FINANCIAL REVIEW            Kerr-McGee Corporation

    Contents
    Management's Discussion and Analysis.......................14
      Kerr-McGee/Oryx Merger...................................14
      Operating Environment and Outlook........................14
      Results of Consolidated Operations.......................15
      Segment Operations.......................................17
      Financial Condition......................................18
      Market Risks.............................................19
      Environmental Matters....................................20
      New Accounting Standards.................................21
      Year 2000 Readiness......................................22
    Cautionary Statement Concerning
      Forward-Looking Statements...............................22
    Responsibility for Financial Reporting.....................22
    Report of Independent Public Accountants...................23
    Consolidated Statement of Income...........................24
    Consolidated Statement of Comprehensive Income
      and Stockholders' Equity.................................25
    Consolidated Balance Sheet.................................26
    Consolidated Statement of Cash Flows.......................27
    Notes to Financial Statements..............................28
      1.  The Company and Significant Accounting Policies......28
      2.  Cash Flow Information................................30
      3.  Inventories..........................................30
      4.  Deferred Charges.....................................30
      5.  Investments - Equity Affiliates......................31
      6.  Investments - Other Assets...........................31
      7.  Property, Plant and Equipment........................31
      8.  Debt.................................................32
      9.  Accrued Liabilities..................................33
     10.  Common Stock.........................................33
     11.  Contingencies........................................34
     12.  Income Taxes.........................................35
     13.  Taxes, Other than Income Taxes.......................36
     14.  Deferred Credits and Reserves - Other................36
     15.  Discontinued Operations..............................36
     16.  Other Income.........................................37
     17.  Impairment of Long-Lived Assets and Long-Lived
            Assets to Be Disposed Of...........................37
     18.  Financial Instruments and Hedging Activities.........38
     19.  Employee Benefit Plans...............................40
     20.  Employee Stock Ownership Plan........................42
     21.  Employee Stock Option Plans..........................43
     22.  Merger and Restructuring Charges.....................44
     23.  Merger with Oryx Energy Company......................45
     24.  Reporting by Business Segments
            and Geographic Locations...........................46
     25.  Subsequent Events....................................48
     26.  Costs Incurred in Crude Oil and
            Natural Gas Activities.............................48
     27.  Results of Operations from Crude Oil
            and Natural Gas Activities.........................49
     28.  Capitalized Costs of Crude Oil and
            Natural Gas Activities.............................50
     29.  Crude Oil, Condensate, Natural Gas Liquids
            and Natural Gas Net Reserves (Unaudited)...........51
     30.  Standardized Measure of and Reconciliation
            of Changes in Discounted Future
            Net Cash Flows (Unaudited).........................52
     31.  Quarterly Financial Information (Unaudited)..........53
    Six-Year Financial Summary.................................54
    Six-Year Operating Summary.................................55


                                Financial Review

Management's Discussion and Analysis

Kerr-McGee/Oryx Merger

     On February 26, 1999, the merger between Kerr-McGee and Oryx was completed.
Oryx was a worldwide independent oil and gas exploration and production company.
Its operations have been merged into and reported with Kerr-McGee's  exploration
and  production  segment.  All  references to the "company"  refer to the merged
entity.
     Under the merger agreement, each outstanding share of Oryx common stock was
effectively  converted  into the right to receive  0.369  shares of newly issued
Kerr-McGee  common stock. The merger qualified as a tax-free  exchange to Oryx's
shareholders and has been accounted for as a pooling of interests.  Accordingly,
results of operations,  financial  position and cash flows for all prior periods
have been restated to reflect the combined  company as though it had always been
     in  existence.  The  merger  with  Oryx  was  the  largest  transaction  in
Kerr-McGee's  history.  The company has  successfully  incorporated  the assets,
staffs and  operations of the two  companies  and met the  projected  annualized
level of $100 million of pretax synergy savings.

