Company Quick10K Filing
Quick10K
Anadarko Petroleum
Closing Price ($) Shares Out (MM) Market Cap ($MM)
$73.39 502 $36,840
10-Q 2019-03-31 Quarter: 2019-03-31
10-K 2018-12-31 Annual: 2018-12-31
10-Q 2018-09-30 Quarter: 2018-09-30
10-Q 2018-06-30 Quarter: 2018-06-30
10-Q 2018-03-31 Quarter: 2018-03-31
10-K 2017-12-31 Annual: 2017-12-31
10-Q 2017-09-30 Quarter: 2017-09-30
10-Q 2017-06-30 Quarter: 2017-06-30
10-Q 2017-03-31 Quarter: 2017-03-31
10-K 2016-12-31 Annual: 2016-12-31
10-Q 2016-09-30 Quarter: 2016-09-30
10-Q 2016-06-30 Quarter: 2016-06-30
10-Q 2016-03-31 Quarter: 2016-03-31
10-K 2015-12-31 Annual: 2015-12-31
10-Q 2015-09-30 Quarter: 2015-09-30
10-Q 2015-06-30 Quarter: 2015-06-30
10-Q 2015-03-31 Quarter: 2015-03-31
10-K 2014-12-31 Annual: 2014-12-31
10-Q 2014-09-30 Quarter: 2014-09-30
10-Q 2014-06-30 Quarter: 2014-06-30
10-Q 2014-03-31 Quarter: 2014-03-31
10-K 2013-12-31 Annual: 2013-12-31
8-K 2019-05-15 Other Events, Exhibits
8-K 2019-05-09 Enter Agreement, Leave Agreement, Officers, Exhibits
8-K 2019-05-08 Regulation FD, Exhibits
8-K 2019-04-25 Earnings, Exhibits
8-K 2019-04-11 Enter Agreement, Officers, Amend Bylaw, Other Events, Exhibits
8-K 2019-04-11 Other Events, Exhibits
8-K 2019-02-19 Officers
8-K 2019-02-11 Regulation FD, Exhibits
8-K 2019-02-05 Earnings, Regulation FD, Exhibits
8-K 2018-12-20 Enter Agreement, Off-BS Arrangement, Exhibits
8-K 2018-11-15 Regulation FD, Exhibits
8-K 2018-11-14 Officers, Amend Bylaw, Other Events, Exhibits
8-K 2018-11-07 Enter Agreement, Regulation FD, Exhibits
8-K 2018-10-30 Earnings, Regulation FD, Exhibits
8-K 2018-08-16 Officers, Exhibits
8-K 2018-07-31 Earnings, Regulation FD, Exhibits
8-K 2018-07-12 Other Events, Exhibits
8-K 2018-05-15 Shareholder Vote
8-K 2018-02-20 Other Events
8-K 2018-02-06 Earnings, Regulation FD, Exhibits
8-K 2018-01-12 Enter Agreement, Off-BS Arrangement, Exhibits
TDY Teledyne Technologies 8,980
CLH Clean Harbors 3,900
CNS Cohen & Steers 2,390
SBH Sally Beauty Holdings 2,000
VCEL Vericel 787
MSON Misonix 175
RAIL Freightcar America 80
ARKR Ark Restaurants 69
SMIT Schmitt Industries 9
AQIM Altegris Qim Futures Fund 0
APC 2019-03-31
Part I
Item 1. Financial Statements
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations
Item 3. Quantitative and Qualitative Disclosures About Market Risk
Item 4. Controls and Procedures
Part II
Item 1. Legal Proceedings
Item 1A. Risk Factors
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
Item 6. Exhibits
EX-31.I apc20191q10q-exhibit31i.htm
EX-31.II apc20191q10q-exhibit31ii.htm
EX-32 apc20191q10q-exhibit32.htm

Anadarko Petroleum Earnings 2019-03-31

APC 10Q Quarterly Report

Balance SheetIncome StatementCash Flow

10-Q 1 apc20191q-10q.htm 10-Q Document

UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
[ X ]  QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2019
or
[    ]  TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from        to        
Commission File No. 1-8968
anadarkonamelogoa05.jpg
(Exact name of registrant as specified in its charter)
Delaware
 
76-0146568
(State or other jurisdiction of incorporation or organization)
 
(I.R.S. Employer Identification No.)
1201 Lake Robbins Drive, The Woodlands, Texas
 
77380-1046
(Address of principal executive offices)
 
(Zip Code)
Registrant’s telephone number, including area code (832) 636-1000
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes  þ    No  ¨
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).    Yes  þ    No  ¨
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act. þ
Large accelerated filer  þ   Accelerated filer  ¨  Non-accelerated filer  ¨   Smaller reporting company  ¨ Emerging growth company  ¨
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ¨
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes  ¨    No  þ 
Securities registered pursuant to Section 12(b) of the Act:
Title of each class
Trading symbol
Name of each exchange
on which registered
Number of shares outstanding of the Company’s common stock at May 3, 2019
Common Stock, par value $0.10 per share
APC
New York Stock Exchange
502,118,789



TABLE OF CONTENTS
Page
PART I
Item 1.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Item 2.
 
 
 
 
Item 3.
Item 4.
 
 
 
 
 
 
Item 1.
Item 1A.
Item 2.
Item 6.



COMMONLY USED TERMS AND DEFINITIONS

Unless the context otherwise requires, the terms “Anadarko” and “Company” refer to Anadarko Petroleum Corporation and its consolidated subsidiaries. In addition, the following company or industry-specific terms and abbreviations are used throughout this report:

364-Day Facility - Anadarko’s $2.0 billion 364-day senior unsecured RCF that expired in January 2019
APC RCF - Anadarko’s $3.0 billion senior unsecured RCF
ASR Agreement - An accelerated share-repurchase agreement with an investment bank to repurchase the Company’s common stock
ASU - Accounting Standards Update
Bcf - Billion cubic feet
Board - The Board of Directors of Anadarko
BOE - Barrels of oil equivalent
Chevron - Chevron Corporation
Chevron Merger - Chevron’s acquisition by merger of Anadarko pursuant to, and subject to the conditions of, the Chevron Merger Agreement
Chevron Merger Agreement - Agreement and Plan of Merger, dated as of April 11, 2019, by and among Chevron Corporation, Justify Merger Sub 1 Inc., Justify Merger Sub 2 Inc. and Anadarko
DD&A - Depreciation, depletion, and amortization
DJ - Denver-Julesberg
DJ Basin Complex - The Platte Valley system, Wattenberg system, Lancaster plant, and Wattenberg processing plant
FID - Final investment decision
Fitch - Fitch Ratings
FPSO - Floating production, storage, and offloading unit
G&A - General and administrative expenses
IPO - Initial public offering
IRS - U.S. Internal Revenue Service
LIBOR - London Interbank Offered Rate
LNG - Liquefied natural gas
LPG - Liquefied petroleum gas
MBbls/d - Thousand barrels per day
MBOE/d - Thousand barrels of oil equivalent per day
Mcf - Thousand cubic feet
MMBbls - Million barrels
MMBOE - Million barrels of oil equivalent
MMcf/d - Million cubic feet per day
Moody’s - Moody’s Investors Service
MTPA - Million tonnes per annum
NGL or NGLs - Natural-gas liquids
NYMEX - New York Mercantile Exchange
NYSE - New York Stock Exchange
Oil - Includes crude oil and condensate
Occidental - Occidental Petroleum Corporation
Occidental Proposal - On April 24, 2019, Occidental announced a proposal to acquire Anadarko and further revised its proposal on May 5, 2019. All references herein to the Occidental Proposal refer to the Occidental Proposal as revised and received by Anadarko on May 5, 2019.
RCF - Revolving credit facility
ROU - Right-of-use

