Delaware
|
73-1612389
|
(State
or Other Jurisdiction of
|
(I.R.S.
Employer
|
Incorporation
or Organization)
|
Identification
No.)
|
KERR-McGEE
CORPORATION
|
||
INDEX
|
||
PAGE
|
||
PART
I - FINANCIAL INFORMATION
|
||
Item
1. Financial Statements (Unaudited)
|
||
|
||
|
Condensed
Consolidated Statement of Income for the Three Months Ended March
31, 2006
and 2005
|
1
|
|
||
|
Condensed
Consolidated Balance Sheet at March 31, 2006 and December 31,
2005
|
2
|
|
||
|
Condensed
Consolidated Statement of Cash Flows for the Three Months Ended March
31,
2006 and 2005
|
3
|
|
||
Condensed
Consolidated Statement of Comprehensive Income (Loss) and Stockholders’
Equity for the Three Months Ended March 31, 2006 and 2005
|
4
|
|
Notes
to Condensed Consolidated Financial Statements
|
5
|
|
Item
2. Management's Discussion and Analysis of Financial Condition
and
Results of Operations
|
27
|
|
|
||
Item
3. Quantitative and Qualitative Disclosures about Market
Risk
|
37
|
|
|
||
Item
4. Controls and Procedures
|
39
|
|
Forward-Looking
Information
|
39
|
|
PART
II - OTHER INFORMATION
|
||
|
|
|
Item
1. Legal Proceedings
|
39
|
|
Item
2. Unregistered Sales of Equity Securities and Use of
Proceeds
|
40
|
|
Item
5. Other Information
|
40
|
|
Item
6. Exhibits
|
40
|
|
|
|
|
SIGNATURE
|
41
|
|
|
|
|
Three
Months Ended
|
|||||||
March
31,
|
|||||||
(Millions
of dollars, except per-share amounts)
|
2006
|
2005
|
|||||
Revenues
|
|||||||
Oil
and gas sales
|
$
|
1,179
|
$
|
1,006
|
|||
Loss
on commodity derivatives
|
(114
|
)
|
(86
|
)
|
|||
Gas
marketing revenues
|
213
|
132
|
|||||
Other
revenues
|
22
|
19
|
|||||
Total
Revenues
|
1,300
|
1,071
|
|||||
Operating
Expenses
|
|||||||
Lease
operating costs
|
131
|
108
|
|||||
Production
and ad valorem taxes
|
31
|
30
|
|||||
Transportation
expense
|
23
|
23
|
|||||
General
and administrative expense
|
74
|
53
|
|||||
Exploration
expense
|
52
|
55
|
|||||
Gas
gathering, processing and other expenses
|
34
|
28
|
|||||
Gas
marketing costs
|
214
|
130
|
|||||
Depreciation,
depletion and amortization
|
189
|
223
|
|||||
Accretion
expense
|
3
|
6
|
|||||
Asset
impairments
|
-
|
4
|
|||||
Gain
on sales of oil and gas properties
|
(4
|
)
|
(22
|
)
|
|||
Total
Operating Expenses
|
747
|
638
|
|||||
Operating
Income
|
553
|
433
|
|||||
Interest
expense
|
(41
|
)
|
(60
|
)
|
|||
Loss
on early repayment and modification of debt
|
(81
|
)
|
-
|
||||
Other
income (expense)
|
(3
|
)
|
(2
|
)
|
|||
Income
from Continuing Operations before Income Taxes
|
428
|
371
|
|||||
Provision
for Income Taxes
|
(152
|
)
|
(128
|
)
|
|||
Income
from Continuing Operations
|
276
|
243
|
|||||
Income
(loss) from discontinued operations, net of taxes
|
(23
|
)
|
112
|
||||
Cumulative
effect of change in accounting principle, net of taxes
|
2
|
-
|
|||||
Net
Income
|
$
|
255
|
$
|
355
|
|||
Income
(Loss) per Common Share
|
|||||||
Basic
-
|
|||||||
Continuing
operations
|
$
|
2.43
|
$
|
1.57
|
|||
Discontinued
operations
|
(0.20
|
)
|
0.72
|
||||
Cumulative
effect of change in accounting principle
|
0.02
|
-
|
|||||
Net
income
|
$
|
2.25
|
$
|
2.29
|
|||
Diluted
-
|
|||||||
Continuing
operations
|
$
|
2.39
|
$
|
1.51
|
|||
Discontinued
operations
|
(0.20
|
)
|
0.69
|
||||
Cumulative
effect of change in accounting principle
|
0.02
|
-
|
|||||
Net
income
|
$
|
2.21
|
$
|
2.20
|
|||
Dividends
Declared per Common Share
|
$
|
.05
|
$
|
.45
|
|||
March
31,
|
December
31,
|
||||||
(Millions
of dollars)
|
2006
|
2005
|
|||||
|
|
||||||
ASSETS
|
|||||||
Current
Assets
|
|||||||
Cash
and cash equivalents
|
$
|
83
|
$
|
1,053
|
|||
Accounts
receivable
|
677
|
753
|
|||||
Derivatives
and other current assets
|
188
|
205
|
|||||
Deferred
income taxes
|
341
|
547
|
|||||
Assets
held for sale and Tronox assets
|
22
|
691
|
|||||
Total
Current Assets
|
1,311
|
3,249
|
|||||
Property,
Plant and Equipment
|
11,669
|
13,629
|
|||||
Less
reserves for depreciation, depletion and
amortization
|
(3,689
|
)
|
(5,194
|
)
|
|||
7,980
|
8,435
|
||||||
Investments,
Derivatives and Other Assets
|
326
|
427
|
|||||
Goodwill
and Other Intangible Assets
|
1,177
|
1,179
|
|||||
Assets
Held for Sale and Tronox Assets
|
693
|
986
|
|||||
Total
Assets
|
$
|
11,487
|
$
|
14,276
|
LIABILITIES
AND STOCKHOLDERS' EQUITY
|
|||||||
Current
Liabilities
|
|||||||
Accounts
payable
|
$
|
358
|
$
|
425
|
|||
Long-term
debt due within one year
|
302
|
306
|
|||||
Income
taxes payable
|
166
|
429
|
|||||
Commodity
derivative liabilities
|
920
|
1,506
|
|||||
Accrued
liabilities
|
767
|
846
|
|||||
Liabilities
associated with assets held for sale and Tronox
|
21
|
419
|
|||||
Total
Current Liabilities
|
2,534
|
3,931
|
|||||
Long-Term
Debt
|
2,099
|
2,277
|
|||||
Noncurrent
Liabilities
|
|||||||
Deferred
income taxes
|
1,482
|
1,445
|
|||||
Asset
retirement obligations
|
189
|
310
|
|||||
Commodity
derivative liabilities
|
431
|
658
|
|||||
Other
|
431
|
471
|
|||||
Liabilities
associated with assets held for sale and Tronox
|
126
|
1,069
|
|||||
Total
Noncurrent Liabilities
|
2,659
|
3,953
|
|||||
Contingencies
(Note 13)
|
|||||||
Stockholders'
Equity
|
|||||||
Common
stock, par value $1 - 500,000,000 shares authorized,
|
|||||||
120,476,214
and 119,668,552 shares issued at March 31, 2006
|
|||||||
and
December 31, 2005, respectively
|
120
|
120
|
|||||
Capital
in excess of par value
|
3,737
|
3,702
|
|||||
Preferred
stock purchase rights
|
1
|
1
|
|||||
Retained
earnings
|
1,713
|
1,704
|
|||||
Accumulated
other comprehensive loss
|
(723
|
)
|
(1,079
|
)
|
|||
Common
shares in treasury, at cost - 7,034,469 and 3,456,918 shares
|
|||||||
at
March 31, 2006 and December 31, 2005, respectively
|
(629
|
)
|
(266
|
)
|
|||
Deferred
compensation
|
(24
|
)
|
(67
|
)
|
|||
Total
Stockholders' Equity
|
4,195
|
4,115
|
|||||
Total
Liabilities and Stockholders’ Equity
|
$
|
11,487
|
$
|
14,276
|
Three
Months Ended
|
|||||||
March
31,
|
|||||||
(Millions
of dollars)
|
2006
|
2005
|
|||||
Cash
Flows from Operating Activities
|
|||||||
Net
income
|
$
|
255
|
$
|
355
|
|||
Adjustments
to reconcile net income to net cash
|
|||||||
provided
by operating activities -
|
|||||||
Depreciation,
depletion and amortization
|
225
|
326
|
|||||
Deferred
income taxes
|
58
|
138
|
|||||
Dry
hole expense
|
15
|
20
|
|||||
Asset
impairments
|
-
|
4
|
|||||
Gain
on sale of assets
|
(4
|
)
|
(22
|
)
|
|||
Accretion
expense
|
3
|
9
|
|||||
Loss
on early repayment and modification of debt
|
81
|
-
|
|||||
Provision
for Tronox guarantee
|
56
|
-
|
|||||
Other
noncash items affecting net income
|
(17
|
)
|
109
|
||||
Changes
in assets and liabilities
|
(537
|
)
|
(142
|
)
|
|||
Net
Cash Provided by Operating Activities
|
135
|
797
|
|||||
Cash
Flows from Investing Activities
|
|||||||
Capital
expenditures
|
(453
|
)
|
(374
|
)
|
|||
Dry
hole costs
|
(23
|
)
|
(24
|
)
|
|||
Proceeds
from sales of assets
|
8
|
31
|
|||||
Other
investing activities
|
23
|
|
(30
|
)
|
|||
Net
Cash Used in Investing Activities
|
(445
|
)
|
(397
|
)
|
|||
Cash
Flows from Financing Activities
|
|||||||
Issuance
of common stock upon exercise of stock options
|
29
|
132
|
|||||
Purchases
of treasury stock
|
(363
|
)
|
(250
|
)
|
|||
Repayment
of debt
|
(250
|
)
|
(42
|
)
|
|||
Dividends
paid
|
(6
|
)
|
(68
|
)
|
|||
Settlement
of Westport derivatives
|
(21
|
)
|
(43
|
)
|
|||
Tronox
Distribution (1)
|
(57
|
)
|
-
|
||||
Other
financing activities
|
11
|
(5
|
)
|
||||
Net
Cash Used in Financing Activities
|
(657
|
)
|
(276
|
)
|
|||
Effects
of Exchange Rate Changes on Cash and Cash
Equivalents
|
(3
|
)
|
1
|
||||
Net
Increase (Decrease) in Cash and Cash Equivalents
|
(970
|
)
|
125
|
||||
Cash
and Cash Equivalents at Beginning of Period
|
1,053
|
76
|
|||||
Cash
and Cash Equivalents at End of Period
|
$
|
83
|
$
|
201
|
(1) |
Represents
Tronox’s cash balance deconsolidated upon the
Distribution.
