"Our 2004 capital program has been developed with a continued emphasis on strict financial discipline," said Luke R. Corbett, Kerr-McGee chairman and chief executive officer. "This reduced program still provides sufficient funds to profitably grow our two core businesses through truly value-adding projects, while we continue to focus on debt reduction. Our enhanced oil and gas hedging program and ongoing cost-control efforts will allow us to operate within our projected cash flow in 2004, while reducing debt by more than $500 million. This plan still offers us the ability to return approximately $180 million in dividends to our shareholders."
Oil & Gas Activities
The capital budget for 2004 oil and gas operations is approximately $800 million. Of this, approximately $330 million is allocated to the Gulf of Mexico, $180 million to the North Sea, $155 million to U.S. onshore, $125 million to other international projects, and $10 million to technology enhancements.
The company, which uses successful-efforts accounting, also is budgeting $300 million for worldwide exploration expense. This is expected to fund the drilling of approximately 50 exploratory wells, including 10 to 15 in the deepwater Gulf of Mexico, five to seven on the Gulf of Mexico shelf, four to six in the North Sea, 15 to 20 onshore United States and seven to 11 in other international areas, including three to four in deep water. Approximately 20% of the budgeted $300 million expense is a noncash charge for the amortization of nonproducing leasehold costs.
Kerr-McGee's daily production volumes for 2004 are projected to average approximately 130,000 barrels of oil and 785 million cubic feet of gas.
Approximately 50% of oil volumes and approximately 90% of gas volumes will come from the United States. Remaining volumes will primarily be derived from the U.K. sector of the North Sea.
"Our primary focus is to maximize the value created through our capital expenditures, not merely provide production volumes," said Dave Hager, Kerr- McGee senior vice president responsible for oil and gas exploration and production. "Our capital projects for 2004 will include the initial planning for our 100%-owned Constitution field in the deepwater gulf. We also expect to complete our two ongoing developments in the deepwater gulf at Gunnison and Red Hawk, and achieve initial production in Bohai Bay, China. All of these projects are on schedule and within budget."
First production at Gunnison is expected in early 2004. Initial production at the truss spar facility, located in 3,100 feet of water, will be from three subsea wells. Development work in 2004 will include completion of seven dry-tree wells. Gunnison is expected to reach peak daily gross production of about 30,000 barrels of oil and 180 million cubic feet of gas by year-end 2004. Kerr-McGee operates Gunnison with 50% interest.
First production from the Kerr-McGee-operated Red Hawk development is expected mid-year 2004. Red Hawk is being developed with the world's first cell spar, to be installed in 5,300 feet of water. Peak gross production of 120 million cubic feet of gas per day is expected during the third quarter of 2004. Kerr-McGee holds 50% interest in Red Hawk.
Kerr-McGee expects initial production at its Bohai Bay development by the end of 2004. Two discoveries in block 04/36 are being developed with a centrally located floating production, storage and offloading facility, along with fixed platforms for dry wellheads. Kerr-McGee operates this development with 41% interest.
Chemical and Corporate Capital Expenditures
Capital expenditures for chemical operations are budgeted at approximately $95 million in 2004.
"Process and technology improvements that increase productivity and enhance product quality will account for approximately 30% of our 2004 capital budget," said W. Pete Woodward, Kerr-McGee senior vice president responsible for chemical operations. "The remaining capital will be spent on routine maintenance activities."
Corporate capital expenditures are budgeted at approximately $20 million.
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