Back to GetFilings.com
1
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, 2000
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 February 28, 2001 was $15,721,812,000.
The number of shares outstanding of the Company's common stock as of
February 28, 2001 is shown below:
TITLE OF CLASS NUMBER OF SHARES OUTSTANDING
Common Stock, par value $0.10 per share 250,430,434
PART OF
FORM 10-K DOCUMENTS INCORPORATED BY REFERENCE
Part II Portions of the Anadarko Petroleum Corporation 2000 Annual
Report to Stockholders.
Part III Portions of the Proxy Statement, dated March 26, 2001, for
the Annual Meeting of Stockholders of Anadarko Petroleum
Corporation to be held April 26, 2001.
2
TABLE OF CONTENTS
PAGE
PART I
Item 1. Business 2
General 2
Proved Reserves and Future Net Cash Flows 2
Sales Volumes and Prices 3
Properties and Activities -- United States 4
Properties and Activities -- Canada 12
Properties and Activities -- Algeria 14
Properties and Activities -- Other International 17
Drilling Programs 19
Drilling Statistics 19
Productive Wells 20
Segment and Geographic Information 20
Employees 21
Regulatory and Legislative Developments 21
Additional Factors Affecting Business 21
Title to Properties 21
Capital Spending 21
Ratios of Earnings to Fixed Charges and Earnings to Combined
Fixed Charges and Preferred Stock Dividends 21
Item 2. Properties 21
Item 3. Legal Proceedings 21
Item 4. Submission of Matters to a Vote of Security Holders 24
Executive Officers of the Registrant 24
PART II
Item 5. Market for Registrant's Common Equity and Related
Stockholder Matters 26
Item 6. Selected Financial Data 26
Item 7. Management's Discussion and Analysis of Financial Condition
and Results of Operations 27
Item 7A. Quantitative and Qualitative Disclosures About Market Risk 39
Item 8. Financial Statements and Supplementary Data 42
Item 9. Changes in and Disagreements with Accountants on Accounting
and Financial Disclosure 88
PART III
Item 10. Directors and Executive Officers of the Registrant 88
Item 11. Executive Compensation 88
Item 12. Security Ownership of Certain Beneficial Owners and
Management 88
Item 13. Certain Relationships and Related Transactions 88
PART IV
Item 14. Exhibits and Reports on Form 8-K 89
1
3
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 over two billion barrels
of oil equivalent (BOE) of proved reserves as of December 31, 2000. The
Company's major areas of operations are located in the United States, primarily
in Texas, Louisiana, the mid-continent and Rocky Mountain regions, Alaska and in
the shallow and deep waters of the Gulf of Mexico, as well as in Canada,
Algeria, Guatemala, Venezuela and other international areas. Exploration
activity is underway in Tunisia, West Africa, the former Soviet Republic of
Georgia, Australia and the North Atlantic Margin. The Company also owns and
operates gas gathering systems in its core producing areas. In addition, the
Company engages in the minerals business through non-operated joint venture and
royalty arrangements in several coal, industrial minerals and trona (natural
soda ash) mines located on lands within and adjacent to its Land Grant holdings
in Wyoming.
On July 14, 2000, the Company merged with Union Pacific Resources Group
Inc., subsequently renamed RME Holding Company (RME). The merger was treated as
a tax-free reorganization and accounted for as a purchase business combination.
As such, the financial and operating results and property descriptions presented
here, unless expressly noted otherwise, are those of Anadarko on a stand-alone
basis for the periods up to July 14, 2000 and of the combined company for the
remainder of 2000.
The principal subsidiaries of Anadarko are: RME Petroleum Company; Anadarko
Canada Corporation (Anadarko Canada); and, Anadarko Algeria Company LLC
(Anadarko Algeria). Unless the context otherwise requires, the terms "Anadarko"
or "Company" refer to Anadarko and its subsidiaries. The Company's corporate
headquarters 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, 2000, Anadarko had proved reserves of 1.05 billion
barrels of crude oil, condensate and natural gas liquids (NGLs) and 6.09
trillion cubic feet (Tcf) of natural gas. Combined, these proved reserves are
equivalent to 2.06 billion barrels of oil or 12.37 Tcf of gas. The Company's
reserves have grown significantly over the past three years due to the RME
merger in 2000, 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, 2000, Anadarko had proved developed reserves of 5.16 Tcf
of natural gas and 597 million barrels (MMBbls) of crude oil, condensate and
NGLs. Proved developed reserves comprise 71% of the total proved reserves on a
BOE basis.
The Company's estimates of proved reserves and proved developed reserves at
December 31, 2000, 1999 and 1998 and changes in proved reserves during the last
three years are contained in the Supplemental Information on Oil and Gas
Exploration and Production Activities -- Unaudited (Supplemental Information) in
the Anadarko Petroleum Corporation 2000 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 the amounts
included in the above estimates.
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.
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
2
4
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.
SALES VOLUMES AND PRICES
The following table shows the Company's annual sales 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 MMBbls.
Total volumes are in million barrels of oil equivalent (MMBOE). For this
computation, six thousand cubic feet (Mcf) of gas is the energy equivalent of
one barrel of oil, condensate or NGLs.
2000 1999 1998
---- ---- ----
UNITED STATES
Natural gas (Bcf) 338 170 177
Oil and condensate (MMBbls) 15 9 10
Natural gas liquids (MMBbls) 12 7 7
Total (MMBOE) 83 44 46
CANADA*
Natural gas (Bcf) 46 -- --
Oil and condensate (MMBbls) 4 -- --
Total (MMBOE) 12 -- --
ALGERIA**
Oil and condensate (MMBbls) 10 6 1
Total (MMBOE) 10 6 1
OTHER INTERNATIONAL*
Natural gas (Bcf) 1 -- --
Oil and condensate (MMBbls) 7 -- --
Total (MMBOE) 7 -- --
TOTAL
Natural gas (Bcf) 385 170 177
Oil and condensate (MMBbls) 36 15 11
Natural gas liquids (MMBbls) 12 7 7
Total (MMBOE) 112 50 47
- ---------------
* In July 2000, Anadarko acquired production in Canada and other international
areas as a result of the merger with RME.
** In May 1998, production commenced from the Company's operations in Algeria.
3
5
The following table shows the Company's annual average wellhead sales
prices and average production costs. The average sales prices include realized
gains and losses for derivative contracts the Company enters to manage price
risk related to the Company's sales volumes. Production costs for 1999 and 1998
have been reclassified to conform to the current presentation.
2000 1999 1998
------ ------ ------
UNITED STATES
Sales price
Natural gas (per Mcf) $ 4.11 $ 2.08 $ 1.92
Oil and condensate (per barrel) 28.72 15.79 11.44
Natural gas liquids (per barrel) 21.65 13.40 10.29
Production cost (per BOE) $ 4.91 $ 4.28 $ 4.38
CANADA*
Sales price
Natural gas (per Mcf) $ 4.38 -- --
Oil and condensate (per barrel) 27.38 -- --
Production cost (per BOE) $ 6.80 -- --
ALGERIA**
Sales price
Oil and condensate (per barrel) $28.76 $18.23 $11.99
Production cost (per BOE) $ 2.61 $ 1.84 $ 4.72
OTHER INTERNATIONAL*
Sales price
Natural gas (per Mcf) $ 1.08 -- --
Oil and condensate (per barrel) 18.35 -- --
Production cost (per BOE) $ 8.24 -- --
TOTAL
Sales price
Natural gas (per Mcf) $ 4.13 $ 2.08 $ 1.92
Oil and condensate (per barrel) 26.49 16.83 11.51
Natural gas liquids (per barrel) 21.70 13.40 10.29
Production cost (per BOE) $ 5.16 $ 3.97 $ 4.39
- ---------------
* In July 2000, Anadarko acquired production in Canada and other international
areas as a result of the merger with RME.
** In May 1998, production commenced from the Company's operations in Algeria.
Additional information on volumes, prices and markets is contained in
Analysis of Sales Volumes and Prices and Marketing Strategies under Item 7 of
this Form 10-K. Information on major customers is contained in Note 11 of the
Notes to Consolidated Financial Statements under Item 8 of this Form 10-K.
PROPERTIES AND ACTIVITIES -- UNITED STATES
United States reserves comprised 64% of Anadarko's total proved reserves at
year-end 2000, compared to 71% in 1999 and 74% in 1998. The accompanying maps
illustrate by state Anadarko's undeveloped and developed lease and fee net
acreage, number of net producing wells and other data relevant to its domestic
onshore and offshore oil and gas operations.
ONSHORE -- LOWER 48 STATES
OVERVIEW About 52% of the Company's proved reserves are located onshore in the
lower 48 states, with operations in Texas, Louisiana, the mid-continent and
Rocky Mountain regions. In 2000, average production from the Company's onshore
properties was 765 million cubic feet per day (MMcf/d) of gas and 65 thousand
barrels per day (MBbls/d) of crude oil, condensate and NGLs, or 63% of the
Company's total production volumes. Anadarko has 2,115,000 gross (1,353,000 net)
undeveloped lease acres, 2,990,000 gross (2,022,000 net) developed lease acres
and 9,424,000 gross (8,478,000 net) fee acres onshore in the lower 48 states.
4
6
ONSHORE MAP (GRAPHIC MATERIAL OMITTED)
NET NET NET NET
DEVELOPED UNDEVELOPED FEE PRODUCING
ACRES ACRES ACRES WELLS
--------- ----------- --------- ---------
ONSHORE:
United States
Alabama............................ 696 592 11,473 --
Alaska*............................ 4,189 467,336 -- 1
Arkansas........................... 1,935 -- 332,708
California......................... 215 -- 3,642 --
Colorado........................... 22,284 16,447 2,888,578 338
Florida............................ -- -- 5,062 --
Georgia............................ -- -- 2,838 --
Idaho.............................. -- -- 711 --
Illinois........................... -- -- 7,738 --
Indiana............................ -- 1,118 9,913 --
Iowa............................... -- -- 128 --
Kansas*............................ 428,578 216,745 32,669 1,895
Louisiana*......................... 134,768 107,053 13,423 187
Mississippi........................ 2,101 1,042 63,879 --
Missouri........................... -- -- 10,522 --
Montana............................ 10 330 39 --
Nebraska........................... 2,408 139 28,118 --
New Mexico*........................ 27,627 2,451 26 126
Nevada............................. -- -- 440 --
Oklahoma*.......................... 219,521 90,222 34,643 1,168
Oregon............................. -- -- 741 --
South Carolina..................... -- -- 2,734 --
South Dakota....................... -- -- 3,001 --
Tennessee.......................... -- -- 902 --
Texas*............................. 1,112,255 682,589 170,973 6,013
Utah*.............................. 21,256 8,791 690,155 112
Virginia........................... -- -- 14 --
Washington......................... -- --2,521 --
West Virginia...................... 330 -- -- --
Wyoming*........................... 48,478 225,130 4,160,577 653
OFFICE LOCATIONS:
United States
Amarillo,Texas
Anchorage, Alaska
Houston, Texas
Midland, Texas
* Drilling activities were conducted in these areas
in 2000.
5
7
BOSSIER PLAY Anadarko has taken a number of steps recently to significantly
expand the scope of its Bossier operations and to position the Company to build
on an already solid record of success. The Company now has 26 rigs running in
East Texas and five in Jackson Parish, Louisiana, compared to 18 rigs running in
East Texas at the end of 1999. Anadarko reached a major milestone in January
2001, by spudding its 300th Bossier well in East Texas. Since operations began
in 1996, the Company has achieved a success rate of nearly 100%. The Company
expects the total number of wells drilled to reach 500 by the end of 2001. With
production of 336 MMcf/d of gas (gross) and 241 MMcf/d (net) at year-end 2000,
the Bossier play now ranks as Anadarko's largest onshore gas field. In 2000, the
Company drilled 142 wells and Bossier volumes totaled 60 Bcf (net), or roughly
15% of the Company's total gas production. For 2001, the Company is planning to
drill 220 wells in the Bossier play and expects natural gas volumes in the play
to reach 90 Bcf (net).
Through its ongoing development program, Anadarko continues to extend the
limits of the Bossier play and uncover new exploration opportunities. The
Bossier play consists of multiple fields, and multiple pay zones. One
significant recent completion is the Thigpen A-2 well, which was completed in
the fourth quarter of 2000. The Dew/Mimms Creek field producer initially tested
at 17 MMcf/d of gas from the Bonner sand interval and is located approximately
1.5 miles from Anadarko's best producer in the play to date. The Company has a
100% working interest in the well, which is in Freestone County, Texas.
Bossier production is typical of that in a tight gas reservoir, which is
characterized by hyperbolic decline rates and long reserve life. This means the
average well is expected to start producing gas at a rate of about 3 MMcf/d but
decline rapidly to slightly less than 1 MMcf/d after one year. The producing
rate then declines at a much slower rate and the well continues to produce for
many years. Some of Anadarko's gas wells in the Bossier play have tested at much
higher initial rates than the expected rate. These wells initially produce at
higher rates and still decline rapidly, but recover more gas than the average
well.
Altogether, Anadarko drilled seven exploration wells that encountered
commercial amounts of natural gas in the Bossier play during 2000. Two wildcats
were drilled in a similar trend in northern Louisiana, one of which was not
commercial and another that is still under evaluation. For 2001, the Company
plans to increase its Bossier exploration program by about 70% and total
spending in the play is expected to increase 32% to $535 million.
Critical to the continued success of Anadarko's drilling program is a
strong acreage position. During 2000, the Company increased its net lease
holdings by 160,000 acres to 250,000 acres. A total of 31,000 acres (net) in
Freestone, Robertson and Leon counties was acquired in late 2000. The package
also included 10 MMcf/d (net) of gas production from various interests in 80
wells. The properties complement Anadarko's operations south of its original
discoveries in Freestone County and include a number of proved development
drilling and delineation locations, along with some exploratory prospects that
are expected to be drilled in 2001.
Anadarko increased its gas marketing opportunities by purchasing the stock
of Pinnacle Gas Treating, Inc. The transaction valued at $38 million closed in
January 2001 and gives Anadarko ownership of a natural gas pipeline that runs
through the heart of its Bossier properties. The acquisition gives the Company
greater flexibility in shipping and marketing its gas from the area as well as
improved service to other shippers. The network, which has a capacity of 500
MMcf/d of gas, consists of 60 miles of large-diameter pipe, 40 miles of
small-diameter laterals and spurs in addition to a 60-mile fuel redelivery
system. The Bethel treating plant acquired in the transaction removes carbon
dioxide and hydrogen sulfide from gas and can handle as much as 300 MMcf/d of
gas. In 2001, Anadarko has plans to expand the Bethel plant to accommodate
growing volumes in the area.
HUGOTON EMBAYMENT Anadarko's activities in the Hugoton Embayment, located in
southwest Kansas and the Oklahoma and Texas panhandles, are concentrated on two
areas. One is the shallow gas fields and the second is the deeper oil and gas
zones below the shallow gas production. Currently, Anadarko controls 1,070,000
gross (949,000 net) lease acres in this area and operates about 2,700 wells. As
part of its ongoing strategy to offset production declines, the Company
intensified efforts in 2000 to develop deeper zones below its traditional
producing intervals.
The Company's net production from the Hugoton Embayment area at the end of
2000 was 190 MMcf/d of gas and 3,022 barrels of oil and condensate per day,
which was about 7% of the Company's total production volumes. Total net volumes
for the full-year 2000 were approximately 20 MMBOE (118 Bcf of gas equivalent).
6
8
In 2000, the Company drilled 80 wells in the Hugoton Embayment. Anadarko
also recompleted 47 wells and carried out workover operations on 109 wells in
the area.
CENTRAL TEXAS The Giddings field in Washington, Fayette, Lee, Brazos, Burleson
and Robertson counties, was acquired in the RME merger and is the focal point of
Anadarko's horizontal re-entry program targeting the Buda, Georgetown and Austin
Chalk formations. Originally completed in the Austin Chalk interval, the Becker
Unit No. 1 well in the Navasota River field of Washington County, Texas was
re-entered in the deeper Georgetown formation during 2000. Subsequent workover
operations in the fourth quarter have increased volumes to 50 MMcf/d of gas. The
Company has a 100% working interest in the well.
Based on the success of the project, Anadarko has targeted another 20
locations in the Georgetown formation. Re-entry projects in these fractured
limestone formations have helped the Company revitalize its Austin Chalk
acreage, where Anadarko plans to stabilize production and take greater advantage
of the natural gas potential of the area. Current net volumes from the Company's
more than 1,200 producing wells throughout central Texas are nearly 200 MMcf/d
of gas and more than 14,000 barrels of oil per day (BOPD). Some 90 wells (net)
are planned for 2001 in the Giddings area -- two-thirds of which will be
re-entries of existing wells. The Company currently has nine drilling rigs
active in the play.
CARTHAGE Anadarko's four-rig infill drilling program in the Carthage area of
East Texas continued during 2000. The wells target primarily the tight gas sand
formations in the Cotton Valley interval. In addition to the Cotton Valley
interval, Anadarko also completed a number of wells in shallower formations such
as the Blossom. Anadarko utilizes a fleet of about six workover rigs to help
maintain production levels in the area.
Net volumes from the more than 900 Anadarko-operated wells currently on
production in the area total 103 MMcf/d of gas. The Company also produces about
5,000 barrels of oil and NGLs per day (net). The Company plans to drill 48 wells
in the Carthage area in 2001 and production is expected to increase about 5%.
TEXAS PANHANDLE The Company's ongoing infill drilling program in the West
Panhandle field of Moore County, Texas was highlighted by a number of
significant completions in 2000. Four Red Cave North wells were placed on
production at a combined rate of 2.1 MMcf/d of gas. During 2000, Anadarko
drilled a total of 34 infill wells in the field which combined to produce 9
MMcf/d of gas. For the full-year 2000, Red Cave wells produced 1.45 Bcf of gas.
Anadarko owns a 100% working interest in these shallow 2,500-foot low-cost gas
wells.
PERMIAN BASIN Anadarko drilled 200 wells, performed 60 workovers and installed
three major waterfloods in the Permian basin during the year 2000. These
operations, coupled with properties acquired in the RME merger, resulted in a
50% increase in the Company's net production from the Permian area compared to
1999. Net production for 2000 averaged 11,900 BOPD and 54 MMcf/d of gas, which
resulted in cumulative net production of 8 MMBOE. This compares to net
production in 1999 of 9,960 BOPD and 24 MMcf/d of gas, which resulted in
cumulative net production of 5 MMBOE.
In the Revilo field, located in Scurry County, Texas, Anadarko realized the
results of installing a waterflood program during 2000. Field production
increased from 30 BOPD in late 1999 to 800 BOPD in 2000. Anadarko recently
acquired an additional 480 acres in the Revilo field that will be developed in
2001 by drilling 45 wells and expanding existing waterflood operations. Anadarko
owns a 100% working interest in the Revilo field.
Anadarko drilled seven wells and recompleted four wells during late 1999
and 2000 in the Shugart North field, located in Eddy County, New Mexico. These
operations increased production out of the Morrow, Bone Spring and Grayburg
formations from 40 BOPD to 1,100 BOPD. Additional drilling is planned for 2001.
Anadarko owns a 100% interest in the Shugart North field.
A San Angelo/Clearfork waterflood development project began in late 1999
and continued in 2000 in the Snyder field located in Howard County, Texas.
Anadarko drilled 87 wells and initiated water injection during 2000. Field
production has increased from 70 BOPD in mid-1999 to 1,500 BOPD currently.
Additional expansion work is planned for 2001 that involves drilling
approximately 20 wells and increasing injection capacity. Anadarko owns a 100%
working interest in the Snyder field.
In the Ozona field of Crockett County, Texas, activity continued at a
steady pace highlighted by development drilling in the Canyon Sand and Strawn
formations. Anadarko drilled and completed 21 wells in 2000 following the merger
with RME. These wells added 5 MMcf/d of gas production, which resulted in total
7
9
field production at year-end of 111 MMcf/d. Anadarko operates approximately
1,700 wells in the Ozona field and plans to drill 175 wells in 2001 with a four
rig drilling program. The addition of the Ozona field has balanced the Permian
basin daily production at year-end 2000 to 50% oil and 50% gas.
Anadarko has interests in 343,000 net acres in the Permian basin and
operates approximately 5,500 wells.
ROCKY MOUNTAINS The Rocky Mountain area primarily includes the Company's oil
and gas properties in the Land Grant area of Colorado, Wyoming and Utah, which
were acquired in the merger with RME. The Company's operations in the Land Grant
are concentrated in the Green River basin and the Overthrust area. The Company
currently has approximately 8,678,000 gross (8,082,000 net) acres, principally
attributable to its Land Grant ownership. In 2000, the Company drilled 102
development wells and two exploratory wells in the Rocky Mountains. Production
at year-end was 300 MMcf/d of gas in the Land Grant area.
Anadarko plans to more than double its Rocky Mountain area exploration and
development budget to over $130 million for 2001 for its aggressive strategy to
find and develop new sources of natural gas and coalbed methane. In 2001, the
Company plans to drill more than 20 exploratory and 130 development wells in
Colorado, Wyoming and Utah and participate in more than 275 additional wells
operated by other companies. In addition, more than 500 square miles of new 3-D
seismic will be acquired.
Utah Coalbed Methane During 2000, the Company drilled 52 wells in the Helper
and Drunkard's Wash fields in Utah. At year-end 2000 gross volumes from
Anadarko's coalbed methane wells in Utah were about 20 MMcf/d of gas, which is
expected to increase to 40 MMcf/d of gas by year end 2001 with further growth
expected in 2002. Preparations are currently being made for the 2001 drilling
program which will commence in the second quarter and will involve drilling an
additional 37 wells.
Wyoming Coalbed Methane In the Powder River basin of Wyoming, Anadarko launched
a two-rig drilling program in 2000. In 2001, the Company plans to drill more
than 70 wells in the area and will be expanding the number of rigs in operation
to six in order to complete the project during the first quarter 2001. In
addition, plans are being made for the construction of a gas sales line and
compressor facilities that will allow the Company to begin sales early in the
second quarter 2001.
Wyoming In the Green River basin of Wyoming, two Anadarko-operated rigs began
running in the fourth quarter of 2000 and will focus on conventional drilling
projects in the Wamsutter, Brady and Red Desert areas. The Company holds an
average working interest of 65% in the two company operated rig programs. In
addition, at the end of 2000, Anadarko was participating in seven non-operated
drilling rigs throughout the Land Grant. Anadarko owns an average 30% working
interest in these programs and holds 100% of the Land Grant royalties.
In 2000, the Company participated in approximately 132 wells in the Green
River basin with net production of 75 MMcf/d of gas. For 2001, the Company plans
to drill 60 additional wells in this area and more than double capital spending
to $35 million. As a result, net production is expected to increase to 84 MMcf/d
of gas, more than offsetting the natural decline.
CENTRAL OKLAHOMA At year-end 2000, gross production from the 278 Golden Trend
wells operated by the Company was 26 MMcf/d of gas and 800 BOPD. In the last
five years, Anadarko has drilled about 50 wells in the Golden Trend, implemented
a 40 acre infill drilling program and substantially increased its leasehold
position.
Also in central Oklahoma, the first three wells of a 19 well infill
drilling campaign in Northeast Purdy Springer Unit were completed. The program,
which is utilizing CO(2) flood techniques, allows Anadarko to maximize the value
of its extensive property holdings in the area and capitalize on the strong
commodity market.
The Company's Golden Trend assets are complemented by the Anadarko operated
Antioch Gathering System, which provides increased operational control and
market flexibility. The system has 150 miles of pipe and connects over 260 wells
in the area. During 2000, the Antioch system moved an average of 25 MMcf/d of
gas.
SOUTH LOUISIANA The delineation program in the Kent Bayou field of Terrebonne
Parish, Louisiana continues to be the focal point of Anadarko's activities in
South Louisiana. With the successful completion of the Continental Land and Fur
(CL&F) Co. No. 4, production from the field at year-end was 50 MMcf/d of
8
10
gas and 9,500 BOPD. The production facilities are being expanded and should be
completed in the second quarter of 2001. The CL&F Co. No. 5 well is currently
drilling. If successful, anticipated production after the expansion could be 80
MMcf/d of gas and 15,000 BOPD. Anadarko owns a 66.7% working interest in the
Kent Bayou field and is the operator.
GATHERING AND PROCESSING
GAS GATHERING Anadarko owns and operates five 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; the Dew Gathering
System in East Texas; and, the CJV Gathering System in the Carthage field of
East Texas.
The Company's major gathering systems have more than 2,500 miles of
pipeline connecting about 2,900 wells and averaged more than 600 MMcf/d of gas
throughput in 2000. In addition, Anadarko operates numerous other smaller gas
gathering systems.
GAS PROCESSING Anadarko processes gas and has interests in one operated plant
and three non-operated plants in the Rocky Mountain area. Additionally, 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 four plants in the
Rocky Mountain area, 14 plants in the mid-continent area and 10 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.
MINERALS The Company's minerals operations were acquired in the RME merger
transaction. The minerals operations contributes to the Company's operating
income by exploiting the minerals portion of the Company's extensive fee mineral
interest in the Land Grant through non-operated joint venture and royalty
arrangements in coal, trona and industrial mineral mines. In general, the
Company reinvests the cash flow from its hard minerals operations into its oil
and gas operations.
The Company's low sulfur coal deposits, which are located primarily in
southern Wyoming, compete with other western coal for industrial and utility
boiler markets which burn the coal to produce steam used to generate
electricity. Most of the Company's mines use the surface mining method of
extraction. The Company's coal mines are served by a single rail line and incur
greater transportation costs than some of its competitors in the western United
States. Additionally, competing western coal companies in the Powder River basin
in Wyoming have lower mining ratios than the Company's mines. Because of the
higher extraction and transportation costs compared to Powder River basin coal,
additional development of the Company's reserves is dependent on increased coal
usage in local markets. In addition to fee mineral ownership of and royalty
interests in coal reserves, the Company owns a 50% non-operating interest in
Black Butte Coal Company. Black Butte Coal Company produces approximately three
million tons of coal per year.
