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APC > SEC Filings for APC > Form 10-Q on 29-Oct-2012All Recent SEC Filings

Show all filings for ANADARKO PETROLEUM CORP

Form 10-Q for ANADARKO PETROLEUM CORP


29-Oct-2012

Quarterly Report


Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations

Unless the context otherwise requires, the terms "Anadarko" and "Company" refer to Anadarko Petroleum Corporation and its consolidated subsidiaries. The Company has made in this report, and may from time to time otherwise make in other public filings, press releases, and management discussions, 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 also include those statements preceded by, followed by, or that otherwise include the words "may," "could," "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 be correct. Anadarko undertakes no obligation to publicly update or revise any forward-looking statements whether as a result of new information, future events, or otherwise.

These forward-looking statements involve risk and uncertainties. Important factors that could cause actual results to differ materially from the Company's expectations include, but are not limited to, the following risks and uncertainties:

• the Company's assumptions about the energy market;

• 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, the price of, and the commercializing and transporting of natural gas, crude oil, natural gas liquids (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 retroactive royalty or production tax regimes; hydraulic-fracturing regulation; deepwater drilling and permitting regulations; derivatives reform; changes in state, federal, and foreign income taxes; environmental regulation; environmental risks; and liability under federal, state, foreign, and local environmental laws and regulations;

• the ability of BP Exploration & Production Inc. (BP) to meet its indemnification obligations to the Company for, among other things, damage claims arising under the Oil Pollution Act of 1990 (OPA), claims for natural resource damages (NRD) and associated damage-assessment costs, and any claims arising under the Operating Agreement (OA) for the Macondo well, as well as the ability of BP Corporation North America Inc. (BPCNA) and BP
p.l.c. to satisfy their guarantees of such indemnification obligations;


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• the impact of remaining claims related to the Deepwater Horizon events, including, but not limited to, fines, penalties, and punitive damages against the Company, for which it is not indemnified by BP;

• the legislative and regulatory changes that may impact the Company's Gulf of Mexico and international offshore operations, including those resulting from the Deepwater Horizon events;

• current and potential legal proceedings, or environmental or other obligations related to or arising from Tronox Incorporated (Tronox);

• civil or political unrest in a region or country;

• the creditworthiness and performance of the Company's counterparties, including financial institutions, operating partners, and other parties;

• volatility in the securities, capital, or credit markets and related risks such as general credit, liquidity and interest-rate risk;

• the Company's ability to successfully monetize select assets, repay its debt, and the impact of changes in the Company's credit ratings;

• disruptions in international crude oil cargo shipping activities;

• electronic, cyber, and physical security breaches;

• the supply and demand, technological, political, and commercial conditions associated with long-term development and production projects in domestic and international locations; 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 2011 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.

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 Part I, Item 1, the information set forth in Risk Factors under Part II, Item 1A as well as the Consolidated Financial Statements and the Notes to Consolidated Financial Statements, which are included in Part II, Item 8 of the 2011 Annual Report on Form 10-K, and the information set forth in the Risk Factors under Part I, Item 1A of the 2011 Annual Report on Form 10-K.

OVERVIEW

Anadarko is among the world's largest independent exploration and production companies. Anadarko is engaged in the exploration, development, production, and marketing of natural gas, crude oil, condensate, and NGLs. The Company also engages in the gathering, processing, treating, and transporting of natural gas, crude oil, and NGLs. The Company has production and exploration activities worldwide, including activities in the United States, Algeria, Mozambique, Ghana, China, Kenya, Cτte d'Ivoire, Liberia, Sierra Leone, Brazil, Indonesia, South Africa, and New Zealand.


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Significant operating and financial activities during the third quarter of 2012 include the following:

Overall

• Anadarko's third-quarter sales volumes totaled 739 thousand barrels of oil equivalent per day (MBOE/d), representing a 12% increase over the third quarter of 2011.

• The Company achieved third-quarter liquids sales volumes of 322 thousand barrels per day (MBbls/d), representing a 15% increase over the third quarter of 2011.

United States Onshore

• The Rocky Mountains Region (Rockies) achieved third-quarter sales volumes of 325 MBOE/d, representing a 7% increase over the third quarter of 2011, primarily due to increased sales volumes from the Wattenberg field and the Greater Natural Buttes area.

• The Southern and Appalachia Region achieved third-quarter sales volumes of 207 MBOE/d, representing a 44% increase over the third quarter of 2011, primarily due to increased sales volumes from the Marcellus, Eagleford, and Haynesville shales.

