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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the Quarter Ended: September 30, 1996
Commission File Number: 1-8968
_____________________
ANADARKO PETROLEUM CORPORATION
(Exact name of registrant as specified in its charter)
Delaware 76-0146568
(State of incorporation) (I.R.S. Employer
Identification No.)
17001 NORTHCHASE DRIVE, HOUSTON, TEXAS 77060
(Address of executive offices)
(281) 875-1101
(Registrant's telephone number)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports) and (2) has been subject to such
filing requirements for the past 90 days.
Yes X No
The number of shares outstanding of each of the registrant's classes of
common stock as of October 31, 1996 is shown below:
Number of Shares
Title of Class Outstanding
Common Stock, $0.10 par value 59,482,995
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PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
ANADARKO PETROLEUM CORPORATION
CONSOLIDATED STATEMENT OF INCOME
(Unaudited)
Three Months Ended Nine Months Ended
September 30 September 30
thousands 1996 1995 1996 1995
Revenues
Gas sales $ 81,960 $60,256 $259,145 $188,111
Oil and condensate sales 34,275 30,066 100,041 95,453
Natural gas liquids and other 12,316 8,961 40,160 32,436
Total 128,551 99,283 399,346 316,000
Cost and Expenses
Operating expenses 27,454 26,146 81,906 78,312
Administrative and general 18,132 13,099 52,830 42,021
Depreciation, depletion and
amortization 40,708 42,718 123,914 121,552
Other taxes 9,212 8,535 29,627 28,721
(Gains) on sale of and impairments
related to international
properties (16,356) 250 (16,356) 250
Total 79,150 90,748 271,921 270,856
Operating Income 49,401 8,535 127,425 45,144
Other Income and (Expenses)
Other income 768 260 1,113 532
Interest expense (9,707) (9,247) (28,808) (26,271)
Income (Loss) before Income Taxes 40,462 (452) 99,730 19,405
Income Taxes 15,513 (1,559) 36,636 5,165
Net Income $ 24,949 $ 1,107 $ 63,094 $ 14,240
Per Common Share
Net income $ 0.42 $ 0.02 $ 1.07 $ 0.24
Dividends $ 0.075 $ 0.075 $ 0.225 $ 0.225
Average Number of Shares Outstanding 59,267 58,949 59,161 58,913
See accompanying notes to consolidated financial statements.
2
Item 1. Financial Statements (continued)
ANADARKO PETROLEUM CORPORATION
CONSOLIDATED BALANCE SHEET
(Unaudited)
September 30, December 31,
thousands 1996 1995
ASSETS
Current Assets
Cash and cash equivalents $ 43,415 $ 17,090
Accounts receivable 108,698 127,943
Inventories, at average cost 20,446 14,859
Prepaid expenses 4,464 3,306
Total 177,023 163,198
Properties and Equipment
Original cost 3,887,100 3,717,672
Less accumulated depreciation, depletion
and amortization 1,712,721 1,628,922
Net properties and equipment - based on
the full cost method of accounting
for oil and gas properties 2,174,379 2,088,750
Deferred Charges 15,145 15,099
$2,366,547 $2,267,047
See accompanying notes to consolidated financial statements.
3
Item 1. Financial Statements (continued)
ANADARKO PETROLEUM CORPORATION
CONSOLIDATED BALANCE SHEET (continued)
(Unaudited)
September 30, December 31,
thousands 1996 1995
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities
Accounts payable
Trade and other $ 127,542 $ 153,502
Banks 14,761 12,849
Accrued expenses
Interest 7,820 10,729
Taxes and other 19,190 13,393
Total 169,313 190,473
Long-term Debt 701,000 674,008
Deferred Credits
Deferred income taxes 472,811 449,798
Other 51,963 43,074
Total 524,774 492,872
Stockholders' Equity
Common stock, par value $0.10
(200,000,000 shares authorized,
60,276,093 and 60,016,045 shares issued
as of September 30, 1996 and December 31,
1995, respectively) 6,073 6,047
Preferred stock, par value $1.00
(2,000,000 shares authorized, no
shares issued as of September 30, 1996
and December 31, 1995) --- ---
Paid-in capital 316,655 304,125
Retained earnings (as of September 30, 1996,
$321,460,000 was not restricted
as to the payment of dividends) 706,230 656,455
Deferred compensation (1,623) (2,808)
Executives and directors benefit trust,
at market value (1,000,000 shares as of
September 30, 1996 and December 31, 1995) (55,875) (54,125)
Total 971,460 909,694
$2,366,547 $2,267,047
See accompanying notes to consolidated financial statements.
