Apache Corporation

Introduction
Apache Corporation is a global exploration and production company founded in
1954 by Truman Anderson, Raymond Plank and Charles Arnao. Since they were not
the offspring of a parent company, they stretched $250,000 in investor capital to start
their business. In order to fairly share leadership responsibilities, the three founders
decided to rotate the president title annually and flipped a coin to determine who would
be first. By having different perspectives in leadership, they were able to challenge
industry norms and successfully adapt to changing circumstances by implementing the
best practices to achieve their goals (Apache Corporation: History, n.d.).
Their acquisition of MW Petroleum assets from Amoco in 1991 proved to be a
pivotal event in the companys history, as it did the following:

Doubled the size of the company, which increased its buying power
Brought relative balance to oil and gas reserves
Shifted Apaches geographical mass to the Gulf Coast
Gave life to their strategy of acquire and exploit

Since 2004, Apache continues to expand its business by exploring opportunities

in mature fields and new developments, as well as efficiently and effectively managing
its supply chain (Apache Corporation, n.d.).
Apaches Philosophy
Apaches mission statement involves being profitable and growing their company
in a safe, environmentally responsible manner for the long-term benefit of their
stakeholders. With over 65 years in the business, they have created a global team
committed to building shareholder value and culture by empowering employees to make
decisions in order to achieve the companys goals. When it comes to decision making,
the best answers win. By operating with a sense of accountability, ownership and
transparency, they are able to focus on the following core values:

Drive to succeed with a sense of urgency

Foster a contrarian spirit
Invest in our greatest asset: Our people
Expect top performance and innovation
Treat our stakeholders with respect and dignity
Safety is not negotiable and will not be compromised
We derive benefit from the Earth and take our environmental responsibility
seriously
Conduct our business with honesty and integrity (Apache Corporation, n.d.)
Sustainability

Apache Corporation

In the oil and gas industry, sustainability, or using a resource in such a way that it
is not depleted or permanently damaged, is important. Our land is a limited, natural
resource, which should be protected and preserved at all times. The types of
equipment utilized, numerous safeguards made for the environment, and the goal of
recovering oil and gas underground, shows Apaches commitment to sustainability. To
decrease harmful greenhouse gas emissions, they use high-efficiency natural gas
powered generators instead of diesel units, as well as install technologically advanced
metering and monitoring systems Apache applies numerous procedures and techniques
to preserve the land with minimal surface disturbance. One example is their hydraulic
fracturing operations. During this process, Apache injects chemicals underground to
release hydrocarbons. This environmentally responsible process aids in discovering
untapped natural gas fields, which serves as an eco-friendly energy source. Apache
has also been able to successfully extend the life of fields by injecting carbon dioxide
into underground reservoirs. For land preservation, they preserve marshes by drilling
beneath the surface and apply pad-drilling techniques in which wells are contained
within a small area but reach out more than a mile underground to minimize surface
disturbance (Apache Corporation, n.d.).
Supply Chain

In the world of oil and gas, bigger companies have stronger buying power, and
stronger buying power is tied to a better long-term supply chain strategy. Apache
specializes in oil and gas supply, as well as LNG (liquefied natural gas) and other
unconventional fuels. Key players within their supply chain are operators (oil
companies), contractors (engineering, construction and service-based companies),
suppliers and consumers. Since oil prices constantly fluctuate and the market is
comprised of continuous movement and adjustments by multiple decision makers,
supply chain planning, management and optimization are critical to Apache maintaining
sustainability and positive financial performance. Therefore, strong supply chain
practices and monitoring programs to ensure adherence to its environmental, labor,

Apache Corporation

health and safety standards are implemented to achieve the companys goals (Apache
Corporation, n.d.).