APC 2019 FORM 10-Q | 2


S&P - Standard and Poor’s
Share-Repurchase Program - A program authorizing the repurchase of Anadarko’s common stock
TEN - Tweneboa/Enyenra/Ntomme
TEU or TEUs - Tangible equity units
Tronox - Tronox Incorporated
VIE or VIEs - Variable interest entity
WES - Western Midstream Partners, LP, a publicly traded limited partnership, is a consolidated subsidiary of Anadarko, with its common units traded on the NYSE under ticker symbol “WES”. WES consolidates Western Midstream Operating, LP. Prior to February 28, 2019, WES was known as Western Gas Equity Partners, LP, and its common units traded on the NYSE under ticker symbol “WGP”.
WES 364-Day Facility - WES Operating’s $2.0 billion 364-day senior unsecured credit facility
WES Merger - A merger, which was completed on February 28, 2019, whereby a wholly owned subsidiary of WES merged with and into WES Operating.
WES Operating - Western Midstream Operating, LP, a Delaware limited partnership in which WES holds (a) a 98% limited partner interest and (b) the entire non-economic general partner interest through its ownership of WES Operating’s sole general partner. Prior to February 28, 2019, WES Operating was known as Western Gas Partners, LP, and its common units traded on the NYSE under ticker symbol “WES”. Upon completion of the WES Merger, WES Operating’s common units ceased trading on the NYSE.
WES RCF - WES Operating’s $2.0 billion senior unsecured RCF
West Texas Complex - The DBM Complex and DBJV and Haley systems, all of which were combined into a single complex effective January 1, 2018.
WGP - Western Gas Equity Partners, LP, which changed its name to Western Midstream Partners, LP and began trading on the NYSE using the ticker symbol “WES” following the WES Merger.
WGP RCF - WGP’s $35 million senior secured RCF that matured in March 2019
WTI - West Texas Intermediate
Zero Coupons - Anadarko’s Zero-Coupon Senior Notes due 2036

3 | APC 2019 FORM 10-Q


CAUTIONARY STATEMENT ABOUT FORWARD-LOOKING STATEMENTS
Unless the context otherwise requires, the terms “Anadarko” and “Company” refer to Anadarko Petroleum Corporation and its consolidated subsidiaries. The Company has made in this Form 10-Q, and may from time to time make in other public filings, press releases, and management discussions, forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended, concerning the Company’s operations, economic performance, and financial condition. These forward-looking statements include, among other things, information concerning future production and reserves, schedules, plans, timing of development, contributions from oil and gas properties, marketing and midstream activities, matters related to the Chevron Merger Agreement and the Occidental Proposal, and also include those statements preceded by, followed by, or that otherwise include the words “may,” “could,” “believes,” “expects,” “anticipates,” “intends,” “estimates,” “projects,” “target,” “goal,” “plans,” “objective,” “should,” “would,” “will,” “potential,” “continue,” “forecast,” “future,” “likely,” “outlook,” or similar expressions or variations on such expressions. For such statements, the Company claims the protection of the safe harbor for forward-looking statements contained in the Private Securities Litigation Reform Act of 1995. Although the Company believes that the expectations reflected in such forward-looking statements are reasonable, it can give no assurance that such expectations will be realized. Anadarko undertakes no obligation to publicly update or revise any forward-looking statements whether as a result of new information, future events, or otherwise.

These forward-looking statements involve risk and uncertainties. Important factors that could cause actual results to differ materially from the Company’s expectations include, but are not limited to, the following risks and uncertainties:

the Company’s assumptions about energy markets
production and sales volume levels
levels of oil, natural-gas, and NGL reserves
operating results
competitive conditions
technology
availability of capital resources, levels of capital expenditures, and other contractual obligations
supply and demand for, the price of, and the commercialization and transporting of oil, natural gas, NGLs, and other products or services
volatility in the commodity-futures market
weather
inflation
availability of goods and services, including unexpected changes in costs
drilling and other operational risks
processing volume, pipeline throughput, and produced water disposal
general economic conditions, nationally, internationally, or in the jurisdictions in which the Company is, or in the future may be, doing business
the Company’s inability to timely obtain or maintain permits or other governmental approvals, including those necessary for drilling and/or development projects
legislative or regulatory changes, including changes relating to hydraulic fracturing or other oil and natural-gas operations; retroactive royalty or production tax regimes; deepwater and onshore drilling and permitting regulations; derivatives reform; changes in state, federal, and foreign income taxes; environmental regulation, including regulations related to climate change; environmental risks; and liability under international, provincial, federal, regional, state, tribal, local, and foreign environmental laws and regulations
civil or political unrest or acts of terrorism in a region or country
the creditworthiness and performance of the Company’s counterparties, including financial institutions, operating partners, and other parties
volatility in the securities, capital, or credit markets and related risks such as general credit, liquidity, and interest-rate risk
the impact of changes in the Company’s credit ratings

APC 2019 FORM 10-Q | 4


the Company’s ability to successfully plan, secure additional government and partner approvals, enter into additional long-term sales contracts, make a final investment decision and the timing thereof, finance, build, and operate the necessary infrastructure and LNG park in Mozambique
uncertainties and liabilities associated with acquired and divested properties and businesses
disruptions in international oil and NGL cargo shipping activities
physical, digital, internal, and external security breaches
supply and demand, technological, political, governmental, and commercial conditions associated with long-term development and production projects in domestic and international locations
the outcome of pending and future regulatory, legislative, or other proceedings or investigations, including the investigation by the National Transportation Safety Board related to the Company’s operations in Colorado, and continued or additional disruptions in operations that may occur as the Company complies with regulatory orders or other state or local changes in laws or regulations in Colorado
the completion of a proposed merger transaction with Chevron or Occidental
other factors discussed below and elsewhere in “Risk Factors” and in “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Critical Accounting Estimates” included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2018, this Form 10-Q, and in the Company’s other public filings, press releases, and discussions with Company management

5 | APC 2019 FORM 10-Q

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FINANCIAL STATEMENTS


PART I

Item 1.  Financial Statements

ANADARKO PETROLEUM CORPORATION
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
 
Three Months Ended
 
March 31,
millions except per-share amounts
2019

 
2018

Revenues and Other
 
 
 
Oil sales
$
2,096

 
$
2,127

Natural-gas sales
320

 
247

Natural-gas liquids sales
240

 
292

Gathering, processing, and marketing sales
470

 
360

Gains (losses) on divestitures and other, net
92

 
19

Total
3,218

 
3,045

Costs and Expenses
 
 
 
Oil and gas operating
289

 
276

Oil and gas transportation
222

 
196

Exploration
49

 
168

Gathering, processing, and marketing
256

 
237

General and administrative
267

 
278

Depreciation, depletion, and amortization
1,081

 
990

Production, property, and other taxes
199

 
190

Impairments

 
19

Other operating expense
21

 
140

Total
2,384

 
2,494

Operating Income (Loss)
834

 
551

Other (Income) Expense
 
 
 
Interest expense
253

 
228

(Gains) losses on derivatives, net
313

 
35

Other (income) expense, net
6

 
(12
)
Total
572

 
251

Income (Loss) Before Income Taxes
262

 
300

Income tax expense (benefit)
166

 
126

Net Income (Loss)
96

 
174

Net income (loss) attributable to noncontrolling interests
111

 
53

Net Income (Loss) Attributable to Common Stockholders
$
(15
)
 
$
121

 
 
 
 
Per Common Share
 
 
 
Net income (loss) attributable to common stockholders—basic
$
(0.03
)
 
$
0.23

Net income (loss) attributable to common stockholders—diluted
$
(0.03
)
 
$
0.22

Average Number of Common Shares Outstanding—Basic
490

 
518

Average Number of Common Shares Outstanding—Diluted
490

 
519

See accompanying Notes to Consolidated Financial Statements.

