<PAGE>
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the Quarter Ended September 30, 1998
Commission File No. 1-8968
ANADARKO PETROLEUM CORPORATION
17001 Northchase Drive, Houston, Texas 77060-2141
(281) 875-1101
Incorporated in the Employer Identification
State of Delaware No. 76-0146568
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the Securities
Exchange Act of 1934 during the preceding 12 months (or for such
shorter period that the registrant was required to file such reports)
and (2) has been subject to such filing requirements for the past 90
days. Yes X No _____
The number of shares outstanding of the Company's common stock as
of October 30, 1998 is shown below:
Number of Shares
Title of Class Outstanding
Common Stock, $0.10 par value per share 120,325,896
<PAGE>
<PAGE>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
ANADARKO PETROLEUM CORPORATION
CONSOLIDATED STATEMENT OF INCOME
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
thousands except September 30 September 30
per share amounts 1998 1997 1998 1997
<S> <C> <C> <C> <C>
Revenues
Gas sales $ 86,253 $ 94,773 $267,443 $284,971
Oil and condensate sales 35,010 42,036 97,989 124,556
Natural gas liquids and other 18,928 21,908 59,286 59,537
Total 140,191 158,717 424,718 469,064
Cost and Expenses
Operating expenses 41,848 39,319 120,754 105,630
Administrative and general 21,950 19,486 64,914 53,673
Depreciation, depletion and
amortization 51,562 51,062 151,286 144,323
Other taxes 9,116 10,720 28,432 34,333
Total 124,476 120,587 365,386 337,959
Operating Income 15,715 38,130 59,332 131,105
Interest Expense 14,991 11,452 41,127 28,657
Income before Income Taxes 724 26,678 18,205 102,448
Income Taxes 260 9,586 6,385 37,148
Net Income $ 464 $ 17,092 $ 11,820 $ 65,300
Preferred Stock Dividends 2,730 --- 4,368 ---
Net Income (Loss) Available
to Common Stockholders $ (2,266) $ 17,092 $ 7,452 $ 65,300
Per Common Share
Net income (loss)- basic $ (0.02) $ 0.14 $ 0.06 $ 0.55
Net income (loss)- diluted $ (0.02) $ 0.14 $ 0.06 $ 0.54
Dividends - common $ 0.05 $ 0.0375 $ 0.1375 $ 0.1125
Average Number of Common
Shares Outstanding 120,140 119,484 120,008 119,329
</TABLE>
See accompanying notes to consolidated financial statements.
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<PAGE>
<PAGE>
Item 1. Financial Statements (continued)
ANADARKO PETROLEUM CORPORATION
CONSOLIDATED BALANCE SHEET
(Unaudited)
<TABLE>
<CAPTION>
September 30, December 31,
thousands 1998 1997
<S> <C> <C>
ASSETS
Current Assets
Cash and cash equivalents $ 19,881 $ 8,907
Accounts receivable 157,750 177,157
Inventories, at average cost 20,961 28,564
Prepaid expenses 6,576 4,366
Total 205,168 218,994
Properties and Equipment
Original cost 5,314,372 4,669,251
Less accumulated depreciation, depletion
and amortization 2,054,097 1,914,472
Net properties and equipment - based on
the full cost method of accounting
for oil and gas properties 3,260,275 2,754,779
Deferred Charges 31,570 18,692
$3,497,013 $2,992,465
</TABLE>
See accompanying notes to consolidated financial statements.
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<PAGE>
<PAGE>
Item 1. Financial Statements (continued)
ANADARKO PETROLEUM CORPORATION
CONSOLIDATED BALANCE SHEET (continued)
(Unaudited)
<TABLE>
<CAPTION>
September 30, December 31,
thousands 1998 1997
<S> <C> <C>
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities
Accounts payable
Trade and other $ 157,870 $ 202,822
Banks 26,797 22,102
Accrued expenses
Interest 13,968 13,607
Taxes and other 15,653 13,799
Notes payable, banks 49,631 ---
Total 263,919 252,330
Long-term Debt 1,225,000 955,733
Deferred Credits
Deferred income taxes 550,046 546,792
Other 140,242 120,830
Total 690,288 667,622
Stockholders' Equity
Preferred stock, par value $1.00
(2,000,000 shares authorized, 200,000 and
no shares issued as of September 30, 1998
and December 31, 1997, respectively) 200,000 ---
Common stock, par value $0.10
(200,000,000 shares authorized,
122,247,367 and 121,771,988 shares issued
as of September 30, 1998 and December 31,
1997, respectively) 12,224 6,134
Paid-in capital 375,086 353,125
Retained earnings (as of September 30, 1998,
$667,806,000 was not restricted as to
the payment of dividends) 819,631 828,787
Deferred compensation (8,510) (11,203)
Executives and Directors Benefits Trust,
at market value (2,000,000 shares as of
September 30, 1998 and December 31, 1997) (80,625) (60,063)
_________ _________
Total 1,317,806 1,116,780
$3,497,013 $2,992,465
</TABLE>
See accompanying notes to consolidated financial statements.
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<PAGE>
<PAGE>
Item 1. Financial Statements (continued)
ANADARKO PETROLEUM CORPORATION
CONSOLIDATED STATEMENT OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
Nine Months Ended
September 30
thousands 1998 1997
<S> <C> <C>
Cash Flow from Operating Activities
Net income $ 11,820 $ 65,300
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation, depletion and amortization 151,286 144,319
Amortization of restricted stock 829 1,424
Deferred U.S. income taxes 4,818 29,014
168,753 240,057
Decrease in accounts receivable 19,407 52,997
(Increase) decrease in inventories 7,603 (9,033)
Decrease in accounts payable - trade and
other and accrued expenses (42,737) (35,628)
Other items - net (5,600) (342)
Net cash provided by operating activities 147,426 248,051
Cash Flow from Investing Activities
Additions to properties and equipment (672,368) (496,402)
Proceeds from the sale of assets to be
leased, net 20,170 87,900
Sales and retirements of properties
and equipment 5,454 3,141
Net cash used in investing activities (646,744) (405,361)
Cash Flow from Financing Activities
Additions to debt 418,898 159,522
Retirements of debt (100,000) ---
Issuance of preferred stock 195,675 ---
Increase in accounts payable, banks 4,695 1,360
Dividends paid (20,976) (13,433)
Issuance of common stock 12,000 9,094
Issuance of treasury stock, net --- 4
Net cash provided by financing activities 510,292 156,547
Net Increase (Decrease) in Cash and Cash
Equivalents 10,974 (763)
Cash and Cash Equivalents at Beginning
of Period 8,907 14,601
Cash and Cash Equivalents at End of Period $ 19,881 $ 13,838
</TABLE>
See accompanying notes to consolidated financial statements.
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<PAGE>
<PAGE>
Item 1. Financial Statements (continued)
ANADARKO PETROLEUM CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1. Summary of Accounting Policies
General Anadarko Petroleum Corporation is engaged in the
exploration, development, production and marketing of natural gas,
crude oil, condensate and natural gas liquids (NGLs). The terms
"Anadarko" and "Company" refer to Anadarko Petroleum Corporation and
its subsidiaries. The principal subsidiaries of Anadarko are:
Anadarko Algeria Corporation (Anadarko Algeria), Anadarko Energy
Services Company and Anadarko Gathering Company. Certain amounts have
been restated to conform to the current presentation.
2. Inventories Materials and supplies and natural gas inventory
are stated at the lower of average cost or market. Natural gas, when
sold from inventory, is charged to expense using the average-cost
method. The major classes of inventories are as follows:
<TABLE>
<CAPTION>
September 30, December 31,
thousands 1998 1997
<S> <C> <C>
Materials and supplies $19,925 $27,332
Natural gas 1,036 1,232
$20,961 $28,564
</TABLE>
3. Properties and Equipment Oil and gas properties include costs
of $379,329,000 and $343,789,000 at September 30, 1998 and December
31, 1997, respectively, which were excluded from capitalized costs
being amortized. These amounts represent costs associated with
unevaluated properties and major development projects.
4. Long-term Debt A summary of long-term debt follows:
<TABLE>
<CAPTION>
September 30, December 31,
thousands 1998 1997
<S> <C> <C>
Commercial Paper $ 284,631 $125,733
Notes Payable, Banks 140,369 30,000
8 3/4% Notes due 1998 --- 100,000
8 1/4% Notes due 2001 100,000 100,000
6 3/4% Notes due 2003 100,000 100,000
5 7/8% Notes due 2003 100,000 100,000
7 1/4% Debentures due 2025 100,000 100,000
7% Debentures due 2027 100,000 100,000
6.625% Debentures due 2028 100,000 ---
7.73% Debentures due 2096 100,000 100,000
7 1/4% Debentures due 2096 100,000 100,000
$1,225,000 $955,733
</TABLE>
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<PAGE>
<PAGE>
Item 1. Financial Statements (continued)
ANADARKO PETROLEUM CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(Unaudited)
4. Long-term Debt (continued)
The commercial paper and a portion of the notes payable to banks have
been classified as long-term debt in accordance with Statement of
Financial Accounting Standards No. 6, "Classification of Short-term
Obligations Expected to be Refinanced", under the terms of Anadarko's
Bank Credit Agreements.
In January 1998, Anadarko issued $100,000,000 principal amount of
6.625% Debentures due 2028. The proceeds were used to fund capital
spending projects in core operating areas.
In March 1998, Anadarko filed a shelf registration statement with the
Securities and Exchange Commission that permits the issuance of up to
$500,000,000 in debt and equity securities. Net proceeds, terms and
pricing of offerings of securities issued under the shelf registration
statement will be determined at the time of the offerings. In May
1998, $200,000,000 in preferred stock was issued under the shelf
registration statement. (See Note 5).
In April 1998, the Company's Revolving Credit and 364-Day Credit
Agreements were amended. The Revolving Credit Agreement was amended
to increase the number of commercial banks in the group from eight to
nine. The 364-Day Credit Agreement was amended as follows: the
principal amount of the Agreement was increased from $125,000,000 to
$175,000,000; the number of commercial banks in the group was changed
from eight to nine; and the expiration date of the Agreement was
extended for 10 months.
5. Preferred Stock On May 7, 1998, Anadarko issued $200,000,000
of 5.46% Series B Cumulative Preferred Stock in the form of two
million depositary shares, each depositary share representing 1/10th
of a share of the 5.46% Series B Cumulative Preferred Stock. The
preferred stock has no stated maturity and is not subject to a sinking
fund or mandatory redemption. The shares are not convertible into
other securities of the Company.
Anadarko has the option to redeem the shares at $100 per depositary
share on or after May 15, 2008. Holders of the shares are entitled to
receive, when, and as declared by the Board of Directors, cumulative
cash dividends at an annual dividend rate of $5.46 per depositary
share. The proceeds from the offering were used to reduce commercial
paper and bank borrowings and provide capital for Anadarko's 1998
capital expenditures. The preferred stock was issued under the
Company's shelf registration statement.
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<PAGE>
<PAGE>
Item 1. Financial Statements (continued)
ANADARKO PETROLEUM CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(Unaudited)
5. Preferred Stock (continued)
For the third quarter of 1998, dividends of $13.65 per share
(equivalent to $1.365 per depositary share) were paid to holders of
preferred stock.
