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 and Six Months Ended
June
30, 2006 and 2005
|
1
|
|
||
|
Condensed
Consolidated Balance Sheet at June 30, 2006 and December 31,
2005
|
2
|
|
||
|
Condensed
Consolidated Statement of Cash Flows for the Six Months Ended June
30,
2006 and 2005
|
3
|
|
||
Condensed
Consolidated Statement of Comprehensive Income (Loss) and Stockholders’
Equity for the Six Months Ended June 30, 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
|
33
|
|
|
||
Item
3. Quantitative
and Qualitative Disclosures about Market Risk
|
45
|
|
|
||
Item
4. Controls
and Procedures
|
47
|
|
Forward-Looking
Information
|
47
|
|
PART
II - OTHER INFORMATION
|
||
|
|
|
Item
1. Legal
Proceedings
|
47
|
|
Item
1A. Risk
Factors
|
48
|
|
Item
2. Unregistered
Sales of Equity Securities and Use of Proceeds
|
49
|
|
Item
4. Submission
of Matters to a Vote of Security Holders
|
49
|
|
Item
6. Exhibits
|
50
|
|
|
|
|
SIGNATURE
|
51
|
|
|
|
|
Three
Months Ended
|
Six
Months Ended
|
||||||||||||
June
30,
|
June
30,
|
||||||||||||
(Millions
of dollars, except per-share amounts)
|
2006
|
2005
|
2006
|
2005
|
|||||||||
Revenues
|
|||||||||||||
Oil
and gas sales
|
$
|
1,227
|
$
|
1,108
|
$
|
2,406
|
$
|
2,114
|
|||||
Loss
on commodity derivatives
|
(130
|
)
|
(82
|
)
|
(244
|
)
|
(168
|
)
|
|||||
Gas
marketing revenues
|
147
|
138
|
360
|
270
|
|||||||||
Other
revenues
|
23
|
19
|
45
|
38
|
|||||||||
Total
Revenues
|
1,267
|
1,183
|
2,567
|
2,254
|
|||||||||
Operating
Expenses
|
|||||||||||||
Lease
operating costs
|
128
|
115
|
259
|
223
|
|||||||||
Production
and ad valorem taxes
|
43
|
34
|
74
|
64
|
|||||||||
Transportation
expense
|
25
|
24
|
48
|
47
|
|||||||||
General
and administrative expense
|
60
|
62
|
134
|
115
|
|||||||||
Merger-related
costs
|
8
|
-
|
8
|
-
|
|||||||||
Exploration
expense
|
106
|
116
|
158
|
171
|
|||||||||
Gas
gathering, processing and other expenses
|
27
|
26
|
61
|
54
|
|||||||||
Gas
marketing costs
|
145
|
139
|
359
|
269
|
|||||||||
Depreciation,
depletion and amortization
|
194
|
220
|
383
|
443
|
|||||||||
Accretion
expense
|
4
|
5
|
7
|
11
|
|||||||||
Provision
for environmental remediation costs
|
3
|
2
|
3
|
2
|
|||||||||
Asset
impairments
|
-
|
-
|
-
|
4
|
|||||||||
Gain
on sales of oil and gas properties
|
(1
|
)
|
(25
|
)
|
(5
|
)
|
(47
|
)
|
|||||
Total
Operating Expenses
|
742
|
718
|
1,489
|
1,356
|
|||||||||
Operating
Income
|
525
|
465
|
1,078
|
898
|
|||||||||
Interest
expense
|
(49
|
)
|
(58
|
)
|
(90
|
)
|
(118
|
)
|
|||||
Loss
on early repayment and modification of debt
|
-
|
-
|
(81
|
)
|
-
|
||||||||
Other
income (expense)
|
(3
|
)
|
(4
|
)
|
(6
|
)
|
(6
|
)
|
|||||
Income
from Continuing Operations before Income Taxes
|
473
|
403
|
901
|
774
|
|||||||||
Provision
for income taxes
|
(167
|
)
|
(147
|
)
|
(319
|
)
|
(275
|
)
|
|||||
Income
from Continuing Operations
|
306
|
256
|
582
|
499
|
|||||||||
Income
(loss) from discontinued operations, net of taxes
|
(1
|
)
|
114
|
(24
|
)
|
226
|
|||||||
Cumulative
effect of change in accounting principle, net of taxes
|
-
|
-
|
2
|
-
|
|||||||||
Net
Income
|
$
|
305
|
$
|
370
|
$
|
560
|
$
|
725
|
|||||
Income
(Loss) per Common Share
|
|||||||||||||
Basic
-
|
|||||||||||||
Continuing
operations
|
$
|
1.36
|
$
|
.91
|
$
|
2.57
|
$
|
1.69
|
|||||
Discontinued
operations
|
(.01
|
)
|
.40
|
(.11
|
)
|
.76
|
|||||||
Cumulative
effect of change in accounting principle
|
-
|
-
|
.01
|
-
|
|||||||||
Net
income
|
$
|
1.35
|
$
|
1.31
|
$
|
2.47
|
$
|
2.45
|
|||||
Diluted
-
|
|||||||||||||
Continuing
operations
|
$
|
1.33
|
$
|
.90
|
$
|
2.53
|
$
|
1.65
|
|||||
Discontinued
operations
|
-
|
.40
|
(.11
|
)
|
.74
|
||||||||
Cumulative
effect of change in accounting principle
|
-
|
-
|
.01
|
-
|
|||||||||
Net
income
|
$
|
1.33
|
$
|
1.30
|
$
|
2.43
|
$
|
2.39
|
|||||
Dividends
Declared per Common Share
|
$
|
.03125
|
$
|
.025
|
$
|
.05625
|
$
|
.25
|
|||||
June
30,
|
December
31,
|
||||||
(Millions
of dollars)
|
2006
|
2005
|
|||||
|
|
||||||
ASSETS
|
|||||||
Current
Assets
|
|
||||||
Cash
and cash equivalents
|
$
|
156
|
$
|
1,053
|
|||
Accounts
receivable
|
751
|
753
|
|||||
Derivatives
and other current assets
|
204
|
205
|
|||||
Deferred
income taxes
|
380
|
547
|
|||||
Assets
held for sale and Tronox assets
|
24
|
691
|
|||||
Total
Current Assets
|
1,515
|
3,249
|
|||||
Property,
Plant and Equipment
|
12,091
|
13,629
|
|||||
Less
reserves for depreciation, depletion and
amortization
|
(3,874
|
)
|
(5,194
|
)
|
|||
8,217
|
8,435
|
||||||
Investments,
Derivatives and Other Assets
|
321
|
427
|
|||||
Goodwill
and Other Intangible Assets
|
1,175
|
1,179
|
|||||
Assets
Held for Sale and Tronox Assets
|
710
|
986
|
|||||
Total
Assets
|
$
|
11,938
|
$
|
14,276
|
|||
LIABILITIES
AND STOCKHOLDERS' EQUITY
|
|||||||
Current
Liabilities
|
|||||||
Accounts
payable
|
$
|
398
|
$
|
425
|
|||
Long-term
debt due within one year
|
309
|
306
|
|||||
Income
taxes payable
|
53
|
429
|
|||||
Commodity
derivative liabilities
|
877
|
1,506
|
|||||
Accrued
liabilities
|
831
|
846
|
|||||
Liabilities
associated with assets held for sale and Tronox
|
25
|
419
|
|||||
Total
Current Liabilities
|
2,493
|
3,931
|
|||||
Long-Term
Debt
|
2,097
|
2,277
|
|||||
Noncurrent
Liabilities
|
|||||||
Deferred
income taxes
|
1,620
|
1,445
|
|||||
Asset
retirement obligations
|
212
|
310
|
|||||
Commodity
derivative liabilities
|
323
|
658
|
|||||
Other
|
451
|
471
|
|||||
Liabilities
associated with assets held for sale and Tronox
|
126
|
1,069
|
|||||
Total
Noncurrent Liabilities
|
2,732
|
3,953
|
|||||
Contingencies
and Commitments (Notes 13 and 14)
|
|||||||
Stockholders'
Equity
|
|||||||
Common
stock, par value $1 - 500,000,000 shares authorized,
|
|||||||
234,412,964
and 232,231,760 shares issued at June 30, 2006
|
|||||||
and
December 31, 2005, respectively
|
234
|
120
|
|||||
Capital
in excess of par value
|
3,654
|
3,702
|
|||||
Preferred
stock purchase rights
|
1
|
1
|
|||||
Retained
earnings
|
2,006
|
1,704
|
|||||
Accumulated
other comprehensive loss
|
(621
|
)
|
(1,079
|
)
|
|||
Common
stock in treasury, at cost - 7,105,344 and 3,456,918 shares
|
|||||||
at
June 30, 2006 and December 31, 2005, respectively
|
(635
|
)
|
(266
|
)
|
|||
Deferred
compensation cost
|
(23
|
)
|
(67
|
)
|
|||
Total
Stockholders' Equity
|
4,616
|
4,115
|
|||||
Total
Liabilities and Stockholders’ Equity
|
$
|
11,938
|
$
|
14,276
|
Six
Months Ended
|
|||||||
June
30,
|
|||||||
(Millions
of dollars)
|
2006
|
2005
|
|||||
Cash
Flows from Operating Activities
|
|||||||
Net
income
|
$
|
560
|
$
|
725
|
|||
Adjustments
to reconcile net income to net cash
|
|||||||
provided
by operating activities -
|
|||||||
Depreciation,
depletion and amortization
|
430
|
650
|
|||||
Deferred
income taxes
|
107
|
265
|
|||||
Dry
hole expense
|
73
|
91
|
|||||
Asset
impairments
|
-
|
5
|
|||||
Gain
on sale of assets
|
(5
|
)
|
(46
|
)
|
|||
Accretion
expense
|
7
|
17
|
|||||
Loss
on early repayment and modification of debt
|
81
|
-
|
|||||
Provision
for Tronox guarantee
|
56
|
-
|
|||||
Other
noncash items affecting net income
|
(25
|
)
|
146
|
||||
Changes
in assets and liabilities
|
(574
|
)
|
(275
|
)
|
|||
Net
Cash Provided by Operating Activities
|
710
|
1,578
|
|||||
Cash
Flows from Investing Activities
|
|||||||
Capital
expenditures
|
(925
|
)
|
(808
|
)
|
|||
Dry
hole costs
|
(40
|
)
|
(75
|
)
|
|||
Proceeds
from sales of assets
|
11
|
63
|
|||||
Other
investing activities
|
15
|
(21
|
)
|
||||
Net
Cash Used in Investing Activities
|
(939
|
)
|
(841
|
)
|
|||
Cash
Flows from Financing Activities
|
|||||||
Issuance
of common stock upon exercise of stock options
|
43
|
159
|
|||||
Purchases
of treasury stock
|
(369
|
)
|
(250
|
)
|
|||
Shares
repurchased under the tender offer
|
-
|
(3,975
|
)
|
||||
Repayment
of debt
|
(250
|
)
|
(392
|
)
|
|||
Proceeds
from borrowings
|
-
|
4,250
|
|||||
Dividends
paid
|
(11
|
)
|
(142
|
)
|
|||
Settlement
of Westport derivatives
|
(30
|
)
|
(80
|
)
|
|||
Tronox
Distribution (1)
|
(57
|
)
|
-
|
||||
Other
financing activities
|
9
|
(58
|
)
|
||||
Net
Cash Used in Financing Activities
|
(665
|
)
|
(488
|
)
|
|||
Effects
of Exchange Rate Changes on Cash and Cash
Equivalents
|
(3
|
)
|
(1
|
)
|
|||
Net
Increase (Decrease) in Cash and Cash Equivalents
|
(897
|
)
|
248
|
||||
Cash
and Cash Equivalents at Beginning of Year
|
1,053
|
76
|
|||||
Cash
and Cash Equivalents at End of Period
|
$
|
156
|
$
|
324
|
(1) |
Represents
Tronox’s cash balance deconsolidated upon the Distribution. See Note
2.
