FILED BY KERR-MCGEE CORPORATION
PURSUANT TO RULE 425 UNDER THE
SECURITIES ACT OF 1933 AND DEEMED FILED
PURSUANT TO RULE 14A-12 UNDER THE
SECURITIES EXCHANGE ACT OF 1934
SUBJECT COMPANY: WESTPORT RESOURCES CORP.
SECURITIES ACT FILE NO. 333-114886
Set forth below is a transcript of the interim earnings conference call made
today by Kerr-McGee Corporation. It contains information related t the merger of
Kerr-McGee Corporation and Westport Resources Corporation.
Date/Time of Call: June 23, 2004 at 10:00 a.m.
Speaker: Rick Buterbaugh
Thank you, Ann Marie, and good morning. Today's call will update previous
estimates provided by the company and will contain forward-looking statements.
Please note that actual results or events may differ materially from our
expectations or projections. Information concerning factors and risks that could
cause material differences is identified in the Risk Factors section of the
company's Annual Report on Form 10-K and other SEC filings.
On Friday, June 25, 2004, Kerr-McGee and Westport Resources will conduct
special meetings of each company's shareholders to vote on the pending merger of
the two corporations. We are confident of shareholder approval of the merger and
anticipate closing the transaction the same day.
The Westport transaction will add quality development and exploration
opportunities in our U.S. core areas, increase the growth rate of our production
profile and lower the risk of the production profile with the addition of at
least 2,500 quality development opportunities for the existing proven
undeveloped, probable and possible resource base. Also, these assets will
provide an opportunity for us to create value through the use of our tight-gas
development expertise in areas such as Greater Natural Buttes.
Upon closing, Westport's operations will be consolidated with Kerr-McGee's.
Therefore, we expect to reflect five days of Westport's activities in
Kerr-McGee's second-quarter results. Since we expect to issue approximately 49
million new shares in connection with this transaction, Kerr-McGee's total
outstanding shares will increase to approximately 150 million. For
second-quarter earnings per share calculations, we expect to use a weighted
average of approximately 103 million shares to calculate basic earnings and a
weighted average of 113 million shares for the diluted calculation which assumes
the conversion of Kerr-McGee's 5 1/4% convertible debentures into approximately
10 million shares. Keep in mind that when doing this conversion, you also add
back to earnings the after-tax interest on the convertible debt of about $5.3
million for the quarter.
Kerr-McGee's balance sheet at the end of the second quarter will reflect
the full impact of the Westport transaction. Therefore, Kerr-McGee's long-term
debt will increase to reflect the assumption of the Westport debt and
stockholder's equity will reflect the new share issuance. You should note that
Westport did redeem their 6 1/2% convertible preferred stock on June 21.
Kerr-McGee still expects to achieve a year-end debt-to-capital ratio of
approximately 42%.
Kerr-McGee also anticipates issuing long-term senior unsecured debt to
refinance the 8 1/4% subordinated notes of 2011 from Westport. This transaction
is expected to be completed following the closing of the merger.
A joint-company transition team has been in place since the merger
announcement to coordinate the integration of Westport's assets, processes and
personnel into Kerr-McGee. We are in the process of finalizing organizational
changes in our U.S. onshore and Gulf of Mexico operations that will allow for
the most efficient management of these properties, taking full advantage of the
expertise from each company. We are confident that we will realize at least $40
million of synergies from this merger within one year of closing.
In our exploration and production unit, total production volumes continue
to be on-track. Our major developments projects remain on or ahead of schedule.
First production from our Red Hawk field is still expected in July and first oil
from Bohai Bay is expected in mid third quarter. Our expectations of average
daily volumes for the year remain in the range of approximately 306,000 to
323,000 barrels of equivalent.
Second-quarter projections for oil production remain in the range of
130,500 to 136,500 barrels per day. Second-quarter natural gas production is
expected in the range of 735 million - 785 million cubic feet per day, with
about 85% of this volume coming from the U.S. With these volumes, we believe the
range for total production for the second quarter to be 253,000 to 267,300
barrels of equivalent per day which unchanged from the last call.
A detailed quarterly breakout of expected production volumes for 2004 by
product and by region is available on the company's website at kerr-mcgee.com
under guidance and hedging information in the investor relations section.
