Filed by Anadarko Petroleum Corporation
Pursuant to Rule 425 under the Securities Act of 1933
and deemed filed pursuant to Rule 14a-12
of the Securities Exchange Act of 1934
Subject Company: Union Pacific Resources Group Inc.
Commission File No. 1-13916
FIRST QUARTER REPORT 2000
A-Magazine
[Three photographs of individuals at work]
ANADARKO AND UPR TO MERGE
At exactly 5:38 a.m. CST on April 3, Anadarko Petroleum Corporation and
Union Pacific Resources Group Inc. (UPR) signed a definitive agreement that will
create one of the largest independent E&P companies in the world. While the
merger essentially doubles the size of Anadarko, it's not about being
bigger...but being the best E&P company in the world. While some efficiencies
will be created, the agreement is not about cost savings or downsizing...but
blending two companies with complementary strengths, portfolios and
philosophies. This issue of A-Magazine offers a comprehensive review of the
details of the merger as well as a look at what it means for shareholders of
both companies.
PULL QUOTE:
"THIS IS THE BIGGEST EVENT IN OUR HISTORY SINCE THE PANHANDLE SPIN-OFF IN 1986.
WE HAVE LITERALLY DOUBLED RESERVES AND TRIPLED CASH FLOW OVERNIGHT; AND, IN THE
PROCESS, GAINED ACCESS TO THE PROSPECTS, TECHNICAL EXPERTISE AND FINANCIAL
RESOURCES THAT WILL LEAD TO FASTER GROWTH AND GREATER PROFITABILITY THAN EITHER
COMPANY COULD HAVE ACHIEVED INDIVIDUALLY."
- ROBERT J. ALLISON, JR.
ANADARKO CHAIRMAN AND CEO
ANADARKO PETROLEUM CORPORATION
Exploration and Production Programs.......................................2
The North American Gas Story..............................................3
Exceptional Asset Portfolio.............................................4-9
Merger Brings Together Best & Brightest...................................9
Stormy Weather Adds "Twist" to Negotiations..............................10
Combination Offers Attractive Financial Benefits.........................10
Fast-Forward.............................................................11
Hundreds Gather for Annual Meeting.......................................11
Stockholders' Calendar...................................................11
News Around Anadarko..................................................12-13
First Quarter 2000 Earnings..............................................14
Summary Financial Data...................................................15
A-Magazine ANADARKO PETROLEUM CORPORATION
MERGER COMBINES WORLD-CLASS
EXPLORATION AND PRODUCTION PROGRAMS
COMBINED COMPANY TO HAVE BROADER GROWTH
PORTFOLIO AND GREATER FINANCIAL STRENGTH
[Photograph of individual at work]
Anyone evaluating the strengths and weaknesses of Anadarko and UPR would be
hard-pressed to find two companies better suited to join forces. Having
discovered more than a dozen giant oil fields all over the world in the past 20
years, Anadarko's exploration prowess is well documented. However, developing
those major finds required increasing amounts of capital, which limited the
Company's ability to drill other promising prospects. This "OPPORTUNITY RICH,
CASH FLOW POOR" situation created a formidable challenge to the Company's plans
to continue making the discoveries that would be crucial to maintaining
double-digit growth beyond 2002.
On the other side of the table, UPR has established a solid reputation for
profitable exploitation using industry-leading drilling and completion
technology. Over the past five years, UPR has drilled about 4,000 wells and
between 1996 and 1999, was completing about two wells per day. The company also
boasts a tremendous acreage position in some of the most prolific basins across
North America, not to mention strong cash flow--estimated to be more than $1.2
billion for the year 2000. Despite these advantages however, UPR's ability to
drill in these promising areas has been constrained by a high debt load. Even
though the company had shaved its net debt by $1.8 billion over the past two
years, UPR still faced the prospect of limited drilling for the foreseeable
future.
"Both companies need to be revving up, not throttling back, on drilling
activity," said Allison. "With this merger, we create a capital structure that
should give us cash flow of around $2 billion--or $9 per share--in 2001, which
can be used to drill more wells and accelerate growth. Combine that with our
exploration expertise and UPR's strength in developing reserves, and the new
Anadarko will be in position to provide superior value for shareholders. I've
looked at a lot of potential acquisitions, but never saw a combination I liked
better than Anadarko by itself...until now."
Allison added that Anadarko and UPR also share a common commitment to grow
through the drillbit and that will not change after the two companies become
one.
2
FIRST QUARTER 2000
THE NEW ANADARKO IS WELL-POSITIONED TO MOVE UP IN THE RANKINGS SINCE THOSE
CURRENTLY AHEAD OF THE COMPANY ARE NOT GROWING SUBSTANTIALLY IN NORTH AMERICA.
NORTH AMERICAN GAS RESERVES
[Bar graph illustrating the following information:
Proved Reserves,Tcf
-------------------
EXXON/MOBIL 16.3
BP AMOCO* 12.0
BURLINGTON 7.4
SHELL** 7.0
NEW ANADARKO 5.8
ARCO 5.2
TEXACO* 4.2
PENNZOIL 3.9
CHEVRON* 3.8
UPR 3.3
VASTAR 2.7
ENRON OIL & GAS 2.5
ANADARKO 2.5
CONOCO 2.2
MARATHON 2.1
DEVON 1.9
OXY 1.8
UNOCAL 1.7
APACHE 1.6
KERR McGEE 1.2]
NORTH AMERICAN GAS PRODUCTION:
[Bar graph illustrating the following information:
Bcf/year
------------------
EXXON/MOBIL 1,479
BP AMOCO 1,082
SHELL** 787
BURLINGTON 699
CHEVRON 669
NEW ANADARKO 634
TEXACO* 550
ARCO 540
UPR 464
VASTAR 401
PENNZOIL 380
UNOCAL* 329
CONOCO 316
ENRON OIL & GAS 281
MARATHON 275
OXY 242
APACHE 205
DEVON 199
KERR McGEE 191
ANADARKO 170]
* Data for U.S. only, Canadian data unavailable
** Data for 1998, total North American data for 1999 unavailable
NEW ANADARKO WRITES NEW CHAPTER
IN THE NORTH AMERICAN GAS STORY
One of the most far-reaching and lasting effects of the merger is the
expected impact it will have on North American gas. The combined company will
become the sixth-largest natural gas producer in North America and the
fifth-largest in terms of reserves, based on reported 1999 figures.
