ITEM 1. BUSINESS
GENERAL
Anadarko Petroleum Corporation and its subsidiaries are engaged in the exploration, development, production and marketing of gas, oil and natural gas liquids (NGLs), both domestically and internationally. Anadarko's U. S. drilling and production operations are focused primarily in Kansas, Oklahoma, Texas and the Gulf of Mexico. In the United States, approximately 80 percent of the Company's reserves are located in major producing basins in the Mid-continent and West Texas. Approximately 14 percent of Anadarko's reserves are in the Gulf of Mexico, where the Company owns interests in 124 lease blocks. Anadarko has oil and gas reserves in Canada where the Company has a drilling program focusing on trends in southern and central Alberta. Anadarko also is searching for oil reserves on a 5.1 million acre concession in Algeria and is participating in other select joint-venture projects overseas.
In order to manage production more effectively and improve recovery of natural gas reserves, the Company owns interests in 17 gas gathering systems, and 20 gas processing plants in the Mid-continent area. Anadarko also explores for geothermal energy in the western United States.
Anadarko is a Delaware corporation which was organized in 1985 as the successor to the oil and gas business of Anadarko Production Company (Production), which was founded in 1959 as a subsidiary of Panhandle Eastern Corporation (Panhandle). Anadarko's common stock was distributed to Panhandle stockholders in 1986. The principal subsidiaries of Anadarko are: Anadarko Gathering Company; Anadarko Marketing Company; Anadarko Trading Company; Anadarko Petroleum of Canada Ltd.; and, Anadarko Algeria Corporation.
Unless the context otherwise requires, the terms "Anadarko" or "Company" refer to Anadarko and its subsidiaries. The Company's executive offices are located at 17001 Northchase Drive, Houston, Texas 77060, where the telephone number is (713) 875-1101.
EMPLOYEES
On December 31, 1993, the Company employed approximately 1,020 persons. The Company's employees are not represented by any union. Relations between the Company and its employees are considered to be satisfactory, and the Company has had no work stoppages or strikes.
PROVED RESERVES AND FUTURE NET CASH FLOWS
Proved oil and gas reserves are the estimated quantities of crude oil, natural gas and NGLs which geological and engineering data demonstrate with reasonable certainty to be recoverable in future years from known reservoirs under existing economic and operating conditions. Reservoirs are considered proved if economical producibility is supported by either actual production or conclusive formation tests. Reserves which can be produced economically through application of improved recovery techniques are included in the "proved" classification when successful testing by a pilot project or the operation of an installed program in the reservoir provides support for the engineering analysis on which the project or program was based.
Proved developed oil and gas reserves are reserves which can be expected to be recovered through existing wells with existing equipment and operating methods.
As of December 31, 1993, Anadarko had proved reserves of 1.88 trillion cubic feet (Tcf) of natural gas and 78.5 million barrels (MMBbls) of crude oil, condensate and NGLs. Combined, these proved reserves are equivalent to 391.1 MMBbls of oil or 2.35 Tcf of gas. As of December 31, 1993, Anadarko had proved developed reserves of 1.71 Tcf of natural gas and 64.2 MMBbls of crude oil, condensate and NGLs. Proved developed reserves comprise 89 percent of the total proved reserves.
The Company's estimates of proved reserves and proved developed reserves, net of royalty interests, of gas, oil and NGLs owned at December 31, 1993, 1992, 1991 and 1990 and changes in proved reserves during the last three years are contained in the Supplemental Information on Oil and Gas Exploration and Production Activities (Supplemental Information) in the Anadarko Petroleum Corporation 1993 Consolidated Financial Statements (Consolidated Financial Statements) under Item 8 of this Form 10-K Annual Report (Form 10-K). The Company files annual estimates of proved oil and gas reserves with the Department of Energy, which are within five percent of these amounts.
Also contained in the Supplemental Information in the Consolidated Financial Statements are the Company's estimates of future net cash flows, discounted future net cash flows before income taxes and discounted future net cash flows after income taxes from proved reserves of gas, oil and NGLs.
EXPLORATION, DEVELOPMENT, ACQUISITION AND MARKETING ACTIVITIES
See narrative description of "Exploration", "Development", "Acquisition" and "Marketing" on pages 6 through 14 of the Anadarko Petroleum Corporation 1993 Annual Report to Stockholders (Annual Report), which is incorporated herein by reference, and see "Marketing Strategies" and "Operating Results" in the Management's Discussion and Analysis of Financial Condition and Results of Operations (MD&A) under Item 7 of this Form 10-K.
VOLUMES AND PRICES
The following table shows the Company's annual volumes. Volumes for natural gas are in millons of cubic feet (MMcf) at a pressure base of 14.73 pounds per square inch (psi) and volumes for oil and condensate and NGLs are in thousands of barrels (MBbls).
The following table shows the Company's annual average sales prices and average production costs. Production costs are per energy equivalent barrel (EEB). For this computation, one barrel is the energy equivalent of six thousand cubic feet (Mcf).
Additional information on volumes and prices is contained in "Analysis of Volumes and Prices" in the MD&A under Item 7 of this Form 10-K. Additional information on major customers is contained in Note 8 of the Notes to Consolidated Financial Statements under Item 8 of this Form 10-K.
PROPERTIES AND ACTIVITIES - UNITED STATES - ONSHORE
ACREAGE Approximately 88 percent of the Company's 2,522,000 gross (797,000 net) onshore undeveloped acres in the United States at year-end 1993 lie within four producing provinces: the Anadarko Basin of Kansas and Oklahoma, the Gulf Coast region, the Permian Basin of West Texas and the Rocky Mountains. As of December 31, 1993, approximately 98 percent of the Company's 2,145,000 gross (895,000 net) developed acres onshore in the United States are located within these same provinces. Other significant areas of developed acreage are in Oklahoma.
The accompanying map illustrates by state Anadarko's developed and undeveloped net acres, number of producing net wells and other data relevant to its onshore oil and gas operations in the United States.
GEOTHERMAL The Company is actively exploring for geothermal energy because of its long-term potential for economic and environmentally safe electric power generation. Geothermal exploratory holdings in California, Nevada and Oregon totaled 160,000 net acres at year-end 1993. During 1993, the Company recorded a $500,000 (pre-tax) charge to earnings for the impairment of miscellaneous geothermal projects in Nevada.
GAS GATHERING SYSTEMS Anadarko owns and operates four gas gathering systems in the nation's mid-continent area: the Antioch Gathering System in the Southwest Antioch Field of Oklahoma; the Hobart Ranch Gathering System, located in Hemphill County, Texas; the Hugoton Gathering System in southwest Kansas; and the Sneed System in the West Panhandle Field of Texas. In addition, the Company owns a 43 percent working interest in the Limestone Ridge Gas Gathering System, located in the Arkoma Basin near Wilburton, Oklahoma. In addition to these systems, Anadarko owns interests in 12 other smaller systems. In the aggregate, these 17 systems have approximately 700 miles of pipeline and over 400 MMcf per day (MMcf/d) of gas gathering capacity.
GAS PROCESSING PLANTS Anadarko owns and operates seven gas processing plants and has interests in 13 other plants. Virtually all of these plants are located within the Company's areas of gas production. Many also are integrated with the gas gathering systems described previously. The following table sets forth the average daily gas throughput and NGLs production for the three years ended December 31, 1993 and capacity as of December 31, 1993.
ONSHORE MAP (GRAPHIC MATERIAL OMITTED)
*1993 Onshore Drilling Activities Area
PROPERTIES AND ACTIVITIES - UNITED STATES - OFFSHORE
ACREAGE At year-end 1993, Anadarko owned an average 40 percent interest in 124 lease blocks and held 40,000 net acres in developed properties and 200,000 net acres in undeveloped properties.
The accompanying map illustrates the Company's exploratory and development net acres, number of producing net wells and other data relevant to its offshore properties.
PROPERTIES AND ACTIVITIES - INTERNATIONAL
In recent years, the Company has devoted a small portion of its exploration budget to selected joint-venture projects overseas. Anadarko's objective in international exploration is to bring high-potential prospects to the balanced mix of domestic plays. These projects offer significant upside potential, albeit with corresponding exposure to write-offs in the event exploration is unsuccessful. The Company recorded $6.5 million (pre-tax) and $21 million (pre-tax) of charges to earnings during 1993 and 1992, respectively, related to unsuccessful exploration activity in China, Yemen and various other international locations.
CANADA Approximately three percent of the Company's proved reserves are located in Canada. Activities in Canada are concentrated in the western provinces of Alberta, British Columbia and Saskatchewan. At the end of 1993, Anadarko held interests in 241,000 gross (131,000 net) acres of which 105,000 gross (72,000 net) acres were undeveloped and 136,000 gross (59,000 net) acres were developed. The accompanying onshore map illustrates by province Anadarko's developed and undeveloped net acres, number of producing net wells and other data relevant to its oil and gas operations in Canada.
ALGERIA Anadarko's primary international exploration venture is in Algeria, where the Company is exploring for oil under a production sharing agreement secured in 1989 from Sonatrach, the national oil and gas enterprise of Algeria. Anadarko's partners, each with a 25 percent working interest, in the Algerian venture are LASMO Oil (Algeria) Limited, a wholly owned subsidiary of LASMO plc, and Maersk Olie Algeriet AS, a wholly owned subsidiary of Maersk Olie Og Gas AS, a company in the Danish A.P. Moeller group. Over a ten year period, the Company and its two partners are committed to spend over $100 million and drill ten wells exploring on 5.1 million acres in the eastern Sahara Desert in Algeria.
Liquid hydrocarbons discovered and produced will be shared by Anadarko and its partners, and Sonatrach in accordance with the terms of the agreement. Sonatrach is the beneficial owner of 10.2 percent of the Company's outstanding common stock. As of December 31, 1993, Anadarko had incurred a total of approximately $72,408,000 related to exploration activities, of which approximately $26,964,000 was incurred in 1993.
At the present time, political unrest continues in Algeria. The Company is closely monitoring the situation and is presently unable to predict with certainty the short-term effects it may have on activity planned for 1994. However, the situation has not had any material effect on the Company's operations or exploration activity in Algeria to date. The Company's activities in Algeria also are subject to the risks associated with international operations.
INDONESIA The Company's ongoing commitment to international exploration includes future exploration on the Jabung Block in the Jambi Province of Indonesia. Anadarko and its partners, Santa Fe Energy Resources (Jabung), Ltd., a wholly owned subsidiary of Santa Fe Energy Resources Inc., and Kerr-McGee Sumatra Ltd., a wholly owned subsidiary of Kerr-McGee Corporation, have a Production Sharing Contract which includes a $15.1 million commitment to exploration activities which include seismic acquisition and reprocessing, as well as the drilling of three exploratory wells, during the first three years. The Jabung Block, which is located on the island of Sumatra in the northernmost part of the South Sumatra Basin, covers an area of 2.0 million acres.
OFFSHORE MAP (GRAPHIC MATERIAL OMITTED)
DRILLING PROGRAMS
The Company's 1993 drilling program again focused on known oil and gas provinces onshore in North America, as well as offshore in the Gulf of Mexico. Onshore activity was concentrated in the mid-continent regions of Kansas and Oklahoma, the Yegua Trend along the Texas Gulf Coast and the Permian Basin of West Texas. Exploration activity consisted of 21 wells onshore in the United States, seven wells offshore United States, two wells in Canada and two wells in Algeria. Development activity included 178 wells onshore in the United States, four wells offshore United States and five wells in Canada.
DRILLING STATISTICS
The following table shows the results of the oil and gas wells drilled and tested:
____________ *Does not include 1.3 net development Hugoton "deep" dry holes in 1991 that were later completed as infill wells.
