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APC > SEC Filings for APC > Form 10-K on 28-Feb-2014All Recent SEC Filings

Show all filings for ANADARKO PETROLEUM CORP

Form 10-K for ANADARKO PETROLEUM CORP


28-Feb-2014

Annual Report


Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations

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 8, and the information set forth in Risk Factors under Item 1A. Unless the context otherwise requires, the terms "Anadarko" and "Company" refer to Anadarko Petroleum Corporation and its consolidated subsidiaries.

OVERVIEW

Anadarko met or exceeded its key operational objectives in 2013. The Company increased sales volumes per day by approximately 7% over 2012 and added 528 million barrels of oil equivalent (BOE) of proved reserves. Additionally, the Company continued its deepwater exploration and appraisal drilling success with a 67% success rate in 2013. The Company ended 2013 with $3.7 billion of cash on hand, availability of its $5.0 billion senior secured revolving credit facility maturing in September 2015 ($5.0 billion Facility), and access to credit and capital markets as needed. Management believes that the Company is positioned to continue to satisfy its operational objectives and capital commitments with cash on hand, available borrowing capacity, and cash flows from operations.

Mission and Strategy

Anadarko's mission is to deliver a competitive and sustainable rate of return to shareholders by developing, acquiring, and exploring for oil and natural-gas resources vital to the world's health and welfare. Anadarko employs the following strategy to achieve this mission:

explore in high-potential, proven basins

identify and commercialize resources

employ a global business development approach

ensure financial discipline and flexibility

Exploring in high-potential, proven, and emerging basins worldwide provides the Company with growth opportunities. Anadarko's exploration success has created value by increasing future resource potential, while providing the flexibility to mitigate risk by monetizing discoveries.
Developing a portfolio of primarily unconventional resources provides the Company a stable base of capital-efficient and predictable development opportunities that, in turn, positions the Company for consistent growth at competitive rates.
Anadarko's global business development approach transfers core skills across the globe to assist in the discovery and development of world-class resources that are accretive to the Company's performance. These resources help form an optimized global portfolio where both surface and subsurface risks are actively managed.
A strong balance sheet is essential for the development of the Company's assets, and Anadarko is committed to disciplined investment in its businesses to efficiently manage commodity price cycles. Maintaining financial discipline enables the Company to capitalize on the opportunities afforded by its global portfolio, while allowing the Company to pursue new strategic growth opportunities.


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Index to Financial Statements

Significant 2013 operating and financial activities include the following:

Overall
Anadarko's full-year sales volumes averaged 781 thousand barrels of oil equivalent per day (MBOE/d), representing a 7% increase over 2012.

Anadarko's liquids sales volumes were 339 thousand barrels per day (MBbls/d), representing a 7% increase over 2012, primarily due to increased sales volumes in the Wattenberg field, the Eagleford shale, and the East Texas/North Louisiana horizontal development.

The Company achieved a 67% success rate from deepwater exploration and appraisal drilling in 2013.

The Company recognized an $850 million contingent loss related to the Adversary Proceeding. See Note 17-Contingencies-Tronox Litigation in the Notes to Consolidated Financial Statements under Item 8 of this Form 10-K.

U.S. Onshore
The Rocky Mountains Region (Rockies) full-year sales volumes averaged 327 MBOE/d, representing a 3% increase over 2012, primarily from the Wattenberg field.

The Southern and Appalachia Region full-year sales volumes averaged 257 MBOE/d, representing a 30% increase over 2012, primarily from the Marcellus and Eagleford shales, and the East Texas/North Louisiana horizontal development.

Anadarko acquired certain oil and gas properties and related assets in the Moxa area of Wyoming for $310 million.

Anadarko exchanged certain oil and gas properties in the Wattenberg field with a third party, which allowed the Company to consolidate its working interest and operated acreage positions in the field.

The Company sold its interest in the Pinedale/Jonah assets in the Rockies to a third party for $581 million in January 2014, recognizing a loss of $701 million in 2013.

Gulf of Mexico
Gulf of Mexico full-year sales volumes averaged 96 MBOE/d, representing a 17% decrease from 2012, primarily due to natural production declines.

The Company entered into a carried-interest arrangement that requires a third-party partner to fund $860 million of Anadarko's capital costs in exchange for a 12.75% working interest in the Heidelberg development.