APC 2019 FORM 10-Q | 6

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FINANCIAL STATEMENTS


ANADARKO PETROLEUM CORPORATION
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(Unaudited)
 
Three Months Ended
 
March 31,
millions
2019

 
2018

Net Income (Loss)
$
96

 
$
174

Other Comprehensive Income (Loss)
 
 
 
Adjustments for derivative instruments
 
 
 
Reclassification of previously deferred derivative losses to (gains) losses on derivatives, net
1

 
1

Total adjustments for derivative instruments, net of taxes
1

 
1

Adjustments for pension and other postretirement plans
 
 
 
Amortization of net actuarial (gain) loss to other (income) expense, net
8

 
7

Income taxes on amortization of net actuarial (gain) loss
(2
)
 
(2
)
Amortization of net prior service (credit) cost to other (income) expense, net
(1
)
 
(6
)
Income taxes on amortization of net prior service (credit) cost

 
1

Total adjustments for pension and other postretirement plans, net of taxes
5

 

Total
6

 
1

Comprehensive Income (Loss)
102

 
175

Comprehensive income (loss) attributable to noncontrolling interests
111

 
53

Comprehensive Income (Loss) Attributable to Common Stockholders
$
(9
)
 
$
122

See accompanying Notes to Consolidated Financial Statements.


7 | APC 2019 FORM 10-Q

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FINANCIAL STATEMENTS


ANADARKO PETROLEUM CORPORATION
CONSOLIDATED BALANCE SHEETS
(Unaudited)
 
March 31,

 
December 31,

millions except per-share amounts
2019

 
2018

ASSETS
 
 
 
Current Assets
 
 
 
Cash and cash equivalents ($100 and $92 related to VIEs)
$
2,026

 
$
1,295

Accounts receivable (net of allowance of $11 and $13)
 
 
 
   Customers ($138 and $138 related to VIEs)
1,553

 
1,491

   Others
512

 
535

Other current assets
338

 
474

Total
4,429

 
3,795

Net Properties and Equipment (net of accumulated depreciation, depletion, and amortization of $38,903 and $37,905) ($8,630 and $6,612 related to VIEs)
28,936

 
28,615

Other Assets ($1,246 and $868 related to VIEs)
3,006

 
2,336

Goodwill and Other Intangible Assets ($1,279 and $1,163 related to VIEs)
5,622

 
5,630

Total Assets
$
41,993

 
$
40,376

 
 
 
 
LIABILITIES AND EQUITY
 
 
 
Current Liabilities
 
 
 
Accounts payable
 
 
 
Trade ($196 and $263 related to VIEs)
$
1,946

 
$
2,003

Other ($6 and $15 related to VIEs)
165

 
161

Short-term debt - Anadarko (1)
21

 
919

Short-term debt - WES
2,000

 
28

Current asset retirement obligations ($23 and $26 related to VIEs)
277

 
252

Other current liabilities ($107 and $54 related to VIEs)
1,340

 
1,295

Total
5,749

 
4,658

Long-term Debt
 
 
 
Long-term debt - Anadarko (1)
10,695

 
10,683

Long-term debt - WES
5,208

 
4,787

Total
15,903

 
15,470

Other Long-term Liabilities
 
 
 
Deferred income taxes
2,624

 
2,437

Asset retirement obligations ($312 and $260 related to VIEs)
2,876

 
2,847

Other
4,308

 
4,021

Total
9,808

 
9,305

 
 
 
 
Equity
 
 
 
Stockholders’ equity
 
 
 
Common stock, par value $0.10 per share (1.0 billion shares authorized, 577.8 million and 576.6 million shares issued)
57

 
57

Paid-in capital
13,057

 
12,393

Retained earnings
1,024

 
1,245

Treasury stock (87.5 million and 87.2 million shares)
(4,881
)
 
(4,864
)
Accumulated other comprehensive income (loss)
(329
)
 
(335
)
Total Stockholders’ Equity
8,928

 
8,496

Noncontrolling interests
1,605

 
2,447

Total Equity
10,533

 
10,943

Total Liabilities and Equity
$
41,993

 
$
40,376

Parenthetical references reflect amounts as of March 31, 2019, and December 31, 2018.
VIE amounts relate to WES. See Note 15—Variable Interest Entities.
(1) 
Excludes WES.
See accompanying Notes to Consolidated Financial Statements.

APC 2019 FORM 10-Q | 8

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FINANCIAL STATEMENTS


ANADARKO PETROLEUM CORPORATION
CONSOLIDATED STATEMENTS OF EQUITY
(Unaudited)
 
Total Stockholders’ Equity
 
 
 
millions
Common
Stock

Paid-in
Capital

Retained
Earnings

Treasury
Stock

Accumulated Other
Comprehensive
Income (Loss)
 
Non-
controlling
Interests
 
Total
Equity

Balance at December 31, 2018
$
57

$
12,393

$
1,245

$
(4,864
)
 
$
(335
)
 
$
2,447

$
10,943

Net income (loss)


(15
)

 

 
111

96

Share-based compensation expense

38



 

 

38

Dividends—common stock


(150
)

 

 

(150
)
Repurchases of common stock



(17
)
 

 

(17
)
Subsidiary equity transactions

626

(1
)

 

 
(823
)
(198
)
Distributions to noncontrolling interest owners




 

 
(130
)
(130
)
Adjustments for pension and other postretirement plans




 
5

 

5

Cumulative effect of accounting change (1)


(55
)

 

 

(55
)
Other




 
1

 

1

Balance at March 31, 2019
$
57

$
13,057

$
1,024

$
(4,881
)
 
$
(329
)
 
$
1,605

$
10,533

(1) 
Beginning January 1, 2019, the Company adopted ASU 2016-02, Leases (Topic 842). See Note 1—Summary of Significant Accounting Policies in the Notes to Consolidated Financial Statements for further information.

 
Total Stockholders’ Equity
 
 
 
millions
Common
Stock

Paid-in
Capital

Retained
Earnings

Treasury
Stock

Accumulated Other
Comprehensive
Income (Loss)
 
Non-
controlling
Interests
 
Total
Equity

Balance at December 31, 2017
$
57

$
12,000

$
1,109

$
(2,132
)
 
$
(338
)
 
$
3,094

$
13,790

Net income (loss)


121


 

 
53

174

Share-based compensation expense

39



 

 

39

Dividends—common stock


(127
)

 

 

(127
)
Repurchases of common stock

(332
)

(1,627
)
 

 

(1,959
)
Subsidiary equity transactions

(6
)


 

 
9

3

Distributions to noncontrolling interest owners




 

 
(118
)
(118
)
Cumulative effect of accounting change (1)


49


 
(73
)
 
(23
)
(47
)
Other




 
1

 

1

Balance at March 31, 2018
$
57

$
11,701

$
1,152

$
(3,759
)
 
$
(410
)
 
$
3,015

$
11,756

(1) 
Beginning January 1, 2018, the Company adopted ASU 2014-09, Revenue from Contracts with Customers (Topic 606), and ASU 2018-02, Income Statement - Reporting Comprehensive Income (Topic 220): Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income. See Note 1—Summary of Significant Accounting Policies in the Company’s Annual Report on Form 10-K for the year ended December 31, 2018.
See accompanying Notes to Consolidated Financial Statements.


