Exhibit 13

Financial Review  Kerr-McGee Corporation

Contents
Management's Discussion and Analysis....................................20
  Overview..............................................................20
  Operating Environment and Outlook.....................................20
  Results of Consolidated Operations....................................21
  Segment Operations....................................................23
  Financial Condition...................................................24
  Capital Spending......................................................25
  Market Risks..........................................................26
  Critical Accounting Policies..........................................28
  Environmental Matters.................................................28
  New Accounting Standards..............................................29
Cautionary Statement Concerning
  Forward-Looking Statements............................................30
Responsibility for Financial Reporting..................................30
Report of Independent Public Accountants................................30
Consolidated Statement of Income........................................31
Consolidated Statement of Comprehensive Income
  and Stockholders' Equity..............................................32
Consolidated Balance Sheet..............................................33
Consolidated Statement of Cash Flows....................................34
Notes to Financial Statements...........................................35
   1. The Company and Significant Accounting Policies...................35
   2. Cash Flow Information.............................................37
   3. Inventories.......................................................37
   4. Investments - Equity Affiliates...................................37
   5. Investments - Other Assets........................................38
   6. Property, Plant and Equipment.....................................38
   7. Deferred Charges..................................................38
   8. Asset Securitization..............................................39
   9. Accrued Liabilities...............................................39
  10. Acquisition and Merger Reserves...................................39
  11. Debt..............................................................40
  12. Income Taxes......................................................41
  13. Taxes, Other than Income Taxes....................................42
  14. Deferred Credits and Reserves - Other.............................42
  15. Contingencies.....................................................42
  16. Commitments.......................................................43
  17. Acquisition.......................................................44
  18. Financial Instruments and Derivative Activities...................45
  19. Common Stock......................................................47
  20. Other Income......................................................48
  21. Earnings Per Share................................................48
  22. Impairment of Long-Lived Assets and Long-Lived
         Assets to Be Disposed Of.......................................49
  23. Employee Stock Option Plans.......................................49
  24. Employee Benefit Plans............................................51
  25. Employee Stock Ownership Plan.....................................53
  26. Condensed Consolidating Financial Information.....................54
  27. Reporting by Business Segments
         and Geographic Locations.......................................57
  28. Costs Incurred in Crude Oil and
         Natural Gas Activities.........................................59
  29. Results of Operations from Crude Oil
         and Natural Gas Activities.....................................60
  30. Capitalized Costs of Crude Oil and
         Natural Gas Activities.........................................61
  31. Crude Oil, Condensate, Natural Gas Liquids
         and Natural Gas Net Reserves (Unaudited).......................62
  32. Standardized Measure of and Reconciliation
         of Changes in Discounted Future
         Net Cash Flows (Unaudited).....................................63
  33. Quarterly Financial Information (Unaudited).......................64
Eight-Year Financial Summary............................................65
Eight-Year Operating Summary............................................66


                                FINANCIAL REVIEW

Management's Discussion and Analysis

Overview

     Kerr-McGee  Corporation is one of the largest  independent  exploration and
production  companies and titanium dioxide pigment producers in the world. Since
the end of 1998,  the company's  assets have more than  tripled,  proven oil and
natural gas reserves have increased more than fivefold through drill bit success
and merger and  acquisitions,  and the company's equity  production  capacity of
titanium  dioxide  pigment has increased 85% through  acquisition  of plants and
expansion of existing facilities.

Operating Environment and Outlook

     The  volatility  of crude oil and  natural  gas  prices  has a  significant
influence on the  profitability  of  Kerr-McGee's  oil and gas  exploration  and
production business.
     The U.S. and world economies  slowed  throughout the year,  lowering demand
for both oil and natural  gas.  U.S. oil  consumption  for 2001 marked the first
decline in a decade. The decline,  which began in the third quarter,  was due in
large  part to a  combination  of  sharply  reduced  air  travel  following  the
September 11 terrorist attacks, the continued lackluster economy, fuel switching
from residual fuel to natural gas, weak demand for petrochemical  feedstocks and
warm winter temperatures.
     The lower demand  caused  downward  pressure on prices.  OPEC  responded by
reducing its market share in an effort to support  prices.  However,  oil prices
declined 34% through 2001.  OPEC pressured  several large non-OPEC  producers to
join them in additional production cuts at year-end. Global consumption was down
or flat except in China and the  Asia-Pacific  areas.  Oil demand is expected to
remain  weak  during  the  first  half of 2002,  but as  anticipated  industrial
production  improves,  increased  demand will be an important  driver for higher
crude oil prices.
     Natural gas prices,  already  suffering from a slowing U.S.  economy,  were
further weakened by temporary disruptions in the economy caused by the terrorist
attacks.  The  closing of  offices,  shutdown of  factories  and layoffs  were a
continuing  part of the  2001  business  landscape.  Warmer-than-normal  weather
conditions,  which marked the start of the 2001-02 winter,  created  record-high
gas storage that has the potential to mitigate any recovery in gas prices in the
months ahead.  Recovery of hydroelectric  generation from the devastating impact
of last year's drought in the Pacific  Northwest  reduced  natural gas demand in
the power generation sector and added to an already  increasing  supply. A surge
in  deepwater  Gulf of Mexico new  wellhead  capacity is  expected to  continue.
Production  capacity in the northern  Rockies is also scheduled to increase with
the  addition  of major  gathering  systems  and  accelerating  coalbed  methane
recovery  operations.  Gas prices declined more than 70% from the  extraordinary
highs in January  2001 as a result of  oversupply,  mild weather in the U.S. and
large supply increases from Canada.
     The company enters 2002 with OPEC having significantly more excess capacity
than last year, lower market share and less anticipated  revenue. Gas storage in
both Canada and the U.S. is at extremely high levels by historical measures.
     Drilling  activity  responds to market signals.  In the U.S.,  nearly 1,300
rotary rigs were working in mid-2001, but only 885 remained working at year-end.
The reaction in gas drilling-related  activities was even more dramatic.  As the
expected increase in natural gas demand occurs,  production  capacity will again
demonstrate the delicate balance between supply and demand.
     The  company is the  third-largest  producer  of  titanium  dioxide  (TiO2)
pigment and is one of five companies that own proprietary  chloride  technology.
The chloride process produces a pigment with optical properties preferred by the
paint and  plastics  industries.  In early 2002,  70% of the  company's  pigment
production  capacity was derived from  chloride  technology,  with the remainder
from sulfate technology, which produces pigment used in paper, food products and
cosmetics.
     Titanium  dioxide  is a  "quality-of-life"  product,  and  its  consumption
follows general economic trends. Throughout 2001, recessionary pressures plagued
the paint and plastics industries,  which represent more than 70% of the pigment
market.  In response to rising inventory levels and falling prices,  the company
continued its  implementation  of  cost-reduction  and  operational  performance
improvement  initiatives as indicated by the company  closing its  sulfate-route
TiO2 pigment plant in Antwerp, Belgium, at year-end 2001.
     During recent months, there has been modest improvement in the leading U.S.
economic  indicators  and the Euro-zone  gross domestic  product,  and effective
March 1, 2002, the company,  announced an increase in titanium  dioxide  pigment
prices.  The company expects to see general  economic  improvement in both North
America  and  Europe  as  well as  renewed  growth  in the  Asian  markets,  and
management is confident  that actions taken in 2001 have  positioned the company
for growth.

Results of Consolidated Operations

     Net income and per-share  amounts for each of the three years in the period
ended December 31, 2001, were as follows:

(Millions of dollars, except per-share amounts)      2001     2000     1999
-----------------------------------------------      ----     ----     ----
Net income                                          $ 486    $ 842    $ 142
Net income per share -
  Basic                                              5.01     9.01     1.64
  Diluted                                            4.74     8.37     1.64

     Net  income  was  impacted  by a number  of  special  items  that were both
operating and nonoperating in each of the years. In 2001, the special items were
principally  related to certain asset impairments,  provisions for environmental
costs and the costs associated with the closure of the pigment plant in Antwerp,
Belgium, partially offset by unrealized income recorded upon the adoption of the
new  derivative  accounting  standard.  The 2000  special  items  were  composed
principally of the write-off of purchased  in-process  research and  development
projects and provisions for certain  environmental costs. In 1999, special items
were  principally  associated with the company's merger with Oryx Energy Company
(Oryx) and related  transition  costs and with  pending  and settled  litigation
matters.  These special items affect  comparability  between the periods and are
shown on an after-tax  basis in the following  table,  which  reconciles  income
excluding special items to net income:

(Millions of dollars)                                2001     2000     1999
---------------------                                ----     ----     ----
Income excluding special items                       $542     $940    $ 296
                                                     ----     ----    -----
Special items, net of taxes -
  Merger costs                                         --       --     (116)
  Net provision for environmental
    remediation and restoration of
    inactive sites                                    (53)     (59)      --
  Asset impairment                                    (51)      --       --
  Purchased in-process research
    and development                                    --      (32)      --
  Chemical plant closings and product
    line discontinuations                             (27)     (13)      --
  Write-down of pigment fixed assets
    and inventories                                   (17)      --       --
  Severance payments                                   (5)      --       --
  Pending/settled litigation                           --       (7)     (20)
  Transition costs                                     (1)      (3)     (14)
  Unrealized gain on Devon Energy
    Corporation stock reclassified to
    "trading" category of investments                 118       --       --
  Settlement of prior years' income taxes              --       11        1
  Gain on sale of equity interest
    in a chemical plant                                --        8       --
  Other, net                                           --       (3)      (1)
                                                     ----     ----    -----
    Total                                             (36)     (98)    (150)
                                                     ----     ----    -----
Change in accounting principle, net of taxes          (20)      --       (4)
                                                     ----     ----    -----
Net income                                           $486     $842    $ 142
                                                     ====     ====    =====

     Effective  January 1, 2001,  the company  adopted the Financial  Accounting
Standards   Board's  (FASB)  Statement  No.  133,   "Accounting  for  Derivative
Instruments  and  Hedging  Activities"  (FAS 133),  as  amended.  This  standard
required the recording of all derivative  instruments as assets or  liabilities,
measured  at  fair  value.  Kerr-McGee  recorded  the  fair  value  of  all  its
outstanding foreign currency forward contracts and the fair value of the options
associated with the company's debt exchangeable for stock (DECS) of Devon Energy
Corporation (Devon) presently owned by the company.  The net effect of recording
these fair values  resulted in a $20 million  decrease in income as a cumulative
effect of a change in accounting  principle and a $3 million reduction in equity
(other  comprehensive  income) for the foreign currency contracts  designated as
hedges.
     Also,  in accordance  with FAS 133, the company chose to reclassify  85% of
the Devon shares owned to "trading"  from the  "available  for sale" category of
investments.  This resulted in a $118 million unrealized gain on the stock being
recognized in income as of January 1, 2001,  with a  corresponding  reduction in
other  comprehensive  income  where the  unrealized  gains had  previously  been
recorded.
     Effective  January 1, 1999, the company adopted Statement of Position (SOP)
No.  98-5,  "Reporting  on the Costs of Start-Up  Activities."  The SOP requires
costs of start-up  activities to be expensed as incurred.  Unamortized  start-up
costs at the  beginning of 1999 were  required to be  recognized as a cumulative
effect of a change in  accounting  principle,  which  decreased  1999  after-tax
income by $4 million.
     Income  excluding  special items for 2001 decreased $398 million from 2000,
primarily as a result of lower net  operating  profit from both the  exploration
and  production  and the  pigment  segments  of $305  million  and $69  million,
respectively.  Also  contributing  to  the  decrease  were  losses  from  equity
affiliates  in 2001,  compared  with  income in the prior year and higher  other
expenses,  partially  offset by lower net  interest  expense.  Income  excluding
special  items for 2000 was more than triple the 1999  amount.  The $644 million
increase  resulted  primarily from increases in after-tax  operating  profit for
both the exploration and production and chemical  operations of $588 million and
$34  million,  respectively,  and a $20 million  increase in  after-tax  foreign
currency gains.

Income Statement Comparisons
     Sales were $3.6  billion in 2001,  $4.1 billion in 2000 and $2.7 billion in
1999.  The decline in sales in 2001 was  primarily  due to lower  average  sales
prices and volumes for oil and lower pigment sales prices and volumes, partially
offset by higher  natural gas sales  volumes.  Increased  sales in 2000 resulted
from the  significantly  higher  average  sales  prices for oil and natural gas,
higher oil sales volumes, and higher pigment sales volumes (principally from the
two pigment plants acquired in the second quarter of 2000),  partially offset by
lower natural gas sales volumes.
     Costs and  operating  expenses  increased $47 million in 2001 from the 2000
level.  Most of this variance resulted from $60 million of special items in 2001
versus $5 million in 2000.  The 2001  special  items  consisted of costs for the
Antwerp pigment plant closure,  discontinuation of manganese metal production at
Hamilton,  Mississippi,  and the write-down of certain pigment inventories.  The
2000 costs and operating expenses increased $244 million over 1999,  principally
due to the operating costs for the two acquired  pigment plants and the acquired
North Sea operations.
     Following are selling,  general and administrative  expenses for 2001, 2000
and 1999:

(Millions of dollars)                                2001     2000     1999
---------------------                                ----     ----     ----
Selling, general and administrative
  expenses excluding special items                   $233     $193     $184
                                                     ----     ----     ----
Special items -
  Pending/settled litigation                           --        8       30
  Transition costs associated with
    the Oryx merger and the purchase
    of two pigment plants                              --        4       22
  Severance payments                                    4       --       --
                                                     ----     ----     ----
    Total                                               4       12       52
                                                     ----     ----     ----
Selling, general and administrative expenses         $237     $205     $236
                                                     ====     ====     ====

     The 2001 selling,  general and  administrative  expenses  excluding special
items  increased  $40  million,  or  21%,  from  2000.  This  increase  resulted
principally from the acquisition of HS Resources,  Inc. in mid-2001,  completion
of the  integration of the two chemical plants acquired in the second quarter of
2000,  higher  costs  for  information  technology  projects,  higher  incentive
compensation based on 2000 performance and higher chemical warehousing costs due
to more  product in  inventory.  Selling,  general and  administrative  expenses
excluding  special items for 2000  increased 5% compared with 1999. The increase
was primarily due to higher general and administrative costs associated with the
purchased pigment plants.
     Shipping and handling  expenses  totaled $119 million in 2001, $100 million
in 2000 and $80  million  in 1999.  The  increase  in 2001 is  primarily  due to
exploration  and  production's  higher  natural gas sales  volumes and increased
costs  in the  U.K.,  Kazakhstan  and  Indonesia.  The  2000  increase  was  due
principally to higher exploration and production and chemical sales volumes.
     Depreciation  and  depletion  expenses  for  2001,  2000 and 1999 were $723
million, $684 million and $607 million,  respectively.  The 2001 amount includes
$16 million of special items for discontinued  capital projects and write-off of
certain  assets no longer used in pigment  operations.  Excluding  these special
items,  the $23  million  increase  in 2001  was  mainly  the  result  of the HS
Resources acquisition, the oil and gas production mix in the other regions and a
full year of  depreciation  for the two chemical  plants  acquired in the second
quarter of 2000.  The 2000 increase over 1999 was the result of increased  North
Sea oil and gas production and the acquisition of two chemical plants during the
second quarter of 2000.
     Asset  impairments  totaled  $76  million  in 2001 (see  Note 22).  Of this
amount, $47 million represented  write-downs  associated with the shut-in of the
North Sea Hutton field.  Asset  impairments of $29 million were also  recognized
for certain  chemical  facilities in Belgium and the U.S. The  impairments  were
recorded  because these assets were no longer expected to recover their net book
values through future cash flows.
     Exploration  costs for 2001, 2000 and 1999 were $211 million,  $170 million
and $140 million,  respectively.  The $41 million increase in 2001 was primarily
the result of higher planned exploratory  drilling in Brazil,  Gabon,  Australia
and  China,  higher  geophysical  costs,   principally  from  the  HS  Resources
acquisition,  and  higher  amortization  of  nonproducing  leaseholds.  The 2000
increase  over 1999 was due to higher dry hole costs,  principally  in the U.K.,
Algeria, Thailand and Australia; higher geophysical costs, primarily in the Gulf
of Mexico; and higher amortization of nonproducing leaseholds.
     Taxes,  other than income taxes, were $115 million in 2001, $122 million in
2000 and $85 million in 1999.  The 2001 and 2000  variances  from the prior year
were both due principally to production  taxes, a direct result of the decreases
or increases in oil and gas prices.
     In connection  with the company's  second-quarter  2000  acquisition of the
pigment plant in Savannah,  Georgia, certain incomplete research and development
projects were identified and valued as part of the purchase  price.  Since these
projects had no alternative future use to the company,  $32 million was expensed
at the date of acquisition.
     Merger costs  totaling  $163 million were  recognized in 1999 and represent
costs incurred in connection  with the Oryx merger,  which had no future benefit
to the  combined  operations.  The major  items were  severance  and  associated
benefit plan adjustments;  lease cancellation  costs;  transfer fees for seismic
data;  investment  bankers,  lawyers and accountants  fees; and the write-off of
duplicate computer systems and fixtures (see Note 10).
     Interest  and debt expense  totaled  $192 million in 2001,  $208 million in
2000 and $190 million in 1999.  The lower  expense in 2001 compared with 2000 is
due to higher  levels of interest  being  capitalized  on the major  development
projects  in the Gulf of Mexico  and the North  Sea and  lower  interest  rates,
partially  offset  by  significantly  higher  borrowings  resulting  from the HS
Resources acquisition and higher capital spending.  The increase in 2000 expense
compared with 1999 was the result of higher average  borrowing levels during the
first half of 2000 and lower capitalized interest.
     Other income was as follows for each of the years in the three-year  period
ended December 31, 2001:

(Millions of dollars)                                2001     2000     1999
---------------------                                ----     ----     ----
Other income excluding special items                 $ 52     $ 65      $39
                                                     ----     ----      ---
Special items -
  Unrealized gain on Devon stock
    reclassified to "trading" category
    of investments                                    181       --       --
  Gain on sales of a refining terminal
    and equity interest in a chemical
    plant in 2001 and 2000, respectively                4       14       --
  Costs of chemical facility closings
    and product line discontinuations                  --      (21)      --
  Other, net                                           --       --        1
                                                     ----     ----      ---
    Total                                             185       (7)       1
                                                     ----     ----      ---
Other income                                         $237     $ 58      $40
                                                     ====     ====      ===

     The 2001  decrease of $13 million in other income  excluding  special items
compared  with 2000 was  primarily  the  result of  losses  from  unconsolidated
affiliates,  compared  with income in 2000 and lower foreign  currency  exchange
gains.  Partially  offsetting  these  declines were gains on the  revaluation of
derivative  contracts  in 2001  and the  excess  of the  unrealized  gain on the
options associated with the company's DECS over the unrealized loss on the Devon
stock  (see Note 18).  The higher  2000 other  income  excluding  special  items
compared  with 1999 was due  primarily to increases in foreign  currency  gains,
interest income and income from unconsolidated affiliates.

Segment Operations

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

(Millions of dollars)                                2001     2000     1999
---------------------                              ------   ------     ----
Operating profit excluding special items -
  Exploration and production                       $1,007   $1,470     $562
                                                   ------   ------     ----
  Chemicals -
    Pigment                                            56      168      113
    Other                                              13       17       15
                                                   ------   ------     ----
      Total Chemicals                                  69      185      128
                                                   ------   ------     ----
        Total                                       1,076    1,655      690
Special items                                        (156)     (41)     (21)
                                                   ------   ------     ----
Operating profit                                   $  920   $1,614     $669
                                                   ======   ======     ====

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

(Millions of dollars, except per-unit amounts)       2001     2000     1999
----------------------------------------------     ------   ------   ------
Sales                                              $2,511   $2,860   $1,784
                                                   ======   ======   ======

Operating profit excluding special items           $1,007   $1,470   $  562
Special items                                         (48)      (3)     (20)
                                                   ------   ------   ------
Operating profit                                   $  959   $1,467   $  542
                                                   ======   ======   ======
Exploration expense                                $  211   $  170   $  140
Net crude oil and condensate produced
  (thousands of barrels per day)                      198      207      197
Average price of crude oil sold
  (per barrel)                                     $22.58   $27.64   $17.26
Natural gas sold (MMcf per day)                       596      531      580
Average price of natural gas sold
  (per Mcf)                                        $ 3.83   $ 3.87   $ 2.38
Average production cost (per BOE)                  $ 4.45   $ 4.49   $ 3.72

     Special  items  in  2001  include  a  $47  million  asset  impairment  loss
associated  with the Hutton field in the North Sea.  Special  items in 1999 were
transition  costs  associated  with the work  necessary to  accomplish  the Oryx
merger.
     The  decrease in  operating  profit  excluding  special  items for 2001 was
primarily due to the significant  decline in average oil sales prices and higher
exploration  expense resulting from the company's planned  exploration  program,
partially  offset by the  increase  in natural  gas sales  volumes.  The primary
reasons for higher 2000 operating profit  excluding  special items compared with
1999 were significantly  higher average sales prices for oil and natural gas and
increased oil sales volumes, partially offset by higher production costs, higher
exploration expense and lower natural gas sales volumes.

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

(Millions of dollars)                                2001     2000     1999
---------------------                              ------   ------     ----
Sales -
  Pigment                                          $  931   $1,034     $725
  Other                                               196      227      234
                                                   ------   ------     ----
    Total                                          $1,127   $1,261     $959
                                                   ======   ======     ====
Operating profit excluding special items -
  Pigment                                          $   56   $  168     $113
  Other                                                13       17       15
                                                   ------   ------     ----
                                                       69      185      128
Special items -
  Pigment                                             (78)     (38)      --
  Other                                               (30)      --       (1)
                                                   ------   ------     ----
Operating profit (loss)                            $  (39)  $  147     $127
                                                   ======   ======     ====
Gross worldwide pigment production
  (thousands of tonnes)                               483      480      320

     Special  items  in  2001  were  primarily  due to  $46  million  for  asset
impairment and other costs associated with closing the pigment plant in Antwerp,
Belgium, $25 million for the asset impairment and termination of manganese metal
production at the Hamilton, Mississippi,  electrolytic facility, $25 million for
the write-down of certain  pigment fixed assets and  inventories  and $8 million
for severance costs. Special items in 2000 include $32 million for the write-off
of  in-process  research  and  development  projects  with the  purchase  of the
Savannah,  Georgia,  pigment  plant  and $6  million  for the  transition  costs
incurred  in   connection   with  the  purchase  of  the  Savannah  and  Botlek,
Netherlands, pigment plants.
     Pigment - Titanium dioxide pigment sales declined 10% in 2001 compared with
2000 due to lower pigment sales prices and sales  volumes.  The global  economic
downturn led to reduced  customer  demand and lower  pricing.  Operating  profit
excluding  special items in 2001  declined  $112 million  compared with 2000 due
principally to lower sales and higher per-unit production costs for pigment. The
43% increase in titanium  dioxide  pigment  sales in 2000 compared with 1999 was
primarily due to the  additional  volumes sold from the two acquired  plants and
higher  pigment sales volumes at the other plants.  Operating  profit  excluding
special items in 2000 increased $55 million over 1999 due  principally to record
pigment sales volumes,  cost-reduction  initiatives and the favorable  impact of
euro exchange rates.
     Other - Special items in 2001 were primarily due to asset  impairments  and
the  discontinuation  of manganese  metal  production at Hamilton,  Mississippi.
Other  chemical  sales  and  operating  profit  declined  primarily  due  to the
discontinued  production  of  manganese  metal and  lower  results  from  forest
products.

