UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D. C. 20549

FORM 10-Q

(Mark One)

[ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES

EXCHANGE ACT OF 1934

For the quarterly period ended ~~September 30, 2016~~March 31, 2017

[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES

EXCHANGE ACT OF 1934

For the transition period from to

Commission File No. 1-8968

ANADARKO PETROLEUM CORPORATION

(Exact name of registrant as specified in its charter)



Delaware		76-0146568
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)



1201 Lake Robbins Drive, The Woodlands, Texas		77380-1046
(Address of principal executive offices)		(Zip Code)

Registrant’s telephone number, including area code (832) 636-1000

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 ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate website, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, ~~or a~~ smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” ~~and~~ “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer ☒ Accelerated filer ☐ Non-accelerated filer ☐ Smaller reporting company☐ Emerging growth company ☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒

The number of shares outstanding of the Company’s common stock at ~~October 20, 2016,~~April 19, 2017, is shown below:



Title of Class		Number of Shares Outstanding
Common Stock, par value $0.10 per share		~~558,900,897~~560,339,140

TABLE OF CONTENTS



PART I		Page
Item 1.	Financial Statements
	Consolidated Statements of Income for the Three ~~and Nine~~ Months Ended ~~September 30,~~March 31, 2017 and 2016 ~~and 2015~~	23
	Consolidated Statements of Comprehensive Income for the Three ~~and Nine~~ Months Ended ~~September 30,~~March 31, 2017 and 2016 ~~and 2015~~	34
	Consolidated Balance Sheets at ~~September 30, 2016,~~March 31, 2017, and December 31, ~~2015~~2016	45
	Consolidated Statement of Equity for the ~~Nine~~Three Months Ended ~~September 30, 2016~~March 31, 2017	56
	Consolidated Statements of Cash Flows for the ~~Nine~~Three Months Ended ~~September 30,~~March 31, 2017 and 2016 ~~and 2015~~	67
	Notes to Consolidated Financial Statements	78
	Note 1 - Summary of Significant Accounting Policies	78
	Note 2 - Inventories	811
	Note 3 - Acquisitions, Divestitures, and Assets Held for Sale	911
	Note 4 - Impairments	1012
	Note 5 - Suspended Exploratory Well Costs	1113
	Note 6 - ~~Derivative Instruments~~Current Liabilities	1213
	Note 7 - ~~Tangible Equity Units~~Derivative Instruments	1814
	Note 8 - Debt ~~and Interest Expense~~	19
	Note 9 - Income Taxes	2320
	Note 10 - ~~Conveyance of Future Hard Minerals Royalty Revenues~~Contingencies	21
	Note 11 - Restructuring Charges	21
	Note 12 - Pension Plans and Other Postretirement Benefits	21
	Note 13 - Stockholders’ Equity	22
	Note 14 - Noncontrolling Interests	22
	Note 15 - Variable Interest Entities	23
	Note 16 - Supplemental Cash Flow Information	24
	Note ~~11 - Contingencies~~	25
	~~Note 12 - Restructuring Charges~~	26
	~~Note 13 - Pension Plans and Other Postretirement Benefits~~	27
	~~Note 14 - Stockholders’ Equity~~	28
	~~Note 15 - Accumulated Other Comprehensive Income (Loss)~~	29
	~~Note 16 - Noncontrolling Interests~~	29
	~~Note~~ 17 ~~- Variable Interest Entities~~	30
	~~Note 18 - Supplemental Cash Flow Information~~	31
	~~Note 19~~ - Segment Information	3125
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	3527
	Cautionary Statement About Forward-Looking Statements	3527
	~~Outlook~~	36
	Management Overview	3829
	Financial Results	4030
	Liquidity and Capital Resources	5239
	Recent Accounting Developments	5642
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	5743
Item 4.	Controls and Procedures	5844
PART II
Item 1.	Legal Proceedings	5945
Item 1A.	Risk Factors	5945
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	6045
Item 6.	Exhibits	6146

COMMONLY USED TERMS AND DEFINITIONS

~~Table~~Unless the context otherwise requires, the terms “Anadarko” and “Company” refer to Anadarko Petroleum Corporation and its consolidated subsidiaries. In addition, the following company or industry-specific terms and abbreviations are used throughout this report:

364-Day Facility - Anadarko’s $2.0 billion 364-day senior unsecured RCF maturing in January 2018

ASU - Accounting Standards Update

Bcf - Billion cubic feet

BOE - Barrels of ~~Contents~~oil equivalent

DBJV - Delaware Basin JV Gathering LLC

DBJV system - A gathering system and related facilities located in the Delaware basin in Loving, Ward, Winkler, and Reeves Counties in West Texas

DBM complex - The processing plants, gas gathering system, and related facilities and equipment in West Texas that serve production from Reeves, Loving and Culberson Counties, Texas and Eddy and Lea Counties, New Mexico

DD&A - Depreciation, depletion, and amortization

EPA - U.S. Environmental Protection Agency

Five-Year Facility - Anadarko’s $3.0 billion five-year senior unsecured RCF maturing in January 2021

FPSO - Floating production, storage, and offloading unit

G&A - General and administrative expenses

GAAP - U.S. Generally Accepted Accounting Principles

GOM Acquisition - Acquisition of oil and natural-gas assets in the Gulf of Mexico, which closed on December 15, 2016

IPO - Initial public offering

LIBOR - London Interbank Offered Rate

LNG - Liquefied natural gas

MBbls/d - Thousand barrels per day

MBOE/d - Thousand barrels of oil equivalent per day

Mcf - Thousand cubic feet

MMBbls - Million barrels

MMBOE - Million barrels of oil equivalent

MMBtu - Million British thermal units

MMBtu/d - Million British thermal units per day

MMcf/d - Million cubic feet per day

Moody’s - Moody’s Investors Service

NGLs - Natural gas liquids

NM - Not meaningful

NYMEX - New York Mercantile Exchange

Oil - Includes crude oil and condensate

OPEC - Organization of the Petroleum Exporting Countries

RCF - Revolving credit facility

S&P - Standard and Poor’s

TEN - Tweneboa/Enyenra/Ntomme

TEU or TEUs - Tangible equity units

VIE - Variable interest entity

WES - Western Gas Partners, LP, a limited partnership and publicly-traded consolidated subsidiary of Anadarko

WES RCF - WES’s $1.2 billion five-year senior unsecured RCF maturing in February 2020

WGP - Western Gas Equity Partners, LP, a limited partnership and publicly-traded consolidated subsidiary of Anadarko

WGP RCF - WGP’s $250 million three-year senior secured RCF maturing in March 2019

Zero Coupons - Anadarko’s Zero-Coupon Senior Notes due 2036

PART I. FINANCIAL INFORMATION

Item 1. Financial Statements

ANADARKO PETROLEUM CORPORATION

CONSOLIDATED STATEMENTS OF INCOME

(Unaudited)

Three Months Ended
September 30, Nine Months Ended
September 30,
millions except per-share amounts 2016 2015 2016 2015
Revenues and Other
Oil and condensate sales $ 1,239
$ 1,229
$ 3,214
$ 4,264
Natural-gas sales 435
484
1,121
1,612
Natural-gas liquids sales 227
183
640
644
Gathering, processing, and marketing sales 350
334
895
932
Gains (losses) on divestitures and other, net (358 ) (542 ) (388 ) (807 )
Total 1,893
1,688
5,482
6,645
Costs and Expenses
Oil and gas operating 198
262
608
784
Oil and gas transportation 256
265
744
853
Exploration 304
1,074
506
2,260
Gathering, processing, and marketing 291
289
758
798
General and administrative 362
303
1,116
888
Depreciation, depletion, and amortization 1,069
1,111
3,202
3,581
Other taxes 148
127
422
460
Impairments 27
758
61
3,571
Other operating expense 31
48
54
117
Total 2,686
4,237
7,471
13,312
Operating Income (Loss) (793 ) (2,549 ) (1,989 ) (6,667 )
Other (Income) Expense
Interest expense 220
199
657
616
Loss on early extinguishment of debt —
—
124
—
(Gains) losses on derivatives, net 25
282
629
123
Other (income) expense, net (31 ) 47
(86 ) 109
Tronox-related contingent loss —
—
—
5
Total 214
528
1,324
853
Income (Loss) Before Income Taxes (1,007 ) (3,077 ) (3,313 ) (7,520 )
Income tax expense (benefit) (260 ) (917 ) (957 ) (2,232 )
Net Income (Loss) (747 ) (2,160 ) (2,356 ) (5,288 )
Net income (loss) attributable to noncontrolling interests 83
75
200
154
Net Income (Loss) Attributable to Common Stockholders $ (830 ) $ (2,235 ) $ (2,556 ) $ (5,442 )

Per Common Share
Net income (loss) attributable to common stockholders—basic $ (1.61 ) $ (4.41 ) $ (5.00 ) $ (10.73 )
Net income (loss) attributable to common stockholders—diluted $ (1.61 ) $ (4.41 ) $ (5.00 ) $ (10.73 )
Average Number of Common Shares Outstanding—Basic 517
508
512
508
Average Number of Common Shares Outstanding—Diluted 517
508
512
508
Dividends (per common share) $ 0.05
$ 0.27
$ 0.15
$ 0.81

~~See accompanying Notes to Consolidated Financial Statements.~~

~~Table of Contents~~

~~ANADARKO PETROLEUM CORPORATION~~

~~CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME~~

~~(Unaudited)~~

Three Months Ended
September 30, Nine Months Ended
September 30,
millions 2016 2015 2016 2015
Net Income (Loss) $ (747 ) $ (2,160 ) $ (2,356 ) $ (5,288 )
Other Comprehensive Income (Loss)
Adjustments for derivative instruments
Reclassification of previously deferred derivative losses to (gains) losses on derivatives, net 2
2
7
7
Income taxes on reclassification of previously deferred derivative losses to (gains) losses on derivatives, net (1 ) (1 ) (3 ) (3 )
Total adjustments for derivative instruments, net of taxes 1
1
4
4
Adjustments for pension and other postretirement plans
Net gain (loss) incurred during period (157 ) —
(347 ) —
Income taxes on net gain (loss) incurred during period 58
—
128
—
Prior service credit (cost) incurred during period —
—
(1 ) —
Income taxes on prior service credit (cost) incurred during period —
—
1
—
Amortization of net actuarial (gain) loss to general and administrative expense 114
13
156
39
Income taxes on amortization of net actuarial (gain) loss to general and administrative expense (43 ) (5 ) (59 ) (14 )
Amortization of net prior service (credit) cost to general and administrative expense (6 ) 1
(27 ) 2
Income taxes on amortization of net prior service (credit) cost to general and administrative expense 2
(1 ) 10
(1 )
Total adjustments for pension and other postretirement plans, net of taxes (32 ) 8
(139 ) 26
Total (31 ) 9
(135 ) 30
Comprehensive Income (Loss) (778 ) (2,151 ) (2,491 ) (5,258 )
Comprehensive income (loss) attributable to noncontrolling interests 83
75
200
154
Comprehensive Income (Loss) Attributable to Common Stockholders $ (861 ) $ (2,226 ) $ (2,691 ) $ (5,412 )



	Three Months Ended March 31,
millions except per-share amounts	2017			2016
Revenues and Other
Oil sales	$	1,663		$	850
Natural-gas sales	502			366
Natural-gas liquids sales	289			178
Gathering, processing, and marketing sales	444			240
Gains (losses) on divestitures and other, net	869			40
Total	3,767			1,674
Costs and Expenses
Oil and gas operating	258			208
Oil and gas transportation	249			242
Exploration	1,085			126
Gathering, processing, and marketing	351			215
General and administrative	269			449
Depreciation, depletion, and amortization	1,115			1,149
Production, property, and other taxes	155			117
Impairments	373			16
Other operating expense	22			16
Total	3,877			2,538
Operating Income (Loss)	(110		)	(864		)
Other (Income) Expense
Interest expense	223			220
(Gains) losses on derivatives, net	(147		)	297
Other (income) expense, net	(8		)	—
Total	68			517
Income (Loss) Before Income Taxes	(178		)	(1,381		)
Income tax expense (benefit)	97			(383		)
Net Income (Loss)	(275		)	(998		)
Net income (loss) attributable to noncontrolling interests	43			36
Net Income (Loss) Attributable to Common Stockholders	$	(318	)	$	(1,034	)

Per Common Share
Net income (loss) attributable to common stockholders—basic	$	(0.58	)	$	(2.03	)
Net income (loss) attributable to common stockholders—diluted	$	(0.58	)	$	(2.03	)
Average Number of Common Shares Outstanding—Basic	551			509
Average Number of Common Shares Outstanding—Diluted	551			509
Dividends (per Common Share)	$	0.05		$	0.05

See accompanying Notes to Consolidated Financial Statements.

Table of Contents

ANADARKO PETROLEUM CORPORATION

CONSOLIDATED ~~BALANCE SHEETS~~STATEMENTS OF COMPREHENSIVE INCOME

(Unaudited)

millions September 30,
2016 December 31,
2015
ASSETS
Current Assets
Cash and cash equivalents ($146 and $100 related to VIEs) $ 3,980
$ 939
Accounts receivable (net of allowance of $12 and $11)
Customers ($56 and $81 related to VIEs) 848
652
Others ($68 and $84 related to VIEs) 743
1,817
Other current assets 347
573
Total 5,918
3,981
Properties and Equipment
Cost 69,089
70,683
Less accumulated depreciation, depletion, and amortization 37,990
36,932
Net properties and equipment ($5,037 and $4,859 related to VIEs) 31,099
33,751
Other Assets ($614 and $644 related to VIEs)
2,203
2,268
Goodwill and Other Intangible Assets ($1,230 and $1,220 related to VIEs)
6,197
6,331
Total Assets $ 45,417
$ 46,331

LIABILITIES AND EQUITY
Current Liabilities
Accounts payable ($185 and $179 related to VIEs) $ 1,983
$ 2,850
Current asset retirement obligations 232
309
Interest payable 145
247
Other taxes payable ($32 and $18 related to VIEs) 313
318
Accrued expenses 301
424
Short-term debt 788
32
Total 3,762
4,180
Long-term Debt 15,090
15,636
Other Long-term Liabilities
Deferred income taxes 4,343
5,400
Asset retirement obligations ($137 and $127 related to VIEs) 1,744
1,750
Other 4,566
3,908
Total 10,653
11,058

Equity
Stockholders’ equity
Common stock, par value $0.10 per share (1.0 billion shares authorized, 571.7 million and 528.3 million shares issued) 57
52
Paid-in capital 11,842
9,265
Retained earnings 2,246
4,880
Treasury stock (20.7 million and 20.0 million shares) (1,027 ) (995 )
Accumulated other comprehensive income (loss) (518 ) (383 )
Total Stockholders’ Equity 12,600
12,819
Noncontrolling interests 3,312
2,638
Total Equity 15,912
15,457
Total Liabilities and Equity $ 45,417
$ 46,331



	Three Months Ended March 31,
millions	2017			2016
Net Income (Loss)	$	(275	)	$	(998	)
Other Comprehensive Income (Loss)
Adjustments for derivative instruments
Reclassification of previously deferred derivative losses to (gains) losses on derivatives, net	1			3
Income taxes on reclassification of previously deferred derivative losses to (gains) losses on derivatives, net	—			(1		)
Total adjustments for derivative instruments, net of taxes	1			2
Adjustments for pension and other postretirement plans
Net gain (loss) incurred during period	(4		)	(166		)
Income taxes on net gain (loss) incurred during period	1			61
Prior service credit (cost) incurred during period	—			(1		)
Income taxes on prior service credit (cost) incurred during period	—			1
Amortization of net actuarial (gain) loss to general and administrative expense	9			8
Income taxes on amortization of net actuarial (gain) loss to general and administrative expense	(3		)	(3		)
Amortization of net prior service (credit) cost to general and administrative expense	(6		)	(15		)
Income taxes on amortization of net prior service (credit) cost to general and administrative expense	2			5
Total adjustments for pension and other postretirement plans, net of taxes	(1		)	(110		)
Total	—			(108		)
Comprehensive Income (Loss)	(275		)	(1,106		)
Comprehensive income (loss) attributable to noncontrolling interests	43			36
Comprehensive Income (Loss) Attributable to Common Stockholders	$	(318	)	$	(1,142	)

~~Parenthetical references reflect amounts as of September 30, 2016, and December 31, 2015.~~

See accompanying Notes to Consolidated Financial Statements.

Table of Contents

ANADARKO PETROLEUM CORPORATION

CONSOLIDATED ~~STATEMENT OF EQUITY~~BALANCE SHEETS

(Unaudited)

Total Stockholders’ Equity

Common
Stock

Paid-in
Capital

Retained
Earnings

Treasury
Stock

Accumulated Other
Comprehensive
Income (Loss)

Non-
controlling
Interests

Total
Equity
millions
Balance at December 31, 2015 $ 52
$ 9,265
$ 4,880
$ (995 ) $ (383 ) $ 2,638
$ 15,457
Net income (loss) —
—
(2,556 ) —
—
200
(2,356 )
Common stock issued 5
2,307
—
—
—
—
2,312
Dividends—common stock —
—
(78 ) —
—
—
(78 )
Repurchase of common stock —
—
—
(32 ) —
—
(32 )
Subsidiary equity transactions —
270
—
—
—
734
1,004
Distributions to noncontrolling interest owners —
—
—
—
—
(260 ) (260 )
Reclassification of previously deferred derivative losses to (gains) losses on derivatives, net —
—
—
—
4
—
4
Adjustments for pension and other postretirement plans —
—
—
—
(139 ) —
(139 )
Balance at September 30, 2016 $ 57
$ 11,842
$ 2,246
$ (1,027 ) $ (518 ) $ 3,312
$ 15,912



millions	March 31, 2017			December 31, 2016
ASSETS
Current Assets
Cash and cash equivalents ($123 and $359 related to VIEs)	$	5,831		$	3,184
Accounts receivable (net of allowance of $16 and $14)
Customers ($81 and $70 related to VIEs)	973			1,007
Others ($12 and $80 related to VIEs)	604			721
Other current assets	299			354
Total	7,707			5,266
Properties and Equipment
Cost	64,485			69,013
Less accumulated depreciation, depletion, and amortization	35,420			36,845
Net properties and equipment ($5,264 and $5,050 related to VIEs)	29,065			32,168
Other Assets ($608 and $609 related to VIEs)	2,182			2,226
Goodwill and Other Intangible Assets ($1,214 and $1,221 related to VIEs)	5,739			5,904
Total Assets	$	44,693		$	45,564

LIABILITIES AND EQUITY
Current Liabilities
Accounts payable
Trade ($166 and $234 related to VIEs)	$	1,637		$	1,617
Other	342			303
Short-term debt	42			42
Current asset retirement obligations	258			129
Other current liabilities	1,483			1,237
Total	3,762			3,328
Long-term Debt	15,284			15,281
Other Long-term Liabilities
Deferred income taxes	3,664			4,324
Asset retirement obligations ($142 and $140 related to VIEs)	2,684			2,802
Other	4,220			4,332
Total	10,568			11,458

Equity
Stockholders’ equity
Common stock, par value $0.10 per share (1.0 billion shares authorized, 573.0 million and 572.0 million shares issued)	57			57
Paid-in capital	11,914			11,875
Retained earnings	1,330			1,704
Treasury stock (21.1 million and 20.8 million shares)	(1,054		)	(1,033		)
Accumulated other comprehensive income (loss)	(391		)	(391		)
Total Stockholders’ Equity	11,856			12,212
Noncontrolling interests	3,223			3,285
Total Equity	15,079			15,497
Total Liabilities and Equity	$	44,693		$	45,564

Parenthetical references reflect amounts as of March 31, 2017, and December 31, 2016.

See accompanying Notes to Consolidated Financial Statements.

Table of Contents

ANADARKO PETROLEUM CORPORATION

CONSOLIDATED ~~STATEMENTS~~STATEMENT OF ~~CASH FLOWS~~EQUITY

(Unaudited)

Nine Months Ended
September 30,
millions 2016 2015
Cash Flows from Operating Activities
Net income (loss) $ (2,356 ) $ (5,288 )
Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities
Depreciation, depletion, and amortization 3,202
3,581
Deferred income taxes (1,121 ) (2,627 )
Dry hole expense and impairments of unproved properties 300
1,993
Impairments 61
3,571
(Gains) losses on divestitures, net 516
1,003
Loss on early extinguishment of debt 124
—
Total (gains) losses on derivatives, net 634
123
Operating portion of net cash received (paid) in settlement of derivative instruments 229
251
Other 256
219
Changes in assets and liabilities
Tronox-related contingent liability —
(5,210 )
(Increase) decrease in accounts receivable 810
23
Increase (decrease) in accounts payable and accrued expenses (833 ) (573 )
Other items, net 55
800
Net cash provided by (used in) operating activities 1,877
(2,134 )
Cash Flows from Investing Activities
Additions to properties and equipment (2,618 ) (4,861 )
Divestitures of properties and equipment and other assets 1,281
1,248
Other, net 81
(83 )
Net cash provided by (used in) investing activities (1,256 ) (3,696 )
Cash Flows from Financing Activities
Borrowings, net of issuance costs 5,840
4,810
Repayments of debt (6,023 ) (4,024 )
Financing portion of net cash received (paid) for derivative instruments (639 ) (44 )
Increase (decrease) in outstanding checks (126 ) (103 )
Dividends paid (78 ) (415 )
Repurchase of common stock (32 ) (38 )
Issuance of common stock, including tax benefit on share-based compensation awards 2,188
21
Sale of subsidiary units 1,163
187
Issuance of tangible equity units — equity component —
348
Distributions to noncontrolling interest owners (260 ) (208 )
Proceeds from conveyance of future hard minerals royalty revenues, net of transaction costs 413
—
Payments of future hard minerals royalty revenues conveyed (25 ) —
Net cash provided by (used in) financing activities 2,421
534
Effect of Exchange Rate Changes on Cash (1 ) (1 )
Net Increase (Decrease) in Cash and Cash Equivalents 3,041
(5,297 )
Cash and Cash Equivalents at Beginning of Period 939
7,369
Cash and Cash Equivalents at End of Period $ 3,980
$ 2,072



	Total Stockholders’ Equity
millions	Common Stock		Paid-in Capital			Retained Earnings			Treasury Stock			Accumulated Other Comprehensive Income (Loss)			Non- controlling Interests			Total Equity
Balance at December 31, 2016	$	57	$	11,875		$	1,704		$	(1,033	)	$	(391	)	$	3,285		$	15,497
Net income (loss)	—		—			(318		)	—			—			43			(275		)
Common stock issued ⁽¹⁾	—		42			—			—			—			—			42
Dividends—common stock	—		—			(28		)	—			—			—			(28		)
Repurchase of common stock	—		—			—			(21		)	—			—			(21		)
Distributions to noncontrolling interest owners	—		—			—			—			—			(105		)	(105		)
Reclassification of previously deferred derivative losses to (gains) losses on derivatives, net	—		—			—			—			1			—			1
Adjustments for pension and other postretirement plans	—		—			—			—			(1		)	—			(1		)
Cumulative effect of accounting change	—		(3		)	(28		)	—			—			—			(31		)
Balance at March 31, 2017	$	57	$	11,914		$	1,330		$	(1,054	)	$	(391	)	$	3,223		$	15,079


⁽¹⁾	Represents share-based compensation expense.

See accompanying Notes to Consolidated Financial Statements.

Table of Contents

ANADARKO PETROLEUM CORPORATION

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)



	Three Months Ended March 31,
millions	2017			2016
Cash Flows from Operating Activities
Net income (loss)	$	(275	)	$	(998	)
Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities
Depreciation, depletion, and amortization	1,115			1,149
Deferred income taxes	(660		)	(413		)
Dry hole expense and impairments of unproved properties	1,012			35
Impairments	373			16
(Gains) losses on divestitures, net	(804		)	(2		)
Total (gains) losses on derivatives, net	(147		)	299
Operating portion of net cash received (paid) in settlement of derivative instruments	(8		)	105
Other	83			115
Changes in assets and liabilities
(Increase) decrease in accounts receivable	68			46
Increase (decrease) in accounts payable and other current liabilities	395			(326		)
Other items, net	(29		)	(163		)
Net cash provided by (used in) operating activities	1,123			(137		)
Cash Flows from Investing Activities
Additions to properties and equipment	(1,194		)	(1,022		)
Divestitures of properties and equipment and other assets	2,851			35
Other, net	65			14
Net cash provided by (used in) investing activities	1,722			(973		)
Cash Flows from Financing Activities
Borrowings, net of issuance costs	—			4,682
Repayments of debt	(10		)	(1,608		)
Financing portion of net cash received (paid) for derivative instruments	(37		)	(555		)
Increase (decrease) in outstanding checks	28			(150		)
Dividends paid	(28		)	(25		)
Repurchase of common stock	(21		)	(30		)
Issuance of common stock	—			30
Sale of subsidiary units	—			440
Distributions to noncontrolling interest owners	(105		)	(78		)
Proceeds from conveyance of future hard minerals royalty revenues, net of transaction costs	—			413
Payments of future hard minerals royalty revenues conveyed	(25		)	—
Net cash provided by (used in) financing activities	(198		)	3,119
Effect of Exchange Rate Changes on Cash	—			(1		)
Net Increase (Decrease) in Cash and Cash Equivalents	2,647			2,008
Cash and Cash Equivalents at Beginning of Period	3,184			939
Cash and Cash Equivalents at End of Period	$	5,831		$	2,947

See accompanying Notes to Consolidated Financial Statements.

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ANADARKO PETROLEUM CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

1. Summary of Significant Accounting Policies

GeneralAnadarko Petroleum Corporation is engaged in the exploration, development, production, and marketing of oil, ~~condensate,~~ natural gas, and ~~natural gas liquids (NGLs),~~NGLs and in the marketing of anticipated production of ~~liquefied natural gas (LNG).~~LNG. In addition, the Company engages in the gathering, processing, treating, and transporting of oil, ~~condensate,~~ natural gas, and ~~NGLs.~~NGLs as well as gathering and disposal of produced water. The Company also participates in the hard-minerals business through royalty arrangements. ~~Unless the context otherwise requires, the terms “Anadarko” and “Company” refer to Anadarko Petroleum Corporation and its consolidated subsidiaries.~~

Basis of Presentation The ~~Consolidated Financial Statements~~accompanying unaudited consolidated financial statements have been prepared in ~~conformity~~accordance with ~~generally accepted accounting principles~~GAAP for interim financial information and the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, certain notes and other information have been condensed or omitted. The accompanying interim financial statements reflect all normal recurring adjustments that are, in the ~~United States.~~opinion of management, necessary for the fair presentation of the Company’s consolidated financial statements. Certain prior-period amounts have been reclassified to conform to the ~~current-year~~current-period presentation. These ~~Consolidated Financial Statements~~interim financial statements should be read in conjunction with the ~~Consolidated Financial Statements~~consolidated financial statements and accompanying notes included in the Company’s Annual Report on Form 10-K for the year ended December 31, ~~2015.~~2016.

