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 September 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 October 31,
2003:  100,848,298.





                             KERR-McGEE CORPORATION




                                      INDEX



                         PART I - FINANCIAL INFORMATION


Item 1.  Financial Statements                                               PAGE
                                                                            ----

         Consolidated Statement of Operations for the Three and
         Nine Months Ended September 30, 2003 and 2002                         1

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

         Consolidated Statement of Cash Flows for the Nine
         Months Ended September 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                                        31

Item 3.  Quantitative and Qualitative Disclosures about Market Risk           40

Item 4.  Controls and Procedures                                              42

Forward-Looking Information                                                   42


                           PART II - OTHER INFORMATION

Item 1.  Legal Proceedings                                                    42

Item 6.  Exhibits and Reports on Form 8-K                                     43

SIGNATURE                                                                     44





                         PART I - FINANCIAL INFORMATION

Item 1. Financial Statements.


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


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

Sales                                                                     $1,006.1     $ 964.8    $3,158.3    $2,682.2
                                                                          --------     -------    --------    --------

Costs and Expenses
  Costs and operating expenses                                               409.9       383.6     1,233.4     1,096.8
  Selling, general and administrative expenses                                98.3        61.0       248.3       238.1
  Shipping and handling expenses                                              34.4        32.1       101.4        86.3
  Depreciation and depletion                                                 180.6       193.7       563.2       602.1
  Accretion expense                                                            6.3           -        18.8           -
  Asset impairments, net of gains on disposal of assets held for sale         (4.4)       24.0        (5.0)      181.5
  Exploration, including dry holes and amortization of
    undeveloped leases                                                        79.8        70.2       286.9       148.9
  Taxes, other than income taxes                                              23.5        28.8        69.9        83.4
  Provision for environmental remediation and restoration,
    net of reimbursements                                                     47.2       (20.0)       66.4        70.4
  Interest and debt expense                                                   62.8        68.4       191.2       207.7
                                                                          --------     -------    --------    --------
      Total Costs and Expenses                                               938.4       841.8     2,774.5     2,715.2
                                                                          --------     -------    --------    --------
                                                                              67.7       123.0       383.8       (33.0)
Other Income (Expense)                                                       (17.5)      (14.1)      (42.7)      (52.0)
                                                                          --------     -------    --------    --------
Income (Loss) before Income Taxes                                             50.2       108.9       341.1       (85.0)
Provision for Income Taxes                                                   (21.1)     (195.7)     (138.0)     (181.2)
                                                                          --------     -------    --------    --------
Income (Loss) from Continuing Operations                                      29.1       (86.8)      203.1      (266.2)
Income (Loss) from Discontinued Operations (net of income tax
  provision (benefit) of nil and $.7 for the third quarter of 2003
  and 2002, respectively, and $.2 and $(23.8) for the first nine
  months of 2003 and 2002, respectively)                                       (.3)         .4         (.1)      127.3
Cumulative Effect of Change in Accounting Principle (net of benefit
  for income taxes of $18.2)                                                     -           -       (34.7)          -
                                                                          --------     -------    --------    --------
Net Income (Loss)                                                         $   28.8      $(86.4)   $  168.3    $ (138.9)
                                                                          ========     =======    ========    ========
Income (Loss) per Common Share
  Basic -
    Continuing operations                                                 $    .29      $ (.86)   $   2.02    $  (2.65)
    Discontinued operations                                                      -           -           -        1.27
    Cumulative effect of change in accounting principle                          -           -        (.34)          -
                                                                          --------     -------    --------    --------
      Total                                                               $    .29     $  (.86)   $   1.68    $  (1.38)
                                                                          ========     =======    ========    ========
  Diluted -
    Continuing operations                                                 $    .29     $  (.86)   $   1.98    $  (2.65)
    Discontinued operations                                                      -           -           -        1.27
    Cumulative effect of change in accounting principle                          -           -        (.31)          -
                                                                          --------     -------    --------    --------
      Total                                                               $    .29     $  (.86)   $   1.67    $  (1.38)
                                                                          ========     =======    ========    ========

Dividends Declared per Common Share                                       $    .45     $   .45    $   1.35    $   1.35
                                                                          ========     =======    ========    ========


The accompanying notes are an integral part of this statement.




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


                                                                                   September 30,       December 31,
(Millions of dollars)                                                                       2003               2002
-------------------------------------------------------------------------------------------------------------------
                                                                                                    
ASSETS
------
Current Assets
  Cash                                                                                 $   194.9          $    89.9
  Accounts receivable                                                                      509.7              607.8
  Inventories                                                                              375.6              402.4
  Deposits, prepaid expenses and other assets                                              584.7              132.8
  Current assets associated with properties held for disposal                                 .6               57.2
                                                                                       ---------          ---------
    Total Current Assets                                                                 1,665.5            1,290.1
                                                                                       ---------          ---------

Property, Plant and Equipment                                                           14,024.6           13,722.8
  Less reserves for depreciation, depletion and amortization                            (6,745.8)          (6,687.2)
                                                                                       ---------          ---------
                                                                                         7,278.8            7,035.6
                                                                                       ---------          ---------

Investments and Other Assets                                                               578.7            1,035.2
Goodwill                                                                                   356.5              355.9
Long-Term Assets Associated with Properties Held for Disposal                               36.2              192.0
                                                                                       ---------          ---------

    Total Assets                                                                       $ 9,915.7          $ 9,908.8
                                                                                       =========          =========

LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
Current Liabilities
  Accounts payable                                                                     $   653.9          $   785.1
  Long-term debt due within one year                                                       672.3              105.8
  Other current liabilities                                                                700.2              716.8
  Current liabilities associated with properties held for disposal                            .3                2.1
                                                                                       ---------          ---------
    Total Current Liabilities                                                            2,026.7            1,609.8
                                                                                       ---------          ---------

Long-Term Debt                                                                           3,048.2            3,798.1
                                                                                       ---------          ---------

Deferred Income Taxes                                                                    1,234.1            1,145.1
Other Deferred Credits and Reserves                                                        929.0              803.7
Long-Term Liabilities Associated with Properties Held for Disposal                          19.1               16.1
                                                                                       ---------          ---------
                                                                                         2,182.2            1,964.9
                                                                                       ---------          ---------
Stockholders' Equity
  Common stock, par value $1 - 300,000,000 shares
    authorized, 100,873,854 shares issued at 9-30-03
    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                                                                        924.2              885.7
  Accumulated other comprehensive income (loss)                                             10.6              (62.3)
  Common shares in treasury, at cost - 25,556 shares
    at 9-30-03 and 7,299 at 12-31-02                                                        (1.3)               (.4)
  Deferred compensation                                                                    (84.3)             (75.7)
                                                                                       ---------          ---------
      Total Stockholders' Equity                                                         2,658.6            2,536.0
                                                                                       ---------          ---------

      Total Liabilities and Stockholders' Equity                                       $ 9,915.7          $ 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)



                                                                                             Nine Months Ended
                                                                                               September 30,
                                                                                        ---------------------------
  (Millions of dollars)                                                                   2003               2002
-------------------------------------------------------------------------------------------------------------------
                                                                                                    

Operating Activities
--------------------
Net income (loss)                                                                       $  168.3          $  (138.9)
Adjustments to reconcile net income to net cash
  provided by operating activities -
    Depreciation, depletion and amortization                                               617.1              656.8
    Accretion expense                                                                       18.8                  -
    Asset impairments, net of gains on disposal of assets held for sale                      1.2              207.6
    Dry hole costs                                                                         162.7               48.8
    Deferred income taxes                                                                   85.8              126.3
    Provision for environmental remediation and
      restoration, net of reimbursements                                                    66.3               80.0
    Gain on divestiture of discontinued operations                                             -             (108.6)
    (Gain) loss on sale and retirement of assets                                            (2.1)               2.7
    Cumulative effect of change in accounting principle                                     34.7                  -
    Noncash items affecting net income                                                     123.8               99.5
    Other net cash provided by (used in) operating activities                              (84.5)              68.3
                                                                                        --------          ---------
        Net Cash Provided by Operating Activities                                        1,192.1            1,042.5
                                                                                        --------          ---------
Investing Activities
--------------------
Capital expenditures                                                                      (749.4)            (886.2)
Dry hole costs                                                                            (162.7)             (48.8)
Proceeds from sales of assets                                                              258.6              463.9
Acquisitions                                                                               (69.6)             (23.8)
Other investing activities                                                                 (36.6)             (43.1)
                                                                                        --------          ---------
        Net Cash Used in Investing Activities                                             (759.7)            (538.0)
                                                                                        --------          ---------
Financing Activities
--------------------
Issuance of long-term debt                                                                  31.5              783.0
Repayment of long-term debt                                                               (225.0)          (1,092.4)
Decrease in short-term borrowings                                                              -               (8.2)
Issuance of common stock                                                                       -                5.4
Dividends paid                                                                            (135.9)            (135.4)
Other financing activities                                                                   (.6)                 -
                                                                                        --------          ---------
        Net Cash Used in Financing Activities                                             (330.0)            (447.6)
                                                                                        --------          ---------

Effects of Exchange Rate Changes on Cash and Cash Equivalents                                2.6               (5.9)
                                                                                        --------          ---------

Net Increase in Cash and Cash Equivalents                                                  105.0               51.0

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

Cash and Cash Equivalents at End of Period                                              $  194.9          $   142.3
                                                                                        ========          =========



The accompanying notes are an integral part of this statement.





                 KERR-McGEE CORPORATION AND SUBSIDIARY COMPANIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                               SEPTEMBER 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 $9.1 million and
    $26.7  million  for the  third  quarter  and  first  nine  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
    nine months of 2003 is included in the table below.

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

    January 1, 2003                                                      $395.6
      Obligations incurred                                                  6.8
      Accretion expense                                                    18.8
      Abandonment expenditures                                            (12.5)
      Abandonment obligations settled through property divestitures       (13.5)
                                                                         ------
    September 30, 2003                                                   $395.2
                                                                         ======

    Pro forma net loss for the three months ended September 30, 2002, would have
    been $88  million,  with basic and  diluted  loss per share of $.88,  if the
    provisions of FAS 143 had been applied as of January 1, 2002,  compared with
    net income for the three months ended  September 30, 2003, of $28.8 million,
    with basic and diluted  earnings  per share of $.29.  Pro forma net loss for
    the nine months ended  September 30, 2002,  would have been $144.5  million,
    with basic and diluted loss per share of $1.44, if the provisions of FAS 143
    had been  applied as of January  1, 2002,  compared  with net income for the
    nine months ended  September 30, 2003, of $203 million before the cumulative
    effect of change in accounting  principle,  with basic and diluted  earnings
    per share of $2.02 and $1.98, 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                    Nine
                                                                         Months Ended             Months Ended
                                                                         September 30,            September 30,
    (Millions of dollars,                                              ----------------        -----------------
    except per share amounts)                                           2003      2002           2003       2002
    ------------------------------------- ----------------------------------------------------------------------
                                                                                             
    Net income (loss) as reported                                      $28.8    $(86.4)        $168.3    $(138.9)
      Less stock-based compensation expense
        determined using a fair-value method,
        net of taxes                                                    (4.0)     (4.0)         (12.1)     (11.0)
                                                                       -----    ------         ------    -------
    Pro forma net income (loss)                                        $24.8    $(90.4)        $156.2    $(149.9)
                                                                       =====    ======         ======    =======

    Net income (loss) per share -
      Basic -
        As reported                                                    $ .29    $ (.86)        $ 1.68    $ (1.38)
        Pro forma                                                        .25      (.90)          1.56      (1.49)

      Diluted -
        As reported                                                      .29      (.86)          1.67      (1.38)
        Pro forma                                                        .25      (.90)          1.56      (1.49)



    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 $356.5  million of goodwill or the $54 million
    of indefinite-lived intangible assets.


