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: March 31, 1997
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 Iden-
tification No.)
17001 NORTHCHASE DRIVE, HOUSTON, TEXAS 77060-2141
(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 April 30, 1997 as shown below:
Number of Shares
Title of Class Outstanding
Common Stock, $0.10 par value 59,622,013
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
ANADARKO PETROLEUM CORPORATION
CONSOLIDATED STATEMENT OF INCOME
(Unaudited)
Three Months Ended
March 31
thousands 1997 1996
Revenues
Gas sales $107,051 $89,115
Oil and condensate sales 42,595 30,872
Natural gas liquids and other 20,860 15,720
Total 170,506 135,707
Cost and Expenses
Operating expenses 32,855 26,533
Administrative and general 17,035 15,199
Depreciation, depletion and amortization 45,339 42,938
Other taxes 12,913 10,140
Total 108,142 94,810
Operating Income 62,364 40,897
Other Income and (Expenses)
Other income 839 198
Interest expense (9,238) (9,502)
Income before Income Taxes 53,965 31,593
Income Taxes 19,531 11,077
Net Income $ 34,434 $ 20,516
Per Common Share
Net income $ 0.58 $ 0.35
Dividends $ 0.075 $ 0.075
Average Number of Shares Outstanding 59,612 59,054
See accompanying notes to consolidated financial statements.
2
Item 1. Financial Statements (continued)
ANADARKO PETROLEUM CORPORATION
CONSOLIDATED BALANCE SHEET
(Unaudited)
March 31, December 31,
thousands 1997 1996
ASSETS
Current Assets
Cash and cash equivalents $41,370 $14,601
Accounts receivable 143,108 226,824
Inventories, at average cost 25,157 24,540
Prepaid expenses 3,342 3,843
Total 212,977 269,808
Properties and Equipment
Original cost 4,111,912 4,036,165
Less accumulated depreciation, depletion
and amortization 1,763,682 1,738,709
Net properties and equipment - based on
the full cost method of accounting for
oil and gas properties 2,348,230 2,297,456
Deferred Charges 19,130 16,766
$2,580,337 $2,584,030
See accompanying notes to consolidated financial statements.
3
Item 1. Financial Statements (continued)
ANADARKO PETROLEUM CORPORATION
CONSOLIDATED BALANCE SHEET (continued)
(Unaudited)
March 31, December 31,
thousands 1997 1996
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities
Accounts payable
Trade and other $ 159,389 $ 244,219
Banks 11,307 17,995
Accrued expenses
Interest 10,110 12,812
Taxes and other 21,763 10,227
Total 202,569 285,253
Long-term Debt 700,000 731,049
Deferred Credits
Deferred income taxes 507,812 498,973
Other 120,854 54,675
Total 628,666 553,648
Stockholders' Equity
Common stock, par value $0.10
(200,000,000 shares authorized, 60,618,034 and
60,525,699 shares issued as of March 31, 1997
and December 31, 1996, respectively) 6,107 6,098
Preferred stock, par value $1.00
(2,000,000 shares authorized, no shares issued as
of March 31, 1997 and December 31, 1996) --- ---
Paid-in capital 333,387 335,848
Retained earnings (as of March 31, 1997, $399,102,000
was not restricted as to the payment of dividends) 769,276 739,395
Deferred compensation (2,855) (3,444)
Executives and directors benefit trust, at market
value (1,000,000 shares as of March 31, 1997 and
December 31, 1996) (56,813) (63,813)
Treasury stock (70 shares as of December 31, 1996) --- (4)
Total 1,049,102 1,014,080
$2,580,337 $2,584,030
See accompanying notes to consolidated financial statements.
