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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
[MARK ONE]
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934 [FEE REQUIRED]
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1995,
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
FOR THE TRANSITION PERIOD FROM _________ TO _________
COMMISSION FILE NUMBER 1-4300
APACHE CORPORATION
A DELAWARE IRS EMPLOYER
CORPORATION NO. 41-0747868
ONE POST OAK CENTRAL
2000 POST OAK BOULEVARD, SUITE 100
HOUSTON, TEXAS 77056-4400
TELEPHONE NUMBER (713) 296-6000
SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT:
NAME OF EACH EXCHANGE
TITLE OF EACH CLASS ON WHICH REGISTERED
------------------- ---------------------
Common Stock, $1.25 Par Value New York Stock Exchange
Chicago Stock Exchange
Preferred Stock Purchase Rights New York Stock Exchange
Chicago Stock Exchange
9.25% Notes due 2002 New York Stock Exchange
SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT: NONE
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No ___
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to
the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [ ]
Aggregate market value of the voting stock held by
non-affiliates of registrant as of February 29, 1996 $2,013,681,098
Number of shares of registrant's common stock
outstanding as of February 29, 1996 77,449,273
DOCUMENTS INCORPORATED BY REFERENCE:
Portions of registrant's proxy statement relating to registrant's 1996
annual meeting of shareholders have been incorporated by reference into Part
III hereof.
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TABLE OF CONTENTS
DESCRIPTION
ITEM PAGE
- ---- ----
PART I
1. BUSINESS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
2. PROPERTIES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
3. LEGAL PROCEEDINGS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS . . . . . . . . . . . . . . . . . . . 16
PART II
5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
6. SELECTED FINANCIAL DATA . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA . . . . . . . . . . . . . . . . . . . . . . 27
9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
AND FINANCIAL DISCLOSURE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
PART III
10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT . . . . . . . . . . . . . . . . . . . 28
11. EXECUTIVE COMPENSATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS . . . . . . . . . . . . . . . . . . . . . 28
PART IV
14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K . . . . . . . . . . . . 29
All defined terms under Rule 4-10(a) of Regulation S-X shall have their
statutorily-prescribed meanings when used in this report. Quantities of natural
gas are expressed in this report in terms of thousand cubic feet (Mcf), million
cubic feet (MMcf) or billion cubic feet (Bcf). Oil is quantified in terms of
barrels (bbls), thousands of barrels (Mbbls) and millions of barrels (MMbbls).
Natural gas is compared to oil in terms of barrels of oil equivalent (boe) or
million barrels of oil equivalent (MMboe). Oil and natural gas liquids are
compared with natural gas in terms of million cubic feet equivalent (MMcfe) and
billion cubic feet equivalent (Bcfe). One barrel of oil is the energy
equivalent of six Mcf of natural gas. Daily oil and gas production is expressed
in terms of barrels of oil per day (bopd) and thousands of cubic feet of gas
per day (Mcfd) or millions of British thermal units per day (MMBtud),
respectively. Gas sales volumes may be expressed in terms of one million
British thermal units (MMBtu), which is approximately equal to one Mcf. With
respect to information relating to the Company's working interest in wells or
acreage, "net" oil and gas wells or acreage is determined by multiplying gross
wells or acreage by the Company's working interest therein. Unless otherwise
specified, all references to wells and acres are gross.
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PART I
ITEM 1. BUSINESS
GENERAL
Apache Corporation (Apache or the Company), a Delaware corporation
formed in 1954, is an independent energy company that explores for, develops,
produces, gathers, processes and markets natural gas, crude oil and natural gas
liquids. In North America, Apache's exploration and production interests are
focused on the Gulf of Mexico, the Anadarko Basin, the Permian Basin, the Gulf
Coast, East Texas and the Western Sedimentary Basin of Canada. Outside of North
America, Apache has exploration and production interests offshore Western
Australia and in Egypt, and exploration interests in Indonesia, offshore China
and offshore the Ivory Coast. Apache's common stock has been listed on the New
York Stock Exchange since 1969, and on the Chicago Stock Exchange since 1960.
Apache holds interests in many of its U.S., Canadian and international
properties through operating subsidiaries, such as MW Petroleum Corporation
(MW), DEK Energy Company (DEKALB, formerly known as DEKALB Energy Company),
Apache Energy Limited (AEL, formerly known as Hadson Energy Limited), Apache
International, Inc. and Apache Overseas, Inc. Properties referred to in this
document may be held by those subsidiaries. Apache treats all operations as one
segment of business.
On May 17, 1995, Apache acquired DEKALB, an oil and gas company
engaged in the exploration for, and the development of, crude oil and natural
gas in Canada, through a merger which resulted in DEKALB becoming a
wholly-owned subsidiary of Apache. The merger was accounted for as a "pooling
of interests" for financial accounting purposes. As a result, this Form 10-K
has been prepared to present information for 1995 and all preceding years on a
combined basis using the pooling of interests method of accounting.
1995 RESULTS
In 1995, Apache had net income of $20.2 million, or $.28 per share, on
total revenues of $750.7 million. Net cash provided by operating activities
during 1995 was $332.1 million.
The year 1995 was Apache's 18th consecutive year of production growth
and eighth consecutive year of oil and gas reserves growth. Apache's average
daily production was approximately 50.2 Mbbls of oil and 577 MMcf of natural
gas for the year. Giving effect to 1995 acquisitions and drilling activity, and
$271.9 million in property dispositions, the Company's estimated proved
reserves increased by 151.3 MMboe in 1995 over the prior year (prior to
restatement for the DEKALB merger) to 420.6 MMboe, of which approximately 60
percent was natural gas. Based on 269.3 MMboe reported at year-end 1994 (which
was increased to 330 MMboe when 1994 results were restated for the DEKALB
merger), Apache's growth in reserves during the year reflects the replacement
of 379 percent of the Company's 1995 production (267 percent based on the
restated 1994 year-end reserves of 330 MMboe). In 1995, the Company replaced
approximately 100 percent of its production through drilling, revisions,
recompletions, workovers and other production enhancement projects. Apache's
active drilling and workover program yielded 168 new producing U.S. and
Canadian wells out of 222 attempts, and involved 539 North American workover
and recompletion projects during the year.
At December 31, 1995, Apache had interests in approximately 4,624 net
oil and gas wells and 1,405,192 net developed acres of oil and gas properties.
In addition, the Company had interests in 777,380 net undeveloped acres under
U.S. and Canadian leases and 3,809,558 net undeveloped acres under
international exploration and production rights.
APACHE'S GROWTH STRATEGY
Apache's growth strategy is to increase oil and gas reserves,
production, and cash flow through a combination of acquisitions, moderate-risk
drilling and development of its inventory of existing projects. The Company
also emphasizes reducing operating costs per unit produced and selling marginal
and non-strategic properties in order to increase its profit margins.
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For Apache, property acquisition is only one phase in a continuing
cycle of business growth. Apache's aim is to follow each acquisition cycle with
a cycle of reserve enhancement, property consolidation and cash flow
acceleration, facilitating asset growth and debt reduction. This approach
requires well-planned and carefully executed property development and a
commitment to a selective program of ongoing property dispositions. It
motivates Apache to target acquisitions that have ascertainable additional
reserve potential and to apply an active drilling, workover and recompletion
program to realize the potential of the acquired undeveloped and partially
developed properties. Apache prefers to operate its properties so that it can
best influence their development; as a result, the Company operates properties
accounting for over 75 percent of its production.
Pursuing its acquire-and-develop strategy, Apache increased its total
proved reserves by 383 MMboe, more than 10 fold in the last 10 years (before
restatement of prior years as a result of the DEKALB merger). In addition to
its acquisition strategy, Apache continues to develop and exploit its existing
inventory of workover, recompletion and other development projects to increase
reserves and production. During 1995 Apache acquired $820.9 million of
additional properties (not including the DEKALB merger) and replaced 100
percent of its U.S. production through its drilling, workover and recompletion
program.
Apache's international investments supplement its long-term growth
strategy. Although international exploration is recognized as higher-risk than
most of Apache's U.S. and Canadian activities, it offers potential for greater
rewards and significant reserve additions. Apache directed its international
efforts in 1995 toward development of certain discoveries offshore Western
Australia and in Egypt, and toward further exploration of its concessions in
China, Indonesia, and the Ivory Coast of western Africa, where it believes that
reserve additions may be made through higher-risk exploration and through
improved production practices and recovery techniques.
RECENT ACQUISITIONS AND DISPOSITIONS
In September, 1995, the Company acquired substantially all of the oil
and gas assets (the Aquila Assets) of Aquila Energy Resources Corporation
(Aquila), a wholly owned, indirect subsidiary of UtiliCorp United Inc., for
approximately $210 million, subject to adjustment. The Aquila Assets include:
proved reserves totaling an estimated 157 Bcf of gas equivalent; approximately
107,000 developed and 49,000 undeveloped net acres located primarily in the
Company's Anadarko-Basin and Gulf of Mexico core areas; a five-year, four-month
premium gas contract effective September 1, 1995; and non-operated interests in
four gas processing plants. The gas contract calls for Aquila Energy Marketing
Corporation to purchase 20 to 25 MMcf of gas per day from the Company at a
price of $2.70 per Mcf in 1996, escalating to $3.20 per Mcf in the year 2000.
The Aquila Assets were accounted for under the purchase method of accounting.
At the time of acquisition, the Aquila properties were producing
approximately 67 MMcf of gas and 2,900 barrels of oil per day, with
approximately 77 percent of proved reserves concentrated in seven fields and 77
percent of the properties' net production operated by the Company.
Approximately $143 million of the consideration for the Aquila Assets was
provided through deferred tax-free exchange of like-kind properties of
qualifying use. The properties exchanged by the Company were primarily lower
margin and non-strategic properties located in the Rocky Mountains that were
previously selected for sale by the Company in connection with its ongoing
program of selective property dispositions. The remainder of the consideration
for the Aquila Assets was provided by a portion of the proceeds from the sale
of 7.45 million shares of the Company's common stock on September 27, 1995.
TRANSACTIONS IN EARLY 1995. On March 1, 1995, Apache purchased
certain U.S. oil and gas properties from Texaco Exploration and Production Inc.
(Texaco) for an adjusted purchase price of $567 million. The Texaco properties
comprised estimated proved reserves at the effective date of approximately 105
MMboe (after adjustment for the exercise of preferential rights and properties
excluded following due diligence and using unescalated prices), of which
approximately 70 percent was oil. At the time of purchase, the daily production
on the acquired properties was approximately 20 Mbbls of oil and 85 MMcf of
gas.
