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

                                    FORM 10-Q

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

                  For the Quarterly Period Ended June 30, 2004

                                       OR

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

                  For the Transition Period from _____ to _____

                         Commission File Number 1-16619


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



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


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

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


Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the  preceding 12 months (or for such  shorter  period that the  registrant  was
required  to file  such  reports),  and  (2) has  been  subject  to such  filing
requirements for the past 90 days.

Yes    X        No
     -----         -----

Number of shares of common stock,  $1.00 par value,  outstanding  as of July 31,
2004:   150,996,605.




                             KERR-McGEE CORPORATION


                                      INDEX


                         PART I - FINANCIAL INFORMATION


Item 1.  Financial Statements                                               PAGE
                                                                            ----

         Consolidated Statement of Income for the Three and
         Six Months Ended June 30, 2004 and 2003                               1

         Consolidated Balance Sheet at June 30, 2004 and
         December 31, 2003                                                     2

         Consolidated Statement of Cash Flows for the Six
         Months Ended June 30, 2004 and 2003                                   3

         Notes to Consolidated Financial Statements                            4

Item 2.  Management's Discussion and Analysis of Financial Condition
         and Results of Operations                                            34

Item 3.  Quantitative and Qualitative Disclosures about Market Risk           43

Item 4.  Controls and Procedures                                              46

Forward-Looking Information                                                   46


                           PART II - OTHER INFORMATION

Item 1.  Legal Proceedings                                                    47

Item 4.  Submission of Matters to a Vote of Security Holders                  47

Item 6.  Exhibits and Reports on Form 8-K                                     47

SIGNATURE                                                                     50




                         PART I - FINANCIAL INFORMATION

Item 1. Financial Statements.


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


                                                                              Three Months             Six Months
                                                                                 Ended                   Ended
                                                                                June 30,                June 30,
                                                                          --------------------    --------------------
(Millions of dollars, except per-share amounts)                               2004        2003        2004        2003
----------------------------------------------------------------------------------------------------------------------

                                                                                                  
Revenues                                                                  $1,097.1    $1,052.6    $2,213.4    $2,152.2
                                                                          --------    --------    --------    --------

Costs and Expenses
  Costs and operating expenses                                               432.6       439.1       835.6       823.5
  Selling, general and administrative expenses                                80.1        79.1       163.7       150.0
  Shipping and handling expenses                                              38.4        35.0        76.1        67.0
  Depreciation and depletion                                                 191.0       193.0       381.3       382.6
  Accretion expense                                                            6.8         6.3        13.4        12.5
  Impairments on assets held for use                                           1.1           -        14.3         5.1
  Loss (gain) associated with assets held for sale                             3.9         (.5)        7.3        (5.7)
  Exploration, including dry holes and amortization of
    undeveloped leases                                                        65.5        66.6       116.1       207.1
  Taxes, other than income taxes                                              28.6        21.0        57.0        46.4
  Provision for environmental remediation and restoration,
    net of reimbursements                                                      7.4         1.9         6.6        19.2
  Interest and debt expense                                                   55.7        63.4       112.7       128.4
                                                                          --------    --------    --------    --------
      Total Costs and Expenses                                               911.1       904.9     1,784.1     1,836.1
                                                                          --------    --------    --------    --------

                                                                             186.0       147.7       429.3       316.1
Other Expense                                                                 (7.0)      (26.9)       (7.3)      (25.2)
                                                                          --------    --------    --------    --------

Income from Continuing Operations before Income Taxes                        179.0       120.8       422.0       290.9
Provision for Income Taxes                                                   (68.4)      (51.0)     (159.2)     (116.9)
                                                                          --------    --------    --------    --------

Income from Continuing Operations                                            110.6        69.8       262.8       174.0
Income (Loss) from Discontinued Operations
  (net of income tax provision)                                                  -         (.2)          -          .2
Cumulative Effect of Change in Accounting Principle (net of benefit
  for income taxes of $18.2)                                                     -           -           -       (34.7)
                                                                          --------    --------    --------    --------

Net Income                                                                $  110.6    $   69.6    $  262.8    $  139.5
                                                                          ========    ========    ========    ========

Income (Loss) per Common Share
  Basic -
    Continuing operations                                                 $   1.07    $    .70    $   2.58    $   1.73
    Discontinued operations                                                      -           -           -           -
    Cumulative effect of change in accounting principle                          -           -           -        (.34)
                                                                          --------    --------    --------    --------

      Total                                                               $   1.07    $    .70    $   2.58    $   1.39
                                                                          ========    ========    ========    ========
  Diluted -
    Continuing operations                                                 $   1.01    $    .68    $   2.42    $   1.67
    Discontinued operations                                                      -           -           -           -
    Cumulative effect of change in accounting principle                          -           -           -        (.31)
                                                                          --------    --------    --------    --------

      Total                                                               $   1.01    $    .68    $   2.42    $   1.36
                                                                          ========    ========    ========    ========

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



The accompanying notes are an integral part of this statement.






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


                                                                                        June 30,       December 31,
(Millions of dollars)                                                                       2004               2003
-------------------------------------------------------------------------------------------------------------------
                                                                                                    

ASSETS
------
Current Assets
  Cash                                                                                 $   104.7          $   142.0
  Accounts receivable                                                                      717.3              583.3
  Inventories                                                                              404.7              393.4
  Investment in equity securities                                                          556.7              509.8
  Deposits, prepaid expenses and other assets                                              145.9              127.6
  Deferred income taxes                                                                    206.4               76.0
  Current assets associated with properties held for disposal                                  -                 .4
                                                                                       ---------          ---------
    Total Current Assets                                                                 2,135.7            1,832.5
                                                                                       ---------          ---------

Property, Plant and Equipment                                                           18,302.5           14,273.1
  Less reserves for depreciation, depletion and amortization                            (7,486.8)          (6,870.2)
                                                                                       ---------          ---------
                                                                                        10,815.7            7,402.9
                                                                                       ---------          ---------

Investments and Other Assets                                                               653.3              628.9
Goodwill                                                                                 1,196.9              357.3
Long-Term Assets Associated with Properties Held for Disposal                                1.3               28.3
                                                                                       ---------          ---------

    Total Assets                                                                       $14,802.9          $10,249.9
                                                                                       =========          =========

LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
Current Liabilities
  Accounts payable                                                                     $   477.2          $   475.5
  Long-term debt due within one year                                                       827.7              574.3
  Taxes on income                                                                           80.2              126.6
  Taxes, other than income taxes                                                            70.1               36.5
  Derivative liabilities                                                                   820.5              354.2
  Accrued liabilities                                                                      726.1              664.5
                                                                                       ---------          ---------
    Total Current Liabilities                                                            3,001.8            2,231.6
                                                                                       ---------          ---------

Long-Term Debt                                                                           3,528.0            3,081.2
                                                                                       ---------          ---------

Deferred Income Taxes                                                                    2,056.6            1,334.7
Asset Retirement Obligations                                                               473.5              384.6
Other Liabilities and Deferred Credits                                                     665.7              566.0
Long-Term Liabilities Associated with Properties Held for Disposal                            .5               16.0
                                                                                       ---------          ---------
                                                                                         3,196.3            2,301.3
                                                                                       ---------          ---------
Stockholders' Equity
  Common stock, par value $1 - 300,000,000 shares
    authorized, 150,557,481 shares issued at 6-30-04
    and 100,892,354 shares issued at 12-31-03                                              150.6              100.9
  Capital in excess of par value                                                         4,144.4            1,708.3
  Preferred stock purchase rights                                                            1.0                1.0
  Retained earnings                                                                      1,098.9              927.2
  Accumulated other comprehensive loss                                                    (244.9)             (45.4)
  Common shares in treasury, at cost - 105,462 shares
    at 6-30-04 and 31,924 at 12-31-03                                                       (5.3)              (1.6)
  Deferred compensation                                                                    (67.9)             (54.6)
                                                                                       ---------          ---------
    Total Stockholders' Equity                                                           5,076.8            2,635.8
                                                                                       ---------          ---------

    Total Liabilities and Stockholders' Equity                                         $14,802.9          $10,249.9
                                                                                       =========          =========


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

The accompanying notes are an integral part of this statement.




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



                                                                     Six Months Ended
                                                                         June 30,
                                                                 -------------------------
(Millions of dollars)                                               2004              2003
------------------------------------------------------------------------------------------
                                                                             

Operating Activities
--------------------
Net income                                                       $ 262.8           $ 139.5
Adjustments to reconcile net income to net cash
  provided by operating activities -
    Depreciation, depletion and amortization                       407.5             419.9
    Accretion expense                                               13.4              12.5
    Impairments on assets held for use                              14.3               5.1
    Loss associated with assets held for sale                        7.3                .5
    Dry hole costs                                                  26.1             128.2
    Deferred income taxes                                          110.6              80.8
    Provision for environmental remediation and
      restoration, net of reimbursements                             6.6              19.2
    Cumulative effect of change in accounting principle                -              34.7
    Noncash items affecting net income                              70.0              69.2
    Other net cash used in operating activities                   (211.2)           (144.7)
                                                                 -------           -------
      Net Cash Provided by Operating Activities                    707.4             764.9
                                                                 -------           -------

Investing Activities
--------------------
Capital expenditures                                              (432.9)           (517.9)
Dry hole costs                                                     (26.1)           (128.2)
Cash acquired in Westport acquisition (1)                           43.0                 -
Proceeds from sales of assets                                        3.3             195.9
Other investing activities                                          12.9             (14.8)
                                                                 -------           -------
      Net Cash Used in Investing Activities                       (399.8)           (465.0)
                                                                 -------           -------

Financing Activities
--------------------
Issuance of long-term debt                                          86.0              31.5
Repayment of long-term debt                                       (347.0)           (222.3)
Issuance of common stock                                             7.0                 -
Dividends paid                                                     (91.0)            (90.6)
Other financing activities                                             -               (.6)
                                                                 -------           -------
      Net Cash Used in Financing Activities                       (345.0)           (282.0)
                                                                 -------           -------

Effects of Exchange Rate Changes on Cash and Cash Equivalents         .1                .8
                                                                 -------           -------

Net Increase (Decrease) in Cash and Cash Equivalents               (37.3)             18.7

Cash and Cash Equivalents at Beginning of Period                   142.0              89.9
                                                                 -------           -------

Cash and Cash Equivalents at End of Period                       $ 104.7           $ 108.6
                                                                 =======           =======



(1)  See Notes B and E for  information  regarding the business  combination and
     related noncash investing and financing activities.


The accompanying notes are an integral part of this statement.





                 KERR-McGEE CORPORATION AND SUBSIDIARY COMPANIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                  JUNE 30, 2004


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 adjustments that are normal and
     recurring in nature,  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,  these condensed  financial  statements should 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.

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

     The company  accounts for its stock option plans under the  intrinsic-value
     method permitted by Accounting Principles Board Opinion 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.

     Statement of Financial  Accounting Standards (FAS) No. 123, "Accounting for
     Stock-Based Compensation," prescribes a fair-value method of accounting for
     employee stock options under which  compensation  expense is measured based
     on the  estimated  fair  value  of  stock  options  at the  grant  date and
     recognized  over the period of time that the options  vest.  The  following
     table illustrates the effect on net income and earnings per share as if the
     company had applied the  fair-value  recognition  provisions  of FAS 123 to
     stock-based employee compensation.


                                                                     Three                    Six
                                                                  Months Ended            Months Ended
                                                                    June 30,                June 30,
     (Millions of dollars,                                     -----------------        ----------------
     except per share amounts)                                   2004       2003          2004      2003
     ---------------------------------------------------------------------------------------------------
                                                                                      
      Net income as reported                                   $110.6      $69.6        $262.8    $139.5
       Less stock-based compensation expense determined
         using a fair-value method, net of taxes                 (3.4)      (4.1)         (6.8)     (8.1)
                                                               ------      -----        ------    ------
     Pro forma net income                                      $107.2      $65.5        $256.0    $131.4
                                                               ======      =====        ======    ======

     Net income per share -
       Basic -
         As reported                                           $ 1.07  $     .70        $ 2.58    $ 1.39
         Pro forma                                               1.03        .65          2.51      1.31

     Diluted -
       As reported                                               1.01        .68          2.42      1.36
       Pro forma                                                  .98        .64          2.36      1.28


     Goodwill and Intangible Assets
     ------------------------------

     In  accordance  with FAS  142,  "Goodwill  and  Other  Intangible  Assets,"
     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 2004,  with no impairment  indicated.  The amounts tested
     for  impairment   exclude  goodwill  and  intangible   assets  recorded  in
     connection  with  the  company's  June 25,  2004  acquisition  of  Westport
     Resources Corporation (Westport).

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

     Certain  reclassifications  have  been  made to the  prior  year  financial
     statements  to conform  with the current  year  presentation.  In the third
     quarter of 2003, the company began  reporting in revenues the net marketing
     fee received from sales of nonequity North Sea crude oil marketed on behalf
     of other partners.  Prior to the 2003 third quarter,  the company  reported
     purchases and sales of nonequity crude oil on a gross basis.


B.   Business Combination

     On June 25, 2004,  Kerr-McGee  completed its  acquisition  of Westport,  an
     independent oil and gas exploration and production  company with operations
     in the Rocky Mountain,  Mid-Continent and Gulf Coast areas onshore U.S. and
     in the  Gulf of  Mexico.  The  acquisition  increases  Kerr-McGee's  proved
     reserves by  approximately  30%,  bringing  the  combined  company's  total
     reserves as of December 31, 2003, to  approximately  1.3 billion barrels of
     oil equivalent.

     On the effective date of the merger,  each issued and outstanding  share of
     Westport  common stock was converted  into .71 shares of Kerr-McGee  common
     stock. As a result,  Kerr-McGee  issued 48.9 million shares of common stock
     to Westport's  stockholders.  The common stock  exchanged in the merger was
     valued at $2.4 billion based on Kerr-McGee's  weighted  average stock price
     two days  before and after  April 7,  2004,  the date the  acquisition  was
     publicly announced. Kerr-McGee also exchanged 1.9 million stock options for
     options held by Westport  employees.  The fair value of the vested  options
     exchanged was $33.7  million,  determined  using the  Black-Scholes  option
     pricing model.

     The acquisition  price,  net of cash acquired of $43 million,  totaled $4.5
     billion,  which  includes  the  value of common  stock  and  stock  options
     exchanged,  plus debt and other  liabilities  assumed,  and  merger  costs.
     Kerr-McGee has reflected Westport's assets and liabilities in the company's
     balance  sheet at June 30,  2004,  and has included  Westport's  results of
     operations  in the  company's  statement of income for the five-day  period
     ending June 30, 2004.  The purchase  price was allocated  preliminarily  to
     specific assets and liabilities based on their estimated fair values at the
     date  of   acquisition,   with  $840  million   recorded  as  goodwill  and
     approximately $600 million recorded for deferred tax liabilities. Since the
     Westport acquisition closed at the end of the second quarter,  certain data
     necessary  to  determine  the  fair  values  of  the  acquired  assets  and
     liabilities  is not yet  available  including,  but not limited  to:  final
     acquisition-date  economic  valuations of acquired  proved and unproved oil
     and gas properties,  data necessary for the identification and valuation of
     pre-acquisition contingencies, and tax return data providing the underlying
     tax bases of  Westport's  assets  and  liabilities  at June 25,  2004.  The
     company expects to complete its purchase price  allocation later this year,
     at which time the preliminary  allocation will be revised and goodwill will
     be adjusted accordingly.

     The  strategic  benefits  of the  merger  and the  principal  factors  that
     contributed to Kerr-McGee recognizing goodwill are as follows:

        o  Provides  complementary  high-quality assets in core U.S. onshore and
           Gulf of Mexico regions
        o  Enhances the stability of high-margin production
        o  Expands low-risk exploitation opportunities
        o  Increases free cash flow for Kerr-McGee's  high-potential exploration
           opportunities
        o  Reduces leverage and enables greater financial flexibility
        o  Provides opportunities for synergies and related cost savings

     The pro forma information  presented below has been prepared to give effect
     to the Westport  acquisition  as if it had occurred at the beginning of the
     periods presented.  The pro forma information is presented for illustrative
     purposes only and is based on estimates and assumptions  deemed appropriate
     by  Kerr-McGee.  If the  Westport  acquisition  had  occurred  in the past,
     Kerr-McGee's  operating  results  would  have  been  different  from  those
     reflected  in the pro forma  information  below;  therefore,  the pro forma
     information  should not be relied upon as an  indication  of the  operating
     results  that  Kerr-McGee  would  have  achieved  if the  transactions  had
     occurred on January 1, 2003. The pro forma  information  also should not be
     used as an indication of the future  results that  Kerr-McGee  will achieve
     after the Westport acquisition.



                                                                                  Pro Forma Information
                                                                    --------------------------------------------
                                                                          Three Months            Six Months
                                                                             Ended                  Ended
                                                                            June 30,               June 30,
                                                                    --------------------    --------------------
     (Millions of dollars, except per-share amounts)                    2004        2003        2004        2003
     -----------------------------------------------------------------------------------------------------------
                                                                                            
     Revenues                                                       $1,305.6    $1,227.6    $2,663.9    $2,508.2

     Income from Continuing Operations                                 136.5        78.0       323.7       198.4

     Net Income                                                        136.5        77.8       323.7       159.9

     Income per Common Share -
       Basic                                                        $    .91    $    .52    $   2.17    $   1.07
       Diluted                                                           .88         .55        2.08        1.06



C.   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 and collars for a portion of its oil
     and gas production,  forward contracts to buy and sell foreign  currencies,
     and interest rate swaps.

