Diversifying to assure survival

1959

Underscoring the company’s contrarian nature, one of the most important strategic decisions ensuring Apache’s survival in the oil and gas business was its diversification away from it.

In 1956, Egypt closed the Suez Canal and choked off U.S. oil imports from the Middle East. In response, the domestic petroleum industry set production records, moving nine million barrels per day to refineries. When the canal reopened in 1957, oil imports spiraled upward and competed for space in storage facilities already strained to capacity.

Recognizing what the Oil and Gas Journal called “excessive inventories,” the major producing states put limits on their production. Apache, suffering a 90 percent reduction in its daily per-well allowable rate and facing the growth challenges of an oil and gas company in only its fifth year, recognized that government regulation of the industry could put it out of business. Always confident that oil and gas would someday yield long-term growth and profitability, Apache’s founders set out to ensure the company’s survival until that day arrived.

Apache’s first step away from oil and gas, and the beginning of a period of diversification, was into commercial real estate. Apache applied the same principles of limited-partnership investment it had already learned and refined in the field of oil and gas. The company spent $15 million in 1959 and 1960 acquiring interests in four buildings in Wisconsin and Minnesota. Notable among them was a Minneapolis landmark, the Foshay Tower. A 32-story imitation of the Washington Monument, it was destined to become Apache’s headquarters location from the early ‘60s until 1984.

Never fully abandoning its underlying foundation in the oil and gas business (“We were an oil company in waiting,” Plank was often heard to say), Apache diversified from the late 1950s to the early 1980s into real estate, agriculture, steel, plastics, telephones, utilities, cattle and dude ranching, aerosol cans, lumber and auto supplies, to mention but a few of the 50-plus businesses the company ultimately acquired.

1967

An indication of Apache's continuing commitment to the oil and gas business was the Fagerness #1 discovery, which flowed 1,200 barrels per day from the Muddy formation in Wyoming’s Powder River Basin in July 1967.

Ultimately accumulating a sizable leasehold position, Apache developed the Recluse field with 28 wells, 24 of which were productive. The field was a springboard to Apache’s recognition as a major independent producer of oil. It was also the foundation that assured Apache’s survival when most explorers were throwing in the towel.

1969

On July 27, 1969, Apache Corporation’s shares were listed on the New York Stock Exchange, opening at $30.50. Starting with seed capital of $250,000 in 1954, the company’s market capitalization was approaching $50 million.

1970

In March 1970, Apache expanded its concept of limited-partnership financing into the business of agriculture with the acquisition of Fresno, California’s S&J Ranch.

S&J, founded at the same time Raymond Plank was seeking clients for his post-war, pre-Apache accounting service, was located in the San Joaquin Valley, the nation’s largest producer of fruits and vegetables. In its early years, its sole purpose was to grow and market figs. S&J prospered and expanded its product line during the 1950s and 1960s. However, confronted with the need for additional investment to develop the ranch’s citrus operations and the associated long-term lag between investment and the trees’ first new crop of fruit, S&J’s owners decided in 1969 that the time had come to sell to someone with a longer-term operating horizon.

Under Apache’s management, and owned through what were known as the Grove Land programs, S&J expanded its growing operations to include five crops: citrus (sold primarily under the Sunkist label), figs, pistachios, almonds and olives. It ultimately became one of the largest producers of pistachios in the country.

1971

Apache’s diversification in the ‘50s and ‘60s in order to ensure its own survival accomplished the objective, but not without creating new challenges. Wall Street analysts had difficulty seeing synergies in Apache’s unrelated businesses. Management, sensing a subtle strengthening of the long-term prospects for oil and gas, felt itself drawn in too many directions and unable to bring sufficient care and attention to oil and gas activities. And oil and gas program unit holders, recognizing the long-lived nature of their drilling-fund interests, were developing a growing, and unmet, appetite for liquidity.

Responding to these challenges, Apache Corporation formed Apache Exploration Company (subsequently “Apexco”) in 1971 as the oil and gas operating arm of the corporate parent’s drilling programs. As a publicly held entity with Apache holding 60 percent of the outstanding shares, Apexco offered program unit holders liquidity by giving them the option to exchange their illiquid program units for stock, issued at $10 per share, in the new company. As this was the first-ever exchange of program interests for publicly traded stock, the creation of Apexco required SEC approval and was widely acclaimed for its innovation.

With technical staff contributed by Apache and with its own board of directors, Apexco brought a renewed focus to the parent’s bread-and-butter business. Timing also proved to be propitious, as the oil embargo of 1973 propelled commodity prices and Apexco’s share values forward.

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