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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1996
COMMISSION FILE NO. 1-8968
ANADARKO PETROLEUM CORPORATION
(Exact name of registrant as specified in its charter)
------------------
DELAWARE 76-0146568
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)
17001 NORTHCHASE DRIVE, HOUSTON, TEXAS 77060-2141
(ADDRESS OF EXECUTIVE OFFICES) (ZIP CODE)
REGISTRANT'S TELEPHONE NUMBER: (281) 875-1101
SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT:
TITLE OF EACH CLASS NAME OF EACH EXCHANGE ON WHICH REGISTERED
Common Stock, $0.10 par value The New York Stock Exchange, Inc.
Preferred Stock Purchase Rights The New York Stock Exchange, Inc.
SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT: None
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 .
---- ----
Indicate by check mark if the disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be contained,
to the best of the registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. ____.
The aggregate market value of the voting stock held by non-affiliates of
the registrant computed using the average of the high and low sales prices at
which the stock sold on January 31, 1997 was $3,893,006,000.
The number of shares outstanding of each of the registrant's classes of
common stock as of January 31, 1997 is shown below:
TITLE OF CLASS NUMBER OF SHARES OUTSTANDING
Common Stock, $0.10 par value 59,605,829
PART OF
FORM 10-K DOCUMENTS INCORPORATED BY REFERENCE
Part I Portions of the Anadarko Petroleum Corporation 1996 Annual
Report to Stockholders.
Part III Portions of the Proxy Statement, dated March 21, 1997, for
the Annual Meeting of Stockholders of Anadarko Petroleum
Corporation to be held April 24, 1997.
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TABLE OF CONTENTS
PAGE
PART I
Item 1. Business 2
General 2
Proved Reserves and Future Net Cash Flows 2
Exploration, Development, Acquisition and Marketing
Activities 3
Volumes and Prices 3
Properties and Activities -- International 4
Properties and Activities -- United States 7
Offshore 7
Onshore 9
Gathering and Processing 12
Drilling Programs 12
Drilling Statistics 13
Productive Wells 13
Employees 14
Regulatory and Legislative Developments 14
Additional Factors Affecting Business 14
Title to Properties 14
Capital Spending 14
Ratios of Earnings to Fixed Charges and Earnings to Combined
Fixed Charges and Preferred Stock Dividends 14
Item 2. Properties 15
Item 3. Legal Proceedings 15
Item 4. Submission of Matters to a Vote of Security Holders 16
Executive Officers of the Registrant 16
PART II
Item 5. Market for Registrant's Common Equity and Related
Stockholder Matters 18
Item 6. Selected Financial Data 18
Item 7. Management's Discussion and Analysis of Financial Condition
and Results of Operations 19
Item 8. Financial Statements and Supplementary Data 30
Item 9. Changes in and Disagreements with Accountants on Accounting
and Financial Disclosure 64
PART III
Item 10. Directors and Executive Officers of the Registrant 64
Item 11. Executive Compensation 64
Item 12. Security Ownership of Certain Beneficial Owners and
Management 64
Item 13. Certain Relationships and Related Transactions 64
PART IV
Item 14. Exhibits and Reports on Form 8-K 65
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PART I
ITEM 1. BUSINESS
In Item 1 of this Form 10-K, including the production and reserve
disclosures contained therein, 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. These forward
looking statements 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. See Additional Factors Affecting
Business in the Management's Discussion and Analysis under Item 7 of this Form
10-K.
GENERAL
Anadarko Petroleum Corporation is one of the world's largest independent
oil and gas exploration and production companies with 601 million energy
equivalent barrels (MMEEBs) of proved reserves.
The Company's reserve mix has shifted dramatically in recent years,
primarily due to major crude oil discoveries both in Algeria and the U.S., which
have resulted in a larger and more balanced portfolio of energy reserves. As of
year-end 1996, crude oil, condensate and natural gas liquids (NGLs) reserves
accounted for 50 percent of the Company's total reserves compared to just six
percent at year-end 1986.
About 80 percent of the Company's proved reserves are located in the U.S.,
primarily in the mid-continent (Kansas, Oklahoma and Texas) area, offshore in
the Gulf of Mexico and in Alaska. Currently, all of the Company's production is
in the U.S. The Company also owns interests in 13 gas gathering systems and four
gas processing plants in the U.S.
Internationally, Anadarko is exploring for and developing crude oil
reserves in Algeria's Sahara Desert. To date, the Company has recorded 124.3
million barrels (MMBbls) of proved crude oil and condensate reserves in Algeria,
which accounts for about 20 percent of Anadarko's total proved reserves.
Development operations are now underway. The Company is also participating in
other exploration projects in Eritrea, Jordan and Peru.
The principal subsidiaries of Anadarko include: Anadarko Gathering Company;
Anadarko Energy Services Company (formerly Anadarko Trading Company); and,
Anadarko Algeria Corporation (Anadarko Algeria). Unless the context otherwise
requires, the terms "Anadarko" or "Company" refer to Anadarko and its
subsidiaries. The Company's corporate offices are located at 17001 Northchase
Drive, Houston, Texas 77060-2141, where the telephone number is (281) 875-1101.
PROVED RESERVES AND FUTURE NET CASH FLOWS
Proved oil and gas reserves are the estimated quantities of natural gas,
crude oil, condensate and NGLs which geological and engineering data demonstrate
with reasonable certainty to be recoverable in future years from known
reservoirs under existing economic and operating conditions. Reserves are
considered proved if economical producibility is supported by either actual
production or conclusive formation tests. Reserves which can be produced
economically through application of improved recovery techniques are included in
the "proved" classification when successful testing by a pilot project or the
operation of an installed program in the reservoir provides support for the
engineering analysis on which the project or program was based.
Proved developed oil and gas reserves can be expected to be recovered
through existing wells, with existing equipment and operating methods.
As of December 31, 1996, Anadarko had proved reserves of 1.82 trillion
cubic feet (Tcf) of natural gas and 297.8 MMBbls of crude oil, condensate and
NGLs. Combined, these proved reserves are equivalent to 601.3 MMEEBs of oil or
3.61 Tcf of gas. The Company's reserves have grown significantly over the past
three years. Reserve growth is due mainly to the dramatic increase in crude oil
reserves discovered in Algeria, the Gulf of Mexico and Alaska. Crude oil,
condensate and NGLs comprised 50 percent of Anadarko's total reserves at
year-end 1996. The volumes of the Company's natural gas reserves have remained
relatively stable over the last three years.
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Proved developed reserves comprise 63 percent of the total proved reserves
on an energy equivalent barrel (EEB) basis. As of December 31, 1996, Anadarko
had proved developed reserves of 1.65 Tcf of natural gas and 100.6 MMBbls of
crude oil, condensate and NGLs.
The Company's estimates of proved reserves and proved developed reserves
owned at December 31, 1996, 1995 and 1994 and changes in proved reserves during
the last three years are contained in the Supplemental Information on Oil and
Gas Exploration and Production Activities (Supplemental Information) in the
Anadarko Petroleum Corporation 1996 Consolidated Financial Statements
(Consolidated Financial Statements) under Item 8 of this Form 10-K Annual Report
(Form 10-K). The Company files annual estimates of certain proved oil and gas
reserves with the Department of Energy, which are within five percent of these
amounts.
Also contained in the Supplemental Information in the Consolidated
Financial Statements are the Company's estimates of future net cash flows,
discounted future net cash flows before income taxes and discounted future net
cash flows after income taxes from proved reserves.
The Company emphasizes that the volumes of reserves are estimates which, by
their nature, are subject to revision. The estimates are made using all
available geological and reservoir data, as well as production performance data.
These estimates are reviewed annually and revised, either upward or downward, as
warranted by additional performance data.
EXPLORATION, DEVELOPMENT, ACQUISITION AND MARKETING ACTIVITIES
See narrative description on pages 9 through 23 of the Anadarko Petroleum
Corporation 1996 Annual Report to Stockholders (Annual Report), which is
incorporated herein by reference, and see Marketing Strategies, Operating
Results and Acquisitions and Divestitures under Item 7 of this Form 10-K.
VOLUMES AND PRICES
The following table shows the Company's annual production volumes. Volumes
for natural gas are in billion cubic feet (Bcf) at a pressure base of 14.73
pounds per square inch (psi) and volumes for oil, condensate and NGLs are in
thousands of barrels (MBbls).
1996 1995 1994
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UNITED STATES
Natural gas 164.9 171.7 173.0
Oil and condensate 6,702 7,435 7,958
Natural gas liquids 3,514 3,580 3,493
CANADA*
Natural gas -- -- 2.8
Oil and condensate -- -- 345
Natural gas liquids -- -- 19
TOTAL
Natural gas 164.9 171.7 175.8
Oil and condensate 6,702 7,435 8,303
Natural gas liquids 3,514 3,580 3,512
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* In December 1994, the Company sold its Canadian subsidiary.
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The following table shows the Company's annual average sales prices and
average production costs. Production costs are per EEB. For this computation,
one barrel is the energy equivalent of six thousand cubic feet (Mcf).
1996 1995 1994
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UNITED STATES
Sales price
Natural gas (per Mcf) $ 2.13 $ 1.42 $ 1.72
Oil and condensate (per barrel) 20.21 16.52 15.06
Natural gas liquids (per barrel) 16.86 12.81 11.77
Production cost (per EEB) 3.17 3.19 3.01
CANADA*
Sales price
Natural gas (per Mcf) -- -- $ 1.70
Oil and condensate (per barrel) -- -- 12.04
Natural gas liquids (per barrel) -- -- 9.47
Production cost (per EEB) -- -- 4.91
TOTAL
Sales price
Natural gas (per Mcf) $ 2.13 $ 1.42 $ 1.72
Oil and condensate (per barrel) 20.21 16.52 14.93
Natural gas liquids (per barrel) 16.86 12.81 11.75
Production cost (per EEB) 3.17 3.19 3.05
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* In December 1994, the Company sold its Canadian subsidiary.
Additional information on volumes and prices is contained in Analysis of
Volumes and Prices under Item 7 of this Form 10-K. Additional information on
major customers is contained in Note 10 of the Notes to Consolidated Financial
Statements under Item 8 of this Form 10-K.
PROPERTIES AND ACTIVITIES -- INTERNATIONAL
OVERVIEW In recent years, Anadarko has devoted a portion of its exploration
budget to selected international exploration projects. The Company's objective
is to add high-potential prospects to its balanced portfolio of domestic plays.
Management believes this strategy will help ensure long-term growth for the
Company. Exploration and development work is underway in Algeria and exploration
work is being conducted in Eritrea, Jordan and Peru. Studies are also being
conducted in other prospective areas around the world. See Additional Factors
Affecting Business -- Foreign Operations Risk under Item 7 of this Form 10-K.
ALGERIA Anadarko's largest international venture involves exploration for and
development of liquid hydrocarbons in Algeria's Sahara Desert. Since 1989,
Anadarko has drilled 14 successful wells (seven exploration and seven
delineation) and discovered five major fields in Algeria. The Company has booked
proved reserves of 124.3 MMBbls (net) of crude oil and condensate as of year-end
1996.
As of December 31, 1996, the Company's total net investment in Algeria was
$232 million of which about $85 million was spent in 1996. Due to the success of
the project thus far, these expenditures are currently being capitalized and no
provision for loss or impairment has been made. Anadarko plans to invest $191
million in Algeria in 1997. To date, the Company has elected not to insure its
investment in Algeria. At the end of 1996, the Company had 5.3 million gross
(2.3 million net) acres in Algeria.
The accompanying map illustrates the Company's undeveloped acreage, number
of productive wells and other data relevant to its properties in Algeria.
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ALGERIA MAP (GRAPHIC MATERIAL OMITTED)
ALGERIA
Undeveloped Acreage -- 5.3 million acres (2.3 million net)
Productive Wells -- 14 (7 net)
Fields discovered to date shown graphically
HBN Field
HBNS Field*
BKE Field*
EME/EMK Field*
Company operated blocks shown graphically
404(*)
208(*)
211
245
Outside operated blocks shown graphically
401
402
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(*) Drilling activities were conducted in these areas in 1996.
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Anadarko's interest in the production sharing agreement (PSA) relating to
the four Company-operated blocks is 50 percent before participation at the
exploitation stage by SONATRACH, the national oil and gas enterprise of Algeria.
The Company has two partners, each with a 25-percent interest in the Algerian
venture, also prior to participation by SONATRACH; they are LASMO Oil (Algeria)
Limited, a wholly-owned subsidiary of LASMO plc, and Maersk Olie Algeriet AS, a
wholly-owned subsidiary of Maersk Olie Og Gas AS, a company in the Danish A.P.
Moeller group. Under the terms of the PSA, liquid hydrocarbons that are
discovered, developed and produced will be shared by SONATRACH, Anadarko and its
two partners. SONATRACH is responsible for 51 percent of development and
production costs. In addition, Anadarko and its partners are entitled to recover
a portion of exploration costs out of production in the exploitation phase.
SONATRACH is also the beneficial owner of 10.1 percent of Anadarko's outstanding
common stock.
During 1996, SONATRACH received a Provisional Exploitation Authorization
(PEA) for wells in the Hassi Berkine (HBN) and the Hassi Berkine South (HBNS)
Fields located on Block 404. Anadarko and its partners signed a $177 million
Engineering, Procurement and Construction (EPC) contract in 1996 with Brown &
Root Condor for Stage I production facilities at the HBNS Field. Four wells have
been drilled in the HBNS Field to date and partners expect to drill additional
development wells in the Field in 1997. Initial gross production is estimated at
about 60,000 barrels of oil per day (BOPD) and is expected to begin in early
1998. Anadarko's 1997 work program in Algeria will focus on development of known
discoveries with continued exploration.
In 1997, Anadarko plans a two-rig drilling program to drill up to 10
exploration wells. Four exploration wells were drilled in 1996 and three were
discoveries.
The Company also has a 27.5-percent interest in a PSA covering two
additional blocks -- Blocks 401 and 402 -- in the same region, which are
operated by BHP Petroleum (Algerie) Inc. An exploration program is underway on
these two blocks. In 1996, BHP and Anadarko shot 1,900 kilometers of
high-quality seismic and plans call for drilling two exploratory wells during
1997.
Political unrest exists in Algeria. Anadarko 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 1997 and beyond. However, the situation has not had
any material effect to date on the Company's operations.
ERITREA In September 1995, Anadarko signed an agreement with the government of
the State of Eritrea for offshore exploration on a 6.7 million-acre area in the
Red Sea and plans to invest about $30 million over the next several years.
Anadarko invested about $8 million on its Eritrea work program in 1996 and plans
to spend about $8 million in 1997.
In 1996, Anadarko completed a high-density aerial gravity and magnetic
survey over the exploration area, known as the Zula Block, and acquired 4,500
kilometers of data across the block. During 1997, the data will be analyzed and
combined with existing data from other operators. The Company plans to drill its
first exploratory well in Eritrea in late 1997 or early 1998. The Company has a
100-percent interest in the project, but may take partners.
JORDAN In March 1996, Anadarko and the Natural Resources Authority of the
Hashemite Kingdom of Jordan signed a PSA covering 4.2 million acres, known as
the Safawi Block. The Company invested about $2 million on its Jordan efforts in
1996 and has budgeted about $4 million for 1997.
In 1996, Anadarko conducted a magnetotelluric survey of the area and
reprocessed more than 1,000 kilometers of existing seismic data. The information
will be used to determine locations for two stratigraphic test wells planned for
1997. These wells will analyze source rock and look for signs of a working
petroleum system. Anadarko operates the venture with a 50-percent interest. In
February 1997, a subsidiary of Union Texas Petroleum joined Anadarko as a
partner in Jordan with a 50-percent interest.
PERU In September 1996, Anadarko signed an exploration license agreement with
PERUPETRO S.A., the state oil company in Peru. Anadarko has the right to explore
a 2.56-million acre area, known as Block 84. Anadarko invested about $2 million
in Peru in 1996 and has budgeted about $2 million for 1997.
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In late 1996, Anadarko flew a 7,300 kilometer aerial magnetic survey of the
area to help determine specific locations for a 700 kilometer seismic shoot
scheduled for 1997. The Company also plans an additional aerial magnetic survey
in 1997. Anadarko owns a 100-percent interest in the venture, but may take
partners.
INDONESIA In September 1996, Anadarko sold its wholly-owned subsidiary,
Anadarko Indonesia Company, Jabung, for $36.8 million. Anadarko's net income in
1996 benefited from a gain on the sale of $19.4 million ($12.3 million after
income taxes). The sale was a part of the Company's ongoing strategy to divest
"non-core" assets and reinvest proceeds in core operating areas. Anadarko and
its partners had discovered two fields in Indonesia with estimated proved
reserves of 17.7 MMEEBs.
CHINA The Company has decided not to pursue exploration efforts in China's
Sichuan Province at this time and is in discussions to farm-out the Company's
interests. As a result, Anadarko recognized an impairment of $4.6 million in the
third quarter of 1996. The Company has a 100-percent interest in the project.
PROPERTIES AND ACTIVITIES -- UNITED STATES
OFFSHORE
OVERVIEW At year-end 1996, the Company's reserves offshore in the Gulf of
Mexico were approximately 13 percent of total proved reserves. In 1996,
production from these properties was about 119 million cubic feet per day
(MMcf/d) of gas and 2,000 BOPD, or 21 percent of the Company's total production
volumes. At year-end 1996, Anadarko owned an average 49 percent working interest
in 116 lease blocks representing 178,000 gross (56,000 net) acres in developed
properties and 435,000 gross (232,000 net) acres in undeveloped properties
offshore.
The accompanying map illustrates the Company's undeveloped and developed
net acreage, number of net producing wells and other data relevant to its
offshore properties.
EXPLORATION Anadarko is active in exploration projects in both the conventional
and sub-salt plays offshore in the Gulf of Mexico.
In 1996, Anadarko concentrated its offshore exploration efforts in the
sub-salt play. The Company drilled five sub-salt exploratory wells, announcing
two discoveries -- Agate, located at Ship Shoal 361, and Monazite, located at
Vermilion South Addition 375. Anadarko and Phillips Petroleum Company (operator)
each own a 50-percent working interest in the Agate well. Anadarko (operator),
Broken Hill Proprietary (BHP) and Phillips each hold a 33.33-percent working
interest in the Monazite well. The first sub-salt discovery -- Mahogany -- came
on-line in late 1996 (See Development). Anadarko and partners are considering
the possibility of tying Agate production to the Mahogany platform. The Company
will continue to evaluate its portfolio of 17 prospects in the play and has five
ready-to-drill sub-salt prospects in 1997.
The Company also drilled three conventional exploration wells offshore in
the Gulf of Mexico in 1996 -- all dry holes. Two additional exploration wells
began drilling in late 1996. Three conventional exploration wells are planned in
1997.
Until 1996, the Company's principal acreage position offshore was in the
shallow water (less than 400 feet). However, in 1996, Anadarko made its entrance
into the deepwater play (more than 1,000 feet). In Offshore Lease Sale No. 161
in September 1996, Anadarko and partners acquired 12 lease blocks in the Gulf of
Mexico's deepwater play with water depths ranging from 2,700-5,700 feet.
Anadarko operates 10 of the 12 blocks and plans to acquire 3-D seismic data on
seven of the blocks in 1997. One exploratory well may be drilled in the
deepwater play in late 1997. In April 1996, Anadarko acquired seven shallow
lease blocks in Offshore Lease Sale No. 157. The leases are located in the
central Gulf of Mexico.
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OFFSHORE MAP (GRAPHIC MATERIAL OMITTED)
NET NET NET
DEVELOPED UNDEVELOPED PRODUCING
ACRES ACRES WELLS
--------- ----------- ---------
OFFSHORE:
United States
Florida -- 39,827 --
Louisiana* 24,382 146,018 26
Texas 31,559 45,637 23
*Drilling activities were conducted in these areas in 1996.