     The  following  tables  summarize  the balance  sheet  presentation  of the
     company's derivatives as of June 30, 2004 and December 31, 2003:


                                                                       As of June 30, 2004
                                                --------------------------------------------------------------------
                                                              Derivative Fair Value
                                                -------------------------------------------------
                                                Current      Long-Term      Current     Long-Term      Deferred Gain
                                                  Asset          Asset    Liability     Liability     (Loss) in AOCI(1)
                                                --------------------------------------------------------------------
                                                                                              

     Oil and gas commodity derivatives -
       Kerr-McGee positions                       $16.6          $14.0      $(436.7)      $(101.6)           $(291.6)
       Acquired Westport positions                  2.7            3.1       (142.4)        (43.9)                 -

     Gas marketing-related derivatives             11.2            2.7        (11.0)         (2.7)                 -
     Foreign currency forward contracts            17.4            4.2         (3.6)            -               16.3
     Interest rate swaps                              -              -            -           3.6                  -
     DECS call option                                 -              -       (226.8)            -                  -
     Other                                          2.2            1.1            -             -                2.1
                                                  -----          -----      -------       -------            -------

          Total derivative contracts              $50.1          $25.1      $(820.5)      $(144.6)           $(273.2)
                                                  =====          =====      =======       =======            =======




                                                                     As of December 31, 2003
                                                --------------------------------------------------------------------
                                                             Derivative Fair Value
                                                -------------------------------------------------
                                                Current      Long-Term      Current     Long-Term      Deferred Gain
                                                  Asset          Asset    Liability     Liability     (Loss) in AOCI(1)
                                                --------------------------------------------------------------------
                                                                                              

     Oil and gas commodity derivatives            $ 7.7          $14.9      $(181.3)        $   -            $(106.3)
     Gas marketing-related derivatives              8.0            2.1         (6.9)         (2.1)                 -
     Foreign currency forward contracts            28.0              -        (11.1)            -               17.0
     Interest rate swaps                              -              -            -          15.1                  -
     DECS call option                                 -              -       (154.9)            -                  -
     Other                                           .3             .5            -             -                 .5
                                                  -----          -----      -------         -----            -------

          Total derivative contracts              $44.0          $17.5      $(354.2)        $13.0            $ (88.8)
                                                  =====          =====      =======         =====            =======



(1)  Amounts  deferred in  accumulated  other  comprehensive  income  (AOCI) are
     reflected net of tax.



     The following  tables summarize the gain (loss) and  classification  of the
     company's financial  derivative  instruments in the Statement of Income for
     the three and six month periods ending June 30, 2004 and 2003:



                                                   Three Months Ended                       Six Months Ended
                                                      June 30, 2004                          June 30, 2004
                                             --------------------------------       ----------------------------------

                                                        Costs and       Other                    Costs and       Other
                                             Revenues    Expenses     Expense       Revenues      Expenses     Expense
                                             --------------------------------       ----------------------------------

                                                                                              
     Hedge Activity:
       Oil and gas commodity derivatives      $(155.4)       $  -      $    -        $(216.8)        $   -      $    -
       Foreign currency contracts                  .3         4.1           -             .3           8.1           -
       Interest rate swaps                          -         5.0           -              -           9.3           -
       Other                                        -          .3           -              -            .3           -
                                              -------        ----      ------        -------         -----      ------
         Total hedging contracts               (155.1)        9.4           -         (216.5)         17.7           -
                                              -------        ----      ------        -------         -----      ------

     Nonhedge Activity:
       Oil and gas commodity derivatives
         Kerr-McGee positions                    (9.8)          -         2.6           (9.8)            -         2.2
         Acquired Westport positions             15.2           -           -           15.2             -           -
       Gas marketing-related derivatives          1.4           -           -            3.4             -         (.9)
       DECS call option                             -           -       (65.5)             -             -       (71.9)
       Other                                        -           -         (.2)             -             -         (.8)
                                              -------        ----      ------        -------         -----      ------
                                                  6.8           -       (63.1)           8.8             -       (71.4)
       Total nonhedge contracts               -------        ----      ------        -------         -----      ------

       Total derivative contracts             $(148.3)       $9.4      $(63.1)       $(207.7)        $17.7      $(71.4)
                                              =======        ====      ======        =======         =====      ======





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

                                                        Costs and       Other                    Costs and       Other
                                             Revenues    Expenses     Expense       Revenues      Expenses     Expense
                                             --------------------------------       ----------------------------------
                                                                                              
     Hedge Activity:
       Oil and gas commodity derivatives       $(49.9)      $   -      $    -        $(166.6)        $   -      $    -
       Foreign currency contracts                   -         3.7           -              -           5.0           -
       Interest rate swaps                          -         2.8           -              -           5.5           -
                                               ------       -----      ------        -------         -----      ------
         Total hedging contracts                (49.9)        6.5           -         (166.6)         10.5           -
                                               ------       -----      ------        -------         -----      ------

     Nonhedge Activity:
       Oil and gas commodity derivatives            -           -         (.7)             -             -        (4.1)
       Gas marketing-related derivatives          1.1           -        (3.4)          (9.7)            -        (2.4)
       DECS call option                             -           -       (41.9)             -             -       (58.1)
       Other                                        -           -         (.2)             -             -         (.3)
                                               ------       -----      ------        -------         -----      ------
         Total nonhedge contracts                 1.1           -       (46.2)          (9.7)            -       (64.9)
                                               ------       -----      ------        -------         -----      ------

         Total derivative contracts            $(48.8)      $ 6.5      $(46.2)       $(176.3)        $10.5      $(64.9)
                                               ======       =====      ======        =======         =====      ======



     The company periodically enters into financial derivative  instruments that
     generally fix the commodity  prices to be received for a portion of its oil
     and gas  production  in the  future.  The fair  value  of these  derivative
     instruments was determined based on prices actively quoted, generally NYMEX
     and Dated Brent prices. For derivative  instruments qualifying as cash flow
     hedges,  gains and losses are deferred in accumulated  other  comprehensive
     income and reclassified into earnings when the associated hedged production
     occurs. The company expects to reclassify deferred losses of $227.2 million
     into earnings during the next 12 months (assuming no further changes in the
     fair   market   value  of  the   related   contracts).   Losses  for  hedge
     ineffectiveness   are   recognized  as  a  reduction  to  revenues  in  the
     Consolidated  Statement  of Income and were not  material for the three and
     six month periods ending June 30, 2004 and 2003.

     Between  March  31,  2004  and  April  6,  2004,  Kerr-McGee  entered  into
     additional  financial  derivative  instruments  in the form of  fixed-price
     swaps and costless  collars  relating to specified  quantities of projected
     2004-2006  production  that was not already  hedged.  Certain crude oil and
     natural gas swaps  covering  the period  from August to December  2004 were
     characterized  initially as "nonhedge" derivatives in the second quarter of
     2004, since Kerr-McGee's U.S.  production  (excluding Westport volumes) was
     either  already hedged or, in the case of Rocky  Mountain  production,  the
     company  did not have  sufficient  basis  swaps in place to ensure that the
     hedges  would be  highly  effective.  Consequently,  Kerr-McGee  recognized
     mark-to-market losses of $9.8 million in earnings during the second quarter
     associated with these derivatives.  In July 2004, after the Westport merger
     closed and with  sufficient oil and gas  production  now  available,  these
     swaps were  designated as hedges and, as such,  future  realized  gains and
     losses will be reflected in earnings when the hedged production is sold.

     In connection with the merger,  Kerr-McGee  recognized a $195.7 million net
     liability associated with Westport's existing commodity  derivatives at the
     merger date (June 25,  2004).  Some of these  derivative  instruments  were
     designated as hedges in July 2004 in connection with the  re-designation of
     Kerr-McGee's  acquisition-related derivatives described above, while others
     do not  qualify for hedge  accounting  treatment.  As a result,  Kerr-McGee
     recognized a  mark-to-market  gain of $15.2 million in earnings  during the
     second  quarter  since  the  value  of the  net  derivative  liability  had
     decreased to $180.5 million by June 30, 2004.

     Westport's derivatives in place at the merger date consisted of fixed-price
     oil and gas swaps,  natural gas basis swaps,  and  costless  and  three-way
     collars.  The  fixed-price  oil and gas swaps and  natural  gas basis swaps
     qualify for hedge  accounting  and were  designated as hedges in July 2004.
     Accordingly,   future  realized  gains  and  losses  on  those   derivative
     instruments  will be reflected in earnings  when the hedged  production  is
     sold.  However,  the costless and three-way collars - each of which is in a
     net  liability  position - do not  qualify for hedge  accounting  treatment
     under  existing  accounting  standards  because they represent "net written
     options"  at the  merger  date.  As a result,  even  though  these  collars
     effectively   reduce  commodity  price  risk  for  the  combined  company's
     production,  Kerr-McGee will continue to recognize mark-to-market gains and
     losses in future  earnings  until the collars mature rather than defer such
     amounts in  accumulated  other  comprehensive  income.  The net  derivative
     liability  associated with costless and three-way  collars at June 30, 2004
     was $71.1 million.

     In addition to the company's  hedging  program,  Kerr-McGee  Rocky Mountain
     Corp. holds certain gas basis swaps settling between 2004 and 2008. Through
     December  2003,  the  company  treated  these gas basis  swaps as  nonhedge
     derivatives,  and changes in fair value were  recognized  in earnings.  The
     company  has  designated  those  swaps  settling in 2004 and 2005 as hedges
     since the basis swaps have now been coupled  with  natural gas  fixed-price
     swaps,  while the remainder settling between 2006 and 2008 will continue to
     be treated as nonhedge derivatives.

     The company's marketing subsidiary,  Kerr-McGee Energy Services Corporation
     (KMES)  markets  natural gas  (including  equity  gas) in the Denver  area.
     Contracts  for the  physical  delivery of gas at fixed prices have not been
     designated as hedges and are  marked-to-market  through earnings.  KMES has
     entered into natural gas swaps and basis swaps that offset its  fixed-price
     risk on  physical  contracts  and lock in the margins  associated  with the
     physical sale.  The gains or losses on these  derivative  contracts,  which
     also are marked-to-market through earnings,  substantially offset the gains
     and losses from the fixed-price physical contracts.

     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 flows related to pigment sales,  operating  costs,
     capital  expenditures and raw material  purchases.  These forward contracts
     generally  have  durations  of less than three  years.  Changes in the fair
     value of these  contracts are recorded in accumulated  other  comprehensive
     loss and will be  recognized  in earnings in the periods  during  which the
     hedged  forecasted  transactions  affect earnings  (i.e.,  when the forward
     contracts  close  in the case of a hedge of  sales  revenues  or  operating
     costs,  when the hedged  assets are  depreciated  in the case of a hedge of
     capital  expenditures and when finished  inventory is sold in the case of a
     hedged raw material purchase).  The company expects to reclassify net gains
     of  approximately  $7.9  million into  earnings  during the next 12 months,
     assuming no further  changes in the fair value of the contracts.  No hedges
     were   discontinued   during  the  first  six   months  of  2004,   and  no
     ineffectiveness was recognized.

     In connection  with the issuance of $350 million 5.375% notes due April 15,
     2005, the company  entered into an interest rate swap  arrangement in April
     2002.  The terms of the  agreement  effectively  change  the  interest  the
     company  will pay on the debt  until  maturity  from  the  fixed  rate to a
     variable  rate of LIBOR plus  .875%.  During  February  2004,  the  company
     reviewed  the  composition  of  its  outstanding   debt  and  entered  into
     additional interest rate swaps,  converting an aggregate of $566 million in
     fixed-rate debt to variable-rate  debt. Under the interest rate swaps, $150
     million of 6.625% notes due October 15, 2007,  will pay a variable  rate of
     LIBOR plus 3.35%;  $109 million of 8.125% notes due October 15, 2005,  will
     pay a variable  rate of LIBOR plus 5.86%;  and $307 million of 5.875% notes
     due  September 15, 2006,  will pay a variable rate of LIBOR plus 3.1%.  The
     company  considers  these  swaps to be a hedge  against  the change in fair
     value of the related debt as a result of interest rate changes. Any gain or
     loss on the swaps is offset by a  comparable  gain or loss  resulting  from
     recording changes in the fair value of the related debt. The critical terms
     of the  swaps  match  the  terms of the  debt;  therefore,  the  swaps  are
     considered  highly  effective  and  no  hedge   ineffectiveness   has  been
     recognized.

     The company  issued 5 1/2% notes  exchangeable  for common  stock (DECS) in
     August 1999, which allowed 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 provided the
     company a floor price on Devon's  common stock of $33.19 per share (the put
     option).  The company  also had the right to retain up to 15% of the shares
     if Devon's  stock price was greater than $39.16 per share (the DECS holders
     had an embedded call option on 85% of the shares).  Using the Black-Scholes
     valuation model, the company  recognized any gains or losses resulting from
     changes in the fair value of the put and call options in other income.  The
     fluctuation  in  the  value  of  the  put  and  call  derivative  financial
     instruments generally offset the increase or decease in the market value of
     the Devon stock  classified as trading,  which is also  recognized in other
     income.  The company recognized gains of $66.2 million and $43.7 million in
     the three  month  periods  ending  June 30,  2004 and  2003,  respectively,
     related  to the  changes  in  market  value  of  the  Devon  stock.  In the
     corresponding   six  month  periods,   the  company   recognized  gains  on
     revaluation  of the  Devon  stock  of  $73.7  million  and  $63.3  million,
     respectively.  The DECS and the derivative  liability  associated  with the
     call  option are  classified  as current  liabilities  in the  Consolidated
     Balance  Sheet as of June 30, 2004 and  December  31,  2003.  The DECS were
     settled on August 2, 2004, with the  distribution of shares of Devon common
     stock.

     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. The company is collection  agent and 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.

     The  company has  entered  into other  forward  contracts  to sell  foreign
     currencies that will be collected as a result of pigment sales  denominated
     in foreign  currencies.  These contracts have not been designated as hedges
     even though they do protect the company  from  changes in foreign  currency
     rates.


D.   Discontinued Operations and Asset Impairments

     On March  31,  2003,  the  company  completed  the  sale of its  Kazakhstan
     operations for $168.6  million in cash,  recognizing a loss on sale of $6.1
     million in results from discontinued operations during the first quarter of
     2003. In connection  with this sale, the company  recorded an $18.6 million
     settlement  liability  for the net cash flow of the  Kazakhstan  operations
     from  the  effective  date of the  transaction  to the  closing  date.  The
     settlement  liability  was paid during the third  quarter of 2003.  The net
     proceeds received by the company were used to reduce outstanding debt.

     Impairment  losses  totaling $14.3 million and $5.1 million were recognized
     during the first six  months of 2004 and 2003,  respectively,  for  certain
     assets used in operations  that are not considered  held for sale. The 2004
     impairments  related  primarily  to  a  U.S.  Gulf  of  Mexico  field  that
     experienced  premature water breakthrough and ceased production sooner than
     expected.

     The company  continues to review its options with respect to its 100%-owned
     Leadon field and, particularly, the associated floating production, storage
     and offloading  (FPSO) facility.  Management  presently intends to continue
     operating and  producing  the field until such time as the  operating  cash
     flow generated by the field does not support continued  production or until
     a higher value option is identified. Given the significant value associated
     with the FPSO relative to the size of the entire project,  the company will
     continue to pursue a long-term  solution  that  achieves  maximum value for
     Leadon - which may include  disposing of the field,  monetizing the FPSO by
     selling  it  as a  development  option  for  a  third-party  discovery,  or
     redeployment in other company operations. As of June 30, 2004, the carrying
     value  of  the  Leadon  field  assets  totaled  $358  million.   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 due to,  among other
     things,  (i) unfavorable  changes in commodity  prices or operating  costs,
     (ii) a  production  profile  that  declines  more  rapidly  than  currently
     anticipated,  and/or (iii) unsuccessful  results of marketing activities or
     failure to locate a strategic buyer (or suitable redeployment opportunity).
     Accordingly,  management  anticipates that the Leadon field will be subject
     to periodic  impairment review until such time as the field is abandoned or
     sold.  If future  cash flows or fair  value  decrease  from that  presently
     estimated,  an additional write-down of the Leadon field could occur in the
     future.

     Capitalized  costs  associated  with  exploratory  wells may be  charged to
     earnings  in a future  period  if  management  determines  that  commercial
     quantities of hydrocarbons have not been discovered.  At June 30, 2004, the
     company had capitalized costs of approximately $184 million associated with
     such ongoing  exploration  activities,  primarily in the deepwater  Gulf of
     Mexico, Brazil, Alaska and China.

     In January 2004, the company  announced the temporary idling of one line of
     its sulfate-process  titanium dioxide pigment production  facilities at the
     Savannah  manufacturing  plant, which is one of two sulfate-process  trains
     operated by the company  worldwide.  The line was temporarily idled because
     of soft demand for  sulfate-process  titanium dioxide pigment.  The sulfate
     line has remained  idle,  as the market  conditions  have not  sufficiently
     improved.   In  addition,   unanticipated   cost  issues   associated  with
     underperforming  plant and equipment  discovered after the company acquired
     the plant in 2000 have  increased  the cost  profile of the plant from that
     initially anticipated.  The company is currently performing market analyses
     and  evaluating  plant  reconfiguration  to explore means of best improving
     operating results, while also evaluating its strategic options with respect
     to the Savannah sulfate operations.  During the second quarter, the company
     operated  its new  high-productivity  oxidation  line for  chloride  at the
     Savannah  facility,  which  produced  improved  ore yields.  The company is
     evaluating the performance of this new oxidation line and expects to have a
     better  understanding  of how the Savannah  site might be  reconfigured  to
     exploit  its  capabilities  by  the  latter  part  of  2004.  The  possible
     reconfiguration  of the  Savannah  site,  if any, as well as any  decisions
     regarding  strategic  options  related  to the  sulfate  operations,  could
     include  redeployment  of  certain  assets,  idling of  certain  assets and
     reduction  of the future  useful life of certain  assets,  resulting in the
     acceleration of depreciation expense and the recognition of other charges.