Financial Condition

(Millions of dollars)                        2001         2000         1999
---------------------                    --------     --------     --------
Current ratio                            1.2 to 1     1.0 to 1     1.4 to 1
Total debt                                 $4,574       $2,425       $2,525
Total debt less cash                        4,483        2,281        2,258
Stockholders' equity                      $ 3,174       $2,633      $ 1,492
Total debt less cash to
  total capitalization                         59%          46%         60%
Floating-rate debt to total debt               28%           3%         38%

     Kerr-McGee  operates with the philosophy  that over a five-year plan period
the  company's  capital  expenditures  and  dividends  will  be paid  from  cash
generated by operations.  During 2001, major development  projects utilized more
cash  than was  generated  from  operations.  On a  cumulative  basis,  the cash
generated  from  operations  for the past three years has exceeded the company's
capital  expenditures and dividend  payments.  Debt and equity  transactions are
utilized for  acquisition  opportunities  and short-term  needs due to timing of
cash flow. The company's net debt to capitalization  was 59% at the end of 2001,
compared  with  46%  and  60% at the end of 2000  and  1999,  respectively.  The
increase in 2001 resulted from the debt issued and assumed in the acquisition of
HS Resources  and for the major  development  projects in the Gulf of Mexico and
the North Sea.  The lower  percentage  in 2000 versus 1999 was the result of the
impact of the equity  increase  from 2000 net  income and the sale of stock,  as
well as lower debt levels.

Cash Flow
     Operating  activities  provided net cash of $1.1 billion in 2001,  compared
with $1.8 billion in 2000.  The  decrease was due  primarily to the $356 million
decline in net income,  along with the use of funds  reflected in the changes in
various working capital items. Year-end cash was $91 million, a reduction of $53
million from $144 million at December 31, 2000.
     The  company  invested  $1.9  billion in its 2001  capital  program,  which
included  $72  million  of  unsuccessful  exploratory  drilling  costs.  Capital
expenditures  were $950  million  higher than in 2000.  These  investments  were
mainly for major field  developments in the North Sea and the Gulf of Mexico and
nonproducing  leasehold acquisitions in the Gulf of Mexico.  Additionally,  $978
million of cash was used for the acquisition of HS Resources and the acquisition
of the  remaining  20% minority  interest in the chemical  plants in Germany and
Belgium. Other investing activities include a $44 million investment by chemical
in Avestor,  a new stored-power  joint venture in Canada,  and an additional $40
million investment for the company's share of construction costs for the Caspian
pipeline by exploration and production.  Other investing activities provided $29
million of net cash.
     In connection  with the  acquisition  of HS Resources,  the company  issued
5,057,273  shares of common stock valued at $355 million,  assumed debt totaling
$506 million and paid cash of $955 million  totaling  $1.816  billion.  The cash
payment and payoff of the assumed  debt were  financed by the  issuance of three
series of long-term notes totaling $1.5 billion.  In addition to these long-term
notes,  the  company  borrowed  $200  million  with a private  placement  of its
floating  rate notes due June 2004 and had  additional  net  borrowings  of $143
million,  primarily commercial paper and revolving credit borrowings.  Cash flow
was used to pay the company's dividends of $173 million in 2001.

Liquidity
     The company believes that it has the ability to provide for its operational
needs and its long- and short-term  capital  programs through its operating cash
flows,  borrowing  capacity and ability to raise capital.  The company's primary
source of funds has been from  operating  cash flows,  which would be  adversely
affected by declines in oil, natural gas and pigment prices, all of which can be
volatile as discussed in the preceding  Outlook  section.  Should operating cash
flows decline, the company may reduce its capital expenditures  program,  borrow
under  its  commercial  paper  program  and/or  consider   selective   long-term
borrowings  or equity  issuances.  Kerr-McGee's  commercial  paper  programs are
backed  by the  revolving  credit  facilities  currently  in place.  Should  the
company's  commercial  paper or debt rating be downgraded,  borrowing  costs may
increase,  and the company may experience loss of investor  interest in its debt
as evidenced by a reduction in the number of investors  and/or  amounts they are
willing to invest.
     At December 31, 2001,  the company had unused lines of credit and committed
amounts under revolving credit agreements totaling $1.258 billion. Two revolving
credit agreements  consisting of a five-year $650 million facility and a 364-day
$650 million facility were signed January 12, 2001. Of the two agreements,  $810
million and $490 million can be used to support  commercial  paper borrowings in
the U.S. and Europe, respectively,  by certain wholly owned subsidiaries and are
guaranteed by the parent  company.  The borrowings can be made in U.S.  dollars,
British pound sterling, euros or local European currencies.  The company renewed
the 364-day $650 million  facility on January 11, 2002,  with a similar  364-day
$700 million  facility.  The company also has a $100  million  revolving  credit
agreement  available  to its  Chinese  subsidiary  through  March  3,  2003.  In
addition, it had unused,  uncommitted lines of credit of $40 million at December
31, 2001.  Interest for each of the  revolving  credit  facilities  and lines of
credit is payable at varying rates.
     At  December  31,  2001,  the  company  classified  $1.066  billion  of its
short-term  obligations as long-term debt.  Final settlement of these commercial
paper and revolving  credit  obligations  is not expected to occur in 2002.  The
company  has the  intent and the  ability,  as  evidenced  by  committed  credit
agreements,  to refinance this debt on a long-term basis. The company's practice
has been to  continually  refinance its  commercial  paper or draw on its backup
facilities, while maintaining levels believed to be appropriate.
     The company also has available, to issue and sell, a total of $2 billion of
debt  securities,  common  or  preferred  stock,  or  warrants  under  its shelf
registration with the Securities and Exchange Commission, which was last updated
in February 2002.
     During 2001 and 2000, the company  identified  certain financing needs that
were best handled by off-balance sheet arrangements with unconsolidated, special
purpose  entities.  Three  leasing  arrangements  have  been  entered  into  for
financing  the  company's  working  interest   obligations  for  the  production
platforms and related equipment on three company-operated  fields in the Gulf of
Mexico.  Also, the company has entered into an accounts receivable  monetization
program to sell its receivables  from certain pigment  customers.  Each of these
transactions has provided specific  financing for the company's current business
needs and/or projects and does not expose the company to significant  additional
risks or commitments.  The leases provide a tax-efficient  method of financing a
portion  of  these  major  development  projects,  and the  sale of the  pigment
receivables  results in lowering the  company's  financing  costs due to a lower
discount rate than the company's short-term borrowing rate.
     During  2001,  the  company  entered  into a  leasing  arrangement  for its
interest in the production platform and related equipment for the Gunnison field
in the  Garden  Banks  area of the  Gulf of  Mexico,  which  is  similar  to two
arrangements entered into in 2000 for the Nansen and Boomvang fields in the East
Breaks  area of the Gulf of Mexico.  In each of these  three  arrangements,  the
company has entered into 5-year lease  commitments with separate business trusts
that have been created to construct  independent  spar production  platforms for
each  field  development.  The  company's  share of  construction  costs for the
platforms is being  financed by synthetic  lease credit  facilities  between the
trust and groups of financial  institutions  for $157 million,  $137 million and
$78 million for Gunnison,  Nansen and Boomvang,  respectively,  with the company
making  lease  payments  sufficient  to pay  interest  at  varying  rates on the
financings.  After completion of the construction  phase,  different trusts will
become the lessor/owner of the platforms and related equipment.  The company and
these  trusts are  committed to enter into  operating  leases for the use of the
spar platforms and related  equipment during the life of the fields.  In January
2002, the Nansen synthetic lease was converted to an operating lease arrangement
at the completion of the  construction  of the Nansen  production  platform,  as
planned. Estimated future minimum annual rentals under these leases are shown in
the table below.
     A pigment accounts receivable  monetization program began in December 2000.
Under the terms of the credit-insurance-backed asset securitization,  up to $180
million of selected pigment customers' accounts  receivables are sold monthly to
a  special-purpose  entity  (SPE).  The SPE  borrows the  purchase  price of the
receivables at a lower interest rate than Kerr-McGee's commercial paper rate and
shares a portion of the savings with the company.  The company records a loss on
the receivable  sales equal to the difference in the cash received plus the fair
value of the retained  interests and the carrying value of the receivables sold.
The fair value of the retained interests (servicing fees and preference stock of
the SPE,  which is  essentially  a deposit to  provide  credit  enhancement,  if
needed,  but otherwise  recoverable  by the company) is based on the  discounted
present value of future cash flows. At year-end 2001, the outstanding balance on
receivables sold under the program totaled $96 million. In the event the program
is terminated, Kerr-McGee will continue to act as collection agent until all its
obligations  under  the  agreement  are  retired.  Any  costs  resulting  from a
termination would be covered by the value of the preference stock.

Obligations and Commitments
     In the normal course of business, the company enters into contracts, leases
and  borrowing  arrangements.  The company has no material debt  guarantees  for
unrelated  parties.  As part of the company's  project-oriented  exploration and
production  business,  Kerr-McGee  routinely  enters into  contracts for certain
aspects of the project (i.e.,  engineering,  drilling, subsea work, etc.). These
contracts are generally not unconditional obligations; thus, the company accrues
for the value of work done at any point in time, a portion of which is billed to
partners.  Kerr-McGee's commitments and obligations as of December 31, 2001, are
summarized in the following table:
<TABLE>
<CAPTION>

(Millions of dollars)                                                    Year Due
---------------------                   ----------------------------------------------------------------------------
Type of Obligation                       Total       2002       2003       2004       2005       2006     Thereafter
------------------                       -----       ----       ----       ----       ----       ----     ----------
<S>                                     <C>           <C>     <C>          <C>        <C>        <C>          <C>
Long-term debt                          $4,566        $26     $1,172       $664       $151       $325         $2,228
Operating leases for Nansen,
  Boomvang and Gunnison                    643          7         12         22         27         27            548
All other operating leases                 139         24         19         14         12         12             58
Leveraged leases                             2          1          1         --         --         --             --
Drilling rig commitments                    85         33         31         21         --         --             --
Guarantee of platform residual values       38         --         --         --         --         --             38
                                        ------        ---     ------       ----       ----       ----         ------
                                        $5,473        $91     $1,235       $721       $190       $364         $2,872
                                        ======        ===     ======       ====       ====       ====         ======
</TABLE>

Capital Spending

Capital expenditures are summarized as follows:

(Millions of dollars)                Est. 2002       2001       2000       1999
---------------------                ---------       ----       ----       ----
Exploration and production                $780     $1,624       $718       $432
Chemicals                                   90        153        118         90
Other                                       20         15          6          6
                                          ----     ------       ----       ----
                                          $890     $1,792       $842       $528
                                          ====     ======       ====       ====

     Capital  spending,  excluding  acquisitions,  totaled  $3.2  billion in the
three-year  period  ended  December 31, 2001,  and  dividends  paid totaled $477
million in the same three-year  period,  which compares with $3.7 billion of net
cash provided by operating  activities during the same period. This reflects the
company's philosophy of providing for its capital programs and dividends through
internally generated funds. During the three-year period, the company made three
major  acquisitions,  which  further  expanded  its  global  presence - the 2001
acquisition  of HS Resources for $955 million cash plus common stock and assumed
debt and the 2000 acquisitions of Repsol S.A.'s North Sea oil and gas operations
and the U.S. and Dutch pigment plants for $975 million.
     Kerr-McGee has budgeted $890 million for its capital  program in 2002. This
represents a 50% decrease  from the 2001 level.  Most of this  decrease  results
from the completion of four major development projects in late 2001 and 2002.
     Management   anticipates   that  the  2002  capital  program  and  selected
acquisitions  that support the company's  global growth strategy can continue to
be  provided  through  internally   generated  funds  and  selective  borrowings
appropriate in the circumstances.

Oil and Gas
     The company's  exploration and production  capital spending continues to be
focused on deepwater  projects and global  growth.  Successful  exploration  and
appraisal drilling programs for the past three years have resulted in four major
development  projects  - Nansen  (50%  working  interest),  Boomvang  (30%)  and
Gunnison  (50%) in the Gulf of Mexico and the  100%-owned  Leadon project in the
North Sea. The company is also  developing the Skene field (33%) and the Maclure
field (33%) in the North Sea,  both of which were acquired as part of the Repsol
acquisition.  These  projects  plus the  Tullich  field  (100%) in the North Sea
comprise  43% of the capital  budget for 2002.  The company also expects to fund
its share of drilling 20 to 30 exploratory wells in 2002.

Chemicals
     Capital  expenditures  for chemical  operations are budgeted at $90 million
for 2002.  These  expenditures  will be  primarily  for capital  items needed to
maintain the company's pigment facilities and for environmental projects.

Market Risks

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

Foreign Currency Exchange
     The U.S. dollar is the functional currency for the company's  international
operations,  except for its  European  chemical  operations.  Periodically,  the
company  enters  into  forward  contracts  to buy and sell  foreign  currencies.
Certain of these  contracts  (purchases of Australian  dollars and British pound
sterling)  have been  designated  and have  qualified as cash flow hedges of the
company's  operating  and  capital  expenditure  requirements.  These  contracts
generally have durations of less than three years. The resulting changes in fair
value of these contracts are recorded in accumulated other comprehensive income.
     The  company has  entered  into other  forward  contracts  to sell  foreign
currencies,  which will be collected as a result of pigment sales denominated in
foreign currencies, primarily in euros. These contracts have not been designated
as hedges  even  though  they do protect  the  company  from  changes in foreign
currency rates. Almost all of the pigment receivables have been sold in an asset
securitization  program at their  equivalent  U.S.  dollar value at the date the
receivables were sold. However, the company retains the risk of foreign currency
rate changes between the date of the sale and collection of the receivables.
     Following  are  the  notional  amounts  at  the  contract  exchange  rates,
weighted-average  contractual  exchange  rates and estimated  contract value for
open contracts at year-end 2001 and 2000 to purchase (sell) foreign  currencies.
Contracts values are based on the estimated  forward exchange rates in effect at
year-end. All amounts are U.S. dollar equivalents.
<TABLE>
<CAPTION>

                                                           Notional          Weighted-Average     Estimated Contract
(Millions of dollars, except average contract rates)         Amount             Contract Rate                  Value
----------------------------------------------------       --------          ----------------     ------------------
<S>                                                            <C>                     <C>                      <C>
Open contracts at December 31, 2001 -
   Maturing in 2002 -
     British pound sterling                                    $ 79                    1.4159                   $ 80
     Australian dollar                                           64                     .5943                     54
     Euro                                                        (7)                    .8894                     (7)
     New Zealand dollar                                          (1)                    .4073                     (1)
   Maturing in 2003 -
     Australian dollar                                           44                     .5702                     38

Open contracts at December 31, 2000 -
   Maturing in 2001 -
     British pound sterling                                     293                    1.4595                    300
     Australian dollar                                           60                     .6168                     54
     Euro                                                        21                     .8525                     23
     Euro                                                        (3)                    .8740                     (4)
     German mark                                                 (2)                    .4474                     (2)
     British pound sterling                                      (1)                   1.4508                     (1)
     Japanese yen                                                (1)                    .0090                     (1)
     New Zealand dollar                                          (1)                    .3993                     (1)
   Maturing in 2002 -
     Australian dollar                                           42                     .6156                     38
   Maturing in 2003 -
     Australian dollar                                           18                     .5935                     17
</TABLE>

Interest Rates
     The company's  exposure to changes in interest  rates relates  primarily to
long-term  debt  obligations.  The table below  presents  principal  amounts and
related  weighted-average  interest  rates by  maturity  date for the  company's
long-term debt  obligations  outstanding at year-end 2001. All borrowings are in
U.S. dollars.
<TABLE>
<CAPTION>

                                                                        There-               Fair Value
(Millions of dollars)      2002     2003     2004     2005     2006      after     Total       12/31/01
---------------------      ----     ----     ----     ----     ----     ------     -----     ----------
<S>                        <C>    <C>        <C>      <C>      <C>      <C>       <C>            <C>
Fixed-rate debt -
  Principal amount          $26   $  106     $464     $151     $325     $2,228    $3,300         $3,384
  Weighted-average
    interest rate          9.43%    8.09%    6.46%    8.14%    5.88%      6.67%     6.69%
Variable-rate debt -
  Principal amount           --   $1,066     $200       --       --         --    $1,266         $1,266
  Weighted-average
    interest rate            --     2.98%    2.65%      --       --         --      2.93%
</TABLE>

     At December 31, 2000,  long-term  debt included  fixed-rate  debt of $2.348
billion (fair value - $2.558 billion) with a  weighted-average  interest rate of
6.69% and $71 million of variable-rate debt, which approximated fair value, with
a weighted-average interest rate of 7.29%.

Commodity Prices
     The company has  periodically  used  derivative  instruments  to reduce the
effect of the price  volatility  of crude oil and natural  gas. As  discussed in
Note 17, the company purchased 100% of the outstanding shares of common stock of
HS Resources effective August 1, 2001. At the time of the purchase, HS Resources
(now Kerr-McGee Rocky Mountain Corp.) and its trading subsidiary (now Kerr-McGee
Energy  Services  Corp.) had a number of derivative  contracts for purchases and
sales of gas,  basis  differences  and  energy-related  contracts.  All of these
contracts  are being treated by the company as  speculative  and are recorded at
their fair market value on the balance sheet and marked-to-market through income
each month.
     HS  Resources  hedged a portion of its equity oil and gas  production  with
fixed-price and basis contracts. The company has chosen to let the contracts run
until   maturity,   unless  closed   earlier.   The  net  fair  value  of  these
commodity-related  derivatives  was $6 million at year-end 2001. Of this amount,
$6 million was recorded in current  assets,  $5 million in  investments  - other
assets,  $4 million in current  liabilities and $1 million in deferred  credits.
The net gain  associated  with these  derivatives was $27 million in 2001 and is
included in Other Income in the Consolidated Statement of Income.
     The fair value of the  outstanding  derivative  instruments at December 31,
2001, was determined  based on prices actively  quoted,  generally NYMEX futures
prices.

(Millions of dollars)
Contract Type                       Maturity         Fair Value
-------------                       --------         ----------
Basis swaps                             2002                 $4
Basis swaps                             2003                  2
Basis swaps                             2004                  2
Fixed price swaps                       2002                 (2)
                                                             --
                                                             $6
                                                             ==

     The  trading  subsidiary,   Kerr-McGee  Energy  Services  (KMES),   markets
purchased gas (primarily equity gas) in the Denver area.  Existing contracts for
the  physical  delivery  of gas at fixed or  index-plus  prices  and  associated
transportation  contracts are marked-to-market each month in accordance with FAS
133. KMES has entered into basis and price derivative  contracts that offset its
fixed-price risk on physical contracts.  These derivative  contracts lock in the
margins  associated  with the  physical  sale.  The company  believes  that risk
associated with these derivatives is minimal due to the credit-worthiness of the
counterparties.  The net fair market value of the commodity-related derivatives,
physical  contracts  and  transportation  contracts  was $21 million at year-end
2001. Of this amount, $30 million was recorded in current assets, $11 million in
investments - other assets, $19 million in current liabilities and $1 million in
deferred   credits.   The  net  loss  associated  with  these   derivatives  and
energy-related  contracts  was $24  million  and is  included  in  Sales  in the
Consolidated   Statement  of  Income.   The  company  did  not  enter  into  any
commodity-related derivatives during 2000 or 1999.
     All of these contracts are with  credit-worthy  counterparties,  except for
Enron,  which has filed for bankruptcy.  In its dealings with Enron,  Kerr-McGee
had a net  payable to Enron at  year-end  2001 of $5  million,  comprised  of $1
million receivable from Enron and $6 million payable to Enron.
     The fair value of the  outstanding  derivative  instruments at December 31,
2001, was determined  based on prices actively  quoted,  generally NYMEX futures
prices.

(Millions of dollars)
Contract Type                       Maturity         Fair Value
-------------                       --------         ----------
Physical gas sales                      2002               $ 19
Physical gas sales                      2003                  1
Physical gas transportation             2002                  4
Physical gas transportation             2003                  3
Physical gas transportation             2004                  2
Physical gas transportation             2005                  2
Basis swaps                             2002                  1
Basis swaps                             2003                  2
Fixed price swaps                       2002                (12)
Fixed price swaps                       2003                 (1)
                                                           ----
                                                           $ 21
                                                           ====

Critical Accounting Policies

     The  preparation  of  financial  statements  requires  management  to  make
estimates  and   assumptions   that  affect  the  reported   amount  of  assets,
liabilities,  revenues and expenses, and the disclosure of contingent assets and
liabilities.   The  more  significant  financial  reporting  areas  impacted  by
management's  judgments  and  estimates  are  environmental  remediation,   site
dismantlement, tax accruals, litigation,  self-insurance reserves, crude oil and
natural gas reserve estimation, and impairment of assets. Management's judgments
and  estimates  in these  areas are  based on  information  available  from both
internal and external sources, including legal counsel, engineers, environmental
studies and  historical  experience  in similar  matters.  Actual  results could
differ from those estimates as additional information becomes known.
     Of these  judgments and estimates,  management  considers the estimation of
crude oil and natural gas reserves to be the most significant.  Changes in crude
oil and  natural gas  reserve  estimates  affect the  company's  calculation  of
depreciation  and depletion,  provision for  abandonment,  and assessment of the
need for asset  impairments.  The company's  geologists  and  engineers  prepare
estimates of crude oil and natural gas reserves based on available seismic data,
reservoir pressure data, core analysis reports,  well logs,  analogous reservoir
performance  history,  production data, reservoir simulation and other available
sources of engineering,  geological and geophysical information.  As required by
the  guidelines  and  definitions  established  by the  Securities  and Exchange
Commission,  these  estimates  are based on current  crude oil and  natural  gas
pricing. As previously discussed, crude oil and natural gas prices are volatile,
are largely  affected by  worldwide  consumption  and OPEC  production,  and are
outside the control of  management.  Projected  future crude oil and natural gas
pricing assumptions are used by management to prepare estimates of crude oil and
natural  gas  reserves  used  in  formulating   management's  overall  operating
decisions in the exploration and production segment.
     Estimates for  environmental  reserves are discussed  below and  additional
information  regarding  management's  judgments  and estimates and the company's
critical   accounting  policies  are  discussed  in  Note  1  to  the  financial
statements.