9 | APC 2019 FORM 10-Q

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FINANCIAL STATEMENTS


ANADARKO PETROLEUM CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
 
Three Months Ended
 
March 31,
millions
2019

 
2018

Cash Flows from Operating Activities
 
 
 
Net income (loss)
$
96

 
$
174

Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities
 
 
 
Depreciation, depletion, and amortization
1,081

 
990

Deferred income taxes
1

 
42

Dry hole expense and impairments of unproved properties

 
106

Impairments

 
19

(Gains) losses on divestitures, net
5

 
24

Total (gains) losses on derivatives, net
315

 
36

Operating portion of net cash received (paid) in settlement of derivative instruments
1

 
(63
)
Other
42

 
74

Changes in assets and liabilities
 
 
 
(Increase) decrease in accounts receivable
(39
)
 
23

Increase (decrease) in accounts payable and other current liabilities
(294
)
 
45

Other items, net
(79
)
 
(40
)
Net cash provided by (used in) operating activities
1,129

 
1,430

Cash Flows from Investing Activities
 
 
 
Additions to properties and equipment
(1,389
)
 
(1,547
)
Divestitures of properties and equipment and other assets
7

 
371

Other, net
(146
)
 
63

Net cash provided by (used in) investing activities
(1,528
)
 
(1,113
)
Cash Flows from Financing Activities
 
 
 
Borrowings, net of issuance costs
2,420

 
1,333

Repayments of debt
(935
)
 
(639
)
Financing portion of net cash received (paid) for derivative instruments
(98
)
 
54

Increase (decrease) in outstanding checks
68

 
(26
)
Dividends paid
(150
)
 
(127
)
Repurchases of common stock
(17
)
 
(1,959
)
Distributions to noncontrolling interest owners
(130
)
 
(118
)
Payments of future hard-minerals royalty revenues conveyed
(24
)
 
(25
)
Other
(5
)
 

Net cash provided by (used in) financing activities
1,129

 
(1,507
)
Effect of exchange rate changes on cash, cash equivalents, restricted cash, and restricted cash equivalents
1

 

Net Increase (Decrease) in Cash, Cash Equivalents, Restricted Cash, and Restricted Cash Equivalents
731

 
(1,190
)
Cash, Cash Equivalents, Restricted Cash, and Restricted Cash Equivalents at Beginning of Period
1,429

 
4,674

Cash, Cash Equivalents, Restricted Cash, and Restricted Cash Equivalents at End of Period
$
2,160

 
$
3,484

See accompanying Notes to Consolidated Financial Statements.

APC 2019 FORM 10-Q | 10

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FINANCIAL STATEMENTS
FOOTNOTES



1. Summary of Significant Accounting Policies

General  Anadarko Petroleum Corporation is engaged in the exploration, development, production, and sale of oil, natural gas, and NGLs and is continuing to advance its Mozambique LNG project toward FID. In addition, the Company engages in gathering, compressing, treating, processing, and transporting of natural gas; gathering, stabilizing, and transporting of oil and NGLs; and gathering and disposing of produced water. The Company also participates in the hard-minerals business through royalty arrangements.

Basis of Presentation  The accompanying unaudited consolidated financial statements have been prepared in conformity with U.S. Generally Accepted Accounting Principles for interim financial information and the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, certain notes and other information have been condensed or omitted. The accompanying interim financial statements reflect all normal recurring adjustments that are, in the opinion of management, necessary for the fair presentation of the Company’s consolidated financial statements. Certain prior-period amounts have been reclassified to conform to the current-period presentation. These interim financial statements should be read in conjunction with the consolidated financial statements and accompanying notes included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2018.

Chevron Merger On April 11, 2019, the Company entered into the Chevron Merger Agreement pursuant to which, and subject to the conditions of the agreement, all outstanding shares of Anadarko will be acquired by Chevron in a stock and cash transaction valued at $33 billion, or $65.00 per share, as of the announcement date. Under the terms of the Chevron Merger Agreement, Anadarko stockholders will receive 0.3869 of a share of Chevron common stock and $16.25 in cash for each Anadarko share. The transaction was approved by the Boards of Directors of both companies. On May 6, 2019, Anadarko announced that the Board unanimously determined that the Occidental Proposal constituted a “Superior Proposal” as defined in the Chevron Merger Agreement. Under the terms of the Occidental Proposal, Occidental would acquire Anadarko for consideration consisting of $59.00 in cash and 0.2934 of a share of Occidental common stock per share of Anadarko common stock. Anadarko has notified Chevron that (i) the Board has unanimously determined that the Occidental Proposal constitutes a "Superior Proposal" and (ii) after complying with its obligations to Chevron under the Chevron Merger Agreement, Anadarko intends to terminate the Chevron Merger Agreement in order to enter into a definitive merger agreement with Occidental in connection with the Occidental Proposal. Pursuant to the Chevron Merger Agreement, Chevron has the right, during the four business day period ending on May 10, 2019, which may be extended in accordance with the terms of the Chevron Merger Agreement, to propose revisions to the terms of the Chevron Merger Agreement, or to make another proposal. If Anadarko terminates the Chevron Merger Agreement in order to enter into a definitive agreement with respect to the Occidental Proposal, Anadarko will pay Chevron a $1.0 billion termination fee as required by the Chevron Merger Agreement. The Chevron Merger Agreement remains in effect unless and until terminated, and accordingly, the Board reaffirms its existing recommendation of the transaction with Chevron at this time. Either transaction would be subject to Anadarko stockholder approval, regulatory approvals, and other customary closing conditions.

Midstream Asset Sale and WES Merger On February 28, 2019, Anadarko completed the previously announced contribution and sale of substantially all of its midstream assets, which consisted of oil infrastructure assets in the DJ basin and oil and water infrastructure assets in the Delaware basin, to WES Operating for $4.0 billion, with $2.0 billion of cash proceeds and $2.0 billion in WES Operating common units. As a result, the Company will no longer report an Other Midstream segment and will now have two reporting segments: Exploration and Production and WES Midstream. Prior period amounts have been reclassified to conform to the current period’s presentation. See Note 17—Segment Information for information on the Company’s reporting segments.
Immediately after the asset contribution and sale, a wholly owned subsidiary of WES merged with and into WES Operating, with WES Operating continuing as the surviving entity and a subsidiary of WES, resulting in a simplified midstream structure. Under the terms of the WES Merger, WES acquired all of the outstanding publicly held common units of WES Operating and substantially all of the WES Operating common units owned by Anadarko and its affiliates. WES Operating survived as a partnership with no publicly traded equity, owned 98% by WES and 2% by Anadarko. WES Operating owns all the operating assets and equity investments of WES, is the borrower for all existing WES debt and is expected to be the borrower for all future debt. Anadarko maintains operating control of WES, with approximately 55.5% ownership of the combined entity.




11 | APC 2019 FORM 10-Q

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FINANCIAL STATEMENTS
FOOTNOTES


1. Summary of Significant Accounting Policies (Continued)

The consolidated financial statements include the accounts of Anadarko and subsidiaries in which Anadarko holds, directly or indirectly, more than 50% of the voting rights and VIEs for which Anadarko is the primary beneficiary. The Company has determined that WES is a VIE. Anadarko is considered the primary beneficiary and consolidates WES. WES functions with a capital structure that is separate from Anadarko, consisting of its own debt instruments and publicly traded common units. All intercompany transactions have been eliminated. Undivided interests in oil and natural-gas exploration and production joint ventures are consolidated on a proportionate basis. Investments in noncontrolled entities that Anadarko has the ability to exercise significant influence over operating and financial policies and VIEs for which Anadarko is not the primary beneficiary are accounted for using the equity method. In applying the equity method of accounting, the investments are initially recognized at cost and subsequently adjusted for the Company’s proportionate share of earnings, losses, and distributions. Investments are included in other assets on the Company’s Consolidated Balance Sheets.

Recently Adopted Accounting Standards  

ASU 2016-02, Leases (Topic 842) This ASU requires lessees to recognize a lease liability and an ROU asset on the balance sheet for all leases, including operating leases. This ASU modifies the definition of a lease and outlines the recognition, measurement, presentation, and disclosure of leasing arrangements by both lessees and lessors. The Company adopted Topic 842 on January 1, 2019, using the modified retrospective method applied to all leases that existed on January 1, 2019, and prior-period financial statements were not adjusted. Anadarko elected not to reassess contracts that commenced prior to adoption, to continue applying its current accounting policy for existing or expired land easements, and not to recognize ROU assets or lease liabilities for short-term leases. Upon adoption, the Company recognized approximately $600 million of ROU assets and lease liabilities related to leases existing at January 1, 2019. The difference between ROU assets and operating lease liabilities, net of the deferred tax impact, was recognized as a $55 million reduction in the opening balance of retained earnings as a cumulative effect adjustment. See Note 9—Leases for additional information.

