-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, KWAvkRG4ypZMor207SEW8ysyBGv9fO7NYpdIbfNcdsdgOqKngksZqLO6KyyrE3Gv 7QteIYgpd+qlyQGMXAhNtw== 0000055458-99-000027.txt : 19990727 0000055458-99-000027.hdr.sgml : 19990727 ACCESSION NUMBER: 0000055458-99-000027 CONFORMED SUBMISSION TYPE: 8-K/A PUBLIC DOCUMENT COUNT: 6 CONFORMED PERIOD OF REPORT: 19990226 ITEM INFORMATION: ITEM INFORMATION: FILED AS OF DATE: 19990726 FILER: COMPANY DATA: COMPANY CONFORMED NAME: KERR MCGEE CORP CENTRAL INDEX KEY: 0000055458 STANDARD INDUSTRIAL CLASSIFICATION: CRUDE PETROLEUM & NATURAL GAS [1311] IRS NUMBER: 730311467 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 8-K/A SEC ACT: SEC FILE NUMBER: 001-03939 FILM NUMBER: 99670354 BUSINESS ADDRESS: STREET 1: KERR MCGEE CTR STREET 2: 123 ROBERT S KERR CITY: OKLAHOMA CITY STATE: OK ZIP: 73125 BUSINESS PHONE: 4052701313 MAIL ADDRESS: STREET 1: P O BOX 25861 CITY: OKLAHOMA CITY STATE: OK ZIP: 73125 FORMER COMPANY: FORMER CONFORMED NAME: KERR MCGEE OIL INDUSTRIES INC DATE OF NAME CHANGE: 19671227 8-K/A 1 CURRENT REPORT SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 Form 8-K/A (Amendment No. 2) CURRENT REPORT Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 February 26, 1999 (Date of Report - Date of earliest event reported) KERR-MCGEE CORPORATION (Exact name of registrant as specified in its charter) Delaware 1-3939 73-0311467 (State of (Commission File Number) (IRS Employer Incorporation) Identification No.) Kerr-McGee Center Oklahoma City, Oklahoma 73125 (Address of principal executive offices) (Zip Code) (405) 270-1313 (Registrant's telephone number) Item 5. Other Events On February 26, 1999, Oryx Energy Company, a Delaware corporation ("Oryx"), was merged (the "Merger") into Kerr-McGee Corporation ("Kerr-McGee"), a Delaware corporation with Kerr-McGee being the surviving corporation, pursuant to an Agreement and Plan of Merger, dated as of October 14, 1998, between Kerr-McGee and Oryx. As a result of the Merger and a reverse stock split ("Reverse Split") effected by Oryx immediately prior to the Merger, (i) all shares of common stock, par value $1.00 per share, of Oryx ("Oryx Common Stock") owned by Kerr-McGee or held by Oryx immediately prior to the Merger were canceled and retired, and (ii) except as provided in (i), each share of Oryx Common Stock issued and outstanding immediately prior to the Reverse Split was converted into the right to receive 0.369 shares of common stock, par value $1.00 per share, of Kerr-McGee ("Kerr-McGee Common Stock"). The exchange ratio of 0.369 to 1.0 was determined by negotiations between Kerr-McGee and Oryx. In the aggregate, Kerr-McGee is issuing approximately 40 million shares of Kerr-McGee Common Stock. There were no material relationships between Kerr-McGee and Oryx prior to the consummation of the merger. Item 7. Financial Statements and Exhibits Listed below the financial statements, financial information and exhibits, if any, filed as a part of this report. (c) Exhibits Exhibit No. Description 12 Ratio of Earnings to Fixed Charges 23.1 Consent of Arthur Andersen LLP 23.2 Consent of PricewaterhouseCoopers LLP 27 Financial data schedules for the twelve months ended December 31, 1998, 1997 and 1996, and at December 31, 1998, 1997, and 1996. 99 Supplemental financial statements for Kerr-McGee Corporation for the three years ended December 31, 1998 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized. KERR-MCGEE CORPORATION By:(Deborah A. Kitchens) Deborah A. Kitchens Vice President and Controller Dated: July 26, 1999 Exhibit Index Exhibit No. 12 Ratio of Earnings to Fixed Charges 23.1 Consent of Arthur Andersen LLP 23.2 Consent of PricewaterhouseCoopers LLP 27 Financial data schedules for the twelve months ended December 31, 1998, 1997 and 1996, and at December 31, 1998, 1997 and 1996. 99 Supplemental financial statements for Kerr-McGee Corporation for the three years ended December 31, 1998 EX-12 2 RATIO OF EARNINGS TO FIXED CHARGES EXHIBIT 12 KERR-McGEE CORPORATION AND SUBSIDIARY COMPANIES COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES
Year Ended December 31 (In millions of dollars) 1998 1997 1996 1995 1994 ---- ---- ---- ---- ---- Income (loss) from continuing operations $(345) $351 $358 $110 $(31) Add - Provision (benefit) for income taxes (175) 184 225 (42) 9 Interest expense 157 141 145 193 211 Rental expense representative of interest factor 12 13 10 18 17 ----- ---- ---- ---- ---- Earnings $(351) $689 $738 $279 $206 ===== ==== ==== ==== ==== Fixed Charges - Interest expense $ 157 $141 $145 $193 $211 Rental expense representative of interest factor 12 13 10 18 17 Interest capitalized 28 24 26 21 19 ----- ---- ---- ---- ---- Total fixed charges $ 197 $178 $181 $232 $247 ===== ==== ==== ==== ==== Ratio of earnings to fixed charges - 3.9 4.1 1.2 - ===== ==== ==== ==== ==== (1)Earnings were inadequate to cover fixed charges by $548 million for the year ended December 31, 1998 and $41 million for the year ended December 31, 1994.
EX-23.1 3 CONSENT OF ARTHUR ANDERSEN LLP EXHIBIT 23.1 Consent of Independent Public Accountant As independent public accountants, we hereby consent to the incorporation of our report dated February 26, 1999, included in this Form 8-K, into the company's previously filed Registration Statements on Form S-8 File Nos. 33-24274, 33-50949 and 333-28235, and the company's previously filed Registration Statements on Form S-3 File Nos. 33-5473, 33-66112 and 333-76951. (ARTHUR ANDERSEN LLP) ARTHUR ANDERSEN LLP Oklahoma City, Oklahoma July 26, 1999 EX-23.2 4 CONSENT OF PRICEWATERHOUSECOOPERS LLP EXHIBIT 23.2 Consent of Independent Accountant We hereby consent to the incorporation by reference in the Registration Statements on Form S-3 (Nos. 33-5473, 33-66112 and 333-76951) and Form S-8 (Nos. 33-24274; 33-50949 and 333-28235) of Kerr-McGee Corporation of our report dated February 26, 1999 appearing in Kerr-McGee Corporation's Current Report on Form 8-K and relating to the consolidated financial statements of Oryx Energy Company, which financial statements are not separately presented therein. (PRICEWATERHOUSECOOPERS LLP) PRICEWATERHOUSECOOPERS LLP Dallas, Texas July 26, 1999 EX-27 5 FINANCIAL DATA SCHEDULE
5 This schedule contains summary financial information extracted from the Balance Sheet at December 31, 1998, 1997 and 1996, and the Consolidated Statement of Income for the years then ended restated to reflect the company's pooling of interests with Oryx Energy Company and is qualified in its entirety by reference to such Form 8-K. 1,000,000 YEAR YEAR YEAR DEC-31-1998 DEC-31-1997 DEC-31-1996 DEC-31-1998 DEC-31-1997 DEC-31-1996 121 192 130 0 0 0 394 506 602 5 5 5 247 175 221 877 926 1054 10652 10228 10191 6499 6309 6498 5451 5339 5194 1050 926 893 0 0 0 0 0 0 0 0 0 93 93 93 1253 1465 1186 5451 5339 5194 2200 2605 2740 2200 2605 2740 1053 1003 1053 2763 2152 2267 0 0 0 0 0 0 157 141 145 (520) 535 583 (175) 184 225 (345) 351 358 277 33 56 0 (2) 0 0 0 0 (68) 382 414 (.78) 4.40 4.70 (.78) 4.38 4.68
EX-99 6 SUPPLEMENTAL FINANCIAL STATEMENTS Exhibit 99 Management's Discussion and Analysis Kerr-McGee/Oryx Merger On February 26, 1999, the merger between Kerr-McGee and Oryx was completed. Oryx was a worldwide independent oil and gas exploration and production company. Its operations have been merged into and reported with Kerr-McGee's exploration and production segment. All references to the "company" refer to the merged entity. Under the merger agreement, each outstanding share of Oryx common stock was effectively converted into the right to receive 0.369 shares of newly issued Kerr-McGee common stock. The merger qualified as a tax-free exchange to Oryx's shareholders and has been accounted for as a pooling of interests. Accordingly, results of operations, financial position and cash flows for all prior periods have been restated to reflect the combined company as though it had always been in existence. The merger was announced in October 1998. This merger was one of several transactions during 1998 that are discussed below. Other 1998 Transactions In January 1998, Kerr-McGee announced its intent to focus on two core businesses, the exploration and production of oil and gas and the production and marketing of titanium dioxide pigment. Several major transactions were part of this strategic plan. The company also announced its intent to exit the coal business in January 1998. The divestiture of the coal operations was completed in July 1998 for approximately $600 million cash and resulted in an after-tax gain of $257 million. The company also disposed of its ammonium perchlorate operation in the first half of 1998 in a $39 million cash sale. The gain on the sale was immaterial. Titanium dioxide pigment annual production capacity was expanded by approximately 55% with the acquisition of an 80% interest in the Bayer AG (Bayer) European pigment business. The company has the option to acquire the remaining 20% after March 31, 2001. The $97 million cash transaction was effective March 31, 1998. Oil and gas production and exploratory prospects expanded with the purchase of the United Kingdom oil and gas assets of Gulf Canada Resources Limited (Gulf Canada) for $422 million. This transaction was effective March 31, 1998, and increased the company's North Sea reserves by 23% compared with year-end 1997. Operating Environment and Outlook Based on proven reserves at December 31, 1998, Kerr-McGee is one of the largest independent, non-integrated oil and gas exploration and production companies based in the United States. In connection with the merger, the company's management has implemented action plans to achieve synergies that should result in pre-tax benefits of $100 million annually. Oil prices in the first five months of 1999 rose from year end 1998 prices, their lowest level since 1985 to peak at more than $19 per barrel on the New York Mercantile Exchange. Prices were in a low range of less than $10 per barrel to $14 per barrel for approximately 20 months through March 1999 due primarily to the Asian and South American economic downturn coupled with an untimely expansion of OPEC oil supply. Crude oil inventories declined in the early months of 1999, which indicated world oil consumption was higher than production. Effective April 1, 1999, OPEC took steps to reduce supplies, and the market reacted with higher pricing. Management recognizes that supply restraint by OPEC and a few larger non-OPEC producers remains a risk to commodity pricing but believes prices should stabilize in the $15 to $18 range. In early 1999, gas markets in the United States experienced weakened pricing due to a warm winter and high storage volumes. Management believes the severe downturn in drilling on the shallow Gulf of Mexico shelf and onshore United States has already reduced gas deliverability. This lack of investment, the long startup time required for deepwater projects and increasing demand for natural gas in environmentally friendly power generation has contributed to higher prices in mid-1999 and should support them over the longer term. The company expanded its titanium dioxide pigment capacity by approximately 55% in 1998. Pigment prices for 1998 increased due to economic growth, mainly in North America and Europe, rising about 14% in the domestic market and slightly higher in certain international markets. Management believes that pigment consumption will remain flat in 1999, which is likely to equate to a flat pricing structure. To maximize profits, the company is focused on optimizing manufacturing processes to reduce costs. Results of Consolidated Operations Net income (loss) and per-share amounts for each of the three years in the period ended December 31, 1998, were as follows: (Millions of dollars, except per-share amounts) 1998 1997 1996 - -------------------------- -------------------------- Net income (loss) $(68) $382 $414 Income (loss) from continuing operations excluding special items (24) 343 369 Net income (loss) per share - Net income (loss) - Basic (.78) 4.40 4.70 Diluted (.78) 4.38 4.68 Income (loss) from continuing operations excluding special items - Basic (.28) 3.95 4.19 Diluted (.28) 3.93 4.17 Net income (loss) was impacted by a number of special items in each of the years. In 1998, special items related primarily to impairment write-downs reflecting the current market value of certain of the company's oil and gas producing fields and certain chemical facilities. Other 1998 special items were principally nonoperating and reduced net income by $22 million. In 1997, special items were also principally nonoperating and increased net income by $8 million. The 1996 special items resulted in a charge to net income of $11 million and were both operating and nonoperating. These special items affect comparability between the periods and are shown on an after-tax basis in the following table, which reconciles income (loss) from continuing operations excluding special items to net income (loss): (Millions of dollars) 1998 1997 1996 - --------------------- ---- ---- ---- Income(loss) from continuing operations excluding special items $(24) $343 $369 ---- ---- ---- Special items, net of income taxes - Asset impairment (299) - (16) Equity affiliate's full-cost ceiling writedown (27) - - Net provision for environmental reclamation and remediation of inactive sites (26) (13) (28) Restructuring (25) (1) (7) Pending/settled litigation - (1) (21) Settlement of prior years' income taxes 41 - - Settlements with insurance carriers 8 8 44 Effect of United Kingdom tax- rate change 8 - - Gains on the sale of equity securities - 12 15 Gains on the sale of nonstrategic oil and gas properties 1 2 7 Other, net (2) 1 (5) ---- ---- ---- Total (321) 8 (11) ---- ---- ---- Income from discontinued operations, net of income taxes 277 33 56 Extraordinary charge, net of income taxes - (2) - ---- ---- ---- Net income (loss) $(68) $382 $414 ==== ==== ==== The company sold its coal operations in 1998, resulting in an after-tax gain of $257 million. All amounts related to coal are shown in the Consolidated Statement of Income as discontinued operations. In 1997, the company recognized an extraordinary loss of $2 million (net of $1 million of income taxes) from the write-off of unamortized debt issuance costs. These costs related to a $500 million credit facility that was replaced with a five-year, $500 million revolving credit agreement. Income (loss) from continuing operations excluding special items for 1998 declined $367 million from 1997. This primarily resulted from a $535 million decline in exploration and production operating profit excluding special items, which was partially offset by a $31 million increase in chemical results. In 1997, income from continuing operations excluding special items decreased $26 million from the prior year, due primarily to declines of 15% and 7% in operating profit excluding special items of exploration and production and chemical, respectively. Operating profit excluding special items was $177 million, $681 million and $789 million for 1998, 1997 and 1996, respectively. The merger of certain of the company's North American onshore properties into Devon Energy Corporation (Devon) was effective December 31, 1996, and affects the comparability of 1997 and 1996 operating profit. The company's investment in Devon is accounted for using the equity method, and related results are not included in operating profit in 1998 and 1997 (see Note 4). In May 1999, Devon announced that it had signed a definitive agreement to merge with PennzEnergy Company. The merger is subject to stockholder approval by both companies, various regulatory approvals and other customary closing conditions. Upon successful completion of the merger, the company's investment in Devon will no longer be accounted for using the equity method. Sales from continuing operations were $2.2 billion in 1998, $2.6 billion in 1997 and $2.7 billion in 1996. Declines in 1998 average sales prices for oil and natural gas, of 32% and 13%, respectively, and natural gas volume decreases were partially offset by increased sales volumes and prices for titanium dioxide pigment. The volume decreases in natural gas sales were primarily the result of damages to and repair times for pipeline systems, hurricane downtimes and normal production declines. Volume increases in titanium dioxide sales relate to the purchase of an 80% interest in Bayer's European pigment operations and the expansion of the pigment facility in Hamilton, Mississippi. Sales for 1997 were less than the prior year due to lower crude oil prices and volumes, lower natural gas volumes and lower average prices for titanium dioxide pigment. Oil and gas volumes declined primarily due to the merger of certain North American onshore properties into Devon, divestitures of nonstrategic properties and significantly lower sales of natural gas purchased from third parties. Partially offsetting these declines were higher prices for natural gas and increased pigment volumes. Costs and operating expenses were $1.1 billion, $1 billion and $1.1 billion for 1998, 1997 and 1996, respectively. The 1998 amount was higher than the prior year principally due to costs of the new European pigment operations and higher per-unit costs at the domestic pigment and synthetic rutile facilities. This was offset by the absence of costs of natural gas purchased for resale. Costs and operating expenses for 1997 were lower than the prior year, primarily due to the absence of certain North American onshore and divested oil and gas properties and significantly lower volumes of natural gas purchased for resale, partially offset by higher production costs for pigment. Following are general and administrative expenses for 1998, 1997 and 1996: (Millions of dollars) 1998 1997 1996 - --------------------- ---- ---- ---- General and administrative expenses excluding special items $204 $194 $186 ---- ---- ---- Special items - Net provision for environmental reclamation and remediation of inactive sites 41 20 43 Restructuring 36 2 10 Pending/settled litigation - 2 29 Other, net (3) 3 9 ---- ---- ---- Total 74 27 91 ---- ---- ---- General and administrative expenses $278 $221 $277 ==== ==== ==== The increase in 1998 vs. 1997 general and administrative expenses primarily resulted from additional costs related to the company's European pigment operations, which were acquired in March 31, 1998. Net provisions for environmental reclamation and remediation of inactive sites primarily represent additional provisions established for the removal of low-level radioactive materials from the company's inactive facility and offsite areas in West Chicago, Illinois. Restructuring charges are for a 1998 voluntary severance program for the former domestic operations, the work process review and organizational restructuring of several groups, the 1996-1997 relocation of part of the exploration and production unit to Houston, Texas, and severance associated with the divestiture program and the Devon merger. Asset impairments totaled $446 million in 1998 and $25 million in 1996 (see Note 10). Of the 1998 amount, $389 million was for writedowns associated with certain oil and gas fields located in the North Sea, China and United States. Asset impairment of $57 million was also recognized for certain chemical facilities in Idaho and Alabama. The impairments were recorded because these assets were no longer expected to recover their net book values through future cash flows. The 1996 asset impairment related principally to certain oil and gas exploration and production properties in the Gulf of Mexico. Exploration costs for 1998, 1997 and 1996 were $215 million, $139 million and $122 million, respectively. The 1998 increase was the result of higher dry hole costs in the Gulf of Mexico, Kazakhstan, Thailand and onshore United States, higher undeveloped leasehold amortization in the Gulf of Mexico, higher geophysical expenses related to the Gulf of Mexico and higher district expense in China, the North Sea and Gulf of Mexico, partially offset by lower dry hole costs in China. Increased Gulf of Mexico leasehold amortization, geophysical expenses and lease rentals were the primary reason for the 1997 increase over the prior year. In addition, dry hole expenses were higher in China and Algeria, which were partially offset by lower dry hole costs in the North Sea. Taxes, other than income taxes, were $53 million in 1998, $103 million in 1997 and $111 million in 1996. The 1998 decline was due to lower severance taxes, a direct result of lower oil and gas prices. The decline in 1997 from 1996 was primarily due to the absence of certain merged onshore North American properties, which resulted in a decrease in proprietary oil and gas production volumes. Interest and debt expense totaled $157 million in 1998, $141 million in 1997 and $145 million in 1996. Borrowings increased in 1998 due to the acquisitions of European chemical operations and North Sea oil and gas assets partially offset by the proceeds from the sale of the coal assets. Decreased debt was the principal reason for the lower 1997 expense, compared with the prior year. Other income was as follows for each of the years