UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                             Washington, D. C. 20549

                                    FORM 10-Q

              [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
                     OF THE SECURITIES EXCHANGE ACT OF 1934

                  For the Quarterly Period Ended June 30, 2003

                                       OR

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

                   For the Transition Period from_____ to_____

                         Commission File Number 1-16619


                             KERR-McGEE CORPORATION
             (Exact Name of Registrant as Specified in its Charter)



              Delaware                                73-1612389
   (State or Other Jurisdiction of                 (I.R.S. Employer
   Incorporation or Organization)                 Identification No.)


                Kerr-McGee Center, Oklahoma City, Oklahoma 73125
              (Address of Principal Executive Offices and Zip Code)

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


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 (or for such  shorter  period that the  registrant  was
required  to file  such  reports),  and  (2) has  been  subject  to such  filing
requirements for the past 90 days.

                              Yes  X      No
                                 -----

Number of shares of common stock,  $1.00 par value,  outstanding  as of July 31,
2003: 100,851,559.









                             KERR-McGEE CORPORATION




                                      INDEX



                         PART I - FINANCIAL INFORMATION


Item 1.  Financial Statements                                              PAGE
                                                                           ----

           Consolidated Statement of Operations for the Three
           and Six Months Ended June 30, 2003 and 2002                        1

           Consolidated Balance Sheet at June 30, 2003 and
           December 31, 2002                                                  2

           Consolidated Statement of Cash Flows for the Six
           Months Ended June 30, 2003 and 2002                                3

           Notes to Consolidated Financial Statements                         4

Item 2.  Management's Discussion and Analysis of Financial
         Condition and Results of Operations                                 29

Item 3.  Quantitative and Qualitative Disclosures about
         Market Risk                                                         36

Item 4.  Controls and Procedures                                             37

Forward-Looking Information                                                  38


                           PART II - OTHER INFORMATION

Item 1.  Legal Proceedings                                                   38

Item 4.  Submission of Matters to a Vote of Security Holders                 38

Item 6.  Exhibits and Reports on Form 8-K                                    39

SIGNATURE                                                                    40











                         PART I - FINANCIAL INFORMATION

Item 1. Financial Statements.


                 KERR-McGEE CORPORATION AND SUBSIDIARY COMPANIES
                      CONSOLIDATED STATEMENT OF OPERATIONS
                                   (UNAUDITED)


                                                                              Three Months               Six Months
                                                                                  Ended                     Ended
                                                                                June 30,                  June 30,
                                                                          ---------------------     ---------------------
(Millions of dollars, except per-share amounts)                             2003         2002         2003         2002
-------------------------------------------------------------------------------------------------------------------------
                                                                                                     

Sales                                                                     $1,073.7     $  932.0     $2,200.9     $1,730.5
                                                                          --------     --------     --------     --------

Costs and Expenses
  Costs and operating expenses                                               460.2        376.6        872.2        726.3
  Selling, general and administrative expenses                                79.1        121.6        150.0        177.1
  Shipping and handling expenses                                              35.0         25.1         67.0         54.2
  Depreciation and depletion                                                 193.0        195.9        382.6        408.4
  Accretion expense                                                            6.3            -         12.5            -
  Asset impairments, net of gains on disposal of assets held for sale          (.5)       157.5          (.6)       157.5
  Exploration, including dry holes and amortization of
    undeveloped leases                                                        66.6         46.8        207.1         78.7
  Taxes, other than income taxes                                              21.0         28.2         46.4         54.6
  Provision for environmental remediation and restoration,
    net of reimbursements                                                      1.9         88.0         19.2         90.4
  Interest and debt expense                                                   63.4         68.6        128.4        139.3
                                                                          --------     --------     --------     --------
      Total Costs and Expenses                                               926.0      1,108.3      1,884.8      1,886.5
                                                                          --------     --------     --------     --------

                                                                             147.7       (176.3)       316.1       (156.0)
Other Income (Expense)                                                       (26.9)       (14.1)       (25.2)       (37.9)
                                                                          --------     --------     --------     --------

Income (Loss) before Income Taxes                                            120.8       (190.4)       290.9       (193.9)
Benefit (Provision) for Income Taxes                                         (51.0)        12.7       (116.9)        14.5
                                                                          --------     --------     --------     --------

Income (Loss) from Continuing Operations                                      69.8       (177.7)       174.0       (179.4)
Income (Loss) from Discontinued Operations (net of income tax
  provision (benefit) of $.2 and $(29.1) for the second quarter of
  2003 and 2002, respectively, and $.2 and $(24.5) for the first six
  months of 2003 and 2002, respectively)                                       (.2)       119.7           .2        126.9
Cumulative Effect of Change in Accounting Principle (net of benefit
  for income taxes of $18.2)                                                     -            -        (34.7)           -
                                                                          --------     --------     --------     --------

Net Income (Loss)                                                         $   69.6     $  (58.0)    $  139.5     $  (52.5)
                                                                          ========     ========     ========     ========

Income (Loss) per Common Share
  Basic -
    Continuing operations                                                 $    .70     $  (1.77)    $   1.73     $  (1.79)
    Discontinued operations                                                      -         1.19            -         1.27
    Cumulative effect of change in accounting principle                          -            -         (.34)           -
                                                                          --------     --------     --------     --------

      Total                                                               $    .70     $   (.58)    $   1.39     $   (.52)
                                                                          ========     ========     ========     ========
  Diluted -
    Continuing operations                                                 $    .68     $  (1.77)    $   1.67     $  (1.79)
    Discontinued operations                                                      -         1.19            -         1.27
    Cumulative effect of change in accounting principle                          -            -         (.31)           -
                                                                          --------     --------     --------     --------

      Total                                                               $    .68     $   (.58)    $   1.36     $   (.52)
                                                                          ========     ========     ========     ========

Dividends Declared per Common Share                                       $    .45     $    .45     $    .90     $    .90
                                                                          ========     ========     ========     ========



The accompanying notes are an integral part of this statement.




                 KERR-McGEE CORPORATION AND SUBSIDIARY COMPANIES
                           CONSOLIDATED BALANCE SHEET
                                   (UNAUDITED)


                                                                                             June 30,         December 31,
(Millions of dollars)                                                                           2003                 2002
-------------------------------------------------------------------------------------------------------------------------
                                                                                                          

ASSETS
------
Current Assets
  Cash                                                                                     $   108.6            $    89.9
  Accounts receivable                                                                          623.8                607.8
  Inventories                                                                                  400.9                402.4
  Deposits, prepaid expenses and other assets                                                  106.5                132.8
  Current assets associated with properties held for disposal                                      -                 57.2
                                                                                            --------            ---------
      Total Current Assets                                                                   1,239.8              1,290.1
                                                                                            --------            ---------

Property, Plant and Equipment                                                               14,266.7             13,722.8
  Less reserves for depreciation, depletion and amortization                                (7,023.6)            (6,687.2)
                                                                                           ---------            ---------
                                                                                             7,243.1              7,035.6
                                                                                           ---------            ---------

Investments and Other Assets                                                                 1,091.2              1,035.2
Goodwill                                                                                       356.4                355.9
Long-Term Assets Associated with Properties Held for Disposal                                   32.6                192.0
                                                                                           ---------            ---------

    Total Assets                                                                           $ 9,963.1            $ 9,908.8
                                                                                           =========            =========

LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
Current Liabilities
  Accounts payable                                                                         $   668.1            $   785.1
  Long-term debt due within one year                                                           204.8                105.8
  Other current liabilities                                                                    680.9                716.8
  Current liabilities associated with properties held for disposal                              18.3                  2.1
                                                                                           ---------            ---------
    Total Current Liabilities                                                                1,572.1              1,609.8
                                                                                           ---------            ---------

Long-Term Debt                                                                               3,515.0              3,798.1
                                                                                           ---------            ---------

Deferred Income Taxes                                                                        1,209.3              1,145.1
Other Deferred Credits and Reserves                                                          1,048.5                803.7
Long-Term Liabilities Associated with Properties Held for Disposal                                 -                 16.1
                                                                                           ---------            ---------
                                                                                             2,257.8              1,964.9
                                                                                           ---------            ---------
Stockholders' Equity
  Common stock, par value $1 - 300,000,000 shares
    authorized, 100,873,854 shares issued at 6-30-03
    and 100,391,054 shares issued at 12-31-02                                                  100.9                100.4
  Capital in excess of par value                                                             1,707.5              1,687.3
  Preferred stock purchase rights                                                                1.0                  1.0
  Retained earnings                                                                            938.5                885.7
  Accumulated other comprehensive loss                                                         (39.9)               (62.3)
  Common shares in treasury, at cost - 21,545 shares
    at 6-30-03 and 7,299 at 12-31-02                                                            (1.1)                 (.4)
  Deferred compensation                                                                        (88.7)               (75.7)
                                                                                           ---------            ---------
    Total Stockholders' Equity                                                               2,618.2              2,536.0
                                                                                           ---------            ---------

    Total Liabilities and Stockholders' Equity                                             $ 9,963.1            $ 9,908.8
                                                                                           =========            =========


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 statement.




                 KERR-McGEE CORPORATION AND SUBSIDIARY COMPANIES
                      CONSOLIDATED STATEMENT OF CASH FLOWS
                                   (UNAUDITED)



                                                                                             Six Months Ended
                                                                                                 June 30,
                                                                                          -----------------------
(Millions of dollars)                                                                       2003           2002
-----------------------------------------------------------------------------------------------------------------
                                                                                                  

Operating Activities
--------------------
Net income (loss)                                                                         $ 139.5       $   (52.5)
Adjustments to reconcile net income to net cash
  provided by operating activities -
    Depreciation, depletion and amortization                                                419.9           426.1
    Accretion expense                                                                        12.5               -
    Asset impairments, net of gains on disposal of assets held for sale                       5.6           182.2
    Dry hole costs                                                                          128.2            15.3
    Deferred income taxes                                                                    80.8          (100.1)
    Provision for environmental remediation and
      restoration, net of reimbursements                                                     19.2            90.4
    Gain on divestiture of discontinued operations                                              -          (108.1)
    (Gain) loss on sale and retirement of assets                                             (2.6)            2.0
    Cumulative effect of change in accounting principle                                      34.7               -
    Noncash items affecting net income                                                       71.8           109.1
    Other net cash provided by (used in) operating activities                              (144.7)          164.7
                                                                                          -------       ---------
        Net Cash Provided by Operating Activities                                           764.9           729.1
                                                                                          -------       ---------

Investing Activities
--------------------
Capital expenditures                                                                       (517.9)         (626.0)
Dry hole costs                                                                             (128.2)          (15.3)
Proceeds from sales of assets                                                               195.9           296.3
Other investing activities                                                                  (14.8)          (25.9)
                                                                                          -------       ---------
        Net Cash Used in Investing Activities                                              (465.0)         (370.9)
                                                                                          -------       ---------

Financing Activities
--------------------
Issuance of long-term debt                                                                   31.5           842.2
Repayment of long-term debt                                                                (222.3)       (1,047.9)
Decrease in short-term borrowings                                                               -            (8.2)
Issuance of common stock                                                                        -             4.9
Dividends paid                                                                              (90.6)          (90.2)
Other financing activities                                                                    (.6)              -
                                                                                          -------       ---------
        Net Cash Used in Financing Activities                                              (282.0)         (299.2)
                                                                                          -------       ---------

Effects of Exchange Rate Changes on Cash and Cash Equivalents                                  .8            (7.2)
                                                                                          -------       ---------

Net Increase in Cash and Cash Equivalents                                                    18.7            51.8

Cash and Cash Equivalents at Beginning of Period                                             89.9            91.3
                                                                                          -------       ---------

Cash and Cash Equivalents at End of Period                                                $ 108.6       $   143.1
                                                                                          =======       =========



The accompanying notes are an integral part of this statement.





                 KERR-McGEE CORPORATION AND SUBSIDIARY COMPANIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                  JUNE 30, 2003


A.   Basis of Presentation and Accounting Policies

     Basis of Presentation
     ---------------------

     The condensed  financial  statements  included herein have been prepared by
     the company,  without audit,  pursuant to the rules and  regulations of the
     Securities  and  Exchange  Commission  and, in the  opinion of  management,
     include all  adjustments,  consisting  only of normal  recurring  accruals,
     necessary to present  fairly the  resulting  operations  for the  indicated
     periods.  Certain information and footnote disclosures normally included in
     financial  statements  prepared in accordance  with  accounting  principles
     generally  accepted  in the United  States have been  condensed  or omitted
     pursuant to such rules and regulations.  Although the company believes that
     the  disclosures  are  adequate  to  make  the  information  presented  not
     misleading,  it is suggested that these condensed  financial  statements be
     read in  conjunction  with the financial  statements  and the notes thereto
     included in the company's latest annual report on Form 10-K.

     Business Segments
     -----------------

     The company has three  reportable  segments:  oil and gas  exploration  and
     production, production and marketing of titanium dioxide pigment (chemicals
     - pigment),  and production and marketing of other  chemicals  (chemicals -
     other).  Other chemicals include the company's  electrolytic  manufacturing
     and marketing operations and forest products treatment business.

     Change in Accounting Principle - Asset Retirement Obligations
     -------------------------------------------------------------

     In June 2001,  the  Financial  Accounting  Standards  Board  (FASB)  issued
     Statement of Financial  Accounting Standards (FAS) No. 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
     and becomes  determinable (as defined by the standard),  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  adopted  FAS 143 on  January 1, 2003,  which  resulted  in an
     increase in net  property  of $127.5  million,  an increase in  abandonment
     liabilities  of $180.4  million  and a  decrease  in  deferred  income  tax
     liabilities of $18.2 million.  The net impact of these changes  resulted in
     an  after-tax  charge  to  earnings  of  $34.7  million  to  recognize  the
     cumulative effect of retroactively applying the new accounting standard. In
     accordance  with  the  provisions  of  FAS  143,   Kerr-McGee   accrues  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.  No market risk
     premium has been included in the company's  calculation  of the ARO for oil
     and gas wells and platforms  since no reliable  estimate can be made by the
     company. In connection with the change in accounting principle, abandonment
     expense  of $8.3 and $17.6  million  for the second  quarter  and first six
     months  of  2002,  respectively,  has  been  reclassified  from  Costs  and
     operating  expenses  to  Depreciation  and  depletion  in the  Consolidated
     Statement of  Operations to be consistent  with the 2003  presentation.  In
     January 2003, the company  announced its plan to close the synthetic rutile
     plant in Mobile,  Alabama,  and  closed  the plant in June 2003.  Since the
     plant had a determinate  closure date,  the company  accrued an abandonment
     liability of $17.6 million as of January 1, 2003, associated with its plans
     to decommission the Mobile facility.


