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Kerr-McGee Reports 2006 Second-Quarter Earnings

Oklahoma City, Aug. 3, 2006 - Kerr-McGee Corp. (NYSE: KMG) reports income from continuing operations for the 2006 second quarter of $306 million ($1.33 per diluted common share) compared with $256 million ($.90 per share) for the 2005 second quarter.
The company’s 2006 second-quarter adjusted after-tax income was $299 million ($1.30 per diluted share), compared with $247 million ($.87 per share) for the second quarter of 2005. Adjusted after-tax income is determined by excluding asset impairments and gains/losses on property sales from income from continuing operations, and adjusting results of commodity derivative activities to reflect only actual net realized gains/losses associated with the current period. The increase in adjusted after-tax income for the 2006 second quarter is primarily due to higher oil and gas sales revenues partially offset by higher commodity derivative losses. Lifting costs increased in the second quarter of 2006 as compared to last year, but that increase was more than offset by lower depreciation, depletion and amortization, exploration expense and interest. 
  
   
 Three Months Ended
  
Six Months Ended
  
   
 June 30,
  
June 30, 
  
 Millions of dollars, except per-share amounts  
2006 
  
 2005
  
 2006 
  
 2005
  
Income from Continuing Operations
  
$
306
  
$
256
  
$
582
  
$
499
  
Adjustments (net of tax): (1)
                          
  Exclude: Loss on commodity derivatives
    
85
    
53
    
159
    
109
  
                Asset impairments and property sales
    
(1
)
  
(16
)
  
(3
)
  
(28
)
  Include: Realized commodity derivative loss
    
(91
)
  
(46
)
  
(231
)
  
(63
)
Adjusted After-Tax Income
  
$
299
  
$
247
  
$
507
  
$
517
  
                           
Diluted Earnings Per Share (2) 
                          
  Continuing Operations
  
$
1.33
  
$
.90
  
$
2.53
  
$
1.65
  
Adjusted After-Tax Income
  
$
1.30
  
$
.87
  
$
2.20
  
$
1.71
  

(1) Pre-tax adjustments are shown separately in the Adjusted After-Tax Income Analysis on page 5 of this release.
(2) Earnings per share for all periods presented have been retroactively adjusted to reflect the two-for-one stock split executed on June 14, 2006.
 
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. Management believes that these non-GAAP financial measures provide valuable insight into the company’s core earnings from continuing 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.

Revenues and Capital Expenditures
Second-quarter 2006 revenues from continuing operations were $1.3 billion, compared with $1.2 billion for the 2005 period. Cash capital expenditures from continuing operations, including dry-hole costs, totaled $489 million for the 2006 second quarter, compared with $414 million for the 2005 period.

Kerr-McGee is an Oklahoma City-based oil and natural gas exploration and production company focused in the U.S. onshore, deepwater Gulf of Mexico and select proven world-class hydrocarbon basins. For more information on Kerr-McGee, visit www.kerr-mcgee.com.

###

Second-quarter financial information presented in this news release is preliminary. Second-quarter results will not become final until the company files its Quarterly Report on Form 10-Q with the U.S. Securities and Exchange Commission (SEC).

Statements in this news release regarding the company’s or management’s intentions, beliefs or expectations, or that otherwise speak to future events, are “forward-looking statements” within the meaning of the U.S. Private Securities Litigation Reform Act of 1995. These forward-looking statements include those statements preceded by, followed by or that otherwise include the words “believes,” “expects,” “anticipates,” “intends,” “estimates,” “projects,” “target,” “budget,” “goal,” “plans,” “objective,” “outlook,” “should,” or similar words. In addition, any statements regarding possible commerciality, development plans, capacity expansions, drilling of new wells, ultimate recoverability of reserves, future production rates and changes in any of the foregoing are forward-looking statements. Future results and developments discussed in these statements may be affected by numerous factors and risks, such as the accuracy of the assumptions that underlie the statements, the success of the oil and gas exploration and production program, drilling risks, uncertainties in interpreting engineering data, changes in laws and regulations, the ability to respond to challenges in international markets (including changes in currency exchange rates), political or economic conditions in areas where Kerr-McGee operates, trade and regulatory matters, general economic conditions, progress made with respect to and developments related to the company’s proposed merger with Anadarko Petroleum Corporation, and other factors and risks identified in the Risk Factors section of the company’s Annual Report on Form 10-K and other SEC filings. Actual results and developments may differ materially from those expressed or implied in this news release.