in the three-year period ended December 31, 1998: (Millions of dollars) 1998 1997 1996 - --------------------- ---- ---- ---- Other income excluding special items $36 $43 $ 9 --- --- ---- Special items - Interest income from settlement of prior years' income taxes 19 - - Settlements with insurance carriers 12 12 67 Equity affiliate's full-cost ceiling writedown (27) - - Gains on the sale of nonstrategic oil and gas properties 2 2 11 Gains on sales of equity securities - 18 23 Other, net 1 7 - --- --- ---- Total 7 39 101 --- --- ---- Other income $43 $82 $110 === === ==== Lower equity earnings from unconsolidated affiliates were the primary reason for the decline in 1998 other income excluding special items, compared with the prior year. Equity earnings from the Devon investment were impacted by lower oil and gas prices and decreased $14 million for 1998, compared with 1997. In 1997, equity earnings from Devon of $23 million contributed to higher other income, as compared with 1996. In addition, the company recorded $2 million in foreign currency exchange losses in 1997, compared with a $15 million loss in the prior year. Segment Operations Operating profit (loss) from each of the company's segments is summarized in the following table: (Millions of dollars) 1998 1997 1996 - --------------------- ---- ---- ---- Operating profit excluding special items - Exploration and production $ 62 $597 $699 Chemicals 115 84 90 ----- ---- ---- Total 177 681 789 Special items (482) (5) (37) ----- ---- ---- Operating profit (loss) $(305) $676 $752 ===== ==== ==== Exploration and Production Exploration and production sales, operating profit (loss) and production and sales statistics are shown in the following table: (Millions of dollars, except per-unit amounts) 1998 1997 1996 - ------------------------- ------ ------ ------ Sales $1,267 $1,845 $2,048 ====== ====== ====== Operating profit excluding special items $ 62 $ 597 $ 699 Special items (423) (2) (32) ------ ------ ------ Operating profit (loss) $ (361) $ 595 $ 667 ====== ====== ====== Net proprietary crude oil and condensate produced (thousands of barrels per day) 172 172 177 Average price of crude oil sold (per barrel) $12.52 $18.32 $19.18 Proprietary natural gas sold (MMCF per day) 584 685 781 Average price of natural gas sold (per MCF) $ 2.12 $ 2.43 $ 2.10 Asset impairment for certain oil and gas fields in the North Sea, China and United States totaled $389 million in 1998 and is reflected in special items. Also, in 1998 a $34 million restructuring reserve is shown as a special item. This amount was provided primarily for a voluntary severance program for former Oryx domestic operations. Special items in 1997 consisted primarily of additional costs for the segment's restructuring and relocation to Houston, Texas. The 1996 special items were $22 million for asset impairment and $10 million for restructuring, due to the December 1996 merger of certain North American onshore properties into Devon and the announcement of the relocation of certain exploration and production personnel to Houston, Texas. Chemicals Chemical sales and operating profit are shown in the following table: (Millions of dollars) 1998 1997 1996 - --------------------- ---- ---- ---- Sales $933 $760 $692 ==== ==== ==== Operating profit excluding special items $115 $ 84 $ 90 Special items (59) (3) (5) ---- ---- ---- Operating profit $ 56 $ 81 $ 85 ==== ==== ==== Asset impairment totaled $57 million for noncore chemical assets in Alabama and Idaho in 1998 and is included in special items. In addition, $2 million of severance charges were recorded as special items in 1998. Special items in 1997 were primarily for the write-off of obsolete equipment. The 1996 amount was for impairment and shutdown costs for a crosstie-treating facility and the elimination of a product line at a specialty plant. Titanium dioxide pigment prices increased throughout 1998. This improvement in pricing, along with the company's acquisition of 80% of the 104,000 net metric-ton-per-year European pigment operations from Bayer and a full year's production from the 27,000 metric-ton-per-year expansion of the company's Hamilton, Mississippi, plant were the primary reasons for the $173 million increase in chemical sales. These sales increases were partially offset by higher per-unit costs for pigment, synthetic rutile and certain electrolytic products, resulting in a $31 million increase in operating profit excluding special items. The increase in 1997 sales, compared with 1996, was due to increased titanium dioxide pigment and ammonium perchlorate sales volumes. Partially offsetting these increases were lower average pigment prices. Although prices strengthened considerably in the last half of 1997, average prices received over the year were less than those received in 1996. The higher 1997 pigment volumes resulted from the completion of the expansion at the Hamilton, Mississippi, plant and a full year's production from the 1996 expansion in Western Australia. Financial Condition (Millions of dollars) 1998 1997 1996 - --------------------- ----- ----- ----- Current ratio 0.8 1.0 1.2 Total debt $2,250 $1,766 $1,849 Total debt less cash 2,129 1,574 1,719 Stockholders' equity $1,346 $1,558 $1,279 Net debt to total capitalization 61% 50% 57% Floating-rate debt to total debt 33 15 31 Cash Flow Net cash provided by operating activities was $385 million in 1998, compared with $1.1 billion in 1997 and $1.2 billion in 1996. The decrease in 1998 resulted primarily from the net loss and increased working capital and other changes that used cash from operating activities. Net cash provided by operating activities was reduced by taxes paid related to the sale of the discontinued coal operations of $115 million. The decrease in 1997 net cash provided by operating activities, compared with 1996, resulted primarily from lower net income, lower noncash charges, higher cash environmental expenditures and lower deferred income taxes. Cash flow provided by operating activities in 1997 was also adversely affected by the company's merger of certain of its North American onshore oil and gas properties into Devon, since undistributed earnings from equity affiliates represent a noncash item. In 1998, proceeds of approximately $600 million were received from the sale of the company's discontinued coal operations, $150 million from the sale of the ammonium perchlorate operations and marginal exploration and production properties and $20 million from other investing activities. These sources of cash from investing activities and net proceeds from debt issuances of $481 million were used for capital expenditures of $981 million, acquisitions of the Gulf Canada North Sea assets and the European titanium dioxide pigment facilities totaling $518 million and dry hole costs of $92 million. In both 1997 and 1996, cash provided by operating activities was supplemented by other sources of cash that were used primarily to reduce debt and purchase the company's common stock (see Note 14). In 1997, cash available increased $21 million from the sale of equity securities, $17 million from the sale of nonstrategic and marginal exploration and production properties, $17 million from the sale of other assets and $21 million related to insurance settlements. During 1996, the company received cash proceeds of $57 million from the divestiture of nonstrategic, marginal and other exploration and production properties; $43 million related to insurance settlements; $29 million from the sale of equity securities; $13 million from the sale of the remaining refining and marketing assets; and $11 million from the sale of other assets, including the company's West Virginia coal mining operation. The company's Board of Directors authorized a stock purchase program in 1998. A total of 580,000 shares ($25 million) was purchased before the program was cancelled because of the company's merger. The 1995 stock purchase program was completed in August 1997 with expenditures of $60 million in 1997, $195 million in 1996 and $45 million in 1995. A total of 4,829,000 shares was purchased through this program. On January 14, 1997, the company's Board of Directors approved an increase in the quarterly dividend payable April 1, 1997, to $.45 per share from $.41 per share. Liquidity At year-end 1998, total debt outstanding was $2.3 billion. The percentage of net debt to total capitalization was 61% at December 31, 1998, 50% at December 31, 1997, and 57% at year-end 1996. The higher percentage at year-end 1998 resulted from the increase in borrowings due to the acquisitions of the Gulf Canada United Kingdom assets and the European pigment operations, and capital expenditures that totaled more than the cash proceeds from the sales of the coal operations. The improvement in the 1997 percentage was the direct result of repayment of debt, which more than offset the effect of the stock purchase program on total capitalization. In connection with the merger, ratings agencies reviewed the company's debt ratings. The new ratings are "BBB+," "Baa1" and "BBB" for senior unsecured debt. See Note 8 for a discussion of the company's debt at year-end 1998. The company has the borrowing capacity to meet its needs and provide for its commercial paper program and general liquidity. In April 1999, the company increased its shelf registration with the Securities and Exchange Commission to offer up to $1 billion of debt securities, preferred stock, common stock or warrants. The company and/or its subsidiaries also have several revolving credit agreements. At year-end 1998, $598 million was outstanding under revolving credit facilities, which bear interest at varying rates. At December 31, 1998, the company had unused lines of credit and revolving credit agreements totaling $708 million. Of this amount, $345 million and $90 million could be used to support the commercial paper borrowings of Kerr-McGee Credit LLC and Kerr-McGee Oil (U.K.) PLC respectively, both wholly owned subsidiaries. On February 26, 1999, the date of the merger, the company signed two new revolving credit facilities replacing $75 million of a Kerr-McGee Oil (U.K.) PLC revolving credit facility and Oryx's $500 million, five-year revolving credit facility entered into October 20, 1997. The two new agreements consist of a three-year, $500 million facility and a 364-day, $250 million facility. Initially, one-third of the borrowings under each of the agreements can be made in British pound sterling, euros or other local European currencies. Interest for each of the revolving credit facilities is payable at varying rates. During 1998, the company and/or its subsidiaries entered into two other revolving credit agreements. One of the company's wholly owned U.K. subsidiaries, Kerr-McGee Resources Limited, entered into a $76 million revolving credit agreement, of which $71 million was outstanding at year-end. This agreement permits borrowings through May 15, 2003. Another facility entered into during 1998 allows for the European operations to borrow up to 500 million Belgian francs (approximately $14 million). This facility is renewable annually. At December 31, 1998, an amount equal to $8 million was outstanding under this arrangement. Interest is payable at varying rates for both of these facilities. At December 31, 1998, the company classified $400 million of its short-term obligations as long-term debt. Final settlement of these obligations, consisting of revolving credit borrowings and commercial paper, is not expected to occur in 1999. The company has the intent and the ability, as evidenced by committed credit arrangements, to refinance this debt on a long-term basis. The company's practice has been to continually refinance its commercial paper, while maintaining levels believed to be appropriate. The company finances capital expenditures through internally generated funds and various borrowings. Cash capital expenditures were $981 million in 1998, $836 million in 1997 and $875 million in 1996, a total of $2.7 billion. During this same three-year period, $3.1 billion of net cash was provided by operating activities (exclusive of working capital and other changes), which exceeded cash capital expenditures and dividends paid during the periods by approximately $124 million. Management anticipates that 1999 cash capital requirements, currently estimated at $545 million, and the capital expenditures programs for the next several years can continue to be provided through internally generated funds and selective borrowings. Market Risks The company is exposed to a variety of market risks, including the effects of movements in foreign currency exchange rates, interest rates and certain commodity prices. The company addresses its risks through a controlled program of risk management that includes the use of derivative financial instruments. The company does not hold or issue derivative financial instruments for trading purposes. See Notes 1 and 16 for additional discussions of the company's financial instruments and hedging activities. Foreign Currency Exchange The U.S. dollar is the functional currency for the company's international operations, except for its European chemical operations. It is the company's intent to hedge a portion of its monetary assets and liabilities denominated in foreign currencies. Periodically, the company purchases foreign currency forward contracts to provide funds for operating and capital expenditure requirements that will be denominated in foreign currencies, primarily Australian dollars and British pound sterling. These contracts generally have durations of less than three years. The company also enters into forward contracts to hedge the sale of various foreign currencies, principally generated from accounts receivable for titanium dioxide pigment sales denominated in foreign currencies. These contracts are principally for European currencies and generally have durations of less than a year. Since these contracts qualify as hedges and correlate to currency movements, any gains or losses resulting from exchange rate changes are deferred and recognized as adjustments of the hedged transaction when it is settled in cash. Following are the notional amounts at the contract exchange rates, weighted-average contractual exchange rates and estimated fair value by contract maturity for open contracts at year-end 1998 and 1997 to purchase (sell) foreign currencies. All amounts are U.S. dollar equivalents.
(Millions of dollars, Notional Weighted-Average Estimated except average contract rate) Amount Contract Rate Fair Value Open contracts at December 31, 1998 - Maturing in 1999 - Australian dollar $56 .7117 $48 German mark (1) 1.6745 (1) British pound sterling 41 1.6355 42 Maturing in 2000 - Australian dollar 21 .6145 21 Open contracts at December 31, 1997 - Maturing in 1998 - Australian dollar 63 .7507 55 British pound sterling 49 1.6147 50 German mark (3) 1.7721 (3) British pound sterling (1) .6137 (1) Belgian franc (1) 36.0382 (1) Maturing in 1999 - Australian dollar 39 .7377 35
Interest Rates The company's exposure to changes in interest rates relates primarily to long-term debt obligations. The company has participated in various interest rate hedging arrangements to help manage the floating-rate portion of part of its debt. At December 31, 1998, all interest rate hedging contracts had expired. At December 31, 1997, the company was a party to interest rate hedging agreements having notional amounts of $500 million, of which $250 million represented interest rate caps (caps) and $250 million represented interest rate swaps (swaps). The company's exposure to changes in LIBOR was reduced due to the offsetting terms of the caps and swaps (see Note 16). The table below presents principal amounts and related weighted-average interest rates by maturity date for the company's long-term debt obligations outstanding at year-end 1998. All borrowings are in U.S. dollars.
There- Fair Value (Millions of dollars) 1999 2000 2001 2002 2003 after Total 12/31/98 - ---------------------------------------------------------------------------------------------------------------------------- Fixed-rate debt - Principal amount $235 $26 $175 $ 35 $116 $910 $1,497 $1,648 Weighted-average Interest rate 9.56% 8.43% 9.81% 8.86% 8.04% 7.49% 8.17% Variable-rate debt - Principal amount - $65 $129 $452 $71 - $717 $717 Weighted-average Interest rate - 5.43% 6.33% 5.94% 5.58% - 5.92%
At December 31, 1997, long-term debt included fixed-rate debt of $1,509 million (fair value - $1,681 million) with a weighted-average interest rate of 8.18% and $232 million variable-rate debt, which approximated fair value, with a weighted-average interest rate of 6.39%. Commodity Prices The company periodically uses commodity futures and option contracts to hedge a portion of its crude oil and natural gas sales and natural gas purchased for operations in order to minimize the price risks associated with the production and marketing of crude oil and natural gas. Since the contracts qualify as hedges and correlated to price movements of crude oil and natural gas, any gain or loss from these contracts is deferred and recognized as part of the hedged transaction. At December 31, 1998, the company had open crude oil collar contracts to hedge approximately 4% of its estimated 1999 worldwide crude oil sales volumes at an average floor price of $15.85 per barrel and an average ceiling price of $17.35 per barrel. Approximately 21% of its estimated 1999 worldwide natural gas sales volumes were hedged using collar arrangements at an average floor price of $2.29 per MMBtu and an average ceiling price of $2.47 per MMBtu. The aggregate carrying value of these contracts at December 31, 1998, was $7 million, and the aggregate fair value, based on quotes from brokers, was approximately $22 million. Environmental Matters The company's operations are subject to various environmental laws and regulations. Under these laws, the company is or may be required to remove or mitigate the effects on the environment of the disposal or release of certain chemical, petroleum or low-level radioactive substances at various sites, including sites that have been designated Superfund sites by the U.S. Environmental Protection Agency (EPA) pursuant to the Comprehensive Environmental Response, Compensation, and Liability Act of 1980 (CERCLA), as amended. At December 31, 1998, the company had received notices that it has been named a potentially responsible party (PRP) with respect to 17 existing EPA Superfund sites that require remediation and may share liability at certain of these sites. In addition, the company and/or its subsidiaries have executed consent orders, operate under a license or have reached agreements to perform or have performed remediation or remedial investigations and feasibility studies on sites not included as EPA Superfund sites. The company does not consider the number of sites for which it has been named a PRP to be a relevant measure of liability. The company is uncertain as to its involvement in many of the sites because of continually changing environmental laws and regulations; the nature of the company's businesses; the large number of other PRPs; the present state of the law, which imposes joint and several liability on all PRPs under CERCLA; and pending legal proceedings. Therefore, the company is unable to reliably estimate the potential liability and the timing of future expenditures that may arise from many of these environmental sites. Reserves have been established for the remediation and reclamation of active and inactive sites where it is probable that future costs will be incurred and the liability is estimable. In 1998, $91 million was added to the reserve for active and inactive sites. At December 31, 1998, the company's reserve for these sites totaled $240 million. In addition, at year-end 1998, the company had a reserve of $219 million for the future costs of the abandonment and removal of offshore well and production facilities at the end of their productive lives. In the Consolidated Balance Sheet, $376 million of the total reserve is classified as a deferred credit, and the remaining $83 million is included in current liabilities. Expenditures for the environmental protection and cleanup of existing sites for each of the last three years and for the three-year period ended December 31, 1998, are as follows: (Millions of dollars) 1998 1997 1996 Total ---- ---- ---- ----- Charges to environmental reserves $109 $ 96 $59 $264 Capital expenditures 24 17 15 56 Recurring expenses 13 20 19 52 ---- ---- --- ---- Total $146 $133 $93 $372 ==== ==== === ==== The company has not recorded in the financial statements potential reimbursements from governmental agencies or other third parties (see Notes 9 and 13). The following table reflects the company's portion of the known estimated costs of investigation and/or remediation that is probable and estimable. The table includes all EPA Superfund sites where the company has been notified it is a PRP under CERCLA and other sites for which the company believes it had some ongoing financial involvement in investigation and/or remediation at year-end 1998.
