Gunnison To Become Newest Deepwater Hub in GOM

Kerr-McGee Corp. announced that its Board of Directors has approved the development of the Gunnison field area in the deepwater Gulf of Mexico. Located in water depths greater than 3,100 feet, Gunnison includes Garden Banks blocks 667, 668 and 669. The Gunnison area will be developed using a truss spar similar to the spars used in development of the Nansen and Boomvang fields in the deepwater gulf.

"The Gunnison development will provide Kerr-McGee with its third deepwater hub in the gulf," said Luke R. Corbett, Kerr-McGee chairman and chief executive officer. "Similar to our new Nansen and Boomvang developments, the Gunnison hub will allow us to maximize the value of the developments and surrounding assets. Following our strategy of focusing on core areas in high-potential trends, Kerr-McGee has accumulated an inventory of 12 blocks in the immediate Gunnison area, and holds interests in more than 300,000 acres in the western and southwestern Garden Banks area."

The Gunnison field was discovered in May 2000 on Garden Banks block 668. The adjacent Durango gas field was discovered in June 2001 on Garden Banks block 667. The company is currently drilling the satellite Dawson prospect on Garden Banks block 669. The three blocks make up the Gunnison area. Estimated reserves from the Gunnison and Durango fields are more than 120 million barrels of oil equivalent. If successful, Dawson will further enhance the development of the Gunnison area. Kerr-McGee Oil & Gas Corp., a wholly owned subsidiary of Kerr-McGee Corp., operates the Gunnison area with 50% interest. Partners are Nexen Petroleum USA Inc., a wholly owned subsidiary of Nexen Inc., 30% interest, and Cal Dive International, Inc., 20% interest.

The Gunnison truss spar, to be called the Kerr-McGee Global Producer VII, will be located on block 668 in a prime position to provide a strategic hub for third-party business in the western Garden Banks and western Keathley Canyon areas. The world's first truss spar was installed at Kerr-McGee's Nansen field earlier this month. This new technology is a more cost-effective version of the innovative spar production system first used in 1997 at Kerr-McGee's Neptune field in the gulf. The truss spar design replaces the lower cylindrical hull of the original spar with an open structure to improve stability and reduce size and cost.

The Gunnison spar will be designed for daily production of 40,000 barrels of oil and 200 million cubic feet of gas. Initial production from the development is expected in early 2004. The new spar will be slightly larger than the Nansen and Boomvang spars, with a length of 549 feet and a 98-foot diameter. The initial development will include nine wells connected to the spar -- six dry tree and three subsea wells for Gunnison and Durango. If successful, Dawson will also be produced as a subsea tieback to the Gunnison spar.

"The Gunnison development is a continuation of our spectacular growth in the deepwater Gulf," said Corbett. "During the past 8 years, our net production volumes in the deep water have increased at a compound annual growth rate of more than 50% and, in 2002, we expect net daily production from our deepwater gulf facilities to reach more than 70,000 barrels of oil equivalent. The Gunnison development will continue our growth in the deep waters."

Kerr-McGee's share of the total cost of this development will be approximately $300 million to $350 million. Finding and development costs are expected to be less than $5 per barrel of oil equivalent, with operating costs of about $1.10 per barrel of oil equivalent.


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