Kerr-McGee's net income for the 2004 third quarter was $7.4 million ($.05 per diluted common share), compared with the 2003 third-quarter net income of $28.8 million ($.29 per share). The company's third-quarter adjusted after-tax net income from continuing operations was $177.4 million ($1.17 per share), compared with $76.7 million ($.76 per share) for the 2003 third quarter. Adjusted after-tax net income from continuing operations is determined by excluding from net income results from discontinued operations and the effect of special items. Special items after taxes were higher in the 2004 third quarter, primarily due to a $79.6 million write-down related to the Savannah titanium dioxide pigment plant, higher environmental charges of $19.7 million, and higher nonhedge commodity and other derivative losses of $24.1 million.
(Millions of dollars, except per share amounts) Nine Months Ended Third Quarter September 30 2004 2003 2004 2003 Net Income $7.4 $28.8 $270.2 $168.3 Loss from Discontinued Operations --- .3 --- .1 Change in Accounting Principle (FAS 143) --- --- --- 34.7 Income from Continuing Operations $7.4 $29.1 $270.2 $203.1 Add Special Items (A) 170.0 47.6 186.4 113.9 Adjusted After-Tax Income $177.4 $76.7 $456.6 $317.0 Diluted Earnings Per Share Net Income $.05 $.29 $2.21 $1.67 Change in Accounting Principle --- --- --- .31 Continuing Operations $.05 $.29 $2.21 $1.98 Adjusted After-Tax Income $1.17 $.76 $3.65 $3.01 (A) Items included in "Special Items" are listed in the table 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.
"The early start of production at Bohai Bay and production coming on line at Red Hawk further enhanced the Westport transaction, resulting in an all- time record daily production in the third quarter, despite the impact of storms in the gulf," said Luke R. Corbett, Kerr-McGee chairman and chief executive officer. "We expect to achieve additional production increases in the fourth quarter, and estimate growth of approximately 15% in average daily production in 2005 versus 2004. With additional cash from increased volumes, we are continuing to reduce debt, while maintaining active exploratory drilling and capital programs."
Operating profit for the third quarter of 2004 was $214.2 million, compared with $225.9 million in the third quarter of 2003.
Exploration and production operating income for the 2004 period was $326 million compared with $222 million for the prior-year quarter. Higher oil and gas volumes and higher average realized sales prices partially affected by higher operating costs and higher exploration expenses resulted in the 47% increase in operating profit. The higher volume and higher operating expense primarily are due to the additional operations resulting from the June 25, 2004, Westport acquisition and the startup of production in China and the Red Hawk field in the Gulf of Mexico in the third quarter.
Operating loss for the chemical operations was $111.8 million in the 2004 third quarter, compared with a profit of $3.9 million for the 2003 quarter. The 2004 third-quarter chemical loss was due primarily to the $122.5 million pretax write-down related to the Savannah plant.
Debt to Total Capitalization
Debt was reduced by approximately $440 million during the third quarter, and debt to total capitalization was 44% at Sept. 30, 2004, compared with 58% at Dec. 31, 2003.
Oil and Gas Prices
Including the effect of the company's hedging program, the per-barrel sales price for oil from continuing operations averaged $29.24 for the 2004 third quarter, compared with $25.76 for the 2003 period.
The average natural gas sales price, including the effects of the company's hedging program, was $5.14 per thousand cubic feet, a 22% increase over the 2003 third quarter.
Revenues and Capital Expenditures
Revenues of $1.4 billion in the 2004 third quarter were up 36% from the 2003 period.
Capital expenditures were $453.1 million, compared with $266 million for the 2003 third quarter.
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