E.   Cash Flow Information

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

                                                            Six Months Ended
                                                                June 30,
                                                        ------------------------
     (Millions of dollars)                                2004             2003
     ---------------------------------------------------------------------------

     Income tax payments                                $ 89.5           $ 64.9
     Less refunds received                                (3.3)           (14.8)
                                                        ------           ------
       Net income tax payments                          $ 86.2           $ 50.1
                                                        ======           ======

     Interest payments                                  $135.9           $119.0
                                                        ======           ======

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

                                                            Six Months Ended
                                                                June 30,
                                                          ---------------------
     (Millions of dollars)                                  2004           2003
     --------------------------------------------------------------------------

     Incentive compensation provisions                    $ 34.4         $ 18.5
     Increase in fair value of trading securities (1)      (73.7)         (63.3)
     Increase in fair value of embedded options in
       the DECS (1)                                         71.9           58.1
     Net losses on equity method investments                14.7           12.8
     Net periodic postretirement expense                    13.4           11.2
     Net periodic pension credit for qualified plan        (10.6)          (6.0)
     Litigation reserve provisions                             -            6.5
     All other (2)                                          19.9           31.4
                                                          ------         ------
        Total                                             $ 70.0         $ 69.2
                                                          ======         ======


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

                                                             Six Months Ended
                                                                 June 30,
                                                          ---------------------
     (Millions of dollars)                                   2004          2003
     --------------------------------------------------------------------------

     Decrease due to changes in working capital accounts  $(130.3)      $ (83.7)
     Environmental expenditures                             (44.1)        (36.4)
     All other (2)                                          (36.8)        (24.6)
                                                          -------       -------
        Total                                             $(211.2)      $(144.7)
                                                          =======       =======


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

                                                               Six Months Ended
                                                                   June 30,
                                                             ------------------
     (Millions of dollars)                                       2004      2003
     --------------------------------------------------------------------------

     Noncash investing activities
       Increase in property, plant and equipment (3)         $3,462.0    $    -
       Increase in fair value of trading securities (1)          73.7      63.3
       Decrease in property related to Gunnison operating
         lease agreement (4)                                    (82.6)        -
       Increase in intangible assets (3)                         46.2         -

     Noncash financing activities
       Issuance of common stock and stock options (3)         2,447.9         -
       Long-term debt assumed (3)                             1,045.5         -
       Reduction in debt related to Gunnison operating
         lease agreement (4)                                    (75.3)        -
       Increase in fair value of embedded options in
         the DECS (1)                                            71.9      58.1

        (1) See Note C for a discussion of the accounting for the DECS.
        (2) No other  individual  item is  material  to  total  cash  flows from
            operations.
        (3) Noncash transaction related to Westport merger, see Note B.
        (4) See Note H for a discussion of the Gunnison Synthetic Trust.


F.   Comprehensive Income and Financial Instruments

     Comprehensive  income for the three and six months  ended June 30, 2004 and
     2003, is as follows:



                                                                  Three Months             Six Months
                                                                     Ended                   Ended
                                                                    June 30,                June 30,
                                                              ------------------      -------------------
     (Millions of dollars)                                      2004        2003         2004        2003
     ----------------------------------------------------------------------------------------------------
                                                                                       
     Net income                                               $110.6       $69.6      $ 262.8      $139.5
     Unrealized gains on securities                                -         5.1            -         7.4
     Reclassification of unrealized gains on available
       for-sale securities included in net income                  -           -         (5.4)          -
     Change in fair value of cash flow hedges                  (93.5)        1.9       (184.4)      (13.7)
     Foreign currency translation adjustment                    (3.0)       17.1        (10.0)       28.0
     Other                                                         -           -          0.3         0.8
                                                              ------       -----      -------      ------
       Comprehensive income                                   $ 14.1       $93.7      $  63.3      $162.0
                                                              ======       =====      =======      ======



     The company has certain investments that are considered to be available for
     sale. These financial  instruments are carried in the Consolidated  Balance
     Sheet at fair value,  which is based on quoted market  prices.  The company
     had no  securities  classified  as held to  maturity  at June  30,  2004 or
     December   31,   2003.   At  June  30,   2004  and   December   31,   2003,
     available-for-sale securities for which fair value could be determined were
     as follows:



                                                     June 30, 2004                         December 31, 2003
                                           -------------------------------        --------------------------------
                                                                     Gross                                   Gross
                                                                Unrealized                              Unrealized
                                            Fair                   Holding         Fair                    Holding
     (Millions of dollars)                 Value       Cost           Gain        Value      Cost             Gain
     -------------------------------------------------------------------------------------------------------------
                                                                                            
     Equity securities                      $  -       $  -            $ -        $26.8      $9.8             $8.3(1)
     U.S. government obligations             3.8        3.8              -          3.9       3.9                -
                                                                       ---                                    ----
        Total                                                          $ -                                    $8.3
                                                                       ===                                    ====


     (1) This amount includes $8.6 million of gross unrealized hedging losses on
         15% of the exchangeable debt at the time of adoption of FAS 133.

     The equity  securities  represent the company's  investment in Devon Energy
     Corporation  common  stock.  During  January  2004,  the  company  sold its
     remaining  Devon shares  classified as available for sale for a pretax gain
     of $9 million.  Proceeds from the January sales totaled $27.4 million.  The
     cost of the  shares  sold  and the  amount  of the gain  reclassified  from
     accumulated  other  comprehensive  income were determined using the average
     cost of the shares  held.  The  company  also  received  proceeds  of $11.5
     million in January 2004 related to sales of Devon shares in December  2003,
     with a 2004 settlement date.


G.   Equity Affiliates

     Investments in equity  affiliates  totaled $118.6 million at June 30, 2004,
     and $123.1 million at December 31, 2003.  Pretax equity loss related to the
     investments  is included in other income in the  Consolidated  Statement of
     Income and totaled $6.4 million and $6.7 million for the three months ended
     June 30, 2004 and 2003, respectively. For the first six months of 2004, the
     loss in equity  affiliates  totaled  $14.7  million,  compared  with  $12.8
     million for the same 2003 period.


H.   Debt

     As of June 30, 2004,  long-term  debt due within one year  consisted of the
     following:
                                                                        June 30,
     (Millions of dollars)                                                  2004
     ---------------------------------------------------------------------------

     5.375% Notes due April 15, 2005                                      $350.0
     5.5% Exchangeable Notes (DECS) due August 2, 2004, net
       of unamortized discount of $.6 million                              329.7
     8.375% Notes due July 15, 2004                                        145.0
     Guaranteed Debt of Employee Stock Ownership Plan 9.61% Notes
       due in installments through January 2, 2005                           3.0
                                                                          ------
         Total                                                            $827.7
                                                                          ======

     Subsequent to June 30, 2004,  the company used  available  cash to fund the
     July 15, 2004 maturity of its 8.375% Notes. In addition, the company's 5.5%
     Exchangeable Notes were settled on August 2, 2004, with the distribution of
     shares  of  Devon  common  stock.  See  Note C for  additional  information
     regarding the DECS.

     As discussed in Note B, the company  completed its  acquisition of Westport
     on June 25, 2004. In  connection  with the merger,  Kerr-McGee  assumed the
     following Westport debt:


     (Millions of dollars)                                            Fair Value
     ---------------------------------------------------------------------------

     8.25% Notes due 2011 (face value $700 million)                     $  800.5
     Revolving credit facility                                             245.0
                                                                        --------
         Total                                                          $1,045.5
                                                                        ========

     On June 25, 2004, after completion of the merger,  Kerr-McGee paid down all
     outstanding  borrowings  under  the  Westport  revolving  credit  facility.
     Consequently,  there  were no  borrowings  outstanding  under  this  credit
     facility at June 30, 2004. However, letters of credit totaling $160 million
     associated with Westport's  derivatives  were backed by the credit facility
     and remained outstanding as of June 30, 2004. During July, these letters of
     credit were  cancelled  and the  Westport  revolving  credit  facility  was
     terminated on July 13, 2004.

     During  June  2004,  Kerr-McGee  purchased  Westport  8.25%  Notes  with an
     aggregate principal amount of $14.5 million ($16.1 million fair value). The
     fair value of the purchased  notes is reflected as a reduction of long-term
     debt assumed in the merger in the  Consolidated  Balance Sheet.  On July 1,
     2004, Kerr-McGee issued a notice of redemption for the 8.25% Westport notes
     and the notes were  redeemed  on July 31, 2004 at an  aggregate  redemption
     price of $785.5 million.  The redemption  price consisted of the face value
     of $700  million,  less the amount  previously  purchased by  Kerr-McGee of
     $14.5 million, plus a make-whole premium of $100 million.

     On July 1, 2004,  Kerr-McGee issued $650 million of 6.95% notes due July 1,
     2024, with interest payable semi-annually.  The notes were issued at 99.2%,
     resulting  in a  discount  of  $5  million  which  will  be  recognized  as
     additional  interest  expense over the term of the notes. The proceeds from
     this debt  issuance,  together  with  proceeds  from  borrowings  under the
     company's  revolving  credit  facilities,  were  used to  redeem  the 8.25%
     Westport notes discussed above.

     During 2001, the company entered into a leasing arrangement with Kerr-McGee
     Gunnison  Trust  (Gunnison  Synthetic  Trust) for the  construction  of the
     company's share of a platform to be used in the development of the Gunnison
     field, in which the company has a 50% working interest.  Under the terms of
     the agreement, the company financed its share of construction costs for the
     platform  under a synthetic  lease  credit  facility  between the trust and
     groups of financial  institutions for up to $157 million,  with the company
     making lease  payments  sufficient  to pay interest at varying rates on the
     notes.  Construction  of the platform was completed in December 2003,  with
     the  company's  share of  construction  costs  totaling  $149  million.  On
     December  31,  2003,  $65.6  million of the  synthetic  lease  facility was
     converted to a leveraged  lease  structure,  whereby the company  leases an
     interest in the platform under an operating lease agreement from a separate
     business trust.

     Both the Gunnison  Synthetic  Trust and the new  operating  lease trust are
     considered   variable  interest  entities  under  the  provisions  of  FASB
     Interpretation  No. 46,  "Consolidation  of Variable Interest Entities - an
     Interpretation  of ARB No. 51." As such, the company is required to analyze
     its  relationship  with each trust to determine  whether the company is the
     primary  beneficiary and, if so, required to consolidate the trusts.  Based
     on the analyses  performed,  the company is not the primary  beneficiary of
     the operating lease trust;  however, the company was considered the primary
     beneficiary of the Gunnison  Synthetic  Trust.  Accordingly,  the remaining
     assets and  liabilities of the Gunnison  Synthetic  Trust were reflected in
     the  company's  Consolidated  Balance  Sheet at December  31,  2003,  which
     included $82.6 million in property,  plant and  equipment,  $3.8 million in
     accrued  liabilities,  $75.3 million in long-term debt, and $3.5 million in
     minority interest.  On January 15, 2004, the remaining $82.6 million of the
     synthetic lease facility was converted to a leveraged lease structure,  and
     the related lessor trust is not subject to consolidation.  As a result, the
     associated   property  and  debt  are  not   reflected  in  the   company's
     Consolidated Balance Sheet at June 30, 2004.


I.   Earnings Per Share

     The  following  table  sets  forth the  computation  of basic  and  diluted
     earnings per share (EPS) from continuing operations for the three-month and
     six-month periods ended June 30, 2004 and 2003.



                                                           For the Three Months Ended June 30,
                                     ------------------------------------------------------------------------------
                                                     2004                                      2003
                                     --------------------------------------   -------------------------------------

                                     Income from                              Income from
     (In millions, except             Continuing                  Per-Share    Continuing                 Per-Share
     per-share amounts)               Operations      Shares         Income    Operations       Shares       Income
     --------------------------------------------------------------------------------------------------------------
                                                                                             
     Basic EPS                            $110.6       103.6          $1.07         $69.8        100.1         $.70
                                                                      =====                                    ====
       Effect of dilutive securities:
         5 1/4% convertible
           debentures                        5.3         9.8                          5.3          9.8
         Restricted stock                      -         1.1                            -           .7
         Stock options                         -          .3                            -           .1
                                          ------       -----                        -----        -----
     Diluted EPS                          $115.9       114.8          $1.01         $75.1        110.7         $.68
                                          ======       =====          =====         =====        =====         ====




                                                            For the Six Months Ended June 30,
                                     ------------------------------------------------------------------------------
                                                     2004                                      2003
                                     --------------------------------------   -------------------------------------

                                     Income from                              Income from
     (In millions, except             Continuing                  Per-Share    Continuing                 Per-Share
     per-share amounts)               Operations      Shares         Income    Operations       Shares       Income
     --------------------------------------------------------------------------------------------------------------
                                                                                            
     Basic EPS                            $262.8       102.0          $2.58        $174.0        100.1        $1.73
                                                                      =====                                   =====
       Effect of dilutive securities:
         5 1/4% convertible
           debentures                       10.7         9.8                         10.7          9.8
         Restricted stock                      -         1.0                            -           .7
         Stock options                         -          .3                            -            -
                                          ------       -----                       ------        -----
     Diluted EPS                          $273.5       113.1          $2.42        $184.7        110.6        $1.67
                                          ======       =====          =====        ======        =====        =====



J.   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 company is
     currently  in the process of  renewing  the program and expects to have the
     renewal   completed   during  the  third  quarter  of  2004.   The  maximum
     availability  under the  program  is $165  million.  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 $304 million and $155.7 million of its pigment receivables
     during the second quarter of 2004 and 2003, respectively and $540.9 million
     and  $312.5  million  during  the  first  six  months  of  2004  and  2003,
     respectively.  Losses, though not material,  are recorded on the receivable
     sales 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  $165  million  at both June 30,  2004 and
     December 31, 2003.


K.   Work Force Reduction, Restructuring Provisions and Exit Activities

     In connection with the Westport merger, the company recognized  liabilities
     of $18.9 million associated with severance and relocation costs for certain
     former Westport  employees.  Terminations of 23 employees  occurred on June
     25, 2004,  and 44 employees  remaining  for  transitional  purposes will be
     terminated no later than June 25, 2005.

     In  September  2003,  the  company  announced  a program to reduce its U.S.
     nonbargaining work force through both voluntary retirements and involuntary
     terminations.  As a result of the  program,  the  company's  eligible  U.S.
     nonbargaining work force was reduced by approximately 9%, or 271 employees.
     Qualifying  employees  terminated  under this program  became  eligible for
     enhanced  benefits under the company's  pension and  postretirement  plans,
     along with severance payments.  The program was substantially  completed by
     the end of 2003,  with certain  retiring  employees  staying into the first
     half of 2004 for  transition  purposes.  In connection  with the work force
     reduction,  the company  recognized a pretax charge of $56.4 million during
     the latter half of 2003,  of which $34.2  million was for  curtailment  and
     special termination benefits associated with the company's retirement plans
     and $22.2 million was for severance-related  costs. The remaining provision
     for severance-related  costs is included in the restructuring reserve table
     below. Of the $22.2 million severance-related  provision, $18.6 million has
     been paid through the second quarter of 2004,  with $3.6 million  remaining
     in the accrual at June 30, 2004.

     During 2003, the company's chemical - pigment operating unit provided $60.8
     million  pretax for costs  associated  with the  closure  of its  synthetic
     rutile plant in Mobile,  Alabama.  Included in the $60.8 million were $14.1
     million for the cumulative effect of change in accounting principle related
     to the  recognition of an asset  retirement  obligation,  $15.2 million for
     accelerated depreciation,  $14.9 million for other shut-down related costs,
     $10.5  million for  severance  benefits  and $6.1  million for benefit plan
     curtailment  costs. The provision for severance benefits is included in the
     restructuring reserve table below (see Note N for a discussion of the asset
     retirement obligation).  Of the total $10.5 million severance accrual, $8.6
     million has been paid through the second quarter of 2004. Approximately 135
     employees  will  ultimately be  terminated  in  connection  with this plant
     closure, of which 117 had been terminated as of June 30, 2004.

     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.  The company  provided  an  additional  $5.1  million in 2003 for
     severance benefits associated with exiting the forest products business, of
     which $3.6 million was recorded during the first six months of 2003. During
     the first six months of 2004,  the  company  provided  an  additional  $1.2
     million for dismantlement  and closure costs.  These costs are reflected in
     costs and  operating  expenses  in the  Consolidated  Statement  of Income.
     Included in the total  provision of $22.8  million  were $16.7  million for
     dismantlement  and closure costs,  and $6.1 million for severance costs. Of
     the total  provision,  $14  million  has been paid  through the 2004 second
     quarter  and $8.2  million  remained in the  accrual at June 30,  2004.  In
     connection  with the plant closures,  252 employees will be terminated,  of
     which 202 had been terminated as of June 30, 2004.

     In 2001,  the company's  chemical - pigment  operating  unit provided $31.8
     million  pretax related to the closure of a plant in Antwerp,  Belgium.  Of
     this total  accrual,  $27.1  million had been paid  through the 2004 second
     quarter and $4.4  million  remained in the accrual at June 30,  2004.  As a
     result of this plant closure, 121 employees were terminated.

     The provisions,  payments,  adjustments and restructuring  reserve balances
     for the  six-month  period ended June 30,  2004,  are included in the table
     below.

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

     December 31, 2003                    $ 39.1       $ 26.5             $12.6
       Westport severance/relocation        18.9         18.9                 -
       Provisions                            1.2            -               1.2
       Payments                            (21.2)       (16.7)             (4.5)
       Adjustments                             -          (.3)               .3
                                          ------       ------             -----
     June 30, 2004                        $ 38.0       $ 28.4             $ 9.6
                                          ======       ======             =====


L.   Condensed Consolidating Financial Information

     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 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 and Kerr-McGee  Rocky Mountain
     Corporation.