6. Common Stock In April 1998, the Board of Directors approved a
two-for-one stock split, to be effected in the form of a stock
dividend. The distribution date was July 1, 1998 to stockholders of
record on June 15, 1998. All share and per share information has been
restated to reflect the stock split.
For the third quarter of 1998, dividends of $0.05 per share were paid
to holders of common stock. Under the most restrictive provisions of
the Company's credit agreements, which limit the payment of dividends,
retained earnings of $667,806,000 and $466,780,000 were not restricted
as to the payment of dividends at September 30, 1998 and December 31,
1997, respectively.
The Company's basic earnings per share (EPS) amounts have been computed
based on the average number of common shares outstanding. Diluted EPS
amounts include the effect of the Company's outstanding stock options
under the treasury stock method.
The reconciliation between basic and diluted EPS is as follows:
<TABLE>
<CAPTION>
Three Months Ended Three Months Ended
September 30, 1998 September 30, 1997
thousands except Per Share Per Share
per share amounts Loss Shares Amount Income Shares Amount
<S> <C> <C> <C> <C> <C> <C>
Basic EPS
Income (loss)
available to common
stockholders $(2,266) 120,140 $(0.02) $17,092 119,484 $0.14
Effect of dilutive
stock options --- --- --- 974
Diluted EPS
Income (loss)
available to common
stockholders plus
assumed conversion $(2,266) 120,140 $(0.02) $17,092 120,458 $0.14
</TABLE>
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<PAGE>
<PAGE>
Item 1. Financial Statements (continued)
ANADARKO PETROLEUM CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(Unaudited)
6. Common Stock (continued)
<TABLE>
<CAPTION>
Nine Months Ended Nine Months Ended
September 30, 1998 September 30, 1997
thousands except Per Share Per Share
per share amounts Income Shares Amount Income Shares Amount
<S> <C> <C> <C> <C> <C> <C>
Basic EPS
Income available to
common stockholders $7,452 120,008 $0.06 $65,300 119,329 $0.55
Effect of dilutive
stock options --- 923 --- 751
Diluted EPS
Income available to
common stockholders
plus assumed
conversion $7,452 120,931 $0.06 $65,300 120,080 $0.54
</TABLE>
For the third quarter of 1998, there were 979,000 common stock
equivalents related to outstanding stock options that were not
included in the computation of diluted EPS since they had an anti-
dilutive effect.
7. Statement of Cash Flows Supplemental Information The amounts
of cash paid (received) for interest (net of amounts capitalized) and
income taxes are as follows:
<TABLE>
<CAPTION>
Nine Months Ended
September 30
thousands 1998 1997
<S> <C> <C>
Interest $41,078 $28,903
Income taxes $(6,516) $10,930
</TABLE>
8. Operating Expenses Operating expenses by category are as
follows:
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30 September 30
Thousands 1998 1997 1998 1997
<S> <C> <C> <C> <C>
Oil and gas $25,031 $21,011 $ 67,751 $ 59,427
Plant, gathering and
marketing 16,817 18,308 53,003 46,203
$41,848 $39,319 $120,754 $105,630
</TABLE>
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<PAGE>
<PAGE>
Item 1. Financial Statements (continued)
ANADARKO PETROLEUM CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(Unaudited)
9. Kansas Ad Valorem Tax The Natural Gas Policy Act of 1978
(NGPA) allowed a "severance, production or similar" tax to be included
as an add-on, over and above the maximum lawful price for natural gas.
Based on the Federal Energy Regulatory Commission (FERC) ruling that
the Kansas ad valorem tax was such a tax, the Company collected the
Kansas ad valorem tax.
Background of Present Litigation FERC's ruling regarding the
ability of producers to collect the Kansas ad valorem tax was appealed
to the United States Court of Appeals for the District of Columbia
Circuit (D.C. Circuit). The Court held in June 1988 that FERC failed
to provide a reasoned basis for its findings and remanded the case to
FERC.
On December 1, 1993, FERC issued an order reversing its prior ruling,
but limiting the effect of its decision to Kansas ad valorem taxes for
sales made on or after June 28, 1988. Based on Anadarko's
interpretation of FERC's orders, $700,000 (pre-tax) was charged against
income in 1994, in addition to $130,000 (pre-tax) charged against
income in 1993. Anadarko, together with other natural gas producers,
challenged FERC's orders.
The D.C. Circuit issued its decision on August 2, 1996 ruling that
producers must refund all Kansas ad valorem taxes collected relating to
production since October 1983. The Company, along with other producing
companies, filed a petition for writ of certiorari with the Supreme
Court. That petition was denied on May 12, 1997.
Anadarko estimates that the maximum amount of principal and interest
at issue which has not been paid to date, assuming that the October
1983 effective date remains in effect, is about $41,800,000 (pre-tax)
as of September 30, 1998.
FERC Proceedings The Company, along with other producing companies,
filed a petition for adjustment with FERC on May 12, 1997 seeking a
waiver of all interest which might otherwise be due. The total
interest at issue is about $27,300,000 (pre-tax) as of September 30,
1998. On September 10, 1997, FERC denied the petition for adjustment.
By order dated February 26, 1998, in response to Anadarko's request,
FERC granted first sellers the right to secure a surety bond instead of
placing cash in escrow. The Company and other producers filed petitions
for review of FERC's January 28, 1998 order denying adjustment relief
with the United States Court of Appeals for the Fifth Circuit (Fifth
Circuit).
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<PAGE>
<PAGE>
Item 1. Financial Statements (continued)
ANADARKO PETROLEUM CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(Unaudited)
9. Kansas Ad Valorem Tax (continued)
The Public Service Company of Colorado and an affiliate filed a motion
in the Fifth Circuit to dismiss the pending appeals or to transfer them
to the D.C. Circuit. On April 27, 1998, the Fifth Circuit denied the
motion to dismiss but granted the motion to transfer the appeals to the
D.C. Circuit. Several parties, including Anadarko, sought rehearing of
the Order Clarifying Procedures issued by FERC on January 28, 1998.
On June 3, 1998, FERC denied the relief sought in the motion for
rehearing. FERC generally held that it was permissible for producers to
adjust pipeline statements of refunds due to reflect refund amounts
attributable to other working interest owners, amounts associated with
uncollectible royalty interest, and amounts associated with sales made
below applicable FERC set maximum lawful prices. In addition, claims
for a generic waiver of interest on refunds due were denied.
Depending on future FERC orders, the Company could be required to pay
all or part of the amounts claimed by all pipelines (which might
include PanEnergy) pending further potential review by FERC or courts.
However, a FERC order issued February 26, 1998 involving refunds paid
by another producer to Northern Natural Gas Company indicates that, if
a producer prevails in subsequent legal challenges, the producer may
recoup amounts paid directly from the pipeline itself, even if the
pipeline already distributed refunds to the pipeline's customers.
Requests for rehearing of this order are pending.
The Company intends to comply fully with all lawful orders issued by
FERC, without waiver of any claim of right or any defense or the right
to seek judicial review or intervention.
On March 9, 1998 and March 10, 1998, the Company filed several
compliance filings with FERC paying undisputed amounts billed by
pipelines and bonding amounts in dispute. The entire refund claim by
Panhandle Eastern Pipe Line Company, a PanEnergy affiliate, was
disputed, and the Company posted a surety bond for the amount in
controversy of $25,125,000, covering refund claims made against the
Company and all affiliates.
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<PAGE>
<PAGE>
Item 1. Financial Statements (continued)
ANADARKO PETROLEUM CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(Unaudited)
9. Kansas Ad Valorem Tax (continued)
PanEnergy Litigation On May 13, 1997, the Company filed a lawsuit
in the Federal District Court for the Southern District of Texas
against PanEnergy seeking declaration that pursuant to prior agreements
Anadarko is not required to issue refunds to PanEnergy for the
principal amount of $14,000,000 (pre-tax) and, if the petition for
adjustment is denied in its entirety by FERC with respect to PanEnergy
refunds, interest in an amount of $26,200,000 (pre-tax) as of September
30, 1998. The Company also seeks from PanEnergy the return of $816,000
of the $830,000 (pre-tax) charged against income in 1993 and 1994. In
response to a motion filed by PanEnergy, the United States District
Court issued an order on March 19, 1998 staying the litigation, pending
the exercise by FERC of its regulatory jurisdiction.
FERC Order of October 13, 1998 On October 13, 1998, FERC issued a
final order on Anadarko's complaint. The order declares that Anadarko
Production Company (now an affiliate of Duke Energy) is responsible as
first seller for making refunds of Kansas ad valorem tax reimbursements
collected from 1983 through August 1, 1985. The Company estimates this
amount to be as much as $26,000,000. The Company is responsible to
make refunds for reimbursements it collected as first seller from
August 1, 1985 through 1988. The Company estimates this amount to be
as much as $16,000,000. The FERC order states that whether Anadarko
Production Company or the Company is entitled to reimbursement from
another party for the refunds ordered is a matter to be pursued in an
appropriate judicial forum. Requests for rehearing of the October 13,
1998 order may be filed. FERC may, in the near future, issue an order
based upon the above allocation regarding when the refunds must be
paid.
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<PAGE>
<PAGE>
Item 1. Financial Statements (continued)
ANADARKO PETROLEUM CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(Unaudited)
9. Kansas Ad Valorem Tax (continued)
Kansas Corporation Commission (KCC) Proceeding On April 30, 1998,
the Company's subsidiary, Anadarko Gathering Company (AGC), filed a
petition with the KCC to clarify AGC's rights and obligations, if any,
related to the payment by first sellers of Kansas ad valorem tax
refunds. The refunds at issue relate to sales made by Anadarko
Production Company, a PanEnergy affiliate, through facilities known as
the Cimmaron River System during the time period from 1983 to 1988.
AGC purchased the Cimmaron River System from Centana, the successor of
Anadarko Production Company, in 1995. The petition, among other
things, asks the KCC to determine whether AGC or Anadarko Production
Company is responsible for the payment or distribution of refunds
received from first sellers to Anadarko Production Company's former
customers and requests guidance concerning the disposition of refunds
received that are attributable to sales made to Anadarko Production
Company customers that did not reimburse Anadarko Production Company
for Kansas ad valorem taxes during the relevant time periods. This
matter is presently being pursued before KCC.
Anadarko's net income for 1997 included a $1,800,000 charge (before
income taxes) related to the Kansas ad valorem tax refunds. This charge
reflects all principal and interest which may be due at the conclusion
of all regulatory proceedings and litigation to parties other than
PanEnergy. The Company is unable at this time to predict the final
outcome of this matter and no provision for liability (excluding the
amounts recorded in 1993, 1994 and 1997) has been made in the
accompanying financial statements.
10. The information, as furnished, reflects all normal recurring
adjustments that are, in the opinion of management, necessary to
a fair statement of financial position as of September 30, 1998 and
December 31, 1997, the results of operations for the three and
nine months ended September 30, 1998 and 1997, and cash flows for the
nine months ended September 30, 1998 and 1997.
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<PAGE>
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations
The Company has made in this report 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, contributions from Algerian properties, and
those statements preceded by, followed by or that otherwise include the
words "believes", "expects", "anticipates", "intends", "estimates",
"projects", "target", "goal", "plans", "objective", "should" or similar
expressions or variations on such expressions. For such statements,
the Company claims the protection of the safe harbor for forward
looking statements contained in the Private Securities Litigation
Reform Act of 1995. Such statements are subject to various risks and
uncertainties, and actual results could differ materially from those
expressed or implied by such statements due to a number of factors in
addition to those discussed elsewhere in this Form 10-Q and in the
Company's other public filings, press releases and discussions with
Company management. See Additional Factors Affecting Business in the
Management's Discussion and Analysis of Financial Condition and Results
of Operations included in the Company's 1997 Annual Report on Form
10-K.