     A summary of the  changes  in the asset  retirement  obligation  during the
     first six months of 2003 is included in the table below.

     (Millions of dollars)
     ---------------------------------------------------------------------------

     January 1, 2003                                                     $395.6
       Obligations incurred                                                 6.8
       Accretion expense                                                   12.5
       Abandonment expenditures                                            (9.4)
       Abandonment obligations settled through property divestitures      (12.0)
                                                                         ------
     June 30, 2003                                                       $393.5
                                                                         ======

     Pro forma net loss for the three  months  ended June 30,  2002,  would have
     been $60  million,  with basic and diluted  loss per share of $.60,  if the
     provisions of FAS 143 had been applied as of January 1, 2002, compared with
     net income for the three months ended June 30, 2003, of $69.6 million, with
     basic and diluted  earnings per share of $.70 and $.68,  respectively.  Pro
     forma net loss for the six  months  ended  June 30,  2002,  would have been
     $56.5  million,  with  basic and  diluted  loss per  share of $.56,  if the
     provisions of FAS 143 had been applied as of January 1, 2002, compared with
     net income for the six months ended June 30, 2003, of $174.2 million before
     the  cumulative  effect of change in accounting  principle,  with basic and
     diluted earnings per share of $1.73 and $1.67, respectively.

     Employee Stock Option Plans
     ---------------------------

     In December  2002,  the FASB issued FAS 148,  "Accounting  for  Stock-Based
     Compensation  -  Transition  and  Disclosure,"  an  amendment  to FAS  123,
     "Accounting for  Stock-Based  Compensation."  FAS 148 provides  alternative
     methods of  transition  for  companies  choosing to  voluntarily  adopt the
     fair-value  based   methodology  of  FAS  123  and  amends  the  disclosure
     provisions of FAS 123 and Accounting Principles Board Opinion (APB) No. 28,
     "Interim Financial  Reporting," to require pro forma disclosures in interim
     financial  statements of net income,  stock-based  compensation expense and
     earnings  per share as if a  fair-value  based  method had been  used.  The
     amended disclosure requirements of FAS 148 were effective for the company's
     first quarter of 2003.

     The company  accounts for its stock option plans under the  intrinsic-value
     method permitted by APB No. 25, "Accounting for Stock Issued to Employees."
     Accordingly,  no stock-based employee compensation cost is reflected in net
     income for the issuance of stock options under the company's  plans,  since
     all options were  fixed-price  options with an exercise  price equal to the
     market value of the underlying common stock on the date of grant.

     The following  table  illustrates the effect on net income and earnings per
     share as if the company had applied the fair-value  recognition  provisions
     of FAS 123 to stock-based employee compensation.



                                                                               Three                   Six
                                                                            Months Ended           Months Ended
                                                                              June 30,               June 30,
     (Millions of dollars,                                                 ---------------       ----------------
     except per share amounts)                                              2003     2002         2003      2002
     ------------------------------------------------------------------------------------------------------------
                                                                                               

     Net income (loss) as reported                                         $69.6    $(58.0)      $139.5    $(52.5)
       Less stock-based compensation expense
         determined using a fair-value method for
         all awards, net of taxes                                           (4.1)     (3.7)        (8.1)     (7.0)
                                                                           -----    ------       ------    ------
     Pro forma net income (loss)                                           $65.5    $(61.7)      $131.4    $(59.5)
                                                                           =====    ======       ======    ======

     Net income (loss) per share -
       Basic -
         As reported                                                       $ .70    $ (.58)      $ 1.39    $ (.52)
         Pro forma                                                           .65      (.61)        1.31      (.59)

       Diluted -
         As reported                                                         .68      (.58)        1.36      (.52)
          Pro forma                                                          .64      (.61)        1.28      (.59)



     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 2003,
     with no  impairment  indicated  for the $356.4  million of  goodwill or the
     $53.8 million of indefinite-lived intangible assets.

     New Accounting Standards
     ------------------------

     In January  2003,  the FASB issued FIN No. 46,  "Consolidation  of Variable
     Interest Entities - an Interpretation of ARB No. 51." 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
     will be required to consolidate the business trust created to construct and
     finance  the  Gunnison  production  platform.  The  construction  is  being
     financed by 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.  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  company  plans to convert  the
     Gunnison  synthetic  lease to an operating lease and a different trust will
     become  the  lessor/owner  of the  platform  and  related  equipment.  Upon
     conversion  to an  operating  lease,  the  company  believes  the  variable
     interest entity lessor will not be subject to consolidation. The company is
     in the  process of  reviewing  the  effects of FIN 46 relative to its other
     relationships with possible variable interest entities,  such as the lessor
     trusts  that are party to the  Nansen  and  Boomvang  operating  leases and
     certain  joint-venture  arrangements,  and does not presently  believe that
     consolidation of these entities is required.


B.   Derivatives

     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,  collars and basis contracts 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  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
     the fair value using either quoted  market prices of financial  instruments
     with similar characteristics or other valuation techniques.

     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.

     Kerr-McGee  Rocky Mountain Corp. and its marketing  subsidiary,  Kerr-McGee
     Energy Services Corp., are parties to 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 gas basis swaps that  settled in 2002 and all that settle in
     2003 as hedges.

     In March  2002,  the  company  began  hedging a portion of its 2002 oil and
     natural  gas   production   with   fixed-price   swaps  to   increase   the
     predictability   of  its  cash   flow  and   support   additional   capital
     expenditures.  During the fourth quarter of 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,  basis  swaps and
     costless collars. The hedging program was extended further during the first
     quarter  of  2003  with  the  addition  of   fixed-price   swaps   covering
     fourth-quarter   2003  production.   At  June  30,  2003,  the  outstanding
     commodity-related  derivatives  accounted for as hedges had a net liability
     fair value of $135.5 million, of which $4.9 million was recorded in current
     assets and $140.4 million was recorded in current liabilities.  At December
     31, 2002, the outstanding  commodity-related  derivatives  accounted for as
     hedges had a net  liability  fair value of $83.4  million,  of which  $27.1
     million was recorded in current  assets and $110.5  million was recorded in
     current  liabilities.  The fair value of these  derivative  instruments was
     determined based on prices actively quoted, generally NYMEX and Dated Brent
     prices as of the balance sheet dates.  The company had  after-tax  deferred
     losses  of  $83.1   million  and  $50.3   million  in   accumulated   other
     comprehensive  loss  associated  with these  contracts at June 30, 2003 and
     December 31, 2002,  respectively.  The company  expects to  reclassify  the
     entire  amount of these  losses into  earnings  during the next six months,
     assuming no further changes in fair-market  value of the contracts.  During
     the second quarter of 2003, the company  realized pretax losses on contract
     settlements  of $9.2 million on domestic  oil hedging,  $4 million on North
     Sea oil hedging and $36.7 million on domestic  natural gas hedging.  During
     the first  six  months  of 2003,  the  company  realized  pretax  losses on
     contract settlements of $42 million on domestic oil hedging,  $32.5 million
     on North Sea oil hedging and $92.1 million on domestic natural gas hedging.
     During  the  second  quarter  and first six  months  of 2002,  the  company
     realized pre-tax losses on contract settlements of $5.9 million on domestic
     oil  hedging,  $12.4  million on North Sea oil hedging and $3.3  million on
     domestic  natural  gas  hedging.  No  losses  were  realized  for  contract
     settlements  during the first quarter of 2002, as settlements did not begin
     to occur until the 2002 second quarter.  The physical sale of crude oil and
     natural gas at prices  higher  than those in the  derivative  contracts  is
     offset by the losses realized on the contract settlements. Losses for hedge
     ineffectiveness  are recognized as a reduction to Sales in the Consolidated
     Statement  of  Operations  and totaled $.1 million and $3.7  million in the
     2003 second  quarter and first six  months,  respectively,  and nil and $.1
     million in the 2002 second quarter and first six months, respectively.

     As discussed in the company's  2002 Form 10-K, the company is also party to
     other commodity contracts  (fixed-price natural gas physical and derivative
     contracts)  that  have not  been  designated  as cash  flow  hedges.  These
     commodity  contracts are recorded in the balance sheet at fair value,  with
     any changes in fair value recorded through earnings.  At June 30, 2003, the
     fair value of these  contracts  was $21.7  million.  Of this amount,  $12.6
     million was recorded in current  assets,  $15.5 million in Investments  and
     Other  Assets,  $5.2  million in current  liabilities,  and $1.2 million in
     deferred  credits.  At December 31, 2002, the fair value of these contracts
     was $29.1  million.  Of this amount,  $30.7 million was recorded in current
     assets,  $22.4 million in  Investments  and Other Assets,  $23.3 million in
     current  liabilities,  and $.7  million in deferred  credits.  The net loss
     associated  with the  derivative  contracts  was $2.9 million for the three
     months ended June 30, 2003, of which $1.1 million was recorded as a gain in
     Sales in the  Consolidated  Statement  of  Operations  and $4  million  was
     recorded  as a loss in  Other  Income.  The net  loss  associated  with the
     derivative  contracts  was $16.2  million for the six months ended June 30,
     2003,  of  which  a  $9.7  million  loss  was  included  in  Sales  in  the
     Consolidated  Statement of Operations  and a $6.5 million loss was included
     in Other Income.  The net loss  associated  with the  derivative  contracts
     totaled $2.3 million in the second  quarter of 2002,  of which $1.6 million
     was  included in Sales and $.7 million was  included in Other  Income,  and
     $27.2  million in the first six months of 2002,  of which $10.8 million was
     included in Sales and $16.4 million was included in Other Income.

     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.
     At June 30, 2003, the outstanding  foreign  exchange  derivative  contracts
     accounted for as hedges had a net asset fair value of $20 million, of which
     $16.2 million was recorded in current  assets and $3.8 million was recorded
     in  Investments  and  Other  Assets.  Changes  in the  fair  value of these
     contracts are recorded in accumulated other  comprehensive loss and will be
     recognized  in earnings in the periods  during which the hedged  forecasted
     transactions affect earnings (i.e., when the forward contracts close 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).  At June 30,
     2003,  the  company  had an  after-tax  deferred  gain of $11.9  million in
     accumulated other comprehensive loss related to these contracts. During the
     second quarter and first six months of 2003, the company  reclassified $3.7
     million and $5 million of gains on forward contracts from accumulated other
     comprehensive loss to operating expenses in the statement of operations. Of
     the existing net gains at June 30, 2003, approximately $9.2 million 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
     the second quarter, and no ineffectiveness was recognized.

     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 European  currencies.  These
     contracts  have not been  designated  as hedges even though they do protect
     the company from changes in foreign  currency  rates.  The  estimated  fair
     value of these  contracts  was not  material  at June  30,  2003.  Selected
     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% debt  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.  At June 30,  2003,  the fair values of the  embedded put and call
     options were nil and $124.7  million,  respectively.  On December 31, 2002,
     the fair values of the  embedded  put and call  options  were nil and $66.6
     million,  respectively.  During the second  quarter  of 2003,  the  company
     recorded  a loss of $41.9  million in Other  Income for the  changes in the
     fair  values  of the  put and  call  options,  compared  with a gain of $.1
     million during the second  quarter of 2002.  During the first six months of
     2003 and 2002,  the  company  recorded  losses of $58.1  million  and $74.2
     million,  respectively,  in Other Income for the changes in the fair values
     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
     decrease  in the  market  value  of 85% of the  Devon  stock  owned  by the
     company.  The fair value of the 8.4 million  shares of Devon  classified as
     trading  securities was $450.5 million at June 30, 2003, and $387.2 million
     at  December  31,  2002.  During the second  quarter of 2003 and 2002,  the
     company  recorded  unrealized  gains of  $43.7  million  and $8.5  million,
     respectively,  in Other  Income for the  changes in fair value of the Devon
     shares classified as trading. During the first six months of 2003 and 2002,
     the company  recorded  unrealized gains of $63.3 million and $89.7 million,
     respectively,  in Other  Income for the  changes in fair value of the Devon
     shares classified as trading. The company accounts for the remaining 15% of
     the Devon shares 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
     loss.

     In  connection  with the issuance of $350 million of 5.375% notes due April
     15, 2005, the company entered into an interest rate swap agreement 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 $21.2
     million  and  $20.6  million  at June  30,  2003  and  December  31,  2002,
     respectively.  The company  recognized a reduction in interest expense from
     the swap  arrangement of $2.8 million and $5.5 million in the three and six
     months ended June 30, 2003, respectively, and $1.8 million in the three and
     six months ended June 30, 2002.


C.   Discontinued Operations, Asset Impairments and Asset Disposals

     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, classified certain asset disposal groups whose operations and
     cash flows can be  clearly  distinguished  from the rest of the  company as
     discontinued operations.

     During the first quarter of 2002, the company approved a plan to dispose of
     its exploration and production operations in Kazakhstan and of 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  in  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.  In
     connection  with the planned  disposals,  the related assets were evaluated
     and an impairment  loss was recorded  during the second quarter of 2002 for
     the  Kazakhstan  operations,  calculated  as  the  difference  between  the
     estimated  sales  price  for the  operation,  less  costs to sell,  and the
     company's carrying value of the assets.  This impairment loss totaled $24.7
     million and is reported as part of  discontinued  operations  in the second
     quarter of 2002.