Accounting Policy  

Leases Anadarko determines if an arrangement is a lease based on rights and obligations conveyed at inception of a contract. At the commencement date, a lease is classified as either operating or finance, and an ROU asset and lease liability is recognized based on the present value of future lease payments over the lease term. As the rate implicit in Anadarko’s leases generally is not readily determinable, the Company discounts lease liabilities using the Company’s incremental borrowing rate at the commencement date. Non-lease components associated with leases that begin in 2019 or later are accounted for as part of the lease component, and prepaid lease payments are included in the ROU asset. Options to extend or terminate a lease are included in the lease term when it is reasonably certain that Anadarko will exercise that option. Leases of 12 months or less are not recognized on the Company’s Consolidated Balance Sheet.
Lease cost is recognized over the lease term, unless the end of the useful life of the underlying asset in a finance lease is before the end of the lease term. Lease cost is recognized on a straight-line basis unless another method better represents the pattern that benefit is expected to be derived from the right to use the underlying asset. For finance leases, interest expense is recognized over the lease term using the effective interest method. Variable lease payments are recognized when the obligation for those payments is incurred.
Generally, a contract in a joint arrangement is evaluated as a lease if Anadarko is the operator. Anadarko recognizes an ROU asset and lease liability for the full amount of each contract determined to be a lease, although a portion of lease payments is generally recovered from partners. Lease payments associated with the drilling of exploratory wells and development wells net of amounts billed to partners will initially be capitalized as a component of oil and gas properties and either depreciated, impaired, or written off as exploration expense in future periods.

APC 2019 FORM 10-Q | 12

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FINANCIAL STATEMENTS
FOOTNOTES


2. Revenue from Contracts with Customers

Disaggregation of Revenue from Contracts with Customers The following table disaggregates revenue by significant product type and segment:
millions
Exploration
& Production
 
WES Midstream
 
Other and
Intersegment
Eliminations
 
Total
 
Three Months Ended March 31, 2019
 
 
 
 
 
 
 
 
Oil sales
 
$
2,096

 
$

 
$

 
$
2,096

Natural-gas sales
 
320

 

 

 
320

Natural-gas liquids sales
 
240

 

 

 
240

Gathering, processing, and marketing sales (1)
 
1

 
672

 
(25
)
 
648

Other, net
 
9

 

 
25

 
34

Total Revenue from Customers
 
$
2,666

 
$
672

 
$

 
$
3,338

Gathering, processing, and marketing sales (2)
 

 

 
(178
)
 
(178
)
Gains (losses) on divestitures, net
 

 

 
(5
)
 
(5
)
Other, net
 
(1
)
 
57

 
7

 
63

Total Revenue from Other than Customers
 
$
(1
)
 
$
57

 
$
(176
)
 
$
(120
)
Total Revenue and Other
 
$
2,665

 
$
729

 
$
(176
)
 
$
3,218

 
 
 
 
 
 
 
 
 
Three Months Ended March 31, 2018
 
 
 
 
 
 
 
 
Oil sales
 
$
2,127

 
$

 
$

 
$
2,127

Natural-gas sales
 
247

 

 

 
247

Natural-gas liquids sales
 
292

 

 

 
292

Gathering, processing, and marketing sales (1)
 

 
502

 
46

 
548

Other, net
 
3

 

 
19

 
22

Total Revenue from Customers
 
$
2,669

 
$
502

 
$
65

 
$
3,236

Gathering, processing, and marketing sales (2)
 

 
(1
)
 
(187
)
 
(188
)
Gains (losses) on divestitures, net
 
(33
)
 

 
9

 
(24
)
Other, net
 
(12
)
 
44

 
(11
)
 
21

Total Revenue from Other than Customers
 
$
(45
)
 
$
43

 
$
(189
)
 
$
(191
)
Total Revenue and Other
 
$
2,624

 
$
545

 
$
(124
)
 
$
3,045

(1) 
The amount in Other and Intersegment Eliminations primarily represents sales of third-party natural gas and NGLs of $209 million and intersegment eliminations of $(223) million for the three months ended March 31, 2019, and sales of third-party natural gas and NGLs of $224 million and intersegment eliminations of $(163) million for the three months ended March 31, 2018.
(2) 
The amount in Other and Intersegment Eliminations represents purchases of third-party natural gas and NGLs. Although these purchases are reported net in gathering, processing, and marketing sales in the Company’s Consolidated Statements of Income, they are shown separately on this table as the purchases are not considered revenue from customers.


13 | APC 2019 FORM 10-Q

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FINANCIAL STATEMENTS
FOOTNOTES


2. Revenue from Contracts with Customers (Continued)

Contract Liabilities Contract liabilities primarily relate to midstream fees and capital reimbursements that are charged to customers for only a portion of the contract term and must be recognized as revenues over the expected period of benefit, fixed and variable fees that are received from customers but revenue recognition is deferred under midstream cost of service contracts, and hard-minerals bonus payments received from customers that must be recognized as revenue over the expected period of benefit. The following table summarizes the current period activity related to contract liabilities from contracts with customers:
millions
 
Balance at December 31, 2018
$
150

Increase due to cash received, excluding revenues recognized in the period
21

Decrease due to revenue recognized
(18
)
Balance at March 31, 2019
$
153

 
 
Contract liabilities at March 31, 2019
 
Other current liabilities
$
23

Other long-term liabilities - other
130

Total contract liabilities from contracts with customers
$
153


Transaction Price Allocated to Remaining Performance Obligations Revenue expected to be recognized from certain performance obligations that are unsatisfied as of March 31, 2019, is reflected in the table below. The Company applies the optional exemptions in Topic 606 and does not disclose consideration for remaining performance obligations with an original expected duration of one year or less or for variable consideration related to unsatisfied performance obligations. Therefore, the following table represents only a small portion of Anadarko’s expected future consolidated revenues as future revenue from the sale of most products and services is dependent on future production or variable customer volume and variable commodity prices for that volume.
millions
Exploration
& Production
 
WES Midstream
 
Other and
Intersegment
Eliminations
 
Total
 
Remainder of 2019
 
$
80

 
$
533

 
$
(352
)
 
$
261

2020
 
103

 
862

 
(622
)
 
343

2021
 
103

 
912

 
(698
)
 
317

2022
 
7

 
976

 
(770
)
 
213

2023
 
7

 
933

 
(770
)
 
170

Thereafter
 
58

 
4,500

 
(4,009
)
 
549

Total
 
$
358

 
$
8,716

 
$
(7,221
)
 
$
1,853


3. Commodity Inventories

The following summarizes the major classes of commodity inventories included in other current assets:
millions
March 31, 2019
 
December 31, 2018
 
Oil
 
$
169

 
$
139

Natural gas
 
1

 
18

NGLs
 
84

 
78

Total commodity inventories
 
$
254

 
$
235



APC 2019 FORM 10-Q | 14

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FINANCIAL STATEMENTS
FOOTNOTES


4. Divestitures

The following summarizes the proceeds received and gains (losses) recognized on divestitures:
 
Three Months Ended
 
March 31,
millions
2019

 
2018

Proceeds received, net of closing adjustments
$
7

 
$
371

Gains (losses) on divestitures, net
(5
)
 
(24
)

2018 During the three months ended March 31, 2018, the Company divested of its Alaska nonoperated assets, included in the Exploration and Production reporting segment, for net proceeds of $383 million and net losses of $30 million in 2018 and $154 million in the fourth quarter of 2017.

5. Suspended Exploratory Well Costs

The Company’s suspended exploratory well costs were $460 million at March 31, 2019, and $444 million at December 31, 2018. For exploratory wells, drilling costs are capitalized, or “suspended,” on the balance sheet when the well has found a sufficient quantity of reserves to justify its completion as a producing well and sufficient progress is being made in assessing the reserves and the economic and operating viability of the project. If additional information becomes available that raises substantial doubt as to the economic or operational viability of any of these projects, the associated costs will be expensed at that time. During the three months ended March 31, 2019, there was no exploration expense recorded for suspended exploratory well costs previously capitalized for greater than one year at December 31, 2018.

