Kerr-McGee Reports 2006 Second-Quarter Earnings

OKLAHOMA CITY, Aug. 3 /PRNewswire-FirstCall/ -- Kerr-McGee Corp. reports income from continuing operations for the 2006 second quarter of $306 million ($1.33 per diluted common share) compared with $256 million ($.90 per share) for the 2005 second quarter.

The company's 2006 second-quarter adjusted after-tax income was $299 million ($1.30 per diluted share), compared with $247 million ($.87 per share) for the second quarter of 2005. Adjusted after-tax income is determined by excluding asset impairments and gains/losses on property sales from income from continuing operations, and adjusting results of commodity derivative activities to reflect only actual net realized gains/losses associated with the current period. The increase in adjusted after-tax income for the 2006 second quarter is primarily due to higher oil and gas sales revenues partially offset by higher commodity derivative losses. Lifting costs increased in the second quarter of 2006 as compared to last year, but that increase was more than offset by lower depreciation, depletion and amortization, exploration expense and interest.

Millions of dollars, Three Months Ended Six Months Ended except per-share amounts June 30, June 30, 2006 2005 2006 2005 Income from Continuing Operations $306 $256 $582 $499 Adjustments (net of tax): (A) Exclude: Loss on commodity derivatives 85 53 159 109 Asset impairments and property sales (1) (16) (3) (28) Include: Realized commodity derivative loss (91) (46) (231) (63) Adjusted After-Tax Income $299 $247 $507 $517 Diluted Earnings Per Share(B) Continuing Operations $1.33 $ .90 $2.53 $1.65 Adjusted After-Tax Income $1.30 $ .87 $2.20 $1.71 (A) Pre-tax adjustments are shown separately in the Adjusted After-Tax Income Analysis on page 5 of this release. (B) Earnings per share for all periods presented have been retroactively adjusted to reflect the two-for-one stock split executed on June 14, 2006.

Adjusted after-tax income and the related measure per diluted share exclude items that management deems to not be reflective of the company's core operations or represent timing differences between periods. Management believes that these non-GAAP financial measures provide valuable insight into the company's core earnings from continuing operations and enable investors and analysts to better compare core operating results with those of other companies by eliminating items that may be unique to the company. Other companies may define these items differently, and the company cannot assure that adjusted after-tax income and the related measure per diluted share are comparable with similarly titled amounts for other companies.

Revenues and Capital Expenditures

Second-quarter 2006 revenues from continuing operations were $1.3 billion, compared with $1.2 billion for the 2005 period. Cash capital expenditures from continuing operations, including dry-hole costs, totaled $489 million for the 2006 second quarter, compared with $414 million for the 2005 period.

Kerr-McGee is an Oklahoma City-based oil and natural gas exploration and production company focused in the U.S. onshore, deepwater Gulf of Mexico and select proven world-class hydrocarbon basins. For more information on Kerr- McGee, visit http://www.kerr-mcgee.com/ .

Second-quarter financial information presented in this news release is preliminary. Second-quarter results will not become final until the company files its Quarterly Report on Form 10-Q with the U.S. Securities and Exchange Commission (SEC).

Statements in this news release regarding the company's or management's intentions, beliefs or expectations, or that otherwise speak to future events, are "forward-looking statements" within the meaning of the U.S. Private Securities Litigation Reform Act of 1995. These forward-looking statements include those statements preceded by, followed by or that otherwise include the words "believes," "expects," "anticipates," "intends," "estimates," "projects," "target," "budget," "goal," "plans," "objective," "outlook," "should," or similar words. In addition, any statements regarding possible commerciality, development plans, capacity expansions, drilling of new wells, ultimate recoverability of reserves, future production rates and changes in any of the foregoing are forward-looking statements. Future results and developments discussed in these statements may be affected by numerous factors and risks, such as the accuracy of the assumptions that underlie the statements, the success of the oil and gas exploration and production program, drilling risks, uncertainties in interpreting engineering data, changes in laws and regulations, the ability to respond to challenges in international markets (including changes in currency exchange rates), political or economic conditions in areas where Kerr-McGee operates, trade and regulatory matters, general economic conditions, progress made with respect to and developments related to the company's proposed merger with Anadarko Petroleum Corporation, and other factors and risks identified in the Risk Factors section of the company's Annual Report on Form 10-K and other SEC filings. Actual results and developments may differ materially from those expressed or implied in this news release.

