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The Supply Chain Challenge:  

Procurement the “Apache Way”

PESA Supply Chain Forum
June 27, 2007
David French – Dir. of EH&S, 
Procurement, and General Services
The  following  discussions  contain  certain  “forward‐looking  statements” as  defined  by  the  Private  Securities  Litigation  Reform  Act  of  1995  including,  without  limitation,  estimates, 
expectations,  plans  and  goals  regarding  Apache’s  production,  reserves,  financings,  acquisitions,  exploration  and  exploitation  prospects,  energy  prices,  operating  costs,  and  results  of 
operations.  Such forward‐looking statements involve estimates, assumptions and uncertainties.  No assurance can be given that Apache’s expectations or goals will be realized, and actual 
results may differ materially from those expressed in the forward‐looking statements.  For reconciliations of non‐GAAP financial measures, see our web site www.apachecorp.com.
Procurement the “Apache Way” CORPORATION
CORPORATION

ƒ The Apache story
ƒ Why our DNA makes procurement (particularly strategic 
supply chain efforts) hard
ƒ What we chose to do…
Building to Last
Building to Last CORPORATION
CORPORATION

Earnings (MM$) Cash Flow (MM$)


$3,000
$3,000 $6,000
$6,000
$2,547
$2,547 $4,996
$4,996
$2,500
$2,500 $5,000
$5,000

33% CAGR 25% CAGR


$2,000
$2,000 $4,000
$4,000

$1,500
$1,500 $3,000
$3,000

$1,000
$1,000 $2,000
$2,000

$500
$500 $1,000
$1,000

$35
$35 $177
$177
$0
$0 $0
$0
1991
1991 2006
2006 1991
1991 2006
2006
Note:
Note: Apache
Apache relocated
relocated headquarters
headquarters to
to Houston
Houston in
in 1992.
1992.
Time‐tested growth
Time‐tested growth CORPORATION
CORPORATION

2,500 ƒ 21 Years of Consecutive 200


Reserve Growth
2,000 160
ƒ 27 out of the Last 28 Years
of Increasing Production
1,500 120
MMboe

MMboe
1,000 80

500 40

0 0
1991

1993

1995

1997

2005
1999

2001

2003
Reserves Production
Balanced Portfolio with International Presence
Balanced Portfolio with International Presence CORPORATION
CORPORATION

100%
100% %
% U.S.
U.S. Production
Production %
% Oil
Oil Production
Production
50%
50%

80%
80%
40%
40%

60%
60%
30%
30%

40%
40% 20%
20%

20%
20% 10%
10%

0%
0% 0%
0%
D
D FF G
G A
A B
B C
C H
H E APA
E P
APA
P APA
P
P B
APA B C
C A
A E
E FF G
G H
H D
D

Peer
Peer group
group consists
consists of
of APC,
APC, CHK,
CHK, DVN,
DVN, EOG,
EOG, NBL,
NBL, NFX,
NFX, PXD,
PXD, XTO
XTO
Portfolio Snapshot
Portfolio Snapshot CORPORATION
CORPORATION

Production – 2006 Reserves – YE 06

Argentina
Argentina Argentina
Argentina
5%
5% 5%
5% US Offshore
US
US Offshore
Offshore Egypt US Offshore
Egypt
Egypt
Egypt 17%
17% 13%
13%
12%
12%
19%
19%
Australia
Australia
9%
9%
US
US Onshore
Onshore US
US Onshore
Onshore
Australia
Australia 20%
20% 27%
27%
N
N Sea
Sea
9%
9%
9%
9%
N
N Sea
Sea
12% Canada
Canada Canada
Canada
12%
18%
18% 25%
25%

Total 501 Mboe/d Total 2,313 MMboe


R/P Ratio: 12.6
Extensive “Running Room”
Extensive “Running Room” CORPORATION
CORPORATION

36 MM acres worldwide in 6 countries

Canada North Sea


6.8 MM 1.5 MM
U.S.
4.5 MM 10.2 MM
Egypt

Argentina 10.9 MM
Australia
2.5 MM

• Total assets exceeding $20 billion


• 2,800 employees worldwide (highly leveraged to contractors)
• Goods and services spending in excess of $5 billion per annum
Peer Group Returns and Finding Costs
Peer Group Returns and Finding Costs CORPORATION
CORPORATION