4
Item 1. Financial Statements (continued)
ANADARKO PETROLEUM CORPORATION
CONSOLIDATED STATEMENT OF CASH FLOWS
(Unaudited)
Three Months Ended
March 31
thousands 1997 1996
Cash Flow from Operating Activities
Net income $34,434 $20,516
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation, depletion and amortization 45,339 42,938
Amortization of restricted stock 589 429
Deferred income taxes 9,734 10,874
90,096 74,757
(Increase) decrease in accounts receivable 83,716 (14,334)
Increase in inventories (617) (1,690)
Decrease in accounts payable - trade and other
and accrued expenses (75,996) (50,391)
Other items - net (2,755) 9,557
Net cash provided by operating activities 94,444 17,899
Cash Flow from Investing Activities
Additions to properties and equipment (120,472) (68,431)
Proceeds from the sale of assets to be leased, net 87,900 ---
Sales and retirements of properties
and equipment 2,635 1,472
Net cash used in investing activities (29,937) (66,959)
Cash Flow from Financing Activities
Additions to debt --- 46,570
Retirements of debt (31,049) ---
Increase (decrease) in accounts payable, banks (6,688) 1,466
Dividends paid (4,553) (4,431)
Issuance of common stock 4,548 1,755
Issuance of treasury stock 4 ---
Net cash provided by (used in) financing activities (37,738) 45,360
Net Increase (Decrease) in Cash and
Cash Equivalents 26,769 (3,700)
Cash and Cash Equivalents at
Beginning of Period 14,601 17,090
Cash and Cash Equivalents at End of Period $ 41,370 $13,390
See accompanying notes to consolidated financial statements.
5
Item 1. Financial Statements (continued)
ANADARKO PETROLEUM CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1. General Anadarko Petroleum Corporation is engaged in the
exploration, development, production and marketing of gas, crude
oil, condensate and natural gas liquids (NGLs). The terms
"Anadarko" and "Company" refer to Anadarko Petroleum Corporation
and its subsidiaries. The principal subsidiaries of Anadarko are:
Anadarko Gathering Company; Anadarko Energy Services Company;
and, Anadarko Algeria Corporation.
Certain amounts for the prior year have been restated to conform
to the current presentation.
2. 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:
March 31, December 31,
thousands 1997 1996
Materials and supplies $24,963 $23,495
Natural gas liquids, stored in inventory 160 28
Natural gas, stored in inventory 34 1,017
$25,157 $24,540
3. Properties and Equipment Oil and gas properties
include costs of $283,255,000 and $254,811,000 at March 31, 1997
and December 31, 1996, respectively, which were excluded from
capitalized costs being amortized. These amounts represent costs
associated with unevaluated properties and major development
projects.
4. Long-term Debt A summary of long-term debt follows:
March 31, December31,
thousands 1997 1996
Commercial Paper $ --- $31,049
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 100,000 100,000
7 1/4% Debentures due 2096 100,000 100,000
$700,000 $731,049
The 8 3/4% Notes due 1998 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
Item 1. Financial Statements (continued)
ANADARKO PETROLEUM CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(Unaudited)
5. Compressor Sale-Leaseback Agreement In January 1997, the
Company entered into a sale-leaseback agreement for $87,900,000
(net) involving 145 natural gas compressors in Anadarko's major
mid-continent gathering systems. Proceeds from the transaction
were used for general corporate purposes. The gain of
$66,200,000 is deferred and will be amortized over the lease term
as a reduction to operating expenses.
6. Common Stock For the first quarter of 1997, 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 $399,102,000 and
$364,080,000 were not restricted as to the payment of dividends
at March 31, 1997 and December 31, 1996, respectively.
7. Statement of Cash Flows Supplemental Information The
amounts of cash paid (received) for interest (net of amounts
capitalized) and income taxes are as follows:
Three Months Ended
March 31
thousands 1997 1996
Interest $11,046 $11,043
Income taxes $ (43) $ 2,532
8. Operating Expenses Operating expenses by category are as
follows:
Three Months Ended
March 31
thousands 1997 1996
Oil and gas $18,018 $15,123
Plant, gathering and marketing 9,674 7,470
Gas purchases 4,588 3,585
Other 575 355
$32,855 $26,533
9. Kansas Ad Valorem Tax The Natural Gas Policy Act of 1978
(NGPA) allows 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.