The Texaco properties are highly concentrated, with approximately
two-thirds of the reserves located in 54 fields, and are in producing regions
where Apache has existing operations: the Permian Basin, the Gulf Coast of
Texas and Louisiana, western Oklahoma, East Texas, the Rocky Mountains and the
Gulf of Mexico. Apache operates approximately two-thirds of the production and
owns an average working interest of 70 percent in the operated
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properties. The Texaco transaction also included the acquisition of
approximately 500,000 net mineral acres, as well as a substantial quantity of
seismic data.
On May 17, 1995, Apache acquired DEKALB, an oil and gas company
engaged in the exploration for, and the development of, crude oil and natural
gas in Canada, through a merger which resulted in DEKALB's becoming a wholly
owned subsidiary of Apache. Pursuant to the merger agreement, the Company
issued 8.4 million shares of Apache Common Stock in exchange for all
outstanding DEKALB capital stock and DEKALB employee stock options outstanding
at the time of the merger and tendered to Apache. The merger was accounted for
as a pooling of interests for financial accounting purposes.
Through the DEKALB merger, Apache acquired an estimated 290 Bcf of
gas and 10 MMbbls of liquid hydrocarbons, together with interests in 14 gas
processing plants, six of which it operates, and 150,000 net undeveloped acres
primarily in the Western Sedimentary Basin of Alberta. The DEKALB merger
provided Apache with the infrastructure to conduct Canadian operations and an
inventory of drilling prospects in North America's largest natural gas basin.
The Canadian region, based on the DEKALB properties, became one of Apache's core
focus areas in 1995.
In early 1995, Apache announced plans to upgrade its properties
through the disposition of lower margin and non-strategic properties, including
the disposition of a substantial portion of its Rocky Mountain properties and
non-strategic assets from its other regions. During 1995, Apache completed
$271.9 million in property dispositions, including the disposition of $143
million of Rocky Mountain properties through a deferred tax-free, like-kind
exchange in consideration for certain of the Aquila Assets.
1994 ACQUISITIONS. On December 30, 1994, Apache purchased
substantially all of the U.S. oil and gas properties of Crystal Oil Company
(Crystal) for approximately $95.8 million. The producing properties acquired
from Crystal are located primarily along the Arkansas-Louisiana border and in
southern Louisiana, and daily production at the time of acquisition was
approximately 20 MMcf of gas and 2,700 bbls of oil. The acquisition also
included approximately 32,000 net undeveloped mineral acres in southern
Louisiana. Apache acquired an average 80-percent working interest in the
properties overall, including a 97-percent working interest in two fields that
account for approximately 60 percent of the value.
During 1994, Apache also acquired approximately 16 MMboe of proved
reserves through 90 smaller, tactical acquisitions for an aggregate
consideration of $84.9 million. Apache also sold $19.6 million of its
non-strategic properties during 1994.
EXPLORATION AND PRODUCTION
The Company's North American exploration and production activities are
divided into five operating regions, the Gulf Coast, Gulf of Mexico,
Midcontinent, Western and Canadian region. Approximately 95 percent of the
Company's proved reserves are located in the five North American regions.
Apache conducts its Australian exploration and production and its Indonesian
exploration through its Australian region, while all other international
interests are directed by the Company through its principal offices in Houston,
Texas. Information concerning the amount of revenue, operating income and
identifiable assets attributable to U.S., Canadian and international
operations, respectively, is set forth in the Supplemental Oil and Gas
Disclosures under Item 8 below, and incorporated herein by reference.
GULF COAST. The Gulf Coast region encompasses the Texas and Louisiana
coasts, central Texas and Mississippi. It was Apache's leading region in oil
and gas sales in 1995, contributing approximately $158 million from production
of 11.2 MMboe for the year. The region was one of the most prominent in the
Company in the number of workover and recompletion projects completed and the
number of wells drilled. The Company performed 327 workover and recompletion
operations during 1995 in the Gulf Coast region and participated in 36 wells
during the year, 20 of which were completed as producers, including 10 Austin
Chalk wells in Central Texas, eight of which were productive. As of December
31, 1995, the region encompassed approximately 306,249 net acres, and accounted
for 66.5 MMboe, or 16 percent, of the Company's year-end 1995 total proved
reserves.
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GULF OF MEXICO. The Gulf of Mexico region includes all of Apache's
interests in properties offshore Texas, Louisiana and Alabama. It was Apache's
leading region in production in 1995, producing approximately 12.7 MMboe and
$129 million in revenue for the year. At December 31, 1995, the Gulf of Mexico
region encompassed 342,179 net acres, located in both state and federal waters,
and accounted for 41.9 MMboe, or 10 percent, of the Company's year-end 1995
reserves. Apache's operations in the Gulf of Mexico focused on workovers and
recompletions, which totaled 59 in the region for 1995. Apache participated in
16 wells which were drilled in the region during the year, 14 of which were
completed as producers. At year-end, Apache's production in the Gulf of Mexico
was approximately 187 MMcf of gas per day.
MIDCONTINENT. Apache's Midcontinent region is known for its sizable
position in the Anadarko Basin. Apache has drilled and operated in the
Anadarko Basin for nearly four decades, developing an extensive database of
geologic information and a substantial acreage position. In 1995, Apache
enhanced its position through the acquisition of the Aquila Assets and certain
Texaco properties. The Midcontinent region produced approximately 10.9 MMboe
for the year, creating $127 million in revenue for the Company.
At December 31, 1995 Apache held an interest in 410,379 net acres in
the region, which accounted for approximately 100.5 MMboe, or 24 percent, of
Apache's total proved reserves. Apache participated in drilling 57 wells in the
Midcontinent region during the year, 51 of which were completed as producing
wells. The Company performed 40 workover and recompletion operations in the
region during 1995.
WESTERN. The Western region includes the former Permian Basin region
and assets in the Green River Basin of Colorado and Wyoming and in the San Juan
Basin of New Mexico which were previously included in Apache's Rocky Mountain
region. In connection with its property rationalization program, Apache
disposed of a substantial portion of its Rocky mountain properties on September
1, 1995, including 1,600 wells in six states with daily production of
approximately 9 Mbls of oil and 9 MMcf of natural gas. See "Recent
Acquisitions and Dispositions" above. As a result, Apache closed its Rocky
Mountain region office and redeployed those employees to provide support for
its Canadian, Western and Gulf Coast operations.
The Western region properties are important producers for Apache,
producing approximately 8.8 MMboe and $125 million in oil and gas sales, 19
percent of the Company's production revenues during 1995. At December 31,
1995, the Company held 692,967 net acres in the region, which accounted for
134.3 MMboe, or 32 percent of the Company's total estimated proved reserves.
The Western region was also active in workovers and recompletions, which
totaled 76 for the year. Compared with 1994, Apache nearly doubled its
drilling activity in the region during 1995, with 53 of the 65 wells drilled in
the region completed as producers.
CANADA. Exploration and development activity in the Canadian region
is concentrated in the Provinces of Alberta and British Columbia. The region
produced approximately 4.8 MMboe, 85 percent of which was natural gas, and
generated $39 million in oil and gas sales, six percent of the Company's
production revenues in 1995. Apache participated in 48 wells in this region
during the year, 30 of which were completed as producers. The Company
performed 28 workovers and recompletions on operated wells during 1995. At
December 31, 1995, the region encompassed approximately 415,943 net acres, and
accounted for 57.9 MMboe, or 14 percent, of the Company's year-end 1995 total
proved reserves.
AUSTRALIA. The state of Western Australia became an important region
for Apache following the completion of the AERC acquisition in November 1993.
In 1995, the region generated four percent of the Company's production revenues
for the year. Natural gas production in the region increased by 20 percent
from the prior year to approximately 9.6 MMcfd in 1995. Average daily oil
production decreased by 1.6 percent to approximately 3,080 bopd in 1995,
primarily as a result of natural depletion. As of December 31, 1995, Apache
held 52,550 net developed acres and 2,954,562 net undeveloped acres in Western
Australia. Apache acts as operator for most of its properties in Western
Australia through its wholly owned subsidiary, AEL.
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During 1995, Apache's proved reserves in Australia increased by 81
percent to 19.6 MMboe, five percent of the Company's total proved reserves at
year end. The increase in Australian reserves was primarily attributable to
natural gas reserves booked at the East Spar discovery which were recorded only
after the Company had entered agreements for the sale and delivery of such gas.
See "Oil and Natural Gas Marketing."
Through AEL and its subsidiaries, Apache also owns a 22.5-percent
interest in and operates the Harriet Gas Gathering Project, a gas processing
and compression facility with a throughput capacity of 80 MMcfd, and a 60-mile,
12-inch offshore pipeline with a throughput capacity of 175 MMcfd. The gas
processing and compression facilities are located on Varanus Island in close
proximity to AEL's producing properties offshore in the Carnarvon Basin. In
1995, the Company and its partners commenced development of the East Spar field
from which gas will be transported to the Varanus Island site and, by agreement
with the Harriet Joint Venture, processed and transported to the mainland where
it will be delivered to gas pipelines connecting to the southwest and to the
eastern goldfields of Western Australia.
Apache also participated in the Wonnich discovery offshore Western
Australia which tested at 27 MMcfd of gas and 1,375 bopd. The company holds a
22.5-percent interest in the Wonnich field and plans to drill appraisal wells
during 1996 to determine the commercial potential of the discovery. Apache is
operator of the appraisal program and is conducting a development feasibility
study.
In early 1994, operations for Indonesia were consolidated under AEL
and directed from its offices in Perth, Western Australia. In 1995, tests were
conducted on two fields in the Bentu Segat Block in Central Sumatra, Indonesia,
confirming proven reserves of approximately 20 Bcf net to Apache. Apache is
operator of the Block, holding a working interest of 39 percent.
OTHER INTERNATIONAL OPERATIONS. Outside of Australia and Indonesia,
Apache currently has exploration and production interests in Egypt and
exploration interests in China and offshore the Ivory Coast. In 1995, Apache
Overseas, Inc., Apache International, Inc. and their subsidiaries (excluding
Australia and Indonesia as discussed above) drilled seven gross exploratory
wells, resulting in four producers, and four development wells, all of which
were productive.
