-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, MnmNiLtMH7wuwsoLcvUG3CuAm0uaund6a4i24p3T42GJFtDIgo1IYvPk2njtx9Hv Cr7glXsDF/Z56/erSGKCWg== 0000773910-97-000004.txt : 19970814 0000773910-97-000004.hdr.sgml : 19970814 ACCESSION NUMBER: 0000773910-97-000004 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 4 CONFORMED PERIOD OF REPORT: 19970630 FILED AS OF DATE: 19970813 SROS: NYSE FILER: COMPANY DATA: COMPANY CONFORMED NAME: ANADARKO PETROLEUM CORP CENTRAL INDEX KEY: 0000773910 STANDARD INDUSTRIAL CLASSIFICATION: CRUDE PETROLEUM & NATURAL GAS [1311] IRS NUMBER: 760146568 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 001-08968 FILM NUMBER: 97659382 BUSINESS ADDRESS: STREET 1: 16855 NORTHCHASE DR CITY: HOUSTON STATE: TX ZIP: 77060 BUSINESS PHONE: 7138751101 MAIL ADDRESS: STREET 1: P O BOX 1330 STREET 2: P O BOX 1330 CITY: HOUSTON STATE: TX ZIP: 77251-1330 10-Q 1 ____________________________________________________________________ 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: June 30, 1997 Commission File Number: 1-8968 ______________________ ANADARKO PETROLEUM CORPORATION (Exact name of registrant as specified in its charter) Delaware 76-0146568 (State of incorporation) (I.R.S. Employer Identification No.) 17001 NORTHCHASE DRIVE, HOUSTON, TEXAS 77060-2141 (Address of executive offices) (281) 875-1101 (Registrant's telephone number) 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 each of the registrant's classes of common stock as of July 31, 1997 is shown below: Number of Shares Title of Class Outstanding Common Stock, $0.10 par value 59,678,483 ____________________________________________________________________ PART I. FINANCIAL INFORMATION Item 1. Financial Statements ANADARKO PETROLEUM CORPORATION CONSOLIDATED STATEMENT OF INCOME (Unaudited) Three Months Ended Six Months Ended thousands except June 30 June 30 per share amounts 1997 1996 1997 1996 Revenues Gas sales $ 83,147 $ 88,070 $190,198 $177,185 Oil and condensate sales 39,926 34,894 82,521 65,766 Natural gas liquids and other 15,808 12,124 36,668 27,844 Total 138,881 135,088 309,387 270,795 Cost and Expenses Operating expenses 33,456 27,918 66,311 54,451 Administrative and general 17,152 19,499 34,187 34,698 Depreciation, depletion and amortization 47,922 40,268 93,261 83,207 Other taxes 10,701 10,276 23,614 20,415 Total 109,231 97,961 217,373 192,771 Operating Income 29,650 37,127 92,014 78,024 Other Income and (Expenses) Other income 121 147 960 345 Interest expense (7,967) (9,600) (17,205) (19,102) Income before Income Taxes 21,804 27,674 75,769 59,267 Income Taxes 8,030 10,046 27,561 21,123 Net Income $ 13,774 $ 17,628 $ 48,208 $ 38,144 Per Common Share Net income $ 0.23 $ 0.30 $ 0.81 $ 0.65 Dividends $ 0.075 $ 0.075 $ 0.15 $ 0.15 Average Number of Shares Outstanding 59,640 59,162 59,626 59,108 See accompanying notes to consolidated financial statements. -2- Item 1. Financial Statements (continued) ANADARKO PETROLEUM CORPORATION CONSOLIDATED BALANCE SHEET (Unaudited) June 30, December 31, thousands 1997 1996 ASSETS Current Assets Cash and cash equivalents $ 16,142 $ 14,601 Accounts receivable 146,799 226,824 Inventories, at average cost 28,100 24,540 Prepaid expenses 2,193 3,843 Total 193,234 269,808 Properties and Equipment Original cost 4,299,484 4,036,165 Less accumulated depreciation, depletion and amortization 1,810,575 1,738,709 Net properties and equipment - based on the full cost method of accounting for oil and gas properties 2,488,909 2,297,456 Deferred Charges 15,618 16,766 $2,697,761 $2,584,030 See accompanying notes to consolidated financial statements. -3- Item 1. Financial Statements (continued) ANADARKO PETROLEUM CORPORATION CONSOLIDATED BALANCE SHEET (continued) (Unaudited) June 30, December 31, thousands 1997 1996 LIABILITIES AND STOCKHOLDERS' EQUITY Current Liabilities Accounts payable Trade and other $ 165,381 $ 244,219 Banks 14,779 17,995 Accrued expenses Interest 12,843 12,812 Taxes and other 16,778 10,227 Total 209,781 285,253 Long-term Debt 791,973 731,049 Deferred Credits Deferred income taxes 516,251 498,973 Other 119,265 54,675 Total 635,516 553,648 Stockholders' Equity Common stock, par value $0.10 (200,000,000 shares authorized, 60,654,898 and 60,525,699 shares issued as of June 30, 1997 and December 31, 1996, respectively) 6,111 6,098 Preferred stock, par value $1.00 (2,000,000 shares authorized, no shares issued as of June 30, 1997 and December 31, 1996) --- --- Paid-in capital 339,255 335,848 Retained earnings (as of June 30, 1997, $410,491,000 was not restricted as to the payment of dividends) 778,649 739,395 Deferred compensation (2,474) (3,444) Executives and directors benefit trust, at market value (1,000,000 shares as of June 30, 1997 and December 31, 1996) (60,906) (63,813) Treasury stock (2,316 and 70 shares as of June 30, 1997 and December 31, 1996, respectively) (144) (4) Total 1,060,491 1,014,080 $2,697,761 $2,584,030 See accompanying notes to consolidated financial statements. -4- Item 1. Financial Statements (continued) ANADARKO PETROLEUM CORPORATION CONSOLIDATED STATEMENT OF CASH FLOWS (Unaudited) Six Months Ended June 30 thousands 1997 1996 Cash Flow from Operating Activities Net income $ 48,208 $ 38,144 Adjustments to reconcile net income to net cash from operating activities: Depreciation, depletion and amortization 93,261 83,207 Amortization of restricted stock 953 868 Deferred income taxes 18,456 17,656 160,878 139,875 Decrease in accounts receivable 80,025 2,182 Increase in inventories (3,560) (3,551) Decrease in accounts payable - trade and other and accrued expenses (72,256) (40,352) Other items - net 18 7,980 Net cash provided by operating activities 165,105 106,134 Cash Flow from Investing Activities Additions to properties and equipment (309,265) (151,756) Proceeds from the sale of assets to be leased, net 87,900 --- Sales and retirements of properties and equipment 2,843 3,373 Net cash used in investing activities (218,522) (148,383) Cash Flow from Financing Activities Additions to debt 72,000 41,147 Retirements of debt (11,076) --- Increase (decrease) in accounts payable, banks (3,216) 3,694 Dividends paid (8,954) (8,871) Issuance of common stock 6,344 6,487 Issuance of treasury stock 497 475 Purchase of treasury stock (637) (608) Net cash provided by financing activities 54,958 42,324 Net Increase in Cash and Cash Equivalents 1,541 75 Cash and Cash Equivalents at Beginning of Period 14,601 17,090 Cash and Cash Equivalents at End of Period $ 16,142 $ 17,165 See accompanying notes to consolidated financial statements. -5- 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 Gathering Company; Anadarko Energy Services Company; and, Anadarko Algeria Corporation. Use of Derivatives Anadarko uses derivative financial instruments to reduce the Company's exposure to changes in the market price of natural gas and crude oil, to fix the price for natural gas and crude oil 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. The types of commodity derivative financial instruments currently used by Anadarko are futures, options and swaps. Anadarko utilizes the hedge or deferral method of accounting for commodity derivative financial instruments (with the exception of losses on certain written options) whereby gains and losses on these hedging instruments are realized and recorded as revenues on the income statement when the related natural gas or oil production has been produced, purchased or delivered. As a result, gains and losses on commodity financial instruments are generally offset by similar changes in the realized prices of natural gas and crude oil. Unrealized gains and losses on these hedging instruments are deferred and recorded as assets or liabilities on the balance sheet at fair market value as of the balance sheet date. To qualify as hedging instruments, these instruments must be highly correlated to anticipated future sales such that the Company's exposure to the risks of commodity price changes is reduced. 