Upstream
There are 3 phases of the oil supply chain- upstream, midstream and
downstream. The upstream stage consists of exploration and production. Apache
utilizes exploration teams (geophysicists, engineers, and construction-based
companies) who interpret geological and seismic data to determine if drilling
opportunities are present in mature fields and new developments, as well as what types
of fuels are available (Apache Corporation, n.d.). Next, an algorithm is used to calculate
how many barrels of oil per day (bopd) can be extracted. Since Apache is focused on
increasing production while reducing environmental impact, the majority of the tactical
decision-making relevant to supply chain management occurs in this stage. If new
developments are discovered, approval from the landowner is required. If the U.S.
owns the land, a permit must be obtained from The Bureau of Land Management for
onshore projects and from the Minerals Management Service for offshore discoveries
(EIA- Analysis of Crude Oil Production in the Arctic National Wildlife Refuge Methodology and Assumptions, n.d.). Their accelerated drilling program helps them
estimate the number of rigs needed and determine how deep to drill prior to excavation.
Skilled workers are employed to drill the well, which can range from 1,000 meters to a
several kilometers deep. Once the well is dug, skilled laborers manipulate tools down
the well to pump crude (unprocessed) oil into steel or plastic pipelines to be transported
for use.
Midstream
The midstream phase consists of transportation, trading, product pipelines and
storage. Apache contracts with shipping companies to transport their product. Due to
their low incident rate (injuries, fires, explosions or deaths) when compared to
transporting oil by truck, pipelines are the most common and safest means of
transportation. They are also considered more eco-friendly since they do not pollute the
environment with emissions like trucks and trains. Centrifugal pumps are used to push
the crude oil through the lines. Typically, shippers who only provide transportation
services own the pipeline. If there is not a pre-existing pipeline available, alternative
routes are decided based on cost of construction, projected growth, demand for future
transportation and reasonable return on investment (AOPL: Answers to Common
Questions, n.d.). If the land is publicly or privately owned, the shipping company has to
sign a lease for the use of the property. When the product needs to be transported
overseas due to geographical limitations, oil tankers are used to connect supply to
demand.

Apache Corporation

Trading plays a central role in the supply chain due to high capital cost and the
risk involved. Trading is a balancing act because the trader never wants to have a
shortage or an oversupply of product. Although traders are available 24 hours a day, 7
days a week, they are extremely busy during bid week, the last week of the month in
which operators want to sell their production and consumers want to make purchases
for the following month (NaturalGas.org, n.d.). For Apache to be successful, favorable
agreements must be made between the upstream operator, stakeholders and consumer
facilities. After monitoring world markets and following financial news, the trader will
create a physical deal. The scheduler or accountant will identify the reference contract,
initiate document processing, view the results and make any changes to the agreement
as needed.
Apache partners with oil refineries in order to process the oil for distribution. Oil
undergoes the process of separation, conversion and treatment. During separation, oil
is boiled in a special pressurized tower and distilled based on its unique boiling points.
Since lighter molecules are higher in demand, heavier molecules can be converted to
be less dense during conversion. Once converted, the oil is purified of contaminates so
it can be sold without further processing (Stages of Oil Refining: Conversion, n.d.).
Therefore, crude oil has been transformed into more useful products such as gasoline,
jet fuel, lubricants, pharmaceuticals, and raw materials for fertilizer and plastic
production that can be transported via product pipelines.
Product pipelines and storage terminals are important in resource distribution.
Pipelines serve multiple regions and are the core of the oil and gas transportation
system. Since consumption needs vary by region and season, pipeline companies
compete with each other. The pipeline that best meets the supply and financial needs
of the shipper is selected. Terminals also affect the delivery infrastructure. Although
they can be owned by the shipper, they are sometimes ran by an independent operator.
When an independent operator is involved, additional contracts must be put in place
and additional communication efforts must be made to ensure availability of storage in
terminal sequence. If the closest terminal is unable to take the shipment, pumping may
need to be stopped. This can create a domino effect in the supply chain and create
inefficiencies during the production and distribution phases.
Downstream
The downstream phase consists of product distribution to industrial, commercial,
and retail markets. When it comes to distribution, consumers are primarily focused on
the best value. Since crude oil is used to produce a variety of products such as heat,
gas for vehicles, plastic products and petroleum jelly, its consumers vary (Refined
Products Pipelines, n.d.). By monitoring gas station inventory and analyzing
consumption reports generated, oil companies are able to make adjustments in
production and other areas of the supply chain to meet the needs of their customers, as
well as increase their profitability.
Employee Data

Apache Corporation

Apache offers a broad range of challenging and diverse professions, including but not
limited to engineers, scientists, accountants, land specialists, legal counselors and
skilled workers. Employees are the companys most valuable assets per their core
values. Although a significant amount of Apaches United States employees are located
in Houston, TX, the states oil and gas hub with multiple Fortune 500 companies,
Apache has a global employment population in countries such as Argentina, Australia,
Canada, Egypt and the United Kingdom . The summary below represents Apaches
employees worldwide. All data collected from Apaches financial reports,
("www.apache.com," 21 F).

