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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D)15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER 31, 19961998
COMMISSION FILE NO. 1-8968
ANADARKO PETROLEUM CORPORATION
(Exact name of registrant as specified in its charter)
------------------17001 NORTHCHASE DRIVE, HOUSTON, TEXAS 77060-2141
(281) 875-1101
INCORPORATED IN THE STATE OF DELAWARE 76-0146568
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)
17001 NORTHCHASE DRIVE, HOUSTON, TEXAS 77060-2141
(ADDRESS OF EXECUTIVE OFFICES) (ZIP CODE) 76-0146568
REGISTRANT'S TELEPHONE NUMBER: (281) 875-1101
SECURITIES REGISTERED PURSUANT TO SECTION 12(B)12(b) OF THE ACT:
TITLE OF EACH CLASS NAME OF EACH EXCHANGE ON WHICH REGISTERED
Common Stock, $0.10 par value The New York Stock Exchange, Inc.
Preferred Stock Purchase Rights The New York Stock Exchange, Inc.
Common Stock, par value $0.10 per share
Preferred Stock Purchase Rights
The above Securities are listed on the New York Stock Exchange.
SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT: None
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports) and (2) has been subject to such
filing requirements for the past 90 days. Yes X No .
---- ----____.
Indicate by check mark if the disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be contained,
to the best of the registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K.10-K ____.
The aggregate market value of the voting stock held by non-affiliates of
the registrant computed using the average of the high and low sales prices at
which the stock sold on January 31, 199729, 1999 was $3,893,006,000.$3,246,000,000.
The number of shares outstanding of eachand entitled to vote of the registrant's classes ofCompany's
common stock as of January 31, 199729, 1999 is shown below:
TITLE OF CLASS NUMBER OF SHARES OUTSTANDING
Common Stock, $0.10 par value 59,605,829$0.10 per 120,453,338
share
PART OF
FORM 10-K DOCUMENTS INCORPORATED BY REFERENCE
Part I Portions of the Anadarko Petroleum Corporation 19961998 Annual
Report to Stockholders.
Part III Portions of the Proxy Statement, dated March 21, 1997,22, 1999, for
the Annual Meeting of Stockholders of Anadarko Petroleum
Corporation to be held April 24, 1997.29, 1999.
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TABLE OF CONTENTS
PAGE
PART I
Item 1. Business
2
General 2
Proved Reserves and Future Net Cash Flows 2
Exploration, Development, Acquisition and Marketing
Activities 3
Volumes and Prices 3
Properties and Activities -- InternationalUnited States 4
Properties and Activities -- United States 7
Offshore 7
Onshore 9
Gathering and ProcessingInternational 12
Drilling Programs 1216
Drilling Statistics 1316
Productive Wells 1317
Segment and Geographic Information 17
Employees 1417
Regulatory and Legislative Developments 1417
Additional Factors Affecting Business 1417
Title to Properties 1417
Capital Spending 1417
Ratios of Earnings to Fixed Charges and Earnings to Combined Fixed Charges and Preferred
Stock Dividends 1418
Item 2. Properties 1518
Item 3. Legal Proceedings 1518
Item 4. Submission of Matters to a Vote of Security Holders 1619
Executive Officers of the Registrant 1619
PART II
Item 5. Market for Registrant's Common Equity and Related
Stockholder Matters 1821
Item 6. Selected Financial Data 1821
Item 7. Management's Discussion and Analysis of Financial Condition
and Results of Operations 1922
Item 8. Financial Statements and Supplementary Data 3035
Item 9. Changes in and Disagreements with Accountants on Accounting
and Financial Disclosure 6470
PART III
Item 10. Directors and Executive Officers of the Registrant 6470
Item 11. Executive Compensation 6470
Item 12. Security Ownership of Certain Beneficial Owners and
Management 6470
Item 13. Certain Relationships and Related Transactions 6470
PART IV
Item 14. Exhibits and Reports on Form 8-K 6571
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PART I
ITEM 1. BUSINESS
In Item 1 of this Form 10-K, including the production and reserve
disclosures contained therein, the Company has included a number of forward
looking statements within the meaning of Section 27A of the Securities Act of
1933 and Section 21E of the Securities Exchange Act of 1934. These forward
looking statements are based on the best data available at the time this report
was released for printing; however, actual results could differ materially from
those expressed or implied by such statements. See Additional Factors Affecting
Business in the Management's Discussion and Analysis under Item 7 of this Form
10-K.
GENERAL
Anadarko Petroleum Corporation is one of the world's largest independent
oil and gas exploration and production companies with 601935.1 million energy
equivalent barrels (MMEEBs) of proved reserves.reserves as of December 31, 1998.
The Company's reserve mix has shifted dramatically in recent years,1998, primarily due to major crude oilrecent
discoveries both in Algeriathe Gulf of Mexico's sub-salt trend and continued development
activity onshore the U.S., which have resulted in a larger and more balanced portfolio of energysignificant increase in natural
gas reserves. As of year-end 1996, crude oil, condensate and1998, natural gas liquids (NGLs) reserves accounted for 50 percent47% of the
Company's total proved reserves, compared to just six
percent41% at year-end 1986.1997.
About 80 percent74% of the Company's total proved reserves are located in the U.S.,
primarily in the mid-continent (Kansas, Oklahoma and Texas) area, offshore in
the Gulf of Mexico and in Alaska. Currently, allDuring 1998, 97% of the Company's production
iswas located in the U.S. The Company also owns interests in 13and operates gas gathering systems
and four
gas processing plants in theits U.S. Internationally,core producing areas.
Overseas, Anadarko is exploring for and developing crude oil reserves in Algeria's Sahara
Desert. To date,Desert and has commenced oil production. At year-end 1998, the Company has recorded 124.3had 245
million barrels (MMBbls) of proved crude oil and condensate reserves in Algeria, which accounts
for about 20 percent26% of Anadarko's total proved reserves. First oil production from the Hassi
Berkine South (HBNS) Field began in May 1998. Development operations are now underway.of other commercial
fields in Algeria is underway and production is expected to increase
substantially over the next several years. The Company is also participatingparticipates in
other international exploration projects in Eritrea, Jordanthe North Atlantic Margin
and Peru.Tunisia.
The principal subsidiaries of Anadarko include: Anadarko Gathering Company;Algeria
Corporation (Anadarko Algeria); Anadarko Energy Services Company (formerly Anadarko Trading Company);Company; and, Anadarko
Algeria Corporation (Anadarko Algeria).Gathering Company. Unless the context otherwise requires, the terms "Anadarko"
or "Company" refer to Anadarko and its subsidiaries. The Company's corporate
offices are located at 17001 Northchase Drive, Houston, Texas 77060-2141, where
the telephone number is (281) 875-1101.
A discussion of key issues that face Anadarko and the industry are included
in the narrative on pages 6 through 17 of the Anadarko Petroleum Corporation
1998 Annual Report to Stockholders (Annual Report), which is incorporated herein
by reference.
PROVED RESERVES AND FUTURE NET CASH FLOWS
As of December 31, 1998, Anadarko had proved reserves of 2.65 trillion
cubic feet (Tcf) of natural gas and 494.0 MMBbls of crude oil, condensate and
natural gas liquids (NGLs). Combined, these proved reserves are equivalent to
935.1 MMBbls of oil or 5.61 Tcf of gas. The Company's reserves have grown
significantly over the past three years, due to substantial natural gas reserves
discovered in the Gulf of Mexico and onshore U.S., crude oil reserves discovered
in Algeria and Alaska and acquisitions of producing properties. At year-end
1998, Anadarko's total proved reserves were comprised of 47% natural gas and 53%
crude oil, condensate and NGLs.
As of December 31, 1998, Anadarko had proved developed reserves of 1.64 Tcf
of natural gas and 163.7 MMBbls of crude oil, condensate and NGLs. Proved
developed reserves comprise 47% of the total proved reserves on an energy
equivalent barrel basis.
The Company's estimates of proved reserves and proved developed reserves
owned at December 31, 1998, 1997 and 1996 and changes in proved reserves during
the last three years are contained in the Supplemental Information on Oil and
Gas Exploration and Production Activities (Supplemental Information) in the
Anadarko Petroleum Corporation 1998 Consolidated Financial Statements
(Consolidated Financial Statements) under Item 8 of this Form 10-K Annual Report
(Form 10-K). The Company files annual estimates of certain proved oil and gas
reserves with the Department of Energy, which are within 5% of these amounts.
Also contained in the Supplemental Information in the Consolidated
Financial Statements are the Company's estimates of future net cash flows,
discounted future net cash flows before income taxes, and discounted future net
cash flows after income taxes from proved reserves.
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Proved oil and gas reserves are the estimated quantities of natural gas,
crude oil, condensate and NGLs which geological and engineering data demonstrate
with reasonable certainty to be recoverable in future years from known
reservoirs under existing economic and operating conditions. Reserves are
considered proved if economical producibility is supported by either actual
production or conclusive formation tests. Reserves which can be produced
economically through application of improved recovery techniques are included in
the "proved" classification when successful testing by a pilot project or the
operation of an installed program in the reservoir provides support for the
engineering analysis on which the project or program was based. Proved developed
oil and gas reserves can be expected to be recovered through existing wells with
existing equipment and operating methods.
As of December 31, 1996, Anadarko had proved reserves of 1.82 trillion
cubic feet (Tcf) of natural gas and 297.8 MMBbls of crude oil, condensate and
NGLs. Combined, these proved reserves are equivalent to 601.3 MMEEBs of oil or
3.61 Tcf of gas. The Company's reserves have grown significantly over the past
three years. Reserve growth is due mainly to the dramatic increase in crude oil
reserves discovered in Algeria, the Gulf of Mexico and Alaska. Crude oil,
condensate and NGLs comprised 50 percent of Anadarko's total reserves at
year-end 1996. The volumes of the Company's natural gas reserves have remained
relatively stable over the last three years.
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Proved developed reserves comprise 63 percent of the total proved reserves
on an energy equivalent barrel (EEB) basis. As of December 31, 1996, Anadarko
had proved developed reserves of 1.65 Tcf of natural gas and 100.6 MMBbls of
crude oil, condensate and NGLs.
The Company's estimates of proved reserves and proved developed reserves
owned at December 31, 1996, 1995 and 1994 and changes in proved reserves during
the last three years are contained in the Supplemental Information on Oil and
Gas Exploration and Production Activities (Supplemental Information) in the
Anadarko Petroleum Corporation 1996 Consolidated Financial Statements
(Consolidated Financial Statements) under Item 8 of this Form 10-K Annual Report
(Form 10-K). The Company files annual estimates of certain proved oil and gas
reserves with the Department of Energy, which are within five percent of these
amounts.
Also contained in the Supplemental Information in the Consolidated
Financial Statements are the Company's estimates of future net cash flows,
discounted future net cash flows before income taxes and discounted future net
cash flows after income taxes from proved reserves.
The Company emphasizes that the volumes of reserves are estimates which, by
their nature, are subject to revision. The estimates are made using all
available geological and reservoir data, as well as production performance data.
These estimates are reviewed annually and revised, either upward or downward, as
warranted by additional performance data.
EXPLORATION, DEVELOPMENT, ACQUISITION AND MARKETING ACTIVITIES
See narrative description on pages 9 through 23 of the Anadarko Petroleum
Corporation 1996 Annual Report to Stockholders (Annual Report), which is
incorporated herein by reference, and see Marketing Strategies, Operating
Results and Acquisitions and Divestitures under Item 7 of this Form 10-K.
VOLUMES AND PRICES
The following table shows the Company's annual production volumes. Volumes
for natural gas are in billion cubic feet (Bcf) at a pressure base of 14.73
pounds per square inch (psi) and volumes for oil, condensate and NGLs are in
thousands of barrels (MBbls). Total volumes are in MMEEBs. For this computation,
six thousand cubic feet (Mcf) of gas is the energy equivalent of one barrel of
oil, condensate or NGLs.
1998 1997 1996
1995 1994
----- ----- ----------- ------ ------
UNITED STATES
Natural gas (Bcf) 176.7 178.7 164.9 171.7 173.0
Oil and condensate (MBbls) 9,752 9,083 6,702 7,435 7,958
Natural gas liquids (MBbls) 6,640 5,467 3,514
3,580 3,493
CANADA*
Natural gas -- -- 2.8Total (MMEEBs) 45.8 44.3 37.7
ALGERIA*
Oil and condensate (MBbls) 1,374 -- --
345Total (MMEEBs) 1.4 -- --
TOTAL
Natural gas (Bcf) 176.7 178.7 164.9
Oil and condensate (MBbls) 11,126 9,083 6,702
Natural gas liquids -- -- 19
TOTAL
Natural gas 164.9 171.7 175.8
Oil and condensate 6,702 7,435 8,303
Natural gas liquids(MBbls) 6,640 5,467 3,514
3,580 3,512Total (MMEEBs) 47.2 44.3 37.7
- ---------------
* In December 1994,May 1998, production commenced from the Company sold its Canadian subsidiary.Company's operations in Algeria.
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The following table shows the Company's annual average wellhead sales
prices and average production costs.
Production costs are per EEB. For this computation,
one barrel is the energy equivalent of six thousand cubic feet (Mcf).
1998 1997 1996 1995 1994
------ ------ ------
UNITED STATES
Sales price
Natural gas (per Mcf) $ 2.131.92 $ 1.422.30 $ 1.722.13
Oil and condensate (per barrel) 11.44 18.03 20.21 16.52 15.06
Natural gas liquids (per barrel) 10.29 14.64 16.86 12.81 11.77
Production cost (per EEB) 3.17 3.19 3.01
CANADA*3.64 3.56 3.22
ALGERIA*
Sales price
Natural gas (per Mcf) -- -- $ 1.70
Oil and condensate (per barrel) $11.99 -- -- 12.04
Natural gas liquids (per barrel) -- -- 9.47
Production cost (per EEB) 4.72 -- -- 4.91
TOTAL
Sales price
Natural gas (per Mcf) $ 2.131.92 $ 1.422.30 $ 1.722.13
Oil and condensate (per barrel) 11.51 18.03 20.21 16.52 14.93
Natural gas liquids (per barrel) 10.29 14.64 16.86 12.81 11.75
Production cost (per EEB) 3.17 3.19 3.053.67 3.56 3.22
- ---------------
* In December 1994,May 1998, production commenced from the Company sold its Canadian subsidiary.Company's operations in Algeria.
Additional information on volumes, prices and pricesmarkets is contained in
Analysis of Volumes and Prices and Marketing Strategies under Item 7 of this
Form 10-K. Additional informationInformation on major customers is contained in Note 10 of the Notes
to Consolidated Financial Statements under Item 8 of this Form 10-K.
PROPERTIES AND ACTIVITIES -- UNITED STATES
U.S. reserves comprise 74% of Anadarko's total proved reserves, compared to 74%
in 1997 and 79% in 1996.
ONSHORE
OVERVIEW The Company's onshore reserves comprise about 52% of total proved
reserves. These reserves are located principally in Kansas, Oklahoma, Texas and
Alaska. In 1998, average production from the Company's onshore properties was
334 million cubic feet per day (MMcf/d) of gas and 38,000 barrels of liquids per
day, or 73% of the Company's total production volumes. Anadarko has 1,355,000
gross (540,000 net) undeveloped lease acres and 1,073,000 gross (824,000 net)
developed lease acres onshore in the U.S.
The accompanying map illustrates by state Anadarko's undeveloped and
developed net acreage, number of net producing wells and other data relevant to
its onshore oil and gas operations.
HUGOTON EMBAYMENT One of Anadarko's largest assets is its reserves in the
Hugoton Embayment, located in southwest Kansas and the Oklahoma and Texas
panhandles. Currently, Anadarko controls about one million lease acres in this
area and operates about 2,750 wells. Anadarko's net production from the Hugoton
Embayment in 1998 was 84.4 Bcf of gas and 1.45 MMBbls of oil and condensate, or
about 33% of the Company's total production volumes.
In 1998, Anadarko only drilled 118 conventional wells, seven horizontal
wells and recompleted 24 wells in the area due to lower oil and gas prices. By
comparison, 1997 activity included 177 conventional wells, 49 horizontal wells
and 55 recompletions. It should be noted that the 1997 activity was
exceptionally high as a result of a special initiative to increase domestic
production growth.
Anadarko's activities in the Hugoton Embayment are concentrated on two
areas: the shallow gas fields in southwest Kansas and the Oklahoma and Texas
panhandles and the deeper oil and gas zones below the shallow gas production.
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ONSHORE MAP (GRAPHIC MATERIAL OMITTED)
NET NET NET
DEVELOPED UNDEVELOPED PRODUCING
ACRES ACRES WELLS
---------- ----------- -----------
ONSHORE:
United States
Alaska* 302 244,554 --
Colorado 3,003 5,057 --
Kansas* 355,126 60,412 1,594
Mississippi* 326 35,041 --
Montana 162 250 --
Nebraska 96 139 --
New Mexico 14,930 1,900 129
North Dakota 40 -- --
Oklahoma* 249,055 89,254 1,033
Texas* 184,126 60,611 2,197
Utah* 15,123 14,240 42
Wyoming 1,359 29,030 --
OFFICE LOCATIONS:
United States
Anchorage, Alaska
Houston, Texas
Midland, Texas
Liberal, Kansas
*Drilling activities were conducted in these areas in 1998.
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Highlights from Anadarko's deep drilling program in the Hugoton Embayment
during 1998 included the discovery of a new interval in the prolific Chester
formation. The Smith AF-1 well, which was drilled in the Lorena Field of Beaver
County, Oklahoma, tested 1.5 MMcf/d of gas and 82 barrels of oil per day (BOPD)
and confirmed the presence of the Basal Chester reservoir. In 1998, the Company
drilled six wells in the Lorena Field, five of which were successful and were
producing 7.5 MMcf/d of gas and 617 BOPD at year-end 1998.
In Seward County, Kansas, Anadarko continued a major delineation program in
the Archer Field targeting the deeper St. Louis formation. While traditionally
more prolific than other zones in the area, the St. Louis interval is more
difficult to image with seismic. Data obtained as part of a 3-D seismic
acquisition program in 1997 was instrumental in allowing the Company to identify
prospects. During 1998, a total of 14 wells were drilled in the St. Louis
formation. During 1999, Anadarko plans to shoot an additional 34 square miles of
3-D seismic data in an effort to extend the Archer and Lorena Fields.
In 1998, Anadarko obtained approximately 180 square miles of seismic
information on acreage acquired in 1997 as part of a joint venture with Mobil
Exploration and Production, U.S., Inc. Anadarko serves as operator of the 50/50
partnership.
Over the last five years, Anadarko has drilled more than 600 wells (gross)
in the Hugoton Embayment. In addition to development drilling, Anadarko's
operations in this area have benefited from acquisitions of producing
properties, gas gathering systems and waterflood operations.
CENTRAL OKLAHOMA Anadarko more than doubled its acreage position in Central
Oklahoma's Golden Trend area in 1998 after acquiring 37,000 gross acres from OXY
USA, Inc. The $118 million purchase gave the Company working interests in five
oil and gas fields with net production of 2,600 BOPD and 5.4 MMcf/d of gas, as
well as an interest in an eight-inch, 120-mile CO(2) pipeline. Prior to the
acquisition, Anadarko operated about 300 oil and gas wells in the Golden Trend
area and had interests in 31,000 gross acres. The OXY purchase added 370
producing and injection wells. Aside from the additional production volumes, the
OXY purchase offers Anadarko opportunities to build on its success in a
traditionally gas-producing area. The properties contain proved reserves of 19.2
MMEEBs and Anadarko has identified a significant number of additional prospects
that could increase reserves and production of oil and gas in the future. With
the purchase of the pipeline, Anadarko becomes the only CO(2) provider in the
area. In addition to using CO(2) for its own tertiary recovery operations, the
Company is marketing CO(2) to third parties.
At year-end 1998, gross production from the Company's 286 Golden Trend
wells was 31.1 MMcf/d of gas and 900 BOPD. In the last five years, Anadarko has
drilled 100 wells in the Golden Trend and implemented a 40-acre infill drilling
program. Since 1994, the Company has drilled 31 increased density wells,
including 22 in 1998 alone. Value is added to the Company's Golden Trend assets
through the Anadarko-operated Antioch Gathering System. The system has 130 miles
of pipe and connects over 200 wells in the area. During 1998, the Antioch system
moved an average of 28 MMcf/d of gas and 300 BOPD.
PERMIAN BASIN Drilling activity during 1998 declined from record levels
achieved in 1997, due directly to low oil prices. Anadarko drilled 94 Permian
Basin wells in 1998 (39 primary and 55 secondary). About 130 wells planned for
1998 were deferred. Net oil production from the area at year-end 1998 was 10,700
BOPD, approximately 35% of the Company's total oil production volumes.
In the Permian Basin, Anadarko holds interests in 227,000 gross (137,000
net) lease acres and operates about 2,800 active wells. In 1998, Anadarko
increased its acreage position in the Permian Basin by acquiring an additional
14,800 net acres.
A field extension program which was started in 1994 in the Ketchum Mountain
(Clearfork) Field of Irion County, Texas, continued in 1998 as the Company
successfully completed 19 producing wells. During 1998, Field production peaked
at 3,360 BOPD. Anadarko owns an 89% working interest in the Ketchum Mountain
Unit and a 97% working interest in the extension area.
Permian Basin activity during 1998 was also focused on infill drilling and
secondary recovery operations at the Company's TXL North and TXL South Units in
Ector County, Texas. In 1998, a total of 47 wells were drilled in the two units,
which had combined gross production at year-end of 5,100 BOPD (3,250 BOPD net).
Anadarko has a 79% working interest in the TXL North Unit and a 66% working
interest in the TXL South Unit.
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EAST TEXAS Anadarko continued to build on its success in the Bossier Sand Play
in 1998, with the completion of 36 wells in the Dew West and Mimms Creek Fields
of Freestone County, Texas. Year-end gross production from the Bossier Play, the
Company's third largest onshore gas field, was 50 MMcf/d of gas, compared to an
average of 5.4 MMcf/d of gas in 1997. The Company owns approximately 26,000
gross acres in the Bossier Sand Play and had an average of five rigs running in
1998.
GULF COAST Along the Gulf Coast of Texas, Anadarko has been active in several
exploration plays. Using 3-D seismic data and advanced processing techniques,
the Company is evaluating the exploration potential of several plays.
In the Wilcox Play of Jim Hogg County, Texas, Anadarko has a 33% working
interest in about 28,000 gross undeveloped acres.
The Company has an interest in approximately 2,000 gross undeveloped acres
held by production in the Hartburg Play, located in Orange County, Texas.
Anadarko's working interest varies from 25%-50%.
Along the upper Texas coast, Anadarko has been developing reserves in the
Yegua Trend since the early 1990s. The Company has an average 50% working
interest in about 12,000 gross lease acres in the Play.
COAL-BED METHANE Anadarko is developing coal-bed methane acreage in the Helper
Field, located in Carbon County, Utah. During 1998, Anadarko drilled 12 wells on
state and private leases, increasing the number of producing wells to 39. The
Helper Field was producing 7.6 MMcf/d (gross) at year-end with gas production
continuing to increase. An Environmental Impact Statement (EIS) is near
completion on the Company's federal leases that contain 12,500 gross acres
within the Helper Field. Completion of the EIS will allow Anadarko to continue
development of the Helper Field and drill up to 60 wells over the next three
years. Anadarko has a 100% working interest in the project.
GATHERING AND PROCESSING
GAS GATHERING SYSTEMS Anadarko owns and operates five major gas gathering
systems in the nation's mid-continent area: the Antioch Gathering System in the
Southwest Antioch Field of Oklahoma; the Hemphill Gathering System, located in
Hemphill County, Texas; the Sneed System in the West Panhandle Field of Texas;
the Hugoton Gathering System in southwest Kansas; and the Dew Gathering System
in East Texas, the first phase of which was completed in 1998. The Company's
gathering systems have more than 2,500 miles of pipeline connecting about 2,000
wells and have more than 500 MMcf/d of gas gathering capacity. In addition,
Anadarko owns interests in nine other smaller gas gathering systems.
GAS PROCESSING FACILITIES The Company's last fully-owned and operated gas
processing facility, the Sneed Gas Processing Plant in the West Panhandle Field
of Texas, was closed in 1997. The Company also sold its remaining interests in
three other plants in 1997. These decisions, together with the closing of the
Company's Panther Creek Gas Processing Plant in 1996, were based upon a strategy
to take advantage of excess capacity in more modern and efficient plants owned
by third parties in the mid-continent. This strategy resulted in an increase in
NGL product recoveries due to the improved efficiency of the newer processing
facilities. Anadarko's NGLs sales volumes increased 21% in 1998 compared to
1997.
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ALASKA
Anadarko is active in two geographic areas in Alaska -- the North Slope and the
Cook Inlet of south central Alaska. Overall, the Company had interests in
596,000 gross lease acres in Alaska at year-end 1998.
NORTH SLOPE Development of the Alpine Field, discovered by Anadarko and its
partner ARCO Alaska, Inc. in 1994, continued in 1998 and is about 40% complete.
Progress continued on the construction of gravel surfaces at the drilling pads
and airstrip. As a result of the project, which began in the winter of
1997-1998, personnel now remain on site year-round to conduct drilling and
development operations. Production modules are currently being built at
fabrication yards in Corpus Christi, Texas, and Nikiski on the Kenai Peninsula
of south central Alaska. The modules will be sea lifted to the North Slope this
summer with site installation scheduled for the 1999-2000 winter season.
In early 1998, one extension well at Alpine was drilled, the results of
which have not been released. In addition, the Field's first two horizontal
wells were drilled and tested. Among the many benefits of horizontal drilling
are more efficient recovery of reserves, fewer wells required for full field
development, lower project costs and minimal environmental impact. In fact,
Alpine is being developed much like an offshore field, with no roads or bridges
connecting to existing infrastructure. Operations will affect only 100 acres out
of the 40,000-acre productive limits of the Alpine Field -- or one-quarter of 1%
of the total surface area. The Company's development program for 1999 calls for
drilling 15 wells from the first of the Field's two pad locations. Anadarko owns
a 22% working interest in the ARCO Alaska-operated Alpine Field. The Alpine
Field is expected to begin producing at an initial rate of 40,000 BOPD (gross)
in mid-2000, ramping up to 70,000 BOPD (gross) in mid-2001. Anadarko and ARCO
Alaska also jointly hold six offshore lease blocks in the Beaufort Sea west of
the Alpine Field.
In August 1998, Anadarko announced an agreement with the Arctic Slope
Regional Corporation (ASRC) that gives the Company exclusive access to more
lands for exploration than any other oil company operating in the state. The
agreement, which covers the Foothills region of the state, provides Anadarko
with exploration rights to 2.2 million gross acres that ASRC has under title
currently. Additionally, the Company has exploration rights to an additional
900,000 gross acres now held by the Bureau of Land Management. From that 900,000
gross acres, ASRC will eventually claim title to about 240,000 gross acres as
part of its land selection rights under the Alaska Native Claims Settlement Act.
Following initial exploration work, Anadarko has the exclusive option to lease
the 2.2 million acres from ASRC and the exclusive option to acquire a lease on
the 240,000 acres when selected by ASRC. Future phases of the agreement will be
based on a work commitment by Anadarko.
In the summer of 1998, Anadarko added to its acreage position on the North
Slope by investing $8.1 million (net) to acquire 26 tracts covering 123,000
gross acres in State Lease Sale 87. The area covered by the lease sale, called
the Central Arctic State Sale Area, is located on the North Slope south of the
Alpine, Kuparuk and Prudhoe Bay Fields and east of the National Petroleum
Reserve -- Alaska (NPRA). Anadarko was the third most active bidder in the sale
and holds 20 of the tracts alone. The remaining six are held in partnership with
Petrofina Delaware, Inc.
Anadarko's Sale 87 acreage and the Alpine discovery are strategically
located near the Northeastern Planning Area of the NPRA. Anadarko and its
partners are conducting a 3-D seismic acquisition program in the NPRA in
preparation for an expected 1999 NPRA lease sale.
COOK INLET In the third quarter of 1998, Anadarko completed its first
Company-operated well in Alaska. The Lone Creek No. 1 well on the Moquawkie
Prospect flowed 10.6 MMcf/d of gas at a flowing tubing pressure of 925 psi from
53 feet of perforations at a depth of approximately 2,400 feet. This represents
one of the best shallow gas tests in the area. Located about 40 miles west of
Anchorage on lands leased from Cook Inlet Region, Inc., the well also
encountered several other possible gas zones, which total about 180 feet of
additional net pay, but have not yet been tested. Anadarko and ARCO Alaska each
have a 50% interest in the discovery. The venture is reviewing development plans
for the Lone Creek discovery, which may include additional drilling and
installation of facilities necessary to produce this and subsequent wells. The
well is located within five miles of a 16-inch natural gas pipeline. The
partners also hold approximately 56,000 gross leasehold acres in the Moquawkie
Prospect area and 178,000 gross acres total in the Cook Inlet area, which
includes an option on 16,000 gross acres not yet exercised.
8
10
OFFSHORE
OVERVIEW At year-end 1998, about 22% of the Company's proved reserves were
located offshore in the Gulf of Mexico. Production volumes from these properties
were 176 MMcf/d of gas and 6,500 BOPD at year-end 1998. The Company's production
from the Gulf of Mexico increased during 1998 as new discoveries were brought on
line and enhancements were made to producing platforms. At year-end 1998,
Anadarko owned an average 50% working interest in 126 lease blocks representing
182,000 gross (56,000 net) acres in developed properties and 514,000 gross
(276,000 net) acres in undeveloped properties offshore.
The accompanying map illustrates the Company's undeveloped and developed
net acres, number of producing net wells and other data relevant to its offshore
properties.
EXPLORATION Anadarko is active in exploration projects in conventional,
sub-salt and deepwater plays in the Gulf of Mexico. In 1998, the Company drilled
five offshore exploration wells (two sub-salt and three conventional).
Major sub-salt discoveries were announced at Anadarko's Tanzanite and
Hickory prospects offshore Louisiana. After being drilled to 14,350 feet, the
Tanzanite No. 1 discovery well encountered a 600-foot sand with 427 feet of
continuous hydrocarbon pay. The reservoir rock is of high quality with excellent
porosity and permeability. During testing operations, Tanzanite flowed 21,917
BOPD and 29.7 MMcf/d of gas, a Company record. Additional drilling and refined
seismic imaging will be required to determine the true areal extent of the main
reservoir and the extent of other pay zones. Construction and design work for a
platform is now underway, with first production slated to begin in the third
quarter of 2000. Anadarko has a 100% working interest in the Tanzanite discovery
which is located on Eugene Island Block 346, about 75 miles offshore Louisiana
in 314 feet of water. One development well and one wildcat well at Tanzanite are
currently drilling.
In the fourth quarter of 1998, Anadarko announced a discovery at Hickory,
its second success of the year in the sub-salt play. Located on Grand Isle Block
116 in 320 feet of water, Hickory encountered 300 feet of net hydrocarbon pay in
multiple sands. On its way to a total depth of 21,600 feet, the discovery well
penetrated an 8,000-foot section of salt, which is believed to be the thickest
ever drilled in the Gulf of Mexico. A development well was spudded from the same
surface location in November 1998 to help develop the reservoir. Design work has
already started on a platform in anticipation of possible first production in
the second half of 2000. Anadarko serves as operator of Grand Isle Blocks 110,
111 and 116 and has a 50% working interest. Partners include Shell Oil Company
(37.5%) and Ocean Energy (12.5%).
During 1999, Anadarko expects to drill up to four exploration wells on its
sub-salt prospects in the Gulf of Mexico. The Company is completing several
imaging projects that will help determine its next sub-salt drilling prospects.
Anadarko has identified about 20 sub-salt prospects across its holdings in the
Gulf.
Conventional offshore exploration projects in 1998 included the A-7 well at
East Cameron 157, which discovered new reserves that were fault-separated from
the main field. The A-7 well was completed at a rate of 40 MMcf/d of gas and
1,100 barrels of condensate per day (BCPD). Anadarko has a 100% working interest
in the Block which is located off the Louisiana coast.
At High Island Block 376, the B-5 extended-reach well was completed and
placed on production at 4 MMcf/d of gas. The completion of a compressor package
at the platform during the fourth quarter more than doubled the Company's output
to 21 MMcf/d of gas. Anadarko owns a 100% working interest in the B-5 well and a
33.8% working interest in the Field.
9
11
In addition to offshore properties in the conventional and sub-salt plays,
Anadarko also has working interests in 34 deepwater lease blocks, 26 of which
are Company-operated. Seismic data were acquired over several of the deepwater
blocks during 1998. Lease blocks in the deepwater Gulf of Mexico are held for
10-year terms and can be easily deferred for later drilling.
DEVELOPMENT Anadarko's 1998 work program combined projects to bring recent
discoveries on line and enhance production from existing platforms.
The Agate Field, discovered in 1996 by Anadarko and its partner Phillips
Petroleum (operator), was placed on production in the third quarter of 1998.
Field production is from one sub-sea well, located at Ship Shoal Block 361 about
70 miles offshore Louisiana. The well was tied back to the Mahogany platform,
which is six miles to the east, through a sub-sea completion. Average gross
production from Agate in 1998 was 1,940 BOPD and 12 MMcf/d of gas. Anadarko has
a 50% working interest in the Block. Additional development wells are being
evaluated.
At the Phillips-operated Mahogany platform (Ship Shoal Block 349/359), the
A-4, A-5 and A-7 wells were completed in the main pay zone ("P" sand) during
1998. Year-end gross production from the platform was 26 MMcf/d of gas and
13,700 BOPD. Anadarko has a 37.5% working interest in the Mahogany Field.
Much of the 1998 work program in the Gulf of Mexico centered on improving
production from existing platforms, particularly at the Matagorda Island 622/623
Complex, located offshore Texas. Construction of a new pipeline that connects
the platform to the El Paso Energy-operated Tomcat system was completed. The
seven-mile tie-in alleviated a major production bottleneck and increased volumes
from 270 MMcf/d of gas just prior to the start of the pipeline project to a
current rate of 360 MMcf/d of gas. During 1998, the C-2 sidetrack well was
completed at the Complex and placed on production at 65.6 MMcf/d of gas and 453
BCPD. Anadarko owns a 37.5% interest in the Amoco-operated Complex.
10
12
OFFSHORE MAP (GRAPHIC MATERIAL OMITTED)
NET NET NET
DEVELOPED UNDEVELOPED PRODUCING
ACRES ACRES WELLS
----------- ----------- -----------
OFFSHORE:
United States
Florida -- 39,827 --
Louisiana 21,883 132,529 32
Mississippi -- 16,594 --
Texas 34,351 86,433 27
13
PROPERTIES AND ACTIVITIES -- INTERNATIONAL
OVERVIEW In recentOver the past few years, Anadarko has devoted a larger portion of its
exploration
budgetcapital expenditures to selected international exploration projects. The Company's objective
is to add high-potential prospects to its balanced portfolio of domestic plays.
Management believes this strategy will help ensure long-term growth for the
Company. Exploration and developmentventures. Development work is
underway in Algeria and exploration work isactivities are being conducted in Eritrea,
Jordanthe North Atlantic Margin and Peru.Tunisia. Studies are also being
conductedunderway in other
prospective areas around the world. In May 1998, the Company's first production
from Algeria commenced. See Additional Factors Affecting Business -- Foreign
Operations Risk under Item 7 of this Form 10-K.
ALGERIA Anadarko's largest international venture involves exploration for and
development of liquid
hydrocarbons discovered by the Company in Algeria's Sahara Desert. Since 1989,
Anadarko has drilled 1440 successful wells (seven(13 exploration and seven27 delineation) and
discovered five majorhas submitted Commerciality Reports for 11 fields in Algeria. The Company has
booked proved reserves of 124.3245 MMBbls (net) of crude oil and condensate as of year-end 1996.1998, up
33% from 184 MMBbls (net) at year-end 1997. The Company estimates that more than
2.0 billion barrels (gross) of crude oil and condensate have been discovered to
date on its portion of the lease area.