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. Written options that are not combined with offsetting purchased options are not classified as hedges. Unrealized losses on these written options, offset by any option premiums received for these written options, are charged to the income statement as a reduction to revenues on a current basis. -6- Item 1. Financial Statements (continued) ANADARKO PETROLEUM CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) (Unaudited) 1. Summary of Accounting Policies (continued) Use of Derivatives (continued) Gains and losses related to the Company's interest rate swap agreement are included in interest expense on a current basis. The swap agree- ment effectively converts a portion of the Company's fixed interest rate debt to variable interest rate debt. 2. Inventories Inventories are stated at the lower of average cost or market. NGLs and natural gas, when sold from inventory, are charged to expense using the average-cost method. The major classes of inventories are as follows: June 30, December 31, thousands 1997 1996 Materials and supplies $28,014 $23,495 Natural gas liquids, stored in inventory 54 28 Natural gas, stored in inventory 32 1,017 $28,100 $24,540 3. Properties and Equipment Oil and gas properties include costs of $310,646,000 and $254,811,000 at June 30, 1997 and December 31, 1996, 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: June 30, December 31, thousands 1997 1996 Commercial Paper $ 19,973 $ 31,049 Notes Payable, Banks 72,000 --- 8 3/4% Notes due 1998 100,000 100,000 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 7.73% Debentures due 2096 100,000 100,000 7 1/4% Debentures due 2096 100,000 100,000 $791,973 $731,049 The commercial paper, notes payable to banks and 8 3/4% Notes due 1998 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. -7- Item 1. Financial Statements (continued) ANADARKO PETROLEUM CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) (Unaudited) 4. Long-term Debt (continued) In June 1997, the Company's Revolving Credit Agreement and 364-Day Credit Agreement were amended. The Agreements were amended as follows: the principal amounts of the Agreements were reduced from $250,000,000 and $150,000,000, respectively, to $225,000,000 and $125,000,000, respectively; the number of commercial banks in the group was changed from eleven to eight; and, the expiration dates of the Agreements were extended for one year. During 1996 and the first six months of 1997, there were no outstanding borrowings under these Agreements. In July 1997, Anadarko filed a shelf registration statement with the Securities and Exchange Commission that will permit upon effectiveness the issuance of up to $300,000,000 in senior and subordinated debt securities 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 offering. Anadarko has used similar shelf registration statements since 1989 to provide added flexibility in financing strategies. There have been no securities issued under this shelf registration. 5. Compressor Sale-Leaseback Agreement In January 1997, the Company entered into a sale-leaseback agreement for $87,900,000 (net) involving 145 natural gas compressors in Anadarko's major mid- continent gathering systems. Proceeds from the transaction were used for general corporate purposes. The gain of $66,200,000 is deferred and will be amortized over the lease term as a reduction to operating expenses. 6. Common Stock For the second quarter of 1997, dividends of seven and one-half cents 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 $410,491,000 and $364,080,000 were not restricted as to the payment of dividends at June 30, 1997 and December 31, 1996, respectively. 7. Statement of Cash Flows Supplemental Information The amounts of cash paid for interest (net of amounts capitalized) and income taxes are as follows: Six Months Ended June 30 thousands 1997 1996 Interest $17,423 $18,931 Income taxes $10,903 $ 3,905 -8- Item 1. Financial Statements (continued) ANADARKO PETROLEUM CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) (Unaudited) 8. Operating Expenses Operating expenses by category are as follows: Three Months Ended Six Months Ended June 30 June 30 thousands 1997 1996 1997 1996 Oil and gas $20,398 $17,165 $38,416 $32,288 Plant, gathering and marketing 9,920 8,117 19,594 15,587 Gas purchases 2,597 2,476 7,185 6,061 Other 541 160 1,116 515 $33,456 $27,918 $66,311 $54,451 9. Kansas Ad Valorem Tax The Natural Gas Policy Act of 1978 (NGPA) allows 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 in addition to the otherwise maximum lawful price. FERC's ruling was appealed to the United States Court of Appeals for the District of Columbia (D.C. Circuit), which held in June 1988 that FERC failed to provide a reasoned basis for its findings and remanded the case to FERC for further consideration. 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. FERC clarified the effective date of its decision by an order dated May 19, 1994. The clarification provided that the June 28, 1988 effective date applies to tax bills rendered after that date, not sales made on or after that date. 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. Numerous parties filed appeals of FERC's action in the D.C. Circuit. Anadarko, together with other natural gas producers, challenged FERC's orders on two grounds: (1) that the Kansas ad valorem tax, properly understood, does qualify for reimbursement under the NGPA; and (2) FERC's ruling should, in any event, have been applied prospectively. Other parties separately challenged FERC's orders on the grounds that FERC's ruling should have been applied retroactively to December 1, 1978, the date of the enact- ment of the NGPA and producers should have been required to pay refunds accordingly. -9- Item 1. Financial Statements (continued) ANADARKO PETROLEUM CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) (Unaudited) 9. Kansas Ad Valorem Tax (continued) The D.C. Circuit issued its decision on August 2, 1996 which holds that producers must make refunds of all Kansas ad valorem taxes collected with respect to production since October 1983. Petitions for rehearing were denied November 6, 1996. The Company, along with other gas producing companies, subsequently filed a petition for writ of certiorari with the United States Supreme Court seeking to limit the scope of the potential refunds to tax bills rendered on or after June 28, 1988 (the effective date originally selected by FERC). Williams Natural Gas Company filed a cross-petition for certiorari seeking to impose refund liability back to December 1, 1978. Both petitions were denied on May 12, 1997. Anadarko estimates the maximum amount of principal and interest at issue which has not been paid to date and assuming that the October 1983 effective date remains in effect, is about $38,600,000 (pre-tax) as of June 30, 1997. Of this amount, up to $36,600,000 (pre-tax) is at issue in the FERC petition for adjustment and the litigation with PanEnergy Corp et al. (PanEnergy) discussed below. The Company along with other gas producing companies, filed a petition for adjustment with FERC on May 12, 1997. In so doing the Company is seeking waiver of all interest which might otherwise be due. The total interest at issue is approximately $23,800,000 (pre-tax). On May 13, 1997 the Company also filed a lawsuit in the Federal District Court for the Southern District of Texas against PanEnergy seeking a 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 discussed above is not granted in its entirety by FERC with respect to PanEnergy refunds, interest in an amount up to $22,600,000 (pre-tax) as of June 30, 1997. The Company also seeks from PanEnergy the return of $816,000 of the $830,000 (pre-tax) charged against income in 1993 and 1994. 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 and 1994) 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 June 30, 1997 and December 31, 1996, the results of operations for the three and six months ended June 30, 1997 and 1996, and cash flows for the six months ended June 30, 1997 and 1996. -10- Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations The Company has included a number of 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 in Item 2 of this Form 10-Q. These forward looking statements, including any production and reserve disclosures contained therein, are based on the best data available at the time this report was released for printing; however, actual results could differ materially from those expressed or implied by such state- ments due to a number of factors including: commodity pricing and demand, exploration and operating risks, development risks, domestic governmental risks, foreign operations risk and competition. See Additional Factors Affecting Business in the Management's Discussion and Analysis included in the Company's 1996 Annual Report on Form 10-K. Overview of Operating Results For the second quarter of 1997, Anadarko's net income was $13.8 million (23 cents per share) on revenues of $138.9 million. By comparison, net income for the second quarter of 1996 was $17.6 million (30 cents per share) on revenues of $135.1 million. The decrease in net income is due to lower prices for crude oil, natural gas and natural gas liquids (NGLs) and higher costs and