The ~~Consolidated Financial Statements~~consolidated financial statements include the accounts of Anadarko and subsidiaries in which Anadarko holds, directly or indirectly, more than 50% of the voting rights and ~~variable interest entities (VIEs)~~VIEs for which Anadarko is the primary beneficiary. All intercompany transactions have been eliminated. Undivided interests in oil and natural-gas exploration and production joint ventures are consolidated on a proportionate basis. Investments in noncontrolled entities over which Anadarko has the ability to exercise significant influence over operating and financial policies and VIEs for which Anadarko is not the primary beneficiary are accounted for using the equity method. In applying the equity method of accounting, the investments are initially recognized at cost and subsequently adjusted for the Company’s proportionate share of earnings, losses, and distributions. Other investments are carried at original cost. Investments accounted for using the equity method and cost method are ~~reported as a component of~~included in other assets.

Recently Adopted Accounting Standards ~~The Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) 2015-03,~~ASU 2017-01, ~~Interest—Imputation~~Business Combinations (Topic 805): Clarifying the Definition of ~~Interest (Subtopic 835-30): Simplifying~~a Business, assists in determining whether a transaction should be accounted for as an acquisition or disposal of assets or as a business. This ASU provides a screen that when substantially all of the ~~Presentation~~fair value of ~~Debt Issuance Costs~~the gross assets acquired, or disposed of, are concentrated in a single identifiable asset, or a group of similar identifiable assets, the set will not be considered a business. If the screen is not met, a set must include an input and ~~ASU 2015-15,~~ ~~Interest—Imputation of Interest (Subtopic 835-30): Presentation and Subsequent Measurement of Debt Issuance Costs Associated with Line-of-Credit Arrangements. These ASUs require capitalized debt issuance costs, except for those related~~a substantive process that together significantly contribute to ~~revolving credit facilities,~~the ability to create an output to be ~~presented in the balance sheet as~~considered a ~~direct deduction from the carrying amount~~business. The Company’s adoption of the related debt liability, rather than as an asset. The Company adopted these ASUs on January 1, 2016, using a retrospective approach. The adoption resulted in a reclassification that reduced other current assets and short-term debt by $1 million and reduced other assets and long-term debt by $82 million on the Company’s Consolidated Balance Sheet at December 31, 2015.

~~The FASB issued ASU 2015-02,~~ ~~Consolidation (Topic 810): Amendments to the Consolidation Analysis.~~ ~~The Company adopted~~ this ASU on January 1, ~~2016. In accordance with~~2017, using a prospective approach, could have a material impact on consolidated financial statements as goodwill will not be allocated to divestitures or recorded on acquisitions that are not considered to be a business. The Company’s disposition of Eagleford oil and gas properties in the ~~new ASU, Western Gas Equity Partners, LP (WGP) and Western Gas Partners, LP (WES), publicly traded consolidated subsidiaries~~first quarter of ~~the Company, are~~2017 was not considered ~~VIEs for which the Company is the primary beneficiary. Prior to adoption of the ASU, WGP and WES were consolidated by the Company~~a business under ~~the voting interest model. After adoption, WGP and WES were consolidated by the Company under the variable interest model. While~~ this ASU ~~requires additional financial statement disclosure, it has no impact on the Company’s consolidated results of operations, cash flows, or financial position. See~~and therefore not allocated goodwill, see Note ~~17—Variable Interest Entities~~3—Acquisitions, Divestitures, and Assets Held for Sale.

~~New Accounting Standards Issued But Not Yet Adopted~~ ~~The FASB issued~~ ASU 2016-16, Income Taxes (Topic 740): Intra-Entity Transfers of Assets Other Than Inventory,~~. This ASU~~ requires an entity to recognize the income tax consequences of an intra-entity transfer of an asset other than inventory when the transfer occurs and eliminates the exception for an intra-entity transfer of an asset other than inventory. ~~This~~The Company adopted this ASU ~~is effective for annual and interim periods beginning in 2018 and is required to be adopted~~on January 1, 2017, using a modified retrospective approach, ~~with early adoption permitted. The Company is evaluating~~and recognized a cumulative adjustment to retained earnings of $31 million during the ~~impact~~first quarter of ~~the adoption of this ASU on its consolidated financial statements.~~2017.

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ANADARKO PETROLEUM CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

1. Summary of Significant Accounting Policies (Continued)

ASU 2016-09, Compensation—Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting, simplifies the accounting for share-based payment transactions, including the income tax consequences, classification on the statement of cash flows, accounting for forfeitures, and classification of awards as either equity or liabilities. The ~~FASB issued~~ Company adopted this ASU on January 1, 2017. As a result of adoption, share-based compensation excess tax benefits and tax deficiencies are reflected on a prospective basis in the income statement as a component of the provision for income taxes rather than additional paid-in capital as previously recognized. For the three months ended March 31, 2017, the Company recognized a $15 million tax deficiency as an increase to the provision for income taxes. Cash flows related to excess tax benefits have been classified on a prospective basis as operating activities in the statement of cash flows rather than cash inflows from financing activities and cash outflows from operating activities as previously recognized. Prior periods of the statement of cash flows were not adjusted as there was no material impact. In addition, the Company elected to begin accounting for share-based compensation award forfeitures when they occur instead of estimating the number of forfeitures expected. This change in accounting policy for share-based compensation award forfeitures did not have a material impact on the Company’s consolidated financial statements.

New Accounting Standards Issued But Not Yet Adopted ASU 2017-07, Compensation—Retirement Benefits (Topic 715): Improving the Presentation of Net Periodic Pension Cost and Net Periodic Postretirement Benefit Cost, requires presentation of service cost in the same line item(s) as other compensation costs arising from services rendered by employees during the period and presentation of the remaining components of net benefit cost in a separate line item outside operating items. Additionally, only the service cost component of net benefit cost will be eligible for capitalization. The Company will adopt this ASU on January 1, 2018, with retrospective presentation of the service cost component and the other components of net benefit cost in the income statement and prospective presentation for the capitalization of the service cost component of net benefit cost in assets. The Company is evaluating the impact of the adoption of this ASU on its consolidated financial statements.

ASU 2016-18, Statement of Cash Flows (Topic 230): Restricted Cash, requires an entity to explain the changes in the total of cash, cash equivalents, restricted cash, and restricted cash equivalents on the statement of cash flows and to provide a reconciliation of the totals in that statement to the related captions in the balance sheet when the cash, cash equivalents, restricted cash, and restricted cash equivalents are presented in more than one line item on the balance sheet. This ASU is effective for annual and interim periods beginning after December 15, 2017, and is required to be adopted using a retrospective approach, with early adoption permitted. The Company is evaluating the impact of the adoption of this ASU on its consolidated financial statements.

ASU 2016-15, Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts and Cash Payments,~~. This ASU~~ provides clarification on how certain cash receipts and cash payments are presented and classified on the statement of cash flows. This ASU is effective for annual and interim periods beginning ~~in 2018~~after December 15, 2017, and is required to be adopted using a retrospective approach if practicable, with early adoption permitted. The Company does not expect the adoption of this ASU to have a material impact on its Consolidated Statement of Cash Flows.

Table of Contents

~~The FASB issued ASU 2016-09,~~ A~~Compensation—Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting.~~ This ASU simplifies the accounting for share-based payment transactions, including the income tax consequences, classification of awards as either equity or liabilities, classification on the statement of cash flows, and accounting for forfeitures. This ASU is effective for annual and interim periods beginning in 2017 with early adoption permitted. The Company will adopt this ASU beginning on January 1, 2017, and does not expect the adoption to have a material impact on its consolidated financial statements.NADARKO PETROLEUM CORPORATION

~~The FASB issued ASU 2016-02,~~ ~~Leases (Topic 842).~~ This ASU requires the lessees to recognize a lease liability and a right-of-use asset for all leases, including operating leases, with a term greater than 12 months on the balance sheet and disclose key information about their leasing transactions. This ASU is effective for annual and interim periods beginning in 2019. The Company is evaluating the impactNOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

1. Summary of ~~the adoption of this ASU on its consolidated financial statements.~~Significant Accounting Policies (Continued)

~~The FASB issued~~ ASU 2014-09, Revenue from Contracts with Customers (Topic 606), ,~~which~~ supersedes current revenue recognition requirements and industry-specific guidance. The codification ~~was amended through additional ASUs and, as amended,~~ requires an entity to recognize revenue when it transfers promised goods or services to customers in an amount that reflects the consideration the entity expects to be entitled to in exchange for those goods or services. Additional disclosures will be required to describe the nature, amount, timing, and uncertainty of revenue and cash flows from contracts with customers. The Company has completed an initial review of contracts in each of its revenue streams and is ~~required~~developing accounting policies to address the provisions of the ASU. While the Company does not currently expect net earnings to be materially impacted, the Company is currently analyzing whether total revenues and total expenses may increase as a result of recognizing both revenue for noncash consideration for services provided by our midstream business and revenue and associated cost of product for the subsequent sale of commodities received as such noncash consideration. Anadarko continues to evaluate the impact of this and other provisions of the ASU on its accounting policies, internal controls, and consolidated financial statements and related disclosures and has not finalized any estimates of the potential impacts. The Company will adopt the new standard ~~in the first quarter of~~on January 1, 2018, using ~~one~~the modified retrospective method with a cumulative adjustment to retained earnings.

ASU 2016-02, Leases (Topic 842), requires lessees to recognize a lease liability and a right-of-use asset for all leases, including operating leases, with a term greater than 12 months on the balance sheet. The provisions of ~~two retrospective application methods.~~ASU 2016-02 also modify the definition of a lease and outline the requirements for recognition, measurement, presentation, and disclosure of leasing arrangements by both lessees and lessors. This ASU is effective for annual and interim periods beginning after December 15, 2018. The Company is ~~continuing~~currently analyzing its portfolio of contracts to ~~evaluate~~assess the ~~provisions~~impact future adoption of this ASU ~~and has not determined the impact this standard~~ may have on its consolidated financial ~~statements and related disclosures or decided upon the method of adoption.~~statements.

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ANADARKO PETROLEUM CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

2. Inventories

The following summarizes the major classes of inventories included in other current assets:


millions	September 30, 2016		December 31, 2015		March 31, 2017		December 31, 2016
Oil	$	136	$	116	$	130	$	169
Natural gas	35		36		19		38
NGLs	83		64		94		106
Total inventories	$	254	$	216	$	243	$	313

~~Table of Contents~~

A~~NADARKO PETROLEUM CORPORATION~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS~~

~~(Unaudited)~~

3. Acquisitions, Divestitures, and Assets Held for Sale

Acquisition ~~In September~~On December 15, 2016, the Company ~~entered into an agreement to acquire certain oil and gas assets in~~closed the ~~Gulf of Mexico~~GOM Acquisition for ~~$2.0~~$1.8 billion using a portion of the net proceeds from the September 2016 issuance of 40.5 million shares of its common stock. The GOM Acquisition constitutes a business combination and was accounted for using the acquisition ~~is expected~~method of accounting. The fair-value measurements of the assets acquired and liabilities assumed at the acquisition date were still preliminary as of March 31, 2017, pending customary closing adjustments. There were no material changes to ~~close~~the fair value of the assets acquired and liabilities assumed from the amounts included on the Company’s Consolidated Balance Sheet at December 31, 2016.

Property Exchange On March 17, 2017, WES acquired a third party’s 50% nonoperated interest in the ~~fourth quarter~~DBJV system in exchange for WES’s 33.75% interest in nonoperated Marcellus midstream assets and $155 million in cash. WES funded the cash consideration with cash on hand and recognized a gain of ~~2016~~$125 million as a result of this transaction. After the acquisition, the DBJV system is 100% owned by WES and ~~is subject to customary closing conditions. See~~ ~~Note 14—Stockholders’ Equity~~.consolidated by Anadarko.

Divestitures and Assets Held for Sale ~~For~~The following summarizes the ~~nine months ended September 30, 2016, the Company~~proceeds received ~~$1.3 billion in net proceeds from divestitures~~ and gains (losses) recognized ~~net losses of $516 million from~~on divestitures and assets held for ~~sale.~~sale for the three months ended March 31:



millions	2017		2016
Proceeds received, net of closing adjustments	$	2,851	$	35
Gains (losses) on divestitures, net	804		2

~~Divestitures~~During the ~~nine~~three months ended ~~September 30, 2016,~~March 31, 2017, the Company divested ~~the following~~certain U.S. onshore ~~assets:~~

~~certain West Texas~~ assets located in the ~~oil and gas exploration and production and midstream reporting segments~~Eagleford area of South Texas for net proceeds of ~~$223 million~~$2.1 billion and a ~~loss~~net gain of ~~$50 million~~

~~certain East Texas/Louisiana~~$726 million. These assets were included in the oil and gas exploration and production reporting ~~segment for net proceeds of $199 million and a net loss of $41 million~~segment.

~~certain Wyoming assets in the oil and gas exploration and production reporting segment for net proceeds of $588 million and a loss of $59 million~~

~~Assets Held for Sale~~ ~~Losses on assets held for sale are included in gains (losses) on divestitures and other, net in the Company’s Consolidated Statements of Income.~~ Certain Marcellus U.S. onshore assets located ~~primarily~~ in ~~East Texas~~Pennsylvania included in the oil and gas exploration and production and midstream reporting segments satisfied criteria to be considered held for sale during the ~~third~~fourth quarter of 2016, at which time the Company remeasured these assets to their current fair value using a market approach and Level 2 fair-value ~~measurement~~inputs and recognized a loss of ~~$355~~$129 million. The sale of these assets ~~is expected to close in~~closed during the ~~fourth~~first quarter of ~~2016.~~2017 for net proceeds of $763 million and an additional loss of $44 million. Remaining proceeds of $196 million are currently held in escrow by the purchaser, pending regulatory approval. At ~~September 30, 2016,~~March 31, 2017, the Company’s Consolidated Balance Sheet included long-term assets of ~~$1.1 billion,~~$215 million, which includes ~~$184~~$35 million of goodwill, and long-term liabilities of ~~$44~~$15 million, primarily associated with Marcellus assets held ~~for sale.~~in escrow subject to regulatory approval.

911

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ANADARKO PETROLEUM CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

4. Impairments

Impairments of Long-Lived Assets Impairments of long-lived assets are included in impairment expense in the Company’s Consolidated Statements of Income. The following summarizes impairments of long-lived assets and the related post-impairment fair values by segment:

Three Months Ended Nine Months Ended
millions Impairment
Fair Value⁽¹⁾
Impairment
Fair Value⁽¹⁾
September 30, 2016
Oil and gas exploration and production
Long-lived assets held for use
U.S. onshore properties $ 23
$ 32
$ 27
$ 617
Gulf of Mexico properties —
—
2
—
Cost-method investment ⁽²⁾
—
—
2
32
Midstream
Long-lived assets held for use 3
—
24
5
Other
Long-lived assets held for use 1
—
6
—
Total $ 27
$ 32
$ 61
$ 654

September 30, 2015
Oil and gas exploration and production
Long-lived assets held for use
U.S. onshore properties $ 641
$ 634
$ 2,944
$ 1,904
Gulf of Mexico properties 101
94
126
94
Cost-method investment ⁽²⁾
1
32
2
32
Midstream
Long-lived assets held for use 15
7
499
209
Total $ 758
$ 767
$ 3,571
$ 2,239



	Three Months Ended
millions	Impairment		Fair Value⁽¹⁾
March 31, 2017
Oil and gas exploration and production
Gulf of Mexico properties	$	204	$	231
Midstream	169		49
Total	$	373	$	280


⁽¹⁾	Measured as of the impairment date using the income approach and Level 3 inputs.


⁽²⁾	~~Represents the after-tax~~ The primary assumptions used to estimate undiscounted future net ~~investment.~~cash flows include anticipated future production, commodity prices, and capital and operating costs.

Impairments during the three ~~and nine~~ months ended ~~September 30, 2016,~~March 31, 2017, were primarily related to U.S. onshore oil and gas and midstream properties due to changes in development plans. Impairments during the three months ended September 30, 2015, were primarily related to U.S. onshore oil and gas properties and an oil and gas property in the Gulf of Mexico, all of which were impaired due to lower forecasted commodity prices. Impairments during the nine months ended September 30, 2015, were primarily related to the Company’s Greater Natural Buttes oil and gas and midstream properties, certain other U.S. onshore oil and gas and midstream properties, and oil and gas properties in the Gulf of Mexico ~~all of which were impaired~~ due to lower forecasted commodity ~~prices.~~prices and a U.S. onshore midstream property due to a reduced throughput fee as a result of a producer’s bankruptcy.

Impairments of Unproved Properties Impairments of unproved properties are included in exploration expense in the Company’s Consolidated Statements of Income. ~~During the third quarter of 2015, the~~The Company recognized ~~a $109~~$532 million ~~impairment~~of impairments of unproved ~~Utica properties resulting from an assignment~~Gulf of ~~mineral interests in settlement of a legal matter. The Company also recognized a $935 million impairment of unproved Greater Natural Buttes~~Mexico properties during the ~~nine~~three months ended ~~September 30, 2015, as a result~~March 31, 2017, of ~~lower commodity prices.~~which $467 million related to the Shenandoah project. The unproved property balance related to the Shenandoah project originated from the purchase price allocated to Gulf of Mexico exploration projects from the acquisition of Kerr-McGee Corporation in 2006. For additional details on the Shenandoah project, see Note 5—Suspended Exploratory Well Costs.

~~Table of Contents~~

A~~NADARKO PETROLEUM CORPORATION~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS~~

~~(Unaudited)~~

~~4. Impairments (Continued)~~

Potential for Future Impairments

Oil price sensitivity At ~~September 30, 2016,~~March 31, 2017, the Company’s ~~estimates~~estimate of undiscounted future cash flows attributable to a certain ~~international asset group with a net book value of approximately $1.4 billion, and certain U.S. onshore~~ asset groups, primarily related to international and offshore properties, with a combined net book value of approximately ~~$1.1~~$2.7 billion indicated that the carrying amounts were expected to be recovered; however, these asset groups may be at risk for impairment if the estimates of future cash flows decline. The Company estimates that a 10% decline in oil prices (with all other assumptions unchanged) could result in a non-cash ~~impairment~~impairments in excess of ~~$600 million~~$1.0 billion.

Natural-gas price sensitivityAt March 31, 2017, the Company’s estimate of undiscounted future cash flows attributable to certain U.S. onshore asset groups with a combined net book value of approximately $1.3 billion indicated that the carrying amounts were expected to be recovered; however, these asset groups may be at risk for impairment if the ~~international asset group, and~~estimates of future cash flows decline. The Company estimates that a 10% decline in natural-gas prices (with all other assumptions unchanged) could result in non-cash impairments in excess of ~~$400 million for the U.S. onshore asset groups.~~ $500 million.

It is also reasonably possible that ~~prolonged low or further~~significant declines in commodity prices, further changes to the Company’s drilling plans in response to lower prices, reduction of proved and probable reserve estimates, or increases in drilling or operating costs could result in other additional impairments.

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ANADARKO PETROLEUM CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

5. Suspended Exploratory Well Costs

The Company’s suspended exploratory well costs were ~~$1.2~~$1.1 billion at ~~September 30, 2016,~~March 31, 2017, and ~~$1.1~~$1.2 billion at December 31, ~~2015. The increase in suspended exploratory well costs during 2016 is primarily related to the capitalization of costs associated with appraisal activities in Côte d’Ivoire.~~2016. Projects with suspended exploratory well costs ~~are those identified by management as exhibiting~~include wells that have sufficient ~~quantities of hydrocarbons~~reserves to justify ~~potential development or where it~~completion as a producing well and sufficient progress is ~~reasonably possible that~~being made in assessing the ~~well can be utilized in~~reserves and the ~~development~~economic and operating viability of the ~~project and when management is actively pursuing efforts to assess whether reserves can be attributed to these projects.~~project. If additional information becomes available that raises substantial doubt as to the economic or operational viability of any of these projects, the associated costs will be expensed at that time.

During the ~~nine~~three months ended ~~September 30, 2016, $142 million of~~March 31, 2017, the Company expensed suspended exploratory well costs ~~previously capitalized for greater than one year at December 31, 2015, were charged to exploration expense and primarily~~of $435 million related to the ~~following:~~

~~$64 million related to a~~ Shenandoah ~~well~~project in the Gulf of Mexico, ~~was expensed as it was no longer reasonably possible that the wellbore would be used in the development of the project if a final investment decision is reached~~

~~$38 million related to the Orca-4 well in Mozambique was expensed after additional reservoir analysis and the determination that the well was not associated with the first three Orca wells~~

$33 million related to the Tubarão Tigre discovery was expensed based on the outlook for development viability, given current commodity market conditions and the complexity introduced by the depth and characteristics of the reservoir

~~Costs of $21~~including $267 million previously capitalized for ~~less~~a period greater than one ~~year~~year. The Shenandoah-6 appraisal well and subsequent sidetrack, which completed appraisal activities in April 2017, did not encounter the oil-water contact in the eastern portion of the field. Given the results of this well and the present commodity-price environment, the Company has currently suspended further appraisal activities. Accordingly, the Company determined that the Shenandoah project no longer satisfies the accounting requirements for the continued capitalization of the exploratory well costs.

6. Current Liabilities

Accounts Payable Accounts payable, trade included liabilities of $290 million at March 31, 2017, and $262 million at December 31, ~~2015, related~~2016, representing the amount by which checks issued but not presented to the ~~Tubarão Tigre discovery discussed above, were also charged to exploration expense.~~Company’s banks for collection exceeded balances in applicable bank accounts. Changes in these liabilities are classified as cash flows from financing activities.

Other Current Liabilities The following summarizes the Company’s other current liabilities:



millions	March 31, 2017		December 31, 2016
Accrued income taxes	$	671	$	6
Interest payable	161		244
Production, property, and other taxes payable	253		239
Accrued employee benefits	185		355
Other	213		393
Total other current liabilities	$	1,483	$	1,237

1113

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ANADARKO PETROLEUM CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

6.7. Derivative Instruments

Objective and Strategy The Company uses derivative instruments to manage its exposure to cash-flow variability from commodity-price and interest-rate risks. Futures, swaps, and options are used to manage exposure to commodity-price risk inherent in the Company’s oil and natural-gas production and natural-gas processing operations (Oil and Natural-Gas Production/Processing Derivative Activities). Futures contracts and commodity-price swap agreements are used to fix the price of expected future oil and natural-gas sales at major industry trading locations such as Cushing, Oklahoma or Sullom Voe, Scotland for oil and Henry Hub, Louisiana for natural gas. Basis swaps are periodically used to fix or float the price differential between product prices at one market location versus another. Options are used to establish a floor price, a ceiling price, or a floor and a ceiling price (collar) for expected future oil and natural-gas sales. Derivative instruments are also used to manage commodity-price risk inherent in customer price requirements and to fix margins on the future sale of natural gas and NGLs from the Company’s leased storage facilities (Marketing and Trading Derivative Activities).

Interest-rate swaps are used to fix or float interest rates on existing or anticipated indebtedness. The purpose of these instruments is to manage the Company’s existing or anticipated exposure to interest-rate changes. The fair value of the Company’s current interest-rate swap portfolio is subject to changes in interest rates.

The Company does not apply hedge accounting to any of its derivative instruments. As a result, gains and losses associated with derivative instruments are recognized currently in earnings. Net derivative losses attributable to derivatives previously subject to hedge accounting reside in accumulated other comprehensive income (loss) and are reclassified to earnings as the transactions to which the derivatives relate are recognized in earnings. ~~See~~ ~~Note 15—Accumulated Other Comprehensive Income (Loss)~~.

~~Table of Contents~~

A~~NADARKO PETROLEUM CORPORATION~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS~~

~~(Unaudited)~~

~~6. Derivative Instruments (Continued)~~

Oil and Natural-Gas Production/Processing Derivative Activities The oil prices listed below are a combination of ~~New York Mercantile Exchange (NYMEX)~~NYMEX West Texas Intermediate and Intercontinental Exchange, Inc. (ICE) Brent Blend prices. The natural-gas prices listed below are NYMEX Henry Hub prices. The NGLs prices listed below are Oil Price Information Services prices. The following is a summary of the Company’s derivative instruments related to oil and natural-gas production/processing derivative activities at ~~September 30, 2016~~:March 31, 2017:

2016 Settlement 2017 Settlement 2018 Settlement
Oil
Three-Way Collars (MBbls/d) 83
—
—
Average price per barrel
Ceiling sold price (call) $ 63.82
$ —
$ —
Floor purchased price (put) $ 54.46
$ —
$ —
Floor sold price (put) $ 42.77
$ —
$ —
Natural Gas
Three-Way Collars (thousand MMBtu/d) —
682
250
Average price per MMBtu
Ceiling sold price (call) $ —
$ 3.60
$ 3.54
Floor purchased price (put) $ —
$ 2.75
$ 2.75
Floor sold price (put) $ —
$ 2.00
$ 2.00
Fixed-Price Contracts (thousand MMBtu/d) —
37
—
Average price per MMBtu $ —
$ 3.14
$ —
NGLs
Fixed-Price Contracts (MBbls/d) —
2
—
Average price per barrel $ —
$ 15.84
$ —

~~MBbls/d—thousand barrels per day~~

~~MMBtu/d—million British thermal units per day~~

~~MMBtu—million British thermal units~~



	2017 Settlement		2018 Settlement
Oil
Three-Way Collars (MBbls/d)	91		—
Average price per barrel
Ceiling sold price (call)	$	59.80	$	—
Floor purchased price (put)	$	50.00	$	—
Floor sold price (put)	$	40.00	$	—
Natural Gas
Three-Way Collars (thousand MMBtu/d)	682		250
Average price per MMBtu
Ceiling sold price (call)	$	3.60	$	3.54
Floor purchased price (put)	$	2.75	$	2.75
Floor sold price (put)	$	2.00	$	2.00
Fixed-Price Contracts (thousand MMBtu/d)	19		—
Average price per MMBtu	$	2.82	$	—

A three-way collar is a combination of three options: a sold call, a purchased put, and a sold put. The sold call establishes the maximum price that the Company will receive for the contracted commodity volumes. The purchased put establishes the minimum price that the Company will receive for the contracted volumes unless the market price for the commodity falls below the sold put strike price, at which point the minimum price equals the reference price (e.g., NYMEX) plus the excess of the purchased put strike price over the sold put strike price.

