ANADARKO PETROLEUM CORP - 10-K Annual Report

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 ü No .

Indicate by check mark if the disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of the registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K .

The aggregate market value of the voting stock held by non-affiliates of the registrant on June 30, 2003 was $11.1 billion.

The number of shares outstanding of the Company’s common stock as of January 30, 2004 is shown below:

Anadarko Petroleum Corporation is among the largest independent oil and gas exploration and production companies in the world, with 2.5 billion barrels of oil equivalent (BOE) of proved reserves as of December 31, 2003. The Company’s major areas of operations are located in the United States, primarily in Texas, Louisiana, the mid-continent region and the western states, Alaska and in the shallow and deep waters of the Gulf of Mexico, as well as in Canada and Algeria. Anadarko also has significant production in Venezuela and Qatar and is executing strategic exploration programs in several other countries. The Company actively markets natural gas, oil and natural gas liquids (NGLs) and owns and operates gas gathering systems in its core producing areas. In addition, the Company engages in the hard minerals business through non-operated joint ventures and royalty arrangements in several coal, trona (natural soda ash) and industrial mineral mines located on lands within and adjacent to its Land Grant holdings. The Land Grant is an 8 million acre strip running through portions of Colorado, Wyoming and Utah where the Company owns most of its fee mineral rights. Anadarko is committed to minimizing the environmental impact of exploration and production activities in its worldwide operations through programs such as carbon dioxide (CO₂) sequestration and the reduction of surface area used for production facilities.

Unless the context otherwise requires, the terms “Anadarko” or “Company” refer to Anadarko and its subsidiaries. The Company’s corporate headquarters are located at 1201 Lake Robbins Drive, The Woodlands, Texas 77380, where the telephone number is (832) 636-1000.

Available Information The Company files Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K, registration statements and other items with the Securities and Exchange Commission (SEC). Anadarko provides access free of charge to all of these SEC filings, as soon as reasonably practicable after filing, on its internet site located at www.anadarko.com. The Company will also make available to any stockholder, without charge, copies of its Annual Report on Form 10-K as filed with the SEC. For copies of this, or any other filings, please contact: Anadarko Petroleum Corporation, Public Affairs Department, P.O. Box 1330, Houston, Texas 77251-1330 or call (832) 636-1316.

In addition, the public may read and copy any materials Anadarko files with the SEC at the SEC’s Public Reference Room at 450 Fifth Street, NW, Washington, DC 20549. The public may obtain information on the operation of the Public Reference Room by calling the SEC at 1-800-SEC-0330. The SEC maintains an internet site (www.sec.gov) that contains reports, proxy and information statements and other information regarding issuers, like Anadarko, that file electronically with the SEC.

As of December 31, 2003, Anadarko had proved reserves of 7.7 trillion cubic feet (Tcf) of natural gas and 1.2 billion barrels of crude oil, condensate and NGLs. Combined, these proved reserves are equivalent to 2.5 billion barrels of oil or 15.1 Tcf of gas. The Company’s reserves have grown 22% over the past three years due primarily to: the acquisitions of Berkley Petroleum Corp. (Berkley) and Gulfstream Resources Canada Limited in 2001 and Howell Corporation (Howell) in 2002; substantial crude oil and natural gas reserves discovered in the Gulf of Mexico, Canada and onshore in the United States; crude oil reserves added in Algeria and Alaska; and, through acquisitions of producing properties. As of December 31, 2003, Anadarko had proved developed reserves of 5.9 Tcf of natural gas and 746 million barrels (MMBbls) of crude oil, condensate and NGLs. Proved developed reserves comprise 69% of total proved reserves.

Proved reserve estimates are made by the Company’s engineers. In 2003, Anadarko bolstered its internal control of these estimates by using a corporate review team comprised of five technical experts: four members from within Anadarko who are independent of the operating groups responsible for the reserve estimates, and one member from Netherland, Sewell & Associates, Inc. (NSA), an independent worldwide reserves consultant. The procedures and methods used by Anadarko in preparing its estimates of proved reserves and future revenues, as of

December 31, 2003, were reviewed by the team. Through participation on the team, NSA reviewed more than 70% of the Company’s 2003 reserve additions, as well as specific major properties representing about half of Anadarko’s total worldwide reserves. NSA determined that the general methods and procedures used by Anadarko in the reserve estimation process were reasonable and prepared in accordance with SEC Regulation S-X Rule 4-10(a) and generally accepted petroleum engineering and evaluation principles. A copy of the NSA report is attached as Exhibit 99.1 of this Form 10-K.

