... 19,686 (11,936)
Changes in operating assets and liabilities:
(Increase) decrease in receivables...................................... (75,366) (72,939)
(Increase) decrease in inventories...................................... (3,680) (526)
(Increase) decrease in drilling advances and other...................... (937) (18,383)
(Increase) decrease in deferred charges and other....................... (22,046) 961
Increase (decrease) in accounts payable................................. 61,612 61,459
Increase (decrease) in accrued expenses................................. 142,089 (9,981)
Increase (decrease) in advances from gas purchasers..................... (11,667) (10,437)
Increase (decrease) in deferred credits and noncurrent liabilities...... (23,390) (20,947)
------------- -------------
Net cash provided by operating activities........................... 2,079,109 1,009,269
------------- -------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to property and equipment........................................... (1,115,349) (747,216)
Acquisition of BP properties.................................................. (1,154,962) -
Acquisition of Shell properties............................................... (201,813) -
Acquisition of Occidental properties.......................................... (22,000) (11,000)
Proceeds from sales of oil and gas properties................................. 16,202 -
Proceeds from sale of short-term investments.................................. - 17,006
Other, net.................................................................... (44,302) (24,506)
------------- -------------
Net cash used in investing activities............................... (2,522,224) (765,716)
------------- -------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Long-term borrowings.......................................................... 1,769,658 1,246,296
Payments on long-term debt.................................................... (1,414,929) (1,327,471)
Dividends paid................................................................ (51,967) (53,059)
Common stock activity......................................................... 574,349 27,407
Treasury stock activity, net.................................................. 4,275 1,861
Cost of debt and equity transactions.......................................... (4,520) (6,741)
Repurchase of preferred interests of subsidiaries............................. (443,000) -
------------- -------------
Net cash provided by (used in) financing activities................. 433,866 (111,707)
------------- -------------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS............................. (9,249) 131,846
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR................................... 51,886 35,625
------------- -------------
CASH AND CASH EQUIVALENTS AT END OF PERIOD....................................... $ 42,637 $ 167,471
============= =============
The accompanying notes to consolidated financial statements
are an integral part of this statement.
2
APACHE CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
(UNAUDITED)
SEPTEMBER 30, DECEMBER 31,
2003 2002
--------------- ---------------
(In thousands)
ASSETS
CURRENT ASSETS:
Cash and cash equivalents............................................ $ 42,637 $ 51,886
Receivables, net of allowance........................................ 619,508 527,687
Inventories.......................................................... 126,180 109,204
Drilling advances.................................................... 31,509 45,298
Prepaid assets and other............................................. 49,505 32,706
--------------- ---------------
869,339 766,781
--------------- ---------------
PROPERTY AND EQUIPMENT:
Oil and gas, on the basis of full cost accounting:
Proved properties................................................. 15,702,029 12,827,459
Unproved properties and properties under
development, not being amortized............................... 1,033,869 656,272
Gas gathering, transmission and processing facilities................ 804,194 784,271
Other................................................................ 230,007 194,685
--------------- ---------------
17,770,099 14,462,687
Less: Accumulated depreciation, depletion and amortization.......... (6,646,795) (5,997,102)
--------------- ---------------
11,123,304 8,465,585
--------------- ---------------
OTHER ASSETS:
Goodwill, net........................................................ 189,252 189,252
Deferred charges and other........................................... 58,150 38,233
--------------- ---------------
$ 12,240,045 $ 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)
SEPTEMBER 30, DECEMBER 31,
2003 2002
--------------- ---------------
(In thousands)
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable..................................................... $ 284,941 $ 214,288
Accrued operating expense............................................ 83,133 47,382
Accrued exploration and development.................................. 181,140 146,871
Accrued compensation and benefits.................................... 41,432 32,680
Accrued interest..................................................... 45,736 30,880
Accrued income taxes................................................. 105,000 44,256
Oil and gas derivative instruments................................... 22,078 -
Other................................................................ 65,844 15,878
--------------- ---------------
829,304 532,235
--------------- ---------------
LONG-TERM DEBT.......................................................... 2,514,118 2,158,815
--------------- ---------------
DEFERRED CREDITS AND OTHER NONCURRENT LIABILITIES:
Income taxes......................................................... 1,520,586 1,120,609
Advances from gas purchasers......................................... 113,786 125,453
Asset retirement obligation.......................................... 778,673 -
Oil and gas derivative instruments................................... 12,068 3,507
Other................................................................ 174,425 158,326
--------------- ---------------
2,599,538 1,407,895
--------------- ---------------
PREFERRED INTERESTS OF SUBSIDIARIES..................................... - 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,
165,989,808 and 155,464,540 shares issued, respectively........... 207,487 194,331
Paid-in capital...................................................... 4,023,754 3,427,450
Retained earnings.................................................... 2,204,487 1,427,607
Treasury stock, at cost, 4,059,266 and 4,211,328 shares,
respectively...................................................... (106,564) (110,559)
Accumulated other comprehensive loss................................. (130,466) (112,936)
--------------- ---------------
6,297,085 4,924,280
--------------- ---------------
$ 12,240,045 $ 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 RETAINED
(In thousands) INCOME STOCK STOCK STOCK CAPITAL EARNINGS
---------- ------------- ---------- ---------- ---------- -----------
BALANCE AT DECEMBER 31, 2001.............. $ 98,387 $ 208,207 $ 185,288 $2,803,825 $ 1,336,478
Comprehensive income (loss):
Net income........................... $ 373,510 - - - - 373,510
Currency translation adjustments..... 5,328 - - - - -
Commodity hedges, net of income tax
benefit of $8,105.................. (11,300) - - - - -
Marketable securities, net of income
tax benefit of $67................. (125) - - - - -
----------
Comprehensive income................... $ 367,413
==========
Dividends:
Preferred............................ - - - - (9,395)
Common ($.29 per share).............. - - - - (42,512)
Common shares issued................... - - 742 24,525 -
Conversion of Series C Preferred Stock. - (208,207) 8,193 200,014 -
Treasury shares issued, net............ - - - 37 -
Other.................................. - - - 598 -
---------- ---------- ---------- ---------- -----------
BALANCE AT SEPTEMBER 30, 2002............. $ 98,387 $ - $ 194,223 $3,028,999 $ 1,658,081
========== ========== ========== ========== ===========
BALANCE AT DECEMBER 31, 2002.............. $ 98,387 $ - $ 194,331 $3,427,450 $ 1,427,607
Comprehensive income (loss):
Net income........................... $ 860,271 - - - - 860,271
Commodity hedges, net of income tax
benefit of $10,157................. (17,530) - - - - -
----------
Comprehensive income................... $ 842,741
==========
Dividends:
Preferred............................ - - - - (4,260)
Common ($.32 per share).............. - - - - (53,217)
Five percent common stock dividend..... - - 581 25,333 (25,914)
Common shares issued................... - - 12,575 567,945 -
Treasury shares issued, net............ - - - 2,904 -
Other.................................. - - - 122 -
---------- ---------- ---------- ---------- ----------
BALANCE AT SEPTEMBER 30, 2003............. $ 98,387 $ - $ 207,487 $4,023,754 $2,204,487
========== ========== ========== ========== ==========
ACCUMULATED
OTHER TOTAL
TREASURY COMPREHENSIVE SHAREHOLDERS'
(In thousands) STOCK INCOME (LOSS) EQUITY
---------- ------------- -------------
BALANCE AT DECEMBER 31, 2001.............. $ (111,885) $(101,817) $4,418,483
Comprehensive income (loss):
Net income........................... - - 373,510
Currency translation adjustments..... - 5,328 5,328
Commodity hedges, net of income tax
benefit of $8,105.................. - (11,300) (11,300)
Marketable securities, net of income
tax benefit of $67................. - (125) (125)
Comprehensive income...................