Apache holds a 25-percent interest in the two-million acre Qarun Block
in the Western Desert of Egypt which is operated by Phoenix Resource Companies
of Qarun. Development began at the Qarun field in 1995, with three exploratory
and four development wells drilled. During development of the field,
approximately 6,500 bbls per day are being sold to the Egyptian General
Petroleum Corporation under terms of an early production agreement. Field
development is expected to be complete in late 1996 with production expected to
exceed 30,000 bbls of oil per day. Reserves will be booked in the first
quarter of 1996.
In early 1996 Apache was awarded the Darag Block in the extreme north
of the Gulf of Suez. Apache has a 50-percent interest and will act as
operator of the 460,000-acre Darag Block. Also in early 1996, Apache agreed to
participate as a 50-percent interest holder in the East Beni Suef Block, a
6.8-million-acre concession in the Western Desert of Egypt adjoining the Qarun
Block to the south.
In 1995, Apache became the operator of the Zhao Dong Block in the
Bohai Bay, offshore the People's Republic of China, where Apache increased its
interest to 50 percent in a concession containing approximately 48,677
undeveloped acres. In 1994, a discovery well tested at a rate of over 2,000
bbls per day and was confirmed by an appraisal well which tested 4,000 bbls per
day. In 1995, a second discovery well tested on pump at rates up to 1,300
bbls per day. The Company has elected to proceed with the second phase of
exploration, commencing in May 1996, which involves a commitment to drill two
additional exploratory wells. The Company is currently evaluating the
discovery areas for commercial potential.
OIL AND NATURAL GAS MARKETING
During 1995, Apache sold approximately 85 percent of its U.S. natural
gas on the spot market through Natural Gas Clearinghouse (NGC) or through
market responsive contracts with other parties; the remaining 15 percent was
sold through long-term, premium-priced contracts. Sales to NGC accounted for 27
percent of the Company's oil and gas revenues in 1995. On September 30, 1995,
the Company's contract with NGC terminated and the Company began to
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market all of its own natural gas, including the natural gas previously marketed
by NGC. The Company believes the prices that it obtains through its own natural
gas marketing activities are not substantially different from the prices that
would have been received in marketing through NGC.
On October 27, 1995, wholly-owned affiliates of each of Apache, Oryx
Energy Company and Parker & Parsley Petroleum Company formed Producers Energy
Marketing, LLC, a Delaware limited liability company (ProEnergy). Until
operations of ProEnergy begin, the Company will continue to market its own
natural gas. Once fully operational (which is expected to occur in the second
quarter of 1996), ProEnergy will market substantially all of its members'
domestic natural gas and natural gas liquids pursuant to member gas purchase
agreements having an initial term of 10 years, subject to early termination
following specified events. The price of gas purchased by ProEnergy from its
members will be based upon agreed indexes. ProEnergy will also provide certain
contract administration and other services.
ProEnergy's limited liability company agreement provides that capital
funding obligations, allocations of profit and loss and voting rights are
calculated based upon the members' respective throughputs of natural gas sold
to, or whose sales are managed by, ProEnergy. Each member's liability with
respect to future capital funding obligations is subject to certain
limitations. Natural gas throughputs will be calculated, profit distributed,
and/or capital called on a quarterly basis. As of December 31, 1995, the
Company was the holder of a majority interest in ProEnergy.
Apache is delivering natural gas under several long-term supply
contracts. In connection with the acquisition of the Aquila Assets in
September 1995, the Company entered into a five-year, four-month premium-price
gas contract under which Aquila Energy Marketing Corporation will purchase 20
to 25 MMcf of gas per day from Apache at a price of $2.70 per Mcf in 1996
escalating to $3.20 per Mcf in the year 2000. In August 1994, Apache signed a
long-term gas supply agreement with a cogeneration company under which Apache
will supply a minimum of 51.1 Bcf over 10 years for use in electric power
generation from a cogeneration facility located in northeast Texas. Under the
agreement, deliveries of approximately 20 MMcfd are scheduled to begin in early
1997. In December 1994, the Company signed a long-term gas contract under
which Apache received an advance payment of $67.4 million. Apache will supply
the purchaser with approximately 43 Bcf of gas over a six year period which
began in January 1995, with volumes averaging 20 MMcfd.
Apache assumed its own U.S. crude oil marketing operations in 1992.
Most of Apache's crude oil production is sold through lease-level marketing to
refiners, traders and transporters, generally under 30-day contracts that renew
automatically until canceled.
Oil produced from Canadian properties is sold to crude oil purchasers
or refiners at market prices which depend on worldwide crude prices adjusted
for location and quality of the oil. Natural gas produced from Canadian
properties is sold to major aggregators of natural gas, gas marketers and
direct users under long and short-term contracts. The oil and gas contracts
provide for sales at specified prices, or at prices which are subject to change
due to market conditions.
The Company diversifies the markets for its Canadian gas production by
selling directly or indirectly to customers through aggregators and brokers in
the United States and Canada. The Company transports natural gas via the
Company's firm transportation contracts to California (12 MMcfd) and to the
Province of Ontario, Canada (four MMcfd) through end-users' firm transportation
contracts. In 1994, the Company contracted for the sale of five MMcfd of
natural gas to the Hermiston Cogeneration Project, located in the Pacific
Northwest of the United States. The Hermiston Project is expected to commence
purchases of natural gas in the third quarter of 1996.
In Australia, the Company entered into two contracts to deliver 32 Bcf
of gas from the East Spar field for industrial uses, including mining
operations, a power station and a nickel refinery. The contracts provide for
an average daily rate of 15 MMcfd net to the Company. To provide deliveries
under the contracts while the East Spar development is under construction, the
Harriet and East Spar joint ventures entered into a gas sales agreement under
which the Harriet Joint Venture is supplying 42 MMcf of gas per day to East
Spar's industrial customers. Apache operates the Harriet joint venture and
acts as contractor for the East Spar Joint Venture, holding a 22.5-percent
interest in Harriet and a 20-percent interest in East Spar.
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In 1995, the Harriet Joint Venture entered into a take-or-pay contract
to supply natural gas under which AEL has committed 14 Bcf of reserves for
delivery over a 10 year period. Approximately 20 Bcf of AEL's proved gas
reserves are dedicated to the Gas Corporation of Western Australia, a
corporation owned by the government of Western Australia doing business as
AlintaGas, under a long-term contract with a remaining period of 6-1/2 years.
The agreement contains take-or-pay provisions that require AlintaGas to
purchase a minimum of 35 MMcfd (approximately eight MMcfd net to AEL) through
the remainder of the contract term. Payments received under this contract are
in Australian dollars.
AEL markets all oil and natural gas liquids produced from its
interests in the Harriet field through a contract with Marubeni International
Petroleum (Singapore) Pte Limited (Marubeni), which was extended in 1995.
Pricing under the contract in 1995 represented a fixed premium to the quoted
market prices of Tapis crude oil, with payment made in U.S. dollars. In 1995,
production sold under this contract realized an average price of $18.59 per
barrel (exclusive of the impact of hedging activities). The Company believes
that if this contract were terminated, it would not have a material adverse
effect on the Company due to the demand for Australian crude oil and the
existence of alternative purchasers.
OIL AND NATURAL GAS PRICES
Natural gas prices remained volatile in 1995 with spot-market prices
during the year ranging from $1.25 per Mcf in July to $2.07 per Mcf in
December. Fluctuations are largely due to natural gas supply and demand
perceptions. Apache's average realized gas price of $1.57 per Mcf for 1995
declined 12 percent from the prior-year average of $1.78 per Mcf. Apache's 1994
average realized natural gas price declined eight percent from the 1993 average
of $1.94 per Mcf.
Due to minimum price contracts which escalate at an average of 80% of
the Australian consumer price index, AEL's natural gas production in Western
Australia is not subject to the same degree of price volatility as is its
domestic Apache's U.S. and Canadian gas production; however, natural gas sales
under such Australian minimum price contracts represent only about two percent
of the Company's total natural gas sales at year end. Total Australian gas
sales in 1995, including long-term contracts and spot sales averaged $1.86 per
Mcf, two percent below the 1994 average of $1.90 per Mcf.
Oil prices remained vulnerable to unpredictable political and economic
forces during 1995, but did not experience the wide fluctuations seen in
natural gas prices during the year. Management believes that oil prices will
continue to fluctuate in response to changes in the policies of the
Organization of Petroleum Exporting Countries (OPEC), events in the Middle East
and other factors associated with the world political environment. As a result
of the many uncertainties associated with levels of production maintained by
OPEC and other oil producing countries, the availabilities of world-wide energy
supplies and the competitive relationships and consumer perceptions of various
energy sources, management is unable to predict what changes will occur in
crude oil and natural gas prices.
Apache's world-wide crude oil price averaged $17.09 per barrel in 1995,
up nine percent from the average price of $15.65 per barrel in 1994, and two
percent higher than the average price of $16.74 per barrel in 1993. Apache's
average crude oil price for its Australian production, including production
sold under the Marubeni contract, was $18.59 per barrel in 1995, three percent
higher than the average price in 1994.
Terms of the acquisition of MW from Amoco Production Company (Amoco)
included an oil and gas price sharing provision under which certain price
sharing payments may be payable to Amoco. Pursuant to this provision, to the
extent that oil prices exceed specified reference prices that rise to $33.12
per barrel over the eight-year period ending June 30, 1999, and to the extent
that gas prices exceed specified reference prices that rise to $2.68 per Mcf
over the five-year period ending June 30, 1996, Apache will share the excess
price realization with Amoco on a portion of the MW production.
From time to time, Apache buys or sells contracts to hedge a limited
portion of its future oil and gas production against exposure to spot market
price changes. See Note 9 to the Company's financial statements under Item 8
below.
8
10
The Company's business has been and will continue to be affected by
future world-wide changes in oil and gas prices and the relationship between the
prices of oil and gas. No assurance can be given as to the trend in, or level
of, future oil and gas prices.
RESERVE VALUE CEILING TEST
Under the Securities and Exchange Commission's (SEC's) full cost
accounting rules, the Company reviews the carrying value of its oil and gas
properties each quarter on a country-by-country basis. Under full cost
accounting rules, capitalized costs of oil and gas properties may not exceed
the present value of estimated future net revenues from proved reserves,
discounted at 10 percent, plus the lower of cost or fair market value of
unproved properties, as adjusted for related tax effects and deferred tax
reserves. Application of this rule generally requires pricing future production
at the unescalated oil and gas prices in effect at the end of each fiscal
quarter and requires a write-down if the "ceiling" is exceeded, even if prices
declined for only a short period of time. If a write-down is required, the
one-time charge to earnings would not impact cash flow from operating
activities. The Company had no write-downs due to ceiling test limitations
during 1995.
