UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                             Washington, D. C. 20549
                                    FORM 10-K

                  ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
                     OF THE SECURITIES EXCHANGE ACT OF 1934

                   For the Fiscal year ended December 31, 2002

                         Commission file number 1-16619

                             KERR-MCGEE CORPORATION
             (Exact name of registrant as specified in its charter)

                     DELAWARE                             73-1612389
            (State or other jurisdiction               (I.R.S. Employer
          of incorporation or organization)           Identification No.)

                KERR-MCGEE CENTER, OKLAHOMA CITY, OKLAHOMA 73125
                    (Address of principal executive offices)

       Registrant's telephone number, including area code: (405) 270-1313

           Securities registered pursuant to Section 12(b) of the Act:

                                                  NAME OF EACH EXCHANGE ON
       TITLE OF EACH CLASS                            WHICH REGISTERED
  ------------------------------                  ------------------------

  Common Stock $1 Par Value                       New York Stock Exchange
  Preferred Share Purchase Right

        Securities registered pursuant to Section 12(g) of the Act: None

Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months and (2) has been subject to such filing requirements for
the past 90 days.
                                                                Yes [X]  No ____

Indicate by check mark if disclosure of delinquent  filers  pursuant to Item 405
of Regulation  S-K is not contained  herein,  and will not be contained,  to the
best of registrant's  knowledge,  in definitive proxy or information  statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [X]
           ---

Indicate  by check mark  whether  the  registrant  is an  accelerated  filer (as
defined in Rule 12b-2 of the Act).
                                                                Yes [X]  No  ___

The aggregate  market value of the voting and  non-voting  common equity held by
non-affiliates  of the registrant  was  approximately  $5.4 billion  computed by
reference  to the price at which the common  equity was last sold as of June 28,
2002, the last business day of the registrant's  most recently  completed second
fiscal quarter.

The number of shares of common stock  outstanding  as of February 28, 2003,  was
100,373,811.


                       DOCUMENTS INCORPORATED BY REFERENCE

The  definitive  Proxy  Statement for the 2003 Annual  Meeting of  Stockholders,
which will be filed with the Securities and Exchange  Commission within 120 days
after December 31, 2002, is  incorporated  by reference in Part III of this Form
10-K.



                             KERR-McGEE CORPORATION
                                     PART I

Items 1. and 2.  Business and Properties

                         GENERAL DEVELOPMENT OF BUSINESS

Kerr-McGee Corporation is an energy and inorganic chemical holding company whose
consolidated subsidiaries, joint venture partners and other affiliates (together
"affiliates")  have  operations  throughout  the  world.  Kerr-McGee  affiliates
engaged in the energy  business  acquire leases and concessions and explore for,
develop,  produce  and market  crude oil and  natural  gas onshore in the United
States and in the Gulf of Mexico,  the United  Kingdom and Danish sectors of the
North Sea, China, Australia,  Benin, Brazil, Gabon, Morocco,  Canada, and Yemen.
Kerr-McGee affiliates engaged in chemical businesses produce and market titanium
dioxide pigment and certain other specialty chemicals, heavy minerals and forest
products.

Kerr-McGee's  worldwide  businesses are consolidated for financial reporting and
disclosure  purposes.  Accordingly,  the terms  "Kerr-McGee,"  "the company" and
similar  terms  are  used  interchangeably  in this  Form  10-K to  refer to the
consolidated  group  or to one or more of the  companies  that  are  part of the
consolidated group.

On August 1, 2001, in connection with its acquisition of HS Resources, Inc., the
company completed a holding company reorganization in which Kerr-McGee Operating
Corporation,  which was formerly  known as Kerr-McGee  Corporation,  changed its
name and became a wholly owned subsidiary of the company. Filings and references
in this Form 10-K to the company  include  business  activity  conducted  by the
current Kerr-McGee  Corporation and the former Kerr-McGee  Corporation before it
reorganized  as a subsidiary  of the company and changed its name to  Kerr-McGee
Operating  Corporation.  At the end of 2002, another  reorganization  took place
whereby among other changes,  Kerr-McGee Operating  Corporation  distributed its
investment  in  certain  subsidiaries  (primarily  the  oil  and  gas  operating
subsidiaries)  to  a  newly  formed  intermediate  holding  company,  Kerr-McGee
Worldwide Corporation. Kerr-McGee Operating Corporation formed a new subsidiary,
Kerr-McGee Chemical Worldwide LLC and merged into it.

For  a  discussion  of  recent  business  developments,  reference  is  made  to
Management's Discussion and Analysis, which discussion is included in Item 7. of
this Form 10-K, and the  Exploration  and  Production and Chemicals  discussions
below.

                                INDUSTRY SEGMENTS

For  information  as to business  segments of the company,  reference is made to
Note 27 to the Consolidated Financial Statements, which financial statements are
included in Item 8. of this Form 10-K.

                           EXPLORATION AND PRODUCTION

Kerr-McGee  Corporation  owns  oil and gas  operations  worldwide.  The  company
acquires leases and concessions and explores for, develops, produces and markets
crude oil and natural gas through its various subsidiaries.

----------------------
Except for  information or data  specifically  incorporated  herein by reference
under Items 10 through 13, other information and data appearing in the company's
2003 Proxy Statement are not deemed to be filed as part of this annual report on
Form 10-K.

Kerr-McGee's  offshore oil and gas exploration and/or production  activities are
conducted  in the Gulf of  Mexico,  U.K.  and  Danish  sectors of the North Sea,
Australia, Benin, Brazil, China, Canada, Morocco, and Gabon. Onshore exploration
and/or  production  operations  are conducted in the United  States,  the United
Kingdom,  and Yemen.  The company also has oil and gas  operations in Kazakhstan
that are  classified  as held for  disposal and are  presented  as  discontinued
operations at year-end 2002.

Kerr-McGee's  average daily oil production from  continuing  operations for 2002
was 191,300 barrels, a 1% increase from 2001. Kerr-McGee's average oil price was
$22.04  per  barrel  for 2002,  including  the  impact of the  hedging  program,
compared with $22.60 per barrel for 2001.

During 2002,  natural gas sales  averaged 760 million cubic feet per day, up 28%
from 2001 sales. The 2002 average natural gas price was $2.95 per thousand cubic
feet, compared with $3.83 per thousand cubic feet for 2001.

Worldwide gross acreage at year-end 2002 was 66 million acres, a decrease of 22%
compared  with  year-end  2001.  The  decrease   resulted   primarily  from  the
divestiture  of certain  properties in the North Sea, U.S.  onshore,  Australia,
Indonesia and Ecuador,  as well as  relinquishment  of certain acreage in Gabon,
Brazil, Thailand and Yemen.

Discontinued Operations and Asset Disposals
-------------------------------------------

During the first and second  quarters of 2002,  the  company  approved a plan to
dispose of its exploration and production operations in Kazakhstan, its interest
in the  Bayu-Undan  project in the East Timor Sea  offshore  Australia,  and its
interest in the Jabung block of Sumatra,  Indonesia. These divestiture decisions
were made as part of the company's strategic plan to rationalize noncore oil and
gas properties. The results of these operations have been reported separately as
discontinued  operations in the company's  Consolidated  Statement of Operations
for all years  presented,  which  statement  is included in Item 8. of this Form
10-K.  In  conjunction  with the  planned  disposals,  the  related  assets were
evaluated and  impairment  losses were recorded for any  difference  between the
estimated  sales  price  for  the  operations,  less  costs  to  sell,  and  the
operations'  carrying value. Sales of the company's  interests in the Bayu-Undan
project and the Sumatra  operations were completed during 2002, and an agreement
for the sale of the  Kazakhstan  operations  was announced in February 2003. The
impairment  losses  and  gains  on sale  are  reported  as part of  discontinued
operations.  See Note 20 to the Consolidated  Financial  Statements  included in
Item 8. of this Form 10-K for a discussion of impairment  losses and/or gains on
sale of these assets.

Revenues  applicable to the  discontinued  operations  totaled $36 million,  $72
million and $58 million for 2002, 2001 and 2000, respectively. Pretax income for
the discontinued operations totaled $104 million (including the gains on sale of
$107  million  and the  impairment  loss of $35  million),  $52  million and $45
million for the years ended 2002, 2001 and 2000, respectively.

During late 2001 and 2002,  certain U.S., North Sea and Ecuador  exploration and
production  segment assets were identified for disposal as part of the company's
plan to divest noncore  properties,  as discussed above. In connection with this
recharacterization, the assets were evaluated and determined to be impaired. The
impairment losses reflect the difference  between the estimated sales prices for
the individual  properties or group of  properties,  less the costs to sell, and
the carrying amount of the net assets. See Note 20 to the Consolidated Financial
Statements included in Item 8. of this Form 10-K.

Costs  Incurred,  Results of  Operations,  Sales  Prices,  Production  Costs and
Capitalized Costs
-------------------------------------------------------------------------------

Reference  is  made  to  Notes  28,  29  and 30 to  the  Consolidated  Financial
Statements  included  in  Item  8.  of  this  Form  10-K.  These  notes  contain
information  on the costs  incurred in crude oil and natural gas  activities for
each of the past three years;  results of operations  from crude oil and natural
gas activities,  average sales prices per unit of crude oil and natural gas, and
production  costs per barrel of oil equivalent  (BOE) for each of the past three
years; and capitalized costs of crude oil and natural gas activities at December
31, 2002 and 2001.

Reserves
--------

Kerr-McGee's  estimated  proved crude oil,  condensate,  natural gas liquids and
natural gas reserves at December 31, 2002,  and the changes in net quantities of
such  reserves  for the  three  years  then  ended  are  shown in Note 31 to the
Consolidated Financial Statements included in Item 8. of this Form 10-K.

Undeveloped Acreage
-------------------

As of December 31,  2002,  the company had leases,  concessions,  reconnaissance
permits and other  interests  in  undeveloped  oil and gas leases in the Gulf of
Mexico,  onshore  United  States,  the United  Kingdom and Danish sectors of the
North Sea, and onshore and offshore in other international areas as follows:

                                               Gross                      Net
Location                                      Acreage                   Acreage
--------                                     ---------                 ---------
United States -
     Offshore                                2,780,839                 1,524,035
     Onshore                                 1,242,198                   875,177
                                             ---------                 ---------
                                             4,023,037                 2,399,212
                                             ---------                 ---------

North Sea                                    1,678,991                   870,675
                                             ---------                 ---------

Other international -
     Morocco                                30,245,687                28,021,741
     Australia                              10,511,119                 4,576,271
     Yemen                                   6,037,418                 1,911,849
     Canada                                  3,021,825                 2,292,834
     Gabon                                   2,471,052                   617,763
     Benin                                   2,459,439                 2,459,439
     Kazakhstan                              1,474,296                 1,474,296
     China                                   1,245,162                 1,045,699
     Brazil                                    534,981                   160,494
                                            ----------                ----------
                                            58,000,979                42,560,386
                                            ----------                ----------

         Total                              63,703,007                45,830,273
                                            ==========                ==========

Developed Acreage
-----------------

At December 31, 2002,  the company had leases and  concessions  in developed oil
and gas acreage in the Gulf of Mexico, onshore United States, the United Kingdom
sector of the North Sea, and onshore and offshore in other  international  areas
as follows:

                                               Gross                      Net
Location                                      Acreage                   Acreage
--------                                     ---------                 ---------

United States -
     Offshore                                  572,012                   267,829
     Onshore                                 1,579,634                   997,661
                                             ---------                 ---------
                                             2,151,646                 1,265,490
                                             ---------                 ---------

North Sea                                      406,399                   109,490
                                             ---------                 ---------

Other international -
     China                                      70,005                    17,151
     Kazakhstan                                  1,000                     1,000
                                             ---------                 ---------
                                                71,005                    18,151
                                             ---------                 ---------

         Total                               2,629,050                 1,393,131
                                             =========                 =========


Net Exploratory and Development Wells
-------------------------------------

Domestic and international exploratory and development wells that were completed
as successful or dry holes during the three years ended  December 31, 2002,  are
as follows:



                               Net Exploratory (1)              Net Development (1)
                         ------------------------------   -----------------------------
                         Productive  Dry Holes    Total   Productive  Dry Holes   Total      Total
                         ----------  ---------    -----   ----------  ---------   -----      -----
                                                                        

2002 (2)
    United States              4.78      11.10    15.88       186.90       1.37   188.27     204.15
    North Sea                     -       1.84     1.84         8.57          -     8.57      10.41
    Other international           -       4.23     4.23          .85          -      .85       5.08
                               ----      -----    -----       ------       ----   ------     ------
          Total                4.78      17.17    21.95       196.32       1.37   197.69     219.64
                               ====      =====    =====       ======       ====   ======     ======

2001
    United States              2.39       4.60     6.99       107.29       6.30   113.59     120.58
    North Sea                     -       2.40     2.40        16.08          -    16.08      18.48
    Other international           -       4.43     4.43         5.25        .30     5.55       9.98
                               ----      -----    -----       ------       ----   ------     ------
          Total                2.39      11.43    13.82       128.62       6.60   135.22     149.04
                               ====      =====    =====       ======       ====   ======     ======

2000
    United States              1.25       2.75     4.00        34.85       3.09    37.94      41.94
    North Sea                     -       4.66     4.66         8.44       1.85    10.29      14.95
    Other international           -       3.13     3.13         4.50        .50     5.00       8.13
                               ----      -----    -----        -----       ----    -----      -----
          Total                1.25      10.54    11.79        47.79       5.44    53.23      65.02
                               ====      =====    =====        =====       ====    =====      =====


(1)  Net wells  represent the  company's  fractional  working  interest in gross
     wells expressed as the equivalent number of full-interest wells.

(2)  The 2002 net  exploratory  well count does not include 2.16  successful net
     wells drilled in the United  States in 2002 that are  currently  suspended,
     nor does it  include  2.45  successful  net wells  drilled  in China or .75
     successful net wells drilled in the United States that will not be used for
     production.

Wells in Process of Drilling
----------------------------

The following table shows the number of wells in the process of drilling and the
number of wells suspended or waiting on completion as of December 31, 2002:

                          Wells in Process of            Wells Suspended or
                               Drilling                 Waiting on Completion
                    ---------------------------      ---------------------------
                    Exploration     Development      Exploration     Development
                    -----------     -----------      -----------     -----------
United States
   Gross                   5.00           35.00            23.00            9.00
   Net                     3.04           27.97            11.49            4.46

North Sea
   Gross                      -            1.00                -            2.00
   Net                        -             .07                -             .22

China
   Gross                      -            1.00             1.00               -
   Net                        -             .25              .82               -

Total                      ----           -----            -----           -----
   Gross                   5.00           37.00            24.00           11.00
   Net                     3.04           28.29            12.31            4.68
                           ====           =====            =====            ====



Gross and Net Wells
-------------------

The number of productive  oil and gas wells in which the company had an interest
at December 31, 2002, is shown in the following  table.  These wells include 422
gross or 335 net wells  associated  with  improved  recovery  projects and 2,282
gross or 2,156 net wells that have  multiple  completions  but are  included  as
single wells.

Location                             Crude Oil       Natural Gas           Total
--------                             ---------       -----------           -----
United States
   Gross                                 2,129             2,928           5,057
   Net                                   1,858             2,259           4,117

North Sea
   Gross                                   273                 5             278
   Net                                      46                 -              46

China
   Gross                                    24                 -              24
   Net                                       6                 -               6

Kazakhstan
   Gross                                    15                 -              15
   Net                                       8                 -               8

Total                                    -----             -----           -----
   Gross                                 2,441             2,933           5,374
   Net                                   1,918             2,259           4,177
                                         =====             =====           =====

Crude Oil and Natural Gas Sales
-------------------------------

The following table  summarizes the sales of the company's crude oil and natural
gas  production  from  continuing  operations for each of the three years in the
period ended December 31, 2002:

(Millions)                              2002             2001(1)         2000(1)
                                      --------          --------        --------

Crude oil and condensate - barrels
     United States                        29.7              28.4            27.0
     North Sea                            37.2              37.3            43.1
     Other international                   2.6               3.4             3.3
                                      --------          --------        --------
                                          69.5              69.1            73.4
                                      ========          ========        ========

Crude oil and condensate
     United States                    $  639.6          $  625.5        $  742.6
     North Sea                           832.8             865.6         1,205.0
     Other international                  58.4              68.9            85.5
                                      --------          --------        --------
                                      $1,530.8          $1,560.0        $2,033.1
                                      ========          ========        ========

Natural gas - Mcf
     United States                       240.8             194.9           168.9
     North Sea                            36.7              22.8            25.4
                                      --------          --------        --------
                                         277.5             217.7           194.3
                                      ========          ========        ========

Natural gas
     United States                    $  732.7          $  777.2        $  693.7
     North Sea                            86.4              56.2            58.8
                                      --------          --------        --------
                                      $  819.1          $  833.4        $  752.5
                                      ========          ========        ========

(1) Years 2001 and 2000 have been restated to exclude discontinued operations.

Sales of Production
-------------------

All of the company's crude oil and natural gas is sold at market prices, and the
realized  revenue on the  physical  sale is adjusted  for any gains or losses on
hedging  contracts.  Kerr-McGee  has contracted  with several  energy  marketing
companies to sell  substantially  all of its domestic  crude oil and natural gas
production. International crude oil and natural gas are sold both under contract
and through spot market sales in the geographic area of production.

Kerr-McGee's  single  largest  purchaser  of natural gas is Cinergy  Marketing &
Trading LP,  whose  purchases  are  guaranteed  by its parent  company,  Cinergy
Corporation.   Additionally,  Kerr-McGee  maintains  a  cap  on  single-customer
exposure through a credit risk insurance policy.

Kerr-McGee's single largest purchaser of crude oil is Texon L.P., whose payments
are guaranteed by letters of credit.

Improved Recovery
-----------------

As  part  of  the  company's  strategic  plan  to  rationalize  noncore  assets,
Kerr-McGee's  improved-recovery  projects in West Texas and  Oklahoma  were sold
during 2002. As of December 31, 2002, the company is  participating in 22 active
improved-recovery  projects located  principally in Texas and the United Kingdom
sector of the North  Sea.  Most of the  company's  improved-recovery  operations
incorporate water injection.

Exploration and Development Activities
--------------------------------------

Gulf of Mexico:

Since  1947,  the Gulf of  Mexico  has  been a focal  area  for  Kerr-McGee  and
represented  28% of Kerr-McGee's  worldwide crude oil and condensate  production
and 36% of its gas sales in 2002.  Kerr-McGee is one of the largest  independent
producers in the Gulf of Mexico and has  significantly  expanded  its  deepwater
exploration,  exploitation and production activities in that area as part of its
growth  plan.  Kerr-McGee's  strategy  is  focused  on  generating  growth  from
exploration in deepwater  basins,  where the company has developed a competitive
advantage through the use of innovative and cost-effective technology.

In 2002, Kerr-McGee was among the most active companies bidding at federal lease
sales. Through its participation in the Central and Western Gulf of Mexico lease
sales,  Kerr-McGee  acquired an interest in 60 deepwater  blocks, or 257,280 net
deepwater acres.  Additionally,  Kerr-McGee, BHP Billiton and Ocean Energy, Inc.
(Ocean)  completed an exploration  joint venture in Atwater Valley that added 34
additional blocks to Kerr-McGee's inventory.

During  2002,  Kerr-McGee  continued  drilling  under  terms of a  joint-venture
agreement with Ocean,  which covers an area comprised of 181 blocks.  Kerr-McGee
and  Ocean  drilled  three  exploratory  wells  in  2002,  with  Ocean  paying a
disproportionate  share of the drilling costs to earn its equity interest in the
venture.  This  arrangement  will continue for  approximately  three  additional
years.

In total,  Kerr-McGee  participated in the drilling of 17 gross  exploration and
appraisal  wells  during 2002 in the  deepwater  Gulf of Mexico,  of which three
exploratory wells were still drilling at year-end. As a result of these efforts,
three new fields were  discovered  - West Navajo,  Northwest  Navajo and Vortex.
Appraisal drilling included a successful follow-up well on the Vortex discovery,
as well as two successful  appraisal wells at Merganser,  a 2001 discovery.  The
exploration  program continued to include a mix of satellites near existing core
operating  areas and larger  prospects that would support the development of new
core areas. Exploration drilling activity will continue to increase into 2003.

Kerr-McGee's development activity in the deepwater Gulf of Mexico also continued
at a high level  during  2002 in terms of capital  outlays,  wells  drilled  and
construction activity. Installations of truss spars were completed at Nansen and
Boomvang  during 2002, and  significant  progress was made on the Gunnison truss
spar.  Development  drilling for the Gunnison project  continued during 2002 and
was completed in January 2003. In addition, Kerr-McGee commissioned construction
of a new spar for the Red Hawk project,  and significant drilling and completion
activities occurred at the Nansen,  Boomvang,  Navajo,  Pompano and Northwestern
fields. A summary of these and other major producing fields follows:

Nansen  field,  East  Breaks  blocks  602 and 646 (50%):  The  Nansen  field was
sanctioned for  development in March 2000, and first  production was achieved in
January 2002.  Average 2002 gross  production  was 17,800 barrels of oil per day
and 73  million  cubic feet of gas per day.  During the fourth  quarter of 2002,
gross production  increased to an average of approximately 23,000 barrels of oil
per day and 138 million  cubic feet of gas per day from seven  producing  wells.
Ultimately,  a total of 12  development  wells are  expected  to be  utilized to
produce  this  field,  with nine wells  produced  from the spar and three  wells
produced  from a subsea  cluster.  The  remaining  five wells are expected to be
completed and begin  production  during 2003. The capacity of the Nansen spar is
40,000 barrels of oil per day and 200 million cubic feet of gas per day.

Boomvang  field,  East Breaks blocks 642, 643 and 688 (30%):  The Boomvang field
was sanctioned for  development in July 2000, and first  production was achieved
in June 2002. Average 2002 gross production was 6,400 barrels of oil per day and
76 million cubic feet of gas per day.  During the fourth quarter of 2002,  gross
production  increased to an average of  approximately  20,500 barrels of oil per
day and 148 million  cubic feet of gas per day from three  subsea wells and four
dry-tree  wells.  The field is being developed with five producing wells located
at the  Boomvang  spar in block  643 and two  subsea  clusters  to  produce  the
reserves located in blocks 642 and 688.  Completion  operations on the remaining
dry-tree  well were finished in January  2003.  Similar to Nansen,  the Boomvang
spar has a capacity of 40,000  barrels of oil per day and 200 million cubic feet
of gas per day.

Navajo field, East Breaks 690 area (50%): The Navajo field cluster is located on
East Breaks blocks 646, 689 and 690. The Navajo discovery well, located in block
690, was drilled in September 2001. Following discovery,  the well was tied back
to the Nansen spar located  approximately 5 miles to the north. First production
for Navajo was achieved in June 2002, and gross  production  averaged 48 million
cubic  feet of gas per  day for the  remainder  of  2002.  Early  in  2002,  two
additional discoveries, West and Northwest Navajo, were made in the Navajo area.
The two wells will be connected  through the Navajo  subsea system to the Nansen
spar, and production is expected to commence in the first half of 2003.

Gunnison  field,  Garden  Banks  block  668  area  (50%):  The  Gunnison  field,
sanctioned for development in October 2001, will incorporate a  98-foot-diameter
truss spar and  processing  facilities  with a capacity of 40,000 barrels of oil
per day and 200 million  cubic feet of natural gas per day. The  development  is
expected to include seven  dry-tree  wells and three subsea wells.  The Gunnison
spar,  located in 3,100 feet of water, will be Kerr-McGee's  third truss spar in
the deepwater Gulf of Mexico.  At year-end,  spar construction was 84% complete,
and topsides fabrication was 55% complete.  Additional  construction  activities
were under way for the subsea systems,  moorings,  risers and export  pipelines.
Development drilling activities continued during 2002, and the final development
well was completed in January 2003. First production is anticipated in the first
quarter of 2004.

Red Hawk field, Garden Banks block 877 (50%): Red Hawk,  discovered in 2001, was
the first deepwater  prospect  drilled under the exploration  joint venture with
Ocean Energy.  Development  of Red Hawk was  sanctioned in July 2002 utilizing a
new spar  design  referred to as a cell spar.  The cell spar  utilizes a smaller
production  facility,  and lowers the reserve threshold for economic development
of deepwater reservoirs. Located in approximately 5,300 feet of water, the field
will be developed  utilizing two subsea development wells that will be tied back
to the cell spar.  Development  drilling  began in the  fourth  quarter of 2002.
First  production is anticipated in the second quarter of 2004,  with peak gross
production rates of 120 million cubic feet of gas per day.

Conger field,  Garden Banks block 215 (25%):  Average 2002 gross production from
the Conger field was 24,600  barrels of oil per day and 95 million cubic feet of
gas per day. First  production from the Conger field began in December 2000 from
the first of three subsea wells. The three-well subsea  development is the first
multi-well,  15,000-psi subsea development and is located in approximately 1,460
feet of water. One additional well location, a sidetrack of the Garden Banks 215
#6 well, is currently planned for late 2003.

Northwestern  field,  Garden Banks blocks 200 and 201 (25%):  Average 2002 gross
production from the Northwestern  field was 66 million cubic feet of gas per day
and 1,500 barrels of oil per day. First production from the  Northwestern  field
began in November  2000. The field was developed with two subsea wells tied back
to the Kerr-McGee-operated East Cameron 373 platform. In early 2002, drilling of
an  additional  development  well was  completed  on Garden Banks block 201. The
Garden  Banks 201 #1 well was  completed  and tied back to the  existing  subsea
system, and production commenced in November 2002.

Baldpate field, Garden Banks block 260 (50%): Average 2002 gross production from
the Baldpate field,  including the Penn State subsea  satellite wells (50%), was
26,800  barrels  of oil per day and 83 million  cubic  feet of gas per day.  The
field is  located in 1,690 feet of water and is  producing  from an  articulated
compliant tower.  Decline in field production  stabilized during 2002, following
anticipated water breakthrough in 2001.

Neptune field, Viosca Knoll block 826 area (50%):  Average 2002 gross production
from the Neptune  field was 15,700  barrels of oil per day and 25 million  cubic
feet of gas per day. The Neptune field was developed utilizing the world's first
production spar.

Pompano field, Viosca Knoll block 989 area (25%):  Average 2002 gross production
from the Pompano  field was 34,300  barrels of oil per day and 100 million cubic
feet of gas per day. An active completion program in 2002 resulted in production
from two wells, the A-31 well in Viosca Knoll block 989 and the TB-9 well, which
extended field reserves into Mississippi  Canyon block 29. Gross production from
the A-31 well  peaked in 2002 at 73 million  cubic feet of gas per day and 3,200
barrels of oil per day,  and the well is currently  producing  39 million  cubic
feet of gas per day and 1,300 barrels of oil per day. Gross  production from the
TB-9 well  peaked  in 2002 at 5.6  million  cubic  feet of gas per day and 5,000
barrels of oil per day, and the well is currently  producing  3.3 million  cubic
feet of gas per day and 1,600 barrels of oil per day.

North Sea:

Kerr-McGee  has been active in the North Sea area since 1976. As of December 31,
2002,  Kerr-McGee  had  interests in 20 producing  fields in the United  Kingdom
sector. In 2002, North Sea production represented 54% of the company's worldwide
crude oil and condensate production and 13% of its gas sales.

Key events for the U.K.  operations  in 2002 include first  production  from the
100%  Kerr-McGee-operated  Tullich field. The field was developed using a subsea
tieback to the Kerr-McGee-operated Gryphon facility, with first oil occurring in
August 2002.  First  production was also achieved from the  nonoperated  Maclure
field  (33.3%).  The field was  developed  as a subsea  tieback  to the  Gryphon
facility, with first oil occurring in August 2002.

Oil  production  from both the Tullich and Maclure fields is exported by shuttle
tanker from the Gryphon  floating  production,  storage  and  offloading  (FPSO)
vessel.  Gas is piped to the Leadon facility for fuel usage and/or sold from the
St. Fergus terminal.

Kerr-McGee's U.K. operations  conducted a significant  divesture program in 2002
that covered the  northern  North Sea assets and various  high-cost,  low-volume
nonoperated properties.  Divestiture of company-operated fields included Ninian,
Murchison,   Lyell  and  Columba.  The  purchaser  assumed  all  decommissioning
liabilities associated with the divested fields.

In December  2002,  after an  extensive  review and  evaluation,  an  after-tax,
noncash  impairment of $335 million was made to the Leadon field.  The field had
been producing lower volumes than initially  anticipated  because of early water
breakthrough and reservoir compartmentalization.  To maximize cash flow from the
Leadon  field,  the  company  is  considering  various  alternatives,  including
continued production using existing infrastructure,  a subsea tieback to another
host structure, such as the Kerr-McGee-operated Gryphon facility, or sale of the
asset.  The subsea  tieback option would allow for  redeployment  or sale of the
Kerr-McGee  Global  Producer  III,  an FPSO  vessel  launched at Leadon in 2001.
Leadon has produced  approximately  8 million  barrels of oil  equivalent  (BOE)
through 2002, and remaining reserves are estimated at about 30 million BOE.

The company's North Sea exploration  program  included one wildcat well in 2002.
No discoveries were made.

The following is a summary of the company's five key  developments  in the North
Sea, which  contributed  approximately  57% of the region's total net production
(Kerr-McGee-operated unless stated otherwise):

Leadon field, block 9/14a, 9/14b (100%):  Average 2002 gross production from the
Leadon  field was  18,200  barrels  of oil per day.  The  Leadon  field is being
produced into an FPSO vessel, and the oil is exported via shuttle tanker.

Harding  field,  block 9/23b  (30%):  An  additional  5% equity  interest in the
nonoperated  Harding  field was  acquired as part of a northern  North Sea asset
sale. Average 2002 gross production from the Harding field was 60,600 barrels of
oil  per  day.  The  Harding   field   provides   Kerr-McGee   with   additional
infrastructure  in the  strategically  important  Quad 9 area of the North  Sea.
Within the same quadrant,  Kerr-McGee also has equity  interests in the Gryphon,
Leadon, Buckland, Skene, Maclure, Tullich, Blue Sky and Blue Sky 2 fields.

Skene field, block 9/19 (33.3%):  The Skene field started production in December
2001.  Average 2002 gross field production was 144 million cubic feet of gas per
day and 8,200  barrels of oil per day.  The Skene  field is being  produced by a
subsea  tieback to the Beryl Alpha  platform.  The oil is  exported  via shuttle
tanker, while the gas is exported via pipeline to the St. Fergus terminal.

Janice  field,  block 30/17a  (75.3%):  Average 2002 gross  production  from the
Janice field was 14,900  barrels of oil per day and more than 1.5 million  cubic
feet of gas per day. An  additional  equity  interest  of 24.4% was  acquired in
2002.

Gryphon area, blocks 9/18a,  9/18b, 9/19 and 9/23a (33.3% - 100%):  Average 2002
gross production from the Gryphon area was 20,500 barrels of oil per day and 2.1
million  cubic feet of gas per day.  The Maclure and  Tullich  satellites  began
production  in August 2002.  The Gryphon  area is produced  into an FPSO vessel,
with oil exported via shuttle tanker. Gas is exported to the Leadon facility for
fuel usage and/or sold from the St. Fergus terminal.

U.S. Onshore:

Kerr-McGee is active in the U.S.  onshore region with  production  operations in
Texas, Oklahoma, New Mexico, Louisiana and Colorado. In 2002, onshore production
represented  51% of the company's  worldwide gas  production  and 15% of its oil
production.  A major  focus  in 2002 was the  exploitation  of  undeveloped  gas
reserves acquired from HS Resources in 2001. In addition,  the company completed
a divestiture program of high-cost, low-margin waterflood properties in 2002.

Following is a summary of key U.S. onshore developments:

Wattenberg   field  (94%):   The   Wattenberg   gas  field  is  located  in  the
Denver-Julesberg  (D-J) Basin in northeast Colorado.  Kerr-McGee gained interest
in the field with the acquisition of HS Resources in 2001. Kerr-McGee's 2002 net
production  from this  field was 10,450  barrels of oil per day and 178  million
cubic feet of gas per day. In 2002, the company completed nearly 550 development
projects   in  the   field,   including   deepenings,   fracture   stimulations,
recompletions and an aggressive  infill drilling program.  The J Sand infill and
Codell refracture programs continue to supply significant  low-risk  development
opportunities.  In connection  with the large number of operational  activities,
the company  reengineered  its  stimulation  design  program and,  together with
internal supply-chain initiatives, reduced stimulation costs by as much as 50%.

In addition to the ongoing D-J Basin exploitation program, the company continued
the successful  integration of the  Wattenberg  Gathering  System (WGS) into its
operating  activities.  Kerr-McGee  operates  more than  3,000  wells in the D-J
Basin,  nearly  1,800  of  which  are  connected  to WGS.  The  company-operated
production  represents about 70% of the total system throughput of approximately
260 million cubic feet of natural gas per day, 30 million cubic feet of which is
processed at the company's new Ft. Lupton plant.

Flores and Jeffress fields, Starr and Hidalgo counties, Texas (80%): The company
completed 14 new wells and an additional 14 workover  projects during 2002. Over
the past three years,  a total of 55 wells have been drilled.  Kerr-McGee's  net
production  from both fields for 2002 averaged  2,200 barrels of oil per day and
43 million cubic feet of gas per day.

Chambers  County,  Texas (75%):  Seven new wells and an additional  six workover
projects  were  completed in 2002.  Kerr-McGee's  net  production  from the area
during 2002 averaged 900 barrels of oil per day and 20 million cubic feet of gas
per day.

Mocane-Laverne field, Harper and Beaver counties, Oklahoma (60%): Development of
properties acquired from trades in 2000 and 2001 continued.  Since 1998, a total
of 54 wells have been drilled, and a 10-well drilling program is currently under
way. In addition,  nine workover  projects were completed in 2002.  Kerr-McGee's
net production for 2002 from the field was 17 million cubic feet of gas per day.

Other International:

In 2002, Kerr-McGee continued its exploration and production efforts in selected
international  areas and  successfully  completed the divestiture of its noncore
interests in Ecuador,  Indonesia and the  Bayu-Undan  project in Australia.  The
company  currently has an executed  purchase and sale agreement in place for the
sale of its  operations  in  Kazakhstan.  The sale is expected to close in March
2003.

China

Liuhua 11-1 field, South China Sea (24.5%): Gross production for 2002 was 14,450
barrels of oil per day. One sidetrack and one extended-reach well were completed
in 2002. Two sidetracks and a second extended-reach well are planned for 2003.

Bohai Bay block 04/36 (81.8%):  During 2002,  Kerr-McGee  submitted  development
plans to the Chinese  government  for the CFD 11-1 and 11-2 fields.  These plans
are now under  consideration for formal project  sanction.  The project schedule
anticipates  first oil in 2004,  with  development  drilling due to start in the
third quarter of 2003. No additional appraisal wells were drilled in 2002 on CFD
11-1 and 11-2 following the two successful appraisal wells completed in 2001.

A new wildcat discovery, CFD 11-3-1, was followed by a successful appraisal well
three miles east of the CFD 11-1  development  area,  and  additional  appraisal
drilling  is planned  for the area.  Another  discovery  well was drilled at CFD
16-1-1 that will be appraised in 2003.

Bohai Bay  block  05/36  (50%):  During  2002,  Kerr-McGee  evaluated  potential
development options for the CFD 12-1 and 12-1S discoveries, including options to
tie back to the CFD 11-1  discovery in the 04/36 block.  Additional  exploration
drilling is planned for 2003.

Bohai Bay block 09/18 (100%):  This block includes more than 535,000 gross acres
and is located south of Kerr-McGee-operated  blocks 04/36 and 05/36. Block 09/18
has similar play  concepts as the  company's  fields and  discoveries  on blocks
04/36 and 05/36. Seismic data has been acquired, and three exploration wells are
planned for 2003.

Indonesia

The company  completed the divestiture of the Jabung block to Petronas  Carigali
Overseas Sdn Bhd., a subsidiary of Petroliam  Nasional Bhd  (PETRONAS),  in June
2002.

Ecuador

The company  completed the divestiture of its entire equity ownership in Ecuador
to Perenco  Ecuador  Limited,  a  subsidiary  of Perenco  S.A.,  and  Burlington
Resources  Oriente  Limited,  in  September  2002.  The assets  consisted of one
producing license and one license under development.

Kazakhstan

The company executed an agreement with Shell Kazakhstan  Development in 2002 for
the sale of its  operations in  Kazakhstan.  The assets consist of one producing
license, one exploration license and an equity ownership in the Caspian Pipeline
Consortium. The sale is expected to close in March 2003.

Australia

Bayu-Undan  field (11.2%):  The company  divested its entire equity ownership in
the Bayu-Undan field in May 2002.

WA 278 (39%): A retention lease  application is currently being  negotiated with
the  Australian  government  for the areas around  Kerr-McGee's  Prometheus  and
Rubicon successful but presently noncommercial gas discoveries in 2000.

WA 295 (50%):  Kerr-McGee  operates this 3.5 million-acre block in the Carnarvon
basin.  Acquisition  of 4,800  kilometers  of 2-D seismic data was  completed in
2001.  A two-well  drilling  program  was  initiated  in late 2002.  The Wigmore
prospect was the first drilled and was  unsuccessful.  Drilling of a second well
is planned in mid-2003.

WA 301 and 304 (50%), WA 302, 303 and 305 (33.3%): Kerr-McGee has an interest in
6.4 million acres in the deepwater Browse basin.  Seismic and geological studies
have been  ongoing for two years,  in  preparation  for the initial  exploration
well, Maginnis, which began drilling in early 2003.

Benin

Block 4 (70%):  Kerr-McGee  owns a 70% working  interest  in 2.5  million  acres
offshore Benin. Water depths on this block range from 300 feet to 10,000 feet. A
two-well  drilling  program was  commenced in late 2002 and both wells were dry.
Additional 2-D seismic data is planned for 2003 to evaluate areas not covered by
the current 3-D seismic data.  In late 2002,  Kerr-McGee  and Petronas  Carigali
Overseas Sdn Bhd. entered into a partnership on the block.

Brazil

BS-1 (40%): A second  exploration  well, the Ana prospect,  was drilled in 2002.
The well failed to find commercial hydrocarbons,  and data collected in the well
condemned several other prospects on the block. As a result,  Kerr-McGee elected
to relinquish  the acreage in 2002.  Kerr-McGee was operator of this 2.2 million
gross acre block.

BM-S-3  (30%):  This  deepwater  Santos  basin block  covers 1.6 million  acres.
Additional  analysis was  conducted on this block  subsequent to the drilling in
BS-1,  which  is  a  direct   offsetting  block.  The  plays  in  BM-S-3  became
noncommercial as a result of the drilling  activity,  and Kerr-McGee  elected to
relinquish the acreage in 2002.

BM-ES-9 (30%): This offshore block was acquired in 2001 and extends over 535,000
acres in the  Espirito  Santo basin in water  depths  ranging from 4,400 feet to
9,600 feet.  During 2002,  3-D seismic data was acquired and is currently  being
evaluated.

Gabon

Anton and Astrid Marin blocks (14%):  Located  offshore along the southern coast
of Gabon, the Anton and Astrid Marin blocks total 3.1 million acres. A four-well
drilling  program was completed in late 2001.  After  evaluating all of the well
and seismic data, Kerr-McGee elected to relinquish the acreage in 2002.

Olonga  Marin block  (25%):  Kerr-McGee  and  partners  plan to conduct  seismic
operations after 2003.

Morocco

Cap Draa block (25%):  Kerr-McGee  and  partners  have an  exploration  contract
covering  approximately  3 million acres along the deepwater shelf edge offshore
Morocco,  in water depths from 650 feet to 6,500 feet. A 3-D seismic acquisition
was completed in 2002 and is currently being evaluated.

Boujdour block (100%):  In October 2001,  Kerr-McGee  acquired a  reconnaissance
permit  covering  approximately  27  million  acres  offshore  Morocco  from the
shoreline  to a water depth of more than 10,000 feet.  A  reconnaissance  permit
allows  Kerr-McGee  to perform  seismic and related  activities  for  evaluation
purposes.  Kerr-McGee  completed its  acquisition of a large 2-D seismic grid in
January 2003, and the data is currently being evaluated.

Nova Scotia, Canada

EL2383,  EL2386,  EL2393  and EL 2396  (50%):  Kerr-McGee  is  operator  of four
deepwater blocks covering  approximately 1.5 million acres located offshore Nova
Scotia,  Canada,  in water  depths  ranging  from 500 feet to 9,200 feet.  A 3-D
seismic survey across two of the blocks was interpreted in 2001.  Additional 2-D
seismic  data is being  acquired  outside  the area  covered by the  current 3-D
survey.

EL2398,  EL2399 and EL2404 (100%): These blocks,  covering more than 1.5 million
acres,  are in water depths ranging from 350 feet to 10,000 feet. A regional 2-D
seismic  program was  interpreted in 2001, and additional 2-D seismic is planned
for 2003.

Thailand

Block  W7/38,  Andaman  Sea  (85%):  Kerr-McGee  was the  operator  of this  4.9
million-acre  block.  The license for this block expired in March 2002,  and the
company no longer has an interest in Thailand.

Yemen

Block 50 (47.5%):  Kerr-McGee and Nexen (operator) farmed out a portion of their
interest to Petronas Carigali Overseas Sdn Bhd. in 2002. Terms call for Petronas
to pay a  disproportionate  share of costs for seismic  data and an  exploratory
well, which will be drilled in 2003. Upon completion of the farm-in  obligation,
Kerr-McGee's interest will be reduced to 31.7%.


                                    CHEMICALS

Kerr-McGee  Corporation's  chemical  operations consist of two segments (pigment
and  other)  that  produce  and market  inorganic  industrial  chemicals,  heavy
minerals and forest products through its subsidiaries  Kerr-McGee  Chemical LLC,
KMCC Western Australia Pty. Ltd.,  Kerr-McGee Pigments GmbH, Kerr-McGee Pigments
International GmbH,  Kerr-McGee Pigments Limited,  Kerr-McGee Pigments (Holland)
B.V.  and  Kerr-McGee  Pigments  (Savannah)  Inc.  Many of  these  products  are
manufactured using proprietary technology developed by the company.

Industrial  chemicals  include titanium  dioxide,  synthetic  rutile,  manganese
dioxide and sodium  chlorate.  Heavy  minerals  produced are  ilmenite,  natural
rutile,   leucoxene  and  zircon.  Forest  products  operations  treat  railroad
crossties and other hardwood products and provide other wood-treating services.

On December 16, 2002, the company  announced  plans to exit the forest  products
business due to the strategic  focus on the growth of the core  businesses,  oil
and gas  exploration and production and the production and marketing of titanium
dioxide  pigment.  The company took an after-tax charge of $15 million for plant
and equipment impairment and decommissioning expenses.

In January 2003, Kerr-McGee announced a plan to close its synthetic rutile plant
in Mobile,  Alabama, by year-end 2003. This plant closure is another step in the
company's  plan  to  enhance  its  operating  profitability.  The  Mobile  plant
processes and supplies a portion of the  feedstock  for the  company's  titanium
dioxide  pigment  plants in the  United  States.  Through  Kerr-McGee's  ongoing
supply-chain  initiatives,  the  company now can  purchase  the  feedstock  more
economically  than it can be  manufactured  at the Mobile plant.  As a result of
these steps, the company  anticipates significant savings.

During March 2003,  the company  announced the temporary  shutdown of the Mobile
synthetic  rutile  plant due to  imposition  of a new,  much lower limit for one
effluent  impurity  effective March 1, 2003. This limit did not exist previously
under the plant's operating permit.  The synthetic rutile plant will remain shut
down until Kerr-McGee is confident it can meet this new permit condition.

Titanium Dioxide Pigment
------------------------

The company's  primary  chemical  product is titanium  dioxide pigment (TiO2), a
white  pigment  used in a wide range of  products,  including  paint,  coatings,
plastics and paper.  TiO2 is used in these  products  for its unique  ability to
impart whiteness, brightness and opacity.

Titanium  dioxide  pigment is  produced  in two  crystalline  forms - rutile and
anatase.  The rutile form has a higher  refractive  index than anatase  titanium
dioxide,  providing better opacity and tinting strength. Rutile titanium dioxide
products also provide a higher level of durability  (resistance to  weathering).
In general,  the rutile form of titanium  dioxide is preferred for use in paint,
coatings,  plastics and inks.  Anatase  titanium  dioxide is less  abrasive than
rutile and is  preferred  for use in  fibers,  rubber,  ceramics  and some paper
applications.

Titanium  dioxide  is  produced  using one of two  different  technologies,  the
chloride process and the sulfate process, both of which are used by Kerr-McGee.

Because of market considerations,  chloride-process  capacity has increased to a
substantially higher level than sulfate process capacity over the past 20 years.
The chloride process currently makes up about 60% of total industry capacity.

The  company  produces  TiO2  pigment at six  production  facilities.  Three are
located  in the  United  States,  the  others  in  Australia,  Germany  and  the
Netherlands.  The  chloride  process  accounts  for  approximately  74%  of  the
company's  production  capacity.  The  following  table  outlines the  company's
production capacity by location and process.


                                  TiO2 Capacity
                              As of January 1, 2003
                             (Gross tonnes per year)

Facility                                      Capacity                   Process
--------                                      --------                   -------
Hamilton, Mississippi                          200,000                  Chloride
Savannah, Georgia                               91,000                  Chloride
Kwinana, Western Australia (1)                  95,000                  Chloride
Botlek, Netherlands                             62,000                  Chloride
Uerdingen, Germany                             105,000                   Sulfate
Savannah, Georgia                               54,000                   Sulfate
                                               -------
        Total                                  607,000
                                               =======

(1)  The Kwinana  facility  is part of the Tiwest  Joint  Venture,  in which the
     company owns a 50% interest.


The company owns a 50% interest in a joint  venture that  operates an integrated
TiO2  project in Western  Australia  (the  Tiwest  Joint  Venture).  The venture
consists of a heavy-minerals  mine, a mineral separation  facility,  a synthetic
rutile facility and a titanium dioxide plant.

Heavy  minerals are mined from 21,037 acres leased by the Tiwest Joint  Venture.
The  company's 50% interest in the  properties'  remaining  in-place  proven and
probable  reserves  is 5.7 million  tonnes of heavy  minerals  contained  in 195
million  tonnes of sand  averaging  2.9%  heavy  minerals.  The  valuable  heavy
minerals are composed of 61%  ilmenite,  10.3% zircon,  4.5% natural  rutile and
3.4% leucoxene,  with the remaining 20.8% of heavy minerals  presently having no
value.

Heavy-mineral concentrate from the mine is processed at a 750,000 tonne-per-year
dry  separation  plant.  Some of the recovered  ilmenite is upgraded at a nearby
synthetic  rutile  facility,  which has a capacity  of 200,000  tonnes per year.
Synthetic rutile is a high-grade  titanium dioxide  feedstock.  Synthetic rutile
from the Tiwest Joint  Venture  provides  feedstock  to a 95,000  tonne-per-year
titanium  dioxide plant  located at Kwinana,  Western  Australia.  Production of
ilmenite, synthetic rutile, natural rutile and leucoxene in excess of the Tiwest
Joint Venture's requirements is purchased by Kerr-McGee as part of the feedstock
requirement  for its TiO2  business  under a  long-term  agreement  executed  in
September 2000.

Information regarding heavy-mineral reserves,  production and average prices for
the three years ended  December 31, 2002, is presented in the  following  table.
Mineral reserves in this table represent the estimated  quantities of proven and
probable ore that,  under presently  anticipated  conditions,  may be profitably
recovered  and processed for the  extraction  of their mineral  content.  Future
production  of  these  resources  depends  on  many  factors,  including  market
conditions and government regulations.

                  Heavy-Mineral Reserves, Production and Prices
                  ---------------------------------------------

(Thousands of tonnes)                     2002              2001            2000
----------------------------             -----             -----           -----
Proven and probable reserves             5,700             5,800           6,700
Production                                 289               280             293
Average market price (per tonne)          $150              $143            $145

The company also  operates a synthetic  rutile  production  facility  located in
Mobile,  Alabama.  This facility,  with an annual production capacity of 200,000
tonnes per year,  provides a portion of the feedstock for the company's titanium
dioxide  business.  As previously  noted, the company has announced its plans to
close the Mobile facility by the end of 2003, and the plant is temporarily  shut
down due to a new operating permit restriction.

Titanium-bearing ores used for the production of TiO2 include ilmenite,  natural
rutile,  synthetic rutile,  titanium-bearing slag and leucoxene.  These products
are  mined  and  processed  in many  parts of the  world.  In  addition  to ores
purchased from the Tiwest Joint Venture,  the company  obtains ores for its TiO2
business from a variety of suppliers in the United  States,  Australia,  Canada,
South Africa,  Norway and Ukraine. Ores are generally purchased under multi-year
agreements.

The global market in which the company's  titanium dioxide business  operates is
highly  competitive.  The company actively markets its TiO2 utilizing  primarily
direct sales but also through a network of agents and distributors.  In general,
products  produced  in a given  market  region  will be sold  there to  minimize
logistical costs.  However, the company actively exports products,  as required,
from its facilities in the United  States,  Europe and Australia to other market
regions.

Titanium  dioxide  applications  are  technically  demanding,  and  the  company
utilizes a strong  technical  sales and services  organization  to carry out its
marketing  efforts.  Technical sales and service  laboratories are strategically
located in major  market  areas,  including  the United  States,  Europe and the
Asia-Pacific  region.  The company's  products compete on the basis of price and
product  quality,  as well as technical and customer  service.  World demand for
titanium dioxide is expected to increase 4% in 2003.

Stored Power
------------

The company owns a 50% interest in AVESTOR,  a joint  venture  formed in 2001 to
produce and  commercialize  a solid-state  lithium-metal-polymer  (LMP) battery.
Applications for this battery include telecommunications stand-by power, utility
peak  shaving,  electric  vehicles  and  hybrid  electric  vehicles.  The  first
commercial  LMP  battery is  specifically  designed  for the  telecommunications
market and is superior to lead-acid  battery  technology in both performance and
life.  In 2002,  a  120-megawatt-hour  LMP  production  facility  was  built and
commissioned at Boucherville,  Quebec. Production rates are expected to increase
throughout 2003 to the rated capacity.

Other Products
--------------

The  chemical - other  operating  unit  consists of the  company's  electrolytic
operations and forest products business.

Electrolytic Products - Plants at the company's Hamilton,  Mississippi,  complex
include a 130,000  tonne-per-year  sodium chlorate facility.  Sodium chlorate is
used in the  environmentally  preferred  chlorine  dioxide process for bleaching
pulp.  Sodium  chlorate  demand in the United  States is  expected  to  increase
approximately  2% to 3% per year in the near term as the pulp and paper industry
recovers and completes conversion to the chlorine dioxide process. The company's
share of the U.S. market is about 8%.