"Considering the current natural gas fundamentals, this merger couldn't
have come at a better time," said Dick Sharples, Vice President, Marketing for
Anadarko. "Prices and demand are both strong and projected to be even stronger
in the near future. What's more, there's simply not enough activity within the
industry to meet the demand for gas, making our prospects and drilling expertise
that much more valuable."
The NYMEX strip price, for example, is averaging more than $3 per Mcf for
the next 12 months. This compares to $2.60 per Mcf for the previous 12 months
and $1.50 for the past five-year period.
Rising industrial activity throughout the world, particularly for electric
power generation, is contributing to the higher demand for natural gas. In fact,
many electric plants are moving to natural gas as a way to address environmental
concerns.
In Texas alone, new power plants are being built at a rate that will
quickly drain the state's gas supply. Gas-fired electrical plants in Texas are
expected to consume nearly 10 times more gas than current levels over the next
three years as projected output increases from 3,000 megawatts to 28,700
megawatts. (SOURCE: TEXAS RAILROAD COMMISSION)
Set against this growing global appetite for natural gas is a domestic
deliverability deficit expected to approach 3 Bcf/d (net) in 2000 on an
annualized basis. Higher levels of drilling, while not expected to erase the
anticipated shortfall in gas supplies any time soon, will create exciting
possibilities for the new Anadarko. The combined company will have access to
opportunities on its existing acreage having unrisked potential reserves of 48
Tcf of gas.
[Photograph of natural gas production facility]
CAPTION: OVER THE NEXT FEW YEARS, THE BOSSIER SAND PLAY WILL CONTINUE TO BE A
VITAL COMPONENT OF ANADARKO'S STRATEGY TO CAPITALIZE ON THE STRONG NATURAL GAS
MARKET. DURING THE FIRST QUARTER, THE COMPANY ADDED ANOTHER 25,000 ACRES TO ITS
LEASEHOLD POSITION IN THE PLAY, WHICH NOW EXTENDS BEYOND EAST TEXAS AND INTO
LOUISIANA.
3
A-Magazine ANADARKO PETROLEUM CORPORATION
EXCEPTIONAL ASSET PORTFOLIO OPENS UP NEW CORE AREAS,
CREATES ADDITIONAL OPPORTUNITIES IN EXISTING AREAS
One of the key drivers of the merger was the attractive asset portfolio
that would be created. It features a broader, more balanced mix of projects with
very little overlap and access to a land position that is unmatched in the
industry. North America will account for about 80% of the reserves in the new
Anadarko, with the remaining 20% in international sources. Reserves will be
evenly split between crude oil and natural gas. Following the merger, the new
Anadarko will be the most active driller in North America, with more than 50
rigs running.
"The combination of Anadarko and UPR will provide the new company with
enough critical mass to control its destiny in select core areas around the
world crucial to long-term growth and strong returns for shareholders," said
John Seitz, Anadarko President and Chief Operating Officer.
The portfolio of the new Anadarko will be comprised of projects that
stretch across seven core areas and will have proved reserves of nearly two
billion energy equivalent barrels. In addition, exploration, development and
exploitation opportunities have already been identified throughout the combined
acreage that could add more than 11 billion energy equivalent barrels (net
unrisked).
NORTH AFRICA
In Algeria, Anadarko has discovered 12 oil fields with estimated recovery
of more than two billion barrels. Net volumes from the one production train
currently operating was about six million barrels in 1999 and should be about
eight million barrels in 2000. Algeria will continue to anchor Anadarko's
international program, but the Company also is active in Tunisia, pursuing the
trend that produced the Algerian discoveries. The first Anadarko-operated well
in Tunisia is expected to spud on the 1.4 million acre Anaguid Block in early
2001.
[One photograph and one inset photograph of oil production facility]
CAPTION: ANADARKO'S FOCUS IN ALGERIA IS ON DEVELOPING THE OIL FIELDS IT HAS
DISCOVERED OVER THE PAST DOZEN YEARS. CONSTRUCTION IS UNDERWAY ON ADDITIONAL
PRODUCTION FACILITIES THAT SHOULD INCREASE THE COMPANY'S NET PRODUCTION TO ABOUT
25 MILLION BARRELS PER YEAR IN 2002.
4
FIRST QUARTER 2000
The Company has a 33.3% interest in the Anaguid Block, which will revert
to a 16.67% interest if ETAP (Tunisia's national oil company) exercises its
option to back into the project.
In the Jenein Nord Block immediately adjacent and to the south of Anaguid,
Anadarko and Agip (operator) plan to spud a well in the second quarter of 2000
that will target the TAGI sand. The Company has a 50% interest in the
384,000-acre Jenein Nord Block, prior to back-in by ETAP.
CENTRAL AND SOUTH AMERICA
Following the merger, the combined company will have a key asset base in
Guatemala, Brazil, Argentina and Venezuela. UPR's Oritupano-Leona Block in
Venezuela and the Xan Field in Guatemala will be the foundation of Anadarko's
efforts in Central and South America. Current production from Oritupano-Leona is
about 40,000 BOPD (gross) and could increase significantly over the next five or
six years. The new Anadarko will have a 45% interest in the Block. The Xan
Field, which will be 100%-owned by Anadarko, currently produces about 20,000
BOPD. In addition, the combined Company will hold interests in several other
blocks in Argentina, Brazil and Venezuela. This asset base provides a platform
from which to pursue additional opportunities in the region. Latin America is
resource-rich with rapidly developing economies and a stable political
environment.