Overview of Operating Results
For 1998's third quarter, Anadarko had a net loss available to common
stockholders of $2.3 million or two cents per share. Revenues for the
third quarter of 1998 totaled $140.2 million. For the same period in
1997, Anadarko had net income of $17.1 million or 14 cents per share
on revenues of $158.7 million. The decline in Anadarko's 1998 third
quarter results from the same period in 1997 was primarily due to
substantially lower commodity prices for crude oil, natural gas and
natural gas liquids (NGLs), partially offset by increased production
volumes. Higher costs and expenses, increased interest expense and
preferred stock dividends also affected the 1998 third quarter
performance.
For the first nine months of 1998, Anadarko's net income available to
common stockholders was $7.5 million (six cents per share). Revenues
for the first nine months of 1998 totaled $424.7 million. For the
corresponding period in 1997, Anadarko had $65.3 million in net income
(54 cents per share) on revenues of $469.1 million. The decline in
the first nine months of 1998 net income and revenues compared to the
same period in 1997 was due to substantially lower commodity prices,
which were partially offset by higher production volumes. Net income
for the first nine months of 1998 also reflects higher costs and
expenses, higher interest expense and preferred stock dividends.
-14-
<PAGE>
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations
The following table shows the Company's volumes and average prices for
the three and nine months ended September 30, 1998 and 1997:
<TABLE>
<CAPTION>
Three Months Ended
September 30 % Increase
1998 1997 (Decrease)
<S> <C> <C> <C>
Natural gas, Bcf 45.7 45.4 1
Average daily volumes, MMcf/d 497 494 1
Price per Mcf $1.82 $2.02 (10)
Crude oil and condensate, MBbls 2,940 2,392 23
Average daily volumes, MBOPD 32 26 23
Price per barrel $11.46 $17.06 (33)
Natural gas liquids, MBbls 1,788 1,430 25
Average daily volumes, MBOPD 19 16 25
Price per barrel $9.44 $14.65 (36)
<CAPTION>
Nine Months Ended
September 30 % Increase
1998 1997 (Decrease)
<S> <C> <C> <C>
Natural gas, Bcf 131.9 131.5 -
Average daily volumes, MMcf/d 483 482 -
Price per Mcf $1.94 $2.17 (11)
Crude oil and condensate, MBbls 7,871 6,643 18
Average daily volumes, MBOPD 29 24 18
Price per barrel $11.93 $18.26 (35)
Natural gas liquids, MBbls 5,062 3,693 37
Average daily volumes, MBOPD 19 14 37
Price per barrel $10.65 $14.65 (27)
</TABLE>
__________________
See "Natural Gas Volumes and Prices" and "Crude Oil, Condensate
and Natural Gas Liquids Volumes and Prices".
Costs and expenses during the third quarter of 1998 were $124.5
million, an increase of 3% compared to $120.6 million for the third
quarter of 1997. The increase is primarily due to higher operating
expenses related to acquisition of domestic producing properties and
first production from Algeria, and higher administrative and general
expenses associated with the Company's growing workforce, offset
slightly by lower other taxes.
-15-
<PAGE>
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations (continued)
For the first nine months of 1998, costs and expenses totaled $365.4
million, an increase of 8% compared to $338.0 million for the first
nine months of 1997. Operating expense increased due to higher total
production volumes, acquisition of domestic producing properties and
initial production from Algeria. Administrative and general expenses
are up due to higher costs associated with the Company's growing
workforce. Expenses for depreciation, depletion and amortization
(DD&A) increased due to higher production volumes, partially offset by
a lower DD&A rate.
Interest expense for the third quarter of 1998 increased 31% to $15.0
million compared to $11.5 million for the third quarter of 1997. For
the first nine months of 1998, interest expense was $41.1 million, an
increase of 44% compared to $28.7 million for the same period of 1997.
The increases in interest expense are primarily due to higher levels
of long-term debt in 1998 compared to 1997.
Natural Gas Volumes and Prices In 1998's third quarter, Anadarko's
natural gas production was 45.7 billion cubic feet (Bcf) of gas or 497
million cubic feet per day (MMcf/d), essentially level with 45.4 Bcf
or 494 MMcf/d during 1997's same period. 1998 third quarter gas
volumes remained strong despite temporary storm-related production
shut-ins in the Gulf of Mexico in August and September. Anadarko's
wellhead price for natural gas averaged $1.82 per thousand cubic feet
(Mcf) for the third quarter of 1998, down 10% from $2.02 per Mcf for
the third quarter of 1997.
During the first nine months of 1998, Anadarko's natural gas production
was level with the corresponding period in 1997. The Company produced
131.9 Bcf of gas or 483 MMcf/d in the first nine months of 1998.
Anadarko's wellhead natural gas price averaged $1.94 per Mcf, an 11%
decline from $2.17 per Mcf in 1997's same period.
Crude Oil, Condensate and Natural Gas Liquids Volumes and Prices
During the third quarter of 1998, Anadarko's oil volumes grew 23% to
2.9 million barrels (MMBbls) or 32 thousand barrels (MBOPD)
from 2.4 MMBbls or 26 MBOPD in 1997's corresponding period.
The increase in oil volumes reflected higher production in 1998 from
start up of production from the Company's Hassi Berkine South Field in
Algeria, which came onstream in May 1998, and the acquisition of
properties in the Golden Trend area of central Oklahoma earlier this
year. For the third quarter of 1998, oil production from Algeria was
466 thousand barrels net to Anadarko. The higher oil production volumes
were offset by a 33% decline in 1998's third quarter oil prices.
Anadarko's average oil price for the third quarter of 1998 was $11.46
per barrel, versus $17.06 per barrel for the third quarter of 1997.
-16-
<PAGE>
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations (continued)
Anadarko's worldwide oil production for the first nine months of 1998
rose by 18% compared to the same period in 1997. For the first nine
months of 1998, oil volumes totaled 7.9 MMBbls or 29 MBbls per day,
versus 6.6 MMBbls or 24 MBOPD for the same period in 1997.
First production from Algeria and the Golden Trend property acquisition
contributed to the significant increase in oil volumes for 1998.
Anadarko's average oil price declined 35% for 1998's first nine months
compared to the same period in 1997. Oil prices averaged $11.93 per
barrel in 1998's first nine months, compared to $18.26 per barrel for
the same period in 1997.
Anadarko's NGLs sales volumes for the third quarter of 1998 rose 25%
to 1.8 MMBbls or 19 MBOPD, up from 1.4 MMBbls or 16 MBOPD
during 1997's corresponding period. Increased NGLs volumes were
offset by lower NGLs prices, which fell 36% to $9.44 per barrel in the
third quarter of 1998 from $14.65 per barrel in 1997's same period.
NGLs volumes for the first nine months of 1998 increased 37% to 5.1
MMBbls or 19 MBOPD, up from 3.7 MMBbls or 14 MBOPD in 1997's same
period. The substantial rise in volumes was offset by a
27% decline in the Company's average NGLs price for the first nine
months of 1998. Anadarko's NGLs price averaged $10.65 per barrel for
the first nine months of 1998, versus $14.65 per barrel for the same
period in 1997.
Use of Derivatives Anadarko produces, purchases and sells natural
gas, crude oil, and NGLs. As a result, Anadarko's financial results
can be significantly affected by changes in these commodity prices.
Anadarko uses derivative financial instruments to hedge the Company's
exposure to changes in the market price of natural gas and crude oil,
to provide methods to fix the price for natural gas independently of
the physical purchase or sale and to manage interest rates. Commodity
financial instruments also provide methods to meet customer pricing
requirements while achieving a price structure consistent with the
Company's overall pricing strategy. While commodity financial
instruments are intended to reduce the Company's exposure to declines
in the market price of natural gas and crude oil, the commodity
financial instruments may also limit Anadarko's gain from increases in
the market price of natural gas and crude oil. As a result, gains and
losses on commodity financial instruments are generally offset by
similar changes in the realized price of natural gas and crude oil.
Gains and losses are recognized in revenues for the periods to which
the commodity financial instruments relate. Anadarko's commodity
financial instruments currently are comprised of futures, swaps and
options contracts.
-17-
<PAGE>
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations (continued)
While the volume of derivative commodity instruments utilized by the
Company to hedge its market price risk can vary during the year within
the boundaries of its established policy guidelines, the fair value of
those instruments at September 30, 1998 and December 31, 1997 was, in
the judgment of the Company, immaterial. Additionally, through the
use of sensitivity analysis, the Company evaluates the potential
effect that reasonably possible near term changes in the market prices
of natural gas and crude oil may have on the fair value of the
Company's derivative commodity instruments. Based upon an analysis
utilizing the actual derivative contractual volumes and assuming a 10%
adverse movement in commodity prices, the potential decrease in the
fair value of the derivative commodity instruments at September 30,
1998 and December 31, 1997 does not have a material adverse effect on
the financial position or results of operations of the Company.
The Company also evaluated the potential effect that reasonably
possible near term changes in interest rates may have on the fair
value of the Company's interest rate swap agreement. Based upon an
analysis utilizing the actual interest rates in effect as of September
1998 and December 1997 and assuming a 10% increase in interest rates,
the potential decrease in the fair value of the derivative interest
swap instrument at September 30, 1998 and December 31, 1997 does not
have a material effect on the financial position or results of
operations of the Company.
Capital Expenditures, Liquidity and Dividends
During the first nine months of 1998, Anadarko's capital spending
(including capitalized interest and overhead) was $672.4 million
compared to $496.4 million in the same period of 1997.
The Company believes cash flows, including proceeds from divestitures,
issuances of additional debt or securities, and existing credit
facilities will be sufficient to meet capital and operating
requirements, including any contingencies, during 1998.
In January 1998, Anadarko issued $100 million principal amount of
6.625% Debentures due 2028. The proceeds were used to fund capital
spending projects in core operating areas.
In March 1998, Anadarko filed a shelf registration statement with the
Securities and Exchange Commission (SEC) that permits the issuance of
up to $500 million in debt and equity securities. Net proceeds, terms
and pricing of offerings of securities issued under the shelf
registration statement will be determined at the time of the offerings.
-18-
<PAGE>
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations (continued)
In April 1998, the Company's Revolving Credit and 364-Day Credit
Agreements were amended. The Revolving Credit Agreement was amended to
increase the number of commercial banks in the group from eight to
nine. The 364-Day Credit Agreement was amended as follows: the
principal amount of the Agreement was increased from $125 million to
$175 million; the number of commercial banks in the group was changed
from eight to nine; and the expiration date of the Agreement was
extended for 10 months.
In April 1998, the Board of Directors approved a two-for-one stock
split. The stock split was effected by way of a stock dividend. The
distribution date was July 1, 1998 to stockholders of record on
June 15, 1998.
In May 1998, Anadarko issued $200 million of 5.46% Series B Cumulative
Preferred Stock in the form of two million depositary shares, each
depositary share representing 1/10th of a share of the 5.46% Series B
Cumulative Preferred Stock. The preferred stock has no stated maturity
and is not subject to a sinking fund or mandatory redemption. The
shares are not convertible into other securities of the Company.