The company operates  facilities at Henderson,  Nevada,  producing  electrolytic
manganese dioxide and boron  trichloride.  Annual production  capacity is 26,500
tonnes for manganese dioxide and 340,000 kilograms for boron trichloride.  Boron
trichloride is used in the production of pharmaceuticals  and in the manufacture
of semiconductors.

Manganese  dioxide is a major  component of alkaline  batteries.  The  company's
share of the North American manganese dioxide market is approximately one-third.
Increased demand is being driven by the need for alkaline batteries for portable
electronic devices.

As part of the  company's  strategic  decision to focus on the titanium  dioxide
pigment business,  the company continues to investigate  divestiture options for
the electrolytic business.

Forest  Products - The  principal  product of the forest  products  business  is
treated railroad crossties.  Other products include railroad crossing materials,
bridge timbers and utility  poles.  The company's six  wood-treating  plants are
located  along  major  railways  in Madison,  Illinois;  Indianapolis,  Indiana;
Columbus, Mississippi; Springfield, Missouri; The Dalles, Oregon; and Texarkana,
Texas. In October 2002, the Indianapolis,  Indiana, plant ceased operations, and
plant dismantlement was initiated. The company has announced the planned closing
of the Madison,  Columbus,  Springfield and Texarkana plants by the end of 2003.
The Dalles  plant is a leased  facility, and the  company's  options at the site
include  continuation of operations for the term of the lease or sale. The lease
expires November 30, 2004.

For more  information  regarding the company's plan to exit the forest  products
business  and  for  information  as to the  chemical  - other  operating  unit's
revenues and operating  profit (loss) for the  three-year  period ended December
31,  2002,  reference is made to Notes 10 and 27 to the  Consolidated  Financial
Statements included in Item 8. of this Form 10-K.

                                      OTHER

Research and Development
------------------------

The  company's   Technical  Center  in  Oklahoma  City  performs   research  and
development in support of existing businesses and for the development of new and
improved products and processes. The primary focus of the company's research and
development  efforts is on the titanium dioxide business.  A separate  dedicated
group at the Technical  Center  performs  research and development in support of
the company's electrolytic businesses.

Employees
---------

On  December  31,  2002,  the company and its  affiliates  had 4,470  employees.
Approximately  984,  or 22% of these  employees,  were  represented  by chemical
industry collective bargaining agreements in the United States and Europe.

Competitive Conditions
----------------------

The petroleum  industry is highly  competitive,  and competition exists from the
initial  process of bidding for leases to the sale of crude oil and natural gas.
Competitive factors include finding and developing petroleum reserves, producing
crude oil and natural gas  efficiently,  transporting the produced crude oil and
natural  gas,  and  developing  successful  marketing  strategies.  Many  of the
company's competitors have substantially larger financial resources,  staffs and
facilities  than  Kerr-McGee,  which test  Kerr-McGee's  ability to compete with
them.

The  titanium  dioxide  pigment  business is highly  competitive.  The number of
competitors in the industry has declined due to recent consolidations,  and this
trend is expected to continue.  Significant consolidation among the consumers of
titanium  dioxide  has also taken place over the past five years and is expected
to  continue.  Worldwide,  Kerr-McGee  is one of only  five  producers  that own
proprietary  chloride  process  technology to produce  titanium dioxide pigment.
Cost  efficiency and product  quality as well as technical and customer  service
are key competitive factors in the titanium dioxide business.

It is not possible to predict the effect of future  competition on  Kerr-McGee's
operating and financial results.


                GOVERNMENT REGULATIONS AND ENVIRONMENTAL MATTERS

General
-------

The company's affiliates are subject to extensive regulation by federal,  state,
local and foreign governments.  The production and sale of crude oil and natural
gas are  subject  to special  taxation  by  federal,  state,  local and  foreign
authorities  and  regulation  with  respect to  allowable  rates of  production,
exploration and production operations, calculations and disbursements of royalty
payments,  and environmental  matters.  Additionally,  governmental  authorities
regulate  the  generation  and  treatment  of  waste  and air  emissions  at the
operations and facilities of the company's  affiliates.  At certain  operations,
the company's affiliates also comply with certain worldwide, voluntary standards
such as the ISO 9002 for  quality  management  and ISO 14001  for  environmental
management   standards   developed  by  the   International   Organization   for
Standardization, a nongovernmental organization that promotes the development of
standards and related activities and serves as an external oversight for quality
and environmental issues.

Environmental Matters
---------------------

Federal,  state  and  local  laws  and  regulations  relating  to  environmental
protection  affect  almost  all  company  operations.  These  laws  require  the
company's affiliates to remove or mitigate the effects on the environment of the
disposal or release of certain chemical,  petroleum,  low-level  radioactive and
other  substances at various  sites.  Operation of  pollution-control  equipment
usually entails additional  expense.  Some expenditures to reduce the occurrence
of releases into the  environment may result in increased  efficiency;  however,
most of  these  expenditures  produce  no  significant  increase  in  production
capacity, efficiency or revenue.

During 2002, direct capital and operating  expenditures related to environmental
protection  and  cleanup of  existing  sites  totaled  $59  million.  Additional
expenditures totaling $128 million were charged to environmental reserves. While
it is difficult  to estimate the total direct and indirect  costs to the company
of government environmental regulations, the company presently estimates that in
2003 it will incur $33 million in direct  capital  expenditures,  $35 million in
operating  expenditures  and $100 million in  expenditures  charged to reserves.
Additionally,  the company  estimates  that in 2004 it will incur $17 million in
direct  capital  expenditures,  $20 million in operating  expenditures  and $100
million in expenditures charged to reserves.

The  company  and  its   affiliates  are  parties  to  a  number  of  legal  and
administrative  proceedings involving environmental matters and/or other matters
pending  in  various   courts  or  agencies  in  the  United  States  and  other
jurisdictions. These include proceedings associated with facilities currently or
previously  owned,  operated or used by the  company's  affiliates  and/or their
predecessors, and include claims for personal injuries and property damages. The
current  and  former  operations  of  the  company's   affiliates  also  involve
management of regulated materials and are subject to various  environmental laws
and regulations. These laws and regulations obligate the company's affiliates to
clean up various  sites at which  petroleum and other  hydrocarbons,  chemicals,
low-level radioactive substances and/or other materials have been disposed of or
released.  Some of these sites have been designated  Superfund sites by the U.S.
Environmental   Protection   Agency   (EPA)   pursuant   to  the   Comprehensive
Environmental Response, Compensation, and Liability Act of 1980 (CERCLA) and are
listed on the National Priority List (NPL).

The company  provides for costs related to  environmental  contingencies  when a
loss is probable and the amount is reasonably estimable.  It is not possible for
the  company  to  reliably   estimate  the  amount  and  timing  of  all  future
expenditures related to environmental matters because, among other reasons:

   o    some sites are in the early stages of investigation, and other sites may
        be identified in the future;

   o    cleanup  requirements  are difficult to predict at sites where  remedial
        investigations  have not been completed or final decisions have not been
        made regarding cleanup requirements,  technologies or other factors that
        bear on cleanup costs;

   o    environmental  laws frequently impose joint and several liability on all
        potentially  responsible  parties,  and it can be difficult to determine
        the number and  financial  condition  of other  potentially  responsible
        parties and their respective shares of responsibility for cleanup costs;

   o    environmental laws and regulations are continually  changing,  and court
        proceedings are inherently uncertain;

   o    unanticipated  construction  problems and weather  conditions can hinder
        the completion of environmental remediation;

   o    the inability to implement a planned  engineering  design or use planned
        technologies and excavation  methods may require revisions to the design
        of remediation measures, which delay remediation and increase its costs;
        and

   o    the  identification  of additional areas or volumes of contamination and
        changes  in  costs  of  labor,   equipment   and   technology   generate
        corresponding changes in environmental remediation costs.

The  company  believes  that  currently  it  has  reserved  adequately  for  the
reasonably estimable costs of contingencies.  However, additions to the reserves
may be required as additional  information  is obtained that enables the company
to better estimate its liabilities, including any liabilities at sites now under
review.  The company cannot now reliably estimate the amount of future additions
to the  reserves.  Additionally,  there may be other sites where the company has
potential liability for environmental-related  matters but for which the company
does not have sufficient information to determine that the liability is probable
and/or reasonably estimable.  The company has not established a reserve for such
sites.

For an  expanded  discussion  of  environmental  matters,  see  "Item  3.  Legal
Proceedings,"  "Item  7.  Management's  Discussion  and  Analysis  of  Financial
Condition and Results of Operations," and Note 16 to the Consolidated  Financial
Statements contained in Item 8. to this Form 10-K.


                                  RISK FACTORS

In addition to the risks  identified  in  Management's  Discussion  and Analysis
included in Item 7. of this Form 10-K,  investors should consider  carefully the
following risks.

Volatile Product Prices and Markets Could Adversely Affect Results
------------------------------------------------------------------

The company's  results of operations are highly dependent upon the prices of and
demand for oil and gas and the company's  chemical products.  Historically,  the
markets  for oil and gas have been  volatile  and are likely to  continue  to be
volatile in the future. Accordingly,  the prices received by the company for its
oil and gas production  are dependent upon numerous  factors that are beyond its
control.  These factors  include,  but are not limited to, the level of ultimate
consumer  product  demand,  governmental  regulations  and taxes,  the price and
availability of alternative  fuels,  the level of imports and exports of oil and
gas, actions of the Organization of Petroleum Exporting Countries, the political
and economic  uncertainty of foreign  governments,  international  conflicts and
civil  disturbances,  and the  overall  economic  environment.  Any  significant
decline in prices for oil and gas could  have a material  adverse  effect on the
company's financial condition,  results of operations and quantities of reserves
recoverable on an economic  basis.  Demand for titanium  dioxide is dependent on
the demand for ultimate products utilizing titanium dioxide pigment. This demand
is generally dependent on the condition of the economy. The profitability of the
company's  products is dependent on the price  realized for them, the efficiency
of manufacturing  costs,  and the ability to acquire  feedstock at a competitive
price.   Should  the  industries  in  which  the  company  operates   experience
significant price declines or other adverse market  conditions,  the company may
not be able to  generate  sufficient  cash  flow  from  operations  to meet  its
obligations  and make  planned  capital  expenditures.  In order to  manage  its
exposure to price risks in the sale of oil and gas, the company may from time to
time enter into  commodities  contracts  to hedge a portion of its crude oil and
natural gas sales volume.  Any such hedging  activities  may prevent the company
from  realizing the benefits of price  increases  above the levels  reflected in
such hedges.

State and Local  Regulation of Oil and Gas Development  and Surface  Development
Conflicts Could Adversely Affect Results
-------------------------------------------------------------------------------

State regulatory  authorities have established rules and regulations  governing,
among other things, permits for drilling and production, operations, performance
bonds,   reports   concerning   operations,   discharge,   disposal   and  other
waste-related  permits,  well spacing,  unitization  and pooling of  operations,
taxation, and environmental and conservation matters. In general, these measures
make oil and gas  development  more  difficult,  and  their  application  to the
company's operations could adversely affect its results of operations.

Failure to Fund Continued Capital Expenditures Could Adversely Affect Results
-----------------------------------------------------------------------------

The company expects that it will continue to make capital  expenditures  for the
acquisition,  exploration  and  development  of oil  and  gas  reserves.  If its
revenues  substantially  decrease  as a result  of lower  oil and gas  prices or
otherwise,  the  company  may have a  limited  ability  to  expend  the  capital
necessary to replace its reserves or to maintain  production at current  levels,
resulting in a decrease in production over time.  Historically,  the company has
financed  expenditures for the  acquisition,  exploration and development of oil
and gas reserves primarily with cash flow from operations and proceeds from debt
and equity  financings,  asset sales, and sales of partial  interests in foreign
concessions. Management believes that the company will have sufficient cash flow
from operations,  available  drawings under its credit facilities and other debt
financings to fund capital  expenditures.  However,  if the company's  cash flow
from   operations  is  not   sufficient  to  satisfy  its  capital   expenditure
requirements, there can be no assurance that additional debt or equity financing
or other sources of capital will be available to meet these requirements. If the
company is not able to fund its  capital  expenditures,  its  interests  in some
properties  may be reduced or forfeited,  and its future cash  generation may be
materially  adversely  affected  as a result of the  failure to find and develop
reserves.

Oil and Gas Reserve Information Is Estimated
--------------------------------------------

The proved oil and gas reserve information included in this Form 10-K represents
estimates.  These  estimates  are based  primarily  on reports  prepared  by the
company's  geologists  and  engineers.  Petroleum  engineering  is a  subjective
process of estimating  underground  accumulations  of oil and gas that cannot be
measured in an exact manner.  Estimates of economically  recoverable oil and gas
reserves and of future net cash flows necessarily depend on a number of variable
factors and assumptions, including:

   o    historical  production from the area compared with production from other
        similar producing areas;
   o    the assumed effects of regulations by governmental agencies;
   o    assumptions concerning future oil and gas prices; and
   o    assumptions  concerning  future  operating  costs,  severance and excise
        taxes, development costs, and workover and remedial costs.

Because  all  reserve  estimates  are to  some  degree  subjective,  each of the
following items may differ materially from those assumed in estimating reserves:

   o    the quantities of oil and gas that are ultimately recovered;
   o    the production and operating costs incurred;
   o    the amount and timing of future development expenditures; and
   o    future oil and gas sales prices.

Furthermore,  different  reserve  engineers  may  make  different  estimates  of
reserves and cash flows based on the same available  data. The company's  actual
production,  revenues and  expenditures  with respect to reserves will likely be
different from estimates,  and the  differences may be material.  The discounted
future net cash flows included in this Form 10-K should not be considered as the
current market value of the estimated oil and gas reserves  attributable  to the
company's  properties.  As required by the SEC, the estimated  discounted future
net cash flows from proved  reserves are generally  based on prices and costs as
of the date of the  estimate,  while  actual  future  prices  and  costs  may be
materially  higher or lower.  Actual future net cash flows also will be affected
by factors such as:

   o    the amount and timing of actual production;
   o    supply and demand for oil and gas;
   o    increases or decreases in consumption; and
   o    changes in governmental regulations or taxation.

In addition, the 10% discount factor, which is required by the SEC to be used to
calculate  discounted  future  net cash  flows for  reporting  purposes,  is not
necessarily  the most  appropriate  discount  factor based on interest  rates in
effect  from time to time and risks  associated  with the company or the oil and
gas industry in general.

Kerr-McGee  Operates  in Foreign  Countries  and Will Be  Subject to  Political,
Economic and Other Uncertainties
-------------------------------------------------------------------------------

The company conducts significant  operations in foreign countries and may expand
its  foreign  operations  in the future.  Operations  in foreign  countries  are
subject to political, economic and other uncertainties, including:

   o    the  risk  of war,  acts  of  terrorism,  revolution,  border  disputes,
        expropriation,  renegotiation  or  modification  of existing  contracts,
        import, export and transportation regulations and tariffs;
   o    taxation  policies,  including royalty and tax increases and retroactive
        tax claims;
   o    exchange controls, currency fluctuations and other uncertainties arising
        out of foreign government  sovereignty over the company's  international
        operations;
   o    laws and policies of the United States affecting foreign trade, taxation
        and investment; and
   o    the  possibility  of being  subject  to the  exclusive  jurisdiction  of
        foreign  courts in  connection  with  legal  disputes  and the  possible
        inability to subject  foreign  persons to the  jurisdiction of courts in
        the United States.

Foreign countries have occasionally  asserted rights to land,  including oil and
gas properties,  through border disputes. If a country claims superior rights to
oil and gas leases or concessions granted to the company by another country, the
company's  interests could be lost or decrease in value.  Various regions of the
world have a history of political  and economic  instability.  This  instability
could  result in new  governments  or the  adoption of new  policies  that might
assume a substantially  more hostile attitude toward foreign  investment.  In an
extreme case,  such a change could result in termination of contract  rights and
expropriation of foreign-owned assets. This could adversely affect the company's
interests.  The  company  seeks to manage  these risks by,  among other  things,
concentrating its international  exploration  efforts in areas where the company
believes  that the  existing  government  is  favorably  disposed  towards  U.S.
exploration and production companies.

Oil and Gas  Operations  Involve  Substantial  Costs and Are  Subject to Various
Economic Risks
-------------------------------------------------------------------------------

The company's oil and gas operations are subject to the economic risks typically
associated  with  exploration,   development  and  production   activities.   In
conducting exploration and development activities, the presence of unanticipated
pressure or irregularities in formations, miscalculations or accidents may cause
the  company's   exploration,   development  and  production  activities  to  be
unsuccessful. This could result in a total loss of the company's investment in a
particular  property.  If exploration  efforts in a country are  unsuccessful in
establishing  proved  reserves and  exploration  activities  cease,  the amounts
accumulated as unproved costs would be charged against  earnings as impairments.
In addition, the cost and timing of drilling,  completing and operating wells is
often uncertain.

Competition is Intense
----------------------

The  exploration  and  production  business  and the  titanium  dioxide  pigment
business are each highly  competitive.  Many of the company's  competitors  have
substantially larger financial resources, staffs and facilities than Kerr-McGee,
which test Kerr-McGee's ability to compete with them.


                             AVAILABILITY OF REPORTS

Effective January 1, 2003,  Kerr-McGee made available at no cost on its Internet
website,  www.kerr-mcgee.com,  its Annual Report on Form 10-K, Quarterly Reports
on Form 10-Q, Current Reports on Form 8-K and any amendments to those reports as
soon as  reasonably  practicable  after  the  company  electronically  files  or
furnishes  such  reports  to  the  Securities  and  Exchange  Commission  (SEC).
Interested  parties should refer to the Investor Relations link on the company's
website.  Reports  on Forms  10-Q and 10-K are  available  for all 2001 and 2002
filings and Current Reports on Form 8-K are available for all filings subsequent
to January 1, 2003.

Item 3.  Legal Proceedings

A. In 2001, the company's  chemical  affiliate  (Chemical)  received a Notice of
Violation  (NOV) from EPA,  Region 9. The NOV claims that  Chemical  has been in
continuous  violation  of the  Clean  Air Act  new  source  review  requirements
applicable to the construction in 1994 and continued operation of an open hearth
furnace at its Henderson,  Nevada,  facility.  Chemical operated the open hearth
furnace in  compliance  with  state-issued  permits and believes that the NOV is
without substantial merit.  Chemical is vigorously  defending against the claims
made in the NOV and  believes  that any fines and  penalties  related to the NOV
will not have a material adverse effect on the company.

B. In December 2001,  Kerr-McGee  North Sea (U.K.) Limited  received a notice of
violation  of the  Prevention  of Oil  Pollution  Act 1971  and of the  Merchant
Shipping  (Oil  Pollution  Preparedness,  Response and  Cooperation  Convention)
Regulations 1998 from authorities in Scotland.  This matter is currently pending
in the Sheriff Court,  Aberdeen,  Scotland,  and concerns a subsea pipeline leak
associated  with the  company's  North  Sea  Hutton  facility.  The  company  is
vigorously  defending the matter and believes that any fines and penalties  will
not have a material adverse effect on the company.

C. In 2002,  Tiwest Pty Ltd, an Australian joint venture that produces  titanium
dioxide  and  in  which  Chemical  indirectly  has a 50%  interest,  received  a
complaint and notice of violation  from the Department of  Environmental  Waters
and  Catchment  Protection  in  Western  Australia  alleging  violations  of the
Environmental  Protection Act (1986).  This matter concerns an alleged  chlorine
release at the facility. Tiwest is vigorously defending the proceeding, which is
pending in the Court of Petty Sessions,  Perth, Western Australia.  As currently
filed, the maximum fine is $625,000 (Australian  dollars),  but the liability of
the joint venture and the amount of any monetary fine are uncertain.

D. For a discussion of other legal proceedings and  contingencies,  reference is
made to (1) the  Environmental  Matters section of  Management's  Discussion and
Analysis of Financial  Condition and Results of  Operations  included in Item 7.
and (2) Note 16 to the Consolidated  Financial Statements included in Item 8. of
this Form 10-K, both of which are incorporated herein by reference.

Item 4.  Submission of Matters to a Vote of Security Holders

None submitted during the fourth quarter of 2002.


                      Executive Officers of the Registrant

The following is a list of executive  officers,  their ages, and their positions
and offices as of March 15, 2003:

       Name            Age                      Office
------------------     ---     -------------------------------------------------

Luke R. Corbett         56    Chief  Executive  Officer since 1997.  Chairman of
                              the Board since May 1999 and from 1997 to February
                              1999.  President and Chief Operating  Officer from
                              1995 until 1997.

Kenneth W. Crouch       59    Executive Vice President  since March 2003. Senior
                              Vice  President  from  1996 to 2003.  Senior  Vice
                              President,  Exploration and Production Operations,
                              from  1998  to  2003.   Senior   Vice   President,
                              Exploration from 1996 to 1998.


David A.  Hager         46    Senior  Vice President, Exploration and Production
                              Operations,  since March 2003.  Vice  President of
                              Exploration  and  Production,  2002 to 2003.  Vice
                              President   of  Gulf  of  Mexico   and   Worldwide
                              Deepwater  Exploration  and  Production,  2001  to
                              2002;   Vice  President  of  Worldwide   Deepwater
                              Exploration  and  Production,  2000 to 2001;  Vice
                              President  of  International   Operations,   2000;
                              previously   Vice  President  of  Gulf  of  Mexico
                              operations.  Joined  Sun Oil Co.,  predecessor  of
                              Oryx Energy Company, in 1981.

Gregory F. Pilcher      43    Senior   Vice   President,   General  Counsel  and
                              Corporate   Secretary   since  July   2000.   Vice
                              President, General Counsel and Corporate Secretary
                              from  1999 to 2000.  Deputy  General  Counsel  for
                              Business   Transactions   from   1998   to   1999.
                              Associate/Assistant General Counsel for Litigation
                              and Civil Proceedings from 1996 to 1998.

Carol A. Schumacher     46    Senior  Vice President of Corporate  Affairs since
                              February  2002.  Prior to joining  the  company in
                              2002, served as Vice President of Public Relations
                              for The Home Depot,  Executive  Vice President and
                              General  Manager  for  Atlanta  office of  Edelman
                              Worldwide and Executive  Vice  President of Cohn &
                              Wolfe, a division of Young & Rubicam, Inc.

Robert M. Wohleber      52    Senior  Vice President and Chief Financial Officer
                              since December 1999.  Prior to joining the company
                              in 1999,  served as Executive  Vice  President and
                              Chief   Financial   Officer  of   Freeport-McMoRan
                              Exploration Company, President and Chief Executive
                              Officer of Freeport-McMoRan Sulfur and Senior Vice
                              President  of  Freeport-McMoRan  Gold  and  Copper
                              Corporation.

W. Peter Woodward       54    Senior  Vice  President  since 1997.  Senior  Vice
                              President of  Marketing  for  Kerr-McGee  Chemical
                              from 1996 to 1997.

George D. Christiansen  58    Vice  President, Safety and Environmental Affairs,
                              since   1998.   Vice   President,    Environmental
                              Assessment and Remediation, from 1996 to 1998.

Fran G. Heartwell       56    Vice  President  of  Human  Resources since  March
                              2003; Director of Human Resources,  Kerr-McGee Oil
                              & Gas, from September  2002 to January 2003;  Vice
                              President of Human  Resources and  Administration,
                              Oryx  Energy  Company,  from  1995  until the 1999
                              merger of Oryx and Kerr-McGee.

J. Michael Rauh         53    Vice   President  since  1987.   Controller  since
                              January 2002. Treasurer from 1996 to 2002.

John F. Reichenberger   50    Vice  President,  Deputy   General   Counsel   and
                              Assistant  Secretary  since July  2000.  Assistant
                              Secretary and Deputy General  Counsel from 1999 to
                              2000.  Deputy  General  Counsel from 1998 to 1999.
                              Associate General Counsel from 1996 to 1999.

Elizabeth T. Wilkinson  45    Vice  President and Treasurer since November 2002.
                              Previously Assistant  Treasurer-Corporate Finance,
                              GlobalSantaFe   Corporation  (Global  Marine  Inc.
                              until  2001  merger);   Manager  of  Planning  and
                              Analysis  from 1998 to 1999 and Manager of Budgets
                              and Planning from 1994 to 1998, Global Marine Inc.

There is no family relationship between any of the executive officers.


           CAUTIONARY STATEMENT CONCERNING FORWARD-LOOKING STATEMENTS

Statements in this Form 10-K regarding the company's or management's intentions,
beliefs  or  expectations,  or  that  otherwise  speak  to  future  events,  are
"forward-looking  statements"  within the meaning of the U.S. Private Securities
Litigation  Reform Act of 1995.  Future  results and  developments  discussed in
these  statements  may be affected by  numerous  factors and risks,  such as the
accuracy of the assumptions that underlie the statements, the success of the oil
and gas exploration and production program,  drilling risks, the market value of
Kerr-McGee's  products,  uncertainties in interpreting  engineering data, demand
for consumer  products for which  Kerr-McGee's  businesses supply 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,  trade and regulatory
matters,  general  economic  conditions,  and other factors and risks  discussed
herein and in the company's other SEC filings.  Actual results and  developments
may differ materially from those expressed or implied in this Form 10-K.

                                     PART II

Item 5.  Market  for the  Registrant's  Common  Equity and  Related  Stockholder
         Matters

Information  relative  to the  market in which  the  company's  common  stock is
traded,  the high and low sales  prices of the common  stock by quarters for the
past two  years,  and the  approximate  number of  holders  of  common  stock is
furnished in Note 33 to the  Consolidated  Financial  Statements,  which note is
included in Item 8. of this Form 10-K.

Quarterly dividends declared totaled $1.80 per share for each of the years 2002,
2001 and 2000. Cash dividends have been paid continuously since 1941 and totaled
$181 million in 2002, $173 million in 2001 and $166 million in 2000.

For  information  required  under Item 201(d) of  Regulation  S-K related to the
company's  securities  authorized for issuance under equity  compensation plans,
reference is made to Item 12. of this Form 10-K.

Item 6.  Selected Financial Data

Information regarding selected financial data required in this item is presented
in the schedule captioned  "Nine-Year  Financial Summary" included in Item 8. of
this Form 10-K.


Item 7.  Management's Discussion and Analysis of Financial Condition and Results
         of Operations

Management's Discussion and Analysis
--------------------------------------------------------------------------------

Overview

Kerr-McGee  Corporation is one of the largest U.S.-based independent oil and gas
exploration and production companies and the world's third-largest  producer and
marketer of titanium dioxide pigment.  The company's assets total  approximately
$10 billion, and proved oil and gas reserves are approximately 1 billion barrels
of oil equivalent.  The equity production  capacity for titanium dioxide pigment
is 560,000  tonnes  per year.  For 2002,  revenues  from  continuing  operations
totaled $3.7 billion, of which $2.5 billion (68%) was generated by the company's
oil and gas  exploration  and  production  operations and $1.2 billion (32%) was
generated by the company's chemical operations.
--------------------------------------------------------------------------------

Operating Environment and Outlook

Oil and Gas Exploration and Production

While the 2002 financial results are disappointing,  Kerr-McGee has started 2003
in a  stronger  position  as a  result  of  its  program  to  sell  noncore  and
higher-cost oil and gas assets.  These sales yielded  proceeds of  approximately
$760 million during 2002, and completion of additional  transactions is expected
in 2003.  The proceeds have enabled the company to reduce total debt by 15% from
the   2001   year-end    level.    Kerr-McGee's    goal   is   to   reduce   its
debt-to-capitalization ratio below 50%. As the company benefits from the sale of
the  higher-cost  fields and ramps up  production  from  efficient new deepwater
projects,  lifting costs are expected to decline by approximately 20% per barrel
of oil equivalent.

The  volatility of crude oil and natural gas prices has a significant  impact on
the  profitability  of  Kerr-McGee's  oil and  gas  exploration  and  production
business.  While  financial  instruments  and  marketing  arrangements  have the
potential to dampen this  volatility in certain  circumstances,  the uncertainty
surrounding  commodity  markets,  directly  affected by geopolitical  issues and
global economies,  must be analyzed in projecting future sales environments.  To
provide greater  predictability  of cash flow necessary to fund  exploration and
capital  programs,  the  company  hedged  about 40% of its 2002  production  and
currently has hedged approximately half of its 2003 production.

The oil and gas industry operated in an environment of uncertainty  during 2002.
The effects of the September 2001 terrorist  attack still lingered in the global
economy, with discernible global consequences.  Concerns about possible military
action  in the  Middle  East set in  early in the  year.  Venezuela  dealt  with
political strife that began in 2001 and led to a general strike in 2002. Despite
early expectations, the U.S. economy did not experience the recovery anticipated
early in the year, and financial  markets were impacted by a series of corporate
scandals.  The resulting commercial  environment and price volatility profoundly
impacted investment decisions by the oil and gas industry.

The U.S.  petroleum  market began the year with ample  inventories  carried over
from 2001. The price of crude oil hovered near $20 per barrel.  Reacting to weak
prices due to sluggish demand, OPEC and significant  non-OPEC producers cut back
production effective January 1, 2002. Geopolitical uncertainties,  combined with
the surprisingly high quota compliance by OPEC and non-OPEC producers (and their
agreement to extend the quota reduction into the second  quarter)  supported oil
price recovery.  By the end of the first quarter, the well-referenced West Texas
Intermediate (WTI) spot price for crude oil had surpassed $25 per barrel.

After reaching the top of the average range during the first quarter,  crude oil
inventories  in the U.S.  began to slide in April,  reflecting the effect of the
production  cuts. As the U.S.  entered the summer driving season, a self-imposed
30-day delivery cutoff by Iraq increased market tension.  Crude oil stocks began
a steep decline, reaching the lower level of the historical average range by the
end of  August.  Tightening  of  demand/supply  market  fundamentals  as well as
geopolitical  events caused  late-year  upward pressure on the crude oil market.
Tropical storms also influenced crude oil markets, causing U.S. crude oil stocks
to briefly  decline to  historically  low  levels.  The spot price of WTI soared
above $30 per barrel.  U.S.  crude oil stocks  increased in the fourth  quarter,
tracking at the lower end of the  historical  average  range.  By the end of the
year, when crude oil imports declined again due to the strike in Venezuela,  the
WTI spot price briefly climbed over $32 per barrel.

Reacting to an economy  characterized  by uncertainty,  caution and concern over
investment  risk,  U.S. oil  consumption  rose only  slightly on the strength of
continued increases in transportation  sector use. OPEC discipline,  a perceived
premium associated with the possibility of war in the Middle East and low levels
of crude oil stocks (the lowest in five years) added  near-term  upward pressure
to cyclical demand.

Natural gas pricing also  demonstrated  strong upward  movement during the year.
Natural gas prices are driven by weather,  pipeline capacity,  storage (capacity
and management) and supply  reliability.  The increase in natural gas prices was
partially  due to the  competitive  fuel  prices  and  the  evident  decline  of
production in North  America.  Market  signals  require time to develop a supply
response.  Strong downward pressure on natural gas prices through 2001, plus the
relatively  full levels of natural gas storage at the end of the heating season,
contributed  to  uncertainty  that  translated  into  unexpectedly  low drilling
activity as the year progressed.  Reference New York Mercantile Exchange (NYMEX)
gas prices began the year at $2.75 per million  British  thermal units  (MMBtu),
declined to about $2/MMBtu  during  February when storage levels were relatively
high, and rose to  $3.50/MMBtu  by the end of the first quarter.  After trending
lower through the summer,  prices began to reflect  anticipated  heating  season
loads  and  declining  deliverability,   climbing  steadily  to  $4.80/MMBtu  by
year-end.

The upstream oil and gas  environment  at the end of 2002 was nearly the reverse
of  that  which  characterized  the  beginning  of the  year.  Oil  prices  were
relatively high, natural gas prices were extremely strong and natural gas demand
appeared to be rising, but drilling activity,  which increased slowly during the
year, did not yet reflect levels that historically  have been  characteristic of
periods during which there is investment in new supply.  Due to global  economic
conditions,  mixed signals from the  marketplace,  and numerous  regulatory  and
financial  uncertainties,  the level of concern that permeated the early part of
the year progressed to an investment  climate of extreme  caution.  Diligence in
investment -  choosing  only the most  value-added  opportunities  - replaced an
industry  quest for increased  exploration  investment.  In this  environment of
market  volatility  and  uncertainty,   budget  discipline  and  flexibility  in
near-term spending are high priorities.

Kerr-McGee's  growth strategy for its exploration and production  operating unit
is focused primarily on the deepwater Gulf of Mexico and selected  international
basins.  In addition,  the company will continue to pursue  opportunities in the
U.K.  North Sea,  U.S.  onshore,  Gulf of Mexico  shelf and China.  The  company
expects to build growth through the drill bit and to seek strategic partnerships
and acquisitions.

Chemicals

In  the  global  titanium   dioxide  pigment   industry,   the  company  is  the
third-largest  producer and marketer and one of five companies that own chloride
technology.  The chloride  process  produces a pigment  with optical  properties
preferred  by the  paint  and  plastics  industries.  In  early  2003,  chloride
technology accounted for about 74% of the company's pigment production capacity.
The remaining capacity is sulfate-process production.

Titanium dioxide is a  "quality-of-life"  product,  and its consumption  follows
general economic trends. Since a low point in the business cycle was experienced
in the winter of 2001, economic growth indicators associated with pigment demand
improved at a moderate pace. This strengthening demand for the company's pigment
products supported price increases throughout 2002.

Modest growth in the U.S. economy is expected to continue in 2003,  bolstered by
strong automotive and construction markets.  Further supporting this outlook are
recent  early  signals of a rebound in  business  confidence.  Outside the U.S.,
moderate  growth in the  Euro-zone  and  Japanese  gross  domestic  products  is
expected to continue. In Southeast Asia, where growth is well in excess of other
regions,  significant  progress has been made toward trade  facilitation  in the
area of customs and through elimination of technical barriers.

The  Kerr-McGee   chemical  operating  unit's  strategy  focuses  on  technology
improvements and cost control.  This includes an integrated  portfolio of supply
chain  initiatives,   continuous  improvement  and  technology-based  efficiency
programs.  Accordingly,  operating  results  should  improve with the success of
these  initiatives  as well as the price  increases  that  began in 2002 and are
expected to continue  through 2003.  During 2003,  the company will continue its
low-cost plant capacity  expansions in line with market growth. The company also
remains focused on exiting noncore  businesses  within its chemical  operations,
while growing new opportunities aligned with its core competencies.

New  opportunities  for  capitalizing on the company's  experience are carefully
considered.   One  such   opportunity  is  AVESTOR.   This  joint  venture  with
Hydro-Quebec,  one of North America's largest  utilities,  was formed in 2001 to
produce a revolutionary  lithium-metal-polymer  battery.  Commercial  sales will
begin in 2003 with batteries that increase the reliability of  telecommunication
networks  during  power  outages.  Work is  under  way on  future  applications,
including  peak-power  shaving and use in electric and hybrid electric vehicles.
The  company is  committed  to growing  this  business  and expects to invest an
additional $50 million in the joint venture in 2003.

In January 2003, Kerr-McGee announced a plan to close its synthetic rutile plant
in Mobile,  Alabama, by year-end 2003. This plant closure is another step in the
company's  plan  to  enhance  its  operating  profitability.  The  Mobile  plant
processes and supplies a portion of the  feedstock  for the  company's  titanium
dioxide pigment plants in the United States. Through Kerr-McGee's ongoing supply
chain initiatives,  the company now can purchase the feedstock more economically
than it can be manufactured at the Mobile plant. As a result of these steps, the
company anticipates significant savings.

During March 2003,  the company  announced the temporary  shutdown of the Mobile
synthetic  rutile  plant due to  imposition  of a new,  much lower limit for one
effluent  impurity  effective March 1, 2003. This limit did not exist previously
under the plant's operating permit.  The synthetic rutile plant will remain shut
down until Kerr-McGee is confident it can meet this new permit condition.
--------------------------------------------------------------------------------

Results of Consolidated Operations

Net income (loss) and per-share  amounts for each of the years in the three-year
period ended December 31, 2002, were as follows:


(Millions of dollars,
except per-share amounts)                       2002          2001          2000
-------------------------                      -----          ----          ----

Net income (loss)                              $(485)         $486          $842
Net income (loss) per share -
     Basic                                     (4.84)         5.01          9.01
     Diluted                                   (4.84)         4.74          8.37

The major  variances  in net income on an  operating  unit basis  (after  income
taxes) are outlined in the table below.  The variances in individual  line items
in the  Consolidated  Statement of Operations  are explained in the section that
follows.

                                                         Favorable (Unfavorable)
                                                                Variance
                                                        ------------------------
                                                             2002          2001
                                                            Versus        Versus
(Millions of dollars)                                        2001          2000
---------------------                                       -----         -----

Exploration and production net operating profit             $(850)        $(346)
Chemical - pigment net operating profit                        25           (82)
Chemical - other net operating profit                          (4)          (22)
Net interest expense                                          (56)            4
Other income/expense                                         (202)          105
Discontinued operations                                        96             5
Cumulative effect of accounting change                         20           (20)
                                                            -----         -----
     Net income                                             $(971)        $(356)
                                                            =====         =====

The majority of the 2002 decline in  exploration  and  production  net operating
profit  resulted  from asset  impairments  of $561  million and the deferred tax
effect of $132 million for the 33% increase in the U.K.  corporate  tax rate for
oil and gas companies. The remaining $157 million decrease is due principally to
higher lease operating expense, shipping and handling expense,  depreciation and
depletion, and exploration expense.

The  improvement  in  chemical's   pigment  net  operating  profit  in  2002  is
principally  the  result of  higher  pigment  sales  volumes  and lower  average
per-unit   production  costs.   Higher  interest  expense  in  2002  is  due  to
significantly  higher average debt outstanding and lower  capitalized  interest,
partially offset by a lower overall average interest rate.

The  negative  variance  for  other  income/expense  is  mainly  due to the 2001
adoption of the Financial Accounting Standards Board's (FASB) Statement No. 133,
"Accounting  for Derivative  Instruments and Hedging  Activities"  (FAS 133), as
amended,  that  allowed  the  company  to  reclassify  85% of the  Devon  Energy
Corporation  (Devon)  shares owned to "trading"  from the  "available  for sale"
category of investments.  This resulted in a $118 million net unrealized gain on
the stock being recognized in income as of January 1, 2001, with a corresponding
reduction in other comprehensive income where the unrealized gain had previously
been  recorded.  Additionally,  a 2002  net-of-tax  litigation  provision of $47
million and after-tax foreign currency losses of $33 million  contributed to the
other income/expense variance for 2002 versus 2001.

Discontinued operations for all three years resulted from the company's decision
in  early  2002 to  dispose  of its  exploration  and  production  interests  in
Indonesia and Kazakhstan and its interest in the Bayu-Undan  project in the East
Timor Sea offshore Australia.  These divestiture  decisions were made as part of
the company's strategic plan to rationalize noncore oil and gas properties.  All
periods  presented have been restated to reflect these interests as discontinued
operations in the financial statements.

The cumulative effect of the change in accounting principle is the result of the
company's  adoption of FAS 133 in 2001. This standard  required the recording of
all  derivative  instruments as assets or  liabilities,  measured at fair value.
Kerr-McGee  recorded  the fair  value of all its  outstanding  foreign  currency
forward  contracts  and the  fair  value  of the  options  associated  with  the
company's debt  exchangeable  for stock (DECS) of Devon  presently  owned by the
company. The net effect of recording these fair values resulted in a $20 million
decrease in income as a cumulative  effect of a change in  accounting  principle
and a $3  million  reduction  in equity  (other  comprehensive  income)  for the
foreign currency contracts designated as hedges.

The 2001 decrease in exploration and production net operating  profit  primarily
was due to  significantly  lower  average sales prices and volumes for crude oil
and natural gas, the Hutton U.K.  North Sea asset  impairment in 2001 and higher
exploration, gas gathering, pipeline and transportation expenses. The decline in
2001 net  operating  profit from  chemicals  resulted  mainly from lower pigment
sales prices and volumes,  the 2001  provisions for closure of the pigment plant
in  Belgium,  asset  impairments,  severance  and other  costs.  The 2001  other
income/expense  variance  was mainly the result of the $118  million  unrealized
gain on Devon stock  reclassified  to the  "trading"  category  of  investments,
discussed above.
--------------------------------------------------------------------------------

Statement of Operations Comparisons


Sales (Billions of dollars)                      2002         2001        2000
---------------------------                      ----         ----        ----
Oil and gas and pigment sales                    $3.7         $3.6        $4.1
increased in 2002 compared
with 2001.


The increase in 2002 sales primarily was due to a full year of revenues from the
Rocky  Mountain  region  compared  with only five months in 2001  following  the
acquisition  of HS  Resources,  combined  with the  favorable  impact  of higher
pigment sales  volumes,  partially  offset by the  recognition of lower revenues
from  properties  divested  during 2002. The decrease in 2001 revenues  compared
with 2000 was due  primarily to a decrease in crude oil and pigment sales prices
and volumes, partially offset by five months of revenues from the Rocky Mountain
region.  These variances are discussed in more detail in the segment  discussion
that follows.

Costs and operating expenses increased $241 million in 2002 from the 2001 level,
resulting  principally  from higher gas  marketing  and  pipeline  costs of $105
million  (full year of Rocky  Mountain  operations in 2002 versus five months in
2001),  higher lease  operating  expenses of $80 million  (higher  crude oil and
natural  gas  production  volumes)  and higher  pigment  production  cost of $91
million  (increased pigment  production  volumes).  The 2001 costs and operating
expenses  increased $44 million over 2000,  principally due to costs for closing
the pigment plant in Belgium,  discontinuation  of manganese metal production at
Hamilton, Mississippi, and the write-down of certain pigment inventories.

Selling,  general and  administrative  expenses for 2002  increased  $85 million
primarily  as a result of the $72  million  reserve for  litigation  established
mainly in connection  with certain forest  products  litigation in  Mississippi,
Louisiana  and  Pennsylvania.  These  lawsuits  are  discussed in Note 16 to the
financial  statements.  The 2001 selling,  general and  administrative  expenses
increased $31 million over the 2000 expenses. This increase resulted principally
from  the  acquisition  of HS  Resources  in  August  2001,  completion  of  the
integration of the two chemical  plants  acquired in the second quarter of 2000,
higher costs for information technology projects,  higher incentive compensation
based on 2000  performance and higher chemical  warehousing  costs due to higher
inventory levels.

Shipping and handling  expenses for 2002, 2001 and 2000 were $125 million,  $111
million and $98 million,  respectively.  The 2002  increase is primarily  due to
higher costs for shipping  product from the new deepwater  fields in the Gulf of
Mexico,  including  Nansen,  Boomvang and Navajo,  and higher costs in the Rocky
Mountain  region due to the inclusion of the first full year of costs related to
the former HS Resources operations.  The 2001 increase was due to higher natural
gas sales volumes, mainly from five months of Rocky Mountain sales and increased
transportation costs in the North Sea.

Depreciation and depletion expense totaled $774 million in 2002, $713 million in
2001 and $678 million in 2000. The 2002 increase was due to higher  depreciation
and  depletion  for the Rocky  Mountain  region  of $75  million  (full  year of
expense)  and for the U.K.  region of $11 million  (mainly due to a full year of
expense  on  the  Leadon  and  Skene  fields,  partially  offset  by  having  no
depreciation  on  certain  assets  while  they  were held for  sale).  Partially
offsetting these increases was lower expense in the U.S.  offshore region of $24
million due to normal declines in production and held-for-sale properties, which
more than offset the impact of production  from the Nansen,  Boomvang and Navajo
fields.  The 2001  increase  was due to a $16  million  charge for  discontinued
capital  projects and write-off of certain  assets no longer used in the pigment
operations,  the  acquisition  of HS Resources  in August 2001,  the oil and gas
production mix in the other regions, and a full year of depreciation for the two
chemical plants acquired in the second quarter of 2000.

Asset  impairments  totaled $828 million in 2002 and $76 million in 2001.  These
impairments  were due to certain assets that were no longer  expected to recover
their net book  values  through  future  cash  flows.  The  impairments  in 2002
included  $541 million for the Leadon field in the North Sea. The field had been
producing lower volumes than initially anticipated due to water breakthrough and
reservoir  compartmentalization.  The company conducted  additional drilling and
field  performance  analysis  during the third and fourth  quarters of 2002, and
after considering various alternatives for the field, the asset was written down
to its fair value based on expected  future cash flows.  The impairment  assumes
the  tieback  of all  subsea  wells to other  fixed  infrastructure  in the area
(possibly  the  Kerr-McGee-operated  Gryphon  field),  allowing  the  company to
monetize  the Leadon  state-of-the-art  floating  facility by  marketing it as a
development option for another discovery.  Should the company be unsuccessful in
marketing  the Leadon  vessel or unable to tie the field back to other  existing
infrastructure,  Kerr-McGee  would expect to continue  with the Leadon vessel in
place and produce  from the  existing  wells until they are fully  depleted.  In
addition,  the company  impaired to fair market value certain northern North Sea
and  U.S.  onshore  and  offshore  noncore  exploration  and  production  assets
identified in early 2002 for  divestiture  totaling  $176  million.  Impairments
totaling  $105  million for several  older Gulf of Mexico shelf  properties  and
certain  other  North  Sea  fields  were  also  recorded,  primarily  due to the
write-down of underlying oil and gas reserves.  Additionally, a $6 million asset
impairment was recognized in connection with the company's  planned  shutdown of
the forest products  operations.  The 2001  impairments  were comprised of a $47
million write-down associated with the shut-in of the North Sea Hutton field and
$29 million for certain chemical facilities in Belgium and the U.S.

Exploration  costs were $273  million,  $210  million and $169 million for 2002,
2001 and 2000, respectively.  The 2002 increase was due to higher dry hole costs
of $41 million,  mainly in the  deepwater  area of the Gulf of Mexico and in the
North Sea, higher nonproducing leasehold amortization of $11 million, and higher
geophysical costs of $5 million.  The $41 million increase in 2001 was primarily
the result of higher planned exploratory  drilling in Brazil,  Gabon,  Australia
and  China,  higher  geophysical  costs,   principally  from  the  HS  Resources
acquisition,  and higher amortization of nonproducing  leaseholds.  During 2003,
the company  plans to drill  additional  wells and to continue  seismic  work on
deepwater blocks offshore Benin, Brazil, Morocco and Nova Scotia. The success of
these projects will impact the company's future exploration costs.

In connection with the company's  second-quarter 2000 acquisition of the pigment
plant in Savannah, Georgia, certain incomplete research and development projects
were identified and valued as part of the purchase  price.  Since these projects
had no  alternative  future use to the company,  $32 million was expensed at the
date of acquisition.

Interest and debt expense totaled $275 million in 2002, $195 million in 2001 and
$208  million in 2000.  The $80  million  increase  in 2002 was due to an annual
average debt balance that was  approximately  $1.4 billion  higher than for 2001
and  capitalized  interest  that was lower by $23 million,  partially  offset by
overall  average  interest  rates that were  approximately  1% lower than in the
prior year. The lower expense in 2001 was due to higher levels of interest being
capitalized  on major  development  projects in the Gulf of Mexico and the North
Sea  and  lower  interest  rates,   partially  offset  by  significantly  higher
borrowings  resulting from the August 2001 HS Resources  acquisition  and higher
capital spending.

Other  income  (loss)  includes  the  following  for  each of the  years  in the
three-year period ended December 31, 2002:

(Millions of dollars)                                2002        2001      2000
---------------------                                ----        ----      ----

Foreign currency translation gain (loss)             $(38)       $ 3        $30
Income (loss) from equity affiliates                  (25)        (5)        23
Unrealized gain on Devon stock reclassified to
   "trading" category of investments                    -         181         -
Exchangeable debt derivative options and Devon
   stock revaluations                                  27          17         -
Gains on speculative derivative contracts for gas
   basis swaps acquired with HS Resources               8          27         -
All other                                              (7)          1        (3)
                                                     ----        ----       ---
                                                     $(35)       $224       $50
                                                     ====        ====       ===

Most of the  2002  foreign  currency  loss was a result  of the  company's  U.K.
operations,  where the company suffered from the unfavorable U.S. dollar/British
pound sterling exchange rates. The loss from equity affiliates for 2002 and 2001
was primarily the result of the  investment in the AVESTOR joint venture  formed
in 2001 to develop new lithium-metal-polymer batteries.
--------------------------------------------------------------------------------

Segment Operations

Operating profit (loss) from each of the company's segments is summarized in the
following table:

(Millions of dollars)                        2002           2001          2000
---------------------                       -----           ----         ------

Operating profit (loss) -
     Exploration and production             $(140)          $922         $1,431
                                            -----           ----         ------

     Chemicals -
         Pigment                               24            (22)           130
         Other                                (23)           (17)            17
                                            -----           ----         ------
              Total Chemicals                   1            (39)           147
                                            -----           ----         ------

Operating profit (loss)                     $(139)          $883         $1,578
                                            =====           ====         ======



Exploration and Production

Exploration  and  production  sales,  operating  profit (loss) and certain other
statistics are shown in the following table:


(Millions of dollars,
except per-unit amounts)                       2002          2001          2000
------------------------                      ------        ------        ------

Sales                                         $2,504        $2,439        $2,802
                                              ======        ======        ======

Operating profit (loss)                       $ (140)       $  922        $1,431
                                              ======        ======        ======

Exploration expense                           $  273        $  210        $  169

Net crude oil and condensate produced
     (thousands of barrels per day)              191           189           200
Average price of crude oil sold
     (per barrel) (1)                         $22.04        $22.60        $27.69
Natural gas sold (MMcf per day)                  760           596           531
Average price of natural gas sold
     (per Mcf) (1)                            $ 2.95        $ 3.83        $ 3.87
Average production costs (per BOE)            $ 4.81        $ 4.53        $ 4.54

(1)  Includes the results of the company's 2002 hedging program that reduced the
     average  price of crude oil and  natural  gas sold by $1.13 per  barrel and
     $.01 per Mcf, respectively.


Sales  increased $65 million in 2002 compared with 2001,  primarily  driven by a
$108  million  increase in Rocky  Mountain  gas  marketing  and other  operating
income,  partially  offset by a decrease of $43 million in crude oil and natural
gas sales  resulting from lower 2002 average sales prices,  partially  offset by
higher sales  volumes.  Average sales prices  decreased 2% for crude oil and 23%
for  natural  gas,  resulting  in a  decrease  in total  sales of $205  million.
However,  a slight  increase  in crude oil  sales  volume,  combined  with a 28%
increase in natural gas sales volume (full year of Rocky  Mountain  production),
resulted in an offsetting increase in sales of $162 million.