Table of Contents

ANADARKO PETROLEUM CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

7. Derivative Instruments (Continued)

Marketing and Trading Derivative Activities The Company had financial derivative transactions with notional volumes of natural gas totaling ~~5 billion cubic feet (Bcf) at~~ ~~September 30, 2016, and 8~~2 Bcf at March 31, 2017, and December 31, ~~2015~~,2016, that were entered into to mitigate commodity-price risk related to fixed-price purchase and sales contracts and storage activity.

~~Table of Contents~~

A~~NADARKO PETROLEUM CORPORATION~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS~~

~~(Unaudited)~~

~~6. Derivative Instruments (Continued)~~

Interest-Rate Derivatives Anadarko has outstanding interest-rate swap contracts to manage interest-rate risk associated with anticipated debt issuances. The Company has locked in a fixed interest rate in exchange for a floating interest rate indexed to the three-month London Interbank Offered Rate (LIBOR). In February 2016, in exchange for amended terms with certain counterparties, the Company modified the mandatory termination dates from 2021 to 2018 and, in some cases, the related fixed interest rates on interest-rate swaps with an aggregate notional principal amount of $500 million. Additionally, an interest-rate swap agreement was settled for a cash payment of $193 million in March 2016, and interest-rate swap agreements were settled for total cash payments of $73 million in September 2016. Anadarko does not expect additional net cash outlays in 2016 related to interest-rate derivative settlements.LIBOR.

At ~~September 30, 2016~~,March 31, 2017, the Company had outstanding interest-rate swaps with a notional amount of $1.6 billion due prior to or atin September 2021 that ~~will~~ manage interest-rate risk associated with the potential refinancing of the Company’s $900 million Senior Notes due 2019 and the ~~Zero-Coupon Senior Notes~~Zero Coupons due 2036, ~~(Zero Coupons),~~ should the Zero Coupons be put to the Company prior to the swap termination dates. ~~None~~At the next put date in October 2017, the accreted value of the Zero Coupons ~~(accreted value of $839 million~~) ~~were put to the Company in October 2016.~~will be $883 million. See Note 8—Debt ~~and Interest Expense~~. Depending on market conditions, liability-management actions, or other factors, the Company may enter into offsetting interest-rate swap positions or settle or amend certain or all of the currently outstanding interest-rate swaps.

Derivative settlements and collateralization are classified as cash flows from operating activities unless the derivatives contain an other-than-insignificant financing element, in which case the settlements and collateralization are classified as cash flows from financing activities. As a result of prior extensions of reference-period start dates without settlement of the related interest-rate derivative obligations, the interest-rate derivatives in the Company’s portfolio contain an other-than-insignificant financing element, and therefore, any settlements or collateralization related to these extended interest-rate derivatives are classified as cash flows from financing activities. Cash payments related to interest-rate swap agreements were $24 million during the three months ended March 31, 2017, and $193 million during the three months ended March 31, 2016.

The Company had the following outstanding interest-rate swaps at ~~September 30, 2016~~:March 31, 2017:



millions except percentages			Mandatory	Weighted-Average
Notional Principal Amount		Reference Period	Termination Date	Interest Rate
$	500	September 2016 – 2046	September 2018	6.559%
$	300	September 2016 – 2046	September 2020	6.509%
$	450	September 2017 – 2047	September 2018	6.445%
$	100	September 2017 – 2047	September 2020	6.891%
$	250	September 2017 – 2047	September 2021	6.570%

1415

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ANADARKO PETROLEUM CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

6.7. Derivative Instruments (Continued)

Effect of Derivative Instruments—Balance Sheet The following summarizes the fair value of the Company’s derivative instruments:


	Gross Derivative Assets				Gross Derivative Liabilities						Gross Derivative Assets				Gross Derivative Liabilities
millions	September 30,		December 31,		September 30,			December 31,			March 31,		December 31,		March 31,			December 31,
Balance Sheet Classification	2016		2015		2016			2015			2017		2016		2017			2016
Commodity derivatives
Other current assets	$	65	$	462	$	(8	)	$	(177	)	$	51	$	10	$	(31	)	$	(3	)
Other assets	29		8		(2		)	—			12		9		—			—
Accrued expenses	2		—		(18		)	(3		)
Other current liabilities											15		66		(35		)	(201		)
Other liabilities	3		—		(22		)	—			—		—		—			(12		)
	99		470		(50		)	(180		)	78		85		(66		)	(216		)
Interest-rate derivatives
Other current assets	4		2		—			—			8		8		—			—
Other assets	18		54		—			—			23		23		—			—
Accrued expenses	—		—		(48		)	(54		)
Other current liabilities											—		—		(69		)	(48		)
Other liabilities	—		—		(1,806		)	(1,488		)	—		—		(1,271		)	(1,328		)
	22		56		(1,854		)	(1,542		)	31		31		(1,340		)	(1,376		)
Total derivatives	$	121	$	526	$	(1,904	)	$	(1,722	)	$	109	$	116	$	(1,406	)	$	(1,592	)

Effect of Derivative Instruments—Statement of Income The following summarizes gains and losses related to derivative instruments:


millions	Three Months Ended September 30,						Nine Months Ended September 30,					Three Months Ended March 31,
Classification of (Gain) Loss Recognized	2016			2015			2016		2015			2017			2016
Commodity derivatives
Gathering, processing, and marketing sales ⁽¹⁾	$	(1	)	$	(1	)	$	5	$	—		$	—		$	2
(Gains) losses on derivatives, net	(59		)	(125		)	7		(177		)	(135		)	(28		)
Interest-rate derivatives
(Gains) losses on derivatives, net	84			407			622		300			(12		)	325
Total (gains) losses on derivatives, net	$	24		$	281		$	634	$	123		$	(147	)	$	299


⁽¹⁾	Represents the effect of Marketing and Trading Derivative Activities.

1516

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ANADARKO PETROLEUM CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

6.7. Derivative Instruments (Continued)

Credit-Risk Considerations The financial integrity of exchange-traded contracts, which are subject to nominal credit risk, is assured by NYMEX or ICE through systems of financial safeguards and transaction guarantees. Over-the-counter traded swaps, options, and futures contracts expose the Company to counterparty credit risk. The Company monitors the creditworthiness of its counterparties, establishes credit limits according to the Company’s credit policies and guidelines, and assesses the impact on the fair value of its counterparties’ creditworthiness. The Company has the ability to require cash collateral or letters of credit to mitigate its credit-risk exposure.

The Company has netting agreements with financial institutions that permit net settlement of gross commodity derivative assets against gross commodity derivative liabilities and routinely exercises its contractual right to offset gains and losses when settling with derivative counterparties. In addition, the Company has setoff agreements with certain financial institutions that may be exercised in the event of default and provide for contract termination and net settlement across derivative types. At September 30, 2016, $52 million of the Company’s $1.904 billion gross derivative liability balance, and at December 31, 2015, $347 million of the Company’s $1.722 billion gross derivative liability balance, would have been eligible for setoff against the Company’s gross derivative asset balance in the event of default. Other than in the event of default, the Company does not net settle across derivative types.

The Company’s derivative instruments are subject to individually negotiated credit provisions that may require collateral of cash or letters of credit depending on the derivative’s portfolio valuation versus negotiated credit thresholds. These credit thresholds may also require full or partial collateralization or immediate settlement of the Company’s obligations if certain credit-risk-related provisions are triggered, such as if the Company’s credit rating from ~~major credit rating agencies~~S&P and Moody’s declines to a level that is below investment grade. ~~In February 2016, Moody’s Investors Service (Moody’s) downgraded~~As of March 31, 2017, the Company’s long-term debt~~credit rating from “Baa2” to “Ba1,” which is~~ was rated below investment ~~grade. The downgrade triggered credit-risk-related features with~~grade (Ba1) by Moody’s and investment grade (BBB) by both S&P and Fitch Ratings. Although certain ~~derivative~~ counterparties ~~and~~ required the Company to post collateral under its derivative instruments. During the third quarter of 2016, Anadarko paid a fee in connection with the negotiated increase of a credit threshold for an interest-rate derivative with an other-than-insignificant financing element. As a result of the increased credit threshold, $200 million of collateral was returneddue to the ~~Company. No~~Moody’s rating, no counterparties have requested termination or full settlement of derivative positions. The aggregate fair value of derivative instruments with credit-risk-related contingent features for which a net liability position existed was $1.2 billion (net of $130 million of collateral) at March 31, 2017, and $1.4 billion (net of ~~$422 million of collateral) at September 30, 2016, and $1.3 billion (net of $58~~$117 million of collateral) at December 31, ~~2015.~~2016.

1617

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ANADARKO PETROLEUM CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

6.7. Derivative Instruments (Continued)

Fair Value Fair value of futures contracts is based on unadjusted quoted prices in active markets for identical assets or liabilities, which represent Level 1 inputs. Valuations of physical-delivery purchase and sale agreements, over-the-counter financial swaps, and commodity option collars are based on similar transactions observable in active markets and industry-standard models that primarily rely on market-observable inputs. Inputs used to estimate fair value in industry-standard models are categorized as Level 2 inputs because substantially all assumptions and inputs are observable in active markets throughout the full term of the instruments. Inputs used to estimate the fair value of swaps and options include market-price curves; contract terms and prices; credit-risk adjustments; and, for Black-Scholes option valuations, discount factors and implied market volatility.

The following summarizes the fair value of the Company’s derivative assets and liabilities by input level within the fair-value hierarchy:


millions																		Level 1			Level 2			Level 3		Netting ⁽¹⁾			Collateral		Total
September 30, 2016	Level 1			Level 2			Level 3		Netting ⁽¹⁾			Collateral			Total
March 31, 2017
Assets
Commodity derivatives	$	—		$	99		$	—	$	(14	)	$	—		$	85		$	—		$	78		$	—	$	(45	)	$	—	$	33
Interest-rate derivatives	—			22			—		—			—			22			—			31			—		—			—		31
Total derivative assets	$	—		$	121		$	—	$	(14	)	$	—		$	107		$	—		$	109		$	—	$	(45	)	$	—	$	64
Liabilities
Commodity derivatives	$	(1	)	$	(49	)	$	—	$	14		$	2		$	(34	)	$	(1	)	$	(65	)	$	—	$	45		$	2	$	(19	)
Interest-rate derivatives	—			(1,854		)	—		—			422			(1,432		)	—			(1,340		)	—		—			130		(1,210		)
Total derivative liabilities	$	(1	)	$	(1,903	)	$	—	$	14		$	424		$	(1,466	)	$	(1	)	$	(1,405	)	$	—	$	45		$	132	$	(1,229	)

December 31, 2015
December 31, 2016
Assets
Commodity derivatives	$	10		$	460		$	—	$	(178	)	$	(8	)	$	284		$	2		$	83		$	—	$	(69	)	$	—	$	16
Interest-rate derivatives	—			56			—		—			—			56			—			31			—		—			—		31
Total derivative assets	$	10		$	516		$	—	$	(178	)	$	(8	)	$	340		$	2		$	114		$	—	$	(69	)	$	—	$	47
Liabilities
Commodity derivatives	$	(1	)	$	(179	)	$	—	$	178		$	—		$	(2	)	$	(3	)	$	(213	)	$	—	$	69		$	6	$	(141	)
Interest-rate derivatives	—			(1,542		)	—		—			58			(1,484		)	—			(1,376		)	—		—			117		(1,259		)
Total derivative liabilities	$	(1	)	$	(1,721	)	$	—	$	178		$	58		$	(1,486	)	$	(3	)	$	(1,589	)	$	—	$	69		$	123	$	(1,400	)

__________________________________________________________________


⁽¹⁾	Represents the impact of netting commodity derivative assets and liabilities with counterparties where the Company has the contractual right and intends to net settle.

~~Table of Contents~~

A~~NADARKO PETROLEUM CORPORATION~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS~~

~~(Unaudited)~~

~~7. Tangible Equity Units~~

In June 2015, the Company issued 9.2 million 7.50% tangible equity units (TEUs) at a stated amount of $50.00 per TEU for net proceeds of $445 million. Each TEU is comprised of a prepaid equity purchase contract for common units of WGP and a senior amortizing note. Subsequent to issuance, each TEU may be legally separated into the two components. The prepaid equity purchase contract is considered a freestanding financial instrument, indexed to WGP common units, and meets the conditions for equity classification. The prepaid equity purchase contracts are included in noncontrolling interests, net of issuance costs, and the senior amortizing notes are included in short-term debt and long-term debt on the Company’s Consolidated Balance Sheets.

~~Equity Component~~Unless settled earlier at the holder’s option, each purchase contract has a mandatory settlement date of June 7, 2018. Anadarko has a right to elect to issue and deliver shares of Anadarko Petroleum Corporation common stock (APC shares) in lieu of delivering WGP common units at settlement. The Company will deliver not more than 0.8591 WGP common units and not less than 0.7159 WGP common units (or a computed number of APC shares) per TEU on the settlement date, subject to adjustment, at the settlement rate based upon the applicable market value of WGP common units (or APC shares).

~~Debt Component~~ Each senior amortizing note has an initial principal amount of $10.95 and bears interest at 1.50% per year. On September 7, 2015, Anadarko began paying equal quarterly cash installments of $0.9375 per amortizing note (except for the September 7, 2015 installment payment, which was $0.9063 per amortizing note). The payments constitute a payment of interest and partial repayment of principal, with the aggregate per-year payments of principal and interest equating to a 7.50% cash payment with respect to each TEU. The senior amortizing notes have a final installment payment date of June 7, 2018, and are senior unsecured obligations of the Company.

Table of Contents

ANADARKO PETROLEUM CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

8. Debt ~~and Interest Expense~~

~~Debt Activity~~ ~~The following summarizes the Company’s borrowing activity, after eliminating the effect of intercompany transactions, during the nine months ended September 30, 2016:~~

Carrying Value
millions WES
WGP ⁽¹⁾

Anadarko ⁽²⁾
Anadarko Consolidated Description
Balance at December 31, 2015 $ 2,691
$ —
$ 12,957
$ 15,648

Issuances —
—
794
794
4.850% Senior Notes due 2021
—
—
1,088
1,088
5.550% Senior Notes due 2026
—
—
1,088
1,088
6.600% Senior Notes due 2046
495
—
—
495
WES 4.650% Senior Notes due 2026
Borrowings —
—
1,750
1,750
364-Day Facility
600
—
—
600
WES RCF
—
28
—
28
WGP RCF
Repayments —
—
(1,749 ) (1,749 ) 5.950% Senior Notes due 2016
—
—
(1,245 ) (1,245 ) 6.375% Senior Notes due 2017
—
—
(1,750 ) (1,750 ) 364-Day Facility
(880 ) —
—
(880 ) WES RCF
—
—
(250 ) (250 ) Commercial paper notes, net
—
—
(25 ) (25 ) TEUs - senior amortizing notes
Other, net 1
—
40
41
Amortization of discounts, premiums, and debt issuance costs
Balance at September 30, 2016 $ 2,907
$ 28
$ 12,698
$ 15,633


⁽¹⁾	~~Excludes WES.~~


⁽²⁾	~~Excludes WES and WGP.~~

During the second quarter of 2016, the Company used proceeds from its $3.0 billion March 2016 Senior Notes issuances to purchase and retire $1.250 billion of its $2.0 billion 6.375% Senior Notes due September 2017 pursuant to a tender offer and to redeem its $1.750 billion 5.950% Senior Notes due September 2016. The Company recognized a loss of $124 million for the early retirement and redemption of these senior notes, which included $114 million of premiums paid.

~~Table of Contents~~

A~~NADARKO PETROLEUM CORPORATION~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS~~

~~(Unaudited)~~

~~8. Debt and Interest Expense (Continued)~~

Debt The following summarizes the Company’s outstanding debt, including capital lease obligations, after eliminating the effect of intercompany transactions:


millions	WES			WGP ⁽¹⁾		Anadarko ⁽²⁾			Anadarko Consolidated			WES			WGP ⁽¹⁾		Anadarko ⁽²⁾			Anadarko Consolidated
September 30, 2016
Total borrowings at face value	$	2,940		$	28	$	14,317		$	17,285
Net unamortized discounts, premiums, and debt issuance costs ⁽³⁾	(33		)	—		(1,619		)	(1,652		)
Total borrowings ⁽⁴⁾	2,907			28		12,698			15,633
Capital lease obligations	—			—		245			245
Less short-term debt ⁽⁵⁾	—			—		788			788
Total long-term debt	$	2,907		$	28	$	12,155		$	15,090

December 31, 2015
March 31, 2017
Total borrowings at face value	$	2,720		$	—	$	14,592		$	17,312		$	3,120		$	28	$	13,550		$	16,698
Net unamortized discounts, premiums, and debt issuance costs ⁽³⁾	(29		)	—		(1,635		)	(1,664		)	(28		)	—		(1,587		)	(1,615		)
Total borrowings ⁽⁴⁾	2,691			—		12,957			15,648			3,092			28		11,963			15,083
Capital lease obligations	—			—		20			20			—			—		243			243
Less short-term debt	—			—		32			32			—			—		42			42
Total long-term debt	$	2,691		$	—	$	12,945		$	15,636		$	3,092		$	28	$	12,164		$	15,284

December 31, 2016
Total borrowings at face value												$	3,120		$	28	$	13,558		$	16,706
Net unamortized discounts, premiums, and debt issuance costs ⁽³⁾												(29		)	—		(1,599		)	(1,628		)
Total borrowings ⁽⁴⁾												3,091			28		11,959			15,078
Capital lease obligations												—			—		245			245
Less short-term debt												—			—		42			42
Total long-term debt												$	3,091		$	28	$	12,162		$	15,281


⁽¹⁾	Excludes WES.


⁽²⁾	Excludes WES and WGP.


⁽³⁾	Unamortized discounts, premiums, and debt issuance costs are amortized over the term of the related debt. Debt issuance costs related to ~~revolving credit facilities~~RCFs are included in other current assets and other assets on the Company’s Consolidated Balance Sheets.


⁽⁴⁾	The Company’s outstanding borrowings, except for borrowings under the WGP ~~revolving credit facility,~~RCF, are senior unsecured.


⁽⁵⁾	~~Short-term debt includes $750 million of 6.375% Senior Notes due September 2017. In October 2016, the Company provided notice of its intent to redeem the notes prior to year end.~~

Anadarko’s Zero Coupons can be put to the Company in October of each year, in whole or in part, for the then-accreted value of the outstanding Zero Coupons. None of the Zero Coupons (accreted value of $839 million) were put to the Company in October 2016.

Fair Value The Company uses a market approach to determine the fair value of its fixed-rate debt using observable market data, which results in a Level 2 fair-value measurement. The carrying amount of floating-rate debt approximates fair value as the interest rates are variable and reflective of market rates. The estimated fair value of the Company’s total borrowings was ~~$17.6~~$17.0 billion at ~~September 30, 2016,~~March 31, 2017, and ~~$15.7~~$17.1 billion at December 31, ~~2015.~~2016.

~~Table of Contents~~

A~~NADARKO PETROLEUM CORPORATION~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS~~

~~(Unaudited)~~

~~8. Debt and Interest Expense (Continued)~~

Anadarko ~~Revolving Credit Facilities and Commercial Paper Program~~Borrowings Anadarko has a $3.0 billion five-year senior unsecured ~~revolving credit facility~~RCF maturing in January 2021 (Five-Year Facility)~~. In addition, the Company has~~ and a $2.0 billion 364-day senior unsecured ~~revolving credit facility~~RCF (364-Day Facility) ~~that will mature in~~. In January ~~2017.~~2017, the Company extended the maturity date of the 364-Day Facility until January 2018. At ~~September 30, 2016,~~March 31, 2017, the Company had no outstanding borrowings under the Five-Year Facility or the 364-Day Facility and was in compliance with all related covenants.

Anadarko’s Zero Coupons can be put to the Company in October of each year, in whole or in part, for the then-accreted value, which will be $883 million at the next put date in October 2017. Anadarko’s Zero Coupons were classified as long-term debt on the Company’s Consolidated Balance Sheet at March 31, 2017, as the Company has the ability and intent to refinance these obligations using long-term debt, should the put be exercised.

In January 2015, the Company initiated a commercial paper program, which allows for a maximum of $3.0 billion of unsecured commercial paper notes and is supported by the Five-Year Facility. The maturities of the commercial paper notes may vary, but may not exceed 397 days. ~~In February 2016, Moody’s downgraded~~Due to the Company’s ~~commercial paper program~~below-investment-grade credit rating ~~which eliminated~~from Moody’s, the ~~Company’s~~Company currently does not have access to the commercial paper ~~market. The Company has not issued commercial paper notes since the downgrade~~market and had no outstanding borrowings under the commercial paper program at ~~September 30,~~March 31, 2017.

Table of Contents

ANADARKO PETROLEUM CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

8. Debt (Continued)

The Company also has notes payable related to its ownership of certain noncontrolling mandatorily redeemable interests that are not included in the Company’s reported debt balance and do not affect consolidated interest expense. See Note 8—Equity Method Investments in the Company’s Annual Report on Form 10-K for the year ended December 31, 2016.

WES and WGP Borrowings ~~In July 2016,~~At March 31, 2017, WES ~~completed a public offering of $500 million aggregate principal amount of 4.650% Senior Notes due July 2026. Net proceeds were used to repay a portion of the amount outstanding under WES’s~~was in compliance with all related covenants contained in its $1.2 billion~~five-year~~ five-year senior unsecured ~~revolving credit facility~~RCF maturing in February ~~2019~~2020 (WES RCF), which is expandable to $1.5 billion.

At ~~September 30, 2016,~~March 31, 2017, WES had no outstanding borrowings under its RCF, ~~of $20 million at an interest rate of 1.82%,~~ had outstanding letters of credit of $5 million, and had available borrowing capacity of ~~$1.18~~$1.195 billion.

At ~~September 30, 2016, WES~~March 31, 2017, WGP was in compliance with all related ~~covenants.~~

~~In March 2016, WGP entered into a~~covenants contained in its $250 millionthree-year senior secured ~~revolving credit facility~~RCF maturing in March 2019 (WGP RCF), which is expandable to $500 million subject to receiving increased or new commitments from lenders and the satisfaction of certain other conditions. Obligations under the WGP RCF are secured by a first priority lien on all of WGP’s assets (not including the consolidated assets of WES), as well as all equity interests owned by WGP. Borrowings under the WGP RCF bear interest at LIBOR (with a floor of 0%), plus applicable margins ranging from 2.00% to 2.75% depending on WGP’s consolidated leverage ratio, or at a base rate equal to the greatest of (i) the prime rate, (ii) the federal funds rate plus 0.50%, or (iii) LIBOR plus 1.00%, in each case plus applicable margins ranging from 1.00% to 1.75% based upon WGP’s consolidated leverage ratio. At ~~September 30, 2016,~~March 31, 2017, WGP had outstanding borrowings under its RCF of $28 million at an interest rate of ~~2.53%,~~2.99% and had available borrowing capacity of $222 ~~million, and was in compliance with all related covenants.~~

In October 2016, WES completed a public offering of $200 million aggregate principal amount of 5.450% Senior Notes due April 2044. Net proceeds were used to repay amounts outstanding under the WES RCF and the remaining proceeds will be used for general partnership purposes, including capital expenditures.million.

~~Table of Contents~~

A~~NADARKO PETROLEUM CORPORATION~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS~~

~~(Unaudited)~~

~~8. Debt and Interest Expense (Continued)~~

~~Capital Lease Obligations~~Construction of a floating production, storage and offloading unit (FPSO) for the Company’s Tweneboa/Enyenra/Ntomme (TEN) field operations in Ghana commenced in 2013. The Company recognized an asset and related obligation for its approximate 19% nonoperated working interest share during the construction period. Upon completion of the construction during the third quarter of 2016, the Company reported the asset and related obligation as a capital lease of $225 million for the Company’s share of the fair value of the FPSO. The FPSO lease provides for an initial term of 10 years with annual renewal periods for an additional 10 years, annual purchase options that decrease over time, and no residual value guarantees. The capital lease asset will be depreciated over the estimated proved reserves of the TEN field using the unit-of-production method, with the associated depreciation included in depreciation, depletion, and amortization (DD&A) in the Company’s Consolidated Statement of Income. The capital lease obligation will be accreted to the present value of the minimum lease payments using the effective interest method. The Company will make the first payment under the FPSO capital lease in the fourth quarter of 2016.

~~At September 30, 2016, future minimum lease payments due under capital leases were:~~

millions
2016 $ 16
2017 42
2018 42
2019 42
2020 42
Remaining years 433
Total future minimum lease payments $ 617
Less portion representing imputed interest 372
Capital lease obligations $ 245

~~Interest Expense~~ ~~The following summarizes interest expense:~~

Three Months Ended
September 30, Nine Months Ended
September 30,
millions 2016 2015 2016 2015
Debt and other $ 251
$ 245
$ 768
$ 743
Capitalized interest (31 ) (46 ) (111 ) (127 )
Total interest expense $ 220
$ 199
$ 657
$ 616

~~Table of Contents~~

A~~NADARKO PETROLEUM CORPORATION~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS~~

~~(Unaudited)~~

9. Income Taxes

The following summarizes income tax expense (benefit) and effective tax rates:


	Three Months Ended September 30,						Nine Months Ended September 30,						Three Months Ended March 31,
millions except percentages	2016			2015			2016			2015			2017			2016
Income tax expense (benefit)	$	(260	)	$	(917	)	$	(957	)	$	(2,232	)	$	97		$	(383	)
Income (loss) before income taxes	(1,007		)	(3,077		)	(3,313		)	(7,520		)	(178		)	(1,381		)
Effective tax rate	26		%	30		%	29		%	30		%	(54		)%	28		%

state taxes, net of federal benefit

non-deductible Algerian exceptional profits tax for Algerian income tax purposes

tax impact from foreign operations

~~non-deductible goodwill related to divestitures~~

~~adjustments to deferred tax balances~~

net changes in uncertain tax positions


•	tax deficiency related to share-based compensation due to the adoption of ASU 2016-09, see Note 1—Summary of Significant Accounting Policies

These decreases were partially offset by the following increases:

•~~state taxes, net of federal benefit~~

•income attributable to noncontrolling ~~interest~~interests

•federal manufacturing deduction

The decrease from the 35% U.S. federal statutory rate for the three ~~and nine~~ months ended ~~September 30, 2015,~~March 31, 2016, was primarily attributable to non-deductible Algerian exceptional profits tax for Algerian income tax purposes, ~~and~~ the tax impact from foreign ~~operations.~~operations, and net changes in uncertain tax positions.

