Apache AR 2003

2003 Summary Annual Report

APACHE CORPORATE PROFILE

Established in 1954 with $250,000 of investor capital, Apache

Corporation has grown to become one of the world’s top inde-

pendent oil and gas exploration and production companies with

$12.4 billion in assets. Apache’s U.S. operations are focused in

some of the nation’s most important producing basins, including

the Outer Continental Shelf of the Gulf of Mexico, the Anadarko

Basin of Oklahoma, the Permian Basin of West Texas and New

Mexico, the Texas-Louisiana Gulf Coast and East Texas. In

Canada, Apache is active in British Columbia, Alberta,

Saskatchewan and the Northwest Territories. The company also

has operations in the Carnarvon Basin offshore Western Australia,

Egypt’s Western Desert and offshore in the Mediterranean, the

United Kingdom sector of the North Sea, China and Argentina.

MAKING A DIFFERENCE

Apache urges all who share a commitment to education to support

the Fund for Teachers, a program which recognizes and encourages

pre-kindergarten through 12th-grade teachers through grants for

summer travel, and the Ucross Foundation, which provides artist-in-

residence programs, meeting facilities for consensus-building, and a

model of land stewardship integrated with open-space initiatives in

Wyoming. For more information, or to make a contribution to the

Fund for Teachers, please contact Karen Kovach Webb, Executive

Director, 2000 Post Oak Boulevard, Suite 100, Houston, Texas,

77056, or e-mail [email protected]. For more information

or to make a contribution to the Ucross Foundation, please contact

Michelle Sullivan, President, 30 Big Red Lane, Clearmont, Wyo.,

82835, or e-mail [email protected].

COVER PHOTO

50 YEARS OF BUILDING TO LAST

GROWING Through discovery

�APACHE’S QASR TEAM, KHALDA CONCESSION,

EGYPT’S WESTERN DESERT

We are proud and excited to be on the team thatmade what is perhaps the most significant dis-covery in Apache’s history. Qasr is located in aremote area on one of Apache’s westernmostconcessions in Egypt. To the casual observer,this area appears to be little more than a desolatewasteland, but to geologists, geophysicists andpetroleum engineers—not to mention Apacheshareholders—it’s a petroleum paradise.

Prior to Apache’s arrival, the Western Desertwas viewed as a relatively unimportant hydrocar-bon play. A number of major oil and gas compa-nies operated in the area with limited success.Their eventual pull-out left the door open toApache for both exploration and exploitation.

Qasr’s geology is characterized by highly pro-ductive sands in hydrocarbon columns that rivalor exceed the height of the WashingtonMonument. And with a field area roughly thesize of Manhattan Island, we have a lot of run-ning room for exploration and development.

Apart from its significant gas and condensatereserves, Qasr is important in another respect:Coupled with exploration successes offshoreEgypt and Western Australia, Qasr demonstratesthat Apache is a discovery company, growing asmuch with the drill bit as we do through acquisi-tions and exploitation. (At the Qasr-2X wellhead,with Qasr-7X drilling in the background, left toright, front row are: Regional Geophysicist JeffReck; Gas Plant Operations Manager WarrenFord; General Manager and Managing DirectorJim House; Exploration Manager John Polasek.Back row: Drilling Manager Jeff Hubbard;Engineering Manager Fernando Araujo; FieldOperations Manager Mark McCool; ProspectManager James Crowley; Operations ManagerDavid Talbott; Field Operations Manager JohnnyAllison; and Geophysical Expert GabrieleMariotti. All titles are for Apache’s KhaldaPetroleum Company joint venture.)

�

▲

PERFORMANCE HIGHLIGHTS:

(Dollars in millions, except per-common-share data) For the Year Ended December 31,��

2003 2002 2001��

FINANCIAL HIGHLIGHTSRevenues and other $ 4,190 $ 2,560 $ 2,809Income attributable to common stock 1,116 544 704Diluted net income per common share 3.43 1.80 2.37Cash from operations before changes in operating assets and liabilities(a):

Net cash provided by operating activities $ 2,706 $ 1,381 $ 1,905Changes in operating assets and liabilities 95 186 22

��

Cash from operations before changes in operating assets and liabilities $ 2,801 $ 1,567 $ 1,927��

Total assets $ 12,416 $ 9,460 $ 8,934Long-term debt 2,327 2,159 2,244Shareholders’ equity 6,533 4,924 4,418Cash dividends paid per common share .21 .19 .12

OPERATIONAL HIGHLIGHTSOil and gas capital expenditures (including acquisitions, gas

gathering, transmission and processing facilities and goodwill) $ 3,150 $ 1,288 $ 2,652Natural gas production (MMcf/d) 1,217 1,080 1,127Oil and condensate production (Mbbls/d) 215 161 156Proved reserves (MMboe) 1,657 1,313 1,267

��

Per-share results have been adjusted to reflect the five percent and 10 percent common stock dividends declared in 2002 and2001, respectively, and the two-for-one stock split declared in 2003.

(a) NON-GAAP FINANCIAL MEASURE This annual report discusses Apache’s cash from operations before changes in operating assets and liabilities. It is presented because management believes the information is useful for investors because

it is used internally and widely accepted by those following the oil and gas industry as a financial indicator of a company’s ability to generate cash to internally fund exploration and development activi-ties, fund dividend programs, and service debt. It is also used by research analysts to value and compare oil and gas exploration and production companies, and is frequently included in publishedresearch when providing investment recommendations. Cash from operations before changes in operating assets and liabilities, therefore, is an additional measure of liquidity, but is not a measure of finan-cial performance under GAAP and should not be considered as an alternative to cash flows from operating, investing, or financing activities.

Apache Corporation and Subsidiaries

1

CONTENTSA Record Year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2Letter to Shareholders . . . . . . . . . . . . . . . . . . . . . . . . . . . 3Strategy and Operations Review . . . . . . . . . . . . . . . . . . . 10Apache Worldwide . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20Directors and Officers . . . . . . . . . . . . . . . . . . . . . . . . . . 22Statement of Consolidated Operations . . . . . . . . . . . . . 23

ABBREVIATIONSMcf Thousand cubic feet (of gas)MMBtu Million British thermal unitsMMcf Million cubic feetMMcf/d Million cubic feet per dayBcf Billion cubic feetBcfe Billion cubic feet of gas equivalentTcf Trillion cubic feetBoe Barrel of oil equivalent

Mboe Thousand barrels of oil equivalentMboe/d Thousand barrels of oil equivalent per dayMMboe Million barrels of oil equivalentBbls BarrelsMbbls Thousand barrelsMbbls/d Thousand barrels per dayMMbbls Million barrelsNGLs Natural gas liquids

Six Mcf of gas is the energy equivalent of one barrel of oil.

Statement of Consolidated Cash Flows . . . . . . . . . . . . . 24Consolidated Balance Sheet . . . . . . . . . . . . . . . . . . . . . 25Statement of Consolidated Shareholders’ Equity . . . . . . . . 26Eleven-Year Statistical Summary . . . . . . . . . . . . . . . . . . 28Oil and Gas Reserve Information . . . . . . . . . . . . . . . . . . 30Future Net Cash Flows . . . . . . . . . . . . . . . . . . . . . . . . . 32Shareholder Information . . . . . . . . . . . .Inside Back Cover

99 00 01 02 03

1200

1000

800

600

400

200

Earnings ($ millions)

99 00 01 02 03

2800

2400

2000

1600

1200

800

400

Net Cash Provided by Operating Activities ($ millions)

A RECORD YEAR

99 00 01 02 03

12

10

8

6

4

2

Assets ($ billions)

99 00 01 02 03

1600

1200

800

400

Gas

Liquid Hydrocarbons

Proved Reserves (MMboe)

99 00 01 02 03

9

6

3

Debt

Equity

Capitalization ($ billions)

99 00 01 02 03

150

130

90

60

30

Gas

Liquid Hydrocarbons

Annual Production (MMboe)

3

1956

Three forces combined in 2003, our 49th year, to go into

the record book as a great one:

• Commodity prices were strong; and additional value was

largely captured for shareholders because a relatively

small portion of Apache’s production was hedged.

• Production volumes rose substantially, while reserves

increased beyond depletion, adding value to our asset

base, lengthening our reserve life and increasing capacity.

• Costs of operations and overhead were kept under control.

We compared favorably with our competitors in these

categories. We had the lowest finding costs in our peer

group – another important operating measure.

In summary: Price times volume, minus cash and non-cash

charges, represents the basic elements of performance.

Responsible and respectable debt ratios, represented by our “A”

credit rating (the best in our peer group), reduce the cost of

money as well as the need to hedge production to protect cap-

ital expenditures, which are our investments in future growth.