Sales decreased $363 million from 2000 to 2001, of which $473 million was due to
a decrease  in crude oil sales,  partially  offset by  increases  in natural gas
sales and other operating revenues of $81 million and $29 million, respectively.
The  decrease  in crude  oil  sales  resulted  from an 18%  drop in the  average
per-barrel sales price,  causing  year-over-year  sales to decline $341 million,
combined with a 6%, or $132 million,  decrease in sales volumes. The addition of
the HS Resources  Rocky  Mountain  operations  accounted  for $62 million of the
increase  in  natural  gas sales  over  2000.  Natural  gas  sales for  existing
operations  increased $24 million due to higher average sales prices,  partially
offset by a $5 million  decrease  resulting  from  lower  sales  volumes.  Other
operating revenues increased $29 million,  primarily due to higher tariff income
and gas marketing income attributable to the HS Resources acquisition.

Operating  profit,  which  decreased from $922 million in 2001 to a loss of $140
million in 2002,  was  adversely  affected  by higher  asset  impairment  losses
combined  with  lower oil and gas sales  prices,  discussed  above,  and  higher
production,  exploration  and  other  operating  costs  driven in part by higher
production  volumes in 2002. In total,  $822 million in asset impairment  losses
were  recorded in 2002,  compared with $47 million in 2001,  lowering  operating
profit by $775  million  between  years.  Assets held for use  represented  $646
million  of the asset  impairment  loss,  of which $541  million  related to the
Leadon field in the U.K.  area of the North Sea. An  additional  $82 million was
recorded for certain other U.K.  North Sea fields,  and $23 million was recorded
for several  older Gulf of Mexico  shelf  properties.  During  2002,  additional
performance  analysis of these fields resulted in downward  revisions of reserve
estimates  sufficient to lower future cash flow  projections  for the properties
below the carrying value of the related assets. The remaining $176 million asset
impairment  loss related to assets  classified as held for disposal in the U.S.,
North  Sea and  Ecuador.  The 2001  asset  impairment  loss of $47  million  was
attributable to the shutdown of the Hutton field in the North Sea.

Total 2002 operating  expenses increased $352 million compared with 2001, due to
higher gas marketing and pipeline costs of $105 million  (primarily an offset to
the  increased  income of $108 million for gas  marketing  and other,  discussed
above),  higher  production  expenses of $79 million,  higher  depreciation  and
depletion  expense of $66 million,  higher  exploration  expense of $63 million,
higher environmental  expense of $11 million,  higher general and administrative
expenses of $15 million,  and higher  transportation  costs of $13 million.  The
higher production costs,  depreciation and depletion expense, and transportation
expense  resulted  primarily  from  the  increased  crude  oil and  natural  gas
production  volumes.  The  increase in  exploration  expense  resulted  from the
company's expanded exploration program during the second half of 2002.

The decrease in operating profit of $509 million from 2000 to 2001 was primarily
due to the significant decline in average sales prices for crude oil and natural
gas,  which  resulted in a decrease in  comparable  sales year over year of $316
million,  combined with net sales volume decreases of $76 million.  In addition,
when  compared  with 2000,  the 2001 period  included the $47 million  North Sea
Hutton field  impairment,  higher  exploration  expense of $41 million resulting
from the  company's  planned  exploration  program,  higher  gas  gathering  and
pipeline expenses of $43 million (of which $31 million was directly attributable
to  additional  costs  associated  with the acquired HS  Resources  operations),
higher  transportation  expense  of $16  million,  and higher  depreciation  and
depletion expense of $7 million,  offset in part by lower production and general
and administrative costs of $8 million.

Chemicals

Chemical sales, operating profit (loss) and pigment production volumes are shown
in the following table:

(Millions of dollars)                   2002             2001              2000
---------------------                  ------           ------            ------

Sales -
    Pigment                            $  995           $  931            $1,034
    Other                                 201              196               227
                                       ------           ------            ------
         Total                         $1,196           $1,127            $1,261
                                       ======           ======            ======

Operating profit (loss) -
    Pigment                            $   24           $  (22)           $  130
    Other                                 (23)             (17)               17
                                       ------           ------            ------
         Total                         $    1           $  (39)           $  147
                                       ======           ======            ======

Titanium dioxide pigment production
    (thousands of tonnes)                 508              483               480

Pigment - Titanium dioxide pigment sales for 2002 increased $64 million,  or 7%,
over  2001 due to sales  volume  increases  of $149  million,  combined  with an
offsetting  decrease of $85 million  resulting from weaker sales prices in 2002.
While poor overall  market  conditions  persisted  through the first  quarter of
2002,  product  demand began to increase  through the  remainder of the year. As
demand  accelerated,  the company announced multiple price increases through the
second half of the year.

The $103 million,  or 10%,  decrease in titanium dioxide pigment sales from 2000
to 2001 was due to lower pigment  sales  prices,  resulting in a decrease of $61
million  between years and lower sales volumes that caused a drop of $42 million
in comparable  sales. The 2001 global economic  downturn led to reduced customer
demand and lower pricing.

Operating  profit for 2002  improved  $46 million  over 2001.  Higher 2002 sales
volume,  combined  with  lower  average  per-unit  production  costs,  increased
operating profit by $57 million,  offset by reductions due to lower sales prices
of  $85  million.   Shipping  and  handling  costs  and  selling,   general  and
administrative  costs  decreased  $5 million from 2001.  In  addition,  the 2002
operating  profit  included a  provision  of $12  million  related to  abandoned
chemical engineering projects, a $5 million reversal of environmental  reserves,
and $3 million for severance and other costs,  compared with  provisions in 2001
for closure of a pigment  plant in Belgium,  asset  impairments,  severance  and
other costs totaling $79 million.

Operating   profit  in  2001  declined  $152  million  compared  with  2000  due
principally to lower sales of $103 million,  coupled with an $8 million increase
in  operating  expenses.  Additionally,  operating  profit in 2001  included $79
million in plant  closure  provisions,  asset  impairments,  severance and other
costs,  as discussed  above,  compared with a 2000  write-off of $32 million for
acquired  in-process  research  and  development  projects  and  $6  million  in
transition costs incurred in connection with the purchase of two pigment plants.

Other - Operating  loss for 2002 was $23  million on  revenues of $201  million,
compared with operating loss of $17 million on revenues of $196 million in 2001.
The increase in operating  loss was  primarily  due to 2002  provisions  for the
shutdown  and  impairment  of the forest  products  business  of $23 million and
environmental  provisions of $15 million,  compared with 2001  provisions of $25
million for the  termination  of manganese  metal  production and $5 million for
severance and asset impairment charges.

Other  chemical  sales  declined  $31  million  from 2000 to 2001,  of which $13
million  resulted  from the  discontinued  production  of manganese  metal,  $11
million  was due to lower  manganese  dioxide  sales,  and $6 million was due to
lower forest  products  sales.  Operating  profit  decreased $34 million between
periods,  primarily  due to the $30  million in 2001  charges  discussed  above,
related to the discontinuation of manganese metal production,  severance charges
and asset impairments.
--------------------------------------------------------------------------------

Financial Condition

(Millions of dollars)                    2002           2001              2000
---------------------                  --------       --------          --------

Current ratio                          0.8 to 1       1.2 to 1          1.0 to 1
Total debt                               $3,904         $4,574            $2,425
Total debt less cash                      3,814          4,483             2,281
Stockholders' equity                     $2,536         $3,174            $2,633
Total debt less cash to total
    capitalization                          60%            59%               46%
Floating-rate debt to total debt             7%            28%                3%

The negative  working  capital at the end of 2002 is not indicative of a lack of
liquidity as the company maintains  sufficient  current assets to settle current
liabilities when due. Current asset balances are minimized as one way to finance
capital  expenditures and lower borrowing costs.  Additionally,  the company has
sufficient  unused lines of credit and revolving credit  facilities as discussed
in the Liquidity section that follows.

Kerr-McGee  operates  with a  philosophy  that over a plan period the  company's
capital  expenditures  and  dividends  will  be  paid  from  cash  generated  by
operations.  On a cumulative  basis,  the cash generated from operations for the
past four years has exceeded the  company's  capital  expenditures  and dividend
payments.   Debt  and  equity   transactions   are  utilized   for   acquisition
opportunities and short-term needs due to timing of cash flow.

Net Debt to Total Capitalization
(Percentages)                                       2002         2001       2000
-------------                                       ----         ----       ----

Net debt to total capitalization is total
debt less cash divided by total debt less
cash plus stockholders' equity.                      60%          59%        46%

Although  debt was  reduced  $670  million  from 2001,  the  decrease  in equity
resulting  primarily from the 2002 net loss and dividends declared resulted in a
slightly higher  percentage of net debt to total  capitalization  as compared to
2001. The higher percentage of net debt to total capitalization in 2001 resulted
from the debt  issued and  assumed in  conjunction  with the  acquisition  of HS
Resources and the  expenditures  for major  development  projects in the Gulf of
Mexico and the North Sea.

Cash Flow

Net Cash Flow from Operating
Activities (Millions of dollars)                  2002         2001        2000
--------------------------------                 ------       ------      ------

Net cash flow from operating
activities increased $305                        $1,448       $1,143      $1,840
million in 2002.

Net cash  flow from  operating  activities  increased  $305  million,  from $1.1
billion  in 2001 to $1.4  billion in 2002,  primarily  as a result of changes in
various  working  capital  items,  partially  offset  by a  decrease  in  income
excluding noncash items.  Year-end 2002 cash was $90 million,  compared with $91
million at December 31, 2001.

The company  invested $1.3 billion in its 2002 capital  program,  which included
$113 million of unsuccessful exploratory drilling costs. The capital program for
2002 was $592 million  lower than in the prior year,  resulting in part from the
completion of the major  construction on certain field developments in the North
Sea and the Gulf of Mexico in late 2001 and early 2002. During 2002, the company
completed the  divestiture  of several oil and gas  properties and other assets,
generating proceeds of $756 million. These proceeds were used primarily to lower
debt.  The  company  also  invested  $24  million to acquire an  additional  24%
interest  in the  Janice  field in the U.K.  North  Sea,  bringing  its  working
interest to 75%.  Cash outlays for  investing  activities  include a $47 million
investment by the chemical unit in AVESTOR,  its  lithium-metal-polymer  battery
joint  venture in Canada,  and an  additional  $16  million  investment  for the
company's  share  of  construction   costs  for  the  Caspian  pipeline  by  the
exploration and production  operating unit. Other investing  activities provided
$10 million of net cash.


Total Debt (Millions of dollars)                   2002         2001       2000
--------------------------------                  ------       ------     ------

Outstanding debt was reduced
$670 million in 2002.                             $3,904       $4,574     $2,425


During 2002,  the company issued $350 million of 5.375% notes due April 2005. In
connection  with this issuance,  the company  entered into an interest rate swap
agreement,  the terms of which effectively change the fixed interest rate on the
notes to a variable rate of LIBOR plus .875%.  Variable interest rate commercial
paper and  revolving  credit  borrowings  were  reduced by $998 million on a net
basis in 2002,  and  other  debt and  short-term  borrowings  were  reduced  $35
million.  Cash flow was used to pay the  company's  dividends of $181 million in
2002.

As of December 31, 2002,  the company's  senior  unsecured debt was rated BBB by
Standard  & Poor's  and Fitch and the  equivalent  by  Moody's.  See Note 11 for
details of the company's  debt. At December 31, 2001, the company's  outstanding
debt had increased  significantly from prior-year levels to fund the acquisition
of HS  Resources  and major  development  projects in the Gulf of Mexico and the
North Sea.  Throughout  2002, the company  aggressively  pursued its strategy of
divesting noncore and high-cost  assets,  the proceeds from which have been used
primarily  to reduce the  company's  outstanding  debt.  The company  expects to
further  reduce debt  during 2003 using  proceeds  from the  divestiture  of its
exploration and production operations in Kazakhstan, which are expected to total
approximately $140 million, and from excess cash flow.

Liquidity

The company  believes  that it has the  ability to provide  for its  operational
needs and its long- and short-term  capital  programs through its operating cash
flow (partially protected by the company's hedging program),  borrowing capacity
and ability to raise  capital.  The company's  primary  source of funds has been
from operating cash flow, which would be adversely  affected by declines in oil,
natural gas and pigment prices, all of which can be volatile as discussed in the
preceding Outlook section.  Should operating cash flow decline,  the company may
reduce its capital  expenditures  program,  borrow  under its  commercial  paper
program and/or  consider  selective  long-term  borrowings or equity  issuances.
Kerr-McGee's  commercial  paper  programs  are  backed by the  revolving  credit
facilities  currently in place.  Should the company's  commercial  paper or debt
rating be  downgraded,  borrowing  costs  will  increase,  and the  company  may
experience loss of investor  interest in its debt as evidenced by a reduction in
the number of investors and/or amounts they are willing to invest.

At December  31,  2002,  the company  had unused  lines of credit and  committed
amounts under revolving credit agreements  totaling $1.499 billion.  The company
maintains two revolving credit agreements consisting of a five-year $650 million
facility signed January 12, 2001, and a 364-day $700 million facility renewed on
December 10, 2002. Of the two  agreements,  $860 million and $490 million can be
used  to  support   commercial   paper   borrowings  in  the  U.S.  and  Europe,
respectively,  by certain  wholly owned  subsidiaries  and are guaranteed by the
parent  company.  The  borrowings  can be made in U.S.  dollars,  British  pound
sterling,  euros or  local  European  currencies.  The  company  also had a $100
million revolving credit agreement  available to its Chinese  subsidiary through
March 3, 2003, when the agreement lapsed and was not renewed.  In addition,  the
company  had  other  unused  credit   facilities  of  $49  million  and  unused,
uncommitted  lines of credit of $40 million at December 31,  2002.  Interest for
each of the  revolving  credit  facilities  and lines of credit  is  payable  at
varying rates.

At December  31,  2002,  the company  classified  $68 million of its  short-term
obligations as long-term  debt.  The company has the intent and the ability,  as
evidenced by committed credit agreements,  to refinance this debt on a long-term
basis. The company's  practice has been to continually  refinance its commercial
paper or draw on its  backup  facilities,  while  maintaining  borrowing  levels
believed to be appropriate.

The company issued 5 1/2% notes  exchangeable  for common stock (DECS) in August
1999,  which  allow each  holder to receive  between  .85 and 1.0 share of Devon
common  stock or,  at the  company's  option,  an  equivalent  amount of cash at
maturity  in August  2004.  Embedded  options in the DECS  provide the company a
floor price on Devon's  common stock of $33.19 per share (the put  option).  The
company also retains the right to up to 15% of the shares if Devon's stock price
is greater  than $39.16 per share (the DECS holders have a call option on 85% of
the shares). Using the Black-Scholes  valuation model, the company recognizes in
Other Income (Loss) any gains or losses resulting from changes in the fair value
of the put and call options.  The  fluctuation  in the value of the put and call
derivative  financial  instruments will generally offset the increase or decease
in the  market  value  of 85% of the  Devon  stock  owned  by the  company.  The
remaining  15% of the  Devon  shares  are  accounted  for as  available-for-sale
securities in accordance with FAS 115,  "Accounting  for Certain  Investments in
Debt  and  Equity   Securities,"  with  changes  in  market  value  recorded  in
accumulated other comprehensive income.

The company also has  available,  to issue and sell, a total of $1.65 billion of
debt  securities,  common  or  preferred  stock,  or  warrants  under  its shelf
registration with the Securities and Exchange Commission, which was last updated
in February 2002.

Off-Balance Sheet Arrangements

During 2001 and 2000, the company  identified  certain  financing  needs that it
determined  would  be  best  handled  by  off-balance  sheet  arrangements  with
unconsolidated,   special-purpose  entities.  Three  leasing  arrangements  were
entered into for financing the company's  working  interest  obligations for the
production platforms and related equipment at three  company-operated  fields in
the Gulf of Mexico.  Also,  the  company  entered  into an  accounts  receivable
monetization  program to sell its receivables  from certain  pigment  customers.
Each of these  transactions  has provided  specific  financing for the company's
business  needs and/or  projects and does not expose the company to  significant
additional risks or commitments. The leases have provided a tax-efficient method
of financing a portion of these major development projects,  and the sale of the
pigment receivables results in lowering the company's overall financing costs as
the subject discount rate is lower than the company's short-term borrowing rate.

During 2001, the company entered into a leasing  arrangement for its interest in
the  production  platform and related  equipment  for the Gunnison  field in the
Garden Banks area of the Gulf of Mexico.  This leasing arrangement is similar to
two arrangements  entered into in 2000 for the Nansen and Boomvang fields in the
East Breaks area of the Gulf of Mexico. In each of these three arrangements, the
company entered into five-year lease  commitments with separate  business trusts
that were created to construct  independent  spar production  platforms for each
field  development.  Under the terms of the  agreements,  the company's share of
construction costs for the platforms has been financed by synthetic lease credit
facilities between the trust and groups of financial institutions for up to $157
million,  $137  million  and $78  million  for  Gunnison,  Nansen and  Boomvang,
respectively,  with the company making lease payments sufficient to pay interest
at varying rates on the financings.  Upon completion of the construction  phase,
different trusts with third-party equity participants become the lessor/owner of
the platforms and related  equipment.  The company and these trusts have entered
into operating leases or, where construction is not yet complete,  are committed
to  purchase  or sell the  platform  and  related  equipment  or  enter  into an
operating lease for the use of the spar platform and related  equipment.  During
2002, the Nansen and Boomvang synthetic leases were converted to operating lease
arrangements  upon  completion  of  construction  of the  respective  production
platforms.  Completion  of the Gunnison  platform is expected in early 2004,  at
which time the Gunnison synthetic lease will be converted to an operating lease.
Under this type of financing  structure,  the company leases the platforms under
operating lease agreements, and neither the platform assets nor the related debt
are recognized in the company's  Consolidated Balance Sheet. In conjunction with
the operating  lease  agreements,  the company has guaranteed  that the residual
values  of the  Nansen,  Boomvang  and  Gunnison  platforms  at  the  end of the
operating  leases  shall be equal to at least 10% of their fair market  value at
the inception of the lease. For Nansen and Boomvang,  the guaranteed  values are
$14  million  and $8  million,  respectively,  in  2022,  and for  Gunnison  the
estimated  guaranteed  value is $16 million in 2024.  Estimated  future  minimum
annual rentals under these leases and the residual value guarantees are shown in
the table of contractual obligations below.

A pigment accounts receivable monetization program began in December 2000. Under
the  terms  of the  credit-insurance-backed  asset  securitization,  up to  $165
million of selected pigment customers' accounts  receivables may be sold monthly
to an unconsolidated  special-purpose  entity (SPE). Since the collection of the
receivables is insured,  only  receivables that qualify for credit insurance can
be sold.  The SPE  borrows  the  purchase  price of the  receivables  at a lower
interest rate than  Kerr-McGee's  commercial  paper rate and shares a portion of
the savings with the company through a reduced  discount rate on the receivables
purchased.  The  company  records a loss on the  receivable  sales  equal to the
difference in the cash  received  plus the fair value of the retained  interests
and the carrying value of the  receivables  sold. The fair value of the retained
interests  (servicing fees and preference stock of the SPE, which is essentially
a deposit to provide credit enhancement, if needed, but otherwise recoverable by
the company) is based on the discounted  present value of future cash flows.  At
year-end 2002,  the  outstanding  balance on receivables  sold under the program
totaled $111 million.  In the event the program is terminated,  Kerr-McGee  will
continue  to act as  collection  agent  until  all  its  obligations  under  the
agreement are retired.  Any costs resulting from a termination  would be covered
by the value of the preference stock.

During 2002, the company entered into a sale-leaseback  arrangement with General
Electric  Capital   Corporation   (GECC)  covering  assets   associated  with  a
gas-gathering  system in the Rocky  Mountain  region.  The lease  agreement  was
entered into for the purpose of monetizing the related  assets.  The sales price
of the equipment was $71 million;  however, an $18 million settlement obligation
existed for equipment  previously  covered by the lease agreement,  resulting in
net cash proceeds of $53 million.  The operating  lease agreement has an initial
term of five years, with two 12-month renewal options.  The company may elect to
purchase the equipment at specified amounts after the end of the fourth year. In
the event the company  does not  purchase  the  equipment  and it is returned to
GECC,  the company  guarantees a residual  value ranging from $32 million at the
end of the initial  five-year term to $25 million at the end of the last renewal
option.  The  company  recorded  no  gain  or  loss  associated  with  the  GECC
sale-leaseback  agreement.  Estimated  future  minimum annual rentals under this
agreement and the residual value guarantee are shown in the table of contractual
obligations below.

In conjunction with the company's sale of its Ecuadorean assets,  which included
the  company's  nonoperating  interest in the  Oleoducto de Crudos  Pesados Ltd.
(OCP) pipeline,  the company has entered into a performance  guarantee agreement
with the buyer for the  benefit of OCP.  Under the terms of the  agreement,  the
company guarantees payment of any claims from OCP against the buyer upon default
by the buyer and its parent  company.  Claims would generally be for the buyer's
proportionate  share of  construction  costs of OCP;  however,  other claims may
arise in the normal operations of the pipeline.  Accordingly,  the amount of any
such future  claims  cannot be reasonably  estimated.  In  connection  with this
guarantee,  the buyer's parent company has issued a letter of credit in favor of
the company up to a maximum of $50  million,  upon which the company can draw in
the event it is required to perform under the guarantee  agreement.  The company
will be released from this guarantee  when the buyer obtains a specified  credit
rating as stipulated under the guarantee agreement.

Obligations and Commitments

In the normal course of business,  the company enters into purchase obligations,
contracts,  leases and borrowing arrangements.  The company has no material debt
guarantees  for unrelated  parties.  As part of the  company's  project-oriented
exploration and production business,  Kerr-McGee routinely enters into contracts
for certain aspects of the project, such as engineering,  drilling, subsea work,
etc.  These  contracts are generally not  unconditional  obligations;  thus, the
company  accrues  for the value of work done at any point in time,  a portion of
which is billed to partners.  Kerr-McGee's  commitments  and  obligations  as of
December 31, 2002, are summarized in the following table:



(Millions of dollars)                                                    Payments due by period
---------------------                                 --------------------------------------------------------------

                                                                 Less than                                  More than
Type of Obligation                                     Total        1 year    1-3 years     3-5 years         5 years
------------------                                    ------     ---------    ---------     ---------       ---------
                                                                                                

Long-term debt                                        $3,904          $106       $1,240          $475          $2,083
Operating leases for Nansen,
    Boomvang and Gunnison                                648            11           44            58             535
All other operating leases                               201            28           52            44              77
Leveraged leases                                           1             1            -             -               -
Drilling rig commitments                                  24            15            9             -               -
Purchase obligations                                     957           297          417           166              77
Guarantee of residual values
    of leased equipment                                   70             -            -            32              38
                                                      ------          ----       ------          ----          ------
       Total                                          $5,805          $458       $1,762          $775          $2,810
                                                      ======          ====       ======          ====          ======



In connection  with certain  contracts and  agreements,  the company enters into
indemnifications related to title claims,  environmental matters, litigation and
other claims. Because of the inherent uncertainty surrounding these matters, the
amount of any  future  liability  related  to these  indemnifications  cannot be
reasonably estimated.  If a claim is asserted or if information becomes known to
management  indicating it is probable that a liability has been incurred and the
amount can be reasonably estimated, an accrual is established at that time.

--------------------------------------------------------------------------------

Capital Spending

Capital expenditures are summarized as follows:

(Millions of dollars)                   Est. 2003      2002      2001      2000
---------------------                   ---------     ------    ------    ------


Exploration and production                 $  860     $  988    $1,557      $682
Chemicals                                     130         86       153       118
Other, including discontinued
   operations                                  20         85        82        42
                                           ------     ------    ------      ----
     Total                                 $1,010     $1,159    $1,792      $842
                                           ======     ======    ======      ====

Capital spending, excluding acquisitions, totaled $3.8 billion in the three-year
period ended  December 31, 2002,  and dividends paid totaled $520 million in the
same three-year period, which compares with $4.4 billion of net cash provided by
operating  activities  during  the same  period.  This  reflects  the  company's
philosophy of providing for its capital programs and dividends,  along with debt
reduction, through internally generated funds. During the three-year period, the
company made three major  acquisitions that further expanded its global presence
- the 2001  acquisition  of HS Resources for $955 million cash plus common stock
and assumed debt and the 2000  acquisitions  of Repsol  S.A.'s North Sea oil and
gas  operations and the Kemira U.S. and Dutch pigment plants for a total of $975
million.

Kerr-McGee  has  budgeted  approximately  $1 billion for its capital  program in
2003. Management  anticipates that the 2003 capital program,  dividends and debt
reduction can continue to be provided  through  internally  generated funds. The
available  capacity for borrowings may be used for selective  acquisitions  that
support  the  company's  growth  strategy or to support  the  company's  capital
expenditure program should internally  generated cash flow fall short in any one
measurement period.

Oil and Gas

The  company's  exploration  and  production  capital  spending  continues to be
focused on global  growth and  deepwater  projects.  Of the $860  million  total
budget for 2003,  $385 million is allocated to the Gulf of Mexico,  $170 million
to the North  Sea,  $200  million  to U.S.  onshore  and $105  million  to other
international  projects.  Successful  exploration and appraisal  drilling in the
deepwater  Gulf of Mexico has resulted in the  development of two major projects
during the last two years - Nansen (50% working  interest)  and Boomvang  (30%),
along with North Sea  developments of Leadon (100%),  Tullich (100%) and Maclure
(33%).  The  Gunnison  (50%)  and  Red  Hawk  (50%)  projects   currently  under
development  are also in the deepwater Gulf of Mexico.  Gunnison  capitalizes on
the  success  of truss spar  technology  introduced  at the Nansen and  Boomvang
fields, while Red Hawk is being developed using innovative cell spar technology.
Gunnison is expected to reach  initial  production  during the first  quarter of
2004,  with Red Hawk  following  in  mid-2004.  The  company is also  developing
discoveries in Bohai Bay, China, using a centrally located floating  production,
storage and offloading facility.  These projects plus additional  development at
Nansen and  Boomvang  comprise 29% of the capital  budget for 2003.  The company
also expects to fund its share of drilling 30 to 45 exploratory wells in 2003.

Chemicals

Capital  expenditures  for chemical  operations are budgeted at $130 million for
2003. These  expenditures  will be primarily for chloride  oxidation process and
technology   upgrades   aimed  at  improving   the  capacity,   efficiency   and
cost-effectiveness   of  the  company's   pigment   operations.   The  Hamilton,
Mississippi,  plant  capacity is expected to reach 225,000  tonnes by the end of
2003, up from  approximately  200,000 tonnes at year-end 2002, and the Savannah,
Georgia,  chloride plant is expected to reach annual  capacity of 110,000 tonnes
by year-end 2003, up from 91,000 tonnes.  Chemical has also budgeted $50 million
of additional investment in AVESTOR for 2003.

--------------------------------------------------------------------------------

Market Risks

The company is exposed to a variety of market risks, including credit risks, the
effects of movements in foreign  currency  exchange  rates,  interest  rates and
certain commodity  prices.  The company addresses its risks through a controlled
program of risk  management  that includes the use of insurance  and  derivative
financial  instruments.  See Notes 1 and 18 for  additional  discussions  of the
company's financial instruments, derivatives and hedging activities.

Foreign Currency Exchange Rate Risk

The U.S.  dollar is the  functional  currency  for the  company's  international
operations,  except for its European  chemical  operations for which the euro is
the functional currency. Periodically, the company enters into forward contracts
to buy and sell foreign  currencies.  Certain of these  contracts  (purchases of
Australian  dollars and British pound  sterling)  have been  designated and have
qualified as cash flow hedges of the company's operating and capital expenditure
requirements. These contracts generally have durations of less than three years.
The  resulting  changes  in fair  value  of  these  contracts  are  recorded  in
accumulated other comprehensive income.

The company has entered into other forward contracts to sell foreign currencies,
which will be  collected  as a result of pigment  sales  denominated  in foreign
currencies,  primarily in euros.  These  contracts  have not been  designated as
hedges even though they do protect the company from changes in foreign  currency
rates.  Certain pigment  receivables  have been sold in an asset  securitization
program at their  equivalent U.S. dollar value at the date the receivables  were
sold.  However,  the company  retains the risk of foreign  currency rate changes
between the date of the sale and collection of the receivables.

Following   are  the   notional   amounts  at  the  contract   exchange   rates,
weighted-average  contractual  exchange rates and estimated  contract values for
open contracts at year-end 2002 and 2001 to purchase (sell) foreign  currencies.
Contract values are based on the estimated  forward  exchange rates in effect at
year-end. All amounts are U.S. dollar equivalents.



                                                                                                          Estimated
(Millions of dollars,                                 Notional           Weighted-Average                  Contract
except average contract rates)                         Amount              Contract Rate                    Value
------------------------------                        --------           ----------------                 ---------
                                                                                                      

Open contracts at December 31, 2002 -
     Maturing in 2003 -
         British pound sterling                           $113                     1.5454                      $115
         Australian dollar                                  63                      .5606                        62
         Euro                                              (10)                     .9833                       (10)
         British pound sterling                             (1)                    1.5432                        (1)
         Japanese yen                                       (1)                     .0080                        (1)
         New Zealand dollar                                 (1)                     .4807                        (1)
     Maturing in 2004 -
         Australian dollar                                  38                      .5366                        38

Open contracts at December 31, 2001 -
     Maturing in 2002 -
         British pound sterling                             79                     1.4159                        80
         Australian dollar                                  64                      .5943                        54
         Euro                                               (7)                     .8894                        (7)
         New Zealand dollar                                 (1)                     .4073                        (1)
     Maturing in 2003 -
         Australian dollar                                  44                      .5702                        38



Interest Rate Risk

The  company's  exposure  to changes in  interest  rates  relates  primarily  to
long-term  debt  obligations.  The table below  presents  principal  amounts and
related  weighted-average  interest  rates by  maturity  date for the  company's
long-term debt  obligations  outstanding at year-end 2002. All borrowings are in
U.S. dollars.



                                                                                    There-               Fair Value
(Millions of dollars)        2003       2004       2005       2006       2007        after      Total     12/31/02
---------------------        ----       ----       ----       ----       ----       ------      -----    ----------
                                                                                   

Fixed-rate debt -
   Principal amount          $106       $471       $501       $325       $150       $2,083     $3,636      $4,075
   Weighted-average
      interest rate          8.09%      6.45%      6.21%      5.88%      6.63%        6.67%      6.55%

Variable-rate debt -
   Principal amount             -       $268          -          -          -            -     $  268      $  268
   Weighted-average
      interest rate             -       2.43%         -          -          -            -       2.43%


At December 31, 2001,  long-term debt included fixed-rate debt of $3.300 billion
(fair value - $3.384 billion) with a weighted-average interest rate of 6.69% and
$1.266 billion of variable-rate  debt,  which  approximated  fair value,  with a
weighted-average interest rate of 2.93%.

In connection with the issuance of $350 million 5.375% notes due April 15, 2005,
the company  entered into an interest rate swap  arrangement  in April 2002. The
terms of the agreement  effectively  change the interest the company will pay on
the debt until  maturity  from the fixed  rate to a variable  rate of LIBOR plus
..875%.  The company  considers the swap to be a hedge against the change in fair
value of the debt as a result of interest rate changes. The estimated fair value
of the interest rate swap was $21 million at December 31, 2002.

Commodity Price Risk

The company has periodically used derivative instruments to reduce the effect of
the price volatility of crude oil and natural gas. Effective August 1, 2001, the
company  purchased  100%  of  the  outstanding  shares  of  common  stock  of HS
Resources.  At the time of the  purchase,  HS Resources  (now  Kerr-McGee  Rocky
Mountain Corp.) and its marketing  subsidiary  (now  Kerr-McGee  Energy Services
Corp.) had a number of  derivative  contracts  for  purchases  and sales of gas,
basis differences and energy-related  contracts.  Prior to 2002, the company had
treated all of these  derivatives  as  speculative  and marked to market through
income each month the change in  derivative  fair values.  In 2002,  the company
designated  the  remaining  portion  of the HS  Resources  gas basis  swaps that
settled in 2002 and all that  settle in 2003 as hedges.  Additionally,  in March
2002,  the  company  began  hedging a portion  of its 2002 oil and  natural  gas
production  to  increase  the  predictability  of its  cash  flows  and  support
additional  capital  expenditures.  The hedges  were in the form of  fixed-price
swaps and covered  30,000  barrels of U.S. oil  production per day at an average
price of $24.09 per barrel,  60,000  barrels of North Sea oil production per day
at an average price of $23.17 per barrel and 250,000  MMBtu of U.S.  natural gas
production per day at an average price of $3.10 per MMBtu.  In October 2002, the
company  expanded the hedging  program to cover a portion of the estimated  2003
crude oil and natural gas  production  by adding  fixed-price  swaps,  new basis
swaps  and   costless   collars.   At  December  31,   2002,   the   outstanding
commodity-related  derivatives  accounted for as hedges had a net liability fair
value of $83  million,  of which $27 million is recorded as a current  asset and
$110  million  is  recorded  as a  current  liability.  The fair  value of these
derivative  instruments  at December 31, 2002,  was  determined  based on prices
actively  quoted,  generally  NYMEX and Dated  Brent  prices.  The  company  had
after-tax  deferred  losses of $50 million in  accumulated  other  comprehensive
income  associated with these  contracts.  The company expects to reclassify the
entire amount of these losses into earnings during the next 12 months,  assuming
no further  changes in fair market  value of the  contracts.  During  2002,  the
company realized a $28 million loss on domestic oil hedging,  a $50 million loss
on North Sea oil hedging and a $2 million loss on domestic  natural gas hedging.
The losses  offset the oil and natural gas prices  realized on the physical sale
of crude oil and natural gas. Losses for hedge ineffectiveness are recognized as
a reduction to Sales in the Consolidated  Statement of Operations and totaled $2
million in 2002.

At December 31, 2002, the following commodity-related  derivative contracts were
outstanding:


                                                          Daily         Average
Contract Type (1)                           Period        Volume         Price
-----------------                           ------        ------        -------

Natural Gas                                               MMBtu         $/MMBtu
-----------                                               ------        -------

    Fixed-price swaps (NYMEX)                   2003      310,000          $4.00

    Costless collars (NYMEX)                    2003       65,000    $3.50-$5.26

    Basis swaps (CIG)                      Q1 - 2003      134,580          $0.53
                                       Q2,3,4 - 2003       64,580          $0.36

Crude Oil                                                    Bbl          $/Bbl
---------                                                    ---          -----

    Fixed-price swaps (WTI)                Q1 - 2003       57,000         $27.40
                                           Q2 - 2003       35,000         $26.02
                                           Q3 - 2003       34,500         $25.99
                                           Q4 - 2003        3,500         $26.03

    Fixed-price swaps (Brent)              Q1 - 2003       55,000         $25.71
                                           Q2 - 2003       44,500         $25.01
                                           Q3 - 2003       44,500         $24.99
                                           Q4 - 2003        6,500         $25.04

(1)  These  contracts  may be  subject  to margin  calls  above  certain  limits
     established with individual counterparty institutions.


In January 2003, the following  derivative  contacts were added to the company's
2003 hedging program and,  combined with the hedges  outstanding at December 31,
2002,  cover  approximately  54% of the expected 2003 U.S. crude oil production,
65% of the  North  Sea  crude oil  production  and 54% of the U.S.  natural  gas
production.

                                                        Daily            Average
Contract Type (1)                      Period           Volume            Price
-----------------                      ------           ------            -----

Crude Oil                                                 Bbl             $/Bbl
---------                                                 ---             -----

    Fixed-price swaps (WTI)           Q4 - 2003          31,500           $26.01

    Fixed-price swaps (Brent)         Q4 - 2003          38,500           $25.04


(1)  These  contracts  may be  subject  to margin  calls  above  certain  limits
     established with individual counterparty institutions.


The HS Resources  gas basis swaps that settle  between 2004 and 2008 continue to
be  treated  by the  company as  speculative  and are  marked to market  through
income.  These  derivatives  are  recorded at their fair value of $21 million in
Investments - Other assets.  The net gain associated with these  derivatives was
$8 million in 2002 and is included in Other Income in the Consolidated Statement
of  Operations.  In 2001,  all of the HS  Resources  derivative  contracts  were
treated by the company as  speculative  and marked to market through income each
month.  At December 31, 2001, the fair value of these  contracts was $6 million.
The net gain  associated  with these  derivatives was $27 million in 2001 and is
included in Other Income in the Consolidated Statement of Operations.

The marketing  subsidiary,  Kerr-McGee  Energy Services (KMES) markets purchased
gas  (primarily  equity  gas) in the Denver  area.  Existing  contracts  for the
physical  delivery of gas at fixed or index-plus  prices are marked to market in
accordance  with FAS 133.  KMES has  entered  into  natural  gas basis and price
derivative  contracts that offset its  fixed-price  risk on physical  contracts.
These  derivative  contracts  lock in the margins  associated  with the physical
sale.  The company  believes  that risk  associated  with these  derivatives  is
minimal due to the  credit-worthiness of the counterparties.  The net asset fair
value of the  physical and  offsetting  derivative  contracts  was $8 million at
year-end 2002. Of this amount,  $31 million was recorded in current  assets,  $1
million in Investments - Other assets, $23 million in current liabilities and $1
million  in  deferred  credits.  The fair  value of the  outstanding  derivative
instruments at December 31, 2002, was based on prices actively quoted, generally
NYMEX futures prices. During 2002, the net loss associated with these derivative
contracts was $20 million and is included in Sales in the Consolidated Statement
of   Operations.   At   year-end   2001,   the  net  asset  fair  value  of  the
commodity-related  derivatives and physical contracts was $21 million.  The 2001
net loss  associated  with these  derivative  contracts  was $24  million and is
included in Sales in the Consolidated Statement of Operations. The losses on the
derivative contracts are generally offset by the prices realized on the physical
sale of the natural gas.
--------------------------------------------------------------------------------

Critical Accounting Policies

Preparation of financial  statements in conformity  with  accounting  principles
generally  accepted in the United States requires  management to make estimates,
judgments and assumptions  regarding  matters that are inherently  uncertain and
which ultimately  affect the reported amounts of assets,  liabilities,  revenues
and expenses, and the disclosure of contingent assets and liabilities.  However,
the  accounting  principles  used by the  company  generally  do not  impact the
company's reported cash flows or liquidity.  Generally,  accounting rules do not
involve  a  selection  among  alternatives,  but  involve  a  selection  of  the
appropriate  policies for applying the basic  principles.  Interpretation of the
existing  rules must be done and judgments  made on how the specifics of a given
rule apply to the company.

The more  significant  reporting  areas impacted by  management's  judgments and
estimates are crude oil and natural gas reserve  estimation,  site dismantlement
and  asset   retirement   obligations,   impairment  of  assets,   environmental
remediation,  derivative  instruments,  litigation,  tax  accruals,  and benefit
plans.  Management's  judgments  and  estimates  in  these  areas  are  based on
information  available  from  both  internal  and  external  sources,  including
engineers,  legal  counsel,  actuaries,  environmental  studies  and  historical
experience in similar matters. Actual results could differ materially from those
estimates as additional information becomes known.

Oil and Gas Reserves

The estimates of oil and gas reserves are prepared by the  company's  geologists
and  engineers.  Only proved oil and gas reserves are included in any  financial
statement  disclosure.  The U.S.  Securities and Exchange Commission has defined
proved  reserves  as the  estimated  quantities  of crude oil,  natural  gas and
natural gas liquids which  geological  and  engineering  data  demonstrate  with
reasonable  certainty to be  recoverable  in future years from known  reservoirs
under  existing  economic and  operating  conditions.  Even though the company's
geologists and engineers are knowledgeable and follow  authoritative  guidelines
for estimating reserves, they must make a number of subjective assumptions based
on professional judgments in developing the reserve estimates. Reserve estimates
are updated at least annually and consider  recent  production  levels and other
technical information about each field.  Revisions in the estimated reserves may
be necessary due to a number of factors,  including reservoir  performance,  new
drilling,  sales price and cost changes,  technological advances, new geological
or geophysical data, or other economic  factors.  The company cannot predict the
amounts or timing of future reserve revisions.

Depreciation  rates are calculated using both reserve quantity estimates and the
capitalized  costs  of  producing  properties.  As the  estimated  reserves  are
adjusted,  the  depreciation  expense for a property  will  change,  assuming no
change in production  volumes or the costs  capitalized.  Estimated reserves may
also be used as the basis for  calculating the expected future cash flows from a
property, which are further used to analyze a property for potential impairment.
In addition, reserves are used to estimate the company's supplemental disclosure
of the standardized  measure of discounted future net cash flows relating to its
oil and gas producing  activities.  Changes in estimated reserves are considered
changes in estimates for accounting  purposes and are reflected on a prospective
basis.

Site Dismantlement and Asset Retirement Obligations

The company has significant obligations for the dismantlement and removal of its
oil and gas production and related facilities. Such costs have historically been
accumulated   over  the  estimated   life  of  the  facilities  by  use  of  the
unit-of-production method.  Accordingly,  the rate of accumulation of such costs
has been affected by changes in the underlying reserve  estimates.  In addition,
estimating  future asset removal  costs is difficult and requires  management to
make  estimates and judgments  since most of the removal  activities  will occur
several years in the future. Asset removal technologies and costs are constantly
changing,  as  are  political,   environmental,   safety  and  public  relations
considerations that may ultimately impact the amount of the obligation.  In June
2001, the FASB issued FAS 143,  "Accounting for Asset  Retirement  Obligations."
FAS 143 requires asset retirement costs to be capitalized as part of the cost of
the related  tangible  long-lived  asset and  subsequently  allocated to expense
using a systematic  and rational  method over the useful life of the asset.  The
timing  of  implementation  and the  expected  impact of this new  standard  are
discussed below in the New Accounting Standards section.

Successful Efforts Method of Accounting

The company has elected to use the  successful  efforts method of accounting for
its oil and gas exploration and development  activities.  Exploration  expenses,
including geological and geophysical costs,  rentals, and exploratory dry holes,
are charged  against income as incurred.  Costs of successful  wells and related
production  equipment and  developmental dry holes are capitalized and amortized
by field using the  unit-of-production  method as oil and gas is  produced.  The
successful efforts method reflects the inherent  volatility in exploring for and
producing oil and gas. The accounting method may yield  significantly  different
operating results than the full-cost method.

Impairment of Assets

All long-lived assets are monitored for potential  impairment when circumstances
indicate that the carrying value of the asset may be greater than its future net
cash flows. The evaluations  involve a significant  amount of judgment since the
results are based on estimated future events,  such as inflation  rates;  future
sales prices for oil, gas or chemicals;  future costs to produce these products;
estimates of future oil and gas reserves to be recovered and the timing thereof;
the economic and  regulatory  climates;  and other  factors.  The need to test a
property for  impairment may result from  significant  declines in sales prices,
unfavorable  adjustments to oil and gas reserves,  increases in operating costs,
and changes in  environmental or abandonment  regulations.  Assets held for sale
are  reviewed  for  impairment  when the company  approves  the plan to sell and
thereafter  while the asset is held for sale.  Estimates  of  anticipated  sales
prices are highly judgmental and subject to material revision in future periods.
Because of the uncertainty inherent in these factors, the company cannot predict
when or if future impairment charges will be recorded.

Derivative Instruments

The  company is exposed to risk from  fluctuations  in crude oil and natural gas
prices,  foreign  currency  exchange  rates,  and interest  rates. To reduce the
impact of these risks on earnings and to increase the predictability of its cash
flow,  from time to time the company enters into certain  derivative  contracts,
primarily swaps and collars for a portion of its oil and gas production, forward
contracts  to buy and sell foreign  currencies,  and  interest  rate swaps.  The
company  accounts  for all its  derivative  instruments,  including  hedges,  in
accordance  with FAS 133,  "Accounting  for Derivative  Instruments  and Hedging
Activities."  The  commodity,  foreign  currency and interest rate contracts are
measured at fair value and recorded as assets or liabilities in the Consolidated
Balance Sheet. When available, quoted market prices are used in determining fair
value; however, if quoted market prices are not available, the company estimates
fair value using  either  quoted  market  prices of financial  instruments  with
similar  characteristics  or other valuation  techniques.  The counterparties to
these contractual arrangements are limited to creditworthy major institutions.

Environmental Remediation, Litigation and Other Contingency Reserves

Kerr-McGee   management   makes  judgments  and  estimates  in  accordance  with
applicable  accounting  rules when it  establishes  reserves  for  environmental
remediation,  litigation  and  other  contingent  matters.  Provisions  for such
matters are charged to expense  when it is  probable  that a liability  has been
incurred  and  reasonable  estimates  of the  liability  can be made.  It is not
possible for management to reliably estimate the amount and timing of all future
expenditures related to environmental, legal or other contingent matters because
of continually changing laws and regulations,  inherent uncertainties associated
with  court and  regulatory  proceedings  as well as  cleanup  requirements  and
related work, the possible existence of other potentially  responsible  parties,
and the changing political and economic environment.  For these reasons,  actual
environmental,  litigation and other  contingency  costs can vary  significantly
from the company's  estimates.  For additional  information about contingencies,
refer to Note 16.

Tax Accruals

The company has operations in several  countries around the world and is subject
to income and other  similar  taxes in these  countries.  The  estimation of the
amounts of income tax to be recorded by the company involves  interpretation  of
complex  tax  laws  and  regulations,  evaluation  of tax  audit  findings,  and
assessment  of how  the  foreign  taxes  affect  domestic  taxes.  Although  the
company's  management  believes its tax accruals are adequate,  differences  may
occur in the future depending on the resolution of pending and new tax matters.

Benefit Plans

The company provides defined benefit  retirement plans and certain  nonqualified
benefits  for  employees  in the U.S.,  U.K.,  Germany and the  Netherlands  and
accounts for these plans in accordance with FAS 87,  "Employers'  Accounting for
Pensions."  The various  assumptions  used and the  attribution  of the costs to
periods of employee  service are  fundamental to the measurement of net periodic
cost and pension obligations associated with the retirement plans.

One of the  significant  assumptions  used to account for the company's  pension
plans is the expected long-term rate of return on plan assets. In developing the
assumed  long-term  rate of return on plan assets for  determining  net periodic
pension cost, the company considers  long-term  historical  returns  (arithmetic
average)  of the  plan's  investments,  the  asset  allocation  among  types  of
investments,  estimated  long-term  returns  by  investment  type from  external
sources,  and the current  economic  environment.  Based on this information the
company  selected  9% for 2002 and 8.5% for 2003 for U.S.  pension  plans.  This
decrease in the company's  expected long-term rate of return as of the beginning
of 2003 is expected to increase 2003 net periodic pension cost by $7 million but
not affect expected contributions to fund the pension plans.

Another significant assumption for pension plan accounting is the discount rate.
The company  selects a discount rate as of December 31 each year for U.S.  plans
to reflect average rates available on high-quality fixed income debt instruments
during  December of that year. The average  Moody's  Long-Term AA Corporate Bond
Yield for December is used as a guide in the  selection of the discount rate for
U.S.  pension  plans.  For  December  2001,  the average  Moody's  Long-term  AA
Corporate Bond Yield was 7.19%, and the company chose 7.25% as its discount rate
at the end of  2001.  For  December  2002,  the  average  Moody's  Long-term  AA
Corporate Bond Yield was 6.63%, and the company chose 6.75% as its discount rate
at the end of 2002.  This decrease in the discount rate  effective  December 31,
2002, is expected to increase  2003 net periodic  pension cost by $3 million but
not affect expected contributions to fund the pension plans.

The rate of compensation increase is another significant  assumption used in the
development of accounting  information for pension plans. The company determines
this  assumption  based on its long-term  plans for  compensation  increases and
current economic conditions.  Based on this information, the company selected 5%
at December 31, 2001,  and 4.5% at December 31, 2002, for U.S.  pensions  plans.
This decrease in assumed rate of  compensation  is expected to decrease 2003 net
periodic  pension cost by $4 million but not affect  expected  contributions  to
fund pension plans.

The net effect the U.S.  pension plans had on results of operations for 2002 was
$41  million  of income due to the  expected  return on assets  exceeding  other
pension  charges.  The total expected return on assets of the U.S. pension plans
for 2002 was $125 million,  compared with an actual loss of $83 million.  During
2002, the company's contributions to the retirement plans totaled $6 million for
certain U.S. nonqualified plans and foreign plans.

When  calculating  expected  return on plan assets for U.S.  pension plans,  the
company  uses a  market-related  value of assets  that  spreads  asset gains and
losses (differences  between actual return and expected return) over five years.
As of January 1, 2003, the amount of unrecognized  losses on U.S. pension assets
was $317  million.  As these losses are  recognized  during  future years in the
market-related  value of assets, they will result in cumulative increases in net
periodic pension cost of $27 million in 2004 through 2008.

A 25 basis point  increase/decrease  in the company's expected long-term rate of
return  assumption  as of the  beginning  of 2003  would  decrease/increase  net
periodic pension cost for U.S. pension plans for 2003 by $3 million.  The change
would not affect  expected  contributions  to fund the  company's  U.S.  pension
plans.

The company also provides certain  postretirement health care and life insurance
benefits  and  accounts  for the  related  plans  in  accordance  with  FAS 106,
"Employers'  Accounting for  Postretirement  Benefits Other Than  Pensions." The
postretirement  benefit cost and  obligation are also dependent on the company's
assumptions  used  in the  actuarially  determined  amounts.  These  assumptions
include  discount  rates  (discussed  above),  health  care cost  trends  rates,
inflation rates, retirement rates, mortality rates and other factors. The health
care cost trend  assumptions  are developed  based on historical  cost data, the
near-term  outlook  and  an  assessment  of  likely  long-term  trends.  Assumed
inflation  rates are  based on an  evaluation  of  external  market  indicators.
Retirement and mortality rates are based primarily on actual plan experience.

The above  description  of the  company's  critical  accounting  policies is not
intended to be an all-inclusive  discussion of the uncertainties  considered and
estimates  made by management in applying  accounting  principles  and policies.
Results may vary  significantly if different  policies were used or required and
if new or different information becomes known to management.

--------------------------------------------------------------------------------

Environmental Matters

The  company's  affiliates  are  subject  to  various   environmental  laws  and
regulations in the United States and in foreign countries in which they operate.
Under these laws,  the company's  affiliates are or may be required to remove or
mitigate  the  effects  on the  environment  due to the  disposal  or release of
certain  chemical,  petroleum,  low-level  radioactive  and other  substances at
various sites.  Environmental  laws and  regulations  are becoming  increasingly
stringent,  and  compliance  costs  are  significant  and  will  continue  to be
significant in the foreseeable future.  There can be no assurance that such laws
and  regulations or any  environmental  law or regulation  enacted in the future
will not  have a  material  effect  on the  company's  operations  or  financial
condition.