|
(Millions
of dollars)
|
Common
Stock
|
Capital
in
Excess
of
Par
Value
|
Retained
Earnings
|
Accumulated
Other
Comprehensive
Income
(Loss)
|
Treasury
Stock
|
Deferred
Compensation
and
Other
|
Total
Stockholders'
Equity
|
|||||||||||||||
Balance
at December 31, 2004
|
$
|
152
|
$
|
4,205
|
$
|
1,102
|
$
|
(79
|
)
|
$
|
(8
|
)
|
$
|
(54
|
)
|
$
|
5,318
|
|||||
Comprehensive
Income (Loss):
|
||||||||||||||||||||||
Net
income
|
-
|
-
|
355
|
-
|
-
|
-
|
355
|
|||||||||||||||
Other
comprehensive loss
|
-
|
-
|
-
|
(457
|
)
|
-
|
-
|
(457
|
)
|
|||||||||||||
Comprehensive
loss
|
(102
|
)
|
||||||||||||||||||||
Shares
issued upon conversion of debt
|
10
|
583
|
-
|
-
|
-
|
-
|
593
|
|||||||||||||||
Purchases
of treasury shares
|
-
|
-
|
-
|
-
|
(250
|
)
|
-
|
(250
|
)
|
|||||||||||||
Stock
option exercises
|
2
|
130
|
-
|
-
|
-
|
-
|
132
|
|||||||||||||||
Restricted
stock activity
|
1
|
24
|
-
|
-
|
(2
|
)
|
(19
|
)
|
4
|
|||||||||||||
ESOP
deferred compensation
|
-
|
-
|
-
|
-
|
-
|
2
|
2
|
|||||||||||||||
Tax
benefit from stock-based awards
|
-
|
16
|
-
|
-
|
-
|
-
|
16
|
|||||||||||||||
Dividends
declared ($.45 per share)
|
-
|
-
|
(74
|
)
|
-
|
-
|
-
|
(74
|
)
|
|||||||||||||
Other
|
-
|
-
|
(1
|
)
|
-
|
-
|
-
|
(1
|
)
|
|||||||||||||
Balance
at March 31, 2005
|
$
|
165
|
$
|
4,958
|
$
|
1,382
|
$
|
(536
|
)
|
$
|
(260
|
)
|
$
|
(71
|
)
|
$
|
5,638
|
|||||
Balance
at December 31, 2005
|
$
|
120
|
$
|
3,702
|
$
|
1,704
|
$
|
(1,079
|
)
|
$
|
(266
|
)
|
$
|
(66
|
)
|
$
|
4,115
|
|||||
Comprehensive
Income:
|
||||||||||||||||||||||
Net
income
|
-
|
-
|
255
|
-
|
-
|
-
|
255
|
|||||||||||||||
Other
comprehensive income
|
-
|
-
|
-
|
356
|
-
|
-
|
356
|
|||||||||||||||
Comprehensive
income
|
611
|
|||||||||||||||||||||
Adoption
of FAS No. 123(R)
|
-
|
(42
|
)
|
-
|
-
|
-
|
42
|
-
|
||||||||||||||
Purchases
of treasury shares
|
-
|
-
|
-
|
-
|
(363
|
)
|
-
|
(363
|
)
|
|||||||||||||
Stock
option exercises
|
-
|
29
|
-
|
-
|
-
|
-
|
29
|
|||||||||||||||
Amortization
of options and restricted
|
||||||||||||||||||||||
stock, net of forfeitures
|
-
|
34
|
-
|
-
|
-
|
-
|
34
|
|||||||||||||||
ESOP
deferred compensation
|
-
|
-
|
-
|
-
|
-
|
1
|
1
|
|||||||||||||||
Tax
benefit from stock-based awards
|
-
|
14
|
-
|
-
|
-
|
-
|
14
|
|||||||||||||||
Dividends
declared ($.05 per share)
|
-
|
-
|
(6
|
)
|
-
|
-
|
-
|
(6
|
)
|
|||||||||||||
Tronox
Distribution (Note 2)
|
-
|
-
|
(238
|
)
|
-
|
-
|
-
|
(238
|
)
|
|||||||||||||
Other
|
-
|
-
|
(2
|
)
|
-
|
-
|
-
|
(2
|
)
|
|||||||||||||
Balance
at March 31, 2006
|
$
|
120
|
$
|
3,737
|
$
|
1,713
|
$
|
(723
|
)
|
$
|
(629
|
)
|
$
|
(23
|
)
|
$
|
4,195
|
|||||
1.
|
The
Company, Basis of Presentation and Accounting
Policies
|
· |
In
January 2006, the company entered into an agreement to sell its interests
in Gulf of Mexico shelf oil and natural gas properties to W&T
Offshore, Inc. for approximately $1.34 billion in cash, subject to
certain
adjustments. The transaction, which has an effective date of October
1,
2005 and is subject to customary closing conditions and regulatory
approvals, is expected to close in late second quarter or early third
quarter.
|
· |
In
January 2006, the company's Board of Directors (the Board) approved
a $1
billion stock repurchase program. During the first quarter, approximately
3.4 million shares of Kerr-McGee’s stock were repurchased at an aggregate
cost of $350 million.
|
· |
In
November 2005, Tronox Incorporated (Tronox), a former subsidiary
that held
Kerr-McGee's chemical business, completed an initial public offering
(IPO)
of 17.5 million shares of Class A common stock, which reduced Kerr-McGee’s
equity interest in Tronox to 57%. On March 30, 2006, Kerr-McGee completed
a pro rata distribution to its stockholders in the form of a dividend
of
shares of Tronox Class B common stock it owned (the Distribution)
and no
longer has any ownership or voting interest in Tronox.
|
· |
On
May 9, 2006, the Board authorized a two-for-one split of Kerr-McGee’s
outstanding common stock. The stock split will be accomplished through
a
stock dividend to be issued on June 14, 2006 to stockholders of record
at
the close of business on June 2, 2006. Common shares issued and
outstanding and earnings per share in the accompanying consolidated
financial statements do not give effect to the stock split.
|
· |
The
Board also approved a 25% increase in the company's quarterly dividend
effective with the dividend payable on July 3, 2006. On a pre-split
basis,
the quarterly dividend will increase from $.05 per share to $.0625
per
share.
|
· |
Compensation
cost for all stock option and stock awards that were unvested as
of
January 1, 2006 based on the grant-date fair value estimated in accordance
with the original provisions of FAS No.
123
|
· |
Compensation
cost for all stock options and nonvested stock awards granted subsequent
to January 1, 2006 based on the grant-date fair value estimated in
accordance with the provisions of FAS No. 123(R)
|
· |
Compensation
cost for all performance units (outstanding as of January 1, 2006
and
granted subsequent to that date) based on the change in their estimated
fair value during the first quarter
2006
|
(Millions
of dollars, except per-share amounts)
|
||||
Increase
(decrease) in:
|
||||
Income
from continuing operations before income taxes
|
$
|
(19
|
)
|
|
Income
from continuing operations
|
(12
|
)
|
||
Net
income
|
(10
|
)
|
||
Earnings
per share:
|
||||
Basic
|
(.09
|
)
|
||
Diluted
|
(.09
|
)
|
||
Net
cash provided by operating activities
|
(14
|
)
|
||
Net
cash used in financing activities
|
14
|
(Millions
of dollars, except per-share amounts)
|
||||
Net
income, as reported
|
$
|
355
|
||
Add:
stock-based employee compensation expense
|
||||
included
in reported net income, net of taxes
|
9
|
|||
Deduct:
stock-based compensation expense determined
|
||||
using
a fair-value method, net of taxes
|
(16
|
)
|
||
Pro
forma net income
|
$
|
348
|
||
Net
income per share -
|
||||
Basic
-
|
||||
As
reported
|
$
|
2.29
|
||
Pro
forma
|
2.25
|
|||
Diluted
-
|
||||
As
reported
|
$
|
2.20
|
||
Pro
forma
|
2.15
|
2.
|
Tronox
Separation
|
3.
|
Discontinued
Operations and Assets Held for
Sale
|
Three
Months Ended March 31,
|
|||||||||||||
2006
|
2005
|
||||||||||||
North
Sea
|
|||||||||||||
Oil
and Gas
|
|||||||||||||
(Millions
of dollars)
|
Tronox
|
Business
|
Tronox
|
Total
|
|||||||||
Revenues
|
$
|
336
|
$
|
312
|
$
|
334
|
$
|
646
|
|||||
Income
(loss) from Discontinued Operations:
|
|||||||||||||
Income
from operations
|
$
|
35
|
$
|
183
|
$
|
6
|
$
|
189
|
|||||
Provision
for Tronox guarantee (1)
|
(56
|
)
|
-
|
-
|
-
|
||||||||
Pretax
income (loss) from discontinued operations
|
(21
|
)
|
183
|
6
|
189
|
||||||||
Income
tax (expense) benefit
|
7
|
(78
|
)
|
1
|
(77
|
)
|
|||||||
Net
income from operations allocable to minority interests
|
(9
|
)
|
-
|
-
|
-
|
||||||||
Income
(loss) from discontinued operations, net of tax
|
$
|
(23
|
)
|
$
|
105
|
$
|
7
|
$
|
112
|
||||
(1) |
Additional
information about the guarantee is provided in Note
2.
|
4.