KERR-McGEE CORPORATION CONSOLIDATED STATEMENT OF INCOME (Preliminary and Unaudited) (Millions of dollars, Three Months Ended Six Months Ended except per-share amounts) June 30, June 30, 2006 2005 2006 2005 Revenues Oil and gas sales $1,227 $1,108 $2,406 $2,114 Loss on commodity derivatives (130) (82) (244) (168) Gas marketing revenues 147 138 360 270 Other revenues 23 19 45 38 Total Revenues 1,267 1,183 2,567 2,254 Operating Expenses Lease operating costs 128 115 259 223 Production and ad valorem taxes 43 34 74 64 Transportation expense 25 24 48 47 General and administrative expense 60 62 134 115 Merger-related costs 8 --- 8 --- Exploration expense 106 116 158 171 Gas gathering, processing and other expenses 27 26 61 54 Gas marketing costs 145 139 359 269 Depreciation, depletion and amortization 194 220 383 443 Accretion expense 4 5 7 11 Provision for environmental remediation costs 3 2 3 2 Asset impairments --- --- --- 4 Gain on sales of oil and gas properties (1) (25) (5) (47) Total Operating Expenses 742 718 1,489 1,356 Operating Income 525 465 1,078 898 Interest expense (49) (58) (90) (118) Loss on early repayment and modification of debt --- --- (81) --- Other income (expense) (3) (4) (6) (6) Income from Continuing Operations before Income Taxes 473 403 901 774 Provision for income taxes (167) (147) (319) (275) Income from Continuing Operations 306 256 582 499 Income from discontinued operations, net of tax (1) 114 (24) 226 Cumulative effect of change in accounting principle, net of tax --- --- 2 --- Net Income $305 $370 $560 $725 Basic Earnings per Common Share(A)- Continuing operations $1.36 $0.91 $2.57 $1.69 Discontinued operations (0.01) 0.40 (0.11) 0.76 Cumulative effect of change in accounting principle --- --- 0.01 --- Net income $1.35 $1.31 $2.47 $2.45 Diluted Earnings per Common Share(A)- Continuing operations $1.33 $0.90 $2.53 $1.65 Discontinued operations --- 0.40 (0.11) 0.74 Cumulative effect of change in accounting principle --- --- 0.01 --- Net income $1.33 $1.30 $2.43 $2.39 Weighted average shares outstanding (thousands)(A)- Basic 225,070 281,625 226,201 295,566 Diluted 229,303 285,428 230,114 305,426 (A) On June 14, 2006, the company executed a two-for-one stock split. The number of shares outstanding and earnings per share for historical periods have been retroactively adjusted to reflect the stock split. KERR-McGEE CORPORATION ADJUSTED AFTER-TAX INCOME ANALYSIS (Preliminary and Unaudited) (Millions of dollars, Three Months Ended Six Months Ended except per-share amounts) June 30, June 30, 2006 2005 2006 2005 Revenues, excluding marketing and derivatives Natural gas sales $569 $632 $1,238 $1,180 Crude oil, condensate and natural gas liquids sales 658 476 1,168 934 Other revenues 23 19 45 38 1,250 1,127 2,451 2,152 Operating expenses, excluding marketing Lease operating costs(A) 128 115 259 223 Production and ad valorem taxes 43 34 74 64 Total lifting costs 171 149 333 287 Transportation expense 25 24 48 47 General and administrative expense(A) 60 62 134 115 Merger-related costs 8 --- 8 --- Exploration expense(A) 106 116 158 171 Gas gathering, processing and other expenses 27 26 61 54 Depreciation, depletion and amortization 194 220 383 443 Accretion expense 4 5 7 11 Provision for environmental remediation costs 3 2 3 2 598 604 1,135 1,130 Core E&P Operating Profit 652 523 1,316 1,022 Loss on commodity derivatives (130) (82) (244) (168) Gas marketing revenues 147 138 360 270 Gas purchase costs (including transportation) (145) (139) (359) (269) Asset impairments --- --- --- (4) Gain on sales of oil and gas properties 1 25 5 47 Operating Income 525 465 1,078 898 Interest expense (49) (58) (90) (118) Loss on early repayment and modification of debt --- --- (81) --- Other income (expense) (3) (4) (6) (6) Income from Continuing Operations before Income Taxes 473 403 901 774 Provision for Income Taxes (167) (147) (319) (275) Income from Continuing Operations (GAAP) 306 256 582 499 Exclude: Loss on commodity derivatives 130 82 244 168 Asset impairments --- --- --- 4 Gain on sales of oil and gas properties (1) (25) (5) (47) Include: Realized commodity derivative loss(B) (140) (70) (355) (96) Income tax (expense) benefit associated with adjusting items 4 4 41 (11) Adjusted After-Tax Income (non-GAAP) $299 $247 $507 $517 Adjusted After-Tax Income per Diluted Common Share (non-GAAP)(C) $1.30 $0.87 $2.20 $1.71 Weighted Average Number of Diluted Shares Outstanding (thousands)(C) 229,303 285,428 230,114 305,426 (A) Lease operating expense (LOE), G&A expense and exploration expense include stock-based compensation cost as presented in the following table: (In millions of dollars) LOE G&A Exploration Three months ended June 30, 2006 $ 7.0 $ 11.4 $2.2 Three months ended June 30, 2005 1.5 3.0 0.5 Six months ended June 30, 2006 18.9 37.1 6.0 Six months ended June 30, 2005 3.0 13.4 1.0 (B) Represents actual realizations (settlements) for all commodity derivatives, whether hedge or non-hedge, associated with the applicable period. (C) On June 14, 2006, the company executed a two-for-one stock split. The number of shares outstanding and earnings per share for historical periods have been retroactively adjusted to reflect the stock split.