4
Item 1. Financial Statements (continued)
ANADARKO PETROLEUM CORPORATION
CONSOLIDATED STATEMENT OF CASH FLOWS
(Unaudited)
Nine Months Ended
September 30
thousands 1996 1995
Cash Flow from Operating Activities
Net income $ 63,094 $ 14,240
Adjustments to reconcile net income to net
cash from operating activities:
Depreciation, depletion and amortization 123,914 121,552
Provision for impairment of
international properties 5,400 250
Amortization of restricted stock 1,331 1,237
Deferred income taxes 25,384 5,006
219,123 142,285
Decrease in accounts receivable 19,245 31,302
Increase in inventories (5,587) (1,173)
Decrease in accounts payable - trade and
other (25,960) (35,368)
Increase in accrued expenses 2,888 7,544
Other items - net 5,082 611
Net cash provided by operating activities 214,791 145,201
Cash Flow from Investing Activities
Additions to properties and equipment (260,522) (173,917)
Sales and retirements of properties and equipment 45,811 7,920
Net cash used in investing activities (214,711) (165,997)
Cash Flow from Financing Activities
Additions to debt 100,000 213,100
Retirements of debt (73,008) (173,305)
Increase (decrease) in accounts payable, banks 1,912 (8,568)
Dividends paid (13,319) (13,414)
Issuance of common stock 10,660 4,216
Issuance of treasury stock 677 374
Purchase of treasury stock (677) (374)
Net cash provided by financing activities 26,245 22,029
Net Increase in Cash and Cash Equivalents 26,325 1,233
Cash and Cash Equivalents at Beginning of Period 17,090 6,530
Cash and Cash Equivalents at End of Period $ 43,415 $ 7,763
See accompanying notes to consolidated financial statements.
5
Item 1. Financial Statements (continued)
ANADARKO PETROLEUM CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1. Summary of Accounting Policies Anadarko Petroleum Corporation is engaged
in the exploration, development, production and marketing of gas, oil and
natural gas liquids (NGLs). The terms "Anadarko" and "Company" refer to
Anadarko Petroleum Corporation and its subsidiaries. The principal subsidiaries
of Anadarko are Anadarko Gathering Company, Anadarko Trading Company and
Anadarko Algeria Corporation.
Certain amounts for prior years have been reclassified to conform to the
current presentation.
2. Disposition of Foreign Subsidiary In September 1996, Anadarko sold its
wholly owned subsidiary, Anadarko Indonesia Company, Jabung. The $21,800,000
gain relating to the sale was taxable in the U.S. As a result, the Company
recorded U.S. income tax expense of about $8,000,000 on the taxable gain.
3. Inventories Inventories are stated at the lower of average cost or market.
NGLs and natural gas, when sold from inventory, are charged to expense using
the average-cost method. The major classes of inventories are as follows:
September 30, December 31,
thousands 1996 1995
Materials and supplies $20,017 $13,969
Natural gas liquids, stored in inventory 33 412
Natural gas, stored in inventory 396 478
$20,446 $14,859
4. Properties and Equipment Oil and gas properties include costs of
$251,360,000 and $245,577,000 at September 30, 1996 and December 31, 1995,
respectively, which were excluded from capitalized costs being amortized.
These amounts represent costs associated with unevaluated properties and major
development projects.
During the third quarter of 1996, the Company recorded provisions for
impairments of international oil and gas properties of $5,400,000 ($3,400,000
after tax). These impairments related to unsuccessful activities in various
international locations.
6
Item 1. Financial Statements (continued)
ANADARKO PETROLEUM CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(Unaudited)
5. Long-term Debt A summary of long-term debt follows:
September 30, December 31,
thousands 1996 1995
Notes Payable, Banks $101,000 $154,100
Commercial Paper --- 19,908
8 3/4% Notes due 1998 100,000 100,000
8 1/4% Notes due 2001 100,000 100,000
6 3/4% Notes due 2003 100,000 100,000
5 7/8% Notes due 2003 100,000 100,000
7 1/4% Debentures due 2025 100,000 100,000
7.73% Debentures due 2096 100,000 ---
$701,000 $674,008
In September 1996, Anadarko issued $100,000,000 principal amount of 7.73%
Debentures due 2096. Each debenture holder has the one-time right to have
the Company purchase on September 15, 2026 all, or a portion of, the
debenture held by him at a purchase price equal to par plus accrued and
unpaid interest. Net proceeds from the offering were used to repay
floating interest rate debt.
The notes payable to banks and commercial paper have been classified as
long-term debt in accordance with Statement of Financial Accounting
Standards No. 6, "Classification of Short-term Obligations Expected to be
Refinanced", under the terms of Anadarko's Bank Credit Agreements.