     On May 3, 2002,  the  company  completed  the sale of its  interest  in the
     Bayu-Undan  project  for $132.3  million in cash.  The sale  resulted  in a
     pretax gain of $34.8 million.  On June 13, 2002, the company  completed the
     sale of its interest in the Jabung  block in Sumatra for $170.7  million in
     cash with an $11  million  contingent  purchase  price  pending  government
     approval  of an LPG  project.  The sale  resulted in a pretax gain of $73.3
     million  (excluding the contingent  purchase price). On March 31, 2003, the
     company completed the sale of its Kazakhstan operations to Shell Kazakhstan
     Development  (Shell) for $168.6  million in cash. In  connection  with this
     sale, the company has recorded an $18.3 million settlement liability due to
     Shell for the net cash flow of the Kazakhstan operations from the effective
     date of the  transaction  to the closing date. The amount of the settlement
     liability  is subject to review by Shell and is  expected to be paid during
     the third  quarter of 2003.  The net  proceeds  received by the company for
     these divestitures were used to reduce outstanding debt.

     Revenues applicable to the discontinued operations were nil and $10 million
     for the three months ended June 30, 2003 and 2002,  respectively,  and $5.6
     million and $25.2  million for the six months ended June 30, 2003 and 2002,
     respectively.  Pretax income for the  discontinued  operations  was nil and
     $90.6  million  (including  the  gains on sale of  $108.1  million  and the
     impairment  loss of $24.7 million) for the three months ended June 30, 2003
     and 2002,  respectively,  and $.4 million  (including  impairment losses of
     $6.2  million) and $102.4  million  (including  the gains on sale of $108.1
     million and the impairment  loss of $24.7 million) for the six months ended
     June 30, 2003 and 2002, respectively.

     As part of the company's plan to divest noncore properties discussed above,
     certain  individually  insignificant  exploration  and  production  segment
     assets for which operations and cash flows were not clearly distinguishable
     from the company's  operations  were identified for disposal and classified
     as held for sale.  Pretax asset  impairment  charges  (credits)  related to
     certain assets held for sale in the U.S. onshore,  Gulf of Mexico shelf and
     U.K.  North Sea regions  totaled $(.3) million and $8.5 million  during the
     second quarter and first six months of 2003,  respectively.  The impairment
     charges on assets held for sale for the three and six months ended June 30,
     2002, totaled $146.6 million and included $110.6 million related to certain
     domestic   properties  and  $36  million   related  to  certain  North  Sea
     properties.  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.

     Pretax  impairment losses totaling $5.1 million were also recognized during
     the six months ended June 30,  2003,  for certain  mature  company-operated
     properties and nonoperated  royalty  interests that are not considered held
     for  sale.  For the  three  and six  months  ended  June 30,  2002,  pretax
     impairment  losses totaled $10.9 million on assets not considered  held for
     sale.  This impairment loss was related to a field located in the northwest
     area of the North Sea that was  deemed  impaired  because  expectations  of
     future cash flows were less than the carrying value of the related assets.

     The  company  recognized  a net gain on disposal of assets held for sale of
     $14.2  million  during the first six months of 2003,  which is netted  with
     total  asset  impairment  charges  of  $13.6  million  in the  Consolidated
     Statement  of  Operations.  No gain or loss on  disposal of assets held for
     sale was recognized in the first six months of 2002. The company expects to
     complete the divestiture of its other remaining assets  identified as being
     held for sale in the third quarter of 2003.  The assets and  liabilities of
     discontinued operations and other assets held for sale have been classified
     as  Assets/Liabilities  Associated with Properties Held for Disposal in the
     Consolidated Balance Sheet.


D.   Cash Flow Information

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

                                                           Six Months Ended
                                                                June 30,
                                                         -----------------------
     (Millions of dollars)                                2003            2002
     ---------------------------------------------------------------------------

     Income tax payments                                 $ 64.9         $  48.9
     Less refunds received                                (14.8)         (253.4)
                                                         ------         -------
     Net income tax payments (refunds)                   $ 50.1         $(204.5)
                                                         ======         =======

     Interest payments                                   $119.0         $ 128.6
                                                         ======         =======

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

                                                               Six Months Ended
                                                                  June 30,
                                                              ------------------
     (Millions of dollars)                                     2003        2002
     ---------------------------------------------------------------------------

     Unrealized gain on trading securities                    $(63.3)    $(89.7)
     Increase in fair value of embedded options in the DECS     58.1       74.2
     Litigation reserve provisions                               6.5       70.0
     Loss from equity affiliates                                12.8       15.7
     All other (1)                                              57.7       38.9
                                                              ------     ------
        Total                                                 $ 71.8     $109.1
                                                              ======     ======

     Other  net  cash  provided  by  (used  in)  operating   activities  in  the
     Consolidated Statement of Cash Flows consists of the following:

                                                               Six Months Ended
                                                                  June 30,
                                                             -------------------
     (Millions of dollars)                                     2003        2002
     ---------------------------------------------------------------------------
     Increase (decrease) due to changes in working
       capital accounts                                      $ (83.7)    $255.9
     Environmental expenditures                                (36.4)     (48.9)
     Cash abandonment expenditures - exploration and
       production                                               (9.4)     (28.1)
     All other (1)                                             (15.2)     (14.2)
                                                             -------     ------
        Total                                                $(144.7)    $164.7
                                                             =======     ======

     (1) No  other  individual  item  is  material  to  total  cash  flows  from
         operations.


E.   Comprehensive Income and Financial Instruments

     Comprehensive  income  (loss) for the three and six  months  ended June 30,
     2003 and 2002, is as follows:


                                                                          Three Months              Six Months
                                                                             Ended                    Ended
                                                                            June 30,                 June 30,
                                                                        ----------------         ------------------
     (Millions of dollars)                                               2003      2002           2003        2002
     --------------------------------------------------------------------------------------------------------------
                                                                                                 

     Net income (loss)                                                  $69.6     $(58.0)        $139.5      $(52.5)
     Unrealized gains on securities                                       5.1        1.0            7.4        10.5
     Change in fair value of cash flow hedges                             1.9       43.0          (13.7)      (25.2)
     Foreign currency translation adjustment                             17.1       37.5           28.0        30.9
     Other                                                                  -          -            0.8           -
                                                                        -----     ------         ------     -------
       Comprehensive income (loss)                                      $93.7     $ 23.5         $162.0      $(36.3)
                                                                        =====     ======         ======      ======


     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 June  30,  2003 or
     December   31,   2002.   At  June  30,   2003  and   December   31,   2002,
     available-for-sale  securities for which fair value can be determined  were
     as follows:


                                                      June 30, 2003                         December 31, 2002
                                           -------------------------------         ------------------------------
                                                                     Gross                                  Gross
                                                                Unrealized                             Unrealized
                                            Fair                   Holding          Fair                  Holding
     (Millions of dollars)                 Value       Cost           Gain         Value      Cost           Gain
     ------------------------------------------------------------------------------------------------------------
                                                                                           

     Equity securities                     $81.1      $31.9          $21.2 (1)     $69.7     $31.9           $9.8 (1)
     U.S. government obligations -
       Maturing within one year              3.8        3.8              -           2.4       2.4              -
       Maturing between one year
         and four years                       .1         .1              -           1.6       1.6              -
                                                                     -----                                   ----
           Total                                                     $21.2                                   $9.8
                                                                     =====                                   ====


     (1) These amounts include $28 million of gross unrealized hedging losses on
         15% of the exchangeable debt at the time of adoption of FAS 133.


F.   Equity Affiliates

     Investments in equity  affiliates  totaled $120.9 million at June 30, 2003,
     and  $122.9  million at  December  31,  2002.  Equity  loss  related to the
     investments  is included in Other Income in the  Consolidated  Statement of
     Operations  and totaled  $6.7 million and $4.6 million for the three months
     ended  June 30,  2003 and 2002,  respectively.  For the first six months of
     2003, the loss in equity  affiliates  totaled $12.8 million,  compared with
     $15.7 million for the same 2002 period.


G.   Restructuring Provisions and Exit Activities

     The company closed its synthetic  rutile plant in Mobile,  Alabama,  during
     June  2003.  During the second  quarter  and first six months of 2003,  the
     company's chemical - pigment operating unit provided $8.1 million and $24.6
     million for costs associated with the closure of this facility. Included in
     the $24.6  million were $14.1  million  recorded as a cumulative  effect of
     change in  accounting  principle  related  to the  recognition  of an asset
     retirement  obligation  and $10.5  million  for the  accrual  of  severance
     benefits.   The  provision  for  severance  benefits  is  included  in  the
     restructuring  reserve  balance  below (see Note A for a discussion  of the
     asset retirement obligation). Of the total provision of $10.5 million, $4.3
     million  has been paid  through the 2003  second  quarter and $6.2  million
     remained in the accrual at June 30, 2003.  Approximately 140 employees will
     ultimately  be  terminated   in   connection   with  this  plant   closure.
     Additionally,  during the first six months of 2003, the company  recognized
     $15.1 million in accelerated depreciation on the plant assets, $6.1 million
     for curtailment costs related to pension and postretirement  benefits, $3.9
     million for cleanup and  decommissioning  costs  associated with the plant,
     and $.7 million for other settlement costs.

     During 2002, the company's  chemical - other  operating unit provided $16.5
     million  for costs  associated  with its plans to exit the forest  products
     business,  of which nil was recorded in the second  quarter of 2002 and $.7
     million was recorded during the first six months of 2002.  During the first
     half of 2003, the company  provided an additional  $3.6 million  associated
     with exiting the forest products business.  Included in the total provision
     of $20.1 million were $15.6 million for  dismantlement  and closure  costs,
     and $4.5 million for  severance  costs.  These costs are reflected in costs
     and operating expenses in the Consolidated Statement of Operations.  Of the
     total  accrual,  $2.3 million has been paid through the 2003 second quarter
     and $17.8  million  remained in the accrual at June 30, 2003. In connection
     with the plant closures, 252 employees will be terminated, of which 52 were
     terminated as of June 30, 2003.  Additionally,  during the first six months
     of 2003, the company  recognized $8.1 million for curtailment costs related
     to pension and postretirement benefits.

     In 2001,  the company's  chemical - pigment  operating  unit provided $31.8
     million  related  to the  closure  of a  plant  in  Antwerp,  Belgium.  The
     provision  consisted of $12 million for severance costs,  $11.5 million for
     dismantlement  costs,  $6.7 million for contract  settlement costs and $1.6
     million for other plant closure costs. Of this total accrual, $26.8 million
     has been paid through the 2003 second quarter and $6.6 million  remained in
     the  accrual  at June 30,  2003.  As a result of this  plant  closure,  121
     employees have been terminated as of June 30, 2003.

     Also in 2001, the company's  chemical - other operating unit provided $11.9
     million  for the  discontinuation  of  manganese  metal  production  at its
     Hamilton,  Mississippi,  facility.  The provision consisted of $6.6 million
     for  pond-closure  cost,  $2.4 million for severance costs and $2.9 million
     for other plant closure costs.  Of the total  provision,  $10.5 million has
     been paid through the 2003 second quarter and $1.4 million  remained in the
     accrual at June 30, 2003, for pond closure costs.

     The provisions,  payments,  adjustments and restructuring  reserve balances
     for the  six-month  period ended June 30,  2003,  are included in the table
     below.

                                                                   Dismantlement
                                                   Personnel                 and
     (Millions of dollars)                Total        Costs             Closure
     ---------------------------------------------------------------------------

     December 31, 2002                    $26.6        $ 3.8              $22.8
       Provisions                          14.1         14.1                  -
       Payments                            (8.3)        (5.9)              (2.4)
       Adjustments (1)                      (.4)         (.5)                .1
                                          -----        -----              -----
     June 30, 2003                        $32.0        $11.5              $20.5
                                          =====        =====              =====


     (1) Foreign-currency  translation adjustments related to Antwerp,  Belgium,
         accrual.


H.   Earnings Per Share

     The  following  table  sets  forth the  computation  of basic  and  diluted
     earnings per share (EPS) from continuing operations for the three-month and
     six-month periods ended June 30, 2003 and 2002.



                                                           For the Three Months Ended June 30,
                                     ---------------------------------------------------------------------------------
                                                     2003                                        2002
                                     -------------------------------------        ------------------------------------

                                     Income from                                   Loss from
     (In millions, except             Continuing                 Per-Share        Continuing                 Per-Share
     per-share amounts)               Operations      Shares        Income        Operations       Shares         Loss
     -----------------------------------------------------------------------------------------------------------------
                                                                                              

     Basic EPS                             $69.8       100.1         $ .70           $(177.7)       100.3       $(1.77)
                                                                     =====                                      ======
       Effect of dilutive securities:
         5 1/4% convertible
           debentures                        5.3         9.8                               -            -
         Restricted stock                      -          .7                               -            -
         Stock options                         -          .1                               -            -
                                           -----       -----                         -------        -----
     Diluted EPS                           $75.1       110.7         $ .68           $(177.7)       100.3       $(1.77)
                                           =====       =====         =====           =======        =====       ======




                                                            For the Six Months Ended June 30,
                                     ---------------------------------------------------------------------------------
                                                     2003                                        2002
                                     -------------------------------------        ------------------------------------

                                     Income from                                   Loss from
     (In millions, except             Continuing                 Per-Share        Continuing                 Per-Share
     per-share amounts)               Operations      Shares        Income        Operations       Shares         Loss
     -----------------------------------------------------------------------------------------------------------------
                                                                                              

     Basic EPS                            $174.0       100.1         $1.73           $(179.4)       100.3       $(1.79)
                                                                     =====                                      ======
       Effect of dilutive securities:
         5 1/4% convertible
           debentures                       10.7         9.8                               -            -
         Restricted stock                      -          .7                               -            -
                                          ------       -----                         -------        -----
     Diluted EPS                          $184.7       110.6         $1.67           $(179.4)       100.3       $(1.79)
                                          ======       =====         =====           =======        =====       ======




I.   Accounts Receivable Sales

     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.  Under  the  existing  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. 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. The preference stock is essentially a retained deposit to
     provide further credit enhancements,  if needed, but otherwise  recoverable
     by the company at the end of the program.