For the second quarter to date, benchmark NYMEX prices for WTI and Brent
have averaged approximately $38.45 and $35.30 per barrel, respectively. This is
up nearly $3.20 per barrel for WTI and up nearly $4.00 per barrel for Brent,
relative to their first-quarter averages. You will recall that we have hedged
about 75% of our projected second-quarter U.S. oil volumes at an average WTI
price of $28.23 per barrel and about 85% of our second-quarter North Sea oil
volumes at an average Brent price of $26.27 per barrel.
For reference, the NYMEX gas prices have averaged about $6.15 per millions
Btu for the second quarter to date, which is up more than $0.40 per millions Btu
versus the first-quarter average. About 80% of our total projected
second-quarter U.S. gas volumes are hedged with fixed-price swaps at $4.74 per
millions Btu versus the collars that were in place during the first quarter.
The company has not added any additional incremental hedges since the last
update. A detailed listing of outstanding oil and gas hedges for Kerr-McGee, the
hedges associated with the Kerr-McGee/Westport merger and Westport's existing
hedges are available under guidance and hedging information in the investor
relations section of Kerr-McGee's website.
Oil and gas marketing revenue is expected to be approximately $85 million
dollars for the second quarter, primarily associated with our operations in the
Rocky Mountain area. There will also be a corresponding offset in marketing -
gas purchase costs, and therefore, no significant impact on operating profit is
expected from these activities.
Our expectation for total production costs for the second quarter is about
$4.40 per barrels of equivalent. This includes about $3.70 per BOE of lease
operating expense. Unit leasing operating expense by region on a barrel of
equivalent basis includes about $2.70 for the U.S. Onshore region, $3.05for the
gulf and $5.40 in the North Sea. For the year, including six months of the
Westport properties, total unit LOE is projected at $3.75. With the added
onshore properties from Westport, we anticipate unit production taxes to
increase during the second half of the year to approximately $1.20 per barrels
of equivalent and average about $1.00 per barrels of equivalent for the entire
year.
Unit transportation costs in the second quarter are projected at
approximately $1.10 per barrels of equivalent. E&P G&A is expected to be
approximately $33 million.
Our expectation for second-quarter unit depreciation and depletion charges
for oil and gas activities remains at about $6.80 per barrels of equivalent.
Second-quarter accretion expense for future abandonment is estimated to be about
$7 million dollars. As a result of the transaction with Westport, Kerr-McGee
will record Westport's assets and liabilities at fair value as of the
acquisition date. Consequently, the depreciation and depletion rate for E&P on a
combined basis is projected to increase to approximately $8.00 per barrels of
equivalent for the second half of the year.
Second-quarter exploration expense is projected to be approximately $60
million. As a reminder, Kerr-McGee utilizes the more conservative successful
efforts accounting method which immediately expenses the cost of non-commercial
wells. Therefore, the ultimate outcome of wells currently in process could have
an impact on the amount of exploration expense reported for the quarter. Wells
deemed as non-commercial prior to the company filing its Form 10-Q with the SEC
could increase the projected expense. Total 2004 exploration expense is now
projected at about $340 million dollars which includes about $70 million of
non-cash charges associated with the amortization of non-producing leasehold
costs. Total annual exploration expense includes the addition of expected
Westport activity for the second half of the year.
On the Garden Banks 244 prospect, we are currently setting pipe at
approximately 22,800 feet total vertical depth before drilling ahead to a
planned depth of approximately 25,000 feet.
In our international program, our second well in Brazil has now spud. This
well on the deepwater BM-ES-9 block at the Tartaruga Verde prospect is located
in about 8,700 feet of water and is expected to drill to approximately 19,000
feet to test a cretaceous objective. Kerr-McGee participates with a 50% working
interest in this prospect. Our first well in Morocco has spud on the Rak
prospect located in approximately 6,400 feet of water on the Cap Draa block.
Kerr-McGee participates in this well with an 11.25% working interest however our
dry-hole exposure is limited to $5 million dollars.
We are also continuing an active exploitation program. In our U.S. Onshore
region, at the Wattenberg field in Colorado, we have performed 170 projects
since the first of the year. Of these projects 113 were new drills, 23 were well
deepenings and 34 were recompletion projects including refracs and tri-fracs.
The fifth-spot program is an integral part of our new drill program. As a
reminder, each of these new wells offers the future potential for a refrac and
tri-frac and adds to our inventory of literally thousands of projects in the
area. The Wattenberg exploitation program is on target to complete 300 projects
in 2004. As previously mentioned, additional recovery strategies are being
developed to further enhance the value from the Wattenberg asset. These are
examples of the type of activities that we expect to capitalize on in the
Greater Natural Buttes area.