To improve investor confidence and provide transparency regarding the Company’s reserves, the Company has initiated an effort to annually report the status of its proved undeveloped reserves (PUDs). The Company annually reviews all PUDs, with a particular focus on those PUDs that have been booked for three or more years, to ensure that there is an appropriate plan for development. Generally, onshore United States PUDs are converted to proved developed reserves within two years. Certain projects, such as improved oil recovery, arctic development, deepwater development and many international programs, may take longer, sometimes beyond five years. Nearly 75% of the Company’s PUDs booked prior to 1999 are in Algeria and are being developed according to a government approved plan. The remaining PUDs booked prior to 1999 are primarily associated with ongoing programs in the onshore United States for improved recovery and arctic development.

The following graph shows the change in PUDs for each year by comparing the vintage distribution of December 31, 2003 PUDs to the vintage distribution of December 31, 2002 PUDs. It illustrates the Company’s effectiveness in converting PUDs to developed reserves.

Worldwide Proved Undeveloped Reserves Comparison by Year Added Year Added 2003 PUDs, MMBOE 2002 PUDs, MMBOE % Change 2003 328 2002 100 154 35% Reduction 2001 184 340 46% Reduction 2000 58 78 26% Reduction 1999 11 13 15% Reduction Prior Years 105 175 40% Reduction

The Company’s estimates of proved reserves, proved developed reserves and proved undeveloped reserves at December 31, 2003, 2002 and 2001 and changes in proved reserves during the last three years are contained in the Supplemental Information on Oil and Gas Exploration and Production Activities — Unaudited (Supplemental Information) in the Anadarko Petroleum Corporation 2003 Consolidated Financial Statements (Consolidated Financial Statements) under Item 8 of this Form 10-K. The Company files annual estimates of certain proved oil and gas reserves with the U.S. Department of Energy (DOE), which are within 5% of the amounts included in the above estimates. See Critical Accounting Policies and Estimates under Item 7 of this Form 10-K.

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.

The following table shows the Company’s annual sales volumes. Volumes for natural gas are in billion cubic feet (Bcf) at a pressure base of 14.73 pounds per square inch and volumes for oil, condensate and NGLs are in MMBbls. Total volumes are in MMBOE. For this computation, six thousand cubic feet (Mcf) of gas is the energy equivalent of one barrel of oil, condensate or NGLs.

The following table shows the Company’s annual average sales prices and average production costs. The average sales prices include gains and losses for derivative contracts the Company utilizes to manage price risk related to the Company’s sales volumes. Production costs are costs incurred to operate and maintain the Company’s wells and related equipment and include cost of labor, well service and repair, location maintenance, power and fuel, transportation, cost of product, property taxes, production and severance taxes and production related administrative and general costs. Certain amounts for prior years have been reclassified to conform to the current presentation. Additional information on volumes, prices and markets is contained in Financial Results and Marketing Strategies under Item 7 of this Form 10-K. Additional detail of production costs is contained in the Supplemental Information under Item 8 of this Form 10-K. Information on major customers is contained in Note 13 of the Notes to Consolidated Financial Statements under Item 8 of this Form 10-K.

Anadarko’s active areas in the United States include the Lower 48 states, Alaska and the Gulf of Mexico. Reserves in the United States comprised 68% of Anadarko’s total proved reserves at year-end 2003. During 2003, drilling results included 430 gas wells, 219 oil wells and 37 dry holes. The accompanying maps illustrate by state Anadarko’s undeveloped and developed lease and fee acreage, number of net producing wells and other data relevant to its domestic onshore and offshore oil and gas operations.

Overview About 56% of the Company’s proved reserves are located onshore in the Lower 48 states, with operations primarily in Texas, Louisiana, the mid-continent region and western states. In 2003, average production from the Company’s properties in this area was 1,169 million cubic feet per day (MMcf/d) of gas and 102 thousand barrels per day (MBbls/d) of crude oil, condensate and NGLs, or 57% of the Company’s total production volumes. Anadarko has 2,570,000 gross (1,921,000 net) undeveloped lease acres, 2,964,000 gross (1,980,000 net) developed lease acres and 9,527,000 gross (8,478,000 net) fee acres in the Lower 48 states. In 2004, capital spending in the Lower 48 states is expected to range from $1.2 billion to $1.4 billion.

