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.

SUBJECT COMPANY SEC FILE NO. 001-14256

 

 

The communication filed herewith is a slide presentation regarding the merger of Kerr-McGee Corporation and Westport Resources Corporation.  The presentation was made to interested parties on April 7, 2004 and is available on Kerr-McGee’s website.

 



 

 

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Forward-Looking
Statement

 

Statements in this presentation regarding the company’s or management’s intentions, beliefs or expectations, or that otherwise speak to future events, including resource estimates, production rate estimates, development schedule and cost estimates, are “forward-looking statements” within the meaning of the U.S. Private Securities Litigation Reform Act of 1995.  Matters discussed in these statements involve risks and uncertainties which may cause results to differ materially from those set forth in these statements.  The following factors, among others, could cause actual results to differ from those set for in these forward-looking statements: the ability to obtain governmental approvals of the merger on the proposed terms and schedule; the failure of Kerr-McGee or Westport Resources stockholders to approve the merger; the risk that the businesses will not be integrated successfully; the risk that the cost savings and any synergies from the merger may not be fully realized or may take longer to realize than expected; disruption from the merger making it more difficult to maintain relationships with customers, employees or suppliers; the accuracy of the assumptions that underlie the statements, the success of the oil and gas exploration and production program, the price of oil and gas, drilling risks, uncertainties in interpreting engineering data, demand for consumer products for which Kerr-McGee’s oil and gas business supplies raw materials, the financial resources of competitors, 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, and other factors and risks identified in the Risk Factors sections of Kerr-McGee’s Annual Report on Form 10-K and Westport Resources’ Annual Report on Form 10-K as well as other of their SEC filings.

 

The SEC permits oil and gas companies, in their filings with the SEC, to disclose only proved reserves.  We use certain terms in this presentation, such as “probable and possible” reserves, that the SEC’s guidelines strictly prohibit us from including in filings, with the SEC.  Investors are urged to consider closely the disclosures and risk factors in Kerr-McGee’s Forms 10-K and 10-Q, File No. 1-16619, available from its offices or web site, www.kerr-mcgee.com, and in Westport Resources’ Forms 10-K and 10-Q, File No. 1-14256, available from its offices or web site, www.westportresourcescorpcom.  You can also obtain these forms from the SEC by calling 1-800-SEC-0330.)

 



 

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Merger
Transaction

 



 

Merger Rationale

 

                  Enhances U.S. core areas with quality natural gas assets

 

                  Expands base of low-risk exploitation projects

 

                  Accelerates production growth profile

 

                  Generates additional free cash flow

 

                  Strengthens balance sheet

 

                  Accretive to 2005 earnings / cash flow

 

                  Underpinned with attractive hedges

 



 

[LOGO]

 

[LOGO]

 

Merger
Transaction

 



 

Operational
Benefits

 



 

Strategic Asset Rationale

 

                  Enhances core areas with quality assets

                  Rockies, S. Texas, Gulf Coast, Gulf of Mexico

                  Major player in all core areas

 

                  Shifts KMG reserve base

                  Becomes 47% U.S. onshore-based / 76% U.S.-based

                  Increases gas reserves to 57%

                  Adds long-life Rocky Mountain gas

 

                  Increases production profile to >10% CAGR

 

                  Enhances low-cost, high-margin production base

 

                  Strengthens inventory of low-risk exploitation opportunities

 

                  Application of KMG tight-gas and supply-chain expertise

                  Entry into new core areas - Uinta Basin

 

                  Stong base foundation for high-potential exploration growth

 



 

Regional
Overlap

 

[GRAPHIC]

 



 

Impact to
Reserves

MM BOE

 

[CHART]

 

As of Jan. 1, 2004

 

                  29% increase in proved reserves

 

                  Complements core U.S. onshore & gulf assets

 

                  Adds balance/stability

 

                  Substantial potential from identified probable and possible locations

 



 

Reserve Balance
Pro Forma Jan. 1, 2004

 

[CHART]