With Apache now in its 50th year, we believe the energy

industry – the world’s largest – continues to afford a superior

long-term opportunity for investors, employees and those

with whom we interact on a responsible business basis.

Perhaps our five decades of experience have provided the

perspective to avoid the pitfalls of chasing unsustainable rates

of quarter-over-quarter growth because we have seen business

and commodity cycles punish or obliterate firms caught up in

such a pursuit. In the near term, management of these firms

may accrue some benefits in the form of undeserved com-

pensation and ego boosts, noted in recent scandals. However,

this phenomenon comes at the expense of the shareholders

and any society so inured to its impact that it loses its ability to

differentiate between appropriate and contemptible behavior.

With Apache’s longer-term horizons, we have managed to

remain a growth company over our first five decades, and we

are in a strong position to continue doing so.

The market value of Apache shares increased 49 percent

during 2003. Among a group of eight peer companies,

Apache placed first in market performance over the past

one-, five- and 10-year periods.

Over 10 years, our shareholders gained 301 percent com-

pared with an average gain of 70 percent among our peers.

Over the same 10-year period, Apache approximately dou-

bled the percentage gain of the three leading averages: The

Dow Jones Industrial Average was up 179 percent; the

Standard & Poor’s 500 Index was up 138 percent; and the

NASDAQ Composite Index was up 157 percent.

Here is another perspective for shareholders with long-

term time horizons: The adjusted cost basis of a share of

Apache common stock acquired in 1954 for $10 is now 4.4

cents per share, the result of stock dividends and splits and

reinvesting cash dividends.

We started paying dividends in 1965, our 11th year. At

the current annual rate of 24 cents per share, the cash yield

on original common shares is more than five times the

original share cost basis. Apache’s current cash dividends

on shares currently outstanding approximate $80 million

per year – or 324 times the original shareholders’ aggregate

investment of $250,000.

FELLOW SHAREHOLDERS:

REVENUES $ 629,820EARNINGS $ 88,773TOTAL ASSETS $ 814,723

PRODUCTION N/ARESERVES 151,560 Bbls

944 MMcf

1965

What drives Apache forward is an internal culture –

including credibility from commitments kept and perform-

ance achieved – to pursue orderly long-term growth in har-

mony with our equity investors, whom we differentiate from

trader-speculators who deal in a process of rapid turnover or

“churning” in the market with limited or non-existent long-

term identity of interest or loyalty.

In Democracy in America, Alexis de Tocqueville, the

trenchant 19th Century French observer, wrote that

Americans are different from citizens of other nations

because the young nation “relies on personal interest and

gives free scope to the unguided strength and common sense

of individuals.”

We would add that this spirit is not now limited to

Americans – it is a state of mind embraced by our employ-

ees throughout the world.

An example of the way this outlook benefits Apache

shareholders – and provides excitement – is the discovery of

oil and gas. Our technical teams, drawn from many nations,

had an outstanding year in this arena, with notable discov-

eries in Egypt and Australia, and many Apaches feel that

we’ve just begun to tap the potential.

Discovery value does not have to be run through the prof-

it and loss statement to increase the value of the underlying

assets; it is the product of the capacity and dedication of our

people to drive the enterprise and climb the ladder of suc-

cess and fulfillment.

We invite your attention to the operations section (page

10) of this report for more on Apache’s exploration success-

es in 2003.

Two acquisitions in the Gulf of Mexico and our entry into

a core area new to Apache – the United Kingdom sector of

the North Sea – brought acquisitions to a total of $1.6 billion

in 2003. Unlike drilling capital, which is planned, budgeted

and allocated closely, acquisition capital is neither budgeted

nor allocated. Why? The specific timing of acquisitions is

not predictable. While that activity is a major focus, it is

treated as non-recurring.

This is a vital activity, but a two-way process, requiring

constant contact and honorable relationships with a number

of the world’s largest energy companies as they shift, update

and match their portfolios to their changing needs. The

question is not one of “whether,” but “when.” We seek

always to be ready. We do not waste our people’s time or

morale kicking tires or “kissing frogs” in the auction process.

Steve and I would like to turn now from our enthusiasm

about the present and for the future to some of the threats we

currently experience and foresee mounting for corporate

America and its investors with longer-term horizons.

Our discussion is rooted in our aspiration to create an

identity of interest among diverse peoples and to add to the

planet’s well-being, however modestly.

Throughout the 20th century, the multi-faceted energy

industry became the world’s largest and remains a major

driver of living standards for citizens of developed nations.

Over the next century, energy affords the prospect of bring-

ing a better living standard for developing countries, where

half the world’s families live on $2 per day or less.

While we gladly accept our responsibility to help elevate

living standards, we also believe it is appropriate to identify

and address two obstacles which have become rising hurdles

as we view 2004 and beyond.

REVENUES $ 22.8 millionEARNINGS $ 1.1 millionTOTAL ASSETS $ 39.4 million

Production 1,300 Bbls/d7.6 MMcf/d

Reserves 3.1 MMbbls50.7 Bcf

5

Publicly owned corporate America in 2004 continues to

be immersed in scandals as a result of the actions of some

individuals in positions of corporate and personal power who

have used social, economic and political leverage to disad-

vantage not only others, but our country here and globally.

Apache stands for prompt identification and vigorous pub-

lic punishment of wrongdoing followed by increased trans-

parency that raises the bar of compliance with moral stan-

dards. As a company and individually, we are proud of our

roles in these efforts, together with the media and appropri-

ate legislation and regulation.

Unfortunately, the physical principle of “for every action

there is an equal and opposite reaction,” is also alive. Just as

one shoe size does not fit all feet, the remedies do not dif-

ferentiate between good and bad behavior.

Uncertainty, massive legal costs, and frightened account-

ing firms separated from their moorings all heap costly and

variable interpretations on corporations. These uncertain-

ties magnify costs and the frustrations of managers, directors

and board committees, ultimately engulfing all levels of

both corporations and nations.

Take, for example, governance “reforms” introduced by

the Sarbanes-Oxley legislation and other Washington

responses to Enron-like scandals. One model would install a

“lead director” separated from management, but with duties

that are well covered, we believe, within Apache’s existing

structure. Throughout our history, the company has had two

titles consisting of chairman and president; the board and

management agree that these positions for now should be

separately occupied rather than consolidating the duties of

chairman, chief executive officer, and chief operating offi-

cer in a single person. To introduce a lead director or any

director nominated outside our established practice risks

divisiveness and unwise intrusion.

Perhaps of larger concern to us is the growing number of

well-intended demands for access to our governance struc-

ture through letters, e-mail, “required” responses, demands

for special committees, and access to our proxies, which will

result in countless reports requiring much effort but produc-

ing limited value at best. Recently, these proposed resolu-

tions have shifted markedly toward opportunities for the pro-

ponents to advance their particular single-issue agendas.

These demands fit into a predictable pattern: Most refer-

ence their share ownership (often minuscule), assert that

they represent shareholders’ interests, and imply their poten-

tial influence over our other institutional investors. A typical

opening paragraph presumes their common interest with us

in good governance and proceeds to tell of their particular

interest and network of those whom they purport to advise.

The threat, though unstated, is implicit. To date, none

have shown or demonstrated any interest in the company’s

business, its financial and operational performance, or the

responsibilities we accept. In fact, many are form letters; one

received was misaddressed to a competitor instead of Apache.

For the most part, these demands are, in our judgment,

inflammatory. Acquiescing would come at the expense of

shareholders and deprive management of the focus that is

essential to conduct a successful enterprise.

We are reminded of a comment by the late Hugh

Harrison, who was an outstanding person and an Apache

director: “Designing change for others is fun; no responsi-

bility for the outcome.”

In his recent book Financial Reckoning Day, author Bill

Bonner suggests where we are headed: “Democracy is dif-

ferent. It invites people into the governing class and thus

turns them into unpaid agents of the government, and ulti-

mately their own oppressors.”

We see it as a more serious challenge to Apache share-

holder interests – and to America – than our need to find oil

and gas and hold costs and debt in appropriate ratios to prof-

itability and balance sheet capacity.

Bonner also quoted Tocqueville, this time concerning a

worrisome aspect of American democracy:

“After having thus successively taken each member of the

community in its powerful grasp and fashioned him at will,

the supreme power then extends its arm over the whole


community. It covers the surface of society with a network of small

complicated rules, minute and uniform, through which the most

original minds and the most energetic characters cannot penetrate,

to rise above the crowd. The will of man is not shattered, but soft-

ened, bent and guided … men are seldom forced to act, but they

are constantly restrained from acting … Such a power does not

destroy, but it prevents existence; it does not tyrannize, but it com-

presses, enervates, extinguishes, and stupefies a people…

“Thus, their spirit is gradually broken … gradually losing the fac-

ulties of thinking, feeling, and acting for themselves. People then

console themselves at the loss of their liberties by the reflection that

they have chosen their own guardians.”