Environmental Matters

     The company and its subsidiaries are subject to various  environmental laws
and  regulations.  Under these laws, the company and/or its  subsidiaries are or
may be  required to remove or mitigate  the  effects on the  environment  of the
disposal or release of certain  chemical,  petroleum,  low-level  radioactive or
other  substances at various sites,  including  sites that have been  designated
Superfund sites by the U.S.  Environmental  Protection  Agency (EPA) pursuant to
the Comprehensive  Environmental  Response,  Compensation,  and Liability Act of
1980 (CERCLA),  as amended and, which are included on the National Priority List
(NPL). At December 31, 2001, the company and/or its  subsidiaries  have received
notices that they have been named  potentially  responsible  parties (PRPs) with
respect to 13 existing EPA Superfund sites on the NPL that require  remediation.
The company  and/or its  subsidiaries  may share  liability  at certain of these
sites with numerous other PRPs. In addition, the company and/or its subsidiaries
have executed consent orders,  operate under licenses or have reached agreements
to  perform  or  have  performed  remediation  or  remedial  investigations  and
feasibility studies on sites not included as EPA Superfund NPL sites.
     The  company  does not  consider  the number of sites for which it has been
named a PRP to be a  relevant  measure  of  liability.  The  company  and/or its
subsidiaries  are  uncertain  as  to  the  scope  of  their  involvement  in  or
responsibility   for  many  of  the  sites  because  of   continually   changing
environmental laws and regulations;  the nature of the company's businesses; the
possibility of other PRPs; the present state of the law, which imposes joint and
several  liability  on all PRPs under  CERCLA;  and pending  legal  proceedings.
Therefore,  the company is unable to reliably  estimate the potential  liability
and the  timing  of  future  expenditures  that  may  arise  from  many of these
environmental  sites.  Reserves have been  established  for the  remediation and
restoration  of active and inactive sites where it is probable that future costs
will be incurred and the liability is estimable. In 2001, $108 million was added
to the  reserve  for active and  inactive  sites.  At  December  31,  2001,  the
company's reserve for these sites totaled $182 million. In addition, at year-end
2001,  the  company had a reserve of $333  million  for the future  costs of the
abandonment and removal of offshore well and production facilities at the end of
their productive  lives. In the Consolidated  Balance Sheet, $447 million of the
total reserve is classified as a deferred credit,  and the remaining $68 million
is included in current  liabilities.  Management  believes  that  currently  the
company has reserved  adequately  for the  reasonably  estimable  costs of known
environmental contingencies. However, additional reserves may be required in the
future due to the previously noted uncertainties (see Note 15).
     Expenditures for the environmental protection and cleanup of existing sites
for each of the last three years and for the  three-year  period ended  December
31, 2001, are as follows:

(Millions of dollars)                           2001     2000     1999     Total
---------------------                           ----     ----     ----     -----
Charges to environmental reserves               $142     $116     $121      $379
Recurring expenses                                57       23       17        97
Capital expenditures                              21       28        5        54
                                                ----     ----     ----      ----
         Total                                  $220     $167     $143      $530
                                                ====     ====     ====      ====

     The  company  has  not  recorded  in  the  financial  statements  potential
reimbursements  from  governmental  agencies or other third parties,  except for
amounts due from the U.S.  government  under Title X of the Energy Policy Act of
1992 (see Notes 14 and 15). The following  table reflects the company's  portion
of the  known  estimated  costs  of  investigation  and/or  remediation  that is
probable and estimable.  The table  summarizes EPA Superfund NPL sites where the
company has been notified it is a PRP under CERCLA and other sites for which the
company  believes it had some ongoing  financial  involvement  in  investigation
and/or remediation at year-end 2001.
<TABLE>
<CAPTION>

                                                                                                      Total Known              Total
                                                                                                        Estimated       Expenditures
                                                                                                             Cost       Through 2001
Location of Site                     Stage of Investigation/Remediation                                      (Millions of dollars)
---------------------------------    --------------------------------------------------------------  -------------------------------
<S>                                  <C>                                                                  <C>                   <C>
EPA Superfund sites on National
Priorities List (NPL)
  Milwaukee, Wis.                    Executed consent decree to remediate the site of
                                     a former wood-treating facility.  Initiated groundwater
                                     and soil treatment.                                                  $   30                $ 19

  West Chicago, Ill., four sites     Began cleanup of first site in 1995.  At second site, removal
  outside the facility               work and surface restoration are complete, and closeout report
                                     has been submitted to EPA.  Two sites are under study
                                     (see Note 15).                                                          109                 106

  8 other sites                      Various stages of investigation/remediation.                             31                  20
                                                                                                          ------                ----
                                                                                                             170                 145
                                                                                                          ------                ----
Sites under consent order,
license or agreement not on
EPA Superfund NPL
  West Chicago, Ill., facility       Decommissioning is in progress under State of Illinois
                                     supervision (see Note 15).  Began shipments to a
                                     permanent disposal facility in 1994.                                    407                 361

  Cleveland/Cushing, Okla.           Began cleanup in 1996.                                                  112                  94

  Henderson, Nev.                    Entered consent agreement in 1999.  Recovery of
                                     perchlorate has been initiated.                                          74                  61
                                                                                                          ------                ----
                                                                                                             593                 516
                                                                                                          ------                ----
  Other sites                        Various stages of investigation/remediation.                            347                 267
                                                                                                          ------                ----
     Total for all sites                                                                                  $1,110                $928
                                                                                                          ======                ====
</TABLE>

New Accounting Standards
     In June 2001, the Financial  Accounting Standards Board issued Statement of
Financial Accounting  Standards (FAS) No. 141, "Business  Combinations," and FAS
142,  "Goodwill  and Other  Intangible  Assets."  FAS 141  requires all business
combinations  initiated  after  June 30,  2001,  to be  accounted  for under the
purchase  method.  The  company  adopted  FAS  141  for  its  acquisition  of HS
Resources.  The company  will be required to adopt FAS 142 at the  beginning  of
2002 for all goodwill and other  intangible  assets  recognized in the company's
statement of financial  position as of January 1, 2002.  This statement  changes
the accounting for goodwill and intangible  assets that have  indefinite  useful
lives from an amortization method to an impairment approach. The nonamortization
provisions of this standard are immediately applicable for any goodwill acquired
after June 30, 2001.  During 2002,  the company will perform the first  required
impairment tests of goodwill and indefinite lived intangible assets. The company
does not  believe  that the  adoption of these  statements  will have a material
effect on its financial position, results of operations or cash flows.
     In June 2001,  the  Financial  Accounting  Standards  Board issued FAS 143,
"Accounting for Asset Retirement Obligations." FAS 143 requires asset retirement
costs to be capitalized as part of the cost of the related  tangible  long-lived
asset and  subsequently  allocated to expense  using a  systematic  and rational
method over the useful life of the asset.  The company will adopt the  statement
effective no later than January 1, 2003, as required.  The transition adjustment
resulting  from the adoption of FAS 143 will be reported as a cumulative  effect
of a change in accounting principle. At this time, the company cannot reasonably
estimate the effect of the adoption of this statement on its financial position,
results of operations or cash flows.
     In August 2001, the Financial  Accounting  Standards  Board issued FAS 144,
"Accounting  for the  Impairment  or Disposal  of  Long-Lived  Assets."  FAS 144
supersedes FAS 121,  "Accounting for the Impairment of Long-Lived Assets and for
Long-Lived  Assets  to be  Disposed  Of,"  and  the  portion  of the  Accounting
Principle  Board Opinion No. 30 that deals with disposal of a business  segment.
The new standard resolves significant  implementation issues related to FAS 121,
establishes a single accounting model for long-lived assets to be disposed of by
sale and is effective for fiscal years  beginning  after  December 15, 2001. The
company  does not  believe  that the  adoption  of this  statement  will  have a
material effect on its financial position, results of operations or cash flows.

Cautionary Statement Concerning Forward-Looking Statements

     Statements in this Financial Review 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,
general  economic  conditions,  and other  factors  and risks  discussed  in the
company's SEC filings.  Actual results and  developments  may differ  materially
from those expressed or implied in this Financial Review.

Responsibility for Financial Reporting

     The company's  management is responsible  for the integrity and objectivity
of the financial data  contained in the financial  statements.  These  financial
statements have been prepared in conformity with generally  accepted  accounting
principles  appropriate  under the circumstances  and, where necessary,  reflect
informed   judgments  and  estimates  of  the  effects  of  certain  events  and
transactions based on currently available  information at the date the financial
statements were prepared.
     The  company's  management  depends  on the  company's  system of  internal
accounting  controls  to  assure  itself  of the  reliability  of the  financial
statements.  The  internal  control  system is  designed  to provide  reasonable
assurance, at appropriate cost, that assets are safeguarded and transactions are
executed  in  accordance  with  management's  authorizations  and  are  recorded
properly to permit the  preparation of financial  statements in accordance  with
generally accepted accounting principles.  Periodic reviews are made of internal
controls by the company's staff of internal  auditors,  and corrective action is
taken if needed.
     The Board of Directors reviews and monitors  financial  statements  through
its audit committee,  which is composed solely of directors who are not officers
or  employees of the  company.  The audit  committee  meets  regularly  with the
independent  public  accountants,  internal  auditors and  management  to review
internal accounting controls, auditing and financial reporting matters.
     The independent  public accountants are engaged to provide an objective and
independent  review of the  company's  financial  statements  and to  express an
opinion  thereon.  Their  audits are  conducted  in  accordance  with  generally
accepted auditing standards, and their report is included below.

Report of Independent Public Accountants

To the Stockholders and Board of Directors
of Kerr-McGee Corporation:

     We have audited the accompanying  consolidated  balance sheet of Kerr-McGee
Corporation (a Delaware corporation) and subsidiary companies as of December 31,
2001 and 2000, and the related consolidated statements of income,  comprehensive
income and  stockholders'  equity and cash flows for each of the three  years in
the  period  ended  December  31,  2001.  These  financial  statements  are  the
responsibility of the company's management.  Our responsibility is to express an
opinion on these financial statements based on our audits.
     We conducted our audits in accordance  with  auditing  standards  generally
accepted in the United States.  Those standards require that we plan and perform
the audit to obtain reasonable  assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements.  An
audit also includes  assessing the accounting  principles  used and  significant
estimates  made by  management,  as well as  evaluating  the  overall  financial
statement  presentation.  We believe that our audits provide a reasonable  basis
for our opinion.
     In our opinion,  the financial statements referred to above present fairly,
in all material respects,  the financial position of Kerr-McGee  Corporation and
subsidiary  companies as of December 31, 2001 and 2000, and the results of their
operations  and their cash flows for each of the three years in the period ended
December 31, 2001, in conformity with accounting  principles  generally accepted
in the United States.
     As explained in Note 1 to the financial  statements,  effective  January 1,
2001, the company adopted Statement of Financial  Accounting  Standards No. 133,
"Accounting for Derivative Instruments and Hedging Activities."


Oklahoma City, Oklahoma,               (ARTHUR ANDERSEN LLP)
  February 22, 2002                     ARTHUR ANDERSEN LLP

<TABLE>

Consolidated Statement of Income
<CAPTION>

(Millions of dollars, except per-share amounts)           2001       2000       1999
-----------------------------------------------         ------     ------     ------
<S>                                                     <C>        <C>        <C>
Sales                                                   $3,638     $4,121     $2,743
                                                        ------     ------     ------
Costs and Expenses
  Costs and operating expenses                           1,316      1,269      1,025
  Selling, general and administrative expenses             237        205        236
  Shipping and handling expenses                           119        100         80
  Depreciation and depletion                               723        684        607
  Asset impairment                                          76         --         --
  Exploration, including dry holes and amortization
    of undeveloped leases                                  211        170        140
  Taxes, other than income taxes                           115        122         85
  Provision for environmental remediation
    and restoration of inactive sites, net
    of reimbursements                                       82         90         --
  Purchased in-process research and development             --         32         --
  Merger costs                                              --         --        163
  Interest and debt expense                                192        208        190
                                                        ------     ------     ------
       Total Costs and Expenses                          3,071      2,880      2,526
                                                        ------     ------     ------
                                                           567      1,241        217
Other Income                                               237         58         40
                                                        ------     ------     ------
Income before Income Taxes and Change
  in Accounting Principle                                  804      1,299        257
Taxes on Income                                           (298)      (457)      (111)
                                                        ------     ------     ------
Income before Change in Accounting Principle               506        842        146
Cumulative Effect of Change in Accounting Principle,
  net of taxes of $11 in 2001 and $2 in 1999               (20)        --         (4)
                                                        ------     ------     ------
Net Income                                              $  486     $  842     $  142
                                                        ======     ======     ======
Net Income per Common Share
  Basic -
    Income before accounting change                     $ 5.22     $ 9.01     $ 1.69
    Cumulative effect of accounting change                (.21)        --       (.05)
                                                        ------     ------     ------
       Net income                                       $ 5.01     $ 9.01     $ 1.64
                                                        ======     ======     ======
  Diluted -
    Income before accounting change                     $ 4.93     $ 8.37     $ 1.69
    Cumulative effect of accounting change                (.19)        --       (.05)
                                                        ------     ------     ------
       Net income                                       $ 4.74     $ 8.37     $ 1.64
                                                        ======     ======     ======
</TABLE>

The accompanying notes are an integral part of this statement.
<TABLE>

Consolidated Statement of Comprehensive Income and Stockholders' Equity
<CAPTION>

                                                                               Accumulated
                                                     Capital in                      Other                  Deferred          Total
                             Comprehensive  Common    Excess of    Retained  Comprehensive   Treasury   Compensation  Stockholders'
(Millions of dollars)        Income (Loss)   Stock    Par Value    Earnings  Income (Loss)      Stock      and Other         Equity
---------------------        -------------  ------   ----------    --------  -------------   --------   ------------  -------------
<S>                              <C>          <C>        <C>         <C>             <C>       <C>            <C>            <C>
Balance December 31, 1998                     $ 93       $1,282      $  527          $(36)     $(388)         $(132)         $1,346
  Net income                     $ 142          --           --         142            --         --             --             142
  Unrealized gains on
    securities, net of
    $42 income tax                  79          --           --          --            79         --             --              79
  Foreign currency
    translation adjustment         (23)         --           --          --           (23)        --             --             (23)
  Minimum pension liability
    adjustment                      25          --           --          --            25         --             --              25
  Shares issued                     --          --            2          --            --         --             --               2
  Dividends declared
    ($1.80 per share)               --          --           --        (156)           --         --             --            (156)
  Effect of equity
    affiliate's merger              --          --           --          63            --         --             --              63
  Other                             --          --           --          --            --         --             14              14
                                 -----        ----       ------      ------          ----      -----          -----          ------
    Total                        $ 223
                                 =====
Balance December 31, 1999                       93        1,284         576            45       (388)          (118)          1,492
  Net income                     $ 842          --           --         842            --         --             --             842
  Unrealized gains on
    securities, net of
    $32 income tax                  60          --           --          --            60         --             --              60
  Foreign currency
    translation adjustment           3          --           --          --             3         --             --               3
  Minimum pension liability
    adjustment                       5          --           --          --             5         --             --               5
  Shares issued                     --           8          375          --            --         --             --             383
  Dividends declared
    ($1.80 per share)               --          --           --        (170)           --         --             --            (170)
  Other                             --          --            1         (15)           --          5             27              18
                                 -----        ----       ------      ------          ----      -----          -----          ------
    Total                        $ 910
                                 =====
Balance December 31, 2000                      101        1,660       1,233           113       (383)           (91)          2,633
  Net income                     $ 486          --           --         486            --         --             --             486
  Unrealized losses
    on securities, net of
    $12 income tax                 (22)         --           --          --           (22)        --             --             (22)
  Reclassification of
    unrealized gains on
    securities to net
    income, net of $63
    income tax                    (118)         --           --          --          (118)        --             --            (118)
  Record fair value of
    cash flow hedges                (3)         --           --          --            (3)        --             --              (3)
  Change in fair value
    of cash flow hedges            (15)         --           --          --           (15)        --             --             (15)
  Foreign currency
    translation adjustment         (17)         --           --          --           (17)        --             --             (17)
  Minimum pension liability
    adjustment                      (2)         --           --          --            (2)        --             --              (2)
  Shares issued                     --           6          382          --            --         --             --             388
  Treasury stock cancelled          --          (7)        (371)         --            --        378             --              --
  Dividends declared
    ($1.80 per share)               --          --           --        (176)           --         --             --            (176)
  Other                             --          --            5          --            --          5             10              20
                                 -----        ----       ------      ------          ----      -----          -----          ------
    Total                        $ 309
                                 =====
Balance December 31, 2001                     $100       $1,676      $1,543          $(64)     $  --          $ (81)         $3,174
                                              ====       ======      ======          ====      =====          =====          ======
</TABLE>

The accompanying notes are an integral part of this statement.
<TABLE>

Consolidated Balance Sheet
<CAPTION>

(Millions of dollars)                                          2001        2000
---------------------                                       -------      ------
<S>                                                         <C>          <C>
ASSETS
Current Assets
  Cash                                                      $    91      $  144
  Accounts receivable, net of allowance for doubtful
    accounts of $11 in both 2001 and 2000                       482         667
  Inventories                                                   439         391
  Deposits, prepaid expenses and other assets                   355         113
                                                            -------      ------
      Total Current Assets                                    1,367       1,315
Investments
  Equity affiliates                                             101          41
  Other assets                                                  554         729
Property, Plant and Equipment - Net                           8,322       5,383
Deferred Charges                                                261         198
Goodwill                                                        356          --
                                                            -------      ------
        Total Assets                                        $10,961      $7,666
                                                            =======      ======

LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities
  Accounts payable                                          $   655      $  638
  Short-term borrowings                                           8           6
  Long-term debt due within one year                             26         175
  Taxes on income                                                83         190
  Taxes, other than income taxes                                 31          25
  Accrued liabilities                                           371         315
                                                            -------      ------
      Total Current Liabilities                               1,174       1,349
                                                            -------      ------

Long-Term Debt                                                4,540       2,244
                                                            -------      ------
Deferred Credits and Reserves
  Income taxes                                                1,275         704
  Other                                                         798         736
                                                            -------      ------
      Total Deferred Credits and Reserves                     2,073       1,440
                                                            -------      ------
Stockholders' Equity
  Common stock, par value $1.00 - 300,000,000
    shares authorized, 100,186,350 shares issued
    in 2001 and 101,417,309 shares issued in 2000               100         101
  Capital in excess of par value                              1,676       1,660
  Preferred stock purchase rights                                 1           1
  Retained earnings                                           1,543       1,233
  Accumulated other comprehensive income (loss)                 (64)        113
  Common stock in treasury, at cost - 1,020 shares
    in 2001 and 6,932,790 shares in 2000                         --        (383)
  Deferred compensation                                         (82)        (92)
                                                            -------      ------
      Total Stockholders' Equity                              3,174       2,633
                                                            -------      ------
         Total Liabilities and Stockholders' Equity         $10,961      $7,666
                                                            =======      ======
</TABLE>


The  "successful  efforts"  method of accounting for oil and gas exploration and
production activities has been followed in preparing this balance sheet.
The accompanying notes are an integral part of this balance sheet.
<TABLE>

Consolidated Statement of Cash Flows
<CAPTION>

(Millions of dollars)                                                           2001       2000       1999
---------------------                                                        -------    -------     ------
<S>                                                                          <C>        <C>         <C>
 Cash Flow from Operating Activities
   Net income                                                                $   486    $   842     $  142
   Adjustments to reconcile to net cash provided by operating activities -
     Depreciation, depletion and amortization                                    779        732        648
     Deferred income taxes                                                       205         18         --
     Dry hole costs                                                               72         54         43
     Merger and transition costs                                                  --         --        131
     Asset impairment                                                             76         --         --
     Provision for environmental remediation and restoration of
       inactive sites                                                             82         90         --
     Gains on asset retirements and sales                                        (12)        (6)        (3)
     Purchased in-process research and development                                --         32         --
     Noncash items affecting net income                                         (147)        45         77
     Changes in current assets and liabilities and other, net of
       effects of operations acquired -
         (Increase) decrease in accounts receivable                              278        (55)       (56)
         Increase in inventories                                                 (51)       (46)       (34)
         (Increase) decrease in deposits, prepaids and other assets             (201)         3         10
         Increase (decrease) in accounts payable and accrued liabilities        (131)       129       (217)
         Increase (decrease) in taxes payable                                   (120)       137         96
         Other                                                                  (173)      (135)      (129)
                                                                             -------    -------     ------
              Net cash provided by operating activities                        1,143      1,840        708
                                                                             -------    -------     ------
Cash Flow from Investing Activities
  Capital expenditures                                                        (1,792)      (842)      (528)
  Dry hole costs                                                                 (72)       (54)       (43)
  Acquisitions                                                                  (978)    (1,018)       (78)
  Purchase of long-term investments                                              (92)       (56)       (39)
  Proceeds from sale of long-term investments                                     18         35         27
  Proceeds from sale of other assets                                              19         42          4
                                                                             -------    -------     ------
              Net cash used in investing activities                           (2,897)    (1,893)      (657)
                                                                             -------    -------     ------
Cash Flow from Financing Activities
  Issuance of long-term debt                                                   2,513        677      1,084
  Issuance of common stock                                                        32        383          4
  Decrease in short-term borrowings                                               (9)        (3)       (27)
  Repayment of long-term debt                                                   (661)      (966)      (782)
  Dividends paid                                                                (173)      (166)      (138)
  Lease buyout                                                                    --         --        (41)
                                                                             -------    -------     ------
              Net cash provided by (used in) financing activities              1,702        (75)       100
                                                                             -------    -------     ------
Effects of Exchange Rate Changes on Cash and Cash Equivalents                     (1)         5         (5)
                                                                             -------    -------     ------
Net Increase (Decrease) in Cash and Cash Equivalents                             (53)      (123)       146
Cash and Cash Equivalents at Beginning of Year                                   144        267        121
                                                                             -------    -------     ------
Cash and Cash Equivalents at End of Year                                     $    91    $   144     $  267
                                                                             =======    =======     ======
</TABLE>

The accompanying notes are an integral part of this statement.