2007:
2008:
2009:
2010:
2011:

3,521 employees
3,639 employees
3,452 employees
4,449 employees
5,299 employees

Total Employees
5,500
5,000
4,500

Amount

4,000

Total Employees

3,500
3,000
2007.0

2008.0

2009.0

2010.0

2011.0

Year

Sales Dollars
The drastic decline in oil and gas prices in conjunction with the global financial
crisis in 2009 changed Apaches objective. Per Apaches 2009 Annual Report, In 2009,
the dramatic decline in oil and gas prices and the global financial crisis provided the
backdrop for our primary objective: to live within our reduced cash flow in order to
preserve financial flexibility. Based on Apaches financial results, the carrying values of
their oil and gas properties were reduced. This resulted in a $1.98 billion non-cash
after-tax charge to earnings in the first quarter. Over the course of the year, oil prices
rebounded, and Apache was able to increase production. By year end, Apaches

Apache Corporation

earnings increased to $292 million net loss which equates to $0.87 per diluted common
share for the year. All data collected from Apaches financial reports,
("www.apache.com," 21 F).
Sales Dollars:
2007: $10.000 Billion
2008: $12.390 Billion
2009: $8.615 Billion
2010: $12.092 Billion
2011: $16.888 Billion
Annual Net Profits:
2007: $2.807 Billion
2008: $706 Million
2009: -$292 Million
2010: $3.00 Billion

Sales and Profit

dollars in billions
AmountSales
in Dollars

Annual Net Profit in billions

2007.0

2008.0

2009.0

2010.0

Year
2011: $4.508 Billion

Sales Units
Apache Corporations five-year data on their financials shows that overall the
company is expanding. Apache has two productions, natural gas and oil. The

2011.0

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measurement of production for natural gas is in million cubic feet per day. In 2007, they
had 1,796, in 2008 it was 1,889, in 2009 they did 1,759, in 2010 it was 1,618, and 2011
it was 2,262. For oil, it is measured in one thousand barrels per day; in 2007 they did
262, in 2008 it was 343, 2009 it was 290, in 2010 the had 265, and 2011 it was 371.
Overall, this data was consistent over the years with a few dips in 2009 and 2010, but
then, Apache had a big increase in production during 2011. When the economy
weakened, so did many other companies. Based on Apaches financial reports, they
were also affected. Although 2009 had many declines, overall the trends in Apaches
data for the past five years shows an overall growth, and they are likely to increase
more in future years. All data collected from Apaches financial reports,
("www.apache.com," 21 F).
Natural Gas: million cubic feet per day
2007: 1,796
2008: 1,889
2009: 1,759
2010: 1,618
2011: 2,262

Natural Gas Production (MMcf/d)

2400
2200
2000
1800
1600
Production1400
(MMcf/d)
1200
1000

Natural(per
Gas day)
million cubic feet

Year

Oil: thousand barrels per day

2007: 262
2008: 343
2009: 290
2010: 265
2011: 371

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Oil and NGL Production (Mbbls/d)

400
350
300

Oil andper
NGL day
Production (Mbbls/d)
Thousand barrels
250
200
2007.0 2008.0 2009.0 2010.0 2011.0

Year

Economic Impact in Texas

The impact of oil on Texas and Texans is often analyzed in terms of corporate
development and corporate wealth, and the overall economy of the state and politics
per the Texas Almanac. This industry has also impacted people involved with
exploration and production. Ironically, the first major oil discovery in 1923 at Big Lake
Field, which was part of the University of Texas, helped the school system become
extremely wealthy and benefited thousands of students over the years (Texas
Almanac). Due to Texas extensive history in oil, Houston is home to some of the

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biggest oil corporations, contractors and distributers in the world. Apache adds to their
economy by providing jobs from accountants to engineers. The average annual salary
of an accountant at Apache Corporation is $55,133, and the average for an engineer is
$100,000. (Apache Salaries)
In regards to local taxes for oil, tax per gallon varies by state, and in Houston, it is
about $.384 a gallon. Therefore, if Apache manufactures crude oil at $2.62 per gallon,
the refining/distribution/marketing cost about $0.26. Houston tax would add an
additional $0.38, and the price per gallon a retailer such as Texaco would sell for is
$2.62+0.26+0.38= $3.26.

Market
Apache uses live presentations and online video to reach its target market of oil
and gas suppliers and consumers within the industrial, commercial and retail markets.

