Item 1. Business

General

      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 (CO ₂ ) sequestration and the reduction of surface area used for production facilities.

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.

Oil and Gas Properties and Activities

Proved Reserves and Future Net Cash Flows

      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.

2

3

      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.

      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.

4

5

      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.

6

Properties and Activities — United States

      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.

Onshore — Lower 48 States

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.

East Texas and Louisiana

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.

7

Central Texas and Gulf Coast

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.

Permian Basin

Mid-Continent

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.

8

9

Western States

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.

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 CO ₂ and the exclusive rights to market the CO ₂ in the Powder River basin. During 2003, the Company completed a pilot CO ₂ 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 CO ₂ 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.

10

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.

11

Alaska

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.

North Slope

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.

Gulf of Mexico

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.

12

13

Continental Shelf

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.

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.

Deepwater

14

      The Company also announced a discovery during 2003 on Green Canyon Block 518. The Green Canyon 518 No. 1 well (100% WI) encountered a total of 128 feet of net oil pay in the same pay zone present at the K2 discovery. The Company believes the well extends the boundaries of the K2 field northward. The field is currently planned as a subsea tieback to the Marco Polo platform and first production is expected in 2005. The Company is currently drilling another well on Green Canyon Block 518 to further delineate the field.

Eastern Gulf of Mexico During 2003, in the eastern Gulf of Mexico, Anadarko made a natural gas discovery at its Jubilee prospect, the first well in Anadarko’s eastern Gulf exploration program. The Atwater Valley 349 No. 1 well encountered 83 feet of net pay. Anadarko made a second natural gas discovery at the deepwater Atlas prospect on Lloyd Ridge Block 50. Anadarko holds a 100% WI in Atlas and Jubilee. The Company made a third eastern Gulf of Mexico discovery on its Spiderman prospect (45% WI). The discovery well encountered more than 140 feet of net pay. The well is located on DeSoto Canyon Block 621, about 180 miles southeast of New Orleans. In early 2004, a fourth natural gas discovery was made with the Atlas NW exploration prospect on Lloyd Ridge Block 5 (100% WI). Delineation of these discoveries continues.

South Auger Participation Agreement Anadarko has a Participation Agreement with BP to explore 95 deepwater blocks in the Garden Banks and Keathley Canyon areas of the western Gulf of Mexico. The 95 blocks, held 100% by BP, are within a larger 640-block area of mutual interest where the two companies have licensed and are reprocessing 3-D seismic data. These blocks are in water depths ranging from 3,000 to 6,000 feet. The agreement gives Anadarko the option to earn a 33% to 66% WI in the blocks. Anadarko will fund 100% of the licensing and reprocessing costs and pay a disproportionately larger share of the first four wells drilled. Anadarko plans to begin drilling the first exploration well by early 2005.

Jupiter Agreement During 2003, Anadarko finalized a Participation Agreement with ExxonMobil covering 32 jointly owned blocks in the Alaminos Canyon and Garden Banks areas. Initial plans include drilling an exploration well in early 2005.

      Anadarko holds a total of 152 lease blocks in its deepwater program and has identified approximately 25 prospects. An additional 110 blocks could be earned within its option program. The Company plans to drill about five deepwater exploratory wells in 2004.

Gas Processing

      The Company processes gas at various third-party plants under agreements generally structured to provide for the extraction and sale of NGLs in efficient plants with flexible commitments. The Company has agreements with five plants in the western states area, 15 plants in the mid-continent area and 11 plants in the gulf coast area. Anadarko also processes gas and has interests in three Company-operated plants and three non-operated plants in the western states. Anadarko’s strategy to aggregate gas through Company-owned and third-party gathering systems allows Anadarko to secure processing arrangements in each of the regions where the Company has significant production.

15

Properties and Activities — Canada

Overview Anadarko has operations in Alberta, British Columbia, Saskatchewan and in the Northwest Territories. The Company has proved reserves in Canada of 314 MMBOE, which is about 12% of the Company’s total proved reserves. In 2003, net production from the Company’s properties in Canada averaged 383 MMcf/d of gas and 19 MBbls/d of crude oil, condensate and NGLs, or 16% of the Company’s total production volumes. During 2003, Anadarko participated in a total of 344 wells with a 95% success rate, including 276 gas wells, 51 oil wells and 17 dry holes. Anadarko has 9,124,000 gross (3,310,000 net) undeveloped lease acres, 1,834,000 gross (1,037,000 net) developed lease acres and 606,000 gross (606,000 net) fee acres in Canada. The Company’s 2004 capital budget for Canada ranges from $375 million to $425 million and the Company expects to drill about 175 development and 40 exploration wells. The accompanying map illustrates the Company’s developed and undeveloped lease and fee acreage, number of productive wells and other data relevant to its properties in Canada.