|
(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
|
-
|
-
|
725
|
-
|
-
|
-
|
725
|
|||||||||||||||
Other
comprehensive loss
|
-
|
-
|
-
|
(562
|
)
|
-
|
-
|
(562
|
)
|
|||||||||||||
Comprehensive
income
|
163
|
|||||||||||||||||||||
Stock
issued upon conversion of debt
|
10
|
583
|
-
|
-
|
-
|
-
|
593
|
|||||||||||||||
Purchases
of treasury stock
|
-
|
-
|
-
|
-
|
(250
|
)
|
-
|
(250
|
)
|
|||||||||||||
Shares
repurchased and retired
|
(47
|
)
|
(1,410
|
)
|
(2,517
|
)
|
-
|
-
|
(1
|
)
|
(3,975
|
)
|
||||||||||
Stock
option exercises
|
3
|
156
|
-
|
-
|
-
|
-
|
159
|
|||||||||||||||
Restricted
stock activity
|
1
|
25
|
-
|
-
|
(3
|
)
|
(13
|
)
|
10
|
|||||||||||||
ESOP
deferred compensation
|
-
|
-
|
-
|
-
|
-
|
3
|
3
|
|||||||||||||||
Tax
benefit from stock-based awards
|
-
|
21
|
-
|
-
|
-
|
-
|
21
|
|||||||||||||||
Dividends
declared ($.25 per share)
|
-
|
-
|
(80
|
)
|
-
|
-
|
-
|
(80
|
)
|
|||||||||||||
Balance
at June 30, 2005
|
$
|
119
|
$
|
3,580
|
$
|
(770
|
)
|
$
|
(641
|
)
|
$
|
(261
|
)
|
$
|
(65
|
)
|
$
|
1,962
|
||||
Balance
at December 31, 2005
|
$
|
120
|
$
|
3,702
|
$
|
1,704
|
$
|
(1,079
|
)
|
$
|
(266
|
)
|
$
|
(66
|
)
|
$
|
4,115
|
|||||
Comprehensive
Income:
|
||||||||||||||||||||||
Net
income
|
-
|
-
|
560
|
-
|
-
|
-
|
560
|
|||||||||||||||
Other
comprehensive income
|
-
|
-
|
-
|
458
|
-
|
-
|
458
|
|||||||||||||||
Comprehensive
income
|
1,018
|
|||||||||||||||||||||
Adoption
of FAS No. 123(R)
|
-
|
(42
|
)
|
-
|
-
|
-
|
42
|
-
|
||||||||||||||
Purchases
of treasury stock
|
-
|
-
|
-
|
-
|
(369
|
)
|
-
|
(369
|
)
|
|||||||||||||
Stock
option exercises
|
1
|
42
|
-
|
-
|
-
|
-
|
43
|
|||||||||||||||
Amortization
of options and restricted
|
||||||||||||||||||||||
stock cost, net of forfeitures
|
-
|
43
|
-
|
-
|
-
|
-
|
43
|
|||||||||||||||
ESOP
deferred compensation and other
|
-
|
-
|
(1
|
)
|
-
|
-
|
2
|
1
|
||||||||||||||
Tax
benefit from stock-based awards
|
-
|
22
|
-
|
-
|
-
|
-
|
22
|
|||||||||||||||
Dividends
declared ($.05625 per share)
|
-
|
-
|
(13
|
)
|
-
|
-
|
-
|
(13
|
)
|
|||||||||||||
Tronox
Distribution (Note 2)
|
-
|
-
|
(244
|
)
|
-
|
-
|
-
|
(244
|
)
|
|||||||||||||
Two-for-one
stock split
|
113
|
(113
|
)
|
-
|
-
|
-
|
-
|
-
|
||||||||||||||
Balance
at June 30, 2006
|
$
|
234
|
$
|
3,654
|
$
|
2,006
|
$
|
(621
|
)
|
$
|
(635
|
)
|
$
|
(22
|
)
|
$
|
4,616
|
|||||
1.
|
The
Company, Basis of Presentation and Accounting
Policies
|
· |
On
May 9, 2006, the company’s Board of Directors (the Board) authorized a
two-for-one split of Kerr-McGee’s outstanding common stock. The stock
split was accomplished through a stock dividend issued on June 14,
2006 to
stockholders of record at the close of business on June 2, 2006.
Stock
held in treasury was not split. Unless otherwise indicated, common
shares
outstanding and per-share amounts in the accompanying condensed
consolidated financial statements and notes thereto have been
retroactively adjusted to reflect the stock split. The par value
of
Kerr-McGee’s common stock remains $1 per
share.
|
· |
The
Board approved a 25% increase in the company's quarterly dividend
effective with the dividend paid on July 3, 2006. On a post-split
basis,
the quarterly dividend increased from $.025 to $.03125 per
share.
|
· |
In
January 2006, the company entered into an agreement to sell its 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 the third quarter.
|
· |
In
January 2006, the Board approved a $1 billion stock repurchase program.
During the first six months of 2006, approximately 3.4 million shares
of
stock (on a pre-split basis) were repurchased at an aggregate cost
of $356
million.
|
· |
In
November 2005, Tronox Incorporated (Tronox), a former wholly-owned
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.
|
· |
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 performance units outstanding as of January 1, 2006 and
granted
subsequent to that date based on the change in their estimated fair
value
|
Three
Months
Ended
|
Six
Months
Ended
|
||||||
(Millions
of dollars, except per share amounts)
|
June
30, 2006
|
June
30, 2006
|
|||||
Increase
(decrease) in:
|
|||||||
Income
from continuing operations before income taxes
|
$
|
(4
|
)
|
$
|
(16
|
)
|
|
Income
from continuing operations
|
(3
|
)
|
(11
|
)
|
|||
Net
income
|
(3
|
)
|
(9
|
)
|
|||
Earnings
per share:
|
|||||||
Basic
|
(.01
|
)
|
(.04
|
)
|
|||
Diluted
|
(.01
|
)
|
(.04
|
)
|
|||
Net
cash provided by operating activities
|
(4
|
)
|
(13
|
)
|
|||
Net
cash used in financing activities
|
4
|
13
|
Three
Months
Ended
|
Six
Months
Ended
|
||||||
(Millions
of dollars, except per share amounts)
|
June
30, 2005
|
June
30, 2005
|
|||||
Net
income, as reported
|
$
|
370
|
$
|
725
|
|||
Add:
stock-based employee compensation expense
|
|||||||
included
in reported net income, net of taxes
|
4
|
13
|
|||||
Deduct:
stock-based compensation expense
|
|||||||
determined
using a fair-value method, net of taxes
|
(6
|
)
|
(22
|
)
|
|||
Pro
forma net income
|
$
|
368
|
$
|
716
|
|||
Net
income per share -
|
|||||||
Basic
-
|
|||||||
As
reported
|
$
|
1.31
|
$
|
2.45
|
|||
Pro
forma
|
1.31
|
2.42
|
|||||
Diluted
-
|
|||||||
As
reported
|
$
|
1.30
|
$
|
2.39
|
|||
Pro
forma
|
1.29
|
2.36
|
2.
|
Tronox
Separation
|
Three
Months Ended June 30,
|
|||||||||||||
2006
|
2005
|
||||||||||||
North
Sea
|
|||||||||||||
Oil
and Gas
|
|||||||||||||
(Millions
of dollars)
|
Tronox
|
Business
|
Tronox
|
Total
|
|||||||||
Revenues
|
$
|
-
|
$
|
311
|
$
|
356
|
$
|
667
|
|||||
Income
(loss) from Discontinued Operations:
|
|||||||||||||
Income
from operations
|
$
|
(1
|
)
|
$
|
160
|
(1) |
$
|
16
|
(1) |
$
|
176
|
||
Income
tax (expense) benefit
|
-
|
(55
|
)
|
(7
|
)
|
(62
|
)
|
||||||
Income
(loss) from discontinued operations, net of tax
|
$
|
(1
|
)
|
$
|
105
|
$
|
9
|
$
|
114
|
||||
Six
Months Ended June 30,
|
|||||||||||||
2006
|
2005
|
||||||||||||
North
Sea
|
|||||||||||||
Oil
and Gas
|
|||||||||||||
(Millions
of dollars)
|
Tronox
|
Business
|
Tronox
|
Total
|
|||||||||
Revenues
|
$
|
336
|
$
|
623
|
$
|
690
|
$
|
1,313
|
|||||
Income
(loss) from Discontinued Operations:
|
|||||||||||||
Income
from operations
|
$
|
34
|
$
|
343
|
(1) |
$
|
22
|
(1) |
$
|
365
|
|||
Provision
for Tronox guarantee
(2)
|
(56
|
)
|
-
|
-
|
-
|
||||||||
Pretax
income (loss) from discontinued operations
|
(22
|
)
|
343
|
22
|
365
|
||||||||
Income
tax (expense) benefit
|
7
|
(133
|
)
|
(6
|
)
|
(139
|
)
|
||||||
Net
income from operations allocable to minority interests
|
(9
|
)
|
-
|
-
|
-
|
||||||||
Income
(loss) from discontinued operations, net of tax
|
$
|
(24
|
)
|
$
|
210
|
$
|
16
|
$
|
226
|
||||
(1) |
Under
the
company’s $5.25 billion secured credit agreement which was in effect from
May 2005 through January 9, 2006, the company was required to
use 100% of the net after-tax cash proceeds from disposition of certain
assets to repay debt. Because the North Sea oil and gas and Tronox
assets
were subject to this requirement, interest expense on debt that was
required to be repaid upon the sale of the North Sea business and
the
Tronox IPO ($19 million and $5 million, respectively) is classified
as a
component of income from discontinued operations for the three and
six
months ended June 30, 2005 (or $15 million on an after-tax
basis).
|
(2) |
Additional
information about the guarantee is provided in Note
2.
|
4.
|
Other
Comprehensive Income (Loss)
|
Three
Months Ended
|
Six
Months Ended
|
||||||||||||
June
30,
|
June
30,
|
||||||||||||
(Millions
of dollars)
|
2006
|
2005
|
2006
|
2005
|
|||||||||
Foreign
currency translation -
|
|||||||||||||
Translation
adjustments, net of minority interest of $2
|
$
|
5
|
$
|
(16
|
)
|
$
|
6
|
$
|
(14
|
)
|
|||
Reclassification
to retained earnings
|
-
|
-
|
(24
|
)
|
-
|
||||||||
Total
foreign currency translation adjustments
|
5
|
(16
|
)
|
(18
|
)
|
(14
|
)
|
||||||
Net
gains (losses) on commodity derivatives -
|
|||||||||||||
Unrealized
gains (losses), net of taxes of nil, $81, $(111) and $353
|
-
|
(139
|
)
|
207
|
(623
|
)
|
|||||||
Reclassification
of realized losses to net income,
net of taxes of $(52), $(28), $(150) and $(43)
|
98
|
50
|
276
|
75
|
|||||||||
Reclassification
to retained earnings
|
-
|
-
|
1
|
-
|
|||||||||
Total
gains (losses) on commodity derivatives, net
|
98
|
(89
|
)
|
484
|
(548
|
)
|
|||||||
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)
|
$
|
103
|
$
|
(105
|
)
|
$
|
458
|
$
|
(562
|
)
|
June
30,
|
December
31,
|
||||||
(Millions
of dollars)
|
2006
|
2005
|
|||||
Foreign
currency translation adjustments
|
$
|
17
|
$
|
35
|
|||
Unrealized
loss on commodity derivatives
|
(611
|
)
|
(1,095
|
)
|
|||
Minimum
pension liability adjustments
|
(27
|
)
|
(19
|
)
|
|||
$
|
(621
|
)
|
$
|
(1,079
|
)
|
As
of June 30, 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
|
$
|
98
|
$
|
23
|
$
|
(872
|
)
|
$
|
(322
|
)
|
$
|
(611
|
)
|
|||
Gas
marketing-related derivatives
|
5
|
1
|
(5
|
)
|
(1
|
)
|
-
|
|||||||||
Total
|
$
|
103
|
$
|
24
|
$
|
(877
|
)
|
$
|
(323
|
)
|
$
|
(611
|
)
|
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 taxes.