The world's largest deposit of trona, constituting 90% of the world's known
trona resources, is located in the Green River basin in southwestern Wyoming.
All of the reserves that can be mined in this trona deposit lie within the Land
Grant and adjoining lands. The Company owns lands containing approximately 50%
of these reserves and has leased a portion of those lands to companies that mine
and refine trona. Natural soda ash, which is produced by refining trona ore, is
used primarily in the production of glass for containers and flat glass, in the
paper and water treatment industries and in the manufacture of certain chemicals
and detergents. Natural soda ash from Wyoming contributes 31% of the world's
soda ash supply with the remainder principally from synthetic processes. In
addition to fee mineral ownership of and royalty interest in trona reserves, the
Company owns a 49% non-operating interest in the OCI Wyoming LP soda ash
refining facility near Green River, Wyoming. This facility is ranked second in
soda ash capacity among domestic producers at over three million tons per year.
9
11
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 1,373,000 gross (467,000 net) undeveloped lease acres and 18,000
gross (4,000 net) developed lease acres in Alaska at year-end 2000.
NORTH SLOPE In November 2000, production began from the Alpine field on
Alaska's North Slope. Current gross volumes from the Alpine facility are more
than 70,000 BOPD. To date, 30 wells -- 16 production and 14 injection -- have
been completed. The entire Alpine development program calls for two drill sites
and more than 112 horizontal wells.
The Alpine field, which represents the nation's largest onshore discovery
in more than a decade, serves as a strong example of commitment to minimizing
the environmental impact of exploration and production operations in sensitive
areas. Specifically, the 40,000-acre field was developed on just 94 acres,
roughly one-fourth of one percent of the field. In addition, Alpine is a zero
discharge facility; the waste generated is reused, recycled or disposed of
properly. There is no permanent road to the field and ice roads that leave no
trace on the tundra are utilized during the winter. Equipment, supplies and
personnel are also transported by small aircraft. Anadarko has a 22% working
interest in Alpine.
In early 2001, Anadarko joined with partners in a natural gas exploration
venture on more than three million acres in the foothills region on Alaska's
North Slope. The joint exploration effort includes several seismic surveys for
2001. Anadarko is the operator with a 33% working interest. The Company plans to
begin drilling in the winter of 2002.
COOK INLET In 1999, Anadarko completed a long-term test to confirm the
potential commerciality of its discovery at the Lone Creek No. 1 well on the
Moquawkie prospect. In 2001, the Company plans to begin construction on a
pipeline in the Cook Inlet that will allow gas production from the Moquawkie
prospect to be sold into the Anchorage market. Anadarko holds approximately
56,000 gross lease acres in the Moquawkie area and holds a 50% working interest
in the discovery.
OFFSHORE
OVERVIEW At year-end 2000, about 9% of the Company's proved reserves were
located offshore in the Gulf of Mexico. Net production volumes in 2000 from
these properties averaged 157 MMcf/d of gas and 7,100 barrels of oil, condensate
and NGLs per day. At year-end 2000, Anadarko owned an average 58% working
interest in 330 leasehold blocks representing 463,000 gross (201,000 net) acres
in developed properties and 1,215,000 gross (787,000 net) acres in undeveloped
properties in the Gulf of Mexico. Throughout the Gulf of Mexico, Anadarko has
budgeted about $410 million, which includes drilling 46 wells in 2001.
SUB-SALT During December 2000, initial production began from the Hickory (Grand
Isle 110/111/116) and Tanzanite (Eugene Island 346) sub-salt fields discovered
in 1998 off the coast of Louisiana. Each field currently has one producing well.
The Eugene Island 346 A-1 well is averaging more than 10,000 BOPD and 23 MMcf/d
of natural gas. The second of two wells is in the process of being completed.
Volumes from the Grand Isle 116 No. 1 (Hickory A-1) well in early 2001 were
62 MMcf/d of gas and 4,100 barrels of condensate per day. In early 2001, three
additional Hickory wells will be completed and tied in. Upon completion of the
project, the Hickory field is expected to produce 200 MMcf/d of gas. Anadarko
recently completed drilling a fifth well in the Hickory field, the Grand Isle
110 No. 2 well, which encountered 87 feet of pay after being drilled to a total
depth of 21,269 feet. Anadarko and its partners are evaluating a plan to drill a
directional well from the platform and put this well on production as soon as
the other four wells are on line. Together, Hickory and Tanzanite are expected
to add an estimated 10 MMBOE to the Company's production in 2001. Anadarko owns
a 100% working interest in the Tanzanite field and holds a 50% working interest
in the Hickory field.
Anadarko holds a total of 150 lease blocks in its sub-salt program, with 23
prospects identified. Seven exploratory wells and one development well are
planned in the sub-salt for 2001. To date, seven of Anadarko's
10
12
OFFSHORE MAP (GRAPHIC MATERIAL OMITTED)
NET NET NET
DEVELOPED UNDEVELOPED PRODUCING
ACRES ACRES WELLS
--------- ----------- ---------
OFFSHORE
United States
California................................................ 3,731 -- --
Florida................................................... -- 39,827 --
Louisiana*................................................ 163,155 493,219 167
Mississippi............................................... -- 35,314 --
Texas..................................................... 38,299 218,171 44
* Drilling activities were conducted in this area in 2000.
11
13
13 sub-salt projects have resulted in discoveries. Four of these are commercial
and already on production. The first sub-salt prospects Anadarko plans to drill
in 2001 are:
Tarantula -- A well is drilling in the first quarter in 680 feet of water
on South Timbalier Block 308 as a continuation of the Company's sub-salt,
flex-trend play on the Outer Continental Shelf. Anadarko holds a 100%
working interest.
Taurus -- A sub-salt well in 580 feet of water is planned for the second
quarter at Green Canyon Block 134. Anadarko holds a 100% working interest.
Mahogany -- Already drilling is a deeper test of the existing Mahogany
field (18,100 feet), located in 360 feet of water on Ship Shoal 349/359.
Anadarko is the operator with a 37.5% working interest.
CONVENTIONAL Activity in the shallow waters on the Outer Continental Shelf
included initial production from the Ship Shoal 207 A-35 well offshore
Louisiana. The well tested 10 MMcf/d of gas from two intervals after being
drilled to a total depth of 12,880 feet. The Company has a 54% working interest
in the well and is the operator.
Offshore Louisiana, Anadarko continues to develop the South Marsh Island
Block 280 field. In 2000, the G-2 well, which is located in about 40 feet of
water, was completed and is currently producing 22 MMcf/d of gas. Anadarko is
the operator of the well and holds a 50% working interest.
Shallow water projects will continue to be an integral part of Anadarko's
Gulf of Mexico program. The Company is planning to drill 20 development and 10
exploratory wells in and around older existing fields in 2001.
DEEPWATER In 2000, Anadarko had two successful deepwater wells, one at Marco
Polo and the other at Gomez. The Company plans to continue its deepwater program
in 2001 with the drilling of eight deepwater exploration wells. In 2000,
Anadarko continued to evaluate its development strategy for the Marco Polo
prospect on Green Canyon Block 608. A total of four wells have been drilled,
three of which are sidetracks to the original well. To date, three wells have
encountered significant pay sands ranging in thickness between 90 and 360 feet.
The Green Canyon Block 608 No. 2 well, which targeted additional pay intervals
in a separate fault block, was a dry hole. Detailed engineering and cost
estimates are under way to help determine commerciality, and further drilling is
being considered.
A fifth appraisal well, spudded during the third quarter on the Gomez
prospect on Mississippi Canyon 711, was completed during the fourth quarter. Pay
sands from the wells drilled to date range from 100 to 200 feet thick.
Additional drilling in the area is planned in 2001 to help determine
commerciality.
Anadarko holds a total of 58 lease blocks in its deepwater program and has
identified 32 prospects. Among the deepwater prospects Anadarko plans to drill
this year are:
LaSalle -- A well was spudded in 2001 in 3,300 feet of water as the first
of a multi-block prospect in East Breaks. Anadarko is the operator and
holds a 33.3% working interest.
Eiger Sanction -- Located in 3,000 feet of water, a high-potential
exploration well is planned for mid-2001 in Mississippi Canyon Block 667,
near Anadarko's Gomez discovery. Anadarko holds a 100% working interest.
PROPERTIES AND ACTIVITIES -- CANADA
The Company's Canadian operations were acquired in the RME merger
transaction. Operations are centered in the province of Alberta, with additional
properties in northeastern British Columbia and southwestern Saskatchewan. The
Company has significant heavy crude oil assets in the Moose Hill, Lindbergh and
Hayter areas, which are located in eastern Alberta and western Saskatchewan. The
Company has proved reserves in Canada of 220 MMBOE, which includes 847 Bcf of
gas and 79 MMBbls of crude oil, condensate and NGLs. At year-end 2000, net
production from the Company's properties in Canada was about 273 MMcf/d of gas
and 27 MBbls/d of crude oil, condensate and NGLs, or 14% of the Company's total
production volumes. Anadarko has 6,007,000 gross (1,984,000 net) undeveloped
lease acres and 1,646,000 gross (962,000 net) developed lease acres in Canada.
The accompanying map illustrates the Company's developed and undeveloped
acreage, number of productive wells and other data relevant to its properties in
Canada.
12
14
CANADA MAP (GRAPHIC MATERIAL OMITTED)
NET NET NET
DEVELOPED UNDEVELOPED PRODUCING
ACRES ACRES WELLS
--------- ----------- ---------
CANADA:
Mackenzie Delta -- 459,742 --
Scotian Shelf -- 231,975 --
Western Canada
Alberta
Heavy Oil* 102,740 134,124 955
Taber* 60,844 54,842 326
Two Hills* 272,845 263,535 312
Western Alberta* 190,692 423,609 471
British Columbia
Northeast British Columbia* 70,396 354,900 92
Southern British Columbia* 874 11,082 2
Saskatchewan
Shallow Gas* 263,753 50,465 1,669
OFFICE LOCATIONS:
Canada
Calgary, Alberta
Elk Point, Alberta
Fort St. John, British Columbia
Medicine Hat, Alberta
Peace River, Alberta
* Drilling activities were conducted in these areas in 2000.
13
15
Expanding its frontier exploration exposure in 2000, Anadarko acquired
acreage in the Mackenzie Delta/Beaufort Sea in the Northwest Territories and
offshore Nova Scotia in deepwater. In the Mackenzie Delta, the Company acquired
a 37.5% working interest in two exploration licenses covering 530,000 acres.
Anadarko and its partners began a 2-D seismic survey of as much as 620 miles in
early 2001, with drillable prospects expected by early 2002.
In August 2000, Anadarko also submitted a successful sole bid for an
exploration license on a 176,000-acre tract in the Mackenzie Delta/Beaufort Sea,
adjacent to the giant Taglu gas field. The Company now holds about 460,000 net
acres in the Mackenzie Delta/Beaufort Sea region.
Offshore Nova Scotia, Anadarko and its partner were successful bidders on a
460,000 acre deepwater parcel located 65 miles east of Sable Island. A work
program is being developed for this acreage and a 3-D seismic survey is expected
to begin in 2002. Anadarko holds a 50% working interest in the Nova Scotia
parcel.
Northeast British Columbia was an area of focus for the Company's
exploration activity during 2000, where the Company is stepping up its
exploratory and delineation drilling program in this area in 2001. In the Jean
Marie play, two productive wells have been drilled in 2001 and 16 additional
wells are planned during the 2001 winter drilling season. Anadarko is using
horizontal drilling technology in this regional gas-productive limestone
reservoir to improve well productivity. First production from this project is
expected by the second half of 2001. The Company has increased its holdings in
the Jean Marie play, adding 90,000 additional net acres in the second half of
2000 and 80,000 net acres in February 2001. Drilling also is continuing in 2001
in the Conroy and Kobes prospects in the deep Western Canadian Sedimentary
Basin. Of the 14 rigs drilling in Canada in the 2001 winter season, nine were
drilling in Northeast British Columbia, mainly focused on high potential
Devonian objectives.
Two development projects also made progress in 2000 -- the Hatton shallow
gas play in Southwest Saskatchewan and the Hayter and Kehewin/Moose Hills heavy
oil projects in Eastern Alberta. The Company drilled 254 wells in the Hatton
field during 2000, adding 17 MMcf/d of net gas production. As part of a two-rig
program of drilling for heavy oil, the Company completed 146 shallow wells
during 2000 and added 7,200 BOPD of production. The Company has identified
nearly 1,000 potential locations in these areas and expects to drill about 100
wells this year. Additional 3-D seismic also is under way to delineate up to
80,000 net undeveloped acres where heavy oil discoveries have already been
drilled using 2-D seismic data.
In February 2001, Anadarko announced it had entered into an agreement to
acquire Canadian-based Berkley Petroleum Corporation for C$11.40 per share in
cash for an equity value of about U.S.$777 million plus the assumption of debt
estimated at U.S.$250 million. The transaction is expected to close in mid-March
2001.
PROPERTIES AND ACTIVITIES -- ALGERIA
Anadarko is actively developing liquid hydrocarbons discovered by the
Company in Algeria's Sahara Desert. Since 1989, Anadarko has drilled 61
productive wells (12 exploration and 49 delineation/development) and has
submitted detailed development plans (called Commerciality Reports) for 12
fields in Algeria. The Company has proved reserves in Algeria of 364 MMBbls of
crude oil as of year-end 2000. Anadarko plans to invest about $200 million in
Algeria in 2001. At the end of 2000, the Company had 3.9 million gross (0.9
million net) acres in Algeria.
In 2000, Anadarko completed nine development wells, all of which were
productive. In addition, five injection wells were successfully completed, which
will ultimately improve oil recovery. 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
14
16
ALGERIA ALGERIA MAP (GRAPHIC MATERIAL OMITTED)
Undeveloped Acreage -- 3.7 million acres (0.9 million acres net)
Developed Acreage (HBNS, HBN & Ourhoud fields) -- 160,000 acres (27,000
acres net)
Productive Wells -- 61 (17 net)
Fields discovered to date shown graphically
HBN field
HBNS field*
HBNSE field
RBK field
QBN field
BKNE field
BKE field
Ourhoud field*
EKT field
EMN field
EMK field
EME field
Blocks shown graphically
404*
208
211
*Drilling activities were conducted in these areas in 2000.
15
17
production costs. In addition, Anadarko and its partners are entitled to recover
a portion of exploration costs out of production in the exploitation phase.
During 2000, Anadarko Algeria and SONATRACH formed an Algeria non-profit
company, Groupement Berkine, to carry out their joint operating activities under
the PSA. SONATRACH is the beneficial owner of approximately 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 68,500 BOPD (gross) in 2000 compared to 50,100 BOPD (gross)
in 1999. Production volumes in 1999 were limited as a result of Organization of
Petroleum Exporting Countries quotas and an equipment failure at the Central
Production Facility (CPF) in July 1999.
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 the third quarter of 2001, the capacity of the HBNS field will
increase to 150,000 BOPD, however, production is limited to 135,000 BOPD by the
license to produce. 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 of water 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) will be operating
at the CPF, giving the facility total crude oil production capacity of 225,000
BOPD (gross).
During the third quarter of 2000, the Company and its partners exercised
the second fixed price option under the September 1999 EPC contract with BRC for
development of 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. The contract includes construction of a third production train
under Anadarko's Stage II development program that will increase gross plant
capacity by an additional 75,000 BOPD in the second half of 2002.
Also during the third quarter of 2000, Anadarko and partners awarded the
EPC contract to build a CPF to develop the Ourhoud (ORD) field. The new
facilities, which are being built by a joint venture group composed of JGC
Corporation of Japan and Initec of Spain, will have a capacity of 230,000 BOPD
(gross) when completed. Production from the first train is expected in late
2002. The EPC contract calls for the construction of three oil production
trains, along with water injection and gas processing and injection facilities,
a field gathering system and crude oil storage and shipping installations.
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 partnership
16
18
with SONATRACH. To date, a total of 15 productive development wells have been
drilled in the ORD field and development drilling will continue in 2001.
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.
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 2001 and beyond. However, the
situation has not had any material effect to date on the Company's operations.
See Additional Factors Affecting Business -- Foreign Operations Risk under Item
7 of this Form 10-K.
PROPERTIES AND ACTIVITIES -- OTHER INTERNATIONAL
OVERVIEW The Company's other international oil and gas production and
development operations are concentrated in Latin America, primarily in Venezuela
and Guatemala. The Company currently has exploration projects in Brazil,
Tunisia, West Africa, the North Atlantic Margin, off the coast of the former
Soviet Republic of Georgia in the Black Sea, Australia and other selected areas.
The Company also maintains less significant international oil and gas operation
activities, including interests in five fields in Argentina of which four are
currently producing, two non-operated offshore producing properties in
Australia, an exploration and exploitation interest in Brazil and a producing
interest in a non-operated property in Egypt.
The Company has total proved reserves in other international locations of
27 Bcf of gas and 145 MMBbls of crude oil, condensate and NGLs. At year-end,
2000, net production from the Company's other international properties was 5
MMcf/d of gas and 38 MBbls/d of crude oil, condensate and NGLs, or 8% of the
Company's total production volumes. Anadarko has 26,439,000 gross (11,346,000
net) undeveloped lease acres and 688,000 gross (219,000 net) developed lease
acres in these international areas. See Additional Factors Affecting
Business -- Foreign Operations Risk under Item 7 of this Form 10-K.
VENEZUELA The Company's Venezuelan operation, which was acquired in the RME
merger, primarily consists of the Oritupano-Leona concession. The
Oritupano-Leona block, in which the Company has a 45% working interest, covers
395,000 acres and has approximately 246 producing wells. Most of the activity in
the block has been based upon a 3-D seismic program conducted in prior years.
For the second half of 2000, net production volumes averaged about 20,000 BOPD.
During 2000, Anadarko drilled and completed 12 wells in the Oritupano-Leona
block. The Company plans to drill 23 development wells and has 87 reactivations
and recompletions scheduled in 2001. Effective November 1, 2000, Anadarko sold
its 50% interest in the Guarico Occidental block.
GUATEMALA The Company's Guatemala operations are conducted by Basic Resources
International, a company acquired in the RME merger transaction. The majority of
activity for the Guatemala operations is currently in the Xan area, producing
heavy to medium quality crude oil. Net production from the Xan field averaged
about 17,500 BOPD in the last half of 2000. The Company owns a 100% interest in
several exploration blocks. The Company owns, controls and operates
infrastructure in Guatemala, which includes gathering and processing facilities
at each producing field, an asphalt refinery, a pipeline with pump stations and
a shipping terminal on the Caribbean coast. The combination of these assets
provides the Company with an integrated network of facilities from producing
fields to the port.
BRAZIL In 2000, Anadarko acquired acreage in the BT Seal 101 block in Brazil.
Anadarko is the operator with a 90% interest. In 2001, the Company plans to
drill one well to test the deeper Serreria formation on the SES 107 block.
TUNISIA The Company has a 44% interest in and is the operator of the 1.4
million acre Anaguid block in the Ghadames basin of Tunisia, which will revert
to a 22% interest if ETAP (Tunisia's national oil company) exercises its option
to back into the project. The acreage is on trend with its discoveries in
Algeria to the west and it holds the potential for the discovery of
Triassic-aged oil fields. In 2001, the Company plans to drill its second
exploratory well on the Anaguid block.
17
19
Just south of the Anaguid block, Anadarko has a 50% interest in the Jenein
Nord block prior to back-in by ETAP. During 2000, Anadarko drilled an
unsuccessful exploration well on the Jenein Nord block. Future exploration of
the block is under evaluation.
In 2000, Anadarko agreed to participate in exploring the Sanrhar
concession, which borders the Anaguid block on the west. The Company plans to
obtain seismic data in early 2001 and an exploratory well is planned for the
second half of the year.
WEST AFRICA In 2000, Anadarko entered into a farmout agreement for three
exploration blocks off the coast of West Africa. Anadarko will serve as the
operator and holds a 50% interest in the Agali block offshore Gabon. Anadarko
will also operate the Marine IX block offshore the Republic of Congo with a
41.7% interest. In Ghana, Anadarko holds a 50% interest in the Keta block where
an unsuccessful exploratory well was recently drilled.
NORTH ATLANTIC MARGIN During 1999 and 2000, Anadarko participated in the
drilling of a total of two exploratory wells on Tranche 61 northwest of the
Shetland Islands in the North Atlantic Ocean. The results of these wells are
being held confidential by the operator. The Company has a 7.5% interest in
Tranche 61, which covers 193,000 gross acres. Anadarko also has a 50% interest
in nearby Tranche 63 (286,000 gross acres) and a 20% interest in Tranche 21
(320,000 gross acres) west of Scotland.
Anadarko acquired two blocks in the Faroe Islands during a licensing round
in mid-2000. Anadarko has a 100% interest in license No. 007 and a 27.5%
interest in adjacent license No. 006. The Company plans to conduct seismic
acquisitions in 2001.
THE FORMER SOVIET REPUBLIC OF GEORGIA During 2000, Anadarko entered into a
Production Sharing Contract with the State of Georgia. The agreement gives
Anadarko exploration rights to three blocks covering approximately two million
acres on the Black Sea continental shelf and extending 50 miles offshore.
Anadarko completed the acquisition of about 2,300 kilometers of seismic data in
2000 and the data is being processed. Besides the seismic acquisition program,
Anadarko expects to conduct regional geologic studies and gravity and magnetics
evaluations, along with sea bed sampling.
DRILLING PROGRAMS
The Company's 2000 drilling program focused on known oil and gas provinces
onshore and offshore United States, Canada and Algeria. U.S. onshore drilling
activity was primarily concentrated in Texas. Exploration activity consisted of
56 wells, including 19 wells onshore in the U.S., 15 wells offshore in the Gulf
of Mexico, 20 wells in Canada and two wells at other international locations.
Development activity consisted of 653 wells, which included 470 wells onshore in
the U.S., 10 wells offshore in the Gulf of Mexico, 151 wells in Canada, nine
wells in Algeria and 13 wells at other international locations.
18
20
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
---------- --------- ----- ---------- --------- ----- -----
2000
United States 12.9 9.0 21.9 390.8 10.4 401.2 423.1
Canada 8.9 8.0 16.9 98.1 14.4 112.5 129.4
Algeria -- -- -- 1.7 -- 1.7 1.7
Other International -- 0.6 0.6 5.7 -- 5.7 6.3
----- ----- ----- ----- ----- ----- -----
Total 21.8 17.6 39.4 496.3 24.8 521.1 560.5
----- ----- ----- ----- ----- ----- -----
1999
United States 8.4 3.5 11.9 125.6 15.7 141.3 153.2
Algeria -- -- -- 1.9 -- 1.9 1.9
Other International -- 1.4 1.4 -- -- -- 1.4
----- ----- ----- ----- ----- ----- -----
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
Other International -- 0.5 0.5 -- -- -- 0.5
----- ----- ----- ----- ----- ----- -----
Total 12.2 14.7 26.9 247.1 30.9 278.0 304.9
----- ----- ----- ----- ----- ----- -----
19
21
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, 2000:
WELLS IN THE PROCESS
OF DRILLING OR WELLS SUSPENDED OR
IN ACTIVE COMPLETION WAITING ON COMPLETION
------------------------- -------------------------
EXPLORATION DEVELOPMENT EXPLORATION DEVELOPMENT
----------- ----------- ----------- -----------
UNITED STATES
Gross 2 64 1 78
Net 1.9 57.0 1.0 76.2
CANADA
Gross 7 6 1 7
Net 6.3 6.0 1.0 7.0
ALGERIA
Gross -- 1 -- --
Net -- 0.3 -- --
OTHER INTERNATIONAL
Gross 2 1 -- --
Net 1.5 0.5 -- --
TOTAL
Gross 11 72 2 85
Net 9.7 63.8 2.0 83.2
PRODUCTIVE WELLS
As of December 31, 2000, the Company owned productive wells as follows:
OIL WELLS* GAS WELLS*
---------- ----------
UNITED STATES
Gross 7,017 10,069
Net 4,295 6,409
CANADA
Gross 2,153 3,124
Net 1,532 2,294
ALGERIA
Gross 61 --
Net 17 --
OTHER INTERNATIONAL
Gross 338 18
Net 167 5
TOTAL
Gross 9,569 13,211
Net 6,011 8,708
- ---------------
* Includes wells containing multiple completions
Gross 88 276
Net 67 216
SEGMENT AND GEOGRAPHIC INFORMATION
Information on operations by segment and geographic location is contained
in Note 12 of the Notes to Consolidated Financial Statements under Item 8 of
this Form 10-K.
20
22
EMPLOYEES
As of December 31, 2000, the Company had about 3,500 employees. 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.
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, 2000, 1999 and 1998 were 7.35, 1.77 and 0.05, respectively. The Company's
ratios of earnings to combined fixed charges and preferred stock dividends for
the years ended December 31, 2000, 1999 and 1998 were 6.80, 1.53 and 0.05,
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
GENERAL The Company is a defendant in a number of lawsuits and is involved in
governmental proceedings arising in the ordinary course of business, including,
but not limited to, royalty claims, contract claims and environmental claims.
The Company has also been named as a defendant in various personal injury
claims, including numerous claims by employees of third-party contractors
alleging exposure to asbestos and benzene
21
23
while working at a refinery in Corpus Christi, which the Company sold in
segments in 1987 and 1989. While the ultimate outcome and impact on the Company
cannot be predicted with certainty, management believes that the resolution of
these proceedings will not have a material adverse effect on the consolidated
financial position of the Company, although results of operations and cash flow
could be significantly impacted in the reporting periods in which such matters
are resolved. Discussed below are several specific proceedings.