7
Item 1. Financial Statements (continued)
ANADARKO PETROLEUM CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(Unaudited)
9. Kansas Ad Valorem Tax (continued) 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 were denied November 6, 1996. The Company, along with
other gas producing companies, subsequently filed a petition for
writ of certiorari with the United States Supreme Court seeking to
limit the scope of the potential refunds to tax bills rendered on
or after June 28, 1988 (the effective date originally selected by
FERC). Williams Natural Gas Company filed a cross-petition for
certiorari seeking to impose refund liability back to December 1,
1978. Both petitions were denied on May 12, 1997.
Anadarko estimates the maximum amount of principal and interest at
issue which has not been paid to date and assuming that the October
1983 effective date remains in effect, is about $38,000,000 (pre-
tax) as of March 31, 1997. Of this amount, up to $36,000,000 (pre-
tax) is at issue in the FERC petition for adjustment and the
litigation with PanEnergy Corp et al. (PanEnergy) discussed below.
The Company along with other gas producing companies, filed a
petition for adjustment with FERC on May 12, 1997. In so doing the
Company is seeking waiver of all interest which might otherwise be
due. The total interest at issue is approximately $23,000,000 (pre-
tax). On May 13, 1997 the Company also filed a lawsuit in the
Federal District Court for the Southern District of Texas against
PanEnergy seeking a declaration that pursuant to prior agreements
Anadarko is not required to issue refunds to PanEnergy for the
principal amount of $14,000,000 (pre-tax) and, if the petition for
adjustment discussed above is not granted in its entirety by FERC
with respect to PanEnergy refunds, interest in an amount up to
$22,000,000 (pre-tax) as of March 31, 1997. The Company also seeks
from PanEnergy the return of $816,000 of the $830,000 (pre-tax)
charged against income in 1993 and 1994. The Company is unable at
this time to predict the final outcome of this matter and no
provision for liability (excluding the amounts recorded in 1993 and
1994) has been made in the accompanying financial statements. 8
Item 1. Financial Statements (continued)
ANADARKO PETROLEUM CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(Unaudited)
10. 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 March 31, 1997 and December 31, 1996,
the results of operations for the three months ended March 31,
1997 and 1996 and cash flows for the three months ended March 31,
1997 and 1996.
9
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations
The Company has included a number of forward looking statements
within the meaning of Section 27A of the Securities Act of 1933
and Section 21E of the Securities Exchange Act of 1934 in Item 2
of this Form 10-Q. These forward looking statements, including
any production and reserve disclosures contained therein, are
based on the best data available at the time this report was
released for printing; however, actual results could differ
materially from those expressed or implied by such statements due
to a number of factors including: commodity pricing and demand,
exploration and operating risks, development risks, domestic
governmental risks, foreign operations risk and competition. See
Additional Factors Affecting Business in the Management's
Discussion and Analysis included in the Company's 1996 Annual
Report on Form 10-K.
Overview of Operating Results
Anadarko's revenues for the first quarter of 1997 reached a
record level for first quarter revenues, based on the highest
natural gas, crude oil and natural gas liquids (NGLs) revenues.
When compared to the same period in 1996, revenues increased 26
percent and net income was up 68 percent due primarily to
stronger commodity prices and higher oil production volumes.
For the first quarter of 1997, Anadarko's net income was $34.4
million (58 cents per share) on revenues of $170.5 million. By
comparison, net income for the first quarter of 1996 was $20.5
million (35 cents per share) on revenues of $135.7 million.
The following table shows the Company's volumes and U.S. prices
for the three months ended March 31, 1997 and 1996:
Three Months Ended
March 31 % Increase
1997 1996 (Decrease)
Natural gas, Bcf 42.3 43.7 (3)
Average daily volumes, MMcf/d 470 480 (2)
Price per Mcf $ 2.66 $ 1.96 36
Crude oil and condensate, MBbls 2,002 1,701 18
Average daily volumes, MBOD 22 19 16
Price per barrel $20.58 $17.64 17
Natural gas liquids, MBbls 1,231 988 25
Average daily volumes, MBOD 14 11 27
Price per barrel $15.65 $14.29 10
See "Natural Gas Volumes and Prices" and "Crude Oil,
Condensate and Natural Gas Liquids Volumes and Prices."
