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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 June 30, 2004
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 [ ]
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 June 30,
2004.............326,002,236
PART I - FINANCIAL INFORMATION
ITEM 1 - FINANCIAL STATEMENTS
APACHE CORPORATION AND SUBSIDIARIES
STATEMENT OF CONSOLIDATED OPERATIONS
(UNAUDITED)
FOR THE QUARTER FOR THE SIX MONTHS
ENDED JUNE 30, ENDED JUNE 30,
------------------------- -------------------------
2004 2003 2004 2003
---------- ---------- ---------- ----------
(In thousands, except per common share data)
REVENUES AND OTHER:
Oil and gas production revenues .................... $1,247,412 $1,044,330 $2,400,166 $2,019,492
Other .............................................. (6,679) 10,026 (9,494) 1,473
---------- ---------- ---------- ----------
1,240,733 1,054,356 2,390,672 2,020,965
---------- ---------- ---------- ----------
OPERATING EXPENSES:
Depreciation, depletion and amortization ........... 295,737 272,356 581,965 486,705
Asset retirement obligation accretion .............. 10,891 10,445 21,652 15,758
Lease operating costs .............................. 197,097 186,286 403,126 320,421
Share appreciation plan - lease operating costs .... 10,992 - 10,992 -
Gathering and transportation costs ................. 20,162 15,131 39,796 26,992
Severance and other taxes .......................... 21,595 32,742 30,543 57,296
General and administrative ......................... 36,479 30,574 80,329 58,405
Share appreciation plan - general and administrative 11,012 - 11,012 -
China litigation ................................... 71,216 - 71,216 -
Financing costs:
Interest expense ............................ 40,193 41,428 80,742 79,124
Amortization of deferred loan costs ......... 595 536 1,162 1,067
Capitalized interest ........................ (12,708) (12,618) (26,358) (23,850)
Interest income ............................. (513) (428) (833) (1,502)
---------- ---------- ---------- ----------
702,748 576,452 1,305,344 1,020,416
PREFERRED INTERESTS OF SUBSIDIARIES ....................... - 3,330 - 6,692
---------- ---------- ---------- ----------
INCOME BEFORE INCOME TAXES ................................ 537,985 474,574 1,085,328 993,857
Provision for income taxes ......................... 164,847 230,193 363,106 437,179
---------- ---------- ---------- ----------
INCOME BEFORE CHANGE IN ACCOUNTING
PRINCIPLE ............................................... 373,138 244,381 722,222 556,678
Cumulative effect of change in accounting principle,
net of income tax ........................... - - - 26,632
---------- ---------- ---------- ----------
NET INCOME ................................................ 373,138 244,381 722,222 583,310
Preferred stock dividends .......................... 1,420 1,420 2,840 2,840
---------- ---------- ---------- ----------
INCOME ATTRIBUTABLE TO COMMON STOCK ....................... $ 371,718 $ 242,961 $ 719,382 $ 580,470
========== ========== ========== ==========
BASIC NET INCOME PER COMMON SHARE:
Before change in accounting principle .............. $ 1.14 $ .75 $ 2.21 $ 1.73
Cumulative effect of change in accounting principle - - - .08
---------- ---------- ---------- ----------
$ 1.14 $ .75 $ 2.21 $ 1.81
========== ========== ========== ==========
DILUTED NET INCOME PER COMMON SHARE:
Before change in accounting principle .............. $ 1.13 $ .74 $ 2.19 $ 1.71
Cumulative effect of change in accounting principle - - - .08
---------- ---------- ---------- ----------
$ 1.13 $ .74 $ 2.19 $ 1.79
========== ========== ========== ==========
The accompanying notes to consolidated financial statements
are an integral partof this statement.
1
APACHE CORPORATION AND SUBSIDIARIES
STATEMENT OF CONSOLIDATED CASH FLOWS
(UNAUDITED)
FOR THE SIX MONTHS ENDED
JUNE 30,
---------------------------
2004 2003
----------- -----------
(In thousands)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income .................................................................... $ 722,222 $ 583,310
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation, depletion and amortization ......................... 581,965 486,705
Asset retirement obligation accretion ............................ 21,652 15,758
Provision for deferred income taxes .............................. 99,098 221,370
Cumulative effect of change in accounting principle .............. - (26,632)
Other ............................................................ 32,759 3,311
Changes in operating assets and liabilities:
(Increase) decrease in receivables ............................... (174,184) (147,208)
(Increase) decrease in drilling advances and other ............... (20,548) (14,951)
(Increase) decrease in inventories ............................... 4,426 4,410
(Increase) decrease in deferred charges and other ................ (19,637) (12,636)
Increase (decrease) in accounts payable .......................... 105,697 56,575
Increase (decrease) in accrued expenses .......................... (21,467) 81,009
Increase (decrease) in advances from gas purchasers .............. (9,072) (8,088)
Increase (decrease) in deferred credits and noncurrent liabilities (23,859) (18,768)
----------- -----------
Net cash provided by operating activities ................. 1,299,052 1,224,165
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to property and equipment ........................................... (1,058,149) (771,046)
Acquisition of BP properties .................................................. - (1,157,134)
Other, net .................................................................... (19,188) (32,342)
----------- -----------
Net cash used in investing activities ..................... (1,077,337) (1,960,522)
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Long-term borrowings .......................................................... 404 1,042,418
Payments on long-term debt .................................................... (135,300) (852,305)
Dividends paid ................................................................ (41,838) (34,366)
Common stock activity ......................................................... 13,383 570,363
Treasury stock activity, net .................................................. 7,663 3,399
Cost of debt and equity transactions .......................................... (2,050) (4,039)
----------- -----------
Net cash provided by (used in) financing activities ....... (157,738) 725,470
----------- -----------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS ............................... 63,977 (10,887)
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR ..................................... 33,503 51,886
----------- -----------
CASH AND CASH EQUIVALENTS AT END OF PERIOD ......................................... $ 97,480 $ 40,999
=========== ===========
The accompanying notes to consolidated financial statements
are an integral partof this statement.
2
APACHE CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
(UNAUDITED)
JUNE 30, DECEMBER 31,
2004 2003
------------ ------------
(In thousands)
ASSETS
CURRENT ASSETS:
Cash and cash equivalents ................................. $ 97,480 $ 33,503
Receivables, net of allowance ............................. 811,633 639,055
Inventories ............................................... 127,837 125,867
Drilling advances ......................................... 62,451 58,062
Prepaid assets and other .................................. 58,463 42,585
------------ ------------
1,157,864 899,072
------------ ------------
PROPERTY AND EQUIPMENT:
Oil and gas, on the basis of full cost accounting:
Proved properties .................................. 17,391,779 16,277,930
Unproved properties and properties under
development, not being amortized ............. 767,807 795,161
Gas gathering, transmission and processing facilities ..... 868,315 828,169
Other ..................................................... 249,494 239,548
------------ ------------
19,277,395 18,140,808
Less: Accumulated depreciation, depletion and
amortization ................................. (7,461,957) (6,880,723)
------------ ------------
11,815,438 11,260,085
------------ ------------
OTHER ASSETS:
Goodwill, net ............................................. 189,252 189,252
Deferred charges and other ................................ 87,397 67,717
------------ ------------
$ 13,249,951 $ 12,416,126
============ ============
The accompanying notes to consolidated financial statements
are an integral part of this statement.