     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 Subsidiary Companies
                   Condensed Consolidating Statement of Income
                    For the Three Months Ended June 30, 2004


                                                                                     Non-
                                                  Kerr-McGee     Guarantor      Guarantor
(Millions of dollars)                            Corporation  Subsidiaries   Subsidiaries   Eliminations   Consolidated
-----------------------------------------------------------------------------------------------------------------------
                                                                                                
Revenues                                              $    -        $215.6         $881.5        $     -       $1,097.1
                                                      ------        ------         ------        -------       --------

Costs and Expenses
  Costs and operating expenses                             -         109.2          324.0            (.6)         432.6
  Selling, general and administrative expenses            .7            .6           78.8              -           80.1
  Shipping and handling expenses                           -           1.9           36.5              -           38.4
  Depreciation and depletion                               -          30.2          160.8              -          191.0
  Accretion expense                                        -            .6            6.2              -            6.8
  Impairments on assets held for use                       -             -            1.1              -            1.1
  Loss associated with assets held for sale                -            .1            3.8              -            3.9
  Exploration, including dry holes and
    amortization of undeveloped leases                     -           2.9           62.6              -           65.5
  Taxes, other than income taxes                          .1           9.1           19.4              -           28.6
  Provision for environmental remediation
    and restoration, net of reimbursements                 -           7.1             .3              -            7.4
  Interest and debt expense                             26.6           8.9           70.0          (49.8)          55.7
                                                      ------        ------         ------        -------       --------
      Total Costs and Expenses                          27.4         170.6          763.5          (50.4)         911.1
                                                      ------        ------         ------        -------       --------

                                                       (27.4)         45.0          118.0           50.4          186.0
Other Income (Expense)                                 206.4          16.4           20.2         (250.0)          (7.0)
                                                      ------        ------         ------        -------       --------
Income before Income Taxes                             179.0          61.4          138.2         (199.6)         179.0
Provision for Income Taxes                             (68.4)        (22.4)         (54.0)          76.4          (68.4)
                                                      ------         -----         ------        -------       --------
Net Income                                            $110.6        $ 39.0         $ 84.2        $(123.2)      $  110.6
                                                      ======        ======         ======        =======       ========





                 Kerr-McGee Corporation and Subsidiary Companies
                   Condensed Consolidating Statement of Income
                    For the Three Months Ended June 30, 2003


                                                                                     Non-
                                                  Kerr-McGee     Guarantor      Guarantor
(Millions of dollars)                            Corporation  Subsidiaries   Subsidiaries   Eliminations   Consolidated
-----------------------------------------------------------------------------------------------------------------------
                                                                                                
Revenues                                              $    -        $169.3         $887.6        $ (4.3)       $1,052.6
                                                      ------        ------         ------        -------       --------

Costs and Expenses
  Costs and operating expenses                             -          82.1          361.6          (4.6)          439.1
  Selling, general and administrative expenses             -           3.0           76.1              -           79.1
  Shipping and handling expenses                           -           2.1           32.9              -           35.0
  Depreciation and depletion                               -          30.4          162.6              -          193.0
  Accretion expense                                        -            .6            5.7              -            6.3
  Loss (gain) associated with assets held for sale         -           1.7           (2.2)             -            (.5)
  Exploration, including dry holes and
    amortization of undeveloped leases                     -           2.9           63.7              -           66.6
  Taxes, other than income taxes                          .1           3.2           17.7              -           21.0
  Provision for environmental remediation
    and restoration, net of reimbursements                 -            .7            1.2              -            1.9
  Interest and debt expense                             28.8           8.3           70.0          (43.7)          63.4
                                                      ------        ------         ------        -------       --------
      Total Costs and Expenses                          28.9         135.0          789.3          (48.3)         904.9
                                                      ------        ------         ------        -------       --------

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




                 Kerr-McGee Corporation and Subsidiary Companies
                   Condensed Consolidating Statement of Income
                     For the Six Months Ended June 30, 2004


                                                                                     Non-
                                                  Kerr-McGee     Guarantor      Guarantor
(Millions of dollars)                            Corporation  Subsidiaries   Subsidiaries   Eliminations   Consolidated
-----------------------------------------------------------------------------------------------------------------------
                                                                                                
Revenues                                             $     -        $426.5       $1,786.9        $     -       $2,213.4
                                                     -------        ------       --------        -------       --------

Costs and Expenses
  Costs and operating expenses                             -         218.9          617.7           (1.0)         835.6
  Selling, general and administrative expenses            .7            .7          162.3              -          163.7
  Shipping and handling expenses                           -           3.6           72.5              -           76.1
  Depreciation and depletion                               -          60.2          321.1              -          381.3
  Accretion expense                                        -           1.3           12.1              -           13.4
  Impairments on assets held for use                       -            .9           13.4              -           14.3
  Loss associated with assets held for sale                -            .1            7.2              -            7.3
  Exploration, including dry holes and
    amortization of undeveloped leases                     -           6.5          109.6              -          116.1
  Taxes, other than income taxes                          .1          17.4           39.5              -           57.0
  Provision for environmental remediation
    and restoration, net of reimbursements                 -           6.3             .3              -            6.6
  Interest and debt expense                             54.1          18.1          139.3          (98.8)         112.7
                                                     -------        ------       --------        -------       --------
      Total Costs and Expenses                          54.9         334.0        1,495.0          (99.8)       1,784.1
                                                     -------        ------       --------        -------       --------

                                                       (54.9)         92.5          291.9           99.8          429.3
Other Income (Expense)                                 476.9           9.8           49.3         (543.3)          (7.3)
                                                     -------        ------       --------        -------       --------
Income before Income Taxes                             422.0         102.3          341.2         (443.5)         422.0
Provision for Income Taxes                            (159.2)        (36.8)        (131.6)         168.4         (159.2)
                                                     -------        ------       --------        -------       --------
Net Income                                           $ 262.8        $ 65.5       $  209.6        $(275.1)      $  262.8
                                                     =======        ======       ========        =======       ========





                 Kerr-McGee Corporation and Subsidiary Companies
                   Condensed Consolidating Statement of Income
                     For the Six Months Ended June 30, 2003


                                                                                     Non-
                                                  Kerr-McGee     Guarantor      Guarantor
(Millions of dollars)                            Corporation  Subsidiaries   Subsidiaries   Eliminations   Consolidated
-----------------------------------------------------------------------------------------------------------------------
                                                                                                
Revenues                                              $    -        $323.1       $1,835.5        $  (6.4)      $2,152.2
                                                      ------        ------       --------        -------       --------

Costs and Expenses
  Costs and operating expenses                             -         153.6          677.1           (7.2)         823.5
  Selling, general and administrative expenses             -          10.1          139.9              -          150.0
  Shipping and handling expenses                           -           4.7           62.3              -           67.0
  Depreciation and depletion                               -          60.3          322.3              -          382.6
  Accretion expense                                        -           1.2           11.3              -           12.5
  Impairments on assets held for use                       -             -            5.1              -            5.1
  Loss (gain) associated with assets held for sale         -           1.6           (7.3)             -           (5.7)
  Exploration, including dry holes and
    amortization of undeveloped leases                     -           6.8          200.3              -          207.1
  Taxes, other than income taxes                          .2           8.7           37.5              -           46.4
  Provision for environmental remediation
    and restoration, net of reimbursements                 -           5.8           13.4              -           19.2
  Interest and debt expense                             57.7          16.7          142.8          (88.8)         128.4
                                                      ------        ------       --------        -------       --------
      Total Costs and Expenses                          57.9         269.5        1,604.7          (96.0)       1,836.1
                                                      ------        ------       --------        -------       --------

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







                 Kerr-McGee Corporation and Subsidiary Companies
                      Condensed Consolidating Balance Sheet
                                  June 30, 2004


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

                                                                                               
ASSETS
------
Current Assets
  Cash                                              $    1.8      $      -      $   102.9      $       -      $   104.7
  Intercompany receivables                                .1             -           49.8          (49.9)             -
  Accounts receivable                                      -         116.1          601.2              -          717.3
  Inventories                                              -           3.4          401.3              -          404.7
  Deposits, prepaid expenses and other assets           16.3          19.7          682.9          (16.3)         702.6
  Deferred income taxes                                   .2          21.1          185.1                         206.4
                                                    --------      --------      ---------      ---------      ---------
    Total Current Assets                                18.4         160.3        2,023.2          (66.2)       2,135.7

Property, Plant and Equipment - Net                        -       1,968.6        8,847.1              -       10,815.7
Investments in Subsidiaries                          5,907.0         732.1              -       (6,639.1)             -
Investments and Other Assets                            11.6          73.4          647.9          (79.6)         653.3
Goodwill                                                   -         346.3          850.6              -        1,196.9
Long-term Assets Associated with Properties
  Held for Disposal                                        -             -            1.3              -            1.3
                                                    --------      --------      ---------      ---------      ---------
    Total Assets                                    $5,937.0      $3,280.7      $12,370.1      $(6,784.9)     $14,802.9
                                                    ========      ========      =========      =========      =========

LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
Current Liabilities
  Intercompany borrowings                           $   59.3      $  772.3      $   760.6      $(1,592.2)     $       -
  Accounts payable                                      45.6          44.9          386.7              -          477.2
  Long-term debt due within one year                   350.0             -          477.7              -          827.7
  Other current liabilities                             23.4         200.1        1,476.4           (3.0)       1,696.9
                                                    --------      --------      ---------      ---------      ---------
    Total Current Liabilities                          478.3       1,017.3        3,101.4       (1,595.2)       3,001.8

Long-Term Debt                                       1,479.4             -        2,064.7          (16.1)       3,528.0

Other Liabilities and Deferred Credits                   8.9         677.1        2,510.8           (1.0)       3,195.8
Long-Term Liabilities Associated with
  Properties Held for Disposal                             -             -             .5              -             .5
Stockholders' Equity                                 3,970.4       1,586.3        4,692.7       (5,172.6)       5,076.8
                                                    --------      --------      ---------      ---------      ---------
    Total Liabilities and Stockholders' Equity      $5,937.0      $3,280.7      $12,370.1      $(6,784.9)     $14,802.9
                                                    ========      ========      =========      =========      =========





                 Kerr-McGee Corporation and Subsidiary Companies
                      Condensed Consolidating Balance Sheet
                                December 31, 2003


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

                                                                                               
ASSETS
------
Current Assets
  Cash                                              $    2.2      $      -       $  139.8      $       -      $   142.0
  Intercompany receivables                               7.0             -           58.8          (65.8)             -
  Accounts receivable                                      -         125.2          458.1              -          583.3
  Inventories                                              -           5.4          388.0              -          393.4
  Deposits, prepaid expenses and other assets              -          17.9          619.5              -          637.4
  Deferred income taxes                                  1.4          17.7           56.9              -           76.0
  Current assets associated with properties
    held for disposal                                      -             -             .4              -             .4
                                                    --------      --------       --------      ---------      ---------
      Total Current Assets                              10.6         166.2        1,721.5          (65.8)       1,832.5

Property, Plant and Equipment - Net                        -       1,966.6        5,436.3              -        7,402.9
Investments in Subsidiaries                          3,181.6         732.4              -       (3,914.0)             -
Investments and Other Assets                            10.2         104.7          593.6          (79.6)         628.9
Goodwill                                                   -         346.4           10.9              -          357.3
Long-term Assets Associated with Properties
  Held for Disposal                                        -             -           28.3              -           28.3
                                                    --------      --------       --------      ---------      ---------
    Total Assets                                    $3,202.4      $3,316.3       $7,790.6      $(4,059.4)     $10,249.9
                                                    ========      ========       ========      =========      =========

LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
Current Liabilities
  Intercompany borrowings                           $   68.6      $  892.9       $1,088.9      $(2,050.4)     $       -
  Accounts payable                                      45.4          38.9          391.2              -          475.5
  Long-term debt due within one year                       -             -          574.3              -          574.3
  Other current liabilities                             36.8         173.2          971.8              -        1,181.8
                                                    --------      --------       --------      ---------      ---------
    Total Current Liabilities                          150.8       1,105.0        3,026.2       (2,050.4)       2,231.6

Long-Term Debt                                       1,829.3             -        1,251.9              -        3,081.2

Other Liabilities and Deferred Credits                  (4.5)        696.0        1,595.7           (1.9)       2,285.3
Long-Term Liabilities Associated with
  Properties Held for Disposal                             -             -           16.0              -           16.0
Stockholders' Equity                                 1,226.8       1,515.3        1,900.8       (2,007.1)       2,635.8
                                                    --------      --------       --------      ---------      ---------
  Total Liabilities and Stockholders' Equity        $3,202.4      $3,316.3       $7,790.6      $(4,059.4)     $10,249.9
                                                    ========      ========       ========      =========      =========





                 Kerr-McGee Corporation and Subsidiary Companies
                 Condensed Consolidating Statement of Cash Flows
                     For the Six Months Ended June 30, 2004



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

                                                                                                 
Operating Activities
--------------------
Net income                                           $ 262.8        $ 65.5        $ 209.6        $(275.1)       $ 262.8
Adjustments to reconcile net income to net
  cash provided by (used in) operating
  activities -
    Depreciation, depletion and amortization               -          63.8          343.7              -          407.5
    Accretion expense                                      -           1.3           12.1              -           13.4
    Impairments on assets held for use                     -            .9           13.4              -           14.3
    Loss associated with assets held for use               -            .1            7.2              -            7.3
    Dry hole costs                                         -          (0.1)          26.2              -           26.1
    Deferred income taxes                               14.6           7.6           88.4              -          110.6
    Equity in (earnings) losses of subsidiaries       (272.5)         (3.7)             -          276.2              -
    Provision for environmental remediation
      and restoration, net of reimbursements               -           6.3             .3              -            6.6
    Noncash items affecting net income                    .1          16.9           53.0              -           70.0
    Other net cash used in operating activities        (29.9)         (5.3)        (174.9)          (1.1)        (211.2)
                                                     -------        ------        -------        -------        -------
      Net Cash Provided by (Used in)
        Operating Activities                           (24.9)        153.3          579.0              -          707.4
                                                     -------        ------        -------        -------        -------

Investing Activities
--------------------
Capital expenditures                                       -         (66.7)        (366.2)             -         (432.9)
Dry hole costs                                             -            .1          (26.2)             -          (26.1)
Westport acquisition                                       -             -           43.0              -           43.0
Proceeds from sales of assets                              -            .2            3.1              -            3.3
Other investing activities                             (16.1)            -           29.0              -           12.9
                                                     -------        ------        -------        -------        -------
      Net Cash Used in Investing Activities            (16.1)        (66.4)        (317.3)             -         (399.8)
                                                     -------        ------        -------        -------        -------

Financing Activities
--------------------
Increase (decrease) in intercompany
  notes payable                                        124.6         (86.9)         (37.7)             -              -
Issuance of long-term debt                                 -             -           86.0              -           86.0
Repayment of long-term debt                                -             -         (347.0)             -         (347.0)
Issuance of common stock                                 7.0             -              -              -            7.0
Dividends paid                                         (91.0)            -              -              -          (91.0)
                                                     -------        ------        -------        -------        -------
      Net Cash Provided by (Used in)
        Financing Activities                            40.6         (86.9)        (298.7)             -         (345.0)
                                                     -------        ------        -------        -------        -------

Effects of Exchange Rate Changes on Cash
  and Cash Equivalents                                     -             -             .1              -             .1
                                                     -------        ------        -------        -------        -------
Net Decrease in Cash and Cash Equivalents                (.4)            -          (36.9)             -          (37.3)
Cash and Cash Equivalents at Beginning of
  Period                                                 2.2             -          139.8              -          142.0
                                                     -------        ------        -------        -------        -------
Cash and Cash Equivalents at End of Period           $   1.8        $    -        $ 102.9        $     -        $ 104.7
                                                     =======        ======        =======        =======        =======





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


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

                                                                                                 
Operating Activities
--------------------
Net income                                           $ 139.5       $  36.7        $ 122.7        $(159.4)       $ 139.5
Adjustments to reconcile net income to net
  cash provided by (used in) operating
  activities -
    Depreciation, depletion and amortization               -          62.5          357.4              -          419.9
    Accretion expense                                      -           1.2           11.3              -           12.5
    Impairments on assets held for use                     -             -            5.1              -            5.1
    Loss associated with assets held for sale              -             -             .5              -             .5
    Equity in (earnings) losses of subsidiaries       (152.6)         31.9              -          120.7              -
    Dry hole costs                                         -             -          128.2              -          128.2
    Deferred income taxes                                  -          50.8           30.0              -           80.8
    Provision for environmental remediation
      and restoration, net of reimbursements               -           5.8           13.4              -           19.2
    Cumulative effect of change in accounting
      principle                                            -           1.3           33.4              -           34.7
    Noncash items affecting net income                    .9          14.6           53.7              -           69.2
    Other net cash used in operating activities         (7.4)       (133.6)          (3.7)             -         (144.7)
                                                     -------       -------        -------        -------        -------
      Net Cash Provided by (Used in)
        Operating Activities                           (19.6)         71.2          752.0          (38.7)         764.9
                                                     -------       -------        -------        -------        -------

Investing Activities
--------------------
Capital expenditures                                       -         (61.2)        (456.7)             -         (517.9)
Dry hole costs                                             -             -         (128.2)             -         (128.2)
Proceeds from sales of assets                              -           7.1          188.8              -          195.9
Other investing activities                                 -             -          (14.8)             -          (14.8)
                                                     -------       -------        -------        -------        -------
      Net Cash Used in Investing Activities                -         (54.1)        (410.9)             -         (465.0)
                                                     -------       -------        -------        -------        -------

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

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



M.   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 - Pursuant  to  agreements  reached in 1994 and 1997 among
     Chemical,  the City of West Chicago (the City) and the State  regarding the
     decommissioning   of  the  closed  West  Chicago  facility,   Chemical  has
     substantially  completed  the  excavation  of  contaminated  soils  and has
     shipped the bulk of those soils to a licensed disposal facility. Removal of
     the remaining  materials is expected to be  substantially  completed by the
     end of  2004,  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  have been  affected by the
     excavation and removal 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.  Chemical has substantially  completed remedial work for two of
     the areas (known as the Residential Areas and Reed-Keppler Park). 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.  It is anticipated
     that the consent  decree will be filed with the court in 2004 and  approved
     by the court in due course  thereafter.  Chemical has already  conducted an
     extensive  characterization  of Kress Creek and the Sewage  Treatment Plant
     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 June  30,  2004,  the  company  had  remaining
     reserves of $87 million for costs related to West Chicago.  Although actual
     costs may exceed current  estimates,  the amount of any increase  cannot be
     reasonably estimated at this time. The amount of the reserve is not reduced
     by reimbursements expected from the federal government under Title X of the
     Energy Policy Act of 1992 (Title X) (discussed below).

