UNITED STATES SECURITIES AND EXCHANGE COMMISSION

                          Washington, D. C. 20549

                                 FORM 10-Q

          QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
                      SECURITIES EXCHANGE ACT OF 1934

                 For the Quarter Ended JuneSeptember 30, 2000
                        Commission File No. 1-8968



                      ANADARKO PETROLEUM CORPORATION
            17001 Northchase Drive, Houston, Texas  77060-2141
                              (281) 875-1101


       Incorporated in the                Employer Identification
        State of Delaware                     No. 76-0146568






     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 _____

     The number of shares outstanding and entitled to vote of the Company's common stock as
of July 13,October 31, 2000 is shown below:

                                              Number of Shares
            Title of Class                       Outstanding

Common Stock, par value $0.10 per share          128,367,439248,785,417





                         PART I.  FINANCIAL INFORMATION

Item 1.  Financial Statements
ANADARKO PETROLEUM CORPORATION CONSOLIDATED STATEMENT OF INCOME AND COMPREHENSIVE INCOME (Unaudited)
Three Months Ended SixNine Months Ended thousandsmillions, except JuneSeptember 30 JuneSeptember 30 per share amounts 2000 1999 2000 1999 Revenues Gas sales $152,583$503.7 $ 83,806 $254,726 $161,64698.2 $ 758.4 $259.8 Oil and condensate sales 114,140 58,061 215,891 101,641339.7 55.1 555.6 156.7 Natural gas liquids sales 84.5 26.4 164.6 58.6 Minerals and other 39,620 19,652 82,777 34,59628.2 0.6 30.5 2.3 Total 306,343 161,519 553,394 297,883 Cost956.1 180.3 1,509.1 477.4 Costs and Expenses Operating expenses 45,808 34,440 88,747 68,496119.8 35.2 208.6 103.7 Administrative and general 30,076 23,195 60,162 47,60443.7 24.6 103.9 72.2 Depreciation, depletion and amortization 61,941 53,938 119,249 110,462215.6 51.7 334.8 162.2 Other taxes 13,385 8,524 24,706 17,75752.2 9.7 76.8 27.4 Provision for doubtful 23.3 --- 23.3 --- accounts Impairments related to international properties --- --- --- 20,00020.0 Amortization of goodwill 11.3 --- 11.3 --- Total 151,210 120,097 292,864 264,319465.9 121.2 758.7 385.5 Operating Income 155,133 41,422 260,530 33,564490.2 59.1 750.4 91.9 Other (Income) Expense Merger expenses 63.7 --- 63.7 --- Interest Expense 20,524 18,504 41,618 37,142expense 27.9 17.9 69.5 55.0 Other (income) expense (29.0) 0.4 (29.3) (0.3) Total 62.6 18.3 103.9 54.7 Income (Loss) Before Income Taxes 134,609 22,918 218,912 (3,578)427.6 40.8 646.5 37.2 Income Taxes 56,941 12,226 99,445 6,085179.2 19.3 278.6 25.4 Net Income (Loss)$248.4 $ 77,66821.5 $ 10,692 $119,467367.9 $ (9,663)11.8 Preferred Stock Dividends 2,730 2,730 5,460 5,4602.7 2.7 8.2 8.1 Net Income (Loss) Available to Common Stockholders $245.7 $ 74,93818.8 $ 7,962 $114,007 $(15,123)359.7 $ 3.7 Comprehensive Income - Net of Tax Foreign currency translation adjustments 1.8 --- 1.8 --- Comprehensive Income $247.5 $ 18.8 $ 361.5 $ 3.7 Per Common Share Net income (loss) - basic $ 0.581.07 $ 0.060.15 $ 0.892.22 $ (0.12)0.03 Net income (loss) - diluted $ 0.561.03 $ 0.060.15 $ 0.862.14 $ (0.12)0.03 Dividends $ 0.05 $ 0.05 $ 0.100.15 $ 0.100.15 Average Number of Common Shares Outstanding 128,260 125,255 128,153 122,874230.4 127.4 162.2 124.4
See accompanying notes to consolidated financial statements. -2- Item 1. Financial Statements (continued)
ANADARKO PETROLEUM CORPORATION CONSOLIDATED BALANCE SHEET (Unaudited)
Junemillions, except September 30, December 31, thousandsshare amounts 2000 1999 ASSETS Current Assets Cash and cash equivalents $ 4,639129.2 $ 44,76944.8 Accounts receivable, 388,697 259,658net of allowance 835.0 259.6 Inventories 51,111 46,090 Prepaid expenses 5,029 5,42598.3 46.1 Other current assets 41.2 5.4 Total 449,476 355,9421,103.7 355.9 Properties and Equipment Original cost 6,361,229 5,917,19515,253.8 5,917.2 Less accumulated depreciation, depletion and amortization 2,348,890 2,236,0442,578.6 2,236.0 Net properties and equipment - based on the full cost method of accounting for oil and gas properties 4,012,339 3,681,151 Deferred Charges 106,547 61,270 $4,568,362 $4,098,36312,675.2 3,681.2 Other Assets 285.4 61.3 Goodwill, net of amortization 1,027.3 --- $15,091.6 $4,098.4
See accompanying notes to consolidated financial statements. -3- Item 1. Financial Statements (continued)
ANADARKO PETROLEUM CORPORATION CONSOLIDATED BALANCE SHEET (continued) (Unaudited)
Junemillions, except September 30, December 31, thousandsshare amounts 2000 1999 LIABILITIES AND STOCKHOLDERS' EQUITY Current Liabilities Accounts payable Trade and other $ 343,659832.3 $ 298,589298.6 Banks 26,585 26,44687.1 26.4 Accrued expenses Interest 17,102 19,94987.3 20.0 Taxes and other 38,548 42,187164.1 42.2 Total 425,894 387,1711,170.8 387.2 Long-term Debt 1,655,818 1,443,322 Deferred Credits4,024.2 1,443.3 Other Long-term Liabilities Deferred income taxes 669,531 576,8043,261.3 576.8 Other 150,452 156,512391.7 156.5 Total 819,983 733,3163,653.0 733.3 Stockholders' Equity Preferred stock, par value $1.00 (2,000,000 shares authorized, 200,000 shares issued as of JuneSeptember 30, 2000 and December 31, 1999) 200,000 200,000200.0 200.0 Common stock, par value $0.10 (300,000,000(450,000,000 shares authorized, 130,365,310251,060,146 and 129,620,333 shares issued as of JuneSeptember 30, 2000 and December 31, 1999, respectively) 13,037 12,96225.1 13.0 Paid-in capital 696,075 633,9575,170.3 633.9 Retained earnings (as of JuneSeptember 30, 2000, retained earnings were not restricted as to the payment of dividends) 864,666 763,4801,097.9 763.5 Deferred compensation (6,298) (7,907)(46.7) (7.9) Unearned employee stock ownership plan (1,153,673 shares as of September 30, (72.8) --- 2000) Executives and Directors Benefits Trust, at market value (2,000,000 shares as of JuneSeptember 30, 2000 and December 31, (132.0) (67.9) 1999) (100,813) (67,938)Treasury stock (39 shares as of September 30, 2000) --- --- Accumulated other comprehensive income - foreign currency translation 1.8 --- adjustments Total 1,666,667 1,534,554 $4,568,362 $4,098,3636,243.6 1,534.6 $15,091.6 $4,098.4
See accompanying notes to consolidated financial statements. -4- Item 1. Financial Statements (continued)
ANADARKO PETROLEUM CORPORATION CONSOLIDATED STATEMENT OF CASH FLOWS (Unaudited)
SixNine Months Ended JuneSeptember 30 thousandsmillions 2000 1999 Cash Flow from Operating Activities Net income (loss) $119,467$367.9 $ (9,663)11.8 Adjustments to reconcile net income (loss) to net cash provided by operating activities: Depreciation, depletion and amortization 119,249 110,462335.7 163.4 Amortization of restricted stock 808 715goodwill 11.3 --- Non-cash merger expense 30.8 --- Interest expense - zero coupon debentures 3,821 --6.9 --- Deferred U.S. income taxes 61,570 (5,353)191.9 8.8 Provision for doubtful accounts 23.3 --- Impairments of international properties -- 20,000 304,915 116,161--- 20.0 Other non-cash items (24.5) --- 943.3 204.0 Increase in accounts receivable (129,039) (2,218)(155.7) (30.3) Increase in inventories (5,021) (4,315) Increase (decrease)(6.1) (2.0) Decrease in accounts payable - trade and other and accrued expenses 38,584 (51,778)(23.3) (39.5) Other items - net (18,804) (10,643)85.7 (6.2) Net cash provided by operating activities 190,635 47,207843.9 126.0 Cash Flow from Investing Activities Additions to properties and equipment (450,654) (261,024)(976.5) (431.6) Sales and retirements of properties and equipment 217 102,67842.6 102.5 Acquisition costs, net of cash acquired (55.4) --- Proceeds from the sale of assets to be leased, net -- 3,777--- 3.8 Net cash used in investing activities (450,437) (154,569)(989.3) (325.3) Cash Flow from Financing Activities Additions to debt 344,724 300,000344.7 300.0 Retirements of debt (136,049) (419,587)(277.5) (320.1) Issuance of common stock 29,139 259,002176.7 260.7 Increase (decrease) in accounts payable, banks 139 (14,342)19.3 (16.6) Dividends paid (18,281) (17,858)(33.4) (26.9) Net cash provided by financing activities 219,672 107,215229.8 197.1 Net DecreaseIncrease (Decrease) in Cash and Cash Equivalents (40,130) (147)84.4 (2.2) Cash and Cash Equivalents at Beginning of 44.8 17.0 Period 44,769 17,008 Cash and Cash Equivalents at End of Period $129.2 $ 4,639 $ 16,86114.8
See accompanying notes to consolidated financial statements. -5- Item 1. Financial Statements (continued) ANADARKO PETROLEUM CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) 1. Summary of Accounting Policies General Anadarko Petroleum Corporation is engaged primarily in the exploration, development, production and marketing of natural gas, crude oil, condensate and natural gas liquids (NGLs). On July 14, 2000, Union Pacific Resources Group Inc. (UPR) merged with Anadarko Petroleum Corporation. See Note 2. The terms "Anadarko" and "Company" refer to Anadarko Petroleum Corporation and its subsidiaries. The principal subsidiaries of Anadarko are: UPR; Anadarko Algeria Corporation; Anadarko Canada Corporation; Anadarko Energy Services Company; and, Anadarko Gathering Company. Certain amounts have been reclassified to conform to the current presentation. The portion of gathering revenues, processing revenues and the margin related to oil and gas marketing activities has been reported as a net addition to oil and gas revenues in the accompanying statement of income. Goodwill Goodwill represents the excess of the purchase price over the estimated fair value of the assets acquired and liabilities assumed in the merger with UPR and is being amortized on a straight-line basis over 20 years. The Company reviews goodwill to determine if there has been any impairment. Any impairment would be charged to expense in the period identified. 2. Merger Transaction On April 2, 2000, Anadarko and UPR entered into a Merger Agreement. On July 13, 2000, the stockholders of both companies approved the merger transaction. Each share of common stock of UPR issued and outstanding was converted into 0.455 shares of Anadarko common stock. The merger was treated as a tax-free reorganization and accounted for as a purchase business combination under generally accepted accounting principles. Under this method of accounting, the Company's historical operating results for periods prior to the merger are the same as Anadarko's historical operating results. At the date of the merger, the assets and liabilities of Anadarko remain based upon their historical costs, and the assets and liabilities of UPR are recorded at their estimated fair market values. -6- Item 1. Financial Statements (continued) ANADARKO PETROLEUM CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) (Unaudited) 2. Merger Transaction (continued) The following is a calculation of the purchase price:
millions, except per share amounts Shares of common stock issued 114.1 Average of Anadarko stock price per share around the merger announcement $ 35.58 Fair value of stock issued $4,060.1 Add: Fair value of vested UPR employee stock options assumed by Anadarko, less common stock issuance costs 99.6 4,159.7 Add: Capitalized merger costs 146.3 Purchase price $4,306.0
Capitalized merger costs relate primarily to severance and relocation costs of UPR employees ($82 million), professional fees directly related to the merger ($43 million) and other direct transaction costs ($21 million). In addition, merger costs of $64 million were expensed in the third quarter of 2000 related to the UPR merger. These relate primarily to the issuance of stock for retention of employees ($45 million), deferred compensation ($8 million), transition, hiring and relocation costs ($6 million) and vesting of restricted stock and stock options ($5 million). The following is the allocation of the purchase price to specific assets and liabilities based on estimates of fair values and costs, which will be adjusted to actual amounts as determined. Such adjustments are not expected to be material.