Operating Environment and Outlook

     Based on proved  reserves at December 31,  1999,  the company is one of the
largest  independent,  nonintegrated  oil and  gas  exploration  and  production
companies based in the United States.
     In the  first  two  months  of  2000,  oil  prices  are  in the  $27 to $30
per-barrel range, the highest level in a decade.  Oil prices have risen steadily
from the spring of 1999 when OPEC took steps to reduce supplies. OPEC's actions,
combined  with higher  consumption  due to a robust  economy,  have  resulted in
historically low levels of crude oil  inventories.  OPEC is scheduled to meet in
late March 2000,  and many  experts  forecast  that these  producers  will boost
production  in order to prevent  product  shortages  which will  result in lower
prices.  Management  recognizes  these risks to  commodity  pricing and believes
prices  will  average  between  $22 and $25 per barrel in 2000.
     In early 2000, natural gas prices are in the $2.50 to $2.80 per million BTU
range, and those levels continue in the near-term  futures markets.  Natural gas
consumption  in  the  U.S.  has  continued  to  grow,   currently   representing
approximately  25% of the  nation's  fuel  needs.  In 1998  and  1999,  the U.S.
experienced  a downturn in  drilling  in the shallow  Gulf of Mexico and onshore
United States.  The company and others have made significant  discoveries in the
deepwater Gulf of Mexico;  however,  these projects  require long startup times.
The increasing need for this environmentally friendly fuel for power generation,
coupled with slow supply development, should contribute to strengthening prices.
Management  believes  prices are stable at their current levels and may increase
when the market recognizes more of the risks associated with increasing  natural
gas supply.
     On February 14, 2000, the company reached agreements  (subject to customary
conditions and  governmental  approvals)  with Kemira Oyj of Finland to purchase
its pigment operations in Savannah,  Georgia,  and Botlek, the Netherlands.  The
two  plants  have  combined  capacity  of 201,000  tonnes  per year,  which will
increase Kerr-McGee's total equity pigment capacity by 60% to 535,000 tonnes per
year.  After the transaction is completed,  the company will rank as the world's
third-largest  producer  and  marketer  of  pigment  with about 16% of the world
market.  During 1998, the company  introduced a new universal  grade of pigment,
which currently  represents nearly 30% of the company's U.S. pigment production.
A new  grade  of  pigment  for  the  industrial-coatings  market  will  go  into
commercial  production  in the  first  half of 2000.  Management  believes  that
pigment  consumption  will increase by 2.5% to 3% annually  during the next five
years.  The  company is  undertaking  cost-reduction  programs  at its  non-U.S.
pigment facilities similar to a program that was implemented in 1999 at the U.S.
plant where significant cost reductions have been achieved.

Results of Consolidated Operations


     Net income (loss) and per-share  amounts for each of the three years in the
period ended December 31, 1999, were as follows:

(Millions of dollars, except per-share amounts)        1999    1998    1997
-----------------------------------------------        ----    ----    ----
Net income (loss)                                      $142    $(68)   $382
Income (loss) from continuing operations
  excluding special items                               296     (24)    343
Net income (loss) per share -
  Net income (loss) -
      Basic                                            1.64    (.78)   4.40
      Diluted                                          1.64    (.78)   4.38
  Income (loss) from continuing operations
    excluding special items -
      Basic                                            3.42    (.28)   3.95
      Diluted                                          3.42    (.28)   3.93

     Net income  (loss) was impacted by a number of special items in each of the
years.  In 1999,  special items were both  operating and  nonoperating  and were
associated  principally with the Oryx merger and transition and with pending and
settled  litigation  matters.  The  1998  special  items  related  primarily  to
impairment  write-downs  reflecting  the then current market value of certain of
the  company's  oil and gas producing  fields and certain  chemical  facilities.
Other 1998 special items were principally nonoperating and reduced net income by
$22 million. In 1997, special items were principally  nonoperating and increased
net income by $8 million.  These special items affect comparability  between the
periods  and are  shown on an  after-tax  basis in the  following  table,  which
reconciles income (loss) from continuing  operations  excluding special items to
net income (loss):

(Millions of dollars)                                  1999    1998    1997
---------------------                                  ----    ----    ----
Income (loss) from continuing
  operations excluding special items                   $296    $(24)   $343
                                                       ----    ----    ----

Special items, net of taxes -
  Asset impairment                                       --    (299)     --
  Merger costs                                         (116)     --      --
  Equity affiliate's full-cost
    ceiling write-down                                   --     (27)     --
  Net provision for environmental
    remediation and restoration of
    inactive sites                                       --     (26)    (13)
  Restructuring                                          (1)    (25)     (1)
  Pending/settled litigation                            (20)     --      (1)
  Transition costs                                      (14)     --      --
  Settlement of prior years' income taxes                 1      41      --
  Settlements with insurance carriers                    --       8       8
  Effect of U.K. tax-rate change                         --       8      --
  Gains on the sales of equity securities                --      --      12
  Other, net                                             --      (1)      3
                                                       ----    ----    ----
    Total                                              (150)   (321)      8
                                                       ----    ----    ----

Discontinued operations, net of taxes                    --     277      33
Extraordinary charge, net of taxes                       --      --      (2)
Change in accounting principle, net of taxes             (4)     --      --
                                                       ----    ----    ----
Net income (loss)                                      $142    $(68)   $382
                                                       ====    ====    ====

