SCHEDULE 14A
Proxy Statement Pursuant to Section 14(a)
of the Securities Exchange Act of 1934 (Amendment No. __)
Filed by the Registrant [ ]
Filed by a Party other than the Registrant [x]
Check the appropriate box:
[ ] Preliminary Proxy Statement
[ ] Confidential, for Use of the Commission Only
(as permitted by Rule 14a-6(e)(2))
[ ] Definitive Proxy Statement
[ ] Definitive Additional Materials
[X] Soliciting Material Pursuant to ss. 240.14a-12
Kerr-McGee Corporation
(Name of Registrant as Specified In Its Charter)
Icahn Partners LP,
Icahn Onshore LP,
CCI Onshore LLC,
Icahn Partners Master Fund LP,
Icahn Offshore LP,
CCI Offshore LLC,
High River Limited Partnership,
Hopper Investments LLC,
Barberry Corp. and
Carl C. Icahn
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (check the appropriate box):
[X] No fee required.
[ ] Fee computed on table below per Exchange Act Rule 14a-6(i)(4) and 0-11.
1) Title of each class of securities to which transaction applies:
2) Aggregate number of securities to which transaction applies:
3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (set forth the amount on which the filing fee
is calculated and state how it was determined):
4) Proposed maximum aggregate value of transaction:
5) Total fee paid:
[ ] Fee paid previously with preliminary materials.
[ ] Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number, or
the Form or Schedule and the date of its filing.
1) Amount Previously Paid:
2) Form, Schedule or Registration Statement No.:
3) Filing Party:
4) Date Filed:
On March 2, 2005, Icahn Partners LP, Icahn Partners Master Fund LP and
High River Limited Partnership (collectively, the "Nominating Parties") notified
Kerr-McGee Corporation ("Kerr-McGee") of their intention to propose the
nomination of a slate of directors for election at the forthcoming 2005 annual
meeting of Kerr-McGee's stockholders by delivering a notice thereof to
Kerr-McGee. A copy of the notification letter delivered to Kerr-McGee is
attached hereto as Exhibit A.
On March 3, 2005, Icahn Partners LP, Icahn Partners Master Fund LP,
High River Limited Partnership and Jana Partners LLC sent a letter to Kerr-McGee
regarding a proposed transaction to increase shareholder value. A copy of the
letter delivered to Kerr-McGee is attached hereto as Exhibit B.
SECURITY HOLDERS ARE ADVISED TO READ THE PROXY STATEMENT AND OTHER DOCUMENTS
RELATED TO SOLICITATION OF PROXIES BY MR. ICAHN AND HIS AFFILIATES FROM THE
STOCKHOLDERS OF KERR-MCGEE CORPORATION FOR USE AT ITS ANNUAL MEETING (A) WHEN
AND IF THEY BECOME AVAILABLE, BECAUSE THEY WILL CONTAIN IMPORTANT INFORMATION,
INCLUDING INFORMATION RELATING TO THE PARTICIPANTS IN ANY SUCH PROXY
SOLICITATION, AND (B) WHEN AND IF COMPLETED, A DEFINITIVE PROXY STATEMENT AND A
FORM OF PROXY WHICH WILL BE MAILED TO STOCKHOLDERS OF KERR-MCGEE CORPORATION AND
WILL BE AVAILABLE AT NO CHARGE AT THE SECURITIES AND EXCHANGE COMMISSION'S
WEBSITE AT HTTP://WWW.SEC.GOV.
EXHIBIT A
ICAHN PARTNERS LP
ICAHN PARTNERS MASTER FUND LP
HIGH RIVER LIMITED PARTNERSHIP
c/o Icahn Associates Corp.