The SEC's rules permit the exclusion of capitalized costs and present
value of recently acquired properties in performing ceiling test calculations.
Pursuant to these rules, Apache has requested waivers and the SEC has granted
separate one-year waivers with respect to the properties acquired from Texaco
and Aquila, effective from the date of closing, the last of which will expire in
the third quarter of 1996. Under these waivers, if the ceiling is exceeded on
all U.S. properties, Apache is permitted to perform an additional ceiling test
excluding the capitalized costs and present value of the properties acquired
from Texaco and Aquila and would be required to record a write-down of carrying
value if the ceiling is still exceeded. If a write-down is required, it would
result in a one-time charge to earnings but would not impact net cash flow from
operating activities.
GOVERNMENT REGULATION OF THE OIL AND GAS INDUSTRY
The Company's exploration, production and marketing operations are
regulated extensively at the federal, state and local levels, as well as by
other countries in which the Company does business. Oil and gas exploration,
development and production activities are subject to various laws and
regulations governing a wide variety of matters. For example,
hydrocarbon-producing states have statutes or regulations addressing
conservation practices and the protection of correlative rights, and such
regulations may affect Apache's operations and limit the quantity of
hydrocarbons Apache may produce and sell. Other regulated matters include
marketing, pricing, transportation, and valuation of royalty payments.
At the U.S. federal level, the Federal Energy Regulatory Commission
(FERC) regulates interstate transportation of natural gas under the Natural Gas
Act. Effective January 1, 1993, the Natural Gas Wellhead Decontrol Act
deregulated natural gas prices for all "first sales" of natural gas, which
includes all sales by Apache of its own production. As a result, all sales of
the Company's natural gas produced in the U.S. may be sold at market prices,
unless otherwise committed by contract.
Apache's gas sales are affected by regulation of intrastate and
interstate gas transportation. In an attempt to promote competition, the FERC
has issued a series of orders which have altered significantly the marketing
and transportation of natural gas. The effect of these orders has been to
enable the Company to market its natural gas production to purchasers other
than the interstate pipelines located in the vicinity of its producing
properties. The Company believes that these changes have generally improved the
Company's access to transportation and have enhanced the marketability of its
natural gas production. To date, Apache has not experienced any material
adverse effect on gas marketing as a result of these FERC orders; however, the
Company cannot predict what new regulations may be adopted by the FERC and
other regulatory authorities, or what effect subsequent regulations may have on
its future gas marketing.
9
11
ENVIRONMENTAL MATTERS
Apache, as an owner or lessee and operator of oil and gas properties,
is subject to various federal, provincial, state, local and foreign country
laws and regulations relating to discharge of materials into, and protection
of, the environment. These laws and regulations may, among other things, impose
liability on the lessee under an oil and gas lease for the cost of pollution
clean-up resulting from operations, subject the lessee to liability for
pollution damages, require suspension or cessation of operations in affected
areas.
Apache maintains insurance coverage which it believes is customary in
the industry, although it is not fully insured against all environmental risks.
The Company is not aware of any environmental claims existing as of December
31, 1995, which would have a material impact upon the Company's financial
position or results of operations.
Apache has made and will continue to make expenditures in its efforts
to comply with these requirements, which it believes are necessary business
costs in the oil and gas industry. Apache has established policies for
continuing compliance with environmental laws and regulations, including
regulations applicable to its operations in Canada, Australia and other
countries. Apache has also established operational procedures designed to limit
the environmental impact of its field facilities. The costs incurred by these
policies and procedures are inextricably connected to normal operating expenses
such that the Company is unable to separate the expenses related to
environmental matters; however, the Company does not believe any such
additional expenses are material to its financial position or results of
operations.
Although environmental requirements do have a substantial impact upon
the energy industry, generally these requirements do not appear to affect Apache
any differently, or to any greater or lesser extent, than other companies in the
industry. Apache does not believe that compliance with federal, state, local or
foreign country provisions regulating the discharge of materials into the
environment, or otherwise relating to the protection of the environment, will
have a material adverse effect upon the capital expenditures, earnings or
competitive position of the Company or its subsidiaries, but there is no
assurance that changes in or additions to laws or regulations regarding the
protection of the environment will not have such an impact.
COMPETITION
The oil and gas industry is highly competitive. Because oil and gas
are fungible commodities, the principal form of competition with respect to
product sales is price competition. Apache strives to maintain the lowest
finding and production costs possible to maximize profits.
As an independent oil and gas company, Apache frequently competes for
reserve acquisitions, exploration leases, licenses, concessions and marketing
agreements against companies with substantially larger financial and other
resources than Apache possesses. Moreover, many competitors have established
strategic long-term positions and maintain strong governmental relationships in
countries in which the Company may seek new entry. Apache expects this high
degree of competition to continue.
EMPLOYEES
On December 31, 1995, Apache had 1,285 full-time employees.
OFFICES
Apache's principal executive offices are located at One Post Oak
Central, 2000 Post Oak Boulevard, Suite 100, Houston, Texas 77056-4400. At
year-end 1995, the Company maintained regional exploration and production
offices in Tulsa, Oklahoma; Houston, Texas; Calgary, Alberta; and Perth,
Western Australia. In 1995, the Company closed its Denver, Colorado office and
redeployed those employees to its remaining region offices in connection with
the sale of a substantial portion of the Company's Rocky Mountain properties
and the reorganization of the Rocky Mountain and Permian Basin regions as
Apache's Western region.
10
12
ITEM 2. PROPERTIES
OIL AND GAS EXPLORATION AND PRODUCTION PROPERTIES AND RESERVES
ACREAGE
The developed and undeveloped acreage, including both domestic leases and
international production and exploration rights that Apache held as of December
31, 1995, are as follows:
Undeveloped Acreage Developed Acreage
-------------------------- ------------------------
Gross Net Gross Net
Acres Acres Acres Acres
----- ----- ----- -----
GULF COAST.............................................
Alabama............................................ 7,789 1,375 -- --
Florida............................................ 162 14 -- --
Louisiana.......................................... 15,850 11,929 129,020 99,533
Mississippi........................................ 3,921 498 4,850 2,354
Texas.............................................. 106,242 47,842 291,635 142,704
--------- ------- --------- ---------
Total.............................................. 133,964 61,658 425,505 244,591
--------- ------- --------- ---------
GULF OF MEXICO
Alabama............................................ -- -- 34,560 9,457
Louisiana.......................................... 96,433 48,613 294,855 128,377
Texas.............................................. 90,783 57,759 233,334 97,973
--------- ------- --------- ---------
Total.............................................. 187,216 106,372 562,749 235,807
--------- ------- --------- ---------
MIDCONTINENT
Arkansas........................................... 699 327 5,548 3,667
Kansas............................................. 160 56 -- --
Louisiana.......................................... 6,750 4,505 49,394 34,112
Oklahoma........................................... 137,051 55,414 532,359 248,162
Pennsylvania....................................... -- -- 796 38
Texas.............................................. 25,301 14,335 136,372 49,763
--------- ------- --------- ---------
Total.............................................. 169,961 74,637 724,469 335,742
--------- ------- --------- ---------
WESTERN
Colorado........................................... 41,299 36,181 18,938 19,387
Michigan........................................... 200 16 -- --
New Mexico ........................................ 100,357 51,699 122,406 58,936
North Dakota ...................................... 100 50 197 197
Texas.............................................. 130,242 66,986 282,377 210,799
Utah............................................... 2,797 1,091 4,647 4,432
Wyoming............................................ 433,154 226,321 34,820 16,872
--------- ------- --------- ---------
Total.............................................. 708,149 382,344 463,385 310,623
--------- ------- --------- ---------
TOTAL UNITED STATES 1,199,290 625,011 2,176,108 1,126,763
--------- ------- --------- ---------
11
13
Undeveloped Acreage Developed Acreage
---------------------- ------------------------
Gross Net Gross Net
Acres Acres Acres Acres
--------- --------- --------- ---------
INTERNATIONAL
Australia.......................................... 8,312,100 2,954,562 280,460 52,550
Canada............................................. 246,391 156,862 389,903 259,081
China.............................................. 48,677 24,339 -- --
Egypt.............................................. 1,909,080 447,270 18,300 4,575
Indonesia.......................................... 722,290 280,890 -- --
Ivory Coast........................................ 256,243 102,497 -- --
---------- --------- --------- ---------
TOTAL INTERNATIONAL.................................... 11,494,781 3,966,420 688,663 316,206
---------- --------- --------- ---------
TOTAL COMPANY.......................................... 12,694,071 4,591,431 2,864,771 1,442,969
========== ========= ========= =========
PRODUCTIVE OIL AND GAS WELLS
The number of productive oil and gas wells, operated and non-operated, in
which Apache had an interest as of December 31, 1995, is set forth below.
Gas Oil
-------------------- ----------------
Gross Net Gross Net
------ ----- ----- -----
Gulf of Mexico . . . . . . . . . . . . . . . . . . . . . . 227 76 66 24
Midcontinent . . . . . . . . . . . . . . . . . . . . . . . 1,478 534 1,465 364
Western . . . . . . . . . . . . . . . . . . . . . . . . . 250 125 3,977 1,982
Gulf Coast . . . . . . . . . . . . . . . . . . . . . . . . 328 262 1,083 866
Canada . . . . . . . . . . . . . . . . . . . . . . . . . . 437 301 649 85
Other International . . . . . . . . . . . . . . . . . . . . 5 1 22 4
----- ----- ----- -----
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,725 1,299 7,262 3,325
===== ===== ===== =====
GROSS WELLS DRILLED
The following table sets forth the number of gross exploratory and gross
development wells drilled in the last three fiscal years in which the Company
participated. The number of wells drilled refers to the number of wells
commenced at any time during the respective fiscal year. "Productive" wells are
either producing wells or wells capable of commercial production. At December
31, 1995, the Company was participating in 35 wells in the U.S., six Canadian
wells and three international wells in the process of drilling.