     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.
     The company  sold its coal  operations  in 1998,  resulting in an after-tax
gain of $257 million.  All amounts related to coal are shown in the Consolidated
Statement of Income as discontinued operations.
     In 1997, the company recognized an extraordinary loss of $2 million (net of
$1 million of income  taxes) from the  write-off of  unamortized  debt  issuance
costs.  These costs related to a $500 million credit  facility that was replaced
with a five-year, $500 million revolving credit agreement.
     Income  from  continuing   operations  excluding  special  items  for  1999
increased $320 million from 1998.  This  primarily  resulted from a $343 million
increase in exploration  and production  after-tax  operating  profit  excluding
special  items,  which was  partially  offset by a $29  million  increase in net
interest expense.  In 1998, income (loss) from continuing  operations  excluding
special items declined $367 million from the prior year, due primarily to a $368
million  decline  in  exploration  and  production  after-tax  operating  profit
excluding special items, which was partially offset by a $20 million increase in
chemical  results.
     Sales from continuing operations were $2.7 billion in 1999, $2.2 billion in
1998 and $2.6  billion in 1997.  Sales for 1999 were  higher than in 1998 due to
higher  average  sales  prices for oil and natural  gas (37% and 11%  increases,
respectively),  a 16%  increase in oil volumes  sold and an increase in titanium
dioxide  pigment sales volumes (mainly due to a full year of production from the
company's  European  pigment  operations,  compared  to nine  months  in  1998),
partially  offset by lower  electrolytic  and forest  products sales volumes and
lower  European  pigment  sales  prices.  Sales in 1998  were  lower  than  1997
primarily  due to declines in 1998 average sales prices for oil and natural gas,
of 32% and 13%,  respectively.  In addition,  natural gas volume  decreases were
partially  offset by increased sales volumes and prices for pigment.  The volume
decreases  in  natural  gas sales  were  primarily  the result of damages to and
repair times for pipeline  systems,  hurricane  downtimes and normal  production
declines. Volume increases in pigment sales relate to the March 1998 purchase of
the European  pigment  operations  and the expansion of the pigment  facility in
Hamilton, Mississippi.
     Costs and operating expenses totaled $1.1 billion in both 1999 and 1998 and
$1 billion in 1997.  The 1998 amount was higher than the prior year  principally
due to costs of the acquired  European  pigment  operations and higher  per-unit
costs at the U.S.  pigment and synthetic rutile  facilities.  This was partially
offset by the absence of costs of natural gas  purchased  for resale.
     Following are general and administrative expenses for 1999, 1998 and 1997:

(Millions of dollars)                                  1999    1998    1997
---------------------                                  ----    ----    ----
General and administrative expenses
  excluding special items                              $186    $204    $194
                                                       ----    ----    ----
Special items -
  Net provision for environmental
    remediation and restoration of
    inactive sites                                       --      41      20
  Restructuring                                          --      36       2
  Pending/settled litigation                             30      --       2
  Transition costs associated with
    the Oryx merger                                      22      --      --
  Other, net                                             --      (3)      3
                                                       ----    ----    ----
    Total                                                52      74      27
                                                       ----    ----    ----
General and administrative expenses                    $238    $278    $221
                                                       ====    ====    ====