Dividends:
Preferred............................ - - (9,395)
Common ($.29 per share).............. - - (42,512)
Common shares issued................... - - 25,267
Conversion of Series C Preferred Stock. - - -
Treasury shares issued, net............ 1,269 - 1,306
Other.................................. - - 598
---------- --------- ----------
BALANCE AT SEPTEMBER 30, 2002............. $ (110,616) $ (107,914) $4,761,160
========== ========== ==========
BALANCE AT DECEMBER 31, 2002.............. $ (110,559) $ (112,936) $4,924,280
Comprehensive income (loss):
Net income........................... - - 860,271
Commodity hedges, net of income tax
benefit of $10,157................. - (17,530) (17,530)
Comprehensive income...................
Dividends:
Preferred............................ - - (4,260)
Common ($.32 per share).............. - - (53,217)
Five percent common stock dividend..... - - -
Common shares issued................... - - 580,520
Treasury shares issued, net............ 3,995 - 6,899
Other.................................. - - 122
---------- ---------- ----------
BALANCE AT SEPTEMBER 30, 2003............. $ (106,564) $ (130,466) $6,297,085
========== ========== ==========
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 $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. 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. Both the Gulf of Mexico and North Sea assets
acquired from BP were funded with net proceeds of approximately $554 million
from the issuance of 9.9 million shares of common stock in January 2003, and
proceeds from additional debt of approximately $604 million borrowed under
existing lines of credit and commercial paper.
Apache and BP closed the above referenced acquisition of the Gulf of Mexico
properties on March 13, 2003, which included BP's interest in 56 producing
fields, and 104 blocks. At closing, the $670 million purchase price was adjusted
for normal closing items and preferential rights exercised by third parties. The
exercise of preferential rights by third parties reduced the purchase price by
$73 million and estimated reserves by 9.6 MMboe. The purchase price was further
adjusted for various normal closing items, including revenues and expenditures
related to the properties for the period between the effective and closing
dates. As a result, cash consideration of $509 million was paid by Apache upon
closing. In a separate transaction closed February 21, 2003, Apache purchased
BP's interest in several other Gulf of Mexico properties with estimated proved
reserves of 2.1 MMboe for an adjusted purchase price of $15 million. Including
$4 million of transaction costs, total cash consideration for the two
acquisitions of Gulf of Mexico properties from BP totaled $528 million.
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. 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 the Company's
senior unsecured debt is lowered by both Moody's and Standard and Poor's from
its current ratings of A3 and A-, 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 BP purchase prices were allocated to the assets acquired and
liabilities assumed based upon their estimated fair values as of the date of
acquisition, as follows:
U.S. - U.K. -
GULF OF MEXICO NORTH SEA TOTAL*
---------------- ---------------- ----------------
(In thousands)
Proved property $ 539,110 $ 854,835 $ 1,393,945
Unproved property 57,500 65,000 122,500
Working capital acquired, net - 10,957 10,957
Asset retirement obligation (69,000) (250,887) (319,887)
Deferred income tax liability - (50,381) (50,381)
---------------- ---------------- ----------------
Cash consideration $ 527,610 $ 629,524 $ 1,157,134
================ ================ ================
* Property balance includes $12 million of transaction costs (U.S. - $4
million; North Sea - $8 million).
The following unaudited pro forma information shows the effect on the
Company's consolidated results of operations as if the acquisitions from BP
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 and is not
necessarily indicative of future results of operations.
FOR THE NINE MONTHS FOR THE NINE MONTHS
ENDED SEPTEMBER 30, 2003 ENDED SEPTEMBER 30, 2002
--------------------------------- ------------------------------
AS REPORTED PRO FORMA AS REPORTED PRO FORMA
------------- ------------- ------------- -------------
(In thousands, except per common share data)
Revenues and other.......................... $ 3,125,506 $ 3,363,468 $ 1,829,500 $ 2,520,630
Net income.................................. 860,271 933,468 373,510 455,565
Preferred stock dividends................... 4,260 4,260 9,395 9,395
Income attributable to common stock......... 856,011 929,208 364,115 446,170
Net income per common share:
Basic................................... $ 5.32 $ 5.75 $ 2.46 $ 2.83
Diluted................................. 5.27 5.70 2.42 2.78
Average common shares outstanding (1)....... 160,954 161,680 147,716 157,617
(1) Pro forma shares assume the issuance of 9.9 million common shares as of
the beginning of each period presented.
On July 3, 2003, Apache announced that it had completed the acquisition of
producing properties on the Outer Continental Shelf of the Gulf of Mexico from
Shell Exploration and Production Company (Shell) for $200 million, subject to
normal post-closing adjustments, including preferential rights. Prior to the
transaction, Morgan Stanley Capital Group, Inc. (Morgan Stanley) paid Shell $300
million to acquire an overriding royalty interest in a portion of the reserves
to be produced over the next four years. Shell's sale of an overriding royalty
interest to Morgan Stanley is commonly known in the industry as a volumetric
production payment (VPP). Under the terms of the VPP, Morgan Stanley is to
receive a fixed volume of oil and gas production over approximately four years
beginning in August 2003 for gas and November 2003 for oil. The VPP reserves and
production will not be recorded by Apache.