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

    In  January  2003,  the  FASB  issued  FASB  Interpretation  (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, as originally issued,  required consolidation by the primary beneficiary
    in the third  quarter  of 2003.  In  October  2003,  the FASB  deferred  the
    effective  date of FIN 46 to the  fourth  quarter.  In  accordance  with the
    provisions  of FIN  46,  the  company  believes  it  would  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.  The  company  is  required  to  make  lease  payments
    sufficient to pay interest on the  financing  over the term of the synthetic
    lease credit facility,  which terminates in November 2006. Completion of the
    Gunnison  platform is anticipated to occur in either  December 2003 or early
    2004.  The company is  currently  in  negotiations  to convert the  Gunnison
    synthetic  lease to an  operating  lease  agreement,  under which  different
    trusts will become the  lessor/owner of the platform and related  equipment.
    The new  agreements  are expected to close in December  2003 and/or  January
    2004; however, the ultimate closing date will be dependent on the completion
    of the platform and the timeliness of the negotiation  process and may occur
    sometime  thereafter.  If the  synthetic  lease is converted to an operating
    lease before year end, the company  believes  the variable  interest  entity
    lessor  will  not  be  subject  to  consolidation.   However,  the  ultimate
    accounting  treatment for the proposed  restructured  lease agreement or the
    lessor  trust  can not be  determined  until  the  significant  terms of the
    agreement are finalized.  If the synthetic lease is not replaced before year
    end, the financing  trust will be subject to  consolidation  at December 31,
    2003.  The company has  reviewed 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 believe that consolidation
    of these entities is required.

    Reclassifications
    -----------------

    Certain  reclassifications  have  been  made  to the  prior  year  financial
    statements  to conform  with the current year  presentation.  In the current
    year,  the company  began  recording in revenues  only the net marketing fee
    received from sales of non-equity  North Sea crude oil marketed on behalf of
    other  partners.  Prior to the third quarter of 2003,  the company  reported
    purchases and sales of non-equity  oil on a gross basis.  For the six months
    ended June 30,  2003,  $48.7  million has been  reclassified  from Costs and
    operating expenses to Sales in the Consolidated Statement of Operations. For
    the three and nine months ended September 30, 2002,  $19.6 million and $32.7
    million,  respectively,  have been  reclassified  from  Costs and  operating
    expenses to Sales in the Consolidated  Statement of Operations.  This change
    in reporting had no impact on operating profit or net income.

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  company  has
    continued to expand its hedging  program,  which now covers a portion of its
    expected  2004   production.   At  September  30,  2003,   the   outstanding
    commodity-related  derivatives  accounted  for as hedges had a net liability
    fair value of $48.6  million,  of which $1 million  was  recorded in current
    assets, $.7 million was recorded in non-current assets and $50.3 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 $28.3 million and
    $50.3 million in accumulated  other  comprehensive  income  associated  with
    these  contracts at September 30, 2003 and December 31, 2002,  respectively.
    The company  expects to  reclassify  deferred  losses of $27.8  million into
    earnings  during the next  twelve  months,  assuming  no further  changes in
    fair-market value of the contracts.

    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.  During the third quarter of 2003, the company  realized pretax
    losses on contract  settlements  of $13.4  million on domestic  oil hedging,
    $14.2 million on North Sea oil hedging and $30.9 million on domestic natural
    gas  hedging.  During the first nine months of 2003,  the  company  realized
    pretax  losses on contract  settlements  of $55.4  million on  domestic  oil
    hedging, $46.7 million on North Sea oil hedging and $123 million on domestic
    natural gas hedging.  During the third quarter of 2002, the company realized
    pre-tax losses on contract settlements of $11.4 million and $19.8 million on
    domestic and North Sea oil hedging, respectively, and pre-tax gains of $12.3
    million on  domestic  natural gas  hedging.  During the first nine months of
    2002, the company realized  pre-tax losses on contract  settlements of $17.3
    million  and  $32.2   million  on  domestic   and  North  Sea  oil  hedging,
    respectively,  and pre-tax  gains of $8.9  million on  domestic  natural gas
    hedging.  Hedge  ineffectiveness  is recognized in Sales in the Consolidated
    Statement of  Operations.  A gain of $1.8 million for hedge  ineffectiveness
    was  recognized in the 2003 third  quarter,  and losses of $1.9 million were
    recognized   in  the  first   nine   months  of  2003.   Losses   for  hedge
    ineffectiveness of $1.2 million and $1.3 million were recognized in the 2002
    third quarter and first nine months, respectively.

    As discussed in the company's  2002 Form 10-K,  the company is also party to
    other  commodity  contracts  associated  with its Rocky  Mountain  marketing
    activities  (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 September 30, 2003, the fair value of these
    contracts was $14.4 million.  Of this amount,  $15.4 million was recorded in
    current assets, $13.7 million in Investments and Other Assets, $11.5 million
    in current  liabilities,  and $3.2 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 $5.3 million for the three months ended September 30, 2003, of
    which  $1.5  million  was  recorded  as a gain in Sales in the  Consolidated
    Statement  of  Operations  and $6.8  million was recorded as a loss in Other
    Income.  The net loss  associated  with the  derivative  contracts was $21.5
    million for the nine months ended  September 30, 2003, of which $8.2 million
    loss was included in Sales in the Consolidated Statement of Operations and a
    $13.3  million loss was included in Other  Income.  The net gain  associated
    with the derivative  contracts  totaled $1.6 million in the third quarter of
    2002,  of which  $8.1  million  was  included  as a loss in Sales and a $9.7
    million was included as a gain in Other Income. For the first nine months of
    2002, the net loss  associated with the derivative  contracts  totaled $25.6
    million,  of which $18.9  million was included in Sales and $6.7 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,  and sales of Euro) 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,  raw  material
    purchases  and  operating  costs.  These forward  contracts  generally  have
    durations of less than three years.  At September 30, 2003, the  outstanding
    foreign  exchange  derivative  contracts  accounted  for as hedges had a net
    asset fair value of $12.1  million,  of which $11.6  million was recorded in
    current assets, $1.8 million in Investments and Other Assets, $.9 million in
    current  liabilities,  and $.4 million in deferred  credits.  Changes in the
    fair  value  of  these   contracts   are  recorded  in   accumulated   other
    comprehensive  income and will be  recognized  in  earnings  in the  periods
    during which the hedged forecasted  transactions affect earnings (i.e., when
    the  hedged  assets  are  depreciated  in the  case  of a hedge  of  capital
    expenditures,  when  finished  inventory is sold in the case of a hedged raw
    material  purchase  and when the  forward  contracts  close in the case of a
    hedge of  operating  costs).  At  September  30,  2003,  the  company had an
    after-tax  deferred gain of $8.3 million in accumulated other  comprehensive
    income related to these  contracts.  During the third quarter and first nine
    months of 2003,  the company  reclassified  $4.7 million and $9.7 million of
    gains on forward  contracts from accumulated other  comprehensive  income to
    operating expenses in the statement of operations. Of the existing net gains
    at September 30, 2003,  approximately $6.1 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  third
    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 September 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.  As  collection  agent,  the company  retains the risk of foreign
    currency  rate  changes  between  the  date of sale  and  collection  of the
    receivables.  Under  the terms of the asset  securitization  agreement,  the
    company is required  to enter into  forward  contracts  for the value of the
    Euro  denominated  receivables sold into the program to mitigate its foreign
    currency  risk.  Gains or losses on the  forward  contracts  are  recognized
    currently in earnings.  For the three and nine months  ended  September  30,
    2003, the company  recognized  losses of $1.3 million  associated with these
    contracts.

    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 an  imbedded  call  option on 85% of the
    shares). If Devon's stock price at maturity is greater than $33.19 per share
    but less than $39.16 per share,  the  company's  right to retain Devon stock
    will be reduced  proportionately.  The company is not entitled to retain any
    Devon stock if the price of Devon stock at maturity is less than or equal to
    $33.19 per share.  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 September 30, 2003, the fair values of the embedded put
    and call options were nil and $79.4 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 third quarter of 2003, the company
    recorded a gain of $45.3 million in Other Income for the changes in the fair
    values of the put and call  options,  compared  with a gain of $19.7 million
    during the third  quarter of 2002.  During the first nine months of 2003 and
    2002,  the  company  recorded  losses of $12.8  million  and $54.5  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 $406.5  million at September 30, 2003, and $387.2 million at
    December 31, 2002.  During the third  quarter of 2003 and 2002,  the company
    recorded unrealized losses of $44 million and $8.7 million, respectively, in
    Other Income for the changes in fair value of the Devon shares classified as
    trading. During the first nine months of 2003 and 2002, the company recorded
    unrealized  gains of $19.3 million and $81 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 DECS, the
    derivative  liability  associated  with the call option and the Devon shares
    have  been  classified  as  current  assets  or  current   liabilities,   as
    appropriate, in the Consolidated Balance Sheet as of September 30, 2003.

    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 $23.1  million and
    $20.6 million at September 30, 2003 and December 31, 2002, respectively. The
    company recognized a reduction in interest expense from the swap arrangement
    of $2.9  million  and  $8.4  million  in the  three  and nine  months  ended
    September 30, 2003,  respectively,  and $2.1 million and $3.9 million in the
    three and nine months ended September 30, 2002, respectively.

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 Discontibusiness  segment.  The company adopted FAS
    144  as  of  January  1,  2002,   and,  in  accordance  with  the  standard,
    Operatioclassified  certain asset disposal groups whose  operations and cash
    flows could be clearly  distinguished  from Asset 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  Asset  operations in Kazakhstan and of its
    interest  in  the  Bayu-Undan   project  in  the  East  Timor  Sea  offshore
    DisposalAustralia. 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  then-planned  disposals,  the related
    assets were evaluated and impairment losses were recorded 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.  Impairment losses on the Kazakhstan  operations of $1.4 million
    and $26.1  million  were  recorded  during the three and nine  months  ended
    September 30, 2002,  respectively,  and are reported as part of discontinued
    operations.

    On May 3,  2002,  the  company  completed  the sale of its  interest  in the
    Bayu-Undan project for $132.3 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 $72.5 million (excluding
    the contingent purchase price). On March 31, 2003, the company completed the
    sale of its Kazakhstan  operations for $168.6 million in cash. In connection
    with this sale,  the  company  recorded a  settlement  liability  due to the
    purchaser  for the net  cash  flow of the  Kazakhstan  operations  from  the
    effective  date of the  transaction  to the  closing  date.  The  settlement
    liability, which totaled $18.6 million, was 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 $4.6 million
    for the three months ended  September 30, 2003 and 2002,  respectively,  and
    $5.6 million and $29.8 million for the nine months ended  September 30, 2003
    and 2002, respectively. Pretax income (loss) for the discontinued operations
    was $(.3) million and $1.1 million  (including the  impairment  loss of $1.4
    million)  for  the  three  months  ended   September   30,  2003  and  2002,
    respectively,  and $.1 million and $103.5  million  (including  the gains on
    sale of $107.3  million and the  impairment  loss of $26.1  million) for the
    nine months ended September 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 have been identified for disposal and classified as
    held for sale.  Pretax asset  impairment  charges  related to certain assets
    held for sale in the U.S.  onshore,  Gulf of Mexico shelf and U.K. North Sea
    regions  totaled $11.5 million and $20 million  during the third quarter and
    first nine months of 2003,  respectively.  The impairment  charges on assets
    held for sale for the  three  and nine  months  ended  September  30,  2002,
    totaled $6.7 million and $153.3 million,  respectively.  For the nine months
    ended  September 30, 2002,  the $153.3 million of asset  impairment  charges
    included $83 million related to certain domestic  properties,  $65.6 million
    related to certain North Sea  properties  and $4.7 million for properties in
    Ecuador.  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.  Impairment losses
    on properties  held for sale are subject to revision in future periods based
    on final negotiated sales prices and normal post-closing adjustments.