Anadarko's 80-MBbls/d Lucius spar was installed on location in the deepwater Gulf of Mexico and well-completion activities were initiated.

The Company drilled three successful exploration wells and three appraisal wells.

The Company increased its ownership position in the Coronado discovery from 15% to 35% and will assume operatorship following the drilling of an appraisal well, which was spud in the fourth quarter of 2013.


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Index to Financial Statements

International
International full-year sales volumes averaged 90 MBOE/d, representing a 7% increase from 2012, primarily in Ghana.

The Company drilled two successful exploration wells in Mozambique.

Anadarko and its partners continue to make progress marketing liquefied natural gas (LNG) to be produced from Anadarko-operated Rovuma Offshore Area 1 in Mozambique. The partners have reached non-binding Heads of Agreements for long-term LNG sales to buyers in Asian markets covering approximately two-thirds of the first 5-million-tonne-per-annum train.

The Company participated in ten successful appraisal wells: six in Mozambique, two in Ghana, and two in Brazil.

Anadarko and its partners achieved initial oil production at the El Merk project and production from the facility increased throughout the year as two oil trains and a natural-gas processing and NGLs extraction train were completed and brought online. Final commissioning of the NGLs extraction train is ongoing and will be completed in the first quarter of 2014.

Anadarko and its partners received government approval for the Plan of Development for the Tweneboa/Enyenra/Ntomme (TEN) deepwater oil project offshore Ghana.

Anadarko sold a 10% working interest in Rovuma Offshore Area 1 in Mozambique for $2.64 billion in February 2014.

Financial
Anadarko's net income attributable to common stockholders for 2013 totaled $801 million, which included an $850 million contingent loss related to the Adversary Proceeding and $794 million of impairment expense primarily related to certain Gulf of Mexico properties and domestic onshore properties.

The Company generated $8.9 billion of cash flow from operations in 2013, including $730 million related to the resolution of the Algeria exceptional profits tax dispute, and ended 2013 with $3.7 billion of cash on hand.

Anadarko increased the quarterly dividend paid to its common stockholders from $0.09 per share to $0.18 per share.

The following discussion pertains to Anadarko's results of operations, financial condition, and changes in financial condition. Any increases or decreases "for the year ended December 31, 2013," refer to the comparison of the year ended December 31, 2013, to the year ended December 31, 2012. Similarly, any increases or decreases "for the year ended December 31, 2012," refer to the comparison of the year ended December 31, 2012, to the year ended December 31, 2011. The primary factors that affect the Company's results of operations include commodity prices for natural gas, crude oil, and natural gas liquids (NGLs); sales volumes; the Company's ability to discover additional reserves; the cost of finding such reserves; and operating costs.


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Index to Financial Statements

RESULTS OF OPERATIONS

millions except per-share amounts and
percentages                                          2013           2012           2011
Financial Results
Natural-gas, oil and condensate, and NGLs sales  $   13,828     $   12,396     $   12,834
Gathering, processing, and marketing sales            1,039            911          1,048
Gains (losses) on divestitures and other, net          (286 )          104             85
Total revenues and other                             14,581         13,411         13,967
Costs and expenses (1)                               11,248          9,684         15,837
Other (income) expense (2)                            1,227            162          1,554
Income tax expense (benefit)                          1,165          1,120           (856 )
Net income (loss) attributable to common
stockholders                                     $      801     $    2,391     $   (2,649 )
Net income (loss) per common share attributable
to common
stockholders-diluted                             $     1.58     $     4.74     $    (5.32 )
Average number of common shares
outstanding-diluted                                     505            502            498

Operating Results
Adjusted EBITDAX (3)                             $    9,403     $    8,966     $    8,869
Total proved reserves (MMBOE)                         2,792          2,560          2,539
Annual sales volumes (MMBOE)                            285            268            248

Capital Resources and Liquidity
Cash provided by operating activities            $    8,888     $    8,339     $    2,505
Capital expenditures                                  8,523          7,311          6,553
Total debt                                           13,565         13,269         15,230
Stockholders' equity                             $   21,857     $   20,629     $   18,105
Debt to total capitalization ratio                     38.3 %         39.1 %         45.7 %


 _______________________________________________________________________________
MMBOE-million barrels of oil equivalent


(1) Includes Deepwater Horizon settlement and related costs of $15 million in 2013, $18 million in 2012, and $3.9 billion in 2011, and a credit of $1.8 billion for previously recognized expenses related to the favorable resolution of the Algeria exceptional profits tax dispute in 2012.