Apache will record estimated proved reserves of 124.6 billion cubic feet
(Bcf) of natural gas and 6.6 million barrels of oil. In addition, a $60 million
liability for the future cost to produce and deliver volumes subject to the VPP
will be recorded by the Company because the overriding royalties are not
burdened by production costs. This liability will be amortized as the volumes
are produced and delivered to Morgan Stanley. The purchase agreement was
effective as of July 1, 2003. The acquisition included interests in 26 fields
covering 50 blocks (approximately 209,000 acres) and interests in two onshore
gas plants. Apache will operate 15 of the fields with 91 percent of the
production. The purchase price was funded by borrowings under the Company's
lines of credit and commercial paper program.
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 selected acquisitions
to protect against commodity price volatility. The success of these acquisitions
is significantly
7
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 acquisitions from
BP 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 September 30, 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)
10/2003 - 12/2003 Gas Collars 4,600,000 $ 3.50 / 6.09 $ (320)
Gas Fixed-Price Swap 18,400,000 5.17 7,053
Oil Fixed-Price Swap 4,600,000 26.59 (9,919)
2004 Gas Collars 18,300,000 3.25 / 5.81 (5,893)
Gas Fixed-Price Swap 51,240,000 4.52 (18,561)
Oil Fixed-Price Swap 1,550,000 26.59 (2,070)
2005 Gas Collars 9,050,000 3.25 / 5.20 (4,436)
In addition to the fixed-price swaps and option collars, Apache entered
into a separate crude oil physical sales contract with BP. The sales contract is
a normal purchase and sale under Statement of Financial Accounting Standards
(SFAS) No. 133 and, therefore, the Company has designated and accounted for the
contract under the accrual method. As of September 30, 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
----------------- ------------- -----------
10/2003 - 12/2003 2,300,000 $ 25.32
2004 14,175,000 22.24
A reconciliation of the components of accumulated other comprehensive
income (loss) in the statement of consolidated shareholders' equity related to
Apache's derivative activities is presented in the table below:
GROSS AFTER TAX
------------- --------------
(In thousands)
Unrealized loss on derivatives at December 31, 2002.................. $ (7,141) $ (4,186)
Net losses realized into earnings.................................... 69,379 43,135
Net change in derivative fair value.................................. (97,066) (60,665)
------------ ------------
Unrealized loss on derivatives at September 30, 2003................. $ (34,828) $ (21,716)
============ ============
Based on current market prices, the Company recorded an unrealized loss in
other comprehensive income of $34.8 million ($21.7 million after tax). Any loss
will be realized in future earnings contemporaneously with the related sales of
natural gas and crude oil production applicable to specific hedges. Were current
prices to hold, a loss of $22.8 million ($14.2 million after tax) would be
realized over the next 12 months. However, these amounts could vary materially
as a result of changes in market conditions. The contracts designated as hedges
qualified and continue to qualify for hedge accounting in accordance with SFAS
No. 133, as amended.
8
3. DEBT
On May 15, 2003, Apache Finance Canada Corporation (Apache Finance Canada)
issued $350 million of 4.375 percent, 12-year, senior unsecured notes in a
private placement. The notes are irrevocably and unconditionally guaranteed by
Apache. Interest is payable semi-annually on May 15 and November 15 of each year
commencing on November 15, 2003. The notes were sold pursuant to Rule 144A and
Regulation S, and may not be offered or sold in the United States absent
registration or an applicable exemption from the registration requirements of
the Securities Act of 1933, as amended.
If changes in relevant tax laws occur that would require Apache Finance
Canada to pay additional amounts under the terms of the indenture, Apache
Finance Canada has the right to redeem the notes prior to maturity. In addition,
the notes are redeemable, as a whole or in part, at Apache Finance Canada's
option, subject to a make-whole premium. The proceeds were used to reduce bank
debt and outstanding commercial paper and for general corporate purposes.
4. PREFERRED INTERESTS OF SUBSIDIARIES
On September 26, 2003, Apache repurchased and retired preferred interests
issued by three of its subsidiaries for approximately $443 million, plus an
additional $1 million for accrued dividends and distributions. The transactions
involved the purchase of preferred stock issued by two of the Company's
subsidiaries for approximately $82 million and the retirement of a limited
partnership interest in a partnership controlled by a subsidiary of the Company
for approximately $361 million. Apache funded the transactions with available
cash on hand and by issuing commercial paper under its existing commercial paper
facility.
5. 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 to purchase producing
properties in the North Sea and the Gulf of Mexico from BP.
On September 12, 2003, the Company announced that its Board of Directors
voted to increase the quarterly cash dividend on its common stock to 12 cents
per share from 10 cents per share, effective with the November 2003 payment, and
to split its common stock two-for-one early in 2004, subject to shareholder
approval of an increase in the authorized number of common shares.
6. FOREIGN CURRENCY TRANSLATION
The Company accounts for foreign currency gains and losses in accordance
with SFAS No. 52 "Foreign Currency Translation." Foreign currency translation
gains and losses related to deferred taxes are recorded as a component of its
provision for income taxes, while all other foreign currency gains and losses
are reflected in Revenues and Other. For the first nine months of 2003, the
Company recorded additional deferred tax expense of $77 million as a result of
the weaker U.S. dollar. Net foreign currency gains and losses reflected in
Revenues and Other totaled $(1) million for the nine-month period.
9
7. 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 SEPTEMBER 30,
--------------------------------------------------------------------------
2003 2002
------------------------------------ -----------------------------------
INCOME SHARES PER SHARE INCOME SHARES PER SHARE
---------- ---------- ---------- ----------- ---------- ----------
(In thousands, except per share amounts)
BASIC:
Income attributable to common stock. $ 275,541 161,875 $ 1.70 $ 145,122 151,097 $ 0.96
========== ==========
EFFECT OF DILUTIVE SECURITIES:
Stock options and other............. - 1,425 - 1,238
---------- --------- ----------- ----------
DILUTED:
Income attributable to common stock,
including assumed conversions...... $ 275,541 163,300 $ 1.69 $ 145,122 152,335 $ 0.95
========== ========== ========== =========== ========== ==========
FOR THE NINE MONTHS ENDED SEPTEMBER 30,
---------------------------------------------------------------------------
2003 2002
------------------------------------ ------------------------------------
INCOME SHARES PER SHARE INCOME SHARES PER SHARE
---------- ---------- ----------- ---------- ---------- ----------
(In thousands, except per share amounts)
BASIC:
Income attributable to common stock. $ 856,011 160,954 $ 5.32 $ 364,115 147,716 $ 2.46
========== ==========
EFFECT OF DILUTIVE SECURITIES:
Stock options and other............. - 1,371 - 1,354
Series C Preferred Stock ........... - - 5,149 3,217
---------- --------- ----------- ----------
DILUTED:
Income attributable to common stock,
including assumed conversions...... $ 856,011 162,325 $ 5.27 $ 369,264 152,287 $ 2.42
========== ========= ========== =========== ========== ==========
10
8. STOCK-BASED COMPENSATION
On September 30, 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 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 FOR THE NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
----------------------------- --------------------------
2003 2002 2003 2002
-----------------------------------------------------------
(In thousands, except for per common share amounts)
Income attributable to common stock, as reported. $ 275,541 $ 145,122 $ 856,011 $ 364,115
Add: Stock-based employee compensation expense
included in reported net income, net of related
tax effects................................... - 275 391 751
Deduct: Total stock-based employee compensation
expense determined under fair value based
method for all awards, net of related tax effects (5,567) (5,240) (16,433) (15,312)
---------- ---------- ---------- ----------
Pro forma income attributable to common stock.... $ 269,974 $ 140,157 $ 839,969 $ 349,554
========== ========== ========== ==========
Net Income per Common Share:
Basic:
As reported................................. $ 1.70 $ 0.96 $ 5.32 $ 2.46
Pro forma................................... 1.67 0.93 5.22 2.37
Diluted:
As reported................................. $ 1.69 $ 0.95 $ 5.27 $ 2.42
Pro forma................................... 1.63 0.91 5.12 2.31
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.