CANADA AND ALASKA
In some ways, the core area comprised of UPR's holdings in western and
northern Canada and Anadarko's Alaska properties defies categorization. It
covers oil and gas projects; there is exploration, development and exploitation
under way; and it is both foreign and domestic. One certainty, however, is the
way the two sets of holdings complement each other. In Alaska, Anadarko has
access to more exploration acreage than any other E&P company operating in the
state. The Company is preparing for first production from the giant Alpine Field
on the North Slope, expected to begin in the third quarter of 2000. UPR brings a
solid production base and a new leasehold position to the merger in the western
basins of Canada and in the MacKenzie Delta/Beaufort Sea area. Canada offers
enormous reserve potential. In fact, the exploration prospects alone that have
been identified so far on the existing Canadian leasehold offer the potential
for 290 million energy equivalent barrels (unrisked). The new Anadarko plans to
significantly expand its exploration position in the most prospective play
areas.
THE NEW ANADARKO OIL PRODUCTION
[Pie chart illustrating the following information:
U.S. Onshore 50%
Latin America 22%
Canada 15%
Algeria 8%
U.S. Offshore 5%]
THE NEW ANADARKO GAS PRODUCTION
[Pie chart illustrating the following information:
U.S. Onshore 70%
Canada 16%
U.S. Offshore 14%]
[Map of North America indicating activity areas and land grants. The following
areas are highlighted: Cook Inlet, North Slope, Beaufort Seal Mackenzie Delta,
Western Canada, Rockies, Mid Continent, Permian Basin, Gulf Coast, Gulf of
Mexico]
CAPTION: THE COMBINED COMPANY WILL BE ONE OF THE LARGEST LANDHOLDERS IN NORTH
AMERICA WITH MORE THAN 19 MILLION NET ACRES OF OIL AND GAS RIGHTS EITHER OWNED
OR UNDER LEASE OR OPTION.
5
A-Magazine ANADARKO PETROLEUM CORPORATION
EXCEPTIONAL ASSET PORTFOLIO, CONTINUED
[Photograph and inset photograph of land]
[Map of Wyoming, Utah and Colorado indicating gas fields, oil fields, coal beds,
active coal bed projects and land grants.]
CAPTION: THE THREEE STATES COMPRISING THE ROCKY MOUNTAIN CORE AREAS FEATURE A
A RICH VARIETY OF EXPLORATION AND EXPLOITATION OPPORTUNITIES.
ROCKY MOUNTAINS
The Land Grant or "UP strip," as it is often called, is one of the most
intriguing and versatile pieces of the Anadarko/UPR merger. The area covers more
than 7.5 million acres in Utah, Colorado and Wyoming that were given to Union
Pacific Railroad by President Abraham Lincoln in the 1860s to help promote
construction of the first transcontinental railroad in the U.S. The area is
roughly the size of New Jersey. The railroad's subsidiary, Union Pacific
Resources Corporation, began exploring the Land Grant acreage for oil and gas in
the early 1970s and has since discovered several giant (at least 100 MMEEBs) oil
and gas fields. Yet, 75% of the Land Grant area remains underexplored and
undeveloped.
In addition to the vast hydrocarbon potential, the Land Grant holds giant
deposits of non-metallic minerals, including environmentally preferred
low-sulfur coal and the world's largest deposits of trona (soda ash). More than
17 million tons of trona are currently being mined annually in southwest
Wyoming, for which the new Anadarko will receive royalty payments.
One of the richest parts of the UP strip is a 4.5-million acre area of
southern Wyoming and Utah in the heart of the prolific Green River Basin and the
Wyoming Overthrust Belt. These areas have already produced more than 10 trillion
cubic feet of gas and 400 million barrels of oil. Based on the 1995 NATIONAL
ASSESSMENT OF U.S. OIL AND GAS RESERVES, conducted by the United States Geologic
Survey, the mean undiscovered recoverable reserves
6
FIRST QUARTER 2000
are about 24 Tcf of gas (4 billion energy equivalent barrels) net to the Land
Grant. The majority of these potential reserves occur in over-pressured basin
center gas accumulations. The acreage offers an exciting mix of possibilities,
including: 1) exploration for basin center gas plays; 2) horizontal drilling for
deep, tight gas sands below 15,000 feet and; 3) thrust belt exploration using
modern 3-D seismic depth imaging techniques.
In addition to the conventional oil and gas plays, the Wyoming Land Grant
overlies the richest potential in-place coalbed methane basins in the United
States. According to the 1998 biennial report of the Potential Gas Committee,
POTENTIAL SUPPLY OF NATURAL GAS IN THE UNITED STATES, there are 2.5 Tcf of
recoverable undiscovered coalbed methane resources in the Green River Basin
above 6,000 feet drill depth. About 1.6 Tcf would be net to the Land Grant.
Considering that the acreage covers a portion of the Hanna and Carbon basins,
the area may hold yet more potential--as much as another 1.1 Tcf of undiscovered
recoverable gas resources, according to the Potential Gas Committee. About half
of that, or 550 Bcf, would be net to the Land Grant. The Potential Gas Committee
is a volunteer organization composed of industry, government and academic
organizations that has published a report every two years since 1964
benchmarking potential gas reserves in the United States.
MID-CONTINENT
A separate extension of Anadarko's Mid-continent core area lies within
UPR's Land Grant acreage in southeast Colorado. The area features the same
channel sands that extend into the Company's extensive property holdings in
southwest Kansas. Known for its strong position in the shallow Hugoton Field,
Anadarko has also been the most active operator exploring for deeper oil and gas
zones, including the Chester, Morrow and St. Louis intervals. Over the past five
years, Anadarko has drilled 400 wells in southwest Kansas and discovered about
20 million energy equivalent barrels of reserves. The same 3-D seismic
technology that has been instrumental in building that successful track record
can be applied to the new acreage in Colorado, where field sizes range from one
million to 40 million barrels.