3
APACHE CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
(UNAUDITED)
JUNE 30, DECEMBER 31,
2004 2003
------------ ------------
(In thousands)
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable ..................................................... $ 414,979 $ 300,598
Accrued operating expense ............................................ 55,661 72,250
Accrued exploration and development .................................. 252,462 212,028
Accrued compensation and benefits .................................... 41,748 56,237
Accrued interest ..................................................... 32,527 32,621
Accrued income taxes ................................................. 35,801 18,936
Oil and gas derivative instruments ................................... 69,771 63,542
Other ................................................................ 72,650 64,166
------------ ------------
975,599 820,378
------------ ------------
LONG-TERM DEBT ............................................................ 2,192,070 2,326,966
------------ ------------
DEFERRED CREDITS AND OTHER NONCURRENT LIABILITIES:
Income taxes ......................................................... 1,786,314 1,697,238
Advances from gas purchasers ......................................... 100,135 109,207
Asset retirement obligation .......................................... 759,617 739,775
Oil and gas derivative instruments ................................... 1,233 5,931
Other ................................................................ 160,794 183,833
------------ ------------
2,808,093 2,735,984
------------ ------------
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, $0.625 par, 430,000,000 shares authorized,
333,669,932 and 332,509,478 shares issued, respectively ....... 208,544 207,818
Paid-in capital ...................................................... 4,094,351 4,038,007
Retained earnings .................................................... 3,126,013 2,445,698
Treasury stock, at cost, 7,667,696 and 8,012,302 shares,
respectively .................................................. (100,102) (105,169)
Accumulated other comprehensive loss ................................. (153,004) (151,943)
------------ ------------
7,274,189 6,532,798
------------ ------------
$ 13,249,951 $ 12,416,126
============ ============
The accompanying notes to consolidated financial statements
are an integral partof this statement.
4
APACHE CORPORATION AND SUBSIDIARIES
STATEMENT OF CONSOLIDATED SHAREHOLDERS' EQUITY
(UNAUDITED)
SERIES B
COMPREHENSIVE PREFERRED COMMON PAID-IN
(In thousands) INCOME STOCK STOCK CAPITAL
--------------- ---------- -------- ----------
BALANCE AT DECEMBER 31, 2002.............. $ 98,387 $194,331 $3,427,450
Comprehensive income (loss):
Net income........................... $ 583,310 - - -
Commodity hedges, net of income tax
benefit of $30,902................. (51,870) - - -
---------------
Comprehensive income................... $ 531,440
===============
Dividends:
Preferred............................ - - -
Common ($.10 per share).............. - - -
Five percent common stock dividend..... - 581 25,333
Common shares issued................... - 12,444 563,050
Treasury shares issued, net............ - - 2,113
Other.................................. - - (509)
---------- -------- -----------
BALANCE AT JUNE 30, 2003.................. $ 98,387 $207,356 $4,017,437
========== ======== ===========
BALANCE AT DECEMBER 31, 2003.............. $ 98,387 $207,818 $4,038,007
Comprehensive income (loss):
Net income........................... $ 722,222 - - -
Commodity hedges, net of income tax
benefit of $648.................... (1,061) - - -
---------------
Comprehensive income................... $ 721,161
===============
Dividends:
Preferred............................ - - -
Common ($.12 per share).............. - - -
Common shares issued................... - 726 49,201
Treasury shares issued, net............ - - 4,738
Other.................................. - - 2,405
---------- -------- -----------
BALANCE AT JUNE 30, 2004.................. $ 98,387 $208,544 $4,094,351
========== ======== ===========
ACCUMULATED
OTHER TOTAL
RETAINED TREASURY COMPREHENSIVE SHAREHOLDERS'
(In thousands) EARNINGS STOCK INCOME (LOSS) EQUITY
----------- ---------- ------------- --------------
BALANCE AT DECEMBER 31, 2002.............. $1,427,607 $(110,559) $ (112,936) $ 4,924,280
Comprehensive income (loss):
Net income........................... 583,310 - - 583,310
Commodity hedges, net of income tax
benefit of $30,902................. - - (51,870) (51,870)
Comprehensive income...................
Dividends:
Preferred............................ (2,840) - - (2,840)
Common ($.10 per share).............. (33,705) - - (33,705)
Five percent common stock dividend..... (25,914) - - -
Common shares issued................... - - - 575,494
Treasury shares issued, net............ - 3,257 - 5,370
Other.................................. (6) - - (515)
----------- ---------- ------------ --------------
BALANCE AT JUNE 30, 2003.................. $1,948,452 $(107,302) $ (164,806) $ 5,999,524
=========== ========== ============ ==============
BALANCE AT DECEMBER 31, 2003.............. $2,445,698 $(105,169) $ (151,943) $ 6,532,798
Comprehensive income (loss):
Net income........................... 722,222 - - 722,222
Commodity hedges, net of income tax
benefit of $648.................... - - (1,061) (1,061)
Comprehensive income...................
Dividends:
Preferred............................ (2,840) - - (2,840)
Common ($.12 per share).............. (39,067) - - (39,067)
Common shares issued................... - - - 49,927
Treasury shares issued, net............ - 5,067 - 9,805
Other.................................. - - 2,405
----------- ---------- ------------ --------------
BALANCE AT JUNE 30, 2004.................. $3,126,013 $(100,102) $ (153,004) $ 7,274,189
=========== ========== ============ ==============
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 September 11, 2003, the Company declared a two-for-one stock split,
distributed January 14, 2004, to shareholders of record on December 31, 2003.
Quarterly share and per share information for 2003 have been restated to reflect
the two-for-one stock split.
Reclassifications
Certain prior period amounts have been reclassified to conform with
current year presentations.
1. ACQUISITIONS
On May 24, 2004, Apache signed a letter of intent with ExxonMobil to
explore and develop properties in West Texas, Western Canada, Louisiana and the
Gulf of Mexico. The program will capitalize on the respective strengths and
assets of both companies in these areas. The agreement provides for transfers
and joint venture activity across a broad range of prospective and mature
properties. Apache's participation will include an estimated cash payment of
$385 million as of the effective date. The parties are negotiating definitive
agreements, based on the letter of intent which included the following:
- ExxonMobil will transfer its interest in 28 mature producing oil and
gas fields in West Texas and New Mexico, retaining a revenue
interest indexed to oil price through 2009 and a 50 percent working
interest in all properties beneath the currently producing
intervals.
- ExxonMobil Canada will farm out its interest in approximately
300,000 acres of undeveloped property interests in the Western
Canada Province of Alberta to Apache Canada Ltd. ExxonMobil Canada
will retain a 37.5 percent lessor royalty interest in fee lands and
a 35 percent working interest on ExxonMobil leaseholds as to any
production resulting from the drilling program to be undertaken by
Apache, currently targeted to include at least 250 wells.
- The companies will explore jointly for deep gas on approximately
800,000 acres of Apache onshore Louisiana and Gulf of Mexico
properties for an initial five-year period, with provisions for
extension.
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 available cash on hand, the issuance of 19.8
million shares of Apache common stock (adjusted for the five percent common
stock dividend and the two-for-one common stock split) and borrowings under the
Company's lines of credit and commercial paper program. The offering of Apache's
common stock provided net proceeds of approximately $554 million.