Adjusted After-Tax Income and the related measure per diluted share exclude items that management deems not to be reflective of the company's core operations or reflect timing differences between periods. Management believes that these non-GAAP financial measures provide valuable insight into the company's core earnings from continuing operations and enable investors to better compare core operating results with those of other companies by eliminating items that may be unique to the company. Other companies may define these items differently, and the company cannot assure that Adjusted After-Tax Income is comparable with similarly titled amounts for other companies.

KERR-McGEE CORPORATION OPERATING HIGHLIGHTS (Preliminary and Unaudited) Three Months Ended Six Months Ended June 30, June 30, Natural Gas Production and Average Sales Prices 2006 2005 2006 2005 Production Volumes (MMcf/d) Gulf of Mexico - Deepwater 253 285 246 270 Shelf 120 167 105 162 U.S. Onshore - Rocky Mountain 388 330 376 331 Southern 223 241 232 253 Total 984 1,023 959 1,016 Average Wellhead Sales Prices (per Mcf) Gulf of Mexico - Deepwater $6.80 $7.19 $7.58 $6.91 Shelf 6.76 6.97 7.47 6.73 U.S. Onshore - Rocky Mountain 5.84 6.42 6.66 6.07 Southern 6.56 6.72 7.28 6.16 Average $6.36 $6.79 $7.14 $6.42 Crude Oil, Condensate and NGL Production and Average Sales Prices Production Volumes (Mbbls/d) Gulf of Mexico - Deepwater 59 47 53 47 Shelf 9 13 9 14 U.S. Onshore - Rocky Mountain 21 22 21 22 Southern 13 14 13 14 Total U.S. 102 96 96 97 China(A) 17 17 17 19 Total 119 113 113 116 Average Wellhead Sales Prices (per bbl) Gulf of Mexico - Deepwater $61.66 $47.26 $59.29 $46.03 Shelf 58.39 47.25 56.69 46.46 U.S. Onshore - Rocky Mountain 57.49 43.44 54.81 41.82 Southern 57.62 45.58 52.95 44.03 Average U.S. 59.99 46.13 57.20 44.84 China 63.58 42.85 59.08 40.46 Average $60.52 $45.60 $57.47 $44.09 Energy Equivalent Production Volumes Total - MBoe per day 283 284 272 286 MMcfe per day 1,699 1,702 1,634 1,715 (A) China sales volumes were 17 Mbbls/d for three months and 16 Mbbls/d for six months of 2006 and 19 Mbbls/d for three months and 20 Mbbls/d for six months of 2005. Sales volumes differ from production volumes due to timing of cargo liftings. KERR-McGEE CORPORATION SELECTED BALANCE SHEET INFORMATION (Unaudited) (Millions of dollars) June 30, December 31, Selected Balance Sheet Information 2006 2005 Cash and cash equivalents $156 $1,053 Current assets 1,515 3,249 Total assets 11,938 14,276 Current liabilities 2,493 3,931 Total debt 2,406 2,583(A) Stockholders' equity 4,616 4,115 Shares outstanding at period-end (thousands) 227,308 228,775(B) (A) In 2006, certain December 31, 2005 balances were reclassified to present Tronox as a discontinued operation. Total debt at year-end of $3.133 billion was reduced by $550 million (representing Tronox debt eliminated at the spinoff date) as a result of such reclassifications. (B) On June 14, 2006, the company executed a two-for-one stock split. The shares outstanding at December 31, 2005 have been retroactively adjusted to reflect the stock split. Media contact: John Christiansen Direct: 405-270-3995 Cell: 405-406-6574 jchristiansen@kmg.com Investor contacts: Rick Buterbaugh John Kilgallon Direct: 405-270-3561 Direct: 405-270-3521