     The  company  sold  $155.7  million  and  $151.7  million  of  its  pigment
     receivables during the second quarter of 2003 and 2002,  respectively.  The
     sale of the  receivables  resulted in pretax  losses of $1 million and $1.2
     million  during the  second  quarter  of 2003 and 2002,  respectively.  The
     company sold $312.5 million and $285.9  million of its pigment  receivables
     during the first six months of 2003 and 2002, respectively. The sale of the
     receivables  resulted in pretax  losses of $2.1  million  and $2.2  million
     during the first six months of 2003 and 2002, respectively. The losses were
     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. The outstanding balance on receivables sold totaled
     $108 million at June 30, 2003, and $110.6 million at December 31, 2002.

     On July 30,  2003,  the company  amended its existing  accounts  receivable
     monetization program. The new program has been expanded to include the sale
     of receivables originated by the company's European chemical operations and
     the maximum availability under the program is $165 million.

J.   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 is Kerr-McGee  Corporation.
     The guarantor  subsidiaries  include  Kerr-McGee  Chemical Worldwide LLC at
     June 30,  2003 and  December  31,  2002,  and its  predecessor,  Kerr-McGee
     Operating  Corporation,  at June 30,  2002,  along  with  Kerr-McGee  Rocky
     Mountain Corporation in 2003 and 2002.

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



                     Kerr-McGee Corporation and Subsidiaries
                 Condensed Consolidating Statement of Operations
                    For the Three Months Ended June 30, 2003


                                                                                        Non-
                                                  Kerr-McGee      Guarantor        Guarantor
(Millions of dollars)                            Corporation   Subsidiaries     Subsidiaries    Eliminations    Consolidated
----------------------------------------------------------------------------------------------------------------------------
                                                                                                     

Sales                                                 $    -         $169.3           $908.7          $ (4.3)       $1,073.7
                                                      ------         ------           ------          ------        --------

Costs and Expenses
  Costs and operating expenses                             -           82.1            382.7            (4.6)          460.2
  Selling, general and administrative expenses             -            3.0             76.1               -            79.1
  Shipping and handling expenses                           -            2.1             32.9               -            35.0
  Depreciation and depletion                               -           30.4            162.6               -           193.0
  Accretion expense                                        -             .6              5.7               -             6.3
  Asset impairments, net of gains on disposal of
    assets held for sale                                   -            1.7             (2.2)              -             (.5)
  Exploration, including dry holes and
    amortization of undeveloped leases                     -            2.9             63.7               -            66.6
  Taxes, other than income taxes                          .1            3.2             17.7               -            21.0
  Provision for environmental remediation
    and restoration, net of reimbursements                 -             .7              1.2               -             1.9
  Interest and debt expense                             28.8            8.3             70.0           (43.7)           63.4
                                                      ------         ------           ------          ------        --------
      Total Costs and Expenses                          28.9          135.0            810.4           (48.3)          926.0
                                                      ------         ------           ------          ------        --------

                                                       (28.9)          34.3             98.3            44.0           147.7
Other Income (Expense)                                 149.7          (25.8)            14.7          (165.5)          (26.9)
                                                      ------         ------           ------          ------        --------
Income before Income Taxes                             120.8            8.5            113.0          (121.5)          120.8
Benefit (Provision) for Income Taxes                   (51.2)           1.4            (45.9)           44.7           (51.0)
                                                      ------         ------           ------          ------        --------
Income from Continuing Operations                       69.6            9.9             67.1           (76.8)           69.8
Income (Loss) from Discontinued Operations,
  net of tax                                               -             .4              (.6)              -             (.2)
                                                      ------         ------           ------          ------        --------
Net Income                                            $ 69.6         $ 10.3           $ 66.5          $(76.8)       $   69.6
                                                      ======         ======           ======          ======        ========





                     Kerr-McGee Corporation and Subsidiaries
                 Condensed Consolidating Statement of Operations
                    For the Three Months Ended June 30, 2002


                                                                                        Non-
                                                  Kerr-McGee      Guarantor        Guarantor
(Millions of dollars)                            Corporation   Subsidiaries     Subsidiaries    Eliminations    Consolidated
----------------------------------------------------------------------------------------------------------------------------
                                                                                                     

   Sales                                              $    -         $ 81.0         $  851.0          $    -        $  932.0
                                                      ------         ------         --------          ------        --------

   Costs and Expenses
     Costs and operating expenses                          -           21.0            355.6               -           376.6
     Selling, general and administrative expenses          -             .9            120.7               -           121.6
     Shipping and handling expenses                        -            (.4)            25.5               -            25.1
     Depreciation and depletion                            -           30.5            165.4               -           195.9
     Asset impairments                                     -            3.2            154.3               -           157.5
     Exploration, including dry holes and
       amortization of undeveloped leases                  -            3.2             43.6               -            46.8
     Taxes, other than income taxes                        -            2.5             25.7               -            28.2
     Provision for environmental remediation
       and restoration, net of reimbursements              -              -             88.0               -            88.0
     Interest and debt expense                          28.1            8.7             83.8           (52.0)           68.6
                                                      ------         ------         --------          ------        --------
         Total Costs and Expenses                       28.1           69.6          1,062.6           (52.0)        1,108.3
                                                      ------         ------         --------          ------        --------

                                                       (28.1)          11.4           (211.6)           52.0          (176.3)
   Other Income (Expense)                              (71.6)          38.9             18.4              .2           (14.1)
                                                      ------         ------         --------          ------        --------
   Income (Loss) before Income Taxes                   (99.7)          50.3           (193.2)           52.2          (190.4)
   Benefit (Provision) for Income Taxes                 41.7          (18.6)            15.0           (25.4)           12.7
                                                      ------         ------         --------          ------        --------
   Income (Loss) from Continuing Operations            (58.0)          31.7           (178.2)           26.8          (177.7)
   Income from Discontinued Operations,
        net of tax                                         -              -            119.7               -           119.7
                                                      ------         ------         --------          ------        --------
   Net Income (Loss)                                  $(58.0)        $ 31.7         $  (58.5)         $ 26.8        $  (58.0)
                                                      ======         ======         ========          ======        ========






                     Kerr-McGee Corporation and Subsidiaries
                 Condensed Consolidating Statement of Operations
                     For the Six Months Ended June 30, 2003


                                                                                        Non-
                                                  Kerr-McGee      Guarantor        Guarantor
(Millions of dollars)                            Corporation   Subsidiaries     Subsidiaries    Eliminations    Consolidated
----------------------------------------------------------------------------------------------------------------------------
                                                                                                     

Sales                                                 $    -         $323.1         $1,884.2         $  (6.4)       $2,200.9
                                                      ------         ------         --------         -------        --------

Costs and Expenses
  Costs and operating expenses                             -          153.6            725.8            (7.2)          872.2
  Selling, general and administrative expenses             -           10.1            139.9               -           150.0
  Shipping and handling expenses                           -            4.7             62.3               -            67.0
  Depreciation and depletion                               -           60.3            322.3               -           382.6
  Accretion expense                                        -            1.2             11.3               -            12.5
  Asset impairments, net of gains on disposal of
    assets held for sale                                   -            1.7             (2.3)              -             (.6)
  Exploration, including dry holes and
    amortization of undeveloped leases                     -            6.8            200.3               -           207.1
  Taxes, other than income taxes                          .2            8.7             37.5               -            46.4
  Provision for environmental remediation
    and restoration, net of reimbursements                 -            5.8             13.4               -            19.2
  Interest and debt expense                             57.7           16.6            142.9           (88.8)          128.4
                                                      ------         ------         --------         -------        --------
      Total Costs and Expenses                          57.9          269.5          1,653.4           (96.0)        1,884.8
                                                      ------         ------         --------         -------        --------

                                                       (57.9)          53.6            230.8            89.6           316.1
Other Income (Expense)                                 296.3          (25.2)            44.6          (340.9)          (25.2)
                                                      ------         ------         --------         -------        --------
Income before Income Taxes                             238.4           28.4            275.4          (251.3)          290.9
Provision for Income Taxes                             (98.9)          (2.8)          (107.1)           91.9          (116.9)
                                                      ------         ------         --------         -------        --------
Income from Continuing Operations                      139.5           25.6            168.3          (159.4)          174.0
Income (Loss) from Discontinued Operations,
  net of tax                                               -           12.4            (12.2)              -              .2
Cumulative Effect of Change in Accounting
  Principle, net of tax                                    -           (1.3)           (33.4)              -           (34.7)
                                                      ------         ------         --------         -------        --------
Net Income                                            $139.5         $ 36.7         $  122.7         $(159.4)       $  139.5
                                                      ======         ======         ========         =======        ========





                     Kerr-McGee Corporation and Subsidiaries
                 Condensed Consolidating Statement of Operations
                     For the Six Months Ended June 30, 2002


                                                                                        Non-
                                                  Kerr-McGee      Guarantor        Guarantor
(Millions of dollars)                            Corporation   Subsidiaries     Subsidiaries    Eliminations    Consolidated
----------------------------------------------------------------------------------------------------------------------------
                                                                                                     

Sales                                                 $    -         $160.1         $1,570.4         $     -        $1,730.5
                                                      ------         ------         --------         -------        --------

Costs and Expenses
  Costs and operating expenses                             -           47.7            678.6               -           726.3
  Selling, general and administrative expenses             -            1.6            175.5               -           177.1
  Shipping and handling expenses                           -            2.6             51.6               -            54.2
  Depreciation and depletion                               -           61.3            347.1               -           408.4
  Asset impairments                                        -            3.2            154.3               -           157.5
  Exploration, including dry holes and
    amortization of undeveloped leases                     -            5.2             73.5               -            78.7
  Taxes, other than income taxes                          .1            7.3             47.2               -            54.6
  Provision for environmental remediation
    and restoration, net of reimbursements                 -              -             90.4               -            90.4
  Interest and debt expense                             55.1           17.5            167.7          (101.0)          139.3
                                                      ------         ------         --------         -------        --------
      Total Costs and Expenses                          55.2          146.4          1,785.9          (101.0)        1,886.5
                                                      ------         ------         --------         -------        --------

                                                       (55.2)          13.7           (215.5)          101.0          (156.0)
Other Income (Expense)                                 (36.3)           7.9             41.6           (51.1)          (37.9)
                                                      ------         ------         --------         -------        --------
Income (Loss) before Income Taxes                      (91.5)          21.6           (173.9)           49.9          (193.9)
Benefit (Provision) for Income Taxes                    39.0          (12.5)             7.5           (19.5)           14.5
                                                      ------         ------         --------         -------        --------
Income (Loss) from Continuing Operations               (52.5)           9.1           (166.4)           30.4          (179.4)
Income from Discontinued Operations,
  net of tax                                               -              -            126.9               -           126.9
                                                      ------         ------         --------         -------        --------
Net Income (Loss)                                     $(52.5)        $  9.1         $  (39.5)        $  30.4        $  (52.5)
                                                      ======         ======         ========         =======        ========




                     Kerr-McGee Corporation and Subsidiaries
                      Condensed Consolidating Balance Sheet
                                  June 30, 2003


                                                                                        Non-
                                                  Kerr-McGee      Guarantor        Guarantor
(Millions of dollars)                            Corporation   Subsidiaries     Subsidiaries    Eliminations    Consolidated
----------------------------------------------------------------------- ------------- --------------------------------------
                                                                                                     

ASSETS
------
Current Assets
  Cash                                              $    2.1       $      -         $  106.5       $       -         $ 108.6
  Intercompany receivables                             857.1           (7.6)         1,320.1        (2,169.6)              -
  Accounts receivable                                      -          101.6            522.2               -           623.8
  Inventories                                              -            6.6            394.3               -           400.9
  Deposits, prepaid expenses and other assets              -           20.0             86.5               -           106.5
                                                    --------       --------         --------       ---------        --------
    Total Current Assets                               859.2          120.6          2,429.6        (2,169.6)        1,239.8

Property, Plant and Equipment, net                         -        1,976.3          5,266.8               -         7,243.1
Investments and Other Assets                            11.0           90.9          1,068.3           (79.0)        1,091.2
Goodwill                                                   -          346.4             10.0               -           356.4
Long-term Assets Associated with Properties
  Held for Disposal                                        -              -             27.7             4.9            32.6
Investments in and Advances to Subsidiaries          3,874.0          384.9             93.5        (4,352.4)              -
                                                    --------       --------         --------       ---------        --------
    Total Assets                                    $4,744.2       $2,919.1         $8,895.9       $(6,596.1)       $9,963.1
                                                    ========       ========         ========       =========        ========

LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
Current Liabilities
  Accounts payable                                  $   45.4       $   55.9         $  566.8       $       -        $  668.1
  Intercompany borrowings                               61.2          538.6          1,506.8        (2,106.6)              -
  Long-term debt due within one year                       -              -            204.8               -           204.8
  Other current liabilities                             25.0          146.8            509.1               -           680.9
  Current liabilities associated with
    properties held for disposal                           -              -             18.3               -            18.3
                                                    --------       --------         --------       ---------        --------
      Total Current Liabilities                        131.6          741.3          2,805.8        (2,106.6)        1,572.1

Long-Term Debt                                       1,847.3              -          1,667.7               -         3,515.0

Other Deferred Credits and Reserves                        -          709.2          1,544.6             4.0         2,257.8
Investments by and Advances from Parent                    -              -            537.0          (537.0)              -
Stockholders' Equity                                 2,765.3        1,468.6          2,340.8        (3,956.5)        2,618.2
                                                    --------       --------         --------       ---------        --------
    Total Liabilities and Stockholders' Equity      $4,744.2       $2,919.1         $8,895.9       $(6,596.1)       $9,963.1
                                                    ========       ========         ========       =========        ========





                     Kerr-McGee Corporation and Subsidiaries
                      Condensed Consolidating Balance Sheet
                                December 31, 2002


                                                                                        Non-
                                                  Kerr-McGee      Guarantor        Guarantor
(Millions of dollars)                            Corporation   Subsidiaries     Subsidiaries    Eliminations   Consolidated
----------------------------------------------------------------------------------------------------------------------------
                                                                                                     

ASSETS
------
Current Assets
  Cash                                              $    2.5       $      -         $   87.4       $       -        $   89.9
  Intercompany receivables                             956.6           46.6          1,641.2        (2,644.4)              -
  Accounts receivable                                      -           73.5            534.3               -           607.8
  Inventories                                              -            6.5            395.9               -           402.4
  Deposits, prepaid expenses and other assets              -           59.6             75.0            (1.8)          132.8
  Current assets associated with properties
    held for disposal                                      -              -             57.2               -            57.2
                                                    --------       --------         --------       ---------        --------
      Total Current Assets                             959.1          186.2          2,791.0        (2,646.2)        1,290.1