Gulf of Mexico

• Gulf of Mexico third-quarter sales volumes were 106 MBOE/d, representing a 12% decrease from the third quarter of 2011, primarily due to natural production declines and weather-related shut-ins.

• The Company closed a carried-interest arrangement that requires a third-party partner to fund approximately $556 million of Anadarko's capital costs to earn a 7.2% working interest in the Lucius development.

International

• International third-quarter sales volumes were 91 MBOE/d, representing a 17% increase from the third quarter of 2011, primarily related to timing of cargo liftings in Ghana.

• Offshore Ghana, the Company successfully drilled the Wawa exploration well (18% working interest), encountering approximately 43 net feet of oil pay and 65 net feet of gas-condensate pay.

Financial

• The Company generated approximately $2.2 billion of cash flows from operations and ended the quarter with $2.5 billion of cash on hand.

• Anadarko's net income attributable to common stockholders for the third quarter of 2012 totaled $121 million.

• The Company repaid $700 million of borrowings under its senior secured revolving credit facility ($5.0 billion Facility).

• Anadarko collected $501 million associated with the Algeria exceptional profits tax receivable.


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The following discussion pertains to Anadarko's results of operations, financial condition, and changes in financial condition. Any increases or decreases "for the three months ended September 30, 2012," refer to the comparison of the three months ended September 30, 2012, to the three months ended September 30, 2011, and any increases or decreases "for the nine months ended September 30, 2012," refer to the comparison of the nine months ended September 30, 2012, to the nine months ended September 30, 2011. The primary factors that affect the Company's results of operations include commodity prices for natural gas, crude oil, and NGLs; sales volumes; the Company's ability to discover additional oil and natural-gas reserves; the cost of finding such reserves; and operating costs.

RESULTS OF OPERATIONS

                                 Selected Data




                                                       Three Months Ended           Nine Months Ended
                                                          September 30,               September 30,
millions except per-share amounts                       2012          2011          2012          2011
Financial Results
Revenues and other                                   $    3,332     $  3,199      $  10,001     $ 10,128
Costs and expenses                                        2,516        6,825          6,762       11,857
Other (income) expense                                      426          870            220        1,262
Income tax expense (benefit)                                248       (1,468 )          764         (762 )
Net income (loss) attributable to common
stockholders                                         $      121     $ (3,051 )    $   2,188     $ (2,291 )
Net income (loss) per common share attributable to
common stockholders-diluted                          $     0.24     $  (6.12 )    $    4.34     $  (4.60 )
Average number of common shares
outstanding-diluted                                         502          498            501          498

Operating Results
Adjusted EBITDAX (1)                                 $    2,301     $  1,843      $   6,786     $  6,346
Sales volumes (MMBOE)                                        68           61            200          185

MMBOE-millions of barrels of oil equivalent

(1) See Operating Results-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) before income taxes, which is presented in accordance with GAAP.

FINANCIAL RESULTS

Net Income (Loss) Attributable to Common Stockholders For the three months ended September 30, 2012, Anadarko's net income attributable to common stockholders totaled $121 million, or $0.24 per share (diluted), compared to a net loss attributable to common stockholders of $3.1 billion, or $6.12 per share (diluted), for the three months ended September 30, 2011. For the nine months ended September 30, 2012, Anadarko's net income attributable to common stockholders totaled $2.2 billion, or $4.34 per share (diluted), compared to a net loss attributable to common stockholders of $2.3 billion, or $4.60 per share (diluted), for the same period of 2011. As discussed more fully below, Anadarko's net income for the nine months ended September 30, 2012, included $1.8 billion related to the favorable resolution of the Algeria exceptional profits tax dispute and $844 million of unproved property impairments. Anadarko's net income for the three and nine months ended September 30, 2011, included the effects of the $4.0 billion settlement agreement, mutual releases, and agreement to indemnify relating to the Deepwater Horizon events (Settlement Agreement). See Note 11-Contingencies-Deepwater Horizon Events in the Notes to Consolidated Financial Statements under Part I, Item 1 of this Form 10-Q for additional information.