In the U.K. North Sea, a three-well development drilling program around the
Gryphon field has yielded very encouraging results. As previously discussed, the
first well tested at a gross rate of 6,500 barrels of production per day and we
have now tested the second well at a rate of 5,200 barrels of production per
day. The third well in the program has reached total depth and has encountered
more than 800 feet of quality pay in the horizontal section. This well will be
tested this week. All three wells will be tied back to the Gryphon FPSO and
first production is expected in the third quarter. The results of this
development program strongly support our decision to acquire an additional 25%
working interest in the field during 2003. Kerr-McGee operates the Gryphon field
with an 86.5% interest.
The new waterflood redirection program for the Janice field is progressing.
This activity is expected to result in higher recoveries from the Fulmar
formation and yield higher oil rates. Additional development drilling is being
evaluated to fully exploit this new strategy. If successful, this could reduce
or eliminate capital for injection wells in this area.
As I mentioned earlier, each of our major developments remains on or ahead
of schedule and within budget. At the Gunnison field, production uptime and
operating efficiency from the spar have exceeded expectations since start-up
last December. Six wells have been brought online including three subsea and
three dry-tree completions. Through May of this year, we have already produced
more than one million barrels of oil and 20 BCF of gas.
One subsea well has recently been shut-in due to excessive sand production.
A semi-submersible drilling rig has been scheduled to re-complete this well and
we expect production to be re-established in the third quarter. We have also
temporarily suspended completion activities on one well which encountered a tar
streak. Diagnostic work is under way to establish the exact composition of the
tar and the required adjustments to the completion design and production plan
for the well. We are confident in our ability to rapidly adapt and execute our
plans to address these challenges while maintaining strong focus on optimizing
field value.
Remaining dry-tree well completions at Gunnison are expected to be
concluded by year-end which will result in total production in the range of
20-30 million barrels of production per day and 140-180 MMCF/D. Kerr-McGee
operates Gunnison with a 50% working interest.
The Red Hawk project remains on schedule with first production expected in
July. We have received our certification of inhabitance from the U.S. Coast
Guard and commissioning activities continue for the world's first cell spar. The
two subsea wells are already completed and tied back to the facility. Located on
Garden Banks 877 in 5,200 feet of water, Red Hawk will become Kerr-McGee's
deepest producing facility which we operate with a 50% working interest. Future
activities include potentially drilling one more well in the Red Hawk field and
exploration of nearby satellite opportunities, which would be subsea tiebacks to
the cell spar.
Construction of the truss spar's hull and topsides for our 100%-owned
Constitution development remains on schedule. Design modifications to increase
the topsides' oil processing capacities from 40,000 to approximately 70,000
barrels per day are under way to support the satellite discovery of the
Ticonderoga field located just five miles to the south. With resources estimated
in the range of 30 - 50 million barrels of equivalent, Ticonderoga adds
significant value to an already robust project. Kerr-McGee operates this
satellite with a 50% working interest. The addition of Ticonderoga will not
impact first production from the Constitution field which is expected late in
the second quarter of 2006.
In China, the Bohai Bay development continues ahead of schedule. The FPSO,
called the Kerr-McGee Global Producer VIII, is on location and is being
connected to the single-point mooring system. Following final commissioning of
the facilities, we expect to begin production in the next 4-6 weeks - well ahead
of schedule. Production will come from just one well initially to fully test the
facilities prior to ramping up production.
Development planning is ongoing for other discoveries in Bohai Bay on the
04/36 block including the CFD 11-3, CFD 11-5 and CFD 11-6 fields, each operated
by Kerr-McGee with a 40% interest. Development planning is also ongoing for
three discoveries on the adjacent 05/36 block including the CFD 12-1 and CFD
12-1S fields which are operated by Kerr-McGee with a 25% interest. Each of these
discoveries is a candidate to be tied back to the Kerr-McGee Global Producer
VIII facility. The Bohai Bay area continues to enhance value and become a core
play for Kerr-McGee.
Development planning for our recent North Sea discoveries at James, Donan
and Affleck are each progressing. James is being developed as a subsea tieback
to our Janice facility with first production expected in early 2005. First oil
from Donan and Affleck are expected in mid 2006.
Today I would also like to update you on activities at several of our other
major fields. Although these projects have been online for several years they
still add significant value and provide additional opportunities for our
company.