millions Current assets $ 657.0 Properties and equipment 8,395.0 Other assets 240.6 Goodwill 1,038.6 Current liabilities 928.0 Long-term debt 2,506.8 Deferred income taxes 2,468.4 Other long-term liabilities 268.3 Stockholders' equity $4,159.7
-7- Item 1. Financial Statements (continued) ANADARKO PETROLEUM CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) (Unaudited) 2. Merger Transaction (continued) In the third quarter of 2000, costs of $34.3 million, related to the closing of UPR's offices in Fort Worth, Texas, were included in capitalized merger costs. During the quarter, 181 employees actually separated and were paid pursuant to the severance plans and 151 employees were relocated from Fort Worth to Houston. The remaining accrued liability balance included in capitalized merger costs is expected to be spent in 2000 and 2001. The following table summarizes the activity in the accrued liability account for the three and nine months ended September 30, 2000:
millions Capitalized merger costs $146.3 Cash payments (102.7) Non-cash payments (9.6) Ending balance $ 34.0
The pro forma results for 2000 and 1999 are a result of combining the three and nine months income statements of Anadarko with the three and nine months income statements of UPR adjusted for 1) certain costs that UPR had expensed under the successful efforts method of accounting that are capitalized under the full cost method of accounting; 2) depreciation, depletion and amortization expense of UPR calculated in accordance with the full cost method of accounting applied to the adjusted basis of the properties acquired using the purchase method of accounting; 3) decreases to interest expense for the capitalization of interest on significant investments in unevaluated properties and major development projects and partly offset by the revaluation of UPR debt under the purchase method of accounting, including the elimination of amortization of historical debt issuance costs; 4) issuance of Anadarko common stock and common stock equivalents pursuant to the merger agreement, and 5) the related income tax effects of these adjustments based on the applicable statutory tax rates. It should be noted that the pro forma results do not include any merger expenses. -8- Item 1. Financial Statements (continued) ANADARKO PETROLEUM CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) (Unaudited) 2. Merger Transaction (continued) The following table presents the unaudited pro forma results of the Company as though the merger had occurred on January 1, 1999.
Three Months Ended Nine Months Ended millions, except September 30 September 30 per share amounts 2000 1999 2000 1999 Revenues $1,007.7 $616.5 $2,617.9 $1,650.5 Net income available to common stockholders $ 270.4 $111.2 $ 642.8 $ 198.4 Earnings per share - basic $ 1.10 $ 0.46 $ 2.64 $ 0.83 Earnings per share - diluted $ 1.06 $ 0.46 $ 2.58 $ 0.82
3. Inventories Materials and supplies and natural gas inventories are stated at the lower of average cost or market. Natural gas, when sold from inventory, is charged to expense using the average cost method. Oil, due from third-parties, is stated at market value. The major classes of inventories are as follows:
JuneSeptember 30, December 31, thousandsmillions 2000 1999 Materials and supplies $49.7 $14.2 Oil, due from third-parties $26,820 $24,65937.7 24.6 Natural gas, stored in inventory 12,718 7,260 Materials and supplies 11,573 14,171 $51,111 $46,09010.9 7.3 $98.3 $46.1
3.4. Properties and Equipment Oil and gas properties include costs of $405,784,000$2,823.9 million and $323,019,000$323.0 million at JuneSeptember 30, 2000 and December 31, 1999, respectively, which were excluded from capitalized costs being amortized. These amounts represent costs associated with unevaluated properties and major development projects. 4. Long-term Debt A summary of long-term debt follows:
June 30, December 31, thousands 2000 1999 Commercial Paper $ 189,963 $ 198,322 Notes Payable, Banks 117,000 145,000 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 Zero Coupon Convertible Debentures due 2020 348,545 --- 7 1/4% Debentures due 2025 310 100,000 7% Debentures due 2027 100,000 100,000 6.625% Debentures due 2028 100,000 100,000 7.20% Debentures due 2029 300,000 300,000 7.73% Debentures due 2096 100,000 100,000 7 1/4% Debentures due 2096 100,000 100,000 $1,655,818 $1,443,322
-6--9- Item 1. Financial Statements (continued) ANADARKO PETROLEUM CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) (Unaudited) 4.5. Long-term Debt (continued)As a result of the merger, the liabilities of UPR became liabilities of the Company. Accordingly, the financial statements of the Company include an aggregate of approximately $2.5 billion of outstanding UPR debt at the date of the merger. A summary of long-term debt follows:
September 30, December 31, millions 2000 1999 Commercial Paper $ 140.8 $ 198.3 Notes Payable, Banks 103.0 145.0 Long-term Portion of Capital Lease 12.2 --- 8 1/4% Notes due 2001 100.0 100.0 6.8% Debentures due 2002 246.9 --- 6 3/4% Notes due 2003 100.0 100.0 5 7/8% Notes due 2003 100.0 100.0 6.5% Notes due 2005 191.3 --- 7.375% Debentures due 2006 247.1 --- 7% Notes due 2006 194.1 --- 6.75% Notes due 2008 150.4 --- 7.8% Debentures due 2008 149.7 --- 7.3% Notes due 2009 155.6 --- 7.05% Debentures due 2018 183.0 --- Zero Coupon Convertible Debentures due 2020 351.6 --- 7 1/4% Debentures due 2025 0.3 100.0 7.5% Debentures due 2026 188.2 --- 7% Debentures due 2027 100.0 100.0 6.625% Debentures due 2028 100.0 100.0 7.15% Debentures due 2028 333.5 --- 7.20% Debentures due 2029 300.0 300.0 7.95% Debentures due 2029 238.5 --- 7.73% Debentures due 2096 100.0 100.0 7 1/4% Debentures due 2096 100.0 100.0 7.5% Debentures due 2096 138.0 --- $4,024.2 $1,443.3
The commercial paper and notes payable to banks have been classified as long-term debt in accordance with Statement 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. -10- Item 1. Financial Statements (continued) ANADARKO PETROLEUM CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) (Unaudited) 5. Long-term Debt (continued) In March 2000, Anadarko issued $345,000,000$345 million of Zero Coupon Convertible Debentures due March 2020, with a face value at maturity of $690,000,000.$690 million. The Debentures were issued at a discount and accrue interest at 3.50% annually until reaching face value at maturity; however, interest will not be paid prior to maturity. The Debentures are convertible into common stock at the option of the holder at any time at a fixed conversion rate. A holder hasHolders have the right to require Anadarko to repurchase a Debenturetheir Debentures at a specified price in March 2003, 2008 and 2013. The Debentures are redeemable at the option of Anadarko after three years. The net proceeds from the offering were used to repay floating interest rate debt. In April 2000, the Company entered into a 364-Day Credit Agreement. The 364-Day Credit Agreement provides for $300,000,000 principalaggregate amount of commitments is $300 million and expires in April 2001. 5.In October 2000, the Company amended the UPR Competitive Advance/Revolving Credit Agreement. The amendment reduced bank commitments to $450 million, provided a Company guarantee and shortened the maturity to October 2001. As of September 30, 2000, the Company had $103 million outstanding under various credit agreements. 6. Supplemental Information for Guarantee of Securities In connection with the merger transaction, Anadarko has guaranteed all of the outstanding publicly held indebtedness of UPR and its subsidiary Anadarko Canada Corporation (ACC). In order to provide meaningful financial data relating to the guarantee, the following condensed consolidating financial information as of September 30, 2000 and for the three and nine months ended September 30, 2000, has been provided following the policies set forth below: 1) The Company accounts for investments in subsidiaries on the cost basis. Earnings of subsidiaries are therefore not reflected in the related investment accounts. Investments in subsidiaries are included in Other Assets. 2) Certain reclassifications were made to conform the financial information to the financial presentation on a consolidated basis. The principal adjusting entries eliminate investments in subsidiaries and intercompany transactions and balances. -11- Item 1. Financial Statements (continued) ANADARKO PETROLEUM CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) (Unaudited) 6. Supplemental Information for Guarantee of Securities (continued) SUPPLEMENTAL CONDENSED CONSOLIDATING INCOME STATEMENTS Three Months Ended September 30, 2000 Other Consolidating Anadarko millions Anadarko UPR ACC Subsidiaries Adjustments Consolidated Revenues Gas sales $203.7 $255.2 $ 58.5 $20.1 $(33.8) $503.7 Oil and condensate sales 56.5 162.7 51.0 69.5 --- 339.7 Natural gas liquids sales --- 39.0 3.3 42.2 --- 84.5 Minerals and other 0.5 27.3 --- 0.6 (0.2) 28.2 Total 260.7 484.2 112.8 132.4 (34.0) 956.1 Cost and Expenses Operating expenses 19.8 41.0 26.8 66.2 (34.0) 119.8 Administrative and general 24.2 14.6 1.0 3.9 --- 43.7 Depreciation, depletion and amortization 55.8 120.7 30.4 8.7 --- 215.6 Other taxes 14.5 36.2 0.5 1.0 --- 52.2 Provision for doubtful accounts --- --- --- 23.3 --- 23.3 Amortization of goodwill 11.3 --- --- --- --- 11.3 Total 125.6 212.5 58.7 103.1 (34.0) 465.9 Operating Income 135.1 271.7 54.1 29.3 --- 490.2 Other (Income) Expense Merger expenses 63.0 0.7 --- --- --- 63.7 Interest expense 20.6 1.1 5.1 1.1 --- 27.9 Other (income) expense (3.8) (43.5) 14.7 (0.2) 3.8 (29.0) Total 79.8 (41.7) 19.8 0.9 3.8 62.6 Income Before Income Taxes 55.3 313.4 34.3 28.4 (3.8) 427.6 Income Taxes 26.1 130.2 (2.7) 24.6 1.0 179.2 Net Income $ 29.2 $183.2 $ 37.0 $ 3.8 $ (4.8) $248.4
-12- Item 1. Financial Statements (continued) ANADARKO PETROLEUM CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) (Unaudited) 6. Supplemental Information for Guarantee of Securities (continued)
SUPPLEMENTAL CONDENSED CONSOLIDATING INCOME STATEMENT Nine Months Ended September 30, 2000 Other Consolidating Anadarko millions Anadarko UPR ACC Subsidiaries Adjustments Consolidated Revenues Gas sales $468.4 $255.2 $ 58.5 $ 70.9 $(94.6) $ 758.4 Oil and condensate sales 152.0 162.7 51.0 189.9 --- 555.6 Natural gas liquids sales 0.1 39.0 3.3 122.2 --- 164.6 Minerals and other 1.9 27.3 --- 1.9 (0.6) 30.5 Total 622.4 484.2 112.8 384.9 (95.2) 1,509.1 Cost and Expenses Operating expenses 58.6 41.0 26.8 177.4 (95.2) 208.6 Administrative and general 74.5 14.6 1.0 13.8 --- 103.9 Depreciation, depletion and amortization 159.7 120.7 30.4 24.0 --- 334.8 Other taxes 37.3 36.2 0.5 2.8 --- 76.8 Provision for doubtful accounts --- --- --- 23.3 --- 23.3 Amortization of goodwill 11.3 --- --- --- --- 11.3 Total 341.4 212.5 58.7 241.3 (95.2) 758.7 Operating Income 281.0 271.7 54.1 143.6 --- 750.4 Other (Income) Expense Merger expenses 63.0 0.7 --- --- --- 63.7 Interest expense 60.0 1.1 5.1 3.3 --- 69.5 Other (income) expense (53.1) (43.5) 14.7 (0.3) 52.9 (29.3) Total 69.9 (41.7) 19.8 3.0 52.9 103.9 Income Before Income Taxes 211.1 313.4 34.3 140.6 (52.9) 646.5 Income Taxes 62.5 130.2 (2.7) 87.7 0.9 278.6 Net Income $148.6 $183.2 $ 37.0 $ 52.9 $(53.8) $ 367.9
SUPPLEMENTAL CONDENSED CONSOLIDATING BALANCE SHEET As of September 30, 2000 Other Consolidating Anadarko millions Anadarko UPR ACC Subsidiaries Adjustments Consolidated Assets Current Assets $ 26.3 $ 843.5 $ 21.0 $ 292.0 $ (79.1) $ 1,103.7 Net Properties and Equipment 3,454.1 6,896.7 1,510.0 814.4 --- 12,675.2 Other Assets 4,828.7 128.9 28.5 96.1 (4,796.8) 285.4 Goodwill 1,027.3 --- --- --- --- 1,027.3 $9,336.4 $7,869.1 $1,559.5 $1,202.5 $(4,875.9) $15,091.6 Liabilities and Stockholders' Equity Current Liabilities $ 199.3 $ 472.8 $ 195.6 $ 381.7 $ (78.6) $ 1,170.8 Long-term Debt 1,532.7 1,784.7 706.8 --- --- 4,024.2 Other Long-term Liabilities 643.7 2,250.3 552.6 205.6 0.8 3,653.0 Stockholders' Equity 6,960.7 3,361.3 104.5 615.2 (4,798.1) 6,243.6 $9,336.4 $7,869.1 $1,559.5 $1,202.5 $(4,875.9) $15,091.6 -13- Item 1. Financial Statements (continued) ANADARKO PETROLEUM CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) (Unaudited) 6. Supplemental Information for Guarantee of Securities (continued) SUPPLEMENTAL CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2000 Other Anadarko millions Anadarko UPR ACC Subsidiaries Consolidated Cash Flow from Operating Activities Net income $ 94.8 $183.2 $37.0 $ 52.9 $367.9 Adjustments to reconcile net income to net cash provided by operating activities 271.2 190.4 24.7 89.1 575.4 366.0 373.6 61.7 142.0 943.3 Changes in assets and Liabilities 13.5 (58.3) (13.1) (41.5) (99.4) Net Cash Provided by Operating Activities 379.5 315.3 48.6 100.5 843.9 Cash Flow Used in Investing Activities (635.5) (184.5) (48.6) (120.7) (989.3) Cash Flow from Financing Activities 244.4 (14.6) --- --- 229.8 Net Increase (Decrease) in Cash and Cash Equivalents (11.6) 116.2 --- (20.2) 84.4 Cash and Cash Equivalents at Beginning of Period 18.0 --- --- 26.8 44.8 Cash and Cash Equivalents at End of Period $ 6.4 $116.2 $ --- $ 6.6 $129.2