TEXAS/LOUISIANA
Throughout Texas and into Louisiana, Anadarko and UPR hold attractive
acreage positions in prime oil and gas basins that feature a variety of
exploration and exploitation programs. One area that stands out is East Texas,
where UPR holds significant producing properties and exploration leases. Also of
interest is UPR's leases in the Austin Chalk Play. While existing production
provides an important source of cash flow and ongoing exploitation potential,
Anadarko is also interested in the exploration potential below the chalk.
Following the merger, the new company will hold 750,000 acres of prime leases in
the heart of this largely untested deeper play area.
This position will be a strong addition to Anadarko's successful program in
the prolific Bossier Play, where the Company currently has 21 rigs in operation
and plans to continue expanding activity throughout the year. Anadarko is also
committed to building its Bossier leasehold position, which exceeds 100,000
acres. The growth in the Company's production from the area has been dramatic.
In 1997, Anadarko produced 2 Bcf of gas from the Bossier Play. That number is
expected to reach 60 Bcf in 2000 and is predicted to increase another 50% to 90
Bcf in 2001. Anadarko's net Bossier production at the end of the first quarter
was 135 MMcf/d. The Company continues to chase the limits of the play, which now
extend into Louisiana. That tremendous running room and the Company's technical
expertise give Anadarko strong confidence that the growth over the next three
years will be even more impressive.
THE NEW ANADARKO OIL RESERVES
[Pie chart illustrating the following information:
U.S. Onshore 38%
Algeria 30%
Latin America 16%
Canada 10%
U.S. Offshore 6%]
THE NEW ANADARKO GAS RESERVES
[Pie chart illustrating the following information:
U.S. Onshore 69%
Canada 17%
U.S. Offshore 13%
Latin America 1%]
[Map of Texas and Louisiana with the following areas highlighted: West
Panhandle, Permian Basin, Giddings-Austin Chalk,Bossier, Carthage, LA Chalk,
Vernon Field, Masters Creek, Etoufee, Turtle Soup Currently Drilling]
CAPTION: THROUGHOUT TEXAS AND LOUISIANA, EACH COMPANY HAS BUILT STRONG POSITIONS
IN THEIR RESPECTIVE AREAS THAT WILL COMPLEMENT EACH OTHER FOLLOWING THE MERGER.
7
A-Magazine ANADARKO PETROLEUM CORPORATION
EXCEPTIONAL ASSET PORTFOLIO, CONTINUED
[Two photographs and one inset photograph of drilling facilities located on
water]
CAPTION: THE MERGER WILL ENHANCE ANADARKO'S ALREADY STRONG GULF OF MEXICO
PROGRAM, WHICH INCLUDES A MIX OF TRADITIONAL SHALLOW WATER AREAS AND
NON-TRADITIONAL PLAYS SUCH AS THE SUB-SALT AND DEEPWATER.
GULF OF MEXICO
The combination of Anadarko and UPR will create one of the largest players
in the Gulf of Mexico, with interests in 357 blocks covering 1.5 million gross
acres (gross). The number of blocks is expected to reach 390 when the results of
the recent Outer Continental Shelf (OCS) Lease Sale are approved by the federal
government. (SEE STORY PAGE 12) Now, the Company will have the financial
resources to apply that expertise to even more drilling projects. The new
Anadarko will focus on three main plays:
8
FIRST QUARTER 2000
[SIDEBAR]
MERGER BRINGS TOGETHER THE BEST AND THE BRIGHTEST
In addition to the portfolio advantages and financial clout created by the
merger, there is one other important component that makes this combination of
companies so promising--complementary skill sets. This is a function of people
and technology. Each company is staffed by some of the most talented and
dedicated people in the business, to be sure, but more importantly, Anadarko and
UPR continue to master the technologies that have been the foundation of their
success. UPR, for example, is synonymous with horizontal drilling, having
drilled more than 2,500 horizontal wells in the past five years alone.
Anadarko's accomplishments in seismic imaging and commercially successful
exploration are second to none. The combination of these and many other
strengths will help make Anadarko a more formidable player within the E&P
industry.
[END OF SIDEBAR]
[Photograph of drilling facility located on water]
1. CONVENTIONAL PROJECTS - These typically consist of new wells drilled
from existing platforms using new seismic data. This would include recompletions
and workovers which usually have short cycle times and can often be brought on
production within a year because of the existing infrastructure.
2. SUB-SALT EXPLORATION - Anadarko has built an impressive track record of
success in the sub-salt. Over the last seven years, the Company has discovered
four fields and has achieved a 31% success rate in the play. An additional three
wells have encountered hydrocarbons. Those potentially commercial fields could
increase Anadarko's success rate to 54%. Anadarko currently holds 25 sub-salt
exploration prospects in the Gulf with potential reserves of more than one
billion barrels. As many as five of them could be drilled during 2000. The
second delineation well at the Hickory discovery again proves Anadarko's ability
to drill sub-salt wells quickly and efficiently (SEE STORY, PAGE 13), and
complements its leadership position in sub-salt exploration.
[Photograph of drilling facility located on water]
3. DEEPWATER - Recently announced results from the Marco Polo prospect
(SEE STORY, PAGE 12) marked Anadarko's first Company-operated deepwater
initiative. With the merger, the new Anadarko holds 26 prospects representing
potential reserves of two billion barrels (net unrisked) in the deepwater play.