6. Common Stock For the third quarter of 1996, dividends of seven and
one-half cents per share were paid to holders of common stock. Under the
most restrictive provisions of the various credit agreements, which limit
the payment of dividends by the Company, retained earnings of $321,460,000
and $259,694,000 were not restricted as to the payment of dividends at
September 30, 1996 and December 31, 1995, respectively.
7. Statement of Cash Flows Supplemental Information The amounts of cash
paid for interest (net of amounts capitalized) and income taxes are as
follows:
Nine Months Ended
September 30
thousands 1996 1995
Interest $29,898 $23,439
Income taxes $ 8,436 $ 1,008
7
Item 1. Financial Statements (continued)
ANADARKO PETROLEUM CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(Unaudited)
8. Operating Expenses Operating expenses by category are as follows:
Three Months Ended Nine Months Ended
September 30 September 30
thousands 1996 1995 1996 1995
Oil and gas $15,870 $18,127 $48,157 $50,475
Plant, gathering and marketing 8,080 5,772 23,667 19,380
Gas purchases 2,551 2,151 8,612 7,014
Other 953 96 1,470 1,443
$27,454 $26,146 $81,906 $78,312
9. Kansas Ad Valorem Tax The Natural Gas Policy Act of 1978 (NGPA) allowed
a "severance, production or similar" tax to be included as an add-on, over
and above the maximum lawful price for natural gas. Based on the Federal
Energy Regulatory Commission (FERC) ruling that the Kansas ad valorem tax
was such a tax, the Company collected the Kansas ad valorem tax in addition
to the otherwise maximum lawful price. FERC's ruling was appealed to the
United States Court of Appeals for the District of Columbia (D.C. Circuit),
which held in June 1988 that FERC failed to provide a reasoned basis for its
findings and remanded the case to FERC for further consideration.
On December 1, 1993, FERC issued an order reversing its prior ruling, but
limiting the effect of its decision to Kansas ad valorem taxes for sales
made on or after June 28, 1988. FERC clarified the effective date of its
decision by an order dated May 19, 1994. The clarification provided that
the June 28, 1988 effective date applies to tax bills rendered after that
date, not sales made on or after that date. Based on Anadarko's interpre-
tation of FERC's orders, $700,000 (pre-tax) was charged against income in
1994, in addition to $130,000 (pre-tax) charged against income in 1993.
Numerous parties filed appeals of FERC's action in the D.C. Circuit.
Anadarko, together with other natural gas producers, challenged FERC's
orders on two grounds: (1) that the Kansas ad valorem tax, properly
understood, does qualify for reimbursement under the NGPA; and (2) FERC's
ruling should, in any event, have been applied prospectively. Other parties
separately challenged FERC's orders on the grounds that FERC's ruling should
have been applied retroactively to December 1, 1978, the date of the
enactment of the NGPA and producers should have been required to pay refunds
accordingly.
8
Item 1. Financial Statements (continued)
ANADARKO PETROLEUM CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(Unaudited)
9. Kansas Ad Valorem Tax (continued)
The D.C. Circuit issued its decision on August 2, 1996 which holds that
producers must make refunds of all Kansas ad valorem taxes collected with
respect to production since October 1983. Petitions for rehearing have been
filed by Anadarko, along with other gas producing companies, the FERC and
the Public Service Company of Colorado, et al. If further judicial review
of the decision is unsuccessful, the pursuit of other judicial and
regulatory relief from the application of this decision to the Company will
be considered. The Company is unable at this time to predict the final
outcome of this matter. If, however, the August 2, 1996 decision is not
reversed or modified by judicial review and if Anadarko is unable to limit
application of the decision to the Company, Anadarko estimates the maximum
amount of principal and interest at issue is approximately $35 million
(pre-tax) as of September 30, 1996.
10. Subsequent Event In November 1996, Anadarko issued $100,000,000 principal
amount of 7 1/4% Debentures due 2096. Net proceeds from the offering were
used to repay floating interest rate debt.
11. The information, as furnished, reflects all normal recurring adjustments
that are, in the opinion of management, necessary to a fair statement of
financial position as of September 30, 1996 and December 31, 1995, the
results of operations for the three and nine months ended September 30, 1996
and 1995, and cash flows for the nine months ended September 30, 1996 and 1995.
9
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
Overview of Operating Results
Net income and revenues for the third quarter and the first nine months of 1996
benefitted from significantly higher prices for natural gas, crude oil and
natural gas liquids (NGLs). Net income for both periods also benefitted from a
gain on the sale of the Company's Indonesia interests of $21.8 million ($13.8
million after tax). This gain was offset by provisions for impairment of other
international properties of $5.4 million ($3.4 million after tax).