7. Preferred Stock In each of the first, second and secondthird quarters of 2000 and 1999, dividends of $13.65 per share (equivalent to $1.365 per Depositary Share) were paid to holders of preferred stock. 6.8. Common Stock Under the most restrictive provisions of the Company's credit agreements, which limit the payment of dividends, retained earnings of $864,666,000 and $763,480,000 were not restricted as to the payment of dividends at JuneSeptember 30, 2000 and December 31, 1999, respectively. The Company's basic earnings 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 and the net effect of the assumed conversion of the convertible debentures. -7--14- Item 1. Financial Statements (continued) ANADARKO PETROLEUM CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) (Unaudited) 6.8. Common Stock (continued) The reconciliation between basic and diluted EPS is as follows:
Three Months Ended Three Months Ended JuneSeptember 30, 2000 JuneSeptember 30, 1999 thousandsmillions except Per Share Per Share per share amounts Income Shares Amount Income Shares Amount Basic EPS Income available to common stockholders $ 74,938 128,260 $0.58 $ 7,962 125,255 $0.06$245.7 230.4 $1.07 $18.8 127.4 $0.15 Effect of convertible debentures 1,930 8,0241.9 8.0 -- -- Effect of dilutive stock options -- 1,9622.9 -- 1,1130.9 Diluted EPS Income available to common stockholders plus assumed conversion $ 76,868 138,246 $0.56 $ 7,962 126,368 $0.06$247.6 241.3 $1.03 $18.8 128.3 $0.15
Six Months Ended Six Months Ended June 30, 2000 June 30, 1999 thousands except Per Share Per Share per share amounts Income Shares Amount Loss Shares Amount Basic EPS Income (loss) available to common stockholders $114,007 128,153 $0.89 $(15,123) 122,874 $(0.12)$359.7 162.2 $2.22 $ 3.7 124.4 $0.03 Effect of convertible debentures 2,445 5,3494.4 6.2 -- -- Effect of dilutive stock options -- 1,3531.9 -- --0.7 Diluted EPS Income (loss) available to common stockholders plus assumed conversion $116,452 134,855 $0.86 $(15,123) 122,874 $(0.12)$364.1 170.3 $2.14 $ 3.7 125.1 $0.03
For the sixthree and nine months ended JuneSeptember 30, 2000 and 1999, there were 556,000options for 0.7 million and 3.2 million, respectively, shares of common stock equivalents related to outstanding stock options that were excluded from the computation of diluted EPS since they hadcalculation because the options' exercise price was greater than the average market price of common stock for the periods. On July 13, 2000, the stockholders of Anadarko approved an anti-dilutive effect. 7.increase in the authorized number of Anadarko common shares from 300 million to 450 million. On July 14, 2000, each share of common stock of UPR issued and outstanding was converted into 0.455 shares of Anadarko common stock with approximately 114.1 million shares issued to the stockholders of UPR. -15- Item 1. Financial Statements (continued) ANADARKO PETROLEUM CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) (Unaudited) 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:
SixNine Months Ended JuneSeptember 30 thousandsmillions 2000 1999 Interest $39,709 $33,275$43.9 $55.1 Income taxes $ 1,946 $ (187)$36.6 $(0.2)
-8-The merger was completed through the issuance of common stock, which was a non-cash transaction that was not reflected in the statement of cash flows. See Note 2. The $55.4 million of acquisition costs reflected in "Cash Flow from Investing Activities" in the consolidated statement of cash flows represents capitalized merger costs accrued in connection with the merger of $146.3 million, less the cash acquired on the date of the merger of $90.9 million. 10. Commitments and Contingencies UPR was a party to several long- term firm gas transportation agreements that supported the gas marketing program within the gathering, processing and marketing (GPM) business segment, which was sold to Duke Energy Field Services, Inc. (Duke). Most of the GPM business segment's firm long-term transportation contracts were transferred to Duke in the GPM disposition. As part of the GPM disposition, UPR and Duke agreed that UPR will keep Duke whole on certain transportation contracts (keep- whole agreement). UPR will pay Duke if transportation market values fall below the contract transportation rates, while Duke will pay UPR if the market value exceeds the contract transportation rates. Transportation contracts transferred to Duke in the GPM disposition and included in the keep-whole agreement with Duke relate to various pipelines. It is UPR's contention (disputed by Duke) that the keep- whole agreement has terminated. As of September 30, 2000, Other Long- term Liabilities included $90.8 million related to this agreement. -16- Item 1. Financial Statements (continued) ANADARKO PETROLEUM CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) (Unaudited) 8.11. Legal Proceedings General The Company is a defendant in a number of lawsuits and is involved in governmental proceedings arising in the ordinary course of business, including, but not limited to, royalty claims, contract claims and environmental claims. The Company has also been named as a defendant in various personal injury claims, including numerous claims by employees of third-party contractors alleging exposure to asbestos and benzene while working at the Corpus Christi refinery, which the Company sold in segments in 1987 and 1989. While the ultimate outcome and impact on the Company cannot be predicted with certainty, management believes that the resolution of these proceedings will not have a material adverse effect on the consolidated financial position of the Company, although results of operations and cash flow could be significantly impacted in the reporting periods in which such matters are resolved. Discussed below are several specific proceedings. Mineral Reservation Litigation In August 1994, the surface owners (McCormick, et al.) of portions of five sections of Colorado land that are subject to mineral reservations made by the Company's predecessor in title brought suit against the Company in State District Court, Weld County, Colorado, to quiet title to minerals, including oil (in some of the lands) and natural gas. On June 23, 1997, the State District Court granted the Company's Motion for Summary Judgment, holding as a matter of law that the mineral reservations at issue were unambiguous and included all valuable non-surface substances, including oil and gas. The Colorado Court of Appeals affirmed the decision of the State District Court in granting the Company's Motion for Summary Judgment on December 10, 1998 and then denied the surface owners' Motion for Rehearing. The surface owners then filed a Petition for Writ with the Colorado Supreme Court, which was granted in September 1999. Oral arguments were heard on June 13, 2000. A decision is expected by the end of the first quarter of 2001. Royalty Litigation During September of 2000, the Company was named as a defendant in a case styled U.S. of America ex rel. Harold E. Wright v. AGIP Company, et al. (the "Gas Qui Tam case") filed in the U.S. District Court for the Eastern District of Texas, Lufkin Division. This lawsuit generally alleges that the Company and 118 other defendants improperly measured and otherwise undervalued natural gas in connection with a payment of royalties on production from federal and Indian lands. Recently the case has been transferred to the U.S. District Court, Multi-District Litigation Docket pending in Wyoming. Motions to dismiss will be filed by the Company and numerous other defendants before the end of the year. -17- Item 1. Financial Statements (continued) ANADARKO PETROLEUM CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) (Unaudited) 11. Legal Proceedings (continued) Based on the Company's present understanding of the various governmental and False Claims Act proceedings described above, the Company believes that it has substantial defenses to these claims and intends to vigorously assert such defenses. However, if the Company is found to have violated the Civil False Claims Act, the Company could be subject to a variety of sanctions, including treble damages and substantial monetary fines. A group of royalty owners purporting to represent UPR's gas royalty owners in Texas (Neinast, et al.) was granted class action certification in December 1999, by the 21st Judicial District Court of Washington County, Texas, in connection with a gas royalty underpayment case against the Company. This certification did not constitute a review by the Court of the merits of the claims being asserted. The royalty owners' pleadings did not specify the damages being claimed, although most recently a demand for damages in the amount of $100 million has been asserted. The Company is of the opinion that the amount of damages at risk are substantially less than the amount demanded by the class action counsel and the Company intends to vigorously assert its defenses. The Company is currently appealing the class certification order and hopes to have same overturned. A hearing on the merits of the appeal has now been scheduled for December 1, 2000. A group of royalty owners in the State of Oklahoma surrounding the Beaver County Gathering System allege five separate claims against the defendants that included UPR. This matter styled Galen Bridenstine v. Kaiser Francis Oil Company, et al. (including UPR) has been certified as a class action and is currently scheduled for trial in February 2001. The plaintiffs contend that gathering, compression and dehydration fees deducted by the defendants from royalty payments were in violation of the Oklahoma Check Stub Statute and were improper. The damages asserted for this claim are approximately $40 million. In addition, four additional claims have been asserted by the class plaintiffs, including claims for gas mismeasurement, failure to pay royalties on a higher price contract and failure to pay royalties on condensate. The total actual damages sought are approximately $55 million. In addition, the plaintiffs seek punitive damages. The Company is working vigorously to assert its defenses in this matter and believes that the Company would be entitled to indemnity, if an adverse judgment was entered against the Company. The Company has asserted an indemnity claim against the company from which it purchased the assets that are at issue in this litigation. -18- Item 1. Financial Statements (continued) ANADARKO PETROLEUM CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) (Unaudited) 11. Legal Proceedings (continued) A class action lawsuit entitled Gilbert H. Coulter, et al. v. Anadarko Petroleum Corporation has been certified in the 26th Judicial District Court, Stevens County, Kansas. In this action, the royalty owners contend that royalty was underpaid as a result of the deduction for certain post-production costs in the calculation of royalty. The Company believes that its method of calculating royalty was proper and that its gas was marketable in the condition produced, and thus plaintiffs' claims are without merit. This case was certified as a class action in August 2000. Kansas Ad Valorem Tax General - 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. Background of PresentPan Energy Litigation - 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 a 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 $48,118,000 (pretax) as of June 30, 2000. FERC Proceedings Depending on future FERC orders, the Company could be required to pay all or part of the amounts claimed by all pipelines (which might include PanEnergy Corp) pending further potential review by FERC or the courts. PanEnergy Litigation - On May 13, 1997, the Company filed a lawsuit in the Federal District Court for the Southern District of Texas against PanEnergy seeking declaration that pursuant to prior agreements Anadarko is not required to issue refunds to PanEnergy for the principal amount of $13,990,000$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 $32,316,000$33.4 million (pretax) as of JuneSeptember 30, 2000. The Company also seeks from PanEnergy the return of $816,000 of the $830,000$0.8 million (pretax) charged against income in 1993 and 1994. In response to a motionOctober 2000, the U.S. Magistrate issued recommendations concerning motions for summary judgment previously 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. -9-both parties. In -19- Item 1. Financial Statements (continued) ANADARKO PETROLEUM CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) (Unaudited) 8. Kansas Ad Valorem Tax11. Legal Proceedings (continued) FERC Order of October 13, 1998 On October 13, 1998, FERC issued a final order on Anadarko's complaint. The order declaresessence, the Magistrate's recommendation finds that the Company should be responsible for refunds attributable to the time period following August 1, 1985 while Duke Energy (as the successor company to Anadarko Production Company (now an affiliate of Duke Energy) isCompany) should be responsible as first seller for making refunds of Kansas ad valorem tax reimbursements collected from 1983 throughattributable to the time period before August 1, 1985. TheRemaining in dispute is approximately $7-$8 million in refunds attributable to Pan Eastern Exploration Company estimates this amount to be as much as $17,435,000. The Company is responsible to make refunds for reimbursements it collected as first seller from Augustthe pre-August 1, 1985 through 1988. On time frame. The dispute over Pan Eastern's refunds is currently set for trial on the January/February 23, 2000, FERC clarified its prior order stating the Company must, in the first instance, make refunds for former subsidiaries2001 trial docket of Anadarko Production Company. The Company estimates this amount to be as much as $28,399,000. The FERC order states that whether Anadarko Production Company or the Company 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 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 reimbursement will now be pursued in U.S. District Court. On April 16, 1999, the U.S. District Court ordered the parties to mediation. One session with the mediator has been held. The Court has also set the matter for trial on the November/December 2000 trial term. Supplemental motions for summary judgement have been filed by both parties. 