MINERAL RESERVATION LITIGATION In August 1994, the surface owners (McCormick,
et al.) of portions of five sections of Colorado land that are subject to
mineral reservations made by the Company's predecessor in title brought suit
against the Company in State District Court, Weld County, Colorado, to quiet
title to minerals, including oil (in some of the lands) and natural gas. On June
23, 1997, the State District Court granted the Company's Motion for Summary
Judgment, holding as a matter of law that the mineral reservations at issue were
unambiguous and included all valuable non-surface substances, including oil and
gas. The Colorado Court of Appeals affirmed the decision of the State District
Court in granting the Company's Motion for Summary Judgment on December 10, 1998
and then denied the surface owners' Motion for Rehearing. The surface owners
then filed a Petition for Writ with the Colorado Supreme Court, which was
granted in September 1999. The Colorado Supreme Court has affirmed the lower
court's decisions in favor of the Company bringing this matter to a successful
conclusion.
ROYALTY LITIGATION During September of 2000, the Company was named as a
defendant in a case styled U.S. of America ex rel. Harold E. Wright v. AGIP
Company, et al. (the "Gas Qui Tam case") filed in the U.S. District Court for
the Eastern District of Texas, Lufkin Division. This lawsuit generally alleges
that the Company and 118 other defendants improperly measured and otherwise
undervalued natural gas in connection with a payment of royalties on production
from federal and Indian lands. The case has been transferred to the U.S.
District Court, Multi-District Litigation Docket pending in Wyoming. Based on
the Company's present understanding of the various governmental and False Claims
Act proceedings described above, the Company believes that it has substantial
defenses to these claims and intends to vigorously assert such defenses.
However, if the Company is found to have violated the Civil False Claims Act,
the Company could be subject to a variety of sanctions, including treble damages
and substantial monetary fines.
A group of royalty owners purporting to represent RME's gas royalty owners
in Texas (Neinast, et al.) was granted class action certification in December
1999, by the 21st Judicial District Court of Washington County, Texas, in
connection with a gas royalty underpayment case against the Company. This
certification did not constitute a review by the Court of the merits of the
claims being asserted. The royalty owners' pleadings did not specify the damages
being claimed, although most recently a demand for damages in the amount of $100
million has been asserted. The Company is of the opinion that the amount of
damages at risk is substantially less than the amount demanded by the class
action counsel and the Company intends to vigorously assert its defenses. The
Company is currently appealing the class certification order. A decision on the
class certification is expected during the second quarter of 2001.
A group of royalty owners in the State of Oklahoma surrounding the Beaver
County Gathering System allege five separate claims against the defendants
including RME. This matter styled Galen Bridenstine v. Kaiser Francis Oil
Company, et al. (including RME) has been certified as a class action. The
plaintiffs contend that gathering, compression and dehydration fees deducted by
the defendants from royalty payments were in violation of the Oklahoma Check
Stub Statute and were improper. This matter has now been settled.
A class action lawsuit entitled Gilbert H. Coulter, et al. v. Anadarko
Petroleum Corporation has been certified in the 26th Judicial District Court,
Stevens County, Kansas. In this action, the royalty owners contend that royalty
was underpaid as a result of the deduction for certain post-production costs in
the calculation of royalty. The Company believes that its method of calculating
royalty was proper and that its gas was marketable in the condition produced,
and thus plaintiffs' claims are without merit. This case was certified as a
class action in August 2000. This matter is now set for trial on October 29,
2001.
WYOMING TAX LITIGATION RME has filed suit in the First District Court, Laramie,
Wyoming against the State of Wyoming, et al. alleging that the revaluation by
the Department of Revenue of crude oil production sales for the years 1989
through 1995 is inappropriate. The Department of Revenue has valued the crude
oil sales based upon the Cushing, Oklahoma price as opposed to the actual sales
price collected from RME. The Department seeks to void the initial sales
transaction as an unlawful affiliate sale that does not reflect true
22
24
market price. RME seeks a declaratory judgment in court that the sale made to
RME is a true sale reflective of market value at the wellhead and thus the
initial amounts paid to the Department of Revenue were correct. The amount in
controversy in this matter is approximately $8 million. The Company is currently
unable to predict the final outcome of this matter.
CITGO LITIGATION CITGO Petroleum Corporation's claims arise out of an Asset
Purchase and Contribution Agreement dated March 17, 1987 whereby RME's
predecessor sold a refinery located in Corpus Christi to CITGO's predecessor.
After the sale of the refinery, numerous individuals living near the refinery
sued CITGO (the "Neighborhood Litigation") thereby implicating the Asset
Purchase and Contribution Agreement indemnity provision. CITGO and RME
eventually entered into a settlement agreement ("the 1995 Settlement Agreement")
to allocate, on an interim basis, each parties' liability for defense and
liability cost in that and related litigation. That agreement provides that once
the Neighborhood Litigation and certain related claims are resolved, then the
parties will determine their final indemnity obligations to each other through
binding arbitration. At the present time, RME and CITGO have agreed to defer
arbitrating the allocation of responsibility for this liability in order to work
out a joint defense agreement in the major lawsuits. Arbitration will resume
upon request of either CITGO or Anadarko. In conjunction with this matter, RME
is suing Continental Insurance for denial of coverage for claims related to this
dispute. Negotiations and discussions with CITGO and legal actions against
Continental Insurance continue.
KANSAS AD VALOREM TAX
General 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 PanEnergy 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.
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 $35 million (pretax) as
of December 31, 2000. The Company also seeks from PanEnergy the return of the $1
million (pretax) charged against income in 1993 and 1994. In October 2000, the
U.S. Magistrate issued recommendations concerning motions for summary judgment
previously filed by both parties. In essence, the Magistrate's recommendation
finds that the Company should be responsible for refunds attributable to the
time period following August 1, 1985 while Duke Energy (as the successor company
to Anadarko Production Company) should be responsible for refunds attributable
to the time period before August 1, 1985. Remaining in dispute is approximately
$7 million to $8 million in refunds attributable to Pan Eastern Exploration
Company for the pre-August 1, 1985 time frame. The dispute over Pan Eastern's
refunds is currently set for trial on March 26, 2001 in the U.S. District Court
in Houston, Texas.
Anadarko's net income for 1997 included a $2 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 currently unable
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.
23
25
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 2000.
EXECUTIVE OFFICERS OF THE REGISTRANT
AGE AT END
NAME OF 2001 POSITION
---- ---------- --------
Robert J. Allison, Jr. 62 Chairman of the Board and Chief Executive Officer
George Lindahl III 55 Vice Chairman
John N. Seitz 50 President and Chief Operating Officer
Charles G. Manley 57 Executive Vice President, Administration
Michael E. Rose 54 Executive Vice President, Finance and Chief Financial
Officer
Rex Alman III 50 Vice President, Domestic Operations
Michael D. Cochran 59 Vice President, Exploration
James J. Emme 45 Vice President, Canada
Morris L. Helbach 56 Vice President, Information Technology Services and Chief
Information Officer
James R. Larson 51 Vice President and Controller
Richard A. Lewis 57 Vice President, Human Resources
J. Stephen Martin 45 Vice President and General Counsel
J. Anthony Meyer 43 Vice President, Algeria
Mark L. Pease 45 Vice President, Engineering and Technology
Gregory M. Pensabene 51 Vice President, Government Relations and Public Affairs
Albert L. Richey 52 Vice President and Treasurer
Richard J. Sharples 54 Vice President, Marketing and Planning
Bruce H. Stover 52 Vice President, Worldwide Business Development
William D. Sullivan 45 Vice President, Operations -- International, Gulf of
Mexico and Alaska
A. Paul Taylor, Jr. 52 Vice President, Investor Relations
Donald R. Willis 51 Vice President, Corporate Services
Mr. Allison was named Chairman of the Board and Chief Executive Officer
effective October 1986. He has worked for the Company since 1973.
Mr. Lindahl joined Anadarko in 2000 as Vice Chairman and a member of the
Company's Board of Directors. Prior to joining Anadarko, he was Chairman, Chief
Executive Officer and President at Union Pacific Resources Group Inc.
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 Executive Vice President, Administration in 2000. He
was named Senior Vice President, Administration in 1993. He has worked for the
Company since 1974.
Mr. Rose was named Executive Vice President, Finance and Chief Financial
Officer in 2000. He 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 named 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. Emme was named Vice President, Canada in 2000. He has worked for the
Company since 1981.
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.
24
26
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. Meyer was named Vice President, Algeria in 2001. Prior to this
position, he served as President and General Manager, Anadarko Algeria Company
LLC since 1998. He has worked for the Company since 1981.
Mr. Pease was named Vice President, Engineering and Technology in 2001.
Prior to this position, he served as Vice President, Algeria since 1998 and as
President and General Manager, Anadarko Algeria Company LLC 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, Operations -- International, Gulf of
Mexico and Alaska in 2000. Prior to this position, he served as Vice President,
International Operations. He has worked for the Company since 1981.
Mr. Taylor was named Vice President, 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 Administration. 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.
25
27
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 Anadarko
Petroleum Corporation 2000 Annual Report to Stockholders (Annual Report), which
is incorporated herein by reference.
As of December 31, 2000, there were approximately 22,000 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, 2000.
FIRST SECOND THIRD FOURTH
QUARTER QUARTER QUARTER QUARTER
millions ------- ------- ------- -------
2000 $6 $6 $13 $13
1999 $6 $6 $ 6 $ 7
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 9 of the
Notes to Consolidated Financial Statements under Item 8 of this Form 10-K.
ITEM 6. SELECTED FINANCIAL DATA
See Summary Financial Data on page 1 of the Annual Report, which is
incorporated herein by reference.
26
28
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
FINANCIAL RESULTS
MERGER TRANSACTION On July 14, 2000, Anadarko merged with Union Pacific
Resources Group Inc., subsequently renamed RME Holding Company (RME). The merger
was treated as a tax-free reorganization and accounted for as a purchase
business combination. Under this method of accounting, the Company's historical
operating results for periods prior to the merger are the same as Anadarko's
historical operating results.
SELECTED FINANCIAL DATA
2000 1999 1998
millions except per share amounts ------ ------ ------
Revenues $5,686 $1,771 $1,307
Costs and expenses 4,267 1,596 1,315
Merger expenses 67 -- --
Interest expense 93 74 58
Other (income) expense (167) (4) (1)
Net income (loss) available to common stockholders before
cumulative effect of change in accounting principle $ 813 $ 32 $ (49)
Net income (loss) available to common stockholders $ 796 $ 32 $ (49)
Earnings (loss) per share -- before cumulative effect of
change in accounting principle -- basic $ 4.42 $ 0.25 $(0.41)
Earnings (loss) per share -- before cumulative effect of
change in accounting principle -- diluted $ 4.25 $ 0.25 $(0.41)
Earnings (loss) per share -- basic $ 4.32 $ 0.25 $(0.41)
Earnings (loss) per share -- diluted $ 4.16 $ 0.25 $(0.41)
NET INCOME For 2000, Anadarko reported net income available to common
stockholders of $796 million, or $4.16 per share (diluted). Net income available
to common stockholders before the cumulative effect of a change in accounting
principle was $813 million or $4.25 per share (diluted), compared to a 1999 net
income of $32 million, or 25 cents per share (diluted). Net income for 2000
includes a charge of $50 million ($32 million after taxes) for impairments
related to various international properties. Excluding the impairments and the
effect of cumulative change in accounting principle, Anadarko's income available
to common stockholders was $845 million or $4.38 per share (diluted). Anadarko's
1999 performance was adversely affected by a non-cash charge of $24 million ($15
million after tax) related to impairments for exploration efforts in various
international locations. Excluding the impairment, Anadarko had net income in
1999 of $47 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 $5 million, or four cents per share (diluted).
REVENUES
2000 1999 1998
millions ------ ------ ------
Gas sales $1,591 $ 353 $ 341
Oil and condensate sales 948 247 130
Natural gas liquids sales 264 88 68
Marketing sales 2,823 1,081 763
Minerals and other 60 2 5
------ ------ ------
Total $5,686 $1,771 $1,307
------ ------ ------
REVENUES Revenues for 2000 were up 221% to $5,686 million compared to 1999
revenues of $1,771 million. The increase in revenues and net income was due to
the RME merger, a significant improvement in
27
29
commodity prices and an increase in Algeria oil production. See Analysis of
Sales Volumes and Prices. Anadarko adopted the provisions of Staff Accounting
Bulletin No. 101, "Revenue Recognition in Financial Statements" and the Emerging
Issues Task Force 00-10, "Accounting for Shipping and Handling Fees and Costs"
for the year ended December 31, 2000. As a result, purchases of gas and oil and
transportation expenses have been reclassified to costs and expenses. Prior year
results have been reclassified to conform to the current presentation.
Anadarko's revenues for 1999 were up 36% compared to 1998 revenues of $1,307
million. The increase in revenues in 1999 from 1998 was due to a significant
improvement in prices for crude oil and natural gas and an increase in Algeria
oil production.
COSTS AND EXPENSES
2000 1999 1998
millions ------ ------ ------
Marketing purchases and transportation $2,824 $1,037 $ 712
Operating expenses 438 179 196
Administrative and general 180 102 95
Depreciation, depletion and amortization 593 218 204
Other taxes 128 36 38
Provision for doubtful accounts 23 -- --
Impairments related to international properties 50 24 70
Amortization of goodwill 31 -- --
------ ------ ------
Total $4,267 $1,596 $1,315
------ ------ ------
COSTS AND EXPENSES During 2000, Anadarko's costs and expenses increased $2.7
billion or 167% compared to 1999. During 2000, costs and expenses were impacted
by the following factors:
(1) Marketing purchases and transportation increased $1.8 billion (172%)
due to an increase in third-party gas and oil purchases.
(2) Operating expenses and other taxes increased $351 million (163%) due
primarily to the 127% increase in production volumes associated with
the RME merger and higher downstream expenses associated with an
increase in natural gas liquids (NGLs) production of 85%.
(3) Administrative and general expenses were up $78 million (76%) due
primarily to an increase in costs associated with the Company's growing
workforce as a result of the RME merger.
(4) Depreciation, depletion and amortization (DD&A) expense rose $375
million (172%) due primarily to a 127% increase in production volumes
as a result of the RME merger and higher production volumes in Algeria
and East Texas.
(5) Provision for doubtful accounts increased $23 million.
(6) Impairments related to international properties increased $26 million.
(7) Amortization of goodwill increased by $31 million.
During 1999 Anadarko's costs and expenses increased $281 million or 21%
compared to 1998. During 1999, costs and expenses were impacted by the following
factors:
(1) Marketing purchases and transportation increased $325 million (46%) due
to an increase in third-party gas and oil purchases.
(2) Operating expenses decreased $17 million (9%) due primarily to cost
savings plans and the application of new technology to field production
operations and a decrease in downstream expenses.
(3) Administrative and general expenses were up $7 million (7%), reflecting
lower capitalization of overhead primarily related to a full year of
production in Algeria.
(4) DD&A expense rose $14 million (7%) due primarily to an increase in the
U.S. DD&A rate related to higher future development costs of reserves
and an increase in production volumes due primarily to Algeria.
(5) Impairments related to international properties decreased $46 million.
28
30
MERGER EXPENSES During 2000, merger costs of $67 million were expensed related
to the RME merger. These expenses relate primarily to the issuance of stock for
retention of employees ($40 million), transition, integration, hiring and
relocation costs ($14 million), deferred compensation ($8 million) and vesting
of restricted stock and stock options ($5 million).
INTEREST EXPENSE
2000 1999 1998
millions ---- ---- ----
Gross interest expense $193 $96 $83
Capitalized interest (100) (22) (25)
---- --- ---
Net interest expense $ 93 $74 $58
---- --- ---
INTEREST EXPENSE Anadarko's gross interest expense has increased over the past
three years due primarily to the RME merger in 2000 as well as higher levels of
borrowings for capital expenditures, including producing property acquisitions.
Gross interest expense in 2000 was up 101% compared to 1999 primarily due to the
RME merger and higher average borrowings in 2000. Gross interest expense in 1999
increased 16% compared to 1998 also primarily due to higher average borrowings
during 1999. See Liquidity and Long-term Debt.
OTHER (INCOME) EXPENSE Other income for 2000 includes $175 million related to
the effect of significantly higher value for firm transportation subject to a
keep-whole agreement. See Derivative Financial Instruments under Item 7A of this
Form 10-K Annual Report (Form 10-K). Other income is offset partly by $7 million
related to foreign exchange losses in 2000.
29
31
ANALYSIS OF SALES VOLUMES AND PRICES
ANNUAL SALES VOLUMES AND AVERAGE PRICES
2000 1999 1998
------ ------ ------
NATURAL GAS
UNITED STATES (BCF) 338 170 177
MMcf/d 922 465 484
Price per Mcf $ 4.11 $ 2.08 $ 1.92
CANADA* (BCF) 46 -- --
MMcf/d 127 -- --
Price per Mcf $ 4.38 -- --
OTHER INTERNATIONAL* (BCF) 1 -- --
MMcf/d 3 -- --
Price per Mcf $ 1.08 -- --
TOTAL (BCF) 385 170 177
MMcf/d 1,052 465 484
Price per Mcf $ 4.13 $ 2.08 $ 1.92
CRUDE OIL AND CONDENSATE
UNITED STATES (MMBBLS) 15 9 10
MBbls/d 40 23 26
Price per barrel $28.72 $15.79 $11.44
CANADA* (MMBBLS) 4 -- --
MBbls/d 12 -- --
Price per barrel $27.38 -- --
ALGERIA** (MMBBLS) 10 6 1
MBbls/d 26 17 4
Price per barrel $28.76 $18.23 $11.99
OTHER INTERNATIONAL* (MMBBLS) 7 -- --
MBbls/d 20 -- --
Price per barrel $18.35 -- --
TOTAL (MMBBLS) 36 15 11
MBbls/d 98 40 30
Price per barrel $26.49 $16.83 $11.51
NATURAL GAS LIQUIDS
TOTAL (MMBBLS) 12 7 7
MBbls/d 33 18 18
Price per barrel $21.70 $13.40 $10.29
BARRELS OF OIL EQUIVALENT (MMBOE)
United States 83 44 46
Canada* 12 -- --
Algeria** 10 6 1
Other International* 7 -- --
Total 112 50 47
- ---------------
Bcf -- billion cubic feet
MMBbls -- million barrels
MBbls/d -- thousand barrels per day
Mcf -- thousand cubic feet
MMcf/d -- million cubic feet per day
MMBOE -- million barrels of oil equivalent
* In July 2000, Anadarko acquired production in Canada and other international
areas as a result of the merger with RME.
** In May 1998, production commenced from the Company's operations in Algeria.
30
32
NATURAL GAS Anadarko's natural gas sales volumes in 2000 were up 126% compared
to 1999 primarily due to the RME merger and increased production in East Texas
and Louisiana. The Company's average wellhead gas price in 2000 was up 99% over
1999. Anadarko's average wellhead gas price in 1999 increased 8% from 1998.
Natural gas markets improved significantly in 2000, with the Company's
average realized price increasing from $2.08 per Mcf in 1999 to $4.13 per Mcf in
2000. The stronger prices were the result of lower nationwide 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 Derivative Financial Instruments
under Item 7A of this Form 10-K.
QUARTERLY NATURAL GAS SALES VOLUMES AND AVERAGE PRICES
2000 1999 1998
----- ----- -----
FIRST QUARTER
Bcf 44 44 44
MMcf/d 486 489 489
Price per Mcf $2.46 $1.59 $2.02
SECOND QUARTER
Bcf 49 42 42
MMcf/d 536 461 463
Price per Mcf $3.20 $1.95 $1.98
THIRD QUARTER
Bcf 138 42 46
MMcf/d 1,498 456 497
Price per Mcf $3.80 $2.40 $1.82
FOURTH QUARTER
Bcf 154 42 45
MMcf/d 1,676 456 487
Price per Mcf $5.18 $2.40 $1.88
CRUDE OIL, CONDENSATE AND NATURAL GAS LIQUIDS Due primarily to the RME merger
and growth in Algeria production, Anadarko's crude oil and condensate sales in
2000 increased 140% from 1999. The 1999 oil and condensate volumes increased 36%
compared to 1998, due primarily to additional growth in Algeria production.
Production of oil usually is not affected by seasonal swings in demand or in
market prices.
Anadarko's average realized crude oil price for 2000 increased 57% compared
to 1999. The improvement in crude oil prices for 2000 was due in large part to a
decrease in the production quotas among the Organization of Petroleum Exporting
Countries (OPEC). Crude oil prices in 1999 were up 46% compared to 1998.
The Company's NGLs sales volumes in 2000 increased 71% compared to 1999.
NGLs sales volumes in 1999 were essentially flat compared to 1998. The 2000
average NGLs price was up 62% compared to 1999. By comparison, 1999 NGLs prices
were 30% above 1998. NGLs production is dependent on natural gas prices and the
economics of processing the natural gas volumes to extract NGLs.
MARKETING STRATEGIES
NATURAL GAS The North American 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
31
33
company offering supply assurance, competitive pricing and services tailored to
its customers' needs. Approximately 40% of the Company's gas production was sold
through AES in 2000. AES also purchases and sells third-party gas in the
Company's market areas. Approximately 56% of the Company's gas production was
sold under long-term contracts to Duke Energy in 2000.
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 Derivative Financial Instruments under Item 7A of
this Form 10-K.
CRUDE OIL AND CONDENSATE Anadarko's revenues are derived from production in the
U.S., Canada, Algeria, and other international areas. 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. Most of the Company's Canada oil
production is sold on a term basis of one year or greater. 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 $158 million to build or
acquire gas gathering systems over the last five years. The vast majority of the
gas flowing through these systems is from Anadarko operated wells.
Anadarko processes gas and has interests in one operated plant and three
non-operated plants. Additionally, 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.
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.
Anadarko increased its gas marketing opportunities by purchasing the stock
of Pinnacle Gas Treating, Inc. The transaction valued at $38 million, which
closed in January 2001, gives Anadarko ownership of a natural gas pipeline that
runs through the heart of its Bossier properties. The acquisition provides the
Company greater flexibility in shipping and marketing its gas from the area as
well as improved service to other shippers. The network, which has a capacity of
500 MMcf/d of gas, consists of 60 miles of large-diameter pipe, 40 miles of
small-diameter laterals and spurs in addition to a 60-mile fuel redelivery
system. The Bethel treating plant acquired in the transaction removes carbon
dioxide and hydrogen sulfide from gas and can handle as much as 300 MMcf/d of
gas. In 2001, Anadarko has plans to expand the Bethel plant to accommodate
growing volumes in the area.
32
34
OPERATING RESULTS
DRILLING ACTIVITY During 2000, Anadarko participated in a total of 709 gross
wells, including 385 gas wells, 269 oil wells and 55 dry holes. This compares to
200 gross wells (122 gas wells, 52 oil wells and 26 dry holes) in 1999 and 402
gross wells (149 gas wells, 192 oil wells and 61 dry holes) in 1998. The
increase in activity during 2000 was a result of the RME merger and improved
commodity prices.
The Company's 2000 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
----- ----- ---- -----
2000 EXPLORATORY
Gross 17 15 24 56
Net 11.7 10.1 17.6 39.4
2000 DEVELOPMENT
Gross 368 254 31 653
Net 300.3 196.0 24.8 521.1
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
- ---------------
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 19th
consecutive year, Anadarko more than replaced annual production volumes with
proved reserves of natural gas, crude oil, condensate and NGLs, stated on a
barrel of oil equivalent (BOE) basis.
During 2000, Anadarko's worldwide reserve replacement was 1,059% including
the effect of the RME merger transaction or 242% excluding the effect of the RME
merger transaction, of total production -- which reached a record of 112 MMBOE.
The Company's worldwide reserve replacement in 1999 was 213% of total production
of 50 MMBOE. The Company's worldwide reserve replacement in 1998 was 581% of
total production of 47 MMBOE. Over the last five years, the Company's annual
reserve replacement has averaged 629% of annual production volumes or 315%
excluding the effect of the RME merger transaction.
Anadarko continues to increase its energy reserves in the U.S. In 2000, the
Company replaced 855% or 224% excluding the effect of the RME merger transaction
of its U.S. production volumes with U.S. reserves. This compares to a U.S.
reserve replacement of 128% in 1999 and 462% in 1998. The Company's U.S. reserve
replacement for the five-year period 1996-2000 was 452% of production or 246%
excluding the RME merger transaction. By comparison, the most recent published
U.S. industry average (1995-1999) was 102%. (Source: U.S. Department of Energy)
Anadarko's U.S. reserve replacement performance for the same period 1995-1999
was 228% of production. Industry data for 2000 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
generally outperformed the industry in average finding costs. For the period
1996-2000, Anadarko's worldwide finding cost was $5.89 per BOE, which includes
the cost of acquiring the RME reserves. Stated excluding the effect of the RME
merger transaction, Anadarko's finding cost for the same period was $4.24 per
BOE. The Company's U.S. finding performance for the same period was $6.86 per
BOE
33
35
or $4.95 per BOE excluding the effect of the RME merger transaction. Industry
data for 2000 are not yet available. For comparison purposes, the most recent
published five-year average (1995-1999) for the industry shows worldwide finding
cost was $4.57 per BOE and U.S. finding cost was $5.79 per BOE. (Source: Arthur
Andersen) For the same five-year period of 1995-1999, Anadarko's worldwide
finding cost was $3.53 per BOE and its U.S. finding cost was $4.29 per BOE.
For 2000, Anadarko's worldwide finding cost was $7.19 per BOE or $5.72 per
BOE excluding the effect of the RME merger transaction. This compares to $4.87
per BOE in 1999 and $3.13 per BOE in 1998. Anadarko's U.S. finding cost for 2000
was $8.49 per BOE or $6.54 per BOE excluding the effect of the RME merger
transaction. This compares to $9.06 per BOE in 1999 and $3.11 per BOE in 1998.
Finding costs in 2000 have increased partly due to increases in oilfield
services costs.