Sites at which the  company's  affiliates  have  environmental  responsibilities
include  sites  that  have  been  designated  as  Superfund  sites  by the  U.S.
Environmental   Protection   Agency   (EPA)   pursuant   to  the   Comprehensive
Environmental  Response,  Compensation,  and Liability Act of 1980 (CERCLA),  as
amended,  and that are  included on the  National  Priority  List  (NPL).  As of
December 31, 2002, the company's  affiliates had received  notices that they had
been named potentially responsible parties (PRP) with respect to 13 existing EPA
Superfund  sites on the NPL  that  require  remediation.  The  company  does not
consider the number of sites for which its  affiliates  have been named a PRP to
be the determining  factor when considering the company's overall  environmental
liability. Decommissioning and remediation obligations, and the attendant costs,
vary substantially  from site to site and depend on unique site  characteristics
and the  regulatory  requirements  applicable  to each site.  Additionally,  the
company's affiliates may share liability at some sites with numerous other PRPs,
and the law  currently  imposes  joint and several  liability  on all PRPs under
CERCLA. The company's affiliates are also obligated to perform or have performed
remediation or remedial  investigations  and  feasibility  studies at sites that
have not been  designated  as Superfund  sites by EPA.  Such work is  frequently
undertaken pursuant to consent orders or other agreements.

Current Businesses

The  company's  oil and gas  affiliates  are subject to numerous  international,
federal,  state  and  local  laws  and  regulations  relating  to  environmental
protection.  In the United  States,  these include the Federal  Water  Pollution
Control Act, commonly known as the Clean Water Act, the Clean Air Act, the Water
Pollution Act and the Resource  Conservation and Recovery Act (RCRA). These laws
and regulations govern,  among other things, the amounts and types of substances
and materials that may be released into the environment; the issuance of permits
in connection with exploration,  drilling and production activities; the release
of emissions  into the  atmosphere;  and the discharge and  disposition of waste
materials.  Environmental  laws and regulations also govern offshore oil and gas
operations,  the  implementation  of spill prevention plans, the reclamation and
abandonment of wells and facility  sites,  and the remediation and monitoring of
contaminated  sites.  The company's  chemical  affiliates are subject to a broad
array of international,  federal,  state and local laws and regulations relating
to environmental  protection,  including the Clean Water Act, the Clean Air Act,
CERCLA and RCRA.  These laws  require  the  company's  affiliates  to  undertake
various  activities  to  reduce  air  emissions,  eliminate  the  generation  of
hazardous waste,  decrease the volume of wastewater  discharges and increase the
efficiency of energy use.

Discontinued Businesses

The company's affiliates  historically have held interests in various businesses
in  which  they are no  longer  engaged  or  which  they  intend  to exit.  Such
businesses  include the  refining and  marketing  of oil and gas and  associated
petroleum  products,  the mining and  processing  of uranium  and  thorium,  the
production of ammonium  perchlorate,  and other  activities.  Additionally,  the
company  announced  in 2002 that its  chemical  affiliate  would be exiting  the
forest products business by the end of 2004.  Although the company's  affiliates
are no longer engaged in certain businesses or have announced their intention to
exit  certain  businesses,  residual  obligations  may  still  exist,  including
obligations  related to  compliance  with  environmental  laws and  regulations,
including  the Clean Water Act, the Clean Air Act,  CERCLA and RCRA.  These laws
and regulations  require company  affiliates to undertake  remedial  measures at
sites of current or former operations or at sites where waste was disposed.  For
example,   company  affiliates  are  required  to  conduct  decommissioning  and
environmental  remediation at certain  refineries,  distribution  facilities and
service  stations  they owned and/or  operated  before  exiting the refining and
marketing  business in 1995.  Company  affiliates  also are  required to conduct
decommissioning and remediation  activities at sites where they were involved in
the  exploration,  production,  processing  and/or  sale of uranium or  thorium.
Additionally,  the company's chemical affiliate will be required to decommission
and  remediate  its  wood-treatment  facilities  as part of its plan to exit the
forest products business.

Environmental Costs

Expenditures for environmental protection and cleanup for each of the last three
years and for the three-year period ended December 31, 2002, are as follows:

(Millions of dollars)                     2002        2001       2000      Total
---------------------                     ----        ----       ----      -----
Charges to environmental reserves         $128        $142       $116       $386
Recurring expenses                          37          57         23        117
Capital expenditures                        22          21         28         71
                                          ----        ----       ----       ----
   Total                                  $187        $220       $167       $574
                                          ====        ====       ====       ====

In  addition  to past  expenditures,  reserves  have  been  established  for the
remediation  and  restoration  of active and inactive sites where it is probable
that future costs will be incurred and the  liability is  reasonably  estimable.
For environmental sites, the company considers a variety of matters when setting
reserves, including the stage of investigation,  whether EPA or another relevant
agency has ordered action or quantified  cost,  whether the company has received
an order to conduct  work,  whether  the  company  participates  as a PRP in the
Remedial Investigation/Feasibility Study (RI/FS) process and, if so, how far the
RI/FS has progressed,  the status of the record of decision,  the status of site
characterization,  the stage of the  remedial  design,  evaluation  of  existing
remediation technologies,  and whether the company reasonably can evaluate costs
based upon a remedial design and/or engineering plan.

After the  remediation  work has begun,  additional  accruals or  adjustments to
costs may be made based on any number of  developments,  including  revisions to
the remedial design;  unanticipated  construction  problems;  identification  of
additional areas or volumes of  contamination;  inability to implement a planned
engineering  design  or to use  planned  technologies  and  excavation  methods;
changes  in costs of labor,  equipment  and/or  technology;  any  additional  or
updated engineering and other studies; and weather conditions.

As of December 31, 2002,  the  company's  financial  reserves for all active and
inactive  sites totaled $258  million.  This includes $202 million added in 2002
for active and inactive sites. In the Consolidated  Balance Sheet,  $158 million
of the total reserve is classified as a deferred credit,  and the remaining $100
million is included in current  liabilities.  Management believes that currently
the company has reserved adequately for the reasonably  estimable costs of known
environmental contingencies. However, additional reserves may be required in the
future due to the previously  noted  uncertainties.  Additionally,  there may be
other sites where the company has potential liability for  environmental-related
matters  but for which  the  company  does not have  sufficient  information  to
determine  that the  liability  is probable  and/or  reasonably  estimable.  The
company has not established reserves for such sites.

The following table reflects the company's  portion of the known estimated costs
of investigation  and/or remediation that are probable and estimable.  The table
summarizes EPA Superfund NPL sites where the company and/or its affiliates  have
been notified it is a PRP under CERCLA and other sites for which the company had
some ongoing  financial  involvement  in  investigation  and/or  remediation  at
year-end  2002. In the table,  aggregated  information  is presented for certain
sites that are  individually  not significant or for which there is insufficient
information to estimate  liability.  Amounts  reported in the table for the West
Chicago sites are not reduced for actual or expected reimbursement from the U.S.
government  under Title X of the Energy Policy Act of 1992 (Title X),  described
below.



                                                                                                             Remaining
                                                                                                              Reserve
                                                                                                Total        Balance at
                                                                                             Expenditures     December
                                                                                             Through 2002     31, 2002         Total
                                                                                             ------------    ----------        -----
Location of Site                         Stage of Investigation/Remediation                           (Millions of dollars)
----------------                         ----------------------------------                  ---------------------------------------
                                                                                                                  

EPA Superfund sites on National
Priority List (NPL)
    West Chicago, Ill.
       Kress Creek and                   Conceptual  agreement  for  cleanup  of  thorium
       Sewage Treatment Plant            tailings at these two contiguous  sites is being
                                         reviewed  by  relevant  agencies.   Approval  is
                                         expected in 2003.                                        $  10             $87         $ 97

       Residential areas and             Thorium tailings remediation is substantially
       Reed-Keppler Park                 complete at both sites.                                     100              -          100

    Milwaukee, Wis.                      Completed soil cleanup at former  wood-treatment
                                         facility and began cleanup of offsite  tributary
                                         creek.  Groundwater remediation is continuing.               29             13           42

    Other sites                          Sites  where the  company  has been named a PRP,
                                         including  landfills,   wood-treating  sites,  a
                                         mine site and an oil recycling  refinery.  These
                                         sites     are    in     various     stages    of
                                         investigation/remediation.                                   32             12           44
                                                                                                  ------           ----       ------
                                                                                                     171            112          283
                                                                                                  ------           ----       ------
Sites under consent order, license or
agreement, not on EPA Superfund NPL
    West Chicago, Ill.
       Former manufacturing              Decommissioning  and  cleanup of former  thorium
       facility                          mill is nearing  completion under supervision of
                                         State  of   Illinois.   Groundwater   monitoring
                                         and/or remediation will continue.                           402             16          418

    Cushing, Okla.                       Soil  remediation at site of former oil refinery
                                         is  continuing.  Bulk  of  thorium  and  uranium
                                         residuals was removed in 2002.                              105             23          128

    Henderson, Nev.                      Groundwater  treatment  to  address  perchlorate
                                         contamination  is being  conducted under consent
                                         decree with Nevada  Department of  Environmental
                                         Protection.                                                  80             17           97

    Other sites                          Includes   sites   related   to   wood-treating,
                                         chemical production,  landfills, mining, oil and
                                         gas   production,    and   petroleum   refining,
                                         distribution  and marketing.  These sites are in
                                         various  stages of  investigation/  remediation.
                                         No  individual  site  has  a  remaining  reserve
                                         balance exceeding $10 million.                              265             90          355
                                                                                                  ------           ----       ------
                                                                                                     852            146          998
                                                                                                  ------           ----       ------
                                              Total                                               $1,023           $258       $1,281
                                                                                                  ======           ====       ======



The  company   has  not   recorded  in  the   financial   statements   potential
reimbursements  from  governmental  agencies or other third parties,  except for
amounts due from the U.S.  government  under Title X. If  recoveries  from third
parties other than the U.S. government under Title X become probable,  they will
be disclosed but will not generally be recognized until received.

Sites specifically identified in the table above are discussed below.

West Chicago, Illinois

In 1973, the company's chemical  affiliate  (Chemical) closed a facility in West
Chicago,  Illinois,  that processed thorium ores for the federal  government and
for certain commercial purposes. Historical operations had resulted in low-level
radioactive contamination at the facility and in surrounding areas. The original
processing  facility is regulated by the State of Illinois (the State), and four
vicinity areas are designated as Superfund sites on the NPL.

Closed Facility - In 1994, Chemical, the City of West Chicago (the City) and the
State reached agreement on the initial phase of the decommissioning plan for the
closed West Chicago facility, and Chemical began shipping material from the site
to a licensed permanent disposal facility.  In February 1997,  Chemical executed
an agreement  with the City covering the terms and conditions for completing the
final phase of decommissioning work. The agreement requires Chemical to excavate
contaminated soil and ship it to a licensed disposal  facility,  monitor and, if
necessary,  remediate groundwater, and restore the property. The State indicated
approval of the agreement and issued license  amendments  authorizing  the work.
Chemical  expects most of the work to be  completed by the end of 2003,  leaving
principally  surface  restoration and groundwater  monitoring and/or remediation
for subsequent years.  Surface  restoration is expected to be completed in 2004.
The  long-term  scope,  duration  and  cost  of  groundwater  monitoring  and/or
remediation  are  uncertain  because it is not possible to reliably  predict how
groundwater conditions will be affected by the ongoing work.

Vicinity  Areas - EPA has listed  four areas in the  vicinity of the closed West
Chicago  facility on the NPL and has designated  Chemical as a PRP in these four
areas. EPA issued unilateral  administrative  orders for two of the areas (known
as the Residential  Areas and  Reed-Keppler  Park),  which required  Chemical to
conduct  removal  actions to excavate  contaminated  soil and ship the soil to a
licensed  disposal  facility.  Chemical  has  substantially  completed  the work
required by the two orders.

The other two NPL sites,  known as Kress Creek and the Sewage  Treatment  Plant,
are contiguous and involve low levels of insoluble thorium residues  principally
in  streambanks  and  streambed  sediments,  virtually  all  within a  floodway.
Chemical  has  conducted  a thorough  characterization  of the two sites and has
reached conceptual  agreement with local  governmental  authorities on a cleanup
plan,  which is currently  being  reviewed by EPA. The cleanup plan will require
excavation of  contaminated  soils and stream  sediments,  shipment of excavated
materials to a licensed  disposal  facility,  and restoration of affected areas.
The agreement is conditioned upon the resolution of certain  matters,  including
agreements  regarding potential natural resource damages and government response
costs,  and is expected to be incorporated in a consent decree that will address
the outstanding  issues.  The consent decree must be approved by EPA, the State,
local  communities  and  Chemical  and then  entered by a federal  court.  It is
expected that the necessary  parties will approve the terms of a consent  decree
in 2003 and the work, once it begins, will take about four years to complete.

Financial Reserves - As of December 31, 2002, the company had remaining reserves
of $103 million for costs  related to West  Chicago.  This  includes $99 million
added to the reserves in 2002, of which $84 million reflects the estimated costs
to implement the conceptual agreement with respect to the Kress Creek and Sewage
Treatment Plant sites,  and the remainder  principally  reflects  changes in the
scope of excavation and construction  and increased  estimates of the volumes of
soil  contamination  at the other West Chicago sites.  Although actual costs may
exceed  current  estimates,  the amount of any  increases  cannot be  reasonably
estimated  at this  time.  The  amount of the  reserve  has not been  reduced by
reimbursements  expected  from the federal  government  under Title X (discussed
below).

Government  Reimbursement  - Pursuant to Title X, the U.S.  Department of Energy
(DOE) is obligated to reimburse Chemical for certain decommissioning and cleanup
costs  incurred in connection  with the West Chicago sites in recognition of the
fact  that  about  55%  of the  facility's  production  was  dedicated  to  U.S.
government  contracts.  The amount authorized for reimbursement under Title X is
$365 million plus  inflation  adjustments.  That amount is expected to cover the
government's  full share of West Chicago  cleanup  costs.  Through  December 31,
2002, Chemical had been reimbursed approximately $156 million under Title X.

Reimbursements  under  Title X are  provided  by  congressional  appropriations.
Historically,   congressional  appropriations  have  lagged  Chemical's  cleanup
expenditures.  As of December 31, 2002, the government's share of costs incurred
by  Chemical  but  not yet  reimbursed  by the DOE  totaled  approximately  $113
million.  The company believes receipt of this arrearage in due course following
additional  congressional  appropriations  is  probable  and has  reflected  the
arrearage  as a  receivable  in  the  financial  statements.  The  company  will
recognize  recovery of the government's share of future remediation costs at the
West Chicago sites as Chemical incurs the costs.

Henderson, Nevada

In 1998,  Chemical decided to exit the ammonium  perchlorate  business.  At that
time,  Chemical  curtailed  operations and began preparation for the shutdown of
associated  production  facilities in Henderson,  Nevada, that produced ammonium
perchlorate  and other related  products.  Manufacture of perchlorate  compounds
began  at  Henderson  in  1945  in  facilities  owned  by the  U.S.  government.
Production  expanded  significantly  in 1953  with  completion  of a  plant  for
manufacture of ammonium perchlorate. The U.S. Navy paid for construction of this
plant  and took  title to it in 1953.  The Navy  continued  to own the  ammonium
perchlorate plant as well as other associated  production equipment at Henderson
until 1962,  when the plant was  purchased by a  predecessor  of  Chemical.  The
ammonium  perchlorate  produced at the Henderson  facility was used primarily in
federal government defense and space programs.  Perchlorate has been detected in
nearby Lake Mead and the Colorado River.

In 1998,  Chemical  decided to exit the business and began  decommissioning  the
facility and remediating associated perchlorate,  including surface impoundments
and groundwater. In 1999 and 2001, Chemical entered into consent orders with the
Nevada Department of Environmental Protection that require Chemical to implement
both interim and long-term  remedial measures to capture and remove  perchlorate
from groundwater.

In 1999, Chemical initiated the interim measures required by the consent orders.
Chemical  subsequently  developed and installed a long-term  remediation  system
based on new  technology,  but startup  difficulties  have prevented  successful
commissioning of the long-term system. Chemical currently is evaluating possible
solutions  to  resolve  the  startup  difficulties  and is  also  evaluating  an
alternative technology in the event the startup difficulties cannot be resolved.
The  evaluation  process  should be  completed  in the first  half of 2003.  The
interim  system has been  enhanced  pending the  successful  commissioning  of a
long-term  system.  The scope and duration of  groundwater  remediation  will be
driven in the long term by drinking water standards, which to date have not been
formally established by state or federal regulatory  authorities.  EPA and other
federal and state agencies currently are evaluating the health and environmental
risks associated with perchlorate as part of the process for ultimately  setting
a drinking  water  standard.  The  resolution  of these issues could  materially
affect the scope,  duration and cost of the  long-term  groundwater  remediation
that Chemical is required to perform.

Financial  Reserves - As of December 31, 2002, the company's  remaining reserves
for  Henderson  totaled $17 million.  This  includes  $22 million  added in 2002
principally  as a result  of  technological  difficulties  encountered  with the
long-term  remediation  system and the resulting need to enhance and prolong the
interim treatment  measures.  The reserves do not include any cost that might be
incurred to install an alternate technology as possible solutions to address the
startup difficulties still are being evaluated,  and evaluation of the alternate
technology is not complete.  As noted above, the long-term  scope,  duration and
cost of groundwater  remediation are uncertain and, therefore,  additional costs
may be incurred in the future.  However,  the amount of any additions  cannot be
reasonably estimated at this time.

Government  Litigation  - In 2000,  Chemical  initiated  litigation  against the
United States seeking  contribution for response costs. The government owned the
plant in the  early  years of its  operation  and was the  largest  consumer  of
products  produced  at the  plant.  The  litigation  is in the  early  stages of
discovery.  Although  the  outcome  of the  litigation  is  uncertain,  Chemical
believes it is likely to recover a portion of its costs from the government. The
amount  and  timing  of any  recovery  cannot  be  estimated  at this  time and,
accordingly, the company has not recorded a receivable or otherwise reflected in
the financial statements any potential recovery from the government.

Insurance - In 2001,  Chemical  purchased a 10-year $100 million,  environmental
cost  cap  insurance  policy  for  groundwater  remediation  at  Henderson.  The
insurance policy provides  coverage only after Chemical  exhausts a self-insured
retention of  approximately  $61 million and covers only those costs incurred to
achieve a cleanup  level  specified in the policy.  As noted above,  federal and
state agencies have not established a drinking water standard and, therefore, it
is  possible  that  Chemical  may be  required  to achieve a cleanup  level more
stringent than that covered by the policy.  If so, the amount  recoverable under
the policy could be affected.  Through  December  31,  2002,  Chemical  incurred
expenditures  of about  $38  million  that it  believes  can be  applied  to the
self-insured retention.  Additionally, the company believes that the $17 million
reserve  remaining  at  December  31,  2002,  will  be  creditable  against  the
self-insured  retention.  The company has not recorded a receivable or otherwise
reflected in the financial  statements any potential recovery from the insurance
policy since costs  incurred to date and estimated  costs for future work do not
exhaust the  self-insured  retention.  The  applicability of expenditures to the
self-insured retention is a matter currently under discussion with the insurance
carrier.  Therefore,  the amount of the remaining  self-insured retention may be
greater than currently estimated.

Milwaukee, Wisconsin

In 1976, Chemical closed a wood-treatment facility it had operated in Milwaukee,
Wisconsin.  Operations at the facility  prior to its closure had resulted in the
contamination  of soil and  groundwater at and around the site with creosote and
other substances used in the wood-treatment process. In 1984, EPA designated the
Milwaukee  wood-treatment  facility as a Superfund site under CERCLA, listed the
site on the NPL and named Chemical a PRP.  Chemical executed a consent decree in
1991 that required it to perform soil and  groundwater  remediation at and below
the former wood-treatment area and to address a tributary creek of the Menominee
River that had become contaminated as a result of the wood-treatment operations.
Actual  remedial  activities  were  deferred  until after the decree was finally
entered in 1996 by a federal court in Milwaukee.

Groundwater  treatment,  using a pump and treat system, was initiated in 1996 to
remediate  groundwater  contamination  below and in the  vicinity  of the former
wood-treatment  area.  It is not  possible to reliably  predict how  groundwater
conditions  will be affected by the ongoing  soil  remediation  and  groundwater
treatment.  Therefore,  it is not  known  how long  groundwater  treatment  will
continue.  Soil cleanup of the former  wood-treatment area began in 2000 and was
completed in 2002.  Also in 2002,  terms for addressing the tributary creek were
agreed upon with EPA, after which Chemical began the  implementation of a remedy
to reroute the creek and to remediate associated sediment and stream bank soils.
It is expected that the soil and sediment  remediation will take about four more
years.

As of December 31, 2002,  the company had remaining  reserves of $13 million for
the costs of the  remediation  work described  above.  This includes $12 million
added to the reserve in 2002 to implement  the remedy  related to the  tributary
creek.  Although  actual costs may exceed current  estimates,  the amount of any
increases cannot be reasonably estimated at this time.

Cushing, Oklahoma

In 1972, a company  affiliate  closed a petroleum  refinery it had operated near
Cushing,  Oklahoma.  Prior to being  closed,  the  affiliate  also had  produced
uranium and thorium  fuel and metal at the site  pursuant to licenses  issued by
the Atomic Energy Commission (AEC). The uranium and thorium operations commenced
in 1962 and were shut down in 1966, at which time the  affiliate  decommissioned
and  cleaned up the  portion of the  facility  related  to uranium  and  thorium
operations  to  applicable  standards.  When the refinery was closed in 1972, it
also was cleaned up to applicable standards.

Subsequent  regulatory changes required more extensive  remediation at the site.
In 1990,  the  affiliate  entered  into a  consent  agreement  with the State of
Oklahoma to investigate the site and take  appropriate  remedial actions related
to  petroleum  refining  and  uranium  and  thorium  residuals.  Remediation  of
hydrocarbon  contamination  is  being  performed  under a plan  approved  by the
Oklahoma  Department  of  Environmental  Quality.  Soil  remediation  to address
hydrocarbon contamination is expected to continue for about four more years. The
scope  of any  groundwater  remediation  that  may  be  required  is not  known.
Additionally, in 1993, the affiliate received a decommissioning license from the
Nuclear Regulatory Commission (NRC), the successor to AEC's licensing authority,
to clean up certain uranium and thorium  residuals.  To avoid anticipated future
increases  in disposal  costs,  much of the uranium and thorium  residuals  were
cleaned up and disposed of in 2002 after obtaining NRC approvals to conduct soil
removal  without  first  completing  the  site  characterization,  work  that is
necessary for  identifying  the scope of required  cleanup  activities.  Because
excavation preceded characterization, contamination that had not been previously
identified  was  encountered  and removed  during the expedited  excavation  and
disposal  work.  Characterization  and  verification  work is ongoing to confirm
whether the work undertaken in 2002 adequately addressed the contaminated areas.
Additional  excavation may be required in the future depending on the results of
the characterization and verification work.

As of December 31, 2002,  the company had remaining  reserves of $23 million for
the costs of the ongoing remediation and  decommissioning  work described above.
This included $32 million added to the reserves in 2002  principally as a result
of costs incurred to perform the expedited  uranium and thorium cleanup work and
costs  for  excavating  and  disposing  of  additional  refinery-related  wastes
identified in 2002.  Although  actual costs may exceed  current  estimates,  the
amount of any increases cannot be reasonably estimated at this time.

--------------------------------------------------------------------------------

New Accounting Standards

In June 2001, the FASB issued FAS 142,  "Goodwill and Other Intangible  Assets."
The company  adopted the  provisions  of FAS 142 as of January 1, 2002,  for all
goodwill and other intangible  assets  recognized in the company's  Consolidated
Balance  Sheet as of that date.  Under FAS 142,  goodwill  and  indefinite-lived
intangible  assets are no longer amortized but are instead reviewed annually for
impairment,   or  more   frequently  if   impairment   indicators   arise.   The
nonamortization  provisions of this standard were immediately applicable for any
goodwill acquired after June 30, 2001, which included  goodwill  associated with
the August 1, 2001,  acquisition of HS Resources,  Inc. Separately  identifiable
intangible  assets that have finite  lives will  continue to be  amortized  over
their  useful  lives.  The  company  completed  its  required  annual  test  for
impairment as of June 30, 2002, with no impairment loss being indicated.

In August  2001,  the FASB issued FAS 144,  "Accounting  for the  Impairment  or
Disposal of Long-Lived Assets." FAS 144 supersedes FAS 121,  "Accounting for the
Impairment of Long-Lived  Assets and for  Long-Lived  Assets to be Disposed Of,"
and the portion of  Accounting  Principles  Board Opinion No. 30 that deals with
disposal  of  a  business  segment.   The  new  standard  resolves   significant
implementation  issues  related to FAS 121 and  establishes a single  accounting
model for long-lived  assets to be disposed of by sale. The company  adopted FAS
144 as of January 1, 2002, and, in accordance with the standard,  has classified
certain asset  disposal  groups whose  operations  and cash flows can be clearly
distinguished  from  the  rest  of  the  company  as  discontinued   operations.
Prior-year  amounts in the company's  Consolidated  Statement of Operations  and
Consolidated  Balance Sheet and related  disclosures have been  reclassified for
consistency  with  the  current-year  presentation.  See  Note  20  for  further
discussion.

In June  2001,  the  FASB  issued  FAS 143,  "Accounting  for  Asset  Retirement
Obligations."  FAS  143  requires  that an  asset  retirement  obligation  (ARO)
associated with the retirement of a tangible long-lived asset be recognized as a
liability in the period in which it is incurred (as defined), with an offsetting
increase  in the  carrying  amount  of the  associated  asset.  The  cost of the
tangible asset, including the initially recognized ARO, is depreciated such that
the cost of the ARO is recognized over the useful life of the asset.  The ARO is
recorded at fair value,  and accretion  expense will be recognized  over time as
the discounted  liability is accreted to its expected settlement value. The fair
value of the ARO is measured using expected  future cash outflows  discounted at
the company's credit-adjusted risk-free interest rate.

The  company  was  required  to adopt FAS 143 on January  1, 2003.  As a result,
Kerr-McGee will accrue an abandonment  liability associated with its oil and gas
wells and  platforms  when those  assets are placed in service,  rather than its
past practice of accruing the expected abandonment costs on a unit-of-production
basis  over  the   productive   life  of  the  associated  oil  and  gas  field.
Additionally,  the company will accrue an abandonment  liability associated with
its plans to  decommission  the Mobile,  Alabama,  synthetic  rutile plant.  The
company recorded an after-tax charge to earnings of approximately $35 million on
January 1, 2003, to recognize the cumulative  effect of  retroactively  applying
the new accounting principle.  In addition,  beginning in 2003, the company will
record  accretion  expense for its ARO liabilities  and additional  depreciation
expense on the associated assets.  The new accounting  principle is not expected
to have a significant effect on 2003 income from continuing operations.

In June 2002, the FASB issued FAS 146,  "Accounting  for Costs  Associated  with
Exit or  Disposal  Activities."  FAS 146  nullifies  Emerging  Issues Task Force
(EITF) Issue No. 94-3,  "Liability  Recognition for Certain Employee Termination
Benefits and Other Costs to Exit an Activity  (including  Certain Costs Incurred
in a  Restructuring)."  The new standard  requires  that the liability for costs
associated with an exit or disposal activity be recognized when the liability is
incurred, in contrast to the previous guidance set forth in EITF Issue No. 94-3,
which required accrual of such costs at the date of an entity's commitment to an
exit plan. FAS 146 is effective for exit or disposal activities  initiated after
December  31,  2002.  Adoption  of the new  standard  will  impact the timing of
liability  recognition  but will not have a  material  effect  on the  company's
ultimate costs associated with future exit or disposal activities.

In November 2002, the FASB issued FASB Interpretation (FIN) No. 45, "Guarantor's
Accounting  and  Disclosure  Requirements  for  Guarantees,  Including  Indirect
Guarantees of Indebtedness of Others - an  Interpretation of FASB Statements No.
5, 57,  and 107 and  Rescission  of FASB  Interpretation  No.  34." For  certain
guarantees,  FIN 45 requires  recognition  at the  inception of a guarantee of a
liability for the fair value of the obligation assumed in issuing the guarantee.
FIN 45 also requires expanded  disclosures for outstanding  guarantees,  even if
the likelihood of the guarantor  having to make any payments under the guarantee
is  considered  remote.  The  disclosure  provisions of FIN 45 are effective for
guarantees  outstanding  as of  December  31,  2002;  however,  the  recognition
provisions  are to be applied on a  prospective  basis to  guarantees  issued or
modified after December 31, 2002. The company does not expect the implementation
of this new  standard to have a material  impact on its  consolidated  financial
condition or results of operations.

In January 2003, the FASB issued FIN No. 46, "Consolidation of Variable Interest
Entities - an Interpretation of ARB No. 51." This  interpretation  clarifies the
application of ARB 51, "Consolidated  Financial Statements," to certain entities
in which  equity  investors  do not have the  characteristics  of a  controlling
financial  interest or do not have  sufficient  equity at risk for the entity to
finance its activities  without additional  subordinated  financial support from
other parties.  Because application of the majority voting interest  requirement
in ARB 51 may not identify the party with a  controlling  financial  interest in
situations where controlling financial interest is achieved through arrangements
not involving voting interests,  this  interpretation  introduces the concept of
variable  interests and requires  consolidation by an enterprise having variable
interests in a previously  unconsolidated entity if the enterprise is considered
the primary  beneficiary,  meaning the enterprise  will absorb a majority of the
variable interest  entity's  expected losses or residual  returns.  For variable
interest  entities  in  existence  as of  February  1,  2003,  FIN  46  requires
consolidation  by the primary  beneficiary in the interim period beginning after
June 15, 2003.

In  accordance  with  the  provisions  of FIN 46,  the  company  believes  it is
reasonably  likely that it will be required to  consolidate  the business  trust
created  to  construct  and  finance  the  Gunnison  production  platform.   The
construction is being financed via a synthetic lease credit facility between the
trust and groups of  financial  institutions  for up to $157  million,  with the
company  making lease payments  sufficient to pay interest on the financing.  If
required,  consolidation  of the  financing  trust  will  occur  in  the  period
beginning  July 1,  2003,  and the  trust  is  expected  to  remain  subject  to
consolidation  through December 31, 2003. Completion of the Gunnison platform is
expected  to occur in the first  quarter  of 2004,  at which  time the  Gunnison
synthetic  lease will be converted to an operating  lease and a different  trust
will become the  lessor/owner of the platform and related  equipment and will no
longer be subject to consolidation.  The company continues to review the effects
of FIN 46 relative to the company's other variable  interest  entities,  such as
the Nansen and Boomvang operating leases.

Item 7a.  Quantitative and Qualitative Disclosure about Market Risk

For  information  required under this section,  reference is made to the "Market
Risks"  section of  Management's  Discussion and Analysis,  which  discussion is
included in Item 7. of this Form 10-K.

Item 8.  Financial Statements and Supplementary Data

Index to the Consolidated Financial Statements                              PAGE
----------------------------------------------                              ----

Responsibility for Financial Reporting                                        52
Report of Independent Auditors                                                53
Consolidated Statement of Operations for the years ended
    December 31, 2002, 2001 and 2000                                          54
Consolidated Statement of Comprehensive Income
    and Stockholders' Equity for the years ended
    December 31, 2002, 2001 and 2000                                          55
Consolidated Balance Sheet at December 31, 2002 and 2001                      56
Consolidated Statement of Cash Flows for the years ended
    December 31, 2002, 2001 and 2000                                          57
Notes to Financial Statements                                                 58

Index to Supplementary Data
---------------------------

Nine-year Financial Summary                                                  109
Nine-year Operating Summary                                                  110

Index to the Financial Statement Schedules
------------------------------------------

Schedule II - Valuation Accounts and Reserves                                116

All other  schedules  are  omitted  because  they are either not  required,  not
significant,  not  applicable or the  information  is presented in the financial
statements or the notes to the financial statements.

--------------------------------------------------------------------------------

Responsibility for Financial Reporting

The company's management is responsible for the integrity and objectivity of the
financial data contained in the financial statements. These financial statements
have been prepared in conformity with generally accepted  accounting  principles
appropriate  under the  circumstances  and, where  necessary,  reflect  informed
judgments and estimates of the effects of certain events and transactions  based
on currently  available  information at the date the financial  statements  were
prepared.

The company's  management depends on the company's system of internal accounting
controls to assure itself of the  reliability of the financial  statements.  The
internal  control  system  is  designed  to  provide  reasonable  assurance,  at
appropriate  cost, that assets are safeguarded and  transactions are executed in
accordance with management's  authorizations and are recorded properly to permit
the preparation of financial  statements in accordance  with generally  accepted
accounting  principles.  Periodic  reviews are made of internal  controls by the
company's staff of internal auditors, and corrective action is taken if needed.

The Board of Directors  reviews and monitors  financial  statements  through its
audit  committee,  which is composed solely of directors who are not officers or
employees  of  the  company.  The  audit  committee  meets  regularly  with  the
independent  auditors,  internal  auditors  and  management  to review  internal
accounting controls, auditing and financial reporting matters.

The  independent  auditors are engaged to provide an objective  and  independent
review of the company's financial  statements and to express an opinion thereon.
Their audits are  conducted  in  accordance  with  generally  accepted  auditing
standards, and their report is included below.

--------------------------------------------------------------------------------

Report of Independent Auditors

The Board of Directors and Stockholders
Kerr-McGee Corporation

We have  audited the  accompanying  consolidated  balance  sheets of  Kerr-McGee
Corporation  as of  December  31, 2002 and 2001,  and the  related  consolidated
statements of operations,  comprehensive  income and stockholders'  equity,  and
cash flows for each of the three years in the period  ended  December  31, 2002.
Our audits also included the financial statement schedule listed in the Index in
Item 8. These financial  statements and schedule are the  responsibility  of the
Company's  management.  Our  responsibility  is to  express  an opinion on these
financial statements and schedule based on our audits.

We conducted our audits in accordance with auditing standards generally accepted
in the United States. Those standards require that we plan and perform the audit
to obtain reasonable  assurance about whether the financial  statements are free
of material misstatement. An audit includes examining, on a test basis, evidence
supporting  the amounts and  disclosures in the financial  statements.  An audit
also includes assessing the accounting principles used and significant estimates
made by  management,  as well as  evaluating  the  overall  financial  statement
presentation.  We believe  that our audits  provide a  reasonable  basis for our
opinion.

In our opinion,  the financial  statements  referred to above present fairly, in
all  material  respects,  the  consolidated  financial  position  of  Kerr-McGee
Corporation at December 31, 2002 and 2001, and the  consolidated  results of its
operations  and its cash flows for each of the three  years in the period  ended
December 31, 2002, in conformity with accounting  principles  generally accepted
in the United  States.  Also, in our opinion,  the related  financial  statement
schedule, when considered in relation to the basic financial statements taken as
a whole,  presents  fairly in all material  respects the  information  set forth
therein.

As  discussed  in  Notes  1 and 18 to  the  consolidated  financial  statements,
effective January 1, 2001, the Company adopted Statement of Financial Accounting
Standards  No.  133,   "Accounting   for  Derivative   Instruments  and  Hedging
Activities."

                                                          /s/  ERNST & YOUNG LLP


Oklahoma City, Oklahoma
February 27, 2003

--------------------------------------------------------------------------------

Consolidated Statement of Operations
--------------------------------------------------------------------------------



(Millions of dollars,
except per-share amounts)                                                               2002             2001              2000
-------------------------                                                              ------           ------            ------
                                                                                                                 

Sales                                                                                  $3,700           $3,566            $4,063
                                                                                       ------           ------            ------
Costs and Expenses
     Costs and operating expenses                                                       1,550            1,309             1,265
     Selling, general and administrative expenses                                         313              228               197
     Shipping and handling expenses                                                       125              111                98
     Depreciation and depletion                                                           774              713               678
     Asset impairment                                                                     828               76                 -
     Exploration, including dry holes and
         amortization of undeveloped leases                                               273              210               169
     Taxes, other than income taxes                                                       104              114               122
     Provision for environmental remediation and restoration,
         net of reimbursements                                                             80               82                90
     Purchased in-process research and development                                          -                -                32
     Interest and debt expense                                                            275              195               208
                                                                                       ------           ------            ------
              Total Costs and Expenses                                                  4,322            3,038             2,859
                                                                                       ------           ------            ------
                                                                                         (622)             528             1,204
Other Income (Loss)                                                                       (35)             224                50
                                                                                       ------           ------            ------

Income (Loss) from Continuing Operations
     before Income Taxes                                                                 (657)             752             1,254
Taxes on Income                                                                            46             (276)             (437)
                                                                                       ------           ------            ------
Income (Loss) from Continuing Operations                                                 (611)             476               817
Discontinued Operations, including tax expense (benefit)
     of $(22) in 2002, $22 in 2001 and $20 in 2000                                        126               30                25
Cumulative Effect of Change in Accounting
     Principle, net of taxes of $11                                                         -              (20)                -
                                                                                       ------           ------            ------
Net Income (Loss)                                                                      $ (485)          $  486            $  842
                                                                                       ======           ======            ======

Income (Loss) per Common Share
     Basic -
         Continuing operations                                                         $(6.09)          $ 4.91            $ 8.75
         Discontinued operations                                                         1.25              .31               .26
         Cumulative effect of accounting change                                             -             (.21)                -
                                                                                       ------           ------            ------
              Net income (loss)                                                        $(4.84)          $ 5.01            $ 9.01
                                                                                       ======           ======            ======
     Diluted -
         Continuing operations                                                         $(6.09)          $ 4.65            $ 8.13
         Discontinued operations                                                         1.25              .28               .24
         Cumulative effect of accounting change                                             -             (.19)                -
                                                                                       ------           ------            ------
              Net income (loss)                                                        $(4.84)          $ 4.74            $ 8.37
                                                                                       ======           ======            ======



The accompanying notes are an integral part of this statement.


Consolidated Statement of Comprehensive Income and Stockholders' Equity
--------------------------------------------------------------------------------



                                         Compre-                                    Accumulated                                Total
                                         hensive           Capital in                     Other                 Deferred      Stock-
                                          Income   Common   Excess of  Retained   Comprehensive  Treasury   Compensation    holders'
(Millions of dollars)                     (Loss)    Stock   Par Value  Earnings   Income (Loss)     Stock      and Other      Equity
----------------------------------       -------   ------  ----------  --------   -------------  --------   ------------    --------
                                                                                                     
Balance December 31, 1999                           $ 93      $1,284    $  576            $ 45     $(388)         $(118)     $1,492
   Net income                            $ 842         -           -       842               -         -              -         842
   Unrealized gains on securities,
      net of $32 tax provision              60         -           -         -              60         -              -          60
   Foreign currency translation
      adjustment                             3         -           -         -               3         -              -           3
   Minimum pension liability adjust-
      ment, net of $2 tax provision          5         -           -         -               5         -              -           5
   Shares issued                             -         8         375         -               -         -              -         383
  Dividends declared ($1.80 per share)       -         -           -      (170)              -         -              -        (170)
  Other                                      -         -           1       (15)              -         5             27          18
                                         -----      ----      ------    ------            ----     -----          -----      ------
      Total                              $ 910
                                         =====

Balance December 31, 2000                            101       1,660     1,233             113      (383)           (91)      2,633
  Net income                             $ 486         -           -       486               -         -              -         486
  Unrealized losses on securities,
      net of $12 tax benefit               (22)        -           -         -             (22)        -              -         (22)
  Reclassification of unrealized
      gains on securities to net
      income, net of $63 tax provision    (118)        -           -         -            (118)        -              -        (118)
  Record fair value of cash flow
      hedges, net of $1 tax benefit         (3)        -           -         -              (3)        -              -          (3)
  Change in fair value of cash flow
      hedges, net of $5 tax benefit        (15)        -           -         -             (15)        -              -         (15)
  Foreign currency translation
      adjustment                           (17)        -           -         -             (17)        -              -         (17)
  Minimum pension liability adjust-
      ment, net of $1 tax benefit           (2)        -           -         -              (2)        -              -          (2)
  Shares issued                              -         6         382         -               -         -              -         388
  Treasury stock cancelled                   -        (7)       (371)        -               -       378              -           -
  Dividends declared ($1.80 per share)       -         -           -      (176)              -         -              -        (176)
  Other                                      -         -           5         -               -         5             10          20
                                         -----      ----      ------    ------            ----     -----          -----      ------
      Total                              $ 309
                                         =====

Balance December 31, 2001                            100       1,676     1,543             (64)        -            (81)      3,174
  Net loss                               $(485)        -           -      (485)              -         -              -        (485)
  Unrealized gains on securities,
      net of $4 tax provision                7         -           -         -               7         -              -           7
  Change in fair value of cash flow
      hedges, net of $23 tax benefit       (39)        -           -         -             (39)        -              -         (39)
  Foreign currency translation
      adjustment                            48         -           -         -              48         -              -          48
  Minimum pension liability adjust-
      ment, net of $9 tax benefit          (14)        -           -         -             (14)        -              -         (14)
  Shares issued                              -         -           5         -               -         -              -           5
  Dividends declared ($1.80 per share)       -         -           -      (181)              -         -              -        (181)
  Other                                      -         -           6         9               -         -              6          21
                                         -----      ----      ------    ------            ----     -----          -----      ------
     Total                               $(483)
                                         =====
Balance December 31, 2002                           $100      $1,687    $  886            $(62)    $   -          $ (75)     $2,536
                                                    ====      ======    ======            ====     =====          =====      ======
                                                                                           (1)



(1)  The balance of the items in Accumulated Other  Comprehensive  Income (Loss)
     at  December  31,  2002,  includes  unrealized  gains on  securities  of $6
     million, fair value of cash flow hedges of $(57) million,  foreign currency
     translation  adjustments  of $6 million and minimum  pension  liability  of
     $(17) million.


The accompanying notes are an integral part of this statement.

Consolidated Balance Sheet
--------------------------------------------------------------------------------



(Millions of dollars)                                                            2002                2001
---------------------                                                           ------             -------
                                                                                             
ASSETS
Current Assets
     Cash                                                                       $   90             $    91
     Accounts receivable, net of allowance for doubtful
         accounts of $10 in 2002 and $11 in 2001                                   608                 421
     Inventories                                                                   402                 429
     Deposits, prepaid expenses and other assets                                   133                 351
     Current assets associated with properties held for disposal                    57                  75
                                                                                ------             -------
              Total Current Assets                                               1,290               1,367
Investments
     Equity affiliates                                                             123                 101
     Other assets                                                                  584                 422
Property, Plant and Equipment - Net                                              7,036               7,378
Deferred Charges                                                                   328                 261
Goodwill                                                                           356                 356
Long-Term Assets Associated with Properties
     Held for Disposal                                                             192               1,191
                                                                                ------             -------
                  Total Assets                                                  $9,909             $11,076
                                                                                ======             =======

LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities
     Accounts payable                                                           $  772             $   620
     Short-term borrowings                                                           -                   8
     Long-term debt due within one year                                            106                  26
     Taxes on income                                                               170                  86
     Taxes, other than income taxes                                                 40                  31
     Accrued liabilities                                                           520                 358
     Current liabilities associated with properties held for disposal                2                  45
                                                                                ------             -------
              Total Current Liabilities                                          1,610               1,174
                                                                                ------             -------

Long-Term Debt                                                                   3,798               4,540
                                                                                ------             -------
Deferred Credits and Reserves
     Income taxes                                                                1,145               1,362
     Other                                                                         804                 646
                                                                                ------             -------
              Total Deferred Credits and Reserves                                1,949               2,008
                                                                                ------             -------
Long-Term Liabilities Associated with Properties
     Held for Disposal                                                              16                 180
                                                                                ------             -------

Stockholders' Equity
     Common stock, par value $1.00 - 300,000,000 shares
         authorized, 100,391,054 shares issued in 2002
         and 100,186,350 shares issued in 2001                                     100                 100
     Capital in excess of par value                                              1,687               1,676
     Preferred stock purchase rights                                                 1                   1
     Retained earnings                                                             886               1,543
     Accumulated other comprehensive loss                                          (62)                (64)
     Common stock in treasury, at cost - 7,299 shares
         in 2002 and 1,020 shares in 2001                                            -                   -
     Deferred compensation                                                         (76)                (82)
                                                                                ------             -------
              Total Stockholders' Equity                                         2,536               3,174
                                                                                ------             -------
                  Total Liabilities and Stockholders' Equity                    $9,909             $11,076
                                                                                ======             =======


The  "successful  efforts"  method of accounting for oil and gas exploration and
production activities has been followed in preparing this balance sheet.

The accompanying notes are an integral part of this balance sheet.


Consolidated Statement of Cash Flows
--------------------------------------------------------------------------------



(Millions of dollars)                                                             2002               2001               2000
---------------------                                                           -------            -------           --------
                                                                                                            
Cash Flow from Operating Activities
     Net income (loss)                                                          $  (485)           $   486          $     842
     Adjustments to reconcile to net cash
         provided by operating activities -
             Depreciation, depletion and amortization                               844                779                732
             Deferred income taxes                                                 (112)               205                 18
             Dry hole costs                                                         113                 72                 54
             Asset impairment                                                       862                 76                  -
             Provision for environmental remediation
                and restoration, net of reimbursements                               89                 82                 90
             Gains on asset retirements and sales                                  (110)               (12)                (6)
             Purchased in-process research
                and development                                                       -                  -                 32
             Noncash items affecting net income                                     126               (147)                45
             Changes in current assets and liabilities
                and other, net of effects of operations acquired-
                   (Increase) decrease in accounts receivable                      (104)               278                (55)
                   (Increase) decrease in inventories                                37                (51)               (46)
                   (Increase) decrease in deposits,
                      prepaids and other assets                                     185               (201)                 3
                   Increase (decrease) in accounts
                      payable and accrued liabilities                               137               (131)               129
                   Increase (decrease) in taxes payable                              63               (120)               137
                   Other                                                           (197)              (173)              (135)
                                                                                -------            -------           --------
                      Net cash provided by operating activities                   1,448              1,143              1,840
                                                                                -------            -------           --------

Cash Flow from Investing Activities
     Capital expenditures                                                        (1,159)            (1,792)              (842)
     Dry hole costs                                                                (113)               (72)               (54)
     Acquisitions                                                                   (24)              (978)            (1,018)
     Purchase of long-term investments                                              (65)               (92)               (56)
     Proceeds from sale of long-term investments                                     12                 18                 35
     Proceeds from sale of assets                                                   756                 19                 42
                                                                                -------            -------           --------
                      Net cash used in investing activities                        (593)            (2,897)            (1,893)
                                                                                -------            -------           --------

Cash Flow from Financing Activities
     Issuance of long-term debt                                                     418              2,513                677
     Issuance of common stock                                                         5                 32                383
     Decrease in short-term borrowings                                               (8)                (9)                (3)
     Repayment of long-term debt                                                 (1,093)              (661)              (966)
     Dividends paid                                                                (181)              (173)              (166)
                                                                                -------            -------           --------
                      Net cash provided by (used in) financing activities          (859)             1,702                (75)
                                                                                -------            -------           --------

Effects of Exchange Rate Changes on Cash and Cash Equivalents                         3                 (1)                 5
                                                                                -------            -------           --------
Net Decrease in Cash and Cash Equivalents                                            (1)               (53)              (123)
Cash and Cash Equivalents at Beginning of Year                                       91                144                267
                                                                                -------            -------           --------
Cash and Cash Equivalents at End of Year                                        $    90            $    91           $    144
                                                                                =======            =======           ========


The accompanying notes are an integral part of this statement.


Notes to Financial Statements
--------------------------------------------------------------------------------

1.   The Company and Significant Accounting Policies

Kerr-McGee  is an energy and chemical  company  with  worldwide  operations.  It
explores for, develops,  produces and markets crude oil and natural gas, and its
chemical operations  primarily produce and market titanium dioxide pigment.  The
exploration  and  production  unit  produces and explores for oil and gas in the
United States, the United Kingdom sector of the North Sea and China. Exploration
efforts also extend to Australia,  Benin, Brazil, Gabon, Morocco,  Canada, Yemen
and the  Danish  sector of the  North  Sea.  The  chemical  unit has  production
facilities in the United States, Australia, Germany and the Netherlands.

On August 1, 2001, the company  completed the acquisition of all the outstanding
shares  of  common  stock of HS  Resources,  Inc.,  an  independent  oil and gas
exploration and production company.  To accomplish the acquisition,  the company
reorganized and formed a new holding  company,  Kerr-McGee  Holdco,  which later
changed its name to Kerr-McGee  Corporation.  All the outstanding  shares of the
former  Kerr-McGee  Corporation  were canceled and the same number of shares was
issued by the new holding company. The former Kerr-McGee Corporation was renamed
and is now a wholly owned subsidiary.

Basis of Presentation

The  consolidated  financial  statements  include the accounts of all subsidiary
companies  that are more  than 50% owned  and the  proportionate  share of joint
ventures  in  which  the  company  has an  undivided  interest.  Investments  in
affiliated  companies  that are 20% to 50% owned are  carried as  Investments  -
Equity affiliates in the Consolidated  Balance Sheet at cost adjusted for equity
in  undistributed  earnings.  Except for  dividends  and  changes  in  ownership
interest,  changes  in equity in  undistributed  earnings  are  included  in the
Consolidated  Statement of Operations.  All material  intercompany  transactions
have been eliminated.

The preparation of financial  statements in conformity  with generally  accepted
accounting principles requires management to make estimates and assumptions that
affect the  reported  amounts  of assets  and  liabilities,  the  disclosure  of
contingent assets and liabilities at the date of the financial  statements,  and
the  reported  amounts of revenues  and expenses  during the  reporting  period.
Actual  results  could  differ from those  estimates as  additional  information
becomes known.

Certain  prior-year amounts in the consolidated  financial  statements have been
reclassified to present the oil and gas operations in Kazakhstan,  Indonesia and
Australia as  discontinued  (see Note 20) and to conform  with the  current-year
presentation.

Foreign Currencies

The U.S. dollar is considered the functional  currency for each of the company's
international operations,  except for its European chemical operations.  Foreign
currency  transaction  gains or losses are recognized in the period incurred and
are included in Other Income in the  Consolidated  Statement of Operations.  The
company  recorded  net  foreign  currency  transaction  gains  (losses) of ($38)
million, $3 million and $30 million in 2002, 2001 and 2000, respectively.