6
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 included a 96 percent interest in the Forties Field and established 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 129 million British pounds. Apache has agreed
to sell all of the North Sea production from those properties to BP through
December 31, 2004, at a combination of fixed and market sensitive prices
pursuant to a contract entered into in connection with the North Sea purchase
agreement.
Presented below is a breakdown of the cash consideration given for the BP
transaction as of the closing date.
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 SIX MONTHS ENDED JUNE 30, 2003
--------------------------------------
AS REPORTED PRO FORMA
----------- ----------
(In thousands, except per common share data)
Revenues and other .................. $2,020,965 $2,258,927
Net income .......................... 583,310 656,507
Preferred stock dividends ........... 2,840 2,840
Income attributable to common stock . 580,470 653,667
Net income per common share:
Basic ........................... $ 1.81 $ 2.03
Diluted ......................... 1.79 2.01
Average common shares outstanding (1) 320,973 323,160
(1) Pro forma shares assume the issuance of 19.8 million common
shares (adjusted for the five percent common stock dividend
and the two-for-one common stock split) as of the beginning of
each period presented.
7
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 for a period of 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 the four-year term. The
VPP reserves and production will not be recorded by Apache.
Apache recorded 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
was recorded by the Company because the overriding royalties are not burdened by
production costs. This liability is being 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 separation
plants. Apache operates 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 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.
Apache entered into, and designated as cash flow hedges, natural gas
fixed-price swaps and natural gas option collars in conjunction with the BP and
certain South Louisiana property acquisitions. During the second quarter of
2004, Apache entered into crude oil option collars and puts designated as cash
flow hedges on existing base production in West Texas. These Nymex positions
were entered into in accordance with the Company's hedging policy and involved
several counterparties, all of which are rated A+ or better. As of June 30,
2004, the outstanding positions of our natural gas and crude oil cash flow
hedges were as follows:
PRODUCTION TOTAL VOLUMES WEIGHTED AVERAGE FAIR VALUE ASSET/
PERIOD INSTRUMENT TYPE (MMBTU/BBL) FLOOR/CEILING (LIABILITY)
- ---------- -------------------- ------------- ---------------- ----------------
(In thousands)
2004 Gas Collars 9,200,000 $ 3.25 / 5.81 $ (6,581)
Gas Fixed-Price Swap 25,760,000 4.33 (50,452)
Oil Collars 1,472,000 35.00 / 42.20 850
2005 Gas Collars 9,050,000 3.25 / 5.20 (12,254)
Oil Collars 1,387,000 28.00 / 38.90 (1,807)
Oil Put Option 1,533,000 28.00 1,724
2006 Oil Collars 1,387,000 28.00 / 38.90 (477)
Oil Put Option 1,533,000 28.00 2,521
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 June 30, 2004, 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
- ---------- ------------- -----------
2004 7,360,000 $ 22.06
In June 2004, Apache began hedging foreign currency exchange risk
associated with a portion of its forecasted Canadian and North Sea lease
operating expenditures by entering into forward purchase contracts. The Company
forward purchased $41 million Canadian dollars at an average exchange rate of
..735 and 12 million British pounds
8
at an average exchange rate of 1.835. The forward contracts mature in July
through December 2004. Combined, the fair market value of these contracts as of
June 30, 2004 was $315,000 ($204,000 after tax). Future changes in market value
will be recorded in Other Comprehensive Income.
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, 2003.................... $ (69,316) $ (43,193)
Net losses realized into earnings...................................... 42,198 26,374
Net change in derivative fair value.................................... (43,907) (27,435)
------------- --------------
Unrealized loss on derivatives at June 30, 2004........................ $ (71,025) $ (44,254)
============= ==============
Based on current market prices, the Company recorded an unrealized loss in
other comprehensive income of $71 million ($44 million after tax), primarily
representing oil and gas derivative hedges. Any loss will be realized in future
earnings contemporaneously with the related sales of natural gas production
applicable to specific hedges. Were current prices to hold, a loss of $69
million ($43 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.
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. On March 4, 2004, the Company completed an exchange offer
with the holders of the notes, issuing publicly traded, registered notes of the
same principal amount and with the same interest rates, payment terms and
maturity. The notes are irrevocably and unconditionally guaranteed by Apache and
are redeemable, as a whole or in part, at Apache Finance Canada's option,
subject to a make-whole premium. Interest is payable semi-annually on May 15 and
November 15 of each year commencing on November 15, 2003. The proceeds of the
original note offering were used to reduce bank debt and outstanding commercial
paper and for general corporate purposes.
On May 28, 2004, the Company's $750 million 364-day credit facility
matured and was replaced with a new 5-year credit facility. The financial
covenants of the new 5-year facility require the Company to maintain a ratio of
debt-to-capitalization of not greater than 60 percent at the end of any fiscal
quarter. At the Company's option, the interest rate is based on (i) the greater
of (a) The JPMorgan Chase Bank prime rate or (b) the federal funds rate plus
one-half of one percent or (ii) the London Interbank Offered Rate (LIBOR) plus a
margin determined by the Company's senior long-term debt rating. The facility
also allows the Company to borrow under competitive auctions. On June 30, 2004,
the margin over LIBOR for committed loans was .27 percent. If the total amount
of the loans borrowed under the facility equals or exceeds 50 percent of the
total facility commitments, then an additional .10 percent will be added to the
margins over LIBOR. The Company also pays a quarterly facility fee of .08
percent on the total amount of the facility.
Also on May 28, 2004, the Company amended its existing global credit
facility agreements in order to make their terms consistent with the new 5-year
credit facility. Significant changes included raising the cross default
threshold and eliminating covenants which established minimum levels for
tangible net worth and book values for assets of Apache and certain
subsidiaries.
4. CAPITAL STOCK
On January 22, 2003, the Company completed a public offering of 19.8
million shares of Apache common stock (adjusted for the five percent common
stock dividend and the two-for-one common stock split) 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.
9
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 (six cents per share from five cents per share
adjusted for the two-for-one stock split), 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.
On December 18, 2003, the Company announced that holders of its common
stock approved an increase in the number of authorized common shares to 430
million from 215 million in order to complete the previously announced
two-for-one stock split. The record date for the stock split was December 31,
2003, and the additional shares were distributed on January 14, 2004.
On January 26, 2004, the Nasdaq Stock Market, Inc. (NASDAQ) approved
Apache for listing on the Nasdaq National Market, an intention we first
announced on January 12, 2004. Apache's common stock is now listed on the NASDAQ
as well as the New York Stock Exchange and the Chicago Stock Exchange.