Alberta During 2003, the Company announced a significant natural gas discovery well in the Saddle Hills area of Alberta. The discovery well (100% WI) flowed at a rate of 16 MMcf/d of gas. A total of seven gas wells were completed in the area during 2003.

British Columbia In 2003, Anadarko had continued success in the Slave Point program at Adsett in northeast British Columbia. Three exploration and two development wells were drilled in 2003 with a success rate of 71%. The Company also acquired 263 square miles of 3-D seismic in the area and is drilling to test the western extent of the Adsett field. Anadarko recently expanded infrastructure capacity from 45 MMcf/d to 50 MMcf/d of gas and plans to add an additional 5 MMcf/d of capacity in 2004.

Saskatchewan During 2003, the Company drilled and completed 106 shallow gas wells with an overall success rate of 92%. In the Hatton area, the Company drilled 65 operated wells and participated in another 16 non-operated wells. Net production from the Hatton area averaged 71 MMcf/d of gas in 2003.

Northwest Territories In the southern Northwest Territories near Fort Liard, the Company drilled nine exploratory wells (100% WI) in 2003. Initial tests from the wells were encouraging and consequently the Company filed four discovery applications. Anadarko also participated in a development well in the Liard area that tested at a rate of 30 MMcf/d of gas. In 2004, Anadarko will participate in the drilling of an exploratory well (37% WI) on Block EL-384 in the Mackenzie Delta.

16

17

Properties and Activities — Algeria

Overview Anadarko is engaged in exploration, development and production activities in Algeria’s Sahara Desert. At the end of 2003, six fields discovered by the Company were on production. Anadarko has developed a good working relationship with Sonatrach, the national oil and gas enterprise of Algeria, its principal partner within Algeria. Sonatrach has owned shares of the Company’s common stock since 1986 and at year-end 2003 was the registered owner of 4.8% of Anadarko’s outstanding common stock.

Contracts and Partners

Block 406b Production Sharing Agreement The Company has a separate exploration license for Block 406b in which it has a 60% interest.

Block 403c/e Production Sharing Agreement Anadarko has exploration rights over Block 403c/e. Anadarko holds a 67% interest in the exploration phase of this venture.

Development

18

19

Block 404 — Ourhoud Central Production Facility Anadarko is also actively involved in developing the Ourhoud field, the second largest oil field in Algeria. Located in the southern portion of Block 404, the Ourhoud field extends into Block 406a and Block 405 and is unitized with the companies with interests in those blocks. The field is operated by the Ourhoud Organization, which represents the interests of the three associations involved in this development. Production from the field commenced in late 2002. Ourhoud became fully operational during the first half of 2003 with facility capacity reaching 230 MBbls/d of oil. Production from the Ourhoud field averaged 174 MBbls/d of oil (gross) in 2003. A total of 14 productive wells were drilled in the Ourhoud field in 2003.

Block 208 Anadarko also has several fields farther south on Block 208; these include the El Merk field (EMK), the El Kheit Et Tessekha field (EKT), the El Merk East field (EME) and the El Merk North field (EMN). During 2003, the Exploitation License Applications were approved for these fields by the Ministry of Energy and Mines. Anadarko will proceed with design and anticipates awarding the Engineering, Procurement and Construction contract for a third Central Production Facility by mid-2005. During 2003, a total of nine wells were drilled in the Block 208 fields with a 100% success rate.

Exploration

Block 406b The license for Block 406b has a three-year initial term. A work program commitment includes seismic acquisition and one exploration well. A 735-mile proprietary 2-D seismic acquisition program has been completed on this 686,000 acre block, located in the Berkine basin to the east of Anadarko’s other license areas. During 2003, the new data was processed and interpreted to develop the prospect inventory for the permit. The first exploration well on the block will be drilled in 2004. The first exploration period expires in December 2004.

