Kerr-McGee Reports Record 2005 Fourth Quarter Results

Kerr-McGee Corp. (NYSE: KMG) reports net income for the 2005 fourth quarter of $2.2 billion ($18.46 per diluted common share), compared with $133.8 million ($.86 per share) for the 2004 fourth quarter. Fourth-quarter 2005 operating profit from continuing operations was $653.9 million, compared with $276.1 million for the 2004 period.

"In 2005, Kerr-McGee redefined itself as a pure-play oil and natural gas exploration and production company focused on per-share growth," said Luke R. Corbett, Kerr-McGee chairman and chief executive officer. "We capitalized on strong commodity prices by divesting of lower-growth properties and redeploying funds to our vast inventory of higher-return, less capital- intensive properties.

"Through our activities in 2005, we identified significant potential resources in the Rocky Mountain region and confirmed meaningful discoveries at the Chinook field offshore Brazil and on the North Slope of Alaska," said Corbett. "We also maintained production guidance and installed our sixth deepwater production platform in the Gulf of Mexico faster than anticipated despite several major hurricanes. All of this was accomplished while executing $4.25 billion of share repurchases, divesting $4 billion of low- growth, capital-intensive properties, separating the chemical business and repaying $4.75 billion of debt. These actions have strengthened our company, which I believe has the right assets, people, opportunities and strategy to continue creating per-share growth."

Exploration and Production and Chemical Operating Profit

Exploration and production operating profit was $633.8 million, compared with $266.5 million in the 2004 fourth quarter. Higher operating profit in 2005 reflects net pretax gains on property sales of $169.1 million compared with a net loss of $21.8 million in the prior-year quarter. Additionally, higher oil and gas sales prices contributed to the increase but were partially offset by lower sales volumes primarily due to the continuing effects of the 2005 hurricanes on third-party-operated infrastructure in the Gulf of Mexico and divestment of noncore U.S. onshore properties.

Chemical operating profit in the fourth quarter of 2005 was $20.1 million, compared with $9.6 million for the same prior-year period. The increase primarily is due to higher pigment sales prices.

Debt and Cash Balances

At Dec. 31, 2005, debt outstanding totaled $3.1 billion, which includes $550 million of Tronox debt, compared with $6.3 billion at Sept. 30, 2005. During the fourth-quarter 2005, Kerr-McGee paid down debt by approximately $3.8 billion with funds sourced primarily from the sale of our North Sea oil and gas business and U.S. onshore property divestitures. Cash balances at Dec. 31 and Sept. 30, 2005, were $1.1 billion and $662 million, respectively.

Oil and Gas Volumes and Prices

Kerr-McGee's daily oil production from continuing operations averaged 99,400 barrels in the 2005 fourth quarter, compared with 121,900 barrels in the 2004 period. The average realized oil price for the 2005 fourth quarter, including the effect of the company's hedging program, was $44.57 per barrel, which was a 46% increase from the prior-year quarter.

Natural gas sales from continuing operations averaged 883 million cubic feet per day for the 2005 fourth quarter, compared with 1,041 million cubic feet in the 2004 fourth quarter. The average realized natural gas price, including the effects of the company's hedging program, was $7.28 per thousand cubic feet, compared with $5.29 per thousand cubic feet in the 2004 fourth quarter.

Kerr-McGee's production in the Gulf of Mexico has recovered to 85% of pre- hurricane levels for the fourth-quarter 2005. Although Kerr-McGee experienced no significant damage to its equipment, production remained curtailed due to damage to third-party-operated pipelines and infrastructure.

Revenues and Capital Expenditures

Fourth-quarter 2005 revenues from continuing operations were $1.8 billion, compared with $1.4 billion for the prior-year period. Capital expenditures (including discontinued operations) were $514.7 million in the 2005 fourth quarter, compared with $462.3 million for the 2004 fourth quarter.

Adjusted After-tax Income

The company's 2005 fourth-quarter adjusted after-tax income was $125.7 million ($1.07 per share), compared with $129.7 million ($.84 per share) for the fourth quarter of 2004. Adjusted after-tax income is determined by excluding from net income results from discontinued operations (primarily North Sea operations) and other items.(1) Results of the company's North Sea oil and gas business, including the gain on sale, are reported as income from discontinued operations for all periods presented.

                               Fourth Quarter      Year Ended December 31,
    (Millions of dollars,
    except per-share amounts)
                             2005         2004        2005          2004

    Net Income           $ 2,155.6       $133.8    $ 3,240.2      $ 404.0
    Income from
     Operations           (1,750.1)       (27.5)    (2,264.7)      (139.6)
    Other Items (1)         (279.8)        23.4         24.3        198.9
    Adjusted After-Tax
     Income                 $125.7       $129.7       $999.8      $ 463.3

    Diluted Earnings Per Share
     Net Income             $18.46         $.86       $24.12        $3.18
     Income from
      Operations            (14.99)        (.17)      (16.84)       (1.10)
     Income from
      Operations             $3.47         $.69        $7.28        $2.08
    Adjusted After-Tax
     Income                  $1.07         $.84        $7.46        $3.65

    (1) Items included in "Other Items" are listed in the tables as "Other
        Information, Net of Income Taxes."

Adjusted after-tax income and the related measure per diluted share exclude items that management deems to not be reflective of the company's core operations or represent timing differences between periods. These measures are non-GAAP financial measures. Management believes that these measures provide valuable insight into the company's core earnings from operations and enable 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 these items differently, and the company cannot assure that adjusted after-tax income and the related measure per diluted share are comparable with similarly titled amounts for other companies.

Subsequent Events

On Jan. 23, 2006, the company announced it has signed an agreement with W&T Offshore, Inc. for all of Kerr-McGee's interest in oil and natural gas properties on the Gulf of Mexico shelf for gross proceeds of approximately $1.34 billion in cash, subject to certain adjustments. W&T Offshore, Inc. also will assume responsibility for abandonment liabilities, which had a carrying value of approximately $135 million at Dec. 31, 2005. The transaction will be effective Oct. 1, 2005, and is expected to close in the first half of 2006.

On Jan. 10, 2006, the company announced a $1 billion stock repurchase program. Under the program, approximately 10 million shares are expected to be purchased in the open market, which would reduce the total number of common shares outstanding approximately 9% to 106 million. In addition, the board authorized the redemption of the company's 7% debentures due 2011 at face value of $250 million, which is expected to be completed in February 2006.


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