Bossier Play During 2003, Anadarko continued drilling in the Bossier play and had a total of 20 rigs drilling (11 in east Texas and nine in north Louisiana) at year-end. The Company drilled 142 wells in 2003 with a success rate of 98%. Bossier net volumes for 2003 totaled 122 Bcf, or roughly 19% of the Company’s total gas production, making it Anadarko’s largest onshore gas area. During 2003, exploration leasing activity continued in the Bossier play. At year-end 2003, Anadarko had a total of 478,000 net acres in the area. During 2004, the Company expects to operate about 22 rigs (13 in east Texas and nine in north Louisiana) to drill 205 wells, including six exploration wells, in the Bossier play.

In the east Texas Bossier, the Company has 573 gross operated producing wells and a total of 354,000 net acres as of the end of 2003. During 2003, Anadarko drilled 93 wells, with a 97% success rate. The Company’s net gas production from the east Texas Bossier averaged 211 MMcf/d of gas, a slight increase compared to 2002. During 2003, the Dowdy Ranch field continued to be the focus of activity in east Texas. Production from the field was 106 MMcf/d of gas at the end of 2003, an increase of 47%, compared to the beginning of the year.

In the north Louisiana Bossier, the Vernon field was producing 141 MMcf/d of gas (net) from 123 wells at the end of 2003. This represents an increase of about 100% from year-end 2002. Anadarko’s drilling program in the Vernon field remains focused on extending the boundaries and developing the field areas with the highest production rates, recoverable reserves and economic returns. A total of 49 wells were drilled in the Vernon area in 2003, with a 100% success rate. At year-end 2003, Anadarko’s position in the play totaled 124,000 net acres.

Carthage Anadarko is conducting a successful development program in the Carthage area of east Texas. The Company drilled 44 wells in the area with a success rate of 100% during 2003 and had four rigs performing infill drilling at the end of the year. The Company also had four rigs performing workovers and recompletions throughout the Carthage area at the end of 2003. Anadarko’s net production from the Carthage area averaged 110 MMcf/d of gas and 3 MBbls/d of liquids during 2003. The Company plans to drill 56 wells in the Carthage area in 2004.

Woodbine The Company is operating a deep gas exploration program in the Woodbine play of east Texas (100% working interest (WI)). In 2003, Anadarko drilled two exploration wells. One well encountered mechanical problems and was temporarily abandoned pending further evaluation. The second well is expected to be tested in the first quarter of 2004. In addition, the Company is participating in a 197 square mile 3-D seismic survey in the area. During 2004, the Company plans to continue activity within the play, which may include offset drilling, acquiring additional 3-D seismic and leasing.

South Louisiana During 2003, net volumes from south Louisiana were 5 MMBOE. The majority of the Company’s production in south Louisiana is from the Kent Bayou field. In 2004, the Company expects production to decrease to less than 1 MMBOE due to higher water production.

Overview Anadarko’s horizontal drilling program continues to be the focus in central Texas where it holds approximately 1,001,000 net acres. During 2003, Anadarko drilled 62 wells, with a success rate of 95%, to exploit the multiple pay zones in the Giddings and Brookeland fields. The Company also has an exploration program in the James Lime formation in central Texas. During 2003, net volumes averaged approximately 126 MMcf/d of gas, 14 MBbls/d of oil and 5 MBbls/d of NGLs. In 2003, Anadarko operated over 1,550 wells in this area. In 2004, Anadarko expects to drill 75 wells, including three exploratory wells, as part of a seven-rig program.

Giddings The Company continued its cost-efficient horizontal reentry program in the Giddings field. The cost to reenter a well is about 40% less than the cost of a new well. During 2003, 28 wells were reentered and completed. Additionally, Anadarko continued its water-fracturing program, successfully stimulating 105 wells in 2003.

Brookeland Anadarko’s development program included the drilling and completion of nine wells in 2003 in the Brookeland field, where the Company has approximately 178,000 net acres. During 2003, Anadarko successfully applied a reentry program, similar to the Giddings field, to the area with five wells reentered and completed. During 2004, the Company plans to continue the reentry program to access infill drilling areas.

