17. Segment Information

Anadarko’s business segments are separately managed due to distinct operational differences. Anadarko has previously presented three reportable segments in its quarterly and annual filings: Oil and Gas Exploration and Production, Midstream, and Marketing. In the first half of 2017, Anadarko substantially completed a repositioning of its asset portfolio to focus on higher margin liquids production. This shift resulted in a substantial decrease in the number of U.S. operating areas. Following the portfolio repositioning, the chief operating decision maker reviews operating results for Exploration and Production and Midstream when making operating and capital allocation decisions. Accordingly, Anadarko will no longer identify marketing activities as a separate reportable segment and will have two reporting segments: Exploration and Production and Midstream, which will include their respective marketing results. The Company has reclassified prior period amounts to conform to the current period’s presentation.

The Exploration and Production reporting segment explores for, produces, and sells oil, natural gas, and NGLs and plans for the development and operation of the Company’s LNG project in Mozambique. The Midstream reporting segment engages in gathering, processing, treating, and transporting Anadarko and third-party oil, natural-gas, and NGLs production as well as gathering and disposal of produced water. The Midstream reporting segment consists of two operating segments, WES and Other Midstream, which are aggregated into one reporting segment due to similar financial and operating characteristics.

17. Segment Information (Continued)

To assess the performance of Anadarko’s operating segments, the chief operating decision maker analyzes Adjusted EBITDAX. The Company defines Adjusted EBITDAX as income (loss) before income taxes; interest expense; DD&A; exploration expense; gains (losses) on divestitures, net; impairments; total (gains) losses on derivatives, net, less net cash from settlement of commodity derivatives; and certain items not related to the Company’s normal operations, less net income (loss) attributable to noncontrolling interests. During the periods presented, items not related to the Company’s normal operations included restructuring charges related to the workforce reduction program included in G&A, loss on early extinguishment of debt, and certain other nonoperating items included in other (income) expense, net.

The Company’s definition of Adjusted EBITDAX excludes gains (losses) on divestitures, net and exploration expense as they are not indicators of operating efficiency for a given reporting period. However, exploration expense is monitored by management as part of costs incurred in exploration and development activities. Similarly, DD&A and impairments are excluded from Adjusted EBITDAX as a measure of segment operating performance because capital expenditures are evaluated at the time capital costs are incurred. Adjusted EBITDAX also excludes interest expense to allow for assessment of segment operating results without regard to Anadarko’s financing methods or capital structure. Total (gains) losses on derivatives, net, less net cash from settlement of commodity derivatives are excluded from Adjusted EBITDAX because these (gains) losses are not considered a measure of asset operating performance. Finally, net income (loss) attributable to noncontrolling interests is excluded from the Company’s measure of Adjusted EBITDAX, because it represents earnings that are not attributable to the Company’s common stockholders.

Management believes Adjusted EBITDAX provides information useful in assessing the Company’s operating and financial performance across periods. Adjusted EBITDAX as defined by Anadarko may not be comparable to similarly titled measures used by other companies and should be considered in conjunction with net income (loss) attributable to common stockholders and other performance measures, such as operating income. Below is a reconciliation of consolidated Adjusted EBITDAX to income (loss) before income taxes:



	Three Months Ended June 30,						Six Months Ended June 30,
millions	2017			2016			2017			2016
Income (loss) before income taxes	$	(372	)	$	(925	)	$	(550	)	$	(2,306	)
Interest expense	227			217			450			437
DD&A	1,037			984			2,152			2,133
Exploration expense	535			76			1,620			202
(Gains) losses on divestitures, net	(205		)	104			(1,009		)	102
Impairments	10			18			383			34
Total (gains) losses on derivatives, net, less net cash from settlement of commodity derivatives	45			371			(110		)	775
Restructuring charges	18			48			17			251
Other operating expense	—			—			—			1
Loss on early extinguishment of debt	2			124			2			124
Certain other nonoperating items	—			(56		)	—			(56		)
Less net income (loss) attributable to noncontrolling interests	81			81			124			117
Consolidated Adjusted EBITDAX	$	1,216		$	880		$	2,831		$	1,580