Anadarko has the option to redeem the shares at $100 per depositary
share on or after May 15, 2008. Holders of the shares are entitled to
receive, when, and as declared by the Board of Directors, cumulative
cash dividends at an annual dividend rate of $5.46 per depositary
share. The proceeds from the offering were used to reduce commercial
paper and bank borrowings and provide capital for Anadarko's 1998
capital expenditures. The preferred stock was issued under the
Company's shelf registration statement.
In October 1998, the Company filed a registration statement with the
SEC that permits the issuance of Anadarko common stock under the
Anadarko Dividend Reinvestment and Stock Purchase Plan (DRIP). The DRIP
offers the opportunity to reinvest dividends and provides an
alternative to traditional methods of buying, holding and selling
Anadarko common stock. The DRIP will provide the Company with a means
of raising additional capital for general corporate purposes through
the sale of common stock under the DRIP.
In October 1998, the Board of Directors adopted a Stockholders Rights
Plan, which replaced the Rights Plan that expired on October 20, 1998.
Under the Rights Plan, the Rights will be distributed as a dividend at
a rate of one Preferred Stock Purchase Right for each share of the
Company's common stock held of record on November 10, 1998. Each Right
will entitle stockholders to purchase from the Company one one-
thousandth of a share of a new series of junior participating preferred
stock at an exercise price of $175. The Right will be exercisable only
if a person or group acquires 15% or more of common stock or announces
a tender offer or exchange offer the consummation of which would result
in ownership by a person or group of 15% or more of the common stock.
The Rights distribution is not taxable to stockholders. The Rights
will expire on November 10, 2008.
-19-
<PAGE>
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations (continued)
Anadarko's Board of Directors declared quarterly dividends on two
classes of the Company's stock. A dividend of $13.65 per share
(equivalent to $1.365 per depositary share) was declared on the
Company's 5.46% Series B Cumulative Preferred Stock, payable on
December 31, 1998, to stockholders of record at the close of business
on December 15, 1998. A dividend of $0.05 cents per share was declared
on the Company's common stock outstanding, payable on December 23,
1998, to stockholders of record at the close of business on December 9,
1998.
Under the most restrictive provisions of the Company's credit
agreements, which limit the payment of dividends, retained earnings of
$667,806,000 were not restricted as to the payment of dividends at
September 30, 1998. The amount of future dividend payments for
Anadarko common stock will depend on the Company's earnings, financial
condition, capital requirements and other factors and will be
determined by the Board on a quarterly basis.
Exploration and Development Activities
In October 1998, Anadarko updated its production growth targets for
the next five years. The Company expects production to grow at an
average rate of 18% a year over the five-year period. Production in
1998 is expected to be 48 million energy equivalent barrels (EEBs),
increasing to 92 million EEBs in 2002. The increases in production
volumes are primarily from discoveries in Alaska, development of
Algeria fields and recent sub-salt discoveries in the Gulf of Mexico,
Tanzanite and Hickory. The production forecast assumes capital
spending of about $700 million a year and no new exploration success.
During the third quarter of 1998, Anadarko participated in a total of
116 wells, including 58 oil wells, 47 gas wells and 11 dry holes.
This compares to a total of 172 wells, including 110 oil wells, 43 gas
wells and 19 dry holes during the third quarter of 1997. For the
first nine months of 1998, Anadarko participated in a total of 320
wells, including 173 oil wells, 113 gas wells and 34 dry holes. This
compares to a total of 447 wells, including 276 oil wells, 125 gas
wells and 46 dry holes during the first nine months of 1997.
Following is a description of activity during the first nine months of
1998.
Gulf of Mexico Third quarter highlights included the release of
test results from the Tanzanite sub-salt discovery. The well tested
21,917 barrels of oil per day (BOPD) of 21.9-degree API gravity oil
and 29.7 MMcf/d of gas with flowing tubing pressure of 2,679 psi.
The flow rate is the highest ever for an Anadarko-operated well and
one of the highest rates ever recorded in the shallow waters of the
Gulf of Mexico. The discovery well encountered 450 feet of continuous
-20-
<PAGE>
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations (continued)
hydrocarbon pay. Design work is now underway on a production
platform for Tanzanite and the Company is negotiating a construction
contract. The project is expected to be completed in about 22 months
with first production scheduled for the third quarter of 2000. The
first offset development well at Tanzanite is currently drilling.
Anadarko owns a 100-percent working interest in the discovery which is
located on Eugene Island 346 about 75 miles offshore Louisiana in 314
feet of water.
On October 20, the Company announced its second major sub-salt
discovery. The Hickory well, located at Grand Isle 116 about 75 miles
offshore Louisiana, encountered 300 feet of hydrocarbon pay after being
drilled to a total depth of 21,600 feet. The well penetrated a salt
section approximately 8,000 feet thick, which the Company believes to
be the thickest section of salt ever drilled in the Gulf of Mexico. The
Global Baltic I jack-up rig has been contracted by Anadarko and
partners to immediately begin drilling a field delineation well from
the same surface location to develop proved reserves and explore for
other pay horizons. First production is expected in the year 2000.
Anadarko (operator) owns a 50-percent working interest in Grand Isle
Blocks 110, 111 and 116 along with partners Shell Oil Company (37.5
percent) and Ocean Energy (12.5 percent).
Production from another sub-salt discovery - Agate - began during
1998's third quarter. During testing, the well, located on Ship Shoal
Block 361, flowed 13.0 MMcf/d of gas and 1,788 barrels of condensate
per day (BCPD) from a 17/64-inch choke with flowing tubing pressure of
7,195 psi. Production through a sub-sea completion increased during the
third quarter to 2,500 BCPD and 19.5 MMcf/d of gas. The Company has a
50-percent working interest in the Phillips-operated Block.
Additional highlights from Anadarko's offshore activities during the
first three quarters of 1998 include the completion of two wells at
East Cameron 157. The A-7 well tested 25.4 MMcf/d of gas and 557 BCPD
and the A-3 well produced 4.9 MMcf/d of gas and 245 BCPD. Anadarko is
operator of the platform with a 100-percent working interest.
During the third quarter, construction of a pipeline from the Matagorda
Island 623 platform to the El Paso Energy-operated Tomcat system was
completed. The seven-mile tie-in reduces pressures at the platform,
increasing production to approximately 310 MMcf/d of gas. Anadarko owns
a 37.5-percent working interest in the Amoco-operated field.
-21-
<PAGE>
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations (continued)
The B-5 well at the High Island Block A-376, an extended reach well,
was placed on production earlier in the year averaging 2.0 MMcf/d of
gas. The construction of a compressor package is nearing completion,
which is expected to double the Company's output from the B-5 well and
another well on the platform. Anadarko owns a 100-percent working
interest in the B-5 well and a 33.8-percent working interest in the
remaining wells in the Field.
Hugoton Embayment Activity in Anadarko's deep drilling program
continued strong in the third quarter, with successes in two fields
where 3-D seismic has played an important role in identifying
prospects. In the Lorena East Field of Beaver County, Oklahoma, three
wells were completed, resulting in combined production of 36 MMcf/d of
gas and confirmation of the discovery of a new reservoir in the Chester
formation. The first confirmed oil well in the Basal Chester sand, the
Smith AE-1, flowed 501 BOPD and 500 thousand cubic feet per day (Mcf/d)
of gas. Drilling targets were identified using information obtained
from the 32 square-mile Turpin seismic survey shot in late 1997.
Anadarko owns a 100-percent working interest in these Lorena Field
wells.
In the Archer Field of Seward County, Kansas, Anadarko has completed 14
successful wells in 1998 as part of its delineation program in the St.
Louis formation. The Headrick A-2 well was recompleted during the third
quarter and flowed 323 BOPD and 276 Mcf/d of gas. The St. Louis
formation, while prolific, has traditionally been difficult to image.
Again, the use of 3-D seismic technology has been a very valuable tool.
Through the first nine months of 1998, production from the Archer Field
has averaged 719 BOPD and 1.1 MMcf/d of gas. Other significant
completions in the Hugoton Embayment during the third quarter include:
Charity A-2, Panoma Council Grove Field (590 Mcf/d of gas)
KU Endowment G-1, Wildcat Field (1.4 MMcf/d of gas).
Noteworthy completions in the Hugoton Embayment during the first nine
months of 1998 include:
Lemon Trust B-2, Condit Field (2.0 MMcf/d of gas)
Box A-1, Condit Field (1.5 MMcf/d of gas)
Schneider Alley A-1, Liberal SE Field (1.0 MMcf/d of gas)
Malin B-1, Fedder Southwest Field (1.0 MMcf/d of gas)
Milhon B-1, Fedder Southwest Field (1.6 MMcf/d of gas)
USA Barker A-3, Berryman Richfield Field (2.5 MMcf/d of gas)
Trader A-1, Light Field (2.2 MMcf/d of gas)
Smith AD-3, Price Field (4.0 MMcf/d of gas, 231 BOPD).
-22-
<PAGE>
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations (continued)
Central Oklahoma Golden Trend activity during the third quarter
included test results from four significant completions in the SW
Antioch Field of Garvin County, Oklahoma:
Paul "A" 2-34 (980 Mcf/d of gas, 147 BOPD)
Sanford D-2 (340 Mcf/d of gas, 68 BOPD)
Layton State No. 2 (710 Mcf/d of gas, 152 BOPD)
Annie Cole No. 5-36 (362 Mcf/d of gas, 44 BOPD).
Another Golden Trend completion during the third quarter was the Mowdy
"A" No. 1-32 well, located in the Laflin Creek West Field of Grady
County, Oklahoma. The well was completed in four separate intervals
with comingled production of 507 Mcf/d of gas and 80 BOPD. Anadarko
has a 69-percent working interest in the well. Additional completions
during the first three quarters of 1998 include:
Lance "A" No. 3-33, Bradley Field (1.7 MMcf/d of gas, 339
BOPD)
Jack Hammer No. 2-31, Bradley Field (1.2 MMcf/d of gas, 110
BOPD)
Manatt A-2, SW Antioch Field (1.1 MMcf/d of gas, 160 BOPD)
EXPH 2-31, SW Antioch Field (736 Mcf/d of gas, 83 BOPD)
Tomlinson "A" No. 4-26, SW Antioch Field (1.2 MMcf/d of gas,
109 BOPD).
East Texas' Bossier Sand Play The brisk pace that has marked
activity in the Dew Field of Freestone County this year continued in
the third quarter with six rigs in operation. The Company has completed
20 wells during the first nine months of 1998, bringing Field
production to over 50 MMcf/d of gas. Production volumes from the Field
have increased five-fold since the beginning of the year. The Bossier
Sand Play is now the Company's third largest onshore gas field.
Significant completions in the third quarter include:
Henderson No. 2 (4.8 MMcf/d of gas)
Henderson No. 3 (2.5 MMcf/d of gas)
Henderson No. 4 (3.5 MMcf/d of gas)
B.K. Johnson "A" No. 1 (3.3 MMcf/d of gas)
J.H. Moore No. 2 (3.0 MMcf/d of gas)
Eubanks Trust No. 2 (2.7 MMcf/d of gas)
Lancaster A-1 (1.2 MMcf/d of gas)
H.E.White No. 2 (3.1 MMcf/d of gas)
J.H. Moore No. 3 (1.2 MMcf/d of gas)
English No. 4 (1.3 MMcf/d of gas).