5. NET INCOME PER COMMON SHARE
A reconciliation of the components of basic and diluted net income per
common share is presented in the table below:
FOR THE QUARTER ENDED JUNE 30,
------------------------------------------------------------------
2004 2003
--------------------------------- ------------------------------
INCOME SHARES PER SHARE INCOME SHARES PER SHARE
--------- ------- --------- --------- ------- ---------
(In thousands, except per share amounts)
BASIC:
Income attributable to common stock ....... $ 371,718 325,668 $ 1.14 $ 242,961 323,409 $ .75
========= =========
EFFECT OF DILUTIVE SECURITIES:
Stock options and other ................... - 3,695 - 2,711
--------- ------- --------- -------
DILUTED:
Income attributable to common stock,
including assumed conversions ............ $ 371,718 329,363 $ 1.13 $ 242,961 326,120 $ .74
========= ======= ========= ========= ======= =========
FOR THE SIX MONTHS ENDED JUNE 30,
------------------------------------------------------------------
2004 2003
--------------------------------- ------------------------------
INCOME SHARES PER SHARE INCOME SHARES PER SHARE
--------- ------- --------- --------- ------- ---------
(In thousands, except per share amounts)
BASIC:
Income attributable to common stock ....... $ 719,382 325,335 $ 2.21 $ 580,470 320,973 $ 1.81
========= =========
EFFECT OF DILUTIVE SECURITIES:
Stock options and other ................... - 3,718 - 2,681
--------- ------- --------- -------
DILUTED:
Income attributable to common stock,
including assumed conversions ............ $ 719,382 329,053 $ 2.19 $ 580,470 323,654 $ 1.79
========= ======= ========= ========= ======= =========
6. STOCK-BASED COMPENSATION
Effective January 1, 2003, the Company adopted the fair value recognition
provisions of SFAS No. 123, "Accounting for Stock-Based Compensation," as
amended by SFAS No. 148, prospectively to all employee awards granted, modified,
or settled after January 1, 2003. However, on May 1, 2003, the Company began
issuing stock appreciation rights to certain employees in lieu of stock options.
The Company records compensation expense with respect to stock appreciation
rights as the price of the Company's common stock fluctuates and the awards
vest. On May 1, 2003 and May 6, 2004, Apache granted stock appreciation rights
for 1,802,210 shares and 1,325,100 shares of Apache common stock, respectively.
On June 30, 2004, stock appreciation rights for 2,913,564 shares of Apache
common stock were outstanding with an average exercise price of $35.01.
10
For stock options granted prior to 2003, the Company accounted for its
stock-based employee compensation plans under the recognition and measurement
principles of Accounting Principals Board Opinion No. 25, "Accounting for Stock
Issued to Employees," and related interpretations. For the stock options granted
prior to 2003, no material stock-based employee compensation cost is reflected
in net income. All options granted under those plans had an exercise price equal
to the market value of the underlying common stock on the date of grant.
In October 2000, the Company adopted the 2000 Share Appreciation Plan
under which grants were made to the Company's officers and substantially all
full-time employees. The 2000 Share Appreciation Plan provides for issuance of
Apache common stock, based on attainment of one or more of three share price
goals (Share Price Goals) and/or a separate production goal. The Share Price
Goals are based on achieving a closing share price for Apache stock of $43.29,
$51.95 and $77.92 per share ($100, $120 and $180 before the five and 10 percent
stock dividends and the two-for-one stock split) on any 10 days out of any 30
consecutive trading days before January 1, 2005. As of April 28, 2004, Apache's
share price exceeded the first threshold for the 10-day requirement. As such,
Apache will issue approximately 900,000 shares of its common stock, after
minimum tax withholding requirements, in three equal installments. The first
installment was issued in May 2004. The second and third installments will be
issued in 2005 and 2006 to employees remaining with the Company during that
period. Expense recognition is based on the percentage of the employees' service
period and will reduce Apache's 2004 net income by approximately $16 million
after tax, or five cents per diluted common share.
The cost related to stock-based employee compensation included in the
determination of net income for 2003 and 2004 is different than that which would
have been recognized if the fair value based method had been applied to all
awards. The following table illustrates the effect on income attributable to
common stock and earnings per share had the fair value based provisions of SFAS
No. 123, as amended, been applied to all outstanding and unvested awards.
FOR THE QUARTER ENDED FOR THE SIX MONTHS ENDED
JUNE 30, JUNE 30,
--------------------- ------------------------
2004 2003 2004 2003
---- ---- ---- ----
(In thousands, except for per common share amounts)
Income attributable to common stock, as reported. $ 371,718 $ 242,961 $ 719,382 $ 580,470
Add: Stock-based employee compensation expense
included in reported net income, net of related
tax effects................................... 14,698 34 15,472 391
Deduct: Total stock-based employee compensation
expense determined under fair value based
method for all awards, net of related tax effects (5,063) (6,364) (10,642) (10,866)
---------- ---------- ---------- ----------
Pro forma income attributable to common stock.... $ 381,353 $ 236,631 $ 724,212 $ 569,995
========== ========== ========== ==========
Net Income per Common Share:
Basic:
As reported................................. $ 1.14 $ .75 $ 2.21 $ 1.81
Pro forma................................... 1.17 .73 2.23 1.78
Diluted:
As reported................................. 1.13 .74 2.19 1.79
Pro forma................................... 1.16 .72 2.20 1.75
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.
11
7. SUPPLEMENTAL CASH FLOW INFORMATION
The following table provides supplemental disclosure of cash flow
information:
FOR THE SIX MONTHS ENDED JUNE 30,
-------------------------------------
2004 2003
-------------- --------------
(In thousands)
Cash paid during the period for:
Interest (net of amounts capitalized)............................. $ 49,584 $ 47,471
Income taxes (net of refunds)..................................... 246,879 166,762
8. PENSION AND POST-RETIREMENT BENEFITS
Effective July 1, 2003, as part of the BP North Sea acquisition, Apache
assumed a defined benefit pension plan covering existing BP North Sea employees
hired by the Company as part of the acquisition. The pension plan provides
defined benefits based on years of service and final average salary.
The following table sets forth the components of the net periodic cost of
Apache's pension and other post-retirement benefit plans for the six-month
period ended June 30, 2004. The pension and post-retirement benefit plans did
not materially impact the Company for equivalent prior-year periods.
FOR THE SIX MONTHS ENDED JUNE 30, 2004
-------------------------------------
PENSION POST-RETIREMENT
BENEFITS BENEFITS
-------------- ---------------
(In thousands)
COMPONENTS OF NET PERIODIC BENEFIT COSTS
Service cost....................................................... $ 2,727 $ 484
Interest cost...................................................... 1,813 314
Expected return on assets.......................................... (1,793) -
Amortization of:
Transition obligation........................................... - 22
Actuarial (gain)/loss........................................... - 125
-------------- --------------
Net periodic benefit cost.......................................... $ 2,747 $ 945
============== ==============
Apache disclosed in its financial statements for the year ended December
31, 2003, that it expected to contribute $5 million to its pension plan in 2004.
Approximately $3 million of the original estimate was contributed as of June 30,
2004. The remaining $2 million is expected to be contributed by year-end. Apache
also contributed an additional $12 million to fund prior years' benefit
obligations.
The Company did not make any material contributions to the post-retirement
benefit plan during the period and does not anticipate any material
contributions or benefit payments to be made in future years.