    Pretax  impairment  losses totaling $6.8 million and $11.9 million were also
    recognized  during  the three and nine  months  ended  September  30,  2003,
    respectively,  for  certain  mature  oil and  gas  properties  that  are not
    considered  held for sale. For the three and nine months ended September 30,
    2002,  pretax  impairment  losses  totaled $17.3 million and $28.2  million,
    respectively,  on assets  not  considered  held for sale.  These  impairment
    losses  were  related to  properties  located in the U.S.  onshore,  Gulf of
    Mexico  shelf and North  Sea  regions  that  were  deemed  impaired  because
    expectations  of future cash flows were less than the carrying  value of the
    related assets.

    During the third quarter of 2003, the company  recognized a gain on disposal
    of oil and gas  properties of $22.7 million,  primarily  related to property
    disposals  in China and the Gulf of Mexico  shelf  region,  as well as final
    closing of North Sea divestitures. These gains are included with total asset
    impairment  charges  of  $18.3  million  in the  Consolidated  Statement  of
    Operations.  The  company  recognized  a net gain on disposal of oil and gas
    properties of $36.9 million  during the first nine months of 2003,  which is
    included  with  total  asset  impairment  charges  of $31.9  million  in the
    Consolidated  Statement  of  Operations.  No gain on disposal of oil and gas
    properties  was  recognized  in the first nine  months of 2002.  The company
    expects to complete the divestiture of its remaining held-for-sale assets in
    the fourth  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:

                                                           Nine Months Ended
                                                             September 30,
                                                       -------------------------
    (Millions of dollars)                                2003              2002
    ----------------------------------------------------------------------------

    Income tax payments                                $ 92.8           $  69.3
    Less refunds received                               (46.5)           (264.3)
                                                       ------           -------
    Net income tax payments (refunds)                  $ 46.3           $(195.0)
                                                       ======           =======

    Interest payments                                  $198.7           $ 217.0
                                                       ======           =======

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

                                                               Nine Months Ended
                                                                 September 30,
                                                               -----------------
    (Millions of dollars)                                         2003      2002
    ----------------------------------------------------------------------------

     Unrealized gain on trading securities                      $(19.3)  $(81.0)
     Litigation reserve provisions                                 6.5     72.0
     Increase in fair value of embedded options in the DECS       12.8     54.5
     Other employee benefits                                      39.4     33.8
     Loss from equity affiliates                                  23.7     20.5
     Postretirement liability accrual, including curtailment
       charges                                                    24.1     15.7
     Periodic pension credit for qualified plan, net of
       curtailment charges                                        (6.0)   (37.1)
     All other (1)                                                42.6     21.1
                                                                ------   ------
        Total                                                   $123.8   $ 99.5
                                                                ======   ======

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


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

                                                           Nine Months Ended
                                                             September 30,
                                                        ------------------------
    (Millions of dollars)                                2003             2002
    ----------------------------------------------------------------------------

    Changes in working capital accounts                 $ 18.8           $204.4
    Environmental expenditures                           (61.8)           (77.0)
    Cash abandonment expenditures - exploration
      and production                                     (13.2)           (37.0)
    All other (1)                                        (28.3)           (22.1)
                                                        ------           ------
        Total                                           $(84.5)          $ 68.3
                                                        ======           ======

    (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 nine months ended  September
    30, 2003 and 2002, is as follows:


                                                                         Three Months              Nine Months
                                                                            Ended                     Ended
                                                                         September 30,             September 30,
                                                                      -----------------        ------------------
    (Millions of dollars)                                              2003       2002          2003        2002
    -------------------------------------------------------------------------------------------------------------

                                                                                              
    Net income (loss)                                                 $28.8     $ (86.4)       $168.3     $(138.9)
    Unrealized gains (losses) on securities                            (5.1)       (1.2)          2.3        29.7
    Change in fair value of cash flow hedges                           51.9       (32.0)         38.2       (57.1)
    Foreign currency translation adjustment                             3.6        (1.0)         31.6         9.4
    Other                                                                 -           -           0.8           -
                                                                      -----     -------        ------    --------
      Comprehensive income (loss)                                     $79.2     $(120.6)       $241.2     $(156.9)
                                                                      =====     =======        ======     =======


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


                                                 September 30, 2003                      December 31, 2002
                                          --------------------------------        -------------------------------
                                                                     Gross                                  Gross
                                                                Unrealized                             Unrealized
                                           Fair                    Holding         Fair                   Holding
    (Millions of dollars)                 Value       Cost            Gain        Value      Cost            Gain
    -------------------------------------------------------------------------------------------------------------
                                                                                           
    Equity securities                      $73.2      $31.9          $13.3 (1)    $69.7     $31.9            $9.8 (1)
    U.S. government obligations -
      Maturing within one year               3.9        3.9              -          2.4       2.4               -
      Maturing between one year
        and four years                         -          -              -          1.6       1.6               -
                                                                     -----                                   ----
          Total                                                      $13.3                                   $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  $119.9 million at September 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  $10.9 million and $4.8 million for the three months
    ended September 30, 2003 and 2002,  respectively.  For the first nine months
    of 2003, the loss in equity affiliates totaled $23.7 million,  compared with
    $20.5 million for the same 2002 period.


G.  Workforce Reduction

    In  September  2003,  the  company  announced  a program  to reduce its U.S.
    nonbargaining  workforce by 7% to 9%, or 200 to 250  employees.  The program
    consists of both voluntary early  retirements and involuntary  terminations.
    Qualifying  employees whose employment is terminated in connection with this
    program will be given  enhanced  benefits  under the  company's  pension and
    postretirement plans, along with severance payments. The program is expected
    to be completed by the end of 2003, with certain retiring  employees staying
    into 2004 for transition purposes.

    The  company  has   estimated   the  total  cost  of  the  program  will  be
    approximately  $40 million  after-tax.  Offers of voluntary early retirement
    have been made to 260 employees with  acceptances  due by November 20, 2003.
    Based on similar voluntary programs in the past, the company  anticipates an
    acceptance rate of approximately 75% resulting in a probable curtailment (as
    defined  in  FAS  88)  of  the   company's   qualified   pension   plan  and
    postretirement  plan.  Based on the assumed  acceptance  rate and  actuarial
    calculations,  the company recognized a pretax curtailment  expense of $16.7
    million in the third  quarter of 2003 for the voluntary  early  retirements.
    Other costs for special  termination  benefits within the retirement  plans,
    severance  payments and  outplacement  expenses  will be  recognized  in the
    fourth quarter of 2003 or during 2004, as appropriate.

H.  Restructuring Provisions and Exit Activities

    The company  closed its synthetic  rutile plant in Mobile,  Alabama,  during
    June 2003.  During the third  quarter  and first  nine  months of 2003,  the
    company's  chemical - pigment  operating unit provided nil 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, $7.4 million has been
    paid through the 2003 third quarter and $3.1 million remained in the accrual
    at September  30, 2003.  Approximately  140  employees  will  ultimately  be
    terminated  in  connection  with this plant  closure,  of which 110 had been
    terminated  as of September  30, 2003.  Additionally,  during the first nine
    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,  $8.2  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 $2.3 million was  recorded in the third  quarter of 2002
    and $3 million was recorded during the first nine months of 2002. During the
    first nine months of 2003, the company  provided an additional  $5.4 million
    associated with exiting the forest products business.  Included in the total
    provision of $21.9 million were $15.6 million for  dismantlement and closure
    costs,  and $6.3 million for severance  costs.  These costs are reflected in
    costs and operating expenses in the Consolidated Statement of Operations. Of
    the total accrual, $4.8 million has been paid through the 2003 third quarter
    and $17.1  million  remained  in the  accrual  at  September  30,  2003.  In
    connection  with the plant  closures,  252 employees will be terminated,  of
    which 95 were terminated as of September 30, 2003. Additionally,  during the
    first  nine  months  of  2003,  the  company  recognized  $8.1  million  for
    curtailment costs related to pension and postretirement  benefits,  and $2.2
    million in accelerated depreciation on plant assets.

    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,  $27 million
    has been paid through the 2003 third  quarter and $7.8  million  remained in
    the accrual at September  30, 2003. As a result of this plant  closure,  121
    employees have been terminated as of September 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 third quarter and $1.4 million remained in the accrual
    at September 30, 2003, for pond closure costs.

    The provisions, payments, adjustments and restructuring reserve balances for
    the  nine-month  period ended  September 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                          15.9         15.9                   -
      Payments                           (14.2)        (8.3)               (5.9)
      Adjustments (1)                      1.1           .4                  .7
                                         -----        -----               -----
    September 30, 2003                   $29.4        $11.8               $17.6
                                         =====        =====               =====

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

I.  Debt

    As of September 30, 2003, long-term debt due within one year consists of the
    following.


                                                                   September 30,
    (Millions of dollars)                                              2003
    ----------------------------------------------------------------------------

    5-1/2% Exchangeable Notes (DECS) due August 2, 2004, net
      of unamortized discount of $6.5 million                             $323.8
    8.375% Notes due July 15, 2004                                         145.0
    8% Notes due October 15, 2003                                          100.0
    Floating rate notes due June 28, 2004                                  100.0
    Guaranteed Debt of Employee Stock Ownership Plan 9.61% Notes
      due in installments through January 2, 2005                            3.5
                                                                          ------
        Total                                                             $672.3
                                                                          ======

J.  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
    nine-month periods ended September 30, 2003 and 2002.



                                                    For the Three Months Ended September 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                          $29.1       100.1        $ .29            $(86.8)       100.4        $(.86)
                                                                =====                                       =====
      Effect of dilutive securities:
        Restricted stock                   -          .7                              -            -
        Stock options                      -          .1                              -            -
                                        ----       -----                         ------        -----
    Diluted EPS                        $29.1       100.9        $ .29            $(86.8)       100.4        $(.86)
                                       =====       =====        =====            ======        =====        =====





                                                         For the Nine Months Ended September 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                         $203.1       100.1        $2.02           $(266.2)       100.3       $(2.65)
                                                                =====                                      ======
      Effect of dilutive securities:
       5 1/4% convertible
        debentures                      16.0         9.8                              -            -
       Restricted stock                    -          .7                              -            -
       Stock options                       -          .1                              -            -
                                      ------       -----                        -------        -----
    Diluted EPS                       $219.1       110.7        $1.98           $(266.2)       100.3       $(2.65)
                                      ======       =====        =====           =======        =====       ======


K.  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.  On July 30, 2003, the company  restructured the existing  accounts
    receivable   monetization   program  to  include  the  sale  of  receivables
    originated  by the  company's  European  chemical  operations.  The  maximum
    availability  under the new program is $168  million.  In addition,  certain
    other terms of the program have been modified as part of the  restructuring.
    Under  the  terms of the  program,  selected  qualifying  customer  accounts
    receivable may be sold monthly to a special-purpose  entity (SPE),  which in
    turn  sells  an  undivided  ownership  interest  in  the  receivables  to  a
    third-party   multi-seller   commercial   paper  conduit   sponsored  by  an
    independent  financial  institution.  The  company  sells,  and  retains  an
    interest in, excess receivables to the SPE as over-collateralization for the
    program.  The  company's  retained  interest  in the  SPE's  receivables  is
    classified in trade  accounts  receivable in the  accompanying  Consolidated
    Balance Sheet. The retained  interest is subordinate to, and provides credit
    enhancement for, the conduit's  ownership interest in the SPE's receivables,
    and is  available  to the conduit to pay certain fees or expenses due to the
    conduit,  and  to  absorb  credit  losses  incurred  on  any  of  the  SPE's
    receivables in the event of termination.  However, the company believes that
    the risk of  credit  loss is very low  since  its  bad-debt  experience  has
    historically   been    insignificant.    The   company   retains   servicing
    responsibilities  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 no obligations for
    any  recourse  actions  on the sold  receivables.  The  company  also  holds
    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  $287.6   million  and  $199.2  million  of  its  pigment
    receivables  during the third  quarter of 2003 and 2002,  respectively.  The
    sale of the  receivables  resulted in pretax losses of $1.3 million and $1.2
    million during the third quarter of 2003 and 2002, respectively. The company
    sold $600.1 million and $485.1 million of its pigment receivables during the
    first  nine  months  of  2003  and  2002,  respectively.  The  sale  of  the
    receivables  resulted  in pretax  losses of $3.4  million  and $3.5  million
    during the first nine 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, net of
    the    company's    retained    interest   in    receivables    serving   as
    over-collateralization,  totaled  $157.9  million at September 30, 2003, and
    $110.6 million at December 31, 2002.

