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| APC > SEC Filings for APC > Form 10-Q on 4-Nov-2008 | All Recent SEC Filings |
4-Nov-2008
Quarterly Report
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. Although the Company believes that the expectations reflected in such forward-looking statements are reasonable, it can give no assurance that such expectations will prove to have been correct. Important factors that could cause actual results to differ materially from the Company's expectations include, but are not limited to, the Company's assumptions about energy markets, production levels, reserve levels, operating results, competitive conditions, technology, the availability of capital resources, capital expenditures and other contractual obligations, the supply and demand for and the price of natural gas, oil, NGLs and other products or services, the weather, inflation, the availability of goods and services, drilling risks, future processing volumes and pipeline throughput, general economic conditions, either internationally or nationally or in the jurisdictions in which the Company or its subsidiaries are doing business, legislative or regulatory changes, including changes in environmental regulation, environmental risks and liability under federal, state and foreign environmental laws and regulations, potential environmental obligations arising from Kerr-McGee's former chemical business, the securities or capital markets, our ability to repay debt, the outcome of any proceedings related to the Algerian exceptional profits tax, and other factors discussed below and elsewhere in "Risk Factors" and in "Management's Discussion and Analysis of Financial Condition and Results of Operations - Critical Accounting Policies and Estimates" included in the Company's 2007 Annual Report on Form 10-K, this Form 10-Q 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.
Overview
General Anadarko Petroleum Corporation's primary line of business is the exploration, development, production, gathering, processing and marketing of natural gas, crude oil, condensate and natural gas liquids (NGLs). The Company's major areas of operations are located in the United States and Algeria. The Company also has activity in China, Brazil and several other countries. The Company's focus is on adding high-margin oil and natural gas reserves at competitive costs and continuing to develop more efficient and effective ways of exploring for and producing oil and gas. Unless the context otherwise requires, the terms "Anadarko" or "Company" refer to Anadarko Petroleum Corporation and its consolidated subsidiaries.
The following discussion pertains to Anadarko's financial condition, results of operations and changes in financial condition. Following is an index by major category of discussion including a brief description of the contents:
Table of Contents
Page
Financial Results - comparative discussion of financial results of
operations -
Operating Results - discussion of business activities -
Capital Resources and Liquidity - discussion of sources and uses of
cash, outlook on operations and
material financial arrangements, obligations and commitments -
Recent Accounting Developments - discussion of accounting guidance
effective in future periods -
Results of Continuing Operations
Selected Data
Three Months Ended Nine Months Ended
September 30 September 30
millions except per share amounts 2008 2007 2008 2007
Financial Results
Sales revenues $ 6,209 $ 2,656 $ 11,643 $ 8,372
Gains (losses) on divestitures and other, (60 ) 339 270 4,458
net
Total revenues and other 6,149 2,995 11,913 12,830
Costs and expenses 2,592 1,934 7,167 6,344
Other (income) expense 212 214 568 801
Income tax expense 1,181 354 1,761 2,191
Income from continuing operations $ 2,164 $ 493 $ 2,417 $ 3,494
Earnings per common share - diluted $ 4.62 $ 1.05 $ 5.14 $ 7.48
Average number of common shares outstanding - 468 468 470 467
diluted
Operating Results
Adjusted EBITDAX(1) 4,798 1,977 8,121 9,290
Sales volumes (MMBOE) 51 47 154 158
Capital Resources and Liquidity
Cash provided by operating activities $ 6,004 $ 1,823
Capital expenditures $ 3,469 $ 2,993
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(1) See Segment Analysis-Adjusted EBITDAX for a description of Adjusted EBITDAX, which is not a Generally Accepted Accounting Principles (GAAP) measure, and a reconciliation of Adjusted EBITDAX to income from continuing operations before income taxes, which is presented in accordance with GAAP.
In conjunction with the 2006 acquisitions of Kerr-McGee Corporation (Kerr-McGee) and Western Gas Resources, Inc. (Western), Anadarko implemented an asset realignment program. The goal of the Kerr-McGee and Western acquisitions was to provide a more economically efficient platform with higher and more consistent growth potential, with the intent of divesting properties that were no longer deemed to be core to Anadarko's operations. During 2007, the Company successfully completed the majority of the divestitures associated with the realignment program. Divestitures under the realignment program in 2007 and 2006 contributed proceeds of approximately $17 billion before income taxes. Unless noted otherwise, the following information relates to continuing operations. See Outlook for additional information.
Since its adoption of the successful efforts method of accounting in the third quarter of 2007, the Company continues to evaluate the accuracy and completeness of its detailed records for properties and equipment. As part of this process, in March 2008, management identified in its oil and gas property records capitalized costs of $163 million attributable to properties that were divested in 2007. Because these costs were inadvertently excluded from the gain calculations, pretax gains on divestitures reported in the first and second quarter of 2007 were overstated by $75 million and $88 million, respectively. Management concluded that the misstatements were not material relative to 2007 interim and annual results, or to the 2008 periods, and corrected the error in the first quarter of 2008 as a $163 million reduction in gains (losses) on divestitures and other, net.