Property, Plant and Equipment, net                         -        1,956.1          5,079.5               -         7,035.6
Investments and Other Assets                            11.8          117.9            985.7           (80.2)        1,035.2
Goodwill                                                   -          346.8              9.1               -           355.9
Long-term Assets Associated with Properties
  Held for Disposal                                        -              -            187.1             4.9           192.0
Investments in and Advances to Subsidiaries          3,673.0          694.9             80.1        (4,448.0)              -
                                                    --------       --------         --------       ---------        --------
      Total Assets                                  $4,643.9       $3,301.9         $9,132.5       $(7,169.5)       $9,908.8
                                                    ========       ========         ========       =========        ========

LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
Current Liabilities
  Accounts payable                                  $   45.2       $   78.1         $  661.8       $       -        $  785.1
  Intercompany borrowings                               68.5          842.2          1,732.1        (2,642.8)              -
  Long-term debt due within one year                       -              -            105.8               -           105.8
  Other current liabilities                             17.8          195.0            478.2            25.8           716.8
  Current liabilities associated with
    properties held for disposal                           -              -              2.1               -             2.1
                                                    --------       --------         --------       ---------        --------
      Total Current Liabilities                        131.5        1,115.3          2,980.0        (2,617.0)        1,609.8

Long-Term Debt                                       1,847.2              -          1,950.9               -         3,798.1

Other Deferred Credits and Reserves                        -          675.4          1,297.4           (24.0)        1,948.8
Long-term Liabilities Associated with
  Properties Held for Disposal                             -              -             16.1               -            16.1
Investments by and Advances from Parent                    -              -            728.7          (728.7)              -
Stockholders' Equity                                 2,665.2        1,511.2          2,159.4        (3,799.8)        2,536.0
                                                    --------       --------         --------       ---------        --------
    Total Liabilities and Stockholders' Equity      $4,643.9       $3,301.9         $9,132.5       $(7,169.5)       $9,908.8
                                                    ========       ========         ========       =========        ========





                     Kerr-McGee Corporation and Subsidiaries
                 Condensed Consolidating Statement of Cash Flows
                     For the Six Months Ended June 30, 2003



                                                                                        Non-
                                                  Kerr-McGee      Guarantor        Guarantor
(Millions of dollars)                            Corporation   Subsidiaries     Subsidiaries    Eliminations    Consolidated
----------------------------------------------------------------------------------------------------------------------------
                                                                                                     

Operating Activities
--------------------
Net income                                           $ 139.5        $  36.7          $ 122.7         $(159.4)       $  139.5
Adjustments to reconcile net income to net cash
  provided by (used in) operating activities -
    Depreciation, depletion and amortization               -           62.5            357.4               -           419.9
    Accretion expense                                      -            1.2             11.3               -            12.5
    Asset impairments, net of gains on
      disposal of assets held for sale                     -              -              5.6               -             5.6
    Equity in (earnings) losses of subsidiaries       (152.6)          31.9                -           120.7               -
    Dry hole costs                                         -              -            128.2               -           128.2
    Deferred income taxes                                  -           50.8             30.0               -            80.8
    Provision for environmental remediation
      and restoration, net of reimbursements               -            5.8             13.4               -            19.2
    (Gain) loss on sale and retirement of
      assets                                               -          (12.0)             9.4               -            (2.6)
    Cumulative effect of change in accounting
      principle                                            -            1.3             33.4               -            34.7
    Noncash items affecting net income                    .9           26.6             44.3               -            71.8
    Other net cash used in operating activities         (7.4)        (133.6)            (3.7)              -          (144.7)
                                                     -------        -------          -------         -------        --------
      Net Cash Provided by (Used in)
        Operating Activities                           (19.6)          71.2            752.0           (38.7)          764.9
                                                     -------        -------          -------         -------        --------

Investing Activities
--------------------
Capital expenditures                                       -          (61.2)          (456.7)              -          (517.9)
Dry hole costs                                             -              -           (128.2)              -          (128.2)
Proceeds from sales of assets                              -              -                -               -               -
Other investing activities                                 -            7.1            174.0               -           181.1
                                                     -------        --------         -------         -------        --------
      Net Cash Used in Investing Activities                -          (54.1)          (410.9)              -          (465.0)
                                                     -------        -------          -------         -------        --------

Financing Activities
--------------------
Issuance of long-term debt                                 -              -             31.5               -            31.5
Repayment of long-term debt                                -              -           (222.3)              -          (222.3)
Increase (decrease) in intercompany
  notes payable                                        109.8          (17.1)           (92.7)              -               -
Dividends paid                                         (90.6)             -            (39.6)           39.6           (90.6)
Other financing activities                                 -              -               .3             (.9)            (.6)
                                                     -------        -------          -------         -------        --------
      Net Cash Provided by (Used in)
        Financing Activities                            19.2          (17.1)          (322.8)           38.7          (282.0)
                                                     -------        -------          -------         -------        --------

Effects of Exchange Rate Changes on Cash
  and Cash Equivalents                                     -              -               .8               -              .8
                                                     -------        -------          -------         -------        --------
Net Increase (Decrease) in Cash and Cash
  Equivalents                                            (.4)             -             19.1               -            18.7
Cash and Cash Equivalents at Beginning of
  Period                                                 2.5              -             87.4               -            89.9
                                                     -------        -------          -------         -------        --------
Cash and Cash Equivalents at End of Period           $   2.1        $     -          $ 106.5         $     -        $  108.6
                                                     =======        =======          =======         =======        ========




                     Kerr-McGee Corporation and Subsidiaries
                 Condensed Consolidating Statement of Cash Flows
                     For the Six Months Ended June 30, 2002


                                                                                        Non-
                                                  Kerr-McGee      Guarantor        Guarantor
(Millions of dollars)                            Corporation   Subsidiaries     Subsidiaries    Eliminations    Consolidated
----------------------------------------------------------------------------------------------------------------------------
                                                                                                    

Operating Activities
--------------------
Net income (loss)                                    $ (52.5)        $  9.1        $   (39.5)         $ 30.4       $   (52.5)
Adjustments to reconcile net income or loss to
  net cash provided by (used in) operating
  activities -
    Depreciation, depletion and amortization               -           62.4            363.7               -           426.1
    Asset impairments                                      -            3.2            179.0               -           182.2
    Equity in (earnings) losses of subsidiaries         40.8           (9.9)               -           (30.9)              -
    Dry hole costs                                         -              -             15.3               -            15.3
    Deferred income taxes                               (6.3)          (1.4)           (92.4)              -          (100.1)
    Provision for environmental remediation
      and restoration, net of reimbursements               -              -             90.4               -            90.4
    Gain on sale and retirement of assets                  -           (1.0)          (105.1)              -          (106.1)
    Noncash items affecting net income or loss            .1           16.2             92.8               -           109.1
    Other net cash provided by (used in)
      operating activities                               (.9)          (3.3)           168.4              .5           164.7
                                                     -------         ------        ---------          ------       ---------
        Net Cash Provided by (Used in)
          Operating Activities                         (18.8)          75.3            672.6               -           729.1
                                                     -------         ------        ---------          ------       ---------

Investing Activities
--------------------
Capital expenditures                                       -          (64.5)          (561.5)              -          (626.0)
Dry hole costs                                             -              -            (15.3)              -           (15.3)
Proceeds from sales of assets                              -            2.9            293.4               -           296.3
Other investing activities                                 -              -            (25.9)              -           (25.9)
                                                     -------         ------        ---------          ------       ---------
        Net Cash Used in Investing Activities              -          (61.6)          (309.3)              -          (370.9)
                                                     -------         -------       ---------          ------       ---------

Financing Activities
--------------------
Issuance of long-term debt                             350.0              -            492.2               -           842.2
Repayment of long-term debt                                -              -         (1,047.9)              -        (1,047.9)
Increase (decrease) in short-term borrowings               -              -             (8.2)              -            (8.2)
Increase (decrease) in intercompany
  notes payable                                       (245.9)         (14.8)           260.7               -               -
Issuance of common stock                                 4.9              -                -               -             4.9
Dividends paid                                         (90.2)             -                -               -           (90.2)
                                                     -------         ------        ---------          ------       ---------
        Net Cash Provided by (Used in)
          Financing Activities                          18.8          (14.8)          (303.2)              -          (299.2)
                                                     -------         ------        ---------          ------       ---------

Effects of Exchange Rate Changes on Cash
  and Cash Equivalents                                     -              -             (7.2)              -            (7.2)
                                                     -------         ------        ---------          ------       ---------
Net Increase (Decrease) in Cash and Cash
  Equivalents                                              -           (1.1)            52.9               -            51.8
Cash and Cash Equivalents at Beginning of
  Period                                                   -            1.1             90.2               -            91.3
                                                     -------         ------        ---------          ------       ---------
Cash and Cash Equivalents at End of Period           $     -         $    -        $   143.1          $    -       $   143.1
                                                     =======         ======        =========          ======       =========




K.   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 Priorities 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 an extensive  characterization of the two
     sites and,  at the request of EPA made in  connection  with its review of a
     conceptual agreement with local governmental authorities on a cleanup plan,
     Chemical is conducting limited additional characterization that is expected
     to be  finished  in the next few  months.  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,  subject  to court
     approval  which is not expected  before 2004, the work will take about four
     years to complete.

     Financial  Reserves  - As of June  30,  2003,  the  company  had  remaining
     reserves of $96 million for costs related to West Chicago.  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 June 30, 2003, Chemical had been reimbursed
     approximately $171 million under Title X.

     Reimbursements under Title X are provided by congressional  appropriations.
     Historically,  congressional  appropriations have lagged Chemical's cleanup
     expenditures. As of June 30, 2003, the government's share of costs incurred
     by Chemical but not yet  reimbursed by the DOE totaled  approximately  $100
     million.  The company  believes  receipt of the remaining  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.  The U.S. Navy expanded production  significantly in 1953
     when it completed  construction  of a plant for the manufacture of ammonium
     perchlorate.  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  began  decommissioning  the facility and  remediating  associated
     perchlorate  contamination,  including surface impoundments and groundwater
     when it decided to exit the  business in 1998.  In 1999 and 2001,  Chemical
     entered  into  consent  orders with the Nevada  Division  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
     prevented successful  commissioning of the long-term system. In April 2003,
     Chemical  determined that these startup  difficulties could not be overcome
     and initiated steps to install an alternate  long-term  remediation  system
     using a different  technology.  The interim system was enhanced and will be
     utilized until the successful  commissioning of the alternate  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 - The company's remaining reserves for Henderson totaled
     $40 million as of June 30,  2003.  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 is based on
     the fact that 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  discovery  stage.  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 June 30, 2003,  Chemical  has  incurred  expenditures  of about $42
     million that it believes can be applied to the self-insured retention.  The
     company  believes  that the  remaining  reserve of $40  million at June 30,
     2003, also will qualify under the insurance policy, which would exhaust the
     self-insured  retention and leave about $21 million for recovery  under the
     policy.  The company  believes that  reimbursement of the $21 million under
     the insurance policy is probable and, accordingly, the company has recorded
     a $21 million receivable in the financial statements.

     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 June 30, 2003, the company had remaining  reserves of $12 million for
     the costs of the remediation  work described  above.  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.  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 June 30, 2003, the company had remaining  reserves of $17 million for
     the costs of the ongoing  remediation  and  decommissioning  work described
     above.  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;  seven cases were filed in Louisiana and relate to a
     former  wood-treatment  plant that was located in Bossier City,  Louisiana;
     and  eight  cases  were  filed  in  Pennsylvania,  and  relate  to a closed
     wood-treatment  plant in Avoca,  Pennsylvania.  The parties  have  executed
     agreements to settle five of the seven Mississippi  cases, all seven of the
     Louisiana cases and all eight  Pennsylvania  cases. The agreement to settle
     the Pennsylvania cases was reached in the second quarter of 2003.

     The settlement agreements require Chemical to pay up to $65 million for the
     benefit of about 10,400  identified  claimants  who are eligible  under the
     agreements  and who sign  releases.  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  contemplate a
     class-action  settlement  fund in Mississippi for the benefit of a class of
     residents who do not sign individual  releases and who do not choose to opt
     out of the  class  settlements.  Chemical  may be  required  to pay up to a
     maximum of $7.5 million to the Mississippi  class-action  settlement  fund.
     The class-action settlement agreement, including certification of the class
     and  approval of the  settlement,  was  approved  by the  federal  court in
     Mississippi  on  February  21,  2003.  However,  two  members  of the class
     subsequently appealed the order approving the class-action settlement,  and
     that appeal remains pending.

     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  June 30,  2003,  Chemical  had paid  approximately  $49
     million pursuant to the settlement  agreements to Mississippi and Louisiana
     claimants who signed  releases.  The timing of payments to the Pennsylvania
     claimants will depend on when valid  individual  releases are received from
     the approximately 1,000 identified  claimants.  No payments will be made to
     the Mississippi  class settlement fund unless and until the appellate court
     has upheld the order approving the class-action settlement agreement.

     The  precise  amount  of  Chemical's  ultimate  obligations  under  all the
     foregoing  agreements  depends  on the  number  of  claimants  who sign and
     deliver valid individual  releases,  the outcome of the appeal of the order
     approving the class-action settlement,  the number of the Mississippi class
     members  whose  proof of claim  forms  are  approved  by a  court-appointed
     administrator  and the  number of class  members  who opt out of the class.
     Additionally,   future   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 settlements with minors.

     Although  the  settlement  agreements  are  expected  to resolve all of the
     Louisiana and Pennsylvania  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,  the claims by class  members
     that may arise in the future for currently  unmanifested personal injuries,
     or the  claims of any class  members if the  court's  order  approving  the
     class-action  settlement  agreement is not ultimately upheld. The two cases
     in Mississippi that are not covered by the settlement  agreements  together
     involve 27 plaintiffs who allege  property  damage and/or  personal  injury
     arising  out of the  Columbus,  Mississippi,  operations.  The  company  is
     vigorously defending those cases, pending any future settlement.