Total Known Total Total Number Estimated Expenditures of Identifiable Cost Through 1998 PRPs ---- ------------ ---- Location of Site State of Investigation/Remediation Millions of dollars - ---------------- ---------------------------------- ------------------- EPA Superfund sites Milwaukee, Wis. Executed consent decree to remediate the site of a former wood-treating facility. Awaiting approval of proposed remedy; installed and operating a free-product recovery system. $ 15 $ 7 3 West Chicago, Ill., Began cleanup of a portion of one two sites outside site in 1995, and cleanup of the the facility second site began in 1997 (see Note 9). 58 50 1 Chicago, Ill., and Various stages of investigation/ 44 32 359 13 sites individually remediation ---- ---- ---- not material 117 89 363 ---- ---- ---- Non-EPA Superfund sites under consent order, license or agreement West Chicago, Ill., Reached agreement with the City facility of West Chicago. Decommissioning is in progress under State of Illinois supervision while awaiting state license amendment (see Note 9). Began shipments to a permanent disposal facility in 1994. 385 225 Cleveland/Cushing, Began cleanup in 1996. 63 47 ---- ---- Okla. 448 272 ---- ---- Non-EPA Superfund sites individually not material 224 188 ---- ---- Total for all sites $789 $549 ==== ====
Management believes adequate reserves have been provided for environmental and all other known contingencies. However, it is possible that additional reserves could be required in the future due to the previously noted uncertainties. Year 2000 Readiness In 1996, the company established a formal Year 2000 Program (Program) to assess and correct Year 2000 problems. The Program is organized into two major areas: Business Systems and Facilities Integrity. Business Systems include replacement and upgrade of computer hardware and software, including major business applications such as purchasing, inventory, engineering, financial, human resources, etc. Facilities Integrity encompasses telecommunications, plant process controls, instrumentation and embedded chip systems as well as an assessment of third-party Year 2000 readiness. The Program is generally divided into the following phases: - - Identification, evaluation and prioritization of systems that need to be modified or replaced. - - Remediation work to modify existing systems or install new systems. - - Testing and validation of the systems and applications. - - Contingency planning. An integral part of the Program is communication with third parties to assess the extent and status of their Year 2000 efforts. Formal communications have been initiated with critical suppliers to determine whether their operations and/or the products and services provided to the company will be Year 2000 ready. In addition, the company has contacted key customers and partners requesting information regarding their Year 2000 readiness. The company continues to evaluate responses and make additional inquiries as needed. The company is also developing contingency plans to address potential failure of critical systems and/or critical suppliers. These plans may include items such as activating manual systems, placing operations on standby and other procedures to accommodate significant disruptions that could be caused by system failures. When appropriate, alternative providers are being identified in the event that certain critical suppliers are unable to provide an acceptable level of service to the company. Contingency plans that address business critical areas are expected to be completed by the end of the 1999 third quarter. As of December 31, 1998, approximately 95% of the work on Business Systems for the merged company had been completed. Many of the Business Systems projects were undertaken to improve business functionality and not solely to address Year 2000 issues. These activities are anticipated to be completed by the end of the 1999 third quarter. Approximately 70% of the planned work on Facilities Integrity has also been completed, including additional activities resulting from the merger. Critical activities are expected to be completed by the end of the third quarter of 1999. However, some ongoing work in areas of contingency planning, third party communications, auditing and year-end communication response planning is expected to continue through the end of 1999. Program expenditures total approximately $45 million from inception through December 31, 1998, which included $19 million spent during 1998. The total cost to achieve Year 2000 readiness is estimated to be $52 million for the entire Program, which is not material to the company's consolidated results of operations, financial position or cash flows. Program expenditures are provided through internally generated funds and selective borrowings. The failure to correct a critical system that is adversely affected by Year 2000 could result in disruption of some aspects of the company's normal business activities or operations. Such failures could have a material adverse effect on the company's results of operations and cash flows in a particular quarter or annual period. Management believes that the Program is comprehensive and reduces Year 2000 risks associated with internal systems to a manageable level. Regardless of management's efforts to assess and verify internal readiness, there can be no assurance that all outside entities with which the company does business will be Year 2000 compliant. Failure by a third party to remediate Year 2000 issues in a timely manner could have a material adverse effect on the company's results of operations and cash flows in a particular quarter or annual period. Failure of a critical operating or safety system, or the failure of a key third-party supplier, partner or customer, are believed to be the most reasonably likely worst-case scenarios that could impact the company. New Accounting Standards In March 1998, the American Institute of Certified Public Accountants issued Statement of Position (SOP) No. 98-1, "Accounting for the Costs of Computer Software Developed or Obtained for Internal Use." Amounts capitalized or expensed by the company for internal-use software projects are not expected to differ materially as a result of the SOP, since the prescribed accounting treatment is fairly consistent with the company's current accounting policy. The effect of the SOP is to be recognized prospectively and is effective for 1999 financial statements. SOP No. 98-5, "Reporting on the Costs of Start-Up Activities" was issued in April 1998. It requires that costs related to start-up activities, including organization costs, be expensed as incurred. The SOP was adopted in the first quarter of 1999, and the company recognized approximately $6 million ($4 million after income taxes) as the cumulative effect of the change in accounting principle. These costs were carried as deferred charges at year-end 1998. In June 1998, the Financial Accounting Standards Board issued Statement No. 133, "Accounting for Derivative and Hedging Activities." The statement requires recording all derivative instruments as assets or liabilities, measured at fair value. The standard is effective for fiscal years beginning after June 15, 1999. An exposure draft was issued in May 1999 to defer the effective date to fiscal years beginning after June 15, 2000. The company is currently evaluating the impact the standard will have on income from continuing operations; however, management believes it will not be material due to the limited amount of hedging activity in which the company currently engages. Cautionary Statement Concerning Forward-Looking Statements The company has made certain forward-looking statements in this report, which are subject to risks and uncertainties. These statements are based on the beliefs and assumptions of the company's management. Forward-looking statements are not guarantees of performance. Among the factors that could cause actual results to differ materially are crude oil and natural gas prices; chemicals prices and competitive conditions affecting supply and demand for the company's chemical products; potential failure to achieve expected production from existing and future oil and gas development projects; potential disruption or interruption of the company's production or manufacturing facilities due to accidents or political events; the potential liability for remedial actions under existing or future environmental regulations; and potential liability resulting from pending or future litigation. In addition, such statements could be affected by general domestic and international economic and political conditions. Certain information in the Year 2000 Readiness section is forward-looking. The Year 2000 Program and the dates on which the company believes it will be completed are based on management's best estimates, which were derived utilizing numerous assumptions of future events, including the continued availability of certain resources, third-party modification plans and other factors. However, there can be no assurance that there will not be a delay in, or increased costs associated with, the implementation of the Year 2000 Program. Forward-looking statements include information concerning possible or assumed future results and may be preceded by, followed by, or otherwise include the words "believes," "expects," "anticipates," "intends," "plans," "estimates" or similar expressions. For those statements, the company claims the protection of the safe harbor for forward-looking statements contained in the Private Securities Litigation Reform Act of 1995. Responsibility for Financial Reporting The company's management is responsible for the integrity and objectivity of the financial data contained in the financial statements. These financial statements have been prepared in conformity with generally accepted accounting principles appropriate under the circumstances and, where necessary, reflect informed judgments and estimates of the effects of certain events and transactions based on currently available information at the date the financial statements were prepared. The company's management depends on the company's system of internal accounting controls to assure itself of the reliability of the financial statements. The internal control system is designed to provide reasonable assurance, at appropriate cost, that assets are safeguarded and transactions are executed in accordance with management's authorizations and are recorded properly to permit the preparation of financial statements in accordance with generally accepted accounting principles. Periodic reviews are made of internal controls by the company's staff of internal auditors, and corrective action is taken if needed. The Board of Directors reviews and monitors financial statements through its audit committee, which is composed solely of directors who are not officers or employees of the company. The audit committee meets regularly with the independent public accountants, internal auditors and management to review internal accounting controls, auditing and financial reporting matters. The independent public accountants are engaged to provide an objective and independent review of the company's financial statements and to express an opinion thereon. Their audits are conducted in accordance with generally accepted auditing standards, and their report is included below. Report of Independent Public Accountants To the Stockholders and Board of Directors of Kerr-McGee Corporation: We have audited the accompanying consolidated balance sheet of Kerr-McGee Corporation (a Delaware corporation) and subsidiary companies as of December 31, 1998 and 1997, and the related consolidated statements of income, comprehensive income and stockholders' equity and cash flows for each of the three years in the period ended December 31, 1998. These financial statements are the responsibility of the company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We did not audit the financial statements of Oryx Energy Company, which was merged into the company during 1999 in a transaction accounted for as a pooling of interests, as discussed in Note 1. Such statements are included in the consolidated financial statements of Kerr-McGee Corporation and reflect total assets and total revenues of 36 percent and 37 percent in 1998, respectively, total assets and total revenues of 39 percent and 47 percent in 1997, respectively, and total revenues of 43 percent in 1996, of the related consolidated totals, after restatement to reflect certain adjustments as set forth in Note 24. The financial statements of Oryx Energy Company prior to those adjustments were audited by other auditors whose report has been furnished to us and our opinion, insofar as it relates to the amounts included for Oryx Energy Company, is based solely on the report of the other auditors. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits and the report of other auditors provide a reasonable basis for our opinion. In our opinion, based on our audits and the report of other auditors, the financial statements referred to above present fairly, in all material respects, the financial position of Kerr-McGee Corporation and subsidiary companies as of December 31, 1998 and 1997, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 1998, in conformity with generally accepted accounting principles. Oklahoma City, Oklahoma, February 26, 1999 ARTHUR ANDERSEN LLP REPORT OF INDEPENDENT ACCOUNTANTS To the Shareholders and Board of Directors, Oryx Energy Company: In our opinion, the consolidated balance sheets of Oryx Energy Company and its Subsidiaries and the related consolidated statements of income, cash flows and changes in shareholders' equity (not presented separately herein) present fairly, in all material respects, the consolidated financial position of Oryx Energy Company and its Subsidiaries as of December 31, 1998 and 1997 and the consolidated results of their operations and their cash flows for each of the three years in the period ended December 31, 1998 in conformity with generally accepted accounting principles. These financial statements are the responsibility of the Company's management; our responsibility is to express an opinion on these financial statements in accordance with generally accepted auditing standards which require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management and evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for the opinion expressed above. PricewaterhouseCoopers LLP Dallas, Texas February 26, 1999 Consolidated Statement of Income
(Millions of dollars, except per-share amounts) 1998 1997 1996 - -------------------------- ------ ------ ------ Sales $2,200 $2,605 $2,740 ------ ------ ------ Costs and Expenses Costs and operating expenses 1,053 1,003 1,053 General and administrative expenses 278 221 277 Depreciation and depletion 561 545 534 Asset impairment 446 - 25 Exploration, including dry holes and amortization of undeveloped leases 215 139 122 Taxes, other than income taxes 53 103 111 Interest and debt expense 157 141 145 ------ ------ ------ Total Costs and Expenses 2,763 2,152 2,267 ------ ------ ------ (563) 453 473 Other Income 43 82 110 ------ ------ ------ Income (Loss) from Continuing Operations before Income Taxes and Extraordinary Charge (520) 535 583 Provision (Benefit) for Income Taxes (175) 184 225 ------ ------ ------ Income (Loss) from Continuing Operations Before Extraordinary Charge (345) 351 358 Income from Discontinued Operations, net of taxes of $156 in 1998, $12 in 1997 and $18 in 1996 277 33 56 ------ ------ ------ Income (Loss) before Extraordinary Charge (68) 384 414 Extraordinary Charge, net of taxes of $1 - (2) - ------ ------ ------ Net Income (Loss) $ (68) $ 382 $ 414 ====== ====== ====== Net Income (Loss) per Common Share Basic - Continuing operations $(3.98) $ 4.04 $ 4.07 Discontinued operations 3.20 .38 .63 Extraordinary charge - (.02) - ------ ------ ------ Net income (loss) $ (.78) $ 4.40 $ 4.70 ====== ====== ====== Diluted - Continuing operations $(3.98) $ 4.02 $ 4.05 Discontinued operations 3.20 .38 .63 Extraordinary charge - (.02) - ------ ------ ------ Net income (loss) $ (.78) $ 4.38 $ 4.68 ====== ====== ====== The accompanying notes are an integral part of this statement.
Consolidated Statement of Comprehensive Income and Stockholders' Equity
Accumulated Capital in Other Deferred Total Comprehensive Common Excess of Retained Comprehensive Treasury Compensation Stockholders' (Millions of dollars) Income Stock Par Value Earnings Income (Loss) Stock and Other Equity - ----------------------------------------------------------------------------------------------------------------------------------- Balance December 31, 1995 $92 $1,217 $103 $ 2 $(111) $(179) $1,124 Net income $414 - - 414 - - - 414 Unrealized gain on securities, net of $5 income tax 9 - - - 9 - - 9 Realized gains on securities, net of $8 income tax (15) - - - (15) - - (15) Appreciation of securities donated, net of $5 income tax (8) - - - (8) - - (8) Shares issued - 1 24 - - - - 25 Shares acquired - - - - - (195) - (195) Dividends declared ($1.64 per share) - - - (81) - - - (81) Other - - - - - - 6 6 ---- ---------------------------------------------------------------------------------- Total $400 ==== Balance December 31, 1996 93 1,241 436 (12) (306) (173) 1,279 Net income $382 - - 382 - - - 382 Unrealized gain on securities, net of $1 income tax 2 - - - 2 - - 2 Realized gains on securities, net of $6 income tax (12) - - - (12) - - (12) Appreciation of securities donated, net of $1 income tax (2) - - - (2) - - (2) Minimum pension liability adjustment (5) - - - (5) - - (5) Shares issued - - 33 - - - - 33 Shares acquired - - - - - (57) - (57) Dividends declared ($1.80 per share) - - - (86) - - - (86) Other - - - (1) - - 25 24 ---- ---------------------------------------------------------------------------------- Total $365 ==== Balance December 31, 1997 93 1,274 731 (29) (363) (148) 1,558 Net loss $(68) - - (68) - - - (68) Foreign currency translation adjustment (5) - - - (5) - - (5) Minimum pension liability adjustment (2) - - - (2) - - (2) Shares issued - - 8 - - - - 8 Shares acquired - - - - - (25) - (25) Dividends declared ($1.80 per share) - - - (86) - - - (86) Effect of equity affiliate's merger - - - (51) - - - (51) Other - - - 1 - - 16 17 ----- ---------------------------------------------------------------------------------- Total $(75) ===== Balance December 31, 1998 $93 $1,282 $527 $(36) $(388) $(132) $1,346 ================================================================================= The accompanying notes are an integral part of this statement.
Consolidated Balance Sheet
(Millions of dollars) 1998 1997 - --------------------- ------ ------ ASSETS Current Assets Cash $ 121 $ 192 Accounts receivable, net of allowance for doubtful accounts of $5 in both 1998 and 1997 389 501 Inventories 247 175 Deposits, prepaid expenses and other 120 58 ------ ------ Total Current Assets 877 926 Investments Equity affiliates 170 277 Other assets 87 63 Property, Plant and Equipment - Net 4,153 3,919 Deferred Charges 164 154 ------ ------ Total Assets $5,451 $5,339 ====== ====== LIABILITIES AND STOCKHOLDERS' EQUITY Current Liabilities Accounts payable $ 385 $ 368 Short-term borrowings 36 25 Long-term debt due within one year 236 5 Taxes on income 48 109 Taxes, other than income taxes 11 31 Accrued liabilities 334 388 ------ ------ Total Current Liabilities 1,050 926 ------ ------ Long-Term Debt 1,978 1,736 ------ ------ Deferred Credits and Reserves Income taxes 329 329 Other 748 790 ------ ------ Total Deferred Credits and Reserves 1,077 1,119 ------ ------ Stockholders' Equity Common stock, par value $1.00 - 300,000,000 shares authorized, 93,378,069 shares issued in 1998 and 93,228,091 shares issued in 1997 93 93 Capital in excess of par value 1,282 1,274 Preferred stock purchase rights 1 1 Retained earnings 527 731 Accumulated other comprehensive loss (36) (29) Common stock in treasury, at cost - 7,010,790 shares in 1998 and 6,434,465 shares in 1997 (388) (363) Deferred compensation (133) (149) ------ ------ Total Stockholders' Equity 1,346 1,558 ------ ------ Total Liabilities and Stockholders' Equity $5,451 $5,339 ====== ====== The "successful efforts" method of accounting for oil and gas exploration and production activities has been followed in preparing this balance sheet. The accompanying notes are an integral part of this balance sheet.
Consolidated Statement of Cash Flows
(Millions of dollars) 1998 1997 1996 - --------------------- ---- ---- ---- Cash Flow from Operating Activities Net income (loss) $ (68) $ 382 $ 414 Adjustments to reconcile to net cash provided by operating activities - Deferred income taxes (98) 31 98 Depreciation, depletion and amortization 615 593 579 Dry hole cost 100 53 55 Asset impairment 446 - 25 Provision for environmental reclamation and remediation of inactive sites 41 20 43 Gain on sale of coal operations, net of income taxes (257) - - Gain on sale of exploration and production properties (20) (3) (19) Realized gain on available-for-sale securities - (18) (23) Retirements and (gain) loss on sale of other assets 13 (4) (3) Noncash items affecting net income 13 23 39 Changes in current assets and liabilities and other, net of effects of operations acquired and sold - (Increase) decrease in accounts receivable 164 139 (29) (Increase) decrease in inventories (54) 40 5 (Increase) decrease in deposits and prepaids (92) 17 52 Decrease in accounts payable and accrued liabilities (103) (53) (7) Increase (decrease) in taxes payable (165) 66 23 Other (150) (189) (83) ----- ------ ------ Net cash provided by operating activities 385 1,097 1,169 ----- ------ ------ Cash Flow from Investing Activities Capital expenditures (981) (836) (875) Cash dry hole cost (92) (52) (34) Acquisitions (518) - - Proceeds from sale of discontinued operations 599 - 13 Proceeds from sale of chemical and exploration and production properties 150 17 57 Proceeds from sale of available-for-sale securities - 21 29 Proceeds from sale of other assets 11 17 11 Proceeds from sale of long-term investments 12 13 17 Purchase of long-term investments (3) (12) (15) ----- ------ ------ Net cash used in investing activities (822) (832) (797) ----- ------ ------ Cash Flow from Financing Activities Issuance of long-term debt 563 390 245 Issuance of common stock 6 28 16 Increase (decrease) in short-term borrowings 11 (12) (57) Repayment of long-term debt (93) (464) (275) Dividends paid (86) (85) (83) Treasury stock purchased (25) (60) (195) ----- ------ ------ Net cash provided by (used in) financing activities 376 (203) (349) ----- ------ ------ Effects of Exchange Rate Changes on Cash and Cash Equivalents (10) - - ----- ------ ------ Net Increase in Cash and Cash Equivalents (71) 62 23 Cash and Cash Equivalents at Beginning of Year 192 130 107 ----- ------ ------ Cash and Cash Equivalents at End of Year $ 121 $ 192 $ 130 ===== ====== ====== The accompanying notes are an integral part of this statement.
