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Kerr-McGee to Focus Exploration in Rockies, Expanded Deepwater Projects

Oklahoma City-based Kerr-McGee Corp., which moved this year to become a pure-play oil and natural gas producer, said Thursday its onshore exploration in 2006 will focus on two large resource plays in the Rocky Mountains, the Wattenberg area in Colorado and the Greater Natural Buttes project in the Uinta Basin of Utah, and it will continue to expand its deepwater projects in the Gulf of Mexico. Overall, the independent expects to spend $1.3 billion on capital expenditures, with $300 million set aside for exploration.

Kerr-McGee said next year's oil and gas output is expected to total 234,000-250,000 boe/d, split 60% natural gas and 40% liquids. Average daily production volumes are projected to range 95,500-103,100 bbl/d of liquids and 830-880 MMcf/d of gas. About 84% of liquid volumes and all of the gas volumes will come from the United States. Kerr-McGee, which sold off its chemicals unit this year, is also planning to divest its offshore shelf properties, and the budgets exclude any expenses for those assets.

"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 COO Dave Hager. "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."

About 680 development wells are planned in 2006, including 560 in the Greater Natural Buttes, Wattenberg and northern Rockies areas. The Wattenberg field, located in the Denver-Julesburg basin in northeastern Colorado, is a tight gas sand field where Kerr-McGee operates most of the wells in which it owns an interest. It also owns and operates the largest gathering system in the field, with more than 1,700 miles of pipeline and the capacity to move 300 MMcf/d. In the Greater Natural Buttes area in the Uinta Basin of northeastern Utah, Kerr-McGee has more than 1,200 wells and owns and operates a 700-mile gathering system.

Offshore, Kerr-McGee said 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 (100% working interest) and Ticonderoga (50% working interest) fields, the development remains on schedule to achieve first production in 2Q2006.

The exploration program also will fund continued development of the offshore Merganser field (50% working interest), the Vortex field (50% working interest) and the San Jacinto field (20% working interest). Each is an anchor field for the Independence Hub development in the deep waters of the eastern Gulf, and first production is expected in mid-2007. Another deepwater project, the Blind Faith development (37.5% working interest), is scheduled for first production in mid-2008.

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