The following table shows the number of wells in the process of drilling or in active completion stages and the number of wells suspended or waiting on completion as of December 31, 1993:
PRODUCTIVE WELLS
As of December 31, 1993, the Company owned productive wells in the United States and Canada as follows:
_______________ *Wells containing multiple completions
REGULATORY AND LEGISLATIVE DEVELOPMENTS
NATURAL GAS PRORATION State agencies in many of the states where Anadarko operates are empowered by laws unique to each state to prevent waste in the production of natural gas and protect the correlative rights of each mineral interest owner to produce its fair share of gas in a field. To prevent waste and protect correlative rights, state agencies have developed proration systems for limiting production by assigning each unit in a prorated field an allowable production volume which the producer is legally permitted to produce. These allowables are based on market demand and other factors as determined by the state agency.
In Kansas, where Anadarko has significant gas reserves and production capacity, the Kansas Corporation Commission (KCC) voted on December 3, 1993 to modify its basic proration order for the Hugoton Field, the largest dry gas reservoir in the United States. A written order was issued February 1, 1994. This order changes the formula currently used by the KCC to calculate field and unit allowables and will increase the portion of overall production allowables assigned to Anadarko's wells in the Hugoton Field. As a result of the order, Anadarko's share of the total field allowable will increase from its current level of about 12 percent to 15 percent.
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 a 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 maximum lawful price. FERC's ruling was appealed to the United States Court of Appeals for the District of Columbia, 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 sales that were made on or after June 28, 1988. Based on Anadarko's interpretation of the FERC order, $130,000 (pretax) was charged to expense in 1993. Numerous parties have filed requests for rehearing at the FERC asking that the December 1, 1993, order be reconsidered and the Company is unable to predict the outcome of this matter.
ENVIRONMENTAL The Company's oil and gas operations and properties are subject to numerous federal, state and local laws and regulations relating to the protection of the environment. These laws and regulations govern, among other things, the amounts and types of substances and materials that may be released into the environment, the issuance of permits in connection with drilling and production activities, the discharge and disposition of waste materials, offshore oil and gas operations, the reclamation and abandonment of wells and facility sites and the remediation of contaminated sites. In addition, these laws and regulations may impose substantial liabilities for the Company's failure to comply with them or for any contamination resulting from the Company's operations.
Compliance with such laws and regulations has not had a material adverse effect on the Company's operations or financial condition in the past. However, because environmental laws and regulations are becoming increasingly more stringent, there can be no assurances that such laws and regulations or any environmental law or regulation enacted in the future will not have a material adverse effect on the Company's operations or financial condition.
For a description of certain environmental proceedings in which the Company is involved, see Note 13 of the Notes to Consolidated Financial Statements under Item 8 of this Form 10-K.
OTHER Regulatory agencies in certain states have authority to issue permits for the drilling of wells, regulate the spacing of wells, prevent the waste of oil and gas resources through proration and regulate environmental matters.
Operations conducted by the Company on federal oil and gas leases must comply with numerous regulatory restrictions, including various nondiscrimination statutes. Additionally, certain operations must be conducted pursuant to appropriate permits issued by the Bureau of Land Management and the Minerals Management Service of the Department of Interior and, in regard to certain federal leases, with prior approval of drill site locations by the Environmental Protection Agency.
ADDITIONAL FACTORS AFFECTING BUSINESS
The oil and gas business is highly competitive in the search for and acquisition of reserves and in the gathering and marketing of oil and gas production. The Company's competitors include the major oil companies, independent oil and gas concerns, individual producers and major pipeline companies, as well as participants in other industries supplying energy and fuel to industrial, commercial and individual consumers.
Crude oil prices continue to be affected by political developments in the Middle East, pricing decisions of the Organization of Petroleum Exporting Countries (OPEC) and the volatile trading patterns in the oil futures markets.
The domestic and international operations of the Company have been, and at times in the future may be, affected by political developments and by federal, state and local laws and regulations such as restrictions on production, changes in taxes, royalties and other amounts payable to governments or governmental agencies, price or gathering rate controls, and environmental protection regulations.
The Company's business is subject to all of the operating risks normally associated with the exploration for and production of oil and gas, including blow-outs, cratering and fire, each of which could result in damage to or destruction of oil and gas wells or formations or production facilities and other property and injury to persons. As protection against financial loss resulting from these operating hazards, the Company maintains insurance coverage, including certain physical damage, employer's liability, comprehensive general liability and workmen's compensation insurance. Although the Company is not fully insured against all risks in its business, the Company believes that the coverage it maintains is adequate and customary for companies engaged in similar operations. The occurrence of a significant event against which the Company is not fully insured could have a material adverse effect on the Company's financial position.
TITLE TO PROPERTIES
As is customary in the oil and gas industry, only a preliminary title examination is conducted at the time properties believed to be suitable for drilling operations are acquired by the Company. Prior to the commencement of drilling operations, a thorough title examination of the drill site tract is conducted and curative work is performed with respect to significant defects, if any, before proceeding with operations. A thorough title examination has been performed with respect to substantially all leasehold producing properties owned by the Company. The Company believes that the title to its leasehold properties is good and defensible in accordance with standards generally acceptable in the oil and gas industry subject to such exceptions which, in the opinion of counsel employed in the various areas in which the Company has conducted exploration activities, are not so material as to detract substantially from the use of such properties. The leasehold properties owned by the Company are subject to royalty, overriding royalty and other outstanding interests customary in the industry. The properties may be subject to burdens such as liens incident to operating agreements and current taxes, development obligations under oil and gas leases and other encumbrances, easements and restrictions. The Company does not believe that any of these burdens will materially interfere with its use of these properties.
CAPITAL SPENDING
See "Capital Expenditures, Liquidity and Long-Term Debt" of the MD&A under Item 7 of this Form 10-K.
RATIOS OF EARNINGS TO FIXED CHARGES AND EARNINGS TO COMBINED FIXED CHARGES AND PREFERRED STOCK DIVIDENDS
The Company's ratios of earnings to fixed charges for the years ended December 31, 1993, 1992 and 1991 were 2.68, 1.81 and 1.99, respectively. These ratios 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.
During the three years ended December 31, 1993, 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 three years is the same as the ratio of earnings to fixed charges.
ITEM 2.
ITEM 2. PROPERTIES
See information appearing under Item 1 of this Form 10-K.
ITEM 3.
ITEM 3. LEGAL PROCEEDINGS
HERITAGE RESOURCES, INC. LITIGATION Pursuant to an order of the 162nd Judicial District Court for Dallas County, Texas, dated January 29, 1988, requiring all owners of interests in certain properties in Winkler County, Texas, to be joined as parties Plaintiff or parties Defendant, Anadarko has entered, as a party Plaintiff, a suit filed against Heritage Resources, Inc. (Heritage) by Tribal Drilling Company. The Plaintiffs, among other things, seek to have Heritage removed as operator of a well in which Plaintiffs own interests. The Defendants have asserted counterclaims against Anadarko and the 19 other Plaintiffs alleging that, among other things, the assertions of the Plaintiffs are frivolous and were made in bad faith and that the Plaintiffs breached the joint operating agreements. The trial previously scheduled for April 1993 has been continued indefinitely until such time as the appeal of a companion case, a case in which Anadarko is not a party, has been concluded. While the outcome of the litigation cannot be predicted, Anadarko's management believes that any recovery on the counterclaims in a material amount is remote.
ITEM 4.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
There were no matters submitted to a vote of security holders during the fourth quarter of 1993.
EXECUTIVE OFFICERS OF THE REGISTRANT
Mr. Allison joined Production in 1973 as Vice President-Operations, was named President in 1976 and was President and Chief Executive Officer from 1979 until 1985 when he assumed the position of President and Chief Executive Officer of Anadarko. Mr. Allison was named Chairman and Chief Executive Officer effective October 1986. In January 1993, he was elected the additional position of President.
Mr. Manley was employed by Production in 1976 and was Vice President, Administration and Employee Relations, from 1977 until August 1985. He held that position with Anadarko until January 1993 when he was named Senior Vice President, Administration.
Mr. Rose joined Production as Chief Accountant in January 1978 and became Vice President and Controller in May 1981. He held that position at Anadarko from August 1985 until he was named Vice President, Finance, in October 1986. In January 1993, he was named Senior Vice President, Finance and Chief Financial Officer.
Mr. Abernathy joined Production in January 1975 as a Senior Petroleum Engineer. He served as the Southern Region's Operations Manager before becoming Manager, Exploration and Production Operations, of Anadarko in June 1987. He was named Vice President, Exploration and Production Operations, in July 1987 and Vice President and General Manager, International, in October 1989. He was named Vice President Operations, International/Gulf of Mexico, in January, 1992.
Mr. Alman joined Production in 1976 as an Evaluation Engineer. He served as Manager, Production and Planning, prior to being named Manager, Exploration and Production Operations, in February 1990. He was named Vice President, Exploration and Production Operations, in April 1990 and was named Vice President, Operations, U. S. Onshore, in January 1992. In January 1993, he was named Vice President, Engineering.
Mr. Sharples was employed by Anadarko and named Vice President, Marketing, in March 1993. Prior to coming to Anadarko, he held a vice president's position in marketing with Maxus Energy Corporation from October 1984 until March 1993.
Mr. Seitz joined Production in 1977 as a Petroleum Geologist. He served as Manager of Exploration and Chief Geologist before becoming General Manager, Exploration, of Anadarko in June 1987. He was named Vice President, Exploration and Production Operations, in October 1989 and Vice President and General Manager, Houston Region, in February 1990. He was named Vice President, Exploration, International/Gulf of Mexico, in January 1992 and Vice President, Exploration in January 1993.
Mr. Stover joined Anadarko in 1980 as Chief Engineer and was named General Manager - Special Projects, International in 1987. He assumed the position of President and General Manager, Anadarko Algeria Corporation, in 1989. In January 1993, he was named Vice President, Acquisitions.
Mr. Sullivan joined the Company in 1981 as Senior Reservoir Engineer - Southern Region. He held several positions in engineering and operations before being named Manager, Acquisitions in 1987. In 1991, he was named Vice President and General Manager, Anadarko China Company. In January 1993, he was named Vice President Operations, U. S. Onshore.
Mr. Taylor was employed by Anadarko in October 1986 as Director, Corporate Communications, and became Vice President, Corporate Communications, in January 1987. Prior to coming to Anadarko, he held the position of Director of Investor Relations at Panhandle. He had been with Panhandle since 1982.
Mr. Williams was employed by Anadarko in March 1988 as Regional Counsel and was named Vice President and General Counsel in January 1989. Prior to coming to Anadarko, he served as Counsel for K-N Operating Corporation. He had been with K-N Operating Corporation since 1981.
All officers of Anadarko are elected in April of each year at the organization meeting of the Board of Directors to hold office until their successors are duly elected and shall have qualified. There are no family relationships between any directors or executive officers of Anadarko.
PART II
ITEM 5.
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
Information on the market price and cash dividends declared per share of common stock is included in the Stockholders' Information in the Annual Report, which is incorporated herein by reference.
As of December 31, 1993, there were approximately 8,500 direct holders of Anadarko common stock. The following table sets forth the amount of dividends paid on Anadarko common stock during the two years ended December 31, 1993.
The amount of future dividends will depend on earnings, financial condition, capital requirements and other factors, and will be determined by the Directors on a quarterly basis.
For additional information, see Note 5 of the Notes to Consolidated Financial Statements under Item 8 of this Form 10-K.
ITEM 6.
ITEM 6. SELECTED FINANCIAL DATA
See Summary Financial Data in the Annual Report, which is incorporated herein by reference.
ITEM 7.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
FINANCIAL RESULTS
NET INCOME AND REVENUES Anadarko's net income for 1993 before the cumulative effect of changes in accounting principles was $40.0 million (70 cents per share) compared to $27.3 million (49 cents per share) for 1992 and $32.4 million (59 cents per share) in 1991. Stated without the effect of a special tax charge of $11.2 million related to a change in corporate tax rates recorded in the third quarter of 1993, Anadarko's net income would have been $51.3 million (90 cents per share). Including the cumulative effect of two accounting changes and the special tax charge, Anadarko's net income for 1993 was $117.4 million ($2.05 per share).