In a healthy corporate environment such as Apache’s, employees

have enough self-respect and strong enough personal values to

avoid blurring the line between strong ethics and amorality.

You may find one of a number of positive examples refreshing.

An Apache father of two children had the wrenching experience of

losing his wife to cancer. In the months following her death, Apache

friends brought meals and cheer to the family; others sent memorials

to the church that had sustained his family during its trials.

The day after the funeral, one of his friends called his office and

asked, “And why aren’t you with your family?” He responded.

“Apache is my family, too.”

One recent evening, more than an hour after Apache’s official

work day had ended, we walked to our board room to greet and thank

the people serving on a committee to select 82 Houston public

school teachers for Fund for Teachers grants for summer sabbaticals.

The same Apache employee was present, pitching in to help his

community. (We will describe this program in greater detail later.)

“Corporate values” is a phrase that may be overworked, with pos-

sible traces of self-serving rhetoric. Some tout it, mouthing the

appropriate words but lacking the appropriate behavior.

Let us describe how we use the heading and then brand it differ-

ently. Our values reflect and help drive what we seek to become.

Values are at the core of individual and corporate and institutional

culture; they need to be lived as they progressively empower and

become an integral part of the whole.

Strategically and corporately that is why, in our acquisitions, we

7

FOCUSED LEADERSHIP

�RAYMOND PLANK - FOUNDER AND CHAIRMAN

G. STEVEN FARRIS - CEO, PRESIDENT AND COO

Fifty years ago this December, Apache was

founded with $250,000 of seed money and a

vision of building a company to last, with a long-

term, as opposed to quarter-to-quarter focus.

Central to that vision, then and now, are values:

integrity; respect for people, other cultures and

the environment; entrepreneurial spirit; and a

sense of urgency in everything we do.

Those values continue to serve us well. We

understand who we are, where we are going, and

on whose behalf we are working—our sharehold-

ers, our employees, the citizens of those countries

where we operate, and society as a whole. We are

part of the largest industry in the world, energy,

and know that it is the key to economic growth and

rising standards of living everywhere. Because we

derive benefits from the Earth, we realize that pro-

tecting the environment is part of our charge, and

we accept that responsibility willingly.

Having just completed the most profitable year

in Apache’s history, we look back with much

pride and a little bit of amazement at how far we

have come. Some of our greatest strides have

been made over the last decade—achieving crit-

ical mass, seeing our international strategy pay

off, leading our sector in so many performance

indicators, making a difference by exposing cor-

ruption in the energy merchant-trading sector,

and brick by brick, building Apache to last.

We appreciate our loyal shareholders, our ded-

icated employees and our industry partners at

home and abroad for their continued confidence

and pledge to make the next 50 years as prof-

itable and rewarding as was Apache’s first half-

century. (Steve Farris, left, and Raymond Plank.)

�


1974

seek to acquire assets rather than organizations. We find

assets that fit our strategy for creating long-term shareholder

wealth. Then, our people take over, working and growing

the base.

We believe in our culture because we have tested, among

many other examples, the value of attracting highly capable,

motivated individuals to people our growing enterprise. It

serves us in “building to last.”

At Apache our people are encouraged to participate in

their communities – both for what they provide and what

they personally derive from their volunteer efforts. Apache

matches dollar contributions and provides time off to facili-

tate the process.

While Apache and its employees supported more than

240 philanthropic, educational and civic organizations

financially in 2003, we prefer to concentrate on innova-

tion; we believe our profitable growth supports correspon-

ding efforts in these areas. In a rapidly changing global

scene, our preference is to build and innovate rather than

limit our support to the panoply of fine institutional phil-

anthropic organizations.

That is the context for our discussion of the ways in which

we seek to meet our goal: stewardship of the Earth and the

human spirit. Here are a few examples:

Located in a remote and beautiful area in the foothills

of northeastern Wyoming, the Ucross Foundation was

established in 1981. With 21 families, largely drawn from

the Minneapolis area (at the time our corporate head-

quarters), we assembled the land and set about preserving

its historic buildings.

The Artists-in-Residence Program – which enables cre-

ative visual artists and writers to find the solitude and the

opportunity to realize more of their creative potential – is an

important part of Ucross. Annie Proulx (who won a Pulitzer

Prize for The Shipping News, a novel written in part at

Ucross) once wrote of purpose “casting a shadow into the

future.” To date, 1,100 artists from all states and many coun-

ties have benefited.

Twenty-two thousand acres is a theater of beauty in

which to study, preserve and improve the environment, to

promote conservation of wildlife, landscape and streams, to

employ holistic land management, and to plant several

thousand trees.

In this area of Wyoming, production of coalbed

methane (CBM) from shallow depths containing potable

water is an environmental threat. Today, a consortium of

industry, state and federal land and mineral bureaus is col-

laborating on a study, headed by a senior Stanford

University professor, of the impact of CBM development

on water, air and land resources.

Apache is one of the industry funders of the study.

However, to avoid conflicts of interest, we have said we will

not undertake coalbed methane production in Wyoming.

The knowledge gained there, however, contributes to our

efforts to develop coalbed methane reserves in Canada,

where we have significant CBM acreage and where respon-

sible water reinjection practices are required. We continued

a CBM pilot project on our Canadian acreage in 2003; we

expect the program to grow rapidly, adding reserves for

Apache and providing clean energy for North America.

At Ucross, stewardship of the land and human spirit com-

bine and testify.

Revenues $201.6 millionEarnings $ 6.9 millionTotal Assets $192.4 million

Production 4,050 Bbls/d46.5 MMcf/d


In terms of time and funding, Apache’s largest direct

involvement is in education. Through a fellowship program

for pre-kindergarten through 12th-grade teachers, the Fund

for Teachers, we provide summer sabbatical grants of up to

$5,000 per teacher for self-designed programs to expand

teachers’ and, through them, their students’ bases for life-

time learning.

In 2003, 267 teachers from seven cities visited all conti-

nents except Antarctica, and again demonstrated the value

of recognition, respect and renewal. It is our objective to

expand the program nationally with the goal of eventually

reaching 3,000 to 5,000 teachers each year.

In September, Apache’s board approved contributions up

to $15 million over three years. Steve Farris is heading a

national effort to generate $35 million more to bring the

Fund for Teachers endowment drive to $50 million in our

50th year.

In 2004, a roster of approximately 400 teachers from eight

cities will undertake sabbaticals funded in part through

regional and national support.

In Egypt, we have three small programs in incubation.

Each centers on females, children to adults. The objective

in each case is to help people move from illiteracy and

poverty to productive lives earned through learning and

work. From little girls without birth certificates and living on

50 cents per day to women’s equality and pursuit of liveli-

hood is a long journey. Lending a helping hand – “making

a difference” – is extremely rewarding.

In summary, stewardship of global commitment and

human spirit is our preference.

We value each of our opportunities to communicate with

investors who share our long-term perspective. We welcome

any of you who would care to come to our annual meeting

May 6 in Houston; please feel free to request help with

arranging accommodations. We’re generally less constrained

at a podium than in print.

Should you find an Apache dividend without a destina-

tion, either Ucross or Fund for Teachers (both public foun-

dations) could use the contribution.

Thank you each and all. We appreciate your support and

confidence – in many cases, over multiple decades. You’ve

made our day, shaped our lives, and motivated our best efforts.

Raymond Plank

Founder and Chairman

G. Steven Farris

Chief Executive Officer,

President and Chief Operating Officer

9

1983Revenues $112.4 millionEarnings $ 21.9 millionTotal Assets $534.1 million

Production 1,800 Bbls/d47.7 MMcf/day



Many factors combined to make 2003 a very successful year

for Apache. Strong oil and gas prices combined with record

production yielded record profits and cash from operations as well

as greater financial flexibility. Significant discoveries and acquisi-

tions brought a 26 percent increase in proved reserves.

Some of the important developments in Apache’s progress in

2003 were the result of plans put in motion a decade ago; others

were determined by our continuing analysis of the competitive

landscape and our commitment to a strong balance sheet, which

provides the firepower to act when opportunities arise.

Apache achieved many operating milestones during 2003:

• Production averaged 417,400 boe per day, up 22 percent.

• Apache replaced 330 percent of production at an all-in finding

cost of $6.07 per barrel – the lowest in our peer group.

Excluding acquisitions, we added 234 million boe – 154 percent

of 2003 production.