The  euro is the  functional  currency  for the  European  chemical  operations.
Translation  adjustments  resulting from  translating  the  functional  currency
financial  statements  into U.S. dollar  equivalents are reported  separately in
Accumulated  Other  Comprehensive  Income  in  the  Consolidated   Statement  of
Comprehensive Income and Stockholders' Equity.

Cash Equivalents

The company considers all investments with a maturity of three months or less to
be cash  equivalents.  Cash  equivalents  totaling  $23  million in 2002 and $26
million in 2001 were  comprised of time  deposits,  certificates  of deposit and
U.S. government securities.

Accounts Receivable and Receivable Sales

Accounts  receivable are reflected at their net realizable value,  reduced by an
allowance  for  doubtful  accounts  to allow for  expected  credit  losses.  The
allowance is estimated by management based on factors such as age of the related
receivables  and  historical   experience,   giving  consideration  to  customer
profiles. The company does not generally charge interest on accounts receivable;
however, certain operating agreements have provisions for interest and penalties
that  may be  invoked  if  deemed  necessary.  Accounts  receivable  are aged in
accordance  with contract  terms and are written off when deemed  uncollectible.
Any subsequent  recoveries of amounts  written off are credited to the allowance
for doubtful accounts.

Under a credit-insurance-backed  asset securitization program,  Kerr-McGee sells
selected pigment  customers'  accounts  receivable to a  special-purpose  entity
(SPE).  The company  does not own any of the common  stock of the SPE.  When the
receivables  are  sold,   Kerr-McGee   retains   interests  in  the  securitized
receivables  for servicing  and in preference  stock of the SPE. The interest in
the  preference  stock is  essentially  a  deposit  to  provide  further  credit
enhancement  to  the  securitization   program,  if  needed,  but  is  otherwise
recoverable by the company at the end of the program.  The recorded value of the
preference  stock is  adjusted  with each sale to maintain  its fair value.  The
servicing fee received is estimated by  management  to be adequate  compensation
and is equal to what would otherwise be charged by an outside  servicing  agent.
The company records the loss  associated with the receivable  sales by comparing
cash received and fair value of the retained interests to the carrying amount of
the  receivables  sold. The estimate of fair value of the retained  interests is
based on the present value of future cash flows discounted at rates estimated by
management to be commensurate with the risks.

Inventories

Inventories  are  stated  at the  lower  of cost or  market.  The  costs  of the
company's product  inventories are determined by the first-in,  first-out (FIFO)
method.  Inventory  carrying  values  include  material  costs,  labor  and  the
associated indirect manufacturing expenses. Costs for materials and supplies are
determined by average cost to acquire.

Property, Plant and Equipment

Exploration  and  Production - Exploration  expenses,  including  geological and
geophysical costs, rentals and exploratory dry holes, are charged against income
as incurred.  Costs of  successful  wells and related  production  equipment and
developmental  dry  holes  are  capitalized  and  amortized  by field  using the
unit-of-production method as the oil and gas are produced.

Undeveloped  acreage costs are  capitalized  and amortized at rates that provide
full  amortization  on abandonment of  unproductive  leases.  Costs of abandoned
leases  are  charged  to the  accumulated  amortization  accounts,  and costs of
productive leases are transferred to the developed property accounts.

Other -  Property,  plant and  equipment  is stated  at cost less  reserves  for
depreciation,  depletion and amortization.  Maintenance and repairs are expensed
as  incurred,  except that costs of  replacements  or renewals  that  improve or
extend the lives of existing properties are capitalized.

Depreciation  and Depletion - Property,  plant and equipment is  depreciated  or
depleted over its estimated life by the  unit-of-production or the straight-line
method.  Capitalized  exploratory  drilling and development  costs are amortized
using the  unit-of-production  method based on total estimated  proved developed
oil and gas reserves.  Amortization of producing  leasehold,  platform costs and
acquisition costs of proved properties is based on the unit-of-production method
using  total  estimated  proved  reserves.   In  arriving  at  rates  under  the
unit-of-production  method,  the  quantities of  recoverable  oil, gas and other
minerals are established based on estimates made by the company's geologists and
engineers. Non oil and gas assets are depreciated using the straight-line method
over the estimated useful lives.

Retirements  and  Sales - The  cost  and  related  depreciation,  depletion  and
amortization  reserves are removed from the respective  accounts upon retirement
or sale of property, plant and equipment. The resulting gain or loss is included
in Other Income in the Consolidated Statement of Operations.

Interest  Capitalized - The company capitalizes interest costs on major projects
that require an extended  length of time to complete.  Interest  capitalized  in
2002, 2001 and 2000 was $8 million, $31 million and $5 million, respectively.

Impairment of Long-Lived Assets

Proved oil and gas properties  are reviewed for  impairment on a  field-by-field
basis when facts and circumstances  indicate that their carrying amounts may not
be recoverable.  In performing  this review,  future cash flows are estimated by
applying  estimated  future oil and gas prices to estimated  future  production,
less estimated future  expenditures to develop and produce the reserves.  If the
sum of these  estimated  future cash flows  (undiscounted  and without  interest
charges) is less than the carrying amount of the property, an impairment loss is
recognized  for the excess of the carrying  amount over the estimated fair value
of the property based on estimated future cash flows.

Other  assets are reviewed  for  impairment  by asset group for which the lowest
level of  independent  cash flows can be  identified  and  impaired in a similar
manner as proved oil and gas properties.

Assets  classified as held for sale are reviewed for  impairment at the time the
assets are  reclassified  from the  held-for-use  category,  which  occurs  upon
managements'  approval of a plan of sale that is expected to be completed within
one year.  Impairment  losses are measured as the difference  between fair value
less  costs to sell,  and the  assets'  carrying  value.  Upon  transfer  to the
held-for-sale category, long-lived assets are no longer depreciated.

Revenue Recognition

Revenue is recognized  when title passes to the  customer.  Natural gas revenues
involving  gas-balancing  arrangements  with  partners  in natural gas wells are
recognized when the gas is sold using the entitlements  method of accounting and
are based on the company's net working interests. At December 31, 2002 and 2001,
both  the  quantity  and  dollar  amount  of  gas  balancing  arrangements  were
immaterial.

Income Taxes

Deferred  income  taxes are provided to reflect the future tax  consequences  of
differences  between the tax basis of assets and  liabilities and their reported
amounts in the financial statements.

Site Dismantlement, Remediation and Restoration Costs

The  company  provides  for  the  estimated  costs  at  current  prices  of  the
dismantlement and removal of oil and gas production and related facilities. Such
costs are  accumulated  over the estimated lives of the facilities by the use of
the unit-of-production method. As sites of environmental concern are identified,
the company assesses the existing conditions,  claims and assertions,  generally
related to former operations,  and records an estimated  undiscounted  liability
when  environmental  assessments  and/or  remedial  efforts are probable and the
associated costs can be reasonably estimated.

In June 2001, the Financial  Accounting  Standards Board (FASB) issued Statement
of Financial  Accounting  Standards (FAS) 143,  "Accounting for Asset Retirement
Obligations."  FAS  143  requires  that an  asset  retirement  obligation  (ARO)
associated with the retirement of a tangible long-lived asset be recognized as a
liability in the period in which it is incurred (as defined), with an offsetting
increase  in the  carrying  amount  of the  associated  asset.  The  cost of the
tangible  asset,  including the initially  recognized  ARO, is  depreciated on a
unit-of-production  basis,  such that the cost of the ARO is recognized over the
useful  life of the asset.  The ARO is recorded  at fair  value,  and  accretion
expense will be recognized over time as the discounted  liability is accreted to
its  expected  settlement  value.  The fair value of the ARO is  measured  using
expected  future  cash  outflows  discounted  at the  company's  credit-adjusted
risk-free interest rate.

The company was required to adopt FAS 143 on January 1, 2003.  As a result,  the
company will accrue an  abandonment  liability  associated  with its oil and gas
wells and  platforms  when those  assets are placed in service,  rather than its
past practice of accruing the expected abandonment costs on a unit-of-production
basis  over  the   productive   life  of  the  associated  oil  and  gas  field.
Additionally,  the company will accrue an abandonment  liability associated with
its plans to  decommission  the Mobile,  Alabama,  synthetic  rutile plant.  The
company recorded an after-tax charge to earnings of approximately $35 million on
January 1, 2003, to recognize the cumulative  effect of  retroactively  applying
the new accounting principle.  In addition,  beginning in 2003, the company will
record  accretion  expense for its ARO liabilities  and additional  depreciation
expense on the associated assets.  The new accounting  principle is not expected
to have a significant effect on 2003 income from continuing operations.

Employee Stock Option Plan

FAS 123,  "Accounting  for  Stock-Based  Compensation,"  prescribes a fair-value
method of accounting for employee stock options under which compensation expense
is measured based on the estimated fair value of stock options at the grant date
and  recognized  over the period that the options  vest.  The company,  however,
chooses to account for its stock option plans under the optional intrinsic-value
method of Accounting  Principles  Board Opinion  (APB) No. 25,  "Accounting  for
Stock  Issued to  Employees,"  whereby  no  compensation  expense  is  generally
recognized  for  fixed-price   stock  options.   Compensation   cost  for  stock
appreciation  rights,  which is recognized  under both accounting  methods,  was
immaterial for 2002, 2001 and 2000.

Had  compensation  expense for stock option grants been determined in accordance
with FAS 123, the resulting compensation expense would have affected stock-based
compensation expense, net income and per-share amounts as shown in the following
table.  These amounts may not be representative of future  compensation  expense
using the  fair-value  method of  accounting  for employee  stock options as the
number of options  granted in a  particular  year may not be  indicative  of the
number  of  options  granted  in  future  years,  and the  fair-value  method of
accounting has not been applied to options granted prior to January 1, 1995.

(Millions of dollars,
except per share amounts)                      2002           2001         2000
-------------------------                     ------         -----        -----

Net income (loss) as reported                 $ (485)        $ 486        $ 842
   Less stock-based compensation expense
     determined using a fair-value method
     for all awards, net of taxes                (15)           (8)          (7)
                                              ------         -----        -----
Pro forma net income (loss)                   $ (500)        $ 478        $ 835
                                              ======         =====        =====

Net income (loss) per share -
  Basic -
    As reported                               $(4.84)        $5.01        $9.01
    Pro forma                                  (4.99)         4.92         8.94

  Diluted -
    As reported                                (4.84)         4.74         8.37
    Pro forma                                  (4.99)         4.66         8.30


The fair value of each option granted in 2002, 2001 and 2000 was estimated as of
the date of the grant  using the  Black-Scholes  option  pricing  model with the
following weighted-average assumptions:



                                                   Assumptions
                -------------------------------------------------------------------------------          Weighted-Average
                  Risk-Free           Expected                 Expected               Expected             Fair Value of
                Interest Rate       Dividend Yield            Life (years)           Volatility           Options Granted
                -------------       --------------            ------------           ----------           ---------------
                                                                                                

2002                4.8%                 3.4%                     5.8                   36.0%                  $16.97
2001                5.0                  3.3                      5.8                   42.9                    22.54
2000                6.6                  3.1                      5.8                   31.3                    19.15



Financial Instruments

Investments  in marketable  securities  are  classified  as either  "trading" or
"available for sale," depending on management's  intent.  Unrecognized  gains or
losses on trading  securities  are  recognized in earnings,  while  unrecognized
gains or losses on available-for-sale  securities are recorded as a component of
other comprehensive income (loss) within stockholders' equity.

The company accounts for all its derivative financial  instruments in accordance
with FAS 133,  "Accounting for Derivative  Instruments and Hedging  Activities."
Derivative  financial  instruments  are recorded as assets or liabilities in the
Consolidated  Balance  Sheet,  measured at fair value.  When  available,  quoted
market  prices are used in  determining  fair value;  however,  if quoted market
prices are not available,  the company  estimates fair value using either quoted
market prices of financial  instruments  with similar  characteristics  or other
valuation techniques.

The company uses  futures,  forwards,  options,  collars and swaps to reduce the
effects of fluctuations in crude oil,  natural gas,  foreign  currency  exchange
rates and  interest  rates.  Changes in the fair value of  instruments  that are
designated as cash flow hedges and that qualify for hedge  accounting  under the
provisions of FAS 133 are recorded in  accumulated  other  comprehensive  income
(loss).  These  hedging  gains or losses will be  recognized  in earnings in the
periods during which the hedged  forecasted  transactions  affect earnings.  The
ineffective  portion  of the  change in fair value of such  hedges,  if any,  is
included in current  earnings.  Instruments  that do not meet the  criteria  for
hedge  accounting  and those  designated as fair-value  hedges under FAS 133 are
recorded at fair value with gains or losses reported currently in earnings.

On January 1, 2001,  the company  adopted FAS 133 by recording the fair value of
the options  associated with the company's debt exchangeable for stock (DECS) of
Devon  Energy  Corporation  (Devon).  In  adopting  the  standard,  the  company
recognized  an expense of $20 million as a cumulative  effect of the  accounting
change and a $3 million reduction in equity (other comprehensive income) for the
foreign currency  contracts  designated as hedges.  Also, in accordance with FAS
133, the company chose to reclassify  85% of the Devon shares owned to "trading"
from the "available for sale" category of investments as of January 1, 2001, and
recognized  after-tax income of $118 million for the unrealized  appreciation on
these shares.

Shipping and Handling Fees and Costs

All amounts billed to a customer in a sales transaction  related to shipping and
handling  represent  revenues earned and are reported as revenue,  and the costs
incurred by the company for shipping and handling are reported as an expense.

Goodwill and Intangible Assets

In accordance with FAS 142,  "Goodwill and Other  Intangible  Assets," which the
company  adopted on  January 1, 2002,  goodwill  and  certain  indefinite  lived
intangibles are not amortized but are reviewed annually for impairment,  or more
frequently if impairment  indicators  arise.  The annual test for impairment was
completed in the second  quarter of 2002,  with no impairment  indicated for the
$356 million of goodwill and $53 million of indefinite lived intangible  assets.
The  company's  net  income  for 2001 and 2000  would not have  been  materially
different had the indefinite  lived  intangibles and goodwill not been amortized
prior to adoption of FAS 142.  Additionally,  the company had immaterial amounts
of intangibles  subject to amortization ($14 million and $15 million at December
31, 2002 and 2001, respectively).


2.   Cash Flow Information

Net cash  provided by operating  activities  reflects  cash  payments for income
taxes and interest as follows:


(Millions of dollars)                             2002        2001         2000
---------------------                             ----        ----         ----
Income tax payments                              $  89        $434         $338
Less refunds received                             (268)        (19)         (34)
                                                 -----        ----         ----
Net income tax payments (refunds)                $(179)       $415         $304
                                                 =====        ====         ====

Interest payments                                $ 258        $189         $193
                                                 =====        ====         ====

Noncash items affecting net income included in the  reconciliation of net income
to net cash provided by operating activities include the following:

(Millions of dollars)                                    2002      2001    2000
---------------------                                    ----     -----    ----
Litigation reserve provisions                            $ 72     $   -    $  7
Net periodic pension credit for qualified plan            (48)      (53)    (43)
Abandonment provisions - exploration and production        38        34      37
Increase (decrease) in fair value of embedded options
     in the DECS (1)                                       34      (205)      -
Increase (decrease) in fair value of trading
     securities (1)                                       (61)        7       -
All other (2)                                              91        70      44
                                                         ----     -----    ----
      Total                                              $126     $(147)   $ 45
                                                         ====     =====    ====

Details of other changes in current assets and  liabilities and other within the
operating  section of the  Consolidated  Statement of Cash Flows  consist of the
following:

(Millions of dollars)                             2002        2001         2000
---------------------                             ----        ----         ----
Environmental expenditures                       $(107)      $ (94)       $(117)
Cash abandonment expenditures -
     exploration and production                    (48)        (29)          (9)
All other (2)                                      (42)        (50)          (9)
                                                 -----       -----         ----
      Total                                      $(197)      $(173)       $(135)
                                                 =====       =====        =====

Information  about noncash  investing and financing  activities not reflected in
the Consolidated Statement of Cash Flows follows:



(Millions of dollars)                                                               2002        2001           2000
---------------------                                                               ----        ----           ----
                                                                                                      
Noncash investing activities
    Increase (decrease) in fair value of securities available for sale (1)          $11         $ (34)         $280
    Increase (decrease) in fair value of trading securities (1)                      61          (188)            -
    Investment in equity affiliate                                                    2             -             -

Noncash financing activities
    Common stock issued in HS Resources acquisition                                   -           355             -
    Debt assumed in HS Resources acquisition                                          -           506             -
    Increase in the valuation of the DECS (1)                                         8             8           187
    Increase (decrease) in fair value of embedded options in
       the DECS (1)                                                                  34          (205)            -
    Dividends declared but not paid                                                   -             3             4



(1)  See Notes 1 and 18 for discussion of FAS 133 adoption.
(2)  No other individual item is material to total cash flows from operations.



3.   Inventories

Major categories of inventories at year-end 2002 and 2001 are:

(Millions of dollars)                              2002             2001
---------------------                              ----             ----
Chemicals and other products                       $306             $338
Materials and supplies                               89               88
Crude oil and natural gas liquids                     7                3
                                                   ----             ----
           Total                                   $402             $429
                                                   ====             ====


4.   Investments - Other Assets

Investments  in other assets  consist of the  following at December 31, 2002 and
2001:

(Millions of dollars)                                      2002             2001
---------------------                                      ----             ----
Devon Energy Corporation common stock (1)                  $457             $385
Long-term receivables, net of allowance for
     doubtful notes of $9 in both 2002 and 2001              94               12
Derivatives (fixed-priced and basis swap
     commodity contracts)(1)                                 22               16
U.S. government obligations                                   2                2
Other                                                         9                7
                                                           ----             ----
           Total                                           $584             $422
                                                           ====             ====

(1)  See Note 18.


5.   Property, Plant and Equipment

Property,  plant and  equipment  and related  reserves at December  31, 2002 and
2001, are as follows:


                                                                            Reserves for
                                                                          Depreciation and
                                              Gross Property                  Depletion               Net Property
                                            -------------------          ------------------        -----------------
(Millions of dollars)                        2002         2001            2002        2001          2002       2001
---------------------                       -------     -------          ------      ------        ------     ------
                                                                                            

Exploration and production                  $11,585     $11,392          $5,632      $5,080        $5,953     $6,312
Chemicals                                     1,963       1,860             965         857           998      1,003
Other                                           176         151              91          88            85         63
                                            -------     -------          ------      ------        ------     ------
    Total                                   $13,724     $13,403          $6,688      $6,025        $7,036     $7,378
                                            =======     =======          ======      ======        ======     ======



6.   Deferred Charges

Deferred charges are as follows at year-end 2002 and 2001:

(Millions of dollars)                                    2002            2001
---------------------                                    ----            ----

Pension plan prepayments                                 $240            $188
Nonqualified benefit plans deposits                        35              26
Unamortized debt issue costs                               27              34
Amounts pending recovery from third parties                13              10
Other                                                      13               3
                                                         ----            ----
     Total                                               $328            $261
                                                         ====            ====


7.   Asset Securitization

In December 2000, the company began an accounts receivable  monetization program
for its pigment business through the sale of selected accounts receivable with a
three-year,  credit-insurance-backed  asset securitization  program. The company
retained servicing  responsibilities  and subordinated  interests and receives a
servicing  fee of  1.07%  of  the  receivables  sold  for  the  period  of  time
outstanding,  generally 60 to 120 days. Servicing fees collected were $1 million
in both 2002 and 2001, and were  insignificant in 2000. No recourse  obligations
were recorded  since the company has very limited  obligations  for any recourse
actions on the sold  receivables.  The collection of the receivables is insured,
and only receivables that qualify for credit insurance can be sold. A portion of
the insurance is reinsured by the company's captive insurance company;  however,
the  company  believes  that the risk of  insurance  loss is very low  since its
bad-debt  experience  has  historically  been  insignificant.  The company  also
received  preference  stock in the  special-purpose  entity equal to 3.5% of the
receivables  sold.  This preference  stock is essentially a retained  deposit to
provide further credit enhancements, if needed.

During 2002, 2001 and 2000, the company sold $609 million, $597 million and $160
million, respectively, of its pigment receivables, resulting in pretax losses of
$5 million, $8 million and $3 million, respectively. The losses are equal to the
difference in the book value of the  receivables  sold and the total of cash and
the  fair  value of the  deposit  retained  by the  special-purpose  entity.  At
year-end 2002 and 2001, the outstanding balance on receivables sold totaled $111
million  and  $96  million,  respectively.  There  were no  delinquencies  as of
year-end 2002.


8.   Accrued Liabilities

Accrued liabilities at year-end 2002 and 2001 are as follows:

(Millions of dollars)                                    2002            2001
---------------------                                    ----            ----

Interest payable                                         $105            $100
Employee-related costs and benefits                       103             102
Derivatives                                               135              32
Current environmental reserves                            100              68
Litigation reserves                                        43              21
Royalties payable                                          13               2
Drilling and operating costs                                6               4
Acquisition and merger reserves                             -               9
Other                                                      15              20
                                                         ----            ----
     Total                                               $520            $358
                                                         ====            ====

9.   Acquisition and Merger Reserves

During  2002,  the  company  recorded  an  accrual  of $3  million  representing
additional  severance  and other  acquisition-related  costs related to its 2001
acquisition  of HS Resources.  In 2001,  the company  recorded an accrual of $42
million for items associated with this acquisition,  which included  transaction
costs, severance and other  employee-related  costs, contract termination costs,
and other  acquisition-related  costs. Of the total accrual of $45 million,  $11
million was paid in 2002 and $34 million was paid during 2001.

During  1999,  the  company  recorded  an  accrual  of $163  million  for  items
associated with the Oryx merger. Included in this charge were transaction costs,
severance and other  employee-related  costs,  contract termination costs, lease
cancellations,   write-off  of  redundant  systems  and  equipment,   and  other
merger-related costs. Of this total accrual, zero and $1 million remained in the
reserve at the end of 2002 and 2001, respectively.

The accruals, payments and reserve balances for 2002 and 2001 are as follows:

(Millions of dollars)                                    2002            2001
---------------------                                    ----            ----

Beginning balance                                        $  9            $ 10
    Accruals                                                3              42
    Payments                                              (12)            (43)
                                                         ----            ----
Ending balance                                           $  -            $  9
                                                         ====            ====


10.  Restructuring Provisions and Exit Activities

During 2002, the company  provided $17 million for costs associated with exiting
its forest  products  business,  which is part of the chemical - other operating
unit.  Included in the 2002  provision  were $16 million for  dismantlement  and
closure costs, and $1 million for severance costs.  These costs are reflected in
Costs and operating expenses in the Consolidated Statement of Operations. Of the
total provision, $16 million remained in the accrual as of year-end 2002.

The   Indianapolis,   Indiana,   plant  was  identified  for  closure  in  2001.
Dismantlement  of the facility  began in 2002 and is expected to be completed in
2003.  The  company  will  also  close  four  of  its  five   remaining   forest
products-treating  plants. The disposition of the fifth plant, a leased facility
located in The  Dalles,  Oregon,  is the  subject of  ongoing  discussions.  The
company's options at the site include continuation of operations for the term of
the lease, which runs through November 30, 2004, or sale.  Commercial operations
will continue at the company's four owned plants until all current contracts are
fulfilled.  The company  expects to close the  Columbus,  Mississippi;  Madison,
Illinois; Springfield,  Missouri; and Texarkana, Texas, plants by year-end 2003.
In connection  with the plant  closures,  252 employees will be  terminated,  of
which 25 were terminated as of year-end 2002.

In 2001,  the company's  chemical - pigment  operating unit provided $32 million
related to the closure of a plant in Antwerp,  Belgium.  The provision consisted
of $12 million for severance  costs,  $12 million for  dismantlement  costs,  $7
million for  contract  settlement  costs and $1 million for other plant  closure
costs.  Of this  total  accrual,  $9 million  and $21  million  remained  in the
restructuring accrual at the end of 2002 and 2001, respectively.  As a result of
this plant closure,  121 employees will  ultimately be terminated,  of which 118
were  terminated as of December 31, 2002. The remainder will be terminated  when
dismantlement of the plant is completed, which is expected to occur in 2003.

Also in 2001, the company's chemical - other operating unit provided $12 million
for  the   discontinuation  of  manganese  metal  production  at  its  Hamilton,
Mississippi,  facility.  The provision  consisted of $7 million for pond-closure
costs,  $2 million for  severance  costs and $3 million for other  plant-closure
costs.  Of this  total  accrual,  $2  million  and $7  million  remained  in the
restructuring accrual at the end of 2002 and 2001, respectively.  As a result of
this plant closure, 42 employees were terminated and all related severance costs
were paid in 2001.  Completion of the remaining  action of pond closure may take
from three to 10 years, depending on environmental constraints.

The provisions, payments, adjustments and reserve balances for 2002 and 2001 are
included in the table below.


                                             2002                                         2001
                            ------------------------------------     ------------------------------------------------
                                                   Dismantlement                            Dismantlement
                                                             and                                      and
(Millions of dollars)       Total      Severance         Closure     Total     Severance          Closure       Other
---------------------       -----      ---------         -------     -----     ---------          -------       -----
                                                                                            
Beginning balance           $ 28           $ 12             $ 16      $  -           $ -              $ -        $ -
   Provisions                 17              1               16        44            14               23          7
   Payments (1)              (20)           (10)             (10)      (16)           (2)              (7)        (7)
   Adjustments (2)             2              1                1         -             -                -          -
                            ----           ----             ----      ----           ---              ---        ---
Ending balance              $ 27           $  4             $ 23      $ 28           $12              $16        $ -
                            ====           ====             ====      ====           ===              ===        ===



(1)  Includes amounts in total provision that were charged directly to expense.
(2)  Foreign-currency  translation  adjustments  related  to  Antwerp,  Belgium,
     accrual.


Following  are the  revenues  and pretax  income  included  in the  Consolidated
Statement of  Operations  for  operations  subject to exit plans.  Since each of
these  operations  represents  a small  portion of a  business  segment or legal
entity,  the pretax income amounts may not include all indirect costs that might
otherwise  have been  incurred  by an  unrelated  operation.  The  restructuring
provisions and any related  impairment  losses (see Note 20) are included in the
pretax income from continuing operations for 2002 and 2001.

(Millions of dollars)              2002                2001                 2000
---------------------              ----                ----                 ----

Sales -
   Chemicals - pigment             $ 11                $ 37                 $ 52
   Chemicals - other                132                 114                  134
                                   ----                ----                 ----

       Total                       $143                $151                 $186
                                   ====                ====                 ====

Pretax income (loss) -
   Chemicals - pigment             $  2                $(53)                $  -
   Chemicals - other                 (8)                (30)                   9
                                   ----                ----                 ----

       Total                       $ (6)               $(83)                $  9
                                   ====                ====                 ====


11.  Debt

Lines of Credit and Short-Term Borrowings

At year-end  2002,  the company  had  available  unused bank lines of credit and
revolving credit facilities of $1.499 billion.  Of this amount, $870 million can
be used to support commercial paper borrowing  arrangements of Kerr-McGee Credit
LLC,  and  $490  million  can be  used  to  support  European  commercial  paper
borrowings  of  Kerr-McGee  (G.B.) PLC,  Kerr-McGee  Chemical  GmbH,  Kerr-McGee
Pigments (Holland) B.V. and Kerr-McGee International ApS.

The company has  arrangements  to maintain  compensating  balances  with certain
banks that  provide  credit.  At year-end  2002,  the  aggregate  amount of such
compensating balances was immaterial, and the company was not legally restricted
from withdrawing all or a portion of such balances at any time during the year.

The company had no short-term borrowings at year-end 2002. Short-term borrowings
at year-end 2001 consisted of a note payable  totaling $8 million (4.42% average
interest rate). The note was denominated in euros and represented  approximately
9 million euros.

Long-Term Debt

The company's  policy is to classify  certain  borrowings under revolving credit
facilities  and  commercial  paper as  long-term  debt since the company has the
ability under certain  revolving  credit  agreements  and the intent to maintain
these  obligations  for longer than one year.  At year-end  2002 and 2001,  debt
totaling  $68  million  and $1.066  billion,  respectively,  was  classified  as
long-term consistent with this policy.

Long-term debt consisted of the following at year-end 2002 and 2001:


(Millions of dollars)                                             2002     2001
---------------------                                            ------   ------
Debentures -
  7.125% Debentures due October 15, 2027
      (7.01% effective rate)                                     $  150  $  150
  7% Debentures due November 1, 2011, net of
      unamortized debt discount of $90 in 2002
      and $94 in 2001 (14.25% effective rate)                       160     156
  5-1/4% Convertible subordinated debentures
      due February 15, 2010 (convertible at $61.08 per
      share, subject to certain adjustments)                        600     600
Notes payable -
  5-7/8% Notes due September 15, 2006 (5.89% effective rate)        325     325
  6-7/8% Notes due September 15, 2011,
      net of unamortized debt discount of $1
      in both 2002 and 2001 (6.90% effective rate)                  674     674
  7-7/8% Notes due September 15, 2031,
      net of unamortized debt discount of $2
      in both 2002 and 2001 (7.91% effective rate)                  498     498
  5-1/2% Exchangeable Notes (DECS) due August 2, 2004,
      net of unamortized debt discount of $12 in 2002
      and $20 in 2001 (5.60% effective rate) (See Note 18)          318     310
  6.625% Notes due October 15, 2007                                 150     150
  8.375% Notes due July 15, 2004                                    150     150
  8.125% Notes due October 15, 2005                                 150     150
  8% Notes due October 15, 2003                                     100     100
  5.375% Notes due April 15, 2005                                   350       -
  Variable interest rate revolving credit agreements with banks       -     254
  Floating rate notes due June 28, 2004 (2.54% average
      interest rate at December 31, 2002)                           200     200
  Medium-Term Notes (9.29% average effective
      interest rate at December 31, 2001)                             -      13
Commercial paper (3.01% average effective
  interest rate at December 31, 2001)                                 -     732
Euro Commercial paper (2.10% average effective
  interest rate at December 31, 2002)                                68      80
Guaranteed Debt of Employee Stock Ownership Plan 9.61%
  Notes due in installments through January 2, 2005                  11      21
Other                                                                 -       3
                                                                 ------  ------
                                                                  3,904   4,566
Long-term debt due within one year                                 (106)    (26)
                                                                 ------  ------
           Total                                                 $3,798  $4,540
                                                                 ======  ======

Maturities of long-term  debt due after  December 31, 2002,  are $106 million in
2003; $739 million in 2004, of which $318 million may be a noncash settlement of
the DECS and $68 million is  borrowings  that the company  expects to be able to
maintain as long-term,  see above;  $501 million in 2005;  $325 million in 2006;
$150 million in 2007; and $2.083 billion thereafter.

Certain  of  the  company's   long-term  debt  agreements  contain   restrictive
covenants,  including a minimum  tangible  net worth  requirement  and a maximum
total  debt to  total  capitalization  ratio as  defined  in the  agreement.  At
December 31, 2002, the company was in compliance with its debt covenants.


12.  Income Taxes

The taxation of a company that has operations in several countries involves many
complex  variables,  such as tax structures  that differ from country to country
and the effect on U.S. taxation of international earnings. These complexities do
not permit meaningful comparisons between the U.S. and international  components
of  income  before  income  taxes  and  the  provision  for  income  taxes,  and
disclosures of these components do not necessarily  provide reliable  indicators
of  relationships  in future periods.  Income (loss) from continuing  operations
before income taxes is composed of the following:

(Millions of dollars)                     2002            2001             2000
---------------------                    -----            ----            ------

United States                            $(116)           $524            $  562
International                             (541)            228               692
                                         -----            ----            ------
    Total                                $(657)           $752            $1,254
                                         =====            ====            ======

On July 24, 2002,  the United  Kingdom  government  made certain  changes to its
existing  tax  laws.   Under  one  of  these  changes,   companies  will  pay  a
supplementary corporate tax charge of 10% on profits from their U.K. oil and gas
production.  This is in  addition to the  existing  30%  corporate  tax on these
profits.  The U.K.  government has also accelerated tax depreciation for capital
investments in U.K. upstream  activities.  The deferred income tax liability was
adjusted  to reflect  this  revised  rate,  causing a net  increase  in the 2002
international deferred provision for income taxes of $132 million.  Finally, the
U.K.  government  announced on November 27, 2002, that royalty will be abolished
on North Sea production effective January 1, 2003.

For the year 2002, the effective  income tax rates in Canada and the Netherlands
decreased to 35% and 34.5%,  respectively,  from 37% and 35%, respectively.  The
effect on the international deferred provision for income taxes was less than $1
million.

The effective  income tax rate in Canada  decreased to 37% from 38% for the year
2001.  The deferred  income tax  liability  balance was adjusted to reflect this
revised rate,  causing a decrease in the 2001  international  deferred provision
for income taxes of $1 million.

The income tax rate in  Australia  decreased  to 30% from 34% for the year 2001,
and decreased to 34% from 36% for the year 2000.  Effective January 1, 2001, the
German  corporate income tax rate decreased to 25% from 30%. The deferred income
tax asset and liability  balances were adjusted to reflect these revised  rates,
causing a net increase in the 2000  international  deferred provision for income
taxes of $2 million.

The  Internal  Revenue  Service has  examined  the  Kerr-McGee  Corporation  and
subsidiaries'  Federal  income tax returns for all years through  1996,  and the
years have been closed  through  1994.  The Oryx  income tax  returns  have been
examined through 1997, and the years through 1978 have been closed,  as have the
years  1988  through  1997.  The  company  believes  that it has  made  adequate
provision  for income  taxes that may become  payable  with  respect to open tax
years.

The  2002,  2001 and 2000  income  tax  provisions  (benefits)  from  continuing
operations are summarized below:



(Millions of dollars)                  2002             2001              2000
---------------------                  ----             ----              ----

U.S. Federal -
     Current                           $  12            $(70)             $101
     Deferred                           (104)            219                82
                                       -----            ----              ----
                                         (92)            149               183
                                       -----            ----              ----
International -
     Current                              36             130               286
     Deferred                             10              (8)              (34)
                                       -----            ----              ----
                                          46             122               252
                                       -----            ----              ----
State                                      -               5                 2
                                       -----            ----              ----

         Total                         $ (46)           $276              $437
                                       =====            ====              ====


At December  31,  2002,  the company had foreign  operating  loss  carryforwards
totaling $305 million.  Of this amount,  $8 million expires in 2003, $11 million
in 2004,  $13  million  in 2006,  $2  million  in 2007 and $271  million  has no
expiration date.  Realization of these operating loss  carryforwards  depends on
generating sufficient taxable income in future periods.

Net deferred tax  liabilities at December 31, 2002 and 2001, are composed of the
following:


(Millions of dollars)                                          2002       2001
---------------------                                         ------     ------

Net deferred tax liabilities -
  Accelerated depreciation                                    $1,088     $1,281
  Exploration and development                                    192        160
  Undistributed earnings of foreign subsidiaries                  28         28
  Postretirement benefits                                        (89)       (89)
  Dismantlement, remediation, restoration and other reserves     (34)       (58)
  U.S. and foreign operating loss carryforward                   (92)       (46)
  AMT credit carryforward                                        (47)       (18)
  Other                                                           99        104
                                                              ------     ------
      Total                                                   $1,145     $1,362
                                                              ======     ======

In the following  table,  the U.S.  Federal income tax rate is reconciled to the
company's  effective tax rates for income or loss from continuing  operations as
reflected in the Consolidated Statement of Operations.

                                                   2002        2001        2000
                                                   ----        ----        ----

U.S. statutory rate - provision (benefit)         (35.0)%       35.0%      35.0%
  Increases (decreases) resulting from -
    Adjustment of deferred tax balances due
      to tax rate changes                          19.9          (.1)        .1
    Taxation of foreign operations                 12.1          1.7         .5
    Refunds of prior years' income taxes              -            -        (.8)
    Federal income tax credits                     (1.8)           -          -
    Other - net                                    (2.2)          .1          -
                                                   ----         ----       ----
          Total                                    (7.0)%       36.7%      34.8%
                                                   ====         ====       ====


13.  Taxes, Other than Income Taxes

Taxes,  other than  income  taxes,  as shown in the  Consolidated  Statement  of
Operations for the years ended  December 31, 2002,  2001 and 2000, are comprised
of the following:

(Millions of dollars)                   2002             2001              2000
---------------------                   ----             ----              ----

Production/severance                    $ 58            $  67            $   85
Payroll                                   21               27                21
Property                                  20               15                13
Other                                      5                5                 3
                                        ----             ----              ----
              Total                     $104             $114              $122
                                        ====             ====              ====


14.  Deferred Credits and Reserves - Other

Other  deferred  credits and reserves  consist of the following at year-end 2002
and 2001:

(Millions of dollars)                                    2002              2001
---------------------                                    ----              ----

Reserves for site dismantlement, remediation
    and restoration                                      $387              $300
Postretirement benefit obligations                        210               205
Pension plan liabilities                                   54                23
Derivatives (1)                                            67                42
Litigation reserves                                        30                25
Ad valorem taxes                                           21                27
Other                                                      35                24
                                                         ----              ----
    Total                                                $804              $646
                                                         ====              ====

(1)  Options   associated  with  exchangeable  debt,  forward  foreign  currency
     contracts and commodity derivative contracts (see Note 18).


The company  provided for  environmental  remediation  and  restoration,  net of
authorized  reimbursements,  during  each of the years 2002,  2001 and 2000,  as
follows:

(Millions of dollars)                          2002          2001          2000
---------------------                          ----          ----          ----

Provision, net of authorized reimbursements    $ 80           $90          $112
Reimbursements received                           9            11            66
Authorized reimbursements accrued               113             -             -

The  reimbursements,  which  pertain to the  former  facility  in West  Chicago,
Illinois,  are  authorized  pursuant to Title X of the Energy Policy Act of 1992
(see Note 16).


15.  Other Income (Loss)

Other income  (loss) was as follows  during each of the years in the  three-year
period ended December 31, 2002:

(Millions of dollars)                          2002          2001          2000
---------------------                          ----          ----          ----

Derivatives and Devon stock revaluation (1)    $ 35          $225          $  -
Interest income                                   5            10            21
Income (loss) from unconsolidated affiliates    (25)           (5)           23
Gain (loss) on foreign currency exchange        (38)            3            30
Gain (loss) on sale of assets                    (3)            4             6
Plant closing/product line discontinuation        -             -           (21)
Other                                            (9)          (13)           (9)
                                               ----          ----          ----
         Total                                 $(35)         $224          $ 50
                                               ====          ====          ====

(1)  See Note 18.



16.  Contingencies

West Chicago, Illinois

In 1973, the company's chemical  affiliate  (Chemical) closed a facility in West
Chicago,  Illinois,  that processed thorium ores for the federal  government and
for certain commercial purposes. Historical operations had resulted in low-level
radioactive contamination at the facility and in surrounding areas. The original
processing  facility is regulated by the State of Illinois (the State), and four
vicinity areas are designated as Superfund  sites on the National  Priority List
(NPL).

Closed Facility - In 1994, Chemical, the City of West Chicago (the City) and the
State reached agreement on the initial phase of the decommissioning plan for the
closed West Chicago facility, and Chemical began shipping material from the site
to a licensed permanent disposal facility.  In February 1997,  Chemical executed
an agreement  with the City covering the terms and conditions for completing the
final phase of decommissioning work. The agreement requires Chemical to excavate
contaminated soil and ship it to a licensed disposal  facility,  monitor and, if
necessary,  remediate groundwater and restore the property.  The State indicated
approval of the agreement and issued license  amendments  authorizing  the work.
Chemical  expects most of the work to be  completed by the end of 2003,  leaving
principally  surface  restoration and groundwater  monitoring and/or remediation
for subsequent years.  Surface  restoration is expected to be completed in 2004.
The  long-term  scope,  duration  and  cost  of  groundwater  monitoring  and/or
remediation  are  uncertain  because it is not possible to reliably  predict how
groundwater conditions will be affected by the ongoing work.

Vicinity Areas - The Environmental Protection Agency (EPA) has listed four areas
in the  vicinity  of the  closed  West  Chicago  facility  on the  NPL  and  has
designated  Chemical  as a  Potentially  Responsible  Party  (PRP) in these four
areas.  The EPA  issued  unilateral  administrative  orders for two of the areas
(known as the Residential Areas and Reed-Keppler  Park), which required Chemical
to conduct removal actions to excavate  contaminated soil and ship the soil to a
licensed  disposal  facility.  Chemical  has  substantially  completed  the work
required by the two orders.

The other two NPL sites,  known as Kress Creek and the Sewage  Treatment  Plant,
are contiguous and involve low levels of insoluble thorium residues  principally
in  streambanks  and  streambed  sediments,  virtually  all  within a  floodway.
Chemical  has  conducted  a thorough  characterization  of the two sites and has
reached conceptual  agreement with local  governmental  authorities on a cleanup
plan,  which is currently  being  reviewed by EPA. The cleanup plan will require
excavation of  contaminated  soils and stream  sediments,  shipment of excavated
materials to a licensed disposal facility and restoration of affected areas. The
agreement is  conditioned  upon the  resolution  of certain  matters,  including
agreements  regarding potential natural resource damages and government response
costs,  and is expected to be incorporated in a consent decree that will address
the outstanding  issues.  The consent decree must be approved by EPA, the State,
local  communities  and  Chemical  and then  entered by a federal  court.  It is
expected that the necessary  parties will approve the terms of a consent  decree
in 2003 and the work, once commenced, will take about four years to complete.

Financial Reserves - As of December 31, 2002, the company had remaining reserves
of $103 million for costs  related to West  Chicago.  This  includes $99 million
added to the reserves in 2002, of which $84 million reflects the estimated costs
to implement the conceptual agreement with respect to the Kress Creek and Sewage
Treatment Plant sites,  and the remainder  principally  reflects  changes in the
scope of excavation and construction  and increased  estimates of the volumes of
soil  contamination  at the other West Chicago sites.  Although actual costs may
exceed  current  estimates,  the amount of any  increases  cannot be  reasonably
estimated  at  this  time.   The  amount  of  the  reserve  is  not  reduced  by
reimbursements  expected from the federal government under Title X of the Energy
Policy Act of 1992 (Title X) (discussed below).

Government  Reimbursement  - Pursuant to Title X, the U.S.  Department of Energy
(DOE) is obligated to reimburse Chemical for certain decommissioning and cleanup
costs  incurred in connection  with the West Chicago sites in recognition of the
fact  that  about  55%  of the  facility's  production  was  dedicated  to  U.S.
government  contracts.  The amount authorized for reimbursement under Title X is
$365 million plus  inflation  adjustments.  That amount is expected to cover the
government's  full share of West Chicago  cleanup  costs.  Through  December 31,
2002, Chemical had been reimbursed approximately $156 million under Title X.

Reimbursements  under  Title X are  provided  by  congressional  appropriations.
Historically,   congressional  appropriations  have  lagged  Chemical's  cleanup
expenditures.  As of December 31, 2002, the government's share of costs incurred
by  Chemical  but  not yet  reimbursed  by the DOE  totaled  approximately  $113
million.  The company believes receipt of this arrearage in due course following
additional  congressional  appropriations  is  probable  and has  reflected  the
arrearage  as a  receivable  in  the  financial  statements.  The  company  will
recognize recovery of the government's share of future remediation costs for the
West Chicago sites as Chemical incurs the costs.

Henderson, Nevada

In 1998,  Chemical decided to exit the ammonium  perchlorate  business.  At that
time,  Chemical  curtailed  operations and began preparation for the shutdown of
the  associated  production  facilities  in  Henderson,  Nevada,  that  produced
ammonium  perchlorate  and other related  products.  Manufacture  of perchlorate
compounds began at Henderson in 1945 in facilities owned by the U.S. government.
Production  expanded  significantly  in 1953  with  completion  of a  plant  for
manufacture of ammonium perchlorate. The U.S. Navy paid for construction of this
plant  and took  title to it in 1953.  The Navy  continued  to own the  ammonium
perchlorate plant as well as other associated  production equipment at Henderson
until 1962,  when the plant was  purchased by a  predecessor  of  Chemical.  The
ammonium  perchlorate  produced at the Henderson  facility was used primarily in
federal government defense and space programs.  Perchlorate has been detected in
nearby Lake Mead and the Colorado River.

Chemical  decided to exit the  business  in 1998 and began  decommissioning  the
facility and remediating associated perchlorate contamination, including surface
impoundments  and groundwater.  In 1999 and 2001,  Chemical entered into consent
orders with the Nevada  Department  of  Environmental  Protection  that  require
Chemical to implement  both interim and long-term  remedial  measures to capture
and remove perchlorate from groundwater.

In 1999, Chemical initiated the interim measures required by the consent orders.
Chemical  subsequently  developed and installed a long-term  remediation  system
based on new  technology,  but startup  difficulties  have prevented  successful
commissioning of the long-term system. Chemical currently is evaluating possible
solutions  to  resolve  the  startup  difficulties  and is  also  evaluating  an
alternative technology in the event the startup difficulties cannot be resolved.
The  evaluation  process  should be  completed  in the first  half of 2003.  The
interim  system has been  enhanced  pending the  successful  commissioning  of a
long-term  system.  The scope and duration of  groundwater  remediation  will be
driven in the long term by drinking water standards, which to date have not been
formally established by state or federal regulatory  authorities.  EPA and other
federal and state agencies currently are evaluating the health and environmental
risks associated with perchlorate as part of the process for ultimately  setting
a drinking  water  standard.  The  resolution  of these issues could  materially
affect the scope,  duration and cost of the  long-term  groundwater  remediation
that Chemical is required to perform.

Financial  Reserves - As of December 31, 2002, the company's  remaining reserves
for  Henderson  totaled $17 million.  This  includes $22 million  added in 2002,
principally  as a result  of  technological  difficulties  encountered  with the
long-term  remediation  system and the resulting need to enhance and prolong the
interim treatment  measures.  The reserves do not include any cost that might be
incurred to install an alternate technology as possible solutions to address the
startup difficulties still are being evaluated,  and evaluation of the alternate
technology is not complete.  As noted above, the long-term  scope,  duration and
cost of groundwater  remediation are uncertain and, therefore,  additional costs
may be incurred in the future.  However,  the amount of any additions  cannot be
reasonably estimated at this time.

Government  Litigation  - In 2000,  Chemical  initiated  litigation  against the
United States seeking  contribution  for response  costs.  The suit,  Kerr-McGee
Chemical LLC v. United States of America,  is pending in U.S. District Court for
the District of Columbia.  The government  owned the plant in the early years of
its  operation and was the largest  consumer of products  produced at the plant.
The litigation is in the early stages of discovery.  Although the outcome of the
litigation is uncertain,  Chemical believes it is likely to recover a portion of
its costs from the  government.  The amount and timing of any recovery cannot be
estimated  at this  time  and,  accordingly,  the  company  has not  recorded  a
receivable  or otherwise  reflected in the  financial  statements  any potential
recovery from the government.

Insurance - In 2001,  Chemical purchased a 10-year,  $100 million  environmental
cost  cap  insurance  policy  for  groundwater  remediation  at  Henderson.  The
insurance policy provides  coverage only after Chemical  exhausts a self-insured
retention of  approximately  $61 million and covers only those costs incurred to
achieve a cleanup  level  specified in the policy.  As noted above,  federal and
state agencies have not established a drinking water standard and, therefore, it
is  possible  that  Chemical  may be  required  to achieve a cleanup  level more
stringent than that covered by the policy.  If so, the amount  recoverable under
the policy could be affected.  Through December 31, 2002,  Chemical has incurred
expenditures  of about  $38  million  that it  believes  can be  applied  to the
self-insured retention.  Additionally, the company believes that the $17 million
reserve  remaining  at  December  31,  2002,  will  be  creditable  against  the
self-insured  retention.  The company has not recorded a receivable or otherwise
reflected in the financial  statements any potential recovery from the insurance
policy since costs  incurred to date and estimated  costs for future work do not
exhaust the  self-insured  retention.  The  applicability of expenditures to the
self-insured retention is a matter currently under discussion with the insurance
carrier.  Therefore,  the amount of the remaining  self-insured retention may be
greater than currently estimated.

Milwaukee, Wisconsin

In 1976, Chemical closed a wood-treatment facility it had operated in Milwaukee,
Wisconsin.  Operations at the facility  prior to its closure had resulted in the
contamination  of soil and  groundwater at and around the site with creosote and
other substances used in the wood-treatment process. In 1984, EPA designated the
Milwaukee  wood-treatment  facility as a Superfund site under the  Comprehensive
Environmental Response, Compensation, and Liability Act of 1980 (CERCLA), listed
the site on the NPL and named Chemical a PRP. Chemical executed a consent decree
in 1991 that  required it to perform  soil and  groundwater  remediation  at and
below the former  wood-treatment  area and to address a  tributary  creek of the
Menominee River that had become  contaminated as a result of the  wood-treatment
operations.  Actual remedial activities were deferred until after the decree was
finally entered in 1996 by a federal court in Milwaukee.

Groundwater  treatment,  using a pump-and-treat system, was initiated in 1996 to
remediate  groundwater  contamination  below and in the  vicinity  of the former
wood-treatment  area.  It is not  possible to reliably  predict how  groundwater
conditions  will be affected by the ongoing  soil  remediation  and  groundwater
treatment;  therefore,  it is not  known  how long  groundwater  treatment  will
continue.  Soil cleanup of the former  wood-treatment area began in 2000 and was
completed in 2002.  Also in 2002,  terms for addressing the tributary creek were
agreed upon with EPA, after which Chemical began the  implementation of a remedy
to reroute the creek and to remediate associated sediment and stream bank soils.
It is expected that the soil and sediment  remediation will take about four more
years.

As of December 31, 2002,  the company had remaining  reserves of $13 million for
the costs of the  remediation  work described  above.  This includes $12 million
added to the reserve in 2002 to implement  the remedy  related to the  tributary
creek.  Although  actual costs may exceed current  estimates,  the amount of any
increases cannot be reasonably estimated at this time.

Cushing, Oklahoma

In 1972, an affiliate of the company closed a petroleum refinery it had operated
near Cushing,  Oklahoma.  Prior to closing the refinery,  the affiliate also had
produced  uranium  and thorium  fuel and metal at the site  pursuant to licenses
issued by the Atomic Energy Commission (AEC). The uranium and thorium operations
commenced  in 1962  and were  shut  down in 1966,  at which  time the  affiliate
decommissioned and cleaned up the portion of the facility related to uranium and
thorium operations to applicable standards.  The refinery also was cleaned up to
applicable standards at the time of closing.