Notes to Financial Statements 1. The Company and Significant Accounting Policies Kerr-McGee is an energy and chemical company with worldwide operations. It explores for, develops, produces and markets crude oil and natural gas and its chemical operations primarily produces and markets titanium dioxide pigment. The exploration and production unit produces and explores for oil and gas in the United States, United Kingdom sector of the North Sea, Indonesia, China, Kazakhstan and Ecuador. Exploration efforts are also extended to Australia, Algeria, Brazil, Gabon, Thailand and Yemen. The chemical unit has operations in the United States, Australia, Germany and Belgium. The company also has an equity interest in Devon Energy Corporation, a publicly traded oil and gas exploration and production company (see Note 4). On February 26, 1999, the merger between Kerr-McGee and Oryx was completed. Oryx was a worldwide independent oil and gas exploration and production company. Under the merger agreement, each outstanding share of Oryx common stock was effectively converted into the right to receive 0.369 shares of newly issued Kerr-McGee common stock. The merger qualified as a tax-free exchange to Oryx's shareholders and has been accounted for as a pooling of interests. In the aggregate, Kerr-McGee is issuing approximately 39 million shares of Kerr-McGee common stock bringing the total shares outstanding to approximately 86 million. Kerr-McGee's consolidated financial statements have been restated for periods prior to the merger to include the operations of Oryx, adjusted to conform to Kerr-McGee's accounting policies and presentation. See Note 24 for additional details regarding the financial information of the previously separate companies. Basis of Presentation The consolidated financial statements include the accounts of all subsidiary companies that are more than 50% owned and the proportionate share of joint ventures in which the company has an undivided interest. Investments in affiliated companies that are 20% to 50% owned are carried as Investments - Equity affiliates in the Consolidated Balance Sheet at cost adjusted for equity in undistributed earnings. Except for dividends and changes in ownership interest, changes in equity for undistributed earnings are included in the Consolidated Statement of Income. All material intercompany transactions have been eliminated. The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates as additional information becomes known. Foreign Currencies The U.S. dollar is considered the functional currency for each of the company's international operations, except for its European chemical operations. Foreign currency transaction gains or losses are recognized in the period incurred. The net foreign currency transaction losses in 1998 and 1997 were immaterial. The company recorded net foreign currency transaction losses of $15 million in 1996. The local currencies are the functional currencies for the European chemical operations. Translation adjustments resulting from translating the functional currency financial statements into U.S. dollar equivalents are reported separately in accumulated other comprehensive income (loss) in the Consolidated Statement of Comprehensive Income and Stockholders' Equity. Net Income (Loss) per Common Share Basic net income (loss) per share includes no dilution and is computed by dividing income available to common stockholders by the weighted-average number of common shares outstanding for the period. Diluted net income per share is computed by dividing net income by the weighted-average number of common shares and common stock equivalents outstanding for the period. The weighted-average number of shares used to compute basic net income (loss) per share was 86,688,026 in 1998, 86,756,138 in 1997 and 88,053,257 in 1996. After adding the dilutive effect of the conversion of options to the weighted-average number of shares outstanding, the shares used to compute diluted net income per share were 87,113,906 in 1997 and 88,505,456 in 1996. There was no dilution for 1998 since the company incurred a loss from continuing operations. Not included in the calculation of the denominator for diluted net income per share were 494,063 and 530,667 employee stock options outstanding at year-end 1997 and 1996, respectively. The inclusion of these options would have been antidilutive since they were not "in the money" at the end of the respective years. The company has reserved 1,886,121 shares of common stock for issuance to the owners of its 7-1/2% Convertible Subordinated Debentures due 2014 (Debentures). The Debentures are convertible into the company's common stock at any time prior to maturity at $106.03 per share of common stock. The conversion of the Debentures was not considered for purposes of calculating income loss per share, as the impact would have been antidilutive to net income (loss) per share for the periods presented. Cash Equivalents The company considers all investments purchased with a maturity of three months or less to be cash equivalents. Cash equivalents totaling $58 million in 1998 and $133 million in 1997 were comprised of time deposits, certificates of deposit and U.S. government securities. Inventories The costs of the company's product inventories are determined by the first-in, first-out (FIFO) method. Inventory carrying values include material costs, labor and the associated indirect manufacturing expenses. Materials and supplies are valued at average cost. Property, Plant and Equipment Oil and Gas - Exploration expenses, including geological and geophysical costs, rentals and exploratory dry holes, are charged against income as incurred. Costs of successful wells and related production equipment and developmental dry holes are capitalized and amortized by field using the unit-of-production method as the oil and gas are produced. Undeveloped acreage costs are capitalized and amortized at rates that provide full amortization on abandonment of unproductive leases. Costs of abandoned leases are charged to the accumulated amortization accounts, and costs of productive leases are transferred to the developed property accounts. Other - Property, plant and equipment is stated at cost less reserves for depreciation, depletion and amortization. Maintenance and repairs are expensed as incurred, except that costs of replacements or renewals that improve or extend the lives of existing properties are capitalized. Costs of nonproducing mineral acreage surrendered or otherwise disposed of are charged to expense at the time of disposition. Depreciation and Depletion - Property, plant and equipment is depreciated or depleted over its estimated life by the unit-of-production or the straight-line method. Capitalized exploratory drilling and development costs are amortized using the unit-of-production method based on total estimated proved developed oil and gas reserves. Amortization of producing leasehold, platform costs and acquisition costs of proved properties is based on the unit-of-production method using total estimated proved reserves. In arriving at rates under the unit-of-production method, the quantities of recoverable oil, gas and other minerals are established based on estimates made by the company's geologists and engineers. Retirements and Sales - The costs and related depreciation, depletion and amortization reserves are removed from the respective accounts upon retirement or sale of property, plant and equipment. The resulting gain or loss is included in other income. Interest Capitalized - The company capitalizes interest costs on major projects that require a considerable length of time to complete. Interest capitalized in 1998, 1997 and 1996 was $28 million, $24 million and $26 million, respectively. Impairment of Long-Lived Assets Proved oil and gas properties are reviewed for impairment on a field-by-field basis when facts and circumstances indicate that their carrying amounts may not be recoverable. In performing this review, future cash flows are estimated by applying estimated future oil and gas prices to estimated future production, less estimated future expenditures to develop and produce the reserves. If the sum of these estimated future cash flows (undiscounted and without interest charges) is less than the carrying amount of the property, an impairment loss is recognized for the excess of the carrying amount over the estimated fair value of the property. Other assets are reviewed for impairment by asset group for which the lowest level of independent cash flows can be identified and impaired in the same manner as proved oil and gas properties. Revenue Recognition Except for natural gas sales, revenue is recognized when title passes to the customer. Natural gas revenues and gas-balancing arrangements with partners in natural gas wells are recognized when the gas is produced using the entitlements method of accounting and are based on the company's net working interests. At December 31, 1998 and 1997, both the quantity and dollar amount of gas balancing arrangements were immaterial. Lease Commitments The company utilizes various leased properties in its operations, principally for office space. Lease rental expense was $37 million in 1998, $39 million in 1997 and $33 million in 1996. The aggregate minimum annual rentals under noncancelable leases in effect on December 31, 1998, totaled $162 million, of which $21 million is due in 1999, $19 million in 2000, $64 million in the period 2001 through 2003 and $58 million thereafter. Income Taxes Deferred income taxes are provided to reflect the future tax consequences of differences between the tax basis of assets and liabilities and their reported amounts in the financial statements. Site Dismantlement, Reclamation and Remediation Costs The company provides for the estimated costs at current prices of the dismantlement and removal of oil and gas production and related facilities. Such costs are accumulated over the estimated lives of the facilities by the use of the unit-of-production method. As sites of environmental concern are identified, the company assesses the existing conditions, claims and assertions, generally related to former operations, and records an estimated undiscounted liability when environmental assessments and/or remedial efforts are probable and the associated costs can be reasonably estimated. Employee Stock Option Plan The company accounts for its employee stock option plan using the intrinsic value method in accordance with Accounting Principles Board Opinion (APB) No. 25, "Accounting for Stock Issued to Employees." Futures, Forward and Option Contracts The company hedges a portion of its monetary assets, liabilities and commitments denominated in foreign currencies. Periodically, the company purchases foreign currency forward contracts to provide funds for operating and capital expenditure requirements that will be denominated in foreign currencies and sells foreign currency forward contracts to convert receivables that will be paid in foreign currencies to U.S. dollars. Since these contracts qualify as hedges and correlate to currency movements, any gain or loss resulting from market changes is offset by gains or losses on the hedged receivable, capital item or operating cost. In 1996, the company also entered into foreign currency forward contracts to sell various foreign currencies in anticipation of titanium dioxide pigment sales denominated in foreign currencies. These contracts were marked-to-market with the resulting gain or loss reflected in income in the period in which the change occurred. There were no open contracts at year-end 1997, and no contracts were entered into in 1998. Open contracts at year-end 1996 matured throughout 1997. Net gains and losses on these contracts in both 1997 and 1996 were immaterial. From time to time the company enters into arrangements to hedge the impact of price fluctuations on anticipated crude oil and natural gas sales. Gains or losses on hedging activities are recognized in oil and gas revenues in the period in which the hedged production is sold (see Note 16). The company periodically enters into interest rate hedging agreements to alter the floating rate portion of its underlying debt portfolio. Advance proceeds received under the agreements are included in deferred credits and are amortized as offsets to interest and debt expense over the relevant periods. The differentials paid or received during the terms of such agreements are accrued as interest rates change and are recorded as adjustments to interest and debt expense (see Note 16). 2. Cash Flow Information Net cash provided by operating activities reflects cash payments for income taxes and interest as follows: (Millions of dollars) 1998 1997 1996 --------------------- ---- ---- ---- Income taxes paid $151 $89 $78 Interest paid 180 163 171 Noncash transactions not reflected in the Consolidated Statement of Cash Flows include capital expenditures for which payment will be made in the subsequent year totaling $43 million, $19 million and $4 million at year-end 1998, 1997 and 1996, respectively; transactions during 1997 associated with the assignments of interest of certain North Sea oil and gas properties; transactions during 1996 associated with the acquisition of additional interests in the North Sea; the revaluation of certain investments to fair value and transactions affecting deferred compensation associated with the employee stock ownership plan in each of the three years (see Notes 16 and 20). Effective December 31, 1996, the company merged certain of its North American onshore exploration and production operations into Devon Energy Corporation (Devon) in exchange for 9,954,000 shares of Devon common stock (see (Note 4). This transaction was not reflected in the Consolidated Statement of Cash Flows due to its noncash nature. 3. Inventories Major categories of inventories at year-end 1998 and 1997 are: (Millions of dollars) 1998 1997 --------------------- ---- ---- Chemicals and other products $185 $119 Materials and supplies 53 48 Crude oil 9 8 ---- ---- Total $247 $175 ==== ==== 4. Investments - Equity Affiliates At December 31, 1998 and 1997, investments in equity affiliates are as follows: (Millions of dollars) 1998 1997 --------------------- ---- ---- Devon Energy Corporation $108 $217 Javelina Company 30 32 National Titanium Dioxide Company Limited 18 12 Other 14 16 ---- ---- Total $170 $277 ==== ==== The company holds 9,954,000 shares of Devon common stock, a publicly traded oil and gas exploration and production company, representing an ownership interest in Devon of approximately 21% and 31% at December 31, 1998 and 1997, respectively. The initial 31% investment in Devon was recorded at the carrying value of the North American onshore properties merged into Devon at December 31, 1996. The change in ownership interest resulted from Devon's merger with a third party, which was accounted for as a pooling of interests. In 1998, the carrying amount of the investment in Devon stock was adjusted for the issuance of additional common stock that resulted from the merger, and retained earnings were charged $51 million for the decrease in the company's share of Devon's net assets resulting from the merger. Devon also recorded a full cost writedown in 1998. The company's proportionate share of the writedown was $27 million. The market value of the company's investment in Devon was $305 million at December 31, 1998, based on the closing price of Devon's common stock as reported in The Wall Street Journal. Javelina Company and National Titanium Dioxide Company Limited represent the company's investment of 40% and 25%, respectively, in non-exploration and production joint ventures or partnerships. Following are financial summaries of the company's equity affiliates. Due to immateriality, investments shown as Other in the preceding table have been excluded from the information below. (Millions of dollars) 1998 1997 1996 --------------------- ---- ---- ---- Results of operations - Net sales(1) $593 $570 $207 Net income (loss) (41) 105 22 Financial position - Current assets 222 198 Property, plant and equipment - net 1,334 990 Total assets 1,582 1,215 Current liabilities 170 123 Total liabilities 844 470 Stockholders' equity 738 745 (1)Includes net sales to the company of $2 million, $26 million and $44 million for 1998, 1997 and 1996, respectively. 5. Investments - Other Assets Investments in other assets consist of the following at December 31, 1998 and 1997: (Millions of dollars) 1998 1997 --------------------- ---- ---- Net deferred tax asset $17 $22 U.S. government obligations 17 19 Patents 6 6 Long-term notes receivable, net of $9 allowance for doubtful notes in both 1998 and 1997 41 5 Equity securities - 2 Other 6 9 --- --- Total $87 $63 === === 6. Property, Plant and Equipment Fixed assets and related reserves by business segment at December 31, 1998 and 1997, are as follows:
Reserves for Depreciation and Gross Property Depletion Net Property (Millions of dollars) 1998 1997 1998 1997 1998 1997(1) - --------------------- ------ ------ ------ ------ ------ ------- Exploration and production $ 9,359 $ 8,514 $5,837 $5,382 $3,522 $3,132 Chemicals 1,162 1,020 588 506 574 514 Other 130 147 73 90 57 57 Discontinued operations - 547 - 331 - 216 ------- ------- ------ ------ ------ ------ Total $10,651 $10,228 $6,498 $6,309 $4,153 $3,919 ======= ======= ====== ====== ====== ====== (1)Includes chemical assets held for sale of $11 million.
