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| APC > SEC Filings for APC > Form 10-Q on 3-Nov-2009 | All Recent SEC Filings |
3-Nov-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, and the Risk Factors information, which is included in this report in Item 1A, 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 natural gas liquids (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, Sierra Leone and several other countries.
Operating Highlights
Significant operational highlights by area during the third quarter of 2009 include:
United States Onshore
• The Company's Rocky Mountain region achieved third-quarter production of approximately 249 thousand barrels of oil equivalent per day (MBOE/d), representing an approximate 15% increase over the third quarter of 2008.
• The Chipeta natural gas processing plant (75% ownership interest) continued to perform better than expected with a gross average daily natural gas liquids (NGLs) production of approximately 14,000 barrels per day (Bbls/d).
• The Company expanded its activity in the Marcellus Shale during the third quarter, spudding six operated horizontal wells and participating in eleven new horizontal wells and six completions as a non-operating partner. Anadarko holds interests in more than 630,000 gross acres in the Marcellus Shale play and operates about half of the acreage with an average working interest of 50%.
Gulf of Mexico
• The Company announced a discovery at the Vito exploration well (20% working interest) in Mississippi Canyon Block 984 encountering more than 250 net feet of oil pay.
• The Company successfully drilled a development well (33.75% working interest) near the Tonga West discovery as part of the Caesar/Tonga complex in the Green Canyon area. The well encountered more than 500 net feet of oil pay and will be tied back to Anadarko's Constitution spar.
• The Company's Gulf of Mexico region achieved third-quarter production of approximately 162 MBOE/d, representing a 10 MBOE/d sales-volume increase over the second quarter of 2009.
International
• The Company announced a deepwater discovery at the Venus prospect (40% working interest) in Block SL-6/07 offshore Sierra Leone encountering more than 45 net feet of hydrocarbon pay; thereby, confirming an active petroleum system in the Liberian basin.
• The Company recently announced a success at the Mahogany-4 appraisal well (30.875% working interest in the West Cape Three Points Block) offshore Ghana, which was spud during the third quarter. The well, which is located outside the existing Jubilee Unit boundary, encountered more than 140 net feet of oil pay and expanded the potentially productive area of the Jubilee field into the West Cape Three Points Block.
• The Company's production at Bohai Bay in China increased 2,000 Bbl/d over the second quarter of 2009, achieving average production of approximately 47,500 Bbl/d for the third quarter.
• The Company commenced drilling of the South Grand Lahou exploration well (50% working interest) in Block CI-105 offshore Cote d'Ivoire during the third quarter which was subsequently declared a dry hole after reaching the targeted objective.
• The Ghanaian government formally approved the Jubilee field Phase I Plan of Development and Unitization Agreement. Jubilee remains on schedule to achieve first production during the fourth quarter of 2010.
Financial Highlights
Significant financial highlights during the third quarter of 2009 include:
• The Company generated $1.0 billion of cash flow from operations for the third quarter and ended the quarter on September 30, 2009 with $3.6 billion of cash on hand.
• The Company reversed its $735 million accrued liability for potential royalties and interest to be paid related to the Deepwater Royalty Relief Act (DWRRA) dispute.
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 and any increases or decreases "for the three months ended September 30, 2009" refer to the comparison of the three months ended September 30, 2009 to the three months ended September 30, 2008 and any increases or decreases "for the nine months ended September 30, 2009" refer to the comparison of the nine months ended September 30, 2009 to the nine months ended September 30, 2008. 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 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
Three Months Ended Nine Months Ended
September 30 September 30
millions except per share amounts 2009 2008 2009 2008
Financial Results
Total revenues and other $ 2,740 $ 6,149 $ 6,080 $ 11,913
Costs and expenses 2,095 2,592 6,397 7,167
Other (income) expense 232 202 166 554
Income tax expense (benefit) 207 1,181 (142 ) 1,761
Income (loss) from continuing operations
attributable to
common stockholders $ 200 $ 2,164 $ (364 ) $ 2,416
Income (loss) from continuing operations per
common share
attributable to common stockholders -
diluted $ 0.40 $ 4.58 $ (0.77 ) $ 5.10
Average number of common shares outstanding
- diluted 493 467 476 468
Operating Results
Adjusted EBITDAX(1) $ 1,666 $ 4,798 $ 3,539 $ 8,120
Sales volumes (MMBOE) 57 51 167 154
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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 For the third quarter of 2009, Anadarko's income from continuing operations attributable to common stockholders was $200 million or $0.40 per share (diluted). This compares to income from continuing operations attributable to common stockholders of $2.2 billion or $4.58 per share (diluted) for the third quarter of 2008. For the nine months ended September 30, 2009, Anadarko's loss from continuing operations attributable to common stockholders was $364 million or $0.77 per share (diluted). This compares to income from continuing operations attributable to common stockholders of $2.4 billion or $5.10 per share (diluted) for the same period of 2008.