James Lime In late 2003, Anadarko drilled one successful exploratory well in the James Lime formation, in Madison County, Texas. During 2004, Anadarko plans to evaluate the 2003 discovery well, possibly drill two prospects and continue leasing activity.

During 2003, Anadarko drilled 126 wells with a 98% success rate in the Permian basin. In addition, the Company performed 172 workovers and recompletions. Net production for 2003 averaged 91 MMcf/d of gas and 13 MBbls/d of oil, condensate and NGLs. Anadarko controls 308,000 net acres in the Permian basin and operates 4,960 wells. During 2004, the Company plans to drill 240 development wells and five exploration wells in the Permian basin.

In the Ozona field, located in southwest Texas, development continued with the Company drilling and completing 42 wells and recompleting 45 wells during 2003. In 2003, net production averaged 60 MMcf/d of gas. Anadarko operates 1,844 wells in the Ozona field and plans to drill 48 wells and recomplete 30 wells in 2004. The Company also had activity in its emerging Haley tight gas play in the deep Delaware basin of west Texas. During 2003, two development wells were drilled with a 100% success rate and one exploration well was drilled and is currently awaiting completion. In addition, the Company recompleted two wells and continues to monitor the results. During 2004, Anadarko plans to drill two exploration wells and have an active development program in the deep Delaware basin. Additionally, three exploration wells are planned in the Val Verde basin.

Hugoton Embayment Anadarko’s drilling activities in the Hugoton Embayment, located in southwest Kansas and the Oklahoma and Texas panhandles, are focused on the deeper oil and gas zones below the shallow gas producing formations. Anadarko controls 875,000 net acres in this area and operates 2,300 wells. The deep drilling program in Kansas and the Oklahoma panhandle utilizes 3-D seismic technology to locate oil and gas bearing zones. During 2003, the Company installed a waterflood project in Kansas.

The Company’s net production from the Hugoton Embayment area during 2003 averaged 133 MMcf/d of gas and 17 MBbls/d of oil, condensate and NGLs. In 2003, the Company drilled 36 deep wells with a 53% success rate. Anadarko also recompleted 16 wells and carried out workover operations on 137 wells in the area. In 2004, the Company plans to drill about 48 wells and install an additional waterflood project.

Central Oklahoma During 2003, net production from central Oklahoma was 22 MMcf/d of gas and 8 MBbls/d of crude oil and NGLs. The majority of Anadarko’s focus in 2003 was developing an oil play in the Rush Creek field. In 2003, Anadarko drilled and completed 37 wells in the field, with an 84% success rate, resulting in a net production increase of 2 thousand barrels of oil equivalent per day (MBOE/d). The Company plans to drill about 33 wells in central Oklahoma focused on developing the deeper gas producing zones of the Golden Trend interval in 2004.

Page 9 - Onshore US map Net Net Net Net Undeveloped Developed Fee Producing Acres Acres Acres Wells Onshore: United States Alabama 223 2,677 11,473 9 Alaska* 1,659,315 5,006 7,978 11 Arkansas 658 1,103 344,660 3 California 6,153 318 3,135 -- Colorado 8,572 20,885 2,893,025 216 Florida -- -- 5,342 -- Georgia -- --2,838 - -- Idaho -- --846 -- Illinois -- -- 1,954 -- Indiana 913 -- 9,912 -- Iowa -- -- 198 -- Kansas* 355,435 363,737 29,834 1,763 Louisiana* 130,718 156,954 13,131 224 Mississippi 7,349 1,953 63,880 6 Missouri -- -- 552 --Montana 135,449 3,095 8 105 Nebraska 4,643 926 28,198 1 New Mexico 2,643 13,117 417 4 Nevada - ---- 433 --North Dakota 20 1,862 -- 3 Oklahoma* 73,977 196,066 31,109 1,288 Oregon -- -- 741 --South Carolina -- -- 2,734 -- Tennessee -- -- 902 -- Texas* 654,071 1,093,275 176,104 6,810 Utah* 7,565 23,651 690,322 167 Washington ---- 2,524 --West Virginia 330 -- -- -- Wyoming* 531,849 100,157 4,163,906 3,200 Office Locations: United States Anchorage, Alaska The Woodlands, Texas * Drilling activities were conducted in these areas in 2003.