During the second quarter of 2003, the Company issued a total of 901,105
stock appreciation rights (SARs) to non-executive employees in lieu of stock
options. The SARs will be settled in cash upon exercise. The vesting period is
over four years and the Company will record compensation expense on the vested
SARs outstanding as the price of the Company's common stock fluctuates. The
related after tax expense was $.7 million and $1.0 million for the third quarter
and year-to-date, respectively. The Company issued a 2003 award of 60,500 shares
of restricted common stock to executives in May of 2003.
9. SUPPLEMENTAL CASH FLOW INFORMATION
The following table provides supplemental disclosure of cash flow
information:
FOR THE NINE MONTHS ENDED
SEPTEMBER 30,
----------------------------------
2003 2002
-------------- ---------------
(In thousands)
Cash paid during the period for:
Interest (net of amounts capitalized)...................................... $ 58,821 $ 57,649
Income taxes (net of refunds).............................................. 225,667 115,363
11
10. GEOGRAPHIC AREA INFORMATION
Apache's exploration and production operations are a single line of
business conducted in five core geographic regions. Each of those regions
confronts the same operational concerns and has similar types of customers and
demands for our products. Where appropriate to an understanding of our business,
we will discuss the results of operations or risks and uncertainties in an
individual geographic area. Additional information regarding our geographic
locations is provided in Item 2 - Management's Discussion and Analysis of
Financial Condition and Results of Operations of this Form 10-Q, and in both
Item 7A - Quantitative and Qualitative Disclosures About Market Risk and Item 15
- - Notes to the Consolidated Financial Statements of our 2002 Form 10-K.
UNITED OTHER
STATES CANADA EGYPT AUSTRALIA NORTH SEA INTERNATIONAL TOTAL
---------------------------------------------------------------------------------
(IN THOUSANDS)
FOR THE NINE MONTHS ENDED
SEPTEMBER 30, 2003
Oil and Gas Production Revenues..... $1,527,389 $ 627,861 $ 482,222 $ 297,787 $ 181,389 $ 12,859 $ 3,129,507
=================================================================================
Operating Income (1)................ $ 849,027 $ 350,924 $ 287,353 $ 150,687 $ 22,536 $ 4,472 $ 1,664,999
====================================================================
Other Income (Expense):
Other............................ (4,001)
General and administrative....... (93,097)
Preferred interests of (8,668)
subsidiaries...................
Financing costs, net............. (88,711)
-----------
Income Before Income Taxes.......... $ 1,470,522
===========
Total Assets........................ $5,574,670 $2,829,605 $1,714,001 $ 955,209 $ 981,240 $ 185,320 $12,240,045
=================================================================================
FOR THE NINE MONTHS ENDED
SEPTEMBER 30, 2002
Oil and Gas Production Revenues..... $ 799,716 $ 385,424 $ 402,236 $ 245,300 $ - $ 4,894 $ 1,837,570
=================================================================================
Operating Income (Loss) (1)........ $ 285,896 $ 149,584 $ 231,665 $ 120,529 $ - $ (2,848) $ 784,826
====================================================================
Other Income (Expense):
Other............................ (8,070)
General and administrative....... (78,830)
Preferred interests of (12,584)
subsidiaries...................
Financing costs, net............. (84,530)
-----------
Income Before Income Taxes.......... $ 600,812
===========
Total Assets........................ $4,111,676 $2,303,297 $1,668,826 $ 998,643 $ - $ 166,267 $ 9,248,709
=================================================================================
(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.
11. LITIGATION
In June 2003, Apache and Cinergy Marketing and Trading, LLC (Cinergy)
agreed to terminate their agreement concerning marketing of Apache's U.S.
natural gas production and to dismiss the arbitration between them. The parties
reached an amicable settlement, the amounts of which were immaterial to Apache's
financial position and results of operations. Consequently, the Company began
marketing its U.S. natural gas production previously marketed by Cinergy
beginning with July 2003 production.
12. 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 and resulted in a non-cash cumulative-
12
effect increase to earnings of $27 million ($41 million pretax). Prior to
adoption of SFAS No. 143, abandonment obligations were accrued over the
productive lives of the assets through depreciation, depletion and amortization
of oil and gas properties without recording a separate liability for such
amounts.
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................................................. 389,480
Liabilities settled.................................................. (6,444)
Accretion expense.................................................... 27,100
---------------
Asset retirement obligation at September 30, 2003.................... $ 778,673
===============
Liabilities incurred during the period primarily relate to asset retirement
obligations assumed in connection with the BP Gulf of Mexico, BP North Sea and
Shell property acquisitions. Liabilities settled during the period relate to
individual properties plugged and abandoned or sold during the period. The pro
forma asset retirement obligation would have been approximately $334 million at
January 1, 2002 had the Company adopted SFAS No. 143 on January 1, 2002. For the
three and nine-month periods ended September 30, 2002, the pro forma effect on
Income Attributable to Common Stock and Net Income per Common Share would not
have been materially different than reported amounts had SFAS No. 143 been
adopted by the Company on January 1, 2002.