767 Fifth Avenue, 47th Floor
New York, New York 10153
March 2, 2005
Via Hand Delivery and Facsimile
Kerr-McGee Corporation
123 Robert S. Kerr Avenue
Oklahoma City, Oklahoma 73102
Attention: Office of the Secretary
Re: Stockholder Notification of Nominations
Ladies and Gentlemen:
Icahn Partners LP, a Delaware limited partnership, Icahn
Partners Master Fund LP, a Cayman Islands exempted limited partnership, and High
River Limited Partnership, a Delaware limited partnership (collectively, the
"Nominating Parties"), are hereby submitting this notice on the date hereof in
order to comply with the requirements (the "Bylaw Requirements") set forth in
Article III, Section 10(A) of the Amended and Restated Bylaws of Kerr-McGee
Corporation (the "Corporation"). The address of Icahn Partners LP and Icahn
Partners Master Fund LP, as it appears on the Corporation's books, is 767 Fifth
Avenue, 47th Floor, New York, New York 10153. The address of High River Limited
Partnership, as it appears on the Corporation's books, is One Whitehall Street,
New York, NY 10004.
The decision to nominate the Slate (as defined below) was made
pursuant to discussions among representatives of the Nominating Parties and Jana
Partners LLC.
Each of the Nominating Parties is the record owner directly of
1,000 shares of common stock, par value $1.00 per share, of the Corporation
("Common Stock"), which, in the aggregate, constitutes less than one percent
(1%) of the outstanding Common Stock. The Nominating Parties own beneficially,
in the aggregate, approximately 4.3% of the outstanding Common Stock (based on
the 151,692,157 shares stated to be outstanding as of October 31, 2004 by the
Corporation in its Quarterly Report on Form 10-Q for the period ended September
30, 2004) as of the close of business on March 1, 2005. For further information
on the beneficial ownership of the Corporation's securities by the Nominating
Parties, reference should be made to Annex A to this notice.
The Nominating Parties hereby represent that they intend to
appear at the 2005 annual meeting of the Corporation's stockholders (the "Annual
Meeting") in person or by proxy to submit the business specified in this notice.
The Nominating Parties are seeking at the Annual Meeting to
elect Mr. Carl Icahn and Mr. Barry Rosenstein as members of the Board of
Directors of the Corporation and, in that regard, propose to nominate Messrs.
Icahn and Rosenstein as their nominees (the "Nominees" or the "Slate") for
election as directors of the Corporation at the Annual Meeting.
The Nominating Parties intend to propose the following
resolution at the Annual Meeting (and/or any other form of resolution required
by the Corporation to nominate these Nominees):
"It is hereby being resolved, that Mr. Carl Icahn and Mr.
Barry Rosenstein are nominated to be elected as members of the
Board of Directors of the Corporation."
As required by the Bylaw Requirements, the Nominating Parties
hereby advise you that certain information relating to the Nominees is set forth
in Annex B of this notice. Except as set forth herein or in any of the Annexes
(or any attachments thereto), to the best knowledge of the Nominating Parties
(i) the Nominees do not own any securities of the Corporation or any parent or
subsidiary of the Corporation, directly or indirectly, beneficially or of
record, nor have they purchased or sold any securities of the Corporation within
the past two years, and none of their associates beneficially owns, directly or
indirectly, any securities of the Corporation, (ii) neither the Nominees, their
associates or any member of their immediate families, nor the Nominating Parties
or their associates has any arrangement or understanding with any person (a)
with respect to any future employment by the Corporation or its affiliates or
(b) with respect to future transactions to which the Corporation or any of its
affiliates will or may be a party, nor any material interest, direct or
indirect, in any transaction, or series of similar transactions, that has
occurred since the beginning of the Corporation's last fiscal year or any
currently proposed transaction, or series of similar transactions, to which the
Corporation or any of its subsidiaries was or is to be a party and in which the
amount involved exceeds $60,000, (iii) neither the Nominees, their associates or
any member of their immediate families, nor the Nominating Parties or their
associates has been indebted to the Corporation or its subsidiaries at any time
since the beginning of the Corporation's last fiscal year in an amount in excess
of $60,000, (iv) the Nominees are not, or were not within the past year, party
to any contract, arrangement or understanding with any person with respect to
any securities of the Corporation, including, but not limited to, joint
ventures, loan or option arrangements, puts or calls, guarantees against loss or
guarantees of profit, division of losses or profits or the giving or withholding
of proxies, (v) neither the Nominees nor any of their associates has any
arrangement or understanding with any person pursuant to which he was or is to
be selected as a director, nominee or officer of the Corporation, (vi) there are
no relationships between the Nominees, their associates or any member of their
immediate families, nor the Nominating Parties or their associates and the
Corporation that are listed in, or substantially similar in nature and scope to
those relationships listed, in paragraphs (b)(1) through (5) of Item 404 of
Regulation S-K under the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), and (vii) there is no other information with respect to the
Nominees, their associates or any member of their immediate families, nor the
Nominating Parties or their associates that is required to be disclosed in
solicitations of proxies for election of directors or is otherwise required by
the rules and regulations of the SEC promulgated under the Exchange Act. Matters
disclosed in any part of this notice, including the Annexes and any attachments
thereto, should be deemed disclosed for all purposes of this notice. The written
consent of the Nominees as required by the Bylaw Requirements is attached as
Annex C.