L.  Income Taxes

    The reported amount of income tax expense attributable to income (loss) from
    continuing  operations  for the first nine  months of 2003 and 2002  differs
    from the amount that would be  computed  using the U.S.  Federal  income tax
    rate. The primary reasons for the differences and related tax effects are as
    follows:

                                                           Nine Months Ended
                                                             September 30,
                                                        ------------------------
    (Millions of dollars)                                 2003             2002
    ----------------------------------------------------------------------------

    U.S. statutory provision (benefit) - 35%            $119.4           $(29.8)
      U.K. tax rate change                                   -            146.4
      Reversal of deferred tax asset associated
        with U.K. properties held for sale                   -             51.6
      U.K. petroleum revenue tax                          12.1             19.5
      All other                                            6.5             (6.5)
                                                        ------           ------
         Provision for income taxes                     $138.0           $181.2
                                                        ======           ======


    On July 24, 2002, the United Kingdom  government made certain changes to its
    existing tax laws. Under one of these changes, companies are now required to
    pay a  supplementary  corporate tax charge of 10% on profits from their U.K.
    oil and gas production.  This is in addition to the previously  required 30%
    corporate tax on these profits.  The U.K.  government  also  accelerated tax
    depreciation  for  capital  investments  in  U.K.  upstream  activities  and
    abolished  North  Sea  royalty.  The  catch-up  adjustment  for the tax rate
    changes  increased the company's 2002  third-quarter  provision for deferred
    income taxes by $137.6  million and the current  provision on operations for
    the first two quarters of 2002 by $8.8 million.


M.  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
    September 30, 2003 and December 31, 2002,  and its  predecessor,  Kerr-McGee
    Operating  Corporation,  at September 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 September 30, 2003


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

                                                                                                      
Sales                                               $    -           $180.6           $819.1          $  6.4         $1,006.1
                                                    ------           ------           ------          ------         --------
Costs and Expenses
  Costs and operating expenses                           -             94.8            307.9             7.2            409.9
  Selling, general and administrative expenses           -              2.4             95.9               -             98.3
  Shipping and handling expenses                         -              2.1             32.3               -             34.4
  Depreciation and depletion                             -             30.7            149.9               -            180.6
  Accretion expense                                      -               .6              5.7               -              6.3
  Asset impairments, net of gains on disposal of
    assets held for sale                                 -              (.3)            (4.1)              -             (4.4)
  Exploration, including dry holes and
    amortization of undeveloped leases                   -              5.0             74.8               -             79.8
  Taxes, other than income taxes                         -              7.9             15.6               -             23.5
  Provision for environmental remediation
    and restoration, net of reimbursements               -             28.6             18.6               -             47.2
  Interest and debt expense                           29.3              9.4             65.1           (41.0)            62.8
                                                    ------           ------           ------          ------         --------
      Total Costs and Expenses                        29.3            181.2            761.7           (33.8)           938.4
                                                    ------           ------           ------          ------         --------

                                                     (29.3)             (.6)            57.4            40.2             67.7
Other Income (Expense)                                79.2            (17.5)            11.4           (90.6)           (17.5)
                                                    ------           ------           ------          ------         --------
Income (Loss) before Income Taxes                     49.9            (18.1)            68.8           (50.4)            50.2
Benefit (Provision) for Income Taxes                 (21.1)             7.8            (28.9)           21.1            (21.1)
                                                    ------           ------           ------          ------         --------
Income (Loss) from Continuing Operations              28.8            (10.3)            39.9           (29.3)            29.1
Loss from Discontinued Operations,
   net of tax                                            -                -              (.3)              -              (.3)
                                                    ------           ------           ------          ------         --------
Net Income (Loss)                                   $ 28.8           $(10.3)          $ 39.6          $(29.3)        $   28.8
                                                    ======           ======           ======          ======         ========



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


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

                                                                                                       
Sales                                              $     -           $ 83.5          $ 881.3         $     -          $ 964.8
                                                   -------           ------          -------         -------          -------
Costs and Expenses
  Costs and operating expenses                           -             26.1            357.5               -            383.6
  Selling, general and administrative expenses           -              1.5             59.5               -             61.0
  Shipping and handling expenses                         -              1.3             30.8               -             32.1
  Depreciation and depletion                             -             29.0            164.7               -            193.7
  Asset impairments                                      -              (.1)            24.1               -             24.0
  Exploration, including dry holes and
    amortization of undeveloped leases                   -              2.2             68.0               -             70.2
  Taxes, other than income taxes                         -              4.1             24.7               -             28.8
  Provision for environmental remediation
    and restoration, net of reimbursements               -                -            (20.0)              -            (20.0)
  Interest and debt expense                           29.0              9.5             80.0           (50.1)            68.4
                                                   -------           ------          -------         -------          -------
       Total Costs and Expenses                       29.0             73.6            789.3           (50.1)           841.8
                                                   -------           ------          -------         -------          -------

                                                     (29.0)             9.9             92.0            50.1            123.0
Other Income (Expense)                               138.9             12.0              7.3          (172.3)           (14.1)
                                                   -------           ------          -------         -------          -------
Income before Income Taxes                           109.9             21.9             99.3          (122.2)           108.9
Provision for Income Taxes                          (196.3)            (9.0)          (192.5)          202.1           (195.7)
                                                   -------           ------          -------         -------          -------
Income (Loss) from Continuing Operations             (86.4)            12.9            (93.2)           79.9            (86.8)
Income from Discontinued Operations,
  net of tax                                             -                -               .4               -               .4
                                                   -------           ------          -------         -------          -------
   Net Income (Loss)                               $ (86.4)          $ 12.9          $ (92.8)        $  79.9          $ (86.4)
                                                   =======           ======          =======         =======          =======




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

                                                                                        Non-
                                                Kerr-McGee        Guarantor        Guarantor
(Millions of dollars)                          Corporation     Subsidiaries     Subsidiaries    Eliminations     Consolidated
-----------------------------------------------------------------------------------------------------------------------------
                                                                                                      
Sales                                              $     -           $503.7         $2,654.6         $     -         $3,158.3
                                                   -------           ------         --------         -------         --------

Costs and Expenses
  Costs and operating expenses                           -            248.4            985.0               -          1,233.4
  Selling, general and administrative expenses           -             12.5            235.8               -            248.3
  Shipping and handling expenses                         -              6.8             94.6               -            101.4
  Depreciation and depletion                             -             91.0            472.2               -            563.2
  Accretion expense                                      -              1.8             17.0               -             18.8
  Asset impairments, net of gains on disposal of
    assets held for sale                                 -              1.4             (6.4)              -             (5.0)
  Exploration, including dry holes and
    amortization of undeveloped leases                   -             11.8            275.1               -            286.9
  Taxes, other than income taxes                        .2             16.6             53.1               -             69.9
  Provision for environmental remediation
    and restoration, net of reimbursements               -             34.4             32.0               -             66.4
  Interest and debt expense                           87.0             26.0            208.0          (129.8)           191.2
                                                   -------           ------         --------         -------         --------
      Total Costs and Expenses                        87.2            450.7          2,366.4          (129.8)         2,774.5
                                                   -------           ------         --------         -------         --------

                                                     (87.2)            53.0            288.2           129.8            383.8
Other Income (Expense)                               375.5            (42.7)            56.0          (431.5)           (42.7)
                                                   -------           ------         --------         -------         --------
Income before Income Taxes                           288.3             10.3            344.2          (301.7)           341.1
Benefit (Provision) for Income Taxes                (120.0)             5.0           (136.0)          113.0           (138.0)
                                                   -------           ------         --------         -------         --------
Income from Continuing Operations                    168.3             15.3            208.2          (188.7)           203.1
Income (Loss) from Discontinued Operations,
  net of tax                                             -             12.4            (12.5)              -              (.1)
Cumulative Effect of Change in Accounting
  Principle, net of tax                                  -             (1.3)           (33.4)              -            (34.7)
                                                   -------           ------         --------         -------         --------
Net Income                                         $ 168.3           $ 26.4         $  162.3         $(188.7)        $  168.3
                                                   =======           ======         ========         =======         ========



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

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

                                                                                                      
Sales                                              $     -           $243.6         $2,438.6         $     -         $2,682.2
                                                   -------           ------         --------         -------         --------
Costs and Expenses
  Costs and operating expenses                           -             73.8          1,023.0               -          1,096.8
  Selling, general and administrative expenses           -              3.1            235.0               -            238.1
  Shipping and handling expenses                         -              3.9             82.4               -             86.3
  Depreciation and depletion                             -             90.3            511.8               -            602.1
  Asset impairments                                      -              3.1            178.4               -            181.5
  Exploration, including dry holes and
    amortization of undeveloped leases                   -              7.4            141.5               -            148.9
  Taxes, other than income taxes                        .1             11.4             71.9               -             83.4
  Provision for environmental remediation
    and restoration, net of reimbursements               -                -             70.4               -             70.4
  Interest and debt expense                           84.1             27.0            247.7          (151.1)           207.7
                                                   -------           ------         --------         -------         --------
      Total Costs and Expenses                        84.2            220.0          2,562.1          (151.1)         2,715.2
                                                   -------           ------         --------         -------         --------

                                                     (84.2)            23.6           (123.5)          151.1            (33.0)
Other Income (Expense)                               102.6             19.9             48.9          (223.4)           (52.0)
                                                   -------           ------         --------         -------         --------
Income (Loss) before Income Taxes                     18.4             43.5            (74.6)          (72.3)           (85.0)
Provision for Income Taxes                          (157.3)           (21.5)          (185.0)          182.6           (181.2)
                                                   -------           ------         --------         -------         --------
Income (Loss) from Continuing Operations            (138.9)            22.0           (259.6)          110.3           (266.2)
Income from Discontinued Operations,
  net of tax                                             -                -            127.3               -            127.3
                                                   -------           ------         --------         -------         --------
Net Income (Loss)                                  $(138.9)           $22.0         $ (132.3)        $ 110.3         $ (138.9)
                                                   =======           ======         ========         =======         ========




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


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

                                                                                                      
ASSETS
------
Current Assets
  Cash                                            $    1.5         $      -         $  193.4       $       -         $  194.9
  Intercompany receivables                           791.2            (31.5)         1,385.2        (2,144.9)               -
  Accounts receivable                                    -             97.9            411.8               -            509.7
  Inventories                                            -              5.2            370.4               -            375.6
  Deposits, prepaid expenses and other assets            -             19.7            565.0               -            584.7
  Current assets associated with properties
    held for disposal                                    -                -               .6               -               .6
                                                  --------         --------         --------       ---------         --------
      Total Current Assets                           792.7             91.3          2,926.4        (2,144.9)         1,665.5

