Kerr-McGee Transformation Attracts Little Notice

Friday, May 12, 2000
Despite Analyst Recommendations, Share Prices Continue To Drop

Kerr-McGee Corp.'s chief executive Luke Corbett has been on a spending spree in recent years, building his company's oil and chemicals businesses, but the top executive has yet to catch the attention of Wall Street.

"We've essentially transformed our company, particularly over the last two and half or three years," said Corbett, who is also chairman of the Oklahoma City-based energy and chemicals firm.

"You're now looking at a large company with critical mass in two businesses - oil and gas exploration and production, and specialty chemicals."

Still, its transformation has attracted little notice from investors, even in spite of several industry analysts haven given Kerr-McGee glowing recommendations. Since hitting a high of about $67 in mid-January, shares of the company have fallen about 20 percent. The drop comes even as the company has posted first-quarter profits that rose more than twenty-fold from a year earlier.

When asked about the low stock price, Corbett echoed comments made by other industry chief executives over the last year. "My attitude is good, my frustration level is high. I think what you've seen happen is that people have left the energy sector and they've left the chemical sector," he said. "We have quality earnings, we generate wonderful cash flows, so certainly there is a disconnect between the pricing environment and our stock price," he added.

Founded more than 70 years ago, Kerr-McGee sold its oil refineries, pipeline system, and trucking operations in the mid 1990s to concentrate on oil exploration and production.

Pushing to raise its profile, the company paid about $1.83 billion for Oryx Energy last year. It then bought North Sea oil and gas assets from the Spanish-Argentine oil group Repsol-YPF for about $555 million. Those deals bolstered its reserves to more than a billion barrels of oil and gas, making it one of the top U.S. independent producers. "When you look at just the oil and gas part of the equation we're focused in the deepwater Gulf of Mexico and the U.K. sector of the North Sea, then selected deepwater basins around the world," Corbett said.

Those areas, he said, should soon pay big dividends. In the North Sea, the Repsol-YPF assets will boost its production in the region by about a third to 130,000 barrels a day. Additionally, the company recently said that its Boomvang development in the Gulf of Mexico could hold 70 to 100 million barrels of oil equivalent, while its nearby Nansen development is thought to contain reserves of 500 to 600 billion cubic feet of natural gas equivalent.

It's also having success in China, where the Bohai Bay shallow water area is estimated to hold gross reserves of about 100 million barrels. Kerr-McGee holds a stake of slightly more than 81 percent in the block 04/36 and a 50 percent stake in block 05/36 in the bay, located east of Beijing.

ABN Amro analyst Gene Nowak, who has the company as one of his top picks for 2000, said Kerr-McGee's shift appears to be working. "Corbett gets a lot of the credit for that, if not all the credit," he said.

CEO Corbett said the company should get stronger - and possibly larger - in the coming years.

"We're not growing just to get bigger, our emphasis is on generating quality earnings, maintaining good return on capital employed," Corbett said. "I think we've shown that our management team has the discipline and know-how to do good accretive transactions." - (Reuters)

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