     The decrease in 1999 general and administrative  expense compared with 1998
resulted  from the synergies  realized  through the merger,  principally  by the
exploration and production  segment.  The estimated  general and  administrative
synergies of approximately  $35 million were partially offset by slightly higher
chemical  costs and  higher  corporate  charges  primarily  due to higher  costs
associated with improved  employee  benefit plans.  The provision for pending or
settled litigation is principally  related to facilities or properties no longer
operated or owned by the company.  Transition  costs were those  associated with
ongoing business during the time of the merger, which will not re-occur in 2000.
The increase in 1998 over 1997  general and  administrative  expenses  excluding
special items primarily  resulted from additional costs related to the company's
European pigment  operations.  Net provisions for environmental  remediation and
restoration  of  inactive  sites  primarily  represented  additional  provisions
established  for  the  removal  of  low-level  radioactive  materials  from  the
company's  inactive  facility  and  offsite  areas  in West  Chicago,  Illinois.
Restructuring charges were for a 1998 voluntary severance program for the former
Oryx U.S. operations, a work process review and organizational  restructuring of
several  groups,  the  1996-1997  relocation  of  part  of the  exploration  and
production unit to Houston, Texas, and severance associated with the divestiture
program  and the merger of  certain  of the  company's  North  American  onshore
properties into Devon Energy  Corporation  (Devon) effective  December 31, 1996.
     Asset  impairments  totaled  $446  million  in 1998 (see Note 17).  Of this
amount,  $389 million were for  write-downs  associated with certain oil and gas
fields located in the North Sea, China and United  States.  Asset  impairment of
$57 million was also  recognized  for certain  chemical  facilities in Idaho and
Alabama.  The  impairments  were  recorded  because  these assets were no longer
expected to recover their net book values through future cash flows.
     Exploration  costs for 1999, 1998 and 1997 were $140 million,  $215 million
and $139  million,  respectively.  The decrease for 1999 resulted from lower dry
hole costs principally in the Gulf of Mexico,  Kazakhstan and China, lower costs
of  geophysical  projects  primarily in the United States onshore area and lower
exploration  district expense in the United States, the North Sea and China. The
primary  reasons for the 1998  increase over the prior year were higher dry hole
costs in the Gulf of Mexico,  Kazakhstan,   Thailand and onshore  United States,
higher  undeveloped  leasehold  amortization  in  the  Gulf  of  Mexico,  higher
geophysical  expenses  related to the Gulf of Mexico and higher district expense
in China,  the North Sea and Gulf of Mexico,  partially offset by lower dry hole
costs in China.
     Taxes,  other than income taxes,  were $85 million in 1999,  $53 million in
1998 and $103 million in 1997.  The 1999 and 1998  variances from the prior year
were both due principally to severance  taxes, a direct result of changes in oil
and gas prices.
     Merger costs  totaling  $163 million were  recognized in 1999 and represent
costs incurred in connection with the Oryx merger,  which have no future benefit
to  the  combined  operations.  The  major  items  included  are  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 22).
     Interest  and debt expense  totaled  $190 million in 1999,  $157 million in
1998 and $141 million in 1997. The 1999 increase resulted from lower capitalized
interest and higher  borrowings  related to the costs of the merger.  Borrowings
increased in 1998 due to the  acquisitions of European  chemical  operations and
North Sea oil and gas assets,  partially offset by the proceeds from the sale of
the coal assets.
     Other income was as follows for each of the years in the three-year  period
ended December 31, 1999:

(Millions of dollars)                                  1999    1998    1997
---------------------                                  ----    ----    ----
Other income excluding special items                   $ 39    $ 36    $ 43
                                                       ----    ----    ----
Special items -
  Interest income from settlement
    of prior years' income taxes                          1      19      --
  Settlements with insurance carriers                    --      12      12
  Equity affiliate's full-cost ceiling
    write-down                                           --     (27)     --
  Gains on the sale of nonstrategic
    oil and gas properties                               --       2       2
  Gains on sales of equity securities                    --      --      18
  Other, net                                             --       1       7
                                                       ----    ----    ----
    Total                                                 1       7      39
                                                       ----    ----    ----
Other income                                           $ 40    $ 43    $ 82
                                                       ====    ====    ====

     The increase in 1999 other income  excluding  special  items  compared with
1998 was due primarily to higher foreign  currency  gains,  partially  offset by
lower interest income. Lower equity earnings from unconsolidated affiliates were
the primary reason for the decline in 1998 other income excluding special items,
compared with the prior year.  Equity earnings from the company's  investment in
Devon were  impacted by lower oil and gas prices and  decreased  $14 million for
1998 compared with 1997.

Segment Operations

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

(Millions of dollars)                                  1999    1998    1997
---------------------                                  ----    ----    ----
Operating profit excluding special items -
  Exploration and production                           $562   $  62    $597
                                                       ----   -----    ----
  Chemicals -
    Pigment                                             113      89      49
    Other                                                15      26      35
                                                       ----   -----    ----
      Total Chemicals                                   128     115      84
                                                       ----   -----    ----
        Total                                           690     177     681
Special items                                           (21)   (482)     (5)
                                                       ----   -----    ----
Operating profit (loss)                                $669   $(305)   $676
                                                       ====   =====    ====

Exploration and Production

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

(Millions of dollars, except per-unit amounts)         1999    1998    1997
----------------------------------------------       ------  ------  ------
Sales                                                $1,770  $1,267  $1,845
                                                     ======  ======  ======

Operating profit excluding special items             $  562  $   62  $  597
Special items                                           (20)   (423)     (2)
                                                     ------  ------  ------
Operating profit (loss)                              $  542  $ (361) $  595
                                                     ======  ======  ======

Net crude oil and condensate produced
 (thousands of barrels per day)                         197     172     172
Average price of crude oil sold
 (per barrel)                                        $17.15  $12.52  $18.32
Natural gas sold (MMCF per day)                         580     584     685
Average price of natural gas sold
 (per MCF)                                           $ 2.35  $ 2.12  $ 2.43

     Special  items  in 1999  are  transition  costs  associated  with  the work
necessary to accomplish  the Oryx merger.  Asset  impairment for certain oil and
gas fields in the North Sea, China and the United States totaled $389 million in
1998  and  is  reflected  in  special  items.   Also  in  1998,  a  $34  million
restructuring  reserve is shown as a special  item.  This  amount  was  provided
primarily  for a voluntary  severance  program for employees of former Oryx U.S.
operations.  Special items in 1997 consisted  primarily of additional  costs for
the segment's restructuring and relocation to Houston, Texas.