expenses, which were partially offset by higher production volumes. For the first six months of 1997, Anadarko's net income increased 26 percent to $48.2 million (81 cents per share) on revenues of $309.4 million. This compares to net income of $38.1 million (65 cents per share) on revenues of $270.8 million for the same period of 1996. The increases in year-to-date revenues and net income are primarily due to higher production volumes of oil, natural gas and NGLs and higher commodity prices in the first six months of 1997 compared to the same period in 1996. The gain in production volumes and prices was partially offset by higher costs and expenses compared to the same period in 1996. -11- Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations (continued) The following table shows the Company's volumes and U.S. prices for the three and six months ended June 30, 1997 and 1996: Three Months Ended June 30 % Increase 1997 1996 (Decrease) Natural gas, Bcf 43.8 40.4 8 Average daily volumes, MMcf/d 481 444 8 Price per Mcf $ 1.85 $ 2.04 (9) Crude oil and condensate, MBbls 2,249 1,670 35 Average daily volumes, MBOD 25 18 39 Price per barrel $17.48 $19.83 (12) Natural gas liquids, MBbls 1,032 779 32 Average daily volumes, MBOD 11 9 22 Price per barrel $13.45 $14.11 (5) Six Months Ended June 30 % Increase 1997 1996 (Decrease) Natural gas, Bcf 86.1 84.1 2 Average daily volumes, MMcf/d 476 462 3 Price per Mcf $ 2.24 $ 1.99 13 Crude oil and condensate, MBbls 4,251 3,372 26 Average daily volumes, MBOD 23 19 21 Price per barrel $18.94 $18.73 1 Natural gas liquids, MBbls 2,263 1,767 28 Average daily volumes, MBOD 13 10 30 Price per barrel $14.65 $14.21 3 __________________ See "Natural Gas Volumes and Prices" and "Crude Oil, Condensate and Natural Gas Liquids Volumes and Prices". Costs and expenses during the second quarter of 1997 were $109.2 million, an increase of 12 percent compared to $98.0 million for the second quarter of 1996. The increase is primarily due to higher depreciation, depletion and amortization (DD&A) expense and operating expenses related primarily to the increase in production volumes, offset slightly by lower administrative and general expenses. For the first six months of 1997, costs and expenses totaled $217.4 million, an increase of 13 percent compared to $192.8 million for the first six months of 1996. The increase is primarily due to higher operating expenses, DD&A expense and production taxes related to the increase in production volumes. -12- Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations (continued) Interest expense for the second quarter of 1997 decreased 17 percent to $8.0 million compared to $9.6 million for the second quarter of 1996. For the first six months of 1997, interest expense was $17.2 million, a decrease of ten percent compared to $19.1 million for the same period of 1996. The decreases in interest expense are due to higher capitalized interest in 1997 and an adjustment in the second quarter of 1997 of interest expense accruals. Natural Gas Volumes and Prices During the second quarter of 1997, Anadarko's natural gas production increased eight percent to 43.8 billion cubic feet (Bcf) or 481 million cubic feet per day (MMcf/d) compared to 40.4 Bcf or 444 MMcf/d in the second quarter of 1996. The Company's average U.S. wellhead gas price in the second quarter of 1997 fell nine percent to $1.85 per thousand cubic feet (Mcf) compared to $2.04 per Mcf in the same period of 1996. Anadarko's natural gas production in the first six months of 1997 was 86.1 Bcf or 476 MMcf/d. This compares to production of 84.1 Bcf or 462 MMcf/d in the first half of 1996. The Company's average wellhead gas price for the first six months of 1997 increased 13 percent to $2.24 per Mcf compared to $1.99 per Mcf in the same period of 1996. Crude Oil, Condensate and Natural Gas Liquids Volumes and Prices Anadarko's crude oil and condensate volumes for the second quarter of 1997 rose 35 percent to 2.2 million barrels (MMBbls) or 25 thousand barrels of oil per day (MBOD) compared to 1.7 MMBbls or 18 MBOD in the second quarter of 1996. The increase in crude oil and condensate volumes is due to increased drilling activity in the Company's core domestic areas and production from the Mahogany Field in the Gulf of Mexico. Anadarko's average U.S. oil price was $17.48 per barrel in the second quarter of 1997, a decrease of 12 percent compared to $19.83 per barrel in the same period of 1996. In the first six months of 1997, Anadarko's crude oil and condensate volumes increased 26 percent to 4.3 MMBbls or 23 MBOD compared to 3.4 MMBbls or 19 MBOD in the same period of 1996. Anadarko's U.S. oil prices in the first half of 1997 averaged $18.94 per barrel compared to $18.73 per barrel in the first half of 1996. Anadarko's NGLs sales volumes in the second quarter of 1997 were 1.0 MMBbls compared to 779 thousand barrels (MBbls) in the same period of 1996. During the second quarter of 1997, prices for NGLs declined five percent to $13.45 per barrel compared to $14.11 per barrel in the second quarter of 1996. NGLs volumes in the first half of 1997 were 2.3 MMBbls, an increase of 28 percent compared to 1.8 MMBbls in the first half of 1996. The Company's NGLs price averaged $14.65 per barrel in the first half of 1997 compared to $14.21 per barrel in the same period of 1996. -13- Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations (continued) Use of Derivatives 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 generally 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. See Note 1 of the Notes to Consolidated Financial Statements under Item 1 of this Form 10-Q. Capital Expenditures, Liquidity and Dividends During the first six months of 1997, Anadarko's capital spending (including capitalized interest and overhead) was $309.3 million compared to $151.7 million in the same period of 1996. The increase is due to increased exploration and development activity in Algeria and the U.S. Capital expenditures in both periods related primarily to the Company's oil and gas exploration and development activities. The Company believes cash flows, including proceeds from divestitures, and existing credit facilities will be sufficient to meet capital and operating requirements, including any contingencies, during 1997. In January 1997, the Company entered into a sale-leaseback agreement for $87.9 million (net) involving 145 natural gas compressors in Anadarko's major mid-continent gathering systems. Proceeds from the transaction were used for general corporate purposes. In June 1997, the Company's Revolving Credit Agreement and 364-Day Credit Agreement were amended. The Agreements were amended as follows: the principal amounts of the Agreements were reduced from $250,000,000 and $150,000,000, respectively, to $225,000,000 and $125,000,000, respectively; the number of commercial banks in the group was changed from eleven to eight; and, the expiration dates of the Agreements were extended for one year. During 1996 and the first six months of 1997, there were no outstanding borrowings under these Agreements. -14- Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations (continued) In July 1997, Anadarko filed a shelf registration statement with the Securities and Exchange Commission that will permit upon effectiveness the issuance of up to $300,000,000 in senior and subordinated debt securities 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 offering. Anadarko has used similar shelf registration statements since 1989 to provide added flexibility in financing strategies. There have been no securities issued under this shelf registration. Anadarko's Board of Directors declared a quarterly dividend of seven and one-half cents per share of common stock outstanding. The dividend is payable on September 24, 1997 to stockholders of record on September 10, 1997. Under the most restrictive provisions of the Company's credit agreements, which limit the payment of dividends, retained earnings of $410,491,000 were not restricted as to the payment of dividends at June 30, 1997. The amount of future dividends for Anadarko will depend on the Company's earnings, financial condition, capital requirements and other factors, and will be determined by the Board of Directors on a quarterly basis. Changes in Accounting Principles Earnings per Share Statement of Financial Accounting Standards (SFAS) No. 128 focuses on additional disclosures related to earnings per share. SFAS No. 128 is effective for financial statements for periods ending after December 15, 1997. Anadarko does not expect SFAS No. 128 to have any material effect on its calculations of earnings