At March 31, 2017, the Company’s Consolidated Balance Sheet included $167 million of income taxes receivable presented in accounts receivable—others.

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ANADARKO PETROLEUM CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

10. ~~Conveyance of Future Hard Minerals Royalty Revenues~~

During the first quarter of 2016, the Company conveyed a limited-term nonparticipating royalty interest in certain of its coal and trona leases to a third party for $413 million, net of transaction costs. Such conveyance entitles the third party to receive up to $553 million in future royalty revenue over a period of not less than 10 years and not greater than 15 years. Additionally, such third party is entitled to receive 3% of the aggregate royalties earned during the first 10 years between $800 million and $900 million and 4% of the aggregate royalties earned during the first 10 years that exceed $900 million. Generally, such third party relies solely on the royalty payments to recover its investment and, as such, has the risk of the royalties not being sufficient to recover its investment over the term of the conveyance.

Proceeds from this transaction were accounted for as deferred revenues and are included in accrued expenses and other long-term liabilities on the Company’s Consolidated Balance Sheet. The deferred revenues will be amortized to other revenues, included in gains (losses) on divestitures and other, net on a unit-of-revenue basis over the term of the agreement. Net proceeds received from the third party were reported in financing activities on the Company’s Consolidated Statement of Cash Flows. Semi-annual payments to the third party are scheduled on March 1 and September 1 of each year through March 1, 2026. The specified future amounts that the Company expects to pay and the payment timing are subject to change based upon the actual royalties received by the Company during the term of the conveyance. Royalties received by Anadarko under this agreement are reported in operating activities on the Company’s Consolidated Statement of Cash Flows. The semi-annual payments to the third party, up to the aggregate amount of the $413 million net proceeds the Company received for the conveyance in the first quarter of 2016, are reported in financing activities on the Company’s Consolidated Statement of Cash Flows. Any additional payments to the third party are reported in operating activities on the Company’s Consolidated Statement of Cash Flows to offset the royalties received.

During the nine months ended September 30, 2016, the Company amortized $27 million of deferred revenues as a result of this agreement. The Company made the first semi-annual payment of $25 million for royalties in September 2016. The following summarizes the remaining amounts that the Company expects to pay, prior to the potential 3% to 4% of any excess described above:

millions
2017 $ 50
2018 50
2019 52
2020 56
2021 57
Later years 263
Total $ 528

~~Table of Contents~~

A~~NADARKO PETROLEUM CORPORATION~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS~~

~~(Unaudited)~~

~~11.~~ Contingencies

Litigation ~~The following is a discussion of any~~There are no material developments in previously reported contingencies ~~and~~nor are there any other material matters that have arisen since the filing of the Company’s Annual Report on Form 10-K for the year ended December 31, ~~2015~~.

~~Deepwater Horizon Events~~ ~~In April 2010, the Macondo well in the Gulf of Mexico blew out and an explosion occurred on the~~ ~~Deepwater Horizon~~ drilling rig, resulting in an oil spill. The well was operated by BP Exploration and Production Inc. (BP) and Anadarko held a 25% nonoperated interest. In October 2011, the Company and BP entered into a settlement agreement relating to the Deepwater Horizon events (Settlement Agreement). Pursuant to the Settlement Agreement, the Company is fully indemnified by BP against all claims and damages arising under the Oil Pollution Act of 1990 (OPA), claims for natural resource damages (NRD) and assessment costs, and any claims arising under the Operating Agreement with BP.

Numerous Deepwater Horizon event-related civil lawsuits were filed against BP and other parties, including the Company. Generally, the plaintiffs sought actual damages, punitive damages, declaratory judgment, and/or injunctive relief. This litigation was consolidated into a federal Multidistrict Litigation (MDL) action pending before Judge Carl Barbier in the U.S. District Court for the Eastern District of Louisiana in New Orleans, Louisiana (Louisiana District Court).

~~BP Consent Decree~~ In July 2015, BP announced a settlement agreement in principle with the U.S. Department of Justice (DOJ) and certain states and local government entities regarding essentially all of the outstanding claims against BP related to the Deepwater Horizon event (BP Settlement) and, in October 2015, lodged a proposed consent decree with the Louisiana District Court. In April 2016, the Louisiana District Court approved the consent decree. As a result of the BP Settlement and approval of the consent decree, all liability relating to OPA-related environmental costs was resolved and all NRD claims and claims by the United States and the Gulf states impacted by the event relating to the MDL action were dismissed. For any remaining claims relating to the MDL action, the Company is fully indemnified by BP against any losses pursuant to the Settlement Agreement. For additional disclosure related to the Deepwater Horizon events, see ~~Note 15~~—~~Contingencies~~—~~Deepwater Horizon Events~~ ~~in the~~ ~~Notes to Consolidated Financial Statements~~ ~~included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2015.~~

~~Penalties and Fines~~ In December 2010, the DOJ, on behalf of the United States, filed a civil lawsuit in the Louisiana District Court against several parties, including the Company, seeking an assessment of civil penalties under the Clean Water Act (CWA) in an amount to be determined by the Louisiana District Court. After previously finding that Anadarko, as a nonoperating investor in the Macondo well, was not culpable with respect to the Deepwater Horizon events, the Louisiana District Court found Anadarko liable for civil penalties under Section 311 of the CWA as a working-interest owner in the Macondo well and entered a judgment of $159.5 million in December 2015. Neither party appealed the decision and the Company paid the penalty in the first quarter of 2016.

~~Table of Contents~~

A~~NADARKO PETROLEUM CORPORATION~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS~~

~~(Unaudited)~~

~~12.~~11. Restructuring Charges

In the first quarter of 2016, the Company initiated a workforce reduction program to align the size and composition of its workforce with its expected future operating and capital plans. Employee notifications related to the workforce reduction program were completed by June 30, 2016. The Company recognized $203 million of restructuring charges included in G&A in the Company’s Consolidated Statements of Income during the three months ended March 31, 2016. All restructuring charges ~~will be~~were recognized in 2016, with the exception of ~~approximately $17~~an estimated $29 million of settlement expense ~~for retirement benefits~~ expected to be recognized ~~in 2017. The following summarizes~~during 2017 for lump-sum payments to terminated participants for which the ~~total expected restructuring charges~~amount could vary depending on market conditions and ~~the amounts expensed during the three and nine months ended September 30, 2016, which are included in general and administrative expenses in the Company’s Consolidated Statements of Income:~~

millions Total Expected Costs Three Months Ended
September 30, 2016 Nine Months Ended September 30, 2016
Costs by category
Cash severance $ 154
$ 5
$ 151
Retirement benefits ⁽¹⁾
219
102
178
Share-based compensation 37
5
34
Total $ 410
$ 112
$ 363


⁽¹⁾	~~Includes termination benefits, curtailments, and settlements. See~~ ~~Note 13—Pension Plans and Other Postretirement Benefits~~.

~~The following summarizes the changes in the cash severance-related liability included in accounts payable on the Company’s Consolidated Balance Sheet:~~

millions 2016
Balance at January 1 $ —
Accruals 151
Payments (141 )
Balance at September 30 $ 10
participant elections.

~~Table of Contents~~

A~~NADARKO PETROLEUM CORPORATION~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS~~

~~(Unaudited)~~

~~13.~~12. Pension Plans and Other Postretirement Benefits

The Company has contributory and non-contributory defined-benefit pension plans, which include both qualified and supplemental plans. The Company also provides certain health care and life insurance benefits for certain retired employees. Retiree health care benefits are funded by contributions from the retiree and, in certain circumstances, contributions from the Company. The Company’s retiree life insurance plan is noncontributory. The following summarizes the Company’s pension and other postretirement benefit cost:


	Pension Benefits						Other Benefits					Pension Benefits						Other Benefits
millions	2016			2015			2016			2015		2017			2016			2017			2016
Three Months Ended September 30
Three Months Ended March 31
Service cost	$	24		$	30		$	1		$	3	$	21		$	26		$	—		$	1
Interest cost	24			25			3			3		21			26			3			3
Expected return on plan assets	(24		)	(27		)	—			—
Expected (return) loss on plan assets												(21		)	(27		)	—			—
Amortization of net actuarial loss (gain)	12			13			—			—		6			8			—			—
Amortization of net prior service cost (credit)	—			—			(6		)	1		—			—			(6		)	(6		)
Settlement expense	102			—			—			—		3			—			—			—
Termination benefits expense ⁽¹⁾												4			44			—			—
Curtailment expense ⁽¹⁾												—			8			—			(3		)
Net periodic benefit cost	$	138		$	41		$	(2	)	$	7	$	34		$	85		$	(3	)	$	(5	)

Nine Months Ended September 30
Service cost	$	73		$	89		$	2		$	8
Interest cost	73			76			9			11
Expected return on plan assets	(75		)	(82		)	—			—
Amortization of net actuarial loss (gain)	30			39			—			—
Amortization of net prior service cost (credit)	—			—			(18		)	2
Settlement expense	126			—			—			—
Termination benefits expense	44			—			—			—
Curtailment expense	8			—			—			—
Net periodic benefit cost	$	279		$	122		$	(7	)	$	21


⁽¹⁾	Termination benefits expense and curtailment expense for the three months ended March 31, 2016, relate to the workforce reduction program initiated in the first quarter of 2016. See Note 11—Restructuring Charges.

The ~~Company’s workforce reduction program resulted in remeasurements of its pension~~Company contributed $60 million during the three months ended March 31, 2017, and other postretirement plans during 2016. The remeasurements of the benefit obligation and plan assets resulted in a net liability increase of $327 million for the pension benefit plans and $24 million for the other postretirement benefit plans, with a corresponding decrease in other comprehensive income.

~~At December 31, 2015, total expected contributions related to unfunded pension plans were $25 million for 2016. The Company~~ expects to contribute an additional ~~$82~~$107 million ~~in 2016 and $23 million in 2017~~ to ~~unfunded~~funded pension plans ~~primarily related to the workforce reduction program. See~~ ~~Note 12—Restructuring Charges~~.during 2017.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

~~14.~~13. Stockholders’ Equity

~~Common Stock Issuance~~Earnings Per Share In September 2016, the Company completed a public offering of 40.5 million shares of its common stock at a price of $53.23 per share. Net proceeds of $2.16 billion from this equity issuance will primarily be used to fund the acquisition of certain Gulf of Mexico assets, which is expected to close in the fourth quarter of 2016. The remaining net proceeds will be used for general corporate purposes. See ~~Note 3—Acquisitions, Divestitures, and Assets Held for Sale~~.

~~Earnings per Share (EPS)~~The Company’s basic ~~EPS~~earnings per share (EPS) is computed based on the average number of shares of common stock outstanding for the period and includes the effect of any participating securities and ~~TEUs~~Tangible Equity Units (TEUs) as appropriate. Diluted EPS includes the effect of the Company’s outstanding stock options, restricted stock awards, restricted stock units, TEUs, and WES Series A Preferred units, if the inclusion of these items is dilutive.

The following provides a reconciliation between basic and diluted ~~earnings per share~~EPS attributable to common stockholders:

Three Months Ended
September 30, Nine Months Ended
September 30,
millions except per-share amounts 2016 2015 2016 2015
Net income (loss)
Net income (loss) attributable to common stockholders $ (830 ) $ (2,235 ) $ (2,556 ) $ (5,442 )
Income (loss) effect of TEUs (2 ) (3 ) (5 ) (3 )
Less distributions on participating securities 1
1
1
4
Basic $ (833 ) $ (2,239 ) $ (2,562 ) $ (5,449 )
Income (loss) effect of TEUs —
—
(1 ) —
Diluted $ (833 ) $ (2,239 ) $ (2,563 ) $ (5,449 )
Shares
Average number of common shares outstanding—basic 517
508
512
508
Average number of common shares outstanding—diluted 517
508
512
508
Excluded due to anti-dilutive effect 11
10
11
11
Net income (loss) per common share
Basic $ (1.61 ) $ (4.41 ) $ (5.00 ) $ (10.73 )
Diluted $ (1.61 ) $ (4.41 ) $ (5.00 ) $ (10.73 )

~~Table of Contents~~

A~~NADARKO PETROLEUM CORPORATION~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS~~

~~(Unaudited)~~

~~15. Accumulated Other Comprehensive Income (Loss)~~

~~The following summarizes the after-tax changes in the balances of accumulated other comprehensive income (loss):~~

millions
Interest-rate
Derivatives
Previously
Subject to Hedge
Accounting

Pension and Other Postretirement
Plans
Total
Balance at December 31, 2015 $ (42 ) $ (341 ) $ (383 )
Other comprehensive income (loss), before reclassifications —
(219 ) (219 )
Reclassifications to Consolidated Statement of Income 4
80
84
Balance at September 30, 2016 $ (38 ) $ (480 ) $ (518 )



	Three Months Ended March 31,
millions except per-share amounts	2017			2016
Net income (loss)
Net income (loss) attributable to common stockholders	$	(318	)	$	(1,034	)
Income (loss) effect of TEUs	(2		)	(1		)
Basic	$	(320	)	$	(1,035	)
Diluted	$	(320	)	$	(1,035	)
Shares
Average number of common shares outstanding—basic	551			509
Average number of common shares outstanding—diluted	551			509
Excluded due to anti-dilutive effect	11			10
Net income (loss) per common share
Basic	$	(0.58	)	$	(2.03	)
Diluted	$	(0.58	)	$	(2.03	)

~~16.~~14. Noncontrolling Interests

WES ~~a publicly traded consolidated subsidiary,~~ is a limited partnership formed by Anadarko to acquire, own, develop, and operate midstream assets. During ~~the first quarter of~~ 2016, WES issued 1422 million Series A Preferred units to private investors for net proceeds of ~~$440~~$687 million, and issued 1.3 million common units to the Company. Proceeds from these issuances were primarily used to acquire interests in Springfield Pipeline LLC from the Company. ~~During~~Pursuant to an agreement between WES and the ~~second quarter~~holders of ~~2016,~~the Series A Preferred units, 50% of the Series A Preferred units converted into WES ~~issued an additional eight million~~common units on a one-for-one basis March 1, 2017, with the remaining Series A Preferred units to ~~private investors, pursuant to the full exercise of an option granted~~be converted in ~~connection with the initial issuance, and raised net proceeds of $247 million.~~May 2017.

WES Class C units issued to Anadarko will convert into WES common units on a one-for-one basis on the conversion date, which was extended in February 2017 from December 31, 2017, to March 1, 2020. The Class C units receive quarterly distributions in the form of additional Class C units until the ~~end of 2017,~~March 1, 2020 conversion date unless WES elects to convert the units to common units earlier or Anadarko elects to extend the conversion date. WES distributed ~~749~~179 thousand Class C units to Anadarko during the ~~nine~~three months ended ~~September 30, 2016,~~March 31, 2017, and ~~498~~946 thousand Class C units to Anadarko during ~~2015. During 2015, WES issued approximately 874 thousand common units to the public for net proceeds of $57 million.~~2016.

WGP ~~a publicly traded consolidated subsidiary,~~ is a limited partnership formed by Anadarko to own ~~partnership~~ interests in WES. During ~~the three months ended June 30,~~ 2016, Anadarko sold 12.5 million ~~of its~~ WGP common units to the public for net proceeds of $476 million. At ~~September 30, 2016,~~March 31, 2017, Anadarko’s ownership interest in WGP consisted of an 81.6% limited partner interest and the entire non-economic general partner interest. The remaining 18.4% limited partner interest in WGP was owned by the public.

At ~~September 30, 2016,~~March 31, 2017, WGP’s ownership interest in WES consisted of a ~~30.0%~~29.9% limited partner interest, the entire 1.5% general partner interest, and all of the WES incentive distribution rights. At ~~September 30, 2016,~~March 31, 2017, Anadarko also owned an ~~8.5%~~8.7% limited partner interest in WES through other subsidiaries’ ownership of common and Class C units. The remaining ~~60.0%~~59.9% limited partner interest in WES was owned by the public.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

~~17.~~15. Variable Interest Entities

Consolidated VIEs The Company determined that the partners in WGP and WES with equity at risk lack the power, through voting rights or similar rights, to direct the activities that most significantly impact WGP’s and WES’s economic performance; therefore, WGP and WES are considered VIEs. Anadarko, through its ownership of the general partner interest in WGP, has the power to direct the activities that most significantly affect economic performance and the obligation to absorb losses or the right to receive benefits that could be potentially significant to WGP and WES, therefore Anadarko is considered the primary beneficiary and consolidates WGP and WES. See Note ~~16—~~14—Noncontrolling Interests for additional information on WGP and WES.

Assets and Liabilities of VIEs The assets of WGP and WES cannot be used by Anadarko for general corporate purposes and are both included in and disclosed parenthetically on the Company’s Consolidated Balance Sheets. The carrying amounts of liabilities related to WGP and WES for which the creditors do not have recourse to other assets of the Company are both included in and disclosed parenthetically on the Company’s Consolidated Balance Sheets.

All outstanding debt for WES at ~~September 30, 2016,~~March 31, 2017, and December 31, ~~2015,~~2016, including any borrowings under the WES RCF, is recourse to WES’s general partner, which in turn has been indemnified in certain circumstances by certain wholly owned subsidiaries of the Company for such liabilities. All outstanding debt for WGP at ~~September 30, 2016,~~March 31, 2017, and December 31, ~~2015,~~2016, including any borrowings under the WGP RCF, is recourse to WGP’s general partner, which is a wholly owned subsidiary of the Company. See Note 8—Debt ~~and Interest Expense~~ for additional information on WGP and WES long-term debt balances.

VIE Financing WGP’s sources of liquidity include borrowings under its RCF and distributions from WES. WES’s sources of liquidity include cash and cash equivalents, cash flows generated from operations, interest income from a note receivable from Anadarko as discussed below, borrowings under its RCF, the issuance of additional partnership units, or debt offerings. See Note 8—Debt ~~and Interest Expense~~ and Note ~~16—~~14—Noncontrolling Interests for additional information on WGP and WES financing activity.

Financial Support Provided to VIEs Concurrent with the closing of its May 2008 ~~initial public offering,~~IPO, WES loaned the Company $260 million in exchange for a 30-year note bearing interest at a fixed annual rate of 6.50%, payable quarterly. The related interest income for WES was $5$4 million for each of the three months ended ~~September 30, 2016~~March 31, 2017 and ~~2015, and $13 million for each of the nine months ended September 30, 2016 and 2015.~~2016. The note receivable and related interest income are eliminated in consolidation.

In March 2015, WES acquired the Company’s interest in ~~Delaware Basin JV Gathering LLC (DBJV).~~DBJV. The acquisition was financed using a deferred purchase price obligation which requires a cash payment from WES to the Company due on March 31, 2020. The cash payment due to the Company is equal to eight multiplied by the average of WES’s share in DBJV Net Earnings (defined below) for 2018 and 2019 less WES’s share of capital expenditures incurred for DBJV from March 1, 2015 to February 29, 2020. Net Earnings is defined as all revenues less cost of product, operating expenses, and property taxes. The net present value of this obligation was ~~$16~~$37 million at ~~September 30, 2016,~~March 31, 2017, and ~~$189~~$41 million at December 31, ~~2015.~~2016. The reduction in the value of the deferred purchase price obligation was primarily due to revisions reflecting a decrease in WES’s estimate of future Net Earnings, ~~and an increase~~partially offset by a decrease in WES’s estimate of capital expenditures to be incurred by DBJV.

In order to reduce WES’s exposure to a majority of the commodity-price risk inherent in certain of their contracts, Anadarko has commodity price swap agreements in place with WES expiring on December 31, ~~2016.~~2017. WES has recorded a capital contribution from Anadarko in its Consolidated Statement of Equity and Partners’ Capital for the amount by which the swap price exceeds the applicable market price. WES recorded a ~~$35 million~~ capital contribution from Anadarko ~~for the nine months ended September 30, 2016, and a capital contribution~~ of $8$12 million for the ~~nine~~three months ended ~~September 30, 2015.~~March 31, 2017, and $7 million for the three months ended March 31, 2016.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

~~18.~~16. Supplemental Cash Flow Information

Additions to properties and equipment as presented within Anadarko’s cash flows from investing activities include cash payments for cost of properties, equipment, and facilities. The cost of properties includes the initial capitalization of drilling costs associated with all exploratory wells whether or not they were deemed to have a commercially sufficient quantity of proved reserves.

The following summarizes cash paid (received) for interest and income taxes, as well as non-cash investing and financing activities:


	Nine Months Ended September 30,						Three Months Ended March 31,
millions	2016			2015			2017			2016
Cash paid (received)
Interest, net of amounts capitalized⁽¹⁾	$	735		$	1,916		$	308		$	299
Income taxes, net of refunds⁽²⁾	(878		)	(163		)	1			(8		)
Non-cash investing activities
Fair value of properties and equipment from non-cash transactions	$	2		$	156		$	549		$	—
Asset retirement cost additions	85			139			61			27
Accruals of property, plant, and equipment	454			858			608			623
Net liabilities assumed (divested) in acquisitions and divestitures	(39		)	(84		)	(82		)	—
Non-cash investing and financing activities
Capital lease obligation⁽³⁾	$	10		$	—
Floating production, storage, and offloading unit construction period obligation⁽³⁾	11			51
FPSO construction period obligation ⁽¹⁾							$	—		$	2
Deferred drilling lease liability	3			—			7			—


⁽¹⁾	~~Includes $1.2 billion of interest related to the Tronox settlement payment in 2015.~~


⁽²⁾	~~Includes $881 million from a tax refund related to the income tax benefit associated with the Company’s 2015 tax net operating loss carryback.~~


⁽³⁾	Upon completion of the FPSO ~~during~~in the third quarter of 2016, the Company reported the construction period obligation as a capital lease obligation ~~and recorded a fair-value adjustment. See~~ ~~Note 8—Debt and Interest Expense~~. based on the fair value of the FPSO.

~~19.~~

Table of Contents

ANADARKO PETROLEUM CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

17. Segment Information

Anadarko’s business segments are separately managed due to distinct operational differences and unique technology, distribution, and marketing requirements. The Company’s three reporting segments are oil and gas exploration and production, midstream, and marketing. The oil and gas exploration and production segment explores for and produces oil, ~~condensate,~~ natural gas, and NGLs and plans for the development and operation of the Company’s LNG project in Mozambique. The midstream segment engages in gathering, processing, treating, and transporting Anadarko and third-party oil, ~~condensate,~~ natural-gas, and NGLs ~~production.~~production as well as gathering and disposal of produced water. The midstream reporting segment consists of two operating segments, WES and other midstream, which are aggregated into one reporting segment due to similar financial and operating characteristics. The marketing segment sells much of Anadarko’s oil, ~~condensate,~~ natural-gas, and NGLs production as well as third-party purchased volumes.

~~Table of Contents~~

A~~NADARKO PETROLEUM CORPORATION~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS~~

~~(Unaudited)~~

~~19. Segment Information (Continued)~~

To assess the performance of Anadarko’s operating segments, the chief operating decision maker analyzes Adjusted EBITDAX. The Company defines Adjusted EBITDAX as income (loss) before income taxes; interest expense; DD&A; exploration expense; gains (losses) on divestitures, net; ~~exploration expense; DD&A;~~ impairments; ~~interest expense;~~ total (gains) losses on derivatives, net, less net cash from settlement of commodity derivatives; and certain items not related to the Company’s normal operations, less net income (loss) attributable to noncontrolling interests. During the periods presented, ~~items not related to the Company’s normal operations included~~ restructuring charges related to the workforce reduction program included in general and administrative expenses, Deepwater Horizon settlement and related costs included in other operating expenses, loss on early extinguishment of debt, Tronox-related contingent loss, and certain other nonoperating items included in other (income) expense, net. G&A did not relate to the Company’s normal operations.

The Company’s definition of Adjusted EBITDAX excludes gains (losses) on divestitures, net and exploration expense as they are not indicators of operating efficiency for a given reporting period. However, exploration expense is monitored by management as part of costs incurred in exploration and development activities. Similarly, DD&A and impairments are excluded from Adjusted EBITDAX as a measure of segment operating performance because capital expenditures are evaluated at the time capital costs are incurred. Adjusted EBITDAX also excludes interest expense to allow for assessment of segment operating results without regard to Anadarko’s financing methods or capital structure. Total (gains) losses on derivatives, net, less net cash from settlement of commodity derivatives are excluded from Adjusted EBITDAX because these (gains) losses are not considered a measure of asset operating performance. Finally, net income (loss) attributable to noncontrolling interests is excluded from the Company’s measure of Adjusted EBITDAX because it represents earnings that are not attributable to the Company’s common stockholders.

