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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 YEAR ENDED DECEMBER 31, 1999
COMMISSION FILE NO. 1-8968
ANADARKO PETROLEUM CORPORATION
17001 NORTHCHASE DRIVE, HOUSTON, TEXAS 77060-2141
(281) 875-1101
INCORPORATED IN THE STATE OF DELAWARE EMPLOYER IDENTIFICATION NO. 76-0146568
SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:
Common Stock, par value $0.10 per share
Preferred Stock Purchase Rights
The above Securities are listed on the New York Stock Exchange.
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 on January 31, 2000 was $4,170,371,000.
The number of shares outstanding of the Company's common stock as of
January 31, 2000 is shown below:
TITLE OF CLASS NUMBER OF SHARES OUTSTANDING
Common Stock, par value $0.10 per share 128,015,103
PART OF
FORM 10-K DOCUMENTS INCORPORATED BY REFERENCE
Part I Portions of the Anadarko Petroleum Corporation 1999 Annual
Report to Stockholders.
Part II Portions of the Anadarko Petroleum Corporation 1999 Annual
Report to Stockholders.
Part III Portions of the Proxy Statement, dated March 27, 2000, for
the Annual Meeting of Stockholders of Anadarko Petroleum
Corporation to be held April 27, 2000.
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TABLE OF CONTENTS
PAGE
PART I
Item 1. Business
General 2
Proved Reserves and Future Net Cash Flows 2
Exploration and Development Activities 3
Volumes and Prices 3
Properties and Activities -- United States 4
Properties and Activities -- International 12
Drilling Programs 16
Drilling Statistics 16
Productive Wells 17
Segment and Geographic Information 17
Employees 17
Regulatory and Legislative Developments 17
Additional Factors Affecting Business 17
Title to Properties 17
Capital Spending 17
Ratios of Earnings to Fixed Charges and Earnings to Combined
Fixed Charges and Preferred Stock Dividends 18
Item 2. Properties 18
Item 3. Legal Proceedings 18
Item 4. Submission of Matters to a Vote of Security Holders 19
Executive Officers of the Registrant 19
PART II
Item 5. Market for Registrant's Common Equity and Related
Stockholder Matters 21
Item 6. Selected Financial Data 21
Item 7. Management's Discussion and Analysis of Financial Condition
and Results of Operations 22
Item 7A. Quantitative and Qualitative Disclosures About Market Risk 33
Item 8. Financial Statements and Supplementary Data 34
Item 9. Changes in and Disagreements with Accountants on Accounting
and Financial Disclosure 69
PART III
Item 10. Directors and Executive Officers of the Registrant 69
Item 11. Executive Compensation 69
Item 12. Security Ownership of Certain Beneficial Owners and
Management 69
Item 13. Certain Relationships and Related Transactions 69
PART IV
Item 14. Exhibits and Reports on Form 8-K 70
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PART I
ITEM 1. BUSINESS
GENERAL
Anadarko Petroleum Corporation is one of the world's largest independent
oil and gas exploration and production companies, with 991 million energy
equivalent barrels (MMEEBs) of proved reserves as of December 31, 1999.
As of year-end 1999, oil reserves accounted for 58% of the Company's total
proved reserves, compared to 53% at year-end 1998. About 71% of the Company's
total 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.
During 1999, about 87% of the Company's production was domestic and the
remainder was from Algeria. The Company also owns and operates gas gathering
systems in its U.S. core producing areas.
Anadarko continues to produce and develop crude oil reserves in Algeria's
Sahara Desert. At year-end 1999, the Company had 288.8 million barrels (MMBbls)
of proved crude oil reserves in Algeria, which accounts for 29% of Anadarko's
total proved reserves. The Company also participates in other international
exploration projects in Tunisia, the North Atlantic Margin and other selected
areas.
The principal subsidiaries of Anadarko are: Anadarko Algeria Corporation
(Anadarko Algeria); Anadarko Energy Services Company; and, Anadarko Gathering
Company. 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
As of December 31, 1999, Anadarko had proved reserves of 573.2 MMBbls of
crude oil, condensate and natural gas liquids (NGLs) and 2.51 trillion cubic
feet (Tcf) of natural gas. Combined, these proved reserves are equivalent to
991.0 MMBbls of oil or 5.95 Tcf of gas. The Company's reserves have grown
significantly over the past three years, due to substantial natural gas reserves
discovered in the Gulf of Mexico and onshore in the U.S., crude oil reserves
discovered in Algeria and Alaska and through acquisitions of producing
properties.
As of December 31, 1999, Anadarko had proved developed reserves of 1.67 Tcf
of natural gas and 194.6 MMBbls of crude oil, condensate and NGLs. Proved
developed reserves comprise 48% of the total proved reserves on an energy
equivalent barrel basis.
The Company's estimates of proved reserves and proved developed reserves at
December 31, 1999, 1998 and 1997 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 1999 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 U.S. Department of Energy, which are within 5% 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.
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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.
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 AND DEVELOPMENT ACTIVITIES
See narrative description on pages 7 through 15 of the Anadarko Petroleum
Corporation 1999 Annual Report to Stockholders (Annual Report), which is
incorporated herein by reference.
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). Total volumes are in MMEEBs. For this computation,
six thousand cubic feet (Mcf) of gas is the energy equivalent of one barrel
(EEB) of oil, condensate or NGLs.
1999 1998 1997
------ ------ -----
UNITED STATES
Natural gas (Bcf) 169.8 176.7 178.7
Oil and condensate (MBbls) 8,365 9,752 9,083
Natural gas liquids (MBbls) 6,568 6,640 5,467
Total (MMEEBs) 43.3 45.8 44.3
ALGERIA*
Oil and condensate (MBbls) 6,218 1,374 --
Total (MMEEBs) 6.2 1.4 --
TOTAL
Natural gas (Bcf) 169.8 176.7 178.7
Oil and condensate (MBbls) 14,583 11,126 9,083
Natural gas liquids (MBbls) 6,568 6,640 5,467
Total (MMEEBs) 49.5 47.2 44.3
- ---------------
* In May 1998, production commenced from the Company's operations in Algeria.
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The following table shows the Company's annual average wellhead sales
prices and average production costs.
1999 1998 1997
------ ------ ------
UNITED STATES
Sales price
Natural gas (per Mcf) $ 2.08 $ 1.92 $ 2.30
Oil and condensate (per barrel) 15.79 11.44 18.03
Natural gas liquids (per barrel) 13.40 10.29 14.64
Production cost (per EEB) 3.42 3.64 3.56
ALGERIA*
Sales price
Oil and condensate (per barrel) $18.23 $11.99 --
Production cost (per EEB) 1.84 4.72 --
TOTAL
Sales price
Natural gas (per Mcf) $ 2.08 $ 1.92 $ 2.30
Oil and condensate (per barrel) 16.83 11.51 18.03
Natural gas liquids (per barrel) 13.40 10.29 14.64
Production cost (per EEB) 3.22 3.67 3.56
- ---------------
* In May 1998, production commenced from the Company's operations in Algeria.
Additional information on volumes, prices and markets is contained in
Analysis of Volumes and Prices and Marketing Strategies under Item 7 of this
Form 10-K. 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 -- UNITED STATES
U.S. reserves comprised 71% of Anadarko's total proved reserves at year-end
1999, compared to 74% in 1998 and 1997.
ONSHORE -- LOWER 48 STATES
OVERVIEW About 50% of the Company's proved reserves are located onshore,
principally in Kansas, Oklahoma and Texas. In 1999, average production from the
Company's onshore properties was 333 million cubic feet per day (MMcf/d) of gas
and 34,800 barrels of crude oil, condensate and NGLs per day, or 67% of the
Company's total production volumes. Anadarko has 734,000 gross (462,000 net)
undeveloped lease acres and 1,008,000 gross (809,000 net) developed lease acres
onshore in the lower 48 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 in the lower 48 states and in Alaska.
HUGOTON EMBAYMENT Anadarko's largest concentration of assets is in the Hugoton
Embayment, located in southwest Kansas and the Oklahoma and Texas panhandles.
Currently, Anadarko controls more than one million lease acres in this area and
operates about 2,750 wells.
Anadarko's net production from the Hugoton Embayment in 1999 was 72.7 Bcf
of gas and 1.1 MMBbls of oil and condensate, or about 27% of the Company's total
production volumes. By comparison, Anadarko's net production in 1998 was 84.4
Bcf of gas and 1.5 MMBbls of oil and condensate, which was about 33% of the
Company's total production volumes.
Over the last five years, Anadarko has drilled 472 wells (gross) in the
Hugoton Embayment. In addition to development drilling, Anadarko's operations in
this area have benefited from acquisitions of producing properties, gas
gathering systems and waterflood operations.
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[ONSHORE PROPERTIES MAP]
NET NET NET
DEVELOPED UNDEVELOPED PRODUCING
ACRES ACRES WELLS
--------- ----------- ---------
ONSHORE:
United States
Alaska*................................................ 302 289,709 --
Colorado............................................... 3,003 5,057 --
Kansas*................................................ 364,664 218,509 1,556
Louisiana.............................................. 4,100 1,200 --
Mississippi............................................ 117 131 --
Montana................................................ -- 250 --
Nebraska............................................... 96 139 --
New Mexico*............................................ 15,080 1,900 128
Oklahoma*.............................................. 207,120 98,571 954
Texas*................................................. 191,197 93,424 2,262
Utah*.................................................. 21,374 6,933 56
Wyoming................................................ 1,999 35,523 --
OFFICE LOCATIONS:
United States
Anchorage, Alaska
Houston, Texas
Midland, Texas
Liberal, Kansas
*Drilling activities were conducted in these areas in 1999.
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In 1999, the Company drilled 42 wells in the Hugoton Embayment. Anadarko
also recompleted 21 wells and carried out workover operations on 59 wells in the
area. By comparison, 1998 activity included 118 conventional wells, seven
horizontal wells and 24 recompletions. The decrease in drilling activity was the
direct result of lower commodity prices at the beginning of 1999.
Anadarko's activities in the Hugoton Embayment are concentrated on two
areas: the shallow gas fields in southwest Kansas and the Oklahoma and Texas
panhandles and the deeper oil and gas zones below the shallow gas production.
In April 1999, deep rights on about 147,000 net acres reverted back to
Anadarko as part of an agreement with another operator. Most of this acreage is
subject to an ongoing 50/50 joint venture deep exploration program with Mobil
Exploration and Production, U.S., Inc. The joint venture is operated by
Anadarko. Some of the significant wells completed by the joint venture in 1999
included: the HJV Javurek A-1 well (1.5 MMcf/d of gas); the HJV Briggeman A-1
well (1.4 MMcf/d of gas); and, the HJV Wilson A-1 (1.1 MMcf/d of gas). In 1999,
Anadarko and Mobil acquired 153 square miles of 3-D seismic, which is expected
to generate prospects for the drilling program in 2000.
Other highlights from Anadarko's deep drilling program in the Hugoton
Embayment included continued success in a new Basal Chester interval discovered
in 1998. Noteworthy completions during 1999 include the Smith AE-3 well in the
Lorena Field of Beaver County, Oklahoma, which tested 480 barrels of oil per day
(BOPD) and 180 Mcf per day (Mcf/d) of gas. This marked the second oil discovery
and the sixth successful well overall in the Basal Chester formation in
Anadarko's recent drilling program. Combined production from these six wells
peaked at 700 BOPD and 8.5 MMcf/d of gas. An additional 53 square miles of 3-D
seismic data was obtained in the Chester Trend during 1999. The information
should be instrumental as the Company makes decisions regarding the extension of
the Lorena Field.
In the Simmons Field of Stevens County, Kansas, Anadarko completed three
gas wells in the Morrow formation adding over 11 MMcf/d production. This field
was discovered in early 1999 based on 3-D seismic. A 47 square mile 3-D seismic
survey is being acquired for the area adjacent to the Simmons Field in 2000,
which is expected to generate more opportunities in the prolific Morrow Sands.
During 1999, the Company laid the groundwork for an increase in natural gas
production from two fields in the Texas panhandle. At the request of Anadarko,
the Texas Railroad Commission amended the production rules governing the West
Panhandle Field of Moore, Hutchinson, Potter and Carson counties. The ruling,
which lets Anadarko increase its allowable production from the Brown Dolomite
formation, is expected to add approximately 7 MMcf/d to the Company's natural
gas volumes in 2000. Anadarko currently operates about 125 wells in the West
Panhandle Field, where 1999 production averaged 27.2 MMcf/d of gas.
A ruling by state regulators on Anadarko applications paved the way for an
increased density drilling program in the shallow Red Cave Field of Moore
County, Texas. Anadarko identified a portion of the field as an area with
ineffective drainage from the existing single well 640-acre proration unit.
Infill wells drilled during 1999 were done on 160-acre spacing. The Company
drilled 18 infill wells during 1999, which resulted in combined year-end daily
gas production of 5 MMcf/d. Anadarko has plans for additional infill drilling in
the area for 2000, as well as working with the state to improve proration rules.
CENTRAL OKLAHOMA At year-end 1999, gross production from the 580 Golden Trend
wells operated by the Company was 31 MMcf/d of gas and 3,500 BOPD. In the last
five years, Anadarko has drilled about 70 wells in the Golden Trend, implemented
a 40-acre infill drilling program and substantially increased its leasehold
position. In 1999, Anadarko drilled the first of a large number of prospects
that could increase reserves and production of oil and gas in the future.
Anadarko completed two significant wells in the Bromide formation, which is a
deeper zone. The Marchant A-2 was completed flowing 423 BOPD and 1.4 MMcf/d. The
Bullwinkle A-1 flowed at an initial rate of 318 BOPD and 615 Mcf/d. The Bromide
formation should add significant potential to this multi-pay producing area.
Value is added to the Company's Golden Trend assets through the
Anadarko-operated Antioch Gathering System. The system has 120 miles of pipe and
connects over 220 wells in the area. During 1999, the Antioch system moved an
average of 28 MMcf/d of gas.
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PERMIAN BASIN In 1999, Anadarko drilled 67 wells, about half of which had been
deferred in 1998 due to low commodity prices; the other half consisted primarily
of development wells drilled on properties acquired in 1998. A total of 71
workover and recompletion wells were completed in 1999. These efforts added
volumes that helped slow declining production during a time of depressed
drilling activity. Net production from the Permian Basin for 1999 was 5.1
MMEEBs, which was the third consecutive year that volumes surpassed 5 MMEEBs.
Net production for 1999 averaged 9,960 BOPD and 24 MMcf/d of gas. This compares
to net production for 1998 of 11,900 BOPD and 25 MMcf/d of gas. The Permian
Basin accounted for about 43% of the Company's total domestic oil production in
1999 and 40% of total domestic oil production in 1998.
The North Shugart Field of Eddy County, New Mexico had renewed drilling
activity during 1999, triggered by the successful recompletion of the Paton
Federal B-1 well. This Bone Spring recompletion tested at an initial rate of 646
BOPD and 316 Mcf/d. Four 40-acre development offset wells were spud by year-end.
Six additional Bone Spring wells are planned for 2000.
In August 1999, Anadarko completed a property trade, that included more
than 1,600 acres of potential waterflood property in the Snyder Field of Howard
County, Texas. The exchange gives Anadarko control of 76 wells and production of
70 BOPD. These wells are located in an area where Anadarko has been carrying out
successful waterflood operations for several years. Anadarko now operates over
2,200 acres in the Snyder Field with a 100% working interest. Anadarko also has
an active drilling program in other areas of the Snyder Field. In late 1999,
Anadarko drilled a total of 18 producing and 14 water injection wells on acreage
that was acquired in 1998. This work is part of a multi-stage waterflood
development plan. Well completion work and facility construction were ongoing at
year-end.
In other property transactions, the Company acquired 480 acres in the
Revilo Field of Scurry County, Texas, which gives Anadarko access to leases in
one of its core waterflood areas. In 1999, 13 successful wells were drilled on
existing acreage in the Revilo Field where Anadarko owns a 100% working
interest.
Installation of equipment and infrastructure to develop the eastern
extension of the Ketchum Mountain Clearfork Field in Irion County, Texas,
progressed in 1999 and was about 80% complete at the end of the year. The area
comprising this new reserve base, called the Ketchum Mountain East Clearfork
Unit, was acquired in 1993. Since then, Anadarko has drilled more than 200 wells
and extended the known limits of the reservoir. The Company is developing these
reserves through waterflood recovery and is in the process of installing 26
miles of injection lines, constructing two injection plants, equipping water
supply wells and converting wells for injection. Partial water injection has
already begun. Peak field production in 1999 was 1,850 BOPD (gross). By
comparison, production in 1993 was about 700 BOPD (gross). Anadarko owns an 89%
working interest in the Ketchum Mountain Clearfork Unit and a 97% working
interest in the extension area, the Ketchum Mountain East Clearfork Unit.
As of December 31, 1999, Anadarko has interests in 228,000 gross (137,000
net) lease acres in the Permian Basin and operates about 2,700 active wells.
BOSSIER PLAY Activity in the Bossier Sand Play of Freestone County, Texas
continued to accelerate in 1999. The Company spudded 90 wells in the Dew and
Mimms Creek Fields during the year compared to 36 wells in 1998. Since 1996,
when the Company's operations began in Freestone County, Anadarko has drilled
more than 130 wells and has increased net production from zero to about 110
MMcf/d of gas at year-end 1999. During that time, Anadarko has drilled one dry
hole, which translates to a success rate of more than 99%. The Company's average
working interest in the wells completed to date is above 90%. Bossier wells are
characterized by long reserve life and hyperbolic decline rates which means they
start producing gas at an average rate of about 3 MMcf/d but decline rapidly to
slightly less than 1 MMcf/d and last for many years. Some of Anadarko's gas
wells in the Bossier Play tested at much higher initial rates in 1999: the
Lancaster A-3 (26.0 MMcf/d); the Burgher D-1 (14.7 MMcf/d); the Stephens A-1R
(13.7 MMcf/d); the Blair A-1 (13.2 MMcf/d); the English 8 (12.0 MMcf/d); and the
Lane A-4 (11.1 MMcf/d). These wells should produce at higher rates than average.
As of December 31, 1999, Anadarko had 18 rigs running in the play, up from
six at the end of 1998. The Company expects to drill as many as 144 Bossier
wells in 2000; as a result, net gas production should surpass expected net
volumes from the Hugoton Field -- currently Anadarko's largest onshore gas
field. Since Anadarko has yet to determine the full extent of the play, the
Bossier holds the potential for the discovery of additional reserves. The
Company's ability to drill and effectively stimulate the low permeability
Bossier
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sandstone at reasonable costs is a key factor that may ultimately define the
field limits. In addition, Anadarko is also developing reservoirs above the
Bossier formation. The Company enhanced its leasehold position in 1999, adding
more than 60,000 net acres. At year-end 1999, Anadarko held approximately 90,000
net acres in the play.
Adding value to the Company's Bossier operations is the Dew Gathering
System, which became operational in 1998. The system is comprised of 60 miles of
pipeline connecting more than 100 wells in the Dew and Mimms Creek Fields. In
1999, Anadarko increased compression from 6,000 horsepower to 8,400 horsepower,
which has allowed field volumes to increase. The Dew Gathering System is
connected to three different transmission pipelines, allowing the Company to
swing gas between buyers in order to optimize margins.
In 1999, the Company acquired properties in the Beargrass Field of
Freestone and Leon counties. The purchase covered 8,800 gross acres and included
29 active wells with net daily production of 6.5 MMcf/d of gas and 1.2 MMEEBs of
proven net reserves.
LOUISIANA Anadarko's activities in the Bossier Play of East Texas expanded into
Northern Louisiana with the acquisition of properties in Vernon Field of Jackson
Parish, Louisiana. The purchase included 16 active Bossier wells, plus one
Hosston well, with daily net gas production of 5.9 MMcf/d. An infill drilling
program is planned for 2000.
COAL-BED METHANE Anadarko is developing coal-bed methane acreage in the Helper
Field, located in Carbon County, Utah. During 1999, Anadarko drilled 32 wells on
state and private leases, increasing the number of producing wells to 71. At
year-end 1999, the Helper Field was producing 10.9 MMcf/d (gross) of gas.
Production continues to increase and recently surpassed 16 MMcf/d (gross) of
gas. An Environmental Impact Statement (EIS) was completed on the Company's
10,600 gross acres on federal land within the Helper Field. Completion of the
EIS will allow Anadarko to continue its development plans in the Helper Field,
which are expected to include the drilling of up to 46 wells over the next two
years. Anadarko has a 100% working interest in the project.
Anadarko also drilled two exploratory coal-bed methane wells at the Clawson
Springs prospect, located 12 miles southwest of Helper, in which it has a 100%
working interest. Additional wells may be drilled at Clawson Springs during
2000, contingent upon further evaluation of the exploratory wells.
GATHERING AND PROCESSING
GAS GATHERING Anadarko owns and operates four major gas gathering systems in
the nation's mid-continent area, where the Company has substantial gas
production. The systems are: the Antioch Gathering System in the Southwest
Antioch Field of Oklahoma; the Sneed System in the West Panhandle Field of
Texas; the Hugoton Gathering System in southwest Kansas; and the Dew Gathering
System in East Texas. In July 1999, Anadarko sold its Hemphill Gathering System
along with producing properties. The divestiture included 70 wells and the
55-mile gas gathering system located in Hemphill County, Texas.
The Company's gathering systems have more than 2,400 miles of pipeline
connecting about 2,000 wells and have more than 600 MMcf/d of gas gathering
capacity. In addition, Anadarko operates seven other smaller gas gathering
systems.
GAS PROCESSING The Company processes gas at various third-party plants under
agreements generally structured to provide for the extraction and sale of NGLs
in efficient plants with flexible commitments. The Company has agreements with
six plants in the mid-continent area and eight plants in the gulf coast area.