     Government  Reimbursement  - Pursuant  to Title X, the U.S.  Department  of
     Energy (DOE) is obligated to reimburse Chemical for certain decommissioning
     and cleanup  costs  incurred in  connection  with the West Chicago sites in
     recognition  of the fact that about 55% of the  facility's  production  was
     dedicated  to  U.S.  government   contracts.   The  amount  authorized  for
     reimbursement  under Title X is $365  million plus  inflation  adjustments.
     That  amount is  expected  to cover  the  government's  full  share of West
     Chicago cleanup costs.  Through June 30, 2004, Chemical had been reimbursed
     approximately $215 million under Title X.

     Reimbursements under Title X are provided by congressional  appropriations.
     Historically,  congressional  appropriations have lagged Chemical's cleanup
     expenditures. As of June 30, 2004, the government's share of costs incurred
     by Chemical but not yet  reimbursed  by the DOE totaled  approximately  $70
     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  expects to receive  $30  million in  reimbursements  for this
     receivable  within the next 12 months and the remainder by the end of 2006,
     and 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. Construction of a long-term remediation system is complete, and the
     system is operating.  It is anticipated  that  performance  testing will be
     completed during the third quarter of 2004. The scope, duration and cost 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  drinking water
     standards. One state agency, the California Environmental Protection Agency
     (CalEPA),  has  set a  public  health  goal  for  perchlorate,  which  is a
     preliminary step to setting a drinking water standard. The establishment of
     drinking water standards could  materially  affect the scope,  duration and
     cost of the long-term groundwater  remediation that Chemical is required to
     perform.

     Financial  Reserves - Remaining  reserves for Henderson totaled $14 million
     as of June 30, 2004. 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 additional costs
     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.

     In addition, on July 26, 2004, the company was served with a lawsuit, which
     was filed in the United States  District Court for the District of Arizona.
     The lawsuit, Alan Curtis and Linda Curtis v. City of Bullhead City, et al.,
     in which the company is one of several defendants (the Defendants), alleges
     various causes of action under a variety of common law theories and federal
     environmental  laws and seeks recovery for damages  allegedly caused by the
     exposure to and the migration of various chemical contaminants contained in
     the Colorado River.  Plaintiffs also seek an order requiring the Defendants
     to remediate the  contamination.  The company intends to vigorously  defend
     against the lawsuit. The company believes that the litigation will not have
     a  material  adverse  effect  on  its  financial  position  or  results  of
     operations.

     Insurance  -  In  2001,   Chemical   purchased  a  10-year,   $100  million
     environmental   cost  cap  insurance   policy  for  groundwater  and  other
     remediation at Henderson. The insurance policy provides coverage only after
     Chemical exhausts a self-insured retention of approximately $61 million and
     covers only those costs  incurred to achieve a cleanup  level  specified in
     the policy. As noted above, federal and state agencies have not established
     a drinking water standard and, therefore,  it is possible that Chemical may
     be required to achieve a cleanup level more  stringent than that covered by
     the  policy.  If so,  the  amount  recoverable  under the  policy  could be
     affected.

     Through June 30, 2004,  Chemical  had  incurred  expenditures  of about $68
     million that it believes can be applied to the self-insured  retention.  In
     April 2004,  Chemical  reached an agreement  in  principle  with one of its
     vendors to  reimburse  Chemical  approximately  $6 million for a portion of
     Chemical's  costs.  Reimbursement  from the vendor will effectively  reduce
     Chemical's  out-of-pocket costs and,  therefore,  will reduce the amount of
     expenditures  that qualify  under the insurance  policy.  At June 30, 2004,
     Chemical had incurred  costs that exceed the  self-insured  retention by $1
     million.  The company  believes  that this excess as well as the  remaining
     reserve of $14 million will qualify under the insurance policy, which would
     result in an insurance  reimbursement of about $15 million based on current
     cost estimates.  The company believes that the reimbursements of $6 million
     from  Chemical's  vendor and $15  million  under the  insurance  policy are
     probable  and,  accordingly,  the company has recorded  receivables  in the
     financial statements totaling $21 million.

     Milwaukee, Wisconsin

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

     Groundwater  treatment  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 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, which is expected to take about four more years.

     As of June 30, 2004, the company had remaining  reserves of $11 million for
     the costs of the remediation work described above. This includes $4 million
     added to the reserve in the second  quarter of 2004 for the  excavation and
     disposal of additional soil volumes  encountered  during remediation of the
     tributary  creek of the Menominee  River.  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.
     Investigation  and  remediation  of  hydrocarbon   contamination  is  being
     performed  with  oversight  of the  Oklahoma  Department  of  Environmental
     Quality. Soil remediation to address hydrocarbon  contamination is expected
     to continue for about four more years.  The long-term  scope,  duration and
     cost of groundwater  remediation are uncertain and,  therefore,  additional
     costs may be incurred in the future.

     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.   During  the  second  quarter  of  2004,  all  known  remaining
     radiological  contamination  was  removed  from the site and  shipped  to a
     licensed disposal facility. Verification and report preparation will extend
     through the end of 2004.

     As of June 30, 2004, the company had remaining  reserves of $16 million for
     the costs of the ongoing  remediation  and  decommissioning  work described
     above.  Included in this amount is $6 million added to the reserves  during
     the second quarter of 2004 primarily for  excavation,  transportation,  and
     disposal of additional soil volumes  encountered during the final stages of
     the  radiological  cleanup.   Although  actual  costs  may  exceed  current
     estimates,  the amount of any increases  cannot be reasonably  estimated at
     this time.

     Mobile, Alabama

     In June  2003,  Chemical  ceased  operations  at its  facility  in  Mobile,
     Alabama,  which  Chemical  had used to produce  feedstock  for its titanium
     dioxide  plants.   Operations  prior  to  closure  had  resulted  in  minor
     contamination   of  groundwater   adjacent  to  surface   impoundments.   A
     groundwater recovery system was installed prior to closure and continues in
     operation  as  required  under  Chemical's   National  Pollutant  Discharge
     Elimination  System (NPDES)  permit.  Future  remediation  work,  including
     groundwater recovery,  closure of the impoundments and other minor work, is
     expected to be substantially  completed in about five years. As of June 30,
     2004, the company had remaining  reserves of $11 million.  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.

     Los Angeles County, California

     During the second  quarter  of 2004,  the  company  began  remediation  and
     restoration  of an oil and gas  field in Los  Angeles  County,  California.
     Early soil excavation  experience  indicates that the  engineering  studies
     provided  by the  property  owner may have  underestimated  actual  volumes
     requiring  remediation.  The  company  has  initiated a study to refine the
     estimate  of work  requirements  and  associated  costs.  The study will be
     completed in the third  quarter of 2004.  As of June 30, 2004,  the company
     had environmental reserves of $8 million for this project.  Although actual
     costs may exceed current  estimates,  the amount of any increase  cannot be
     reasonably estimated at this time.

     Coal Supply Contract

     An  affiliate  of the  company  entered  into a coal supply  contract  with
     Peabody  Coaltrade,  Inc.  ("PCI") in February  1998. In 1998,  the company
     exited the coal business and assigned its rights and obligations  under the
     coal supply  contract to a third party.  In connection with the assignment,
     the company  agreed to guarantee  performance  under the contract.  PCI has
     notified the company of a threatened default by the assignee under the coal
     supply  contract and that PCI may seek to hold the company liable under the
     1998 guaranty in the event of a default.  In addition to other  defenses to
     the  enforceability  of the  guaranty,  the company  believes  the guaranty
     expired in January 2003 when the primary  term of the coal supply  contract
     expired.  No reserve has been provided for  performance  under the guaranty
     because the company  does not believe a loss is probable  and the amount of
     any loss is not reasonably estimable.

     Forest Products Litigation

     Between  1999 and 2001,  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 (in Columbus, Mississippi; Bossier City, Louisiana; and Avoca,
     Pennsylvania).  The lawsuits  sought 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.  Chemical  has  executed
     settlement agreements that are expected to resolve substantially all of the
     Louisiana,  Pennsylvania  and  Columbus,  Mississippi,  lawsuits  described
     above.  Accordingly  most of the suits have been,  or are  expected  to be,
     dismissed.

     Following  the  adoption by the  Mississippi  legislature  of tort  reform,
     plaintiffs' lawyers filed many new lawsuits across the state of Mississippi
     in  advance  of  the  reform's   effective  date.  On  December  31,  2002,
     approximately  245 lawsuits were filed against  Chemical and its affiliates
     on behalf of  approximately  4,600  claimants in connection with Chemical's
     Columbus,  Mississippi,  operations,  seeking  recovery  on legal  theories
     substantially  similar to those advanced in the litigation described above.
     Substantially  all of these lawsuits have been removed to the U.S. District
     Court  for  the  Northern  District  of  Mississippi,  and  the  Court  has
     consolidated these lawsuits for pretrial and discovery  purposes.  Chemical
     and its affiliates  believe the lawsuits are without  substantial merit and
     are  vigorously  defending  against  them.  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.

     On December 31, 2002, June 13, 2003, and June 25, 2004, three lawsuits were
     filed against  Chemical in connection  with a former  wood-treatment  plant
     located in  Hattiesburg,  Mississippi.  The lawsuits seek recovery on legal
     theories   substantially  similar  to  those  advanced  in  the  litigation
     described above. A total of approximately 3,300 claimants now have asserted
     claims in  connection  with the  Hattiesburg  plant.  Chemical has resolved
     approximately  1,490 of these claims  pursuant to a  settlement  reached in
     April  2003,  which has  resulted  in  aggregate  payments  by  Chemical of
     approximately  $600,000.  Chemical  and its  affiliates  believe  that  the
     remaining claims are without substantial merit and are vigorously defending
     against  them.  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.

     The company  believes that the resolution of the remaining  forest products
     litigation  will  not  have a  material  adverse  effect  on the  company's
     financial condition or results of operations.

     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,  some of which  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
     contained,  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  remediation activities vary significantly in duration, scope and cost
           from   site  to  site   depending   on  the   mix  of   unique   site
           characteristics,  applicable  technologies  and  regulatory  agencies
           involved;

        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,  as well as enforcement policies,
           are continually  changing,  and the outcome of court  proceedings and
           discussions with regulatory agencies are inherently uncertain;

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

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

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

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

     As of June 30,  2004,  the company had reserves  totaling  $227 million for
     cleaning up and remediating  environmental sites, reflecting the reasonably
     estimable costs for addressing  these sites.  This includes $87 million for
     the West Chicago sites, $14 million for the Henderson, Nevada, site and $32
     million for forest products sites.  Additionally,  as of June 30, 2004, the
     company had litigation reserves totaling  approximately $38 million for the
     reasonably   estimable  losses   associated  with  litigation.   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.


N.   Asset Retirement Obligations

     The company adopted FAS 143, "Accounting for Asset Retirement Obligations,"
     on January 1, 2003, which resulted in an increase in net property of $107.9
     million,  an increase in  abandonment  liabilities  of $160.8 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.  Additionally  in January 2003,  the company
     announced its plan to close the synthetic rutile plant in Mobile,  Alabama,
     by the end of 2003.  Since the plant had a determinate  closure  date,  the
     company also accrued an abandonment  liability of $17.6 million  associated
     with its plans to decommission the Mobile facility.

     A summary of the changes in the abandonment  liability during the first six
     months of 2004 is included in the table below.



     (Millions of dollars)
     ---------------------------------------------------------------------------------
                                                                             
     Balance, December 31, 2003                                                 $420.9
       New obligations incurred                                                    2.2
       Liability assumed in the Westport merger (1)                               73.7
       Accretion expense                                                          13.4
       Abandonment expenditures                                                   (6.1)
       Abandonment obligations settled through property divestitures              (1.9)
       Changes in estimates, including timing                                     13.8
                                                                                ------
     Balance, June 30, 2004                                                      516.0
       Less:  current asset retirement obligation                                (42.0)
       Less:  asset retirement obligation classified as held for disposal          (.5)
                                                                                ------
     Long-term asset retirement obligation                                      $473.5
                                                                                ======


     (1) See Note B.


O.   Employee Benefit Plans

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

     During the second quarter of 2004, the company  contributed $4.1 million to
     the U.S. nonqualified and foreign retirement plans, and $8.5 million to its
     U.S.  postretirement plan. During the first six months of 2004, the company
     contributed $7.3 million to the U.S.  nonqualified  and foreign  retirement
     plans, and $11 million to its U.S.  postretirement plan. Kerr-McGee expects
     to contribute  approximately $5 million to its U.S. nonqualified retirement
     plans,  $8.7 million to its foreign  retirement plans and $14.4 to its U.S.
     postretirement  plan during 2004. No contributions are expected in 2004 for
     the U.S. qualified retirement plan.

     In  December  2003,  the  Medicare   Prescription  Drug,   Improvement  and
     Modernization  Act of 2003 ("the Act") was signed into law. The Act expands
     Medicare to include,  for the first time,  coverage for prescription drugs.
     The Act also  introduces  a federal  subsidy to sponsors of retiree  health
     care  benefit  plans that  provide a benefit  that is at least  actuarially
     equivalent to Medicare Part D. In May 2004,  the FASB issued Staff Position
     (FSP) FAS 106-2,  "Accounting  and Disclosure  Requirements  Related to the
     Medicare Prescription Drug,  Improvement and Modernization Act of 2003," to
     provide guidance on accounting for the effects of the Act.  Kerr-McGee will
     adopt FSP FAS 106-2 in the third  quarter  of 2004 and does not  anticipate
     the  adoption  will have a  material  impact on the  company's  results  of
     operations.  The net periodic  postretirement  cost  included in the tables
     below does not reflect any amount associated with the subsidy.

     Total costs recognized for employee  retirement and postretirement  benefit
     plans for the second quarter of 2004 and 2003 were as follows:



                                                                                                     Postretirement
                                                                  Retirement Plans               Health and Life Plans
                                                             -------------------------         ------------------------
                                                                Three Months Ended                Three Months Ended
                                                                     June 30,                          June 30,
                                                             -------------------------         ------------------------
      (Millions of dollars)                                    2004               2003         2004                2003
     ------------------------------------------------------------------------------------------------------------------
                                                                                                       
     Net periodic cost -
       Service cost                                          $  7.0             $  6.4         $ .7                $ .5
       Interest cost                                           18.3               18.2          5.0                 2.9
       Expected return on plan assets                         (29.3)             (30.6)           -                   -
       Net amortization -
         Prior service cost                                     2.1                2.3           .4                  .1
         Net actuarial (gain) loss                              1.0               (2.6)          .8                   -
       Special termination benefits,
         curtailment loss (1)                                     -               13.4            -                 1.1
                                                             ------             ------         ----                ----
           Total net periodic cost                           $  (.9)            $  7.1         $6.9                $4.6
                                                             ======             ======         ====                ====





     Total costs recognized for employee  retirement and postretirement  benefit
     plans for the first six months of 2004 and 2003 were as follows:


                                                                                                    Postretirement
                                                                 Retirement Plans               Health and Life Plans
                                                              ------------------------        -------------------------
                                                                 Six Months Ended                  Six Months Ended
                                                                     June 30,                          June 30,
                                                              ------------------------        -------------------------
     (Millions of dollars)                                     2004               2003         2004                2003
     ------------------------------------------------------------------------------------------------------------------

                                                                                                      
     Net periodic cost -
       Service cost                                           $14.1             $ 12.8        $ 1.4               $ 1.6
       Interest cost                                           36.5               36.4          9.7                 8.3
       Expected return on plan assets                         (58.6)             (61.0)           -                   -
       Net amortization -
         Prior service cost                                     4.2                4.5           .8                  .2
         Net actuarial (gain) loss                              2.0               (5.1)         1.5                   -
       Special termination benefits,
         curtailment loss (1)                                     -               13.4            -                 1.1
                                                              -----             ------        -----               -----
           Total net periodic cost                            $(1.8)            $  1.0        $13.4               $11.2
                                                              =====             ======        =====               =====


(1)  Includes special  termination benefit and curtailment costs associated with
     the  shutdown of the Forest  Products  operations  and the Mobile,  Alabama
     facility.


     The following  assumptions were used in estimating the net periodic expense
     for the first six months of 2004 and 2003:


                                                   Six Months Ended                       Six Months Ended
                                                     June 30, 2004                         June 30, 2003
                                            -------------------------------      -----------------------------------
                                            United States     International      United States         International
     ---------------------------------------------------------------------------------------------------------------

                                                                                              
     Discount rate                                   6.25%       5.25 - 5.5%              6.75%           5.5 - 5.75%
     Expected return on plan assets                   8.5       5.75 - 7.25                8.5            5.75 - 7.0
     Rate of compensation increases                   4.5         2.0 - 5.0                4.5             2.5 - 6.5



P.   Business Segments

     Following  is a  summary  of sales  and  operating  profit  for each of the
     company's  business segments for the second quarter and first six months of
     2004 and 2003.