9
A-Magazine ANADARKO PETROLEUM CORPORATION
[SIDEBAR]
STORMY WEATHER ADDS CHALLENGING "TWIST" TO NEGOTIATIONS
An office cubicle seems an unlikely spot to finalize a multi-billion dollar
merger, but that was the best option available to UPR representatives after a
violent storm rolled through the Fort Worth area just a few days earlier. The
system spawned a tornado that damaged UPR's 40-story headquarters building,
leaving it too unstable to occupy.
The merger team chose to relocate its base of operations to a remote
location equipped with at least some of the necessities required to work on the
deal: phones, fax machines, networked computers and copiers. Keeping the
equipment in running order was a job in itself. For instance, technicians spent
much of their time vacuuming out bits of glass, dust and debris that had been
forced inside the computers by the storm. Additional equipment was brought in to
accommodate the 25-30 employees now working in a space designed for 10. Whenever
it became necessary to retrieve files from the headquarters, a few individuals
were provided with hard hats and escorted inside for a few minutes at a time. It
wasn't until the last week in April that full operations at the headquarters
resumed.
[Anadarko logo]
[UPR logo]
[END OF SIDEBAR]
COMBINATION OFFERS ATTRACTIVE FINANCIAL BENEFITS
From a financial standpoint, the Anadarko/UPR combination will provide some
substantial and immediate advantages. Even with purchase accounting, the merger
is expected to be accretive to earnings. If the companies were combined for the
full year 2000, the Anadarko/UPR combination would result in estimated cash flow
of about $1.8 billion.
Bringing the two companies together also will result in a stronger balance
sheet and greater access to capital markets. Using March 31, 2000 closing stock
prices, the combined companies would have total capitalization of $10 billion,
comprised of $5.9 billion in equity and $4.1 billion in debt on a pro-forma
consolidated basis as of year-end 1999. This would reflect a very manageable
debt-to-capitalization ratio of 41%. The average maturity life of the debt is 21
years and the average annual interest rate is 7.11%
Under the terms of the merger agreement, UPR shareholders will receive .455
common shares of Anadarko stock for each UPR common share they own. Based on
Anadarko's March 31, 2000 closing price of $38.6875, the transaction has an
implied value to UPR shareholders of $17.60 per share. This represents a 21%
premium to UPR's closing price on March 31, 2000. As a result, Anadarko
shareholders will own about 53% of the combined company's approximately 243
million outstanding shares, and UPR stockholders will own the remaining 47%.
Approval of the stock-for-stock transaction by shareholders of both
companies and the appropriate regulatory agencies is expected in July. After the
merger is completed, UPR will be a wholly owned subsidiary of Anadarko. Robert
J. Allison, Jr. will remain as Chairman and CEO of the combined company and
George Lindahl III, current UPR Chairman, President and CEO, will serve as Vice
Chairman of the new Anadarko. John N. Seitz will continue as President and COO.
Five members of UPR's board of directors are expected to join the Anadarko board
after the merger, subject to shareholder approval of the increased number of
directors. With combined year-end 1999 reserves of 1.94 billion energy
equivalent barrels, the new Anadarko will rank as the largest independent
exploration and production company in the world. The headquarters will remain in
the Houston area and it is expected that most UPR employees will be offered a
position within the new company.
10
FIRST QUARTER 2000
FAST-FORWARD
Anadarko and UPR have achieved much on their own, but together the two
companies will be in a position to grow even faster and more profitably. The
Company will now have a broader and more balanced portfolio of exciting projects
as well as the cash flow to drill them. In short, this merger accelerates and
assures Anadarko's ability to continue growing well into the future while
providing strong financial returns to its shareholders. Plus, considering the
fact the combined company will be well-positioned to help meet the country's
growing energy needs, particularly for natural gas, it's clear that the merger
is a good deal for consumers, as well.
HUNDREDS GATHER FOR ANNUAL MEETING
The more than 700 Anadarko stockholders at this year's annual meeting--held
April 27 at the Wyndham Greenspoint Hotel in Houston--had good reason to be
upbeat about the Company's performance in 1999. Commodity prices, which had
slumped to their lowest levels in more than a decade during 1998, were in a
full-fledged turnaround by the second quarter of 1999; by the end of the year,
Anadarko's net income had improved substantially and revenues reached record
levels.
Operationally, the Company continued its strong track record of
achievement, replacing production with new reserves for the 18th consecutive
year and at favorable finding costs.
In his remarks, Anadarko Chairman and CEO Robert J. Allison, Jr. touched on
the merger with UPR, which he said will create a new Anadarko positioned to grow
even faster and more profitably in the years ahead.
Allison was one of three members of the Anadarko Board of Directors
re-elected during the annual meeting to a three-year term expiring in 2003. The
others were Anadarko President John N. Seitz and Director Conrad P. Albert, a
private investor.
STOCKHOLDERS' CALENDAR 2000
MAY 31
MORGAN STANLEY NORTH AMERICAN E&P CONFERENCE
Toronto, Royal York Hotel
JUNE 22
BANC OF AMERICA ENERGY CONFERENCE
Houston,Houstonian
JULY 27
ANADARKO SECOND QUARTER EARNINGS RELEASE
(DATE SUBJECT TO CHANGE)
AUGUST 7-9
ENERCOM OIL & GAS CONFERENCE
Denver, Petroleum Club
SEPTEMBER 6-8
LEHMAN BROTHERS ENERGY CONFERENCE
New York, Milennium Hotel
SEPTEMBER 18-21
DAIN RAUSCHER ENERGY CONFERENCE
Houston, Westin Galleria Hotel
SEPTEMBER 18-22
BANC OF AMERICA INVESTMENT CONFERENCE
San Francisco, Ritz Carlton Hotel
OCTOBER 26
ANADARKO THIRD QUARTER EARNINGS RELEASE
11
A-Magazine ANADARKO PETROLEUM CORPORATION
NEWS AROUND ANADARKO
ANADARKO DISCOVERS OIL AT MARCO POLO
ADDITIONAL DRILLING NEEDED TO DETERMINE COMMERCIALITY
Based on results from the Marco Polo prospect, Anadarko has made quite a
splash with its first Company-operated deepwater project. The Green Canyon Block
608 No. 1 well, located 160 miles off the Louisiana coast in 4,300 feet of
water, encountered 320 feet of oil pay in two major intervals while being
drilled to total depth of 14,500 feet. Formation tests recovered 30-degree API
gravity oil. The well is currently being sidetracked to further evaluate the
discovery.