7. Deferred Charges Deferred charges are as follows at year-end 1998 and 1997: (Millions of dollars) 1998 1997 --------------------- ---- ---- Pension plan prepayments $101 $ 96 Nonqualified pension plan deposits 10 7 Intangible assets 8 12 Unamortized debt issue costs 8 10 Preoperating and startup costs 6 8 Amounts pending recovery from third parties 8 - Other 23 21 ---- ---- Total $164 $154 ==== ==== 8. Debt Lines of Credit and Short-Term Borrowings At year-end 1998, the company had available unused bank lines of credit and revolving credit facilities of $708 million. Of this amount, $345 million and $90 million can be used to support commercial paper borrowing arrangements of Kerr-McGee Credit LLC and Kerr-McGee Oil (U.K.) PLC, respectively. The company has arrangements to maintain compensating balances with certain banks that provide credit. At year-end 1998, the aggregate amount of such compensating balances was immaterial, and the company was not legally restricted from withdrawing all or a portion of such balances at any time during the year. Short-term borrowings at year-end 1998 consisted of commercial paper totaling $28 million (6.37% average effective interest rate) and notes payable totaling $8 million (3.63% average interest rate). Outstanding at year-end 1997 was a note payable for $25 million (5.98% interest rate). Long-Term Debt The company's policy is to classify certain borrowings under revolving credit facilities and commercial paper as long-term debt since the company has the ability under certain revolving credit agreements and the intent to maintain these obligations for longer than one year. At year-end 1998 and 1997, debt totaling $400 million and $77 million, respectively, was classified as long-term consistent with this policy. On October 17, 1997, the company replaced a $500 million credit facility with a five-year $500 million credit facility. As a result, the company recognized an extraordinary loss of $2 million (net of $1 million of income taxes) from the write-off of unamortized debt issuance costs. Long-term debt consisted of the following at year-end 1998 and 1997:
(Millions of dollars) 1998 1997 - --------------------- ---- ---- Debentures - 7-1/2% Convertible subordinated debentures, $10 due annually May 15, 1999 through 2013 and $50 due May 15, 2014 $ 200 $ 200 7.125% Debentures due October 15, 2027 (7.01% effective rate) 150 150 7% Debentures due November 1, 2011, net of unamortized debt discount of $105 in 1998 and $108 in 1997 (14.25% effective rate) 145 142 8-1/2% Sinking fund debentures due June 1, 2006 11 22 Notes payable - 10% Notes, $100 due June 15, 1999, and $150 due April 1, 2001 250 250 6.625% Notes due October 15, 2007 (6.54% effective rate) 150 150 8.375% Notes due July 15, 2004 150 150 8.125% Notes due October 15, 2005 150 150 8% Notes due October 15, 2003 100 100 9.50% Notes due November 1, 1999 100 100 Variable interest rate revolving credit agreements with banks (5.84% average rate at December 31, 1998), $65 due March 6, 2000; $10 due December 4, 2001; $135 due April 28, 2002; $317 due October 17, 2002 and $71 due May 15, 2003 598 193 Medium-Term Notes (8.95% average effective interest rate at December 31, 1998), $15 due January 4, 1999; $11 due January 2, 2002 and $2 due February 1, 2002 28 28 Commercial paper (6.37% average effective interest rate at December 31, 1998) 119 40 Guaranteed Debt of Employee Stock Ownership Plan 9.61% Notes due in installments through January 2, 2005 49 51 Other 14 15 ------ ------ 2,214 1,741 Long-term debt due within one year (236) (5) ------ ------ Total $1,978 $1,736 ====== ======
Maturities of long-term debt due after December 31, 1998, are $236 million in 1999, $91 million in 2000, $304 million in 2001, $487 million in 2002, $187 million in 2003 and $909 million thereafter. Certain of the company's long-term debt agreements contain restrictive covenants, including a minimum tangible net worth requirement and a maximum total indebtedness to cash flow ratio. At December 31, 1998, the company was in compliance with its debt covenants. Additional information regarding the major changes in debt during the periods and unused commitments for financing is included in the Financial Condition discussion in Management's Discussion and Analysis. 9. Contingencies West Chicago In 1973, a wholly owned subsidiary, Kerr-McGee Chemical Corporation, closed the facility at West Chicago, Illinois, that processed thorium ores. Kerr-McGee Chemical Corporation now operates as Kerr-McGee Chemical LLC (Chemical). Operations resulted in some low-level radioactive contamination at the site and, in 1979, Chemical filed a plan with the Nuclear Regulatory Commission (NRC) to decommission the facility. The NRC transferred jurisdiction of this site to the State of Illinois (the State) in 1990. The following discusses the current status of various matters associated with the West Chicago site. Closed Facility - In 1994, Chemical, the City of West Chicago (the City) and the State reached agreement on the initial phase of the decommissioning plan for the closed West Chicago facility, and Chemical began shipping material from the site to a licensed permanent disposal facility. In February 1997, Chemical executed an agreement with the City as to the terms and conditions for completing the final phase of decommissioning work. The State indicated approval of this agreement and has issued license amendments authorizing much of the work. Chemical expects the majority of the work to be completed within five years. In 1992, the State enacted legislation imposing an annual storage fee equal to $2 per cubic foot of byproduct material located at the closed facility. The storage fee cannot exceed $26 million per year, and any storage fee payments must be reimbursed to Chemical as decommissioning costs are incurred. Chemical has been fully reimbursed for all storage fees paid pursuant to this legislation. In June 1997, the legislation was amended to provide that future storage fee obligations are to be offset against decommissioning costs incurred but not yet reimbursed. Offsite Areas - The U.S. Environmental Protection Agency (EPA) has listed four areas in the vicinity of the West Chicago facility on the National Priority List that the EPA promulgates under authority of the Comprehensive Environmental Response, Compensation, and Liability Act of 1980 (CERCLA) and has designated Chemical as a potentially responsible party in these four areas. The EPA issued unilateral administrative orders for two of these areas (referred to as the residential areas and Reed-Keppler Park), which require Chemical to conduct removal actions to excavate contaminated soils and ship the soils elsewhere for disposal. Without waiving any of its rights or defenses, Chemical has begun the cleanup of these two sites. Judicial Proceedings - In December 1996, a lawsuit was filed against the company and Chemical in Illinois state court on behalf of a purported class of present and former West Chicago residents. The lawsuit seeks damages for alleged diminution in property values and the establishment of a medical monitoring fund to benefit those allegedly exposed to thorium wastes originating from the former facility. The case was removed to federal court and is being vigorously defended. Government Reimbursement - Pursuant to Title X of the Energy Policy Act of 1992 (Title X), the United States Department of Energy is obligated to reimburse Chemical for certain decommissioning and cleanup costs in recognition of the fact that much of the facility's production was dedicated to United States government contracts. Title X was amended in 1998 to increase the amount authorized to $140 million plus inflation adjustments. Through April 30, 1999, Chemical has been reimbursed approximately $69 million under Title X. Other Matters The company's current and former operations involve management of regulated materials and are subject to various environmental laws and regulations. These laws and regulations will obligate the company to clean up various sites at which petroleum, chemicals, low-level radioactive substances or other regulated materials have been disposed of or released. Some of these sites have been designated Superfund sites by the EPA pursuant to CERCLA. The company is also a party to legal proceedings involving environmental matters pending in various courts and agencies. As of December 31, 1998, the company's estimate for the cost to investigate and/or remediate all presently identified sites of former or current operations, based on currently known facts and circumstances, totaled $240 million, which includes $168 million for the former West Chicago facility, the residential areas and Reed-Keppler Park. Reserves have been established based on this estimate. Expenditures are reduced by the amounts recovered under government programs. Expenditures from inception through December 31, 1998, totaled $549 million for currently known sites. In addition to the environmental issues previously discussed, the company or its subsidiaries are also a party to a number of other legal proceedings pending in various courts or agencies in which the company or a subsidiary appears as plaintiff or defendant. It is not possible for the company to reliably estimate the amount and timing of all future expenditures related to environmental matters because of: - - the difficulty of estimating cleanup costs; - - the uncertainty in quantifying liability under environmental laws that impose joint and several liability on all potentially responsible parties; and - - the continually changing nature of environmental laws and regulations. The company provides for costs related to contingencies when a loss is probable and the amount is reasonably estimable. Although management believes, after consultation with general counsel, that adequate reserves have been provided for all known contingencies, the ultimate cost will depend on the resolution of the above-noted uncertainties. Therefore, it is possible that additional reserves could be required in the future. 10. Impairment of Long-Lived Assets and Long-Lived Assets to Be Disposed Of Assets to Be Held and Used At year-end 1998, certain oil and gas fields located in the North Sea, China and the United States and two domestic chemical plants were deemed to be impaired because the assets were no longer expected to recover their net book values through future cash flows. Expectations of future cash flows were lower than those previously forecasted primarily as a result of continued weakness in crude oil, natural gas and certain chemical product prices. Downward reserve revisions were also deemed necessary for certain fields. The oil and gas impairment test was based on estimates of future cash flows for each field. Crude oil price estimates were $13.00 to $14.50 per barrel for 1999, increasing $.50 to $1.00 per barrel each year. Natural gas price estimates were $2.10 to $2.25 per MMBtu for 1999, increasing $.05 to $.10 per MMBtu each year. These prices, consistent with forecasts by investment bankers and industry consultants, were applied to production profiles developed by the company's engineers using proved reserves at December 31, 1998. Probable reserves and future development costs were taken into consideration when justified by actual drilling and planned additional drilling. The chemical impairment test was based on current prices for a variety of different products, including vanadium compounds and fertilizers manufactured at the Soda Springs, Idaho, plant and synthetic rutile manufactured at the Mobile, Alabama, plant. These prices were escalated based on current market perceptions. The impairment loss was determined based on the difference between the carrying value of the assets and the present value of future cash flows discounted at 10%, or market value when appropriate. The resulting impairment loss represents 10% and 9% of the carrying value of exploration and production and chemical assets, respectively, before the impairment. In addition, certain oil and gas fields in the Gulf of Mexico were impaired in 1996. There was no impairment loss recognized in 1997. Following is the impairment loss for assets held and used by segment for each of the years ended December 31, 1998 and 1996: (Millions of dollars) 1998 1996 --------------------- ---- ---- Exploration and production $389 $22 Chemicals 57 - ---- --- Total $446 $22 ==== === Assets to Be Disposed Of The company withdrew from the ammonium perchlorate business in 1998. The carrying value of these assets was approximately $9 million. The gain on the sale was immaterial. During 1997, the company's exploration and production operating unit completed a program to divest a number of crude oil and natural gas producing properties considered to be nonstrategic. Most of these properties were located onshore in the United States; however, some were located in the Gulf of Mexico, Canada and the North Sea. Net gains recognized on the sales of properties included in the divestiture program totaled $6 million in 1997 and $13 million in 1996. The divestiture program properties did not constitute a material portion of the company's oil and gas production or cash flows from operations for 1997 or 1996 or year-end 1996 oil and gas reserves. Certain chemical facilities were closed during 1996. A $3 million impairment loss was recognized in 1996, which reduced the carrying value of the assets to nil. Following are the sales and pretax income included in the Consolidated Statement of Income in each of the last three years for assets sold during the three-year period ended December 31, 1998. Any impairment loss is included in the pretax income amounts. The company had no material assets held for disposal at year-end 1998. (Millions of dollars) 1998 1997 1996 --------------------- ---- ---- ---- Sales - Exploration and production $ - $ - $42 Chemicals 11 30 29 --- --- --- Total $11 $30 $71 === === === Income (Loss) - Exploration and production $ - $ - $ 9 Chemicals - 3 (5) --- --- --- Total $ - $ 3 $ 4 === === === 11. Income Taxes The taxation of a company that has operations in several countries involves many complex variables, such as differing tax structures from country to country and the effect on U.S. taxation of international earnings. These complexities do not permit meaningful comparisons between the domestic and international components of income before income taxes and the provision for income taxes, and disclosures of these components do not provide reliable indicators of relationships in future periods. Income (loss) from continuing operations before income taxes and extraordinary charge is composed of the following: (Millions of dollars) 1998 1997 1996 --------------------- ---- ---- ---- Domestic $(345) $252 $270 International (175) 283 313 ----- ---- ---- Total $(520) $535 $583 ===== ==== ==== The corporate tax rate in the United Kingdom decreased to 30% from 31% effective April 1, 1999, and decreased to 31% from 33% effective April 1, 1997. The deferred income tax liability balance was adjusted to reflect the revised rates, which decreased the international deferred provision for income taxes by $10 million in 1998 and $13 million in 1997. The 1998, 1997 and 1996 provision (benefit) for income taxes is summarized below: (Millions of dollars) 1998 1997 1996 --------------------- ----- ---- ---- U.S. Federal - Current $(159) $ 2 $ 34 Deferred 20 84 69 ----- ---- ---- (139) 86 103 ----- ---- ---- International - Current 18 146 105 Deferred (55) (52) 11 ----- ---- ---- (37) 94 116 ----- ---- ---- State 1 4 6 ----- ---- ---- Total $(175) $184 $225 ===== ==== ==== At December 31, 1998, the company had foreign operating loss carryforwards totaling $110 million - $9 million that expire in 2001, $19 million that expire in 2003 and $82 million that have no expiration date. Realization of these operating loss carryforwards is dependent on generating sufficient taxable income. The net deferred tax asset, classified as Investments - Other assets in the Consolidated Balance Sheet, represents the net deferred taxes in certain foreign jurisdictions. Although realization is not assured, the company believes it is more likely than not that all of the net deferred tax asset will be realized. Deferred tax liabilities and assets at December 31, 1998 and 1997, are composed of the following: (Millions of dollars) 1998 1997 - --------------------- ---- ---- Net deferred tax liabilities - Accelerated depreciation $593 $660 Exploration and development 69 59 Undistributed earnings of foreign subsidiaries 28 28 Postretirement benefits (86) (82) Foreign operating loss carryforward (28) (4) Dismantlement, reclamation, remediation and other reserves (79) (130) AMT credit carryfoward (60) (71) Other (108) (131) ---- ---- 329 329 ---- ---- Net deferred tax assets - Accelerated depreciation 5 13 Foreign operating loss carryforward (14) (29) Other (8) (6) ---- ---- (17) (22) ---- ---- Total $312 $307 ==== ==== In the following table, the U.S. Federal income tax rate is reconciled to the company's effective tax rates for income (loss) from continuing operations as reflected in the Consolidated Statement of Income. 1998 1997 1996 ---- ---- ---- U.S. statutory rate (35.0)% 35.0% 35.0% Increases (decreases)resulting from - Taxation of foreign operations 9.6 3.9 3.0 Adjustment of prior years' accruals (.4) (.8) .4 Refunds of prior years' income tax (5.6) - - Contribution of appreciated equity securities - - (.8) Adjustment of deferred tax balances due to tax rate changes (2.0) (2.4) - Other - net (.2) (1.3) 1.0 ----- ---- ---- Total (33.6)% 34.4% 38.6% ===== ==== ==== The Internal Revenue Service has examined the Kerr-McGee Corporation and subsidiaries' pre-merger Federal income tax returns for all years through 1994, and the years have been closed through 1992. The Oryx income tax returns have been examined through 1995, and the years have been closed through 1978. The company believes that it has made adequate provision for income taxes that may become payable with respect to open tax years. 12. Accrued Liabilities Accrued liabilities at year-end 1998 and 1997 are as follows: (Millions of dollars) 1998 1997 --------------------- ---- ---- Current environmental reserves $ 83 $ 83 Interest payable 71 72 Drilling and operating costs 67 94 Employee-related costs and benefits 59 64 Restructuring reserve(1) 20 12 Other 34 63 --- ---- Total $334 $388 ==== ==== (1)See Note 19. 13. Deferred Credits and Reserves - Other Other deferred credits and reserves consist of the following at year-end 1998 and 1997:
(Millions of dollars) 1998 1997 --------------------- ---- ---- Reserves for site dismantlement, reclamation and remediation $376 $397 Postretirement benefit obligations 269 281 Minority interest in subsidiary companies 39 21 Other 64 91 ---- ---- Total $748 $790 ==== ====
The company provided for environmental reclamation and remediation of former plant sites, net of reimbursements received, during each of the years 1998, 1997 and 1996, as follows:
(Millions of dollars) 1998 1997 1996 --------------------- ---- ---- ---- Provision, net of reimbursements $47 $18 $45 Reimbursements received 14 12 10
The reimbursements, which pertain to the former facility in West Chicago, Illinois, were received pursuant to the Energy Policy Act of 1992 (see Note 9). 14. Common Stock Changes in common stock issued and treasury stock held for 1998, 1997 and 1996 are as follows: (Thousands of shares) Common Stock Treasury Stock Balance December 31, 1995 92,058 2,445 Exercise of stock options and stock appreciation rights 543 - Issuance of shares for achievement awards - (3) Stock purchase program - 3,127 ------ ----- Balance December 31, 1996 92,601 5,569 Exercise of stock options and stock appreciation rights 627 - Issuance of shares for achievement awards - (2) Stock purchase program - 867 ------ ----- Balance December 31, 1997 93,228 6,434 Exercise of stock options and stock appreciation rights 150 - Issuance of shares for achievement awards - (3) Stock purchase program - 580 ------ ----- Balance December 31, 1998 93,378 7,011 ====== ===== The company has 40 million shares of preferred stock without par value authorized, and none is issued. There are 1,107,692 shares of the company's common stock registered in the name of a wholly owned subsidiary of the company. These shares are not included in the number of shares shown in the preceding table and in the Consolidated Balance Sheet. These shares are not entitled to be voted. In mid-1998, the Board of Directors authorized management to purchase up to $300 million of company common stock over the next three years. A total of 580,000 shares was acquired at a cost of $25 million before this stock purchase program was cancelled because of the merger with Oryx. The 1995 stock purchase program was completed in 1997 with a total of 4,829,000 shares of the company's stock acquired in open-market transactions at a cost of $300 million. The company has had a stockholders-rights plan since 1986. The current rights plan is dated July 6, 1996, and replaced the previous plan prior to its expiration. Rights were distributed under the original plan as a dividend at the rate of one right for each share of the company's common stock. Generally, the rights become exercisable the earlier of 10 days after a public announcement that a person or group has acquired, or a tender offer has been made for, 15% or more of the company's then-outstanding stock. If either of these events occurs, each right would entitle the holder (other than a holder owning more than 15% of the outstanding stock) to buy the number of shares of the company's common stock having a market value two times the exercise price. The exercise price is $215. Generally, the rights may be redeemed at $.01 per right until a person or group has acquired 15% or more of the company's stock. The rights expire in July 2006. 15. Other Income Other income is as follows during each of the years in the three-year period ended December 31, 1998: (Millions of dollars) 1998 1997 1996 --------------------- ---- ---- ---- Interest $38 $14 $ 11 Settlements with insurance carriers 12 12 67 Gain on sale of assets 7 6 22 Income (loss) from unconsolidated affiliates (12) 32 14 Gain on sale of available-for- sale securities - 18 23 Other (2) - (27) --- --- ---- Total $43 $82 $110 === === ==== 16. Financial Instruments and Hedging Activities Investments in Certain Debt and Equity Securities The company has certain investments that are considered to be available for sale. These financial instruments are carried in the Consolidated Balance Sheet at fair value, which is based on quoted market prices, as Current Assets or as Investments - Other assets, depending upon their maturity. At December 31, 1998 and 1997, the fair value of available-for-sale securities totaled $30 million and $27 million, respectively, which approximated cost at the end of the periods. The company held no securities classified as held to maturity or trading at December 31, 1998 and 1997. During 1997 and 1996, the company sold available-for-sale equity securities. Proceeds from the sales totaled $21 million in 1997 and $29 million in 1996. The average cost of the securities was used in the determination of the realized gains, which totaled $18 million in 1997 and $23 million in 1996 before income taxes. Also during 1997 and 1996, the company donated a portion of its available-for-sale equity securities to Kerr-McGee Foundation Corporation, a tax-exempt entity whose purpose is to contribute to not-for-profit organizations. The fair value of these donated shares totaled $3 million in 1997 and $16 million in 1996, which included appreciation of $3 million and $13 million before income taxes, respectively. Financial Instruments for Other than Trading Purposes In addition to the investments previously discussed, the company holds or issues financial instruments for other than trading purposes. At December 31, 1998 and 1997, the carrying amount and estimated fair value of such financial instruments for which fair value can be determined are as follows:
1998 1997 -------------------------- -------------------------- Carrying Fair Carrying Fair (Millions of dollars) Amount Value Amount Value Cash and cash equivalents $121 $121 $192 $192 Long-term notes receivable 9 9 5 5 Contracts to sell foreign currencies - 2 - 8 Contracts to purchase foreign currencies - 111 - 139 Interest rate hedging contracts - - 5 11 Oil and gas price hedging contracts 7 22 2 9 Short-term borrowings 36 36 25 25 Total long-term debt 2,214 2,365 1,741 1,913
The carrying amount of cash and cash equivalents approximates fair value of those instruments due to their short maturity. The fair value of notes receivable is based on discounted cash flows or the fair value of the note's collateral. The fair value of the company's short-term and long-term debt is based on the quoted market prices for the same or similar debt issues or on the current rates offered to the company for debt with the same remaining maturity. The fair value of foreign currency forward contracts represents the aggregate replacement cost based on financial institutions' quotes. Hedging Activities Most of the company's foreign currency contracts are hedges principally for chemical's accounts receivable generated from titanium dioxide pigment sales denominated in foreign currencies, the operating costs and capital expenditures of international chemical operations, and the operating costs and capital expenditures of U.K. oil and gas operations. The purpose of these foreign currency hedging activities is to protect the company from the risk that the functional currency amounts from sales to foreign customers and purchases from foreign suppliers could be adversely affected by changes in foreign currency exchange rates. The company recognized net foreign currency hedging gains of $4 million in 1997 and $3 million in 1996. The net foreign currency hedging loss recognized in 1998 was immaterial. Net unrealized losses on foreign currency contracts totaled $7 million at year-end 1998 and $13 million at year-end 1997. Net unrealized gains totaled $4 million at year-end 1996. The company's foreign currency contract positions at year-end 1998 and 1997 were as follows: December 31, 1998 - - Contracts maturing January 1999 through December 2000 to purchase $113 million Australian for $77 million and 25 million British pound sterling for $40 million - Contracts maturing January through March 1999 to sell various foreign currencies (principally European) for $2 million December 31, 1997 - - Contracts maturing January 1998 through December 1999 to purchase $137 million Australian for $102 million and 31 million British pound sterling for $49 million - Contracts maturing January through April 1998 to sell various foreign currencies (principally European) for $8 million The company also participated in various interest rate hedging arrangements to help manage the floating rate portion of part of its debt. At December 31, 1998, all interest rate hedging contracts had expired. At December 31, 1997, the company was a party to interest rate hedging agreements having notional amounts of $500 million, of which $250 million represented interest rate caps (caps) maturing on September 15, 1998. The remaining $250 million at December 31, 1997, represented interest rate swaps (swaps) expiring on September 15, 1998, that had been under option at December 31, 1994, and were subsequently exercised on August 15, 1995. The terms of the caps exposed the company to interest rate risk when LIBOR exceeded 5 percent per year. Under the terms of the caps, the company received advance proceeds of $19 million from the counterparties and paid the excess by which LIBOR exceeded 5 percent on the notional amounts. Under the terms of the swaps, the company received advance proceeds of $14 million from the counterparties and paid an annual rate of 9.75 percent while receiving LIBOR. The offsetting terms of the caps and swaps reduced the company's exposure to changes in LIBOR. At December 31, 1998 and 1997, the aggregate carrying values of the gains deferred from the company's interest rate futures agreements were nil and $5 million, respectively. The estimated fair market value, based on market quotes, was $11 million at December 31, 1997. The company has periodically used oil or natural gas futures or option contracts to reduce the effect of the price volatility of crude oil and natural gas. The futures contracts permitted settlement by delivery of commodities. During 1998, the company entered into hedging arrangements for 7 million barrels of crude oil and 61 billion cubic feet of natural gas representing approximately 11% and 29% of its worldwide crude oil and natural gas sales volumes, respectively. Net hedging gains recognized in 1998 totaled $45 million. The effect of the gains was to increase the company's 1998 average gross margin for crude oil and natural gas by $.55 per barrel and $.05 per MCF, respectively. At year-end 1998, open crude oil and natural gas contracts had an aggregate value of $7 million, and the unrecognized gain on the contracts totaled $15 million. During 1997, the company entered into hedging arrangements for 12 million barrels of crude oil and 75 billion cubic feet of natural gas representing approximately 18% and 30% of its worldwide crude oil and natural gas sales volumes, respectively. Net hedging losses recognized in 1997 totaled $27 million. The effect of the losses was to reduce the company's 1997 average gross margin for crude oil and natural gas by $.10 per barrel and $.08 per MCF, respectively. At year-end 1997, open crude oil and natural gas contracts had an aggregate value of $2 million, and the unrecognized loss on these contracts totaled $7 million. During 1996, the company entered into hedging arrangements for 19 million barrels of crude oil and 107 billion cubic feet of natural gas representing approximately 30% and 37% of its worldwide crude oil and natural gas sales volumes, respectively. Net hedging losses recognized in 1996 totaled $117 million. The effect of the losses was to reduce the company's 1996 average gross margin for crude oil and natural gas by $.77 per barrel and $.23 per MCF, respectively. At year-end 1996, open crude oil and natural gas contracts had an aggregate value of $10 million, and the unrecognized loss on these contracts totaled $13 million. Contract amounts do not quantify risk or represent assets or liabilities of the company but are used in the calculation of cash settlements under the contracts. These financial instruments limit the company's market risks, are with major financial institutions, expose the company to credit risks and at times may be concentrated with certain institutions or groups of institutions. However, the credit worthiness of these institutions is subject to continuing review, and full performance is anticipated. Additional information regarding market risk is included in Management's Discussion and Analysis. Year-end hedge positions and activities during a particular year are not necessarily indicative of future activities and results. 17. Taxes, Other than Income Taxes Taxes, other than income taxes, as shown in the Consolidated Statement of Income for the years ended December 31, 1998, 1997 and 1996, are composed of the following: (Millions of dollars) 1998 1997 1996 -------------------- ---- ---- ---- Payroll $12 $ 11 $ 11 Property 14 15 17 Production/severance 26 74 81 Other 1 3 2 --- ---- ---- Total $53 $103 $111 === ==== ==== 18. Employee Stock Option Plans The 1998 Long Term Incentive Plan (1998 Plan) authorizes the issuance of shares of the company's common stock any time prior to December 31, 2007, in the form of stock options, restricted stock or long-term performance awards. The options may be accompanied by stock appreciation rights. A total of 2,300,000 shares of the company's common stock is authorized to be issued under the 1998 Plan. In January 1998, the Board of Directors approved a broad-based stock option plan (BSOP) that provides for the granting of options to purchase the company's common stock to all full-time employees, except officers. A total of 1,500,000 shares of common stock is authorized to be issued under the BSOP. The 1987 Long Term Incentive Program (1987 Program) authorized the issuance of shares of the company's stock over a 15-year period in the form of stock options, restricted stock or long-term performance awards. The 1987 Program was terminated when the stockholders approved the 1998 Plan. No options could be granted under the 1987 Program after that time, although options and any accompanying stock appreciation rights outstanding may be exercised prior to their respective expiration dates. The company's employee stock options are fixed-price options granted at the fair market value of the underlying common stock on the date of the grant. Generally, one-third of each grant vests and becomes exercisable over a three-year period immediately following the grant date and expires 10 years after the grant date. In connection with the merger with Oryx (see Note 1), outstanding stock options under the stock option plans maintained by Oryx were assumed by the company. Stock option transactions summarized below include amounts for the 1998 Plan, the BSOP, the 1987 Program and the Oryx plans using the merger exchange rate of 0.369 for each Oryx share under option.