 

By Product

 

[CHART]

 

By Category

 

[CHART]

 

By Region

 

1.3 B BOE

 



 

Production Profile
Pro Forma

M BOE/D

 

[CHART]

 


* Assumes Aug. 1, 2004 effective date

 



 

Production by Region
Pro Forma 2005
M BOE/D

 

[CHART]

 



 

Unit Operating
Cost Impact

$ / BOE

 

 

2005

 

LOE*

 

$

(.20

)

Production Tax

 

.30

 

Transportation

 

(.10

)

G&A*

 

(.25

)

Net Impact

 

$

(.25

)

 

Maintains Kerr-McGee’s high-margin cash flow per BOE

 


* Includes $40 MM of synergies in LOE and G&A

 



 

Additional
Synergies

 

                  Strategic fit with existing Kerr-McGee core positions

                  Geological and geophysical knowledge

                  Drilling experience

                  Completion technology

                  Operational expertise

 

                  Added scale benefits supply-chain opportunities

 

                  Opportunities in areas where Kerr-McGee has demonstrated ability to add reserves and value

 

                  Potential to highgrade exploration program

 



 

Purchase Price
By Reserve Layer

 

 

 

Purchase
Price
$ MM

 

Reserves
(MM BOE)

 

Purchase
Price
$/BOE

 

Proven reserves

 

$

2,147

 

297

 

7.23

 

Probable & possible

 

930

 

300

 

3.10

 

Exploitation / exploration

 

300

 

500

 

.60

 

Gathering assets

 

50

 

 

 

 

 

 

 

$

3,427

 

 

 

 

 

 



 

Probable & Possible
Resources
MM BOE

 

[GRAPHIC]

 



 

SEC PV(10)
Value

 

Rank

 

Field

1

 

Wattenberg

2

 

Nansen

3

 

Natural Buttes

4

 

Gunnison

5

 

Harding

6

 

Constitution

7

 

Gryphon

8

 

Red Hawk

9

 

CFD 11-1 & CFD 11-2

10

 

Conger

11

 

Baldpate

12

 

Tullich

13

 

Flores

14

 

Skene

15

 

VK 826

16

 

MP 108

17

 

Janice

18

 

Leadon

19

 

Mocane Laverne

20

 

Pompano

21

 

Moxa Arch

22

 

BA 133

23

 

Rincon

24

 

Elm Grove

25

 

Boomvang

26

 

Andrews

27

 

WC Blk 180/198

28

 

Speaks, SW

29

 

Navajo

30

 

ST Blk 316

 

 

 

Yellow

 - KMG

 

Blue

 - WRC

 

As of Jan. 1, 2004

 



 

Greater Natural Buttes Area
Uinta Basin

 

[GRAPHIC]

 

                  New core area

                  Large, stable, long-life gas

                  High-quality gas asset

                  Stacked pay with field extension

                  Value plus by mid-stream assets

 

Current avg. daily production (MMCFe/D)

 

92

 

Reserves 12/31/03 (BCFe)

 

658

 

Gross acres

 

271,000

 

Net acres

 

229,000

 

 



 

Greater Natural Buttes Area
New Drilling Locations

 

[GRAPHIC]

 



 

[GRAPHIC]

 



 

[GRAPHIC]

 



 

Greater Natural Buttes Area
Development Potential

 

[GRAPHIC]

 

 

 

BCFe

 

Exploitation

 

900

 

 

 

 

 

Probable/Possible

 

900

 

 

 

 

 

PUD

 

355

 

 

 

 

 

PDP

 

308

 

 


*Approximately 80% net leases

1.8 TCFe of upside potential exists

 

                  Infills

                  Deepenings

                  Southeast extension

                  Down-spacing

 

 



 

[GRAPHIC]

 

D-J Basin
Acquisition Lookback

Since acquisition. . .