6. Current Liabilities

Accounts Payable Accounts payable, trade included liabilities of $248 million at March 31, 2019, and $180 million at December 31, 2018, representing the amount by which checks issued but not presented to the Company’s banks for collection exceeded balances in applicable bank accounts. Changes in these liabilities are classified as cash flows from financing activities.

Other Current Liabilities The following summarizes the Company’s other current liabilities:
millions
March 31, 2019
 
December 31, 2018
 
Accrued income taxes
 
$
211

 
$
167

Interest payable
 
159

 
267

Production, property, and other taxes payable
 
314

 
309

Accrued employee benefits
 
153

 
319

Derivatives
 
121

 
89

Operating lease liabilities
 
245

 

Other
 
137

 
144

Total other current liabilities
 
$
1,340

 
$
1,295



15 | APC 2019 FORM 10-Q

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FINANCIAL STATEMENTS
FOOTNOTES


7. Derivative Instruments

Objective and Strategy  The Company uses derivative instruments to manage its exposure to cash-flow variability from commodity-price and interest-rate risks. Futures, swaps, and options are used to manage exposure to commodity-price risk inherent in the Company’s oil and natural-gas production and natural-gas processing operations (Oil and Natural-Gas Production/Processing Derivative Activities). Futures contracts and commodity-price swap agreements are used to fix the price of expected future oil and natural-gas sales at major industry trading locations, such as Cushing, Oklahoma or Sullom Voe, Scotland for oil and Henry Hub, Louisiana for natural gas. Basis swaps are periodically used to fix or float the price differential between product prices at one market location versus another. Options are used to establish a floor price, a ceiling price, or a floor and a ceiling price (collar) for expected future oil and natural-gas sales. Derivative instruments are also used to manage commodity-price risk inherent in customer price requirements and to fix margins on the future sale of natural gas and NGLs from the Company’s leased storage facilities.
Interest-rate swaps are used to fix or float interest rates on existing or anticipated indebtedness. The purpose of these instruments is to manage the Company’s existing or anticipated exposure to interest-rate changes. The fair value of the Company’s current interest-rate swap portfolio is subject to changes in interest rates.
The Company does not apply hedge accounting to any of its currently outstanding derivative instruments. As a result, gains and losses associated with derivative instruments are recognized currently in earnings. Net derivative losses attributable to derivatives previously subject to hedge accounting reside in accumulated other comprehensive income (loss) and are reclassified to earnings as the transactions to which the derivatives relate are recognized in earnings.

Oil and Natural-Gas Production/Processing Derivative Activities  The oil prices listed below are a combination of NYMEX WTI and Intercontinental Exchange, Inc. (ICE) Brent Blend prices. The Company had no natural-gas production/processing derivatives at March 31, 2019. The following is a summary of the Company’s oil derivative instruments at March 31, 2019:
 
2019 Settlement

Oil
 
Three-Way Collars (MBbls/d)
87

Average price per barrel

Ceiling sold price (call)
$
72.98

Floor purchased price (put)
$
56.72

Floor sold price (put)
$
46.72


A three-way collar is a combination of three options: a sold call, a purchased put, and a sold put. The sold call establishes the maximum price that the Company will receive for the contracted commodity volume. The purchased put establishes the minimum price that the Company will receive for the contracted volume unless the market price for the commodity falls below the sold put strike price, at which point the minimum price equals the reference price (e.g., NYMEX) plus the excess of the purchased put strike price over the sold put strike price.


APC 2019 FORM 10-Q | 16

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FINANCIAL STATEMENTS
FOOTNOTES


7. Derivative Instruments (Continued)

Anadarko Interest-Rate Derivatives (Excluding WES)  Anadarko has outstanding interest-rate swap contracts to manage interest-rate risk associated with anticipated debt issuances. The Company has locked in a fixed interest rate in exchange for a floating interest rate indexed to the three-month LIBOR.
At March 31, 2019, the Company had outstanding interest-rate swaps with a notional amount of $1.6 billion due prior to or in September 2023 that manage interest-rate risk associated with potential future debt issuances. Depending on market conditions, liability-management actions, or other factors, the Company may enter into offsetting interest-rate swap positions or settle or amend certain or all of the currently outstanding interest-rate swaps. The Company had the following outstanding interest-rate swaps at March 31, 2019
millions except percentages
 
Mandatory
Weighted-Average

Notional Principal Amount
Reference Period
Termination Date
Interest Rate

$
550

 
September 2016 - 2046
September 2020
6.418
%
$
250

 
September 2016 - 2046
September 2022
6.809
%
$
100

 
September 2017 - 2047
September 2020
6.891
%
$
250

 
September 2017 - 2047
September 2021
6.570
%
$
450

 
September 2017 - 2047
September 2023
6.445
%

Derivative settlements and collateralization are classified as cash flows from operating activities unless the derivatives contain an other-than-insignificant financing element, in which case the settlements and collateralization are classified as cash flows from financing activities. As a result of prior extensions of reference-period start dates without settlement of the related interest-rate derivative obligations, the interest-rate derivatives in Anadarko’s portfolio contain an other-than-insignificant financing element, and therefore, any settlements, collateralization, or cash payments for amendments related to these extended interest-rate derivatives are classified as cash flows from financing activities. Net cash payments related to settlements and amendments of interest-rate swap agreements were $41 million during the three months ended March 31, 2019, and $46 million during the three months ended March 31, 2018.

WES Interest-Rate Derivatives WES entered into interest-rate swap agreements with an aggregate notional amount of $750 million in December 2018 and $375 million in March 2019 to manage interest-rate risk associated with anticipated 2019 debt issuances. WES exchanged a floating interest rate indexed to the three-month LIBOR for a fixed interest rate. Depending on market conditions, liability management actions, or other factors, WES may settle or amend certain or all of the currently outstanding interest-rate swaps. The following interest-rate swaps were outstanding at March 31, 2019:
millions except percentages
 
Mandatory
Weighted-Average

Notional Principal Amount
Reference Period
Termination Date
Interest Rate

$
375

 
December 2019 - 2024
December 2019
2.662
%
$
375

 
December 2019 - 2029
December 2019
2.802
%
$
375

 
December 2019 - 2049
December 2019
2.885
%



17 | APC 2019 FORM 10-Q

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FINANCIAL STATEMENTS
FOOTNOTES


7. Derivative Instruments (Continued)

Effect of Derivative InstrumentsBalance Sheet  The following summarizes the fair value of the Company’s derivative instruments:
 
Gross Derivative Assets
 
Gross Derivative Liabilities
millions
March 31,
 
December 31,
 
 
March 31,
 
December 31,
 
Balance Sheet Classification
 
2019

 
2018

 
 
2019

 
2018

Commodity derivatives - Anadarko
 
 
 
 
 
 
 
 
 
Other current assets
 
$
45

 
$
300

 
 
$
(27
)
 
$
(126
)
Other current liabilities
 

 
1

 
 
(2
)
 
(6
)
 
 
45

 
301

 
 
(29
)
 
(132
)
Interest-rate derivatives - Anadarko (1)
 


 
 
 
 
 
 
 
Other current assets
 
21

 
22

 
 

 

Other assets
 
30

 
34

 
 

 

Other current liabilities
 

 

 
 
(83
)
 
(82
)
Other liabilities
 

 

 
 
(1,237
)
 
(1,156
)
 
 
51

 
56

 
 
(1,320
)
 
(1,238
)
Interest-rate derivatives - WES
 
 
 
 
 
 
 
 
 
Other current liabilities
 

 

 
 
(44
)
 
(8
)
Total derivatives
 
$
96

 
$
357

 
 
$
(1,393
)
 
$
(1,378
)
(1) 
Excludes amounts related to WES interest-rate swap agreements.