Sales Revenues
Three Months Ended Nine Months Ended
September 30 Inc/(Dec) September 30 Inc/(Dec)
millions except percentages 2009 2008 vs. 2008 2009 2008 vs. 2008
Gas sales $ 446 $ 2,395 (81 )% $ 1,779 $ 5,089 (65 )%
Oil and condensate sales 1,252 3,217 (61 ) 2,634 4,911 (46 )
Natural gas liquids sales 166 244 (32 ) 365 703 (48 )
Gathering, processing and
marketing sales 169 353 (52 ) 531 940 (44 )
Total $ 2,033 $ 6,209 (67 ) $ 5,309 $ 11,643 (54 )
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Anadarko's sales revenues for the three and nine months ended September 30, 2009 decreased primarily due to lower commodity prices, including the impact of losses on commodity derivatives, partially offset by increased production volumes. The Company's sales revenues for the three months ended September 30, 2009 and 2008 include $(240) million and $2.4 billion, respectively, of net unrealized gains (losses) on derivatives. The Company's sales revenues for the nine months ended September 30, 2009 and 2008 include $(863) million and $274 million, respectively, of net unrealized gains (losses) on derivatives. Derivatives are entered into in order to manage price risk on natural gas, crude oil and condensate, NGLs and marketing sales. Realization of these unrealized losses is expected to be substantially offset by the value realized from the actual sale of 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 derivative gains and losses on Anadarko's sales revenues for the
three and nine months ended September 30, 2009.
Three Months Ended
September 30
Natural Oil and
millions Gas Condensate NGLs
2008 sales revenues $ 2,395 $ 3,217 $ 244
Changes associated with sales volumes 116 250 100
Changes in prices, excluding derivatives (1,053 ) (936 ) (178 )
Changes in realized derivative gains and losses 82 194 -
Changes in unrealized derivative gains and losses (1,094 ) (1,473 ) -
2009 sales revenues $ 446 $ 1,252 $ 166
Nine Months Ended
September 30
Natural Oil and
millions Gas Condensate NGLs
2008 sales revenues $ 5,089 $ 4,911 $ 703
Changes associated with sales volumes 600 (84 ) 129
Changes in prices, excluding derivatives (3,205 ) (2,784 ) (467 )
Changes in realized derivative gains and losses 419 526 -
Changes in unrealized derivative gains and losses (1,124 ) 65 -
2009 sales revenues $ 1,779 $ 2,634 $ 365
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The Company utilizes commodity derivative instruments to manage the risk of a decrease in the market prices for its anticipated sales of natural gas and crude oil. The impact of commodity price risk management (comprised of realized and unrealized derivative gains and losses) was a revenue decrease of $120 million during the third quarter of 2009 compared to an increase of $2.2 billion in the third quarter of 2008. The impact of commodity price risk management was a revenue decrease of $445 million during the first nine months of 2009 compared to a decrease of $331 million in the first nine months of 2008. See Energy Price Risk under Part I, Item 3 and Note 7 - Derivative Instruments of the Notes to Consolidated Financial Statements under Part I, Item 1 of this Form 10-Q.
Analysis of Oil and Gas Operations Sales Volumes
Three Months Ended Nine Months Ended
September 30 Inc/(Dec) September 30 Inc/(Dec)
2009 2008 vs. 2008 2009 2008 vs. 2008
Barrels of Oil Equivalent
(MMBOE except percentages)
United States 51 44 16 % 148 134 10 %
Algeria 5 6 (17 ) 15 16 (6 )
Other International 1 1 - 4 4 -
Total 57 51 12 167 154 8
Barrels of Oil Equivalent
per Day (MBOE/d except
percentages)
United States 547 473 16 541 489 11
Algeria 57 64 (11 ) 55 57 (4 )
Other International 12 15 (20 ) 15 16 (6 )
Total 616 552 12 611 562 9
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Anadarko's daily sales volumes for the three and nine months ended September 30, 2009 increased 64 MBOE/d and 49 MBOE/d, respectively. Volumes in the United States increased 74 MBOE/d for the three months ended September 30, 2009 primarily due to higher volumes in the Gulf of Mexico of 36 MBOE/d related to additional offshore production that came online during the fourth quarter of 2008, favorable weather conditions as compared to hurricane-related downtime experienced during the third quarter of 2008, and increased Independence Hub runtime during the current quarter as production returned to full capacity as compared to the third quarter of 2008, wherein Independence Hub experienced downtime as a result of export pipeline repair work. These items were partially offset by a decrease in production attributable to scheduled maintenance at Independence Hub. The current-quarter production increase in the United States was also attributable to higher volumes in the Rockies of 33 MBOE/d resulting from base-production increases triggered by dewatering coalbed methane wells, higher production uptime due to favorable weather, increased ethane recovery and bringing a new processing train online during the second quarter of 2009. Algerian volumes decreased 7 MBOE/d for the three months ended September 30, 2009 due to the timing of cargo liftings and variances in Organization of Petroleum Exporting Countries (OPEC) quotas. Anadarko's daily sales volumes for the nine months ended September 30, 2009 increased primarily due to increased production in the Rockies and in the Gulf of Mexico due to the items discussed above.