As of December 31, 1996,1998, the Company's totalcumulative net investment in Algeria
was $232$557 million (including capitalized interest and overhead), about $156
million of which about $85 million was spent in 1996. Due to the success of
the project thus far, these expenditures are currently being capitalized and no
provision for loss or impairment has been made.1998. Anadarko plans to invest $191about $99 million
in Algeria in 1997. To date, the Company has elected not to insure its
investment in Algeria.1999. At the end of 1996,1998, the Company had 5.33.4 million gross (2.3(1.3
million net) acres in Algeria.
The accompanying map illustrates the Company's developed and undeveloped
acreage, number of productive wells and other data relevant to its properties in
Algeria.
4
6
ALGERIA MAP (GRAPHIC MATERIAL OMITTED)
ALGERIA
Undeveloped Acreage -- 5.3 million acres (2.3 million net)
Productive Wells -- 14 (7 net)
Fields discovered to date shown graphically
HBN Field
HBNS Field*
BKE Field*
EME/EMK Field*
Company operated blocks shown graphically
404(*)
208(*)
211
245
Outside operated blocks shown graphically
401
402
- ---------------
(*) Drilling activities were conducted in these areas in 1996.
7
Anadarko's interest in the production sharing agreement (PSA) relating to
the four Company-operatedcompany-operated blocks is 50 percent50% before participation at the exploitation
stage by SONATRACH, the national oil and gas enterprise of Algeria. The Company
has two partners, each with a 25-percent25% interest in the Algerian venture, also prior
to participation by SONATRACH; they are LASMO Oil (Algeria) Limited, a
wholly-owned subsidiary of LASMO plc, and Maersk Olie Algeriet AS, a
wholly-owned subsidiary of Maersk Olie Og Gas AS, a company in the Danish A.P.
Moeller group. Under the terms of the PSA, liquid hydrocarbons that are
discovered, developed and produced will be shared by SONATRACH, Anadarko and its
two partners. SONATRACH is responsible for 51 percent51% of development and production
costs. In addition, Anadarko and its partners are entitled to recover a portion
of exploration costs out of production in the exploitation phase. SONATRACH is
also the beneficial owner of 10.1 percent9.9% of Anadarko's outstanding common stock.
During 1996, SONATRACH received a Provisional Exploitation Authorization
(PEA) for wells in the Hassi Berkine (HBN) and the Hassi Berkine South (HBNS)
Fields located on Block 404.1998, Anadarko and its partners signedcommenced first oil production and
recorded the highest level of drilling activity since work began in the program
in 1989. First oil production began on May 4, 1998 from Stage I facilities at
the HBNS Field. Oil produced from the HBNS Field is sold as Saharan Blend, a
$177 million
Engineering, Procurementvery high quality crude that provides refiners with large quantities of premium
products like jet and Construction (EPC) contractdiesel fuel. From May to November 1998, production from
the HBNS Field averaged 18,700 BOPD (gross). In December 1998, production from
the HBNS Field increased to an average of 38,000 BOPD (gross) with the start-up
of SONATRACH's new 30-inch oil pipeline. In 1999, Anadarko expects gross
production to average about 60,000 BOPD. During 1998, about 1.4 MMBbls of oil
were produced net to Anadarko. Two cargoes of crude were lifted in 1996 with Brown &
Root Condor1998 and sold
to major refiners in southern Europe. Other partners lifted separate cargoes.
Anadarko expects to lift between eight to ten cargoes of crude oil from its
operations in Algeria during 1999. In late 1998, bids were received for
construction of Stage III production facilities at the HBNS Field. Four wells have
been drilled inBy the end of
1999's first quarter, Anadarko expects to award an Engineering, Procurement and
Construction contract for the Stage II facilities, which will expand production
from the HBNS Field to date135,000 BOPD (gross) beginning in 2001.
In 1998, Anadarko and its partners expect to drill additionalcompleted 21 exploration, delineation
and development wells on Blocks 404 and 208. By comparison, the group drilled 33
total wells in the project between 1991-1997. Up to five drilling rigs were
active in field delineation and development drilling during 1998. Of the 21
wells drilled in 1998, 18 were successful. One exploration well was drilled and
was successful -- the El Merk North (EMN) Field discovery, which was announced
in 1997. Initial gross production is estimated at
about 60,000 barrelsMarch 1998. The EMN No. 1 well encountered 36 meters (119 feet) of oil per day (BOPD)net pay in
the Triassic formation and is expected to beginflowed 21,395 BOPD, the highest flow rate achieved by
Anadarko and its partners in early
1998. Anadarko's 1997 work program in Algeria will focus on development of known
discoveries with continued exploration.Algeria. A deeper gas and condensate zone was also
successfully tested. In 1997, Anadarko plans a two-rig drilling program to drill up to 10
exploration wells. Four explorationaddition, ten delineation wells were drilled in 1996 and three1998
with eight successful. Ten development wells also were discoveries.
The Company also has a 27.5-percent interestdrilled with nine
successful.
12
14
ALGERIA MAP (GRAPHIC MATERIAL OMITTED)
ALGERIA
Undeveloped Acreage - 3.3 million acres (1.3 million net to Anadarko)
Producing Acreage (HBNS Field) - 57,000 acres (14,000 net to Anadarko)
Productive Wells - 45 (17 net to Anadarko)
Fields discovered to date shown graphically
EL BIAR Field (formerly HBN)
BRSE/BSFN ROD Field*
SFNE Field*
BSF Field*
HBNS Field*
HBNSE Field
RBK Field*
QBN Field
BKNE Field*
QOUBBA Field (formerly BKE)*
EKT Field*
EME/EMK/EMN Field*
Blocks shown graphically
401a
402a*
404*
208*
211
245
*Drilling activities were conducted in a PSA covering two
additional blocks -- Blocks 401 and 402 --these areas in the same region, which are
operated by BHP Petroleum (Algerie) Inc. An exploration program is underway on
these two blocks. In 1996, BHP and Anadarko shot 1,900 kilometers of
high-quality seismic and plans call for drilling two exploratory wells during
1997.1998.
15
Political unrest existscontinues in Algeria. Anadarko is closely monitoring the
situation and has taken reasonable and prudent steps to ensure the safety of
employees workingand the security of its facilities in the remote regions of the Sahara
Desert. Anadarko is presently unable to predict with certainty any effect the
current situation may have on activity planned for 19971999 and beyond. However, the
situation has not had any material effect to date on the Company's operations.
ERITREA In September 1995, Anadarko signed an agreement with the government of
the State of Eritrea for offshore exploration on a 6.7 million-acre area in the
Red Sea, and plans to invest about $30 million over the next several years.
Anadarko invested about $8 million on its Eritrea work program in 1996 and plans
to spend about $8 million in 1997.
In 1996, Anadarko completed a high-density aerial gravity and magnetic
survey over the exploration area, known as the Zula Block, and acquired 4,500
kilometers of data across the block. During 1997, the data will be analyzed and
combined with existing data from other operators. The Company plans to drill its
first exploratory well in EritreaBlock. This acreage position was expanded in late
1997 or early 1998. The Company has a
100-percent interest inwith the project, but may take partners.
JORDAN In March 1996, Anadarko and the Natural Resources Authority of the
Hashemite Kingdom of Jordan signed a PSA covering 4.2 million acres, known as
the Safawi Block. The Company invested about $2 million on its Jordan efforts in
1996 and has budgeted about $4 million for 1997.
In 1996, Anadarko conducted a magnetotelluric survey of the area and
reprocessed more than 1,000 kilometers of existing seismic data. The information
will be used to determine locations for two stratigraphic test wells planned for
1997. These wells will analyze source rock and look for signssigning of a working
petroleum system.second PSA for 2.3 million acres. This area is called
the Edd Block and is contiguous with the Zula Block, giving Anadarko operates the venture with a 50-percent interest.exploration
rights on 9.0 million gross acres in Eritrea. In February 1997, a subsidiary of Union Texas Petroleum joined Anadarko as a
partner in Jordan with a 50-percent interest.
PERU In September 1996, Anadarko signed an exploration license agreement with
PERUPETRO S.A., the state oil company in Peru. Anadarko has the right to explore
a 2.56-million acre area, known as Block 84. Anadarko invested about $2 million
in Peru in 1996 and has budgeted about $2 million for 1997.
6
8
In late 1996, Anadarko flew a 7,300 kilometer aerial magnetic survey of the
area to help determine specific locations for a 700 kilometer seismic shoot
scheduled for 1997. The Company also plans an additional aerial magnetic survey
in 1997. Anadarko owns a 100-percent interest in the venture, but may take
partners.
INDONESIA In September 1996, Anadarko sold its wholly-owned subsidiary,
Anadarko Indonesia Company, Jabung, for $36.8 million. Anadarko's net income in
1996 benefited from a gain on the sale of $19.4 million ($12.3 million after
income taxes). The sale was a part of the Company's ongoing strategy to divest
"non-core" assets and reinvest proceeds in core operating areas.1998, Anadarko and its partners
had discovereddrilled two fieldsunsuccessful exploration wells on the Zula Block. The venture's
third exploration well began drilling on the Edd Block in IndonesiaJanuary 1999. Anadarko
serves as operator and holds a 50% interest in both the Zula and Edd
concessions. The remaining interests are held by Agip Eritrea B. V. with estimated proved
reserves of 17.7 MMEEBs.
CHINA30% and
Burlington Resources Eritrea Limited with 20%.
Border disputes between Eritrea and Ethiopia continue. The Company is
closely monitoring this situation and has taken reasonable and prudent steps to
ensure the safety of employees and the security of its facilities in Eritrea.
Anadarko presently is unable to predict with certainty any effect the current
situation may have on activity planned for 1999 and beyond. However, the
situation has not had any material effect to date on the Company's operations.
NORTH ATLANTIC MARGIN During 1997, Anadarko established an exploration presence
in the North Atlantic Margin, located north and west of Scotland and offshore
Ireland. Through two separate bid rounds, Anadarko and its partners were awarded
five exploration areas totaling about 1.2 million gross acres.
Anadarko has been studying the exploration potential in this area since
1995. During 1997, Anadarko and its partners were awarded three tranches in the
United Kingdom's 17th Bid Round and two exploration areas in the Irish Bid
Round. Anadarko will participate in its first exploration well on Tranche 61
which is expected to begin drilling in the first half of 1999. Anadarko has a
7.5% interest in the well. Anadarko and its partners have a significant amount
of 2-D and 3-D seismic data and expect to drill several exploration targets over
the next four years. Anadarko has an average interest of 30% in the exploration
areas.
TUNISIA In 1997, Anadarko became a 50% partner (prior to a back-in by the
Tunisian government) in Agip S.p.A.'s Jenein Nord Block -- a 384,000 gross acre
exploration area in Tunisia near the Algerian border. The Jenein Nord Block is
contiguous with the Company's Blocks 401a and 402a in Algeria (operated by BHP
Algeria). Several exploration leads have been identified and exploration
drilling is expected to begin in mid-1999.
PERU The Company has decided not to continue its exploration efforts on Block
84 in Peru at this time. Anadarko served as operator of the exploration venture
with a 100% interest.
JORDAN Anadarko has decided not to pursue exploration efforts in China's
Sichuan Province at this time and is in discussions to farm-outon the Company's
interests. As a result, Anadarko recognized an impairment of $4.6 millionSafawi
Block in the third quarterHashemite Kingdom of 1996. The Company hasJordan. Anadarko operated the exploration
venture with a 100-percent interest in the project.
PROPERTIES AND ACTIVITIES -- UNITED STATES
OFFSHORE
OVERVIEW At year-end 1996, the Company's reserves offshore in the Gulf of
Mexico were approximately 13 percent of total proved reserves. In 1996,
production from these properties was about 119 million cubic feet per day
(MMcf/d) of gas and 2,000 BOPD, or 21 percent of the Company's total production
volumes. At year-end 1996, Anadarko owned an average 49 percent working interest
in 116 lease blocks representing 178,000 gross (56,000 net) acres in developed
properties and 435,000 gross (232,000 net) acres in undeveloped properties
offshore.
The accompanying map illustrates the Company's undeveloped and developed
net acreage, number of net producing wells and other data relevant to its
offshore properties.
EXPLORATION Anadarko is active in exploration projects in both the conventional
and sub-salt plays offshore in the Gulf of Mexico.
In 1996, Anadarko concentrated its offshore exploration efforts in the
sub-salt play. The Company drilled five sub-salt exploratory wells, announcing
two discoveries -- Agate, located at Ship Shoal 361, and Monazite, located at
Vermilion South Addition 375. Anadarko and Phillips Petroleum Company (operator)
each own a 50-percent working interest in the Agate well. Anadarko (operator),
Broken Hill Proprietary (BHP) and Phillips each hold a 33.33-percent working
interest in the Monazite well. The first sub-salt discovery -- Mahogany -- came
on-line in late 1996 (See Development). Anadarko and partners are considering
the possibility of tying Agate production to the Mahogany platform. The Company
will continue to evaluate its portfolio of 17 prospects in the play and has five
ready-to-drill sub-salt prospects in 1997.
The Company also drilled three conventional exploration wells offshore in
the Gulf of Mexico in 1996 -- all dry holes. Two additional exploration wells
began drilling in late 1996. Three conventional exploration wells are planned in
1997.
Until 1996, the Company's principal acreage position offshore was in the
shallow water (less than 400 feet). However, in 1996, Anadarko made its entrance
into the deepwater play (more than 1,000 feet). In Offshore Lease Sale No. 161
in September 1996, Anadarko and partners acquired 12 lease blocks in the Gulf of
Mexico's deepwater play with water depths ranging from 2,700-5,700 feet.
Anadarko operates 10 of the 12 blocks and plans to acquire 3-D seismic data on
seven of the blocks in 1997. One exploratory well may be drilled in the
deepwater play in late 1997. In April 1996, Anadarko acquired seven shallow
lease blocks in Offshore Lease Sale No. 157. The leases are located in the
central Gulf of Mexico.
750% interest.
15
9
OFFSHORE MAP (GRAPHIC MATERIAL OMITTED)
NET NET NET
DEVELOPED UNDEVELOPED PRODUCING
ACRES ACRES WELLS
--------- ----------- ---------
OFFSHORE:
United States
Florida -- 39,827 --
Louisiana* 24,382 146,018 26
Texas 31,559 45,637 23
*Drilling activities were conducted in these areas in 1996.
10
DEVELOPMENT During 1996, the production platform for Mahogany, the industry's
first commercial sub-salt development, was installed on Ship Shoal 349, located
about 80 miles offshore Louisiana. Production from the 20-slot platform began in
December 1996 and should increase as additional development wells are drilled
and completed. Phillips (operator) and Anadarko each own a 37.5-percent working
interest in the project. Amoco Production Company holds a 25-percent working
interest.
Conventional operations focused on development drilling and recompletions.
The Company participated in the completion of three new wells and 10 additional
wells were recompleted. Eight development wells are planned for 1997 offshore in
the Gulf of Mexico.
Anadarko and partner, Amerada Hess (operator) installed a production
platform at South Marsh Island 192, located about 110 miles offshore Louisiana
in July 1996. Production began in November 1996. The partners may drill
additional wells in the field to increase production volumes.
In 1996, Anadarko purchased additional interests in the Brazos A-47
production platform, located about 35 miles offshore Texas. The Company
originally owned a 33-percent working interest and obtained the remaining
interests in the field in 1996 by assuming responsibility for disposition of the
existing wells and platform. At the time of the purchase, the platform's three
wells were shut-in. Anadarko plans to drill one development well in the field in
1997. If successful, the Company plans to recomplete one of the existing wells
in late 1997.
ONSHORE
OVERVIEW The Company's onshore reserves are approximately 67 percent of total
proved reserves. These reserves are located principally in Kansas, Oklahoma,
Texas and Alaska. In 1996, average production from the Company's onshore
properties was 332 MMcf/d of gas and 16.3 thousand barrels per day (MBOD), or 77
percent of the Company's total production volumes. Anadarko has 1,289,000 gross
(545,000 net) undeveloped lease acres and 1,082,000 gross (795,000 net)
developed acres onshore in the United States.
The accompanying map illustrates by state Anadarko's undeveloped and
developed net acreage, number of net producing wells and other data relevant to
its onshore oil and gas operations.
HUGOTON EMBAYMENT Anadarko's single largest asset is its reserves in the
Hugoton Embayment, located in southwest Kansas and the Oklahoma Panhandle.
Currently, Anadarko owns 566,000 gross (507,000 net) lease acres in the area and
operates about 2,000 wells. Anadarko's net production from the Hugoton Embayment
in 1996 was 85.8 Bcf of gas and 1.6 MMBbls of oil, or about 42 percent of the
Company's total production volumes. In 1996, Anadarko drilled 72 development
wells and recompleted 27 wells in the area.
Anadarko's activities in the area are concentrated on two areas: the
shallow Hugoton gas fields and the deeper oil and gas zones below the shallow
Hugoton production. In 1996, Anadarko drilled 17 wells in the Hugoton gas area
and 55 wells in the deeper zones. In 1997, Anadarko plans to drill 30 wells in
the shallow Hugoton area and 100 wells in the deeper zones. Management believes
the increased drilling activity in this area should lead to an increase in the
Company's 1997 production volumes. In addition to development drilling,
Anadarko's operations in this area have benefited from acquisitions of producing
properties, gas gathering systems and waterflood operations.
PERMIAN BASIN Drilling activity reached record levels for Anadarko in late 1996
in the Permian Basin of west Texas and eastern New Mexico. In 1996, net oil
production from the area was 9,500 BOPD, or about half of the Company's total
oil production. In the Permian Basin, Anadarko holds leasehold interests in
237,000 gross (136,000 net) acres and operates about 2,300 active wells. During
1996, Anadarko drilled 182 wells in the area and 10 Company-operated rigs were
running at year-end. The Company plans to drill more than 200 wells in 1997.
Management believes the increased drilling activity should increase the
Company's production volumes from the area in 1997.
ALASKA In October 1996, Anadarko and partners announced commerciality of the
Alpine Field, located on the North Slope about 50 miles west of Prudhoe Bay.
Development work is underway with first production of 30,000 BOPD (gross)
expected in 2000 with peak production of 60,000 BOPD (gross) expected in 2001.
Anadarko owns a 22-percent working interest in this ARCO Alaska-operated field.
In 1996, the partners acquired 5,900 acres near the Alpine Field in State Lease
Sale 86A. In addition to the Alpine Field, Anadarko
9
11
and ARCO Alaska acquired six offshore lease blocks in the Beaufort Sea, west of
the Alpine Field. A seismic acquisition program is planned for the area in 1997.
Anadarko and ARCO Alaska announced formation of a strategic alliance in
1996 to explore the Cook Inlet of southern Alaska. With Anadarko as operator,
the team will review ARCO's existing 127,000 lease acres for exploratory
prospects. In December 1996, the partners acquired an additional 10 lease blocks
(39,000 acres) on the west side of the Cook Inlet and on the Kenai Peninsula. A
seismic acquisition program is underway onshore and the partners hope to have a
list of exploratory prospects ready to drill in 1998.
GOLDEN TREND Activity levels also increased in central Oklahoma's Golden Trend
area. In 1996, the Company drilled 15 successful wells in the area, of which 14
were development wells. Based on the successful results of a 1996 infill
program, Anadarko has picked up a second drilling rig and plans to add a third
rig to accelerate the Company's 31 well program in 1997.
GULF COAST Anadarko is active in the onshore Gulf Coast regions of Mississippi,
Texas and Louisiana. In 1996, Anadarko participated in a large 3-D seismic
acquisition program in the Smackover Play in Wayne County, Mississippi. The data
were analyzed in late 1996 and Anadarko is planning to drill up to four
exploratory wells in the Smackover Play in 1997.
In 1996, Anadarko drilled one successful exploratory well in the Yegua Play
and, in 1997, the Company is planning to drill at least one delineation well to
offset a 1996 discovery in the Nome Field near Beaumont, Texas.
In the Wilcox Play, located in south Texas, Anadarko is evaluating
exploratory prospects in Jim Hogg County. During 1996, Anadarko conducted a 3-D
seismic survey on a portion of the Company's acreage. The Company plans to drill
an exploratory well in the Wilcox Play in mid-1997. Anadarko has a 33.33-percent
working interest in the exploratory venture.
COAL-BED METHANE Anadarko is exploring coal-bed methane acreage in the Helper
Field, located in Carbon County, Utah. Anadarko is planning to drill three
exploratory wells on state and private acreage in early 1997.
10
12
ONSHORE MAP (GRAPHIC MATERIAL OMITTED)
NET NET NET
DEVELOPED UNDEVELOPED PRODUCING
ACRES ACRES WELLS
--------- ----------- ---------
ONSHORE:
United States
Alaska* -- 89,701 --
Colorado 3,627 20,581 --
Kansas* 348,968 69,557 1,481
Mississippi* 117 65,191 --
Montana 1,872 250 --
Nebraska 96 319 --
Nevada -- 76,838 --
New Mexico 17,108 1,956 22
North Dakota 40 80 --
Oklahoma* 217,432 62,111 798
Texas* 186,095 46,418 1,787
Utah* 16,836 70,334 35
Wyoming 3,038 41,895 --
OFFICE LOCATIONS:
United States
Anchorage, Alaska
Houston, Texas
Liberal, Kansas
Midland, Texas
- ---------------
* Drilling activities were conducted in these areas in 1996.
13
GATHERING AND PROCESSING
GAS GATHERING SYSTEMS Anadarko owns and operates four major gas gathering
systems in the nation's mid-continent area: the Antioch Gathering System in the
Southwest Antioch Field of Oklahoma; the Hemphill Gathering System, located in
Hemphill County, Texas; the Sneed System in the West Panhandle Field of Texas;
and the Hugoton Gathering System in southwest Kansas (which includes the Hugoton
Gathering Facility (HUGS), the Cimarron River System (CRS) and a portion of the
Panhandle Eastern Pipe Line West End gathering assets acquired in 1996). The
Company's gathering systems have approximately 2,100 miles of pipeline
connecting nearly 2,000 wells and have nearly 500 MMcf/d of gas gathering
capacity. In addition, Anadarko owns interests in nine other smaller gas
gathering systems.
GAS PROCESSING PLANTS Anadarko owns and operates one gas processing plant, the
Sneed Gas Processing Plant located in the West Panhandle Field of Texas, and has
interests in three other plants. These plants are located within the Company's
major areas of gas production. In 1996, the Company closed its Panther Creek Gas
Processing Plant located in the Southwest Antioch Field of Oklahoma because the
Company arranged to have the gas processed more efficiently in third-party
processing facilities.
The following table sets forth the average daily gas throughput and NGLs
production for the three years ended December 31, 1996. The NGLs production
shown in the table below includes production from Company processing as well as
third-party processing.
For the Years
Ended December 31
-------------------------
1996 1995 1994
----- ----- -----
Gas throughput (MMcf/d) 59 64 80
NGLs production (Barrels per day) 9,650 9,530 6,900
16
DRILLING PROGRAMS
The Company's 19961998 drilling program again focused on known oil and gas
provinces onshore inand offshore North America as well as offshore in the Gulf of Mexico.and Algeria. Onshore activity was
concentrated in Kansas, Oklahoma, the Texas Panhandle,panhandle, the Permian Basin of west
Texas, Alaska and Alaska.Utah. Exploration activity consisted of 1125 wells onshore in
the United States, sixU.S., three wells offshore United States, sixin the Gulf of Mexico, 16 wells in Algeria, and
three wellsone well in Indonesia.Eritrea. Development activity included 254341 wells onshore United States and threein the
U.S., six wells offshore United States.
12
14in the Gulf of Mexico and 10 wells in Algeria.
DRILLING STATISTICS
The following table shows the results of the oil and gas wells drilled and
tested:
NET EXPLORATORY NET DEVELOPMENT
------------------------------ ------------------------------
PRODUCTIVE DRY HOLES TOTAL PRODUCTIVE DRY HOLES TOTAL TOTAL
---------- --------- ----- ---------- --------- ----- -----
1998
United States 7.1 13.1 20.2 245.1 30.4 275.5 295.7
Algeria 5.1 1.1 6.2 2.0 0.5 2.5 8.7
Eritrea -- 0.5 0.5 -- -- -- 0.5
---- ---- ---- ----- ---- ----- -----
Total 12.2 14.7 26.9 247.1 30.9 278.0 304.9
---- ---- ---- ----- ---- ----- -----
1997
United States 6.1 3.1 9.2 433.8 50.9 484.7 493.9
Algeria 3.8 2.0 5.8 0.7 -- 0.7 6.5
---- ---- ---- ----- ---- ----- -----
Total 9.9 5.1 15.0 434.5 50.9 485.4 500.4
---- ---- ---- ----- ---- ----- -----
1996
United States 5.3 5.8 11.1 163.5 37.9 201.4 212.5
Algeria 2.0 0.5 2.5 -- -- -- 2.5
Indonesia 1.0 -- 1.0 -- -- -- 1.0
------- ---- ---- ----- ---- ----- -----
Total 8.3 6.3 14.6 163.5 37.9 201.4 216.0
--- ---- ---- ----- ---- ----- -----
1995
United States 2.3 2.9 5.2 159.9 40.1 200.0 205.2
Algeria 2.0 0.5 2.5 -- -- -- 2.5
Indonesia 1.0 -- 1.0 -- -- -- 1.0
--- ---- ---- ----- ---- ----- -----
Total 5.3 3.4 8.7 159.9 40.1 200.0 208.7
--- ---- ---- ----- ---- ----- -----
1994
United States 6.9 8.1 15.0 162.5 16.8 179.3 194.3
Algeria 2.0 0.8 2.8 -- -- -- 2.8
Canada 1.0 1.2 2.2 2.5 0.5 3.0 5.2
--- ---- ---- ----- ---- ----- -----
Total 9.9 10.1 20.0 165.0 17.3 182.3 202.3
--- ---- ---- ----- ---- ----- -----
The following table shows the number of wells in the process of drilling or
in active completion stages and the number of wells suspended or waiting on
completion as of December 31, 1996:1998:
UNITED
STATES ALGERIA TOTAL
-------------- ------------- -------------------------- ----------- ------------
GROSS NET GROSS NET GROSS NET
----- ---- ----- --- ----- ----
WELLS IN THE PROCESS OF DRILLING OR IN ACTIVE
COMPLETION
Exploration 3 1.9 1 0.5 4 2.4
Development 10 7.82.5 -- -- 10 7.83 2.5
Development 7 3.6 2 0.5 9 4.1
WELLS SUSPENDED OR WAITING ON COMPLETION
Exploration 6 2.64 3.0 -- -- 6 2.64 3.0
Development 47 41.734 28.9 -- -- 47 41.734 28.9
16
17
PRODUCTIVE WELLS
As of December 31, 1996,1998, the Company owned productive wells as follows:
UNITED STATES ALGERIA TOTAL
-------------- ------------ --------------------------- ----------- -------------
GROSS NET GROSS NET GROSS NET
----- ----- ----- --- ----- -----
Oil wells* 4,312 2,279 14 7 4,326 2,2865,191 2,910 45 17 5,236 2,927
Gas wells* 2,737 1,8922,848 2,144 -- -- 2,737 1,8922,848 2,144
----- ----- -- -- ----- -----
Total 7,049 4,171 14 7 7,063 4,1788,039 5,054 45 17 8,084 5,071
----- ----- -- -- ----- -----
- ---------------
* Includes wells containing multiple completions
Oil wells 74 25.826 -- -- 74 25.826
Gas wells 182 87.0230 135 -- -- 182 87.0230 135
13
15SEGMENT AND GEOGRAPHIC INFORMATION
Information on operations by segment and geographic location is contained
in Note 11 of the Notes to Consolidated Financial Statements under Item 8 of
this Form 10-K.
EMPLOYEES
OnAs of December 31, 1996,1998, the Company employed 1,2291,476 persons. The Company's
employees are not represented by any union. Relations between the Company and
its employees are considered to be satisfactory and the Company has had no work
stoppages or strikes.
REGULATORY AND LEGISLATIVE DEVELOPMENTS
See Regulatory Matters under Item 7 of this Form 10-K.
ADDITIONAL FACTORS AFFECTING BUSINESS
See Additional Factors Affecting Business under Item 7 of this Form 10-K.
TITLE TO PROPERTIES
As is customary in the oil and gas industry, only a preliminary title
examination is conducted at the time properties believed to be suitable for
drilling operations are acquired by the Company. Prior to the commencement of
drilling operations, a thorough title examination of the drill site tract is
conducted and curative work is performed with respect to significant defects, if
any, before proceeding with operations. A thorough title examination has been
performed with respect to substantially all leasehold producing properties owned
by the Company. Anadarko believes the title to its leasehold properties is good
and defensible in accordance with standards generally acceptable in the oil and
gas industry subject to such exceptions which, in the opinion of counsel
employed in the various areas in which the Company has conducted exploration
activities, are not so material as to detract substantially from the use of such
properties. The leasehold properties owned by the Company are subject to
royalty, overriding royalty and other outstanding interests customary in the
industry. The properties may be subject to burdens such as liens incident to
operating agreements and current taxes, development obligations under oil and
gas leases and other encumbrances, easements and restrictions. Anadarko does not
believe any of these burdens will materially interfere with its use of these
properties.
CAPITAL SPENDING
See Capital Expenditures, and Liquidity and Long-term Debt under Item 7 of this
Form 10-K.
17
18
RATIOS OF EARNINGS TO FIXED CHARGES AND EARNINGS TO COMBINED FIXED CHARGES AND PREFERRED STOCK DIVIDENDS
The Company's ratios of earnings to combined fixed charges and preferred
stock dividends for the years ended December 31, 1998, 1997 and 1996 1995were 0.05,
3.04 and 1994 were 3.34, 1.24respectively. As a result of the Company's net loss in 1998, the
Company's earnings did not cover combined fixed charges and 2.11, respectively.preferred stock
dividends by $101 million in 1998. These ratios were computed by dividing
earnings by fixed charges. For this purpose, earnings include income before
income taxes and fixed charges. Fixed charges include interest and amortization
of debt expenses, and the estimated interest component of rentals.
During the three years ended December 31, 1996, there were no shares of
preferred stock outstanding. Accordingly, the ratio of earnings to combined
fixed chargesrentals and preferred
stock dividends for eachdividends. See Management's Discussion and Analysis of the three years is the
same as the ratioFinancial Condition
and Results of earnings to fixed charges.
14
16Operations under Item 7 of this Form 10-K.
ITEM 2. PROPERTIES
See information appearing under Item 1 of this Form 10-K.
ITEM 3. LEGAL PROCEEDINGS
KANSAS AD VALOREM TAX The Natural Gas Policy Act of 1978 (NGPA) allowsallowed a "severance,
production or similar" tax to be included as an add-on, over and above the
maximum lawful price for natural gas. Based on the Federal Energy Regulatory
Commission (FERC) ruling that the Kansas ad valorem tax was such a tax, the
Company collected the Kansas ad valorem tax in additiontax.
Background of Present Litigation FERC's ruling regarding the ability of
producers to collect the otherwise maximum lawful price. FERC's rulingKansas ad valorem tax was appealed to the United States
Court of Appeals for the District of Columbia Circuit (D.C. Circuit), which. The Court
held in June 1988 that FERC failed to provide a reasoned basis for its findings
and remanded the case to FERC for further consideration.
On December 1, 1993, FERC issued an order reversing its prior ruling, but
limitingFERC.
Ultimately, the effect of its decision to Kansas ad valorem taxes for sales made on
or after June 28, 1988. FERC clarified the effective date of its decision by an
order dated May 19, 1994. The clarification provided that the June 28, 1988
effective date applies to tax bills rendered after that date, not sales made on
or after that date. Based on Anadarko's interpretation of FERC's orders,
$700,000 (pre-tax) was charged against income in 1994, in addition to $130,000
(pre-tax) charged against income in 1993. Numerous parties filed appeals of
FERC's action in the D.C. Circuit. Anadarko, together with other natural gas
producers, challenged FERC's orders on two grounds: (1) that the Kansas ad
valorem tax, properly understood, does qualify for reimbursement under the NGPA;
and (2) FERC's ruling should, in any event, have been applied prospectively.
Other parties separately challenged FERC's orders on the grounds that FERC's
ruling should have been applied retroactively to December 1, 1978, the date of
the enactment of the NGPA and producers should have been required to pay refunds
accordingly.
The D.C. Circuit issued itsa decision on August 2, 1996 which holdsruling
that producers must make refunds ofrefund all Kansas ad valorem taxes collected with
respectrelating to
production since October 1983. Petitions for rehearing were denied on
November 6, 1996. The Company along with other producing companies,
subsequently filed a petition for writ of
certiorari with the United States
Supreme Court seeking to limitCourt. That petition was denied on May 12, 1997.
Anadarko estimates that the scopemaximum amount of the potential refunds to tax bills
rendered on or after June 28, 1988 (the effective date originally selected by
FERC). The petitionprincipal and interest at
issue which has not been acted on. Williams Natural Gaspaid to date, assuming that the October 1983 effective
date remains in effect, is about $42.7 million (pretax) as of December 31, 1998.
FERC Proceedings Depending on future FERC orders, the Company hascould be required
to pay all or part of the amounts claimed by all pipelines (which might include
PanEnergy) pending further potential review by FERC or the courts.
PanEnergy Litigation On May 13, 1997, the Company filed a cross-petitionlawsuit in the
Federal District Court for certiorarithe Southern District of Texas against PanEnergy
seeking declaration that pursuant to impose refund liability backprior agreements Anadarko is not required
to issue refunds to PanEnergy for the principal amount of $14 million (pretax)
and, if the petition for adjustment is denied in its entirety by FERC with
respect to PanEnergy refunds, interest in an amount of $27.1 million (pretax) as
of December 1, 1978.31, 1998. The Company and other interested parties will oppose this
cross-petition. If Supreme Court reviewalso seeks from PanEnergy the return of
$816,000 of the decision$830,000 (pretax) charged against income in 1993 and 1994. In
response to a motion filed by PanEnergy, the United States District Court issued
an order on March 17, 1998 staying the litigation, pending the exercise by FERC
of its regulatory jurisdiction.
FERC Order of October 13, 1998 On October 13, 1998, FERC issued a final order
on Anadarko's complaint. The order declares that Anadarko Production Company
(now an affiliate of Duke Energy) is unsuccessful,responsible as first seller for making
refunds of Kansas ad valorem tax reimbursements collected from 1983 through
August 1, 1985. The Company estimates this amount to be as much as $26 million.
The Company is responsible to make refunds for reimbursements it collected as
first seller from August 1, 1985 through 1988. The Company estimates this amount
to be as much as $16 million. The FERC order states that whether Anadarko
Production Company or the pursuitCompany is entitled to reimbursement from another
party for the refunds ordered is a matter to be pursued in an appropriate
judicial forum. On January 15, 1999, FERC issued an order denying a request for
rehearing filed by PanEnergy and reaffirming the October 1998 order. FERC
18
19
may, in the near future, issue an order based upon the above allocation
regarding when the refunds must be paid and the specific refund amount. The
issue of other judicialreimbursement will now be pursued in U.S. District Court.
Kansas Corporation Commission (KCC) Proceeding On April 30, 1998, the Company's
subsidiary, Anadarko Gathering Company (AGC), filed a petition with the KCC to
clarify AGC's rights and regulatory relief from the application of this
decisionobligations, if any, related to the payment by first
sellers of Kansas ad valorem tax refunds. The refunds at issue relate to sales
made by Anadarko Production Company, willa PanEnergy affiliate, through facilities
known as the Cimmaron River System during the time period from 1983 to 1988. AGC
purchased the Cimmaron River System from Centana, the successor of Anadarko
Production Company in 1995. The petition, among other things, asks the KCC to
determine whether AGC or Anadarko Production Company is responsible for the
payment or distribution of refunds received from first sellers to Anadarko
Production Company's former customers and requests guidance concerning the
disposition of refunds received that are attributable to sales made to Anadarko
Production Company customers that did not reimburse Anadarko Production Company
for Kansas ad valorem taxes during the relevant time periods. This matter is
presently being pursued before the KCC. The KCC staff is expected to issue a
recommendation upon Anadarko's petition in this matter by March 15, 1999.
Anadarko's net income for 1997 included a $1.8 million charge (pretax)
related to the Kansas ad valorem tax refunds. This charge reflects all principal
and interest which may be considered.due at the conclusion of all regulatory proceedings
and litigation to parties other than PanEnergy. The Company is unable at this
time to predict the final outcome of this matter. If, however,matter and no provision for liability
(excluding the August 2, 1996,
decision is not reversed or modified by judicial reviewamounts recorded in 1993, 1994 and if Anadarko is
unable to limit application of the decision to the Company, Anadarko estimates
the maximum amount of principal and interest at issue (assuming that the October
1983 effective date remains in effect) is about $37 million (pre-tax) as of
December 31, 1996.1997) has been made.