12
9. 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:
UNITED OTHER
STATES CANADA EGYPT AUSTRALIA NORTH SEA INTERNATIONAL TOTAL
---------- ---------- ---------- ---------- ---------- ------------- -----------
(IN THOUSANDS)
FOR THE SIX MONTHS ENDED JUNE 30, 2004
Oil and Gas Production Revenues........... $1,100,335 $ 469,937 $ 412,662 $ 189,649 $ 186,129 $ 41,454 $ 2,400,166
========== ========== ========== ========== ========== ========== ===========
Operating Income (1)...................... $ 597,116 $ 258,033 $ 277,239 $ 88,841 $ 74,714 $ 16,149 $ 1,312,092
========== ========== ========== ========== ========== ==========
Other Income (Expense):
Other.................................. (9,494)
General and administrative............. (80,329)
Share Appreciation Plan - general and
administrative...................... (11,012)
China litigation....................... (71,216)
Financing costs, net................... (54,713)
-----------
Income Before Income Taxes................ $ 1,085,328
===========
Total Assets.............................. $5,868,356 $3,243,373 $1,890,102 $1,018,298 $1,041,801 $ 188,021 $13,249,951
========== ========== ========== ========== ========== ========== ===========
FOR THE SIX MONTHS ENDED JUNE 30, 2003
Oil and Gas Production Revenues........... $ 994,699 $ 427,940 $ 320,274 $ 194,952 $ 77,858 $ 3,769 $ 2,019,492
========== ========== ========== ========== ========== ========== ===========
Operating Income (1)...................... $ 570,629 $ 248,346 $ 190,795 $ 98,060 $ 3,332 $ 1,158 $ 1,112,320
========== ========== ========== ========== ========== ==========
Other Income (Expense):
Other.................................. 1,473
General and administrative............. (58,405)
Preferred interests of subsidiaries.... (6,692)
Financing costs, net................... (54,839)
-----------
Income Before Income Taxes................ $ 993,857
===========
Total Assets.............................. $5,340,053 $2,775,921 $1,684,445 $ 936,575 $ 985,841 $ 173,200 $11,896,035
========== ========== ========== ========== ========== ========== ===========
1) Operating Income consists of oil and gas production revenues less
depreciation, depletion and amortization, asset retirement obligation
accretion, international impairments, lease operating costs, share
appreciation plan - lease operating costs, gathering and transportation
costs, and severance and other taxes.
10. ASSET RETIREMENT OBLIGATIONS
Effective January 1, 2003, the Company adopted SFAS No. 143, "Accounting
for Asset Retirement Obligations," which requires that an asset retirement
obligation (ARO) associated with the retirement of a tangible long-lived asset
be recognized as a liability in the period in which it is incurred and becomes
determinable, with an offsetting increase in the carrying amount of the
associated asset. The cost of the tangible asset, including the initially
recognized ARO, is depleted such that the cost of the ARO is recognized over the
useful life of the asset. The ARO is recorded at fair value, and accretion
expense will be recognized over time as the discounted liability is accreted to
its expected settlement value. The fair value of the ARO is measured using
expected future cash outflows discounted at the Company's credit-adjusted
risk-free interest rate. Apache's asset retirement obligations primarily relate
to the plugging and abandonment of oil and gas properties.
13
The following table describes all changes to the Company's ARO liability
for the current year (in thousands):
Asset retirement obligation as of December 31, 2003................................ $ 739,775
Liabilities incurred............................................................... 5,418
Liabilities settled................................................................ (21,893)
Accretion expense.................................................................. 21,652
Revisions.......................................................................... 14,665
-----------
Asset retirement obligation as of June 30, 2004.................................... $ 759,617
===========
Liabilities incurred during the period primarily relate to obligations in
connection with the Company's drilling activity. Liabilities settled during the
period primarily relate to individually immaterial properties plugged and
abandoned or sold during the period.
11. LITIGATION
Apache recorded a reserve in the second quarter of 2004 to fully reflect a
pre-tax $71 million international arbitration award to Texaco China B.V. (Texaco
China). In September 2001, Texaco China initiated an arbitration proceeding
against Apache China Corporation LDC (Apache China), later adding Apache Bohai
to the arbitration. In the arbitration Texaco China claimed damages, plus
interest, arising from Apache Bohai's alleged failure to drill three wells,
prior to re-assignment of the interest to Texaco China. Apache believes that the
finding of the arbitrator is unsupported by the facts and the law, and Apache
expects to pursue an appeal of the award in federal court.
12. 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 Corporation and
Subsidiaries and notes thereto of which this note is an integral part.
14
APACHE CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS
FOR THE QUARTER ENDED JUNE 30, 2004
APACHE APACHE APACHE
APACHE NORTH FINANCE FINANCE
CORPORATION AMERICA AUSTRALIA CANADA
----------- ----------- ----------- -----------
(IN THOUSANDS)
REVENUES AND OTHER:
Oil and gas production revenues ......... $ 568,421 $ - $ - $ -
Equity in net income (loss) of affiliates 223,195 10,420 13,488 53,454
Other ................................... (1,148) - - -
----------- ----------- ----------- -----------
790,468 10,420 13,488 53,454
----------- ----------- ----------- -----------
OPERATING EXPENSES:
Depreciation, depletion and amortization 137,844 - - -
Asset retirement obligation accretion ... 5,805 - - -
Lease operating costs ................... 85,892 - - -
Share appreciation plan - LOE ........... 5,737 - - -
Gathering and transportation costs ...... 7,891 - - -
Severance and other taxes ............... 15,416 - - -
General and administrative .............. 28,423 - - -
Share appreciation plan - G&A ........... 10,034 - - -
China litigation ........................ - - - -
Financing costs, net .................... 20,253 - 4,510 9,936
----------- ----------- ----------- -----------
317,295 - 4,510 9,936
----------- ----------- ----------- -----------
INCOME (LOSS) BEFORE INCOME TAXES .......... 473,173 10,420 8,978 43,518
Provision (benefit) for income taxes .... 100,035 - (1,442) (3,280)
----------- ----------- ----------- -----------
NET INCOME ................................. 373,138 10,420 10,420 46,798
Preferred stock dividends ............... 1,420 - - -
----------- ----------- ----------- -----------
INCOME ATTRIBUTABLE TO COMMON STOCK ........ $ 371,718 $ 10,420 $ 10,420 $ 46,798
=========== =========== =========== ===========
ALL OTHER
SUBSIDIARIES
OF APACHE RECLASSIFICATIONS
CORPORATION & ELIMINATIONS CONSOLIDATED
------------ ----------------- ------------
REVENUES AND OTHER:
Oil and gas production revenues ......... $ 756,030 $ (77,039) $ 1,247,412
Equity in net income (loss) of affiliates (9,724) (290,833) -
Other ................................... (5,531) - (6,679)
----------- ----------- -----------
740,775 (367,872) 1,240,733