Notes to Financial Statements

1.  The Company and Significant Accounting Policies

     Kerr-McGee is an energy and chemical company with worldwide operations.  It
explores for, develops,  produces and markets crude oil and natural gas, and its
chemical operations  primarily produce and market titanium dioxide pigment.  The
exploration  and  production  unit  produces and explores for oil and gas in the
United States,  the United Kingdom  sector of the North Sea,  Indonesia,  China,
Kazakhstan  and Ecuador.  Exploration  efforts are also  extended to  Australia,
Benin, Brazil, Gabon, Morocco,  Canada, Thailand, Yemen and the Danish sector of
the North Sea. The chemical unit has production facilities in the United States,
Australia, Germany and the Netherlands.
     On August  1,  2001,  the  company  completed  the  acquisition  of all the
outstanding shares of common stock of HS Resources, Inc., an independent oil and
gas  exploration  and production  company.  To accomplish the  acquisition,  the
company reorganized and formed a new holding company,  Kerr-McGee Holdco,  which
later changed its name to Kerr-McGee Corporation.  All the outstanding shares of
the former  Kerr-McGee  Corporation  were canceled and the same number of shares
was issued by the new holding  company.  The former  Kerr-McGee  Corporation was
renamed Kerr-McGee Operating Corporation and is now a wholly owned subsidiary of
the holding company,  along with Kerr-McGee Rocky Mountain Corporation (formerly
HS Resources).

Basis of Presentation
     The  consolidated   financial   statements  include  the  accounts  of  all
subsidiary companies that are more than 50% owned and the proportionate share of
joint  ventures in which the company has an undivided  interest.  Investments in
affiliated  companies  that are 20% to 50% owned are  carried as  Investments  -
Equity affiliates in the Consolidated  Balance Sheet at cost adjusted for equity
in  undistributed  earnings.  Except for  dividends  and  changes  in  ownership
interest,  changes  in equity in  undistributed  earnings  are  included  in the
Consolidated  Statement of Income. All material  intercompany  transactions have
been eliminated.
     The  preparation  of financial  statements  in  conformity  with  generally
accepted  accounting  principles  requires  management  to  make  estimates  and
assumptions  that affect the  reported  amounts of assets and  liabilities,  the
disclosure of  contingent  assets and  liabilities  at the date of the financial
statements,  and the  reported  amounts  of  revenues  and  expenses  during the
reporting period. Actual results could differ from those estimates as additional
information becomes known.
     Certain  prior  year  amounts  in the  consolidated  income  and cash  flow
statements have been reclassified to conform with the current year presentation.

Foreign Currencies
     The U.S.  dollar is  considered  the  functional  currency  for each of the
company's international operations, except for its European chemical operations.
Foreign  currency  transaction  gains or losses  are  recognized  in the  period
incurred and included in Other Income in the  Consolidated  Statement of Income.
The company recorded net foreign currency  transaction gains of $3 million,  $30
million and $11 million in 2001, 2000 and 1999, respectively.
     The euro is the functional  currency for the European chemical  operations.
Translation  adjustments  resulting from  translating  the  functional  currency
financial  statements  into U.S. dollar  equivalents are reported  separately in
Accumulated  Other  Comprehensive  Income  in  the  Consolidated   Statement  of
Comprehensive Income and Stockholders' Equity.

Cash Equivalents
     The company  considers all  investments  with a maturity of three months or
less to be cash equivalents.  Cash equivalents  totaling $26 million in 2001 and
$39 million in 2000 were comprised of time deposits, certificates of deposit and
U.S. government securities.

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

Inventories
     The  costs of the  company's  product  inventories  are  determined  by the
first-in,  first-out (FIFO) method.  Inventory  carrying values include material
costs, labor and the associated indirect manufacturing  expenses.  Materials and
supplies are valued at average cost.

Property, Plant and Equipment
     Exploration and Production - Exploration expenses, including geological and
geophysical costs, rentals and exploratory dry holes, are charged against income
as incurred.  Costs of  successful  wells and related  production  equipment and
developmental  dry  holes  are  capitalized  and  amortized  by field  using the
unit-of-production method as the oil and gas are produced.
     Undeveloped  acreage  costs are  capitalized  and  amortized  at rates that
provide full  amortization  on  abandonment  of  unproductive  leases.  Costs of
abandoned leases are charged to the accumulated amortization accounts, and costs
of productive leases are transferred to the developed property accounts.
     Other - Property,  plant and  equipment is stated at cost less reserves for
depreciation,  depletion and amortization.  Maintenance and repairs are expensed
as  incurred,  except that costs of  replacements  or renewals  that  improve or
extend the lives of existing  properties are capitalized.  Costs of nonproducing
mineral acreage  surrendered or otherwise  disposed of are charged to expense at
the time of disposition.
     Depreciation  and Depletion - Property,  plant and equipment is depreciated
or  depleted  over  its  estimated  life  by  the   unit-of-production   or  the
straight-line method. Capitalized exploratory drilling and development costs are
amortized using the  unit-of-production  method based on total estimated  proved
developed oil and gas reserves.  Amortization of producing  leasehold,  platform
costs   and   acquisition   costs  of   proved   properties   is  based  on  the
unit-of-production  method using total estimated proved reserves. In arriving at
rates under the  unit-of-production  method,  the quantities of recoverable oil,
gas and other minerals are established  based on estimates made by the company's
geologists and engineers.
     Retirements and Sales - The costs and related  depreciation,  depletion and
amortization  reserves are removed from the respective  accounts upon retirement
or sale of property, plant and equipment. The resulting gain or loss is included
in Other Income in the Consolidated Statement of Income.
     Interest  Capitalized  - The company  capitalizes  interest  costs on major
projects  that  require  a  considerable  length of time to  complete.  Interest
capitalized in 2001,  2000 and 1999 was $33 million,  $5 million and $9 million,
respectively.

Impairment of Long-Lived Assets
     Proved  oil  and  gas   properties   are  reviewed  for   impairment  on  a
field-by-field  basis when facts and circumstances  indicate that their carrying
amounts may not be recoverable. In performing this review, future cash flows are
estimated by applying  estimated  future oil and gas prices to estimated  future
production,  less  estimated  future  expenditures  to develop  and  produce the
reserves.  If the sum of these  estimated  future cash flows  (undiscounted  and
without interest  charges) is less than the carrying amount of the property,  an
impairment  loss is  recognized  for the excess of the carrying  amount over the
estimated fair value of the property.
     Other  assets are  reviewed  for  impairment  by asset  group for which the
lowest level of  independent  cash flows can be  identified  and impaired in the
same manner as proved oil and gas properties.

Revenue Recognition
     Except for natural gas and most crude oil sales, revenue is recognized when
title  passes  to  the   customer.   Natural  gas  revenues  and   gas-balancing
arrangements  with partners in natural gas wells are recognized  when the gas is
produced  using  the  entitlements  method  of  accounting  and are based on the
company's  net  working  interests.  At  December  31,  2001 and 2000,  both the
quantity and dollar amount of gas balancing arrangements were immaterial.  Crude
oil sales are  recognized  when  produced  using  the  entitlements  method if a
contract exists for the sale of the production.

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

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

Employee Stock Option Plan
     The  company  accounts  for its  employee  stock  option  plans  using  the
intrinsic value method in accordance with  Accounting  Principles  Board Opinion
(APB) No. 25, "Accounting for Stock Issued to Employees."

Derivative Instruments
     In June 1998, the Financial Accounting Standards Board issued Statement No.
133,  "Accounting for Derivative  Instruments and Hedging Activities" (FAS 133).
The Statement as amended requires recording all derivative instruments as assets
or  liabilities,  measured at fair value.  The company  adopted this standard on
January 1, 2001, by recording the fair value of all the foreign currency forward
purchase and sales contracts,  and by separating and recording the fair value of
the options  associated with the company's debt exchangeable for stock (DECS) of
Devon Energy Corporation (Devon) presently owned by the company. In adopting the
standard,  the  company  recognized  an expense of $20  million as a  cumulative
effect of the  accounting  change and a $3 million  reduction  in equity  (other
comprehensive  income) for the foreign currency contracts  designated as hedges.
Also,  in accordance  with FAS 133, the company  chose to reclassify  85% of the
Devon  shares  owned to  "trading"  from the  "available  for sale"  category of
investments.  On  January 1,  2001,  the  company  recognized  after-tax  income
totaling  $118  million  for the  unrealized  appreciation  on the Devon  shares
reclassified to trading.  The portion of the stock investments now classified as
trading is  marked-to-market  through income each month.  See Note 18 for a full
description of the company's hedging activities and related accounting.

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

2. Cash Flow Information

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

(Millions of dollars)                                2001     2000     1999
---------------------                                ----     ----     ----
Income tax payments                                  $434     $338     $111
Less refunds received                                 (19)     (34)     (85)
                                                     ----     ----     ----
Net income tax payments                              $415     $304     $ 26
                                                     ====     ====     ====
Interest payments                                    $189     $193     $191
                                                     ====     ====     ====

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

(Millions of dollars)                               2001      2000     1999
---------------------                               ----      ----     ----
Noncash investing activities
  Increase (decrease) in fair value of
    securities available for sale(1)               $ (34)     $280     $118
  Decrease in fair value of trading
    securities(1)                                   (188)       --       --
  Increase in an equity affiliate
    carrying value                                    --        --       98
Noncash financing activities
  Common stock issued in HS Resources
    acquisition                                      355        --       --
  Debt assumed in HS Resources acquisition           506        --       --
  Increase (decrease) in the valuation
    of the DECS(1)                                     8       187       (3)
  Fair value of embedded options
    in the DECS(1)                                  (205)       --       --
  Dividends declared but not paid                      3         4       17

(1) See Notes 1 and 18 for discussion of FAS 133 adoption.

3.  Inventories

     Major categories of inventories at year-end 2001 and 2000 are:

(Millions of dollars)                                2001     2000
---------------------                                ----     ----
Chemicals and other products                         $338     $259
Materials and supplies                                 98      129
Crude oil and natural gas liquids                       3        3
                                                     ----     ----
  Total                                              $439     $391
                                                     ====     ====

4.  Investments - Equity Affiliates

     At December  31, 2001 and 2000,  investments  in equity  affiliates  are as
follows:

(Millions of dollars)                               2001      2000
---------------------                               ----      ----
Javelina Company                                    $ 42       $25
Avestor Limited Partnership                           44        --
Other                                                 15        16
                                                    ----       ---
         Total                                      $101       $41
                                                    ====       ===
     Javelina  Company and Avestor Limited  Partnership  represent the company's
investments  of 40% and 50%,  respectively,  in  non-exploration  and production
partnerships. Avestor Limited Partnership was formed in 2001 to develop, produce
and market a next-generation power cell for use in  telecommunications,  utility
peak shaving and electric vehicles.
     In October 2000,  the company sold its 25% equity  interest in the National
Titanium Dioxide Company Limited, a Saudi Arabian pigment operation. The gain on
this sale was $8 million, net of $5 million for income taxes, and is included as
Other Income in the Consolidated Statement of Income.
     Following are financial  summaries of the company's equity affiliates.  Due
to  immateriality,  investments  shown as Other in the preceding table have been
excluded from the information below.

(Millions of dollars)                                2001     2000     1999
---------------------                                ----     ----     ----
Results of operations -
  Net sales                                          $172     $213     $256
  Net income (loss)                                    (5)      47       33
Financial position -
  Current assets                                       46       45
  Property, plant and equipment - net                 113      113
  Total assets                                        213      158
  Current liabilities                                  23       21
  Total liabilities                                    52       21
  Stockholders' equity                                161      137


5.  Investments - Other Assets

     Investments  in other assets  consist of the following at December 31, 2001
and 2000:

(Millions of dollars)                                2001     2000
---------------------                                ----     ----
Devon Energy Corporation common stock(1)             $385     $607
Long-term receivables, net of $9 allowance
  for doubtful notes in both 2001 and 2000            139      107
Derivatives (fixed-price and basis swap
  commodity contracts)(1)                              16       --
U.S. government obligations                             2        4
Other                                                  12       11
                                                     ----     ----
         Total                                       $554     $729
                                                     ====     ====

(1) See Note 18.

6.  Property, Plant and Equipment

     Fixed  assets and related  reserves at December  31, 2001 and 2000,  are as
follows:
<TABLE>
<CAPTION>

                                                                 Reserves for
                                                              Depreciation and
                                       Gross Property              Depletion                Net Property
                                     ----------------          ---------------           ---------------
(Millions of dollars)                   2001     2000            2001     2000             2001     2000
---------------------                -------  -------          ------   ------           ------   ------
<S>                                  <C>      <C>              <C>      <C>              <C>      <C>
Exploration and production           $14,383  $10,894          $7,127   $6,581           $7,256   $4,313
Chemicals                              1,860    1,736             857      721            1,003    1,015
Other                                    151      140              88       85               63       55
                                     -------  -------          ------   ------           ------   ------
  Total                              $16,394  $12,770          $8,072   $7,387           $8,322   $5,383
                                     =======  =======          ======   ======           ======   ======
</TABLE>


7.  Deferred Charges

     Deferred charges are as follows at year-end 2001 and 2000:

(Millions of dollars)                                2001     2000
---------------------                                ----     ----
Pension plan prepayments                             $188     $132
Unamortized debt issue costs                           34       27
Nonqualified benefit plans deposits                    26       23
Amounts pending recovery from third parties            10        7
Other                                                   3        9
                                                     ----     ----
  Total                                              $261     $198
                                                     ====     ====

8.  Asset Securitization

     In December 2000, the company began an accounts receivable monetization for
its pigment  business  through the sale of selected  accounts  receivable with a
three-year,  credit-insurance-backed  asset securitization  program. The company
retained servicing  responsibilities and subordinated interests and will receive
a  servicing  fee of  1.07%  of the  receivables  sold  for the  period  of time
outstanding,  generally 60 to 120 days.  No recourse  obligations  were recorded
since the company has very limited  obligations for any recourse  actions on the
sold  receivables.  The  collection  of the  receivables  is  insured,  and only
receivables  that  qualify for credit  insurance  can be sold.  A portion of the
insurance is reinsured by the company's captive insurance company;  however, the
company  believes that the risk of insurance loss is very low since its bad debt
experience  has  historically  been  insignificant.  The company  also  received
preference stock in the special-purpose  entity equal to 3.5% of the receivables
sold. This preference stock is essentially a retained deposit to provide further
credit enhancements, if needed.
     During  2001,  the company  sold $597  million of its pigment  receivables,
resulting in pretax  losses of $8 million.  During  2000,  the company sold $160
million of the receivables, resulting in pretax losses of $3 million. The losses
are equal to the  difference in the book value of the  receivables  sold and the
total of cash and the fair value of the deposit retained by the  special-purpose
entity.  At year-end 2001, the outstanding  balance on receivables  sold totaled
$96 million.

9.  Accrued Liabilities

     Accrued liabilities at year-end 2001 and 2000 are as follows:

(Millions of dollars)                                2001     2000
---------------------                                ----     ----
Employee-related costs and benefits                  $102     $ 75
Interest payable                                      100       81
Current environmental reserves                         68       69
Derivatives(1)                                         32       --
Litigation reserves                                    21       20
Royalties payable                                      13       28
Drilling and operating costs                            5       15
Acquisition and merger reserves(2)                      9       10
Other                                                  21       17
                                                     ----     ----
  Total                                              $371     $315
                                                     ====     ====

(1) Fixed-price and basis swap commodity contracts and forward foreign  currency
    contracts.
(2) See Note 10.


10.  Acquisition and Merger Reserves

     In August  2001,  the company  recorded an accrual of $42 million for items
associated  with the HS  Resources  acquisition.  Included in this  accrual were
transaction  costs,  severance  and  other   employee-related   costs,  contract
termination  costs, and other  acquisition-related  costs. Of this accrual,  $34
million  was paid  during  2001.  The  balance is  primarily  for the  remaining
severance  costs that are expected to be paid and charged to the reserve  during
2002.
     During  1999,  the company  recorded  an accrual of $163  million for items
associated with the Oryx merger. Included in this charge were transaction costs,
severance and other  employee-related  costs,  contract termination costs, lease
cancellations,   write-off  of  redundant   systems  and   equipment  and  other
merger-related  costs. Of this total accrual,  $1 million and $10 million remain
in the reserve at the end of 2001 and 2000, respectively.
     The accruals,  expenditures  and reserve  balances for 2001 and 2000 are as
follows:

(Millions of dollars)                                2001     2000
---------------------                                ----     ----
Beginning balance                                    $ 10     $ 20
  Accruals                                             42       --
  Payments                                            (43)     (10)
                                                     ----     ----
Ending balance                                       $  9     $ 10
                                                     ====     ====

11.  Debt

Lines of Credit and Short-Term Borrowings
     At year-end 2001, the company had available unused bank lines of credit and
revolving credit facilities of $1.258 billion.  Of this amount, $820 million can
be used to support commercial paper borrowing  arrangements of Kerr-McGee Credit
LLC,  and  $365  million  can be  used  to  support  European  commercial  paper
borrowings  of  Kerr-McGee  (G.B.) PLC,  Kerr-McGee  Chemical  GmbH,  Kerr-McGee
Pigments (Holland) B.V. and Kerr-McGee International ApS.
     The company has arrangements to maintain compensating balances with certain
banks that  provide  credit.  At year-end  2001,  the  aggregate  amount of such
compensating balances was immaterial, and the company was not legally restricted
from withdrawing all or a portion of such balances at any time during the year.
     Short-term  borrowings at year-end 2001 and 2000 consisted of notes payable
totaling $8 million (4.42% average  interest rate) and $6 million (4.94% average
interest rate),  respectively.  The notes are denominated in a foreign  currency
and  represent  approximately  9 million  euros and 6 million  euros in 2001 and
2000, respectively.

Long-Term Debt
     The company's  policy is to classify  certain  borrowings  under  revolving
credit  facilities and commercial  paper as long-term debt since the company has
the ability under certain revolving credit agreements and the intent to maintain
these  obligations  for longer than one year.  At year-end  2001 and 2000,  debt
totaling  $1.066  billion  and $71  million,  respectively,  was  classified  as
long-term consistent with this policy.
     Long-term debt consisted of the following at year-end 2001 and 2000:

(Millions of dollars)                                        2001      2000
---------------------                                      ------    ------
Debentures -
  7.125% Debentures due October 15, 2027
    (7.01% effective rate)                                 $  150    $  150
  7% Debentures due November 1, 2011,
    net of unamortized debt discount of $94 in 2001
    and $99 in 2000 (14.25% effective rate)                   156       151
  5-1/4% Convertible subordinated debentures
    due February 15, 2010                                     600       600
  7-1/2% Convertible subordinated debentures                   --       180
Notes payable -
  5-7/8% Notes due September 15, 2006 (5.89%
    effective rate)                                           325        --
  6-7/8% Notes due September 15, 2011, net of
    unamortized debt discount of $1 (6.90%
    effective rate)                                           674        --
  7-7/8% Notes due September 15, 2031, net of
    unamortized debt discount of $2 (7.91%
    effective rate)                                           498        --
  5-1/2% Exchangeable Notes (DECS) due
    August 2, 2004, net of unamortized debt
    discount of $20 in 2001 (5.60% effective
    rate) (See Note 18)                                       310       514
  10% Notes due April 1, 2001                                  --       150
  6.625% Notes due October 15, 2007                           150       150
  8.375% Notes due July 15, 2004                              150       150
  8.125% Notes due October 15, 2005                           150       150
  8% Notes due October 15, 2003                               100       100
  Variable interest rate revolving credit
    agreements with banks                                     254        --
  Floating rate notes due June 28, 2004                       200        --
  Medium-Term Notes (9.29% average effective
    interest rate at December 31, 2001) $11 due
    January 2, 2002, and $2 due February 1, 2002               13        13
Commercial paper (3.01% average effective
  interest rate at December 31, 2001)                         732        50
Euro Commercial paper (2.95% average effective
  interest rate at December 31, 2001)                          80        21
Guaranteed Debt of Employee Stock Ownership
  Plan 9.61% Notes due in installments through
  January 2, 2005                                              21        33
Other                                                           3         7
                                                           ------    ------
                                                            4,566     2,419
Long-term debt due within one year                            (26)     (175)
                                                           ------    ------
   Total                                                   $4,540    $2,244
                                                           ======    ======

     Maturities of long-term  debt due after  December 31, 2001, are $26 million
in 2002;  $1.172 billion in 2003 of which $1.066 billion is borrowings  that the
company expects to be able to maintain as long-term,  see above; $664 million in
2004 of which $310 million may be a noncash  payment for the DECS;  $151 million
in 2005; $325 million in 2006; and $2.228 billion thereafter.
     Certain of the company's  long-term  debt  agreements  contain  restrictive
covenants,  including a minimum  tangible  net worth  requirement  and a maximum
total debt to total capitalization  ratio. At December 31, 2001, the company was
in compliance with its debt covenants.
     Additional  information  regarding  the major  changes  in debt  during the
periods  and unused  commitments  for  financing  is  included  in  Management's
Discussion and Analysis.

12.  Income Taxes

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

(Millions of dollars)                                2001     2000     1999
---------------------                                ----   ------     ----
United States                                        $524   $  562     $(30)
International                                         280      737      287
                                                     ----   ------     ----
  Total                                              $804   $1,299     $257
                                                     ====   ======     ====

     The effective  income tax rate in Canada  decreased to 37% from 38% for the
year 2001.  The deferred  income tax  liability  balance was adjusted to reflect
this  revised  rate,  causing  a  decrease  in the 2001  international  deferred
provision for income taxes of $1 million.
     The income  tax rate in  Australia  decreased  to 30% from 34% for the year
2001 and decreased to 34% from 36% for the year 2000. Effective January 1, 2001,
the German  corporate  income tax rate  decreased  to 25% from 30%. The deferred
income tax asset and  liability  balances were adjusted to reflect these revised
rates,  causing a net increase in the 2000 international  deferred provision for
income taxes of $2 million.
     The  2001,  2000 and 1999  taxes on  income  before  change  in  accounting
principle are summarized below:

(Millions of dollars)                                2001     2000     1999
---------------------                                ----     ----     ----
U.S. Federal -
  Current                                            $(63)    $105     $(38)
  Deferred                                            221       82       38
                                                     ----     ----     ----
                                                      158      187       --
                                                     ----     ----     ----
International -
  Current                                             134      286      147
  Deferred                                              1      (18)     (37)
                                                     ----     ----     ----
                                                      135      268      110
                                                     ----     ----     ----

State                                                   5        2        1
                                                     ----     ----     ----
    Total                                            $298     $457     $111
                                                     ====     ====     ====

     At December 31, 2001, the company had foreign operating loss  carryforwards
totaling $160 million - $8 million that expire in 2003,  $11 million that expire
in  2004,  $16  million  that  expire  in 2006  and $126  million  that  have no
expiration date.  Realization of these operating loss carryforwards is dependent
on generating sufficient taxable income.