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                           Sales Revenues and Volumes



                                                      Three Months Ended                           Nine Months Ended
                                                         September 30,                               September 30,
                                                           Inc/(Dec)                                   Inc/(Dec)
millions except percentages                   2012         vs. 2011         2011           2012         vs. 2011        2011
Sales Revenues
Natural-gas sales                           $     613          (27)%      $     840     $    1,682         (34)%      $   2,564
Oil and condensate sales                        2,163           14            1,905          6,629          11            5,948
Natural-gas liquids sales                         289          (23)             377            913        (15)            1,080

Total                                       $   3,065           (2)       $   3,122     $    9,224         (4)        $   9,592

Anadarko's total sales revenues for the three and nine months ended September 30, 2012, decreased primarily due to lower average natural-gas and NGLs prices, partially offset by higher sales volumes for all products. This decrease was also partially offset by higher average prices for crude oil for the nine months ended September 30, 2012.

                                                                 Three Months Ended September 30,
                                                Natural             Oil and
millions                                          Gas              Condensate            NGLs               Total
2011 sales revenues                          $          840      $        1,905     $          377      $        3,122
Changes associated with sales volumes                    84                 258                 69                 411
Changes associated with prices                         (311 )                 -               (157 )              (468 )

2012 sales revenues                          $          613      $        2,163     $          289      $        3,065


                                                                  Nine Months Ended September 30,
                                                Natural             Oil and
                                                  Gas              Condensate            NGLs               Total
2011 sales revenues                          $        2,564      $        5,948     $        1,080      $        9,592
Changes associated with sales volumes                   175                 518                112                 805
Changes associated with prices                       (1,057 )               163               (279 )            (1,173 )

2012 sales revenues                          $        1,682      $        6,629     $          913      $        9,224


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                                                       Three Months Ended                             Nine Months Ended
                                                          September 30,                                 September 30,
                                                            Inc/(Dec)                                     Inc/(Dec)
Sales Volumes                                  2012         vs. 2011          2011           2012         vs. 2011          2011
Barrels of Oil Equivalent
(MMBOE except percentages)
United States                                       60            11%              53            176             8%             162
International                                        8           17                 8             24            4                23

Total                                               68           12                61            200            8               185


Barrels of Oil Equivalent per Day
(MBOE/d except percentages)
United States                                      648           11%              582            642             8%             595
International                                       91          17                 78             87            4                83

Total                                              739          12                660            729            8               678

Sales volumes represent actual production volumes adjusted for changes in commodity inventories. Anadarko employs marketing strategies to minimize market-related shut-ins, maximize realized prices, and manage credit-risk exposure. For additional information, see Note 7-Derivative Instruments in the Notes to Consolidated Financial Statements under Part I, Item 1 of this Form 10-Q and Other (Income) Expense-(Gains) Losses on Commodity Derivatives, net. Production of natural gas, crude oil, and NGLs usually is not affected by seasonal swings in demand.

            Natural-Gas Sales Volumes, Average Prices, and Revenues




                                                          Three Months Ended                           Nine Months Ended
                                                             September 30,                               September 30,
                                                               Inc/(Dec)                                    Inc/(Dec)
                                                  2012         vs. 2011         2011           2012         vs. 2011         2011
United States
Sales volumes-Bcf                                     231            10%            209            681             7%            638
               MMcf/d                               2,499           10            2,271          2,487            7            2,336
Price per Mcf                                   $    2.67          (34)       $    4.02     $     2.47          (39)       $    4.02
Natural-gas sales revenues (millions)           $     613          (27)       $     840     $    1,682          (34)       $   2,564

Bcf-billion cubic feet

MMcf/d-million cubic feet per day

Mcf-thousand cubic feet

The Company's natural-gas sales volumes increased 228 MMcf/d and 151 MMcf/d for the three and nine months ended September 30, 2012, respectively. These increases were due to higher sales volumes in the Southern and Appalachia Region of 253 MMcf/d and 200 MMcf/d, respectively, primarily as a result of drilling in the Marcellus, Eagleford, and Haynesville shales, and higher sales volumes in the Rockies of 85 MMcf/d and 72 MMcf/d, respectively, associated with drilling in the Greater Natural Buttes area and the Wattenberg field. These increases were partially offset by reduced sales volumes for the three and nine months ended September 30, 2012, in the Gulf of Mexico of 110 MMcf/d and 121 MMcf/d, respectively, primarily due to natural production declines and weather-related shut-ins.

The average natural-gas price Anadarko received decreased for the three and nine months ended September 30, 2012, as a result of above-average U.S. natural-gas storage levels during 2012.