                                                                    Three Months Ended           Six Months Ended
                                                                         June 30,                    June 30,
                                                                 -----------------------      ----------------------
     (Millions of dollars)                                           2004           2003          2004          2003
     ---------------------------------------------------------------------------------------------------------------

                                                                                                
     Revenues
       Exploration and Production                                $  765.1       $  720.8      $1,598.9      $1,516.7
       Chemicals - Pigment                                          302.8          283.8         555.2         537.1
       Chemicals - Other                                             29.2           48.0          59.2          98.3
                                                                 --------       --------      --------      --------
                                                                  1,097.1        1,052.6       2,213.3       2,152.1
       All other                                                        -              -            .1            .1
                                                                 --------       --------      --------      --------
         Total Revenues                                          $1,097.1       $1,052.6      $2,213.4      $2,152.2
                                                                 ========       ========      ========      ========

     Operating Profit (Loss)
       Exploration and Production                                $  263.0       $  272.8      $  592.9      $  545.0
       Chemicals - Pigment                                           13.5          (14.2)         20.7          (6.8)
       Chemicals - Other                                             (1.3)          (8.4)         (8.1)        (18.4)
                                                                 --------       --------      --------      --------
         Total Operating Profit                                     275.2          250.2         605.5         519.8

     Other Expense                                                  (96.2)        (129.4)       (183.5)       (228.9)
                                                                 --------       --------      --------      --------

     Income from Continuing Operations
       Before Income Taxes                                          179.0          120.8         422.0         290.9
     Provision for Income Taxes                                     (68.4)         (51.0)       (159.2)       (116.9)
                                                                 --------       --------      --------      --------

     Income from Continuing Operations                              110.6           69.8         262.8         174.0

     Discontinued Operations, Net of Income Taxes                       -            (.2)            -            .2

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

     Net Income                                                  $  110.6       $   69.6      $  262.8      $  139.5
                                                                 ========       ========      ========      ========



     The acquisition of Westport,  as discussed in Note B, materially  increased
     total assets and net property,  plant and equipment  within the exploration
     and production segment.  Information regarding assets by reportable segment
     and net  property,  plant and  equipment by  geographic  region is included
     below.

                                                    June 30,        December 31,
     (Millions of dollars)                              2004                2003
     ---------------------------------------------------------------------------
     Total assets -
       Exploration and production                  $12,009.3           $ 7,385.4
                                                   ---------           ---------
       Chemicals -
         Pigment                                     1,495.9             1,521.3
         Other                                         195.3               216.4
                                                   ---------           ---------
           Total Chemicals                           1,691.2             1,737.7
                                                   ---------           ---------
             Total                                  13,700.5             9,123.1
       Corporate and other assets                    1,102.4             1,126.8
                                                   ---------           ---------
             Total                                 $14,802.9           $10,249.9
                                                   =========           =========

     Net property, plant and equipment -
       U.S. operations                             $ 8,435.4           $ 4,977.5
                                                   ---------           ---------
       International operations -
         North Sea - exploration and production      1,794.2             1,874.1
         China - exploration and production            200.4               165.0
         Other - exploration and production             18.6                 4.0
         Europe - pigment                              269.6               280.6
         Australia - pigment                            97.5               101.7
                                                   ---------           ---------
                                                     2,380.3             2,425.4
                                                   ---------           ---------
           Total                                   $10,815.7           $ 7,402.9
                                                   =========           =========


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

     Results of Consolidated Operations

     Second-quarter  2004  income  from  continuing  operations  totaled  $110.6
     million,  an increase of 58% when compared with income of $69.8 million for
     the same 2003 period.  Income from continuing  operations for the first six
     months of 2004 was $262.8  million,  an increase of 51% when  compared with
     income of $174 million for the comparable  2003 period.  Net income for the
     2004 second quarter was $110.6 million,  compared with 2003  second-quarter
     net income of $69.6  million.  For the first six months of 2004, net income
     was $262.8 million, compared with net income of $139.5 million for the same
     2003 period.  The  inclusion of Westport's  results of  operations  for the
     five-day period ending June 30, 2004, increased net income by $14.6 million
     for the 2004 second quarter and year-to-date periods.

     Second-quarter  2004  operating  profit was $275.2  million,  compared with
     second-quarter  2003 operating profit of $250.2 million, an increase of $25
     million.  Operating results within the exploration and production  business
     decreased $9.8 million from the prior year, while operating results for the
     chemical - pigment and  chemical - other  operating  units  improved  $34.8
     million.   The  improvement  for  the  chemical  operations  was  primarily
     attributable  to prior year  charges  associated  with the shut down of the
     Mobile synthetic rutile plant and forest products operations.

     Operating  profit for the first six months of 2004 increased  $85.7 million
     over the same  2003  period.  The  increase  in  operating  profit  for the
     six-month period was primarily  attributable to lower  exploration  expense
     (primarily dry hole costs),  higher realized sales prices for crude oil and
     natural  gas,  higher  natural gas sales  volumes,  and the 2003 Mobile and
     forest products  shutdown  provisions,  partially offset by lower crude oil
     sales volumes.  These variances are discussed in more detail in the segment
     discussion that follows.

     Other  expense  for the  second  quarter  of 2004  totaled  $96.2  million,
     compared  with expense of $129.4  million in the same 2003 period,  a $33.2
     million  decrease  between  periods.  The decrease was  primarily  due to a
     decrease in net interest  expense of $7.4 million,  lower foreign  currency
     losses of $14.1 million and lower  insurance and  departmental  general and
     administrative costs of $10.3 million.

     Other  expense  for the first six months of 2004  totaled  $183.5  million,
     compared  with  expense of $228.9  million in the same 2003  period,  for a
     decrease of $45.4 million between periods.  The decrease resulted primarily
     from lower net interest  expense of $15.3 million,  lower foreign  currency
     losses of $8.7  million,  a 2004 gain on sale of trading  securities  of $9
     million and lower  litigation  costs of $6.5  million.  The decrease in net
     interest  expense  between  periods  resulted  primarily from lower average
     outstanding debt balances during the first six months of 2004 (exclusive of
     the debt assumed in the Westport  acquisition)  as compared  with the prior
     year,  together  with an increase in interest  savings  from the  company's
     interest rate swap agreements.

     Income  tax  expense  for the  second  quarter  of 2004 was  $68.4  million
     resulting  in an  effective  tax rate of 38.2%,  compared  with  income tax
     expense of $51 million, or 42.2% in the same 2003 period. For the first six
     months of 2004, income tax expense was $159.2 million,  or 37.7%,  compared
     with  expense of $116.9  million,  or 40.2% in 2003.  The  reduction in the
     effective  tax rate  between  periods  was  primarily  a result of a higher
     proportion of income earned in lower tax jurisdictions.


     Segment Operations

     Exploration and Production

     Oil and gas sales revenues,  production  statistics and average prices from
     continuing operations are shown in the following table.




                                                                  Three Months Ended             Six Months Ended
                                                                       June 30,                      June 30,
                                                                 --------------------         ----------------------
                                                                   2004          2003            2004           2003
     ---------------------------------------------------------------------------------------------------------------

                                                                                                
     Revenues -
       Crude oil and condensate sales                            $337.4        $363.4         $  698.7      $  768.8
       Natural gas sales                                          316.8         273.1            688.1         596.2
       Gas marketing activities                                    87.3          74.1            169.0         133.9
       Nonhedge derivative gains                                    5.4             -              5.4             -
       Other                                                       18.2          10.2             37.7          17.8
                                                                 ------        ------         --------      --------
               Total                                             $765.1        $720.8         $1,598.9      $1,516.7
                                                                 ======        ======         ========      ========

     Production -
       Crude oil and condensate
          (thousands of bbls per day)                               140           155              142           160
       Natural gas (MMcf per day)                                   740           697              751           729

       Total equivalent barrels of oil
          (thousands of boe per day)                                264           271              267           282

     Average realized sales prices -
       Crude oil and condensate (per barrel) (a)                 $26.97        $25.28           $27.14        $26.14
       Natural gas (per Mcf) (a)                                  $4.70         $4.29            $5.03         $4.51


     (a)The effect of the  company's oil and gas  commodity  hedging  program is
        included in the average  sales  prices  shown  above.  During the second
        quarter of 2004,  hedging  activity  reduced the average  sales price of
        crude  oil and  natural  gas by  $7.43  per  barrel  and  $.93  per Mcf,
        respectively.  For the second quarter of 2003,  hedging activity reduced
        the average  sales price of crude oil and natural gas by $.92 per barrel
        and $.58 per Mcf, respectively.  For the six months ended June 30, 2004,
        hedging  activity  reduced  the  average  sales  price of crude  oil and
        natural gas by $5.67 per barrel and $0.52 per Mcf, respectively. For the
        same period in 2003, hedging activity reduced the average sales price of
        crude  oil and  natural  gas by  $2.53  per  barrel  and  $.70  per Mcf,
        respectively.

     Crude Oil Revenues:

     Oil revenues for the second  quarter of 2004 totaled $337.4  million,  down
     $26 million from the same period in 2003. For the six months ended June 30,
     2004 and  2003,  crude oil  revenues  totaled  $698.7  million  and  $768.8
     million,  respectively,  a decrease of $70.1 million.  The decrease in both
     2004 periods  resulted from lower oil volumes,  partially  offset by higher
     realized  prices.  The  acquisition  of  Westport  properties  in late June
     contributed  $5.3 million to crude oil revenues (1.6 Mbbls/d) in the second
     quarter of 2004.

     For the second quarter,  the average  realized price for oil improved $1.69
     per barrel compared to the same period in 2003, resulting in an increase of
     $20.8 million in oil revenues,  while lower oil production reduced revenues
     by $46.8 million.  The  production  decrease was primarily due to declining
     production volumes in the North Sea area,  combined with the impact of 2003
     property divestitures in the South China Sea and U.S. onshore areas.

     For the six  months  ending  June 30,  2004,  the  average  realized  price
     increased $1.00 per barrel compared with the same period in 2003, resulting
     in higher oil revenues of $25.7 million,  while oil production  declined by
     12%,  reducing oil  revenues by $95.8  million.  On a  divestiture-adjusted
     basis,  2004  year-to-date  oil  production  volumes  declined  by 7%.  The
     decrease was  primarily  due to lower  production  volumes in the North Sea
     area.

     Natural Gas Revenues:

     Natural gas revenues  increased by $43.7  million in the second  quarter of
     2004 compared with the same 2003 period as a result of a 6% increase in gas
     production,  combined with a $.41 per Mcf increase in the average  realized
     price for natural gas. Gas  production  of 740 MMcf per day was 43 MMcf per
     day above second  quarter 2003 rates.  The  increase was  primarily  due to
     higher  volumes from the Gunnison  field in the  deepwater  Gulf of Mexico,
     which  began   production   late  in  the  fourth  quarter  of  2003.  Also
     contributing  to the  increase was  production  from the Brae fields in the
     North Sea and the U.S. onshore Rincon field which was acquired in the third
     quarter  of 2003.  The  acquisition  of  Westport  properties  in late June
     contributed $12 million to natural gas revenues (20.6 MMcf/d) in the second
     quarter of 2004.

     Natural gas revenues  increased by $91.9  million for the six months ending
     June 30,  2004,  compared  with  the same  2003  period  as a result  of an
     increase in gas  production,  combined  with a $.52 per Mcf increase in the
     average  realized price for natural gas. Gas production of 751 MMcf per day
     for the six months  ending June 30,  2004,  was 22 MMcf per day above rates
     for the comparable 2003 period,  a 3% increase.  The increase was primarily
     due to higher  volumes from the  Gunnison  field in the  deepwater  Gulf of
     Mexico, North Sea Brae fields and U.S. onshore Rincon field.

     Nonhedge Derivative Gains and Losses:

     Nonhedge  derivative  gains  (losses)  represent  mark-to-market  gains and
     losses  related to crude oil and natural gas  derivative  instruments  that
     have not  been  designated  as  hedges  or that do not  qualify  for  hedge
     accounting treatment.

     In the second  quarter  of 2004,  the  company  recognized  a $9.8  million
     mark-to-market  loss for certain crude oil and natural gas swaps associated
     with the combined  company's  expected  production since  Kerr-McGee's U.S.
     production  (excluding  Westport  volumes) was either already hedged or, in
     the case of Rocky Mountain production,  did not have sufficient basis swaps
     in place to ensure that the hedges  would be highly  effective.  Kerr-McGee
     also  recognized  a  $15.2  million  mark-to-market  gain  associated  with
     derivative  liabilities  assumed in the  Westport  merger for the change in
     fair value from the closing date (June 25, 2004) through June 30, 2004.

     The  Kerr-McGee  swaps  were  designated  as hedges in July 2004  after the
     merger with Westport closed.  In addition,  Westport's  fixed-price oil and
     gas swaps and  natural gas basis  swaps were  designated  as hedges in July
     2004. However, Westport's costless and three-way collars do not qualify for
     hedge accounting  treatment even though they  effectively  reduce commodity
     price risk for the combined company's production.  As a result,  Kerr-McGee
     will  continue  to  recognize  mark-to-market  gains  and  losses in future
     earnings until the collars mature. The net derivative  liability associated
     with these collars at June 30, 2004 was $71.1 million.

     A full  description of Kerr-McGee's  open derivative  positions at June 30,
     2004,  both hedge and nonhedge,  is included below in Item 3,  Quantitative
     and Qualitative Disclosures about Market Risk.

     Operating  Profit - Revenues,  operating costs and expenses,  and marketing
     activities associated with the exploration and production segment are shown
     in the following table.



                                                                     Three Months Ended          Six Months Ended
                                                                          June 30,                    June 30,
                                                                    --------------------     -----------------------
                                                                      2004          2003         2004           2003
     ---------------------------------------------------------------------------------------------------------------

                                                                                                
     Revenues, excluding marketing revenues                         $677.8        $646.7     $1,429.9       $1,382.8
                                                                    ------        ------     --------       --------

     Operating Costs and Expenses:
        Lifting Costs:
          Lease Operating Expense                                     82.0          84.4        170.9          172.3
          Production Taxes                                            18.2           8.3         33.3           22.7
                                                                    ------        ------     --------       --------
                  Total Lifting Costs                                100.2          92.7        204.2          195.0

      Depreciation and Depletion                                     160.3         150.0        322.0          306.7
      Accretion Expense                                                6.8           6.3         13.4           12.5
      Impairments on Assets Held for Use                               1.1             -         14.3            5.1
      Loss (Gain) on Assets Held for Sale                              3.9          (0.5)         7.3           (5.7)
      General and Administrative Expense                              35.0          20.7         66.2           42.7
      Transportation Expense                                          24.8          23.5         51.6           45.2
      Exploration Expense                                             65.5          66.6        116.1          207.1
      Gas Gathering, Pipeline and Other Expenses                      17.9          18.2         42.8           34.0
                                                                    ------        ------     --------       --------
           Total Operating Costs and Expenses                        415.5         377.5        837.9          842.6
                                                                    ------        ------     --------       --------
     Net, excluding marketing activities                             262.3         269.2        592.0          540.2

     Marketing - Gas Sales Revenues                                   87.3          74.1        169.0          133.9
     Marketing - Gas Purchase Costs (including
        transportation)                                              (86.6)        (70.5)      (168.1)        (129.1)
                                                                    ------        ------     --------       --------

             Total Operating Profit                                 $263.0        $272.8     $  592.9       $  545.0
                                                                    ======        ======     ========       ========


     Lease Operating Expense:

     Lease  operating  expense was $82 million in the second  quarter of 2004, a
     $2.4 million decrease from the same period of 2003. The decrease was due to
     lower operating  expenses in the international  area due to the divestiture
     of the Liuhua field in China, as well as reduced costs in the North Sea and
     U.S.  onshore  areas.  The  reduction  was  offset in part by higher  lease
     operating  expenses in the Gulf of Mexico  relating  primarily to operating
     lease payments for platform infrastructure at the Gunnison development.  On
     a per-unit basis,  lease operating  expense  increased by 2% from $3.39 per
     boe in 2003 to $3.45 per boe in 2004.

     For the six months ending June 30, 2004, lease operating expense was $170.9
     million  compared  with $172.3  million for the same period of 2003, a $1.4
     million decrease.  On a per-unit basis,  2004 year-to-date  lease operating
     expense was $3.52 per boe  compared to $3.34 per boe for 2003,  an increase
     of $.18 per boe. The increase results from higher operating expenses in the
     Gulf of Mexico  relating  primarily  to the  Gunnison  platform,  increased
     workover activity in the Rocky Mountain area and lower volumes in the North
     Sea area.  These  increases  were partially  offset by reductions  from the
     divestiture of the Liuhua field and U.S. onshore properties.

     Transportation Costs:

     In the second quarter of 2004, transportation costs, representing the costs
     paid  to  third-party  providers  to  transport  oil  and  gas  production,
     increased  $1.3 million from the second quarter of 2003. For the six months
     ended June 30, 2004  transportation  expense was $51.6 million, an increase
     of $6.4  million  compared  to the same  period in 2003.  The  increase  in
     transportation  expense primarily resulted from higher transportation costs
     associated  with new  deepwater  Gulf of Mexico  producing  fields.  In the
     second quarter of 2004,  this increase was partially  offset by lower costs
     in the U.K. North Sea.