Property, Plant and Equipment, net                       -          1,973.6          5,305.2               -          7,278.8
Investments and Other Assets                          10.6             93.3            473.2             1.6            578.7
Goodwill                                                 -            346.4             10.1               -            356.5
Long-Term Assets Associated with Properties
  Held for Disposal                                      -                -             36.2               -             36.2
Investments in and Advances to Subsidiaries        3,960.2            442.7             45.9        (4,448.8)               -
                                                  --------         --------         --------       ---------         --------
     Total Assets                                 $4,763.5         $2,947.3         $8,797.0       $(6,592.1)        $9,915.7
                                                  ========         ========         ========       =========         ========

LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
Current Liabilities
  Accounts payable                                $   45.4         $   62.0         $  546.5       $       -         $  653.9
  Intercompany borrowings                             68.9            538.6          1,450.1        (2,057.6)               -
  Long-Term debt due within one year                     -                -            672.3               -            672.3
  Other current liabilities                           (4.0)           130.2            553.3            20.7            700.2
  Current liabilities associated with
    properties held for disposal                         -                -               .3               -               .3
                                                  --------         --------         --------       ---------         --------
     Total Current Liabilities                       110.3            730.8          3,222.5        (2,036.9)         2,026.7

Long-Term Debt                                     1,847.3                -          1,200.9               -          3,048.2

Other Deferred Credits and Reserves                      -            752.2          1,431.6           (20.7)         2,163.1
Long-Term Liabilities Associated with
  Properties Held for Disposal                           -                -             19.1               -             19.1
Investments by and Advances from Parent                  -                -            579.3          (579.3)               -
Stockholders' Equity                               2,805.9          1,464.3          2,343.6        (3,955.2)         2,658.6
                                                  --------         --------         --------       ---------         --------
     Total Liabilities and Stockholders' Equity   $4,763.5         $2,947.3         $8,797.0       $(6,592.1)        $9,915.7
                                                  ========         ========         ========       =========         ========





                     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 Nine Months Ended September 30, 2003



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

                                                                                                      
Operating Activities
--------------------
Net income                                         $ 168.3          $  26.4         $  162.3         $(188.7)        $  168.3
Adjustments to reconcile net income to net
  cash provided by (used in) operating
  activities -
    Depreciation, depletion and amortization             -             94.5            522.6               -            617.1
    Accretion expense                                    -              1.8             17.0               -             18.8
    Asset impairments, net of gains on
      disposal of assets held for sale                   -                -              1.2               -              1.2
    Equity in (earnings) losses of subsidiaries     (188.3)            38.9                -           149.4                -
    Dry hole costs                                       -                -            162.7               -            162.7
    Deferred income taxes                                -             54.2             31.6               -             85.8
    Provision for environmental remediation
      and restoration, net of reimbursements             -             34.4             31.9               -             66.3
    (Gain) loss on sale and retirement of
      assets                                             -            (12.0)             9.9               -             (2.1)
    Cumulative effect of change in accounting
      principle                                          -              1.3             33.4               -             34.7
    Noncash items affecting net income                 1.3             39.9             82.6               -            123.8
    Other net cash used in operating activities      (36.2)          (135.6)            87.3               -            (84.5)
                                                   -------          -------         --------         -------         --------
      Net Cash Provided by (Used in)
        Operating Activities                         (54.9)           143.8          1,142.5           (39.3)         1,192.1
                                                   -------          -------         --------         -------         --------
Investing Activities
--------------------
Capital expenditures                                     -            (91.6)          (657.8)              -           (749.4)
Dry hole costs                                           -                -           (162.7)              -           (162.7)
Proceeds from sales of assets                            -              7.1            251.5               -            258.6
Acquisitions                                             -                -            (69.6)              -            (69.6)
Other investing activities                               -                -            (36.6)              -            (36.6)
                                                   -------          -------         --------         -------         --------
      Net Cash Used in Investing Activities              -            (84.5)          (675.2)              -           (759.7)
                                                   -------          -------         --------         -------         --------

Financing Activities
--------------------
Issuance of long-term debt                               -                -             31.5               -             31.5
Repayment of long-term debt                              -                -           (225.0)              -           (225.0)
Increase (decrease) in intercompany
  notes payable                                      189.8            (59.3)          (130.2)            (.3)               -
Dividends paid                                      (135.9)               -            (40.9)           40.9           (135.9)
Other financing activities                               -                -               .7            (1.3)             (.6)
                                                   -------          -------         --------         -------         --------
      Net Cash Provided by (Used in)
        Financing Activities                          53.9            (59.3)          (363.9)           39.3           (330.0)
                                                   -------          -------         --------         -------         --------

Effects of Exchange Rate Changes on Cash
   and Cash Equivalents                                  -                -              2.6               -              2.6
                                                   -------          -------         --------         -------         --------
Net Increase (Decrease) in Cash and Cash
   Equivalents                                        (1.0)               -            106.0               -            105.0
Cash and Cash Equivalents at Beginning of
   Period                                              2.5                -             87.4               -             89.9
                                                   -------          -------         --------         -------         --------
Cash and Cash Equivalents at End of Period         $   1.5          $     -         $  193.4         $     -         $  194.9
                                                   =======          =======         ========         =======         ========





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


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

                                                                                                     
Operating Activities
--------------------
Net income (loss)                                  $(138.9)          $ 22.0        $  (132.3)        $ 110.3        $  (138.9)
Adjustments to reconcile net income (loss) to
  net cash provided by (used in) operating
  activities -
    Depreciation, depletion and amortization             -             92.5            564.3               -            656.8
    Asset impairments                                    -                -            207.6               -            207.6
    Equity in (earnings) losses of                   121.4            (11.1)               -          (110.3)               -
      subsidiaries
    Dry hole costs                                       -               .1             48.7               -             48.8
    Deferred income taxes                                -             (7.7)           134.0               -            126.3
    Provision for environmental remediation
      and restoration, net of reimbursements             -                -             80.0               -             80.0
    (Gain) loss on divestiture of discontinued
      operations                                         -               .4           (109.0)              -           (108.6)
    Loss on sale and retirement of assets                -                -              2.7               -              2.7
     Noncash items affecting net income or loss         .1              8.3             91.1               -             99.5
     Other net cash provided by (used in)
      operating activities                           (36.5)            14.5             90.3               -             68.3
                                                   -------           ------        ---------         -------        ---------
        Net Cash Provided by (Used in)
          Operating Activities                       (53.9)           119.0            977.4               -          1,042.5
                                                   -------           ------        ---------         -------        ---------

Investing Activities
--------------------
Capital expenditures                                     -           (120.4)          (765.8)              -           (886.2)
Dry hole costs                                           -              (.1)           (48.7)              -            (48.8)
Proceeds from sales of assets                            -             52.3            411.6               -            463.9
Acquisitions                                             -                -            (23.8)              -            (23.8)
Other investing activities                               -                -            (43.1)              -            (43.1)
                                                   -------           ------        ---------         -------        ---------
        Net Cash Used in Investing Activities            -            (68.2)          (469.8)              -           (538.0)
                                                   -------           ------        ---------         -------        ---------

Financing Activities
--------------------
Issuance of long-term debt                           350.0                -            433.0               -            783.0
Repayment of long-term debt                              -                -         (1,092.4)              -         (1,092.4)
Increase (decrease) in short-term borrowings        (165.7)           (63.6)           221.1               -             (8.2)
Issuance of common stock                               5.0                -               .4               -              5.4
Dividends paid                                      (135.4)               -                -               -           (135.4)
Other financing activities                               -             11.7            (11.7)              -                -
                                                   -------           ------        ---------         -------        ---------
        Net Cash Provided by (Used in)
          Financing Activities                        53.9            (51.9)          (449.6)              -           (447.6)
                                                   -------           ------        ---------         -------        ---------

Effects of Exchange Rate Changes on Cash
   and Cash Equivalents                                  -                -             (5.9)              -             (5.9)
                                                   -------           ------        ---------         -------        ---------
Net Increase (Decrease) in Cash and Cash
   Equivalents                                           -             (1.1)            52.1               -             51.0
Cash and Cash Equivalents at Beginning of
   Period                                                -              1.1             90.2               -             91.3
                                                   -------           ------        ---------         -------        ---------
Cash and Cash Equivalents at End of Period         $     -           $    -        $   142.3         $     -        $   142.3
                                                   =======           ======        =========         =======        =========



N.  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, except for
    areas  designated  for use in  connection  with the Kress  Creek and  Sewage
    Treatment Plant remediation  discussed below. 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  reached  an  agreement  in  principle   with  the
    appropriate  federal and state agencies and local communities  regarding the
    characterization  and  cleanup  of the  sites,  past and  future  government
    response  costs,  and the  waiver of natural  resource  damage  claims.  The
    agreement in principle is expected to be  incorporated  in a consent decree,
    which must be agreed to by the  appropriate  federal and state  agencies and
    local  communities  and then entered by a federal  court.  Court approval is
    expected   in  2004.   Chemical   has   already   conducted   an   extensive
    characterization  of the two sites and, at the  request of EPA,  Chemical is
    conducting  limited  additional  characterization  that  is  expected  to be
    completed in 2004.  The cleanup  work,  which is expected to take about four
    years to  complete  following  entry of the  consent  decree,  will  require
    excavation of contaminated soils and stream sediments, shipment of excavated
    materials to a licensed disposal facility and restoration of affected areas.

    Financial  Reserves - As of September  30, 2003,  the company had  remaining
    reserves of $107 million for costs  related to West  Chicago.  This includes
    $19 million  added to the reserve in the third quarter of 2003 because of an
    increase in soil  volumes  experienced  at the Closed  Facility,  which will
    result in  additional  excavation,  handling and  disposal  costs as well as
    extended oversight.  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  September 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 September  30, 2003,  the  government's  share of costs
    incurred by Chemical but not yet reimbursed by the DOE totaled approximately
    $105 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.  In June  2003,  construction  began  on the
    alternate  long-term  system.  It is  anticipated  that this  system will be
    operational  in early 2004.  The  interim  system was  enhanced  and will be
    utilized  until the  successful  commissioning  of the  alternate  long-term
    system. The scope and duration of groundwater  remediation will be driven in
    the long  term by  drinking  water  standards,  which to date  have not been
    formally  established by state or federal  regulatory  authorities.  EPA and
    other federal and state  agencies  currently are  evaluating  the health and
    environmental  risks  associated with perchlorate as part of the process for
    ultimately setting a drinking water standard. The resolution of these issues
    could  materially  affect  the  scope,  duration  and cost of the  long-term
    groundwater remediation that Chemical is required to perform.

    Financial Reserves - The company's  remaining reserves for Henderson totaled
    $34 million as of September 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,  exercised  significant  control over production at the plant and
    the sale of products  produced at the plant, 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 September 30, 2003, Chemical has incurred  expenditures of about $48
    million that it believes can be applied to the self-insured  retention.  The
    company believes that the remaining  reserve of $34 million at September 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  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 September 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. Follow-up characterization and verification work conducted
    this year have  identified  additional  volumes of  residuals  that  require
    removal and disposal.

    As of September 30, 2003, the company had remaining  reserves of $30 million
    for the costs of the ongoing remediation and decommissioning  work described
    above.  This  includes $17 million added to the reserve in the third quarter
    of 2003 as a  result  of the  increase  in  uranium  and  thorium  residuals
    experienced at the site, which will require  excavation,  transportation and
    disposal, as well as additional  characterization of petroleum hydrocarbons,
    and  extended  support  costs.  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.