OTHER The Company is subject to other legal proceedings, claims and liabilities
which arise in the ordinary course of its business. In the opinion of the
Company, the liability with respect to these actions will not have a material
effect on the Company.
15
17
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
There were no matters submitted to a vote of security holders during the
fourth quarter of 1996.1998.
EXECUTIVE OFFICERS OF THE REGISTRANT
AGE AT END
NAME OF 19971999 POSITION
---- ---------- --------
Robert J. Allison, Jr. 5860 Chairman of the Board, President and Chief
Executive Officer
John N. Seitz 48 Executive Vice President, Exploration and
Production
Charles G. Manley 5355 Senior Vice President, Administration
Michael E. Rose 5052 Senior Vice President, Finance and Chief Financial
Officer
John N. Seitz 46 SeniorRex Alman III 48 Vice President, Domestic Operations
Michael D. Cochran 57 Vice President, Exploration
Charles K. Abernathy 54 Vice President, Operations, Offshore
Rex Alman III 46 Vice President, Operations, U.S. Onshore
James R. Larson 4749 Vice President and Controller
Richard A. Lewis 5355 Vice President, Human Resources
J. Stephen Martin 4143 Vice President and General Counsel
Mark L. Pease 43 Vice President, Algeria
Gregory M. Pensabene 4749 Vice President, Government Relations
Albert L. Richey 4850 Vice President and Treasurer
Richard J. Sharples 5052 Vice President, Marketing
Bruce H. Stover 4850 Vice President, AcquisitionsWorldwide Business Development
William D. Sullivan 4143 Vice President, AlgeriaInternational Operations
A. Paul Taylor, Jr. 4850 Vice President, Corporate Communications
19
20
Mr. Allison was named Chairman and Chief Executive Officer effective
October 1986. In January 1993, he was elected the additional position of
President. He has worked for the Company since 1973.
Mr. Seitz was named Executive Vice President, Exploration and Production,
and a member of the Company's Board of Directors during 1997. He was named
Senior Vice President, Exploration in 1995 and Vice President, Exploration in
January 1993. He has worked for the Company since 1977.
Mr. Manley was named Senior Vice President, Administration in 1993. From
1985 to 1993, he served as Anadarko's Vice President of Administration and
Employee Relations. He has
worked for the Company since 1976.1974.
Mr. Rose was named Senior Vice President, Finance and Chief Financial
Officer in 1993. He was named Vice President of Finance in 1986. He has worked for the Company since 1978.
Mr. Seitz was named Senior Vice President, Exploration in 1995. HeAlman was named Vice President, ExplorationDomestic Operations in January 19931997. Prior to
that, he was Vice President, Operations, U.S. Onshore in 1995 and Vice
President, Exploration, International/Gulf of Mexico,Engineering in January 1992.1993. He has worked for the Company since 1977.
Mr. Abernathy1976.
Dr. Cochran was named Vice President, Operations, OffshoreExploration in 1995. He1997. Prior to that,
he was named Vice President Operations, International/Offshore, in 1992.Manager of Technology and Exploration Studies. He has worked forbeen with the
Company since 1975.
Mr. Alman was named Vice President, Operations, U.S. Onshore, in 1995. In
1993, he was named Vice President, Engineering. He has worked for the Company
since 1976.1987.
Mr. Larson was named Vice President and Controller in 1995. He had served
as the Company's Controller since 1986. He has worked for the Company since
1983.
Mr. Lewis was named Vice President, Human Resources in 1995. He joined the
Company in 1985 as Manager of Employee Relations.
Mr. Martin was named Vice President and General Counsel in 1995. He joined
the Company as an attorney in 1987.
Mr. Pease was named Vice President, Algeria in 1998. Prior to this
position, he served as General Manager, Algeria since 1993. He joined the
Company in 1979 as an engineer.
Mr. Pensabene joined Anadarko in 1997 as Vice President, Government
Relations. Prior to joining Anadarko, he was a partner in various law firms in
Washington, D.C.
Mr. Richey was named Vice President and Treasurer in 1995. He joined
Anadarko as Treasurer in 1987.
Mr. Sharples joined Anadarko as Vice President, Marketing in 1993. Prior to
joining Anadarko, he served as Vice President of Marketing with Maxus Energy
Corporation.
Mr. Stover was named Vice President, Worldwide Business Development in
1998. He was named Vice President, Acquisitions in 1993. Prior to that
position, he served as President and General Manager, Anadarko Algeria
Corporation. He has worked for the
Company since 1980.
Mr. Sullivan was named Vice President, AlgeriaInternational Operations in 1995.1998.
Prior to this position, he served as Vice President, Algeria since 1995 and Vice
President, Operations, U. S. Onshore.U.S. Onshore since 1993. He has worked for the Company
since 1981.
16
18
Mr. Taylor was named Vice President, Corporate Communications in 1987. He
has worked for the Company since 1986.
All officers of Anadarko are elected in April of each year at an
organizational meeting of the Board of Directors to hold office until their
successors are duly elected and shall have qualified. There are no family
relationships between any directors or executive officers of Anadarko.
1720
1921
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
Information on the market price and cash dividends declared per share of
common stock is included in the Stockholders' Information in the Annual Report,
which is incorporated herein by reference.
As of December 31, 1996,1998, there were approximately 6,3455,322 direct holders of
Anadarko common stock. The following table sets forth the amount of dividends
paid on Anadarko common stock during the two years ended December 31, 1996.1998.
First Second Third Fourth
Quarter Quarter Quarter QuarterFIRST SECOND THIRD FOURTH
QUARTER QUARTER QUARTER QUARTER
thousands ------- ------- ------- ----------------- ---------- ---------- ----------
1996 $ 4,431 $4,440 $4,448 $ 4,461
1995 $ 4,4171998 $4,496 $4,501 $ 4,278$6,029 $6,083 $5,922
1997 $4,553 $4,401 $4,479 $4,493
The amount of future common stock dividends will depend on earnings,
financial condition, capital requirements and other factors, and will be
determined by the Directors on a quarterly basis.
For additional information, see Dividends under Item 7 and Note 68 of the
Notes to Consolidated Financial Statements under Item 8 of this Form 10-K.
ITEM 6. SELECTED FINANCIAL DATA
See Summary Financial Data on page 13 of the Annual Report, which is
incorporated herein by reference.
1821
2022
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
In Item 7 of this Form 10-K, including the production and reserve
disclosures contained therein, the Company has included a number of forward
looking statements within the meaning of Section 27A of the Securities Act of
1933 and Section 21E of the Securities Exchange Act of 1934. These forward
looking statements are based on the best data available at the time this report
was released for printing; however, actual results could differ materially from
those expressed or implied by such statements due to a number of factors
including those discussed below: commodity pricing and demand, exploration and
operating risks, development risks, domestic governmental risks, foreign
operations risks and competition.
FINANCIAL RESULTS
SELECTED FINANCIAL DATA
1998 1997 1996
millions except per share amounts ------ ------ ------
Revenues $560.3 $675.1 $570.1
Costs and expenses 567.6 469.8 373.4
Interest expense 57.7 41.0 39.0
Net income (loss) available to common stockholders $(49.3) $107.3 $100.7
Earnings (loss) per share -- basic $(0.41) $ 0.90 $ 0.85
Earnings (loss) per share -- diluted $(0.41) $ 0.89 $ 0.85
NET INCOME AND REVENUES Anadarko'sFor 1998, Anadarko reported a net income for 1996 increased 379 percentloss available to
$100.7common stockholders of $49.3 million, ($1.70or 41 cents per share)share (diluted), compared
to 19951997 net income of $21.0$107.3 million, (36or 89 cents per share)share (diluted). Revenues
for 19961998 were $569.0down 17% to $560.3 million up 31 percent compared to 19951997 revenues of $434.0$675.1
million. The increasedecrease in revenues and net income reflects significantly higher prices forwas due to the steep decline in
crude oil, natural gas crude oil and natural gas liquids (NGLs) prices, higher operating
expenses, increased administrative and general costs, higher interest expense,
and preferred stock dividends. Anadarko's 1998 performance was also adversely
affected by a non-cash charge during the fourth quarter of $70 million before
taxes ($45 million after taxes) to impair all exploration activity in Peru and
Jordan, as well as two dry holes drilled on the Zula Block in Eritrea. Excluding
the impairment, Anadarko's net loss for 1998 was $4.7 million, or 4 cents per
share (diluted).
NetAnadarko's 1996 net income in 1996was $100.7 million (85 cents per share), which
included a gain of $19.4 million ($12.3 million after income taxes) on the sale
of the Company's Indonesia interests whichand was partially offset by provisions for
impairments of other international properties of $5.4 million ($3.4 million
after income taxes). Anadarko's 1994 net income was $41.1 million (70 cents per share). The 1994
results included a non-cash charge of $6.6 million (after income taxes) related
to the sale of the Company's Canadian subsidiary. Stated without giving effect
to the sale, 1994 net income was $47.7 million (81 cents per share). Revenues for 19941996 were $482.5$570.1 million. The decreasesincreases in
revenues and net income in 19951997 compared to 19941996 reflect lower prices for natural gas in 1995 and lowerhigher production
volumes of crude oil, in 1995 primarily due to property sales in 1994.
SELECTED FINANCIAL DATAnatural gas and NGLs coupled with higher natural gas
prices.
COSTS AND EXPENSES
1998 1997 1996
1995 1994
millions except per share amounts ------ ------ ------
Revenues $569.0 $434.0 $482.5
CostsOperating expenses $160.5 $154.7 $115.3
Administrative and expenses 373.4 369.5 393.8
Interest expense 39.0 36.4 26.1
Net income 100.7 21.0 41.1
Earnings per share $ 1.70 $ 0.36 $ 0.70general 94.9 73.6 67.7
DD&A 204.5 198.8 167.2
Other taxes 37.7 42.7 37.2
(Gains) and impairments related to international properties,
net 70.0 -- (14.0)
------ ------ ------
Total $567.6 $469.8 $373.4
------ ------ ------
COSTS AND EXPENSES OverDuring 1998, Anadarko's costs and expenses (excluding the
past three years, Anadarko's expense levels have
remained relatively constantimpairment) increased 6% over 1997 primarily due to increased levels of
activity. Anadarko pays close attention and focusto costs, focusing on cost controls,
cost savings plans and the application of new technology to field production
operations. InDuring 1998, costs and expenses were up largely due to these
reasons:
(1) Operating expenses increased $5.8 million (4%) due to costs associated
with the commencement of production in Algeria and the acquisition of
oil and gas producing properties in the U.S.
(2) Administrative and general expenses were up $21.3 million (29%),
reflecting increased costs associated with first production from
Algeria, expenses related to reducing future administrative and general
costs, and other expenses associated with the Company's growing
workforce.
(3) Depreciation, depletion and amortization (DD&A) expense rose $5.7
million (3%) due primarily to the production volume increase.
22
23
Costs and expenses for 1997 increased 26% over 1996, excludingincluding the effect
of the 1996 sale of the Company's Indonesia interests,
Anadarko'sinterests. In addition, costs and
expenses increased six percent compared to 1995. Costs and
expenses in 1996 were primarily impacted by the following factors:
(1) Operating expenses increased $9.5$39.4 million (nine percent)(34%) due primarily to
costs associated with gas gathering operations.higher levels of drilling activity and revised NGLs contracts that
provide for processing through third-parties.
(2) Administrative and general expenses were up $8.2$5.9 million (14 percent)(9%) due to
higher costs associated with the Company's growing workforce.
(3) The Company recorded provisions for impairments of international
properties of $5.4DD&A expense was up $31.6 million in 1996. (These impairments were offset by
the gain on a sale of the Company's Indonesia assets of $19.4 million.(19%)
The 1996 impairments reflect costs associated with the review and study
of potential exploration projects in China and several other foreign
countries that the Company has elected not to pursue. This compares to
$2.6 million of provisions for impairments of international and
geothermal properties in 1995.
19
21
The Company's 1995 costs and expenses decreased five percent compared to
1994, excluding the sale of the Company's Canadian subsidiary in 1994. There
were several reasons:
(1) Operating expenses decreased $4.4 million (four percent) due primarily to lower oil and gas operating expenses.
(2) Depreciation, depletion and amortization (DD&A) expense decreased $8.1
million (five percent) due to a two percent decreasethe 18%
increase in gasU.S. production volumes and a 10 percent decrease in crude oil production partly duefrom core areas of operation
compared to property sales in late 1994. In addition, the DD&A rate decreased four
percent due to additional reserves booked during the year.
(3) Administrative and general expenses were down $1.7 million (three
percent) due to increases in overhead capitalized and amounts charged
to other working interest partners.
(4) Other taxes decreased $4.1 million (10 percent) due primarily to lower
natural gas prices and lower production volumes, which resulted in
lower production and severance taxes.
(5) Provisions for impairments of international and geothermal properties
decreased $0.5 million (16 percent). These impairments in 1995
primarily reflect costs associated with geothermal exploration projects
and the review and study of potential exploration projects in several
foreign countries, which the Company elected not to pursue.
COSTS AND EXPENSES1996.
INTEREST EXPENSE
1998 1997 1996 1995 1994
millions ------ ------ ------
Operating expenses $115.3 $105.8 $110.2
Administrative and general 67.7 59.5 61.1
DD&A 167.2 164.7 172.8
Other taxes 37.2 36.9 41.0
(Gains) losses and impairments related to international and
geothermal properties (14.0) 2.6 8.7Gross interest expense $ 82.4 $ 62.1 $ 56.0
Capitalized interest (24.7) (21.1) (17.0)
------ ------ ------
Total $373.4 $369.5 $393.8Net interest expense $ 57.7 $ 41.0 $ 39.0
------ ------ ------
INTEREST EXPENSE Anadarko's gross interest expense has increased 27 percent over the past
three years due primarily to higher levels of borrowings for capital
expenditures, including producing property acquisitions. Gross interest expense
in 19961998 was up six percent33% compared to 19951997 primarily due to higher average borrowings
in 1996.1998. Gross interest expense in 19951997 increased 19 percent11% compared to 19941996 also
primarily due to higher average borrowings and interest rates
in 1995. Net interest expense benefited in 1994 from an option sold for an
interest rate swap agreement that was not exercised by the purchaser, which
reduced interest expense in 1994 by $2.6 million.during 1997. See Liquidity and
Long-term Debt.
INTEREST EXPENSEANALYSIS OF VOLUMES AND PRICES
ANNUAL VOLUMES AND AVERAGE PRICES
1998 1997 1996 1995 1994
millions
------ ------ ------
Gross interest expenseNATURAL GAS (BCF) 176.7 178.7 164.9
MMcf/d 484 490 450
Price per Mcf $ 56.01.92 $ 52.62.30 $ 44.2
Interest rate swap agreement -- -- (2.6)
Capitalized interest (17.0) (16.2) (15.5)
------ ------ ------
Net interest expense $ 39.0 $ 36.4 $ 26.1
------ ------ ------2.13
CRUDE OIL AND CONDENSATE (MBBLS) 11,126 9,083 6,702
MBbls/d 30 25 18
Price per barrel $11.51 $18.03 $20.21
NATURAL GAS LIQUIDS (MBBLS) 6,640 5,467 3,514
MBbls/d 18 15 10
Price per barrel $10.29 $14.64 $16.86
TOTAL ENERGY EQUIVALENT BARRELS (MMEEBS) 47.2 44.3 37.7
ANALYSIS OF VOLUMES AND PRICES- ---------------
Bcf -- billion cubic feet
MBbls -- thousand barrels
MBbls/d -- thousand barrels per day
Mcf -- thousand cubic feet
MMcf/d -- million cubic feet per day
MMEEBs -- million energy equivalent barrels
NATURAL GAS Anadarko's natural gas production volumes in 1996 decreased four
percent1998 were essentially
level with 1997. Anadarko's natural gas volumes in 1997 increased 8% compared to
19951996 production primarily due to salesincreased drilling activity in its core U.S.
onshore and offshore areas of producing
properties in 1995 and natural decline. Gas production volumes in 1994 were at
record levels.operations. The Company's average U.S. wellhead gas
price in 19961998 was up 50
percentdown 17% from 1995.1997. Anadarko's average U.S. wellhead gas price in
19951997 had declined 17 percentincreased 8% from 1994. Management
201996.
23
22
expects the Company's natural gas production volumes in 1997 will increase due
to increased levels of drilling activity in the Company's core operating areas.
During 1996, Anadarko marketed more third-party gas volumes than Company
gas production volumes. The Company marketed 200 Bcf of third-party gas in 1996
compared to 109 Bcf in 1995 and 84 Bcf in 1994. The significant increase in
third-party sales is a key marketing strategy for the Company.
The gas price weakness that began in late 1994 continued until mid-December
1995, when a surge in heating demand caused by extreme winter conditions sent
gas prices significantly higher.24
Natural gas markets were extremely volatile in 1996,1998, with the Company's average
monthly price fluctuating from a high of $2.16 per Mcf in January 1998 to a low
of $1.66$1.55 per Mcf in September 19961998. Prices for natural gas weakened
significantly in 1998 due to a lack of cold weather in major population centers
in the northeast. Natural gas markets were also volatile in 1997, with the
Company's average monthly price fluctuating from a high of $3.49$3.84 per Mcf in
December 1996. The increaseJanuary 1997 to a low of $1.61 per Mcf in 1996 prices can be attributed to several factors: temperatures in the winter of
1995-96 were colder than normal in the northeast and midwest heating markets;
the nation's storage volumes were lower at the beginning of the 1996 heating
season compared to 1995 due to heavy storage withdrawals and higher prices for
natural gas in the typical injection season (May-October) that prohibited
storage volumes from reaching traditional levels; and the 1996 heating season
opened with colder than normal temperatures.
This experience shows no one can predict the precise movement of U.S.
natural gas prices. In view of this,March 1997. Anadarko has developedemploys marketing
strategies to help manage production and sales volumes and mitigate the effect
of the price volatility that is likely to continue. See Marketing
Strategies -- Use of Derivatives.
QUARTERLY NATURAL GAS VOLUMES AND U.S. AVERAGE PRICES
1998 1997 1996 1995 1994
----- ----- -----
FIRST QUARTER
Bcf 44.0 42.3 43.7 41.3 48.2
MMcf/d 489 470 480 459 536
Price per Mcf $2.02 $2.66 $1.96 $1.30 $2.03
SECOND QUARTER
Bcf 42.2 43.8 40.4 43.5 43.0
MMcf/d 463 481 444 479 472
Price per Mcf $1.98 $1.85 $2.04 $1.46 $1.74
THIRD QUARTER
Bcf 45.7 45.4 39.8 42.3 40.9
MMcf/d 497 494 433 460 445
Price per Mcf $1.82 $2.02 $1.95 $1.27 $1.59
FOURTH QUARTER
Bcf 44.8 47.2 41.0 44.5 43.7
MMcf/d 487 513 446 484 475
Price per Mcf $1.88 $2.67 $2.56 $1.64 $1.47
- ---------------
Mcf -- thousand cubic feet
MMcf/d -- million cubic feet per day
Bcf -- billion cubic feet
CRUDE OIL, CONDENSATE AND NATURAL GAS LIQUIDS Due primarily to initial
production from Algeria and an acquisition of producing properties in central
Oklahoma, Anadarko's crude oil and condensate production in 1996 was down 10 percent1998 increased 22%
from 1995.1997. The 19951997 oil and condensate production volumes declined 10 percentincreased 36% compared
to 1994. The
decreases in oil production over the last three years are1996, due primarily to property salesincreased drilling activity in 1994the Permian Basin and
1995 and normalfirst production declines associated with
mature oil fields.from the Mahogany Field.
Anadarko's average U.S. crude oil price for 1996 increased 22 percent1998 decreased 36% compared to 1995.1997.
Crude oil prices weakened significantly in 1998 due to several factors,
including: continued lack of cold weather, higher storage inventories and
perceptions of the impact of increased quotas from the Organization of Petroleum
Exporting Countries (OPEC). Crude oil prices in 19951997 were up 10 percentdown 11% compared to
1994.
Crude oil prices have continued to be strong in the first quarter of 1997 in
response to seasonal demand for heating oils. Prices for January 1997 averaged
about $23.00 per barrel.
21
231996.
Generally, the Company's oil production is sold on a monthly basis as it is
produced. Production of oil usually is not affected by seasonal swings in demand
or in market prices.
The Company's NGLs sales volumes in 1996 decreased two percent1998 increased 21% compared to 19951997
primarily due to the restructuring of processing agreements in late 1997. NGLs
production volumes in 1997 increased 56% compared to 1996 volumes. The 19951998
average NGLs sales volumes were two percent higher than 1994 NGLs
sales. The 1996 average price was up 32 percentdown 30% compared to 1995. The 19951997. By comparison, 1997 NGLs
average price was nine percent higher than the 1994 average price.
ANNUAL VOLUMES AND U.S. AVERAGE PRICES
1996 1995 1994
------ ------ ------
NATURAL GAS (BCF) 164.9 171.7 175.8
MMcf/d 450 471 482
Price per Mcf $ 2.13 $ 1.42 $ 1.72
CRUDE OIL AND CONDENSATE (MBBLS) 6,702 7,435 8,303
MBbls/d 18 20 23
Price per barrel $20.21 $16.52 $15.06
NATURAL GAS LIQUIDS (MBBLS) 3,514 3,580 3,512
MBbls/d 10 10 10
Price per barrel $16.86 $12.81 $11.77
prices were 13% below 1996.
24
25
MARKETING STRATEGIES
NATURAL GAS The U.S. natural gas market has grown significantly throughout the
last 10 years and management believes continued growth to be likely. Natural gas
prices have been extremely volatile and are expected to continue to be so.
Management believes the Company's excellent portfolio of exploration and
development prospects should position Anadarko to continue to participate in
this growth. Anadarko's wholly-owned marketing subsidiary -- Anadarko Energy
Services Company (AES) (formerly Anadarko Trading Company) -- is a full-service marketing company offering supply
assurance, competitive pricing and services tailored services to its customers.customers' needs.
Most of the Company's gas production is sold through AES. Additionally, AES also purchases and
sells third party gas. In 1996, sales of
third-party gas exceeded sales ofin the Company's gas production volumes.market areas.
AES sells natural gas under a variety of contracts and may also receive a
service fee related to the level of reliability and service required by the
customer. AES has expanded its marketing capabilities to move larger volumes of
gas into and out of the "daily" gas market to take advantage of any price
volatility. Included in this strategy is expandedthe use of leased natural gas storage
facilities and various hedging strategies to better manage price risk associated
with natural gas sales. See Use of Derivatives.
CRUDE OIL AND CONDENSATE Currently, all of Anadarko's revenues are derived from domestic production.production in the
U.S. and Algeria. Presently, most of the Company's U.S. crude oil production is
sold on 30-day "evergreen" contracts with prices based on postings plus a
premium. Initial production from the HBNS fieldField in Algeria estimated at about 60,000
barrels of oil per day (BOPD) (gross)began in May 1998.
Oil from the HBNS Field is expected in early 1998. Anadarko's
marketing department is currently exploring international markets for thelifted by tanker load and sold as Saharan Blend to
customers primarily in the Mediterranean area. Saharan Blend is a very high
quality crude oil.that provides refiners with large quantities of premium products
like high quality jet and diesel fuel. In 1998, the company lifted two cargoes
from Algeria. AES purchases and sells third-party crude oil and condensate in
the Company's market areas.
GAS GATHERING SYSTEMS AND PROCESSING PLANTS Anadarko's investment in gas
gathering operations allows the Company to better manage its gas production,
improve ultimate recovery of reserves, enhance the value of reserves and expand
marketing opportunities. The Company has invested more than $85$119 million to build or
acquire gas gathering systems over the last five years. Anadarko ownedowns and
operated fouroperates five major gas gathering systems and one gas processing plant atin the end of 1996. In addition, the Company owned interests in nine other gathering
systems and three other processing plants at year-end 1996.
In March 1996, Anadarko closed on the second of two recent acquisitions
from PanEnergy Corp, formerly Panhandle Eastern Corporation.Company's core producing areas.
The purchase price
of the two systems was about $35 million. These two gathering systems tripled
the Company's overall gas gathering capacity to over 480is more than 500 MMcf/d and serve
approximately 1,900serves
about 2,000 wells. Approximately 75 percent80% of the gas flowing through these systems is
from Anadarko-operated wells.
During 1996,1997, the Company shut down its last fully owned and operated gas
processing facility. The Company also sold its interests in three other plants
during 1997. The Company has elected to have its gas processed by third parties,
increasing the Company's net NGLs production volumes. The increased revenues
were partially offset by higher operating expenses.
USE OF DERIVATIVES Anadarko invested an
additional $15 million to lower line pressureproduces, purchases and 22
24
increase deliverability from systems in southwest Kansas. Anadarko plans to
invest an additional $45 million on enhancing its gathering systems over the
next several yearssells natural gas, crude
oil, and improve access to multiple pipeline market hubs.
Anadarko remains active in the NGLs business, primarily asNGLs. As a result, of its
gas gathering and processing operations. The Company generally sells NGLs on a
monthly basis as they are produced. However, some NGLs are heldAnadarko's financial results can be significantly
affected by changes in inventory for
sale at a later date. Anadarko generally markets NGLs under short-term
contracts. Anadarko had 4,600 barrels of NGLs in inventory at the end of 1996
compared to 66,600 barrels at the end of 1995.
USE OF DERIVATIVESthese commodity prices. Anadarko uses derivative
financial instruments to hedge the Company's exposure to changes in the market
price of natural gas and crude oil, to provide methods to fix the price for
natural gas independently of the physical purchase or sale and to manage
interest rates. Commodity financial instruments also provide methods to meet
customer pricing requirements while achieving a price structure consistent with
the Company's overall pricing strategy. While commodity financial instruments
are intended to reduce the Company's exposure to declines in the market price of
natural gas and crude oil, the commodity financial instruments may also limit
Anadarko's gain from increases in the market price of natural gas and crude oil.
As a result, gains and losses on commodity financial instruments are generally
offset by similar changes in the realized price of natural gas and crude oil.
Gains and losses are recognized in revenues for the periods to which the
commodity financial instruments relate. Anadarko's commodity financial
instruments currently are comprised of futures, swaps and options.options contracts. See
NoteNotes 1 and 6 of the Notes to Consolidated Financial Statements under Item 8 of
this Form 10-K.
While the volume of derivative commodity instruments utilized by the
Company to hedge its market price risk can vary during the year within the
boundaries of its established policy guidelines, the fair value of those
instruments at December 31, 1998 and 1997 was, in the judgment of the Company,
immaterial. Additionally, through the use of sensitivity analysis the Company
evaluates the potential effect that reasonably possible near term changes in the
market prices of natural gas and crude oil may have on the fair value of the
25
26
Company's derivative commodity instruments. Based upon an analysis utilizing the
actual derivative contractual volumes and assuming a 10% adverse movement in
commodity prices, the potential decrease in the fair value of the derivative
commodity instruments at December 31, 1998 and 1997 does not have a material
adverse effect on the financial position or results of operations of the
Company.
The Company also evaluated the potential effect that reasonably possible
near term changes in interest rates may have on the fair value of the Company's
interest rate swap agreement. Based upon an analysis utilizing the actual
interest rate in effect as of December 31, 1998 and 1997 and assuming a 10%
increase in interest rates, the potential decrease in the fair value of the
derivative interest swap instrument at December 31, 1998 and 1997 does not have
a material effect on the financial position or results of operations of the
Company.
OPERATING RESULTS
DRILLING ACTIVITY During 1996,1998, Anadarko participated in a total of 402 gross
wells, including 192 oil wells, 149 gas wells and 61 dry holes. This compares to
646 gross wells (401 oil wells, 182 gas wells and 63 dry holes) in 1997 and 283
gross wells including 166(166 oil wells, 65 gas wells and 52 dry holes. This compares to
258 wells (114 oil wells, 98 gas wells and 46 dry holes) in 1995 and 281 wells
(147 oil wells, 95 gas wells and 39 dry holes)1996. The decline
in 1994.
During 1996, the Company made several significant well completions in itsactivity during 1998 is a direct result of lower commodity prices.
The Company's 1998 exploration and development drilling program which areis
discussed in the
narrative descriptions on pages 9 through 23 of the 1996 Annual Report to
Stockholders, incorporated herein by reference, and Properties and Activities under Item 1 of this Form 10-K.
DRILLING PROGRAM ACTIVITY
GAS OIL DRY TOTAL
--------- ----- ---- -----
19961998 EXPLORATORY
Gross 7 8 11 2613 24 45
Net 4.9 3.4 6.3 14.6
19966.1 6.1 14.7 26.9
1998 DEVELOPMENT
Gross 58 158 41 257141 179 37 357
Net 38.3 125.2 37.9 201.4
1995121.0 126.1 30.9 278.0
1997 EXPLORATORY
Gross 3 14 9 5 1726
Net 1.7 3.6 3.4 8.7
19952.0 7.9 5.1 15.0
1997 DEVELOPMENT
Gross 95 105 41 241179 387 54 620
Net 72.6 87.3 40.1 200.0149.6 284.9 50.9 485.4
- ---------------
Gross: total wells in which there was participation.
Net: working interest ownership.
RESERVE REPLACEMENT Drilling activity is not the best measure of success for an
exploration and production company. Anadarko focuses on growth and
profitability. Reserve replacement is the key to growth and future 23
25
profitability
depends on the cost of finding oil and gas reserves. The Company believes its
performance in both areas is excellent. For the 15th17th consecutive year, Anadarko
more than replaced annual production volumes with proved reserves of natural
gas, crude oil, condensate and NGLs, stated on an energy equivalent barrel (EEB)
basis.
During 1996,1998, Anadarko's worldwide reserve replacement was 299 percent581% of total
production, which was 37.7 million energy equivalent barrels (MMEEBs).a record 47.2 MMEEBs. The Company's worldwide reserve
replacement in 19951997 was 226 percent341% of total production, andwhich was 44.3 MMEEBs. The
Company's worldwide reserve replacement in 19941996 was 308 percent299% of total production.
Over the last five years, the Company's annual reserve replacement has averaged
241 percent359% of annual production volumes.
Anadarko continues to increase its energy reserves in the U.S. while the
nation's energy reserves have been declining over the past ten years. In 1996,1998,
the Company replaced 215 percent462% of its U.S. production volumes with U.S. reserves.
This compares to a U.S. reserve replacement of 206% of production volumes in
1997. The
26
27
Company's U.S. reserve replacement for the five-year period 1992-961994-1998 was 183 percent249%
of Anadarko's U.S. production. By comparison, the most recent published U.S. industry average
(1991-95)(1993-1997) was 84 percent.99%. (Source: Department of Energy.)Energy) Anadarko's U.S. reserve
replacement performance for the same period 1991-951993-1997 was 175 percent183% of production.
Industry data for 19961998 are not yet available.
COST OF FINDING For 1996, Anadarko's worldwide finding cost for proved reserves
was $2.76 per EEB compared to $2.74 per EEB in 1995 and to $2.76 per EEB in
1994. The Company's low worldwide finding costs are due to the success of the
Company's exploration programs. Anadarko's U.S. finding cost for 1996 was $3.23
per EEB compared to $4.26 per EEB in 1995 and $3.57 per EEB in 1994. Cost of finding results in any one year can be misleading due
to the long lead times associated with exploration and development. A better
measure of cost of finding performance is over a five-year period. Anadarko has
consistently outperformed the industry in average finding costs. For the period
1992-96,
Anadarko's U.S. cost of finding was $3.78 per EEB.1994-1998, Anadarko's worldwide finding cost was $3.17 per EEB. The Company's
U.S. finding performance for the same five-year period was $3.25$3.61 per EEB. Industry data
for 19961998 are not yet available. For comparison purposes, the most recent
published five-year average (1991-95)(1993-1997) for the industry shows U.S. averageworldwide finding
cost of finding was $4.77$3.99 per EEB and worldwideU.S. finding cost of finding was $5.19$5.05 per EEB. (Source: Arthur
Andersen SC)and J.S. Herold) For the same five-year period of 1993-1997, Anadarko's
worldwide finding cost was $3.28 per EEB and its U.S. finding cost was $3.88 per
EEB. The Company's low finding costs are due to the success of Anadarko's
exploration programs.
For 1998, Anadarko's worldwide finding cost was $3.13 per EEB compared to
$4.28 per EEB in 1997 and $2.76 per EEB in 1996. Anadarko's U.S. finding cost
for 1998 was $3.74$3.11 per EEB compared to $4.79 per EEB in 1997 and worldwide finding cost was $3.39$3.23 per EEB.EEB
in 1996.
PROVED RESERVES At the end of 1996,1998, Anadarko's proved reserves were 601.3935.1
MMEEBs compared to 526.3708.0 MMEEBs at year-end 19951997 and 476.4601.3 MMEEBs at year-end
1994.1996. Reserves increased by 14 percent32% in 19961998 compared to 1995,1997 primarily due to
exploration and development drilling in both the U.S. and improved recovery.overseas and producing
property acquisitions. Anadarko's proved reserves have grown by 54 percent78% over the
past three years, primarily as a result of successful exploration projects in
Algeria, the Gulf of Mexico and Alaska, as well as successful exploitation and
development drilling programs in major domestic fields in core areas onshore and
offshore.offshore and producing property acquisitions.
The Company's proved natural gas reserves at year-end 19961998 were 1.822.65
trillion cubic feet (Tcf) compared to 1.841.73 Tcf at year-end 19951997 and 1.911.82 Tcf at
year-end 1994.1996. Anadarko's proved U.S. gas reserves have increased 44% since
year-end 1995, reflecting two major discoveries in the Gulf of Mexico's sub-salt
trend and continued development activity onshore U.S. Anadarko's crude oil,
condensate and NGLs reserves at year-end 19961998 increased 36 percent18% to 297.8 MMBbls494.0 million
barrels (MMBbls) compared to 219.2419.7 MMBbls at year-end 1995. This compares to reserves of 157.41997 and 297.8 MMBbls at
year-end 1994.1996. Crude oil reserves have increased 279 percentrisen by 125% over the last three years
primarily due to large discoveries in Algeria, the Gulf of Mexico and Alaska.
Crude oil, condensate and NGLs reserves now comprise 50 percent53% of the Company's proved
reserves at year-end 1998 compared to about 42 percent59% at year-end 19951997 and about 33 percent50% at
year-end 1994.
Creating balance between crude oil reserves and natural gas reserves was a key
strategy for the Company.1996.
The Company emphasizes that the volumes of reserves are estimates which, by
their nature, are subject to revision. The estimates are made using all
available geologic and reservoir data as well as production performance data.
These estimates are reviewed annually and revised, either upward or downward, as
warranted by additional performance data.
At December 31, 1996,1998, the present value (discounted at 10 percent)10%) of future net
revenues from Anadarko's proved reserves was $5.27$3.1 billion, before income taxes,
and was $3.40$2.2 billion, after income taxes, (stated in accordance with the
regulations of the Securities and Exchange Commission and Financial Accounting
Standards Board). The 19961998 estimated present value of future net revenues, after
income taxes, increased 96 percent10% compared to 19951997 primarily due to increases in commodity prices for oil and gas at year-end 1996 and the additions of
proved reserves related to successful exploration and development drilling
worldwide.worldwide, partially offset by significantly lower natural gas and crude oil
prices at year-end 1998. See Supplemental Information on Oil and Gas Exploration
and Production Activities in the Consolidated Financial Statements under Item 8
of this Form 10-K.
24
26
The present value of future net revenues does not purport to be an estimate
of the fair market value of Anadarko's proved reserves. An estimate of fair
value would also take into account, among other things, anticipated changes in
future prices and costs, the expected recovery of reserves in excess of proved
reserves, and a discount factor more representative of the time value of money
and the risks inherent in producing oil and gas.
27
28
ACQUISITIONS AND DIVESTITURES
Several years ago,The Company's strategy also includes an active asset acquisition and
divestiture program. During 1996-1998, Anadarko acquired through purchases and
trades 47.8 MMEEBs of proved reserves for $180 million. During the Company embarked on an asset management program to
sell "non-core" properties and investsame time
period, the proceeds into core operating areas
around the world in order to focus financial resources and personnel on the
Company's core areas of operation. Over the past three years, the Company has sold properties, either as a strategic exit or by asset
rationalization in existing core areas, with proceeds totaling $216$52 million.