|
Three
Months Ended
|
Six
Months Ended
|
||||||||||||
June
30,
|
June
30,
|
||||||||||||
(Millions
of dollars)
|
2006
|
2005
|
2006
|
2005
|
|||||||||
Loss
on hedge derivatives
|
$
|
(150
|
)
|
$
|
(59
|
)
|
$
|
(424
|
)
|
$
|
(85
|
)
|
|
Mark-to-market
nonhedge derivative gain (loss)
|
20
|
12
|
150
|
(39
|
)
|
||||||||
Gain
(loss) due to hedge ineffectiveness
|
-
|
(35
|
)
|
30
|
(44
|
)
|
|||||||
(130
|
)
|
(82
|
)
|
(244
|
)
|
(168
|
)
|
||||||
Gas
marketing-related derivatives
|
-
|
2
|
-
|
4
|
|||||||||
Total
|
$
|
(130
|
)
|
$
|
(80
|
)
|
$
|
(244
|
)
|
$
|
(164
|
)
|
|
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
|
-
|
3
|
3
|
|||||||
Change
in the fair value of hedged debt
|
-
|
1
|
1
|
|||||||
Early
redemption of 7% debentures due 2011
|
(250
|
)
|
69
|
(181
|
)
|
|||||
Tronox
Distribution
|
(550
|
)
|
-
|
(550
|
)
|
|||||
Balance
at June 30, 2006
|
$
|
2,432
|
$
|
(26
|
)
|
$
|
2,406
|
(1) |
Includes
$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
|
||||||||||
Dismantlement
|
Personnel
|
|||||||||
(Millions
of dollars)
|
and
Closure
|
Costs
|
Total
|
|||||||
Balance
at December 31, 2005
|
$
|
6
|
$
|
21
|
$
|
27
|
||||
Provisions/Accruals
(1)
|
-
|
7
|
7
|
|||||||
Payments
|
(1
|
)
|
(12
|
)
|
(13
|
)
|
||||
Tronox
Distribution
|
(5
|
)
|
(6
|
)
|
(11
|
)
|
||||
Balance
at June 30, 2006
|
$
|
-
|
$
|
10
|
$
|
10
|
(1) |
Includes
a $2 million charge related to Tronox, which is reflected in loss
from
discontinued operations in the Condensed Consolidated Statement of
Income.
|
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 unit 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 its peers.
|
Three
Months Ended
|
Six
Months Ended
|
||||||||||||
June
30,
|
June
30,
|
||||||||||||
(Millions
of dollars)
|
2006
|
2005
|
2006
|
2005
|
|||||||||
Stock
options
|
$
|
5
|
$
|
-
|
$
|
25
|
$
|
1
|
|||||
Restricted
stock
|
5
|
5
|
20
|
10
|
|||||||||
Performance
units
|
11
|
-
|
17
|
7
|
|||||||||
Total
stock-based compensation expense
|
21
|
5
|
62
|
18
|
|||||||||
Income
tax benefit
|
(8
|
)
|
(1
|
)
|
(22
|
)
|
(6
|
)
|
|||||
Total
stock-based compensation expense, net of taxes
|
$
|
13
|
$
|
4
|
$
|
40
|
$
|
12
|
Unrecognized
|
Remaining
|
||||||
Cost
|
Period
|
||||||
(Millions
of dollars)
|
(Pretax)
|
(Years)
|
|||||
Stock
options
|
$
|
28
|
2.1
|
||||
Restricted
stock
|
25
|
1.8
|
|||||
Performance
units
|
29
|
2.0
|
|||||
$
|
82
|
2.0
|
Intrinsic
|
|||||||||||||
Number
of
|
Contractual
|
Value
|
|||||||||||
Options
|
Shares
|
Price (2)
|
Life
(Years) (2)
|
(Millions) (3)
|
|||||||||
Outstanding
at December 31, 2005
|
9,929,090
|
$
|
25.65
|
||||||||||
Granted
|
2,431,304
|
45.36
|
|||||||||||
Exercised
|
(1,727,552
|
)
|
24.87
|
||||||||||
Forfeited
(1)
|
(462,305
|
)
|
29.07
|
||||||||||
Expired
|
(8,558
|
)
|
23.82
|
||||||||||
Outstanding
at June 30, 2006
|
10,161,979
|
$
|
30.34
|
7.2
|
$
|
396
|
|||||||
Exercisable
at June 30, 2006
|
5,403,830
|
$
|
25.66
|
5.8
|
$
|
236
|
(1) |
Includes
options to purchase 335,165 shares of Kerr-McGee stock that were
forfeited
by Tronox employees at the date of the
Distribution.
|
(2) |
Represents
weighted average exercise price and weighted average remaining contractual
life, as applicable.
|
(3) |
Reflects
aggregate intrinsic value based on the difference between the market
price
of Kerr-McGee common stock and the options' exercise
price.
|
(Millions
of dollars)
|
2006
|
2005
|
|||||
Intrinsic
value
|
$
|
47
|
$
|
58
|
|||
Cash
proceeds received
|
43
|
159
|
|||||
Tax
benefit realized
|
16
|
20
|
2006
|
2005
|
||||||
Expected
volatility (annualized)
|
28.0
|
%
|
26.4
|
%
|
|||
Expected
dividend yield (annualized)
|
.2
|
%
|
3.5
|
%
|
|||
Expected
term (years)
|
5.6
|
6
|
|||||
Risk-free
rate
|
4.49
|
%
|
3.9
|
%
|
|||
Weighted
average per-share fair value of options granted(1)
|
$
|
16.20
|
$
|
10.11
|
(1) |
Retroactively
adjusted to reflect the effects of the two-for-one stock split and
the
Distribution.
|
Shares
|
Fair
Value (1)
|
||||||
Balance
at December 31, 2005
|
2,481,250
|
$
|
26.93
|
||||
Granted
|
482,140
|
49.29
|
|||||
Vested
|
(819,770
|
)
|
21.61
|
||||
Forfeited
(2)
|
(193,318
|
)
|
32.20
|
||||
Balance
at June 30, 2006
|
1,950,302
|
$
|
34.16
|
(1) |
Represents
the weighted-average grant-date fair
value.
|
(2) |
Includes
approximately 146,000 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 the Distribution
|
(2,794,330
|
)
|
(1
|
)
|
|||
Units
granted (1)
|
15,980,157
|
N/A
|
|||||
Award
settlement
|
(9,292,084
|
)
|
(9
|
)
|
|||
Compensation
cost recognized
|
-
|
17
|
|||||
Balance
at June 30, 2006
(2)
|
36,763,551
|
$
|
26
|
(1) |
Grant-date
measurement of new performance unit awards is not required. Rather,
fair
value of the 2006 grant was estimated as of June 30, 2006 to determine
the
2006 compensation cost associated with these
awards.
|
(2) |
Performance
units shown represent units outstanding and expected to
vest.
|
Postretirement
|
|||||||
Retirement
|
Health
and Life
|
||||||
(Millions
of dollars)
|
Plans
|
Plans
|
|||||
Change
in benefit obligations -
|
|||||||
Benefit
obligations at December 31, 2005
|
$
|
1,255
|
$
|
297
|
|||
Service
cost
|
13
|
2
|
|||||
Interest
cost
|
26
|
6
|
|||||
Plan
amendments
|
15
|
-
|
|||||
Net
actuarial gain
|
(31
|
)
|
(4
|
)
|
|||
Contributions
by plan participants
|
-
|
3
|
|||||
Benefits
paid
|
(49
|
)
|
(11
|
)
|
|||
Tronox
Distribution
|
(500
|
)
|
(147
|
)
|
|||
Benefit
obligations at June 30, 2006
|
$
|
729
|
$
|
146
|
|||
Change
in plan assets -
|
|||||||
Fair
value of plan assets at December 31, 2005
|
$
|
1,132
|
$
|
-
|
|||
Actual
return on plan assets
|
18
|
-
|
|||||
Employer
contributions
|
2
|
8
|
|||||
Participant
contributions
|
-
|
3
|
|||||
Benefits
paid
|
(49
|
)
|
(11
|
)
|
|||
Tronox
Distribution (1)
|
(512
|
)
|
-
|
||||
Fair
value of plan assets at June 30, 2006 (2)
|
$
|
591
|
$
|
-
|
(1) |
Includes
plan assets of $450 million transferred from Kerr-McGee’s U.S. qualified
retirement plan trust to Tronox.
|
(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
|
||||||||||||
June
30,
|
December
31,
|
June
30,
|
December
31,
|
||||||||||
(Millions
of dollars)
|
2006
|
2005
|
2006
|
2005
|
|||||||||
Benefit
obligations
|
$
|
729
|
$
|
1,255
|
$
|
146
|
$
|
297
|
|||||
Fair
value of plan assets
|
591
|
1,132
|
-
|
-
|
|||||||||
Funded
status of plans - under funded
|
(138
|
)
|
(123
|
)
|
(146
|
)
|
(297
|
)
|
|||||
Amounts
not recognized in the Condensed
|
|||||||||||||
Consolidated
Balance Sheet -
|
|||||||||||||
Prior
service cost
|
34
|
42
|
(7
|
)
|
(14
|
)
|
|||||||
Net
actuarial loss
|
176
|
282
|
37
|
80
|
|||||||||
Net
prepaid expense (accrued liability)
|
|||||||||||||
recognized
|
$
|
72
|
$
|
201
|
$
|
(116
|
)
|
$
|
(231
|
)
|
|||
Classification
of amounts recognized in the
|
|||||||||||||
Condensed
Consolidated Balance Sheet -
|
|||||||||||||
Prepaid
pension cost
|
$
|
115
|
$
|
249
|
$
|
-
|
$
|
-
|
|||||
Accrued
benefit liability
|
(91
|
)
|
(79
|
)
|
(116
|
)
|
(231
|
)
|
|||||
Intangible
asset
|
6
|
-
|
-
|
-
|
|||||||||
Accumulated
other comprehensive loss (pretax)
|
42
|
31
|
-
|
-
|
|||||||||
Total
|
$
|
72
|
$
|
201
|
$
|
(116
|
)
|
$
|
(231
|
)
|
At
June 30, 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
|
$
|
97
|
$
|
146
|
$
|
65
|
$
|
297
|
|||||
Projected
benefit obligation
|
107
|
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 June 30, 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 retirement
plan.