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DEVELOPMENT During 1996, the production platform for Mahogany, the industry's
first commercial sub-salt development, was installed on Ship Shoal 349, located
about 80 miles offshore Louisiana. Production from the 20-slot platform began in
December 1996 and should increase as additional development wells are drilled
and completed. Phillips (operator) and Anadarko each own a 37.5-percent working
interest in the project. Amoco Production Company holds a 25-percent working
interest.
Conventional operations focused on development drilling and recompletions.
The Company participated in the completion of three new wells and 10 additional
wells were recompleted. Eight development wells are planned for 1997 offshore in
the Gulf of Mexico.
Anadarko and partner, Amerada Hess (operator) installed a production
platform at South Marsh Island 192, located about 110 miles offshore Louisiana
in July 1996. Production began in November 1996. The partners may drill
additional wells in the field to increase production volumes.
In 1996, Anadarko purchased additional interests in the Brazos A-47
production platform, located about 35 miles offshore Texas. The Company
originally owned a 33-percent working interest and obtained the remaining
interests in the field in 1996 by assuming responsibility for disposition of the
existing wells and platform. At the time of the purchase, the platform's three
wells were shut-in. Anadarko plans to drill one development well in the field in
1997. If successful, the Company plans to recomplete one of the existing wells
in late 1997.
ONSHORE
OVERVIEW The Company's onshore reserves are approximately 67 percent of total
proved reserves. These reserves are located principally in Kansas, Oklahoma,
Texas and Alaska. In 1996, average production from the Company's onshore
properties was 332 MMcf/d of gas and 16.3 thousand barrels per day (MBOD), or 77
percent of the Company's total production volumes. Anadarko has 1,289,000 gross
(545,000 net) undeveloped lease acres and 1,082,000 gross (795,000 net)
developed acres onshore in the United States.
The accompanying map illustrates by state Anadarko's undeveloped and
developed net acreage, number of net producing wells and other data relevant to
its onshore oil and gas operations.
HUGOTON EMBAYMENT Anadarko's single largest asset is its reserves in the
Hugoton Embayment, located in southwest Kansas and the Oklahoma Panhandle.
Currently, Anadarko owns 566,000 gross (507,000 net) lease acres in the area and
operates about 2,000 wells. Anadarko's net production from the Hugoton Embayment
in 1996 was 85.8 Bcf of gas and 1.6 MMBbls of oil, or about 42 percent of the
Company's total production volumes. In 1996, Anadarko drilled 72 development
wells and recompleted 27 wells in the area.
Anadarko's activities in the area are concentrated on two areas: the
shallow Hugoton gas fields and the deeper oil and gas zones below the shallow
Hugoton production. In 1996, Anadarko drilled 17 wells in the Hugoton gas area
and 55 wells in the deeper zones. In 1997, Anadarko plans to drill 30 wells in
the shallow Hugoton area and 100 wells in the deeper zones. Management believes
the increased drilling activity in this area should lead to an increase in the
Company's 1997 production volumes. In addition to development drilling,
Anadarko's operations in this area have benefited from acquisitions of producing
properties, gas gathering systems and waterflood operations.
PERMIAN BASIN Drilling activity reached record levels for Anadarko in late 1996
in the Permian Basin of west Texas and eastern New Mexico. In 1996, net oil
production from the area was 9,500 BOPD, or about half of the Company's total
oil production. In the Permian Basin, Anadarko holds leasehold interests in
237,000 gross (136,000 net) acres and operates about 2,300 active wells. During
1996, Anadarko drilled 182 wells in the area and 10 Company-operated rigs were
running at year-end. The Company plans to drill more than 200 wells in 1997.
Management believes the increased drilling activity should increase the
Company's production volumes from the area in 1997.
ALASKA In October 1996, Anadarko and partners announced commerciality of the
Alpine Field, located on the North Slope about 50 miles west of Prudhoe Bay.
Development work is underway with first production of 30,000 BOPD (gross)
expected in 2000 with peak production of 60,000 BOPD (gross) expected in 2001.
Anadarko owns a 22-percent working interest in this ARCO Alaska-operated field.
In 1996, the partners acquired 5,900 acres near the Alpine Field in State Lease
Sale 86A. In addition to the Alpine Field, Anadarko
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and ARCO Alaska acquired six offshore lease blocks in the Beaufort Sea, west of
the Alpine Field. A seismic acquisition program is planned for the area in 1997.
Anadarko and ARCO Alaska announced formation of a strategic alliance in
1996 to explore the Cook Inlet of southern Alaska. With Anadarko as operator,
the team will review ARCO's existing 127,000 lease acres for exploratory
prospects. In December 1996, the partners acquired an additional 10 lease blocks
(39,000 acres) on the west side of the Cook Inlet and on the Kenai Peninsula. A
seismic acquisition program is underway onshore and the partners hope to have a
list of exploratory prospects ready to drill in 1998.
GOLDEN TREND Activity levels also increased in central Oklahoma's Golden Trend
area. In 1996, the Company drilled 15 successful wells in the area, of which 14
were development wells. Based on the successful results of a 1996 infill
program, Anadarko has picked up a second drilling rig and plans to add a third
rig to accelerate the Company's 31 well program in 1997.
GULF COAST Anadarko is active in the onshore Gulf Coast regions of Mississippi,
Texas and Louisiana. In 1996, Anadarko participated in a large 3-D seismic
acquisition program in the Smackover Play in Wayne County, Mississippi. The data
were analyzed in late 1996 and Anadarko is planning to drill up to four
exploratory wells in the Smackover Play in 1997.
In 1996, Anadarko drilled one successful exploratory well in the Yegua Play
and, in 1997, the Company is planning to drill at least one delineation well to
offset a 1996 discovery in the Nome Field near Beaumont, Texas.
In the Wilcox Play, located in south Texas, Anadarko is evaluating
exploratory prospects in Jim Hogg County. During 1996, Anadarko conducted a 3-D
seismic survey on a portion of the Company's acreage. The Company plans to drill
an exploratory well in the Wilcox Play in mid-1997. Anadarko has a 33.33-percent
working interest in the exploratory venture.
COAL-BED METHANE Anadarko is exploring coal-bed methane acreage in the Helper
Field, located in Carbon County, Utah. Anadarko is planning to drill three
exploratory wells on state and private acreage in early 1997.
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ONSHORE MAP (GRAPHIC MATERIAL OMITTED)
NET NET NET
DEVELOPED UNDEVELOPED PRODUCING
ACRES ACRES WELLS
--------- ----------- ---------
ONSHORE:
United States
Alaska* -- 89,701 --
Colorado 3,627 20,581 --
Kansas* 348,968 69,557 1,481
Mississippi* 117 65,191 --
Montana 1,872 250 --
Nebraska 96 319 --
Nevada -- 76,838 --
New Mexico 17,108 1,956 22
North Dakota 40 80 --
Oklahoma* 217,432 62,111 798
Texas* 186,095 46,418 1,787
Utah* 16,836 70,334 35
Wyoming 3,038 41,895 --
OFFICE LOCATIONS:
United States
Anchorage, Alaska
Houston, Texas
Liberal, Kansas
Midland, Texas
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* Drilling activities were conducted in these areas in 1996.
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GATHERING AND PROCESSING
GAS GATHERING SYSTEMS Anadarko owns and operates four major gas gathering
systems in the nation's mid-continent area: the Antioch Gathering System in the
Southwest Antioch Field of Oklahoma; the Hemphill Gathering System, located in
Hemphill County, Texas; the Sneed System in the West Panhandle Field of Texas;
and the Hugoton Gathering System in southwest Kansas (which includes the Hugoton
Gathering Facility (HUGS), the Cimarron River System (CRS) and a portion of the
Panhandle Eastern Pipe Line West End gathering assets acquired in 1996). The
Company's gathering systems have approximately 2,100 miles of pipeline
connecting nearly 2,000 wells and have nearly 500 MMcf/d of gas gathering
capacity. In addition, Anadarko owns interests in nine other smaller gas
gathering systems.
GAS PROCESSING PLANTS Anadarko owns and operates one gas processing plant, the
Sneed Gas Processing Plant located in the West Panhandle Field of Texas, and has
interests in three other plants. These plants are located within the Company's
major areas of gas production. In 1996, the Company closed its Panther Creek Gas
Processing Plant located in the Southwest Antioch Field of Oklahoma because the
Company arranged to have the gas processed more efficiently in third-party
processing facilities.
The following table sets forth the average daily gas throughput and NGLs
production for the three years ended December 31, 1996. The NGLs production
shown in the table below includes production from Company processing as well as
third-party processing.
For the Years
Ended December 31
-------------------------
1996 1995 1994
----- ----- -----
Gas throughput (MMcf/d) 59 64 80
NGLs production (Barrels per day) 9,650 9,530 6,900
DRILLING PROGRAMS
The Company's 1996 drilling program again focused on known oil and gas
provinces onshore in North America, as well as offshore in the Gulf of Mexico.
Onshore activity was concentrated in Kansas, Oklahoma, the Texas Panhandle, the
Permian Basin of west Texas and Alaska. Exploration activity consisted of 11
wells onshore in the United States, six wells offshore United States, six wells
in Algeria and three wells in Indonesia. Development activity included 254 wells
onshore United States and three wells offshore United States.
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DRILLING STATISTICS
The following table shows the results of the oil and gas wells drilled and
tested:
NET EXPLORATORY NET DEVELOPMENT
------------------------------ ------------------------------
PRODUCTIVE DRY HOLES TOTAL PRODUCTIVE DRY HOLES TOTAL TOTAL
---------- --------- ----- ---------- --------- ----- -----
1996
United States 5.3 5.8 11.1 163.5 37.9 201.4 212.5
Algeria 2.0 0.5 2.5 -- -- -- 2.5
Indonesia 1.0 -- 1.0 -- -- -- 1.0
--- ---- ---- ----- ---- ----- -----
Total 8.3 6.3 14.6 163.5 37.9 201.4 216.0
--- ---- ---- ----- ---- ----- -----
1995
United States 2.3 2.9 5.2 159.9 40.1 200.0 205.2
Algeria 2.0 0.5 2.5 -- -- -- 2.5
Indonesia 1.0 -- 1.0 -- -- -- 1.0
--- ---- ---- ----- ---- ----- -----
Total 5.3 3.4 8.7 159.9 40.1 200.0 208.7
--- ---- ---- ----- ---- ----- -----
1994
United States 6.9 8.1 15.0 162.5 16.8 179.3 194.3
Algeria 2.0 0.8 2.8 -- -- -- 2.8
Canada 1.0 1.2 2.2 2.5 0.5 3.0 5.2
--- ---- ---- ----- ---- ----- -----
Total 9.9 10.1 20.0 165.0 17.3 182.3 202.3
--- ---- ---- ----- ---- ----- -----
The following table shows the number of wells in the process of drilling or
in active completion stages and the number of wells suspended or waiting on
completion as of December 31, 1996:
UNITED STATES ALGERIA TOTAL
-------------- ------------- --------------
GROSS NET GROSS NET GROSS NET
----- ---- ----- --- ----- ----
WELLS IN THE PROCESS OF DRILLING OR ACTIVE
COMPLETION
Exploration 3 1.9 1 0.5 4 2.4
Development 10 7.8 -- -- 10 7.8
WELLS SUSPENDED OR WAITING ON COMPLETION
Exploration 6 2.6 -- -- 6 2.6
Development 47 41.7 -- -- 47 41.7
PRODUCTIVE WELLS
As of December 31, 1996, the Company owned productive wells as follows:
UNITED STATES ALGERIA TOTAL
-------------- ------------ --------------
GROSS NET GROSS NET GROSS NET
----- ----- ----- --- ----- -----
Oil wells* 4,312 2,279 14 7 4,326 2,286
Gas wells* 2,737 1,892 -- -- 2,737 1,892
----- ----- -- -- ----- -----
Total 7,049 4,171 14 7 7,063 4,178
----- ----- -- -- ----- -----
- ---------------
* Includes wells containing multiple completions
Oil wells 74 25.8 -- -- 74 25.8
Gas wells 182 87.0 -- -- 182 87.0
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EMPLOYEES
On December 31, 1996, the Company employed 1,229 persons. The Company's
employees are not represented by any union. Relations between the Company and
its employees are considered to be satisfactory and the Company has had no work
stoppages or strikes.
REGULATORY AND LEGISLATIVE DEVELOPMENTS
See Regulatory Matters under Item 7 of this Form 10-K.
ADDITIONAL FACTORS AFFECTING BUSINESS
See Additional Factors Affecting Business under Item 7 of this Form 10-K.
TITLE TO PROPERTIES
As is customary in the oil and gas industry, only a preliminary title
examination is conducted at the time properties believed to be suitable for
drilling operations are acquired by the Company. Prior to the commencement of
drilling operations, a thorough title examination of the drill site tract is
conducted and curative work is performed with respect to significant defects, if
any, before proceeding with operations. A thorough title examination has been
performed with respect to substantially all leasehold producing properties owned
by the Company. Anadarko believes the title to its leasehold properties is good
and defensible in accordance with standards generally acceptable in the oil and
gas industry subject to such exceptions which, in the opinion of counsel
employed in the various areas in which the Company has conducted exploration
activities, are not so material as to detract substantially from the use of such
properties. The leasehold properties owned by the Company are subject to
royalty, overriding royalty and other outstanding interests customary in the
industry. The properties may be subject to burdens such as liens incident to
operating agreements and current taxes, development obligations under oil and
gas leases and other encumbrances, easements and restrictions. Anadarko does not
believe any of these burdens will materially interfere with its use of these
properties.
CAPITAL SPENDING
See Capital Expenditures and Liquidity and Long-term Debt under Item 7 of
this Form 10-K.
RATIOS OF EARNINGS TO FIXED CHARGES AND EARNINGS TO COMBINED FIXED CHARGES AND
PREFERRED STOCK DIVIDENDS
The Company's ratios of earnings to fixed charges for the years ended
December 31, 1996, 1995 and 1994 were 3.34, 1.24 and 2.11, respectively. These
ratios were computed by dividing earnings by fixed charges. For this purpose,
earnings include income before income taxes and fixed charges. Fixed charges
include interest and amortization of debt expenses and the estimated interest
component of rentals.
During the three years ended December 31, 1996, there were no shares of
preferred stock outstanding. Accordingly, the ratio of earnings to combined
fixed charges and preferred stock dividends for each of the three years is the
same as the ratio of earnings to fixed charges.
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ITEM 2. PROPERTIES
See information appearing under Item 1 of this Form 10-K.
ITEM 3. 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 on
November 6, 1996. The Company, along with other 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). The petition has not been acted on. Williams Natural Gas Company has
filed a cross-petition for certiorari seeking to impose refund liability back to
December 1, 1978. The Company and other interested parties will oppose this
cross-petition. If Supreme Court 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 (assuming that the October
1983 effective date remains in effect) is about $37 million (pre-tax) as of
December 31, 1996.
OTHER The Company is subject to other legal proceedings, claims and liabilities
which arise in the ordinary course of its business. In the opinion of the
Company, the liability with respect to these actions will not have a material
effect on the Company.
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ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
There were no matters submitted to a vote of security holders during the
fourth quarter of 1996.
EXECUTIVE OFFICERS OF THE REGISTRANT
AGE AT END
NAME OF 1997 POSITION
---- ---------- --------
Robert J. Allison, Jr. 58 Chairman of the Board, President and Chief Executive
Officer
Charles G. Manley 53 Senior Vice President, Administration
Michael E. Rose 50 Senior Vice President, Finance and Chief Financial
Officer
John N. Seitz 46 Senior Vice President, Exploration
Charles K. Abernathy 54 Vice President, Operations, Offshore
Rex Alman III 46 Vice President, Operations, U.S. Onshore
James R. Larson 47 Vice President and Controller
Richard A. Lewis 53 Vice President, Human Resources
J. Stephen Martin 41 Vice President and General Counsel
Gregory M. Pensabene 47 Vice President, Government Relations
Albert L. Richey 48 Vice President and Treasurer
Richard J. Sharples 50 Vice President, Marketing
Bruce H. Stover 48 Vice President, Acquisitions
William D. Sullivan 41 Vice President, Algeria
A. Paul Taylor, Jr. 48 Vice President, Corporate Communications
Mr. Allison was named Chairman and Chief Executive Officer effective
October 1986. In January 1993, he was elected the additional position of
President. He has worked for the Company since 1973.
Mr. Manley was named Senior Vice President, Administration in 1993. From
1985 to 1993, he served as Anadarko's Vice President of Administration and
Employee Relations. He has worked for the Company since 1976.
Mr. Rose was named Senior Vice President, Finance and Chief Financial
Officer in 1993. He was named Vice President of Finance in 1986. He has worked
for the Company since 1978.
Mr. Seitz was named Senior Vice President, Exploration in 1995. He was
named Vice President, Exploration in January 1993 and Vice President,
Exploration, International/Gulf of Mexico, in January 1992. He has worked for
the Company since 1977.
Mr. Abernathy was named Vice President, Operations, Offshore in 1995. He
was named Vice President Operations, International/Offshore, in 1992. He has
worked for the Company since 1975.
Mr. Alman was named Vice President, Operations, U.S. Onshore, in 1995. In
1993, he was named Vice President, Engineering. He has worked for the Company
since 1976.
Mr. Larson was named Vice President and Controller in 1995. He had served
as the Company's Controller since 1986. He has worked for the Company since
1983.
Mr. Lewis was named Vice President, Human Resources in 1995. He joined the
Company in 1985 as Manager of Employee Relations.
Mr. Martin was named Vice President and General Counsel in 1995. He joined
the Company as an attorney in 1987.
Mr. Pensabene joined Anadarko in 1997 as Vice President, Government
Relations. Prior to Anadarko, he was a partner in various law firms in
Washington, D.C.
Mr. Richey was named Vice President and Treasurer in 1995. He joined
Anadarko as Treasurer in 1987.
Mr. Sharples joined Anadarko as Vice President, Marketing, in 1993. Prior
to Anadarko, he served as Vice President of Marketing with Maxus Energy
Corporation.
Mr. Stover was named Vice President, Acquisitions, in 1993. Prior to that
position, he served as President and General Manager, Anadarko Algeria
Corporation. He has worked for the Company since 1980.
Mr. Sullivan was named Vice President, Algeria in 1995. Prior to this
position, he served as Vice President Operations, U. S. Onshore. He has worked
for the Company since 1981.
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Mr. Taylor was named Vice President, Corporate Communications in 1987. He
has worked for the Company since 1986.
All officers of Anadarko are elected in April of each year at an
organizational meeting of the Board of Directors to hold office until their
successors are duly elected and shall have qualified. There are no family
relationships between any directors or executive officers of Anadarko.
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PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
Information on the market price and cash dividends declared per share of
common stock is included in the Stockholders' Information in the Annual Report,
which is incorporated herein by reference.
As of December 31, 1996, there were approximately 6,345 direct holders of
Anadarko common stock. The following table sets forth the amount of dividends
paid on Anadarko common stock during the two years ended December 31, 1996.
First Second Third Fourth
Quarter Quarter Quarter Quarter
thousands ------- ------- ------- -------
1996 $ 4,431 $4,440 $4,448 $ 4,461
1995 $ 4,417 $4,496 $4,501 $ 4,278
The amount of future dividends will depend on earnings, financial
condition, capital requirements and other factors, and will be determined by the
Directors on a quarterly basis.
For additional information, see Dividends under Item 7 and Note 6 of the
Notes to Consolidated Financial Statements under Item 8 of this Form 10-K.
ITEM 6. SELECTED FINANCIAL DATA
See Summary Financial Data on page 1 of the Annual Report, which is
incorporated herein by reference.
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ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
In Item 7 of this Form 10-K, including the production and reserve
disclosures contained therein, 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. These forward
looking statements 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 those discussed below: commodity pricing and demand, exploration and
operating risks, development risks, domestic governmental risks, foreign
operations risks and competition.
