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| APC > SEC Filings for APC > Form 10-Q on 7-May-2009 | All Recent SEC Filings |
7-May-2009
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, marketing and midstream activities 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 of, demand for and the price of natural gas, oil, NGLs and other products or services, volatility in the commodity futures market, 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 or other obligations arising from Kerr-McGee's former chemical business, the capital or credit 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 Estimates" included in the Company's 2008 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.
The following discussion should be read together with the Consolidated Financial Statements and the Notes to Consolidated Financial Statements, which are included in this report in Item 1, as well as the Consolidated Financial Statements and the Notes to Consolidated Financial Statements which are included in Item 8, and the Risk Factors information, which is set forth in Item 1A of the 2008 Annual Report on Form 10-K.
Overview
Anadarko Petroleum Corporation is among the world's largest independent oil and natural gas exploration and production companies. Anadarko's primary line of business is the exploration, development, production, gathering, processing and marketing of natural gas, crude oil, condensate and NGLs. The Company's major areas of operations are located in the United States and Algeria, with additional activity in Brazil, China, Ghana, Indonesia, Mozambique and several other countries.
Operating Highlights
The Company's significant operational highlights by area during the first quarter of 2009 include:
United States Onshore
• Increased production in the Rocky Mountain region to 248 thousand barrels of oil equivalent per day (MBOE/d) for the quarter ended March 31, 2009 from 207 MBOE/d for the quarter ended March 31, 2008
Gulf of Mexico
• Announced an oil discovery at its Heidelberg prospect in Green Canyon block 859 in the deepwater Gulf of Mexico. Anadarko operates the block with a 44.25% working interest
• Announced the Shenandoah oil discovery well, located in Walker Ridge block 52 in the deepwater Gulf of Mexico. Anadarko operates Shenandoah with a 30% working interest
• Expensed Red Hawk and Firestar wells as dry holes
International
• Announced a successful drillstem test at the Hyedua-2 appraisal well in the deepwater Jubilee field offshore Ghana. Anadarko holds an 18% interest in the Deepwater Tano License, where the well is located
• Announced the Tweneboa-1 discovery well in the Deepwater Tano License offshore Ghana
• Announced the Mahogany Deep discovery well (formerly Mahogany-3) in the West Cape Three Points Block. Anadarko holds a 31% interest in the West Cape Three Points Block
Financial Highlights
The Company's significant financial highlights during the first quarter of 2009 include:
• Completed a public offering of $1.1 billion of debt securities, consisting of $500 million of 7.625% Senior Notes due 2014 and $600 million of 8.700% Senior Notes due 2019. The net proceeds from the offering are being used for general corporate purposes, including the repayment of debt maturing in 2009 resulting in a debt-to-capital ratio of 41.3% at March 31, 2009
• Generated $527 million of cash flow from operations for the quarter ended March 31, 2009 and closed March 31, 2009 with $2.2 billion of cash on hand
• Increased realized commodity derivative gains by approximately $230 million compared to the first quarter of 2008
• Depressed commodity prices continued to adversely affect revenues
The following discussion pertains to Anadarko's financial condition, results of operations and changes in financial condition. Unless noted otherwise, the following information relates to continuing operations. The primary factors that affect the Company's results of operations include, among other things, commodity prices for natural gas, crude oil and NGLs, production volumes, the Company's ability to discover additional oil and natural gas reserves, as well as the cost of finding reserves and changes in the levels of costs and expenses required for continuing operations. Unless the context otherwise requires, the terms "Anadarko" or "Company" refer to Anadarko Petroleum Corporation and its consolidated subsidiaries. Below is an index by major category of discussion including a brief description of contents:
Results of Continuing Operations
Selected Data
Quarter Ended
March 31
millions except per share amounts 2009 2008
Financial Results
Total revenues and other $ 1,595 $ 2,978
Costs and expenses 2,067 2,183
Other (income) expense 73 215
Income tax expense (benefit) (214 ) 344
Income (loss) from continuing operations attributable to
common stockholders $ (338 ) $ 236
Income (loss) from continuing operations per common share
attributable to common stockholders - diluted $ (0.73 ) $ 0.50
Average number of common shares outstanding - diluted 460 469
Operating Results
Adjusted EBITDAX(1) $ 787 $ 1,860
Sales volumes (MMBOE) 54 53
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MMBOE - million barrels of oil equivalent
(1) See Segment Analysis-Adjusted EBITDAX for a description of Adjusted EBITDAX, which is not a U.S. Generally Accepted Accounting Principles (GAAP) measure, and a reconciliation of Adjusted EBITDAX to income (loss) from continuing operations before income taxes, which is presented in accordance with GAAP.