 

                  Added 350 BCFe of proved reserves

 

                  Completed > 1,100 projects in Wattenberg

 

                  Increased project inventory 12%

 

                  Increased value by $250 MM

 

                  Created core area to exploit tight-gas expertise

 



 

[GRAPHIC]

 

Moxa Arch
Green River Basin

 

[GRAPHIC]

 

Key Characteristics

                  Sizeable, long-life, natural gas asset

                  524,000 gross / 149,000 net acres

                  50 MMCFe/D gross operated 33 MMCFe/D net

 

2004 Program

                  35-40 development wells

                  IRR 25%-40%(1)

 


(1)         Assuming NYMEX gas prices of $4.20/MCF - $5.20/MCF

 



 

Upside Potentials

 

                  Infill drilling at center 5th spot (pending regulatory approval)

 

                  Infill drilling at section line 5th spot ( not booked)

 

                  Improved stimulation design

 

                  Focused team approach as in Wattenberg

 

[GRAPHIC]

 



 

Coalbed Methane
Powder River Basin

 

[GRAPHIC]

 

Wyodak Coal

 

                  Currently producing 15 MMCF/D gross operated

                  15-20 wells planned for 2004

 

Table / Culp (Big George)

 

                  30,000 gross acres / 9,500 net acres

                  10-16 well pilot program scheduled for next 12 months, subject to obtaining permits

 



 

Gulf Coast

[GRAPHIC]

 

Adds .. . .

 

                  280 BCFe proved reserves, 70% proved developed, 95% natural gas

 

                  160 BCFe probable & possible potential

 

                  190-340 BCFe net unrisked exploration potential

 



 

Gulf Coast
Expertise

                  Historical core operating area

 

                  Ongoing active program

                  20-30 wells planned in 2004

 

                  Developed nearly 30MM BOE recently

 

                  Extensive 3-D coverage

 



 

Gulf Coast
Upside Potential

 

[GRAPHIC]

 

Exploitation

                  More than 200 identified exploitation

                  4 rigs currently running

 

Exploration

                  > 40 identified prospects

                  190-340 BCFe resource potential

                  75,000 gross / 40,000 net acres

                  Ongoing 3-D evaluation

 



 

Elm Grove Field
Northern Louisiana

 

Daily Oil Production (MMCFe/D)

 

[CHART]

 

                  Average 37% WI

                  33-36 wells planned for 2004

                  1.5 BCFe average reserves/well

                  40 acre infill potential - 60 to 80 locations

 

[GRAPHIC]

 



 

Gulf of Mexico
Complementary Position

 

Adds complementary shelf assets to existing deepwater opportunities

 

                  20 M BOE/D or production

                  68% gas

                  80% operated

                  Near-term exploitation opportunities

                  Benefit from Kerr-McGee’s extensive infrastructure

                  >100 blocks; 12 in deep water

                  Tahiti override

 

[GRAPHIC]

 



 

Tahiti ORRI
Green Canyon 640

 

[GRAPHIC]

 

                  3.7% ORRI on Green Canyon 640

 

                  14 MM BOE of probable and possible

 

                  Sanction expected in 2005

 

                  First production expected 2008

 

                  No capital required

 



 

Gulf of Mexico

 

[GRAPHIC]

 



 

Current Westport
Activity

 

[GRAPHIC]

 



 

Existing 2004
Exploration Program

$300 MM

 

[GRAPHIC]

 

45-55 Exploratory Wells

 



 

Strategic Asset Rationale

 

                  Enhances core areas with quality assets

                  Rockies, S. Texas, Gulf Coast, Gulf of Mexico

                  Major player in all core areas

 

                  Shifts KMG reserve base

                  Becomes 47% U.S. onshore-based / 76% U.S.-based

                  Increases gas reserves to 57%

                  Adds long-life Rocky Mountain gas

 

                  Increases production profile to >10% CAGR

 

                  Enhances low-cost, high-margin production base

 

                  Strengthens inventory of low-risk exploitation opportunities

 

                  Application of KMG tight-gas and supply-chain expertise

                  Entry into new core areas - Uinta Basin

 