|
Other
Comprehensive Income (Loss)
|
Three
Months Ended
|
|||||||
March
31,
|
|||||||
(Millions
of dollars)
|
2006
|
2005
|
|||||
Foreign
currency translation -
|
|||||||
Translation
adjustments, net of minority interest of $2
|
$
|
1
|
$
|
2
|
|||
Reclassification
to retained earnings
|
(24
|
)
|
-
|
||||
Total
foreign currency translation adjustments
|
(23
|
)
|
2
|
||||
Net
gains (losses) on cash flow hedges -
|
|||||||
Unrealized
gains (losses), net of taxes of $(111) and $272
|
207
|
(484
|
)
|
||||
Reclassification
of realized losses to net income,
|
|||||||
net
of taxes of $(97) and $(14)
|
179
|
25
|
|||||
Reclassification
to retained earnings
|
1
|
-
|
|||||
Total
gains (losses) on cash flow hedges, net
|
387
|
(459
|
)
|
||||
Minimum
pension liability -
|
|||||||
Minimum
pension liability adjustments, net of taxes of $5
|
(10
|
)
|
-
|
||||
Reclassification
to retained earnings, net of taxes of $(1)
|
2
|
-
|
|||||
Total
minimum pension liability adjustments
|
(8
|
)
|
-
|
||||
Other
comprehensive income (loss)
|
$
|
356
|
$
|
(457
|
)
|
March
31,
|
December
31,
|
||||||
(Millions
of dollars)
|
2006
|
2005
|
|||||
Foreign
currency translation adjustments
|
$
|
12
|
$
|
35
|
|||
Unrealized
loss on cash flow hedges
|
(708
|
)
|
(1,095
|
)
|
|||
Minimum
pension liability adjustments
|
(27
|
)
|
(19
|
)
|
|||
$
|
(723
|
)
|
$
|
(1,079
|
)
|
As
of March 31, 2006
|
||||||||||||||||
Derivative
Fair Value
|
||||||||||||||||
Current
|
Long-Term
|
Current
|
Long-Term
|
Deferred
|
||||||||||||
(Millions
of dollars)
|
Asset
|
Asset
|
Liability
|
Liability
|
Loss
in AOCI(1)
|
|||||||||||
Oil
and gas production-related derivatives
|
$
|
72
|
$
|
32
|
$
|
(915
|
)
|
$
|
(431
|
)
|
$
|
(708
|
)
|
|||
Gas
marketing-related derivatives
|
5
|
-
|
(5
|
)
|
-
|
-
|
||||||||||
Total
|
$
|
77
|
$
|
32
|
$
|
(920
|
)
|
$
|
(431
|
)
|
$
|
(708
|
)
|
As
of December 31, 2005
|
||||||||||||||||
Derivative
Fair Value
|
||||||||||||||||
Current
|
Long-Term
|
Current
|
Long-Term
|
Deferred
|
||||||||||||
(Millions
of dollars)
|
Asset
|
Asset
|
Liability
|
Liability
|
Loss
in AOCI(1)
|
|||||||||||
Oil
and gas production-related derivatives
|
$
|
101
|
$
|
34
|
$
|
(1,492
|
)
|
$
|
(658
|
)
|
$
|
(1,095
|
)
|
|||
Gas
marketing-related derivatives
|
13
|
1
|
(14
|
)
|
-
|
-
|
||||||||||
Total
|
$
|
114
|
$
|
35
|
$
|
(1,506
|
)
|
$
|
(658
|
)
|
$
|
(1,095
|
)
|
(1) |
Amounts
deferred in accumulated other comprehensive income (AOCI) are reflected
net of tax.
|
Three
Months Ended
|
|||||||
March
31,
|
|||||||
(Millions
of dollars)
|
2006
|
2005
|
|||||
Loss
on hedge derivatives
|
$
|
(274
|
)
|
$
|
(26
|
)
|
|
Mark-to-market
nonhedge derivative gain (loss)
|
130
|
(51
|
)
|
||||
Gain
(loss) due to hedge ineffectiveness
|
30
|
(9
|
)
|
||||
(114
|
)
|
(86
|
)
|
||||
Gas
marketing-related derivatives
|
1
|
2
|
|||||
Total
|
$
|
(113
|
)
|
$
|
(84
|
)
|
|
6.
|
Exploratory
Drilling Costs
|
7.
|
Debt
|
Debt
|
Carrying
|
|||||||||
(Millions
of dollars)
|
Principal
|
Discount
|
Amount
|
|||||||
Balance
at December 31, 2005 (1)
|
$
|
3,232
|
$
|
(99
|
)
|
$
|
3,133
|
|||
Amortization
of discount
|
-
|
2
|
2
|
|||||||
Change
in the fair value of hedged debt
|
-
|
(3
|
)
|
(3
|
)
|
|||||
Early
redemption of 7% debentures due 2011
|
(250
|
)
|
69
|
(181
|
)
|
|||||
Tronox
Distribution
|
(550
|
)
|
-
|
(550
|
)
|
|||||
Balance
at March 31, 2006
|
$
|
2,432
|
$
|
(31
|
)
|
$
|
2,401
|
(1) |
Included
$550 million of Tronox debt presented in the Condensed Consolidated
Balance Sheet as liabilities associated with
Tronox.
|
8.
|
Exit,
Disposal and Restructuring
Activities
|
Reserve
Activity
(1)
|
||||||||||
Dismantlement
|
Personnel
|
|||||||||
(Millions
of dollars)
|
and
Closure
|
Costs
(2)
|
Total
|
|||||||
Balance
at December 31, 2005
|
$
|
6
|
$
|
21
|
$
|
27
|
||||
Provisions/Accruals
|
-
|
5
|
5
|
|||||||
Payments
|
(1
|
)
|
-
|
(1
|
)
|
|||||
Tronox
Distribution
|
(5
|
)
|
(6
|
)
|
(11
|
)
|
||||
Balance
at March 31, 2006
|
$
|
-
|
$
|
20
|
$
|
20
|
(1) |
Provisions
for exit, disposal and restructuring activities include a charge
of $2
million related to Tronox, which is reflected in loss from discontinued
operations in the Condensed Consolidated Statement of Income.
|
(2) |
Of
the $20 million reserve, approximately $11 million was paid in April
2006.
|
Vesting
|
Cash-
or
|
||||
Contractual
|
Period
|
Vesting
|
Stock-
|
Vesting
and Other
|
|
Life
(years)
|
(years)
|
Term
(1)
|
Settled
|
Conditions
|
|
Stock
options
|
10
|
3
|
Graded
|
Stock
|
Employee
service
|
Restricted
stock
|
not
applicable
|
3
|
Cliff
|
Stock
|
Employee
service
|
Performance
units (2)
|
3
|
3
|
Cliff
|
Cash
|
Employee
service and
|
achievement
of specified
|
|||||
stockholder
return targets
|
|||||
(1) |
An
employee holding stock options vests in one third of the award annually.
An employee vests in the entire restricted stock award at the end
of the
three-year vesting period. Employees terminating their employment
due to
retirement fully vest in their stock option and restricted stock
awards
upon retirement; and, subject to certain conditions, retain the right
to
receive a pro rata payout under the performance units awards to the
extent
services have been provided.
|
(2) |
Performance
unit awards provide an employee with a potential cash payment at
the end
of a three-year performance cycle based on Kerr-McGee's total stockholder
return (stockholder return assuming dividend reinvestment) relative
to
selected peer companies. Payout levels vary depending upon Kerr-McGee's
rank relative to certain peer companies.
|
Three
Months Ended
|
|||||||
March
31,
|
|||||||
(Millions
of dollars)
|
2006
|
2005
|
|||||
Stock
options
|
$
|
20
|
$
|
1
|
|||
Restricted
stock
|
15
|
5
|
|||||
Performance
units
|
6
|
7
|
|||||
Total stock-based compensation expense, pretax
|
41
|
13
|
|||||
Income
tax benefit
|
(14
|
)
|
(5
|
)
|
|||
Total stock-based compensation expense, net of taxes
|
$
|
27
|
$
|
8
|
Unrecognized
|
Remaining
|
||||||
Cost
|
Period
|
||||||
(Millions
of dollars)
|
(Pretax)
|
(years)
|
|||||
Stock
options
|
$
|
35
|
2.3
|
||||
Restricted
stock
|
30
|
2.1
|
|||||
Performance
units
|
22
|
2.1
|
|||||
$
|
87
|
2.2
|
Intrinsic
|
|||||||||||||
Number
of
|
Contractual
|
Value
|
|||||||||||
Options
|
Shares
|
Price
(3)
|
Life
(years) (3)
|
(Millions)
(4)
|
|||||||||
Outstanding
at December 31, 2005
|
4,799,124
|
$
|
53.21
|
||||||||||
Granted
|
1,172,225
|
94.10
|
|||||||||||
Exercised
|
(560,271
|
)
|
52.16
|
||||||||||
Forfeited
(1)
|
(182,809
|
)
|
55.80
|
||||||||||
Expired
|
(808
|
)
|
57.40
|
||||||||||
Antidilution
adjustment (2)
|
193,655
|
(2.24
|
)
|
||||||||||
Outstanding
at March 31, 2006
|
5,421,116
|
$
|
60.16
|
7.5
|
$
|
191
|
|||||||
Exercisable
at March 31, 2006
|
2,979,237
|
$
|
51.03
|
6.2
|
$
|
132
|
(1) |
Includes
options to purchase 161,596 shares of Kerr-McGee stock that were
forfeited
by Tronox employees at the date of the
Distribution.
|
(2) |
Represents
a modification to the terms of outstanding awards in connection with
the
distribution, as discussed below.
|
(3) |
Represents
weighted average exercise price and weighted average remaining contractual
life, as applicable.
|
(4) |
Reflects
aggregate intrinsic value based on the difference between the market
price
of Kerr-McGee stock and the options' exercise
price.
|
Three
Months Ended
|
|||||||
March
31,
|
|||||||
(Millions
of dollars)
|
2006
|
2005
|
|||||
Intrinsic
value
|
$
|
27
|
$
|
45
|
|||
Cash
proceeds received
|
29
|
132
|
|||||
Excess
tax benefit
|
7
|
16
|
Three
Months Ended
|
|||||||
March
31,
|
|||||||
2006
|
2005
|
||||||
Expected
volatility (annualized)
|
28.0
|
%
|
26.4
|
%
|
|||
Expected
dividend yield (annualized)
|
0.2
|
%
|
3.5
|
%
|
|||
Expected
term (years)
|
5.6
|
6.0
|
|||||
Risk-free
rate
|
4.49
|
%
|
3.9
|
%
|
|||
Weighted
average per-share fair value of options granted
|
$
|
33.61
|
$
|
20.96
|
Shares
|
Fair
Value (1)
|
||||||
Balance
at December 31, 2005
|
1,240,625
|
$
|
53.85
|
||||
Granted
|
241,070
|
98.58
|
|||||
Vested
|
(409,885
|
)
|
43.22
|
||||
Forfeited
(2)
|
(79,784
|
)
|
62.16
|
||||
Balance
at March 31, 2006
|
992,026
|
$
|
68.44
|
(1) |
Represents
the weighted-average grant-date fair
value.
|
(2) |
Includes
approximately 73,000 shares forfeited by Tronox employees as of the
Distribution date.
|
Carrying
|
|||||||
Performance
|
Amount
of
|
||||||
(Millions
of dollars)
|
Units
|
Liability
|
|||||
Balance
at December 31, 2005
|
33,545,679
|
$
|
21
|
||||
Cumulative
effect of adopting FAS 123(R)
|
(675,871
|
)
|
(2
|
)
|
|||
Forfeitures
by Tronox employees upon Distribution
|
(2,794,330
|
)
|
(1
|
)
|
|||
Units
granted (1)
|
15,980,157
|
N/A
|
|||||
Award
settlement
|
(9,292,084
|
)
|
(9
|
)
|
|||
Compensation
cost
|
-
|
6
|
|||||
Balance
at March 31, 2006 (2)
|
36,763,551
|
$
|
15
|
(1) |
Grant-date
measurement of new performance unit awards is not required to be
performed. Rather, fair value of the 2006 grant was estimated as
of March
31, 2006 to determine the first quarter 2006 compensation cost associated
with these awards.