-23-
<PAGE>
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations (continued)
Permian Basin In response to lower oil prices, Anadarko has
deferred some Permian Basin drilling projects until oil prices recover.
Activity throughout 1998 has been focused on infill drilling and
waterflood projects at the Company's TXL North and TXL South Units
where 45 wells have been drilled during the first nine months.
Combined gross production from both units at the end of the third
quarter was 5,270 BOPD and 14.4 MMcf/d of gas.
This year, efforts have also been concentrated on continuing
development of the Ketchum Mountain (Clearfork) Field, located in
Irion County, Texas. Anadarko has drilled 94 wells in the Permian
Basin through the first nine months of 1998.
Alaska During the third quarter, Anadarko completed its first
Company-operated well in the Cook Inlet. The Lone Creek No. 1 on the
Moquawkie Prospect flowed 10.6 MMcf/d of gas through a 33/64-inch choke
with 925 psi flowing tubing pressure from 53 feet of perforations at
about 2,400 feet. This represents one of the best shallow gas tests in
the vicinity for a reservoir of this age and type. The well, which is
located about 40 miles west of Anchorage on lands leased from Cook
Inlet Region, Inc., also encountered several other possibly productive
gas zones totaling about 180 feet that were not flow tested. Anadarko
and ARCO Alaska each hold a 50-percent working interest in the
discovery. Additionally, the partners hold approximately 56,000
leasehold acres in the Moquawkie area and 178,000 acres in the Cook
Inlet area of south central Alaska. The partners are preparing plans to
develop this new discovery, which may lead to additional drilling and
installation of facilities necessary to produce this and subsequent
wells.
Work on development facilities in the Alpine Field continues to
progress. North Slope activity has been suspended waiting on winter
weather to allow completion of the gravel drilling pads and airstrip.
Once completed, drilling and development operations will be able to
continue year-round. Elsewhere (primarily Anchorage and Kenai),
significant construction activity on the production facility modules is
underway. These prefabricated modules are scheduled to be transported
to the North Slope for installation at the Alpine Field site during the
1999-2000 winter season. The project is about 20 percent complete.
-24-
<PAGE>
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations (continued)
In August 1998, the Company announced a major exploration agreement
with Alaska's Arctic Slope Regional Corporation (ASRC) that gives
Anadarko exclusive access to more lands for exploration than any other
oil company operating in the state. The agreement provides Anadarko
with exploration rights to 2.3 million acres that ASRC has under title
currently. The Company also has exploration rights to an additional one
million acres now held by the Bureau of Land Management. ASRC will
eventually claim title to about 240,000 acres in this area as part of
its land selection rights under the Alaska Native Claims Settlement
Act.
In Alaska's State Lease Sale 87, Anadarko was the third most active
bidder, investing $8.1 million (net) to acquire 26 tracts. Of those, 20
tracts are held by the Company alone, with the other six held in
partnership with Fina, Inc. The area covered by the lease sale, called
the Foothills, is located in the North Slope area and is intermingled
with and adjacent to some of the state lands acquired by Anadarko as
part of an agreement with ASRC.
Algeria In the third quarter, Anadarko lifted its first cargo of
Algerian crude oil. The 663,000-barrel shipment came from the HBNS
Field via the Central Production Facility and was bound for a customer
with operations along the Mediterranean. Gross production at the end
of the third quarter was 30,000 BOPD. At the end of the third quarter,
Anadarko was drilling the HBNS-13 development well on Block 404 and
the EKT-4 delineation well on Block 208. A third rig was being moved
to the QB-1 development well.
Eritrea Drilling has been completed at the Bulissar prospect on the
Zula Block in the Red Sea. While declared a dry hole, the joint venture
is encouraged by the results of its drilling program. The well
encountered source rocks at multiple levels, good seals, and reservoir
quality sands. In addition, traces of oil were recovered from sidewall
cores. These results add to the understanding of this largely
unexplored portion of the Red Sea.
Anadarko and its partners plan to drill two additional wells offshore
Eritrea. Drilling activity now moves to the Du Rig-Rig Prospect, 90
miles northwest of Bulissar, with a well that was spud in early
November 1998. Anadarko is operator for its Eritrean program and has a
50 percent interest with 30 percent owned by Agip Eritrea B.V. and 20
percent owned by Burlington Resources.
-25-
<PAGE>
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations (continued)
Year 2000
Overview The Year 2000 issue relates to the inability of certain
computers and software applications to correctly recognize and process
date sensitive information for the Year 2000 and beyond. Without
correction, the computers and software applications could fail or
create erroneous information. The Company has established a Year 2000
Compliance Program focused on minimizing disruptions of the Company's
operations as a result of the millennium change. Since this problem
could affect the Company's systems, as well as the systems of its
business partners, the Program focuses on the internal systems and
external services considered most critical to Anadarko's continuing
operations.
Since 1993, the Company has enhanced its scientific processing
capabilities, implemented new business systems and upgraded its network
infrastructure. These information systems were purchased from leading
suppliers of technology, most of whom are representing their products
to be Year 2000 compliant. The Company is in the process of testing
third-party hardware and software for compliance, which should be
completed by mid-year 1999. Any necessary replacements of non-compliant
computer equipment and software are underway and should also be
completed by mid-year 1999.
Inventories of process control and field automation equipment (embedded
systems) are anticipated to be completed by year-end 1998. External
field instrumentation specialists will help assess equipment for Year
2000 compliance and develop test plans. This activity is scheduled to
begin in December 1998. All embedded systems are expected to be in
compliance by the end of the third quarter of 1999.
The Company is assessing the readiness of its business partners,
including joint-venture operators and outside-operated pipeline and
processing facilities as well as suppliers of goods and services.
Interruptions in these services could disrupt Anadarko's production and
delivery of oil, gas and NGLs. Meetings are planned with key business
partners to discuss their Year 2000 programs and assess their ability
to supply services through 1999 and 2000. These efforts should be
completed by the end of the third quarter of 1999.
Contingency Planning The Company will develop contingency plans to
provide business continuity and to address operations, safety and
environmental concerns. This effort is expected to begin in January
1999 and should be completed by the end of the third quarter of 1999.
-26-
<PAGE>
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations (continued)
Estimated Cost The total cost of testing, remediation and
contingency planning is expected to be approximately $5 million, which
will be funded by operating cash flows. This estimate does not include
the Company's share of potential Year 2000 costs as a result of
participation in partnerships in which Anadarko is not the operator. As
of September 30, 1998, the Company had spent less than $500,000 for
planning, systems inventories and business partner and supplier
notification. The Company expects to spend $3 million to test internal
systems, replace and upgrade equipment, and complete field automation
testing. The remaining $1.5 million is for replacement of any non-
compliant field automation equipment discovered during testing,
instrumentation consulting services and contingency planning.
Anadarko's Year 2000 Program is an on-going process that may result in
changes to cost estimates and schedules as testing and business partner
assessment progress.
Risks The Company expects to have all internal systems and computer
equipment Year 2000 compliant prior to the millennium change. The
Company is relying on its business partners and suppliers to be Year
2000 ready as well. Failure of significant third parties to complete
their Year 2000 compliance projects could interrupt the supply of
materials and contract services needed for oil and gas operations.
Disruptions to oil and gas transportation networks controlled by third-
party carriers could result in reduced production volumes delivered to
market. Risk associated with foreign operations may increase with the
uncertainty of Year 2000 compliance by foreign governments and their
supporting infrastructures. Such occurrences could have a material
adverse effect on the Company's business, results of operations and
financial condition. However, the Year 2000 Program is expected to
significantly reduce the Company's level of uncertainty about the Year
2000 issue.
Forward looking statements contained in the Year 2000 discussion above
should be read in conjunction with Additional Factors Affecting
Business in the Management's Discussion and Analysis of Financial
Condition and Results of Operations in the Company's 1997 Annual Report
on Form 10-K.
-27-
<PAGE>
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations (continued)
Changes in Accounting Principles
Pensions and Other Postretirement Benefits Reporting Statement of
Financial Accounting Standards (SFAS) No. 132, "Employers' Disclosures
about Pensions and Other Postretirement Benefits", amends the
disclosure requirements with respect to pensions and other post-
retirement benefits in annual financial statements. SFAS No. 132 does
not change any of the current guidance on expense measurement or
recognition related to these areas. The Company will adopt SFAS No.
132 for the year ended December 31, 1998.
Accounting for Derivatives SFAS No. 133, "Accounting for Derivative
Instruments and for Hedging Activities", provides guidance for account-
ing for derivative instruments and hedging activities. SFAS No. 133
is effective for fiscal years beginning after June 15, 1999. The
Company has not yet completed an evaluation of the impact of the
provisions of SFAS No. 133.
-28-
<PAGE>
<PAGE>
Part II. OTHER INFORMATION
Item 1. Legal Proceedings
Kansas Ad Valorem Tax See Note 9 of the Notes to Consolidated
Financial Statements under Part I, Financial Information, of this Form
10-Q.
-29-
<PAGE>
<PAGE>
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
Exhibits not incorporated by reference to a prior filing are
designated by an asterisk (*) and are filed herewith; all
exhibits not so designated are incorporated herein by reference
to a prior filing as indicated.
<TABLE>
<CAPTION>
Exhibit Original Filed File
Number Description Exhibit Number
<S> <C> <C> <C>
3(a) Restated Certificate of
Incorporation of Anadarko 19(a)(i) to Form 10-Q 1-8968
Petroleum Corporation, for quarter ended
Dated August 28, 1986 September 30, 1986
(b) By-laws of Anadarko 3(b) to Form 10-Q 1-8968
Petroleum Corporation, for quarter ended
as amended June 30, 1996
*10(a)(i) Agreement Concerning the
Method of Application of the
Contract signed on 23 October
1989 between Sonatrach and
Anadarko Algeria Corporation
*(ii) Amendment No. 1 to the
Agreement for the Exploration
and Exploitation of Liquid
Hydrocarbons between Sonatrach
and Anadarko Algeria Corporation
signed October 23, 1989
*12 Computation of Ratios of
Earnings to Combined Fixed
Charges and Preferred
Stock Dividends
*27 Financial Data Schedule
</TABLE>
(b) Reports on Form 8-K
There were no reports filed on Form 8-K for the three months
ended September 30, 1998.
-30-
<PAGE>
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant has duly caused this report to be signed on its
behalf by the undersigned duly authorized officer and principal
financial officer.
ANADARKO PETROLEUM CORPORATION
(Registrant)
November 13, 1998 [Michael E. Rose]
Michael E. Rose - Senior Vice President,
Finance and Chief Financial Officer
<PAGE>
AGREEMENT CONCERNING THE METHOD OF APPLICATION OF THE
CONTRACT SIGNED ON 23 OCTOBER 1989 BETWEEN SONATRACH AND
ANADARKO ALGERIA CORPORATION
[Executed 6th March 1997 in Algiers]
AGREEMENT CONCERNING THE METHOD OF APPLICATION OF THE
CONTRACT SIGNED ON 23 OCTOBER 1989 BETWEEN SONATRACH AND
ANADARKO ALGERIA CORPORATION
Between,
The National Enterprise SONATRACH (hereinafter referred to
as "changes SONATRACH"), whose head office is in Algiers,
10, Rue du Sahara, Hydra, represented by Mr. Nazim Cherif-
Eddine Zouioueche, General Manager, acting by virtue of the
powers entrusted to him for the purpose of this Agreement,
and,
Anadarko Algeria Corporation, a company incorporated and
existing under the laws of Delaware, USA, and whose
corporate business office is 16855 Northchase Drive,
Houston, Texas 77060, United States, represented by Mr.