Revenues for 1993 were $476.3 million, 27 percent higher than 1992 revenues of $375.2 million and 41 percent higher than revenues of $336.6 million in 1991. The increase in earnings and revenues (before the special charge and before the cumulative effect of changes in accounting principles) was due primarily to significantly stronger gas markets and increased crude oil production.
During 1993, Anadarko's net income was affected by the following items: (1) Implementation in the first quarter of Statement of Financial Accounting Standards (SFAS) No. 106 which required a change in accounting for postretirement benefits other than pensions. The Company recognized the cumulative transition obligation as of January 1, 1993, which resulted in a decrease to net income of $9.7 million (17 cents per share). (2) Implementation in the first quarter of SFAS No. 109 which changed the accounting method for deferred income taxes and increased Anadarko's net income by $87.1 million ($1.52 per share). (3) SFAS No. 109 also requires that the effect on existing deferred tax liabilities of any change in income tax rates must be recognized in income during the period in which the change in tax rates is enacted. In August, Congress enacted the Omnibus Budget Reconciliation Act of 1993, which raised the top corporate income tax rate from 34 to 35 percent. As a result, Anadarko recorded a charge to net income of $11.2 million (20 cents per share) in the third quarter.
Anadarko's net income for 1992 was down 16 percent compared to 1991, due primarily to $21 million (pretax) in provisions for impairments of international properties related to unsuccessful drilling operations in China and Yemen during 1992.
_____________ *Excludes the cumulative effect of changes in accounting principles.
COSTS AND EXPENSES For 1993, Anadarko's costs and expenses were $372.2 million, an increase of approximately $65 million (21 percent) compared to $307.6 million in 1992. The increase was a result of several factors: (1) Depreciation, depletion and amortization (DD&A) was up $34.7 million (or 26 percent) compared to 1992 due to an 11 percent increase in gas production volumes and a 70 percent increase in crude oil and condensate production volumes; (2) Operating expenses were up $23.7 million or 32 percent compared to 1992 due primarily to increased production volumes as a result of the acquisition of secondary recovery oil properties in West Texas in December 1992; (3) Other taxes increased $10.9 million or 36 percent compared to 1992 because of higher production related (severance) and ad valorem taxes; and, (4) Administrative and general expenses were up $9.2 million or 19 percent compared to 1992 due to costs associated with postretirement benefits other than pension as required under SFAS No. 106 and increased salary and benefits for the Company's growing workforce.
Anadarko incurred $7 million in provisions for impairments of international and geothermal properties in 1993. This compares to $21 million of provisions for impairments in 1992.
Anadarko's costs and expenses in 1992 were up 17 percent compared to 1991. There were four reasons for the increase: (1) $21 million (pretax) of provisions for impairments of international properties; (2) increased administrative and general expenses primarily related to accelerated vesting of benefits under the Company's restricted stock plan; (3) increased DD&A expense due to higher natural gas production volumes; and (4) higher production related taxes.
INTEREST EXPENSE Anadarko's interest expense for 1993 was $29.4 million, up 4 percent compared to $28.2 million in 1992 and up 8 percent compared to $27.2 million in 1991.
Despite declining interest rates since 1992, Anadarko has experienced modest growth in interest expense primarily due to higher average borrowings during 1992 and 1993 and lower amounts of capitalized interest in 1992 and 1993 compared to 1991.
Anadarko's long-term debt at December 31, 1993 decreased by about $105 million compared to year-end 1992 primarily due to conversion in July of 99.8 percent of the Company's outstanding $100 million principal amount of 6 1/4% Convertible Subordinated Debentures. Long-term debt increased by 47 percent at year-end 1992 compared to year-end 1991 due to the large acquisition of producing properties in December 1992. (See Liquidity and Long-term Debt)
ANALYSIS OF VOLUMES AND PRICES
NATURAL GAS In 1993, Anadarko achieved record natural gas production of 161.9 billion cubic feet (Bcf) or 444 million cubic feet per day (MMcf/d). This was an 11 percent increase over natural gas production of 146.4 Bcf in 1992 and a 17 percent increase over gas production of 137.9 Bcf in 1991. Early in 1993, the Company increased its natural gas sales in response to higher gas prices. Anadarko's average U.S. gas price in 1993 was $1.92 per thousand cubic feet (Mcf), up 12 percent compared to 1992 and up 27 percent compared to 1991.
Generally, Anadarko's annual gas sales are below the Company's total capacity due to state regulations limiting allowable production, any seasonal weaknesses in gas prices and the Company's long-standing policy to sell minimum volumes of discretionary gas during periods of weak prices.
Historically, natural gas sales markets have been highly seasonal because of the increase in residential heating demand during the winter. Due to this seasonality, Anadarko's natural gas prices and production volumes and, therefore, financial results have traditionally been stronger in the first and fourth quarters. However, in 1993, this seasonal variance diminished somewhat due to overall growth in gas demand and continuing declines in gas supply. This was most evident in the summer of 1993 when demand for natural gas storage injections dramatically increased natural gas prices during the second and third quarters of the year.
The historical role of natural gas storage to supplement wellhead production during peak demand periods has been somewhat skewed over the past three years. Warm winters saw weak prices as local distribution companies (LDCs) used storage as a supply source during the winters of 1990-91 and 1991-92. Many natural gas customers began using storage volumes as a price hedge or arbitrage tool which disrupted the seasonal injection and withdrawal pattern in the nation's storage fields. As a result, prices in March 1992, for example, fell to 15-year record low levels.
During the 1992-93 winter heating season, the ability of gas consumers to utilize this price arbitrage was diminished as cold weather blanketed the nation late in the season and storage gas was needed for peak-day demand. The effect of a significant net storage drawdown in the first quarter of 1993 resulted in aggressive injections during the summer refill cycle and subsequently higher prices for gas.
Anadarko believes that while seasonality in gas markets will continue, the tight balance in supply and demand will extend the recent strength in natural gas markets.
CRUDE OIL, CONDENSATE AND NATURAL GAS LIQUIDS Anadarko achieved record crude oil and condensate production of 7.9 million barrels (MMBbls) in 1993, a 70 percent increase over 1992 oil and condensate production and a 59 percent increase over 1991 oil and condensate production. This increase was primarily related to producing oil properties in the Permian Basin of West Texas which were acquired by Anadarko in December 1992, as well as increased waterflood recovery operations in West Texas and the Mid-continent.
Anadarko's crude oil production over the past three years has been enhanced by the use of secondary recovery techniques and development drilling in existing fields. These activities have generally offset the production decline normally associated with oil fields.
Crude oil markets suffered dramatically in late 1993 as a result of the failure of the Organization of Petroleum Exporting Countries (OPEC) to effectively reduce a perceived surplus of crude oil. West Texas Intermediate (WTI) crude oil prices fell to a low of $13.02 per barrel in December 1993, the lowest level since 1986.
Anadarko's average U.S. crude oil price for 1993 was $16.35 per barrel, down 11 percent compared to 1992 and down 17 percent compared to 1991. The Company's crude oil price has averaged about $12.50 per barrel in January 1994.
Generally, the Company's oil production is sold on a monthly basis as it is produced. Volumes of oil are not affected by seasonal swings in market prices.
The Company's natural gas liquids (NGLs) sales volumes were 2.7 MMBbls, up ten percent over 1992 and up 38 percent over 1991. The 1993 average price of 30 cents per gallon was six percent lower than the average price in 1992 and nine percent lower than the average price in 1991. The increase in NGL volumes for 1993 is due primarily to increased sales from inventory in 1993 and the acquisition of NGL plants included in the purchase of producing properties in December 1992. NGLs markets were weak in 1993 despite low levels of inventory and strong natural gas markets.
MARKETING STRATEGIES
Anadarko's marketing strategies are designed to capture maximum value when the Company sells natural gas, crude oil, condensate and NGLs.
NATURAL GAS With a large base of uncommitted gas reserves available for sale, Anadarko can continue to sell greater volumes at market-responsive prices. Over the past three years, Anadarko has increased natural gas sales and captured market share by aggressively offering customers an array of gas supply options at market-responsive prices.
Anadarko sells natural gas under a variety of contracts, including 30-day spot market contracts, long-term contracts and "term" sales contracts. Term sales contracts were implemented by the Company in 1989 to provide gas sales over an extended period of time (three months to three years). Through these term contracts, the Company is able to enhance the commodity value of gas with a service fee related to the level of reliability and service required by the customer.
In 1993, the Company's marketing subsidiary, Anadarko Trading Company (ATC), increased its purchase of non-affiliated gas for sale into the Company's market areas. Sales of non-affiliated gas totaled 82 Bcf in 1993 compared to 58 Bcf in 1992 and 28 Bcf in 1991.
In addition, ATC made great strides during the year in developing a variety of marketing related services which are available to customers. These services include transportation contracting and scheduling, gas supply nominations, supply and delivery monitoring, contract administration and account coordination.
CRUDE OIL AND CONDENSATE The majority of the Company's crude oil production is sold on 30-day "evergreen" contracts with prices based on postings plus a premium.
PLANTS AND PIPELINES Anadarko's investment in gas gathering operations allows the Company to better manage its gas production, improve ultimate recovery of reserves and enhance its marketing opportunities. Since 1988, the Company has invested approximately $54 million to build or acquire gas gathering pipeline systems and gas processing plants. Anadarko currently owns and operates four major gas gathering systems in core producing areas and operates or has interests in 13 other systems. The four major systems have capacity of 300 MMcf/d of gas and are connected to 536 wells.
In 1993, Anadarko began a $1.6 million expansion of its Hugoton Gathering System (HUGS) in southwest Kansas, which was built in 1990. With completion of this project in January 1994, the HUGS system has 120 MMcf/d of gas capacity to serve Anadarko's markets in the Midwest through two interstate and one intrastate pipeline connection. Also in 1993, Anadarko invested $1.7 million to expand and add compression to its Antioch Gathering System in central Oklahoma. As a result, throughput at the Panther Creek Plant increased from 16 MMcf/d to 26 MMcf/d of gas.
In 1994, Anadarko will aggressively pursue further expansion of its gas gathering operations. The Company expects to spend approximately $36 million in 1994 for construction of new gathering facilities, installation of additional compressors, expansion of existing gathering systems and improving access to multiple pipeline "market hubs".
Over the past few years, Anadarko has become increasingly active in the natural gas liquids (NGLs) business, primarily as a result of its gas gathering and processing operations. The Company sells NGLs on a monthly basis. Anadarko generally markets NGLs under short-term contracts. Anadarko had 175,354 barrels of NGLs in inventory at the end of 1993.
HEDGING STRATEGIES In order to provide customers competitive, attractive pricing options, Anadarko has utilized the energy futures and derivatives markets since 1990 to hedge in the physical market and improve the flexibility in pricing short-term and long-term sales and purchases. From time to time, Anadarko may employ hedging strategies such as swaps, calls, puts, collars, fixed-price hedging and other strategies.
OPERATING RESULTS
With higher cash flows in 1993 compared to 1992 Anadarko increased spending for exploration and development drilling activities. Exploration and development spending increased to $175 million in 1993 from $92 million in 1992 and $108 million in 1991. However, dollars invested in drilling activity are not a true measure of success for an exploration and production company. Anadarko focuses on growth and profitability as the best measures of success in operations. Reserve replacement is the key to growth for an exploration and production company. In addition, Anadarko believes profitability depends on the cost of finding oil and gas reserves. Anadarko believes the Company's performance in both areas has been excellent.
DRILLING ACTIVITY During 1993, Anadarko participated in a total of 219 wells, including 55 gas wells, 131 oil wells and 33 dry holes. This compares to 126 wells (38 gas wells, 56 oil wells and 32 dry holes) in 1992 and 172 wells (69 gas wells, 64 oil wells and 39 dry holes) in 1991.