As more fully described in Annex A, 250,000 of the shares of
Common Stock beneficially owned by the Nominating Parties were purchased from
Jana Master Fund Ltd., of which Jana Partners LLC is investment manager,
pursuant to the exercise of an option. Barry Rosenstein (one of the Nominees) is
a managing member of Jana Partners LLC.
The Nominating Parties will promptly provide any other
information reasonably requested by the Corporation pursuant to the Bylaw
Requirements. Please be advised, however, that, notwithstanding the compliance
by the Nominating Parties with the Bylaw Requirements, neither the delivery of
this notice in accordance with the terms of the Bylaws Requirements nor the
delivery of any additional information, if any, provided by the Nominating
Parties or any of their affiliates to the Corporation from and after the date
hereof shall be deemed to constitute an admission by the Nominating Parties or
any of its affiliates of the legality or enforceability of the Bylaw
Requirements or a waiver by any such person or entity of its right to, in any
way, contest or challenge the enforceability thereof. The Nominating Parties
reserve the right to nominate additional nominees, in the event the Corporation,
by the appropriate corporate action, increased or increases the number of
directors to be elected at the Annual Meeting to be greater than two (2).
[Remainder of page intentionally left blank]
Very truly yours,
ICAHN PARTNERS LP
By: /s/ Edward E. Mattner
Name: Edward E. Mattner
Its: Authorized Signatory
ICAHN PARTNERS MASTER FUND LP
By: /s/ Edward E. Mattner
Name: Edward E. Mattner
Its: Authorized Signatory
HIGH RIVER LIMITED PARTNERSHIP
By: Hopper Investments LLC, general partner
By: Barberry Corp., sole member
By: /s/ Edward E. Mattner
Name: Edward E. Mattner
Its: Authorized Signatory
[Signature page to Kerr-McGee stockholder proposal notice]
ANNEX A
As of the close of business on March 1, 2005, Icahn Partners LP is the
direct beneficial owner of 2,571,516 shares of the Corporation's common stock,
par value $1.00 per share ("Shares"). Each of (i) Icahn Onshore LP, as the
general partner of Icahn Partners LP, and (ii) CCI Onshore LLC, as the general
partner of Icahn Onshore LP, may be deemed to be an indirect beneficial owner of
the 2,571,516 Shares directly beneficially owned by Icahn Partners LP.
As of the close of business on March 1, 2005, Icahn Partners Master
Fund LP is the direct beneficial owner of 2,680,484 Shares. Each of (i) Icahn
Offshore LP, as the general partner of Icahn Partners Master Fund LP, and (ii)
CCI Offshore LLC, as the general partner of Icahn Offshore LP, may be deemed to
be an indirect beneficial owner of the 2,680,484 Shares directly beneficially
owned by Icahn Partners Master Fund LP.