|
(Millions
of dollars)
|
At
June 30, 2006
|
At
December 31, 2005
|
|||||
Accumulated
benefit obligation
|
$
|
570
|
$
|
990
|
|||
Projected
benefit obligation
|
$
|
622
|
$
|
1,093
|
|||
Market
value of plan assets
|
591
|
1,070
|
|||||
Funded
status - under funded
|
$
|
(31
|
)
|
$
|
(23
|
)
|
2011-
|
|||||||||||||||||||
(Millions
of dollars)
|
2006
|
2007
|
2008
|
2009
|
2010
|
2015
|
|||||||||||||
Retirement
plans
|
$
|
31
|
$
|
76
|
$
|
62
|
$
|
65
|
$
|
65
|
$
|
340
|
|||||||
Postretirement
health and life plans
|
5
|
11
|
11
|
11
|
11
|
54
|
Retirement
Plans
|
Postretirement
Health
and Life Plans
|
||||||||||||
Three
Months Ended
|
Three
Months Ended
|
||||||||||||
June
30,
|
June
30,
|
||||||||||||
(Millions
of dollars)
|
2006
|
2005
|
2006
|
2005
|
|||||||||
Net
periodic cost -
|
|||||||||||||
Service
cost
|
$
|
5
|
$
|
8
|
$
|
1
|
$
|
1
|
|||||
Interest
cost
|
10
|
15
|
2
|
3
|
|||||||||
Expected
return on plan assets
|
(13
|
)
|
(24
|
)
|
-
|
-
|
|||||||
Net
amortization -
|
|||||||||||||
Prior
service cost
|
3
|
2
|
-
|
(1
|
)
|
||||||||
Net
actuarial loss
|
1
|
1
|
-
|
2
|
|||||||||
Total
|
$
|
6
|
$
|
2
|
$
|
3
|
$
|
5
|
Retirement
Plans
|
Postretirement
Health
and Life Plans
|
||||||||||||
Six
Months Ended
|
Six
Months Ended
|
||||||||||||
June
30,
|
June
30,
|
||||||||||||
(Millions
of dollars)
|
2006
|
2005
|
2006
|
2005
|
|||||||||
Net
periodic cost -
|
|||||||||||||
Service
cost
|
$
|
12
|
$
|
15
|
$
|
2
|
$
|
2
|
|||||
Interest
cost
|
25
|
31
|
4
|
5
|
|||||||||
Expected
return on plan assets
|
(33
|
)
|
(48
|
)
|
-
|
-
|
|||||||
Net
amortization -
|
|||||||||||||
Prior
service cost
|
8
|
4
|
-
|
(2
|
)
|
||||||||
Net
actuarial loss
|
3
|
2
|
-
|
3
|
|||||||||
Total
|
$
|
15
|
$
|
4
|
$
|
6
|
$
|
8
|
March
30, 2006(1)
|
December
31, 2005
|
|
Discount
rate
|
5.85%
|
5.50%
|
Rate
of compensation increases
|
4.50%
|
4.50%
|
(1) |
Benefit
obligations of plans impacted by the Tronox Distribution were remeasured
as of the Distribution date.
|
For
the Three Months Ended June 30,
|
|||||||||||||||||||
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
|
$
|
306
|
225.1
|
$
|
1.36
|
$
|
256
|
281.6
|
$
|
.91
|
|||||||||
Effect
of dilutive securities:
|
|||||||||||||||||||
Restricted
stock
|
-
|
1.2
|
-
|
1.5
|
|||||||||||||||
Stock
options
|
-
|
3.0
|
-
|
2.3
|
|||||||||||||||
Diluted
earnings per share
|
$
|
306
|
229.3
|
$
|
1.33
|
$
|
256
|
285.4
|
$
|
.90
|
For
the Six Months Ended June 30,
|
|||||||||||||||||||
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
|
$
|
582
|
226.2
|
$
|
2.57
|
$
|
499
|
295.6
|
$
|
1.69
|
|||||||||
Effect
of dilutive securities:
|
|||||||||||||||||||
5.25%
convertible debentures
|
-
|
-
|
4
|
6.4
|
|||||||||||||||
Restricted
stock
|
-
|
1.0
|
-
|
1.3
|
|||||||||||||||
Stock
options
|
-
|
2.9
|
-
|
2.1
|
|||||||||||||||
Diluted
earnings per share
|
$
|
582
|
230.1
|
$
|
2.53
|
$
|
503
|
305.4
|
$
|
1.65
|
12.
|
Capital
Stock
|
Shares
|
Treasury
|
Shares
|
||||||||
(Thousands
of shares)
|
Issued
|
Stock
|
Outstanding
|
|||||||
Balance
at December 31, 2005
|
232,232
|
3,457
|
228,775
|
|||||||
Stock
option exercises
|
1,684
|
-
|
1,684
|
|||||||
Issuance
of restricted stock
|
482
|
-
|
482
|
|||||||
Other
issuances
|
15
|
-
|
15
|
|||||||
Forfeiture
of restricted stock
|
-
|
97
|
(97
|
)
|
||||||
Purchases
of treasury stock (1)
|
-
|
3,551
|
(3,551
|
)
|
||||||
Balance
at June 30, 2006
|
234,413
|
7,105
|
227,308
|
(1) |
Includes
shares surrendered by employees in satisfaction of withholding tax
obligations.
|
Reserves
for
|
||||||||||
Reserves
for
|
Environmental
|
Reimbursements
|
||||||||
(Millions
of dollars)
|
Litigation
|
Remediation
(1)
|
Receivable
(1)
|
|||||||
Balance
at December 31, 2005
|
$
|
30
|
$
|
268
|
$
|
57
|
||||
Provisions
/ Accruals
|
-
|
3
|
21
|
|||||||
Payments
/ Settlements
|
(5
|
)
|
(13
|
)
|
(21
|
)
|
||||
Tronox
Distribution
|
(8
|
)
|
(216
|
)
|
(57
|
)
|
||||
Balance
at June 30, 2006
|
$
|
17
|
$
|
42
|
$
|
-
|
(1) |
Provision
for environmental remediation and restoration and associated accruals
for
third-party reimbursements 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. Provision for environmental remediation
costs
associated with continuing operations for the three and six months
ended
June 30, 2006 of $3 million reflects a $1 million increase in
reserves for environmental remediation and a loss of $2 million associated
with a write-down of assets located at sites where environmental
investigation and/or remediation is in progress.
|
· |
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.
|
Commitments
|
15.
|
Business
Segments
|
(Millions
of dollars)
|
Gulf
of Mexico
|
Rocky
Mountain
|
Southern
|
China
|
Other
(1)
|
Total
|
|||||||||||||
Three
months ended June 30, 2006:
|
|||||||||||||||||||
Revenues
|
$
|
609
|
$
|
339
|
$
|
201
|
$
|
101
|
$
|
-
|
$
|
1,250
|
(2) | ||||||
Operating
profit
|
$
|
434
|
$
|
182
|
$
|
85
|
$
|
59
|
$
|
(41
|
)
|
$
|
719
|
||||||
Net
marketing margin
|
2
|
||||||||||||||||||
Loss
on oil and gas derivatives
|
(130
|
)
|
|||||||||||||||||
Corporate
costs
|
(66
|
)
(3)
|
|||||||||||||||||
Interest
and debt expense
|
(49
|
)
|
|||||||||||||||||
Other
income (expense)
|
(3
|
)
|
|||||||||||||||||
Income
from continuing operations before income taxes
|
$
|
473
|
Three
months ended June 30, 2005:
|
|||||||||||||||||||
Revenues
|
$
|
553
|
$
|
296
|
$
|
205
|
$
|
73
|
$
|
-
|
$
|
1,127
|
(2) | ||||||
Operating
profit
|
$
|
336
|
$
|
178
|
$
|
91
|
$
|
32
|
$
|
(34
|
)
|
$
|
603
|
||||||
Net
marketing margin
|
(1
|
)
|
|||||||||||||||||
Loss
on oil and gas derivatives
|
(82
|
)
|
|||||||||||||||||
Corporate
costs
|
(55
|
)
(3)
|
|||||||||||||||||
Interest
and debt expense
|
(58
|
)
|
|||||||||||||||||
Other
income (expense)
|
(4
|
)
|
|||||||||||||||||
Income
from continuing operations before income taxes
|
$
|
403
|
|||||||||||||||||
Six
months ended June 30, 2006:
|
|||||||||||||||||||
Revenues
|
$
|
1,139
|
$
|
704
|
$
|
433
|
$
|
175
|
$
|
-
|
$
|
2,451
|
(2) | ||||||
Operating
profit
|
$
|
822
|
$
|
391
|
$
|
208
|
$
|
105
|
$
|
(69
|
)
|
$
|
1,457
|
||||||
Net
marketing margin
|
1
|
||||||||||||||||||
Loss
on oil and gas derivatives
|
(244
|
)
|
|||||||||||||||||
Corporate
costs
|
(136
|
)
(3)
|
|||||||||||||||||
Interest
and debt expense
|
(171
|
)
|
|||||||||||||||||
Other
income (expense)
|
(6
|
)
|
|||||||||||||||||
Income
from continuing operations before income taxes
|
$
|
901
|
Six
months ended June 30, 2005:
|
|||||||||||||||||||
Revenues
|
$
|
1,049
|
$
|
561
|
$
|
395
|
$
|
147
|
$
|
-
|
$
|
2,152
|
(2) | ||||||
Operating
profit
|
$
|
648
|
$
|
313
|
$
|
192
|
$
|
80
|
$
|
(55
|
)
|
$
|
1,178
|
||||||
Net
marketing margin
|
1
|
||||||||||||||||||
Loss
on oil and gas derivatives
|
(168
|
)
|
|||||||||||||||||
Corporate
costs
|
(113
|
)
(3)
|
|||||||||||||||||
Interest
and debt expense
|
(118
|
)
|
|||||||||||||||||
Other
income (expense)
|
(6
|
)
|
|||||||||||||||||
Income
from continuing operations before income taxes
|
$
|
774
|
|||||||||||||||||
(1) |
Represents
exploration activities outside our core operating areas and certain
general and administrative costs associated with E&P
operations.
|
(2) |
Excludes
third-party marketing revenues and oil and gas derivatives that are
not
considered in the determination of segment operating profit.
|
(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 the E&P segment’s
operating profit in 2005 are included here for consistency with 2006
presentation.
|
16.
