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Kerr-McGee Corp.'s decision last year to slim down its operations and become a pure-play producer -- somewhat forced on it by a major shareholder -- appears to be working, after the company announced strong continuing earnings in the first quarter on Thursday.
Excluding results from its chemicals business, which was separated from the parent company at the end of March, and the sale of its North Sea operations last year, income from continuing operations was $276 million ($2.39/share), compared with $243 million ($1.51) for the same period a year ago. Thomson First Call analysts had pegged earnings at $2.06/share. Including all operations, Kerr-McGee's earnings fell to $255 million ($2.21/share) from $355 million ($2.20) in 1Q2005.
Average shares numbered about 115.4 million in the quarter, down 29% from a year ago because of buybacks and a self-tender offer last summer. The share buybacks and tender offer were done after Kerr-McGee reached a settlement last year with major shareholder Carl Icahn, who also forced the company to sell off some of its assets (see NGI, April 18, 2005).
"The accomplishments in the first quarter provide solid evidence that we have the right strategy, the right assets and the right people to effectively execute as a pure-play [exploration and production] E&P company and deliver increasing value to our shareholders," said CEO Luke Corbett. "In addition to the accomplishments at ongoing operations, we efficiently transitioned to a pure-play exploration and production company by completing the separation of our chemical business into a stand-alone company with the distribution of Tronox Class B common stock to our shareholders on March 30" (see NGI, April 3).
Start-up of oil production from the deepwater Gulf of Mexico Ticonderoga field, increased natural gas production in the Greater Natural Buttes area in eastern Utah and successful development activities in the southern U.S. region contributed to some solid production numbers, despite the shut-in volumes at the deepwater Red Hawk field, which resumed production in late April after repairs to hurricane-damaged third-party infrastructure were completed.
Kerr-McGee's production volumes from continuing operations averaged 261,000 boe/d. The total did not include Kerr-McGee's Outer Continental Shelf properties, which were sold to W&T Offshore in January (see NGI, Jan. 30). Total production, excluding volumes associated with the announced sale of the Shelf properties, was 238,000 boe/d on a divestment-adjusted basis for 1Q2006. Daily divestment-adjusted total liquids production (crude oil, condensate and natural gas liquids) averaged 98,000 bbl/d, compared with 101,000 bbl/d a year earlier. Sequentially, total output grew about 5%, mostly because of the start-up of the Ticonderoga field and continued recovery from the 2005 hurricane season.
Total natural gas sales on a divestment-adjusted basis averaged 843 MMcf/d for the quarter, up from 827 MMcf/d in 1Q2005. Gas sales increased by 4%, versus 4Q2005, mostly on the strong performance from several deepwater Gulf fields, continued hurricane recovery and ramp up of gas production in the Rocky Mountain region.
Including asset sales, U.S. gas production fell to 934 MMcf/d from 1,009 MMcf/d in 1Q2005. In the deepwater, gas output fell to 238 MMcf/d from 256 MMcf/d, and on the Shelf, production dropped to 91 MMcf/d from 156 MMcf/d. U.S. onshore gas production in the Rocky Mountains rose to 363 MMcf/d from 331 MMcf/d a year ago, while in its Southern operations, concentrated in South Texas, output fell to 242 MMcf/d from 266 MMcf/d.
The average wellhead price for oil, condensate and natural gas liquids from continuing operations was $53.96/bbl in 1Q2006, well ahead of $42.63 a year earlier. The average natural gas wellhead price from continuing operations was $7.96/Mcf, compared with $6.04 per Mcf in 1Q2005.
Through the company's accelerated development activities in the first quarter, Kerr-McGee has booked proved reserves of more than 30 MMboe, replacing more than 30% of its total 2006 divestment-adjusted production.
"We are extremely pleased with our program execution through the first three months of the year," said COO David Hager. "Our strategy is delivering excellent results. By accelerating development activities at our two large resource plays in the Rocky Mountains, and continuing our success in the deepwater Gulf of Mexico and South Texas areas, we have added stability and predictability to our program, increasing our confidence that we will grow our reserve base at a competitive FD&A [Finding, Development and Acquisition] cost."
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