FINANCIAL RESULTS
NET INCOME AND REVENUES Anadarko's net income for 1996 increased 379 percent to
$100.7 million ($1.70 per share) compared to 1995 net income of $21.0 million
(36 cents per share). Revenues for 1996 were $569.0 million, up 31 percent
compared to 1995 revenues of $434.0 million. The increase in revenues and net
income reflects significantly higher prices for natural gas, crude oil and
natural gas liquids (NGLs). Net income in 1996 included a gain of $19.4 million
($12.3 million after income taxes) on the sale of the Company's Indonesia
interests, which was partially offset by provisions for impairments of other
international properties of $5.4 million ($3.4 million after income taxes).
Anadarko's 1994 net income was $41.1 million (70 cents per share). The 1994
results included a non-cash charge of $6.6 million (after income taxes) related
to the sale of the Company's Canadian subsidiary. Stated without giving effect
to the sale, 1994 net income was $47.7 million (81 cents per share). Revenues
for 1994 were $482.5 million. The decreases in revenues and net income in 1995
compared to 1994 reflect lower prices for natural gas in 1995 and lower
production volumes of crude oil in 1995 primarily due to property sales in 1994.
SELECTED FINANCIAL DATA
1996 1995 1994
millions except per share amounts ------ ------ ------
Revenues $569.0 $434.0 $482.5
Costs and expenses 373.4 369.5 393.8
Interest expense 39.0 36.4 26.1
Net income 100.7 21.0 41.1
Earnings per share $ 1.70 $ 0.36 $ 0.70
COSTS AND EXPENSES Over the past three years, Anadarko's expense levels have
remained relatively constant due to attention and focus on cost controls, cost
savings plans and application of new technology to field production operations.
In 1996, excluding the effect of the sale of the Company's Indonesia interests,
Anadarko's costs and expenses increased six percent compared to 1995. Costs and
expenses in 1996 were primarily impacted by the following factors:
(1) Operating expenses increased $9.5 million (nine percent) due primarily
to costs associated with gas gathering operations.
(2) Administrative and general expenses were up $8.2 million (14 percent)
due to higher costs associated with the Company's growing workforce.
(3) The Company recorded provisions for impairments of international
properties of $5.4 million in 1996. (These impairments were offset by
the gain on a sale of the Company's Indonesia assets of $19.4 million.)
The 1996 impairments reflect costs associated with the review and study
of potential exploration projects in China and several other foreign
countries that the Company has elected not to pursue. This compares to
$2.6 million of provisions for impairments of international and
geothermal properties in 1995.
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The Company's 1995 costs and expenses decreased five percent compared to
1994, excluding the sale of the Company's Canadian subsidiary in 1994. There
were several reasons:
(1) Operating expenses decreased $4.4 million (four percent) due primarily
to lower oil and gas operating expenses.
(2) Depreciation, depletion and amortization (DD&A) expense decreased $8.1
million (five percent) due to a two percent decrease in gas production
volumes and a 10 percent decrease in crude oil production partly due to
property sales in late 1994. In addition, the DD&A rate decreased four
percent due to additional reserves booked during the year.
(3) Administrative and general expenses were down $1.7 million (three
percent) due to increases in overhead capitalized and amounts charged
to other working interest partners.
(4) Other taxes decreased $4.1 million (10 percent) due primarily to lower
natural gas prices and lower production volumes, which resulted in
lower production and severance taxes.
(5) Provisions for impairments of international and geothermal properties
decreased $0.5 million (16 percent). These impairments in 1995
primarily reflect costs associated with geothermal exploration projects
and the review and study of potential exploration projects in several
foreign countries, which the Company elected not to pursue.
COSTS AND EXPENSES
1996 1995 1994
millions ------ ------ ------
Operating expenses $115.3 $105.8 $110.2
Administrative and general 67.7 59.5 61.1
DD&A 167.2 164.7 172.8
Other taxes 37.2 36.9 41.0
(Gains) losses and impairments related to international and
geothermal properties (14.0) 2.6 8.7
------ ------ ------
Total $373.4 $369.5 $393.8
------ ------ ------
INTEREST EXPENSE Anadarko's gross interest expense has increased 27 percent
over the past three years due primarily to higher levels of borrowings for
capital expenditures, including producing property acquisitions. Gross interest
expense in 1996 was up six percent compared to 1995 primarily due to higher
average borrowings in 1996. Gross interest expense in 1995 increased 19 percent
compared to 1994 primarily due to higher average borrowings and interest rates
in 1995. Net interest expense benefited in 1994 from an option sold for an
interest rate swap agreement that was not exercised by the purchaser, which
reduced interest expense in 1994 by $2.6 million. See Liquidity and Long-term
Debt.
INTEREST EXPENSE
1996 1995 1994
millions ------ ------ ------
Gross interest expense $ 56.0 $ 52.6 $ 44.2
Interest rate swap agreement -- -- (2.6)
Capitalized interest (17.0) (16.2) (15.5)
------ ------ ------
Net interest expense $ 39.0 $ 36.4 $ 26.1
------ ------ ------
ANALYSIS OF VOLUMES AND PRICES
NATURAL GAS Anadarko's natural gas production volumes in 1996 decreased four
percent compared to 1995 production primarily due to sales of producing
properties in 1995 and natural decline. Gas production volumes in 1994 were at
record levels. The Company's average U.S. wellhead gas price in 1996 was up 50
percent from 1995. Anadarko's average U.S. wellhead gas price in 1995 had
declined 17 percent from 1994. Management
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22
expects the Company's natural gas production volumes in 1997 will increase due
to increased levels of drilling activity in the Company's core operating areas.
During 1996, Anadarko marketed more third-party gas volumes than Company
gas production volumes. The Company marketed 200 Bcf of third-party gas in 1996
compared to 109 Bcf in 1995 and 84 Bcf in 1994. The significant increase in
third-party sales is a key marketing strategy for the Company.
The gas price weakness that began in late 1994 continued until mid-December
1995, when a surge in heating demand caused by extreme winter conditions sent
gas prices significantly higher. Natural gas markets were extremely volatile in
1996, with the Company's average price fluctuating from a low of $1.66 per Mcf
in September 1996 to a high of $3.49 per Mcf in December 1996. The increase in
1996 prices can be attributed to several factors: temperatures in the winter of
1995-96 were colder than normal in the northeast and midwest heating markets;
the nation's storage volumes were lower at the beginning of the 1996 heating
season compared to 1995 due to heavy storage withdrawals and higher prices for
natural gas in the typical injection season (May-October) that prohibited
storage volumes from reaching traditional levels; and the 1996 heating season
opened with colder than normal temperatures.
This experience shows no one can predict the precise movement of U.S.
natural gas prices. In view of this, Anadarko has developed marketing strategies
to help manage production and sales volumes and mitigate the effect of the price
volatility that is likely to continue. See Marketing Strategies -- Use of
Derivatives.
QUARTERLY NATURAL GAS VOLUMES AND U.S. AVERAGE PRICES
1996 1995 1994
----- ----- -----
FIRST QUARTER
Bcf 43.7 41.3 48.2
MMcf/d 480 459 536
Price per Mcf $1.96 $1.30 $2.03
SECOND QUARTER
Bcf 40.4 43.5 43.0
MMcf/d 444 479 472
Price per Mcf $2.04 $1.46 $1.74
THIRD QUARTER
Bcf 39.8 42.3 40.9
MMcf/d 433 460 445
Price per Mcf $1.95 $1.27 $1.59
FOURTH QUARTER
Bcf 41.0 44.5 43.7
MMcf/d 446 484 475
Price per Mcf $2.56 $1.64 $1.47
- ---------------
Mcf -- thousand cubic feet
MMcf/d -- million cubic feet per day
Bcf -- billion cubic feet
CRUDE OIL, CONDENSATE AND NATURAL GAS LIQUIDS Anadarko's crude oil and
condensate production in 1996 was down 10 percent from 1995. The 1995 oil and
condensate production volumes declined 10 percent compared to 1994. The
decreases in oil production over the last three years are due primarily to
property sales in 1994 and 1995 and normal production declines associated with
mature oil fields.
Anadarko's average U.S. crude oil price for 1996 increased 22 percent
compared to 1995. Crude oil prices in 1995 were up 10 percent compared to 1994.
Crude oil prices have continued to be strong in the first quarter of 1997 in
response to seasonal demand for heating oils. Prices for January 1997 averaged
about $23.00 per barrel.
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23
Generally, the Company's oil production is sold on a monthly basis as it is
produced. Production of oil usually is not affected by seasonal swings in demand
or in market prices.
The Company's NGLs sales volumes in 1996 decreased two percent compared to
1995 volumes. The 1995 NGLs sales volumes were two percent higher than 1994 NGLs
sales. The 1996 average price was up 32 percent compared to 1995. The 1995 NGLs
average price was nine percent higher than the 1994 average price.
ANNUAL VOLUMES AND U.S. AVERAGE PRICES
1996 1995 1994
------ ------ ------
NATURAL GAS (BCF) 164.9 171.7 175.8
MMcf/d 450 471 482
Price per Mcf $ 2.13 $ 1.42 $ 1.72
CRUDE OIL AND CONDENSATE (MBBLS) 6,702 7,435 8,303
MBbls/d 18 20 23
Price per barrel $20.21 $16.52 $15.06
NATURAL GAS LIQUIDS (MBBLS) 3,514 3,580 3,512
MBbls/d 10 10 10
Price per barrel $16.86 $12.81 $11.77
MARKETING STRATEGIES
NATURAL GAS The U.S. natural gas market has grown significantly throughout the
last 10 years and management believes continued growth to be likely. Management
believes the Company's excellent portfolio of exploration and development
prospects should position Anadarko to continue to participate in this growth.
Anadarko's wholly-owned marketing subsidiary -- Anadarko Energy Services
Company (AES) (formerly Anadarko Trading Company) -- is a full-service marketing
company offering supply assurance, competitive pricing and tailored services to
its customers. Most of the Company's gas production is sold through AES.
Additionally, AES purchases and sells third party gas. In 1996, sales of
third-party gas exceeded sales of the Company's gas production volumes.
AES sells natural gas under a variety of contracts and may also receive a
service fee related to the level of reliability and service required by the
customer. AES has expanded its marketing capabilities to move larger volumes of
gas into and out of the "daily" gas market to take advantage of any price
volatility. Included in this strategy is expanded use of leased natural gas
storage facilities and various hedging strategies to better manage price risk
associated with natural gas sales. See Use of Derivatives.
CRUDE OIL AND CONDENSATE Currently, all of Anadarko's revenues are derived from
domestic production. Presently, the Company's crude oil production is sold on
30-day "evergreen" contracts with prices based on postings plus a premium.
Initial production from the HBNS field in Algeria, estimated at about 60,000
barrels of oil per day (BOPD) (gross) is expected in early 1998. Anadarko's
marketing department is currently exploring international markets for the
Saharan Blend crude oil.
GAS GATHERING SYSTEMS AND PROCESSING PLANTS Anadarko's investment in gas
gathering operations allows the Company to better manage its gas production,
improve ultimate recovery of reserves, enhance the value of reserves and expand
marketing opportunities. The Company has invested more than $85 million to build
or acquire gas gathering systems over the last five years. Anadarko owned and
operated four major gas gathering systems and one gas processing plant at the
end of 1996. In addition, the Company owned interests in nine other gathering
systems and three other processing plants at year-end 1996.
In March 1996, Anadarko closed on the second of two recent acquisitions
from PanEnergy Corp, formerly Panhandle Eastern Corporation. The purchase price
of the two systems was about $35 million. These two gathering systems tripled
the Company's overall gas gathering capacity to over 480 MMcf/d and serve
approximately 1,900 wells. Approximately 75 percent of the gas flowing through
these systems is from Anadarko-operated wells. During 1996, Anadarko invested an
additional $15 million to lower line pressure and
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24
increase deliverability from systems in southwest Kansas. Anadarko plans to
invest an additional $45 million on enhancing its gathering systems over the
next several years and improve access to multiple pipeline market hubs.
Anadarko remains active in the NGLs business, primarily as a result of its
gas gathering and processing operations. The Company generally sells NGLs on a
monthly basis as they are produced. However, some NGLs are held in inventory for
sale at a later date. Anadarko generally markets NGLs under short-term
contracts. Anadarko had 4,600 barrels of NGLs in inventory at the end of 1996
compared to 66,600 barrels at the end of 1995.
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. See Note 6 of the Notes to Consolidated
Financial Statements under Item 8 of this Form 10-K.
OPERATING RESULTS
DRILLING ACTIVITY During 1996, Anadarko participated in a total of 283 gross
wells, including 166 oil wells, 65 gas wells and 52 dry holes. This compares to
258 wells (114 oil wells, 98 gas wells and 46 dry holes) in 1995 and 281 wells
(147 oil wells, 95 gas wells and 39 dry holes) in 1994.
During 1996, the Company made several significant well completions in its
exploration and development drilling program which are discussed in the
narrative descriptions on pages 9 through 23 of the 1996 Annual Report to
Stockholders, incorporated herein by reference, and Properties and Activities
under Item 1 of this Form 10-K.
DRILLING PROGRAM ACTIVITY
GAS OIL DRY TOTAL
---- ----- ---- -----
1996 EXPLORATORY
Gross 7 8 11 26
Net 4.9 3.4 6.3 14.6
1996 DEVELOPMENT
Gross 58 158 41 257
Net 38.3 125.2 37.9 201.4
1995 EXPLORATORY
Gross 3 9 5 17
Net 1.7 3.6 3.4 8.7
1995 DEVELOPMENT
Gross 95 105 41 241
Net 72.6 87.3 40.1 200.0
- ---------------
Gross: total wells in which there was participation.
Net: working interest ownership.
RESERVE REPLACEMENT Drilling activity is not the best measure of success for an
exploration and production company. Anadarko focuses on growth and
profitability. Reserve replacement is the key to growth and future
23
25
profitability depends on the cost of finding oil and gas reserves. The Company
believes its performance in both areas is excellent. For the 15th consecutive
year, Anadarko more than replaced annual production volumes with proved reserves
of natural gas, crude oil, condensate and NGLs, stated on an energy equivalent
barrel (EEB) basis.
During 1996, Anadarko's worldwide reserve replacement was 299 percent of
total production, which was 37.7 million energy equivalent barrels (MMEEBs). The
Company's worldwide reserve replacement in 1995 was 226 percent of total
production and in 1994 was 308 percent of total production. Over the last five
years, the Company's annual reserve replacement has averaged 241 percent of
annual production volumes.
In 1996, the Company replaced 215 percent of its production volumes with
U.S. reserves. The Company's U.S. reserve replacement for the five-year period
1992-96 was 183 percent of Anadarko's U.S. production. By comparison, the most
recent published U.S. industry average (1991-95) was 84 percent. (Source:
Department of Energy.) Anadarko's U.S. reserve replacement performance for the
same period 1991-95 was 175 percent of production. Industry data for 1996 are
not yet available.
COST OF FINDING For 1996, Anadarko's worldwide finding cost for proved reserves
was $2.76 per EEB compared to $2.74 per EEB in 1995 and to $2.76 per EEB in
1994. The Company's low worldwide finding costs are due to the success of the
Company's exploration programs. Anadarko's U.S. finding cost for 1996 was $3.23
per EEB compared to $4.26 per EEB in 1995 and $3.57 per EEB in 1994.
Cost of finding results in any one year can be misleading due to the long
lead times associated with exploration and development. A better measure of cost
of finding performance is over a five-year period. Anadarko has consistently
outperformed the industry in average finding costs. For the period 1992-96,
Anadarko's U.S. cost of finding was $3.78 per EEB. Anadarko's worldwide finding
cost for the same five-year period was $3.25 per EEB. Industry data for 1996 are
not yet available. For comparison purposes, the most recent published five-year
average (1991-95) for the industry shows U.S. average cost of finding was $4.77
per EEB and worldwide cost of finding was $5.19 per EEB. (Source: Arthur
Andersen, SC) For the same period, Anadarko's U.S. finding cost was $3.74 per
EEB and worldwide finding cost was $3.39 per EEB.
PROVED RESERVES At the end of 1996, Anadarko's proved reserves were 601.3
MMEEBs compared to 526.3 MMEEBs at year-end 1995 and 476.4 MMEEBs at year-end
1994. Reserves increased by 14 percent in 1996 compared to 1995, primarily due
to exploration and development drilling and improved recovery. Anadarko's proved
reserves have grown by 54 percent over the past three years, primarily as a
result of successful exploration projects in Algeria, the Gulf of Mexico and
Alaska, as well as successful exploitation and development drilling programs in
major domestic fields in core areas onshore and offshore.
The Company's proved natural gas reserves at year-end 1996 were 1.82
trillion cubic feet (Tcf) compared to 1.84 Tcf at year-end 1995 and 1.91 Tcf at
year-end 1994. Anadarko's crude oil, condensate and NGLs reserves at year-end
1996 increased 36 percent to 297.8 MMBbls compared to 219.2 MMBbls at year-end
1995. This compares to reserves of 157.4 MMBbls at year-end 1994. Crude oil
reserves have increased 279 percent over the last three years due to large
discoveries in Algeria, the Gulf of Mexico and Alaska. Crude oil, condensate and
NGLs reserves now comprise 50 percent of the Company's proved reserves compared
to about 42 percent at year-end 1995 and about 33 percent at year-end 1994.
Creating balance between crude oil reserves and natural gas reserves was a key
strategy for the Company.
The Company emphasizes that the volumes of reserves are estimates which, by
their nature, are subject to revision. The estimates are made using all
available geologic and reservoir data as well as production performance data.
These estimates are reviewed annually and revised, either upward or downward, as
warranted by additional performance data.
At December 31, 1996, the present value (discounted at 10 percent) of
future net revenues from Anadarko's proved reserves was $5.27 billion, before
income taxes, and was $3.40 billion, after income taxes, (stated in accordance
with the regulations of the Securities and Exchange Commission and Financial
Accounting Standards Board). The 1996 estimated present value of future net
revenues, after income taxes, increased 96 percent compared to 1995 primarily
due to increases in commodity prices for oil and gas at year-end 1996 and the
additions of proved reserves related to successful drilling worldwide. See
Supplemental Information on Oil and Gas Exploration and Production Activities in
the Consolidated Financial Statements under Item 8 of this Form 10-K.
24
26
The present value of future net revenues does not purport to be an estimate
of the fair market value of Anadarko's proved reserves. An estimate of fair
value would also take into account, among other things, anticipated changes in
future prices and costs, the expected recovery of reserves in excess of proved
reserves and a discount factor more representative of the time value of money
and the risks inherent in producing oil and gas.
ACQUISITIONS AND DIVESTITURES
Several years ago, the Company embarked on an asset management program to
sell "non-core" properties and invest the proceeds into core operating areas
around the world in order to focus financial resources and personnel on the
Company's core areas of operation. Over the past three years, the Company has
sold properties, either as a strategic exit or by asset rationalization in
existing core areas, with proceeds totaling $216 million. Reserves associated
with these sales and trades are 47.7 MMEEBs, resulting in unit proceeds of $4.53
per EEB. During the same time period, Anadarko has acquired through purchases
and trades 25.5 MMEEBs of proved reserves at a cash cost of $48 million, or
$1.88 per EEB.
During 1996, Anadarko sold reserves of 18.7 MMEEBs, of which 17.7 MMEEBs
were attributed to the Company's interests in Indonesia. Total proceeds from
divestitures in 1996 amounted to $41 million or $2.19 per EEB. In 1996,
acquisitions of producing properties totaled $5.3 million and 1.1 MMEEBs, at a
cost of $4.72 per EEB. The largest acquisition was a package of properties in
the Oklahoma Panhandle portion of the Hugoton Embayment. This package includes
significant undeveloped acreage on which Anadarko plans to conduct a 3-D seismic
survey and drill wells in 1997.
Total 1995 proceeds from divestitures were $66.6 million, which included
assets in north Texas and the Permian Basin of southeast New Mexico and west
Texas. Reserves sold equaled 11.9 MMEEBs, resulting in unit proceeds of $5.60
per EEB. The largest sale in 1995 was the Company's interest in 25
"non-strategic" fields to other operators for $56.8 million. In 1995, Anadarko
acquired 9.8 MMEEBs of reserves at a cost of $26 million, or $2.66 per EEB. The
largest acquisition was a package of properties in west Texas purchased from
Shell Western E&P. The Company also purchased for $9.5 million a water supply
system in west Texas which reduced operating costs and enabled expansions of
several important waterflood projects.