Additionally, an unrelated analysis led management to conclude that the net properties and equipment balance was understated by $81 million when compared to the detailed accounting records by property. That amount arose as a result of accounting adjustments to convert from the full cost to the successful efforts method, and could not be reasonably associated with specific properties. Accordingly, management removed the unidentified amount from the balance sheet, increasing the properties and equipment balance and increasing first quarter of 2008 earnings. The $81 million correction is reported in gains (losses) on divestitures and other, net for the nine months ended September 30, 2008.
After considering the effect of income taxes, the two adjustments recorded in the first quarter of 2008 related to the adoption of the successful efforts method of accounting in the third quarter of 2007, reduced net earnings for the nine months ended September 30, 2008 by $52 million.
Financial Results
Net Income In the third quarter of 2008, Anadarko's income from continuing operations was $2.2 billion or $4.62 per share (diluted). This compares to income from continuing operations of $493 million or $1.05 per share (diluted) for the third quarter of 2007. For the nine months ended September 30, 2008, Anadarko's income from continuing operations was $2.4 billion or $5.14 per share (diluted). This compares to income from continuing operations of $3.5 billion or $7.48 per share (diluted) for the same period of 2007.
The increase in income from continuing operations for the three months ended September 30, 2008 compared to the same period of 2007 was primarily due to higher natural gas, oil and NGLs sales, including the impact of derivatives, and lower interest expense, partially offset by a decrease in gains on divestitures, higher costs and expenses and higher income tax expense. The decrease in income from continuing operations for the nine months ended September 30, 2008 compared to the same period of 2007 was primarily due to a decrease in gains on divestitures, an increase in losses on derivatives and higher costs and expenses, partially offset by higher natural gas, oil and NGLs sales, excluding the impact of derivatives, lower interest expense and lower income tax expense. Gains on divestitures in 2007 relate primarily to the Company's asset realignment program which was initiated in 2006 in conjunction with the Kerr-McGee and Western acquisitions.
Sales Revenues
Three Months Ended Nine Months Ended
September 30 September 30
millions 2008 2007 2008 2007
Gas sales $ 2,395 $ 871 $ 5,089 $ 3,108
Oil and condensate sales 3,217 1,262 4,911 3,558
Natural gas liquids sales 244 175 703 511
Gathering, processing and marketing sales 353 348 940 1,195
Total $ 6,209 $ 2,656 $ 11,643 $ 8,372
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Anadarko's sales revenues for the three and nine months ended September 30, 2008 increased 134% and 39%, respectively, compared to the same periods of 2007. The increase for the quarter was due primarily to higher natural gas, oil and condensate and NGLs commodity prices, including the impact of derivatives, and higher sales volumes in the Rockies, partially offset by lower sales volumes associated with properties that were divested in 2007. The increase for the year to date period was due primarily to higher natural gas, oil and condensate, and NGLs commodity prices, excluding the impact of derivatives, partially offset by an increase in losses on derivatives and lower sales volumes associated with properties that were divested in 2007.
The Company's sales revenues for the three months ended September 30, 2008 and 2007 were increased by $2.4 billion and reduced by $(36) million, respectively, of net unrealized gains (losses) on derivatives. The Company's sales revenues for the nine months ended September 30, 2008 and 2007 were increased by $274 million and reduced by $(593) million, respectively, of net unrealized gains (losses) on derivatives. Any realization of these gains (losses) is expected to be substantially offset by the value realized from that portion of the Company's production covered by the derivative instruments.
Analysis of Oil and Gas Operations Sales Revenues
The following table provides a summary of the effects of changes in volumes,
prices and derivatives gains and losses on Anadarko's sales revenues for the
three and nine months ended September 30, 2008 compared to the same periods of
2007.
Three Months Ended
September 30
Natural Oil and
millions Gas Condensate NGLs
2007 sales revenues $ 871 $ 1,262 $ 175
Changes associated with sales volumes 154 (112 ) (5 )
Changes in prices, excluding derivatives 670 696 74
Changes in realized derivative gains and losses (102 ) (201 ) -
Changes in unrealized derivative gains and losses 802 1,572 -
2008 sales revenues $ 2,395 $ 3,217 $ 244
Nine Months Ended
September 30
Natural Oil and
millions Gas Condensate NGLs
2007 sales revenues $ 3,108 $ 3,558 $ 511
Changes associated with sales volumes 204 (505 ) (63 )
Changes in prices, excluding derivatives 1,532 2,402 255
Changes in realized derivative gains and losses (455 ) (628 ) -
Changes in unrealized derivative gains and losses 700 84 -
2008 sales revenues $ 5,089 $ 4,911 $ 703
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The Company utilizes derivative instruments to manage the risk of a decrease in the market prices for its anticipated sales of natural gas, crude oil, condensate and NGLs. This activity is referred to as price risk management. The impact of price risk management (including realized and unrealized gains and losses) increased revenues $2.2 billion during the third quarter of 2008 compared to an increase of $101 million in the third quarter of 2007. The impact of price risk management (including realized and unrealized gains and losses) decreased revenues $331 million during the first nine months of 2008 compared to a decrease of $32 million in the first nine months of 2007. See Energy Price Risk under Part I, Item 3 and Note 6 - Financial Instruments under Part I, Item 1 of this Form 10-Q.