Overview Anadarko continues to increase its activity level and production in the western states area, with significant exploration and development activity in conventional, tight gas, enhanced oil recovery and coalbed methane (CBM) plays. The western states area primarily includes the Company’s oil and gas properties in the Land Grant area of Wyoming, Colorado and Utah. Economics on the Land Grant acreage are greatly enhanced by Anadarko’s fee mineral ownership position. For example, in a typical non-operated well that is outside of the Land Grant, Anadarko may have a 25% WI with a 20% net revenue interest. However, on the Land Grant, because of the Company’s fee mineral ownership, Anadarko may have a 25% WI with a 33.75% net revenue interest. Anadarko’s operations on the Land Grant are concentrated in the Green River basin and the Overthrust area.

The Company currently has approximately 8,440,000 net acres, principally attributable to its Land Grant ownership. Anadarko and its partners drilled 231 wells in the area in 2003 with an overall success rate of 99%. Anadarko’s 2003 net production from the western states area averaged 294 MMcf/d of gas, 13 MBbls/d of oil and 16 MBbls/d of NGLs. The Company’s 2004 plans include drilling 274 development wells and at least one exploratory well.

Conventional During 2003, Anadarko’s net production from its conventional properties, located primarily in Wyoming, averaged 219 MMcf/d of gas, 4 MBbls/d of oil and 16 MBbls/d of NGLs. In the Green River basin of Wyoming, Anadarko focused on conventional drilling projects in the Wamsutter, Brady and Moxa Arch areas. In 2003, the Company drilled or participated in 114 wells in the Green River basin, with an overall success rate of 99%. Of these, 30 are Company-operated development wells (95% average WI) and 84 are non-operated wells (21% average WI). In 2004, the Company plans to drill 115 additional wells in the area.

In 2003, three wells were drilled with a 100% success rate in the Table Rock area. In addition, Anadarko and its partner purchased and upgraded the Table Rock gas sweetening plant. Anadarko operates this facility that now has a capacity of 60 MMcf/d of gas. The Company’s net production from the area was 12 MMcf/d of gas in 2003. The Company plans to drill nine wells and continue exploitation of this field in 2004.

During 2003, exploration efforts continued in the Green River and Hanna basins assisted by new interpretations of 2-D and 3-D seismic data. Anadarko continues to process and interpret this seismic data to identify new plays and prospects in the under-explored basins of southern Wyoming. At the end of 2003, the Company was drilling its first Hanna exploration well based on this new seismic data. The Company holds a working interest ownership in 134,000 net acres in this area. In 2004, the Company plans to acquire new 3-D seismic data and drill one additional exploration well.

Enhanced Oil Recovery In late 2002, Anadarko acquired 64 MMBOE of proved reserves, primarily in the Salt Creek and Elk Basin fields of Wyoming, with the Howell acquisition. In a separate transaction, Anadarko acquired the rights to purchase significant quantities of CO₂ and the exclusive rights to market the CO₂ in the Powder River basin. During 2003, the Company completed a pilot CO₂ flood project that confirmed the viability of the enhanced oil recovery process and commenced construction of the first phase of the project. The Company also constructed a 125-mile pipeline that will transport CO₂ to the Salt Creek field and potentially could serve other enhanced oil recovery projects in Wyoming as well. The Company expects to invest an additional $150 million over the next three years for the further development of this project. These projects are expected to result in an increase in net production from the Salt Creek field (98% WI) from year-end 2003 net oil production of 4 MBOE/d to peak production of about 30 MBOE/d by 2009.

During 2003, Anadarko began injection of CO₂ in the Monell field located in south-central Wyoming following completion of a 33-mile CO₂ pipeline. During 2004, the remainder of the facilities needed to serve Monell’s first phase will be completed, another 21 wells will be drilled and the CO₂ flood area will be expanded. This project is expected to result in an increase in net production from the Monell field to about 10 MBOE/d by 2010.

Anadarko is committed to protecting the environment and is working with the DOE and the scientific community to study the long-term storage of CO₂ in its enhanced oil recovery projects. CO₂ is produced along with natural gas in fields elsewhere in Wyoming and the CO₂ has historically been vented to the atmosphere. Reinjecting this CO₂ in the Company’s projects will reduce the amount of greenhouse gases introduced into the atmosphere.