per share. Comprehensive Income SFAS No. 130 focuses on reporting comprehen- sive income. SFAS No. 130 is effective for financial statements for periods beginning after December 15, 1997. Anadarko does not expect SFAS No. 130 to have any material effect on its calculations of net income. Exploration and Development Activities During the second quarter of 1997, Anadarko participated in a total of 149 wells, including 91 oil wells, 42 gas wells and 16 dry holes. This compares to a total of 55 wells, including 28 oil wells, 18 gas wells and nine dry holes during the second quarter of 1996. For the first six months of 1997, Anadarko participated in a total of 275 wells, including 166 oil wells, 82 gas wells and 27 dry holes. This compares to a total of 116 wells, including 60 oil wells, 31 gas wells and 25 dry holes during the first six months of 1996. Following is a description of activity during the first half of 1997. -15- Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations (continued) Domestic Gulf of Mexico At the East Cameron 157 platform, installed in 1994, Anadarko drilled two additional development wells in the first half of 1997, bringing the total well count on the platform to six. Production now averages 47 MMcf/d of gas and 1,150 barrels of condensate per day (BCPD). In the second half of 1997, Anadarko plans to recomplete two of the original wells on the platform to further increase production volumes. Anadarko owns a 100-percent working interest in the platform. At the Brazos A-47 platform, Anadarko acquired a 100-percent working interest from partners in late 1996. In the first half of 1997, the Company repaired one well and drilled one new exploration well. Both wells are now on-line and production is 11 MMcf/d of gas. In the third quarter of 1997, Anadarko plans to add compression at the platform to increase production volumes. An aggressive drilling program to accelerate production rates is underway in the Amoco-operated Matagorda Island 623 Field. Three rigs are currently running in the Field; one platform rig and two jack-ups. In the second half of 1997, four new wells are expected to be on-line and production volumes are expected to increase by 100 MMcf/d of gas (gross). Production from the Field currently averages 225 MMcf/d of gas and 3,000 BCPD (gross). Anadarko owns a 37.5-percent working interest in the platform. In the Anadarko-operated Matagorda Island 587 Field, the A-2 well was recompleted in the first quarter of 1997. The A-1 well will be recompleted in the third quarter in another productive sand. Production from the platform now averages 13 MMcf/d of gas (gross). Anadarko owns a 32.5-percent working interest in the Field. At the Company-operated High Island 376 "B" platform, installed in 1994, the Company recompleted one of the original wells in the first quarter of 1997 and plans to recomplete the second original well in the second half of 1997. An additional development well is planned for the second half of 1997. A horizontal well is also planned from the platform later this year to help recover additional reserves. Current production from the platform is 1,250 barrels of oil per day (BOPD) and 1.4 MMcf/d of gas (gross). Anadarko owns a 33.8-percent working interest in the platform. At the Vermilion 78 production platform, Anadarko drilled one development well in the first half of 1997, adding 15 MMcf/d of gas and 370 BCPD to production. Current production from the platform is 23 MMcf/d of gas and 390 BCPD (gross). Anadarko owns a 37.5-percent working interest in the platform. -16- Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations (continued) The Phillips-operated Mahogany platform came on-line in late 1996. Four wells are now on production. At the end of July 1997, production was about 19,000 BOPD and 30 MMcf/d of gas (gross). In the second half of 1997, the partners plan to complete drilling operations on the No. 5 well which was drilled to the top of salt and suspended to allow for installation of the production platform. Additional wells may be drilled from the platform to increase future production volumes. Anadarko owns a 37.5-percent working interest in the project. Exploratory Drilling - One exploration well is currently drilling in the Gulf of Mexico, which is the Anadarko-operated Malachite Prospect, located at South Marsh Island 123 spud in May 1997. Anadarko owns a 75-percent working interest in the Malachite Prospect. Anadarko plans to spud at least two additional exploration wells in the Gulf of Mexico in the second half of 1997. Hugoton Embayment In the first six months of 1997, Anadarko drilled 93 wells (66 deep, 27 shallow) in the Hugoton Embayment, located in southwest Kansas and the Oklahoma Panhandle. Initial combined production rates (net) from all wells is over 35 MMcf/d of gas and 1,000 BOPD. Anadarko is on track to drill a total of 120 net deep wells and 58 net shallow wells during 1997. Six Company-operated drilling rigs are now running. Key results include: Adams L-2 Located in the Eubank Field of Haskell County, Kansas, the Adams L-2 flowed 12.7 MMcf/d of gas from the prolific Upper Morrow formation which had a core permeability of over 1,000 millidarcy. Anadarko's operations staff split connected the well and sold gas to two pipelines to maximize the flow rate. Keller D-1 Located in the Arkalon Field in Seward County, Kansas, the well flowed 3.7 MMcf/d of gas from a 24 foot interval in the Lower Morrow. Offset production averages 200 thousand cubic feet per day (Mcf/d) per well with a bottom hole pressure of 300 psi, while this stepout well encountered over 800 pounds per square inch. Garey A-3 Located in the Evalyn Field in Seward County, Kansas, this well flowed 260 BOPD and 900 Mcf/d of gas from 27 feet of overall pay in the Chester "A" interval. Anadarko's geology department identified this unconventional pay using special log analysis techniques. Malin A-4 Located in the Shuck Field in Seward County, Kansas, the Marlin A-4 flowed 5.8 MMcf/d of gas from 17 feet of pay in the Lower Morrow. -17- Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations (continued) Turner D-2 Located in the Taloga N.E. Field in Morton County, Kansas, this well flowed 1.5 MMcf/d of gas from a low resistivity Cherokee zone. Special log analysis techniques were used to identify this zone since conventional log analysis indicated the zone was not productive. Gregory D-2 Located in the Gentzler S.W. Field in Stevens County, Kansas, this well flowed 1.7 MMcf/d of gas from the Morrow interval. This prospect was generated through 3-D seismic that predicted a structural bump at the Morrow level. Hittle A-5 Located in the Youngren NW Field in Stevens County, Kansas, this well flowed 4.1 MMcf/d of gas from 21 feet of pay in the Lower Morrow. The well has encountered multiple uphole pay sections. In late 1996, Anadarko began an aggressive 320 acre infill drilling program in the Lower Morrow/Upper Chester gas zones that has resulted in the drilling of 31 wells at an 84-percent success rate. Anadarko spent a total of $8 million and developed these low risk reserves at a cost of finding of only $3.20 per energy equivalent barrel (EEB). The Company has identified several additional infill well locations on its acreage. In early 1997, Anadarko drilled its first two sidetrack lateral oil wells in SW Kansas. The Ray C-5 vertical wellbore was producing high volumes of water as a result of behind-pipe communication with a wet zone just a few feet below the target zone. Anadarko cut a hole in the casing and drilled a lateral in the target zone. The Ray C-5L is currently producing at a stabilized rate of 100 BOPD compared to offset vertical wells that range from 20-35 BOPD. The second lateral well, the McHargue A-3 was producing only three BOPD from the St. Louis zone. Anadarko cut a 400 foot lateral resulting in a stabilized rate of 85 BOPD. Anadarko is evaluating potential in six fields in SW Kansas that could result in 20 new laterals. In addition to drilling development wells, the Company is also recompleting current producing wells to increase production. In the first half of 1997, Anadarko recompleted 40 wells. Anadarko has spent $2.2 million to develop these behind pipe reserves at a cost of finding of only $1.40 per EEB. Initial net production rates from all recompletions combined is 15 MMcf/d of gas and 600 BOPD. Anadarko has identified 25 additional recompletion opportunities for the second half of 1997. Example recompletions are three Victory Field wells, located in Haskell County, Kansas, were recompleted into another productive zone, increasing combined production by 5 MMcf/d