During 1994, Anadarko sold assets in the Arkoma Basin, the Rocky Mountains
and all of the Company's Canadian holdings. Reserves associated with the 1994
sales and trades were 17.1 MMEEBs, with proceeds of about $109 million, or $6.40
per EEB.
PRODUCING PROPERTIES AND LEASES
The Company owns 2,286 net producing oil wells and 1,892 net producing gas
wells worldwide. The following schedule shows the number of developed and
undeveloped acres in which Anadarko held interests at December 31, 1996.
ACREAGE
Developed Undeveloped Total
--------------- --------------- ---------------
Gross Net Gross Net Gross Net
thousands ----- ----- ----- ----- ----- -----
United States
Onshore 1,082 795 1,289 545 2,371 1,340
Offshore 178 56 435 232 613 288
----- ----- ----- ----- ----- -----
Total 1,260 851 1,724 777 2,984 1,628
----- ----- ----- ----- ----- -----
Algeria -- -- 5,292 2,324 5,292 2,324
Eritrea -- -- 6,700 6,700 6,700 6,700
Jordan -- -- 4,200 4,200 4,200 4,200
Peru -- -- 2,557 2,557 2,557 2,557
China -- -- 2,100 2,100 2,100 2,100
25
27
REGULATORY MATTERS
ENVIRONMENTAL The Company's oil and gas operations and properties are subject
to numerous federal, state and local laws and regulations relating to
environmental protection. These laws and regulations govern, among other things,
the amounts and types of substances and materials that may be released into the
environment, the issuance of permits in connection with drilling and production
activities, the discharge and disposition of waste materials, offshore oil and
gas operations, the reclamation and abandonment of wells and facility sites and
the remediation of contaminated sites. In addition, these laws and regulations
may impose substantial liabilities for the Company's failure to comply with them
or for any contamination resulting from the Company's operations.
Anadarko takes the issue of environmental stewardship very seriously and
works diligently to comply with applicable environmental rules and regulations.
Compliance with environmental laws and regulations has not had a material
adverse effect on the Company's operations or financial condition in the past.
However, because environmental laws and regulations are becoming increasingly
more stringent, there can be no assurances that such laws and regulations or any
environmental law or regulation enacted in the future will not have a material
adverse effect on the Company's operations or financial condition.
For a description of certain environmental proceedings in which the Company
is involved, see Note 16 of the Notes to Consolidated Financial Statements under
Item 8 of this Form 10-K.
OTHER Regulatory agencies in certain states have authority to issue permits for
the drilling of wells, regulate the spacing of wells, prevent the waste of oil
and gas resources through proration and regulate environmental matters.
Operations conducted by the Company on federal oil and gas leases must
comply with numerous regulatory restrictions, including various
nondiscrimination statutes. Additionally, certain operations must be conducted
pursuant to appropriate permits issued by the Bureau of Land Management and the
Minerals Management Service of the Department of Interior and, with regard to
certain federal leases, with prior approval of drill site locations by the
Environmental Protection Agency. In addition to the standard permit process,
federal leases may require a complete environmental impact assessment prior to
authorizing an exploration or development plan.
ADDITIONAL FACTORS AFFECTING BUSINESS
COMMODITY PRICING AND DEMAND Crude oil prices continue to be affected by
political developments worldwide, pricing decisions of the Organization of
Petroleum Exporting Countries (OPEC) and the volatile trading patterns in the
commodity futures markets. Natural gas prices also continue to be highly
volatile. In periods of sharply lower commodity prices, the Company may curtail
capital spending projects and delay or defer drilling wells in certain areas
because of lower cash flows. Changes in crude oil and natural gas prices can
impact the Company's determination of proved reserves and the Company's
calculation of the standardized measure of discounted future net cash flows
relating to oil and gas reserves. In addition, demand in the United States and
worldwide may affect the Company's level of production.
EXPLORATION AND OPERATING RISKS The Company's business is subject to all of the
operating risks normally associated with the exploration for and production of
oil and gas, including blowouts, cratering and fire, each of which could result
in damage to or destruction of oil and gas wells or formations or production
facilities and other property and injury to persons. As protection against
financial loss resulting from these operating hazards, the Company maintains
insurance coverage, including certain physical damage, employer's liability,
comprehensive general liability and workmen's compensation insurance. Although
Anadarko is not fully insured against all risks in its business, the Company
believes that the coverage it maintains is customary for companies engaged in
similar operations. The occurrence of a significant event against which the
Company is not fully insured could have a material adverse effect on the
Company's financial position.
DEVELOPMENT RISKS The Company is increasingly involved in large development
projects in the Gulf of Mexico, Alaska and internationally. Key factors that may
affect the timing and outcome of such projects include: project approvals by
joint-venture partners; timely issuance of permits and licenses by host country
governmental agencies; manufacturing and delivery schedules of critical
equipment; and commercial arrange-
26
28
ments for pipelines and related equipment to transport and market hydrocarbons.
In large development projects, these uncertainties are usually resolved, but
delays and differences between estimated timing and actual timing of critical
events are commonplace and may, therefore, affect the forward-looking statements
related to large development projects.
DOMESTIC GOVERNMENTAL RISKS The domestic operations of the Company have been,
and at times in the future may be, affected by political developments and by
federal, state and local laws and regulations such as restrictions on
production, changes in taxes, royalties and other amounts payable to governments
or governmental agencies, price or gathering rate controls and environmental
protection regulations.
FOREIGN OPERATIONS RISK The Company's operations in areas outside the United
States are subject to various risks inherent in foreign operations. These risks
may include, among other things, loss of revenue, property and equipment as a
result of hazards such as expropriation, war, insurrection and other political
risks, increases in taxes and governmental royalties, renegotiation of contracts
with governmental entities, changes in laws and policies governing operations of
foreign-based companies, currency restrictions and exchange rate fluctuations
and other uncertainties arising out of foreign government sovereignty over the
Company's international operations. The Company's international operations may
also be adversely affected by laws and policies of the United States affecting
foreign trade and taxation. To date, the Company's international operations have
not been materially affected by these risks.
COMPETITION The oil and gas business is highly competitive in the search for
and acquisition of reserves, as well as, in the gathering and marketing of oil
and gas production. The Company's competitors include the major oil companies,
independent oil and gas concerns, individual producers, gas marketers and major
pipeline companies, as well as participants in other industries supplying energy
and fuel to industrial, commercial and individual consumers. Competition for
drilling rigs is keen in certain areas of the Gulf of Mexico. During 1996 and
1995, the Company experienced increases in drilling rig rental rates due to the
tight rig market in the Gulf of Mexico.
CAPITAL EXPENDITURES, LIQUIDITY AND LONG-TERM DEBT
CAPITAL EXPENDITURES Anadarko's total capital spending in 1996 was $427
million, an increase of 29 percent over a 1995 capital spending level of $331
million and about equal to 1994 spending of $423 million. Capital spending in
1996 did not reach the budget initially set at $485 million, largely due to
construction delays in Algeria. The 1995 spending level was lower than
originally anticipated due to lower gas prices and deferred drilling
opportunities in the Gulf of Mexico's sub-salt play. The 1994 spending included
$72 million to acquire 26 offshore lease blocks in the Gulf of Mexico at the
Minerals Management Service Offshore Lease Sale No. 147 in March 1994. The
largest categories of capital spending in 1996, 1995 and 1994 were for
exploration and development activities in the U.S. and overseas. The Company
funded its capital investment program in 1996, 1995 and 1994 primarily through
cash flow, plus proceeds from property sales and increases in long-term debt.
CAPITAL EXPENDITURES
1996 1995 1994
millions ------ ------ ------
Exploration $141.8 $ 97.9 $196.0
Development 148.9 96.8 128.8
Acquisitions of producing properties 5.3 26.0 18.1
Gathering and other 64.0 52.4 25.1
Interest and overhead 67.2 58.1 54.7
------ ------ ------
Total $427.2 $331.2 $422.7
------ ------ ------
Capital spending for 1997 has been set at about $560 million, an increase
of 31 percent over 1996 and the highest anticipated spending level in Company
history. The higher capital budget is driven by increased
27
29
opportunities in both U.S. and international exploration and development
drilling programs. The 1997 budget includes $159 million for exploration, $300
million for development, $27 million for gathering and other, and $74 million
for capitalized interest and overhead. Although no dollars are budgeted for
acquisitions in 1997, the Company will look at opportunities and, depending on
conditions of the market, may elect to purchase properties.
Historically, the Company has based capital spending on anticipated cash
flows including proceeds from divestitures, but certain portions of the capital
spending budget -- such as acquisitions -- have been financed from time to time.
In addition, the Company's budget is adjusted periodically to reflect changes in
market prices for oil and natural gas. 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.
LIQUIDITY AND LONG-TERM DEBT At year-end 1996, Anadarko's total debt was $731
million. This compares to year-end 1995 total debt of $674 million.
In January 1997, the Company entered into a sale/lease back agreement for
$88.4 million involving 145 natural gas compressors in Anadarko's major
mid-continent gathering systems. The transaction monetized Company assets and
took advantage of current low interest rates. Proceeds from the transaction were
used for general corporate purposes.
During 1996, Anadarko offered two "Century Bonds". In September 1996, the
Company 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 Debentures, at a purchase price
equal to par plus accrued and unpaid interest. In November 1996, the Company
issued $100 million principal amount of 7 1/4% Debentures due November 15, 2096.
During the fourth quarter of 1996, Anadarko entered into a 10-year swap
agreement with a notional value of $100 million whereby the Company receives a
fixed interest rate and pays a floating interest rate indexed to 3-month LIBOR.
This agreement was entered into to offset a portion of the effect of the
Company's fixed-rate long-term debt financed in 1996.
In March 1995, Anadarko issued $100 million principal amount of 7 1/4%
Debentures due 2025. Each Debenture holder has the one-time right to have the
Company purchase on March 15, 2000, all or a portion of, the Debenture at a
purchase price equal to par plus accrued and unpaid interest.
In May 1994, Anadarko entered into a $250 million Revolving Credit
Agreement and a $150 million 364-Day Credit Agreement with a group of commercial
banks. As of December 31, 1996 and 1995, there were no outstanding borrowings
under these agreements.
In May 1995, the Company issued one million shares of common stock to the
Anadarko Petroleum Corporation Executives and Directors Benefits Trust (Trust)
to secure present and future unfunded benefit obligations of the Company. The
shares issued to the Trust are not considered outstanding for quorum or voting
calculations, but the Trust will receive dividends. The shares are included in
the calculation of earnings per share under the treasury stock method and have
no dilutive effect.
Anadarko's net cash from operating activities in 1996 was up 27 percent to
$315 million compared to $248 million in 1995. Net cash from operating
activities in 1994 was $240 million.
CHANGES IN ACCOUNTING PRINCIPLES
STOCK-BASED COMPENSATION Statement of Financial Accounting Standards (SFAS) No.
123, "Accounting for Stock-based Compensation" defines a fair value based method
of accounting for an employee stock option or similar equity instrument. SFAS
No. 123 allows an entity to continue to measure compensation costs for these
plans using the current method of accounting. Anadarko has elected to continue
to use the current method of accounting for employee stock compensation plans
and discloses in Note 7 of the Notes to the Consolidated Financial Statements
under Item 8 of this Form 10-K, the fair value as defined in SFAS No. 123.
28
30
DIVIDENDS
In 1996, Anadarko paid $17.8 million in dividends to its common
stockholders (7.5 cents per share per quarter). The dividend amount was $17.7
million in 1995 (7.5 cents per share per quarter) and $17.6 million (7.5 cents
per share per quarter) in 1994. Anadarko has paid a dividend continuously since
becoming an independent company in 1986.
The Revolving Credit Agreement and the 364-Day Credit Agreement require a
minimum balance of $650 million to be maintained in retained earnings. As a
result, the amount of retained earnings available for dividends as of December
31, 1996 was $364.1 million. The amount of future dividends will depend on
earnings, financial condition, capital requirements and other factors, and will
be determined by the Board of Directors on a quarterly basis.
29
31
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
ANADARKO PETROLEUM CORPORATION
INDEX
CONSOLIDATED FINANCIAL STATEMENTS
PAGE
----
Report of Management 31
Independent Auditors' Report 32
Statement of Income, Three Years Ended December 31, 1996 33
Balance Sheet, December 31, 1996 and 1995 34
Statement of Stockholders' Equity, Three Years Ended
December 31, 1996 35
Statement of Cash Flows, Three Years Ended December 31, 1996 36
Notes to Consolidated Financial Statements 37
Supplemental Quarterly Information 54
Supplemental Information on Oil and Gas Exploration and
Production Activities 55
30
32
ANADARKO PETROLEUM CORPORATION
REPORT OF MANAGEMENT
The management of Anadarko Petroleum Corporation is responsible for the
preparation and integrity of all information contained in the accompanying
consolidated financial statements. The financial statements have been prepared
in conformity with generally accepted accounting principles appropriate in the
circumstances. In preparing the financial statements, management makes informed
judgements and estimates.
Management maintains and relies on the Company's system of internal
accounting controls. Although no system can ensure elimination of all errors and
irregularities, this system is designed to provide reasonable assurance that
assets are safeguarded, transactions are executed in accordance with
management's authorization and accounting records are reliable as a basis for
the preparation of financial statements. This system includes the selection and
training of qualified personnel, an organizational structure providing
appropriate delegation of authority and division of responsibility, the
establishment of accounting and business policies for the Company and the
conduct of internal audits.
The Board of Directors pursues its responsibility for the consolidated
financial information through its Audit Committee, which is composed solely of
directors who are not officers or employees of Anadarko. The Audit Committee
recommends to the Board of Directors the selection of independent auditors and
reviews their fee arrangements. The Audit Committee meets periodically with
management, the internal auditors and the independent auditors to review that
each is carrying out its responsibilities. The internal and independent auditors
have full and free access to the Audit Committee to discuss auditing and
financial reporting matters.
We believe that Anadarko's policies and procedures, including its system of
internal accounting controls, provide reasonable assurance that the financial
statements are prepared in accordance with the applicable securities laws.
[ROBERT J. ALLISON, JR.]
Robert J. Allison, Jr.
Chairman, President and
Chief Executive Officer
[MICHAEL E. ROSE]
Michael E. Rose
Senior Vice President and
Chief Financial Officer
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33
ANADARKO PETROLEUM CORPORATION
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Stockholders
Anadarko Petroleum Corporation:
We have audited the accompanying consolidated balance sheets of Anadarko
Petroleum Corporation and subsidiaries as of December 31, 1996 and 1995, and the
related consolidated statements of income, stockholders' equity and cash flows
for each of the years in the three-year period ended December 31, 1996, as
contained in the 1996 Form 10-K Annual Report. These consolidated financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Anadarko
Petroleum Corporation and subsidiaries as of December 31, 1996 and 1995, and the
results of their operations and their cash flows for each of the years in the
three-year period ended December 31, 1996, in conformity with generally accepted
accounting principles.
[KPMG PEAT MARWICK LLP]
Houston, Texas
January 30, 1997
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34
ANADARKO PETROLEUM CORPORATION
CONSOLIDATED STATEMENT OF INCOME
Years Ended December 31 1996 1995 1994
----------------------- ---- ---- ----
thousands
REVENUES
Gas sales $362,599 $259,849 $313,470
Oil and condensate sales 139,936 125,980 125,640
Natural gas liquids and other 66,493 48,185 43,366
-------- -------- --------
Total 569,028 434,014 482,476
-------- -------- --------
COSTS AND EXPENSES
Operating expenses Note 11 115,308 105,829 110,202
Administrative and general 67,673 59,477 61,138
Depreciation, depletion and amortization 167,183 164,742 172,825
Other taxes Note 12 37,205 36,892 40,973
(Gains) losses and impairments related to international and
geothermal properties Notes 2 and 5 (13,986) 2,600 8,667
-------- -------- --------
Total 373,383 369,540 393,805
-------- -------- --------
Operating Income 195,645 64,474 88,671
OTHER INCOME AND (EXPENSES)
Other income 1,118 1,150 2,123
Interest expense Notes 5 and 6 (38,973) (36,358) (26,128)
-------- -------- --------
Income before Income Taxes 157,790 29,266 64,666
INCOME TAXES Note 13 57,070 8,231 23,567
-------- -------- --------
NET INCOME $100,720 $ 21,035 $ 41,099
-------- -------- --------
PER COMMON SHARE
Net income $ 1.70 $ 0.36 $ 0.70
Dividends Note 7 $ 0.30 $ 0.30 $ 0.30
-------- -------- --------
AVERAGE NUMBER OF SHARES OUTSTANDING Note 7 59,247 58,935 58,776
-------- -------- --------
See accompanying notes to consolidated financial statements.
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35
ANADARKO PETROLEUM CORPORATION
CONSOLIDATED BALANCE SHEET
December 31 1996 1995
----------- ---- ----
thousands
ASSETS
CURRENT ASSETS
Cash and cash equivalents Note 3 $ 14,601 $ 17,090
Accounts receivable 226,824 127,943
Inventories Note 4 24,540 14,859
Prepaid expenses 3,843 3,306
---------- ----------
Total 269,808 163,198
---------- ----------
PROPERTIES AND EQUIPMENT
Original cost 4,036,165 3,717,672
Less accumulated depreciation, depletion and amortization 1,738,709 1,628,922
---------- ----------
Net properties and equipment -- based on the full cost
method of accounting for oil and gas properties Note 5 2,297,456 2,088,750
---------- ----------
DEFERRED CHARGES 16,766 15,099
---------- ----------
$2,584,030 $2,267,047
---------- ----------
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable
Trade and other $ 244,219 $ 153,502
Bank 17,995 12,849
Accrued expenses
Interest 12,812 10,729
Taxes and other 10,227 13,393
---------- ----------
Total 285,253 190,473
---------- ----------
LONG-TERM DEBT Note 6 731,049 674,008
---------- ----------
DEFERRED CREDITS
Deferred income taxes Note 13 498,973 449,798
Other 54,675 43,074
---------- ----------
Total 553,648 492,872
---------- ----------
STOCKHOLDERS' EQUITY
Common stock, par value $0.10
(200,000,000 shares authorized, 60,525,699 and 60,016,045
shares issued as of December 31, 1996 and 1995,
respectively) 6,098 6,047
Preferred stock, par value $1.00
(2,000,000 shares authorized, no shares issued as of
December 31, 1996 and 1995) -- --
Paid-in capital 335,848 304,125
Retained earnings (as of December 31, 1996, $364,080,000 was
not restricted as to the payment of dividends) 739,395 656,455
Deferred compensation (3,444) (2,808)
Executives and directors benefit trust, at market value
(1,000,000 shares as of December 31, 1996 and 1995) (63,813) (54,125)
Treasury stock (70 shares as of December 31, 1996) (4) --
---------- ----------
Total 1,014,080 909,694
---------- ----------
COMMITMENTS AND CONTINGENCIES Notes 10, 14, 15 and 16 -- --
---------- ----------
$2,584,030 $2,267,047
---------- ----------
See accompanying notes to consolidated financial statements.