     Deferred tax liabilities at December 31, 2001 and 2000, are composed of the
following:

(Millions of dollars)                                2001     2000
---------------------                              ------     ----
Net deferred tax liabilities -
  Accelerated depreciation                         $1,308     $858
  Exploration and development                         159       31
  Undistributed earnings of foreign subsidiaries       28       28
  Postretirement benefits                             (89)     (89)
  Dismantlement, remediation, restoration
    and other reserves                                (58)     (55)
  U.S. and foreign operating loss carryforward        (46)     (18)
  AMT credit carryforward                             (18)     (18)
  Other                                                (9)     (33)
                                                   ------     ----
    Total                                          $1,275     $704
                                                   ======     ====

     In the following  table,  the U.S. Federal income tax rate is reconciled to
the  company's  effective  tax  rates for  income  before  change in  accounting
principle as reflected in the Consolidated Statement of Income.

                                                     2001     2000     1999
                                                     ----     ----     ----
U.S. statutory rate                                  35.0%    35.0%    35.0%
  Increases (decreases) resulting from -
    Taxation of foreign operations                    1.8      .5       4.8
    Adjustment of prior years' accruals                --     (.6)       --
    Refunds of prior years' income taxes               --     (.7)       --
    Adjustment of deferred tax balances
      due to tax rate changes                         (.1)     .1        --
    Other - net                                        .4      .8       3.3
                                                     ----    ----      ----
        Total                                        37.1%   35.1%     43.1%
                                                     ====    ====      ====

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

13.  Taxes, Other than Income Taxes

     Taxes,  other than income taxes, as shown in the Consolidated  Statement of
Income for the years ended December 31, 2001, 2000 and 1999, are composed of the
following:

(Millions of dollars)                                2001     2000     1999
---------------------                                ----     ----     ----
Production/severance                                 $ 67     $ 85      $52
Payroll                                                28       21       19
Property                                               15       13       11
Other                                                   5        3        3
                                                     ----     ----      ---
  Total                                              $115     $122      $85
                                                     ====     ====      ===

14.  Deferred Credits and Reserves - Other

     Other  deferred  credits and reserves  consist of the following at year-end
2001 and 2000:

(Millions of dollars)                                2001     2000
---------------------                                ----     ----
Reserves for site dismantlement,
  remediation and restoration                        $447     $434
Postretirement benefit obligations                    184      185
Pension plan liabilities                               44       43
Derivatives(1)                                         42       --
Minority interest in subsidiary companies               3       24
Other                                                  78       50
                                                     ----     ----
    Total                                            $798     $736
                                                     ====     ====

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

     The company provided for environmental remediation and restoration,  net of
authorized  reimbursements,  during  each of the  years  2001,  2000 and 1999 as
follows:

(Millions of dollars)                                2001     2000     1999
---------------------                                ----     ----     ----
Provision, net of authorized reimbursements           $90     $112      $ 3
Reimbursements received                                11       66       15
Reimbursements accrued                                 --       --       67

     The  reimbursements,  which pertain to the former facility in West Chicago,
Illinois,  are  authorized  pursuant to Title X of the Energy Policy Act of 1992
(see Note 15).

15.  Contingencies

West Chicago, Illinois
     In 1973, a wholly owned subsidiary,  Kerr-McGee Chemical  Corporation,  now
Kerr-McGee  Chemical  LLC  (Chemical),  closed  the  facility  in West  Chicago,
Illinois,  that processed  thorium ores.  Historical  operations had resulted in
low-level  radioactive  contamination  at the  facility  and in the  surrounding
areas.  In 1979,  Chemical filed a plan with the Nuclear  Regulatory  Commission
(NRC) to decommission  the facility.  In 1990, the NRC transferred  jurisdiction
over the facility to the State of Illinois (the State). Following is the current
status of various matters associated with the closed facility.
     Closed  Facility - In 1994,  Chemical,  the City of West Chicago (the City)
and the State reached agreement on the initial phase of the decommissioning plan
for the closed West Chicago facility,  and Chemical began shipping material from
the site to a licensed permanent disposal facility.
     In February 1997, Chemical executed an agreement with the City covering the
terms and conditions for completing the final phase of decommissioning work. The
State has indicated  approval of the agreement and has issued license amendments
authorizing much of the work.  Chemical expects most of the work to be completed
within the next two years,  leaving  principally  only  groundwater  remediation
and/or monitoring for subsequent years.
     In 1992, the State enacted legislation imposing an annual storage fee equal
to $2 per cubic foot of byproduct material located at the closed facility, which
cannot  exceed $26 million per year.  Initially,  all storage fee payments  were
reimbursed  to Chemical as  decommissioning  costs were  incurred.  Chemical was
fully reimbursed for all storage fees paid pursuant to this legislation. In June
1997, the legislation was amended to provide that future storage fee obligations
are to be offset against decommissioning costs incurred but not yet reimbursed.
     Vicinity Areas - The U.S. Environmental  Protection Agency (EPA) has listed
four areas in the vicinity of the closed West  Chicago  facility on the National
Priority  List   promulgated  by  EPA  under  authority  of  the   Comprehensive
Environmental Response, Compensation, and Liability Act of 1980 (CERCLA) and has
designated Chemical as a potentially  responsible party in these four areas. The
EPA issued unilateral  administrative  orders for two of the areas (known as the
residential  areas and  Reed-Keppler  Park),  which require  Chemical to conduct
removal actions to excavate  contaminated soils and ship the soils elsewhere for
disposal. Without waiving any of its rights or defenses,  Chemical is conducting
the work  required  by the two  orders.  Chemical  has  completed  the  required
excavation and restoration work at the park site and will be monitoring the site
pending  final EPA  approval.  Work at the  residential  sites is expected to be
completed in 2002.
     The other two areas (known as the Sewage  Treatment  Plant and Kress Creek)
currently  are being  studied  to  determine  the extent of  contamination,  and
Chemical is in  discussions  with the  relevant  authorities  regarding  cleanup
requirements. Chemical has indicated a willingness to undertake a cleanup of the
final  two  sites  subject  to  various  conditions,   including  the  continued
reimbursement  of the  government's  share of  costs  for  cleaning  up the West
Chicago sites.  If these  conditions are met, the costs of cleanup for these two
sites are not expected to exceed the additional  federal funding,  as more fully
discussed below.
     Government  Reimbursement - Pursuant to Title X of the Energy Policy Act of
1992 (Title X), the U.S.  Department  of Energy  (DOE) is obligated to reimburse
Chemical for certain  decommissioning  and cleanup costs in  recognition  of the
fact that much of the  facility's  production  was dedicated to U.S.  government
contracts.  Title X was amended in 1998 to increase  the amount  authorized  for
reimbursement to $140 million plus inflation  adjustments.  Through December 31,
2001,  Chemical has been  reimbursed  approximately  $146 million under Title X.
These reimbursements are provided by congressional appropriations.
     Historically,  congressional  authorizations  under  Title  X  have  lagged
Chemical's cleanup expenditures. At December 31, 2001, the government's share of
costs  already  incurred  by  Chemical  but not yet  reimbursed  by DOE  totaled
approximately $95 million.  In 2001, the United States House of  Representatives
passed a bill that would bring the congressional  authorizations current as well
as authorize reimbursement for the government's share of future costs. That bill
currently is pending in the United States Senate.

Other Matters
     The company  and/or its  subsidiaries  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, its
subsidiaries,  and/or  their  predecessors,  and  include  claims  for  personal
injuries and property damages.  The company's current and former operations also
involve   management   of  regulated   materials  and  are  subject  to  various
environmental laws and regulations. These laws and regulations will obligate the
company and/or its subsidiaries to clean up various sites at which petroleum and
other hydrocarbons,  chemicals,  low-level  radioactive  substances and/or other
materials  have been  disposed  of or  released.  Some of these  sites have been
designated  Superfund  sites by EPA  pursuant to CERCLA.  Similar  environmental
regulations  exist  in  foreign  countries  in  which  the  company  and/or  its
subsidiaries   operate.   Environmental   regulations   in  the  North  Sea  are
particularly stringent.
     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:
     * some sites are in the early stages of investigation,  and other sites may
       be identified in the future;
     * 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;
     * 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 shares of responsibility for cleanup costs;
     * environmental  laws  and  regulations are continually changing, and court
       proceedings are inherently uncertain; and 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.
     Although management believes that it has established  adequate reserves for
cleanup costs and legal matters, due to these uncertainties the company could be
required to record additional reserves in the future.
     As of December 31, 2001, the company had reserves totaling $182 million for
cleaning up and  remediating  environmental  sites,  reflecting  the  reasonably
estimable  costs for addressing  these sites.  This includes $49 million for the
West Chicago sites.  Cumulative  expenditures at all environmental sites through
December 31, 2001, total $928 million.  Management believes,  after consultation
with general counsel, that currently the company has reserved adequately for the
reasonably estimable costs of contingencies.  However, additions to the reserves
may be required as additional  information  is obtained that enables the company
to better  estimate  its  liabilities,  including  liability  at sites now under
review,  though the company  cannot now  reliably  estimate the amount of future
additions to the reserves.

16.  Commitments

Lease Obligations
     Total lease rental expense was $38 million in 2001, $34 million in 2000 and
$37 million in 1999.
     The company has various  commitments  under  noncancelable  operating lease
agreements,  principally  for office space,  production  facilities and drilling
equipment.  During 2001, the construction of the Nansen production  platform was
completed  and  production  commenced  from the Gulf of Mexico  Nansen  field in
January 2002. The company  entered into an operating lease agreement for the use
of the platform.  Including the lease rentals for the Nansen platform, aggregate
minimum  annual  rentals  under all  operating  leases in effect at December 31,
2001,  total $370 million,  of which $26 million is due in 2002,  $26 million in
2003, $68 million in the period 2004 through 2006 and $250 million thereafter.
     During the third quarter of 2001,  the company  entered into an arrangement
with Kerr-McGee  Gunnison Trust for the construction of the company's share of a
platform to be used in the  development of the Gulf of Mexico Gunnison field, in
which the company has a 50% working interest.  The construction of the company's
portion of the  platform is being  financed by a $157  million  synthetic  lease
between the trust and a group of financial  institutions.  In 2000,  the company
entered  into a  similar  arrangement  with  Kerr-McGee  Boomvang  Trust for the
construction  of the company's share of a platform to be used in the development
of the  Boomvang  field,  in which the company has a 30% working  interest.  The
construction of the company's portion of the platform is being financed by a $78
million  synthetic  lease  credit  facility  between  the  trust  and a group of
financial  institutions.  After  construction,  the  company  and the trusts are
committed  to  enter  into  operating  leases  for  the  use of  the  platforms.
Currently, the company is obligated to make lease payments in amounts sufficient
to pay  interest at varying  rates on both of the  financings.  The payments for
both  obligations are expected to be $5 million in 2002, $5 million in 2003, $14
million in 2004,  $16  million in 2005,  $17 million in 2006,  and $355  million
thereafter.  The future minimum annual rentals due under noncancelable operating
leases shown above exclude any payments related to these agreements.
     The company has guaranteed that the Nansen, Boomvang and Gunnison platforms
will have residual  values at the end of the operating  leases equal to at least
10% of the fair market value of the platform at the inception of the lease.  For
Nansen the guaranteed value is $14 million in 2022 and for Boomvang and Gunnison
estimates  of the  guarantees  are $8  million in 2022 and $16  million in 2024,
respectively.

Drilling Rig Commitments
     During 1999,  the company  entered into lease  agreements to participate in
the use of various  drilling  rigs.  The total  exposure  with  respect to these
commitments ranges from nil to $85 million,  depending on partner participation.
These agreements extend through 2004.

17.  Acquisition

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

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

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

(Millions of dollars, except per-share amounts)      2001     2000
-----------------------------------------------      ----     ----
Sales                                              $3,870   $4,444
Income before change in accounting principle          520      826
Net income                                            499      826
Earnings per share -
  Basic                                              4.99     8.39
  Diluted                                            4.73     7.83


18.  Financial Instruments and Derivative Activities

Investments in Certain Debt and Equity Securities
     The company has certain investments that are considered to be available for
sale. These financial  instruments are carried in the Consolidated Balance Sheet
at fair  value,  which is based on quoted  market  prices.  The  company  had no
securities  classified  as held to  maturity at  December  31, 2001 or 2000.  At
December 31, 2001 and 2000,  available-for-sale  securities for which fair value
can be determined are as follows:
<TABLE>
<CAPTION>

                                                 2001                                     2000
                                    -------------------------------           -------------------------------
                                                              Gross                                     Gross
                                                         Unrealized                                Unrealized
                                     Fair                   Holding            Fair                   Holding
(Millions of dollars)               Value    Cost    Gains (Losses)           Value    Cost    Gains (Losses)
---------------------               -----    ----    --------------           -----    ----    --------------
<S>                                   <C>     <C>               <C> <C>        <C>     <C>               <C>
Equity securities                     $59     $32               $(1)(1)        $607    $209              $398
Exchangeable debt                      --      --                --             514     330              (184)
U.S. government obligations -
  Maturing within one year              3       3                --               2       2                --
  Maturing between one year
    and four years                      2       2                --               4       4                --
                                                                ---                                      ----
      Total                                                     $(1)                                     $214
                                                                ===                                      ====
</TABLE>

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

     The equity  securities  represent the company's  investment in Devon Energy
Company common stock, and the  exchangeable  debt is the company's debt that may
be repaid  with the Devon  stock  currently  owned by  Kerr-McGee.  Prior to the
beginning of 2001, the stock and the debt were marked-to-market each month, with
the offset recognized in accumulated other  comprehensive  income. On January 1,
2001, the company  adopted the provisions of FAS 133 and in accordance with that
standard chose to reclassify 85% of the Devon shares owned to "trading" from the
"available   for   sale"   category   of   investments.   As  a  result  of  the
reclassification,  the company recognized after-tax income totaling $118 million
($181 million before taxes) for the unrealized  appreciation on 85% of the Devon
shares. Additionally,  with adoption of FAS 133, the debt exchangeable for stock
(DECS) and its embedded option features were separated. The debt is now recorded
in the Consolidated Balance Sheet at face value less unamortized  discount,  and
the  options  associated  with the  exchangeable  feature  of the debt have been
recorded at fair value on the balance  sheet as deferred  credits.  (See further
discussion on derivatives below.)
     The Devon  securities  are  carried in the  Consolidated  Balance  Sheet as
Investments - Other assets. U.S.  government  obligations are carried as Current
Assets or as Investments - Other assets, depending on their maturities.
     The change in unrealized  holding gains  (losses),  net of income taxes, as
shown in accumulated other comprehensive income for the years ended December 31,
2001, 2000 and 1999, is as follows:

(Millions of dollars)                                2001     2000     1999
---------------------                               -----     ----     ----
Beginning balance -                                 $ 139     $ 79      $--
  Net unrealized holding gains (losses)               (22)      60       79
  Reclassification of gains included in net income   (118)      --       --
                                                    -----     ----      ---
Ending balance                                      $  (1)    $139      $79
                                                    =====     ====      ===

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

Financial Instruments for Other than Trading Purposes
     In addition to the financial instruments previously discussed,  the company
holds or issues  financial  instruments  for other  than  trading  purposes.  At
December 31, 2001 and 2000,  the  carrying  amount and  estimated  fair value of
these instruments for which fair value can be determined are as follows:
<TABLE>
<CAPTION>

                                                         2001                    2000
                                                  -----------------       -----------------
                                                  Carrying     Fair       Carrying     Fair
(Millions of dollars)                               Amount    Value         Amount    Value
---------------------                             --------    -----       --------    -----
<S>                                                 <C>      <C>            <C>      <C>
Cash and cash equivalents                           $   91   $   91         $  144   $  144
Long-term notes receivable                             107      107             67      146
Long-term receivables                                   26       22             33       28
Contracts to sell foreign currencies                    --       --             --       (1)
Contracts to purchase foreign currencies               (15)     (15)            --       (2)
Short-term borrowings                                    8        8              6        6
Debt exchangeable for stock excluding options          310      330             --       --
Long-term debt, except DECS                          4,256    4,319          1,905    2,115
</TABLE>

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

Derivatives
     The company issued the DECS in August 1999, allowing each holder to receive
between .85 and 1.0 shares of Devon stock or the cash equivalent,  at the option
of the company, at maturity in August 2004. Embedded options in the DECS provide
Kerr-McGee  a floor price on Devon's  common  stock of $33.19 per share (the put
option).  The  company  also  retains  the right to 15% of the shares if Devon's
stock  price is  greater  than  $39.16 per share  (the call  option).  Using the
Black-Scholes  valuation  model,  the fair values of the  embedded  put and call
options were $2 million and $35 million,  respectively,  for a net fair value of
$33 million on December 31, 2001.  During 2001,  the company  recorded  gains of
$205 million in Other Income for the changes in fair value. As discussed  above,
the  fluctuation in the value of these  derivatives  will  generally  offset the
increase  or  decrease  in the market  value of 85% of the Devon  stock owned by
Kerr-McGee.  The  remaining  15%  of  the  Devon  shares  are  accounted  for in
accordance with FAS 115,  "Accounting for Certain Investments in Debt and Equity
Securities,"  as  available-for-sale  securities  with  changes in market  value
recorded in accumulated other comprehensive income.
     From time to time,  the company  enters into  forward  contracts to buy and
sell foreign  currencies.  Certain of these  contracts  (purchases of Australian
dollars and British pound  sterling) have been  designated and have qualified as
cash flow  hedges of the  company's  anticipated  future  cash flow  needs for a
portion of its capital expenditures and operating costs. These forward contracts
generally have durations of less than three years. The resulting changes in fair
value of these contracts are recorded in accumulated other comprehensive income.
The amounts in  accumulated  other  comprehensive  income,  $18 million  loss at
December 31, 2001,  will be recognized  in earnings in the periods  during which
the  hedged  forecasted  transactions  affect  earnings  (i.e.,  when the hedged
transaction  is paid in the  case of a hedge  of  operating  costs  and when the
hedged assets are  depreciated in the case of a hedge of capital  expenditures).
In 2001, the company reclassified $9 million of losses on forward contracts from
accumulated  other  comprehensive  income to  operating  expenses  in the income
statement.  Of the existing net losses at December 31, 2001,  approximately  $10
million will be reclassified  into earnings during the next 12 months,  assuming
no further changes in fair value of the contracts.  No hedges were  discontinued
during 2001, and no ineffectiveness  was recognized.  The company recognized net
foreign  currency  hedging  losses of $6 million in 2000 and $5 million in 1999,
respectively.
     The  company has  entered  into other  forward  contracts  to sell  foreign
currencies,  which will be collected as a result of pigment sales denominated in
foreign currencies, primarily in euros. These contracts have not been designated
as hedges  even  though  they do protect  the  company  from  changes in foreign
currency rate changes.  Almost all of the pigment  receivables have been sold in
an asset  securitization  program at their  equivalent  U.S. dollar value at the
date the receivables were sold. However, the company retains the risk of foreign
currency  rate  changes   between  the  date  of  sale  and  collection  of  the
receivables.
     The company has  periodically  used  derivative  instruments  to reduce the
effect of the price  volatility  of crude oil and natural  gas. As  discussed in
Note 17, the company purchased 100% of the outstanding shares of common stock of
HS Resources effective August 1, 2001. At the time of the purchase, HS Resources
(now  Kerr-McGee  Rocky  Mountain) and its trading  subsidiary  (now  Kerr-McGee
Energy Services) had a number of derivative contracts for purchases and sales of
oil and  gas,  basis  differences  and  energy-related  contracts.  All of these
contracts  are being treated by the company as  speculative  and are recorded at
their fair market value on the balance sheet and marked-to-market through income
each month.
     HS  Resources  hedged a portion of its equity oil and gas  production  with
NYMEX fixed-price and basis contracts.  The fixed price contracts will expire in
2002, and the basis contracts will expire by 2008. The company has chosen to let
the contracts run until maturity,  unless closed earlier.  The net fair value of
these  commodity-related  derivatives  was $6 million at year-end  2001. Of this
amount,  $6 million was recorded in current assets,  $5 million in investments -
other  assets,  $4  million in current  liabilities  and $1 million in  deferred
credits.  The net gain associated with these derivatives was $27 million in 2001
and is included in Other Income in the Consolidated Statement of Income.
     The  trading  subsidiary,   Kerr-McGee  Energy  Services  (KMES),   markets
purchased gas (primarily equity gas) in the Denver area.  Existing contracts for
the  physical  delivery  of gas at fixed or  index-plus  prices  and  associated
transportation  contracts are marked-to-market each month in accordance with FAS
133. KMES has entered into basis and price derivative  contracts that offset its
fixed-price risk on physical contracts.  These derivative  contracts lock in the
margins  associated  with the physical sale. The company  believes that the risk
associated with these derivatives is minimal due to the credit-worthiness of the
counterparties.  The net fair market value of the commodity-related derivatives,
physical  contracts  and  transportation  contracts  was $21 million at year-end
2001. Of this amount, $30 million was recorded in current assets, $11 million in
investments - other assets, $19 million in current liabilities and $1 million in
deferred  credits.  The 2001 net loss  associated  with  these  derivatives  and
energy-related  contracts  was $24  million  and is  included  in  Sales  in the
Consolidated   Statement  of  Income.   The  company  did  not  enter  into  any
commodity-related derivatives during 2000 or 1999.