|
(2) |
Performance
units balance represents units outstanding and expected to
vest.
|
Postretirement
|
|||||||
Retirement
|
Health
and Life
|
||||||
(Millions
of dollars)
|
Plans
|
Plans
|
|||||
Change
in benefit obligations -
|
|||||||
Benefit
obligation at December 31, 2005
|
$
|
1,255
|
$
|
297
|
|||
Service
cost
|
8
|
1
|
|||||
Interest
cost
|
16
|
4
|
|||||
Plan
amendments/law changes
|
15
|
-
|
|||||
Net
actuarial gain
|
(32
|
)
|
(4
|
)
|
|||
Contributions
by plan participants
|
-
|
2
|
|||||
Benefits
paid
|
(31
|
)
|
(7
|
)
|
|||
Tronox
Distribution
|
(500
|
)
|
(147
|
)
|
|||
Benefit
obligation at March 31, 2006
|
$
|
731
|
$
|
146
|
|||
Change
in plan assets -
|
|||||||
Fair
value of plan assets at December 31, 2005
|
$
|
1,132
|
$
|
-
|
|||
Actual
return on plan assets
|
31
|
-
|
|||||
Employer
contributions
|
2
|
5
|
|||||
Participant
contributions
|
-
|
2
|
|||||
Benefits
paid
|
(31
|
)
|
(7
|
)
|
|||
Tronox
Distribution (1)
|
(503
|
)
|
-
|
||||
Fair
value of plan assets at March 31, 2006 (2)
|
$
|
631
|
$
|
-
|
(1) |
Includes
plan assets of $441 million transferred from Kerr-McGee’s U.S. qualified
retirement plan trust to Tronox on March 30, 2006, the Distribution
date.
The initial transfer amount was determined based on census information
and
actuarial estimates as of an earlier date. A final determination
of plan
assets to be transferred to Tronox based on census data and other
information as of the Distribution date will be completed in May
2006 and
will result in an incremental transfer of plan assets between Kerr-McGee
and Tronox. The company does not expect this incremental transfer
to have
a material effect on its financial statements.
|
(2) |
Excludes
the grantor trust assets of $67 million associated with the company’s
supplemental nonqualified U.S. retirement plans.
|
Postretirement
|
|||||||||||||
Retirement
Plans
|
Health
and Life Plans
|
||||||||||||
March
31,
|
December
31,
|
March
31,
|
December
31,
|
||||||||||
(Millions
of dollars)
|
2006
|
2005
|
2006
|
2005
|
|||||||||
Benefit
obligation
|
$
|
731
|
$
|
1,255
|
$
|
146
|
$
|
297
|
|||||
Fair
value of plan assets
|
631
|
1,132
|
-
|
-
|
|||||||||
Funded
status of plans - under funded
|
(100
|
)
|
(123
|
)
|
(146
|
)
|
(297
|
)
|
|||||
Amounts
not recognized in the Condensed
|
|||||||||||||
Consolidated
Balance Sheet -
|
|||||||||||||
Prior
service cost
|
37
|
42
|
(6
|
)
|
(14
|
)
|
|||||||
Net
actuarial loss
|
150
|
282
|
37
|
80
|
|||||||||
Net
prepaid expense (accrued liability)
|
|||||||||||||
recognized
|
$
|
87
|
$
|
201
|
$
|
(115
|
)
|
$
|
(231
|
)
|
|||
Classification
of amounts recognized in the
|
|||||||||||||
Condensed
Consolidated Balance Sheet -
|
|||||||||||||
Prepaid
pension cost
|
$
|
126
|
$
|
249
|
$
|
-
|
$
|
-
|
|||||
Accrued
benefit liability
|
(87
|
)
|
(79
|
)
|
(115
|
)
|
(231
|
)
|
|||||
Intangible
asset
|
6
|
-
|
-
|
-
|
|||||||||
Accumulated
other comprehensive loss (pretax)
|
42
|
31
|
-
|
-
|
|||||||||
Total
|
$
|
87
|
$
|
201
|
$
|
(115
|
)
|
$
|
(231
|
)
|
At
March 31, 2006
|
At
December 31, 2005
|
||||||||||||
Nonqualified
|
Postretirement
|
Nonqualified
|
Postretirement
|
||||||||||
(Millions
of dollars)
|
Retirement
Plans (1)
|
Health
and Life Plans
|
Retirement
Plans (1)
|
Health
and Life Plans
|
|||||||||
Accumulated
benefit obligation
|
$
|
95
|
$
|
146
|
$
|
65
|
$
|
297
|
|||||
Projected
benefit obligation
|
104
|
146
|
80
|
297
|
(1) |
Although
not considered plan assets, a grantor trust was established from
which
payments for certain U.S. supplemental benefits are made. The trust
assets
had a balance of $67 million and $50 million at March 31, 2006 and
December 31, 2005, respectively. In January 2006, the company made
a
discretionary contribution to the grantor trust of $22 million. In
connection with the Distribution of Tronox, the company transferred
$4
million of grantor trust assets to the newly-established Tronox
nonqualified benefit plan.
|
(Millions
of dollars)
|
At
March 31, 2006
|
At
December 31, 2005
|
|||||
Accumulated
benefit obligation
|
$
|
575
|
$
|
990
|
|||
Projected
benefit obligation
|
$
|
627
|
$
|
1,093
|
|||
Market
value of plan assets
|
631
|
1,070
|
|||||
Funded
status - over/(under) funded
|
$
|
4
|
$
|
(23
|
)
|
2011-
|
|||||||||||||||||||
(Millions
of dollars)
|
2006
|
2007
|
2008
|
2009
|
2010
|
2015
|
|||||||||||||
Retirement
plans
|
$
|
63
|
$
|
76
|
$
|
62
|
$
|
65
|
$
|
65
|
$
|
340
|
|||||||
Postretirement
health and life plans
|
11
|
11
|
11
|
11
|
11
|
54
|
Postretirement
|
|||||||||||||
Retirement
Plans
|
Health
and Life Plans
|
||||||||||||
(Millions
of dollars)
|
2006
|
2005
|
2006
|
2005
|
|||||||||
Net
periodic cost -
|
|||||||||||||
Service
cost
|
$
|
7
|
$
|
7
|
$
|
1
|
$
|
1
|
|||||
Interest
cost
|
15
|
16
|
2
|
2
|
|||||||||
Expected
return on plan assets
|
(20
|
)
|
(24
|
)
|
-
|
-
|
|||||||
Net
amortization -
|
|||||||||||||
Prior
service cost
|
5
|
2
|
-
|
(1
|
)
|
||||||||
Net
actuarial (gain) loss
|
2
|
1
|
-
|
1
|
|||||||||
Total
|
$
|
9
|
$
|
2
|
$
|
3
|
$
|
3
|
March
30, 2006
|
December
31, 2005
|
|
Discount
rate
|
5.85%
|
5.50%
|
Rate
of compensation increases
|
4.50%
|
4.50%
|
11.
|
Earnings
Per Share
|
For
the Three Months Ended March 31,
|
|||||||||||||||||||
2006
|
2005
|
||||||||||||||||||
Income
from
|
Income
from
|
||||||||||||||||||
(In
millions, except
|
Continuing
|
Per-Share
|
Continuing
|
Per-Share
|
|||||||||||||||
per-share
amounts)
|
Operations
|
Shares
|
Income
|
Operations
|
Shares
|
Income
|
|||||||||||||
Basic
earnings per share
|
$
|
276
|
113.6
|
$
|
2.43
|
$
|
243
|
154.8
|
$
|
1.57
|
|||||||||
Effect
of dilutive securities:
|
|||||||||||||||||||
5.25%
convertible debentures
|
-
|
-
|
3
|
6.4
|
|||||||||||||||
Restricted
stock
|
-
|
.5
|
-
|
.6
|
|||||||||||||||
Stock
options
|
-
|
1.3
|
-
|
1.0
|
|||||||||||||||
Diluted
earnings per share
|
$
|
276
|
115.4
|
$
|
2.39
|
$
|
246
|
162.8
|
$
|
1.51
|
12.
|
Capital
Stock
|
Common
|
Treasury
|
||||||
(Thousands
of shares)
|
Stock
|
Stock
|
|||||
Balance
at December 31, 2004
|
152,049
|
160
|
|||||
Stock
option exercises
|
2,406
|
-
|
|||||
Issuance
of restricted stock
|
450
|
-
|
|||||
Forfeiture
of restricted stock
|
-
|
29
|
|||||
Shares
issued upon conversion of 5.25% debentures
|
9,818
|
-
|
|||||
Purchases
of treasury shares
|
-
|
3,145
|
|||||
Balance
at March 31, 2005
|
164,723
|
3,334
|
|||||
Balance
at December 31, 2005
|
119,669
|
3,457
|
|||||
Stock
option exercises
|
559
|
-
|
|||||
Issuance
of restricted stock
|
241
|
-
|
|||||
Other
issuances
|
7
|
-
|
|||||
Forfeiture
of restricted stock
|
-
|
80
|
|||||
Purchases
of treasury shares (1)
|
-
|
3,497
|
|||||
Balance
at March 31, 2006
|
120,476
|
7,034
|
13.
|
Contingencies
|
Reserves
for
|
||||||||||
Reserves
for
|
Environmental
|
Reimbursements
|
||||||||
(Millions
of dollars)
|
Litigation
|
Remediation
(1)
|
Receivable
(1)
|
|||||||
Balance
at December 31, 2005
|
$
|
30
|
$
|
268
|
$
|
57
|
||||
Provisions
/ Accruals
|
-
|
2
|
21
|
|||||||
Payments
/ Settlements
|
(5
|
)
|
(11
|
)
|
(21
|
)
|
||||
Tronox
Distribution
|
(8
|
)
|
(216
|
)
|
(57
|
)
|
||||
Balance
at March 31, 2006
|
$
|
17
|
$
|
43
|
$
|
-
|
(1) |
Provisions
for environmental remediation and restoration and associated accruals
of
third-party reimbursements of environmental costs include $2 million
and
$21 million, respectively, related to Tronox. These amounts are reflected
in the Condensed Consolidated Statement of Income as a component
of loss
from discontinued operations.
|
· |
Some
sites are in the early stages of investigation, and other sites may
be
identified in the future.
|
· |
Remediation
activities vary significantly in duration, scope and cost from site
to
site depending on the mix of unique site characteristics, applicable
technologies and regulatory agencies
involved.
|
· |
Cleanup
requirements are difficult to predict at sites where remedial
investigations have not been completed or final decisions have not
been
made regarding cleanup requirements, technologies or other factors
that
bear on cleanup costs.