Chemicals
     Chemical sales and operating profit are shown in the following table:

(Millions of dollars)                                  1999    1998    1997
---------------------                                  ----    ----    ----
Sales -
  Pigment                                              $700    $640    $470
  Other                                                 226     293     290
                                                       ----    ----    ----
Total                                                  $926    $933    $760
                                                       ====    ====    ====

Operating profit excluding special items -
  Pigment                                              $113    $ 89    $ 49
  Other                                                  15      26      35
                                                       ----    ----    ----
                                                        128     115      84
Special items -
  Pigment                                                --     (33)     --
  Other                                                  (1)    (26)     (3)
                                                       ----    ----    ----
Operating profit                                       $127    $ 56    $ 81
                                                       ====    ====    ====

     Severance  charges of $1 million  and $2 million  were  recorded as special
items in 1999 and 1998, respectively.  Also included in 1998 special charges are
asset  impairments  totaling $57 million for noncore  chemical assets in Alabama
and Idaho.  Special  items in 1997 were  primarily for the write-off of obsolete
equipment.

     Pigment - The  increase in 1999  titanium  dioxide  pigment  sales from the
prior year was due  principally to increased  volumes in Europe as a result of a
full year of sales after the company's  acquisition  at the end of March 1998 of
the European  pigment  operations,  partially  offset by lower European  pigment
prices.  Operating profit  excluding  special items increased in 1999 due to the
higher sales in Europe and lower U.S. per-unit production costs.  Pigment prices
increased throughout 1998. This improvement in pricing, along with the company's
acquisition of the European pigment operations and a full year's production from
a 27, 000 tonne-per-year expansion of the company's Hamilton, Mississippi, plant
were the primary reasons for the $170 million increase in pigment sales in 1998.
These sales increases were partially offset by higher per-unit  production costs
resulting  in a $ 40 million  increase in  operating  profit  excluding  special
items.
     Other - Other  chemical  sales  were  lower in 1999 as  compared  with 1998
principally due to lower forest products sales volumes, the company's withdrawal
from the ammonium perchlorate business in 1998 and lower vanadium sales volumes.
The decline in sales was the major  reason for lower  operating  profit in 1999.
The decline in 1998  operating  profit  from 1997  resulted  primarily  from the
withdrawal  from the  ammonium  perchlorate  business in 1998 and higher  sodium
chlorate per-unit production costs.

Financial Condition

(Millions of dollars)                                  1999    1998    1997
---------------------                                  ----    ----    ----
Current ratio                                           1.4     0.8     1.0
Total debt                                           $2,525  $2,250  $1,766
Total debt less cash                                  2,258   2,129   1,574
Stockholders' equity                                 $1,492  $1,346  $1,558
Total debt less cash to total capitalization             60%     61%     50%
Floating-rate debt to total debt                        38       33      15

Cash Flow
     Net  cash  provided  by  operating  activities  was $713  million  in 1999,
compared  with $385  million in 1998 and $1.1  billion in 1997.  The  rebound in
crude oil prices and the resulting impact on net income were the primary reasons
for the 1999 increase in net cash provided by operating activities and more than
offset the reduction in cash from the costs of the merger.
     Cash used in 1999  investing  activities  was primarily for $543 million of
capital  expenditures  and $33 million of unsuccessful  exploratory  well costs.
Additionally,  the company invested in several oil and gas property acquisitions
totaling  $78  million,  including  the buy-out of the  limited  partners of Sun
Energy  Partners,  L.P. Net other investing  activities used $8 million of cash.
     Dividends increased to $138 million in 1999 with the additional  Kerr-McGee
shares  outstanding after the merger.  These quarterly dividend payments of $.45
per share and the net cash used in  investing  activities  were in excess of net
cash provided by operating activities. To supplement this shortfall,  borrowings
and other  financings  increased  by a net  amount of $238  million,  with a net
result of $146  million  increase  in cash.
     The  decrease in 1998 net cash  provided by operating  activities  resulted
primarily from the low crude oil price environment, which contributed to the net
loss and from  increased  working  capital and other changes that used cash from
operating  activities.  Net cash provided by operating activities was reduced by
taxes  paid  related to the sale of the  discontinued  coal  operations  of $115
million.
     In 1998, proceeds of approximately $600 million were received from the sale
of the company's discontinued coal operations, $150 million from the sale of the
marginal  exploration  and production  properties  and the ammonium  perchlorate
operations  and $20 million from other  investing  activities.  These sources of
cash from  investing  activities  and net proceeds  from debt  issuances of $481
million were used for capital expenditures of $981 million,  acquisitions of the
Gulf  Canada  North  Sea  assets  and  the  European  titanium  dioxide  pigment
facilities totaling $518 million and dry hole costs of $92 million.
     The company's  Board of Directors  authorized a stock  purchase  program in
1998. A total of 580,000  shares ($25 million) was purchased  before the program
was cancelled because of the company's merger.