Block 403c/e The license for Block 403c/e has a three-year initial term and includes 399,000 acres in the Berkine basin. A work program commitment includes seismic acquisition and one exploration well. During 2003, 1,790 miles of existing seismic data was reprocessed in two phases and a 2-D seismic acquisition program of 65 miles was completed. A 3-D seismic program commenced in late 2003. The Company plans to drill the first exploration well in late 2004. The first exploration period expires in January 2006.

      Political unrest continues in Algeria. Anadarko continually monitors the situation and has taken steps to help ensure the safety of employees and the security of its facilities in the remote regions of the Sahara Desert. Anadarko is unable to predict with certainty any effect the current situation may have on activity planned for 2004 and beyond. However, the situation has had no material effect to date on the Company’s operations in Algeria, where the Company has had activities since 1989. See Regulatory Matters and Additional Factors Affecting Business — Foreign Operations Risk under Item 7 of this Form 10-K.

20

Properties and Activities — Other International

Overview The Company’s other international oil and gas production and development operations are located primarily in Venezuela and Qatar. The Company also has an interest in a non-operated producing property in offshore Egypt, interests in two non-operated offshore producing properties in Australia and an operated interest in exploratory and development acreage in Oman. The Company currently has exploration acreage in Qatar, Tunisia, West Africa, the Faroe Islands, off the coast of Georgia in the Black Sea and other selected areas. In the process of evaluating the allocation of capital resources to international areas for 2004, the Company decided to narrow the list of international projects. While Management sees an important place for international projects within its portfolio, this strategy was implemented to better focus the Company’s international efforts. During 2004, the Company expects to work toward divesting the non-core assets located in Oman, Egypt and Australia.

Venezuela The Company’s Venezuelan operation consists of the Oritupano-Leona contract area, a risk service contract in which the Company has a non-operated 45% participating interest. The area covers 395,000 gross (178,000 net) acres and had 274 producing wells at year-end 2003. The Company’s net oil sales volumes from the area averaged 12 MBbls/d during 2003. The development and exploitation program in 2003 included three new well completions and the conversion of 26 idle wells to producing wells. During 2004, the Company expects to continue with the development of the Oritupano-Leona contract area, focusing most of the activities on recompleting and reactivating existing wells.

Qatar Anadarko is operator and has a 92.5% interest in the Al Rayyan field, which is part of an Exploration and Production Sharing Agreement covering Blocks 12 and 13. Production from the Al Rayyan field, which is located in the northern part of Block 12, averaged 8 MBbls/d of oil (net) during 2003. During 2003, a new permanent production platform was installed, the existing wells were tied back, several workovers were conducted and two previously untested wells were brought online. Production in 2003 was less than expected because forecasted development drilling was delayed, water production from several wells was higher than anticipated and completion of the production facility was delayed primarily due to weather constraints. At year-end 2003, the field was producing 18 MBbls/d of oil (10 MBbls/d net) from 12 wells. During 2004, the Company plans to reevaluate potential infill drilling, recompletion and workover opportunities, pending the results of a full field reservoir stimulation study that is expected to be completed in early 2004.

21

Tunisia The Company operates two blocks in the Ghadames basin of Tunisia. The Company has a 61% interest in the Anaguid Block, which covers 1,100,000 acres and a 100% interest in the Jenein Nord Block, which covers 384,000 acres. The acreage is on trend with the Company’s discoveries in Algeria to the west. During 2003, the CEM-1 well encountered 95 feet of pay and tested at a rate of 4 MMcf/d of gas and 500 barrels of condensate per day. A second well, the SEA-1, encountered 52 feet of net pay in the same section. Both of these Anaguid wells have been suspended pending the evaluation of commercial development plans.

West Africa Anadarko is the operator and holds a 50% interest in the Agali Block, offshore Gabon. During 2003, the Company secured an amendment to its production sharing contract that allows the obligation well to be drilled after the boundary dispute between Gabon and its northern neighbor, Equatorial Guinea, is resolved.

North Atlantic Margin In the Faroe Islands, Anadarko is the operator and sole licensee of License 007 and holds a 28% interest in the adjacent non-operated License 006. The licenses cover a total of 617,000 acres. In 2003, the Company completed its technical evaluation of these blocks and secured a two year extension on License 007 until August 2005. During 2004, Anadarko plans to seek a partner to evaluate this block. The Company has no outstanding drilling commitments in the region.