Financial Results
Income (Loss) from Continuing Operations Attributable to Common Stockholders In the first quarter of 2009, Anadarko's loss from continuing operations attributable to common stockholders was $338 million or $0.73 per share (diluted). This compares to income from continuing operations attributable to common stockholders of $236 million or $0.50 per share (diluted) for the first quarter of 2008.
This decrease was primarily due to sustained lower natural gas, oil and NGLs sales revenues, including the impact of derivatives, partially offset by lower income tax expense and lower interest expense.
See Note 1 - Summary of Significant Accounting Policies - Changes in Accounting Principles regarding the adoption of SFAS No. 160, "Noncontrolling Interests in Consolidated Financial Statements - An Amendment of ARB No. 51," under Part I, Item 1 of this Form 10-Q requiring consolidated net income to include the amounts attributable to both the parent and the noncontrolling interests.
Sales Revenues
Quarter Ended
March 31 † vs.
millions except percentages 2009 2008 2008
Gas sales $ 680 $ 1,199 (43 )%
Oil and condensate sales 626 1,350 (54 )
Natural gas liquids sales 83 201 (59 )
Gathering, processing and marketing sales 161 268 (40 )
Total $ 1,550 $ 3,018 (49 )
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Anadarko's sales revenues for the first quarter of 2009 decreased compared to the same period of 2008. The decrease was due primarily to lower natural gas, oil and condensate and NGLs commodity prices, including the impact of derivatives.
The Company's sales revenues for the quarters ended March 31, 2009 and 2008 include $352 million and $481 million, respectively, of net unrealized losses on derivatives used to manage price risk on natural gas, crude oil and condensate, NGLs and marketing sales. Actual realization of these losses is expected to be substantially offset by the value realized from the actual sale of the 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
quarter ended March 31, 2009 compared to the same period of 2008.
Quarter Ended
March 31
Natural Oil and
millions Gas Condensate NGLs
2008 sales revenues $ 1,199 $ 1,350 $ 201
Changes associated with sales volumes 105 (152 ) 3
Changes in prices, excluding derivatives (743 ) (814 ) (121 )
Changes in realized derivative gains and losses 144 86 -
Changes in unrealized derivative gains and losses (25 ) 156 -
2009 sales revenues $ 680 $ 626 $ 83
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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 commodity price risk management. The impact of commodity price risk management (including realized and unrealized gains and losses) was a revenue decrease of $168 million during the first quarter of 2009 compared to a decrease of $529 million in the first quarter of 2008. See Energy Price Risk under Part I, Item 3 and Note 7 -Derivative Instruments under Part I, Item 1 of this Form 10-Q.
Analysis of Oil and Gas Operations Sales Volumes
Quarter
March 31 † vs.
2009 2008 2008
Barrels of Oil Equivalent (MMBOE except percentages)
United States 48 46 4 %
Algeria 5 5 -
Other International 1 2 (50 )
Total 54 53 2
Barrels of Oil Equivalent per Day (MBOE/d except percentages)
United States 529 517 2
Algeria 58 51 14
Other International 13 17 (24 )
Total 600 585 3
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Anadarko's daily sales volumes for the first quarter of 2009 increased 15 MBOE/d compared to the same period in 2008. Volumes in the United States increased 12 MBOE/d in the first quarter of 2009 primarily related to higher volumes in the Rockies of 41 MBOE/d due to late 2008 drilling in tight gas fields and positive results from dewatering coalbed methane wells, partially offset by lower sales volumes in the Gulf of Mexico of 31 MBOE/d due to prolonged repairs of third-party downstream infrastructure that was damaged during the 2008 hurricane season. Algeria volumes increased 7 MBOE/d in the first quarter of 2009 due to fewer cargo liftings realized during the first quarter of 2008.