In January 2003, the FASB issued Interpretation No. 46 "Consolidation of
Variable Interest Entities, an Interpretation of Accounting Research Bulletin
No. 51." Interpretation No. 46 requires a company to consolidate a variable
interest entity (VIE) if the company has a variable interest (or combination of
variable interests) that is exposed to a majority of the entity's expected
losses if they occur, receive a majority of the entity's expected residual
returns if they occur, or both. In addition, more extensive disclosure
requirements apply to the primary and other significant variable interest owners
of the VIE. This interpretation applies immediately to VIEs created after
January 31, 2003, and to VIEs in which an enterprise obtains an interest after
that date. It is also effective for the first fiscal year or interim period
beginning after December 31, 2003, to VIEs in which a company holds a variable
interest that is acquired before February 1, 2003. The guidance regarding this
interpretation is extremely complex and, although we do not believe we have an
interest in a VIE, the Company continues to assess the impact, if any, this
interpretation will have on the Company's consolidated financial statements.
In May 2003, the FASB issued SFAS No. 150 "Accounting for Certain Financial
Instruments with Characteristics of both Liabilities and Equity." SFAS No. 150
establishes standards on how companies classify and measure certain financial
instruments with characteristics of both liabilities and equity. The statement
requires that the Company classify as liabilities the fair value of all
mandatorily redeemable financial instruments that had previously been recorded
as equity or elsewhere in the consolidated financial statements. This statement
is effective for financial instruments entered into or modified after May 31,
2003, and otherwise effective for all existing financial instruments beginning
in the third quarter of 2003. As stated in Note 4, the Company paid off the
Preferred Interests of Subsidiaries in September 2003; therefore, this statement
did not have a material impact on the Company's financial statements.
13. SUPPLEMENTAL GUARANTOR INFORMATION
Apache Finance Pty Ltd. (Apache Finance Australia) and 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's consolidated financial
statements. As such, the condensed consolidating financial statements should be
read in conjunction with the financial statements of Apache and subsidiaries and
notes thereto of which this note is an integral part.
13
APACHE CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS
FOR THE QUARTER ENDED SEPTEMBER 30, 2003
APACHE APACHE
APACHE APACHE FINANCE FINANCE
CORPORATION NORTH AMERICA AUSTRALIA CANADA
----------- ------------- ----------- -----------
(IN THOUSANDS)
REVENUES AND OTHER:
Oil and gas production revenues............... $ 452,358 $ - $ - $ -
Equity in net income (loss) of affiliates..... 171,661 6,614 9,591 30,809
Other......................................... (331) - - -
----------- ---------- ----------- -----------
623,688 6,614 9,591 30,809
----------- ---------- ----------- -----------
OPERATING EXPENSES:
Depreciation, depletion and amortization...... 104,743 - - -
Asset retirement obligation accretion......... 4,674 - - -
Lease operating costs......................... 80,068 - - -
Gathering and transportation costs............ 5,522 - - -
Severance and other taxes..................... 11,233 - - -
General and administrative.................... 26,499 - - -
Financing costs, net.......................... 27,042 - 4,509 9,945
----------- ---------- ----------- -----------
259,781 - 4,509 9,945
----------- ---------- ----------- -----------
PREFERRED INTERESTS OF SUBSIDIARIES.............. (25) - - -
----------- ---------- ----------- -----------
INCOME (LOSS) BEFORE INCOME TAXES................ 363,932 6,614 5,082 20,864
Provision (benefit) for income taxes.......... 86,971 - (1,532) (3,619)
----------- ---------- ----------- -----------
INCOME (LOSS) BEFORE CHANGE IN
ACCOUNTING PRINCIPLE........................... 276,961 6,614 6,614 24,483
Cumulative effect of change in accounting
principle, net of income tax................ - - - -
----------- ---------- ----------- -----------
NET INCOME....................................... 276,961 6,614 6,614 24,483
Preferred stock dividends..................... 1,420 - - -
----------- ---------- ----------- -----------
INCOME ATTRIBUTABLE TO COMMON STOCK.............. $ 275,541 $ 6,614 $ 6,614 $ 24,483
=========== =========== =========== ===========
ALL OTHER
SUBSIDIARIES
OF APACHE RECLASSIFICATIONS
CORPORATION & ELIMINATIONS CONSOLIDATED
------------ --------------- -------------
(IN THOUSANDS)
REVENUES AND OTHER:
Oil and gas production revenues............... $ 704,664 $ (47,007) $ 1,110,015
Equity in net income (loss) of affiliates..... (9,303) (209,372) -
Other......................................... (5,143) - (5,474)
------------ ------------- ------------
690,218 (256,379) 1,104,541
------------ ------------- ------------
OPERATING EXPENSES:
Depreciation, depletion and amortization...... 188,142 - 292,885
Asset retirement obligation accretion......... 6,668 - 11,342
Lease operating costs......................... 161,513 (47,007) 194,574
Gathering and transportation costs............ 11,426 - 16,948
Severance and other taxes..................... 30,354 - 41,587
General and administrative.................... 8,193 - 34,692
Financing costs, net.......................... (7,624) - 33,872
------------ ------------- ------------
398,672 (47,007) 625,900
------------ ------------- ------------
PREFERRED INTERESTS OF SUBSIDIARIES.............. 2,001 - 1,976
------------ ------------- ------------
INCOME (LOSS) BEFORE INCOME TAXES................ 289,545 (209,372) 476,665
Provision (benefit) for income taxes.......... 117,884 - 199,704
------------ ------------- ------------
INCOME (LOSS) BEFORE CHANGE IN
ACCOUNTING PRINCIPLE........................... 171,661 (209,372) 276,961
Cumulative effect of change in accounting
principle, net of income tax................ - - -
------------ ------------- ------------
NET INCOME....................................... 171,661 (209,372) 276,961
Preferred stock dividends..................... - - 1,420
------------ ------------- ------------
INCOME ATTRIBUTABLE TO COMMON STOCK.............. $ 171,661 $ (209,372) $ 275,541
============ ============= ============
14
APACHE CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS
FOR THE QUARTER ENDED SEPTEMBER 30, 2002
APACHE APACHE
APACHE APACHE FINANCE FINANCE
CORPORATION NORTH AMERICA AUSTRALIA CANADA
------------- ------------- ------------- -------------
(IN THOUSANDS)
REVENUES AND OTHER:
Oil and gas production revenues............... $ 206,029 $ - $ - $ -
Equity in net income (loss) of affiliates..... 105,002 6,534 9,512 15,714
Other......................................... (497) - - -
