Due to estimated costs related to impairments for the Leadon field and various other fields in the North Sea and the Gulf of Mexico shelf, Kerr-McGee Corp. announced Monday that it will take a special after-tax noncash charge of approximately $385 million during the fourth quarter.

As the Oklahoma City-based company has previously said, the Leadon field has been producing lower volumes than initially anticipated because of early water breakthrough and reservoir compartmentalization. To maximize cash flow from the asset, Kerr-McGee said it was considering various alternatives, including continued production using existing infrastructure, a subsea tieback to another host structure, such as the Kerr-McGee-operated Gryphon facility, or sale of the asset.

The company noted the subsea tieback option would allow for redeployment or sale of the Kerr-McGee Global Producer III, a floating production, storage and offloading vessel launched at Leadon in 2001. The after-tax noncash impairment for Leadon will be approximately $335 million. To date, Leadon has produced approximately 8 million Boe through 2002, and remaining reserves are estimated at about 30 million Boe.

In addition to the Leadon charge, Kerr-McGee said it will take an after-tax noncash charge of approximately $50 million for impairments of several older Gulf of Mexico shelf properties and two other U.K. North Sea fields, Buckland and South Gryphon, based on analysis in the fourth quarter of recent production performance, resulting in a decrease in ultimate reserve recovery estimates.

“Our strategy remains to grow through an active exploration program, primarily in selected deepwater basins worldwide,” said Luke R. Corbett, Kerr-McGee CEO. “Positive results of this strategy can be seen through the developments at Nansen, Boomvang, Gunnison and Red Hawk in the deepwater Gulf. While Leadon clearly has been a disappointment, our goal is to maximize cash flow from this asset. We are supporting our exploration program with strong cash flows from our current production base, and we believe our strategic plan will deliver value for shareholders.

The company said it estimates that it will close the year with proved reserves of about 1 billion Boe. For 2002, Kerr-McGee said it has produced about 115 million Boe, while divestiture of noncore properties has reduced reserves by approximately 315 million Boe.

Negative revisions during the year were approximately 120 million Boe, primarily related to Leadon and other U.K. North Sea and Gulf of Mexico shelf properties. The reductions are expected to be partially offset by reserve additions of about 70 million Boe. However, Kerr-McGee said it has a very active fourth-quarter exploration program, and any future discoveries from drilling are expected to be included in the 2003 reserve additions.

“We also have taken advantage of strong 2002 commodity prices to sell properties that are no longer core to the company due to their high cost and limited growth potential,” Corbett added. “Divestitures now total more than $750 million, and we have used approximately $650 million toward debt reduction. We expect to have reduced debt from $4.6 billion at year-end 2001 to approximately $3.9 billion at year-end 2002.”

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