Management believes Adjusted EBITDAX provides information useful in assessing the Company’s operating and financial performance across periods. Adjusted EBITDAX as defined by Anadarko may not be comparable to similarly titled measures used by other companies and should be considered in conjunction with net income (loss) attributable to common stockholders and other performance measures, such as operating income. Below is a reconciliation of consolidated Adjusted EBITDAX to income (loss) before income taxes:


	Three Months Ended September 30,						Nine Months Ended September 30,						Three Months Ended March 31,
millions	2016			2015			2016			2015			2017			2016
Income (loss) before income taxes	$	(1,007	)	$	(3,077	)	$	(3,313	)	$	(7,520	)	$	(178	)	$	(1,381	)
Interest expense													223			220
DD&A													1,115			1,149
Exploration expense													1,085			126
(Gains) losses on divestitures, net	414			578			516			1,003			(804		)	(2		)
Exploration expense	304			1,074			506			2,260
DD&A	1,069			1,111			3,202			3,581
Impairments	27			758			61			3,571			373			16
Interest expense	220			199			657			616
Total (gains) losses on derivatives, net, less net cash from settlement of commodity derivatives	88			360			863			374			(155		)	404
Restructuring charges	112			—			363			—			(1		)	203
Other operating expense	—			—			1			4			—			1
Loss on early extinguishment of debt	—			—			124			—
Tronox-related contingent loss	—			—			—			5
Certain other nonoperating items	—			—			(56		)	22
Less net income (loss) attributable to noncontrolling interests	83			75			200			154			43			36
Consolidated Adjusted EBITDAX	$	1,144		$	928		$	2,724		$	3,762		$	1,615		$	700

3225

Table of Contents

ANADARKO PETROLEUM CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

~~19.~~17. Segment Information (Continued)

Information presented below as “Other and Intersegment Eliminations” includes corporate costs, results from hard-minerals royalties, ~~and~~ net cash from settlement of commodity ~~derivatives.~~derivatives, and net income (loss) attributable to noncontrolling interests. The following summarizes selected financial information for Anadarko’s reporting segments:


millions	Oil and Gas Exploration & Production		Midstream		Marketing			Other and Intersegment Eliminations			Total			Oil and Gas Exploration & Production			Midstream		Marketing			Other and Intersegment Eliminations			Total
Three Months Ended September 30, 2016
Three Months Ended March 31, 2017
Sales revenues	$	1,109	$	174	$	968		$	—		$	2,251		$	1,524		$	225	$	1,149		$	—		$	2,898
Intersegment revenues	717		370		(841		)	(246		)	—			871			361		(1,024		)	(208		)	—
Other	—		—		—			56			56
Total revenues and other ⁽¹⁾	1,826		544		127			(190		)	2,307
Operating costs and expenses ⁽²⁾	807		273		173			(79		)	1,174
Other ⁽¹⁾														2			33		6			24			65
Total revenues and other ⁽²⁾														2,397			619		131			(184		)	2,963
Operating costs and expenses ⁽³⁾														866			317		165			(43		)	1,305
Net cash from settlement of commodity derivatives	—		—		—			(63		)	(63		)	—			—		—			6			6
Other (income) expense, net	—		—		—			(31		)	(31		)	—			—		—			(8		)	(8		)
Net income (loss) attributable to noncontrolling interests(1)	—		83		—			—			83			—			—		—			43			43
Total expenses and other	807		356		173			(173		)	1,163			866			317		165			(2		)	1,346
Total (gains) losses on derivatives, net included in marketing revenue, less net cash from settlement														—			—		(2		)	—			(2		)
Adjusted EBITDAX	$	1,019	$	188	$	(46	)	$	(17	)	$	1,144		$	1,531		$	302	$	(36	)	$	(182	)	$	1,615

Three Months Ended September 30, 2015
Three Months Ended March 31, 2016
Sales revenues	$	1,067	$	195	$	968		$	—		$	2,230		$	711		$	125	$	798		$	—		$	1,634
Intersegment revenues	750		315		(832		)	(233		)	—			601			302		(663		)	(240		)	—
Other	—		—		—			36			36
Total revenues and other ⁽¹⁾	1,817		510		136			(197		)	2,266
Operating costs and expenses ⁽²⁾	840		287		181			(14		)	1,294
Other ⁽¹⁾														(1		)	13		1			25			38
Total revenues and other ⁽²⁾														1,311			440		136			(215		)	1,672
Operating costs and expenses ⁽³⁾														773			183		176			(89		)	1,043
Net cash from settlement of commodity derivatives	—		—		—			(79		)	(79		)	—			—		—			(103		)	(103		)
Other (income) expense, net	—		—		—			47			47
Net income (loss) attributable to noncontrolling interests	—		75		—			—			75			—			—		—			36			36
Total expenses and other	840		362		181			(46		)	1,337			773			183		176			(156		)	976
Total (gains) losses on derivatives, net included in marketing revenue, less net cash from settlement	—		—		(1		)	—			(1		)	—			—		4			—			4
Adjusted EBITDAX	$	977	$	148	$	(46	)	$	(151	)	$	928		$	538		$	257	$	(36	)	$	(59	)	$	700

__________________________________________________________________


⁽¹⁾	Presentation has been adjusted to align with the current analysis of segment performance. Net income (loss) attributable to noncontrolling interests, previously reported within the Midstream segment, is now presented within Other and Intersegment Eliminations. Other revenues, previously reported within Other and Intersegment Eliminations, is now presented within the applicable segments.


⁽²⁾	Total revenues and other excludes gains (losses) on divestitures, net since these gains and losses are excluded from Adjusted EBITDAX.


⁽²⁾⁽³⁾	Operating costs and expenses excludes exploration expense, DD&A, impairments, restructuring charges, and certain other operating ~~expense~~expenses since these expenses are excluded from Adjusted EBITDAX.

~~Table of Contents~~

A~~NADARKO PETROLEUM CORPORATION~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS~~

~~(Unaudited)~~

~~19. Segment Information (Continued)~~

millions
Oil and Gas
Exploration
& Production
Midstream Marketing
Other and
Intersegment
Eliminations
Total
Nine Months Ended September 30, 2016
Sales revenues $ 2,853
$ 440
$ 2,577
$ —
$ 5,870
Intersegment revenues 1,885
1,012
(2,180 ) (717 ) —
Other —
—
—
128
128
Total revenues and other ⁽¹⁾
4,738
1,452
397
(589 ) 5,998
Operating costs and expenses ⁽²⁾
2,370
675
526
(233 ) 3,338
Net cash from settlement of commodity derivatives —
—
—
(226 ) (226 )
Other (income) expense, net ⁽³⁾
—
—
—
(30 ) (30 )
Net income (loss) attributable to noncontrolling interests —
200
—
—
200
Total expenses and other 2,370
875
526
(489 ) 3,282
Total (gains) losses on derivatives, net included in marketing revenue, less net cash from settlement —
—
8
—
8
Adjusted EBITDAX $ 2,368
$ 577
$ (121 ) $ (100 ) $ 2,724

Nine Months Ended September 30, 2015
Sales revenues $ 3,493
$ 560
$ 3,399
$ —
$ 7,452
Intersegment revenues 2,752
920
(2,977 ) (695 ) —
Other —
—
—
196
196
Total revenues and other ⁽¹⁾
6,245
1,480
422
(499 ) 7,648
Operating costs and expenses ⁽²⁾
2,674
761
571
(110 ) 3,896
Net cash from settlement of commodity derivatives —
—
—
(251 ) (251 )
Other (income) expense, net ⁽³⁾
—
—
—
87
87
Net income (loss) attributable to noncontrolling interests —
154
—
—
154
Total expenses and other 2,674
915
571
(274 ) 3,886
Adjusted EBITDAX $ 3,571
$ 565
$ (149 ) $ (225 ) $ 3,762

~~__________________________________________________________________~~


⁽¹⁾	~~Total revenues and other excludes gains (losses) on divestitures, net since these gains and losses are excluded from Adjusted EBITDAX.~~


⁽²⁾	~~Operating costs and expenses excludes exploration expense, DD&A, impairments, restructuring charges, and other operating expense since these expenses are excluded from Adjusted EBITDAX.~~


⁽³⁾	~~Other (income) expense, net excludes certain other nonoperating items since these items are excluded from Adjusted EBITDAX.~~

~~Table of Contents~~

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

CAUTIONARY STATEMENT ABOUT FORWARD-LOOKING STATEMENTS

Unless the context otherwise requires, the terms “Anadarko” and “Company” refer to Anadarko Petroleum Corporation and its consolidated subsidiaries. The Company has made in this Form 10-Q, and may from time to time make in other public filings, press releases, and management discussions, forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended, concerning the Company’s operations, economic performance, and financial condition. These forward-looking statements include, among other things, information concerning future production and reserves, schedules, plans, timing of development, contributions from oil and gas properties, marketing and midstream activities, and also include those statements preceded by, followed by, or that otherwise include the words “may,” “could,” “believes,” “expects,” “anticipates,” “intends,” “estimates,” “projects,” “target,” “goal,” “plans,” “objective,” “should,” “would,” “will,” “potential,” “continue,” “forecast,” “future,” “likely,” “outlook,” 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. Although the Company believes that the expectations reflected in such forward-looking statements are reasonable, it can give no assurance that such expectations will be realized. Anadarko undertakes no obligation to publicly update or revise any forward-looking statements whether as a result of new information, future events, or otherwise.

These forward-looking statements involve risk and uncertainties. Important factors that could cause actual results to differ materially from the Company’s expectations include, but are not limited to, the following risks and uncertainties:

the Company’s assumptions about energy markets

production and sales volume levels

levels of oil, natural-gas, and ~~natural-gas liquids (NGLs)~~NGLs reserves

operating results

competitive conditions

technology

availability of capital resources, levels of capital expenditures, and other contractual obligations

supply and demand for, the price of, and the commercialization and transporting of oil, natural gas, NGLs, and other products or services

volatility in the commodity-futures market

weather

inflation

availability of goods and services, including unexpected changes in costs

drilling risks

processing volumes and pipeline throughput

general economic conditions, nationally, internationally, or in the jurisdictions in which the Company is, or in the future may be, doing business

the Company’s inability to timely obtain or maintain permits or other governmental approvals, including those necessary for drilling and/or development projects

legislative or regulatory changes, including changes relating to hydraulic fracturing; retroactive royalty or production tax regimes; deepwater drilling and permitting regulations; derivatives reform; changes in state, federal, and foreign income taxes; environmental regulation, including regulations related to climate change; environmental risks; and liability under international, provincial, federal, regional, state, ~~foreign,~~tribal, local, and ~~local~~foreign environmental laws and regulations

civil or political unrest or acts of terrorism in a region or country

the creditworthiness and performance of the Company’s counterparties, including financial institutions, operating partners, and other parties

~~Table of Contents~~

volatility in the securities, capital, or credit markets and related risks such as general credit, liquidity, and interest-rate risk

the Company’s ability to successfully monetize select assets, repay or refinance its debt, and the impact of changes in the Company’s credit ratings

~~the Company’s ability to close the acquisition of certain Gulf of Mexico assets~~

~~risks and liabilities~~uncertainties associated with acquired properties orand businesses

disruptions in international oil ~~NGLs,~~ and ~~condensate~~NGLs cargo shipping activities

physical, digital, internal, and external security breaches

supply and demand, technological, political, governmental, and commercial conditions associated with long-term development and production projects in domestic and international locations

other factors discussed below and elsewhere in “Risk Factors” and in “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Critical Accounting Estimates” included in the Company’s Annual Report on Form 10-K for the year ended December 31, ~~2015,~~2016, this Form 10-Q, and in the Company’s other public filings, press releases, and discussions with Company management

The following discussion should be read together with the Consolidated Financial Statements and the Notes to Consolidated Financial Statements, which are included in this Form 10-Q in Part I, Item 1; the information set forth in the Risk Factors under Part II, Item 1A; the Consolidated Financial Statements and the Notes to Consolidated Financial Statements, which are included in Part II, Item 8 of the Company’s Annual Report on Form 10-K for the year ended December 31, ~~2015;~~2016; and the information set forth in the Risk Factors under Part I, Item 1A of the Company’s Annual Report on Form 10-K for the year ended December 31, ~~2015.~~2016.

~~OUTLOOK~~

The Company’s revenues, operating results, cash flows from operations, capital spending, and future growth rates are highly dependent on the global commodity-price markets, which affect the value the Company receives from its sales of oil, natural gas, and NGLs. During 2015, the oil and natural-gas industry experienced a significant decrease in commodity prices, which continued into 2016, driven by a global supply/demand imbalance for oil and an oversupply of natural gas in the United States.

~~The following actions in 2016 have enabled the Company to manage through this lower commodity-price environment:~~

~~reducing capital expenditures by 50% from the prior year~~

~~enhancing operational efficiencies~~

continuing an active monetization program by closing monetizations totaling $2.8 billion through September 30, 2016, and entering into agreements for an additional $1.2 billion, which are expected to close in the fourth quarter of 2016

~~improving the Company’s cost structure by approximately $800 million annually after 2016 through a dividend decrease and a workforce reduction program~~

~~retiring approximately $3.0 billion of near-term maturities with proceeds from debt issued during the first quarter of 2016~~MANAGEMENT OVERVIEW

In ~~addition,~~2017, Anadarko continues to optimize and further concentrate its portfolio on higher-return, oil-levered opportunities in ~~September 2016~~areas where it possesses both scale and competitive advantages, namely the ~~Company entered into an agreement to acquire certain assets~~Delaware and DJ basins in the U.S. onshore and deepwater Gulf of ~~Mexico for $2.0 billion.~~Mexico. The ~~acquisition is expected to close in the fourth quarter of 2016 and is subject to customary closing conditions. The acquisition of these assets will expand~~GOM Acquisition expanded Anadarko’s operated infrastructure ~~in the Gulf of Mexico, doubling the Company’s ownership in the Lucius development to approximately 49%~~ and ~~increasing~~substantial tie-back inventory and doubled its ~~oil~~net production from the Gulf of ~~Mexico.~~Mexico to approximately 160 MBOE/d, more than 80% of which is comprised of oil. The acquired assets are expected to generate substantial cash flow over the next five years at current strip ~~prices, enabling accelerated investment in Anadarko’s Delaware and DJ basin assets.~~prices. The Company ~~completed a public offering of 40.5 million shares of its common stock for net proceeds of $2.16 billion~~plans to ~~fund~~use the ~~acquisition of~~cash flows from the Gulf of Mexico ~~assets. The remaining net proceeds will be used for general corporate purposes.~~

~~Table of Contents~~

~~The Company has increased~~as well as from our international cash generating assets to fund growth in the estimate for its 2016 capital spending from a range of $3.1 billion to $3.3 billion to a range of $3.3 billion to $3.5 billion, including approximately $490 million to $530 million for Western Gas Partners, LP (WES), a publicly traded consolidated subsidiary, and excluding any acquisitions made by Anadarko or WES. The increase primarily reflects increased activityCompany’s unconventional assets in the Delaware and DJ basins. The Company ended the first quarter of 2017 with 14 operated drilling rigs in the Delaware basin and 6 operated drilling rigs in the DJ basin, which compares to 9 operated drilling rigs in the Delaware basin and 5 operated drilling rigs in the DJ basin at year-end 2016. In the deepwater Gulf of Mexico, Anadarko has three floating rigs drilling with a focus on leveraging the Company’s expansive infrastructure position.

Anadarko currently estimates a 2017 initial capital spending range of $5.4 billion to $5.7 billion, which represents an increase of more than 63% from 2016. The estimated capital spending range includes approximately $900 million to $1.0 billion for WES. The Company has currently allocated approximately ~~65%~~80% of its ~~2016~~2017 capital spending budget to development activities, 15% to exploration activities, and 20% to gathering and processing activities and other business activities. The Company currently expects its 2016 capital spending by area to be approximately 40% for the U.S. onshore ~~region~~upstream and ~~Alaska, 20% for the~~midstream and deepwater Gulf of ~~Mexico, 20% for Midstream~~Mexico; 15% to future value areas, such as deepwater exploration and ~~other (including WES),~~global LNG; 2% to international cash generation assets, such as oil projects in Algeria and ~~20% for International.~~Ghana; and 3% to corporate activities. The Company’s 2017 initial capital program was designed to leverage its streamlined portfolio and sharpened focus on higher-margin oil production. The Company will continue to evaluate the oil and natural-gas price environments and may adjust its capital spending plans while maintaining appropriate liquidity and financial flexibility.

~~Liquidity~~As of September 30, 2016, Anadarko had $4.0 billion of cash on hand plus $5.0 billion of borrowing capacity under its revolving credit facilities. Cash on hand includes net proceeds of $2.16 billion from the Company’s September 2016 public offering of 40.5 million shares of its common stock. Additionally, Anadarko has entered into divestiture agreements that are expected to close in the fourth quarter for approximately $1.2 billion. Prior to year-end 2016, Anadarko plans to use approximately $1.8 billion of its cash on hand for the acquisition of certain Gulf of Mexico assets. In October 2016, the Company provided notice of its intent to redeem its remaining $750 million of 6.375% Senior Notes due September 2017 prior to year end. Anadarko believes that its cash on hand, anticipatedan oil and natural-gas exploration and production company, Anadarko’s revenues, operating cash flows, and proceeds from expected future asset monetizations will be sufficient to fund the Company’s projected 2016 operational and capital programs, the acquisition of certain assets in the Gulf of Mexico, and the redemption of its $750 million 2017 debt maturities in the fourth quarter of 2016.

Anadarko enters into strategic derivative positions to reduce its commodity-price risk and increase the predictability of cash flows. At September 30, 2016, derivative positions covered 26% of Anadarko’s anticipated oil sales volumes for 2016, 42% of its anticipated natural-gas sales volumes and 2% of its anticipated NGLs sales volumes for 2017, and 14% of its anticipated natural-gas sales volumes for 2018. These instruments had a fair value of $41 million as of September 30, 2016. See ~~Note 6—Derivative Instruments~~ ~~in the~~ ~~Notes to Consolidated Financial Statements~~ ~~under Part I, Item 1 of this Form 10-Q.~~

~~Potential for Future Impairments~~ Properties and equipment are reviewed for impairment when facts and circumstances indicate that net book values may not be recoverable. In performing this review, an undiscounted cash flow test is performed at the lowest level for which identifiable cash flows are independent ofresults, cash flows from ~~other assets. If the sum of the undiscounted~~operations, capital spending, and future net cash flows is less than the net book value of the property, the property’s fair value is estimated and an impairment loss is recognized for the excess, if any, of the property’s net book value over its estimated fair value. The primary assumptions used to estimate expected undiscounted future net cash flows include anticipated future production,growth rates are highly influenced by commodity prices, and capital and operating costs. Unfavorable changes in any of these assumptions could result in a reduction in undiscounted future cash flows and could indicate property impairment. Uncertainties related to the primary assumptions couldwhich affect the ~~timing of an impairment. In most cases, the assumption that generates the most variability in undiscounted future net cash flows is future oil and gas prices. For impairment testing,~~value the Company used the five-year forward strip prices for oil and natural gas, with prices subsequent to the fifth year held constant as the benchmark price in the undiscounted future net cash flows. Capital and operating costs were estimated assuming 0% escalation for years where the average oil strip price was below $50 per barrel (Bbl) and 1% escalation for years where the average oil strip price exceeded $50 per Bbl.

At September 30, 2016, the Company’s estimates of undiscounted future cash flows attributable to a certain international asset group with a net book value of approximately $1.4 billion, and certain U.S. onshore asset groups with a combined net book value of approximately $1.1 billion, indicated that the carrying amounts were expected to be recovered; however, these asset groups may be at risk for impairment if the estimates of future cash flows decline. The Company estimates that a 10% decline in oil prices (with all other assumptions unchanged) could result in a non-cash impairment in excess of $600 million for the international asset group, and a 10% decline in natural-gas prices (with all other assumptions unchanged) could result in non-cash impairments in excess of $400 million for the U.S. onshore asset groups. It is also reasonably possible that prolonged low or further declines in commodity prices, further changes to the Company’s drilling plans in response to lower prices, or increases in drilling or operating costs could result in other additional impairments.

~~Table of Contents~~

~~OVERVIEW~~

~~Anadarko is among the world’s largest independent exploration and production companies. Anadarko is engaged in the exploration, development, production, and marketing~~receives from its sales of oil, condensate, natural gas, and NGLs, and in the marketing of anticipated production of liquefied natural gas. The Company also engages in the gathering, processing, treating, and transporting of oil, condensate, natural gas, and NGLs. The Company has exploration and production activities in various countries around the world, including activities in the United States, Algeria, Ghana, Mozambique, Colombia, Côte d’Ivoire, and other countries.

Significant operating and financial activities for the ~~third~~first quarter of ~~2016~~2017 include the following:

~~Overall~~Total Company

Anadarko’s ~~third-quarter~~overall sales-volume product mix increased to 61% liquids in the first quarter of 2017, compared to 53% in the first quarter of 2016, which significantly improved margins.

Anadarko’s first-quarter oil sales volumes averaged ~~780 thousand barrels of oil equivalent per day (MBOE/d),~~367 MBbls/d, representing a ~~1% decrease~~16% increase from the ~~third~~first quarter of ~~2015,~~2016, primarily due to increased volumes from the GOM Acquisition and the startup of TEN offshore Ghana, partially offset by divestitures of U.S. onshore oil and gas assets ~~partially offset by increased performance~~in 2016 and ~~continued field development in~~ 2017.

U.S. ~~onshore and new wells coming online~~Onshore

Oil sales volumes in the ~~Gulf of Mexico.~~

~~In September 2016,~~Delaware basin increased 10 MBbls/d, representing a 46% increase from the ~~Company entered into an agreement to acquire certain assets in the Gulf of Mexico for $2.0 billion. The acquisition is expected to close in the fourth~~first quarter of 2016, due to increased drilling activity.

WES acquired a third party’s 50% nonoperated interest in the DBJV system in exchange for WES’s 33.75% interest in nonoperated Marcellus midstream assets and ~~is subject to customary closing conditions.~~$155 million in cash.

~~The Company~~Anadarko closed the divestiture of its Eagleford and Marcellus assets during the quarter for net proceeds of $2.8 billion, prior to final closing adjustments.

Gulf of monetizations year to date, including asset divestitures, the sale of Anadarko’s interest in Springfield Pipeline LLC to WES, the sale of a portion of the Company’s common units in Western Gas Equity Partners, LP (WGP) to the public, and the Company’s conveyance of a limited-term nonparticipating royalty interest in certain of its coal and trona leases to a third party.Mexico

~~U.S. Onshore~~

~~Third-quarter liquids~~Oil sales volumes averaged ~~284 thousand barrels per day (MBbls/d),~~125 MBbls/d, representing a 2%116% increase from the ~~third~~first quarter of ~~2015, primarily due to increased performance in the DJ basin and continued field development in the Delaware basin.~~

~~Third-quarter natural-gas sales volumes averaged 321 MBOE/d, representing a 5% decrease from the third quarter of 2015,~~2016, primarily due to the ~~September 2015 sale of certain coalbed methane properties, the July 2015 sale of certain properties in East Texas,~~GOM Acquisition and ~~the June 2016 sale of certain Wyoming assets. These decreases were partially offset by improved well performance in the DJ basin and production modulation in the Marcellus shale in 2015.~~continued tieback activity at several facilities.

~~Gulf of Mexico~~

~~Third-quarter oil~~International

First-quarter sales volumes averaged ~~65 MBOE/~~104 MBbls/d, representing ~~an 18%~~a 17% increase from the ~~third~~first quarter of ~~2015, primarily due to new wells coming online at K2 and Caesar/Tonga.~~

~~The Company acquired a 33% operated working interest in the Constellation discovery (formerly Hopkins). The field is expected to be tied back to Anadarko’s Constitution spar.~~

~~International~~

~~Third-quarter sales volumes averaged 91 MBbls/d, representing an 11% increase from the third quarter of 2015,~~2016, primarily as a result of ~~timing of liftings in Algeria.~~

~~The Tweneboa/Enyenra/Ntomme (TEN)~~the TEN development project (19% nonoperated ~~working~~participating interest) in Ghana ~~achieved~~achieving first oil in the third quarter of 2016.

~~Table~~Interim mooring of ~~Contents~~

~~Financial~~

~~Anadarko’s net loss attributable to common stockholders for~~ the ~~third~~FPSO at the Jubilee field in Ghana commenced in the fourth quarter of 2016 ~~totaled $830 million.~~

~~The Company~~and was completed ~~a public offering~~during the first quarter of ~~40.5 million shares of its common stock for net proceeds of $2.16 billion. Net proceeds will primarily be used to fund the acquisition of certain Gulf of Mexico assets discussed above,~~2017. Final decisions and ~~the remaining net proceeds~~approvals will be ~~used~~sought for ~~general corporate purposes.~~the long-term turret system solution in mid-2017. It is anticipated that a facility shutdown of up to 12 weeks may be required in the second half of 2017. The partnership is actively seeking optimization solutions to minimize the duration of any shutdown period.

During the quarter, the Company made progress towards finalizing major components of the legal and contractual framework for the LNG project in Mozambique, which will support investment, beginning with the resettlement project, and also position the Company to secure long-term LNG offtake contracts.

Financial

The Company generated ~~$785 million~~$1.1 billion of cash flow from operations and ended the ~~third~~ quarter with ~~$4.0~~$5.8 billion of ~~cash on hand, which included net proceeds from~~cash.

In January 2017, the ~~Company’s September 2016 equity offering.~~

~~The~~ Company ~~recognized workforce reduction program expenses of $112 million in~~extended the ~~third quarter for a total of $363 million for the nine months ended September 30, 2016. Total program expenses are expected to be $410 million.~~

~~WES completed a public offering of $500 million aggregate principal amount of 4.650% Senior Notes due July 2026. Net proceeds were used to repay a portion~~maturity date of the ~~amount outstanding under WES’s $1.2 billion five-year senior unsecured revolving credit facility maturing in February 2019 (WES RCF).~~

~~In October 2016, the Company provided notice of its intent to redeem its $750 million of 6.375% Senior Notes due September 2017 prior to year end.~~364-Day Facility until January 2018.

~~Table of Contents~~

FINANCIAL RESULTS


	Three Months Ended September 30,						Nine Months Ended September 30,						Three Months Ended March 31,
millions except per-share amounts	2016			2015			2016			2015			2017			2016
Oil and condensate, natural-gas, and NGLs sales	$	1,901		$	1,896		$	4,975		$	6,520
Oil, natural-gas, and NGLs sales													$	2,454		$	1,394
Gathering, processing, and marketing sales	350			334			895			932			444			240
Gains (losses) on divestitures and other, net	(358		)	(542		)	(388		)	(807		)	869			40
Revenues and other	1,893			1,688			5,482			6,645			$	3,767		$	1,674
Costs and expenses	2,686			4,237			7,471			13,312			3,877			2,538
Other (income) expense	214			528			1,324			853			68			517
Income tax expense (benefit)	(260		)	(917		)	(957		)	(2,232		)	97			(383		)
Net income (loss) attributable to common stockholders	$	(830	)	$	(2,235	)	$	(2,556	)	$	(5,442	)	$	(318	)	$	(1,034	)
Net income (loss) per common share attributable to common stockholders—diluted	$	(1.61	)	$	(4.41	)	$	(5.00	)	$	(10.73	)	$	(0.58	)	$	(2.03	)
Average number of common shares outstanding—diluted	517			508			512			508			551			509

The following discussion pertains to Anadarko’s results of operations, financial condition, and changes in financial condition. Any increases or decreases “for the three months ended ~~September 30, 2016,~~March 31, 2017,” refer to the comparison of the three months ended ~~September 30, 2016,~~March 31, 2017, to the three months ended September 30, 2015, and any increases or decreases “for the nine months ended September 30, 2016,” refer to the comparison of the nine months ended September 30, 2016, to the nine months ended September 30, 2015.March 31, 2016. The primary factors that affect the Company’s results of operations include commodity prices for oil, natural gas, and NGLs; sales volumes; the cost of finding such reserves; and operating costs.