1998 1997 1996 ---------------------- ---------------------- ----------------------- Weighted- Weighted- Weighted- Average Average Average Exercise Exercise Exercise Price per Price per Price per Options Option Options Option Options Option ------- --------- ------- --------- ------- --------- Outstanding, beginning of year 2,050,671 $56.84 2,241,136 $54.06 2,338,919 $53.14 Options granted 1,105,043 61.97 481,213 68.04 474,691 54.25 Options exercised (127,576) 44.34 (580,605) 50.49 (410,170) 45.57 Options surrendered upon exercise of stock appreciation rights (4,000) 38.06 (5,000) 32.38 (58,634) 40.80 Options forfeited (24,928) 60.26 (6,703) 57.46 (6,469) 53.00 Options expired (215,728) 65.65 (79,370) 93.43 (97,201) 76.94 --------- --------- --------- Outstanding, end of year 2,783,482 58.77 2,050,671 56.84 2,241,136 54.06 ========= ========= ========= Exercisable, end of year 1,497,753 55.38 1,249,055 53.96 1,354,961 56.31 ========= ========= =========
The following table summarizes information about stock options issued under the plans described above that are outstanding and exercisable at December 31, 1998:
Options Outstanding Options Exercisable ------------------------------------------------------ ------------------------- Weighted- Weighted- Weighted- Range of Average Average Average Exercise Remaining Exercise Exercise Prices Contractual Price Price Options per Option Life (years) per Option Options per Option ------- ---------- ------------ ---------- ------- ---------- 193,956 $32.01 - $39.56 5.9 $ 35.11 164,333 $35.67 494,653 40.81 - 49.25 4.7 45.92 494,653 45.92 934,257 50.56 - 59.66 8.1 57.43 310,907 54.13 880,735 61.00 - 69.61 8.1 65.99 338,625 64.73 221,402 70.46 - 73.50 6.7 72.60 130,756 72.06 58,479 97.56 - 119.58 1.7 106.16 58,479 106.16 --------- --------- 2,783,482 32.01 - 119.58 7.1 58.77 1,497,753 55.38 ========= =========
Statement of Financial Accounting Standards(FAS) No. 123, "Accounting for Stock-Based Compensation," prescribes a fair-value method of accounting for employee stock options under which compensation expense is measured based on the estimated fair value of stock options at the grant date and recognized over the period that the options vest. The company, however, chooses to account for its stock option plans under the optional intrinsic value method of APB No. 25, "Accounting for Stock Issued to Employees," whereby no compensation expense is recognized for fixed-price stock options. Compensation cost for stock appreciation rights, which is recognized under both accounting methods, was immaterial for 1998, 1997 and 1996. Had compensation expense been determined in accordance with FAS No. 123, the resulting compensation expense would have affected net income and per-share amounts as shown in the following table. These amounts may not be representative of future compensation expense using the fair-value method of accounting for employee stock options as the number of options granted in a particular year may not be indicative of the number of options granted in future years, and the fair-value method of accounting has not been applied to options granted prior to January 1, 1995. (Millions of dollars, except per share amounts) 1998 1997 1996 ------------------------- ---- ---- ---- Net Income (Loss) - As reported $ (68) $ 382 $ 414 Pro forma (76) 376 411 Net Income (Loss) per Share - Basic - As reported (.78) 4.40 4.70 Pro forma (.88) 4.34 4.67 Diluted - As reported (.78) 4.38 4.68 Pro forma (.88) 4.32 4.64 The fair value of each option granted in 1998, 1997 and 1996 was estimated as of the date of grant using the Black-Scholes option pricing model with the following weighted-average assumptions.
Assumptions ----------------------------------------------------------------------------------- Weighted Average Risk-Free Expected Expected Expected Fair Value of Interest Rate Dividend Yield Life (years) Volatility Options Granted - ------------------------------------------------------------------------------------------------------------------------ 1998 5.0% - 5.4% 0% - 3.0% 5.8 - 10 17.3% - 30.3% $9.78 - $11.20 1997 6.3 - 7.0 0 - 3.1 5.8 - 10 17.5 - 30.8 11.65 - 14.37 1996 6.0 - 6.1 0 - 3.1 5.8 - 9 17.9 - 30.7 7.17 - 13.17
19. Restructuring Charges Oryx initiated a voluntary severance program in 1998, prior to the agreement to merge with Kerr-McGee, for its domestic operations. The company also completed a work process review during 1998 which resulted in the elimination of nonessential work processes, organizational restructuring and employee reductions in both the operating and staff units. The programs resulted in the notification of approximately 260 employees that their positions would be eliminated. The restructuring of the Exploration and Production operating unit began in 1995 with the unit's reorganization of its administrative and operating functions and continued throughout 1996 and 1997 with the unit's merger of certain of its North American onshore properties into Devon and the relocation of part of the unit to Houston, Texas. This program was essentially completed at year-end 1997 except for costs associated with an office lease obligation and resulted in approximately 550 employees terminating their employment. During the three-year period ended December 31, 1998, the company accrued a total of $52 million for the cost of special termination benefits for retiring employees to be paid from retirement plan assets, future compensation, relocation, lease cancellation and outplacement. The $20 million reserve at December 31, 1998, primarily represents remaining severance costs and $7 million for costs associated with an office lease obligation that has no economic benefit to the company. The amounts are expected to be paid and charged to the reserve during 1999. The accruals, expenditures and reserve balances are set forth below: (Millions of dollars) 1998 1997 --------------------- ---- ---- Beginning balance $ 12 $ 23 Accruals 40 2 Retirement benefits to be paid from plan assets (23) - Payments (9) (13) ---- ---- Ending balance $ 20 $ 12 ==== ==== 20. Employee Stock Ownership Plan In 1989, the company's Board of Directors approved a leveraged Employee Stock Ownership Plan (ESOP) into which is paid the company's matching contribution for the employees' contributions to the Kerr-McGee Corporation Savings Investment Plan (SIP). Most of the company's employees are eligible to participate in both the ESOP and the SIP. Although the ESOP and the SIP are separate plans, matching contributions to the ESOP are contingent upon participants' contributions to the SIP. In 1989, the ESOP trust borrowed $125 million from a group of lending institutions and used the proceeds to purchase approximately 3 million shares of the company's treasury stock. The company used the $125 million in proceeds from the sale of the stock to acquire shares of its common stock in open-market and privately negotiated transactions. In 1996, a portion of the third-party borrowings was replaced with a note payable to the company (sponsor financing). The third-party borrowings are guaranteed by the company and are reflected in the Consolidated Balance Sheet as Long-Term Debt, while the sponsor financing does not appear in the company's balance sheet. The company stock acquired by the ESOP trust is held in a loan suspense account. Deferred compensation, representing the unallocated ESOP shares, is reflected as a reduction of stockholders' equity. The company's matching contribution and dividends on the shares held by the ESOP trust are used to repay the loan, and stock is released from the loan suspense account as the principal and interest are paid. The expense is recognized and stock is then allocated to participants' accounts at market value as the participants' contributions are made to the SIP. Long-term debt is reduced as payments are made on the third-party financing. Dividends paid on the common stock held in participants' accounts are also used to repay the loans, and stock with a market value equal to the amount of dividends is allocated to participants' accounts. The Oryx Capital Accumulation Plan (CAP) is a combined stock bonus and leveraged ESOP available to substantially all U.S. employees of the former Oryx operations. On August 1, 1989, Oryx privately placed $110 million of notes pursuant to the provisions of the CAP. Oryx loaned the proceeds to the CAP, which used the funds to purchase Oryx common stock and were placed in a trust. Stock is released by the trust as the loan principal and interest are paid. Stock is allocated to participants on a quarterly basis as the loan is repaid. The number of shares allocated to each participant is determined by the proportion each participant's contributions bear to the total contributions of all participants. Deferred compensation, representing the unallocated CAP shares, is reflected as a reduction of stockholders' equity. Prior to 1995 and resuming in 1997, the CAP made scheduled loan payments using Oryx contributions to the CAP. In 1995 and 1996, repayments were deferred pending a ruling requested from the Internal Revenue Service. The company plans to merge the CAP into the ESOP and SIP. Shares of stock allocated to the ESOP and CAP participants' accounts and in the loan suspense are as follows: (Thousands of shares) 1998 1997 --------------------- ----- ----- Participants' accounts 1,736 1,832 Loan suspense account 1,610 1,848 The shares allocated to ESOP and CAP participants at December 31, 1998, included approximately 52,000 shares released in January 1999, and at December 31, 1997, included approximately 15,000 shares released in January 1998. All ESOP and CAP shares are considered outstanding for net income per-share calculations. Dividends on ESOP shares are charged to retained earnings. Compensation expense is recognized using the cost method and is reduced for dividends paid on the unallocated ESOP shares. The company recognized ESOP and CAP-related expense of $17 million, $13 million and $15 million in 1998, 1997 and 1996, respectively. These amounts include interest expense incurred on the third-party ESOP debt of $5 million in both 1998 and 1997 and $6 million in 1996. The company contributed $16 million, $12 million and $9 million to the ESOP and CAP in 1998, 1997 and 1996, respectively. The cash contributions are net of $4 million for the dividends paid on the company stock held by the ESOP trust in each of the years 1998, 1997 and 1996. 21. Employee Benefit Plans The company has both noncontributory defined-benefit retirement plans and company-sponsored contributory postretirement plans for health care and life insurance. Most employees are covered under the company's retirement plans, and substantially all U.S. employees may become eligible for the postretirement benefits if they reach retirement age while working for the company. Following are the changes in the benefit obligations during the past two years:
Postretirement Health Retirement Plans and Life Plans (Millions of dollars) 1998 1997 1998 1997 - --------------------- ---- ---- ---- ---- Benefit obligation, beginning of year $ 976 $906 $209 $197 Service cost 16 15 3 2 Interest cost 66 64 13 15 Plan amendments 38 - 1 - Net actuarial loss 15 71 8 10 Acquisitions 6 - - - Dispositions, curtailments, settlements 5 (12) (2) - Benefits paid (95) (68) (15) (15) ------ ---- ---- ---- Benefit obligation, end of year $1,027 $976 $217 $209 ====== ==== ==== ====
The benefit amount that can be covered by the retirement plans that qualify under the Employee Retirement Income Security Act of 1974 (ERISA) is limited by both ERISA and the Internal Revenue Code. Therefore, the company has unfunded supplemental plans designed to maintain benefits for all employees at the plan formula level and to provide senior executives with benefits equal to a specified percentage of their final average compensation. The benefit obligation for the unfunded retirement plans was $109 million and $107 million at December 13, 1998 and 1997, respectively. Although not considered plan assets, a grantor trust was established from which payments for certain of these supplemental plans are made. The trust had a balance of $10 million at year-end 1998 and $7 million at year-end 1997. The postretirement plans are also unfunded. Following are the changes in the fair value of plan assets during the past two years and the reconciliation of the plans' funded status to the amounts recognized in the financial statements at December 31, 1998 and 1997:
Postretirement Health Retirement Plans and Life Plans (Millions of dollars) 1998 1997 1998 1997 - --------------------- ------ ------ ----- ------ Fair value of plan assets, beginning of year $1,138 $ 995 $ - $ - Actual return on plan assets 351 203 - - Employer contribution 10 20 - - Benefits paid (95) (68) - - Settlements - (12) - - ------ ------ ----- ----- Fair value of plan assets, end of year 1,404 1,138 - - Benefit obligation (1,027) (976) (217) (209) ------ ------ ----- ----- Funded status of plan - over (under) 377 162 (217) (209) Amounts not recognized in the Consolidated Balance Sheet - Transition asset (13) (20) - - Prior service costs 33 17 - - Net actuarial loss (gain) (366) (123) 18 3 ------ ------ ----- ----- Prepaid expense (accrued liability) $ 31 $ 36 $(199) $(206) ====== ====== ===== =====
Following is the classification of the amounts recognized in the Consolidated Balance Sheet at December 31, 1998 and 1997:
Postretirement Health Retirement Plans and Life Plans (Millions of dollars) 1998 1997 1998 1997 - --------------------- ---- ---- ---- ---- Prepaid benefits expense $102 $ 96 $ - $ - Accrued benefit liability (109) (102) (199) (206) Additional minimum liability - Intangible asset 7 13 - - Accumulated other comprehensive income 31 29 - - ---- ---- ----- ----- Total $ 31 $ 36 $(199) $(206) ==== ==== ===== =====
Total costs recognized for employee retirement and postretirement benefit plans for each of the years ended December 31, 1998, 1997 and 1996 were as follows:
Postretirement Health Retirement Plans and Life Plans (Millions of dollars) 1998 1997 1996 1998 1997 1996 - --------------------- ---- ---- ---- ---- ---- ---- Net periodic cost - Service cost $ 16 $ 15 $15 $ 3 $ 2 $ 3 Interest cost 66 64 63 13 15 15 Expected return on plan assets (94) (84) (80) - - - Net amortization - Transition asset (8) (8) (7) - - - Prior service cost 3 2 2 - - - Net actuarial loss (gain) 1 1 2 (1) - - ---- ---- --- --- --- --- (16) (10) (5) 15 17 18 Dispositions, curtailments, settlements 26 6 4 (1) - - ---- ---- --- --- --- --- Total $ 10 $ (4) $(1) $14 $17 $18 ==== ==== === === === ===
The following assumptions were used in estimating the actuarial present value of the plans' benefit obligations and net periodic expense: 1998 1997 1996 ---- ---- ---- Discount rate 6.75% 6.5% - 7.0% 7.3% - 7.5% Expected return on plan assets 9.0% - 9.5% 9.0% - 9.5% 9.0% - 9.5% Rate of compensation increases 4.0% - 5.0% 4.0% - 5.0% 4.0% - 5.0% The health care cost trend rates used to determine the year-end 1998 postretirement benefit obligation was 5.7% to 7.5% in 1999, gradually declining to 4.5% to 5% in the year 2008 and thereafter. A 1% increase in the assumed health care cost trend rate for each future year would increase the postretirement benefit obligation at December 31, 1998, by $17 million and increase the aggregate of the service and interest cost components of net periodic postretirement expense for 1998 by $1 million. A 1% decrease in the trend rate for each future year would reduce the benefit obligation at year-end 1998 by $16 million. It was not practical to calculate the effect of the percent decrease on net periodic expense in the health care cost trend rate. 22. Reporting by Business Segments The company is managed in two industry segments: oil and gas exploration and production and manufacturing and marketing of titanium dioxide pigment. The exploration and production unit produces and explores for oil and gas in the United States, United Kingdom sector of the North Sea, Indonesia, China, Kazakhstan and Ecuador. Exploration efforts are also extended to Australia, Algeria, Brazil, Gabon, Thailand and Yemen. The chemicals group manufactures and markets primarily titanium dioxide pigment, as well as electrolytic chemicals and forest products. The chemicals segment has operations in the United States, Australia, Germany and Belgium. There were no individually significant customers in 1998, 1997 or 1996. Sales to subsidiary companies are eliminated as described in Note 1.