    Other Sites

    In addition to the sites  described  above,  the company is responsible  for
    environmental  costs related to certain  other sites.  These sites relate to
    wood-treating,   chemical  production,   landfills,   mining,  oil  and  gas
    production,  and  petroleum  refining,  distribution  and  marketing.  As of
    September 30, 2003,  the company had remaining  reserves of $107 million for
    the environmental  costs incurred in connection with these other sites. This
    includes  $16 million  added to the  reserves  in the third  quarter of 2003
    primarily because additional remediation, characterization and/or monitoring
    costs were identified for certain of these sites.

    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 settlement  agreements require Chemical to pay up to $65 million for the
    benefit of about 10,500  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.  This appeal was
    dismissed as premature by the court of appeals on September 4, 2003.

    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.  Of
    approximately  1,100  identified  claimants in  Pennsylvania,  approximately
    1,050  claimants  have  delivered  releases.  Through  September  30,  2003,
    Chemical  had paid  approximately  $52 million  pursuant  to the  settlement
    agreements to Mississippi and Louisiana claimants who signed releases,  and,
    on October 6, 2003, Chemical paid an additional $8.3 million to Pennsylvania
    claimants who signed  releases.  No payments will be made to the Mississippi
    class  settlement fund unless and until all objections to the settlement are
    finally  resolved and the approval of the  settlement  is  established  by a
    final, non-appealable order.

    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 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.  Upon the
    October  6, 2003  payment to  Pennsylvania  claimants  who signed  releases,
    Chemical  had paid  approximately  $60 million  pursuant  to the  settlement
    agreements, leaving remaining reserves for the forest products litigation of
    $10 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 Forrest 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 on June
    13, 2003, in the Chancery Court of Forrest 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.

    By the end of the third  quarter,  approximately  1,900  claimants  had been
    identified in connection with the Hattiesburg  litigation,  and Chemical had
    agreed to settle claims  asserted in the Bolton lawsuit and Jones lawsuit as
    well as  similar  other  claims.  While the  precise  amount  of  Chemical's
    obligation under the settlements depends on the number of claimants who sign
    and deliver valid individual releases,  Chemical's ultimate obligation under
    the  settlements is expected to be less than  $800,000.  As of September 30,
    2003, Chemical had paid approximately $570,000 to settle the claims of about
    1,450  claimants  who had signed  releases.  Although  the  settlements  are
    expected  to  resolve  the  majority  of the  claims  described  above,  the
    settlements  will  not  resolve  the  claims  of  claimants  who do not sign
    releases.  As of September  30, 2003,  approximately  450  claimants had not
    delivered  valid  releases  and it is  uncertain  if such  releases  will be
    delivered  at all.  Chemical  and its  affiliates  believe  that  claims not
    resolved  pursuant  to the  settlements  are without  substantial  merit and
    intend to vigorously defend against any further action taken with respect to
    such claims.  The company has not provided a reserve for such claims because
    it cannot reasonably  determine the probability of a loss, and the amount of
    loss, if any, cannot be reasonably estimated.

    Other Matters

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

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

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

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

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

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

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

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

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

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

    As of September 30, 2003, the company had reserves totaling $290 million for
    cleaning up and remediating  environmental sites,  reflecting the reasonably
    estimable costs for addressing  these sites.  This includes $107 million for
    the West Chicago sites, $34 million for the Henderson,  Nevada, site and $39
    million  for  forest   products  sites.   Cumulative   expenditures  at  all
    environmental sites through September 30, 2003, total $1.085 billion (before
    considering government  reimbursements).  Additionally,  as of September 30,
    2003, the company had litigation reserves totaling approximately $57 million
    for  the  reasonably  estimable  losses  associated  with  litigation.  This
    includes $18 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.

O.  Business Segments

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



                                                                  Three Months Ended        Nine Months Ended
                                                                    September 30,             September 30,
                                                              -------------------------------------------------
    (Millions of dollars)                                       2003           2002        2003          2002
    -----------------------------------------------------------------------------------------------------------

                                                                                           
    Sales
      Exploration and production                              $  693.8        $645.0     $2,210.5      $1,781.1
      Chemicals - Pigment                                        266.8         266.8        803.9         748.1
      Chemicals - Other                                           45.4          53.0        143.7         152.9
                                                              --------        ------     --------      --------
                                                               1,006.0         964.8      3,158.1       2,682.1
      All other                                                     .1             -           .2            .1
                                                              --------        ------     --------      --------
        Total Sales                                           $1,006.1        $964.8     $3,158.3      $2,682.2
                                                              ========        ======     ========      ========

    Operating Profit (Loss)
      Exploration and production                              $  222.0        $170.7     $  767.0      $  333.4
      Chemicals - Pigment                                          7.6          18.9           .8          20.7
      Chemicals - Other                                           (3.7)         (7.7)       (22.1)         (5.2)
                                                              --------        ------     --------      --------
        Total Operating Profit                                   225.9         181.9        745.7         348.9

    Other Expense                                               (175.7)        (73.0)      (404.6)       (433.9)
                                                              --------        ------     --------      --------

    Income (Loss) from Continuing Operations
      before Income Taxes                                         50.2         108.9        341.1         (85.0)
    Provision for Income Taxes                                   (21.1)       (195.7)      (138.0)       (181.2)
                                                              --------        ------     --------      --------

    Income (Loss) from Continuing Operations                      29.1         (86.8)       203.1        (266.2)

    Discontinued Operations, Net of Income Taxes                   (.3)           .4          (.1)        127.3

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

    Net Income (Loss)                                         $   28.8        $(86.4)    $  168.3      $ (138.9)
                                                              ========        ======     ========      ========



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

    Comparison of 2003 Results with 2002 Results

    Third-quarter 2003 income from continuing  operations totaled $29.1 million,
    compared with a loss of $86.8 million for the same 2002 period.  Income from
    continuing  operations for the first nine months of 2003 was $203.1 million,
    compared with a loss of $266.2 million for the comparable  2002 period.  Net
    income for the 2003 third  quarter was $28.8  million,  compared with a 2002
    third-quarter net loss of $86.4 million.  For the first nine months of 2003,
    net income was $168.3  million,  compared with a net loss of $138.9  million
    for the same 2002 period.

    Third-quarter   2003  operating   profit  increased  $44  million  over  the
    comparable  prior-year  period,  to $225.9 million from $181.9 million.  The
    increase was primarily due to higher realized sales prices for crude oil and
    natural gas, lower  operating  costs within the  exploration  and production
    operating unit and lower asset  impairments.  Operating profit for the first
    nine months of 2003 was $745.7  million,  an increase of $396.8 million over
    comparable  2002  operating  profit  of  $348.9  million.  The  increase  in
    operating  profit for the nine-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 shutdown  provisions  for the  Mobile,  Alabama,
    synthetic rutile plant and forest products  operations,  higher  exploration
    expense,  and higher pigment product costs. These variances are discussed in
    more detail in the segment discussion that follows.

    Other expense for the third quarter of 2003 totaled $175.7 million, compared
    with expense of $73 million in the same 2002 period.  The increase of $102.7
    million between periods resulted primarily from higher environmental expense
    related to former  plant sites of $72.9  million.  Due to findings  from the
    company's efforts over the spring and summer months,  the 2003 third-quarter
    review of the company's  environmental  remediation projects resulted in the
    company  providing  additional  reserves  totaling  $47.1  million for costs
    related to activities at former plant sites.  During the 2002 third quarter,
    the company recorded a net credit to environmental  expense of $25.8 million
    resulting  from the accrual of  reimbursements  due from the  Department  of
    Energy related to the company's former West Chicago facility.  The remaining
    increase in other  expense was due to $16.7  million in pension  curtailment
    costs related to a voluntary  workforce  reduction announced during the 2003
    third  quarter,   higher  losses  on  trading  securities  and  nonoperating
    derivative financial instruments of $26.2 million,  higher corporate general
    and  administrative  expense of $7.4 million,  and higher losses from equity
    affiliates of $6.1 million.  These increases were partially  offset by a net
    favorable change of $23.9 million due to foreign currency  transaction gains
    of $.6 million in the 2003 third  quarter  versus losses of $23.3 million in
    the 2002 third  quarter,  combined  with lower net interest  expense of $6.2
    million.  Lower average outstanding debt balances and lower average interest
    rates during the third  quarter of 2003 as compared with the same quarter in
    the prior year resulted in the 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 nine  months of 2003  totaled  $404.6  million,
    compared  with  expense  of $433.9  million in the same 2002  period,  for a
    decrease of $29.3 million between periods.  The decrease resulted  primarily
    from  lower  litigation  costs  of $64.2  million,  lower  foreign  currency
    transaction  losses of $26.4 million and lower net interest expense of $17.5
    million. These decreases were partially offset by third-quarter 2003 pension
    curtailment   costs  of  $16.7  million,   higher   corporate   general  and
    administrative  costs of $28.8 million,  and net losses of $6.8 million from
    trading  securities  and  nonoperating   derivative  financial  instruments,
    compared with net gains of $19.8 million in the same 2002 period. During the
    2002 second quarter,  the company provided a $70 million  litigation reserve
    for the settlement of certain forest products  litigation  claims,  which is
    the primary reason for the favorable  variance in litigation  costs from the
    prior year.  The  increase in  corporate  general and  administrative  costs
    resulted  primarily  from  higher  retirement,   deferred  compensation  and
    incentive costs of $11.9 million,  higher general liability  insurance costs
    of $9.3 million, and higher departmental costs of $3.8 million.

    In  September  2003,  the  company  announced  a program  to reduce its U.S.
    nonbargaining  workforce by 7% to 9%, or 200 to 250  employees.  The program
    consists of both voluntary early  retirements and involuntary  terminations.
    The  third-quarter  2003  pension  curtailment  charge of $16.7  million was
    recorded for the cost of the anticipated  voluntary early  retirements.  The
    company has  estimated  the total cost of the program will be  approximately
    $40 million  after-tax.  Other costs for  severance  payments,  outplacement
    expenses and special  termination  benefits within the retirement plans will
    be recognized in the fourth quarter of 2003 or during 2004, as  appropriate.
    The company expects to save  approximately  $30 million annually in salaries
    and benefits  through the  workforce  reduction.  See Note G for  additional
    discussion regarding this program.

    Income tax expense for the third quarter of 2003 was $21.1 million, compared
    with income tax expense of $195.7  million in the same 2002 period.  For the
    first nine months of 2003,  income tax expense was $138.0 million,  compared
    with  income tax expense of $181.2  million in 2002.  The income tax expense
    for both 2002 periods included $146.4 million  resulting from the effects of
    U.K.  tax law  changes.  See Note L for a  reconciliation  between  reported
    income tax expense and the amount that would be computed using the statutory
    U.S. Federal income tax rate.

    Segment Operations

    Exploration and Production -

    Operating  profit for the third  quarter of 2003 was $222.0  million,  a 30%
    improvement  compared with $170.7 million for the same 2002 period.  For the
    nine months ended September 30, 2003, operating profit totaled $767 million,
    more  than  double  2002  operating  profit  for the same  period  of $333.4
    million. The increase in operating profit in both 2003 periods was primarily
    due to higher 2003 average  realized crude oil and natural gas sales prices,
    lower asset impairments on oil and gas properties, gains on sales of oil and
    gas properties during 2003, and lower depreciation, depletion and production
    costs, partially offset by lower crude oil and natural gas sales volumes and
    higher exploration expense. Including the effects of hedging, realized crude
    oil and natural gas sales prices for the 2003 third  quarter  increased  10%
    and 51%,  respectively,  over 2002 levels due to market conditions.  For the
    first nine months of 2003,  realized  crude oil and natural gas sales prices
    increased 21% and 60%, respectively, over the same 2002 period.