|
Condensed
Consolidating Financial
Information
|
Kerr-McGee
|
Guarantor
|
Non-Guarantor
|
||||||||||||||
(Millions
of dollars)
|
Corporation
|
Subsidiary
|
Subsidiaries
|
Eliminations
|
Consolidated
|
|||||||||||
Revenues
|
||||||||||||||||
Oil
and gas sales
|
$
|
-
|
$
|
514
|
$
|
713
|
$
|
-
|
$
|
1,227
|
||||||
Loss
on commodity derivatives
|
-
|
-
|
(130
|
)
|
-
|
(130
|
)
|
|||||||||
Gas
marketing revenues
|
-
|
147
|
-
|
-
|
147
|
|||||||||||
Other
revenues
|
-
|
15
|
8
|
-
|
23
|
|||||||||||
Total
Revenues
|
-
|
676
|
591
|
-
|
1,267
|
|||||||||||
Operating
Expenses
|
||||||||||||||||
Lease
operating costs
|
-
|
72
|
56
|
-
|
128
|
|||||||||||
Production
and ad valorem taxes
|
-
|
32
|
11
|
-
|
43
|
|||||||||||
Transportation
expense
|
-
|
9
|
16
|
-
|
25
|
|||||||||||
General
and administrative expense
|
-
|
(1
|
)
|
61
|
-
|
60
|
||||||||||
Merger-related
costs
|
8
|
-
|
-
|
-
|
8
|
|||||||||||
Exploration
expense
|
-
|
16
|
90
|
-
|
106
|
|||||||||||
Gas
gathering, processing and other expenses
|
-
|
17
|
10
|
-
|
27
|
|||||||||||
Gas
marketing costs
|
-
|
145
|
-
|
-
|
145
|
|||||||||||
Depreciation,
depletion and amortization
|
-
|
120
|
74
|
-
|
194
|
|||||||||||
Accretion
expense
|
-
|
2
|
2
|
-
|
4
|
|||||||||||
Provision
for environmental remediation costs
|
-
|
3
|
-
|
-
|
3
|
|||||||||||
Gain
on sales of oil and gas properties
|
-
|
-
|
(1
|
)
|
-
|
(1
|
)
|
|||||||||
Total
Operating Expenses
|
8
|
415
|
319
|
-
|
742
|
|||||||||||
Operating
Income (Loss)
|
(8
|
)
|
261
|
272
|
-
|
525
|
||||||||||
Interest
expense
|
(115
|
)
|
(7
|
)
|
(142
|
)
|
215
|
(49
|
)
|
|||||||
Other
income (expense)
|
392
|
36
|
167
|
(598
|
)
|
(3
|
)
|
|||||||||
Income
from Continuing Operations before Income Taxes
|
269
|
290
|
297
|
(383
|
)
|
473
|
||||||||||
Benefit
(provision) for income taxes
|
36
|
(99
|
)
|
(104
|
)
|
-
|
(167
|
)
|
||||||||
Income
from Continuing Operations
|
305
|
191
|
193
|
(383
|
)
|
306
|
||||||||||
Loss
from discontinued operations, net of taxes
|
-
|
-
|
(1
|
)
|
-
|
(1
|
)
|
|||||||||
Net
Income
|
$
|
305
|
$
|
191
|
$
|
192
|
$
|
(383
|
)
|
$
|
305
|
Kerr-McGee
|
Guarantor
|
Non-Guarantor
|
||||||||||||||
(Millions
of dollars)
|
Corporation
|
Subsidiary
|
Subsidiaries
|
Eliminations
|
Consolidated
|
|||||||||||
Revenues
|
||||||||||||||||
Oil
and gas sales
|
$
|
-
|
$
|
484
|
$
|
624
|
$
|
-
|
$
|
1,108
|
||||||
Loss
on commodity derivatives
|
-
|
-
|
(82
|
)
|
-
|
(82
|
)
|
|||||||||
Gas
marketing revenues
|
-
|
138
|
-
|
-
|
138
|
|||||||||||
Other
revenues
|
-
|
13
|
6
|
-
|
19
|
|||||||||||
Total
Revenues
|
-
|
635
|
548
|
-
|
1,183
|
|||||||||||
Operating
Expenses
|
||||||||||||||||
Lease
operating costs
|
-
|
63
|
52
|
-
|
115
|
|||||||||||
Production
and ad valorem taxes
|
-
|
33
|
1
|
-
|
34
|
|||||||||||
Transportation
expense
|
-
|
10
|
14
|
-
|
24
|
|||||||||||
General
and administrative expense
|
-
|
-
|
62
|
-
|
62
|
|||||||||||
Exploration
expense
|
-
|
15
|
101
|
-
|
116
|
|||||||||||
Gas
gathering, processing and other expenses
|
-
|
19
|
7
|
-
|
26
|
|||||||||||
Gas
marketing costs
|
-
|
139
|
-
|
-
|
139
|
|||||||||||
Depreciation,
depletion and amortization
|
-
|
114
|
106
|
-
|
220
|
|||||||||||
Accretion
expense
|
-
|
2
|
3
|
-
|
5
|
|||||||||||
Provision
for environmental remediation costs
|
-
|
-
|
2
|
-
|
2
|
|||||||||||
Gain
on sales of oil and gas properties
|
-
|
(25
|
)
|
-
|
-
|
(25
|
)
|
|||||||||
Total
Operating Expenses
|
-
|
370
|
348
|
-
|
718
|
|||||||||||
Operating
Income
|
-
|
265
|
200
|
-
|
465
|
|||||||||||
Interest
expense
|
(48
|
)
|
(6
|
)
|
(99
|
)
|
95
|
(58
|
)
|
|||||||
Other
income (expense)
|
424
|
10
|
154
|
(592
|
)
|
(4
|
)
|
|||||||||
Income
from Continuing Operations before Income Taxes
|
376
|
269
|
255
|
(497
|
)
|
403
|
||||||||||
Benefit
(provision) for income taxes
|
9
|
(94
|
)
|
(62
|
)
|
-
|
(147
|
)
|
||||||||
Income
from Continuing Operations
|
385
|
175
|
193
|
(497
|
)
|
256
|
||||||||||
Income
(loss) from discontinued operations, net of taxes
|
(15
|
)
|
-
|
129
|
-
|
114
|
||||||||||
Net
Income
|
$
|
370
|
$
|
175
|
$
|
322
|
$
|
(497
|
)
|
$
|
370
|
Kerr-McGee
|
Guarantor
|
Non-Guarantor
|
||||||||||||||
(Millions
of dollars)
|
Corporation
|
Subsidiary
|
Subsidiaries
|
Eliminations
|
Consolidated
|
|||||||||||
Revenues
|
||||||||||||||||
Oil
and gas sales
|
$
|
-
|
$
|
1,087
|
$
|
1,319
|
$
|
-
|
$
|
2,406
|
||||||
Loss
on commodity derivatives
|
-
|
-
|
(244
|
)
|
-
|
(244
|
)
|
|||||||||
Gas
marketing revenues
|
-
|
360
|
-
|
-
|
360
|
|||||||||||
Other
revenues
|
-
|
30
|
15
|
-
|
45
|
|||||||||||
Total
Revenues
|
-
|
1,477
|
1,090
|
-
|
2,567
|
|||||||||||
Operating
Expenses
|
||||||||||||||||
Lease
operating costs
|
-
|
145
|
114
|
-
|
259
|
|||||||||||
Production
and ad valorem taxes
|
-
|
61
|
13
|
-
|
74
|
|||||||||||
Transportation
expense
|
-
|
18
|
30
|
-
|
48
|
|||||||||||
General
and administrative expense
|
-
|
(1
|
)
|
135
|
-
|
134
|
||||||||||
Merger-related
costs
|
8
|
-
|
-
|
-
|
8
|
|||||||||||
Exploration
expense
|
-
|
26
|
132
|
-
|
158
|
|||||||||||
Gas
gathering, processing and other expenses
|
-
|
41
|
20
|
-
|
61
|
|||||||||||
Gas
marketing costs
|
-
|
359
|
-
|
-
|
359
|
|||||||||||
Depreciation,
depletion and amortization
|
-
|
238
|
145
|
-
|
383
|
|||||||||||
Accretion
expense
|
-
|
3
|
4
|
-
|
7
|
|||||||||||
Provision
for environmental remediation costs
|
-
|
3
|
-
|
-
|
3
|
|||||||||||
Gain
on sales of oil and gas properties
|
-
|
(4
|
)
|
(1
|
)
|
-
|
(5
|
)
|
||||||||
Total
Operating Expenses
|
8
|
889
|
592
|
-
|
1,489
|
|||||||||||
Operating
Income (Loss)
|
(8
|
)
|
588
|
498
|
-
|
1,078
|
||||||||||
Interest
expense
|
(192
|
)
|
(13
|
)
|
(324
|
)
|
439
|
(90
|
)
|
|||||||
Loss
on early repayment and modification of debt
|
(12
|
)
|
-
|
(69
|
)
|
-
|
(81
|
)
|
||||||||
Other
income (expense)
|
744
|
64
|
344
|
(1,158
|
)
|
(6
|
)
|
|||||||||
Income
from Continuing Operations before Income Taxes
|
532
|
639
|
449
|
(719
|
)
|
901
|
||||||||||
Benefit
(Provision) for Income Taxes
|
62
|
(224
|
)
|
(157
|
)
|
-
|
(319
|
)
|
||||||||
Income
from Continuing Operations
|
594
|
415
|
292
|
(719
|
)
|
582
|
||||||||||
Income
(loss) from discontinued operations, net of taxes
|
(36
|
)
|
-
|
12
|
-
|
(24
|
)
|
|||||||||
Cumulative
effect of change in accounting principle, net of taxes
|
2
|
-
|
-
|
-
|
2
|
|||||||||||
Net
Income
|
$
|
560
|
$
|
415
|
$
|
304
|
$
|
(719
|
)
|
$
|
560
|
Kerr-McGee
|
Guarantor
|
Non-Guarantor
|
||||||||||||||
(Millions
of dollars)
|
Corporation
|
Subsidiary
|
Subsidiaries
|
Eliminations
|
Consolidated
|
|||||||||||
Revenues
|
||||||||||||||||
Oil
and gas sales
|
$
|
-
|
$
|
922
|
$
|
1,192
|
$
|
-
|
$
|
2,114
|
||||||
Loss
on commodity derivatives
|
-
|
-
|
(168
|
)
|
-
|
(168
|
)
|
|||||||||
Gas
marketing revenues
|
-
|
270
|
-
|
-
|
270
|
|||||||||||
Other
revenues
|
-
|
26
|
12
|
-
|
38
|
|||||||||||
Total
Revenues
|
-
|
1,218
|
1,036
|
-
|
2,254
|
|||||||||||
Operating
Expenses
|
||||||||||||||||
Lease
operating costs
|
-
|
122
|
101
|
-
|
223
|
|||||||||||
Production
and ad valorem taxes
|
-
|
62
|
2
|
-
|
64
|
|||||||||||
Transportation
expense
|
-
|
20
|
27
|
-
|
47
|
|||||||||||
General
and administrative expense
|
-
|
(3
|
)
|
118
|
-
|
115
|
||||||||||
Exploration
expense
|
-
|
26
|
145
|
-
|
171
|
|||||||||||
Gas
gathering, processing and other expenses
|
-
|
38
|
16
|
-
|
54
|
|||||||||||
Gas
marketing costs
|
-
|
269
|
-
|
-
|
269
|
|||||||||||
Depreciation,
depletion and amortization
|
-
|
229
|
214
|
-
|
443
|
|||||||||||
Accretion
expense
|
-
|
4
|
7
|
-
|
11
|
|||||||||||
Provision
for environmental remediation costs
|
-
|
-
|
2
|
-
|
2
|
|||||||||||
Asset
impairments
|
-
|
-
|
4
|
-
|
4
|
|||||||||||
Gain
on sales of oil and gas properties
|
-
|
(47
|
)
|
-
|
-
|
(47
|
)
|
|||||||||
Total
Operating Expenses
|
-
|
720
|
636
|
-
|
1,356
|
|||||||||||
Operating
Income
|
-
|
498
|
400
|
-
|
898
|
|||||||||||
Interest
expense
|
(90
|
)
|
(16
|
)
|
(190
|
)
|
178
|
(118
|
)
|
|||||||
Other
income (expense)
|
814
|
18
|
203
|
(1,041
|
)
|
(6
|
)
|
|||||||||
Income
from Continuing Operations before Income Taxes
|
724
|
500
|
413
|
(863
|
)
|
774
|
||||||||||
Benefit
(provision) for income taxes
|
16
|
(175
|
)
|
(116
|
)
|
-
|
(275
|
)
|
||||||||
Income
from Continuing Operations
|
740