During 1993, the Company made several significant well completions in its exploration and development drilling program which are discussed in the narrative descriptions under "Exploration" and "Development" in the Annual Report to Stockholders, incorporated herein by reference.
Gross: total wells in which there was participation. Net: working interest ownership. * Includes 2 (1.7 net) Hugoton infill wells.
RESERVE REPLACEMENT For the 12th consecutive year, Anadarko replaced annual production volumes with proved reserves of natural gas, crude oil and natural gas liquids, stated on an energy equivalent basis. During 1993, Anadarko's reserve replacement was 162 percent of total production. The Company's reserve replacement performance in 1992 was 200 percent of total production and was 166 percent of total production in 1991.
During 1993, the Company replaced 151 percent of total production through exploration and development drilling and improved recovery operations and replaced 15 percent of total production through acquisitions of producing properties. Due to weak oil prices as of December 31, 1993, the Company recorded modest downward revisions to prior estimates of oil reserves.
Anadarko's natural gas reserve replacement in 1993 was 192 percent of total production compared with 88 percent in 1992 and 129 percent in 1991. The Company replaced 83 percent of its crude oil, condensate and natural gas liquids production in 1993 compared to 585 percent in 1992 and 289 percent in 1991.
In 1993, acquisitions added 5.7 million energy equivalent barrels (MMEEBs) compared to 44.4 MMEEBs in 1992 and 1.6 MMEEBs in 1991.
The Company's reserve replacement for 1991 included an addition to proved reserves of 120 Bcf of natural gas in the Hugoton Field of Kansas. Anadarko also had a net increase of 11 MMBbls of NGLs in 1991 associated with the Company's purchase of the Sneed Gas Plant and Gathering System in late 1990.
Anadarko continues to increase its reserves of crude oil and natural gas while the nation's energy reserves are steadily declining. The Company's U.S. reserve replacement for the five-year period 1988 through 1992 was 144 percent of production compared to a U.S. industry average of 74 percent. (Source: Energy Information Administration.) Anadarko's U.S. reserve replacement performance for the period 1989 through 1993 was 154 percent of production. Industry data for 1993 are not yet available.
COST OF FINDING For 1993, Anadarko's worldwide finding cost for proved reserves was $4.07 per energy equivalent barrel (EEB) compared to $5.43 per EEB in 1992 and $3.13 per EEB in 1991. The Company's U.S. finding cost for 1993 was $3.55 per EEB compared to $4.61 per EEB in 1992 and $2.62 per EEB in 1991.
Cost of finding results in any one year can be misleading due to the long lead times associated with exploration and development. A better measure of cost of finding performance is over a five-year period. For the period 1988 through 1992, Anadarko's U.S. cost of finding was $4.46 per EEB compared to a U.S. industry average of $5.09 per EEB (Source: Arthur Andersen & Co.) Anadarko's worldwide finding cost for the same five-year period was $4.92 per EEB compared to an industry average of $5.32 per EEB (Source: Arthur Andersen & Co.). For the five-year period 1989 through 1993, Anadarko's U.S. finding cost was $4.16 per EEB and the Company's worldwide finding cost was $4.67 per EEB. Industry data for 1993 are not yet available.
PROVED RESERVES At the end of 1993, Anadarko's proved energy reserves totaled 391.1 MMEEBs compared to 368.0 MMEEBs at year-end 1992 and 336.5 MMEEBs at year-end 1991. Reserves increased in 1993 due to exploration and development drilling, improved recovery and acquisitions.
The Company's natural gas reserves at year-end 1993 were 1.88 Tcf compared to 1.73 Tcf at year-end 1992 and 1.74 Tcf at year-end 1991. Anadarko's crude oil and natural gas liquids reserves at year-end 1993 were 78.5 MMBbls. This compares to 80.3 MMBbls at year-end 1992 and 45.8 MMBbls at year-end 1991.
The increase in the Company's total reserves on an EEB basis in 1992 was due primarily to the acquisition of properties with estimated proved reserves of 60.6 Bcf of natural gas and 34.2 MMBbls of crude oil, condensate and natural gas liquids, or 44.4 MMEEBs. In addition, the Company increased its reserves of crude oil, condensate and NGLs through secondary recovery techniques and development drilling in existing fields.
At December 31, 1993, the present value (discounted at 10 percent) of future net revenues from Anadarko's proved reserves, before income taxes, was $1.81 billion (stated in accordance with the regulations of the Securities and Exchange Commission and Financial Accounting Standards Board). Despite the increase in proved energy reserves and higher natural gas prices at year-end 1993, the estimated present value of future net revenues, before income taxes, remained comparable to that at year-end 1992 due primarily to lower oil prices at year-end 1993. (See Supplemental Information on Oil and Gas Exploration and Production Activities in the Consolidated Financial Statements.)
The present value of future net revenues does not purport to be an estimate of the fair market value of Anadarko's proved reserves. An estimate of fair value would also take into account, among other things, anticipated changes in future prices and costs, the expected recovery of reserves in excess of proved reserves and a discount factor more representative of the time value of money and the risks inherent in producing oil and gas.
ACQUISITIONS
In 1993, Anadarko evaluated numerous potential acquisition opportunities in both the United States and Canada. By year-end, the Company closed 24 property transactions within core producing areas which included net reserves of 5.7 MMEEBs at a cost of $27.8 million or $4.90 per EEB. The acquisition cost per barrel does not include future investment costs of $8.3 million, which will be spent over the next few years to develop additional reserves from the properties.
In June 1993, Anadarko acquired deep producing oil and gas properties and additional lease acres in the Hugoton area of southwest Kansas from Mesa Operating Limited Partnership for approximately $20 million. The purchase included proved reserves of about 3.7 MMEEBs and a 6-1/2 percent override interest in an additional 188,000 lease acres which are under a pre-existing farm-out arrangement with another company until 1999 when the undeveloped portion of the acreage will revert to Anadarko.
In December 1992, Anadarko completed the largest acquisition in the Company's history when it purchased from Atlantic Richfield Company proved oil and gas properties with estimated reserves of 26.4 MMBbls of crude oil, condensate and NGLs and 53.4 Bcf of natural gas, or about 35.3 MMEEBs, for about $190 million. The purchase also included "deep" exploration rights on 54,000 gross (39,000 net) lease acres held by production.
Over the past three years, Anadarko has acquired 51.6 MMEEBs of proved reserves at a cost of $238 million or $4.61 per EEB.
PRODUCING PROPERTIES AND LEASES
The Company owns interests in 2,552 producing oil wells and 1,883 producing gas wells. The following schedule shows the number of developed and undeveloped acres in which Anadarko held interests at December 31, 1993.
REGULATORY AND LEGISLATIVE DEVELOPMENTS
HUGOTON FIELD ALLOWABLE RULES In Kansas, where Anadarko has significant gas reserves and production capacity, the Kansas Corporation Commission (KCC) voted on December 3, 1993, to modify its basic proration order for the Hugoton Field, the largest dry gas reservoir in the United States. A written order was issued in February 1994. This order will change the formula currently used by the KCC to calculate field and unit allowables and will increase the portion of overall production allowables assigned to Anadarko's wells in the Hugoton Field. As a result of the order, Anadarko's share of the total field allowable will increase from its current level of about 12 percent to about 15 percent.
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 a 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, 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 that were made on or after June 28, 1988. Based on Anadarko's interpretation of the FERC order, $130,000 (pretax) has been charged to income during 1993. Numerous parties have filed requests for rehearing at the FERC asking that the December 1, 1993, order be reconsidered and, accordingly, the Company is unable to predict the final outcome of this matter.
CAPITAL EXPENDITURES, LIQUIDITY AND LONG-TERM DEBT
CAPITAL EXPENDITURES Anadarko's capital spending in 1993 totalled $264.5 million, which included $97.3 million for exploration, $77.7 million for development, $27.8 million for producing property acquisitions, $18.5 million for gas gathering and other operations and capitalized interest and overhead of $43.2 million. This compares to Anadarko's capital expenditures in 1992 of $359.9 million, which included $206 million in producing property acquisitions and $42.6 million of capitalized interest and overhead. Capital spending was $165.5 million in 1991, which included $4.2 million for producing property acquisitions and $41.9 million of capitalized interest and overhead.
Capital spending for 1994 initially has been set at approximately $370 million, including $105 million for exploration, $142 million for development, $25 million for producing property acquisitions, $48 million for gas gathering and other operations and $50 million of capitalized interest and overhead.
Historically the Company has based capital spending on anticipated cash flows, but certain portions of the capital spending budget have been financed from time to time. In addition, the Company's budget is adjusted periodically to reflect changes in market prices for oil and natural gas. The Company believes cash flows and existing credit facilities will be sufficient to meet capital and operating requirements during 1994.
LIQUIDITY AND LONG-TERM DEBT Over the past three years, Anadarko has taken several steps to strengthen its balance sheet and control interest costs. The Company has made significant efforts to secure fixed rate debt with longer term maturities at competitive rates when available in the financial markets.
At year-end 1993, Anadarko's total debt was $542.5 million, down $104.7 million or 16 percent from total debt of $647.2 million at year-end 1992. This compares to total debt of $439.6 million at year-end 1991.
In March 1993, Anadarko issued $100 million principal amount of 10-year Notes with a coupon of 6 3/4%. Net proceeds of the offering were used to refinance a portion of the cost of the producing oil properties acquired by Anadarko in December 1992.
In July 1993, Anadarko successfully converted 99.8 percent of the Company's outstanding $100 million principal amount of 6 1/4% Convertible Subordinated Debentures due 2014.
Debentures in the principal amount of about $99.8 million were converted into about 2.9 million shares of Anadarko common stock. The remaining debentures were redeemed for a cash payment to debenture holders. With the newly issued shares, Anadarko's average number of common shares outstanding for 1993 was 57.2 million. The number of outstanding shares at year-end 1993 was 58.7 million.
In October 1993, Anadarko issued $100 million principal amount of 10-year Notes with a coupon of 5 7/8%. Net proceeds from the offering were used to refinance outstanding borrowings under non-committed lines of credit and commercial paper incurred for general corporate purposes.
In October 1993, Anadarko filed a shelf registration with the Securities and Exchange Commission that permits the issuance of up to $300 million in senior and subordinated debt securities and equity securities. Net proceeds, terms and pricings of offerings of securities issued under the shelf registration are determined at the time of the offering. Anadarko has used similar shelf registrations since 1989 to provide added flexibility in financing strategies.
In February 1992, Anadarko entered into a $250 million Revolving Credit Agreement with a group of commercial banks. The Agreement provides for a $75 million commitment reduction at the end of years three and four and expires in March 1997. This agreement replaced the Revolving Credit and Term Loan Agreement the Company entered into in June 1989. As of December 31, 1993 and 1992, there were no outstanding borrowings under this agreement.
In May 1992, all of the $100 million principal amount of 8.95% Notes issued in May 1988 became due and were retired using existing floating rate credit facilities.
Anadarko's net cash from operating activities in 1993 was $274 million compared to $172 million in 1992 and $160 million in 1991.
CHANGES IN ACCOUNTING PRINCIPLES
POSTRETIREMENT BENEFITS OTHER THAN PENSIONS Statement of Financial Accounting Standards (SFAS) No. 106 focuses primarily on postretirement health care benefits. SFAS No. 106 changed the accounting treatment for these benefits from a "pay-as-you-go" basis to accrual of the expected costs of providing these benefits during the years the employee renders service.
The Company chose to recognize the cumulative transition obligation as of January 1, 1993, as the effect of a change in accounting principle in the first quarter of 1993. The Company's cumulative transition obligation was approximately $19.8 million, resulting in a decrease to net income of about $9.7 million (17 cents per share) which is net of $5.4 million deferred income tax benefit. The 1993 cost under SFAS No. 106 was approximately $3.4 million. This compares to costs on the "pay-as-you-go" basis of about $453,000 in 1992 and $538,000 in 1991.