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
Three Months Ended Nine Months Ended
September 30 Inc/(Dec) September 30 Inc/(Dec)
2009 2008 vs. 2008 2009 2008 vs. 2008
(Percentages) (Percentages)
United States
Sales volumes - Bcf 197 183 8 % 618 548 13 %
MMcf/d 2,144 1,994 8 2,264 2,000 13
Price per Mcf, excluding derivatives $ 3.02 $ 8.36 (64 ) $ 3.37 $ 8.55 (61 )
Realized gains (losses) on derivatives 0.54 0.13 315 0.54 (0.15 ) 460
3.56 8.49 (58 ) 3.91 8.40 (53 )
Unrealized gains (losses) on derivatives (1.30 ) 4.57 (128 ) (1.03 ) 0.89 (216 )
Total $ 2.26 $ 13.06 (83 ) $ 2.88 $ 9.29 (69 )
Gas sales revenues (millions) $ 446 $ 2,395 (81 ) $ 1,779 $ 5,089 (65 )
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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 150 MMcf/d and 264 MMcf/d, respectively, for the three and nine months ended September 30, 2009. These increases were primarily related to higher sales volumes in the Rockies of 103 MMcf/d and 176 MMcf/d, respectively, for the three and nine months ended September 30, 2009, due to positive results from base production resulting from dewatering coalbed methane wells and higher production uptime due to favorable weather. The increase in production in the Gulf of Mexico of 58 MMcf/d and 104 MMcf/d, respectively, for the three and nine months ended September 30, 2009, related to favorable weather conditions as compared to hurricane-related downtime experienced during the third quarter of 2008 and increased Independence Hub runtime during the current quarter as compared to the third quarter of 2008, wherein export pipeline repair work resulted in downtime at Independence Hub. These increases were partially offset by a decrease in production due to scheduled maintenance at Independence Hub. In general, production of natural gas is not directly affected by seasonal changes 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, 2009 decreased primarily due to higher year-over-year natural gas production and storage volumes coupled with lower United States demand for natural gas. As of September 30, 2009, the Company has entered into commodity price risk management on approximately 25% of its anticipated natural gas sales volumes for the remainder of 2009, and on approximately 75% for the full year of 2010. The Company entered into commodity price risk management for the years 2011 and 2012. See Note 7 - Derivative Instruments of the Notes to Consolidated Financial Statements under Part I, Item 1 of this Form 10-Q.
Crude Oil and Condensate Sales Volumes, Average Prices and Revenues
Three Months Ended Nine Months Ended
September 30 Inc/(Dec) September 30 Inc/(Dec)
2009 2008 vs. 2008 2009 2008 vs. 2008
(Percentages) (Percentages)
United States
Sales volumes - MMBbls 13 9 44 % 32 32 - %
MBbls/d 136 103 32 117 117 -
Price per barrel, excluding
derivatives $ 63.79 $ 114.26 (44 ) $ 53.77 $ 107.89 (50 )
Realized gains (losses) on derivatives - (15.27 ) 100 1.00 (11.35 ) 109
63.79 98.99 (36 ) 54.77 96.54 (43 )
Unrealized gains (losses) on
derivatives 2.24 106.14 (98 ) (3.82 ) (2.90 ) (32 )
Total $ 66.03 $ 205.13 (68 ) $ 50.95 $ 93.64 (46 )
Algeria
Sales volumes - MMBbls 5 6 (17 ) 15 16 (6 )
MBbls/d 57 64 (11 ) 55 57 (4 )
Price per barrel, excluding
derivatives $ 66.95 $ 116.55 (43 ) $ 56.56 $ 114.51 (51 )
Realized gains (losses) on derivatives - (8.39 ) 100 0.48 (8.20 ) 106
66.95 108.16 (38 ) 57.04 106.31 (46 )
Unrealized gains (losses) on
derivatives 0.46 85.29 (99 ) (4.02 ) (9.92 ) 59
Total $ 67.41 $ 193.45 (65 ) $ 53.02 $ 96.39 (45 )
Other International
Sales volumes - MMBbls 1 1 - 4 4 -
MBbls/d 12 15 (20 ) 15 16 (6 )
Total $ 65.40 $ 105.28 (38 ) $ 52.24 $ 98.73 (47 )
Total
Sales volumes - MMBbls 19 16 19 51 52 (2 )
MBbls/d 205 182 13 187 190 (2 )
Total price per barrel, excluding
derivatives $ 64.75 $ 114.34 (43 ) $ 54.48 $ 109.10 (50 )
Realized gains (losses) on derivatives - (11.60 ) 100 0.77 (9.42 ) 108
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