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Kerr-McGee raises production target for 2004 second quarter
Ray Tyson Petroleum News Houston Correspondent
Kerr-McGee has raised its oil production range for the 2004 second quarter to 130,500-136,500 barrels per day to reflect greater natural gas liquids output and strong performances from the North Sea and the company’s Nansen and Boomvang fields in the deepwater Gulf of Mexico.
The Oklahoma-based independent also has increased its total production outlook, including natural gas, for full-year 2004 to an average range of 306,000 to 323,000 barrels of oil equivalent per day, Kerr-McGee said in a May 26 conference call with industry analysts.
Guidance for overall production this year was raised because of first oil expected from the Red Hawk field in the Gulf of Mexico this July and from China’s Bohai Bay during the third quarter, four months ahead of schedule, Kerr-McGee said.
Also, total production for the year will benefit from Kerr-McGee’s $3.4 billion acquisition of Denver-based independent Westport Resources. Kerr-McGee’s total daily production volume is expected to increase more than 34 percent, 54 percent of which is natural gas. The deal is expected to close June 25, pending shareholder approval the same day.
For the second quarter of 2004, Kerr-McGee is projecting daily natural gas production to range between 735 million and 785 million cubic feet with about 85 percent of the volume coming from the United States.
“With these volumes, we believe the range for total production for the 2004 second quarter to be about 253,000 to 267,000 barrels of oil equivalent a day,” said Rick Buterbaugh, Kerr-McGee’s head of investor relations. Majority of production hedged However, Kerr-McGee has taken hedging positions on a significant portion of its oil and gas production at much lower commodity prices than what they are so far averaging during the 2004 second quarter.
The company locked in 75 percent of its U.S. oil production at $28.23 per barrel and about 85 percent of its North Sea production at $26.27 per barrel. So far, West Texas Intermediate oil prices are averaging about $38.25 per barrel and North Sea Brent $34.90 per barrel. Second-quarter WTI is currently up about $3 per barrel compared to the first quarter, while Brent is up about $3.60 per barrel.
Kerr-McGee also hedged about 80 percent of its U.S. natural gas volumes at a fixed $4.74 per thousand cubic feet, considerably less than the $6.05 average so far in the second quarter. NYMEX gas prices are currently about 30 cents higher than they were in the first quarter.
Meanwhile, Kerr-McGee said it expects to spend about $65 million on oil and gas exploration in the 2004 second quarter and about $350 million for the year, which includes about $70 million in non-cash charges associated with non-producing leasehold.
“The increase in annual exploration expense results from the addition of expected Westport activities for the second half of the year,” Buterbaugh said.
The addition of Westport’s reserves will increase Kerr-McGee’s proved reserves by nearly 30 percent, mainly from North American natural gas. At year-end 2003, Westport had 1.8 trillion cubic feet of gas equivalent proved reserves, consisting of 76 percent natural gas and primarily located in the Rocky Mountain and Texas Gulf Coast areas. Westport also has a reported 1.8 trillion cubic feet of equivalent in probable and possible resources, about 50 percent of which are located in and around the Natural Buttes field, in the Uinta basin of northeast Utah.
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