----------- ----------- -----------
OPERATING EXPENSES:
Depreciation, depletion and amortization 157,893 - 295,737
Asset retirement obligation accretion ... 5,086 - 10,891
Lease operating costs ................... 188,244 (77,039) 197,097
Share appreciation plan - LOE ........... 5,255 - 10,992
Gathering and transportation costs ...... 12,271 - 20,162
Severance and other taxes ............... 6,179 - 21,595
General and administrative .............. 8,056 - 36,479
Share appreciation plan - G&A ........... 978 - 11,012
China litigation ........................ 71,216 - 71,216
Financing costs, net .................... (7,132) - 27,567
----------- ----------- -----------
448,046 (77,039) 702,748
----------- ----------- -----------
INCOME (LOSS) BEFORE INCOME TAXES .......... 292,729 (290,833) 537,985
Provision (benefit) for income taxes .... 69,534 - 164,847
----------- ----------- -----------
NET INCOME ................................. 223,195 (290,833) 373,138
Preferred stock dividends ............... - - 1,420
----------- ----------- -----------
INCOME ATTRIBUTABLE TO COMMON STOCK ........ $ 223,195 $ (290,833) $ 371,718
=========== =========== ============
15
APACHE CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS
FOR THE QUARTER ENDED JUNE 30, 2003
APACHE APACHE APACHE
APACHE NORTH FINANCE FINANCE
CORPORATION AMERICA AUSTRALIA CANADA
----------- ----------- ----------- -----------
(IN THOUSANDS)
REVENUES AND OTHER:
Oil and gas production revenues ......... $ 438,796 $ - $ - $ -
Equity in net income (loss) of affiliates 76,802 7,782 10,760 6,407
Other ................................... (2,641) - - -
----------- ----------- ----------- -----------
512,957 7,782 10,760 6,407
----------- ----------- ----------- -----------
OPERATING EXPENSES:
Depreciation, depletion and amortization 93,593 - - -
Asset retirement obligation accretion ... 3,778 - - -
Lease operating costs ................... 66,007 - - -
Gathering and transportation costs ...... 4,412 - - -
Severance and other taxes ............... 13,042 - - 11
General and administrative .............. 25,138 - - -
Financing costs, net .................... 27,345 - 4,513 10,010
----------- ----------- ----------- -----------
233,315 - 4,513 10,021
----------- ----------- ----------- -----------
PREFERRED INTERESTS OF SUBSIDIARIES ........ - - - -
----------- ----------- ----------- -----------
INCOME (LOSS) BEFORE INCOME TAXES .......... 279,642 7,782 6,247 (3,614)
Provision (benefit) for income taxes .... 35,261 - (1,535) (3,318)
----------- ----------- ----------- -----------
NET INCOME ................................. 244,381 7,782 7,782 (296)
Preferred stock dividends ............... 1,420 - - -
----------- ----------- ----------- -----------
INCOME ATTRIBUTABLE TO COMMON STOCK ........ $ 242,961 $ 7,782 $ 7,782 $ (296)
=========== =========== =========== ===========
ALL OTHER
SUBSIDIARIES
OF APACHE RECLASSIFICATIONS
CORPORATION & ELIMINATIONS CONSOLIDATED
------------ ----------------- ------------
(IN THOUSANDS)
REVENUES AND OTHER:
Oil and gas production revenues ......... $ 648,859 $ (43,325) $ 1,044,330
Equity in net income (loss) of affiliates (9,681) (92,070) -
Other ................................... 12,667 - 10,026
----------- ----------- -----------
651,845 (135,395) 1,054,356
----------- ----------- -----------
OPERATING EXPENSES:
Depreciation, depletion and amortization 178,763 - 272,356
Asset retirement obligation accretion ... 6,667 - 10,445
Lease operating costs ................... 163,604 (43,325) 186,286
Gathering and transportation costs ...... 10,719 - 15,131
Severance and other taxes ............... 19,689 - 32,742
General and administrative .............. 5,436 - 30,574
Financing costs, net .................... (12,950) - 28,918
----------- ----------- -----------
371,928 (43,325) 576,452
----------- ----------- -----------
PREFERRED INTERESTS OF SUBSIDIARIES ........ 3,330 - 3,330
----------- ----------- -----------
INCOME (LOSS) BEFORE INCOME TAXES .......... 276,587 (92,070) 474,574
Provision (benefit) for income taxes .... 199,785 - 230,193
----------- ----------- -----------
NET INCOME ................................. 76,802 (92,070) 244,381
Preferred stock dividends ............... - - 1,420
----------- ----------- -----------
INCOME ATTRIBUTABLE TO COMMON STOCK ........ $ 76,802 $ (92,070) $ 242,961
=========== =========== ===========
16
APACHE CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS
FOR THE SIX MONTHS ENDED JUNE 30, 2004
APACHE APACHE APACHE
APACHE NORTH FINANCE FINANCE
CORPORATION AMERICA AUSTRALIA CANADA
----------- ----------- ----------- -----------
(IN THOUSANDS)
REVENUES AND OTHER:
Oil and gas production revenues ......... $ 1,097,459 $ - $ - $ -
Equity in net income (loss) of affiliates 416,687 18,682 24,716 91,399
Other ................................... (1,911) - - -
----------- ----------- ----------- -----------
1,512,235 18,682 24,716 91,399
----------- ----------- ----------- -----------
OPERATING EXPENSES:
Depreciation, depletion and amortization 269,054 - - -
Asset retirement obligation accretion ... 11,600 - - -
Lease operating costs ................... 170,127 - - -
Share appreciation plan - LOE ........... 5,737 - - -
Gathering and transportation costs ...... 15,223 - - -
Severance and other taxes ............... 28,796 - - 18
General and administrative .............. 63,352 - - -
Share appreciation plan - G&A ........... 10,034 - - -
China litigation ........................ - - - -
Financing costs, net .................... 42,016 - 9,022 20,043
----------- ----------- ----------- -----------
615,939 - 9,022 20,061
----------- ----------- ----------- -----------
INCOME (LOSS) BEFORE INCOME TAXES .......... 896,296 18,682 15,694 71,338
Provision (benefit) for income taxes .... 174,074 - (2,988) (6,785)
----------- ----------- ----------- -----------
NET INCOME ................................. 722,222 18,682 18,682 78,123
Preferred stock dividends ............... 2,840 - - -
----------- ----------- ----------- -----------
INCOME ATTRIBUTABLE TO COMMON STOCK ........ $ 719,382 $ 18,682 $ 18,682 $ 78,123
=========== =========== =========== ===========
ALL OTHER
SUBSIDIARIES
OF APACHE RECLASSIFICATIONS
CORPORATION & ELIMINATIONS CONSOLIDATED
------------ ----------------- ------------
REVENUES AND OTHER:
Oil and gas production revenues ......... $ 1,457,921 $ (155,214) $ 2,400,166
Equity in net income (loss) of affiliates (19,310) (532,174) -
Other ................................... (7,583) - (9,494)
----------- ----------- -----------
1,431,028 (687,388) 2,390,672
----------- ----------- -----------
OPERATING EXPENSES:
Depreciation, depletion and amortization 312,911 - 581,965
Asset retirement obligation accretion ... 10,052 - 21,652
Lease operating costs ................... 388,213 (155,214) 403,126
Share appreciation plan - LOE ........... 5,255 - 10,992
Gathering and transportation costs ...... 24,573 - 39,796
Severance and other taxes ............... 1,729 - 30,543
General and administrative .............. 16,977 - 80,329
Share appreciation plan - G&A ........... 978 - 11,012
China litigation ........................ 71,216 - 71,216
Financing costs, net .................... (16,368) - 54,713
----------- ----------- -----------
815,536 (155,214) 1,305,344
----------- ----------- -----------
INCOME (LOSS) BEFORE INCOME TAXES .......... 615,492 (532,174) 1,085,328