     Depreciation, Depletion and Amortization (DD&A):

     DD&A expense increased $10.3 million in the second quarter of 2004 over the
     same 2003 period. On a per-unit basis, DD&A increased from $6.02 per boe in
     2003 to $6.75  per boe in 2004.  For the six  months  ended  June 30,  DD&A
     expense  totaled  $322  million,  an increase of $15.3  million  over 2003.
     Higher DD&A unit costs for both periods  resulted  primarily from increases
     in the U.K. North Sea area due to a reduction in the expected life-of-field
     facility  salvage values on certain  fields and lower reserve  estimates at
     year-end 2003.  Overall  per-unit DD&A is expected to increase to just over
     $8.00 per boe in the third quarter  reflecting  the higher cost  associated
     with  acquiring  Westport's  proved  reserves as  compared to  Kerr-McGee's
     historical finding and development costs per boe.

     General and Administrative Expenses:

     General and  administrative  expenses were higher in the second  quarter of
     2004,   increasing   by  $14.3  million  over  the  same  period  in  2003.
     Year-to-date  general and  administrative  expenses increased $23.5 million
     over the same period in 2003. The increase in both the  second-quarter  and
     six-month periods was a result of higher  incentive-based  compensation and
     pension costs,  together with lower overhead  charge-outs for U.S.  onshore
     properties caused by 2003 divestitures. General and administrative expenses
     are expected to increase in the third quarter as Kerr-McGee absorbs certain
     of Westport's existing administrative responsibilities and personnel.

     Exploration Expense:

     Exploration expense decreased by $1.1 million in the second quarter of 2004
     compared  with 2003,  primarily as a result of lower dry hole costs of $5.5
     million and lower  amortization  of  non-producing  leasehold costs of $6.7
     million,  partially  offset by higher  geological and  geophysical  project
     costs of $9.6 million and higher lease rental expense of $1.9 million.

     For the six  months  ending  June 30,  2004 and 2003,  exploration  expense
     totaled $116.1 million and $207.1 million,  respectively, a decrease of $91
     million.  Lower dry hole costs of $102.1 million and lower  amortization of
     non-producing  leasehold  costs of $11  million  were  partially  offset by
     higher  geological  and  geophysical  project  costs  of  $18  million  and
     additional  exploration  staffing  of $2.6  million.  Exploration  staffing
     levels and  geophysical  projects were increased  during 2003 in support of
     the company's worldwide  exploration  efforts and continued  development of
     its high-potential prospect inventory.

     Capitalized  costs  associated  with  exploratory  wells may be  charged to
     earnings  in a future  period  if  management  determines  that  commercial
     quantities of hydrocarbons have not been discovered.  At June 30, 2004, the
     company had capitalized costs of approximately $184 million associated with
     such ongoing  exploration  activities,  primarily in the deepwater  Gulf of
     Mexico, Brazil, Alaska and China.

     Asset Impairments and Gain (Loss) on Sale of Assets:

     Kerr-McGee  records  impairment losses when performance  analysis indicates
     that  future net cash  flows  from  production  will not be  sufficient  to
     recover the  carrying  amounts of the  related  assets.  In  general,  such
     write-downs  often occur on mature  properties  that are nearing the end of
     their productive lives or cease production sooner than  anticipated.  Asset
     impairment  losses  recorded in the second quarter of 2004  associated with
     assets held for use totaled $1.1 million.  Asset impairment  losses for the
     first six months of 2004 totaled $14.3  million  compared with $5.1 million
     for 2003. Asset impairment  losses in 2004 related  primarily to a U.S Gulf
     of Mexico field that  experienced  premature water  breakthrough and ceased
     production  sooner than expected.  For a discussion of the company's Leadon
     field in the U.K.  North Sea, see Note D to the  accompanying  consolidated
     financial statements.

     The  company  recognized  a loss on sale of assets of $3.9  million  in the
     second  quarter of 2004 and $7.3  million for the six months ended June 30,
     2004.  The loss on sale of assets is associated  primarily with oil and gas
     properties  held for sale in the U.S.  Gulf of Mexico  shelf.  From time to
     time,  the company may identify other oil and gas properties to be disposed
     of that are  considered  noncore  or  nearing  the end of their  productive
     lives.

     Gas Marketing Activities:

     In the Rocky Mountain  producing  area,  Kerr-McGee  purchases  third-party
     natural gas for aggregation and sale with the company's own production from
     the  Wattenberg  field in Colorado.  In addition,  Kerr-McGee has purchased
     transportation capacity to markets in the Midwest to facilitate sale of its
     natural  gas in  market  regions  outside  the  immediate  vicinity  of its
     production.  This  activity  began  with the  company's  acquisition  of HS
     Resources in August 2001 and has increased since that time.

     Marketing  revenue  increased  $13.2 million in the second  quarter of 2004
     compared with the same period in 2003.  Marketing revenue for the first six
     months of 2004 totaled $169 million,  or $35.1 million higher than the same
     period in 2003.  The increase for both periods was  primarily the result of
     higher  purchase and resale of natural gas in the Rocky  Mountain  area and
     higher natural gas prices.  Gas purchase costs  increased $16.1 million for
     the second  quarter of 2004 and $39 million  for the six months  ended June
     30, 2004.


     Chemicals - Pigment

     Operating  profit  for the  second  quarter  of 2004 was $13.5  million  on
     revenues  of  $302.8  million,  compared  with an  operating  loss of $14.2
     million on revenues of $283.8  million for the same 2003  period.  The 2003
     operating loss was primarily a result of shutdown provisions totaling $28.9
     million for the Mobile, Alabama facility.  Average selling prices decreased
     2% from prior year,  principally  due to competitive  market  conditions in
     North America and Europe, while total revenues increased $19 million in the
     second  quarter  of 2004  compared  with the prior  year.  The $19  million
     increase in revenues  between  periods was driven by higher  sales  volumes
     resulting in an increase of $33 million,  partially offset by a decrease of
     $14  million due to lower  average  sales  prices.  Pigment  sales  volumes
     increased  by 15,600  tonnes in the  second  quarter  over  2003;  however,
     manufacturing  cost efficiency  gains  resulting from increased  production
     volumes were largely offset by higher  product  transportation  costs,  raw
     material price increases and foreign currency losses.

     For the first six months of 2004,  operating  profit  was $20.7  million on
     revenues of $555.2 million, compared with an operating loss of $6.8 million
     on revenues of $537.1  million in the  comparable  prior-year  period.  The
     improvement  in operating  profit for the first six months of 2004 compared
     with the same 2003 period was primarily attributable to shutdown provisions
     for the Mobile  facility  totaling $36.3 million in the prior-year  period.
     Additionally,  in the first six months of 2004, a favorable volume variance
     of $24.1  million  was  offset by  higher  average  product  costs of $22.5
     million,  lower revenues of $8.6 million resulting from lower average sales
     prices, and higher transportation, selling and administrative costs of $3.7
     million compared to the same period in 2003.

     For the six months ended June 30, 2004,  revenues  increased $18.1 million,
     or 3%, of which $26.7 million  resulted from higher  pigment sales volumes,
     partially  offset by a decrease of $8.6 million due to lower  average sales
     prices.  The lower average sales prices were driven by  competitive  market
     conditions.  Pigment sales volumes increased by 18,900 tonnes for the first
     six months compared with prior-year levels.

     In January 2004, the company  announced the temporary idling of one line of
     its sulfate-process  titanium dioxide pigment production  facilities at the
     Savannah  manufacturing  plant, which is one of two sulfate-process  trains
     operated by the company  worldwide.  The line was temporarily idled because
     of soft demand for  sulfate-process  titanium dioxide pigment.  The sulfate
     line has remained  idle,  as the market  conditions  have not  sufficiently
     improved.   In  addition,   unanticipated   cost  issues   associated  with
     underperforming  plant and equipment  discovered after the company acquired
     the plant in 2000 have  increased  the cost  profile of the plant from that
     initially anticipated.  The company is currently performing market analyses
     and  evaluating  plant  reconfiguration  to explore means of best improving
     operating results, while also evaluating its strategic options with respect
     to the Savannah sulfate operations.  During the second quarter, the company
     operated  its new  high-productivity  oxidation  line for  chloride  at the
     Savannah  facility,  which  produced  improved  ore yields.  The company is
     evaluating the performance of this new oxidation line and expects to have a
     better  understanding  of how the Savannah  site might be  reconfigured  to
     exploit  its  capabilities  by  the  latter  part  of  2004.  The  possible
     reconfiguration  of the  Savannah  site,  if any, as well as any  decisions
     regarding  strategic  options  related  to the  sulfate  operations,  could
     include  redeployment  of  certain  assets,  idling of  certain  assets and
     reduction  of the future  useful life of certain  assets,  resulting in the
     acceleration of depreciation expense and the recognition of other charges.


     Chemicals - Other

     Operating  loss in the 2004 second  quarter was $1.3 million on revenues of
     $29.2 million,  compared with an operating loss of $8.4 million on revenues
     of $48  million for the same 2003  period.  The  decrease  in revenues  was
     primarily  due to the ongoing  exit of the forest  products  business.  The
     decrease in operating  loss was primarily due to an $8.8 million  provision
     made in the second  quarter of 2003 related to exiting the forest  products
     business  and  increased  sales  from  the  company's   Henderson,   Nevada
     electrolytic  manganese dioxide (EMD) manufacturing plant, partially offset
     by lower forest product sales.

     For the six months ended June 30, 2004,  operating loss was $8.1 million on
     revenues of $59.2 million, compared with an operating loss of $18.4 million
     on revenues of $98.3  million in the same 2003  period.  The $10.3  million
     decrease in operating  loss for the six months of 2004 was primarily due to
     environmental  costs in 2003 of $11  million  for  remediation  of ammonium
     perchlorate related to the company's Henderson, Nevada operations (see Note
     M). The Henderson EMD facility was  temporarily  idled in the third quarter
     of 2003 and resumed its operations in the first quarter of 2004.


     Financial Condition

     At June 30, 2004, the company's net working capital position was a negative
     $866.1  million,  compared with a negative  $399.1  million at December 31,
     2003.  The  current  ratio  was .7 to 1 at  June  30,  2004  and .8 to 1 at
     December 31, 2003.  Included in current  liabilities  at June 30, 2004, are
     derivative  liabilities  associated  with  oil and  natural  gas  commodity
     contracts of $590.1 million,  together with a derivative  liability for the
     call option  associated  with the company's notes  exchangeable  for common
     stock (DECS) of $226.8. The commodity  contracts  generally settle when the
     associated  sale  occurs.  Oil and gas  revenues,  which  reflect  sales at
     prevailing  market  prices,  are recorded net of any gains or losses on the
     derivative  instruments.  As discussed  below,  the DECS and the associated
     call option were settled August 2, 2004, the maturity date of the DECS. The
     negative  working capital position at June 30, 2004, 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 to fund
     any current cash requirements,  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
     46% at June 30, 2004,  compared  with 57% at December 31, 2003,  and 58% at
     June 30, 2003. The decrease from December 31, 2003, resulted primarily from
     the  issuance  of  common  stock in  connection  with the  Westport  merger
     (discussed  below).  The company had unused  lines of credit and  revolving
     credit  facilities of $1.4 billion at June 30, 2004.  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, available for issuance based on market conditions. As of June
     30, 2004, the company had outstanding  commercial  paper  borrowings of $86
     million.  The company  also had  available,  to issue and sell,  a total of
     $1.65 billion of debt  securities,  common or preferred  stock, or warrants
     under its shelf  registration with the Securities and Exchange  Commission.
     The amount available under the company's shelf  registration was reduced to
     $1 billion on July 1, 2004,  due to the  issuance  of $650  million in debt
     securities as discussed below.

     As of June 30, 2004, the company's  senior  unsecured debt was rated BBB by
     Standard & Poor's and Fitch and Baa3 by Moody's.  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,  draw on its revolving 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.

     Long-term debt  obligations  due within one year of $827.7 million  consist
     primarily of $145 million,  8.375% notes due July 15, 2004;  $330.3 million
     (face value), 5.5% DECS due August 2, 2004; and $350 million,  5.375% notes
     due April 15, 2005. The company used available cash to fund the maturity of
     its $145 million notes due on July 15, 2004. In addition,  the DECS settled
     on August 2, 2004, with the distribution of shares of Devon common stock.

     The company holds  derivative  financial  instruments  that require  margin
     deposits if unrealized  losses exceed limits  established  with  individual
     counterparty  institutions.  From time to time, the company may be required
     to  advance  cash  to  its   counterparties   to  satisfy   margin  deposit
     requirements.  Between  January 1, 2004 and August 5,  2004,  margin  calls
     totaled $35.5 million, all of which had been refunded to the company,  with
     no margin calls outstanding as of August 5, 2004.

     As discussed  above, the DECS matured August 2, 2004. At June 30, 2004, the
     fair values of the  embedded  put and call options in the DECS were nil and
     $226.8 million,  respectively. On December 31, 2003, the fair values of the
     embedded put and call options  were nil and $154.9  million,  respectively.
     During the second  quarter of 2004,  the  company  recorded a loss of $65.5
     million in other  income for the  changes in the fair values of the put and
     call  options,  compared  with a loss of $41.9  million  during  the second
     quarter of 2003.  During the first six months of 2004 and 2003, the company
     recorded losses of $71.9 million and $58.1 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 the Devon stock  classified as trading.  The fair value of the 8.4
     million shares of Devon classified as trading securities was $556.7 million
     at June 30, 2004,  and $483 million at December  31, 2003,  which  together
     with the call option  liability,  resulted in a net asset carrying value of
     $329.9  million and $328.1  million at June 30, 2004 and December 31, 2003,
     respectively.  During the  second  quarter  of 2004 and 2003,  the  company
     recorded unrealized gains of $66.2 million and $43.7 million, respectively,
     in  other  income  for  the  changes  in fair  value  of the  Devon  shares
     classified  as trading.  During the first six months of 2004 and 2003,  the
     company  recorded  unrealized  gains of $73.7  million  and $63.3  million,
     respectively,  in other  income for the  changes in fair value of the Devon
     shares  classified  as  trading.  The  DECS  and the  derivative  liability
     associated with the call option were  classified as current  liabilities in
     the Consolidated Balance Sheet as of June 30, 2004 and December 31, 2003.

     Operating  activities  provided net cash of $707.4 million in the first six
     months of 2004,  compared with $764.9 million for the same 2003 period. The
     $57.5  million  decrease in operating  cash flow between  periods  resulted
     primarily from a $53 million increase in taxes and interest paid during the
     first six  months  of 2004.  For the  first  six  months  of 2004,  capital
     spending, including dry hole costs, totaled $459 million and dividends paid
     totaled $91 million,  which  compares  with $707.4 of net cash  provided by
     operating  activities  during the same period.  Excess operating cash flow,
     together  with  Westport  cash on hand at the merger  date of $43  million,
     proceeds  from the sale of Devon  stock of $38.9  million  and  other  cash
     inflows were used to fund the company's net reduction in long-term  debt of
     $261 million in the first six months of 2004.

     Capital  expenditures for the first six months of 2004,  excluding dry hole
     costs,  totaled  $432.9  million,  compared  with  $517.9  million  for the
     comparable  prior-year  period.  The decrease is primarily  attributable to
     lower capital spending within the exploration and production operating unit
     in the Gulf of Mexico region as compared to the prior year. Exploration and
     production  expenditures,  principally  in the Gulf of Mexico  and  onshore
     United States,  were 89% of the 2004 total  expenditures.  Expenditures for
     the chemicals - pigment segment were 9% of the 2004 total,  while chemicals
     - other and corporate  incurred the remaining 2% of the  year-to-date  2004
     expenditures.  Management  anticipates  that the cash  requirements for the
     next several years can be provided through  internally  generated funds and
     selective borrowings.

     On June 25, 2004,  Kerr-McGee  completed its  acquisition  of Westport,  an
     independent oil and gas exploration and production  company with operations
     in the Rocky Mountain, Mid-Continent and Gulf Coast areas onshore U. S. and
     in the  Gulf of  Mexico.  The  acquisition  increases  Kerr-McGee's  proved
     reserves by  approximately  30%,  bringing  the  combined  company's  total
     reserves as of December 31, 2003, to  approximately  1.3 billion barrels of
     oil equivalent.  Kerr-McGee believes the merger will create a more balanced
     portfolio of oil and gas assets for future  growth by combining  Westport's
     lower-risk,   predominantly   U.S.  onshore  properties  with  Kerr-McGee's
     existing asset portfolio.  The merger is also expected to positively impact
     the company's  cash flow from  operations  for the last six months of 2004.
     The  acquisition  price totaled $4.5 billion,  which  includes the value of
     common stock and stock options  exchanged,  plus debt and other liabilities
     assumed,  and  merger  costs.  As a result of the  transaction,  Kerr-McGee
     issued  48.9  million  shares of common  stock  valued at $2.4  billion  to
     Westport's stockholders and exchanged 1.9 million stock options with a fair
     value of $33.7 million for outstanding Westport options.

     In connection with the merger,  Kerr-McGee  assumed the following  Westport
     debt:

     (Millions of dollars)                                            Fair Value
     ---------------------------------------------------------------------------

     8.25% Notes due 2011 (face value $700 million)                     $  800.5
     Revolving credit facility                                             245.0
                                                                        --------
       Total                                                            $1,045.5
                                                                        ========

     On June 25, 2004, after completion of the merger,  Kerr-McGee paid down all
     outstanding  borrowings  under  the  Westport  revolving  credit  facility.
     Consequently,  there  were no  borrowings  outstanding  under  this  credit
     facility at June 30, 2004. However, letters of credit totaling $160 million
     associated with Westport's  derivatives  were backed by the credit facility
     and remained outstanding as of June 30, 2004. During July, these letters of
     credit were  cancelled  and the  Westport  revolving  credit  facility  was
     terminated on July 13, 2004.

     During  June  2004,  Kerr-McGee  purchased  Westport  8.25%  Notes  with an
     aggregate principal amount of $14.5 million ($16.1 million fair value). The
     fair value of the purchased  notes is reflected as a reduction of long-term
     debt assumed in the merger in the  Consolidated  Balance Sheet.  On July 1,
     2004, Kerr-McGee issued a notice of redemption for the 8.25% Westport notes
     and the notes were  redeemed  on July 31, 2004 at an  aggregate  redemption
     price of $785.5 million.  The redemption  price consisted of the face value
     of $700  million,  less the amount  previously  purchased by  Kerr-McGee of
     $14.5 million, plus a make-whole premium of $100 million.