For the third quarter of 1996, Anadarko's net income was $24.9 million (42
cents per share). Stated without the effect of the gain on sale and impairments
of international properties, net income for the third quarter of 1996 would
have been $14.6 million (25 cents per share). By comparison, net income for the
third quarter of 1995 was $1.1 million (two cents per share). Revenues for the
third quarter of 1996 were $128.6 million, up 29 percent compared to $99.3
million for the third quarter of 1995.
For the first nine months of 1996, Anadarko's net income was $63.1 million
($1.07 per share). Stated without the effect of the gain on sale and
impairments of international properties, net income for the first nine months
of 1996 would have been $52.7 million (89 cents per share). This compares to
net income of $14.2 million (24 cents per share) for the same period of 1995.
Revenues for the first nine months of 1996 were $399.3 million, an increase
of 26 percent compared to $316.0 million for the same period of 1995.
The following table shows the Company's volumes and U.S. prices for the three
and nine months ended September 30, 1996 and 1995:
Three Months Ended
September 30 % Increase
1996 1995 (Decrease)
Natural gas, Bcf 39.8 42.3 (6)
Average daily volumes, MMcf/d 433 460 (6)
Price per Mcf $ 1.95 $ 1.27 54
Crude oil and condensate, MBbls 1,611 1,820 (11)
Average daily volumes, MBOD 17 20 (15)
Price per barrel $ 20.67 $ 15.94 30
Natural gas liquids, MBbls 710 658 8
Average daily volumes, MBOD 7 7 ---
Price per barrel $ 15.32 $ 12.62 21
10
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations (continued)
Nine Months Ended
September 30 % Increase
1996 1995 (Decrease)
Natural gas, Bcf 123.9 127.2 (3)
Average daily volumes, MMcf/d 453 466 (3)
Price per Mcf $ 1.98 $ 1.35 47
Crude oil and condensate, MBbls 4,983 5,594 (11)
Average daily volumes, MBOD 18 21 (14)
Price per barrel $ 19.35 $ 16.63 16
Natural gas liquids, MBbls 2,478 2,426 2
Average daily volumes, MBOD 9 9 ---
Price per barrel $ 14.53 $ 12.79 14
See "Natural Gas Volumes and Prices" and "Crude Oil,
Condensate and Natural Gas Liquids Volumes and Prices".
Costs and expenses during the third quarter of 1996 were $79.2 million. Stated
without the effect of the gain on the sale of the Company's Indonesia interests
and the impairments of other international properties, costs and expenses for
the third quarter of 1996 would have been $95.5 million an increase of five
percent compared to $90.7 million for the third quarter of 1995. The increase
was primarily related to an increase in higher administrative and general
expenses related to employees' salaries and benefits.
For the first nine months of 1996, costs and expenses totaled $271.9 million.
Stated without the effect of the gain on the sale and impairments of other
international properties, costs and expenses for the first nine months of
1996 would have been $288.3 million an increase of six percent compared to
$270.9 million for the first nine months of 1995. The increase is due
primarily to an increase in administrative and general expenses related to
employees' salaries and benefits and higher operating expenses related to
gathering operations.
Interest expense for the third quarter of 1996 increased five percent to $9.7
million compared to $9.2 million for the third quarter of 1995. For the first
nine months of 1996, interest expense was $28.8 million, an increase of 10
percent compared to $26.3 million for the same period of 1995. The increases
are due primarily to higher levels of borrowings in 1996.
Natural Gas Volumes and Prices During the third quarter of 1996, Anadarko
produced 39.8 billion cubic feet (Bcf) of natural gas or 433 million cubic feet
per day (MMcf/d), down six percent compared to 42.3 Bcf or 460 MMcf/d of gas in
the third quarter of 1995. The slight decline in production volumes is
primarily related to the sale of producing properties in 1995. In addition to
sales of Anadarko gas, the Company through its subsidiary, Anadarko Trading
Company, marketed about 47 Bcf or 512 MMcf/d of third-party gas during the
third quarter of
11
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations (continued)
1996 compared to 25 Bcf or 266 MMcf/d during the third quarter of 1995.
Anadarko's average U.S. wellhead gas price during the third quarter of 1996
was $1.95 per thousand cubic feet (Mcf), a 54 percent increase from $1.27 per
Mcf in the third quarter of 1995.
For the first nine months of 1996, Anadarko produced 123.9 Bcf of gas or 453
MMcf/d, down three percent compared to 127.2 Bcf or 466 MMcf/d for the same
period of 1995. In addition to sales of Anadarko gas, the Company also
marketed about 142 Bcf or 517 MMcf/d of third-party gas in the first nine
months of 1996 compared to 72 Bcf or 263 MMcf/d in the same period of 1995.