19.  Common Stock

     Changes in common stock issued and treasury  stock held for 2001,  2000 and
1999 are as follows:
<TABLE>
<CAPTION>

(Thousands of shares)                                                           Common Stock        Treasury Stock
---------------------                                                           ------------        --------------
<S>                                                                                  <C>                    <C>
Balance December 31, 1998                                                             93,378                 7,011
  Exercise of stock options and stock appreciation rights                                112                    --
  Issuance of restricted stock                                                             4                    --
                                                                                     -------                ------
Balance December 31, 1999                                                             93,494                 7,011
  Exercise of stock options and stock appreciation rights                                423                    --
  Public offering                                                                      7,500                    --
  Issuance of restricted stock                                                            --                   (78)
                                                                                     -------                ------
Balance December 31, 2000                                                            101,417                 6,933
  Exercise of stock options and stock appreciation rights                                533                    --
  Cancellation of outstanding shares of Kerr-McGee Operating Corporation
    (formerly Kerr-McGee Corporation)                                                (95,118)                   --
  Issuance of stock by Kerr-McGee Corporation (new holding company)                   95,118                    --
  Shares issued to purchase HS Resources                                               5,057                    --
  Cancellation of treasury stock                                                      (6,838)               (6,838)
  Issuance of restricted stock                                                            16                  (102)
  Forfeiture of restricted stock                                                          --                     8
  Issuance of shares for achievement awards                                                1                    --
                                                                                     -------                ------
Balance December 31, 2001                                                            100,186                     1
                                                                                     =======                ======
</TABLE>

     The  company has 40 million  shares of  preferred  stock  without par value
authorized, and none is issued.
     There are 1,107,692  shares of the company's common stock registered in the
name of a wholly owned subsidiary of the company.  These shares are not included
in the  number of shares  shown in the  preceding  table or in the  Consolidated
Balance Sheet. These shares are not entitled to be voted.
     The company  has granted  118,000,  74,000 and 4,000  shares of  restricted
common  stock in 2001,  2000 and 1999,  respectively,  to certain key  employees
under the 2000 and the 1998 Long-Term Incentive Plans. Shares are awarded in the
name of the  employee,  who has all the  rights  of a  shareholder,  subject  to
certain  restrictions  on  transferability  and a  risk  of  forfeiture.  Of the
restricted  shares granted in 2001,  the forfeiture  provisions on 72,000 shares
expire on  January  9,  2004.  Of the  remaining  shares  granted  in 2001,  the
forfeiture  provisions  lapse  one-third  per  year  over a  three  year  period
beginning  on January 9, 2001 and August 1, 2001,  for 29,000  shares and 16,000
shares, respectively.  The forfeiture provisions on awards granted in 2000 lapse
one-third per year over a three-year  period  beginning on January 11, 2003. The
forfeiture  provisions  on the 1999 awards  expire on  December 1, 2003.  During
2001, 8,000 shares of restricted stock were forfeited.
     The company  has had a  stockholders-rights  plan since  1986.  The current
rights plan is dated July 26, 2001,  and replaced the previous plan prior to its
expiration.  Rights were  distributed as a dividend at the rate of one right for
each share of the  company's  common stock and continue to trade  together  with
each share of common stock. Generally, the rights become exercisable the earlier
of 10 days after a public announcement that a person or group has acquired, or a
tender  offer has been made for, 15% or more of the  company's  then-outstanding
stock.  If either of these events  occurs,  each right would  entitle the holder
(other than a holder owning more than 15% of the  outstanding  stock) to buy the
number of shares of the  company's  common stock having a market value two times
the exercise  price.  The exercise price is $215.  Generally,  the rights may be
redeemed at $.01 per right until a person or group has  acquired  15% or more of
the company's stock. The rights expire in July 2006.

20.  Other Income

     Other  income was as  follows  during  each of the years in the  three-year
period ended December 31, 2001:

(Millions of dollars)                                2001     2000     1999
---------------------                                ----     ----     ----
Derivatives and Devon stock revaluation(1)           $225     $ --      $--
Interest                                               22       29       14
Income (loss) from unconsolidated affiliates           (5)      23       16
Gain on foreign currency exchange                       3       30       11
Gain on sale of assets                                  4        6        3
Plant closing/product line discontinuation             --      (21)      --
Other                                                 (12)      (9)      (4)
                                                     ----     ----      ---
  Total                                              $237     $ 58      $40
                                                     ====     ====      ===

(1) See Note 18.

21.  Earnings Per Share

     Basic net income per share includes no dilution and is computed by dividing
income available to common stockholders by the weighted-average number of common
shares  outstanding  for the period.  Diluted net income per share  reflects the
potential  dilution  that could occur if security  interests  were  exercised or
converted into common stock.
     The  following  table  sets  forth the  computation  of basic  and  diluted
earnings per share for the years ended December 31, 2001,  2000 and 1999.
<TABLE>
<CAPTION>

                                                    2001                           2000                            1999
                                         ---------------------------    ----------------------------    ----------------------------
(Millions of dollars, except per-share      Net           Net Income       Net            Net Income       Net            Net Income
amounts and thousands of shares)         Income   Shares   Per Share    Income   Shares    Per Share    Income   Shares    Per Share
--------------------------------------   ------   ------  ----------    ------   ------   ----------    ------   ------   ----------
<S>                                        <C>    <C>          <C>        <C>    <C>           <C>        <C>    <C>           <C>
Basic earnings per share -
  Net income available to
    common stockholders                    $486   97,106       $5.01      $842   93,406        $9.01      $142   86,414        $1.64
Diluted  earnings per share -
  Effect of dilutive securities:
    5-1/4% convertible debentures            22    9,824                    19    8,720                     --       --
    7-1/2% convertible debentures            --       --                     9    1,697                     --       --
    Employee stock options                   --      181                    --      164                     --       83
                                           ----  -------       -----      ----  -------        -----      ----   ------        -----
Income available to common
  stockholders, including
  assumed dilution                         $508  107,111       $4.74      $870  103,987        $8.37      $142   86,497        $1.64
                                           ====  =======       =====      ====  =======        =====      ====   ======        =====
</TABLE>

     Not included in the calculation of the denominator for diluted earnings per
share were 2,219,858, 2,113,284 and 2,063,079 employee stock options outstanding
at year-end 2001,  2000 and 1999,  respectively.  The inclusion of these options
would  have been  antidilutive  since they were not "in the money" at the end of
the respective years.
     The company has reserved  9,823,778  shares of common stock for issuance to
the owners of its 5-1/4%  Convertible  Subordinated  Debentures due 2010.  These
debentures are convertible  into the company's common stock at any time prior to
maturity at $61.08 per share of common  stock.  The  company  retired the 7-1/2%
Convertible Subordinated Debentures in 2001.

22.  Impairment of Long-Lived Assets and Long-Lived Assets to Be Disposed Of

Assets to Be Disposed Of
     In 2001, the company's  exploration and production operating unit suspended
production  from the Hutton field in the North Sea due to concerns about the oil
export  pipeline's  integrity.  It was  determined  that  due to the  amount  of
corrosion present in the pipeline, replacement of the pipeline would be required
to allow production to resume.  After careful study,  the company,  as operator,
and the other  partners  decided  not to replace the  pipeline  due to the small
amount of remaining  field  reserves  and plan to  decommission  the field.  The
Hutton  field was deemed to be impaired  because  recovery of the net book value
from future cash flows could no longer be expected.  In 2001, an impairment loss
of $47 million was determined based on the difference between the carrying value
of the assets and the present value of the field's discounted future cash flows,
net of expected proceeds from the sale of the Hutton Tension Leg Platform (TLP).
The Hutton TLP is a production,  drilling and accommodation  facility located at
the Hutton field.
     At the end of 2001, the company's  chemical - pigment operating unit ceased
production at its titanium dioxide pigment plant in Antwerp,  Belgium. The plant
closing is part of the company's  strategy to improve  efficiencies  and enhance
margins  by  rationalizing  assets  within  the  chemical  unit.  A $14  million
impairment loss was recognized in 2001,  which reduced the carrying value of the
asset to $1 million.
     The  company's  chemical - other  operating  unit ceased  production at its
manganese  metal  production  facility in  Hamilton,  Mississippi,  during 2001.
Production was ceased due to low-priced  imports and softening  prices that made
the product no longer  profitable.  A $13 million impairment loss was recognized
in 2001, which reduced the carrying value of the asset to nil. Also in 2001, due
to the loss of its only major customer, a wood-preserving plant in Indianapolis,
Indiana,  was deemed to be impaired  because the asset was no longer expected to
recover its net book value through  future cash flows.  A $2 million  impairment
loss was recognized in 2001, which reduced the carrying value of the asset to $1
million.  Plant  operation  will be  suspended  until the outcome of a viability
assessment is completed.
     Following  are the sales and pretax  income  included  in the  Consolidated
Statement  of Income for assets the company  decided to dispose of during  2001.
Since each of these  assets to be disposed of  represents  a small  portion of a
business segment or legal entity,  the pretax income amounts may not include all
indirect  costs  that  might  otherwise  have  been  incurred  by  an  unrelated
operation.  The impairment  losses are included in the pretax income amounts for
2001.  The company had no material  assets held for disposal at year-end 2000 or
1999.

(Millions of dollars)                                2001     2000     1999
---------------------                               -----     ----     ----
Sales -
  Exploration and production                        $  13     $ 52     $ 44
  Chemicals - pigment                                  37       52       47
  Chemicals - other                                    26       40       46
                                                    -----     ----     ----
    Total                                           $  76     $144     $137
                                                    =====     ====     ====
Pretax income (loss) -
  Exploration and production                        $ (50)    $ 19     $ 16
  Chemicals - pigment                                 (53)      --       (2)
  Chemicals - other                                   (27)      --        2
                                                    -----     ----     ----
    Total                                           $(130)    $ 19     $ 16
                                                    =====     ====     ====

23.  Employee Stock Option Plans

     The 2000 Long Term  Incentive  Plan (2000 Plan)  authorizes the issuance of
shares of the  company's  common stock any time prior to April 30, 2010,  in the
form of stock options,  restricted stock or long-term  performance  awards.  The
options may be accompanied by stock  appreciation  rights.  A total of 2,500,000
shares of the  company's  common stock is authorized to be issued under the 2000
Plan.
     In January 1998, the Board of Directors approved a broad-based stock option
plan (BSOP) that  provides for the granting of options to purchase the company's
common stock to full-time,  nonbargaining  unit employees,  except  officers.  A
total of 1,500,000  shares of common stock is  authorized to be issued under the
BSOP.
     The 1987 Long Term Incentive  Program (1987 Program) and the 1998 Long Term
Incentive  Plan (1998 Plan)  authorized  the issuance of shares of the company's
stock over a 15-year  period and 10-year  period,  respectively,  in the form of
stock  options,  restricted  stock or  long-term  performance  awards.  The 1987
Program was  terminated  when the  stockholders  approved the 1998 Plan, and the
1998 Plan was terminated with the approval of the 2000 Plan. No options could be
granted  under the 1987  Program  or the 1998 Plan  after  that  time,  although
options  and any  accompanying  stock  appreciation  rights  outstanding  may be
exercised prior to their respective expiration dates.
     The company's employee stock options are fixed-price options granted at the
fair  market  value of the  underlying  common  stock on the date of the  grant.
Generally,  one-third  of  each  grant  vests  and  becomes  exercisable  over a
three-year  period  immediately  following  the grant date and  expires 10 years
after the grant date.
     The following table  summarizes the stock option  transactions for the 2000
Plan, the BSOP, the 1998 Plan and the 1987 Program.
<TABLE>
<CAPTION>

                                                    2001                            2000                             1999
                                       ----------------------------    ----------------------------    -----------------------------
                                                   Weighted-Average                Weighted-Average                 Weighted-Average
                                                     Exercise Price                  Exercise Price                   Exercise Price
                                         Options         per Option      Options         per Option      Options          per Option
                                       ---------   ----------------    ---------   ----------------    ---------    ----------------
<S>                                    <C>                   <C>       <C>                   <C>       <C>                    <C>
Outstanding, beginning of year         3,036,605             $59.66    2,823,334             $56.78    2,783,482              $58.77
  Options granted                      1,024,530              65.19      719,550              63.53      377,000               46.53
  Options exercised                     (532,260)             59.55     (426,561)             46.59     (110,521)              42.20
  Options surrendered upon exercise
    of stock appreciation rights          (1,900)             42.63       (7,300)             45.57      (14,000)              45.25
  Options forfeited                      (62,539)             62.78      (46,779)             61.79      (45,929)              60.73
  Options expired                        (30,691)             63.74      (25,639)             72.95     (166,698)              72.95
                                       ---------                       ---------                       ---------
Outstanding, end of year               3,433,745              61.18    3,036,605              59.66    2,823,334               56.78
                                       =========                       =========                       =========
Exercisable, end of year               1,935,880              59.32    2,007,036              59.70    2,003,138               57.63
                                       =========                       =========                       =========
</TABLE>

     The following table summarizes information about stock options issued under
the plans  described  above that are outstanding and exercisable at December 31,
2001:
<TABLE>
<CAPTION>

                                 Options Outstanding                                Options Exercisable
 -------------------------------------------------------------------------     ------------------------------
                     Range of        Weighted-Average     Weighted-Average                   Weighted-Average
              Exercise Prices   Remaining Contractual       Exercise Price                     Exercise Price
   Options         per Option            Life (years)           per Option       Options           per Option
 ---------    ---------------   ---------------------     ----------------     ---------     ----------------
 <S>            <C>    <C>                        <C>               <C>        <C>                     <C>
    19,184      $30.00-$39.99                     2.0               $34.65        19,184               $34.65
   361,347       40.00- 49.99                     3.9                43.14       313,009                43.59
   725,730       50.00- 59.99                     5.2                56.89       676,349                57.07
 2,148,572       60.00- 69.99                     7.2                64.93       748,426                65.34
   178,912       70.00- 79.99                     2.9                72.79       178,912                72.79
 ---------                                                                     ---------
 3,433,745       30.00- 79.99                     6.2                61.18     1,935,880                59.32
 =========                                                                     =========
</TABLE>

     Statement of Financial Accounting Standards (SFAS) 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 that the options vest. The company,  however,  chooses to account for its
stock  option  plans under the  optional  intrinsic  value method of APB No. 25,
"Accounting for Stock Issued to Employees,"  whereby no compensation  expense is
recognized  for  fixed-price   stock  options.   Compensation   cost  for  stock
appreciation  rights,  which is recognized  under both accounting  methods,  was
immaterial for 2001, 2000 and 1999.
     Had  compensation  expense been determined in accordance with SFAS No. 123,
the resulting  compensation expense would have affected net income and per-share
amounts as shown in the following table. These amounts may not be representative
of future  compensation  expense using the  fair-value  method of accounting for
employee stock options as the number of options granted in a particular year may
not be  indicative  of the number of options  granted in future  years,  and the
fair-value method of accounting has not been applied to options granted prior to
January 1, 1995.

(Millions of dollars, except per-share amounts)      2001     2000     1999
-----------------------------------------------      ----     ----     ----
Net income-
  As reported                                        $486     $842     $142
  Pro forma                                           478      835      136
Net income per share -
  Basic -
    As reported                                      5.01     9.01     1.64
    Pro forma                                        4.92     8.94     1.57
  Diluted -
    As reported                                      4.74     8.37     1.64
    Pro forma                                        4.66     8.30     1.57

     The fair value of each option granted in 2001,  2000 and 1999 was estimated
as of the date of grant using the  Black-Scholes  option  pricing model with the
following weighted-average assumptions.
<TABLE>
<CAPTION>

                                             Assumptions
              --------------------------------------------------------------
                                                                                     Weighted-Average
                  Risk-Free          Expected    Expected Life      Expected            Fair Value of
              Interest Rate    Dividend Yield          (years)    Volatility          Options Granted
              -------------    --------------    -------------    ----------         ----------------
<S>                     <C>               <C>              <C>          <C>                    <C>
2001                    5.0%              3.3%             5.8          42.9%                  $22.54
2000                    6.6               3.1              5.8          31.3                    19.15
1999                    5.4               3.1              5.8          25.2                    11.33
</TABLE>

24.  Employee Benefit Plans

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

                                                                               Postretirement Health
                                                     Retirement Plans              and Life Plans
                                                    -----------------          ---------------------
(Millions of dollars)                                 2001       2000             2001          2000
---------------------                               ------     ------             ----          ----
<S>                                                 <C>        <C>                <C>           <C>
Benefit obligation, beginning of year               $1,014     $  977             $230          $215
  Service cost                                          22         17                2             2
  Interest cost                                         73         72               17            15
  Plan amendments                                       21         (3)              --            --
  Net actuarial gain                                    17        (12)              43            (8)
  Acquisitions                                          --         58               --            21
  Foreign exchange rate changes                         (3)        (1)              --            --
  Assumption changes                                    37         --               --            --
  Contributions by plan participants                    --         --                8             7
  Benefits paid                                       (106)       (94)             (29)          (22)
                                                    ------     ------             ----          ----
Benefit obligation, end of year                     $1,075     $1,014             $271          $230
                                                    ======     ======             ====          ====
</TABLE>

     The benefit amount that can be covered by the retirement plans that qualify
under the Employee  Retirement Income Security Act of 1974 (ERISA) is limited by
both ERISA and the Internal  Revenue Code.  Therefore,  the company has unfunded
supplemental  plans designed to maintain  benefits for all employees at the plan
formula  level  and to  provide  senior  executives  with  benefits  equal  to a
specified percentage of their final average compensation. The benefit obligation
for the U.S. and certain foreign  unfunded  retirement plans was $44 million and
$37 million at December 31, 2001 and 2000, respectively. Although not considered
plan assets,  a grantor trust was established from which payments for certain of
these U.S.  supplemental  plans are made. The trust had a balance of $28 million
at year-end 2001 and $24 million at year-end 2000. The postretirement  plans are
also unfunded.
     Following  are the changes in the fair value of plan assets during the past
two years and the  reconciliation  of the plans'  funded  status to the  amounts
recognized in the financial statements at December 31, 2001 and 2000:
<TABLE>
<CAPTION>

                                                                               Postretirement Health
                                                     Retirement Plans              and Life Plans
                                                    -----------------          ---------------------
(Millions of dollars)                                 2001       2000             2001          2000
---------------------                               ------     ------            -----         -----
<S>                                                 <C>       <C>                <C>           <C>
Fair value of plan assets, beginning of year        $1,558    $ 1,653            $  --         $  --
  Actual return on plan assets                         (73)       (80)              --            --
  Employer contribution                                  9         20               --            --
  Acquisitions                                          --         61               --            --
  Foreign exchange rate changes                         (4)        (2)              --            --
  Benefits paid                                       (106)       (94)              --            --
                                                    ------    -------            -----         -----
Fair value of plan assets, end of year               1,384      1,558               --            --
Benefit obligation                                  (1,075)    (1,014)            (271)         (230)
                                                    ------    -------            -----         -----
Funded status of plans - over (under)                  309        544             (271)         (230)
  Amounts not recognized in the Consolidated
    Balance Sheet -
      Prior service costs                               89         76                4             4
      Net actuarial loss (gain)                       (235)      (508)              45             3
                                                    ------    -------            -----         -----
Prepaid expense (accrued liability)                 $  163       $112            $(222)        $(223)
                                                    ======       ====            =====         =====
</TABLE>

     Following  is  the   classification  of  the  amounts   recognized  in  the
Consolidated Balance Sheet at December 31, 2001 and 2000:
<TABLE>
<CAPTION>

                                                                               Postretirement Health
                                                     Retirement Plans              and Life Plans
                                                     ----------------          ---------------------
(Millions of dollars)                                 2001       2000             2001          2000
---------------------                                 ----       ----            -----         -----
<S>                                                   <C>        <C>             <C>           <C>
Prepaid benefits expense                              $191       $140            $  --         $  --
Accrued benefit liability                              (31)       (29)            (222)         (223)
Additional minimum liability -
  Accumulated other comprehensive income                 3          1               --            --
                                                      ----       ----            -----         -----
    Total                                             $163       $112            $(222)        $(223)
                                                      ====       ====            =====         =====
</TABLE>

     Total costs recognized for employee  retirement and postretirement  benefit
plans for each of the years ended  December  31,  2001,  2000 and 1999,  were as
follows:
<TABLE>
<CAPTION>

                                                 Retirement Plans                     Postretirement Health and Life Plans
                                          -----------------------------               ------------------------------------
(Millions of dollars)                      2001        2000        1999                   2001        2000        1999
---------------------                      ----        ----        ----                   ----        ----        ----
<S>                                       <C>         <C>         <C>                      <C>         <C>         <C>
Net periodic cost -
  Service cost                            $  22       $  17       $  15                    $ 2         $ 2         $ 1
  Interest cost                              73          72          69                     17          15           9
  Expected return on plan assets           (124)       (111)        (98)                    --          --          --
  Net amortization -
    Transition asset                         (1)         (5)         (6)                    --          --          --
    Prior service cost                        9           8          12                      1           1          --
    Net actuarial gain                      (23)        (17)         (3)                    --          --          --
                                          -----       -----       -----                    ---         ---         ---
                                            (44)        (36)        (11)                    20          18          10
Dispositions, curtailments, settlements      --          --          29                     --          --          --
                                          -----       -----       -----                    ---         ---         ---
      Total                               $ (44)      $ (36)      $  18                    $20         $18         $10
                                          =====       =====       =====                    ===         ===         ===
</TABLE>

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

                                               2001                              2000                              1999
                                  ------------------------------    ------------------------------    ------------------------------
                                  United States    International    United States    International    United States    International
                                  -------------    -------------    -------------    -------------    -------------    -------------
<S>                                       <C>           <C><C>              <C>           <C> <C>          <C><C>           <C> <C>
Discount rate                             7.25%            5.75%            7.75%         5.5-6.5%            7.75%         5.5-6.5%
Expected return on plan assets             9.0              7.0              9.0              7.0          9.0-9.5              6.25
Rate of compensation increases             5.0          2.5-7.5              5.0          3.0-5.0              5.0           3.0-5.0
</TABLE>

     The  health  care cost trend  rates used to  determine  the  year-end  2001
postretirement  benefit obligation were 7% in 2002, gradually declining to 5% in
the year 2010 and  thereafter.  A 1% increase  in the  assumed  health care cost
trend  rate for each  future  year would  increase  the  postretirement  benefit
obligation  at December 31, 2001,  by $23 million and increase the  aggregate of
the service and interest cost components of net periodic  postretirement expense
for 2001 by $2  million.  A 1%  decrease  in the trend rate for each future year
would reduce the benefit obligation at year-end 2001 by $23 million and decrease
the  aggregate of the service and interest  cost  components of the net periodic
postretirement expense for 2001 by $2 million.