Revenues and Sales Volumes


	Three Months Ended September 30,												Three Months Ended March 31,
millions except percentages	Oil and Condensate			Natural Gas			NGLs			Total			Oil			Natural Gas			NGLs			Total
2015 sales revenues	$	1,229		$	484		$	183		$	1,896
2016 sales revenues													$	850		$	366		$	178		$	1,394
Changes associated with prices													684			210			126			1,020
Changes associated with sales volumes	67			(40		)	10			37			129			(74		)	(15		)	40
Changes associated with prices	(57		)	(9		)	34			(32		)
2016 sales revenues	$	1,239		$	435		$	227		$	1,901
Increase (decrease) vs. 2015	1		%	(10		)%	24		%	—		%

	Nine Months Ended September 30,
millions except percentages	Oil and Condensate			Natural Gas			NGLs			Total
2015 sales revenues	$	4,264		$	1,612		$	644		$	6,520
Changes associated with sales volumes	(97		)	(167		)	(18		)	(282		)
Changes associated with prices	(953		)	(324		)	14			(1,263		)
2016 sales revenues	$	3,214		$	1,121		$	640		$	4,975
Increase (decrease) vs. 2015	(25		)%	(30		)%	(1		)%	(24		)%
2017 sales revenues													$	1,663		$	502		$	289		$	2,454
Increase (decrease) vs. 2016													96		%	37		%	62		%	76		%

~~Changes~~The above table illustrates the effects of the increase in commodity prices and changes associated with sales volumes, ~~for~~which include increases related to the ~~three~~GOM Acquisition (primarily oil) and ~~nine months ended September 30, 2016, include~~ decreases associated with U.S. onshore asset ~~divestitures.~~

~~Table of Contents~~

divestitures (primarily natural gas).

The following provides Anadarko’s sales volumes for the three ~~and nine~~ months ended ~~September 30:~~March 31:

Three Months Ended
September 30, Nine Months Ended
September 30,
2016 Inc (Dec) vs. 2015 2015 2016 Inc (Dec) vs. 2015 2015
Barrels of Oil Equivalent
(MMBOE except percentages)
United States 64
(2 )% 65
196
(6 )% 209
International 8
11
8
23
(6 ) 25
Total barrels of oil equivalent 72
(1 ) 73
219
(6 ) 234

Barrels of Oil Equivalent per Day
(MBOE/d except percentages)
United States 689
(2 )% 705
715
(6 )% 765
International 91
11
82
85
(6 ) 90
Total barrels of oil equivalent per day 780
(1 ) 787
800
(6 ) 855

~~_______________________________________________________________________________~~

~~MMBOE—million barrels of oil equivalent~~



	2017	Inc (Dec) vs. 2016		2016
Barrels of Oil Equivalent
(MMBOE except percentages)
United States	62	(7	)%	67
International	10	16		8
Total barrels of oil equivalent	72	(5	)	75

Barrels of Oil Equivalent per Day
(MBOE/d except percentages)
United States	691	(6	)%	738
International	104	17		89
Total barrels of oil equivalent per day	795	(4	)	827

Sales volumes represent actual production volumes adjusted for changes in commodity inventories as well as natural-gas production volumes provided to satisfy a commitment under the Jubilee development plan in Ghana. Anadarko employs marketing strategies to minimize market-related shut-ins, maximize realized prices, and manage credit-risk exposure. For additional information, see Note 6—7—Derivative Instruments in the Notes to Consolidated Financial Statements under Part I, Item 1 of this Form ~~10-Q and~~ ~~Other (Income) Expense—(Gains) Losses on Derivatives, net~~.10-Q. Production of oil, natural gas, and NGLs is usually not affected by seasonal swings in demand.

Oil Sales Revenues, Average Prices, and Volumes



	Three Months Ended March 31,
	2017		Inc (Dec) vs. 2016		2016
Oil sales revenues (millions)	$	1,663	96	%	$	850

United States
Sales volumes—MMBbls	24		15	%	21
MBbls/d	269		16		232
Price per barrel	$	49.23	76		$	28.04

International
Sales volumes—MMBbls	9		16	%	8
MBbls/d	98		18		83
Price per barrel	$	53.36	56		$	34.11

Total
Sales volumes—MMBbls	33		15	%	29
MBbls/d	367		16		315
Price per barrel	$	50.34	70		$	29.65

The following summarizes primary drivers for the change in oil sales revenues:

~~Table of Contents~~



millions	Change in Revenues		Due to Change in Prices		Due to Change in Volumes
Three months ended March 31, 2017 vs. 2016	$	813	$	684	$	129

Oil ~~and Condensate Sales Volumes, Average~~ Prices ~~and Revenues~~

Three Months Ended
September 30, Nine Months Ended
September 30,
2016 Inc (Dec) vs. 2015 2015 2016 Inc (Dec) vs. 2015 2015
United States
Sales volumes—MMBbls 22
4 % 21
63
(1 )% 64
MBbls/d 233
4
224
230
(1 ) 233
Price per barrel $ 41.29
(5 ) $ 43.48
$ 36.52
(23 ) $ 47.37
International
Sales volumes—MMBbls 8
10 % 7
22
(6 )% 23
MBbls/d 84
10
77
79
(6 ) 84
Price per barrel $ 45.82
(3 ) $ 47.30
$ 41.98
(22 ) $ 54.13
Total
Sales volumes—MMBbls 30
5 % 28
85
(2 )% 87
MBbls/d 317
5
301
309
(2 ) 317
Price per barrel $ 42.49
(4 ) $ 44.45
$ 37.91
(23 ) $ 49.16
Oil and condensate sales revenues (millions)
$ 1,239
1
$ 1,229
$ 3,214
(25 ) $ 4,264

~~_______________________________________________________________________________~~

~~MMBbls—million barrels~~The average oil price received increased for the three months ended March 31, 2017, primarily due to OPEC’s agreement to reduce production for the first six months of 2017, which reduced the global oversupply.

~~Anadarko’s~~Oil Sales Volumes

2017 vs. 2016 The Company’s oil ~~and condensate~~ sales volumes increased by 52 MBbls/d for the three months ended March 31, 2017, primarily due to the following:

U.S. Onshore

Sales volumes for the Delaware basin increased by 10 MBbls/d for the three months ended March 31, 2017, primarily due to continued drilling activity.

Sales volumes for the DJ basin decreased by 16 MBbls/d for the three months ended ~~September 30, 2016, and decreased by 8 MBbls/d for the nine months ended September 30, 2016, primarily due to the following:~~

~~U.S. Onshore~~

~~DJ basin~~ ~~- decrease of 4 MBbls/d for the nine months ended September 30, 2016,~~March 31, 2017, primarily due to reduced capital ~~activity~~

investment during the low commodity price cycle in 2016.

Sales volumes for Eagleford decreased by 15 MBbls/d for the three months ended March 31, 2017, primarily due to the sale of the assets in March 2017.

~~Delaware basin~~ ~~- increase~~Gulf of Mexico

Sales volumes increased by 67 MBbls/d for the three months ended March 31, 2017, primarily due to the GOM Acquisition in December 2016.

International

Sales volumes for Ghana increased by 10 MBbls/d for the three months ended ~~September 30, 2016, and 7 MBbls/d for the nine months ended September 30, 2016,~~March 31, 2017, primarily due to ~~continued field~~liftings from the TEN development

~~Eagleford shale~~ ~~- decrease of 6 MBbls/d for the three months ended September 30, 2016, and 7 MBbls/d for the nine months ended September 30, 2016, primarily due to natural production decline~~

~~Divestitures -~~ decrease of 5 MBbls/d for the three months ended September 30, 2016, primarily due to the sale of certain Wyoming assets, and decrease of 6 MBbls/d for the nine months ended September 30, 2016, primarily due to the sale of certain enhanced oil recovery (EOR) assets

~~Gulf of Mexico~~

~~Caesar/Tonga, K2, and Lucius~~ ~~- increase of 12 MBbls/d for the three months ended September 30, 2016, primarily due to new wells coming~~ project, which came online at K2 and Caesar/Tonga, and increase of 9 MBbls/d for the nine months ended September 30, 2016, primarily due to new wells coming online at K2 and Caesar/Tonga and the achievement of first oil at Luciuslate in the ~~first~~third quarter of ~~2015~~

~~International~~

~~Algeria~~ ~~- increase of 16 MBbls/d for the three months ended September 30, 2016, and 7 MBbls/d for the nine months ended September 30, 2016, primarily due to the timing of liftings~~

~~Ghana~~ - decrease of 9 MBbls/d for the three months ended September 30, 2016, and 12 MBbls/d for the nine months ended September 30, 2016, primarily due to downtime to address new production and offtake procedures resulting from issues associated with the Jubilee field floating production, storage and offloading unit (FPSO) turret bearing. The partners are pursuing a long-term solution to convert the FPSO to a permanently moored facility in 2017. In the meantime, shuttle tankers continue to conduct offtakes.

~~Table of Contents~~

Anadarko’s average oil price received decreased for the three and nine months ended September 30, 2016, primarily due to continued high petroleum inventories globally and stronger supply growth from the Organization of Petroleum Exporting Countries.2016.

Natural-Gas Sales Volumes, Average Prices, and Revenues

Three Months Ended
September 30, Nine Months Ended
September 30,
2016 Inc (Dec) vs. 2015 2015 2016 Inc (Dec) vs. 2015 2015
United States
Sales volumes—Bcf 184
(8 )% 201
593
(10 )% 662
MMcf/d 2,003
(8 ) 2,186
2,164
(10 ) 2,424
Price per Mcf $ 2.36
(2 ) $ 2.41
$ 1.89
(23 ) $ 2.44
Natural-gas sales revenues (millions)
$ 435
(10 ) $ 484
$ 1,121
(30 ) $ 1,612

~~_______________________________________________________________________________~~

~~Bcf—billion cubic feet~~

~~MMcf/d—million cubic feet per day~~

~~Mcf—thousand cubic feet~~



	Three Months Ended March 31,
	2017		Inc (Dec) vs. 2016		2016
Natural-gas sales revenues (millions)	$	502	37	%	$	366

United States
Sales volumes—Bcf	167		(20	)%	210
MMcf/d	1,859		(19	)	2,303
Price per Mcf	$	3.00	71		$	1.75

The following summarizes primary drivers for the change in natural-gas sales revenues:



millions	Change in Revenues		Due to Change in Prices		Due to Change in Volumes
Three months ended March 31, 2017 vs. 2016	$	136	$	210	$	(74	)

Natural-Gas Prices

The average natural-gas price Anadarko received increased for the three months ended March 31, 2017, primarily due to the industry’syear-over-year production declines. This lower domestic production resulted in lower gas in storage despite lower residential and commercial demand due to warmer than normal temperatures in the first quarter of 2017.

Natural-Gas Sales Volumes

2017 vs. 2016The Company’s natural-gas sales volumes decreased by ~~183~~444 MMcf/d for the three months ended ~~September 30, 2016, and 260 MMcf/d for the nine months ended September 30, 2016,~~March 31, 2017, primarily due to the following:

U.S. Onshore


~~��~~	~~DJ basin~~ ~~- increase of 101 MMcf/d for the three months ended September 30, 2016, and 108 MMcf/d for the nine months ended September 30, 2016, primarily due to improved well performance~~

~~Marcellus shale~~ ~~- increase of 73~~Sales volumes for Eagleford decreased by 61 MMcf/d for the three months ended ~~September 30, 2016, and 27 MMcf/d for the nine months ended September 30, 2016,~~March 31, 2017, primarily due to ~~production modulation~~the sale of the assets in ~~2015~~

March 2017.

~~Greater Natural Buttes~~ ~~- decrease of 1~~Sales volumes for Marcellus decreased by 43 MMcf/d for the three months ended ~~September 30, 2016, and 45 MMcf/d for the nine months ended September 30, 2016,~~March 31, 2017, primarily due to natural production ~~decline~~

declines. The assets were sold on March 31, 2017.

~~Divestitures~~ ~~- decrease of 267~~Sales volumes decreased by 402 MMcf/d for the three months ended ~~September 30, 2016, and 278 MMcf/d for the nine months ended September 30, 2016,~~March 31, 2017, primarily due to the sale of certain ~~coalbed methane properties, the sale of certain~~ Wyoming and East Texas/Louisiana assets ~~and the sale of certain East Texas assets~~

in 2016.

Gulf of Mexico

~~Independence Hub~~ ~~- decrease of 76~~Sales volumes increased by 44 MMcf/d for the three months ended ~~September 30, 2016, and 69 MMcf/d for the nine months ended September 30, 2016, primarily as a result of the last producing well going off line in December 2015~~

~~The average natural-gas price Anadarko received decreased for the three and nine months ended September 30, 2016,~~March 31, 2017, primarily due to ~~lower weather-driven residential and commercial demand, which have contributed to sustained high gas storage levels.~~the GOM Acquisition in December 2016.

~~Table of Contents~~

Natural-Gas Liquids Sales Volumes, Average Prices, and Revenues


	Three Months Ended September 30,						Nine Months Ended September 30,						Three Months Ended March 31,
													2017		Inc (Dec) vs. 2016		2016
Natural-gas liquids sales revenues (millions)													$	289	62	%	$	178

United States
Sales volumes—MMBbls													10		(10	)%	11
MBbls/d													112		(9	)	122
Price per barrel													$	26.57	77		$	14.98

International
Sales volumes—MMBbls													1		14	%	—
MBbls/d													6		15		6
Price per barrel													$	37.57	65		$	22.78
	2016		Inc (Dec) vs. 2015		2015		2016		Inc (Dec) vs. 2015		2015
Total
Sales volumes—MMBbls	11		6	%	12		35		(3	)%	37		11		(9	)%	11
MBbls/d	129		6		122		130		(3	)	134		118		(8	)	128
Price per barrel	$	19.13	18		$	16.26	$	18.04	2		$	17.63	$	27.17	77		$	15.32
Natural-gas liquids sales revenues (millions)	$	227	24		$	183	$	640	(1	)	$	644

NGLs sales represent revenues from the sale of product derived from the processing of Anadarko’s natural-gas production. The following summarizes primary drivers for the change in NGLs sales revenues:



millions	Change in Revenues		Due to Change in Prices		Due to Change in Volumes
Three months ended March 31, 2017 vs. 2016	$	111	$	126	$	(15	)

NGLs Prices

The average NGLs price received increased for the three months ended March 31, 2017, primarily due to increasedpropane and butane prices stemming from higher demand.

NGLs Sales Volumes

2017 vs. 2016 The Company’s NGLs sales volumes ~~increased~~decreased by 710 MBbls/d for the three months ended ~~September 30, 2016, and decreased by 4 MBbls/d for the nine months ended September 30, 2016,~~March 31, 2017, primarily due to the following:

U.S. Onshore

Sales volumes for DJ basin ~~- increase of 17~~ increased by 9 MBbls/d for the three months ended ~~September 30, 2016,~~March 31, 2017, primarily due to improved well ~~performance and the injection of~~performance.

Sales volumes ~~into storage in 2015, and 8 MBbls/d for the nine months ended September 30, 2016, primarily due to improved well performance~~

~~East Texas/Louisiana~~ ~~- decrease of 5 MBbls/d for the three and nine months ended September 30, 2016, primarily due to natural production decline at Carthage/Haynesville~~

~~Greater Natural Buttes~~ ~~- decrease of 4 MBbls/d for the nine months ended September 30, 2016, primarily due to natural production decline in 2016 and sales from storage in 2015~~

~~Divestitures~~ ~~- decrease of 7~~decreased by 22 MBbls/d for the three months ended ~~September 30, 2016, and 3 MBbls/d for the nine months ended September 30, 2016,~~March 31, 2017, primarily due to the sale of certain Wyoming and East Texas/Louisiana assets in ~~June 2016~~

2016.

Gulf of Mexico

~~Anadarko’s average NGLs price received~~Sales volumes increased by 5 MBbls/d for the three ~~and nine~~ months ended ~~September 30, 2016,~~March 31, 2017, primarily due to ~~higher ethane rejection~~the GOM Acquisition in ~~2016 resulting in higher-value NGL sales volumes.~~December 2016.

Gathering, Processing, and Marketing


	Three Months Ended September 30,						Nine Months Ended September 30,						Three Months Ended March 31,
millions except percentages	2016		Inc (Dec) vs. 2015		2015		2016		Inc (Dec) vs. 2015		2015		2017		Inc (Dec) vs. 2016		2016
Gathering, processing, and marketing sales	$	350	5	%	$	334	$	895	(4	)%	$	932	$	444	85	%	$	240
Gathering, processing, and marketing expense	291		1		289		758		(5	)	798		351		63		215
Total gathering, processing, and marketing, net	$	59	31		$	45	$	137	2		$	134	$	93	NM		$	25

Gathering and processing sales includes revenue from the sale of NGLs and remaining residue gas extracted from natural gas purchased from third parties and processed by Anadarko as well as fee revenue earned by providing gathering, processing, compression, and treating services to third parties. Marketing sales include the margin earned from purchasing and selling third-party oil and natural gas. Gathering, processing, and marketing expense includes the cost of third-party natural gas purchased and processed by Anadarko as well as other operating and transportation expenses related to the Company’s costs to perform gathering, processing, and marketing activities.

Gathering, processing, and marketing, net increased by ~~$14~~$68 million for the three months ended ~~September 30, 2016,~~March 31, 2017, primarily ~~due~~related to ~~lower operating expenses at the Delaware Basin Midstream (DBM) complex as a result of plant maintenance~~an increase in ~~2015, decreased overhead expense due to the workforce reduction program, and higher processing margins due to increased~~ throughput volumes at the DBM ~~complex. Gathering, processing,~~complex in the Delaware basin due to downtime throughout the first quarter of 2016 and higher natural-gas and NGLs marketing ~~net was relatively flat for~~margins during the ~~nine months ended September 30, 2016.~~first quarter of 2017.

~~Table of Contents~~

Gains (Losses) on Divestitures and Other, net


	Three Months Ended September 30,								Nine Months Ended September 30,								Three Months Ended March 31,
millions except percentages	2016			Inc (Dec) vs. 2015		2015			2016			Inc (Dec) vs. 2015		2015			2017		Inc (Dec) vs. 2016		2016
Gains (losses) on divestitures	$	(414	)	28	%	$	(578	)	$	(516	)	49	%	$	(1,003	)
Gains (losses) on divestitures, net																	$	804	NM		$	2
Other	56			56		36			128			(35	)	196			65		71	%	38
Total gains (losses) on divestitures and other, net	$	(358	)	34		$	(542	)	$	(388	)	52		$	(807	)	$	869	NM		$	40

Gains (losses) on divestitures and other, net includes gains (losses) on divestitures and other operating revenues, including hard-minerals royalties, earnings from equity investments, and other revenues. ~~Gains (losses) on divestitures and other, net primarily relate to~~

For the ~~following:~~

~~2016~~

~~The Company recognized a loss of $355 million in the third quarter on assets held for sale associated with the divestiture of~~three months ended March 31, 2017, Anadarko divested certain non-core U.S. onshore assets ~~in East Texas, which is expected to close~~ and recognized net gains of $804 million.

See Note 3—Acquisitions, Divestitures, and Assets Held for Salein the ~~fourth quarter~~Notes to Consolidated Financial Statements under Item 1 of ~~2016.~~

~~The Company recognized a loss of $54 million associated with the third-quarter divestiture of certain U.S. onshore assets in East Texas/Louisiana.~~

~~The Company recognized a loss of $59 million associated with the second-quarter divestiture of certain U.S. onshore assets in Wyoming.~~

~~The Company recognized a loss of $50 million in the second quarter on assets held~~this Form 10-Q for ~~sale associated with the divestiture of certain U.S. onshore assets in West Texas, which closed in the third quarter.~~

~~2015~~

The Company recognized a loss of $440 million associated with the third-quarter divestiture of certain U.S. onshore oil and gas coalbed methane properties. Additionally, the Company recognized a loss of $100 million in the third quarter on assets held for sale for the related midstream assets.

The Company recognized a loss of $344 million primarily in the first quarter on assets held for sale associated with the divestiture of certain U.S. onshore EOR assets, which closed in the second quarter.

The Company recognized a loss of $97 million in the second quarter on assets held for sale associated with the divestiture of certain U.S. onshore assets in East Texas, which closed in the third quarter with an additional ~~loss of $13 million due to closing adjustments.~~

The Company recognized income of $13 million during the third quarter, and $130 million during the nine months ended September 30, 2015, related to the settlement of a royalty lawsuit associated with a property in the Gulf of Mexico.information.

~~Table of Contents~~

Costs and Expenses

The following provides Anadarko’s total costs and expenses for three months ended March 31:

Three Months Ended
September 30, Nine Months Ended
September 30,
2016 Inc (Dec) vs. 2015 2015 2016 Inc (Dec) vs. 2015 2015
Oil and gas operating (millions)
$ 198
(24 )% $ 262
$ 608
(22 )% $ 784
Oil and gas operating—per BOE 2.76
(24 ) 3.62
2.78
(17 ) 3.36
Oil and gas transportation (millions)
256
(3 ) 265
744
(13 ) 853
Oil and gas transportation—per BOE 3.56
(3 ) 3.66
3.40
(7 ) 3.65



millions	2017		2016
Oil and gas operating	$	258	$	208
Oil and gas transportation	249		242
Exploration	1,085		126
Gathering, processing, and marketing	351		215
General and administrative	269		449
Depreciation, depletion, and amortization	1,115		1,149
Production, property, and other taxes	155		117
Impairments	373		16
Other operating expense	22		16
Total	$	3,877	$	2,538

~~BOE—barrel of oil equivalent~~

Oil and Gas Operating Expenses



	Three Months Ended March 31,
	2017		Inc (Dec) vs. 2016		2016
Oil and gas operating (millions)	$	258	24	%	$	208
Oil and gas operating—per BOE	3.60		30		2.77

Oil and gas operating expense ~~decreased~~increased by ~~$64~~$50 million for the three months ended ~~September 30, 2016,~~March 31, 2017, primarily due to ~~lower workover~~the following:

higher overall operating costs of ~~$23~~$54 million primarily related to the GOM Acquisition

higher non-operated costs of $32 million in Ghana partially related to the ~~Gulf~~completion of ~~Mexico and U.S. onshore and~~ interim mooring of the Jubilee FPSO during the first quarter of 2017 along with production from the TEN development, which came online late in the third quarter of 2016

lower expenses of ~~$18~~$21 million as a result of divestitures. Oil and gas operating expense decreased by $176 million for the nine months ended September 30, 2016, due to lower expenses of $82 million as a result of divestitures, lower workover costs of $37 million in the Gulf of Mexico and U.S. onshore ~~lower nonoperated costs of $25 million across all areas, and decreased surface maintenance costs of $18 million in U.S. onshore and the Gulf of Mexico.~~ asset divestitures

The related costs per BOE ~~decreased for the three and nine months ended September 30, 2016, primarily due to cost reduction initiatives and efficiencies across the Company’s operating areas.~~

~~Oil and gas transportation expense decreased~~increased by ~~$9 million~~$0.83 for the three months ended ~~September 30, 2016, and $109 million for the nine months ended September 30, 2016,~~March 31, 2017, primarily due to ~~lower sales volumes across all areas. The related costs per BOE decreased for the three and nine months ended September 30, 2016, due to lower~~increased costs as discussed above and shifting to a ~~result of decreased sales volumes.~~higher-return, oil-levered portfolio.

~~Table of Contents~~

Exploration Expense


	Three Months Ended September 30,				Nine Months Ended September 30,				Three Months Ended March 31,
millions	2016		2015		2016		2015		2017		2016
Exploration Expense
Dry hole expense	$	203	$	817	$	209	$	859	$	476	$	11
Impairments of unproved properties	52		136		91		1,134		537		24
Geological and geophysical expense	12		67		81		105		37		37
Exploration overhead and other	37		54		125		162		35		54
Total exploration expense	$	304	$	1,074	$	506	$	2,260	$	1,085	$	126

For the three months ended ~~September 30, 2016,~~March 31, 2017, total exploration expense ~~decreased~~increased by ~~$770~~$959 million primarily related to the following:

Dry Hole Expense

Dry hole expense ~~decreased~~increased by ~~$614~~$465 million, primarily due to the following:

•

The Company expensed suspended exploratory well costs of ~~$92~~$435 million during the three months ended March 31, 2017, related to ~~certain wells in Mozambique and $64 million related to a well~~the Shenandoah project in the Gulf of ~~Mexico in the third quarter of 2016.~~Mexico. See Note 5—Suspended Exploratory Well Costs in the Notes to Consolidated Financial Statements under Part I, Item 1 of this Form 10-Q.

The Company expensed ~~$38~~$41 million ~~for a well in Côte d’Ivoire that finished drilling in~~during the ~~third quarter of 2016 and encountered noncommercial quantities of hydrocarbons.~~

The Company expensed suspended exploratory well costs of $668 million in the third quarter of 2015, primarily related to Brazil where the Company does not expect to have substantive exploration and development activities for the foreseeable future given the current oil-price environment and other considerations.

~~Anadarko expensed $149 million~~three months ended March 31, 2017, due to unsuccessful drilling activities primarily associated with the Gulf of Mexico ~~properties~~ and ~~the deeper objective of a well in Colombia in the third quarter of 2015.~~an international property.

Impairments of Unproved Properties

•

The Company recognized $532 million of impairments of unproved Gulf of Mexico properties during the three months ended March 31, 2017, of which $467 million related to the Shenandoah project. The unproved property balance related to the Shenandoah project originated from the purchase price allocated to the Gulf of Mexico exploration projects from the acquisition of Kerr-McGee Corporation in 2006. See Note 5—Suspended Exploratory Well Costs in the Notes to Consolidated Financial Statements under Part I, Item 1 of this Form 10-Q.

General and Administrative Expenses



	Three Months Ended March 31,
millions except percentages	2017		Inc (Dec) vs. 2016		2016
General and administrative	$	269	(40	)%	$	449

For the three months ended March 31, 2017, G&A decreased by ~~$84~~$180 million primarily due to ~~a $109~~charges of $203 million ~~impairment in 2015 of the Company’s unproved Utica properties resulting from an assignment of mineral interests in settlement of a legal matter.~~

~~Geological and geophysical expense decreased by $55 million primarily due to seismic activities in Colombia in 2015.~~

~~Exploration overhead and other decreased by $17 million primarily due to lower employee-related expenses in 2016.~~

~~For the nine months ended September 30, 2016, total exploration expense decreased by $1.8 billion primarily due to the following:~~

~~Dry hole expense decreased by $650 million, primarily related to the following:~~

~~In 2016, the Company expensed $92 million related to certain wells in Mozambique and $64 million of suspended exploratory well costs related to a well~~ in the ~~Gulf~~first quarter of ~~Mexico as discussed above.~~

In 2016 the Company expensed $38 million related to a well in Côte d’Ivoire, as discussed above, and expensed $15 million due to unsuccessful drilling activities primarily associated with Gulf of Mexico and U.S. onshore properties.