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36
ANADARKO PETROLEUM CORPORATION
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
Years Ended December 31 1996 1995 1994
----------------------- ---- ---- ----
thousands
COMMON STOCK
Balance at beginning of year $ 6,047 $ 5,931 $ 5,912
Common stock issued 51 116 19
---------- -------- --------
Balance at end of year 6,098 6,047 5,931
---------- -------- --------
PAID-IN CAPITAL
Balance at beginning of year 304,125 243,976 236,001
Common stock issued 22,035 6,124 7,975
Issuance of stock and revaluation to market for
executives and directors benefit trust 9,688 54,025 --
---------- -------- --------
Balance at end of year 335,848 304,125 243,976
---------- -------- --------
RETAINED EARNINGS
Balance at beginning of year 656,455 653,112 625,308
Net income 100,720 21,035 41,099
Foreign translation losses -- -- (1,686)
Cumulative translation losses transferred to the income
statement upon disposition of foreign subsidiary -- -- 6,065
---------- -------- --------
757,175 674,147 670,786
Dividends paid (17,780) (17,692) (17,635)
Issuance of treasury stock -- -- (39)
---------- -------- --------
Balance at end of year 739,395 656,455 653,112
---------- -------- --------
DEFERRED COMPENSATION
Balance at beginning of year (2,808) (3,420) (3,055)
Issuance of restricted stock (2,463) (1,106) (1,668)
Amortization of restricted stock 1,827 1,718 1,303
---------- -------- --------
Balance at end of year (3,444) (2,808) (3,420)
---------- -------- --------
EXECUTIVES AND DIRECTORS BENEFIT TRUST
Balance at beginning of year (54,125) -- --
Issuance of stock -- (42,375) --
Revaluation to market (9,688) (11,750) --
---------- -------- --------
Balance at end of year (63,813) (54,125) --
---------- -------- --------
TREASURY STOCK
Balance at beginning of year -- -- --
Purchase of treasury stock (693) (427) (405)
Issuance of treasury stock 689 427 405
---------- -------- --------
Balance at end of year (4) -- --
---------- -------- --------
STOCKHOLDERS' EQUITY Notes 7 and 8 $1,014,080 $909,694 $899,599
---------- -------- --------
See accompanying notes to consolidated financial statements.
35
37
ANADARKO PETROLEUM CORPORATION
CONSOLIDATED STATEMENT OF CASH FLOWS
Years Ended December 31 1996 1995 1994
----------------------- ---- ---- ----
thousands
CASH FLOW FROM OPERATING ACTIVITIES
Net income $ 100,720 $ 21,035 $ 41,099
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation, depletion and amortization 167,183 164,742 172,825
Amortization of restricted stock 1,827 1,718 1,303
Deferred income taxes 54,231 11,544 15,912
Provisions for impairments of international and
geothermal properties 5,400 2,600 3,100
Cumulative translation losses transferred to the
income statement upon disposition of foreign
subsidiary -- -- 6,065
--------- -------- ---------
329,361 201,639 240,304
Increase in accounts receivable (98,881) (12,762) (4,695)
Increase in inventories (9,681) (1,439) (3,869)
Increase in accounts payable -- trade and other and
accrued expenses 89,634 63,760 1,175
Other items -- net 4,108 (2,902) 6,772
--------- -------- ---------
Net cash provided by operating activities 314,541 248,296 239,687
--------- -------- ---------
CASH FLOW FROM INVESTING ACTIVITIES
Additions to properties and equipment (427,234) (331,214) (422,718)
Sales and retirements of properties and equipment 46,178 62,847 95,370
--------- -------- ---------
Net cash used in investing activities (381,056) (268,367) (327,348)
--------- -------- ---------
CASH FLOW FROM FINANCING ACTIVITIES
Additions to debt 200,000 205,100 180,281
Retirements of debt (142,959) (160,373) (93,500)
Increase (decrease) in accounts payable, banks 5,146 (1,438) 959
Dividends paid (17,780) (17,692) (17,635)
Issuance of common stock 19,623 5,034 6,326
Issuance of treasury stock 689 427 366
Purchase of treasury stock (693) (427) (405)
--------- -------- ---------
Net cash provided by financing activities 64,026 30,631 76,392
--------- -------- ---------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (2,489) 10,560 (11,269)
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR 17,090 6,530 17,799
--------- -------- ---------
CASH AND CASH EQUIVALENTS AT END OF YEAR $ 14,601 $ 17,090 $ 6,530
--------- -------- ---------
See accompanying notes to consolidated financial statements
36
38
ANADARKO PETROLEUM CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
1. SUMMARY OF ACCOUNTING POLICIES
GENERAL Anadarko Petroleum Corporation is engaged in the exploration,
development, production and marketing of natural 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
(formerly Anadarko Trading Company); and, Anadarko Algeria Corporation (Anadarko
Algeria). In December 1994, the Company sold its wholly-owned subsidiary,
Anadarko Petroleum of Canada Ltd. (Anadarko Canada). See Note 2.
PRINCIPLES OF CONSOLIDATION AND USE OF ESTIMATES The consolidated financial
statements include the accounts of Anadarko and its subsidiaries. All
significant intercompany transactions have been eliminated. The financial
statements have been prepared in conformity with generally accepted accounting
principles appropriate in the circumstances. Certain amounts for prior years
have been restated to conform to the current presentation. In preparing
financial statements, management makes informed judgements and estimates that
affect the reported amounts of assets and liabilities as of the date of the
financial statements and affect the reported amounts of revenues and expenses
during the reporting period. Actual results may differ from these estimates.
REVENUES Natural gas revenues generally are recorded using the sales method,
whereby the Company recognizes natural gas revenues based on the amount of gas
sold to purchasers on its behalf. All other revenues also are recorded using the
sales method.
PRICE RISK MANAGEMENT Anadarko's financial instruments currently are comprised
of futures, swaps and options. Anadarko uses commodity derivative financial
instruments to minimize the impact of price fluctuations for the Company and its
customers. To qualify as a hedge, these instruments must correlate to
anticipated future sales such that the Company's exposure to the effects of
commodity price changes is reduced. The gains and losses on these instruments
are included in the valuation of the transactions being hedged upon completion
of the transactions. Gains and losses on derivatives not classified as hedges
are accounted for on a current basis. Unrealized gains and losses are recorded
as assets and liabilities on the balance sheet. See Note 6.
PROPERTIES AND EQUIPMENT The Company uses the full cost method of accounting
for exploration and development activities as defined by the United States
Securities and Exchange Commission (SEC). Under this method of accounting, the
costs for unsuccessful, as well as successful, exploration and development
activities are capitalized as properties and equipment. This includes any
internal costs that can be directly identified with acquisition, exploration and
development activities, but does not include any costs related to production,
general corporate overhead or similar activities.
The sum of net capitalized costs and estimated future development and
dismantlement costs is amortized using the unit-of-production method. Excluded
from amounts subject to amortization are costs associated with unevaluated
properties and major development projects. On a country-by-country basis, should
the net capitalized costs exceed the estimated present value of future net cash
flows from proved oil and gas reserves, such excess costs would be charged to
current expense. Gain or loss on the sale or other disposition of oil and gas
properties is not recognized unless significant amounts of oil and gas reserves
are involved.
Unsuccessful geothermal exploration costs are charged to expense. All other
properties and equipment are stated at original cost, which does not purport to
represent replacement or market values.
ENVIRONMENTAL CONTINGENCIES The Company accrues for environmental contingencies
when liabilities are likely to occur and reasonable estimates can be made. In
accordance with full cost accounting rules, the Company provides for
environmental clean up costs associated with oil and gas activities as a
component of its depreciation, depletion and amortization expense. Recoveries
from third parties for environmental liabilities are not recognized unless
collection is probable.
37
39
ANADARKO PETROLEUM CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
1. SUMMARY OF ACCOUNTING POLICIES -- (CONTINUED)
INTEREST CAPITALIZED The Company capitalizes interest on borrowed funds related
to oil and gas expenditures that are not subject to amortization until
completion of evaluation or development activities.
INCOME TAXES The Company, excluding Anadarko Canada, files a U.S. consolidated
federal income tax return. Deferred federal and state income taxes are provided
on all significant temporary differences, except for those essentially permanent
in duration, between the financial statement carrying amounts of existing assets
and liabilities and their respective tax bases.
FOREIGN CURRENCY TRANSLATION ADJUSTMENTS The financial statements of Anadarko
Canada were translated to U.S. dollars. All balance sheet accounts were
translated at the current exchange rate and income statement items were
translated at the average exchange rate for the year; resulting translation
adjustments were made directly to a separate component of stockholders' equity.
Transaction adjustments were reported in net income. In prior years, deferred
federal income taxes were not provided on translation adjustments because the
earnings of Anadarko Canada were considered to be permanently invested. Due to
the sale of Anadarko Canada in 1994, the cumulative foreign currency translation
losses were transferred from stockholders' equity and included in disposition of
foreign subsidiary on the income statement. See Note 2.
CASH EQUIVALENTS The Company considers all highly liquid investments purchased
with an original maturity of three months or less to be cash equivalents.
ACCOUNTS PAYABLE, BANKS This account represents credit balances to the extent
that checks issued have not been presented to the Company's banks for payment.
STOCK-BASED COMPENSATION Effective January 1, 1996, Anadarko adopted Statement
of Financial Accounting Standards (SFAS) No. 123, "Accounting for Stock-based
Compensation". SFAS No. 123 defines a fair value method of accounting for an
employee stock option or similar equity instrument. SFAS No. 123 allows an
entity to continue to measure compensation costs for these plans using the
current method of accounting. Anadarko has elected to continue to use the
current method of accounting for employee stock compensation plans and disclose
the fair values as defined in SFAS No. 123. See Note 7.
2. DISPOSITION OF FOREIGN SUBSIDIARIES
In September 1996, Anadarko sold its wholly-owned subsidiary, Anadarko
Indonesia Company, Jabung. As a result, the Company recorded a gain of
$19,385,000 and U.S. income tax expense of $7,040,000 on the sale.
In December 1994, Anadarko sold Anadarko Canada for $57,937,000. In
connection with the sale, Anadarko recorded a charge of $5,567,000 before income
taxes ($6,635,000 after income taxes) primarily due to a non-cash charge of
$6,065,000 for cumulative foreign currency translation losses previously
recorded as a reduction in stockholders' equity. The Company recorded U.S.
income tax expense of $17,454,000 on the sale. The Company also reversed
previously provided deferred Canadian taxes in the amount of $16,386,000 for a
net income tax expense associated with the sale of $1,068,000.
3. CASH AND CASH EQUIVALENTS
As of December 31, 1996 and 1995, cash and cash equivalents included
$321,000 and $222,000, respectively, held by the Executives and Directors
Benefits Trust. In addition, as of December 31, 1995, cash and cash equivalents
included $4,127,000 invested in U.S. Treasury securities, which the Company had
dedicated for a "like-kind" property exchange.
38
40
ANADARKO PETROLEUM CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
4. INVENTORIES
Inventories are stated at the lower of average cost or market. Natural gas
and NGLs, when sold from inventory, are charged to expense using the
average-cost method. The major classes of inventories are as follows:
1996 1995
thousands ---- ----
Materials and supplies $23,495 $13,969
Natural gas, stored in inventory 1,017 478
Natural gas liquids, stored in inventory 28 412
------- -------
$24,540 $14,859
------- -------
5. PROPERTIES AND EQUIPMENT
A summary of the original cost of properties and equipment by
classification follows:
1996 1995
thousands ---- ----
Oil and gas properties $3,750,797 $3,501,162
Gathering facilities 132,631 76,492
Plant facilities 17,726 17,600
General properties 135,011 122,418
---------- ----------
$4,036,165 $3,717,672
---------- ----------
Oil and gas properties are amortized using the unit-of-production method.
All other properties are depreciated on the straight-line basis over the useful
lives of the assets, which range from three to 25 years.
Oil and gas properties include costs of $254,811,000 and $245,577,000 at
December 31, 1996 and 1995, respectively, which were excluded from capitalized
costs being amortized. These amounts represent costs associated with unevaluated
properties and major development projects. Anadarko excludes all costs on a
country-by-country basis until proved reserves are found or until it is
determined that the costs are impaired. All excluded costs are reviewed
quarterly to determine if impairment has occurred.
Properties and equipment include costs of $231,858,000 and $146,706,000 at
December 31, 1996 and 1995, respectively, for the Company's exploration and
development activities in Algeria. Depreciation of these assets will begin when
production commences.
During 1996, 1995 and 1994, the Company made provisions for impairments of
international properties of $5,400,000, $600,000 and $3,100,000, respectively,
which were related to oil and gas properties. These impairments related to
projects that the Company has decided not to pursue in China and various other
international locations. During 1995, the Company made a provision for
impairments of geothermal properties of $2,000,000.
Total interest costs incurred during 1996, 1995 and 1994 were $55,985,000,
$52,557,000 and $41,635,000, respectively. Of these amounts, the Company
capitalized $17,012,000, $16,199,000 and $15,507,000 during 1996, 1995 and 1994,
respectively. Capitalized interest is included as part of the cost of oil and
gas properties. The capitalization rates are based on the Company's weighted
average cost of borrowings used to finance the expenditures.
In addition to capitalized interest, the Company also capitalized internal
costs of $50,213,000, $40,617,000 and $37,898,000 during 1996, 1995 and 1994,
respectively. These internal costs were directly related to acquisition,
exploration and development activities and are included as part of the cost of
oil and gas properties.
39
41
ANADARKO PETROLEUM CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
6. LONG-TERM DEBT AND FINANCIAL INSTRUMENTS
Principal
---------
1996 1995
thousands ---- ----
Commercial Paper* $ 31,049 $ 19,908
Notes Payable, Banks* -- 154,100
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 --
7 1/4% Debentures due 2096 100,000 --
-------- --------
$731,049 $674,008
-------- --------
- ---------------
*The average rates in effect at December 31, 1996 and 1995 were 6.30% and 5.96%,
respectively for the Commercial Paper. The average rate in effect at December
31, 1995 was 5.95% for the Notes Payable, Banks.
Anadarko has noncommitted lines of credit from several banks. The general
provisions of these lines of credit provide for Anadarko to borrow funds for
terms and rates offered from time to time by the banks. There are no fees
associated with these lines of credit.
The Company has a commercial paper program that allows Anadarko to borrow
funds, at rates as offered, by issuing notes to investors for terms of up to 270
days.
The commercial paper and notes payable to banks in 1996 and 1995 have been
classified as long-term debt in accordance with SFAS No. 6, "Classification of
Short-term Obligations Expected to be Refinanced," under the terms of Anadarko's
Bank Credit Agreements.
In November 1996, Anadarko issued $100,000,000 principal amount of 7 1/4%
Debentures due 2096. The Company has a conditional right to shorten the maturity
of the Debentures if tax law changes impact the tax deduction for interest on
the Debentures. Net proceeds from the offering were used to repay floating
interest rate debt.
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 Debentures 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 March 1995, Anadarko issued $100,000,000 principal amount of 7 1/4%
Debentures due 2025. Each Debenture holder has the one-time right to have the
Company purchase on March 15, 2000, all or a portion of, the Debentures 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 May 1994, the Company entered into a $250,000,000 Revolving Credit
Agreement and a $150,000,000 364-Day Credit Agreement with a group of 11
commercial banks. In May 1996, the Agreements were amended to reduce the
commitment fees and extend the expiration date of the Agreements for one year.
Interest rates are based on either the reference rate, the rate of certificate
of deposit, the Eurodollar rate or a combination thereof. The Agreements provide
for commitment fees on the unused balances at a rate of 12.5/100 of one percent
and 10.0/100 of one percent for the Revolving Credit Agreement and 364-Day
Credit Agreement, respectively. The Revolving Credit Agreement will expire in
2001. During 1996 and 1995, there were no outstanding borrowings under these
Agreements.
40
42
ANADARKO PETROLEUM CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
6. LONG-TERM DEBT AND FINANCIAL INSTRUMENTS -- (CONTINUED)
During 1996 and 1995, the Company had available $20,000,000 in a bank line
of credit which was not used. The maximum interest rate for loans against the
line was the reference rate of the bank. The line of credit is renewable
annually, but may be withdrawn at any time by the bank. In 1996 and 1995,
Anadarko maintained an average daily compensating balance of $1,000,000 for this
line of credit.
Total sinking fund and installment payments related to long-term debt for
the five years ending December 31, 2001 are shown below. The payments related to
the redemption of the commercial paper are included in the amounts shown in a
manner consistent with the terms for repayment of the Revolving Credit
Agreement.
thousands
1997 $ --
1998 100,000
1999 --
2000* 100,000
2001 131,049
- ---------------
* The 7 1/4% Debentures due 2025 are shown because of the Debenture holders'
one-time redemption rights in 2000.
The following information discloses the fair value of the Company's
financial instruments:
Carrying Amount Fair Value
thousands --------------- ----------
1996
Cash and cash equivalents $ 14,601 $ 14,601
Long-term debt 731,049 735,799
Commodity derivative financial instruments
Asset 5,121 5,121
Liability (7,515) (7,515)
1995
Cash and cash equivalents $ 17,090 $ 17,090
Long-term debt 674,008 702,008
Commodity derivative financial instruments
Asset 4,447 4,447
Liability (7,898) (7,898)
CASH AND CASH EQUIVALENTS The carrying amount reported on the balance sheet
approximates fair value.
LONG-TERM DEBT The fair value of long-term debt at December 31, 1996 and 1995
is the value the Company would have to pay to retire the debt, including any
premium or discount to the debt holder for the differential between stated
interest rate and year-end market rate. The fair values are based on quoted
market prices from Standard & Poor's Bond Guide and, where such quotes were not
available, on the average rate in effect at year-end.
COMMODITY DERIVATIVE FINANCIAL INSTRUMENTS Anadarko uses commodity derivative
financial instruments -- futures, swaps and options -- to fix a price
independent of the timing of the physical purchase or sale, to fix a price
differential (basis) between the price of gas at Henry Hub and the price at the
market locations at which Anadarko purchases and sells oil and gas (market
locations), to hedge the fixed price or fixed basis pricing requirements of
Anadarko's customers and suppliers, and to hedge the value of gas in storage or
gas owed to or due from pipelines. Gains and losses generally are recorded when
the related gas or oil production has been
41
43
ANADARKO PETROLEUM CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
6. LONG-TERM DEBT AND FINANCIAL INSTRUMENTS -- (CONTINUED)
produced or delivered. As a result, gains and losses are generally offset by
similar changes in the price of natural gas and crude oil. Unrealized gains and
losses are recorded as assets and liabilities on the balance sheet at fair
market value as of the balance sheet date. The unrealized gains and losses
include derivatives related to January activities deferred as of December 31 and
exclude certain written options recognized during the year. All volumes exclude
January hedges not open and written options recognized. 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 limit
Anadarko's gain from increases in the market price of natural gas and crude oil.
The fair value of derivative financial instruments reflects the estimated
amounts that the Company would receive or pay to settle the contracts as of
December 31. Dealer quotes are available for the majority of the Company's
derivatives.
COMMODITY FUTURES Anadarko generally uses commodity futures contracts to fix
the price of gas delivered to Henry Hub or oil delivered to Cushing. Futures
contracts have settlement guaranteed by the New York Mercantile Exchange (NYMEX)
and have nominal credit risk.
At year-end 1996, Anadarko had open natural gas futures contracts totaling
76 billion British thermal units per day (BBtu/d) related to sales for February
through March 1997. The Company had open natural gas futures contracts related
to gas owed to pipelines of 15 BBtu/d for April through May 1997. Anadarko had
open crude oil futures contracts related to sales of 6 thousand barrels per day
(MBbls/d) for February 1997.
At year-end 1995, Anadarko had open natural gas futures contracts totaling
66 BBtu/d related to sales for February through March 1996. The Company had open
natural gas futures contracts related to sales of 14 BBtu/d for April through
November 1996. The Company had open natural gas futures contracts related to
customer and supplier pricing requirements of 1.3 BBtu/d for February through
March 1996. Anadarko had open crude oil futures contracts related to sales of
3.4 MBbls/d for February 1996.
COMMODITY SWAPS Anadarko generally uses commodity swap agreements with
third-parties to fix the price of gas and oil at its market locations. In
addition, Anadarko uses basis swap agreements to fix the price differential
between the price of gas at Henry Hub and the price of gas at its market
locations. These energy swap agreements expose the Company to third-party credit
risk to the extent the third-parties are unable to meet their monthly settlement
commitment to the Company. The Company monitors the credit standing of the
third-parties and anticipates they will be able to fully satisfy their
contractual obligations.