Subsequent  regulatory changes required more extensive  remediation at the site.
In 1990,  the  affiliate  entered  into a  consent  agreement  with the State of
Oklahoma to investigate the site and take  appropriate  remedial actions related
to  petroleum  refining  and  uranium  and  thorium  residuals.  Remediation  of
hydrocarbon  contamination  is  being  performed  under a plan  approved  by the
Oklahoma  Department  of  Environmental  Quality.  Soil  remediation  to address
hydrocarbon contamination is expected to continue for about four more years. The
scope  of any  groundwater  remediation  that  may  be  required  is not  known.
Additionally, in 1993, the affiliate received a decommissioning license from the
Nuclear Regulatory Commission (NRC), the successor to AEC's licensing authority,
to  perform  certain  cleanup  of  uranium  and  thorium  residuals.   To  avoid
anticipated  future increases in disposal costs, much of the uranium and thorium
residuals were cleaned up and disposed in 2002 after  obtaining NRC approvals to
conduct soil removal without first  completing the site  characterization,  work
that is necessary  for  identifying  the scope of required  cleanup  activities.
Because excavation  preceded  characterization,  contamination that had not been
previously   identified  was   encountered  and  removed  during  the  expedited
excavation and disposal work.  Characterization and verification work is ongoing
to  confirm  whether  the  work  undertaken  in 2002  adequately  addressed  the
contaminated  areas.  Additional  excavation  may be  required  in  the  future,
depending on the results of the characterization and verification work.

As of December 31, 2002,  the company had remaining  reserves of $23 million for
the costs of the ongoing remediation and  decommissioning  work described above.
This included $32 million added to the reserves in 2002, principally as a result
of costs incurred to perform the expedited  uranium and thorium cleanup work and
costs  for  excavating  and  disposing  of  additional  refinery-related  wastes
identified in 2002.  Although  actual costs may exceed  current  estimates,  the
amount of any increases cannot be reasonably estimated at this time.

New Jersey Wood-Treatment Site

In 1999, EPA notified Chemical and its parent company that they were potentially
responsible parties at a former  wood-treatment site in New Jersey that has been
listed by EPA as a Superfund  site. At that time,  the company knew little about
the site as neither Chemical nor its parent had ever owned or operated the site.
A predecessor of Chemical had been the sole  stockholder of a company that owned
and  operated  the  site.  The  company  that  owned the site  already  had been
dissolved  and the site had been sold to a third party  before  Chemical  became
affiliated with the former stockholder in 1964. EPA has preliminarily  estimated
that cleanup costs may reach $120 million or more.

There are substantial  uncertainties  about  Chemical's  responsibility  for the
site,  and  Chemical  is  evaluating  possible  defenses to any claim by EPA for
response costs. EPA has not articulated the factual and legal basis on which EPA
notified Chemical and its parent that they are potentially  responsible parties.
The EPA  notification  may be based on a successor  liability theory premised on
the 1964  transaction  pursuant to which  Chemical  became  affiliated  with the
former stockholder of the company that had owned and operated the site. Based on
available  historical  records,  it is uncertain  whether and, if so, under what
terms,  the former  stockholder  assumed  liabilities of the dissolved  company.
Moreover,  as noted  above,  the site had  been  sold to a third  party  and the
company  that owned and  operated the site had been  dissolved  before  Chemical
became affiliated with that company's stockholder.  In addition, there appear to
be other  potentially  responsible  parties,  though it is not known whether the
other parties have received  notification from EPA. EPA has not ordered Chemical
or its parent to perform  work at the site and is  instead  performing  the work
itself.  The  company  has not  recorded  a  reserve  for the  site as it is not
possible to reliably estimate whatever liability Chemical or its parent may have
for the cleanup because of the aforementioned uncertainties and the existence of
other potentially responsible parties.

Forest Products Litigation

Primary Lawsuits - Between 1999 and 2001, Kerr-McGee Chemical LLC (Chemical) and
its parent  company  were named in 22  lawsuits  in three  states  (Mississippi,
Louisiana  and  Pennsylvania)  in  connection  with  present  and former  forest
products  operations located in those states. The lawsuits seek recovery under a
variety of common law and  statutory  legal  theories for personal  injuries and
property damages  allegedly caused by exposure to and/or release of creosote and
other substances used in the  wood-treatment  process.  Some of the lawsuits are
filed on  behalf of  specifically  named  individual  plaintiffs,  while  others
purport  to be filed on  behalf  of  classes  of  allegedly  similarly  situated
plaintiffs.

Seven of the 22 cases  were  filed  in  Mississippi  and  relate  to  Chemical's
Columbus,  Mississippi,  wood-treatment  plant. Two of the Mississippi cases are
pending  in the U.S.  District  Court  for the  Northern  District:  Andrews  v.
Kerr-McGee (filed September 8, 1999) and Bachelder v. Kerr-McGee (filed March 7,
2001).  Three of the  Mississippi  cases are  pending  in the  Circuit  Court of
Lowndes County: Spirit of Prayer v. Kerr-McGee (filed March 16, 2000), Burgin v.
Kerr-McGee (filed March 6, 2001) and Maranatha Faith Center v. Kerr-McGee (filed
February 18, 2000). Two of the Mississippi cases are pending in Circuit Court of
Hinds County:  Jamison v.  Kerr-McGee  (filed February 18, 2000) and Cockrell v.
Kerr-McGee (filed March 6, 2001).

Seven  of  the  22  cases  were  filed  in  Louisiana  and  relate  to a  former
wood-treatment  plant that was located in Bossier  City,  Louisiana.  One of the
Louisiana cases is pending in the U.S.  District Court for the Western District:
Shirlean  Taylor,  et al.  v.  Kerr-McGee  (filed  June 15,  2000).  Five of the
Louisiana cases are pending in the U.S. District Court for the Western District,
subject to remand to 26th District Court of Bossier  Parish,  and all were filed
on October 25, 2001: Brenda Sue Adams, et al. v. Kerr-McGee;  J.C. Adams, et al.
v. Kerr-McGee; Linda Paul Anderson, et al. v. Kerr-McGee;  Shirley Marie Austin,
et al. v. Kerr-McGee; and Ronald Donald Bailey, et al. v. Kerr-McGee. One of the
Louisiana cases is pending in the 26th District Court of Bossier  Parish:  T. J.
Allen, et al. v. Kerr-McGee (filed October 25, 2001).

Eight of the 22 cases were filed in the Court of Common Pleas,  Luzerne  County,
Pennsylvania,   and   relate  to  a  closed   wood-treatment   plant  in  Avoca,
Pennsylvania.  Five of the  Pennsylvania  cases were filed on October 23,  2001:
Mary Beth Marriggi, et al. v. Kerr-McGee; Delores Kubasko, et al. v. Kerr-McGee;
Barbara Fromet, et al. v. Kerr-McGee; Ann Culp, et al. v. Kerr McGee; and Robert
Battista,  et al. v. Kerr-McGee.  Three of the Pennsylvania  cases were filed on
November 15, 2001: Stacey Berkoski,  et al. v. Kerr-McGee;  Kenneth Battista, et
al. v. Kerr-McGee; and James Butcher, et al. v. Kerr-McGee.

The parties have  executed  agreements  to settle five of the seven  Mississippi
cases and all seven of the Louisiana  cases. The settlement  agreements  require
Chemical to pay up to $56  million  for the  benefit of about  9,400  identified
claimants who are eligible under the  agreements and who sign releases.  Of that
potential maximum of $56 million,  approximately $44 million had been paid as of
December 31, 2002. In addition,  the agreements require Chemical to pay up to an
additional $11 million from any recovery in certain  insurance  litigation  that
Chemical and its parent filed against their insurance  carriers (see below). The
agreements  also  contemplated  two  class-action  settlement  funds  -  one  in
Mississippi  and one in Louisiana - for the benefit of a class of residents  who
did not sign individual  releases and who did not choose to opt out of the class
settlements.  The parties moved forward with the class settlement in Mississippi
but agreed not to pursue a class-action settlement in Louisiana. Chemical may be
required to pay up to a maximum of $7.5 million to the Mississippi  class-action
settlement  fund.  The  precise  amount  of  Chemical's  obligations  under  the
agreements  depends  on the  number of  plaintiffs  who sign and  deliver  valid
individual  releases,  the number of the  Mississippi  class  members who submit
proof of claim  forms and the number of class  members who opt out of the class.
Further payments  pursuant to the settlements of the  nonclass-action  cases are
subject  to a number of  conditions,  including  the  signing  and  delivery  of
releases  by named  plaintiffs  and court  approval of various  matters  such as
minors'   settlements.   The  class-action   settlement   agreement,   including
certification  of the  settlement  class and  approval of the class  settlement,
requires court approval.  On February 21, 2003, the federal court in Mississippi
approved the  Mississippi  class  settlement.  Subsequently,  two members of the
class filed a notice appealing the order approving the class settlement.

Although the settlement  agreements are expected to resolve all of the Louisiana
lawsuits and substantially all of the Columbus, Mississippi,  lawsuits described
above, the settlements will not resolve the claims of plaintiffs who do not sign
releases, the claims of any class members who opt out of the class settlement or
any  claims  by  class  members  that  may  arise in the  future  for  currently
unmanifested personal injuries.  The settlements also do not cover the Maranatha
Faith Center v. Kerr-McGee or the Jamison v. Kerr-McGee  cases which,  together,
involve 27 plaintiffs who allege  property damage and/or personal injury arising
out of the Columbus, Mississippi, operations or the eight cases in Pennsylvania,
which  involve  55 named  plaintiffs  and an  undetermined  number of  allegedly
similarly  situated  persons.  The  company  is  vigorously  defending  the  two
remaining   Mississippi   lawsuits  and  the  Pennsylvania  cases,  pending  any
settlement of those cases.

The  implementation  of the settlements is progressing.  Of approximately  6,100
identified  claimants in Columbus,  Mississippi,  approximately  5,300 claimants
have  delivered  releases.   Of  approximately  3,300  identified  claimants  in
Louisiana,  approximately  3,000  claimants  have  delivered  releases.  Through
December 31, 2002,  Chemical had paid  approximately $44 million pursuant to the
settlement  agreements  to  Mississippi  and  Louisiana  plaintiffs  who  signed
releases.  No  payments  will be made to either of the  class  settlement  funds
unless and until the appropriate court in each state has certified the class and
approved the respective class settlement.

Insurance  Litigation  - In 2001,  Chemical  and its parent  company  filed suit
against insurance carriers in the Superior Court of Somerset County, New Jersey.
The  suit,  Kerr-McGee  Corporation  and  Kerr-McGee  Chemical  LLC v.  Hartford
Accident & Indemnity Company and Liberty Mutual Insurance Company, is to recover
losses associated with certain environmental litigation,  agency proceedings and
the Pennsylvania  forest products litigation  described above.  Chemical and its
parent believe that they have valid claims against their insurers;  however, the
prospects for recovery are uncertain and the  litigation is in its early stages.
Further,  a portion of any recovery will be paid to the plaintiffs in the forest
products  litigation as a part of the  settlement  agreements  described  above.
Accordingly, the company has not recorded a receivable or otherwise reflected in
its financial statements any potential recovery from the insurance litigation.

Financial Reserves - The company previously established a $70 million reserve in
connection  with the  forest  products  litigation.  The  reserve  included  the
estimated  amounts owed under the  settlements  described above and an estimated
amount for the remaining two Mississippi cases and the eight Pennsylvania cases.
As noted above,  through December 31, 2002,  Chemical had paid approximately $44
million  pursuant to the  settlement  agreements.  As of December 31, 2002,  the
company's  remaining  reserves for the forest  products  litigation  totaled $26
million.  The company believes the reserve adequately provides for the potential
liability associated with these matters; however, there is no assurance that the
company will not be required to adjust the reserve in the future in light of the
inherent uncertainties associated with litigation.

Follow-on Litigation - A class-action settlement sometimes results in the filing
of additional lawsuits alleging facts and causes of action substantially similar
to those alleged in the case(s) covered by the settlement.  In addition,  in the
fall of 2002, the Mississippi  legislature enacted a tort reform law that became
effective for lawsuits  filed on or after  January 1, 2003.  Among other things,
the new law limits  punitive  damages and makes other  changes  intended to help
ensure  fairness in the Mississippi  civil justice  system.  The tort reform law
resulted in numerous lawsuits being filed in Mississippi  immediately before the
effective date of the new law. On December 31, 2002,  approximately 245 lawsuits
were filed against Chemical and its affiliates on behalf of approximately  4,598
claimants in connection with Chemical's Columbus,  Mississippi,  operations. All
of the lawsuits were filed in the Circuit Court of Lowndes County,  Mississippi,
Case Nos.  2002-0302 CV1 through  2002-0543 CV1;  2002-0549 CV1;  2002-0550 CV1;
2002-0294  CV1 and  2002-0278  CV1.  Chemical  and its  affiliates  believe  the
lawsuits  are  without  substantial  merit and intend to  vigorously  defend the
lawsuits. The company has not provided a reserve for the new lawsuits because it
cannot  reasonably  determine the probability of a loss, and the amount of loss,
if any, cannot be reasonably estimated.

Hattiesburg  Litigation  - On December  31,  2002,  a lawsuit was filed  against
Chemical in the Circuit Court of Forest County, Mississippi.  The lawsuit, Betty
Bolton  et al. v.  Kerr-McGee  Chemical  Corporation,  names  approximately  975
plaintiffs and relates to a former  wood-treatment plant located in Hattiesburg,
Mississippi.  The lawsuit seeks recovery on legal theories substantially similar
to those advanced in the forest products litigation described above.

There  are  substantial   uncertainties  about  Chemical's   responsibility  for
operations at the former  facility.  A predecessor of Chemical had been the sole
stockholder of a company that owned and operated the facility.  The company that
had operated the facility already had been dissolved and its leasehold  interest
in the site had been sold to a third party  before  Chemical  became  affiliated
with the former stockholder in 1964. Based on available  historical  records, it
is  uncertain  whether  and,  if so,  under what terms,  the former  stockholder
assumed liabilities of the dissolved company. In any case, Chemical believes the
lawsuit is  without  substantial  merit and  intends  to  vigorously  defend the
litigation. The company has not provided a reserve for the litigation because it
cannot reasonably determine the probability of a loss, and the amount of a loss,
if any, cannot be reasonably estimated.

Other Matters

The  company  and/or  its  affiliates  are  parties  to a number  of  legal  and
administrative  proceedings involving environmental and/or other matters pending
in  various  courts or  agencies.  These  include  proceedings  associated  with
facilities  currently or  previously  owned,  operated or used by the  company's
affiliates and/or their  predecessors,  and include claims for personal injuries
and property damages.  Current and former operations of the company's affiliates
also  involve  management  of  regulated  materials  and are  subject to various
environmental laws and regulations. These laws and regulations will obligate the
company's  affiliates  to clean up various  sites at which  petroleum  and other
hydrocarbons, chemicals, low-level radioactive substances and/or other materials
have been  disposed of or  released.  Some of these  sites have been  designated
Superfund  sites by EPA pursuant to CERCLA.  Similar  environmental  regulations
exist in foreign countries in which the company's affiliates operate.

The company provides for costs related to contingencies  when a loss is probable
and the amount is  reasonably  estimable.  It is not possible for the company to
reliably  estimate the amount and timing of all future  expenditures  related to
environmental  and legal matters and other  contingencies  because,  among other
reasons:

   o    some sites are in the early stages of investigation, and other sites may
        be identified in the future;

   o    cleanup  requirements  are difficult to predict at sites where  remedial
        investigations  have not been completed or final decisions have not been
        made regarding cleanup requirements,  technologies or other factors that
        bear on cleanup costs;

   o    environmental  laws frequently impose joint and several liability on all
        potentially  responsible  parties,  and it can be difficult to determine
        the number and  financial  condition  of other  potentially  responsible
        parties and their respective shares of responsibility for cleanup costs;

   o    environmental laws and regulations are continually  changing,  and court
        proceedings are inherently uncertain;

   o    some  legal  matters  are  in  the  early  stages  of  investigation  or
        proceeding or their outcomes otherwise may be difficult to predict,  and
        other legal matters may be identified in the future;

   o    unanticipated  construction  problems and weather  conditions can hinder
        the completion of environmental remediation;

   o    the inability to implement a planned  engineering  design or use planned
        technologies and excavation  methods may require revisions to the design
        of remediation measures, which delay remediation and increase costs; and

   o    the  identification  of additional areas or volumes of contamination and
        changes  in  costs  of  labor,   equipment   and   technology   generate
        corresponding changes in environmental remediation costs.

As of December 31,  2002,  the company had  reserves  totaling  $258 million for
cleaning up and  remediating  environmental  sites,  reflecting  the  reasonably
estimable costs for addressing  these sites.  This includes $103 million for the
West Chicago sites, $17 million for the Henderson, Nevada, site, and $45 million
for forest products sites.  Cumulative  expenditures at all environmental  sites
through December 31, 2002, total $1.023 billion (before  considering  government
reimbursements).  Additionally,  as  of  December  31,  2002,  the  company  had
litigation  reserves  totaling  approximately  $73  million  for the  reasonably
estimable losses  associated with litigation.  This includes $26 million for the
forest  products  litigation  described  above.   Management   believes,   after
consultation  with  general  counsel,  that  currently  the company has reserved
adequately for the reasonably estimable costs of environmental matters and other
contingencies.  However, additions to the reserves may be required as additional
information  is  obtained  that  enables  the  company  to better  estimate  its
liabilities, including liabilities at sites now under review, though the company
cannot now reliably estimate the amount of future additions to the reserves.


17.  Commitments

Lease Obligations and Guarantees

Total lease rental  expense was $61 million in 2002, $38 million in 2001 and $34
million in 2000.

The  company  has  various  commitments  under  noncancelable   operating  lease
agreements,  principally for office space,  production and gathering facilities,
and  drilling  and other  equipment.  During  2002,  the  company  entered  into
operating  lease  agreements  for the use of the Nansen and  Boomvang  platforms
located in the Gulf of Mexico.  Including the lease rentals for these platforms,
aggregate  minimum  annual  rentals  under  all  operating  leases  in effect at
December 31, 2002, total $571 million,  of which $39 million is due in 2003, $41
million in 2004,  $41 million in 2005,  $40 million in 2006, $38 million in 2007
and $372 million thereafter.

During 2001, the company entered into an arrangement  with  Kerr-McGee  Gunnison
Trust for the  construction  of the company's  share of a platform to be used in
the development of the Gulf of Mexico Gunnison field, in which the company has a
50% working interest.  The construction of the company's portion of the platform
is being  financed by a $157  million  synthetic  lease  between the trust and a
group of financial institutions.  After construction,  the company and the trust
are  committed to purchase or sell the  platform and related  equipment or enter
into an operating lease for the use of the platform.  Currently,  the company is
obligated  to make lease  payments  in amounts  sufficient  to pay  interest  at
varying  rates  on  the  financing.  The  payments  under  the  operating  lease
obligation  are  expected to be nil in 2003,  $6 million in 2004,  $9 million in
2005, $10 million in 2006, $13 million in 2007 and $240 million thereafter.  The
future minimum annual rentals due under the noncancelable operating leases shown
above exclude any payments  related to this  agreement.  In accordance  with the
provisions  of FASB  Interpretation  (FIN) No. 46,  "Consolidation  of  Variable
Interest Entities - an Interpretation of ARB No. 51," the company believes it is
reasonably  likely that it will be required to  consolidate  the business  trust
created to construct and finance the Gunnison  production platform in the period
beginning  July 1, 2003.  The company  continues to review the effects of FIN 46
relative to the company's other variable interest  entities,  such as the Nansen
and Boomvang operating leases.

The company has guaranteed that the Nansen, Boomvang and Gunnison platforms will
have residual values at the end of the operating leases equal to at least 10% of
the fair-market  value of the platform at the inception of the lease. For Nansen
and  Boomvang,   the   guaranteed   values  are  $14  million  and  $8  million,
respectively,  in 2022,  and for Gunnison  the estimate of the  guarantee is $16
million in 2024.

During 2002, the company entered into a sale-leaseback  arrangement with General
Electric  Capital   Corporation   (GECC)  covering  assets   associated  with  a
gas-gathering  system in the Rocky  Mountain  region.  The lease  agreement  was
entered into for the purpose of monetizing the related  assets.  The sales price
of the equipment was $71 million;  however, an $18 million settlement obligation
existed for equipment  previously  covered by the lease agreement,  resulting in
net cash proceeds of $53 million.  The operating  lease agreement has an initial
term of five years, with two 12-month renewal options.  The company may elect to
purchase the equipment at specified amounts after the end of the fourth year. In
the event the company  does not  purchase  the  equipment  and it is returned to
GECC,  the company  guarantees a residual  value ranging from $32 million at the
end of the initial  five-year term to $25 million at the end of the last renewal
option.  The  company  recorded  no  gain  or  loss  associated  with  the  GECC
sale-leaseback   agreement.   The  future   minimum  annual  rentals  due  under
noncancelable  operating  leases shown above  include  payments  related to this
agreement.

In conjunction with the company's sale of its Ecuadorean assets,  which included
the  company's  nonoperating  interest in the  Oleoducto de Crudos  Pesados Ltd.
(OCP) pipeline,  the company has entered into a performance  guarantee agreement
with the buyer for the  benefit of OCP.  Under the terms of the  agreement,  the
company guarantees payment of any claims from OCP against the buyer upon default
by the buyer and its parent  company.  Claims would generally be for the buyer's
proportionate  share of  construction  costs of OCP;  however,  other claims may
arise in the normal operations of the pipeline.  Accordingly,  the amount of any
such future  claims  cannot be reasonably  estimated.  In  connection  with this
guarantee,  the buyer's parent company has issued a letter of credit in favor of
the company up to a maximum of $50  million,  upon which the company can draw in
the event it is required to perform under the guarantee  agreement.  The company
will be released from this guarantee  when the buyer obtains a specified  credit
rating as stipulated under the guarantee agreement.

In connection  with certain  contracts and  agreements,  the company enters into
indemnifications related to title claims,  environmental matters, litigation and
other claims. Because of the inherent uncertainty surrounding these matters, the
amount of any  future  liability  related  to these  indemnifications  cannot be
reasonably estimated.  If a claim is asserted or if information becomes known to
management  indicating  it is probable that a liability  has been  incurred,  an
accrual is established at that time.

Drilling Rig Commitments

During 1999, the company entered into lease agreements to participate in the use
of  various   drilling  rigs.  The  total   commitment  with  respect  to  these
arrangements ranges from nil to $24 million, depending on partner participation.
These agreements extend through 2004.


18.  Financial Instruments and Derivative Activities

Investments in Certain Debt and Equity Securities

The company has certain  investments  that are  considered  to be available  for
sale. These financial  instruments are carried in the Consolidated Balance Sheet
at fair  value,  which is based on quoted  market  prices.  The  company  had no
securities  classified  as held to  maturity at  December  31, 2002 or 2001.  At
December 31, 2002 and 2001,  available-for-sale  securities for which fair value
can be determined are as follows:


                                                      2002                                      2001
                                       -----------------------------------       ----------------------------------
                                                                     Gross                                    Gross
                                                                Unrealized                               Unrealized
                                        Fair                       Holding        Fair                      Holding
(Millions of dollars)                  Value          Cost           Gains       Value        Cost           Losses
---------------------                  -----          ----      ----------       -----        ----       ----------
                                                                                           

Equity securities                        $70           $32          $10  (1)       $59         $32           $(1)  (1)
U.S. government obligations -
    Maturing within one year               2             2            -              3           3             -
    Maturing between one year
       and four years                      2             2            -              2           2             -
                                                                    ---                                      ---
          Total                                                     $10                                      $(1)
                                                                    ===                                      ===



(1)  This amount includes $28 million of gross unrealized  hedging losses on 15%
     of the exchangeable debt at the time of adoption of FAS 133.


The  equity  securities  represent  the  company's  investment  in Devon  Energy
Corporation  common stock.  The company also holds debt  exchangeable  for stock
(DECS) that may be repaid with the Devon stock  currently  owned by  Kerr-McGee.
Prior to the  beginning  of 2001,  the stock and the debt were  marked to market
each month with the offset recognized in accumulated other comprehensive income.
On  January  1, 2001,  the  company  adopted  the  provisions  of FAS 133 and in
accordance  with that standard chose to reclassify 85% of the Devon shares owned
to "trading" from the "available for sale" category of investments.  As a result
of the  reclassification,  the company recognized after-tax income totaling $118
million ($181 million  before taxes) for the unrealized  appreciation  on 85% of
the Devon  shares.  Additionally,  with  adoption  of FAS 133,  the DECS and its
embedded  option  features  were  separated.  The  debt is now  recorded  in the
Consolidated  Balance  Sheet at face value less  unamortized  discount,  and the
options associated with the exchangeable  feature of the debt have been recorded
at fair value on the balance sheet as deferred credits.  (See further discussion
on derivatives below.)

The  Devon  securities  are  carried  in  the  Consolidated   Balance  Sheet  as
Investments - Other assets. U.S.  government  obligations are carried as Current
Assets or as Investments - Other assets, depending on their maturities.

The change in unrealized  holding gains (losses),  net of income taxes, as shown
in accumulated other comprehensive income for the years ended December 31, 2002,
2001 and 2000, is as follows:

(Millions of dollars)                        2002          2001           2000
---------------------                        ----          -----          ----

Beginning balance                            $(1)          $ 139          $ 79
    Net unrealized holding gains (losses)      7             (22)           60
    Reclassification of gains included in
        net income                             -            (118)            -
                                             ---           -----          ----
Ending balance                               $ 6           $  (1)         $139
                                             ===           =====          ====


Trading Securities

As discussed  above, the company has recorded 85% of its Devon shares as trading
securities and marks this investment to market through  income.  At December 31,
2002, the market value of 8.4 million shares of Devon was $387 million,  and $61
million in unrealized  pretax gains was  recognized  during 2002 in Other Income
(Loss) in the  Consolidated  Statement  of  Operations.  However,  this gain was
partially  offset  by a $34  million  unrealized  loss on the  embedded  options
associated  with the DECS. See the  discussion of these  derivatives  below.  At
year-end 2001, the market value of 8.4 million shares of Devon was $326 million,
and $188 million in unrealized  pretax losses was recognized  during 2001.  This
loss was more than offset by the $205  million  unrealized  gain on the embedded
options associated with the DECS.

Financial Instruments for Other than Trading Purposes

In addition to the financial instruments previously discussed, the company holds
or issues financial instruments for other than trading purposes. At December 31,
2002 and 2001, the carrying amount and estimated fair value of these instruments
for which fair value can be determined are as follows:


                                                                   2002                              2001
                                                          ----------------------           -----------------------
                                                          Carrying         Fair            Carrying          Fair
(Millions of dollars)                                      Amount          Value            Amount           Value
---------------------                                      ------          -----            ------           -----
                                                                                                 

Cash and cash equivalents                                  $   90         $   90            $   91           $   91
Long-term notes receivable                                      2              2                 2                2
Long-term receivables                                          86             71                 4                3
Contracts to purchase foreign currencies                        2              2               (15)             (15)
Short-term borrowings                                           -              -                 8                8
Debt exchangeable for stock, excluding options                318            330               310              330
Long-term debt, except DECS                                 3,586          4,013             4,256            4,319



The  carrying  amount of cash and cash  equivalents  approximates  fair value of
those  instruments  due to  their  short  maturity.  The  fair  value  of  notes
receivable is based on the fair value of the note's  collateral.  The fair value
of long-term  receivables is based on discounted  cash flows.  The fair value of
foreign currency  forward  contracts  represents the aggregate  replacement cost
based  on  financial  institutions'  quotes.  The fair  value  of the  company's
short-term  and long-term debt is based on the quoted market prices for the same
or similar debt issues or on the current  rates  offered to the company for debt
with the same remaining maturity.

Derivatives

Effective August 1, 2001, the company  purchased 100% of the outstanding  shares
of common stock of HS Resources.  At the time of the purchase, HS Resources (now
Kerr-McGee  Rocky Mountain  Corp.) and its marketing  subsidiary (now Kerr-McGee
Energy  Services  Corp.) had a number of derivative  contracts for purchases and
sales of gas, basis differences and energy-related contracts. Prior to 2002, the
company had treated all of these derivatives as speculative and marked to market
through  income each month the change in derivative  fair values.  In 2002,  the
company  designated  the  remaining  portion of the HS Resources gas basis swaps
that  settled in 2002 and all that  settle in 2003 as hedges.  Additionally,  in
March 2002,  the company began hedging a portion of its 2002 oil and natural gas
production  to  increase  the  predictability  of  its  cash  flow  and  support
additional  capital  expenditures.  The hedges  were in the form of  fixed-price
swaps and covered  30,000  barrels of U.S. oil  production per day at an average
price of $24.09 per barrel,  60,000  barrels of North Sea oil production per day
at an average price of $23.17 per barrel and 250,000  MMBtu of U.S.  natural gas
production per day at an average price of $3.10 per MMBtu.  In October 2002, the
company  expanded the hedging  program to cover a portion of the estimated  2003
crude oil and natural gas  production  by adding  fixed-price  swaps,  new basis
swaps  and   costless   collars.   At  December  31,   2002,   the   outstanding
commodity-related  derivatives  accounted for as hedges had a net liability fair
value of $83  million,  of which $27 million is recorded as a current  asset and
$110  million  is  recorded  as a  current  liability.  The fair  value of these
derivative  instruments  at December 31, 2002,  was  determined  based on prices
actively  quoted,  generally  NYMEX and Dated  Brent  prices.  The  company  had
after-tax  deferred  losses of $50 million in  accumulated  other  comprehensive
income  associated with these  contracts.  The company expects to reclassify the
entire amount of these losses into earnings during the next 12 months,  assuming
no further  changes in  fair-market  value of the  contracts.  During 2002,  the
company realized a $28 million loss on domestic oil hedging,  a $50 million loss
on North Sea oil hedging and a $2 million loss on domestic  natural gas hedging.
The losses  offset the oil and natural gas prices  realized on the physical sale
of crude oil and natural gas. Losses for hedge ineffectiveness are recognized as
a reduction to Sales in the Consolidated  Statement of Operations and totaled $2
million in 2002.

The HS Resources  gas basis swaps that settle  between 2004 and 2008 continue to
be  treated  by the  company as  speculative  and are  marked to market  through
income.  These  derivatives  are  recorded  at  fair  value  of $21  million  in
Investments - Other assets.  The net gain associated with these  derivatives was
$8 million in 2002 and is included in Other Income in the Consolidated Statement
of  Operations.  In 2001,  all of the HS  Resources  derivative  contracts  were
treated by the company as  speculative  and marked to market through income each
month.  At December 31, 2001, the fair value of these  contracts was $6 million.
Of this  amount,  $6  million  was  recorded  in current  assets,  $5 million in
Investments - Other assets, $4 million in current  liabilities and $1 million in
deferred credits. The net gain associated with these derivatives was $27 million
in 2001 and is  included  in  Other  Income  in the  Consolidated  Statement  of
Operations.

The marketing  subsidiary,  Kerr-McGee  Energy Services (KMES) markets purchased
gas  (primarily  equity  gas) in the Denver  area.  Existing  contracts  for the
physical delivery of gas at fixed or index-plus prices are marked to market each
month in  accordance  with FAS 133.  KMES has entered into natural gas basis and
price  derivative  contracts  that  offset  its  fixed-price  risk  on  physical
contracts.  These derivative  contracts lock in the margins  associated with the
physical sale. The company believes that risk associated with these  derivatives
is minimal due to the creditworthiness of the counterparties. The net asset fair
value of the  physical and  offsetting  derivative  contracts  was $8 million at
year-end 2002. Of this amount,  $31 million was recorded in current  assets,  $1
million in Investments - Other assets, $23 million in current liabilities and $1
million  in  deferred  credits.  The fair  value of the  outstanding  derivative
instruments  at December  31,  2002,  was  determined  based on prices  actively
quoted,  generally NYMEX prices. During 2002, the net loss associated with these
derivative   contracts  was  $20  million  and  is  included  in  Sales  in  the
Consolidated Statement of Operations. At year-end 2001, the net asset fair value
of the commodity-related  derivatives and physical contracts was $21 million. Of
this  amount,  $30  million  was  recorded  in current  assets,  $11  million in
Investments - Other assets, $19 million in current liabilities and $1 million in
deferred credits.  The 2001 net loss associated with these derivative  contracts
was $24  million  and is  included  in Sales in the  Consolidated  Statement  of
Operations.  The losses on the derivative  contracts are generally offset by the
prices realized on the physical sale of the natural gas.

From time to time,  the company  enters into  forward  contracts to buy and sell
foreign currencies.  Certain of these contracts (purchases of Australian dollars
and British pound sterling) have been designated and have qualified as cash flow
hedges of the company's  anticipated future cash flow needs for a portion of its
capital expenditures and operating costs. These forward contracts generally have
durations of less than three years. The resulting changes in fair value of these
contracts are recorded in accumulated other comprehensive income. The $7 million
after-tax loss in accumulated other  comprehensive  income at December 31, 2002,
will be recognized in earnings in the periods during which the hedged forecasted
transactions  affect earnings (i.e., when the hedged  transaction is paid in the
case of a hedge of operating  costs,  and when the hedged assets are depreciated
in  the  case  of a  hedge  of  capital  expenditures).  In  2002,  the  company
reclassified $5 million of losses on forward  contracts from  accumulated  other
comprehensive  income to  operating  expenses in the  Consolidated  Statement of
Operations.  Of the  existing  unrealized  net  losses  at  December  31,  2002,
approximately $2 million in gains will be reclassified  into earnings during the
next 12 months,  assuming no further changes in fair value of the contracts.  No
hedges were discontinued during 2002, and no ineffectiveness was recognized. The
company  recognized  net foreign  currency  hedging  losses of $9 million and $6
million in 2001 and 2000, respectively.

The company has entered into other forward contracts to sell foreign currencies,
which will be  collected  as a result of pigment  sales  denominated  in foreign
currencies,  primarily in European  currencies.  These  contracts  have not been
designated  as hedges  even though  they do protect  the  company  from  foreign
currency rate changes.  The estimated  value of these  contracts was immaterial.
Certain pigment receivables have been sold in an asset securitization program at
their  equivalent  U.S.  dollar  value at the date the  receivables  were  sold.
However,  the company retains the risk of foreign  currency rate changes between
the date of sale and collection of the receivables.

The company issued 5 1/2% notes  exchangeable  for common stock (DECS) in August
1999,  allowing each holder to receive  between .85 and 1.0 share of Devon stock
or the equivalent amount of cash at maturity in August 2004. Embedded options in
the DECS provide  Kerr-McGee a floor price on Devon's common stock of $33.19 per
share (the put option).  The company also retains the right to 15% of the shares
if Devon's stock price is greater than $39.16 per share (the DECS holders have a
call option on 85% of the shares). Using the Black-Scholes  valuation model, the
company recognizes in Other Income on a monthly basis any gains or losses of the
put and call options.  On December 31, 2002, the fair values of the embedded put
and call  options were less than $1 million and $67  million,  respectively.  At
year-end  2001,  the fair values of the  embedded  put and call  options were $2
million  and $35  million,  respectively,  for a net fair value of $33  million.
During 2002 and 2001,  the company  recorded  losses of $34 million and gains of
$205 million,  respectively,  in Other Income for the changes in the fair values
of the put and call options. As discussed above, the fluctuation in the value of
the put and call  derivative  financial  instruments  will generally  offset the
increase or decrease in the market  value of 85% of the Devon stock owned by the
company.   The   remaining   15%  of  the  Devon  shares  is  accounted  for  as
available-for-sale  securities  in  accordance  with  FAS 115,  "Accounting  for
Certain Investments in Debt and Equity Securities," with changes in market value
recorded in accumulated other comprehensive income.

In connection with the issuance of $350 million 5.375% notes due April 15, 2005,
the company  entered into an interest rate swap  arrangement  in April 2002. The
terms of the agreement  effectively  change the interest the company will pay on
the debt until  maturity  from the fixed  rate to a variable  rate of LIBOR plus
..875%.  The company  considers the swap to be a hedge against the change in fair
value of the debt as a result of interest rate changes. The estimated fair value
of the  interest  rate swap was $21 million at December  31,  2002.  The company
recognized  a $6 million  reduction  in  interest  expense in 2002 from the swap
arrangement.


19.  Acquisition

On  August  1,  2001,  the  company  completed  the  acquisition  of  all of the
outstanding shares of common stock of HS Resources, Inc., an independent oil and
gas   exploration   and   production   company  with  active   projects  in  the
Denver-Julesburg  Basin,  Gulf Coast,  Mid-Continent and Northern Rocky Mountain
regions of the U.S. The acquisition  added  approximately 250 million cubic feet
equivalent of daily gas  production  and 1.3 trillion  cubic feet  equivalent of
proved gas reserves,  primarily in the Denver,  Colorado,  area. The addition of
these  primarily  natural gas  reserves  provides  the  company a more  balanced
portfolio, geographic diversity and production mix. In addition, the acquisition
provides low-risk exploitation  drilling  opportunities from identified projects
based on HS Resources'  seismic  inventory.  The acquisition  price totaled $1.8
billion in cash, company stock and assumption of debt. The company reflected the
assets and  liabilities  acquired at fair value in its balance  sheet  effective
August 1, 2001,  and the company's  results of  operations  include HS Resources
beginning  August 1, 2001. The purchase  price was allocated to specific  assets
and liabilities  based on their estimated fair value at the date of acquisition.
The allocations  include $348 million recorded as goodwill.  The cash portion of
the  acquisition  totaled  $955  million,  including  direct  expenses,  and was
ultimately  financed  through  issuance of long-term  debt. A total of 5,057,273
shares  of  Kerr-McGee   common  stock  were  issued  in  connection   with  the
acquisition.  The shares were valued at $70.33 per share,  the average price two
days before and after the purchase was announced. Debt totaling $506 million was
assumed.

The following are the amounts  allocated to the acquired  assets and liabilities
based on their fair value:

(Million of dollars)
--------------------
Accounts receivable                                        $   70
Deposits and prepaids                                          13
Other current assets                                           42
Property, plant and equipment                               1,987
Investments and other assets                                   29
Goodwill                                                      348
Accounts payable                                              (94)
Accrued payables                                              (33)
Other current liabilities                                     (56)
Deferred income taxes                                        (442)
Other deferred credits and reserves                           (48)
                                                           ------
       Total                                               $1,816
                                                           ======

The following  unaudited pro forma  condensed  information  has been prepared to
give  effect  to the HS  Resources  acquisition  as if it  had  occurred  at the
beginning of the periods presented, including purchase accounting adjustments.

(Millions of dollars, except per-share amounts)                  2001      2000
-----------------------------------------------                 ------    ------

Sales                                                           $3,798    $4,386
Income from continuing operations                                  490       801
Net income                                                         499       826
Earnings per share-
       Basic                                                      4.99      8.39
       Diluted                                                    4.73      7.83


20.  Discontinued Operations, Asset Impairments and Asset Disposals

During the first quarter of 2002, the company  approved a plan to dispose of its
exploration  and  production  operations in  Kazakhstan  and its interest in the
Bayu-Undan project in the East Timor Sea offshore  Australia.  During the second
quarter of 2002, the company  approved a plan to dispose of its  exploration and
production interest in the Jabung block of Sumatra, Indonesia. These divestiture
decisions  were  made as part of the  company's  strategic  plan to  rationalize
noncore  oil and gas  properties.  The  results  of these  operations  have been
reported separately as discontinued operations in the accompanying  Consolidated
Statement of Operations for all years presented. In conjunction with the planned
disposals, the related assets were evaluated and an impairment loss was recorded
for  the  Kazakhstan  operations,  calculated  as  the  difference  between  the
estimated sales price for the operation, less costs to sell, and the operations'
carrying value.  The impairment loss totaled $35 million and is reported as part
of discontinued  operations.  On May 3, 2002, the company  completed the sale of
its  interest  in the  Bayu-Undan  project  for $132  million in cash.  The sale
resulted  in a  pretax  gain of $35  million.  On June  13,  2002,  the  company
completed  the sale of its  interest  in the Jabung  block in  Sumatra  for $171
million in cash with an $11 million contingent purchase price pending government
approval of the LPG project.  The sale  resulted in a pretax gain of $72 million
(excluding  the contingent  purchase  price).  The net proceeds  received by the
company from these sales were used to reduce outstanding debt. In February 2003,
the company  announced an agreement with Shell  Kazakhstan  Development  for the
sale of its exploration and production operations in Kazakhstan. The transaction
is expected to close March 31, 2003.

Revenues  applicable to the  discontinued  operations  totaled $36 million,  $72
million and $58 million for 2002, 2001 and 2000, respectively. Pretax income for
the discontinued operations totaled $104 million (including the gains on sale of
$107  million  and the  impairment  loss of $35  million),  $52  million and $45
million for the years 2002, 2001 and 2000, respectively.

During late 2001 and 2002,  certain U.S., North Sea and Ecuador  exploration and
production  segment assets were identified for disposal as part of the company's
plan to divest noncore  properties as discussed  above.  In connection with this
recharacterization, the assets were evaluated and determined to be impaired. The
impairment losses reflect the difference  between the estimated sales prices for
the individual  properties or group of  properties,  less the costs to sell, and
the  carrying  amount  of the net  assets.  The  amount of the  impairment  loss
associated  with the U.S.,  North Sea and Ecuador  assets held for sale  totaled
$176 million and is reported as Asset Impairment in the  Consolidated  Statement
of Operations.

Pretax  impairment  losses  totaling $652 million were also provided in 2002 for
certain  assets used in  operations  that are not  considered  held for sale, of
which $646 million related to the exploration and production  operating unit and
$6 million  related to the chemical - other  operating unit. For the exploration
and production  operating unit, the $646 million impairment charge included $541
million  for the Leadon  field in the U.K.  North Sea,  $82  million for certain
other North Sea fields and $23 million  for several  older Gulf of Mexico  shelf
properties.  Negative  reserve  revisions  stemming from additional  performance
analysis  for these  properties  during 2002  resulted in revised  estimates  of
future cash flows from the properties that were less than the carrying values of
the related  assets.  For the chemical - other  operating  unit,  the $6 million
impairment  related  to the  company's  decision  to exit  the  forest  products
business.  These  impairment  losses  were  determined  based on the  difference
between  the  carrying  value of the assets  and their  estimated  fair  values,
determined using either discounted future cash flows or quoted market prices, as
applicable.  In addition,  the  Chemical-pigment  operating  unit recorded a $12
million  pretax  write-down of property,  plant and equipment in 2002 related to
abandoned chemical engineering projects,  which is reflected in Depreciation and
depletion in the Consolidated Statement of Operations.

In 2001,  the company's  exploration  and  production  operating  unit suspended
production  from the  Hutton  field in the North Sea due to  concerns  about the
amount of  corrosion  present  in the  pipeline,  which  would  have  ultimately
required  replacement of the pipeline for production to resume. Due to the small
amount of remaining  field  reserves,  the company,  as operator,  and the other
partners entered into a plan to decommission the field,  which is expected to be
completed  during 2003. An  impairment  loss of $47 million was recorded in 2001
based on the difference between the carrying value of the assets and the present
value of the field's discounted future cash flows, net of expected proceeds from
the sale of the Hutton  tension-leg  platform (TLP), a production,  drilling and
accommodation  facility  located at the Hutton  field.  An additional $4 million
impairment  charge  recorded in 2002 for the Hutton  field  (included in the $82
million  North  Sea  impairments  discussed  above)  resulted  from  lower  than
originally projected realization from the sale of the Hutton TLP, which occurred
in August 2002.  The Hutton field had no  remaining  carrying  value at year-end
2002.

At the end of 2001,  the  company's  chemical - pigment  operating  unit  ceased
production at its titanium dioxide pigment plant in Antwerp, Belgium, as part of
its strategy to improve efficiencies and enhance margins by rationalizing assets
within the chemical unit. A $14 million  impairment loss was recognized in 2001.
The asset had no remaining carrying value at year-end 2002.

Also  during  2001,  the  company's  chemical  -  other  operating  unit  ceased
production at its manganese metal production plant in Hamilton, Mississippi, due
to  low-priced  imports  and  softening  prices  that made the product no longer
profitable.  A $13 million impairment loss was recognized in 2001,  reducing the
carrying  value of the asset to nil.  Additionally,  the loss of its only  major
customer  led  to  a  $2  million  impairment  charge  for  the  shutdown  of  a
wood-preserving  plant in Indianapolis,  Indiana,  which had a carrying value of
less than $1 million at year-end 2002.

The company  recognized  a net gain (loss) on  disposal of  property,  excluding
discontinued  operations,  of $1 million in 2002,  $12  million in 2001 and ($4)
million  in  2000,  which  is  reflected  in Other  Income  in the  Consolidated
Statement of Operations.  The company expects to complete the divestiture of its
other remaining assets held for sale in the first six months of 2003. The assets
and liabilities of  discontinued  operations and other assets held for sale have
been  reclassified  as  Assets/Liabilities  Associated  with Properties Held for
Disposal in the Consolidated Balance Sheet.


21.  Common Stock

Changes in common stock issued and treasury  stock held for 2002,  2001 and 2000
are as follows:



(Thousands of shares)                                                              Common Stock        Treasury Stock
---------------------                                                              ------------        --------------
                                                                                                        

Balance December 31, 1999                                                               93,494                 7,011
  Exercise of stock options and stock appreciation rights                                  423                     -
  Public offering                                                                        7,500                     -
  Issuance of restricted stock                                                               -                   (78)
                                                                                       -------                ------
Balance December 31, 2000                                                              101,417                 6,933
  Exercise of stock options and stock appreciation rights                                  533                     -
  Cancellation of outstanding shares of Kerr-McGee Operating
     Corporation (formerly Kerr-McGee Corporation)                                     (95,118)                    -
  Issuance of stock by Kerr-McGee Corporation
       (new holding company)                                                            95,118                     -
  Shares issued to purchase HS Resources                                                 5,057                     -
  Cancellation of treasury stock                                                        (6,838)               (6,838)
  Issuance of restricted stock                                                              16                  (102)
  Forfeiture of restricted stock                                                             -                     8
  Issuance of shares for achievement awards                                                  1                     -
                                                                                       -------                ------
Balance December 31, 2001                                                              100,186                     1
  Exercise of stock options                                                                112                     -
  Issuance of restricted stock                                                              94                    (5)
  Forfeiture of restricted stock                                                            (2)                   11
  Issuance of shares for achievement awards                                                  1                     -
                                                                                       -------                ------
Balance December 31, 2002                                                              100,391                     7
                                                                                       =======                ======


The  company  has 40  million  shares  of  preferred  stock  without  par  value
authorized, and none is issued.

There are 1,107,692  shares of the company's common stock registered in the name
of a wholly owned  subsidiary  of the company.  These shares are not included in
the number of shares shown in the preceding table or in the Consolidated Balance
Sheet. These shares are not entitled to be voted.

Under the 2002 Long-Term  Incentive Plan (Plan), the company may grant incentive
awards to key  employees.  A maximum  of  1,750,000  shares of common  stock are
authorized for issuance  under the Plan in connection  with awards of restricted
stock and  performance  awards.  Restricted  stock is awarded in the name of the
employee and, except for the right of disposal,  holders have full shareholders'
rights during the period of restriction,  including  voting rights and the right
to receive  dividends.  Grants  generally  vest  between  three and five  years.
Compensation  expense is recognized  over the vesting period and was $6 million,
$4 million  and $1 million in 2002,  2001 and 2000,  respectively.  The  company
granted  99,000,  118,000 and 74,000 shares of restricted  common stock in 2002,
2001 and 2000,  respectively,  for which the weighted  average fair value at the
date of grant was $4 million, $7 million and $5 million, respectively.

The company has had a  stockholders-rights  plan since 1986.  The current rights
plan is dated  July 26,  2001,  and  replaced  the  previous  plan  prior to its
expiration.  Rights were  distributed as a dividend at the rate of one right for
each share of the  company's  common stock and continue to trade  together  with
each share of common stock. Generally, the rights become exercisable the earlier
of 10 days after a public announcement that a person or group has acquired, or a
tender  offer has been made for, 15% or more of the  company's  then-outstanding
stock.  If either of these events  occurs,  each right would  entitle the holder
(other than a holder owning more than 15% of the  outstanding  stock) to buy the
number of shares of the  company's  common stock having a market value two times
the exercise  price.  The exercise price is $215.  Generally,  the rights may be
redeemed at $.01 per right until a person or group has  acquired  15% or more of
the company's stock. The rights expire in July 2006.

22.  Employee Stock Option Plans

The 2002 Long Term Incentive Plan (2002 Plan)  authorizes the issuance of shares
of the  company's  common stock any time prior to May 13,  2012,  in the form of
stock  options,  restricted  stock or  performance  awards.  The  options may be
accompanied by stock  appreciation  rights.  A total of 7,000,000  shares of the
company's common stock is authorized to be issued under the 2002 Plan.

In January 1998, the Board of Directors approved a broad-based stock option plan
(BSOP) that  provides  for the  granting of options to  purchase  the  company's
common stock to full-time,  nonbargaining-unit  employees,  except  officers.  A
total of 1,500,000  shares of common stock is  authorized to be issued under the
BSOP.

The 1987  Long  Term  Incentive  Program  (1987  Program),  the 1998  Long  Term
Incentive  Plan (1998  Plan) and the 2000 Long Term  Incentive  Plan (2000 Plan)
authorized  the issuance of shares of the  company's  stock in the form of stock
options,  restricted stock or long-term performance awards. The 1987 Program was
terminated  when the  stockholders  approved  the 1998  Plan,  the 1998 Plan was
terminated  with the approval of the 2000 Plan, and the 2000 Plan was terminated
with the approval of the 2002 Plan.  No options  could be granted under the 1987
Program,  the 1998 Plan or the 2000 Plan after that time,  although  options and
any accompanying stock appreciation rights outstanding may be exercised prior to
their respective expiration dates.

The company's employee stock options are fixed-price options granted at the fair
market value of the underlying common stock on the date of the grant. Generally,
one-third of each grant vests and becomes  exercisable over a three-year  period
immediately following the grant date and expires 10 years after the grant date.

The following table summarizes the stock option  transactions for the 2002 Plan,
the 2000 Plan, the BSOP, the 1998 Plan and the 1987 Program.