----------- ----------- ----------- -----------
310,534 6,534 9,512 15,714
----------- ----------- ----------- -----------
OPERATING EXPENSES:
Depreciation, depletion and amortization...... 46,851 - - -
Lease operating costs......................... 52,289 - - -
Gathering and transportation costs............ 4,250 - - -
Severance and other taxes..................... 8,695 - - 90
General and administrative.................... 21,496 - - -
Financing costs, net.......................... 18,470 - 4,512 10,268
----------- ----------- ----------- -----------
152,051 - 4,512 10,358
----------- ----------- ----------- -----------
PREFERRED INTERESTS OF SUBSIDIARIES.............. - - - -
----------- ----------- ----------- -----------
INCOME (LOSS) BEFORE INCOME TAXES................ 158,483 6,534 5,000 5,356
Provision (benefit) for income taxes.......... 11,955 - (1,534) (4,948)
----------- ----------- ----------- -----------
NET INCOME....................................... 146,528 6,534 6,534 10,304
Preferred stock dividends..................... 1,406 - - -
----------- ----------- ----------- -----------
INCOME ATTRIBUTABLE TO COMMON STOCK.............. $ 145,122 $ 6,534 $ 6,534 $ 10,304
=========== =========== =========== ===========
ALL OTHER
SUBSIDIARIES
OF APACHE RECLASSIFICATIONS
CORPORATION & ELIMINATIONS CONSOLIDATED
------------ --------------- -------------
(IN THOUSANDS)
REVENUES AND OTHER:
Oil and gas production revenues............... $ 485,979 $ (36,091) $ 655,917
Equity in net income (loss) of affiliates..... (8,388) (128,374) -
Other......................................... (10,231) - (10,728)
----------- ------------ -----------
467,360 (164,465) 645,189
----------- ------------ -----------
OPERATING EXPENSES:
Depreciation, depletion and amortization...... 161,937 - 208,788
Lease operating costs......................... 100,116 (36,091) 116,314
Gathering and transportation costs............ 5,619 - 9,869
Severance and other taxes..................... 7,279 - 16,064
General and administrative.................... 3,967 - 25,463
Financing costs, net.......................... (5,177) - 28,073
----------- ------------ -----------
273,741 (36,091) 404,571
----------- ------------ -----------
PREFERRED INTERESTS OF SUBSIDIARIES.............. 3,922 - 3,922
----------- ------------ -----------
INCOME (LOSS) BEFORE INCOME TAXES................ 189,697 (128,374) 236,696
Provision (benefit) for income taxes.......... 84,695 - 90,168
----------- ------------ -----------
NET INCOME....................................... 105,002 (128,374) 146,528
Preferred stock dividends..................... - - 1,406
----------- ------------ -----------
INCOME ATTRIBUTABLE TO COMMON STOCK.............. $ 105,002 $ (128,374) $ 145,122
=========== ============ ===========
15
APACHE CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2003
APACHE APACHE
APACHE APACHE FINANCE FINANCE
CORPORATION NORTH AMERICA AUSTRALIA CANADA
------------- ------------- ------------- -------------
(IN THOUSANDS)
REVENUES AND OTHER:
Oil and gas production revenues............... $ 1,267,321 $ - $ - $ -
Equity in net income (loss) of affiliates..... 427,821 23,343 32,276 65,411
Other......................................... (6,588) - - -
----------- ----------- ----------- -----------
1,688,554 23,343 32,276 65,411
----------- ----------- ----------- -----------
OPERATING EXPENSES:
Depreciation, depletion and amortization...... 265,954 - - -
Asset retirement obligation accretion......... 11,216 - - -
Lease operating costs......................... 204,842 - - -
Gathering and transportation costs............ 14,419 - - -
Severance and other taxes..................... 38,632 - - 53
General and administrative.................... 75,340 - - -
Financing costs, net.......................... 75,486 - 13,534 30,124
----------- ----------- ----------- -----------
685,889 - 13,534 30,177
----------- ----------- ----------- -----------
PREFERRED INTERESTS OF SUBSIDIARIES.............. (25) - - -
----------- ----------- ----------- -----------
INCOME (LOSS) BEFORE INCOME TAXES................ 1,002,690 23,343 18,742 35,234
Provision (benefit) for income taxes.......... 162,176 - (4,601) (11,049)
----------- ----------- ----------- -----------
INCOME (LOSS) BEFORE CHANGE IN
ACCOUNTING PRINCIPLE........................... 840,514 23,343 23,343 46,283
Cumulative effect of change in accounting
principle, net of income tax................ 19,757 - - -
----------- ----------- ----------- -----------
NET INCOME....................................... 860,271 23,343 23,343 46,283
Preferred stock dividends..................... 4,260 - - -
----------- ----------- ----------- -----------
INCOME ATTRIBUTABLE TO COMMON STOCK.............. $ 856,011 $ 23,343 $ 23,343 $ 46,283
=========== =========== =========== ===========
ALL OTHER
SUBSIDIARIES
OF APACHE RECLASSIFICATIONS
CORPORATION & ELIMINATIONS CONSOLIDATED
------------ --------------- -------------
(IN THOUSANDS)
REVENUES AND OTHER:
Oil and gas production revenues............... $ 2,007,790 $ (145,604) $ 3,129,507
Equity in net income (loss) of affiliates..... (28,061) (520,790) -
Other......................................... 2,587 - (4,001)
------------- ------------ -----------
1,982,316 (666,394) 3,125,506
------------- ------------ -----------
OPERATING EXPENSES:
Depreciation, depletion and amortization...... 513,636 - 779,590
Asset retirement obligation accretion......... 15,884 - 27,100
Lease operating costs......................... 455,757 (145,604) 514,995
Gathering and transportation costs............ 29,521 - 43,940
Severance and other taxes..................... 60,198 - 98,883
General and administrative.................... 17,757 - 93,097
Financing costs, net.......................... (30,433) - 88,711
------------- ------------ -----------
1,062,320 (145,604) 1,646,316
------------- ------------ -----------
PREFERRED INTERESTS OF SUBSIDIARIES.............. 8,693 - 8,668
------------- ------------ -----------
INCOME (LOSS) BEFORE INCOME TAXES................ 911,303 (520,790) 1,470,522
Provision (benefit) for income taxes.......... 490,357 - 636,883
------------- ------------ -----------
INCOME (LOSS) BEFORE CHANGE IN
ACCOUNTING PRINCIPLE........................... 420,946 (520,790) 833,639
Cumulative effect of change in accounting
principle, net of income tax................ 6,875 - 26,632
------------- ------------ -----------
NET INCOME....................................... 427,821 (520,790) 860,271
Preferred stock dividends..................... - - 4,260
------------- ------------ -----------
INCOME ATTRIBUTABLE TO COMMON STOCK.............. $ 427,821 $ (520,790) $ 856,011
============= ============ ===========
16
APACHE CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2002
APACHE APACHE
APACHE APACHE FINANCE FINANCE
CORPORATION NORTH AMERICA AUSTRALIA CANADA