At year-end 1996, Anadarko had open basis swap agreements for the Company's
gas sales averaging 30 BBtu/d for 1997, 1998 and 1999 which were offset by open
basis swap agreements of like amounts for the same periods, thus eliminating the
risk to Anadarko from future price changes related to this position. The Company
had open gas basis swap agreements related to sales averaging 270 BBtu/d for
February through March 1997 and 70 BBtu/d for April through July 1997. In
addition, the Company had basis swaps related to customer and supplier gas
pricing requirements of 8 BBtu/d for February through March 1997 and related to
gas owed to pipelines of 15 BBtu/d for April through May 1997.
At year-end 1995, Anadarko had open basis swap agreements for the Company's
gas sales averaging 64 BBtu/d for January through December 1996 and 30 BBtu/d
for 1997, 1998 and 1999, which were offset by open basis swap agreements of like
amounts for the same periods, thus eliminating the risk to Anadarko from future
price changes related to these two positions. The Company also had open gas swap
agreements related to sales averaging 7 BBtu/d for February through December
1996 and related to customer and supplier gas pricing requirements of 9 BBtu/d
for February through December 1996.
COMMODITY OPTIONS The Company generally uses commodity options to fix a floor
and a ceiling for prices (a "collar") on its sales volumes. The Company also has
used options to "straddle" a price, effectively setting a price above the then
present market price at which the Company is willing to fix its sales price and
a price below the then present market price at which the Company is willing to
fix its purchase price for third party supply. Like futures, NYMEX options have
settlement guaranteed and have nominal credit risk. Over-the-counter (OTC)
options with third-parties have credit risks similar to swaps.
42
44
ANADARKO PETROLEUM CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
6. LONG-TERM DEBT AND FINANCIAL INSTRUMENTS -- (CONTINUED)
At year-end 1996, Anadarko had open NYMEX options for the Company's gas
sales of 10 BBtu/d for puts and 16 BBtu/d for calls during February and March
1997 and 30 BBtu/d for both puts and calls during April through July 1997.
Anadarko also had open NYMEX gas options for its customers of 30 BBtu/d for puts
and 6 BBtu/d for calls for February through March 1997. In addition, the Company
had open crude oil options on 5.1 MBbls/d for both puts and calls during
February through April 1997.
At year-end 1995, Anadarko had open NYMEX options for the Company's gas
sales of 183 BBtu/d for puts and 61 BBtu/d for calls during February through
March 1996 and 30 BBtu/d for puts and 20 BBtu/d for calls for April through
November 1996 in order to fix a price range on gas sales. In addition, the
Company had open crude oil options on 1.7 MBbls/d for puts and 4.5 MBbls/d for
calls during February through March 1996.
INTEREST RATE SWAPS During the fourth quarter of 1996, Anadarko entered into a
10-year swap agreement with a notional value of $100,000,000 whereby the Company
receives a fixed interest rate and pays a floating interest rate indexed to
3-month LIBOR. This agreement was entered into to offset a portion of the effect
of the Company's fixed rate long-term debt financed in 1996.
In October 1993, Anadarko accepted a payment of $2,600,000 granting the
purchaser the option to enter into a nine-year interest rate swap agreement with
the Company. The option was exercisable in October 1994. This agreement, if
exercised, would have effectively fixed the rate the Company would have paid on
a notional $100,000,000 of its floating interest rate debt at six percent for
nine years. The $2,600,000 payment and the related agreement hedged the
Company's floating interest rate debt. The option was not exercised and, as a
result, the Company recorded a reduction to interest expense of $2,600,000
during the fourth quarter of 1994.
7. STOCK AND STOCK OPTIONS
Following is a schedule of the changes in the Company's shares of common
stock:
1996 1995 1994
thousands ---- ---- ----
SHARES OF COMMON STOCK ISSUED
Beginning of year 60,016 58,857 58,668
Exercise of stock options 413 58 92
Issuance of restricted stock 39 27 32
Issuance of shares for employee savings
plan 58 74 65
Issuance of shares for executives and
directors benefit trust -- 1,000 --
------ ------ ------
End of year 60,526 60,016 58,857
------ ------ ------
SHARES OF COMMON STOCK HELD IN TREASURY
Beginning of year -- -- --
Issuance of shares for employee savings
plan (12) (9) (7)
Purchase of treasury stock 12 10 7
Sale of treasury stock -- (1) --
------ ------ ------
End of year -- -- --
------ ------ ------
SHARES OF COMMON STOCK HELD FOR
EXECUTIVES AND DIRECTORS BENEFITS
TRUST
Beginning of year 1,000 -- --
Purchase of shares -- 1,000 --
------ ------ ------
End of year 1,000 1,000 --
------ ------ ------
SHARES OF COMMON STOCK OUTSTANDING AT
END OF YEAR 59,526 59,016 58,857
------ ------ ------
In each quarter of 1996, 1995 and 1994, dividends of 7.5 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
43
45
ANADARKO PETROLEUM CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
7. STOCK AND STOCK OPTIONS -- (CONTINUED)
dividends by the Company, retained earnings of $364,080,000, $259,694,000 and
$249,599,000 were not restricted as to the payment of dividends at December 31,
1996, 1995 and 1994, respectively.
During 1996, 1995 and 1994, the Company acquired treasury stock only as a
result of stock option exercises, restricted stock transactions or buyback of
shares, which were unsolicited from stockholders.
In May 1995, the Company issued 1,000,000 shares of common stock to the
Anadarko Petroleum Corporation Executives and Directors Benefits Trust (Trust)
to secure present and future unfunded benefit obligations of the Company. The
shares issued to the Trust are not considered outstanding for quorum or voting
calculations, but the Trust will receive dividends. The shares are included in
the calculation of earnings per share under the treasury stock method and have
no dilutive effect. The fair market value of these shares is included in common
stock and paid-in capital and as a reduction to stockholders' equity. As of
December 31, 1996 and 1995, there were 1,000,000 shares in the Trust.
Anadarko has four stock option plans -- the 1993 Stock Incentive Plan, the
1988 Stock Option Plan for Non-employee Directors, the 1987 Stock Option Plan
and the 1986 Stock Option Plan -- under which key employees and directors of the
Company may be granted options to purchase shares of Anadarko common stock.
Incentive stock options and non-qualified stock options have a maximum term of
eleven years from the date of grant and are issued at the market value of
Anadarko stock on the date of grant. The options vest over time and may be
exercised no earlier than one year from the date of grant.
In addition, the 1993 Stock Incentive Plan and the 1987 Stock Option Plan
provide that up to 800,000 and 400,000 shares of common stock, respectively,
which may be granted under the Plans, may be granted as restricted stock.
Generally, restricted stock is subject to forfeiture restrictions and cannot be
sold, transferred or disposed of during the restriction period. The holders of
the restricted stock have all the rights of a stockholder of the Company with
respect to such shares, including the right to vote and receive dividends or
other distributions paid with respect to such shares. During 1996, 1995 and
1994, the Company issued 39,450, 26,950 and 31,950 shares, respectively, of
restricted stock with a weighted-average grant date fair value of $63.42, $41.04
and $52.21, respectively.
In 1996, Anadarko and a key officer of the Company entered into a
Performance Share Agreement under the 1993 Stock Incentive Plan. The Agreement
provides for issuance of up to 150,000 shares of common stock of the Company at
the end of a four or eight-year period contingent upon the Company's achievement
of predetermined objectives. During the year ended December 31, 1996, expense of
$2,000,000 was recognized under the Agreement. The fair value of the performance
shares is not determinable at this time since the shares to be issued are
contingent upon the Company's achievement of the objectives.
44
46
ANADARKO PETROLEUM CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
7. STOCK AND STOCK OPTIONS -- (CONTINUED)
Unexercised stock options do not have a dilutive effect on earnings per
common share. Information regarding the Company's stock option plans is
summarized below:
1996 1995 1994
--------------------- --------------------- ---------------------
Weighted- Weighted- Weighted-
Average Average Average
Exercise Exercise Exercise
Shares Price Shares Price Shares Price
options in thousands ------ --------- ------ --------- ------ ---------
SHARES UNDER OPTION AT BEGINNING OF YEAR 2,403 $38.13 2,010 $37.13 1,729 $33.76
Granted 933 $58.84 491 $41.41 400 $49.86
Exercised (456) $30.36 (84) $31.69 (117) $30.96
Surrendered or expired (8) $44.62 (14) $47.36 (2) $29.81
--------- --------- ---------
SHARES UNDER OPTION AT END OF YEAR 2,872 $46.08 2,403 $38.13 2,010 $37.13
--------- --------- ---------
Options exercisable at December 31 1,772 $40.18 1,731 $36.12 1,433 $32.93
--------- --------- ---------
Shares available for future grant at end
of year 2,222 3,186 3,691
--------- --------- ---------
Weighted-average fair value of options
granted during the year $23.92 $15.36 N/A
The following table summarizes information about the Company's stock
options outstanding at December 31, 1996:
Options Outstanding Options Exercisable
-------------------------------------- -----------------------
Weighted-
Options Average Weighted- Options Weighted-
Range of Outstanding Remaining Average Exercisable Average
Exercise at Year Contractual Exercise at Year Exercise
Prices End Life (Years) Price End Price
-------- ----------- ------------ --------- ----------- ---------
options in thousands
$19.68 - $37.00 750 4.0 $31.74 750 $31.74
$40.88 - $47.00 809 8.0 $43.62 581 $44.48
$47.69 - $54.38 861 9.1 $51.55 441 $48.86
$63.63 - $63.88 452 9.8 $63.64 -- $ --
------ --- ------ ------ ------
$19.68 - $63.88 2,872 7.5 $44.61 1,772 $40.18
------ --- ------ ------ ------
The fair value of each option grant was estimated on the date of grant
using the Black-Scholes option-pricing model with the following assumptions:
1996 1995
----- -----
Expected option life - years 6.35 5.65
Risk-free interest rate 6.13% 5.94%
Dividend yield 0.70% 0.82%
Volatility 31.47% 30.59%
45
47
ANADARKO PETROLEUM CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
7. STOCK AND STOCK OPTIONS -- (CONTINUED)
SFAS No. 123 "Accounting for Stock-based Compensation" defines a fair value
method of accounting for an employee stock option or similar equity instrument.
SFAS No. 123 allows an entity to continue to measure compensation costs for
these plans using the current method of accounting. Anadarko has elected to
continue the current method of accounting for employee stock compensation plans.
Anadarko applies Accounting Principles Board (APB) Opinion No. 25 and related
interpretations in accounting for its stock option plans. Accordingly, no
compensation expense is recognized for stock options granted with an exercise
price equal to the market value of Anadarko stock on the date of grant. If
compensation expense for the Company's stock option plans had been determined
using the fair-value method in SFAS No. 123, the Company's net income and
earnings per share would have been as shown in the pro forma amounts below:
1996 1995
thousands except per share amounts ------- -------
Net Income As reported $100,720 $21,035
Pro forma $ 96,099 $20,577
Earnings Per Share As reported $ 1.70 $ 0.36
Pro forma $ 1.62 $ 0.35
8. FOREIGN CURRENCY TRANSLATION ADJUSTMENTS
The Company's currency translation adjustments are related to Anadarko
Canada, which was sold in 1994. See Note 2. The following is an analysis of
currency translation adjustments reflected in stockholders' equity:
1994
thousands -------
Balance at beginning of year $(4,379)
Current translation losses (1,686)
Cumulative translation losses transferred to the income
statement upon disposition of foreign subsidiary 6,065
-------
Balance at end of year $ --
-------
9. STATEMENT OF CASH FLOWS SUPPLEMENTAL INFORMATION
The amounts of cash paid (received) for interest (net of amounts
capitalized) and income taxes are as follows:
1996 1995 1994
thousands ------- ------- -------
Interest $36,197 $32,801 $25,675
Income taxes paid (received) $ 8,484 $(3,803) $ 516
10. TRANSACTIONS WITH RELATED PARTIES AND MAJOR CUSTOMERS
During 1989, Anadarko Algeria entered into a Production Sharing Agreement
(PSA) with SONATRACH, the national oil and gas enterprise of Algeria. SONATRACH
is the beneficial owner of 10.1 percent of the Company's outstanding common
stock. The PSA gives Anadarko Algeria the right to explore for and produce
liquid hydrocarbons in Algeria, subject to the sharing of production with
SONATRACH. Anadarko Algeria has two partners in the PSA. During 1994, the
Company acquired a minority interest in a PSA covering two additional blocks in
the same region, which are operated by BHP Petroleum (Algerie) Inc., where an
exploration program is already underway. Approximately $60,000, $432,000 and
$30,000 was paid to SONATRACH in 1996, 1995 and 1994, respectively, for charges
related to reservoir studies, laboratory services, well testing services and
equipment usage. The Company believes anticipated operating cash flows
46
48
ANADARKO PETROLEUM CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
10. TRANSACTIONS WITH RELATED PARTIES AND MAJOR CUSTOMERS -- (CONTINUED)
and existing credit facilities will be sufficient to meet its share of the
exploration and development costs. As of December 31, 1996, Anadarko Algeria's
total net investment in Algeria for exploration, development and related
activities was $231,858,000, of which approximately $85,152,000 was incurred in
1996.
In September 1996, Anadarko and its partners signed a $177 million
Engineering, Procurement and Construction (EPC) contract with Brown & Root
Condor, a company jointly owned by Brown & Root and affiliates of SONATRACH. For
the year ended December 31, 1996, approximately $21,933,000 was paid to Brown &
Root Condor under the EPC contract.
Political unrest exists in Algeria. Anadarko 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 1997 and beyond. However, the situation has not had
any material effect on the Company's operations. The Company's activities in
Algeria also are subject to the general risks associated with all foreign
operations.
In 1996, the Company paid $878,000 to Petroleum Information Corporation and
its subsidiaries for production, drilling and seismic data. Also in 1996, the
Company paid Houston Advanced Research Center (HARC) $50,000 for a seismic
imaging project. John R. Butler, Jr., a director of the Company, serves as
Senior Chairman for Petroleum Information Corporation and Chairman for HARC.
The Company's natural gas is sold to interstate and intrastate gas
pipelines, direct end-users, industrial users, local distribution companies and
gas marketers. Crude oil and condensate are sold to marketers, gatherers and
refiners. NGLs are sold to direct end-users, refiners and marketers. These
purchasers are located in the United States, Canada and Mexico. The majority of
the Company's receivables are paid within two months following the month of
purchase.
The Company generally performs a credit analysis of customers prior to
making any sales to new customers. Based upon this credit analysis, the Company
may require a standby letter of credit or a financial guarantee.
In 1996, sales to Texaco Trading & Transportation Company were $64,444,000,
which accounted for more than ten percent of the Company's total revenues. In
1995, sales to Indiana Gas Company Incorporated were $53,130,000 and sales to
Texaco Trading & Transportation Company were $53,092,000, each of which
accounted for more than ten percent of the Company's total revenues. In 1994,
sales to Indiana Gas Company Incorporated were $67,348,000, which was more than
ten percent of the Company's total revenues.
11. OPERATING EXPENSES
Operating expenses by category are as follows:
1996 1995 1994
thousands ---- ---- ----
Oil and gas $ 65,896 $ 68,506 $ 70,164
Plant and gathering 34,231 26,119 24,905
Gas purchases 13,073 10,123 14,292
Other 2,108 1,081 841
-------- -------- --------
Total $115,308 $105,829 $110,202
-------- -------- --------
47
49
ANADARKO PETROLEUM CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
12. OTHER TAXES
Significant taxes other than income taxes are as follows:
1996 1995 1994
thousands ---- ---- ----
Production and severance $19,457 $16,898 $22,228
Ad valorem 14,137 16,624 16,786
Payroll and other 3,611 3,370 1,959
------- ------- -------
Total $37,205 $36,892 $40,973
------- ------- -------
13. INCOME TAXES
Income tax expense, including deferred amounts, is summarized as follows:
1996 1995 1994
thousands ---- ---- ----
CURRENT
Federal $ 2,849 $(3,385) $ 5,798
Foreign -- -- 1,422
State (10) 72 435
------- ------- -------
Total 2,839 (3,313) 7,655
------- ------- -------
DEFERRED
Federal 51,075 11,056 29,838
Foreign -- -- (16,224)
State 3,156 488 2,298
------- ------- -------
Total 54,231 11,544 15,912
------- ------- -------
Total income taxes $57,070 $ 8,231 $23,567
------- ------- -------
Total income taxes were different than the amounts computed by applying the
statutory income tax rate to Income before Income Taxes. The sources of these
differences are as follows:
1996 1995 1994
thousands ---- ---- ----
Income before Income Taxes
Domestic $172,483 $36,663 $63,963
Foreign (14,693) (7,397) 703
-------- ------- -------
Total $157,790 $29,266 $64,666
-------- ------- -------
Statutory tax rate 35% 35% 35%
Tax computed at statutory rate $ 55,227 $10,243 $22,633
Adjustments resulting from:
State income taxes (net of federal
income tax benefit) 2,045 364 1,777
Oil and gas credits (367) (1,865) (3,072)
Disposition of foreign subsidiary -- -- 3,017
Life insurance policies (238) (566) (759)
Other -- net 403 55 (29)
-------- ------- -------
Total income taxes $ 57,070 $ 8,231 $23,567
-------- ------- -------
Effective tax rate 36% 28% 36%
-------- ------- -------
48
50
ANADARKO PETROLEUM CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
13. INCOME TAXES -- (CONTINUED)
The tax benefit of compensation expense for tax purposes in excess of
amounts recognized for financial accounting purposes has been credited directly
to stockholders' equity. For 1996, 1995 and 1994 the tax benefit amounted to
$5,055,000, $458,000 and $968,000, respectively.
The tax effects of temporary differences that give rise to significant
portions of the deferred tax liabilities (assets) at December 31, 1996 and 1995
are as follows:
1996 1995
thousands ---- ----
Oil and gas exploration and development
costs $538,367 $495,757
Other 21,567 18,675
-------- --------
Gross deferred tax liabilities 559,934 514,432
-------- --------
Alternative minimum tax credit
carryforward (29,403) (25,170)
Other (31,558) (39,464)
-------- --------
Gross deferred tax assets (60,961) (64,634)
-------- --------
Net deferred tax liabilities $498,973 $449,798
-------- --------
The Company has determined that it is more likely than not that the
deferred tax assets will be realized and a valuation allowance for such assets
is not required.
In December 1994, the Company sold Anadarko Canada. Under current
accounting rules, Anadarko had not previously provided deferred U.S. income
taxes on the amount by which its investment in Anadarko Canada exceeded the tax
basis or on the cumulative foreign currency translation losses because these
temporary differences were previously considered permanent in duration. See Note
2.
Net operating loss and alternative minimum tax credit carryforwards at
December 31, 1996, which are available for future utilization on federal income
tax returns, are as follows:
Alternative
Regular Minimum
Tax Tax Expiration
thousands ------- ----------- ----------
Net operating loss $10,300 $ -- 2010
Alternative minimum tax credit $29,400 $ -- Unlimited
14. LEASE COMMITMENTS
The Company has various commitments under non-cancelable operating lease
agreements for buildings, facilities and equipment, the majority of which expire
at various dates through 2014. The leases are expected to be renewed or replaced
as they expire. At December 31, 1996, future minimum rental payments due under
operating leases are as follows:
thousands
1997 $ 15,904
1998 15,443
1999 13,869
2000 13,583
2001 13,645
Later years 54,166
--------
Total minimum lease payments $126,610
--------
Total rental expense amounted to $12,702,000, $9,858,000 and $8,441,000 in
1996, 1995 and 1994, respectively.
49
51
ANADARKO PETROLEUM CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
15. PENSION PLANS, EMPLOYEE SAVINGS PLAN AND OTHER POSTRETIREMENT BENEFITS
PENSION PLANS The Company has a non-contributory defined benefit pension plan
covering all permanent employees, except certain employees in foreign countries.
The benefits for this plan are based primarily on years of service and pay near
retirement. Plan assets consist principally of fixed income investments and
equity securities. The Company funds the plan with annual contributions as
determined in accordance with the Employee Retirement Income Security Act of
1974 and Internal Revenue Code of 1986, as amended, limitations.