Robert J. Allison, Jr., Chairman of the Board of Directors
and Chief Executive Officer, acting for ANADARKO ALGERIA
CORPORATION, LASMO Oil (Algeria) LTD and MAERSK OLIE
ALGERIET A/S.
Whereas the Contract for the Exploration and Exploitation of
Liquid Hydrocarbons between the National Enterprise
SONATRACH and ANADARKO Algeria Corporation was signed on
October 23, 1989.
Whereas it is necessary to further clarify certain
provisions of the Contract in order to avoid differing
interpretations.
Whereas the parties wish to make certain changes in an
amendment to the afore mentioned Contract.
Whereas the parties agree that they shall apply such in
accordance with the provisions of this Agreement.
The parties hereinafter agree:
SECTION I: PAYMENT OF A TRANSPORTATION CHARGE
ARTICLE 1
Each Party to this Agreement agrees to pay a charge for the
transportation of the share of Liquid Hydrocarbons
allocated to it under Article 4.3.A of the Contract signed
October 23, 1989.
It is understood that SONATRACH shall finish, as soon as
possible, the construction of a pipeline for the
transportation of Liquid Hydrocarbons to Haoud-El-Hamra, and
shall ensure the transportation of such Liquid Hydrocarbons
to the Port of Loading.
The Delivery Point of the said Liquid Hydrocarbons shall be
the connection flange with SONATRACH's transportation
system.
ARTICLE 2
For each Calendar Year ANADARKO agrees to pay, for its share
of Liquid Hydrocarbon production mentioned in Article 1
above, a transportation charge expressed in US dollars per
barrel, according to the following formula:
Cn-1
TCn = 1.35 _______
Co
TCn is the transportation charge for year n.
Cn-1 is the index of year n-1, Co is the index for
1996.
The index is the arithmetic average of the monthly values of
the "Consumer Price Index for Urban Consumers" (CPIUC) and
"the Machinery and Equipment Index" (MEI) published by the
Minister of Labor of the United States of America, or, if
one of these indices ceases to be published, any other price
index from the United States of America which the Parties
agree to use instead.
The totality of production volumes to be transported shall
be measured at the connecting flange to SONATRACH's
transportation system, after deduction of the water and
sediments and metering at the Main Gathering Facilities
(CPC).
The Main Gathering Facilities is the location where the
Liquid Hydrocarbons produced from all Pools are measured and
metered in accordance with the article 1, item 3 of Decree
No.88-35, dated February 16, 1988.
The quantities of water and sediment to be deducted shall be
determined with the standard test method for water and
sediment in crude oils, according to the ASTM D96 standard
or any other standard applied by SONATRACH in accordance
with the practice of the international oil industry.
Any transportation loss due to the pipeline transportation
shall be fully deducted and borne by SONATRACH and ANADARKO
in proportion with their share of Liquid Hydrocarbons. Such
transportation loss is set out at zero point fifty per cent
(0.50%) of the quantities of Liquid Hydrocarbons delivered,
measured after deducting the water and sediments. The said
transportation losses shall be determined on a non-
discriminatory basis.
Since the 30" transportation pipeline built by SONATRACH is
a transportation pipeline, the initial filling of this
pipeline with Liquid Hydrocarbons shall be done out of
SONATRACH's share of Liquid Hydrocarbons.
SECTION II: CONSOLIDATION AND CALCULATION OF PRODUCTION AND
COSTS
ARTICLE 3
In accordance with Article 4.3 of the Contract signed
October 23, 1989, the share of production between the
parties as well as the recovery of fifty-one (51) per cent
of exploration costs will be calculated on the basis of the
total amount of Liquid Hydrocarbons produced from all Pools
without differentiating between the origin of such
production (consolidation).
Consequently, and in accordance with Article 4.3.B of the
Contract, the reimbursement of 51% of Exploration Costs
incurred by ANADARKO shall be made within the limits of the
share, equal to forty nine percent (49%) of the total
productions from all Pools less that share of production due
to ANADARKO under Article 4.3.A of the Contract signed on
October 23, 1989.
It is understood that for unitized Pools, the calculation of
the total amount of the said Liquid Hydrocarbon production
shall take into account only the production shares from the
said unitized Pools and allocated to the SONATRACH -
ANADARKO association, created pursuant to the Contract dated
October 23, 1989.
ARTICLE 4
The calculation of that share of production allocated to
each of the Parties will be the weighted average, by
tranches, of the fixed percentages set out in Article 4.3A
of the Contract dated October 23, 1989.
SECTION III: ROYALTY AND TAX ON REMUNERATION
ARTICLE 5
SONATRACH agrees to pay Royalties for the totality of the
production as well as the tax on remuneration.
ARTICLE 6
The conditions and methods of payment by SONATRACH of the
tax referred to in Article 5 above shall be detailed in the
amendment referred to in Article 7 below.
It is understood that SONATRACH shall not deduct the amounts
paid for the Royalties and the tax on remuneration from
ANADARKO's share of Liquid Hydrocarbons.
SECTION IV: AMENDMENTS TO THE CONTRACT SIGNED 10/23/89
ARTICLE 7
The Parties agree to conclude and sign an amendment to the
Contract signed October 23, 1989, containing the following
modifications:
(i) Introduction of a clause for International Arbitration
for the settlement of differences.
(ii) The conversion to US dollars of the amounts set out in
Dinars in Articles 5.8.C, 15.5.C, 20.3 and 20.6 of the
contract signed on October 23, 1989, as well as
Articles 5.5.4 and 5.5.12 of Annex B "Accounting
Procedure" to the said Contract.
(iii) Granting to LASMO Oil (Algeria) LTD and MAERSK
OLIE ALGERIET AS the status of Parties to the Contract
signed October 23, 1989 and of SONATRACH's partners, in
accordance with the regulation in effect and the
provisions of Article 24 of the Contract signed October
23, 1989.
ARTICLE 8
The amendment referred to in the above Articles 6 and 7
shall only come into force after approval by the Competent
Authorities in the same form as the Contract signed October
23, 1989.
SECTION V: SERVICES PROVIDED BY THE PARTIES
ARTICLE 9
The Petroleum Operations shall be carried out in Algeria.
Therefore, the Operator's main office will be located in
Hassi Messaoud or any other location in Algeria agreed by
the Parties, and all studies and actions regarding the
Petroleum Operations will be put into effect in Algeria.
ARTICLE 10
Subject to the Management Committee's approval, the Operator
shall however be entitled to use ANADARKO's and/or
SONATRACH's specialized services, located in Algeria or
abroad, through service contracts or sub-contracting.
In this event, the Party approached by the Operator shall
charge its services to the Total Costs.
SECTION VI: DELAY
ARTICLE 11
In the event that the completion of the 1997 Work Program
for the drilling of Exploration wells requires an
extension, SONATRACH agrees to grant such extension up to a
maximum of nine (9) months .
ARTICLE 12
The above extension will be granted subject to the Parties
complying with Algerian laws and regulations.
ARTICLE 13
SONATRACH and ANADARKO could also agree to end the
Exploration Phase provided for by the Contract signed
October 23, 1989, and to conclude a new Exploration
Agreement providing a minimum exploration work commitment to
be performed in the Contractual Area covered by the Contract
dated October 23, 1989, less the areas covering the Pools
discovered under the Contract dated October 23, 1989.
This new Exploration Agreement shall only come into force
after approval by the Competent Authorities in the required
forms.
ARTICLE 14
If the above Article 13 is applied, the provisions of
Article 11 of this Agreement shall not apply.
SECTION 7 : GENERAL PROVISIONS
ARTICLE 15
The parties agree to make every endeavor to obtain optimum
valorization (commercial value), in accordance with the
Algerian laws and regulations, of the Liquid Hydrocarbons
reserves discovered within the framework and the performance
of the Contract signed October 23, 1989.
ARTICLE 16
The Parties agree to use their best efforts to quickly and
fairly resolve the outstanding questions regarding the
Budgets and the exploitation projects within the framework
of the Contract dated October 23, 1989.
SONATRACH agrees to audit, as soon as possible, the
Exploration Costs incurred by ANADARKO within the framework
of the execution of the Contract signed October 23, 1989, in
order to determine the recoverability of those costs.
ARTICLE 17
The Parties agree to commence as soon as reasonably possible
the negotiation of contractual provisions allowing for the
integration of a new gas clause in the Contract signed
October 23, 1989.
For this, SONATRACH shall provide ANADARKO with its typical
gas clause, provided that the Parties shall not be obliged
to reach an agreement regarding the integration of a gas
clause in the Contract dated October 23, 1989.
In case of an agreement between the Parties, such agreement
will comprise an amendment which will take effect after
approval by the Competent Authorities.
ARTICLE 18
The Parties shall agree, as soon as possible, on the method
of application of the Lifting Procedure attached to the
Contract dated October 23, 1989, as Annex E.
ARTICLE 19
SONATRACH and ANADARKO agree that any future question
regarding the application of the Contract signed October 23,
1989, shall be promptly dealt with within the same spirit of
cooperation and good will as the one which prevailed during
the drafting of this Agreement
ARTICLE 20
The terms and expressions in this Agreement and whose first
letter is capitalized have the same meaning as those of the
Contract dated October 23, 1989.
ARTICLE 21
This Agreement shall come into effect and shall be
enforceable by the Parties from the effective date of the
amendment mentioned in Article 7 and 8 hereinabove.
Made in Algiers on _____________________ in eight (8)
originals
For SONATRACH For ANADARKO
The General Manager The Chairman of the
Board
__________________________
_____________________
N.C. Zouioueche R. J. Allison Jr.
<PAGE>
AMENDMENT NO. 1
TO THE AGREEMENT FOR THE EXPLORATION AND
EXPLOITATION OF LIQUID HYDROCARBONS
BETWEEN SONATRACH AND ANADARKO
SIGNED OCTOBER 23, 1989
(Executed 6th March 1997 in Algiers)
Between,
The National Enterprise SONATRACH, whose head office is in
Algiers, 10 Rue du Sahara, Hydra (hereinafter referred to as
"SONATRACH") represented by Mr. Nazim Cherif-Eddine
Zouioueche, General Manager, acting by virtue of the powers
entrusted to him for the purpose of this Amendment,
and,
Anadarko Algeria Corporation, whose head office is 17001
Northchase Drive, Houston, Texas 77060, United Stated
(hereinafter referred to as "Anadarko") represented by Mr.
Robert J. Allison, Jr., Chairman of the Board of Directors and
Chief Executive Officer.
and,
LASMO OIL (Algeria) Limited, whose head office is 100
Liverpool Street, London, EC2M 2BB, United Kingdom
(hereinafter referred to as "LASMO") represented by Mr. Ian D.