PROVED RESERVES At the end of 2000, Anadarko's proved reserves were 2.06
billion BOE compared to 991 MMBOE at year-end 1999 and 935 MMBOE at year-end
1998. Reserves increased by 108% in 2000 compared to 1999 due primarily to the
RME merger and exploration and development drilling in both the U.S. and
overseas. Anadarko's proved reserves have grown by 191% over the past three
years, primarily as a result of the RME merger and 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 2000 were 6.09
trillion cubic feet (Tcf), compared to 2.51 Tcf at year-end 1999 and 2.65 Tcf at
year-end 1998. Anadarko's proved gas reserves have increased 252% since year-end
1997, reflecting the RME merger and continued development activity onshore in
the U.S. Anadarko's crude oil, condensate and NGLs reserves at year-end 2000
increased 82% to 1.05 billion barrels, compared to 573 MMBbls at year-end 1999
and 494 MMBbls at year-end 1998. Crude oil reserves have risen by 149% over the
last three years primarily due to the RME merger and large discoveries in
Alaska, Algeria and the Gulf of Mexico. Crude oil, condensate and NGLs reserves
comprise 51% of the Company's proved reserves at year-end 2000, compared to
about 58% at year-end 1999 and 53% at year-end 1998.
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, 2000, the present value (discounted at 10%) of future net
revenues from Anadarko's proved reserves was $33.1 billion, before income taxes,
and was $21.4 billion, after income taxes, (stated in accordance with the
regulations of the Securities and Exchange Commission (SEC) and Financial
Accounting Standards Board). The 2000 estimated present value of future net
revenues, after income taxes, increased 388% compared to 1999 primarily due to
the addition of proved reserves related to the RME merger, significantly higher
natural gas prices at year-end 2000 and successful drilling worldwide. See
Supplemental Information on Oil and Gas Exploration and Production Activities
- -- Unaudited 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 includes an active asset acquisition and divestiture
program. In July 2000, Anadarko acquired approximately 912 MMBOE of proved
reserves with the RME merger, located primarily in the United States, Canada and
Latin America. Excluding the RME merger transaction, during 1998-2000, Anadarko
acquired through purchases and trades 65 MMBOE of proved reserves for $247
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 $124 million. Reserves associated with these sales
and trades were 30 MMBOE.
34
36
In February 2001, Anadarko announced it has entered into an agreement to
acquire Canadian-based Berkley Petroleum Corporation for C$11.40 per share in
cash for an equity value of about U.S.$777 million plus the assumption of debt
estimated at U.S.$250 million. The transaction is expected to close mid-March
2001.
In 2001, the Company is also considering dispositions of certain producing
properties in non-core areas.
PROPERTIES AND LEASES
PRODUCING PROPERTIES The Company owns 8,708 net producing gas wells and 6,011
net producing oil wells worldwide. The following schedule shows the number of
developed and undeveloped lease acres in which Anadarko held interests at
December 31, 2000.
ACREAGE
DEVELOPED UNDEVELOPED TOTAL
--------------- --------------- ---------------
GROSS NET GROSS NET GROSS NET
thousands ------ ------ ------ ------ ------ ------
United States
Onshore -- Lower 48 2,990 2,022 2,115 1,353 5,105 3,375
Offshore 499 205 1,215 787 1,714 992
Alaska 18 4 1,373 467 1,391 471
------ ------ ------ ------ ------ ------
Total 3,507 2,231 4,703 2,607 8,210 4,838
------ ------ ------ ------ ------ ------
Canada 1,646 962 6,007 1,984 7,653 2,946
Algeria* 160 27 3,745 917 3,905 944
Other International 688 219 26,439 11,347 27,127 11,566
- ---------------
* 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.
LAND GRANT AND OTHER FEE MINERALS The Company also owns fee mineral acreage
totaling 9,424,000 (gross) or 8,478,000 (net) acres as of December 31, 2000. Of
this amount, 7,929,000 (gross) or 7,739,000 (net) acres are within the Company's
Land Grant area in Wyoming, Colorado and Utah. The Company holds royalty
interests of varying percentages in approximately one million gross acres of the
Land Grant that are subject to exploration and production agreements with third
parties. The Company's fee mineral acreage is primarily undeveloped.
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 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.
35
37
For a description of certain environmental proceedings in which the Company
is involved, see Note 18 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 below and
elsewhere in this Form 10-K and in the Company's other public filings, press
releases and discussions with Company management. Anadarko undertakes no
obligation to publicly update or revise any forward looking statements.
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
36
38
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.
LEGAL PROCEEDINGS
General The Company is a defendant in a number of lawsuits and is involved in
governmental proceedings arising in the ordinary course of business, including,
but not limited to, royalty claims, contract claims and environmental claims.
The Company has also been named as a defendant in various personal injury
claims, including numerous claims by employees of third-party contractors
alleging exposure to asbestos and benzene while working at a refinery in Corpus
Christi, which the Company sold in segments in 1987 and 1989. While the ultimate
outcome and impact on the Company cannot be predicted with certainty, management
believes that the resolution of these proceedings will not have a material
adverse effect on the consolidated financial position of the Company, although
results of operations and cash flow could be significantly impacted in the
reporting periods in which such matters are resolved.
For a description of certain legal proceedings in which the Company is
involved, see Legal Proceedings under Item 3 of this Form 10-K.
CAPITAL EXPENDITURES, LIQUIDITY AND LONG-TERM DEBT
CAPITAL EXPENDITURES
2000 1999 1998
millions ------ ---- ----
Exploration $ 429 $189 $257
Development 921 311 344
Acquisitions of producing properties 54 50 143
Gathering and other 80 27 58
Interest and overhead 224 103 115
------ ---- ----
Total $1,708 $680 $917
------ ---- ----
CAPITAL EXPENDITURES Anadarko's total capital spending in 2000 was $1.7
billion, an increase of 151% compared to 1999 capital spending of $680 million
and an increase of 86% compared to 1998 capital spending of $917 million. The
largest categories of capital spending in 2000, 1999 and 1998 were for
exploration and development activities in the U.S. and overseas. The Company
funded its capital investment programs in
37
39
2000, 1999 and 1998 primarily through cash flow, plus increases in long-term
debt, issuance of preferred and common stock and proceeds from property sales.
Capital spending for 2001 has been set at $2.8 billion, a 65% increase
compared to 2000. The capital budget for 2001 includes $1.4 billion for
development, $830 million for exploration, $245 million for gas gathering and
other, and $327 million for capitalized interest and overhead.
The primary focus of the 2001 budget is to find additional natural gas
reserves and increase gas production in the Lower 48, the Gulf of Mexico and in
Canada. More than half of the 2001 capital budget is earmarked primarily for
ongoing development drilling and construction to increase production from
existing fields in Texas, the Gulf of Mexico, the Rockies, Western Canada, the
North Slope of Alaska and Algeria. About 30% of the capital budget will be spent
on ongoing exploration programs primarily in the sub-salt and deep waters of the
Gulf of Mexico, Canada and in Texas, but also on new prospects in the North
Atlantic, West Africa, Tunisia, Australia and the former Soviet Republic of
Georgia. Another 5% is budgeted for construction of plants, gathering and
treating facilities and pipelines.
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 2001. 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 2000, Anadarko's total debt was $4.0
billion. This compares to total debt of $1.4 billion at year-end 1999 and 1998.
As a result of the RME merger, the liabilities of RME became liabilities of the
Company. Accordingly, the financial statements of the Company include an
aggregate of approximately $2.5 billion of outstanding RME debt assumed at the
date of the merger.
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 3.50% annually until
reaching face value at maturity; however, interest will not be paid prior to
maturity. The debentures were issued with an initial conversion premium of 40%
and are convertible into common stock at the option of the holder at any time at
a fixed conversion rate. Holders have the right to require Anadarko to
repurchase their debentures 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 repay floating interest rate debt.
In April 2000, the Company entered into a 364-Day Credit Agreement. The
aggregate amount of commitments is $300 million and expires in April 2001.
In October 2000, the Company amended the RME Competitive Advance/Revolving
Credit Agreement. This amendment reduced bank commitments to $450 million,
provided a Company guarantee and shortened the maturity to October 2001.
In December 2000, the Company entered into a synthetic lease agreement in
which the lessor has agreed to fund up to $48 million for an existing office
building in The Woodlands, Texas. The term of the agreement is five years. Lease
payments began in January 2001. 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 February 2001, Anadarko, Anadarko Capital Trust I, Anadarko Capital
Trust II and Anadarko Capital Trust III filed a shelf registration statement
with the SEC that permits the issuance of up to $1 billion in debt securities,
preferred stock, depositary shares, common stock, warrants, purchase price
adjustments and purchase units. In addition, the Trusts may issue preferred
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 March 2001, Anadarko issued $650 million of Zero Yield Puttable
Contingent Debt Securities due 2021. The debt securities were priced with a zero
coupon, zero yield to maturity and a conversion premium of 38%. The proceeds
from the debt securities will be used initially to finance costs associated with
the acquisition of Berkley Petroleum Corporation.
38
40
Anadarko's net cash from operating activities in 2000 was $1.5 billion
compared to $318 million in 1999 and $240 million in 1998.
NEW ACCOUNTING PRINCIPLES
ACCOUNTING FOR DERIVATIVES Statement of Financial Accounting Standards (SFAS)
No. 133, "Accounting for Derivative Instruments and for Hedging Activities," as
amended, provides guidance for accounting for derivative instruments and hedging
activities. The Company adopted this standard in January 2001. The Company
estimates the effect of the transition adjustments, after taxes, will be a
reduction of $5 million to both net income and other comprehensive income.
DIVIDENDS
In 2000, Anadarko paid $38 million in dividends to its common stockholders
(5 cents per share per quarter). In 1999, Anadarko paid $25 million in dividends
to its common stockholders (5 cents per share per quarter). The dividend amount
in 1998 was $23 million (3.75 cents per share in the first quarter, and 5 cents
per share in the second, third and fourth quarters). Anadarko has paid a
dividend to its common stockholders continuously since becoming an independent
company in 1986.
In 2000, 1999 and 1998, the Company also paid $11 million, $11 million and
$7 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, 2000 was $1.5
billion. 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.
ITEM 7a. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
DERIVATIVE FINANCIAL INSTRUMENTS Anadarko's derivative commodity instruments
currently are comprised of futures, swaps and options contracts. The volume of
derivative commodity instruments utilized by the Company to hedge its market
price risk and in its energy trading operation can vary during the year within
the boundaries of its established policy guidelines. See Notes 1 and 7 of the
Notes to Consolidated Financial Statements under Item 8 of this Form 10-K.
Derivative financial instruments utilized to manage or reduce commodity price
risk related to the Company's equity production (with the exception of net
written options) are accounted for under the hedge or deferral method of
accounting. Under this method, realized gains/losses and option premiums are
recognized in the statement of income when the underlying physical oil and gas
production is sold. Accordingly, realized derivative gains/losses are generally
offset by similar changes in the realized prices of the underlying physical oil
and gas production. Realized derivative gains/losses are reflected in the
average sales price of the physical oil and gas production. Margin deposits,
deferred realized gains/ losses and premiums are included in other current
assets or liabilities. Unrealized gains/losses are not recorded. The majority of
the derivatives into which the Company enters have terms of less than 12 months.
As of December 31, 2000, the Company had a net unrealized loss of $74 million
(gains of $11 million and losses of $85 million) on derivative commodity
instruments entered into to hedge equity production. Based upon an analysis
utilizing the actual derivative contractual volumes and assuming a 10% increase
in commodity prices, the potential additional loss on these derivative commodity
instruments would be approximately $45 million.
Derivative financial instruments utilized in the Company's marketing
activities and in the management of price risk associated with the Company's
firm transportation keep-whole commitment (see Note 14 of the Notes to
Consolidated Financial Statements under Item 8 of this Form 10-K), as well as
net written options related to the Company's equity production are accounted for
under the mark-to-market accounting method. Under this method, the derivatives
are revalued. Premiums and unrealized gains/losses are immediately recorded in
the statement of income and carried as current assets or liabilities on the
balance sheet. The derivative contracts entered into for trading purposes are
typically for terms of less than 12 months. As of December 31, 2000 the Company
had a net unrealized gain of $64 million (gains of $165 million and losses of
$101 million) on derivative commodity instruments entered into for trading
purposes. Based upon an analysis
39
41
utilizing the actual derivative contractual volumes and assuming a 10% increase
in commodity prices, the potential additional gain would be approximately $9
million.
RME was a party to several long-term firm gas transportation agreements
that supported the gas marketing program within the gathering, processing and
marketing (GPM) business segment, which was sold in 1999 to Duke Energy Field
Services, Inc. (Duke). Most of the GPM business segment's firm long-term
transportation contracts were transferred to Duke in the GPM disposition. One
contract was retained, but is managed and operated by Duke. Anadarko is not
responsible for the operations of the contracts and does not utilize the
associated transportation assets to transport the Company's natural gas. As part
of the GPM disposition, RME and Duke agreed RME will pay Duke if transportation
market values fall below the fixed contract transportation rates, while Duke
will pay RME if the transportation market values exceed the contract
transportation rates (keep-whole agreement). Transportation contracts
transferred to Duke in the GPM disposition, and the contract not transferred,
all of which are included in the keep-whole agreement with Duke relate to
various pipelines. This keep-whole agreement is accounted for on a
mark-to-market basis as a part of the Company's marketing activities. This
keep-whole agreement will be in effect until the earlier of each contract's
expiration date or March 2009. During the last half of 2000, market rates for
firm transportation (particularly those pipelines serving markets on the west
coast) increased significantly. As a result, the Company recognized other income
of $175 million during 2000. As of December 31, 2000, Other Current Assets and
Other Long-term Liabilities included $117 million and $89 million, respectively,
related to this agreement.
From time to time, the Company uses derivative financial instruments to
reduce its exposure to potential decreases in future transportation market
values. While the derivatives are intended to reduce the Company's exposure to
declines in transportation market rates, they also limit the potential to
benefit from market price increases. As of December 31, 2000, the Company had an
unrealized gain of $13 million on derivative financial instruments related to
transportation rates. An analysis of these derivative financial instruments
determined that an adverse price movement would not have a material effect on
the financial position or results of operations of the Company.
INTEREST RATE RISK 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 rates in effect as of December 31, 2000 and assuming a 10% increase in
interest rates, the potential decrease in the fair value of the derivative
interest swap instruments at December 31, 2000 does not have a material effect
on the financial position or results of operations of the Company. See Notes 1
and 7 of the Notes to Consolidated Financial Statements under Item 8 of this
Form 10-K.
FOREIGN CURRENCY RISK The Company's Canadian subsidiary uses the Canadian
dollar as its functional currency. The Company's Algerian subsidiary and the
other international subsidiaries use the U.S. dollar as their functional
currency. To the extent that business transactions in these countries are not
denominated in the respective country's functional currency, the Company is
exposed to foreign currency exchange rate risk. In addition, in these
subsidiaries, certain asset and liability balances are denominated in currencies
other than the subsidiary's functional currency. These asset and liability
balances are remeasured in the preparation of the subsidiary's financial
statements using a combination of current and historical exchange rates, with
any resulting remeasurement adjustments included in net income.
At December 31, 2000, Anadarko Canada had $650 million outstanding of
fixed-rate notes and debentures denominated in U.S. dollars. During 2000, the
Company recognized an $8 million pretax non-cash loss associated with the
remeasurement of this debt. The potential foreign currency remeasurement impact
on earnings from a 10% change in the December 31, 2000 Canadian exchange rate
would be about $66 million.
40
42
The Company periodically enters into foreign currency contracts to hedge
specific currency exposures from commercial transactions. The following table
summarizes the Company's open foreign currency positions at December 31, 2000:
MATURITY YEAR
2004
U.S.$ in millions, except foreign currency rates -------------
Notional amount $ 70
------
Forward rate 1.36
Market rate 1.48
------
Decrease in rate (0.12)
------
Fair value -- gain (loss) $ (8)
------
At December 31, 2000, the Company's Latin American subsidiaries had foreign
deferred tax liabilities denominated in the local currency equivalent totaling
$98 million. During 2000, the Company recognized deferred tax benefits of $1
million after taxes, associated with remeasurement of these deferred tax
liabilities. The potential foreign currency remeasurement impact on net earnings
from a 10% change in the year-end Latin American exchange rates would be
approximately $10 million.
41
43
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
ANADARKO PETROLEUM CORPORATION
INDEX
CONSOLIDATED FINANCIAL STATEMENTS
PAGE
Report of Management 43
Independent Auditors' Report 44
Statement of Income, Three Years Ended December 31, 2000 45
Balance Sheet, December 31, 2000 and 1999 46
Statements of Stockholders' Equity and Comprehensive Income,
Three Years Ended
December 31, 2000 47
Statement of Cash Flows, Three Years Ended December 31, 2000 48
Notes to Consolidated Financial Statements 49
Supplemental Quarterly Information 75
Supplemental Information on Oil and Gas Exploration and
Production Activities 76
42
44
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/ MICHAEL E. ROSE
Michael E. Rose
Executive Vice President, Finance and
Chief Financial Officer
43
45
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, 2000 and 1999, and the
related consolidated statements of income, stockholders' equity, comprehensive
income and cash flows for each of the years in the three-year period ended
December 31, 2000. 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 auditing standards generally
accepted in the United States of America. 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, 2000 and 1999, and the
results of their operations and their cash flows for each of the years in the
three-year period ended December 31, 2000, in conformity with accounting
principles generally accepted in the United States of America.
As discussed in Note 1 to the consolidated financial statements, effective
January 1, 2000, the Company changed its method of accounting for foreign crude
oil inventories.
/s/ KPMG LLP
Houston, Texas
February 1, 2001
44
46
ANADARKO PETROLEUM CORPORATION
CONSOLIDATED STATEMENT OF INCOME
YEARS ENDED DECEMBER 31
---------------------------
2000 1999 1998
millions except per share amounts ------ ------ -------
REVENUES
Gas sales $1,591 $ 353 $ 341
Oil and condensate sales 948 247 130
Natural gas liquids sales 264 88 68
Marketing sales 2,823 1,081 763
Minerals and other 60 2 5
------ ------ -------
Total 5,686 1,771 1,307
------ ------ -------
COSTS AND EXPENSES
Marketing purchases and transportation 2,824 1,037 712
Operating expenses 438 179 196
Administrative and general 180 102 95
Depreciation, depletion and amortization 593 218 204
Other taxes 128 36 38
Provisions for doubtful accounts 23 -- --
Impairments related to international properties 50 24 70
Amortization of goodwill 31 -- --
------ ------ -------
Total 4,267 1,596 1,315
------ ------ -------
Operating Income (Loss) 1,419 175 (8)
OTHER (INCOME) EXPENSE
Merger expenses 67 -- --
Interest expense 93 74 58
Other (income) expense (167) (4) (1)
------ ------ -------
Total (7) 70 57
------ ------ -------
Income (Loss) Before Income Taxes 1,426 105 (65)
INCOME TAXES 602 62 (23)
------ ------ -------
NET INCOME (LOSS) BEFORE CUMULATIVE EFFECT OF CHANGE IN
ACCOUNTING PRINCIPLE $ 824 $ 43 $ (42)
------ ------ -------
Preferred Stock Dividends 11 11 7
------ ------ -------
NET INCOME (LOSS) AVAILABLE TO COMMON STOCKHOLDERS BEFORE
CUMULATIVE
EFFECT OF CHANGE IN ACCOUNTING PRINCIPLE $ 813 $ 32 $ (49)
------ ------ -------
Cumulative Effect of Change in Accounting Principle 17 -- --
------ ------ -------
NET INCOME (LOSS) AVAILABLE TO COMMON STOCKHOLDERS $ 796 $ 32 $ (49)
------ ------ -------
PER COMMON SHARE
Net income (loss) -- before change in accounting
principle -- basic $ 4.42 $ 0.25 $ (0.41)
Net income (loss) -- before change in accounting
principle -- diluted $ 4.25 $ 0.25 $ (0.41)
Change in accounting principle -- basic $(0.09) $ -- $ --
Change in accounting principle -- diluted $(0.09) $ -- $ --
Net income (loss) -- basic $ 4.32 $ 0.25 $ (0.41)
Net income (loss) -- diluted $ 4.16 $ 0.25 $ (0.41)
Dividends $ 0.20 $ 0.20 $0.1875
AVERAGE NUMBER OF COMMON SHARES OUTSTANDING -- BASIC 184 125 120
------ ------ -------
AVERAGE NUMBER OF COMMON SHARES OUTSTANDING -- DILUTED 193 126 120
------ ------ -------
See accompanying notes to consolidated financial statements.
45
47
ANADARKO PETROLEUM CORPORATION
CONSOLIDATED BALANCE SHEET
DECEMBER 31
----------------
2000 1999
millions except share amounts ------- ------
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 199 $ 45
Accounts receivable, net of allowance 1,376 260
Other current assets 319 51
------- ------
Total 1,894 356
------- ------
PROPERTIES AND EQUIPMENT
Original cost 15,843 5,917
Less accumulated depreciation, depletion and amortization 2,832 2,236
------- ------
Net properties and equipment -- based on the full cost
method of accounting for oil and gas properties 13,011 3,681
------- ------
OTHER ASSETS 368 61
------- ------
GOODWILL 1,348 --
Less accumulated amortization 31 --
------- ------
Goodwill, net of amortization 1,317 --
------- ------
$16,590 $4,098
------- ------
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable $ 1,256 $ 325
Accrued expenses 420 62
------- ------
Total 1,676 387
------- ------
LONG-TERM DEBT 3,984 1,443
------- ------
OTHER LONG-TERM LIABILITIES
Deferred income taxes 3,633 577
Other 511 156
------- ------
Total 4,144 733
------- ------
STOCKHOLDERS' EQUITY
Preferred stock, par value $1.00
(2,000,000 shares authorized, 200,000 shares issued as of
December 31, 2000 and 1999) 200 200
Common stock, par value $0.10
(450,000,000 shares authorized, 253,303,363 and
129,620,333 shares issued as of December 31, 2000 and
1999, respectively) 25 13
Paid-in capital 5,303 634
Retained earnings (as of December 31, 2000, retained
earnings were not restricted as to the payment of
dividends) 1,521 764
Deferred compensation and ESOP (1,136,342 shares as of
December 31, 2000) (121) (8)
Executives and Directors Benefits Trust, at market value
(2,000,000 shares as of December 31, 2000 and 1999) (145) (68)
Accumulated other comprehensive income 3 --
------- ------
Total 6,786 1,535
------- ------
COMMITMENTS AND CONTINGENCIES -- --
------- ------
$16,590 $4,098
------- ------
See accompanying notes to consolidated financial statements.
46
48
ANADARKO PETROLEUM CORPORATION
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
YEARS ENDED DECEMBER 31
--------------------------
2000 1999 1998
millions ------ ------ ------
PREFERRED STOCK
Balance at beginning of year $ 200 $ 200 $ --
Preferred stock issued -- -- 200
------ ------ ------
Balance at end of year 200 200 200
------ ------ ------
COMMON STOCK
Balance at beginning of year 13 12 6
Common stock issued 12 1 --
Two-for-one stock split -- -- 6
------ ------ ------
Balance at end of year 25 13 12
------ ------ ------
PAID-IN CAPITAL
Balance at beginning of year 634 361 353
Common stock issued 4,592 267 17
Revaluation to market for Executives and Directors Benefits
Trust 77 6 2
Two-for-one stock split -- -- (6)
Preferred stock issued -- -- (5)
------ ------ ------
Balance at end of year 5,303 634 361
------ ------ ------
RETAINED EARNINGS
Balance at beginning of year 764 757 829
Net income (loss) 807 43 (42)
Dividends paid -- preferred (11) (11) (7)
Dividends paid -- common (39) (25) (23)
------ ------ ------
Balance at end of year 1,521 764 757
------ ------ ------
DEFERRED COMPENSATION AND ESOP
Balance at beginning of year (8) (9) (11)
Issuance of restricted stock (82) (2) (2)
Acquisition of ESOP (74) -- --
Amortization of restricted stock and release of ESOP shares 43 3 4
------ ------ ------
Balance at end of year (121) (8) (9)
------ ------ ------
EXECUTIVES AND DIRECTORS BENEFITS TRUST
Balance at beginning of year (68) (62) (60)
Revaluation to market (77) (6) (2)
------ ------ ------
Balance at end of year (145) (68) (62)
------ ------ ------
OTHER COMPREHENSIVE INCOME
Balance at beginning of year -- -- --
Foreign currency translation adjustments 3 -- --
------ ------ ------
Balance at end of year 3 -- --
------ ------ ------
STOCKHOLDERS' EQUITY $6,786 $1,535 $1,259
------ ------ ------
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
NET INCOME (LOSS) AVAILABLE TO COMMON STOCKHOLDERS $ 796 $ 32 $ (49)
Other comprehensive income (loss) -- net of taxes
Foreign currency translation adjustments (3) -- --
------ ------ ------
COMPREHENSIVE INCOME (LOSS) $ 793 $ 32 $ (49)
------ ------ ------
See accompanying notes to consolidated financial statements.
47
49
ANADARKO PETROLEUM CORPORATION
CONSOLIDATED STATEMENT OF CASH FLOWS
YEARS ENDED DECEMBER 31
-----------------------
2000 1999 1998
millions ------- -------- -----
CASH FLOW FROM OPERATING ACTIVITIES
Net income (loss) before cumulative effect of change in
accounting principle $ 824 $ 43 $ (42)
Adjustments to reconcile net income (loss) before
cumulative effect of change in accounting principle
to net cash provided by operating activities:
Depreciation, depletion and amortization 594 220 206
Amortization of goodwill 31 -- --
Non-cash merger expenses 33 -- --
Interest expense -- zero coupon debentures 10 -- --
Deferred income taxes 457 26 (23)
Provision for doubtful accounts 23 -- --
Impairments of international properties 50 24 70
Other non-cash items (147) -- --
------- ----- -----
1,875 313 211
Increase in accounts receivable (703) (78) (4)
Increase in accounts payable and accrued expenses 415 99 32
Other items -- net (51) (16) --
------- ----- -----
Net cash provided by operating activities 1,536 318 239
------- ----- -----
CASH FLOW FROM INVESTING ACTIVITIES
Additions to properties and equipment (1,708) (680) (917)
Sales and retirements of properties and equipment 61 129 6
Acquisition costs, net of cash acquired (53) -- --
Proceeds from the sale of assets to be leased, net -- 15 24
------- ----- -----
Net cash used in investing activities (1,700) (536) (887)
------- ----- -----
CASH FLOW FROM FINANCING ACTIVITIES
Additions to debt 345 300 570
Retirements of debt (321) (282) (100)
Increase in accounts payable, banks 56 -- 5
Dividends paid (50) (36) (30)
Issuance of common stock 288 264 15
Issuance of preferred stock -- -- 196
------- ----- -----
Net cash provided by financing activities 318 246 656
------- ----- -----
NET INCREASE IN CASH AND CASH EQUIVALENTS 154 28 8
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR 45 17 9
------- ----- -----
CASH AND CASH EQUIVALENTS AT END OF YEAR $ 199 $ 45 $ 17
------- ----- -----
See accompanying notes to consolidated financial statements.