As of the close of business on March 1, 2005, High River Limited Partnership is
the direct beneficial owner of 1,313,000 Shares. Each of (i) Hopper Investments
LLC, as the general partner of High River Limited Partnership, and (ii) Barberry
Corp., as the sole member of Hopper Investments LLC, may be deemed to be an
indirect beneficial owner of the 1,313,000 Shares directly beneficially owned by
High River Limited Partnership.
Each of CCI Onshore LLC, CCI Offshore LLC and Barberry Corp. is wholly
owned by Carl C. Icahn. As such, Mr. Icahn may be deemed to be the indirect
beneficial owner of 6,565,000 Shares.
On February 14, 2005, Icahn Partners LP, Icahn Partners Master Fund LP
and High River Limited Partnership acquired an option to purchase, in the
aggregate, 250,000 Shares from Jana Master Fund Ltd., of which Jana Partners LLC
is investment manager. Barry Rosenstein (one of the Nominees) is a managing
member of Jana Partners LLC. Pursuant to the exercise of this option on March 1,
2005, Icahn Partners LP purchased 96,000 Shares, Icahn Partners Master Fund LP
purchased 104,000 Shares and High River Limited Partnership purchased 50,000
Shares. The option had an exercise price of $60.00 per Share and an expiration
date of August 14, 2005.
ANNEX B
CARL C. ICAHN
Name: Carl C. Icahn (the "Nominee")
Age: 69
Business Address: 767 Fifth Avenue
New York, NY 10153
Residence Address: 15 West 53rd Street
Penthouse B&C
New York, NY 10019
Set forth below is a brief description of the Nominee's
business experience during the past five years, including the Nominee's
principal occupations and employment during the past five years, the name and
principal business of any corporation or other organization in which such
occupations and employment were carried on and the Nominee's current principal
occupation or employment:
Mr. Icahn has served as Chairman of the Board and a director of
Starfire Holding Corporation ("Starfire") (formerly Icahn Holding
Corporation), a privately-held holding company, and Chairman of the
Board and a director of various subsidiaries of Starfire, since 1984.
Mr. Icahn is and has been since 1994 a majority shareholder, the
Chairman of the Board and a Director of American Railcar Industries,
Inc. ("ARI"), a Missouri corporation. ARI is primarily engaged in the
business of manufacturing, managing, leasing and selling of railroad
freight and tank cars. Mr. Icahn has also been Chairman of the Board
and President of Icahn & Co., Inc., a registered broker-dealer and a
member of the National Association of Securities Dealers, since 1968.
Since November 1990, Mr. Icahn has been Chairman of the Board of
American Property Investors, Inc., the general partner of American Real
Estate Partners, L.P., a public limited partnership that invests in
real estate and holds various other interests, including the interests
in its subsidiaries that are engaged, among other things, in the oil
and gas business and casino entertainment business. Mr. Icahn has been
a director of Cadus Pharmaceutical Corporation, a firm that holds
various biotechnology patents, since 1993. From August 1998 to August
2002, Mr. Icahn served as Chairman of the Board of Maupintour Holding
LLC (f/k/a/ Lowestfare.com, LLC), an internet travel reservations
company. From October 1998 through May, 2004, Mr. Icahn was the
President and a director of Stratosphere Corporation, which operates
the Stratosphere Hotel and Casino. Since September 29, 2000, Mr. Icahn
has served as the Chairman of the Board of GB Holdings, Inc., which
owns all of the outstanding stock of Atlantic Coast Entertainment
Holdings, Inc., which through its wholly-owned subsidiary owns and
operates The Sands Hotel and Casino in Atlantic City, New Jersey. Mr.
Icahn also serves in the same capacity with Atlantic Coast
Entertainment Holdings, Inc. In January 2003, Mr. Icahn became Chairman
of the Board and a director of XO Communications, Inc., a
telecommunications company. Mr. Icahn received his B.A. from Princeton
University in 1957.