Full
Full Cycle
Cycle ROI
ROI 2002-2006
2002-2006 $/BOE
$/BOE 2002-2006
2002-2006
0%
0% 50%
50% 100%
100% 150%
150% 200%
200% 250%
250% $0.00
$0.00 $5.00
$5.00 $10.00
$10.00 $15.00
$15.00 $20.00
$20.00 $25.00
$25.00

Company
Company FF Company
Company BB

Apache
Apache Company
Company DD

Company
Company HH Company
Company G
G

Company
Company EE Company
Company CC

Company
Company G
G Company
Company AA

Company
Company CC Company
Company EE

Company
Company AA Company
Company HH

Company
Company DD Apache
Apache

Company
Company BB Company
Company FF

Peer
Peer group
group consists
consists of
of APC,
APC, CHK,
CHK, DVN,
DVN, EOG,
EOG, NBL,
NBL, NFX,
NFX, PXD,
PXD, XTO
XTO
Source:
: Bear
Source: Bear Stearns
Stearns &
& Co.
Co.
G&A per BOE ‐ 2006
G&A per BOE ‐ 2006 CORPORATION
CORPORATION

A
A pa
pacche
he

C
C oo m
mpa
pany
ny D
D

C
C oo m
mpa
pany
ny H
H

C
C oo m
mpa
pany
ny E
E

C
C oo m
mpa
pany
ny FF

C
C oo m
mpa
pany
ny C
C

C
C oo m
mpa
pany
ny A
A

C
C oo m
mpa
pany
ny G
G

C
C oo m
mpa
pany
ny B
B

$0
$0 .0
.0 00 $1.0
$1.0 00 $2
$2 .0
.0 00 $3
$3 .0
.0 00 $4
$4 .0
.0 00

Peer
Peer group
group consists
consists of
of APC,
APC, CHK,
CHK, DVN,
DVN, EOG,
EOG, NBL,
NBL, NFX,
NFX, PXD,
PXD, XTO
XTO
Source:
: Public
Source: Public Company
Company Data
Data
Building procurement with our DNA
Building procurement with our DNA CORPORATION
CORPORATION

Our company has grown through  …which have implications if you want 
some key principles… to build a sourcing effort

Speed: we bring barrels to market  • World class expeditors, pockets of 
faster than anyone and we reward  sourcing efforts, lots of bidding
for best‐in‐class delivery • Collaboration across regions limited 
or non‐existent

Nimbleness: We use our portfolio  • General dislike for long‐term 


as a hedge on commodity prices,  contracting
rather than financial instruments  • Unaccustomed to exotic price 
(need ability to “toggle” business) protection in contracts

Entrepreneurship: local delivery  • Processes are largely local (everyone 
sets the tone; do what you need to  figured out way to do their work)
do to “get ‘er done” • Relationships are local and strong
2006 Apache  Spend by Category
2006 Apache Spend by Category CORPORATION
CORPORATION

Worldwide Spend
(US Dollars in Millions)

Operations
Operations Svcs
Svcs

Rigs
Rigs

Well
Well Svcs
Svcs

Operations
Operations Eq
Eq

Engr
Engr &
& Construction
Construction

Offshore
Offshore Logistics
Logistics

Tubulars
Tubulars

Operations
Operations Mtls
Mtls

Commodities
Commodities Total goods and services
Corp
Corp &
& Employee
Employee Svcs
Svcs
spending is ~ $5 billion

Rig
Rig Operations
Operations

Onshore
Onshore Logistics
Logistics

G&G
G&G

00 100
100 200
200 300
300 400
400 500
500 600
600 700
700 800
800 900
900 1000
1000
**2006 Egypt data excluded due to availability.
The Strategic Supply Management Continuum
The Strategic Supply Management Continuum CORPORATION
CORPORATION

The
The Strategic
Strategic Supply
Supply Management
Management Continuum
Continuum explains
explains the
the various
various stages
stages of
of aa
procurement
procurement organization’s
organization’s progression
progression from
from reactive
reactive and
and paper-based
paper-based to
to strategic
strategic
and
and collaborative.
collaborative.
STRATEGY