10
Item 2. Managements's Discussion and Analysis of Financial
Condition and Results of Operations (continued)
Costs and expenses during the first quarter of 1997 were $108.1
million, an increase of $13.3 million (14 percent) compared to
$94.8 million for the first quarter of 1996. The increase is
primarily due to higher oil and gas operating expenses,
production taxes related to higher revenues and depreciation,
depletion and amortization (DD&A) expense.
Interest expense for the first quarter of 1997 was $9.2 million,
a decrease of three percent compared to $9.5 million for the first
quarter of 1996.
Natural Gas Volumes and Prices During the first quarter of
1997, Anadarko's natural gas production volumes decreased three
percent compared to the first quarter of 1996. In addition to
sales of Anadarko gas, the Company through its wholly-owned
subsidiary, Anadarko Energy Services Company, marketed about 75
billion cubic feet (Bcf) or 830 million cubic feet per day
(MMcf/d) of third party gas during the first quarter of 1997.
This compares to 48 Bcf or 527 MMcf/d of third party gas during
the same period of 1996. Anadarko's average U.S. wellhead gas
price in the first quarter of 1997 increased 36 percent compared
to the first quarter of 1996.
Crude Oil, Condensate and Natural Gas Liquids Volumes and Prices
Anadarko's crude oil and condensate volumes for the first
quarter of 1997 were up 18 percent compared to the first quarter
of 1996. The increase in oil production volumes is primarily
due to the Company's aggressive drilling programs in southwest
Kansas and the Permian Basin of west Texas, along with initial
oil production from the Mahogany platform in the Gulf of Mexico.
Anadarko's average U.S. oil price in the first quarter of 1997
increased 17 percent compared to the same period in 1996.
Anadarko's NGLs sales volumes for the first quarter 1997
increased 25 percent compared to the same period of 1996.
Anadarko's average NGLs price in the first quarter of 1997 was
ten percent higher compared to the same period in 1996.
Use of Derivatives Anadarko uses derivative financial
instruments to hedge the Company's exposure to changes in the
market price of natural gas and crude oil, to provide methods to
fix the price for natural gas independently of the physical
purchase or sale and to manage interest rates. Commodity
financial instruments also provide methods to meet customer
pricing requirements while achieving a price structure
consistent with the Company's overall pricing strategy. While
commodity financial instruments are intended to reduce the
Company's exposure to declines in the market price of natural
gas and crude oil, the commodity financial instruments may also
limit Anadarko's gain from increases in the market price of
natural gas and crude oil. As a result, gains and losses on
commodity financial instruments are generally offset by similar
changes in the realized price of natural gas and crude oil.
Gains and losses are recognized in revenues for the periods to
which the commodity financial instruments relate. Anadarko's
commodity financial instruments currently are comprised of
futures, swaps and options.
11
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations (continued)
Capital Expenditures, Liquidity and Dividends
During the first quarter of 1997, Anadarko's capital spending
(including capitalized interest and overhead) was $120.5 million
compared to $68.4 million in the first quarter of 1996. The
increase is due to increased activity in Algeria and the U.S.
Capital expenditures in both periods related primarily to the
Company's oil and gas exploration and development activities.
The Company believes cash flows, including proceeds from
divestitures, and existing credit facilities will be sufficient
to meet capital and operating requirements, including any
contingencies, during 1997.
In January 1997, the Company entered into a sale-leaseback
agreement for $87.9 million (net) involving 145 natural gas compressors
in Anadarko's major mid-continent gathering systems. Proceeds
from the transaction were used for general corporate purposes.
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 June 25, 1997 to stockholders of
record on June 11, 1997. Under the most restrictive provisions
of the various credit agreements, which limit the payment of
dividends by the Company, retained earnings of $399,102,000 were
not restricted as to the payment of dividends at March 31, 1997.