"We still have some work to do in order to confirm the commerciality of the
field, but these initial results are very encouraging and provide us with strong
momentum as we move forward with our deepwater program," said Allison.
He added that the deepwater program is an important component of Anadarko's
overall strategy in the Gulf of Mexico and that the Company is committed to
building an acreage position that offers additional drilling opportunities in
the play. In the latest OCS Lease Sale, for instance, Anadarko was the apparent
high bidder for nine deepwater blocks, including Green Canyon Block 652,
immediately south of the 100% Anadarko-owned Marco Polo discovery well.
COMPANY MOST ACTIVE BIDDER IN GULF OF MEXICO LEASE SALE
During the federal OCS Lease Sale No. 175 conducted by the Minerals
Management Service (MMS) recently, Anadarko was the apparent high bidder for
33 blocks in the central Gulf of Mexico, nine of which are located in the
deepwater region. The tracts cover 166,482 acres (gross) and range in water
depth from 229 feet to 4,400 feet.
Working alone and with partners, Anadarko was successful on all but one of
its bids, representing a net investment of $24.9 million. All bids are subject
to review and final approval by the MMS.
[Photograph of drilling facility located on water]
CAPTION: USING TRANSOCEAN'S RICHARDSON SEMI-SUBMERSIBLE RIG, ANADARKO WAS ABLE
TO REACH THE OBJECTIVE HORIZONS IN JUST 17 DAYS AFTER INITIAL SPUD AND AT A COST
OF AROUND $7 MILLION, SIGNIFICANTLY BELOW AVERAGE FOR A WELL OF THIS TYPE.
[Map of coastline of Texas, Louisiana and Mississippi indicating "Existing APC
Blocks" and "Acquired APC Blocks from Lease Sale"]
12
FIRST QUARTER 2000
NEWS AROUND ANARKARKO CONTINUED
[SIDEBAR]
HICKORY PAY ZONE EXTENDED
The second development/delineation well (Grand Isle Block 116 No. 2)
drilled in the Company's Hickory Field recently, encountered main pay zones
significantly downdip of the original discovery well (Grand Isle Block 116 No.
1) located about one mile to the north. The results indicate that the area of
reserves is larger than previously thought. Anadarko and its partners, Shell and
Ocean Energy, now plan to drill a third delineation well in the fault block that
should add significant incremental production from the Hickory Field at
start-up, which is expected in the fourth quarter of 2000. A separate
exploration well has been approved for Grand Isle Block 111 and will begin
drilling once the work on Block 116 is complete. The Grand Isle 116 No. 2 well
reached a total depth of more than 18,000 feet--which included penetrating a
section of salt 8,000 feet thick--in only 38 days, about half the time that
would normally be expected and at about half the cost.
"The knowledge and experience we've acquired through our sub-salt program,
particularly in the areas of drill bit and mud technology, contributed
significantly to the efficiencies that we have achieved," noted John Seitz,
Anadarko President and COO. The Company also applied its expertise in sub-salt
directional drilling, viewed by the industry as a major challenge of the play.
Anadarko (operator) owns a 50% working interest in Grand Isle Blocks 110, 111
and 116 along with partners Shell (37.5%) and Ocean Energy (12.5%).
[END OF SIDEBAR]
COMPANY MAKES DEBT OFFERING
In an effort to fix floating interest rates and redeem another issue,
Anadarko recently sold 20-year, zero coupon convertible debentures in a public
offering. The debentures were priced with a yield to maturity of 3.50% and an
initial conversion premium of 40%. The sale resulted in gross proceeds to the
Company of approximately $345 million.
Each debenture was issued at a price of $499.60 and accrues interest at
3.50% to reach a principal amount of $1,000 at maturity. Anadarko will pay no
interest prior to maturity, and has the right to call the debentures after three
years for a price equal to the issue price plus accrued interest to the date of
redemption. The debentures are convertible at the option of the debenture holder
into shares of Anadarko stock at a fixed ratio per debenture.
[Photograph of jacket]
CAPTION: CONSTRUCTION OF THE JACKET (ABOVE) AND THE PRODUCTION PLATFORM (BELOW)
TO DEVELOP THE HICKORY FIELD IS ON SCHEDULE FOR A THIRD QUARTER 2000
INSTALLATION.
[Photograph of production platform]
13
A-Magazine ANADARKO PETROLEUM CORPORATION
FIRST QUARTER 2000 RESULTS
Anadarko Petroleum Corporation reported substantially higher financial and
operating results for the first quarter of 2000. Earnings were 31 cents per
share (basic) compared to a loss of 19 cents per share in the first quarter of
1999.
"Our strong first quarter results reflect the tremendous recovery in
commodity prices, along with a modest increase in our production volumes," said
Robert J. Allison, Jr., Anadarko Chairman and Chief Executive Officer. "We
anticipated this recovery in oil and gas prices, which has resulted, at least in
part, from last year's industry-wide slashing of capital expenditures. With
demand for hydrocarbons undiminished, this inevitably helped lead to tighter
supplies and higher prices."
"We'll take continued advantage of these higher prices with increasing
natural gas production from the Bossier Play in East Texas and with initial gas
production from the Hickory Field in the Gulf of Mexico. We'll also produce more
oil -- with initial production both from the Alpine Field in Alaska and the
Tanzanite Field in the Gulf of Mexico."