Exploratory Developmental
------------------------ -------------------------
Productive Dry Total Productive Dry Total
---------- --- ----- ---------- --- -----
1995
----
United States . . . . . . . . . . . . . . . . . . . . 9 15 24 129 21 150
Canada . . . . . . . . . . . . . . . . . . . . . . . 16 13 29 14 5 19
International . . . . . . . . . . . . . . . . . . . . 8 12 20 4 2 6
-- -- -- --- -- ---
Total . . . . . . . . . . . . . . . . . . . . . . . 33 40 73 147 28 175
== == == === == ===
1994
----
United States . . . . . . . . . . . . . . . . . . . . 20 17 37 223 39 262
Canada . . . . . . . . . . . . . . . . . . . . . . . 18 12 30 35 3 38
International . . . . . . . . . . . . . . . . . . . . 7 8 15 2 -- 2
Total . . . . . . . . . . . . . . . . . . . . . . . 45 37 82 260 42 302
== == == === == ===
1993
----
United States . . . . . . . . . . . . . . . . . . . . 12 19 31 198 37 235
Canada . . . . . . . . . . . . . . . . . . . . . . . 11 15 26 13 1 14
International . . . . . . . . . . . . . . . . . . . . 3 5 8 -- -- --
Total . . . . . . . . . . . . . . . . . . . . . . . . 26 39 65 211 38 249
== == == === == ===
12
14
NET WELLS DRILLED
The following table sets forth, for each of the last three fiscal years,
the number of net exploratory and net developmental wells drilled by Apache.
Exploratory Developmental
----------------------- --------------------------
Productive Dry Total Productive Dry Total
---------- --- ----- ---------- --- -----
1995
----
United States . . . . . . . . . . . . . . . . . . . . 3.7 6.2 9.9 57.3 14.0 71.3
Canada . . . . . . . . . . . . . . . . . . . . . . . 14.0 9.4 23.4 13.4 3.4 16.8
International . . . . . . . . . . . . . . . . . . . . 2.4 3.0 5.4 0.8 1.4 2.2
---- ---- ---- ----- ---- -----
Total . . . . . . . . . . . . . . . . . . . . . . . . 20.1 18.6 38.7 71.5 18.8 90.3
==== ==== ==== ===== ==== =====
1994
----
United States . . . . . . . . . . . . . . . . . . . . 10.7 10.4 21.1 100.1 27.0 127.1
Canada . . . . . . . . . . . . . . . . . . . . . . . 13.0 7.0 20.0 28.0 2.0 30.0
International . . . . . . . . . . . . . . . . . . . . 2.3 2.4 4.7 0.4 -- 0.4
- ---- ---- ---- ----- ---- -----
Total . . . . . . . . . . . . . . . . . . . . . . . . 26.0 19.8 45.8 128.5 29.0 157.5
==== ==== ==== ===== ==== =====
1993
----
United States . . . . . . . . . . . . . . . . . . . . 4.2 10.4 14.6 90.4 22.2 112.6
Canada . . . . . . . . . . . . . . . . . . . . . . . 8.0 11.0 19.0 6.0 1.0 7.0
International . . . . . . . . . . . . . . . . . . . . 0.6 1.3 1.9 -- -- --
---- ---- ---- ----- ---- -----
Total . . . . . . . . . . . . . . . . . . . . . . . . 12.8 22.7 35.5 96.4 23.2 119.6
==== ==== ==== ===== ==== =====
PRODUCTION AND PRICING DATA
The following table describes, for each of the last three fiscal years,
oil, natural gas liquids (NGLs) and gas production for the Company, average
production costs and average sales prices.
Production Average Sales Price
------------------------- Average ------------------------------------
Year Ended Oil NGLs Gas Production Oil NGLs Gas
December 31, (Mbbls) (Mbbls) (MMcf) Cost per boe (per bbl) (per bbl) (per Mcf)
- ------------- ------- ------- ------ ------------ --------- --------- ---------
1995 . . . . . . . . . . 18,324 763 210,632 $3.91 $17.09 $12.05 $1.57
1994 . . . . . . . . . . 13,815 724 176,396 3.40 15.65 11.28 1.78
1993 . . . . . . . . . . 13,036 733 131,591 3.94 16.74 11.55 1.94
ESTIMATED RESERVES AND RESERVE VALUE INFORMATION
The following information relating to estimated reserve quantities, reserve
values and discounted future net revenues is derived from, and qualified in its
entirety by reference to, the more complete reserve and revenue information and
assumptions included in the Company's financial statements under Item 8 below.
The Company's estimates of proved reserve quantities of its U.S., Canadian and
certain international properties have been subject to review by Ryder Scott
Company Petroleum Engineers. There are numerous uncertainties inherent in
estimating quantities of proved reserves and projecting future rates of
production and timing of development expenditures. The following reserve
information represents estimates only and should not be construed as being
exact. See the Supplemental Oil and Gas Disclosures under Item 8 below.
13
15
The following table sets forth the Company's estimated proved developed and
undeveloped reserves as of December 31, 1995, 1994 and 1993:
Oil, NGLs and
Natural Gas Condensate
(Bcf) (MMbbls)
----------- -------------
1995
----
Developed . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,298.5 137.5
Undeveloped . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 203.4 32.8
------- -----
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,501.9 170.3
======= =====
1994
----
Developed . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,184.9 100.0
Undeveloped . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 131.3 10.6
------- -----
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,316.2 110.6
======= =====
1993
----
Developed . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 983.7 92.6
Undeveloped . . . . . . . . . . . . . . . . . . . . . . . . . . . . 141.9 10.4
------- -----
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,125.6 103.0
======= =====
The following table sets forth the estimated future value of all proved
reserves of the Company, and proved developed reserves of the Company, as of
December 31, 1995, 1994 and 1993. Future reserve values are based on year-end
prices except in those instances where the sale of gas and oil is covered by
contract terms providing for determinable escalations. Operating costs,
production and ad valorem taxes, and future development costs are based on
current costs with no escalations.
Present Value of Estimated
Future Net Revenues
Estimated Future Before Income Taxes
Net Revenues (Discounted at 10 Percent)
---------------------- -------------------------------
Proved Proved
Proved Developed Proved Developed
--------- --------- --------- ----------
(In thousands)
December 31,
------------
1995 . . . . . . . . . . . . . . . . $4,043,024 $3,390,103 $2,344,357 $2,056,558
1994 . . . . . . . . . . . . . . . . 2,581,459 2,390,126 1,600,927 1,512,305
1993 . . . . . . . . . . . . . . . . 2,591,290 2,289,172 1,626,096 1,450,669
At December 31, 1995, estimated future net revenues expected to be
received from all proved reserves of the Company, and from proved developed
reserves of the Company, were as follows:
Proved
Proved Developed
--------- ---------
(In thousands)
December 31,
------------
1996 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 457,946 $ 481,326
1997 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 441,549 418,612
1998 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 413,937 345,572
Thereafter . . . . . . . . . . . . . . . . . . . . . . . . . . 2,729,592 2,144,593
---------- ----------
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $4,043,024 $3,390,103
========== ==========
The Company believes that no major discovery or other favorable or adverse
event has occurred since December 31, 1995, which would cause a significant
change in the estimated proved reserves reported herein. The estimates above
are based on year-end pricing in accordance with the SEC guidelines and do not
reflect current prices. Since January 1, 1995, no oil or gas reserve
information has been filed with, or included in any report to, any U.S.
authority or agency
14
16
other than the SEC and the Energy Information Administration (EIA). The basis of
reporting reserves to the EIA for the Company's reserves is identical to that
set forth in the foregoing table.
TITLE TO INTERESTS
The Company believes that its title to the various interests set forth
above is satisfactory and consistent with the standards generally accepted in
the oil and gas industry, subject only to immaterial exceptions which do not
detract substantially from the value of the interests or materially interfere
with their use in the Company's operations. The interests owned by the Company
may be subject to one or more royalty, overriding royalty and other outstanding
interests customary in the industry. The interests may additionally be subject
to obligations or duties under applicable laws, ordinances, rules, regulations
and orders of arbitral or governmental authorities. In addition, the interests
may be subject to burdens such as net profits interests, liens incident to
operating agreements and current taxes, development obligations under oil and
gas leases and other encumbrances, easements and restrictions, none of which
detract substantially from the value of the interests or materially interfere
with their use in the Company's operations.
ITEM 3. LEGAL PROCEEDINGS
The information set forth under the caption "Litigation" in Note 10 to the
Company's financial statements under Item 8 below is incorporated herein by
reference.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted for a vote of security holders during the fourth
quarter of 1995.
15
17
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS
Apache's common stock, par value $1.25 per share, is traded on the New
York Stock Exchange and the Chicago Stock Exchange under the symbol APA. The
table below provides certain information regarding Apache common stock for 1995
and 1994. Prices shown are from the New York Stock Exchange Composite
Transactions Reporting System.
1995 1994
---------------------------- ------------------------------
Price Range Price Range
------------- Dividends --------------- Dividends
High Low per Share High Low per Share
---- --- --------- ---- --- ---------
First Quarter . . . . . . . . . . . . . . . $27 3/8 $22 1/4 $ .07 $26 7/8 $22 1/2 $ .07
Second Quarter . . . . . . . . . . . . . . 31 25 3/8 $ .07 29 1/4 22 1/4 $ .07
Third Quarter . . . . . . . . . . . . . . . 30 1/4 25 3/4 $ .07 29 1/4 23 $ .07
Fourth Quarter . . . . . . . . . . . . . . 29 5/8 23 1/8 $ .07 28 7/8 23 5/8 $ .07
The closing price per share of Apache common stock, as reported on the New
York Stock Exchange Composite Transactions Reporting System for February 29,
1996, was $26.00. At December 31, 1995, there were 77,378,958 shares of Apache
common stock outstanding, held by approximately 12,000 shareholders of record
and 30,000 beneficial owners.
Each share of Apache common stock also represents one preferred share
purchase right which, when exercisable, would entitle the holder to purchase
one ten-thousandth of a share of Series A Junior Participating Preferred Stock
for a purchase price of $100 and, under certain circumstances, would entitle
the holder to acquire additional shares of Apache common stock. See Note 7 to
the Company's financial statements under Item 8 below.
The Company has paid cash dividends on its common stock for 116
consecutive quarters through December 31, 1995, and intends to continue the
payment of dividends at current levels, although future dividend payments will
depend upon the Company's level of earnings, financial requirements and other
relevant factors.
16
18
ITEM 6. SELECTED FINANCIAL DATA
The following table sets forth selected financial data of the Company and
its consolidated subsidiaries for each of the years in the five-year period
ended December 31, 1995, which information has been derived from the Company's
audited financial statements. Apache's previously reported data for 1995 and
prior years has been restated to reflect the merger with DEKALB under the
pooling of interests method of accounting. This information should be read in
connection with and is qualified in its entirety by the more detailed
information in the Company's financial statements under Item 8 below.
