APACHE
CORPORATION
Analysis of Recent Financial
Performance
University of Houston Energy Risk Management
Bill Ramsey, Teressa Barner, Scott Randall
October 22, 2003
AGENDA





APACHE and Peers
Global Economy
Superindependent E&P Industry
APACHE/Peer Ratio Comparisons
Going Forward
2
APACHE and Peers


APACHE
• Super Independent as defined by Herold’s
• Financially successful over past several years
• Houston based
Peers - Anadarko and Kerr-McGee
• Chosen based on similarity of 5 operating metrics
• Picked one larger company and one smaller
• Apache and Anadarko are Full Cost whereas Kerr-McGee is
Successful Efforts
• Kerr-McGee has a chemicals segment that contributes ~1% of
earnings
3
Global Economy



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Forecast turnaround in 2004 - led by U.S.
Energy consumption highly correlated to
growth - industrial feedstocks and fuel
Oil prices expected to decrease due to
production from non-OPEC countries
NG prices expected to fluctuate between
$4.50 and $5.00 per MMBTU
4
Superindependent E&P


Does very little “green field” development
Lower cost structures
• Develop fields that are no longer economical for the
majors

Replaces reserves primarily through
acquisition
• Requires strong balance sheet
5
Reserve Replacement Ability
$MM
Working Capital
Debt to Equity
400
200
0
-200
-400
-600
-800
-1000
200%
150%
100%
50%
0%
1999
2000
2001
2002
1Q2003
2Q2003
1999
Year
Apache



Anadarko
2000
2001
2002
1Q2003
2Q2003
Year
Kerr-McGee
Apache
Anadarko
Kerr-McGee
Condition of balance sheet very significant in ability to acquire reserves
Apache demonstrates ability to take quick advantage of opportunities
Apache has no issues servicing debt and is in prime condition for taking on
more
6
Reserve Ratios
EOY Proved Reserves / Well
800
600000
600
500000
400
BOE
% of Production
5-Year Rolling Average O&G
Reserves Replacement Ratio
200
400000
300000
200000
0
100000
-200
0
1999
2000
2001
2002
1999
Year



2000
2001
2002
Year
Apache
Anadarko
Kerr-McGee
Anadarko yearly
Apache yearly
Kerr-McGee yearly
Apache
Anadarko
Kerr-McGee
Apache has had very consistent reserve replacement
In 2002 Kerr-McGee sold reserves
Apache’s low reserves/well should indicate that they are not very efficient at
lifting
7
Cost Analysis
Lifting Costs / BOE (ex. DDAR)
Finding Costs / BOE (inc. Purchases)
20
6
5
$/BOE
$/BOE
15
10
5
4
3
2
1
0
0
1999
2000
2001
2002
1999
Year
Apache
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
Anadarko
2000
2001
2002
Year
Kerr-McGee
Apache
Anadarko
Kerr-McGee
Apache has advantage in Finding Costs- Peer Group benchmark for 5 year
median is $5.99/BOE
Apaches advantage in Lifting Costs seems to eroding
8
Apache’s Strategic Advantage
Value Added of Reserves Ratio
S,G & A / BOE Produced
5.00
$ / BOE
4.00
3.00
2.00
1.00
0.00
1999
2000
2001
2002
3.50
3.00
2.50
2.00
1.50
1.00
0.50
0.00
1999


Anadarko
2001
2002
1Q2003 2Q2003
Year
Year
Apache
2000
Kerr-McGee
Apache
Anadarko
Kerr-McGee
Apache’s stated strategy is value added growth as opposed to
growth at all cost
Flatter management structure yields lower SG&A costs
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Strategy Results
Profit Margin
ROCE
40%
25%
30%
20%
20%
15%
10%
10%
0%
5%
-10%
0%
-20%
-5%
1999
2000
2001
2002
1Q2003
2Q2003
1999
Year
Apache
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

Anadarko
2000
2001
2002
Year
Kerr-McGee
Apache
Anadarko
Kerr-McGee
Yields higher ROCE and PM since they obtain greater value from each BOE
PM and ROCE more constant due also to stable overhead cost control
2002 and 2003 metrics have dropped slightly due to lower gas prices
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Our Past Has Been Impressive

Growth based on the following advantages:
• Ability to execute on our strategy:

Exploit our Asset base
• Efficient Operations (low finding and development costs using
proven technologies)
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Disciplined Acquisitions yielding high reserve value added
ratios
Geographic focus leading to cost control and purchasing
power
• Strong Balance Sheet-evidenced by low debt/equity
ratios
11
Lower Oil and Gas Price Outlook Plays to Our
Strategy
• Short Term: Crude and Natural Gas Futures Strip through Cal ’04 is
backwardated1
• Medium Term: 3 different scenarios illustrate price declines 2
Future Oil
and Gas
Scenario*
Medium
Term
World
Oil
Prices
($/bbl)
Medium Term
Natural Gas
Price ($/mcf)
Low
23.4
3.2
Base
24
3.3
High
24.5
3.6
1 10/21/03
2
This will increase
Acquisition Opportunities
as Competitors Shed their
Assets to Survive!
: Nymex- WTI Kushing and NG Henry Hub
US Energy Information Administration, Annual Energy Outlook 2003
12
Our Future is Bright

Our balance sheet and operational strengths
allow us to execute by:
• Increasingly Efficient Acquisitions
• Continuous exploitation of New Assets through
extensions, discoveries and improved recovery
• Relentless Focus, Cost Control and Purchasing Power
13
“Building to Last”
Apache Corporation
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