     Insurance  Litigation - In 2001, Chemical and its parent company filed suit
     against two insurance  carriers 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,
     some or all 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
     includes the estimated  amounts owed under the settlements  described above
     and an estimated  amount for the remaining two Mississippi  cases. As noted
     above,  through June 30, 2003,  Chemical had paid approximately $49 million
     pursuant to the settlement  agreements.  As of June 30, 2003, the company's
     remaining reserves for the forest products  litigation totaled $21 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 uncertainties described above.

     Follow-on  Litigation - 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.
     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 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, relates to a former
     wood-treatment plant located in Hattiesburg, Mississippi. A second lawsuit,
     Pearlina Jones et al. v. Kerr-McGee Chemical Corporation,  was filed in the
     second quarter of 2003 in the Chancery Court of Forest County, Mississippi,
     and relates to the same wood-treatment plant. The lawsuits seek recovery on
     legal  theories  substantially  similar  to those  advanced  in the  forest
     products litigation described above.

     In the second  quarter  of 2003,  the  parties  agreed to settle the Bolton
     lawsuit and Jones lawsuit.  The settlement  agreement  requires Chemical to
     pay up to $600,000 for the benefit of about 1,500 identified  claimants who
     sign  releases.  Although the settlement is expected to resolve most of the
     claims in the two Hattiesburg lawsuits, the settlement will not resolve the
     claims  of  plaintiffs  who do not sign  releases.  The  precise  amount of
     Chemical's  obligation  under  the  agreement  depends  on  the  number  of
     plaintiffs who sign and deliver valid individual releases. Of the potential
     $600,000  obligation,  approximately  $200,000 had been paid as of June 30,
     2003,  and it is expected  that the balance  will be paid by the end of the
     year.

     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 June 30,  2003,  the company had reserves  totaling  $264 million for
     cleaning up and remediating  environmental sites, reflecting the reasonably
     estimable costs for addressing  these sites.  This includes $96 million for
     the West Chicago sites, $40 million for the Henderson, Nevada, site and $42
     million  for  forest  products  sites.   Cumulative   expenditures  at  all
     environmental  sites through June 30, 2003,  total $1.060  billion  (before
     considering government reimbursements).  Additionally, as of June 30, 2003,
     the company had litigation reserves totaling  approximately $60 million for
     the reasonably  estimable losses associated with litigation.  This includes
     $21 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.

L.   Business Segments

     Following  is a  summary  of sales  and  operating  profit  for each of the
     company's  business segments for the second quarter and first six months of
     2003 and 2002.



                                                                     Three Months Ended            Six Months Ended
                                                                           June 30,                    June 30,
                                                                   ----------------------      -----------------------
     (Millions of dollars)                                           2003          2002          2003           2002
     -----------------------------------------------------------------------------------------------------------------
                                                                                                  

     Sales
       Exploration and production                                  $  741.9       $ 614.6      $1,565.4       $1,149.2
       Chemicals - Pigment                                            283.8         264.8         537.1          481.3
       Chemicals - Other                                               48.0          52.4          98.3           99.8
                                                                   --------       -------      --------       --------
                                                                    1,073.7         931.8       2,200.8        1,730.3
     All other                                                            -            .2            .1             .2
                                                                   --------       -------      --------       --------
         Total Sales                                               $1,073.7       $ 932.0      $2,200.9       $1,730.5
                                                                   ========       =======      ========       ========

     Operating Profit (Loss)
       Exploration and production                                  $  272.8       $  44.0      $  545.0       $  162.7
       Chemicals - Pigment                                            (14.2)         13.3          (6.8)           1.8
       Chemicals - Other                                               (8.4)         (1.1)        (18.4)           2.5
                                                                   --------       -------      --------       --------
         Total Operating Profit                                       250.2          56.2         519.8          167.0

     Other Expense                                                   (129.4)       (246.6)       (228.9)        (360.9)
                                                                   --------       -------      --------       --------

     Income (Loss) from Continuing Operations
       before Income Taxes                                            120.8        (190.4)        290.9         (193.9)
     Benefit (Provision) for Income Taxes                             (51.0)         12.7        (116.9)          14.5
                                                                   --------       -------      --------       --------

     Income (Loss) from Continuing Operations                          69.8        (177.7)        174.0         (179.4)

     Discontinued Operations, Net of Income Taxes                       (.2)        119.7            .2          126.9

     Cumulative Effect of Change in Accounting
       Principle, Net of Income Taxes                                     -             -         (34.7)             -
                                                                   --------       -------      --------       --------

     Net Income (Loss)                                             $   69.6       $ (58.0)     $  139.5       $  (52.5)
                                                                   ========       =======      ========       ========




     Item 2.  Management's  Discussion  and Analysis of Financial  Condition and
              Results of Operations.

     Comparison of 2003 Results with 2002 Results

     Second-quarter  2003  income  from  continuing   operations  totaled  $69.8
     million,  compared with a loss of $177.7  million for the same 2002 period.
     Income from continuing operations for the first six months of 2003 was $174
     million,  compared with a loss of $179.4  million for the  comparable  2002
     period. Net income for the 2003 second quarter was $69.6 million,  compared
     with a 2002  second-quarter  net loss of $58  million.  For the  first  six
     months of 2003, net income was $139.5 million,  compared with a net loss of
     $52.5 million for the same 2002 period.

     Second-quarter  2003  operating  profit was $250.2  million,  compared with
     second-quarter  2002 operating profit of $56.2 million, an increase of $194
     million. The increase was primarily due to lower asset impairments,  higher
     sales  prices for crude oil and  natural  gas,  and lower  operating  costs
     within the  exploration  and production  operating  unit.  While  operating
     results improved within the exploration and production business,  operating
     results for the  chemical - pigment and  chemical - other  operating  units
     declined  $27.5  million and $7.3  million,  respectively.  The  chemical -
     pigment  operating unit  experienced  higher titanium dioxide pigment sales
     prices over the prior-year quarter;  however,  higher pigment product costs
     and shutdown provisions associated with the closure of the Mobile, Alabama,
     synthetic  rutile  plant more than  offset the  increase  in sales  prices.
     Operating  results for the chemical - other  operating  unit were adversely
     impacted  by  a  shutdown  provision  for  the  forest  products  business,
     partially  offset by lower  environmental  costs related to the  Henderson,
     Nevada,  facility.  Operating  profit  for the  first  six  months  of 2003
     increased $352.8 million over the same 2002 period,  to $519.8 million from
     $167 million.  The increase in operating profit for the six-month period is
     attributable to lower asset  impairments,  higher realized sales prices for
     crude oil,  natural gas and pigment,  and lower  operating costs within the
     exploration and production unit,  partially offset by the Mobile and forest
     products  shutdown  provisions  and higher  pigment  product  costs.  These
     variances  are  discussed  in more  detail in the segment  discussion  that
     follows.

     Other  expense  for the second  quarter  of 2003  totaled  $129.4  million,
     compared with expense of $246.6  million in the same 2002 period,  a $117.2
     million decrease between periods.  During the 2002 second quarter, a review
     of  the  company's   environmental   remediation  projects  was  completed,
     resulting in additional  reserves totaling $73.8 million being provided for
     costs related to activities at former plant sites. Also, in the 2002 second
     quarter,  the  company  provided a $70 million  litigation  reserve for the
     settlement  of certain  forest  products  litigation  claims.  These items,
     together  with lower net interest  expense of $5.1  million,  resulted in a
     combined  decrease of $148.9 million between  periods,  which was partially
     offset by higher  corporate  general  and  administrative  expense of $15.6
     million,  lower income from trading securities and nonoperating  derivative
     financial  instruments  of $10.2  million,  and higher  losses  from equity
     affiliates  of  $2.1  million.   The  increase  in  corporate  general  and
     administrative  costs  resulted  primarily  from higher  general  liability
     insurance costs of $4.9 million,  higher retirement,  deferred compensation
     and incentive costs of $4.6 million and higher  departmental  costs of $4.4
     million. Lower average outstanding debt balances and lower average interest
     rates during the second  quarter of 2003 as compared  with the same quarter
     in the prior year  resulted in the $5.1  million  decrease in net  interest
     expense.  The losses from equity  affiliates in 2003 and 2002 are primarily
     due to losses from  AVESTOR,  a joint  venture  formed in 2001 to produce a
     revolutionary lithium-metal-polymer battery.

     Other  expense  for the first six months of 2003  totaled  $228.9  million,
     compared  with  expense of $360.9  million in the same 2002  period,  for a
     decrease of $132 million between periods.  The decrease resulted  primarily
     from lower  environmental-related  costs of $66.3 million, lower litigation
     costs of $63.2  million,  lower interest  expense of $11.3  million,  lower
     losses on asset sales of $4.4 million,  lower losses from equity affiliates
     of $2.9 million,  and lower  foreign  currency  transaction  losses of $2.5
     million.  These decreases were partially offset by higher corporate general
     and  administrative  costs of $21.4  million  between  periods,  consisting
     primarily of higher  general  liability  insurance  costs of $8.4  million,
     higher  retirement,  deferred  compensation  and  incentive  costs  of $6.9
     million, and higher departmental costs of $2.9 million.

     Income tax expense for the second quarter of 2003 was $51 million, compared
     with an income tax benefit of $12.7  million in the same 2002  period.  For
     the first six  months of 2003,  income  tax  expense  was  $116.9  million,
     compared  with an income tax benefit of $14.5  million in 2002.  The income
     tax  benefit  for both 2002  periods  included a $55.3  million tax benefit
     related to environmental  provisions and litigation reserves,  and included
     $100.4  million for the  reversal of U.K.  deferred  Petroleum  Revenue Tax
     benefits,  which were not  realizable  when the company sold certain of its
     northern North Sea  properties.  The remaining  change was primarily due to
     the  company  generating  income in the 2003  second  quarter and first six
     months versus losses in the comparable 2002 periods.  Additionally, on July
     24, 2002,  the U.K.  government  made  certain  changes to its existing tax
     laws.  Under  one  of  these  changes,  companies  are  required  to  pay a
     supplementary  corporate  tax charge of 10% on profits  from their U.K. oil
     and gas production in addition to the previously required 30% corporate tax
     on these  profits.  The impact of this rate change  increased the company's
     provision  for income taxes for the second  quarter and first six months of
     2003 by $7.8 million and $19  million,  respectively.  The U.K.  government
     also accelerated tax depreciation for capital  investments in U.K. upstream
     activities  and  abolished  North Sea  royalty  effective  January 1, 2003,
     neither of which had a material  effect on the company's  earnings  through
     June 30, 2003.


     Segment Operations

     Exploration and Production -

     Operating  profit  for the  second  quarter  of 2003  was  $272.8  million,
     compared  with $44  million  for the same 2002  period.  For the six months
     ended June 30, 2003 and 2002,  operating  profit  totaled  $545 million and
     $162.7 million,  respectively,  an increase of $382.3 million. The increase
     in operating profit in both 2003 periods was primarily due to the impact of
     oil and gas asset  impairments  in the 2002  second  quarter,  higher  2003
     average  realized  crude  oil and  natural  gas  sales  prices,  and  lower
     production costs, partially offset by lower crude oil and natural gas sales
     volumes and higher exploration expense resulting primarily from an increase
     in dry hole costs. Including the effects of hedging, realized crude oil and
     natural gas sales prices for the 2003 second quarter increased 13% and 45%,
     respectively,  over 2002 levels. For the first six months of 2003, realized
     crude oil and natural gas sales prices increased 27% and 65%, respectively,
     over the same 2002 period.

     The company  believes  that tight crude oil and natural gas  supplies  have
     caused oil and gas prices to increase significantly over prior-year levels.
     Early in the 2003 second  quarter,  crude oil prices  began to decline from
     the first-quarter  2003 levels due to the short duration of the war in Iraq
     and a perceived  over-supply  resulting from  production  increases by OPEC
     before the war. However,  prices remained strong throughout the 2003 second
     quarter in comparison  to the prior year due to  subsequent  output cuts by
     OPEC and  uncertainty  regarding the timing of Iraq's ability to resume its
     prewar  production  levels.  The  U.S.  natural  gas  sector  continues  to
     experience  tight market  conditions  and strong  prices as storage  levels
     remain at historically low levels.

     Total revenues for the second  quarter of 2003 increased  $127.3 million to
     $741.9  million  from  $614.6  million  for the 2002  second  quarter.  The
     increase  resulted from higher oil and gas prices of $124.8  million and an
     increase in other operating  revenues of $77 million,  partially  offset by
     lower crude oil sales  volumes of $66.4 million and lower natural gas sales
     volumes of $8.1  million.  For the six months  ended June 30,  2003,  total
     revenues  increased $416.2 million to $1.565 billion from $1.149 billion in
     2002.  The  increase  resulted  from  higher  oil and gas  prices of $393.3
     million,  higher natural gas sales volumes of $1 million and an increase in
     other operating revenues of $147.9 million, partially offset by lower crude
     oil sales volumes of $126 million. The increase in other operating revenues
     for  both  2003  periods  is  primarily  a  result  of  increased  sales of
     third-party  oil and gas in the  Rocky  Mountain  region  and the U.K.  The
     decrease in crude oil sales volumes is primarily due to the  divestiture of
     high-cost properties in Ecuador, the U.S. and U.K. North Sea regions during
     2002 and the 2003 first  quarter,  partially  offset by higher oil sales in
     the Gulf of Mexico.