of gas. -18- Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations (continued) Since 1996, Anadarko has acquired about 300 square miles of 3-D seismic data over its Kansas properties. These data are used to drive many of the Company's current deep drilling programs in the area. To date, Anadarko has utilized 3-D seismic to drill a total of 34 wells at a 91- percent success rate. Anadarko has spent over $11 million to drill these wells at a cost of finding of only $3.20 per EEB. The Company added six satellite booster stations to the Hugoton Gathering System, increasing gross production by 6.2 MMcf/d of gas and reducing wellhead pressure. The Company installed 44 wellhead compressors, adding 8.8 MMcf/d of gas to gross production volumes. In the first half of 1997, Anadarko completed 60 well connects, adding gas production of 31 MMcf/d. Permian Basin The Company's program in the Permian Basin focuses on waterflood operations, development drilling and increased density drilling. During the first half of 1997, Anadarko drilled 183 wells in the Permian Basin compared to 179 wells in the full-year 1996. The Company now has 10 operated rigs running in the area. Since 1996, Anadarko's average net production from the Permian Basin has increased from 8,800 BOPD to 10,500 BOPD, a gain of 19 percent. A major area of focus is the TXL North and TXL South Units, located in Ector County, Texas. Anadarko completed 53 wells in the TXL South Unit in the first half of 1997, increasing gross production from 1,600 BOPD at year-end 1996 to a peak rate of 4,200 BOPD and 9.7 MMcf/d of gas. Production in the TXL North Unit has increased from 1,200 BOPD at year- end 1996 to a current rate of 1,400 BOPD. In Ector County, Texas, Anadarko drilled 12 increased density wells in the first half of 1997 in the Goldsmith Cummins Deep Unit. Eleven of these wells are now producing and gross production has increased to 1,535 BOPD from 860 BOPD at the beginning of 1997. In the Sharon Ridge/Diamond M Field, located in Scurry County, Texas, the Company has embarked on a $13.7 million waterflood expansion project. In the first half of 1997, Anadarko completed 38 wells in the Field. Production has increased from 1,425 BOPD at year-end 1996 to a current rate of 2,040 BOPD. In the Forbes Unit, located in Crosby and Garza Counties of Texas, Anadarko drilled and completed 12 wells in the first half of 1997 as a part of a waterflood expansion program started in 1996. Anadarko has increased gross production to 460 BOPD from 180 BOPD at the start of waterflood operations. -19- Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations (continued) Anadarko drilled and completed 21 new wells in the Ketchum Mountain (Clearfork) Field, located in Irion County, Texas. Several of the new wells tested more than 150 BOPD. Production from the Field is currently 2,400 BOPD. The most recent five wells completed are producing at a combined rate of 800 BOPD. Golden Trend In the first half of 1997, Anadarko drilled 16 wells in the Golden Trend of central Oklahoma. The Company is planning to drill a total of 31 wells in 1997. Of significant note was a new field discovery made by the Company in July 1997 in Grady County, Oklahoma, known as the Laflin Creek Field. The Heiple "A" 1-35 exploratory well flowed 1,152 BOPD and 2.4 MMcf/d of gas. A multi-well delineation program is now underway to develop this newly discovered Field. West Panhandle Field In the first half of 1997, Anadarko drilled 25 lateral wells in the West Panhandle Field of Texas to increase production volumes. The Company is planning to drill about 50 lateral wells in 1997 and net production should increase by approximately 15 MMcf/d to about 46 MMcf/d from the Field. INTERNATIONAL Algeria In the first half of 1997, Anadarko and partners drilled six wildcats with three discoveries. Anadarko plans to drill up to 10 exploration wells in Algeria in 1997. QBN-1 The Qoubba North No. 1 (QBN-1), drilled on Block 404 about 9.5 kilometers (six miles) northeast of the Berkine East No. 1 (BKE-1) Field discovery well, flowed 1,214 BOPD from Triassic pay sands. The Trias Argilo-Greseuo Inferieur (TAGI) sand tested in the QBN-1 well is the same interval that is productive in the Qoubba Field. Later this year, Anadarko is planning to evaluate a possible reservoir connection with the Qoubba Field through further study. Work continues with other interest owners on full-scale development for the Qoubba Field with first production estimated in late 1999 or early 2000. HBNSE-1 The Hassi Berkine South East No. 1 (HBNSE-1) well discovered a new field about 7.5 kilometers (4.5 miles) southeast of the HBNS Field on Block 404. The HBNSE-1 well flowed 17,092 BOPD of 48 degree API gravity oil and 37.5 MMcf/d of gas. The discovery is located 10 kilometers (6.2 miles) from the production facilities being built at the HBNS Field. The test results from HBNSE-1 are currently being studied by partners and delineation drilling is under evaluation. -20- Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations (continued) BSFN-1 With operator Broken Hill Proprietary Co. (BHP), Anadarko and its partners announced a new field discovery on Block 402 in May 1997. The Bir Sif Fatima North (BSFN-1) well flowed 5,570 BOPD of 42 degree API gravity oil. The drilling location was determined through evaluation of 1,900 kilometers of new seismic data acquired by the partners in 1996. The BSFN-1 well is located about 3.75 kilometers (2 miles) from a recent discovery announced by the Italian oil company, Agip. A delineation drilling program has been approved by the partners and should begin in late summer 1997. BHP owns a 45-percent interest in the project; Anadarko holds a 27.5-percent interest, with Lasmo and Maersk each holding a 13.75-percent interest. Three exploration wells are currently being drilled in Algeria - two operated by Anadarko and one by BHP. The Rhourde Oulad Djemma (ROD-1), located on Block 402a about 10 kilometers (6.2 miles) northeast of the BSFN-1 well, spud in June 1997. The Hassi Berkine Central (HBNC-1) well, located about two kilometers (1.2 miles) north of the HBNS Field on Block 404, also spud in June 1997. The Sidi Yedda East (SYDE-1), located on Block 211, spud in July 1997. An additional rig is being mobilized to begin drilling development wells in the HBNS Field in August 1997. Development operations are jointly managed with SONATRACH, the national oil and gas enterprise of Algeria. Ireland In June 1997, Anadarko was awarded interests in nine blocks offshore Ireland. ARCO is the operator of three blocks and BG Exploration and Production is the operator of four full and two partial blocks. This is a new exploration area for the Company. -21- Part II. OTHER INFORMATION Item 1. Legal Proceedings Kansas Ad Valorem Tax The Natural Gas Policy Act of 1978 (NGPA) allows 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 in addition to the otherwise maximum lawful price. FERC's ruling was appealed to the United States Court of Appeals for the District of Columbia (D.C. Circuit), which held in June 1988 that FERC failed to provide a reasoned basis for its findings and remanded the case to FERC for further consideration. 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. FERC clarified the effective date of its decision by an order dated May 19, 1994. The clarification provided that the June 28, 1988 effective date applies to tax bills rendered after that date, not sales made on or after that date. 