Reserves associated with these sales and trades are 47.7were 19.7 MMEEBs.
In 1998, Anadarko acquired reserves of 38.7 MMEEBs resulting in unit proceedsseveral transactions
totaling $143 million. The largest acquisition was a package of $4.53
per EEB. Duringworking
interests in five oil and gas fields in the same time period, Anadarko has acquired through purchasesBasin of central Oklahoma,
a core operating area of the Company for 20 years, which was purchased from OXY
USA, Inc. for $118 million. The five oil and trades 25.5gas fields cover 37,000 gross acres
with 370 producing and injection wells. Anadarko's 1998 net production from
these fields was about 2.6 MBbls/d and 5.4 MMcf/d of gas. The acquisition also
included an interest in a 120-mile, eight-inch diameter pipeline that delivers
CO(2) to the fields and primarily serves third parties.
In 1997, acquisitions of producing properties totaled $31.0 million and 8.0
MMEEBs. The largest acquisition was a package of properties in the West
Panhandle Field of Texas for $18.5 million, which accounted for 4.2 MMEEBs of
proved reserves. This purchase provided the Company producing properties with
significant development potential as well as settling a disputed claim on
revenues. During 1997, Anadarko sold reserves at a cash cost of $48 million, or
$1.88 per EEB.about 1 MMEEBs in several
transactions with sales proceeds totaling $6.2 million. The largest component
was the sale of the Company's Norden Ltd. Partnership in Colorado in late 1997
for $5.8 million.
During 1996, Anadarko sold reserves of 18.7 MMEEBs, of which 17.7 MMEEBs
were attributed to the Company's interests in Indonesia. Total proceeds from
divestitures in 1996 amounted to $41 million or $2.19 per EEB.million. In 1996, acquisitions of producing
properties totaled $5.3 million and 1.1 MMEEBs, at a
cost of $4.72 per EEB.MMEEBs. The largest acquisition was a
package of properties in the Oklahoma Panhandlepanhandle portion of the Hugoton
Embayment.
This package includes
significant undeveloped acreage on which Anadarko plansRECENT DEVELOPMENTS
Under the full cost method of accounting, a non-cash charge to conduct a 3-D seismic
survey and drill wells in 1997.
Total 1995 proceeds from divestitures were $66.6 million, which included
assets in north Texas andearnings
related to the Permian Basin of southeast New Mexico and west
Texas. Reserves sold equaled 11.9 MMEEBs, resulting in unit proceeds of $5.60
per EEB. The largest sale in 1995 was the Company's interest in 25
"non-strategic" fields to other operators for $56.8 million. In 1995, Anadarko
acquired 9.8 MMEEBs of reserves at a cost of $26 million, or $2.66 per EEB. The
largest acquisition was a package of properties in west Texas purchased from
Shell Western E&P. The Company also purchased for $9.5 million a water supply
system in west Texas which reduced operating costs and enabled expansions of
several important waterflood projects.
During 1994, Anadarko sold assets in the Arkoma Basin, the Rocky Mountains
and allcarrying value of the Company's Canadian holdings. Reserves associated withoil and gas properties on a
country-by-country basis may be required when prices are low. Whether the
1994
salesCompany will be required to take such a charge depends on the prices for crude
oil and tradesnatural gas at the end of any quarter, as well as the effect of both
capital expenditures and changes to proved reserves during that quarter. If a
non-cash charge were 17.1 MMEEBs, with proceedsrequired, it would reduce earnings for the quarter, which
would result in lower DD&A expense in future periods.
Prices for crude oil and natural gas were significantly lower at year-end
1998 compared to year-end 1997. Since the end of about $109 million,1998, gas prices have continued
to fall. If the current pricing environment continues or $6.40
per EEB.worsens, the Company
may be required to take a non-cash charge against earnings during the first
quarter of 1999.
28
29
PRODUCING PROPERTIES AND LEASES
The Company owns 2,2862,927 net producing oil wells and 1,8922,144 net producing gas
wells worldwide. The following schedule shows the number of developed and
undeveloped acres in which Anadarko held interests at December 31, 1996.1998.
ACREAGE
Developed Undeveloped TotalDEVELOPED UNDEVELOPED TOTAL
--------------- --------------- ---------------
Gross Net Gross Net Gross NetGROSS NET GROSS NET GROSS NET
thousands ----- ----- ----- ----- ----- -----
United States
Onshore 1,082 795 1,289 545 2,371 1,3401,073 824 1,355 540 2,428 1,364
Offshore 178182 56 435 232 613 288514 276 696 332
----- ----- ----- ----- ----- -----
Total 1,260 851 1,724 777 2,984 1,6281,255 880 1,869 816 3,124 1,696
----- ----- ----- ----- ----- -----
Algeria -- -- 5,292 2,324 5,292 2,32457* 14* 3,308 1,331 3,365 1,345
Eritrea -- -- 6,700 6,700 6,700 6,7009,000 4,500 9,000 4,500
Jordan -- -- 4,200 2,100 4,200 4,200 4,2002,100
North Atlantic Margin -- -- 1,208 359 1,208 359
Peru -- -- 2,557 2,557 2,557 2,557
ChinaTunisia -- -- 2,100 2,100 2,100 2,100384 96 384 96
25
27- ---------------
* Developed acreage for Algeria relates only to the area with an Exploitation
License, which is the HBNS Field.
REGULATORY MATTERS
ENVIRONMENTAL AND SAFETY The Company's oil and gas operations and properties
are subject to numerous federal, state and local laws and regulations relating
to environmental protection.protection of most oil and gas projects from commencement to
abandonment. These laws and regulations govern, among other things, the amounts
and types of substances and materials that may be released into the environment,
the issuance of permits in connection with exploration, drilling and production
activities, the release of emissions to the atmosphere, discharge and
disposition of generated waste materials, offshore oil and gas operations, the
reclamation and abandonment of wellswell and facility sites and the remediation of
contaminated sites. In addition, these laws and regulations may impose
substantial liabilities for the Company's failure to comply with them or for any
contamination resulting from the Company's operations.
Anadarko takes the issue of environmental stewardship very seriously and
works diligently to comply with applicable environmental and safety rules and
regulations. Compliance with environmentalsuch laws and regulations has not had a material
adverse
effect on the Company's operations or financial condition in the past. However,
because environmental laws and regulations are becoming increasingly more
stringent, there can be no assurances that such laws and regulations or any
environmental law or regulation enacted in the future will not have a material
adverse effect on the Company's operations or financial condition.
For a description of certain environmental proceedings in which the Company
is involved, see Note 16 of the Notes to Consolidated Financial Statements under
Item 8 of this Form 10-K.
OTHER Regulatory agencies in certain states and countries have authority to
issue permits for seismic exploration and the drilling of wells, regulate thewell
spacing, of wells, prevent the waste of oil and gas resources through proration and
regulate environmental matters.
Operations conducted by the Company on federal oil and gas leases must
comply with numerous regulatory restrictions, including various
nondiscrimination statutes. Additionally, certain operations must be conducted
pursuant to appropriate permits issued by the Bureau of Land Management and the
Minerals Management Service ofunder the Department of Interior and, with regard to
certain federal leases, with prior approval of drill site locations by the
Environmental Protection Agency.Interior. In addition to the
standard permit process, federal leases mayand most international concessions
require a complete environmental impact assessment prior to authorizing an
exploration or development plan.
29
30
ADDITIONAL FACTORS AFFECTING BUSINESS
The Company has made in this report, and may from time to time otherwise make in
other public filings, press releases and discussions with Company management,
forward looking statements within the meaning of Section 27A of the Securities
Act of 1933 and Section 21E of the Securities Exchange Act of 1934 concerning
the Company's operations, economic performance and financial condition. These
forward looking statements include information concerning future production and
reserves, schedules, plans, timing of development, contributions from Algerian
properties, and those statements preceded by, followed by or that otherwise
include the words "believes", "expects", "anticipates", "intends", "estimates",
"projects", "target", "goal", "plans", "objective", "should" or similar
expressions or variations on such expressions. For such statements, the Company
claims the protection of the safe harbor for forward looking statements
contained in the Private Securities Litigation Reform Act of 1995. Such
statements are subject to various risks and uncertainties, and actual results
could differ materially from those expressed or implied by such statements due
to a number of factors in addition to those discussed elsewhere in this Form
10-K and in the Company's other public filings, press releases and discussions
with Company management, including:
COMMODITY PRICING AND DEMAND Crude oil prices continue to be affected by
political developments worldwide, pricing decisions and production quotas of
the Organization of
Petroleum Exporting Countries (OPEC)OPEC and the volatile trading patterns in the commodity futures markets. Natural
gas prices also continue to be highly volatile. In periods of sharply lower
commodity prices, the Company may curtail production and capital spending
projects, andas well as delay or defer drilling wells in certain areas because of
lower cash flows. Changes in crude oil and natural gas prices can impact the
Company's determination of proved reserves and the Company's calculation of the
standardized measure of discounted future net cash flows relating to oil and gas
reserves. In addition, demand in the United StatesU.S. and worldwide may affect the Company's
level of production.
EXPLORATION AND OPERATING RISKS The Company's business is subject to all of the
operating risks normally associated with the exploration for and production of
oil and gas, including blowouts, cratering and fire, each of which could result
in damage to or destruction of oil and gas wells or formations or production
facilities and other property and injury to persons. As protection against
financial loss resulting from these operating hazards, the Company maintains
insurance coverage, including certain physical damage, employer's liability,
comprehensive general liability and workmen'sworker's compensation insurance. Although
Anadarko is not fully insured against all risks in its business, the Company
believes that the coverage it maintains is customary for companies engaged in
similar operations. The occurrence of a significant event against which the
Company is not fully insured could have a material adverse effect on the
Company's financial position.
DEVELOPMENT RISKS The Company is increasingly involved in large development
projects in the Gulf of Mexico, Alaska and internationally.projects. Key factors that may affect the timing and outcome of such projects
include: project approvals by joint-venturejoint venture partners; timely issuance of permits
and licenses by host country governmental agencies; manufacturing and delivery
schedules of critical equipment; and commercial arrange-
26
28
mentsarrangements for pipelines and
related equipment to transport and market hydrocarbons. In large development
projects, these uncertainties are usually resolved, but delays and differences
between estimated timing and actual timing of critical events are commonplace
and may, therefore, affect the forward-looking statements related to large
development projects.
DOMESTIC GOVERNMENTAL RISKS The domestic operations of the Company have been,
and at times in the future may be, affected by political developments and by
federal, state and local laws and regulations such as restrictions on
production, changes in taxes, royalties and other amounts payable to governments
or governmental agencies, price or gathering rate controls and environmental
protection regulations.
FOREIGN OPERATIONS RISK The Company's operations in areas outside the United
StatesU.S. are
subject to various risks inherent in foreign operations. These risks may
include, among other things, loss of revenue, property and equipment as a result
of hazards such as expropriation, war, insurrection and other political risks,
increases in taxes and governmental royalties, renegotiation of contracts with
governmental entities, changes in laws and policies governing operations of
foreign-based companies, currency restrictions and exchange rate fluctuations
and other uncertainties arising out of foreign government sovereignty over the
Company's international operations. The Company's international operations may
also be adversely affected by laws and policies of the
30
31
United States affecting foreign trade and taxation. To date, the Company's
international operations have not been materially affected by these risks.
COMPETITION The oil and gas business is highly competitive in the search for
and acquisition of reserves as well as,and in the gathering and marketing of oil and gas
production. The Company's competitors include the major oil companies,
independent oil and gas concerns, individual producers, gas marketers and major
pipeline companies, as well as participants in other industries supplying energy
and fuel to industrial, commercial and individual consumers.
CompetitionYEAR 2000 Overview The Year 2000 issue relates to the inability of certain
computers and software applications to correctly recognize and process date
sensitive information for drilling rigs is keen in certain areasthe Year 2000 and beyond. Without correction, the
computers and software applications could fail or create erroneous information.
The Company has established a Year 2000 Compliance Program focused on minimizing
disruptions of the GulfCompany's operations as a result of Mexico. During 1996the millennium change.
Since this problem could affect the Company's systems, as well as the systems of
its business partners, the Program focuses on the internal systems and 1995,external
services considered most critical to Anadarko's continuing operations.
Since 1993, the Company experienced increaseshas enhanced its scientific processing
capabilities, implemented new business systems and upgraded its network
infrastructure. These information systems were purchased from leading suppliers
of technology, most of which are representing their products to be Year 2000
compliant. The Company is in drilling rig rental rates duethe process of testing third-party hardware and
software for compliance, which should be completed by mid-year 1999. Any
necessary replacements of non-compliant computer equipment and software are
underway and should also be completed by mid-year 1999.
Embedded system inventories for domestic and internal operations were
completed on schedule by year-end 1998. Contract instrumentation specialists are
assessing the inventories of equipment and will develop remediation and test
plans by the end of first quarter 1999. All embedded systems are expected to be
compliant by the end of the third quarter of 1999.
The Company is assessing the readiness of its business partners, including
joint-venture operators and outside-operated pipeline and processing facilities
as well as suppliers of goods and services. Interruptions in these services
could disrupt Anadarko's production and delivery of oil, gas and NGLs early in
2000. Analysis and review of key business partners is underway. Natural gas
affiliates providing gathering, transportation and processing services are being
contacted to determine Year 2000 compliance at inter-connect and sales points.
Operations personnel have begun the development of critical vendor and
commodities lists and are assessing the suppliers and availability of goods and
services in these areas. These efforts should be completed by the end of the
third quarter of 1999.
Contingency Planning The Company will develop contingency plans to provide
business continuity and to address operations, safety and environmental
concerns. This effort has begun and is expected to be complete by the end of the
third quarter of 1999.
Estimated Cost The total cost of testing, remediation and contingency planning
is expected to be approximately $5 million, which will be funded by operating
cash flows. This estimate does not include the Company's share of potential Year
2000 costs as a result of participation in partnerships in which Anadarko is not
the operator. As of December 31, 1998, the Company had spent less than $1
million for the Year 2000 project. These expenditures include costs to establish
Year 2000 testing facilities, inventory field automation equipment domestically
and internationally, and purchase Year 2000 scanning software. In total, the
Company expects to spend $3.5 million to test internal systems, upgrade and
replace hardware and software, and complete field automation testing. The
remaining $1.5 million is for replacement of any non-compliant field automation
equipment discovered during testing, instrumentation consulting services and
contingency planning. Anadarko's Year 2000 Program is an on-going process that
may result in changes to cost estimates and schedules as testing and business
partner assessment progresses.
Risks The Company expects to have all internal systems and computer equipment
Year 2000 compliant prior to the tight rig marketmillennium change. The Company is relying on
its business partners and suppliers to be Year 2000 ready as well. Failure of
significant third parties to complete their Year 2000 compliance projects could
interrupt the supply of materials and contract services needed for oil and gas
operations. Disruptions to oil and
31
32
gas transportation networks controlled by third-party carriers could result in
reduced production volumes delivered to market. Risk associated with foreign
operations may increase with the Gulfuncertainty of Mexico.Year 2000 compliance by foreign
governments and their supporting infrastructures. Such occurrences could have a
material adverse effect on the Company's business, results of operations and
financial condition. However, the Year 2000 Program is expected to significantly
reduce the Company's level of uncertainty about the Year 2000 issue.
KANSAS AD VALOREM TAX The Natural Gas Policy Act of 1978 allowed a "severance,
production or similar" tax to be included as an add-on, over and above the
maximum lawful price for natural gas. Based on the Federal Energy Regulatory
Commission (FERC) ruling that the Kansas ad valorem tax was such a tax, the
Company collected the Kansas ad valorem tax. FERC's ruling regarding the ability
of producers to collect the Kansas ad valorem tax was appealed to the United
States Court of Appeals for the District of Columbia Circuit (D.C. Circuit). The
Court held in June 1988 that FERC failed to provide a reasoned basis for its
findings and remanded the case to FERC.
Ultimately, the D.C. Circuit issued its decision on August 2, 1996 ruling
that producers must refund all Kansas ad valorem taxes collected relating to
production since October 1983. The Company filed a petition for writ of
certiorari with the Supreme Court. That petition was denied on May 12, 1997.
Anadarko estimates that the maximum amount of principal and interest at issue
which has not been paid to date assuming that the October 1983 effective date
remains in effect, is about $42.7 million (pretax) as of December 31, 1998.
For a description of the court proceedings that have occurred, additional
action taken by FERC and litigation filed by the Company as a result of the D.C.
Circuit 1996 decision, see information appearing under Kansas Ad Valorem Tax
under Item 3 of this Form 10-K.
CAPITAL EXPENDITURES, LIQUIDITY AND LONG-TERM DEBT
CAPITAL EXPENDITURES
1998 1997 1996
millions ------ ------ ------
Exploration $257.3 $184.8 $141.8
Development 343.5 346.4 148.9
Acquisitions of producing properties 143.2 31.0 5.3
Gathering and other 57.5 36.0 64.0
Interest and overhead 115.5 88.0 67.2
------ ------ ------
Total $917.0 $686.2 $427.2
------ ------ ------
CAPITAL EXPENDITURES Anadarko's total capital spending in 19961998 was $427$917
million, an increase of 29 percent34% over a 19951997 capital spending level of $331$686 million and about equal to 1994up
115% over 1996 capital spending of $423$427 million. Capital spendingAnadarko's record capital
investment program in 1996 did not reach1998 reflects increased activities in all core areas of
operation during the budget initially set at $485 million, largely due to
construction delays in Algeria. The 1995 spending level was lower than
originally anticipated due to lower gas prices and deferred drilling
opportunities in the Gulf of Mexico's sub-salt play. The 1994 spending included
$72 million to acquire 26 offshore lease blocks in the Gulf of Mexico at the
Minerals Management Service Offshore Lease Sale No. 147 in March 1994.year. The largest categories of capital spending in 1996, 19951998,
1997 and 19941996 were for exploration and development activities in the U.S. and
overseas. The Company funded its capital investment program in 1996, 19951998, 1997 and
19941996 primarily through cash flow, plus increases in long-term debt, issuance of
preferred stock and proceeds from property sales and increases in long-term debt.
CAPITAL EXPENDITURES
1996 1995 1994
millions ------ ------ ------
Exploration $141.8 $ 97.9 $196.0
Development 148.9 96.8 128.8
Acquisitions of producing properties 5.3 26.0 18.1
Gathering and other 64.0 52.4 25.1
Interest and overhead 67.2 58.1 54.7
------ ------ ------
Total $427.2 $331.2 $422.7
------ ------ ------
sales.
Capital spending for 19971999 has been set at about $560$410 million, an increase
of 31 percent over 1996 and the highest anticipated spending level in Company
history.a 55%
decrease from 1998. The higherreduced capital budget is driven by increased
27
29
opportunities in both U.S.continued low prices
for crude oil and international exploration and development
drilling programs.natural gas. The 19971999 budget includes $159$97 million for
exploration, $300$197 million for development, $27$15 million for gas gathering and
other, and $74$101 million for capitalized interest and overhead.
Although no dollars are budgeted for
acquisitions in 1997, the Company will look at opportunities and, depending on
conditions of the market, may electIn addition to purchase properties.
Historically, the Company has based capital spending on anticipated cash
flows including proceeds from divestitures, but certain portions of theits 1999 capital spending budget, -- such as acquisitions -- have been financed from timeAnadarko expects to
time.
In addition,complete a financing arrangement of approximately $150 million that will be used
for expenditures to develop the Company's budget is adjusted periodicallyTanzanite and Hickory gas discoveries in the
Gulf of Mexico. These funds will be earmarked for development drilling and
construction of platforms and production facilities in order to reflect changes in
market prices for oil and natural gas.bring both
Fields on production by the fall of 2000.
The Company believes that cash flows, including proceeds from divestitures,development financing for Tanzanite
and Hickory, and existing or available credit facilities will be
sufficientprovide the
majority of funds to meet its capital and operating requirements for
32
33
1999. The Company will continue to evaluate funding alternatives, including
any
contingencies, during 1997.property sales and additional borrowing, to secure other funds for capital
development.
LIQUIDITY AND LONG-TERM DEBT At year-end 1996,1998, Anadarko's total debt was $731
million.$1.43
billion. This compares to year-end 19951997 total debt of $674$956 million. Anadarko's
total debt has increased primarily because of capital requirements related to
development operations in Algeria, the Gulf of Mexico and Alaska, exploration
activities and acquisitions of producing properties.
In January 1998, Anadarko issued $100 million principal amount of 6.625%
Debentures due 2028. The proceeds were used to fund capital spending projects in
core operating areas.
In March 1998, Anadarko filed a shelf registration statement with the
Securities and Exchange Commission (SEC) that permits the issuance of up to $500
million in debt and equity securities. Net proceeds, terms and pricing of
offerings of securities issued under the shelf registration statement will be
determined at the time of the offerings.
In April 1998, the Company's Revolving Credit and 364-day Credit Agreements
were amended. The Revolving Credit Agreement provides for $225 million principal
amount and the 364-day Credit Agreement provides for $175 million principal
amount. The Revolving Credit Agreement expires in 2002. During 1998, 1997 and
1996, there were no outstanding borrowings under these Agreements.
In April 1998, the Board of Directors approved a two-for-one stock split.
The stock split was effected by way of a stock dividend. The distribution date
was July 1, 1998 to stockholders of record on June 15, 1998.
In May 1998, Anadarko issued $200 million of 5.46% Series B Cumulative
Preferred Stock in the form of two million Depositary Shares, each Depositary
Share representing 1/10th of a share of the 5.46% Series B Cumulative Preferred
Stock. The preferred stock has no stated maturity and is not subject to a
sinking fund or mandatory redemption. The shares are not convertible into other
securities of the Company. Anadarko has the option to redeem the shares at $100
per Depositary Share on or after May 15, 2008. Holders of the shares are
entitled to receive, when, and as declared by the Board of Directors, cumulative
cash dividends at an annual dividend rate of $5.46 per Depositary Share. The
proceeds from the offering were used to reduce commercial paper and bank
borrowings and provide capital for Anadarko's 1998 capital expenditures. The
preferred stock was issued under the Company's shelf registration statement.
In October 1998, the Company entered intofiled a sale/lease back agreement for
$88.4 million involving 145 natural gas compressors in Anadarko's major
mid-continent gathering systems.registration statement with the SEC
that permits the issuance of Anadarko common stock under the Anadarko Dividend
Reinvestment and Stock Purchase Plan (DRIP). The transaction monetizedDRIP offers the opportunity to
reinvest dividends and provides an alternative to traditional methods of buying,
holding and selling Anadarko common stock. The DRIP provides the Company assets and
took advantagewith a
means of current low interest rates. Proceeds from the transaction were
usedraising additional capital for general corporate purposes.
During 1996, Anadarko offered two "Century Bonds".purposes through the
sale of common stock under the DRIP.
In September 1996,October 1998, the Board of Directors adopted a Stockholders Rights Plan,
which replaced the Rights Plan that expired on October 20, 1998. Under the
Rights Plan, the Rights attached automatically to each outstanding share of
common stock on November 10, 1998. Each Right, at the time it becomes
exercisable and transferable apart from the common stock, entitles stockholders
to purchase from the Company 1/1000th of a share of a new series of junior
participating preferred stock at an exercise price of $175. The Right will be
exercisable only if a person or group acquires 15% or more of common stock or
announces a tender offer or exchange offer the consummation of which would
result in ownership by a person or group of 15% or more of the common stock. The
Rights distribution is not taxable to stockholders. The Board of Directors may
elect to exchange and redeem the Rights. The Rights will expire on November 10,
2008.
In November 1997, the Company issued $100 million principal amount of 7.73%7%
Debentures due 2096. Each
Debenture holder has2027. Net proceeds from the one-time rightoffering were used to have the Company purchase on
September 15, 2026, all or a portion of, the Debentures, at a purchase price
equal to par plus accrued and unpaid interest. In November 1996, the Company
issued $100 million principal amount of 7 1/4% Debentures due November 15, 2096.
During the fourth quarter of 1996, Anadarko entered into a 10-year swap
agreement with a notional value of $100 million whereby the Company receives a
fixed interest rate and pays arepay floating
interest rate indexed to 3-month LIBOR.
This agreement was entered into to offset a portion of the effect of the
Company's fixed-rate long-term debt financed in 1996.
In March 1995, Anadarko issued $100 million principal amount of 7 1/4%
Debentures due 2025. Each Debenture holder has the one-time right to have the
Company purchase on March 15, 2000, all or a portion of, the Debenture at a
purchase price equal to par plus accrued and unpaid interest.
In May 1994, Anadarko entered into a $250 million Revolving Credit
Agreement and a $150 million 364-Day Credit Agreement with a group of commercial
banks. As of December 31, 1996 and 1995, there were no outstanding borrowings
under these agreements.
In May 1995, the Company issued one million shares of common stock to the
Anadarko Petroleum Corporation Executives and Directors Benefits Trust (Trust)
to secure present and future unfunded benefit obligations of the Company. The
shares issued to the Trust are not considered outstanding for quorum or voting
calculations, but the Trust will receive dividends. The shares are included in
the calculation of earnings per share under the treasury stock method and have
no dilutive effect.debt.
Anadarko's net cash from operating activities in 19961998 was up 27 percent to
$315$240 million
compared to $248$362 million in 1995. Net cash from operating
activities1997 and $315 million in 1994 was $240 million.
CHANGES IN1996.
33
34
NEW ACCOUNTING PRINCIPLES
STOCK-BASED COMPENSATIONPRINCIPLE
ACCOUNTING FOR DERIVATIVES Statement of Financial Accounting Standards (SFAS)
No. 123,133, "Accounting for Stock-based Compensation" defines a fair value based method
ofDerivative Instruments and for Hedging Activities",
provides guidance for accounting for an employee stock option or similar equity instrument.derivative instruments and hedging
activities. SFAS No. 123 allows133 is effective for fiscal years beginning after June 15,
1999. The Company has not yet completed an entity to continue to measure compensation costs for these
plans using the current method of accounting. Anadarko has elected to continue
to use the current method of accounting for employee stock compensation plans
and discloses in Note 7evaluation of the Notes toimpact of the
Consolidated Financial Statements
under Item 8provisions of this Form 10-K, the fair value as defined in SFAS No. 123.
28
30133.
DIVIDENDS
In 1996,1998, Anadarko paid $17.8$22.5 million in dividends to its common
stockholders (7.5(3.75 cents per share in the first quarter, and 5 cents per share
in the second, third and fourth quarters). The dividend amount was $17.9 million
in 1997 (3.75 cents per share per quarter) and $17.8 million in 1996 (3.75 cents
per share per quarter). The dividend amount was $17.7
million in 1995 (7.5 cents per share per quarter) and $17.6 million (7.5 cents
per share per quarter) in 1994. Anadarko has paid a dividend to its common stockholders
continuously since becoming an independent company in 1986.
In 1998, the Company also paid $7.1 million in preferred stock dividends
related to the preferred stock issued in May 1998.
The RevolvingCompany's Bank Credit Agreement and the 364-Day Credit AgreementAgreements require a minimum balance of $650
million to be maintained in retained earnings.stockholders' equity. As a result, the amount of
retained earnings available for dividends as of December 31, 19961998 was $364.1$609.5
million. The amount of future common stock dividends will depend on earnings,
financial condition, capital requirements and other factors, and will be
determined by the Board of Directors on a quarterly basis.
2934
3135
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
ANADARKO PETROLEUM CORPORATION
INDEX
CONSOLIDATED FINANCIAL STATEMENTS
PAGE
----
Report of Management 3136
Independent Auditors' Report 3237
Statement of Income, Three Years Ended December 31, 1996 331998 38
Balance Sheet, December 31, 19961998 and 1995 341997 39
Statement of Stockholders' Equity, Three Years Ended
December 31, 1996 351998 40
Statement of Cash Flows, Three Years Ended December 31, 1996 361998 41
Notes to Consolidated Financial Statements 3742
Supplemental Quarterly Information 5461
Supplemental Information on Oil and Gas Exploration and
Production Activities 5562
3035
3236
ANADARKO PETROLEUM CORPORATION
REPORT OF MANAGEMENT
The managementManagement of Anadarko Petroleum Corporation is responsible for the
preparation and integrity of all information contained in the accompanying
consolidated financial statements. The financial statements have been prepared
in conformity with generally accepted accounting principles appropriate in the
circumstances. In preparing the financial statements, managementManagement makes informed
judgementsjudgments and estimates.
Management maintains and relies on the Company's system of internal
accounting controls. Although no system can ensure elimination of all errors and
irregularities, this system is designed to provide reasonable assurance that
assets are safeguarded, transactions are executed in accordance with
management'sManagement's authorization and accounting records are reliable as a basis for
the preparation of financial statements. This system includes the selection and
training of qualified personnel, an organizational structure providing
appropriate delegation of authority and division of responsibility, the
establishment of accounting and business policies for the Company and the
conduct of internal audits.
The Board of Directors pursues its responsibility for the consolidated
financial information through its Audit Committee, which is composed solely of
directorsDirectors who are not officers or employees of Anadarko. The Audit Committee
recommends to the Board of Directors the selection of independent auditors and
reviews their fee arrangements. The Audit Committee meets periodically with
management,Management, the internal auditors and the independent auditors to review that
each is carrying out its responsibilities. The internal and independent auditors
have full and free access to the Audit Committee to discuss auditing and
financial reporting matters.
We believe that Anadarko's policies and procedures, including its system of
internal accounting controls, provide reasonable assurance that the financial
statements are prepared in accordance with the applicable securities laws.
[ROBERT/s/ ROBERT J. ALLISON JR.]
Robert J. Allison, Jr.
Chairman, President and
Chief Executive Officer
[MICHAEL/s/ MICHAEL E. ROSE]ROSE
Michael E. Rose
Senior Vice President and
Chief Financial Officer
3136
3337
ANADARKO PETROLEUM CORPORATION
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Stockholders
Anadarko Petroleum Corporation:
We have audited the accompanying consolidated balance sheets of Anadarko
Petroleum Corporation and subsidiaries as of December 31, 19961998 and 1995,1997, and the
related consolidated statements of income, stockholders' equity and cash flows
for each of the years in the three-year period ended December 31, 1996, as
contained in the 1996 Form 10-K Annual Report.1998. These
consolidated financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Anadarko
Petroleum Corporation and subsidiaries as of December 31, 19961998 and 1995,1997, and the
results of their operations and their cash flows for each of the years in the
three-year period ended December 31, 1996,1998, in conformity with generally accepted
accounting principles.
[KPMG PEAT MARWICK[/s/ KPMG LLP]
Houston, Texas
January 30, 1997
3228, 1999
37
3438
ANADARKO PETROLEUM CORPORATION
CONSOLIDATED STATEMENT OF INCOME
Years Ended DecemberYEARS ENDED DECEMBER 31 1998 1997 1996
1995 1994- ----------------------- ---- ---- ------------ -------- --------
thousands except per share
amounts
REVENUES
Gas sales $353,130 $417,973 $362,599 $259,849 $313,470
Oil and condensate sales 133,096 168,591 139,936 125,980 125,640
Natural gas liquids and other 66,493 48,185 43,36674,028 88,575 67,611
-------- -------- --------
Total 569,028 434,014 482,476560,254 675,139 570,146
-------- -------- --------
COSTS AND EXPENSES
Operating expenses Note 11160,520 154,657 115,308 105,829 110,202
Administrative and general 94,914 73,569 67,673 59,477 61,138
Depreciation, depletion and amortization 204,499 198,821 167,183 164,742 172,825
Other taxes Note 12 37,709 42,774 37,205
36,892 40,973
(Gains) losses and impairments related to international and
geothermal properties,
net Notes 2 and 5 70,000 -- (13,986) 2,600 8,667
-------- -------- --------
Total 567,642 469,821 373,383 369,540 393,805
-------- -------- --------
Operating Income 195,645 64,474 88,671
OTHER INCOME AND (EXPENSES)
Other income 1,118 1,150 2,123
Interest expense(Loss) (7,388) 205,318 196,763
INTEREST EXPENSE Notes 5 and 6 (38,973) (36,358) (26,128)57,699 40,959 38,973
-------- -------- --------
Income (Loss) before Income Taxes (65,087) 164,359 157,790 29,266 64,666
INCOME TAXES Note 13 (22,899) 57,041 57,070 8,231 23,567
-------- -------- --------
NET INCOME (LOSS) $(42,188) $107,318 $100,720
$ 21,035 $ 41,099-------- -------- --------
Preferred Stock Dividends Note 7 7,098 -- --
-------- -------- --------
NET INCOME (LOSS) AVAILABLE TO COMMON STOCKHOLDERS $(49,286) $107,318 $100,720
-------- -------- --------
PER COMMON SHARE
Net income (loss) - basic Notes 1 and 8 $ 1.70(0.41) $ 0.360.90 $ 0.700.85
Net income (loss) - diluted Notes 1 and 8 $ (0.41) $ 0.89 $ 0.85
Dividends Note 78 $ 0.300.1875 $ 0.300.15 $ 0.30
-------- -------- --------0.15
AVERAGE NUMBER OF COMMON SHARES OUTSTANDING Note 7 59,247 58,935 58,7768 120,103 119,434 118,495
-------- -------- --------
See accompanying notes to consolidated financial statements.
3338
3539
ANADARKO PETROLEUM CORPORATION
CONSOLIDATED BALANCE SHEET
DecemberDECEMBER 31 1996 19951998 1997
- ----------- ---- -------------- ----------
thousands
ASSETS
CURRENT ASSETS
Cash and cash equivalents Note 3 $ 14,60117,008 $ 17,0908,907
Accounts receivable 226,824 127,943181,491 177,157
Inventories Note 4 24,540 14,85925,860 28,564
Prepaid expenses 3,843 3,3065,569 4,366
---------- ----------
Total 269,808 163,198229,928 218,994
---------- ----------
PROPERTIES AND EQUIPMENT
Original cost 4,036,165 3,717,6725,488,721 4,669,251
Less accumulated depreciation, depletion and amortization 1,738,709 1,628,9222,107,183 1,914,472
---------- ----------
Net properties and equipment -- based on the full cost
method of accounting for oil and gas properties Note 5 2,297,456 2,088,7503,381,538 2,754,779
---------- ----------
DEFERRED CHARGES 16,766 15,09921,524 18,692
---------- ----------
$2,584,030 $2,267,047$3,632,990 $2,992,465
---------- ----------
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable
Trade and other $ 244,219227,988 $ 153,502
Bank 17,995 12,849202,822
Banks 26,723 22,102
Accrued expenses
Interest 12,812 10,72915,210 13,607
Taxes and other 10,227 13,39318,805 13,799
---------- ----------
Total 285,253 190,473288,726 252,330
---------- ----------
LONG-TERM DEBT Note 6 731,049 674,0081,425,392 955,733
---------- ----------
DEFERRED CREDITS
Deferred income taxes Note 13 498,973 449,798522,953 546,792
Other 54,675 43,074Notes 8 and 14 136,463 120,830
---------- ----------
Total 553,648 492,872659,416 667,622
---------- ----------
STOCKHOLDERS' EQUITY
Preferred stock, par value $1.00
(2,000,000 shares authorized, 200,000 and no shares issued
as of December 31, 1998 and 1997, respectively) 200,000 --
Common stock, par value $0.10
(200,000,000 shares authorized, 60,525,699122,436,712 and
60,016,045121,771,988 shares issued as of December 31, 19961998 and
1995,1997, respectively) 6,098 6,047
Preferred stock, par value $1.00
(2,000,000 shares authorized, no shares issued as of
December 31, 1996 and 1995) -- --12,244 6,134
Paid-in capital 335,848 304,125361,390 353,125
Retained earnings (as of December 31, 1996, $364,080,0001998, $609,456,000 was
not restricted as to the payment of dividends) 739,395 656,455756,971 828,787
Deferred compensation (3,444) (2,808)(9,461) (11,203)
Executives and directors benefit trust,Directors Benefits Trust, at market value
(1,000,000(2,000,000 shares as of December 31, 19961998 and 1995) (63,813) (54,125)1997) (61,688) (60,063)
Treasury stock (70(20 and no shares as of December 31, 1996) (4)1998 and
1997, respectively) -- --
---------- ----------
Total 1,014,080 909,6941,259,456 1,116,780
---------- ----------
COMMITMENTS AND CONTINGENCIES Notes 10, 14, 15 and 16 -- --
---------- ----------
$2,584,030 $2,267,047$3,632,990 $2,992,465
---------- ----------
See accompanying notes to consolidated financial statements.