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 obligations, 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, a 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. On June 1, 1999, the KCC entered an order approving the plan proposed by AGC. -10- Item 1. Financial Statements (continued) ANADARKO PETROLEUM CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) (Unaudited) 8. Kansas Ad Valorem Tax (continued) Under this order, after the conclusion of all litigation related to Kansas ad valorem tax proceedings, "AGC shall be authorized to deduct from the amounts of refunds due for the period from 1986 to and through 1988 all amounts shown not to have been collected by AGC's predecessor in interest, Centana Energy Corporation by year, for the period from 1986 through 1988." The order is now final.Houston, Texas. Anadarko's net income for 1997 included a $1,800,000$1.8 million charge (pretax) related to the Kansas ad valorem tax refunds. This charge reflects all principal and interest which may be due at the conclusion of all regulatory proceedings and litigation to parties other than PanEnergy. The Company is currently unable at this time to predict the final outcome of this matter and no provision for liability (excluding amounts recorded in 1993, 1994 and 1997) has been made in the accompanying financial statements. 9.12. New Accounting Principles Accounting for Derivatives SFAS No. 133, "Accounting for Derivative Instruments and for Hedging Activities", as amended, provides guidance for accounting for deravativederivative instruments and hedging activities. In July 1999, SFAS No. 137 "Deferral of the Effective Date of FASB Statement 133", was issued and delays the133, as amended, is effective date for one year, to fiscal years beginning after June 15, 2000. The Company is evaluating the impact of the provisions of SFAS No. 133.133 and believes it will not have a material effect on the Company's financial condition or results of operations. Revenue Recognition The Securities and Exchange Commission (SEC) issued Staff Accounting Bulletin (SAB) No. 101, "Revenue Recognition in Financial Statements" in December 1999. SAB No. 101 summarizes the SEC staff's views in applying generally accepted accounting principles to selected revenue recognition issues. The Company understands the SEC staff is preparinghas issued a document to address significant implementation issues related to SAB No. 101. To the extent that SAB No. 101 ultimately changes Anadarko's revenue recognition practices, Anadarko will be required to adopt SAB No. 101 no later than the quarter beginning October 1, 2000, with any cumulative effect adjustment computed as of January 1, 2000. The Company is evaluating the impact of the provisions of SAB No. 101. -11--20- Item 1. Financial Statements (continued) ANADARKO PETROLEUM CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) (Unaudited) 10.12. New Accounting Principles (continued) Currently, Anadarko includes the margin related to oil and gas marketing activities as oil and gas revenues. SAB No. 101 requires that the purchases of oil and gas related to marketing, currently included in the margin, be reclassified to costs and expenses. The Company estimates that the effect, if SAB No. 101 had been adopted for the three and nine months ended September 30, 2000, would be an increase to revenues of $0.9 billion and $1.7 billion, respectively, offset by an increase to costs and expenses of $0.9 billion and $1.7 billion, respectively. 13. The information, as furnished herein, reflects all normal recurring adjustments that are, in the opinion of management, necessary to a fair statement of financial position as of JuneSeptember 30, 2000 and December 31, 1999, the results of operations for the three and sixnine months ended JuneSeptember 30, 2000 and 1999, and cash flows for the sixnine months ended JuneSeptember 30, 2000 and 1999. 11. Merger Transaction On April 2, 2000, Anadarko and Union Pacific Resources Group Inc. (UPR) entered into an Agreement and Plan of Merger (the Merger Agreement). On July 13, 2000, in separate special meetings held in Houston and Fort Worth, Texas, the shareholders of both companies voted overwhelmingly to approve the merger transaction. Holders of approximately 93% of the Anadarko common stock voting voted to approve the issuance of Anadarko common stock in the merger. Holders of approximately 98% of the UPR common stock voting voted to approve the merger. On July 14, 2000, Dakota Merger Corp., a wholly owned subsidiary of Anadarko, merged with and into UPR pursuant to the Merger Agreement. Each share of common stock of UPR issued and outstanding, other than UPR shares held by UPR that were canceled and retired, was converted into 0.455 shares of Anadarko common stock. UPR stockholders who would otherwise receive fractional shares of Anadarko common stock instead were entitled to receive a cash payment for their fractional share interest. The merger will be treated as a tax-free reorganization and accounted for as a purchase. The purchase will be reflected in the Company's third quarter financial statements. -12--21- Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 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 oil and gas 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-Q and in the Company's other public filings, press releases and discussions with Company management. Anadarko undertakes no obligation to publicly update or revise any forward- looking statements. See Additional Factors Affecting Business in the Management's Discussion and Analysis of Financial Condition and Results of Operations included in the Company's 1999 Annual Report on Form 10-K. Overview of Operating Results Anadarko's net income available to common stockholders in the third quarter of 2000 totaled $245.7 million ($1.07 per share - basic). Anadarko attributes its performance to continued growth in production volumes and to strong commodity prices. Anadarko's results include the effect of its acquisition of Union Pacific Resources Group Inc. (UPR), which closed July 14, 2000. Net income includes a charge of $63.7 million ($40.8 million after taxes) for a portion of the costs associated with the UPR acquisition. Excluding this item, Anadarko's net income for the third quarter of 2000 was $286.5 million, or $1.24 per share (basic), on revenues of $956.1 million. For the second quartersame period in 1999, Anadarko's net income was $18.8 million, or $0.15 per share (basic), on revenues of $180.3 million. For the nine-month period ending September 30, 2000, Anadarko's net income available to common shareholdersstockholders was $74.9$359.7 million, or $0.58$2.22 per share (basic), on revenues$1.5 billion of $306.3 million. Forrevenues. Excluding the same period in 1999,item discussed above, Anadarko's net income available to common stockholders for the first nine months of 2000 was $8$400.5 million, or $0.06$2.47 per share (basic), on revenues of $161.5 million. The improved results in the second quarter were primarily due to significantly higher commodity prices and increased production volumes. Anadarko had no significant commodity price hedges in place during the period. For. By comparison, for the first sixnine months of 2000,1999, Anadarko had net income available to common stockholders of $114.0$3.7 million, or $0.89$0.03 per share (basic), on revenues of $553.4 million. For the comparable period in 1999, Anadarko had a net loss of $15.1 million, or $0.12 per common share, on revenues of $297.9$477.4 million. The 1999 lossresults included a first quarter 1999 non-cash charge of $20 million -22- Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations (continued) before taxes ($12.8 million after taxes) related to Anadarko's Eritreanthe Company's exploration program.activity in Eritrea. Excluding the impairment, Anadarko had a net lossincome available to common stockholders of $2.3 million, or $0.02 per share for the first halfnine months of 1999 was $16.5 million, or $0.13 per share (basic). Costs and expenses during the third quarter of 2000 were $465.9 million, an increase of 284% compared to $121.2 million for the third quarter of 1999. For the first nine months of 2000, costs and expenses totaled $758.7 million, an increase of 108% compared to $365.5 million, excluding the impairment, for the first nine months of 1999. The improved revenues and earnings wereincrease for both periods in 2000 is primarily due to significantly higher commodity pricesdepreciation, depletion and amortization expense, operating expenses and other taxes all related to the increase in production volumes associated with the acquisition, higher administrative and general expenses associated with the Company's expanded workforce, a provision for doubtful accounts of $23.3 million and amortization of goodwill related to the merger of $11.3 million. Merger expenses of $64 million were expensed in the third quarter of 2000 related to the UPR merger. These relate primarily to the issuance of stock for retention of employees ($45 million), deferred compensation ($8 million), transition, hiring and relocation costs ($6 million) and vesting of restricted stock and stock options ($5 million). Interest expense for the third quarter of 2000 increased 56% to $27.9 million compared to $17.9 million for the third quarter of 1999. For the first nine months of 2000, interest expense was $69.5 million, an increase of 26% compared to $55.0 million for the same period of 1999. The increases in interest expense in 2000 are primarily due to higher levels of long-term debt in 2000 compared to 1999 as a result of the UPR acquisition, partially offset by higher capitalized interest. Volumes and Prices During the third quarter of 2000, Anadarko produced approximately 39.8 million energy equivalent barrels, up 243% from the 11.6 million barrels produced in the same period of 1999. During the first nine months of 2000, Anadarko produced approximately 67.2 million energy equivalent barrels, up 82% from the 36.8 million barrels produced in the same period of 1999. The increased production volumes. -13-comes as a result of the acquisition of UPR, oil production growth in Algeria and gas production growth in East Texas. Natural Gas Natural gas production in the third quarter of 2000 averaged 1,498 million cubic feet (MMcf) per day, an increase of 229% over the 456 MMcf per day produced in the same period last year. Natural gas prices at the wellhead averaged $3.80 per thousand cubic feet (Mcf) during the third quarter of 2000, compared with an average of $2.40 per Mcf in the comparable quarter of 1999. -23- Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations (continued) The following table shows the Company's volumes and average prices for the three and sixnine months ended JuneSeptember 30, 2000 and 1999:
Three Months Ended Six Months Ended June 30 June 30 2000 1999 2000 1999 Natural gas Bcf 48.8 41.9 93.1 86.0 MMcf/d 536 461 511 475 Price per Mcf $3.20 $1.95 $2.84 $1.77 Crude oil and condensate United States MBbls 1,903 2,167 3,750 4,491 MBbls/d 21 24 21 25 Price per barrel $26.20 $14.65 $25.47 $12.20 Algeria MBbls 2,256 1,647 4,223 3,291 MBbls/d 25 18 23 18 Price per barrel $28.36 $15.38 $28.13 $13.48 Total MBbls 4,159 3,814 7,973 7,782 MBbls/d 46 42 44 43 Price per barrel $27.37 $14.97 $26.88 $12.74 Natural gas liquids MBbls 1,914 1,530 3,920 3,162 MBbls/d 21 17 22 17 Price per barrel $20.10 $11.91 $20.43 $10.20 Total Energy Equivalent Barrels (MMEEBs) 14.2 12.3 27.4 25.3