• Year-end reserves totaled 1.66 billion boe, marking the 18th con-

secutive year of reserve growth.

Apache’s worldwide portfolio approach was developed to provide

diversity in terms of hydrocarbon product (oil or gas), geologic risk

and geographic location. In each of our core producing areas,

Apache has built teams that have the technical knowledge, sense of

urgency and drive to wring more value out of Apache’s assets.

Building local expertise also provides a platform to compete and

expand in our core areas through operations and acquisitions.

Fields on the Outer Continental Shelf of the Gulf of Mexico

generally have higher production rates and more rapid depletion

than do wells in the Permian and Anadarko basins. Western

Canada provides a combination of longer-lived wells and opportu-

nities to find larger reserve targets.

Operations in North America generate substantial cash flow,

which provides funds for our international exploration activities,

where we pursue larger reserve targets such as our discoveries in

Egypt and Australia.

In 2003, Apache’s capital expenditures totaled about $3 billion,

balanced between exploration and development activity and acqui-

sitions in the North Sea and the Gulf of Mexico.

STRATEGY AND OPERATIONS REVIEW

BUILDINGSHAREHOLDER VALUE

�HARRY E. CARNIGHAN

LONG-TIME APACHE SHAREHOLDER

Apache has been a big part of my life for a long

time. I bought my first shares of Apache stock

in 1970, when the company was still diversi-

fied, with everything from air conditioning sys-

tems to agricultural products, real estate, truck

components and auto parts stores—in addition

to oil and gas—in its business portfolio. I added

to my position over the ensuing 34 years, with

the idea of building an estate for my family. I

stuck with Apache as it sold off various lines of

business in order to focus solely on exploration

and production.

Through all those years, Apache has been a

consistent performer, with a unique culture and

strong values imparted by its founder, Raymond

Plank, whom I admire greatly. The first thing that

comes to mind when I think of Apache is integri-

ty and profitable growth—and, of course, the

sense of urgency that is evident in everything

they do.

I have done very well with my investment in

Apache; it is the best stock in my portfolio by

far and has helped me achieve my financial

goals while securing a better future for my fam-

ily. (Back: Harry Carnighan and son Kelly.

Front: Kelly’s wife Barbara and children Andrew

and Gwendolyn.)

�

10

There have been many changes in China’s economic and polit-

ical environment since Apache entered the country in 1994 and

started down the unexpectedly long road to first production at Zhao

Dong. In light of these changes, Apache is assessing whether addi-

tional investments are warranted.

OTHER INTERNATIONAL

Apache acquired exploration and production assets in Argentina in

2001 that now comprise 376,000 net acres with 2003 production of

approximately 1,770 boe per day. Apache acquired 3-D seismic on

its 100 percent-owned El Santiagueno block in 2003 and plans to

drill there in 2004. Apache continues to examine opportunities for

additional investment.

In 2003, Apache recorded a $10.2 million after-tax write-down

reflecting the remaining costs associated with the termination of

operations in Poland.

FINANCIAL FLEXIBILITY

While the company’s capital spending last year exceeded $3 billion,

Apache strengthened its financial flexibility during 2003. At year-end,

the company’s debt was 26 percent of total capitalization, down from

30 percent at year-end 2002. Apache is the only U.S.-based publicly

traded independent producer with across-the-board “A” ratings from

the major ratings agencies. This financial strength provides Apache

with the flexibility to act quickly when acquisition opportunities arise.

FINDING COST

Management considers finding cost to be an operational measure which, there-fore, does not require reconciliation to a GAAP number. However, to assistinvestors in understanding how finding cost is calculated, we have provided thefollowing reconciliation to capitalized costs incurred. Finding cost is presentedbecause management believes the information is useful for investors; it is usedinternally and widely accepted by those following the oil and gas industry as ameasure of a company’s operational efficiency in finding and developing newreserves of oil and natural gas. Calculations of finding cost generally exclude cap-italized interest because capitalized interest is a financing measure rather than anoperational efficiency measure. Asset retirement obligations are excluded becausethey are estimates of future costs that in fact may not be incurred and therefore donot reflect the company’s current operational efficiency.

CALCULATION OF FINDING COST

For the year ended Dec. 31, 2003��

(In thousands, except per-boe data) Total boe Cost Worldwide Additions per Boe

�� Capitalized costs incurred $ 3,439,722 503,215 $ 6.84Less: Capitalized interest (52,891)Less: Asset retirement obligation costs (365,953)Plus: Actual 2003 retirement

expenditures 32,479 ��Total Finding Cost $ 3,053,357 503,215 $ 6.07��


19

GROWING OUR WORLDWIDE

PORTFOLIO

�NORTH SEA EMPLOYEES EMBRACE

APACHE’S CAN-DO CULTURE

The largest field ever discovered in the United

Kingdom North Sea, Forties is a national treas-

ure. So it came as somewhat of a shock to us

when we learned that BP was selling the asset to

an American company, no less, bearing the

name of a fierce Indian tribe. We didn’t know

what to expect.

But Apache welcomed us with open arms and

began investing in upgrading facilities to maximize

production. And we started drilling again. Our new

company was infused with enthusiasm and a sense

of urgency that was quite contagious. Management

has established excellent lines of communication

with us, and Apache’s top executives from Houston

have visited on a number of occasions; it is clear

that they have a keen interest in Forties.

We were very surprised to return from the

Christmas-New Year’s holiday to find birthday

cards announcing Apache’s 50th anniversary year,

each containing a crisp, new U.S. $50 bill. We only

joined the company in April 2003, and they’ve

made us feel it has been our home all along.

We’re excited about boosting production at

Forties and perhaps expanding our region with

more acquisitions in the North Sea. This is a

great company and we are proud to be a part of

it. (Left to right: Mick George, Production

Technician; Bill Hamilton, Electrical Technician;

Gerry Scanlan, Operations Supervisor; Al

Duncan, Production Technician; and Dave

Harris, Offshore Installation Manager; on Forties

Bravo Platform.)

�

APACHE WORLDWIDE

20

CANADAApache has operations in Alberta, Saskatchewan, British Columbiaand the Northwest Territories. In recent years, Canadian naturalgas prices have strengthened, reflecting the tight balance of supplyand demand in North America. Excluding acquisitions, Apachereplaced 275 percent of its Canadian production.

Liquid Hydrocarbons Natural Gas2003 daily production: 27 Mbbls 319 MMcfReserves: 168 MMbbls 1,606 Bcf2003 wells drilled/productive: 984/913Gross acreage: 6,572,830

U.S. CENTRAL REGIONApache operates in some of North America’s most importanthydrocarbon basins, including the Permian Basin in West Texasand New Mexico, the Anadarko Basin of western Oklahoma, EastTexas and the San Juan Basin in New Mexico. Apache’s first wellwas drilled in Cushing, Oklahoma, in 1955.

Liquid Hydrocarbons Natural Gas2003 daily production: 22 Mbbls 190 MMcfReserves: 238 MMbbls 837 Bcf2003 wells drilled/productive: 208/200Gross acreage: 1,631,876

U.S. GULF COAST REGIONApache is the largest held-by-production acreage holder on theOuter Continental Shelf of the Gulf of Mexico (in waters to 1,200feet) – an area with well-developed infrastructure that enablesApache to bring on new wells quickly and economically.Acquisitions from BP and Shell during 2003 replenished Apache’sdrilling inventory. The company also has operations onshore alongthe Texas and Louisiana Gulf Coast.

Liquid Hydrocarbons Natural Gas2003 daily production: 55 Mbbls 475 MMcfReserves: 151 MMbbls 1,192 Bcf2003 wells drilled/productive: 85/67Gross acreage: 2,127,162

ARGENTINAApache’s exploration and production assets in Argentina wereacquired in 2001 and now comprise 376,000 net acres. Apacheacquired 3-D seismic on its 100 percent-owned El Santiaguenoblock in 2003 and has plans to drill in 2004. Apache continues toexamine opportunities for additional investment.

Liquid Hydrocarbons Natural Gas2003 daily production: 579 bbls 7 MMcfReserves: 1 MMbbls 3 BcfGross acreage: 709,088

21

NORTH SEAApache acquired the Forties Field, the largest field ever discoveredin the United Kingdom North Sea, in 2003. The field still hasproved reserves of 148 million barrels, ranking Forties as the largestsingle field in Apache’s worldwide portfolio.

Liquid Hydrocarbons Natural Gas2003 daily production: 29 Mbbls 2 MMcfReserves: 148 MMbbls 4 BcfGross acreage: 117,422

CHINAProduction at Apache’s Zhao Dong field in Bohai Bay com-menced in July 2003. Apache has proposed a second-phasedrilling program to its partners. If approved, the plan calls for 10additional wells in 2004.