|
· |
Environmental
laws frequently impose joint and several liability on all responsible
parties, and it can be difficult to determine the number and financial
condition of other responsible parties and their respective shares
of
responsibility for cleanup costs.
|
· |
Environmental
laws and regulations, as well as enforcement policies, are continually
changing, and the outcome of court proceedings and discussions with
regulatory agencies are inherently
uncertain.
|
· |
Unanticipated
construction problems and weather conditions can hinder the completion
of
environmental remediation.
|
· |
Some
legal matters are in the early stages of investigation or proceeding
or
their outcomes otherwise may be difficult to predict, and other legal
matters may be identified in the future.
|
· |
The
inability to implement a planned engineering design or use planned
technologies and excavation methods may require revisions to the
design of
remediation measures, which can delay remediation and increase
costs.
|
· |
The
identification of additional areas or volumes of contamination and
changes
in costs of labor, equipment and technology generate corresponding
changes
in environmental remediation costs.
|
14.
|
Business
Segments
|
(Millions
of dollars)
|
Gulf
of Mexico
|
Rocky
Mountain
|
Southern
|
China
|
Other
(1)
|
Total
|
|||||||||||||
Three
months ended March 31, 2006:
|
|||||||||||||||||||
Revenues
|
$
|
530
|
$
|
365
|
$
|
232
|
$
|
74
|
$
|
-
|
$
|
1,201
|
(2) | ||||||
Operating
profit
|
$
|
388
|
$
|
209
|
$
|
123
|
$
|
46
|
$
|
(28
|
)
|
$
|
738
|
||||||
Net
marketing margin
|
(1
|
)
|
|||||||||||||||||
Loss
on commodity derivatives
|
(114
|
)
|
|||||||||||||||||
Corporate
costs
|
(70
|
)
(3)
|
|||||||||||||||||
Interest
and debt expense
|
(122
|
)
|
|||||||||||||||||
Other
income (expense)
|
(3
|
)
|
|||||||||||||||||
Income
from continuing operations before income taxes
|
$
|
428
|
Three
months ended March 31, 2005:
|
|||||||||||||||||||
Revenues
|
$
|
496
|
$
|
265
|
$
|
190
|
$
|
74
|
$
|
-
|
$
|
1,025
|
(2) | ||||||
Operating
profit
|
$
|
312
|
$
|
135
|
$
|
101
|
$
|
48
|
$
|
(21
|
)
|
$
|
575
|
||||||
Net
marketing margin
|
2
|
||||||||||||||||||
Loss
on commodity derivatives
|
(86
|
)
|
|||||||||||||||||
Corporate
costs
|
(58
|
)
(3)
|
|||||||||||||||||
Interest
and debt expense
|
(60
|
)
|
|||||||||||||||||
Other
income (expense)
|
(2
|
)
|
|||||||||||||||||
Income
from continuing operations before income taxes
|
$
|
371
|
|||||||||||||||||
(1) |
Represents
exploration activities outside our core operating areas and certain
general and administrative costs associated with E&P
operations.
|
(2) |
Excludes
revenues of $213 million and $132 million associated with third-party
marketing activities in 2006 and 2005,
respectively.
|
(3) |
Represents
general and administrative costs, depreciation expense and property
taxes
incurred outside our E&P operations. Certain corporate general and
administrative costs previously reported as part of E&P segment
operating profit in 2005 are included here for consistency with 2006
presentation.
|
15.
|
Condensed
Consolidating Financial
Information
|
Kerr-McGee
|
Guarantor
|
Non-Guarantor
|
||||||||||||||
(Millions
of dollars)
|
Corporation
|
Subsidiary
|
Subsidiaries
|
Eliminations
|
Consolidated
|
|||||||||||
Revenues
|
||||||||||||||||
Oil
and gas sales
|
$
|
-
|
$
|
162
|
$
|
1,017
|
$
|
-
|
$
|
1,179
|
||||||
Loss
on commodity derivatives
|
-
|
-
|
(114
|
)
|
-
|
(114
|
)
|
|||||||||
Gas
marketing revenues
|
-
|
213
|
-
|
-
|
213
|
|||||||||||
Other
revenues
|
-
|
19
|
3
|
|
-
|
22
|
||||||||||
Total
Revenues
|
-
|
394
|
906
|
-
|
1,300
|
|||||||||||
Operating
Expenses
|
||||||||||||||||
Lease
operating costs
|
-
|
14
|
117
|
-
|
131
|
|||||||||||
Production
and ad valorem taxes
|
-
|
3
|
28
|
-
|
31
|
|||||||||||
Transportation
expense
|
-
|
3
|
20
|
-
|
23
|
|||||||||||
General
and administrative expense
|
-
|
-
|
74
|
-
|
74
|
|||||||||||
Exploration
expense
|
-
|
-
|
52
|
-
|
52
|
|||||||||||
Gas
gathering, processing and other
|
||||||||||||||||
expenses
|
-
|
19
|
15
|
-
|
34
|
|||||||||||
Gas
marketing costs
|
-
|
214
|
-
|
-
|
214
|
|||||||||||
Depreciation,
depletion and amortization
|
-
|
26
|
163
|
-
|
189
|
|||||||||||
Accretion
expense
|
-
|
-
|
3
|
-
|
3
|
|||||||||||
Gain
on sales of oil and gas properties
|
-
|
-
|
(4
|
)
|
-
|
(4
|
)
|
|||||||||
Total
Operating Expenses
|
-
|
279
|
468
|
-
|
747
|
|||||||||||
Operating
Income
|
-
|
115
|
438
|
-
|
553
|
|||||||||||
Interest
expense
|
(77
|
)
|
-
|
(188
|
)
|
224
|
(41
|
)
|
||||||||
Loss
on early repayment and modification of debt
|
(12
|
)
|
-
|
(69
|
)
|
-
|
(81
|
)
|
||||||||
Other
income (expense)
|
352
|
6
|
199
|
(560
|
)
|
(3
|
)
|
|||||||||
Income
from Continuing Operations before
|
||||||||||||||||
Income Taxes
|
263
|
121
|
380
|
(336
|
)
|
428
|
||||||||||
Benefit
(Provision) for Income Taxes
|
26
|
(45
|
)
|
(133
|
)
|
-
|
(152
|
)
|
||||||||
Income
from Continuing Operations
|
289
|
76
|
247
|
(336
|
)
|
276
|
||||||||||
Income
(loss) from discontinued operations,
|
||||||||||||||||
net of taxes
|
(36
|
) |
-
|
13
|
|
-
|
(23
|
)
|
||||||||
Cumulative
effect of change in accounting
|
||||||||||||||||
principle, net of taxes
|
2
|
-
|
-
|
-
|
2
|
|||||||||||
Net
Income
|
$
|
255
|
$
|
76
|
$
|
260
|
$
|
(336
|
)
|
$
|
255
|
Kerr-McGee
|
Guarantor
|
Non-Guarantor
|
||||||||||||||
(Millions
of dollars)
|
Corporation
|
Subsidiary
|
Subsidiaries
|
Eliminations
|
Consolidated
|
|||||||||||
Revenues
|
||||||||||||||||
Oil
and gas sales
|
$
|
-
|
$
|
129
|
$
|
877
|
$
|
-
|
$
|
1,006
|
||||||
Loss
on commodity derivatives
|
-
|
-
|
|
(86
|
)
|
-
|
(86
|
)
|
||||||||
Gas
marketing revenues
|
-
|
132
|
-
|
-
|
132
|
|||||||||||
Other
revenues
|
-
|
16
|
3
|
-
|
19
|
|||||||||||
Total
Revenues
|
-
|
277
|
794
|
-
|
1,071
|
|||||||||||
Operating
Expenses
|
||||||||||||||||
Lease
operating costs
|
-
|
10
|
98
|
-
|
108
|
|||||||||||
Production
and ad valorem taxes
|
-
|
8
|
22
|
-
|
30
|
|||||||||||
Transportation
expense
|
-
|
3
|
20
|
-
|
23
|
|||||||||||
General
and administrative expense
|
-
|
(1
|
)
|
54
|
-
|
53
|
||||||||||
Exploration
expense
|
-
|
2
|
53
|
-
|
55
|
|||||||||||
Gas
gathering, processing and other
|
||||||||||||||||
expenses
|
-
|
17
|
11
|
-
|
28
|
|||||||||||
Gas
marketing costs
|
-
|
130
|
130
|
|||||||||||||
Depreciation,
depletion and amortization
|
-
|
28
|
195
|
-
|
223
|
|||||||||||
Accretion
expense
|
-
|
1
|
5
|
-
|
6
|
|||||||||||
Asset
impairments
|
-
|
-
|
4
|
-
|
4
|
|||||||||||
Gain
on sales of oil and gas properties
|
-
|
-
|
(22
|
)
|
-
|
(22
|
)
|
|||||||||
Total
Operating Expenses
|
-
|
198
|
440
|
-
|
638
|
|||||||||||
Operating
Income
|
-
|
79
|
354
|
-
|
433
|
|||||||||||
Interest
expense
|
(42
|
)
|
(6
|
)
|
(95
|
)
|
83
|
(60
|
)
|
|||||||
Other
income (expense)
|
390
|
-
|
57
|
(449
|
)
|
(2
|
)
|
|||||||||
Income
from Continuing Operations before
|
||||||||||||||||
Income
Taxes
|
348
|
73
|
316
|
(366
|
)
|
371
|
||||||||||
Benefit
(Provision) for Income Taxes
|
7
|
(25
|
)
|
(110
|
)
|
-
|
(128
|
)
|
||||||||
Income
from Continuing Operations
|
355
|
48
|
206
|
(366
|
)
|
243
|
||||||||||
Income
from discontinued operations,
|
||||||||||||||||
net of taxes
|
-
|
-
|
112
|
-
|
112
|
|||||||||||
Net
Income
|
$
|
355
|
$
|
48
|
$
|
318
|
$
|
(366
|
)
|
$
|
355
|
Kerr-McGee
|
Guarantor
|
Non-Guarantor
|
||||||||||||||
(Millions
of dollars)
|
Corporation
|
Subsidiary