Anadarko's strategy to aggregate gas through Company-owned and third-party
gathering systems allows Anadarko to secure processing arrangements in each of
the regions where the Company has significant production.
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ALASKA
OVERVIEW Anadarko is active in two geographic areas in Alaska -- the North
Slope and the Cook Inlet of south central Alaska. Overall, the Company had
interests in 767,000 gross (290,000 net) lease acres in Alaska at year-end 1999.
In addition, Anadarko is awaiting transfer of ownership of 628,000 gross leases
covering lands in the National Petroleum Reserve-Alaska (NPRA), for which rights
were acquired in 1999.
NORTH SLOPE Preparing for first production from the Alpine Field, which is
expected to begin in the third quarter of 2000, was the focus of Anadarko's
North Slope activities in 1999. Construction was completed on production modules
built in Corpus Christi, Texas, and Nikiski, Alaska. These modules were
delivered to a staging area on the North Slope during the fourth quarter of
1999. The modules are being transported via sea-ice route to their final
location at the Alpine site in early 2000. The first of two gravel pads was
completed during 1999, which will be able to support year-round drilling
activity. Drilling is underway on the 120 well program planned for the field.
In July 1999, Anadarko announced the Fiord discovery, an accumulation of
oil just north of Alpine. The Fiord No. 5 exploration well encountered a 60-foot
vertical section of oil-bearing sand in a Jurassic-aged reservoir and a 15-foot
vertical section of oil-bearing sand in the Kuparuk formation. Subsequent flow
tests yielded 2,500 BOPD of 30-degree API gravity oil and 1.2 MMcf/d of gas. The
Fiord No. 4 well, two miles northeast of the Fiord No. 5 well, also encountered
an oil-bearing Jurassic reservoir. A 3-D seismic acquisition program should help
determine the economic viability of the discovery, as well as future development
plans. The Fiord discovery could become the first satellite field to Alpine. The
fact that the accumulation could be developed under an existing state-approved
unit -- the Colville River Unit -- could expedite development.
Another key project that began during 1999 was the construction of a
pipeline connecting Alpine to the Trans Alaska Pipeline System (TAPS) via the
Kuparuk Field gathering system. The project consists of a 34-mile elevated
pipeline and will provide a conduit for Alpine oil via TAPS to the Port of
Valdez. Anadarko has a 22% working interest in both the Alpine and Fiord
projects.
Anadarko expanded its North Slope acreage position substantially during
1999 after participating in a federal lease sale held in May 1999 in Anchorage,
Alaska. The Company acquired 99 tracts covering more than 628,000 acres (gross)
in the NPRA. Anadarko joined forces with ARCO Alaska on 92 of the bids and bid
alone on the remaining seven tracts. The Company's net investment on the 99 bids
was $16.5 million. The Anadarko/ARCO partnership was the top bidder at the sale,
investing a combined total of $70.5 million. In the 92 tracts acquired in
conjunction with ARCO, Anadarko owns a 22% interest. Anadarko has a 100%
interest in the other seven tracts and will serve as operator. Altogether, the
Company has access to about 4.5 million gross acres of exploration acreage
throughout the state.
In addition to an active development program in the Alpine Field, Anadarko
also continued with its exploration program on the North Slope during 1999. The
Company has more than a dozen mapped and leased prospects, including four within
the NPRA that received federal approval to begin drilling in January 2000. ARCO
Alaska has filed eight notices of staking with the Bureau of Land Management
identifying the precise location of Company operations on these prospects, which
were identified through integrated geological and 3-D seismic interpretations.
The partners expect to drill three exploration wells on the North Slope during
2000.
COOK INLET In 1999, Anadarko completed a long-term test to confirm the
potential commerciality of its 1998 discovery at the Lone Creek No. 1 well on
the Moquawkie prospect. The results verified significant areal extent for the
reservoir, which tested at initial flow rates of 10.6 MMcf/d of gas from 53 feet
of perforations at approximately 2,400 feet. The Lone Creek No. 1, which is
Anadarko's first Company-operated well in Alaska, also encountered several other
possible gas zones totaling about 180 feet of net pay. These zones have yet to
be tested. Anadarko and ARCO Alaska each hold a 50% interest in the discovery.
The partners hold approximately 56,000 gross lease acres in the Moquawkie area
and completed a wetlands survey in preparation for determining a possible
pipeline route from the field to a nearby gas pipeline system in 1999.
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OFFSHORE -- GULF OF MEXICO
OVERVIEW At year-end 1999, about 12% of the Company's proved reserves were
located offshore in the Gulf of Mexico. Net production volumes in 1999 from
these properties averaged 132 MMcf/d of gas and 6,100 barrels of oil, condensate
and NGLs per day. At year-end 1999, Anadarko owned an average 54% working
interest in 161 leasehold blocks representing 202,000 gross (71,000 net) acres
in developed properties and 704,000 gross (402,000 net) acres in undeveloped
properties in the Gulf of Mexico. The accompanying map illustrates the Company's
undeveloped and developed net acres, number of producing net wells and other
data relevant to its offshore properties.
EXPLORATION Anadarko is active in exploration projects in conventional,
sub-salt and deepwater plays in the Gulf of Mexico. In 1999, the Company drilled
3 offshore sub-salt wells, all of which were unsuccessful below the salt.
One of these wells found a natural gas accumulation above the salt at the
Garnet prospect (East Cameron Block 347) offshore Louisiana. The well is
expected to be connected via a sub-sea completion to the Company's East Cameron
359 platform three miles to the south. During the first quarter of 2000, the
well tested at 13 MMcf/d of gas and 335 barrels of condensate per day (BCPD).
The well is estimated to be capable of producing approximately 20 MMcf/d of gas
with first sustained production scheduled for the second quarter of 2000.
Anadarko has a 100% working interest in the Garnet prospect.
In July 1999, the Company announced an agreement with Texaco that
essentially doubled its acreage position in the Gulf of Mexico's sub-salt
fairway. Under the agreement, Anadarko acquired the rights to future exploration
on 82 lease blocks in which Texaco has interests. The tracts are located
offshore Louisiana in water depths ranging from 85 feet to 2,400 feet and cover
approximately 400,000 gross acres. Anadarko's working interests in new prospects
that it identifies and drills will vary, depending on current Texaco partners.
As part of the agreement, Texaco has the option to retain a working interest in
each exploratory prospect by participating in the initial exploration well
drilled by Anadarko. Texaco has an average working interest of 50% in the 82
blocks that are subject to the agreement. Seismic depth imaging is currently
being processed on 40 of the blocks and Anadarko is evaluating about 80
prospects and leads identified thus far. As of year-end 1999, Anadarko had been
assigned 44 of the Texaco blocks.
In addition, the Company also has interests in 34 deepwater lease blocks on
which 19 prospects and leads have been identified. During 2000, Anadarko plans
to drill its Marco Polo deepwater prospect, located on Green Canyon Block 608 in
4,300 feet of water.
DEVELOPMENT Anadarko's work program in 1999 was focused primarily on
construction of production facilities to develop the 1998 sub-salt discoveries
at Tanzanite (Eugene Island Block 346) and Hickory (Grand Isle 116/110). The
deck and jacket for the Tanzanite Field is being built in Corpus Christi, Texas.
The platform will have a capacity of 200 MMcf/d of gas and 15,000 BOPD. During
1999, Anadarko drilled six additional wells/sidetracks to determine the extent
of the Tanzanite Field. Additional seismic processing and drilling will be
required to further delineate the field. First production is expected in the
fourth quarter of 2000. Anadarko holds a 100% working interest in the Tanzanite
project.
Construction on the Hickory platform began in 1999. The platform is being
built in Houma, Louisiana, and will have the capacity to produce 300 MMcf/d of
gas and 15,000 BOPD. A second well at Hickory was successfully drilled during
1999, encountering 160 feet of net gas pay. A third well was spud in January
2000 and is currently drilling. First production from the Hickory discovery is
expected in the fourth quarter of 2000. Anadarko serves as operator of Hickory
and has a 50% working interest.
Anadarko initiated projects in 1999 to increase production from two of the
Company's major development areas in the Gulf of Mexico. At the Matagorda Island
622/623 Complex, the C-7 well began drilling in September 1999 and was
successfully completed during the first quarter of 2000. This well is currently
flowing 80 MMcf/d of gas and has increased gross field gas production from 215
MMcf/d to 295 MMcf/d. A second well will be spud in the first quarter of 2000.
Three significant recompletion projects were conducted at Matagorda Island
622/623 during 1999, including the A-4 well which tested 25.8 MMcf/d of gas and
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[OFFSHORE MAP]
NET NET NET
DEVELOPED UNDEVELOPED PRODUCING
ACRES ACRES WELLS
--------- ----------- ---------
OFFSHORE
United States
Florida................................................ -- 39,827 --
Louisiana.............................................. 36,883 251,930 33
Mississippi............................................ -- 16,594 --
Texas.................................................. 34,351 93,656 28
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328 BCPD. For 1999, the Company's net gas production at the complex averaged 84
MMcf/d, which compares to 83 MMcf/d in 1998. Anadarko holds a 37.5% working
interest in the block.
During the first quarter of 2000, a new well was successfully completed at
the Agate Field (Ship Shoal Block 361). This well was designed to restore
production to the field that has been disrupted since May 1999. The well is
currently flowing about 10 MMcf/d of gas. Production is tied back via a sub-sea
completion to the Mahogany platform (Ship Shoal Block 349/359) about six miles
to the east. Additional work programs at the Mahogany platform during 1999
included drilling two development wells in a shallower gas formation above the
main "P" sand. The A-8 well flowed 4.5 MMcf/d of gas while the A-10 well tested
4.1 MMcf/d of gas. The A-1 sidetrack well will be spud during the first quarter
of 2000. This well is designed to restore production to the A-1 well. Gross
production from the Mahogany platform -- including volumes from the Agate
Field -- averaged 10,600 BOPD and 25 MMcf/d of gas during 1999 compared to
12,800 BOPD and 28 MMcf/d of gas in 1998. Anadarko has a 50% working interest in
the Agate Field and a 37.5% working interest in the Mahogany Field.
During the third quarter of 1999, a successful development well was drilled
in the Galveston Block 333 Field. The A-3 well tested 6.1 MMcf/d of gas.
Anadarko has a 44.1% working interest in the Galveston Block 333 Field. Also
during 1999, recompletion projects designed to increase production were
successfully carried out at the Galveston Block 333, Matagorda Island Block 587,
High Island Block A 365, Vermilion Block 78 and East Cameron Block 157 Fields.
During the first quarter of 2000, two additional wells were successfully
recompleted in the High Island Block A365 Field. The B-1 well was recompleted to
the "BN-4" sand and tested at 1,744 BOPD and 2.2 MMcf/d of gas. The B-3 well was
recompleted to the "BN-3" sand and tested at 21 MMcf/d of gas and 1,622 BCPD.
Anadarko serves as the operator of the field and has a 34% working interest.
PROPERTIES AND ACTIVITIES -- INTERNATIONAL
OVERVIEW Over the past few years, Anadarko has devoted a portion of its capital
expenditures to international ventures. Currently, the majority of expenditures
for international projects is devoted to continuing development of discoveries
in Algeria. Exploration activities are also being conducted in Tunisia and the
North Atlantic Margin, as well as 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 development of liquid
hydrocarbons discovered by the Company in Algeria's Sahara Desert. Since 1989,
Anadarko has drilled 47 productive wells (12 exploration and 35
delineation/development) and has submitted detailed development plans (called
Commerciality Reports) for 12 fields in Algeria. The Company has proved reserves
in Algeria of 289 MMBbls (net) of crude oil as of year-end 1999, up 18% from 245
MMBbls (net) at year-end 1998. The Company estimates that more than 2.0 billion
barrels (gross) of crude oil and condensate have been discovered to date.
As of December 31, 1999, the Company's cumulative net investment in Algeria
was $514 million (including capitalized interest and overhead), of which $64
million was spent in 1999. Anadarko's net investment was reduced during the year
by the proceeds from the sale of properties discussed below. Anadarko plans to
invest about $135 million in Algeria in 2000. At the end of 1999, the Company
had 2.0 million gross (0.9 million net) acres in Algeria.
In 1999, Anadarko completed 11 development wells on Blocks 404 and 208. Of
the 11 wells drilled in 1999, all were productive.
The accompanying map illustrates the Company's developed and undeveloped
acreage, number of productive wells and other data relevant to its properties in
Algeria.
Anadarko's interest in the production sharing agreement (PSA) is 50% 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% 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. Moller 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% of development
and production costs. In addition, Anadarko and its partners are entitled to
recover a portion of exploration costs
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[ALGERIA MAP]
ALGERIA
Undeveloped Acreage -- 1.8 million acres (0.9 million net to Anadarko)
Developed Acreage (HBNS,HBN and Ourhoud Fields) -- 160,000 acres (27,000
net to Anadarko)
Productive Wells -- 47 (17 net to Anadarko)
Fields discovered to date shown graphically
HBN Field
HBNS Field*
HBNSE Field
RBK Field
QBN Field
BKE Field
BKNE Field
OURHOUD Field (formerly Qoubba)*
EKT Field
EMN Field
EMK Field
EME Field
Blocks shown graphically
404*
208
211
*Drilling activities were conducted in these areas in 1999.
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out of production in the exploitation phase. SONATRACH is the beneficial owner
of 9.5% of Anadarko's outstanding common stock.
First oil production began in May 1998, from Stage I facilities at the
Hassi Berkine South (HBNS) Field. Oil produced from the HBNS Field is sold as
Saharan Blend, a very high quality crude that provides refiners with large
quantities of premium products such as jet and diesel fuel. Production from the
HBNS Field averaged 50,100 BOPD (gross) in 1999 compared to 21,100 BOPD (gross)
in 1998, the first year of production. Production volumes, however, were limited
as a result of Organization of Petroleum Exporting Countries (OPEC) quotas and
an equipment failure at the Central Production Facility (CPF) in July 1999. As a
result of the incident, which involved the mechanical failure of a turbine unit
used to reinject natural gas back into the reservoir, production was halted for
seven days. Limited production was restored until the problem was corrected
ahead of schedule about two months later. Full production and gas injection
operations resumed on October 6, 1999. During 1999, about 6.2 MMBbls of oil were
produced net to Anadarko compared to 1.4 MMBbls during 1998.
In September 1999, Anadarko and SONATRACH signed an agreement awarding the
Engineering, Procurement and Construction (EPC) contract for Stage II production
facilities at the HBNS Field to Brown & Root-Condor (BRC), a company jointly
owned by Brown & Root (a subsidiary of the Halliburton Company) and affiliates
of SONATRACH. The project involves a number of elements, including construction
of a crude oil process train capable of handling 75,000 BOPD. With completion
expected in 2001, the capacity of the HBNS Field will increase to 135,000 BOPD.
The contract also covers installation of field gathering systems to bring crude
oil from the field to the CPF, and to distribute water and natural gas back to
the field for reinjection in selected wells. An accompanying system to be built
will have capacity to handle 50,000 barrels of produced water per day, produce
additional make-up water, and have the capacity to inject up to 135,000 barrels
per day back into the HBNS reservoir, increasing the recovery of oil. Under the
terms of the EPC contract, a gas separation, compression and re-injection system
will be installed, capable of handling 700 MMcf/d of gas production.
In December 1999, Anadarko and SONATRACH exercised one of two fixed-price
options available to them under the EPC contract with BRC that provides for the
development of the Hassi Berkine (HBN) Field just north of the HBNS Field. The
option covers construction of a crude oil production train with the capacity to
process 75,000 BOPD, and the installation of a gathering system, injection lines
and facilities for crude oil storage and export. The HBN Field is located on
Block 404 (operated by the Anadarko/SONATRACH Association) and on Block 403
(operated by the Agip/SONATRACH Association). The HBN Field will be unitized
between the two associations. Development costs, including costs under the EPC
option, and production sharing will be 74.5% for the Anadarko/SONATRACH
Association on a preliminary basis. This percentage is subject to future
redetermination.
The HBN facilities are expected to be completed in early 2002. At that
time, a total of three production trains (including Stage I, which has a gross
production capacity of 60,000 BOPD) will be operating at the CPF, giving the
facility total crude oil production capacity of 210,000 BOPD (gross).
Development drilling in the HBN Field is expected to begin in 2000.
The EPC contract signed in September 1999 includes one future fixed-price
option for the construction of a fourth production train, with a capacity of
75,000 BOPD (gross) to develop the "satellite" fields on Block 404; these
include the Hassi Berkine South East Field (HBNSE), the Rhourde Berkine Field
(RBK), the Qoubba North Field (QBN) and the Berkine Northeast Field (BKNE), all
of which are near the HBNS Field. This option expires November 1, 2000 and has
not yet been exercised.
During the third quarter of 1999, Anadarko and partners requested bids for
the EPC contract to develop the Ourhoud (ORD) Field -- previously known as
Qoubba -- at the southern end of Block 404. Bids have been received and are
being evaluated. The Company expects to sign the contract in 2000 with first
production scheduled for 2002. The Exploitation License granted by the Algerian
authorities for development of the ORD Field, which is Anadarko's largest
discovery in Algeria, provides for peak production rates of about 230,000 BOPD
(gross). Situated in the southern portion of Block 404, the ORD Field extends
onto Block 406a, operated by the Cepsa/SONATRACH Association, and onto Block
405, operated by the Burlington Resources/SONATRACH Association. The preliminary
allocation of development and production costs to the Anadarko/SONATRACH
Association is 37.5%. This percentage is subject to future redetermination.
Anadarko, Cepsa and Burlington Resources are participating in development work
on the Field in
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partnership with SONATRACH. To date, a total of 16 successful wells have been
drilled in the ORD Field and development drilling will continue in 2000.
Anadarko also has several fields further south on Block 208; these include
the El Merk Field (EMK), the El Kheit Et Tessekha Field (EKT), the El Merk East
Field (EME) and the El Merk North Field (EMN). Initial development plans for
these more recent discoveries were submitted in 1998 and are being finalized.
Design work has begun, and these production facilities are expected to be built
in the 2003-2005 time frame.
During 1999, Anadarko sold its interests in Blocks 401a and 402a, operated
by BHP Petroleum Company. The properties were sold to Agip Algeria Exploration
B.V., a wholly-owned subsidiary of ENI, for a total of $84.7 million net to
Anadarko. Anadarko held a 27.5% interest in the blocks. The final sale is
subject to the approval of the state authorities of Algeria.
Anadarko was notified in 1998 that SONATRACH believes that Anadarko and its
partners are not entitled to share in future production from four wells which
were drilled in the second half of 1998; the EMN No. 3, EME No. 4, EKT No. 3 and
HBNS No. 16 wells. Anadarko strongly disagrees with SONATRACH'S position.
SONATRACH said its position is based on a view that the productive intervals in
these wells are not connected to reservoirs previously discovered by Anadarko
and its partners. The Company's position is that Anadarko and its partners
should share in reserves and future production from these four wells because the
wells were drilled according to the terms of the PSA with proper approval from
SONATRACH, and because the four wells were drilled to delineate or develop
discoveries previously made. Nevertheless, the potential reserves, future
production and potential value related to these wells are not significant to the
overall reserves, expected future production or overall value of Anadarko's
Algeria project. Anadarko and SONATRACH continue to discuss the status of these
wells and the resolution of this dispute.
Political unrest continues in Algeria. Anadarko is closely monitoring the
situation and has taken reasonable and prudent steps to ensure the safety of
employees and the security of its facilities 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 2000 and beyond. However, the
situation has not had any material effect to date on the Company's operations.
TUNISIA During 1999, the Company secured a 33.3% interest in the 1.4 million
acre Anaguid Block in the Ghadames Basin of Tunisia, which will revert to a
16.67% interest if ETAP (Tunisia's national oil company) exercises its option to
back into the project. The interest is subject to approval by the Tunisian
government. On December 1, 1999, Anadarko officially assumed operatorship.
Anadarko believes that the acreage is on trend with its discoveries in Algeria
to the west and that it holds the potential for the discovery of Triassic-aged
oil fields. In 1999, drilling operations were completed on the AMG No. 1 well.
Just south of the Anaguid Block, Anadarko has a 50% working interest in the
Jenein Nord Block prior to back-in by ETAP. During 1999, the Company completed a
2-D seismic acquisition program on part of the 384,000 acre (gross) block, which
is also contiguous with Blocks 401a and 402a in Algeria to the west and
contiguous with the Anaguid Block to the north. The partners are currently
evaluating exploration prospects. Exploration drilling is expected to begin in
2000.
NORTH ATLANTIC MARGIN In 1999, Anadarko and its partners drilled an exploratory
well on Tranche 61 northwest of the Shetland Islands in the North Atlantic
Ocean. The Company has a 7.5% interest in Tranche 61, which covers 172,000 gross
acres. Anadarko has a 50% interest in nearby Tranche 63 (260,000 gross acres)
and a 20% interest in Tranche 21 (320,000 gross acres) west of Scotland. In
addition, the Company has secured a 33% interest in two concession areas west of
Ireland covering more than 450,000 gross acres.
ERITREA During 1999, Anadarko reported that its third exploration well offshore
Eritrea was unsuccessful. Based on these results, as well as those from two
unsuccessful exploration wells drilled previously, the Company elected not to
continue its exploration efforts in the area. Anadarko was operator and held a
50% interest.
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DRILLING PROGRAMS
The Company's 1999 drilling program again focused on known oil and gas
provinces onshore and offshore North America and Algeria. Onshore activity was
concentrated in Alaska and East Texas. Exploration activity consisted of 11
wells onshore in the U.S., three wells offshore in the Gulf of Mexico, two wells
in Eritrea, one well in the North Atlantic Margin and one well in Tunisia.
Development activity included 166 wells onshore in the U.S., five wells offshore
in the Gulf of Mexico and 11 wells in Algeria.