48
50
ANADARKO PETROLEUM CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 2000, 1999 AND 1998
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: RME Petroleum Company; Anadarko Canada Corporation (Anadarko
Canada); and, Anadarko Algeria Company LLC (Anadarko Algeria).
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 Company accounts
for investments in affiliated companies (20% to 50% owned) using the equity
method of accounting. The financial statements have been prepared in conformity
with generally accepted accounting principles appropriate in the circumstances.
Certain amounts for prior years have been reclassified 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, oil and NGLs sales revenues are recorded using the sales
method, whereby the Company recognizes sales revenues based on the amount of
gas, oil and NGLs sold to purchasers on its behalf. Oil and gas marketing and
gathering revenues are shown as marketing sales. Commodity trading positions are
marked to market, with the related gains and losses included in marketing sales.
DERIVATIVE FINANCIAL INSTRUMENTS Derivative financial instruments utilized to
manage or reduce commodity price risk related to the Company's equity production
(with the exception of net written options) are accounted for under the hedge or
deferral method of accounting. Under this method, realized gains/losses and
option premiums are recognized in the statement of income when the underlying
physical oil and gas production is sold. Accordingly, realized derivative
gains/losses are generally offset by similar changes in the realized prices of
the underlying physical oil and gas production. Realized derivative gains/losses
are reflected in the average sales price of the physical oil and gas production.
Margin deposits, deferred realized gains/losses and premiums are included in
other current assets or liabilities. Unrealized gains/losses are not recorded.
Derivative financial instruments utilized in the Company's marketing
activities and in the management of price risk associated with the Company's
firm transportation keep-whole commitment (See Note 14), as well as net written
options related to the Company's equity production are accounted for under the
mark-to-market accounting method. Under this method, the derivatives are
revalued. Premiums and unrealized gains/losses are recorded in the statement of
income and carried as current assets or liabilities on the balance sheet.
Realized gains and losses resulting from the Company's interest rate swap
agreements are 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 commodity inventories are stated at the
lower of average cost or market. Commodities, when sold from inventory, are
charged to expense using the average cost method.
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
49
51
ANADARKO PETROLEUM CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 2000, 1999 AND 1998
1. SUMMARY OF ACCOUNTING POLICIES (CONTINUED)
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 the gain
or loss would significantly alter the relationship between capitalized costs and
proved reserves of oil and natural gas attributable to a cost center.
All other properties and equipment are stated at original cost, which does
not purport to represent replacement or market values.
Operating fees received related to the properties in which the Company owns
an interest are netted against operating expenses. Fees received in excess of
costs incurred are recorded as a reduction to the full cost pool.
GOODWILL Goodwill represents the excess of the purchase price over the
estimated fair value of the assets acquired and liabilities assumed in the
merger with Union Pacific Resources Group Inc. (See Note 2) and is being
amortized on a straight-line basis over 20 years. The Company assesses the
recoverability of goodwill by determining whether the amortization of the
goodwill balance over its remaining life can be recovered through undiscounted
future operating cash flows of the acquired operation. The amount of goodwill
impairment, if any, is measured based on projected discounted future operating
cash flows using a discount rate reflecting the Company's average cost of funds.
The assessment of the recoverability of goodwill will be impacted if estimated
future operating cash flows are not achieved.
ENVIRONMENTAL CONTINGENCIES The Company accrues for losses associated with
environmental remediation obligations when such losses are probable and can be
reasonably estimated. Accruals for estimated losses from environmental
remediation obligations generally are recognized no later than the time of the
completion of the remedial feasibility study. These accruals are adjusted as
further information develops or circumstances change. Costs of future
expenditures for environmental remediation obligations are not discounted to
their present value. Recoveries of environmental remediation costs from other
parties are recorded as assets when their receipt is deemed 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. Interest is capitalized only
for the period in which activities are in progress to bring these projects to
their intended use.
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.
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 to employees or directors when
the exercise price of options granted is equal to or above 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 and
the effect of the Company's convertible debt assuming the conversion occurred at
the beginning of the year.
50
52
ANADARKO PETROLEUM CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 2000, 1999 AND 1998
1. SUMMARY OF ACCOUNTING POLICIES (CONTINUED)
CHANGE IN ACCOUNTING PRINCIPLE During 2000, the Company changed its method of
accounting for the carrying value of foreign crude oil inventories from market
to cost. This change was made as a result of a change in position on the
carrying value of inventories recently communicated by the SEC. The change was
effective January 2000 and the related adjustment to foreign crude oil
inventories was $19 million ($17 million after taxes, or $0.09 per share).
NEW ACCOUNTING PRINCIPLES The SEC issued Staff Accounting Bulletin (SAB) No.
101, "Revenue Recognition in Financial Statements," which summarizes the SEC
staff's views in applying generally accepted accounting principles to selected
revenue recognition issues. Previously, Anadarko included the margin related to
oil and gas marketing activities as oil and gas revenues. SAB No. 101 requires
that the purchases of oil and gas be reclassified to costs and expenses.
The Emerging Issues Task Force (EITF) issued EITF 00-10, "Accounting for
Shipping and Handling Fees and Costs," which requires that certain
transportation fees that were previously netted against revenues be reclassified
as costs and expenses.
Anadarko adopted the provisions of SAB No. 101 and EITF 00-10 for the year
ended December 31, 2000. As a result, purchases of oil and gas, as well as
certain transportation fees have been reclassified to costs and expenses. Prior
year results have been reclassified to conform to the current presentation.
Statement of Financial Accounting Standards (SFAS) No. 133, "Accounting for
Derivative Instruments and Hedging Activities," as amended, provides guidance
for accounting for derivative instruments and hedging activities. The Company
adopted this standard in January 2001. The Company estimates the effect of the
transition adjustments, after taxes, will be a reduction of $5 million to both
net income and other comprehensive income.
2. MERGER TRANSACTION
On July 14, 2000, the Company merged with Union Pacific Resources Group
Inc., subsequently renamed RME Holding Company (RME). Each share of common stock
of RME issued and outstanding was converted into 0.455 shares of Anadarko common
stock. The merger was treated as a tax-free reorganization and accounted for as
a purchase business combination under generally accepted accounting principles.
Under this method of accounting, the Company's historical operating results for
periods prior to the merger are the same as Anadarko's historical operating
results. At the date of the merger, the assets and liabilities of Anadarko
remain based upon their historical costs, and the assets and liabilities of RME
are recorded at their estimated fair market values.
The following is a calculation of the purchase price:
millions, except per share amounts
Shares of common stock issued 114
Average of Anadarko stock price per share around the merger
announcement $35.58
------
Fair value of stock issued $4,060
Add: Fair value of vested RME employee stock options assumed
by Anadarko, less common stock issuance costs 100
------
4,160
Add: Capitalized merger costs 147
------
Purchase price $4,307
------
Capitalized merger costs relate primarily to severance and relocation costs
of RME employees ($80 million), professional fees directly related to the merger
($44 million) and other direct transaction costs
51
53
ANADARKO PETROLEUM CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 2000, 1999 AND 1998
2. MERGER TRANSACTION (CONTINUED)
($23 million). In addition, merger costs of $67 million were expensed in 2000
related to the RME merger. These relate primarily to the issuance of stock for
retention of employees ($40 million), transition, integration, hiring and
relocation costs ($14 million), deferred compensation ($8 million) and vesting
of restricted stock and stock options ($5 million).
The following is the allocation of the purchase price to specific assets
and liabilities based on estimates of fair values and costs, which will be
adjusted to actual amounts as determined. Such adjustments are not expected to
be material.
millions
Current assets $ 655
Properties and equipment 8,325
Other assets 229
Goodwill 1,348
Current liabilities 959
Long-term debt 2,507
Deferred income taxes 2,605
Other long-term liabilities 326
------
Stockholders' equity $4,160
------
In 2000, costs of $34 million, related to the closing of RME's offices in
Fort Worth, Texas, were included in capitalized merger costs. During 2000, 238
RME employees actually separated and were paid pursuant to the severance plans
and 226 RME employees were relocated to Houston.
The remaining accrued liability balance included in capitalized merger
costs is expected to be spent in 2001. The following table summarizes the
activity in the accrued liability account for the year ended December 31, 2000:
millions
Capitalized merger costs $ 147
Cash payments (111)
Non-cash payments (10)
-----
Ending balance $ 26
-----
The pro forma results for 2000 and 1999 are a result of combining the
statement of income of Anadarko with the statement of income of RME adjusted for
1) certain costs that RME had expensed under the successful efforts method of
accounting that are capitalized under the full cost method of accounting; 2)
depreciation, depletion and amortization expense of RME calculated in accordance
with the full cost method of accounting applied to the adjusted basis of the
properties acquired using the purchase method of accounting; 3) decreases to
interest expense for the capitalization of interest on significant investments
in unevaluated properties and major development projects and partly offset by
the revaluation of RME debt under the purchase method of accounting, including
the elimination of historical debt issuance amortization costs; 4) issuance of
Anadarko common stock and stock options pursuant to the merger agreement, and 5)
the related income tax effects of these adjustments based on the applicable
statutory tax rates. It should be noted that the pro forma results do not
include any merger expenses.
52
54
ANADARKO PETROLEUM CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 2000, 1999 AND 1998
2. MERGER TRANSACTION (CONTINUED)
The following table presents the unaudited pro forma results of the Company
as though the merger had occurred on January 1, 1999. Pro forma results are not
necessarily indicative of actual results.
2000 1999
millions, except per share amounts ------ ------
Revenues $7,571 $4,506
Net income available to common stockholders $1,084 $ 321
Earnings per share -- basic $ 4.43 $ 1.34
Earnings per share -- diluted $ 4.29 $ 1.33
3. CASH AND CASH EQUIVALENTS
As of December 31, 2000 and 1999, cash and cash equivalents included
$300,000 and $500,000, respectively, held by the Anadarko Petroleum Corporation
Executives and Directors Benefits Trust. See Note 9.
4. INVENTORIES
The major classes of inventories, which are included in other current
assets, are as follows:
2000 1999
millions ---- ----
Materials and supplies $44 $14
Foreign crude oil 20 25
Natural gas 15 7
--- ---
Total $79 $46
--- ---
5. PROPERTIES AND EQUIPMENT
A summary of the original cost of properties and equipment by
classification follows:
2000 1999
millions ------- ------
Oil and gas properties $14,031 $5,621
Minerals 1,213 --
Gathering facilities 194 153
General properties 405 143
------- ------
Total $15,843 $5,917
------- ------
Oil and gas properties and mineral investments 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 $2.9 billion and $323 million at
December 31, 2000 and 1999, 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. Any impairment is added to
the costs to be amortized or a charge is made against earnings for those
international operations where a reserve base has not yet been established.
During 2000, 1999 and 1998, the Company made provisions for impairments of
international properties of $50 million, $24 million and $70 million,
respectively, which were related to oil and gas properties. These impairments
related to exploration activity in various international areas.
53
55
ANADARKO PETROLEUM CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 2000, 1999 AND 1998
5. PROPERTIES AND EQUIPMENT (CONTINUED)
Total interest costs incurred during 2000, 1999 and 1998 were $193 million,
$96 million and $83 million, respectively. Of these amounts, the Company
capitalized $100 million, $22 million and $25 million during 2000, 1999 and
1998, respectively. Capitalized interest is included as part of the cost of oil
and gas properties. The capitalization rates are based on the Company's weighted
average cost of borrowings used to finance the expenditures.
In addition to capitalized interest, the Company also capitalized internal
costs of $124 million, $81 million and $91 million during 2000, 1999 and 1998,
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.
6. LONG-TERM DEBT
As a result of the RME merger, the liabilities of RME became liabilities of
the Company. Accordingly, the financial statements of the Company include an
aggregate of approximately $2.5 billion of outstanding RME debt at the date of
the merger. As a result of the RME merger transaction, the Company recorded $116
million debt discount, representing the excess of the carrying value over the
fair value of the debt acquired. The $112 million remaining debt discount as of
December 31, 2000 is being amortized over the terms of the debt issues. A
summary of long-term debt follows:
PRINCIPAL
---------------
2000 1999
millions ------ ------
Notes Payable, Banks* $ 199 $ 145
Commercial Paper* -- 198
Long-Term Portion of Capital Lease 12 --
8 1/4% Notes due 2001 100 100
6.8% Debentures due 2002 247 --
6 3/4% Notes due 2003 100 100
5 7/8% Notes due 2003 100 100
6.5% Notes due 2005 192 --
7.375% Debentures due 2006 247 --
7% Notes due 2006 194 --
6.75% Notes due 2008 151 --
7.8% Debentures due 2008 150 --
7.3% Notes due 2009 156 --
7.05% Debentures due 2018 183 --
Zero Coupon Convertible Debentures due 2020 355 --
7 1/4% Debentures due 2025 -- 100
7.5% Debentures due 2026 188 --
7% Debentures due 2027 100 100
6.625% Debentures due 2028 100 100
7.15% Debentures due 2028 334 --
7.20% Debentures due 2029 300 300
7.95% Debentures due 2029 238 --
7.73% Debentures due 2096 100 100
7 1/4% Debentures due 2096 100 100
7.5% Debentures due 2096 138 --
------ ------
Total $3,984 $1,443
------ ------
- ---------------
* The average rates in effect December 31, 2000 and 1999 were 6.29% and 6.90%,
respectively, for the Notes Payable, Banks. The average rate in effect at
December 31, 1999 was 6.81% for the Commercial Paper.
54
56
ANADARKO PETROLEUM CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 2000, 1999 AND 1998
6. LONG-TERM DEBT (CONTINUED)
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 8 1/4% Notes due 2001, 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 2000, the Company entered into a 364-Day Credit Agreement. The
aggregate amount of commitments is $300 million and expires in April 2001. In
October 2000, the Company amended the RME Competitive Advance/Revolving Credit
Agreement. The amendment reduced bank commitments to $450 million, provided a
Company guarantee and shortened the maturity to October 2001. In addition, the
Company has a $225 million Revolving Credit Agreement with a group of seven
commercial banks, which will expire in 2002. Interest rates for these bank
commitments 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. As of December 31, 2000, the Company had $199 million
outstanding under various credit agreements.
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 3.50% annually until
reaching face value at maturity; however, interest will not be paid prior to
maturity. The debentures were issued at an initial conversion premium of 40% and
are convertible into common stock at the option of the holder at any time at a
fixed conversion rate. Holders have the right to require Anadarko to repurchase
their debentures 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 repay floating interest rate debt.
In February 2001, Anadarko, Anadarko Capital Trust I, Anadarko Capital
Trust II and Anadarko Capital Trust III filed a shelf registration statement
with the SEC that permits the issuance of up to $1 billion in debt securities,
preferred stock, depositary shares, common stock, warrants, purchase price
adjustments and purchase units. In addition, the Trusts may issue preferred
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 March 2001, Anadarko issued $650 million of Zero Yield Puttable
Contingent Debt Securities due 2021. The debt securities were priced with a zero
coupon, zero yield to maturity and a conversion premium of 38%. The proceeds
from the debt securities will be used initially to finance costs associated with
the acquisition of Berkley Petroleum Corporation.
55
57
ANADARKO PETROLEUM CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 2000, 1999 AND 1998
6. LONG-TERM DEBT (CONTINUED)
Total sinking fund and installment payments related to long-term debt for
the five years ending December 31, 2005 are shown below. The payments related to
the redemption of the commercial paper and 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.
millions
2001 $102
2002 451
2003* 202
2004 3
2005 205
- ---------------
* Holders of the Zero Coupon Convertible Debentures due 2020 may put the
debentures to the Company in 2003 at the accrued value of $383 million.
7. FINANCIAL INSTRUMENTS
The following information discloses the fair value of the Company's
financial instruments:
CARRYING
AMOUNT FAIR VALUE
millions -------- ----------
2000
Cash and cash equivalents $ 199 $ 199
Long-term debt (including interest rate swaps) 3,984 3,980
Commodity derivative financial instruments
Asset 178 189
Liability (174) (186)
1999
Cash and cash equivalents $ 45 $ 45
Long-term debt (including interest rate swaps) 1,443 1,354
Commodity derivative financial instruments
Asset 4 4
Liability (9) (9)
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, 2000 and 1999
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 The Company's commodity derivative
financial instruments are comprised of futures, swaps, and options. Futures
contracts are generally used to fix the price of expected future oil and gas
sales at major industry trading locations; e.g., Henry Hub, Louisiana for gas
and Cushing, Oklahoma for oil. Settlements of futures contracts are guaranteed
by the New York Mercantile Exchange or the International Petroleum Exchange and
have nominal credit risk. Swap agreements are generally used to fix or float the
price of oil and gas at the Company's market locations. Swap agreements are also
used to fix the price differential between the price of gas at Henry Hub and
various other market locations. Swap agreements expose the Company to credit
risk to the extent the counter-party is unable to meet its monthly settlement
56
58
ANADARKO PETROLEUM CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 2000, 1999 AND 1998
7. FINANCIAL INSTRUMENTS (CONTINUED)
commitment. The Company carefully monitors the creditworthiness of each
counter-party. Options are generally used to fix a floor and/or a ceiling price
(a "collar") for the Company's expected future oil and gas sales. The Company
buys/sells options through exchanges as well as over the counter.
The fair value of these derivatives reflects the estimated amounts the
Company would receive or pay to settle the instruments as of December 31. Dealer
quotes are available for a majority of the Company's derivatives. Gas contract
volumes are generally quoted based on British thermal units (Btu). One million
Btu is approximately equivalent to one thousand cubic feet of gas. The Company
uses commodity derivative financial instruments to manage the price risk
associated with its equity oil and gas production and its firm transportation
keep-whole commitment with Duke Energy Field Services, Inc. (Duke). The Company
also uses derivative financial instruments in connection with its other
marketing and trading activities.
At year-end 2000, the Company had the following derivative financial
instrument positions for non-trading purposes. The Company had collar contracts
in place to hedge an average of 219 billion Btu per day (BBtu/d) of 2001 equity
gas production at an average floor price of $3.77 per million Btu (MMBtu) and an
average ceiling price of $8.97 per MMBtu. In addition, the Company had written
calls outstanding for 250 BBtu/d of February 2001 equity gas production at an
average ceiling price of $11.71 per MMBtu. The Company also had open purchased
calls for 10 BBtu/d at an average strike price of $4.00 per MMBtu for January
through March 2001 gas production. Also at year-end 2000, the Company had swap
instruments in place to lock in mark-to-market gains of approximately $34
million on its firm transportation keep-whole commitment with Duke. In addition,
the Company had collar contracts in place to hedge 25 BBtu/d of 2002 through
2005 equity gas production at an average floor price of $2.66 per MMBtu and an
average ceiling price of $4.87 per MMBtu.
As a result of the RME merger transaction, the Company acquired numerous
collar contracts (various combinations of option and swap contracts) that RME
had purchased as hedges of its August 2000 through December 2001 expected oil
and gas production. At the time of the merger, the Company recorded a $273
million liability for the fair value of these contracts and a current asset for
associated margin deposits of $67 million. As of December 31, 2000, liabilities
aggregating $70 million remained on the balance sheet. The Company entered into
offsetting positions for the RME gas ceilings and a portion of the gas floors
for August 2000 through October 2001, which resulted in a slight gain compared
to the corresponding liability that was recorded under purchase accounting. At
year-end 2000, the open RME gas floors consisted of written puts for an average
133 BBtu/d with an average strike price of $2.15 per MMBtu and purchased puts
for an average 58 BBtu/d with an average strike price of $2.64 per MMBtu. In
addition, the RME open crude oil hedge position consisted of collar contracts
for 30 MBbls/d at an average floor price of $20.43 per barrel and an average
ceiling price of $25.01 per barrel.
At year-end 1999, the Company had the following derivative financial
instrument positions for non-trading purposes. The Company had collar contracts
in place to hedge 4 MBbls/d of January through June 2000 equity oil production
at an average floor price of $19.00 per barrel and an average ceiling price of
$24.13 per barrel. In addition, the Company had written puts outstanding for 2
MBbls/d of January through March 2000 crude oil production at a strike price of
$16.00 per barrel.
At year-end 2000, the Company had the following derivative financial
instrument positions for trading purposes. The Company had gas futures contracts
for an average 3 BBtu/d for 2001 gas sale/purchase commitments and crude oil
futures contracts for 3 MBbls/d for January 2001 through March 2001 oil sale/
purchase commitments. The Company had swap agreements in place for an average 57
BBtu/d for 2001 gas sale/purchase commitments and 5 BBtu/d for January 2002
through March 2002 gas sale/purchase commitments. The Company had option
contracts in place for an average 35 BBtu/d of puts and 2 BBtu/d of calls for
2001 gas sale/purchase commitments.
At year-end 1999, the Company had the following derivative financial
instrument positions for trading purposes. The Company had gas futures contracts
for an average 12 BBtu/d for 2000 gas sale/purchase
57
59
ANADARKO PETROLEUM CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 2000, 1999 AND 1998
7. FINANCIAL INSTRUMENTS (CONTINUED)
commitments and crude oil futures contracts for 5 MBbls/d for January 2000
through March 2000 oil sale/ purchase commitments. The Company had swap
agreements in place for an average 51 BBtu/d for 2000 gas sale/purchase
commitments, 15 BBtu/d for 2001 gas sale/purchase commitments and 5 BBtu/d for
January 2002 through March 2002 gas sale/purchase commitments. In addition, the
Company had swap agreements in place for an average 2 MBbls/d for February 2000
oil sale/purchase commitments. The Company had option contracts in place for an
average 36 BBtu/d of puts and 1 BBtu/d of calls for 2000 gas sale/purchase
commitments.
INTEREST RATE SWAPS During 1999, Anadarko entered into a 29.5-year swap
agreement with a notional value of $200 million whereby the Company receives a
fixed interest rate and pays a floating interest rate indexed to the 3-month
London Interbank Offered Rate (LIBOR). The swap agreement is cancelable in whole
only by the counter-party on March 15, 2001. The Company currently anticipates
that the counter-party will cancel the agreement at that time. During 1996,
Anadarko entered into a 10-year swap agreement with a notional value of $100
million whereby the Company receives a fixed interest rate and pays a floating
interest rate indexed to 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.
FOREIGN CURRENCY RISK Anadarko's Canadian subsidiary uses the Canadian dollar
as its functional currency. The Company's Algerian subsidiary and the other
international subsidiaries use the U.S. dollar as their functional currency. To
the extent that business transactions in these countries are not denominated in
the respective country's functional currency, the Company is exposed to foreign
currency exchange rate risk. In addition, in these subsidiaries, certain asset
and liability balances are denominated in currencies other than the subsidiary's
functional currency. These asset and liability balances are remeasured for the
preparation of the subsidiary's financial statements using a combination of
current and historical exchange rates, with any resulting remeasurement
adjustments included in net income.
At December 31, 2000, the Company's Canadian subsidiary had $650 million
outstanding of fixed-rate notes and debentures denominated in U.S. dollars.
During 2000, the Company recognized an $8 million pretax non-cash loss
associated with the remeasurement of this debt.
The Company periodically enters into foreign currency contracts to hedge
specific currency exposures from commercial transactions. As a result of the RME
merger transaction, the Company acquired foreign currency forward exchange
contracts with maturities through October 2004 and recorded a $4 million
deferred liability representing the fair value of these contracts. These
contracts were determined to be hedges of Anadarko's future U.S. dollar
denominated hydrocarbon sales. This deferred liability will be amortized over
the contract terms. The unrecognized loss on foreign currency contracts at
December 31, 2000, excluding the $3 million remaining unamortized deferred
liability, was $5 million.
At December 31, 2000, the Company's Latin American subsidiaries had foreign
deferred tax liabilities denominated in the local currency equivalent totaling
$98 million. During 2000, the Company recognized deferred tax benefits of $1
million after taxes associated with remeasurement of these deferred tax
liabilities.
8. PREFERRED STOCK
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.
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
58
60
ANADARKO PETROLEUM CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 2000, 1999 AND 1998
8. PREFERRED STOCK (CONTINUED)
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 2000, 1999 and 1998, dividends of $54.60 per share (equivalent to
$5.46 per Depositary Share), $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.
9. COMMON STOCK AND STOCK OPTIONS
Following is a schedule of the changes in the Company's shares of common
stock:
2000 1999 1998
millions ---- ---- ----
SHARES OF COMMON STOCK ISSUED
Beginning of year 130 122 61
Issuance of common stock 114 7 --
Two-for-one stock split -- -- 61
Exercise of stock options 6 1 --
Issuance of restricted stock 2 -- --
Issuance of shares for unearned employee stock ownership
plan 1 -- --
--- --- ---
End of year 253 130 122
--- --- ---
SHARES OF COMMON STOCK HELD FOR EXECUTIVES AND DIRECTORS
BENEFITS TRUST
Beginning of year 2 2 1
Two-for-one stock split -- -- 1
--- --- ---
End of year 2 2 2
--- --- ---
SHARES OF COMMON STOCK HELD FOR UNEARNED EMPLOYEE STOCK
OWNERSHIP PLAN
Beginning of year -- -- --
Issuance of stock 1 -- --
--- --- ---
End of year 1 -- --
--- --- ---
SHARES OF COMMON STOCK OUTSTANDING AT END OF YEAR 250 128 120
--- --- ---
In 1998, the Board of Directors approved a two-for-one stock split,
effected in the form of a stock dividend. Excluding the table above, all share
and per share information have been restated to reflect the stock split.