Media contact:
John Christiansen
Direct: 405-270-3995
Cell: 405-406-6574
jchristiansen@kmg.com
  
     
Investor contacts:
Rick Buterbaugh
Direct: 405-270-3561
John Kilgallon
Direct: 405-270-3521

06-39


 
KERR-McGEE CORPORATION
  
CONSOLIDATED STATEMENT OF INCOME
  
(Preliminary and Unaudited)
  
                   
   
Three Months Ended
  
Six Months Ended
  
(Millions of dollars, except per-share amounts)
  
June 30,
  
June 30,
  
   
2006
  
2005
  
2006
  
2005
  
Revenues
                          
Oil and gas sales
  
$
1,227
  
$
1,108
  
$
2,406
  
$
2,114
  
Loss on commodity derivatives
    
(130
)
  
(82
)
  
(244
)
  
(168
)
Gas marketing revenues
    
147
   
138
   
360
   
270
 
Other revenues
    
23
   
19
   
45
   
38
 
Total Revenues 
    
1,267
   
1,183
   
2,567
   
2,254
 
                           
Operating Expenses
                          
Lease operating costs
    
128
   
115
   
259
   
223
 
Production and ad valorem taxes
    
43
   
34
   
74
   
64
 
Transportation expense
    
25
   
24
   
48
   
47
 
General and administrative expense
    
60
   
62
   
134
   
115
 
Merger-related costs
    
8
   
-
   
8
   
-
 
Exploration expense
    
106
   
116
   
158
   
171
 
Gas gathering, processing and other expenses
    
27
   
26
   
61
   
54
 
Gas marketing costs
    
145
   
139
   
359
   
269
 
Depreciation, depletion and amortization
    
194
   
220
   
383
   
443
 
Accretion expense
    
4
   
5
   
7
   
11
 
Provision for environmental remediation costs
    
3
   
2
   
3
   
2
 
Asset impairments
    
-
   
-
   
-
   
4
 
Gain on sales of oil and gas properties
    
(1
)
  
(25
)
  
(5
)
  
(47
)
Total Operating Expenses 
    
742
   
718
   
1,489
   
1,356
 
                           
Operating Income
    
525
   
465
   
1,078
   
898
 
                           
Interest expense
    
(49
)
  
(58
)
  
(90
)
  
(118
)
Loss on early repayment and modification of debt
    
-
   
-
   
(81
)
  
-
 
Other income (expense)
    
(3
)
  
(4
)
  
(6
)
  
(6
)
                           
Income from Continuing Operations before Income Taxes
    
473
   
403
   
901
   
774
 
Provision for income taxes 
    
(167
)
  
(147
)
  
(319
)
  
(275
)
                           
Income from Continuing Operations
    
306
   
256
   
582
   
499
 
Income from discontinued operations, net of tax 
    
(1
)
  
114
   
(24
)
  
226
 
Cumulative effect of change in accounting principle, net of tax 
    
-
   
-
   
2
   
-
 
Net Income
  
$
305
  
$
370
  
$
560
  
$
725
  
                           
                           
Basic Earnings per Common Share (a) -
                         
Continuing operations 
  
$
1.36
  
$
0.91
  
$
2.57
  
$
1.69
  
Discontinued operations 
    
(0.01
)
  
0.40
   
(0.11
)
  
0.76
 
Cumulative effect of change in accounting principle 
    
-
   
-
   
0.01
   
-
 
   Net income
  
$
1.35
  
$
1.31
  
$
2.47
  
$
2.45
  
                           
Diluted Earnings per Common Share (a) -
                          
Continuing operations 
  
$
1.33
  
$
0.90
  
$
2.53
  
$
1.65
  
Discontinued operations 
    
-
   
0.40
   
(0.11
)
  
0.74
 
Cumulative effect of change in accounting principle 
    
-
   
-
   
0.01
   
-
 
   Net income
  
$
1.33
  
$
1.30
  
$
2.43
  
$
2.39
  
                           
Weighted average shares outstanding (thousands) (a) -
                          
Basic 
    
225,070
   
281,625
   
226,201
   
295,566
 
Diluted 
    
229,303
   
285,428
   
230,114
   
305,426
 
                           
(a)On June 14, 2006, the company executed a two-for-one stock split. The number of shares outstanding and earnings per share for historical periods
  
    have been retroactively adjusted to reflect the stock split.
                          