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
---------- --------- ----- ---------- --------- ----- -----
1999
United States 8.4 3.5 11.9 125.6 15.7 141.3 153.2
Algeria -- -- -- 1.9 -- 1.9 1.9
Eritrea -- 1.0 1.0 -- -- -- 1.0
North Atlantic -- 0.1 0.1 -- -- -- 0.1
Tunisia -- 0.3 0.3 -- -- -- 0.3
---- ---- ---- ----- ---- ----- -----
Total 8.4 4.9 13.3 127.5 15.7 143.2 156.5
---- ---- ---- ----- ---- ----- -----
1998
United States 7.1 13.1 20.2 245.1 30.4 275.5 295.7
Algeria 5.1 1.1 6.2 2.0 0.5 2.5 8.7
Eritrea -- 0.5 0.5 -- -- -- 0.5
---- ---- ---- ----- ---- ----- -----
Total 12.2 14.7 26.9 247.1 30.9 278.0 304.9
---- ---- ---- ----- ---- ----- -----
1997
United States 6.1 3.1 9.2 433.8 50.9 484.7 493.9
Algeria 3.8 2.0 5.8 0.7 -- 0.7 6.5
---- ---- ---- ----- ---- ----- -----
Total 9.9 5.1 15.0 434.5 50.9 485.4 500.4
---- ---- ---- ----- ---- ----- -----
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, 1999:
UNITED
STATES ALGERIA TOTAL
------------ ----------- ------------
GROSS NET GROSS NET GROSS NET
----- ---- ----- --- ----- ----
WELLS IN THE PROCESS OF DRILLING OR IN ACTIVE
COMPLETION
Exploration 6 4.4 -- -- 6 4.4
Development 34 29.7 2 0.3 36 30.0
WELLS SUSPENDED OR WAITING ON COMPLETION
Exploration 4 2.4 -- -- 4 2.4
Development 81 63.6 5 0.5 86 64.1
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PRODUCTIVE WELLS
As of December 31, 1999, the Company owned productive wells as follows:
UNITED STATES ALGERIA TOTAL
------------- ----------- -------------
GROSS NET GROSS NET GROSS NET
----- ----- ----- --- ----- -----
Oil wells* 5,121 2,838 47 17 5,168 2,855
Gas wells* 2,715 2,178 -- -- 2,715 2,178
----- ----- ----- -- ----- -----
Total 7,836 5,016 47 17 7,883 5,033
----- ----- ----- -- ----- -----
- ---------------
* Includes wells containing multiple completions
Oil wells 74 26 -- -- 74 26
Gas wells 230 135 -- -- 230 135
SEGMENT AND GEOGRAPHIC INFORMATION
Information on operations by segment and geographic location is contained
in Note 11 of the Notes to Consolidated Financial Statements under Item 8 of
this Form 10-K.
EMPLOYEES
As of December 31, 1999, the Company employed 1,431 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, Liquidity and Long-term Debt under Item 7 of this
Form 10-K.
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RATIOS OF EARNINGS TO FIXED CHARGES AND EARNINGS TO COMBINED FIXED CHARGES AND
PREFERRED STOCK DIVIDENDS
Anadarko's ratios of earnings to fixed charges for the years ended December
31, 1999, 1998 and 1997 were 1.77, 0.05 and 3.04, respectively. The Company's
ratios of earnings to combined fixed charges and preferred stock dividends for
the years ended December 31, 1999, 1998 and 1997 were 1.53, 0.05, and 3.04,
respectively. As a result of the Company's net loss in 1998, Anadarko's earnings
did not cover fixed charges by $90 million and did not cover combined fixed
charges and preferred stock dividends by $101 million.
These ratios were computed by dividing earnings by either fixed charges or
combined fixed charges and preferred stock dividends. 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. Preferred stock dividends are adjusted to reflect the amount of
pretax earnings required for payment.
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 allowed a "severance,
production or similar" tax to be included as an add-on, over and above the
maximum lawful price for natural gas. Based on the Federal Energy Regulatory
Commission (FERC) ruling that the Kansas ad valorem tax was such a tax, the
Company collected the Kansas ad valorem tax.
Background of Present Litigation FERC's ruling regarding the ability of
producers to collect the Kansas ad valorem tax was appealed to the United States
Court of Appeals for the District of Columbia Circuit (D.C. Circuit). The Court
held in June 1988 that FERC failed to provide a reasoned basis for its findings
and remanded the case to FERC.
Ultimately, the D.C. Circuit issued a decision on August 2, 1996 ruling
that producers must refund all Kansas ad valorem taxes collected relating to
production since October 1983. The Company filed a petition for writ of
certiorari with the Supreme Court. That petition was denied on May 12, 1997.
Anadarko estimates that the maximum amount of principal and interest at
issue which has not been paid to date, assuming that the October 1983 effective
date remains in effect, is about $46.2 million (pretax) as of December 31, 1999.
FERC Proceedings Depending on future FERC orders, the Company could be required
to pay all or part of the amounts claimed by all pipelines (which might include
PanEnergy Corp) pending further potential review by FERC or the courts.
PanEnergy Litigation On May 13, 1997, the Company filed a lawsuit in the
Federal District Court for the Southern District of Texas against PanEnergy
seeking declaration that pursuant to prior agreements Anadarko is not required
to issue refunds to PanEnergy for the principal amount of $14 million (pretax)
and, if the petition for adjustment is denied in its entirety by FERC with
respect to PanEnergy refunds, interest in an amount of $30.4 million (pretax) as
of December 31, 1999. The Company also seeks from PanEnergy the return of
$816,000 of the $830,000 (pretax) charged against income in 1993 and 1994. In
response to a motion filed by PanEnergy, the United States District Court issued
an order on March 17, 1998 staying the litigation, pending the exercise by FERC
of its regulatory jurisdiction.
FERC Order of October 13, 1998 On October 13, 1998, FERC issued a final order
on Anadarko's complaint. The order declares that Anadarko Production Company
(now an affiliate of Duke Energy) is responsible as first seller for making
refunds of Kansas ad valorem tax reimbursements collected from 1983 through
August 1, 1985. The Company estimates this amount to be as much as $17 million.
The Company is responsible to make refunds for reimbursements it collected as
first seller from August 1, 1985 through 1988. On February 23, 2000, FERC
clarified its prior order stating the Company must, in the first instance, make
refunds for former subsidiaries of Anadarko Production Company. The Company
estimates this amount to be as much as $27 million. The FERC order states that
whether Anadarko Production Company or the Company
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is entitled to reimbursement from another party for the refunds ordered is a
matter to be pursued in an appropriate judicial forum. On January 15, 1999, FERC
issued an order denying a request for rehearing filed by PanEnergy and
reaffirming the October 1998 order. FERC may, in the near future, issue an order
based upon the above allocation regarding when the refunds must be paid and the
specific refund amount. The issue of reimbursement will now be pursued in U.S.
District Court. On April 16, 1999, the U.S. District Court ordered the parties
to mediation. One session with the mediator has been held. The Court has also
set the matter for trial on the May/June 2000 trial term. Supplemental motions
for summary judgment have been filed by both parties.
Kansas Corporation Commission (KCC) Proceeding On April 30, 1998, the Company's
subsidiary, Anadarko Gathering Company (AGC), filed a petition with the KCC to
clarify AGC's rights and obligations, if any, related to the payment by first
sellers of Kansas ad valorem tax refunds. The refunds at issue relate to sales
made by Anadarko Production Company, a PanEnergy affiliate, through facilities
known as the Cimmaron River System during the time period from 1983 to 1988. AGC
purchased the Cimmaron River System from Centana, the successor of Anadarko
Production Company, in 1995. The petition, among other things, asks the KCC to
determine whether AGC or Anadarko Production Company is responsible for the
payment or distribution of refunds received from first sellers to Anadarko
Production Company's former customers and requests guidance concerning the
disposition of refunds received that are attributable to sales made to Anadarko
Production Company customers that did not reimburse Anadarko Production Company
for Kansas ad valorem taxes during the relevant time periods. On June 1, 1999,
the KCC entered an order approving the plan proposed by AGC. Under this order,
after the conclusion of all litigation related to Kansas ad valorem tax
proceedings, "AGC shall be authorized to deduct from the amounts of refunds due
for the period from 1986 to and through 1988 all amounts shown not to have been
collected by AGC's predecessor in interest, Centana Energy Corporation by year,
for the period from 1986 through 1988." The order is now final.
Anadarko's net income for 1997 included a $1.8 million charge (pretax)
related to the Kansas ad valorem tax refunds. This charge reflects all principal
and interest which may be due at the conclusion of all regulatory proceedings
and litigation to parties other than PanEnergy. The Company is unable at this
time to predict the final outcome of this matter and no provision for liability
(excluding amounts recorded in 1993, 1994 and 1997) has been made in the
accompanying financial statements.
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.
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 1999.
EXECUTIVE OFFICERS OF THE REGISTRANT
AGE AT END
NAME OF 2000 POSITION
---- ---------- --------
Robert J. Allison, Jr. 61 Chairman of the Board and Chief Executive Officer
John N. Seitz 49 President and Chief Operating Officer
Charles G. Manley 56 Senior Vice President, Administration
Michael E. Rose 53 Senior Vice President, Finance and Chief Financial Officer
Rex Alman III 49 Vice President, Domestic Operations
Michael D. Cochran 58 Vice President, Exploration
Morris L. Helbach 55 Vice President, Information Technology Services and
Chief Information Officer
James R. Larson 50 Vice President and Controller
Richard A. Lewis 56 Vice President, Human Resources
J. Stephen Martin 44 Vice President and General Counsel
Mark L. Pease 44 Vice President, Algeria
Gregory M. Pensabene 50 Vice President, Government Relations and Public Affairs
19
21
AGE AT END
NAME OF 2000 POSITION
---- ---------- --------
Albert L. Richey 51 Vice President and Treasurer
Richard J. Sharples 53 Vice President, Marketing
Bruce H. Stover 51 Vice President, Worldwide Business Development
William D. Sullivan 44 Vice President, International Operations
A. Paul Taylor, Jr. 51 Vice President, Investor Relations
Donald R. Willis 50 Vice President, Corporate Services
Mr. Allison was named Chairman and Chief Executive Officer effective
October 1986. He has worked for the Company since 1973.
Mr. Seitz was named President and Chief Operating Officer in 1999. He was
named Executive Vice President, Exploration and Production, and a member of the
Company's Board of Directors during 1997. He was named Senior Vice President,
Exploration in 1995. He has worked for the Company since 1977.
Mr. Manley was named Senior Vice President, Administration in 1993. He has
worked for the Company since 1974.
Mr. Rose was named Senior Vice President, Finance and Chief Financial
Officer in 1993. He has worked for the Company since 1978.
Mr. Alman was named Vice President, Domestic Operations, in 1997. Prior to
that, he was Vice President, Operations, U.S. Onshore in 1995. He has worked for
the Company since 1976.
Dr. Cochran was named Vice President, Exploration in 1997. Prior to that,
he was Manager of Technology and Exploration Studies. He has been with the
Company since 1987.
Mr. Helbach joined Anadarko in February 2000 as Vice President, Information
Technology Services and Chief Information Officer. Prior to joining Anadarko, he
was General Manager and Chief Information Officer for Information Systems at
Conoco, Inc.
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. Pease was named Vice President, Algeria in 1998. Prior to this
position, he served as General Manager, Algeria since 1993. He joined the
Company in 1979 as an engineer.
Mr. Pensabene joined Anadarko in 1997 as Vice President, Government
Relations. In 1999, Public Affairs was added to his responsibilities. Prior to
joining 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 joining Anadarko, he served as Vice President of Marketing with Maxus Energy
Corporation.
Mr. Stover was named Vice President, Worldwide Business Development, in
1998. He was named Vice President, Acquisitions in 1993. He has worked for the
Company since 1980.
Mr. Sullivan was named Vice President, International Operations in 1998.
Prior to this position, he served as Vice President, Algeria since 1995. He has
worked for the Company since 1981.
Mr. Taylor was named Vice President of Investor Relations in 1999. Prior to
this position, he served as Vice President, Corporate Communications since 1987.
He has worked for the Company since 1986.
Mr. Willis was named Vice President, Corporate Services in February 2000.
Prior to this position, he was Manager, Corporate Services. He has worked for
the Company since 1979.
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.
20
22
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, 1999, there were 5,036 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, 1999.
FIRST SECOND THIRD FOURTH
QUARTER QUARTER QUARTER QUARTER
thousands ------- ------- ------- --------
1999 $6,026 $6,372 $6,374 $ 6,378
1998 $4,496 $6,029 $6,083 $ 5,922
The amount of future common stock 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 8 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 3 of the Annual Report, which is
incorporated herein by reference.
21
23
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
FINANCIAL RESULTS
SELECTED FINANCIAL DATA
1999 1998 1997
millions except per share amounts ------ ------ ------
Revenues $701.1 $560.3 $675.1
Costs and expenses 522.2 567.6 469.8
Interest expense 74.1 57.7 41.0
Net income (loss) available to common stockholders $ 31.7 $(49.3) $107.3
Earnings (loss) per share -- basic $ 0.25 $(0.41) $ 0.90
Earnings (loss) per share -- diluted $ 0.25 $(0.41) $ 0.89
NET INCOME AND REVENUES For 1999, Anadarko reported net income available to
common stockholders of $31.7 million, or 25 cents per share (diluted), compared
to a 1998 net loss of $49.3 million, or 41 cents per share (diluted). Revenues
for 1999 were up 25% to $701.1 million compared to 1998 revenues of $560.3
million. The increase in revenues and net income was due to a significant
improvement in prices for crude oil and natural gas and an increase in Algeria
oil production. Net income for 1999 also reflects lower operating expenses,
offset partly by higher depreciation, depletion and amortization (DD&A) expense,
administrative and general expense, interest expense and preferred stock
dividends, compared to 1998. Anadarko's 1999 performance was also adversely
affected by a non-cash charge of $24 million ($15.4 million after tax) related
to impairments for exploration efforts in Eritrea and other international
locations. Excluding the impairment, Anadarko had net income in 1999 of $47.0
million, or 37 cents per share (diluted). During 1998, a non-cash charge of $70
million ($45 million after taxes) was recorded to impair certain international
exploration activity. Excluding the impairment, Anadarko's loss for 1998 was
$4.7 million, or four cents per share (diluted).
Anadarko's 1997 net income was $107.3 million, or 89 cents per share
(diluted). Revenues for 1997 were $675.1 million. The decrease in revenues and
net income in 1998 from 1997 was due to a steep decline in crude oil, natural
gas and natural gas liquids (NGLs) prices, the international impairment, higher
operating expenses, increased administrative and general costs, higher interest
expense and preferred stock dividends.
COSTS AND EXPENSES
1999 1998 1997
millions ------ ------ ------
Operating expenses $141.7 $160.5 $154.7
Administrative and general 102.9 94.9 73.6
DD&A 218.1 204.5 198.8
Other taxes 35.5 37.7 42.7
Impairments related to international properties 24.0 70.0 --
------ ------ ------
Total $522.2 $567.6 $469.8
------ ------ ------
COSTS AND EXPENSES During 1999, Anadarko's costs and expenses (excluding the
impairments) were flat with 1998. During 1999, costs and expenses were impacted
by the following factors:
(1) Operating expenses decreased $18.8 million (12%) due primarily to cost
savings plans and the application of new technology to field production
operations.
(2) Administrative and general expenses were up $8.0 million (8%),
reflecting lower capitalization of overhead primarily related to a full
year of production in Algeria.
(3) DD&A expense rose $13.6 million (7%) due primarily to an increase in
the U.S. DD&A rate related to higher future development costs of
reserves and a 5% increase in production volumes due primarily to
Algeria.
22
24
During 1998, Anadarko's costs and expenses (excluding the impairment)
increased 6% over 1997 primarily due to increased levels of activity. 1998 costs
and expenses were impacted by the following factors:
(1) Operating expenses increased $5.8 million (4%) due to costs associated
with the commencement of production in Algeria and the acquisition of
oil and gas producing properties in the U.S.
(2) Administrative and general expenses were up $21.3 million (29%),
reflecting increased costs associated with first production in Algeria,
expenses related to reducing future administrative and general costs
and other expenses associated with the Company's growing workforce.
(3) DD&A expense rose $5.7 million (3%) due primarily to the production
volume increase.
INTEREST EXPENSE
1999 1998 1997
millions ------ ------ ------
Gross interest expense $ 96.1 $ 82.4 $ 62.1
Capitalized interest (22.0) (24.7) (21.1)
------ ------ ------
Net interest expense $ 74.1 $ 57.7 $ 41.0
------ ------ ------
INTEREST EXPENSE Anadarko's gross interest expense has increased over the past
three years due primarily to higher levels of borrowings for capital
expenditures, including producing property acquisitions. Gross interest expense
in 1999 was up 17% compared to 1998 primarily due to higher average borrowings
in 1999. Gross interest expense in 1998 increased 33% compared to 1997 also
primarily due to higher average borrowings during 1998. See Liquidity and
Long-term Debt.
ANALYSIS OF VOLUMES AND PRICES
ANNUAL VOLUMES AND AVERAGE PRICES
1999 1998 1997
------ ------ ------
NATURAL GAS (BCF) 169.8 176.7 178.7
MMcf/d 465 484 490
Price per Mcf $ 2.08 $ 1.92 $ 2.30
CRUDE OIL AND CONDENSATE
UNITED STATES (MBBLS) 8,365 9,752 9,083
MBbls/d 23 27 25
Price per barrel $15.79 $11.44 $18.03
ALGERIA (MBBLS) 6,218 1,374 --
MBbls/d 17 4 --
Price per barrel $18.23 $11.99 --
TOTAL (MBBLS) 14,583 11,126 9,083
MBbls/d 40 30 25
Price per barrel $16.83 $11.51 $18.03
NATURAL GAS LIQUIDS (MBBLS) 6,568 6,640 5,467
MBbls/d 18 18 15
Price per barrel $13.40 $10.29 $14.64
TOTAL ENERGY EQUIVALENT BARRELS (MMEEBS) 49.5 47.2 44.3
- ---------------
Bcf -- billion cubic feet
MBbls -- thousand barrels
MBbls/d -- thousand barrels per day
Mcf -- thousand cubic feet
MMcf/d -- million cubic feet per day
MMEEBs -- million energy equivalent barrels
23
25
NATURAL GAS Anadarko's natural gas production volumes in 1999 were down 4%
compared to 1998 primarily due to natural depletion. The Company's average
wellhead gas price in 1999 was up 8% over 1998. Anadarko's average wellhead gas
price in 1998 had decreased 17% from 1997.
Natural gas markets improved in 1999, with the Company's average price
increasing from $1.92 per Mcf in 1998 to $2.08 per Mcf in 1999. The stronger
prices were the result of lower nation-wide production volumes and higher gas
demand, particularly from electric power generation facilities. Natural gas
markets were volatile in 1998, with the Company's average monthly price
fluctuating from a high of $2.16 per Mcf in January 1998 to a low of $1.55 per
Mcf in September 1998. Anadarko employs marketing strategies to help manage
production and sales volumes and mitigate the effect of the price volatility,
which is likely to continue in the future. See Use of Derivatives under Item 7A
of this Form 10-K.
QUARTERLY NATURAL GAS VOLUMES AND AVERAGE PRICES
1999 1998 1997
----- ----- -----
FIRST QUARTER
Bcf 44.0 44.0 42.3
MMcf/d 489 489 470
Price per Mcf $1.59 $2.02 $2.66
SECOND QUARTER
Bcf 42.0 42.2 43.8
MMcf/d 461 463 481
Price per Mcf $1.95 $1.98 $1.85
THIRD QUARTER
Bcf 41.9 45.7 45.4
MMcf/d 456 497 494
Price per Mcf $2.40 $1.82 $2.02
FOURTH QUARTER
Bcf 41.9 44.8 47.2
MMcf/d 456 487 513
Price per Mcf $2.40 $1.88 $2.67
CRUDE OIL, CONDENSATE AND NATURAL GAS LIQUIDS Due primarily to growth in
Algeria production, Anadarko's crude oil and condensate production in 1999
increased 31% from 1998. The 1998 oil and condensate production volumes
increased 22% compared to 1997, due primarily to initial production from Algeria
and an acquisition of producing properties in central Oklahoma. Production of
oil usually is not affected by seasonal swings in demand or in market prices.
Anadarko's average crude oil price for 1999 increased 46% compared to 1998.
The improvement in crude oil prices for 1999 was due in large part to a decrease
in the production quotas among the Organization of Petroleum Exporting Countries
(OPEC). Crude oil prices in 1998 were down 36% compared to 1997.
The Company's NGLs sales volumes in 1999 were essentially flat compared to
1998. NGLs sales volumes in 1998 increased 21% compared to 1997 primarily due to
the restructuring of processing agreements in late 1997. The 1999 average NGLs
price was up 30% compared to 1998. By comparison, 1998 NGLs prices were 30%
below 1997. NGLs production is dependent on natural gas prices and the economics
of processing the natural gas volumes to extract NGLs.
24
26
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. Natural gas
prices have been extremely volatile and are expected to continue to be so.
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) -- is a full-service marketing company offering supply
assurance, competitive pricing and services tailored to its customers' needs.
Most of the Company's gas production is sold through AES. AES also purchases and
sells third-party gas in the Company's market areas.
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 the 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 under Item 7A of this Form 10-K.
CRUDE OIL AND CONDENSATE Anadarko's revenues are derived from production in the
U.S. and Algeria. Presently, most of the Company's U.S. crude oil production is
sold on 30-day "evergreen" contracts with prices based on postings plus a
premium. Oil from the HBNS Field in Algeria is lifted by tanker load and sold as
Saharan Blend to customers primarily in the Mediterranean area. Saharan Blend is
a very high quality crude that provides refiners with large quantities of
premium products like high quality jet and diesel fuel. AES purchases and sells
third-party crude oil and condensate in the Company's domestic and international
market areas.