DEFERRED INCOME TAXES SFAS No. 109 requires a change from the deferred method of accounting for income taxes to the asset and liability method. SFAS No. 109 was adopted by the Company in the first quarter of 1993 and increased net income by $87.1 million ($1.52 per share).
Under this method, deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using enacted tax rates applicable to those years in which the temporary differences between the financial statement carrying amounts and tax bases are expected to be recovered or settled. The effect of a change in tax rates on deferred tax assets and liabilities is recognized in income in the period when the change was enacted.
The Omnibus Budget Reconciliation Act of 1993, which was enacted in August 1993, raised the top corporate income tax rate from 34 to 35 percent retroactive to January 1, 1993. As a result, Anadarko recorded a charge to earnings of $11.2 million (20 cents per share) in the third quarter of 1993.
DIVIDENDS
In 1993, Anadarko paid $17.2 million in dividends to its common stockholders (7.5 cents per share per quarter). The dividend amount was $16.6 million (7.5 cents per share per quarter) in 1992 and $16.5 million (7.5 cents per share per quarter) in 1991. Anadarko has paid a dividend continuously since becoming an independent company in 1986. The amount of future dividends will depend on earnings, financial condition, capital requirements and other factors, and will be determined by the Directors on a quarterly basis.
ITEM 8.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
ANADARKO PETROLEUM CORPORATION
INDEX
CONSOLIDATED FINANCIAL STATEMENTS
PAGE ---- Report of Management 29
Independent Auditors' Report 30
Statement of Income, Three Years Ended December 31, 1993 31
Balance Sheet, December 31, 1993 and 1992 32
Statement of Stockholders' Equity, Three Years Ended December 31, 1993 33
Statement of Cash Flows, Three Years Ended December 31, 1993 34
Notes to Consolidated Financial Statements 35
Supplemental Information on Oil and Gas Exploration and Production Activities 55
Supplemental Quarterly Information 64
ANADARKO PETROLEUM CORPORATION
REPORT OF MANAGEMENT
The management of Anadarko Petroleum Corporation is responsible for the preparation and integrity of all information contained in the accompanying consolidated financial statements. The financial statements have been prepared in conformity with generally accepted accounting principles appropriate in the circumstances. In preparing the financial statements, management makes informed judgements and estimates.
Management maintains and relies on the Company's system of internal accounting controls. Although no system can ensure elimination of all errors and irregularities, this system is designed to provide reasonable assurance that assets are safeguarded, transactions are executed in accordance with manage- ment's authorization and accounting records are reliable as a basis for the preparation of financial statements. This system includes the selection and training of qualified personnel, an organizational structure providing appropriate delegation of authority and division of responsibility, the establishment of accounting and business policies for the Company and the conduct of internal audits.
The Board of Directors pursues its responsibility for the consolidated financial information through its Audit Committee, which is composed solely of directors who are not officers or employees of Anadarko. The Audit Committee recommends to the Board of Directors the selection of independent auditors and reviews their fee arrangements. The Audit Committee meets periodically with management, the internal auditors and the independent auditors to review that each is carrying out its responsibilities. The internal and independent auditors have full and free access to the Audit Committee to discuss auditing and financial reporting matters.
We believe that Anadarko's policies and procedures, including its system of internal accounting controls, provide reasonable assurance that the financial statements are prepared in accordance with the applicable securities laws.
{ROBERT J. ALLISON, JR.}
Robert J. Allison, Jr. Chairman, President and Chief Executive Officer
{MICHAEL E. ROSE}
Michael E. Rose Senior Vice President and Chief Financial Officer
ANADARKO PETROLEUM CORPORATION
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Stockholders Anadarko Petroleum Corporation:
We have audited the accompanying consolidated balance sheets of Anadarko Petroleum Corporation and subsidiaries as of December 31, 1993 and 1992, and the related consolidated statements of income, stockholders' equity and cash flows for each of the years in the three-year period ended December 31, 1993, as contained in the 1993 Form 10-K Annual Report. These consolidated finan- cial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Anadarko Petroleum Corporation and subsidiaries as of December 31, 1993 and 1992, and the results of their operations and their cash flows for each of the years in the three-year period ended December 31, 1993, in conformity with generally accepted accounting principles.
As discussed in notes 10 and 12 to the consolidated financial statements, the Company adopted the provisions of the Financial Accounting Standards Board Statements of Financial Accounting Standards No. 109, Accounting For Income Taxes, and No. 106, Employers' Accounting for Postretirement Benefits Other than Pensions, respectively, in 1993.
{KPMG PEAT MARWICK}
Houston, Texas January 27, 1994
ANADARKO PETROLEUM CORPORATION
CONSOLIDATED STATEMENT OF INCOME
See accompanying notes to consolidated financial statements.
ANADARKO PETROLEUM CORPORATION
CONSOLIDATED BALANCE SHEET
See accompanying notes to consolidated financial statements.
ANADARKO PETROLEUM CORPORATION
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
See accompanying notes to consolidated financial statements.
ANADARKO PETROLEUM CORPORATION
CONSOLIDATED STATEMENT OF CASH FLOWS
See accompanying notes to consolidated financial statements.
ANADARKO PETROLEUM CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS YEARS ENDED DECEMBER 31, 1993, 1992 AND 1991
1. SUMMARY OF ACCOUNTING POLICIES
GENERAL Anadarko Petroleum Corporation is engaged in the exploration, development, production and marketing of gas, oil and natural gas liquids. The terms "Anadarko" and "Company" refer to Anadarko Petroleum Corporation and its subsidiaries. The principal subsidiaries of Anadarko are: Anadarko Gathering Company; Anadarko Marketing Company; Anadarko Trading Company; Anadarko Petroleum of Canada Ltd. (Anadarko Canada); and Anadarko Algeria Corporation (Anadarko Algeria).
PRINCIPLES OF CONSOLIDATION The consolidated financial statements include the accounts of Anadarko and its subsidiaries. All significant intercompany transactions have been eliminated.
CHANGES IN ACCOUNTING PRINCIPLES Effective January 1, 1993, Anadarko adopted Statement of Financial Accounting Standards (SFAS) No. 109, "Accounting for Income Taxes", and SFAS No. 106, "Employers' Accounting for Postretirement Benefits Other Than Pensions". See Notes 10 and 12.
REVENUES Natural gas revenues generally are recorded using the sales method, whereby the Company recognizes natural gas revenues based on the amount of gas sold to purchasers on its behalf. All other revenues also are recorded using the sales method.
HEDGING ACTIVITIES The Company periodically hedges gas sales in order to minimize the impact of gas price fluctuations for Anadarko and its customers. Gains or losses on these hedging activities are recognized in revenues for the periods to which the hedge relates.
PROPERTIES AND EQUIPMENT The Company uses the full cost method of accounting for exploration and development activities as defined by the United States Securities and Exchange Commission (SEC). Under this method of accounting, the costs for unsuccessful as well as successful exploration and development activities are capitalized as properties and equipment.
The sum of net capitalized costs and estimated future development and dismantlement costs is amortized using the unit-of-production method. Excluded from amounts subject to amortization are costs associated with unevaluated properties and major development projects. On a country-by-country basis, should the net capitalized costs exceed the estimated present value of future net cash flows from proved oil and gas reserves, such excess costs would be charged to current expense. Gain or loss on the sale or other disposition of oil and gas properties is not recognized unless significant oil and gas reserves are involved.
ANADARKO PETROLEUM CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS YEARS ENDED DECEMBER 31, 1993, 1992 AND 1991
1. SUMMARY OF ACCOUNTING POLICIES (Continued)
Unsuccessful geothermal exploration costs are charged to expense. All other properties and equipment are stated at original cost, which does not purport to represent replacement or market values.
ENVIRONMENTAL CONTINGENCIES The Company accrues for environmental contingencies when liabilities are likely to occur and reasonable estimates can be made. In accordance with full cost accounting rules, the Company provides for environmental clean-up costs associated with oil and gas activities as a component of its depreciation, depletion and amortization expense. Recoveries from third parties for environmental liabilities are not recognized unless collection is probable.
INTEREST CAPITALIZED The Company capitalizes interest on borrowed funds related to oil and gas expenditures which are not subject to amortization until completion of evaluation or development activities.
INCOME TAXES The Company, excluding Anadarko Canada, files a U.S. consolidated federal income tax return. Deferred federal and state income taxes are provided on all significant temporary differences, except for those that are essentially permanent in duration, between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases.
FOREIGN CURRENCY TRANSLATION ADJUSTMENTS The financial statements of Anadarko Canada have been translated to U.S. dollars. All balance sheet accounts are translated at the current exchange rate and income statement items are translated at the average exchange rate for the year; resulting translation adjustments are made directly to a separate component of stockholders' equity. Transaction adjustments are reported in net income. Deferred federal income taxes have not been provided on translation adjustments because the unremitted earnings of Anadarko Canada are considered to be permanently invested.
CASH EQUIVALENTS The Company considers all highly liquid investments purchased with an original maturity of three months or less to be cash equivalents.
ACCOUNTS PAYABLE, BANKS This account represents credit balances to the extent that checks issued have not been presented to the Company's banks for payment.
ANADARKO PETROLEUM CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS YEARS ENDED DECEMBER 31, 1993, 1992 AND 1991
2. INVENTORIES
Inventories are stated at the lower of average cost or market. Natural gas liquids, when sold from inventory, are charged to expense using the average-cost method. The major classes of inventories are as follows:
3. PROPERTIES AND EQUIPMENT
A summary of the original cost of properties and equipment by classification follows:
Oil and gas properties are amortized using the unit-of-production method. All other properties are depreciated on the straight-line basis over the useful lives of the assets, which range from 3 to 25 years.
Oil and gas properties include costs of $180,933,000 and $117,362,000 at December 31, 1993 and 1992, respectively, which were excluded from capitalized costs being amortized. These amounts represent costs associated with unevaluated properties and major development projects. Anadarko excludes all costs on a country-by-country basis until proved reserves are found or until it is determined that the costs are impaired. All excluded costs are reviewed quarterly to determine if impairment has occurred.
During 1993 and 1992, the Company made provisions for impairments of international properties of $6,500,000 and $21,000,000, respectively, which were related to oil and gas properties. These impairments were related to unsuccessful drilling or related activities in China, Yemen and various other international locations. During 1993, the Company made a provision for impairment of geothermal properties of $500,000.
Total interest costs incurred during 1993, 1992 and 1991 were $38,000,000, $36,620,000 and $36,829,000, respectively. Of these amounts, the Company capitalized $8,577,000, $8,374,000 and $9,641,000 during 1993, 1992 and 1991, respectively. Capitalized interest is included as part of the cost of oil and gas properties. The capitalization rates are based on the Company's weighted average cost of borrowings used to finance the expenditures.
ANADARKO PETROLEUM CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS YEARS ENDED DECEMBER 31, 1993, 1992 AND 1991
4. LONG-TERM DEBT AND FINANCIAL INSTRUMENTS
*The average rate in effect at December 31, 1993.
Anadarko has noncommitted lines of credit from several banks. The general provisions of these lines of credit provide for Anadarko to borrow funds for terms and rates offered from time to time by the banks. There are no fees associated with these lines of credit.
The Company has a commercial paper program which allows Anadarko to borrow funds by issuing notes to investors for terms of up to 270 days, at rates as offered.
As of December 31, 1992, approximately $110,000,000 of the Notes Payable, Banks were due in 1994. The remaining notes payable to banks and commercial paper in 1992 and the notes payable to banks in 1993 have been classified as long-term debt in accordance with SFAS No. 6, "Classification of Short-term Obligations Expected to be Refinanced".