At or for the Year Ended December 31,
-----------------------------------------------------------------------
1995 1994 1993(a) 1992(b) 1991(c)
----------- ---------- ---------- ---------- ----------
(In thousands, except per share amounts)
INCOME STATEMENT DATA
Total revenues $ 750,702 $ 592,626 $ 512,632 $ 517,403 $ 457,872
Income (loss) from continuing
operations 20,207 45,583 41,421 (14,632) (35,216)
Income (loss) per common
share - continuing operations .28 .65 .67 (.26) (.65)
Cash dividends per common share(d) .28 .28 .28 .28 .28
BALANCE SHEET DATA
Working capital (deficit) $ (22,013) $ (3,203) $ (55,538) $ (32,775) $ (57,593)
Total assets 2,681,450 2,036,627 1,759,203 1,774,767 1,597,633
Long-term debt 1,072,076 719,033 504,334 524,098 658,395
Shareholders' equity 1,091,805 891,087 868,596 554,524 601,181
Common shares outstanding at
end of year 77,379 69,666 69,504 55,361 55,305
(a) Includes financial data for Hadson Energy Resources Corporation
(subsequently Apache Energy Resources Corporation) after June 30, 1993,
and for Hall-Houston Oil Company after July 31, 1993. See Note 1 to the
Company's financial statements under Item 8 below.
(b) The net loss in 1992 resulted from the sale of substantially all of
DEKALB's U.S. assets for a loss of $25.6 million after-tax. DEKALB also
reported Canadian ceiling test write-downs of $15.9 million after-tax and
U.S. ceiling test write-downs of $24.7 million after-tax.
(c) Includes financial data for MW after June 30, 1991. The net loss in 1991
resulted from DEKALB reporting U.S. ceiling test write-downs of $66
million after-tax.
(d) No cash dividends were paid on outstanding DEKALB common stock in 1995,
1994, 1993 and 1992. Cash dividends paid on DEKALB common stock totaled
$.8 million in 1991.
Reference is made to Item 7, "MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS," for a discussion of significant
acquisitions and to Note 2 to the Company's financial statements under Item 8
below.
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ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
OVERVIEW
Apache's results of operations and financial position during 1995 were
significantly impacted by the following factors:
PROPERTY ACQUISITIONS - Acquisitions continued to be a significant part of
Apache's growth strategy in 1995, with the Company adding over 156 MMboe of
proved reserves during the year through purchases. Led by the addition of
interests from Texaco Exploration and Production Inc. (Texaco) and Aquila
Energy Resources Corporation (Aquila), Apache spent $820.9 million on the
acquisition of oil and gas properties during 1995. Acquisitions were a major
force behind Apache posting its 18th consecutive year of production growth and
record year-end reserves of 420.6 MMboe. The Texaco and Aquila properties,
combined with properties acquired from Crystal Oil Company (Crystal) in late
1994, boosted Apache's 1995 production by nearly 92 MMcf/d of natural gas and
17 Mb/d of oil.
DEKALB MERGER - On May 17, 1995, Apache acquired DEKALB Energy Company
(DEKALB, now known as DEK Energy Company) through a merger which resulted in
DEKALB becoming a wholly-owned subsidiary of Apache. Pursuant to the merger
agreement, Apache issued 8.4 million shares of its common stock in exchange for
outstanding DEKALB stock and DEKALB employee stock options that remained
outstanding at the time of the merger. The merger was accounted for as a
"pooling of interests." As a result, Apache's financial information for all
preceding periods and the following management discussion have been prepared on
a combined basis using the pooling of interests method of accounting.
Apache's earnings for 1995 were reduced by a non-recurring pre-tax
charge of approximately $10 million for investment banking fees, severance
payments and other costs associated with the merger. The merger costs, which
are largely non-deductible for income tax purposes, reduced Apache's 1995 net
income by $8.7 million, or $.12 per share.
COMMODITY PRICES - During 1995, natural gas spot prices remained volatile,
fluctuating from a low of $1.25 per Mcf in July to a high of $2.07 per Mcf in
December. Domestic spot prices during the first eight months of 1995 lagged
behind comparable prices in 1994, then rebounded above 1994 levels during the
last four months of the year. As a result, Apache's average gas price for 1995
was down 12 percent from a year ago, negatively impacting earnings by
approximately $26 million. A nine-percent increase in the Company's average
oil price from 1994 offset nearly $16 million of the impact of lower gas
prices. On an equivalent basis, prices negatively impacted earnings by $.15
per share.
HEDGING LOSS - In December 1995, Apache recorded a pre-tax hedging loss of
$9.3 million resulting from the decoupling of New York Mercantile Exchange
(NYMEX) natural gas futures prices and actual cash prices received by producers
for natural gas delivered throughout most of the United States. The loss,
which stems from contracts for January through March, 1996 deliveries, reduced
Apache's 1995 net income by $5.9 million, or $.08 per share.
RESULTS OF OPERATIONS
NET INCOME AND REVENUE
Apache reported 1995 net income of $20.2 million, or $.28 per share,
compared with $45.6 million, or $.65 per share in 1994. The decline was due to
the lower natural gas realizations and the non-recurring charges noted above.
Absent one-time charges for the merger costs and hedging loss, 1995 earnings
would have totaled $.48 per share.
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20
Revenues for 1995 totaled $750.7 million, an increase of 27 percent from a
year ago. Apache's oil and gas production revenues, boosted by record levels
of oil and gas production and a $1.44 per barrel increase in Apache's average
realized oil price, rose 21 percent from 1994. A 12 percent decline in the
Company's average realized gas price dampened further improvement in Apache's
oil and gas production revenues. Also during 1995, Apache more than doubled
its gathering, processing and marketing revenues to $97.2 million.
Volume and price information concerning the Company's oil and gas
production is summarized below:
Selected Oil and Gas
Operating Statistics 1995 1994 1993
- --------------------- ----------- ---------- ---------
Natural Gas Volume - Mcf per day:
United States . . . . . . . . . . . . . . 500,441 419,161 299,486
Canada . . . . . . . . . . . . . . . . . . 67,083 56,142 57,449
International . . . . . . . . . . . . . . 9,551 7,975 3,589
---------- ---------- ---------
Total . . . . . . . . . . . . . . . . . . 577,075 483,278 360,524
========== ========== =========
Average Natural Gas Price - Per Mcf . . . . . $ 1.57 $ 1.78 $ 1.94
Oil Volume - Barrels per day:
United States . . . . . . . . . . . . . . 45,084 32,669 31,809
Canada . . . . . . . . . . . . . . . . . . 1,999 2,003 2,033
International . . . . . . . . . . . . . . 3,120 3,177 1,874
---------- ---------- ---------
Total . . . . . . . . . . . . . . . . . . 50,203 37,849 35,716
========== ========== =========
Average Oil Price - Per barrel . . . . . . . . $ 17.09 $ 15.65 $ 16.74
Natural Gas Liquids (NGL) -
Barrels per day: . . . . . . . . . . . . . 2,090 1,985 2,008
Average NGL Price - Per barrel . . . . . . . . $ 12.05 $ 11.28 $ 11.55
Natural gas sales contributed $330.7 million to 1995 revenues, up five
percent from 1994 as production gains from acquisitions and drilling more than
offset the impact of a $.21 per Mcf decline in the Company's average realized
gas price. Acquisitions boosted Apache's 1995 gas production by approximately
92 MMcf/d, while drilling additions outpaced the impact of property
divestitures and natural depletion. Apache realized production gains in each of
its three operating areas; the United States, Canada and Australia. In
addition to production gains from drilling, the Australian sales benefited from
new markets for its natural gas. The Company's average realized natural gas
price declined 12 percent from 1994, negatively impacting sales by
approximately $44 million.
Reflecting an increase in both production and prices, oil sales jumped 45
percent in 1995 to $313.2 million. Apache's oil production rose 12.4 Mb/d, or
33 percent, from a year ago as property divestitures and natural depletion
partially offset the 17 Mb/d of production added through acquisitions. The
Company's average realized oil price increased nine percent in 1995 to $17.09
per barrel.
Revenues from the sale of natural gas liquids totaled $9.2 million in
1995, up 13 percent from a year ago due to higher prices and a slight increase
in volumes.
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Gathering, processing and marketing revenues in 1995 more than doubled
from a year ago to $97.2 million. The revenue increase primarily reflects
additional volumes sold under crude oil and natural gas contracts, an activity
that typically has low margins. Apache's gross margin from gathering,
processing and marketing activities declined seven percent from a year ago due
to the sale of the Company's interest in the Little Knife gas plant as part of
Apache's divestiture of Rocky Mountain properties, reduced gathering volumes,
and a lower per-barrel crude-oil margin resulting from a higher mix of
low-margin sour-grade oil.
Other revenues in 1995 of $.4 million reflects $4.3 million of contract
settlement income, $2.2 million in gains from the sales of non-oil-and-gas
assets, $1.1 million of Canadian royalty credits and $2.1 million of other
income, offset by the $9.3 million hedging loss from the decoupling of NYMEX
and wellhead prices.
COSTS AND EXPENSES
Operating costs increased $62.3 million, or 42 percent, in 1995 due to the
impact of Apache's acquisitions. Based on an equivalent unit of production,
operating costs increased $.51 per barrel to $3.91 per barrel for 1995. The
15- percent increase in unit cost reflects the high percentage of oil
properties comprising the Texaco acquisition, as oil properties typically have
a higher per-unit cost than gas properties.
Depreciation, depletion and amortization (DD&A) expense rose 15 percent
from a year ago due to the increase in oil and gas production. On a per unit
basis, DD&A expense declined six percent to $5.49 per boe. Apache's full cost
amortization rates fell in the United States, Canada and Australia due to the
favorable impact of reserve additions and revisions.
Administrative, selling and other costs declined $2.2 million, or six
percent, in 1995 due primarily to the elimination of duplicate administrative
functions following the merger of DEKALB into Apache. Apache integrated its
1995 acquisitions with minimal increases in administrative staff. On an
equivalent unit of production basis, administrative, selling and other costs
declined 24 percent from 1994 to $.67 per boe.
Net financing costs of $70.6 million were slightly more than double the
1994 amount due to increased debt levels from acquisitions and due to higher
interest rates. Apache's average interest rate increased from 6.3 percent in
1994 to 7.4 percent in 1995 due to higher market rates and Apache's higher debt
to total capitalization rate following the acquisition of properties from
Texaco.