    Total  revenues for the third  quarter of 2003  increased  $48.8  million to
    $693.8  million from $645 million for the 2002 third  quarter.  Of the total
    increase,  $123.3 million  resulted from higher oil and gas prices and $67.8
    million was due to an increase in other operating revenues, partially offset
    by lower crude oil sales  volumes of $117.9  million  and lower  natural gas
    sales  volumes of $24.4  million.  For the nine months ended  September  30,
    2003, total revenues  increased $429.4 million to $2.211 billion from $1.781
    billion in 2002. Of the total increase,  $514.2 million resulted from higher
    oil and gas prices and $178.6  million  resulted  from an  increase in other
    operating  revenues,  partially  offset by lower crude oil sales  volumes of
    $242.4  million and lower  natural  gas sales  volumes of $21  million.  The
    increase in other  operating  revenues  for both 2003 periods is primarily a
    result of increased sales of third-party  gas in the Rocky Mountain  region.
    The decrease in crude oil sales volumes is primarily due to the  divestiture
    of noncore properties in China, Ecuador, the U.S. and U.K. North Sea regions
    during  2002 and 2003,  partially  offset by higher oil sales in the Gulf of
    Mexico.

    Operating  costs  totaled  $471.8  million for the third quarter of 2003 and
    $474.3  million for the third  quarter of 2002, a decrease of $2.5  million.
    The decrease  resulted  primarily from lower oil and gas production costs of
    $47.9 million,  gains on sales of oil and gas properties of $22.7 million in
    2003, lower  depreciation and depletion expense of $15.3 million,  and lower
    asset  impairment  charges  of $5.7  million,  partially  offset  by  higher
    product,  gas  gathering  and  pipeline  costs  of  $65.2  million,   higher
    exploration  expense of $9.7  million,  higher  general  and  administrative
    expenses of $7 million, and accretion expense of $6.3 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.
    Third-quarter  2003  production  costs per  barrel of oil  equivalent  (BOE)
    decreased  approximately 20%, to $3.86 from $4.68 in the 2002 third quarter.
    Property  divestitures were also the primary cause for the decrease in crude
    oil production  volumes to 141,000  barrels per day from 192,900 barrels per
    day in the 2002 third quarter.  Higher crude oil production volumes from new
    projects  in the  Gulf of  Mexico  partially  offset  the  decrease  between
    periods.  The $65.2 million increase in product,  gas gathering and pipeline
    costs is related to the $67.8 million  increase in other operating  revenues
    discussed above, and resulted  primarily from higher product costs for Rocky
    Mountain natural gas marketing activities, combined with higher volumes.

    For the nine months ended September 30, 2003, operating costs totaled $1.444
    billion,  compared  with  $1.448  billion  in the same 2002  period.  The $4
    million  decrease  between  periods  resulted  primarily  from  lower  asset
    impairment charges of $149.6 million,  lower oil and gas production costs of
    $106.6 million,  lower  depreciation and depletion expense of $62.9 million,
    and  2003  gains  on sales of  held-for-sale  properties  of $36.9  million,
    partially  offset by higher  product,  gas gathering  and pipeline  costs of
    $171.5 million, higher exploration expense of $138.1 million, higher general
    and administrative expenses of $12.9 million, higher transportation costs of
    $10.5  million,  and accretion  expense of $18.8  million.  During 2002, the
    company initiated a strategic plan to divest noncore oil and gas properties.
    As a result of this plan,  certain domestic and North Sea assets  classified
    as  held-for-sale  were evaluated and deemed  impaired during the first nine
    months of 2003 and 2002. In addition, asset impairments were recorded during
    the first nine  months of 2003 and 2002 for  certain  assets  classified  as
    held-for-use  where  expectations  of future  cash  flows were less than the
    carrying value of the related assets.  In total, the company recorded pretax
    impairment  charges of $31.9  million  during the first nine months of 2003,
    compared with $181.5  million during the same 2002 period.  Consistent  with
    the 2003 third quarter,  the decrease in production  costs and  depreciation
    and depletion expense resulted from lower production volumes between periods
    caused  primarily 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 153,600 barrels
    per day from 195,600  barrels per day in the first nine months of 2002.  The
    $171.5  million  increase in product,  gas gathering  and pipeline  costs is
    related to the $178.6 million increase in other operating revenues discussed
    above,  and resulted  primarily from higher product costs for Rocky Mountain
    natural gas marketing activities,  combined with higher volumes.  Higher dry
    hole costs accounted for $113.9 million of the total increase in exploration
    expense.

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


                                                                Three Months Ended            Nine Months Ended
                                                                   September 30,               September 30,
                                                               ---------------------        ---------------------
                                                                2003           2002          2003           2002
     ------------------------------------------------------------------------------------------------------------

                                                                                               
    Crude oil and condensate sales
    (thousands of bbls/day)
      Domestic
        Offshore                                                 55.4           50.5          57.6           52.7
        Onshore                                                  18.4           30.1          20.0           29.5
      North Sea                                                  65.4          104.9          73.7          104.7
      Other international                                           -            8.0           2.9            8.4
                                                               ------         ------        ------         ------
          Total continuing operations                           139.2          193.5         154.2          195.3
      Discontinued operations                                       -            2.3            .8            5.6
                                                               ------         ------        ------         ------
          Total                                                 139.2          195.8         155.0          200.9
                                                               ======         ======        ======         ======

    Average crude oil sales price (per barrel) (a)
      Domestic
        Offshore                                               $26.00         $22.95        $25.93         $21.11
        Onshore                                                 25.34          23.04         26.31          21.01
      North Sea                                                 25.68          23.68         26.04          21.96
      Other international                                           -          23.57         29.24          21.37
      Average for continuing operations                         25.76          23.38         26.09          21.56
      Discontinued operations                                  $    -         $20.89        $24.47         $19.62




                                                                  Three Months Ended           Nine Months Ended
                                                                     September 30,               September 30,
                                                                ----------------------        -------------------
                                                                 2003            2002          2003         2002
    -------------------------------------------------------------------------------------------------------------

                                                                                               
    Natural gas sold (MMcf/day)
      Domestic
        Offshore                                                   265             305           275          267
        Onshore                                                    343             389           353          384
      North Sea                                                     91              95            92           98
                                                                ------          ------        ------       ------
          Total                                                    699             789           720          749
                                                                ======          ======        ======       ======

    Average natural gas sales price (per Mcf) (a)
      Domestic
        Offshore                                                $ 4.59          $ 3.20        $ 4.98       $ 3.02
        Onshore                                                   4.26            2.70          4.36         2.73
      North Sea                                                   2.81            1.85          2.89         2.17
      Average                                                   $ 4.20          $ 2.79        $ 4.41       $ 2.76



    (a)  The effects of the company's  hedging  program during the third quarter
         and first  nine  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 $2.16 per barrel  and $1.75 per barrel  during the third
         quarter of 2003 and 2002, respectively, and reduced the average natural
         gas sales  prices by $.48 per Mcf  during  the third  quarter  of 2003.
         Losses on commodity hedges reduced the average crude oil and condensate
         sales prices from  continuing  operations  by $2.43 per barrel and $.93
         per barrel during the first nine months of 2003 and 2002, respectively,
         and reduced the average natural gas sales prices by $.63 per Mcf during
         the first nine months of 2003.  Gains on commodity hedges increased the
         average natural gas sales price by $.17 per Mcf and $.04 per Mcf during
         the three and nine months ended September 30, 2002, respectively.

     The Leadon field was written down to estimated fair value during the fourth
     quarter of 2002 due to field performance  issues. As of September 30, 2003,
     the carrying value of the Leadon field assets totaled $377 million.  During
     2003,  the company has  selectively  marketed the Leadon field for sale and
     has entered into limited  negotiations  with third  parties;  however,  the
     timing of sale, if any, cannot  presently be determined.  Accordingly,  the
     Leadon  field  has not been  classified  as held for sale in the  financial
     statements. The company continues to review its options with respect to the
     Leadon field,  which  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  future  cash  flows or fair  value  decrease  significantly  from  that
     presently  estimated,  an  additional  write-down of the Leadon field could
     occur in the future.


    Chemicals - Pigment

    Operating  profit for the third quarter of 2003 was $7.6 million on revenues
    of $266.8  million,  compared  with  operating  profit of $18.9  million  on
    revenues of $266.8  million for the same 2002 period.  A net  improvement in
    the pigment sales price and volume mix of $19 million  during the 2003 third
    quarter  was more  than  offset  by higher  average  product  costs of $15.9
    million; an environmental provision reversal of $6.1 million in 2002 related
    to the company's Savannah, Georgia, operations;  shutdown provisions in 2003
    for the Mobile,  Alabama,  facility of $4.3 million;  and higher selling and
    administrative  costs of $4.1  million.  For the first nine  months of 2003,
    operating  profit was $.8 million on revenues  of $803.9  million,  compared
    with operating  profit of $20.7 million on revenues of $748.1 million in the
    comparable prior-year period. The decrease in operating profit for the first
    nine months of 2003  compared with the same 2002 period was primarily due to
    shutdown  provisions for the Mobile facility totaling $40.6 million,  higher
    average  product costs of $34.4 million,  higher selling and  administrative
    costs  of  $14.5  million,  and the  $6.1  million  reversal  of a  Savannah
    environmental  provision in 2002,  partially offset by an increase due to an
    improved  sales  price  and  volume  mix of  $72.8  million  over  the  2002
    nine-month  period.  The  year-to-date  shutdown  provision  for the  Mobile
    operations  included $6.1 million for  curtailment  costs related to pension
    and postretirement benefits.

    Revenues  remained flat for the 2003 third  quarter  compared to prior year;
    however,  the chemical - pigment  operating unit experienced  higher average
    sales  prices  during  the 2003 third  quarter,  which  resulted  in a $16.2
    million  increase in revenues  for the period.  Lower sales  volumes for the
    period entirely offset the increase due to price.  For the nine months ended
    September 30, 2003,  revenues increased $55.8 million, or 7%, of which $82.1
    million  resulted from higher  average sales prices,  partially  offset by a
    decrease  of  $26.3  million  due to  lower  pigment  sales  volumes.  Price
    increases for pigment products were announced throughout 2002 and into 2003;
    however,  pigment sales volumes  decreased by 9,400 tonnes in the 2003 third
    quarter  and by  13,500  tonnes  for the first  nine  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  processed  and supplied 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 is now
    being  purchased  more  economically  than it could 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 third  quarter  was $3.7  million on revenues of
    $45.4  million,  compared with an operating loss of $7.7 million on revenues
    of $53 million in the same 2002  period.  Of the $4 million  decrease in the
    operating loss, $8.7 resulted from the impact of environmental provisions on
    the electrolytic  operations in the prior-year quarter,  partially offset by
    lower operating results from the forest products operations of $2.7 million.

    Operating  loss for the nine months  ended  September  30,  2003,  was $22.1
    million on revenues of $143.7  million,  compared with an operating  loss of
    $5.2  million on revenues  of $152.9  million in the same 2002  period.  The
    $16.9 million  increase in operating  loss for the first nine months of 2003
    was  primarily  due to lower  operating  results of $15.8  million  from the
    forest  products  operations and higher  electrolytic  product costs of $4.7
    million,  partially  offset by lower  environmental  costs of $5.1  million.
    Environmental provisions for the chemical - other operating unit are related
    primarily to ammonium perchlorate  remediation associated with the company's
    Henderson, Nevada, operations (See Note N). Of the $15.8 million decrease in
    operating results for the forest products operations,  $8.8 million resulted
    from shutdown  provisions  incurred  during the 2002 second  quarter,  which
    included  $8.1  million  for  curtailment   costs  related  to  pension  and
    postretirement benefits.

