After decades at sea, Kerr-McGee moving onshore
Saturday, January 1st 2005, 4:07 pm
By: News On 6
OKLAHOMA CITY (AP) _ Kerr-McGee Corp., the company that pioneered offshore oil drilling in the 1940s, is now betting its future on finding petroleum far from the sea, particularly in the Rocky Mountains.
The Oklahoma City-based oil and gas producer plans to drill 900 new wells in 2005, with 800 of them onshore and almost 600 of those in Colorado and Utah fields it gained in recent acquisitions.
Kerr-McGee plans to spend $15 million more developing assets onshore than it will spend in its traditional Gulf of Mexico base, underscoring its new emphasis as it outlays its largest capital budget ever.
``If you do the math, there are only 365 days in the year,'' chairman and chief executive Luke R. Corbett said in an interview Monday with The Associated Press. ``So we have a lot of wells to drill and complete and evaluate in a short period of time. I think our company is up to it.''
The company founded in 1929 by Robert S. Kerr, a former Oklahoma governor and senator, and run by geologist Dean McGee for nearly three decades made its name by drilling the first successful petroleum well out of sight of land in the Gulf of Mexico in 1947.
Along the way, the company has remained in oil and gas production, expanding internationally, but has forayed into uranium mining, nuclear fuel and titanium dioxide production and timber industries.
But Kerr-McGee shed its nuclear business in the late 1980s, about 15 years after employee Karen Silkwood died in a car accident at a time when she was alleging safety violations at the company's plant south of Crescent. Her story was portrayed in the movie, ``Silkwood.''
The company is exiting timber. It retains a 50 percent interest in AVESTOR, a maker of lithium-metal-polymer battery.
The company's primary focus is on finding and producing oil and gas in the United States, the Gulf of Mexico, the British North Sea, and China's Bohai Bay. Kerr-McGee is also the world's No. 3 maker of titanium dioxide, a whitener of products from paint to plastics to food.
Spokesman John Christiansen said Kerr-McGee, which gets the bulk of its revenues from petroleum, likes how the two volatile businesses offset each other, with one typically on a high streak when the other lags.
But the twofold focus has drawn critics.
``It appears that Kerr-McGee, as far as earnings stability goes, is not in your presidential club,'' said Fred Russell, a Tulsa money manager. ``Its historical cash flow and earnings have been highly unstable. One reason for this has been that titanium dioxide business, which is very financially sensitive.''
The 75-year-old company's drilling expansion comes after three major acquisitions since 1998 and as oil and natural gas prices have risen markedly in recent years, making it the right time to exploit Kerr-McGee's proved reserves of 1.3 billion barrels of oil equivalent.
The 1998 acquisition of Oryx Energy, which came one year after Corbett took over, strengthened Kerr-McGee's offshore asset base in the Gulf.
But the later purchase of HS Resources and the $2.5 billion stock deal for Denver-based Westport Resources, which closed in June, re-established the onshore portfolio Kerr-McGee spun off to Devon Energy Corp. in 1997 in exchange for an equity stake.
``We wanted to add a bit more depth, breadth and balance to our inventory of projects, particularly in the United States and particularly on the natural gas runs,'' Corbett said of the Westport buy. ``We were excited about that opportunity and certainly felt we accomplished our mission there.''
Meanwhile, Corbett said the company, listed at No. 412 on last year's Fortune 500 list with revenues of $4.2 billion in 2003, expects 2005 prices of about $38 per barrel for oil and $6 per 1,000 cubic feet of gas.
``We believe we can accelerate our program because of the prices,'' Corbett said in his office on the 29th floor of the Kerr-McGee Tower here. ``Please appreciate that we test our projects at prices well below that to ensure that we can handle the low of the cycle.''
Investors have responded favorably to the Westport acquisition and the drilling plan announcement in November, sending Kerr-McGee shares from about $48 per share in June to $63.24 in late November. Shares closed at $58.05, down 10 cents, Thursday on the New York Stock Exchange.