HEDGING ACTIVITY
The Company periodically enters into hedging activities with respect to a
portion of its projected oil and natural gas production through a variety of
financial arrangements intended to support oil and natural gas prices at
targeted levels and to minimize the impact of price fluctuations. Apache uses
swaps, puts, collars and fixed-price contracts to hedge its commodity prices.
As noted in the Company's significant accounting policies, normal recurring
gains or losses on these activities are recognized in oil and gas production
revenues when the hedged volumes are produced.
In 1995, Apache recognized net recurring gains from hedging activities
which boosted oil and gas production revenues by approximately $1.5 million and
$3.5 million, respectively. These gains increased the Company's average
realized oil and natural gas prices in 1995 by $.08 per barrel and $.02 per
Mcf, respectively. Also in 1995, the Company realized $4.8 million of gains
from hedging activities that relate to future production periods. These gains
will be recognized in oil and gas production revenues over periods ranging from
one to 60 months based on physical production.
During the fourth quarter of 1995, Apache entered into swap agreements for
January, February and March 1996 production under which the Company will
receive a fixed price averaging $1.98 per Mcf on approximately 300 MMcf/d. The
hedges, which covered approximately one-half of Apache's expected natural gas
production, will limit the upside potential from the physical sale of Apache's
natural gas during the first quarter of 1996.
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22
In addition to limiting first quarter 1996 gas prices, the hedges on the
1996 production resulted in a charge to current year earnings. In late 1995, a
marketing anomaly developed in which NYMEX natural gas futures prices, commonly
used as the reference price in hedge agreements, lost their correlation to
wellhead prices. Due to frigid temperatures in the northeastern United States
and pipeline constraints in the nation's gas transportation system, NYMEX
natural gas prices rose substantially higher than prices received by producers
west of the Mississippi River. Producers, such as Apache, with large volumes
of production in Texas and Oklahoma were unable to realize the record increases
in NYMEX prices. As a result of this significant decoupling of NYMEX and
wellhead prices, Apache recognized a pre-tax hedging loss of $9.3 million in
1995 which was reported as a reduction of Other Revenues on the Company's
Statement of Consolidated Income.
Effective with contracts covering April 1996 and subsequent deliveries,
Apache has limited its hedges to production volumes deliverable to the
northeastern United States.
PRIOR YEAR COMPARATIVE INFORMATION
Apache reported net income for 1994 of $45.6 million, a three-percent
decrease from 1993 earnings of $46.8 million. The Company's 1993 net income
included a one-time benefit of $5.3 million, or $.08 per share, for the
cumulative effects of a change in accounting principle related to the adoption
of the liability method of accounting for income taxes under Statement of
Financial Accounting Standards (SFAS) No. 109. Significant factors contributing
to the higher income from continuing operations were increased oil production
and substantially increased natural gas production, partially offset by
decreases in oil and natural gas prices.
Revenues for 1994 totaled $592.6 million, or 16 percent higher than in
1993. Oil and gas production revenues in 1994 totaled $538.4 million, an
increase of 12 percent over oil and gas production revenues of $481.8 million
in the prior year. Oil and gas production revenues in 1994 were influenced by
record natural gas production, declining natural gas prices, increased oil
production and lower average oil prices for the year. In addition, Apache's
gathering, processing and marketing revenues increased 71 percent to $44.3
million in 1994 from $25.9 million in 1993.
Natural gas sales contributed $314 million to revenues, up 23 percent from
1993, the result of higher annual production partially offset by lower prices
during 1994. Gas production for the year averaged 483 MMcf/d, up 34 percent
from 1993, positively affecting gas sales by $87 million. This increase is
principally the result of production increases from developmental drilling and
the contribution of 12 months of operations from properties acquired in 1993,
the most significant of which were the offshore properties acquired from
Hall-Houston Oil Company (Hall-Houston) and the properties added through
Apache's mid-1993 merger with Hadson Energy Resources Corporation (subsequently
known as Apache Energy Resources Corporation or AERC). Acquisitions added
approximately 50 MMcf/d of production increases for the year, whereas
developmental drilling and recompletions accounted for nearly 73 MMcf/d.
Apache's average realized price for its natural gas was $1.78 per Mcf
during 1994, eight percent lower than the average price of $1.94 per Mcf during
1993, which negatively affected natural gas sales by $28.2 million. Natural
gas prices remained depressed during the second half of 1994 due to warmer than
usual weather in the northeastern United States and higher volumes of gas held
in inventory by utilities and gas storage facilities. Hedging activities
increased Apache's 1994 natural gas price by $.02 per Mcf ($3 million in sales)
compared to a $.04 per Mcf decrease ($5.4 million in sales) in 1993.
The impact of increased oil production was offset by lower oil prices in
1994. Oil production contributed $216.2 million to revenues during 1994, less
than one percent below Apache's oil sales in 1993. Average daily oil
production of approximately 37.9 Mbbls reflected a six percent increase over
the prior year, positively affecting oil sales by $13 million, as acquisitions
offset the effects of natural depletion. Oil sales represented 40 percent of
total oil and gas production revenues in 1994 compared to 45 percent of total
oil and gas production revenues in 1993.
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23
The Company's average realized oil price for 1994 of $15.65 per barrel
declined seven percent from 1993, negatively affecting oil sales by $15
million. Apache's average realized oil prices in 1994 ranged from $12.64 per
barrel in March to $17.84 per barrel in July. Hedging activities increased
Apache's average realized oil price by $.20 per barrel ($2.7 million in sales)
as compared to a $.37 per barrel increase ($4.8 million in sales) in 1993. The
1994 hedges were in the form of floating for fixed price swap agreements with
respect to the sale of oil, whereas 1993 sales hedges were due to the price
support hedging agreement with Amoco Production Company.
Revenues from the sale of natural gas liquids decreased four percent from
1993, to $8.2 million in 1994.
Revenues from gas gathering, processing and marketing were $44.3 million
in 1994, up 71 percent from 1993. The revenue increase primarily reflects
additional volumes sold under crude oil and natural gas contracts, an activity
that generally creates relatively low margins. Gross margins from gathering,
processing and marketing were $6.4 million in 1994, an increase of 32 percent
from 1993.
Other revenues increased to $9.5 million in 1994, up from $4.3 million in
1993. Non-recurring revenues in 1994 included $4 million from the favorable
resolution of take-or-pay contract issues, $2.2 million in gains from the sale
of stock held for investment and $3.3 million of other income.
Operating costs per equivalent unit of production declined 14 percent in
1994, as a 23-percent increase in production volumes more than offset a
six-percent increase in operating costs. Aggregate operating costs increased
from $140.6 million in 1993 to $149.5 million in 1994. On an equivalent unit
of production basis, operating costs in 1994 declined to $3.40 per boe, down
from $3.94 per boe in 1993. Apache's declining costs per boe reflect
increasing natural gas production and lower production costs.
DD&A expense rose 30 percent year-over-year to $257.8 million due to
increased oil and natural gas production and a higher U.S. amortization rate
expressed on a boe basis. Apache's U.S. amortization rate increased from $5.61
per boe in 1993 to $5.88 per boe in 1994 due to higher finding costs during the
last two years. Recurring international DD&A expense increased as higher
Australian production more than offset the impact of lower Canadian production.
Although Apache increased its international exploration activity in 1994,
international impairments declined to $7.3 million in 1994 from $23.2 million
in 1993, reflecting the Company's successful international exploration efforts
in China, Egypt and Indonesia during 1994.
Administrative, selling and other costs increased $2.1 million in 1994, or
six percent from 1993. These costs, on an equivalent unit of production basis,
declined 15 percent from the prior year to $.88 per boe in 1994 from $1.03 per
boe in 1993, reflecting the increase in production over the prior year and
results of the Company's continuing efforts to contain costs. The Company
integrated AERC and the Hall-Houston properties with minimal increases in
administrative staff.
Net financing costs of $34.7 million were 13 percent higher than 1993,
primarily a result of increasing interest rates and increased debt from
acquisitions. Effective interest rates on Apache's floating rate debt, which
includes all advances under its bank credit facility, increased approximately
59 percent over year-end 1993, as market rates increased at six different times
during the year.
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CASH FLOW, LIQUIDITY AND CAPITAL RESOURCES
CAPITAL COMMITMENTS
Apache's primary needs for cash are for exploration, development and
acquisition of oil and gas properties, repayment of principal and interest on
outstanding debt, payment of dividends, and capital obligations for affiliated
ventures. The Company generally funds its exploration and development
activities through internally generated cash flows. Apache budgets its capital
expenditures based upon projected cash flows and routinely adjusts its capital
expenditures in response to changes in oil and natural gas prices and
corresponding changes in cash flow.
CAPITAL EXPENDITURES - A summary of oil and gas capital expenditures over
the last three years is presented below:
1995 1994 1993
------------ ------------ ------------
(In thousands)
Exploration and Development:
United States . . . . . . . . . . . . . . . $ 216,430 $ 270,588 $ 200,924
Canada . . . . . . . . . . . . . . . . . . . 27,788 41,595 18,901
Other International . . . . . . . . . . . . 67,950 31,942 18,006
------------ ------------ ------------
Total . . . . . . . . . . . . . . . . . . . $ 312,168 $ 344,125 $ 237,831
============ ============ ============
Acquisitions of Oil and Gas Properties $ 820,918 $ 180,742 $ 326,676
============ ============ ============
Expenditures for exploration and development totaled $312.2 million in
1995 compared to $344.1 million in 1994. Apache's drilling program in 1995
added 54 MMboe of reserves (including revisions), replacing 100 percent of
production. In the U.S., Apache completed 138 gross wells as producers out of
174 gross wells drilled during the year compared with 210 gross producers out
of 299 gross wells drilled in 1994. With DEKALB's merger into Apache in 1995
and a higher level of funds spent on acquisitions, the number of wells drilled
in Canada declined from 68 gross wells in 1994 to 48 gross wells in 1995.
Internationally, the Company had discoveries from 12 of 26 wells drilled
in 1995 compared to nine of 17 wells in 1994. The international wells drilled
in 1995 included six successful wells in Egypt, from which full production is
expected to commence by mid 1996, and two wells with oil and gas shows in the
People's Republic of China. Since 1994, Apache has spent approximately $25
million on exploratory wells in the Zhao Dong Block in China, with three
successful wells. Apache, which recently announced plans to proceed with the
second exploration phase under its contract with the People's Republic of
China, is continuing to appraise the field.
U.S. and Canadian expenditures for exploration and development in 1996,
including workover and recompletion operations, are expected to be comparable
to the 1995 expenditure level. The Company expects its other international
exploration and development expenditures in 1996 to total approximately $120
million.