GAS GATHERING SYSTEMS AND PROCESSING 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 gas production and expand
marketing opportunities. The Company has invested $126 million to build or
acquire gas gathering systems over the last five years. Anadarko owns and
operates four major gas gathering systems in the Company's core producing areas.
In 1999, Anadarko sold its Hemphill Gathering System in southwest Kansas. The
Company's overall gas gathering capacity is more than 600 MMcf/d and serves
about 2,000 wells. Approximately 90% of the gas flowing through these systems is
from Anadarko-operated wells.
The Company processes gas at various third-party plants under agreements
generally structured to provide for the extraction and sale of NGLs in efficient
plants with flexible commitments. The Company has agreements with six plants in
the mid-continent area and eight plants in the gulf coast area. Anadarko's
strategy to aggregate gas through Company-owned and third-party gathering
systems allows Anadarko to secure processing arrangements in each of the regions
where the Company has significant production.
25
27
OPERATING RESULTS
DRILLING ACTIVITY During 1999, Anadarko participated in a total of 200 gross
wells, including 52 oil wells, 122 gas wells and 26 dry holes. This compares to
402 gross wells (192 oil wells, 149 gas wells and 61 dry holes) in 1998 and 646
gross wells (401 oil wells, 182 gas wells and 63 dry holes) in 1997. The decline
in activity during 1999 and 1998 is a direct result of lower commodity prices.
The Company's 1999 exploration and development drilling program is
discussed in Properties and Activities under Item 1 of this Form 10-K.
DRILLING PROGRAM ACTIVITY
GAS OIL DRY TOTAL
----- ----- ---- -----
1999 EXPLORATORY
Gross 9 1 8 18
Net 8.2 0.2 4.9 13.3
1999 DEVELOPMENT
Gross 113 51 18 182
Net 98.8 28.7 15.7 143.2
1998 EXPLORATORY
Gross 8 13 24 45
Net 6.1 6.1 14.7 26.9
1998 DEVELOPMENT
Gross 141 179 37 357
Net 121.0 126.1 30.9 278.0
- ---------------
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 profitability
depends on the cost of finding oil and gas reserves, among other factors. The
Company believes its performance in both areas is excellent. For the 18th
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 1999, Anadarko's worldwide reserve replacement was 213% of total
production -- which reached a record of 49.5 MMEEBs. The Company's worldwide
reserve replacement in 1998 was 581% of total production of 47.2 MMEEBs. The
Company's worldwide reserve replacement in 1997 was 341% of total production.
Over the last five years, the Company's annual reserve replacement has averaged
336% of annual production volumes.
Anadarko continues to increase its energy reserves in the U.S. while the
nation's energy reserves have been declining over the past ten years. In 1999,
the Company replaced 128% of its U.S. production volumes with U.S. reserves.
This compares to a U.S. reserve replacement of 462% of production volumes in
1998. The Company's U.S. reserve replacement for the five-year period 1995-1999
was 228% of production. By comparison, the most recent published U.S. industry
average (1994-1998) was 96%. (Source: U.S. Department of Energy) Anadarko's U.S.
reserve replacement performance for the same period 1994-1998 was 249% of
production. Industry data for 1999 are not yet available.
COST OF FINDING 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
1995-1999, Anadarko's worldwide finding cost was $3.53 per EEB. The Company's
U.S. finding performance for the same period was $4.29 per EEB. Industry data
for 1999 are not yet available. For comparison purposes, the most recent
published five-year average (1994-1998) for the industry shows worldwide finding
cost was
26
28
$4.66 per EEB and U.S. finding cost was $5.73 per EEB. (Source: Arthur Andersen)
For the same five-year period of 1994-1998, Anadarko's worldwide finding cost
was $3.17 per EEB and its U.S. finding cost was $3.61 per EEB. The Company's low
finding costs are due to the success of Anadarko's exploration programs.
For 1999, Anadarko's worldwide finding cost was $4.87 per EEB compared to
$3.13 per EEB in 1998 and $4.28 per EEB in 1997. Anadarko's U.S. finding cost
for 1999 was $9.06 per EEB compared to $3.11 per EEB in 1998 and $4.79 per EEB
in 1997.
PROVED RESERVES At the end of 1999, Anadarko's proved reserves were 991.0
MMEEBs compared to 935.1 MMEEBs at year-end 1998 and 708.0 MMEEBs at year-end
1997. Reserves increased by 6% in 1999 compared to 1998 due primarily to
exploration and development drilling in both the U.S. and overseas. Anadarko's
proved reserves have grown by 65% over the past three years, primarily as a
result of successful exploration projects in Alaska, Algeria and the Gulf of
Mexico, as well as successful exploitation and development drilling programs in
major domestic fields in core areas onshore and offshore and producing property
acquisitions.
The Company's proved natural gas reserves at year-end 1999 were 2.51
trillion cubic feet (Tcf), compared to 2.65 Tcf at year-end 1998 and 1.73 Tcf at
year-end 1997. Anadarko's proved U.S. gas reserves have increased 38% since
year-end 1996, reflecting two major discoveries in the Gulf of Mexico's sub-salt
trend and continued development activity onshore in the U.S. Anadarko's crude
oil, condensate and NGLs reserves at year-end 1999 increased 16% to 573.2
million barrels (MMBbls), compared to 494.0 MMBbls at year-end 1998 and 419.7
MMBbls at year-end 1997. Crude oil reserves have risen by 92% over the last
three years primarily due to large discoveries in Alaska, Algeria and the Gulf
of Mexico. Crude oil, condensate and NGLs reserves comprise 58% of the Company's
proved reserves at year-end 1999, compared to about 53% at year-end 1998 and 59%
at year-end 1997.
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.
At December 31, 1999, the present value (discounted at 10%) of future net
revenues from Anadarko's proved reserves was $6.4 billion, before income taxes,
and was $4.4 billion, after income taxes, (stated in accordance with the
regulations of the Securities and Exchange Commission (SEC) and Financial
Accounting Standards Board). The 1999 estimated present value of future net
revenues, after income taxes, increased 97% compared to 1998 due primarily to
significantly higher crude oil and slightly higher natural gas prices at year
end 1999 and 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.
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
The Company's strategy also includes an active asset acquisition and
divestiture program. During 1997-1999, Anadarko acquired through purchases and
trades 64.2 MMEEBs of proved reserves for $225 million. During the same time
period, the Company sold properties, either as a strategic exit from a certain
area or asset rationalization in existing core areas, with proceeds totaling
$122 million. Reserves associated with these sales and trades were 29.8 MMEEBs.
During 1999, Anadarko sold reserves of 28.8 MMEEBs, of which 22.9 MMEEBs
were attributed to the Company's non-operated interests in Algeria Blocks 401a
and 402a. The agreement ($84.7 million net to Anadarko) covers contract areas
operated by BHP. The sale allowed Anadarko, which had a 27.5% interest in the
contract area, to capture the value of non-operated properties and use the
proceeds to develop its primary Algerian operating areas on Blocks 404 and 208.
The agreement is subject to approval of state authorities in Algeria.
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29
In 1999, Anadarko acquired reserves of 17.5 MMEEBs in several transactions
totaling $50 million. The largest acquisition was in the Vernon Field of Jackson
Parish, Louisiana for $38 million. The interest acquired covers 6,900 net acres
with 17 producing wells.
In 1998, Anadarko acquired reserves of 38.7 MMEEBs in several transactions
totaling $143 million. The largest acquisition was five oil and gas fields in
the Anadarko Basin of central Oklahoma, a core operating area of the Company for
20 years, which was purchased for $118 million. The fields cover 37,000 gross
acres with 370 producing and injection wells. Anadarko's 1998 net production
from these fields was about 2.6 MBbls/d and 5.4 MMcf/d of gas. The acquisition
also included an interest in a 120-mile, eight-inch diameter pipeline that
delivers carbon dioxide to the fields and primarily serves third parties.
In 1997, acquisitions of producing properties totaled $31.0 million and 8.0
MMEEBs. The largest acquisition was properties in the West Panhandle Field of
Texas for $18.5 million, which accounted for 4.2 MMEEBs of proved reserves. This
purchase provided the Company producing properties with significant development
potential as well as settling a disputed claim on revenues. During 1997,
Anadarko sold reserves of about 1 MMEEBs in several transactions with sales
proceeds totaling $6.2 million. The largest component was the sale of the
Company's Norden Ltd. Partnership in Colorado in late 1997 for $5.8 million.
PRODUCING PROPERTIES AND LEASES
The Company owns 2,855 net producing oil wells and 2,178 net producing gas
wells worldwide. The following schedule shows the number of developed and
undeveloped acres in which Anadarko held interests at December 31, 1999.
ACREAGE
DEVELOPED UNDEVELOPED TOTAL
------------ -------------- --------------
GROSS NET GROSS NET GROSS NET
THOUSANDS ----- --- ----- ----- ----- -----
United States
Onshore -- Lower 48 1,008 809 734 462 1,742 1,271
Offshore -- Gulf of Mexico 202 71 704 402 906 473
Alaska -- -- 767 290 767 290
----- --- ----- ----- ----- -----
Total 1,210 880 2,205 1,154 3,415 2,034
----- --- ----- ----- ----- -----
Algeria* 160 27 1,815 908 1,975 935
North Atlantic Margin -- -- 1,208 359 1,208 359
Tunisia -- -- 1,795 331 1,795 331
- ---------------
* Developed acreage in Algeria relates only to areas with an Exploitation
License. A portion of the undeveloped acreage in Algeria will be relinquished
in the future upon finalization of Exploitation License boundaries.
REGULATORY MATTERS
ENVIRONMENTAL AND SAFETY The Company's oil and gas operations and properties
are subject to numerous federal, state and local laws and regulations relating
to environmental protection from the time oil and gas projects commence until
abandonment. 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 exploration, drilling and production
activities, the release of emissions into the atmosphere, the discharge and
disposition of generated 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 and safety rules and
regulations. Compliance with such laws and regulations has not had a material
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
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such laws and regulations or any environmental law or regulation enacted in the
future will not have a material 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 and countries have authority to
issue permits for seismic exploration and the drilling of wells, regulate well
spacing, 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 U.S. Department of the Interior. In addition
to the standard permit process, federal leases and most international
concessions require a complete environmental impact assessment prior to
authorizing an exploration or development plan.
ADDITIONAL FACTORS AFFECTING BUSINESS
The Company has made in this report, and may from time to time otherwise make in
other public filings, press releases and discussions with Company management,
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 concerning
the Company's operations, economic performance and financial condition. These
forward looking statements include information concerning future production and
reserves, schedules, plans, timing of development, contributions from oil and
gas properties, and those statements preceded by, followed by or that otherwise
include the words "believes", "expects", "anticipates", "intends", "estimates",
"projects", "target", "goal", "plans", "objective", "should" or similar
expressions or variations on such expressions. For such statements, the Company
claims the protection of the safe harbor for forward looking statements
contained in the Private Securities Litigation Reform Act of 1995. Such
statements are subject to various risks and uncertainties, and actual results
could differ materially from those expressed or implied by such statements due
to a number of factors in addition to those discussed elsewhere in this Form
10-K and in the Company's other public filings, press releases and discussions
with Company management, including:
COMMODITY PRICING AND DEMAND Crude oil prices continue to be affected by
political developments worldwide, pricing decisions and production quotas of
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 production and capital spending
projects, as well as 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 for oil and gas in the U.S. 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, any 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 worker'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 involved in several large development
projects. 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 governmental agencies; manufacturing and delivery schedules of
critical equipment; and commercial arrangements for pipelines and related
equipment to transport and market hydrocarbons. In large development projects,
these uncertainties are usually resolved, but delays and
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differences between estimated 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 U.S. 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 and 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.
KANSAS AD VALOREM TAX The Natural Gas Policy Act of 1978 allowed a "severance,
production or similar" tax to be included as an add-on, over and above the
maximum lawful price for natural gas. Based on the Federal Energy Regulatory
Commission (FERC) ruling that the Kansas ad valorem tax was such a tax, the
Company collected the Kansas ad valorem tax. FERC's ruling regarding the ability
of producers to collect the Kansas ad valorem tax was appealed to the United
States Court of Appeals for the District of Columbia Circuit (D.C. Circuit). The
Court held in June 1988 that FERC failed to provide a reasoned basis for its
findings and remanded the case to FERC.
Ultimately, the D.C. Circuit issued a decision on August 2, 1996 ruling
that producers must refund all Kansas ad valorem taxes collected relating to
production since October 1983. The Company filed a petition for writ of
certiorari with the Supreme Court. That petition was denied on May 12, 1997.
Anadarko estimates that the maximum amount of principal and interest at issue
which has not been paid to date, assuming that the October 1983 effective date
remains in effect, is about $46.2 million (pretax) as of December 31, 1999.
For a description of the court proceedings that have occurred, additional
action taken by the FERC and litigation filed by the Company as a result of the
D.C. Circuit 1996 decision, see information appearing under Kansas Ad Valorem
Tax under Item 3 of this Form 10-K.
CAPITAL EXPENDITURES, LIQUIDITY AND LONG-TERM DEBT
CAPITAL EXPENDITURES
1999 1998 1997
millions ------ ------ ------
Exploration $189.5 $257.3 $184.8
Development 310.6 343.5 346.4
Acquisitions of producing properties 50.3 143.2 31.0
Gathering and other 26.7 57.5 36.0
Interest and overhead 102.8 115.5 88.0
------ ------ ------
Total $679.9 $917.0 $686.2
------ ------ ------
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CAPITAL EXPENDITURES Anadarko's total capital spending in 1999 was $680
million, a decrease of 26% compared to 1998's record capital spending of $917
million and slightly lower than 1997 capital spending of $686 million. The
largest categories of capital spending in 1999, 1998 and 1997 were for
exploration and development activities in the U.S. and overseas. The Company
funded its capital investment programs in 1999, 1998 and 1997 primarily through
cash flow, plus increases in long-term debt, issuance of preferred and common
stock and proceeds from property sales.
Capital spending for 2000 has been set at about $766 million, a 13%
increase compared to 1999. The higher capital budget is driven by continuing
development of major discoveries in Algeria, the Gulf of Mexico and Alaska. The
capital budget for 2000 includes $121 million for exploration, $527 million for
development, $22 million for gas gathering and other, and $96 million for
capitalized interest and overhead.
Anadarko believes that cash flow and existing or available credit
facilities will provide the majority of funds to meet its capital and operating
requirements for 2000. The Company will continue to evaluate funding
alternatives, including property sales and additional borrowing, to secure other
funds for capital development. At this time, Anadarko has no plans to issue
common stock other than through its Dividend Reinvestment and Stock Purchase
Plan.
LIQUIDITY AND LONG-TERM DEBT At year-end 1999, Anadarko's total debt was $1.44
billion. This compares to year-end 1998 total debt of $1.43 billion.
In March 1999, Anadarko issued $300 million principal amount of 7.20%
Debentures due 2029. The proceeds were used to repay floating interest rate
debt.
In April 1999, the Company amended its Revolving Credit Agreement and
entered into a new 364-Day Credit Agreement. The Revolving Credit Agreement
provides for $225 million principal amount and the 364-Day Credit Agreement
provides for $285 million principal amount. The Revolving Credit Agreement and
the 364-Day Credit Agreement will expire in 2002 and 2000, respectively.
In April 1999, Anadarko filed a shelf registration statement with the SEC
that permits the issuance of up to $1 billion in debt and equity securities. Net
proceeds, terms and pricing of offerings of securities issued under the shelf
registration statement will be determined at the time of the offerings.
In May 1999, Anadarko issued 6.25 million shares of common stock. Aggregate
proceeds from the offering were approximately $240.5 million after all expenses.
Proceeds from the offering were used initially to repay floating interest rate
debt. The common stock was issued under the Company's shelf registration
statement.
In September 1999, Anadarko filed a registration statement with the SEC
that permits the issuance of up to 4.5 million additional shares of Anadarko
common stock under the Anadarko Dividend Reinvestment and Stock Purchase Plan.
In November 1999, the Company entered into a synthetic lease agreement in
which the lessor has agreed to fund up to $185 million for construction of a new
corporate headquarters building in The Woodlands, Texas. The term of the
agreement is five years, which includes the construction period and a lease
period. Lease payments will begin upon completion of construction, which is
expected in July 2002. At the end of the lease term, the Company has the option
to renew the lease for one-year terms, up to seven terms, or to purchase the
building for a price including the outstanding lease balance. If Anadarko elects
not to renew the lease or purchase the building, the Company must arrange the
sale of the building to a third-party. Under the sale option, Anadarko has
guaranteed a percentage of the total original cost as the residual fair value of
the building.
In January 1998, Anadarko issued $100 million principal amount of 6.625%
Debentures due 2028. The proceeds were used to fund capital spending projects in
core operating areas.
In May 1998, Anadarko issued $200 million of 5.46% Series B Cumulative
Preferred Stock in the form of two million Depositary Shares, each Depositary
Share representing 1/10th of a share of the 5.46% Series B Cumulative Preferred
Stock. The preferred stock has no stated maturity and is not subject to a
sinking fund or mandatory redemption. The shares are not convertible into other
securities of the Company. The proceeds from the offering were used to reduce
commercial paper and bank borrowings and provide capital for Anadarko's 1998
capital expenditures.
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In 1999 and 1998, the Company entered into sale-leaseback agreements
totaling $38.8 million (net) involving gas compressors and other corporate
property. The transactions monetized Company assets and took advantage of low
interest rates. Proceeds from the transactions were used for general corporate
purposes.
Anadarko's net cash from operating activities in 1999 was $318 million
compared to $240 million in 1998 and $362 million in 1997.
In March 2000, Anadarko issued $345 million of Zero Coupon Convertible
Debentures due March 2020, with a face value at maturity of $690 million. The
Debentures were issued at a discount and accrue interest at 3.5% annually until
reaching face value at maturity; however, interest will not be paid prior to
maturity. The Debentures are convertible into common stock at the option of the
holder at any time at a fixed conversion rate. A holder has the right to require
Anadarko to repurchase a Debenture at a specified price in March 2003, 2008 and
2013. The Debentures are redeemable at the option of Anadarko after three years.
The net proceeds from the offering were used to pay down floating interest rate
debt. The Debentures were issued under the Company's shelf registration
statement.
NEW ACCOUNTING PRINCIPLES
ACCOUNTING FOR DERIVATIVES Statement of Financial Accounting Standards (SFAS)
No. 133, "Accounting for Derivative Instruments and Hedging Activities,"
provides guidance for accounting for derivative instruments and hedging
activities. In July 1999, SFAS No. 137, "Deferral of the Effective Date of FASB
Statement No. 133," was issued and delays the effective date for one year, to
fiscal years beginning after June 15, 2000. The Company is evaluating the impact
of the provisions of SFAS No. 133.
DIVIDENDS
In 1999, Anadarko paid $25.2 million in dividends to its common
stockholders (5 cents per share per quarter). In 1998, Anadarko paid $22.5
million in dividends to its common stockholders (3.75 cents per share in the
first quarter, and 5 cents per share in the second, third and fourth quarters).
The dividend amount in 1997 was $17.9 million (3.75 cents per share per
quarter). Anadarko has paid a dividend to its common stockholders continuously
since becoming an independent company in 1986.
In 1999 and 1998, the Company also paid $10.9 million and $7.1 million,
respectively, in preferred stock dividends. The preferred stock was issued in
May 1998.
The Company's Bank Credit Agreements require a minimum balance of $650
million to be maintained in stockholders' equity. As a result, the amount of
retained earnings available for dividends as of December 31, 1999 was $763.5
million. The amount of future common stock 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.
Under the Internal Revenue Service guidelines, Anadarko's dividends paid on
common and preferred stock for the second, third and fourth quarters of 1999 are
classified as non-taxable. Generally, this classification means that a
stockholder's cost basis in the stock is reduced by the amount of the dividend
received. The Company is unable to predict whether future dividends will be
classified in a similar fashion.
YEAR 2000
Anadarko's Year 2000 rollover activities went according to plan. The result
was a smooth transition of Company operations and information systems into the
Year 2000. Anadarko's investment to test and upgrade field automation equipment,
scientific and business systems, and core infrastructure components minimized
risk of failure. The total cost of the project, $3 million, was less than
originally estimated. Efforts to verify testing and contingency plans for Year
2000 of Anadarko's key business partners resulted in a continuous flow of
product and supply of materials. Production and delivery of oil and gas
continued without interruption.
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ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
USE OF DERIVATIVES Anadarko produces, purchases and sells natural gas, crude
oil, and NGLs. As a result, Anadarko's financial results can be significantly
affected by changes in these commodity prices. Anadarko uses derivative
commodity instruments to hedge the Company's exposure to changes in the market
price of natural gas and crude oil, and to provide methods to fix the price for
natural gas independently of the physical purchase or sale. Derivative commodity
instruments also provide methods to meet customer pricing requirements while
achieving a price structure consistent with the Company's overall pricing
strategy. While derivative commodity instruments are intended to reduce the
Company's exposure to declines in the market price of natural gas and crude oil,
the derivative commodity 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 derivative commodity 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 derivative commodity
instruments relate. In the event of a loss of correlation between oil and gas
reference prices for a derivative commodity instrument and actual oil and gas
prices, gains or losses for the amount the instrument has not offset the change
in actual prices are recognized in the period.
Occasionally, the Company may enter into derivative commodity instruments
for trading purposes with the objective of generating profits on or from
exposure to shifts or changes in the market price of natural gas and crude oil.
These trading activities do not qualify as hedges of production and are marked
to market in the period. Trading gains or losses are recorded with revenues from
the corresponding product. Anadarko's derivative commodity instruments currently
are comprised of futures, swaps and options contracts.