The following sections provide a more detailed analysis of the Company's natural gas, crude oil and NGLs sales volumes and prices.
Analysis of Oil and Gas Operations Sales Volumes
Three Months Ended Nine Months Ended
September 30 September 30
2008 2007 2008 2007
Barrels of Oil Equivalent (MMBOE)
United States 44 39 134 134
Algeria 6 6 16 18
Other International 1 2 4 6
Total 51 47 154 158
Barrels of Oil Equivalent per Day (MBOE/d)
United States 473 428 489 492
Algeria 64 65 57 64
Other International 15 17 16 21
Total 552 510 562 577
MMBOE - million barrels of oil equivalent
MBOE/d - thousand barrels of oil equivalent per day
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Anadarko's daily sales volumes for the third quarter of 2008 include a decrease in sales volumes of 9 MBOE/d associated with the impact of the 2007 divestitures. Excluding 2007 divested property volumes, daily sales volumes in the third quarter of 2008 increased 51 MBOE/d compared to the same period of 2007. Despite continuing repairs at the end of the third quarter of 2008 to third-party downstream infrastructure as a result of the 2008 hurricane activity, volumes in the United States increased 47 MBOE/d in the third quarter of 2008 primarily due to higher sales volumes in the Rockies. Other International volumes increased during the third quarter of 2008 primarily due to higher sales volumes in China of 5 MBOE/d. For the nine months ended September 30, 2008, Anadarko's daily sales volumes include a decrease of 58 MBOE/d associated with the impact of the 2007 divestitures. Excluding 2007 divested property volumes, daily sales volumes for the first nine months of 2008 increased 43 MBOE/d compared to the same period of 2007. Volumes in the United States increased 49 MBOE/d the first nine months of 2008 primarily due to higher sales volumes in the Rockies and the Gulf of Mexico. Volumes in Algeria decreased 7 MBOE/d for the first nine months of 2008 primarily as a result of lower production due to maintenance and a statutory shutdown.
Natural Gas Sales Volumes, Average Prices and Revenues
Three Months Ended Nine Months Ended
September 30 September 30
2008 2007 2008 2007
United States
Sales volumes-Bcf 183 151 548 513
MMcf/d 1,994 1,637 2,000 1,877
Price per Mcf, excluding derivatives $ 8.36 $ 4.70 $ 8.55 $ 5.75
Realized gains (losses) on derivatives 0.13 0.84 (0.15 ) 0.73
Unrealized gains (losses) on derivatives 4.57 0.24 0.89 (0.42 )
Gains (losses) on derivatives $ 4.70 $ 1.08 $ 0.74 $ 0.31
Total average price per Mcf $ 13.06 $ 5.78 $ 9.29 $ 6.06
Gas sales revenues (millions) $ 2,395 $ 871 $ 5,089 $ 3,108
Bcf - billion cubic feet
MMcf/d - million cubic feet per day
Mcf - thousand cubic feet
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The Company's daily natural gas sales volumes for the three and nine months ended September 30, 2008 include a decrease in sales volumes of 16 MMcf/d and 203 MMcf/d, respectively, associated with the 2007 divestitures. Excluding 2007 divested property volumes, daily sales volumes for the three and nine months ended September 30, 2008 increased 373 MMcf/d and 326 MMcf/d, respectively, compared to the same periods of 2007. The increase for both the quarter and year to date periods of 2008 compared to the same periods of 2007 was primarily due to higher sales volumes in the Gulf of Mexico of 207 MMcf/d and 230 MMcf/d, respectively, as a result of the start up of the Independence Hub and increased production in the Rockies of 192 MMcf/d and 144 MMcf/d, respectively. Production of natural gas is generally not directly affected by seasonal swings in demand.
Excluding the impact of gains and losses on derivatives, Anadarko's average natural gas price for the three and nine months ended September 30, 2008 increased 78% and 49%, respectively, compared to the same periods of 2007. The relative difference in 2008 and 2007 prices is primarily attributed to lower year-over-year natural gas storage volumes across the quarter coupled with lower liquefied natural gas volumes available to the United States consumer as a result of increased demand and pricing in both Europe and Asia. As of September 30, 2008, the Company has implemented price risk management on about 66% of its anticipated natural gas wellhead sales volumes for the remainder of 2008.