                                                       2002                     2001                       2000
                                             ------------------------   ----------------------    ------------------------
                                                            Weighted-                Weighted-                   Weighted-
                                                              Average                  Average                     Average
                                                             Exercise                 Exercise                    Exercise
                                                            Price per                Price per                   Price per
                                               Options         Option      Options      Option      Options         Option
                                             ---------      ---------   ----------   ---------    ---------      ---------
                                                                                                
Outstanding, beginning of year               3,433,745       $61.18     3,036,605     $59.66      2,823,334       $56.78
  Options granted                            2,544,562        57.08     1,024,530      65.19        719,550        63.53
  Options exercised                           (111,411)       46.78      (532,260)     59.55       (426,561)       46.59
  Options surrendered upon exercise
     of stock appreciation rights                    -            -        (1,900)     42.63         (7,300)       45.57
  Options forfeited                           (141,116)       58.42       (62,539)     62.78        (46,779)       61.79
  Options expired                             (319,356)       67.09       (30,691)     63.74        (25,639)       72.95
                                             ---------                  ---------                 ---------
Outstanding, end of year                     5,406,424        59.27     3,433,745      61.18      3,036,605        59.66
                                             =========                  =========                 =========
Exercisable, end of year                     2,179,960        59.60     1,935,880      59.32      2,007,036        59.70
                                             =========                  =========                 =========


The following table summarizes  information about stock options issued under the
plans described above that are outstanding and exercisable at December 31, 2002:



                                    Options Outstanding                                           Options Exercisable
     --------------------------------------------------------------------------             --------------------------------
                                                      Weighted-       Weighted-                                     Weighted-
                                                        Average         Average                                       Average
                         Range of Exercise            Remaining        Exercise                                      Exercise
                                Prices per          Contractual       Price per                                     Price per
      Options                       Option         Life (years)          Option               Options                  Option
      -------            -----------------         ------------       ---------             ---------               ---------
                                                                                                   

         9,457            $30.00 - $39.99               2.5             $34.19                  9,457                $34.19
       297,128             40.00 -  49.99               3.1              42.91                297,128                 42.91
     2,106,585             50.00 -  59.99               7.5              55.03                672,533                 56.91
     2,865,610             60.00 -  69.99               7.7              63.54              1,073,198                 64.48
       127,644             70.00 -  79.99               3.1              73.41                127,644                 73.41
     ---------                                                                              ---------
     5,406,424             30.00 -  79.99               7.2              59.27              2,179,960                 59.60
     =========                                                                              =========




23.  Employee Benefit Plans

The company has both noncontributory and contributory defined-benefit retirement
plans and  company-sponsored  contributory  postretirement plans for health care
and life  insurance.  Most employees are covered under the company's  retirement
plans,  and  substantially  all  U.S.  employees  may  become  eligible  for the
postretirement  benefits  if they reach  retirement  age while  working  for the
company.  Following are the changes in the benefit  obligations  during the past
two years:


                                                                                              Postretirement
                                                             Retirement Plans              Health and Life Plans
                                                          -----------------------          ---------------------
(Millions of dollars)                                      2002             2001            2002            2001
---------------------                                     ------           ------           ----            ----
                                                                                                
Benefit obligation, beginning of year                     $1,075           $1,014           $271            $230
    Service cost                                              24               22              3               2
    Interest cost                                             76               73             19              17
    Plan amendments                                            -               21              -               -
    Net actuarial loss                                        30               17             53              43
    Foreign exchange rate changes                             12               (3)             -               -
    Assumption changes                                        30               37              -               -
    Contributions by plan participants                         -                -              6               8
    Benefits paid                                           (100)            (106)           (25)            (29)
                                                          ------           ------           ----            ----
Benefit obligation, end of year                           $1,147           $1,075           $327            $271
                                                          ======           ======           ====            ====


The benefit  amount  that can be covered by the  retirement  plans that  qualify
under the Employee  Retirement Income Security Act of 1974 (ERISA) is limited by
both ERISA and the Internal  Revenue Code.  Therefore,  the company has unfunded
supplemental  plans designed to maintain  benefits for all employees at the plan
formula  level  and to  provide  senior  executives  with  benefits  equal  to a
specified percentage of their final average compensation. The benefit obligation
for the U.S and certain foreign  unfunded  retirement  plans was $58 million and
$44 million at December 31, 2002 and 2001, respectively. Although not considered
plan assets,  a grantor trust was established from which payments for certain of
these U.S.  supplemental  plans are made. The trust had a balance of $37 million
at year-end 2002 and $28 million at year-end 2001. The postretirement  plans are
also unfunded.

Following  are the changes in the fair value of plan assets  during the past two
years  and  the  reconciliation  of the  plans'  funded  status  to the  amounts
recognized in the financial statements at December 31, 2002 and 2001:


                                                                                               Postretirement
                                                             Retirement Plans               Health and Life Plans
                                                          -----------------------           ---------------------
(Millions of dollars)                                      2002            2001             2002            2001
---------------------                                     -------         -------           -----           -----
                                                                                                
Fair value of plan assets, beginning of year              $ 1,364         $ 1,558           $   -           $   -
   Actual return on plan assets                               (90)            (93)              -               -
   Employer contribution                                        6               9               -               -
   Foreign exchange rate changes                               10              (4)              -               -
   Benefits paid                                             (100)           (106)              -               -
                                                          -------         -------           -----           -----

Fair value of plan assets, end of year                      1,190           1,364               -               -
Benefit obligation                                         (1,147)         (1,075)           (327)           (271)
                                                          -------         -------           -----           -----
Funded status of plans - over (under)                          43             289            (327)           (271)
    Amounts not recognized in the
        Consolidated Balance Sheet -
           Prior service costs                                 79              89               3               4
           Net actuarial loss (gain)                           83            (215)             96              45
                                                          -------         -------           -----           -----
Prepaid expense (accrued liability)                       $   205         $   163           $(228)          $(222)
                                                          =======         =======           =====           =====


Following is the  classification  of the amounts  recognized in the Consolidated
Balance Sheet at December 31, 2002 and 2001:


                                                                                                Postretirement
                                                           Retirement Plans                  Health and Life Plans
                                                          ---------------------              ---------------------
(Millions of dollars)                                     2002             2001              2002            2001
---------------------                                     ----             ----              ----            ----
                                                                                                
Prepaid benefits expense                                  $240              $191            $   -           $   -
Accrued benefit liability                                  (62)              (31)            (228)           (222)
Additional minimum liability -
   intangible asset                                          1                 -                -               -
Accumulated other comprehensive income                      26                 3                -               -
                                                          ----              ----            -----           -----
   Total                                                  $205              $163            $(228)          $(222)
                                                          ====              ====            =====           =====



Total costs recognized for employee retirement and postretirement  benefit plans
for each of the years ended December 31, 2002, 2001 and 2000, were as follows:



                                                                                            Postretirement
                                                   Retirement Plans                      Health and Life Plans
                                            -------------------------------         -------------------------------
(Millions of dollars)                       2002          2001         2000         2002         2001          2000
---------------------                       -----         ----         ----         ----         ----          ----
                                                                                             
Net periodic cost -
   Service cost                             $  24        $  22        $  17         $  3         $ 2           $ 2
   Interest cost                               76           73           72           19          17            15
   Expected return on plan assets            (130)        (124)        (111)           -           -             -
   Net amortization -
     Transition asset                           -           (1)          (5)           -           -             -
     Prior service cost                        10            9            8            1           1             1
     Net actuarial gain                       (16)         (23)         (17)           1           -             -
                                            -----        -----        -----         ----         ---           ---
         Total                              $ (36)       $ (44)       $ (36)        $ 24         $20           $18
                                            =====        =====        =====         ====         ===           ===


The following assumptions were used in estimating the actuarial present value of
the plans' benefit obligations and net periodic expense:


                                              2002                           2001                           2000
                                  --------------------------     ---------------------------     ------------------------
                                  United                         United                          United
                                  States       International     States        International     States     International
                                  ------       -------------     ------        -------------     ------     -------------
                                                                                            

      Discount rate                6.75%        5.5 - 5.75%       7.25%                5.75%      7.75%       5.5 - 6.5%

      Expected return on            9.0        5.75 - 7.0          9.0                 7.0         9.0              7.0
         plan assets
      Rate of compensation          4.5         2.5 - 6.5          5.0           2.5 - 7.5         5.0        3.0 - 5.0
         increases



The  health  care  cost  trend  rates  used  to  determine   the  year-end  2002
postretirement benefit obligation were 10% in 2003, gradually declining to 5% in
the year 2009 and  thereafter.  A 1% increase  in the  assumed  health care cost
trend  rate for each  future  year would  increase  the  postretirement  benefit
obligation  at December 31, 2002,  by $29 million and increase the  aggregate of
the service and interest cost components of net periodic  postretirement expense
for 2002 by $2  million.  A 1%  decrease  in the trend rate for each future year
would reduce the benefit obligation at year-end 2002 by $25 million and decrease
the  aggregate of the service and interest  cost  components of the net periodic
postretirement expense for 2002 by $2 million.


24.  Employee Stock Ownership Plan

In 1989, the company's  Board of Directors  approved a leveraged  Employee Stock
Ownership Plan (ESOP) into which is paid the company's matching contribution for
the employees'  contributions to the Kerr-McGee  Corporation  Savings Investment
Plan (SIP). The ESOP was amended in 2001 to provide matching  contributions  for
the employees'  contributions made to the Kerr-McGee  Pigments  (Savannah) Inc.,
Employees' Savings Plan, a savings plan for the bargaining-unit employees at the
company's  Savannah,  Georgia,  pigment  plant  (Savannah  Plan).  Most  of  the
company's  employees are eligible to participate in both the ESOP and the SIP or
Savannah  Plan.  Although the ESOP,  SIP and Savannah  Plan are separate  plans,
matching   contributions   to  the  ESOP  are  contingent   upon   participants'
contributions  to the SIP or Savannah  Plan.  Additionally,  HS Resources  had a
savings  plan at the time of  acquisition,  which  had only  discretionary  cash
contributions  by the  employer.  Kerr-McGee  paid $1 million  into this plan in
December 2001.  Beginning January 1, 2002, the remaining HS Resources  employees
became eligible to participate in the Kerr-McGee ESOP and SIP.

In  1989,  the  ESOP  trust  borrowed  $125  million  from a  group  of  lending
institutions  and used the  proceeds to  purchase  approximately  three  million
shares of the  company's  treasury  stock.  The company used the $125 million in
proceeds  from the sale of the stock to acquire  shares of its  common  stock in
open-market  and privately  negotiated  transactions.  In 1996, a portion of the
third-party  borrowings was replaced with a note payable to the company (sponsor
financing).  The  third-party  borrowings  are guaranteed by the company and are
reflected in the  Consolidated  Balance  Sheet as Long-Term  Debt (see Note 11),
while the sponsor  financing does not appear in the company's balance sheet. The
remaining balance of the sponsor financing is $3 million at year-end 2002.

The Oryx  Capital  Accumulation  Plan  (CAP)  was a  combined  stock  bonus  and
leveraged  employee stock  ownership plan  available to  substantially  all U.S.
employees of the former Oryx  operations.  In 1989,  Oryx privately  placed $110
million of notes pursuant to the provisions of the CAP. Oryx loaned the proceeds
to the CAP,  which used the funds to purchase  Oryx common stock that was placed
in a trust.  This  loan  was  sponsor  financing  and  does  not  appear  in the
accompanying  balance sheet. The remaining  balance of the sponsor  financing is
$64 million at year-end 2002.  During 1999, the company merged the Oryx CAP into
the ESOP and SIP.

The company  stock owned by the ESOP trust is held in a loan  suspense  account.
Deferred compensation, representing the unallocated ESOP shares, is reflected as
a reduction of stockholders'  equity.  The company's  matching  contribution and
dividends  on the shares held by the ESOP trust are used to repay the loan,  and
stock is released from the loan  suspense  account as the principal and interest
are paid. The expense is recognized and stock is then allocated to participants'
accounts at market value as the participants' contributions are made to the SIP.
Long-term  debt is reduced as payments  are made on the  third-party  financing.
Dividends paid on the common stock held in participants'  accounts are also used
to repay  the  loans,  and  stock  with a market  value  equal to the  amount of
dividends is allocated to participants' accounts.

Shares of stock  allocated  to the ESOP  participants'  accounts and in the loan
suspense account are as follows:

(Thousands of shares)                                  2002              2001
---------------------                                 -----             -----
Participants' accounts                                1,448             1,339
Loan suspense account                                   630               941

The shares in the loan suspense account included  approximately 6,000 shares and
68,000 shares that were released but not allocated to  participants  accounts at
December 31, 2002 and 2001, respectively.

All  ESOP  shares  are   considered   outstanding   for  net  income   per-share
calculations. Dividends on ESOP shares are charged to retained earnings.

Compensation  expense  related to the plan was $19 million,  $12 million and $11
million in 2002, 2001 and 2000,  respectively.  These amounts  include  interest
expense  incurred on the third-party ESOP debt of $1 million in 2002, $2 million
in 2001 and $3 million in 2000. The company contributed $27 million, $22 million
and $21 million to the ESOP in 2002, 2001, and 2000,  respectively.  Included in
the  contributions  were $19  million in 2002 and $12  million for both 2001 and
2000 for principal  and interest  payments on the sponsor  financings.  The cash
contributions  are net of $5 million for the dividends paid on the company stock
held by the ESOP trust in 2002 and $4 million in each of 2001 and 2000.


25.  Earnings Per Share

Basic earnings per share includes no dilution and is computed by dividing income
or loss from  continuing  operations  available  to common  stockholders  by the
weighted-average  number of common shares  outstanding  for the period.  Diluted
earnings per share reflects the potential  dilution that could occur if security
interests were exercised or converted into common stock.

The following table sets forth the computation of basic and diluted earnings per
share for the years ended December 31, 2002, 2001 and 2000.



                                              2002                              2001                          2000
                                  ------------------------------  -----------------------------   -------------------------------
  (Millions of dollars,            Loss from               Per-   Income from              Per-   Income from                 Per-
  except per-share amounts        Continuing              share    Continuing             share    Continuing                share
  and thousands of shares)        Operations    Shares     Loss    Operations   Shares   Income    Operations     Share     Income
  --------------------            ----------    ------    ------   ----------   ------   ------    ----------     -----     ------
                                                                                                  

  Basic earnings per share          $(611)      100,330   $(6.09)     $476       97,106  $4.91         $817        93,406    $8.75
   Effect of dilutive securities:
     5-1/4% convertible
        debentures                      -             -                 22        9,824                  19         8,720
     7-1/2% convertible
        debentures                      -             -                  -            -                   9         1,697
     Employee stock options             -             -                  -          181                   -           164
                                    -----       -------   ------      ----      -------  -----         ----       -------    -----
  Diluted earnings per share        $(611)      100,330   $(6.09)     $498      107,111  $4.65         $845       103,987    $8.13
                                    =====       =======   ======      ====      =======  =====         ====       =======    =====


Not included in the  calculation  of the  denominator  for diluted  earnings per
share were 4,688,853, 2,219,858 and 2,113,284 employee stock options outstanding
at year-end 2002,  2001 and 2000,  respectively.  The inclusion of these options
would  have been  antidilutive  since they were not "in the money" at the end of
the  respective  years.  Since  the  company  incurred  a loss  from  continuing
operations  for 2002,  no dilution  of the loss per share  would  result from an
additional  330,003  stock  options that were "in the money" at year-end 2002 or
the assumed  conversion of the  convertible  debentures,  discussed  below.

The company has  reserved  9,823,778  shares of common stock for issuance to the
owners  of its  5-1/4%  Convertible  Subordinated  Debentures  due  2010.  These
debentures are convertible  into the company's common stock at any time prior to
maturity at $61.08 per share of common  stock.  The  company  retired the 7-1/2%
Convertible Subordinated Debentures in 2001.


26.  Condensed Consolidating Financial Information

In connection  with the  acquisition of HS Resources in 2001, a holding  company
structure was implemented.  The company formed a new holding company, Kerr-McGee
Holdco,  which  then  changed  its name to  Kerr-McGee  Corporation.  The former
Kerr-McGee  Corporation's name was changed to Kerr-McGee Operating  Corporation.
At the end of 2002,  another  reorganization  took  place  whereby  among  other
changes,  Kerr-McGee Operating Corporation distributed its investment in certain
subsidiaries  (primarily  the  oil and gas  operating  subsidiaries)  to a newly
formed  intermediate   holding  company,   Kerr-McGee   Worldwide   Corporation.
Kerr-McGee  Operating  Corporation formed a new subsidiary,  Kerr-McGee Chemical
Worldwide LLC, and merged into it.

On October 3, 2001,  Kerr-McGee  Corporation  issued $1.5  billion of  long-term
notes in a public offering. The notes are general,  unsecured obligations of the
company  and  rank in  parity  with all of the  company's  other  unsecured  and
unsubordinated   indebtedness.   Kerr-McGee  Chemical  Worldwide  LLC  (formerly
Kerr-McGee Operating  Corporation,  which was previously the original Kerr-McGee
Corporation)  and Kerr-McGee  Rocky  Mountain  Corporation  have  guaranteed the
notes.  Additionally  Kerr-McGee  Corporation has guaranteed all indebtedness of
its  subsidiaries,  including  the  indebtedness  assumed in the  purchase of HS
Resources. As a result of these guarantee arrangements,  the company is required
to  present  condensed  consolidating  financial  information.  The top  holding
company,  Kerr-McGee  Corporation,  is shown as the parent in 2002 and 2001, but
since it did not exist in 2000, no parent amounts are  presented.  The guarantor
subsidiaries   include   Kerr-McGee   Chemical   Worldwide  LLC  in  2002,   its
predecessors,   Kerr-McGee  Operating  Corporation  in  2001  and  the  original
Kerr-McGee Corporation in 2000, along with Kerr-McGee Rocky Mountain Corporation
in 2002 and 2001.

The following tables present condensed  consolidating  financial information for
(a)  Kerr-McGee  Corporation,  the current  parent  company,  (b) the  guarantor
subsidiaries, and (c) the non-guarantor subsidiaries on a consolidated basis.

Condensed  Consolidating Statement of Operations for the Year Ended December 31,
2002
--------------------------------------------------------------------------------



                                                          Kerr-McGee     Guarantor      Non-Guarantor
(Millions of dollars)                                     Corporation   Subsidiaries    Subsidiaries    Eliminations    Consolidated
---------------------                                     -----------   ------------    ------------    ------------    ------------
                                                                                                             
Sales                                                         $   -         $351           $3,608           $(259)          $3,700
                                                              -----         ----           ------           -----           ------
Costs and Expenses
   Costs and operating expenses                                   -          105            1,705            (260)           1,550
   Selling, general and administrative expenses                   -            4              309               -              313
   Shipping and handling expenses                                 -            9              116               -              125
   Depreciation and depletion                                     -          121              653               -              774
   Asset impairment                                               -            3              825               -              828
   Exploration, including dry holes and
       amortization of undeveloped leases                         -           12              261               -              273
   Taxes, other than income taxes                                 -           16               88               -              104
   Provision for environmental remediation and
      restoration, net of reimbursements                          -            -               80               -               80
   Interest and debt expense                                    115           36              323            (199)             275
                                                              -----         ----           ------           -----           ------
        Total Costs and Expenses                                115          306            4,360            (459)           4,322
                                                              -----         ----           ------           -----           ------
                                                               (115)          45             (752)            200             (622)
Other Income (Loss)                                            (438)         484             (127)             46              (35)
                                                              -----         ----           ------           -----           ------
Income (Loss) from Continuing Operations
   before Income Taxes                                         (553)         529             (879)            246             (657)
Taxes on Income                                                  68          (26)              44             (40)              46
                                                              -----         ----           ------           -----           ------

Income (Loss) from Continuing Operations                       (485)         503             (835)            206             (611)
Discontinued Operations, net of income taxes                      -            -              126               -              126
                                                              -----         ----           ------           -----           ------
Net Income (Loss)                                             $(485)        $503           $ (709)          $ 206           $ (485)
                                                              =====         ====           ======           =====           ======




Condensed  Consolidating Statement of Operations for the Year Ended December 31,
2001
--------------------------------------------------------------------------------


                                                          Kerr-McGee     Guarantor      Non-Guarantor
(Millions of dollars)                                     Corporation   Subsidiaries    Subsidiaries    Eliminations    Consolidated
---------------------                                     -----------   ------------    ------------    ------------    ------------
                                                                                                             
Sales                                                         $   -        $  122          $3,801          $  (357)         $3,566
                                                              -----        ------          ------          -------          ------
Costs and Expenses
   Costs and operating expenses                                   -            47           1,619             (357)          1,309
   Selling, general and administrative expenses                   -            69             159                -             228
   Shipping and handling expenses                                 -             2             109                -             111
   Depreciation and depletion                                     -            57             656                -             713
   Asset impairment                                               -             -              76                -              76
   Exploration, including dry holes and amortization
      of undeveloped leases                                       -            15             195                -             210
   Taxes, other than income taxes                                 -            13             101                -             114
   Provision for environmental remediation and
      restoration, net of reimbursements                          -            82               -                -              82
   Interest and debt expense                                     36           202             121             (164)            195
                                                              -----        ------          ------          -------          ------
         Total Costs and Expenses                                36           487           3,036             (521)          3,038
                                                              -----        ------          ------          -------          ------
                                                                (36)         (365)            765              164             528
Other Income                                                    809         1,205             150           (1,940)            224
                                                              -----        ------          ------          -------          ------
Income from Continuing Operations
   before Income Taxes                                          773           840             915           (1,776)            752
Taxes on Income                                                (287)         (209)           (362)             582            (276)
                                                              -----        ------          ------          -------          ------
Income from Continuing Operations                               486           631             553           (1,194)            476
Discontinued Operations, net of income taxes                      -             -              30                -              30
Cumulative Effect of Change in Accounting
    Principle, net of income taxes                                -           (21)              1                -             (20)
                                                              -----        ------          ------          -------          ------
Net Income                                                    $ 486        $  610          $  584          $(1,194)         $  486
                                                              =====        ======          ======          =======          ======



Condensed  Consolidating Statement of Operations for the Year Ended December 31,
2000
--------------------------------------------------------------------------------


                                                          Kerr-McGee     Guarantor      Non-Guarantor
(Millions of dollars)                                     Corporation   Subsidiaries    Subsidiaries    Eliminations    Consolidated
---------------------                                     -----------   ------------    ------------    ------------    ------------
                                                                                                             
Sales                                                         $   -        $   (9)         $4,085          $   (13)         $4,063
                                                              -----        ------          ------          -------          ------
Costs and Expenses
   Costs and operating expenses                                   -             4           1,274              (13)          1,265
   Selling, general and administrative expenses                   -            47             150                -             197
   Shipping and handling expenses                                 -             -              98                -              98
   Depreciation and depletion                                     -             8             670                -             678
   Exploration, including dry holes and amortization
      of undeveloped leases                                       -             -             169                -             169
   Taxes, other than income taxes                                 -             4             118                -             122
   Provision for environmental remediation and
      restoration, net of reimbursements                          -            90               -                -              90
   Purchased in-process research and development                  -             -              32                -              32
   Interest and debt expense                                      -           256             203             (251)            208
                                                              -----        ------          ------          -------          ------
         Total Costs and Expenses                                 -           409           2,714             (264)          2,859
                                                              -----        ------          ------          -------          ------
                                                                  -          (418)          1,371              251           1,204
Other Income                                                      -         1,717             291           (1,958)             50
                                                              -----        ------          ------          -------          ------
Income from Continuing Operations
   before Income Taxes                                            -         1,299           1,662           (1,707)          1,254
Taxes on Income                                                   -          (457)           (553)             573            (437)
                                                              -----        ------          ------          -------          ------
Income from Continuing Operations                                 -           842           1,109           (1,134)            817
Discontinued Operations, net of income taxes                      -             -              25                -              25
                                                              -----        ------          ------          -------          ------
Net Income                                                    $   -        $  842          $1,134          $(1,134)         $  842
                                                              =====        ======          ======          =======          ======


Condensed Consolidating Balance Sheet as of December 31, 2002
--------------------------------------------------------------------------------



                                                          Kerr-McGee     Guarantor      Non-Guarantor
(Millions of dollars)                                     Corporation   Subsidiaries    Subsidiaries    Eliminations    Consolidated
---------------------                                     -----------   ------------    ------------    ------------    ------------
                                                                                                             
ASSETS
Current Assets
     Cash                                                    $    3        $    -          $   87          $     -          $   90
     Intercompany receivables                                   956            46           1,641           (2,643)              -
     Accounts receivable                                          -            73             535                -             608
     Inventories                                                  -             6             396                -             402
     Deposits, prepaid expenses and other assets                  -            60              75               (2)            133
     Current assets associated with properties
        held for disposal                                         -             -              57                -              57
                                                             ------        ------          ------          -------          ------
           Total Current Assets                                 959           185           2,791           (2,645)          1,290
Property, Plant and Equipment - Net                               -         1,956           5,080                -           7,036
Investments and Other Assets                                     12           118             986              (81)          1,035
Long-Term Assets Associated with Properties
   Held for Disposal                                              -             -             187                5             192
Investments in and Advances to Subsidiaries                   3,673           695              80           (4,448)              -
Goodwill                                                          -           347               9                -             356
                                                             ------        ------          ------          -------          ------
              Total Assets                                   $4,644        $3,301          $9,133          $(7,169)         $9,909
                                                             ======        ======          ======          =======          ======
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities
     Accounts payable                                        $   45        $   78          $  649          $     -          $  772
     Intercompany borrowings                                     68           842           1,732           (2,642)              -
     Long-term debt due within one year                           -             -             106                -             106
     Other current liabilities                                   18           195             491               26             730
     Current liabilities associated with properties
        held for disposal                                         -             -               2                -               2
                                                             ------        ------          ------          -------          ------
           Total Current Liabilities                            131         1,115           2,980           (2,616)          1,610
Long-Term Debt                                                1,847             -           1,951                -           3,798
Deferred Credits and Reserves                                     -           675           1,298              (24)          1,949
Long-Term Liabilities Associated with Properties                  -             -              16                -              16
   Held for Disposal
Investments by and Advances from Parent                           -             -             729             (729)              -
Stockholders' Equity                                          2,666         1,511           2,159           (3,800)          2,536
                                                             ------        ------          ------          -------          ------
          Total Liabilities and Stockholders' Equity         $4,644        $3,301          $9,133          $(7,169)         $9,909
                                                             ======        ======          ======          =======          ======



Condensed Consolidating Balance Sheet as of December 31, 2001
--------------------------------------------------------------------------------


                                                          Kerr-McGee     Guarantor      Non-Guarantor
(Millions of dollars)                                     Corporation   Subsidiaries    Subsidiaries    Eliminations    Consolidated
---------------------                                     -----------   ------------    ------------    ------------    ------------
                                                                                                            
ASSETS
Current Assets
     Cash                                                    $    -        $    4         $    87         $      -         $    91
     Intercompany receivables                                     1          (524)          1,866           (1,343)              -
     Accounts receivable                                          -            41             380                -             421
     Inventories                                                  -             4             425                -             429
     Deposits, prepaid expenses and other assets                  -            49              79              223             351
     Current assets associated with properties
        held for disposal                                         -             -              75                -              75
                                                             ------        ------         -------         --------         -------
           Total Current Assets                                   1          (426)          2,912           (1,120)          1,367
Property, Plant and Equipment - Net                               -         2,067           5,311                -           7,378
Investments and Other Assets                                     12           641             191              (60)            784
Long-Term Assets Associated with Properties
   Held for Disposal                                              -             6           1,185                -           1,191
Investments in and Advances to Subsidiaries                   4,992         5,007           1,709          (11,708)              -
Goodwill                                                          -           347               9                -             356
                                                             ------        ------         -------         --------         -------
              Total Assets                                   $5,005        $7,642         $11,317         $(12,888)        $11,076
                                                             ======        ======         =======         ========         =======
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities
     Accounts payable                                        $   45        $   95         $   480         $      -         $   620
     Short-term borrowings                                        -             -               8                -               8
     Intercompany borrowings                                      -         1,316           1,027           (2,343)              -
     Long-term debt due within one year                           -            23               3                -              26
     Other current liabilities                                   34          (334)            392              383             475
     Current liabilities associated with properties
        held for disposal                                         -             -              45                -              45
                                                             ------        ------         -------         --------         -------
           Total Current Liabilities                             79         1,100           1,955           (1,960)          1,174
Long-Term Debt                                                1,497         2,016           1,027                -           4,540
Deferred Credits and Reserves                                     -         1,013           1,045              (50)          2,008
Long-Term Liabilities Associated with Properties
   Held for Disposal                                              -             -             180                -             180
Investments by and Advances from Parent                           -             -             955             (955)              -
Stockholders' Equity                                          3,429         3,513           6,155           (9,923)          3,174
                                                             ------        ------         -------         --------         -------
          Total Liabilities and Stockholders' Equity         $5,005        $7,642         $11,317         $(12,888)        $11,076
                                                             ======        ======         =======         ========         =======



Condensed  Consolidating Statement of Cash Flows for the Year Ended December 31,
2002
--------------------------------------------------------------------------------


                                                          Kerr-McGee     Guarantor      Non-Guarantor
(Millions of dollars)                                     Corporation   Subsidiaries    Subsidiaries    Eliminations    Consolidated
---------------------                                     -----------   ------------    ------------    ------------    ------------
                                                                                                            
Cash Flow from Operating Activities
Net income (loss)                                            $(485)        $ 503           $  (709)         $ 206          $  (485)
Adjustments to reconcile to net cash provided by (used in)
  operating activities -
     Depreciation, depletion and amortization                    -           124               720              -              844
     Deferred income taxes                                       -             9              (121)             -             (112)
     Dry hole costs                                              -             -               113              -              113
     Asset impairment                                            -             3               859              -              862
     Equity in loss (earnings) of subsidiaries                 465           (25)                -           (440)               -
     Provision for environmental remediation and
        restoration, net of reimbursements                       -             -                89              -               89
     Gain on asset retirements and sales                         -             -              (110)             -             (110)
     Noncash items affecting net income                          -           (13)              139              -              126
     Changes in current assets and liabilities and other       (16)          328              (191)             -              121
                                                             -----         -----           -------          -----          -------
           Net cash provided by (used in) operating
             activities                                        (36)          929               789           (234)           1,448
                                                             -----         -----           -------          -----          -------
Cash Flow from Investing Activities
 Capital expenditures                                            -          (179)             (980)             -           (1,159)
 Dry hole costs                                                  -             -              (113)             -             (113)
 Acquisitions                                                    -             -               (24)             -              (24)
 Other investing activities                                      -          (639)            1,342              -              703
                                                             -----         -----           -------          -----          -------
           Net cash provided by (used in) investing
             activities                                          -          (818)              225              -             (593)
                                                             -----         -----           -------          -----          -------
Cash Flow from Financing Activities
 Issuance of long-term debt                                    350             -                68              -              418
 Repayment of long-term debt                                     -             -            (1,093)             -           (1,093)
 Decrease in short-term borrowings                               -             -                (8)             -               (8)
 Increase (decrease) in intercompany notes payable            (135)         (112)              248             (1)               -
 Issuance of common stock                                        5             -                 -              -                5
 Dividends paid                                               (181)            -              (235)           235             (181)
                                                             -----         -----           -------          -----          -------
           Net cash provided by (used in) financing
             activities                                         39          (112)           (1,020)           234             (859)
                                                             -----         -----           -------          -----          -------
Effects of Exchange Rate Changes on Cash and Cash
  Equivalents                                                    -             -                 3              -                3
                                                             -----         -----           -------          -----          -------
Net Increase (Decrease) in Cash and Cash Equivalents             3            (1)               (3)             -               (1)
Cash and Cash Equivalents at Beginning of Year                   -             1                90              -               91
                                                             -----         -----           -------          -----          -------
Cash and Cash Equivalents at End of Year                     $   3         $   -           $    87          $   -          $    90
                                                             =====         =====           =======          =====          =======



Condensed  Consolidating Statement of Cash Flows for the Year Ended December 31,
2001
--------------------------------------------------------------------------------



                                                          Kerr-McGee     Guarantor      Non-Guarantor
(Millions of dollars)                                     Corporation   Subsidiaries    Subsidiaries    Eliminations    Consolidated
---------------------                                     -----------   ------------    ------------    ------------    ------------
                                                                                                            
Cash Flow from Operating Activities
Net income                                                   $  486       $   610          $   584         $(1,194)        $   486
Adjustments to reconcile to net cash provided by (used in)
   operating activities -
     Depreciation, depletion and amortization                     -            60              719               -             779
     Deferred income taxes                                        -           166               39               -             205
     Dry hole costs                                               -             -               72               -              72
     Asset impairment                                             -             -               76               -              76
     Equity in loss (earnings) of subsidiaries                 (520)         (586)               -           1,106              -
     Provision for environmental remediation and
       restoration, net of reimbursements                         -            82                -               -              82
     Gain on asset retirements and sales                          -            (3)              (9)              -             (12)
     Noncash items affecting net income                           -          (201)              54               -            (147)
     Changes in current assets and liabilities and other,
       net of effects of operations acquired                   (463)          656             (688)             97            (398)
                                                             ------       -------          -------         -------         -------
          Net cash provided by (used in) operating
            activities                                         (497)          784              847               9           1,143
                                                             ------       -------          -------         -------         -------
Cash Flow from Investing Activities
  Capital expenditures                                            -           (95)          (1,697)              -          (1,792)
  Dry hole costs                                                  -             -              (72)              -             (72)
  Acquisitions                                                 (955)            -              (23)              -            (978)
  Other investing activities                                      -             6              (61)              -             (55)
                                                             ------       -------          -------         -------         -------
          Net cash used in investing activities                (955)          (89)          (1,853)              -          (2,897)
                                                             ------       -------          -------         -------         -------
Cash Flow from Financing Activities
  Issuance of long-term debt                                  1,497           (10)           1,026               -           2,513
  Repayment of long-term debt                                     -          (586)             (75)              -            (661)
  Increase (decrease) in short-term borrowings                    -           (11)               2               -              (9)
  Increase (decrease) in intercompany notes payable               -         1,009                -          (1,009)              -
  Issuance of common stock                                        -            32                -               -              32
  Dividends paid                                                (45)       (1,128)               -           1,000            (173)
                                                             ------       -------          -------         -------         -------
          Net cash provided by (used in) financing
            activities                                        1,452          (694)             953              (9)          1,702
                                                             ------       -------          -------         -------         -------
Effects of Exchange Rate Changes on Cash and Cash
  Equivalents                                                     -             -               (1)              -              (1)
                                                             ------       -------          -------         -------         -------
Net Increase (Decrease) in Cash and Cash Equivalents              -             1              (54)              -             (53)
Cash and Cash Equivalents at Beginning of Year                    -             3              141               -             144
                                                             ------       -------          -------         -------         -------
Cash and Cash Equivalents at End of Year                     $    -       $     4          $    87         $     -         $    91
                                                             ======       =======          =======         =======         =======



Condensed  Consolidating Statement of Cash Flows for the Year Ended December 31,
2000
--------------------------------------------------------------------------------



                                                          Kerr-McGee     Guarantor      Non-Guarantor
(Millions of dollars)                                     Corporation   Subsidiaries    Subsidiaries    Eliminations    Consolidated
---------------------                                     -----------   ------------    ------------    ------------    ------------
                                                                                                            
Cash Flow from Operating Activities
Net income                                                    $  -        $   842          $ 1,134         $(1,134)        $   842
Adjustments to reconcile to net cash provided by
  operating activities -
     Depreciation, depletion and amortization                    -              8              724               -             732
     Deferred income taxes                                       -             59              (41)              -              18
     Dry hole costs                                              -              -               54               -              54
     Equity in loss (earnings) of subsidiaries                   -         (1,134)               -           1,134               -
     Provision for environmental remediation and
       restoration, net of reimbursements                        -             90                -               -              90
     Gain on asset retirements and sales                         -              -               (6)              -              (6)
     Purchased in-process research and development               -              -               32               -              32
     Noncash items affecting net income                          -             (8)              53               -              45
     Changes in current assets and liabilities and other,
       net of effects of operations acquired                     -            168             (135)              -              33
                                                              ----        -------          -------         -------         -------
          Net cash provided by operating activities              -             25            1,815               -           1,840
                                                              ----        -------          -------         -------         -------
Cash Flow from Investing Activities
  Capital expenditures                                           -             (6)            (836)              -            (842)
  Dry hole costs                                                 -              -              (54)              -             (54)
  Acquisitions                                                   -              -           (1,018)              -          (1,018)
  Other investing activities                                     -              1               20               -              21
                                                              ----        -------          -------         -------         -------
          Net cash used in investing activities                  -             (5)          (1,888)              -          (1,893)
                                                              ----        -------          -------         -------         -------
Cash Flow from Financing Activities
  Issuance of long-term debt                                     -            600               77               -             677
  Repayment of long-term debt                                    -           (198)            (768)              -            (966)
  Decrease in short-term borrowings                              -             -                (3)              -              (3)
  Increase (decrease) in intercompany notes payable              -           (639)             639               -               -
  Issuance of common stock                                       -            383                -               -             383
  Dividends paid                                                 -           (166)               -               -            (166)
                                                              ----        -------          -------         -------         -------
          Net cash used in financing activities                  -            (20)             (55)              -             (75)
                                                              ----        -------          -------         -------         -------
Effects of Exchange Rate Changes on Cash and Cash
  Equivalents                                                    -              -                5               -               5
                                                              ----        -------          -------         -------         -------
Net Decrease in Cash and Cash Equivalents                        -              -             (123)              -            (123)
Cash and Cash Equivalents at Beginning of Year                   -              3              264               -             267
                                                              ----        -------          -------         -------         -------
Cash and Cash Equivalents at End of Year                      $  -        $     3          $   141         $     -         $   144
                                                              ====        =======          =======         =======         =======



27.  Reporting by Business Segments and Geographic Locations

The  company  has  three  reportable  segments:  oil  and  gas  exploration  and
production, production and marketing of titanium dioxide pigment, and production
and marketing of other  chemicals.  The exploration and production unit explores
for and produces oil and gas in the United States,  the United Kingdom sector of
the North Sea and China.  Exploration  efforts also extend to Australia,  Benin,
Brazil,  Gabon,  Morocco,  Canada, Yemen and the Danish sector of the North Sea.
The chemical unit primarily  produces and markets  titanium  dioxide pigment and
has  production  facilities  in the United  States,  Australia,  Germany and the
Netherlands.  Other chemicals include the company's  electrolytic  manufacturing
and marketing  operations and forest products treatment  business.  All of these
operations are in the United States.

Crude oil sales to individually  significant  customers  totaled $408 million to
Texon L.P. and $450  million to BP Oil  International  in 2002;  $408 million to
Texon L.P. and $401 million to BP Oil International in 2001; and $548 million to
Texon  L.P.  and $859  million to BP Oil  International  in 2000.  In  addition,
natural gas sales to Cinergy  Marketing & Trading LP totaled $496 million,  $682
million  and  $522  million  in  2002,  2001 and  2000,  respectively.  Sales to
subsidiary companies are eliminated as described in Note 1.


(Millions of dollars)                              2002       2001       2000
---------------------                             ------     ------     ------

Sales -
  Exploration and production                      $2,504     $2,439     $2,802
                                                  ------     ------     ------
  Chemicals -
    Pigment                                          995        931      1,034
    Other                                            201        196        227
                                                  ------     ------     ------
      Total Chemicals                              1,196      1,127      1,261
                                                  ------     ------     ------
              Total                               $3,700     $3,566     $4,063
                                                  ======     ======     ======

Operating profit (loss) -
  Exploration and production                      $ (140)    $  922     $1,431
                                                  ------     ------     ------
  Chemicals -
    Pigment                                           24        (22)       130
    Other                                            (23)       (17)        17
                                                  ------     ------     ------
      Total Chemicals                                  1        (39)       147
                                                  ------     ------     ------
              Total                                 (139)       883      1,578
                                                  ------     ------     ------

Net interest expense                                (270)      (185)      (187)
Net nonoperating income (expense)                   (248)        54       (137)
Taxes on income                                       46       (276)      (437)
Discontinued operations, net of taxes                126         30         25
Cumulative effect of change in accounting
  principle net of taxes                               -        (20)         -
                                                  ------     ------     ------
Net income (loss)                                 $ (485)    $  486     $  842
                                                  ======     ======     ======

Depreciation, depletion and amortization -
  Exploration and production                      $  718     $  641     $  626
                                                  ------     ------     ------
  Chemicals -
    Pigment                                           97        103         71
    Other                                             20         17         21
                                                  ------     ------     ------
      Total Chemicals                                117        120         92
                                                  ------     ------     ------
  Other                                                6          8          8
  Discontinued operations                              3         10          6
                                                  ------     ------     ------
              Total                               $  844     $  779     $  732
                                                  ======     ======     ======

Capital expenditures -
  Exploration and production                      $  988     $1,557     $  682
                                                  ------     ------     ------
  Chemicals -
    Pigment                                           78        139        101
    Other                                              8         14         17
                                                  ------     ------     ------
      Total Chemicals                                 86        153        118
                                                  ------     ------     ------
  Other                                               58         15          6
  Discontinued operations                             27         67         36
                                                  ------     ------     ------
              Total                                1,159      1,792        842
                                                  ------     ------     ------

Exploration expenses -
  Exploration and production -
    Dry hole costs                                   113         72         54
    Amortization of undeveloped leases                67         56         48
    Other                                             93         82         67
                                                  ------     ------     ------
      Total                                          273        210        169
                                                  ------     ------     ------
        Total capital expenditures
          and exploration expenses                $1,432     $2,002     $1,011
                                                  ======     ======     ======

Identifiable assets -
  Exploration and production                      $7,030     $8,076     $4,849
                                                  ------     ------     ------
  Chemicals -
    Pigment                                        1,413      1,391      1,415
    Other                                            247        245        228
                                                  ------     ------     ------
      Total Chemicals                              1,660      1,636      1,643
                                                  ------     ------     ------
              Total                                8,690      9,712      6,492

  Corporate and other assets                       1,038      1,010        915
  Discontinued operations                            181        354        259
                                                  ------     ------     ------
              Total                               $9,909    $11,076     $7,666
                                                  ======    =======     ======

Sales -
  U.S. operations                                 $2,190     $2,125     $2,197
                                                  ------     ------     ------
  International operations -
    North Sea - exploration and production           990        946      1,277
    Other - exploration and production                58         70         86
    Europe - pigment                                 294        258        300
    Australia - pigment                              168        167        203
                                                  ------     ------     ------
                                                   1,510      1,441      1,866
                                                  ------     ------     ------
            Total                                 $3,700     $3,566     $4,063
                                                  ======     ======     ======

Operating profit (loss) -
  U.S. operations                                 $  322     $  647     $  863
                                                  ------     ------     ------
  International operations -
    North Sea - exploration and production          (412)       318        651
    Other - exploration and production               (52)       (60)        (7)
    Europe - pigment                                 (21)       (53)        33
    Australia - pigment                               24         31         38
                                                  ------     ------     ------
                                                    (461)       236        715
                                                  ------     ------     ------
            Total                                 $ (139)    $  883     $1,578
                                                  ======     ======     ======

Net property, plant and equipment -
  U.S. operations                                 $4,631     $4,483     $2,368
                                                  ------     ------     ------
  International operations -
    North Sea - exploration and production         1,912      2,427      2,350
    Other - exploration and production               128        120        157
    Europe - pigment                                 255        226        238
    Australia - pigment                              110        122        127
                                                  ------     ------     ------
                                                   2,405      2,895      2,872
                                                  ------     ------     ------
            Total                                 $7,036     $7,378     $5,240
                                                  ======     ======     ======


28.  Costs Incurred in Crude Oil and Natural Gas Activities

Total expenditures, both capitalized and expensed, for crude oil and natural gas
property acquisition, exploration and development activities for the three years
ended December 31, 2002, are reflected in the following table:


                                                    Property
                                                   Acquisition                Exploration                 Development
(Millions of dollars)                                Costs(1)                   Costs(2)                    Costs(3)
---------------------                              -----------                -----------                 -----------
                                                                                                    

2002 -
     United States                                      $   89                      $206                     $  426
     North Sea                                              55                        14                        296
     Other international                                     2                        58                         16
                                                        ------                      ----                     ------
         Total continuing operations                       146                       278                        738
     Discontinued operations                                 2                         1                          5
                                                        ------                      ----                     ------
         Total                                          $  148                      $279                     $  743
                                                        ======                      ====                     ======

2001 -
     United States                                      $1,420                      $225                     $  457
     North Sea                                               -                        71                        695
     Other international                                     3                        99                         21
                                                        ------                      ----                     ------
         Total continuing operations                     1,423                       395                      1,173
     Discontinued operations                                 -                         4                         64
                                                        ------                      ----                     ------
         Total                                          $1,423                      $399                     $1,237
                                                        ======                      ====                     ======

2000 -
     United States                                      $   41                      $112                     $  230
     North Sea                                             566                        53                        290
     Other international                                    39                        55                         13
                                                        ------                      ----                     ------
         Total continuing operations                       646                       220                        533
     Discontinued operations                                 -                         2                         35
                                                        ------                      ----                     ------
         Total                                          $  646                      $222                     $  568
                                                        ======                      ====                     ======



(1)  Includes  $69  million,  $1.128  billion  and $561  million  applicable  to
     purchases of reserves in place in 2002, 2001 and 2000, respectively.

(2)  Exploration  costs include delay rentals,  exploratory dry holes,  dry hole
     and bottom hole  contributions,  geological and geophysical costs, costs of
     carrying and retaining properties, and capital expenditures,  such as costs
     of drilling and equipping successful exploratory wells.

(3)  Development  costs  include  costs  incurred  to  obtain  access  to proved
     reserves (surveying,  clearing ground,  building roads), to drill and equip
     development  wells,  and  to  acquire,  construct  and  install  production
     facilities and improved  recovery  systems.  Development costs also include
     costs of developmental dry holes.




29.  Results of Operations from Crude Oil and Natural Gas Activities

The results of  operations  from crude oil and natural  gas  activities  for the
three years ended December 31, 2002, consist of the following:


                                                                                                                        Results of
                                            Production      Other                 Depreciation              Income Tax  Operations,
                                   Gross     (Lifting)    Related  Exploration   and Depletion       Asset    Expenses   Producing
(Millions of dollars)           Revenues         Costs      Costs     Expenses        Expenses  Impairment  (Benefits)  Activities
---------------------           --------    ----------    -------  -----------   -------------  ----------  ----------  ----------
                                                                                                   
2002 -
   United States                 $1,367          $268       $106       $159           $374         $111        $116        $ 233
   North Sea                        920           273         60         48            264          706          33         (464)
   Other international               59            17         19         66              3            5         (15)         (36)
                                 ------          ----       ----       ----           ----         ----        ----        -----
      Total crude oil and
       natural gas activities     2,346           558        185        273            641          822         134         (267)
   Other (1)                        158           143         12          -             10            -          (4)          (3)
                                 ------          ----       ----       ----           ----         ----        ----        -----
     Total from continuing
         operations               2,504           701        197        273            651          822         130         (270)
   Discontinued operations           36             5         13          1              3           35           -          (21)
                                 ------          ----       ----       ----           ----         ----        ----        -----
          Total                  $2,540          $706       $210       $274           $654         $857        $130        $(291)
                                 ======          ====       ====       ====           ====         ====        ====        =====

2001 -
   United States                 $1,402          $231        $69       $100           $317         $  -        $248        $ 437
   North Sea                        922           227         61         29            253           47         120          185
   Other international               69            18         19         80             11            -         (19)         (40)
                                 ------          ----       ----       ----           ----         ----        ----        -----
      Total crude oil and
       natural gas activities     2,393           476        149        209            581           47         349          582
   Other (1)                         46            45          5          1              4            -          (7)          (2)
                                 ------          ----       ----       ----           ----         ----        ----        -----
      Total from continuing       2,439           521        154        210            585           47         342          580
          operations
    Discontinued operations          72             7         17          1             10            -          17           20
                                 ------          ----       ----       ----           ----         ----        ----        -----
          Total                  $2,511          $528       $171       $211           $595         $ 47        $359        $ 600
                                 ======          ====       ====       ====           ====         ====        ====        =====
2000 -
   United States                 $1,436          $198       $ 67       $ 95           $286         $  -        $277        $ 513
   North Sea                      1,264           262         55         26            283            -         219          419
   Other international               85            19         17         48              8            -           5          (12)
                                 ------          ----       ----       ----           ----         ----        ----        -----
      Total crude oil and
       natural gas activities     2,785           479        139        169            577            -         501          920
   Other (1)                         17             6          -          -              1            -           4            6
                                 ------          ----       ----       ----           ----         ----        ----        -----
     Total from continuing        2,802           485        139        169            578            -         505          926
         operations
    Discontinued operations          58             5         10          1              6            -          16           20
                                 ------          ----       ----       ----           ----         ----        ----        -----
          Total                  $2,860          $490       $149       $170           $584         $  -        $521        $ 946
                                 ======          ====       ====       ====           ====         ====        ====        =====



(1)  Includes gas marketing,  gas processing  plants,  pipelines and other items
     that do not fit the  definition of crude oil and natural gas activities but
     have been included above to reconcile to the segment presentations.


The table below presents the company's average per-unit sales price of crude oil
and  natural  gas  and  production  costs  per  barrel  of oil  equivalent  from
continuing  operations for each of the past three years.  Natural gas production
has been converted to a barrel of oil equivalent  based on approximate  relative
heating value (6 Mcf equals 1 barrel).

                                                    2002         2001      2000
                                                   ------       ------    ------

Average price of crude oil sold (per barrel) -
    United States                                  $21.56       $22.05    $27.50
    North Sea                                       22.41        23.23     27.92
    Other international                             22.36        20.28     26.05
       Average(1)                                   22.04        22.60     27.69

Average price of natural gas sold (per Mcf)
    United States                                    3.04         3.99      4.11
    North Sea                                        2.35         2.46      2.32
       Average(1)                                    2.95         3.83      3.87

Production costs -
(per barrel of oil equivalent)
    United States                                    3.84         3.79      3.59
    North Sea                                        6.28         5.53      5.55
    Other international                              6.42         5.60      5.89
       Average                                       4.81         4.53      4.54


(1)  Includes the results of the company's 2002 hedging program that reduced the
     average  price of crude oil and  natural  gas sold by $1.13 per  barrel and
     $.01 per Mcf, respectively.



30.  Capitalized Costs of Crude Oil and Natural Gas Activities

Capitalized  costs of crude  oil and  natural  gas  activities  and the  related
reserves for  depreciation,  depletion and  amortization  at the end of 2002 and
2001 are set forth in the table below.