Effect of Derivative InstrumentsStatement of Income  The following summarizes gains and losses related to derivative instruments:
 
Three Months Ended
millions
March 31,
Classification of (Gain) Loss Recognized
 
2019

 
2018

Commodity derivatives - Anadarko
 
 
 
 
Gathering, processing, and marketing sales
 
$
2

 
$
1

(Gains) losses on derivatives, net
 
149

 
162

Interest-rate derivatives - Anadarko (1)
 
 
 

(Gains) losses on derivatives, net
 
128

 
(127
)
Interest-rate derivatives - WES
 
 
 
 
(Gains) losses on derivatives, net
 
36

 

Total (gains) losses on derivatives, net
 
$
315

 
$
36

(1) 
Excludes amounts related to WES interest-rate swap agreements.


APC 2019 FORM 10-Q | 18

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FINANCIAL STATEMENTS
FOOTNOTES


7. Derivative Instruments (Continued)

Credit-Risk Considerations  The financial integrity of exchange-traded contracts, which are subject to nominal credit risk, is assured by NYMEX or ICE through systems of financial safeguards and transaction guarantees. Over-the-counter traded swaps, options, and futures contracts expose the Company to counterparty credit risk. The Company monitors the creditworthiness of its counterparties, establishes credit limits according to the Company’s credit policies and guidelines, and assesses the impact on the fair value of its counterparties’ creditworthiness. The Company has the ability to require cash collateral or letters of credit to mitigate its credit-risk exposure.
The Company has netting agreements with financial institutions that permit net settlement of gross commodity derivative assets against gross commodity derivative liabilities and routinely exercises its contractual right to offset gains and losses when settling with derivative counterparties. In addition, the Company has setoff agreements with certain financial institutions that may be exercised in the event of default and provide for contract termination and net settlement across derivative types.
The Company’s derivative instruments are subject to individually negotiated credit provisions that may require collateral of cash or letters of credit depending on the derivative’s portfolio valuation versus negotiated credit thresholds. These credit thresholds generally require full or partial collateralization of the Company’s obligations depending on certain credit-risk-related provisions, such as the Company’s credit rating from S&P and Moody’s. As of March 31, 2019, the Company’s long-term debt was rated investment grade (BBB) by both S&P and Fitch and below investment grade (Ba1) by Moody’s. In January 2019, Moody’s changed its outlook with respect to its rating from stable to positive. The Company may be required to post additional collateral with respect to its derivative instruments if its credit ratings decline below current levels or if the liability associated with any such derivative instrument increases above the credit threshold. The aggregate fair value of derivative instruments with credit-risk-related contingent features for which a net liability position existed was $1.2 billion (net of $123 million of collateral) at March 31, 2019, and $1.1 billion (net of $66 million of collateral) at December 31, 2018.


19 | APC 2019 FORM 10-Q

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FINANCIAL STATEMENTS
FOOTNOTES


7. Derivative Instruments (Continued)

Fair Value  Fair value of futures contracts is based on unadjusted quoted prices in active markets for identical assets or liabilities, which represent Level 1 inputs. Valuations of physical-delivery purchase and sale agreements, over-the-counter financial swaps, and commodity option collars are based on similar transactions observable in active markets and industry-standard models that primarily rely on market-observable inputs. Inputs used to estimate fair value in industry-standard models are categorized as Level 2 inputs because substantially all assumptions and inputs are observable in active markets throughout the full term of the instruments. Inputs used to estimate the fair value of swaps and options include market-price curves; contract terms and prices; credit-risk adjustments; and, for Black-Scholes option valuations, discount factors and implied market volatility.
The following summarizes the fair value of the Company’s derivative assets and liabilities by input level within the fair-value hierarchy:
millions
Level 1

 
Level 2

 
Level 3

 
Netting (1)

Collateral
 
 
Total

March 31, 2019
 
 
 
 
 
 
 
 
 
 
 
Assets
 
 
 
 
 
 
 
 
 
 
 
Anadarko (2)
 
 
 
 
 
 
 
 
 
 
 
Commodity derivatives
$

 
$
45

 
$

 
$
(27
)
 
$

 
$
18

Interest-rate derivatives

 
51

 

 

 

 
51

Total derivative assets
$

 
$
96

 
$

 
$
(27
)
 
$

 
$
69

Liabilities
 
 
 
 
 
 
 
 
 
 
 
Anadarko (2)
 
 
 
 
 
 
 
 
 
 
 
Commodity derivatives
$

 
$
(29
)
 
$

 
$
27

 
$

 
$
(2
)
Interest-rate derivatives

 
(1,320
)
 

 

 
123

 
(1,197
)
WES
 
 
 
 
 
 
 
 
 
 
 
Interest-rate derivatives

 
(44
)
 

 

 

 
(44
)
Total derivative liabilities
$

 
$
(1,393
)
 
$

 
$
27

 
$
123

 
$
(1,243
)
 
 
 
 
 
 
 
 
 
 
 
 
December 31, 2018
 
 
 
 
 
 
 
 
 
 
 
Assets
 
 
 
 
 
 
 
 
 
 
 
Anadarko (2)
 
 
 
 
 
 
 
 
 
 
 
Commodity derivatives
$
1

 
$
300

 
$

 
$
(127
)
 
$

 
$
174

Interest-rate derivatives

 
56

 

 

 

 
56

Total derivative assets
$
1

 
$
356

 
$

 
$
(127
)
 
$

 
$
230

Liabilities
 
 
 
 
 
 
 
 
 
 
 
Anadarko (2)
 
 
 
 
 
 
 
 
 
 
 
Commodity derivatives
$
(2
)
 
$
(130
)
 
$

 
$
127

 
$
2

 
$
(3
)
Interest-rate derivatives

 
(1,238
)
 

 

 
66

 
(1,172
)
WES
 
 
 
 
 
 
 
 
 
 
 
Interest-rate derivatives

 
(8
)
 

 

 

 
(8
)
Total derivative liabilities
$
(2
)
 
$
(1,376
)
 
$

 
$
127

 
$
68

 
$
(1,183
)
(1) 
Represents the impact of netting commodity derivative assets and liabilities with counterparties where the Company has the contractual right and intends to net settle.
(2) 
Excludes amounts related to WES interest-rate swap agreements.




APC 2019 FORM 10-Q | 20

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FINANCIAL STATEMENTS
FOOTNOTES


8. Debt

Debt Activity  The following summarizes the Company’s borrowing activity, after eliminating the effect of intercompany transactions, during the three months ended March 31, 2019:
 
 
Carrying Value
 
millions
Anadarko (1)
 
WES
 
Anadarko Consolidated
 
Description
Balance at December 31, 2018
 
$
11,354

 
$
4,815

 
$
16,169

 
Borrowings
 
 
 
 
 
 
 
 
 

 
2,000

 
2,000

WES 364-Day Facility
 
 

 
420

 
420

WES RCF
Repayments
 
 
 
 
 
 
 
 
 
(600
)
 

 
(600
)
8.700 % Senior Notes due 2019
 
 
(300
)
 

 
(300
)
6.950 % Senior Notes due 2019
 
 

 
(28
)
 
(28
)
WGP RCF
Other, net
 
12

 
1

 
13

Amortization of discounts, premiums, and debt issuance costs
Balance at March 31, 2019
 
$
10,466

 
$
7,208

 
$
17,674

 
(1) 
Excludes WES.