For 2000's first quarter, Anadarko reported net income available to common
stockholders of $39.1 million on revenues of $247 million. By comparison, during
1999's first quarter, Anadarko had a net loss of $23.l million on $136 million
of revenues. The loss in the first quarter of 1999 reflected a non-cash charge
of $20 million before taxes ($12.8 million after taxes) related to operations in
Eritrea. Excluding the foreign impairment, the Company's net loss for the first
quarter of 1999 was $10.3 million, or 8 cents per share (basic).
The improved revenues and earnings in the first three months of 2000
compared to the same period a year ago were due primarily to the significant
improvement in commodity prices, partially offset by higher operating expenses,
administrative and general costs, and interest expense.
FIRST QUARTER PRODUCTION
During the first quarter of 2000, Anadarko produced 13.2 million energy
equivalent barrels, up 2% from 12.9 million barrels in 1999's same period.
Anadarko's oil production for the first three months of 2000 averaged
42,000 barrels of oil per day, compared to 44,000 barrels per day in 1999's
first quarter. Anadarko's average oil price for the first quarter of 2000 was
$26.34 per barrel, up nearly 150% from $10.60 per barrel a year ago.
During 2000's first quarter, Anadarko's natural gas production was
essentially level with 1999's same period. Gains in production from the Bossier
gas play offset production declines in the Gulf of Mexico. The Company's
wellhead price for natural gas was $2.46 per thousand cubic feet (Mcf) for the
first three months of 2000, up 55% from $1.59 per Mcf a year ago.
In the first three months of 2000, the Company's natural gas liquids
(NGLs) sales volumes averaged 22,000 barrels per day, a 22% gain from 18,000
barrels per day in 1999's corresponding quarter. The Company's average price for
NGLs was $20.73 per barrel in 2000's first quarter, up 141% from $8.60 per
barrel in 1999's first three months.
FIRST QUARTER OPERATIONS HIGHLIGHTS
During the first quarter of 2000, Anadarko continued to post excellent
results from its Bossier Play in East Texas. The Company's net natural gas
production from the Bossier Play was 135 million cubic feet of gas per day at
the end of March 2000, up from 38 million cubic feet per day at the end of the
first quarter 1999.
In Algeria, work continued on a major expansion project that will boost
production from the Company's operations at the Hassi Berkine South and Hassi
Berkine Fields in 2001 and early 2002. Anadarko and its partners also are moving
ahead with development plans for the Ourhoud Field, with first production also
scheduled in 2002.
In Alaska, development facilities for the Alpine Field on the North Slope
are nearing completion. Initial production of 40,000 BOPD (gross) is expected
in the third quarter.
Work also continued on the production platforms for the Tanzanite and
Hickory Fields in the Gulf of Mexico. The platforms are scheduled for
installation in late summer 2000. Regarding its operations elsewhere in the Gulf
of Mexico, Anadarko recently announced the Marco Polo discovery at Green Canyon
Block 608. The discovery well found 320 feet of pay above salt. Additional
driling along with sidetracking operations will be used to further evaluate this
discovery.
14
FIRST QUARTER 2000
FIRST QUARTER 2000
SUMMARY FINANCIAL DATA
QUARTER ENDED
MARCH 31
----------------
$ and shares in millions 2000 1999
- ------------------------------------------------------------------
REVENUES
- ------------------------------------------------------------------
Gas Sales $ 102.1 $ 77.8
Oil and condensate sales 101.8 43.6
Natural gas liquids and other 43.2 15.0
- ------------------------------------------------------------------
Total 247.1 136.4
- ------------------------------------------------------------------
COSTS AND EXPENSES
- ------------------------------------------------------------------
Operating expenses 43.0 34.1
Administrative and general 30.1 24.4
Depreciation, depletion and amortization 57.3 56.5
Other taxes 11.3 9.3
Impairments related to international properties - 20.0
- ------------------------------------------------------------------
Total 141.7 144.3
- ------------------------------------------------------------------
Operating Income (Loss) 105.4 (7.9)
INTEREST EXPENSE 21.1 18.6
- ------------------------------------------------------------------
Income(Loss) before Income Taxes 84.3 (26.5)
- ------------------------------------------------------------------
INCOME TAXES 42.5 (6.1)
- ------------------------------------------------------------------
NET INCOME (LOSS) $ 41.8 $ (20.4)
- ------------------------------------------------------------------
Preferred Stock Dividends 2.7 2.7
- ------------------------------------------------------------------
NET INCOME (LOSS) AVAILABLE TO
COMMON STOCKHOLDERS $ 39.1 $ (23.1)
- ------------------------------------------------------------------
PER COMMON SHARE
Net income (loss) - basic $ 0.31 $ (0.19)
Net income (loss)- diluted $ 0.30 $ (0.19)
Dividends $ 0.05 $ 0.05
- ------------------------------------------------------------------
AVERAGE NUMBER OF SHARES OUTSTANDING 128.0 120.5
- ------------------------------------------------------------------
CASH FLOW FROM OPERATIONS BEFORE CHANGES IN ASSETS AND LIABILITIES
- ------------------------------------------------------------------
Net income (loss) $ 41.8 $ (20.4)
Depreciation, depletion and amortization 57.3 56.5
Amortization of restricted stock 0.4 0.3
Interest expense - zero coupon debentures 0.8 -
Deferred U.S. income taxes 24.6 (10.7)
Impairments related to international properties - 20.0
- ------------------------------------------------------------------
Total $ 124.9 $ 45.7
- ------------------------------------------------------------------
CAPITAL EXPENDITURES
- ------------------------------------------------------------------
Capital spending $ 156.5 $ 84.3
Capitalized interest 5.1 $ 5.5
Capitalized overhead 22.4 22.0
- ------------------------------------------------------------------
Total $ 184.0 $ 111.8
- ------------------------------------------------------------------
CAPITALIZATION
- ------------------------------------------------------------------