3439
3640
ANADARKO PETROLEUM CORPORATION
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
Years Ended DecemberYEARS ENDED DECEMBER 31 1998 1997 1996
1995 1994- ----------------------- ---- ---- -------------- ---------- ----------
thousands
PREFERRED STOCK
Balance at beginning of year $ -- $ -- $ --
Preferred stock issued Note 7 200,000 -- --
---------- ---------- ----------
Balance at end of year 200,000 -- --
---------- ---------- ----------
COMMON STOCK
Balance at beginning of year $6,134 6,098 6,047 $ 5,931 $ 5,912
Common stock issued 52 36 51
116 19Two-for-one stock split Note 8 6,058 -- --
---------- -------- ------------------ ----------
Balance at end of year 12,244 6,134 6,098
6,047 5,931
---------- -------- ------------------ ----------
PAID-IN CAPITAL
Balance at beginning of year 353,125 335,848 304,125 243,976 236,001
Common stock issued 17,023 21,027 22,035
6,124 7,975
Issuance of stock and revaluationRevaluation to market for executivesExecutives and directors benefit trustDirectors
Benefits Trust 1,625 (3,750) 9,688
54,025Two-for-one stock split Note 8 (6,058) -- --
Preferred stock issued Note 7 (4,325) -- --
---------- -------- ------------------ ----------
Balance at end of year 361,390 353,125 335,848
304,125 243,976
---------- -------- ------------------ ----------
RETAINED EARNINGS
Balance at beginning of year 828,787 739,395 656,455 653,112 625,308
Net income (loss) (42,188) 107,318 100,720
21,035 41,099
Foreign translation losses---------- ---------- ----------
786,599 846,713 757,175
Dividends paid -- preferred (7,098) -- --
(1,686)
Cumulative translation losses transferred to the income
statement upon disposition of foreign subsidiary -- -- 6,065
---------- -------- --------
757,175 674,147 670,786
Dividends paid -- common (22,530) (17,926) (17,780)
(17,692) (17,635)
Issuance of treasury stock -- -- (39)
---------- -------- ------------------ ----------
Balance at end of year 756,971 828,787 739,395
656,455 653,112
---------- -------- ------------------ ----------
DEFERRED COMPENSATION
Balance at beginning of year (11,203) (3,444) (2,808) (3,420) (3,055)
Issuance of restricted stock (1,668) (10,065) (2,463) (1,106) (1,668)
Amortization of restricted stock 3,410 2,306 1,827
1,718 1,303
---------- -------- ------------------ ----------
Balance at end of year (9,461) (11,203) (3,444)
(2,808) (3,420)
---------- -------- ------------------ ----------
EXECUTIVES AND DIRECTORS BENEFITBENEFITS TRUST
Balance at beginning of year (60,063) (63,813) (54,125) -- --
Issuance of stock -- (42,375) --
Revaluation to market (1,625) 3,750 (9,688)
(11,750) --
---------- -------- ------------------ ----------
Balance at end of year (61,688) (60,063) (63,813)
(54,125) --
---------- -------- ------------------ ----------
TREASURY STOCK
Balance at beginning of year -- --(4) --
Purchase of treasury stock (115) (802) (693) (427) (405)
Issuance of treasury stock 115 806 689
427 405
---------- -------- ------------------ ----------
Balance at end of year (4) -- -- (4)
---------- -------- ------------------ ----------
STOCKHOLDERS' EQUITY Notes 7 andNote 8 $1,259,456 $1,116,780 $1,014,080
$909,694 $899,599
---------- -------- ------------------ ----------
See accompanying notes to consolidated financial statements.
3540
3741
ANADARKO PETROLEUM CORPORATION
CONSOLIDATED STATEMENT OF CASH FLOWS
Years Ended DecemberYEARS ENDED DECEMBER 31 1998 1997 1996
1995 1994- ----------------------- ---- ---- ------------- --------- ---------
thousands
CASH FLOW FROM OPERATING ACTIVITIES
Net income (loss) $ (42,188) $ 107,318 $ 100,720 $ 21,035 $ 41,099
Adjustments to reconcile net income (loss) to net cash
provided by operating activities:
Depreciation, depletion and amortization 204,499 198,821 167,183 164,742 172,825
Amortization of restricted stock 1,145 2,306 1,827
1,718 1,303
Deferred U.S. income taxes (22,618) 48,276 54,231
11,544 15,912
Provisions for impairmentsImpairments of international and
geothermal properties 70,000 -- 5,400
2,600 3,100
Cumulative translation losses transferred to the
income statement upon disposition of foreign
subsidiary -- -- 6,065
--------- -------- --------- ---------
210,838 356,721 329,361
201,639 240,304
Increase(Increase) decrease in accounts receivable (4,334) 49,667 (98,881)
(12,762) (4,695)
Increase(Increase) decrease in inventories 2,704 (4,024) (9,681)
(1,439) (3,869)
Increase (decrease) in accounts payable -- trade and
other and accrued expenses 31,775 (37,030) 89,634 63,760 1,175
Other items -- net (1,341) (3,377) 4,108
(2,902) 6,772
--------- ----------------- ---------
Net cash provided by operating activities 239,642 361,957 314,541
248,296 239,687
--------- ----------------- ---------
CASH FLOW FROM INVESTING ACTIVITIES
Additions to properties and equipment (916,975) (686,232) (427,234)
(331,214) (422,718)Proceeds from the sale of assets to be leased, net 24,115 88,325 --
Sales and retirements of properties and equipment 5,585 8,389 46,178
62,847 95,370
--------- ----------------- ---------
Net cash used in investing activities (887,275) (589,518) (381,056)
(268,367) (327,348)
--------- ----------------- ---------
CASH FLOW FROM FINANCING ACTIVITIES
Additions to debt 569,659 224,684 200,000 205,100 180,281
Retirements of debt (100,000) -- (142,959)
(160,373) (93,500)Issuance of preferred stock 195,675 -- --
Increase (decrease) in accounts payable, banks 4,621 4,107 5,146 (1,438) 959
Dividends paid (29,628) (17,926) (17,780) (17,692) (17,635)
Issuance of common stock 15,407 10,998 19,623 5,034 6,326
Issuance of treasury stock, 689 427 366
Purchase of treasury stock (693) (427) (405)net -- 4 (4)
--------- ----------------- ---------
Net cash provided by financing activities 655,734 221,867 64,026
30,631 76,392
--------- ----------------- ---------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 8,101 (5,694) (2,489) 10,560 (11,269)
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR 8,907 14,601 17,090
6,530 17,799
--------- ----------------- ---------
CASH AND CASH EQUIVALENTS AT END OF YEAR $ 17,008 $ 8,907 $ 14,601
$ 17,090 $ 6,530
--------- ----------------- ---------
See accompanying notes to consolidated financial statements
36statements.
41
3842
ANADARKO PETROLEUM CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1996, 19951998, 1997 AND 19941996
1. SUMMARY OF ACCOUNTING POLICIES
GENERAL Anadarko Petroleum Corporation is engaged in the exploration,
development, production and marketing of natural gas, crude oil, condensate and
natural gas liquids (NGLs). The terms "Anadarko" and "Company" refer to Anadarko
Petroleum Corporation and its subsidiaries. The principal subsidiaries of
Anadarko are: Anadarko Gathering Company;Algeria Corporation (Anadarko Algeria), Anadarko Energy
Services Company (formerly Anadarko Trading Company); and Anadarko Algeria Corporation (Anadarko
Algeria). In December 1994, the Company sold its wholly-owned subsidiary,
Anadarko Petroleum of Canada Ltd. (Anadarko Canada). See Note 2.Gathering Company.
PRINCIPLES OF CONSOLIDATION AND USE OF ESTIMATES The consolidated financial
statements include the accounts of Anadarko and its subsidiaries. All
significant intercompany transactions have been eliminated. The financial
statements have been prepared in conformity with generally accepted accounting
principles appropriate in the circumstances. Certain amounts for prior years
have been restated to conform to the current presentation. In preparing
financial statements, managementManagement makes informed judgementsjudgments and estimates that
affect the reported amounts of assets and liabilities as of the date of the
financial statements and affect the reported amounts of revenues and expenses
during the reporting period. Actual results may differ from these estimates.
REVENUES Natural gas and NGLs revenues generally are recorded using the sales
method, whereby the Company recognizes natural gas revenues based on the amount of gas and
NGLs sold to purchasers on its behalf. All otherOil and condensate revenues also are recorded
using the salesentitlements method.
PRICE RISK MANAGEMENT Anadarko'sUSE OF DERIVATIVES Anadarko uses derivative financial instruments to reduce the
Company's exposure to changes in the market price of natural gas and crude oil,
to fix the price for natural gas and crude oil independently of the physical
purchase or sale, and to manage interest rates. Commodity financial instruments
also provide methods to meet customer pricing requirements while achieving a
price structure consistent with the Company's overall pricing strategy. The
types of commodity derivative financial instruments currently used by Anadarko
are comprised
of futures, swaps and options.
Anadarko usesutilizes the hedge or deferral method of accounting for commodity
derivative financial instruments (with the exception of certain written options)
whereby gains and losses on these hedging instruments are realized and recorded
as revenues on the income statement when the related natural gas or oil volumes
have been produced, purchased or delivered. As a result, gains and losses on
commodity financial instruments are generally offset by similar changes in the
realized prices of natural gas and crude oil. Unrealized gains and losses on
these hedging instruments are deferred and recorded as assets or liabilities on
the balance sheet at fair market value as of the balance sheet date. The
unrealized gains and losses include derivatives related to minimizeJanuary activities
deferred as of December 31 and exclude certain written options recognized during
the impact of price fluctuations for the Companyyear. All volumes shown exclude January hedges not open and its
customers.written options
recognized. To qualify as a hedge,hedging instruments, these instruments must correlatebe highly
correlated to anticipated future sales such that the Company's exposure to the
effectsrisks of commodity price changes is reduced. The gainsWhile commodity financial
instruments are intended to reduce the Company's exposure to declines in market
prices of natural gas and crude oil, the commodity financial instruments may
also limit Anadarko's gain from increases in the market price of natural gas and
crude oil.
Written options that are not combined with other offsetting instruments are
not classified as hedges. Unrealized losses on these instrumentswritten options, offset by
any option premiums received for these written options, are included incharged to the
valuation of the transactions being hedged upon completion
of the transactions. Gains and losses on derivatives not classifiedincome statement as hedges
are accounted fora reduction to revenues on a current basis.
Unrealized gains and losses are recorded
as assets and liabilitiesInterest income resulting from the Company's interest rate swap agreement
is included in interest expense on a current basis. The swap agreement
effectively converts a portion of the balance sheet.Company's fixed interest rate debt to
variable interest rate debt. See Note 6.
42
43
ANADARKO PETROLEUM CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
1. SUMMARY OF ACCOUNTING POLICIES -- (CONTINUED)
PROPERTIES AND EQUIPMENT The Company uses the full cost method of accounting
for exploration and development activities as defined by the United States
Securities and Exchange Commission (SEC). Under this method of accounting, the
costs for unsuccessful, as well as successful, exploration and development
activities are capitalized as properties and equipment. This includes any
internal costs that can be directly identified with acquisition, exploration and development
activities, but does not include any costs related to production, general
corporate overhead or similar activities.
The sum of net capitalized costs and estimated future development and
dismantlement costs is amortized using the unit-of-production method. Excluded
from amounts subject to amortization are costs associated with unevaluated
properties and major development projects. On a country-by-country basis, should
the net capitalized costs exceed the estimated present value of future net cash
flows from proved oil and gas reserves, such excess costs would be charged to
current expense. Gain or loss on the sale or other disposition of oil and gas
properties is not recognized unless significant amounts of oil and gas reserves
are involved.
Unsuccessful geothermal exploration costs are charged to expense. All other properties and equipment are stated at original cost, which does
not purport to represent replacement or market values.
ENVIRONMENTAL CONTINGENCIES The Company accrues for environmental contingencies
when liabilities are likely to occur and reasonable estimates can be made. These
estimates are not discounted. In accordance with full cost accounting rules, the
Company provides for environmental clean up costs associated with oil and gas
activities as a component of its depreciation, depletion and amortization
expense. Recoveries from third parties for environmental liabilities are not
recognized unless collection is probable.
37
39
ANADARKO PETROLEUM CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
1. SUMMARY OF ACCOUNTING POLICIES -- (CONTINUED)
INTEREST CAPITALIZED The Company capitalizes interest on borrowed funds related
to oil and gas expenditures that are not subject to amortization until
completion of evaluation or development activities.
INCOME TAXES The Company excluding Anadarko Canada, files a U.S. consolidated federal income tax return.
Deferred federal, state and stateforeign income taxes are provided on all significant
temporary differences, except for those essentially permanent in duration,
between the financial statement carrying amounts of existing assets and
liabilities and their respective tax bases.
FOREIGN CURRENCY TRANSLATION ADJUSTMENTS The financial statements of Anadarko
Canada were translated to U.S. dollars. All balance sheet accounts were
translated at the current exchange rate and income statement items were
translated at the average exchange rate for the year; resulting translation
adjustments were made directly to a separate component of stockholders' equity.
Transaction adjustments were reported in net income. In prior years, deferred
federal income taxes were not provided on translation adjustments because the
earnings of Anadarko Canada were considered to be permanently invested. Due to
the sale of Anadarko Canada in 1994, the cumulative foreign currency translation
losses were transferred from stockholders' equity and included in disposition of
foreign subsidiary on the income statement. See Note 2.
CASH EQUIVALENTS The Company considers all highly liquid investments purchased
with an original maturity of three months or less to be cash equivalents.
ACCOUNTS PAYABLE, BANKS This account represents credit balances to the extent
that checks issued have not been presented to the Company's banks for payment.
STOCK-BASED COMPENSATION Effective January 1, 1996, Anadarko adopted StatementThe Company accounts for stock-based compensation
under the intrinsic value method. Under this method, the Company records no
compensation expense for stock options granted when the exercise price of
Financial Accounting Standards (SFAS) No. 123, "Accounting for Stock-based
Compensation". SFAS No. 123 defines a fair value method of accounting for an
employee stock option or similar equity instrument. SFAS No. 123 allows an
entityoptions granted is equal to continue to measure compensation costs for these plans using the
current method of accounting. Anadarko has elected to continue to use the
current method of accounting for employee stock compensation plans and disclose the fair values as defined in SFAS No. 123.market value of Anadarko's common stock on
the date of grant. See Note 7.8.
EARNINGS PER SHARE The Company's basic earnings (loss) per share (EPS) amounts
have been computed based on the average number of common shares outstanding.
Diluted EPS amounts include the effect of the Company's outstanding stock
options under the treasury stock method. See Note 8.
2. DISPOSITION OF FOREIGN SUBSIDIARIESSUBSIDIARY
In September 1996, Anadarko sold its wholly-owned subsidiary, Anadarko Indonesia
Company, Jabung. As a result, the Company recorded a gain of $19,385,000 and
U.S. income tax expense of $7,040,000 on the sale.
In December 1994, Anadarko sold Anadarko Canada for $57,937,000. In
connection with the sale, Anadarko recorded a charge of $5,567,000 before income
taxes ($6,635,000 after income taxes) primarily due to a non-cash charge of
$6,065,000 for cumulative foreign currency translation losses previously
recorded as a reduction in stockholders' equity. The Company recorded U.S.
income tax expense of $17,454,000 on the sale. The Company also reversed
previously provided deferred Canadian taxes in the amount of $16,386,000 for a
net income tax expense associated with the sale of $1,068,000.
3. CASH AND CASH EQUIVALENTS
As of December 31, 1996 and 1995, cash and cash equivalents included
$321,000 and $222,000, respectively, held by the Executives and Directors
Benefits Trust. In addition, as of December 31, 1995, cash and cash equivalents
included $4,127,000 invested in U.S. Treasury securities, which the Company had
dedicated for a "like-kind" property exchange.
3843
4044
ANADARKO PETROLEUM CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
19953. CASH AND 1994CASH EQUIVALENTS
As of December 31, 1998 and 1997, cash and cash equivalents included
$331,000 and $270,000, respectively, held by the Anadarko Petroleum Corporation
Executives and Directors Benefits Trust. See Note 8.
4. INVENTORIES
InventoriesMaterials and supplies and natural gas inventories are stated at the lower
of average cost or market. Natural gas, and NGLs, when sold from inventory, areis charged to
expense using the average-cost method. Oil inventory is stated at market value.
The major classes of inventories are as follows:
1996 19951998 1997
thousands ---- ----------- -------
Materials and supplies $23,495 $13,969$20,231 $27,332
Oil, stored in inventory 3,816 --
Natural gas, stored in inventory 1,017 478
Natural gas liquids, stored in inventory 28 4121,813 1,232
------- -------
$24,540 $14,859$25,860 $28,564
------- -------
5. PROPERTIES AND EQUIPMENT
A summary of the original cost of properties and equipment by
classification follows:
1996 19951998 1997
thousands ---- -------------- ----------
Oil and gas properties $3,750,797 $3,501,162$5,155,260 $4,378,545
Gathering facilities 132,631 76,492143,989 132,608
Plant facilities 17,726 17,60013,283 13,286
General properties 135,011 122,418176,189 144,812
---------- ----------
$4,036,165 $3,717,672$5,488,721 $4,669,251
---------- ----------
Oil and gas properties are amortized using the unit-of-production method.
All other properties are depreciated on the straight-line basis over the useful
lives of the assets, which range from three to 25 years.
Oil and gas properties include costs of $254,811,000$353,647,000 and $245,577,000$343,789,000 at
December 31, 19961998 and 1995,1997, respectively, which were excluded from capitalized
costs being amortized. These amounts represent costs associated with unevaluated
properties and major development projects. Anadarko excludes all costs on a
country-by-country basis until proved reserves are found or until it is
determined that the costs are impaired. All excluded costs are reviewed
quarterly to determine if impairment has occurred.
PropertiesDuring 1998 and equipment include costs of $231,858,000 and $146,706,000 at
December 31, 1996, and 1995, respectively, for the Company's exploration and
development activities in Algeria. Depreciation of these assets will begin when
production commences.
During 1996, 1995 and 1994, the Company made provisions for impairments of
international properties of $5,400,000, $600,000$70,000,000 and $3,100,000,$5,400,000, respectively, which were
related to oil and gas properties. These impairments related to projects that the Company has decided not to pursueall exploration
activity in Peru, Jordan, China and various other international locations. During 1995,locations, as well as
two dry holes drilled on the Company made a provision for
impairments of geothermal properties of $2,000,000.Zula Block in Eritrea.
Total interest costs incurred during 1998, 1997 and 1996 1995were $82,415,000,
$62,096,000 and 1994 were $55,985,000,
$52,557,000 and $41,635,000, respectively. Of these amounts, the Company
capitalized $24,716,000, $21,137,000 and $17,012,000 $16,199,000during 1998, 1997 and $15,507,000 during 1996, 1995 and 1994,
respectively. Capitalized interest is included as part of the cost of oil and
gas properties. The capitalization rates are based on the Company's weighted
average cost of borrowings used to finance the expenditures.
In addition to capitalized interest, the Company also capitalized internal
costs of $90,774,000, $66,899,000 and $50,213,000 $40,617,000during 1998, 1997 and $37,898,000 during 1996, 1995 and 1994,
respectively. These internal costs were directly related to acquisition, exploration and
development activities and are included as part of the cost of oil and gas
properties.
3944
4145
ANADARKO PETROLEUM CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1996, 19951998, 1997 AND 19941996
6. LONG-TERM DEBT AND FINANCIAL INSTRUMENTS
Principal
---------
1996 1995PRINCIPAL
------------------------
1998 1997
thousands ---- -------------- --------
Commercial Paper* $ 31,049 $ 19,908367,892 $125,733
Notes Payable, Banks* -- 154,100257,500 30,000
8 3/4% Notes due 1998 100,000-- 100,000
8 1/4% Notes due 2001 100,000 100,000
6 3/4% Notes due 2003 100,000 100,000
5 7/8% Notes due 2003 100,000 100,000
7 1/4% Debentures due 2025 100,000 100,000
7% Debentures due 2027 100,000 100,000
6.625% Debentures due 2028 100,000 --
7.73% Debentures due 2096 100,000 --100,000
7 1/4% Debentures due 2096 100,000 --100,000
---------- --------
--------
$731,049 $674,008
--------$1,425,392 $955,733
---------- --------
- ---------------
*The* The average rates in effect at December 31, 19961998 and 19951997 were 6.30%5.87% and
5.96%6.04%, respectively, for the Commercial Paper. The average rate in effect atfor
both December 31, 19951998 and 1997 was 5.95% for the Notes Payable, Banks.
Anadarko has noncommitted lines of credit from several banks. The general
provisions of these lines of credit provide for Anadarko to borrow funds for
terms and rates offered from time to time by the banks. There are no fees
associated with these lines of credit.
The Company has a commercial paper program that allows Anadarko to borrow
funds, at rates as offered, by issuing notes to investors for terms of up to 270
days.
The commercial paper and notes payable to banks in 1996 and 1995 have been classified as
long-term debt in accordance with SFASStatement of Financial Accounting Standards
(SFAS) No. 6, "Classification of Short-term Obligations Expected to be
Refinanced," under the terms of Anadarko's Bank Credit Agreements.
In November 1996,early 1999, Anadarko entered into a $135,000,000 Credit Agreement which
matures in April 2001 with a commercial bank. The interest rate is based upon
the prime rate, federal funds rate or eurodollar rate. The agreement provides
for commitment fees on the unused balance at a rate based on the Company's
long-term debt rating.
In December 1998, Anadarko entered into a Long Term Multiple Advance Note
which matures in April 2000 with a commercial bank. Interest rates are based
upon an agreed rate or the London Interbank Offered Rate. As of December 31,
1998, the Company had outstanding borrowings of $150,000,000 under this
agreement.
In March 1998, Anadarko filed a shelf registration statement with the SEC
that permitted the issuance of up to $500,000,000 in debt and equity securities.
Net proceeds, terms and pricing of offerings of securities issued under the
shelf registration statement will be determined at the time of the offerings.
Anadarko has used similar shelf registration statements since 1989 to provide
added flexibility in financing strategies. In May 1998, $200,000,000 in
preferred stock was issued under the shelf registration statement. See Note 7.
In January 1998, Anadarko issued $100,000,000 principal amount of 7 1/4%6.625%
Debentures due 2096.2028. The Company has a conditional rightproceeds were used to shorten the maturityfund capital spending projects in
core operating areas.
In November 1997, Anadarko issued $100,000,000 principal amount of the7%
Debentures if tax law changes impact the tax deduction for interest on
the Debentures.due 2027. Net proceeds from the offering were used to repay floating
interest rate debt.
In September 1996, Anadarko issued $100,000,000 principal amount of 7.73%
Debentures due 2096. Each Debenture holderThe Company has the one-time right to have the
Company purchase on September 15, 2026, all or a portion of, the Debentures at a
purchase price equal to par plus accrued and unpaid interest. Net proceeds from
the offering were used to repay floating interest rate debt.
In March 1995, Anadarko issued $100,000,000 principal amount of 7 1/4%
Debentures due 2025. Each Debenture holder has the one-time right to have the
Company purchase on March 15, 2000, all or a portion of, the Debentures at a
purchase price equal to par plus accrued and unpaid interest. Net proceeds from
the offering were used to repay floating interest rate debt.
In May 1994, the Company entered into a $250,000,000$225,000,000 Revolving Credit Agreement and a
$150,000,000 364-Day$175,000,000 364-day Credit Agreement with a group of 11eight commercial banks. In May 1996, the Agreements were amended to reduce the
commitment fees and extend the expiration date of the Agreements for one year.
Interest rates are based on either the reference rate, the
rate of certificate
of deposit, the Eurodollar rate or a combination thereof. The Agreements provide
for commitment fees on the unused balances at a rate of 12.5/100 of one percent
and 10.0/100 of one percent for the Revolving Credit Agreement and 364-Day
Credit Agreement, respectively. The Revolving Credit Agreement will expire in
2001. During 1996 and 1995, there were no outstanding borrowings under these
Agreements.
4045
4246
ANADARKO PETROLEUM CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1996, 19951998, 1997 AND 19941996
6. LONG-TERM DEBT AND FINANCIAL INSTRUMENTS -- (CONTINUED)
rate of certificate of deposit, the eurodollar rate or a combination thereof.
The agreements provide for commitment fees on the unused balances at a rate
based on the Company's long-term debt rating. The Revolving Credit Agreement
will expire in 2002. During 19961998 and 1995,1997, there were no outstanding borrowings
under these Agreements.
During 1998 and 1997, the Company had available $20,000,000 in a bank line
of credit which was not used. The maximum interest rate for loans against the
line was the reference rate of the bank. The line of credit is renewable
annually, but may be withdrawn at any time by the bank. In 19961998 and 1995,1997,
Anadarko maintained an average daily compensating balance of $1,000,000 for this
line of credit.
Total sinking fund and installment payments related to long-term debt for
the five years ending December 31, 20012003 are shown below. The payments related to
the redemption of the commercial paper and notes payable to banks are included
in the amounts shown in a manner consistent with the terms for repayment of
the RevolvingAnadarko's Bank Credit Agreement.Agreements.
thousands
19971999 $ --
1998 100,000
1999 --
2000* 100,000250,000
2001 131,049350,392
2002 225,000
2003 200,000
- ---------------
* TheIncludes the 7 1/4% Debentures due 2025 which are shown because of the
Debenture holders' one-time redemption rights in 2000.
The following information discloses the fair value of the Company's
financial instruments:
Carrying Amount Fair ValueCARRYING AMOUNT FAIR VALUE
thousands --------------- ----------
19961998
Cash and cash equivalents $ 14,60117,008 $ 14,60117,008
Long-term debt 731,049 735,799(including interest rate swap) 1,425,392 1,456,183
Commodity derivative financial instruments
Asset 5,121 5,1214,240 4,240
Liability (7,515) (7,515)
1995(16,476) (16,476)
1997
Cash and cash equivalents $ 17,0908,907 $ 17,0908,907
Long-term debt 674,008 702,008(including interest rate swap) 955,733 990,571
Commodity derivative financial instruments
Asset 4,447 4,4473,664 3,664
Liability (7,898) (7,898)(741) (741)
CASH AND CASH EQUIVALENTS The carrying amount reported on the balance sheet
approximates fair value.
LONG-TERM DEBT The fair value of long-term debt at December 31, 19961998 and 19951997
is the value the Company would have to pay to retire the debt, including any
premium or discount to the debt holder for the differential between stated
interest rate and year-end market rate. The fair values are based on quoted
market prices from Standard &and Poor's Bond Guide and, where such quotes were
not available, on the average rate in effect at year-end.
COMMODITY DERIVATIVE FINANCIAL INSTRUMENTS Anadarko uses commodity derivative
financial instruments -- futures, swaps and options -- to fix a price
independent of the timing of the physical purchase or sale, to fix a
46
47
ANADARKO PETROLEUM CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
6. LONG-TERM DEBT AND FINANCIAL INSTRUMENTS -- (CONTINUED)
price differential (basis) between the price of gas at Henry Hub and the price
at the market locations at which Anadarko purchases and sells oil and gas
(market locations), to hedge the fixed price or fixed basis pricing requirements
of Anadarko's customers and suppliers, and to hedge the value of gas in storage
or gas owed to or due from pipelines. Gains and losses generally are recorded when
the related gas or oil production has been
41
43
ANADARKO PETROLEUM CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
6. LONG-TERM DEBT AND FINANCIAL INSTRUMENTS -- (CONTINUED)
produced or delivered. As a result, gains and losses are generally offset by
similar changes in the price of natural gas and crude oil. Unrealized gains and
losses are recorded as assets and liabilities on the balance sheet at fair
market value as of the balance sheet date. The unrealized gains and losses
include derivatives related to January activities deferred as of December 31 and
exclude certain written options recognized during the year. All volumes exclude
January hedges not open and written options recognized. While financial
instruments are intended to reduce the Company's exposure to declines in the
market price of natural gas and crude oil, the financial instruments may limit
Anadarko's gain from increases in the market price of natural gas and crude oil. The fair value of derivative financial
instruments reflects the estimated amounts that the Company would receive or pay
to settle the contracts as of December 31. Dealer quotes are available for the
majority of the Company's derivatives.
COMMODITY FUTURES Anadarko generally uses commodity futures contracts to fix
the price of gas delivered to Henry Hub or oil delivered to Cushing. Futures
contracts have settlement guaranteed by the New York Mercantile Exchange (NYMEX)
and have nominal credit risk.
At year-end 1996,1998, Anadarko had open natural gas futures contracts related
to sales totaling 7660 billion British thermal units per day (BBtu/d) related to
sales for February through March 1997.1999 and 10 BBtu/d related to sales for April
through August 1999. The Company had open fixed price natural gas futures
contracts related
to gas owed to pipelines of 1562 BBtu/d for AprilFebruary through May 1997.March 1999. Anadarko had open crude
oil futures contracts related to sales of 67 thousand barrels per day (MBbls/d)
for February 1997.
At year-end 1995, Anadarko had open natural gas futures contracts totaling
66 BBtu/d related to sales for February through March 1996. The Company had open
natural gas futures contracts related to sales of 14 BBtu/1999 and 1 MBbls/d for April through
November 1996. The Company1999.
At year-end 1997, Anadarko had open natural gas futures contracts related
to customer and supplier pricing requirements of 1.3totaling 30 BBtu/d related to
sales for February through March 1996. Anadarko had open crude oil futures contracts related to sales of
3.4 MBbls/1998 and 20 BBtu/d for February 1996.April through August
1998.
COMMODITY SWAPS Anadarko generally uses commodity swap agreements with
third-parties to fix the price of gas and oil at its market locations. In
addition, Anadarko uses basis swap agreements to fix the price differential
between the price of gas at Henry Hub and the price of gas at its market
locations. These energy swap agreements expose the Company to third-party credit
risk to the extent the third-parties are unable to meet their monthly settlement
commitment to the Company. The Company monitors the credit standing of the
third-parties and anticipates they will be able to fully satisfy their
contractual obligations.
At year-end 1996,1998, Anadarko had open basis swap agreements for the Company's
gas sales averaging 30 BBtu/d for 1999 which were offset by open basis swap
agreements of like amounts for the same periods, thus eliminating the risk to
Anadarko from future price changes related to this position. The Company also
had open basis swap agreements for the Company's gas sales averaging 718 BBtu/d
for February through March 1999 and 64 BBtu/d for April through December 1999.
The Company also had fixed price swap agreements of 4 BBtu/d for February
through March 1999. In addition, the Company had open gas swaps related to
customer and supplier gas pricing requirements of 351 BBtu/d for February
through March 1999, 90 BBtu/d for April through December 1999, 31 BBtu/d for
January through December 2000 and 20 BBtu/d for January through December 2001.
At year-end 1997, Anadarko had open basis swap agreements for the Company's
gas sales averaging 30 BBtu/d for 1998 and 1999 which were offset by open basis
swap agreements of like amounts for the same periods, thus eliminating the risk
to Anadarko from future price changes related to this position. The CompanyAnadarko also
had open gas basis swap agreements related to sales averaging 270 BBtu/d for
February through March 1997 and 70 BBtu/d for April through July 1997. In
addition, the Company had basis swaps related to customer and supplier gas
pricing requirements of 8 BBtu/d for February through March 1997 and related to
gas owed to pipelines of 15 BBtu/d for April through May 1997.
At year-end 1995, Anadarko had open basis swap agreements for the Company's gas sales averaging 6458 BBtu/d for
February through March 1998, 8 BBtu/d for April through October 1998 and 20
BBtu/d for January through December 1996 and 30 BBtu/d
for 1997, 1998 and 1999, which were offset by open basis swap agreements of like
amounts for the same periods, thus eliminating the risk to Anadarko from future
price changes related to these two positions.1999. The Company also had open gas swap agreements related
to sales averaging 7 BBtu/d for February through December
1996 and related to customer and supplier gas pricing requirements of 956 BBtu/d for February
through March 1998, 15 BBtu/d for April through December 1996.1998 and 28 BBtu/d for
January through March 1999.
COMMODITY OPTIONS The Company generally uses commodity options to fix a floor
and a ceiling for prices (a "collar") on its sales volumes. The Company also has
used options to "straddle" a price, effectively setting a price above the then
present market price at which the Company is willing to fix its sales price and
a price below the then present market price at which the Company is willing to
fix its purchase price for third party supply. Like futures, NYMEX options have
settlement guaranteed and have nominal credit risk.
Over-the-counter (OTC)
options with third-parties have credit risks similar to swaps.
4247
4448
ANADARKO PETROLEUM CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1996, 19951998, 1997 AND 19941996
6. LONG-TERM DEBT AND FINANCIAL INSTRUMENTS -- (CONTINUED)
At year-end 1996,1998, Anadarko had open NYMEX options for the Company's gas
sales of 1035 BBtu/d for puts and 1627 BBtu/d for calls during February and March
1997 and 30 BBtu/d for both puts and calls during April through July 1997.1999. Anadarko also had open NYMEX gas options for its customers of 305 BBtu/d for
puts and 623 BBtu/d for calls for February through March 1997.1999, 11 BBtu/d for puts
for April through December 1999, 11 BBtu/d for calls for April through October
1999 and 11 BBtu/d for puts for January through March 2000. In addition, the
Company had open crude oil options on 5.1of 14 MBbls/d for both puts and 10 MBbls/d for
calls during February through April 1997.1999.
At year-end 1995,1997, Anadarko had open NYMEX options for the Company's gas
sales of 1831.5 BBtu/d for both puts and 61 BBtu/d for calls during February through
March 1996 and 30 BBtu/d for puts and 20 BBtu/d for calls for April through November 19961998
in order to fix a price range on gas sales. Anadarko had open NYMEX gas options
for its customers of 10 BBtu/d for puts and 25 BBtu/d for calls for February
through March 1998 and 5 BBtu/d for calls for April through July 1998. In
addition, the Company had open crude oil options onof 1.7 MBbls/d for both puts
and 4.5 MBbls/d for calls during February through March 1996.1998.
INTEREST RATE SWAPSSWAP During the fourth quarter of 1996, Anadarko entered into a 10-year swap agreement
with a notional value of $100,000,000 whereby the Company receives a fixed
interest rate and pays a floating interest rate indexed to 3-month LIBOR. This
agreement was entered into to offset a portion of the effect of the Company's
fixed rate long-term debt financeddebt. The fair value of the interest rate swap is based
upon a market quote from a commercial bank and is the approximate amount
Anadarko would have received if the agreement was terminated at year-end.
7. PREFERRED STOCK
In May 1998, Anadarko issued $200,000,000 of 5.46% Series B Cumulative
Preferred Stock in 1996.
In October 1993,the form of two million Depositary Shares, each Depositary
Share representing 1/10th of a share of the 5.46% Series B Cumulative Preferred
Stock. The preferred stock has no stated maturity and is not subject to a
sinking fund or mandatory redemption. The shares are not convertible into other
securities of the Company.
Anadarko accepted a payment of $2,600,000 granting the
purchaserhas the option to enter into a nine-year interestredeem the shares at $100 per Depositary Share
on or after May 15, 2008. Holders of the shares are entitled to receive, when,
and as declared by the Board of Directors, cumulative cash dividends at an
annual dividend rate swap agreement withof $5.46 per Depositary Share. The proceeds from the
Company.offering were used to reduce commercial paper and bank borrowings and provide
capital for Anadarko's 1998 capital expenditures. The optionpreferred stock was exercisable in October 1994. This agreement, if
exercised, would have effectively fixed the rate the Company would have paid on
a notional $100,000,000 of its floating interest rate debt at six percent for
nine years. The $2,600,000 payment and the related agreement hedgedissued
under the Company's floating interest rate debt. The option was not exercised and, as a
result, the Company recorded a reductionshelf registration statement.
During 1998, dividends of $35.49 per share (equivalent to interest expense$3.549 per
Depositary Share) were paid to holders of $2,600,000
during the fourth quarter of 1994.