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.
Changes in Accounting Principles
Earnings per Share Statement of Financial Accounting Standards
(SFAS) No. 128 focuses on additional disclosures related to
earnings per share. SFAS No. 128 is effective for financial
statements for periods ending after December 15, 1997. Anadarko
does not expect SFAS No. 128 to have any material effect on its
calculations of earnings per share.
Exploration and Development Activities
During the first quarter of 1997, Anadarko drilled or
participated in a total of 126 wells, including 75 oil wells, 40
gas wells and 11 dry holes. This compares to a total of 61 wells
in the first quarter of 1996, including 32 oil wells, 13 gas
wells and 16 dry holes. Following is a description of
activity during the quarter.
12
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations (continued)
Domestic
Gulf of Mexico Production from the Mahogany platform reached
17,000 barrels of oil per day (BOPD) and 25 MMcf/d of gas from
two wells in April 1997. The operator is in the process of
completing the remaining two wells for production. All four
wells should be on production later this year. Drilling
will then resume on the fifth well, which was drilled to the top
of the salt structure and suspended to allow for installation of
the production platform in August 1996. Anadarko owns a 37.5-
percent working interest in the Mahogany Field.
An additional development well was drilled on the Company's East
Cameron 157 production platform. The East Cameron 157 A-6 well
flowed 32 MMcf/d of gas and 1,100 barrels of condensate per day
(BCPD). Additional compression was also installed on the
platform to increase production and recover additional reserves.
Anadarko is operator and owns a 100-percent working interest in
East Cameron 157.
In the first quarter of 1997, Anadarko drilled one successful
development well and repaired another well at the Brazos A-47
production platform. Both wells were placed on production.
Anadarko acquired this platform from partners in late 1996 and at
the time of the purchase, the platform was not on production.
Since that time, Anadarko has refurbished the platform and
production at Brazos A-47 has increased from zero to 11 MMcf/d of
gas.
At the Matagorda Island 623 Field, Anadarko is in the process of
maximizing field output through a replacement well drilling
program. Anadarko has authorized the drilling of three
replacement wells in 1997, of which two are currently drilling.
In addition, Anadarko plans to drill one development well in the
field in 1997. The three replacement wells should be on-line in
mid- to late-1997. The four-well program is expected to increase
field production by 100 MMcf/d of gas (gross). Anadarko owns a
37.5-percent working interest in the Matagorda Island 623 Field.
At Matagorda Island 587, the A-2 development well was recompleted
in another productive sand. Production from the well now
averages 5.2 MMcf/d of gas. Anadarko is operator and owns a 32.5-
percent working interest in the platform.
At the High Island 376 "B" production platform, a well was
recompleted in a new productive interval to increase production.
The High Island 376 "B" No. 1 well produced 1,960 BOPD and 2
MMcf/d of gas. Anadarko is operator and has a 33.8-percent
working interest in the platform.
The Company drilled a successful development well at Vermilion
78. The well increased prodcution by 15MMcf/d of gas and 370
BCPD. Anadarko owns a 37.5-percent working interest in the
platform.
13
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations (continued)
The Company purchased two additional lease blocks in the OCS
Lease Sale 166 on April 7, 1997. Anadarko was the apparent high
bidder on Green Canyon 608, a deepwater block, and Grand Isle 111
in the sub-salt play. The Company owns a 100-percent working
interest in the Green Canyon Block and is partnered 50 percent
with Shell Oil Company on Grand Isle.
Permian Basin Significant drilling activity in the Permian
Basin of west Texas helped increase Anadarko's Company-wide oil
and condensate production by 18 percent in the first quarter of
1997 compared to the first quarter of 1996. During the first
quarter of 1997, the Company drilled 88 wells in the Midland
Division, which is nearly half the total number of wells drilled
in the Division in 1996. During the first quarter of 1997,
drilling focused primarily on the following fields:
TXL South Unit -- 24 development wells were drilled in the TXL
South Unit as part of the Phase II drilling program. This field
is located in Ector County, Texas. Production from these wells
has helped to increase Unit production to 4,100 BOPD compared to
1,000 BOPD in mid-1996. Anadarko owns a 65-percent working
interest in the TXL South Unit.
