Anadarko Petroleum Corporation (NYSE:APC) announced third quarter 2004 net income available to common shareholders of $399 million, or $1.58 per share (diluted). Net income includes costs associated with the implementation of its refocused strategy, primarily the repurchase of debt and the sale of non-core properties, which amounted to $74 million, or $0.29 per share (diluted). For the same period in 2003, net income was $274 million, or $1.09 per share (diluted). Year-to-date 2004 net income is $1.2 billion, or $4.72 per share (diluted).
Cash flow from operating activities totaled $992 million in the third quarter 2004, compared to $884 million for the third quarter 2003. Cash flow from operations before changes in assets and liabilities for the third quarter 2004 totaled $617 million, which includes a reduction of $347 million for current taxes related to the divestitures. This compares to $868 million for the third quarter 2003.(1) Year-to-date 2004 cash flow from operating activities totaled $2.76 billion.
"Anadarko is rapidly executing the strategy we announced in June, divesting non-core properties and refocusing the company to deliver sustainable, profitable growth," said Jim Hackett, Anadarko President and CEO. "Using proceeds from asset sales, along with substantial cash flow from operations resulting from strong oil and natural gas prices, we are delivering on our commitment to repurchase both debt and common stock."
Consistent with its strategy announced in June, Anadarko has agreements in place to sell approximately $2.5 billion of assets and has additional agreements pending on about $800 million of assets. Together, these divestitures represent year-end 2003 proved reserves of approximately 285 million barrels of oil equivalent (BOE) and production of about 120,000 BOE per day. Net income was not directly affected by the sales, as proceeds were recognized as an adjustment of capitalized costs under full-cost accounting rules.
In September, the company repurchased $750 million aggregate principal amount of debt securities, which resulted in $63 million associated with premiums and other costs recorded to interest expense in the third quarter. The company's $1.2 billion cash tender offer was completed in early October with the repurchase of another $455 million of debt securities. The company anticipates costs associated with this repurchase to be about $40 million, which will be recorded in the fourth quarter. Total debt at the end of the quarter has been reduced by about $575 million since the first of the year.
Since initiating a $2 billion stock repurchase program in June, the company has repurchased 9 million outstanding common shares at a cost of approximately $550 million to date.
VOLUMES AND PRICES
During the third quarter 2004, sales volumes totaled 49 million BOE, or 534,000 BOE per day, up more than 4 percent from the second quarter due to the start-up of Anadarko's Marco Polo field in the deepwater Gulf of Mexico, continued drilling success in East Texas and North Louisiana tight gas plays and the timing of sales in Algeria. However, sales volumes were down relative to the prior-year third quarter due primarily to high natural decline rates on properties that are currently being divested. Third quarter 2004 volumes also were reduced an estimated 200,000 BOE by hurricane-related shut-downs in the Gulf of Mexico. Third quarter 2003 sales volumes were 50 million BOE, or 541,000 BOE per day.
The company's average realized oil price in the third quarter 2004 was $34.42 per barrel, up 31 percent from the 2003 third quarter price of $26.36 per barrel. Anadarko's average realized natural gas price was $4.93 per thousand cubic feet (Mcf), up 9 percent from the $4.51 per Mcf received in the same period in 2003. Realized prices include the effect of hedges, including approximately $30 million of hedge losses related to properties being sold.
"Strong prices continue to give us the necessary cash flow to execute our capital programs, strengthen the balance sheet, and return value directly to shareholders through our regular dividend program and stock repurchases," Hackett said. "Our strategic realignment is proceeding ahead of plan, and our core assets -- our foundation and growth platforms -- are creating value for the future. For example, our foundation assets in Anadarko's North Louisiana Vernon field and our Canadian Wild River play in Alberta continue to set record production levels. We brought the Marco Polo field in the Gulf of Mexico on-line this quarter. And we've also positioned ourselves well with a new growth opportunity through our planned LNG terminal in Nova Scotia where we held a ceremonial ground breaking yesterday and expect to have the facility on-line in late 2007."
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