Coalbed Methane CBM has become a core gas play for Anadarko. The Company now operates three full-scale CBM properties (County Line, Helper and Drunkard’s Wash), as well as active pilot programs. The Company also continues to evaluate new CBM exploration opportunities on the Land Grant. Production from the Company’s CBM properties continued to increase during 2003. At year-end 2003, net production averaged 66 MMcf/d of gas compared to 61 MMcf/d of gas in 2002 and 34 MMcf/d of gas in 2001. In 2003, the Company drilled or participated in 68 wells, with an overall success rate of 97%. In 2004, the Company plans to continue to explore for and develop CBM reserves and drill about 130 wells.

Development of the Big George coal at the Company’s County Line property, in the Powder River basin of Wyoming, began in late 2001. At year-end 2003, the project was producing 11 MMcf/d of gas (net) from 92 wells. During 2003, the Company drilled nine wells in the Helper and Drunkard’s Wash fields in Utah, with a success rate of 100%.

During 2003, the Company finished completion operations on 13 pilot wells at Copper Ridge in Wyoming (50% WI). Additionally, along the Land Grant, Anadarko has entered into a 50/50 joint venture to develop 126,000 gross acres for CBM in the Atlantic Rim project area. Anadarko began operating 36 wells and drilled nine additional wells throughout the year within the joint venture. The Company plans to continue to monitor the wells performance in anticipation of development drilling in 2004.

The Company’s western states division also completed a five-well exploration program in the Forest City basin CBM play (100% WI) in Kansas during 2003. This project is in the initial exploration phase pending evaluation of core data.

Anadarko is committed to protecting the environment in its CBM activities by reinjecting the majority of produced water and, where appropriate, proactively working with state and federal agencies to develop new water treatment and handling technologies for the beneficial use of produced coalbed water.

Overview Anadarko’s activity in Alaska is concentrated primarily on the North Slope. The Company had interests in 3,176,000 gross (1,659,000 net) undeveloped lease acres, 24,000 gross (5,000 net) developed lease acres and 16,000 gross (8,000 net) fee acres in Alaska at year-end 2003. About 3% of the Company’s proved reserves at year-end 2003 were in Alaska. The Company has budgeted about $60 million in capital spending in Alaska for 2004, which includes drilling three to four exploration wells and about 12 development wells.

Development The Alpine field (22% WI) on Alaska’s North Slope produced an average of 98 MBbls/d of oil (gross) in 2003. A facility expansion to increase produced water handling in the field and eliminate minor oil train bottlenecks, scheduled to be completed in 2004, is expected to increase production capacity to 110 MBbls/d. During 2003 at Colville Delta 2, development drilling continued with 17 wells (five production and 12 injection wells) drilled and completed. As of year-end 2003, 82 wells (38 production wells and 44 injection or service wells) had been completed. When fully developed, the Alpine field is expected to have 94 horizontal wells from two drill sites.

The Alpine field serves as an excellent example of Anadarko’s commitment to minimizing the impact of exploration and production operations in environmentally sensitive and logistically challenging areas. The production facilities for the Alpine field are situated on about 100 acres, less than one-half of one percent of the subsurface reservoir area being developed. In addition, Alpine is a zero discharge facility; the waste generated is reused, recycled or disposed of properly.

Progress continued on an Environmental Impact Statement that was initiated under the direction of the Bureau of Land Management as a step towards approval of the development of reserves at the Spark, Lookout, Nanuq, Fiord and West Alpine fields (all 22% WI properties). Initial preparation of the permit packages for these fields has also begun. These fields are anticipated to be developed and produced through the Alpine production facility, filling in the natural production decline of Alpine.

Exploration During the 2002-2003 winter exploration season, the Company participated in the drilling of two exploration wells, one located in the National Petroleum Reserve-Alaska (NPR-A) and one in the Colville River Unit. The results of these wells are held confidential pending upcoming lease sales. During 2003, the Company participated in the acquisition of proprietary 3-D seismic around the Alpine field to evaluate additional potential satellite opportunities. The Company also acquired 2-D seismic in the Foothills.

During the 2004 winter drilling season, Anadarko will participate in both exploration drilling and seismic projects. Plans include a three- to four- well program at Moose’s Tooth in the NPR-A west of Alpine and a 3-D seismic program near the Alpine field to further evaluate satellite opportunities.