Ketchum Mountain (Clearfork) Field -- In Irion County's Ketchum
Mountain (Clearfork) Field, 15 development wells were drilled and
completed. When connected to pipeline facilities, production
should increase from the current level of 1,760 BOPD to more than
2,000 BOPD. Anadarko owns an average 93-percent working interest
in the Field.
Sharon Ridge/Diamond M Field -- A total of 11 wells were
completed in the Sharon Ridge/Diamond M Field, located in Scurry
County, Texas, in the first quarter of 1997. Production
increased from 1,400 BOPD to 2,000 BOPD as a result of the
drilling program and the installation of additional waterflood
facilities. Anadarko owns a 100-percent working interest in this
Field.
Forbes Unit -- Five producers in the Forbes Unit of Crosby
County, Texas were completed during the first quarter of 1997.
Unit production increased from 180 BOPD to 500 BOPD. Anadarko
has a 65-percent working interest in the Forbes Unit.
The drilling programs in these fields continued in the second
quarter of 1997 with nine active drilling rigs at the end of
April compared to one active rig at the same time in 1996.
Hugoton Embayment During the first quarter of 1997, 23
development wells were drilled and 16 wells were recompleted in
the Company's Liberal Division. Of note is the Adams L-2 well,
located in the Eubank South Field of Haskell County, Kansas. The
well was initially completed flowing 7.7 MMcf/d of gas and is
today producing 12 MMcf/d of gas. The Lemon Trust "B" No. 1 well
flowed 2.2 MMcf/d of gas from the Chester interval. The Going "B"
No. 3 well, located in the Dunkle Field of Morton County, Kansas,
flowed 2.7 MMcf/d of gas. Anadarko owns a 100-percent working
interest in the three wells listed above. The Herbel "A" No. 4
well, located in the Hugoton Field of Stevens County, Kansas,
produced 950 thousand cubic feet per day (Mcf/d) of gas. Anadarko
owns a 93.3-percent working interest in the well.
14
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations (continued)
The Company's Hugoton Field infill drilling program also
continues, with nine wells completed and placed on production during
the first quarter of 1997. The Wilson "E" No. 2H, the Shell "A"
No. 2H and the Haar "A" No. 2H had initial production rates
ranging from 700-800 Mcf/d of gas. Two of the wells are located
in Morton County, Kansas and the other well is in Stevens County.
Anadarko owns a 97.5-percent working interest in each well. The
Bergner "A" No. 2H well, located in Morton County, Kansas, flowed
644 Mcf/d of gas. Anadarko owns a 97-percent working interest in
the well.
West Panhandle Field In the first quarter of 1997, 11
sidetrack wells were drilled and completed in the Field.
Combined production from these wells increased by 2 MMcf/d of
gas, or about 80 percent. Production from the 11 wells now
averages more than 3.2 MMcf/d of gas. Anadarko owns a 100-percent
working interest in the wells and lateral completions will
continue throughout 1997.
International
Sahara Desert, Algeria First oil production from the
Company's Algerian assets is still on-track for early 1998.
Construction of production facilities is underway at the Hassi
Berkine South Field (HBNS), located on Block 404 in the Sahara
Desert. Commerciality planning is underway with SONATRACH, the
national oil and gas enterprise of Algeria, and development of
the partners' other commercial fields will follow initial
production from the HBNS Field. An exploration program continues
on the Company's acreage and Anadarko plans to drill up to ten
wildcat wells during 1997.
The Red Sea, Eritrea During the first quarter of 1997,
Anadarko completed a 4,600 kilometer seismic program in the Red
Sea on the Zula Block. The seismic data will be processed and
modeled by the Company's geoscientists in Houston. Anadarko
expects to drill its first exploration well on the Zula Block
in early 1998.
