As it readies itself to become a pure-play exploration and production (E&P) company, Kerr-McGee Corp. has begun due diligence to possibly sell its chemicals unit, while at the same time it is preparing an initial public offering that should be ready by mid-June, according to Dave Hager, senior vice president of E&P.

Hager told participants at the UBS Global Oil & Gas Conference in Austin, TX that besides selling off the chemicals unit, the company also will prepare data rooms to ready the sale of 10-15% of its oil and gas reserves, or about 20-25% of production (see Daily GPI, April 28).

“We’re excited about our divestiture program,” said Hager, which will “reduce our capital expenditures and dial back the risk profile.” Kerr-McGee, long a major player in the Gulf of Mexico (GOM) deepwater, plans to become even more active there, while at the same time increasing some U.S. onshore production and pursuing new international opportunities.

“After all of the transactions, we will be a pure play E&P with very strong free cash flow, longer reserve life and identified production growth,” he said. About 50% of Kerr-McGee’s reserves are in the U.S. onshore, where there are a large number of low risk, repeatable plays. They are expected to continue to “provide a strong backbone to our cash flow generation.”

The biggest property sales will be in the GOM shallow waters, where the company has had a presence since 1947. While E&P remains active on the shelf through this year, “we’re particularly more active in deepwater.” The shelf properties are “rapidly maturing, difficult to grow, and they require a lot of capital, so it’s appropriate to pursue monetization of the Gulf of Mexico shelf assets,” Hager said.

Future success is focused on the GOM deepwater, where production currently is 85,000 boe/d. The Constitution field, which began development early last year, is operated 100% by Kerr-McGee. “It is on time, on budget, and the facility construction is going extremely well,” said Hager. “We’re very confident…of first production by mid-2006.” Constitution, located in the Green Canyon area in 5,000 feet of water, is estimated to have proven and probable reserves of about 110 MMboe (see Daily GPI, Jan. 15, 2004).

Once the “deleveling activities” are completed, Hager said, Kerr-McGee still will look for new properties to buy, “focused on transactions to add to existing core areas. We’ll be focused on transactions that have an impact on our per-share basis.”

Also Wednesday, in an interim 2Q2005 report, the company reaffirmed its 2005 production targets of 346,500-374,300 boe/d. It expects oil production of between 164,000-176,000 bbl/d, while natural gas output is expected to range between 1.095-1.190 Bcf/d. Gas marketing revenues are expected to be $140-150 million.

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