(2) Includes Tronox-related contingent loss of $850 million in 2013, reversal of the 2011 Tronox-related contingent loss $(250) million in 2012, and Tronox-related contingent loss of $250 million in 2011.

(3) 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 for a reconciliation of Adjusted EBITDAX to income (loss) before income taxes, which is presented in accordance with GAAP.


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Index to Financial Statements

FINANCIAL RESULTS
                           Sales Revenues and Volumes
                                         Inc/(Dec)                 Inc/(Dec)
millions except percentages   2013        vs. 2012       2012        vs. 2011      2011
Sales Revenues
Natural-gas sales           $  3,388         39 %      $  2,444       (26 )%     $  3,300
Oil and condensate sales       9,178          5           8,728         8           8,072
Natural-gas liquids sales      1,262          3           1,224       (16 )         1,462
Total                       $ 13,828         12        $ 12,396        (3 )      $ 12,834

Anadarko's total sales revenues increased for the year ended December 31, 2013, primarily due to higher sales volumes for all products and higher average natural-gas prices, partially offset by lower average crude-oil and NGLs prices. Total sales revenues decreased for the year ended December 31, 2012, primarily due to lower average natural-gas and NGLs prices, partially offset by higher sales volumes for all products.

                                       Natural       Oil and
millions                                 Gas       Condensate       NGLs        Total
2011 sales revenues                   $ 3,300     $     8,072     $ 1,462     $ 12,834
Changes associated with prices         (1,094 )             9        (409 )     (1,494 )
Changes associated with sales volumes     238             647         171        1,056
2012 sales revenues                   $ 2,444     $     8,728     $ 1,224     $ 12,396
Changes associated with prices            798             (85 )       (82 )        631
Changes associated with sales volumes     146             535         120          801
2013 sales revenues                   $ 3,388     $     9,178     $ 1,262     $ 13,828

The following provides Anadarko's sales volumes for the years ended December 31, 2013, 2012, and 2011:

                                          Inc/(Dec)              Inc/(Dec)
Sales Volumes                     2013      vs. 2012    2012      vs. 2011     2011
Barrels of Oil Equivalent
(MMBOE except percentages)
United States                      252        6 %        237          9 %       217
International                       33        7           31         (2 )        31
Total                              285        6          268          8         248
Barrels of Oil Equivalent per Day
(MBOE/d except percentages)
United States                      691        7 %        648          9 %       595
International                       90        7           84         (2 )        85
Total                              781        7          732          8         680

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 11-Derivative Instruments in the Notes to Consolidated Financial Statements under Item 8 of this Form 10-K and Other (Income) Expense-(Gains) Losses on Derivatives, net. Production of natural gas, crude oil, and NGLs is usually not affected by seasonal swings in demand.


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Index to Financial Statements

Natural-Gas Sales Volumes, Average Prices, and Revenues

                                                    Inc/(Dec)                   Inc/(Dec)
                                         2013        vs. 2012        2012        vs. 2011        2011
United States
Sales volumes-Bcf                          968           6 %           913           7  %          852
MMcf/d                                   2,652           6           2,495           7           2,334
Price per Mcf                         $   3.50          31        $   2.68         (31 )      $   3.87
Natural-gas sales revenues (millions) $  3,388          39        $  2,444         (26 )      $  3,300


 _______________________________________________________________________________
Bcf-billion cubic feet
MMcf/d-million cubic feet per day
Mcf-thousand cubic feet