Cash expenditures for acquisitions of oil and gas properties during 1995
totaled $820.9 million as the Company added 156 MMboe of oil and gas reserves
through purchases. The most significant of the 59 transactions Apache
completed during 1995 were the Company's acquisition of properties from Texaco
and Aquila.
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25
On March 1, 1995, Apache purchased certain U.S. oil and gas properties
from Texaco for approximately $567 million in cash, subject to adjustment.
Apache delivered a $25 million deposit, representing a portion of the purchase
price, upon execution of the purchase and sale agreement with Texaco in
December 1994, and delivered the balance, in cash, at closing. Funds for the
Texaco transaction were obtained from several sources, including increased
borrowing capacity under the Company's bank credit facility and proceeds of
Apache's $172.5 million 6-percent Convertible Subordinated Debentures due 2002
(6-percent debentures), which were issued on January 4, 1995.
In September 1995, Apache acquired substantially all of the oil and gas
assets of Aquila for approximately $210 million. The oil and gas properties
included approximately 107,000 developed and 49,000 undeveloped net acres
located primarily in Apache's Anadarko Basin and Gulf of Mexico core areas.
Also included in the transaction was the purchase of a five-year, four-month
premium-gas contract and interests in four gas processing plants.
Cash expenditures for acquisitions, excluding AERC, totaled $180.7 million
in 1994 compared to $192.3 million in 1993. The most significant acquisition
that Apache closed during 1994 was the purchase of substantially all of the
U.S. oil and gas properties of Crystal for $95.8 million. Apache also
acquired approximately $84.9 million of other oil and gas properties through a
number of separate transactions during 1994. Funds for the 1994 acquisitions
were obtained principally from borrowings under the Company's revolving bank
credit facility.
The aggregate cost of acquisitions in 1993, including the value of the
shares issued and liabilities added through the acquisition of AERC, totaled
$326.7 million. Apache's most significant transactions during 1993 were its
acquisitions of oil and gas properties from Hall-Houston for $113.7 million in
cash and the acquisition of AERC for approximately $98 million in cash and the
issuance of 307,977 shares of Apache common stock. Apache also acquired more
than $78.6 million of other properties during 1993, primarily representing
purchases of additional working interests in properties in which Apache already
held an interest.
Other capital expenditures for 1993 include the purchase of Natural Gas
Clearinghouse's (NGC) interest in a gas gathering system in Oklahoma, which
Apache sold in March 1993, as described under "Capital Resources and Liquidity"
below.
DEBT AND INTEREST COMMITMENTS - At December 31, 1995, Apache had
outstanding $620 million under its revolving bank credit facility and an
aggregate of $455.1 million in principal amount of other debt, comprised
principally of notes and debentures maturing in the years 1997 through 2002.
Apache made cash payments on debt totaling $500.6 million in 1995, of which
less than $1 million was scheduled under the Company's debt obligations. The
1995 payments on debt reflect the reduction of amounts outstanding on the
Company's revolving credit facility after issuing $172.5 million of 6-percent
debentures in January 1995, and the reduction of debt through property sales to
achieve the Company's stated goal of maintaining a debt level below 50 percent
of total capitalization. Interest payments on the Company's outstanding debt
obligations during 1996 are projected (using weighted average balances for
floating rate obligations) to be approximately $82 million, while scheduled
principal payments for 1996 currently total $3 million.
DIVIDEND PAYMENTS - Dividends paid during 1995 totaled $18.9 million, up
10 percent from 1994, primarily due to the issuance of 7.45 million shares of
the Company's common stock in connection with the September 1995 common stock
offering. The Company's dividend policy currently provides for the payment of
regular quarterly dividends at the rate of $.28 per share annually, subject to
the Company's cash requirements, applicable debt covenants and other factors
deemed relevant by the Board of Directors.
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26
CAPITAL RESOURCES AND LIQUIDITY
The Company's primary capital resources are net cash provided by operating
activities, proceeds from financing activities and proceeds from sales of
non-strategic assets.
NET CASH PROVIDED BY OPERATING ACTIVITIES - Apache's net cash provided by
operating activities during 1995 totaled $332.1 million, down $25.6 million from
1994. The prior-year cash flow included a $67.4 million advance on future gas
deliveries related to the Company's sale of approximately 43.8 Bcf of natural
gas for delivery over a six-year period. Eliminating the effects of the forward
sale transaction, net cash provided by operating activities in 1995 increased by
five percent over 1994, reflecting the results of increased production partially
offset by lower gas prices and non- recurring charges. Net cash provided by
operating activities in 1994 was up $101.8 million from 1993 primarily due to
increased natural gas production and the $67.4 million forward sale of gas.
LONG-TERM BORROWINGS - On January 4, 1995, Apache completed the issuance
of $172.5 million principal amount of its 6-percent debentures to reduce bank
debt, provide funding for acquisitions and for general corporate purposes. The
debentures are convertible at the option of the holder into Apache common stock
at a conversion price of $30.68 per share. Costs associated with the issue of
these debentures totaled $4.4 million.
On March 1, 1995, in connection with the acquisition of certain oil and
gas properties from Texaco, lenders increased the size of Apache's revolving
credit facility from $700 million to $1 billion, subject to borrowing base
availability. The borrowing base is the estimated loan value of the Company's
oil and gas reserves, not including reserves outside the United States and
subject to certain other exclusions, based upon forecast rates of production,
as periodically redetermined by the lenders.
Under terms of the credit agreement at December 31, 1995, the Company must
(i) maintain a minimum consolidated tangible net worth of $816 million, which
is adjusted quarterly for subsequent earnings and securities transactions, and
(ii) maintain a ratio of (a) earnings before interest expense, state and
federal taxes, and depreciation, depletion and amortization to (b) consolidated
interest expense, of not less than 3.7:1. Restrictive covenants under the
facility include certain limitations on indebtedness and contingent
obligations, as well as certain restrictions on liens. The Company has complied
with its financial ratios and restrictive covenants at all times since the
inception of the revolving credit facility in July 1991. The facility matures
on March 1, 2000, and may be extended in one-year increments with the lenders'
consent.
On February 27, 1996, Apache completed its offering of $100 million
principal amount of unsecured 7.7% notes due March 15, 2026. Proceeds from the
notes will be used to reduce amounts outstanding under the Company's revolving
bank credit facility.
STOCK TRANSACTIONS - On September 27, 1995, Apache closed an equity
offering of 7.45 million shares of Apache common stock. Net proceeds of
approximately $195.5 million were used to repay existing indebtedness under the
Company's revolving bank credit facility, to finance the Aquila transaction and
for general corporate purposes.
In March 1993, Apache completed the public offering of approximately 5.8
million shares of Apache common stock for net proceeds of $131.8 million. Net
proceeds of the offering were used to repay outstanding debt under Apache's
revolving bank credit facility. In September 1993, Apache completed the
conversion of its 7 1/2-percent convertible subordinated debentures due 2000,
resulting in the issuance of approximately 7.8 million shares of Apache common
stock.
In addition to the public offerings, Apache issued 307,977 shares of
Apache common stock in conjunction with its mid-1993 acquisition of AERC.
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27
ASSET SALES - In early 1995, Apache announced plans to accelerate the
disposition of lower-margin and non-strategic properties, including the sale of
a substantial portion of its Rocky Mountain properties. During 1995, Apache
received $271.9 million from the sale of such properties, utilizing the
proceeds to reduce bank debt. Apache received $19.5 million and $10.3 million
from the sale of non-strategic oil and gas properties during 1994 and 1993,
respectively.
In March 1993, Apache and NGC completed the sale of their respective
interests in a gathering system located in western Oklahoma. Apache received
gross cash proceeds of approximately $32.2 million in the transaction, of which
$16.4 million was attributable to NGC's interest in the system.
LIQUIDITY - The Company had $13.6 million in cash and cash equivalents on
hand at December 31, 1995, down from $30 million at the end of 1994. Apache
utilized available cash in 1995 to reduce its bank debt and resulting debt to
total capitalization ratio, achieving a reduction in the Company's interest
rates. Apache's ratio of current assets to current liabilities at year end of
.90:1 declined slightly from a ratio of .98:1 at December 31, 1994.
Management believes that cash on hand at year end, net cash generated from
operations and available borrowing capacity under its revolving bank credit
facility will be adequate to satisfy the Company's financial obligations to
meet future liquidity needs for at least the next two fiscal years.
FUTURE TRENDS
Apache's growth strategy is to increase oil and gas reserves, production
and cash flow through a combination of acquisitions, moderate-risk drilling and
development of its inventory of existing properties. An emerging aspect of
Apache's strategy is its exploration and development activity in the
international arena where there are generally larger reserve targets than in
North America.
In 1996, Apache expects domestic exploration and development outlays to be
comparable to those reported in 1995 as the Company focuses on reserve
enhancement and cash flow acceleration on recently acquired properties.
Internationally, the Company projects capital expenditures to nearly double
from 1995 as Apache continues to exploit its concessions in Western Australia,
Egypt, China and Indonesia. Proposed exploration and development expenditures
in 1996 will be reviewed at least quarterly in light of fluctuating product
prices and Apache's objective to fund operations through internally generated
cash flow.
NATURAL GAS MARKETING
On September 30, 1995, the Company's contract with NGC terminated, and
Apache began to market all of its own natural gas. The Company believes the
prices that it obtains through its own marketing activities are not
substantially different from the prices that would have been received through
NGC.
In October 1995, subsidiaries of Apache, Oryx Energy Company and Parker &
Parsley Petroleum Company announced their formation of Producers Energy
Marketing, LLC (ProEnergy), a natural gas marketing company organized to create
a direct link between natural gas producers and purchasers. ProEnergy is
designed to purchase and sell producer-owned gas directly into the marketplace
at index prices substantially equivalent to spot market prices and provide
expanded value to its customers. Until ProEnergy is fully operational, which
is expected to occur in the second quarter of 1996, Apache will continue to
market its own natural gas. Apache and other members of ProEnergy have agreed
to fund the reasonably anticipated capital needs of ProEnergy. In January
1996, Apache paid $5.8 million to ProEnergy for Apache's share of
capital-funding obligations for the start-up of ProEnergy.
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ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The financial statements and supplementary financial information required
to be filed under this item are presented on pages F-1 through F-34 of this
Form 10-K, and are incorporated herein by reference.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
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PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The information set forth under the captions "Information About Nominees
for Election as Directors," "Continuing Directors," "Executive Officers of the
Company," and