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. Numerous parties filed appeals of FERC's action in the D.C. Circuit. Anadarko, together with other natural gas producers, challenged FERC's orders on two grounds: (1) that the Kansas ad valorem tax, properly understood, does qualify for reimbursement under the NGPA; and (2) FERC's ruling should, in any event, have been applied prospectively. Other parties separately challenged FERC's orders on the grounds that FERC's ruling should have been applied retroactively to December 1, 1978, the date of the enactment of the NGPA and producers should have been required to pay refunds accordingly. The D.C. Circuit issued its decision on August 2, 1996 which holds that producers must make refunds of all Kansas ad valorem taxes collected with respect to production since October 1983. Petitions for rehearing were denied November 6, 1996. The Company, along with other gas producing companies, subsequently filed a petition for writ of certiorari with the United States Supreme Court seeking to limit the scope of the potential refunds to tax bills rendered on or after June 28, 1988 (the effective date originally selected by FERC). Williams Natural Gas Company filed a cross-petition for certiorari seeking to impose refund liability back to December 1, 1978. Both petitions were denied on May 12, 1997. Anadarko estimates the maximum amount of principal and interest at issue which has not been paid to date and assuming that the October 1983 effective date remains in effect, is about $38,600,000 (pre-tax) as of June 30, 1997. Of this amount, up to $36,600,000 (pre-tax) is at issue in the FERC petition for adjustment and the litigation with PanEnergy Corp et al. (PanEnergy) discussed below. -22- Item 1. Legal Proceedings (continued) Kansas Ad Valorem Tax (continued) The Company along with other gas producing companies, filed a petition for adjustment with FERC on May 12, 1997. In so doing the Company is seeking waiver of all interest which might otherwise be due. The total interest at issue is approximately $23,800,000 (pre-tax). On May 13, 1997 the Company also filed a lawsuit in the Federal District Court for the Southern District of Texas against PanEnergy seeking a 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 discussed above is not granted in its entirety by FERC with respect to PanEnergy refunds, interest in an amount up to $22,600,000 (pre-tax) as of June 30, 1997. The Company also seeks from PanEnergy the return of $816,000 of the $830,000 (pre-tax) charged against income in 1993 and 1994. 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 and 1994) has been made in the accompanying financial statements. -23- Item 4. Submission of Matters to a Vote of Security Holders (a) On April 24, 1997, the Company held its Annual Stockholders' Meeting. (b) Messrs. Conrad P. Albert and Robert J. Allison, Jr. were re- elected as Class II directors to serve for a term of three years. Messrs. Ronald Brown, John R. Gordon and John R. Butler, Jr. will continue to serve as Class I directors and Messrs. Larry Barcus and James L. Bryan will continue to serve as Class III directors. Mr. Conrad P. Albert was re-elected with votes for of 49,981,689 and votes withheld of 510,865. Mr. Robert J. Allison, Jr. was re-elected with votes for of 49,945,270 and votes withheld of 547,284. (c) The stockholders approved an amendment to the 1993 Stock Incentive Plan (Incentive Plan). The Incentive Plan is intended to attract and retain employees, to encourage employees to devote their best efforts to the Company and to recognize employees for their contributions to the overall success of the Company. A total of 47,136,232 shares of common stock voted for the amend- ment to the Incentive Plan, 3,185,696 shares of common stock voted against the amendment to the Incentive Plan and 170,626 shares of common stock abstained. -24- 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. Exhibit Original Filed File Number Description Exhibit Number 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 *4(a) Amendment to Credit Agreement, dated June 13, 1997 *12 Computation of Ratios of Earnings to Fixed Charges and Earnings to Combined Fixed Charges and Preferred Stock Dividends *27 Financial Data Schedule (b) Reports on Form 8-K There were no reports filed on Form 8-K for the three months ended June 30, 1997. -25- 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) August 13, 1997 [MICHAEL E. ROSE] Michael E. Rose - Senior Vice President, Finance and Chief Financial Officer EX-4 2 Exhibit 4(a) THIRD AMENDMENT TO REVOLVING CREDIT AGREEMENT Amendment, dated as of June 13, 1997, among ANADARKO PETROLEUM CORPORATION, a Delaware corporation (the "Company"), the Banks named on the signature pages hereof (individually a "Bank" and collectively the "Banks") and THE CHASE MANHATTAN BANK, as Agent for the Banks (the "Agent"). WHEREAS, the Company, the Banks and the Agent have entered into a Revolving Credit Agreement, dated as of May 24, 1994 (as amended by the First Amendment to Revolving Credit Agreement, dated as of May 23, 1995, and the Second Amendment to the Revolving Credit Agreement, dated as of May 21, 1996, the "Agreement"), and desire further to amend the Agreement in the manner and to the extent herein provided. NOW THEREFORE, the Company, each Bank and the Agent agree as follows: 1. As used herein, the term "Amendment Date" shall mean June 13, 1997 or such other date as the parties hereafter shall agree upon. Unless otherwise specifically defined herein, each term used herein which is defined in the Agreement shall have the meaning assigned such term in the Agreement. Each reference to "hereof," "hereunder," "herein" and "hereby" and each other similar reference and each reference to "this Agreement" and each other similar reference contained in the Agreement shall from and after the date hereof refer to the Agreement as amended hereby. 2. The Company, the Banks and the Agent agree that, subject to the conditions set forth in Section 3 hereof, as of the date hereof the Agreement shall be amended as follows: (a) Section 1.01 of the Agreement shall be amended as follows: (i) The definition of "Agent" shall be amended by replacing "Chemical Bank" with "The Chase Manhattan Bank". (ii) The definition of "Chemical" is replaced in its entirety by "'Chase' - The Chase Manhattan Bank". Except as otherwise expressly provided herein, each reference to "Chemical" contained in the Agreement shall from and after the date hereof be replaced by a reference to "Chase". (iii) The definition of "Commitment" shall be replaced in its entirety by the following: " 'Commitment' - As to each Bank, its obligation to make Loans to the Company pursuant to Section 2.01 in the amount set forth opposite its name below, as such obligation may be reduced pursuant to this Agreement: Amount of Percentage of Bank Commitment Commitment The Chase Manhattan Bank $ 35,357,142.87 15.71% Morgan Guaranty Trust Company of New York $ 30,535,714.29 13.57% NationsBank of Texas, N.A. $ 30,535,714.29 13.57% Bank of America, Illinois $ 25,714,285.71 11.43% Bank of Montreal $ 25,714,285.71 11.43% The First National Bank of Chicago $ 25,714,285.71 11.43% Mellon Bank, N.A. $ 25,714,285.71 11.43% Union Bank of Switzerland, Houston Agency $ 25,714,285.71 11.43% TOTAL $225,000,000.00 100.00%" (iv) The definition of "Termination Date" shall be amended by replacing the date "June 30, 2001" with the date "June 30, 2002". (b) The Pricing Schedule in the form of Exhibit A shall be replaced in its entirety by the Pricing Schedule in the form of Exhibit A attached hereto. 3. The amendments specified in Section 2 hereof shall be effective as of the date hereof upon the receipt by the Agent, on or prior to the Amendment Date, of: (a) A certificate signed by a responsible officer of the Company, dated the Amendment Date, to the effect that: (i) the representations and warranties contained in Section 3.01 of the Agreement are true and accurate on and as of the Amendment Date as though made on and as of such date (except to the extent that such representations and warranties relate solely to an earlier date); (ii) no event has occurred and is continuing, or would result from the execution, delivery and performance of this Amendment, which constitutes an Event of Default or would constitute an Event of Default with the giving of notice or the lapse of time, or both; and (iii) the Company is in compliance with all the terms, covenants and conditions of the Agreement which are binding upon it; (b) An opinion of the General Counsel of the Company, dated the Amendment Date, the effect that: (i) the Company is duly incorporated, validly existing and in good standing under the laws of the State of Delaware and is qualified to do business as a foreign corporation and is in good standing in the States of Colorado, Kansas, Louisiana, Montana, Nevada, New Mexico, Oklahoma, Texas and Wyoming; (ii) this Amendment has been duly authorized, executed and delivered by the Company; (iii) this Amendment, assuming due authorization, execution and delivery hereof by the Banks and the Agent, constitutes a valid and binding agreement of the Company, enforceable in accordance with its terms, except as (x) the enforceability thereof may be limited by bankruptcy, insolvency or similar laws affecting creditors' rights generally and (y) rights of acceleration and the availability of equitable remedies may be limited by equitable principles of general applicability; (iv) the execution, delivery and performance by the Company of this Amendment will not (x) conflict with the restated certificate of incorporation or by-laws of the Company, each as in effect on the date of such opinion, (y) contravene any applicable provision of any applicable law or