Long-term debt $1,573.2 $1,560.8
Stockholder's equity 1,586.6 1,234.5
- ------------------------------------------------------------------
Total $3,159.8 $2,795.3
- ------------------------------------------------------------------
CAPITALIZATION RATIOS
- ------------------------------------------------------------------
Long-term debt 50% 56%
Stockholders' equity 50% 44%
- ------------------------------------------------------------------
TOTAL ASSETS $4,219.8 $3,657.8
- ------------------------------------------------------------------
QUARTER ENDED
MARCH 31
VOLUMES AND PRICES ----------------
2000 1999
- ------------------------------------------------------------------
NATURAL GAS
- ------------------------------------------------------------------
Volumes, billion cubic feet 44.3 44.0
Average daily volumes, million cubic per day 486 489
Price per thousand cubic feet $ 2.46 $ 1.59
- ------------------------------------------------------------------
CRUDE OIL AND CONDENSATE
- ------------------------------------------------------------------
UNITED STATES
- ------------------------------------------------------------------
Volumes, thousand barrels 1,847 2,324
Average daily volumes, thousand barrels per day 20 26
Price per barrel $ 24.72 $ 9.92
- ------------------------------------------------------------------
ALGERIA
- ------------------------------------------------------------------
Volumes, thousand barrels 1,967 1,644
Average daily volumes, thousand barrels per day 22 18
Price per barrel $ 27.87 $ 11.57
- ------------------------------------------------------------------
TOTAL
- ------------------------------------------------------------------
Volumes, thousand barrels 3,814 3,968
Average daily volumes, thousand barrels per day 42 44
Price per barrel $ 26.34 $ 10.60
- ------------------------------------------------------------------
NATURAL GAS LIQUIDS
- ------------------------------------------------------------------
Volumes, thousand barrels 2,006 1,632
Average daily volumes, thousand barrels per day 22 18
Price per barrel $ 20.73 $ 8.60
- ------------------------------------------------------------------
TOTAL ENERGY EQUIVALENT BARRELS
- ------------------------------------------------------------------
Volumes, million EEBs 31.2 12.9
- ------------------------------------------------------------------
The common stock of Anadarko Petroleum Corporation is traded on the New York
Stock Exchange. Options in Anadarko common stock are traded by the Chicago Board
of Options Exchange.
The ticker symbol for Anadarko is APC and daily stock reports published in local
newspapers carry trading summaries for the Company under the headings ANADRK or
ANADRKPETE.
15
ANADARKO PETROLEUM CORPORATION
STOCKHOLDERS' INFORMATION
FOR MORE INFORMATION
The transfer agent and registrar for Anadarko common stock is ChaseMellon
Shareholder Services, L.L.C. Stockholders who need assistance with their
accounts or wish to eliminate duplicate mailings should call (800) 851-9677
within the continental United States or write:
ChaseMellon Shareholder Services, L.L.C.
P.O.Box 3315
South Hackensack, NJ 07606-1915
Web site: www.chasemellon.com
Anadarko will make available, without charge, a copy of its most recent Annual
Report on Form 10-K or Quarterly Reports on Form 10-Q as filed with the
Securities and Exchange Commission. For additional copies of this or other
Anadarko publications, please contact Public Affairs at (281) 874-3498 or write:
Anadarko Petroleum Corporation
Public Affairs Department
P.O. Box 1330
Houston, Texas 77251-1330
As a service to our stockholders, copies of the Company's news releases can be
transmitted at no charge via fax by calling 1-800-758-5804 ext. 038950 or
through our website at www.anadarko.com.
For analyst inquiries, contact
A. Paul Taylor, Jr.
Vice President, Investor Relations
(281) 875-1101
For media inquiries, contact
Tony Canino
Manager, Public Affairs
(281) 873-3855
ANADARKO PETROLEUM CORPORATION BULK RATE
P.O. Box 1330 U.S. Postage
Houston, Texas 77251-1330 PAID
Houston, Texas
Permit No. 2060
Address Correction Requested
Except for historical information, all other information in this presentation
consists of forward-looking statements within the meaning of the Private
Securities Litigation Reform Act of 1995. These forward-looking statements are
subject to risks and uncertainties which could cause actual results to differ
materially from those projected, anticipated or implied. The most significant of
these risks and uncertainties are described in Anadarko's SEC filings and
reports and exhibits to those reports, and include (but are not limited to) the
costs and difficulties related to the integration of acquired businesses,
commodity pricing and demand, exploration and operating risks, development
risks, and the costs and other effects of governmental regulation and legal and
administrative proceedings. Anadarko undertakes no obligation to publicly update
or revise any forward-looking statements.
The proposed merger transaction involving Anadarko Petroleum Corporation
and UPR will be submitted to each company's stockholders. All stockholders
should read the joint proxy statement/prospectus concerning the merger that will
be filed with the Securities and Exchange Commission and mailed to stockholders.
The joint proxy statement/prospectus will contain important information that
stockholders should consider before making any decision regarding the merger.
Stockholders will be able to obtain the joint proxy statement/prospectus, as
well as other filings containing information about Anadarko and UPR, without
charge, at the SEC's internet site (http://www.sec.gov). Copies of the joint
proxy statement/prospectus and the SEC filings that will be incorporated by
reference in the joint proxy statement/prospectus can also be obtained, without
charge, from the Corporate Secretary of the appropriate company. Information
regarding the participants in the solicitation and a description of their direct
and indirect interests, by security holdings or otherwise, is contained in
Anadarko's filing of its press release with the SEC under Rule 425 on April 3,
2000, and in UPR's filing with the SEC on Schedule 14A, under Rule 14a-12, on
April 7, 2000.