    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 is
    expected to remain on standby through the first quarter of 2004. 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  alleged  that   manufacturers  in  certain   countries,   including
    Australia, Greece, Ireland, Japan and South Africa, export EMD to the United
    States in violation of the U.S. antidumping laws and requested that the U.S.
    Department  of  Commerce  apply  substantial  antidumping  duties to the EMD
    imported from such  countries.  The  Department of Commerce  found  probable
    cause to believe that  manufacturers  in the countries  described above have
    engaged  in  dumping  and,   therefore,   has   initiated   an   antidumping
    investigation with respect to such  manufacturers.  However,  the outcome of
    the proceeding is uncertain. The company intends to resume EMD manufacturing
    if and when competitiveness is restored.

    Financial Condition

    At September  30, 2003,  the company's  net working  capital  position was a
    negative $361.2  million,  compared with a negative $51 million at September
    30, 2002,  and a negative  $319.7  million at December 31, 2002. The current
    ratio  was .8 to 1 at both  September  30,  2003,  and  December  31,  2002,
    compared with 1 to 1 at September  30, 2002.  The negative  working  capital
    position at September 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
    57% at September 30, 2003,  compared with 60% at December 31, 2002,  and 59%
    at  September  30,  2002.  The decrease  from  December  31, 2002,  resulted
    primarily  from reduced debt  balances of $183.4  million  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
    September  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 $672.3
    million  consist  primarily of $100 million,  8% notes due October 15, 2003,
    $100 million of floating rate notes due June 28, 2004, $145 million,  8.375%
    notes due  July 15,  2004,  and  $330.3  million  (face  value), 5.5%  notes
    exchangeable  for common stock due August 2, 2004. As discussed  below,  the
    notes exchangeable for common stock may be settled in either Devon stock or,
    at the company's option, an equivalent amount of cash. The $100 million,  8%
    notes due October 15,  2003,  were paid in October  using a  combination  of
    internally generated cash flows and commercial paper borrowings. The company
    expects to also use internally generated cash flows or short-term borrowings
    to fund the payment of the remaining $245 million in 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 $168 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 an imbedded
    call  option on 85% of the  shares).  If Devon's  stock price at maturity is
    greater than $33.19 per share but less than $39.16 per share,  the company's
    right to retain Devon stock will be reduced proportionately.  The company is
    not  entitled  to  retain  any Devon  stock if the  price of Devon  stock at
    maturity is less than or equal to $33.19 per share.  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
    September  30,  2003,  the fair values of the  embedded put and call options
    were nil and $79.4  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 third quarter of 2003, the company recorded a gain
    of $45.3  million in Other  Income for the changes in the fair values of the
    put and call options, compared with a gain of $19.7 million during the third
    quarter of 2002.  During the first nine months of 2003 and 2002, the company
    recorded losses of $12.8 million and $54.5 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 $406.5
    million at  September  30,  2003,  and $387.2  million at December 31, 2002.
    During the third quarter of 2003 and 2002, the company  recorded  unrealized
    losses of $44 million and $8.7  million,  respectively,  in Other Income for
    the changes in fair value of the Devon shares classified as trading.  During
    the first nine  months of 2003 and 2002,  the  company  recorded  unrealized
    gains of $19.3  million and $81 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 $73.2  million at
    September 30, 2003,  and $69.7 million at December 31, 2002.  The DECS,  the
    derivative  liability  associated  with the call option and the Devon shares
    have  been  classified  as  current  assets  or  current   liabilities,   as
    appropriate, in the Consolidated Balance Sheet as of September 30, 2003.

    Operating  activities  provided net cash of $1.192 billion in the first nine
    months of 2003.  During  the first nine  months of 2003,  cash  provided  by
    operating  activities  and proceeds of $258.6  million from asset sales were
    sufficient to fund the  company's net reduction in long-term  debt of $193.5
    million,  capital expenditures (including dry hole costs) of $912.1 million,
    dividends  of  $135.9  million,   and  a  $69.6  million  onshore   property
    acquisition in south Texas.

    Capital  expenditures for the first nine months of 2003,  excluding dry hole
    costs,  totaled  $749.4  million,  compared  with  $886.2  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,  Rocky  Mountain and onshore U.S.  regions during the first
    nine  months  of  2003  and  prior-year  capital  spending  on  discontinued
    operations,  partially  offset by higher 2003 spending in the deepwater Gulf
    of  Mexico  and  China  as  compared  to the  prior  year.  Exploration  and
    production  expenditures,  principally  in the Gulf of  Mexico  and  onshore
    United States, were 90% of the 2003 total  expenditures.  Chemical - pigment
    expenditures were 8% 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 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 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 $9.1 million and
    $26.7  million  for the  third  quarter  and  first  nine  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  FASB  Interpretation  (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, as originally issued,  required consolidation by the primary beneficiary
    in the third  quarter  of 2003.  In  October  2003,  the FASB  deferred  the
    effective  date of FIN 46 to the  fourth  quarter.  In  accordance  with the
    provisions  of FIN  46,  the  company  believes  it  would  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.  The  company  is  required  to  make  lease  payments
    sufficient to pay interest on the  financing  over the term of the synthetic
    lease credit facility,  which terminates in November 2006. Completion of the
    Gunnison  platform is anticipated to occur in either December 2003, or early
    2004.  The company is  currently  in  negotiations  to convert the  Gunnison
    synthetic  lease to an  operating  lease  agreement,  under which  different
    trusts will become the  lessor/owner of the platform and related  equipment.
    The new  agreements  are expected to close in December  2003 and/or  January
    2004; however, the ultimate closing date will be dependent on the completion
    of the platform and the timeliness of the negotiation  process and may occur
    sometime  thereafter.  If the  synthetic  lease is converted to an operating
    lease before year end, the company  believes  the variable  interest  entity
    lessor  will  not  be  subject  to  consolidation.   However,  the  ultimate
    accounting  treatment for the proposed  restructured  lease agreement or the
    lessor  trust  can not be  determined  until  the  significant  terms of the
    agreement are finalized.  If the synthetic lease is not replaced before year
    end, the financing  trust will be subject to  consolidation  at December 31,
    2003.  The company has  reviewed 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 believe that consolidation
    of these entities is required.

    Item 3.  Quantitative and Qualitative Disclosures about Market Risk.

    Beginning in March 2002,  the company  entered into hedging  contracts for a
    portion of its oil and natural gas  production.  The  company  continues  to
    expand its  hedging  program  and will enter into  additional  contracts  to
    increase the hedged volumes  associated with its projected 2004  production.
    The commodity  hedging program was initiated to increase the  predictability
    of the  company's  cash flows and support  capital  projects  since  hedging
    contracts  generally fix the commodity  prices to be received in the future.
    At September  30,  2003,  the company had  outstanding  contracts to hedge a
    total of 8.7 million barrels of North Sea crude oil production,  6.6 million
    barrels of domestic  crude oil  production  and 50 million MMBtu of domestic
    natural gas  production  for the period from October  2003 through  December
    2004.  The net liability  fair value of the hedge  contracts  outstanding at
    September 30, 2003, was $13.1 million for North Sea crude oil, $11.1 million
    for domestic crude oil and $24.4 million for domestic natural gas.

    At September 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)                                          Q4 - 2003             310,000              $4.00
                                                                       Q1 - 2004              85,000              $5.04

    Costless collars (NYMEX)                                           Q4 - 2003              65,000        $3.50-$5.26
                                                                       Q1 - 2004              85,000        $4.48-$6.00

    Basis swaps (Rockies)                                              Q4 - 2003              64,580              $0.36

    Crude Oil Hedges                                                                           Bbl             $/Bbl
    ----------------                                                                           ---             -----
    Fixed-price swaps (WTI)                                            Q4 - 2003              35,000             $26.01
                                                                       Q1 - 2004              27,000             $27.50
                                                                 Q2, 3, 4 - 2004               3,500             $27.12

    Fixed-price swaps (Brent)                                          Q4 - 2003              45,000             $25.04
                                                                       Q1 - 2004              40,000             $26.15
                                                                 Q2, 3, 4 - 2004               3,500             $25.81

    Natural Gas (non-hedge contracts)                                                         MMBtu           $/MMBtu
    ---------------------------------                                                         -----           -------
    Basis swaps (Rockies)                                              Q4 - 2003              68,300.             $0.78
                                                                       Q1 - 2004             135,000              $0.57
                                                                 Q2, 3, 4 - 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.


    From  October 1, 2003,  through  October 17,  2003,  the  company  added the
    following  derivative  contracts,  expanding its hedging  program to cover a
    larger portion of its 2003 and 2004 production.



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

    Natural Gas Hedges                                                                    MMBtu            $/MMBtu
    ------------------                                                                    -----            -------
    Fixed-price swaps (NYMEX)                                      Q1 - 2004             110,000              $5.56

    Costless collars (NYMEX)                                       Q1 - 2004             150,000        $4.78-$7.08


    Crude Oil Hedges                                                                        Bbl              $/Bbl
    ----------------                                                                        ---              -----
    Fixed-price swaps (WTI)                                        Q4 - 2003              20,100             $31.84
                                                                   Q1 - 2004              21,000             $29.94
                                                                   Q2 - 2004              25,000             $27.06
                                                                   Q3 - 2004              26,500             $27.21
                                                                   Q4 - 2004              14,000             $27.03


    Fixed-price swaps (Brent)                                      Q4 - 2003              12,500             $30.18
                                                                   Q1 - 2004               5,000             $28.20
                                                                   Q2 - 2004              36,000             $25.63
                                                                   Q3 - 2004              23,500             $25.85
                                                                   Q4 - 2004              12,000             $25.75



    (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  and certain  sales of Euro) 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  September  30,  2003,  to purchase  (sell)  foreign
    currencies.  Contract  values are based on the  estimated  forward  exchange
    rates in effect at period-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 September 30, 2003 -
      Maturing in 2003 -
        British pound sterling                      $33.6                     1.5399                     $36.1
        Australian dollar                            15.6                      .5586                      18.9
        Euro                                        (84.2)                    1.1197                     (86.2)
        British pound sterling                        (.7)                    1.5920                       (.7)
        Japanese yen                                  (.8)                     .0088                       (.8)
        New Zealand dollar                            (.5)                     .5684                       (.5)
      Maturing in 2004 -
        Australian dollar                            37.7                      .5366                      46.4
        Euro                                        (45.9)                    1.1024                     (47.5)



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


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 September 30, 2003:

               o    Current Report dated July 23, 2003,  announcing a conference
                    call to discuss the company's  second-quarter 2003 financial
                    and operating results, and expectations for the future.

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

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

               o    Current  Report dated July 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 June 30,
                    2003.

               o    Current   Report  dated   August  22,  2003,   announcing  a
                    conference  call  to  discuss  interim   third-quarter  2003
                    financial and operating activities, and expectations for the
                    future.

               o    Current   Report  dated   August  28,  2003,   announcing  a
                    presentation discussing the company's oil and gas operations
                    by Luke Corbett,  chairman and chief executive  officer,  at
                    the Lehman Brothers CEO Energy/Power Conference.

               o    Current  Report  dated  September  19,  2003,  announcing  a
                    conference  call  to  discuss  interim   third-quarter  2003
                    financial and operating activities, and expectations for the
                    future.

               o    Current  Report  dated  September  24,  2003,  announcing  a
                    security analyst meeting to discuss the company's  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: November 11, 2003                 By:      /s/ John M. Rauh
      -----------------                         --------------------------------
                                                John M. Rauh
                                                   Vice President and Controller
                                                   and Chief Accounting Officer