7.preferred stock.
48
49
ANADARKO PETROLEUM CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
8. COMMON STOCK AND STOCK OPTIONS
Following is a schedule of the changes in the Company's shares of common
stock:
1998 1997 1996
1995 1994
thousands ---- ---- ----------- ------ ------
SHARES OF COMMON STOCK ISSUED
Beginning of year 60,886 60,526 60,016
58,857 58,668Two-for-one stock split 61,035 -- --
Exercise of stock options 348 149 413 58 92
Issuance of restricted stock 51 148 39 27 32
Issuance of shares for employee savings plan 99 63 58 74 65
Issuance of shares for executivesDividend Reinvestment and directors benefit trustStock
Purchase Plan 18 -- 1,000 --
------------- ------ ------
End of year 122,437 60,886 60,526
60,016 58,857
------------- ------ ------
SHARES OF COMMON STOCK HELD IN TREASURY
Beginning of year -- -- --
Issuance of shares for employee savings plan (2) (13) (12) (9) (7)
Purchase of treasury stock 2 13 12
10 7
Sale of treasury stock -- (1) --
------------- ------ ------
End of year -- -- --
------------- ------ ------
SHARES OF COMMON STOCK HELD FOR EXECUTIVES AND DIRECTORS
BENEFITS TRUST
Beginning of year 1,000 1,000 1,000
Two-for-one stock split 1,000 -- --
Purchase of shares -- 1,000 --
------------- ------ ------
End of year 2,000 1,000 1,000
--
------------- ------ ------
SHARES OF COMMON STOCK OUTSTANDING AT END OF YEAR 120,437 59,886 59,526
59,016 58,857
------------- ------ ------
In April 1998, the Board of Directors approved a two-for-one stock split,
effected in the form of a stock dividend. The distribution date was July 1, 1998
to stockholders of record on June 15, 1998. Excluding the table above, all share
and per share information have been restated to reflect the stock split.
For the second, third and fourth quarters of 1998, dividends of 5 cents per
share were paid to holders of common stock. In the first quarter of 1998 and in
each quarter of 1996, 19951997 and 1994,1996, dividends of 7.53.75 cents per share were paid to
holders of common stock. Under the most restrictive provisions of the various
credit agreements, which limit the payment of 43dividends by the Company, retained
earnings of $609,456,000, $466,780,000 and $364,080,000 were not restricted as
to the payment of dividends at December 31, 1998, 1997 and 1996, respectively.
In October 1998, the Company filed a registration statement with the SEC
that permits the issuance of Anadarko common stock under the Anadarko Dividend
Reinvestment and Stock Purchase Plan (DRIP). The DRIP offers the opportunity to
reinvest dividends and provides an alternative to traditional methods of buying,
holding and selling Anadarko common stock. The DRIP provides the Company with a
means of raising additional capital for general corporate purposes through the
sale of common stock under the DRIP.
In October 1998, the Board of Directors adopted a Stockholders Rights Plan,
which replaced the Rights Plan that expired on October 20, 1998. Under the
Rights Plan, the Rights attached automatically to each outstanding share of
common stock on November 10, 1998. Each Right, at the time it becomes
exercisable and transferable apart from the common stock, entitles stockholders
to purchase from the Company 1/1000th of a share of a new series of junior
participating preferred stock at an exercise price of $175. The Right will be
exercisable only if a person or group acquires 15% or more of common stock or
announces a tender offer or exchange offer the consummation of which would
result in ownership by a person or group of 15% or more of the common stock. The
Rights distribution was not taxable to stockholders. The Board of Directors may
elect to exchange and redeem the Rights. The Rights will expire on November 10,
2008.
49
4550
ANADARKO PETROLEUM CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
1995 AND 1994
7.8. COMMON STOCK AND STOCK OPTIONS -- (CONTINUED)
dividends by the Company, retained earnings of $364,080,000, $259,694,000During 1998, 1997 and $249,599,000 were not restricted as to the payment of dividends at December 31,
1996, 1995 and 1994, respectively.
During 1996, 1995 and 1994, the Company acquired treasury stock only as a
result of stock option exercises, restricted stock transactions or buyback of
shares, which were unsolicited from stockholders.
In May 1995,As of December 31, 1998 and 1997, the Company issued 1,000,000had 2,000,000 shares of
common stock toin the Anadarko Petroleum Corporation Executives and Directors
Benefits Trust (Trust) to secure present and future unfunded benefit obligations
of the Company. These benefit obligations are provided for under pension plans
and deferred compensation plans for certain employees and non-employee Directors
of the Company. The obligations included in Deferred Credits -- Other are
$15,988,000 and $16,288,000 as of December 31, 1998 and 1997, respectively. The
shares issued to the Trust are not considered outstanding for quorum or voting
calculations, but the Trust will receivereceives dividends. TheUnder the treasury stock method,
the shares are not included in the calculation of earnings per share under the treasury stock method and have
no dilutive effect.EPS. The fair market value of
these shares is included in common stock and paid-in capital and as a reduction
to stockholders' equity. As of
December 31, 1996 and 1995, there were 1,000,000 shares in the Trust.
Anadarko has four stock option plans -- the 1993 Stock Incentive Plan, the
1988 Stock Option Plan for Non-employee Directors, the 1987 Stock Option Plan
and the 1986 Stock Option Plan -- under which keySee Note 15.
Key employees and directors of the
Company may be granted options to purchase shares of Anadarko common
stock.stock and other stock related awards under the 1993 Stock Incentive stockPlan. Stock
options and non-qualified stock options have a maximum term of
eleven years fromare granted at the date of grant and are issued at thefair market value of Anadarko stock on the date of
grant. The options vest over timegrant and may be
exercised no earlier than one yearhave a maximum term of 11 years from the date of grant.
In addition, the 1993 Stock Incentive Plan and the 1987 Stock Option Plan
provideprovides that up to 800,000 and 400,0001,600,000
shares of common stock respectively,
which may be granted under the Plans, may be granted as restricted stock. Generally, restricted
stock is subject to forfeiture restrictions and cannot be sold, transferred or
disposed of during the restriction period. The holders of the restricted stock
have all the rights of a stockholder of the Company with respect to such shares,
including the right to vote and receive dividends or other distributions paid
with respect to such shares. During 1996, 19951998, 1997 and 1994,1996, the Company issued
39,450, 26,95057,100, 296,000 and 31,95078,900 shares, respectively, of restricted stock with a
weighted-average grant date fair value of $63.42, $41.04$32.47, $34.06 and $52.21,$31.71,
respectively.
In 1996,Non-employee Directors may be granted non-qualified stock options under the
1998 Director Stock Plan. Stock options are granted at the fair market value of
Anadarko stock on the date of grant and have a maximum term of ten years from
the date of grant. Prior to 1998, non-employee Directors were granted non-
qualified stock options under the 1988 Stock Option Plan for Non-Employee
Directors, which terminated in October 1998.
The 1987 Stock Option Plan terminated pursuant to its terms in 1997. Some
of the option grants made prior to the termination are still outstanding.
Outstanding grants will terminate ten years from the date of grant unless
exercised earlier.
Anadarko and a key officer of the Company entered intohave a Performance Share
Agreement under the 1993 Stock Incentive Plan. The Agreement provides for
issuance of up to 150,000300,000 shares of common stock of the Company at the end of a
four or eight-year period contingent upon the Company's achievement of
predetermined objectives. During each of the yearyears ended December 31, 1998, 1997
and 1996, annual expense of $2,000,000 was recognized under the Agreement. The
fair value of the performance shares is not determinable at this time since the
shares to be issued are contingent upon the Company's achievement of the
objectives.
4450
4651
ANADARKO PETROLEUM CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
1995 AND 1994
7.8. COMMON STOCK AND STOCK OPTIONS -- (CONTINUED)
Unexercised stock options do not have a dilutive effect on earnings per
common share.are included in the diluted EPS using the
treasury stock method. Information regarding the Company's stock option plans is
summarized below:
1998 1997 1996
1995 1994
--------------------- --------------------- --------------------------------------- ------------------ ------------------
WEIGHTED- Weighted- Weighted-
Weighted-AVERAGE Average Average
AverageEXERCISE Exercise Exercise
Exercise
Shares PriceSHARES PRICE Shares Price Shares Price
options in thousands ------ --------- ------ --------- ------ ---------
SHARES UNDER OPTION AT BEGINNING
OF YEAR 2,403 $38.13 2,010 $37.13 1,729 $33.766,756 $26.20 5,743 $23.04 4,806 $19.07
Granted 933 $58.84 491 $41.41 400 $49.862,267 $35.35 1,324 $37.90 1,866 $29.42
Exercised (456) $30.36 (84) $31.69 (117) $30.96(499) $17.16 (299) $17.24 (912) $15.18
Surrendered or expired (8) $44.62 (14) $47.36 (2) $29.81
--------- --------- ---------(6) $37.97 (12) $28.79 (17) $22.31
----- ----- -----
SHARES UNDER OPTION AT END OF
YEAR 2,872 $46.08 2,403 $38.13 2,010 $37.13
--------- --------- ---------8,518 $29.16 6,756 $26.20 5,743 $23.04
----- ----- -----
Options exercisable at December
31 1,772 $40.18 1,731 $36.12 1,433 $32.93
--------- --------- ---------5,028 $25.48 4,292 $21.85 3,543 $20.09
----- ----- -----
Shares available for future
grant at end of year 2,222 3,186 3,691
--------- --------- ---------1,159 2,828 4,444
----- ----- -----
Weighted-average fair value of
options granted during the
year $23.92 $15.36 N/A$11.84 $13.37 $11.96
The following table summarizes information about the Company's stock
options outstanding at December 31, 1996:1998:
Options Outstanding Options ExercisableOPTIONS OUTSTANDING OPTIONS EXERCISABLE
-------------------------------------- -----------------------
Weighted-
Options Average Weighted- Options Weighted-
Range of Outstanding Remaining Average Exercisable Average
Exercise at Year Contractual Exercise at Year Exercise
Prices End Life (Years) Price End PriceWEIGHTED-
AVERAGE
REMAINING WEIGHTED- WEIGHTED-
RANGE OF OPTIONS CONTRACTUAL AVERAGE OPTIONS AVERAGE
EXERCISE OUTSTANDING LIFE EXERCISE EXERCISABLE EXERCISE
PRICES AT YEAR END (YEARS) PRICE AT YEAR END PRICE
-------- ----------- ----------------------- --------- ----------- ---------
options in thousands
$19.68$14.91 - $37.00 750 4.0 $31.74 750 $31.74
$40.88$23.50 2,343 4.55 $19.63 2,343 $19.63
$23.84 - $47.00 809 8.0 $43.62 581 $44.48
$47.69$31.81 2,544 7.37 $27.79 1,944 $27.98
$31.94 - $54.38 861 9.1 $51.55 441 $48.86
$63.63$35.94 2,315 9.32 $35.28 50 $31.94
$36.31 - $63.88 452 9.8 $63.64 -- $ --$37.97 1,316 8.84 $37.89 691 $37.82
----- ---- ------ -------- ------
Total 8,518 7.35 $29.16 5,028 $25.48
----- ---- ------ ------
$19.68 - $63.88 2,872 7.5 $44.61 1,772 $40.18
------ --- ------ ----------- ------
The fair value of each option grant was estimated on the date of grant
using the Black-Scholes option-pricing model with the following assumptions:
1998 1997 1996
1995
----- -------------- --------- ---------
Expected option life - years 4.91 5.11 6.35 5.65
Risk-free interest rate 5.13% 6.18% 6.13% 5.94%
Dividend yield 0.57% 0.60% 0.70%
0.82%
Volatility 29.98% 28.76% 31.47% 30.59%
45
47
ANADARKO PETROLEUM CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
7. STOCK AND STOCK OPTIONS -- (CONTINUED)
SFAS No. 123 "Accounting for Stock-based Compensation" defines a fair value
method of accounting for an employee stock option or similar equity instrument.
SFAS No. 123 allows an entity to continue to
51
52
ANADARKO PETROLEUM CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
8. COMMON STOCK AND STOCK OPTIONS -- (CONTINUED)
measure compensation costs for these plans using the current method of accounting.Accounting Principles Board
Opinion (APB) No. 25 and related interpretations. Anadarko has elected to
continue the current method ofusing APB No. 25 for accounting for employee stock compensation plans.
Anadarko applies Accounting Principles Board (APB) Opinion No. 25 and related
interpretations in accounting for its stock option plans.
Accordingly, no compensation expense is recognized for stock options granted
with an exercise price equal to the market value of Anadarko stock on the date
of grant. If compensation expense for the Company's stock option plans had been
determined using the fair-value method in SFAS No. 123, the Company's net income
and earnings per shareEPS would have been as shown in the pro forma amounts below:
1998 1997 1996 1995
thousands except per share amounts ------- --------------- -------- --------
Net Incomeincome (loss) available to common As reported
stockholders $(49,286) $107,318 $100,720
$21,035Pro forma $(61,564) $ 99,928 $ 96,099
Basic EPS As reported $ (0.41) $ 0.90 $ 0.85
Pro forma $ 96,099 $20,577
Earnings Per Share(0.51) 0.84 $ 0.81
Diluted EPS As reported $ 1.70(0.41) $ 0.360.89 $ 0.85
Pro forma $ 1.62(0.51) $ 0.350.83 $ 0.81
8. FOREIGN CURRENCY TRANSLATION ADJUSTMENTS
The Company's currency translation adjustments arereconciliation between basic and diluted EPS is as follows:
FOR THE YEAR ENDED For the Year Ended
DECEMBER 31, 1998 December 31, 1997
------------------------------ ------------------------------
PER SHARE Per Share
LOSS SHARES AMOUNT Income Shares Amount
thousands except per share amounts -------- ------- --------- -------- ------- ---------
BASIC EPS
Income (loss) available to common
stockholders $(49,286) 120,103 $(0.41) $107,318 119,434 $0.90
------ -----
Effect of dilutive stock options -- -- -- 820
-------- ------- -------- -------
DILUTED EPS
Income (loss) available to common
stockholders plus assumed
conversion $(49,286) 120,103 $(0.41) $107,318 120,254 $0.89
-------- ------- ------ -------- ------- -----
For the Year Ended
December 31, 1996
------------------------------
Per Share
Income Shares Amount
thousands except per share amounts -------- ------- ---------
BASIC EPS
Income (loss) available to common
stockholders $100,720 118,495 $0.85
-----
Effect of dilutive stock options -- 695
-------- -------
DILUTED EPS
Income (loss) available to common
stockholders plus assumed
conversion $100,720 119,190 $0.85
-------- ------- -----
For the year ended December 31, 1998, there were 881,000 common stock
equivalents related to Anadarko
Canada, which was soldoutstanding stock options that were not included in 1994. See Note 2. The following isthe
computation of diluted EPS, since they had an analysis of
currency translation adjustments reflected in stockholders' equity:
1994
thousands -------
Balance at beginning of year $(4,379)
Current translation losses (1,686)
Cumulative translation losses transferred to the income
statement upon disposition of foreign subsidiary 6,065
-------
Balance at end of year $ --
-------
anti-dilutive effect.
9. STATEMENT OF CASH FLOWS SUPPLEMENTAL INFORMATION
The amounts of cash paid (received) for interest (net of amounts
capitalized) and income taxes are as follows:
1998 1997 1996
1995 1994
thousands --------------- ------- -------
Interest $ 56,593 $39,617 $36,197 $32,801 $25,675
Income taxes paid (received) $ 8,484 $(3,803)$(11,454) $12,068 $ 5168,484
52
53
ANADARKO PETROLEUM CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
10. TRANSACTIONS WITH RELATED PARTIES AND MAJOR CUSTOMERS
During 1989, Anadarko Algeria entered intohas a Production Sharing Agreement (PSA) with SONATRACH,
the national oil and gas enterprise of Algeria. SONATRACH is the beneficial
owner of 10.1 percent9.9% of the Company's outstanding common stock. The PSA gives Anadarko
Algeria the right to explore for and produce liquid hydrocarbons in Algeria,
subject to the sharing of production with SONATRACH. Anadarko Algeria has two
partners in the PSA. During 1994, theThe Company acquiredalso has a minority interest in a PSA covering
two additional blocks in the same region, which are operated by BHP Petroleum
(Algerie) Inc., where an exploration program is already underway. Approximately $60,000, $432,000$26,000,
$438,000 and $30,000$60,000 was paid to SONATRACH in 1996, 19951998, 1997 and 1994,1996, respectively,
for charges related to reservoir studies, laboratory services, well testing
services and equipment usage. The Company believes anticipated operating cash flows
46
48
ANADARKO PETROLEUM CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
10. TRANSACTIONS WITH RELATED PARTIES AND MAJOR CUSTOMERS -- (CONTINUED)During 1998 and existing credit facilities will be sufficient to meet its share of the
exploration1997, $32,091,000 and development costs. As$7,911,000,
respectively, was received and $25,854,000 and $7,129,000 was included in
accounts receivable as of December 31, 1996, Anadarko Algeria's
total net investment1998 and 1997, respectively, from
SONATRACH for joint interest billings of development costs in Algeria for exploration, development and related
activities was $231,858,000, ofunder the
PSA. Through December 31, 1998, the amounts received from SONATRACH have been
paid in Algerian dinars, the local currency, which approximately $85,152,000 was incurredare used by the Company to
make payments in 1996.
In September 1996,Algeria.
Anadarko and its partners signedhave a $177 million$177,000,000 Engineering, Procurement and
Construction (EPC) contract with Brown & Root Condor, a company jointly owned by
Brown & Root and affiliates of SONATRACH. For the yearyears ended December 31, 1998,
1997 and 1996, approximately $43,463,000, $107,049,000 and $21,933,000,
respectively, was paid to Brown & Root Condor under the EPC contract.
Political unrest existscontinues in Algeria. Anadarko is closely monitoring the
situation and has taken reasonable and prudent steps to ensure the safety of
employees workingand the security of its facilities in the remote regions of the Sahara
Desert. Anadarko is presently unable to predict with certainty any effect the
current situation may have on activity planned for 19971999 and beyond. However, the
situation has not had any material effect on the Company's operations.operations to date.
The Company's activities in Algeria also are subject to the general risks
associated with all foreign operations.
In 1996, the Company paid $878,000 to Petroleum Information Corporation1998, 1997 and
its subsidiaries for production, drilling and seismic data. Also in 1996, the Company paid Houston Advanced Research Center
(HARC) $150,000, $20,000 and $50,000, respectively, for a seismic imaging
project.projects. John R. Butler, Jr., a directorDirector of the Company, serves as Senior Chairman,
for Petroleum Information CorporationPresident and Chairman forCEO of HARC.
The Company's natural gas is sold to interstate and intrastate gas
pipelines, direct end-users, industrial users, local distribution companies and
gas marketers. Crude oil and condensate are sold to marketers, gatherers and
refiners. NGLs are sold to direct end-users, refiners and marketers. These
purchasers are located in the United States, Canada, France and Mexico. The
majority of the Company's receivables are paid within two months following the
month of purchase.
The Company generally performs a credit analysis of customers prior to
making any sales to new customers. Based upon this credit analysis, the Company
may require a standby letter of credit or a financial guarantee.
In 1998, sales to CoEnergy Trading Co. were $144,320,000, sales to
Proliance Energy LLC were $67,713,000 and sales to Texaco Trading &
Transportation Company were $65,552,000, each of which accounted for more than
10% of the Company's total 1998 revenues. In 1997, sales to CoEnergy Trading Co.
were $200,368,000, sales to Texaco Trading & Transportation Company were
$78,816,000 and sales to Proliance Energy LLC were $75,808,000, each of which
accounted for more than 10% of the Company's total 1997 revenues. In 1996, sales
to Texaco Trading & Transportation Company were $64,444,000, which accounted for
more than ten percent10% of the Company's total 1996 revenues.
In
1995, sales to Indiana Gas Company Incorporated were $53,130,000 and sales to
Texaco Trading & Transportation Company were $53,092,000, each of which
accounted for more than ten percent of the Company's total revenues. In 1994,
sales to Indiana Gas Company Incorporated were $67,348,000, which was more than
ten percent of the Company's total revenues.
11. OPERATING EXPENSES
Operating expenses by category are as follows:
1996 1995 1994
thousands ---- ---- ----
Oil and gas $ 65,896 $ 68,506 $ 70,164
Plant and gathering 34,231 26,119 24,905
Gas purchases 13,073 10,123 14,292
Other 2,108 1,081 841
-------- -------- --------
Total $115,308 $105,829 $110,202
-------- -------- --------
4753
4954
ANADARKO PETROLEUM CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
199511. SEGMENT AND 1994GEOGRAPHIC INFORMATION
The Company's operations primarily relate to oil and gas production
activities. Accordingly, they are considered one business segment. The following
table shows Anadarko's revenues (based on the origin of the sales) and net
properties and equipment by geographic area:
1998 1997 1996
thousands -------- -------- --------
REVENUES
United States $543,336 $674,872 $570,022
Algeria 16,918 267 124
-------- -------- --------
Total $560,254 $675,139 $570,146
-------- -------- --------
1998 1997
thousands ---------- ----------
NET PROPERTIES AND EQUIPMENT
United States $2,787,177 $2,292,254
Algeria 556,548 404,942
Other international 37,813 57,583
---------- ----------
Total $3,381,538 $2,754,779
---------- ----------
12. OTHER TAXES
Significant taxes other than income taxes are as follows:
1998 1997 1996
1995 1994
thousands ---- ---- ----------- ------- -------
Production and severance $16,266 $22,092 $19,457 $16,898 $22,228
Ad valorem 17,171 17,035 14,137 16,624 16,786
Payroll and other 4,272 3,647 3,611 3,370 1,959
------- ------- -------
Total $37,709 $42,774 $37,205 $36,892 $40,973
------- ------- -------
13. INCOME TAXES
Income tax expense, including deferred amounts, is summarized as follows:
1998 1997 1996
1995 1994
thousands ---- ---- ------------ ------- -------
CURRENT
Federal $ (2,162) $ 6,964 $ 2,849
$(3,385) $ 5,798State (637) 1,801 (10)
Foreign 400 -- --
1,422
State (10) 72 435
--------------- ------- -------
Total (2,399) 8,765 2,839
(3,313) 7,655
--------------- ------- -------
DEFERRED
Federal (21,998) 46,816 51,075
11,056 29,838State (620) 1,460 3,156
Foreign 2,118 -- --
(16,224)
State 3,156 488 2,298
--------------- ------- -------
Total (20,500) 48,276 54,231
11,544 15,912
--------------- ------- -------
Total income taxes $(22,899) $57,041 $57,070
$ 8,231 $23,567
--------------- ------- -------
54
55
ANADARKO PETROLEUM CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
13. INCOME TAXES -- (CONTINUED)
Total income taxes were different than the amounts computed by applying the
statutory income tax rate to Income (Loss) before Income Taxes. The sources of
these differences are as follows:
1998 1997 1996
1995 1994
thousands ---- ---- ------------ -------- --------
Income (Loss) before Income Taxes
Domestic $ (839) $179,754 $172,483
$36,663 $63,963
Foreign (64,248) (15,395) (14,693)
(7,397) 703
-------- ------- --------------- --------
Total $(65,087) $164,359 $157,790
$29,266 $64,666
-------- ------- --------------- --------
Statutory tax rate 35% 35% 35%
Tax computed at statutory rate $(22,780) $ 57,526 $ 55,227 $10,243 $22,633
Adjustments resulting from:
State income taxes (net of federal income tax benefit) (817) 2,120 2,045 364 1,777
Oil and gas credits (1,683) (1,743) (367)
(1,865) (3,072)
DispositionForeign taxes (net of foreign subsidiaryfederal income tax benefit) 1,637 -- -- 3,017
Life insurance policies (238) (566) (759)
Other -- net 403 55 (29)744 (862) 165
-------- ------- --------------- --------
Total income taxes $(22,899) $ 57,041 $ 57,070
$ 8,231 $23,567
-------- ------- --------------- --------
Effective tax rate 36% 28%35% 35% 36%
-------- ------- --------------- --------
48
50
ANADARKO PETROLEUM CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
13. INCOME TAXES -- (CONTINUED)
The tax benefit of compensation expense for tax purposes in excess of
amounts recognized for financial accounting purposes has been credited directly
to stockholders' equity. For 1996, 19951998, 1997 and 19941996 the tax benefit amounted to
$5,055,000, $458,000$3,339,000, $1,864,000 and $968,000,$5,055,000, respectively.
The tax effects of temporary differences that give rise to significant
portions of the deferred tax liabilities (assets) at December 31, 19961998 and 19951997
are as follows:
1996 19951998 1997
thousands ---- ------------- --------
Oil and gas exploration and development costs $538,367 $495,757$ 749,849 $609,793
Other 21,567 18,675
--------14,640 18,643
--------- --------
Gross deferred tax liabilities 559,934 514,432764,489 628,436
--------- --------
--------Net operating loss carryforwards (152,279) --
Alternative minimum tax credit carryforward (29,403) (25,170)(31,040) (28,501)
Other (31,558) (39,464)
--------(58,217) (53,143)
--------- --------
Gross deferred tax assets (60,961) (64,634)
--------(241,536) (81,644)
--------- --------
Net deferred tax liabilities $498,973 $449,798
--------$ 522,953 $546,792
--------- --------
The Company has determined that it is more likely than not that the
deferred tax assets will be realized and a valuation allowance for such assets
is not required.
In December 1994, the Company sold Anadarko Canada. Under current
accounting rules, Anadarko had not previously provided deferred U.S. income
taxes on the amount by which its investment in Anadarko Canada exceeded the tax
basis or on the cumulative foreign currency translation losses because these
temporary differences were previously considered permanent in duration. See Note
2.55
56
ANADARKO PETROLEUM CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
13. INCOME TAXES -- (CONTINUED)
Net operating loss and alternative minimum tax credit carryforwards at
December 31, 1996,1998, which are available for future utilization on federal and
foreign income tax returns, are as follows:
Regular Alternative
RegularForeign Federal Minimum
Tax Tax Tax Expiration
thousands --------------- -------- ----------- ----------
Net operating loss $10,300-- domestic $ -- 2010$292,700 $265,500 2018
Net operating loss -- foreign $131,100 $ -- $ -- 2003
Alternative minimum tax credit $29,400 $ -- $ 31,000 $ -- Unlimited
General business tax credit $ -- $ 1,300 $ -- 2006-2012
The net operating losses and tax credits have reduced deferred federal
income tax expense.
14. LEASE COMMITMENTS
The Company has various commitments under non-cancelable operating lease
agreements for buildings, facilities and equipment, the majority of which expire
at various dates through 2014. The leases are expected to be renewed or replaced
as they expire. At December 31, 1996,1998, future minimum rental payments due under
operating leases are as follows:
thousands
19971999 $ 15,904
1998 15,443
1999 13,86928,024
2000 13,58323,835
2001 13,64520,450
2002 15,351
2003 11,467
Later years 54,166111,671
--------
Total minimum lease payments $126,610$210,798
--------
Total rental expense amounted to $37,430,000, $24,797,000 and $12,702,000
$9,858,000in 1998, 1997 and $8,441,0001996, respectively.
In 1998 and 1997, the Company entered into sale-leaseback agreements
totaling $112,440,000 (net) involving 177 natural gas compressors in 1996, 1995Anadarko's
major mid-continent gathering systems. Proceeds from these transactions were
used for general corporate purposes. The related leases are being accounted for
as operating leases. The gains of $77,980,000 were deferred and 1994, respectively.
49are being
amortized over the lease terms as a reduction to operating expense. As of
December 31, 1998 and 1997, Deferred Credits -- Other includes $63,760,000 and
$57,800,000, respectively, related to the long-term portion of the deferred
gains.
56
5157
ANADARKO PETROLEUM CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1996, 19951998, 1997 AND 19941996
15. PENSION PLANS, OTHER POSTRETIREMENT BENEFITS AND EMPLOYEE SAVINGS PLAN
PENSION PLANS AND OTHER POSTRETIREMENT BENEFITS PENSION PLANS The Company has a non-contributory defined
benefit pension plan covering all permanent employees, except certain employees in foreign countries.
The benefits for this plan are based primarily on years of service and pay near
retirement. Plan assets consist principally of fixed income investments and
equity securities. The Company funds the plan with annual contributions as
determined in accordance with the Employee Retirement Income Security Act of
1974 and Internal Revenue Code of 1986, as amended, limitations.
The Company has an equalization plan to ensure payments towhich are non-contributory pension
plans. The Company also provides certain employees of amounts to which theyhealth care and life insurance benefits
for retired employees. Health care benefits are already entitled underfunded by contributions from the
Company and the retiree, with the retiree contributions adjusted per the
provisions of the pension plan, but which are subject to limitations imposed by federal tax
laws. ThisCompany's health care plans. The Company's retiree life
insurance plan is unfundednon-contributory.
The following table sets forth the Company's pension and payable solely fromother
postretirement benefits changes in benefit obligation, fair value of plan
assets, funded status and amounts recognized in the general assetsfinancial statements as of
the
Company. In addition, the Company has a pension plan for non-employee directors,
which is unfunded.
The 1996, 1995December 31, 1998 and 1994 pension cost related to these plans includes the
following components:1997.
1996 1995 1994PENSION BENEFITS OTHER BENEFITS
--------------------- ---------------------
1998 1997 1998 1997
thousands ---- ---- ------------ -------- -------- --------
CHANGE IN BENEFIT OBLIGATION
Benefit obligation at beginning of year $ 75,352 $ 61,462 $ 27,297 $ 23,012
Service costs-benefits earned in the period $ 4,484 $ 3,415 $ 3,502cost 5,503 4,551 1,883 1,516
Interest cost on projected benefit5,086 4,562 1,959 1,708
Plan amendments (3,738) -- -- --
Increase due to change in actuarial
assumptions 10,466 5,870 3,783 1,661
Benefit payments and settlements (4,812) (1,093) (600) (600)
-------- -------- -------- --------
Benefit obligation 3,945 2,991 2,895at end of year $ 87,857 $ 75,352 $ 34,322 $ 27,297
-------- -------- -------- --------
CHANGE IN PLAN ASSETS
Fair value of plan assets at beginning of
year $ 60,894 $ 50,844 $ -- $ --
Actual (return) lossreturn on plan assets (5,603) (9,227) 1,208
Amortization values and deferrals 2,481 6,165 (4,560)
Termination benefits6,595 11,131 -- --
346
------- ------- -------
PensionEmployer contributions 1,012 12 600 600
Benefit payments (3,891) (1,093) (600) (600)
-------- -------- -------- --------
Fair value of plan assets at end of year $ 64,610 $ 60,894 $ -- $ --
-------- -------- -------- --------
Funded status of the plan $(23,247) $(14,458) $(34,322) $(27,297)
Unrecognized actuarial (gain) loss 8,631 1,077 (1,438) (5,410)
Unrecognized prior service cost $ 5,307 $ 3,344 $ 3,391
------- ------- -------(1,909) 1,662 -- --
Unrecognized initial asset (3,615) (4,143) -- --
-------- -------- -------- --------
Total recognized $(20,140) $(15,862) $(35,760) $(32,707)
-------- -------- -------- --------
TOTAL RECOGNIZED AMOUNTS IN THE STATEMENT OF
FINANCIAL POSITION CONSIST OF:
Accrued benefit liability $(20,140) $(15,862) $(35,760) $(32,707)
Intangible asset (1,699) (2,601) -- --
-------- -------- -------- --------
Total recognized $(21,839) $(18,463) $(35,760) $(32,707)
-------- -------- -------- --------
The special termination benefits incurredFollowing are the weighted-average assumptions used by the Company in
1994 relate todetermining the closingaccumulated pension and postretirement benefit obligations as of
several plant locations. The Company had an additional minimum liability of
$2,359,000 and $1,301,000 at December 31, 1996 and 1995, respectively, which
represents the difference between the unfunded accumulated benefit obligation
and the accrued pension cost related to the equalization plan. This liability
was offset by an intangible asset of an equal amount.
5031:
PENSION BENEFITS OTHER BENEFITS
----------------- ---------------
1998 1997 1998 1997
percent ------ ------ ----- -----
Discount rate 6.75% 7.25% 6.75% 7.25%
Long-term rate of return on plan assets 8.0% 8.0% N/A n/a
Rates of increase in compensation levels 5.0% 5.0% 5.0% 5.0%
57
5258
ANADARKO PETROLEUM CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1996, 19951998, 1997 AND 19941996
15. PENSION PLANS, OTHER POSTRETIREMENT BENEFITS AND EMPLOYEE SAVINGS
PLAN AND OTHER POSTRETIREMENT
BENEFITS -- (CONTINUED)
For measurement purposes, an 8% annual rate of increase in the per capita
cost of covered health care benefits was assumed for 1999. The funded status of the plans at December 31, 1996rate was assumed
to decrease gradually to 5% for 2001 and 1995 is as follows:later years.
Assets Exceed Accumulated
Accumulated Benefits Exceed
Benefits Assets
(Funded) (Unfunded)PENSION BENEFITS OTHER BENEFITS
---------------------------- ------------------------
1998 1997 1996 1998 1997 1996
thousands ------------- ---------------------- -------- ------- ------ ------ ------
1996
Actuarial present value of:
Vested benefit obligation $32,901
COMPONENTS OF NET PERIODIC BENEFIT
COST
Service cost $ 5,900
Accumulated benefit obligation 39,471 6,565
Projected benefit obligation $52,3185,503 $ 9,144
------- -------
Plan assets at market value $50,8444,551 $ --
------- -------
Projected benefit obligation in excess of4,484 $1,883 $1,516 $1,664
Interest cost 5,086 4,562 3,945 1,959 1,708 1,680
Actual return on plan assets $(1,474) $(9,144)
Unrecognized initial asset (4,670)(6,595) (11,131) (5,603) -- Unrecognized (gain) loss (778) 3,721
Unrecognized prior service-- --
Amortization values and deferrals 2,092 7,741 2,481 (189) (359) (134)
------- -------- ------- ------ ------ ------
Net periodic benefit cost 1,150 1,043
Adjustment required to recognize additional minimum
liability -- (2,359)$ 6,086 $ 5,723 $ 5,307 $3,653 $2,865 $3,210
------- -------- ------- Accrued pension cost $(5,772) $(6,739)
------- -------
1995
Actuarial present value of:
Vested benefit obligation $29,549 $ 3,913
Accumulated benefit obligation 35,899 4,213
Projected benefit obligation $48,437 $ 6,210
------- -------
Plan assets at market value $46,505 $ --
------- -------
Projected benefit obligation in excess of plan assets $(1,932) $(6,210)
Unrecognized initial asset (5,197) --
Unrecognized loss 3,861 1,905
Unrecognized prior service cost 1,467 1,261
Adjustment required to recognize additional minimum
liability -- (1,301)
------- -------
Accrued pension cost $(1,801) $(4,345)
------- ------------- ------ ------
The Company's assumptions usedprojected benefit obligation, accumulated benefit obligation and fair
value of plan assets for the pension plans with accumulated benefit obligations
in excess of plan assets were $10,458,000, $6,995,000 and $0, respectively, as
of December 31, 1998, and $11,472,000, $8,618,000 and $0, respectively, as of
December 31, 1997. The Company's benefit obligations under the unfunded pension
plans are secured by the Anadarko Petroleum Corporation Executives and Directors
Benefits Trust. See Note 8.
Anadarko's Non-employee Director Pension Plan was terminated effective
January 1, 1998. The Directors were granted phantom shares equal to the value of
the accumulated benefit on the date of termination.
The assumed health care cost trend rate has a significant effect on the
amounts reported for the health care plan. A 1% change in determining the pension
liability were as follows:assumed health
care cost trend rate would have the following effects:
1996 1995 1994
percent ---- ---- ----1% INCREASE 1% DECREASE
thousands ----------- -----------
Discount rate 7.5 7.25 8.0
RatesEffect on total of increase in compensation levels 5.0 5.0 5.0
Long-term rate of returnservice and interest cost components $ 759 $ (618)
Effect on plan assets 8.0 8.0 8.0postretirement benefit obligation $5,061 $(4,200)
EMPLOYEE SAVINGS PLAN The Company has an employee savings plan (ESP) that is a
defined contribution plan. The Company matches a portion of employees'
contributions with shares of the Company's common stock. Participation in the
ESP is voluntary and all regular employees of the Company are eligible to
participate. The Company charged to expense plan contributions of $5,254,000,
$4,618,000 and $4,076,000 $3,731,000,during 1998, 1997 and $3,579,0001996, respectively.