Provision (benefit) for income taxes .... 198,805 - 363,106
----------- ----------- -----------
NET INCOME ................................. 416,687 (532,174) 722,222
Preferred stock dividends ............... - - 2,840
----------- ----------- -----------
INCOME ATTRIBUTABLE TO COMMON STOCK ........ $ 416,687 $ (532,174) $ 719,382
=========== =========== ===========
17
APACHE CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS
FOR THE SIX MONTHS ENDED JUNE 30, 2003
APACHE APACHE
APACHE APACHE FINANCE FINANCE
CORPORATION NORTH AMERICA AUSTRALIA CANADA
----------- ------------- ----------- --------------
(IN THOUSANDS)
REVENUES AND OTHER:
Oil and gas production revenues................. $ 814,963 $ - $ - $ -
Equity in net income (loss) of affiliates....... 256,160 16,729 22,685 34,602
Other........................................... (6,257) - - -
----------- ----------- ----------- -----------
1,064,866 16,729 22,685 34,602
----------- ----------- ----------- -----------
OPERATING EXPENSES:
Depreciation, depletion and amortization........ 161,211 - - -
Asset retirement obligation accretion........... 6,542 - - -
Lease operating costs........................... 124,774 - - -
Gathering and transportation costs.............. 8,897 - - -
Severance and other taxes....................... 27,399 - - 53
General and administrative...................... 48,841 - - -
Financing costs, net............................ 48,444 - 9,025 20,179
----------- ----------- ----------- -----------
426,108 - 9,025 20,232
----------- ----------- ----------- -----------
PREFERRED INTERESTS OF SUBSIDIARIES................ - - - -
----------- ----------- ----------- -----------
INCOME (LOSS) BEFORE INCOME TAXES.................. 638,758 16,729 13,660 14,370
Provision (benefit) for income taxes............ 75,205 - (3,069) (7,430)
----------- ----------- ----------- -----------
INCOME (LOSS) BEFORE CHANGE IN
ACCOUNTING PRINCIPLE............................. 563,553 16,729 16,729 21,800
Cumulative effect of change in accounting
principle, net of income tax.................. 19,757 - - -
----------- ----------- ----------- -----------
NET INCOME......................................... 583,310 16,729 16,729 21,800
Preferred stock dividends....................... 2,840 - - -
----------- ----------- ----------- -----------
INCOME ATTRIBUTABLE TO COMMON STOCK................ $ 580,470 $ 16,729 $ 16,729 $ 21,800
=========== =========== =========== ===========
ALL OTHER
SUBSIDIARIES
OF APACHE RECLASSIFICATIONS
CORPORATION & ELIMINATIONS CONSOLIDATED
------------ ----------------- ------------
REVENUES AND OTHER:
Oil and gas production revenues................. $ 1,303,126 $ (98,597) $ 2,019,492
Equity in net income (loss) of affiliates....... (18,758) (311,418) -
Other........................................... 7,730 - 1,473
----------- ------------ ------------
1,292,098 (410,015) 2,020,965
----------- ------------ ------------
OPERATING EXPENSES:
Depreciation, depletion and amortization........ 325,494 - 486,705
Asset retirement obligation accretion........... 9,216 - 15,758
Lease operating costs........................... 294,244 (98,597) 320,421
Gathering and transportation costs.............. 18,095 - 26,992
Severance and other taxes....................... 29,844 - 57,296
General and administrative...................... 9,564 - 58,405
Financing costs, net............................ (22,809) - 54,839
----------- ------------ ------------
663,648 (98,597) 1,020,416
----------- ------------ ------------
PREFERRED INTERESTS OF SUBSIDIARIES................ 6,692 - 6,692
----------- ------------ ------------
INCOME (LOSS) BEFORE INCOME TAXES.................. 621,758 (311,418) 993,857
Provision (benefit) for income taxes............ 372,473 - 437,179
----------- ------------ ------------
INCOME (LOSS) BEFORE CHANGE IN
ACCOUNTING PRINCIPLE............................. 249,285 (311,418) 556,678
Cumulative effect of change in accounting
principle, net of income tax.................. 6,875 - 26,632
----------- ------------ ------------
NET INCOME......................................... 256,160 (311,418) 583,310
Preferred stock dividends....................... - - 2,840
----------- ------------ ------------
INCOME ATTRIBUTABLE TO COMMON STOCK................ $ 256,160 $ (311,418) $ 580,470
=========== ============ ============
18
APACHE CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS
FOR THE SIX MONTHS ENDED JUNE 30, 2004
APACHE APACHE
APACHE APACHE FINANCE FINANCE
CORPORATION NORTH AMERICA AUSTRALIA CANADA
----------- ------------- ----------- --------------
(IN THOUSANDS)
CASH PROVIDED BY (USED IN) OPERATING
ACTIVITIES....................................... $ 678,621 $ - $ (8,219) $ (19,521)
----------- ----------- ----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to property and equipment.............. (311,910) - - -
Investment in subsidiaries, net.................. (182,525) (9,025) - -
Other, net....................................... (8,957) - - -
----------- ----------- ----------- -----------
NET CASH USED IN INVESTING ACTIVITIES.............. (503,392) (9,025) - -
----------- ----------- ----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Long-term borrowings............................. 274 - (806) 242
Payments on long-term debt....................... (135,300) - - -
Dividends paid................................... (41,838) - - -
Common stock activity............................ 13,383 9,025 9,025 19,281
Treasury stock activity, net..................... 7,663 - - -
Cost of debt and equity transactions............. (2,050) - - -
----------- ----------- ----------- -----------
NET CASH PROVIDED BY FINANCING ACTIVITIES.......... (157,868) 9,025 8,219 19,523
----------- ----------- ----------- -----------
NET INCREASE (DECREASE) IN CASH AND
CASH EQUIVALENTS................................. 17,361 - - 2
CASH AND CASH EQUIVALENTS AT
BEGINNING OF YEAR................................ - - 2 1
----------- ----------- ----------- -----------
CASH AND CASH EQUIVALENTS AT
END OF PERIOD.................................... $ 17,361 $ - $ 2 $ 3
=========== =========== =========== ===========
ALL OTHER
SUBSIDIARIES
OF APACHE RECLASSIFICATIONS
CORPORATION & ELIMINATIONS CONSOLIDATED
------------ ----------------- ------------
CASH PROVIDED BY (USED IN) OPERATING
ACTIVITIES....................................... $ 648,171 $ - $ 1,299,052
----------- ------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to property and equipment.............. (746,239) - (1,058,149)
Investment in subsidiaries, net.................. (26,792) 218,342 -
Other, net....................................... (10,231) - (19,188)
----------- ------------ ------------
NET CASH USED IN INVESTING ACTIVITIES.............. (783,262) 218,342 (1,077,337)
----------- ------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Long-term borrowings............................. 165,023 (164,329) 404
Payments on long-term debt....................... - - (135,300)
Dividends paid................................... - - (41,838)
Common stock activity............................ 16,682 (54,013) 13,383
Treasury stock activity, net..................... - - 7,663
Cost of debt and equity transactions............. - - (2,050)
----------- ------------ ------------
NET CASH PROVIDED BY FINANCING ACTIVITIES.......... 181,705 (218,342) (157,738)
----------- ------------ ------------