25.  Employee Stock Ownership Plan

     In 1989,  the company's  Board of Directors  approved a leveraged  Employee
Stock  Ownership  Plan  (ESOP)  into  which  is  paid  the  company's   matching
contribution  for the employees'  contributions  to the  Kerr-McGee  Corporation
Savings  Investment Plan (SIP). The ESOP was amended in 2001 to provide matching
contributions for the employees'  contributions made to the Kerr-McGee  Pigments
(Savannah), Inc. Employees' Savings Plan, a savings plan for the bargaining unit
employees at the company's  Savannah,  Georgia,  pigment plant (Savannah  Plan).
Most of the company's employees are eligible to participate in both the ESOP and
the SIP or Savannah Plan.  Although the ESOP, SIP and Savannah Plan are separate
plans,  matching  contributions  to the ESOP are contingent  upon  participants'
contributions  to the SIP or Savannah  Plan.  Additionally,  HS Resources  had a
savings  plan at the time of  acquisition,  which  had only  discretionary  cash
contributions  by the  employer.  Kerr-McGee  paid $1 million  into this plan in
December 2001.  Beginning January 1, 2002, the remaining HS Resources  employees
became eligible to participate in the Kerr-McGee ESOP and SIP.
     In 1989,  the ESOP  trust  borrowed  $125  million  from a group of lending
institutions  and used the  proceeds to  purchase  approximately  three  million
shares of the  company's  treasury  stock.  The company used the $125 million in
proceeds  from the sale of the stock to acquire  shares of its  common  stock in
open-market  and privately  negotiated  transactions.  In 1996, a portion of the
third-party  borrowings was replaced with a note payable to the company (sponsor
financing).  The  third-party  borrowings  are guaranteed by the company and are
reflected in the Consolidated Balance Sheet as Long-Term Debt, while the sponsor
financing does not appear in the company's  balance sheet. The remaining balance
of the  sponsor  financing  is $4 million at  year-end  2001.  The Oryx  Capital
Accumulation Plan (CAP) was a combined stock bonus and leveraged  employee stock
ownership plan available to substantially all U.S.  employees of the former Oryx
operations.  On August 1, 1989,  Oryx  privately  placed  $110  million of notes
pursuant to the  provisions  of the CAP.  Oryx  loaned the  proceeds to the CAP,
which used the funds to purchase  Oryx common  stock that was placed in a trust.
This loan was sponsor financing and does not appear in the accompanying  balance
sheet. The remaining balance of the sponsor financing is $77 million at year-end
2001.
     During  1999,  the company  merged the Oryx CAP into the ESOP and SIP. As a
result,  a total of 159,000 and 294,000 shares was transferred from the CAP into
the ESOP and SIP, respectively.
     The  company  stock  owned  by the ESOP  trust  is held in a loan  suspense
account.  Deferred  compensation,  representing the unallocated ESOP shares,  is
reflected  as a  reduction  of  stockholders'  equity.  The  company's  matching
contribution  and  dividends  on the  shares  held by the ESOP trust are used to
repay the loan,  and stock is  released  from the loan  suspense  account as the
principal  and interest are paid.  The expense is  recognized  and stock is then
allocated  to  participants'  accounts  at  market  value  as the  participants'
contributions  are made to the SIP.  Long-term  debt is reduced as payments  are
made on the  third-party  financing.  Dividends paid on the common stock held in
participants' accounts are also used to repay the loans, and stock with a market
value equal to the amount of dividends is allocated to participants' accounts.
     Shares of stock  allocated  to the ESOP  participants'  accounts and in the
loan suspense account are as follows:

(Thousands of shares)                2001     2000
---------------------               -----    -----
Participants' accounts              1,407    1,303
Loan suspense account                 873    1,114

     The shares  allocated to ESOP  participants at December 31, 2001,  included
approximately  68,000 shares released in January 2002, and at December 31, 2000,
included approximately 57,000 shares released in January 2001.
     All  ESOP  shares  are  considered  outstanding  for net  income  per-share
calculations. Dividends on ESOP shares are charged to retained earnings.
     Compensation expense is recognized using the cost method and is reduced for
dividends  paid on the  unallocated  ESOP shares.  The company  recognized  ESOP
expense of $12 million and $11 million in 2001 and 2000, respectively,  and ESOP
and CAP-related  expense of $14 million in 1999.  These amounts include interest
expense  incurred on the third-party ESOP debt of $2 million in 2001, $3 million
in 2000 and $4 million in 1999.  The  company  contributed  $22  million and $21
million to the ESOP in 2001 and 2000, respectively,  and $25 million to the ESOP
and CAP in 1999.  Included in the  contributions  were $12 million for both 2001
and 2000 and $17  million in 1999 for  principal  and  interest  payments on the
sponsor  financings.  The  cash  contributions  are  net of $4  million  for the
dividends  paid on the company stock held by the ESOP trust in each of the years
2001, 2000 and 1999.

26.  Condensed Consolidating Financial Information

     In  connection  with the  acquisition  of HS Resources,  a holding  company
structure   was   implemented.   (See  Note  1  for  a  discussion  of  the  new
organization.)
     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 on  parity  with all of the  company's  other  unsecured  and
unsubordinated  indebtedness.  Kerr-McGee  Operating  Corporation and Kerr-McGee
Rocky Mountain Corporation have guaranteed the notes.  Additionally,  Kerr-McGee
Corporation has guaranteed all indebtedness of its  subsidiaries,  including the
indebtedness  assumed  in the  purchase  of HS  Resources.  As a result of these
guarantee  arrangements,  the  company  is now  required  to  present  condensed
consolidating  financial information.  Since neither the new holding company nor
any  guarantee  arrangement  existed  during  2000,   comparative   consolidated
financial information is not presented.
     The following condensed  consolidating  financial  information presents the
balance sheet as of December 31, 2001, and the related  statements of income and
cash  flows for the year  2001,  for (a)  Kerr-McGee  Corporation,  the  holding
company, (b) the guarantor subsidiaries,  and (c) the non-guarantor subsidiaries
on a consolidated basis.
<TABLE>

Condensed Consolidating Income Statement for the Year Ended December 31, 2001
<CAPTION>

                                                    Kerr-McGee       Guarantor     Non-Guarantor
(Millions of dollars)                              Corporation    Subsidiaries      Subsidiaries    Eliminations    Consolidated
---------------------                              -----------    ------------      ------------    ------------    ------------
<S>                                                       <C>            <C>              <C>            <C>              <C>
Sales                                                     $ --           $ 122            $3,873         $  (357)         $3,638
                                                          ----           -----            ------         -------          ------
Costs and Expenses
  Costs and operating expenses                              --              48             1,625            (357)          1,316
  Selling, general and administrative
   expenses                                                 --              69               168              --             237
  Shipping and handling expenses                            --               2               117              --             119
  Depreciation and depletion                                --              57               666              --             723
  Asset impairment                                          --              --                76              --              76
  Exploration, including dry holes and
    amortization of undeveloped leases                      --              15               196              --             211
  Taxes, other than income taxes                            --              13               102              --             115
  Provision for environmental remediation
    and restoration of inactive sites,
    net of reimbursements                                   --              82                --              --              82
  Interest and debt expense                                 36             202               118            (164)            192
                                                          ----           -----            ------         -------          ------
      Total Costs and Expenses                              36             488             3,068            (521)          3,071
                                                          ----           -----            ------         -------          ------
                                                           (36)           (366)              805             164             567
Other Income                                               903             820               165          (1,651)            237
                                                          ----           -----            ------         -------          ------
Income before Income Taxes and Change in
  Accounting Principle                                     867             454               970          (1,487)            804
Taxes on Income                                             --              87              (385)             --            (298)
                                                          ----           -----            ------         -------          ------
Income before Change in Accounting Principle               867             541               585          (1,487)            506
Cumulative Effect of Change in Accounting
  Principle (net of income taxes)                           --             (21)                1              --             (20)
                                                          ----           -----            ------         -------          ------
Net Income                                                $867           $ 520            $  586         $(1,487)         $  486
                                                          ====           =====            ======         =======          ======
</TABLE>
<TABLE>

Condensed Consolidating Balance Sheet as of December 31, 2001
<CAPTION>

                                                    Kerr-McGee       Guarantor     Non-Guarantor
(Millions of dollars)                              Corporation    Subsidiaries      Subsidiaries    Eliminations    Consolidated
---------------------                              -----------    ------------     --------------    ------------    ------------
<S>                                                     <C>             <C>              <C>            <C>              <C>
ASSETS
Current Assets
  Cash                                                  $   --          $    3           $    88        $     --         $    91
  Intercompany receivables                               1,001            (524)            1,866          (2,343)             --
  Accounts receivable                                       --              41               441              --             482
  Inventories                                               --               4               435              --             439
  Deposits, prepaid expenses and other assets               --              50                82             223             355
                                                        ------          ------           -------        --------         -------
    Total Current Assets                                 1,001            (426)            2,912          (2,120)          1,367
Property, Plant and Equipment - Net                         --           2,072             6,250              --           8,322
Investments and Other Assets                                12             641               323             (60)            916
Investments in and Advances to Subsidiaries              2,322           5,044             1,708          (9,074)             --
Goodwill                                                    --             348                 8              --             356
                                                        ------          ------           -------        --------         -------
      Total Assets                                      $3,335          $7,679           $11,201        $(11,254)        $10,961
                                                        ======          ======           =======        ========         =======

LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities
  Accounts payable                                      $   45          $   95           $   515        $     --         $   655
  Short-term borrowings                                     --              --                 8              --               8
  Intercompany borrowings                                   --           1,316             1,026          (2,342)             --
  Long-term debt due within one year                        --              23                 3              --              26
  Other current liabilities                                 34            (186)              403             234             485
                                                        ------          ------           -------        --------         -------
    Total Current Liabilities                               79           1,248             1,955          (2,108)          1,174
Long-Term Debt                                           1,497           2,017             1,026              --           4,540
Deferred Credits and Reserves                               --             953             1,110              10           2,073
Investments by and Advances from Parent                     --              36               955            (991)             --
Stockholders' Equity                                     1,759           3,425             6,155          (8,165)          3,174
                                                        ------          ------           -------        --------         -------
      Total Liabilities and Stockholders' Equity        $3,335          $7,679           $11,201        $(11,254)        $10,961
                                                        ======          ======           =======        ========         =======
</TABLE>

<TABLE>

Condensed Consolidating Statement of Cash Flows
  for the Year Ended December 31, 2001
<CAPTION>

                                                    Kerr-McGee       Guarantor     Non-Guarantor
(Millions of dollars)                              Corporation    Subsidiaries      Subsidiaries    Eliminations    Consolidated
---------------------                              -----------    ------------     -------------    ------------    ------------
<S>                                                    <C>             <C>               <C>             <C>            <C>

Cash Flow from Operating Activities
  Net income                                           $   867         $   520           $   586         $(1,487)       $    486
  Adjustments to reconcile to net cash
    provided by (used in) operating activities -
      Depreciation, depletion and amortization              --              60               719              --             779
      Deferred income taxes                                 --             106                99              --             205
      Dry hole costs                                        --              --                72              --              72
      Asset impairment                                      --              --                76              --              76
      Equity in earnings of subsidiaries                    97            (585)               --             488              --
      Provision for environmental remediation
        and restoration of inactive sites                   --              82                --              --              82
      Gains on asset retirements and sales                  --              (3)               (9)             --             (12)
      Noncash items affecting net income                    --            (200)               53              --            (147)
      Changes in current assets and liabilities
        and other, net of effects of operations
        acquired                                        (1,461)            804              (740)            999            (398)
                                                       -------         -------           -------         -------         -------
          Net cash provided by (used in) operating
            activities                                    (497)            784               856              --           1,143
                                                       -------         -------           -------         -------         -------
Cash Flow from Investing Activities
  Capital expenditures                                      --             (95)           (1,697)             --          (1,792)
  Dry hole costs                                            --              --               (72)             --             (72)
  Acquisitions                                            (955)             --               (23)             --            (978)
  Other investing activities                                --               6               (61)             --             (55)
                                                       -------         -------           -------         -------         -------
          Net cash used in investing activities           (955)            (89)           (1,853)             --          (2,897)
                                                       -------         -------           -------         -------         -------
Cash Flow from Financing Activities
  Issuance of long-term debt                             1,497             (10)            1,026              --           2,513
  Repayment of long-term debt                               --            (587)              (74)             --            (661)
  Increase (decrease) in short-term borrowings              --             (11)                2              --              (9)
  Increase (decrease) in intercompany
    notes payable                                           --           1,009                (9)         (1,000)             --
  Issuance of common stock                                  --              32                --              --              32
  Dividends paid                                           (45)         (1,128)               --           1,000            (173)
                                                       -------         -------           -------         -------         -------
          Net cash provided by (used in)
            financing activities                         1,452            (695)              945              --           1,702
                                                       -------         -------           -------         -------         -------
Effects of Exchange Rate Changes on Cash
  and Cash Equivalents                                      --              --                (1)             --              (1)
                                                       -------         -------           -------         -------         -------
Net Decrease in Cash and Cash Equivalents                   --              --               (53)             --             (53)
Cash and Cash Equivalents at Beginning of Year              --               3               141              --             144
                                                       -------         -------           -------         -------         -------
Cash and Cash Equivalents at End of Year               $    --         $     3           $    88         $    --         $    91
                                                       =======         =======           =======         =======         =======
</TABLE>

Reporting by Business Segments and Geographic Locations

     The company has three  reportable  segments:  oil and gas  exploration  and
production and manufacturing and marketing of titanium dioxide pigment and other
chemicals. The exploration and production unit produces and explores for oil and
gas in the United States, the United Kingdom sector of the North Sea, Indonesia,
China,  Kazakhstan  and  Ecuador.  Exploration  efforts  are  also  extended  to
Australia, Benin, Brazil, Gabon, Morocco, Canada, Thailand, Yemen and the Danish
sector of the North Sea.  The  chemical  unit  primarily  produces  and  markets
titanium  dioxide  pigment and has  production  facilities in the United States,
Australia,  Germany and the Netherlands.  Other chemicals  include the company's
electrolytic   manufacturing  and  marketing   operations  and  forest  products
treatment business. All of these operations are in the United States.
     Crude oil sales to individually  significant customers totaled $408 million
to Texon L.P. and $401 million to BP Oil  International in 2001, $548 million to
Texon L.P. and $859 million to BP Oil  International in 2000 and $420 million to
BP Oil  International  in 1999.  In  addition,  natural  gas  sales  to  Cinergy
Marketing & Trading LP totaled  $682  million and $522 million in 2001 and 2000,
respectively.  There were no individually  significant  natural gas customers in
1999. Sales to subsidiary companies are eliminated as described in Note 1.

(Millions of dollars)                                2001     2000     1999
---------------------                              ------   ------   ------
 Sales -
   Exploration and production                      $2,511   $2,860   $1,784
                                                   ------   ------   ------
   Chemicals -
     Pigment                                          931    1,034      725
     Other                                            196      227      234
                                                   ------   ------   ------
       Total Chemicals                              1,127    1,261      959
                                                   ------   ------   ------
         Total                                     $3,638   $4,121   $2,743
                                                   ======   ======   ======

Operating profit (loss)(1) -
   Exploration and production                      $  959   $1,467   $  542
                                                   ------   ------   ------
   Chemicals -
     Pigment                                          (22)     130      113
     Other                                            (17)      17       14
                                                   ------   ------   ------
       Total Chemicals                                (39)     147      127
                                                   ------   ------   ------
         Total                                     $  920   $1,614   $  669
                                                   ======   ======   ======

Net operating profit (loss)(1) -
   Exploration and production                      $  600   $  946   $  338
                                                   ------   ------   ------
   Chemicals -
     Pigment                                          (12)      70       73
     Other                                            (11)      11        9
                                                   ------   ------   ------
       Total Chemicals                                (23)      81       82
                                                   ------   ------   ------
         Total                                        577    1,027      420
Net interest expense(1)                              (109)    (117)    (117)
Net nonoperating expense(1)                            38      (68)    (157)
Cumulative effect of change in
  accounting principle, net of taxes                  (20)      --       (4)
                                                   ------   ------   ------
Net income                                         $  486   $  842   $  142
                                                   ======   ======   ======
Depreciation, depletion and amortization -
  Exploration and production                       $  651   $  632   $  578
                                                   ------   ------   ------
  Chemicals -
    Pigment                                           103       71       45
    Other                                              17       21       18
                                                   ------   ------   ------
      Total Chemicals                                 120       92       63
                                                   ------   ------   ------
  Other                                                 8        8        7
                                                   ------   ------   ------
        Total                                      $  779   $  732   $  648
                                                   ======   ======   ======

(1) Includes special items.  Refer to Management's Discussion and Analysis.

(Millions of dollars)                                2001     2000     1999
---------------------                             -------   ------   ------
Capital expenditures -
  Exploration and production                      $ 1,624   $  718   $  432
                                                  -------   ------   ------
  Chemicals -
    Pigment                                           139      101       76
    Other                                              14       17       14
                                                  -------   ------   ------
      Total Chemicals                                 153      118       90
                                                  -------   ------   ------
  Other                                                15        6        6
                                                  -------   ------   ------
        Total                                       1,792      842      528
                                                  -------   ------   ------
Exploration expenses -
  Exploration and production -
    Dry hole costs                                     72       54       43
    Amortization of undeveloped leases                 56       48       41
    Other                                              83       68       56
                                                  -------   ------   ------
      Total                                           211      170      140
                                                  -------   ------   ------
        Total capital expenditures and
          exploration expenses                    $ 2,003   $1,012   $  668
                                                  =======   ======   ======

Identifiable assets -
  Exploration and production                      $ 8,315   $5,108   $4,013
                                                  -------   ------   ------
  Chemicals -
    Pigment(1)                                      1,391    1,415      921
    Other                                             245      228      229
                                                  -------   ------   ------
      Total Chemicals                               1,636    1,643    1,150
                                                  -------   ------   ------
        Total                                       9,951    6,751    5,163
  Corporate and other assets                        1,010      915      736
                                                  -------   ------   ------
        Total                                     $10,961   $7,666   $5,899
                                                  =======   ======   ======

Sales -
  U.S. operations                                 $ 2,463   $2,197   $1,499
                                                  -------   ------   ------
  International operations -
    North Sea - exploration and production            600    1,277      752
    Other - exploration and production                150      144       80
    Europe - pigment                                  258      300      223
    Australia - pigment                               167      203      189
                                                  -------   ------   ------
                                                    1,175    1,924    1,244
                                                  -------   ------   ------
      Total                                       $ 3,638   $4,121   $2,743
                                                  =======   ======   ======

Operating profit (loss)(2) -
  U.S. operations                                 $   647   $  863   $  364
                                                  -------   ------   ------
  International operations -
    North Sea - exploration and production            318      651      270
    Other - exploration and production                (23)      29       --
    Europe - pigment                                  (53)      33       14
    Australia - pigment                                31       38       21
                                                  -------   ------   ------
                                                      273      751      305
                                                  -------   ------   ------
      Total                                       $   920   $1,614   $  669
                                                  =======   ======   ======

(1) Includes  net deferred tax asset of $12 million at December 31, 1999.  There
was no deferred tax asset at December 31, 2001 or 2000. (See Note 12.)
(2) Includes special items. Refer to Management's Discussion and Analysis.

(Millions of dollars)                                2001     2000     1999
---------------------                              ------   ------   ------
Net property, plant and equipment -
  U.S. operations                                  $4,755   $2,368   $2,106
                                                   ------   ------   ------
  International operations -
    North Sea - exploration and production          2,828    2,350    1,547
    Other - exploration and production                391      300      219
    Europe - pigment                                  226      238       81
    Australia - pigment                               122      127      132
                                                   ------   ------   ------
                                                    3,567    3,015    1,979
                                                   ------   ------   ------
      Total                                        $8,322   $5,383   $4,085
                                                   ======   ======   ======

28.  Costs Incurred in Crude Oil and Natural Gas Activities

     Total  expenditures,  both  capitalized  and  expensed,  for  crude oil and
natural gas property acquisition, exploration and development activities for the
three years ended December 31, 2001, are reflected in the following table:

                                       Property
                                    Acquisition      Exploration     Development
(Millions of dollars)                  Costs(1)         Costs(2)        Costs(3)
---------------------               -----------      -----------     -----------
2001 -
  United States                          $1,420             $225          $  457
  North Sea                                  --               71             695
  Other international                         3              103              85
                                         ------             ----          ------
    Total                                $1,423             $399          $1,237
                                         ======             ====          ======
2000 -
  United States                          $   41             $112          $  230
  North Sea                                 566               53             290
  Other international                        39               57              48
                                         ------             ----          ------
    Total                                $  646             $222          $  568
                                         ======             ====          ======
1999 -
  United States                          $   81             $ 92          $  224
  North Sea                                  30               18             106
  Other international                         8               32               9
                                         ------             ----          ------
    Total                                $  119             $142          $  339
                                         ======             ====          ======

(1)  Includes  $1.128  billion,  $561  million  and $49  million  applicable  to
purchases of reserves in place in 2001, 2000 and 1999, respectively.
(2) Exploration costs include delay rentals, exploratory dry holes, dry hole and
bottom hole  contributions,  geological and geophysical costs, costs of carrying
and retaining properties and capital expenditures, such as costs of drilling and
equipping successful exploratory wells.
(3) Development costs include costs incurred to obtain access to proved reserves
(surveying,  clearing ground,  building roads),  to drill and equip  development
wells, and to acquire,  construct and install production facilities and improved
recovery  systems.  Development  costs also include costs of  developmental  dry
holes.

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

     The results of operations from crude oil and natural gas activities for the
three years ended December 31, 2001, consist of the following:
<TABLE>
<CAPTION>

                                                                                                                         Results of
                                         Production     Other                   Depreciation                Income Tax  Operations,
                                 Gross    (Lifting)   Related    Exploration   and Depletion        Asset     Expenses    Producing
(Millions of dollars)         Revenues        Costs   Costs(1)   Expenses           Expenses   Impairment   (Benefits)   Activities
---------------------         --------   ----------   --------   -----------   -------------   ----------   ----------  -----------
<S>                             <C>            <C>        <C>           <C>             <C>           <C>        <C>           <C>
2001 -
  United States                 $1,402         $231       $ 69          $100            $317          $--        $248          $437
  North Sea                        922          227         61            29             253           47         120           185
  Other international              140           25         36            81              21           --          (2)          (21)
                                ------         ----       ----          ----            ----          ---        ----          ----
    Total crude oil and
      natural gas activities     2,464          483        166           210             591           47         366           601
  Other(2)                          47           45          5             1               4           --          (7)           (1)
       --                       ------         ----       ----          ----            ----          ---        ----          ----
        Total                   $2,511         $528       $171          $211            $595          $47        $359          $600
                                ======         ====       ====          ====            ====          ===        ====          ====
2000 -
  United States                 $1,436         $198       $ 67          $ 95            $286          $--        $277          $513
  North Sea                      1,264          262         55            26             283           --         219           419
  Other international              143           24         27            49              14           --          21             8
                                ------         ----       ----          ----            ----          ---        ----          ----
    Total crude oil and
      natural gas activities     2,843          484        149           170             583           --         517           940
  Other(2)                          17            6         --            --               1           --           4             6
       --                       ------         ----       ----          ----            ----          ---        ----          ----
        Total                   $2,860         $490       $149          $170            $584          $--        $521          $946
                                ======         ====       ====          ====            ====          ===        ====          ====
1999 -
  United States                 $  950         $178       $ 85          $ 97            $316          $--        $ 96          $178
  North Sea                        731          199         54            22             205           --          99           152
  Other international               79           23         20            21              15           --           2            (2)
                                ------         ----       ----          ----            ----          ---        ----          ----
    Total crude oil and
      natural gas activities     1,760          400        159           140             536           --         197           328
  Other(2)                          24            6         --            --               1           --           7            10
       --                       ------         ----       ----          ----            ----          ---        ----          ----
        Total                   $1,784         $406       $159          $140            $537          $--        $204          $338
                                ======         ====       ====          ====            ====          ===        ====          ====
</TABLE>

(1) Includes transition and restructuring  charges of $1 million and $20 million
in 2001 and 1999, respectively. (See Note 10.)
(2) Includes gas  marketing,  gas processing  plants,  pipelines and other items
that do not fit the  definition of crude oil and natural gas activities but have
been included above to reconcile to the segment presentations.