(Millions of dollars)                                      2002            2001
---------------------                                    -------         -------

Capitalized costs -
    Proved properties                                    $10,442         $10,288
    Unproved properties                                      782             753
    Other                                                    361             351
                                                         -------         -------
        Total                                             11,585          11,392
    Assets held for disposal                                 782           2,761
    Discontinued operations                                   63             230
                                                         -------         -------
           Total                                          12,430          14,383
                                                         -------         -------

Reserves for depreciation, depletion and amortization -
    Proved properties                                      5,384           4,887
    Unproved properties                                      155             131
    Other                                                     93              62
                                                         -------         -------
        Total                                              5,632           5,080
    Assets held for disposal                                 746           2,015
    Discontinued operations                                   17              32
                                                         -------         -------
           Total                                           6,395           7,127
                                                         -------         -------

         Net capitalized costs                           $ 6,035         $ 7,256
                                                         =======         =======


31.  Crude Oil,  Condensate,  Natural Gas  Liquids and Natural Gas Net  Reserves
     (Unaudited)

The estimates of proved reserves have been prepared by the company's  geologists
and  engineers  in  accordance  with  the  Securities  and  Exchange  Commission
definitions.  Such estimates  include  reserves on certain  properties  that are
partially  undeveloped  and  reserves  that may be  obtained  in the  future  by
improved  recovery  operations now in operation or for which successful  testing
has been  demonstrated.  The  company  has no proved  reserves  attributable  to
long-term  supply  agreements with  governments or consolidated  subsidiaries in
which there are significant minority interests.  Natural gas liquids and natural
gas volumes are determined using a gas pressure base of 14.73 psia.

The following  table  summarizes the changes in the estimated  quantities of the
company's  crude oil,  condensate,  natural  gas  liquids and natural gas proved
reserves for the three years ended December 31, 2002.


                                                                 Continuing Operations
                                                    -----------------------------------------------------
                                                                                                  Total
Crude Oil, Condensate and Natural Gas Liquids       United      North           Other          Continuing    Discontinued
(Millions of barrels)                               States       Sea         International     Operations    Operations      Total
---------------------------------------------       ------      -----        -------------     ----------    ----------      -----
                                                                                                           
Proved developed and undeveloped reserves -
  Balance December 31, 1999                           234         232               47              513           65           578
    Revisions of previous estimates                    (9)          7                -               (2)           -            (2)
    Purchases of reserves in place                      1          68                -               69            -            69
    Sales of reserves in place                         (1)          -                -               (1)           -            (1)
    Extensions, discoveries and other
       additions                                       30          91                9              130            2           132
    Production                                        (27)        (43)              (4)             (74)          (2)          (76)
                                                    -----        ----              ---            -----         ----         -----
  Balance December 31, 2000                           228         355               52              635           65           700
    Revisions of previous estimates                    27          (4)               1               24            -            24
    Purchases of reserves in place                     45           -                -               45            -            45
    Sales of reserves in place                         (4)          -                -               (4)           -            (4)
    Extensions, discoveries and other
       additions                                       49          74               25              148            -           148
    Production                                        (28)        (37)              (4)             (69)          (3)          (72)
                                                    -----        ----              ---            -----         ----         -----
  Balance December 31, 2001                           317         388               74              779           62           841
    Revisions of previous estimates                     8        (101)               1              (92)           -           (92)
    Purchases of reserves in place                      1          13                -               14            -            14
    Sales of reserves in place                        (62)        (61)             (37)            (160)         (51)         (211)
    Extensions, discoveries and other
       additions                                        6           1                -                7            -             7
    Production                                        (29)        (38)              (3)             (70)          (2)          (72)
                                                    -----        ----              ---            -----         ----         -----
  Balance December 31, 2002                           241         202               35              478            9           487
                                                    =====        ====              ===            =====         ====         =====

Natural Gas (Billions of cubic feet)
------------------------------------
Proved developed and undeveloped reserves -
  Balance December 31, 1999                         1,274         266                -            1,540          515         2,055
    Revisions of previous estimates                    11          40                -               51            -            51
    Purchases of reserves in place                     19         173                -              192            -           192
    Sales of reserves in place                        (37)          -                -              (37)           -           (37)
    Extensions, discoveries and other
       additions                                      227          13                -              240           20           260
    Production                                       (169)        (25)               -             (194)           -          (194)
                                                    -----        ----              ---            -----         ----         -----
  Balance December 31, 2000                         1,325         467                -            1,792          535         2,327
    Revisions of previous estimates                    35           2                -               37            -            37
    Purchases of reserves in place                  1,050           5                -            1,055            -         1,055
    Sales of reserves in place                         (7)          -                -               (7)           -            (7)
    Extensions, discoveries and other
       additions                                      737          76                -              813            -           813
    Production                                       (195)        (23)               -             (218)           -          (218)
                                                    -----        ----              ---            -----         ----         -----
  Balance December 31, 2001                         2,945         527                -            3,472          535         4,007
    Revisions of previous estimates                   (70)         (7)               -              (77)           -           (77)
    Purchases of reserves in place                     17          16                -               33            -            33
    Sales of reserves in place                        (76)         (9)               -              (85)        (535)         (620)
    Extensions, discoveries and other
       additions                                      204           6                -              210            -           210
    Production                                       (241)        (37)               -             (278)           -          (278)
                                                    -----        ----              ---            -----         ----         -----
  Balance December 31, 2002                         2,779         496                -            3,275            -         3,275
                                                    =====        ====              ===            =====         ====         =====




                                                                    Continuing Operations
                                                    -----------------------------------------------------
                                                                                                  Total
Crude Oil, Condensate and Natural Gas Liquids       United      North          Other           Continuing    Discontinued
(Millions of barrels)                               States       Sea         International     Operations    Operations      Total
---------------------------------------------       ------      -----        -------------     ----------    ------------    -----
                                                                                                           
Proved developed reserves -

     December 31, 2000                                153         185               15              353           12           365
     December 31, 2001                                206         248               13              467           11           478
     December 31, 2002                                147         130                2              279            5           284

Natural Gas (Billions of cubic feet)
------------------------------------
Proved developed reserves -

     December 31, 2000                                848         150                -              998            -           998
     December 31, 2001                              1,741         208                -            1,949           13         1,962
     December 31, 2002                              1,658         168                -            1,826            -         1,826


The following  presents the company's barrel of oil equivalent  proved developed
and  undeveloped  reserves  based on  approximate  heating value (6 Mcf equals 1
barrel).


                                                                    Continuing Operations
                                                    -----------------------------------------------------
                                                                                                  Total
Barrels of Oil Equivalent (Millions of              United      North           Other          Continuing    Discontinued
barrels)                                            States       Sea         International     Operations    Operations      Total
---------------------------------------             ------      -----        -------------     ----------    ------------    -----
                                                                                                           
Proved developed and undeveloped reserves -
   Balance December 31, 1999                          447         276               47              770          151           921
     Revisions of previous estimates                   (7)         14                -                7            -             7
     Purchases of reserves in place                     4          97                -              101            -           101
     Sales of reserves in place                        (8)          -                -               (8)           -            (8)
     Extensions, discoveries and other
       additions                                       68          93                9              170            5           175
     Production                                       (55)        (47)              (4)            (106)          (2)         (108)
                                                      ---         ---              ---            -----         ----         -----
   Balance December 31, 2000                          449         433               52              934          154         1,088
     Revisions of previous estimates                   33          (4)               1               30            -            30
     Purchases of reserves in place                   219           1                -              220            -           220
     Sales of reserves in place                        (5)          -                -               (5)           -            (5)
     Extensions, discoveries and other
       additions                                      172          87               25              284            -           284
     Production                                       (60)        (41)              (4)            (105)          (3)         (108)
                                                      ---         ---              ---            -----         ----         -----
   Balance December 31, 2001                          808         476               74            1,358          151         1,509
     Revisions of previous estimates                   (4)       (102)               1             (105)           -          (105)
     Purchases of reserves in place                     3          16                -               19            -            19
     Sales of reserves in place                       (74)        (63)             (37)            (174)        (140)         (314)
     Extensions, discoveries and other
       additions                                       40           2                -               42            -            42
     Production                                       (69)        (44)              (3)            (116)          (2)         (118)
                                                      ---         ---              ---            -----         ----         -----
   Balance December 31, 2002                          704         285               35            1,024            9         1,033
                                                      ===         ===              ===            =====         ====         =====




                                                                   Continuing Operations
                                                    -----------------------------------------------------
                                                                                                  Total
                                                    United      North           Other          Continuing    Discontinued
(Millions of equivalent barrels)                    States       Sea         International     Operations    Operations      Total
--------------------------------                    ------      -----        -------------     ----------    ------------    -----
                                                                                                             
Proved developed reserves -

  December 31, 2000                                   294         210               15              519           12           531
  December 31, 2001                                   496         283               13              792           13           805
  December 31, 2002                                   423         158                2              583            5           588

Proved undeveloped reserves -

  December 31, 2000                                   155         223               37              415          142           557
  December 31, 2001                                   312         193               61              566          138           704
  December 31, 2002                                   281         127               33              441            4           445



32.  Standardized  Measure of and Reconciliation of Changes in Discounted Future
     Net Cash Flows (Unaudited)

The  standardized  measure of future net cash flows  presented in the  following
table was computed  using year-end  prices and costs and a 10% discount  factor.
The future income tax expense was computed by applying the appropriate  year-end
statutory rates, with consideration of future tax rates already  legislated,  to
the future pretax net cash flows less the tax basis of the properties  involved.
However,  the  company  cautions  that  actual  future  net cash  flows may vary
considerably  from these  estimates.  Although the company's  estimates of total
reserves,  development  costs  and  production  rates  were  based  on the  best
information  available,  the  development  and  production  of the  oil  and gas
reserves may not occur in the periods  assumed.  Actual prices  realized,  costs
incurred  and  production  quantities  may vary  significantly  from those used.
Therefore,  such  estimated  future  net cash flow  computations  should  not be
considered to represent the company's  estimate of the expected  revenues or the
current value of existing proved reserves.



                                                                                                            Standardized
                                                                                                             Measure of
                                                                                   Future                    Discounted
                                Future        Future        Future      Future       Net           10%         Future
                                 Cash       Production    Development   Income      Cash         Annual       Net Cash
(Millions of dollars)          Inflows         Costs         Costs       Taxes      Flows       Discount        Flows
---------------------          -------      ----------    -----------   ------     -------      --------    -----------
                                                                                          
2002
   United States               $17,195       $4,909          $1,642     $3,372     $ 7,272       $2,951        $4,321
   North Sea                     7,332        1,484             602      1,887       3,359          923         2,436
   Other international           1,052          280             154        162         456          214           242
                               -------       ------          ------     ------     -------       ------        ------
       Total continuing
        operations              25,579        6,673           2,398      5,421      11,087        4,088         6,999
   Discontinued
     operations                    224           84              11         34          95           32            63
                               -------       ------          ------     ------     -------       ------        ------
        Total                  $25,803       $6,757          $2,409     $5,455     $11,182       $4,120        $7,062
                               =======       ======          ======     ======     =======       ======        ======

2001
   United States               $12,126       $3,952          $1,851     $2,007     $ 4,316       $1,937        $2,379
   North Sea                     8,348        2,950             855      1,155       3,388        1,216         2,172
   Other international           1,076          491             247         98         240          129           111
                               -------       ------          ------     ------     -------       ------        ------
       Total continuing
        operations              21,550        7,393           2,953      3,260       7,944        3,282         4,662
   Discontinued
     operations                  2,440          748             326        497         869          543           326
                               -------       ------          ------     ------     -------       ------        ------
         Total                 $23,990       $8,141          $3,279     $3,757     $ 8,813       $3,825        $4,988
                               =======       ======          ======     ======     =======       ======        ======

2000
   United States               $14,825       $2,937          $1,008     $3,698     $ 7,182       $2,940        $4,242
   North Sea                     9,051        2,670             955      1,807       3,619        1,312         2,307
   Other international           1,125          341             167        155         462          206           256
                               -------       ------          ------     ------     -------       ------        ------
      Total continuing
        operations              25,001        5,948           2,130      5,660      11,263        4,458         6,805
   Discontinued
     operations                  3,159          983             322        789       1,065          644           421
                               -------       ------          ------     ------     -------       ------        ------
        Total                  $28,160       $6,931          $2,452     $6,449     $12,328       $5,102        $7,226
                               =======       ======          ======     ======     =======       ======        ======



The changes in the  standardized  measure of future net cash flows are presented
below for each of the past three years:



(Millions of dollars)                                                               2002           2001         2000
---------------------                                                             -------        -------       -------
                                                                                                      
Net change in sales, transfer prices and production costs                         $ 6,870        $(5,879)      $ 3,849
Changes in estimated future development costs                                        (209)          (639)          (33)
Sales and transfers less production costs                                          (1,795)        (1,904)       (2,358)
Purchases of reserves in place                                                        243          1,117         1,065
Changes due to extensions, discoveries, etc.                                          347          1,232         1,477
Changes due to revisions in quantity estimates                                     (1,433)           168            56
Changes due to sales of reserves in place                                          (1,920)           (87)         (166)
Current-period development costs                                                      743          1,237           568
Accretion of discount                                                                 701          1,093           601
Changes in income taxes                                                            (1,336)         1,689        (1,706)
Timing and other                                                                     (137)          (265)         (138)
                                                                                  -------        -------       -------
         Net change                                                                 2,074         (2,238)        3,215
Total at beginning of year                                                          4,988          7,226         4,011
                                                                                  -------        -------       -------
Total at end of year                                                              $ 7,062        $ 4,988       $ 7,226
                                                                                  =======        =======       =======



33.  Quarterly Financial Information (Unaudited)

A summary  of  quarterly  consolidated  results  for 2002 and 2001 is  presented
below. The quarterly  per-share  amounts do not add to the annual amounts due to
the effects of the weighted  average of stock issued,  convertible  debt repaid,
and net loss sustained in a quarter.



                                                                                               Diluted Income (Loss)
                                                                                                  per Common Share
                                                                                             --------------------------

                                                                     Income                       Income
                                                   Operating       (Loss) from      Net        (Loss) from        Net
(Millions of dollars,                                Profit        Continuing      Income      Continuing        Income
except per-share amounts)              Sales         (Loss)        Operations      (Loss)      Operations        (Loss)
-------------------------             ------       ---------       ----------      ------      ----------        ------
                                                                                               
2002 Quarter Ended -
   March 31                           $  799         $ 111            $  (2)       $   6         $ (.02)         $  .05
   June 30                               932            56             (178)         (58)         (1.77)           (.58)
   September 30                          984           182              (87)         (87)          (.86)           (.86)
   December 31                           985          (488)            (344)        (346)         (3.43)          (3.45)
                                      ------         -----            -----        -----         ------          ------
      Total                           $3,700         $(139)           $(611)       $(485)        $(6.09)         $(4.84)
                                      ======         =====            =====        =====         ======          ======

2001 Quarter Ended -
   March 31                           $1,042         $ 417            $ 349        $ 335(1)     $  3.34          $ 3.21(1)
   June 30                               919           329              166          175           1.63            1.71
   September 30                          864           165               17           26            .18             .27
   December 31                           741           (28)             (56)         (50)          (.57)           (.50)
                                      ------         -----            -----        -----         ------          ------
      Total                           $3,566         $ 883            $ 476        $ 486         $ 4.65          $ 4.74
                                      ======         =====            =====        =====         ======          ======


(1)  Net income  includes a  provision  of $20  million,  net of taxes,  for the
     cumulative  effect of change in  accounting  principle  resulting  from the
     adoption  of FAS 133,  which  equates to $0.19 per  diluted  common  share.
     Diluted income per common share before the accounting change was $3.40.

The company's  common stock is listed for trading on the New York Stock Exchange
and at year-end 2002 was held by approximately 26,500 Kerr-McGee stockholders of
record and Oryx and HS Resources  owners who have not yet exchanged their stock.
The ranges of market prices and dividends declared during the last two years for
Kerr-McGee Corporation are as follows:




                                                 Market Prices
                          -----------------------------------------------------------                 Dividends
                                    2002                               2001                           per Share
                          ------------------------           ------------------------             ----------------
                           High               Low             High               Low              2002        2001
                          ------            ------           ------            ------             ----        ----
                                                                                           
Quarter Ended -
     March 31             $63.29            $50.72           $70.70            $62.80             $.45        $.45
     June 30               63.58             52.80            74.10             62.52              .45         .45
     September 30          53.90             39.10            66.96             46.94              .45         .45
     December 31           47.51             38.02            59.60             49.00              .45         .45



Nine-Year Financial Summary
--------------------------------------------------------------------------------



(Millions of dollars, except
   per-share amounts)                    2002       2001       2000        1999       1998       1997      1996      1995     1994
----------------------------            ------     ------     ------      ------     ------     ------    ------    ------   ------
                                                                                                 
Summary of Net Income (Loss)
----------------------------
Sales                                   $3,700     $3,566     $4,063      $2,712     $2,233     $2,651    $2,779    $2,462  $ 2,389
                                        ------     ------     ------      ------     ------     ------    ------    ------  -------
Costs and operating expenses             4,047      2,843      2,651       2,314      2,626      2,059     2,162     2,343    2,203
Interest and debt expense                  275        195        208         191        159        141       145       194      210
                                        ------     ------     ------      ------     ------     ------    ------    ------  -------
Total costs and expenses                 4,322      3,038      2,859       2,505      2,785      2,200     2,307     2,537    2,413
                                        ------     ------     ------      ------     ------     ------    ------    ------  -------
                                          (622)       528      1,204         207       (552)       451       472       (75)     (24)
Other income (loss)                        (35)       224         50          36         40         81       109       146       15
Taxes on income                             46       (276)      (437)       (105)       173       (183)     (224)       41      (14)
                                        ------     ------     ------      ------     ------     ------    ------    ------  -------
Income (loss) from continuing
   operations                             (611)       476        817         138       (339)       349       357       112      (23)
Income from discontinued
   operations                              126         30         25           8        271         35        57        25       47
Extraordinary charge                         -          -          -           -          -         (2)        -       (23)     (12)
Cumulative effect of change in
   accounting principle                      -        (20)         -          (4)         -          -         -         -     (948)
                                        ------     ------     ------      ------     ------     ------    ------    ------  -------
Net income (loss)                       $ (485)    $  486     $  842      $  142     $  (68)    $  382    $  414    $  114  $  (936)
                                        ======     ======     ======      ======     ======     ======    ======    ======  =======
Effective Income Tax Rate                 (7.0)%     36.7%      34.8%       43.2%     (33.8)%     34.4%     38.6%     57.7%      NM

Common Stock Information, per Share
-----------------------------------
Diluted net income (loss) -
   Continuing operations                $(6.09)    $ 4.65     $ 8.13      $ 1.60     $(3.91)    $ 4.00    $ 4.03    $ 1.25  $  (.26)
   Discontinued operations                1.25        .28        .24         .09       3.13        .40       .65       .28      .53
   Extraordinary charge                      -          -          -           -          -       (.02)        -      (.26)    (.14)
   Cumulative effect of accounting
      change                                 -       (.19)         -        (.05)         -          -         -         -   (10.82)
                                        ------     ------     ------      ------     ------     ------    ------    ------  -------
           Net income (loss)            $(4.84)    $ 4.74     $ 8.37      $ 1.64     $ (.78)    $ 4.38    $ 4.68    $ 1.27  $(10.69)
                                        ======     ======     ======      ======     ======     ======    ======    ======  =======
Dividends declared                      $ 1.80     $ 1.80     $ 1.80      $ 1.80     $ 1.80     $ 1.80    $ 1.64    $ 1.55  $  1.52
Stockholders' equity                     23.01      28.83      25.01       17.19      15.58      17.88     14.59     12.47    12.33
Market high for the year                 63.58      74.10      71.19       62.00      73.19      75.00     74.13     64.00    51.00
Market low for the year                  38.02      46.94      39.88       28.50      36.19      55.50     55.75     44.00    40.00
Market price at year-end                $44.30     $54.80     $66.94      $62.00     $38.25     $63.31    $72.00    $63.50  $ 46.25
Shares outstanding at year-end
   (thousands)                         100,384    100,185     94,485      86,483     86,367     86,794    87,032    89,613   90,143

Balance Sheet Information
-------------------------
Working capital                         $ (320)      $193     $  (34)     $  321     $ (173)    $    -    $  161    $ (106) $  (254)
Property, plant and equipment - net      7,036      7,378      5,240       3,972      4,044      3,844     3,658     3,789    4,493
Total assets                             9,909     11,076      7,666       5,899      5,451      5,339     5,194     5,006    5,918
Long-term debt                           3,798      4,540      2,244       2,496      1,978      1,736     1,809     1,683    2,219
Total debt                               3,904      4,574      2,425       2,525      2,250      1,766     1,849     1,938    2,704
Total debt less cash                     3,814      4,483      2,281       2,258      2,129      1,574     1,719     1,831    2,612
Stockholders' equity                     2,536      3,174      2,633       1,492      1,346      1,558     1,279     1,124    1,112

Cash Flow Information
---------------------
Net cash provided by operating
   activities                            1,448      1,143      1,840         708        418      1,114     1,144       732      693
Capital expenditures                     1,159      1,792        842         528      1,006        851       829       749      622
Dividends paid                             181        173        166         138         86         85        83        79       79
Treasury stock purchased                $    -     $    -     $    -      $    -     $   25     $   60    $  195    $   45  $     -

Ratios and Percentage
---------------------
Current ratio                               .8        1.2        1.0         1.4         .8        1.0       1.2        .9       .8
Average price/earnings ratio                NM       12.8        6.6        27.6         NM       14.9      13.9      42.5       NM
Total debt less cash to total
     capitalization                         60%        59%        46%         60%        61%        50%       57%       62%      70%

Employees
---------
Total wages and benefits                $  412     $  369     $  333      $  327     $  359     $  367    $  367    $  402  $   422
Number of employees at year-end          4,470      4,638      4,426       3,653      4,400      4,792     4,827     5,176    6,724



Nine-Year Operating Summary
--------------------------------------------------------------------------------


                                         2002       2001       2000        1999       1998       1997      1996      1995     1994
                                        ------     ------     ------      ------     ------     ------    ------    ------   ------
                                                                                                  
Exploration and Production
--------------------------
Net production of crude oil and
 condensate - (thousands of
   barrels per day)
     United States                        81.3       77.7       73.7        79.3       66.2       70.6      73.8      74.8     73.4
     North Sea                           102.8      101.9      117.7       102.9       87.4       83.3      86.5      91.9     88.7
     Other international                   7.2        9.3        9.0         9.5       13.3       15.7      14.9      16.4     26.4
                                        ------     ------     ------      ------     ------     ------    ------    ------   ------
       Total                             191.3      188.9      200.4       191.7      166.9      169.6     175.2     183.1    188.5
                                        ======     ======     ======      ======     ======     ======    ======    ======   ======

Average price of crude oil sold
  (per barrel) -
     United States                      $21.56     $22.05     $27.50      $16.90     $12.78     $18.45    $19.56    $15.78   $14.25
     North Sea                           22.41      23.23      27.92       17.88      12.93      18.93     19.60     16.56    15.33
     Other international                 22.36      20.28      26.05       14.22       9.86      15.44     15.71     14.91    14.58
       Average                          $22.04     $22.60     $27.69      $17.30     $12.63     $18.40    $19.26    $16.10   $14.80
Natural gas sales (MMcf per day)           760        596        531         580        584        685       781       809      872
Average price of natural gas sold
     (per Mcf)                          $ 2.95     $ 3.83     $ 3.87      $ 2.38     $ 2.13     $ 2.44    $ 2.11    $ 1.63   $ 1.82
Net exploratory wells drilled (1)-
     Productive                           4.78       2.39       1.25        1.70       4.40       7.65      6.91      4.71    11.61
     Dry                                 17.17      11.43      10.54        3.75      14.42       7.42      5.52     11.16    13.47
                                        ------     ------     ------      ------     ------     ------    ------    ------   ------
       Total                             21.95      13.82      11.79        5.45      18.82      15.07     12.43     15.87    25.08
                                        ======     ======     ======      ======     ======     ======    ======    ======   ======

Net development wells drilled (1)-
     Productive                         196.32     128.62      47.79       46.23      62.30      95.78    143.33    135.86    69.27
     Dry                                  1.37       6.60       5.44        5.89       9.00       7.00     13.04     11.95     9.63
                                        ------     ------     ------      ------     ------     ------    ------    ------   ------
       Total                            197.69     135.22      53.23       52.12      71.30     102.78    156.37    147.81    78.90
                                        ======     ======     ======      ======     ======     ======    ======    ======   ======

Undeveloped net acreage (thousands)(1)-
     United States                       2,399      2,382      2,020       1,560      1,487      1,353     1,099     1,280    1,415
     North Sea                             871        932        923         861        908        523       560       570      629
     Other international                42,560     51,367     26,078      19,039     14,716     14,630     4,556     4,031    7,494
                                        ------     ------     ------      ------     ------     ------     -----     -----    -----
       Total                            45,830     54,681     29,021      21,460     17,111     16,506     6,215     5,881    9,538
                                        ======     ======     ======      ======     ======     ======     =====     =====    =====

Developed net acreage (thousands)(1)-
     United States                       1,266      1,192        729         796        810        830       871     1,190    1,270
     North Sea                             109        149        115         105        115         70        79        58       68
     Other international                    18        656        656         785        612        201       198       207    1,015
                                        ------     ------     ------      ------     ------     ------    ------    ------   ------
        Total                            1,393      1,997      1,500       1,686      1,537      1,101     1,148     1,455    2,353
                                        ======     ======     ======      ======     ======     ======    ======    ======   ======
Estimated proved reserves (1)-
   (millions of equivalent barrels)      1,033      1,509      1,088         920        901        892       849       864    1,059

Chemicals
----------
Titanium dioxide pigment
   production (thousands of tonnes)        508        483        480         320        284        168       155       154      148




(1)  Includes discontinued operations.



Item 9. Change in and Disagreements with Accountants on Accounting and Financial
        Disclosure

None.

                                    PART III

Item 10. Directors and Executive Officers of the Registrant

(a)  Identification of directors -

          For information required under this section,  reference is made to the
          "Director  Information"  section of the company's  proxy statement for
          2003 made in connection  with its Annual  Stockholders'  Meeting to be
          held on May 13, 2003.

(b)  Identification of executive officers -

          The  information  required  under  this  section  is set  forth in the
          caption  "Executive  Officers of the Registrant" on pages 21 and 22 of
          this Form 10-K pursuant to  Instruction 3 to Item 401(b) of Regulation
          S-K and General Instruction G(3) to Form 10-K.

(c)  Compliance with Section 16(a) of the 1934 Act -

          For information required under this section,  reference is made to the
          "Section 16(a) Beneficial  Ownership Reporting  Compliance" section of
          the company's  proxy  statement  for 2003 made in connection  with its
          Annual Stockholders' Meeting to be held on May 13, 2003.

Item 11. Executive Compensation

For information required under this section, reference is made to the "Executive
Compensation and Other Information" section of the company's proxy statement for
2003 made in connection with its Annual Stockholders'  Meeting to be held on May
13, 2003.

Item 12.  Security  Ownership of Certain  Beneficial  Owners and  Management and
          Related Stockholder Matters

Information  regarding  Kerr-McGee  common  stock  that may be issued  under the
company's equity  compensation plans as of December 31, 2002, is included in the
following table:


                                                 Number of shares of                                      Number of shares
                                                  common stock to be        Weighted-average       remaining available for
                                                issued upon exercise       exercise price of         future issuance under
                                             of outstanding options,    outstanding options,           equity compensation
                                                 warrants and rights     warrants and rights                     plans (1)
                                             -----------------------    --------------------       -----------------------
                                                                                                        
 Equity compensation plans approved
   by security holders                                     4,493,008                  $59.48                     5,932,663
 Equity compensation plans not
   approved by security holders                              913,416                   58.26                       175,950
                                                           ---------                                             ---------
      Total                                                5,406,424                   59.27                     6,108,613
                                                           =========                                             =========



(1)  Excludes shares to be issued upon exercise of outstanding options, warrants
     and rights.


The Kerr-McGee  Corporation  Performance Share Plan was approved by the Board of
Directors in January 1998 but was not  approved by the  company's  stockholders.
This plan is a  broad-based  stock option plan that provides for the granting of
options to purchase the company's common stock to full-time,  nonbargaining-unit
employees,  except  officers.  A total of 1,500,000  shares of common stock were
authorized to be issued under this plan. A copy of the plan document is attached
as exhibit 10.19 to this Form 10-K.

For information  required under Item 403 of Regulation S-K, reference is made to
the "Security  Ownership" portion of the "Director  Information"  section of the
company's   proxy  statement  for  2003  made  in  connection  with  its  Annual
Stockholders' Meeting to be held on May 13, 2003.

Item 13. Certain Relationships and Related Transactions

For information required under this section,  reference is made to the "Director
Information"  section  of  the  company's  proxy  statement  for  2003  made  in
connection with its Annual Stockholders' Meeting to be held on May 13, 2003.

Item 14. Controls and Procedures

Within the 90 days prior to the date of this report,  an evaluation  was carried
out  under  the  supervision  and  with  the   participation  of  the  company's
management,  including its Chief Executive Officer and Chief Financial  Officer,
of the  effectiveness  of the design and operation of the  company's  disclosure
controls and  procedures  pursuant to Exchange Act Rule 13a-14.  Based upon that
evaluation,  the Chief Executive  Officer and Chief Financial  Officer concluded
that the company's  disclosure  controls and  procedures are effective in timely
alerting them to material  information  relating to the company  (including  its
consolidated  subsidiaries)  required to be included in the  company's  periodic
Securities and Exchange Commission filings. There were no significant changes in
our internal controls or in other factors that could significantly  affect these
controls subsequent to the date of their evaluation.

                                     PART IV

Item 15. Exhibits, Financial Statement Schedules, and Reports on Form 8-K

(a)       1. Financial Statements - See the Index to the Consolidated  Financial
             Statements included in Item 8. of this Form 10-K.

(a)       2. Financial  Statement  Schedules  -  See the Index to the  Financial
             Statement Schedules included in Item 8. of this Form 10-K.

(a)       3. Exhibits - The following  documents are filed under Commission file
             numbers 1-16619 and 1-3939 as part of this report.


       Exhibit No.
       -----------

          3.1       Amended  and  restated   Certificate  of   Incorporation  of
                    Kerr-McGee   Corporation,   filed  as  Exhibit  4.1  to  the
                    company's  Registration Statement on Form S-4 dated June 28,
                    2001, and incorporated herein by reference.

          3.2       Amended and restated Bylaws of Kerr-McGee Corporation.

          4.1       Rights  Agreement  dated as of July 26, 2001, by and between
                    the company and UMB Bank,  N.A., filed as Exhibit 4.1 to the
                    company's  Registration  Statement on Form 8-A filed on July
                    27, 2001, and incorporated herein by reference.

          4.2       First  Amendment to Rights  Agreement,  dated as of July 30,
                    2001, by and between the company and UMB Bank,  N.A.,  filed
                    as Exhibit 4.1 to the  company's  Registration  Statement on
                    Form 8-A/A filed on August 1, 2001, and incorporated  herein
                    by reference.

          4.3       Indenture dated as of November 1, 1981,  between the company
                    and United  States  Trust  Company of New York,  as trustee,
                    relating to the  company's  7%  Debentures  due  November 1,
                    2011,  filed as Exhibit 4 to Form S-16,  effective  November
                    16, 1981, Registration No. 2-772987, and incorporated herein
                    by reference.

          4.4       Indenture dated as of August 1, 1982,  filed as Exhibit 4 to
                    Form S-3, effective August 27, 1982,  Registration Statement
                    No. 2-78952,  and incorporated herein by reference,  and the
                    first  supplement  thereto  dated May 7, 1996,  between  the
                    company and  Citibank,  N.A.,  as  trustee,  relating to the
                    company's  6.625%  notes due  October 15,  2007,  and 7.125%
                    debentures due October 15, 2027, filed as Exhibit 4.1 to the
                    Current  Report  on  Form  8-K  filed  July  27,  1999,  and
                    incorporated herein by reference.

          4.5       The company agrees to furnish to the Securities and Exchange
                    Commission,  upon  request,  copies of each of the following
                    instruments  defining  the rights of the  holders of certain
                    long-term debt of the company:  the Note Agreement  dated as
                    of  November  29,  1989,  among the  Kerr-McGee  Corporation
                    Employee Stock  Ownership Plan Trust (the Trust) and several
                    lenders,  providing for a loan  guaranteed by the company of
                    $125 million to the Trust;  the Revolving  Credit  Agreement
                    amended  and  restated  as  of  April  25,   2002,   between
                    Kerr-McGee China Petroleum Ltd., as borrower, and Kerr-McGee
                    Corporation,  as guarantor,  and several banks providing for
                    revolving  credit  of up to $100  million  through  March 3,
                    2003; the $100 million,  8% Note  Agreement  entered into by
                    Oryx Energy Company (Oryx) dated as of October 20, 1995, and
                    due  October  15,  2003;  the  $150  million,   8.375%  Note
                    Agreement  entered  into by Oryx dated as of July 17,  1996,
                    and due  July  15,  2004;  the  $150  million,  8-1/8%  Note
                    Agreement entered into by Oryx dated as of October 20, 1995,
                    and due October 15, 2005; the amended and restated Revolving
                    Credit  Agreement dated as of January 11, 2002,  between the
                    company or certain  subsidiary  borrowers  and various banks
                    providing  for revolving  credit up to $650 million  through
                    January 12, 2006; the $700 million Credit Agreement dated as
                    of  December  10,  2002,  between  the  company  or  certain
                    subsidiary  borrowers  and  various  banks  providing  for a
                    364-day  revolving  credit  facility;  and the $200  million
                    variable-interest  rate Note Agreement  dated June 26, 2001,
                    and due  June 28,  2004.  The  total  amount  of  securities
                    authorized  under each of such  instruments  does not exceed
                    10% of the total assets of the company and its  subsidiaries
                    on a consolidated basis.

          4.6       Kerr-McGee   Corporation   Direct   Purchase   and  Dividend
                    Reinvestment  Plan filed on September  9, 2001,  pursuant to
                    Rule  424(b)(2)  of  the  Securities  Act  of  1933  as  the
                    Prospectus  Supplement  to the  Prospectus  dated August 31,
                    2001, and incorporated herein by reference.

          4.7       Second Supplement to the August 1, 1982,  Indenture dated as
                    of August 2, 1999,  between the company and Citibank,  N.A.,
                    as trustee,  relating to the company's  5-1/2%  exchangeable
                    notes  due  August 2,  2004,  filed as  Exhibit  4.11 to the
                    report on Form 10-K for the year ended  December  31,  1999,
                    and incorporated herein by reference.

          4.8       Fifth  Supplement to the August 1, 1982,  Indenture dated as
                    of February  11,  2000,  between  the company and  Citibank,
                    N.A.,  as  trustee,   relating  to  the   company's   5-1/4%
                    Convertible  Subordinated  Debentures due February 15, 2010,
                    filed as Exhibit 4.1 to Form 8-K filed February 4, 2000, and
                    incorporated herein by reference.

          4.9       Indenture  dated as of August 1, 2001,  between  the company
                    and Citibank,  N.A.,  as trustee,  relating to the company's
                    $350 million, 5-3/8% notes due April 15, 2005; $325 million,
                    5-7/8% notes due  September 15, 2006;  $675 million,  6-7/8%
                    notes due September 15, 2011;  and $500 million 7-7/8% notes
                    due  September  15,  2031,  filed as Exhibit 4.1 to Form S-3
                    Registration Statement No. 333-68136 Pre-effective Amendment
                    No. 1, and incorporated herein by reference.

          10.1*     Kerr-McGee   Corporation  Deferred   Compensation  Plan  for
                    Non-Employee  Directors  as amended and  restated  effective
                    January 1, 2003.

          10.2*     The Long Term  Incentive  Program  as amended  and  restated
                    effective  May 9, 1995,  filed as Exhibit  10.5 on Form 10-Q
                    for the  quarter  ended  March 31,  1995,  and  incorporated
                    herein by reference.

          10.3*     Benefits  Restoration Plan as amended and restated effective
                    September 13, 1989,  filed as Exhibit 10(6) to the report on
                    Form  10-K  for  the  year  ended  December  31,  1992,  and
                    incorporated herein by reference.

          10.4*     Kerr-McGee  Corporation Executive Deferred Compensation Plan
                    as amended and restated effective January 1, 2003.

          10.5*     Kerr-McGee  Corporation  Supplemental  Executive  Retirement
                    Plan as amended and  restated  effective  February 26, 1999,
                    filed as  exhibit  10.6 to the  report  on Form 10-K for the
                    year ended  December 31, 2001,  and  incorporated  herein by
                    reference.

          10.6*     First Supplement to the Kerr-McGee Corporation  Supplemental
                    Executive  Retirement Plan as amended and restated effective
                    February  26,  1999,  filed as exhibit 10.7 to the report on
                    Form  10-K  for  the  year  ended  December  31,  2001,  and
                    incorporated herein by reference.

          10.7*     Second Supplement to the Kerr-McGee Corporation Supplemental
                    Executive  Retirement Plan as amended and restated effective
                    February  26,  1999,  filed as exhibit 10.8 to the report on
                    Form  10-K  for  the  year  ended  December  31,  2001,  and
                    incorporated herein by reference.

          10.8*     The Kerr-McGee  Corporation  Annual  Incentive  Compensation
                    Plan  effective  January 1, 1998,  filed as Exhibit  10.3 on
                    Form  10-Q  for  the  quarter  ended  March  31,  1998,  and
                    incorporated herein by reference.

          10.9*     The  Kerr-McGee  Corporation  1998 Long Term  Incentive Plan
                    effective  January  1, 1998,  filed as Exhibit  10.4 on Form
                    10-Q for the quarter ended March 31, 1998, and  incorporated
                    herein by reference.

          10.10*    The  Kerr-McGee  Corporation  2000 Long Term  Incentive Plan
                    effective  May 1, 2000,  filed as Exhibit  10.4 on Form 10-Q
                    for the  quarter  ended  March 31,  2000,  and  incorporated
                    herein by reference.

          10.11*    Amended and restated  Agreement,  restated as of January 11,
                    2000,  between  the  company  and Luke R.  Corbett  filed as
                    Exhibit  10.10 on Form 10-K for the year ended  December 31,
                    2000, and incorporated herein by reference.

          10.12*    Amended and restated  Agreement,  restated as of January 11,
                    2000,  between the  company  and Kenneth W. Crouch  filed as
                    Exhibit  10.11 on Form 10-K for the year ended  December 31,
                    2000, and incorporated herein by reference.

          10.13*    Amended and restated  Agreement,  restated as of January 11,
                    2000,  between the company and Robert M.  Wohleber  filed as
                    Exhibit  10.12 on Form 10-K for the year ended  December 31,
                    2000, and incorporated herein by reference.

          10.14*    Amended and restated  Agreement,  restated as of January 11,
                    2000,  between the company and William P. Woodward  filed as
                    Exhibit  10.13 on Form 10-K for the year ended  December 31,
                    2000, and incorporated herein by reference.

          10.15*    Amended and restated  Agreement,  restated as of January 11,
                    2000,  between the company and Gregory F.  Pilcher  filed as
                    Exhibit  10.14 on Form 10-K for the year ended  December 31,
                    2000, and incorporated herein by reference.

          10.16*    Form of  agreement,  amended and  restated as of January 11,
                    2000, between the company and certain executive officers not
                    named in the Summary  Compensation  Table  contained  in the
                    company's  definitive  Proxy  Statement  for the 2001 Annual
                    Meeting of Stockholders  filed as Exhibit 10.15 on Form 10-K
                    for the year  ended  December  31,  2000,  and  incorporated
                    herein by reference.

          10.17*    The 2002 Annual  Incentive  Compensation  Plan effective May
                    14, 2002, filed as Exhibit 10.1 on Form 10-Q for the quarter
                    ended June 30, 2002, and incorporated herein by reference.

          10.18*    The 2002 Long Term  Incentive  Plan  effective May 14, 2002,
                    filed as  Exhibit  10.1 on Form 10-Q for the  quarter  ended
                    June 30, 2002, and incorporated herein by reference.

          10.19*    Kerr-McGee  Corporation  Performance  Share  Plan  effective
                    January 1, 1998.

          12        Computation of ratio of earnings to fixed charges.

          21        Subsidiaries of the Registrant.

          23        Consent of Ernst & Young LLP.

          24        Powers of Attorney.

          99.1      Certification of Chief Executive Officer Regarding  Periodic
                    Report Containing Financial Statements.

          99.2      Certification of Chief Financial Officer Regarding  Periodic
                    Report Containing Financial Statements.

*These  exhibits  relate  to the  compensation  plans  and  arrangements  of the
company.

(b)      Reports on Form 8-K -

            The following  Current Reports on Form 8-K were filed by the company
            during the quarter ended December 31, 2002:

            o Current  Report dated  October 25,  2002,  announcing a conference
              call to discuss third-quarter 2002 financial and operating results
              and expectations for the future.

            o Current  Report dated  October 30,  2002,  announcing a conference
              call to discuss third-quarter 2002 financial and operating results
              and expectations for the future.

            o Current Report dated October 30, 2002,  reporting that the company
              began  adding to its existing  oil and gas hedging  positions  and
              expected to continue its oil and gas hedging program in 2003.

            o Current  Report dated  November 20, 2002,  announcing a conference
              call  to  discuss  interim   fourth-quarter   2002  operating  and
              financial activities and expectations for the future.

            o Current  Report dated  December 13, 2002,  announcing a conference
              call  to  discuss  interim   fourth-quarter   2002  operating  and
              financial activities and expectations for the future.

            o Current  Report dated  December 19, 2002,  announcing a conference
              call  to  discuss  fourth-quarter  2002  financial  and  operating
              results and expectations for the future.

            o Current  Report  dated  December  30,  2002,  announcing  that the
              company  would  take  a  special   after-tax   noncash  charge  of
              approximately  $385  million  during  the fourth  quarter  for the
              estimated  costs related to  impairments  for the Leadon field and
              various other fields in the United Kingdom and the Gulf of Mexico.

                                                                     SCHEDULE II


                 KERR-McGEE CORPORATION AND SUBSIDIARY COMPANIES
                         VALUATION ACCOUNTS AND RESERVES



                                                                        Additions
                                                                 ------------------------
                                                  Balance at     Charged to    Charged to     Deductions     Balance at
                                                   Beginning     Profit and      Other           from          End of
(Millions of dollars)                               of Year         Loss        Accounts       Reserves         Year
---------------------                             ----------     ----------    ----------     ----------     ----------
                                                                                                 
Year Ended December 31, 2002
----------------------------
Deducted from asset accounts
    Allowance for doubtful notes
        and accounts receivable                      $ 21           $ -           $ -            $ 2            $ 19
    Warehouse inventory obsolescence                    5             1             -              2               4
                                                     ----           ---           ---            ---            ----
           Total                                     $ 26           $ 1           $ -            $ 4            $ 23
                                                     ====           ===           ===            ===            ====
Year Ended December 31, 2001
----------------------------
Deducted from asset accounts
    Allowance for doubtful notes
        and accounts receivable                      $ 20           $ 1           $ 2            $ 2            $ 21
    Warehouse inventory obsolescence                    5             1             -              1               5
                                                     ----           ---           ---            ---            ----
           Total                                     $ 25           $ 2           $ 2            $ 3            $ 26
                                                     ====           ===           ===            ===            ====
Year Ended December 31, 2000
----------------------------
Deducted from asset accounts
    Allowance for doubtful notes
        and accounts receivable                      $ 17           $ 2           $ 2            $ 1            $ 20
    Warehouse inventory obsolescence                    4             2             -              1               5
                                                     ----           ---           ---            ---            ----
           Total                                     $ 21           $ 4           $ 2            $ 2            $ 25
                                                     ====           ===           ===            ===            ====







                                   SIGNATURES

Pursuant to the  requirements of Section 13 or 15(d) of the Securities  Exchange
Act of 1934,  the  registrant  has duly  caused  this report to be signed on its
behalf by the undersigned, thereunto duly authorized.



                                                     KERR-McGEE CORPORATION




                                             By:   Luke R. Corbett*
                                                   -----------------------------
                                                   Luke R. Corbett,
                                                   Chief Executive Officer




March 26, 2003                                 By: (Robert M. Wohleber)
--------------                                     -----------------------------
          Date                                     Robert M. Wohleber
                                                   Senior Vice President and
                                                     Chief Financial Officer




                                             By:   (John M. Rauh)
                                                   -----------------------------
                                                   John M. Rauh
                                                   Vice President and Controller
                                                    and Chief Accounting Officer



* By his signature  set forth below,  John M. Rauh has signed this Annual Report
on Form 10-K as attorney-in-fact for the officer noted above,  pursuant to power
of attorney filed with the Securities and Exchange Commission.



                                             By:   (John M. Rauh)
                                                   -----------------------------
                                                   John M. Rauh


Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons in the capacities and on the date
indicated.


                                         By:  Luke R. Corbett*
                                              ----------------------------------
                                              Luke R. Corbett, Director

                                         By:  William E. Bradford*
                                              ----------------------------------
                                              William E. Bradford, Director

                                         By:  Sylvia A. Earle*
                                              ----------------------------------
                                              Sylvia A. Earle, Director

                                         By:  David C. Genever-Watling*
                                              ----------------------------------
                                              David C. Genever-Watling, Director

March 26, 2003                           By:  Martin C. Jischke*
--------------                                ----------------------------------
          Date                                Martin C. Jischke, Director

                                         By:  William C. Morris*
                                              ----------------------------------
                                              William C. Morris, Director

                                         By:  Leroy C. Richie*
                                              ----------------------------------
                                              Leroy C. Richie, Director

                                         By:  Matthew R. Simmons*
                                              ----------------------------------
                                              Matthew R. Simmons, Director

                                         By:  Nicholas J. Sutton*
                                              ----------------------------------
                                              Nicholas J. Sutton, Director

                                         By:  Farah M. Walters*
                                              ----------------------------------
                                              Farah M. Walters, Director

                                         By:  Ian L. White-Thomson*
                                              ----------------------------------
                                              Ian L. White-Thomson, Director


* By his signature  set forth below,  John M. Rauh has signed this Annual Report
on Form 10-K as attorney-in-fact for the directors noted above,  pursuant to the
powers of attorney filed with the Securities and Exchange Commission.


                                         By:  (John M. Rauh)
                                              ----------------------------------
                                              John M. Rauh


                                  CERTIFICATION

I, Luke R. Corbett, certify that:

       1.   I have  reviewed  this  annual  report  on Form  10-K of  Kerr-McGee
            Corporation;

       2.   Based on my  knowledge,  this  annual  report  does not  contain any
            untrue statement of a material fact or omit to state a material fact
            necessary to make the statements made, in light of the circumstances
            under which such  statements  were made, not misleading with respect
            to the period covered by this annual report;

       3.   Based on my knowledge, the financial statements, and other financial
            information  included in this annual  report,  fairly present in all
            material respects the financial condition, results of operations and
            cash flows of the company as of, and for,  the periods  presented in
            this annual report;

       4.   The company's  other  certifying  officer and I are  responsible for
            establishing and maintaining  disclosure controls and procedures (as
            defined in Exchange Act Rules 13a-14 and 15d-14) for the company and
            we have:

            i.    designed  such  disclosure  controls and  procedures to ensure
                  that material information  relating to the company,  including
                  its consolidated  subsidiaries,  is made known to us by others
                  within those entities, particularly during the period in which
                  this annual report is being prepared;

            ii.   evaluated  the  effectiveness  of  the  company's   disclosure
                  controls and  procedures  as of a date within 90 days prior to
                  the filing date of this annual report (the "Evaluation Date");
                  and

            iii.  presented  in this  annual  report our  conclusions  about the
                  effectiveness of the disclosure  controls and procedures based
                  on our evaluation as of the Evaluation Date;

       5.   The company's other certifying  officer and I have disclosed,  based
            on our most recent  evaluation,  to the  company's  auditors and the
            audit  committee of the  company's  board of  directors  (or persons
            fulfilling the equivalent function):

            i.    all  significant  deficiencies  in the design or  operation of
                  internal  controls which could adversely  affect the company's
                  ability to record,  process,  summarize  and report  financial
                  data  and  have  identified  for the  company's  auditors  any
                  material weaknesses in internal controls; and

            ii.   any fraud,  whether or not material,  that involves management
                  or  other  employees  who  have  a  significant  role  in  the
                  company's internal controls; and

       6.   The company's other certifying  officer and I have indicated in this
            annual  report  whether there were  significant  changes in internal
            controls  or  in  other  factors  that  could  significantly  affect
            internal  controls  subsequent  to  the  date  of  our  most  recent
            evaluation,   including  any  corrective   actions  with  regard  to
            significant deficiencies and material weaknesses.


/s/ Luke R. Corbett
________________________________

Luke R. Corbett
Chief Executive Officer
March 26, 2003
                                  CERTIFICATION

I, Robert M. Wohleber, certify that:

       1.   I have  reviewed  this  annual  report  on Form  10-K of  Kerr-McGee
            Corporation;

       2.   Based on my  knowledge,  this  annual  report  does not  contain any
            untrue statement of a material fact or omit to state a material fact
            necessary to make the statements made, in light of the circumstances
            under which such  statements  were made, not misleading with respect
            to the period covered by this annual report;

       3.   Based on my knowledge, the financial statements, and other financial
            information  included in this annual  report,  fairly present in all
            material respects the financial condition, results of operations and
            cash flows of the company as of, and for,  the periods  presented in
            this annual report;

       4.   The company's  other  certifying  officer and I are  responsible for
            establishing and maintaining  disclosure controls and procedures (as
            defined in Exchange Act Rules 13a-14 and 15d-14) for the company and
            we have:

            i.    designed  such  disclosure  controls and  procedures to ensure
                  that material information  relating to the company,  including
                  its consolidated  subsidiaries,  is made known to us by others
                  within those entities, particularly during the period in which
                  this annual report is being prepared;

            ii.   evaluated  the  effectiveness  of  the  company's   disclosure
                  controls and  procedures  as of a date within 90 days prior to
                  the filing date of this annual report (the "Evaluation Date");
                  and

            iii.  presented  in this  annual  report our  conclusions  about the
                  effectiveness of the disclosure  controls and procedures based
                  on our evaluation as of the Evaluation Date;

       5.   The company's other certifying  officer and I have disclosed,  based
            on our most recent  evaluation,  to the  company's  auditors and the
            audit  committee of the  company's  board of  directors  (or persons
            fulfilling the equivalent function):

            i.    all  significant  deficiencies  in the design or  operation of
                  internal  controls which could adversely  affect the company's
                  ability to record,  process,  summarize  and report  financial
                  data  and  have  identified  for the  company's  auditors  any
                  material weaknesses in internal controls; and

            ii.   any fraud,  whether or not material,  that involves management
                  or  other  employees  who  have  a  significant  role  in  the
                  company's internal controls; and

       6.   The company's other certifying  officer and I have indicated in this
            annual  report  whether there were  significant  changes in internal
            controls  or  in  other  factors  that  could  significantly  affect
            internal  controls  subsequent  to  the  date  of  our  most  recent
            evaluation,   including  any  corrective   actions  with  regard  to
            significant deficiencies and material weaknesses.


/s/ Robert M. Wohleber
________________________________

Robert M. Wohleber
Chief Financial Officer
March 26, 2003