"The 2005 budget will allow us to capitalize on the potential from our strategic acquisition of Westport Resources, which was completed in June and added depth, breadth and balance to our oil and gas operations, including thousands of identified exploitation opportunities," said Luke R. Corbett, Kerr-McGee chairman and chief executive officer. "In 2005, we plan to continue to ramp up exploitation drilling on these properties, while continuing our successful development and exploration programs."
Oil and Gas Activities
The capital budget for 2005 oil and gas operations is approximately $1.7 billion. Of this, approximately $660 million is allocated to U.S. onshore, $645 million to the Gulf of Mexico, $270 million to the North Sea and $160 million to new ventures and other international projects.
"After adjusting for a full-year impact of the Westport properties and announced increases in oilfield drilling and services costs, the 2005 capital program will increase approximately 20% versus 2004," said Dave Hager, Kerr- McGee's senior vice president responsible for oil and gas exploration and production. "From our large inventory of quality projects, we expect to drill approximately 800 exploitation and development wells next year, achieving very attractive returns. The program will hasten the movement of identified probable and possible resources into the proved category and accelerate the development of proved but currently undeveloped reserves. Additionally, the program is designed to ensure we realize our organic production growth targets of 3% to 6% during our five-year plan period."
More than half of the exploitation wells are planned in the company's Rocky Mountain Division of its U.S. Onshore Region. The company expects to expand activity by more than 40% in the Greater Natural Buttes area, in the Uinta basin of Utah, by drilling in excess of 200 wells. This activity, coupled with infrastructure improvements and optimization of both gas processing and pipelines, is expected to increase daily average natural gas production in the area by nearly 50% versus 2004 levels. At the Wattenberg field, in the Denver-Julesburg basin of Colorado, the total number of projects, including the drilling of approximately 220 exploitation wells, is expected to increase about 15% from the 2004 level of approximately 300 projects. In the Southern Division, approximately 240 development wells concentrated within the core operating areas of the Permian basin, South Texas and the Upper Gulf Coast are planned.
In the Gulf of Mexico, capital expenditures will fund the continued development of the deepwater Constitution (Kerr-McGee 100% working interest) and Ticonderoga (Kerr-McGee 50% working interest) fields, which remain on schedule to achieve first production in mid-2006. The program also will fund development drilling and subsea work for the recently sanctioned Kerr-McGee- operated Merganser field (Kerr-McGee 50% working interest), the Vortex field (Kerr-McGee 50% working interest) and the San Jacinto field (Kerr-McGee 20% working interest) each located in the eastern gulf, with first production expected in mid-2007.
Remaining capital expenditures will be concentrated on infill and satellite drilling opportunities in the gulf and North Sea, as well as engineering and subsea work related to recent discoveries in the U.K. sector of the North Sea and Bohai Bay, China.
Additionally, the company, which uses successful-efforts accounting, also is budgeting $380 million for worldwide exploration expense. This is expected to fund the drilling of approximately 100 exploratory and appraisal wells, including 50 to 55 onshore United States, 30 to 35 in the Gulf of Mexico, 5 to 10 in the North Sea, and 10 to 15 in other international and new venture areas. Approximately 20% of the budgeted $380 million expense is a noncash charge for the amortization of nonproducing leasehold costs.
"Budgeted exploration expense for 2005 is comparable in size to our projected 2004 expense and will include the appraisal of three potentially significant discoveries made earlier this year offshore Alaska, Brazil and China," added Hager. "The 2005 exploration program provides a balance of low and moderate risk opportunities complemented by approximately 15 high- potential, new-field wildcats in the deepwater Gulf of Mexico and proven hydrocarbon basins internationally."
Kerr-McGee's average daily production volumes for 2005 are projected in the range of 155,500 to 165,500 barrels of liquids and 1,167 million to 1,257 million cubic feet of gas. Approximately 48% of liquid volumes and approximately 95% of gas volumes will come from the United States. Remaining volumes will be derived from the U.K. sector of the North Sea and Bohai Bay, China.
Chemical and Corporate Activities
The capital budget for chemical operations is approximately $100 million for 2005. More than 90% of the expenditures will be associated with the company's titanium dioxide operations and will include process and technology improvements to enhance quality and productivity, along with routine maintenance projects.
Corporate capital expenditures are budgeted at approximately $25 million.
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