------------- ------------- ------------- -------------
(IN THOUSANDS)
REVENUES AND OTHER:
Oil and gas production revenues............... $ 582,789 $ - $ - $ -
Equity in net income (loss) of affiliates..... 277,729 15,618 24,552 52,817
Other......................................... (402) - - -
----------- ----------- ----------- -----------
860,116 15,618 24,552 52,817
----------- ----------- ----------- -----------
OPERATING EXPENSES:
Depreciation, depletion and amortization...... 161,698 - - -
International impairments..................... - - - -
Lease operating costs......................... 152,615 - - -
Gathering and transportation costs............ 12,259 - - -
Severance and other taxes..................... 23,828 - - 116
General and administrative.................... 66,882 - - -
Financing costs, net.......................... 54,512 - 13,537 30,715
----------- ----------- ----------- -----------
471,794 - 13,537 30,831
----------- ----------- ----------- -----------
PREFERRED INTERESTS OF SUBSIDIARIES.............. - - - -
----------- ----------- ----------- -----------
INCOME (LOSS) BEFORE INCOME TAXES................ 388,322 15,618 11,015 21,986
Provision (benefit) for income taxes.......... 14,812 - (4,603) (13,874)
----------- ----------- ----------- -----------
NET INCOME....................................... 373,510 15,618 15,618 35,860
Preferred stock dividends..................... 9,395 - - -
----------- ----------- ----------- -----------
INCOME ATTRIBUTABLE TO COMMON STOCK.............. $ 364,115 $ 15,618 $ 15,618 $ 35,860
============= =========== =========== ===========
ALL OTHER
SUBSIDIARIES
OF APACHE RECLASSIFICATIONS
CORPORATION & ELIMINATIONS CONSOLIDATED
------------ --------------- -------------
(IN THOUSANDS)
REVENUES AND OTHER:
Oil and gas production revenues............... $ 1,378,151 $ (123,370) $ 1,837,570
Equity in net income (loss) of affiliates..... (25,891) (344,825) -
Other......................................... (7,668) - (8,070)
----------- ------------- -----------
1,344,592 (468,195) 1,829,500
----------- ------------- -----------
OPERATING EXPENSES:
Depreciation, depletion and amortization...... 468,919 - 630,617
International impairments..................... 4,600 - 4,600
Lease operating costs......................... 310,299 (123,370) 339,544
Gathering and transportation costs............ 16,955 - 29,214
Severance and other taxes..................... 24,825 - 48,769
General and administrative.................... 11,948 - 78,830
Financing costs, net.......................... (14,234) - 84,530
----------- ------------- -----------
823,312 (123,370) 1,216,104
----------- ------------- -----------
PREFERRED INTERESTS OF SUBSIDIARIES.............. 12,584 - 12,584
----------- ------------- -----------
INCOME (LOSS) BEFORE INCOME TAXES................ 508,696 (344,825) 600,812
Provision (benefit) for income taxes.......... 230,967 - 227,302
----------- ------------- -----------
NET INCOME....................................... 277,729 (344,825) 373,510
Preferred stock dividends..................... - - 9,395
----------- ------------- -----------
INCOME ATTRIBUTABLE TO COMMON STOCK.............. $ 277,729 $ (344,825) $ 364,115
=========== ============ ===========
17
APACHE CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2003
APACHE APACHE
APACHE APACHE FINANCE FINANCE
CORPORATION NORTH AMERICA AUSTRALIA CANADA
------------- ------------- ------------- -------------
(IN THOUSANDS)
CASH PROVIDED BY (USED IN) OPERATING
ACTIVITIES....................................... $ 883,634 $ - $ (13,791) $ (22,893)
----------- ----------- ----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to property and equipment.............. (325,918) - - -
Acquisitions..................................... (739,072) - - -
Proceeds from sales of oil and gas properties.... 4,192 - - -
Investment in subsidiaries, net.................. (542,452) (12,525) - -
Other, net....................................... (23,531) - - -
----------- ----------- ----------- -----------
NET CASH USED IN INVESTING ACTIVITIES.............. (1,626,781) (12,525) - -
----------- ----------- ----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Long-term borrowings............................. 1,531,596 - 1,266 2,103
Payments on long-term debt....................... (1,227,288) - - -
Dividends paid................................... (51,967) - - -
Common stock activity............................ 574,349 12,525 12,525 20,663
Treasury stock activity, net..................... 4,275 - - -
Cost of debt and equity transactions............. (4,520) - - -
Repurchase of preferred interests of subsidiaries (82,000) - - -
----------- ----------- ----------- -----------
NET CASH PROVIDED BY FINANCING ACTIVITIES.......... 744,445 12,525 13,791 22,766
----------- ----------- ----------- -----------
NET INCREASE (DECREASE) IN CASH AND
CASH EQUIVALENTS................................. 1,298 - - (127)
CASH AND CASH EQUIVALENTS AT
BEGINNING OF YEAR................................ 224 - 2 127
----------- ----------- ----------- -----------
CASH AND CASH EQUIVALENTS AT
END OF PERIOD.................................... $ 1,522 $ - $ 2 $ -
=========== =========== =========== ===========
ALL OTHER
SUBSIDIARIES
OF APACHE RECLASSIFICATIONS
CORPORATION & ELIMINATIONS CONSOLIDATED
------------ --------------- -------------
(IN THOUSANDS)
CASH PROVIDED BY (USED IN) OPERATING
ACTIVITIES....................................... $ 1,232,159 $ - $ 2,079,109
----------- ------------ -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to property and equipment.............. (789,431) - (1,115,349)
Acquisitions..................................... (639,703) - (1,378,775)
Proceeds from sales of oil and gas properties.... 12,010 - 16,202
Investment in subsidiaries, net.................. (617) 555,594 -
Other, net....................................... (20,771) - (44,302)
----------- ------------ -----------
NET CASH USED IN INVESTING ACTIVITIES.............. (1,438,512) 555,594 (2,522,224)
----------- ------------ -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Long-term borrowings............................. (385,108) 619,801 1,769,658
Payments on long-term debt....................... (187,641) - (1,414,929)
Dividends paid................................... - - (51,967)
Common stock activity............................ 1,129,682 (1,175,395) 574,349
Treasury stock activity, net..................... - - 4,275
Cost of debt and equity transactions............. - - (4,520)
Repurchase of preferred interests of subsidiaries (361,000) - (443,000)
----------- ------------ -----------
NET CASH PROVIDED BY FINANCING ACTIVITIES.......... 195,933 (555,594) 433,866
----------- ------------ -----------
NET INCREASE (DECREASE) IN CASH AND
CASH EQUIVALENTS................................. (10,420) - (9,249)
CASH AND CASH EQUIVALENTS AT