Liquidity
     At year-end 1999, total debt  outstanding was $2.5 billion.  The percentage
of total debt less cash to total  capitalization  was 60% at December  31, 1999;
61% at December 31, 1998; and 50% at year-end  1997.  The slight  improvement at
year-end  1999  resulted  from the impact of the equity  increase  from 1999 net
income on total  capitalization.  The  impact of  increased  borrowings  in 1998
accounted for the increase in the 1998 percentage.  Borrowings increased because
the level of the capital expenditure program and the two 1998 acquisitions were,
in  total,  in  excess  of the  proceeds  from the sale of the coal  operations.
     Significant 1999 debt transactions included issuance of $327 million 5-1/2%
debt  exchangeable  for common  stock of Devon due August 2, 2004.  (The company
owns  9,954,000  shares of outstanding  Devon common  stock.) In addition,  $150
million  floating  rate notes due 2001 were issued in November to  institutional
investors with interest payable quarterly at three-month LIBOR plus 0.5%.
     The company  believes  it has the  ability to provide  for its  operational
needs and its long- and short-term  capital  programs through its operating cash
flow, borrowing capacity and ability to raise capital. At December 31, 1999, the
company had unused lines  of credit and  revolving  credit  agreements  totaling
$1.4  billion.  Of this amount,  $835 million and $400 million  could be used to
support the commercial paper borrowings of Kerr-McGee  Credit LLC and Kerr-McGee
Oil (U.K.)  PLC,  respectively,  both  wholly  owned  subsidiaries.  Outstanding
revolving  credit  borrowings  at year-end  1999  totaled $85 million at varying
rates of interest.
     On  February  26,  1999,  the date of the merger,  the  company  signed two
revolving credit facilities replacing $75 million of a Kerr-McGee Oil (U.K.) PLC
revolving  credit facility and Oryx's $500 million,  five-year  revolving credit
facility  entered  into  October  20,  1997.  The two  agreements  consist  of a
three-year,  $500  million  facility  and  a  364-day,  $250  million  facility.
One-third of the borrowings under each of the agreements can be drawn by foreign
subsidiaries.  The  borrowings can be made in British pound  sterling,  euros or
other local  European  currencies.  Interest  for each of the  revolving  credit
facilities is payable at varying rates. Effective February 25, 2000, the 364-day
facility was renewed and  increased to $350 million.
     At December 31, 1999, the company classified $793 million of its short-term
obligations as long-term debt. Final settlement of these obligations, consisting
of revolving credit borrowings and commercial paper, is not expected to occur in
2000.  The company has the intent and the  ability,  as  evidenced  by committed
credit arrangements,  to refinance this debt on a long-term basis. The company's
practice  has  been  to  continually   refinance  its  commercial  paper,  while
maintaining levels believed to be appropriate.
     The  company  increased  its shelf  registration  with the  Securities  and
Exchange  Commission  in  January  2000  to  offer  up to $1.5  billion  of debt
securities,  preferred stock, common stock or warrants.  In February 2000, under
this registration, the company issued 7.5 million shares of its common stock and
$600 million of 5-1/4% convertible  subordinated debentures due 2010, generating
nearly $1 billion in net proceeds to the company. These proceeds will be used to
redeem the short-term  floating rate debt used for the $555 million  acquisition
of Repsol S.A.'s North Sea oil and gas  operations in January 2000,  the pending
$403 million acquisition of Kemira Oyj's U.S. and Dutch titanium dioxide pigment
operations and/or reduction of other debt.
     In connection with these first quarter  transactions and offerings,  rating
agencies  confirmed the company's  debt ratings.  The ratings are "BBB+," "Baa1"
and  "BBB"  for  senior  unsecured  debt.  See  Note 8 for a  discussion  of the
company's debt at year-end 1999.
     The company  finances capital  expenditures  through  internally  generated
funds and various  borrowings.  Cash capital  expenditures  were $543 million in
1999,  $981 million in 1998 and $836  million in 1997, a total of $2.4  billion.
During this same  three-year  period,  $2.9  billion of net cash was provided by
operating  activities  (exclusive of working capital and other  changes),  which
exceeded  cash capital  expenditures  and  dividends  paid during the periods by
approximately $200 million.
     Management  anticipates  that 2000  cash  capital  requirements,  currently
estimated at $675 million,  and the capital  expenditures  programs for the next
several years can continue to be provided through internally generated funds and
selective borrowings.