applicable order or (z) conflict with any provision of any indenture, loan agreement or other similar agreement or instrument known to such counsel (having made due inquiry with respect thereto) binding on the Company or affecting its property; (v) no authorization, consent or approval of any governmental body or agency of the State of Texas or the United States of America which has not been obtained is required in connection with the execution, delivery and performance by the Company of this Amendment; and (vi) to the knowledge of such counsel (having made due inquiry with respect thereto), there is no proceeding pending or threatened before any court or administrative agency which, in the opinion of such counsel, will result in a final determination which would have the effect of preventing the Company from carrying on its business or from meeting its current and anticipated obligations on a timely basis. In rendering such opinion, the General Counsel of the Company shall opine only as to matters governed by the Federal laws of the United States of America, the laws of the State of Texas and the General Corporation Law of the State of Delaware and such counsel may state that he has relied on certificates of state officials as to qualification to do business and good standing certificates of officers of the Company and other sources believed by him to be responsible; and (c) Duly executed counterparts hereof signed by the Company, the Agent and each of the Banks (or, in the case of any party as to which an executed counterpart shall not have been received, the Agent shall have received telegraphic, telex or other written confirmation from such party of execution of a counterpart hereof by such party). 4. Except as amended hereby, the Agreement shall continue in full force and effect. 5. This Amendment shall be governed by, and construed in accordance with, the laws of the State of New York. 6. This Amendment may be signed in any number of counterparts, each of which shall be an original, with the same effect as if the signatures thereto and hereto were upon the same instrument. IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be executed by their respective officers thereunto duly authorized as of the day and year first above written. ANADARKO PETROLEUM CORPORATION By /s/ A. L. Richey Title: Vice President and Treasurer THE CHASE MANHATTAN BANK By __________________________ Title __________________________ MORGAN GUARANTY TRUST COMPANY OF NEW YORK By __________________________ Title __________________________ NATIONSBANK OF TEXAS, N.A. By ___________________________ Title ___________________________ BANK OF AMERICA, ILLINOIS By ____________________________ Title ____________________________ BANK OF MONTREAL By ____________________________ Title ____________________________ THE FIRST NATIONAL BANK OF CHICAGO By ____________________________ Title ____________________________ MELLON BANK, N.A. By _____________________________ Title _____________________________ UNION BANK OF SWITZERLAND, Houston Agency By _____________________________ Title _____________________________ THE CHASE MANHATTAN BANK, as Agent By _____________________________ Title _____________________________ EXHIBIT A PRICING SCHEDULE The "Eurodollar Margin", "CD Margin" and "Commitment Fee Rate" for any day are the respective percentages set forth below in the applicable row under the column corresponding to the Level that exists on such day: Level I Level II Level III Level IV Level V Level VI Eurodollar Margin . . 22.5/100 25/100 27.5/100 32.5/100 42.5/100 62.5/100 of 1% of 1% of 1% of 1% of 1% of 1% CD Margin . . . . . 35/100 37.5/100 40/100 45/100 55/100 75/100 . . of 1% of 1% of 1% of 1% of 1% of 1% Commitment Fee . . . 7.5/100 8.5/100 9/100 11/100 15/100 17.5/100 of 1% of 1% of 1% of 1% of 1% of 1% For purposes of this Schedule, the following terms have the following meanings: "Level" refers to the determination of which of Level I, Level II, Level III, Level IV, Level V or Level VI exists at any date. The higher rating of S&P or Moodys will determine the Level to be used. "Level I" exists at any date if, at such date, the Company's long-term debt is rated A or higher by S&P or A2 or higher by Moodys. "Level II" exists at any date if, at such date, the Company's long-term debt is rated A- by S&P or A3 by Moodys. "Level III" exists at any date if, at such date, the Company's long-term debt is rated BBB+ by S&P or Baa1 by Moodys. "Level IV" exists at any date if, at such date, the Company's long-term debt is rated BBB by S&P or Baa2 by Moodys. "Level V" exists at any date if, at such date, the Company's long-term debt is rated BBB- by S&P or Baa3 by Moodys. "Level VI" exists at any date if, at such date, the Company's long-term debt is rated below BBB- by S&P and Baa3 by Moodys. The credit ratings to be utilized for purposes of this Schedule are those assigned to the senior unsecured long-term debt securities of the Company without third-party credit enhancement, and any rating assigned to any other debt securities of the Company shall be disregarded. The rating in effect at any date is that in effect at the close of business on such date. THIRD AMENDMENT TO 364-DAY CREDIT AGREEMENT Amendment, dated as of June 13, 1997, among ANADARKO PETROLEUM CORPORATION, a Delaware corporation (the "Company"), the Banks named on the signature pages hereof (individually a "bank" and collectively the "banks") and THE CHASE MANHATTAN BANK, as Agent for the Banks (the "Agent"). WHEREAS, the Company, the Banks and the Agent have entered into a 364-Day Credit Agreement, dated as of May 24, 1994 (as amended by the First Amendment to 364-Day Credit Agreement, dated as of May 23, 1995, and the Second Amendment to the 364-Day Credit Agreement, dated as of May 21, 1996, the "Agreement"), and desire further to amend the Agreement in the manner and to the extent herein provided. NOW THEREFORE, the Company, each Bank and the Agent agree as follows: 1. As used herein, the term "Amendment Date" shall mean June 13, 1997 or such other date as the parties hereafter shall agree upon. Unless otherwise specifically defined herein, each term used herein which is defined in the Agreement shall have the meaning assigned such term in the Agreement. Each reference to "hereof," "hereunder," "herein" and "hereby" and each other similar reference and each reference to "this Agreement" and each other similar reference contained in the Agreement shall from and after the date hereof refer to the Agreement as amended hereby. 2. The Company, the Banks and the Agent agree that, subject to the conditions set forth in Section 3 hereof, as of the date hereof the Agreement shall be amended as follows: (a) Section 1.01 of the Agreement shall be amended as follows: (i) The definition of "Agent" shall be amended by replacing "Chemical Bank" with "The Chase Manhattan Bank". (ii) The definition of "Chemical" is replaced in its entirety by "'Chase' - Chase Manhattan Bank". Except as otherwise expressly provided herein, each reference to "Chemical" contained in the Agreement shall from and after the date hereof be replaced by a reference to "Chase". (iii) The definition of "Commitment" shall be replaced in its entirety by the following: " 'Commitment' - As to each Bank, its obligation to make Loans to the Company pursuant to Section 2.01 in the amount set forth opposite its name below, as such obligation may be reduced pursuant to this Agreement: Amount of Percentage of Bank Commitment Commitment The Chase Manhattan Bank $ 19,642,857.13 15.71% Morgan Guaranty Trust Company of New York $ 16,964,285.71 13.57% NationsBank of Texas, N.A. $ 16,964,285.71 13.57% Bank of America, Illinois $ 14,285,714.29 11.43% Bank of Montreal $ 14,285,714.29 11.43% The First National Bank of Chicago $ 14,285,714.29 11.43% Mellon Bank, N.A. $ 14,285,714.29 11.43% Union Bank of Switzerland, Houston Agency $ 14,285,714.29 11.43% TOTAL $125,000,000.00 100.00%" (iv) The definition of "Termination Date" shall be amended by replacing the date "May 20, 1997" with the date "June 11, 1998" and replacing the date "June 30, 2001" with the date "June 30, 2002". (b) The Pricing Schedule in the form of Exhibit A shall be replaced in its entirety by the Pricing Schedule in the form of Exhibit A attached hereto. 