The Company's average U.S. wellhead gas price for the first nine months of
1996 was $1.98 per Mcf, a 47 percent increase compared to $1.35 per Mcf for
the same period of 1995.
Crude Oil, Condensate and Natural Gas Liquids Volumes and Prices Anadarko's
crude oil and condensate production for the third quarter of 1996 decreased 11
percent to 1.6 million barrels (MMBbls) or 17 thousand barrels of oil per day
(MBOD) compared to 1.8 MMBbls or 20 MBOD in the third quarter of 1995.
Anadarko's average U.S. oil price was up 30 percent to $20.67 per barrel in
the third quarter of 1996 compared to $15.94 per barrel for the same period
in 1995.
For the first nine months of 1996, crude oil and condensate production was 5.0
MMBbls or 18 MBOD, a decrease of 11 percent compared to 5.6 MMBbls or 21 MBOD
for the same period of 1995. Anadarko's average U.S. oil price for the first
nine months of 1996 was $19.35 per barrel, an increase of 16 percent compared
to $16.63 per barrel for the same period of 1995.
The volume declines in both periods are due primarily to sales of producing
properties in 1995.
The Company's NGLs sales volumes were up eight percent to 710 thousand barrels
(MBbls) at an average price of $15.32 per barrel for the third quarter of 1996.
This compares to 658 MBbls at an average price of $12.62 per barrel for the
same period of 1995.
Anadarko's NGLs volumes for the first nine months of 1996 were 2.5 MMBbls, an
increase of two percent compared to 2.4 MMBbls for the first nine months of
1995. The Company's NGLs price per barrel increased 14 percent in the first
nine months of 1996 to $14.53 per barrel compared to $12.79 per barrel in the
first nine months of 1995.
Use of Derivatives Anadarko uses derivative financial instruments to limit
exposure to changes in the market price of natural gas and crude oil for the
Company and to provide methods to fix the price for natural gas independently
of the physical purchase or sale. Derivative instruments also provide methods
to meet customer pricing requirements while achieving a price structure
consistent with the Company's overall pricing strategy. While financial
instruments are intended to reduce the Company's exposure to declines in the
market price of natural gas and crude oil, the financial instruments may also
limit Anadarko's gain from increases in the market price of natural gas and
crude oil. As a result, gains and losses on financial instruments are
generally offset by similar changes in the realized price
12
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations (continued)
of natural gas and crude oil. Gains and losses are recognized in revenues for
the periods to which the financial instruments relate. Anadarko's financial
instruments currently are comprised of futures, swaps and options.
Capital Expenditures, Liquidity and Dividends
During the first nine months of 1996, Anadarko's capital spending (including
capitalized interest and overhead) was $260.5 million compared to $173.9
million in the same period of 1995. Capital expenditures in both periods
related primarily to the Company's oil and gas exploration and development
activities.
Net cash from operating activities for the first nine months of 1996 was $219.1
million compared to $142.3 million in the same period of 1995.
The Company believes cash flows, including proceeds from divestitures, and
existing available credit facilities will be sufficient to meet capital and
operating requirements during 1996. However, Anadarko may pursue other
financing options to reduce or stabilize interest costs.
In September 1996, Anadarko issued $100 million principal amount of 7.73%
Debentures due 2096. Each debenture holder has the one-time right to have
the Company purchase on September 15, 2026 all, or a portion of, the
debenture held by him at a purchase price equal to par plus accrued and
unpaid interest. Net proceeds from the offering were used to repay floating
interest rate debt.
In November 1996, Anadarko issued $100 million principal amount of 7 1/4%
Debentures due 2096. Net proceeds from the offering were used to repay
floating interest rate debt.
Anadarko's Board of Directors declared a quarterly dividend of seven and
one-half cents per share of common stock outstanding. The dividend is
payable on December 26, 1996 to stockholders of record on December 11, 1996.
Under the most restrictive provisions of the various credit agreements, which
limit the payment of dividends by the Company, retained earnings of
$321,460,000 were not restricted as to the payment of dividends at September
30, 1996. The amount of future dividends for Anadarko will depend on earnings,
financial condition, capital requirements and other factors, and will be
determined by the Directors on a quarterly basis.
On October 30, 1996, John R. Butler, Jr., Chairman of the Board and Chief
Executive Officer of GeoQuest International Holdings, Inc., was named to
Anadarko's Board of Directors. Mr. Butler was elected as a Class I director.