     The table below  presents the  company's  average  per-unit  sales price of
crude oil and natural gas and production  costs per barrel of oil equivalent for
each of the past three years.  Natural gas  production  has been  converted to a
barrel of oil  equivalent  based on  approximate  relative  heating value (6 Mcf
equals 1 barrel).

                                                     2001     2000     1999
                                                     ----     ----     ----
Average sales price -
  Crude oil (per barrel) -
    United States                                  $22.05   $27.50   $16.90
    North Sea                                       23.23    27.92    17.88
    Other international                             21.14    26.13    14.77
      Average                                       22.58    27.64    17.26

  Natural gas (per Mcf) -
    United States                                    3.99     4.11     2.41
    North Sea                                        2.46     2.32     2.12
      Average                                        3.83     3.87     2.38

Production costs -
  (per barrel of oil equivalent)
     United States                                   3.79     3.59     2.92
     North Sea                                       5.53     5.55     4.81
     Other international                             3.82     4.39     4.32
       Average                                       4.45     4.49     3.72

30.  Capitalized Costs of Crude Oil and Natural Gas Activities

     Capitalized  costs of crude oil and natural gas  activities and the related
reserves for  depreciation,  depletion and  amortization  at the end of 2001 and
2000 are set forth in the table below.

(Millions of dollars)                                         2001     2000
---------------------                                      -------  -------
Capitalized costs -
  Proved properties                                        $13,206  $10,244
  Unproved properties                                          819      549
  Other                                                        358      101
                                                           -------  -------
    Total                                                   14,383   10,894
                                                           -------  -------

Reserves for depreciation, depletion and amortization -
  Proved properties                                          6,907    6,413
  Unproved properties                                          151      119
  Other                                                         69       49
                                                           -------  -------
    Total                                                    7,127    6,581
                                                           -------  -------
      Net capitalized costs                                $ 7,256  $ 4,313
                                                           =======  =======

31.  Crude Oil, Condensate, Natural Gas Liquids and Natural Gas Net Reserves
     (Unaudited)

     The  estimates  of proved  reserves  have been  prepared  by the  company's
geologists  and  engineers  in  accordance  with  the  Securities  and  Exchange
Commission  definitions.  Such estimates include reserves on certain  properties
that are partially  undeveloped  and reserves that may be obtained in the future
by improved recovery operations now in operation or for which successful testing
has been  demonstrated.  The  company  has no proved  reserves  attributable  to
long-term  supply  agreements with  governments or consolidated  subsidiaries in
which there are significant minority interests.  Natural gas liquids and natural
gas volumes are determined using a gas pressure base of 14.73 psia.
     The following table  summarizes the changes in the estimated  quantities of
the  company's  crude oil,  condensate,  natural  gas  liquids  and  natural gas
reserves for the three years ended December 31, 2001.
<TABLE>
<CAPTION>

                                                         Crude Oil, Condensate and
                                                            Natural Gas Liquids                       Natural Gas
                                                           (Millions of barrels)               (Billions of cubic feet)
                                                     ----------------------------------   ----------------------------------
                                                                          Other                                Other
                                                     United   North    Interna-           United   North    Interna-
                                                     States     Sea      tional   Total   States     Sea      tional   Total
                                                     ------   -----    --------   -----   ------   -----    --------   -----
<S>                                                     <C>     <C>         <C>     <C>    <C>       <C>         <C>   <C>
Proved developed and undeveloped reserves -
  Balance December 31, 1998                             254     220         103     577    1,333     242         372   1,947
    Revisions of previous estimates                       5      14           1      20       14       9           5      28
    Purchases of reserves in place                        4       7          --      11       19      36          --      55
    Sales of reserves in place                           (1)     (5)         --      (6)      (1)     --          --      (1)
    Extensions, discoveries and other additions           1      34          13      48      103       2         138     243
    Production                                          (29)    (38)         (5)    (72)    (194)    (23)         --    (217)
                                                        ---     ---         ---     ---    -----     ---         ---   -----
  Balance December 31, 1999                             234     232         112     578    1,274     266         515   2,055
    Revisions of previous estimates                      (9)      7          --      (2)      11      40          --      51
    Purchases of reserves in place                        1      68          --      69       19     173          --     192
    Sales of reserves in place                           (1)     --          --      (1)     (37)     --          --     (37)
    Extensions, discoveries and other additions          30      91          11     132      227      13          20     260
    Production                                          (27)    (43)         (6)    (76)    (169)    (25)         --    (194)
                                                        ---     ---         ---     ---    -----     ---         ---   -----
  Balance December 31, 2000                             228     355         117     700    1,325     467         535   2,327
    Revisions of previous estimates                      27      (4)          1      24       35       2          --      37
    Purchases of reserves in place                       45      --          --      45    1,050       5          --   1,055
    Sales of reserves in place                           (4)     --          --      (4)      (7)     --          --      (7)
    Extensions, discoveries and other additions          49      74          25     148      737      76          --     813
    Production                                          (28)    (37)         (7)    (72)    (195)    (23)         --    (218)
                                                        ---     ---         ---     ---    -----     ---         ---   -----
  Balance December 31, 2001                             317     388         136     841    2,945     527         535   4,007
                   === ====                             ===     ===         ===     ===    =====     ===         ===   =====

Proved developed reserves -
    December 31, 1999                                   166     167          32     365      854     157          --   1,011
    December 31, 2000                                   153     185          27     365      848     150          --     998
    December 31, 2001                                   206     248          24     478    1,741     208          13   1,962
</TABLE>

     The  following  presents  the  company's  barrel of oil  equivalent  proved
developed and undeveloped  reserves based on approximate  relative heating value
(6 Mcf equals 1 barrel).
<TABLE>
<CAPTION>

                                                    United         North             Other
(Millions of equivalent barrels)                    States           Sea     International       Total
--------------------------------                    ------         -----     -------------       -----
<S>      <C> <C>                                       <C>           <C>               <C>       <C>
December 31, 1999                                      446           276               198         920
December 31, 2000                                      449           433               206       1,088
December 31, 2001                                      808           476               225       1,509
</TABLE>

32.  Standardized Measure of and Reconciliation of Changes in Discounted
     Future Net Cash Flows (Unaudited)

     The  standardized  measure  of  future  net  cash  flows  presented  in the
following  table was computed using year-end prices and costs and a 10% discount
factor.  The future income tax expense was computed by applying the  appropriate
year-end  statutory  rates,  with  consideration  of future  tax  rates  already
legislated,  to the  future  pre-tax  net cash  flows  less the tax basis of the
properties  involved.  However, the company cautions that actual future net cash
flows  may vary  considerably  from  these  estimates.  Although  the  company's
estimates of total reserves,  development  costs and production rates were based
upon the best information  available,  the development and production of the oil
and gas reserves may not occur in the periods  assumed.  Actual prices  realized
and costs  incurred  may vary  significantly  from those used.  Therefore,  such
estimated  future  net  cash  flow  computations  should  not be  considered  to
represent the company's  estimate of the expected  revenues or the current value
of existing proved reserves.
<TABLE>
<CAPTION>

                                                                                                                  Standardized
                                                         Future                                                     Measure of
                                        Future      Development                                            10%      Discounted
                                          Cash   and Production          Future      Future Net         Annual      Future Net
(Millions of dollars)                  Inflows            Costs    Income Taxes      Cash Flows       Discount      Cash Flows
---------------------                  -------   --------------    ------------      ----------       --------      ----------
<S>                                    <C>              <C>              <C>            <C>             <C>             <C>
2001 -
  United States                        $12,126          $ 5,803          $2,007         $ 4,316         $1,937          $2,379
  North Sea                              8,348            3,805           1,155           3,388          1,216           2,172
  Other international                    3,516            1,812             595           1,109            672             437
                                       -------          -------          ------         -------         ------          ------
    Total                              $23,990          $11,420          $3,757         $ 8,813         $3,825          $4,988
                                       =======          =======          ======         =======         ======          ======
2000 -
  United States                        $14,825          $ 3,945          $3,698         $ 7,182         $2,940          $4,242
  North Sea                              9,051            3,625           1,807           3,619          1,312           2,307
  Other international                    4,284            1,813             944           1,527            850             677
                                       -------          -------          ------         -------         ------          ------
    Total                              $28,160          $ 9,383          $6,449         $12,328         $5,102          $7,226
                                       =======          =======          ======         =======         ======          ======
1999 -
  United States                        $ 7,928          $ 3,332          $1,398         $ 3,198         $1,343          $1,855
  North Sea                              6,146            2,608           1,245           2,293            665           1,628
  Other international                    3,693            1,665             783           1,245            717             528
                                       -------          -------          ------         -------         ------          ------
    Total                              $17,767          $ 7,605          $3,426         $ 6,736         $2,725          $4,011
                                       =======          =======          ======         =======         ======          ======
</TABLE>

     The  changes  in the  standardized  measure  of future  net cash  flows are
presented below for each of the past three years:
<TABLE>
<CAPTION>

(Millions of dollars)                                            2001             2000              1999
---------------------                                         -------          -------           -------
<S>                                                           <C>              <C>               <C>
Net change in sales, transfer prices and production costs     $(5,879)         $ 3,849           $ 4,310
Changes in estimated future development costs                    (639)             (33)             (318)
Sales and transfers less production costs                      (1,904)          (2,358)           (1,314)
Purchases of reserves in place                                  1,117            1,065               117
Changes due to extensions, discoveries, etc.                    1,232            1,477               592
Changes due to revisions in quantity estimates                    168               56               272
Changes due to sales of reserves in place                         (87)            (166)             (104)
Current period development costs                                1,237              568               339
Accretion of discount                                           1,093              601               231
Changes in income taxes                                         1,689           (1,706)           (1,414)
Timing and other                                                 (265)            (138)             (423)
                                                              -------          -------           -------
  Net change                                                   (2,238)           3,215             2,288
Total at beginning of year                                      7,226            4,011             1,723
                                                              -------          -------           -------
Total at end of year                                          $ 4,988          $ 7,226           $ 4,011
                                                              =======          =======           =======
</TABLE>

33.  Quarterly Financial Information (Unaudited)

     A summary of quarterly  consolidated results for 2001 and 2000 is presented
below. The quarterly  per-share  amounts do not add to the annual amounts due to
the effects of the weighted average of stock issued,  convertible debt issued or
repaid and net loss  sustained  in a quarter.  (Refer to Note 1 for  information
about the 2001 change in accounting principle.)
<TABLE>
<CAPTION>

                                                                                                          Diluted Income (Loss)
                                                                                                            per Common Share
                                                                                                        ------------------------
                                                                                     Income                    Income
                                                                              (Loss) Before       Net   (Loss) Before        Net
                                                                 Operating       Accounting    Income      Accounting     Income
(Millions of dollars, except per-share amounts)      Sales   Profit (Loss)           Change    (Loss)          Change     (Loss)
-----------------------------------------------     ------   -------------    -------------    ------   -------------     ------
<S>                                                 <C>             <C>                <C>       <C>            <C>        <C>
2001 Quarter Ended -
  March 31                                          $1,058          $  424             $355      $335           $3.40      $3.21
  June 30                                              939             340              175       175            1.71       1.71
  September 30                                         884             176               26        26             .27        .27
  December 31                                          757             (20)             (50)      (50)           (.50)      (.50)
           --                                       ------          ------             ----      ----           -----      -----
    Total                                           $3,638          $  920             $506      $486           $4.93      $4.74
                                                    ======          ======             ====      ====           =====      =====
2000 Quarter Ended -
  March 31                                          $  886          $  328             $185      $185           $1.94      $1.94
  June 30                                            1,011             334              110       110            1.11       1.11
  September 30                                       1,106             459              265       265            2.57       2.57
  December 31                                        1,118             493              282       282            2.73       2.73
           --                                       ------          ------             ----      ----           -----      -----
    Total                                           $4,121          $1,614             $842      $842           $8.37      $8.37
                                                    ======          ======             ====      ====           =====      =====
</TABLE>

     The  company's  common  stock is listed  for  trading on the New York Stock
Exchange  and at  year-end  2001 was  held by  approximately  28,000  Kerr-McGee
stockholders  of  record  and  Oryx  and HS  Resources  owners  who have not yet
exchanged their stock. The ranges of market prices and dividends declared during
the last two years for Kerr-McGee Corporation are as follows:

                                     Market Prices
                        ------------------------------------
                                                                    Dividends
                               2001                2000             per Share
                        ----------------    ----------------      -------------
                          High       Low      High       Low      2001     2000
                        ------    ------    ------    ------      ----     ----
Quarter Ended -
  March 31              $70.70    $62.80    $67.94    $39.88      $.45     $.45
  June 30                74.10     62.52     62.50     51.13       .45      .45
  September 30           66.96     46.94     68.00     53.13       .45      .45
  December 31            59.60     49.00     71.19     59.00       .45      .45

<TABLE>
Eight-Year Financial Summary
<CAPTION>

(Millions of dollars, except per-share amounts)      2001      2000      1999      1998      1997      1996      1995       1994
-----------------------------------------------    ------    ------    ------    ------    ------    ------    ------    -------
<S>                                                <C>       <C>       <C>       <C>       <C>       <C>       <C>       <C>
Summary of Net Income (Loss)
Sales                                              $3,638    $4,121    $2,743    $2,254    $2,667    $2,792    $2,466    $ 2,389
                                                   ------    ------    ------    ------    ------    ------    ------    -------
Costs and operating expenses                        2,879     2,672     2,336     2,660     2,073     2,174     2,352      2,215
Interest and debt expense                             192       208       190       157       141       145       193        211
                                                   ------    ------    ------    ------    ------    ------    ------    -------
  Total costs and expenses                          3,071     2,880     2,526     2,817     2,214     2,319     2,545      2,426
                                                   ------    ------    ------    ------    ------    ------    ------    -------
                                                      567     1,241       217      (563)      453       473       (79)       (37)
Other income                                          237        58        40        43        82       110       147         15
Taxes on income                                      (298)     (457)     (111)      175      (184)     (225)       42         (9)
                                                   ------    ------    ------    ------    ------    ------    ------    -------
Income (loss) from continuing operations              506       842       146      (345)      351       358       110        (31)
Income from discontinued operations                    --        --        --       277        33        56        27         55
Extraordinary charge                                   --        --        --        --        (2)       --       (23)       (12)
Cumulative effect of change in
  accounting principle                                (20)       --        (4)       --        --        --        --       (948)
                                                   ------    ------    ------    ------    ------    ------    ------    -------
Net income (loss)                                  $  486    $  842    $  142    $  (68)   $  382    $  414    $  114    $  (936)
                                                   ======    ======    ======    ======    ======    ======    ======    =======

Effective Income Tax Rate                            37.1%     35.1%     43.1%    (33.6)%    34.4%     38.6%    (61.8)%     40.9%
Common Stock Information, per Share
Diluted net income (loss) -
  Continuing operations                            $ 4.93    $ 8.37    $ 1.69    $(3.98)   $ 4.02    $ 4.05     $1.23    $  (.36)
  Discontinued operations                              --        --        --      3.20       .38       .63       .30        .63
  Extraordinary charge                                 --        --        --        --      (.02)       --      (.26)      (.14)
  Cumulative effect of accounting change             (.19)       --      (.05)       --        --        --       --      (10.82)
                                                   ------    ------    ------    ------    ------    ------    ------    -------
    Net income (loss)                              $ 4.74    $ 8.37    $ 1.64    $ (.78)   $ 4.38    $ 4.68    $ 1.27    $(10.69)
                                                   ======    ======    ======    ======    ======    ======    ======    =======
Dividends declared                                 $ 1.80    $ 1.80    $ 1.80    $ 1.80    $ 1.80    $ 1.64    $ 1.55    $  1.52
Stockholders' equity                                28.83     25.01     17.19     15.58     17.88     14.59     12.47      12.33
Market high for the year                            74.10     71.19     62.00     73.19     75.00     74.13     64.00      51.00
Market low for the year                             46.94     39.88     28.50     36.19     55.50     55.75     44.00      40.00
Market price at year-end                           $54.80    $66.94    $62.00    $38.25    $63.31    $72.00    $63.50    $ 46.25
Shares outstanding at year-end (thousands)        100,185    94,485    86,483    86,367    86,794    87,032    89,613     90,143

Balance Sheet Information
Working capital                                    $  193    $  (34)   $  321    $ (173)   $   --    $  161    $ (106)   $  (254)
Property, plant and equipment - net                 8,322     5,383     4,085     4,153     3,919     3,693     3,807      4,497
Total assets                                       10,961     7,666     5,899     5,451     5,339     5,194     5,006      5,918
Long-term debt                                      4,540     2,244     2,496     1,978     1,736     1,809     1,683      2,219
Total debt                                          4,574     2,425     2,525     2,250     1,766     1,849     1,938      2,704
Total debt less cash                                4,483     2,281     2,258     2,129     1,574     1,719     1,831      2,612
Stockholders' equity                                3,174     2,633     1,492     1,346     1,558     1,279     1,124      1,112

Cash Flow Information
Net cash provided by operating activities           1,143     1,840       708       418     1,114     1,144       732        693
Capital expenditures                                1,792       842       528     1,006       851       829       749        622
Dividends paid                                        173       166       138        86        85        83        79         79
Treasury stock purchased                           $   --    $   --    $   --    $   25    $   60    $  195    $   45    $    --

Ratios and Percentage
Current ratio                                         1.2       1.0       1.4        .8       1.0       1.2        .9         .8
Average price/earnings ratio                         12.8       6.6      27.6        NM      14.9      13.9      42.5         NM
Total debt less cash to total capitalization           59%       46%       60%       61%       50%       57%       62%        70%

Employees
Total wages and benefits                           $  369    $  333    $  327    $  359    $  367    $  367    $  402    $   422
Number of employees at year-end                     4,638     4,426     3,653     4,400     4,792     4,827     5,176      6,724
</TABLE>


<TABLE>
Eight-Year Operating Summary
<CAPTION>

                                                     2001      2000      1999      1998      1997      1996      1995       1994
                                                   ------    ------    ------    ------    ------    ------    ------     ------
<S>                                                <C>       <C>       <C>       <C>       <C>       <C>       <C>        <C>
Exploration and Production
Net production of crude oil and condensate -
  (thousands of barrels per day)
     United States                                   77.7      73.7      79.3      66.2      70.6      73.8      74.8       73.4
     North Sea                                      101.9     117.7     102.9      87.4      83.3      86.5      91.9       88.7
     Other international                             18.2      15.3      14.7      18.4      18.1      16.8      17.4       26.4
                                                   ------    ------    ------    ------    ------    ------    ------     ------
       Total                                        197.8     206.7     196.9     172.0     172.0     177.1     184.1      188.5
                                                   ======    ======    ======    ======    ======    ======    ======     ======

Average price of crude oil sold (per barrel) -
     United States                                 $22.05    $27.50    $16.90    $12.78    $18.45    $19.56    $15.78     $14.25
     North Sea                                      23.23     27.92     17.88     12.93     18.93     19.60     16.56      15.33
     Other international                            21.14     26.13     14.77     10.19     15.50     15.85     14.70      14.58
       Average                                     $22.58    $27.64    $17.26    $12.58    $18.37    $19.23    $16.07     $14.80

Natural gas sales (MMcf per day)                      596       531       580       584       685       781       809        872
Average price of natural gas sold (per Mcf)        $ 3.83    $ 3.87    $ 2.38    $ 2.13    $ 2.44    $ 2.11    $ 1.63     $ 1.82

Net exploratory wells drilled -
     Productive                                      2.39      1.25      1.70      4.40      7.65      6.91      4.71      11.61
     Dry                                            11.43     10.54      3.75     14.42      7.42      5.52     11.16      13.47
                                                   ------    ------    ------    ------    ------    ------    ------     ------
       Total                                        13.82     11.79      5.45     18.82     15.07     12.43     15.87      25.08
                                                   ======    ======    ======    ======    ======    ======    ======     ======

Net development wells drilled -
     Productive                                    128.62     47.79     46.23     62.30     95.78    143.33    135.86      69.27
     Dry                                             6.60      5.44      5.89      9.00      7.00     13.04     11.95       9.63
                                                   ------    ------    ------    ------    ------    ------    ------     ------
       Total                                       135.22     53.23     52.12     71.30    102.78    156.37    147.81      78.90
                                                   ======    ======    ======    ======    ======    ======    ======     ======

Undeveloped net acreage (thousands) -
     United States                                  2,382     2,020     1,560     1,487     1,353     1,099     1,280      1,415
     North Sea                                        932       923       861       908       523       560       570        629
     Other international                           51,367    26,078    19,039    14,716    14,630     4,556     4,031      7,494
                                                   ------    ------    ------    ------    ------    ------    ------     ------
       Total                                       54,681    29,021    21,460    17,111    16,506     6,215     5,881      9,538
                                                   ======    ======    ======    ======    ======    ======    ======     ======

Developed net acreage (thousands) -
     United States                                  1,192       729       796       810       830       871     1,190      1,270
     North Sea                                        149       115       105       115        70        79        58         68
     Other international                              656       656       785       612       201       198       207      1,015
                                                   ------    ------    ------    ------    ------    ------    ------     ------
       Total                                        1,997     1,500     1,686     1,537     1,101     1,148     1,455      2,353
                                                   ======    ======    ======    ======    ======    ======    ======     ======

Estimated proved reserves
  (millions of equivalent barrels)                  1,509     1,088       920       901       892       849       864      1,059

Chemicals
Gross worldwide titanium dioxide
  production (thousands of tonnes)                    483       480       320       284       168       155       154        148
</TABLE>