Sales volumes represent actual production volumes adjusted for changes in commodity inventories. Anadarko employs marketing strategies to help manage volumes and mitigate the effect of price volatility, which is likely to continue into the future.
Natural Gas Sales Volumes, Average Prices and Revenues
Quarter Ended
March 31 † vs.
2009 2008 2008
(Percentages)
United States
Sales volumes - Bcf 208 194 7 %
MMcf/d 2,315 2,137 8
Price per Mcf, excluding derivatives $ 4.01 $ 7.58 (47 )
Realized gains (losses) on derivatives $ 0.59 $ (0.11 ) 636
4.60 7.47 (38 )
Unrealized gains (losses) on derivatives (1.34 ) (1.30 ) (3 )
Total $ 3.26 $ 6.17 (47 )
Gas sales revenues (millions) $ 680 $ 1,199 (43 )
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Bcf - billion cubic feet
MMcf/d - million cubic feet per day
Mcf - thousand cubic feet
The Company's daily natural gas sales volumes increased 178 MMcf/d for the first quarter of 2009 compared to the same period in 2008. The increase was primarily related to higher sales volumes in the Rockies of 211 MMcf/d, due to late 2008 drilling in tight gas fields and positive results from dewatering coalbed methane wells, partially offset by decreased production in the Gulf of Mexico of 25 MMcf/d, due to prolonged repairs of third-party downstream infrastructure that was damaged during the 2008 hurricane season and in the Southern Region of 8 MMcf/d. In general, production of natural gas is 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 first quarter of 2009 decreased when compared to the same period for 2008. The lower price realized during the first quarter of 2009 was primarily attributable to higher year-over-year natural gas production and storage volumes coupled with lower United States demand for natural gas. As of March 31, 2009, the Company has implemented commodity price risk management on approximately 25% of its anticipated natural gas sales volumes for the remainder of 2009.
Crude Oil and Condensate Sales Volumes, Average Prices and Revenues
Quarter Ended
March 31 † vs.
2009 2008 2008
(Percentages)
United States
Sales volumes - MMBbls 9 10 (10 )%
MBbls/d 103 122 (16 )
Price per barrel, excluding derivatives $ 38.51 $ 92.59 (58 )
Realized gains (losses) on derivatives $ 2.89 $ (3.16 ) 191
41.40 89.43 (54 )
Unrealized gains (losses) on derivatives (1.94 ) (12.39 ) 84
Total $ 39.46 $ 77.04 (49 )
Algeria
Sales volumes - MMBbls 5 5 -
MBbls/d 58 51 14
Price per barrel, excluding derivatives $ 45.94 $ 98.02 (53 )
Realized gains (losses) on derivatives 1.40 (3.80 ) 137
47.34 94.22 (50 )
Unrealized gains (losses) on derivatives (5.48 ) (14.23 ) 61
Total $ 41.86 $ 79.99 (48 )
Other International
Sales volumes - MMBbls 1 2 (50 )
MBbls/d 13 17 (24 )
Total $ 36.79 $ 81.08 (55 )
Total
Sales volumes - MMBbls 15 17 (12 )
MBbls/d 174 190 (8 )
Total price per barrel, excluding derivatives $ 40.86 $ 93.01 (56 )
Realized gains (losses) on derivatives 2.18 (3.04 ) 172
43.04 89.97 (52 )
Unrealized gains (losses) on derivatives (2.98 ) (11.76 ) 75
Total $ 40.06 $ 78.21 (49 )
Total oil and condensate sales revenues (millions) $ 626 $ 1,350 (54 )
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MMBbls-million barrels
Anadarko's daily crude oil and condensate sales volumes for the quarter ended March 31, 2009 decreased 16 MBbls/d compared to the same period in 2008. The decrease in the first quarter of 2009 was primarily related to lower crude oil sales volumes of 23 MBbls/d in the Gulf of Mexico resulting from prolonged repairs of third-party downstream infrastructure that was damaged during the 2008 hurricane season, partially offset by higher crude oil sales volumes of 7 MBbls/d in the first quarter of 2009 in Algeria due to fewer cargo liftings realized during the first quarter of 2008. 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 first quarter of 2009 decreased when compared to same period of 2008. Crude oil prices decreased for the first quarter of 2009 compared to the first quarter of 2008, primarily due to increased spare Organization of Petroleum Exporting Countries production capacity coupled with decreased global demand, particularly in the United States, Europe, and Japan. As of March 31, 2009, the Company has utilized commodity price risk management on approximately 28% of its anticipated oil and condensate sales volumes for the remainder of 2009.