While the volume of derivative commodity instruments utilized by the
Company to hedge its market price risk can vary during the year within the
boundaries of its established policy guidelines, the fair value of those
instruments at December 31, 1999 and 1998 was, in the judgment of the Company,
immaterial. Additionally, through the use of sensitivity analysis the Company
evaluates separately, for its non-trading and trading activities, the potential
effect that reasonably possible near term changes in the market prices of
natural gas and crude oil may have on the fair value of the Company's derivative
commodity instruments. Based upon an analysis utilizing the actual derivative
contractual volumes and assuming a 10% adverse movement in commodity prices, the
potential decrease in the fair value of the derivative commodity instruments at
December 31, 1999 and 1998 does not have a material adverse effect on the
financial position or results of operations of the Company.
Anadarko is also exposed to risk resulting from changes in interest rates
as a result of the Company's variable and fixed interest rate debt as well as
fixed to floating interest rate swaps. The Company has evaluated the potential
effect that reasonably possible near term changes in interest rates may have on
the fair value of the Company's various debt instruments and its interest rate
swap agreements. Based upon an analysis utilizing the actual interest rate in
effect as of December 31, 1999 and 1998 and assuming a 10% increase in interest
rates, the potential increase in interest expense and the potential decrease in
the fair value of the derivative interest swap instruments at December 31, 1999
and 1998 does not have a material effect on the financial position or results of
operations of the Company. See Notes 1 and 6 of the Notes to Consolidated
Financial Statements under Item 8 of this Form 10-K.
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ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
ANADARKO PETROLEUM CORPORATION
INDEX
CONSOLIDATED FINANCIAL STATEMENTS
PAGE
Report of Management 35
Independent Auditors' Report 36
Statement of Income, Three Years Ended December 31, 1999 37
Balance Sheet, December 31, 1999 and 1998 38
Statement of Stockholders' Equity, Three Years Ended
December 31, 1999 39
Statement of Cash Flows, Three Years Ended December 31, 1999 40
Notes to Consolidated Financial Statements 41
Supplemental Quarterly Information 60
Supplemental Information on Oil and Gas Exploration and
Production Activities 61
34
36
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
judgments 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.
/s/ ROBERT J. ALLISON, JR
Robert J. Allison, Jr.
Chairman and
Chief Executive Officer
/s/ JOHN N. SEITZ
John N. Seitz
President and
Chief Operating Officer
/s/ MICHAEL E. ROSE
Michael E. Rose
Senior Vice President and
Chief Financial Officer
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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, 1999 and 1998, 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, 1999. 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, 1999 and 1998, and the
results of their operations and their cash flows for each of the years in the
three-year period ended December 31, 1999, in conformity with generally accepted
accounting principles.
/s/ KPMG LLP
Houston, Texas
January 26, 2000
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ANADARKO PETROLEUM CORPORATION
CONSOLIDATED STATEMENT OF INCOME
YEARS ENDED DECEMBER 31 1999 1998 1997
- ----------------------- -------- -------- --------
thousands except per share
amounts
REVENUES
Gas sales $357,530 $353,130 $417,973
Oil and condensate sales 249,666 133,096 168,591
Natural gas liquids and other 93,908 74,028 88,575
-------- -------- --------
Total 701,104 560,254 675,139
-------- -------- --------
COSTS AND EXPENSES
Operating expenses 141,719 160,520 154,657
Administrative and general 102,946 94,914 73,569
Depreciation, depletion and amortization 218,091 204,499 198,821
Other taxes Note 12 35,407 37,709 42,774
Impairments related to international properties Note 4 24,000 70,000 --
-------- -------- --------
Total 522,163 567,642 469,821
-------- -------- --------
Operating Income (Loss) 178,941 (7,388) 205,318
INTEREST EXPENSE Note 4 74,124 57,699 40,959
-------- -------- --------
Income (Loss) before Income Taxes 104,817 (65,087) 164,359
INCOME TAXES Note 13 62,238 (22,899) 57,041
-------- -------- --------
NET INCOME (LOSS) $ 42,579 $(42,188) $107,318
-------- -------- --------
Preferred Stock Dividends Note 7 10,920 7,098 --
-------- -------- --------
NET INCOME (LOSS) AVAILABLE TO COMMON STOCKHOLDERS $ 31,659 $(49,286) $107,318
-------- -------- --------
PER COMMON SHARE
Net income (loss) - basic Notes 1 and 8 $ 0.25 $ (0.41) $ 0.90
Net income (loss) - diluted Notes 1 and 8 $ 0.25 $ (0.41) $ 0.89
Dividends Note 8 $ 0.20 $ 0.1875 $ 0.15
AVERAGE NUMBER OF COMMON SHARES OUTSTANDING Note 8 125,187 120,103 119,434
-------- -------- --------
See accompanying notes to consolidated financial statements.
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ANADARKO PETROLEUM CORPORATION
CONSOLIDATED BALANCE SHEET
DECEMBER 31 1999 1998
- ----------- ---------- ----------
thousands
ASSETS
CURRENT ASSETS
Cash and cash equivalents Note 2 $ 44,769 $ 17,008
Accounts receivable 259,658 181,491
Inventories Note 3 46,090 25,860
Prepaid expenses 5,425 5,569
---------- ----------
Total 355,942 229,928
---------- ----------
PROPERTIES AND EQUIPMENT
Original cost 5,917,195 5,488,721
Less accumulated depreciation, depletion and amortization 2,236,044 2,107,183
---------- ----------
Net properties and equipment -- based on the full cost
method of accounting for oil and gas properties Note 4 3,681,151 3,381,538
---------- ----------
DEFERRED CHARGES 61,270 21,524
---------- ----------
$4,098,363 $3,632,990
---------- ----------
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable
Trade and other $ 298,589 $ 227,988
Banks 26,446 26,723
Accrued expenses
Interest 19,949 15,210
Taxes and other 42,187 18,805
---------- ----------
Total 387,171 288,726
---------- ----------
LONG-TERM DEBT Note 5 1,443,322 1,425,392
---------- ----------
DEFERRED CREDITS
Deferred income taxes Note 13 576,804 522,953
Other Notes 8 and 14 156,512 136,463
---------- ----------
Total 733,316 659,416
---------- ----------
STOCKHOLDERS' EQUITY
Preferred stock, par value $1.00
(2,000,000 shares authorized, 200,000 shares issued as of
December 31, 1999 and 1998) 200,000 200,000
Common stock, par value $0.10
(300,000,000 shares authorized, 129,620,333 and
122,436,712 shares issued as of December 31, 1999 and
1998, respectively) 12,962 12,244
Paid-in capital 633,957 361,390
Retained earnings (as of December 31, 1999, retained
earnings were not restricted as to the payment of
dividends) 763,480 756,971
Deferred compensation (7,907) (9,461)
Executives and Directors Benefits Trust, at market value
(2,000,000 shares as of December 31, 1999 and 1998) (67,938) (61,688)
Treasury stock (20 shares as of December 31, 1998) -- --
---------- ----------
Total 1,534,554 1,259,456
---------- ----------
COMMITMENTS AND CONTINGENCIES Notes 10, 14 and 16 -- --
---------- ----------
$4,098,363 $3,632,990
---------- ----------
See accompanying notes to consolidated financial statements.
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ANADARKO PETROLEUM CORPORATION
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
YEARS ENDED DECEMBER 31 1999 1998 1997
- ----------------------- ---------- ---------- ----------
thousands
PREFERRED STOCK
Balance at beginning of year $ 200,000 $ -- $ --
Preferred stock issued Note 7 -- 200,000 --
---------- ---------- ----------
Balance at end of year 200,000 200,000 --
---------- ---------- ----------
COMMON STOCK
Balance at beginning of year 12,244 6,134 6,098
Common stock issued Note 8 718 52 36
Two-for-one stock split Note 8 -- 6,058 --
---------- ---------- ----------
Balance at end of year 12,962 12,244 6,134
---------- ---------- ----------
PAID-IN CAPITAL
Balance at beginning of year 361,390 353,125 335,848
Common stock issued Note 8 266,317 17,023 21,027
Revaluation to market for Executives and Directors
Benefits Trust 6,250 1,625 (3,750)
Two-for-one stock split Note 8 -- (6,058) --
Preferred stock issued Note 7 -- (4,325) --
---------- ---------- ----------
Balance at end of year 633,957 361,390 353,125
---------- ---------- ----------
RETAINED EARNINGS
Balance at beginning of year 756,971 828,787 739,395
Net income (loss) 42,579 (42,188) 107,318
---------- ---------- ----------
799,550 786,599 846,713
Dividends paid -- preferred (10,920) (7,098) --
Dividends paid -- common (25,150) (22,530) (17,926)
---------- ---------- ----------
Balance at end of year 763,480 756,971 828,787
---------- ---------- ----------
DEFERRED COMPENSATION
Balance at beginning of year (9,461) (11,203) (3,444)
Issuance of restricted stock (2,218) (1,668) (10,065)
Amortization of restricted stock 3,772 3,410 2,306
---------- ---------- ----------
Balance at end of year (7,907) (9,461) (11,203)
---------- ---------- ----------
EXECUTIVES AND DIRECTORS BENEFITS TRUST
Balance at beginning of year (61,688) (60,063) (63,813)
Revaluation to market (6,250) (1,625) 3,750
---------- ---------- ----------
Balance at end of year (67,938) (61,688) (60,063)
---------- ---------- ----------
TREASURY STOCK
Balance at beginning of year -- -- (4)
Purchase of treasury stock (5) (115) (802)
Issuance of treasury stock 5 115 806
---------- ---------- ----------
Balance at end of year -- -- --
---------- ---------- ----------
STOCKHOLDERS' EQUITY Notes 7 and 8 $1,534,554 $1,259,456 $1,116,780
---------- ---------- ----------
See accompanying notes to consolidated financial statements.
39
41
ANADARKO PETROLEUM CORPORATION
CONSOLIDATED STATEMENT OF CASH FLOWS
YEARS ENDED DECEMBER 31 1999 1998 1997
- ----------------------- --------- --------- ---------
thousands
CASH FLOW FROM OPERATING ACTIVITIES
Net income (loss) $ 42,579 $ (42,188) $ 107,318
Adjustments to reconcile net income (loss) to net cash
provided by operating activities:
Depreciation, depletion and amortization 218,091 204,499 198,821
Amortization of restricted stock 1,673 1,145 2,306
Deferred U.S. income taxes 26,550 (22,618) 48,276
Impairments of international properties 24,000 70,000 --
--------- --------- ---------
312,893 210,838 356,721
(Increase) decrease in accounts receivable (78,167) (4,334) 49,667
(Increase) decrease in inventories (20,230) 2,704 (4,024)
Increase (decrease) in accounts payable -- trade and other
and accrued expenses 98,722 31,775 (37,030)
Other items -- net 4,486 (1,341) (3,377)
--------- --------- ---------
Net cash provided by operating activities 317,704 239,642 361,957
--------- --------- ---------
CASH FLOW FROM INVESTING ACTIVITIES
Additions to properties and equipment (679,887) (916,975) (686,232)
Sales and retirements of properties and equipment 128,817 5,585 8,389
Proceeds from the sale of assets to be leased, net 14,727 24,115 88,325
--------- --------- ---------
Net cash used in investing activities (536,343) (887,275) (589,518)
--------- --------- ---------
CASH FLOW FROM FINANCING ACTIVITIES
Additions to debt 300,000 569,659 224,684
Retirements of debt (282,070) (100,000) --
Issuance of preferred stock -- 195,675 --
Increase (decrease) in accounts payable, banks (277) 4,621 4,107
Dividends paid (36,070) (29,628) (17,926)
Issuance of common stock 264,817 15,407 10,998
Issuance of treasury stock, net -- -- 4
--------- --------- ---------
Net cash provided by financing activities 246,400 655,734 221,867
--------- --------- ---------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 27,761 8,101 (5,694)
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR 17,008 8,907 14,601
--------- --------- ---------
CASH AND CASH EQUIVALENTS AT END OF YEAR $ 44,769 $ 17,008 $ 8,907
--------- --------- ---------
See accompanying notes to consolidated financial statements.
40
42
ANADARKO PETROLEUM CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
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 Algeria Corporation (Anadarko Algeria); Anadarko Energy
Services Company; and, Anadarko Gathering Company.
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 judgments 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 and NGLs sales revenues generally are recorded using the
sales method, whereby the Company recognizes sales revenues based on the amount
of gas and NGLs sold to purchasers on its behalf.
USE OF DERIVATIVES Anadarko uses derivative financial instruments to reduce the
Company's exposure to changes in the market price of natural gas and crude oil,
to fix the price for natural gas and crude oil 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. The
types of commodity derivative financial instruments currently used by Anadarko
are futures, swaps and options.
Anadarko utilizes the hedge or deferral method of accounting for commodity
derivative financial instruments (with the exception of certain written options)
whereby gains and losses on these hedging instruments are realized and recorded
as revenues on the income statement when the related natural gas or oil volumes
have been produced, purchased or delivered. As a result, gains and losses on
commodity financial instruments are generally offset by similar changes in the
realized prices of natural gas and crude oil. Unrealized gains and losses on
these hedging instruments are deferred and recorded as assets or 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 shown exclude January hedges not open and written options
recognized. To qualify as hedging instruments, these instruments must be highly
correlated to anticipated future sales such that the Company's exposure to the
risks of commodity price changes is reduced. In the event of a loss of
correlation between oil and gas reference prices for a commodity derivative
financial instrument and actual oil and gas prices, gains or losses for the
amount the financial instrument has not offset the change in actual prices are
recognized in that period. While commodity financial instruments are intended to
reduce the Company's exposure to declines in market prices 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.
Written options that are not combined with other offsetting instruments are
not classified as hedges. Unrealized losses on these written options, offset by
any option premiums received for these written options, are charged to the
income statement as a reduction to revenues on a current basis. Occasionally,
the Company may enter into derivatives for trading purposes with the objective
of generating profits on or from exposure to shifts or changes in market price.
These trading activities do not qualify as hedges of production and are revalued
based on market quotes, with changes in market value recognized in the period.
Trading gains or losses are included with revenues from the corresponding
product.
41
43
ANADARKO PETROLEUM CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
1. SUMMARY OF ACCOUNTING POLICIES (CONTINUED)
Interest income resulting from the Company's interest rate swap agreements
is included in interest expense on a current basis. The swap agreements
effectively convert a portion of the Company's fixed interest rate debt to
variable interest rate debt.
INVENTORIES Materials and supplies and natural gas inventories are stated at
the lower of average cost or market. Natural gas, when sold from inventory, is
charged to expense using the average cost method. Oil, due from third-parties,
is stated at market value.
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 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.
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. These
estimates are not discounted. 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.
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 files a U.S. consolidated federal income tax return.
Deferred federal, state and foreign 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.
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 The Company accounts for stock-based compensation
under the intrinsic value method. Under this method, the Company records no
compensation expense for stock options granted when the exercise price of
options granted is equal to the fair market value of Anadarko's common stock on
the date of grant.
EARNINGS PER SHARE The Company's basic earnings (loss) per share (EPS) amounts
have been computed based on the average number of common shares outstanding.
Diluted EPS amounts include the effect of the Company's outstanding stock
options under the treasury stock method and performance-based stock awards.
42
44
ANADARKO PETROLEUM CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
1. SUMMARY OF ACCOUNTING POLICIES (CONTINUED)
NEW ACCOUNTING PRINCIPLES Statement of Financial Accounting Standards (SFAS)
No. 133, "Accounting for Derivative Instruments and Hedging Activities,"
provides guidance for accounting for derivative instruments and hedging
activities. In July 1999, SFAS No. 137, "Deferral of the Effective Date of FASB
Statement No. 133," was issued and delays the effective date for one year, to
fiscal years beginning after June 15, 2000. The Company is in the process of
evaluating the impact of the provisions of SFAS No. 133.
2. CASH AND CASH EQUIVALENTS
As of December 31, 1999 and 1998, cash and cash equivalents included
$450,000 and $331,000, respectively, held by the Anadarko Petroleum Corporation
Executives and Directors Benefits Trust. See Note 8.
3. INVENTORIES
The major classes of inventories are as follows:
1999 1998
THOUSANDS ------- -------
Oil, due from third-parties $24,659 $ 3,816
Materials and supplies 14,171 20,231
Natural gas, stored in inventory 7,260 1,813
------- -------
$46,090 $25,860
------- -------
4. PROPERTIES AND EQUIPMENT
A summary of the original cost of properties and equipment by
classification follows:
1999 1998
THOUSANDS ---------- ----------
Oil and gas properties $5,609,971 $5,155,260
Gathering facilities 153,174 143,989
Plant facilities 10,553 13,283
General properties 143,497 176,189
---------- ----------
$5,917,195 $5,488,721
---------- ----------
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 $323,019,000 and $353,647,000 at
December 31, 1999 and 1998, 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.
During 1999 and 1998, the Company made provisions for impairments of
international properties of $24,000,000 and $70,000,000, respectively, which
were related to oil and gas properties. These impairments related to exploration
activity in Eritrea, Peru, Jordan and other international locations.
Total interest costs incurred during 1999, 1998 and 1997 were $96,116,000,
$82,415,000 and $62,096,000, respectively. Of these amounts, the Company
capitalized $21,992,000, $24,716,000 and $21,137,000 during 1999, 1998 and 1997,
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.
43
45
ANADARKO PETROLEUM CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
4. PROPERTIES AND EQUIPMENT (CONTINUED)
In addition to capitalized interest, the Company also capitalized internal
costs of $80,796,000, $90,774,000 and $66,899,000 during 1999, 1998 and 1997,
respectively. These internal costs were directly related to exploration and
development activities and are included as part of the cost of oil and gas
properties.
5. LONG-TERM DEBT
PRINCIPAL
-----------------------
1999 1998
thousands ---------- ----------
Commercial Paper* $ 198,322 $ 367,892
Notes Payable, Banks* 145,000 257,500
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% Debentures due 2027 100,000 100,000
6.625% Debentures due 2028 100,000 100,000
7.20% Debentures due 2029 300,000 --
7.73% Debentures due 2096 100,000 100,000
7 1/4% Debentures due 2096 100,000 100,000
---------- ----------
$1,443,322 $1,425,392
---------- ----------
- ---------------
* The average rates in effect at December 31, 1999 and 1998 were 6.81% and
5.87%, respectively, for the Commercial Paper. The average rates in effect
December 31, 1999 and 1998 were 6.90% and 5.95%, respectively, 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 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 April 1999, Anadarko filed a shelf registration statement with the SEC
that permits the issuance of up to $1,000,000,000 in debt and equity securities.
Net proceeds, terms and pricing of offerings of securities issued under the
shelf registration statement will be determined at the time of the offerings. In
May 1999, the Company issued $240,500,000 of common stock under the shelf
registration statement. See Note 8.
In March 1999, Anadarko issued $300,000,000 principal amount of 7.20%
Debentures due 2029. The proceeds were used to repay floating interest rate
debt.
The Company has a $225,000,000 Revolving Credit Agreement and a
$285,000,000 364-Day Credit Agreement with a group of ten commercial banks.
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 based on the Company's
long-term debt rating. The Revolving Credit Agreement and the 364-Day Credit
Agreement will expire in 2002 and 2000, respectively. During 1999 and 1998,
there were no outstanding borrowings under these agreements.
Total sinking fund and installment payments related to long-term debt for
the five years ending December 31, 2004 are shown below. The payments related to
the redemption of the commercial paper and
44
46
ANADARKO PETROLEUM CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
5. LONG-TERM DEBT (CONTINUED)
notes payable to banks are included in the amounts shown in a manner consistent
with the terms for repayment of the Anadarko's Bank Credit Agreements.
thousands
2000* $100,000
2001 218,322
2002 225,000
2003 200,000
2004 --
- ---------------
* Includes the 7 1/4% Debentures due 2025, which have been put to the Company
under the Debenture holders' one-time redemption rights in March 2000.
6. FINANCIAL INSTRUMENTS
The following information discloses the fair value of the Company's
financial instruments:
CARRYING AMOUNT FAIR VALUE
thousands --------------- ----------
1999
Cash and cash equivalents $ 44,769 $ 44,769
Long-term debt (including interest rate swaps) 1,443,322 1,354,323
Commodity derivative financial instruments
Asset 4,279 4,279
Liability* (9,298) (9,298)
1998
Cash and cash equivalents $ 17,008 $ 17,008
Long-term debt (including interest rate swap) 1,425,392 1,456,183
Commodity derivative financial instruments
Asset 4,240 4,240
Liability (16,476) (16,476)
- ---------------
* In 1999, $4,700,000 of this liability was recognized as expense.
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, 1999 and 1998
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 and 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 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. 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. Gas contract volumes are generally quoted based on
British thermal
45
47
ANADARKO PETROLEUM CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
6. FINANCIAL INSTRUMENTS (CONTINUED)
units (Btu). One million Btu is approximately equivalent to one thousand cubic
feet of gas. As of year-end 1999, Anadarko's hedging activities related to its
equity production, covered approximately 2 thousand barrels per day (MBbl/d) of
crude oil (about 3% of the Company's average 1999 liquids production of 58
MBbls/d of crude oil, condensate and NGLs).
COMMODITY FUTURES Anadarko generally uses commodity futures contracts to fix
the price of gas delivered to Henry Hub, oil delivered to Cushing or oil based
on Brent prices. Futures contracts have settlement guaranteed by the New York
Mercantile Exchange (NYMEX) or by the International Petroleum Exchange (IPE) and
have nominal credit risk.
At year-end 1999, Anadarko had open natural gas futures contracts related
to customer and supplier pricing requirements totaling 10 billion Btu per day
(BBtu/d) related to sales for April through August 2000. The Company had open
fixed price natural gas futures contracts of 38 BBtu/d for February through
March 2000. The Company had open contracts related to stored volumes of 20
BBtu/d related to sales for February through March 2000.