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      Crude-Oil and Condensate Sales Volumes, Average Prices, and Revenues



                                                           Three Months Ended                            Nine Months Ended
                                                              September 30,                                September 30,
                                                                Inc/(Dec)                                    Inc/(Dec)
                                                   2012         vs. 2011         2011           2012         vs. 2011          2011
United States
Sales volumes-MMBbls                                    13           11%              12             40            12%              36
               MBbls/d                                 143           11              129            146            12              132
Price per barrel                                 $   94.19            -        $   94.02     $    99.26             2       $    96.84

International
Sales volumes-MMBbls                                     8           17%               8             24              4%             23
               MBbls/d                                  91           17               78             87             4               83
Price per barrel                                 $  108.94          (1)        $  109.69     $   111.75             3       $   108.47

Total
Sales volumes-MMBbls                                    21           13%              20             64             9%              59
               MBbls/d                                 234           13              207            233             9              215
Price per barrel                                 $   99.93            -        $   99.92     $   103.90             3       $   101.35
Oil and condensate sales revenues (millions)     $   2,163           14        $   1,905     $    6,629            11       $    5,948

MMBbls-million barrels

MBbls/d-thousand barrels per day

Anadarko's crude-oil and condensate sales volumes increased 27 MBbls/d and 18 MBbls/d for the three and nine months ended September 30, 2012, respectively. Increased horizontal drilling in the Wattenberg field led to sales-volume improvements in the Rockies of 8 MBbls/d and 7 MBbls/d for the three and nine months ended September 30, 2012, respectively. Horizontal drilling in the Eagleford shale and Bone Spring/Avalon formations also contributed to increased sales volumes in the Southern and Appalachia Region of 9 MBbls/d and 8 MBbls/d, for the three and nine months ended September 30, 2012, respectively. International sales volumes for the three and nine months ended September 30, 2012, increased 13 MBbls/d and 4 MBbls/d, respectively, primarily related to timing of cargo liftings in Ghana.

Anadarko's average crude-oil price received for the three months ended September 30, 2012, was flat compared to 2011 prices. Anadarko's average crude-oil price received increased slightly for the nine months ended September 30, 2012, primarily due to supply disruption concerns associated with political and civil unrest in the Middle East and Africa, which offset downward price pressure caused by macroeconomic concerns in Europe and China.


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        Natural-Gas Liquids Sales Volumes, Average Prices, and Revenues



                                                                  Three Months Ended                               Nine Months Ended
                                                                     September 30,                                   September 30,
                                                                        Inc/(Dec)                                       Inc/(Dec)
                                                          2012          vs. 2011         2011             2012          vs. 2011         2011
United States
Sales volumes-MMBbls                                             8         19%                  7               22         10%                 20
               MBbls/d                                          88         19                  74               81         10                  74
Price per barrel                                      $      35.93        (35)       $      55.47     $      40.96        (23)       $      53.48
Natural-gas liquids sales revenues (millions)         $        289        (23)       $        377     $        913        (15)       $      1,080

NGLs sales represent revenues from the sale of product derived from the processing of Anadarko's natural-gas production. For the three and nine months ended September 30, 2012, the Company's NGLs sales volumes increased by 14 MBbls/d and 7 MBbls/d, respectively, as a result of drilling in liquids-rich areas, primarily in the Eagleford and Haynesville shales in the Southern and Appalachia Region.

The average NGLs price decreased for the three and nine months ended September 30, 2012, primarily due to lower market prices for ethane and propane. Ethane demand was reduced by down-time for maintenance and conversion upgrades at third-party facilities. Also, mild winter temperatures across much of the United States in 2011 reduced demand for propane and contributed to above-average levels of propane stockpiles. Lastly, increased production from continued liquids-rich development has created further downward pricing pressures for NGLs.

                  Gathering, Processing, and Marketing Margin



                                                            Three Months Ended                               Nine Months Ended
                                                               September 30,                                   September 30,
                                                                  Inc/(Dec)                                       Inc/(Dec)
millions except percentages                         2012          vs. 2011         2011             2012          vs. 2011         2011
Gathering, processing, and marketing sales      $        218        (17)%      $        262     $        671        (11)%      $        750
Gathering, processing, and marketing expenses            185        (14)                214              552         (6)                590

Margin                                          $         33        (31)       $         48     $        119        (26)       $        160

For the three and nine months ended September 30, 2012, the gathering, processing, and marketing margin decreased primarily due to lower commodity prices, which led to reduced natural-gas processing margins. Also, for the nine months ended September 30, 2012, marketing margins decreased due to lower margins on sales from inventory caused by lower prices and volumes. These decreases for the three and nine months ended September 30, 2012, were partially offset by an increase in gathering and processing revenues associated with . . .

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