Georgia — Black Sea Anadarko has a Production Sharing Contract with the State of Georgia. The agreement gives Anadarko exploration rights to three blocks covering approximately 2,000,000 acres on the Black Sea Continental Shelf and extending 50 miles offshore. During 2003, the Company conducted geophysical and geological studies and Anadarko is currently seeking partners to share costs and reduce risk in future seismic or drilling activities.

Drilling Programs

      The Company’s 2003 drilling program focused on known oil and gas provinces in the United States (Lower 48, Alaska and Gulf of Mexico), Canada and Algeria. Exploration activity consisted of 147 wells, including 36 wells in the Lower 48, one well in Alaska, seven wells offshore in the Gulf of Mexico, 92 wells in Canada, six wells in Algeria and five wells in other international locations. Development activity consisted of 922 wells, which included 622 wells in the Lower 48, eight wells in Alaska, 12 wells offshore in the Gulf of Mexico, 252 wells in Canada, 21 wells in Algeria and seven wells in other international locations.

22

      The following table shows the number of wells in the process of drilling or in active completion stages and the number of wells suspended or waiting on completion as of December 31, 2003:

23

*	Includes wells containing multiple completions as follows:

*	Developed acreage in Algeria relates only to areas with an Exploitation License. A portion of the undeveloped acreage in Algeria will be relinquished in the future upon finalization of Exploitation License boundaries.

24

Marketing and Gathering Properties and Activities

Marketing The Company’s marketing department actively manages the sale of Anadarko’s oil, natural gas and NGLs production. The Company markets its production to creditworthy customers at competitive prices, maximizing realized prices while managing credit exposure. The Company also purchases volumes for resale primarily from partners and producers near Anadarko’s production. These purchases allow the Company to aggregate larger volumes and attract larger, creditworthy customers, which in turn enhance the value of the Company’s production.

Gas Gathering Anadarko owns and operates seven major gas gathering systems in the United States, where the Company has substantial gas production. The systems are: Antioch Gathering System in the Southwest Antioch field of Oklahoma; Sneed System in the West Panhandle field of Texas; Hugoton Gathering System in southwest Kansas; Dew Gathering System in east Texas; Pinnacle Gathering System in east Texas; CJV/ SEC Gathering System in the Carthage field of east Texas; and, Vernon Gathering System in the Vernon field of north Louisiana.

Minerals Properties and Activities

      The Company’s minerals properties contribute to operating income through non-operated joint venture and royalty arrangements in coal, trona and industrial mineral mines across the Company’s extensive fee mineral interest in the Land Grant. The Company reinvests the cash flow from its hard minerals operations primarily into its oil and gas operations.

Segment and Geographic Information

      Information on operations by segment and geographic location is contained in Note 14 of the Notes to Consolidated Financial Statements under Item 8 of this Form 10-K.

25

Employees

      As of December 31, 2003, the Company had about 3,500 employees. Relations between the Company and its employees are considered to be satisfactory. The Company has had no significant work stoppages or strikes pertaining to its employees.

Regulatory Matters and Additional Factors Affecting Business

      See Regulatory Matters and Additional Factors Affecting Business under Item 7 of this Form 10-K.

Title to Properties

      As is customary in the oil and gas industry, only a preliminary title examination is conducted at the time properties believed to be suitable for drilling operations are acquired by the Company. Prior to the commencement of drilling operations, a thorough title examination of the drill site tract is conducted and curative work is performed with respect to significant defects, if any, before proceeding with operations. A thorough title examination has been performed with respect to substantially all leasehold producing properties owned by the Company. Anadarko believes the title to its leasehold properties is good and defensible in accordance with standards generally acceptable in the oil and gas industry subject to such exceptions that, in the opinion of counsel employed in the various areas in which the Company has conducted exploration activities, are not so material as to detract substantially from the use of such properties.

Capital Spending

      See Capital Resources and Liquidity under Item 7 of this Form 10-K.

Ratios of Earnings to Fixed Charges and Earnings to Combined Fixed Charges and Preferred Stock Dividends

      Anadarko’s ratio of earnings to fixed charges was 5.83 and earnings to combined fixed charges and preferred stock dividends was 5.71 for the year ended December 31, 2003. Anadarko’s ratio of earnings to fixed charges was 3.83 and earnings to combined fixed charges and preferred stock dividends was 3.74 for the year ended December 31, 2002. As a result of the Company’s net loss in 2001, Anadarko’s earnings did not cover fixed charges by $599 million and did not cover combined fixed charges and preferred stock dividends by $610 million.