At year-end 1998, Anadarko had open natural gas futures contracts related
to customer and supplier pricing requirements totaling 60 BBtu/d related to
sales for February through March 1999 and 10 BBtu/d related to sales for April
through August 1999. The Company had open fixed price natural gas futures
contracts of 62 BBtu/d for February through March 1999. Anadarko had open crude
oil futures contracts related to sales of 7 MBbls/d for February through March
1999 and 1 MBbls/d for April 1999.
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, the Company 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. Basis swap agreements are also used by Anadarko to fix the price
differential between oil at Brent futures prices and oil at its loading ports.
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.
In 1999, trading losses of $4,700,000 were charged against gas sales
revenues in connection with a limited number of gas basis swaps entered into for
trading purposes. In addition, based on the remaining gas basis swaps
outstanding at year-end, the Company anticipates additional trading losses of
$5,300,000 in the first quarter of 2000.
At year-end 1999, Anadarko had open basis swap agreements for the Company's
gas sales averaging 225 BBtu/d for February through March 2000 and 8 BBtu/d for
April through October 2000. The Company also had fixed price swap agreements of
35 BBtu/d for February through March 2000. Anadarko also had open gas swap
agreements related to customer and supplier gas pricing requirements of 137
BBtu/d for February through March 2000, 23 BBtu/d for April through December
2000, 15 BBtu/d for January through December 2001 and 5 BBtu/d for January
through March 2002. Anadarko also had open gas swap agreements related to stored
volumes of 6 BBtu/d for February through March 2000 and 1 BBtu/d for April 2000.
The Company also had crude oil swap agreements for the Company's oil sales of 2
MBbls/d for February 2000.
At year-end 1998, Anadarko had open basis swap agreements for the Company's
gas sales averaging 30 BBtu/d for 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 also
had open basis swap agreements for the Company's gas sales averaging 718 BBtu/d
for February through March 1999 and 64 BBtu/d for April through December 1999.
The Company also had fixed price swap agreements of 4 BBtu/d for February
through March 1999. In addition, the Company had open gas swaps related to
customer and supplier gas pricing requirements of 351 BBtu/d for February
through March 1999,
46
48
ANADARKO PETROLEUM CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
6. FINANCIAL INSTRUMENTS (CONTINUED)
90 BBtu/d for April through December 1999, 31 BBtu/d for January through
December 2000 and 20 BBtu/d for January through December 2001.
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.
At year-end 1999, Anadarko had open NYMEX options for the Company's gas
sales of 8 BBtu/d for puts during February through March 2000 in order to fix a
price range on gas sales. Anadarko had open NYMEX gas options for its customers
of 28 BBtu/d for puts and 13 BBtu/d for calls for February through March 2000.
The Company also had open NYMEX options for stored volumes of 14 BBtu/d for
calls for February through March 2000. In addition, the Company had open crude
oil options of 7 MBbls/d for both puts and calls during February 2000, 5 MBbls/d
for puts and 8 MBbls/d for calls during March 2000 and 2 MBbls/d for both puts
and calls for April through June 2000.
At year-end 1998, Anadarko had open NYMEX options for the Company's gas
sales of 35 BBtu/d for puts and 27 BBtu/d for calls during February and March
1999. Anadarko also had open NYMEX gas options for its customers of 5 BBtu/d for
puts and 23 BBtu/d for calls for February through March 1999, 11 BBtu/d for puts
for April through December 1999, 11 BBtu/d for calls for April through October
1999 and 11 BBtu/d for puts for January through March 2000. In addition, the
Company had open crude oil options of 14 MBbls/d for puts and 10 MBbls/d for
calls during February 1999.
INTEREST RATE SWAPS During 1999, Anadarko entered into a 29.5-year swap
agreement with a notional value of $200,000,000 whereby the Company receives a
fixed interest rate and pays a floating interest rate indexed to the 3-month
London Interbank Offered Rate (LIBOR). During 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 the
3-month LIBOR. These agreements were entered into to offset a portion of the
effect of the Company's fixed rate long-term debt. The fair value of the
interest rate swaps is based upon market quotes from a commercial bank and is
the approximate amount Anadarko would have received or paid if the agreements
were terminated at year-end.
7. PREFERRED STOCK
In May 1998, Anadarko issued $200,000,000 of 5.46% Series B Cumulative
Preferred Stock in the form of two million Depositary Shares, each Depositary
Share representing 1/10th of a share of the 5.46% Series B Cumulative Preferred
Stock. The preferred stock has no stated maturity and is not subject to a
sinking fund or mandatory redemption. The shares are not convertible into other
securities of the Company.
Anadarko has the option to redeem the shares at $100 per Depositary Share
on or after May 15, 2008. Holders of the shares are entitled to receive, when,
and as declared by the Board of Directors, cumulative cash dividends at an
annual dividend rate of $5.46 per Depositary Share. The proceeds from the
offering were used to reduce commercial paper and bank borrowings and provide
capital for capital expenditures.
During 1999 and 1998, dividends of $54.60 per share (equivalent to $5.46
per Depositary Share) and $35.49 per share (equivalent to $3.549 per Depositary
Share), respectively, were paid to holders of preferred stock. Under Internal
Revenue Service (IRS) guidelines, the preferred stock dividends paid in the
second, third and fourth quarters of 1999 are non-taxable. The tax treatment of
future dividends depends on annual income and expenditures and is determined
each year.
47
49
ANADARKO PETROLEUM CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
8. COMMON STOCK AND STOCK OPTIONS
Following is a schedule of the changes in the Company's shares of common
stock:
1999 1998 1997
thousands ------- ------- ------
SHARES OF COMMON STOCK ISSUED
Beginning of year 122,437 60,886 60,526
Issuance of common stock 6,250 -- --
Two-for-one stock split -- 61,035 --
Exercise of stock options 678 348 149
Issuance of restricted stock 54 51 148
Issuance of shares for employee savings plan 167 99 63
Issuance of shares for Dividend Reinvestment and Stock
Purchase Plan 34 18 --
------- ------- ------
End of year 129,620 122,437 60,886
------- ------- ------
SHARES OF COMMON STOCK HELD IN TREASURY
Beginning of year -- -- --
Issuance of shares for employee savings plan -- (2) (13)
Purchase of treasury stock -- 2 13
------- ------- ------
End of year -- -- --
------- ------- ------
SHARES OF COMMON STOCK HELD FOR EXECUTIVES AND DIRECTORS
BENEFITS TRUST
Beginning of year 2,000 1,000 1,000
Two-for-one stock split -- 1,000 --
------- ------- ------
End of year 2,000 2,000 1,000
------- ------- ------
SHARES OF COMMON STOCK OUTSTANDING AT END OF YEAR 127,620 120,437 59,886
------- ------- ------
In April 1998, the Board of Directors approved a two-for-one stock split,
effected in the form of a stock dividend. The distribution date was July 1, 1998
to stockholders of record on June 15, 1998. Excluding the table above, all share
and per share information have been restated to reflect the stock split.
For each quarter of 1999 and the second, third and fourth quarters of 1998,
dividends of 5 cents per share were paid to holders of common stock. In the
first quarter of 1998 and in each quarter of 1997, dividends of 3.75 cents per
share were paid to holders of common stock. Under IRS guidelines, Anadarko's
common stock dividends paid for the second, third and fourth quarters of 1999
are non-taxable. The tax treatment of future dividends depends on annual income
and expenditures and is determined each year. Under the most restrictive
provisions of the various credit agreements, which limit the payment of
dividends by the Company, retained earnings of $763,480,000, $609,456,000 and
$466,780,000 were not restricted as to the payment of dividends at December 31,
1999, 1998 and 1997, respectively.
In May 1999, Anadarko issued 6,250,000 shares of common stock. Aggregate
proceeds from the offering were approximately $240,500,000 after all expenses.
Proceeds from the offering were used initially to repay floating interest rate
debt. The common stock was issued under the Company's shelf registration
statement.
The Anadarko Dividend Reinvestment and Stock Purchase Plan (DRIP) offers
the opportunity to reinvest dividends and provides an alternative to traditional
methods of buying, holding and selling Anadarko common stock. The DRIP provides
the Company with a means of raising additional capital for general corporate
purposes. In September 1999, the Company filed a registration statement with the
SEC that permits the issuance of up to 4,500,000 additional shares of common
stock under the DRIP.
Under the Anadarko Stockholders Rights Plan, Rights were attached
automatically to each outstanding share of common stock on November 10, 1998.
Each Right, at the time it becomes exercisable and transferable apart from the
common stock, entitles stockholders to purchase from the Company 1/1000th of a
48
50
ANADARKO PETROLEUM CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
8. COMMON STOCK AND STOCK OPTIONS (CONTINUED)
share of a new series of junior participating preferred stock at an exercise
price of $175. The Right will be exercisable only if a person or group acquires
15% or more of common stock or announces a tender offer or exchange offer the
consummation of which would result in ownership by a person or group of 15% or
more of the common stock. The Board of Directors may elect to exchange and
redeem the Rights. The Rights expire on November 10, 2008.
During 1999, 1998 and 1997, 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.
As of December 31, 1999 and 1998, the Company had 2,000,000 shares of
common stock in the Anadarko Petroleum Corporation Executives and Directors
Benefits Trust (Trust) to secure present and future unfunded benefit obligations
of the Company. These benefit obligations are provided for under pension plans
and deferred compensation plans for certain employees and non-employee Directors
of the Company. The obligations included in Deferred Credits -- Other are
$16,852,000 and $15,988,000 as of December 31, 1999 and 1998, respectively. The
shares issued to the Trust are not considered outstanding for quorum or voting
calculations, but the Trust receives dividends. Under the treasury stock method,
the shares are not included in the calculation of EPS. The fair market value of
these shares is included in common stock and paid-in capital and as a reduction
to stockholders' equity. See Note 15.
Key employees may be granted options to purchase shares of Anadarko common
stock and other stock related awards under the 1993 and the 1999 Stock Incentive
Plans. Stock options are granted at the fair market value of Anadarko stock on
the date of grant and have a maximum term of 11 years from the date of grant.
In addition, the Plans provide that shares of common stock 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 1999, 1998 and 1997, the Company issued 73,000, 57,100, and
296,000 shares, respectively, of restricted stock with a weighted-average grant
date fair value of $35.87, $32.47 and $34.06 per share, respectively.
Non-employee Directors may be granted non-qualified stock options under the
1998 Director Stock Plan. Stock options are granted at the fair market value of
Anadarko stock on the date of grant and have a maximum term of ten years from
the date of grant.
Anadarko and a key officer of the Company had a Performance Share Agreement
under the 1993 Stock Incentive Plan. The Agreement provided for issuance of up
to 300,000 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 years ended December 31, 1999, 1998 and 1997, expense of
$4,191,000, $2,000,000 and $2,000,000, respectively, was recognized under the
Agreement. As of December 31, 1999, the Company met the predetermined
objectives. As a result, the fair value of the performance shares was determined
as of December 31, 1999, and 300,000 shares of common stock were issued under
the agreement in January 2000.
49
51
ANADARKO PETROLEUM CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
8. COMMON STOCK AND STOCK OPTIONS (CONTINUED)
Unexercised stock options are included in the diluted EPS using the
treasury stock method. Information regarding the Company's stock option plans is
summarized below:
1999 1998 1997
------------------ ------------------ ------------------
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 8,518 $29.16 6,756 $26.20 5,743 $23.04
Granted 1,165 $30.39 2,267 $35.35 1,324 $37.90
Exercised (715) $21.05 (499) $17.16 (299) $17.24
Surrendered or expired (37) $35.74 (6) $37.97 (12) $28.79
----- ----- -----
SHARES UNDER OPTION AT END OF YEAR 8,931 $29.94 8,518 $29.16 6,756 $26.20
----- ----- -----
Options exercisable at December 31 5,175 $27.78 5,028 $25.48 4,292 $21.85
----- ----- -----
Shares available for future grant at
end of year 3,987 1,159 2,828
----- ----- -----
Weighted-average fair value of
options granted during the year $11.20 $11.84 $13.37
The following table summarizes information about the Company's stock
options outstanding at December 31, 1999:
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
$14.91-$24.00 2,409 4.03 $20.76 2,409 $20.76
$27.19-$31.81 2,931 6.97 $29.73 1,293 $30.09
$31.94-$35.94 2,297 8.31 $35.30 179 $32.32
$36.31-$37.97 1,294 7.84 $37.89 1,294 $37.89
----- ---- ------ ------ ------
Total 8,931 6.65 $29.94 5,175 $27.78
----- ---- ------ ------ ------
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:
1999 1998 1997
----- ----- -----
Expected option life - years 4.58 4.91 5.11
Risk-free interest rate 5.51% 5.13% 6.18%
Dividend yield 0.56% 0.57% 0.60%
Volatility 35.82% 29.98% 28.76%
50
52
ANADARKO PETROLEUM CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
8. COMMON 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 Accounting Principles Board (APB) Opinion No. 25 and related
interpretations. Anadarko has elected to continue using APB No. 25 for
accounting for employee stock compensation 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 EPS would have been as
shown in the pro forma amounts below:
1999 1998 1997
thousands except per share amounts ------- -------- --------
Net income (loss) available to common
stockholders As reported $31,659 $(49,286) $107,318
Pro forma $21,079 $(61,564) $ 99,928
Basic EPS As reported $ 0.25 $ (0.41) $ 0.90
Pro forma $ 0.17 $ (0.51) $ 0.84
Diluted EPS As reported $ 0.25 $ (0.41) $ 0.89
Pro forma $ 0.17 $ (0.51) $ 0.83
The reconciliation between basic and diluted EPS is as follows:
FOR THE YEAR ENDED For the Year Ended For the Year Ended
DECEMBER 31, 1999 December 31, 1998 December 31, 1997
----------------------------- ------------------------------ ------------------------------
PER SHARE Per Share Per Share
INCOME SHARES AMOUNT LOSS SHARES AMOUNT INCOME SHARES AMOUNT
thousands except per share amounts ------- ------- --------- -------- ------- --------- -------- ------- ---------
BASIC EPS
Income (loss) available to common
stockholders $31,659 125,187 $0.25 $(49,286) 120,103 $(0.41) $107,318 119,434 $0.90
----- ------ -----
Effect of dilutive stock options
and performance-based stock
awards -- 719 -- -- -- 820
------- ------- -------- ------- -------- -------
DILUTED EPS
Income (loss) available to common
stockholders plus assumed
conversion $31,659 125,906 $0.25 $(49,286) 120,103 $(0.41) $107,318 120,254 $0.89
------- ------- ----- -------- ------- ------ -------- ------- -----
For the years ended December 31, 1999 and 1998, options for 4,399,000 and
3,200,000, respectively, shares of common stock were excluded from the diluted
EPS calculation because the options' exercise price was greater than the average
market price of common stock for the periods. For the year ended December 31,
1998, there were 881,000 common stock equivalents related to outstanding stock
options that were not included in the computation of diluted EPS, since they had
an anti-dilutive effect.
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:
1999 1998 1997
thousands ------- -------- -------
Interest $69,588 $ 56,593 $39,617
Income taxes paid (received) $ (764) $(11,454) $12,068
51
53
ANADARKO PETROLEUM CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
10. TRANSACTIONS WITH RELATED PARTIES AND MAJOR CUSTOMERS
Anadarko Algeria has a Production Sharing Agreement (PSA) with SONATRACH,
the national oil and gas enterprise of Algeria. SONATRACH is the beneficial
owner of 9.5% of the Company's outstanding common stock. The PSA gives Anadarko
Algeria the right to develop and produce liquid hydrocarbons in Algeria, subject
to the sharing of production with SONATRACH. Anadarko Algeria has two partners
in the PSA. Approximately $15,174,000, $1,276,000 and $438,000 was paid to
SONATRACH in 1999, 1998 and 1997, respectively, for charges related to oil
purchases, transportation of oil, well testing services, reservoir studies,
laboratory services and equipment usage. During 1999, 1998 and 1997,
$21,197,000, $33,342,000 and $7,911,000, respectively, was received and
$22,837,000 and $25,854,000 was included in accounts receivable as of December
31, 1999 and 1998, respectively, from SONATRACH for joint interest billings of
development costs in Algeria under the PSA. Through December 31, 1999, the
majority of the amounts received from SONATRACH have been paid in Algerian
dinars, the local currency, which are used by the Company to make payments in
Algeria.
Anadarko and partners have two Engineering, Procurement and Construction
(EPC) contracts to build oil production facilities in Algeria with Brown &
Root-Condor, a company jointly owned by Brown & Root and affiliates of
SONATRACH. For the years ended December 31, 1999, 1998 and 1997, approximately
$43,189,000, $43,463,000 and $107,049,000, respectively, was paid to Brown &
Root-Condor under the EPC contracts.
Political unrest continues in Algeria. Anadarko is closely monitoring the
situation and has taken reasonable and prudent steps to ensure the safety of
employees and the security of its facilities 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 2000 and beyond. However, the
situation has not had any material effect on the Company's operations to date.
The Company's activities in Algeria also are subject to the general risks
associated with all foreign operations.
In 1998 and 1997, the Company paid Houston Advanced Research Center (HARC)
$150,000 and $20,000, respectively, for seismic imaging projects. John R.
Butler, Jr., a Director of the Company, currently serves as Chairman of HARC.
From July 1998 to mid-November 1999, Mr. Butler also served as President of
HARC.
In 1999, the Company paid Newpark Drilling Fluids (Newpark) $185,000 for
drilling fluids. James L. Bryan, a Director of the Company, serves as Executive
Vice President of Newpark.
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, England, Mexico and
Switzerland. 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 1999, sales to CoEnergy Trading Co. were $180,590,000, which accounted
for more than 10% of the Company's total 1999 revenues. In 1998, sales to
CoEnergy Trading Co. were $144,320,000, sales to Proliance Energy LLC were
$67,713,000 and sales to Texaco Trading & Transportation Company were
$65,552,000, each of which accounted for more than 10% of the Company's total
1998 revenues. In 1997, sales to CoEnergy Trading Co. were $200,368,000, sales
to Texaco Trading & Transportation Company were $78,816,000 and sales to
Proliance Energy LLC were $75,808,000, each of which accounted for more than 10%
of the Company's total 1997 revenues.
52
54
ANADARKO PETROLEUM CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
11. SEGMENT AND GEOGRAPHIC INFORMATION
The Company's operations primarily relate to oil and gas production
activities. Accordingly, they are considered one business segment. The following
table shows Anadarko's revenues (based on the origin of the sales) and net
properties and equipment by geographic area:
1999 1998 1997
thousands -------- ---------- ----------
REVENUES
United States $587,520 $ 543,336 $ 674,872
Algeria 113,584 16,918 267
-------- ---------- ----------
Total $701,104 $ 560,254 $ 675,139
-------- ---------- ----------
1999 1998
thousands ---------- ----------
NET PROPERTIES AND EQUIPMENT
United States $3,115,420 $2,787,177
Algeria 514,246 556,548
Other international 51,485 37,813
---------- ----------
Total $3,681,151 $3,381,538
---------- ----------
12. OTHER TAXES
Significant taxes other than income taxes are as follows:
1999 1998 1997
thousands -------- ---------- ----------
Production and severance $ 17,217 $ 16,266 $ 22,092
Ad valorem 13,741 17,171 17,035
Payroll and other 4,449 4,272 3,647
-------- ---------- ----------
Total $ 35,407 $ 37,709 $ 42,774
-------- ---------- ----------
13. INCOME TAXES
Income tax expense, including deferred amounts, is summarized as follows:
1999 1998 1997
thousands -------- ---------- ----------
CURRENT
Federal $ 1,528 $ (2,162) $ 6,964
State 145 (637) 1,801
Foreign 898 400 --
-------- ---------- ----------
Total 2,571 (2,399) 8,765
-------- ---------- ----------
DEFERRED
Federal 24,595 (21,998) 46,816
State 1,955 (620) 1,460
Foreign 33,117 2,118 --
-------- ---------- ----------
Total 59,667 (20,500) 48,276
-------- ---------- ----------
Total income taxes $ 62,238 $ (22,899) $ 57,041
-------- ---------- ----------
53
55
ANADARKO PETROLEUM CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
13. INCOME TAXES (CONTINUED)
Total income taxes were different than the amounts computed by applying the
statutory income tax rate to Income (Loss) before Income Taxes. The sources of
these differences are as follows:
1999 1998 1997
thousands -------- -------- --------
Income (Loss) before Income Taxes
Domestic $ 45,618 $ (839) $179,754
Foreign 59,199 (64,248) (15,395)
-------- -------- --------
Total $104,817 $(65,087) $164,359
-------- -------- --------
Statutory tax rate 35% 35% 35%
Tax computed at statutory rate $ 36,686 $(22,780) $ 57,526
Adjustments resulting from:
State income taxes (net of federal income tax benefit) 1,365 (817) 2,120
Oil and gas credits (724) (1,683) (1,743)
Foreign taxes (net of federal income tax benefit) 22,110 1,637 --
Other -- net 2,801 744 (862)
-------- -------- --------
Total income taxes $ 62,238 $(22,899) $ 57,041
-------- -------- --------
Effective tax rate 59% 35% 35%
-------- -------- --------
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 1999, 1998 and 1997, the tax benefit amounted to
$4,334,000, $3,339,000 and $1,864,000, respectively.
The tax effects of temporary differences that give rise to significant
portions of the deferred tax liabilities (assets) at December 31, 1999 and 1998
are as follows:
1999 1998
thousands --------- ---------
Oil and gas exploration and development costs $ 847,687 $ 749,849
Other 33,465 14,640
--------- ---------
Gross deferred tax liabilities 881,152 764,489
--------- ---------
Net operating loss carryforward (198,245) (152,279)
Alternative minimum tax credit carryforward (31,040) (31,040)
Other (75,063) (58,217)
--------- ---------
Gross deferred tax assets (304,348) (241,536)
--------- ---------
Net deferred tax liabilities $ 576,804 $ 522,953
--------- ---------
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.