___________Three Months Ended Nine Months Ended September 30 September 30 2000 1999 2000 1999 Natural gas United States Bcf 115.9 41.9 209.0 127.9 MMcf/d 1,260 456 763 468 Price per Mcf $4.01 $2.40 $3.49 $1.97 Canada Bcf 21.4 --- 21.4 --- MMcf/d 232 --- 78 --- Price per Mcf $2.74 --- $2.74 --- Other International Bcf 0.5 --- 0.5 --- MMcf/d 6 --- 2 --- Price per Mcf $1.10 --- $1.10 --- Total Bcf 137.8 41.9 230.9 127.9 MMcf/d 1,498 456 843 468 Price per Mcf $3.80 $2.40 $3.42 $1.97 Crude oil and condensate United States MBbls 4,966 1,967 8,715 6,458 MBbls/d 54 21 32 24 Price per barrel $30.65 $18.62 $28.42 $14.16 Algeria MBbls 2,321 818 6,544 4,108 MBbls/d 25 9 24 15 Price per barrel $31.09 $20.99 $29.18 $14.97 Canada MBbls 2,015 --- 2,015 --- MBbls/d 22 --- 7 --- Price per barrel $25.34 --- $25.34 --- Other International MBbls 3,509 --- 3,509 --- MBbls/d 38 --- 13 --- Price per barrel $19.10 --- $19.10 --- Total MBbls 12,811 2,785 20,783 10,566 MBbls/d 139 30 76 39 Price per barrel $26.73 $19.32 $26.79 $14.47 Natural gas liquids United States MBbls 3,845 1,787 7,765 4,949 MBbls/d 42 19 28 18 Price per barrel $21.13 $14.76 $20.77 $11.84 Canada MBbls 145 --- 145 --- MBbls/d 2 --- 1 --- Price per barrel $22.55 --- $22.55 --- Total MBbls 3,990 1,787 7,910 4,949 MBbls/d 43 19 29 18 Price per barrel $21.18 $14.76 $20.81 $11.84 Total Energy Equivalent Barrels (MMEEBs) 39.8 11.6 67.2 36.8 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 -14--24- Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations (continued) Costs and expenses during the second quarter of 2000 were $151.2 million, an increase of 26% compared to $120.1 million for the second quarter of 1999. ForIn the first sixnine months of 2000, costs and expenses totaled $292.9 million, an increase of 20% compared to $244.3 million, excluding the impairment, for the first six months of 1999. The increase for both periods in 2000 is primarily due to higher operating expenses, depreciation, depletion and amortization expense and other taxes related to the increase inAnadarko's natural gas production volumes and higher administrative and general expenses associated with the Company's workforce. Interest expense for the second quarter of 2000 increased 11% to $20.5 million compared to $18.5 million for the second quarter of 1999. For the first six months of 2000, interest expense was $41.6 million, an increase of 12% compared to $37.1 million for the same period of 1999. The increases in interest expense in 2000 are primarily due to higher levels of long-term debt in 2000 compared to 1999. Natural Gas Volumes and Prices Natural gas prices at the wellhead averaged $3.20843 MMcf per Mcf during the second quarter of 2000,day, up 64%80% from the average of $1.95468 MMcf per Mcf in the second quarter of 1999. Natural gas production in the second quarter of 2000 averaged 536 MMcf/d, an increase of 16% over the 461 MMcf/d in the same period last year. The increase is due primarily to the continued strength of Anadarko's Bossier Field natural gas play in East Texas.day produced a year earlier. The wellhead price for natural gas in the first halfnine months of 2000 averaged $2.84$3.42 per Mcf, a 60% increase above the average of $1.77compared with $1.97 per Mcf in the same period last year. In the first six months of 2000, Anadarko's natural gas production averaged 511 MMcf/d, up 8% from the 475 MMcf/d in the same period last year. Crude Oil, Condensate and Natural Gas Liquids VolumesTotal production of crude oil and Pricescondensate in the third quarter averaged 139,000 barrels per day, up 363% from 30,000 barrels per day in the third quarter of 1999. Oil prices in the secondthird quarter of 2000 averaged $27.37$26.73 per barrel, an increase of 83% compared with $14.97$19.32 per barrel in the same quarter last year. TotalAnadarko's production of crude oil production inand condensate for the second quarterfirst nine months of 2000 averaged 46 MBbls/d,76,000 barrels per day, up 9%95% from 42 MBbls/dthe average of 39,000 barrels per day in the second quarter of 1999. The increased production is primarily due to Anadarko's oil production in Algeria.comparable 1999 period. Anadarko's average oil price for the first half of 2000 period was $26.88$26.79 per barrel, up 111% from the $12.74compared with $14.47 per barrel in the same period last year. Anadarko's oil production forVolumes of NGLs during the first six months of 2000quarter averaged 44 MBbls/d, compared with 43 MBbls/d43,000 barrels per day, up 126% from 19,000 barrels per day in the first halfthird quarter of 1999. -15- Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations (continued) The pricesPrices during the second quarter of 2000 for Anadarko's natural gas liquids (NGLs) averaged $20.10$21.18 per barrel, up 69% compared with $11.91the $14.76 per barrel average in the same quarter last year. Volumes ofAnadarko's NGLs volumes during the second quarterfirst nine months of 2000 averaged 21 MBbls/d,29,000 barrels per day, an increase of 25% compared with 17 MBbls/d in61% over the second quarter of 1999. Anadarko's average price during the first half of 2000 for NGLs was $20.4318,000 barrels per barrel, an increase of 100% from $10.20 per barrel in the first six months of last year. During the first half of 2000, Anadarko's production of NGLs averaged 22 MBbls/d, an increase of 23% compared with 17 MBbls/dday produced in the same period in 1999. The average price per barrel for NGLs during the 2000 period was $20.81, compared with $11.84 a year earlier. Capital Expenditures, Liquidity and Dividends During the first sixnine months of 2000, Anadarko's capital spending (including capitalized interest and overhead) was $450.7$976.5 million compared to $261.0$431.6 million in the same period of 1999. As a result of the merger, the liabilities of UPR became liabilities of the Company. Accordingly, the financial statements of the Company include an aggregate of approximately $2.5 billion of outstanding UPR debt assumed at the date of the merger. In March 2000, Anadarko issued $345 million of Zero Coupon Convertible Debentures due March 2020, with a face value at maturity of $690 million. The Debentures were issued at a discount and accrue interest at 3.50% annually until reaching face value at maturity; however, interest will not be paid prior to maturity. The Debentures are convertible into common stock at the option of the holder at any time -25- Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations (continued) at a fixed conversion rate. A holder hasHolders have the right to require Anadarko to repurchase a Debenturetheir Debentures at a specified price in March 2003, 2008 and 2013. The Debentures are redeemable at the option of Anadarko after three years. The net proceeds from the offering were used to repay floating interest rate debt. In April 2000, the Company entered into a 364-Day Credit Agreement. The 364-Day Credit Agreement provides foraggregate amount of commitments is $300 million principal amount and expires in April 2001. In JulyOctober 2000, the Company amended the UPR Competitive Advance/Revolving Credit Agreement. This amendment reduced bank commitments to $450 million, provided a Company guarantee and shortened the maturity to October 2001. Anadarko increasedcurrently anticipates that the 2000 capital budget to $1.5expenditures will be about $1.6 billion. This amounts to a $384$484 million or 34%43% increase over the combined total of Anadarko's previously announced 2000 capital budget of $766 million and the $350 million remaining from the 2000 capital budget of Union Pacific Resources Group Inc. (UPR), with which Anadarko merged in July 2000.UPR. Anadarko's capital spending will focus on natural gas projects in East Texas and Louisiana, gas assets in western Canada, and gas and oil projects on the shelf, sub-salt and deep water properties in the Gulf of Mexico. Anadarko also will pursue selected high potential exploration projects in North America and internationally. -16- Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations (continued) The Company believes that cash flows and existing or available credit facilities will provide the majority of funds to meet its capital and operating requirements for 2000. Merger Transaction On April 2, 2000, Anadarko and UPR entered into an Agreement and Planthe remainder of Merger (the Merger Agreement). On July 13, 2000, in separate special meetings held in Houston and Fort Worth, Texas, the shareholders of both companies voted overwhelmingly to approve the merger transaction. Holders of approximately 93% of the Anadarko common stock voting voted to approve the issuance of Anadarko common stock in the merger. Holders of approximately 98% of the UPR common stock voting voted to approve the merger. On July 14, 2000, Dakota Merger Corp., a wholly owned subsidiary of Anadarko, merged with and into UPR pursuant to the Merger Agreement. Each share of common stock of UPR issued and outstanding, other than UPR shares held by UPR that were canceled and retired, was converted into 0.455 shares of Anadarko common stock. UPR stockholders who would otherwise receive fractional shares of Anadarko common stock instead were entitled to receive a cash payment for their fractional share interest. The merger will be treated as a tax-free reorganization and accounted for as a purchase. The purchase will be reflected in the Company's third quarter financial statements.2000. Exploration and Development Activities During the secondthird quarter of 2000, Anadarko participated in a total of 97276 wells, including 3791 oil wells, 56163 gas wells and 422 dry holes. This compares to a total of 2952 wells, including 311 oil wells, 2234 gas wells and 47 dry holes during the secondthird quarter of 1999. For the first sixnine months of 2000, Anadarko participated in a total of 216492 wells, including 79170 oil wells, 129292 gas wells and 830 dry holes. This compares to a total of 84136 wells, including 2435 oil wells, 4377 gas wells and 1724 dry holes during the first sixnine months of 1999. The increase in activity during 2000 was directly related to the increase in capital expenditures due to higher commodity prices. This increase in activity has led to higher production volumes. Following is a description of activity during the first halfnine months of 2000. -17- -26- Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations (continued) Onshore - Lower 48 States Bossier Sand Play Drilling activityDevelopment - The rig count in Anadarko's second-largest onshore gas field continued at a brisk pacemost active drilling area increased by two during the secondthird quarter, as five more rigs were added to those already running, bringing the total number of rigs currentlyoperating in operationthe Bossier Sand to 26 (2328 (24 in East Texas and threefour in Jackson Parish,northwest Louisiana). ThroughDuring the first sixnine months of 2000, Anadarko has completed 67105 wells in the Bossier Play. Gross production at the endBossier. The Company now has 265 wells that produced an average of the second quarter was approximately 210 million cubic feet per day (MMcf/d) of gas (163234 MMcf/d of gas net). Second(gross) and 178 MMcf/d of gas (net) in the third quarter. One completion during the third quarter activitywas the Edwards A-4 well in the Dew/Mimms Creek Field, which tested 30.2 MMcf/d of gas from the Bonner Sand. Another well completed in the third quarter was the Thigpen A-2 well in the Dew/Mimms Creek Field of Freestone County, Texas. The well, which tested more than 17 MMcf/d of gas from the Moore and Bonner sands, steps out more than 1.5 miles from Anadarko's best producer in the play so far. The results from the third quarter also included the Blair A-3, a verticalAdams A-2 well drilled in the Dew Field, which tested 23.4 MMcf/d of Freestone County. On May 2, natural gas volumes fromgas. During the well were atthird quarter, Anadarko increased its leasehold position, which now covers approximately 200,000 acres, 75% of which is undeveloped. At current activity levels, the Company has a rate of 51.5 MMcf/d. This represents the highest single-well rate in thetwo-year infill and development inventory. The Company's Dew Gathering System, which was modified to accommodate the significant increase in production. Anadarko has an 82.5% working interest in the well. As part of additional enhancements to its gas gathering facilities incapabilities were enhanced during the Bossier, Anadarko began constructionthird quarter with the August 1 start-up of itsoperations at the Buffalo Central Gathering Facility (CGF) with plans to add more compression during. The Buffalo facility and the Goode Ranch CGF, which Anadarko began building in the third quarter.quarter, are designed for separation and dehydration of gas. Altogether, Anadarko's gas gathering network has more than 10,000 horsepower of compression - capable of processing 350 MMcf/d of gas - and more than 100 miles of pipeline. Exploration - In the process of extending its Bossier discoveries, Anadarko continues to uncover new exploration opportunities. So far in 2000, the Company has drilled seven exploration wells, five of which are discoveries. The other two wells are currently being drilled. In fact, the Bossier Play actually consists of six separate fields and the Company is developing other pay zones in addition to the Bossier Sand formation. South Louisiana During the third quarter, the fourth well was spud in the Kent Bayou Field of Terrebonne Parish, Louisiana, to further delineate the discovery. In addition, the Dowdy Ranch CGF went on-line duringContinental Land and Fur Co. No. 3 well was completed with estimated initial production of 6,000 barrels of oil per day (BOPD) and 22 MMcf/d of gas, following the second quarter. Altogether, the three main gathering facilities have increased the amount of natural gas volumes Anadarko can process to 350 MMcf/d. Other significant Bossier completions from the second quarter include: - Burgher D-6 (12.6 MMcf/d), Dowdy Ranch Field - Burgher D-9 (9.9 MMcf/d), Dowdy Ranch Field - Burgher D-8 (9.0 MMcf/d), Dowdy Ranch Field - English No. 9 (8.9 MMcf/d), Mimms Creek Field - B.K. Johnson B-8 (8.6 MMcf/d), Dew Field - Burgher D-5 (8.5 MMcf/d), Dowdy Ranch Field - Henderson No. 11 (7.6 MMcf/d), Mimms Creek Field - Burgher D-7 (7.2 MMcf/d), Dowdy Ranch Field - Henderson No. 9 (7.0 MMcf/d), Mimms Creek Field - Eubanks Trust No. 7 (7.0 MMcf/d), Mimms Creek Field Anadarko owns a 100% working interest in each of these wells, except the B.K. Johnson B-8 in which it owns a 79% working interest. -18--27- Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations (continued) Anadarko's leasehold positioninstallation of processing equipment. Volumes from the two wells currently producing are 2,400 BOPD and 10 MMcf/d of gas. Anadarko is currently upgrading facilities by adding compression, separators and a new oil sales pipeline that should increase production significantly by the end of November 2000. Anadarko owns a 66.7% working interest in the Bossier Play,Kent Bayou Field, which exceeds 100,000 acres (gross), now extends beyond Freestone Countywas discovered