|
Subsidiaries
|
Eliminations
|
Consolidated
|
|||||||||||
|
||||||||||||||||
ASSETS
|
||||||||||||||||
Current
Assets
|
||||||||||||||||
Cash
and cash equivalents
|
$
|
2
|
$
|
-
|
$
|
81
|
$
|
-
|
$
|
83
|
||||||
Intercompany receivables | - | - | 60 | (60 | ) | - | ||||||||||
Accounts
receivable
|
-
|
246
|
431
|
-
|
677
|
|||||||||||
Derivatives
and other current assets
|
-
|
9
|
179
|
-
|
188
|
|||||||||||
Deferred
income taxes
|
-
|
-
|
341
|
-
|
341
|
|||||||||||
Assets
held for sale
|
-
|
-
|
22
|
-
|
22
|
|||||||||||
Total
Current Assets
|
2
|
255
|
1,114
|
(60
|
) |
1,311
|
||||||||||
Property,
Plant and Equipment - Net
|
2,024
|
5,956
|
-
|
7,980
|
||||||||||||
Investments
in Subsidiaries
|
11,151
|
-
|
-
|
(11,151
|
)
|
-
|
||||||||||
Investments,
Derivatives and Other Assets
|
16
|
-
|
390
|
(80
|
)
|
326
|
||||||||||
Goodwill
and Other Intangible Assets
|
-
|
346
|
831
|
-
|
1,177
|
|||||||||||
Assets
Held for Sale
|
-
|
-
|
693
|
-
|
693
|
|||||||||||
Total
Assets
|
$
|
11,169
|
$
|
2,625
|
$
|
8,984
|
$
|
(11,291
|
)
|
$
|
11,487
|
|||||
LIABILITIES
AND STOCKHOLDERS' EQUITY
|
||||||||||||||||
Current
Liabilities
|
||||||||||||||||
Intercompany
borrowings
|
$
|
4,553
|
$
|
128
|
$
|
-
|
$
|
(4,681
|
)
|
$
|
-
|
|||||
Accounts
payable
|
6
|
73
|
279
|
|
-
|
358
|
||||||||||
Long-term
debt due within one year
|
302
|
-
|
-
|
-
|
302
|
|||||||||||
Income
taxes payable
|
-
|
|
-
|
166
|
-
|
166
|
||||||||||
Commodity
derivative liabilities
|
-
|
5
|
915
|
-
|
920
|
|||||||||||
Accrued
liabilities
|
19
|
139
|
609
|
-
|
767
|
|||||||||||
Liabilities
associated with assets held for sale
|
-
|
-
|
21
|
-
|
21
|
|||||||||||
Total
Current Liabilities
|
4,880
|
345
|
1,990
|
(4,681
|
)
|
2,534
|
||||||||||
Long-Term
Debt
|
1,802
|
-
|
297
|
-
|
2,099
|
|||||||||||
Noncurrent
Liabilities
|
||||||||||||||||
Deferred
income taxes
|
(54
|
)
|
534
|
1,002
|
-
|
1,482
|
||||||||||
Asset
retirement obligations
|
-
|
39
|
150
|
-
|
189
|
|||||||||||
Commodity
derivative liabilities
|
-
|
-
|
431
|
-
|
431
|
|||||||||||
Other
|
55
|
|
60
|
316
|
-
|
431
|
||||||||||
Liabilities
associated with assets held for sale
|
-
|
-
|
126
|
-
|
126
|
|||||||||||
Total
Noncurrent Liabilities
|
1
|
|
633
|
2,025
|
-
|
2,659
|
||||||||||
Stockholders'
Equity
|
4,486
|
1,647
|
4,672
|
(6,610
|
)
|
4,195
|
||||||||||
Total
Liabilities and Stockholders' Equity
|
$
|
11,169
|
$
|
2,625
|
$
|
8,984
|
$
|
(11,291
|
)
|
$
|
11,487
|
Kerr-McGee
|
Guarantor
|
Non-Guarantor
|
||||||||||||||
(Millions
of dollars)
|
Corporation
|
Subsidiary
|
Subsidiaries
|
Eliminations
|
Consolidated
|
|||||||||||
|
||||||||||||||||
ASSETS
|
||||||||||||||||
Current
Assets
|
||||||||||||||||
Cash
and cash equivalents
|
$
|
1
|
$
|
-
|
$
|
1,052
|
$
|
-
|
$
|
1,053
|
||||||
Accounts
receivable
|
1
|
245
|
507
|
-
|
753
|
|||||||||||
Derivatives
and other current assets
|
-
|
17
|
188
|
-
|
205
|
|||||||||||
Deferred
income taxes
|
-
|
2
|
545
|
-
|
547
|
|||||||||||
Tronox
Assets
|
-
|
-
|
691
|
-
|
691
|
|||||||||||
Total
Current Assets
|
2
|
264
|
2,983
|
-
|
3,249
|
|||||||||||
Property,
Plant and Equipment - Net
|
-
|
1,915
|
6,520
|
-
|
8,435
|
|||||||||||
Investments
in Subsidiaries
|
8,688
|
-
|
-
|
(8,688
|
)
|
-
|
||||||||||
Investments,
Derivatives and Other Assets
|
25
|
1
|
481
|
(80
|
)
|
427
|
||||||||||
Goodwill
and Other Intangible Assets
|
-
|
346
|
833
|
-
|
1,179
|
|||||||||||
Assets
Held for Sale and Tronox Assets
|
-
|
-
|
986
|
-
|
986
|
|||||||||||
Total
Assets
|
$
|
8,715
|
$
|
2,526
|
$
|
11,803
|
$
|
(8,768
|
)
|
$
|
14,276
|
|||||
LIABILITIES
AND STOCKHOLDERS' EQUITY
|
||||||||||||||||
Current
Liabilities
|
||||||||||||||||
Intercompany
borrowings
|
$
|
2,459
|
$
|
183
|
$
|
3,037
|
$
|
(5,679
|
)
|
$
|
-
|
|||||
Accounts
payable
|
6
|
69
|
350
|
-
|
425
|
|||||||||||
Long-term
debt due within one year
|
306
|
-
|
-
|
-
|
306
|
|||||||||||
Income
taxes payable
|
-
|
-
|
429
|
-
|
429
|
|||||||||||
Commodity
derivative liabilities
|
-
|
14
|
1,492
|
-
|
1,506
|
|||||||||||
Accrued
liabilities
|
(72
|
)
|
239
|
679
|
-
|
846
|
||||||||||
Liabilities
associated with Tronox
|
-
|
-
|
419
|
-
|
419
|
|||||||||||
Total
Current Liabilities
|
2,699
|
505
|
6,406
|
(5,679
|
)
|
3,931
|
||||||||||
Long-Term
Debt
|
1,801
|
-
|
476
|
-
|
2,277
|
|||||||||||
Noncurrent
Liabilities
|
||||||||||||||||
Deferred
income taxes
|
(9
|
)
|
517
|
937
|
-
|
1,445
|
||||||||||
Asset
retirement obligations
|
-
|
28
|
282
|
-
|
310
|
|||||||||||
Commodity
derivative liabilities
|
-
|
-
|
658
|
-
|
658
|
|||||||||||
Other
noncurrent liabilities
|
-
|
50
|
421
|
-
|
471
|
|||||||||||
Liabilities
associated with Tronox
|
-
|
-
|
1,069
|
-
|
1,069
|
|||||||||||
Total
Noncurrent Liabilities
|
(9
|
)
|
595
|
3,367
|
-
|
3,953
|
||||||||||
Stockholders'
Equity
|
4,224
|
1,426
|
1,554
|
(3,089
|
)
|
4,115
|
||||||||||
Total
Liabilities and Stockholders' Equity
|
$
|
8,715
|
$
|
2,526
|
$
|
11,803
|
$
|
(8,768
|
)
|
$
|
14,276
|
Non-
|
||||||||||||||||
Kerr-McGee
|
Guarantor
|
Guarantor
|
||||||||||||||
(Millions
of dollars)
|
Corporation
|
Subsidiary
|
Subsidiaries
|
Eliminations
|
Consolidated
|
|||||||||||
Cash
Flows from Operating Activities
|
||||||||||||||||
Net
income
|
$
|
255
|
$
|
76
|
$
|
260
|
$
|
(336
|
) |
$
|
255
|
|||||
Adjustments
to reconcile net income to net cash
|
||||||||||||||||
provided
by operating activities-
|
||||||||||||||||
Depreciation,
depletion and amortization
|
-
|
26
|
199
|
-
|
225
|
|||||||||||
Deferred
income taxes
|
(49
|
)
|
26
|
81
|
-
|
58
|
||||||||||
Dry
hole expense
|
-
|
-
|
15
|
-
|
15
|
|||||||||||
Gain
on sale of assets
|
-
|
-
|
(4
|
)
|
-
|
(4
|
)
|
|||||||||
Accretion
expense
|
-
|
-
|
3
|
-
|
3
|
|||||||||||
Provision
for Tronox guarantee
|
56
|
-
|
-
|
-
|
56
|
|||||||||||
Equity
in earnings of subsidiaries
|
(336
|
)
|
-
|
-
|
336
|
-
|
||||||||||
Loss
on early repayment and modification
|
||||||||||||||||
of
debt
|
12
|
-
|
69
|
-
|
81
|
|||||||||||
Other
noncash items affecting net income
|
2
|
-
|
(19
|
)
|
-
|
(17
|
)
|
|||||||||
Changes
in assets and liabilities
|
101
|
(87
|
)
|
(551
|
)
|
-
|
(537
|
)
|
||||||||
Net
Cash Provided by Operating Activities
|
41
|
41
|
53
|
-
|
135
|
|||||||||||
Cash
Flows from Investing Activities
|
||||||||||||||||
Capital
expenditures
|
-
|
(34
|
)
|
(419
|
)
|
-
|
(453
|
)
|
||||||||
Dry
hole costs
|
-
|
-
|
(23
|
)
|
-
|
(23
|
)
|
|||||||||
Proceeds
from sales of assets
|
-
|
-
|
8
|
-
|
8
|
|||||||||||
Other
investing activities
|
-
|
-
|
23
|
-
|
23
|
|||||||||||
Net
Cash Used in Investing Activities
|
-
|
(34
|
)
|
(411
|
)
|
-
|
(445
|
)
|
||||||||
Cash
Flows from Financing Activities
|
||||||||||||||||
Issuance
of common stock upon exercise of stock options
|
29
|
-
|
-
|
-
|
29
|
|||||||||||
Purchases
of treasury stock
|
(363
|
)
|
-
|
-
|
-
|
(363
|
)
|
|||||||||
Repayment
of debt
|
-
|
-
|
(250
|
)
|
-
|
(250
|
)
|
|||||||||
Increase
(decrease) in intercompany
|
||||||||||||||||
notes
payable
|
289
|
(7
|
)
|
(282
|
)
|
-
|
-
|
|||||||||
Dividends
paid
|
(6
|
) |
-
|
-
|
-
|
(6
|
)
|
|||||||||
Settlement
of Westport derivatives
|
-
|
-
|
(21
|
)
|
-
|
(21
|
)
|
|||||||||
Tronox
Distribution
|
-
|
-
|
(57
|
)
|
-
|
(57
|
)
|
|||||||||
Other
financing activities
|
11
|
-
|
-
|
-
|
11
|
|||||||||||
Net
Cash Used in Financing Activities
|
(40
|
)
|
(7
|
)
|
(610
|
)
|
-
|
(657
|
)
|
|||||||
Effects
of Exchange Rate Changes on Cash
|
||||||||||||||||
and