Liquid Hydrocarbons Natural Gas2003 daily production: 3 Mbbls –Reserves: 11 MMbbls –2003 wells drilled/productive: 25/25Gross acreage: 11,225

EGYPTApache is the largest U.S. investor and the fourth-largest oil and gasproducer in Egypt. In 2003, Apache drilled the Qasr-1X discovery,which is the most important discovery in Apache’s history, on theKhalda Offset Concession. Exploration and production drillingpushed Apache’s daily gross production in Egypt to all-time highsof 102,052 barrels of oil per day on Dec. 3 and 266 MMcf of gasper day on Dec. 31.


AUSTRALIAApache’s exploration activities in Australia are focused in theCarnarvon and Perth Basins. In 2003, Apache drilled five discover-ies and 10 successful appraisal wells. Apache’s Varanus Island pro-cessing and transportation hub is an important asset.


BOARD OF DIRECTORS Apache Corporation and Subsidiaries

Raymond PlankChairman of the Board

G. Steven FarrisPresident, Chief Executive Officer andChief Operating Officer

Michael S. BahorichExecutive Vice President - Explorationand Production Technology

John A. CrumExecutive Vice President Apache North Sea

Rodney J. EichlerExecutive Vice PresidentGeneral Manager – Egypt

Roger B. PlankExecutive Vice President and Chief Financial Officer

Floyd R. PriceExecutive Vice President andPresident, Apache Canada Ltd.

Jon A. JeppesenSenior Vice PresidentGulf Coast Region

Jeffrey M. BenderVice President - Human Resources

Michael J. BensonVice President – Security

Thomas P. ChambersVice President – Corporate Planning

John J. ChristmannVice President – Business Development

Matthew W. DundreaVice President and Treasurer

Robert J. DyeVice President – Investor Relations

Eric L. HarryVice President and Associate GeneralCounsel

Janice K. HartrickVice President and Associate GeneralCounsel

P. Anthony LannieVice President and General Counsel

Anthony R. Lentini, Jr.Vice President – Public andInternational Affairs

Janine J. McArdleVice President – Oil and Gas Marketing

Thomas L. Mitchell Vice President and Controller

W. Kregg Olson Vice President – Corporate ReservoirEngineering

Jon W. SauerVice President – Tax

Cheri L. Peper Corporate Secretary

Frederick M. Bohen (3)(5)

Executive Vice President and Chief Operating Officer,The Rockefeller University

G. Steven Farris (1)

President, Chief Executive Officer and Chief Operating Officer,Apache Corporation

Randolph M. Ferlic, M.D. (1)(2)

Founder and Former President, SurgicalServices of the Great Plains, P.C.

Eugene C. Fiedorek (2)

Private Investor, Former ManagingDirector, EnCap Investments L.C.

A. D. Frazier, Jr. (3)(5)

President and Chief Executive Officer,Caremark Rx, Inc.

Patricia Albjerg Graham (4)

Charles Warren Research Professorof the History of American Education,Harvard University

John A. Kocur (1)(3)

Attorney at Law; Former Vice Chairmanof the Board, Apache Corporation

George D. Lawrence (1)(3)

Private Investor; Former ChiefExecutive Officer, The PhoenixResource Companies, Inc.

F. H. Merelli (1)(2)

Chairman of the Board, ChiefExecutive Officer and President,Cimarex Energy Co.(formerly KeyProduction Company, Inc.)

Rodman D. Patton (2)

Former Managing Director,Merrill Lynch Energy Group

Charles J. Pitman (4)

Former Regional President - MiddleEast/Caspian/Egypt/India, BP Amocoplc; Sole Member, Shaker MountainEnergy Associates, LLC

Raymond Plank (1)

Chairman of the Board, Apache Corporation

Jay A. Precourt (4)

Chairman of the Board and ChiefExecutive Officer, Scissor Tail EnergyLLC, Chairman of the Board, HermesConsolidated, Inc.

(1) Executive Committee(2) Audit Committee(3) Management, Development and

Compensation Committee(4) Corporate Governance and

Nominating Committee(5) Stock Option Plan Committee

CORPORATE OFFICERS

23

STATEMENT OF CONSOLIDATED OPERATIONS

(In thousands, except per-common-share data) For the Year Ended December 31,��

2003 2002 2001��

REVENUES AND OTHER:Oil and gas production revenues $ 4,198,920 $ 2,559,748 $ 2,822,959Other (8,621) 125 (13,568)

��

4,190,299 2,559,873 2,809,391��

OPERATING EXPENSES:Depreciation, depletion and amortization 1,073,286 843,879 820,831Asset retirement obligation accretion 37,763 – –International impairments 12,813 19,600 65,000Lease operating costs 699,663 457,903 399,919Gathering and transportation costs 60,460 38,567 34,584Severance and other taxes 121,793 67,309 74,722General and administrative 138,524 104,588 88,710Financing costs:

Interest expense 169,090 155,667 178,915Amortization of deferred loan costs 2,163 1,859 2,460Capitalized interest (52,891) (40,691) (56,749)Interest income (3,290) (4,002) (5,864)

��

2,259,374 1,644,679 1,602,528��

PREFERRED INTERESTS OF SUBSIDIARIES 8,668 16,224 7,609��

INCOME BEFORE INCOME TAXES 1,922,257 898,970 1,199,254Provision for income taxes 827,004 344,641 475,855

��

INCOME BEFORE CHANGE IN ACCOUNTING PRINCIPLE 1,095,253 554,329 723,399Cumulative effect of change in accounting principle, net of income tax 26,632 – –

��

NET INCOME 1,121,885 554,329 723,399Preferred stock dividends 5,680 10,815 19,601

��

INCOME ATTRIBUTABLE TO COMMON STOCK $ 1,116,205 $ 543,514 $ 703,798��

BASIC NET INCOME PER COMMON SHARE:Before change in accounting principle $ 3.38 $ 1.83 $ 2.44Cumulative effect of change in accounting principle .08 – –

��

$ 3.46 $ 1.83 $ 2.44��

DILUTED NET INCOME PER COMMON SHARE:Before change in accounting principle $ 3.35 $ 1.80 $ 2.37Cumulative effect of change in accounting principle .08 – –

��

$ 3.43 $ 1.80 $ 2.37��


STATEMENT OF CONSOLIDATED CASH FLOWS

(In thousands) For the Year Ended December 31,��

2003 2002 2001��

CASH FLOWS FROM OPERATING ACTIVITIES:Net income $ 1,121,885 $ 554,329 $ 723,399Adjustments to reconcile net income to net cash provided by

operating activities:Depreciation, depletion and amortization 1,073,286 843,879 820,831Asset retirement obligation accretion 37,763 – –Provision for deferred income taxes 546,357 137,672 305,214Amortization of deferred loan costs 2,163 1,859 2,460International impairments 12,813 19,600 65,000Cumulative effect of change in accounting principle, net of income tax (26,632) – –Other 32,923 9,531 10,469

Changes in operating assets and liabilities, net of effects of acquisitions:(Increase) decrease in receivables (94,295) (122,830) 199,160(Increase) decrease in inventories (4,216) 717 (3,005)(Increase) decrease in drilling advances and other (19,881) (26,116) (14,474)(Increase) decrease in deferred charges and other (29,520) 496 (922)Increase (decrease) in accounts payable 68,176 32,219 (143,969)Increase (decrease) in accrued expenses 11,227 (16,595) 10,065Increase (decrease) in advances from gas purchasers (16,246) (14,574) (13,079)Increase (decrease) in deferred credits and noncurrent liabilities (9,903) (39,469) (56,149)

��

NET CASH PROVIDED BY OPERATING ACTIVITIES 2,705,900 1,380,718 1,905,000��

CASH FLOWS FROM INVESTING ACTIVITIES:Additions to property and equipment (1,594,936) (1,037,368) (1,528,984)Acquisition of BP properties (1,140,156) – –Acquisition of Shell properties (203,033) – –Acquisition of Louisiana properties – (258,885) –Acquisition of Fletcher subsidiaries, net of cash acquired – – (465,018)Acquisition of Repsol properties, net of cash acquired – – (446,933)Acquisition of Occidental properties (22,000) (11,000) (11,000)Proceeds from sales of oil and gas properties 58,944 7,043 348,296Proceeds from (purchase of ) short-term investments, net – 101,723 (103,863)Other, net (57,576) (37,520) (76,835)