in 1999. The Company's ongoing horizontal drilling program in the Austin Chalk resulted in two significant completions in south Louisiana during the third quarter. The Exxon Minerals A-1 RE well tested 480 BOPD and into neighboring Leon County where2.5 MMcf/d of gas after re-entering the Chalk and being drilled laterally for a distance of 3,500 feet. Anadarko owns a 78% working interest in the well which is located in the Masters Creek Field in Rapides Parish, Louisiana. In Vernon Parish, Louisiana, the Company has acquired propertiescompleted the Strickland 17 No. 1 RE, which was drilled using stacked horizontal laterals. The re-entry, which covered 3,500 feet in the BeargrassChalk A and 3,200 feet in the Chalk B, tested 644 BOPD and 2.1 MMcf/d of gas. Anadarko has a 100% working interest in the well, which is located in the Masters Creek Field. Hugoton Embayment During the third quarter, Anadarko stepped up drilling programs in southwest Kansas. The purchase covers 8,800 gross acresgoal is to offset declines in production from the older Hugoton Field with new production from deeper zones from the area. The Bush B-3 well in the Evalyn Field of Seward County, Kansas, was re-completed to the Marmaton "C" interval. The well is flowing 353 BOPD and includes 29 active wells with net production276 thousand cubic feet per day of 6.5gas through a 25/64-inch choke. In Stevens County, Kansas, Anadarko completed a well as a lower Morrow producer. The HJV Christopher A-1 well flowed 10.5 MMcf/d of gas and 1.2 million energy equivalent45 barrels of proven net reserves. Hugoton Embayment In this traditional gas play,condensate per day. The Company owns a 100% working interest in the well. Anadarko had several significant oil completions duringalso re- completed the second quarter. In Haskell County, Kansas, the first three wells of a fourAdams L-3 well deep drilling program in the Eubank Field of Haskell County, Kansas, which tested at149 BOPD from the Morrow Lime formation. The Company has a 100% working interest in the well. Also in the Eubank Field, Anadarko completed a four-well deep drilling program resulting in combined rategross production of 1,301 barrels of oil per day (BOPD)258 BOPD and 1.851.3 MMcf/d of gas from seven different pay intervals. In the Lorena East Field of Texas County, Oklahoma, Anadarko completed the Murphy Trust A-1 well. The well produced 300 BOPD from the Basal Chester formation. Anadarko owns a 64% working interest in the well. Texas Panhandle Another five wells were completed in the West Panhandle Field of Moore County, Texas, as the Company continued with its infill drilling program targeting the shallow Red Cave formation. Seven wells were placed on production during the third quarter at a combined initial rate of 5.5 MMcf/d of gas (gross). So far in 2000, Anadarko has drilled 29 successful Red Cave wells, which have added 8.0 MMcf/d of gas (gross) to the Company's production volumes. Anadarko owns a 100% working interest in these 2,300-foot low-cost gas wells. During the second quarter, Anadarko also completed the Wander A-4 well in the Ryus East Field of Grant County, Kansas. The well tested 210 BOPD after being drilled to a total depth of 5,679 feet. Anadarko has a 100% working interest in this deep well. Texas Panhandle Activity in Anadarko's West Panhandle Field of Moore County, Texas continued at a healthy pace in the second quarter as the Company moved forward with its comprehensive infill drilling program in the shallow Red Cave formation. So far this year, Anadarko has spudded 24 wells as part of the program, with those that have been completed adding natural gas volumes of more than 20 MMcf/d. The Company has a 100% working interest in these low-cost wells. Paving the way for Anadarko's increased density drilling program in the area was a recent ruling by state regulators validating the Company's claim that a portion of the field was not being drained efficiently with existing 640 acre spacing. The decision cleared the way for Anadarko to begin drilling wells on 160 acre spacing. Permian Basin In the increasingly active North Shugart Field of Eddy County, New Mexico, Anadarko had three significant completions during the second quarter. The Bone Spring wells tested at a combined rate of 955 BOPD and 670 thousand cubic feet per day (Mcf/d) of gas. The Company holds about 1,200 acres in the North Shugart Field, located about 60 miles southeast of Roswell, New Mexico. Anadarko has a 100% working interest in these wells. -19--28- Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations (continued) As part of an ongoingPermian Basin The Company's waterflood program in the Snyder Field of Howard County, Texas, Anadarko hadcontinued at a brisk pace during the third quarter. Individual well results were highlighted by the B.S. TXL "D" No. 3335, No. 3336 and No. 3320, which tested at a combined productionrate of 112181 BOPD (gross) from the San Angelo/Clearfork formation. The Susie B. Snyder No. 2012 well tested 59 BOPD (gross), while the Susie B. Snyder "C" No. 2715 and2819 well produced 101 BOPD (gross). Both wells were completed in the San Angelo formation. The Susie B. Snyder No. 27232010 was completed in the San Angelo/Clearfork formation and tested 144 BOPD (gross). Anadarko has a 100% working interest in each of these wells. Activity was strong in the Revilo Field of Scurry County, Texas, during the third quarter, with four completions. The P.P. Boyles No. 16 well and the M.M. Boyd No. 8 tested at a combined rate of 149 BOPD (gross). The Company has a 100% working interest in these Wichita/Albany producers. The M.M. Boyd No. 7 produced 49 BOPD (gross) after being completed in the San Angelo formation. The Iona Williamson No. 10 well was completed in the Glorieta and Clearfork formations and tested 57 BOPD (gross). The Company has a 100% working interest in both of these wells. A nine-well development drilling program in the North Shugart Field of Eddy County, New Mexico was concluded in the third quarter. As a result of the initiative, gross production from the Bone Spring formation increased to 959 BOPD and 1.5 MMcf/d of gas, up from 40 BOPD and 90 Mcf/d of gas prior to the program. Two completions from the third quarter included the Paton "B" No. 3 Federal well which tested 62 BOPD (gross) from the Grayburg formation and the Baish Federal No. 11, that produced 90 BOPD (gross) from the Bone Spring formation. Anadarko owns a 100% working interest in each well. In the Ozona Field, of Crockett County, Texas, activity continued at a steady pace highlighted by development drilling in the Canyon Sand and Strawn intervals. During the third quarter Anadarko completed 11 development wells which produced 2.5 MMcf/d of gas (gross). Year-to- date, 40 wells have been completed in the Ozona Field, adding 7 MMcf/d of gas (gross). Rocky Mountains The 2000 coal-bed methane drilling program in Utah began in the third quarter. Using two rigs, the Company has drilled 31 successful wells, with another 22 wells planned for the fourth quarter. The majority of production from these wells initially will be water, with gas volumes ramping up through 2001. -29- Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations (continued) In the Helper Field of Carbon County, Utah - the focal point of Anadarko's coal-bed methane program - construction to expand the existing central production facility (CPF) was initiated and is expected to be completed in the fourth quarter of 2000. Currently processing 23 MMcf/d of gas (gross), the CPF is at full capacity. The expansion project will increase its capabilities to 33 MMcf/d of gas. Construction also began on a new CPF, an electrical distribution system and a pipeline network for the Clawson Spring Field in Carbon and Emery Counties, Utah. This project is also expected to be completed in the fourth quarter. The pace of drilling in the greater Wamsutter area in Wyoming increased in the third quarter as a result of government approval of the Continental Divide/Wamsutter II Environmental Impact Study. A total of 49 wells have been drilled as part of a four-rig drilling program in the area, which will continue through 2000. Anadarko has an average 25% working interest in these wells. In addition, Anadarko expects to have two Company-operated rigs running during the fourth quarter that will be focused on development drilling. One will be dedicated to an infill project in the Wamsutter Field and the other to a drilling project in the Brady Field. In the overthrust belt of western Wyoming, activity was highlighted by the completion of the Kewanee Federal 1A well. This horizontal re- entry in the Madison formation tested at rates as high as 52 MMcf/d of gas which will flow to the Whitney Canyon plant. Anadarko owns a 12.6% working interest in the well and a 19% working interest in the Whitney Canyon plant. Golden Trend Anadarko launched a 19-well drilling program in the third quarter to develop oil reserves in the Northeast Purdy Springer Unit (NEPSU). The initiative will focus on CO2 flood infill drilling in the NEPSU. There were two active rigs in operation at the end of the third quarter, and the Company expects to have three rigs active in the fourth quarter. Carthage During the third quarter, Anadarko completed 12 wells in the Carthage area of East Texas, which added 11 MMcf/d of gas (gross) to the Company's production volumes. Four rigs are currently operating in the play, developing tight gas sands in the Cotton Valley interval. The Sandbar prospect, an exploratory well targeting the deeper Bossier formation, was also spud in the third quarter. Net volumes from the more than 900 wells currently producing in the four areas comprising the Carthage Field are about 100 MMcf/d of gas and about 5,000 barrels of oil and NGLs per day. -30- Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations (continued) Central Texas Continued development of the Buda and Austin Chalk formations is the primary focus of Anadarko's efforts in central Texas. Using six rigs, the Company completed 16 wells in the third quarter, which added incremental production of 38.1 MMcf/d of gas and 6,100 BOPD. Particularly noteworthy was the Becker No. 1 RE well in the Navasota River Field of Washington County, Texas which is producing 22.3 MMcf/d of gas. Anadarko has a 100% working interest in the San Angelo formationwell. Current net volumes from Anadarko's nearly 1,200 producing wells whichin central Texas are 190 MMcf/d of gas and 13,935 BOPD. Re-entering producing intervals through the use of horizontal drilling is a major component of Anadarko's Austin Chalk program. A total of 11 workover rigs were drilled as part of planned 27 well program now under way. The Company also reported in operation during the secondthird quarter, conducting fracture stimulation operations that increased the B.S. TXL "C" No. 3350 tested 67 BOPD, which is part of a 61 well drilling program.Company's production volumes. Offshore - Gulf of Mexico Sub-salt Using a jack-up rig, Anadarko completedwas the A-1 wellapparent high bidder on 17 of 18 blocks on which the Company bid in the Mahogany Field. Production fromFederal OCS Lease Sale No. 177 conducted by the wellMinerals Management Service on August 23, 2000. Six of the blocks are in the Mustang Island area offshore Texas, where water depths run as shallow as 250 feet. The rest are deepwater blocks located in the East Breaks and Garden Banks areas in water depths up to 4,000 feet. Three of the blocks surround Anadarko's LaSalle deepwater prospect, which is expected to be drilled in December 2000 or January 2001. The Company invested $4.7 million to acquire the lease acreage and holds a 100% working interest in 15 of the blocks and a 50% working interest in the other two blocks. To date, Anadarko has officially been off-line since July 1999 as a resultawarded 15 of mechanical problems. Anadarko is currently drilling a deep exploratory test well below the main field pay interval. Construction17 blocks for which it was the apparent high bidder. Sub-salt Installation of the production facilities to develop the Tanzanite (Eugene Island 346) and Hickory (Grand Isle 110/111/116) discoveries progressedFields 80 miles off the coast of Louisiana was completed during the secondthird quarter. Both procedures were completed during a three-week period in late August and early September. The Tanzanite platform, located in 314 feet of water, is designed with six drilling slots and will have the capacity to produce 200 MMcf/d of gas and 15,000 BOPD. The Hickory jacketplatform, located in 320 feet of water, will be capable of producing 300 MMcf/d of gas and platform are planned for installation during August, followed by the installation of the15,000 BOPD through eight drilling slots. Anadarko has a 100% working interest in Tanzanite jacket and platformhas a few weeks later. Production50% working interest in Hickory. Initial production from these twoboth fields is expected to commence induring the fourth quarter of 2000. Anadarko (operator) owns a 50% working interest inIn the Hickory and a 100% working interest in Tanzanite. Deepwater Delineation of Anadarko's first deepwater discovery at Marco Polo continuedField during the second quarter with the drilling of a successful sidetrack. A third sidetrack is now drilling. Additional sidetracks or wells may be drilled to fully evaluate this discovery. Results from the original Marco Polo discovery well were officially announced during the second quarter. The Green Canyon