Market Risks

     The company is exposed to a variety of market risks,  including 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 derivative  financial  instruments.
The company does not hold or issue derivative financial  instruments for trading
purposes.  See  Notes  1 and  18 for  additional  discussions  of the  company's
financial instruments 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.  It is the company's
intent to hedge a portion of its monetary assets and liabilities  denominated in
foreign currencies. Periodically, the company purchases foreign currency forward
contracts to provide funds for operating  and capital  expenditure  requirements
that will be denominated in foreign currencies, primarily Australian dollars and
British pound sterling.  These  contracts  generally have durations of less than
three years. The company also enters into forward contracts to hedge the sale of
various foreign currencies,  principally  generated from accounts receivable for
titanium  dioxide  pigment  sales  denominated  in  foreign  currencies.   These
contracts are principally  for European  currencies and generally have durations
of less than a year.  Since these  contracts  qualify as hedges and correlate to
currency movements, any gains or losses resulting from exchange rate changes are
deferred and  recognized as  adjustments  of the hedged  transaction  when it is
settled in cash.
     Following  are  the  notional  amounts  at  the  contract  exchange  rates,
weighted-average contractual exchange rates and estimated fair value by contract
maturity for open contracts at year-end 1999 and 1998 to purchase (sell) foreign
currencies. All amounts are U.S. dollar equivalents.
<TABLE>
<CAPTION>

                                                                   Notional        Weighted-Average        Estimated Fair
(Millions  of  dollars,  except  average  contract  rate)            Amount           Contract Rate                 Value
---------------------------------------------------------          --------        ----------------        --------------
<S>                                                                     <C>               <C>                         <C>
Open  contracts at December 31, 1999 -
  Maturing in 2000 -
    Australian dollar                                                   $48                   .6306                   $50
    French franc                                                         (1)                 6.2908                    (1)
    British pound sterling                                               (1)                  .6187                    (1)
    Italian lira                                                         (1)              1839.8282                    (1)
    New Zealand dollar                                                   (1)                 1.9775                    (1)
    Japanese yen                                                         (1)               102.4479                    (1)

  Maturing in 2001 -
    Australian dollar                                                    32                   .6499                     32
  Maturing in 2002 -
    Australian dollar                                                    16                   .6538                     16

Open contracts at December 31, 1998 -
  Maturing in 1999 -
    Australian dollar                                                    56                   .7117                     48
    German mark                                                          (1)                 1.6745                     (1)
    British pound sterling                                               41                  1.6355                     42
  Maturing in 2000 -
    Australian dollar                                                    21                   .6145                     21

</TABLE>

Interest Rates
     The company's  exposure to changes in interest  rates relates  primarily to
long-term debt  obligations.  The company has  participated in various  interest
rate hedging arrangements to help manage the floating-rate  portion of its debt.
There were no interest rate hedging  contracts entered into during 1999 or 1998.
At December 31, 1998, all interest rate hedging contracts had expired.
     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 1999. All borrowings are in U.S. dollars.
<TABLE>
<CAPTION>

                                                                       There-         Fair Value
(Millions of dollars)           2000    2001    2002    2003    2004    after   Total   12/31/99
---------------------           ----    ----    ----    ----    ----    -----   -----   --------
<S>                             <C>     <C>     <C>     <C>     <C>      <C>   <C>        <C>
Fixed-rate debt -
  Principal amount               $20    $174     $33    $116    $491     $739  $1,573     $1,612
  Weighted-average
    interest rate               8.54%   9.78%   8.85%   8.04%   6.45%    7.28%   7.40%
Variable-rate debt -
  Principal amount                --    $416    $467     $60      --       --    $943       $943
  Weighted-average
    interest rate                 --    6.74%   6.70%   6.37%     --       --    6.69%
</TABLE>



     At December 31, 1998,  long-term  debt included  fixed-rate  debt of $1,497
million (fair value - $1,648 million) with a  weighted-average  interest rate of
8.17% and $717 million of  variable-rate  debt, which  approximated  fair value,
with a weighted-average interest rate of 5.92%.

