As it begins to settle in as a pure-play exploration and production company, Kerr-McGee Corp. reported Wednesday that natural gas output surged 51% over a year ago, mostly on the acquisition of Denver-based Westport Resources Inc. last year (see Daily GPI, April 8, 2004), and the ramp-up of production at Red Hawk in the deepwater of the Gulf of Mexico.

Natural gas sales worldwide averaged 1.118 Bcf/d in 2Q2005. U.S. offshore gas sales grew to 452 MMcf/d from 314 MMcf/d in 2Q2004, while onshore gas sales were up to 571 MMcf/d from 334 MMcf/d for the same period of 2004.

Daily oil production averaged 175,000 bbl in the quarter, up 25% from 140,500 bbl/d a year ago. The oil production increase also was attributed to the Westport acquisition, as well as the start up of production in China.

“While achieving record net income for the quarter, we have remained focused on transitioning to a pure-play exploration and production company with a balanced portfolio of oil and gas assets,” said CEO Luke R. Corbett. “The separation of our chemical business remains on track, and we expect to make a decision regarding a sale or initial public offering/spinoff during the third quarter. In regards to the divestiture of select lower-growth oil and gas assets, we are pleased with the level of interest from prospective buyers and expect to complete a majority of the sales by year end.”

Prompted by a proxy fight with a group put together by financier Carl Icahn, Kerr-McGee agreed earlier this year to sell off or separate its chemicals unit and also sell a substantial amount of underperforming assets (see Daily GPI, April 15).

Corbett said the Oklahoma City-based producer is expanding its development program in the Rocky Mountain division, which it gained with the Westport purchase. “Growth from these properties will be supplemented by our development activities in the deepwater Gulf of Mexico and China’s Bohai Bay, which are on or ahead of schedule and within budget.”

Through the rest of 2005, Kerr-McGee is projecting gas output worldwide to rise from its current 361.3 Bcf/d to a range of 353,000-367,000 Bcf/d. In the United States, both onshore and offshore, production is expected to grow from its current 1.118 Bcf/d to 1.117-1.158 Bcf/d.

In the first six months of 2005, Kerr-McGee expanded its hedging program, which includes a combination of costless collars and fixed-price swaps derivative contracts. The hedging program now covers approximately 75% of the company’s remaining 2005 and 2006 expected eligible production and approximately 50% of its 2007 expected eligible production. Eligible production excludes production from Bohai Bay, gas production from the North Sea, and production expected to be disposed of in the asset divesture program.

The producer reported net income for the quarter of $370.8 million ($2.60/share), substantially more than the $110.6 million ($1.01) in 2Q2004. The company’s 2005 second-quarter adjusted after-tax income was $378.4 million ($2.65), compared with $119.9 million ($1.09) a year ago.

E&P operating profit for the quarter was $685.4 million, compared with $263.0 million for the prior-year quarter. Chemical operating profit was $33.7 million, an increase of $19.8 million on higher pigment sales prices, partially offset by the effect of lower sales volumes.

©Copyright 2005Intelligence Press Inc. All rights reserved. The preceding news reportmay not be republished or redistributed, in whole or in part, in anyform, without prior written consent of Intelligence Press, Inc.