Exploration and Development Drilling
During the third quarter of 1996, Anadarko participated in a total of 64 wells,
including 40 oil wells, 15 gas wells and nine dry holes. This compares to a
total of 46 wells, including 12 oil wells, 28 gas wells and six dry holes
during the third quarter of 1995. For the first nine months of 1996, Anadarko
participated in a total of 180 wells, including 100 oil wells, 46 gas wells
and 34 dry holes. This compares to a total of 199 wells, including 91 oil
wells, 80 gas wells and 28 dry holes during the first nine months of 1995.
Following is a listing of significant activity.
13
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations (continued)
Domestic
Alaska On October 2, 1996, Anadarko and partners announced plans to develop
a new oil field, known as the Alpine Field, in the western Colville area on
Alaska's North Slope. Development work is expected to begin in the winter of
1997-98 with first production of 30,000 barrels of oil per day (BOPD) (gross)
in 2000, increasing to 60,000 BOPD (gross) in 2001. Anadarko and partners
also acquired 5,900 acres adjacent to the Alpine discovery in State Lease
Sale 86A on October 1, 1996. The partnership offered bonus bids of $2 million
for five tracts. Partners in the Alpine Field include ARCO Alaska, Inc.
(operator), 56-percent working interest; Anadarko, 22-percent working interest;
and Union Texas Petroleum Alaska Corp., 22-percent working interest.
On October 23, 1996, ARCO Alaska, Inc. and Anadarko signed a strategic alliance
to explore the Upper Cook Inlet of Alaska. Anadarko will serve as operator and
manage an Anchorage-based exploration team consisting of both ARCO Alaska and
Anadarko employees. Anadarko will earn a 50-percent share of ARCO Alaska's
127,000 lease acres in the Upper Cook Inlet. The agreement does not include
the Sunfish prospect or the Beluga River Gas Field.
Anadarko and ARCO Alaska Inc. also were successful bidding on six lease blocks
totaling 34,000 acres in the Beaufort Sea. In the Beaufort Sea venture, ARCO
Alaska (operator) holds a 78-percent working interest and Anadarko holds a
22-percent working interest.
Gulf of Mexico The production platform for the Mahogany Field was installed
at Ship Shoal South Addition 359 in August 1996. Once the four wells that have
been drilled to date are completed and on production, drilling will resume
from the platform on the No. 5 well. The No. 5 well was drilled to the top of
salt, casing was set and it was temporarily plugged to allow for installation
of the platform. Initial production from the Mahogany platform is expected
in December 1996. Anadarko has a 37.5-percent working interest in the
Mahogany Field.
On September 26, 1996, Anadarko announced it was high-bidder on 12 deepwater
blocks in Offshore Lease Sale #161. Located in the western Gulf of Mexico, the
blocks range in water depth from 2,700-5,700 feet and most have a lease term
of 10 years. The blocks represent a net expenditure to Anadarko of $2.35
million. Anadarko will operate 10 of the blocks. Other partners include
Vastar Resources and Louisiana Land and Exploration.
Southwest Kansas In the Arkalon Field of Seward County, Kansas, the Davies
F #1 flowed 1.8 MMcf/d of gas and 36 BOPD. Anadarko has a 100-percent working
interest in the well.
The Utz "A" #1 flowed 3.3 MMcf/d of gas and 3 barrels of condensate per day
(BCPD). The well is located in the Angell Field of Meade County, Kansas.
Anadarko owns a 100-percent working interest in the well.
Two wells were completed in the Eubank Field, located in Haskell County,
Kansas. The Greg "F" #6 produced 56 BOPD and 103 thousand cubic feet per day
(Mcf/d) of gas. The Owens "A" #5 produced 45 BOPD and 207 Mcf/d of gas. Both
wells were identified through 3-D seismic data interpretations. Anadarko has
a 100-percent working interest in the wells.
14
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations (continued)
The Tucker L #1, located in the Wilburton North Field of Morton County, Kansas,
was recompleted and flowed 659 Mcf/d of gas. Anadarko owns a 100-percent
working interest in the well.
Permian Basin The infill drilling program in the TXL South Unit, located in
Ector County, Texas, continued during the third quarter. Nine wells were
completed in September with a combined flow rate of 638 BOPD and 656 MMcf/d
of gas. In August, the TXL South Unit #6105 flowed 353 BOPD and 207 Mcf/d of
gas. In July, the TXL South Unit Well #5911 produced 85 BOPD and 190 Mcf/d of
gas. Anadarko is operating four rigs in the TXL South Unit where the Company
owns a 65-percent working interest.