|
325
|
297
|
(863
|
)
|
499
|
||||||||||
Income
(loss) from discontinued operations, net of taxes
|
(15
|
)
|
-
|
241
|
-
|
226
|
||||||||||
Net
Income
|
$
|
725
|
$
|
325
|
$
|
538
|
$
|
(863
|
)
|
$
|
725
|
Kerr-McGee
|
Guarantor
|
Non-Guarantor
|
||||||||||||||
(Millions
of dollars)
|
Corporation
|
Subsidiary
|
Subsidiaries
|
Eliminations
|
Consolidated
|
|||||||||||
ASSETS
|
||||||||||||||||
Current
Assets
|
||||||||||||||||
Cash
and cash equivalents
|
$
|
1
|
$
|
2
|
$
|
153
|
$
|
-
|
$
|
156
|
||||||
Intercompany
receivables
|
-
|
-
|
77
|
(77
|
)
|
-
|
||||||||||
Accounts
receivable
|
2
|
279
|
470
|
-
|
751
|
|||||||||||
Derivatives
and other current assets
|
-
|
30
|
174
|
-
|
204
|
|||||||||||
Deferred
income taxes
|
5
|
14
|
361
|
-
|
380
|
|||||||||||
Assets
held for sale
|
-
|
-
|
24
|
-
|
24
|
|||||||||||
Total
Current Assets
|
8
|
325
|
1,259
|
(77
|
)
|
1,515
|
||||||||||
Property,
Plant and Equipment - Net
|
-
|
5,470
|
2,747
|
-
|
8,217
|
|||||||||||
Investment
in Subsidiaries
|
11,600
|
-
|
-
|
(11,600
|
)
|
-
|
||||||||||
Investments,
Derivatives and Other Assets
|
16
|
81
|
224
|
-
|
321
|
|||||||||||
Goodwill
and Other Intangible Assets
|
-
|
370
|
805
|
-
|
1,175
|
|||||||||||
Assets
held for sale
|
-
|
-
|
710
|
-
|
710
|
|||||||||||
Total
Assets
|
$
|
11,624
|
$
|
6,246
|
$
|
5,745
|
$
|
(11,677
|
)
|
$
|
11,938
|
|||||
LIABILITIES
AND STOCKHOLDERS' EQUITY
|
||||||||||||||||
Current
Liabilities
|
||||||||||||||||
Intercompany
borrowings
|
$
|
4,616
|
$
|
293
|
$
|
-
|
$
|
(4,909
|
)
|
$
|
-
|
|||||
Accounts
payable
|
13
|
192
|
193
|
-
|
398
|
|||||||||||
Long-term
debt due within one year
|
309
|
-
|
-
|
-
|
309
|
|||||||||||
Income
taxes payable
|
-
|
-
|
53
|
-
|
53
|
|||||||||||
Commodity
derivative liabilities
|
-
|
5
|
872
|
-
|
877
|
|||||||||||
Accrued
liabilities
|
62
|
260
|
509
|
-
|
831
|
|||||||||||
Liabilities
associated with assets held for sale
|
-
|
-
|
25
|
-
|
25
|
|||||||||||
Total
Current Liabilities
|
5,000
|
750
|
1,652
|
(4,909
|
)
|
2,493
|
||||||||||
Long-Term
Debt
|
1,802
|
-
|
295
|
-
|
2,097
|
|||||||||||
Noncurrent
Liabilities
|
||||||||||||||||
Deferred
income taxes
|
(30
|
)
|
1,326
|
324
|
-
|
1,620
|
||||||||||
Asset
retirement obligations
|
-
|
91
|
121
|
-
|
212
|
|||||||||||
Commodity
derivative liabilities
|
-
|
1
|
322
|
-
|
323
|
|||||||||||
Other
|
69
|
65
|
317
|
-
|
451
|
|||||||||||
Liabilities
associated with assets held for sale
|
-
|
-
|
126
|
-
|
126
|
|||||||||||
Total
Noncurrent Liabilities
|
39
|
1,483
|
1,210
|
-
|
2,732
|
|||||||||||
Stockholders'
Equity
|
4,783
|
4,013
|
2,588
|
(6,768
|
)
|
4,616
|
||||||||||
Total
Liabilities and Stockholders' Equity
|
$
|
11,624
|
$
|
6,246
|
$
|
5,745
|
$
|
(11,677
|
)
|
$
|
11,938
|
Kerr-McGee
|
Guarantor
|
Non-Guarantor
|
||||||||||||||
(Millions
of dollars)
|
Corporation
|
Subsidiary
|
Subsidiaries
|
Eliminations
|
Consolidated
|
|||||||||||
|
||||||||||||||||
ASSETS
|
||||||||||||||||
Current
Assets
|
||||||||||||||||
Cash
and cash equivalents
|
$
|
1
|
$
|
5
|
$
|
1,047
|
$
|
-
|
$
|
1,053
|
||||||
Accounts
receivable
|
1
|
371
|
381
|
-
|
753
|
|||||||||||
Derivatives
and other current assets
|
-
|
33
|
172
|
-
|
205
|
|||||||||||
Deferred
income taxes
|
-
|
14
|
533
|
-
|
547
|
|||||||||||
Tronox
Assets
|
-
|
-
|
691
|
-
|
691
|
|||||||||||
Total
Current Assets
|
2
|
423
|
2,824
|
-
|
3,249
|
|||||||||||
Property,
Plant and Equipment - Net
|
-
|
5,247
|
3,188
|
-
|
8,435
|
|||||||||||
Investment
in Subsidiaries
|
8,688
|
-
|
-
|
(8,688
|
)
|
-
|
||||||||||
Investments,
Derivatives and Other Assets
|
25
|
80
|
402
|
(80
|
)
|
427
|
||||||||||
Goodwill
and Other Intangible Assets
|
-
|
374
|
805
|
-
|
1,179
|
|||||||||||
Assets
Held for Sale and Tronox Assets
|
-
|
4
|
982
|
-
|
986
|
|||||||||||
Total
Assets
|
$
|
8,715
|
$
|
6,128
|
$
|
8,201
|
$
|
(8,768
|
)
|
$
|
14,276
|
|||||
LIABILITIES
AND STOCKHOLDERS' EQUITY
|
||||||||||||||||
Current
Liabilities
|
||||||||||||||||
Intercompany
borrowings
|
$
|
2,459
|
$
|
1,354
|
$
|
1,866
|
$
|
(5,679
|
)
|
$
|
-
|
|||||
Accounts
payable
|
6
|
231
|
188
|
-
|
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
|
)
|
263
|
655
|
-
|
846
|
||||||||||
Liabilities
associated with Tronox
|
-
|
-
|
419
|
-
|
419
|
|||||||||||
Total
Current Liabilities
|
2,699
|
1,862
|
5,049
|
(5,679
|
)
|
3,931
|
||||||||||
Long-Term
Debt
|
1,801
|
-
|
476
|
-
|
2,277
|
|||||||||||
Noncurrent
Liabilities
|
||||||||||||||||
Deferred
income taxes
|
(9
|
)
|
639
|
815
|
-
|
1,445
|
||||||||||
Asset
retirement obligations
|
-
|
74
|
236
|
-
|
310
|
|||||||||||
Commodity
derivative liabilities
|
-
|
-
|
658
|
-
|
658
|
|||||||||||
Other
noncurrent liabilities
|
-
|
91
|
380
|
-
|
471
|
|||||||||||
Liabilities
associated with Tronox
|
-
|
-
|
1,069
|
-
|
1,069
|
|||||||||||
Total
Noncurrent Liabilities
|
(9
|
)
|
804
|
3,158
|
-
|
3,953
|
||||||||||
Stockholders'
Equity
|
4,224
|
3,462
|
(482
|
)
|
(3,089
|
)
|
4,115
|
|||||||||
Total
Liabilities and Stockholders' Equity
|
$
|
8,715
|
$
|
6,128
|
$
|
8,201
|
$
|
(8,768
|
)
|
$
|
14,276
|
Non-
|
||||||||||||||||
Kerr-McGee
|
Guarantor
|
Guarantor
|
||||||||||||||
(Millions
of dollars)
|
Corporation
|
Subsidiary
|
Subsidiaries
|
Eliminations
|
Consolidated
|
|||||||||||
Cash
Flows from Operating Activities
|
||||||||||||||||
Net
income
|
$
|
560
|
$
|
415
|
$
|
304
|
$
|
(719
|
)
|
$
|
560
|
|||||
Adjustments
to reconcile net income to net cash
|
||||||||||||||||
provided
by (used in) operating activities-
|
||||||||||||||||
Depreciation, depletion and amortization
|
-
|
246
|
184
|
-
|
430
|
|||||||||||
Deferred income taxes
|
(34
|
)
|
49
|
92
|
-
|
107
|
||||||||||
Dry hole expense
|
-
|
4
|
69
|
-
|
73
|
|||||||||||
Gain on sale of assets
|
-
|
(4
|
)
|
(1
|
)
|
-
|
(5
|
)
|
||||||||
Accretion expense
|
-
|
3
|
4
|
-
|
7
|
|||||||||||
Loss on early repayment and modification
|
||||||||||||||||
of debt
|
12
|
-
|
69
|
-
|
81
|
|||||||||||
Provision for Tronox guarantee
|
56
|
-
|
-
|
-
|
56
|
|||||||||||
Equity in earnings of subsidiaries
|
(719
|
)
|
-
|
-
|
719
|
-
|
||||||||||
Other noncash items affecting net income
|
2
|
21
|
(48
|
)
|
-
|
(25
|
)
|
|||||||||
Changes in assets and liabilities
|
178
|
43
|
(795
|
)
|
-
|
(574
|
)
|
|||||||||
Net
Cash Provided by (Used in) Operating Activities
|
55
|
777
|
(122
|
)
|
-
|
710
|
||||||||||
Cash
Flows from Investing Activities
|
||||||||||||||||
Capital
expenditures
|
-
|
(449
|
)
|
(476
|
)
|
-
|
(925
|
)
|
||||||||
Dry
hole costs
|
-
|
(4
|
)
|
(36
|
)
|
-
|
(40
|
)
|
||||||||
Proceeds
from sales of assets
|
-
|
5
|
6
|
-
|
11
|
|||||||||||
Other
investing activities
|
-
|
-
|
15
|
-
|
15
|
|||||||||||
Net
Cash Used in Investing Activities
|
-
|
(448
|
)
|
(491
|
)
|
-
|
(939
|
)
|
||||||||
Cash
Flows from Financing Activities
|
||||||||||||||||
Issuance
of common stock upon exercise of
|
||||||||||||||||
stock
options
|
43
|
-
|
-
|
-
|
43
|
|||||||||||
Purchases
of treasury stock
|
(369
|
)
|
-
|
-
|
-
|
(369
|
)
|
|||||||||
Repayment
of debt
|
-
|
-
|
(250
|
)
|
-
|
(250
|
)
|
|||||||||
Dividends
paid
|
(11
|
)
|
-
|
-
|
-
|
(11
|
)
|
|||||||||
Increase
(decrease) in intercompany
|
||||||||||||||||
notes
payable
|
273
|
(332
|
)
|
59
|
-
|
-
|
||||||||||
Settlement
of Westport derivatives
|
-
|
-
|
(30
|
)
|
-
|
(30
|
)
|
|||||||||
Tronox
Distribution
|
-
|
-
|
(57
|
)
|
-
|
(57
|
)
|
|||||||||
Other
financing activities
|
9
|
-
|
-
|
-
|
9
|
|||||||||||
Net
Cash Used in Financing Activities
|
(55
|
)
|
(332
|
)
|
(278
|
)
|
-
|
(665
|
)
|
|||||||
Effects
of Exchange Rate Changes on Cash
|
||||||||||||||||
and
Cash Equivalents
|
-
|
-
|
(3
|
)
|
-
|
(3
|
)
|
|||||||||
Net
Decrease in Cash and Cash Equivalents
|
-
|
(3
|
)
|
(894
|
)
|
-
|
(897
|
)
|
||||||||
Cash
and Cash Equivalents at Beginning of Year
|
1
|
5
|
1,047
|
-
|
1,053
|
|||||||||||
Cash
and Cash Equivalents at End of Period
|
$
|
1
|
$
|
2
|
$
|
153
|
$
|
-
|
$
|
156
|
||||||
Non-
|
||||||||||||||||
Kerr-McGee
|
Guarantor
|
Guarantor
|
||||||||||||||
(Millions
of dollars)
|
Corporation
|
Subsidiary
|
Subsidiaries
|
Eliminations
|
Consolidated
|
|||||||||||
Cash
Flows from Operating Activities
|
||||||||||||||||
Net
income
|
$
|
725
|
$
|
325
|
$
|
538
|
$
|
(863
|
)
|
$
|
725
|
|||||
Adjustments
to reconcile net income to net cash
|
||||||||||||||||