• Decentralized purchasing • Centralized procurement strategy • Enterprise-wide global sourcing


strategy and objectives • Primarily local supplier contracts program
• Decentralized transaction • Isolated sourcing opportunities and • Leveraged purchasing power &
processes and controls targets from commodity overlaps negotiations
• Local supplier base • Standardized procurement • Performance measures drive
• Limited cost control, availability- transactions contract compliance
driven • Formalized contract administration • Executive ownership of
procurement strategies • Collaboration improves supplier
relationships
• Total cost of ownership optimized
• Performance measures drive
continuous improvement
• Procurement management focused
on recognizing new trends,
INFRASTRUCTURE challenges, opportunities

• Decentralized organization • ERP system automates transactions • Consolidated systems and reporting • Real-time connectivity with suppliers
• Paper-based and standalone • Procurement roles and • Formal sourcing teams and • Organization integrated with key
procurement systems responsibilities driven by supporting structure suppliers
• Numerous suppliers performance measures • eProcurement deployed • Data used as a basis for optimized
• No reporting • Informal sourcing teams • Electronic RFx tools in place decisions
• Formalized procurement organization • Optimized procurement
• Contract management system in organization
place

Decentralized Centralized Proactive Strategic


Center-Led
Organizational Options and Recommendation
Organizational Options and Recommendation CORPORATION
CORPORATION

Decentralized Centralized Center - Led


Organization • Sourcing decisions and • Sourcing decisions and • Sourcing coordinated across
procurement activities executed procurement activities executed business units
at the business or local level at central command and control
• Spending leveraged across
center
• Spending rarely leveraged businesses and regions
across sites/business units • Spending leveraged centrally
• Procurement reports to senior
• Procurement reports to • Procurement reports to senior supply chain or executive level
plant/business unit manager supply chain exec

• Limited or no process • Standardized processes and • Standardized processes and


Process policies tailored and executed at
standardization policies executed centrally
local level

• Skills and category expertise • Skills and category expertise • Skills, category expertise
Knowledge vary by business unit or site controlled centrally coordinated across businesses
and sites

• Technology decisions and • Technology decisions and • Technology decisions and


Technology usage vary by business unit or deployment made at corporate deployment coordinated across
locale level sites

• Metrics used vary by business • Standard metrics used at • Standard metrics used
Performance unit or locale corporate level enterprise-wide, but support for
local variances
Source: Aberdeen Group 2005
Procurement Philosophy
Procurement Philosophy CORPORATION
CORPORATION

ƒƒ Success is driven by being a low cost and efficient operator.
Success is driven by being a low cost and efficient operator.
ƒƒ Apache maintains a strong “Sense of Urgency”
Apache maintains a strong “Sense of Urgency” in our business practices. Projects are 
in our business practices. Projects are 
initiated and completed on time and on budget.  On time delivery is critical for success.
initiated and completed on time and on budget.  On time delivery is critical for success.
ƒƒ “Tough But Fair”
“Tough But Fair” ‐‐ We believe in paying a fair price for quality materials, equipment and 
We believe in paying a fair price for quality materials, equipment and 
services we purchase.  Suppliers must be competitive and qualified to perform.
services we purchase.  Suppliers must be competitive and qualified to perform.
ƒƒ We believe in competition for business based on quality products, services, and price. We 
We believe in competition for business based on quality products, services, and price. We 
generally avoid “sole source alliances”
generally avoid “sole source alliances” and sole source relationships that might 
and sole source relationships that might 
compromise competitive pricing.
compromise competitive pricing.
ƒƒ We expect quality in all products and services and expect our suppliers to stand behind all 
We expect quality in all products and services and expect our suppliers to stand behind all 
products and services.
products and services.
ƒƒ We believe in “transparency”
We believe in “transparency” in all business transactions. Suppliers and employees are 
in all business transactions. Suppliers and employees are 
held to high ethical and legal standards at all times.  
held to high ethical and legal standards at all times.  
___________________________________________________________________________
___________________________________________________________________________
ƒƒ We believe that strategic sourcing through key suppliers will reduce costs and improve 
We believe that strategic sourcing through key suppliers will reduce costs and improve 
overall efficiency (e.g. we actively manage spending categories regionally and globally)
overall efficiency (e.g. we actively manage spending categories regionally and globally)
Procurement Roadmap
Procurement Roadmap CORPORATION
CORPORATION