Brown, Director, acting by virtue of the powers entrusted to
him for the purpose of this Amendment,
And,
MAERSK OLIE Algeriet A/S, whose head office is 50 Esplanaden DK-
1263, Copenhagen K, Denmark (hereinafter referred to as "MAERSK
Oil") represented by Mr. Kjeld Fjeldgaard, Administrator,
acting by virtue of the powers entrusted to him for the
purpose of this Amendment
- - Considering the Agreement for the Exploration and
Exploitation of Liquid Hydrocarbons entered into between
SONATRACH and Anadarko on October 23, 1989, ratified by
Executive Decree No. 90-08, dated January 1, 1990.
- - Considering law No. 91-12, dated September 7, 1991,
relative to the supplementary Finance Law for 1991,
particularly its Article 23 which modifies and completes
Article 39 of the above-mentioned law No. 86-14, dated
august 19, 1986.
- - Considering law no. 91-21, dated December 4, 1991,
modifying and completing law No. 86-14, dated August 19,
1986.
- - Considering Anadarko's request to modify certain
contractual provisions in order to adapt them to the
amendments to the above-mentioned Law no. 86-14.
- - Considering Anadarko's request to state in U.S. Dollars
the amounts set in the Agreement and in the Accounting
Procedure in Algerian Dinars, by applying the value in
exchange for Algerian Dinars/U.S. Dollars in effect at
the time of the signing of the Agreement.
The following has been agreed upon by the parties:
SECTION I: STATEMENT IN U.S. DOLLARS OF THE AMOUNTS SET IN
ALGERIAN DINARS IN THE AGREEMENT AND THE ACCOUNTING PROCEDURE
(ANNEX B)
ARTICLE 1
Article 5.8.C of the Agreement relative to the function of the
Operating Committee, is modified to read as follows:
"Review, discuss and approve draft contracts in respect
of Petroleum Operations which contemplate an expenditure
for the Joint Account in excess of one million
(1,000,000) U.S. Dollars."
ARTICLE 2
Article 15.5C of the Agreement relative to the function of the
Operator is modified as follows:
"Operator shall have no authority to use budgeted funds
for a particular item which will cost in excess of one
million (1,000,000) U.S. Dollars, without first having
obtained from the Operating Committee approval of an
authorization for expenditure covering that item."
ARTICLE 3
Articles 20.3 and 20.6 of the Agreement relative to the Goods-
Equipment-Fixed Assets and Services are modified as follows:
"20.3 All agreements for the purchase or rental of
any single item of Moveable Property or Immovable
Property for use in Joint Operations chargeable to
the Joint Account and whose anticipated costs exceed
one (1) million (1,000,000) U.S. Dollars, shall be
previously submitted to the Operating Committee for
approval.
20.6 All agreements to be entered into by the Operator
and its contractors which contemplate an expenditure
chargeable to the Joint Account greater than (1)
million (1,000,000) U.S. Dollars, shall be
previously submitted to the Operating Committee for
approval."
ARTICLE 4
Article 5.5.4, subparagraph 2 - Damages and Losses of Annex B
- - Accounting Procedure is modified as follows:
"The Operator shall give Notice to the Parties as soon as
possible of damages or losses exceeding ten thousand (10,000)
U.S. Dollars in each case."
ARTICLE 5
Article 5.5.12(a) Overhead of Annex B - Accounting Procedure
is replaced as follows:
(a) Exploration Phase
Overhead incurred by the parent company of the Operator under
the Agreement, shall be charged to the Joint Account in
proportion to the sum of costs incurred annually for direct
charges, and based on the following percentages:
- - Five percent (5%) of charges less than or equal to one
(1) million U.S. Dollars.
- - Three percent (3%) of charges exceeding one (1) million
U.S. Dollars and less than or equal to two (2) million
U.S. Dollars.
- - One percent (1%) of charges exceeding two (2) million
U.S. Dollars.
The overhead charges represent all charges directly associated
with the whole general organization of the Operator covering
the following functions:
- - Management
- - Administrative, Financing and Accounting Services
- - Budget, Personnel
- - General and continual assistance and technical
supervision by the parent company
- - Internal audit
- - Tax and legal services, research and development, public
relations
- - Etc.
SECTION II: SETTLEMENT OF DISPUTES
ARTICLE 6
Article 26 of the Agreement relative to the settlement of
disputes is amended and completed as follows:
"26.1 If any dispute arising out of the performance
and/or interpretation of this Agreement cannot be
settled by the Parties themselves within sixty (60)
Days of its inception, it shall be subject to a
mandatory conciliation, according to the following
terms and conditions:
A. The Party wishing to have recourse to
conciliation (hereinafter referred to as
"Claimant") shall give notice to the other
Party (hereinafter referred to as "Respondent")
of its request, by registered letter with
return receipt requested, which will state
explicitly the subject matter of the request,
the claims and justifications which support
them, and which will explicitly state the last
and first names, qualifications and address of
its appointed conciliator.
B. Within thirty (30) Days from the receipt of the
request, the Respondent shall:
(1) Appoint a conciliator, give notice to the
other Party and the conciliator appointed
by the Claimant, of the last and first
names, qualifications and address of the
conciliator thus appointed, and
(2) Notify the Claimant of its observations
upon the request for conciliation and the
claims which are contained therein.
C. The conciliators appointed by the Parties
shall, within thirty (30) Days from the
notification of the appointment of the second
one, take steps to appoint a third conciliator
who shall act as Chairman of the conciliation
board (hereinafter referred to as "the
Chairman").
D. If, upon expiration of the thirty (30) Days
stated in Article 26.1B hereinabove, the
Respondent has not proceeded with the
appointment and notice provided for in Article
26.1.B.1 hereinabove, the Claimant shall submit
the matter to the Secretary General of the
United Nations Commission on International
Trade (UNCITRAL) so that he may appoint, or
cause to be appointed, within forty-five (45)
Days, the conciliator of the Respondent, who
may not, on any account, decline.
E. If, upon expiration of the thirty (30) Days
stated in Article 26.1.C hereinabove, the two
(2) conciliators have not reached an agreement
on the appointment of the Chairman, the Parties
shall have thirty (30) Days to agree, with the
assistance of both conciliators, upon the
appointment of the Chairman.
If they fail to agree, the most diligent Party shall
submit the matter to the Secretary General of the
UNCITRAL so that he may appoint, or cause to be
appointed, the Chairman, according to the following terms
and conditions:
1. in any case and regardless of the appointment
procedure, the Chairman shall:
(a) have no present or past interest in, nor
be dependant upon or subordinate to,
either of the Parties or their Affiliates,
(b) be of a nationality other than the
nationalities of the Parties,
(c) be of a nationality of a country which has
diplomatic relations with the countries of
the Parties,
(d) be internationally recognized as being
competent in the petroleum industry,
(e) have a good understanding of the language
of this Agreement.
2. The Chairman shall be appointed within forty-
five (45) Days, from a list of two (2)
candidates remaining on a common list prepared
from the lists submitted by the two (2) Parties
according to the following procedure:
(a) Each Party shall submit to the other Party
a list of five (5) names, stating their
qualifications and addresses,
(b) the Parties shall meet at the latest forty-
eight (48) hours after the exchange of
lists in order to prepare a single list of
two (2) names, in order to establish this
list, each Party will have the right to
challenge all candidates proposed by the
other Party, with the exception of one
only.
(c) the single list to be submitted to the
Secretary General of the UNCITRAL shall be
composed of two (2) remaining names, in
alphabetical order and without stating the
Party who proposed the names,
(d) if one of the Parties does not comply with
the obligations of the subparagraphs (a)
and/or (b) hereinabove, the most diligent
Party shall have the right to submit to
the Secretary General of the UNCITRAL a
list of three (3) persons meeting the
criteria listed in Article 26.1.E.1, for
the purposes of appointing the Chairman,
and
(e) the Chairman thus appointed cannot be
challenged.
F. If, in the course of the conciliation, one of
the conciliators does not accept his
appointment, is not able to participate,
resigns or dies, the Party who appointed that
conciliator shall be entitled to appoint his
successor within fifteen (15) Days. Failing
that, his successor shall be appointed
according to the procedure specified in Article
26.1.D hereinabove.
G. If, in the course of the conciliation, the
Chairman does not accept his appointment, is
not able to participate, resigns or dies, his
successor shall be appointed according to the
procedure specified in Article 26.1.C and
26.1.E hereinabove.
26.2 The conciliation board sits in Algiers (Algeria),
but may hold hearings in any other place which might
appear to be more appropriate.
The conciliation board shall decide upon the
procedure to follow for the requirements of its
proceedings. It especially sees to it that each
Party be given full opportunity of pressing its
claims, rights and justifications and that all
memoranda or information be provided simultaneously
to the other Party.
The conciliation board is specially empowered to:
A. Visit any location it deems necessary for the
purpose of its proceedings.
B. Require the Parties to produce all relevant
documents, records and account books related to
the performance of this Agreement.
C. Proceed to the hearing of the Parties,
witnesses and any other Third Party involved.
D. Take measures of preliminary investigation it
deems appropriate and, especially appoint one
or several experts, give them their
assignments, and determine a time limit for the
delivery of their report(s).
26.3 The Parties agree, during the conciliation
proceedings to:
A. Furnish to the conciliation board, upon its
request and within the time limit it specifies,
all memoranda and data necessary to its
proceedings, and, in general, to participate in
the conciliation proceedings,
B. Keep confidential the proceeding and all
documents produced in the framework of the
conciliation.
C. Pay in equal parts the expenses and fees of the
members of the conciliation board as set and
justified by the board and notified by the
Chairman who will be able to make a call for
funds.
D. Not cause any interruption in the performance
of obligations under this Agreement by reason
of the conciliation being in progress.
26.4 In order to carry out the assignment with which it
has been entrusted, the conciliation board must take
into account:
A. Algerian laws and regulations in force at the
date of signing this Agreement.
B. Provisions of this Agreement and its Annexes.
C. Practices, customs and rules of the
international petroleum industry.
26.5 Within six (6) months from the appointment of its
Chairman, and except when there is an agreement
between the Parties or an extension by the
conciliation board, made necessary by a measure of
investigation, the conciliation board must complete
its proceedings and address a recommendation to the
Parties.
26.6 The recommendation given to the Parties shall
include the reasons explaining and justifying the
recommendation.
A. If both Parties accept the recommendation, they
will implement the means which will enable them
to comply with it.
The dispute is then deemed settled.
B. If one of the Parties rejects the
recommendation, that Party shall notify the
Chairman so that the conciliation board may
give official notice to the Parties that the
attempt of conciliation has failed.
C. The dispute may be submitted to arbitration if,
at the expiration of sixty (60) Days from the
recommendation, the recommendation has not been
expressly accepted by the Parties.
26.7 Regardless of its outcome, the recommendation is of
a confidential nature and cannot be released,
produced or published by one of the Parties without
the specific consent of the other Party, or by a
Third Party without the specific consent of all
Parties to this Agreement.
26.8 If the conciliation process fails to resolve the
dispute, the dispute shall be submitted to an
arbitration proceeding, pursuant to the regulations
of CNUDCI (UNCITRAL).
The applicable law shall be the Algerian law,
notably Law 86-14 of August 19, 1986, as amended and
modified, and the regulations for its
implementation.
Arbitration shall take place in Geneva, Switzerland.
The language of arbitration shall be French.