In 2015, Anadarko expensed suspended exploratory well costs of $668 million primarily related to Brazil, as discussed above, and expensed $191 million due to unsuccessful drilling activities primarily associated with Gulf of Mexico properties and the deeper objective of a well in Colombia.

Impairments of unproved properties decreased by $1.0 billion primarily due to the 2015 impairment in the amount of $935 million related to the Company’s unproved Greater Natural Buttes properties as a result of lower commodity prices and an impairment of $109 million for unproved Utica properties in 2015.

~~Geological and geophysical expense decreased by $24 million primarily due to reduced seismic activities in U.S. onshore and New Zealand in 2016.~~

~~Exploration overhead and other decreased by $37 million primarily due to lower employee-related expenses in 2016.~~

~~Table of Contents~~

Three Months Ended
September 30, Nine Months Ended
September 30,
millions except percentages 2016 Inc (Dec) vs. 2015 2015 2016 Inc (Dec) vs. 2015 2015
General and administrative $ 362
19 % $ 303
$ 1,116
26 % $ 888
Depreciation, depletion, and amortization 1,069
(4 ) 1,111
3,202
(11 ) 3,581
Other taxes 148
17
127
422
(8 ) 460
Impairments 27
(96 ) 758
61
(98 ) 3,571
Other operating expense 31
(35 ) 48
54
(54 ) 117

~~General and administrative expense (G&A) included $112 million of charges~~ associated with the workforce reduction program for the three months ended September 30, 2016, and $363 million for the nine months ended September 30, 2016. Excluding the workforce reduction expenses, G&A decreased by $53 million for the three months ended September 30, 2016, and by $135 million for the nine months ended September 30, 2016, primarily due to lower employee-related expenses resulting from a workforce reduction program initiated in March 2016.program. See Note ~~12—~~11—Restructuring Charges in the Notes to Consolidated Financial Statements under Part I, Item 1 of this Form 10-Q.

~~Depreciation, depletion, and amortization expense decreased by $42 million for~~

Impairments

The Company recognized the following impairments:



	Three Months Ended March 31,
millions	2017		2016
Oil and gas exploration and production
U.S. onshore properties	$	—	$	4
Gulf of Mexico properties	204		1
Cost-method investment	—		1
Midstream	169		10
Total	$	373	$	16

Impairments during the three months ended ~~September 30, 2016, and by $379 million for the nine months ended September 30, 2016, primarily due to the following:~~

~~lower carrying value for U.S. onshore and midstream properties as a result of 2015 asset impairments and divestitures~~

~~lower 2016 sales volumes associated with U.S. onshore properties~~

~~cost revisions related to certain asset retirement obligations associated with fully depreciated assets~~

~~Other taxes decreased by $38 million for the nine months ended September 30, 2016, primarily due to lower ad valorem taxes of $48 million due to lower commodity prices.~~

~~Impairment expenses for the three and nine months ended September 30, 2016,~~March 31, 2017, were primarily related to U.S. onshore oil and gas and midstream properties due to changes in development plans. Impairment expense for the three months ended September 30, 2015, included $641 million for certain U.S. onshore oil and gas properties and $101 million for an oil and gas property in the Gulf of Mexico, all due to lower forecasted commodity prices. Impairment expense for the nine months ended September 30, 2015, included $2.3 billion related to the Company’s Greater Natural Buttes oil and gas properties and $449 million for related midstream properties, $662 million for certain other U.S. onshore oil and gas properties, and $126 million for oil and gas properties in the Gulf of Mexico ~~all~~ due to lower forecasted commodity ~~prices.~~

~~Other operating expense decreased by $17 million for the three months ended September 30, 2016,~~prices and $63 million for the nine months ended September 30, 2016, primarily due to legal settlements in 2015, partially offset by costs related to an idle rig in the Gulf of Mexico in 2016. Other operating expense for the nine months ended September 30, 2016, also decreased due to early rig-termination fees in 2015.

~~Table of Contents~~

~~Other (Income) Expense~~

Three Months Ended
September 30, Nine Months Ended
September 30,
millions 2016 2015 2016 2015
Interest Expense
Debt and other $ 251
$ 245
$ 768
$ 743
Capitalized interest (31 ) (46 ) (111 ) (127 )
Total interest expense $ 220
$ 199
$ 657
$ 616

~~Interest expense increased by $21 million for the three months ended September 30, 2016, and by $41 million for the nine months ended September 30, 2016, primarily~~a U.S. onshore midstream property due to a ~~decrease in capitalized interest~~reduced throughput fee as a result of ~~lower construction-in-progress balances for long-term capital projects in Brazil, and increased interest expense due to the $3.0 billion March 2016 Senior Notes issuances.~~

Three Months Ended
September 30, Nine Months Ended
September 30,
millions 2016 2015 2016 2015
Loss on early extinguishment of debt $ —
$ —
$ 124
$ —

Three Months Ended
September 30, Nine Months Ended
September 30,
millions 2016 2015 2016 2015
(Gains) Losses on Derivatives, net
(Gains) losses on commodity derivatives, net $ (59 ) $ (125 ) $ 7
$ (177 )
(Gains) losses on interest-rate derivatives, net 84
407
622
300
Total (gains) losses on derivatives, net $ 25
$ 282
$ 629
$ 123

(Gains) losses on derivatives, net represents the changes in fair value of the Company’s derivative instruments as a result of changes in commodity prices and interest rates, contract modifications, and settlements. An interest-rate swap agreement was settled for a cash payment of $193 million in March 2016, and interest-rate swap agreements were settled for total cash payments of $73 million in September 2016. The Company settled commodity derivatives for cash receipts of $63 million for the three months ended September 30, 2016, $79 million for the three months ended September 30, 2015, $226 million for the nine months ended September 30, 2016, and $251 million for the nine months ended September 30, 2015.producer’s bankruptcy.

For ~~additional information,~~further discussion related to impairments, including the potential for future impairments, see Note ~~6—Derivative Instruments~~4—Impairments in the Notes to Consolidated Financial Statements under Part I, Item 1 of this Form 10-Q.

~~Table of Contents~~

Other (Income) Expense

The following provides Anadarko’s other (income) expense for the three months ended March 31:

Three Months Ended
September 30, Nine Months Ended
September 30,
millions 2016 2015 2016 2015
Other (Income) Expense, net
Interest income $ (3 ) $ (2 ) $ (10 ) $ (9 )
Other (28 ) 49
(76 ) 118
Total other (income) expense, net $ (31 ) $ 47
$ (86 ) $ 109



millions	2017			2016
Interest expense	$	223		$	220
(Gains) losses on derivatives, net ⁽¹⁾	(147		)	297
Other (income) expense, net	(8		)	—
Total	$	68		$	517


⁽¹⁾	(Gains) losses on derivatives, net represents the changes in fair value of the Company’s derivative instruments as a result of changes in commodity prices and interest rates, contract modifications, and settlements. See Note 7—Derivative Instruments in the Notes to Consolidated Financial Statements under Item 1 of this Form 10-Q.

~~For the three months ended September 30, 2016, other income, net increased by $78 million.~~

Favorable changes in foreign currency gains/losses of $26 million were primarily associated with foreign currency held in escrow pending final determination of the Company’s Brazilian tax liability attributable to the 2008 divestiture of the Peregrino field offshore Brazil.

~~The Company reversed a tax indemnification liability of $39 million in September 2016 due to the expiration of the statute of limitations.~~

~~Other income, net increased by $12 million due to 2015 losses associated with certain equity investments as a result of lower commodity prices.~~

~~For the nine months ended September 30, 2016, other income, net increased by $195 million.~~

As a result of a Chapter 11 bankruptcy declaration by a third party, the U.S. Department of the Interior ordered Anadarko to perform the decommissioning of a production facility and related wells previously sold to the third party. The Company accrued the costs to decommission the facility and wells in prior years, including $22 million in 2015. During the second quarter of 2016, the Company substantially completed the decommissioning of the wells. Final costs were lower than expected, and the Company recognized income of $56 million as a result of the reduced obligation.

Favorable changes in foreign currency gains/losses of $60 million were primarily associated with foreign currency held in escrow pending final determination of the Company’s Brazilian tax liability attributable to the 2008 divestiture of the Peregrino field offshore Brazil.

~~Other income, net increased by $39 million related to the reversal of the tax indemnification liability mentioned above.~~

~~Other income, net increased by $25 million due to 2015 losses associated with certain equity investments as a result of lower commodity prices.~~

~~Table of Contents~~

Income Tax Expense (Benefit)


	Three Months Ended September 30,						Nine Months Ended September 30,						Three Months Ended March 31,
millions except percentages	2016			2015			2016			2015			2017			2016
Income tax expense (benefit)	$	(260	)	$	(917	)	$	(957	)	$	(2,232	)	$	97		$	(383	)
Income (loss) before income taxes	(1,007		)	(3,077		)	(3,313		)	(7,520		)	(178		)	(1,381		)
Effective tax rate	26		%	30		%	29		%	30		%	(54		)%	28		%

The Company reported a loss before income taxes for the three ~~and nine~~ months ended ~~September 30, 2016~~March 31, 2017 and ~~2015.~~2016. As a result, items that ordinarily increase or decrease the tax rate will have the opposite effect. The ~~decrease from~~Company’s effective tax rate is impacted each year by the ~~35%~~relative pre-tax income (loss) earned by the Company’s operations in the U.S., Algeria, and the rest of the world. Additionally, state income taxes (net of federal ~~statutory rate for the three and nine months ended September 30, 2016, was primarily attributable to the following decreases:~~

~~non-deductible Algerian exceptional profits tax for Algerian~~ income tax ~~purposes~~

~~tax impact from foreign operations~~

~~non-deductible goodwill related to divestitures~~

~~adjustments to deferred tax balances~~

~~net changes in uncertain tax positions~~

~~These decreases were partially offset by the following increases:~~

•~~state taxes, net of federal benefit~~

•~~income attributable to noncontrolling interest~~

~~The decrease from the 35% U.S. federal statutory rate for the three and nine months ended September 30, 2015, was primarily attributable to~~benefit), non-deductible Algerian exceptional profits tax for Algerian income tax purposes, net changes in uncertain tax positions, and pre-tax income allocated to noncontrolling interest typically impact the Company’s effective tax rate. The Company’s effective tax rate decreased from 28% for three months ended March 31, 2016, to (54)% for the three months ended March 31, 2017, primarily due to the impact from ~~foreign operations.~~

~~Net Income (Loss) Attributable to Noncontrolling Interests~~

Three Months Ended
September 30, Nine Months Ended
September 30,
millions except percentages 2016 2015 2016 2015
Net income (loss) attributable to noncontrolling interests $ 83
$ 75
$ 200
$ 154
Public ownership in WES, limited partnership interest 60.0 % 55.2 % 60.0 % 55.2 %
Public ownership in WGP, limited partnership interest 18.4 % 12.7 % 18.4 % 12.7 %

the items discussed above.

~~See~~For additional information on income taxes, see Note ~~16—Noncontrolling Interests~~9—Income Taxesin the Notes to Consolidated Financial

Statementsunder ~~Part I,~~ Item 1 of this Form 10-Q.

~~Table of Contents~~

LIQUIDITY AND CAPITAL RESOURCES


	Nine Months Ended September 30,						Three Months Ended March 31,
millions	2016			2015			2017			2016
Net cash provided by (used in) operating activities	$	1,877		$	(2,134	)	$	1,123		$	(137	)
Net cash provided by (used in) investing activities	(1,256		)	(3,696		)	1,722			(973		)
Net cash provided by (used in) financing activities	2,421			534			(198		)	3,119

Overview As of September 30, 2016, Anadarko had $4.0 billion of cash on hand plus $5.0 billion of borrowing capacity under its revolving credit facilities. Cash on hand includes net proceeds of $2.16 billion from the Company’s September 2016 public offering of 40.5 million shares of its common stock. Additionally, Anadarko has entered into divestiture agreements that are expected to close in the fourth quarter for approximately $1.2 billion. Prior to year-end 2016, Anadarko plans to use approximately $1.8 billion of its cash on hand for the acquisition of certain Gulf of Mexico assets. In October 2016, the Company provided notice of its intent to redeem its remaining $750 million of 6.375% Senior Notes due September 2017 prior to year end.

Anadarko believes that its cash on hand, anticipated operating cash flows, and proceeds from expected future asset monetizations will be sufficient to fund the Company’s projected 2016 operational and capital programs, the acquisition of certain assets in the Gulf of Mexico, and the redemption of its $750 million 2017 debt maturities in the fourth quarter of 2016. In addition, the Company has available borrowing capacity to supplement its working capital needs. The Company ~~continuously monitors its liquidity needs and evaluates available funding alternatives in light of current and expected conditions. Anadarko~~ has a variety of funding sources available, including cash, ~~on hand,~~ an asset portfolio that provides ongoing cash-flow-generating capacity, opportunities for liquidity enhancement through divestitures and joint-venture arrangements that reduce future capital expenditures, ~~and~~ the Company’s credit ~~facilities.~~facilities, and access to both debt and equity capital markets. In addition, an effective registration statement is available to Anadarko covering the sale of WGP common units owned by the Company.

During the first quarter of 2017, Anadarko closed on the divestitures of its U.S. onshore Eagleford and Marcellus assets for net proceeds of $2.8 billion. As of March 31, 2017, Anadarko had $5.8 billion of cash plus $5.0 billion of borrowing capacity under its RCFs. Anadarko believes that its current available cash and anticipated operating cash flows will be sufficient to fund the Company’s projected 2017 and long-term operational and capital programs. Current available cash provides the flexibility to accelerate activity in the Delaware and DJ basins or acquire bolt-on positions in these core areas. The Company continuously monitors its liquidity position and evaluates available funding alternatives in light of current and expected conditions.

~~Effects of Moody’s Credit Rating Downgrade~~ In February 2016, Standard and Poor’s (S&P) affirmed Anadarko’s “BBB” long-term debt credit rating and changed the outlook from stable to negative. Later in February 2016, Moody’s Investors Service (Moody’s) lowered the Company’s long-term debt credit rating from “Baa2” to “Ba1,” which is below investment grade. In March 2016, Fitch Ratings affirmed Anadarko’s “BBB” long-term debt credit rating and changed the outlook from stable to negative. In September 2016, S&P and Moody’s changed the outlook from negative to stable.

As a result of Moody’s downgrade of Anadarko’s credit rating to a level that is below investment grade, the Company’s credit thresholds with certain derivative counterparties were reduced and in some cases eliminated, which required the Company to increase the amount of collateral posted with derivative counterparties when the Company’s net trading position is a liability in excess of the contractual threshold. During the third quarter of 2016, Anadarko paid a fee in connection with the negotiated increase of a credit threshold for an interest-rate derivative with an other-than-insignificant financing element. As a result of the increased credit threshold, $200 million of collateral was returned to the Company. No counterparties have requested termination or full settlement of derivative positions. The aggregate fair value of derivative instruments with credit-risk-related contingent features for which a net liability position existed was $1.4 billion (net of $422 million of collateral) at September 30, 2016, and $1.3 billion (net of $58 million of collateral) at December 31, 2015.

The Moody’s credit rating downgrade required Anadarko to post collateral in the form of letters of credit or cash as financial assurance of its performance under certain contractual arrangements such as pipeline transportation contracts and oil and gas sales contracts. The amount of letters of credit or cash provided as assurance of the Company’s performance under these types of contractual arrangements with respect to credit-risk-related contingent features was $274 million at September 30, 2016, and zero at December 31, 2015.

Also in February 2016, Moody’s downgraded Anadarko’s commercial paper program credit rating, which eliminated the Company’s access to the commercial paper market. The Company has not issued commercial paper notes since the downgrade, but instead has used its 364-day senior unsecured revolving credit facility (364-Day Facility) for short-term working capital requirements, as needed.

~~Table of Contents~~

Operating Activities

One of the primary sources of variability in the Company’s cash flows from operating activities is the fluctuation in commodity prices, the impact of which Anadarko partially mitigates by entering into commodity derivatives. Sales volume changes also impact cash flow but historically have not been as volatile as commodity prices. Anadarko’s cash flows from operating activities are also impacted by the costs related to operations and interest payments related to the Company’s outstanding debt.

~~Anadarko generated $1.9 billion of cash from~~Cash provided by operating activities ~~during~~was $1.1 billion for the ~~nine~~three months ended ~~September 30, 2016, which included an $881 million tax refund related~~March 31, 2017, $1.2 billion higher compared to the ~~income tax benefit associated with~~same period of 2016. This increase was primarily a result of higher sales revenues in 2017 due to the ~~Company’s 2015 tax net operating loss carryback,~~impact of higher commodity prices and increased oil sales volumes as well as the $159.5 million payment of ~~$217~~the Clean Water Act penalty and $79 million related to severance costs ~~and retirement benefits~~ in connection with the workforce reduction program ~~and the $159.5 million payment of a Clean Water Act (CWA) penalty. Cash used~~ in operating activities for the same period of 2015 was $2.1 billion, which included the $5.2 billion Tronox settlement payment. Excluding the impact of the tax refund, payments for the CWA penalty, severance costs and retirement benefits, and the Tronox settlement, operating cash flows for the nine months ended September 30, 2016, decreased by $1.7 billion primarily due to decreased sales revenues as a result of lower commodity prices.2016.

Investing Activities

Capital Expenditures The following presents the Company’s capital expenditures for the ~~nine~~three months ended ~~September 30:~~March 31:


millions	2016			2015			2017		2016
Cash Flows from Investing Activities
Additions to properties and equipment ⁽¹⁾	$	2,618		$	4,861		$	1,194	$	1,022
Adjustments for capital expenditures
Changes in capital accruals	(300		)	(315		)	58		(130		)
Other	3			29			3		4
Total capital expenditures ⁽²⁾	$	2,321		$	4,575		$	1,255	$	896

________________________________________________________________________________________


⁽¹⁾	Additions to properties and equipment as presented within Anadarko’s cash flows from investing activities include cash payments for cost of properties, equipment, and facilities. The cost of properties includes the initial capitalization of drilling costs associated with all exploratory wells whether or not they were deemed to have a commercially sufficient quantity of proved reserves.


⁽²⁾	Includes WES capital expenditures of ~~$355~~$286 million for the ~~nine~~three months ended ~~September 30, 2016,~~March 31, 2017, and ~~$405~~$140 million for the ~~nine~~three months ended ~~September 30, 2015.~~March 31, 2016. Capital expenditures exclude the FPSO capital lease ~~asset, see Financing Activities~~—~~Capital Lease Obligations~~ ~~below.~~ asset.

The Company’s capital expenditures ~~decreased~~increased by ~~$2.3 billion~~$359 million for the ~~nine~~three months ended ~~September 30, 2016, as reduced development~~March 31, 2017, primarily due to $258 million related to increased U.S. onshore acreage acquisitions and exploration ~~activity resulted~~costs in the ~~following:~~Gulf of Mexico coupled with increased spending of $154 million related to the development of the Company’s midstream assets in the Delaware and DJ basins.

~~decreased development costs~~

Property Exchange On March 17, 2017, WES acquired a third party’s 50% nonoperated interest in the DBJV system in exchange for WES’s 33.75% interest in nonoperated Marcellus midstream assets and $155 million in cash. WES funded the cash consideration with cash on hand. After the acquisition, the DBJV system is 100% owned by WES and consolidated by Anadarko. See Note 3—Acquisitions, Divestitures, and Assets Held for Salein the Notes to Consolidated Financial Statements under Part I, Item 1 of ~~$1.7 billion primarily in U.S. onshore~~

~~decreased exploration costs of $273 million primarily in Colombia and Mozambique~~

~~decreased gathering, processing, and other costs of $267 million primarily in U.S. onshore~~this Form 10-Q.

Carried-Interest ArrangementsIn the third quarter of 2014, the Company entered into a carried-interest arrangement that requires a third party to fund $442 million of Anadarko’s capital costs in exchange for a 34% working interest in the Company’s Eaglebine development, located in Southeast Texas. The third-party funding is expected to cover Anadarko’s future capital costs in the development through 2020. At ~~September 30, 2016, $147~~March 31, 2017, $151 million of the $442 million carry obligation had been funded.

In the second quarter of 2013, the Company entered into a carried-interest arrangement that requires a third party to fund $860 million of Anadarko’s capital costs in exchange for a 12.75% working interest in the Heidelberg development, located in the Gulf of Mexico. At September 30, 2016, the entire $860 million carry obligation had been funded.

~~Table of Contents~~

~~Acquisition~~ In September 2016, the Company entered into an agreement to acquire certain oil and gas assets in the Gulf of Mexico for $2.0 billion using a portion of the net proceeds from the September 2016 equity issuance. The acquisition is expected to close in the fourth quarter of 2016 and is subject to customary closing conditions. See ~~Note 14—Stockholders’ Equity~~ ~~in the~~ ~~Notes to Consolidated Financial Statements~~ ~~under Part I, Item 1 of this Form 10-Q.~~

Divestitures During the ~~nine~~three months ended ~~September 30, 2016,~~March 31, 2017, Anadarko received net proceeds of ~~$1.3~~$2.9 billion from divestitures, primarily related to the ~~divestitures~~sale of ~~certain~~the Company’s U.S. onshore ~~assets in Wyoming, East Texas/Louisiana,~~Eagleford and ~~West Texas.~~Marcellus oil and gas assets. See Note 3—Acquisitions, Divestitures, and Assets Held for Sale in the Notes to Consolidated Financial Statements under Part I, Item 1 of this Form 10-Q.

~~Investments~~ During the nine months ended September 30, 2016, the Company made capital contributions of $54 million for equity investments, which are included in other, net under Investing Activities in the Consolidated Statements of Cash Flows. These contributions were primarily associated with joint ventures for pipelines.

Financing Activities


millions except percentages	September 30, 2016			December 31, 2015			March 31, 2017			December 31, 2016
Anadarko							$	12,206		$	12,204
WES							3,092			3,091
WGP							28			28
Total debt	$	15,878		$	15,668		$	15,326		$	15,323
Total equity	15,912			15,457			15,079			15,497
Debt to total capitalization ratio	49.9		%	50.3		%	50.4		%	49.7		%

Debt Activity ~~The following summarizes the Company’s borrowing activity during the nine months ended September 30, 2016:~~

millions Face Value Description
Issuances $ 800
4.850% Senior Notes due 2021
1,100
5.550% Senior Notes due 2026
1,100
6.600% Senior Notes due 2046
500
WES 4.650% Senior Notes due 2026
Borrowings 1,750
364-Day Facility
600
WES RCF
28
WGP RCF
Repayments (1,750 ) 5.950% Senior Notes due 2016
(1,250 ) 6.375% Senior Notes due 2017
(1,750 ) 364-Day Facility
(880 ) WES RCF
(25 ) Tangible equity units (TEUs) - senior amortizing notes

~~Senior Notes~~ During the second quarter of 2016, the Company used proceeds from its $3.0 billion March 2016 Senior Notes issuances to purchase and retire $1.250 billion of its $2.0 billion 6.375% Senior Notes due September 2017 pursuant to a tender offer and to redeem its $1.750 billion 5.950% Senior Notes due September 2016. The Company recognized a loss of $124 million for the early retirement and redemption of these senior notes, which included $114 million of premiums paid.

In July 2016, WES completed a public offering of $500 million aggregate principal amount of 4.650% Senior Notes due July 2026. Net proceeds were used to repay a portion of the amount outstanding under the WES RCF.

~~Table of Contents~~

Anadarko ~~Revolving Credit Facilities~~RCFs Anadarko has a $3.0 billion ~~five-year senior unsecured revolving credit facility maturing in January 2021 (Five-Year Facility) and the 364-Day~~Five-Year Facility that matures in January ~~2017. During~~2021 and a $2.0 billion 364-Day Facility. In January 2017, the ~~nine months ended September 30, 2016, borrowings under~~Company extended the maturity date of the 364-Day Facility ~~were primarily used for general short-term working capital needs.~~until January 2018. At ~~September 30, 2016,~~March 31, 2017, the Company had no outstanding borrowings under the Five-Year Facility or the 364-Day Facility.

WES and WGP ~~Revolving Credit Facilities~~RCFs WES has a $1.2 billion RCF ~~which~~that matures in February 2020 and is expandable to $1.5 billion. ~~During the nine months ended September 30, 2016,~~At March 31, 2017, WES ~~borrowings were primarily used for general corporate purposes, including the funding of a portion of its acquisition of Springfield Pipeline LLC and capital expenditures. At September 30, 2016, WES~~ had no outstanding borrowings under its RCF, ~~of $20 million at an interest rate of 1.82%,~~ had outstanding letters of credit of $5 million, and had available borrowing capacity of ~~$1.18~~$1.195 billion.

~~In March 2016,~~ WGP ~~entered into~~has a $250 million ~~three-year senior secured revolving credit facility maturing~~RCF that matures in March 2019 ~~(WGP RCF), which~~and is expandable to $500 million, subject to receiving increased or new commitments from lenders and the satisfaction of certain other conditions. ~~During the nine months ended September 30, 2016, WGP borrowings were used to fund the purchase of WES common units.~~ At ~~September 30, 2016,~~March 31, 2017, WGP had outstanding borrowings under its RCF of $28 million at an interest rate of ~~2.53%~~2.99% and had available borrowing capacity of $222 million.

For additional information on the ~~revolving credit facilities, such as years of maturity, interest rates, and covenants,~~Company’s RCFs, see Note 8—Debt ~~and Interest Expense~~ in the Notes to Consolidated Financial Statements under Part I, Item 1 of this Form 10-Q.