Development drilling continued with the completion of six wells on the Scott
leases, located in the Ketchum Mountain (Clearfork) Field of Irion County,
Texas. Anadarko owns a 100-percent working interest in the wells. Results:
-- The Agnes Scott #1408 flowed 153 BOPD and 100 Mcf/d of gas.
-- The Scott "14" #1410 flowed 200 BOPD and 150 Mcf/d of gas.
-- The Scott "14" #1414 flowed 45 BOPD and 100 Mcf/d of gas.
-- The Scott "14" #1415 flowed 107 BOPD and 60 Mcf/d of gas.
-- The Scott "14" #1416 flowed 85 BOPD and 116 Mcf/d of gas.
-- The Scott "4" #413 produced 32 BOPD and 25 Mcf/d of gas.
Also from the Ketchum Mountain (Clearfork) Field, the Sugg #3301 flowed 102
BOPD and 170 Mcf/d of gas. The Sugg "13" #1302 produced 35 BOPD and 27 Mcf/d of
gas. Anadarko owns a 100-percent working interest in these wells.
East Texas -- Bossier Sand Play The English #1 flowed 2.2 MMcf/d of gas on
a 3/16-inch choke and the Alma Moore #1 flowed 2.4 MMcf/d of gas and 3 BOPD
through a 5/32-inch choke. These Apache-operated wells are located in Freestone
County, Texas. Anadarko owns a 50-percent working interest in the wells. A
third well is currently testing. In the play, Anadarko has a 50-percent working
interest in 5,500 gross acres. This is a tight-gas play where production was
initially established in two other wells in which Anadarko has overriding
royalty interests.
Texas Panhandle The Kirk "B" #3, located in the Shirley Field of Hutchinson
County, Texas, produced 96 BOPD. Anadarko owns a 100-percent working interest
in the well.
The Sneed #1-43A, located in the West Panhandle Field of Moore County, Texas,
flowed 803 Mcf/d of gas. In the same field, the Sneed #2R-49 flowed 206 Mcf/d
of gas. Anadarko owns a 100-percent working interest in the wells.
Central Oklahoma In the Bradley Field of Grady County, Oklahoma, the
Hubbard #1-4 flowed 1.7 MMcf/d of gas and 193 BOPD. The Company owns a
100-percent working interest in the well.
15
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations (continued)
International
Algeria On September 24, 1996, Anadarko and Sonatrach signed an
Engineering, Procurement and Construction contract with Brown & Root Condor for
Stage I production facilities at the Hassi Berkine South (HBNS) Field. The $177
million contract provides for building oilfield production facilities with a
capacity to produce 60,000 BOPD (gross). First production from the HBNS Field
is expected in early 1998. Brown & Root Condor is jointly owned by Brown &
Root, a unit of Halliburton Co., and affiliates of Sonatrach. See Additional
Factors Affecting Business and Forward Looking Statements under Item 7, pages
28-29, of Anadarko's 1995 Annual Report on Form 10-K.
The political unrest in Algeria has been the subject of numerous media reports.
Although the Company was encouraged by democratic elections held in 1995, the
Company is closely monitoring the situation and has taken reasonable and
prudent steps to ensure the safety of employees working in the remote regions
of the Sahara Desert. Anadarko is presently unable to predict with certainty
any effect the current situation may have on activity planned for 1996 and
beyond. However, to date the situation has not had any material effect on the
Company's operations.
Peru In September 1996, Anadarko signed an exploration license agreement
with PERUPETRO S.A. to explore a 2.55-million acre area on Peru's eastern
border with Brazil. The area is known as Block 84 and is located in the Ucayali
Basin. The seven-year exploration agreement is divided into five phases. During
Phase I, a two and one-half year period, Anadarko committed to spend about $5
million to acquire a minimum of 600 kilometers of seismic. The Company is
currently flying an aerial magnetic survey of Block 84 to determine specific
locations for the seismic program scheduled for 1997.
Eritrea Anadarko completed a 16,000 kilometer high-density aerial gravity
and magnetic survey over the Zula Block, located offshore Eritrea in the Red
Sea. The results of the gravity and magnetic survey were used to formulate a
seismic acquisition program scheduled to begin in November 1996.
Indonesia Anadarko sold its interests in Anadarko Indonesia Company,
Jabung, a wholly-owned subsidiary, to Amerada Hess (Indonesia - Jabung)
Limited. The transaction was effective April 30, 1996 and closed September 12,
1996. The sale increased third quarter and year-to-date 1996 net income by
$21.8 million ($13.8 million after tax).
This report contains forward-looking statements within the meaning of Section
27A of the Securities Act of 1933 and Section 21E of the Exchange Act of 1934.