SECTION III: TAX ON REMUNERATION
ARTICLE 7
Annex B - Accounting Procedure is completed by the following
provisions:
"ARTICLE 7 - TAX ON REMUNERATION
7.1 In accordance with the provisions of Article 34 of law
No. 86-14 of August 19, 1986, and Article 23 of law No.
91-12 of September 7, 1991, amended and completing
Article 39 of law No. 86-14 of August 19, 1986, ANADARKO
ALGERIA CORPORATION and each of its transferees
("ANADARKO ") are separately subject to the tax on
remuneration.
7.2 ANADARKO shall calculate for each fiscal year the amount
of the tax on its remuneration, at the standard rate in
force for corporate income tax as set out in the Direct
Tax and Similar Taxes Code.
7.3 The calculation of ANADARKO'S taxable remuneration is as
follows:
R = (Pa+Pb) Pv x Tch + Ii-(Ee + Aei + Aeii + C1)
1-Tn
For any fiscal year for which the sum of expenses and
amortization exceeds the value of ANADARKO'S production
share, the excess shall be carried forward as a deduction
from the taxable remuneration for the following fiscal
years, in accordance with the legislation in force.
To apply the above-mentioned formula:
R = ANADARKO'S remuneration;
Pa = ANADARKO'S production share as defined in
Article 4.3.A of the Agreement;
Pb = ANADARKO'S production share as defined in Articles
4.3.B and 18.3 of the Agreement;
Pv = Base price as defined in Article 44.1 of law No. 86-
14;
Tch = Exchange rate in Algerian dinars as defined in
by Article 44.2 of law No. 86-14;
Ii = Additional tax on the remuneration, if any, paid by
SONATRACH on behalf of ANADARKO, in accordance with
Article 7.12 hereafter;
Ee = Share of the exploitation expenses borne by
Anadarko, being 49% of the total amount of the
operating costs, transportation costs, overhead
costs, etc.
Aei = Amortization of 100% of the Exploration Costs,
determined by taking into consideration the maximum
legal amortization rates specified in Article 54 of
law No. 86-14, dated August 19, 1986;
C1 = Excess of expenses and amortization over the value
of production in previous fiscal years;
Tn = The Rate in force for the tax on remuneration (i.e.
the corporate income tax rate as set out in the
Direct Tax and Similar Taxes Code).
7.4 ANADARKO shall submit to the taxation authorities tax
returns accompanied by all required documents, no later
than the deadline set for the filing of the annual
return.
7.5 ANADARKO shall submit to SONATRACH a copy of the tax
returns as well as all the documents necessary for the
payment of the tax, at least fifteen (15) Days prior to
the deadline set for the filing of the annual return.
7.6 SONATRACH shall pay, in ANADARKO's name and on behalf of
ANADARKO, the amount stated on the tax returns submitted
to the taxation authorities by ANADARKO, after deducting
the amount of provisional instalments already paid for
the said fiscal year, no later than the deadline set for
the filing of the annual return.
7.7 For any fiscal year, the tax on remuneration is due and
payable in twelve (12) provisional monthly instalments.
These instalments shall be paid by SONATRACH and deducted
from the tax on remuneration due for the said fiscal
year.
7.8 Consequently, ANADARKO shall notify SONATRACH ten (10)
Days before the 25th of the month following the month for
which the instalment payment is due, of the amount of the
instalment which must be paid for the said month.
7.9 SONATRACH shall submit to ANADARKO, within thirty (30)
Days following the date of payment, the original receipts
issued by the taxation authorities in the name of
ANADARKO, attesting to the payment of the tax on
remuneration.
7.10 ANADARKO shall be responsible for any delay in filing or
failure to produce the tax returns. ANADARKO shall also
be responsible for any delay in payment or failure to
make payment of the tax on remuneration by SONATRACH on
its behalf.
7.11 It is understood that any penalty established by the
taxation authorities, as a result of any delay in filing,
non-production of the tax returns, mistakes or omissions
in tax returns, will be charged to ANADARKO and paid by
ANADARKO.
In the event that, as a result of SONATRACH's late
payment or failure to make payment, for reasons
attributable to SONATRACH, of all or part of the tax on
remuneration, penalties would be imposed on ANADARKO by
the taxation authorities, SONATRACH shall pay any such
penalties. However, if such penalties are paid by
ANADARKO, SONATRACH will reimburse ANADARKO within
thirty (30) Days following receipt of a demand for
payment issued by ANADARKO.
7.12 In the event that the taxation authorities would reject
the amount of tax on remuneration submitted by ANADARKO,
SONATRACH shall pay immediately, on behalf of ANADARKO,
the total amount of required tax included the requested
additional tax, as well as any penalty or fine relating
thereto.
The required additional tax on remuneration paid by
SONATRACH shall be considered as the amount Ii for the
calculation of the remuneration as provided for by
Article 7.3 hereinabove, only if the additional tax on
remuneration is due on ANADARKO's remuneration.
It is understood that any penalty or fine related thereto
paid by SONATRACH shall be charged to ANADARKO, and
reimbursed by ANADARKO to SONATRACH.
SONATRACH shall also have the right to request from
ANADARKO reimbursement of penalties paid to Algerian tax
authorities and ANADARKO shall reimburse these amounts
within thirty (30) days of the receipt of the request by
SONATRACH.
7.13 SONATRACH shall submit to ANADARKO the original of the
receipts issued by the taxation authorities for these
additional amounts of tax on remuneration, within fifteen
(15) Days from the date of payment.
Within the same period of time, SONATRACH shall submit to
ANADARKO the documents issued by the taxation authorities
for all reimbursements or tax exemptions granted in its
name.
7.14 SONATRACH's payment of the tax on remuneration, on behalf
of ANADARKO, within the framework of the legal provisions
in effect, including, if any, the payment of possible
penalties mentioned in Article 7.11 hereinabove, due to
the delay or failure to pay this tax for reasons strictly
attributable to SONATRACH, shall not be deducted from the
share of Liquid Hydrocarbons going to ANADARKO under the
Agreement.
In the event that, or if in breach of its obligations,
SONATRACH does not pay, within the time limit allowed,
for reasons attributable to SONATRACH, all sums due as
tax on remuneration and penalties, if any, as mentioned
in paragraph 2 of Article 7.11 and ANADARKO pays these
sums pursuant to the taxation authorities' demand,
ANADARKO shall have the right to demand from SONATRACH
the reimbursement of all sums paid to the Algerian
taxation authorities in the currency of origin, and
SONATRACH shall reimburse ANADARKO within 30 Days after
receipt of the request of ANADARKO.
7.15 The Party who suffers a loss because of the failure of
the other Party to reimburse any sums due within the time
periods specified in this Article will be entitled to go
before the Operating Committee, in accordance with
Article 5 of the Agreement."
SECTION IV: LASMO AND MARSK OIL STATUS AS SONATRACH'S PARTNERS
ARTICLE 8
Upon the effective date of this Amendment LASMO is given the
status of Party to the Agreement dated October 23, 1989 and
partner of SONATRACH, with a participation interest of twenty-
five per cent (25%) of ANADARKO's rights, interests and
obligations under this Agreement.
LASMO shall, in proportion with its participation interest,
succeed to ANADARKO in all ANADARKO's rights and obligations
under the Agreement of October 23, 1989. LASMO agrees to
respect all provisions of that Agreement.
ARTICLE 9
Upon the effective date of this Amendment MAERSK Oil is given
the status of Party to the Agreement dated October 23, 1989
and partner of SONATRACH, with a participation interest of
twenty-five per cent (25%) of ANADARKO's rights, interests and
obligations under this Agreement.
MAERSK Oil shall, in proportion with its participation
interest, succeed to ANADARKO in all ANADARKO's rights and
obligations under the Agreement of October 23, 1989. MAERSK
Oil agrees to respect all provisions of that Agreement.
ARTICLE 10
ANADARKO, LASMO and MAERSK Oil shall be jointly and severally
responsible to SONATRACH for all obligations arising from the
Agreement dated October 23, 1989.
SECTION V: GENERAL PROVISIONS
ARTICLE 11
All the provisions of the Agreement dated October 23, 1989
which have not been expressly modified for this Amendment
remain applicable.
ARTICLE 12
This Amendment shall become effective upon being approved by
the Competent Authority, according to the procedures required
pursuant to the legislation and regulation in effect.
Made in Algiers on ________________ in eight (8) originals.
For Sonatrach For Anadarko
Le Directeur General Chairman of the Board of
Directors and Chief Executive
Officer
______________________________
Nazim Cherif-Eddine Zouioueche- ______________________________
___
Robert J. Allison Jr.
For Lasmo For Maersk Oil
Director President
______________________________ ______________________________
Ian D. Brown ___
Kjeld Fjeldgaard
<PAGE>
EXHIBIT 12
ANADARKO PETROLEUM CORPORATION
CONSOLIDATED STATEMENT OF COMPUTATION OF RATIOS
OF EARNINGS TO COMBINED FIXED CHARGES AND PREFERRED STOCK DIVIDENDS
Nine Months Ended September 30, 1998 and Five Years Ended December 31, 1997
<TABLE>
<CAPTION>
Nine Months
Ended
September 30 Years Ended December 31
thousands 1998 1997 1996 1995 1994 1993
<S> <C> <C> <C> <C> <C> <C>
Gross Income $59,332 $205,318 $196,763 $65,624 $90,794 $106,824
Rentals 8,904 8,266 4,234 2,457 2,814 3,069
Earnings 68,236 213,584 200,997 68,081 93,608 109,893
Gross Interest
Expense 59,514 62,095 55,986 52,557 41,635 38,000
Rentals 8,904 8,266 4,234 2,457 2,814 3,069
Preferred Stock
Dividends 6,728 --- --- --- --- ---
Fixed Charges $75,146 $70,361 $60,220 $55,014 $44,449 $41,069
Ratio of Earnings
to Fixed Charges 0.91 3.04 3.34 1.24 2.11 2.68
</TABLE>
The ratios of earnings to fixed charges and preferred stock dividends were
computed by dividing earnings by fixed charges. For this purpose, earnings
include income before income taxes and fixed charges. Fixed charges include
interest and amortization of debt expenses, the estimated interest component
of rentals and preferred stock dividends.
During the nine months ended September 30, 1998 and five years ended December
31, 1997, there were two million shares and no shares of preferred stock
outstanding, respectively. A pro forma ratio for prior periods is not
presented due to immateriality.
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<CIK> 0000773910
<NAME> ANADARKO PETROLEUM CORPORATION
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> SEP-30-1998
<CASH> 19,881
<SECURITIES> 0
<RECEIVABLES> 157,750
<ALLOWANCES> 0
<INVENTORY> 20,961
<CURRENT-ASSETS> 205,168
<PP&E> 5,314,372
<DEPRECIATION> 2,054,097
<TOTAL-ASSETS> 3,497,013
<CURRENT-LIABILITIES> 263,919
<BONDS> 1,225,000
0
200,000
<COMMON> 12,224
<OTHER-SE> 1,105,582
<TOTAL-LIABILITY-AND-EQUITY> 3,497,013
<SALES> 424,718
<TOTAL-REVENUES> 424,718
<CGS> 300,472
<TOTAL-COSTS> 300,472
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 41,127
<INCOME-PRETAX> 18,205
<INCOME-TAX> 6,385
<INCOME-CONTINUING> 11,820
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 11,820
<EPS-PRIMARY> 0.06
<EPS-DILUTED> 0.06
<PAGE>
</TABLE>
