14. Segment Information

Anadarko’s business segments are separately managed due to distinct operational differences and unique technology, distribution, and marketing requirements. The Company’s three reporting segments are oil and gas exploration and production, midstream, and marketing. The oil and gas exploration and production segment explores for and produces natural gas, crude oil, condensate, and NGLs, and plans for the development and operation of the Company’s LNG project in Mozambique. The midstream segment engages in gathering, processing, treating, and transporting Anadarko and third-party oil, natural-gas, and NGLs production. The midstream reporting segment consists of two operating segments, WES and other midstream, which are aggregated into one reporting segment due to similar financial and operating characteristics. The marketing segment sells much of Anadarko’s production, as well as third-party purchased volumes.

To assess the performance of Anadarko’s operating segments, the chief operating decision maker analyzes Adjusted EBITDAX. The Company defines Adjusted EBITDAX as income (loss) before income taxes; exploration expense; depreciation, depletion, and amortization (DD&A); impairments; interest expense; total (gains) losses on derivatives, net, less net cash from settlement of commodity derivatives; and certain items not related to the Company’s normal operations, less net income attributable to noncontrolling interests. During the periods presented, items not related to the Company’s normal operations included Deepwater Horizon settlement and related costs, Algeria exceptional profits tax settlement, Tronox-related contingent loss, and certain other nonoperating items included in other (income) expense, net. The Company’s definition of Adjusted EBITDAX excludes exploration expense, as it is not an indicator of operating efficiency for a given reporting period. However, exploration expense is monitored by management as part of costs incurred in exploration and development activities. Similarly, DD&A and impairments are excluded from Adjusted EBITDAX as a measure of segment operating performance because capital expenditures are evaluated at the time capital costs are incurred. Adjusted EBITDAX also excludes interest expense to allow for assessment of segment operating results without regard to Anadarko’s financing methods or capital structure. Total (gains) losses on derivatives, net, less net cash from settlement of commodity derivatives are excluded from Adjusted EBITDAX because these (gains) losses are not considered a measure of asset operating performance. Finally, net income attributable to noncontrolling interests is excluded from the Company’s measure of Adjusted EBITDAX because it represents earnings that are not attributable to the Company’s common stockholders.

Management believes that the presentation of Adjusted EBITDAX provides information useful in assessing the Company’s financial condition and results of operations and that Adjusted EBITDAX is a widely accepted financial indicator of a company’s ability to incur and service debt, fund capital expenditures, and make distributions to stockholders. Adjusted EBITDAX as defined by Anadarko may not be comparable to similarly titled measures used by other companies and should be considered in conjunction with net income (loss) attributable to common stockholders and other performance measures, such as operating income or cash flows from operating activities. Below is a reconciliation of consolidated Adjusted EBITDAX to income (loss) before income taxes:



	Three Months Ended June 30,					Six Months Ended June 30,
millions	2014		2013			2014			2013
Income (loss) before income taxes	$	694	$	1,526		$	(1,268	)	$	2,466
Exploration expense	502		178			801			442
DD&A	1,048		940			2,172			1,962
Impairments	117		10			120			39
Interest expense	186		172			369			336
Total (gains) losses on derivatives, net, less net cash from settlement of commodity derivatives	237		(641		)	600			(395		)
Deepwater Horizon settlement and related costs	93		4			93			7
Algeria exceptional profits tax settlement	—		—			—			33
Tronox-related contingent loss	19		—			4,319			—
Certain other nonoperating items	—		85			—			85
Less net income attributable to noncontrolling interests	39		30			82			54
Consolidated Adjusted EBITDAX	$	2,857	$	2,244		$	7,124		$	4,921

14. Segment Information (Continued)

Information presented below as “Other and Intersegment Eliminations” includes results from hard-minerals royalty arrangements and corporate, financing, and certain derivative activities. The following summarizes selected financial information for Anadarko’s reporting segments:



millions	Oil and Gas Exploration & Production		Midstream			Marketing			Other and Intersegment Eliminations			Total
Three Months Ended June 30, 2014
Sales revenues	$	2,223	$	119		$	2,043		$	—		$	4,385
Intersegment revenues	1,790		326			(1,906		)	(210		)	—
Gains (losses) on divestitures and other, net	10		(1		)	—			45			54
Total revenues and other	4,023		444			137			(165		)	4,439
Operating costs and expenses ⁽¹⁾	1,026		251			186			7			1,470
Net cash from settlement of commodity derivatives	—		—			—			88			88
Other (income) expense, net ⁽²⁾	—		—			—			(13		)	(13		)
Net income attributable to noncontrolling interests	—		39			—			—			39
Total expenses and other	1,026		290			186			82			1,584
Total (gains) losses on derivatives, net included in marketing revenue, less net cash from settlement	—		—			2			—			2
Adjusted EBITDAX	$	2,997	$	154		$	(47	)	$	(247	)	$	2,857

