"The 2006 budget will allow us to capitalize on our true potential through our strategic plan and is a reflection of our efforts to high grade our oil and natural gas portfolio towards longer-life, less capital-intensive properties," said Luke Corbett, Kerr-McGee chairman and chief executive officer. "In the coming year, we plan to concentrate our development program in two large resource plays in the Rockies, Wattenberg and Greater Natural Buttes, while continuing our high-impact exploration program, which is focused in our deepwater Gulf of Mexico core areas and selected world-class, proven hydrocarbon basins worldwide."
Oil and Gas Development Activities
The capital budget for 2006 oil and natural gas development activities is approximately $1.3 billion, which includes drilling approximately 680 development wells and the ongoing development of three major facilities in the deepwater Gulf of Mexico. The regional breakout of capital includes:
* $580 million - Rocky Mountain division * $170 million - Southern division * $400 million - Deepwater Gulf of Mexico * $150 million - International/New Ventures
"As we move forward as a pure-play exploration and production company, we have reduced our budgeted oil and gas expenditures by approximately $600 million versus the 2005 level," said Dave Hager, Kerr-McGee chief operating officer. "Consistent with our strategy, our 2006 capital program focuses on the acceleration of our rich inventory of low-risk development projects primarily in our Rocky Mountain division. We have the projects identified, the services and rigs contracted and a record of consistent, predictable returns from these projects that is sustainable for several years. We are confident that new resource bookings from just this development program will be able to replace our expected 2006 production."
Approximately 680 development wells are planned in 2006, including approximately 560 in the Greater Natural Buttes, Wattenberg and northern Rockies areas. The company expects to expand activity in the Greater Natural Buttes area, in the Uinta Basin of eastern Utah, by drilling approximately 220 wells. In the Wattenberg field of northeastern Colorado, approximately 230 development wells are expected to be drilled. The company expects to drill approximately 110 wells in the northern Rockies. In the Southern division, Kerr-McGee expects to drill approximately 110 development wells with the majority of the activity occurring in the South Texas, Mid-Continent and Gulf Coast areas.
In the Gulf of Mexico, capital expenditures will fund the development of three major deepwater projects that will fuel identified production growth in 2006 through 2008. At the deepwater Constitution (Kerr-McGee 100% working interest) and Ticonderoga (Kerr-McGee 50% working interest) fields, the development remains on schedule to achieve first production in second-quarter 2006. The program also will fund continued development of the 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 is an anchor field for the Independence Hub development in the deep waters of the eastern gulf. First production is expected in mid-2007. Another deepwater Gulf of Mexico project included in Kerr-McGee's 2006 capital program is the Blind Faith development (Kerr-McGee 37.5% working interest) scheduled for first production in mid-2008.
In China's Bohai Bay, Kerr-McGee's capital program includes the development of three satellite fields, CFD 11-6, CFD 12-1 and CFD 12-1S, which are expected to achieve first production in 2006. The fields are being developed as a unitized field tied back to the Hai Yang Shi You 112 -- Kerr- McGee Global Producer VIII floating production, storage and offloading (FPSO) vessel.
Kerr-McGee, which uses successful-efforts accounting, also is budgeting approximately $300 million for worldwide exploration expense. The company expects to drill approximately 60 exploratory and appraisal wells in 2006, including five to seven high-impact exploratory wells in the deepwater Gulf of Mexico and six to eight wells in international locations.
"While we have the capacity to replace our reserves through our development program alone, we also expect to add incremental reserves through our exploration program," said Hager. "Our exploration program is focused on high-impact sub salt non amplitude plays in the deepwater Gulf of Mexico and other proven hydrocarbon basins offshore Brazil, Angola and Trinidad and Tobago. This program exposes the company to more than 1.8 billion gross unrisked barrels of equivalent resources. We expect to maintain working interests in the range of 20% to 50% to expand our success possibilities and ultimately provide meaningful growth impact for our stockholders."
Kerr-McGee's average daily production volumes for 2006 are projected to be in the range of 95,500 to 103,100 barrels of liquids and approximately 830 million to 880 million cubic feet of gas. Approximately 84% of liquid volumes and all of the gas volumes will come from the United States. Remaining liquid volumes will be derived from China's Bohai Bay. Details of the company's 2006 production expectations are available on Kerr-McGee's website.
Kerr-McGee has stated its intent to divest of the company's Gulf of Mexico shelf operations. The 2006 capital, exploration and production budgets exclude any capital or exploration expenditures for, or production from, these operations in 2006.
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