The Company's natural-gas sales volumes increased 157 MMcf/d for the year ended December 31, 2013. Sales volumes for the Southern and Appalachia Region increased 246 MMcf/d primarily due to horizontal drilling and infrastructure expansions in the Eagleford and Marcellus shales, as well as new wells drilled in the liquids-rich East Texas/North Louisiana horizontal development. These increases were partially offset by lower sales volumes in the Gulf of Mexico of 47 MMcf/d primarily due to natural production declines. Also, sales volumes for the Rockies decreased 42 MMcf/d primarily due to a natural production decline in the Powder River basin, partially offset by higher sales volumes in the Wattenberg field due to increased horizontal drilling.
The Company's natural-gas sales volumes increased 161 MMcf/d for the year ended December 31, 2012, primarily due to higher sales volumes in the Southern and Appalachia Region of 220 MMcf/d as wells drilled in previous years were brought online through 2012 infrastructure expansions in the Eagleford and Marcellus shale and new wells were drilled in the liquids-rich East Texas/North Louisiana horizontal development. Also, the Company had higher sales volumes in the Rockies of 52 MMcf/d associated with drilling in the Greater Natural Buttes and the Wattenberg field. These increases were partially offset by reduced sales volumes in the Gulf of Mexico of 111 MMcf/d primarily due to natural production declines.
The average natural-gas price Anadarko received increased for the year ended December 31, 2013, as higher-than-normal residential and commercial demand early in the year reduced overall natural gas storage below the previous year's record levels. Natural-gas prices were further supported by higher demand in the fourth quarter of 2013, a reduction in natural-gas imports from Canada, and continued strength in exports to Mexico. Anadarko's average natural-gas price received decreased for the year ended December 31, 2012, due to continued growth in U.S. natural-gas production, reduced U.S. natural-gas demand as a result of mild winter temperatures, and above-average U.S. natural-gas storage levels in 2012.


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Index to Financial Statements

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

                                                   Inc/(Dec)                    Inc/(Dec)
                                        2013         vs. 2012        2012         vs. 2011        2011
United States
Sales volumes-MMBbls                       58           6  %            55          14  %            48
MBbls/d                                   158           6              149          14              132
Price per barrel                     $  97.02           -         $  97.46           -         $  97.70
International
Sales volumes-MMBbls                       33           7  %            31          (2 )%            31
MBbls/d                                    90           7               84          (2 )             85
Price per barrel                     $ 109.15          (2 )       $ 111.11           2         $ 109.20
Total
Sales volumes-MMBbls                       91           6  %            86           8  %            79
MBbls/d                                   248           6              233           8              217
Price per barrel                     $ 101.41          (1 )       $ 102.35           -         $ 102.24
Oil and condensate sales revenues
(millions)                           $  9,178           5         $  8,728           8         $  8,072


 _______________________________________________________________________________
MMBbls-million barrels
MBbls/d-thousand barrels per day

Anadarko's total crude-oil and condensate sales volumes increased 15 MBbls/d for the year ended December 31, 2013. Sales volumes for the Rockies increased 15 MBbls/d primarily in the Wattenberg field due to increased horizontal drilling. Sales volumes for the Southern and Appalachia Region increased 6 MBbls/d, as a result of horizontal drilling and infrastructure expansions in the Eagleford shale. Internationally, sales volumes increased 6 MBbls/d primarily in Ghana as a result of enhanced production due to successful acid stimulations and additional Phase 1A Jubilee wells brought online, as well as timing of cargo liftings. Sales volumes in the Gulf of Mexico decreased 10 MBbls/d primarily due to natural production declines.
Anadarko's crude-oil and condensate sales volumes increased 16 MBbls/d for the year ended December 31, 2012. Increased horizontal drilling in the Wattenberg field led to a 9 MBbls/d sales-volume improvement in the Rockies. Horizontal drilling in the Eagleford shale and Bone Spring/Avalon formations also contributed to increased sales volumes in the Southern and Appalachia Region of 8 MBbls/d.
Anadarko's average crude-oil price received decreased slightly for the year ended December 31, 2013, due to modestly lower international crude oil prices. Approximately 70% of Anadarko's crude-oil sales volumes were based on prices that were either directly indexed to, or highly correlated to, Brent crude. Anadarko's average crude-oil price received increased for the year ended December 31, 2012, primarily due to supply disruption concerns associated with political and civil unrest in the Middle East and North Africa, and steady global demand growth.