For each quarter of 2000 and 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, dividends of 3.75 cents per share were paid
to holders of common stock. Under the most restrictive provisions of the various
credit agreements, which limit the payment of dividends by the Company, retained
earnings of $1.5 billion and $764 million were not restricted as to the payment
of dividends at December 31, 2000 and 1999, respectively.
On July 13, 2000, the stockholders of Anadarko approved an increase in the
authorized number of Anadarko common shares from 300 million to 450 million. On
July 14, 2000, each share of common stock of RME issued and outstanding was
converted into 0.455 shares of Anadarko common stock with approximately 114
million shares issued to the stockholders of RME.
In May 1999, Anadarko issued 6 million shares of common stock. Aggregate
proceeds from the offering were approximately $241 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.
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
59
61
ANADARKO PETROLEUM CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 2000, 1999 AND 1998
9. COMMON STOCK AND STOCK OPTIONS (CONTINUED)
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 4.5
million 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 in November 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 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 in November 2008.
During 2000, 1999 and 1998, 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, 2000 and 1999, the Company had 2 million 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 Other Long-term Liabilities - Other
are $25 million and $17 million as of December 31, 2000 and 1999, 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 17.
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 2000, 1999 and 1998, the Company issued 1.2 million, 0.1 million
and 0.1 million shares, respectively, of restricted stock with a
weighted-average grant date fair value of $50.21, $35.87 and $32.47 per share,
respectively. In conjunction with the RME merger transaction, 0.5 million shares
of unrestricted common stock with a weighted-average grant date fair value of
$48.53 per share were issued. Merger expenses of $25 million were recognized
related to these shares. Also due to the RME merger transaction, 0.2 million
shares of unrestricted common stock with a weighted-average grant date fair
value of $48.53 per share were issued. A purchase price adjustment of $10
million was recorded related to these shares. See Note 2.
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.
60
62
ANADARKO PETROLEUM CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 2000, 1999 AND 1998
9. 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:
2000 1999 1998
------------------ ------------------ ------------------
WEIGHTED- Weighted- Weighted-
AVERAGE Average Average
EXERCISE Exercise Exercise
SHARES PRICE SHARES PRICE SHARES PRICE
options in millions ------ --------- ------ --------- ------ ---------
SHARES UNDER OPTION AT BEGINNING OF
YEAR 8.9 $29.94 8.5 $29.16 6.8 $26.20
Granted 7.4 $48.80 1.1 $30.39 2.2 $35.35
RME options assumed at merger date 4.4 $38.93 -- $ -- -- $ --
Exercised (6.3) $32.32 (0.7) $21.05 (0.5) $17.16
---- ---- ----
SHARES UNDER OPTION AT END OF YEAR 14.4 $41.28 8.9 $29.94 8.5 $29.16
---- ---- ----
Options exercisable at December 31 6.0 $33.91 5.2 $27.78 5.0 $25.48
---- ---- ----
Shares available for future grant at
end of year 4.8 4.0 1.2
---- ---- ----
Weighted-average fair value of
options granted during the year $19.09 $11.20 $11.84
The following table summarizes information about the Company's stock
options outstanding at December 31, 2000:
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 millions
$14.91-$32.47 3.9 5.6 $27.78 3.0 $27.39
$33.36-$48.44 2.7 6.1 $37.15 2.5 $36.93
$48.53-$48.53 7.1 6.5 $48.53 -- $ --
$48.97-$67.98 0.7 5.1 $59.81 0.5 $58.90
---- ---- ------ --- ------
Total 14.4 6.1 $41.28 6.0 $33.91
---- ---- ------ --- ------
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:
2000 1999 1998
----- ----- -----
Expected option life - years 4.35 4.58 4.91
Risk-free interest rate 6.10% 5.51% 5.13%
Dividend yield 0.50% 0.56% 0.57%
Volatility 39.17% 35.82% 29.98%
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
61
63
ANADARKO PETROLEUM CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 2000, 1999 AND 1998
9. COMMON STOCK AND STOCK OPTIONS (CONTINUED)
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:
2000 1999 1998
millions except per share amounts ----- ----- ------
Net income (loss) available to common stockholders
before cumulative effect of change in accounting
principle As reported $ 813 $ 32 $ (49)
Pro forma $ 776 $ 21 $ (62)
Basic EPS As reported $4.42 $0.25 $(0.41)
Pro forma $4.22 $0.17 $(0.51)
Diluted EPS As reported $4.25 $0.25 $(0.41)
Pro forma $4.05 $0.17 $(0.51)
The reconciliation between basic and diluted EPS is as follows:
FOR THE YEAR ENDED For the Year Ended For the Year Ended
DECEMBER 31, 2000 December 31, 1999 December 31, 1998
--------------------------- --------------------------- -------------------------
PER SHARE Per Share Per Share
INCOME SHARES AMOUNT INCOME SHARES AMOUNT LOSS SHARES AMOUNT
millions except per share amounts ------ ------ --------- ------ ------ --------- ---- ------ ---------
BASIC EPS
Income (loss) available to common
stockholders before change in
accounting principle $813 184 $4.42 $32 125 $0.25 $(49) 120 $(0.41)
----- ----- ------
Effect of convertible debentures 6 7 -- -- -- --
Effect of dilutive stock options and
performance-based stock awards -- 2 -- 1 -- --
---- --- --- --- ---- ---
DILUTED EPS
Income (loss) available to common
stockholders plus assumed conversion $819 193 $4.25 $32 126 $0.25 $(49) 120 $(0.41)
---- --- ----- --- --- ----- ---- --- ------
For the years ended December 31, 2000, 1999 and 1998, options for 0.1
million, 4.4 million and 3.2 million shares of common stock, respectively, 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 0.9 million potential common shares
related to outstanding stock options that were not included in the computation
of diluted EPS since they had an anti-dilutive effect.
The Company's other comprehensive income includes a foreign currency
translation adjustment of $6 million ($3 million after taxes).
10. STATEMENT OF CASH FLOWS SUPPLEMENTAL INFORMATION
The amounts of cash paid (received) for interest (net of amounts
capitalized) and income taxes are as follows:
2000 1999 1998
millions ---- ---- ----
Interest $263 $70 $ 57
Income taxes paid (received) $ 40 $(1) $(11)
62
64
ANADARKO PETROLEUM CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 2000, 1999 AND 1998
10. STATEMENT OF CASH FLOWS SUPPLEMENTAL INFORMATION (CONTINUED)
The RME merger transaction was completed through the issuance of common
stock, which was a non-cash transaction that was not reflected in the statement
of cash flows. See Note 2. The $53 million of acquisition costs reflected in
Cash Flow from Investing Activities in the consolidated statement of cash flows
represents capitalized merger costs in connection with the merger of $147
million, less the cash acquired on the date of the merger of $94 million.
11. 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 approximately 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 $10 million, $15 million and $1
million was paid to SONATRACH in 2000, 1999 and 1998, respectively, for charges
related to oil purchases, transportation of oil, well testing services,
reservoir studies, laboratory services and equipment usage. During 2000, 1999
and 1998, $6 million, $21 million and $33 million, respectively, was received
and $12 million and $23 million was included in accounts receivable as of
December 31, 2000 and 1999, respectively, from SONATRACH for joint interest
billings of development costs in Algeria under the PSA. Through December 31,
2000, the majority of amounts received from SONATRACH have been paid in Algerian
dinars, the local currency, which are used by the Company to make payments in
Algeria. During 2000, Anadarko Algeria and SONATRACH formed an Algeria
non-profit company, Groupement Berkine, to carry out their joint operating
activities under the PSA.
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, 2000, 1999 and 1998, approximately
$4 million, $43 million and $43 million, 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 2001 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.
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 or increasing credit for existing customers.
Based upon this credit analysis, the Company may require a standby letter of
credit or a financial guarantee. As of December 31, 2000 and 1999, accounts
receivable is net of allowance for doubtful accounts of $39 million and $5
million, respectively.
In 2000, sales to Duke Energy were $1.0 billion, which accounted for more
than 10% of the Company's total 2000 revenues. In 1999, sales to CoEnergy
Trading Co. were $181 million, which accounted for more than 10% of the
Company's total 1999 revenues. In 1998, sales to CoEnergy Trading Co. were $144
million, which accounted for more than 10% of the Company's total 1998 revenues.
63
65
ANADARKO PETROLEUM CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 2000, 1999 AND 1998
12. SEGMENT AND GEOGRAPHIC INFORMATION
Anadarko's primary business segments are vertically integrated business
units that are within the oil and gas industry. These segments are managed
separately because of their unique technology, marketing and distribution
requirements. The Company's three segments are upstream oil and gas operations,
downstream marketing operations and minerals operations. The oil and gas segment
finds and produces natural gas, crude oil, condensate and NGLs. The marketing
segment is responsible for selling most of Anadarko's natural gas production as
well as purchased volumes of third-party gas and oil. The minerals segment finds
and produces minerals in several coal, industrial minerals and trona (natural
soda ash) mines.
The Company's accounting policies for segments are the same as those
described in the summary of accounting policies. Management evaluates segment
performance based on profit or loss from operations before income taxes and
various other factors. Transfers between segments are accounted for at market
value. All Other includes other smaller operating units, corporate activities,
financing activities and intercompany eliminations.
The following table illustrates information related to Anadarko's business
segments.
OIL AND GAS
EXPLORATION ALL
AND PRODUCTION MARKETING MINERALS OTHER TOTAL
millions -------------- --------- -------- ----- -------
2000
Revenues $ 2,126 $3,500 $ 52 $ 8 $ 5,686
Intersegment revenues 677 164 -- (841) --
------- ------ ------ ----- -------
Total revenues 2,803 3,664 52 (833) 5,686
Depreciation, depletion and
amortization 570 8 2 13 593
Other costs and expenses 625 3,720 2 (673) 3,674
------- ------ ------ ----- -------
Total costs and expenses 1,195 3,728 4 (660) 4,267
Other (income) expense -- (174) -- 167 (7)
------- ------ ------ ----- -------
Income (loss) before income taxes $ 1,608 $ 110 $ 48 $(340) $ 1,426
------- ------ ------ ----- -------
Net properties and equipment $11,330 $ 166 $1,211 $ 304 $13,011
------- ------ ------ ----- -------
Capital expenditures $ 1,630 $ 41 $ -- $ 37 $ 1,708
------- ------ ------ ----- -------
1999
Revenues $ 374 $1,395 $ -- $ 2 $ 1,771
Intersegment revenues 314 37 -- (351) --
------- ------ ------ ----- -------
Total revenues 688 1,432 -- (349) 1,771
Depreciation, depletion and
amortization 196 7 -- 15 218
Other costs and expenses 220 1,421 -- (263) 1,378
------- ------ ------ ----- -------
Total costs and expenses 416 1,428 -- (248) 1,596
Other (income) expense -- -- -- 70 70
------- ------ ------ ----- -------
Income (loss) before income taxes $ 272 $ 4 $ -- $(171) $ 105
------- ------ ------ ----- -------
Net properties and equipment $ 3,490 $ 132 $ -- $ 59 $ 3,681
------- ------ ------ ----- -------
Capital expenditures $ 653 $ 20 $ -- $ 7 $ 680
------- ------ ------ ----- -------
64
66
ANADARKO PETROLEUM CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 2000, 1999 AND 1998
12. SEGMENT AND GEOGRAPHIC INFORMATION (CONTINUED)
OIL AND GAS
EXPLORATION ALL
AND PRODUCTION MARKETING MINERALS OTHER TOTAL
millions -------------- --------- -------- ----- ------
1998
Revenues $ 241 $1,060 $ -- $ 6 $1,307
Intersegment revenues 298 35 -- (333) --
------ ------ ---- ----- ------
Total revenues 539 1,095 -- (327) 1,307
Depreciation, depletion and
amortization 184 6 -- 14 204
Other costs and expenses 277 1,080 -- (246) 1,111
------ ------ ---- ----- ------
Total costs and expenses 461 1,086 -- (232) 1,315
Other (income) expense -- -- -- 57 57
------ ------ ---- ----- ------
Income (loss) before income taxes $ 78 $ 9 $ -- $(152) $ (65)
------ ------ ---- ----- ------
Net properties and equipment $3,184 $ 129 $ -- $ 69 $3,382
------ ------ ---- ----- ------
Capital expenditures $ 860 $ 21 $ -- $ 36 $ 917
------ ------ ---- ----- ------
The following table shows Anadarko's revenues (based on the origin of the
sales) and net properties and equipment by geographic area:
2000 1999 1998
millions ------ ------ ------
REVENUES
United States $4,835 $1,657 $1,290
Canada 447 -- --
Algeria 271 114 17
Other International 133 -- --
------ ------ ------
Total $5,686 $1,771 $1,307
------ ------ ------
2000 1999
millions ------- ------
NET PROPERTIES AND EQUIPMENT
United States $10,131 $3,115
Canada 1,540 --
Algeria 653 514
Other International 687 52
------- ------
Total $13,011 $3,681
------- ------
13. OTHER TAXES
Significant taxes other than income taxes are as follows:
2000 1999 1998
millions ---- ---- ----
Production and severance $ 88 $17 $17
Ad valorem 28 14 17
Payroll and other 12 5 4
---- --- ---
Total Other Taxes $128 $36 $38
---- --- ---
65
67
ANADARKO PETROLEUM CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 2000, 1999 AND 1998
14. OTHER (INCOME) EXPENSE
Other (income) expense consists of the following:
2000 1999 1998
millions ----- ---- ----
Firm transportation contract valuation $(175) $-- $--
Foreign exchange losses 7 -- --
Other -- net 1 (4) (1)
----- --- ---
Total other (income) expense $(167) $(4) $(1)
----- --- ---
RME was a party to several long-term firm gas transportation agreements
that supported the gas marketing program within the gathering, processing and
marketing (GPM) business segment, which was sold in 1999 to Duke. Most of the
GPM business segment's firm long-term transportation contracts were transferred
to Duke in the GPM disposition. One contract was retained, but is managed and
operated by Duke. Anadarko is not responsible for the operations of the
contracts and does not utilize the associated transportation assets to transport
the Company's natural gas. As part of the GPM disposition, RME and Duke agreed
RME will pay Duke if transportation market values fall below the fixed contract
transportation rates, while Duke will pay RME if the transportation market
values exceed the contract transportation rates (keep-whole agreement).
Transportation contracts transferred to Duke in the GPM disposition and the
contract not transferred, all of which are included in the keep-whole agreement
with Duke, relate to various pipelines. This keep-whole agreement is accounted
for on a mark-to-market basis as a part of the Company's marketing activities.
This keep-whole agreement will be in effect until the earlier of each contract's
expiration date or March 2009. During the last half of 2000, market rates for
firm transportation (particularly those pipelines serving markets on the west
coast) increased significantly. As a result, the Company recognized other income
of $175 million during 2000. As of December 31, 2000, Other Current Assets and
Other Long-term Liabilities included $117 million and $89 million, respectively,
related to this agreement.
15. INCOME TAXES
Income tax expense, including deferred amounts, is summarized as follows:
2000 1999 1998
millions ---- ---- ----
CURRENT
Federal $ 8 $ 1 $ (2)
State 3 -- (1)
Foreign 67 1 1
---- --- ----
Total 78 2 (2)
---- --- ----
DEFERRED
Federal 405 25 (22)
State 24 2 (1)
Foreign 95 33 2
---- --- ----
Total 524 60 (21)
---- --- ----
Total Income Taxes $602 $62 $(23)
---- --- ----
66
68
ANADARKO PETROLEUM CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 2000, 1999 AND 1998
15. 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:
2000 1999 1998
millions ------ ---- ----
Income (Loss) before Income Taxes
Domestic $1,085 $ 46 $ (1)
Foreign 341 59 (64)
------ ---- ----
Total $1,426 $105 $(65)
------ ---- ----
Statutory tax rate 35% 35% 35%
Tax computed at statutory rate $ 499 $ 37 $(23)
Adjustments resulting from:
State income taxes (net of federal income tax benefit) 17 1 (1)
Oil and gas credits (13) (1) (2)
Foreign taxes (net of federal income tax benefit) 134 22 2
Other -- net (35) 3 1
------ ---- ----
Total income taxes $ 602 $ 62 $(23)
------ ---- ----
Effective tax rate 42% 59% 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 2000, 1999 and 1998, the tax benefit amounted to
$67 million, $4 million and $3 million, respectively. A net tax benefit of $42
million resulting from the Company's restructuring of certain foreign operations
has been credited to a deferred asset account. The net tax benefit will be
recognized in future periods.
The tax effects of temporary differences that give rise to significant
portions of the deferred tax liabilities (assets) at December 31, 2000 and 1999
are as follows:
2000 1999
millions ------ -----
Oil and gas exploration and development costs $3,526 $ 848
Other 380 33
------ -----
Gross noncurrent deferred tax liabilities 3,906 881
------ -----
Net operating loss carryforward (55) (198)
Alternative minimum tax credit carryforward (68) (31)
Other (150) (75)
------ -----
Gross noncurrent deferred tax assets (273) (304)
------ -----
Net noncurrent deferred tax liabilities $3,633 $ 577
------ -----
Alternative minimum tax credit carryforward $ (65) $ --
------ -----
Gross current deferred tax asset $ (65) $ --
------ -----
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.
Alternative minimum tax credit carryforwards of $65 million at December 31,
2000 are available for future utilization on federal income tax returns. The tax
credits have reduced deferred federal income tax expense.
67
69
ANADARKO PETROLEUM CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 2000, 1999 AND 1998
15. INCOME TAXES (CONTINUED)
As a result of the RME merger, the Company acquired operations in Guatemala
and Venezuela. Guatemala net operating loss carryforwards as of December 31,
2000 in the amount of $152 million can be carried forward indefinitely.
Venezuela net operating loss carryforwards as of December 31, 2000 in the amount
of $22 million can be carried forward for three years.
16. 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 Company also maintains a capital lease for
certain furniture and office walls. The majority of the operating leases are
expected to be renewed or replaced as they expire. At December 31, 2000, future
minimum lease payments and receipts due under operating and capital leases are
as follows:
OPERATING
CAPITAL OPERATING SUBLEASE
LEASES LEASES INCOME
millions ------- --------- ---------
2001 $ 3 $ 83 $ (36)
2002 3 78 (36)
2003 3 67 (34)
2004 3 39 (6)
2005 4 37 (5)
Later years -- 209 (43)
--- ---- -----
Total future minimum lease payments 16 $513 $(160)
---- -----
Less: amounts representing interest (2)
---
Present value of minimum capital lease obligations 14
---
Less: short-term portion of capital lease obligations (2)
---
Long-term portion of capital lease obligations $12
---
Total rental expense, net of sublease income, amounted to $48 million, $33
million and $37 million in 2000, 1999 and 1998, respectively. Capital leases
included in fixed assets were $15 million at December 31, 2000. As a result of
the RME merger, the Company recorded a provision for operating lease obligations
in excess of expected sublease income. The provision for these operating lease
obligations was $24 million as of December 31, 2000 and has not been included as
a reduction of the operating lease obligations shown above.
In November 1999, the Company entered into a synthetic lease agreement in
which the lessor 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. Lease payments are expected to be $11 million 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 December 2000, the Company entered into a synthetic lease agreement in
which the lessor has agreed to fund up to $48 million for an existing office
building in The Woodlands, Texas. The term of the agreement is five years. Lease
payments began in January 2001.
At the end of each synthetic lease agreement's 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
68
70
ANADARKO PETROLEUM CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 2000, 1999 AND 1998
16. LEASE COMMITMENTS (CONTINUED)
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.
17. PENSION PLANS, OTHER POSTRETIREMENT BENEFITS AND EMPLOYEE SAVINGS PLANS
PENSION PLANS AND OTHER POSTRETIREMENT BENEFITS The Company has a defined
benefit pension plan and supplemental plans which are non-contributory pension
plans. The plans of RME were merged with Anadarko's plans in December 2000. 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, 2000 and 1999.
PENSION BENEFITS OTHER BENEFITS
----------------- ---------------
2000 1999 2000 1999
millions ----- ----- ----- -----
CHANGE IN BENEFIT OBLIGATION
Benefit obligation at beginning of year $ 80 $ 88 $ 35 $ 34
Service cost 8 7 2 2
Interest cost 15 6 4 3
Plan merger 277 -- 39 --
Plan amendments -- -- (5) --
Increase (decrease) due to change in actuarial
assumptions 12 (12) 2 (3)
Benefit payments and settlements (15) (9) (2) (1)
---- ---- ---- ----
Benefit obligation at end of year $377 $ 80 $ 75 $ 35
---- ---- ---- ----
CHANGE IN PLAN ASSETS
Fair value of plan assets at beginning of year $ 62 $ 65 $ -- $ --
Actual return on plan assets 20 5 -- --
Plan merger 329 -- -- --
Employer contributions 1 1 2 1
Benefit payments (16) (9) (2) (1)
---- ---- ---- ----
Fair value of plan assets at end of year $396 $ 62 $ -- $ --
---- ---- ---- ----
Funded status of the plan $ 19 $(18) $(75) $(35)
Unrecognized actuarial (gain) loss 3 (4) (2) (4)
Unrecognized prior service cost (2) (2) (4) --
Unrecognized initial asset (3) (3) -- --
---- ---- ---- ----
Total recognized $ 17 $(27) $(81) $(39)
---- ---- ---- ----
TOTAL RECOGNIZED AMOUNTS IN THE BALANCE SHEET CONSIST OF:
Prepaid benefit cost $ 24 $ -- $ -- $ --
Accrued benefit liability (11) (28) (81) (39)
Intangible asset 4 1 -- --
---- ---- ---- ----
Total recognized $ 17 $(27) $(81) $(39)
---- ---- ---- ----
69
71
ANADARKO PETROLEUM CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 2000, 1999 AND 1998
17. 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
-------------------- ---------------
2000 1999 2000 1999
percent ----------- ---- ----- -----
Discount rate 7.5% 7.75% 7.5% 7.75%
Long-term rate of return on plan assets 7.5% TO 8.0% 8.0% N/A n/a
Rates of increase in compensation levels 5.0% TO 5.5% 5.0% 5.0% 5.0%
For measurement purposes, a 5% annual rate of increase in the per capita
cost of covered health care benefits was assumed for 2001 and later years.
PENSION BENEFITS OTHER BENEFITS
------------------ ------------------
2000 1999 1998 2000 1999 1998
millions ---- ---- ---- ---- ---- ----
COMPONENTS OF NET PERIODIC BENEFIT COST
Service cost $ 8 $7 $6 $ 2 $2 $2
Interest cost 15 6 5 4 3 2
Actual return on plan assets (13) (5) (7) -- -- --
Amortization values and deferrals -- -- 2 (1) -- --
---- -- -- --- -- --
Net periodic benefit cost $ 10 $8 $6 $ 5 $5 $4
---- -- -- --- -- --
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 $32 million, $29 million and $0, respectively, as
of December 31, 2000, and $11 million, $7 million and $0, respectively, as of
December 31, 1999. The Company's benefit obligation under the unfunded pension
plans are secured by the Anadarko Petroleum Corporation Executives and Directors
Benefits Trust. See Note 9.
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
millions ----------- -----------
Effect on total of service and interest cost components $ 1 $(1)
Effect on postretirement benefit obligation $ 8 $(7)
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 $7 million, $5
million and $5 million during 2000, 1999 and 1998, respectively.
EMPLOYEE STOCK OWNERSHIP PLAN Effective July 14, 2000, Anadarko adopted the RME
employee stock ownership plan (ESOP) and the shares in the ESOP were converted
to shares of Anadarko common stock. As of July 14, 2000, the ESOP consisted of
1.2 million shares or $74 million of common stock (the ESOP shares) to be used
to fund the Company's matching obligation under the RME Thrift Plan. All
domestic regular employees of RME were eligible to participate in the ESOP. All
remaining unallocated shares will be used for Company matching under the
Anadarko ESP.
The ESOP shares, which are held in trust, were originally purchased with
the proceeds from a 30-year loan from RME in 1997. Such shares were pledged as
collateral for the loan. As loan payments are made,
70
72
ANADARKO PETROLEUM CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 2000, 1999 AND 1998
17. PENSION PLANS, OTHER POSTRETIREMENT BENEFITS AND EMPLOYEE SAVINGS PLANS
(CONTINUED)
shares are released from collateral, based on the proportion of debt service
paid. Scheduled principal and interest requirements are funded with dividends
paid on the unallocated ESOP shares and with cash contributions from the
Company. Principal or interest prepayments may be made to ensure that the
Company's minimum matching obligation is met.
Shares held by the ESOP are included in the computation of earnings per
share as ESOP shares are released from collateral. Releases of ESOP shares will
be allocated to participants' accounts and will be charged to compensation
expense at the fair market value of the shares on the date of the employer
match. Dividends on allocated ESOP shares are recorded as a reduction to
retained earnings; dividends on unallocated ESOP shares are recorded as a
reduction of the principal or accrued interest on the loan.
As of December 31, 2000, the unallocated shares in the ESOP were 1.1
million and the fair value of unallocated ESOP Shares at December 31, 2000 was
$79 million. In 2000, compensation cost related to the allocation of ESOP shares
to participants' accounts was $2 million.
18. CONTINGENCIES
GENERAL The Company is a defendant in a number of lawsuits and is involved in
governmental proceedings arising in the ordinary course of business, including,
but not limited to, royalty claims, contract claims and environmental claims.
The Company has also been named as a defendant in various personal injury
claims, including numerous claims by employees of third-party contractors
alleging exposure to asbestos and benzene while working at a refinery in Corpus
Christi, which the Company sold in segments in 1987 and 1989. While the ultimate
outcome and impact on the Company cannot be predicted with certainty, management
believes that the resolution of these proceedings will not have a material
adverse effect on the consolidated financial position of the Company, although
results of operations and cash flow could be significantly impacted in the
reporting periods in which such matters are resolved. Discussed below are
several specific proceedings.
SUPERFUND Presently, six Superfund sites (five Federal and one State) are
included in the Superfund Reserve. Liabilities associated with the Superfund
sites continue to evolve due to unexpected lawsuits and agency actions.