��

NET CASH USED IN INVESTING ACTIVITIES (2,958,757) (1,236,007) (2,284,337)��

CASH FLOWS FROM FINANCING ACTIVITIES:Long-term borrowings 1,780,870 1,467,929 2,759,740Payments on long-term debt (1,613,362) (1,553,471) (2,733,641)Dividends paid (72,832) (68,879) (54,492)Common stock activity 582,865 30,708 10,205Treasury stock activity, net 5,350 1,991 (42,959)Cost of debt and equity transactions (5,417) (6,728) (1,718)(Repurchase of) proceeds from preferred interests of subsidiaries (443,000) – 440,654

��

NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES 234,474 (128,450) 377,789��

NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (18,383) 16,261 (1,548)��

CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR 51,886 35,625 37,173��

CASH AND CASH EQUIVALENTS AT END OF YEAR $ 33,503 $ 51,886 $ 35,625��


25

CONSOLIDATED BALANCE SHEET

(In thousands) December 31,��

2003 2002�� ASSETS

CURRENT ASSETS:Cash and cash equivalents $ 33,503 $ 51,886Receivables, net of allowance 639,055 527,687Inventories 125,867 109,204Drilling advances 58,062 45,298Prepaid assets and other 42,585 32,706

��

899,072 766,781��

PROPERTY AND EQUIPMENT:Oil and gas, on the basis of full cost accounting:

Proved properties 16,277,930 12,827,459Unproved properties and properties under development, not being amortized 795,161 656,272

Gas gathering, transmission and processing facilities 828,169 784,271Other 239,548 194,685

��

18,140,808 14,462,687Less: Accumulated depreciation, depletion and amortization (6,880,723) (5,997,102)

��

11,260,085 8,465,585��

OTHER ASSETS:Goodwill, net 189,252 189,252Deferred charges and other 67,717 38,233

��

$12,416,126 $ 9,459,851��

LIABILITIES AND SHAREHOLDERS’ EQUITYCURRENT LIABILITIES:

Accounts payable $ 300,598 $ 214,288Accrued operating expense 72,250 47,382Accrued exploration and development 212,028 146,871Accrued compensation and benefits 56,237 32,680Accrued interest 32,621 30,880Accrued income taxes 18,936 44,256Oil and gas derivative instruments 63,542 –Other 64,166 15,878

��

820,378 532,235��

LONG-TERM DEBT 2,326,966 2,158,815��

DEFERRED CREDITS AND OTHER NONCURRENT LIABILITIES:Income taxes 1,697,238 1,120,609Advances from gas purchasers 109,207 125,453Asset retirement obligation 739,775 –Oil and gas derivative instruments 5,931 3,507Other 183,833 158,326

��

2,735,984 1,407,895��

PREFERRED INTERESTS OF SUBSIDIARIES – 436,626��

COMMITMENTS AND CONTINGENCIES

SHAREHOLDERS’ EQUITY:Preferred stock, no par value, 5,000,000 shares authorized –

Series B, 5.68% Cumulative Preferred Stock, 100,000 shares issued and outstanding 98,387 98,387Common stock, $0.625 par, 430,000,000 shares authorized, 332,509,478

and 310,929,080 shares issued, respectively 207,818 194,331Paid-in capital 4,038,007 3,427,450Retained earnings 2,445,698 1,427,607Treasury stock, at cost, 8,012,302 and 8,422,656 shares, respectively (105,169) (110,559)Accumulated other comprehensive loss (151,943) (112,936)

��

6,532,798 4,924,280��

$12,416,126 $ 9,459,851��


STATEMENT OF CONSOLIDATED SHAREHOLDERS' EQUITY

(In thousands)��

Series B Series CComprehensive Preferred Preferred Common

Income Stock Stock Stock��

BALANCE AT DECEMBER 31, 2000 $ 98,387 $ 208,207 $ 182,636Comprehensive income (loss):

Net income $ 723,399 – – –Currency translation adjustments (74,028) – – –Commodity hedges 12,136 – – –Marketable securities 307 – – –

��

Comprehensive income $ 661,814��

Cash dividends:Preferred – – –Common ($.17 per share) – – –

Ten percent common stock dividend – – –Common shares issued – – 2,652Treasury shares purchased, net – – –

��

BALANCE AT DECEMBER 31, 2001 98,387 208,207 185,288Comprehensive income (loss):

Net income $ 554,329 – – –Currency translation adjustments 5,328 – – –Commodity hedges (16,322) – – –Marketable securities (125) – – –

��

Comprehensive income $ 543,210��


Five percent common stock dividend – – –Common shares issued – – 1,240Conversion of Series C Preferred Stock – (208,207) 7,803Treasury shares issued, net – – –Other – – –

��

BALANCE AT DECEMBER 31, 2002 98,387 – 194,331Comprehensive income (loss):

Net income $ 1,121,885 – – –Commodity hedges (39,007) – – –

��

Comprehensive income $ 1,082,878��


Five percent common stock dividend – – 581Common shares issued – – 12,906Treasury shares issued, net – – –Other – – –

��

BALANCE AT DECEMBER 31, 2003 $ 98,387 $ – $ 207,818��

27

��

AccumulatedOther Total

Paid-In Retained Treasury Comprehensive Shareholders’Capital Earnings Stock Income (Loss) Equity

��

$ 2,148,673 $ 1,226,531 $ (69,562) $ (40,232) $ 3,754,640

– 723,399 – – 723,399– – – (74,028) (74,028)– – – 12,136 12,136– – – 307 307

– (19,601) – – (19,601)– (48,980) – – (48,980)

544,848 (544,871) – – (23)109,086 – – – 111,738

1,218 – (42,323) – (41,105)��

2,803,825 1,336,478 (111,885) (101,817) 4,418,483

– 554,329 – – 554,329– – – 5,328 5,328– – – (16,322) (16,322)– – – (125) (125)

– (10,815) – – (10,815)– (56,565) – – (56,565)

395,820 (395,820) – – –26,044 – – – 27,284

200,404 – – – –666 – 1,326 – 1,992691 – – – 691

��

3,427,450 1,427,607 (110,559) (112,936) 4,924,280

– 1,121,885 – – 1,121,885– – – (39,007) (39,007)

– (5,680) – – (5,680)– (72,200) – – (72,200)

25,333 (25,914) – – –579,107 – – – 592,013

4,109 – 5,390 – 9,4992,008 – – – 2,008

��

$ 4,038,007 $ 2,445,698 $ (105,169) $ (151,943) $ 6,532,798��


ELEVEN-YEAR STATISTICAL SUMMARY

(In millions of dollars, except as otherwise indicated)��

2003 2002 2001 2000 1999��

Financial DataOil and gas production revenues 4,198.9 2,559.8 2,823.0 2,308.9 1,159.0Other revenues (losses) (8.6) .1 (13.6) (6.9) 2.7Consolidated revenues 4,190.3 2,559.9 2,809.4 2,302.0 1,161.7Income (loss) attributable to common stock 1,116.2 543.5 703.8 693.1 186.4Net cash provided by operating activities 2,705.9 1,380.7 1,905.0 1,517.4 638.2Oil and gas capital expenditures

(including acquisitions) 3,106.2 1,252.6 2,280.2 2,194.7 1,842.3Total assets 12,416.1 9,459.9 8,933.7 7,482.0 5,502.5Long-term debt 2,327.0 2,158.8 2,244.4 2,193.3 1,879.7Shareholders’ equity 6,532.8 4,924.3 4,418.5 3,754.6 2,669.4Common shares outstanding at year-end 324.5 302.5 287.9 285.6 263.3Amortization of oil and gas properties-recurring 1,003.3 783.6 760.2 547.5 415.6Effective tax rate (benefit) 43.0% 38.3% 39.7% 40.1% 41.7%Future cash inflows 46,959.0 33,806.4 20,584.9 39,081.9 14,951.6

��

Shareholder DataBasic net income (loss) per common share 3.46 1.83 2.44 2.54 .75Cash dividends per common share .21 .19 .12 .12 .12Shareholders’ equity per common share 19.83 15.95 14.28 12.07 8.96

��

Operations DataNatural gas production (Bcf) 444.3 394.3 411.5 304.0 239.5Oil, condensate and natural gas liquids

production (MMbbls) 78.3 58.9 57.0 44.6 34.7Total production (Boe) 152.3 124.6 125.6 95.2 74.6Average price of natural gas (per Mcf) 4.61 2.87 3.70 3.64 2.16Average price of oil (per barrel) 27.76 24.78 23.18 27.41 18.45Oil, condensate and NGL reserves (MMbbls):

Proved developed 593.7 414.4 411.8 354.0 302.0Proved undeveloped 250.2 222.4 187.6 168.5 113.2

Natural gas reserves (Bcf):Proved developed 3,541.0 3,206.5 3,203.8 2,664.8 1,873.7Proved undeveloped 1,335.0 848.1 801.5 718.9 477.9