Block 608 No. 1 well encountered 320 feet of oil pay in two major intervals. The Company owns a 100% working interest in the Marco Polo prospect, which is located 160 miles off the Louisiana coast in 4,300 feet of water. Conventional As part of an ongoing program to increase production from the Matagorda Island 622/623 Complex, the C-8 well was completed during the second quarter and production should commence shortly. Natural gas volumes are expected to compare favorably with the C-7 well, which increased gross production from 215 MMcf/d to 295 MMcf/d. The Company owns a 37.5% working interest in the complex. -20- Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations (continued) Alaska Installation of production facilities at the Alpine Field on the North Slope progressed in the second quarter. First production of 40,000 BOPD (gross) is expected to begin in the fourth quarter of 2000, increasing to 80,000 BOPD (gross) by early 2001. All of the various production modules are now on site and crews are focused primarily on final checks of the equipment for proper operation. Overall, the project is more than 90% complete. Development drilling at Alpine has continued during 2000. Anadarko owns a 22% working interest in the Alpine Field. Anadarko is continuing its North Slope exploration program, now centered on evaluating drilling results from the Nanuk prospect, located south of Alpine and in the National Petroleum Reserve - Alaska (NPRA). Anadarko has completed drilling on the Clover, Rendezvous and Spark prospects within the NPRA. Initial results, while not released, are encouraging. Additional drilling is planned for the next drilling season in the winter of 2000/2001. International Algeria During the second quarter, Anadarko marked the second anniversary of first oil production from the Hassi Berkine South (HBNS) Field on May 4, 1998. As of May 3, 2000, cumulative production from the Central Production Facility (CPF) was 31.2 million barrels (gross), with Anadarko's net cumulative oil exports totaling 10.3 million barrels. During the second quarter, the HBNS Field produced 70,950 BOPD (gross), which was an increase from 60,300 BOPD in the first quarter. Water injection operations have continued to progress and reservoir performance is consistent with the Company's expectations. During the second quarter, the HBNS-15, HBNS-32 and HBNS-2 wells were connected to the water distribution system and commenced operations as injection wells. Water injection is instrumental in helping to maximize oil recovery. The HBNS-33 and HBNS-35 wells were completed as oil wells. Meanwhile, construction of Stage II facilities continued in the second quarter and when completed should increase gross HBNS production capacity to 135,000 BOPD beginning in the third quarter, of 2001. Construction isAnadarko also under way on a third production train to developspudded the Hassi Berkine (HBN) Field,Grand Isle 111 well No. 1, which is expectedtesting a separate fault block adjacent to add another 75,000 BOPDthe original discovery well (Grand Isle 116 No. 1). Also known as the North Hickory prospect, the well is currently being sidetracked to the top of gross production capacity in early 2002. The HBN Field is unitized with the adjacent Sonatrach/ENI AGIP association. Development drilling has recently begun in the HBN Field, where two wells will be drilled in the third quarter. -21-Hickory structural closure. -31- Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations (continued) At the Ourhoud Field (ORD)Mahogany production platform (Ship Shoal 349/359), a letter of intent was entered into in early July for an Engineering, Procurement and Construction contract (EPC) for construction of a 230,000 BOPD production facility.Anadarko spudded the A-9 exploratory well during the third quarter. The contractwell is with a joint venture of Japan Gasoline Corp. (JGC) and Initec, a Spanish company. First production is expected before year- end 2002. Anadarko's second quarter drilling program included two delineation wellstargeting natural gas in the ORD Field. The QB-10 and QB-11 wells encountereddeeper "T" sand interval below the TAGI reservoirmain "P" sand pay zone which produces oil. At the end of October the A-9 well was drilling at 11,364 feet. Deepwater A third sidetrack well to the Green Canyon 608 No. 1 well was drilled during the third quarter, as delineation of the Marco Polo discovery continued. Drilling is also underway on the Green Canyon 608 No. 2 well, which is designed to test for additional pay intervals in a favorable structural position and have been suspendedseparate fault block. The Company owns a 100% working interest in the Marco Polo prospect. Elsewhere in the deepwater, the Company spudded the Mississippi Canyon 711 No. 5 well as planned oil wells awaiting completion.part of an effort to determine the extent of the Gomez discovery. Conventional At the Matagorda Island 622/623 complex, the largest gas field offshore Texas, the operator completed the D-3 well during the third quarter as part of an ongoing program to increase natural gas volumes. The ORD Field is unitized withwell was brought on-line at a rate of 35 MMcf/d of gas. In addition, production from the Sonatrach/CEPSA and Sonatrach/Burlington Resources associations. Tunisia In the Jenein Nord Block, Anadarko spudded an exploratoryC-8 well, which began drilling in the second quarter, of 2000, which was still drillingcommenced in the third quarter. A procedure to install larger 5-1/2 inch tubing during the third quarter also helped accelerate production. Gross volumes from the field at the end of the quarter.third quarter were more than 200 MMcf/d of gas. The Company has a 50%37.5% working interest in the 384,000 acre block, priorcomplex. The South Marsh Island Block 269 No. 7 STDK #1 well was drilled during the third quarter and encountered 60 feet of pay. Completion efforts are currently underway with initial production expected to back-in by ETAP (Tunisia's national oil company)be 25 MMcf/d of gas (gross). GeorgiaAnadarko owns a 55% working interest in the well and serves as operator. During the third quarter, the second well was spud at Ship Shoal Block 296. The well encountered two pay sands totaling 60 feet after being drilled to a depth of 10,345 feet. The No. 2 well is awaiting the fabrication and installation of production facilities. Flow rates are estimated at 25-40 MMcf/d of gas. The No. 1 well, which was spud during the second quarter, logged 75 feet of pay. Anadarko entered intoowns a 35% working interest in the field. In the third quarter, Anadarko had a discovery at Ship Shoal Block 207. The A-35 well encountered more than 100 feet of net gas pay in four zones. Production Sharing Contract (PSC) with the Stateis expected to commence in November 2000 at an initial rate of Georgia represented by the State Agency for Regulation15 MMcf/d of Oil and Gas, Joint Stock Company Saknavtobi, the Georgian national oil company, and British firm JKX Oil and Gas plc. The agreement, signed June 26 in Georgia's capital of Tbilisi, givesgas. Anadarko exploration rights to three blocks covering approximately 8,900 square kilometers on the Black Sea continental shelf and extending 50 miles offshore. A portionserves as operator of the contract area is offshore the region of Abkhazia, which claims autonomy from Georgia,well and that portion of the contract is currently subject to force majeure pendinghas a resolution of the dispute. The contract area, which is equivalent to 382 Gulf of Mexico blocks, was originally issued in 1994 to Georgian British Oil Company, a joint venture between a JKX affiliate and the Georgian national oil company. The contract signed by Anadarko amends and restates a 1996 PSC executed by JKX taking into account the establishment of an oil and gas law in 1999 that created the framework for encouraging more foreign investment. Anadarko is the first western company to conduct an exploration program in this area that has seen very little activity; however, this area is prospective for oil and gas. The terms of the PSC call for Anadarko to acquire a minimum of 1,000 kilometers of seismic within the first 18 months. Anadarko is currently53% working with the Georgian government to secure the necessary seismic permits. Besides the seismic acquisition program Anadarko expects to conduct regional geologic studies and gravity and magnetics evaluations, along with sea bed sampling. Currently, Anadarko has committed only to meet the seismic acquisition program. Any additional spending will be based on what is learned from the geophysical data collected. -22-interest. -32- Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations (continued) Alaska Development facilities at the Alpine Field on the North Atlantic Anadarko has begun drilling the second exploratory wellSlope are nearly complete, with first production on Tranche 61schedule to begin later in the United Kingdomfourth quarter of 2000. Anadarko expects volumes to average 80,000 BOPD (gross) in 2001. During the third quarter, Anadarko sold a 33.33% working interest in its North Atlantic Margin. Operations are being carried outSlope acreage held under exclusive lease option to AEC Oil & Gas (USA) Inc., a wholly owned subsidiary of Alberta Energy Company Limited. The lease covers 3.1 million acres under option from the Arctic Slope Regional Corporation in 5,300the Foothills region south of Prudhoe Bay. Anadarko is operator, with a 66.67% working interest. The transaction complements Anadarko's purchase of MacKenzie Delta Basin acreage in Canada's Northwest Territories (see below for details). International Canada In August 2000, Anadarko purchased a 37.5% working interest in two exploration licenses covering 530,000 acres in the MacKenzie Delta region from Alberta Energy Company Ltd. (AEC) of Calgary. Increasing Canadian holdings in the MacKenzie Delta fits Anadarko's long-term strategy of providing natural gas to North American markets. The transaction involves two onshore blocks adjacent to the gas-rich Parsons Lake Field. The purchase complements Anadarko's MacKenzie Delta/Beaufort Sea holdings, which consist of non-operated working interests that range from 3% to 24% in 11 significant discovery licenses and one production license. Combined, the properties cover more than 142,000 gross acres and include the Amauligak Field, the largest offshore field in the Canadian portion of the Beaufort Sea. In another development, Anadarko submitted a successful bid for an exploration license on one of the MacKenzie Delta/Beaufort Sea tracts offered in the August 14, 2000 lease sale by the Minister of Indian Affairs and Northern Development. The Company acquired a 100% working interest in Exploration License No. 407, which is centrally located in a region where 53 fields with reserves of 9 trillion cubic feet of water using a semi- submersible rig.gas and 1 billion barrels of oil have already been discovered (source: National Energy Board). Exploration License 407 covers about 176,000 acres and is immediately northwest of the giant Taglu Field. During the first nine months of 2000, 254 wells were completed in the shallow gas Hatton play of southwest Saskatchewan, adding production of 16 MMcf/d of gas (net). The Hatton Field is currently producing 72.8 MMcf/d of gas (net) with the Company's working interest in these wells averaging about 85%. Anadarko has a 7.5%two-year inventory of 610 shallow gas wells. -33- Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations (continued) Combined production from the various heavy oil programs underway in Eastern Alberta is currently about 16,000 BOPD. In the Kehewin/Moose Hills areas, the primary area of focus, 112 wells have been drilled year to date with cumulative incremental production of more than 700,000 barrels or nearly 2,700 BOPD. Using 2-D seismic data, Anadarko has located new productive channels on 50,000 acres acquired last year, with additional drilling planned for this year. A 130 square-mile 3-D seismic acquisition program is planned for later in the 2000-2001 winter season. Overall, Anadarko projects more than 1,000 drilling locations in its inventory for this very economic play. Production at the Klua Field in British Columbia has been expanded by 10 MMcf/d of gas, with volumes currently running at 28 MMcf/d of gas (gross). Another 50 drilling locations have been identified in various plays throughout British Columbia where Anadarko will have nine rigs active during the 2000-2001 winter season. Algeria During the third quarter, Anadarko and partners awarded the Engineering Procurement and Construction (EPC) contract to build a central production facility to develop the Ourhoud Field. The new facilities, which are being built by a joint venture group composed of JGC Corporation of Japan and Initec of Spain, will have a capacity of 230,000 BOPD (gross) when completed. First production is expected in late 2002. The EPC contract calls for the construction of three oil processing units, along with water injection and gas processing and injection facilities, a field gathering system and crude oil storage and shipping installations. In addition, the Company and its partners signed an addendum to the EPC contract with Brown and Root Condor for development of the satellite fields (HBNSE, RBK, QBN and BKNE) adjacent to the Hassi Berkine South (HBNS) Field. The contract includes construction of a third production train under Anadarko's Stage II development program that will increase gross plant