provided
by (used in) operating activities-
|
||||||||||||||||
Depreciation,
depletion and amortization
|
-
|
236
|
414
|
-
|
650
|
|||||||||||
Deferred
income taxes
|
(2
|
)
|
20
|
247
|
-
|
265
|
||||||||||
Dry
hole expense
|
-
|
10
|
81
|
-
|
91
|
|||||||||||
Asset
impairments
|
-
|
-
|
5
|
-
|
5
|
|||||||||||
(Gain)
loss on sale of assets
|
-
|
(47
|
)
|
1
|
-
|
(46
|
)
|
|||||||||
Accretion
expense
|
-
|
4
|
13
|
-
|
17
|
|||||||||||
Equity
in earnings of subsidiaries
|
(771
|
)
|
-
|
-
|
771
|
-
|
||||||||||
Other
noncash items affecting net income
|
(17
|
)
|
168
|
(99
|
)
|
94
|
146
|
|||||||||
Changes
in assets and liabilities
|
11
|
(192
|
)
|
(92
|
)
|
(2
|
)
|
(275
|
)
|
|||||||
Net
Cash Provided by (Used in)
|
||||||||||||||||
Operating
Activities
|
(54
|
)
|
524
|
1,108
|
-
|
1,578
|
||||||||||
Cash
Flows from Investing Activities
|
||||||||||||||||
Capital
expenditures
|
-
|
(347
|
)
|
(461
|
)
|
-
|
(808
|
)
|
||||||||
Dry
hole costs
|
-
|
(11
|
)
|
(64
|
)
|
-
|
(75
|
)
|
||||||||
Proceeds
from sales of assets
|
-
|
54
|
9
|
-
|
63
|
|||||||||||
Other
investing activities
|
-
|
(21
|
)
|
-
|
-
|
(21
|
)
|
|||||||||
Net
Cash Used in Investing Activities
|
-
|
(325
|
)
|
(516
|
)
|
-
|
(841
|
)
|
||||||||
Cash
Flows from Financing Activities
|
||||||||||||||||
Issuance
of common stock upon exercise of
|
||||||||||||||||
stock
options
|
159
|
-
|
-
|
-
|
159
|
|||||||||||
Purchases
of treasury stock
|
(250
|
)
|
-
|
-
|
-
|
(250
|
)
|
|||||||||
Repayment
of debt
|
(350
|
)
|
-
|
(42
|
)
|
-
|
(392
|
)
|
||||||||
Proceeds
from borrowings
|
4,250
|
-
|
-
|
-
|
4,250
|
|||||||||||
Dividends
paid
|
(142
|
)
|
-
|
-
|
-
|
(142
|
)
|
|||||||||
Increase
(decrease) in intercompany
|
||||||||||||||||
notes
payable
|
419
|
(183
|
)
|
(236
|
)
|
-
|
-
|
|||||||||
Settlement
of Westport derivatives
|
-
|
-
|
(80
|
)
|
-
|
(80
|
)
|
|||||||||
Shares
repurchased under the tender offer
|
(3,975
|
)
|
-
|
-
|
-
|
(3,975
|
)
|
|||||||||
Other
financing activities
|
(58
|
)
|
-
|
-
|
-
|
(58
|
)
|
|||||||||
Net
Cash Provided by (Used in)
|
||||||||||||||||
Financing
Activities
|
53
|
(183
|
)
|
(358
|
)
|
-
|
(488
|
)
|
||||||||
Effects
of Exchange Rate Changes on Cash
|
||||||||||||||||
and
Cash Equivalents
|
-
|
-
|
(1
|
)
|
-
|
(1
|
)
|
|||||||||
Net
Increase (Decrease) in Cash and Cash Equivalents
|
(1
|
)
|
16
|
233
|
-
|
248
|
||||||||||
Cash
and Cash Equivalents at Beginning of Year
|
2
|
11
|
63
|
-
|
76
|
|||||||||||
Cash
and Cash Equivalents at End of Period
|
$
|
1
|
$
|
27
|
$
|
296
|
$
|
-
|
$
|
324
|
||||||
Item
2.
|
Management’s
Discussion and Analysis of Financial Condition and Results of
Operations.
|
· |
On
May 9, 2006, the company’s Board of Directors (the Board) authorized a
two-for-one split of Kerr-McGee’s outstanding common stock. The stock
split was accomplished through a stock dividend issued on June 14,
2006 to
stockholders of record at the close of business on June 2, 2006.
Unless
otherwise indicated, common share and per share amounts in this Quarterly
Report on Form 10-Q have been retroactively adjusted to reflect the
stock
split. The par value of Kerr-McGee’s common stock remains $1 per
share.
|
· |
The
Board also approved a 25% increase in the company's quarterly dividend
effective with the dividend paid on July 3, 2006. On a post-split
basis,
the quarterly dividend increased from $.025 to $.03125 per
share.
|
· |
In
January 2006, the company entered into an agreement to sell its 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 the third quarter.
|
· |
In
January 2006, the Board approved a $1 billion stock repurchase program.
During the first six months of 2006, approximately 3.4 million shares
of
stock (on a pre-split basis) were repurchased at an aggregate cost
of $356
million.
|
· |
In
November 2005, Tronox Incorporated (Tronox), a former wholly-owned
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.
|
Three
Months Ended
|
Six
Months Ended
|
||||||||||||
June
30,
|
June
30,
|
||||||||||||
(Millions
of dollars)
|
2006
|
2005
|
2006
|
2005
|
|||||||||
Revenues
|
$
|
1,267
|
$
|
1,183
|
$
|
2,567
|
$
|
2,254
|
|||||
Operating
income
|
$
|
525
|
$
|
465
|
$
|
1,078
|
$
|
898
|
|||||
Income
from continuing operations
|
$
|
306
|
$
|
256
|
$
|
582
|
$
|
499
|
|||||
Income
(loss) from discontinued operations, net of taxes
|
(1
|
)
|
114
|
(24
|
)
|
226
|
|||||||
Cumulative
effect of change in accounting principle, net of taxes
|
-
|
-
|
2
|
-
|
|||||||||
Net
income
|
$
|
305
|
$
|
370
|
$
|
560
|
$
|
725
|
|||||
Income
from continuing operations per common share:
|
|||||||||||||
Basic
|
$
|
1.36
|
$
|
.91
|
$
|
2.57
|
$
|
1.69
|
|||||
Diluted
|
1.33
|
.90
|
2.53
|
1.65
|
|||||||||
Net
income per common share:
|
|||||||||||||
Basic
|
$
|
1.35
|
$
|
1.31
|
$
|
2.47
|
$
|
2.45
|
|||||
Diluted
|
1.33
|
1.30
|
2.43
|
2.39
|
|||||||||
Three
Months Ended
|
Six
Months Ended
|
||||||||||||
June
30,
|
June
30,
|
||||||||||||
(Millions
of dollars)
|
2006
|
2005
|
2006
|
2005
|
|||||||||
Revenues
-
|
|||||||||||||
Natural
gas sales
|
$
|
569
|
$
|
632
|
$
|
1,238
|
$
|
1,180
|
|||||
Crude
oil, condensate and natural gas liquids sales
|
658
|
476
|
1,168
|
934
|
|||||||||
Loss
on oil and gas derivatives - hedge
|
(150
|
)
|
(59
|
)
|
(424
|
)
|
(85
|
)
|
|||||
Mark-to-market
nonhedge derivative gain (loss)
|
20
|
12
|
150
|
(39
|
)
|
||||||||
Gain
(loss) due to hedge ineffectiveness
|
-
|
(35
|
)
|
30
|
(44
|
)
|
|||||||
Gas
marketing revenues
|
147
|
138
|
360
|
270
|
|||||||||
Process,
gathering and other revenues
|
23
|
19
|
45
|
38
|
|||||||||
Total
|
$
|
1,267
|
$
|
1,183
|
$
|
2,567
|
$
|
2,254
|
|||||
Natural
Gas Production and Average Sales Prices -
|
|||||||||||||
Production
(MMcf/d) -
|
|||||||||||||
Gulf
of Mexico -
|
|||||||||||||
Deepwater
|
253
|
285
|
246
|
270
|
|||||||||
Shelf
|
120
|
167
|
105
|
162
|
|||||||||
U.S.
Onshore -
|
|||||||||||||
Rocky Mountain
|
388
|
330
|
376
|
331
|
|||||||||
Southern
|
223
|
241
|
232
|
253
|
|||||||||
Total
|
984
|
1,023
|
959
|
1,016
|
|||||||||
Average
Sales Prices (per Mcf) -
|
|||||||||||||
Gulf
of Mexico -
|
|||||||||||||
Deepwater
|
$
|
6.80
|
$
|
7.19
|
$
|
7.58
|
$
|
6.91
|
|||||
Shelf
|
6.76
|
6.97
|
7.47
|
6.73
|
|||||||||
U.S.
Onshore -
|
|||||||||||||
Rocky Mountain
|
5.84
|
6.42
|
6.66
|
6.07
|
|||||||||
Southern
|
6.56
|
6.72
|
7.28
|
6.16
|
|||||||||
Average
|
$
|
6.36
|
$
|
6.79
|
$
|
7.14
|
$
|
6.42
|
|||||
Oil,
Condensate and NGL Production and Average Sales
Prices-
|
|||||||||||||
Production
(Mbbls/d) -
|
|||||||||||||
Gulf
of Mexico -
|
|||||||||||||
Deepwater
|
59
|
47
|
53
|
47
|
|||||||||
Shelf
|
9
|
13
|
9
|
14
|
|||||||||
U.S.
Onshore -
|
|||||||||||||
Rocky Mountain
|
21
|
22
|
21
|
22
|
|||||||||
Southern
|
13
|
14
|
13
|
14
|
|||||||||
Total U.S.
|
102
|
96
|
96
|
97
|
|||||||||
China
|
17
|
17
|
17
|
19
|
|||||||||
Total
|
119
|
113
|
113
|
116
|
|||||||||
Average
Wellhead Sales Prices (per bbl) -
|
|||||||||||||
Gulf
of Mexico -
|
|||||||||||||
Deepwater
|
$
|
61.66
|
$
|
47.26
|
$
|
59.29
|
$
|
46.03
|
|||||
Shelf
|
58.39
|
47.25
|
56.69
|
46.46
|
|||||||||
U.S.
Onshore -
|
|||||||||||||
Rocky Mountain
|
57.49
|
43.44
|
54.81
|
41.82
|
|||||||||
Southern
|
57.62
|
45.58
|
52.95
|
44.03
|
|||||||||
Average U.S.
|
59.99
|
46.13
|
57.20
|
44.84
|
|||||||||
China
|
63.58
|
42.85
|
59.08
|
40.46
|
|||||||||
Average
|
$
|
60.52
|
$
|
45.60
|
$
|
57.47
|
$
|
44.09
|
|||||
Energy
Equivalent Production -
|
|||||||||||||
Thousands
of barrels of oil equivalent (Mboe) per day
|
283
|
284
|
272
|
286
|
|||||||||
Millions
of cubic feet of gas equivalent (MMcfe) per day
|
1,699
|
1,702
|
1,634
|
1,715
|
|||||||||
Three
Months Ended
|
Six
Months Ended
|
||||||||||||
June
30,
|
June
30,
|
||||||||||||
(Millions
of dollars)
|
2006
|
2005
|
2006
|
2005
|
|||||||||
Exploration
costs (1)
|
$
|
17
|
$
|
16
|
$
|
31
|
$
|
27
|
|||||
Geological
and geophysical costs
|
20
|
14
|
32
|
29
|
|||||||||
Dry
hole expense
|
58
|
71
|
73
|
86
|
|||||||||
Amortization
of undeveloped leases
|
11
|
15
|
22
|
30
|
|||||||||
Sales
of unproved properties
|
-
|
-
|
-
|
(1
|
)
|
||||||||
Total
exploration expense
|
$
|
106
|
$
|
116
|
$
|
158
|
$
|
171
|
(1) |
Exploration
costs include delay rentals, cost of retaining and carrying unproved
properties and exploration department
overhead.