The Company has an equalization plan to ensure payments to certain
employees of amounts to which they are already entitled under the provisions of
the pension plan, but which are subject to limitations imposed by federal tax
laws. This plan is unfunded and payable solely from the general assets of the
Company. In addition, the Company has a pension plan for non-employee directors,
which is unfunded.
The 1996, 1995 and 1994 pension cost related to these plans includes the
following components:
1996 1995 1994
thousands ---- ---- ----
Service costs-benefits earned in the period $ 4,484 $ 3,415 $ 3,502
Interest cost on projected benefit obligation 3,945 2,991 2,895
Actual (return) loss on plan assets (5,603) (9,227) 1,208
Amortization values and deferrals 2,481 6,165 (4,560)
Termination benefits -- -- 346
------- ------- -------
Pension cost $ 5,307 $ 3,344 $ 3,391
------- ------- -------
The special termination benefits incurred in 1994 relate to the closing of
several plant locations. The Company had an additional minimum liability of
$2,359,000 and $1,301,000 at December 31, 1996 and 1995, respectively, which
represents the difference between the unfunded accumulated benefit obligation
and the accrued pension cost related to the equalization plan. This liability
was offset by an intangible asset of an equal amount.
50
52
ANADARKO PETROLEUM CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
15. PENSION PLANS, EMPLOYEE SAVINGS PLAN AND OTHER POSTRETIREMENT
BENEFITS -- (CONTINUED)
The funded status of the plans at December 31, 1996 and 1995 is as follows:
Assets Exceed Accumulated
Accumulated Benefits Exceed
Benefits Assets
(Funded) (Unfunded)
thousands ------------- ---------------
1996
Actuarial present value of:
Vested benefit obligation $32,901 $ 5,900
Accumulated benefit obligation 39,471 6,565
Projected benefit obligation $52,318 $ 9,144
------- -------
Plan assets at market value $50,844 $ --
------- -------
Projected benefit obligation in excess of plan assets $(1,474) $(9,144)
Unrecognized initial asset (4,670) --
Unrecognized (gain) loss (778) 3,721
Unrecognized prior service cost 1,150 1,043
Adjustment required to recognize additional minimum
liability -- (2,359)
------- -------
Accrued pension cost $(5,772) $(6,739)
------- -------
1995
Actuarial present value of:
Vested benefit obligation $29,549 $ 3,913
Accumulated benefit obligation 35,899 4,213
Projected benefit obligation $48,437 $ 6,210
------- -------
Plan assets at market value $46,505 $ --
------- -------
Projected benefit obligation in excess of plan assets $(1,932) $(6,210)
Unrecognized initial asset (5,197) --
Unrecognized loss 3,861 1,905
Unrecognized prior service cost 1,467 1,261
Adjustment required to recognize additional minimum
liability -- (1,301)
------- -------
Accrued pension cost $(1,801) $(4,345)
------- -------
The Company's assumptions used as of December 31 in determining the pension
liability were as follows:
1996 1995 1994
percent ---- ---- ----
Discount rate 7.5 7.25 8.0
Rates of increase in compensation levels 5.0 5.0 5.0
Long-term rate of return on plan assets 8.0 8.0 8.0
EMPLOYEE SAVINGS PLAN The Company has an employee savings plan (ESP) that is a
defined contribution plan. The Company matches a portion of employees'
contributions with shares of the Company's common stock. Participation in the
ESP is voluntary and all regular employees of the Company are eligible to
participate. The Company charged to expense plan contributions of $4,076,000,
$3,731,000, and $3,579,000 during 1996, 1995 and 1994, respectively.
OTHER POSTRETIREMENT BENEFITS In addition to providing pension benefits, the
Company provides certain health care and life insurance benefits for retired
employees. Substantially all of the Company's employees,
51
53
ANADARKO PETROLEUM CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
15. PENSION PLANS, EMPLOYEE SAVINGS PLAN AND OTHER POSTRETIREMENT
BENEFITS -- (CONTINUED)
including employees in foreign countries, may become eligible for these benefits
if they reach retirement age while working for the Company. These benefits and
similar benefits for active employees are provided through contributory and
noncontributory benefit plans.
Health care benefits are funded by contributions from the Company and its
employees, with retiree contributions adjusted per the provisions of the
Company's health care plans. The Company's current policy is to fund the cost of
postretirement health care benefits on a pay-as-you-go basis. The Company's
retiree life insurance plan is noncontributory and is currently fully funded
through insurance premiums paid by the Company.
The following table sets forth the Company's postretirement benefits other
than pension combined liability as of December 31, 1996 and 1995:
1996 1995
thousands ---- ----
Accumulated postretirement benefit obligation
Retirees $ (6,888) $ (7,610)
Fully eligible active plan participants (4,043) (3,337)
Other active plan participants (12,081) (12,472)
-------- --------
Total (23,012) (23,419)
Plan assets at fair value -- --
-------- --------
Accumulated postretirement benefit obligation in excess of
plan assets (23,012) (23,419)
Unrecognized net gain (7,430) (4,343)
-------- --------
Accrued postretirement benefit cost $(30,442) $(27,762)
-------- --------
The Company charges postretirement benefits other than pensions as accrued,
based on actuarial calculations for each plan. The net annual costs for
postretirement benefits other than pensions for 1996 and 1995 included the
following components:
1996 1995
thousands ------ ------
Service cost -- benefits attributed to service during the
period $1,664 $1,556
Interest cost on accumulated obligation 1,680 1,674
Recognized benefit gain (134) (119)
------ ------
Net postretirement benefit cost $3,210 $3,111
------ ------
The Company's assumptions used as of December 31 in determining the
accumulated postretirement benefit obligation shown above were as follows:
1996 1995
percent --------- ---------
Discount rate 7.50 7.25
Rates of increase in compensation levels 5.0 5.0
Health care trend rate 13.0-5.0 13.0-5.0
The health care trend rate for the health care plans starts at the maximum
rate for the current year and is gradually reduced to an ultimate rate for 2001
and later years. A change in the health care trend rate of one percent would
change the annual cost in 1996 by approximately $674,000 and would change the
accumulated postretirement benefit obligation in 1996 by approximately
$5,472,000.
52
54
ANADARKO PETROLEUM CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
16. CONTINGENCIES
ENVIRONMENTAL On December 17, 1993, the Company received a notice from the
Department of Justice in the State of California indicating the Company may be a
potentially responsible party (PRP) for the study, cleanup and closure of the
waste facility owned by Geothermal, Inc. in Middletown, California (the GI
site). Anadarko's records indicate the disposal of a limited number of barrels
of drilling mud at the GI site in 1982. During the first quarter of 1994, the
Company, along with other PRPs, became a party to a Cost Sharing, Joint Defense
and Confidentiality Agreement, effective October 20, 1993. The Company believes
its share of costs in connection with the cleanup of the GI site will be
approximately $35,000 to $70,000 and will not have a material effect on its
financial position, cash flows or results of operations.
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). The petition has not been acted on. Williams Natural Gas Company has
filed a cross-petition for certiorari seeking to impose refund liability back to
December 1, 1978. The Company and other interested parties will oppose this
cross-petition. If Supreme Court 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 (assuming that the October
1983 effective date remains in effect) is approximately $37 million (pre-tax) as
of December 31, 1996.
53
55
ANADARKO PETROLEUM CORPORATION
SUPPLEMENTAL QUARTERLY INFORMATION
(UNAUDITED)
QUARTERLY FINANCIAL DATA
The following table shows summary quarterly financial data for 1996 and
1995. See Management's Discussion and Analysis of Financial Condition and
Results of Operations under Item 7 of this Form 10-K.
First Second Third Fourth
Quarter Quarter Quarter Quarter
thousands except per share amounts ------- ------- -------- -------
1996
Operating revenues $135,707 $135,088 $128,551 $169,682
Operating income, pretax 40,897 37,127 49,401 68,220
Net income $ 20,516 $ 17,628 $ 24,949 $ 37,627
Earnings per common share $ 0.35 $ 0.30 $ 0.42 $ 0.63
1995
Operating revenues $102,827 $113,890 $ 99,283 $118,014
Operating income, pretax 14,363 22,246 8,535 19,330
Net income $ 4,080 $ 9,053 $ 1,107 $ 6,795
Earnings per common share $ 0.07 $ 0.15 $ 0.02 $ 0.12
54
56
ANADARKO PETROLEUM CORPORATION
SUPPLEMENTAL INFORMATION ON OIL AND GAS EXPLORATION
AND PRODUCTION ACTIVITIES
(UNAUDITED)
OIL AND GAS PRODUCTION
The following is historical revenue and cost information relating to the
Company's oil and gas operations. Excluded from amounts subject to amortization
as of December 31, 1996 and 1995 are $254,811,000 and $245,577,000,
respectively, of costs associated with unevaluated properties and major
development projects. The majority of the evaluation activities are expected to
be completed within five years.
COSTS EXCLUDED FROM AMORTIZATION
Excluded
Year Costs Incurred Costs at
Prior ------------------- Dec. 31,
Years 1994 1995 1996 1996
thousands ----- ---- ---- ---- --------
Property acquisition $ 6,494 $66,371 $ 6,600 $14,092 $ 93,557
Exploration 31,674 10,064 21,525 67,210 130,473
Capitalized interest 3,164 5,587 9,519 12,511 30,781
------- ------- ------- ------- --------
Total $41,332 $82,022 $37,644 $93,813 $254,811
------- ------- ------- ------- --------
CAPITALIZED COSTS RELATED TO OIL AND GAS PRODUCING ACTIVITIES
1996 1995
thousands ---- ----
UNITED STATES
Capitalized
Unproved properties $ 157,296 $ 160,186
Proved properties 3,353,650 3,178,437
Plant facilities 17,726 17,600
---------- ----------
3,528,672 3,356,223
Accumulated depreciation, depletion and amortization 1,649,344 1,584,998
---------- ----------
Net capitalized costs 1,879,328 1,771,225
---------- ----------
ALGERIA AND OVERSEAS
Capitalized
Unproved properties 164,798 100,128
Proved properties 75,053 62,411
---------- ----------
Net capitalized costs 239,851 162,539
---------- ----------
TOTAL
Capitalized
Unproved properties 322,094 260,314
Proved properties 3,428,703 3,240,848
Plant facilities 17,726 17,600
---------- ----------
3,768,523 3,518,762
Accumulated depreciation, depletion and amortization 1,649,344 1,584,998
---------- ----------
Net capitalized costs $2,119,179 $1,933,764
---------- ----------
55
57
ANADARKO PETROLEUM CORPORATION
SUPPLEMENTAL INFORMATION ON OIL AND GAS EXPLORATION
AND PRODUCTION ACTIVITIES
(UNAUDITED)
COSTS INCURRED IN OIL AND GAS PRODUCING ACTIVITIES
1996 1995 1994
thousands ---- ---- ----
UNITED STATES -- Capitalized
Property acquisition
Exploration $ 20,920 $ 9,723 $ 87,747
Development 5,335 26,022 16,005
Exploration 106,602 76,056 115,486
Development 132,139 113,401 132,846
-------- -------- --------
264,996 225,202 352,084
-------- -------- --------
CANADA -- Capitalized
Property acquisition
Exploration -- -- 987
Development -- -- 2,122
Exploration -- -- 770
Development -- -- 2,866
-------- -------- --------
-- -- 6,745
-------- -------- --------
ALGERIA AND OVERSEAS -- Capitalized
Property acquisition
Exploration -- 18 --
Development -- 6,848 --
Exploration 68,002 44,675 37,713
Development 29,929 901 88
-------- -------- --------
97,931 52,442 37,801
-------- -------- --------
TOTAL -- Capitalized
Property acquisition
Exploration 20,920 9,741 88,734
Development 5,335 32,870 18,127
Exploration 174,604 120,731 153,969
Development 162,068 114,302 135,800
-------- -------- --------
$362,927 $277,644 $396,630
-------- -------- --------
56
58
ANADARKO PETROLEUM CORPORATION
SUPPLEMENTAL INFORMATION ON OIL AND GAS EXPLORATION
AND PRODUCTION ACTIVITIES
(UNAUDITED)
RESULTS OF OPERATIONS FOR PRODUCING ACTIVITIES
The following schedule includes only the revenues from the production and
sale of gas, oil, condensate and NGLs. Results of operations from oil and gas
marketing and gas gathering are excluded. The income tax expense is calculated
by applying the current statutory tax rates to the revenues after deducting
costs, which include depreciation, depletion and amortization (DD&A) allowances,
after giving effect to permanent differences. The results of operations exclude
general office overhead and interest expense attributable to oil and gas
production.
RESULTS OF OPERATIONS FOR PRODUCING ACTIVITIES
1996 1995 1994
thousands -------- -------- --------
UNITED STATES
Net revenues from production
Gas sold to consolidated affiliates $316,127 $221,341 $253,667
Other sales of gas, oil, condensate and NGLs 202,111 191,902 204,698
-------- -------- --------
518,238 413,243 458,365
Production (lifting) costs 119,701 126,189 121,023
Depreciation, depletion and amortization* 149,488 153,648 161,308
-------- -------- --------
249,049 133,406 176,034
Income tax expense 89,178 46,041 61,983
-------- -------- --------
Results of operations 159,871 87,365 114,051
-------- -------- --------
*DD&A rate per net equivalent barrel $ 3.96 $ 3.88 $ 4.01
-------- -------- --------
CANADA
Other sales of gas, oil, condensate and NGLs -- -- 9,046
Production (lifting) costs -- -- 4,052
Depreciation, depletion and amortization* -- -- 2,763
-------- -------- --------
-- -- 2,231
Income tax expense -- -- 556
-------- -------- --------
Results of operations -- -- 1,675
-------- -------- --------
*DD&A rate per net equivalent barrel $ -- $ -- $ 3.35
-------- -------- --------
TOTAL
Net revenues from production
Gas sold to consolidated affiliates 316,127 221,341 253,667
Other sales of gas, oil, condensate and NGLs 202,111 191,902 213,744
-------- -------- --------
518,238 413,243 467,411
Production (lifting) costs 119,701 126,189 125,075
Depreciation, depletion and amortization 149,488 153,648 164,071
-------- -------- --------
249,049 133,406 178,265
Income tax expense 89,178 46,041 62,539
-------- -------- --------
Results of operations $159,871 $ 87,365 $115,726
-------- -------- --------
57
59
ANADARKO PETROLEUM CORPORATION
SUPPLEMENTAL INFORMATION ON OIL AND GAS EXPLORATION
AND PRODUCTION ACTIVITIES
(UNAUDITED)
OIL AND GAS RESERVES
The following table shows estimates prepared by the Company's engineers of
proved reserves and proved developed reserves, net of royalty interests, of
natural gas, crude oil, condensate and NGLs owned at year-end and changes in
proved reserves during the last three years. Volumes for natural gas are in
billions of cubic feet (Bcf) at a pressure base of 14.73 pounds per square inch
and volumes for oil, condensate and NGLs are in millions of barrels (MMBbls).
Total volumes are in millions of energy equivalent barrels (MMEEBs). For this
computation, one barrel is the equivalent of six thousand cubic feet. NGLs are
included with oil and condensate reserves and the associated shrinkage has been
deducted from the gas reserves. Other international reserve activity shown in
the following table includes 1994 activity for Canada and 1996 activity for
Indonesia.
Algerian reserves are shown in accordance with the PSA. The reserves
include estimated quantities allocated to Anadarko for recovery of costs and
Algerian taxes and Anadarko's net equity share after recovery of such costs.
Anadarko's reserves increased in 1996 primarily from exploration and
development drilling and improved recovery. At year-end 1996, the Company had
124.3 MMBbls of proved reserves in Algeria, including 31.8 MMBbls which were
added during 1996. Anadarko's reserves also increased in 1996 due to higher
natural gas and crude oil prices at year-end 1996 compared to year-end 1995.
The Company's reserves increased in 1995 primarily due to exploration and
development drilling and improved recovery. At year-end 1995, Anadarko had 92.5
MMBbls of oil reserves in Algeria, including 48.5 MMBbls which were added during
1995. Anadarko's reserves also increased in 1995 due to higher natural gas and
crude oil prices at year-end 1995 compared to year-end 1994.
The Company's reserves increased in 1994 primarily due to exploration and
development drilling and improved recovery. During 1994, Anadarko added 44
MMBbls of oil reserves in Algeria, based on successful exploration drilling,
preliminary development studies and the contractual rights granted under the
PSA.
The Company emphasizes that the volumes of reserves shown below are
estimates which, by their nature, are subject to revision. The estimates are
made using all available geological and reservoir data as well as production
performance data. These estimates are reviewed annually and revised, either
upward or downward, as warranted by additional performance data.
58
60
ANADARKO PETROLEUM CORPORATION
SUPPLEMENTAL INFORMATION ON OIL AND GAS EXPLORATION
AND PRODUCTION ACTIVITIES
(UNAUDITED)
OIL AND GAS RESERVES --(CONTINUED)
NATURAL GAS OIL, CONDENSATE AND NGLS TOTAL
(BCF) (MMBBLS) (MMEEBS)
------------------------- ------------------------------------- ------------------------------------
U.S. OTHER INTL. TOTAL U.S. ALGERIA OTHER INTL. TOTAL U.S. ALGERIA OTHER INTL. TOTAL
---- ----------- ----- ---- ------- ----------- ----- ---- ------- ----------- -----
PROVED RESERVES
DECEMBER 31, 1993 1,836 39 1,875 75.1 -- 3.4 78.5 381.1 -- 10.0 391.1
Revisions of prior
estimates 134 -- 134 2.5 -- -- 2.5 24.9 -- -- 24.9
Extensions, discoveries
and other additions 76 2 78 30.9 44.0 -- 74.9 43.5 44.0 0.4 87.9
Improved recovery 8 -- 8 14.8 -- -- 14.8 16.1 -- -- 16.1
Purchases in place 59 -- 59 4.4 -- 0.4 4.8 14.2 -- 0.4 14.6
Sales in place (26) (38) (64) (3.0) -- (3.4) (6.4) (7.2) -- (9.9) (17.1)
Production (173) (3) (176) (11.3) -- (0.4) (11.7) (40.2) -- (0.9) (41.1)
----- --- ----- ----- ----- ---- ----- ----- ----- ----- -----
DECEMBER 31, 1994 1,914 -- 1,914 113.4 44.0 -- 157.4 432.4 44.0 -- 476.4
Revisions of prior
estimates 29 -- 29 2.6 -- -- 2.6 7.5 -- -- 7.5
Extensions, discoveries
and other additions 70 -- 70 7.6 48.5 -- 56.1 19.3 48.5 -- 67.8
Improved recovery 14 -- 14 14.0 -- -- 14.0 16.3 -- -- 16.3
Purchases in place 18 -- 18 6.9 -- -- 6.9 9.8 -- -- 9.8
Sales in place (30) -- (30) (6.8) -- -- (6.8) (11.9) -- -- (11.9)
Production (172) -- (172) (11.0) -- -- (11.0) (39.6) -- -- (39.6)
----- --- ----- ----- ----- ---- ----- ----- ----- ----- -----
DECEMBER 31, 1995 1,843 -- 1,843 126.7 92.5 -- 219.2 433.8 92.5 -- 526.3
Revisions of prior
estimates (17) -- (17) 11.4 -- -- 11.4 8.5 -- -- 8.5
Extensions, discoveries
and other additions 152 47 199 36.2 31.8 9.9 77.9 61.9 31.8 17.7 111.4
Improved recovery 6 -- 6 9.4 -- -- 9.4 10.4 -- -- 10.4
Purchases in place 5 -- 5 0.4 -- -- 0.4 1.1 -- -- 1.1
Sales in place (3) (47) (50) (0.4) -- (9.9) (10.3) (1.0) -- (17.7) (18.7)
Production (165) -- (165) (10.2) -- -- (10.2) (37.7) -- -- (37.7)
----- --- ----- ----- ----- ---- ----- ----- ----- ----- -----
DECEMBER 31, 1996 1,821 -- 1,821 173.5 124.3 -- 297.8 477.0 124.3 -- 601.3
----- --- ----- ----- ----- ---- ----- ----- ----- ----- -----
PROVED DEVELOPED RESERVES
December 31, 1993 1,674 40 1,714 60.8 -- 3.4 64.2 339.8 -- 10.0 349.8
December 31, 1994 1,787 -- 1,787 74.2 -- -- 74.2 372.0 -- -- 372.0
December 31, 1995 1,737 -- 1,737 77.5 -- -- 77.5 367.0 -- -- 367.0
December 31, 1996 1,654 -- 1,654 100.6 -- -- 100.6 376.2 -- -- 376.2
59
61
ANADARKO PETROLEUM CORPORATION
SUPPLEMENTAL INFORMATION ON OIL AND GAS EXPLORATION
AND PRODUCTION ACTIVITIES
(UNAUDITED)
DISCOUNTED FUTURE NET CASH FLOWS
Estimates of future net cash flows from proved reserves of gas, oil,
condensate and NGLs were made in accordance with SFAS No. 69, "Disclosures about
Oil and Gas Producing Activities". The amounts were prepared by the Company's
engineers and are shown in the following table. The estimates are based on
prices at year-end. Natural gas prices have decreased by about 25 percent as of
February 1997. Oil prices have remained relatively stable through February 1997.