The Neptune field has been on line since March, 1997 from the world's first
production spar located on Viosca Knoll block 826 in 1,950 feet of water. The
field and its satellites have now produced 46 million barrels of oil and 65
billion cubic feet of natural gas totaling 56 barrels of equivalent excuse me,
56 million barrels of equivalent. Production from the spar is presently
averaging about 11,000 barrels of oil per day and 50 million cubic feet of
natural gas per day. The production is derived from 11 dry-tree wells on the
spar and four subsea wells.
The Neptune field continues to surpass our expectations for performance.
The original project was sanctioned in October, 1994 on a gross proven reserve
base of 35 million barrels of equivalent and a gross proven plus probable
resource base of more than 60 million barrels of equivalent. Following the phase
I development drilling, the addition of the Viosca Knoll 825 wells, the phase II
development drilling, production performance, and now the Viosca Knoll 869
satellites, we are now expecting to produce more than 85 million barrels of
equivalent of gross proven and probable resources, a 40% increase from initial
expectations.
The value of the Neptune facility continues to be enhanced with the pending
addition of third-party processing revenues from the Swordfish development.
Partners in the Swordfish field have announced that they will utilize the
Neptune spar as the processing hub for their approved development. First
production from Swordfish is expected across Neptune during the first half of
2005. We also continue to have satellite development opportunities around the
field. We will spud the Viosca Knoll 869 #2 well, a potential subsea development
well to the Neptune spar, in the third quarter.
The Nansen field has been on line since January, 2002 from the world's
first truss spar located on East Breaks block 602 in 3,700 feet of water.
Kerr-McGee operates this field and the Nansen area with a 50% working interest.
The Nansen field and its Navajo satellites have now produced 22 million barrels
of oil and 135 billion cubic feet of natural gas totaling 45 million barrels of
equivalent. Payout from the project has already been achieved. Production
through the spar is averaging about 30,000 barrels of oil per day and 165
million cubic feet of natural gas per day. The production is derived from nine
Nansen dry-tree wells on the spar and six subsea wells of which three produce
the Nansen field and three produce the Navajo satellites.
The Nansen field has surpassed all of our expectations for performance. The
original project was sanctioned in June, 2000 on a gross proven reserve base of
55 million barrels of equivalent and a gross proven plus probable resource of
approximately 120 million barrels of equivalent. Following the development
drilling, the addition of the Navajo satellites, and better than anticipated
production performance we are now expecting to produce more than 200 million BOE
of gross proven and probable resources.
Operations uptime and efficiency have exceeded expectations with the Nansen
spar and well availability is exceeding 97%. Individual wells and reservoirs
have generally performed well above expectations with some compartmentalization
seen in a few of the reservoirs. Development drilling plans were altered to
overcome the compartmentalization and have proven successful.
Upcoming activities in the Nansen field area include planned recompletions
of several of the dry-tree wells and of one the Navajo subsea wells. Additional
satellite drilling is under evaluation as spar capacity and field operations
allow.
The Boomvang field has been on line since June, 2002 from a truss spar
located on East Breaks block 643 in 3,650 feet of water. The truss spar produces
the North Boomvang field with five dry-tree wells, the East Boomvang field with
three subsea wells, and the West Boomvang field area with one subsea well.
Kerr-McGee operates the area and holds a 30% interest in most of the wells. The
area has produced more than 18 million barrels of oil and more than 100 billion
cubic feet of natural gas totaling about 35 million barrels of equivalent since
inception and payout has occurred. The current production rate is about 30,000
barrels of production per day and 98 million cubic feet per day. Recently, the
East Breaks 688 #8 subsea well did experience a failure on the subsurface safety
valve. The well was shut-in in accordance with Kerr-McGee's environmental policy
until the valve can be repaired, which is expected in early July. Gas production
from this well is expected to be restored at 35 million cubic feet per day when
the valve is repaired.
The Boomvang area has also surpassed our performance expectations since
sanctioning. Our current expectations are for nearly 80 million barrels of
equivalent gross proven and probable resources. Reservoir performance on a well
by well basis has met expectations except in the West Boomvang area where early
water breakthrough in the East Breaks 642 #1 well and 686 #2 wells occurred. The
East Breaks 642 #1 well was sidetracked up-dip and the well's production has
been re-established at 20 million cubic feet per day. Remedial action on the
East Breaks 686 #2 well is not justified at this time.
Operations availability of the spar and dry-tree wells has exceeded 97%.