17. Segment Information (Continued)

Information presented below as “Other and Intersegment Eliminations” includes corporate costs, margin on sales of third-party commodity purchases, deficiency fees, results from hard-minerals royalties, net cash from settlement of commodity derivatives, and net income (loss) attributable to noncontrolling interests. The following summarizes selected financial information for Anadarko’s reporting segments:



millions	Exploration & Production			Midstream		Other and Intersegment Eliminations			Total
Three Months Ended June 30, 2017
Sales revenues	$	1,955		$	447	$	17		$	2,419
Intersegment revenues	—			156		(156		)	—
Other ⁽¹⁾	8			54		30			92
Total revenues and other ⁽²⁾	1,963			657		(109		)	2,511
Operating costs and expenses ⁽³⁾	805			345		91			1,241
Net cash from settlement of commodity derivatives	—			—		(13		)	(13		)
Other (income) expense, net	—			—		(14		)	(14		)
Net income (loss) attributable to noncontrolling interests ⁽¹⁾	—			—		81			81
Total expenses and other	805			345		145			1,295
Adjusted EBITDAX	$	1,158		$	312	$	(254	)	$	1,216

Three Months Ended June 30, 2016
Sales revenues	$	1,680		$	280	$	25		$	1,985
Intersegment revenues	—			218		(218		)	—
Other ⁽¹⁾	(14		)	28		20			34
Total revenues and other ⁽²⁾	1,666			526		(173		)	2,019
Operating costs and expenses ⁽³⁾	861			234		26			1,121
Net cash from settlement of commodity derivatives	—			—		(60		)	(60		)
Other (income) expense, net	—			—		1			1
Net income (loss) attributable to noncontrolling interests ⁽¹⁾	—			—		81			81
Total expenses and other	861			234		48			1,143
Total (gains) losses on derivatives, net included in marketing revenue, less net cash from settlement	—			—		4			4
Adjusted EBITDAX	$	805		$	292	$	(217	)	$	880

__________________________________________________________________


⁽¹⁾	Presentation has been adjusted to align with the current analysis of segment performance. Net income (loss) attributable to noncontrolling interests, previously reported within the Midstream segment, is now presented within Other and Intersegment Eliminations. Other revenues, previously reported within Other and Intersegment Eliminations, is now presented within the applicable segments.


⁽²⁾	Total revenues and other excludes gains (losses) on divestitures, net since these gains and losses are excluded from Adjusted EBITDAX.


⁽³⁾	Operating costs and expenses excludes exploration expense, DD&A, impairments, restructuring charges, and certain other operating expenses since these expenses are excluded from Adjusted EBITDAX.

17. Segment Information (Continued)



millions	Exploration & Production			Midstream		Other and Intersegment Eliminations			Total
Six Months Ended June 30, 2017
Sales revenues	$	4,409		$	850	$	58		$	5,317
Intersegment revenues	—			349		(349		)	—
Other ⁽¹⁾	10			87		60			157
Total revenues and other ⁽²⁾	4,419			1,286		(231		)	5,474
Operating costs and expenses ⁽³⁾	1,728			672		146			2,546
Net cash from settlement of commodity derivatives	—			—		(7		)	(7		)
Other (income) expense, net	—			—		(22		)	(22		)
Net income (loss) attributable to noncontrolling interests ⁽¹⁾	—			—		124			124
Total expenses and other	1,728			672		241			2,641
Total (gains) losses on derivatives, net included in marketing revenue, less net cash from settlement	—			—		(2		)	(2		)
Adjusted EBITDAX	$	2,691		$	614	$	(474	)	$	2,831

Six Months Ended June 30, 2016
Sales revenues	$	3,074		$	494	$	51		$	3,619
Intersegment revenues	—			444		(444		)	—
Other ⁽¹⁾	(15		)	41		46			72
Total revenues and other ⁽²⁾	3,059			979		(347		)	3,691
Operating costs and expenses ⁽³⁾	1,709			430		25			2,164
Net cash from settlement of commodity derivatives	—			—		(163		)	(163		)
Other (income) expense, net	—			—		1			1
Net income (loss) attributable to noncontrolling interests ⁽¹⁾	—			—		117			117
Total expenses and other	1,709			430		(20		)	2,119
Total (gains) losses on derivatives, net included in marketing revenue, less net cash from settlement	—			—		8			8
Adjusted EBITDAX	$	1,350		$	549	$	(319	)	$	1,580

__________________________________________________________________


⁽¹⁾	Presentation has been adjusted to align with the current analysis of segment performance. Net income (loss) attributable to noncontrolling interests, previously reported within the Midstream segment, is now presented within Other and Intersegment Eliminations. Other revenues, previously reported within Other and Intersegment Eliminations, is now presented within the applicable segments.


⁽²⁾	Total revenues and other excludes gains (losses) on divestitures, net since these gains and losses are excluded from Adjusted EBITDAX.


⁽³⁾	Operating costs and expenses excludes exploration expense, DD&A, impairments, restructuring charges, and certain other operating expenses since these expenses are excluded from Adjusted EBITDAX.