54
56
ANADARKO PETROLEUM CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
13. INCOME TAXES (CONTINUED)
Net operating loss and alternative minimum tax credit carryforwards at
December 31, 1999, which are available for future utilization on federal and
foreign income tax returns, are as follows:
Regular Alternative
Foreign Federal Minimum
Tax Tax Tax Expiration
thousands -------- -------- ----------- ----------
Net operating loss -- domestic $ -- $438,800 $412,900 2015-2019
Net operating loss -- foreign $117,500 $ -- $ -- 2003-2004
Alternative minimum tax credit $ -- $ 31,000 $ -- Unlimited
General business tax credit $ -- $ 2,600 $ -- 2006-2019
The net operating losses and tax credits have reduced deferred federal
income tax expense.
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, 1999, future minimum rental payments due under
operating leases are as follows:
thousands
2000 $ 27,943
2001 23,860
2002 17,619
2003 13,021
2004 13,181
Later years 107,386
--------
Total minimum lease payments $203,010
--------
Total rental expense amounted to $33,359,000, $37,430,000 and $24,797,000
in 1999, 1998 and 1997, respectively.
In November 1999, the Company entered into a synthetic lease agreement in
which the lessor has agreed to fund up to $185,000,000 for construction of a new
corporate headquarters building in The Woodlands, Texas. The term of the
agreement is five years, which includes the construction period and a lease
period. Lease payments will begin upon completion of construction, which is
expected in July 2002. At the end of the lease term, the Company has the option
to renew the lease for one-year terms, up to seven terms, or to purchase the
building for a price including the outstanding lease balance. If Anadarko elects
not to renew the lease or purchase the building, the Company must arrange the
sale of the building to a third party. Under the sale option, Anadarko has
guaranteed a percentage of the total original cost as the residual fair value of
the building. Lease payments are expected to be $10,500,000 on an annual basis,
beginning in mid-2002. The table of future minimum rental payments due under
non-cancelable operating leases shown above excludes any payments related to
this agreement.
In 1999, 1998 and 1997, the Company entered into sale-leaseback agreements
totaling $127,167,000 (net) involving natural gas compressors in Anadarko's
major mid-continent gathering systems and other corporate property. Proceeds
from these transactions were used for general corporate purposes. The related
leases are being accounted for as operating leases. The gains of $84,566,000
were deferred and are being amortized over the lease terms as a reduction to
operating and administrative and general expense. As of
55
57
ANADARKO PETROLEUM CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
14. LEASE COMMITMENTS (CONTINUED)
December 31, 1999 and 1998, Deferred Credits -- Other includes $64,626,000 and
$63,760,000, respectively, related to the long-term portion of the deferred
gains.
15. PENSION PLANS, OTHER POSTRETIREMENT BENEFITS AND EMPLOYEE SAVINGS PLANS
PENSION PLANS AND OTHER POSTRETIREMENT BENEFITS The Company has a defined
benefit pension plan and an equalization plan which are non-contributory pension
plans. The Company also provides certain health care and life insurance benefits
for retired employees. Health care benefits are funded by contributions from the
Company and the retiree, with the retiree contributions adjusted per the
provisions of the Company's health care plans. The Company's retiree life
insurance plan is non-contributory.
The following table sets forth the Company's pension and other
postretirement benefits changes in benefit obligation, fair value of plan
assets, funded status and amounts recognized in the financial statements as of
December 31, 1999 and 1998.
PENSION BENEFITS OTHER BENEFITS
------------------- -------------------
1999 1998 1999 1998
thousands -------- -------- -------- --------
CHANGE IN BENEFIT OBLIGATION
Benefit obligation at beginning of year $ 87,857 $ 75,352 $ 34,322 $ 27,297
Service cost 6,789 5,503 2,218 1,883
Interest cost 5,833 5,086 2,296 1,959
Plan amendments -- (3,738) -- --
Increase (decrease) due to change in actuarial
assumptions (11,265) 10,466 (2,729) 3,936
Benefit payments and settlements (8,773) (4,812) (746) (753)
-------- -------- -------- --------
Benefit obligation at end of year $ 80,441 $ 87,857 $ 35,361 $ 34,322
-------- -------- -------- --------
CHANGE IN PLAN ASSETS
Fair value of plan assets at beginning of year $ 64,610 $ 60,894 $ -- $ --
Actual return on plan assets 4,523 6,595 -- --
Employer contributions 1,483 1,012 746 753
Benefit payments (8,773) (3,891) (746) (753)
-------- -------- -------- --------
Fair value of plan assets at end of year $ 61,843 $ 64,610 $ -- $ --
-------- -------- -------- --------
Funded status of the plan $(18,598) $(23,247) $(35,361) $(34,322)
Unrecognized actuarial (gain) loss (3,418) 8,631 (4,014) (1,285)
Unrecognized prior service cost (1,740) (1,909) -- --
Unrecognized initial asset (3,088) (3,615) -- --
-------- -------- -------- --------
Total recognized $(26,844) $(20,140) $(39,375) $(35,607)
-------- -------- -------- --------
TOTAL RECOGNIZED AMOUNTS IN THE STATEMENT OF
FINANCIAL POSITION CONSIST OF:
Accrued benefit liability $(28,354) $(21,839) $(39,375) $(35,607)
Intangible asset 1,510 1,699 -- --
-------- -------- -------- --------
Total recognized $(26,844) $(20,140) $(39,375) $(35,607)
-------- -------- -------- --------
56
58
ANADARKO PETROLEUM CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
15. PENSION PLANS, OTHER POSTRETIREMENT BENEFITS AND EMPLOYEE SAVINGS PLANS
(CONTINUED)
Following are the weighted-average assumptions used by the Company in
determining the accumulated pension and postretirement benefit obligations as of
December 31:
PENSION BENEFITS OTHER BENEFITS
---------------- ----------------
1999 1998 1999 1998
percent ----- ----- ----- -----
Discount rate 7.75% 6.75% 7.75% 6.75%
Long-term rate of return on plan assets 8.0% 8.0% N/A n/a
Rates of increase in compensation levels 5.0% 5.0% 5.0% 5.0%
For measurement purposes, an 8% annual rate of increase in the per capita
cost of covered health care benefits was assumed for 2000. The rate was assumed
to decrease to 5% for 2001 and later years.
PENSION BENEFITS OTHER BENEFITS
--------------------------- ------------------------
1999 1998 1997 1999 1998 1997
thousands ------- ------ -------- ------ ------ ------
COMPONENTS OF NET PERIODIC BENEFIT COST
Service cost $ 6,789 $5,503 $ 4,551 $2,218 $1,883 $1,516
Interest cost 5,833 5,086 4,562 2,296 1,959 1,708
Actual return on plan assets (4,523) (6,595) (11,131) -- -- --
Amortization values and deferrals 88 2,092 7,741 -- (189) (359)
------- ------ -------- ------ ------ ------
Net periodic benefit cost $ 8,187 $6,086 $ 5,723 $4,514 $3,653 $2,865
------- ------ -------- ------ ------ ------
The projected benefit obligation, accumulated benefit obligation and fair
value of plan assets for the pension plan with accumulated benefit obligations
in excess of plan assets were $10,501,000, $7,185,000 and $0, respectively, as
of December 31, 1999, and $10,458,000, $6,995,000 and $0, respectively, as of
December 31, 1998. The Company's benefit obligation under the unfunded pension
plans are secured by the Anadarko Petroleum Corporation Executives and Directors
Benefits Trust. See Note 8.
Anadarko's Non-employee Director Pension Plan was terminated effective
January 1, 1998. The Directors were granted phantom shares equal to the value of
the accumulated benefit on the date of termination.
The assumed health care cost trend rate has a significant effect on the
amounts reported for the health care plan. A 1% change in the assumed health
care cost trend rate would have the following effects:
1% INCREASE 1% DECREASE
thousands ----------- -----------
Effect on total of service and interest cost components $ 840 $ (695)
Effect on postretirement benefit obligation $5,532 $(4,646)
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 $5,162,000,
$5,254,000 and $4,618,000 during 1999, 1998 and 1997, respectively.
FOREIGN PLANS The Company has a pension plan for certain non-resident foreign
nationals. Employees make contributions to the plan. The Company makes
contributions to the plan, if necessary, based on actuarial information.
Participation in the plan is voluntary. The Company's contributions were
$1,609,000, $808,000 and $372,000 during 1999, 1998 and 1997, respectively.
57
59
ANADARKO PETROLEUM CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
15. PENSION PLANS, OTHER POSTRETIREMENT BENEFITS AND EMPLOYEE SAVINGS PLANS
(CONTINUED)
The Company has an employee savings plan for certain non-resident foreign
nationals. The Company matches contributions with shares of the Company's common
stock. Participation in the plan is voluntary. The Company's contributions were
$463,000, $223,000 and $101,000 during 1999, 1998 and 1997, respectively.
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. New technology has
recently been developed which could result in closure of the GI site at
substantial cost reductions. A pilot study of this technology is currently
underway. The California Water Quality Control Board has agreed to defer a final
closure decision until the completion of the pilot study in 2000. 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 allowed a "severance,
production or similar" tax to be included as an add-on, over and above the
maximum lawful price for natural gas. Based on the Federal Energy Regulatory
Commission (FERC) ruling that the Kansas ad valorem tax was such a tax, the
Company collected the Kansas ad valorem tax.
Background of Present Litigation FERC's ruling regarding the ability of
producers to collect the Kansas ad valorem tax was appealed to the United States
Court of Appeals for the District of Columbia Circuit (D.C. Circuit). The Court
held in June 1988 that FERC failed to provide a reasoned basis for its findings
and remanded the case to FERC. Ultimately, the D.C. Circuit issued a decision on
August 2, 1996 ruling that producers must refund all Kansas ad valorem taxes
collected relating to production since October 1983. The Company filed a
petition for writ of certiorari with the Supreme Court. That petition was denied
on May 12, 1997.
Anadarko estimates that the maximum amount of principal and interest at
issue which has not been paid to date, assuming that the October 1983 effective
date remains in effect, is about $46,200,000 (pretax) as of December 31, 1999.
FERC Proceedings Depending on future FERC orders, the Company could be required
to pay all or part of the amounts claimed by all pipelines (which might include
PanEnergy Corp) pending further potential review by FERC or the courts.
PanEnergy Litigation On May 13, 1997, the Company filed a lawsuit in the
Federal District Court for the Southern District of Texas against PanEnergy
seeking declaration that pursuant to prior agreements Anadarko is not required
to issue refunds to PanEnergy for the principal amount of $14,000,000 (pretax)
and, if the petition for adjustment is denied in its entirety by FERC with
respect to PanEnergy refunds, interest in an amount of $30,400,000 (pretax) as
of December 31, 1999. The Company also seeks from PanEnergy the return of
$816,000 of the $830,000 (pretax) charged against income in 1993 and 1994. In
response to a motion filed by PanEnergy, the United States District Court issued
an order on March 17, 1998 staying the litigation, pending the exercise by FERC
of its regulatory jurisdiction.
FERC Order of October 13, 1998 On October 13, 1998, FERC issued a final order
on Anadarko's complaint. The order declares that Anadarko Production Company
(now an affiliate of Duke Energy) is responsible as first seller for making
refunds of Kansas ad valorem tax reimbursements collected from 1983 through
58
60
ANADARKO PETROLEUM CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
16. CONTINGENCIES (CONTINUED)
August 1, 1985. The Company estimates this amount to be as much as $17,000,000.
On February 23, 2000, FERC clarified its prior order stating the Company must,
in the first instance, make refunds for former subsidiaries of Anadarko
Production Company. The Company is responsible to make refunds for
reimbursements it collected as first seller from August 1, 1985 through 1988.
The Company estimates this amount to be as much as $27,000,000. The FERC order
states that whether Anadarko Production Company or the Company is entitled to
reimbursement from another party for the refunds ordered is a matter to be
pursued in an appropriate judicial forum. On January 15, 1999, FERC issued an
order denying a request for rehearing filed by PanEnergy and reaffirming the
October 1998 order. FERC may, in the near future, issue an order based upon the
above allocation regarding when the refunds must be paid and the specific refund
amount. The issue of reimbursement will now be pursued in U.S. District Court.
On April 16, 1999, the U.S. District Court ordered the parties to mediation. One
session with the mediator has been held. The Court has also set the matter for
trial on the May/June 2000 trial term. Supplemental motions for summary judgment
have been filed by both parties.
Kansas Corporation Commission (KCC) Proceeding On April 30, 1998, the Company's
subsidiary, Anadarko Gathering Company (AGC), filed a petition with the KCC to
clarify AGC's rights and obligations, if any, related to the payment by first
sellers of Kansas ad valorem tax refunds. The refunds at issue relate to sales
made by Anadarko Production Company, a PanEnergy affiliate, through facilities
known as the Cimmaron River System during the time period from 1983 to 1988. AGC
purchased the Cimmaron River System from Centana, the successor of Anadarko
Production Company, in 1995. The petition, among other things, asks the KCC to
determine whether AGC or Anadarko Production Company is responsible for the
payment or distribution of refunds received from first sellers to Anadarko
Production Company's former customers and requests guidance concerning the
disposition of refunds received that are attributable to sales made to Anadarko
Production Company customers that did not reimburse Anadarko Production Company
for Kansas ad valorem taxes during the relevant time periods. On June 1, 1999,
the KCC entered an order approving the plan proposed by AGC. Under this order,
after the conclusion of all litigation related to Kansas ad valorem tax
proceedings, "AGC shall be authorized to deduct from the amounts of refunds due
for the period from 1986 to and through 1988 all amounts shown not to have been
collected by AGC's predecessor in interest, Centana Energy Corporation by year,
for the period from 1986 through 1988." The order is now final.
Anadarko's net income for 1997 included a $1,800,000 charge (pretax)
related to the Kansas ad valorem tax refunds. This charge reflects all principal
and interest which may be due at the conclusion of all regulatory proceedings
and litigation to parties other than PanEnergy. The Company is unable at this
time to predict the final outcome of this matter and no provision for liability
(excluding amounts recorded in 1993, 1994 and 1997) has been made in the
accompanying financial statements.
59
61
ANADARKO PETROLEUM CORPORATION
SUPPLEMENTAL QUARTERLY INFORMATION
(UNAUDITED)
QUARTERLY FINANCIAL DATA
The following table shows summary quarterly financial data for 1999 and
1998. 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 -------- -------- -------- --------
1999
Operating revenues $136,364 $161,519 $179,935 $223,286
Operating income (loss), pretax (7,858)(1) 41,422 58,675 86,702(2)
Net income (loss) $(20,355)(1) $ 10,692 $ 21,512 $ 30,730(2)
Net income (loss) available to common
stockholders $(23,085)(1) $ 7,962 $ 18,782 $ 28,000(2)
Earnings (loss) per common share - basic $ (0.19)(1) $ 0.06 $ 0.15 $ 0.22(2)
Earnings (loss) per common share -
diluted $ (0.19)(1) $ 0.06 $ 0.15 $ 0.22(2)
1998
Operating revenues $147,001 $137,526 $140,191 $135,536
Operating income (loss), pretax 23,335 20,282 15,715 (66,720)(3)
Net income (loss) $ 7,015 $ 4,341 $ 464 $(54,008)(3)
Net income (loss) available to common
stockholders $ 7,015 $ 2,703 $ (2,266) $(56,738)(3)
Earnings (loss) per common share - basic $ 0.06 $ 0.02 $ (0.02) $ (0.47)(3)
Earnings (loss) per common share -
diluted $ 0.06 $ 0.02 $ (0.02) $ (0.47)(3)
- ---------------
(1) Anadarko's first quarter 1999 operating loss includes a non-cash charge of
$20,000,000 ($12,800,000 after income taxes) to impair Eritrea properties.
Excluding this impairment, Anadarko's first quarter net operating income
(pretax) was $12,142,000, net loss was $7,555,000 and net loss available to
common stockholders was $10,285,000, which was $0.08 per common share
(diluted).
(2) Anadarko's fourth quarter 1999 operating income includes a non-cash charge
of $4,000,000 ($2,600,000 after income taxes) to impair certain
international properties. Excluding this impairment, Anadarko's fourth
quarter net operating income (pretax) was $90,702,000, net income was
$33,330,000 and net income available to common stockholders was $30,600,000,
which was $0.24 per common share (diluted).
(3) Anadarko's fourth quarter 1998 operating loss includes a non-cash charge of
$70,000,000 ($44,600,000 after income taxes) to impair certain international
properties. Excluding this impairment, Anadarko's fourth quarter net
operating income (pretax) was $3,280,000, net loss was $9,418,000 and net
loss available to common stockholders was $12,148,000, which was $0.10 per
common share (diluted).
60
62
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, 1999 and 1998 are $323,019,000 and $353,647,000,
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
YEAR COSTS INCURRED EXCLUDED
--------------------------------------- COSTS AT
PRIOR DEC. 31,
YEARS 1997 1998 1999 1999
thousands ------- ------- -------- -------- --------
Property acquisition $18,080 $14,931 $ 37,155 $ 27,162 $ 97,328
Exploration 18,157 27,605 80,293 68,116 194,171
Capitalized interest 5,325 4,035 8,952 13,208 31,520
------- ------- -------- -------- --------
Total $41,562 $46,571 $126,400 $108,486 $323,019
------- ------- -------- -------- --------
CAPITALIZED COSTS RELATED TO OIL AND GAS PRODUCING ACTIVITIES
1999 1998
---------- ----------
thousands
UNITED STATES
Capitalized
Unproved properties $ 209,858 $ 232,320
Proved properties 4,793,906 4,337,068
Plant facilities 10,553 13,283
---------- ----------
5,014,317 4,582,671
Accumulated depreciation, depletion and amortization 2,074,597 1,980,535
---------- ----------
Net capitalized costs 2,939,720 2,602,136
---------- ----------
ALGERIA
Capitalized
Unproved properties 62,078 85,077
Proved properties 493,046 464,545
---------- ----------
555,124 549,622
Accumulated depreciation, depletion and amortization 56,068 4,418
---------- ----------
Net capitalized costs 499,056 545,204
---------- ----------
OTHER OVERSEAS
Capitalized
Unproved properties 51,083 36,250
---------- ----------
Net capitalized costs 51,083 36,250
---------- ----------
TOTAL
Capitalized
Unproved properties 323,019 353,647
Proved properties 5,286,952 4,801,613
Plant facilities 10,553 13,283
---------- ----------
5,620,524 5,168,543
Accumulated depreciation, depletion and amortization 2,130,665 1,984,953
---------- ----------
Net capitalized costs $3,489,859 $3,183,590
---------- ----------
61
63
ANADARKO PETROLEUM CORPORATION
SUPPLEMENTAL INFORMATION ON OIL AND GAS EXPLORATION
AND PRODUCTION ACTIVITIES
(UNAUDITED)
COSTS INCURRED IN OIL AND GAS PRODUCING ACTIVITIES
1999 1998 1997
THOUSANDS -------- -------- --------
UNITED STATES -- Capitalized
Property acquisition
Exploration $ 41,047 $ 31,690 $ 22,292
Development 50,292 143,186 31,036
Exploration 159,032 171,072 111,959
Development 304,511 312,846 276,266
-------- -------- --------
554,882 658,794 441,553
-------- -------- --------
ALGERIA -- Capitalized
Property acquisition
Exploration 431 -- 178
Exploration 13,241 86,979 83,860
Development 48,974 64,403 87,422
-------- -------- --------
62,646 151,382 171,460
-------- -------- --------
OTHER OVERSEAS -- Capitalized
Property acquisition
Exploration 1,122 2,415 2,085
Exploration 34,430 47,107 35,322
-------- -------- --------
35,552 49,522 37,407
-------- -------- --------
TOTAL -- Capitalized
Property acquisition
Exploration 42,600 34,105 24,555
Development 50,292 143,186 31,036
Exploration 206,703 305,158 231,141
Development 353,485 377,249 363,688
-------- -------- --------
$653,080 $859,698 $650,420
-------- -------- --------
62
64
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.
1999 1998 1997
THOUSANDS -------- -------- --------
UNITED STATES
Net revenues from production
Gas and oil sold to consolidated affiliates $313,758 $297,927 $379,982
Third-party sales of gas, oil, condensate and NGLs 259,546 223,246 274,308
-------- -------- --------
573,304 521,173 654,290
Production (lifting) costs 148,047 166,731 157,847
Depreciation, depletion and amortization* 177,806 179,183 181,163
-------- -------- --------
247,451 175,259 315,280
Income tax expense 88,137 61,276 111,711
-------- -------- --------
Results of operations $159,314 $113,983 $203,569
-------- -------- --------
*DD&A rate per net equivalent barrel $ 4.11 $ 3.91 $ 4.09
-------- -------- --------
ALGERIA
Net revenues from production
Third-party sales of oil $113,340 $ 16,474 $ --
-------- -------- --------
113,340 16,474 --
Production (lifting) costs 11,411 6,492 --
Depreciation, depletion and amortization* 18,393 4,418 --
-------- -------- --------
83,536 5,564 --
Income tax expense 51,598 3,514 --
-------- -------- --------
Results of operations $ 31,938 $ 2,050 $ --
-------- -------- --------
*DD&A rate per net equivalent barrel $ 2.96 $ 3.22 $ --
-------- -------- --------
TOTAL
Net revenues from production
Gas and oil sold to consolidated affiliates $313,758 $297,927 $379,982
Third-party sales of gas, oil, condensate and NGLs 372,886 239,720 274,308
-------- -------- --------
686,644 537,647 654,290
Production (lifting) costs 159,458 173,223 157,847
Depreciation, depletion and amortization* 196,199 183,601 181,163
-------- -------- --------
330,987 180,823 315,280
Income tax expense 139,735 64,790 111,711
-------- -------- --------
Results of operations $191,252 $116,033 $203,569
-------- -------- --------
*DD&A rate per net equivalent barrel $ 3.97 $ 3.89 $ 4.09
-------- -------- --------
63
65
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 of gas.