Natural Gas Liquids Sales Volumes, Average Prices and Revenues
Quarter Ended
March 31 † vs.
2009 2008 2008
(Percentages)
United States
Sales volumes-MMBbls 4 4 - %
MBbls/d 40 39 3
Price per barrel $ 23.05 $ 56.42 (59 )
Natural gas liquids sales revenues (millions) $ 83 $ 201 (59 )
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NGLs sales represent revenues derived from the processing of Anadarko's natural gas production. The Company's daily NGLs sales volumes for the quarter ended March 31, 2009 increased compared to the same period in 2008. The increase for the quarter was primarily related to an increase of 3 MBbls/d in the Rockies due to late 2008 drilling in tight gas fields and an increase of 2 MBbls/d in the Southern Region, partially offset by a decrease of 4 MBbls/d in the Gulf of Mexico resulting from prolonged repairs of third-party downstream infrastructure which was damaged as a result of the 2008 hurricane activity. The average NGLs price decreased for the first quarter of 2009 compared to the same period of 2008 primarily due to decreased global petrochemical demand during the first quarter of 2009. NGLs production is dependent upon natural gas and NGLs prices as well as the economics of processing the natural gas to extract NGLs. In general, production of NGLs is not affected by seasonal swings in demand.
Gathering, Processing and Marketing Revenues
Quarter Ended
March 31 † vs.
millions except percentages 2009 2008 2008
Gathering and processing sales $ 141 $ 272 (48 )%
Marketing sales 20 (4 ) 600
Total $ 161 $ 268 (40 )
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Gathering and processing sales represent those revenues derived from gathering and processing natural gas from third-party production. Marketing sales primarily represent the margin earned on sales of oil, gas and NGLs purchased from third parties. During the quarter ended March 31, 2009, gathering and processing sales decreased $131 million compared to the same period of 2008. This decrease was primarily related to a sustained decline in prices for natural gas, natural gas liquids, and condensate. Marketing sales for the quarter ended March 31, 2009, increased compared to the same period of 2008 primarily due to improved margins on NGLs and increased third-party marketing sales as a percentage of total marketing sales.
For the first quarter of 2008, gains (losses) on divestitures and other, net includes a net $82 million ($52 million after tax) charge related to corrections resulting from an analysis of property records after the adoption of the successful efforts method of accounting. This net amount includes a charge of $163 million related to 2007. Management concluded that this misstatement was not material to 2007 interim and annual results, nor to the 2008 period, and corrected the error in the first quarter of 2008.
Costs and Expenses
Quarter Ended
March 31 † vs.
millions except percentages 2009 2008 2008
Oil and gas operating $ 262 $ 245 7 %
Oil and gas transportation and other 153 130 18
Exploration 301 243 24
Gathering, processing and marketing 135 192 (30 )
General and administrative 209 204 2
Depreciation, depletion and amortization 806 810 -
Other taxes 150 359 (58 )
Impairments 51 - NM
Total $ 2,067 $ 2,183 (5 )
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NM - not meaningful
During the first quarter of 2009, Anadarko's costs and expenses, as set forth . . .
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