BEGINNING OF YEAR................................ 51,533 - 51,886
----------- ------------ -----------
CASH AND CASH EQUIVALENTS AT
END OF PERIOD.................................... $ 41,113 $ - $ 42,637
=========== ============ ===========
18
APACHE CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2002
APACHE APACHE
APACHE APACHE FINANCE FINANCE
CORPORATION NORTH AMERICA AUSTRALIA CANADA
------------- ------------- ------------- -------------
(IN THOUSANDS)
CASH PROVIDED BY (USED IN) OPERATING
ACTIVITIES....................................... $ 379,276 $ - $ (12,525) $ (28,581)
----------- ----------- ----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to property and equipment.............. (182,908) - - -
Acquisitions..................................... (11,000) - - -
Proceeds from sales of oil and gas properties.... - - - -
Proceeds from sale of U.S. Government Agency Notes - - - -
Investment in subsidiaries, net.................. (270,250) (12,525) - -
Other, net....................................... (10,757) - - -
----------- ----------- ----------- -----------
NET CASH USED IN INVESTING ACTIVITIES.............. (474,915) (12,525) - -
----------- ----------- ----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Long-term borrowings............................. 1,259,436 - - 3,449
Payments on long-term debt....................... (1,136,800) - - -
Dividends paid................................... (53,059) - - -
Common stock activity............................ 27,407 12,525 12,525 25,132
Treasury stock activity, net..................... 1,861 - - -
Cost of debt and equity transactions............. (6,741) - - -
----------- ----------- ----------- -----------
NET CASH PROVIDED BY FINANCING ACTIVITIES.......... 92,104 12,525 12,525 28,581
----------- ----------- ----------- -----------
NET INCREASE (DECREASE) IN CASH AND
CASH EQUIVALENTS................................. (3,535) - - -
CASH AND CASH EQUIVALENTS AT
BEGINNING OF YEAR................................ 6,383 - 2 -
----------- ----------- ----------- -----------
CASH AND CASH EQUIVALENTS AT
END OF PERIOD.................................... $ 2,848 $ - $ 2 $ -
=========== =========== =========== ===========
ALL OTHER
SUBSIDIARIES
OF APACHE RECLASSIFICATIONS
CORPORATION & ELIMINATIONS CONSOLIDATED
------------ --------------- -------------
(IN THOUSANDS)
CASH PROVIDED BY (USED IN) OPERATING
ACTIVITIES....................................... $ 671,099 $ - $ 1,009,269
----------- ------------ -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to property and equipment.............. (564,308) - (747,216)
Acquisitions..................................... - - (11,000)
Proceeds from sales of oil and gas properties.... - - -
Proceeds from sale of U.S. Government Agency Notes 17,006 - 17,006
Investment in subsidiaries, net.................. (238,450) 521,225 -
Other, net....................................... (13,749) - (24,506)
----------- ------------ -----------
NET CASH USED IN INVESTING ACTIVITIES.............. (799,501) 521,225 (765,716)
----------- ------------ -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Long-term borrowings............................. 358,522 (375,111) 1,246,296
Payments on long-term debt....................... (190,671) - (1,327,471)
Dividends paid................................... - - (53,059)
Common stock activity, net....................... 95,932 (146,114) 27,407
Treasury stock activity, net..................... - - 1,861
Cost of debt and equity transactions............. - - (6,741)
----------- ------------ -----------
NET CASH PROVIDED BY FINANCING ACTIVITIES.......... 263,783 (521,225) (111,707)
----------- ------------ -----------
NET INCREASE (DECREASE) IN CASH AND
CASH EQUIVALENTS................................. 135,381 - 131,846
CASH AND CASH EQUIVALENTS AT
BEGINNING OF YEAR................................ 29,240 - 35,625
----------- ------------ -----------
CASH AND CASH EQUIVALENTS AT
END OF PERIOD.................................... $ 164,621 $ - $ 167,471
=========== ============ ===========
19
APACHE CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATING BALANCE SHEET
AS OF SEPTEMBER 30, 2003
APACHE APACHE
APACHE APACHE FINANCE FINANCE
CORPORATION NORTH AMERICA AUSTRALIA CANADA
------------- ------------- ------------- -------------
(IN THOUSANDS)
ASSETS
CURRENT ASSETS:
Cash and cash equivalents...................... $ 1,522 $ - $ 2 $ -
Receivables, net of allowance.................. 202,341 - - -
Inventories.................................... 17,851 - - -
Drilling advances and other.................... 29,663 - - -
----------- ----------- ----------- -----------
251,377 - 2 -
----------- ----------- ----------- -----------
PROPERTY AND EQUIPMENT, NET...................... 4,587,732 - - -
----------- ----------- ----------- -----------
OTHER ASSETS:
Intercompany receivable, net................... 262,764 - (1,785) 93,753
Goodwill, net.................................. - - - -
Equity in affiliates........................... 4,658,877 178,018 434,743 1,040,841
Deferred charges and other..................... 35,155 - - 4,833
----------- ----------- ----------- -----------
$ 9,795,905 $ 178,018 $ 432,960 $ 1,139,427
============= =========== =========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable............................... $ 180,489 $ - $ - $ -
Other accrued expenses......................... 224,518 - (1,944) 11,483
----------- ----------- ----------- -----------
405,007 - (1,944) 11,483
----------- ----------- ----------- -----------
LONG-TERM DEBT................................... 1,593,098 - 268,938 646,726
----------- ----------- ----------- -----------
DEFERRED CREDITS AND OTHER
NONCURRENT LIABILITIES:
Income taxes................................... 858,436 - (12,052) (1,105)
Advances from gas purchasers................... 113,786 - - -
Asset retirement obligation.................... 326,905 - - -
Oil and gas derivative instruments............. 34,146 - - -
Other.......................................... 167,442 - - -
----------- ----------- ----------- -----------
1,500,715 - (12,052) (1,105)
----------- ----------- ----------- -----------
COMMITMENTS AND CONTINGENCIES
SHAREHOLDERS' EQUITY............................. 6,297,085 178,018 178,018 482,323
----------- ----------- ----------- -----------
$ 9,795,905 $ 178,018 $ 432,960 $ 1,139,427
=========== =========== =========== ===========
ALL OTHER
SUBSIDIARIES
OF APACHE RECLASSIFICATIONS
CORPORATION & ELIMINATIONS CONSOLIDATED
------------ --------------- -------------
(IN THOUSANDS)
ASSETS
CURRENT ASSETS:
Cash and cash equivalents...................... $ 41,113 $ - $ 42,637
Receivables, net of allowance.................. 417,167 - 619,508
Inventories.................................... 108,329 - 126,180
Drilling advances and other.................... 51,351 - 81,014
----------- ------------ -----------