Total proved reserves (MMboe) 1,656.5 1,312.5 1,266.9 1,086.4 807.2Reserve life (in years) 10.9 10.5 10.1 11.4 10.8

��

29

As Originally ReportedRestated for Pooling Before Restatement for Pooling

��

1998 1997 1996 1995 1994 1993 1994 1993��

773.5 985.4 835.8 657.5 542.4 485.0 497.5 440.5(0.7) (4.4) 1.2 .3 10.0 4.9 7.9 3.4

772.8 981.0 837.0 657.8 552.4 489.9 505.4 443.9(131.4) 154.9 121.4 20.2 45.6 46.8 42.8 37.3471.5 723.8 490.5 332.1 357.8 256.0 335.6 225.1

649.1 911.4 939.9 1,133.1 524.9 564.5 482.5 543.53,996.1 4,138.6 3,432.4 2,681.5 2,036.6 1,759.2 1,879.0 1,592.41,343.3 1,501.4 1,235.7 1,072.1 719.0 504.3 657.5 453.01,801.8 1,729.2 1,518.5 1,091.8 891.1 868.6 816.2 785.9

225.8 215.5 208.0 178.7 160.9 160.6 141.9 141.1359.7 358.9 296.0 288.4 249.3 192.5 224.1 170.5(31.0)% 40.1% 39.3% 39.0% 31.7% 34.0% 33.5% 35.9%

6,502.7 8,559.9 11,427.4 6,455.7 4,101.1 3,889.0 3,564.6 3,217.0��

(.58) .74 .61 .12 .28 .33 .30 .30.12 .12 .12 .12 .12 .12 .12 .12

7.54 8.02 7.30 6.11 5.54 5.41 5.75 5.57��

215.4 222.2 205.3 210.6 176.4 131.6 155.9 110.6

27.7 25.2 20.2 19.1 14.5 13.8 13.6 12.863.6 62.2 54.4 54.2 43.9 35.7 39.6 31.21.93 2.28 2.03 1.58 1.78 1.96 1.83 2.06

12.70 19.24 20.94 17.21 15.76 16.76 15.77 16.80

178.0 203.1 183.2 137.5 100.0 92.6 89.4 79.473.0 70.7 52.1 32.8 10.6 10.4 10.5 10.3

1,450.1 1,554.3 1,435.3 1,298.5 1,184.9 983.7 910.3 720.7722.1 317.5 190.0 203.4 131.2 141.9 106.0 127.5613.0 585.7 506.2 420.6 330.0 290.6 269.3 231.1

9.6 9.4 9.3 7.8 7.5 8.1 6.8 7.4��


1998��

773.5(0.7)

772.8(131.4)471.5

649.13,996.11,343.31,801.8

225.8359.7(31.0)%

6,502.7��

(.58).12

7.54��

215.4

27.763.61.93

12.70

178.073.0

1,450.1722.1613.0

9.6

1997��

985.4(4.4)

981.0154.9723.8

911.44,138.61,501.41,729.2

215.5358.940.1%

8,559.9��

.74

.128.02

��

222.2

25.262.22.28

19.24

203.170.7

1,554.3317.5585.7

9.4

1996��

835.81.2

837.0121.4490.5

939.93,432.41,235.71,518.5

208.0296.039.3%

11,427.4��

.61

.127.30

��

205.3

20.254.42.03

20.94

183.252.1

1,435.3190.0506.2

9.3

OIL AND GAS RESERVE INFORMATION

Oil and Gas Reserve Information – Proved oil and gas reserve quantities are based on estimates prepared by the Company’sengineers in accordance with Rule 4-10 of Regulation S-X. The Company’s estimates of proved reserve quantities of itsU.S., Canadian and international properties are subject to review by Ryder Scott Company, L.P., Petroleum Consultants,independent petroleum engineers. During 2003, 2002 and 2001, their review covered 78 percent, 68 percent and 61 percentof the reserve value, respectively.

There are numerous uncertainties inherent in estimating quantities of proved reserves and projecting future rates ofproduction and timing of development expenditures. The following reserve data only represent estimates and should not beconstrued as being exact.

(Thousands of barrels)��

Crude Oil, Condensate and Natural Gas Liquids��

United North OtherStates Canada Egypt Australia Sea Int’l Total

��

Proved developed reserves:December 31, 2000 232,361 66,484 26,028 29,124 – – 353,997December 31, 2001 230,017 76,250 59,188 45,628 – 699 411,782December 31, 2002 240,880 89,554 51,162 31,746 – 1,033 414,375December 31, 2003 265,135 91,501 54,881 26,999 147,880 7,293 593,689

Total proved reserves:Balance December 31, 2000 314,704 113,390 39,101 55,278 – – 522,473

Extensions, discoveries and other additions 54,533 21,121 17,121 12,320 – – 105,095

Purchases of minerals in-place 6,728 35,298 36,465 – – 1,099 79,590Revisions of previous estimates (7,943) 814 2,621 – – – (4,508)Production (24,157) (9,916) (14,322) (8,595) – (42) (57,032)Sales of properties (22,428) (23,802) – – – – (46,230)

��

Balance December 31, 2001 321,437 136,905 80,986 59,003 – 1,057 599,388Extensions, discoveries and

other additions 20,082 31,366 18,227 4,221 – 11,793 85,689Purchases of minerals in-place 7,109 5,055 – – – – 12,164Revisions of previous estimates 6,630 159 (8,140) 106 – 40 (1,205)Production (21,790) (9,846) (15,977) (11,082) – (225) (58,920)Sales of properties (46) – (305) – – – (351)

��

Balance December 31, 2002 333,422 163,639 74,791 52,248 – 12,665 636,765Extensions, discoveries and

other additions 35,378 15,649 15,090 11,712 14,489 640 92,958Purchases of minerals in-place 48,886 574 – 309 144,071 – 193,840Revisions of previous estimates 953 12 648 (2) – (113) 1,498Production (28,098) (9,776) (17,356) (11,165) (10,680) (1,230) (78,305)Sales of properties (1,176) (1,692) – – – – (2,868)

��

Balance December 31, 2003 389,365 168,406 73,173 53,102 147,880 11,962 843,888��

31

(Thousand barrels(Millions of cubic feet) of oil equivalent)��

Natural Gas��

United North Other MboeStates Canada Egypt Australia Sea Int’l Total Total

��

1,579,865 660,334 93,205 331,390 – – 2,664,794 798,1291,407,561 1,148,516 338,707 307,509 – 1,524 3,203,817 945,7511,444,677 1,255,068 246,529 256,790 – 3,469 3,206,533 948,7971,565,855 1,411,877 337,844 218,745 3,902 2,750 3,540,973 1,183,851

1,928,053 691,717 174,611 589,289 – – 3,383,670 1,086,418

166,307 281,037 52,938 25,084 – – 525,366 192,65634,827 512,927 247,302 – – 2,969 798,025 212,594

(61,522) 8,391 13,392 – – – (39,739) (11,131)(224,600) (108,925) (35,010) (42,684) – (236) (411,455) (125,608)(167,271) (83,265) – – – – (250,536) (87,986)

��

1,675,794 1,301,882 453,233 571,689 – 2,733 4,005,331 1,266,943

102,050 70,066 6,123 28,943 – 3,355 210,537 120,779154,459 66,113 – – – – 220,572 48,92637,944 20,900 (37,480) 22 – 37 21,423 2,366

(183,708) (120,210) (44,769) (42,998) – (2,656) (394,341) (124,644)(2,446) – (6,440) – – – (8,886) (1,832)

��

1,784,093 1,338,751 370,667 557,656 – 3,469 4,054,636 1,312,538

113,552 387,533 217,455 127,516 105 2,084 848,245 234,332391,510 4,510 – 38,638 4,423 – 439,081 267,020

6,073 (8,177) 4,292 – – 1 2,189 1,863(242,782) (116,263) (41,447) (40,537) (626) (2,607) (444,262) (152,349)(23,054) (671) – – – (196) (23,921) (6,855)

��

2,029,392 1,605,683 550,967 683,273 3,902 2,751 4,875,968 1,656,549��


FUTURE NET CASH FLOWS

Future cash inflows are based on year-end oil and gas prices except in those instances where future natural gas or oil salesare covered by physical contract terms providing for higher or lower amounts. Operating costs, production and ad valoremtaxes and future development costs are based on current costs with no escalation.

The following table sets forth unaudited information concerning future net cash flows for oil and gas reserves, net of incometax expense. Income tax expense has been computed using expected future tax rates and giving effect to tax deductions andcredits available, under current laws, and which relate to oil and gas producing activities. This information does not purportto present the fair market value of the Company’s oil and gas assets, but does present a standardized disclosure concerningpossible future net cash flows that would result under the assumptions used.