NGLs are included with oil and condensate reserves and the associated shrinkage
has been deducted from the gas reserves.
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 1999 primarily due to exploration and
development drilling and due to significantly higher crude oil and slightly
higher natural gas prices at year-end 1999 compared to year-end 1998. The
Company's reserves increased in 1998 primarily from exploration and development
drilling and purchases in place. Anadarko's 1998 reserves increase was offset
partially by a negative reserve revision caused by lower natural gas and crude
oil prices at year-end 1998 compared to year-end 1997. The Company's reserves
increased in 1997 primarily from exploration and development drilling and
improved recovery.
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.
64
66
ANADARKO PETROLEUM CORPORATION
SUPPLEMENTAL INFORMATION ON OIL AND GAS EXPLORATION
AND PRODUCTION ACTIVITIES
(UNAUDITED)
OIL AND GAS RESERVES (CONTINUED)
OIL, CONDENSATE AND
NATURAL GAS NGLS TOTAL
(BCF) (MMBBLS) (MMEEBS)
----------- ----------------------- -----------------------
U.S. U.S. ALGERIA TOTAL U.S. ALGERIA TOTAL
----------- ----- ------- ----- ----- ------- -----
PROVED RESERVES
DECEMBER 31, 1996 1,821 173.5 124.3 297.8 477.0 124.3 601.3
Revisions of prior
estimates (95) 13.2 -- 13.2 (2.7) -- (2.7)
Extensions, discoveries
and other additions 164 38.6 59.8 98.4 66.1 59.8 125.9
Improved recovery 6 19.9 -- 19.9 20.8 -- 20.8
Purchases in place 18 5.0 -- 5.0 8.0 -- 8.0
Sales in place (5) (0.1) -- (0.1) (1.0) -- (1.0)
Production (179) (14.5) -- (14.5) (44.3) -- (44.3)
----- ----- ----- ----- ----- ----- -----
DECEMBER 31, 1997 1,730 235.6 184.1 419.7 523.9 184.1 708.0
Revisions of prior
estimates (70) (32.0) -- (32.0) (43.7) -- (43.7)
Extensions, discoveries
and other additions 1,028 36.5 62.3 98.8 207.9 62.3 270.2
Improved recovery 15 6.7 -- 6.7 9.1 -- 9.1
Purchases in place 121 18.6 -- 18.6 38.7 -- 38.7
Production (177) (16.4) (1.4) (17.8) (45.8) (1.4) (47.2)
----- ----- ----- ----- ----- ----- -----
DECEMBER 31, 1998 2,647 249.0 245.0 494.0 690.1 245.0 935.1
Revisions of prior
estimates (188) 39.9 -- 39.9 8.6 -- 8.6
Extensions, discoveries
and other additions 112 0.7 72.9 73.6 19.4 72.9 92.3
Improved recovery 34 10.2 -- 10.2 15.8 -- 15.8
Purchases in place 99 1.0 -- 1.0 17.5 -- 17.5
Sales in place (27) (1.5) (22.9) (24.4) (5.9) (22.9) (28.8)
Production (170) (14.9) (6.2) (21.1) (43.3) (6.2) (49.5)
----- ----- ----- ----- ----- ----- -----
DECEMBER 31, 1999 2,507 284.4 288.8 573.2 702.2 288.8 991.0
----- ----- ----- ----- ----- ----- -----
PROVED DEVELOPED RESERVES
December 31, 1996 1,654 100.6 -- 100.6 376.2 -- 376.2
December 31, 1997 1,597 122.6 -- 122.6 388.7 -- 388.7
December 31, 1998 1,640 119.5 44.2 163.7 392.9 44.2 437.1
December 31, 1999 1,672 133.3 61.3 194.6 412.1 61.3 473.4
65
67
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.
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 is considered in
determining the income tax expense.
At December 31, 1999, the present value (discounted at 10%) of future net
revenues from Anadarko's proved reserves was $6.4 billion, before income taxes,
and $4.4 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 97% in 1999 compared to 1998 is
primarily due to the significantly higher crude oil and slightly higher natural
gas prices at year-end 1999 and additions of proved reserves related to
successful drilling worldwide.
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.
Under the full cost method of accounting, a non-cash charge to earnings
related to the carrying value of the Company's oil and gas properties on a
county-by-county basis may be required when prices are low. Whether the Company
will be required to take such a charge depends on the prices for crude oil and
natural gas at the end of any quarter, as well as the effect of both capital
expenditures and changes to proved reserves during that quarter. If a non-cash
charge were required, it would reduce earnings for the period and result in
lower DD&A expense in future periods.
66
68
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
1999 1998 1997
millions ------- ------- ------
UNITED STATES
Future cash inflows $11,012 $ 7,393 $6,500
Future production and development costs 3,232 2,690 2,494
------- ------- ------
Future net cash flows before income taxes 7,780 4,703 4,006
10% annual discount for estimated timing of cash flows 3,916 2,209 1,944
------- ------- ------
Discounted future net cash flows before income taxes 3,864 2,494 2,062
Future income taxes, net of 10% annual discount 1,070 698 654
------- ------- ------
Standardized measure of discounted future net cash flows
relating to oil and gas reserves 2,794 1,796 1,408
------- ------- ------
ALGERIA
Future cash inflows 7,259 2,694 3,092
Future production and development costs 1,077 988 743
------- ------- ------
Future net cash flows before income taxes 6,182 1,706 2,349
10% annual discount for estimated timing of cash flows 3,683 1,066 1,382
------- ------- ------
Discounted future net cash flows before income taxes 2,499 640 967
Future income taxes, net of 10% annual discount 911 214 364
------- ------- ------
Standardized measure of discounted future net cash flows
relating to oil and gas reserves 1,588 426 603
------- ------- ------
TOTAL
Future cash inflows 18,271 10,087 9,592
Future production and development costs 4,309 3,678 3,237
------- ------- ------
Future net cash flows before income taxes 13,962 6,409 6,355
10% annual discount for estimated timing of cash flows 7,599 3,275 3,326
------- ------- ------
Discounted future net cash flows before income taxes 6,363 3,134 3,029
Future income taxes, net of 10% annual discount 1,981 912 1,018
------- ------- ------
Standardized measure of discounted future net cash flows
relating to oil and gas reserves $ 4,382 $ 2,222 $2,011
------- ------- ------
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69
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
1999 1998 1997
millions ------ ------ ------
UNITED STATES
Beginning of year $1,796 $1,408 $2,811
Sales and transfers of oil and gas produced, net of
production costs (425) (354) (496)
Net changes in prices and development and production costs 1,451 (412) (2,443)
Extensions, discoveries, additions and improved recovery,
less related costs (90) 1,002 330
Development costs incurred during the period 30 26 30
Revisions of previous quantity estimates 175 (225) (148)
Purchases of minerals in place 52 96 11
Sales of minerals in place (22) -- --
Accretion of discount 249 206 426
Net change in income taxes (372) (44) 797
Other (50) 93 90
------ ------ ------
End of year 2,794 1,796 1,408
------ ------ ------
ALGERIA
Beginning of year 426 603 592
Sales and transfers of oil and gas produced, net of
production costs (102) (10) --
Net changes in prices and development and production costs 1,774 (514) (491)
Extensions, discoveries, additions and improved recovery,
less related costs 210 45 253
Development costs incurred during the period 38 91 88
Sales of minerals in place (85) -- --
Accretion of discount 64 97 101
Net change in income taxes (697) 150 52
Other (40) (36) 8
------ ------ ------
End of year 1,588 426 603
------ ------ ------
TOTAL
Beginning of year 2,222 2,011 3,403
Sales and transfers of oil and gas produced, net of
production costs (527) (364) (496)
Net changes in prices and development and production costs 3,225 (926) (2,934)
Extensions, discoveries, additions and improved recovery,
less related costs 120 1,047 583
Development costs incurred during the period 68 117 118
Revisions of previous quantity estimates 175 (225) (148)
Purchases of minerals in place 52 96 11
Sales of minerals in place (107) -- --
Accretion of discount 313 303 527
Net change in income taxes (1,069) 106 849
Other (90) 57 98
------ ------ ------
End of year $4,382 $2,222 $2,011
------ ------ ------
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70
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 Anadarko Board of Directors and Section 16(a) Beneficial Ownership
Reporting Compliance in the Anadarko Petroleum Corporation Proxy Statement,
dated March 27, 2000 (Proxy Statement), which is 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 Anadarko Board of Directors -- Director Compensation and Compensation
and Benefits Committee Report on 1999 Executive Compensation in the Proxy
Statement, which is incorporated herein by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
See Stock Ownership in the Proxy Statement, which is incorporated herein by
reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
See Transactions with Management and Others in the Proxy Statement, which
is incorporated herein by reference.
69
71
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 34.
(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 September 30,
August 28, 1986 1986
(b) Amendment to the Restated Certificate of 3(b) to Form 10-Q I-8968
Incorporation of Anadarko Petroleum for quarter ended March 31,
Corporation, dated April 29, 1999 1999
(c) Certificate of Correction filed to 3(c) to Form 10-Q 1-8968
correct the Amendment of the Restated for quarter ended
Certificate of Incorporation of Anadarko June 30, 1999
Petroleum Corporation, dated June 15,
1999
(d) By-laws of Anadarko Petroleum 3(b) to Form 10-Q 1-8968
Corporation, as amended for quarter ended
June 30, 1996
4(a) Rights Agreement, dated as of October 29, 4.1 to Form 8-A dated October 1-8968
1998, between Anadarko Petroleum 30, 1998
Corporation and The Chase Manhattan Bank
Rights Agent
(b) Indenture, dated as of May 10, 1988, 4(a) to Form S-3 33-21094
between Anadarko Petroleum Corporation Registration Statement
and 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 December 31,
Petroleum Corporation and Continental 1991
Bank, National Association, Trustee
(d) Amendment to Revolving Credit Agreement, 4(a) to Form 10-Q 1-8968
dated as of April 15, 1999 for quarter ended March 31,
1999
(e) 364-Day Credit Agreement, dated as of 4(b) to Form 10-Q 1-8968
April 15, 1999 for quarter ended March 31,
1999
(f) Indenture, dated as of March 1, 1995, 4(a) to Form 10-Q 1-8968
between Anadarko Petroleum Corporation for quarter ended
and the Chase Manhattan Bank, N.A., June 30, 1995
Trustee
(g) Indenture, dated as of September 1, 1997, 4(j) to Form 10-K 1-8968
between Anadarko Petroleum Corporation for year ended December 31,
and Harris Trust and Savings Bank, 1997
Trustee
(h) Supplemental Indenture, dated as of March 4 to Form 8-K dated March 7, 1-8968
7, 2000, between Anadarko Petroleum 2000
Corporation and Harris Trust and Savings
Bank, Trustee
70
72
EXHIBIT ORIGINALLY FILED FILE
NUMBER DESCRIPTION AS EXHIBIT NUMBER
------ ----------------------------------------- ------------------------------- --------
10(a) (i) Spin-Off Agreement, dated September 30, 10(a)(iii) to Form 10-K 1-8968
1986, between Panhandle Eastern for year ended December 31,
Corporation and Anadarko Petroleum 1988
Corporation
(ii) Global Settlement Agreement between 28(a) to Form 10-Q 1-8968
Panhandle Eastern Corporation and for quarter ended March 31,
Anadarko Petroleum Corporation, dated 1989
March 31, 1989
(iii) Agreement for Exploration and 10 to Form 10-Q 1-8968
Exploitation of Liquid Hydrocarbons for quarter ended March 31,
between Anadarko Algeria Corporation and 1997
SONATRACH, dated October 23, 1989
(Confidential treatment requested for
certain provisions pursuant to Rule 24b-2
under the Securities Exchange Act of
1934)
(iv) Agreement Concerning the Method of 10(a)(i) to Form 10-Q 1-8968
Application of the Contract signed on for quarter ended September 30,
October 23, 1989 between Sonatrach and 1998
Anadarko Algeria Corporation
(v) Amendment No. 1 to the Agreement for the 10(a)(ii) to Form 10-Q 1-8968
Exploration and Exploitation of Liquid for quarter ended September 30,
Hydrocarbons between Sonatrach and 1998
Anadarko Algeria Corporation signed
October 23, 1989
DIRECTOR AND EXECUTIVE COMPENSATION PLANS AND ARRANGEMENTS
10(b) (i) Director Deferred Compensation Plan of 10(b)(viii) to Form 10-K 1-8968
Anadarko Petroleum Corporation, effective for year ended December 31,
January 1, 1987 1986
(ii) Amendment to Anadarko Petroleum 10(b)(ii) to Form 10-K 1-8968
Corporation Director Deferred for year ended December 31,
Compensation Plan 1997
(iii) Director Deferred Compensation Agreement 19(a)(i) to Form 10-Q 1-8968
between Anadarko Petroleum Corporation for quarter ended March 31,
and each Director Electing to Participate 1987
(iv) First Amendment to Director Deferred 10(b)(iv) to Form 10-K 1-8968
Compensation Agreement 1987, 1988, 1989 for year ended December 31,
and 1990 Plan Years 1997
(v) 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
(vi) Anadarko Petroleum Corporation Amended 99 -- Attachment A to Form 10-K 1-8968
and Restated 1988 Stock Option Plan for for year ended December 31,
Non-Employee Directors 1993
(vii) Amendment to Anadarko Petroleum 10(b)(vii) to Form 10-K 1-8968
Corporation 1988 Stock Option Plan for for year ended December 31,
Non-Employee Directors 1997
(viii) Second Amendment to Anadarko Petroleum 10(b)(viii) to Form 10-K 1-8968
Corporation 1988 Stock Option Plan for for year ended December 31,
Non-Employee Directors 1997
71
73
EXHIBIT ORIGINALLY FILED FILE
NUMBER DESCRIPTION AS EXHIBIT NUMBER
------ ----------------------------------------- ------------------------------- --------
10(b) (ix) 1998 Director Stock Plan of Anadarko 99 -- Attachment A to Form 10-K 1-8968
Petroleum Corporation, effective January for year ended December 31,
30, 1998 1997
(x) Anadarko Petroleum Corporation and 19(c)(ix) to Form 10-Q 1-8968
Participating Affiliates and Subsidiaries for quarter ended September 30,
Annual Override Pool Bonus Plan, as 1986
amended October 6, 1986
(xi) Second Amendment to Anadarko Petroleum 10(b)(ii) to Form 10-K 1-8968
Corporation and Participating Affiliates for year ended December 31,
and Subsidiaries Annual Override Pool 1987
Bonus Plan
(xii) Restatement of the Anadarko Petroleum Post Effective Amendment No. 1 33-22134
Corporation 1987 Stock Option Plan (and to Forms S-8 and S-3, Anadarko
Related Agreement) Petroleum Corporation 1987
Stock Option Plan
(xiii) First Amendment to Restatement of the 10(b)(xii) to Form 10-K 1-8968
Anadarko Petroleum Corporation 1987 Stock for year ended December 31,
Option Plan 1997
(xiv) 1993 Stock Incentive Plan 10(b)(xii) to Form 10-K 1-8968
for year ended December 31,
1993
(xv) First Amendment to Anadarko Petroleum 99 -- Attachment A to Form 10-K 1-8968
Corporation 1993 Stock Incentive Plans for year ended December 31,
1996
(xvi) Second Amendment to Anadarko Petroleum 10(b)(xv) to Form 10-K 1-8968
Corporation 1993 Stock Incentive Plan for year ended December 31,
1997
(xvii) Anadarko Petroleum Corporation 1993 Stock 10(a) to Form 10-Q 1-8968
Incentive Plan Stock Option Agreement for quarter ended March 31,
1996
(xviii) Form of Anadarko Petroleum Corporation 10(b)(xvii) to Form 10-K 1-8968
1993 Stock Incentive Plan Stock Option for year ended December 31,
Agreement 1997
(xix) Form of Anadarko Petroleum Corporation 10(b)(xviii) to Form 10-K 1-8968
1993 Stock Incentive Plan Restricted for year ended December 31,
Stock Agreement 1997
(xx) Anadarko Petroleum Corporation 1993 Stock 10(b) to Form 10-Q 1-8968
Incentive Plan Performance Share for quarter ended March 31,
Agreement 1996
(xxi) Form of Anadarko Petroleum Corporation 10(b)(xx) to Form 10-K 1-8968
1993 Stock Incentive Plan Performance for year ended December 31,
Share Agreement 1997
(xxii) Anadarko Petroleum Corporation 1999 Stock 99 -- Attachment A to Form 10-K 1-8968
Incentive Plan for year ended December 31,
1998
72
74
EXHIBIT ORIGINALLY FILED FILE
NUMBER DESCRIPTION AS EXHIBIT NUMBER
------ ----------------------------------------- ------------------------------- --------
*10(b) (xxiii) Form of Anadarko Petroleum Corporation
1999 Stock Incentive Plan Stock Option
Agreement
*(xxiv) Form of Anadarko Petroleum Corporation
1999 Stock Incentive Plan Restricted
Stock Agreement
(xxv) Annual Incentive Bonus Plan 10(b)(xiii) to Form 10-K 1-8968
for year ended December 31,
1993
(xxvi) First Amendment to Anadarko Petroleum 99 -- Attachment B to Form 10-K 1-8968
Corporation Annual Incentive Bonus Plan for year ended December 31,
1998
(xxvii) Key Employee Change of Control Contract 10(b)(xxii) to Form 10-K 1-8968
for year ended December 31,
1997
(xxviii) Executive Deferred Compensation Plan of 10(b)(xii) to Form 10-K 1-8968
Anadarko Petroleum Corporation and for year ended December 31,
Participating Subsidiaries and 1987
Affiliates, effective October 1, 1986
(xxix) Executive Deferred Compensation Plan of 10(b)(vi) to Form 10-K 1-8968
Anadarko Petroleum Corporation, effective for year ended December 31,
January 1, 1987 1986
(xxx) Amendment to Anadarko Petroleum 10(b)(xxv) to Form 10-K 1-8968
Corporation Executive Deferred for year ended December 31,
Compensation Plan 1997
(xxxi) Executive Deferred Compensation Agreement 19(a)(ii) to Form 10-Q 1-8968
between Anadarko Petroleum Corporation for quarter ended March 31,
and each Executive Electing to 1987
Participate
(xxxii) First Amendment to Executive Deferred 10(b)(xxvii) to Form 10-K 1-8968
Compensation Agreement 1987, 1988, 1989 for year ended December 31,
and 1990 Plan Years 1997
(xxxiii) Amendments to Executive Deferred 10(b)(xv) to Form 10-K 1-8968
Compensation Agreement between Anadarko for year ended December 31,
Petroleum Corporation and each Executive 1987
Electing to Participate
(xxxiv) Anadarko Retirement Restoration Plan, 10(b)(xix) to Form 10-K 1-8968
effective January 1, 1995 for year ended December 31,
1995
(xxxv) Anadarko Savings Restoration Plan, 10(b)(xx) to Form 10-K 1-8968
effective January 1, 1995 for year ended December 31,
1995
(xxxvi) Amendment to Amended and Restated 10(b)(xxxi) to Form 10-K 1-8968
Anadarko Savings Restoration Plan for year ended December 31,
1997
(xxxvii) Plan Agreement for the Management Life 10(b)(xxi) to Form 10-K 1-8968
Insurance Plan between Anadarko Petroleum for year ended December 31,
Corporation and each Eligible Employee, 1995
effective July 1, 1995
(xxxviii) Anadarko Petroleum Corporation Estate 10(b)(xxxiv) to Form 10-K 1-8968
Enhancement Program for year ended December 31,
1998
73
75
EXHIBIT ORIGINALLY FILED FILE
NUMBER DESCRIPTION AS EXHIBIT NUMBER
------ ----------------------------------------- ------------------------------- --------
10(b) (xxxix) Estate Enhancement Program Agreement 10(b)(xxxv) to Form 10-K 1-8968
between Anadarko Petroleum Corporation for year ended December 31,
and Eligible Executives 1998
*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 1999 Annual Report to
Stockholders
*21 List of Significant Subsidiaries
*23 Consents of Experts and Counsel
Consent of KPMG LLP
*24 Powers of Attorney
*27 Financial Data Schedule
99 Anadarko Petroleum Corporation Proxy Filed on March 14, 2000
Statement, dated March 27, 2000
- ---------------
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 10% 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, 1999.
74
76
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 15, 2000 By: /s/ 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 15, 2000.
NAME AND SIGNATURE TITLE
------------------ -----
(i) Principal executive officer:*
ROBERT J. ALLISON, JR. Chairman of the Board 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
JOHN N. SEITZ
- -----
* Signed on behalf of each of these persons and on his own behalf:
By /s/ MICHAEL E. ROSE
-------------------------------------------------------
(Michael E. Rose, Attorney-in-Fact )
75
77
EXHIBIT INDEX
EXHIBIT
NUMBER DESCRIPTION
------- -----------
*10(b)(xxiii) Form of Anadarko Petroleum Corporation 1999 Stock Incentive
Plan Stock Option Agreement
*10(b)(xxiv) Form of Anadarko Petroleum Corporation 1999 Stock Incentive
Plan Restricted Stock Agreement
*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 1999 Annual
Report to Stockholders
*21 List of Significant Subsidiaries
*23 Consents of Experts and Counsel
Consent of KPMG LLP
*24 Powers of Attorney
*27 Financial Data Schedule
- ---------------
* Filed herewith.