                  Strong base foundation for high-potential exploration growth

 



 

[LOGO]

 

[LOGO]

 

Financial
Benefits

 



 

Financial
Benefits

 

                  Transaction is accretive

                    Earnings per share
3.0% - 18.8% in 2005

                    Cash flow per share
0.3% - 4.6% in 2005

 

                  $150 MM to $250 MM of projected free cash flow coming from Westport assets in 2005 & 2006

 

                  Improves balance sheet leverage

                  Net debt/capital improves from 54% end of 2003 to approx. 42% end of 2004 (Pro Forma)

 

                  Synergy cost savings BTAX of $40 MM annually

 

                  Increases financial flexibility

 



 

Hedge Positions

 

                  90% of Westport’s production has been hedged from second half of 2004 through 2006

 

                  New hedge positions:

 

 

 

Gas

 

Oil

 

 

 

Price

 

Volumes
(MMBtu/D)

 

Price

 

Volumes
(BOPD)

 

1/2-2004

 

$5.96

 

185,000

 

$32.60

 

9,000

 

     2005

 

$5.00-$6.25

 

280,000

 

$28.50-$31.89

 

14,000

 

     2006

 

$4.75-$5.51

 

340,000

 

$27.00-$30.58

 

19,000

 

 

                  Percentage of total combined production hedged

 

 

 

Gas

 

Oil

 

1/2-2004

 

76

%

77

%

     2005

 

32

%

12

%

     2006

 

31

%

12

%

 



 

Accretion Analysis*

 

 

 

2005

 

2006

 

 

 

Floor
Price

 

Ceiling
Price

 

Floor
Price

 

Ceiling
Price

 

Earnings per Share

 

3.0

%

18.8

%

25.8

%

51.1

%

 

 

 

 

 

 

 

 

 

 

Cash Flow per Share

 

0.3

%

4.6

%

3.3

%

8.0

%

 


*Based upon FirstCall estimates

 



 

Cash Flow Contribution
$MM

 

 

 

2005

 

 

 

Floor
Hedge Price

 

Ceiling
Hedge Price

 

Cash Flow

 

$

600

 

$

700

 

Capital

 

(387

)

(387

)

ATAX Synergy Savings

 

26

 

26

 

Free Cash Flow

 

$

239

 

$

339

 

 

 

 

 

 

 

Increased Dividend Payout

 

$

(89

)

$

(89

)

Total Free Cash Flow

 

$

150

 

$

250

 

 



 

2005 Commodity
Price Sensitivity

 

[CHART]

 


* Assumes commodity prices stay within collars

 



 

Credit Improvements

 

 

 

Kerr-McGee
Stand Alone
2003

 

Pro Forma
2004

 

%
Improvement

 

Net Debt to Capital

 

54

%

42

%

22

%

Interest Coverage

 

7.5

x

11.0

x

47

%

Operating Cash Flow

 

$

1.6

 B

$

2.2

 B

38

%

Cash Margin ($/BOE)

 

$

21.67

 

$

23.14

 

7

%

Production (BOE/D)(1)

 

271,000

 

300,000

 

11

%

Proved Reserves (MM BOE)(2)

 

1,026

 

1,323

 

29

%

Reserve Life (Years)

 

10.0

 

10.0

 

 

 

Total Debt(3) / Proved Reserves

 

$

3.08

 

$

2.63

 

18

%

Adj. Debt(3) / PD Reserves

 

$

6.62

 

$

5.13

 

23

%

 


(1)         Pro Forma assumes five months of Westport’s production

(2)         Pro Forma assumes adding together 12/31/03 reserves of Kerr-McGee & Westport

(3)         Excludes $500 MM debt allocated to Chemical assets

 



 

Capital Structure
$MM

 

 

 

Kerr-McGee
Stand-alone

 

Pro Forma

 

 

 

YE 2003

 

YE 2004

 

YE 2004

 

Total Debt

 

$

3,655

 

$

3,105

 

$

3,985

 