The entities listed above are not a parent, subsidiary or
other affiliate of Kerr-McGee Inc. ("Kerr-McGee"). The Nominee does not hold any
positions or offices with Kerr-McGee.
BARRY ROSENSTEIN
Name: Barry Rosenstein (the "Nominee")
Age: 46
Business Address: 201 Post Street
San Francisco, CA 94108
Residence Address: 768 El Camino Del Mar
San Francisco, CA 94121
Set forth below is a brief description of the Nominee's
business experience during the past five years, including the Nominee's
principal occupations and employment during the past five years, the name and
principal business of any corporation or other organization in which such
occupations and employment were carried on and the Nominee's current principal
occupation or employment:
Barry Rosenstein is the founder and Managing Partner of JANA Partners LLC, an
investment management company, a position he has held since 2001. Mr. Rosenstein
also founded, and from 1993 to 2001 served as Managing Partner of, Sagaponack
Partners L.P., a private equity fund. He received his M.B.A. from the University
of Pennsylvania's Wharton School of Business in 1984. In 1981, Mr. Rosenstein
graduated Phi Beta Kappa from Lehigh University. Mr. Rosenstein is also a C.P.A.
Mr. Rosenstein serves on the board of directors of Cobra Electronics and Marisa
Christina, Inc.
The entities listed above are not a parent, subsidiary or
other affiliate of Kerr-McGee Inc. ("Kerr-McGee"). The Nominee does not hold any
positions or offices with Kerr-McGee.
As of the close of business on March 1, 2005, Jana Master Fund
Ltd. is the direct beneficial owner of 3,693,235 Shares. Jana Partners LLC is
the investment manager of Jana Master Fund Ltd. In addition, as of such date, a
separate account also managed by Jana Partners LLC was the direct beneficial
owner of 289,565 Shares. As the investment manager to both Jana Master Fund Ltd.
and such managed account, Jana Partners LLC may be deemed to be an indirect
beneficial owner of the 3,982,800 Shares directly beneficially owned by such
entities. As a managing member of Jana Partners LLC, Mr. Rosenstein may also be
deemed an indirect beneficial owner of such Shares.
Pursuant to the exercise of an option on March 1, 2005, Jana
Master Fund Ltd. sold to Icahn Partners LP, Icahn Partners Master Fund LP and
High River Limited Partnership 250,000 Shares in the aggregate. The option had
an exercise price of $60.00 per Share and an expiration date of August 14, 2005.
Such Shares are not included in the amounts set forth in the immediately
preceding paragraph.
ANNEX C
CONSENT OF NOMINEES
Each of the undersigned hereby consents to being named as a
nominee for election as a director of Kerr-McGee Inc. (the "Company"), in the
proxy statement and other materials concerning the undersigned's nomination in
connection with the solicitation of proxies from stockholders of the Company to
be voted at the 2005 annual meeting of stockholders of the Company and any
adjournment thereof, and further consents to serve as a director of the Company,
if elected.
/s/ Carl C. Icahn
Carl C. Icahn
/s/ Barry Rosenstein
Barry Rosenstein
EXHIBIT B
ICAHN PARTNERS LP
ICAHN PARTNERS MASTER FUND LP
HIGH RIVER LIMITED PARTNERSHIP
JANA PARTNERS LLC
March 3, 2005
VIA FEDERAL EXPRESS AND FACSIMILE
----------------------------------
Mr. Luke R. Corbett
Chairman and Chief Executive Officer
Kerr-McGee Corporation
123 Robert S. Kerr Avenue
Oklahoma City, Oklahoma 73102
Dear Mr. Corbett:
As we have previously discussed with you, each of us is a large
shareholder of Kerr-McGee Corporation ("KMG"), beneficially owning, in the
aggregate, approximately 11.6 million shares or approximately 7.6% of the
outstanding shares of KMG's common stock. Entities affiliated with Carl Icahn
recently proposed Carl Icahn and Barry Rosenstein, managing partner of Jana
Partners (a $3 billion hedge fund), as nominees for KMG's board of directors at
the upcoming annual meeting. This action was taken in order to help ensure that
KMG is focused on maximizing shareholder value. While management's recent
announcement of its intention to review strategic alternatives for its chemicals
business is a positive first step, we feel this action does not go far enough
toward maximizing the value of KMG's common stock.