|
Three
Months Ended
|
Six
Months Ended
|
||||||||||||
June
30,
|
June
30,
|
||||||||||||
(Millions
of dollars)
|
2006
|
2005
|
2006
|
2005
|
|||||||||
Oil
and gas properties
|
$
|
183
|
$
|
209
|
$
|
362
|
$
|
422
|
|||||
Other
property, plant and equipment (1)
|
11
|
11
|
21
|
21
|
|||||||||
Total
|
$
|
194
|
$
|
220
|
$
|
383
|
$
|
443
|
|||||
DD&A
rate per boe - oil and gas properties
|
$
|
7.11
|
$
|
8.05
|
$
|
7.36
|
$
|
8.14
|
(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.
|
Three
Months Ended
|
Six
Months Ended
|
||||||||||||
June
30
|
June
30
|
||||||||||||
(Millions
of dollars)
|
2006
|
2005
|
2006
|
2005
|
|||||||||
Interest
expense reported in:
|
|||||||||||||
Income
from continuing operations
|
$
|
49
|
$
|
58
|
$
|
90
|
$
|
118
|
|||||
Income
from discontinued operations (1)
|
-
|
24
|
-
|
24
|
|||||||||
Total
|
$
|
49
|
$
|
82
|
$
|
90
|
$
|
142
|
June
30,
|
December
31,
|
||||||
(Millions
of dollars)
|
2006
|
2005
|
|||||
Current
ratio (1)
|
0.6
to 1
|
0.8
to 1
|
|||||
Cash
and cash equivalents
|
$
|
156
|
$
|
1,053
|
|||
Debt
repayment obligations due within one year (2)
|
306
|
306
|
|||||
Unused
capacity under revolving lines of credit (3)
|
1,193
|
1,184
|
|||||
Total
debt, including $550 million of Tronox debt at December 31,
2005
|
2,406
|
3,133
|
|||||
Stockholders’
equity and minority interest
(4)
|
$
|
4,616
|
$
|
4,327
|
|||
Debt
to total capitalization (4)
|
34
|
%
|
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 June 30, 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
|
)
|
(265
|
)
|
|||
Repurchases
of common stock (3)
|
-
|
(356
|
)
|
(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 $244 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.
|
December
31, 2005
|
June
30,
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
|
Six
Months
Ended
|
|||||||
June
30,
|
|||||||
(Millions
of
dollars)
|
2006
|
2005
|
|||||
Net
cash
provided by operating activities
|
$
|
710
|
$
|
1,578
|
|||
Net
cash used
in investing activities
|
(939
|
)
|
(841
|
)
|
|||
Net
cash used
in financing activities
|
(665
|
)
|
(488
|
)
|
Six
Months
Ended
June
30,
|
|||||||
(Millions
of
dollars)
|
2006
|
2005
|
|||||
Capital
expenditures -
|
|||||||
Exploration
and development (including dry hole costs) -
|
|||||||
Continuing
operations
|
$
|
(933
|
)
|
$
|
(766
|
)
|
|
Discontinued
operations
|
-
|
(77
|
)
|
||||
Tronox
|
(22
|
)
|
(31
|
)
|
|||
Corporate
and
other
|
(10
|
)
|
(9
|
)
|
|||
Total
capital
expenditures
|
(965
|
)
|
(883
|
)
|
|||
Proceeds
from
sales of assets
|
11
|
63
|
|||||
Other
investing activities
|
15
|
(21
|
)
|
||||
Net
cash used
in investing activities
|
$
|
(939
|
)
|
$
|
(841
|
)
|
(Millions
of dollars)
|
Payments
due by period
|
|||||||||||||||
2007
|
2009
|
After
|
||||||||||||||
Type
of Obligation
|
Total
|
2006
|
-2008
|
-2010
|
2010
|
|||||||||||
Transportation
capacity
|
$
|
360
|
$
|
-
|
$
|
23
|
$
|
47
|
$
|
290
|
||||||
Drilling
rig commitments
|
117
|
6
|
75
|
36
|
-
|
|||||||||||
Employee
retention benefits
|
53
|
17
|
36
|
-
|
-
|
|||||||||||
$
|
530
|
$
|
23
|
$
|
134
|
$
|
83
|
$
|
290
|
Item
3.
|
Quantitative
and Qualitative Disclosures about Market
Risk.
|
July
- 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
- $65.81
|
22,000
|
$
|
45.00
- $61.42
|
18,000
|
||||||||
Three-way
collars
|
$
|
25.00
- $28.65
|
2,000
|
(b) |
-
|
-
|
|||||||
Three-way
average floor
|
$
|
20.88
|
|||||||||||
63,345
|
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)
|
$
|
1.51
|
178,451
|
$
|
1.33
|
67,808
|
|||||||
NWPL
(2)
|
$
|
1.46
|
145,109
|
$
|
1.30
|
53,247
|
|||||||
323,560
|
121,055
|
||||||||||||
(a) |
Placed
by Kerr-McGee in connection with the Westport Resources merger 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. |
Kerr-McGee
Oil and Gas Onshore LP (KM Onshore), 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 Onshore 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 Onshore. The affiliate intends to
vigorously defend against the NOVs. The affiliate and the state and
federal agencies are currently discussing the allegations and possible
resolutions.
|
B. |
On
November 14, 2005, the company received a letter from the United
States
Department of Justice (DOJ) alleging that the company violated certain
air
quality and permitting regulations at the Cottonwood and Ouray compressor
stations in Uintah County, Utah, which were operated by Westport
Oil and
Gas Company, L.P. prior to Westport’s merger with Kerr-McGee. No formal
demand has been made by the DOJ. Later DOJ alleged that certain air
quality regulations were also violated at the Bridge compressor station.
The affiliate and the state and federal agencies currently are discussing
the allegations and possible
resolutions.
|
C. |
On
June 26, 2006, a petition was filed in the District Court of Oklahoma
County, Oklahoma styled John Rinderknecht, On Behalf of Himself and
All
Others Similarly Situated v. Kerr-McGee Corp., Luke R. Corbett, Sylvia
A.
Earle, Martin C. Jischke, Leroy C. Richie, William E. Bradford, David
C.
Genever-Watling, Farah M. Walters, Robert O. Lorenz, Michael Portillo,
William F. Wallace and Ian L. White-Thomson. On July 25, 2006, another
petition was filed in the District Court of Oklahoma County, Oklahoma
styled Marilyn Clark, On Behalf of Herself and All Others Similarly
Situated v. Kerr-McGee Corp., Luke R. Corbett, Sylvia A. Earle, Martin
C.
Jischke, Leroy C. Richie, William E. Bradford, David C. Genever-Watling,
Farah M. Walters, Robert O. Lorenz, Michael Portillo, William F.
Wallace
and Ian L. White-Thomson. The plaintiffs in both actions allege that
they
are shareholders of the company, and they each purport to sue on
behalf of
a class of other company shareholders. Both petitions allege that
the
company and its directors engaged in self-dealing and breached fiduciary
duties owed to the company’s shareholders in connection with the merger
agreement with Anadarko Petroleum Corporation. Among other things,
the
petitions seek to enjoin and prevent the parties from completing
the
merger until the company adopts and implements a procedure to obtain
the
highest possible price for the company shareholders. On July 28,
2006, the
company entered into an agreement in principle to settle the lawsuits
by
agreeing to make certain additional disclosures in a Form 8-K filing,
to
seek the certification of a class, and, subject to court approval,
to
paying class counsel fees and expenses of
$825,000.
|
D. |
For
a discussion of other legal proceedings and contingencies, reference
is
made to Note 13 to the Condensed Consolidated Financial Statements
included in Part 1, Item 1 of this Quarterly Report on Form 10-Q,
which is
incorporated herein by reference.
|
· |
The
company may be required to pay a termination fee of $493 million
if the
merger agreement is terminated under certain circumstances and the
company
enters into an alternative
transaction;
|
· |
The
current market price of the company’s common stock may reflect a market
assumption that the merger will occur, and a failure to complete
the
merger could result in a decline in the market price of the company’s
common stock;
|
· |
Certain
costs relating to the merger (such as legal and financial advisory
fees)
are payable by the company whether or not the merger is
completed;
|
· |
There
may be substantial disruption to the business of the company and
a
distraction of its management and employees from day-to-day operations,
because matters related to the merger (including integration planning)
may
require substantial commitments of time and resources, which could
otherwise have been devoted to other opportunities that could have
been
beneficial to the company;
|
· |
The
company’s business could be adversely affected if it is unable to retain
key employees or attract qualified
replacements; and
|
· |
The
company would continue to face the risks that it currently faces
as an
independent company.
|
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)
|
|||||||||
April
1-30, 2006
|
5,000
|
$
|
74.09
|
-
|
|||||||||
May
1-31, 2006
|
66,780
|
99.64
|
54,000
|
$
|
644,000,000
|
||||||||
June
1-30, 2006
|
4,075
|
64.57
|
-
|
||||||||||
Total
|
75,855
|
$
|
96.07
|
54,000
|
(1) |
Stockholders
ratified the appointment of Ernst & Young LLP as the company’s
independent auditors for 2006. There were 99,578,208 votes for the
proposal; 333,909 votes against the proposal; and 1,090,324
abstentions.
|
(2) |
Stockholders
did not approve a stockholder proposal to establish an Office of
the Board
of Directors. There were 4,916,212 votes for the proposal; 73,574,075
votes against the proposal; and 6,025,995
abstentions.
|
(3) |
The
following directors were elected with the following vote
totals.
|
Votes
|
Votes
|
|||
In
Favor
|
Withheld
|
|||
Silvia
A. Earle
|
99,080,208
|
1,922,233
|
||
Martin
C. Jischke
|
97,729,280
|
3,273,161
|
||
Leroy
C. Richie
|
99,083,955
|
1,918,486
|
Exhibit
No.
|
||
2.1
|
Agreement
and Plan of Merger among the company, Anadarko Petroleum Corporation
and
APC Acquisition Sub, Inc., filed as Exhibit 2.1 to Current Report on
Form 8-K dated June 26, 2006, and incorporated herein by
reference.
|
|
4.1
|
Second
Amendment to Rights Agreement, dated as of June 23, 2006, by and
between the company and UMB Bank, N.A., filed as Exhibit 4.3 to Amendment
No. 2 to Form 8-A dated June 26, 2006, and incorporated herein by
reference.
|
|
10.1
|
Amended
Continuity Agreement, dated May 22, 2006, between the company and
Luke R.
Corbett, filed as Exhibit 10.1 to Current Report on Form 8-K dated
May 22,
2006, and incorporated herein by reference.
|
|
10.2
|
Amended
Continuity Agreement, dated May 22, 2006, between the company and
Kenneth
W. Crouch, filed as Exhibit 10.2 to Current Report on Form 8-K dated
May
22, 2006, and incorporated herein by reference.
|
|
10.3
|
Amended
Continuity Agreement, dated May 22, 2006, between the company and
David A.
Hager, filed as Exhibit 10.3 to Current Report on Form 8-K dated
May 22,
2006, and incorporated herein by reference.
|
|
10.4
|
Amended
Continuity Agreement, dated May 22, 2006, between the company and
Gregory
F. Pilcher, filed as Exhibit 10.4 to Current Report on Form 8-K dated
May
22, 2006, and incorporated herein by reference.
|
|
10.5
|
Amended
Continuity Agreement, dated May 22, 2006, between the company and
Robert
M. Wohleber, filed as Exhibit 10.5 to Current Report on Form 8-K
dated May
22, 2006, and incorporated herein by reference.
|
|
10.6
|
Amended
and Restated Continuity Agreement, dated as of June 22, 2006, between
the company and Luke R. Corbett, filed as Exhibit 10.1 to Current
Report
on Form 8-K dated June 26, 2006, and incorporated herein by
reference.
|
|
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: August
4, 2006
|
By:
|
/s/
John M. Rauh
|
John
M. Rauh
|
||
Vice
President and Controller
|
||
and
Chief Accounting Officer
|