3. The amendments specified in Section 2 hereof shall be effective as of the date hereof upon the receipt by the Agent, on or prior to the Amendment Date, of: (a) A certificate signed by a responsible officer of the Company, dated the Amendment Date, to the effect that: (i) the representations and warranties contained in Section 3.01 of the Agreement are true and accurate on and as of the Amendment Date as though made on and as of such date (except to the extent that such representations and warranties relate solely to an earlier date); (ii) no event has occurred and is continuing, or would result from the execution, delivery and performance of this Amendment, which constitutes an Event of Default or would constitute an Event of Default with the giving of notice or the lapse of time, or both; and (iii) the Company is in compliance with all the terms, covenants and conditions of the Agreement which are binding upon it; (b) An opinion of the General Counsel of the Company, dated the Amendment Date, to the effect that: (i) the Company is duly incorporated, validly existing and in good standing under the laws of the State of Delaware and is qualified to do business as a foreign corporation and is in good standing in the States of Colorado, Kansas, Louisiana, Montana, Nevada, New Mexico, Oklahoma, Texas and Wyoming; (ii) this Amendment has been duly authorized, executed and delivered by the Company; (iii) this Amendment, assuming due authorization, execution and delivery hereof by the Banks and the Agent, constitutes a valid and binding agreement of the Company, enforceable in accordance with its terms, except as (x) the enforceability thereof may be limited by bankruptcy, insolvency or similar laws affecting creditors' rights generally and (y) rights of acceleration and the availability of equitable remedies may be limited by equitable principles of general applicability; (iv) the execution, delivery and performance by the Company of this Amendment will not (x) conflict with the restated certificate of incorporation or by-laws of the Company, each as in effect on the date of such opinion, (y) contravene any applicable provision of any applicable law or applicable order or (z) conflict with any provision of any indenture, loan agreement or other similar agreement or instrument known to such counsel (having made due inquiry with respect thereto) binding on the Company or affecting its property; (v) no authorization, consent or approval of any governmental body or agency of the State of Texas or the United States of America which has not been obtained is required in connection with the execution, delivery and performance by the Company of this Amendment; and (vi) to the knowledge of such counsel (having made due inquiry with respect thereto), there is no proceeding pending or threatened before any court or administrative agency which, in the opinion of such counsel, will result in a final determination which would have the effect of preventing the Company from carrying on its business or from meeting its current and anticipated obligations on a timely basis. In rendering such opinion, the General Counsel of the Company shall opine only as to matters governed by the Federal laws of the United States of America, the laws of the State of Texas and the General Corporation Law of the State of Delaware and such counsel may state that he has relied on certificates of state officials as to qualification to do business and good standing certificates of officers of the Company and other sources believed by him to be responsible; and (c) Duly executed counterparts hereof signed by the Company, the Agent and each of the Banks (or, in the case of any party as to which an executed counterpart shall not have been received, the Agent shall have received telegraphic, telex or other written confirmation from such party of execution of a counterpart hereof by such party). 4. Except as amended hereby, the Agreement shall continue in full force and effect. 5. This Amendment shall be governed by, and construed in accordance with, the laws of the State of New York. 6. This Amendment may be signed in any number of counterparts, each of which shall be an original, with the same effect as if the signatures thereto and hereto were upon the same instrument. IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be executed by their respective officers thereunto duly authorized as of the day and year first above written. ANADARKO PETROLEUM CORPORATION By /s/ A. L. Richey Title: Vice President and Treasurer THE CHASE MANHATTAN BANK By ___________________________ Title ___________________________ MORGAN GUARANTY TRUST COMPANY OF NEW YORK By ____________________________ Title ____________________________ NATIONSBANK OF TEXAS, N.A. By ____________________________ Title ____________________________ BANK OF AMERICA, ILLINOIS By ____________________________ Title ____________________________ BANK OF MONTREAL By _____________________________ Title _____________________________ THE FIRST NATIONAL BANK OF CHICAGO By _____________________________ Title _____________________________ MELLON BANK, N.A. By ____________________________ Title ____________________________ UNION BANK OF SWITZERLAND, Houston Agency By _____________________________ Title _____________________________ THE CHASE MANHATTAN BANK, as Agent By ____________________________ Title ____________________________ EXHIBIT A PRICING SCHEDULE The "Eurodollar Margin", "CD Margin" and "Commitment Fee Rate" for any day are the respective percentages set forth below in the applicable row under the column corresponding to the Level that exists on such day: Level I Level II Level III Level IV Level V Level VI Eurodollar Margin . 22.5/100 25/100 27.5/100 32.5/100 42.5/100 62.5/100 of 1% of 1% of 1% of 1% of 1% of 1% CD Margin . . . . . 35/100 37.5/100 40/100 45/100 55/100 75/100 . of 1% of 1% of 1% of 1% of 1% of 1% Commitment Fee . . 5.5/100 6.5/100 7/100 9/100 12.5/100 15/100 of 1% of 1% of 1% of 1% of 1% of 1% For purposes of this Schedule, the following terms have the following meanings: "Level" refers to the determination of which of Level I, Level II, Level III, Level IV, Level V or Level VI exists at any date. The higher rating of S&P or Moodys will determine the Level to be used. "Level I" exists at any date if, at such date, the Company's long-term debt is rated A or higher by S&P or A2 or higher by Moodys. "Level II" exists at any date if, at such date, the Company's long-term debt is rated A- by S&P or A3 by Moodys. "Level III" exists at any date if, at such date, the Company's long-term debt is rated BBB+ by S&P or Baa1 by Moodys. "Level IV" exists at any date if, at such date, the Company's long-term debt is rated BBB by S&P or Baa2 by Moodys. "Level V" exists at any date if, at such date, the Company's long-term debt is rated BBB- by S&P or Baa3 by Moodys. "Level VI" exists at any date if, at such date, the Company's long-term debt is rated below BBB- by S&P and Baa3 by Moodys. The credit ratings to be utilized for purposes of this Schedule are those assigned to the senior unsecured long-term debt securities of the Company without third-party credit enhancement, and any rating assigned to any other debt securities of the Company shall be disregarded. The rating in effect at any date is that in effect at the close of business on such date. EX-12 3 EXHIBIT 12 ANADARKO PETROLEUM CORPORATION CONSOLIDATED STATEMENT OF COMPUTATION OF RATIOS OF EARNINGS TO FIXED CHARGES AND EARNINGS TO COMBINED FIXED CHARGES AND PREFERRED STOCK DIVIDENDS Six Months Ended June 30, 1997 and Five Years Ended December 31, 1996 Six Months Ended June 30 Years Ended December 31 thousands 1997 1996 1995 1994 1993 1992 Gross Income $92,975 $196,763 $65,624 $90,794 $106,824 $68,311 Rentals 3,841 4,234 2,457 2,814 3,069 2,737 Earnings 96,816 200,997 68,081 93,608 109,893 71,048 Gross Interest Expense 27,173 55,986 52,557 41,635 38,000 36,620 Rentals 3,841 4,234 2,457 2,814 3,069 2,737 Fixed Charges $31,014 $60,220 $55,014 $44,449 $41,069 $39,357 Ratio of Earnings to Fixed Charges 3.12 3.34 1.24 2.11 2.68 1.81 The ratios of earnings to fixed charges 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, and the estimated interest component of rentals. Certain amounts for prior years have been restated to conform to the current presentation. During the six months ended June 30, 1997 and five years ended December 31, 1996, there were no shares of preferred stock outstanding. Accordingly, the ratio of earnings to combined fixed charges and preferred stock dividends for each of the six months and five years is the same as the ratio of earnings to fixed charges. EX-27 4
5 0000773910 ANADARKO PETROLEUM CORPORATION 1,000 6-MOS DEC-31-1997 JUN-30-1997 16,142 0 146,799 0 28,100 193,234 4,299,484 1,810,575 2,697,761 209,781 791,973 0 0 6,111 1,054,380 2,697,761 309,387 309,387 183,186 183,186 0 0 17,205 75,769 27,561 48,208 0 0 0 48,208 0.81 0
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