In February 1992, the Company entered into a $250,000,000 Revolving Credit Agreement with a group of 13 commercial banks. The Agreement provides for a $75,000,000 commitment reduction at the end of years three and four. Interest rates are based on either the reference rate, the rate for certificates of deposit, the Eurodollar rate or a combination thereof. The Agreement provides for commitment fees on the unused balances at a rate of 1/4 of 1%. The Agreement will expire in 1997. This Agreement replaced the Revolving Credit and Term Loan Agreement entered into in June 1989. During 1993 and 1992, there were no outstanding borrowings under these Agreements.
During 1993 and 1992, the Company had available $20,000,000 in a bank line of credit which was not used. The maximum interest rate for loans against the line was the reference rate of the bank. The line of credit is renewable annually, but may be withdrawn at any time by the bank. In 1993 and 1992, Anadarko maintained an average daily compensating balance of $1,000,000 for this line of credit.
In May 1992, all of the $100,000,000 principal amount of 8.95% Notes due 1992 became due and were retired using existing floating rate credit facilities.
ANADARKO PETROLEUM CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS YEARS ENDED DECEMBER 31, 1993, 1992 AND 1991
4. LONG-TERM DEBT AND FINANCIAL INSTRUMENTS (continued)
In March 1993, Anadarko issued $100,000,000 principal amount of 6 3/4% Notes due 2003, which are noncallable. Net proceeds from the offering were used to refinance a portion of the debt related to the acquisition of producing properties in December 1992, which was funded using noncommitted lines of credit and commercial paper.
In June 1993, Anadarko called for redemption of its outstanding $100,000,000 principal amount of 6 1/4% Convertible Subordinated Debentures due 2014. Debentures in the principal amount of $99,778,000 were converted at a price of $34.20 per share into 2,917,276 shares of Anadarko common stock. The principal amount of $99,778,000 includes unamortized debt issuance costs, cash paid for fractional shares and forfeited interest expense for a net of $701,000. Debentures in the principal amount of $222,000 were redeemed for a total payment to debenture holders by the Company of $232,000 for principal, premium and interest. The cash portion of the redemption was funded through existing credit facilities.
In October 1993, Anadarko issued $100,000,000 principal amount of 5 7/8% Notes due 2003, which are noncallable. Net proceeds from the offering were used to refinance outstanding borrowings incurred for general corporate purposes using noncommitted lines of credit and commercial paper.
In October 1993, Anadarko filed a shelf registration with the SEC that permits 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 will be determined at the time of the offering. Anadarko has used similar shelf registrations since 1989 to provide added flexibility in financing strategies.
Total sinking fund and installment payments related to long-term debt for the five years ending December 31, 1998 are shown below. The payments related to the redemption of the notes payable to banks and commercial paper are included in the amounts shown in a manner consistent with the terms for repayment of the Revolving Credit Agreement.
The following information discloses the fair value of the Company's financial instruments:
CASH AND CASH EQUIVALENTS The carrying amount reported on the balance sheet approximates fair value.
LONG-TERM DEBT The fair value of long-term debt at December 31, 1993 and 1992 is the value the Company would have to pay to retire the debt, including any premium or discount to the debt holder for the differential between stated interest rate and year-end market rate. The fair values are based on quoted market prices from Standard & Poor's Year-end Bond Guides and, where such quotes were not available, on the average rate in effect at year-end.
PRICE RISK MANAGEMENT The Company periodically hedges gas sales in order to reduce the risk caused by fluctuations in the price of natural gas. Deferred hedge gains and losses are currently comprised of swaps, futures and options with settlement dates through August 1994. In December 1993, the Company entered into a separate swap agreement for $27,254,000 in conjunction with a gas purchase agreement requiring prepayment for gas at a fixed price. The Company will make payments to a third party who financed the prepayment, based upon the index price specified in the contract. The settlement period is the first of each month effective April 1994 through March 1995. The carrying amounts reported on the balance sheet represent fair value at year-end.
ANADARKO PETROLEUM CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS YEARS ENDED DECEMBER 31, 1993, 1992 AND 1991
5. STOCK AND STOCK OPTIONS
Following is a schedule of the changes in the Company's shares of common stock:
In each quarter of 1993, 1992 and 1991, dividends of 7.5 cents per share were paid to holders of common stock. Under the most restrictive provisions of the various credit agreements, which limit the payment of dividends by the Company, retained earnings of $464,166,000 were not restricted as to the payment of dividends at December 31, 1993.
ANADARKO PETROLEUM CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS YEARS ENDED DECEMBER 31, 1993, 1992 AND 1991
5. STOCK AND STOCK OPTIONS (continued)
During 1993, 1992 and 1991, the Company acquired treasury stock only as a result of stock option exercises or restricted stock transactions.
On October 28, 1993, the 1993 Stock Incentive Plan was adopted by the Company, subject to stockholder approval. Anadarko has four other stock option plans - the 1988 Stock Option Plan for Non-employee Directors, the 1987 Stock Option Plan, the 1986 Stock Option Plan and the Substitute Stock Option Plan - under which key employees and directors of the Company may be granted options to purchase shares of Anadarko common stock. In addition, the 1993 Stock Incentive Plan and the 1987 Stock Option Plan provide that up to 800,000 and 400,000 shares of common stock, respectively, which may be granted under the Plans, may be granted as restricted stock.
Incentive stock options and non-qualified stock options have a maximum term of ten years from the date of grant and are issued at the market value of Anadarko stock on the date of grant. The options vest over time and may be exercised no earlier than one year from the date of grant.
Unexercised stock options do not have a dilutive effect on earnings per common share. Information regarding the Company's stock option plans is summarized below:
_______________ * Options exercised in excess of common stock issued relate to the plan provisions which allow the exercise of options with previously acquired shares.
ANADARKO PETROLEUM CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS YEARS ENDED DECEMBER 31, 1993, 1992 AND 1991
5. STOCK AND STOCK OPTIONS (continued)
The Company had a Restricted Stock Plan which covered 400,000 shares of common stock, all of which were granted in 1987 to certain key officers of the Company. Shares were subject to forfeiture restrictions and could not be sold, transferred or disposed of during the restriction period. The employees had all the rights of a stockholder of the Company with respect to such shares, including the right to vote and receive dividends or other distributions paid with respect to such shares. The forfeiture restrictions lapsed as to ten percent of the shares granted on the date of stockholders' approval and lapsed as to an additional ten percent on each anniversary of the date of grant. In November 1992, all of the remaining forfeiture restrictions lapsed, due to an acceleration of vesting of benefits.
6. FOREIGN CURRENCY TRANSLATION ADJUSTMENTS
The following is an analysis of currency translation adjustments reflected in stockholders' equity:
7. STATEMENT OF CASH FLOWS SUPPLEMENTAL INFORMATION
The amounts of cash paid for interest (net of amounts capitalized) and income taxes are as follows:
In July 1993, $99,778,000 principal amount of the 6 1/4% Convertible Subordinated Debentures due 2014 were converted into 2,917,276 shares of Anadarko common stock.
ANADARKO PETROLEUM CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS YEARS ENDED DECEMBER 31, 1993, 1992 AND 1991
8. TRANSACTIONS WITH RELATED PARTIES AND MAJOR CUSTOMERS
During 1989, Anadarko Algeria, a wholly owned subsidiary of the Company, entered into an agreement with Sonatrach, the national oil and gas enterprise of Algeria. Sonatrach is the beneficial owner of 10.2 percent of the Company's common stock. The agreement gives Anadarko Algeria the right to explore for and produce liquid hydrocarbons in a 5.1-million acre area in Algeria, subject to the sharing of production with Sonatrach. The agreement provides for a commitment from Anadarko Algeria of over $100,000,000 of exploration costs (including the cost of certain assets) over a ten-year period, subject to certain provisions. Anadarko Algeria has obtained two partners to participate in the project and share in the exploration cost commitment. The Company believes that anticipated operating cash flows and existing credit facilities will be sufficient to meet its share of these costs. A total of approximately $72,408,000 related to exploration activities has been incurred by Anadarko Algeria, of which approximately $26,964,000 was incurred in 1993.
At the present time, political unrest continues in Algeria. The Company is closely monitoring the situation and is presently unable to predict with certainty the short-term effects it may have on activity planned for 1994. However, the situation has not had any material effect on the Company's operations or exploration activity in Algeria to date. The Company's activities in Algeria also are subject to the risks associated with foreign operations.
The Company purchases oil field services from a number of companies including Dresser Industries, Inc. and its affiliates and subsidiaries. The aggregate amount paid to Dresser Industries, Inc. and its affiliates and subsidiaries was approxi- mately $641,000 in 1993, $3,256,000 in 1992 and $3,352,000 in 1991. James L. Bryan, a director of the Company, is Senior Vice President Operations of Dresser Industries, Inc.
Approximately $155,000 and $81,000 was paid to L. G. Barcus and Sons, Inc. during 1993 and 1992, respectively, for consulting fees concerning the construction of facilities for the Company in 1993. Larry Barcus, a director of the Company, is the Chairman of L. G. Barcus and Sons, Inc., a general contractor with operations nationwide.
The Company's natural gas is sold to interstate and intrastate gas pipelines, direct end-users, industrial users, local distribution companies and gas marketers. Crude oil and condensate are sold to marketers, gatherers and refiners. Natural gas liquids are sold to direct end-users, refiners and marketers. These purchasers are located in the United States, Canada and Mexico. The majority of the Company's receivables are paid within two months following the month of purchase.
The Company generally performs a credit analysis of customers prior to making any sales to new customers. Based upon this credit analysis, the Company may require a standby letter of credit or a financial guarantee.
ANADARKO PETROLEUM CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS YEARS ENDED DECEMBER 31, 1993, 1992 AND 1991
8. TRANSACTIONS WITH RELATED PARTIES AND MAJOR CUSTOMERS (Continued)
In 1993, sales to CNG Transmission Corporation and its subsidiaries were $75,378,000 (of which $60,191,000 were to East Ohio Gas Company, a wholly owned subsidiary of CNG) and sales to Indiana Gas Company Incorporated were $65,754,000, each of which accounted for more than ten percent of the Company's total revenues. In 1992, sales to CNG Transmission Corporation and its subsidiaries were $42,570,000 (of which $36,715,000 were to East Ohio Gas Company) and sales to Indiana Gas Company Incorporated were $39,869,000, each of which accounted for more than ten percent of the Company's total revenues. In 1991, sales to Phibro Energy, Inc. were $33,857,000, which was more than ten percent of the Company's total revenues.
9. OTHER TAXES
Significant taxes other than income taxes are as follows:
10. INCOME TAXES
SFAS No. 109 requires a change from the deferred method of accounting for income taxes to the asset and liability method. Under the new method, deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using enacted tax rates applicable to those years in which the temporary differences between financial statement carrying amounts and tax bases are expected to be recovered or settled. The effect of a change in tax rates on deferred tax assets and liabilities is recognized in income in the period when the change is enacted. The cumulative effect of adopting SFAS No. 109 in the first quarter of 1993 was an increase to net income of $87,071,000.
Under the deferred method of accounting for income taxes which was applied in 1992 and prior years, deferred income taxes applicable to each year's net timing differences were provided based on the tax rates in effect during that year and no adjustments were made to the deferred income tax liability amounts for subsequent changes in tax rates.
ANADARKO PETROLEUM CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS YEARS ENDED DECEMBER 31, 1993, 1992 AND 1991
10. INCOME TAXES (Continued)
Income tax expense, including deferred amounts, is summarized as follows:
The Company's current federal income tax expense has been determined under the alternative minimum tax system.
The Omnibus Budget Reconciliation Act of 1993, which was enacted in August 1993, raised the top corporate income tax rate from 34 to 35 percent retroactive to January 1, 1993. As a result, Anadarko recorded a charge to 1993 earnings of $11,249,000. The tax benefit of compensation expense for tax purposes in excess of amounts recognized for financial accounting purposes has been credited directly to stockholders' equity. For the current year, the tax benefit amounted to $2,743,000.