OPERATING INDUSTRIES, INC. (FEDERAL) -- The former municipal industrial
landfill (Monterey Park, California) was operational between 1948 and 1984.
RME was noticed as a Potentially Responsible Party (PRP) in June 1986 for
its Wilmington Production Field's (approximately 50,500 barrels of E&P
waste) and Wilmington Refinery's (approximately 23,500 barrels of liquid
waste) contributions. The Company believes its share of the costs will be
about $4 million, not including settlement of two pending lawsuits.
EKOTEK (FEDERAL) -- The facility (Salt Lake City, Utah) operated as a
refinery from 1953 until 1978, at which time it was converted to a
hazardous waste storage/treatment and petroleum recycling facility. The
Utah Department of Environmental Quality issued multiple Notices of
Violation to the facility in 1988, resulting in the facility's closing.
Bear Creek Uranium Company was named as a PRP for its contributions of
approximately 117,000 gallons of used/waste oils. Remediation of the Ekotek
site is nearing completion and no additional funding requests are expected.
CASMALIA (FEDERAL) -- The Casmalia facility (Santa Barbara County,
California) is a former Resource Conservation and Recovery Act hazardous
waste disposal site. RME was noticed as a PRP in March 1993. RME's waste
contribution is attributed to the Wilmington Refinery. Environmental
Protection Agency (EPA) has recently forwarded a request for payment in the
amount of $22 million to the PRP group for reimbursement of previous
remedial expenditures. Negotiations with EPA are ongoing. The Company
believes its share of the costs will be about $100,000.
71
73
ANADARKO PETROLEUM CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 2000, 1999 AND 1998
18. CONTINGENCIES (CONTINUED)
GEOTHERMAL INC. (STATE) -- The site (Middletown, California) was permitted
as a Class II surface impoundment facility for geothermal wastes. Sludge
from drilling operations and power plant wastes generated at the Geysers
Geothermal Field between 1976 and 1987 were transported to the facility for
treatment/disposal. The waste material was placed in evaporation ponds and
allowed to dry. The resultant solids were buried onsite. Site remediation
began in 1984. Anadarko was noticed as a PRP in December 1993. Several
remedial methods are currently being evaluated to determine the most
effective for addressing site groundwater impacts. The Company believes its
share of the costs will be about $100,000.
PCB TREATMENT, INC. (FEDERAL) -- The PCB treatment/disposal site (Kansas
City, Kansas and Kansas City, Missouri) operated from 1982 until 1986 when
regulatory violations forced its closure. RME was noticed as a PRP in
October 1998. Approximately 56,000 pounds of PCB contaminated materials
were attributed to Wilmington Refinery operations. PCB impacts are
currently limited to the facility structures and surrounding soils.
Remedial alternatives are under review. The Company believes its share of
the costs will be about $100,000.
SUMMITVILLE MINE (FEDERAL) -- RME and Cleveland Cliffs Iron Company
conducted exploration activities at the site (Summitville, Colorado)
between 1967 and 1969. The exploration efforts ceased after the companies
determined operations were not commercially viable. Several other companies
initiated various exploration efforts at the site until 1984 when Galactic
Resources permitted a heap leach gold mine at the site. Galactic filed for
bankruptcy in 1992 and EPA implemented a cleanup response in 1993. RME and
Cleveland Cliffs negotiated a settlement with EPA regarding Federal
liability at the site that excluded claims for natural resource damages.
The State of Colorado is seeking response costs from RME and Cleveland
Cliffs in the amount of $6 million (RME's share $3 million).
MINERAL RESERVATION LITIGATION In August 1994, the surface owners (McCormick,
et al.) of portions of five sections of Colorado land that are subject to
mineral reservations made by the Company's predecessor in title brought suit
against the Company in State District Court, Weld County, Colorado, to quiet
title to minerals, including oil (in some of the lands) and natural gas. On June
23, 1997, the State District Court granted the Company's Motion for Summary
Judgment, holding as a matter of law that the mineral reservations at issue were
unambiguous and included all valuable non-surface substances, including oil and
gas. The Colorado Court of Appeals affirmed the decision of the State District
Court in granting the Company's Motion for Summary Judgment on December 10, 1998
and then denied the surface owners' Motion for Rehearing. The surface owners
then filed a Petition for Writ with the Colorado Supreme Court, which was
granted in September 1999. The Colorado Supreme Court has affirmed the lower
court's decisions in favor of the Company bringing this matter to a successful
conclusion.
ROYALTY LITIGATION During September of 2000, the Company was named as a
defendant in a case styled U.S. of America ex rel. Harold E. Wright v. AGIP
Company, et al. (the "Gas Qui Tam case") filed in the U.S. District Court for
the Eastern District of Texas, Lufkin Division. This lawsuit generally alleges
that the Company and 118 other defendants improperly measured and otherwise
undervalued natural gas in connection with a payment of royalties on production
from federal and Indian lands. The case has been transferred to the U.S.
District Court, Multi-District Litigation Docket pending in Wyoming. Based on
the Company's present understanding of the various governmental and False Claims
Act proceedings described above, the Company believes that it has substantial
defenses to these claims and intends to vigorously assert such defenses.
However, if the Company is found to have violated the Civil False Claims Act,
the Company could be subject to a variety of sanctions, including treble damages
and substantial monetary fines.
A group of royalty owners purporting to represent RME's gas royalty owners
in Texas (Neinast, et al.) was granted class action certification in December
1999, by the 21st Judicial District Court of Washington County, Texas, in
connection with a gas royalty underpayment case against the Company. This
certification
72
74
ANADARKO PETROLEUM CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 2000, 1999 AND 1998
18. CONTINGENCIES (CONTINUED)
did not constitute a review by the Court of the merits of the claims being
asserted. The royalty owners' pleadings did not specify the damages being
claimed, although most recently a demand for damages in the amount of $100
million has been asserted. The Company is of the opinion that the amount of
damages at risk is substantially less than the amount demanded by the class
action counsel and the Company intends to vigorously assert its defenses. The
Company is currently appealing the class certification order. A decision on the
class certification is expected during the second quarter of 2001.
A group of royalty owners in the State of Oklahoma surrounding the Beaver
County Gathering System allege five separate claims against the defendants
including RME. This matter styled Galen Bridenstine v. Kaiser Francis Oil
Company, et al. (including RME) has been certified as a class action. The
plaintiffs contend that gathering, compression and dehydration fees deducted by
the defendants from royalty payments were in violation of the Oklahoma Check
Stub Statute and were improper. This matter has now been settled.
A class action lawsuit entitled Gilbert H. Coulter, et al. v. Anadarko
Petroleum Corporation has been certified in the 26th Judicial District Court,
Stevens County, Kansas. In this action, the royalty owners contend that royalty
was underpaid as a result of the deduction for certain post-production costs in
the calculation of royalty. The Company believes that its method of calculating
royalty was proper and that its gas was marketable in the condition produced,
and thus plaintiffs' claims are without merit. This case was certified as a
class action in August 2000. This matter is now set for trial on October 29,
2001.
WYOMING TAX LITIGATION RME has filed suit in the First District Court, Laramie,
Wyoming, against the State of Wyoming, et al. alleging that the revaluation by
the Department of Revenue of crude oil production sales for the years 1989
through 1995 is inappropriate. The Department of Revenue has valued the crude
oil sales based upon the Cushing, Oklahoma price as opposed to the actual sales
price collected from RME. The Department seeks to void the initial sales
transaction as an unlawful affiliate sale that does not reflect true market
price. RME seeks a declaratory judgment in court that the sale made to RME is a
true sale reflective of market value at the wellhead and thus the initial
amounts paid to the Department of Revenue were correct. The amount in
controversy in this matter is approximately $8 million. The Company is currently
unable to predict the final outcome of this matter.
CITGO LITIGATION CITGO Petroleum Corporation's claims arise out of an Asset
Purchase and Contribution Agreement dated March 17, 1987 whereby RME's
predecessor sold a refinery located in Corpus Christi to CITGO's predecessor.
After the sale of the refinery, numerous individuals living near the refinery
sued CITGO (the "Neighborhood Litigation") thereby implicating the Asset
Purchase and Contribution Agreement indemnity provision. CITGO and RME
eventually entered into a settlement agreement ("the 1995 Settlement Agreement")
to allocate, on an interim basis, each parties' liability for defense and
liability cost in that and related litigation. That agreement provides that once
the Neighborhood Litigation and certain related claims are resolved, then the
parties will determine their final indemnity obligations to each other through
binding arbitration. At the present time, RME and CITGO have agreed to defer
arbitrating the allocation of responsibility for this liability in order to work
out a joint defense agreement in the major lawsuits. Arbitration will resume
upon request of either CITGO or RME. In conjunction with this matter, RME is
suing Continental Insurance for denial of coverage for claims related to this
dispute. Negotiations and discussions with CITGO and legal actions against
Continental Insurance continue.
KANSAS AD VALOREM TAX
General 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.
73
75
ANADARKO PETROLEUM CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 2000, 1999 AND 1998
18. CONTINGENCIES (CONTINUED)
Background of Pan Energy 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.
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 $35 million (pretax) as
of December 31, 2000. The Company also seeks from PanEnergy the return of the $1
million (pretax) charged against income in 1993 and 1994. In October 2000, the
U.S. Magistrate issued recommendations concerning motions for summary judgment
previously filed by both parties. In essence, the Magistrate's recommendation
finds that the Company should be responsible for refunds attributable to the
time period following August 1, 1985 while Duke Energy (as the successor company
to Anadarko Production Company) should be responsible for refunds attributable
to the time period before August 1, 1985. Remaining in dispute is approximately
$7 million to $8 million in refunds attributable to Pan Eastern Exploration
Company for the pre-August 1, 1985 time frame. The dispute over Pan Eastern's
refunds is currently set for trial on March 26, 2001 in the U.S. District Court
in Houston, Texas.
Anadarko's net income for 1997 included a $2 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 currently unable
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.
74
76
ANADARKO PETROLEUM CORPORATION
SUPPLEMENTAL QUARTERLY INFORMATION
(UNAUDITED)
QUARTERLY FINANCIAL DATA
The following table shows summary quarterly financial data for 2000 and
1999. 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
MILLIONS EXCEPT PER SHARE AMOUNTS ------- ------- ------- -------
2000(1)
Operating revenues $ 661 $ 748 $1,871 $2,406
Operating income, pretax 119 137 493 670
Net income before cumulative effect of change in
accounting principle $ 50 $ 67 $ 250(2) $ 457(3)
Net income available to common stockholders before
cumulative effect of change in accounting principle $ 48 $ 64 $ 247(2) $ 454(3)
Net income available to common stockholders $ 31 $ 64 $ 247(2) $ 454(3)
EPS - before cumulative effect of change in accounting
principle - basic $ 0.37 $0.50 $ 1.07(2) $ 1.82(3)
EPS - before cumulative effect of change in accounting
principle - diluted $ 0.37 $0.48 $ 1.03(2) $ 1.75(3)
EPS - basic $ 0.24 $0.50 $ 1.07(2) $ 1.82(3)
EPS - diluted $ 0.24 $0.48 $ 1.03(2) $ 1.75(3)
1999
Operating revenues $ 329 $ 419 $ 477 $ 546
Operating income (loss), pretax (8)(4) 41 59 83(5)
Net income (loss) $ (20)(4) $ 11 $ 21 $ 31(5)
Net income (loss) available to common stockholders $ (23)(4) $ 8 $ 19 $ 28(5)
EPS - basic $(0.19)(4) $0.06 $ 0.15 $ 0.22(5)
EPS - diluted $(0.19)(4) $0.06 $ 0.15 $ 0.22(5)
- ---------------
(1) Results for the first, second and third quarters of 2000 have been revised
due to a change in accounting for the carrying value of foreign crude oil
inventories from market to cost in the fourth quarter of 2000.
(2) Anadarko's third quarter net income includes merger expenses of $64 million
($41 million after income taxes), which are a portion of the costs
associated with the RME merger transaction. Excluding this item, Anadarko's
net income was $291 million and net income available to common stockholders
was $288 million, which was $1.20 per common share (diluted).
(3) Anadarko's fourth quarter operating income includes a non-cash charge of $50
million ($32 million after income taxes) to impair certain international
properties. The Company's net income also includes merger expenses of $3
million ($2 million after income taxes), which are a portion of the costs
associated with the RME merger transaction. Excluding these items,
Anadarko's net income was $491 million and net income available to common
stockholders was $488 million, which was $1.88 per common share (diluted).
(4) Anadarko's first quarter 1999 operating loss includes a non-cash charge of
$20 million ($13 million after income taxes) to impair Eritrea properties.
Excluding this impairment, Anadarko's first quarter net operating income
(pretax) was $12 million, net loss was $8 million and net loss available to
common stockholders was $10 million, which was $0.08 per common share
(diluted).
(5) Anadarko's fourth quarter 1999 operating income includes a non-cash charge
of $4 million ($3 million after income taxes) to impair certain
international properties. Excluding this impairment, Anadarko's fourth
quarter net operating income (pretax) was $87 million, net income was $33
million and net income available to common stockholders was $31 million,
which was $0.24 per common share (diluted).
75
77
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, 2000 and 1999 are $2.9 billion and $323 million,
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 1998 1999 2000 2000
millions ----- ---- ---- ------ --------
Property acquisition $26 $19 $25 $ 71 $ 141
Exploration 14 38 31 2,564 2,647
Capitalized interest 6 5 7 92 110
--- --- --- ------ ------
Total $46 $62 $63 $2,727 $2,898
--- --- --- ------ ------
CAPITALIZED COSTS RELATED TO OIL AND GAS PRODUCING ACTIVITIES
2000 1999
millions ------- ------
UNITED STATES
Capitalized
Unproved properties $ 2,314 $ 210
Proved properties 8,650 4,794
Plant facilities 11 11
------- ------
10,975 5,015
Accumulated depreciation, depletion and amortization 2,506 2,075
------- ------
Net capitalized costs 8,469 2,940
------- ------
CANADA
Capitalized
Unproved properties 412 --
Proved properties 1,200 --
------- ------
1,612 --
Accumulated depreciation, depletion and amortization 77 --
------- ------
Net capitalized costs 1,535 --
------- ------
ALGERIA
Capitalized
Unproved properties 15 62
Proved properties 704 493
------- ------
719 555
Accumulated depreciation, depletion and amortization 79 56
------- ------
Net capitalized costs $ 640 $ 499
------- ------
76
78
ANADARKO PETROLEUM CORPORATION
SUPPLEMENTAL INFORMATION ON OIL AND GAS EXPLORATION
AND PRODUCTION ACTIVITIES
(UNAUDITED)
CAPITALIZED COSTS RELATED TO OIL AND GAS PRODUCING ACTIVITIES (CONTINUED)
2000 1999
millions ------- ------
OTHER INTERNATIONAL
Capitalized
Unproved properties $ 163 $ 51
Proved properties 561 --
Plant facilities 1 --
------- ------
725 51
Accumulated depreciation, depletion and amortization 39 --
------- ------
Net capitalized costs 686 51
------- ------
TOTAL
Capitalized
Unproved properties 2,904 323
Proved properties 11,115 5,287
Plant facilities 12 11
------- ------
14,031 5,621
Accumulated depreciation, depletion and amortization 2,701 2,131
------- ------
Net capitalized costs $11,330 $3,490
------- ------
77
79
ANADARKO PETROLEUM CORPORATION
SUPPLEMENTAL INFORMATION ON OIL AND GAS EXPLORATION
AND PRODUCTION ACTIVITIES
(UNAUDITED)
COSTS INCURRED IN OIL AND GAS PRODUCING ACTIVITIES
2000 1999 1998
millions ------ ---- ----
UNITED STATES -- Capitalized
Property acquisition
Exploration $1,897 $ 41 $ 32
Development 2,984 50 143
Exploration 353 160 171
Development 777 304 313
------ ---- ----
6,011 555 659
------ ---- ----
CANADA -- Capitalized
Property acquisition
Exploration 437 -- --
Development 1,075 -- --
Exploration 16 -- --
Development 89 -- --
------ ---- ----
1,617 -- --
------ ---- ----
ALGERIA -- Capitalized
Property acquisition
Exploration -- 1 --
Exploration 7 13 87
Development 155 49 65
------ ---- ----
162 63 152
------ ---- ----
OTHER INTERNATIONAL -- Capitalized
Property acquisition
Exploration 122 1 2
Development 532 -- --
Exploration 39 34 47
Development 33 -- --
------ ---- ----
726 35 49
------ ---- ----
TOTAL -- Capitalized
Property acquisition
Exploration 2,456 43 34
Development 4,591 50 143
Exploration 415 207 305
Development 1,054 353 378
------ ---- ----
$8,516 $653 $860
------ ---- ----
78
80
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.
2000 1999 1998
millions ------ ----- -----
UNITED STATES
Net revenues from production
Third-party sales of gas, oil, condensate and NGLs $1,390 $ 261 $ 225
Gas and oil sold to consolidated affiliates 677 314 298
------ ----- -----
2,067 575 523
Production (lifting) costs 406 185 201
Depreciation, depletion and amortization* 429 178 180
------ ----- -----
1,232 212 142
Income tax expense 429 75 49
------ ----- -----
Results of operations $ 803 $ 137 $ 93
------ ----- -----
*DD&A rate per net equivalent barrel $ 5.16 $4.11 $3.91
------ ----- -----
CANADA
Net revenues from production
Third-party sales of gas, oil, condensate and NGLs $ 332 $ -- $ --
------ ----- -----
332 -- --
Production (lifting) costs 85 -- --
Depreciation, depletion and amortization* 76 -- --
------ ----- -----
171 -- --
Income tax expense 68 -- --
------ ----- -----
Results of operations $ 103 $ -- $ --
------ ----- -----
*DD&A rate per net equivalent barrel $ 6.12 $ -- $ --
------ ----- -----
ALGERIA
Net revenues from production
Third-party sales of oil $ 271 $ 113 $ 16
------ ----- -----
271 113 16
Production (lifting) costs 23 11 6
Depreciation, depletion and amortization* 26 18 4
------ ----- -----
222 84 6
Income tax expense 137 52 4
------ ----- -----
Results of operations $ 85 $ 32 $ 2
------ ----- -----
*DD&A rate per net equivalent barrel $ 2.78 $2.96 $3.22
------ ----- -----
79
81
ANADARKO PETROLEUM CORPORATION
SUPPLEMENTAL INFORMATION ON OIL AND GAS EXPLORATION
AND PRODUCTION ACTIVITIES
(UNAUDITED)
RESULTS OF OPERATIONS FOR PRODUCING ACTIVITIES (CONTINUED)
millions 2000 1999 1998
------ ----- -----
OTHER INTERNATIONAL
Net revenues from production
Third-party sales of gas, oil, condensate and NGLs $ 133 $ -- $ --
------ ----- -----
133 -- --
Production (lifting) costs 61 -- --
Depreciation, depletion and amortization* 39 -- --
------ ----- -----
33 -- --
Income tax expense 9 -- --
------ ----- -----
Results of operations $ 24 $ -- $ --
------ ----- -----
*DD&A rate per net equivalent barrel $ 5.36 $ -- $ --
------ ----- -----
TOTAL
Net revenues from production
Third-party sales of gas, oil, condensate and NGLs $2,126 $ 374 $ 241
Gas and oil sold to consolidated affiliates 677 314 298
------ ----- -----
2,803 688 539
Production (lifting) costs 575 196 207
Depreciation, depletion and amortization* 570 196 184
------ ----- -----
1,658 296 148
Income tax expense 643 127 53
------ ----- -----
Results of operations $1,015 $ 169 $ 95
------ ----- -----
*DD&A rate per net equivalent barrel $ 5.08 $3.97 $3.89
------ ----- -----
- ---------------
In July 2000, Anadarko acquired producing activities in Canada and other
international areas as a result of the merger with RME.
80
82
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 barrels of oil equivalent (MMBOE). 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.
The Company's reserves increased in 2000 primarily from the merger
transaction with RME, exploration and development drilling and improved
recovery. 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 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.
81
83
ANADARKO PETROLEUM CORPORATION
SUPPLEMENTAL INFORMATION ON OIL AND GAS EXPLORATION
AND PRODUCTION ACTIVITIES
(UNAUDITED)
OIL AND GAS RESERVES (CONTINUED)
NATURAL GAS OIL, CONDENSATE AND NGLS
(BCF) (MMBBLS)
------------------------------- ---------------------------------------
OTHER OTHER
U.S. CANADA INT'L TOTAL U.S. CANADA ALGERIA INT'L TOTAL
----- ------ ----- ------ ---- ------ ------- ----- -----
PROVED RESERVES
DECEMBER 31, 1997 1,730 -- -- 1,730 236 -- 184 -- 420
Revisions of prior estimates (70) -- -- (70) (32) -- -- -- (32)
Extensions, discoveries and other
additions 1,028 -- -- 1,028 37 -- 62 -- 99
Improved recovery 15 -- -- 15 7 -- -- -- 7
Purchases in place 121 -- -- 121 18 -- -- -- 18
Production (177) -- -- (177) (17) -- (1) -- (18)
----- --- -- ------ --- -- --- --- -----
DECEMBER 31, 1998 2,647 -- -- 2,647 249 -- 245 -- 494
Revisions of prior estimates (188) -- -- (188) 40 -- -- -- 40
Extensions, discoveries and other
additions 112 -- -- 112 1 -- 73 -- 74
Improved recovery 34 -- -- 34 10 -- -- -- 10
Purchases in place 99 -- -- 99 1 -- -- -- 1
Sales in place (27) -- -- (27) (2) -- (23) -- (25)
Production (170) -- -- (170) (15) -- (6) -- (21)
----- --- -- ------ --- -- --- --- -----
DECEMBER 31, 1999 2,507 -- -- 2,507 284 -- 289 -- 573
Revisions of prior estimates 102 (30) (5) 67 23 (5) -- 6 24
Extensions, discoveries and other
additions 665 15 -- 680 8 3 84 -- 95
Improved recovery 30 -- -- 30 9 -- -- -- 9
Purchases in place 2,253 910 33 3,196 161 85 -- 147 393
Sales in place -- (2) -- (2) -- -- -- (1) (1)
Production (338) (46) (1) (385) (27) (4) (9) (7) (47)
----- --- -- ------ --- -- --- --- -----
DECEMBER 31, 2000 5,219 847 27 6,093 458 79 364 145 1,046
----- --- -- ------ --- -- --- --- -----
PROVED DEVELOPED RESERVES
December 31, 1997 1,597 -- -- 1,597 123 -- -- -- 123
December 31, 1998 1,640 -- -- 1,640 120 -- 44 -- 164
December 31, 1999 1,672 -- -- 1,672 134 -- 61 -- 195
December 31, 2000 4,424 720 16 5,160 355 59 98 85 597
82
84
ANADARKO PETROLEUM CORPORATION
SUPPLEMENTAL INFORMATION ON OIL AND GAS EXPLORATION
AND PRODUCTION ACTIVITIES (CONTINUED)
(UNAUDITED)
OIL AND GAS RESERVES (CONTINUED)
TOTAL
(MMBOE)
----------------------------------------
OTHER
U.S. CANADA ALGERIA INT'L TOTAL
----- ------ ------- ----- -----
PROVED RESERVES
DECEMBER 31, 1997 524 -- 184 -- 708
Revisions of prior estimates (44) -- -- -- (44)
Extensions, discoveries and other additions 208 -- 62 -- 270
Improved recovery 9 -- -- -- 9
Purchases in place 39 -- -- -- 39
Production (46) -- (1) -- (47)
----- --- --- --- -----
DECEMBER 31, 1998 690 -- 245 -- 935
Revisions of prior estimates 9 -- -- -- 9
Extensions, discoveries and other additions 19 -- 73 -- 92
Improved recovery 16 -- -- -- 16
Purchases in place 18 -- -- -- 18
Sales in place (6) -- (23) -- (29)
Production (44) -- (6) -- (50)
----- --- --- --- -----
DECEMBER 31, 1999 702 -- 289 -- 991
Revisions of prior estimates 39 (10) -- 6 35
Extensions, discoveries and other additions 118 6 84 -- 208
Improved recovery 14 -- -- -- 14
Purchases in place 537 237 -- 152 926
Sales in place -- -- -- (1) (1)
Production (83) (13) (9) (7) (112)
----- --- --- --- -----
DECEMBER 31, 2000 1,327 220 364 150 2,061
----- --- --- --- -----
PROVED DEVELOPED RESERVES
December 31, 1997 389 -- -- -- 389
December 31, 1998 393 -- 44 -- 437
December 31, 1999 412 -- 61 -- 473
December 31, 2000 1,092 179 98 88 1,457
83
85
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, 2000, the present value (discounted at 10%) of future net
revenues from Anadarko's proved reserves was $33.1 billion, before income taxes,
and $21.4 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 388% in 2000 compared to
1999 is primarily due to the addition of proved reserves related to the merger
transaction with RME, significantly higher natural gas prices at year-end 2000
and 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
country-by-country 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.