Crude Oil and Condensate Sales Volumes, Average Prices and Revenues
Three Months Ended Nine Months Ended
September 30 September 30
2008 2007 2008 2007
United States
Sales volumes-MMBbls 9 10 32 36
MBbls/d 103 116 117 134
Price per barrel, excluding derivatives $ 114.26 $ 72.12 $ 107.89 $ 61.13
Realized gains (losses) on derivatives (15.27 ) 0.65 (11.35 ) 3.83
Unrealized gains (losses) on derivatives 106.14 (7.21 ) (2.90 ) (8.20 )
Total gains (losses) on derivatives $ 90.87 $ (6.56 ) $ (14.25 ) $ (4.37 )
Total average price per barrel $ 205.13 $ 65.56 $ 93.64 $ 56.76
Algeria
Sales volumes-MMBbls 6 6 16 18
MBbls/d 64 65 57 64
Price per barrel, excluding derivatives $ 116.55 $ 75.83 $ 114.51 $ 68.08
Realized gains (losses) on derivatives (8.39 ) - (8.20 ) -
Unrealized gains (losses) on derivatives 85.29 1.38 (9.92 ) (1.72 )
Total gains (losses) on derivatives $ 76.90 $ 1.38 $ (18.12 ) $ (1.72 )
Total average price per barrel $ 193.45 $ 77.21 $ 96.39 $ 66.36
Other International
Sales volumes-MMBbls 1 2 4 6
MBbls/d 15 17 16 21
Total average price per barrel $ 105.28 $ 63.52 $ 98.73 $ 56.13
Total
Sales volumes-MMBbls 16 18 52 60
MBbls/d 182 198 190 219
Total price per barrel, excluding derivatives $ 114.34 $ 72.63 $ 109.10 $ 62.68
Realized gains (losses) on derivatives (11.60 ) 0.38 (9.42 ) 2.35
Unrealized gains (losses) on derivatives 90.11 (3.76 ) (4.77 ) (5.53 )
Total gains (losses) on derivatives $ 78.51 $ (3.38 ) $ (14.19 ) $ (3.18 )
Total average price per barrel $ 192.85 $ 69.25 $ 94.91 $ 59.50
Total oil and condensate sales revenues (millions) $ 3,217 $ 1,262 $ 4,911 $ 3,558
MMBbls - million barrels
MBbls/d - thousand barrels per day
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Anadarko's daily crude oil and condensate sales volumes for the three and nine months ended September 30, 2008 include a decrease in sales volumes of 6 MBbls/d and 19 MBbls/d, respectively, associated with the 2007 divestitures. Excluding 2007 divested property volumes, daily sales volumes in the three and nine months ended September 30, 2008 decreased 10 MBbls/d and 10 MBbls/d, respectively, compared to the same periods of 2007. The decrease in the third quarter of 2008 was primarily due to lower crude oil sales volumes of 16 MBbls/d in the Gulf of Mexico due to 2008 hurricane activity and lower crude oil sales volumes of 4 MBbls/d in Alaska, partially offset by an increase of 6 MBbls/d in the Rockies and 5 MBbls/d in China. The decrease during the first nine months of 2008 was primarily due to lower crude oil sales volumes of 7 MBbls/d in the Gulf of Mexico due to 2008 hurricane activity, lower crude oil sales volumes of 7 MBbls/d in Algeria, primarily as a result of lower production due to maintenance and a statutory shutdown and lower crude oil sales volumes of 3 MBbls/d in Alaska, partially offset by higher crude oil sales volumes of 6 MBbls/d in the Rockies. Production of oil usually is not affected by seasonal swings in demand.
Excluding the impact of gains and losses on derivatives, Anadarko's average crude oil price for the three and nine months ended September 30, 2008 increased 57% and 74%, respectively, compared to the same periods of 2007. The higher crude oil prices were attributed primarily to limited excess production capacity, heightened geopolitical tension and increased demand in Asia; particularly China and India. As of September 30, 2008, the Company has utilized price risk management on approximately 54% of its anticipated oil and condensate sales volumes for the remainder of 2008.
Natural Gas Liquids Sales Volumes, Average Prices and Revenues
Three Months Ended Nine Months Ended
September 30 September 30
2008 2007 2008 2007
United States
Sales volumes-MMBbls 4 4 11 12
MBbls/d 38 39 39 45
Price per barrel $ 69.30 $ 48.39 $ 65.17 $ 41.57
Natural gas liquids sales revenues $ 244 $ 175 $ 703 $ 511
(millions)
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NGLs sales represent revenues derived from the processing of Anadarko's . . .
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