FOREIGN PLANS The Company has a pension plan for certain non-resident foreign
nationals. Employees make contributions to the plan. The Company makes
contributions to the plan, if necessary, based on actuarial information.
Participation in the plan is voluntary. The Company's contributions were
$808,000 and $372,000 during 1996, 19951998 and 1994,1997, respectively.
OTHER POSTRETIREMENT BENEFITS In addition to providing pension benefits, theThe Company provideshas an employee savings plan for certain health care and life insurance benefits for retired
employees. Substantially allnon-resident foreign
nationals. The Company matches contributions with shares of the Company's employees,
51common
stock. Participation in the plan is voluntary. The Company's contributions were
$223,000 and $101,000 during 1998 and 1997, respectively.
58
5359
ANADARKO PETROLEUM CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1996, 19951998, 1997 AND 1994
15. PENSION PLANS, EMPLOYEE SAVINGS PLAN AND OTHER POSTRETIREMENT
BENEFITS -- (CONTINUED)
including employees in foreign countries, may become eligible for these benefits
if they reach retirement age while working for the Company. These benefits and
similar benefits for active employees are provided through contributory and
noncontributory benefit plans.
Health care benefits are funded by contributions from the Company and its
employees, with retiree contributions adjusted per the provisions of the
Company's health care plans. The Company's current policy is to fund the cost of
postretirement health care benefits on a pay-as-you-go basis. The Company's
retiree life insurance plan is noncontributory and is currently fully funded
through insurance premiums paid by the Company.
The following table sets forth the Company's postretirement benefits other
than pension combined liability as of December 31, 1996 and 1995:
1996 1995
thousands ---- ----
Accumulated postretirement benefit obligation
Retirees $ (6,888) $ (7,610)
Fully eligible active plan participants (4,043) (3,337)
Other active plan participants (12,081) (12,472)
-------- --------
Total (23,012) (23,419)
Plan assets at fair value -- --
-------- --------
Accumulated postretirement benefit obligation in excess of
plan assets (23,012) (23,419)
Unrecognized net gain (7,430) (4,343)
-------- --------
Accrued postretirement benefit cost $(30,442) $(27,762)
-------- --------
The Company charges postretirement benefits other than pensions as accrued,
based on actuarial calculations for each plan. The net annual costs for
postretirement benefits other than pensions for 1996 and 1995 included the
following components:
1996 1995
thousands ------ ------
Service cost -- benefits attributed to service during the
period $1,664 $1,556
Interest cost on accumulated obligation 1,680 1,674
Recognized benefit gain (134) (119)
------ ------
Net postretirement benefit cost $3,210 $3,111
------ ------
The Company's assumptions used as of December 31 in determining the
accumulated postretirement benefit obligation shown above were as follows:
1996 1995
percent --------- ---------
Discount rate 7.50 7.25
Rates of increase in compensation levels 5.0 5.0
Health care trend rate 13.0-5.0 13.0-5.0
The health care trend rate for the health care plans starts at the maximum
rate for the current year and is gradually reduced to an ultimate rate for 2001
and later years. A change in the health care trend rate of one percent would
change the annual cost in 1996 by approximately $674,000 and would change the
accumulated postretirement benefit obligation in 1996 by approximately
$5,472,000.
52
54
ANADARKO PETROLEUM CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
16. CONTINGENCIES
ENVIRONMENTAL On December 17, 1993, the Company received a notice from the
Department of Justice in the State of California indicating the Company may be a
potentially responsible party (PRP) for the study, cleanup and closure of the
waste facility owned by Geothermal, Inc. in Middletown, California (the GI
site). Anadarko's records indicate the disposal of a limited number of barrels
of drilling mud at the GI site in 1982. During the first quarter of 1994, the
Company, along with other PRPs, became a party to a Cost Sharing, Joint Defense
and Confidentiality Agreement, effective October 20, 1993. The Company believes
its share of costs in connection with the cleanup of the GI site will be
approximately $35,000 to $70,000 and will not have a material effect on its
financial position, cash flows or results of operations.
New technology has recently been developed which could result in closure of
the GI site at substantial cost reductions. A pilot study of this technology is
currently underway. The California Water Quality Control Board has agreed to
defer a final closure decision until the completion of the pilot study in early
2000.
KANSAS AD VALOREM TAX The Natural Gas Policy Act of 1978 (NGPA) allowsallowed a "severance,
production or similar" tax to be included as an add-on, over and above the
maximum lawful price for natural gas. Based on the Federal Energy Regulatory
Commission (FERC) ruling that the Kansas ad valorem tax was such a tax, the
Company collected the Kansas ad valorem tax in additiontax.
Background of Present Litigation FERC's ruling regarding the ability of
producers to collect the otherwise maximum lawful price. FERC's rulingKansas ad valorem tax was appealed to the United States
Court of Appeals for the District of Columbia Circuit (D.C. Circuit), which. The Court
held in June 1988 that FERC failed to provide a reasoned basis for its findings
and remanded the case to FERC for further consideration.
On December 1, 1993, FERC issued an order reversing its prior ruling, but
limitingFERC.
Ultimately, the effect of its decision to Kansas ad valorem taxes for sales made on
or after June 28, 1988. FERC clarified the effective date of its decision by an
order dated May 19, 1994. The clarification provided that the June 28, 1988
effective date applies to tax bills rendered after that date, not sales made on
or after that date. Based on Anadarko's interpretation of FERC's orders,
$700,000 (pre-tax) was charged against income in 1994, in addition to $130,000
(pre-tax) charged against income in 1993. Numerous parties filed appeals of
FERC's action in the D.C. Circuit. Anadarko, together with other natural gas
producers, challenged FERC's orders on two grounds: (1) that the Kansas ad
valorem tax, properly understood, does qualify for reimbursement under the NGPA;
and (2) FERC's ruling should, in any event, have been applied prospectively.
Other parties separately challenged FERC's orders on the grounds that FERC's
ruling should have been applied retroactively to December 1, 1978, the date of
the enactment of the NGPA and producers should have been required to pay refunds
accordingly.
The D.C. Circuit issued itsa decision on August 2, 1996 which holdsruling
that producers must make refunds ofrefund all Kansas ad valorem taxes collected with
respectrelating to
production since October 1983. Petitions for rehearing were denied
November 6, 1996. The Company along with other gas producing companies,
subsequently filed a petition for writ of
certiorari with the United States
Supreme Court seeking to limitCourt. That petition was denied on May 12, 1997.
Anadarko estimates that the scopemaximum amount of the potential refunds to tax bills
rendered on or after June 28, 1988 (the effective date originally selected by
FERC). The petitionprincipal and interest at
issue which has not been acted on. Williams Natural Gaspaid to date, assuming that the October 1983 effective
date remains in effect, is about $42,700,000 (pretax) as of December 31, 1998.
FERC Proceedings Depending on future FERC orders, the Company hascould be required
to pay all or part of the amounts claimed by all pipelines (which might include
PanEnergy) pending further potential review by FERC or the courts.
PanEnergy Litigation On May 13, 1997, the Company filed a cross-petitionlawsuit in the
Federal District Court for certiorarithe Southern District of Texas against PanEnergy
seeking declaration that pursuant to impose refund liability backprior agreements Anadarko is not required
to issue refunds to PanEnergy for the principal amount of $14,000,000 (pretax)
and, if the petition for adjustment is denied in its entirety by FERC with
respect to PanEnergy refunds, interest in an amount of $27,100,000 (pretax) as
of December 1, 1978.31, 1998. The Company and other interested parties will oppose this
cross-petition. If Supreme Court reviewalso seeks from PanEnergy the return of
$816,000 of the decision$830,000 (pretax) charged against income in 1993 and 1994. In
response to a motion filed by PanEnergy, the United States District Court issued
an order on March 17, 1998 staying the litigation, pending the exercise by FERC
of its regulatory jurisdiction.
FERC Order of October 13, 1998 On October 13, 1998, FERC issued a final order
on Anadarko's complaint. The order declares that Anadarko Production Company
(now an affiliate of Duke Energy) is unsuccessful,responsible as first seller for making
refunds of Kansas ad valorem tax reimbursements collected from 1983 through
August 1, 1985. The Company estimates this amount to be as much as $26,000,000.
The Company is responsible to make refunds for reimbursements it collected as
first seller from August 1, 1985 through 1988. The Company estimates this amount
to be as much as $16,000,000. The FERC order states that whether Anadarko
Production Company or the pursuitCompany is entitled to reimbursement from another
party for the refunds ordered is a matter to be pursued in an appropriate
judicial forum. On January 15, 1999, FERC issued an order denying a request for
rehearing filed by PanEnergy and reaffirming the October 1998 order. FERC
59
60
ANADARKO PETROLEUM CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
16. CONTINGENCIES -- (CONTINUED)
may, in the near future, issue an order based upon the above allocation
regarding when the refunds must be paid and the specific refund amount. The
issue of other judicialreimbursement will now be pursued in U.S. District Court.
Kansas Corporation Commission (KCC) Proceeding On April 30, 1998, the Company's
subsidiary, Anadarko Gathering Company (AGC), filed a petition with the KCC to
clarify AGC's rights and regulatory relief from the application of this
decisionobligations, if any, related to the payment by first
sellers of Kansas ad valorem tax refunds. The refunds at issue relate to sales
made by Anadarko Production Company, willa PanEnergy affiliate, through facilities
known as the Cimmaron River System during the time period from 1983 to 1988. AGC
purchased the Cimmaron River System from Centana, the successor of Anadarko
Production Company, in 1995. The petition, among other things, asks the KCC to
determine whether AGC or Anadarko Production Company is responsible for the
payment or distribution of refunds received from first sellers to Anadarko
Production Company's former customers and requests guidance concerning the
disposition of refunds received that are attributable to sales made to Anadarko
Production Company customers that did not reimburse Anadarko Production Company
for Kansas ad valorem taxes during the relevant time periods. This matter is
presently being pursued before the KCC. The KCC is expected to issue a
recommendation upon Anadarko's petition in this matter by March 15, 1999.
Anadarko's net income for 1997 included a $1,800,000 charge (pretax)
related to the Kansas ad valorem tax refunds. This charge reflects all principal
and interest which may be considered.due at the conclusion of all regulatory proceedings
and litigation to parties other than PanEnergy. The Company is unable at this
time to predict the final outcome of this matter. If, however,matter and no provision for liability
(excluding amounts recorded in 1993, 1994 and 1997) has been made in the
August 2, 1996
decision is not reversed or modified by judicial review and if Anadarko is
unable to limit application of the decision to the Company, Anadarko estimates
the maximum amount of principal and interest at issue (assuming that the October
1983 effective date remains in effect) is approximately $37 million (pre-tax) as
of December 31, 1996.
53accompanying financial statements.
60
5561
ANADARKO PETROLEUM CORPORATION
SUPPLEMENTAL QUARTERLY INFORMATION
(UNAUDITED)
QUARTERLY FINANCIAL DATA
The following table shows summary quarterly financial data for 19961998 and
1995.1997. See Management's Discussion and Analysis of Financial Condition and
Results of Operations under Item 7 of this Form 10-K.
First Second Third Fourth
Quarter Quarter Quarter QuarterFIRST SECOND THIRD FOURTH
QUARTER QUARTER QUARTER QUARTER
thousands except per share amounts ------- ------- -------- --------------- -------- --------
19961998
Operating revenues $135,707 $135,088 $128,551 $169,682$147,001 $137,526 $140,191 $135,536
Operating income (loss), pretax 23,335 20,282 15,715 (66,720)*
Net income (loss) $ 7,015 $ 4,341 $ 464 $(54,008)*
Net income (loss) available to common stockholders $ 7,015 $ 2,703 $ (2,266) $(56,738)*
Earnings (loss) per common share - basic $ 0.06 $ 0.02 $ (0.02) $ (0.47)*
Earnings (loss) per common share - diluted $ 0.06 $ 0.02 $ (0.02) $ (0.47)*
1997
Operating revenues $171,345 $139,002 $158,717 $206,075
Operating income, pretax 40,897 37,127 49,401 68,22063,203 29,771 38,130 74,213
Net income $ 20,51634,434 $ 17,62813,774 $ 24,94917,092 $ 37,62742,018
Net income available to common stockholders $ 34,434 $ 13,774 $ 17,092 $ 42,018
Earnings per common share - basic $ 0.29 $ 0.12 $ 0.14 $ 0.35 $ 0.30 $ 0.42 $ 0.63
1995
Operating revenues $102,827 $113,890 $ 99,283 $118,014
Operating income, pretax 14,363 22,246 8,535 19,330
Net income $ 4,080 $ 9,053 $ 1,107 $ 6,795
Earnings per common share - diluted $ 0.070.29 $ 0.150.11 $ 0.020.14 $ 0.120.35
54- ---------------
* Anadarko's fourth quarter 1998 operating loss includes a non-cash charge of
$70,000,000 ($44,590,000 after income taxes) to impair certain international
properties. Excluding this impairment, Anadarko's fourth quarter net
operating income (pretax) was $3,280,000, net loss was $9,418,000 and net
loss available to common stockholders was $12,148,000, which was $0.10 per
common share (diluted).
61
5662
ANADARKO PETROLEUM CORPORATION
SUPPLEMENTAL INFORMATION ON OIL AND GAS EXPLORATION
AND PRODUCTION ACTIVITIES
(UNAUDITED)
OIL AND GAS PRODUCTION
The following is historical revenue and cost information relating to the
Company's oil and gas operations. Excluded from amounts subject to amortization
as of December 31, 19961998 and 19951997 are $254,811,000$353,647,000 and $245,577,000,$343,789,000,
respectively, of costs associated with unevaluated properties and major
development projects. The majority of the evaluation activities are expected to
be completed within five years.
COSTS EXCLUDED FROM AMORTIZATION
Excluded
Year Costs Incurred Costs at
Prior ------------------- Dec.YEAR COSTS INCURRED EXCLUDED
-------------------------------------- COSTS AT
PRIOR DEC. 31,
Years 1994 1995YEARS 1996 19961997 1998 1998
thousands ----- ---- ---- ----------- ------- ------- -------- --------
Property acquisition $39,059 $ 6,494 $66,3717,276 $20,352 $ 6,600 $14,092 $ 93,55737,939 $104,626
Exploration 31,674 10,064 21,525 67,210 130,47320,300 27,421 52,648 112,039 212,408
Capitalized interest 3,164 5,587 9,519 12,511 30,781
-------6,858 5,766 9,153 14,836 36,613
------- ------- ------- -------- --------
Total $41,332 $82,022 $37,644 $93,813 $254,811$66,217 $40,463 $82,153 $164,814 $353,647
------- ------- ------- --------------- --------
CAPITALIZED COSTS RELATED TO OIL AND GAS PRODUCING ACTIVITIES
1996 19951998 1997
thousands ---- -------------- ----------
UNITED STATES
Capitalized
Unproved properties $ 157,296232,320 $ 160,186174,371
Proved properties 3,353,650 3,178,4374,337,068 3,753,890
Plant facilities 17,726 17,60013,283 13,286
---------- ----------
3,528,672 3,356,2234,582,671 3,941,547
Accumulated depreciation, depletion and amortization 1,649,344 1,584,9981,980,535 1,812,560
---------- ----------
Net capitalized costs 1,879,328 1,771,2252,602,136 2,128,987
---------- ----------
ALGERIA
AND OVERSEAS
Capitalized
Unproved properties 164,798 100,12885,077 145,124
Proved properties 75,053 62,411464,545 249,237
---------- ----------
549,622 394,361
Accumulated depreciation, depletion and amortization 4,418 --
---------- ----------
Net capitalized costs 239,851 162,539545,204 394,361
---------- ----------
OTHER OVERSEAS
Capitalized
Unproved properties 36,250 55,923
---------- ----------
Net capitalized costs 36,250 55,923
---------- ----------
TOTAL
Capitalized
Unproved properties 322,094 260,314353,647 375,418
Proved properties 3,428,703 3,240,8484,801,613 4,003,127
Plant facilities 17,726 17,60013,283 13,286
---------- ----------
3,768,523 3,518,7625,168,543 4,391,831
Accumulated depreciation, depletion and amortization 1,649,344 1,584,9981,984,953 1,812,560
---------- ----------
Net capitalized costs $2,119,179 $1,933,764$3,183,590 $2,579,271
---------- ----------
5562
5763
ANADARKO PETROLEUM CORPORATION
SUPPLEMENTAL INFORMATION ON OIL AND GAS EXPLORATION
AND PRODUCTION ACTIVITIES
(UNAUDITED)
COSTS INCURRED IN OIL AND GAS PRODUCING ACTIVITIES
1998 1997 1996
1995 1994
thousands ---- ---- ------------ -------- --------
UNITED STATES -- Capitalized
Property acquisition
Exploration $ 31,690 $ 22,292 $ 20,920
$ 9,723 $ 87,747
Development 143,186 31,036 5,335
26,022 16,005
Exploration 171,072 111,959 106,602
76,056 115,486
Development 312,846 276,266 132,139 113,401 132,846
-------- -------- --------
658,794 441,553 264,996 225,202 352,084
-------- -------- --------
CANADAALGERIA -- Capitalized
Property acquisition
Exploration -- 178 --
987Exploration 86,979 83,860 49,343
Development -- -- 2,122
Exploration -- -- 770
Development -- -- 2,86664,403 87,422 29,459
-------- -------- --------
-- -- 6,745151,382 171,460 78,802
-------- -------- --------
ALGERIA ANDOTHER OVERSEAS -- Capitalized
Property acquisition
Exploration 2,415 2,085 --
18 --Exploration 47,107 35,322 18,659
Development -- 6,848 -- Exploration 68,002 44,675 37,713
Development 29,929 901 88470
-------- -------- --------
97,931 52,442 37,80149,522 37,407 19,129
-------- -------- --------
TOTAL -- Capitalized
Property acquisition
Exploration 34,105 24,555 20,920
9,741 88,734
Development 143,186 31,036 5,335
32,870 18,127
Exploration 305,158 231,141 174,604
120,731 153,969
Development 377,249 363,688 162,068 114,302 135,800
-------- -------- --------
$859,698 $650,420 $362,927 $277,644 $396,630
-------- -------- --------
5663
5864
ANADARKO PETROLEUM CORPORATION
SUPPLEMENTAL INFORMATION ON OIL AND GAS EXPLORATION
AND PRODUCTION ACTIVITIES
(UNAUDITED)
RESULTS OF OPERATIONS FOR PRODUCING ACTIVITIES
The following schedule includes only the revenues from the production and
sale of gas, oil, condensate and NGLs. Results of operations from oil and gas
marketing and gas gathering are excluded. The income tax expense is calculated
by applying the current statutory tax rates to the revenues after deducting
costs, which include depreciation, depletion and amortization (DD&A) allowances,
after giving effect to permanent differences. The results of operations exclude
general office overhead and interest expense attributable to oil and gas
production.
RESULTS OF OPERATIONS FOR PRODUCING ACTIVITIES
1998 1997 1996 1995 1994
thousands -------- -------- --------
UNITED STATES
Net revenues from production
Gas and oil sold to consolidated affiliates $297,927 $379,982 $316,127
$221,341 $253,667
OtherThird-party sales of gas, oil, condensate and NGLs 202,111 191,902 204,698223,246 274,308 229,398
-------- -------- --------
518,238 413,243 458,365521,173 654,290 545,525
Production (lifting) costs 119,701 126,189 121,023166,731 157,847 121,461
Depreciation, depletion and amortization* 179,183 181,163 149,488 153,648 161,308
-------- -------- --------
249,049 133,406 176,034175,259 315,280 274,576
Income tax expense 89,178 46,041 61,98361,276 111,711 98,368
-------- -------- --------
Results of operations 159,871 87,365 114,051$113,983 $203,569 $176,208
-------- -------- --------
*DD&A rate per net equivalent barrel $ 3.963.91 $ 3.884.09 $ 4.013.96
-------- -------- --------
CANADA
OtherALGERIA
Net revenues from production
Third-party sales of gas, oil condensate and NGLs$ 16,474 $ -- $ --
-------- -------- --------
16,474 -- -- 9,046
Production (lifting) costs 6,492 -- -- 4,052
Depreciation, depletion and amortization* 4,418 -- -- 2,763
-------- -------- --------
5,564 -- -- 2,231
Income tax expense 3,514 -- -- 556
-------- -------- --------
Results of operations $ 2,050 $ -- $ -- 1,675
-------- -------- --------
*DD&A rate per net equivalent barrel $ --3.22 $ -- $ 3.35--
-------- -------- --------
TOTAL
Net revenues from production
Gas and oil sold to consolidated affiliates 316,127 221,341 253,667
Other$297,927 $379,982 $316,127
Third-party sales of gas, oil, condensate and NGLs 202,111 191,902 213,744239,720 274,308 229,398
-------- -------- --------
518,238 413,243 467,411537,647 654,290 545,525
Production (lifting) costs 119,701 126,189 125,075173,223 157,847 121,461
Depreciation, depletion and amortizationamortization* 183,601 181,163 149,488 153,648 164,071
-------- -------- --------
249,049 133,406 178,265180,823 315,280 274,576
Income tax expense 89,178 46,041 62,53964,790 111,711 98,368
-------- -------- --------
Results of operations $159,871$116,033 $203,569 $176,208
-------- -------- --------
*DD&A rate per net equivalent barrel $ 87,365 $115,7263.89 $ 4.09 $ 3.96
-------- -------- --------
5764
5965
ANADARKO PETROLEUM CORPORATION
SUPPLEMENTAL INFORMATION ON OIL AND GAS EXPLORATION
AND PRODUCTION ACTIVITIES
(UNAUDITED)
OIL AND GAS RESERVES
The following table shows estimates prepared by the Company's engineers of
proved reserves and proved developed reserves, net of royalty interests, of
natural gas, crude oil, condensate and NGLs owned at year-end and changes in
proved reserves during the last three years. Volumes for natural gas are in
billions of cubic feet (Bcf) at a pressure base of 14.73 pounds per square inch
and volumes for oil, condensate and NGLs are in millions of barrels (MMBbls).
Total volumes are in millions of energy equivalent barrels (MMEEBs). For this
computation, one barrel is the equivalent of six thousand cubic feet.feet of gas.
NGLs are included with oil and condensate reserves and the associated shrinkage
has been deducted from the gas reserves. Other international reserve activity shown in
the following table includes 1994 activity for Canada and 1996 activity for
Indonesia.
Algerian reserves are shown in accordance with the PSA. The reserves
include estimated quantities allocated to Anadarko for recovery of costs and
Algerian taxes and Anadarko's net equity share after recovery of such costs.
Anadarko's reserves increased in 1998 primarily from exploration and
development drilling and purchases in place. Anadarko's reserves increase was
offset partially by a negative reserve revision caused by lower natural gas and
crude oil prices at year-end 1998 compared to year-end 1997. The Company's
reserves increased in 1997 primarily from exploration and development drilling
and improved recovery. The Company's reserves increased in 1996 primarily from
exploration and development drilling and improved recovery. At year-end 1996, the Company had
124.3 MMBbls of proved reserves in Algeria, including 31.8 MMBbls which were
added during 1996. Anadarko's reserves also increased in 1996 due to higher
natural gas and crude oil prices at year-end 1996 compared to year-end 1995.
The Company's reserves increased in 1995 primarily due to exploration and
development drilling and improved recovery. At year-end 1995, Anadarko had 92.5
MMBbls of oil reserves in Algeria, including 48.5 MMBbls which were added during
1995. Anadarko's reserves also increased in 1995 due to higher natural gas and
crude oil prices at year-end 1995 compared to year-end 1994.
The Company's reserves increased in 1994 primarily due to exploration and
development drilling and improved recovery. During 1994, Anadarko added 44
MMBbls of oil reserves in Algeria, based on successful exploration drilling,
preliminary development studies and the contractual rights granted under the
PSA.
The Company emphasizes that the volumes of reserves shown below are
estimates which, by their nature, are subject to revision. The estimates are
made using all available geological and reservoir data as well as production
performance data. These estimates are reviewed annually and revised, either
upward or downward, as warranted by additional performance data.
5865
6066
ANADARKO PETROLEUM CORPORATION
SUPPLEMENTAL INFORMATION ON OIL AND GAS EXPLORATION
AND PRODUCTION ACTIVITIES
(UNAUDITED)
OIL AND GAS RESERVES --(CONTINUED)
NATURAL GAS OIL, CONDENSATE AND NGLS TOTAL
(BCF) (MMBBLS) (MMEEBS)
------------------------- ------------------------------------- ----------------------------------------------------------------------- -----------------------------------
U.S. OTHER INTL.INDONESIA TOTAL U.S. ALGERIA OTHER INTL.INDONESIA TOTAL U.S. ALGERIA OTHER INTL.INDONESIA TOTAL
---- ----------- ----- ------------- ----- ----- ------- -------------------- ----- --------- ------- -------------------- -----
PROVED RESERVES
DECEMBER 31, 1993 1,836 39 1,875 75.1 -- 3.4 78.5 381.1 -- 10.0 391.1
Revisions of prior
estimates 134 -- 134 2.5 -- -- 2.5 24.9 -- -- 24.9
Extensions, discoveries
and other additions 76 2 78 30.9 44.0 -- 74.9 43.5 44.0 0.4 87.9
Improved recovery 8 -- 8 14.8 -- -- 14.8 16.1 -- -- 16.1
Purchases in place 59 -- 59 4.4 -- 0.4 4.8 14.2 -- 0.4 14.6
Sales in place (26) (38) (64) (3.0) -- (3.4) (6.4) (7.2) -- (9.9) (17.1)
Production (173) (3) (176) (11.3) -- (0.4) (11.7) (40.2) -- (0.9) (41.1)
----- --- ----- ----- ----- ---- ----- ----- ----- ----- -----
DECEMBER 31, 1994 1,914 -- 1,914 113.4 44.0 -- 157.4 432.4 44.0 -- 476.4
Revisions of prior
estimates 29 -- 29 2.6 -- -- 2.6 7.5 -- -- 7.5
Extensions, discoveries
and other additions 70 -- 70 7.6 48.5 -- 56.1 19.3 48.5 -- 67.8
Improved recovery 14 -- 14 14.0 -- -- 14.0 16.3 -- -- 16.3
Purchases in place 18 -- 18 6.9 -- -- 6.9 9.8 -- -- 9.8
Sales in place (30) -- (30) (6.8) -- -- (6.8) (11.9) -- -- (11.9)
Production (172) -- (172) (11.0) -- -- (11.0) (39.6) -- -- (39.6)
----- --- ----- ----- ----- ---- ----- ----- ----- ----- -----
DECEMBER 31, 1995 1,843 -- 1,843 126.7 92.5 -- 219.2 433.8 92.5 -- 526.3
Revisions of prior
estimates (17) -- (17) 11.4 -- -- 11.4 8.5 -- -- 8.5
Extensions, discoveries
and other additions 152 47 199 36.2 31.8 9.9 77.9 61.9 31.8 17.7 111.4
Improved recovery 6 -- 6 9.4 -- -- 9.4 10.4 -- -- 10.4
Purchases in place 5 -- 5 0.4 -- -- 0.4 1.1 -- -- 1.1
Sales in place (3) (47) (50) (0.4) -- (9.9) (10.3) (1.0) -- (17.7) (18.7)
Production (165) -- (165) (10.2) -- -- (10.2) (37.7) -- -- (37.7)
----- --- ----- ----- ----- ---- ----- ----- ----- ----- -----
DECEMBER 31, 1996 1,821 -- 1,821 173.5 124.3 -- 297.8 477.0 124.3 -- 601.3
Revisions of prior
estimates (95) -- (95) 13.2 -- -- 13.2 (2.7) -- -- (2.7)
Extensions, discoveries
and other additions 164 -- 164 38.6 59.8 -- 98.4 66.1 59.8 -- 125.9
Improved recovery 6 -- 6 19.9 -- -- 19.9 20.8 -- -- 20.8
Purchases in place 18 -- 18 5.0 -- -- 5.0 8.0 -- -- 8.0
Sales in place (5) -- (5) (0.1) -- -- (0.1) (1.0) -- -- (1.0)
Production (179) -- (179) (14.5) -- -- (14.5) (44.3) -- -- (44.3)
----- --- ----- ----- ----- ---- ----- ----- ----- ----- -----
DECEMBER 31, 1997 1,730 -- 1,730 235.6 184.1 -- 419.7 523.9 184.1 -- 708.0
Revisions of prior
estimates (70) -- (70) (32.0) -- -- (32.0) (43.7) -- -- (43.7)
Extensions, discoveries
and other additions 1,028 -- 1,028 36.5 62.3 -- 98.8 207.9 62.3 -- 270.2
Improved recovery 15 -- 15 6.7 -- -- 6.7 9.1 -- -- 9.1
Purchases in place 121 -- 121 18.6 -- -- 18.6 38.7 -- -- 38.7
Production (177) -- (177) (16.4) (1.4) -- (17.8) (45.8) (1.4) -- (47.2)
----- --- ----- ----- ----- ---- ----- ----- ----- ----- -----
DECEMBER 31, 1998 2,647 -- 2,647 249.0 245.0 -- 494.0 690.1 245.0 -- 935.1
----- --- ----- ----- ----- ---- ----- ----- ----- ----- -----
PROVED DEVELOPED RESERVES
December 31, 1993 1,674 40 1,714 60.81995 1,737 -- 3.4 64.2 339.81,737 77.5 -- 10.0 349.8-- 77.5 367.0 -- -- 367.0
December 31, 1994 1,7871996 1,654 -- 1,787 74.21,654 100.6 -- -- 74.2 372.0100.6 376.2 -- -- 372.0376.2
December 31, 1995 1,7371997 1,597 -- 1,737 77.51,597 122.6 -- -- 77.5 367.0122.6 388.7 -- -- 367.0388.7
December 31, 1996 1,6541998 1,640 -- 1,654 100.61,640 119.5 44.2 -- 163.7 392.9 44.2 -- 100.6 376.2 -- -- 376.2437.1
5966
6167
ANADARKO PETROLEUM CORPORATION
SUPPLEMENTAL INFORMATION ON OIL AND GAS EXPLORATION
AND PRODUCTION ACTIVITIES
(UNAUDITED)
DISCOUNTED FUTURE NET CASH FLOWS
Estimates of future net cash flows from proved reserves of gas, oil,
condensate and NGLs were made in accordance with SFAS No. 69, "Disclosures about
Oil and Gas Producing Activities".Activities." The amounts were prepared by the Company's
engineers and are shown in the following table. The estimates are based on
prices at year-end.
NaturalUnder the full cost method of accounting, a non-cash charge to earnings
related to the carrying value of the Company's oil and gas properties on a
county-by-county basis may be required when prices are low. Whether the Company
will be required to take such a charge depends on the prices for crude oil and
natural gas at the end of any quarter, as well as the effect of both capital
expenditures and changes to proved reserves during that quarter. If a non-cash
charge were required, it would reduce earnings for the quarter, which would
result in lower DD&A expense in future periods.
Prices for crude oil and natural gas were significantly lower at year-end
1998 compared to year-end 1997. Since the end of 1998, gas prices have decreased by about 25 percent ascontinued
to fall. If the current pricing environment continues or worsens, the Company
may be required to take a non-cash charge against earnings during the first
quarter of February 1997. Oil prices have remained relatively stable through February 1997.1999.
Gas prices are escalated only for fixed and determinable amounts under
provisions in some contracts. Estimated future cash inflows are reduced by
estimated future development and production costs based on year-end cost levels,
assuming continuation of existing economic conditions, and by estimated future
income tax expense. Income tax expense, both U.S. and foreign, is calculated by
applying the existing statutory tax rates, including any known future changes,
to the pretax net cash flows giving effect to any permanent differences and
reduced by the applicable tax basis. The effect of tax credits are considered in
determining the income tax expense.
At December 31, 1996,1998, the present value (discounted at ten percent) of
future net revenues from Anadarko's proved reserves was $5.27$3.1 billion, before
income taxes, and $3.4$2.2 billion, after income taxes, (stated in accordance with
the regulations of the Securities Exchange Commission and the Financial
Accounting Standards Board). The after income taxes increase of 9610 percent in
19961998 compared to 19951997 is primarily due to the additions of proved reserves
related to successful exploration and development drilling and purchases in
place, partially offset by significantly higherlower natural gas and crude oil prices
at year-end 1996 as well as additions of proved reserves
related to successful drilling in Algeria and Alaska.1998.
The present value of future net revenues does not purport to be an estimate
of the fair market value of Anadarko's proved reserves. An estimate of fair
value would also take into account, among other things, anticipated changes in
future prices and costs, the expected recovery of reserves in excess of proved
reserves and a discount factor more representative of the time value of money
and the risks inherent in producing oil and gas. Significant changes in
estimated reserve volumes or commodity prices could have a material effect on
the Company's consolidated financial statements.
6067
6268
ANADARKO PETROLEUM CORPORATION
SUPPLEMENTAL INFORMATION ON OIL AND GAS EXPLORATION
AND PRODUCTION ACTIVITIES
(UNAUDITED)
STANDARDIZED MEASURE OF DISCOUNTED FUTURE NET CASH FLOWS RELATING TO PROVED OIL
AND GAS RESERVES
1998 1997 1996
1995 1994
millions ---- ---- ----------- ------ -------
UNITED STATES
Future cash inflows $ 7,393 $6,500 $11,076 $5,621 $4,672
Future production and development costs 2,690 2,494 2,908 1,847 1,534
------- ------ -------------
Future net cash flows before income taxes 4,703 4,006 8,168 3,774 3,138
10% annual discount for estimated timing of cash flows 2,209 1,944 3,907 1,712 1,386
------- ------ -------------
Discounted future net cash flows before income taxes 4,2612,494 2,062 1,7524,261
Future income taxes, net of 10% annual discount 698 654 1,450 613 518
------- ------ -------------
Standardized measure of discounted future net cash flows
relating to oil and gas reserves 1,796 1,408 2,811 1,449 1,234
------- ------ -------------
ALGERIA
Future cash inflows 2,694 3,092 3,263 1,907 835
Future production and development costs 988 743 813 572 323
------- ------ -------------
Future net cash flows before income taxes 1,706 2,349 2,450 1,335 512
10% annual discount for estimated timing of cash flows 1,066 1,382 1,441 836 252
------- ------ -------------
Discounted future net cash flows before income taxes 640 967 1,009 499 260
Future income taxes, net of 10% annual discount 417 214 102364 417
------- ------ -------------
Standardized measure of discounted future net cash flows
relating to oil and gas reserves 426 603 592 285 158
------- ------ -------------
TOTAL
Future cash inflows 10,087 9,592 14,339 7,528 5,507
Future production and development costs 3,678 3,237 3,721 2,419 1,857
------- ------ -------------
Future net cash flows before income taxes 6,409 6,355 10,618 5,109 3,650
10% annual discount for estimated timing of cash flows 3,275 3,326 5,348 2,548 1,638
------- ------ -------------
Discounted future net cash flows before income taxes 3,134 3,029 5,270 2,561 2,012
Future income taxes, net of 10% annual discount 912 1,018 1,867 827 620
------- ------ -------------
Standardized measure of discounted future net cash flows
relating to oil and gas reserves $ 2,222 $2,011 $ 3,403 $1,734 $1,392
------- ------ -------------
6168
6369
ANADARKO PETROLEUM CORPORATION
SUPPLEMENTAL INFORMATION ON OIL AND GAS EXPLORATION
AND PRODUCTION ACTIVITIES
(UNAUDITED)
CHANGES IN STANDARDIZED MEASURE OF DISCOUNTED FUTURE NET CASH FLOWS
RELATING TO PROVED OIL AND GAS RESERVES
1998 1997 1996
1995 1994
millions ---- ---- ---------- ------- -------
UNITED STATES
Beginning of year $1,449 $1,234 $1,224$1,408 $ 2,811 $ 1,449
Sales and transfers of oil and gas produced, net of
production costs (354) (496) (399) (287) (337)
Net changes in prices and development and production costs (412) (2,443) 1,730 293 (361)
Extensions, discoveries, additions and improved recovery,
less
related costs 1,002 330 452 191 226
Development costs incurred during the period 26 30 53 23 9
Revisions of previous quantity estimates (225) (148) 161 20 137
Purchases of minerals in place 96 11 14 42 25
Sales of minerals in place -- -- (11) (60) (39)
Accretion of discount 206 175 177426 206
Net change in income taxes (44) 797 (836)
(95) 26
Other 93 90 (8)
(87) 147
------ ------ ------------- -------
End of year 1,796 1,408 2,811
1,449 1,234
------ ------ ------
CANADA------- -------
ALGERIA
Beginning of year -- -- 30603 592 285
Sales and transfers of oil and gas produced, net of
production costs (10) -- -- (5)
Extensions, discoveries, additions and
improved recovery, less related costs -- -- 1
Purchases of minerals in place -- -- 4
Sales of minerals in place -- -- (48)
Accretion of discount -- -- 4
Net change in income taxes -- -- 14
------ ------ ------
End of year $ -- $ -- $ --
------ ------ ------
62
64
ANADARKO PETROLEUM CORPORATION
SUPPLEMENTAL INFORMATION ON OIL AND GAS EXPLORATION
AND PRODUCTION ACTIVITIES
(UNAUDITED)
CHANGES IN STANDARDIZED MEASURE OF DISCOUNTED FUTURE NET CASH FLOWS
RELATING TO PROVED OIL AND GAS RESERVES -- (CONTINUED)
1996 1995 1994
millions ---- ---- ----
ALGERIA
Beginning of year $ 285 $ 158 $ --
Net changes in prices and development and production costs (514) (491) 260 98 --
Extensions, discoveries, additions and improved recovery,
less
related costs 45 253 166 108 260
Development costs incurred during the period 91 88 29 5 --
Accretion of discount 97 101 50 26 --
Net change in income taxes 150 52 (203)
(112) (102)
Other (36) 8 5
2 -------- ------- ------ -------------
End of year 426 603 592
285 158------ ------- ------ -------------
TOTAL*
Beginning of year 2,011 3,403 1,734 1,392 1,254
Sales and transfers of oil and gas produced, net of
production costs (364) (496) (399) (287) (342)
Net changes in prices and development and production costs (926) (2,934) 1,990 391 (361)
Extensions, discoveries, additions and improved recovery,
less
related costs 1,047 583 618 299 487
Development costs incurred during the period 117 118 82 28 9
Revisions of previous quantity estimates (225) (148) 161 20 137
Purchases of minerals in place 96 11 14 42 29
Sales of minerals in place -- -- (11) (60) (87)
Accretion of discount 303 527 256 201 181
Net change in income taxes 106 849 (1,039)
(207) (62)
Other 57 98 (3)
(85) 147------ ------- ------ -------------
End of year $2,222 $ 2,011 $ 3,403
$1,734 $1,392------ ------- ------ -------------
- ---------------
* Excludes changes in the standardized measure of discounted future net cash
flows for Indonesia reserves which were both added and sold during 1996.