84
86
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
2000 1999 1998
MILLIONS ------- ------- ------
UNITED STATES
Future cash inflows $57,027 $11,012 $7,393
Future production and development costs 9,357 3,232 2,690
------- ------- ------
Future net cash flows before income taxes 47,670 7,780 4,703
10% annual discount for estimated timing of cash flows 22,911 3,916 2,209
------- ------- ------
Discounted future net cash flows before income taxes 24,759 3,864 2,494
Future income taxes, net of 10% annual discount 8,546 1,070 698
------- ------- ------
Standardized measure of discounted future net cash flows
relating to oil and gas reserves 16,213 2,794 1,796
------- ------- ------
CANADA
Future cash inflows 8,720 -- --
Future production and development costs 1,154 -- --
------- ------- ------
Future net cash flows before income taxes 7,566 -- --
10% annual discount for estimated timing of cash flows 3,261 -- --
------- ------- ------
Discounted future net cash flows before income taxes 4,305 -- --
Future income taxes, net of 10% annual discount 1,880 -- --
------- ------- ------
Standardized measure of discounted future net cash flows
relating to oil and gas reserves 2,425 -- --
------- ------- ------
ALGERIA
Future cash inflows 8,410 7,259 2,694
Future production and development costs 1,419 1,077 988
------- ------- ------
Future net cash flows before income taxes 6,991 6,182 1,706
10% annual discount for estimated timing of cash flows 3,807 3,683 1,066
------- ------- ------
Discounted future net cash flows before income taxes 3,184 2,499 640
Future income taxes, net of 10% annual discount 1,108 911 214
------- ------- ------
Standardized measure of discounted future net cash flows
relating to oil and gas reserves 2,076 1,588 426
------- ------- ------
OTHER INTERNATIONAL
Future cash inflows 2,631 -- --
Future production and development costs 1,031 -- --
------- ------- ------
Future net cash flows before income taxes 1,600 -- --
10% annual discount for estimated timing of cash flows 705 -- --
------- ------- ------
Discounted future net cash flows before income taxes 895 -- --
Future income taxes, net of 10% annual discount 204 -- --
------- ------- ------
Standardized measure of discounted future net cash flows
relating to oil and gas reserves 691 -- --
------- ------- ------
TOTAL
Future cash inflows 76,788 18,271 10,087
Future production and development costs 12,961 4,309 3,678
------- ------- ------
Future net cash flows before income taxes 63,827 13,962 6,409
10% annual discount for estimated timing of cash flows 30,684 7,599 3,275
------- ------- ------
Discounted future net cash flows before income taxes 33,143 6,363 3,134
Future income taxes, net of 10% annual discount 11,738 1,981 912
------- ------- ------
Standardized measure of discounted future net cash flows
relating to oil and gas reserves $21,405 $ 4,382 $2,222
------- ------- ------
85
87
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
2000 1999 1998
millions ------- ------- ------
UNITED STATES
Beginning of year $ 2,794 $ 1,796 $1,408
Sales and transfers of oil and gas produced, net of
production costs (1,661) (390) (322)
Net changes in prices and development and production costs 7,437 1,451 (412)
Extensions, discoveries, additions and improved recovery,
less related costs 2,719 (90) 1,002
Development costs incurred during the period 126 30 26
Revisions of previous quantity estimates 114 175 (225)
Purchases of minerals in place 11,841 52 96
Sales of minerals in place (1) (22) --
Accretion of discount 386 249 206
Net change in income taxes (7,476) (372) (44)
Other (66) (85) 61
------- ------- ------
End of year 16,213 2,794 1,796
------- ------- ------
CANADA
Beginning of year -- -- --
Sales and transfers of oil and gas produced, net of
production costs (247) -- --
Extensions, discoveries, additions and improved recovery,
less related costs 101 -- --
Revisions of previous quantity estimates (165) -- --
Purchases of minerals in place 4,568 -- --
Net change in income taxes (1,880) -- --
Other 48 -- --
------- ------- ------
End of year 2,425 -- --
------- ------- ------
ALGERIA
Beginning of year 1,588 426 603
Sales and transfers of oil produced, net of production costs (248) (102) (10)
Net changes in prices and development and production costs (330) 1,774 (514)
Extensions, discoveries, additions and improved recovery,
less related costs 901 210 45
Development costs incurred during the period 135 38 91
Sales of minerals in place -- (85) --
Accretion of discount 250 64 97
Net change in income taxes (197) (697) 150
Other (23) (40) (36)
------- ------- ------
End of year $ 2,076 $ 1,588 $ 426
------- ------- ------
86
88
ANADARKO PETROLEUM CORPORATION
SUPPLEMENTAL INFORMATION ON OIL AND GAS EXPLORATION
AND PRODUCTION ACTIVITIES
(UNAUDITED)
CHANGES IN STANDARDIZED MEASURE OF DISCOUNTED FUTURE NET CASH FLOWS
RELATING TO PROVED OIL AND GAS RESERVES (CONTINUED)
2000 1999 1998
millions ------- ------- ------
OTHER INTERNATIONAL
Beginning of year $ -- $ -- $ --
Sales and transfers of oil and gas produced, net of
production costs (72) -- --
Purchases of minerals in place 967 -- --
Net change in income taxes (204) -- --
------- ------- ------
End of year 691 -- --
------- ------- ------
TOTAL
Beginning of year 4,382 2,222 2,011
Sales and transfers of oil and gas produced, net of
production costs (2,228) (492) (332)
Net changes in prices and development and production costs 7,107 3,225 (926)
Extensions, discoveries, additions and improved recovery,
less related costs 3,721 120 1,047
Development costs incurred during the period 261 68 117
Revisions of previous quantity estimates (51) 175 (225)
Purchases of minerals in place 17,376 52 96
Sales of minerals in place (1) (107) --
Accretion of discount 636 313 303
Net change in income taxes (9,757) (1,069) 106
Other (41) (125) 25
------- ------- ------
End of year $21,405 $ 4,382 $2,222
------- ------- ------
87
89
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 26, 2001 (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 2000 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 in the Proxy Statement, which is
incorporated herein by reference.
88
90
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 42.
(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
- ------ ----------------------------------------- ------------------------------- --------
2(a) Agreement and Plan of Merger dated as of 2.1 to Form 8-K dated April 2, 1-8968
April 2, 2000, among Anadarko, Subcorp 2000
and RME
3(a) Restated Certificate of Incorporation of 19(a)(i) to Form 10-Q for 1-8968
Anadarko Petroleum Corporation, dated quarter ended September 30,
August 28, 1986 1986
(b) By-laws of Anadarko Petroleum 3(e) to Form 10-Q for quarter 1-8968
Corporation, as amended ended September 30, 2000
(c) Certificate of Amendment of Anadarko's 4.1 to Form 8-K dated July 28, 1-8968
Restated Certificate of Incorporation 2000
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) Amendment No. 1 to Rights Agreement, 2.4 to Form 8-K dated April 2, 1-8968
dated as of April 2, 2000 between 2000
Anadarko and Rights Agent
DIRECTOR AND EXECUTIVE COMPENSATION PLANS AND ARRANGEMENTS
10(b) (i) Director Deferred Compensation Plan of 10(b)(viii) to Form 10-K for 1-8968
Anadarko Petroleum Corporation, effective year ended December 31, 1986
January 1, 1987
(ii) Amendment to Anadarko Petroleum 10(b)(ii) to Form 10-K for year 1-8968
Corporation Director Deferred ended December 31, 1997
Compensation Plan
(iii) Director Deferred Compensation Agreement 19(a)(i) to Form 10-Q for 1-8968
between Anadarko Petroleum Corporation quarter ended March 31, 1987
and each Director Electing to Participate
(iv) First Amendment to Director Deferred 10(b)(iv) to Form 10-K for year 1-8968
Compensation Agreement 1987, 1988, 1989 ended December 31, 1997
and 1990 Plan Years
*(v) Termination of Director Deferred
Compensation Plan of Anadarko Petroleum
Corporation, effective July 11, 2000
89
91
EXHIBIT ORIGINALLY FILED FILE
NUMBER DESCRIPTION AS EXHIBIT NUMBER
- ------ ----------------------------------------- ------------------------------- --------
10(b) (vi) Anadarko Petroleum Corporation 1988 Stock 19(b) to Form 10-Q for quarter 1-8968
Option Plan for Non-Employee Directors ended September 30, 1988
(vii) 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
(viii) Amendment to Anadarko Petroleum 10(b)(vii) to Form 10-K for 1-8968
Corporation 1988 Stock Option Plan for year ended December 31, 1997
Non-Employee Directors
(ix) Second Amendment to Anadarko Petroleum 10(b)(viii) to Form 10-K for 1-8968
Corporation 1988 Stock Option Plan for year ended December 31, 1997
Non-Employee Directors
(x) 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
(xi) Anadarko Petroleum Corporation and 19(c)(ix) to Form 10-Q for 1-8968
Participating Affiliates and Subsidiaries quarter ended September 30,
Annual Override Pool Bonus Plan, as 1986
amended October 6, 1986
(xii) Second Amendment to Anadarko Petroleum 10(b)(ii) to Form 10-K for year 1-8968
Corporation and Participating Affiliates ended December 31, 1987
and Subsidiaries Annual Override Pool
Bonus Plan
(xiii) 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
(xiv) First Amendment to Restatement of the 10(b)(xii) to Form 10-K for 1-8968
Anadarko Petroleum Corporation 1987 Stock year ended December 31, 1997
Option Plan
(xv) 1993 Stock Incentive Plan 10(b)(xii) to Form 10-K for 1-8968
year ended December 31, 1993
(xvi) 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
(xvii) Second Amendment to Anadarko Petroleum 10(b)(xv) to Form 10-K for year 1-8968
Corporation 1993 Stock Incentive Plan ended December 31, 1997
(xviii) Anadarko Petroleum Corporation 1993 Stock 10(a) to Form 10-Q for quarter 1-8968
Incentive Plan Stock Option Agreement ended March 31, 1996
(xix) Form of Anadarko Petroleum Corporation 10(b)(xvii) to Form 10-K for 1-8968
1993 Stock Incentive Plan Stock Option year ended December 31, 1997
Agreement
(xx) Form of Anadarko Petroleum Corporation 10(b)(xviii) Form 10-K for year 1-8968
1993 Stock Incentive Plan Restricted ended December 31, 1997
Stock Agreement
(xxi) Anadarko Petroleum Corporation 1999 Stock 99 -- Attachment A to Form 10-K 1-8968
Incentive Plan for year ended December 31,
1998
90
92
EXHIBIT ORIGINALLY FILED FILE
NUMBER DESCRIPTION AS EXHIBIT NUMBER
- ------ ----------------------------------------- ------------------------------- --------
*10(b) (xxii) Amendment to 1999 Stock Incentive Plan,
as of July 1, 2000
(xxiii) Form of Anadarko Petroleum Corporation 10(b)(xxiii) to Form 10-K for 1-8968
1999 Stock Incentive Plan Stock Option year ended December 31, 1999
Agreement
(xxiv) Form of Anadarko Petroleum Corporation 10(b)(xxiv) to Form 10-K for 1-8968
1999 Stock Incentive Plan Restricted year ended December 31, 1999
Stock Agreement
(xxv) Annual Incentive Bonus Plan 10(b)(xiii) to Form 10-K for 1-8968
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 for 1-8968
year ended December 31, 1997
(xxviii) First Amendment to Anadarko Petroleum 10(b) to Form 10-Q for quarter 1-8968
Corporation Key Employee Change of ended September 30, 2000
Control Contract
(xxix) Executive Deferred Compensation Plan of 10(b)(xii) to Form 10-K for 1-8968
Anadarko Petroleum Corporation and year ended December 31, 1987
Participating Subsidiaries and
Affiliates, effective October 1, 1986
(xxx) Executive Deferred Compensation Plan of 10(b)(vi) to Form 10-K for year 1-8968
Anadarko Petroleum Corporation, effective ended December 31, 1986
January 1, 1987
(xxxi) Amendment to Anadarko Petroleum 10(b)(xxv) to Form 10-K for 1-8968
Corporation Executive Deferred year ended December 31, 1997
Compensation Plan
(xxxii) Executive Deferred Compensation Agreement 19(a)(ii) to Form 10-Q for 1-8968
between Anadarko Petroleum Corporation quarter ended March 31, 1987
and each Executive Electing to
Participate
(xxxiii) First Amendment to Executive Deferred 10(b)(xxvii) to Form 10-K for 1-8968
Compensation Agreement 1987, 1988, 1989 year ended December 31, 1997
and 1990 Plan Years
(xxxiv) Amendments to Executive Deferred 10(b)(xv) to Form 10-K for year 1-8968
Compensation Agreement between Anadarko ended December 31, 1987
Petroleum Corporation and each Executive
Electing to Participate
*(xxxv) Termination of Executive Deferred
Compensation Plan of Anadarko Petroleum
Corporation, effective July 11, 2000
(xxxvi) Anadarko Retirement Restoration Plan, 10(b)(xix) to Form 10-K for 1-8968
effective January 1, 1995 year ended December 31, 1995
(xxxvii) Anadarko Savings Restoration Plan, 10(b)(xx) to Form 10-K for year 1-8968
effective January 1, 1995 ended December 31, 1995
91
93
EXHIBIT ORIGINALLY FILED FILE
NUMBER DESCRIPTION AS EXHIBIT NUMBER
- ------ ----------------------------------------- ------------------------------- --------
10(b) (xxxviii) Amendment to Amended and Restated 10(b)(xxxi) to Form 10-K for 1-8968
Anadarko Savings Restoration Plan year ended December 31, 1997
(xxxix) Plan Agreement for the Management Life 10(b)(xxi) to Form 10-K for 1-8968
Insurance Plan between Anadarko Petroleum year ended December 31, 1995
Corporation and each Eligible Employee,
effective July 1, 1995
(xxxx) Anadarko Petroleum Corporation Estate 10(b)(xxxiv) to Form 10-K for 1-8968
Enhancement Program year ended December 31, 1998
(xxxxi) Estate Enhancement Program Agreement 10(b)(xxxv) to Form 10-K for 1-8968
between Anadarko Petroleum Corporation year ended December 31, 1998
and Eligible Executives
* (xxxxii) Estate Enhancement Program Agreements
effective November 29, 2000
(xxxxiii) Employment Agreement 10(a) to Form 10-Q for quarter 1-8968
ended September 30, 2000
*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 2000 Annual Report to
Stockholders
*21 List of Significant Subsidiaries
*23 Consents of Experts and Counsel Consent
of KPMG LLP
*24 Powers of Attorney
99 Anadarko Petroleum Corporation Proxy Filed on March 14, 2001
Statement, dated March 26, 2001
- ---------------
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, 2000.
92
94
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 14, 2001 By: MICHAEL E. ROSE
----------------------------------
(Michael E. Rose, Executive 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 14, 2001.
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 Executive 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.
PRESTON M. GEREN III
JOHN R. GORDON
LAWRENCE M. JONES
GEORGE LINDAHL III
JOHN W. PODUSKA, SR., PH.D.
JEFF D. SANDEFER
JOHN N. SEITZ
- -----
* Signed on behalf of each of these persons and on his own behalf:
By MICHAEL E. ROSE
-----------------------------------------
(Michael E. Rose, Attorney-in-Fact )
93
95
STOCKHOLDERS' INFORMATION
The common stock of Anadarko Petroleum Corporation is traded on the New
York Stock Exchange. Average daily trading volume was 1,618,000 shares in 2000,
672,000 shares in 1999 and 627,000 shares in 1998. The ticker symbol for
Anadarko is APC and daily stock reports published in local newspapers carry
trading summaries for the Company under the headings ANADRK or ANADRKPETE. The
following shows information regarding the closing market price of and dividends
paid on the Company's common stock by quarter for 2000 and 1999.
FIRST SECOND THIRD FOURTH
QUARTER QUARTER QUARTER QUARTER
------- ------- ------- -------
2000
Market Price
High $38.69 $53.25 $68.05 $74.85
Low $28.44 $34.50 $44.44 $58.45
Dividends $ 0.05 $ 0.05 $ 0.05 $ 0.05
1999
Market Price
High $39.88 $40.50 $38.19 $35.44
Low $26.56 $35.69 $29.00 $27.19
Dividends $ 0.05 $ 0.05 $ 0.05 $ 0.05
STOCKHOLDER SERVICES The transfer agent and registrar for Anadarko common stock
is Mellon Investor Services LLC. Stockholders who need assistance with their
accounts or wish to eliminate duplicate mailings should contact:
Mellon Investor Services LLC U.S. Shareholders (800) 851-9677
P.O. Box 3315 TDD for Hearing Impaired (800) 231-5469
South Hackensack, NJ 07606-1915 Foreign Shareholders (201) 329-8660
Website: www.mellon-investor.com TDD Foreign Shareholders (201) 329-8354
Anadarko offers a Dividend Reinvestment and Stock Purchase Plan (DRIP) to
its stockholders. The DRIP provides an opportunity to reinvest dividends and
offers an alternative to traditional methods of buying, holding and selling
Anadarko common stock. For more information about Anadarko's DRIP, please
contact Mellon Investor Services at 1-888-470-5786.
ANADARKO WILL MAKE AVAILABLE TO ANY STOCKHOLDER, WITHOUT CHARGE, ADDITIONAL
COPIES OF ITS 2000 ANNUAL REPORT ON FORM 10-K AS FILED WITH THE SECURITIES AND
EXCHANGE COMMISSION. FOR ADDITIONAL COPIES OF THIS, OR ANY ANADARKO PUBLICATION,
PLEASE CONTACT:
Anadarko Petroleum Corporation
Public Affairs Department
P.O. Box 1330
Houston, Texas 77251-1330
(281) 874-3498
As a service to our stockholders, copies of the Company's news releases can
be transmitted at no charge via fax by calling 1-800-758-5804 ext. 038950 or
through our website, www.anadarko.com.
ANNUAL STOCKHOLDERS' MEETING Stockholders are cordially invited to attend
Anadarko's annual stockholders' meeting to be held at 9:30 a.m., Thursday, April
26, 2001, at The Wyndham Hotel -- Greenspoint at 12400 Greenspoint Drive in
Houston.
FOR MORE INFORMATION If you have questions or need additional information
concerning Anadarko's operations or financial results, analysts and investors
please contact Paul Taylor, Vice President, Investor Relations, at (281)
874-3471 and media please contact Teresa Wong, Manager of Public Affairs and
Corporate Communications, at (281) 873-1203.
94
96
EXHIBIT INDEX
(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 42.
(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
- ------ ----------------------------------------- ------------------------------- --------
2(a) Agreement and Plan of Merger dated as of 2.1 to Form 8-K dated April 2, 1-8968
April 2, 2000, among Anadarko, Subcorp 2000
and RME
3(a) Restated Certificate of Incorporation of 19(a)(i) to Form 10-Q for 1-8968
Anadarko Petroleum Corporation, dated quarter ended September 30,
August 28, 1986 1986
(b) By-laws of Anadarko Petroleum 3(e) to Form 10-Q for quarter 1-8968
Corporation, as amended ended September 30, 2000
(c) Certificate of Amendment of Anadarko's 4.1 to Form 8-K dated July 28, 1-8968
Restated Certificate of Incorporation 2000
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) Amendment No. 1 to Rights Agreement, 2.4 to Form 8-K dated April 2, 1-8968
dated as of April 2, 2000 between 2000
Anadarko and Rights Agent
DIRECTOR AND EXECUTIVE COMPENSATION PLANS AND ARRANGEMENTS
10(b) (i) Director Deferred Compensation Plan of 10(b)(viii) to Form 10-K for 1-8968
Anadarko Petroleum Corporation, effective year ended December 31, 1986
January 1, 1987
(ii) Amendment to Anadarko Petroleum 10(b)(ii) to Form 10-K for year 1-8968
Corporation Director Deferred ended December 31, 1997
Compensation Plan
(iii) Director Deferred Compensation Agreement 19(a)(i) to Form 10-Q for 1-8968
between Anadarko Petroleum Corporation quarter ended March 31, 1987
and each Director Electing to Participate
(iv) First Amendment to Director Deferred 10(b)(iv) to Form 10-K for year 1-8968
Compensation Agreement 1987, 1988, 1989 ended December 31, 1997
and 1990 Plan Years
* (v) Termination of Director Deferred
Compensation Plan of Anadarko Petroleum
Corporation, effective July 11, 2000
(vi) Anadarko Petroleum Corporation 1988 Stock 19(b) to Form 10-Q for quarter 1-8968
Option Plan for Non-Employee Directors ended September 30, 1988
(vii) 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
95
97
EXHIBIT ORIGINALLY FILED FILE
NUMBER DESCRIPTION AS EXHIBIT NUMBER
- ------ ----------------------------------------- ------------------------------- --------
10(b) (viii) Amendment to Anadarko Petroleum 10(b)(vii) to Form 10-K for 1-8968
Corporation 1988 Stock Option Plan for year ended December 31, 1997
Non-Employee Directors
(ix) Second Amendment to Anadarko Petroleum 10(b)(viii) to Form 10-K for 1-8968
Corporation 1988 Stock Option Plan for year ended December 31, 1997
Non-Employee Directors
(x) 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
(xi) Anadarko Petroleum Corporation and 19(c)(ix) to Form 10-Q for 1-8968
Participating Affiliates and Subsidiaries quarter ended September 30,
Annual Override Pool Bonus Plan, as 1986
amended October 6, 1986
(xii) Second Amendment to Anadarko Petroleum 10(b)(ii) to Form 10-K for year 1-8968
Corporation and Participating Affiliates ended December 31, 1987
and Subsidiaries Annual Override Pool
Bonus Plan
(xiii) 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
(xiv) First Amendment to Restatement of the 10(b)(xii) to Form 10-K for 1-8968
Anadarko Petroleum Corporation 1987 Stock year ended December 31, 1997
Option Plan
(xv) 1993 Stock Incentive Plan 10(b)(xii) to Form 10-K for 1-8968
year ended December 31, 1993
(xvi) 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
(xvii) Second Amendment to Anadarko Petroleum 10(b)(xv) to Form 10-K for year 1-8968
Corporation 1993 Stock Incentive Plan ended December 31, 1997
(xviii) Anadarko Petroleum Corporation 1993 Stock 10(a) to Form 10-Q for quarter 1-8968
Incentive Plan Stock Option Agreement ended March 31, 1996
(xix) Form of Anadarko Petroleum Corporation 10(b)(xvii) to Form 10-K for 1-8968
1993 Stock Incentive Plan Stock Option year ended December 31, 1997
Agreement
(xx) Form of Anadarko Petroleum Corporation 10(b)(xviii) Form 10-K for year 1-8968
1993 Stock Incentive Plan Restricted ended December 31, 1997
Stock Agreement
(xxi) Anadarko Petroleum Corporation 1999 Stock 99 -- Attachment A to Form 10-K 1-8968
Incentive Plan for year ended December 31,
1998
*(xxii) Amendment to 1999 Stock Incentive Plan,
as of July 1, 2000
(xxiii) Form of Anadarko Petroleum Corporation 10(b)(xxiii) to Form 10-K for 1-8968
1999 Stock Incentive Plan Stock Option year ended December 31, 1999
Agreement
96
98
EXHIBIT ORIGINALLY FILED FILE
NUMBER DESCRIPTION AS EXHIBIT NUMBER
- ------ ----------------------------------------- ------------------------------- --------
10(b) (xxiv) Form of Anadarko Petroleum Corporation 10(b)(xxiv) to Form 10-K for 1-8968
1999 Stock Incentive Plan Restricted year ended December 31, 1999
Stock Agreement
(xxv) Annual Incentive Bonus Plan 10(b)(xiii) to Form 10-K for 1-8968
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 for 1-8968
year ended December 31, 1997
(xxviii) First Amendment to Anadarko Petroleum 10(b) to Form 10-Q for quarter 1-8968
Corporation Key Employee Change of ended September 30, 2000
Control Contract
(xxix) Executive Deferred Compensation Plan of 10(b)(xii) to Form 10-K for 1-8968
Anadarko Petroleum Corporation and year ended December 31, 1987
Participating Subsidiaries and
Affiliates, effective October 1, 1986
(xxx) Executive Deferred Compensation Plan of 10(b)(vi) to Form 10-K for year 1-8968
Anadarko Petroleum Corporation, effective ended December 31, 1986
January 1, 1987
(xxxi) Amendment to Anadarko Petroleum 10(b)(xxv) to Form 10-K for 1-8968
Corporation Executive Deferred year ended December 31, 1997
Compensation Plan
(xxxii) Executive Deferred Compensation Agreement 19(a)(ii) to Form 10-Q for 1-8968
between Anadarko Petroleum Corporation quarter ended March 31, 1987
and each Executive Electing to
Participate
(xxxiii) First Amendment to Executive Deferred 10(b)(xxvii) to Form 10-K for 1-8968
Compensation Agreement 1987, 1988, 1989 year ended December 31, 1997
and 1990 Plan Years
(xxxiv) Amendments to Executive Deferred 10(b)(xv) to Form 10-K for year 1-8968
Compensation Agreement between Anadarko ended December 31, 1987
Petroleum Corporation and each Executive
Electing to Participate
*(xxxv) Termination of Executive Deferred
Compensation Plan of Anadarko Petroleum
Corporation, effective July 11, 2000
(xxxvi) Anadarko Retirement Restoration Plan, 10(b)(xix) to Form 10-K for 1-8968
effective January 1, 1995 year ended December 31, 1995
(xxxvii) Anadarko Savings Restoration Plan, 10(b)(xx) to Form 10-K for year 1-8968
effective January 1, 1995 ended December 31, 1995
(xxxviii) Amendment to Amended and Restated 10(b)(xxxi) to Form 10-K for 1-8968
Anadarko Savings Restoration Plan year ended December 31, 1997
97
99
EXHIBIT ORIGINALLY FILED FILE
NUMBER DESCRIPTION AS EXHIBIT NUMBER
- ------ ----------------------------------------- ------------------------------- --------
10(b) (xxxix) Plan Agreement for the Management Life 10(b)(xxi) to Form 10-K for 1-8968
Insurance Plan between Anadarko Petroleum year ended December 31, 1995
Corporation and each Eligible Employee,
effective July 1, 1995
(xxxx) Anadarko Petroleum Corporation Estate 10(b)(xxxiv) to Form 10-K for 1-8968
Enhancement Program year ended December 31, 1998
(xxxxi) Estate Enhancement Program Agreement 10(b)(xxxv) to Form 10-K for 1-8968
between Anadarko Petroleum Corporation year ended December 31, 1998
and Eligible Executives
* (xxxxii) Estate Enhancement Program Agreements
effective November 29, 2000
(xxxxiii) Employment Agreement 10(a) to Form 10-Q for quarter 1-8968
ended September 30, 2000
*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 2000 Annual Report to
Stockholders
*21 List of Significant Subsidiaries
*23 Consents of Experts and Counsel Consent
of KPMG LLP
*24 Powers of Attorney
99 Anadarko Petroleum Corporation Proxy Filed on March 14, 2001
Statement, dated March 26, 2001
- ---------------
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.
98