Anadarko believes that its expectations are based on reasonable assumptions.
No assurances, however, can be given that its goals will be achieved. See
Additional Factors Affecting Business in the Management's Discussion and
Analysis included in the Company's Annual Report on Form 10-K.
16
Part II. OTHER INFORMATION
Item 1. Legal Proceedings
Kansas Ad Valorem Tax The Natural Gas Policy Act of 1978 (NGPA) allowed a
Aseverance, production or similar@ tax to be included as an add-on, over and
above the maximum lawful price for natural gas. Based on the Federal Energy
Regulatory Commission (FERC) ruling that the Kansas ad valorem tax was such a
tax, the Company collected the Kansas ad valorem tax in addition to the
otherwise maximum lawful price. FERC=s ruling was appealed to the United
States Court of Appeals for the District of Columbia (D.C. Circuit), which
held in June 1988 that FERC failed to provide a reasoned basis for its
findings and remanded the case to FERC for further consideration.
On December 1, 1993, FERC issued an order reversing its prior ruling, but
limiting the effect of its decision to Kansas ad valorem taxes for sales made
on or after June 28, 1988. FERC clarified the effective date of its decision
by an order dated May 19, 1994. The clarification provided that the June 28,
1988 effective date applies to tax bills rendered after that date, not sales
made on or after that date. Based on Anadarko's interpretation of FERC's
orders, $700,000 (pre-tax) was charged against income in 1994, in addition to
$130,000 (pre-tax) charged against income in 1993. Numerous parties filed
appeals of FERC's action in the D.C. Circuit. Anadarko, together with other
natural gas producers, challenged FERC's orders on two grounds: (1) that the
Kansas ad valorem tax, properly understood, does qualify for reimbursement
under the NGPA; and (2) FERC's ruling should, in any event, have been
applied prospectively. Other parties separately challenged FERC's orders on the
grounds that FERC's ruling should have been applied retroactively to December
1, 1978, the date of the enactment of the NGPA and producers should have been
required to pay refunds accordingly.
The D.C. Circuit issued its decision on August 2, 1996 which holds that
producers must make refunds of all Kansas ad valorem taxes collected with
respect to production since October 1983. Petitions for rehearing have been
filed by Anadarko, along with other gas producing companies, the FERC and the
Public Service Company of Colorado, et al. If further judicial review of the
decision is unsuccessful, the pursuit of other judicial and regulatory relief
from the application of this decision to the Company will be considered. The
Company is unable at this time to predict the final outcome of this matter.
If, however, the August 2, 1996 decision is not reversed or modified by
judicial review and if Anadarko is unable to limit application of the
decision to the Company, Anadarko estimates the maximum amount of principal
and interest at issue is approximately $35 million (pre-tax) as of September
30, 1996.
Heritage Resources, Inc. Litigation Pursuant to an order of the 162nd Judicial
District Court for Dallas County, Texas, dated January 29, 1988, requiring all
owners of interests in certain properties in Winkler County, Texas, to be
joined as parties Plaintiff or parties Defendant, Anadarko entered, as a
party Plaintiff, a suit filed against Heritage Resources, Inc. (Heritage) by
Tribal Drilling Company. The Plaintiffs, among other things, sought to have
Heritage removed as operator of a well in which Plaintiffs own interests.
The Defendants asserted counterclaims against Anadarko and other Plaintiffs
alleging that, among other things, the assertions of the Plaintiffs were
frivolous and were made in bad faith and the Plaintiffs breached the joint
operating agreements. Trial was scheduled to start on June 10, 1996.
However, prior to trial a settlement agreement was reached. The Company's
settlement payment was an immaterial amount.
17
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
Exhibits not incorporated by reference to a prior filing are designated by
an asterisk (*) and are filed herewith; all exhibits not so designated are
incorporated herein by reference to a prior filing as indicated.
Exhibit Original Filed File
Number Description Exhibit Number
3(a) Restated Certificate of Incorporation 19(a)(I) to Form 10-Q 1-8968
of Anadarko Petroleum Corporation, for quarter ended
Dated August 28, 1986 September 30, 1986
(b) By-laws of Anadarko Petroleum 3(b) to Form 10-Q 1-8968
Corporation, as amended for quarter ended
June 30, 1996
*27 Financial Data Schedule
(b) Reports on Form 8-K
There were no reports filed on Form 8-K for the three months ended
September 30, 1996.
18
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned duly authorized officer and principal financial officer.
ANADARKO PETROLEUM CORPORATION
(Registrant)
November 12, 1996 [MICHAEL E. ROSE]
Michael E. Rose - Senior Vice President,
Finance and Chief Financial Officer
19