The Company is completing a one-well drilling program to study the feasibility of producing methane hydrates from the arctic tundra. This program will utilize Anadarko’s self-contained, elevated drilling platform called the Arctic Platform Drilling System, which is designed to be lightweight, modular and mobile. This system is intended to be utilized in logistically challenging areas with minimal surface impact, potentially extending traditional drilling seasons.

Overview At year-end 2003, about 9% of the Company’s proved reserves were located offshore in the Gulf of Mexico. Net production volumes in 2003 from these properties averaged 209 MMcf/d of gas and 19 MBbls/d of oil, condensate and NGLs. At year-end 2003, Anadarko owned an average 69% interest in 417 blocks representing 620,000 gross (325,000 net) acres in developed properties and 1,462,000 gross (1,118,000 net) acres in undeveloped properties in the Gulf of Mexico. Anadarko also holds options to earn working interests covering an additional 112 blocks. During 2003, Anadarko drilled 19 wells in the Gulf of Mexico, which resulted in seven gas wells, six oil wells and six dry holes. In the Gulf of Mexico, Anadarko has budgeted about $600 million for capital spending in 2004, which includes drilling about 30 wells.

Page 13 - Offshore map Net Net Net Undeveloped Developed Producing Acres Acres Wells Offshore: United States California 2,785 -- -- Florida 200,534 -- -- Louisiana* 465,674 250,928 355 Mississippi 123,186 14,766 -- Texas* 329,034 58,995 90 * Drilling activities were conducted in these areas in 2003.

Acquisition During 2003, Anadarko acquired shelf properties from Amerada Hess with proved reserves of 23 MMBOE for $225 million. The properties added 2.2 MMBOE to Anadarko’s 2003 net production volumes. Anadarko drilled its first well associated with these properties in late 2003. The South Timbalier 166 E-4 well (60% WI) encountered 214 feet of net pay and tested at a rate of 19 MMcf/d of gas. In early 2004, a five-well drilling program began in the South Timbalier 172 field. During 2004, the Company plans to reprocess seismic data on 75 blocks to prioritize deep shelf opportunities identified at these properties. A total of eight wells are expected to be drilled, including development wells and deeper field exploration wells. In addition, a number of recompletions and facilities upgrades are planned.

Conventional Shallow water projects in the Gulf of Mexico continue as the Company exploits the potential around several of its larger and more mature fields. During 2003, nine successful wells were drilled with an 82% success rate. Anadarko has interests in a total of 142 blocks on the shelf.

The Company continued to have success with its redevelopment program at South Marsh Island 269/280/281 (30-50% WI). During 2003, Anadarko drilled and completed three wells and performed three recompletions, bringing net production to 5 MBOE/d at year-end 2003. At the Ship Shoal 207 complex (48% WI), three wells were completed and five wells were recompleted to various zones. This program increased year-end 2003 net field production to 10 MBOE/d. At Eugene Island 380 (100% WI), a shallow well was drilled and completed during 2003 and at year-end was flowing at a rate of 10 MMcf/d of gas. In 2004, the Company is planning to drill 19 development wells and one exploratory well in the shallow waters of the Gulf of Mexico.

Subsalt During 2003, Anadarko continued to delineate the Tarantula (100% WI) subsalt discovery made during 2001, which is located on South Timbalier 308. During 2003, one successful well was drilled and the Company authorized construction of a production platform with a capacity of 100 MMcf/d of gas and 30 MBbls/d of oil. Production is expected to commence in early 2005.


Title of Class		Number of Shares Outstanding
Common Stock, par value $0.10 per share		251,656,714


Part of
Form 10-K		Documents Incorporated By Reference
	Part II	Portions of the Anadarko Petroleum Corporation 2003 Annual Report to Stockholders.
	Part III	Portions of the Proxy Statement for the Annual Meeting of Stockholders of Anadarko Petroleum Corporation to be held May 6, 2004 (to be filed with the Securities and Exchange Commission prior to April 29, 2004).