 
 
KERR-McGEE CORPORATION  
  
ADJUSTED AFTER-TAX INCOME ANALYSIS  
  
(Preliminary and Unaudited)  
  
                            
            
Three Months Ended
 
Six Months Ended
 
(Millions of dollars, except per-share amounts)  
    
June 30,
 
June 30,
 
            
2006
  
2005
  
2006
  
2005
  
Revenues, excluding marketing and derivatives
                                
Natural gas sales 
        
$
569
  
$
632
  
$
1,238
  
$
1,180
  
Crude oil, condensate and natural gas liquids sales 
          
658
   
476
   
1,168
   
934
 
Other revenues 
          
23
   
19
   
45
   
38
 
                 
1,250
   
1,127
   
2,451
   
2,152
 
Operating expenses, excluding marketing
                                
Lease operating costs (a) 
                
128
   
115
   
259
   
223
 
Production and ad valorem taxes 
                
43
   
34
   
74
   
64
 
   Total lifting costs
                
171
   
149
   
333
   
287
 
Transportation expense 
                
25
   
24
   
48
   
47
 
General and administrative expense (a) 
                
60
   
62
   
134
   
115
 
Merger-related costs 
                
8
   
-
   
8
   
-
 
Exploration expense (a) 
                
106
   
116
   
158
   
171
 
Gas gathering, processing and other expenses 
          
27
   
26
   
61
   
54
 
Depreciation, depletion and amortization 
          
194
   
220
   
383
   
443
 
Accretion expense 
                
4
   
5
   
7
   
11
 
Provision for environmental remediation costs 
          
3
   
2
   
3
   
2
 
                 
598
   
604
   
1,135
   
1,130
 
                                       
Core E&P Operating Profit
                
652
   
523
   
1,316
   
1,022
 
                                       
Loss on commodity derivatives 
                
(130
)
  
(82
)
  
(244
)
  
(168
)
Gas marketing revenues 
                
147
   
138
   
360
   
270
 
Gas purchase costs (including transportation) 
          
(145
)
  
(139
)
  
(359
)
  
(269
)
Asset impairments 
                
-
   
-
   
-
   
(4
)
Gain on sales of oil and gas properties 
          
1
   
25
   
5
   
47
 
                                       
Operating Income
                
525
   
465
   
1,078
   
898
 
                                       
Interest expense
                
(49
)
  
(58
)
  
(90
)
  
(118
)
Loss on early repayment and modification of debt
          
-
   
-
   
(81
)
  
-
 
Other income (expense)
                
(3
)
  
(4
)
  
(6
)
  
(6
)
                                       
Income from Continuing Operations before Income Taxes
    
473
   
403
   
901
   
774
 
Provision for Income Taxes 
                
(167
)
  
(147
)
  
(319
)
  
(275
)
                                       
Income from Continuing Operations (GAAP)
          
306
   
256
   
582
   
499
 
                                       
Exclude:  Loss on commodity derivatives
          
 
    
130
   
82
   
244
   
168
 
         Asset impairments
                
-
   
-
   
-
   
4
 
         Gain on sales of oil and gas properties
          
(1
)
  
(25
)
  
(5
)
  
(47
)
                                       
Include: Realized commodity derivative loss (b)
          
(140
)
  
(70
)
  
(355
)
  
(96
)
                                       
Income tax (expense) benefit associated with adjusting items
      
4
   
4
   
41
   
(11
)
                                       
Adjusted After-Tax Income (non-GAAP)
          
$
299
  
$
247
  
$
507
  
$
517
  
                                       
Adjusted After-Tax Income per Diluted Common Share (non-GAAP) (c)
$
1.30
  
$
0.87
  
$
2.20
  
$
1.71
  
                                       
Weighted Average Number of Diluted Shares Outstanding (thousands) (c)
    
229,303
   
285,428
   
230,114
   
305,426
 
                                       
                                       
(a)Lease operating expense (LOE), G&A expense and exploration expense include stock-based compensation cost as presented in the following table:
  
                                       
(In millions of dollars)
                
LOE
   
G&A
   
Exploration
       
Three months ended June 30, 2006
              
$
7.0
  
$
11.4
  
$
2.2
        
Three months ended June 30, 2005
                
1.5
   
3.0
   
0.5
       
Six months ended June 30, 2006
                
18.9
   
37.1
   
6.0
       
Six months ended June 30, 2005
                
3.0
   
13.4
   
1.0
       
                                       
(b)Represents actual realizations (settlements) for all commodity derivatives, whether hedge or non-hedge, associated with the applicable period.
  
                                       
(c)On June 14, 2006, the company executed a two-for-one stock split. The number of shares outstanding and earnings per share for historical periods have
 been retroactively adjusted to reflect the stock split.
                          
                                       
Adjusted After-Tax Income and the related measure per diluted share exclude items that management deems not to be reflective of the company's core operations or reflect timing differences between periods. Management believes that these non-GAAP financial measures provide valuable insight into the company's core earnings from continuing operations and enable investors 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 is comparable with similarly titled amounts for other companies.
  