Total income taxes were different than the amounts computed by applying the statutory income tax rate to Income before Income Taxes and Cumulative Effect of Changes in Accounting Principles. The sources of these differences are as follows:
ANADARKO PETROLEUM CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS YEARS ENDED DECEMBER 31, 1993, 1992 AND 1991
10. INCOME TAXES (Continued)
The tax effects of temporary differences that give rise to significant portions of the deferred tax liabilities (assets) at December 31, 1993 are as follows:
The Company has determined that the deferred tax assets will be realized and a valuation allowance for such assets is not required.
ANADARKO PETROLEUM CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS YEARS ENDED DECEMBER 31, 1993, 1992 AND 1991
10. INCOME TAXES (Continued)
Deferred income tax expense for the years ended December 31, 1992 and 1991, resulted from timing differences in the recognition of revenue and expense for tax and financial accounting purposes. The source of these differences is as follows:
Deferred income taxes have not been recognized on the excess of the financial statement carrying amount over the tax basis of the Company's investment in Anadarko Canada. The excess, approximately $33,000,000 at December 31, 1993, consists primarily of undistributed earnings which have been reinvested indefinitely as part of the subsidiary's ongoing business. Should circumstances change and it become apparent that this temporary difference is no longer essentially permanent in duration, the Company will recognize as an expense at that time the appropriate amount of deferred income taxes. However, it is impracticable to estimate the amount of such taxes at this time.
Alternative minimum tax, unreduced by investment tax credit utilization, can be carried forward indefinitely as a credit against regular tax liability. The alternative minimum tax credit generated in 1993 has reduced deferred federal income tax expense. To the extent the cumulative remaining carryforward is utilized against future income taxes, accumulated deferred income taxes will be restored at the then current rate.
Net operating loss and alternative minimum tax credit carryforwards at December 31, 1993, which are available for future utilization on federal income tax returns, are as follows:
ANADARKO PETROLEUM CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS YEARS ENDED DECEMBER 31, 1993, 1992 AND 1991
11. LEASE COMMITMENTS
The Company has various commitments under non-cancelable operating lease agreements for buildings, facilities, and equipment, the majority of which expire at various dates through 2003. The leases are expected to be renewed or replaced as they expire. At December 31, 1993, future minimum rental payments due under operating leases are as follows:
Total rental expense amounted to $9,207,000, $8,212,000 and $6,129,000 in 1993, 1992 and 1991, respectively.
12. PENSION PLANS, EMPLOYEE SAVINGS PLAN AND OTHER POSTRETIREMENT BENEFITS
PENSION PLANS The Company has a non-contributory defined benefit pension plan covering all permanent employees, except certain employees in foreign countries. The benefits for this plan are based primarily on years of service and pay near retirement. Plan assets consist principally of fixed income investments and equity securities. The Company funds the plan with annual contributions as determined in accordance with the Employee Retirement Income Security Act of 1974 and Internal Revenue Code limitations.
During 1992, the plan was amended to increase the percent of average compensation returned in benefit payments, which increased the actuarial liability by $3,920,000. In addition, the plan was automatically updated in 1992 to reflect cost-of-living increases to the Internal Revenue Code (IRC) Section 415 limit on benefits and the IRC Section 401(a)(27) limit on considered compensation, which increased the actuarial liability by $100,000.
During 1991, the plan was amended and restated effective January 1, 1989 to comply with new non-discrimination regulations, IRC Sections 401(a)(4) and 401(1). This redesign increased the actuarial liability by $490,000. In addition, the plan was automatically updated in 1991 to reflect cost-of-living increases to the IRC Section 415 limit on benefits and the IRC Section 401(a)(27) limit on considered compensation, which increased the actuarial liability by $300,000.
The Company has an equalization plan to ensure payments to certain executive officers of amounts to which they are already entitled under the provisions of the pension plan, but which are subject to limitations imposed by federal tax laws. This plan is unfunded; however, the Company has purchased life insurance policies to supplement its contractual obligations.
ANADARKO PETROLEUM CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS YEARS ENDED DECEMBER 31, 1993, 1992 AND 1991
12. PENSION PLANS (Continued)
In addition, the Company has a pension plan for non-employee directors, which is unfunded.
The 1993, 1992 and 1991 pension cost related to these plans includes the following components:
The Company had an additional minimum liability of $947,000 and $1,241,000 at December 31, 1993 and 1992, respectively, which represents the difference between the unfunded accumulated benefit obligation and the accrued pension cost related to the equalization plan. This liability was offset by an intangible asset of an equal amount.
The funded status of the plans at December 31, 1993 and 1992 is as follows:
ANADARKO PETROLEUM CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS YEARS ENDED DECEMBER 31, 1993, 1992 AND 1991
12. PENSION PLANS (continued)
The Company's assumptions used as of December 31 in determining the pension cost and pension liability were as follows:
EMPLOYEE SAVINGS PLAN The Company has an employee savings plan (ESP) which is a defined contribution plan. The Company matches a portion of employees' contributions with shares of the Company's common stock. Participation in the ESP is voluntary and all regular employees of the Company are eligible to participate. The Company charged to expense plan contributions of $3,426,000, $2,842,000, and $2,841,000 during 1993, 1992 and 1991, respectively.
ANADARKO PETROLEUM CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS YEARS ENDED DECEMBER 31, 1993, 1992 AND 1991
12. PENSION PLANS (Continued)
OTHER POSTRETIREMENT BENEFITS As of January 1, 1993, the Company adopted SFAS No. 106, "Employers' Accounting for Postretirement Benefits Other Than Pensions". The Company recognized the cumulative transition obligation of $19,767,000 as the effect of an accounting change in the first quarter of 1993, resulting in a decrease to net income of $9,668,000 (net of $5,416,000 deferred income tax benefit). For the years ended December 31, 1992 and 1991, the Company recognized postretirement benefit costs other than pensions as incurred. As a result, the amounts recognized as expense in prior years are not comparable.
In addition to providing pension benefits, the Company provides certain health care and life insurance benefits for retired employees. Substantially all of the Company's employees, including employees in foreign countries, may become eligible for these benefits if they reach retirement age while working for the Company. These benefits and similar benefits for active employees are provided through contributory and non-contributory trusteed benefit plans.
Health care benefits are funded by contributions from the Company and its employees, with retiree contributions adjusted per the provisions of the Company's health care plans. The Company's current policy is to fund the cost of postretirement health care benefits on a pay-as-you-go basis. The Company's retiree life insurance plan is noncontributory and is currently fully funded through insurance premiums paid by the Company.
The following table sets forth the Company's postretirement benefits other than pension combined liability as of December 31, 1993:
The Company charges postretirement benefits other than pensions as accrued, based on actuarial calculations for each plan.
ANADARKO PETROLEUM CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS ENDED DECEMBER 31, 1993, 1992 AND 1991
12. PENSION PLANS (Continued)
OTHER POSTRETIREMENT BENEFITS (continued)
The net annual cost for postretirement benefits other than pensions for 1993 included the following components:
The Company's assumptions used as of December 31 in determining postretirement benefits other than pension cost and the accumulated benefit obligation were as follows:
The medical cost trend rate for the health care plans starts at the maximum rate for the current year and is gradually reduced to the ultimate rate for 2002 and later years. A change in the medical cost trend rate of one percent would change the annual cost (excluding the transition obligation) in 1993 by approximately $595,000.
Retiree life insurance expense was $78,000 and $172,000 for 1992 and 1991, respectively. The cost of providing health care benefits for 129 retirees in 1992 and 127 retirees in 1991 was $375,000 and $366,000, respectively.
13. CONTINGENCIES
ENVIRONMENTAL PROTECTION AGENCY In January 1994, the Company received a Special Notice for Remedial Design/Remedial Action from the Environmental Protection Agency (EPA) in connection with the disposal of oil and gas exploration and production wastes at the PAB Oil Superfund site ("the Site") at Abbeville, Louisiana. The Company had previously received a Notice of Potential Liability from the EPA as one of the potentially responsible parties (PRP) in connection with this Site. In the Notice of Potential Liability, the EPA attributed 40 barrels of waste to the Company which was disposed of by a third party contractor on behalf of the Company.
ANADARKO PETROLEUM CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS ENDED DECEMBER 31, 1993, 1992 AND 1991
13. CONTINGENCIES (Continued)
ENVIRONMENTAL PROTECTION AGENCY (Continued)
Pursuant to the Special Notice, the EPA shall attempt to negotiate reimbursement of the EPA's past and future costs, among other things, and pursue settlement with PRPs who may have contributed only a minor portion of the hazardous substances at the Site (a de minimis party). The EPA has determined that parties who contributed less than 400 barrels of waste to the Site are de minimis parties and are entitled to a de minimis settlement of their liability at the Site. Enclosed with the Special Notice was a report which summarized the information in the EPA's possession regarding the amount of waste disposed at the Site by individual PRPs. According to the report, the amount of waste disposed of on behalf of the Company has not been determined and Anadarko is not being offered a de minimis settlement. After further investigation, the Company believes it should be entitled to a de minimis settlement and has made a request to the EPA to participate in the de minimis settlement.
On December 17, 1993, the Company received a notice from the Department of Justice in the State of California indicating that the Company may be a PRP for the study, cleanup and closure of the waste facility owned by Geothermal, Inc. in Middletown, California (the "GI site"). Anadarko's records indicate the disposal of a limited number of barrels of drilling mud at the GI site in 1982. Based on the amount and toxicity of the waste the Company sent to the GI site, the Company believes it will not incur any material liability in connection with the GI site.
As part of the 1992 acquisition of properties from Atlantic Richfield Company (ARCO), the Company conducted an extensive environmental audit of the acquired properties. To the extent that significant environmental problems were found to exist during the audit, ARCO had contractually agreed, with certain limitations, to correct such problems or take back the affected properties and refund the pro rata share of the purchase price attributable to the properties pursuant to the terms of the underlying asset purchase and sale agreement. Negotiations are currently being conducted to determine compensation due the Company from ARCO for certain environmental conditions which have been found on the properties.
ANADARKO PETROLEUM CORPORATION
SUPPLEMENTAL INFORMATION ON OIL AND GAS EXPLORATION AND PRODUCTION ACTIVITIES (Unaudited)
OIL AND GAS PRODUCTION
The following is historical revenue and cost information relating to the Company's oil and gas operations.
Excluded from amounts subject to amortization as of December 31, 1993 and 1992 were $180,933,000 and $117,362,000, respectively, of costs associated with unevaluated properties and major development projects. The majority of the evaluation activities are expected to be completed in five years.
COSTS EXCLUDED FROM AMORTIZATION
CAPITALIZED COSTS RELATED TO OIL AND GAS PRODUCING ACTIVITIES
ANADARKO PETROLEUM CORPORATION
SUPPLEMENTAL INFORMATION ON OIL AND GAS EXPLORATION AND PRODUCTION ACTIVITIES (Unaudited)
COSTS INCURRED IN OIL AND GAS PRODUCING ACTIVITIES
ANADARKO PETROLEUM CORPORATION
SUPPLEMENTAL INFORMATION ON OIL AND GAS EXPLORATION AND PRODUCTION ACTIVITIES (Unaudited)
RESULTS OF OPERATIONS FOR PRODUCING ACTIVITIES
The following schedule includes only the revenues from the production and sale of gas, oil, condensate and natural gas liquids (NGLs). Revenues from gas marketing and gas gathering are excluded. The income tax expense is calculated by applying the current statutory tax rates to the revenues after deducting costs, which include depreciation, depletion and amortization allowances, after giving effect to permanent differences. The results of operations exclude general office overhead and interest expense attributable to oil and gas production.