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

                                                   Inc/(Dec)                    Inc/(Dec)
                                        2013         vs. 2012        2012        vs. 2011        2011
United States
Sales volumes-MMBbls                       33          10  %            30          12  %           27
MBbls/d                                    91          10               83          12              74
Price per barrel                     $  37.97          (6 )       $  40.44         (25 )      $  53.95
Natural-gas liquids sales revenues
(millions)                           $  1,262           3         $  1,224         (16 )      $  1,462

NGLs sales represent revenues from the sale of products derived from the processing of Anadarko's natural-gas production. The Company's NGLs sales volumes increased 8 MBbls/d for the year ended December 31, 2013. Sales volumes for the Southern and Appalachia Region increased 12 MBbls/d as a result of continued horizontal drilling and infrastructure expansion in the Eagleford shale and horizontal drilling in the liquids-rich East Texas/North Louisiana horizontal development. This increase was partially offset by lower sales volumes in the Rockies of 2 MBbls/d primarily due to ethane rejection in 2013, and in the Gulf of Mexico of 2 MBbls/d due to natural production declines. Anadarko's NGLs sales volumes increased by 9 MBbls/d for the year ended December 31, 2012, as a result of drilling in liquids-rich areas, primarily in the Southern and Appalachia Region at the Eagleford shale and the East Texas/North Louisiana horizontal development.
Anadarko's average NGLs price received decreased for the year ended December 31, 2013, primarily due to lower market prices for ethane and butanes as a result of higher U.S. inventory and production levels. Anadarko's average NGLs price decreased for the year ended December 31, 2012, primarily due to lower market prices for ethane and propane. Ethane demand was reduced by down-time for maintenance and conversion upgrades at petrochemical facilities. Mild winter temperatures across much of the United States in 2011 reduced demand for propane and contributed to above-average levels of propane stockpiles.
Gathering, Processing, and Marketing Margin

                                                   Inc/(Dec)                   Inc/(Dec)
millions except percentages             2013        vs. 2012        2012        vs. 2011        2011
Gathering, processing, and marketing
sales                                $  1,039          14 %      $    911         (13 )%     $  1,048
Gathering, processing, and marketing
expense                                   869          14             763          (4 )           791
Gathering, processing, and marketing
margin                               $    170          15        $    148         (42 )      $    257

Marketing margins represent the margin earned by purchasing and selling third-party oil and natural gas. Processing margin represents the margin earned by purchasing third-party natural gas and selling the extracted NGLs and remaining residue gas. The Company also earns gathering revenue and processing fees by providing gathering and processing services to third parties. Operating and transportation expenses relate to the Company's costs to perform these activities, excluding the purchase of commodities that are included in the margin.
For the year ended December 31, 2013, the gathering, processing, and marketing margin increased $22 million. This increase was primarily due to higher gathering revenue as a result of increased throughput across several of Anadarko's gathering systems and higher marketing margins, partially offset by increased transportation expenses due to increased third-party volumes and increased demand fees.
For the year ended December 31, 2012, the gathering, processing, and marketing margin decreased $109 million primarily due to lower commodity prices, which led to reduced natural-gas processing margins and decreased marketing margins, and higher transportation expenses primarily due to higher demand fees. This decrease was partially offset by additional revenues earned and expenses incurred for midstream assets acquired in February 2011 and May 2011, and an increase in gathering and processing revenues associated with increased throughput volumes across several of Anadarko's fee-based systems.


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Gains (Losses) on Divestitures and Other, net

Gains (losses) on divestitures and other, net decreased $390 million primarily due to losses on divestitures in 2013. In the fourth quarter of 2013, the Company recognized losses on assets held for sale of $704 million, primarily associated with the divestiture of the Pinedale/Jonah assets in the Rockies, which closed in January 2014 for sale proceeds of $581 million. This decrease was partially offset by a $140 million gain in 2013 associated with the Company's divestiture of its interests in a soda ash joint venture. The Company divested its interests in the soda ash joint venture for $310 million and potential additional consideration based on future revenue of the joint venture, while retaining its royalty interest in soda ash mined by the joint venture from the Company's Land Grant. In 2013, gains on divestitures also included $94 million primarily related to the divestiture of certain oil and gas properties in the United States compared to net losses on similar divestitures of $71 million in 2012 primarily related to the sale of oil and gas properties in Indonesia. See Note 2-Acquisitions, Divestitures, and Assets Held for Sale in the Notes to Consolidated Financial Statements under Item 8 of this Form 10-K for additional information on assets held for sale.
For the year ended December 31, 2012, gains (losses) on divestitures and other, net increased $19 million primarily due to increased mineral revenue of . . .

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