(In thousands)��

United OtherStates Canada (1) Egypt Australia North Sea International Total

��

2003Cash inflows $23,117,256 $12,533,197 $3,999,829 $2,737,289 $4,193,438 $ 378,032 $46,959,041Production costs (6,012,893) (3,049,847) (545,505) (658,132) (2,622,103) (63,384) (12,951,864)Development costs (1,152,182) (451,491) (397,493) (397,206) (593,778) (17,431) (3,009,581)Income tax expense (4,834,389) (2,595,286) (997,847) (433,667) (195,756) (59,616) (9,116,561)

��

Net cash flows 11,117,792 6,436,573 2,058,984 1,248,284 781,801 237,601 21,881,03510 percent discount rate (5,222,609) (3,353,451) (726,933) (536,921) (204,248) (59,029) (10,103,191)

��

Discounted future net cash flows (2) $ 5,895,183 $ 3,083,122 $1,332,051 $ 711,363 $ 577,553 $ 178,572 $11,777,844

��

2002Cash inflows $17,550,514 $ 9,597,042 $ 3,820,016 $ 2,436,477 $ – $ 402,311 $33,806,360Production costs (4,442,214) (1,955,401) (501,511) (463,282) – (61,905) (7,424,313)Development costs (662,686) (312,194) (421,454) (235,318) – (19,600) (1,651,252)Income tax expense (3,875,478) (2,288,073) (963,906) (482,883) – (59,164) (7,669,504)

��

Net cash flows 8,570,136 5,041,374 1,933,145 1,254,994 – 261,642 17,061,29110 percent discount rate (4,170,620) (2,633,601) (651,524) (373,032) – (80,894) (7,909,671)

��

Discounted future net cash flows (2) $ 4,399,516 $ 2,407,773 $ 1,281,621 $ 881,962 $ – $ 180,748 $ 9,151,620

��

2001Cash inflows $10,424,737 $ 5,468,028 $ 2,831,285 $ 1,838,437 $ – $ 22,381 $20,584,868Production costs (3,457,430) (1,538,797) (564,714) (383,171) – (13,789) (5,957,901)Development costs (613,594) (333,043) (306,543) (188,017) – (3,532) (1,444,729)Income tax expense (1,417,677) (851,971) (683,856) (345,392) – – (3,298,896)

��

Net cash flows 4,936,036 2,744,217 1,276,172 921,857 – 5,060 9,883,34210 percent discount rate (2,286,959) (1,337,536) (427,744) (286,696) – (946) (4,339,881)

��

Discounted future net cash flows (2) $ 2,649,077 $ 1,406,681 $ 848,428 $ 635,161 $ – $ 4,114 $ 5,543,461

��

(1) Included in the estimated future net cash flows are Canadian provincial tax credits expected to be realized beyond the date at which the legislation, under its provisions, could be repealed. To date,the Canadian provincial government has not indicated an intention to repeal this legislation.

(2) Estimated future net cash flows before income tax expense, discounted at 10 percent per annum, totaled approximately $16.4 billion, $13.2 billion and $7.4 billion as of December 31, 2003,2002, and 2001, respectively.


SHAREHOLDER INFORMATION Apache Corporation and Subsidiaries

Stock DataDividends

Price Range* per Share*��

High Low Declared Paid��

2003First Quarter $32.15 $26.26 $.0475 $.0475Second Quarter 34.60 28.13 .0500 .0500Third Quarter 35.04 30.41 .0600 .0500Fourth Quarter 41.68 34.05 .0600 .0600

2002First Quarter $27.71 $21.12 $.0475 $.0475Second Quarter 28.61 25.03 .0475 .0475Third Quarter 28.57 21.46 .0475 .0475Fourth Quarter 28.88 23.53 .0475 .0475��

* Per-share prices and dividend amounts have been adjusted to reflect the effects of the five per-cent stock dividend in 2002 and the two-for-one stock split in 2003.

The Company has paid cash dividends on its common stockfor 39 consecutive years through December 31, 2003. Futuredividend payments will depend upon the Company’s level ofearnings, financial requirements and other relevant factors.

Apache common stock (symbol APA) is listed on the NewYork and Chicago stock exchanges and the NASDAQ NationalMarket. At December 31, 2003, the Company’s shares of com-mon stock outstanding were held by approximately 8,000 share-holders of record and 157,000 beneficial owners. Also listedon the New York Stock Exchange are:• Apache Finance Canada’s 7.75% notes, due 2029 (symbol

APA 29).

Corporate OfficesOne Post Oak Central2000 Post Oak Blvd.Suite 100Houston, Texas 77056-4400(713) 296-6000

Independent Public AccountantsErnst & Young LLPFive Houston Center1401 McKinney St., Suite 1200Houston, Texas 77010-2007

Stock Transfer Agent and RegistrarWells Fargo Bank, N.A.Attn: Shareowner ServicesP.O. Box 64854South St. Paul, Minnesota 55164-0854(651) 450-4064 or (800) 468-9716

Communications concerning the transfer of shares, lost cer-tificates, dividend checks, duplicate mailings or change ofaddress should be directed to the stock transfer agent.Shareholders may access account information on the website:http://www.shareowneronline.com.

Dividend Reinvestment PlanShareholders of record may invest their dividends automati-cally in additional shares of Apache common stock at themarket price. Participants may also invest up to an additional$5,000 in Apache shares each quarter through this service. Allbank service fees and brokerage commissions on purchases arepaid by Apache. A prospectus describing the terms of the Planand an authorization form may be obtained from theCompany’s stock transfer agent, Wells Fargo Bank, N.A.

Direct RegistrationShareholders of record may hold their shares of Apache com-mon stock in book-entry form. This eliminates costs related tosafekeeping or replacing paper stock certificates. In addition,shareholders of record may request electronic movement ofbook-entry shares between your account with the Company’sstock transfer agent and your broker. Stock certificates may beconverted to book-entry shares at any time. Questions regardingthis service may be directed to the Company’s stock transferagent, Wells Fargo Bank, N.A.

Annual MeetingApache will hold its annual meeting of shareholders on Thursday,May 6, 2004, at 10 a.m. in the Ballroom, Doubletree HotelHouston – Post Oak, 2001 Post Oak Blvd., Houston, Texas.Apache plans to web cast the annual meeting live; connectthrough the Apache web site: http://www.apachecorp.com.

Stock Held in “Street Name”The Company maintains a direct mailing list to ensure thatshareholders with stock held in brokerage accounts receive infor-mation on a timely basis. Shareholders wishing to be added tothis list should direct their requests to Apache’s Public andInternational Affairs Department, 2000 Post Oak Blvd., Suite100, Houston, Texas, 77056-4400, by calling (713) 296-6157 orby registering on Apache’s Web site: http://www.apachecorp.com.

Form 10-K RequestShareholders and other persons interested in obtaining, withoutcost, a copy of the Company’s Form 10-K filed with theSecurities and Exchange Commission may do so by writing toCheri L. Peper, Corporate Secretary, 2000 Post Oak Blvd.,Suite 100, Houston, Texas, 77056-4400.

Investor RelationsShareholders, brokers, securities analysts or portfolio managersseeking information about the Company are welcome to con-tact Robert J. Dye, Vice President of Investor Relations, at (713)296-6662. Members of the news media and others seekinginformation about the Company should contact Apache'sPublic and International Affairs Department at (713) 296-6107.

Web site: http://www.apachecorp.com

Design: John Weaver Design, Houston, TX • Photography: Jeff Heger Photography and Sandy King Photography • Printing: Western Lithograph.

Apache Corporation

One Post Oak Central2000 Post Oak BoulevardSuite 100Houston, Texas 77056-4400

Web site: http://www.apachecorp.com

This annual report contains certain “forward-looking statements” as defined by the Private Securities

Litigation Reform Act of 1995, including, without limitation, expectations, beliefs, plans and objectives

regarding Apache’s capital expenditures and exploration and development plans, and the future prices of

crude oil and natural gas. Among the important factors that could cause actual results to differ materially from

those indicated by such forward-looking statements are delays and difficulties in completing acquisitions and

developing currently owned properties, the failure of exploratory drilling to result in commercial wells, delays

due to the limited availability of drilling equipment and personnel, fluctuations in oil and gas prices, gener-

al economic conditions and the risk factors detailed from time to time in Apache’s periodic reports and reg-

istration statements filed with the Securities and Exchange Commission.

Apache AR 2003

Economy & Finance

Transcript of Apache AR 2003