     Operating  costs totaled  $469.1 million for the second quarter of 2003 and
     $570.6  million  for the  second  quarter  of 2002,  a  decrease  of $101.5
     million.  The  decrease  resulted  primarily  from lower  asset  impairment
     charges  of $158  million,  lower  oil and gas  production  costs  of $38.3
     million,  and lower  depreciation  and depletion  expense of $18.7 million,
     offset  by  higher  product,  gas-gathering  and  pipeline  costs  of $74.6
     million, higher exploration expense of $19.8 million, and accretion expense
     of $6.3 million.  As part of its strategic  plan to divest  noncore oil and
     gas  properties,  certain  domestic  and North  Sea  assets  classified  as
     held-for-sale  properties  were  evaluated and deemed  impaired  during the
     second quarter of 2002,  resulting in prior year pretax impairment  charges
     of $157.5 million.  The decreases in production  costs and depreciation and
     depletion  expense resulted from lower production  volumes between periods.
     The decrease in production costs also reflects improvement in the company's
     cost  structure   resulting  from  the  divestiture  of  certain  high-cost
     properties  over  the  past  year.  Production  costs  per  barrel  of  oil
     equivalent  (BOE)  dropped  to $3.72 per BOE from $4.61 per BOE in the 2002
     second quarter.  Property  divestitures were also the primary cause for the
     drop in crude  oil  production  volumes  to  154,800  barrels  per day from
     189,300  barrels  per day in the 2002  second  quarter.  Higher  crude  oil
     production volumes from new projects in the Gulf of Mexico partially offset
     the  decrease  between  periods.  The $74.6  million  increase  in product,
     gas-gathering and pipeline costs is directly  correlated to the $77 million
     increase  in  other  operating   revenues  discussed  above,  and  resulted
     primarily from higher  product costs for natural gas marketing  activities,
     combined with higher volumes. Of the total increase in exploration expense,
     $11 million was due to higher dry hole costs.

     For the six months  ended June 30, 2003,  operating  costs  totaled  $1.020
     billion,  compared with $986.5  million in the same 2002 period.  The $33.9
     million increase  between periods  resulted  primarily from higher product,
     gas-gathering  and pipeline  costs of $141.9  million,  higher  exploration
     expense of $128.4 million and accretion expense of $12.5 million, partially
     offset by lower  asset  impairment  charges  of $158.1  million  (discussed
     above),  lower oil and gas  production  costs of $58.7  million,  and lower
     depreciation  and depletion  expense of $47.6  million.  The $141.9 million
     increase  in  product,   gas-gathering   and  pipeline  costs  is  directly
     correlated  to the $147.9  million  increase  in other  operating  revenues
     discussed  above,  and resulted  primarily  from higher  product  costs for
     natural gas marketing activities,  combined with higher volumes. Higher dry
     hole  costs   accounted  for  $112.9  million  of  the  total  increase  in
     exploration expense.  Consistent with the 2003 second quarter, the decrease
     in production costs and  depreciation  and depletion  expense resulted from
     lower production  volumes between periods caused by the high-cost  property
     divestitures  discussed  above,  which also favorably  impacted  production
     costs through an overall  improved  cost  structure.  Crude oil  production
     volumes  decreased to 160,100  barrels per day from 197,000 barrels per day
     in the first six months of 2002.

     The following  table shows the company's  average crude oil and natural gas
     sales  prices and volumes for both the second  quarter and first six months
     of 2003 and 2002.



                                                                      Three Months Ended           Six Months Ended
                                                                           June 30,                    June 30,
                                                                     --------------------        ---------------------
                                                                      2003          2002          2003           2002
     -----------------------------------------------------------------------------------------------------------------
                                                                                                    

     Crude oil and condensate sales
       (thousands of bbls/day)
        Domestic
          Offshore                                                     57.5          54.3          58.6           53.8
          Onshore                                                      20.7          29.4          21.0           29.3
        North Sea                                                      75.3          98.0          78.5          104.5
        Other international                                             4.3           8.5           4.3            8.6
                                                                     ------        ------        ------         ------
            Total continuing operations                               157.8         190.2         162.4          196.2
        Discontinued operations                                           -           5.6           1.2            7.3
                                                                     ------        ------        ------         ------
            Total                                                     157.8         195.8         163.6          203.5
                                                                     ======        ======        ======         ======

     Average crude oil sales price (per barrel) (a)
       Domestic
         Offshore                                                    $25.44        $22.19        $25.87         $20.23
         Onshore                                                      25.57         21.54         26.58          19.95
       North Sea                                                      24.96         22.74         26.06          21.08
       Other international                                            27.42         23.82         29.24          20.34
       Average for continuing operations                              25.28         22.44         26.14          20.65
       Discontinued operations                                       $    -        $21.35        $24.47         $19.42






                                                                      Three Months Ended          Six Months Ended
                                                                           June 30,                   June 30,
                                                                      ------------------        -------------------
                                                                       2003         2002         2003          2002
     --------------------------------------------------------------------------------------------------------------
                                                                                                  

     Natural gas sold (MMcf/day)
       Domestic
         Offshore                                                       275          253          280           248
         Onshore                                                        342          379          356           381
       North Sea                                                         80           99           93           100
                                                                      -----        -----        -----         -----
           Total                                                        697          731          729           729
                                                                      =====        =====        =====         =====

     Average natural gas sales price (per Mcf) (a)
       Domestic
         Offshore                                                     $4.95        $3.32        $5.17         $2.91
         Onshore                                                       4.22         3.02         4.41          2.75
       North Sea                                                       2.37         1.81         2.92          2.32
       Average                                                        $4.29        $2.96        $4.51         $2.74


     (a) The effects of the company's  hedging program during the second quarter
         and first six months of 2003 and 2002 are included in the average sales
         prices shown  above.  Losses on  commodity  hedges  reduced the average
         crude oil and  condensate  sales prices from  continuing  operations by
         $.92 per barrel and $1.06 per barrel during the second  quarter of 2003
         and 2002,  respectively,  and  reduced  the  average  natural gas sales
         prices by $.58 per Mcf and $.05 per Mcf during  the  second  quarter of
         2003 and 2002,  respectively.  During  the first six months of 2003 and
         2002,  losses on  commodity  hedges  reduced the average  crude oil and
         condensate sales prices from continuing  operations by $2.53 per barrel
         and $.51 per barrel,  respectively,  and the average  natural gas sales
         prices by $.70 per Mcf and $.03 per Mcf, respectively.

     The  company  continues  to review its options  with  respect to the Leadon
     field,  which was written  down to  estimated  fair market value during the
     fourth  quarter  of 2002 due to field  performance  issues.  The  company's
     options  include  sale of the  field,  tieback  of  wells  to  other  fixed
     infrastructure  in the area  (allowing  the company to monetize  the Leadon
     floating  facility  by  marketing  it as a  development  option for another
     discovery), or continued production from the field until existing wells are
     fully depleted;  however, a long-term solution has not yet been determined.
     Given  the  uncertainty  concerning  possible  outcomes,  it is  reasonably
     possible that the  company's  estimate of future cash flows from the Leadon
     field and associated fair value could change in the near term. If estimated
     future  cash  flows or fair value  decrease  significantly,  an  additional
     write-down  of the Leadon  field could occur in the future.  As of June 30,
     2003, the carrying value of the Leadon field assets totaled $379.1 million.

     Chemicals - Pigment

     Operating loss for the second quarter of 2003 was $14.2 million on revenues
     of $283.8  million,  compared  with  operating  profit of $13.3  million on
     revenues of $264.8 million for the same 2002 period.  A net  improvement in
     the  pigment  sales price and volume mix of $31.7  million  during the 2003
     second quarter was more than offset by shutdown  provisions for the Mobile,
     Alabama,  facility of $28.9 million;  higher average product costs of $24.7
     million;  and higher  selling  and  administrative  costs of $4.5  million,
     resulting in an operating loss for the second quarter of 2003 compared with
     operating profit in 2002. For the first six months of 2003,  operating loss
     was $6.8 million on revenues of $537.1  million,  compared  with  operating
     profit of $1.8  million on  revenues  of $481.3  million in the  comparable
     prior-year  period.  The  operating  loss for the first six  months of 2003
     compared  with a profit in the same period of 2002,  was  primarily  due to
     shutdown provisions for the Mobile facility totaling $36.3 million,  higher
     average   product  costs  of  $19.4   million,   and  higher   selling  and
     administrative  costs of $7.2 million,  partially offset by an increase due
     to an improved  sales price and volume mix of $54.4  million  over the 2002
     six-month period. The second quarter and year-to-date  shutdown  provisions
     for the Mobile  operations  included  $6.1  million for  curtailment  costs
     related to pension and postretirement benefits.

     Revenues  increased  $19  million in the second  quarter of 2003,  of which
     $41.3 million was due to higher average sales prices, partially offset by a
     decrease of $22.3  million due to lower sales  volumes.  For the six months
     ended June 30,  2003,  revenues  increased  $55.8  million,  or 12%, due to
     higher  average sales prices of $66.7  million,  partially  offset by lower
     pigment sales  volumes of $10.9  million.  The higher  average sales prices
     were driven by stronger  customer  demand,  which supported price increases
     for pigment products throughout 2002 and into 2003. However,  pigment sales
     volumes  decreased by 10,400 tonnes in the 2003 second quarter and by 4,100
     tonnes for the first six months compared with prior-year levels,  primarily
     in the European sector.

     In  January  2003,  Kerr-McGee  announced  its plans to close  the  Mobile,
     Alabama,  facility and the plant was closed in June 2003.  This closure was
     part of the company's continuous effort to enhance 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;  however,
     through Kerr-McGee's ongoing supply chain initiatives, feedstock can now be
     purchased  more  economically  than it can be  manufactured  at the  Mobile
     plant. As a result of these steps, the company  anticipates  annual savings
     of approximately $25 million to $30 million beginning in 2004.

     Chemicals - Other

     Operating  loss in the 2003 second  quarter was $8.4 million on revenues of
     $48 million, compared with an operating loss of $1.1 million on revenues of
     $52.4 million in the same 2002 period.  Of the $7.3 million increase in the
     operating loss, $11.9 million was  attributable to lower operating  results
     from the forest  products  operations,  partially  offset by a $4.6 million
     increase in operating  results from the electrolytic  operations due to the
     impact of a $7 million  environmental  provision in the prior-year quarter.
     The  decrease in forest  products  operating  profit was due  primarily  to
     additional  shutdown  provisions  of $8.8  million  during the 2003  second
     quarter,  which  included  $8.1 million for  curtailment  costs  related to
     pension and postretirement benefits.

     Operating loss for the six months ended June 30, 2003, was $18.4 million on
     revenues of $98.3 million,  compared with operating  profit of $2.5 million
     on revenues of $99.8  million in the same 2002  period.  The $20.9  million
     decrease in operating profit for the first six months of 2003 was primarily
     due to lower  operating  results of $13.1 million from the forest  products
     operations  (of  which  $8.8  million  is due to  the  shutdown  provisions
     discussed  above)  and  higher   environmental  costs  of  $4  million  for
     remediation  of ammonium  perchlorate  related to the company's  Henderson,
     Nevada, operations (see Note K).

     During  the third  quarter  of 2003,  Kerr-McGee  Chemical  LLC  placed its
     electrolytic manganese dioxide (EMD) manufacturing  operation in Henderson,
     Nevada, on standby to reduce inventory levels because of the harmful effect
     of low-priced  imports on the company's EMD business and the operation will
     remain on standby  indefinitely.  In response to the pricing  activities of
     importing  companies,  Kerr-McGee  Chemical  LLC filed a  petition  for the
     imposition  of  antidumping  duties  with the U.S.  Department  of Commerce
     International  Trade  Administration  and  the  U.S.   International  Trade
     Commission  on July 31, 2003.  In its  petition,  the company  alleges that
     manufacturers in Australia,  Greece,  Ireland, Japan, South Africa, and the
     People's  Republic of China export EMD to the United States in violation of
     the U.S. antidumping laws and requests that the U.S. Department of Commerce
     apply  substantial  antidumping  duties  to  the  EMD  imported  from  such
     countries. The company is vigorously prosecuting the petition; however, the
     outcome of the proceeding is uncertain.  The company  intends to resume EMD
     manufacturing if and when competitiveness is restored.


     Financial Condition

     At June 30, 2003, the company's net working capital position was a negative
     $332.3  million,  compared with a negative  $84.4 million at June 30, 2002,
     and a negative  $319.7  million at December 31, 2002. The current ratio was
     .8 to 1 at both June 30, 2003 and December 31, 2002,  compared with .9 to 1
     at June 30, 2002. The negative  working capital  position at June 30, 2003,
     is not  indicative  of a  lack  of  liquidity,  as  the  company  maintains
     sufficient   current  assets  to  settle  current   liabilities  when  due.
     Additionally,  the  company  has  sufficient  unused  lines of  credit  and
     revolving credit facilities, as discussed below. Current asset balances are
     minimized as one way to finance  capital  expenditures  and lower borrowing
     costs.

     The company's percentage of net debt (debt less cash) to capitalization was
     58% at June 30, 2003,  compared  with 60% at December 31, 2002,  and 58% at
     June 30, 2002. The decrease from December 31, 2002, resulted primarily from
     reduced debt balances combined with an increase in stockholders' equity for
     the period.  The company had unused  lines of credit and  revolving  credit
     facilities of $1.399 billion at June 30, 2003. Of this amount, $870 million
     can be used to support commercial paper borrowings 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.  Currently,  the
     capacity of the company's  commercial  paper  program  totals $1.2 billion,
     which can be issued based on market conditions.  Long-term debt obligations
     due within one year of $204.8 million consist primarily of $100 million, 8%
     notes due October 15,  2003,  and $100  million of floating  rate notes due
     June 28, 2004. The company  expects to use internally  generated cash flows
     or its  commercial  paper  program  to  fund  the  payment  of  these  debt
     maturities.

     On July 30,  2003,  the company  amended its existing  accounts  receivable
     monetization program. The new program has been expanded to include the sale
     of receivables originated by the company's European chemical operations and
     the maximum availability under the program is $165 million.

     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.  During May
     2003,  Moody's  downgraded the company's senior unsecured debt from Baa2 to
     Baa3 and downgraded the company's commercial paper from Prime-2 to Prime-3.
     As a result of the Moody's  downgrade,  the company's  borrowing  costs may
     increase,  and the  company  may  experience  a  different  mix of investor
     interest  in its debt  and/or  amounts  they are  individually  willing  to
     invest.  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. Should operating cash flow
     decline,  the company may reduce its capital expenditures  program,  borrow
     under its commercial paper program, borrow under existing credit facilities
     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.