Cash Equivalents
|
-
|
-
|
(3
|
)
|
-
|
(3
|
)
|
|||||||||
Net
Increase (Decrease) in Cash and Cash
|
||||||||||||||||
Equivalents
|
1
|
-
|
(971
|
)
|
-
|
(970
|
)
|
|||||||||
Cash
and Cash Equivalents at Beginning of Period
|
1
|
-
|
1,052
|
-
|
1,053
|
|||||||||||
Cash
and Cash Equivalents at End of Period
|
$
|
2
|
$
|
-
|
$
|
81
|
$
|
-
|
$
|
83
|
||||||
Non-
|
||||||||||||||||
Kerr-McGee
|
Guarantor
|
Guarantor
|
||||||||||||||
(Millions
of dollars)
|
Corporation
|
Subsidiary
|
Subsidiaries
|
Eliminations
|
Consolidated
|
|||||||||||
Cash
Flows from Operating Activities
|
||||||||||||||||
Net
income
|
$
|
355
|
$
|
48
|
$
|
318
|
$
|
(366
|
)
|
$
|
355
|
|||||
Adjustments
to reconcile net income to net cash
|
||||||||||||||||
provided
by (used in) operating activities-
|
||||||||||||||||
Depreciation,
depletion and amortization
|
-
|
28
|
298
|
-
|
326
|
|||||||||||
Deferred
income taxes
|
(2
|
)
|
(2
|
)
|
142
|
-
|
138
|
|||||||||
Dry
hole expense
|
-
|
-
|
20
|
-
|
20
|
|||||||||||
Asset
impairments
|
-
|
-
|
4
|
-
|
4
|
|||||||||||
Gain
on sale of assets
|
-
|
-
|
(22
|
)
|
-
|
(22
|
)
|
|||||||||
Accretion
expense
|
-
|
1
|
8
|
-
|
9
|
|||||||||||
Equity
in earnings of subsidiaries
|
(366
|
)
|
-
|
|
-
|
366
|
-
|
|||||||||
Other
noncash items affecting net income
|
-
|
(2
|
)
|
111
|
-
|
109
|
||||||||||
Changes
in assets and liabilities
|
(42
|
)
|
14
|
(114
|
)
|
-
|
(142
|
)
|
||||||||
Net
Cash Provided by (Used in)
|
||||||||||||||||
Operating
Activities
|
(55
|
)
|
87
|
765
|
-
|
797
|
||||||||||
Cash
Flows from Investing Activities
|
||||||||||||||||
Capital
expenditures
|
-
|
(32
|
)
|
(342
|
)
|
-
|
(374
|
)
|
||||||||
Dry
hole costs
|
-
|
-
|
(24
|
)
|
-
|
(24
|
)
|
|||||||||
Proceeds
from sales of assets
|
-
|
-
|
31
|
-
|
31
|
|||||||||||
Other
investing activities
|
-
|
-
|
(30
|
)
|
-
|
(30
|
)
|
|||||||||
Net
Cash Used in Investing Activities
|
-
|
(32
|
)
|
(365
|
)
|
-
|
(397
|
)
|
||||||||
Cash
Flows from Financing Activities
|
||||||||||||||||
Issuance
of common stock upon exercise of stock options
|
132
|
-
|
-
|
-
|
132
|
|||||||||||
Purchases
of treasury stock
|
(250
|
)
|
-
|
-
|
-
|
(250
|
)
|
|||||||||
Repayment
of debt
|
-
|
-
|
(42
|
)
|
-
|
(42
|
)
|
|||||||||
Increase
(decrease) in intercompany
|
||||||||||||||||
notes
payable
|
244
|
(55
|
)
|
(189
|
)
|
-
|
-
|
|||||||||
Dividends
paid
|
(68
|
)
|
-
|
-
|
-
|
(68
|
)
|
|||||||||
Settlement
of Westport derivatives
|
-
|
-
|
(43
|
)
|
-
|
(43
|
)
|
|||||||||
Other
financing activities
|
(3
|
)
|
-
|
(2
|
)
|
-
|
(5
|
)
|
||||||||
Net
Cash Provided by (Used in)
|
||||||||||||||||
Financing
Activities
|
55
|
(55
|
)
|
(276
|
)
|
-
|
(276
|
)
|
||||||||
Effects
of Exchange Rate Changes on Cash
|
||||||||||||||||
and
Cash Equivalents
|
-
|
-
|
1
|
-
|
1
|
|||||||||||
Net
Increase in Cash and Cash Equivalents
|
-
|
-
|
125
|
-
|
125
|
|||||||||||
Cash
and Cash Equivalents at Beginning of Period
|
2
|
-
|
74
|
-
|
76
|
|||||||||||
Cash
and Cash Equivalents at End of Period
|
$
|
2
|
$
|
-
|
$
|
199
|
$
|
-
|
$
|
201
|
||||||
Item
2.
|
Management’s
Discussion and Analysis of Financial Condition and Results of
Operations.
|
· |
In
January 2006, we entered into an agreement to sell our interests
in
certain Gulf of Mexico shelf oil and natural gas properties to W&T
Offshore, Inc. (W&T) for approximately $1.34 billion in cash, subject
to certain adjustments. The transaction, which has an effective date
of
October 1, 2005 and is subject to customary closing conditions and
regulatory approvals, is expected to close in late second or early
third
quarter. For the first quarter 2006, these properties have been accounted
for as “held for sale” in our financial
statements.
|
· |
In
January 2006, the Board of Directors (the Board) approved a $1 billion
stock repurchase program. During the first quarter, approximately
3.4
million shares of Kerr-McGee’s stock were repurchased at an aggregate cost
of $350 million.
|
· |
In
November
2005, Tronox Incorporated (Tronox), a former subsidiary that held
Kerr-McGee’s chemical business, completed an initial public offering (IPO)
of 17.5 million shares of Class A common stock, which reduced Kerr-McGee’s
equity interest in Tronox to 57%. On March 30, 2006, Kerr-McGee completed
a pro rata distribution to its stockholders in the form of a dividend
of
shares of Tronox Class B common stock it owned (the Distribution).
This
transaction completed the transformation of Kerr-McGee to a pure-play
exploration and production company.
|
· |
On
May 9, 2006, the Board authorized a two-for-one split of Kerr-McGee’s
outstanding common stock. The stock split will be accomplished through
a
stock dividend to be issued on June 14, 2006 to stockholders of record
at
the close of business on June 2, 2006. Assuming the stock split was
effected on March 31, 2006, the company would have had approximately
227
million shares issued and
outstanding.
|
· |
The
Board also approved a 25% increase in the company's quarterly dividend
effective with the dividend payable on July 3, 2006. On a pre-split
basis,
the quarterly dividend will increase from $.05 per share to $.0625
per
share.
|
Three
Months Ended
|
|||||||
March
31,
|
|||||||
(Millions
of dollars, except per-share amounts)
|
2006
|
2005
|
|||||
Revenues
|
$
|
1,300
|
$
|
1,071
|
|||
Operating
income
|
$
|
553
|
$
|
433
|
|||
Income
from continuing operations
|
$
|
276
|
$
|
243
|
|||
Income
(loss) from discontinued operations, net of taxes
|
(23
|
)
|
112
|
||||
Cumulative
effect of change in accounting principle, net of taxes
|
2
|
-
|
|||||
Net
income
|
$
|
255
|
$
|
355
|
|||
Income
from continuing operations per common share:
|
|||||||
Basic
|
$
|
2.43
|
$
|
1.57
|
|||
Diluted
|
2.39
|
1.51
|
|||||
Net
income per common share:
|
|||||||
Basic
|
$
|
2.25
|
$
|
2.29
|
|||
Diluted
|
2.21
|
2.20
|
Three
Months Ended
|
|||||||
March
31,
|
|||||||
(Millions
of dollars)
|
2006
|
2005
|
|||||
Revenues
-
|
|||||||
Natural
gas sales
|
$
|
669
|
$
|
548
|
|||
Crude
oil, condensate and natural gas liquids sales
|
510
|
458
|
|||||
Loss
on oil and gas derivatives - hedge
|
(274
|
)
|
(26
|
)
|
|||
Mark-to-market
nonhedge derivative gain (loss)
|
130
|
(51
|
)
|
||||
Gain
(loss) due to hedge ineffectiveness
|
30
|
(9
|
)
|
||||
Gas
marketing revenues
|
213
|
132
|
|||||
Processing,
gathering and other revenues
|
22
|
19
|
|||||
Total
|
$
|
1,300
|
$
|
1,071
|
|||
Natural
Gas Production and Average Sales Prices -
|
|||||||
Production
(MMcf/d)
-
|
|||||||
Gulf
of Mexico -
|
|||||||
Deepwater
|
238
|
256
|
|||||
Shelf
|
91
|
156
|
|||||
U.S.
Onshore -
|
|||||||
Rocky
Mountain
|
363
|
331
|
|||||
Southern
|
242
|
266
|
|||||
Total
|
934
|
1,009
|
Average
Sales Prices (per Mcf)
-
|
|||||||
Gulf
of Mexico -
|
|||||||
Deepwater
|
$
|
8.43
|
$
|
6.59
|
|||
Shelf
|
8.41
|
6.47
|
|||||
U.S.
Onshore
|
|||||||
Rocky
Mountain
|
7.55
|
5.71
|
|||||
Southern
|
7.95
|
5.65
|
|||||
Average
|
$
|
7.96
|
$
|
6.04
|
|||
Oil,
Condensate and NGL Production and Average Sales Prices
-
|
|||||||
Production
(Mbbls/d)
-
|
|||||||
Gulf
of Mexico -
|
|||||||
Deepwater
|
47
|
48
|
|||||
Shelf
|
8
|
14
|
|||||
U.S.
Onshore -
|
|||||||
Rocky
Mountain
|
21
|
22
|
|||||
Southern
|
14
|
14
|
|||||
Total
U.S.
|
90
|
98
|
|||||
China
|
16
|
22
|
|||||
Total
|
106
|
120
|
|||||
Average
Wellhead Sales Prices (per bbl)
-
|
|||||||
Gulf
of Mexico -
|
|||||||
Deepwater
|
$
|
56.29
|
$
|
44.80
|
|||
Shelf
|
54.84
|
45.70
|
|||||
U.S.