A great opportunity exists today for shareholders of KMG. Never before
has there been such a disconnect between the stock market valuation of publicly
traded E&P companies such as KMG on a per barrel of oil equivalent ("boe") of
proved reserves basis and the value at which oil and gas futures are trading in
the commodity markets. We believe that this spread can be captured by KMG by
selling today a portion of its production for delivery over the next five years
and utilizing the proceeds from such a sale, today, to immediately repurchase
stock. We believe that if KMG were to follow the plan outlined below (and
detailed in the attached schedule), KMG's share price would increase
significantly. The plan would require KMG to take the following steps:
1. Sell the chemical business;
2. Enter into a transaction to monetize forward production and capitalize
on today's high price of oil and gas, low interest rate environment and
increased commodity market liquidity; and
3. Utilize the proceeds from the chemical business sale and the forward
sale of a portion of KMG's future oil and gas production to buy back
shares.
At KMG's current market price of $78.99 per share (as of the close of
the market on March 2, 2005), and pro-forma for the sale of its chemicals
business for $1.7 billion (the mid-point of the range projected on KMG's January
26, 2005 fourth quarter conference call), KMG is trading at approximately $11.80
per boe of proved in the ground reserves. To monetize the current discount in
KMG's stock market valuation versus the commodity market valuation for oil and
gas, we recommend that KMG immediately execute a Volumetric Production Payment
transaction ("VPP") for 50 million boe's of proved producing reserves per year
over each of the next five years (i.e., 250 million boe's of production total,
or approximately 32% of KMG's total proved producing reserves), constituting
approximately 37% of KMG's projected 2005 production.
Based on the current forward curve for oil and gas, the low interest
rate environment and increased liquidity in the commodity markets, we believe
(as a result of discussions with commodity trading firms) that KMG could realize
proceeds of between $35 and $38 per boe sold forward through a VPP transaction.
As such, KMG could raise a total of approximately $8.75 BILLION OF CASH
(assuming the VPP transaction at $35 per boe), or approximately 60% of its
enterprise value (excluding KMG's chemicals business), by selling only
approximately 21% of its total proved reserves. After raising the proceeds
described above (including proceeds from the sale of the chemicals business),
KMG should repurchase up to approximately 116 million shares of its stock at $90
per share. Following such a transaction, KMG would still have approximately 950
million boe of proved reserves, approximately 56% of which would be proved
developed reserves and approximately 44% would be proved undeveloped reserves.
Assuming that KMG would trade at its current value of $11.80 per boe of
proved reserves (excluding the chemical business), the pro forma share price
following the proposed transactions would be $111 per share. Historically, we
believe investors have penalized KMG's share price due to what we perceive as
poor results achieved in exploration, drilling and use of free cash flow.
However, after giving effect to the proposed VPP transaction and the sale of the
chemicals business, we believe that the public market valuation for KMG's
remaining reserves could increase to be more in line with the reserve valuations
attributed to its comparable companies (see attached schedule). If this were to
occur, KMG could trade at $132 per share. Obviously, there can be no assurance
that KMG common stock will trade within the $111 to $132 range, even if all of
these transactions are undertaken and completed.
We would like to discuss this recommendation with you at your earliest
convenience since we feel it is important to move quickly while the opportunity
exists.