                                       
 
 
KERR-McGEE CORPORATION
  
OPERATING HIGHLIGHTS
  
(Preliminary and Unaudited)
  
                   
   
Three Months Ended
  
Six Months Ended
  
   
June 30,
 
June 30,
  
                   
Natural Gas Production and Average Sales Prices
  
2006
  
2005
  
2006
  
2005
  
                   
Production Volumes (MMcf/d)
                          
Gulf of Mexico –
                          
Deepwater
    
253
   
285
   
246
   
270
 
Shelf
    
120
   
167
   
105
   
162
 
U.S. Onshore –
                          
Rocky Mountain
    
388
   
330
   
376
   
331
 
Southern
    
223
   
241
   
232
   
253
 
Total 
    
984
   
1,023
   
959
   
1,016
 
                           
Average Wellhead Sales Prices (per Mcf)
                          
Gulf of Mexico –
                          
Deepwater
  
$
6.80
  
$
7.19
  
$
7.58
  
$
6.91
  
Shelf
    
6.76
   
6.97
   
7.47
   
6.73
 
U.S. Onshore –
                          
Rocky Mountain
    
5.84
   
6.42
   
6.66
   
6.07
 
Southern
   
6.56
   
6.72
   
7.28
   
6.16
 
Average 
  
$
6.36
  
$
6.79
  
$
7.14
  
$
6.42
  
                           
                           
Crude Oil, Condensate and NGL Production and Average Sales Prices   
                    
                           
Production Volumes (Mbbls/d)
                          
Gulf of Mexico –
                          
Deepwater
    
59
   
47
   
53
   
47
 
Shelf
    
9
   
13
   
9
   
14
 
U.S. Onshore –
                          
Rocky Mountain
    
21
   
22
   
21
   
22
 
Southern
   
13
   
14
   
13
   
14
 
Total U.S. 
    
102
   
96
   
96
   
97
 
China (a)
    
17
   
17
   
17
   
19
 
 Total
    
119
   
113
   
113
   
116
 
                           
Average Wellhead Sales Prices (per bbl)
                          
Gulf of Mexico –
                          
Deepwater
  
$
61.66
  
$
47.26
  
$
59.29
  
$
46.03
  
Shelf
    
58.39
   
47.25
   
56.69
   
46.46
 
U.S. Onshore –
                          
Rocky Mountain
    
57.49
   
43.44
   
54.81
   
41.82
 
Southern
    
57.62
   
45.58
   
52.95
   
44.03
 
Average U.S. 
    
59.99
   
46.13
   
57.20
   
44.84
 
China
    
63.58
   
42.85
   
59.08
   
40.46
 
 Average
  
$
60.52
  
$
45.60
  
$
57.47
  
$
44.09
  
                           
                           
Energy Equivalent Production Volumes
                          
Total –
                          
MBoe per day
    
283
   
284
   
272
   
286
 
MMcfe per day
    
1,699
   
1,702
   
1,634
   
1,715
 
                           
                           
(a) China sales volumes were 17 Mbbls/d for three months and 16 Mbbls/d for six months of 2006 and 19 Mbbls/d for three months and             
  
20 Mbbls/d for six months of 2005. Sales volumes differ from production volumes due to timing of cargo liftings.       
            
 

KERR-McGEE CORPORATION  
  
SELECTED BALANCE SHEET INFORMATION  
  
(Unaudited)  
  
                
                
(Millions of dollars)
               
        
June 30,
  
December 31,
 
Selected Balance Sheet Information
       
2006
  
2005
  
                
Cash and cash equivalents 
        
$
156
  
$
1,053
  
Current assets 
          
1,515
   
3,249
 
Total assets 
          
11,938
   
14,276
 
Current liabilities 
          
2,493
   
3,931
 
Total debt 
          
2,406
   
2,583
(a)
Stockholders' equity 
          
4,616
   
4,115
 
                     
Shares outstanding at period-end (thousands)  
          
227,308
   
228,775
(b)
                     
                     
(a)  In 2006, certain December 31, 2005 balances were reclassified to present Tronox as a discontinued operation. Total debt at year-end of      
  
$3.133 billion was reduced by $550 million (representing Tronox debt eliminated at the spinoff date) as a result of such reclassifications.          
  
                     
                     
(b)  On June 14, 2006, the company executed a two-for-one stock split. The shares outstanding at December 31, 2005 have been retroactively       
  
adjusted to reflect the stock split.