(Millions of dollars) 1998 1997 1996 - -------------------- ------ ------ ------ Sales - Exploration and production $1,267 $1,845 $2,048 Chemicals 933 760 692 ------ ------ ------ Total $2,200 $2,605 $2,740 ====== ====== ====== Operating profit (loss)(1) - Exploration and production $ (361) $ 595 $ 667 Chemicals 56 81 85 ------ ------ ------ Total $ (305) $ 676 $ 752 ====== ====== ====== Net operating profit (loss)(1) - Exploration and production $ (266) $ 375 $ 410 Chemicals 35 52 53 ------ ------ ------ Total (231) 427 463 Net interest expense(1) (77) (84) (89) Net nonoperating income (expense)(1) (37) 8 (16) Income from discontinued operations, net of taxes 277 33 56 Extraordinary charge, net of taxes - (2) - ------ ------ ------ Net income (loss) $ (68) $ 382 $ 414 ====== ====== ====== Sales - U.S. operations $1,311 $1,635 $1,733 ------ ------ ------ International operations - North Sea - exploration and production 472 644 706 Other - exploration and production 67 105 112 Australia - chemicals 178 185 151 Europe - chemicals 163 - - Other - chemicals 9 36 38 ------ ------ ------ 889 970 1,007 ------ ------ ------ Total $2,200 $2,605 $2,740 ====== ====== ====== Operating profit (loss)(1) - U.S. operations $ (116) $ 400 $ 427 ------ ------ ------ International operations - North Sea - exploration and production (146) 85 103 Other - exploration and production (85) 178 213 Europe - chemicals 23 - - Australia - chemicals 19 13 9 ------ ------ ------ (189) 276 325 ------ ------ ------ Total $ (305) $ 676 $ 752 ====== ====== ====== (1)Includes special items. Refer to Management's Discussion and Analysis. Depreciation, depletion and amortization - Exploration and production $ 527 $ 508 $ 490 Chemicals 68 55 55 Other 6 5 4 Discontinued operations 14 25 30 ------ ------ ------ Total $ 615 $ 593 $ 579 ====== ====== ====== Cash capital expenditures - Exploration and production $ 871 $ 708 $ 722 Chemicals 92 91 118 Other 8 10 6 Discontinued operations 10 27 29 ------ ------ ------ Total 981 836 875 ------ ------ ------ Exploration expenses - Exploration and production - Dry hole costs 100 53 55 Amortization of undeveloped leases 40 23 15 Other 74 61 50 ------ ------ ----- Total 214 137 120 Minerals and other 1 2 2 ------ ------ ----- Total exploration expenses 215 139 122 Less - Amortization of oil and gas and minerals leases and other noncash expenses (42) (23) (19) ------ ------ ----- 173 116 103 ------ ------ ----- Total cash capital expenditures and cash exploration expenses $1,154 $ 952 $ 978 ====== ====== ===== Identifiable assets - Exploration and production $4,083 $3,924 $3,737 Chemicals 1,098 875 886 ------ ------ ------ Total 5,181 4,799 4,623 Corporate and other assets 270 270 295 Discontinued operations - 270 276 ------ ------ ------ Total $5,451 $5,339 $5,194 ====== ====== ====== Identifiable assets - U.S. operations $2,734 $3,094 $2,725 ------ ------ ------ International operations - North Sea - exploration and production 1,749 1,282 1,285 Other - exploration and production 212 164 320 Australia - chemicals 245 243 268 Europe - chemicals 223 - - Other - chemicals 18 16 25 ------ ------ ------ 2,447 1,705 1,898 ------ ------ ------ Total $5,181 $4,799 $4,623 ====== ====== ====== Net property, plant and equipment - U.S. operations $2,095 $2,382 $2,205 International operations - North Sea - exploration and production 1,617 1,101 1,106 Other - exploration and production 213 303 247 Australia - chemicals 129 133 135 Europe - chemicals 99 - - ------ ------ ------ Total $4,153 $3,919 $3,693 ====== ====== ====== Net assets - U.S. operations $ (89) $ 485 $ 335 ------ ------ ------ International operations - North Sea - exploration and production 931 801 477 Other - exploration and production 140 108 231 Australia - chemicals 204 152 211 Europe - chemicals 142 - - Other - chemicals 18 12 25 ------ ------ ------ 1,435 1,073 944 ------ ------ ------ Total $1,346 $1,558 $1,279 ====== ====== ======
23. Discontinued Operations The company exited from the coal business in 1998 with the sales of its mining operations at Galatia, Illinois, and Kerr-McGee Coal Corporation, which held Jacobs Ranch Mine in Wyoming. The cash sales resulted in proceeds of approximately $600 million. Coal assets and liabilities at December 31, 1997, are included as part of the appropriate line items in the Consolidated Balance Sheet. Included at December 31, 1997, are current assets of $50 million; property, plant and equipment of $216 million; other assets of $4 million; current liabilities of $40 million and long-term liabilities of $73 million. Summarized financial information for discontinued operations for the three years ended December 31, 1998, is as follows: (Millions of dollars, except per-share amounts) 1998 1997 1996 - -------------------------- ---- ---- ---- Sales $ 174 $323 $365 ===== ==== ==== Income from discontinued operations - Gain on disposal, net of income taxes of $149 $ 257 $ - $ - Income from operations, net of income taxes of $7 in 1998, $12 in 1997 and $18 in 1996 20 33 56 ----- ---- ---- Total $ 277 $ 33 $ 56 ===== ==== ==== Net income per share - Basic - Gain on sale $2.97 $ - $ - Income from operations .23 .38 .63 ----- ---- ---- Total $3.20 $.38 $.63 ===== ==== ==== Diluted - Gain on sale $2.97 $ - $ - Income from operations .23 .38 .63 ----- ---- ---- Total $3.20 $.38 $.63 ===== ==== ==== 24. Merger with Oryx Energy Company On February 26, 1999, the merger between Kerr-McGee and Oryx was completed. The following table provides a reconciliation of sales reported by Kerr-McGee to the combined amounts presented in the Consolidated Statement of Income: (Millions of dollars) - ---------------------
For the Years Ended December 31, ----------------------------------------------- 1998 1997 1996 ------ ------ ------ Sales Pre-Merger Kerr-McGee $1,396 $1,388 $1,566 Oryx 820 1,197 1,147 Merger reclassifications (16) 20 27 ------ ------ ------ Total $2,200 $2,605 $2,740 ====== ====== ====== Merger reclassifications primarily represent the reclassification of Oryx's other income to Kerr-McGee's presentation.
The following table provides a reconciliation of net income reported by Kerr-McGee to the combined amounts presented for the three years ended December 31, 1998, 1997 and 1996: (Millions of dollars) - ---------------------
Income (Loss) From Continuing Discontinued Extraordinary Operations Operations Charge Net (net of taxes) (net of taxes) (net of taxes) Income (Loss) ---------- -------------- -------------- ------------- 1998 Pre-Merger Kerr-McGee $(227) $277 $ - $ 50 Oryx (95) - - (95) Merger adjustments (23) - - (23) ----- ---- --- ---- Total $(345) $277 $ - $(68) ===== ==== === ==== 1997 Pre-Merger Kerr-McGee $ 161 $ 33 $ - $194 Oryx 172 - (2) 170 Merger adjustments 18 - - 18 ----- ---- --- ---- Total $ 351 $ 33 $(2) $382 ===== ==== === ==== 1996 Pre-Merger Kerr-McGee $ 164 $ 56 $ - $220 Oryx 163 - - 163 Merger adjustments 31 - - 31 ----- ---- --- ---- Total $ 358 $ 56 $ - $414 ===== ==== === ====
Merger adjustments reflect conforming accounting policy changes primarily related to the following: a. Financial Accounting Standards (FAS) No. 106, "Accounting for Postretirement Benefits Other Than Pensions," allowed for recognition of the postretirement transition obligation either immediately in net income as a change in accounting principle in the period of adoption or on a delayed basis as a component of net periodic postretirement benefit cost. Kerr-McGee adopted FAS 106 in 1992 and elected immediate recognition of its transition obligation. Oryx adopted the statement at the beginning of 1993 and elected to delay recognition of its transition obligation, amortizing the amount on a straight-line basis over 20 years. The adjustment to immediately recognize Oryx's transition obligation increased pre-tax income by $9 million, $3 million and $4 million for the years ended 1998, 1997 and 1996, respectively. b. Kerr-McGee and Oryx use different methods to recognize Petroleum Revenue Tax (PRT) for U.K. operations. Kerr-McGee estimates the total PRT to be payable over the life of a field and charges this amount to income tax expense on a unit-of-production basis. Oryx used the flow-through method, which recognizes PRT as a production tax in total costs and expenses as amounts become currently payable. The adjustment to provide for PRT using the life-of-field method decreased net income $12 million in 1998 and increased net income $31 million in 1997 and $36 million in 1996. Oryx reduced the amount of its estimated dismantlement and removal costs by the amount of PRT expected to be recovered when the field is abandoned. (Under the life-of-field method, this amount is included in the estimate of total PRT payable over the field life). To provide for dismantlement costs similar to Kerr-McGee, operating expense was increased $14 million, $15 million and $9 million for the years ended 1998, 1997, and 1996, respectively. c. Kerr-McGee and Oryx use different methods to provide for nonproducing leasehold cost impairment. Kerr-McGee capitalizes undeveloped acreage costs and amortizes the costs at rates that provide full amortization upon abandonment/expiration of unproductive leases. Oryx capitalized undeveloped acreage costs but recognized abandonment of unproductive leaseholds when the lease expired or when circumstances indicated. To provide for nonproducing leasehold costs similar to Kerr-McGee, exploration expense was increased $11 million in 1998, $7 million in 1997 and $3 million in 1996. 25. Results of Operations from Crude Oil and Natural Gas Activities The results of operations from crude oil and natural gas activities for the three years ended December 31, 1998, consist of the following:
Proportional Interest Results of in Equity Production Other Depreciation Income Tax Operations Affiliate's Gross (Lifting) Related Exploration and Depletion Asset Expenses Producing Results of (Millions of dollars) Revenues Costs Costs(1) Expenses Expenses Impairment (Benefits) Activities Operations(2) - --------------------- ----------------------------------------------------------------------------------------------------------- 1998 - Domestic $ 721 $184 $126 $141 $285 $114 $(36) $(93) $(11) North Sea 450 195 7 21 170 160 (20) (83) - Other international 67 12 9 52 31 115 (45) (107) 7 ------ ---- ---- ---- ---- ---- ---- ----- ---- Total crude oil and natural gas activities 1,238 391 142 214 486 389 (101) (283) (4) Other(3) 29 5 1 - - - 6 17 - ------ ---- ---- ---- ---- ---- ---- ----- ---- Total $1,267 $396 $143 $214 $486 $389 $(95) $(266) $ (4) ====== ==== ==== ==== ==== ==== ==== ===== ==== 1997 - Domestic $1,045 $211 $101 $82 $316 $ - $120 $ 215 $ 25 North Sea 615 207 11 19 140 - 94 144 - Other international 101 29 12 36 29 - (6) 1 3 ------ ---- ---- ---- ---- ---- ---- ----- ---- Total crude oil and natural gas activities 1,761 447 124 137 485 - 208 360 28 Other(3) 84 55 2 - - - 12 15 - ------ ---- ---- ---- ---- ---- ---- ----- ---- Total $1,845 $502 $126 $137 $485 $ - $220 $ 375 $ 28 ====== ==== ==== ==== ==== ==== ==== ===== ==== 1996 - Domestic $1,081 $248 $105 $63 $305 $ 22 $123 $ 215 $ - North Sea 651 187 12 40 136 - 116 160 - Other international 107 40 12 17 33 - 3 2 - ------ ---- ---- ---- ---- ---- ---- ----- ---- Total crude oil and natural gas activities 1,839 475 129 120 474 22 242 377 - Other(3) 209 159 1 - 1 - 15 33 - ------ ---- ---- ---- ---- ---- ---- ----- ---- Total $2,048 $634 $130 $120 $475 $ 22 $257 $ 410 $ - ====== ==== ==== ==== ==== ==== ==== ===== ==== (1)Includes restructuring charges of $34 million, $2 million and $10 million in 1998, 1997 and 1996, respectively (see Note 19). (2)The equity affiliate follows the "full cost" method of accounting for oil and gas exploration and production activities. (3)Includes gas marketing, gas processing plants, pipelines and other items that do not fit the definition of crude oil and natural gas activities but have been included above to reconcile to the segment presentations.
The table below presents the company's average per-unit sales price of proprietary crude oil and natural gas and production costs per barrel of oil equivalent for each of the past three years. Natural gas production has been converted to a barrel of oil equivalent based on approximate relative heating value (6 MCF equals 1 barrel). 1998 1997 1996 ------ ------ ------ Average sales price - Crude oil (per barrel) - Domestic $12.73 $18.34 $19.45 North Sea 12.93 18.93 19.60 Other international 9.90 15.36 15.85 Average 12.52 18.32 19.18 Natural gas (per MCF) - Domestic 2.09 2.43 2.11 North Sea 2.46 2.44 2.50 Other international - - 1.14 Average 2.12 2.43 2.10 Production costs - (Per barrel of oil equivalent) Domestic 3.23 3.25 3.51 North Sea 5.62 6.25 5.48 Other international 1.78 4.33 5.21 Average 3.97 4.27 4.22 26. Capitalized Costs of Crude Oil and Natural Gas Activities Capitalized costs of crude oil and natural gas activities and the related reserves for depreciation, depletion and amortization at the end of 1998 and 1997 are set forth in the table below. Not included in the amounts shown are $221 million that represent the company's proportional interest in an equity affiliate's net capitalized costs at December 31, 1998 and 1997, (see Note 4). The equity affiliate follows the "full cost" method of accounting for oil and gas exploration and production activities. (Millions of dollars) 1998 1997 - --------------------- ------ ------ Capitalized costs - Proved properties $8,701 $8,152 Unproved properties 583 299 Other 75 63 ------ ------ Total 9,359 8,514 ------ ------ Reserves for depreciation, depletion and amortization - Proved properties 5,734 5,309 Unproved properties 69 42 Other 34 31 ------ ------ Total 5,837 5,382 ------ ------ Net capitalized costs $3,522 $3,132 ====== ====== 27. Standardized Measure of and Reconciliation of Changes in Discounted Future Net Cash Flows (Unaudited) The standardized measure of future net cash flows presented in the following table was computed using year-end prices and costs and a 10% discount factor. The future income tax expense was computed by applying the appropriate year-end statutory rates, with consideration of future tax rates already legislated, to the future pre-tax net cash flows less the tax basis of the properties involved. However, the company cautions that actual future net cash flows may vary considerably from these estimates. Although the company's estimates of total reserves, development costs and production rates were based upon the best information available, the development and production of the oil and gas reserves may not occur in the periods assumed. Actual prices realized and costs incurred may vary significantly from those used. Therefore, such estimated future net cash flow computations should not be considered to represent the company's estimate of the expected revenues or the current value of existing proved reserves.
Proportional Standardized Interest in Future Measure of Equity Development 10% Discounted Affiliate's Future and Production Future Future Net Annual Future Net Standardized (Millions of dollars) Cash Inflows Costs Income Taxes Cash Flows Discount Cash Flows Measure - --------------------- ------------ -------------- ------------ ---------- -------- ---------- ------------ 1998 - Domestic $ 4,780 $2,108 $ 718 $1,954 $ 713 $1,241 $102 North Sea 3,121 2,474 82 565 160 405 - Other international 1,499 977 181 341 264 77 90 ------- ------ ------ ------ ------ ------ ---- Total $ 9,400 $5,559 $ 981 $2,860 $1,137 $1,723 $192 ======= ====== ====== ====== ====== ====== ==== 1997 - Domestic $ 8,006 $2,936 $1,584 $3,486 $1,310 $2,176 $205 North Sea 4,026 2,678 282 1,066 356 710 - Other international 2,291 1,471 236 584 283 301 19 ------- ------ ------ ------ ------ ------ ---- Total $14,323 $7,085 $2,102 $5,136 $1,949 $3,187 $224 ======= ====== ====== ====== ====== ====== ==== 1996 - Domestic $11,697 $3,058 $2,878 $5,761 $2,150 $3,611 $336 North Sea 5,833 3,088 913 1,832 534 1,298 - Other international 2,255 1,089 370 796 387 409 28 ------- ------ ------ ------ ------ ------ ---- Total $19,785 $7,235 $4,161 $8,389 $3,071 $5,318(1) $364 ======= ====== ====== ====== ====== ====== ==== (1)Includes $(8) million for properties held for sale.