Very truly yours,
CARL C. ICAHN
BARRY ROSENSTEIN
[03.03.05 Letter to Kerr-McGee from Icahn and Rosenstein re VPP transaction]
SCHEDULE A
This should be read only in conjunction with the
attached letter dated March 3, 2005
KMG VALUATION: PROFORMA FOR SALE OF CHEMICALS BUSINESS
AND 250 MMBOE VPP TRANSACTION AND STOCK REPURCHASE
CHEMICAL BUSINESS SALES PROCEEDS (1) $ 1,700,000,000
Estimated Tax Basis 1,600,000,000
Assumed Tax Rate 35%
----------------------
ESTIMATED AFTER-TAX PROCEEDS FROM THE CHEMICAL SALE $ 1,665,000,000
VPP BOE's Sold 250,000,000
Estimated VPP Sales Proceeds per BOE $ 35.00
----------------------
ESTIMATED VPP SALES PROCEEDS $ 8,750,000,000
ESTIMATED PROCEEDS AVAILABLE FOR STOCK PUCHASES $ 10,415,000,000
ASSUMED STOCK REPURCHASE PRICE PER SHARE $ 90.00
Diluted Shares Outstanding at 12/31/04
(Per KMG 2004 Earnings Release) 161,706,000
Assumed Shares Repurchased 115,722,222
Pro Forma Shares Outstanding after Assumed Repurchases 45,983,778
Total Proved Reserves at 12/31/04 (Per KMG 2004 Earnings Release) 1,200,000,000
Proved Producing Reserves Sold in VPP Transaction 250,000,000
------------------
Total Proved Reserves after VPP Transaction 950,000,000
Calculated Current Value of KMG Per Proved Reserve (2) $ 11.80
IMPLIED ENTERPRISE VALUE OF REMAINING KMG RESERVES
@ $11.80 PER BOE $ 11,210,000,000
Value Attributed to KMG Exploratory Acreage and Other
Assets
Less Current KMG Net Debt (Per KMG 2004 Earnings Release) $ 3,189,100,000
Present Value of Cost Associated with VPP Production 1,581,000,000
(Assumed at $6.0 per boe grown at 15% per annum,
discounted at 8% cost of capital)
Estimated Present Value of VPP Tax Liability 1,330,000,000
REMAINDER EQUALS PRO FORMA KMG EQUITY VALUE $ 5,109,900,000
Divided by Pro Forma KMG Shares Outstanding 45,983,778
REULTS IN PRO FORMA KMG VALUE PER SHARE @ $11.80 PER BOE $ 111.12
EFFECT ON KMG'S SHARE PRICE ASSUMING A $12.80 PER BOE
VALUATION OF PROVED RESERVES
Current Assumed E&P Comparable Company Value
of Public Market Proved Reserves (3) $ 12.80
IMPLIED ENTERPRISE VALUE OF REMAINING KMG RESERVES
@ $12.80 PER BOE $ 12,160,000,000
Value Attributed to KMG Exploratory Acreage and Other
Assets
Less Current KMG Net Debt (Per KMG 2004 Earnings Release) $ 3,189,100,000
Present Value of Cost Associated with VPP Product 1,581,000,000
(Assumed at $6.0 per boe grown at 15% per annum,
discounted at 8% cost of capital)
Estimated Present Value of VPP Tax Liability 1,330,000,000
REMAINDER EQUALS PRO FORMA KMG EQUITY VALUE $ 6,059,900,000
Divided by Pro Forma KMG Shares Outstanding 45,983,778
RESULTS IN PRO FORMA KMG VALUE PER SHARE AT
$12.80 PER BOE $ 131.78
Notes:
-----------------------
(1) Assumes Chemical business is sold for the mid-point of KMG management's
estimated valuation range as of January 26, 2005.
(2) KMG currently is trading at approximatley $11.80 per boe of proved reserve
after deducting the value of the Chemical business at the mid-point of KMG
management's estimated valuation range as of January 26, 2005.
(3) Assumes KMG trades at $12.80 per boe of proved reserves. $12.95 represents
the comparable company valuation on a per boe of proved reserves basis (Based on
2004 Earrnings Releases for each company.) Comps. are comprised of Apache,
Devon, Chesapeake and XTO Energy.
This should be read only in conjunction with the
attached letter dated March 3, 2005