     On July 1, 2004,  Kerr-McGee issued $650 million of 6.95% notes due July 1,
     2024, with interest payable semi-annually.  The notes were issued at 99.2%,
     resulting  in a  discount  of  $5  million  which  will  be  recognized  as
     additional  interest  expense over the term of the notes. The proceeds from
     this debt  issuance,  together  with  proceeds  from  borrowings  under the
     company's  revolving  credit  facilities,  were  used to  redeem  the 8.25%
     Westport notes discussed above.


     Obligations and Commitments

     In connection with the merger,  Kerr-McGee assumed  Westport's  obligations
     under existing firm transportation contracts. The following table shows the
     expected future payment commitments associated with these contracts:

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

                                                         2005     2007     After
                                     Total      2004    -2006    -2008      2008
                                     ------     ----    -----    -----     -----

     Gas transportation contracts    $111.3     $2.9    $20.3    $25.6     $62.5
                                     ======     ====    =====    =====     =====


     Item 3. Quantitative and Qualitative Disclosures about Market Risk.

     Commodity Price Risk

     The company is exposed to market risk fluctuations in crude oil and natural
     gas prices.  To increase the  predictability  of its cash flows and support
     capital  expenditure plans, the company  periodically enters into financial
     derivative  instruments  that  generally  fix the  commodity  prices  to be
     received  for a portion  of the  company's  oil and gas  production  in the
     future.

     Prior to  entering  into the merger  agreement  with  Westport,  Kerr-McGee
     entered  into  additional  financial  derivative  transactions  relating to
     specified  amounts  of  projected  2004-2006  crude  oil  and  natural  gas
     production  volumes.  In addition,  Kerr-McGee assumed Westport's  existing
     commodity derivatives at the merger date.  Westport's  derivatives in place
     at the merger dated consisted of fixed-price oil and gas swaps, natural gas
     basis swaps, and costless and three-way collars. The collars assumed in the
     merger  do not  qualify  for  hedge  accounting  treatment,  although  they
     effectively   reduce  commodity  price  risk  for  the  combined  company's
     production.

     At  June  30,  2004,  the  following  commodity-related   derivatives  were
     outstanding  related to (i) the company's  2004 hedging  program,  (ii) the
     incremental  derivative  transactions  described above and (iii) Westport's
     derivative positions in place at the merger date.




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

     Natural Gas Hedges                                                                   MMBtu              $/MMBtu
     ------------------                                                                   -----              -------
                                                                                             
     Fixed-price swaps (NYMEX)                                 Q3 - 2004                 807,663                $4.89
                                                               Q4 - 2004                 870,000                $4.97
                                                                    2005                  55,000                $4.42

     Fixed-price swaps (NWPRM) (2)                         Q3, Q4 - 2004                  30,000                $3.33

     Costless collars (NYMEX)                                       2005                 280,000        $5.00 - $6.25
                                                                    2006                 340,000        $4.75 - $5.51

     Basis swaps (CIG (3) and NWPRM)                           Q3 - 2004                 100,000                $0.59
                                                               Q4 - 2004                  80,109                $0.55
                                                                    2005                  45,000                $0.41

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

     Fixed-price swaps (WTI)                                   Q3 - 2004                  65,882               $27.93
                                                               Q4 - 2004                  68,015               $28.54
                                                                    2005                   3,000               $29.23

     Fixed-price swaps (Brent)                                 Q3 - 2004                  46,850               $26.45
                                                               Q4 - 2004                  52,000               $26.71

     Costless collars (WTI)                                         2005                  14,000      $28.50 - $31.89
                                                                    2006                  19,000      $27.00 - $30.58



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

     (2) Northwest Pipeline Rocky Mountain index (NWPRM).

     (3) Colorado Interstate Gas pipeline.


     At  June  30,  2004,  the  following  commodity-related   derivatives  were
     outstanding  and represent those contracts that have not been designated as
     hedges or that do not qualify for hedge accounting treatment in the case of
     the collars acquired in the Westport merger.



                                                                         Average
                                                                           Daily     Three-way               Average
     Contract Type (1)                                      Period        Volume         Floor                 Price
     ----------------------------------------------------------------------------------------------------------------

     Natural Gas (nonhedge contracts)                                      MMBtu       $/MMBtu               $/MMBtu
     --------------------------------                                      -----       -------               -------

                                                                                         
     Basis swaps (CIG and NWPRM)                       2006 - 2007        35,000             -                 $0.31
                                                              2008        17,473             -                 $0.25

     Costless collars (NYMEX)                        Q3, Q4 - 2004        44,674             -         $3.70 - $4.00
                                                              2005        60,000             -         $4.09 - $5.57

     Three-way collars (NYMEX) (2)                   Q3, Q4 - 2004        10,000         $3.15         $4.00 - $5.00
                                                              2006        20,000         $3.04         $4.00 - $6.00

     Crude Oil (nonhedge contracts)                                          Bbl         $/Bbl                 $/Bbl
     ------------------------------                                          ---         -----                 -----

     Three-way collars (WTI) (2)                     Q3, Q4 - 2004         4,000        $19.25       $24.38 - $27.71
                                                              2005         5,000        $20.93       $25.00 - $28.23
                                                              2006         2,000        $20.88       $25.00 - $28.65



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

     (2) These  derivatives  function  similar  to a  costless  collar  with the
         exception that if the NYMEX price falls below the three-way  floor, the
         company  loses price  protection.  For  example,  the company  only has
         $.85/MMBtu  of  price   protection  if  the  NYMEX  price  falls  below
         $3.15/MMBtu  in the  case of its 2004  natural  gas  three-way  collars
         ($4.00 - $3.15).

     Foreign Currency Exchange Rate Risk

     Periodically,  the company  enters into  forward  contracts to buy and sell
     foreign  currencies.  Certain of these  contracts  (purchases of Australian
     dollars and British pound sterling) have been designated and have qualified
     as cash flow hedges of the  company's  operating  and  capital  expenditure
     requirements.  These contracts  generally have durations of less than three
     years. The resulting  changes in fair value of these contracts are recorded
     in accumulated other comprehensive income.


     Following  are  the  notional  amounts  at  the  contract  exchange  rates,
     weighted-average  contractual  exchange rates and estimated contract values
     for contracts to purchase  (sell) foreign  currencies.  Contract values for
     contracts  open at June  30,  2004,  are  based  on the  estimated  forward
     exchange  rates in effect at  quarter-end.  Contract  values for  contracts
     entered into subsequent to quarter-end  are based on July month-end  rates.
     All amounts are U.S. dollar equivalents.



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

                                                                                                   
     Open contracts at June 30, 2004 -
       Maturing in 2004 -
         British pound sterling                        $ 124.3                     1.6976                   $ 132.3
         Australian dollar                                18.8                      .5353                      24.3
         Euro                                           (112.1)                    1.1755                    (107.0)
         British pound sterling                            (.8)                    1.7753                       (.8)
         New Zealand dollar                                (.9)                     .6198                       (.9)
         Japanese yen                                      (.5)                     .0092                       (.5)
       Maturing in 2005 -
         British pound sterling                           76.7                     1.5995                      85.0

     Contracts entered into in July 2004 -
       Maturing in 2005 -
         British pound sterling                          109.1                     1.7980                     107.8




     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.  Subsequent to the date of  evaluation  of the company's  internal
     controls,  Kerr-McGee  contracted  Netherland,  Sewell &  Associates,  Inc.
     (NSAI) to review the company's  processes for assessing oil and natural gas
     reserves.   NSAI  specializes  in  reservoir   engineering,   modeling  and
     economics,  as well as other consulting services. In 2004, NSAI will review
     procedures,  methodology and reserve  calculations for  Kerr-McGee's  major
     domestic  fields,  covering  approximately  50% of the  company's  existing
     proved  reserve  base  prior to the  Kerr-McGee  and  Westport  merger.  Of
     Westport's total estimated proved reserve quantities of 297 million barrels
     of oil  equivalent  as of December  31,  2003,  87% was based upon  reserve
     reports prepared by NSAI and Ryder Scott Company, L.P.

                           Forward-Looking Information

     Statements in this quarterly report regarding the company's or management's
     intentions,  beliefs or  expectations,  or that  otherwise  speak to future
     events, are "forward-looking  statements" within the meaning of the Private
     Securities  Litigation  Reform Act of 1995. Future results and developments
     discussed  in these  statements  may be affected  by  numerous  factors and
     risks,   such  as  the  accuracy  of  the  assumptions  that  underlie  the
     statements,  the  success  of the oil and gas  exploration  and  production
     program,  drilling  risks,  the  market  value  of  Kerr-McGee's  products,
     uncertainties  in  interpreting   engineering  data,  demand  for  consumer
     products  for which  Kerr-McGee's  businesses  supply  raw  materials,  the
     financial  resources of competitors,  changes in laws and regulations,  the
     ability  to respond  to  challenges  in  international  markets,  including
     changes in currency exchange rates, political or economic conditions, trade
     and regulatory matters, general economic conditions,  and other factors and
     risks identified in the Risk Factors section of the company's Annual Report
     on Form 10-K and other SEC filings.  Actual  results and  developments  may
     differ materially from those expressed in this quarterly report.



                           PART II - OTHER INFORMATION

     Item 1. Legal Proceedings.

        A.  In 2002,  Tiwest Pty Ltd, an Australian  joint venture that produces
            titanium  dioxide  and  in  which  Chemical  indirectly  has  a  50%
            interest,  received a  complaint  and notice of  violation  from the
            Department  of  Environmental  Waters and  Catchment  Protection  in
            Western  Australia  (the  "Department")  alleging  violations of the
            Environmental  Protection  Act  (1986).  This  matter  concerned  an
            alleged  chlorine  release  at the  facility.  Tiwest  defended  the
            proceeding in the Court of Petty Sessions, Perth, Western Australia,
            and on March 26,  2004,  the  Court  found in favor of  Tiwest.  The
            Department has appealed the Court's  decision.  Tiwest is vigorously
            defending against the appeal,  and the company believes that, should
            the Court's ruling be overturned,  any fines or penalties related to
            the matter will not have a material adverse effect on the company.

        B.  In  addition  to the  matter  described  above and those  previously
            disclosed in the Annual Report on Form 10-K and the Quarterly Report
            on Form 10-Q for the first fiscal  quarter,  a  discussion  of legal
            proceedings  and  contingencies  can  be  found  in  Note  M to  the
            Consolidated Financial Statements included in Part I, Item 1 of this
            Form 10-Q, which is incorporated herein by reference.


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

        (a) The 2004 annual  meeting of  stockholders  was held on May 11, 2004.
            The following matters were voted upon at the 2004 annual meeting:

            (1) The following  directors  were elected with the  following  vote
                totals.

                                                     Votes                Votes
                                                   In Favor             Withheld
                                                   --------             --------
                William E. Bradford               86,977,664           2,002,742
                Luke R. Corbett                   86,877,896           2,102,509
                David C. Genever-Watling          86,875,178           2,105,227
                Farah M. Walters                  86,296,045           2,684,361

            (2) The  stockholders  ratified the appointment of Ernst & Young LLP
                as the  company's  independent  auditors  for 2004.  There  were
                85,874,326  votes for the proposal;  2,530,228 votes against the
                proposal; and 575,851 abstentions.

            (3) The  stockholders  voted  against  a  stockholder   proposal  to
                establish  an  Office  of the  Board of  Directors.  There  were
                34,344,137 votes for the proposal;  39,711,741 votes against the
                proposal; and 1,560,458 abstentions.

        (b) A special  meeting of  stockholders  was held on June 25,  2004,  to
            consider and vote on a proposal to approve the issuance of shares of
            Kerr-McGee  common stock in  connection  with the merger of Westport
            Resources  Corporation with and into Kerr-McGee  (Nevada) LLC. There
            were 74,823,050 votes for the proposal;  1,457,583 votes against the
            proposal; and 551,901 abstentions.


     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
                              dated June 28, 2001,  and  incorporated  herein by
                              reference.

               3.2            Amended   and   restated   Bylaws  of   Kerr-McGee
                              Corporation.

               4.1            The  company  agrees to furnish to the  Securities
                              and Exchange Commission,  upon request,  copies of
                              each of the  following  instruments,  which define
                              the rights of holders of certain long-term debt of
                              the  company,  which debt has been  redeemed as of
                              the date of this  filing:  Indenture,  dated as of
                              November  5,  2001,   among   Westport   Resources
                              Corporation,   the  subsidiary   guarantors  party
                              thereto and The Bank of New York, as trustee under
                              the   indenture,   as   amended   by   the   First
                              Supplemental  Indenture,  dated as of December 31,
                              2001,   by  the  Second   Supplemental   Indenture
                              thereto,  dated as of December  17,  2002,  by the
                              Third Supplemental  Indenture thereto, dated as of
                              April  3,  2003,  and by the  Fourth  Supplemental
                              Indenture thereto, dated as of June 25, 2004.

               10.1           Westport   Resources    Corporation   2000   Stock
                              Incentive Plan effective October 17, 2000.

               10.2           Amendment No. 1 to Westport Resources  Corporation
                              2000 Stock  Incentive  Plan  effective  August 21,
                              2001.

               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 or furnished by
         the company during the quarter ended June 30, 2004:

               o   Current  Report  dated  April 7,  2004,  announcing  that the
                   boards of directors of  Kerr-McGee  Corporation  and Westport
                   Resources   Corporation   unanimously  approved  a  strategic
                   merger.

               o   Current  Report dated April 7, 2004,  announcing  the company
                   had  posted  on its  website a table  containing  information
                   regarding new hedges  entered into by  Kerr-McGee  associated
                   with the Westport merger.

               o   Current  Report  dated  April 7, 2004,  in which the  company
                   provided  fact  sheets   presenting   certain  operating  and
                   financial  information  related to  Kerr-McGee  and  Westport
                   associated with the proposed merger.

               o   Current  Report  dated  April 8, 2004,  in which the  company
                   furnished  as  exhibits  pursuant  to Item 7 of Form  8-K the
                   Agreement  and  Plan  of  Merger,  Voting  Agreements  and  a
                   Registration Rights Agreement entered into in connection with
                   the merger of Kerr-McGee  Corporation and Westport  Resources
                   Corporation,  together  with the joint  press  release  dated
                   April 7,  2004 by  Kerr-McGee  and  Westport  announcing  the
                   merger.

               o   Current Report dated April 21, 2004,  announcing a conference
                   call to discuss the company's  first-quarter  2004  financial
                   and operating results, and expectations for the future.

               o   Current  Report dated April 28, 2004,  announcing the company
                   had posted on its website a table providing  projected ranges
                   of 2004 average  daily oil and natural gas  production  and a
                   table containing a reconciliation of net income determined in
                   accordance with generally accepted  accounting  principles to
                   adjusted net income for the year-to-date and quarterly fiscal
                   periods ended March 31, 2004.

               o   Current Report dated April 28, 2004, announcing the company's
                   first-quarter 2004 earnings.

               o   Current  Report dated May 21,  2004,  announcing a conference
                   call to discuss to company's  second-quarter  2004  financial
                   and operating activities, and expectations for the future.

               o   Current  Report  dated May 26,  2004,  announcing  a security
                   analyst  meeting  to  discuss  the  company's  financial  and
                   operating  outlook for 2004 and certain  expectations for oil
                   and natural gas production volumes for the year 2004.

               o   Current  Report  dated  May 27,  2004,  announcing  that  the
                   company  would  present  at the UBS 2004  Global  Oil and Gas
                   Conference on June 3, 2004.

               o   Current  Report  dated  June 2,  2004,  announcing  that  the
                   company  would  present  at the  RBC  Capital  Markets  North
                   American Energy and Power Conference on June 8, 2004.

               o   Current  Report dated June 16, 2004,  announcing a conference
                   call to discuss the company's  second-quarter  2004 financial
                   and operating activities, and expectations for the future.


               o   Current Report dated June 21, 2004, in which Kerr-McGee filed
                   the audited  consolidated  financial  statements  of Westport
                   included in its Annual Report on Form 10-K for the year ended
                   December  31,  2003,  the  unaudited  consolidated  financial
                   statements  of Westport as of and for the three  months ended
                   March  31,   2004,   and   unaudited   pro  forma   condensed
                   consolidated financial statements, together with the consents
                   of KPMG LLP, Ryder Scott Company, L.P., and Netherland Sewell
                   & Associates, Inc.

               o   Current Report dated June 23, 2004, in which Kerr-McGee filed
                   a consent  issued by Ernst & Young  LLP  associated  with the
                   company's  registration  statements  on Form S-3  (File  Nos.
                   333-81720 and 333-68136) and prospectuses thereunder.

               o   Current Report dated June 25, 2004, announcing the closing of
                   the merger of Westport  Resources  Corporation  with and into
                   Kerr-McGee  (Nevada),  LLC,  a  wholly  owned  subsidiary  of
                   Kerr-McGee.

               o   Current  Report dated June 25, 2004,  announcing the offering
                   of $650 million in aggregate principal amount of Kerr-McGee's
                   6.95% Notes due 2024.




                                    SIGNATURE

     Pursuant to the  requirements  of the Securities  Exchange Act of 1934, the
     Registrant  has duly  caused  this report to be signed on its behalf by the
     undersigned, thereunto duly authorized.

                                               KERR-McGEE CORPORATION

     Date:  August 6, 2004                     By: /s/ John M. Rauh
            --------------                         -----------------------------
                                                   John M. Rauh
                                                   Vice President and Controller
                                                   and Chief Accounting Officer