Onshore -
|
|||||||
Rocky
Mountain
|
52.09
|
40.14
|
|||||
Southern
|
48.33
|
42.49
|
|||||
Average
U.S.
|
53.98
|
43.56
|
|||||
China
|
53.83
|
38.37
|
|||||
Average
|
$
|
53.96
|
$
|
42.63
|
|||
Energy
Equivalent Production -
|
|||||||
Thousands
of barrels of oil equivalent (Mboe) per day
|
261
|
288
|
|||||
Millions
of cubic feet of gas equivalent (MMcfe) per day
|
1,568
|
1,727
|
Three
Months Ended
|
|||||||
March
31,
|
|||||||
(Millions
of dollars)
|
2006
|
2005
|
|||||
Exploration
costs (1)
|
$
|
14
|
$
|
10
|
|||
Geological
and geophysical costs
|
12
|
15
|
|||||
Dry
hole expense
|
15
|
16
|
|||||
Amortization
of undeveloped leases
|
11
|
15
|
|||||
Sales
of unproved properties
|
-
|
(1
|
)
|
||||
Total
exploration expense
|
$
|
52
|
$
|
55
|
Three
Months Ended
|
|||||||
March
31,
|
|||||||
(Millions
of dollars)
|
2006
|
2005
|
|||||
Oil
and gas properties
|
$
|
179
|
$
|
213
|
|||
Other
property, plant and equipment
(1)
|
10
|
10
|
|||||
Total
|
$
|
189
|
$
|
223
|
|||
DD&A
rate per boe - oil and gas properties
|
$
|
7.64
|
$
|
8.23
|
(1) |
Represents
depreciation of the company's gas gathering and pipeline assets,
primarily
in Colorado and Utah, as well as general corporate equipment and
facilities.
|
March
31,
|
December
31,
|
||||||
(Millions
of dollars)
|
2006
|
2005
|
|||||
Current
ratio (1)
|
0.5
to 1
|
0.8
to 1
|
|||||
Cash
and cash equivalents
|
$
|
83
|
$
|
1,053
|
|||
Debt
repayment obligations due within one year (2)
|
306
|
306
|
|||||
Unused
capacity under revolving lines of credit (3)
|
1,185
|
1,184
|
|||||
Total
debt, including $550 million of Tronox debt at December 31,
2005
|
2,401
|
3,133
|
|||||
Stockholders’
equity and minority interest
(4)
|
$
|
4,195
|
$
|
4,327
|
|||
Debt
to total capitalization (4)
|
36
|
%
|
42
|
%
|
(1) |
Represents a
ratio of current assets to current
liabilities.
|
(2) |
Represents
principal amount of Kerr-McGee debt maturing within one year from
the
respective balance sheet date.
|
(3) |
Reflects
partial utilization to support outstanding letters of credit. No
revolving
borrowings were outstanding at December 31, 2005 or March 31, 2006.
The $1.25 billion unsecured revolving credit facility currently in
effect
terminates in January 2011.
|
(4) |
Capitalization
is determined as total debt plus total stockholders’ equity and, as of
December 31, 2005, minority stockholders’ interest in net assets of Tronox
of $212 million.
|
Increase
(Decrease) in
|
|||||||
(Millions
of dollars)
|
Total
Debt
|
Total
Equity
|
|||||
Early
redemption of $250 million 7% debentures (1)
|
$
|
(181
|
)
|
$
|
(45
|
)
|
|
Tronox
Distribution (2)
|
(550
|
)
|
(259
|
)
|
|||
Repurchases
of common stock (3)
|
-
|
(350
|
)
|
(1) |
The
decrease in equity represents the after-tax loss on early redemption
of
the debentures that resulted from writing off unamortized discount
of $69
million.
|
(2) |
The
Distribution reduced retained earnings by $238 million and accumulated
other comprehensive income by $21
million.
|
(3) |
Represents
open-market purchases of Kerr-McGee stock under the $1 billion stock
repurchase program authorized by our Board of Directors in January
2006.
|
December
31, 2005
|
May
9,
2006
|
||
Standard
& Poor’s
|
BB+
|
BB+
|
|
Moody’s
Investors Service
|
Ba3
|
Ba2
|
· |
Consolidated
Leverage Ratio of no more than
3.5:1
|
· |
Consolidated
Interest Coverage Ratio over a specified period of at least 3:1
|
· |
Asset
Coverage Ratio of more than 1.75:1 so long as the company’s corporate
credit rating is below investment grade
|
Three
Months
Ended
|
|||||||
March
31,
|
|||||||
(Millions
of dollars)
|
2006
|
2005
|
|||||
Net
cash provided by operating activities
|
$
|
135
|
$
|
797
|
|||
Net
cash used in investing activities
|
(445
|
)
|
(397
|
)
|
|||
Net
cash used in financing activities
|
(657
|
)
|
(276
|
)
|
Three
Months
Ended
March
31,
|
|||||||
(Millions
of dollars)
|
2006
|
2005
|
|||||
Capital
expenditures -
|
|||||||
Exploration and production (including dry hole costs) -
|
|
|
|
|
|
|
|
Continuing operations | $ | (451 | ) | $ | (358 | ) | |
Discontinued operations | - | (26 | ) | ||||
Tronox
|
(22
|
)
|
(11
|
)
|
|||
Corporate and other
|
(3
|
)
|
(3
|
)
|
|||
Total capital expenditures
|
(476
|
)
|
(398
|
)
|
|||
Proceeds
from sales of assets
|
8
|
31
|
|||||
Other
investing activities
|
23
|
(30
|
)
|
||||
Net
cash used
in investing activities
|
$
|
(445
|
)
|
$
|
(397
|
)
|
Item
3.
|
Quantitative
and Qualitative Disclosures about Market
Risk.
|
April
- December 2006
|
2007
|
||||||||||||
Average
Contract
Price
($/Barrel)
|
Average
Daily Volume
(Barrels)
|
Average
Contract
Price
($/Barrel)
|
Average
Daily Volume
(Barrels)
|
||||||||||
Crude
Oil (WTI) -
|
|||||||||||||
Fixed
price swaps
|
$
|
53.13
|
20,345
|
$
|
51.44
|
27,250
|
|||||||
Costless
collars
|
$
|
27.00
- $30.58
|
19,000
|
(a) |
-
|
-
|
|||||||
$
|
45.00
- $65.62
|
20,345
|
$
|
45.00
- $61.42
|
18,000
|
||||||||
Three-way
collars
|
$
|
25.00
- $28.65
|
2,000
|
(b) |
-
|
-
|
|||||||
Three-way
average floor
|
$
|
20.88
|
|||||||||||
61,690
|
45,250
|
||||||||||||
($/MMBtu)
|
(MMBtu)
|
($/MMBtu)
|
(MMBtu)
|
||||||||||
Natural
Gas (NYMEX) -
|
|||||||||||||
Fixed
price swaps
|
$
|
7.54
|
196,000
|
$
|
7.03
|
265,000
|
|||||||
Costless
collars
|
$
|
4.75
- $ 5.50
|
340,000
|
(a) |
-
|
-
|
|||||||
$
|
6.00
- $10.80
|
197,000
|
$
|
6.00
- $9.03
|
265,000
|
||||||||
Three-way
collars
|
$
|
4.00
- $ 6.00
|
20,000
|
(b) |
-
|
-
|
|||||||
Three-way
average floor
|
$
|
3.04
|
|||||||||||
753,000
|
530,000
|
||||||||||||
Basis
Swaps vs. NYMEX -
|
|||||||||||||
CIG
(1)
|
$
|
1.49
|
163,400
|
$
|
0.95
|
35,425
|
|||||||
NWPL
(2)
|
$
|
1.43
|
138,382
|
$
|
1.05
|
34,123
|
|||||||
301,782
|
69,548
|
||||||||||||
(a) |
Placed
by Kerr-McGee in connection with the Westport Resources marger in
June 2004.
|
(b) |
Acquired
in the Westport merger.
|
(1) |
Colorado
Interstate Gas pipeline index.
|
(2) |
Northwest
Pipeline Rocky Mountain index.
|
Item
4.
|
Controls
and Procedures.
|
A.
|
On
December 28, 2005, an affiliate of the company, Kerr-McGee Oil & Gas
Onshore LP (formerly known as Westport Oil and Gas Company L.P.),
received
a letter from the Environmental Protection Agency (EPA) alleging
that the
affiliate violated the Clean Water Act when it constructed well pads
and
associated roads and pipelines in a wetland adjacent to the Hams
Fork
River in Wyoming without obtaining necessary permits. Kerr-McGee
Oil &
Gas Onshore LP has submitted to EPA a plan to restore wetlands to
the
area, which is currently under review. No formal demand has been
made by
EPA.
|
B.
|
Kerr-McGee
Rocky Mountain Corporation (KM Rocky Mountain), an affiliate of the
company, received notices of violation (NOVs) from the Colorado Department
of Public Health and Environment (CDPHE) on June 21, 2005, and November
4,
2005. The NOVs allege that, with respect to certain production
operations in Colorado, the affiliate exceeded allowable air emissions
under the Clean Air Act. KM Rocky Mountain recently was informed
that the CDPHE intends to address these matters collectively, including
any related penalties, which could result in penalties in excess
of
$100,000. However, no formal demand has been made of KM Rocky
Mountain. The affiliate intends to vigorously defend against the
NOVs. It currently is discussing the allegations and possible
resolutions with CDPHE.
|
C.
|
For
a discussion of other legal proceedings and contingencies, reference
is
made to Note 13 to the Condensed Consolidated Financial Statements
included in Item 1 of this quarterly report on Form 10-Q, which is
incorporated herein by reference.
|
Period
|
Total
Number of Shares Purchased (a)
|
Average
Price Paid
per
Share (a)
|
Total
Number of Shares Purchased as Part of Publicly Announced Plans or
Programs
(b)
|
Maximum
Approximate Dollar Value of Shares that May Yet Be Purchased Under
the
Plans or Programs (b)
|
January
1-31, 2006
|
1,756,963
|
$106.26
|
1,615,800
|
|
February
1-28, 2006
|
1,484,615
|
102.33
|
1,474,000
|
|
March
1-31, 2006
|
362,673
|
86.82
|
275,900
|
$650,000,000
|
Total
|
3,604,251
|
$102.69
|
3,365,700
|
Exhibit
No.
|
||
31.1
|
Certification
pursuant to Securities Exchange Act Rule 15d-14(a), as adopted pursuant
to
Section 302 of the Sarbanes-Oxley Act of 2002.
|
|
31.2
|
Certification
pursuant to Securities Exchange Act Rule 15d-14(a), as adopted pursuant
to
Section 302 of the Sarbanes-Oxley Act of 2002.
|
|
32.1
|
Certification
pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section
906 of
the Sarbanes-Oxley Act of 2002.
|
|
32.2
|
Certification
pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section
906 of
the Sarbanes-Oxley Act of 2002.
|
Date: May
10, 2006
|
By:
|
/s/
John M. Rauh
|
John
M. Rauh
|
||
Vice
President and Controller
|
||
and
Chief Accounting Officer
|