The changes in the standardized measure of future net cash flows are presented below for each of the past three years: (Millions of dollars) 1998 1997 1996 - --------------------- ------- ------- ------ Net change in sales, transfer prices and production costs $(2,156) $(3,704) $2,806 Changes in estimated future development costs (377) (283) (19) Sales and transfers less production costs (847) (1,314) (1,364) Purchases of reserves in place 159 26 209 Changes due to extensions, discoveries, etc. 173 478 978 Changes due to revisions in quantity estimates 43 81 207 Changes due to sales of reserves in place (107) (9) (148) Changes due to reserves merged into equity affiliate - - (511) Current period development costs 687 556 482 Accretion of discount 437 759 482 Changes in income taxes 693 1,242 (1,136) Timing and other (169) 37 (222) ------- ------- ------ Net change (1,464) (2,131) 1,764 Total at beginning of year 3,187 5,318 3,554 ------- ------- ------ Total at end of year $ 1,723 $ 3,187 $5,318 ======= ======= ====== 28. Crude Oil, Condensate and Natural Gas Net Reserves (Unaudited) The estimates of proved reserves have been prepared by the company's geologists and engineers in accordance with the Securities and Exchange Commission definitions. Such estimates include reserves on certain properties that are partially undeveloped and reserves that may be obtained in the future by improved recovery operations now in operation or for which successful testing has been demonstrated. The company has no proved reserves attributable to long-term supply agreements with governments or consolidated subsidiaries in which there are significant minority interests. At December 31, 1996, the company merged certain of its North American onshore properties into an equity affiliate (see Note 4). The following table summarizes the changes in the estimated quantities of the company's crude oil and condensate and natural gas reserves for the three years ended December 31, 1998.
Crude Oil and Condensate (Millions of barrels) --------------------------------------------------------------- North Other Domestic Sea International Total -------- ----- ------------- ----- Proved developed and undeveloped reserves - Balance December 31, 1995(1) 272 163 79 514 Revisions of previous estimates 22 5 (3) 24 Purchases of reserves in place 3 29 - 32 Sales of reserves in place (13) - (1) (14) Reserves merged into equity affiliate (16) - (9) (25) Extensions, discoveries and other additions 10 46 41 97 Production (27) (32) (6) (65) --- --- --- --- Balance December 31, 1996(1) 251 211 101 563 Revisions of previous estimates 12 11 1 24 Purchases of reserves in place 5 - - 5 Sales of reserves in place - (1) - (1) Extensions, discoveries and other additions 28 1 9 38 Production (26) (30) (7) (63) --- --- --- --- Balance December 31, 1997 270 192 104 566 Revisions of previous estimates 6 6 (15) (3) Purchases of reserves in place - 45 - 45 Sales of reserves in place (13) - - (13) Extensions, discoveries and other additions 14 9 21 44 Production (24) (32) (7) (63) --- --- --- --- Balance December 31, 1998 253 220 103 576 === === === === Proportional interest in equity affiliate's reserves(2) December 31, 1996 22 - 3 25 December 31, 1997 22 - 3 25 December 31, 1998 11 - 9 20 Proved developed reserves - December 31, 1996(1) 158 141 39 338 December 31, 1997 166 115 55 336 December 31, 1998 148 141 38 327 Proportional interest in equity affiliate's reserves(2) December 31, 1996 20 - 3 23 December 31, 1997 20 - 2 22 December 31, 1998 10 - 8 18
Natural Gas (Billions of cubic feet) --------------------------------------------------- Other North Interna- Domestic Sea tional Total -------- ----- -------- ----- Proved developed and undeveloped reserves - Balance December 31, 1995(1) 1,817 216 69 2,102 Revisions of previous estimates (24) (9) (1) (34) Purchases of reserves in place 9 2 - 11 Sales of reserves in place (60) - (18) (78) Reserves merged into equity affiliate (122) - (41) (163) Extensions, discoveries and other additions 129 3 39 171 Production (263) (15) (9) (287) ----- ---- --- ------ Balance December 31, 1996(1) 1,486 197 39 1,722 Revisions of previous estimates 1 22 3 26 Purchases of reserves in place 19 - - 19 Sales of reserves in place (30) - - (30) Extensions, discoveries and other additions 229 - 214 443 Production (235) (16) - (251) ----- ---- --- ----- Balance December 31, 1997 1,470 203 256 1,929 Revisions of previous estimates (3) 7 13 17 Purchases of reserves in place 4 46 - 50 Sales of reserves in place (89) - - (89) Extensions, discoveries and other additions 131 3 103 237 Production (197) (17) - (214) ----- ---- --- ----- Balance December 31, 1998 1,316 242 372 1,930 ===== ==== === ===== Proportional interest in equity affiliate's reserves(2) December 31, 1996 172 - 13 185 December 31, 1997 175 - 15 190 December 31, 1998 122 - 124 246 Proved developed reserves - December 31, 1996(1) 999 182 - 1,181 December 31, 1997 923 161 - 1,084 December 31, 1998 817 163 - 980 Proportional interest in equity affiliate's reserves(2) December 31, 1996 164 - 13 177 December 31, 1997 142 - 14 156 December 31, 1998 96 - 120 216 (1)Includes 1 million barrels of oil and 3 billion cubic feet of natural gas held for sale at December 31, 1996, and 12 million barrels of oil and 57 billion cubic feet of natural gas held for sale at December 31, 1995 (see Note 10). (2)During 1998, the equity affiliate merged with a third party, which reduced the company's ownership interest in the affiliate. The company's proportionate interest reflects its ownership interest at the respective year-end (see Note 4).
The following presents the company's barrel of oil equivalent proved developed and undeveloped reserves based on approximate relative heating value (6 MCF equals 1 barrel).
North Other (Millions of equivalent barrels) Domestic Sea International Total - -------------------------------- -------- --- ------------- ----- December 31, 1996(1) 499 244 107 850 December 31, 1997 515 226 147 888 December 31, 1998 472 261 165 898 Proportional interest in equity affiliate's reserves(2) December 31, 1996 51 - 5 56 December 31, 1997 52 - 5 57 December 31, 1998 31 - 30 61 (1)Includes 2 million barrels of oil equivalent held for sale at December 31, 1996 (see Note 10). (2)During 1998, the equity affiliate merged with a third party, which reduced the company's ownership interest in the affiliate. The company's proportionate interest reflects its ownership interest at the respective year-end (see Note 4).
29. Costs Incurred in Crude Oil and Natural Gas Activities Total expenditures, both capitalized and expensed, for crude oil and natural gas property acquisition, exploration and development activities for the three years ended December 31, 1998, are reflected in the following table:
Property Acquisition Exploration Development (Millions of dollars) Costs(1) Costs(2) Costs(3) 1998- Proprietary costs - Domestic $117 $136 $347 North Sea 423 38 311 Other international 5 75 29 ---- ---- ---- Total $545 $249 $687 ==== ==== ==== Proportional interest in equity affiliate's costs -(4) Domestic $ 11 $ 7 $ 16 Other international 30 10 15 ---- ---- ---- Total $ 41 $ 17 $ 31 ==== ==== ==== 1997 - Proprietary costs - Domestic $ 70 $110 $360 North Sea 2 18 146 Other international 2 61 50 ---- ---- ---- Total $ 74 $189 $556 ==== ==== ==== Proportional interest in equity affiliate's costs -(4) Domestic $ 6 $ 6 $ 25 Other international - - 2 ---- ---- ---- Total $ 6 $ 6 $ 27 ==== ==== ==== 1996 - Proprietary costs - Domestic $ 36 $ 90 $360 North Sea 94 54 72 Other international 1 29 50 ---- ---- ---- Total $131 $173 $482 ==== ==== ==== (1)Includes $280 million, $11 million and $100 million applicable to purchases of reserves in place in 1998, 1997 and 1996, respectively. (2)Exploration costs include delay rentals, exploratory dry holes, dry hole and bottom hole contributions, geological and geophysical costs, costs of carrying and retaining properties and capital expenditures, such as costs of drilling and equipping successful exploratory wells. (3)Development costs include costs incurred to obtain access to proved reserves (surveying, clearing ground, building roads), to drill and equip development wells and to acquire, construct and install production facilities and improved recovery systems. Development costs also include costs of developmental dry holes. (4)During 1998, the equity affiliate merged with a third party, which reduced the company's ownership interest in the affiliate. The company's proportionate interest reflects its ownership interest at the respective year-end (see Note 4).
30. Quarterly Financial Information (Unaudited) A summary of quarterly consolidated results for 1998 and 1997 is presented below. The combined results give effect to the merger between Kerr-McGee and Oryx using the pooling of interest method of accounting and the adjustments described in Note 24. In the periods in which there was a loss from continuing operations, the conversion of stock was not assumed since the loss per-share amount would not have been lower. Therefore, the quarterly per-share amounts may not add to the annual amounts. Refer to Management's Discussion and Analysis for information about special items.
Pre-Merger Merger (Millions of dollars, ------------------- Adjustments/ except per share amounts) Kerr-McGee Oryx Reclassifications Total - ------------------------- ---------- ---- ----------------- ----- Sales - 1998 Quarter Ended - March 31 $ 291 $ 223 $ (7) $ 507 June 30 395 213 (7) 601 September 30 360 194 2 556 December 31 350 190 (4) 536 ------ ------ ------ ------ Total $1,396 $ 820 $ (16) $2,200 ====== ====== ======= ====== 1997 Quarter Ended - March 31 $ 384 $ 335 $ 8 $ 727 June 30 335 274 4 613 September 30 324 287 7 618 December 31 345 301 1 647 ------ ------ ------ ------ Total $1,388 $1,197 $ 20 $2,605 ====== ====== ====== ====== Operating Profit (Loss) - 1998 Quarter Ended - March 31 $ 34 $ 29 $ (8) $ 55 June 30 43 47 (17) 73 September 30 31 9 (29) 11 December 31 (354) (70) (20) (444) ------ ------ ------ ------ Total $ (246) $ 15 $ (74) $ (305) ====== ====== ====== ====== 1997 Quarter Ended - March 31 $ 83 $ 141 $ - $ 224 June 30 54 78 4 136 September 30 57 98 2 157 December 31 62 91 6 159 ------ ------ ------ ------ Total $ 256 $ 408 $ 12 $ 676 ====== ====== ====== ====== Income (Loss) from Continuing Operations - 1998 Quarter Ended - March 31 $ 16 $ 3 $ (3) $ 16 June 30 26 16 (10) 32 September 30 (23) (43) (2) (68) December 31 (246) (71) (8) (325) ------ ------ ------- ------ Total $ (227) $ (95) $ (23) $ (345) ====== ====== ====== ====== 1997 Quarter Ended - March 31 $ 58 $ 66 $ 4 $ 128 June 30 37 23 4 64 September 30 31 42 5 78 December 31 35 41 5 81 ------ ------ ------ ------ Total $ 161 $ 172 $ 18 $ 351 ====== ====== ====== ====== Net Income (Loss) - 1998 Quarter Ended - March 31 $ 24 $ 3 $ (3) $ 24 June 30 77 16 (10) 83 September 30 195 (43) (2) 150 December 31 (246) (71) (8) (325) ------ ------ ------ ------ Total $ 50 $ (95) $ (23) $ (68) ====== ====== ====== ====== 1997 Quarter Ended - March 31 $ 70 $ 66 $ 4 $ 140 June 30 42 23 5 70 September 30 37 42 4 83 December 31 45 39 5 89 ------ ------ ------ ------ Total $ 194 $ 170 $ 18 $ 382 ====== ====== ====== ====== Diluted Income (Loss) from Continuing Operations per Common Share - 1998 Quarter Ended - March 31 $ .33 $ .02 $ (.17) $ .18 June 30 .55 .15 (.34) .36 September 30 (.48) (.40) .11 (.77) December 31 (5.18) (.67) 2.10 (3.75) ------ ------ ------ ------ Total $(4.78) $ (.90) $ 1.70 $(3.98) ====== ====== ====== ====== 1997 Quarter Ended - March 31 $ 1.21 $ .61 $ (.36) $ 1.46 June 30 .76 .22 (.23) .75 September 30 .65 .40 (.16) .89 December 31 .74 .39 (.21) .92 ------ ------ ------ ------ Total $ 3.36 $ 1.62 $ (.96) $ 4.02 ====== ====== ====== ====== Diluted Net Income (Loss) per Common Share - 1998 Quarter Ended - March 31 $ .50 $ .02 $ (.25) $ .27 June 30 1.62 .15 (.82) .95 September 30 4.09 (.40) (1.96) 1.73 December 31 (5.17) (.67) 2.10 (3.74) ------ ------ ------- ------ Total $ 1.06 $ (.90) $ (.93) $ (.78) ====== ====== ====== ====== 1997 Quarter Ended - March 31 $ 1.45 $ .61 $ (.47) $ 1.59 June 30 .87 .22 (.28) .81 September 30 .77 .40 (.22) .95 December 31 .95 .37 (.29) 1.03 ------ ------ ------- ------ Total $ 4.04 $ 1.60 $(1.26) $ 4.38 ====== ====== ====== ======
The company's common stock is listed for trading on the New York Stock Exchange and was held by approximately 35,000 stockholders of record at year-end 1998. The ranges of market prices and dividends declared during the last two years for Kerr-McGee Corporation common stock prior to the merger with Oryx are as follows:
Market Prices ------------------------------------------------------------- Dividends 1998 1997 per Share ------------------------- ------------------------ ----------------- High Low High Low 1998 1997 ------- ------- -------- -------- ---- ---- Quarter Ended - March 31 73 3/16 55 7/8 75 61 7/8 $.45 $.45 June 30 70 1/4 56 5/8 67 1/4 55 1/2 .45 .45 September 30 60 1/2 38 69 15/16 59 13/16 .45 .45 December 31 47 9/16 36 3/16 71 1/2 60 1/8 .45 .45
Five-Year Financial Summary
(Millions of dollars, except per-share amounts) 1998 1997 1996 1995 1994 - ---------------------------------------------- ---------------------------------------------------- Summary of Net Income (Loss) Sales $2,200 $2,605 $2,740 $2,419 $ 2,359 ---------------------------------------------------- Costs and operating expenses 2,606 2,011 2,122 2,305 2,185 Interest and debt expense 157 141 145 193 211 ---------------------------------------------------- Total costs and expenses 2,763 2,152 2,267 2,498 2,396 ---------------------------------------------------- (563) 453 473 (79) (37) Other income 43 82 110 147 15 Provision (benefit) for income taxes (175) 184 225 (42) 9 ---------------------------------------------------- Income (loss) from continuing operations (345) 351 358 110 (31) Income from discontinued operations 277 33 56 27 55 Extraordinary charge, net of taxes - (2) - (23) (12) Cumulative effect on prior years of change in accounting principle - - - - (948) ---------------------------------------------------- Net income (loss) $ (68) $ 382 $ 414 $ 114 $ (936) ==================================================== Common Stock Information, per Share Diluted net income (loss) - Continuing operations $(3.98) $ 4.02 $ 4.05 $ 1.23 $ (.36) Discontinued operations 3.20 .38 .63 .30 .63 Extraordinary charge - (.02) - (.26) (.14) Cumulative effect of change in accounting principle - - - - (10.82) ----------------------------------------------------- Net income (loss) $(.78) $ 4.38 $ 4.68 $ 1.27 $(10.69) ==================================================== Dividends declared (1) $ 1.80 $ 1.80 $ 1.64 $ 1.55 $ 1.52 Stockholders' equity 15.58 17.88 14.59 12.47 12.33 Market high for the year (1) 73.19 75.00 74.13 64.00 51.00 Market low for the year (1) 36.19 55.50 55.75 44.00 40.00 Market price at year-end (1) $38.25 $63.31 $72.00 $63.50 $ 46.25 Shares outstanding at year-end (thousands) 86,367 86,794 87,032 89,613 90,143 Balance Sheet Information Working capital $ (173) $ - $ 161 $ (106) $ (254) Property, plant and equipment - net 4,153 3,919 3,693 3,807 4,497 Total assets 5,451 5,339 5,194 5,006 5,918 Long-term debt 1,978 1,736 1,809 1,683 2,219 Total debt 2,250 1,766 1,849 1,938 2,704 Net debt (total debt less cash) 2,129 1,574 1,719 1,831 2,612 Stockholders' equity 1,346 1,558 1,279 1,124 1,112 Cash Flow Information Net cash provided by operating activities 385 1,097 1,169 728 678 Cash capital expenditures 981 836 875 745 611 Dividends paid 86 85 83 79 79 Treasury stock purchased (1) $ 25 $ 60 $ 195 $ 45 $ - Ratios and Percentage Current ratio .8 1.0 1.2 .9 .8 Average price/earnings ratio NM 14.9 13.9 42.5 NM Net debt to total capitalization 61% 50% 57% 62% 70% Employees Total wages and benefits $ 359 $ 367 $ 367 $ 402 $ 422 Number of employees at year-end 4,400 4,792 4,827 5,176 6,724 (1) Represents Kerr-McGee Corporation amounts prior to merger with Oryx.
Five-Year Operating Summary 1998 1997 1996 1995 1994 ---------------------------------------------------- Exploration and Production Net proprietary production of crude oil and condensate - (thousands of barrels per day) Domestic 66.2 70.6 73.8 74.8 73.4 North Sea 87.4 83.3 86.5 91.9 88.7 Other international 18.4 18.1 16.8 17.4 26.4 ---------------------------------------------------- Total 172.0 172.0 177.1 184.1 188.5 ==================================================== Average price of crude oil sold (per barrel) - Domestic $12.73 $18.34 $19.45 $15.73 $14.25 North Sea 12.93 18.93 19.60 16.56 15.33 Other international 9.90 15.36 15.85 14.70 14.58 Average $12.52 $18.32 $19.18 $16.05 $14.80 Proprietary natural gas sales (MMCF per day) 584 685 781 809 872 Average price of natural gas sold (per MCF) $ 2.12 $ 2.43 $ 2.10 $ 1.63 $ 1.82 Net exploratory wells drilled - Productive 4.40 7.65 6.91 4.71 11.61 Dry 14.42 7.42 5.52 11.16 13.47 ---------------------------------------------------- Total 18.82 15.07 12.43 15.87 25.08 ==================================================== Net development wells drilled - Productive 62.30 95.78 143.33 135.86 69.27 Dry 9.00 7.00 13.04 11.95 9.63 ---------------------------------------------------- Total 71.30 102.78 156.37 147.81 78.90 ==================================================== Undeveloped net acreage (thousands) - Domestic 1,487 1,353 1,099 1,280 1,415 North Sea 908 523 560 570 629 Other international 14,716 14,630 4,556 4,031 7,494 ---------------------------------------------------- Total 17,111 16,506 6,215 5,881 9,538 ==================================================== Developed net acreage (thousands) - Domestic 810 830 871 1,190 1,270 North Sea 115 70 79 58 68 Other international 612 201 198 207 1,015 ---------------------------------------------------- Total 1,537 1,101 1,148 1,455 2,353 ==================================================== Estimated proved reserves (1) (millions of equivalent barrels) 898 888 850 864 1,059 Chemicals Industrial and specialty chemical sales (thousands of metric tons) 481 443 405 404 346 (1) Does not include proportionate interest in equity affiliate's reserves.
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