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Anadarko Profit Surges 50%, Volumes up 8% Despite Storms

Anadarko Petroleum Corp. reported a 50% surge in quarterly profit on Friday, lifted by record commodity prices. Net income rose to $598 million ($2.51/share), from $300 million ($1.58) in 3Q2004. CEO Jim Hackett said the company "hit the middle of our target range" for production, with organic volumes up 8% so far this year.

Results included $141 million in losses on derivatives, partially offset by a $29 million gain on a transportation keep-whole agreement and a $13 million after-tax charge related to selling a field in Oman. Excluding those items, Anadarko earned $2.86/share, beating a Wall Street forecast of $2.82. Revenues rose to $1.76 billion from $1.56 billion a year earlier. Cash flow from operating activities was $1.14 billion in the third quarter, and discretionary cash flow totaled $1.01 billion.(1)

"Anadarko's results were strong, even with the impact of several noncash items and unusual events, not the least of which were two 100-year storms in one quarter," said Hackett. "Revenues were up year-over-year and, importantly, we reduced direct operating costs 26% for the same period. As a result, we were able to expand our cash margins, partly because of higher commodity prices, but also due to our restructured, more efficient asset base."

Third quarter sales volumes totaled 39 million boe, or 426,000 boe/d. Natural gas sales volumes averaged 1.382 Bcf/d, at an average realized price of $7.15/Mcf. Natural gas liquids volumes averaged 34,000 bbl/d. Overall volumes were essentially flat sequentially and were down year-over-year because of asset sales. Adjusted for these property sales, volumes increased 8%.

Offshore Gulf of Mexico, Anadarko's gross volumes of 20,000 boe/d were shut in for a combined 20 days of the quarter because of Hurricanes Katrina and Rita. In total, the company estimates that combined onshore and offshore weather-related shut-ins and delays, including those affecting rigs being used to develop the K2, K2 North and Genghis Khan fields, reduced quarterly net volumes by 400,000 boe. Full-year 2005 net volumes are expected to be reduced by approximately 2.2 million boe because of the shut-ins and ongoing effects of the delayed development activity, including delays due to offshore loop currents.

"Anadarko continues to make solid progress on its growth strategy with new initiatives underway internationally and in the Gulf of Mexico, where we acted quickly to lock up several new resource opportunities, as well as a separate decision to secure additional offshore drilling rigs to carry out our active program over the coming years," Hackett added. "Our exploration mindset is a differentiating feature of Anadarko, as we invest over 25% of our capital to carry out our mission to add new hydrocarbon reserves to meet the world's increasing needs, as well as provide competitive and sustainable growth for our shareholders."

Anadarko's production in the Gulf from the K2 and Marco Polo fields is produced through the Marco Polo platform. The platform sustained no material damage from either Rita or Katrina. The Marco Polo field is back on production, and the K2 field is expected to ramp back up to pre-storm levels in the next few days.

"Disruptive storms are a part of working in the Gulf of Mexico," said Mark Pease, Anadarko Senior Vice President, Exploration and Production. "Anadarko employees handled the operational and logistical challenges efficiently and safely, without a single related injury, and that's our first priority."

Between the end of the second quarter and Oct. 12, Anadarko purchased 5.5 million shares to complete the company's stock repurchase program, which began in June 2004. A total of 28.4 million shares were purchased under the $2 billion program, at an average cost of $70.50/share, including all trading expenses.

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