Debt  The following summarizes the Company’s outstanding debt, including finance lease liabilities, after eliminating the effect of intercompany transactions:
millions
Anadarko (1)
 
WES
 
Anadarko Consolidated
 
March 31, 2019
 
 
 
 
 
 
Total borrowings at face value
 
$
11,893

 
$
7,260

 
$
19,153

Net unamortized discounts, premiums, and debt issuance costs (2)
 
(1,427
)
 
(52
)
 
(1,479
)
Total borrowings (3)
 
10,466

 
7,208

 
17,674

Finance lease liabilities
 
250

 

 
250

Less short-term debt
 
21

 
2,000

 
2,021

Total long-term debt
 
$
10,695

 
$
5,208

 
$
15,903

 
 
 
 
 
 
 
December 31, 2018
 
 
 
 
 
 
Total borrowings at face value
 
$
12,793

 
$
4,868

 
$
17,661

Net unamortized discounts, premiums, and debt issuance costs (2)
 
(1,439
)
 
(53
)
 
(1,492
)
Total borrowings (3)
 
11,354

 
4,815

 
16,169

Finance lease liabilities
 
248

 

 
248

Less short-term debt
 
919

 
28

 
947

Total long-term debt
 
$
10,683

 
$
4,787

 
$
15,470

(1) 
Excludes WES.
(2) 
Unamortized discounts, premiums, and debt issuance costs are amortized over the term of the related debt. Debt issuance costs related to RCFs are included in other current assets and other assets on the Company’s Consolidated Balance Sheets.
(3) 
The Company’s outstanding borrowings, except for borrowings under the WGP RCF, are senior unsecured.

21 | APC 2019 FORM 10-Q

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FINANCIAL STATEMENTS
FOOTNOTES


8. Debt (Continued)

Fair Value  The Company uses a market approach to determine the fair value of its fixed-rate debt using observable market data, which results in a Level 2 fair-value measurement. The carrying amount of floating-rate debt approximates fair value as the interest rates are variable and reflective of market rates. The estimated fair value of the Company’s total borrowings was $19.3 billion at March 31, 2019, and $16.8 billion at December 31, 2018.

Anadarko Debt (Excluding WES)  In January 2019, the $2.0 billion 364-day senior unsecured RCF (364-Day Facility) expired. At March 31, 2019, the Company had a $3.0 billion senior unsecured RCF maturing in January 2023 (APC RCF). At March 31, 2019, Anadarko had no outstanding borrowings under the APC RCF and was in compliance with all covenants.
In March 2019, Anadarko repaid $600 million of 8.700% Senior Notes at maturity and redeemed its $300 million of 6.950% Senior Notes due June 2019.
Anadarko’s Zero Coupons can be put to the Company in October of each year, in whole or in part, for the then-accreted value of the outstanding Zero Coupons, which, if put in whole, would be $942 million at the next put date in October 2019. Anadarko’s Zero Coupons were classified as long-term debt on the Company’s Consolidated Balance Sheet at March 31, 2019, as the Company has the ability and intent to refinance these obligations using long-term debt, should a put be exercised.
The Company also has notes payable related to its ownership of certain noncontrolling mandatorily redeemable interests that are not included in the Company’s reported debt balance and do not affect consolidated interest expense. See Note 9—Equity-Method Investments in the Company’s Annual Report on Form 10-K for the year ended December 31, 2018.

WES and WGP Debt  Effective on February 15, 2019, WES amended the maturity date of its senior unsecured RCF from February 2023 to February 2024, and upon completion of the WES Merger, expanded the borrowing capacity from $1.5 billion to $2.0 billion (WES RCF). During the three months ended March 31, 2019, WES borrowed $420 million under its RCF, which was used for general partnership purposes. At March 31, 2019, WES had outstanding borrowings under its RCF of $640 million at an interest rate of 3.79%, outstanding letters of credit of $5 million, available borrowing capacity of $1.4 billion, and was in compliance with all covenants.
In February 2019, WES borrowed $2.0 billion under its 364-day senior unsecured credit facility (WES 364-Day Facility) to fund substantially all of the cash portion of the consideration under the WES midstream asset contribution and sale and the payment of related transaction costs. The WES 364-Day Facility will mature on February 27, 2020, the day prior to the one-year anniversary of the completion of the WES Merger. Net cash proceeds received from future asset sales and debt or equity offerings by WES must be used to repay amounts outstanding under the WES 364-Day Facility. At March 31, 2019, WES had outstanding borrowings under its WES 364-Day Facility of $2.0 billion at an interest rate of 3.87% and was in compliance with all covenants. WES intends to refinance the obligations under the 364-Day Facility prior to its maturity in February 2020.
In March 2019, the $35 million senior secured RCF (WGP RCF) matured following the completion of the WES Merger. During the three months ended March 31, 2019, WES made repayments of $28 million for the WGP RCF.
See Note 1—Summary of Significant Accounting Policies for additional information related to the WES Merger.


APC 2019 FORM 10-Q | 22

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FINANCIAL STATEMENTS
FOOTNOTES


9. Leases

Operating Leases  At March 31, 2019, total lease liabilities related to operating leases were $551 million and primarily related to offshore and onshore drilling rigs and real estate.
The operating lease liabilities included $216 million for three offshore drilling vessels and certain contracts for onshore drilling rigs expiring at various dates through 2021. Lease payments commonly vary based on activities being performed by the rig. To the extent that lease payments vary from amounts recognized on the Company’s balance sheet, the amount is included in variable lease cost.
Additionally, the Company has $193 million of operating lease liabilities for real estate, primarily related to the Company’s Denver corporate office lease expiring in 2033, with options to terminate the lease early.

Finance Leases  At March 31, 2019, total lease liabilities related to finance leases were $250 million and primarily related to an FPSO for the Company’s TEN field in Ghana. The initial FPSO lease term ends in 2026 with annual renewal periods for an additional 10 years, annual purchase options that decrease over time, and no residual value guarantees.

The following table summarizes information related to the Company’s leases at March 31, 2019:
millions except lease term and discount rate
Operating Leases
 
Finance Leases
 
Assets
 
 
 
 
Other assets
 
$
534

 
$

Net properties and equipment
 

 
186

Total lease assets (1)
 
$
534

 
$
186

 
 
 
 
 
Liabilities
 
 
 
 
Current liabilities
 
 
 
 
Other current liabilities
 
$
245

 
$

Short-term debt - Anadarko
 

 
21

Long-term liabilities
 
 
 
 
Other
 
306

 

Long-term debt - Anadarko
 

 
229

Total lease liabilities (1)
 
$
551

 
$
250

 
 
 
 
 
Weighted-average remaining lease term (years)
 
5

 
16

Weighted-average discount rate (2)
 
4.3
%
 
15.4
%
(1) 
Includes additions to ROU assets and lease liabilities of $60 million related to operating leases and $6 million related to finance leases for the three months ended March 31, 2019.
(2) 
The FPSO finance lease commenced prior to the adoption of ASU 2016-02, Leases (Topic 842). In accordance with previous accounting guidance, the implied rate is based on the fair value of the underlying asset.


23 | APC 2019 FORM 10-Q

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FINANCIAL STATEMENTS
FOOTNOTES


9. Leases (Continued)

The following table summarizes the Company’s lease cost before amounts recovered from partners:
 
Three Months Ended
 
millions
March 31, 2019
 
Operating lease cost
 
$
78

Short-term lease cost
 
19

Variable lease cost
 
39

Finance lease cost
 
 
Amortization of ROU assets
 
10

Interest on lease liabilities
 
9

Total lease cost
 
$
155


The following table summarizes cash paid for amounts included in the measurement of lease liabilities:
 
Three Months Ended
 
March 31, 2019
millions
Operating Leases
 
Finance Leases
 
Operating cash flows
 
$
78

 
$
9

Investing cash flows
 
24

 

Financing cash flows
 

 
4


The following table reconciles the undiscounted cash flows to the operating and finance lease liabilities recorded on the Company’s Consolidated Balance Sheet at March 31, 2019:
millions
Operating Leases (1)
 
Finance Leases
 
Remainder of 2019
 
$
185

 
$
46

2020
 
166

 
51

2021
 
60

 
50

2022
 
43

 
46

2023
 
30

 
43

Thereafter
 
142

 
324

Total lease payments
 
$
626

 
$
560