6369
6570
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
See ElectionAnadarko Board of Directors and Section 16(a) Beneficial Ownership
Reporting Compliance in the Anadarko Petroleum Corporation Proxy Statement,
dated March 21, 1997 ("Proxy Statement")22, 1999 (Proxy Statement), which areis incorporated herein by
reference.
See list of Executive Officers of the Registrant appearing under Item 4 of
this Form 10-K.
ITEM 11. EXECUTIVE COMPENSATION
See CompensationAnadarko Board of Directors -- Director Compensation and Compensation
and Benefits Committee Report on 1998 Executive Compensation in the Proxy
Statement, which areis incorporated herein by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
See Voting Securities and Principle Holders -- SecurityStock Ownership of
Management and Security Ownership of Certain Beneficial Owners in the Proxy Statement, which is incorporated herein by
reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
See Voting Securities and Principle Holders -- Transactions with Management and Others in the Proxy Statement, which
is incorporated herein by reference.
6470
6671
PART IV
ITEM 14. EXHIBITS AND REPORTS ON FORM 8-K
(a) The following documents are filed as a part of this report or
incorporated by reference:
(1) The consolidated financial statements of Anadarko Petroleum
Corporation are listed on the Index to this report, page 30.35.
(2) Exhibits not incorporated by reference to a prior filing are
designated by an asterisk (*) and are filed herewith; all exhibits
not so designated are incorporated herein by reference to a prior
filing as indicated.
EXHIBIT ORIGINALLY FILED FILE
NUMBER DESCRIPTION AS EXHIBIT NUMBER
------- ----------- --------------------------------------------------------- ------------------------------- --------
3(a) Restated Certificate of Incorporation of 19(a)(i) to Form 10-Q 1-8968
Anadarko Petroleum Corporation, dated for quarter ended September 30,
August 28, 1986 September 30, 1986
(b) By-laws of Anadarko Petroleum Corporation, 3(b) to Form 10-Q 1-8968
Corporation, as amended for quarter ended
June 30, 1996
4(a) Rights Agreement, dated as of October 4, 429, 4.1 to Form 8-K8-A dated October 5, 1-8968
1988,1998, between Anadarko Petroleum 198830, 1998
Corporation and Manufacturers Hanover
Trust Company,The Chase Manhattan Bank,
Rights Agent
(b) Indenture, dated as of May 10, 1988, 4(a) to Form S-3 Registration 33-21094
between Anadarko Petroleum Corporation Statement
and Statement Continental Illinois National Bank
and Trust Company of Chicago, Trustee
(c) First Supplemental Indenture, dated as of 4(d) to Form 10-K 1-8968
November 15, 1991, between Anadarko for year ended
Petroleum Corporation and Continental December 31, 1991
Bank, National Association, Trustee
(d) RevolvingAmendment to Credit Agreement, dated as of May 4.14(a) to Form S-8 dated July 8,10-Q 1-8968
24, 1994 1994of April 17, 1998 for quarter ended
March 31, 1998
(e) Amendment to Revolving Credit Agreement, 4(e) to Form 10-K for year 1-8968
dated as of May 23, 1995 ended December 31, 1995
*(f) Amendment to Revolving Credit Agreement,
dated as of May 21, 1996
(g) Indenture, dated as of March 1, 1995, 4(a) to Form 10-Q 1-8968
between Anadarko Petroleum Corporation and for the quarter ended
and the Chase Manhattan Bank, N.A., Trustee June 30, 1995
(h)Trustee
(f) Distribution Agreement, dated as of March 4(b) to Form 10-Q 1-8968
9, 1995, for $300,000,000 Medium-Term for the quarter ended
Notes, Series A June 30, 1995
(g) Indenture, dated as of September 1, 1997, 4(j) to Form 10-K 1-8968
between Anadarko Petroleum Corporation for year ended
and Harris Trust and Savings Bank, December 31, 1997
Trustee
10(a) (i) Tax Sharing Agreement, dated September 30, 19(c)(i) to Form 10-Q 1-8968
30, 1986, among Panhandle Eastern Corporation, for quarter ended
Corporation, Centana Energy Corporation and Anadarko September 30, 1986
and Anadarko Petroleum Corporation
(ii) Spin-Off Agreement, dated September 30, 10(a)(iii) to Form 10-K for 1-8968
1986, between Panhandle Eastern year ended December 31, 1988
Corporation and Anadarko Petroleum
Corporation
65
67
EXHIBIT ORIGINALLY FILED FILE
NUMBER DESCRIPTION AS EXHIBIT NUMBER
------- ----------- ---------------- --------
10(a)
(iii) Global Settlement Agreement between 28(a) to Form 10-Q 1-8968
Panhandle Eastern Corporation and Anadarko for quarter ended
Anadarko Petroleum Corporation, dated March 31, 1989
March 31, 1989
71
72
EXHIBIT ORIGINALLY FILED FILE
NUMBER DESCRIPTION AS EXHIBIT NUMBER
------- ----------------------------------------- ------------------------------- --------
10(a) (iv) Agreement for Exploration and 10 to Form 10-Q 1-8968
Exploitation of Liquid Hydrocarbons for quarter ended
between Anadarko Algeria Corporation and March 31, 1997
SONATRACH, dated October 23, 1989
(Confidential treatment requested for
certain provisions pursuant to Rule 24b-2
under the Securities Exchange Act of
1934)
(v) Agreement Concerning the Method of 10(a)(i) to Form 10-Q for 1-8968
Application of the Contract signed on quarter ended September 30,
October 23, 1989 between SONATRACH and 1998
Anadarko Algeria Corporation
(vi) Amendment No. 1 to the Agreement for the 10(a)(ii) to Form 10-Q for 1-8968
Exploration and Exploitation of Liquid quarter ended September 30,
Hydrocarbons between SONATRACH and 1998
Anadarko Algeria Corporation signed
October 23, 1989
DIRECTOR AND EXECUTIVE COMPENSATION PLANS AND ARRANGEMENTS
10(b) (i) Director Deferred Compensation Plan of 10(b)(viii) to Form 10-K for 1-8968
Anadarko Petroleum Corporation, effective for year ended December 31, 1986
January 1, 1987
(ii) Amendment to Anadarko Petroleum 10(b)(ii) to Form 10-K for year 1-8968
Corporation Director Deferred ended December 31, 1986
(ii)1997
Compensation Plan
(iii) Director Deferred Compensation Agreement 19(a)(i) to Form 10-Q for 1-8968
between Anadarko Petroleum Corporation and for quarter ended
each Director electing to participate March 31, 1987
(iii) Anadarko Petroleum Corporationand each Director Electing to Participate
(iv) First Amendment to Director Deferred 10(b)(ix)(iv) to Form 10-K 1-8968
Retirement Income Plan, effective October for year 1-8968
Compensation Agreement 1987, 1988, 1989 ended
1, 1986 December 31, 1986
(iv)1997
and 1990 Plan Years
(v) Anadarko Petroleum Corporation 1988 Stock 19(b) to Form 10-Q for quarter 1-8968
Option Plan for Non-Employee Directors for quarter ended September 30, 1988
EXECUTIVE COMPENSATION PLANS AND ARRANGEMENTS
(v)(vi) Anadarko Petroleum Corporation Amended 99 - Attachment A to Form 10-K 1-8968
and Restated 1988 Stock Option Plan for for year ended December 31,
Non-Employee Directors 1993
(vii) Amendment to Anadarko Petroleum 10(b)(vii) to Form 10-K for 1-8968
Corporation 1988 Stock Option Plan for year ended December 31, 1997
Non-Employee Directors
(viii) Second Amendment to Anadarko Petroleum 10(b)(viii) to Form 10-K for 1-8968
Corporation 1988 Stock Option Plan for year ended December 31, 1997
Non-Employee Directors
(ix) 1998 Director Stock Plan of Anadarko 99 - Attachment A to Form 10-K 1-8968
Petroleum Corporation, effective January for year ended December 31,
30, 1998 1997
(x) Anadarko Petroleum Corporation and 19(c)(ix) to Form 10-Q for 1-8968
Participating Affiliates and Subsidiaries for quarter ended September 30,
Annual Override Pool Bonus Plan, as September 30, 1986
amended October 6, 1986
(vi)(xi) Second Amendment to Anadarko Petroleum 10(b)(ii) to Form 10-K for year 1-8968
Corporation and Participating Affiliates for year ended December 31, 1987
and Subsidiaries Annual Override Pool
December 31, 1987
Bonus Plan
(vii) Anadarko Petroleum Corporation 1986 StockBonus Plan
72
73
EXHIBIT ORIGINALLY FILED FILE
NUMBER DESCRIPTION AS EXHIBIT NUMBER
------- ----------------------------------------- ------------------------------- --------
10(b)(vi) to Form 10-K 1-8968
Option Plan, as amended October 28, 1987 for year ended
(and Related Agreement) December 31, 1987
(viii) (xii) Restatement of the Anadarko Petroleum Post Effective Amendment No. 1 33-22134
Corporation 1987 Stock Option Plan (and to Forms S-8 and S-3, Anadarko
(and
Related Agreement) Petroleum Corporation 1987
Stock Option Plan
(ix)(xiii) First Amendment to Restatement of the 10(b)(xii) to Form 10-K for 1-8968
Anadarko Petroleum Corporation 1987 Stock year ended December 31, 1997
Option Plan
(xiv) 1993 Stock Incentive Plan 10(b)(xii) to Form 10-K for 1-8968
year ended December 31, 1993
(x)(xv) First Amendment to Anadarko Petroleum 99 - Attachment A to Form 10-K 1-8968
Corporation 1993 Stock Incentive Plans for year ended December 31,
1996
(xvi) Second Amendment to Anadarko Petroleum 10(b)(xv) to Form 10-K for year 1-8968
Corporation 1993 Stock Incentive Plan ended December 31, 1997
(xvii) Anadarko Petroleum Corporation 1993 Stock 10(a) to Form 10-Q for quarter 1-8968
Incentive Plan Stock Option Agreement for quarter ended March 31, 1996
(xi)(xviii) Form of Anadarko Petroleum Corporation 10(b)(xvii) to Form 10-K for 1-8968
1993 Stock Incentive Plan Stock Option year ended December 31, 1997
Agreement
(xix) Form of Anadarko Petroleum Corporation 10(b)(xviii) to Form 10-K for 1-8968
1993 Stock Incentive Plan Restricted year ended December 31, 1997
Stock Agreement
(xx) Anadarko Petroleum Corporation 1993 Stock 10(b) to Form 10-Q for quarter 1-8968
Incentive Plan Performance Share ended March 31, 1996
Agreement
(xxi) Form of Anadarko Petroleum Corporation 10(b)(xx) to Form 10-K for year 1-8968
1993 Stock Incentive Plan Performance ended December 31, 1997
Share Agreement
(xxii) Annual Incentive Bonus Plan 10(b)(xiii) to Form 10-K for 1-8968
for
year ended December 31, 1993
(xii) Anadarko Petroleum Corporation 1993 Stock(xxiii) Key Employee Change of Control Contract 10(b)(xxii) to Form 10-Q10-K for 1-8968
Incentive Plan Performance Share Agreement for quarteryear ended MarchDecember 31, 1996
(xiii) Agreement between Employee and Anadarko 28(c) to Form 10-Q 1-8968
Petroleum Corporation related to Change in for quarter ended
Control, Death or Disability, or September 30, 1987
Termination Without Cause
66
68
10(b) (xiv) Anadarko Petroleum Corporation Key 19(c)(v) to Form 10-Q 1-8968
Employee Contract of Employment for quarter ended
September 30, 1986
(xv) Restatement of Key Employee Contract of Employment 19(a) to Form 10-Q 1-8968
for quarter ended
June 30, 1988
(xvi) Restatement of Key Employee Contract of Employment 19(a) to Form 10-Q 1-8968
Amended October 27, 1988 for quarter ended
September 30, 1988
(xvii)1997
(xxiv) Executive Deferred Compensation Plan of Anadarko 10(b)(xii) to Form 10-K for 1-8968
Anadarko Petroleum Corporation and Participating Subsidiaries for year ended
and Affiliates, December 31, 1987
Participating Subsidiaries and
Affiliates, effective October 1, 1986
(xviii)(xxv) Executive Deferred Compensation Plan of Anadarko 10(b)(vi) to Form 10-K for year 1-8968
Anadarko Petroleum Corporation, effective ended December 31, 1986
January 1, 1987
(xxvi) Amendment to Anadarko Petroleum 10(b)(xxv) to Form 10-K for 1-8968
Corporation Executive Deferred year ended December 31, 1986
(xix)1997
Compensation Plan
(xxvii) Executive Deferred Compensation Agreement between 19(a)(ii) to Form 10-Q for 1-8968
between Anadarko Petroleum Corporation quarter ended March 31, 1987
and each Executive Electing to
Participate
73
74
EXHIBIT ORIGINALLY FILED FILE
NUMBER DESCRIPTION AS EXHIBIT NUMBER
------- ----------------------------------------- ------------------------------- --------
10(b) (xxviii) First Amendment to Executive Deferred 10(b)(xxvii) to Form 10-K for 1-8968
Compensation Agreement 1987, 1988, 1989 year ended December 31, 1997
and 1990 Plan Years
(xxix) Amendments to Executive Deferred 10(b)(xv) to Form 10-K for year 1-8968
Compensation Agreement between Anadarko ended December 31, 1987
Petroleum Corporation and each Executive
for quarter ended
electingElecting to participate March 31, 1987
(xx) Amendments to Executive Deferred Compensation 10(b)(xv) to Form 10-K 1-8968
Agreement between Anadarko Petroleum Corporation and for year ended
each Executive electing to participate December 31, 1987
(xxi)Participate
(xxx) Anadarko Retirement Restoration Plan, 10(b)(xix) to Form 10-K for 1-8968
effective January 1, 1995 for year ended December 31, 1995
(xxii)(xxxi) Anadarko Savings Restoration Plan, effective January 10(b)(xx) to Form 10-K for year 1-8968
effective January 1, 1995 ended December 31, 1995
(xxxii) Amendment to Amended and Restated 10(b)(xxxi) to Form 10-K for 1-8968
Anadarko Savings Restoration Plan year ended December 31, 1995
(xxiii)1997
(xxxiii) Plan Agreement for the Management Life Insurance Plan 10(b)(xxi) to Form 10-K for 1-8968
Insurance Plan between Anadarko Petroleum year ended December 31, 1995
Corporation and each for year ended Eligible Employee,
effective July 1, 1995
December 31, 1995
10(c) (i) Purchase and Sale Agreement by and between Atlantic 10(c)(i) to Form 8-K 1-8968
Richfield Company, a Delaware corporation, as Seller dated January 13, 1993
and* (xxxiv) Anadarko Petroleum Corporation a Delaware
corporation, as Purchaser, dated December 8, 1992Estate
Enhancement Program
* (xxxv) Estate Enhancement Program Agreement
between Anadarko Petroleum Corporation
and Eligible Executives
*12 Computation of Ratios of Earnings to Fixed Charges
and Earnings to
Combined Fixed Charges and Preferred
Stock Dividends
*13 Portions of the Anadarko Petroleum
Corporation 19961998 Annual Report to
Stockholders
67
69
EXHIBIT ORIGINALLY FILED FILE
NUMBER DESCRIPTION AS EXHIBIT NUMBER
------- ----------- ---------------- --------
*21 List of Significant Subsidiaries:
Anadarko Gathering Company, a Delaware
corporation,
Anadarko Energy Services Company
(formerly Anadarko Trading Company),
a Delaware corporation,
Anadarko Algeria Corporation,
a Delaware corporationSubsidiaries
*23 Consents of Experts and Counsel
Consent of KPMG Peat Marwick LLP
*24 Powers of Attorney
*27 Financial Data Schedule
*9999 Anadarko Petroleum Corporation Proxy Filed on March 11, 1999
Statement, dated March 21, 199722, 1999
- ---------------
The total amount of securities of the registrant authorized under any instrument
with respect to long-term debt not filed as an Exhibit does not exceed ten
percent of the total assets of the registrant and its subsidiaries on a
consolidated basis. The registrant agrees, upon request of the Securities and
Exchange Commission, to furnish copies of any or all of such instruments to the
Securities and Exchange Commission.
(B)(b) REPORTS ON FORM 8-K
There were no reports filedA report on Form 8-K duringdated November 10, 1998 was filed in which the
three months ended
December 31, 1996.
68earliest event reported was October 29, 1998. This event was reported under Item
5, "Other Events", and Item 7, "Financial Statements and Exhibits".
74
7075
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF SECTION 13 OR 15(D)15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934, THE REGISTRANT HAS DULY CAUSED THIS REPORT TO BE SIGNED ON
ITS BEHALF BY THE UNDERSIGNED, THEREUNTO DULY AUTHORIZED.
ANADARKO PETROLEUM CORPORATION
March 11, 199712, 1999 By: /s/ MICHAEL E. ROSE
----------------------------------
Michael(Michael E. Rose, Senior Vice
President,
Finance and Chief Financial
Officer)
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES EXCHANGE ACT OF 1934, THIS
REPORT HAS BEEN SIGNED BELOW BY THE FOLLOWING PERSONS ON BEHALF OF THE
REGISTRANT AND IN THE CAPACITIES INDICATED ON MARCH 11, 1997.12, 1999.
NAME AND SIGNATURE TITLE
------------------ -----
(i) Principal executive officer:*
ROBERT J. ALLISON, JR. Chairman of the Board, President and Chief
----------------------------------------------------- Executive Officer
(Robert J. Allison, Jr.)
(ii) Principal financial officer:*
MICHAEL E. ROSE Senior Vice President, Finance and Chief
----------------------------------------------------- Financial Officer
(Michael E. Rose)
(iii) Principal accounting officer:*
JAMES R. LARSON Vice President and Controller
-----------------------------------------------------
(James R. Larson)
(iv) Directors:*
ROBERT J. ALLISON, JR.
CONRAD P. ALBERT
LARRY BARCUS
RONALD BROWN
JAMES L. BRYAN
JOHN R. BUTLER, JR.
JOHN R. GORDON
CHARLES M. SIMMONS
- ---------------JOHN N. SEITZ
- -----
* Signed on behalf of each of these persons and on his own behalf:
/s/ By MICHAEL E. ROSE
-----------------------------------------------------------------------------------------------------------
(Michael E. Rose, Attorney-in-Fact)
6975
7176
STOCKHOLDERS' INFORMATION
The common stock of Anadarko Petroleum Corporation is traded on the New
York Stock Exchange. Average daily trading volume was 627,000 shares in 1998,
531,000 shares in 1997 and 453,000 shares in 1996.
The ticker symbol for Anadarko is APC and daily stock reports published in
local newspapers carry trading summaries for the Company under the headings
ANADRK or ANADRKPETE.
The following shows information regarding the closing market price of and
dividends paid on the Company's common stock by quarter for 1998 and 1997.
FIRST SECOND THIRD FOURTH
QUARTER QUARTER QUARTER QUARTER
------- ------- ------- -------
1998*
MARKET PRICE
High $34.63 $37.91 $43.19 $ 40.94
Low $26.44 $30.31 $28.75 $ 25.69
Dividends $0.0375 $0.050 $0.050 $ 0.050
1997*
MARKET PRICE
High $36.13 $32.81 $37.84 $ 38.13
Low $27.31 $25.44 $30.75 $ 28.59
Dividends $0.0375 $0.0375 $0.0375 $0.0375
- ---------------
* In April 1998, the Board of Directors approved a two-for-one stock split. The
stock split was effected by way of a stock dividend. The distribution date was
July 1, 1998 to stockholders of record on June 15, 1998. All amounts shown
above have been restated to reflect the stock split.
STOCKHOLDER SERVICES
The transfer agent and registrar for Anadarko common stock is ChaseMellon
Shareholder Services, L.L.C. Stockholders who need assistance with their
accounts or wish to eliminate duplicate mailings should call (800) 851-9677
within the continental U.S. or write:
ChaseMellon Shareholder Services, L.L.C.
Overpeck Centre
85 Challenger Rd.
Ridgefield Park, NJ 07660
Website: www.chasemellon.com
Anadarko offers a Dividend Reinvestment and Stock Purchase Plan (DRIP) to
its stockholders. The DRIP provides an opportunity to reinvest dividends and
offers an alternative to traditional methods of buying, holding and selling
Anadarko common stock. For more information about Anadarko's DRIP, please
contact ChaseMellon Shareholder Services at 1-888-470-5786.
ANADARKO WILL MAKE AVAILABLE TO ANY STOCKHOLDER, WITHOUT CHARGE, ADDITIONAL
COPIES OF ITS 1998 REPORT ON FORM 10-K AS FILED WITH THE SECURITIES AND EXCHANGE
COMMISSION. FOR ADDITIONAL COPIES OF THIS OR ANY ANADARKO PUBLICATION, PLEASE
CONTACT:
Anadarko Petroleum Corporation
Corporate Communications Department
P.O. Box 1330
Houston, Texas 77251-1330
Telephone: (281) 874-3498
As a service to our stockholders, copies of the Company's news releases can
be transmitted at no charge via fax by calling 1-800-758-5804 ext. 038950 or
through our website at www.anadarko.com.
76
77
ANNUAL STOCKHOLDERS' MEETING
All stockholders are cordially invited to attend Anadarko's annual
stockholders' meeting which will be held at 9:30 a.m. on Thursday, April 29,
1999 at The Wyndham Hotel-Greenspoint at 12400 Greenspoint Drive in Houston.
FOR MORE INFORMATION
If you have questions or need additional information concerning Anadarko's
operations or financial results, please contact Paul Taylor, Vice President,
Corporate Communications, at (281) 874-3471.
77
78
INDEX TO EXHIBITS
EXHIBIT
NUMBER DESCRIPTION
------- -----------
4(f)
EXHIBIT ORIGINALLY FILED FILE
NUMBER DESCRIPTION AS EXHIBIT NUMBER
------- ----------------------------------------- ------------------------------- --------
3(a) Restated Certificate of Incorporation of 19(a)(i) to Form 10-Q 1-8968
Anadarko Petroleum Corporation, dated for quarter ended September 30,
August 28, 1986 1986
(b) By-laws of Anadarko Petroleum 3(b) to Form 10-Q 1-8968
Corporation, as amended for quarter ended
June 30, 1996
4(a) Rights Agreement, dated as of October 29, 4.1 to Form 8-A dated October 1-8968
1998, between Anadarko Petroleum 30, 1998
Corporation and The Chase Manhattan Bank,
Rights Agent
(b) Indenture, dated as of May 10, 1988, 4(a) to Form S-3 Registration 33-21094
between Anadarko Petroleum Corporation Statement
and Continental Illinois National Bank
and Trust Company of Chicago, Trustee
(c) First Supplemental Indenture, dated as of 4(d) to Form 10-K 1-8968
November 15, 1991, between Anadarko for year ended
Petroleum Corporation and Continental December 31, 1991
Bank, National Association, Trustee
(d) Amendment to Revolving Credit Agreement, dated as 4(a) to Form 10-Q 1-8968
of April 17, 1998 for quarter ended
March 31, 1998
(e) Indenture, dated as of March 1, 1995, 4(a) to Form 10-Q 1-8968
between Anadarko Petroleum Corporation for quarter ended
and the Chase Manhattan Bank, N.A., June 30, 1995
Trustee
(f) Distribution Agreement, dated as of March 4(b) to Form 10-Q 1-8968
9, 1995, for $300,000,000 Medium-Term for quarter ended
Notes, Series A June 30, 1995
(g) Indenture, dated as of September 1, 1997, 4(j) to Form 10-K 1-8968
between Anadarko Petroleum Corporation for year ended
and Harris Trust and Savings Bank, December 31, 1997
Trustee
10(a) (i) Tax Sharing Agreement, dated September 19(c)(i) to Form 10-Q 1-8968
30, 1986, among Panhandle Eastern for quarter ended
Corporation, Centana Energy Corporation September 30, 1986
and Anadarko Petroleum Corporation
(ii) Spin-Off Agreement, dated September 30, 10(a)(iii) to Form 10-K for 1-8968
1986, between Panhandle Eastern year ended December 31, 1988
Corporation and Anadarko Petroleum
Corporation
(iii) Global Settlement Agreement between 28(a) to Form 10-Q 1-8968
Panhandle Eastern Corporation and for quarter ended
Anadarko Petroleum Corporation, dated March 31, 1989
March 31, 1989
10(a) (iv) Agreement for Exploration and 10 to Form 10-Q 1-8968
Exploitation of Liquid Hydrocarbons for quarter ended
between Anadarko Algeria Corporation and March 31, 1997
SONATRACH, dated October 23, 1989
(Confidential treatment requested for
certain provisions pursuant to Rule 24b-2
under the Securities Exchange Act of
1934)
79
EXHIBIT ORIGINALLY FILED FILE
NUMBER DESCRIPTION AS EXHIBIT NUMBER
------- ----------------------------------------- ------------------------------- --------
(v) Agreement Concerning the Method of 10(a)(i) to Form 10-Q for 1-8968
Application of the Contract signed on quarter ended September 30,
October 23, 1989 between SONATRACH and 1998
Anadarko Algeria Corporation
(vi) Amendment No. 1 to the Agreement for the 10(a)(ii) to Form 10-Q for 1-8968
Exploration and Exploitation of Liquid quarter ended September 30,
Hydrocarbons between SONATRACH and 1998
Anadarko Algeria Corporation signed
October 23, 1989
DIRECTOR AND EXECUTIVE COMPENSATION PLANS AND ARRANGEMENTS
10(b) (i) Director Deferred Compensation Plan of 10(b)(viii) to Form 10-K for 1-8968
Anadarko Petroleum Corporation, effective year ended December 31, 1986
January 1, 1987
(ii) Amendment to Anadarko Petroleum 10(b)(ii) to Form 10-K for year 1-8968
Corporation Director Deferred ended December 31, 1997
Compensation Plan
(iii) Director Deferred Compensation Agreement 19(a)(i) to Form 10-Q for 1-8968
between Anadarko Petroleum Corporation quarter ended March 31, 1987
and each Director Electing to Participate
(iv) First Amendment to Director Deferred 10(b)(iv) to Form 10-K for year 1-8968
Compensation Agreement 1987, 1988, 1989 ended December 31, 1997
and 1990 Plan Years
(v) Anadarko Petroleum Corporation 1988 Stock 19(b) to Form 10-Q for quarter 1-8968
Option Plan for Non-Employee Directors ended September 30, 1988
(vi) Anadarko Petroleum Corporation Amended 99 - Attachment A to Form 10-K 1-8968
and Restated 1988 Stock Option Plan for for year ended December 31,
Non-Employee Directors 1993
(vii) Amendment to Anadarko Petroleum 10(b)(vii) to Form 10-K for 1-8968
Corporation 1988 Stock Option Plan for year ended December 31, 1997
Non-Employee Directors
(viii) Second Amendment to Anadarko Petroleum 10(b)(viii) to Form 10-K for 1-8968
Corporation 1988 Stock Option Plan for year ended December 31, 1997
Non-Employee Directors
(ix) 1998 Director Stock Plan of Anadarko 99 - Attachment A to Form 10-K 1-8968
Petroleum Corporation, effective January for year ended December 31,
30, 1998 1997
(x) Anadarko Petroleum Corporation and 19(c)(ix) to Form 10-Q for 1-8968
Participating Affiliates and Subsidiaries quarter ended September 30,
Annual Override Pool Bonus Plan, as 1986
amended October 6, 1986
(xi) Second Amendment to Anadarko Petroleum 10(b)(ii) to Form 10-K for year 1-8968
Corporation and Participating Affiliates ended December 31, 1987
and Subsidiaries Annual Override Pool
Bonus Plan
10(b) (xii) Restatement of the Anadarko Petroleum Post Effective Amendment No. 1 33-22134
Corporation 1987 Stock Option Plan (and to Forms S-8 and S-3, Anadarko
Related Agreement) Petroleum Corporation 1987
Stock Option Plan
80
EXHIBIT ORIGINALLY FILED FILE
NUMBER DESCRIPTION AS EXHIBIT NUMBER
------- ----------------------------------------- ------------------------------- --------
(xiii) First Amendment to Restatement of the 10(b)(xii) to Form 10-K for 1-8968
Anadarko Petroleum Corporation 1987 Stock year ended December 31, 1997
Option Plan
(xiv) 1993 Stock Incentive Plan 10(b)(xii) to Form 10-K for 1-8968
year ended December 31, 1993
(xv) First Amendment to Anadarko Petroleum 99 - Attachment A to Form 10-K 1-8968
Corporation 1993 Stock Incentive Plans for year ended December 31,
1996
(xvi) Second Amendment to Anadarko Petroleum 10(b)(xv) to Form 10-K for year 1-8968
Corporation 1993 Stock Incentive Plan ended December 31, 1997
(xvii) Anadarko Petroleum Corporation 1993 Stock 10(a) to Form 10-Q for quarter 1-8968
Incentive Plan Stock Option Agreement ended March 31, 1996
(xviii) Form of Anadarko Petroleum Corporation 10(b)(xvii) to Form 10-K for 1-8968
1993 Stock Incentive Plan Stock Option year ended December 31, 1997
Agreement
(xix) Form of Anadarko Petroleum Corporation 10(b)(xviii) to Form 10-K for 1-8968
1993 Stock Incentive Plan Restricted year ended December 31, 1997
Stock Agreement
(xx) Anadarko Petroleum Corporation 1993 Stock 10(b) to Form 10-Q for quarter 1-8968
Incentive Plan Performance Share ended March 31, 1996
Agreement
(xxi) Form of Anadarko Petroleum Corporation 10(b)(xx) to Form 10-K for year 1-8968
1993 Stock Incentive Plan Performance ended December 31, 1997
Share Agreement
(xxii) Annual Incentive Bonus Plan 10(b)(xiii) to Form 10-K for 1-8968
year ended December 31, 1993
(xxiii) Key Employee Change of Control Contract 10(b)(xxii) to Form 10-K for 1-8968
year ended December 31, 1997
(xxiv) Executive Deferred Compensation Plan of 10(b)(xii) to Form 10-K for 1-8968
Anadarko Petroleum Corporation and year ended December 31, 1987
Participating Subsidiaries and
Affiliates, effective October 1, 1986
(xxv) Executive Deferred Compensation Plan of 10(b)(vi) to Form 10-K for year 1-8968
Anadarko Petroleum Corporation, effective ended December 31, 1986
January 1, 1987
(xxvi) Amendment to Anadarko Petroleum 10(b)(xxv) to Form 10-K for 1-8968
Corporation Executive Deferred year ended December 31, 1997
Compensation Plan
(xxvii) Executive Deferred Compensation Agreement 19(a)(ii) to Form 10-Q for 1-8968
between Anadarko Petroleum Corporation quarter ended March 31, 1987
and each Executive Electing to
Participate
10(b) (xxviii) First Amendment to Executive Deferred 10(b)(xxvii) to Form 10-K for 1-8968
Compensation Agreement 1987, 1988, 1989 year ended December 31, 1997
and 1990 Plan Years
81
EXHIBIT ORIGINALLY FILED FILE
NUMBER DESCRIPTION AS EXHIBIT NUMBER
------- ----------------------------------------- ------------------------------- --------
(xxix) Amendments to Executive Deferred 10(b)(xv) to Form 10-K for year 1-8968
Compensation Agreement between Anadarko ended December 31, 1987
Petroleum Corporation and each Executive
Electing to Participate
(xxx) Anadarko Retirement Restoration Plan, 10(b)(xix) to Form 10-K for 1-8968
effective January 1, 1995 year ended December 31, 1995
(xxxi) Anadarko Savings Restoration Plan, 10(b)(xx) to Form 10-K for year 1-8968
effective January 1, 1995 ended December 31, 1995
(xxxii) Amendment to Amended and Restated 10(b)(xxxi) to Form 10-K for 1-8968
Anadarko Savings Restoration Plan year ended December 31, 1997
(xxxiii) Plan Agreement for the Management Life 10(b)(xxi) to Form 10-K for 1-8968
Insurance Plan between Anadarko Petroleum year ended December 31, 1995
Corporation and each Eligible Employee,
effective July 1, 1995
* (xxxiv) Anadarko Petroleum Corporation Estate
Enhancement Program
* (xxxv) Estate Enhancement Program Agreement
between Anadarko Petroleum Corporation
and Eligible Executives
*12 Computation of Ratios of Earnings to
Combined Fixed Charges and Preferred
Stock Dividends
*13 Portions of the Anadarko Petroleum
Corporation 1998 Annual Report to
Stockholders
*21 List of Significant Subsidiaries
*23 Consents of Experts and Counsel
Consent of KPMG LLP
*24 Powers of Attorney
*27 Financial Data Schedule
99 Anadarko Petroleum Corporation Proxy Filed on March 11, 1999
Statement, dated March 22, 1999
- ---------------
The total amount of May 21, 1996
12 Computation of Ratios of Earnings to Fixed Charges and Earnings
to Combined Fixed Charges and Preferred Stock Dividends
13 Portionssecurities of the Anadarko Petroleum Corporation 1996 Annual
Reportregistrant authorized under any instrument
with respect to Stockholders
23 Consentslong-term debt not filed as an Exhibit does not exceed ten
percent of Expertsthe total assets of the registrant and Counsel
Consentits subsidiaries on a
consolidated basis. The registrant agrees, upon request of KPMG Peat Marwick LLP
24 Powersthe Securities and
Exchange Commission, to furnish copies of Attorney
27 Financial Data Schedule
99 Anadarko Petroleum Corporation Proxy Statement, dated
March 21, 1997
any or all of such instruments to the
Securities and Exchange Commission.