NET INCREASE (DECREASE) IN CASH AND
CASH EQUIVALENTS................................. 46,614 - 63,977
CASH AND CASH EQUIVALENTS AT
BEGINNING OF YEAR................................ 33,500 - 33,503
----------- ------------ ------------
CASH AND CASH EQUIVALENTS AT
END OF PERIOD.................................... $ 80,114 $ - $ 97,480
=========== ============ ============
19
APACHE CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS
FOR THE SIX MONTHS ENDED JUNE 30, 2003
APACHE APACHE
APACHE APACHE FINANCE FINANCE
CORPORATION NORTH AMERICA AUSTRALIA CANADA
----------- ------------- ----------- --------------
(IN THOUSANDS)
CASH PROVIDED BY (USED IN) OPERATING
ACTIVITIES....................................... $ 422,811 $ - $ (10,411) $ 326,493
----------- ----------- ----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to property and equipment.............. (191,034) - - -
Acquisitions..................................... (527,610) - - -
Investment in subsidiaries, net.................. (204,329) (9,025) - -
Other, net....................................... (15,393) - - -
----------- ----------- ----------- -----------
NET CASH USED IN INVESTING ACTIVITIES.............. (938,366) (9,025) - -
----------- ----------- ----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Long-term borrowings............................. 660,873 - 1,386 (347,282)
Payments on long-term debt....................... (678,900) - - -
Dividends paid................................... (34,366) - - -
Common stock activity............................ 570,363 9,025 9,025 20,662
Treasury stock activity, net..................... 3,399 - - -
Cost of debt and equity transactions............. (4,039) - - -
----------- ----------- ----------- -----------
NET CASH PROVIDED BY FINANCING ACTIVITIES.......... 517,330 9,025 10,411 (326,620)
----------- ----------- ----------- -----------
NET INCREASE (DECREASE) IN CASH AND
CASH EQUIVALENTS................................. 1,775 - - (127)
CASH AND CASH EQUIVALENTS AT
BEGINNING OF YEAR................................ 224 - 2 127
----------- ----------- ----------- -----------
CASH AND CASH EQUIVALENTS AT
END OF PERIOD.................................... $ 1,999 $ - $ 2 $ -
=========== =========== =========== ===========
ALL OTHER
SUBSIDIARIES
OF APACHE RECLASSIFICATIONS
CORPORATION & ELIMINATIONS CONSOLIDATED
------------ ----------------- ------------
CASH PROVIDED BY (USED IN) OPERATING
ACTIVITIES....................................... $ 485,272 $ - $ 1,224,165
------------ ------------ -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to property and equipment.............. (580,012) - (771,046)
Acquisitions..................................... (629,524) - (1,157,134)
Investment in subsidiaries, net.................. 156,790 56,564 -
Other, net....................................... (16,949) - (32,342)
------------ ------------ -----------
NET CASH USED IN INVESTING ACTIVITIES.............. (1,069,695) 56,564 (1,960,522)
------------ ------------ -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Long-term borrowings............................. 76,315 651,126 1,042,418
Payments on long-term debt....................... (173,405) - (852,305)
Dividends paid................................... - - (34,366)
Common stock activity............................ 668,978 (707,690) 570,363
Treasury stock activity, net..................... - - 3,399
Cost of debt and equity transactions............. - - (4,039)
------------ ------------ -----------
NET CASH PROVIDED BY FINANCING ACTIVITIES.......... 571,888 (56,564) 725,470
------------ ------------ -----------
NET INCREASE (DECREASE) IN CASH AND
CASH EQUIVALENTS................................. (12,535) - (10,887)
CASH AND CASH EQUIVALENTS AT
BEGINNING OF YEAR................................ 51,533 - 51,886
------------ ------------ -----------
CASH AND CASH EQUIVALENTS AT
END OF PERIOD.................................... $ 38,998 $ - $ 40,999
============ ============ ===========
20
APACHE CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATING BALANCE SHEET
AS OF JUNE 30, 2004
ALL OTHER
APACHE APACHE SUBSIDIARIES
APACHE APACHE FINANCE FINANCE OF APACHE
CORPORATION NORTH AMERICA AUSTRALIA CANADA CORPORATION
----------- ------------- --------- ------ -----------
(IN THOUSANDS)
ASSETS
CURRENT ASSETS:
Cash and cash equivalents............... $ 17,361 $ - $ 2 $ 3 $ 80,114
Receivables, net of allowance........... 267,307 - - - 544,326
Inventories............................. 18,620 - - - 109,217
Drilling advances and others............ 40,747 - - - 80,167
----------- -------- -------- ---------- -----------
344,035 - 2 3 813,824
----------- -------- -------- ---------- -----------
PROPERTY AND EQUIPMENT, NET................. 5,332,984 - - - 6,482,454
----------- -------- -------- ---------- -----------
OTHER ASSETS:
Intercompany receivable, net............ 1,456,525 - (1,054) 93,555 (1,549,026)
Goodwill, net........................... - - - - 189,252
Equity in affiliates.................... 3,510,976 242,695 494,048 1,192,419 (802,073)
Deferred charges and other.............. 42,774 - - 4,772 39,851
----------- -------- -------- ---------- -----------
$10,687,294 $242,695 $492,996 $1,290,749 $ 5,174,282
=========== ======== ======== ========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable........................ $ 246,143 $ - $ - $ - $ 168,836
Other accrued expenses.................. 282,241 - (102) 2,951 275,530
----------- -------- -------- ---------- -----------
528,384 - (102) 2,951 444,366
----------- -------- -------- ---------- -----------
LONG-TERM DEBT.............................. 1,270,858 - 269,088 646,769 5,355
----------- -------- -------- ---------- -----------
DEFERRED CREDITS AND OTHER
NONCURRENT LIABILITIES:
Income taxes............................ 961,950 - (18,685) (670) 843,719
Advances from gas purchasers............ 100,135 - - - -
Asset retirement obligation............. 407,129 - - - 352,488
Oil and gas derivative instruments...... 1,233 - - - -
Other................................... 143,416 - - - 17,378
----------- -------- -------- ---------- -----------
1,613,863 - (18,685) (670) 1,213,585
----------- -------- -------- ---------- -----------
COMMITMENTS AND CONTINGENCIES
SHAREHOLDERS' EQUITY........................ 7,274,189 242,695 242,695 641,699 3,510,976
----------- -------- -------- ---------- -----------
$10,687,294 $242,695 $492,996 $1,290,749 $ 5,174,282
=========== ======== ======== ========== ===========
RECLASSIFICATIONS
& ELIMINATIONS CONSOLIDATED
-------------- ------------
(IN THOUSANDS)
ASSETS
CURRENT ASSETS:
Cash and cash equivalents............... $ - $ 97,480
Receivables, net of allowance........... - 811,633
Inventories............................. - 127,837
Drilling advances and others............ - 120,914
----------- -----------
- 1,157,864
----------- -----------
PROPERTY AND EQUIPMENT, NET................. - 11,815,438
----------- -----------
OTHER ASSETS:
Intercompany receivable, net............ - -
Goodwill, net........................... - 189,252
Equity in affiliates.................... (4,638,065) -
Deferred charges and other.............. - 87,397
----------- -----------
$(4,638,065) $13,249,951
=========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable........................ $ - $ 414,979
Other accrued expenses.................. - 560,620
----------- -----------