Cumulative Savings
(% spend) Collaborate and
extend reach
Underpin with
systems
Build the
structure

2006 - 2007 2007 - 2008 2008+

• Rollout updated policy and • Electronically enable procurement, • Set in place more global benefit
procedures inventory management, and contracts agreements (opt-ins)
management (SAP)
Activities • Monitor channel use
• Build spend database
• Build our market intelligence
• Develop low cost sourcing strategies

• Build “role model” suppliers


• Implement category strategy

• Move to center-led organizational • Train procurement team to use SAP for • Shift operational resources into
model primary job functions supplier adoption, strategic
sourcing, and contract compliance
• Train personnel throughout • Plan for SAP admin support
Organization applicable regions
roles

• Change Management • Change management • Resource needs and location to


• Supplier adoption deliver global vs. regional buying
• Managing and monitoring manual
Key processes • Technically matching our current
and negotiation
• Choosing best path to certify
Challenges processes where we can
international new supply sources
New approach to contracting
New approach to contracting CORPORATION
CORPORATION

ƒ Strive to leverage spending globally (where applicable) for large non‐specialty 
capital items
capital items (e.g. committed tonnage for casing, tubing, and line pipe) 
(e.g. committed tonnage for casing, tubing, and line pipe) 
ƒ Develop a managed set of  trusted suppliers for most non‐pipe goods and services, 
examples include:
- long term contracts and buyback agreements at the region and corporate level 
with key suppliers for wellheads
- Regional market basket suppliers for valves, fittings, consumables
ƒ Identify and exploit “value added” opportunities with motivated suppliers (e.g. 
combining purchase with freight, inspection, and return privileges to reduce 
costs)
ƒ Leverage our understanding of inventory at the local levels to best utilize 
reconditioned and reclaimed equipment; build a common platform for reference
Key messages for supply chain partners
Key messages for supply chain partners CORPORATION
CORPORATION

ƒ Apache is investing at a strong pace
ƒ We are very committed to building local, regional and (in some cases) global
trusted supplier relationships
trusted supplier relationships with energized, dependable partners
with energized, dependable partners
ƒƒ We welcome all innovations
We welcome all innovations in goods supply and service models and are willing 
to push the envelop to insure quality, timely delivery in support of our business
ƒ The bottom‐line: we are a company highly motivated to create value and we 
welcome all comers with that same desire
Key Ingredients to Apache Over 52 Years
Key Ingredients to Apache Over 52 Years CORPORATION
CORPORATION

Raymond Plank’s basic tenets (founder and Chairman)

ƒƒ Values are Your Compass; 
Values are Your Compass;  ƒƒ Words to live by
Words to live by
-- Sense of urgency
Sense of urgency -- ““ Leave the world a little better than you found it ”
Leave the world a little better than you found it ”
-- Strong work ethic
Strong work ethic -- ““ Take the difficult steps first ”
Take the difficult steps first ”
-- Self‐respect
Self‐respect -- ““ Beaten paths are for beaten men ”
Beaten paths are for beaten men ”
-- Open & direct
Open & direct -- ““ Don’t build your house to look down on others ”
Don’t build your house to look down on others ”
-- Build up rather than tear 
Build up rather than tear  -- ““ Conduct yourself accordingly ”
Conduct yourself accordingly ”
down (“not for sale”)
down (“not for sale”) ƒƒ Individuals ‐
Individuals ‐ Avoid arrogance and self‐serving 
Avoid arrogance and self‐serving 
actions
actions
ƒƒ Countries ‐
Countries ‐ We’re the guest; they’re the host
We’re the guest; they’re the host
ƒƒ Governments –
Governments – Avoid irresistible temptation to
Avoid irresistible temptation to
micro‐manage others’
micro‐manage others’ affairs (honor their 
affairs (honor their 
practices)
practices)

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