The Basalt Plateau, Jordan Initial exploration activities are
underway on the Company's Safawi Block. In late 1996, Anadarko
conducted a magnetotelluric survey and reprocessed more than
1,000 kilometers of seismic data. The information will be used
to determine the location for two stratigraphic test wells
planned for 1997. Anadarko's operations personnel are working
with Jordan's National Petroleum Corporation to secure a drilling
rig for these wells.
In the first quarter of 1997, a subsidiary of Union Texas
Petroleum Corporation joined Anadarko as a partner in the Jordan
venture. Anadarko is operator and both companies have a 50-
percent interest.
Block 84, Peru In late April 1997, Anadarko completed the
Environmental Impact Statement for Block 84 in the Ucayali Basin
of Peru. The document should be presented to the Ministry in May
1997. Once approved, the Company plans to begin a 1,200
kilometer seismic survey. The seismic program should
begin this summer. Anadarko is currently conducting
informational meetings about the seismic program with the
inhabitants of the Block.
15
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations (continued)
North Atlantic, U.K. Tranches 21, 61 and 63 In April 1997,
Anadarko was awarded interests in three deepwater tranches
offshore Shetland Islands in the North Atlantic. Operators are
Fina, Mobil and Phillips, respectively. This is a new
exploration area for the Company.
16
Part II. OTHER INFORMATION
Item 1. Legal Proceedings
Kansas Ad Valorem Tax The Natural Gas Policy Act of 1978 (NGPA)
allows 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
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 were denied November 6, 1996. The Company, along with
other gas producing companies, subsequently filed a petition for
writ of certiorari with the United States Supreme Court seeking to
limit the scope of the potential refunds to tax bills rendered on
or after June 28, 1988 (the effective date originally selected by
FERC). Williams Natural Gas Company filed a cross-petition for
certiorari seeking to impose refund liability back to December 1,
1978. Both petitions were denied on May 12, 1997.
Anadarko estimates the maximum amount of principal and interest at
issue which has not been paid to date and assuming that the October
1983 effective date remains in effect, is about $38,000,000 (pre-
tax) as of March 31, 1997. Of this amount, up to $36,000,000 (pre-
tax) is at issue in the FERC petition for adjustment and the
litigation with PanEnergy Corp et al. (PanEnergy) discussed below.
17
Item 1. Legal Proceedings
Kansas Ad Valorem Tax (continued)
The Company along with other gas producing companies, filed a
petition for adjustment with FERC on May 12, 1997. In so doing the
Company is seeking waiver of all interest which might otherwise be
due. The total interest at issue is approximately $23,000,000 (pre-
tax). On May 13, 1997 the Company also filed a lawsuit in the
Federal District Court for the Southern District of Texas against
PanEnergy seeking a declaration that pursuant to prior agreements
Anadarko is not required to issue refunds to PanEnergy for the
principal amount of $14,000,000 (pre-tax) and, if the petition for
adjustment discussed above is not granted in its entirety by FERC
with respect to PanEnergy refunds, interest in an amount up to
$22,000,000 (pre-tax) as of March 31, 1997. The Company also seeks
from PanEnergy the return of $816,000 of the $830,000 (pre-tax)
charged against income in 1993 and 1994. The Company is unable at
this time to predict the final outcome of this matter and no
provision for liability (excluding the amounts recorded in 1993 and
1994) has been made in the financial statements.
18
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
*10 Agreement for Exploration and Exploita-
tion of Liquid Hydrocarbons between
Anadarko Algeria Corporation and Sonatrach,
dated October 23, 1989. (Confidential
treatment requested for certain pro-
visions pursuant to Rule 24b-2 under
the Securities Exchange Act of 1934.)
*27 Financial Data Schedule
(b) Reports on Form 8-K
There were no reports filed on Form 8-K for the three months
ended March 31, 1997.
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)
[MICHAEL E. ROSE]
May 14, 1997 Michael E. Rose - Senior Vice President,
Finance and Chief Financial Officer
19