~~Commercial Paper Program~~The Company has a commercial paper program, which allows for a maximum of $3.0 billion of unsecured commercial paper notes and is supported by the Five-Year Facility. As a result of Moody’s downgrade of Anadarko’s commercial paper program credit rating, the Company’s access to the commercial paper market was eliminated. The Company repaid $250 million of commercial paper notes during the first quarter of 2016, and at September 30, 2016, there were no outstanding borrowings under the commercial paper program. See ~~Note 8—Debt and Interest Expensein the~~ ~~Notes to Consolidated Financial Statements~~ ~~under Part I, Item 1 of this Form 10-Q for additional information.~~

~~Capital Lease Obligations~~ Construction of the FPSO for the Company’s TEN field operations in Ghana commenced in 2013. The Company recognized an asset and related obligation during the construction period. Upon completion of the construction during the third quarter of 2016, the Company reported the asset and related obligation as a capital lease of $225 million for the Company’s share of the fair value of the FPSO. The Company expects to make the first payment related to the FPSO in the fourth quarter of 2016. At September 30, 2016, Anadarko’s scheduled payments associated with capital lease obligations were $16 million during 2016 and $42 million during 2017. Principal payments related to capital lease obligations are reported in financing activities and interest payments related to capital lease obligations are reported in operating activities on the Company’s Consolidated Statement of Cash Flows. See ~~Note 8—Debt and Interest Expensein the~~ ~~Notes to Consolidated Financial Statements~~ ~~under Part I, Item 1 of this Form 10-Q for additional information.~~

Debt Maturities Anadarko may from time to time seek to retire or purchase its outstanding debt through cash purchases and/or exchanges for other debt or equity securities in open market purchases, privately negotiated transactions, or otherwise. Such repurchases or exchanges, if any, will depend on prevailing market conditions, the Company’s liquidity requirements, contractual restrictions, and other factors. The amounts involved may be material.

At ~~September 30, 2016, Anadarko’s scheduled debt maturities during 2016 consisted of $8 million of senior amortizing notes associated with the TEUs. At September 30, 2016,~~March 31, 2017, Anadarko’s scheduled debt maturities during 2017 consisted of $34 million of senior amortizing notes associated with the TEUs and $750 million of 6.375% Senior Notes due September 2017. The Company provided notice in October 2016 of its intent to redeem the 6.375% Senior Notes due September 2017 during the fourth quarter using cash on hand.TEUs. Anadarko’s ~~Zero-Coupon Senior Notes due 2036 (Zero Coupons)~~Zero Coupons can be put to the Company in October of each year, in whole or in part, for the then-accreted value, ofwhich will be $883 million at the ~~outstanding Zero Coupons. None of the Zero Coupons (accreted value of $839 million) were~~next put ~~to the Company~~date in October ~~2016. The Zero Coupons can be put to the Company in October 2017, in whole or in part, for the then-accreted value of $883 million.~~2017.

For additional information on the Company’s debt instruments, ~~and capital lease obligations, such as transactions during the period, years of maturity, and interest rates,~~ seeNote 8—Debt ~~and Interest Expense~~ in the Notes to Consolidated Financial Statements under Part I, Item 1 of this Form 10-Q.

Equity Transactions WES can issue common units to the public under its $500 million continuous offering program, which allows for an aggregate of $500 million of WES common units. The remaining amount available to be issued under this program was $442 million at March 31, 2017.

~~Table~~During the first quarter of ~~Contents~~

2016, WES issued 14 million Series A Preferred units to private investors for net proceeds of $440 million. In April 2016, WES issued an additional eight million Series A Preferred units to private investors, pursuant to the full exercise of an option granted in connection with the initial issuance, and raised net proceeds of $248 million.

~~Derivative Instruments~~ For additional information on ~~derivative instruments, including cash flow treatment,~~WES Series A Preferred units, see Note ~~6—Derivative Instruments~~14—Noncontrolling Interests in the Notes to Consolidated Financial Statements under Part I, Item 1 of this Form ~~10-Q and~~ ~~Effects of Moody’s Credit Rating Downgrade~~ ~~above.~~10-Q.

~~Conveyance of Future Hard Minerals Royalty Revenues~~Derivative Instruments During the first quarter of 2016, the Company conveyed a limited-term nonparticipating royalty interest in certain of its coal and trona leases to a third party for $413 million, net of transaction costs. For ~~additional~~ information on ~~the~~derivative instruments, including cash flow treatment, ~~expected timing, and scheduled payments of the conveyed royalties,~~ see Note ~~10—Conveyance of Future Hard Minerals Royalty Revenues~~7—Derivative Instruments in the Notes to Consolidated Financial Statements under Part I, Item 1 of this Form 10-Q.

Common Stock Dividends Anadarko paid dividends ~~of $78 million~~ to its common stockholders ~~during the nine months ended September 30, 2016, and $415~~of $28 million during the ~~nine~~three months ended ~~September 30, 2015.~~March 31, 2017, and $25 million during the three months ended March 31, 2016. In response to the commodity-price environment, ~~in February 2016,~~ the ~~Board~~Company decreased the ~~Company’s~~ quarterly dividend from $0.27 per share to $0.05 per ~~share.~~share in February 2016. Anadarko has paid a dividend to its common stockholders ~~on a~~ quarterly ~~basis~~ since becoming a public company in 1986.

The amount of future dividends paid to Anadarko common stockholders ~~will be~~is determined by the Board on a quarterly basis and is based on the Company’s earnings, financial conditions, capital requirements, the effect a dividend payment would have on the Company’s compliance with relevant financial covenants, and other factors deemed relevant by the Board.

~~Equity Transactions~~ In September 2016, Anadarko completed a public offering of 40.5 million shares of its common stock for net proceeds of $2.16 billion. Net proceeds will primarily be used to fund the acquisition of certain Gulf of Mexico assets, which is expected to close in the fourth quarter of 2016. The remaining net proceeds will be used for general corporate purposes.

Anadarko sold 12.5 million of its WGP common units to the public for net proceeds of $476 million, which were used for general corporate purposes. WES has a continuous offering program, which allows the issuance of up to an aggregate of $500 million of WES common units. The remaining amount available to be issued under this program was $442 million at September 30, 2016. During the first quarter of 2016, WES issued 14 million Series A Preferred units to private investors for net proceeds of $440 million. During the second quarter of 2016, WES issued an additional eight million Series A Preferred units to private investors, pursuant to the full exercise of an option granted in connection with the initial issuance, for net proceeds of $247 million.

Distributions to Noncontrolling Interest Owners ~~WES distributed~~Distributions to ~~its unitholders other than Anadarko and WGP an aggregate of $192 million during~~noncontrolling interest owners primarily relate to the nine months ended September 30, 2016, and $170 million during the nine months ended September 30, 2015. WES has made quarterly distributions to its unitholders since its initial public offering (IPO) in the second quarter of 2008, and has increased its distribution from $0.30 per common unitfollowing for ~~the third quarter of 2008 to $0.845 per common unit for the third quarter of 2016 (to be paid in November 2016).~~

For the three months ended September 30, 2016, the WES Series A Preferred unitholders will receive a quarterly distribution of $0.68 per unit for the Series A Preferred units issued in March 2016 and April 2016, or an aggregate $15 million (to be paid in November 2016). For the three months ended June 30, 2016, the WES Series A Preferred unitholders received a quarterly distribution of $0.68 per unit for the Series A Preferred units issued in March 2016, and a quarterly distribution of $0.68 per unit for the Series A Preferred units issued in April 2016, prorated for the 77-day period the units were outstanding during the second quarter of 2016, or an aggregate $14 million (paid in August 2016). For the three months ended March 31, 2016, the WES Series A Preferred unitholders received a quarterly distribution of $0.68 per unit, prorated for the 18-day period the units were outstanding during the first quarter, or an aggregate $2 million (paid in May 2016).31:

WGP distributed to its unitholders other than Anadarko an aggregate of $41 million during the nine months ended September 30, 2016, and $27 million during the nine months ended September 30, 2015. WGP has made quarterly distributions to its unitholders since its IPO in December 2012, and has increased its distribution from $0.17875 per common unit for the first quarter of 2013 to $0.44750 per unit for the third quarter of 2016 (to be paid in November 2016).



millions	2017		2016
WES distributions to unitholders (excluding Anadarko and WGP) ⁽¹⁾	$	68	$	63
WES distributions to Series A Preferred unitholders ⁽²⁾	15		—
WGP distributions to unitholders (excluding Anadarko) ⁽³⁾	19		11


⁽¹⁾	WES has made quarterly distributions to its unitholders since its IPO in the second quarter of 2008 and has increased its distribution from $0.30 per common unit for the third quarter of 2008 to $0.875 per common unit for the first quarter of 2017 (to be paid in May 2017).


⁽²⁾	WES has made quarterly distributions of $0.68 per unit, prorated based on issuance date, to its Series A Preferred unitholders since the unit issuances in March and April 2016 (to be paid in May 2017).


⁽³⁾	WGP has made quarterly distributions to its unitholders since its IPO in December 2012 and has increased its distribution from $0.17875 per common unit for the first quarter of 2013 to $0.49125 per unit for the first quarter of 2017 (to be paid in May 2017).

RECENT ACCOUNTING DEVELOPMENTS

See Note 1—Summary of Significant Accounting Policies in the Notes to Consolidated Financial Statements under Part I, Item 1 of this Form 10-Q for discussion of recent accounting developments affecting the Company.

~~Table of Contents~~

Item 3. Quantitative and Qualitative Disclosures About Market Risk

The Company’s primary market risks are attributable to fluctuations in energy prices and interest rates. These risks can affect revenues and cash flows, and the Company’s risk-management policies provide for the use of derivative instruments to manage these risks. The types of commodity derivative instruments used by the Company include futures, swaps, options, and fixed-price physical-delivery contracts. The volume of commodity derivatives entered into by the Company is governed by risk-management policies and may vary from year to year. Both exchange and over-the-counter traded derivative instruments may be subject to margin-deposit requirements, and the Company may be required from time to time to deposit cash or provide letters of credit with exchange brokers or counterparties to satisfy these margin requirements. For additional information relating to the Company’s derivative and financial instruments, see Note 6—7—Derivative Instruments in the Notes to Consolidated Financial Statements under Part I, Item 1 of this Form 10-Q.

COMMODITY-PRICE RISK The Company’s most significant market risk relates to prices for oil, natural gas, and NGLs. Management expects energy prices to remain unpredictable and potentially volatile. As energy prices decline or rise significantly, revenues and cash flows are likewise affected. In addition, a non-cash write-down of the Company’s oil and gas properties or goodwill may be required if commodity prices experience a significant decline. Below is a sensitivity analysis for the Company’s commodity-price-related derivative instruments.

Derivative Instruments Held for Non-Trading PurposesThe Company had derivative instruments in place to reduce the price risk associated with future production of 825 MMBbls of oil ~~354~~and 284 Bcf of natural gas ~~and 1 MMBbls of NGLs~~ at ~~September 30, 2016~~,March 31, 2017, with a net derivative asset position of ~~$41~~$4 million. Based on actual derivative contractual volumes, a 10% increase in underlying commodity prices would reduce the fair value of these derivatives by ~~$89~~$111 million, while a 10% decrease in underlying commodity prices would increase the fair value of these derivatives by ~~$86~~$110 million. However, any cash received or paid to settle these derivatives would be substantially offset by the sales value of production covered by the derivative instruments.

Derivative Instruments Held for Trading PurposesAt ~~September 30, 2016~~,March 31, 2017, the Company had a net derivative asset position of $8$9 million on outstanding derivative instruments entered into for trading purposes. Based on actual derivative contractual volumes, a 10% increase or decrease in underlying commodity prices would not materially impact the Company’s gains or losses on these derivative instruments.

INTEREST-RATE RISKBorrowings, if any, under each of the 364-Day Facility, the Five-Year Facility, the WES RCF, and the WGP RCF are subject to variable interest rates. The balance of Anadarko’s long-term debt on the Company’s Consolidated Balance Sheets has fixed interest rates. The Company has $2.9 billion of LIBOR-based obligations ~~based on the London Interbank Offered Rate (LIBOR)~~ that are presented on the Company’s Consolidated Balance Sheets net of preferred investments in two noncontrolled entities. These obligations give rise to minimal net interest-rate risk because coupons on the related preferred investments are also LIBOR-based. While a 10% change in LIBOR would not materially impact the Company’s interest cost, it would affect the fair value of outstanding fixed-rate debt.

At ~~September 30, 2016~~,March 31, 2017, the Company had a net derivative liability position of ~~$1.8~~$1.3 billion related to interest-rate swaps. A 10% increase (decrease) in the three-month LIBOR interest-rate curve would decrease (increase) the aggregate fair value of outstanding interest-rate swap agreements by ~~$70~~$91 million. However, any change in the interest-rate derivative gain or loss could be substantially offset by changes in actual borrowing costs associated with future debt issuances. For a summary of the Company’s outstanding interest-rate derivative positions, see Note 6—7—Derivative Instruments in the Notes to Consolidated Financial Statements under Part I, Item 1 of this Form 10-Q.

~~Table of Contents~~

Item 4. Controls and Procedures

Evaluation of Disclosure Controls and Procedures

Anadarko’s Chief Executive Officer and Chief Financial Officer performed an evaluation of the Company’s disclosure controls and procedures as defined in Rules 13a-15(e) and 15d-15(e) of the Securities Exchange Act of 1934, as amended (Exchange Act). The Company’s disclosure controls and procedures are designed to ensure that information required to be disclosed by the Company in reports it files or submits under the Exchange Act is recorded, processed, summarized, and reported within the time periods specified in the rules and forms of the Securities and Exchange Commission, and to ensure that the information required to be disclosed by the Company in reports that it files or submits under the Exchange Act is accumulated and communicated to the Company’s management, including the principal executive officer and principal financial officer, as appropriate, to allow timely decisions regarding required disclosure. Based on this evaluation, the Chief Executive Officer and Chief Financial Officer have concluded that the Company’s disclosure controls and procedures are effective as of ~~September 30, 2016~~.March 31, 2017.

Changes in Internal Control over Financial Reporting

There were no changes in Anadarko’s internal control over financial reporting during the ~~third~~first quarter of ~~2016~~2017 that materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

~~Table of Contents~~

PART II. OTHER INFORMATION

Item 1. Legal Proceedings

~~GENERAL~~The Company is a defendant in a number of lawsuits and is involved in governmental proceedings and regulatory controls arising in the ordinary course of business, including personal injury and death claims; title disputes; tax disputes; royalty claims; contract claims; contamination claims relating to oil and gas exploration, development, production, transportation, and processing; and environmental claims, including claims involving assets owned by acquired companies and claims involving assets previously sold to third parties and no longer a part of the Company’s current operations. Anadarko is also subject to various environmental-remediation and reclamation obligations arising from federal, state, tribal, and local laws and regulations. While the ultimate outcome and impact on the Company cannot be predicted with certainty, after consideration of recorded expense and liability accruals, management believes that the resolution of pending proceedings will not have a material adverse effect on the Company’s financial condition, results of operations, or cash flows.

WGR Operating, LP, a wholly owned subsidiary of the Company, is currently in negotiations with the ~~U.S. Environmental Protection Agency and the state of Wyoming~~EPA with respect to alleged noncompliance with the leak detection and repair requirements of the Clean Air Act at its Granger, Wyoming facilities. Although management cannot predict the outcome of settlement discussions, it is likely a resolution of this matter will result in a fine or penalty in excess of $100,000.

Anadarko E&P Onshore LLC, a wholly owned subsidiary of the Company, is currently in negotiations with the Pennsylvania Department of Environmental Protection concerning enforcement over a produced water release in Pennsylvania in 2015. Although management cannot predict the outcome of settlement discussions, it is likely a resolution of this matter will result in a fine or penalty in excess of $100,000.

Kerr-McGee Oil and Gas Onshore, LP, a wholly owned subsidiary of the Company, is currently in negotiations with the State of Colorado’s Department of Public Health and Environment with respect to alleged noncompliance with the Colorado Air Quality Control Commission’s Regulations. Although management cannot predict the outcome of settlement discussions, it is likely a resolution of this matter will result in a fine or penalty in excess of $100,000.

See Note ~~11—~~10—Contingencies in the Notes to Consolidated Financial Statements under Part I, Item 1 of this Form 10-Q, which is incorporated herein by reference, for a discussion of material ~~developments with respect to~~legal matters ~~previously reported in~~that have arisen since the filing of the Company’s Annual Report on Form 10-K for the year ended December 31, ~~2015, and material matters that have arisen since the filing of such report.~~2016.

Item 1A. Risk Factors

~~Consider carefully~~There have been no material changes from the risk factors ~~included below, as well as those~~ included under Part I, Item 1A of the Company’s Annual Report on Form 10-K for the year ended December 31, ~~2015.~~

~~The pending completion of the acquisition~~of~~certain assets in the Gulf of Mexico from an unaffiliated third party for $2.0 billion is subject to a number of conditions, and we may not be able to consummate it if such conditions are not met.~~

~~We expect to close the acquisition of certain assets in the Gulf of Mexico in the fourth quarter of~~ 2016. However, the completion of the acquisition is subject to a number of conditions, and we may not be able to consummate it if such conditions are not met. Upon termination of the purchase agreement for willful breach by us or failure to close as of an outside termination date, the seller has the option to receive a $100 million liquidated damages payment or seek all remedies available at law, including specific performance. See “Management’s Discussion and Analysis of Financial Condition and Results of Operations—~~Liquidity and Capital Resources~~—~~Investing Activities~~—~~Acquisition” for more information regarding the acquisition.~~

~~Risks related to the assets to be acquired in the pending Gulf of Mexico acquisition, if consummated, may adversely affect our business, financial condition and results of operation.~~

~~Any acquisition, including the pending acquisition of certain assets in the Gulf of Mexico, involves potential risks, including, among other things:~~

~~the validity of our assumptions about, among other things, reserves, estimated production, revenues, capital expenditures, operating expenses, and costs;~~

~~the assumption of environmental and other unknown liabilities, losses or costs for which we are not indemnified or for which our indemnity is inadequate;~~

~~an inability to obtain satisfactory title to the assets we acquire;~~

~~the diversion of management’s attention from other business concerns;~~

~~the inability to hire, train or retain qualified personnel to manage and operate our growing business and assets;~~

~~Table of Contents~~

~~the incurrence of significant charges, such as impairment of goodwill or other intangible assets, asset devaluation or restructuring charges;~~

~~increased cost of transportation of production to markets;~~

~~significant costs associated with the acquisition and subsequent integration efforts; and~~

~~a failure to attain or maintain compliance with environmental and other governmental regulations.~~

If we consummate the acquisition and if any of these risks were to materialize, the benefits of the acquisition may not be fully realized, if at all, and our business, financial condition, and results of operations could be negatively impacted.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

The following sets forth information with respect to repurchases by the Company of its shares of common stock during the ~~third~~first quarter of ~~2016~~:2017:

Period
Total number of shares purchased ⁽¹⁾
Average price paid per share Total number of shares purchased as part of publicly announced plans or programs Approximate dollar value of shares that may yet be purchased under the plans or programs
July 1 - 31, 2016 21,897
$ 53.60
—
$ —
August 1 - 31, 2016 2,294
$ 53.79
—
$ —
September 1 - 30, 2016 4,741
$ 58.47
—
$ —
Total 28,932
$ 54.41
—
$ —



Period	Total number of shares purchased ⁽¹⁾	Average price paid per share		Total number of shares purchased as part of publicly announced plans or programs	Approximate dollar value of shares that may yet be purchased under the plans or programs
January 1 - 31, 2017	21,117	$	71.08	—	$	—
February 1 - 28, 2017	2,968	$	69.47	—	$	—
March 1 - 31, 2017	307,298	$	62.52	—	$	—
Total	331,383	$	63.13	—	$	—

____________________________________________________________


⁽¹⁾	During the ~~third~~first quarter of ~~2016~~,2017, all purchased shares related to stock received by the Company for the payment of withholding taxes due on employee share issuances under share-based compensation plans.

~~Table of Contents~~

Item 6. Exhibits

Exhibits designated by an asterisk (*) are filed herewith or double asterisk (**) are furnished herewith; all exhibits not so designated are incorporated herein by reference to a prior filing under File Number 1-8968 as indicated.



Exhibit Number			Description
	3	(i)	Restated Certificate of Incorporation of Anadarko Petroleum Corporation, dated May 21, 2009, filed as Exhibit 3.3 to Form 8-K filed on May 22, 2009
		(ii)	By-Laws of Anadarko Petroleum Corporation, amended and restated as of September 15, 2015, filed as Exhibit 3.1 to Form 8-K filed on September 21, 2015
*	10	(i)	~~Form of~~ First Amendment to 364-Day Revolving Credit Agreement, dated January 13, 2017, among Anadarko Petroleum Corporation, ~~2012 Omnibus Incentive Compensation Plan,~~JPMorgan Chase Bank, N.A., as ~~Amended~~administrative agent, and ~~Restated Effective as of May 10, 2016, Stock Option Award Agreement~~
*		~~(ii)~~	~~Form of Anadarko Petroleum Corporation 2012 Omnibus Incentive Compensation Plan, as Amended and Restated Effective as of May 10, 2016, Restricted Stock Unit Award Agreement~~
*		~~(iii)~~	~~Form of Anadarko Petroleum Corporation 2012 Omnibus Incentive Compensation Plan, as Amended and Restated Effective as of May 10, 2016, Performance Unit Award Agreement~~
		~~(iv)~~	~~Form of Termination Agreement and Release of all Claims Under Officer Severance Plan,~~the additional lenders party thereto, filed as Exhibit 10.1 to Form 8-K filed on ~~August 24, 2016~~January 20, 2017
*	31	(i)	Rule 13a-14(a)/15d-14(a) Certification—Chief Executive Officer
*	31	(ii)	Rule 13a-14(a)/15d-14(a) Certification—Chief Financial Officer
**	32		Section 1350 Certifications
*	101	.INS	XBRL Instance Document
*	101	.SCH	XBRL Schema Document
*	101	.CAL	XBRL Calculation Linkbase Document
*	101	.DEF	XBRL Definition Linkbase Document
*	101	.LAB	XBRL Label Linkbase Document
*	101	.PRE	XBRL Presentation Linkbase Document

~~Table of Contents~~

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, thereunto duly authorized.



		ANADARKO PETROLEUM CORPORATION
		(Registrant)

~~October 31, 2016~~May 2, 2017	By:	/s/ ROBERT G. GWIN
		Robert G. Gwin Executive Vice President, Finance and Chief Financial Officer

6247



	Three Months Ended				Nine Months Ended
millions	Impairment		Fair Value⁽¹⁾		Impairment		Fair Value⁽¹⁾
September 30, 2016
Oil and gas exploration and production
Long-lived assets held for use
U.S. onshore properties	$	23	$	32	$	27	$	617
Gulf of Mexico properties	—		—		2		—
Cost-method investment ⁽²⁾	—		—		2		32
Midstream
Long-lived assets held for use	3		—		24		5
Other
Long-lived assets held for use	1		—		6		—
Total	$	27	$	32	$	61	$	654

September 30, 2015
Oil and gas exploration and production
Long-lived assets held for use
U.S. onshore properties	$	641	$	634	$	2,944	$	1,904
Gulf of Mexico properties	101		94		126		94
Cost-method investment ⁽²⁾	1		32		2		32
Midstream
Long-lived assets held for use	15		7		499		209
Total	$	758	$	767	$	3,571	$	2,239



	2016 Settlement		2017 Settlement		2018 Settlement
Oil
Three-Way Collars (MBbls/d)	83		—		—
Average price per barrel
Ceiling sold price (call)	$	63.82	$	—	$	—
Floor purchased price (put)	$	54.46	$	—	$	—
Floor sold price (put)	$	42.77	$	—	$	—
Natural Gas
Three-Way Collars (thousand MMBtu/d)	—		682		250
Average price per MMBtu
Ceiling sold price (call)	$	—	$	3.60	$	3.54
Floor purchased price (put)	$	—	$	2.75	$	2.75
Floor sold price (put)	$	—	$	2.00	$	2.00
Fixed-Price Contracts (thousand MMBtu/d)	—		37		—
Average price per MMBtu	$	—	$	3.14	$	—
NGLs
Fixed-Price Contracts (MBbls/d)	—		2		—
Average price per barrel	$	—	$	15.84	$	—



	Carrying Value
millions	WES			WGP ⁽¹⁾		Anadarko ⁽²⁾			Anadarko Consolidated			Description
Balance at December 31, 2015	$	2,691		$	—	$	12,957		$	15,648
Issuances	—			—		794			794			4.850% Senior Notes due 2021
	—			—		1,088			1,088			5.550% Senior Notes due 2026
	—			—		1,088			1,088			6.600% Senior Notes due 2046
	495			—		—			495			WES 4.650% Senior Notes due 2026
Borrowings	—			—		1,750			1,750			364-Day Facility
	600			—		—			600			WES RCF
	—			28		—			28			WGP RCF
Repayments	—			—		(1,749		)	(1,749		)	5.950% Senior Notes due 2016
	—			—		(1,245		)	(1,245		)	6.375% Senior Notes due 2017
	—			—		(1,750		)	(1,750		)	364-Day Facility
	(880		)	—		—			(880		)	WES RCF
	—			—		(250		)	(250		)	Commercial paper notes, net
	—			—		(25		)	(25		)	TEUs - senior amortizing notes
Other, net	1			—		40			41			Amortization of discounts, premiums, and debt issuance costs
Balance at September 30, 2016	$	2,907		$	28	$	12,698		$	15,633



millions
2017	$	50
2018	50
2019	52
2020	56
2021	57
Later years	263
Total	$	528



millions	Total Expected Costs		Three Months Ended September 30, 2016		Nine Months Ended September 30, 2016
Costs by category
Cash severance	$	154	$	5	$	151
Retirement benefits ⁽¹⁾	219		102		178
Share-based compensation	37		5		34
Total	$	410	$	112	$	363



millions	2016
Balance at January 1	$	—
Accruals	151
Payments	(141		)
Balance at September 30	$	10



millions	Interest-rate Derivatives Previously Subject to Hedge Accounting			Pension and Other Postretirement Plans			Total
Balance at December 31, 2015	$	(42	)	$	(341	)	$	(383	)
Other comprehensive income (loss), before reclassifications	—			(219		)	(219		)
Reclassifications to Consolidated Statement of Income	4			80			84
Balance at September 30, 2016	$	(38	)	$	(480	)	$	(518	)



millions	Face Value			Description
Issuances	$	800		4.850% Senior Notes due 2021
	1,100			5.550% Senior Notes due 2026
	1,100			6.600% Senior Notes due 2046
	500			WES 4.650% Senior Notes due 2026
Borrowings	1,750			364-Day Facility
	600			WES RCF
	28			WGP RCF
Repayments	(1,750		)	5.950% Senior Notes due 2016
	(1,250		)	6.375% Senior Notes due 2017
	(1,750		)	364-Day Facility
	(880		)	WES RCF
	(25		)	Tangible equity units (TEUs) - senior amortizing notes