Three Months Ended March 31 (Millions of dollars, except per-share amounts) 2004 2003 Net Income $152.2 $69.9 Less Income from Discontinued Operations --- (.4) Add Change in Accounting Principle --- 34.7 Income from Continuing Operations $152.2 $104.2 Add Special Items (A) 7.2 23.1 Adjusted After-Tax Income $159.4 $127.3 Diluted Earnings Per Share Net Income $1.41 $.68 Change in Accounting Principle --- 31 Continuing Operations $1.41 $.99 Adjusted After-Tax Income $1.48 $1.20 (A) Items included in "Special Items" are listed in the following tables as "Other Information, Net of Income Taxes."
Adjusted after-tax income excludes items that management deems to not be reflective of the company's core operations. This measure is a non-GAAP financial measure. Management believes that this measure provides valuable insight into the company's core earnings from operations and enables investors and analysts to better compare core operating results with those of other companies by eliminating items that may be unique to the company. Other companies may define special items differently, and the company cannot assure that adjusted after-tax income is comparable with similarly titled amounts for other companies.
"We continue to consistently meet or exceed our guidance in all aspects of our operations," said Luke R. Corbett, Kerr-McGee chairman and chief executive officer. "The ongoing efficient execution of our development and exploitation program, including the early start-up of Gunnison, enabled us to achieve total volumes near the upper end of our guidance. Our other major development projects also are progressing well. In addition, our exploration success, highlighted by discoveries at the Ticonderoga prospect in the deepwater Gulf of Mexico and at NW Milne Point in Alaska, resulted in lower exploration costs for the quarter.
"Earlier this month, we announced a strategic merger with Westport Resources Corp., which will add depth, breadth and balance to our oil and gas operations," said Corbett. "We've already begun planning for the transition, so we can immediately and effectively merge our businesses upon completion of the transaction, which we expect to take place in the third quarter."
First-quarter 2004 operating profit was $330.3 million, compared with $269.6 million in the 2003 first quarter. Exploration and production operating income for the 2004 period was $329.9 million, compared with $272.2 million for the prior-year quarter. The increase is due to higher oil and gas sales prices, slightly higher natural gas sales volumes and lower exploration costs, partially offset by lower crude oil sales volumes and higher other operating costs.
Operating profit for the chemical operations improved by $3 million in the 2004 first quarter, compared with the 2003 period, primarily due to a decrease in the loss from the non-pigment chemical operations in the 2004 first quarter.
During the first quarter of 2004, the company reduced debt by $174 million, resulting in total debt at March 31, 2004 of approximately $3.5 billion. This compares with total debt of approximately $3.7 billion at Dec. 31, 2003, and approximately $3.8 billion at March 31, 2003.
Oil and Gas Volumes and Prices
Kerr-McGee's daily oil production from continuing operations averaged 143,200 barrels in the 2004 first quarter, down 13% from 165,400 barrels per day in the 2003 period. The decrease was primarily due to the 2003 divestiture of noncore, high-cost properties, combined with lower production generated in the North Sea area.
Including the effect of the company's hedging program, the per-barrel sales price for oil from continuing operations averaged $27.30 in the 2004 first quarter, which was 33 cents higher than in the 2003 first quarter. Natural gas sales averaged 763 million cubic feet per day for the 2004 first quarter, up slightly from the prior-year period. The average natural gas sales price, including the effects of the company's hedging program, was $5.35 per thousand cubic feet, a 14% increase from the 2003 first quarter.
Revenues and Capital Expenditures
First-quarter 2004 revenues of $1.1 billion remained essentially flat compared with the prior year period.
Capital expenditures were $169.8 million, compared with $306 million for the 2003 first quarter.
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