Three Months Ended June 30, 2013
Sales revenues	$	1,587	$	88		$	1,765		$	—		$	3,440
Intersegment revenues	1,526		265			(1,639		)	(152		)	—
Gains (losses) on divestitures and other, net	1		—			—			56			57
Total revenues and other	3,114		353			126			(96		)	3,497
Operating costs and expenses ⁽¹⁾	845		209			164			7			1,225
Net cash from settlement of commodity derivatives	—		—			—			(21		)	(21		)
Other (income) expense, net⁽²⁾	—		—			—			13			13
Net income attributable to noncontrolling interests	—		30			—			—			30
Total expenses and other	845		239			164			(1		)	1,247
Total (gains) losses on derivatives, net included in marketing revenue, less net cash from settlement	—		—			(6		)	—			(6		)
Adjusted EBITDAX	$	2,269	$	114		$	(44	)	$	(95	)	$	2,244

__________________________________________________________________


⁽¹⁾	Operating costs and expenses excludes exploration expense, DD&A, impairments, Deepwater Horizon settlement and related costs, and Algeria exceptional profits tax settlement since these expenses are excluded from Adjusted EBITDAX.


⁽²⁾	Other (income) expense, net excludes certain other nonoperating items since these expenses are excluded from Adjusted EBITDAX.

14. Segment Information (Continued)



millions	Oil and Gas Exploration & Production		Midstream			Marketing			Other and Intersegment Eliminations			Total
Six Months Ended June 30, 2014
Sales revenues	$	4,612	$	239		$	3,872		$	—		$	8,723
Intersegment revenues	3,343		646			(3,595		)	(394		)	—
Gains (losses) on divestitures and other, net	1,470		(3		)	—			93			1,560
Total revenues and other	9,425		882			277			(301		)	10,283
Operating costs and expenses ⁽¹⁾	2,038		483			367			25			2,913
Net cash from settlement of commodity derivatives	—		—			—			180			180
Other (income) expense, net ⁽²⁾	—		—			—			(12		)	(12		)
Net income attributable to noncontrolling interests	—		82			—			—			82
Total expenses and other	2,038		565			367			193			3,163
Total (gains) losses on derivatives, net included in marketing revenue, less net cash from settlement	—		—			4			—			4
Adjusted EBITDAX	$	7,387	$	317		$	(86	)	$	(494	)	$	7,124

Six Months Ended June 30, 2013
Sales revenues	$	3,128	$	172		$	3,858		$	—		$	7,158
Intersegment revenues	3,388		518			(3,605		)	(301		)	—
Gains (losses) on divestitures and other, net	5		—			—			227			232
Total revenues and other	6,521		690			253			(74		)	7,390
Operating costs and expenses ⁽¹⁾	1,726		397			328			27			2,478
Net cash from settlement of commodity derivatives	—		—			—			(72		)	(72		)
Other (income) expense, net ⁽²⁾	—		—			—			7			7
Net income attributable to noncontrolling interests	—		54			—			—			54
Total expenses and other	1,726		451			328			(38		)	2,467
Total (gains) losses on derivatives, net included in marketing revenue, less net cash from settlement	—		—			(2		)	—			(2		)
Adjusted EBITDAX	$	4,795	$	239		$	(77	)	$	(36	)	$	4,921

__________________________________________________________________


⁽¹⁾	Operating costs and expenses excludes exploration expense, DD&A, impairments, Deepwater Horizon settlement and related costs, and Algeria exceptional profits tax settlement since these expenses are excluded from Adjusted EBITDAX.


⁽²⁾	Other (income) expense, net excludes certain other nonoperating items since these expenses are excluded from Adjusted EBITDAX.