Cash

 

(142

)

(142

)

(85

)

Net Debt

 

3,513

 

2,963

 

3,900

 

Book Equity

 

2,636

 

2,856

 

5,357

 

Net Book Capitalization

 

$

6,149

 

$

5,819

 

$

9,257

 

 



 

Preliminary Purchase
Price Allocation

$MM

 

Purchase Price

 

 

 

Equity purchase price (49.4 MM @ $51.51)

 

$

2,545

 

Net debt and preferred

 

882

 

Enterprise value

 

$

3,427

 

Plus other liabilities

 

437

 

Plus deferred income taxes

 

664

 

Total transaction value

 

$

4,528

 

 

 

 

 

Value allocation

 

 

 

Proved oil & gas properties

 

$

2,147

 

Unproved oil & gas properties

 

1,230

 

Gathering property & equipment

 

50

 

Other assets

 

124

 

Current assets (excluding cash)

 

108

 

Goodwill

 

869

 

Total value of assets acquired

 

$

4,528

 

 



 

Transaction Terms

 

Consideration:

 

0.71 Kerr-McGee shares for each outstanding Westport share

 

 

 

Structure:

 

Tax-free Section 368 reorganization (Forward Subsidiary Merger)

 

 

 

Non-Solicitation Provisions:

 

Customary non-solicitation provisions, subject to fiduciary outs

 

 

 

Termination Fee:

 

$90 million

 

 

 

Voting Agreement:

 

Westport’s major shareholders representing 42% of the outstanding shares have agreed to vote in favor of merger

 

 

 

Conditions:

 

Kerr-McGee & Westport shareholder approvals

 

 

 

 

 

Hart Scott Rodino approval

 

 

 

Timing:

 

Expect to close during third quarter 2004

 



 

Merger Rationale

 

                  Enhances U.S. core areas with quality natural gas assets

 

                  Expands base of low-risk exploitation projects

 

                  Accelerates production growth profile

 

                  Generates additional free cash flow

 

                  Strengthens balance sheet

 

                  Accretive to 2005 earnings / cash flow

 

                  Underpinned with attractive hedges

 



 

[LOGO]

 

[LOGO]

 

 



 

IMPORTANT LEGAL INFORMATION

 

THIS PRESENTATION IS NOT AN OFFER TO SELL THE SECURITIES OF KERR-McGEE CORPORATION AND IT IS NOT SOLICITING AN OFFER TO BUY THESE SECURITIES.

 

INVESTOR AND SECURITY HOLDERS ARE URGED TO READ THE JOINT PROXY STATEMENT/PROSPECTUS REGARDING THE PROPOSED TRANSACTION WHEN IT BECOMES AVAILABLE BECAUSE IT WILL CONTAIN IMPORTANT INFORMATION.

 

The joint proxy statement/prospectus will be filed with the U.S. Securities and Exchange Commission (SEC) by Kerr-McGee Corporation and Westport Resources Corp. Investors and security holders may obtain a free copy of the joint proxy statement/prospectus when it becomes available and other documents filed or furnished by Kerr-McGee Corporation or Westport Resources Corp. with the SEC at the SEC’s website at www.sec.gov.  The joint proxy statement/prospectus and other documents filed or furnished by Kerr-McGee Corporation or Westport Resources Corporation 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 Resources and their respective directors and officers may be deemed to be participants in the solicitation of proxies with respect to the transactions contemplated by the merger agreement.  Information regarding Kerr-McGee’s directors and officers is available in the Proxy Statement for its 2004 Annual Meeting of Stockholders, filed March 26, 2004 with the SEC, and its Annual Report on Form 10-K, filed March 12, 2004 with the SEC.  Information regarding Westport Resources’ directors and officers is available in the Proxy Statement for its 2003 Annual Meeting of Stockholders, filed April 21, 2003 with the SEC.  Other information about the participants in the solicitation will be set forth in the Joint Proxy Statement/Prospectus and other relevant materials to be filed with the SEC.