Gas prices are escalated only for fixed and determinable amounts under
provisions in some contracts. Estimated future cash inflows are reduced by
estimated future development and production costs based on year-end cost levels,
assuming continuation of existing economic conditions, and by estimated future
income tax expense. Income tax expense, both U.S. and foreign, is calculated by
applying the existing statutory tax rates, including any known future changes,
to the pretax net cash flows giving effect to any permanent differences and
reduced by the applicable tax basis. The effect of tax credits are considered in
determining the income tax expense.
At December 31, 1996, the present value (discounted at ten percent) of
future net revenues from Anadarko's proved reserves was $5.27 billion, before
income taxes, and $3.4 billion, after income taxes, (stated in accordance with
the regulations of the Securities Exchange Commission and the Financial
Accounting Standards Board). The after income taxes increase of 96 percent in
1996 compared to 1995 is primarily due to the significantly higher natural gas
and crude oil prices at year-end 1996 as well as additions of proved reserves
related to successful drilling in Algeria and Alaska.
The present value of future net revenues does not purport to be an estimate
of the fair market value of Anadarko's proved reserves. An estimate of fair
value would also take into account, among other things, anticipated changes in
future prices and costs, the expected recovery of reserves in excess of proved
reserves and a discount factor more representative of the time value of money
and the risks inherent in producing oil and gas. Significant changes in
estimated reserve volumes or commodity prices could have a material effect on
the Company's consolidated financial statements.
60
62
ANADARKO PETROLEUM CORPORATION
SUPPLEMENTAL INFORMATION ON OIL AND GAS EXPLORATION
AND PRODUCTION ACTIVITIES
(UNAUDITED)
STANDARDIZED MEASURE OF DISCOUNTED FUTURE NET CASH FLOWS RELATING TO PROVED OIL
AND GAS RESERVES
1996 1995 1994
millions ---- ---- ----
UNITED STATES
Future cash inflows $11,076 $5,621 $4,672
Future production and development costs 2,908 1,847 1,534
------- ------ ------
Future net cash flows before income
taxes 8,168 3,774 3,138
10% annual discount for estimated timing
of cash flows 3,907 1,712 1,386
------- ------ ------
Discounted future net cash flows before
income taxes 4,261 2,062 1,752
Future income taxes, net of 10% annual
discount 1,450 613 518
------- ------ ------
Standardized measure of discounted
future net cash flows relating to
oil and gas reserves 2,811 1,449 1,234
------- ------ ------
ALGERIA
Future cash inflows 3,263 1,907 835
Future production and development costs 813 572 323
------- ------ ------
Future net cash flows before income
taxes 2,450 1,335 512
10% annual discount for estimated timing
of cash flows 1,441 836 252
------- ------ ------
Discounted future net cash flows before
income taxes 1,009 499 260
Future income taxes, net of 10% annual
discount 417 214 102
------- ------ ------
Standardized measure of discounted
future net cash flows relating to
oil and gas reserves 592 285 158
------- ------ ------
TOTAL
Future cash inflows 14,339 7,528 5,507
Future production and development costs 3,721 2,419 1,857
------- ------ ------
Future net cash flows before income
taxes 10,618 5,109 3,650
10% annual discount for estimated timing
of cash flows 5,348 2,548 1,638
------- ------ ------
Discounted future net cash flows before
income taxes 5,270 2,561 2,012
Future income taxes, net of 10% annual
discount 1,867 827 620
------- ------ ------
Standardized measure of discounted
future net cash flows relating to
oil and gas reserves $ 3,403 $1,734 $1,392
------- ------ ------
61
63
ANADARKO PETROLEUM CORPORATION
SUPPLEMENTAL INFORMATION ON OIL AND GAS EXPLORATION
AND PRODUCTION ACTIVITIES
(UNAUDITED)
CHANGES IN STANDARDIZED MEASURE OF DISCOUNTED FUTURE NET CASH FLOWS
RELATING TO PROVED OIL AND GAS RESERVES
1996 1995 1994
millions ---- ---- ----
UNITED STATES
Beginning of year $1,449 $1,234 $1,224
Sales and transfers of oil and gas
produced, net of production costs (399) (287) (337)
Net changes in prices and development
and production costs 1,730 293 (361)
Extensions, discoveries, additions and
improved recovery, less related costs 452 191 226
Development costs incurred during the
period 53 23 9
Revisions of previous quantity estimates 161 20 137
Purchases of minerals in place 14 42 25
Sales of minerals in place (11) (60) (39)
Accretion of discount 206 175 177
Net change in income taxes (836) (95) 26
Other (8) (87) 147
------ ------ ------
End of year 2,811 1,449 1,234
------ ------ ------
CANADA
Beginning of year -- -- 30
Sales and transfers of oil and gas
produced, net of production costs -- -- (5)
Extensions, discoveries, additions and
improved recovery, less related costs -- -- 1
Purchases of minerals in place -- -- 4
Sales of minerals in place -- -- (48)
Accretion of discount -- -- 4
Net change in income taxes -- -- 14
------ ------ ------
End of year $ -- $ -- $ --
------ ------ ------
62
64
ANADARKO PETROLEUM CORPORATION
SUPPLEMENTAL INFORMATION ON OIL AND GAS EXPLORATION
AND PRODUCTION ACTIVITIES
(UNAUDITED)
CHANGES IN STANDARDIZED MEASURE OF DISCOUNTED FUTURE NET CASH FLOWS
RELATING TO PROVED OIL AND GAS RESERVES -- (CONTINUED)
1996 1995 1994
millions ---- ---- ----
ALGERIA
Beginning of year $ 285 $ 158 $ --
Net changes in prices and development
and production costs 260 98 --
Extensions, discoveries, additions and
improved recovery, less related costs 166 108 260
Development costs incurred during the
period 29 5 --
Accretion of discount 50 26 --
Net change in income taxes (203) (112) (102)
Other 5 2 --
------- ------ ------
End of year 592 285 158
------- ------ ------
TOTAL*
Beginning of year 1,734 1,392 1,254
Sales and transfers of oil and gas
produced, net of production costs (399) (287) (342)
Net changes in prices and development
and production costs 1,990 391 (361)
Extensions, discoveries, additions and
improved recovery, less related costs 618 299 487
Development costs incurred during the
period 82 28 9
Revisions of previous quantity estimates 161 20 137
Purchases of minerals in place 14 42 29
Sales of minerals in place (11) (60) (87)
Accretion of discount 256 201 181
Net change in income taxes (1,039) (207) (62)
Other (3) (85) 147
------- ------ ------
End of year $ 3,403 $1,734 $1,392
------- ------ ------
- ---------------
* Excludes changes in the standardized measure of discounted future net cash
flows for Indonesia reserves which were both added and sold during 1996.
63
65
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
See Election of Directors and Section 16(a) Beneficial Ownership Reporting
Compliance in the Anadarko Petroleum Corporation Proxy Statement, dated March
21, 1997 ("Proxy Statement"), which are incorporated herein by reference.
See list of Executive Officers of the Registrant appearing under Item 4 of
this Form 10-K.
ITEM 11. EXECUTIVE COMPENSATION
See Compensation of Directors and Compensation and Benefits Committee
Report on Executive Compensation in the Proxy Statement, which are incorporated
herein by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
See Voting Securities and Principle Holders -- Security Ownership of
Management and Security Ownership of Certain Beneficial Owners in the Proxy
Statement, which is incorporated herein by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
See Voting Securities and Principle Holders -- Transactions with Management
and Others in the Proxy Statement, which is incorporated herein by reference.
64
66
PART IV
ITEM 14. EXHIBITS AND REPORTS ON FORM 8-K
(a) The following documents are filed as a part of this report or
incorporated by reference:
(1) The consolidated financial statements of Anadarko Petroleum
Corporation are listed on the Index to this report, page 30.
(2) 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 ORIGINALLY FILED FILE
NUMBER DESCRIPTION AS EXHIBIT NUMBER
------- ----------- ---------------- --------
3(a) Restated Certificate of Incorporation of 19(a)(i) to Form 10-Q 1-8968
Anadarko Petroleum Corporation, dated for quarter ended
August 28, 1986 September 30, 1986
(b) By-laws of Anadarko Petroleum Corporation, 3(b) to Form 10-Q 1-8968
as amended for quarter ended
June 30, 1996
4(a) Rights Agreement, dated as of October 4, 4 to Form 8-K dated October 5, 1-8968
1988, between Anadarko Petroleum 1988
Corporation and Manufacturers Hanover
Trust Company, Rights Agent
(b) Indenture, dated as of May 10, 1988, 4(a) to Form S-3 Registration 33-21094
between Anadarko Petroleum Corporation and Statement
Continental Illinois National Bank and
Trust Company of Chicago, Trustee
(c) First Supplemental Indenture, dated as of 4(d) to Form 10-K 1-8968
November 15, 1991, between Anadarko for year ended
Petroleum Corporation and Continental December 31, 1991
Bank, National Association, Trustee
(d) Revolving Credit Agreement dated as of May 4.1 to Form S-8 dated July 8, 1-8968
24, 1994 1994
(e) Amendment to Revolving Credit Agreement, 4(e) to Form 10-K for year 1-8968
dated as of May 23, 1995 ended December 31, 1995
*(f) Amendment to Revolving Credit Agreement,
dated as of May 21, 1996
(g) Indenture, dated as of March 1, 1995, 4(a) to Form 10-Q 1-8968
between Anadarko Petroleum Corporation and for the quarter ended
the Chase Manhattan Bank, N.A., Trustee June 30, 1995
(h) Distribution Agreement, dated as of March 4(b) to Form 10-Q 1-8968
9, 1995, for $300,000,000 Medium-Term for the quarter ended
Notes, Series A June 30, 1995
10(a) (i) Tax Sharing Agreement, dated September 30, 19(c)(i) to Form 10-Q 1-8968
1986, among Panhandle Eastern Corporation, for quarter ended
Centana Energy Corporation and Anadarko September 30, 1986
Petroleum Corporation
(ii) Spin-Off Agreement, dated September 30, 10(a)(iii) to Form 10-K for 1-8968
1986, between Panhandle Eastern year ended December 31, 1988
Corporation and Anadarko Petroleum
Corporation
65
67
EXHIBIT ORIGINALLY FILED FILE
NUMBER DESCRIPTION AS EXHIBIT NUMBER
------- ----------- ---------------- --------
10(a) (iii) Global Settlement Agreement between 28(a) to Form 10-Q 1-8968
Panhandle Eastern Corporation and Anadarko for quarter ended
Petroleum Corporation, dated March 31, March 31, 1989
1989
10(b) (i) Director Deferred Compensation Plan of 10(b)(viii) to Form 10-K 1-8968
Anadarko Petroleum Corporation, effective for year ended
January 1, 1987 December 31, 1986
(ii) Director Deferred Compensation Agreement 19(a)(i) to Form 10-Q 1-8968
between Anadarko Petroleum Corporation and for quarter ended
each Director electing to participate March 31, 1987
(iii) Anadarko Petroleum Corporation Director 10(b)(ix) to Form 10-K 1-8968
Retirement Income Plan, effective October for year ended
1, 1986 December 31, 1986
(iv) Anadarko Petroleum Corporation 1988 Stock 19(b) to Form 10-Q 1-8968
Option Plan for Non-Employee Directors for quarter ended
September 30, 1988
EXECUTIVE COMPENSATION PLANS AND ARRANGEMENTS
(v) Anadarko Petroleum Corporation and 19(c)(ix) to Form 10-Q 1-8968
Participating Affiliates and Subsidiaries for quarter ended
Annual Override Pool Bonus Plan, as September 30, 1986
amended October 6, 1986
(vi) Second Amendment to Anadarko Petroleum 10(b)(ii) to Form 10-K 1-8968
Corporation and Participating Affiliates for year ended
and Subsidiaries Annual Override Pool December 31, 1987
Bonus Plan
(vii) Anadarko Petroleum Corporation 1986 Stock 10(b)(vi) to Form 10-K 1-8968
Option Plan, as amended October 28, 1987 for year ended
(and Related Agreement) December 31, 1987
(viii) Restatement of the Anadarko Petroleum Post Effective Amendment No. 1 33-22134
Corporation 1987 Stock Option Plan to Forms S-8 and S-3, Anadarko
(and Related Agreement) Petroleum Corporation 1987
Stock Option Plan
(ix) 1993 Stock Incentive Plan 10(b)(xii) to Form 10-K for 1-8968
year ended December 31, 1993
(x) Anadarko Petroleum Corporation 1993 Stock 10(a) to Form 10-Q 1-8968
Incentive Plan Stock Option Agreement for quarter ended
March 31, 1996
(xi) Annual Incentive Bonus Plan 10(b)(xiii) to Form 10-K 1-8968
for year ended
December 31, 1993
(xii) Anadarko Petroleum Corporation 1993 Stock 10(b) to Form 10-Q 1-8968
Incentive Plan Performance Share Agreement for quarter ended
March 31, 1996
(xiii) Agreement between Employee and Anadarko 28(c) to Form 10-Q 1-8968
Petroleum Corporation related to Change in for quarter ended
Control, Death or Disability, or September 30, 1987
Termination Without Cause
66
68
10(b) (xiv) Anadarko Petroleum Corporation Key 19(c)(v) to Form 10-Q 1-8968
Employee Contract of Employment for quarter ended
September 30, 1986
(xv) Restatement of Key Employee Contract of Employment 19(a) to Form 10-Q 1-8968
for quarter ended
June 30, 1988
(xvi) Restatement of Key Employee Contract of Employment 19(a) to Form 10-Q 1-8968
Amended October 27, 1988 for quarter ended
September 30, 1988
(xvii) Executive Deferred Compensation Plan of Anadarko 10(b)(xii) to Form 10-K 1-8968
Petroleum Corporation and Participating Subsidiaries for year ended
and Affiliates, December 31, 1987
effective October 1, 1986
(xviii) Executive Deferred Compensation Plan of Anadarko 10(b)(vi) to Form 10-K 1-8968
Petroleum Corporation, effective January 1, 1987 for year ended
December 31, 1986
(xix) Executive Deferred Compensation Agreement between 19(a)(ii) to Form 10-Q 1-8968
Anadarko Petroleum Corporation and each Executive for quarter ended
electing to participate March 31, 1987
(xx) Amendments to Executive Deferred Compensation 10(b)(xv) to Form 10-K 1-8968
Agreement between Anadarko Petroleum Corporation and for year ended
each Executive electing to participate December 31, 1987
(xxi) Anadarko Retirement Restoration Plan, 10(b)(xix) to Form 10-K 1-8968
effective January 1, 1995 for year ended
December 31, 1995
(xxii) Anadarko Savings Restoration Plan, effective January 10(b)(xx) to Form 10-K 1-8968
1, 1995 for year ended
December 31, 1995
(xxiii) Plan Agreement for the Management Life Insurance Plan 10(b)(xxi) to Form 10-K 1-8968
between Anadarko Petroleum Corporation and each for year ended
Eligible Employee, effective July 1, 1995 December 31, 1995
10(c) (i) Purchase and Sale Agreement by and between Atlantic 10(c)(i) to Form 8-K 1-8968
Richfield Company, a Delaware corporation, as Seller dated January 13, 1993
and Anadarko Petroleum Corporation, a Delaware
corporation, as Purchaser, dated December 8, 1992
*12 Computation of Ratios of Earnings to Fixed Charges
and Earnings to Combined Fixed Charges and Preferred
Stock Dividends
*13 Portions of the Anadarko Petroleum Corporation 1996
Annual Report to Stockholders
67
69
EXHIBIT ORIGINALLY FILED FILE
NUMBER DESCRIPTION AS EXHIBIT NUMBER
------- ----------- ---------------- --------
*21 List of Significant Subsidiaries:
Anadarko Gathering Company, a Delaware
corporation,
Anadarko Energy Services Company
(formerly Anadarko Trading Company),
a Delaware corporation,
Anadarko Algeria Corporation,
a Delaware corporation
*23 Consents of Experts and Counsel
Consent of KPMG Peat Marwick LLP
*24 Powers of Attorney
*27 Financial Data Schedule
*99 Anadarko Petroleum Corporation Proxy
Statement, dated March 21, 1997
- ---------------
The total amount of securities of the registrant authorized under any instrument
with respect to long-term debt not filed as an Exhibit does not exceed ten
percent of the total assets of the registrant and its subsidiaries on a
consolidated basis. The registrant agrees, upon request of the Securities and
Exchange Commission, to furnish copies of any or all of such instruments to the
Securities and Exchange Commission.
(B) REPORTS ON FORM 8-K
There were no reports filed on Form 8-K during the three months ended
December 31, 1996.
68
70
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934, THE REGISTRANT HAS DULY CAUSED THIS REPORT TO BE SIGNED ON
ITS BEHALF BY THE UNDERSIGNED, THEREUNTO DULY AUTHORIZED.
ANADARKO PETROLEUM CORPORATION
March 11, 1997
By: MICHAEL E. ROSE
----------------------------------
Michael E. Rose, Senior Vice President,
Finance and Chief Financial Officer)
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES EXCHANGE ACT OF 1934, THIS
REPORT HAS BEEN SIGNED BELOW BY THE FOLLOWING PERSONS ON BEHALF OF THE
REGISTRANT AND IN THE CAPACITIES INDICATED ON MARCH 11, 1997.
NAME AND SIGNATURE TITLE
------------------ -----
(i) Principal executive officer:*
ROBERT J. ALLISON, JR. Chairman of the Board, President and Chief
----------------------------------------------------- Executive Officer
(Robert J. Allison, Jr.)
(ii) Principal financial officer:*
MICHAEL E. ROSE Senior Vice President, Finance and Chief
----------------------------------------------------- Financial Officer
(Michael E. Rose)
(iii) Principal accounting officer:*
JAMES R. LARSON Vice President and Controller
-----------------------------------------------------
(James R. Larson)
(iv) Directors:*
ROBERT J. ALLISON, JR.
CONRAD P. ALBERT
LARRY BARCUS
RONALD BROWN
JAMES L. BRYAN
JOHN R. BUTLER, JR.
JOHN R. GORDON
CHARLES M. SIMMONS
- ---------------
* Signed on behalf of each of these persons and on his own behalf:
By MICHAEL E. ROSE
----------------------------------------------------
(Michael E. Rose, Attorney-in-Fact)
69
71
INDEX TO EXHIBITS
EXHIBIT
NUMBER DESCRIPTION
------- -----------
4(f) Amendment to Revolving Credit Agreement, dated as of
May 21, 1996
12 Computation of Ratios of Earnings to Fixed Charges and Earnings
to Combined Fixed Charges and Preferred Stock Dividends
13 Portions of the Anadarko Petroleum Corporation 1996 Annual
Report to Stockholders
23 Consents of Experts and Counsel
Consent of KPMG Peat Marwick LLP
24 Powers of Attorney
27 Financial Data Schedule
99 Anadarko Petroleum Corporation Proxy Statement, dated
March 21, 1997