August 8, 2005
Kerr-McGee makes $3.5 billion North Sea exit
Kerr-McGee Corp. (NYSE: KMG) today announced that a wholly owned affiliate has entered into purchase and sale agreements to sell all of the company's North Sea operations for approximately US$3.5 billion in cash.
The North Sea agreements include assumption by the purchasers of all related abandonment obligations, which had a carrying value of $182 million at June 30, 2005, and the assumption of all related derivative liabilities totaling $175 million after taxes. The agreements are subject to approval from appropriate government agencies and customary closing conditions. The transactions include:
MOG says it will acquire interests in ten producing fields, five as operator, with a current total share of production of some 60,000 barrels oil equivalent per day. In addition, a number of smaller oil and gas discoveries as well as an exploration portfolio will be acquired. Kerr-McGee's UK activities are directed from offices in Aberdeen and London which will be taken over by MOG. Some 500 people are employed.
Thomas Thune Andersen, MOG's President and CEO states: "With this acquisition Maersk Oil confirms and expands its presence in the U.K. and in the North Sea. With the acquired activities, Maersk Oil has established a good position for further growth in this region and elsewhere."
"These transactions enhance our strategic plan to high grade our oil and gas portfolio to focus on assets that have the greatest growth opportunities," said Luke R. Corbett, Kerr-McGee chairman and chief executive officer. "Market valuations and the tax-efficient nature of these transactions led us to the decision to divest of all of our North Sea operations, maximizing the value of these assets to our stockholders. Divestiture of the North Sea assets will facilitate the company's plan to spend a reduced amount of capital while achieving a higher per-share production growth rate."
The transactions, which will be deemed effective as of July 1, 2005, are expected to be completed by early in the fourth quarter. At closings, Kerr-McGee will receive cash proceeds of approximately $3.5 billion and expects net after-tax cash proceeds will be approximately $3.1 billion. The company plans to use all net proceeds to reduce debt.
Kerr-McGee's strategic plan also includes the divestiture of its Gulf of Mexico shelf properties and selected U.S. onshore properties. The total combined divestitures are now expected to represent approximately 25% to 30% of the company's proved reserves as of Dec. 31, 2004, and approximately 30% to 35% of its projected 2005 average pre-divestment production of approximately 360,000 BOE per day. In addition, the company is proceeding with the separation of its chemical business through a dual track process as a sale or IPO/spinoff. The company expects to complete the chemical separation and the majority of the divestments prior to year end.
"Our remaining oil and gas property portfolio will be weighted toward longer-life, less capital-intensive properties, with a large inventory of repeatable low-risk development projects, while still providing high-potential exploration prospects for future per-share growth," said Dave Hager, Kerr-McGee chief operating officer. "We are accelerating development drilling activities at our two large resource plays, located in the Rockies in the Wattenberg and Greater Natural Buttes areas, by approximately 20%. We also are focusing our exploratory program on high-impact targets in the deepwater Gulf of Mexico and other select proven hydrocarbon basins."
Kerr-McGee says it has an established record of success in the Wattenberg and Greater Natural Buttes areas where it has identified more than 10,000 projects to unlock more than 400 million BOE of potential resources. The company plans to complete projects annually that are expected to provide more than 60% of its projected production replacement. Additionally, the company expects to drill 8 to 12 high-potential new-field wildcats per year.