RESULTS OF OPERATIONS FOR PRODUCING ACTIVITIES
ANADARKO PETROLEUM CORPORATION
SUPPLEMENTAL INFORMATION ON OIL AND GAS EXPLORATION AND PRODUCTION ACTIVITIES (Unaudited)
OIL AND GAS RESERVES
The following table shows estimates prepared by the Company's engineers of proved reserves and proved developed reserves, net of royalty interests, of gas, oil, condensate and NGLs owned at year-end and changes in proved reserves during the last three years. Volumes for natural gas are in billions of cubic feet (Bcf) at a pressure base of 14.73 pounds per square inch and volumes for oil, condensate and NGLs are in millions of barrels (MMBbls). Total volumes are in millions of energy equivalent barrels (MMEEBs). For this computation, one barrel is the equivalent of six thousand cubic feet.
The Company's reserve additions in 1993 came primarily from exploration and development drilling and improved recovery. Reserve revisions for 1993 included an increase of about 60 Bcf to reflect a portion of the effect of the Kansas Corporation Commission order which increased production allowables in the Hugoton Field. This was offset by a modest downward revision to prior estimates of oil and condensate reserves due to weak oil prices at year-end 1993.
The Company's reserve additions in 1992 included the purchase of oil and gas properties from Atlantic Richfield Company. This acquisition added 26.4 MMBbls of crude oil, condensate and NGLs and 53.4 Bcf of natural gas, or about 35 million energy equivalent barrels.
The Company's reserve additions for 1991 included an increase of 120 Bcf of gas in the Hugoton Field of Kansas. Anadarko began an infill drilling program in the Hugoton Field in 1987 and had invested $36,000,000 as of year-end 1991 to drill 267 wells. The increase in proved reserves in 1991 reflects the additional drainage area these infill wells will deplete. With a drilling program of this type in a reservoir with multiple pay zones, it usually takes several years of drilling and analysis to gain sufficient reservoir and well performance data to support a reserve increase. Using a three-dimensional reservoir modeling system for the Hugoton Field, which the Company began to develop in 1985, the Company was able to quantify this increase in proved reserves.
Anadarko also had a net reserve increase of 11 MMBbls of NGLs in 1991. This increase is primarily associated with the Company's purchase of a significant plant and pipeline system in late 1990. Improvement modifications were made to the gas processing plant in 1991 that will yield additional recovery of NGLs reserves to the Company.
Beginning in 1991, NGLs are included with oil and condensate reserves, and the associated shrinkage has been deducted from the gas reserves. Previously, these gas reserves were reported on a wet basis.
The Company emphasizes that the volumes of reserves shown below are estimates which, by their nature, are subject to revision. The estimates are made using all available geological and reservoir data as well as production performance data. These estimates are reviewed annually and revised, either upward or downward, as warranted by additional performance data.
ANADARKO PETROLEUM CORPORATION
SUPPLEMENTAL INFORMATION ON OIL AND GAS EXPLORATION AND PRODUCTION ACTIVITIES (Unaudited)
OIL AND GAS RESERVES (continued)
ANADARKO PETROLEUM CORPORATION
SUPPLEMENTAL INFORMATION ON OIL AND GAS EXPLORATION AND PRODUCTION ACTIVITIES (Unaudited)
DISCOUNTED FUTURE NET CASH FLOWS
Estimates of future net cash flows from proved reserves of gas, oil, condensate and NGLs were made in accordance with SFAS No. 69, "Disclosures about Oil and Gas Producing Activities." The amounts were prepared by the Company's engineers and are shown in the following table. The estimates are based on prices at year-end.
Gas prices are escalated only for fixed and determinable amounts under provisions in some contracts. Estimated future cash inflows are reduced by estimated future development and production costs based on year-end cost levels, assuming continuation of existing economic conditions, and by estimated future income tax expense. Tax expense is calculated by applying the existing statutory tax rates, including any known future changes, to the pretax net cash flows, less depreciation of the tax basis of the properties and depletion allowances applicable to the gas, oil, condensate and NGLs production.
At December 31, 1993, the present value (discounted at 10 percent) of future net revenues from Anadarko's proved reserves, before income taxes, was $1.81 billion (stated in accordance with the regulations of the Securities Exchange Commission and the Financial Accounting Standards Board). Despite the increase in proved energy reserves and higher natural gas prices at year-end 1993, the estimated present value of future net revenues, before income taxes, remained virtually flat compared to year-end 1992 due primarily to extremely low oil prices at year-end 1993.
The present value of future net revenues does not purport to be an estimate of the fair market value of Anadarko's proved reserves. An estimate of fair value would also take into account, among other things, anticipated changes in future prices and costs, the expected recovery of reserves in excess of proved reserves and a discount factor more representative of the time value of money and the risks inherent in producing oil and gas.
ANADARKO PETROLEUM CORPORATION
SUPPLEMENTAL INFORMATION ON OIL AND GAS EXPLORATION AND PRODUCTION ACTIVITIES (Unaudited)
STANDARDIZED MEASURE OF DISCOUNTED FUTURE NET CASH FLOWS RELATING TO PROVED OIL AND GAS RESERVES (Continued)
ANADARKO PETROLEUM CORPORATION
SUPPLEMENTAL INFORMATION ON OIL AND GAS EXPLORATION AND PRODUCTION ACTIVITIES (Unaudited)
DISCOUNTED FUTURE NET CASH FLOWS (continued)
CHANGES IN STANDARDIZED MEASURE OF DISCOUNTED FUTURE NET CASH FLOWS RELATING TO PROVED OIL AND GAS RESERVES
ANADARKO PETROLEUM CORPORATION
SUPPLEMENTAL INFORMATION ON OIL AND GAS EXPLORATION AND PRODUCTION ACTIVITIES (Unaudited)
DISCOUNTED FUTURE NET CASH FLOWS (continued)
CHANGES IN STANDARDIZED MEASURE OF DISCOUNTED FUTURE NET CASH FLOWS RELATING TO PROVED OIL AND GAS RESERVES
SUPPLEMENTAL QUARTERLY INFORMATION (UNAUDITED)
QUARTERLY FINANCIAL DATA
The following table shows summary quarterly financial data for 1993 and 1992. See Management's Discussion and Analysis of Financial Condition and Results of Operations.
ITEM 9.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
None.
PART III
ITEM 10.
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
See "Election of Directors" in the Anadarko Petroleum Corporation Proxy Statement, dated March 21, 1994 ("Proxy Statement"), which is incorporated herein by reference.
See list of "Executive Officers of the Registrant" appearing under Item 4 of this Form 10-K.
ITEM 11.
ITEM 11. EXECUTIVE COMPENSATION
See "Compensation of Directors" and "Executive Compensation" in the Proxy Statement, which are incorporated herein by reference.
ITEM 12.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
See "Security Ownership - Security Ownership of Management and Security Ownership of Certain Beneficial Owners" in the Proxy Statement, which is incorporated herein by reference.
ITEM 13.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
See "Security Ownership - Transactions with Management and Others" in the Proxy Statement, which is incorporated herein by reference.
PART IV
ITEM 14.
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(a) The following documents are filed as a part of this report or incorporated by reference:
(1) The consolidated financial statements of Anadarko Petroleum Corporation are listed on the Index to this report, page 28.
(2) The consolidated schedules of Anadarko Petroleum Corporation are listed on the Index to this report, page 71.
(3) 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.
Executive Compensation Plans and Arrangements
_______________ The total amount of securities of the Registrant authorized under any instrument with respect to long-term debt not filed as an Exhibit does not exceed ten percent of the total assets of the Registrant and its subsidiaries on a consolidated basis. The Registrant agrees, upon request of the Securities and Exchange Commission, to furnish copies of any or all of such instruments to the Securities and Exchange Commission.
(B) REPORTS ON FORM 8-K
There were no reports filed on Form 8-K during the three months ended December 31, 1993.
ANADARKO PETROLEUM CORPORATION INDEX
CONSOLIDATED SCHEDULES
Page
Schedule V - Properties and Equipment S-1
Schedule VI - Accumulated Depreciation, Depletion and Amortization of Properties and Equipment S-2
Schedule IX - Short-term Borrowings S-3
Independent Auditors' Report S-4
All other Schedules are omitted because they are not applicable, not required or the information is included in the Consolidated Financial Statements or Notes thereto.
SCHEDULE V
ANADARKO PETROLEUM CORPORATION
CONSOLIDATED PROPERTIES AND EQUIPMENT
THREE YEARS ENDED DECEMBER 31, 1993
S-1
SCHEDULE VI
ANADARKO PETROLEUM CORPORATION CONSOLIDATED ACCUMULATED DEPRECIATION, DEPLETION AND AMORTIZATION OF PROPERTIES AND EQUIPMENT
THREE YEARS ENDED DECEMBER 31, 1993
S-2
SCHEDULE IX
ANADARKO PETROLEUM CORPORATION CONSOLIDATED SHORT-TERM BORROWINGS THREE YEARS ENDED DECEMBER 31, 1993
(1) Average of daily balances for 365 days in 1993 and 1991 and 366 days in 1992. (2) Total interest accrued divided by average daily balance.
S-3
ANADARKO PETROLEUM CORPORATION
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Stockholders Anadarko Petroleum Corporation:
Under date of January 27, 1994, we reported on the consolidated balance sheets of Anadarko Petroleum Corporation and subsidiaries as of December 31, 1993 and 1992, and the related consolidated statements of income, stock- holders' equity and cash flows for each of the years in the three-year period ended December 31, 1993, as contained in the 1993 Form 10-K Annual Report. In connection with our audits of the aforementioned consolidated financial statements, we also have audited the related financial statement schedules as listed in the accompanying index. These financial statements schedules are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statement schedules based on our audits.
In our opinion, such financial statement schedules, when considered in relation to the basic consolidated financial statements taken as a whole, present fairly, in all material respects, the information set forth therein.
{KPMG PEAT MARWICK}
Houston, Texas January 27, 1994
S-4
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934, THE REGISTRANT HAS DULY CAUSED THIS REPORT TO BE SIGNED ON ITS BEHALF BY THE UNDERSIGNED, THEREUNTO DULY AUTHORIZED.
ANADARKO PETROLEUM CORPORATION
March 17, 1994 By MICHAEL E. ROSE (Michael E. Rose, Senior Vice President, Finance and Chief Financial Officer)
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES EXCHANGE ACT OF 1934, THIS REPORT HAS BEEN SIGNED BELOW BY THE FOLLOWING PERSONS ON BEHALF OF THE REGISTRANT AND IN THE CAPACITIES INDICATED ON MARCH 17, 1994.
NAME AND SIGNATURE TITLE ------------------ ----- (i) Principal executive officer:*
ROBERT J. ALLISON, JR. Chairman of the Board, (Robert J. Allison, Jr.) President and Chief Executive Officer
(ii) Principal financial officer:*
MICHAEL E. ROSE Senior Vice President, (Michael E. Rose) Finance and Chief Financial Officer
(iii) Principal accounting officer:*
JAMES R. LARSON Controller (James R. Larson)
(iv) Directors:*
ROBERT J. ALLISON, JR. CONRAD P. ALBERT LARRY BARCUS RONALD BROWN JAMES L. BRYAN JOHN R. GORDON CHARLES M. SIMMONS
______________
* Signed on behalf of each of these persons and on his own behalf:
By {MICHAEL E. ROSE} (Michael E. Rose, Attorney-in-Fact)
GRAPHICS APPENDIX LIST
EDGAR VERSION TYPESET VERSION - ------------- --------------- 1993 Form 10-K, Part I, Item 1 - Business
Page 6 - One map omitted Page 5 - One map depicting Anadarko's onshore developed and undeveloped net acres, producing net wells, 1993 drilling activity areas and office locations by state and province in the United States and Canada. (The text and numbers used in this map appear in the text of the EDGAR version.)
Page 8 - One map omitted Page 7 - One map depicting Anadarko's offshore United States exploratory and development net acres and producing net wells by state, as well as location of producing, development, exploration and 1993 lease acquisition blocks. (The text and numbers used in this map appear in the text of the EDGAR version).