     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 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  any gains or losses  resulting  from
     changes in the fair value of the put and call  options.  At June 30,  2003,
     the fair values of the  embedded  put and call  options were nil and $124.7
     million,  respectively.  On  December  31,  2002,  the fair  values  of the
     embedded  put and call  options  were nil and $66.6  million  respectively.
     During the second  quarter of 2003,  the  company  recorded a loss of $41.9
     million in Other  Income for the  changes in the fair values of the put and
     call options, compared with a gain of $.1 million during the second quarter
     of 2002. During the first six months of 2003 and 2002, the company recorded
     losses of $58.1 million and $74.2  million,  respectively,  in Other Income
     for the  changes  in the  fair  values  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 fair value of the
     8.4 million  shares of Devon  classified as trading  securities  was $450.5
     million at June 30, 2003, and $387.2  million at December 31, 2002.  During
     the second quarter of 2003 and 2002, the company recorded  unrealized gains
     of $43.7  million and $8.5 million,  respectively,  in Other Income for the
     changes in fair value of the Devon shares classified as trading. During the
     first six months of 2003 and 2002, the company recorded unrealized gains of
     $63.3  million and $89.7  million,  respectively,  in Other  Income for the
     changes  in fair  value of the Devon  shares  classified  as  trading.  The
     company   accounts   for  the   remaining   15%  of  the  Devon  shares  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 fair value of
     the Devon shares classified as available for sale was $81.1 million at June
     30, 2003, and $69.7 million at December 31, 2002.

     Operating  activities  provided net cash of $764.9 million in the first six
     months of 2003.  Cash  provided by  operating  activities  and  proceeds of
     $195.9 million from exploration and production divestitures were sufficient
     to fund the company's net  reduction in long-term  debt of $190.8  million,
     capital  expenditures  (including  dry hole costs) of $646.1  million,  and
     dividends of $90.6 million during the first six months of 2003.

     Capital  expenditures for the first six months of 2003,  excluding dry hole
     costs,  totaled  $517.9  million,   compared  with  $626  million  for  the
     comparable prior-year period. The decrease is largely attributable to lower
     capital  spending within the  exploration and production  operating unit in
     the U.K.  North Sea region  during  the first  half of 2003 and  prior-year
     capital  spending on discontinued  operations,  partially  offset by higher
     2003  spending  in the  Rocky  Mountains  and  deepwater  Gulf of Mexico as
     compared  to the  prior  year.  Exploration  and  production  expenditures,
     principally in the Gulf of Mexico and onshore  United  States,  were 91% of
     the 2003 total expenditures. Chemical - pigment expenditures were 7% of the
     2003 total,  while chemical - other and corporate incurred the remaining 2%
     of the year-to-date 2003 expenditures. Management anticipates that the cash
     requirements for the next several years can be provided through  internally
     generated funds and selective borrowings.


     New Accounting Standards

     In June 2001,  the  Financial  Accounting  Standards  Board  (FASB)  issued
     Statement of Financial  Accounting Standards (FAS) No. 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 by the standard),  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  adopted  FAS 143 on  January 1, 2003,  which  resulted  in an
     increase in net  property  of $127.5  million,  an increase in  abandonment
     liabilities  of $180.4  million  and a  decrease  in  deferred  income  tax
     liabilities of $18.2 million.  The net impact of these changes  resulted in
     an  after-tax  charge  to  earnings  of  $34.7  million  to  recognize  the
     cumulative effect of retroactively  applying the new accounting  principle.
     In  accordance  with the  provisions  of FAS  143,  Kerr-McGee  accrues  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.  No market risk
     premium has been included in the company's  calculation  of the ARO for oil
     and gas wells and platforms  since no reliable  estimate can be made by the
     company. In connection with the change in accounting principle, abandonment
     expense of $8.3 million and $17.6 million for the second  quarter and first
     six  months of 2002,  respectively,  has been  reclassified  from Costs and
     operating  expenses  to  Depreciation  and  depletion  in the  Consolidated
     Statement of  Operations to be consistent  with the 2003  presentation.  In
     January 2003, the company  announced its plan to close the synthetic rutile
     plant in Mobile,  Alabama,  and  closed  the plant in June 2003.  Since the
     plant had a determinate  closure date,  the company  accrued an abandonment
     liability of $17.6 million  associated with its plans to  decommission  the
     Mobile facility.

     In January  2003,  the FASB issued FIN No. 46,  "Consolidation  of Variable
     Interest Entities - an Interpretation of ARB No. 51." 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
     will be required to consolidate the business trust created to construct and
     finance  the  Gunnison  production  platform.  The  construction  is  being
     financed by 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.  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  company  plans to convert  the
     Gunnison  synthetic  lease to an operating lease and a different trust will
     become  the  lessor/owner  of the  platform  and  related  equipment.  Upon
     conversion  to an  operating  lease,  the  company  believes  the  variable
     interest entity lessor will not be subject to consolidation. The company is
     in the  process of  reviewing  the  effects of FIN 46 relative to its other
     relationships with possible variable interest entities,  such as the lessor
     trusts  that are party to the  Nansen  and  Boomvang  operating  leases and
     certain  joint-venture  arrangements,  and does not presently  believe that
     consolidation of these entities is required.

     Item 3.  Quantitative and Qualitative Disclosures about Market Risk.

     Beginning in March 2002 and  continuing  through  January 2003, the company
     entered  into  hedging  contracts  for a portion of its oil and natural gas
     production.  The  commodity  hedging  program was initiated to increase the
     predictability  of the company's  cash flows and support  capital  projects
     since  hedging  contracts  fix the  commodity  prices to be received in the
     future. At June 30, 2003, the company had outstanding  contracts to hedge a
     total of 8.2 million barrels of North Sea crude oil production, 6.4 million
     barrels of domestic crude oil  production and 69 MMBtu of domestic  natural
     gas  production  for the period from July through  December  2003.  The net
     liability fair value of the hedge  contracts  outstanding at June 30, 2003,
     was $25 million for North Sea crude oil, $23 million for domestic crude oil
     and $87.5 million for domestic natural gas.

     At June 30, 2003, the following commodity-related derivative contracts were
     outstanding:

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

     Natural Gas Hedges                                      MMBtu       $/MMBtu
     ------------------                                      -----       -------
     Fixed-price swaps (NYMEX)                   2003      310,000         $4.00
     Costless collars (NYMEX)                    2003       65,000   $3.50-$5.26
     Basis swaps (Rockies)                       2003       64,580         $0.36

     Crude Oil Hedges                                          Bbl         $/Bbl
     ----------------                                          ---         -----
     Fixed-price swaps (WTI)                Q3 - 2003       34,500        $25.99
                                            Q4 - 2003       35,000        $26.01

     Fixed-price swaps (Brent)              Q3 - 2003       44,500        $24.99
                                            Q4 - 2003       45,000        $25.04

     Natural Gas (non-hedge contracts)                       MMBtu       $/MMBtu
     ---------------------------------                       -----       -------
     Basis swaps (Rockies)                       2004       35,000         $0.31
                                                 2005       35,000         $0.31
                                                 2006       35,000         $0.31
                                                 2007       35,000         $0.31
                                                 2008       20,000         $0.25



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


     Through  August  4,  2003,  the  company  added  the  following  derivative
     contracts  and expanded its hedging  program to cover a portion of its 2004
     production.

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

     Crude Oil Hedges                                          Bbl         $/Bbl
     ----------------                                          ---         -----
     Fixed-price swaps (WTI)                     2004        3,500        $27.12
     Fixed-price swaps (Brent)                   2004        3,500        $25.81

     Natural Gas (non-hedge contracts)                       MMBtu       $/MMBtu
     ---------------------------------                       -----       -------
     Basis swaps (Rockies)                  Q3 - 2003       43,100         $0.94
                                            Q4 - 2003       61,700         $0.80
                                            Q1 - 2004       60,000         $0.72


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

     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.

     Following  are  the  notional  amounts  at  the  contract  exchange  rates,
     weighted-average  contractual  exchange rates and estimated contract values
     for open contracts at June 30, 2003, to purchase (sell) foreign currencies.
     Contract values are based on the estimated forward exchange rates in effect
     at quarter-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 June 30, 2003 -
       Maturing in 2003 -
         British pound sterling                          $76.6                     1.5417                     $82.8
         Australian dollar                                31.2                      .5592                      37.1
         Euro                                            (12.2)                    1.1359                     (12.3)
         British pound sterling                            (.7)                    1.5959                       (.7)
         Japanese yen                                      (.6)                     .0085                       (.6)
         New Zealand dollar                                (.6)                     .5692                       (.6)
       Maturing in 2004 -
         Australian dollar                                37.7                      .5366                      45.6



     Item 4.  Controls and Procedures.

     As of the end of the  period  covered by 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-15.  Based on that  evaluation,  the Chief Executive  Officer and Chief
     Financial  Officer  concluded  that the company's  disclosure  controls and
     procedures  are  effective in alerting  them in a timely manner to material
     information   relating  to  the   company   (including   its   consolidated
     subsidiaries)  required  to be  included  in  the  company's  periodic  SEC
     filings.  There  were no  significant  changes  in the  company's  internal
     controls or in other factors that could significantly affect these controls
     subsequent to the date of their evaluation.

                           Forward-Looking Information

     Statements in this quarterly report 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 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 identified in the Risk Factors section of the company's Annual Report
     on Form 10-K and other SEC filings.  Actual  results and  developments  may
     differ materially from those expressed in this quarterly report.


                           PART II - OTHER INFORMATION

Item 1.   Legal Proceedings.

   (a) In its Annual Report on Form 10-K, the Company  reported that 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. In the second quarter, the
       notice of violation was resolved with the payment by Kerr-McGee North Sea
       (U.K.) Limited of a fine of (pound)10,000 (ten thousand pounds sterling).

   (b) For a discussion of other legal proceedings and contingencies,  reference
       is made to Note K to the consolidated  financial  statements  included in
       Part I,  Item 1. of this  Form  10-Q,  which is  incorporated  herein  by
       reference.


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

   (a) The 2003 annual meeting of stockholders was held on May 13, 2003.

   (b) Directors elected at the 2003 annual meeting were the following:

                Sylvia A. Earle
                Martin C. Jischke
                Leroy C. Richie

       Directors  whose term of office  continues  after the 2003 annual meeting
       were the following:

                William E. Bradford                           Luke R. Corbett
                David C. Genever-Watling                      Farah M. Walters
                Matthew R. Simmons                            Nicholas J. Sutton
                Ian L. White-Thomson

   (c) The following matters were voted upon at the 2003 annual meeting:

         (1)Following are the directors  elected at the 2003 annual  meeting and
            the tabulation of votes related to each nominee.
                                                                          Votes
                                             Affirmative                Withheld
                                             -----------                --------
            Sylvia A. Earle                   87,325,790               2,096,079
            Martin C. Jischke                 87,293,842               2,128,027
            Leroy C. Richie                   87,315,787               2,106,082

         (2)The  stockholders  ratified the  appointment of Ernst & Young LLP as
            independent  public  accountants  for 2002.  Affirmative  votes were
            87,750,516;  negative votes were  1,147,799,  and  abstentions  were
            523,554.


Item 6.   Exhibits and Reports on Form 8-K.

      (a) Exhibits -

             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/A  dated
                        June 18, 2001, and incorporated herein by reference.

                3.2     Amended and Restated  Bylaws of Kerr-McGee  Corporation,
                        filed as Exhibit 3.2 to the  company's  Annual Report on
                        Form 10-K for the year  ended  December  31,  2002,  and
                        incorporated herein by reference.

                31.1    Certification  Pursuant to Securities  Exchange Act Rule
                        15d-14(a),  as adopted  pursuant  to Section  302 of the
                        Sarbanes-Oxley Act of 2002.

                31.2    Certification  Pursuant to Securities  Exchange Act Rule
                        15d-14(a),  as adopted  pursuant  to Section  302 of the
                        Sarbanes-Oxley Act of 2002.

                32.1    Certification  Pursuant to 18 U.S.C.  Section  1350,  as
                        adopted  pursuant to Section  906 of the  Sarbanes-Oxley
                        Act of 2002.

                32.2    Certification  Pursuant to 18 U.S.C.  Section  1350,  as
                        adopted  pursuant to Section  906 of the  Sarbanes-Oxley
                        Act of 2002.

      (b) Reports on Form 8-K -

          The  following  Current  Reports on Form 8-K were filed by the company
          during the quarter ended June 30, 2003:


               o Current  Report dated April 25,  2003,  announcing a conference
                 call to discuss its first-quarter  2003 financial and operating
                 results, and expectations for the future.

               o Current  Report  dated April 29,  2003,  announcing  a security
                 analyst meeting to discuss its financial and operating  outlook
                 for 2003  and  certain  expectations  for oil and  natural  gas
                 production volumes for the year 2003.

               o Current  Report dated April 30, 2003,  announcing the company's
                 first-quarter 2003 earnings.

               o Current Report dated April 30, 2003, announcing the company had
                 posted on its website a table  containing a  reconciliation  of
                 GAAP to Adjusted Net Income for the  year-to-date and quarterly
                 fiscal periods ended March 31, 2003.

               o Current Report dated May 23, 2003, announcing a conference call
                 to discuss interim  second-quarter 2003 financial and operating
                 activities, and expectations for the future.

               o Current  Report  dated  May 28,  2003,  announcing  a  security
                 analyst meeting to discuss its financial and operating  outlook
                 for 2003  and  certain  expectations  for oil and  natural  gas
                 production volumes for the year 2003.

               o Current  Report  dated June 20,  2003,  announcing a conference
                 call to  discuss  interim  second-quarter  2003  financial  and
                 operating activities, and expectations for the future.

               o Current  Report  dated  June 25,  2003,  announcing  a security
                 analyst meeting to discuss its financial and operating  outlook
                 for 2003  and  certain  expectations  for oil and  natural  gas
                 production volumes for the year 2003.




                                    SIGNATURE

     Pursuant to the  requirements  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


     Date:  August 5, 2003               By:       /s/ John M. Rauh
            --------------                         -----------------------------
                                                   John M. Rauh
                                                   Vice President and Controller
                                                   and Chief Accounting Officer