			Page
PART I
	Item 1.	Business		2
		General		2
		Oil and Gas Properties and Activities		2
		Proved Reserves and Future Net Cash Flows		2
		Sales Volumes and Prices		5
		Properties and Activities — United States		7
		Properties and Activities — Canada		16
		Properties and Activities — Algeria		18
		Properties and Activities — Other International		21
		Drilling Programs		22
		Drilling Statistics		23
		Productive Wells		24
		Properties and Leases		24
		Marketing and Gathering Properties and Activities		25
		Minerals Properties and Activities		25
		Segment and Geographic Information		25
		Employees		26
		Regulatory Matters and Additional Factors Affecting Business		26
		Title to Properties		26
		Capital Spending		26
		Ratios of Earnings to Fixed Charges and Earnings to Combined Fixed Charges and Preferred Stock Dividends		26
	Item 2.	Properties		26
	Item 3.	Legal Proceedings		27
	Item 4.	Submission of Matters to a Vote of Security Holders		29
		Executive Officers of the Registrant		29
PART II
	Item 5.	Market for Registrant’s Common Equity and Related Stockholder Matters		31
	Item 6.	Selected Financial Data		31
	Item 7.	Management’s Discussion and Analysis of Financial Condition and Results of Operations		32
	Item 7a.	Quantitative and Qualitative Disclosures About Market Risk		52
	Item 8.	Financial Statements and Supplementary Data		53
	Item 9.	Changes in and Disagreements with Accountants on Accounting and Financial Disclosure		114
	Item 9a.	Controls and Procedures		114
PART III
	Item 10.	Directors and Executive Officers of the Registrant		114
	Item 11.	Executive Compensation		114
	Item 12.	Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters		114
	Item 13.	Certain Relationships and Related Transactions		114
	Item 14.	Principal Accountant Fees and Services		114
PART IV
	Item 15.	Exhibits and Reports on Form 8-K		115


					Percentage
	PUDs		Percentage		of Total Proved
	MMBOE		of Total PUDs		Reserves
Country
United States		466		59%		18%
Algeria		179		23%		7%
Canada		72		9%		3%
Other International		69		9%		3%

Total		786		100%		31%


		2003		2002		2001

United States
	Natural gas (Bcf)		503		507		573
	Oil and condensate (MMBbls)		34		31		34
	Natural gas liquids (MMBbls)		16		14		14
	Total (MMBOE)		135		130		144
Canada
	Natural gas (Bcf)		140		135		121
	Oil and condensate (MMBbls)		6		12		13
	Natural gas liquids (MMBbls)		1		1		1
	Total (MMBOE)		30		35		34
Algeria
	Oil and condensate (MMBbls)		19		24		8
	Total (MMBOE)		19		24		8
Other International
	Natural gas (Bcf)		—		—		1
	Oil and condensate (MMBbls)		8		8		13
	Total (MMBOE)		8		8		13
Total
	Natural gas (Bcf)		643		642		695
	Oil and condensate (MMBbls)		67		75		68
	Natural gas liquids (MMBbls)		17		15		15
	Total (MMBOE)		192		197		199


Incorporated in the State of Delaware		Employer Identification No. 76-0146568


			2003		2002		2001

United States
	Sales price
		Natural gas (per Mcf)	$	4.36	$	2.83	$	4.23
		Oil and condensate (per barrel)		26.16		22.90		23.08
		Natural gas liquids (per barrel)		21.19		14.98		16.44
	Production cost (per BOE)		$	5.49	$	4.66	$	4.66
Canada
	Sales price
		Natural gas (per Mcf)	$	4.71	$	2.91	$	4.38
		Oil and condensate (per barrel)		27.33		19.09		18.18
		Natural gas liquids (per barrel)		21.04		12.11		18.32
	Production cost (per BOE)		$	8.01	$	6.40	$	5.97
Algeria
	Sales price
		Oil and condensate (per barrel)	$	28.43	$	24.38	$	23.97
	Production cost (per BOE)		$	2.44	$	1.78	$	2.33
Other International
	Sales price
		Natural gas (per Mcf)	$	—	$	—	$	1.22
		Oil and condensate (per barrel)		23.15		19.92		14.35
	Production cost (per BOE)		$	8.90	$	8.48	$	5.71
Total
	Sales price
		Natural gas (per Mcf)	$	4.43	$	2.85	$	4.25
		Oil and condensate (per barrel)		26.55		22.44		20.56
		Natural gas liquids (per barrel)		21.18		14.80		16.55
	Production cost (per BOE)		$	5.71	$	4.79	$	4.85