Summary
Understanding your desire to grow your retirement savings within the next 2 to 4
years prior to retiring helped us determine the best investment strategy. We recommend
you invest $250,000.00 from 2012 to 2016 in order to maximize your investment return.
First of all, crude oil is one of the most important natural resources in the world.
Since it can be used for heat, fuel, plastic production and lubrication, it will always be in
demand. This offers multiple opportunities for growth and adaptation in a changing
environment. With Apache insiders purchasing significant shares of their companys
stock and an average price of $79.95 per share (Bargain Hunters Take Note: Inside
Cluster-Buying at APA, n.d.), investing in Apache Corporation is expected to make a
profit.
Next, an article in Fuelfix mentioned how the CEO of Apache, Steve Farris,
expects a production growth to 1 million barrels of oil a day by 2016. When compared to
371,000 barrels per day produced in 2011, the increase is quite significant (Simone
Sebastian, 2012). Oil and gas production revenue doubled from 2009 to 2011
(Revenue, EPS, & Dividend- Apache Corporation, n.d.), and despite the decrease in
natural gas prices, Apache has generated $12.6 billion in revenue this year (Apache
Continues to Struggle, But Could Rally on Higher Oil Prices- Seeking Alpha, n.d. ).
Since the projected inflation rate within the next 10 years averages 2.0 percent per the
PCE price index, you should yield a sizable profit. Like their website states, We like to
say we are exploring whats possible because it reflects who we arechallenging the
status quo and adapting to changing circumstances while recognizing what works.
Above all, we remain dedicated to delivering results and growing a profitable global

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10

exploration and production company for the long-term benefit of our shareholders.
("www.apache.com," 21 F).
Finally, you both plan on retiring within the next 4 years. During this timeframe, you
should be focusing on growth. In addition to making the maximum contributions to your
401K plans, you should also concentrate on the amount of money you will be taxed on
dividend payments. If the dividend is around 1 percent, you will be taxed less than
those who invest in companies such as Walmart where the dividend yield averages 2
percent. The dividend yield for Apache Corporation is currently 0.89 percent.
In order to increase assets, it is important to invest in a path of growth. Apache is
an innovative company, thoughtful to their shareholders and offers a valuable product
that is always in demand. That is why we believe Apache Corporation is a solid
investment for the two of you at this time. Once you have retired, completed your 401K
contributions and begin receiving your social security payments, we can discuss other
investment options to fit your lifestyle.

Works Cited
AOPL | Answers to Common Questions. (n.d.). AOPL | Association of Oil Pipe Lines.
Retrieved from http://www.aopl.org/aboutPipelines/?fa=faqs
Apache Continues To Struggle, But Could Rally On Higher Oil Prices - Seeking Alpha.
(n.d.). Stock Market News & Financial Analysis - Seeking Alpha. Retrieved from
http://seekingalpha.com/article/973101-apache-continues-to-struggle-but-couldrally-on-higher-oil-prices
Apache Corporation : Annual report. (n.d.). Apache Corporation : Home. Retrieved from
http://www.apachecorp.com/Investors/Annual_report.aspx
Apache Corporation : History. (n.d.). Apache Corporation : Home. Retrieved from
http://www.apachecorp.com/about_apache/history/index.aspx

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Apache Salaries. (n.d.). Retrieved from http://www.glassdoor.com/Salary/ApacheSalaries-E54.html

Bargain Hunters Take Note: Insider Cluster-Buying At APA - Forbes. (n.d.). Information
for the World's Business Leaders - Forbes.com. Retrieved from
http://www.forbes.com/sites/dividendchannel/2012/11/23/bargain-hunters-take-noteinsider-cluster-buying-at-apa/
CBO | The Budget and Economic Outlook: An Update. (n.d.). Congressional Budget
Office (CBO). Retrieved from http://www.cbo.gov/publication/21670
EIA - Analysis of Crude Oil Production in the Arctic National Wildlife Refuge Methodology and Assumptions. (n.d.). U.S. Energy Information Administration
(EIA). Retrieved from http://www.eia.gov/oiaf/servicerpt/anwr/methodology.html
NaturalGas.org. (n.d.). NaturalGas.org. Retrieved from
http://www.naturalgas.org/naturalgas/marketing.asp
Refined Products Pipelines. (n.d.). pipeline 101. Retrieved from
http://www.pipeline101.com/overview/products-pl.html
Revenue, EPS, & Dividend - Apache Corporation (APA) - NASDAQ.com. (n.d.).
NASDAQ Stock Market - Stock Quotes - Stock Exchange News - NASDAQ.com.
Retrieved from http://www.nasdaq.com/symbol/apa/revenue-eps

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Simone Sebastian. (2012, June 14). Retrieved on October 5, 2012 from:

http://fuelfix.com/blog/2012/06/14/apache-corp-attaches-growth-to-west-texasboom/
Stages of Oil Refining - Conversion. (n.d.). SG & Singapore Map - Singapura, Singapur,
Singapore Information. Retrieved from
http://www.streetdirectory.com/travel_guide/139223/technology/stages_of_oil_re
fining___conversion.html
Retrieved from http://www.texasalmanac.com/topics/business/oil-and-texas-culturalhistory