The Boomvang spar has been recognized by a major co-venturer as one of the most
efficient and dependable producing platforms in their deepwater portfolio.
The future plans for the Boomvang area include a recompletion of one of the
East Boomvang wells, subsea tiebacks of two additional satellite wells located
in East Breaks blocks 598 and 599 north of the platform during the third
quarter, as well as the evaluation of other satellite opportunities in the
2004-2005 timeframe as space and capacity are available.
Projects such as Neptune, Nansen and Boomvang are just several examples of
the quality and flexibility of Kerr-McGee's production and exploitation programs
which have enabled us to continue to achieve our goals and deliver results
within our guidance ranges. We are very excited about the additional
opportunities that will come as a result of our merger with Westport Resources.
We are confident that the added breadth, depth and balance that these properties
bring to Kerr-McGee will further enhance our exploration and production program.
In our chemical unit, we are continuing to see evidence of an improving
market for titanium dioxide pigment. Previously announced price increases for
TiO2 sales in the Americas and Southeast Asia are solidifying and demand is in
line with our seasonal expectations. Favorable weather conditions continue to
help the architectural coatings market and sales to plastics manufacturers are
also improving. Greater demand for pigment, particularly for chloride-process
product, has kept our plant utilization rates above 90%. However, the markets in
Europe and for many sulfate-based products continue to be soft relative to the
other markets. As a result of these generally improving trends, we are
increasing our guidance for second-quarter operating profit from our total
chemical activities into the range of $11 - $13 million dollars.
Commissioning of our recently installed high-productivity oxidation line at
our chloride-process pigment plant in Savannah, GA continues. We are on track to
complete these activities by year-end. If this process proves successful, it is
expected to have a notable impact on reducing the operating complexity of our
plants.
The corporate portion of general and administrative and other costs are
expected to be about $30 million on a pre-tax basis in the second quarter. These
amounts exclude the impact of gains or losses on foreign currency and
derivatives, which can not be determined prior to quarter-end. Loss on equity
investments is expected to be about $8 million dollars. Net interest expense for
the quarter is expected at about $54 million dollars.
A replay of this call will be available temporarily through the company's
website and can be accessed at kerr-mcgee.com. Actual second-quarter results
will be released on July 28, 2004, and we will host a conference call at 11:00
a.m. eastern that same day. Details about this and future interim calls, as well
as information on upcoming presentations by members of the company's senior
management team, will be posted on the company's website.
Thank you for your time and interest in Kerr-McGee this morning. This
concludes our call.
IMPORTANT LEGAL INFORMATION
THIS CONFERENCE CALL IS NOT AN OFFER TO SELL THE SECURITIES OF KERR-MCGEE
CORPORATION AND IT IS NOT SOLICITING AN OFFER TO BUY THESE SECURITIES.
INVESTORS AND SECURITY HOLDERS ARE URGED TO READ THE DEFINITIVE JOINT PROXY
STATEMENT/PROSPECTUS REGARDING THE PROPOSED TRANSACTION BECAUSE IT CONTAINS
IMPORTANT INFORMATION.
Kerr-McGee Corporation has filed a Registration Statement on Form S-4/A
with the U.S. Securities and Exchange Commission (SEC) containing a definitive
joint proxy statement/prospectus regarding the proposed transaction between
Kerr-McGee Corporation and Westport Resources Corporation. Investors and
security holders may obtain a free copy of the definitive joint proxy
statement/prospectus and other documents filed or furnished by Kerr-McGee or
Westport with the SEC at the SEC's website, www.sec.gov. Copies of the
definitive joint proxy statement/prospectus and other documents filed or
furnished by Kerr-McGee or Westport may also be obtained for free by directing a
request to Kerr-McGee Corporation, Attn: Corporate Secretary, P.O. Box 25861,
Oklahoma City, Oklahoma 73125 or to Westport Resources Corporation, Attn:
Investor Relations, 1670 Broadway, Suite 2800, Denver, Colorado 80202.
Kerr-McGee, Westport and their respective directors and officers may be
deemed to be participants in the solicitation of proxies with respect to the
proposed transaction involving Kerr-McGee and Westport. Information regarding
Kerr-McGee's and Westport's respective directors and officers and a description
of their direct and indirect interests, by security holdings or otherwise, is
available in the definitive joint proxy statement/prospectus contained in the
above referenced Registration Statement on Form S-4/A filed with the SEC on May
18, 2004.