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Kerr-McGee's '05 Budget Targets Expanded Efforts in Rockies

Kerr-McGee's '05 Budget Targets Expanded Efforts in Rockies

Kerr-McGee Corp. will spend about 20% more in 2005 to pump up exploration efforts in the Rockies, the company said last week. Production is expected to rise 15-19% over this year, with oil and natural gas output ranging between 355,000-370,000 boe/d, weighted 55% to natural gas and 45% to liquids.

The Oklahoma City-based independent said Tuesday that total capital expenditures in 2005 are budgeted at $1.9 billion, with an additional $380 million for exploration.

"The 2005 budget will allow us to capitalize on the potential from our strategic acquisition of Westport Resources, which was completed in June and added depth, breadth and balance to our oil and gas operations, including thousands of identified exploitation opportunities," said CEO Luke R. Corbett. "In 2005, we plan to continue to ramp up exploitation drilling on these properties, while continuing our successful development and exploration programs."

Kerr-McGee announced its $3.4 billion acquisition of Denver-based Westport Resources in April (see NGI, April 12). The transaction expanded land-based prospects and increased proved reserves 30%. The deal also boosted total daily production more than 34%, weighted 54% to natural gas.

The capital budget for 2005 oil and gas operations is approximately $1.7 billion. Of this, approximately $660 million is allocated to U.S. onshore, $645 million to the Gulf of Mexico, $270 million to the North Sea and $160 million to new ventures and other international projects.

"After adjusting for a full-year impact of the Westport properties and announced increases in oilfield drilling and services costs, the 2005 capital program will increase approximately 20% versus 2004," said Dave Hager, Kerr- McGee's senior vice president responsible for oil and gas exploration and production. "From our large inventory of quality projects, we expect to drill approximately 800 exploitation and development wells next year, achieving very attractive returns."

Hager said the program will "hasten the movement of identified probable and possible resources into the proved category and accelerate the development of proved but currently undeveloped reserves. Additionally, the program is designed to ensure we realize our organic production growth targets of 3-6% during our five-year plan period."

More than half of next year's exploitation wells are planned in the company's Rocky Mountain Division of its U.S. Onshore Region. The company expects to expand activity by more than 40% in the Greater Natural Buttes area in the Uinta basin of Utah by drilling more than 200 wells.

The expanded Rockies activity, coupled with infrastructure improvements and optimization of both gas processing and pipelines, is expected to increase daily average natural gas production in the area by nearly 50% over this year. At the Wattenberg field, in the Denver-Julesburg basin of Colorado, the total number of projects, including the drilling of approximately 220 exploitation wells, is expected to increase about 15% over this year. In the Southern Division, approximately 240 development wells concentrated within the core operating areas of the Permian basin, South Texas and the Upper Gulf Coast are planned.

In the Gulf of Mexico, capital expenditures will fund the continued development of the deepwater Constitution (100% working interest) and Ticonderoga (50% working interest) fields, which remain on schedule to achieve first production in mid-2006. The program also will fund development drilling and subsea work for the recently sanctioned Kerr-McGee- operated Merganser field (0% working interest), the Vortex field (50% working interest) and the San Jacinto field (20% working interest), each located in the eastern Gulf, with first production expected in mid-2007.

Kerr-McGee also is budgeting $380 million for worldwide exploration expense, which will fund about 100 exploratory and appraisal wells, including 50 to 55 onshore United States, 30 to 35 in the Gulf of Mexico, five to 10 in the North Sea, and 10 to 15 in other international and new venture areas.

"Budgeted exploration expense for 2005 is comparable in size to our projected 2004 expense and will include the appraisal of three potentially significant discoveries made earlier this year offshore Alaska, Brazil and China," said Hager. "The 2005 exploration program provides a balance of low and moderate risk opportunities complemented by approximately 15 high-potential, new-field wildcats in the deepwater Gulf of Mexico and proven hydrocarbon basins internationally."

Kerr-McGee's average production volumes for 2005 are projected in the range of 155,500-165,500 bbl/d of liquids and 1.167-1.257 Bcf/d of gas. Approximately 48% of liquid volumes and approximately 95% of gas volumes will come from the United States. Remaining volumes will be derived from the U.K. sector of the North Sea and Bohai Bay, China.

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