capacity by an additional 75,000 BOPD in the second half of 2002. Highlights from Anadarko's drilling program in the third quarter included a number of significant wells. The HBN-5 well, located in the southern portion of the Hassi Berkine (HBN) Field, encountered 38 feet of net pay in the TAGI reservoir and was completed as an oil producer. The well tested 4,623 BOPD and 4.1 MMcf/d of gas. The HBN-6 well, located in the northern area of the HBN Field, was completed as an oil producer in September. The well encountered nearly 72 feet of net pay in the main TAGI reservoir. The QB-12 well in the north central portion of the Ourhoud Field encountered 112 feet of net pay and was suspended as a planned oil producer. -34- Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations (continued) Latin America In Venezuela, during the third quarter, three successful wells were drilled in the Oritupano Leona Field. The Orm- 144, Orm-145 and Orm-146 wells are being completed in the Oficina formation. Anadarko has a 45% working interest in this field. Third quarter drilling activity brings the number of wells drilled to date in 2000 to 22 wells of a planned 28 wells for the year. Daily production has increased to 45,000 BOPD (gross) (20,000 BOPD net to Anadarko), up from 40,000 BOPD (gross) (18,000 BOPD net) at the beginning of the year. In Guatemala, an 11,500 foot exploration well is presently drilling on La Sabana No. 1. Anadarko operates all of its activities in Guatemala with a 100% interest. West Africa In the third quarter, Anadarko entered into a farmout agreement for three exploration blocks off the coast of West Africa. Anadarko will serve as operator and holds a 50% interest in the project.Agali Block offshore Gabon and will also operate the Marine IX Block offshore the Republic of Congo with a 37.5% interest. On the Keta Block in Ghana, a shelf-edge exploration well is expected to be drilled later this year in which Anadarko has a 50% interestinterest. A deepwater 3-D seismic survey is planned for the Agali Block early in offsetting acreage2001 to evaluate prospective areas identified on Tranche 63.a recent 2-D survey. A deepwater exploration well is planned for the Marine IX Block in 2001. North Atlantic Margin Anadarko acquired two blocks in the most recent licensing round in the Faroe Islands and is currently evaluating its options which could include exploratory drilling to chase the play northward. New Accounting Principles Accounting for Derivatives Statement of Financial Accounting Standards (SFAS) No. 133, "Accounting for Derivative Instruments and for Hedging Activities", as amended, provides guidance for accounting for derivative instruments and hedging activities. In July 1999, SFAS No. 137 "Deferral of the Effective Date of FASB Statement 133", was issued and delays the133, as amended, is effective date for one year, to fiscal years beginning after June 15, 2000. The Company is evaluating the impact of the provisions of SFAS No. 133.133 and believes it will not have a material effect on the Company's financial condition or results of operations. Revenue Recognition The Securities and Exchange Commission (SEC) issued Staff Accounting Bulletin (SAB) No. 101, "Revenue Recognition in Financial Statements" in December 1999. SAB No. 101 summarizes the SEC staff's views in applying generally accepted accounting principles to selected revenue recognition issues. The Company understands the SEC staff is preparinghas issued a -35- Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations (continued) document to address significant implementation issues related to SAB No. 101. To the extent that SAB No. 101 ultimately changes Anadarko's revenue recognition practices, Anadarko will be required to adopt SAB No. 101 no later than the quarter beginning October 1, 2000, with any cumulative effect adjustment computed as of January 1, 2000. Currently, Anadarko includes the margin related to oil and gas marketing activities as oil and gas revenues. SAB No. 101 requires that the purchases of oil and gas related to marketing, currently included in the margin, be reclassified to costs and expenses. The Company is evaluatingestimates that the impact of the provisions ofeffect, if SAB No. 101. -23-101 had been adopted for the three and nine months ended September 30, 2000, would be an increase to revenues of $0.9 billion and $1.7 billion, respectively, offset by an increase to costs and expenses of $0.9 billion and $1.7 billion, respectively. -36- Item 3. Quantitative and Qualitative Disclosures About Market Risk Use of Derivatives Anadarko produces, purchases and sells natural gas, crude oil and NGLs. As a result, Anadarko's financial results can be significantly affected by changes in these commodity prices. Anadarko uses derivative commodity instruments to hedge the Company's exposure to changes in the market price of natural gas and crude oil, and to provide methods to fix the price for natural gas independently of the physical purchase or sale. Derivative commodity instruments also provide methods to meet customer pricing requirements while achieving a price structure consistent with the Company's overall pricing strategy. While derivative commodity instruments are intended to reduce the Company's exposure to declines in the market price of natural gas and crude oil, the derivative commodity 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 derivative commodity 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 derivative commodity instruments relate. In the event of a loss of correlation between oil and gas reference prices for a derivative commodity instrument and actual oil and gas prices, gains or losses for the amount the instrument has not offset the change in actual prices are recognized in the period. Occasionally, the Company may enter into derivative commodity instruments for trading purposes with the objective of generating profits on or from exposure to shifts or changes in the market price of natural gas and crude oil. These trading activities do not qualify as hedges of production and are marked to market in the period. Trading gains or losses are recorded with revenues from the corresponding product. Anadarko's derivative commodity instruments currently are comprised of futures, swaps and options contracts. While theThe 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 June 30, 2000 and December 31, 1999 was, in the judgment of the Company, immaterial. Additionally, throughguidelines. Through the use of sensitivity analysis the Company evaluates separately, for its non- trading and trading activities, the potential effect that reasonably possible near term changes in the market prices of natural gas and crude oil prices may have on the fair value ofcash flows from the Company's derivative commodity instruments. Based uponon 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 JuneSeptember 30, 2000 and December 31, 1999 does not have a material adverse effect on the financial position or results of operations of the Company. -24--37- Item 3. Quantitative and Qualitative Disclosures About Market Risk Anadarko is also exposed to risk resulting from changes in interest rates as a result of the Company's variable and fixed interest rate debt as well as fixed to floating interest rate swaps. The Company has evaluated the potential effect that reasonably possible near term changes in interest rates may have on the fair value of the Company's various debt instruments and its interest rate swap agreements. Based upon an analysis, utilizing the actual interest rates in effect as of JuneSeptember 30, 2000 and December 31, 1999 and assuming a 10% increase in interest rates, the potential decrease in the fair value of the derivative interest swap instruments at JuneSeptember 30, 2000 and December 31, 1999 does not have a material effect on the financial position or results of operations of the Company. -25-Foreign Currency Risk At September 30, 2000, the Company's Canadian subsidiary had $650 million outstanding of fixed-rate notes and debentures denominated in U.S. dollars. For the third quarter and nine month period of 2000, the Company recognized an $11 million pretax non- cash loss associated with the remeasurement of this debt. The potential foreign currency remeasurement impact on earnings from a 5% change in the September 30, 2000 Canadian exchange rate would be about $37 million. The Company periodically enters into foreign currency contracts to hedge specific currency exposures from commercial transactions. The following table summarizes the Company's open foreign currency positions at September 30, 2000:
Maturity Year millions, except rates 2000 2004 Total Notional amount $ 18.0 $ 70.0 $88.0 Forward rate 1.4719 1.3629 Market rate 1.5051 1.4714 Decrease in rate (0.0332) (0.1085) Fair value - gain (loss) $ (0.6) $ (7.6) $(8.2)
-38- Part II. OTHER INFORMATION Item 1. Legal Proceedings Kansas Ad Valorem Tax See Note 811 of the Notes to Consolidated Financial Statements under Part I. Financial Information of this Form 10-Q. Item 4. Submissions of Matters to a Vote of Security Holders On April 27,July 13, 2000, in a special meeting held in Houston, Texas, the Company held its Annual Stockholders' Meeting.stockholders of Anadarko approved the merger transaction with Union Pacific Resources Group, Inc. and other related matters. Following are the voting results: (a) Messrs. Conrad P. Albert, Robert J. Allison, Jr. and John N. Seitz were re-elected as Class II directorsApproval of the issuance of Anadarko common shares pursuant to serve for a term of three years. Messrs. Ronald Brown, John R. Butler, Jr. and John R. Gordon will continue to serve as Class I directors and Messrs. Larry G. Barcus and James L. Bryan will continue to serve as Class III directors. Mr. Conrad P. Albert was re-elected with 113,702,130the proposed merger. 106,804,068 votes for, 197,990 votes against, 133,433 shares abstained and 743,183 votes withheld. Mr. Robert J. Allison, Jr. was re-elected with 113,713,5647,872,462 shares not voted. (b) Approval of the Amendment to the Restated Certificate of Incorporation to increase the maximum size of the Board of Directors from nine to 15 directors. 114,305,164 votes for, 562,268 votes against and 731,749 votes withheld. Mr. John N. Seitz was re-elected with 113,703,032140,521 shares abstained. (c) Approval of the Amendment to the Restated Certificate of Incorporation to increase the authorized number of Anadarko common shares from 300,000,000 to 450,000,000. 113,838,085 votes for, 1,021,147 votes against and 742,281148,721 shares abstained. (d) Approval of the Amendment to the 1999 Stock Incentive Plan. 92,492,810 votes withheld. -26-for, 14,369,547 votes against, 279,814 shares abstained and 7,865,782 shares not voted. -39- Item 6. Exhibits and Reports on Form 8-K (a) Exhibits 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 Original Filed File Number Description Exhibit Number 2(a) Agreement and Plan of Merger 2.1 to Form 8-K dated 1-8968 dated as of April 2, 2000, April 2, 2000 among Anadarko, Subcorp and UPR (b) Amendment No. 1 to Rights 2.4 to Form 8-K dated 1-8968 Agreement, dated as of April 2, 2000 April 2, 2000 between Anadarko and Rights Agent 3(a) Restated Certificate of 19(a)(i) to Form 10-Q 1-8968 Incorporation of Anadarko for quarter ended Petroleum Corporation, September 30, 1986 dated August 28, 1986 (b) Amendment to the Restated 3(b) to Form 10-Q 1-8968 Certificate of Incorporation for quarter ended of Anadarko Petroleum March 31, 1999 Corporation, dated April 29, 1999 (c) Certificate of Correction 3(c) to Form 10-Q 1-8968 filed to correct the for quarter ended Amendment to the Restated June 30, 1999 Certificate of Incorporation of Anadarko Petroleum Corporation, dated June 15, 1999 (d) Certificate of Amendment of 4.1 to Form 8-K dated 1-8968 Anadarko's Restated July 28, 2000 Certificate of Incorporation * (e) By-laws of Anadarko Petroleum Corporation, dated June 15, 1999 (d) Certificate of Amendment of 4.1 to Form 8-K dated 1-8968 Anadarko's Restated July 28, 2000 Certificate of Incorporation (e) By-laws of Anadarko 3(b) to Form 10-Q 1-8968 Petroleum Corporation, for quarter ended as amended June 30, 1996 4(a) 364-Day Credit Agreement, 4(a) to Form 10-Q 1-8968 Dated as of April 14, 2000 for quarter ended March 31, 2000
-27--40- Item 6. Exhibits and Reports on Form 8-K (continued)
Exhibit Original Filed File Number Description Exhibit Number Exhibit Original Filed File Number Description Exhibit Number *4(b) Amended and Restated Competitive Advance/ Revolving Credit Agreement, Dated as of October 25, 2000 *10(a) Employment Agreement * (b) First Amendment to Andadarko Petroleum Corporation Key Employee Change of Control Contract *12 Computation of Ratios of Earnings to Fixed Charges and Earnings to Combined Fixed Charges and Preferred Stock Dividends *27 Financial Data Schedule
(b) Reports on Form 8-K A report on Form 8-K dated April 2,July 28, 2000 was filed in which the earliest event reported was April 2,July 14, 2000. This event was reported under Item 2, "Acquisition or Disposition of Assets", Item 5, "Other Events", and Item 7 "Exhibits""Financial Statements, Pro Forma Financial Information and Exhibits". -28--41- SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned duly authorized officer and principal financial officer. ANADARKO PETROLEUM CORPORATION (Registrant) August 11,November 10, 2000 By: [MICHAEL E. ROSE] Michael E. Rose - Executive Vice President, Finance and Chief Financial Officer