Commodity Prices
     The company  periodically  uses commodity  futures and collar  contracts to
hedge a portion of its crude oil and natural gas sales and natural gas purchased
for  operations  in  order to  minimize  the  price  risks  associated  with the
production  and  marketing  of crude oil and natural  gas.  Since the  contracts
qualify as hedges and correlate to price movements of crude oil and natural gas,
any gain or loss from these  contracts is deferred and recognized as part of the
hedged transaction.
     The company did not enter into any hedging arrangements in 1999 and settled
all open 1998  contracts  during the year. At December 31, 1998, the company had
open crude oil collar  contracts that hedged 4% of its 1999 worldwide  crude oil
sales  volumes  at an  average  floor  price of $15.85 per barrel and an average
ceiling price of $17.35 per barrel.  Also at December 31, 1998,  the company had
collar  arrangements  that  hedged 21% of its 1999  worldwide  natural gas sales
volumes at an  average  floor  price of $2.29 per MMBtu and an  average  ceiling
price of $2.47 per MMBtu.  The aggregate  carrying  value of these  contracts at
December 31, 1998, was $7 million, and the aggregate fair value, based on quotes
from brokers, was approximately $22 million.

Environmental Matters

     The  company's  operations  are subject to various  environmental  laws and
regulations.  Under these  laws,  the company is or may be required to remove or
mitigate  the effects on the  environment  of the disposal or release of certain
chemical,  petroleum  or  low-level  radioactive  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. At December 31, 1999, the company had received notices that it has been
named a  potentially  responsible  party (PRP) with  respect to 17 existing  EPA
Superfund  sites that require  remediation and may share liability at certain of
these sites with  approximately 300 other PRPs. In addition,  the company and/or
its subsidiaries  have executed consent orders,  operate under a license or have
reached  agreements  to  perform  or  have  performed  remediation  or  remedial
investigations  and  feasibility  studies on sites not included as EPA Superfund
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 is uncertain as
to its  involvement  in  many  of the  sites  because  of  continually  changing
environmental laws and  regulations; the nature of the company's businesses; the
large number 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 1999, $85 million was added
to the  reserve  for active and  inactive  sites.  At  December  31,  1999,  the
company's  reserve for these sites  totaled $204 million.  In addition,  at year
-end 1999, the company had a reserve of $257 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, $391 million of the
total reserve is classified as a deferred credit,  and the remaining $70 million
is  included  in  current   liabilities.
     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, 1999, are as follows:

(Millions of dollars)                             1999    1998    1997    Total
---------------------                             ----    ----    ----    -----
Charges to environmental reserves                 $121    $109    $ 96     $326
Recurring expenses                                  17      13      20       50
Capital expenditures                                 5      24      17       46
  Total                                           $143    $146    $133     $422

     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 11 and 14). 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  includes all EPA Superfund  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 1999.

<TABLE>
<CAPTION>


                                                                                           Total Known             Total
                                                                                             Estimated      Expenditures
                                                                                                  Cost      Through 1999
                                                                                           -----------      ------------
Location of Site                     Stage of Investigation/Remediation                        (Millions of dollars)
----------------                     ----------------------------------                        ---------------------

<S>                                  <C>                                                          <C>               <C>
EPA Superfund sites
  Milwaukee, Wis.                    Executed consent decree to remediate the site of
                                     a former wood-treating facility.  Awaiting approval
                                     of proposed remedy; installed and operating a free-
                                     product recovery system.                                     $ 15              $  9

  West Chicago, Ill., four sites     Began cleanup of first site in 1995.  Cleanup of second
  outside the facility               site began in 1997, and removal work neared completion
                                     at end of 1999.  Two sites are under study (see Note 11).      85                82

  12 sites individually immaterial   Various stages of investigation/remediation.                   47                40
                                                                                                  ----              ----
                                                                                                   147               131
                                                                                                  ----              ----
Non-EPA Superfund sites under
consent order, license or agreement
  West Chicago, Ill., facility       Decommissioning is in progress under State of Illinois
                                     supervision (see Note 11).  Began shipments to a
                                     permanent disposal facility in 1994.                          385               263

  Cleveland/Cushing, Okla.           Began cleanup in 1996.                                         75                61
  Henderson, Nev.                    Entered consent agreement in 1999.                             47                16
                                                                                                  ----              ----
                                                                                                   507               340
                                                                                                  ----              ----
  Non-EPA Superfund sites
  individually immaterial            Various stages of investigation/remediation.                  220               199
                                                                                                  ----              ----
     Total for all sites                                                                          $874              $670
                                                                                                  ====              ====
</TABLE>


     Management  believes adequate reserves have been provided for environmental
and all other  known  contingencies.  However,  it is possible  that  additional
reserves  could  be  required  in  the  future  due  to  the  previously   noted
uncertainties.

New Accounting Standards

     In June 1998, the Financial Accounting Standards Board issued Statement No.
133,  "Accounting for Derivative and Hedging Activities." The statement requires
recording all derivative instruments as assets or liabilities,  measured at fair
value. The standard is effective for fiscal years beginning after June 15, 2000.
The company is currently  evaluating the impact the standard will have on income
from continuing operations; however, management believes it will not be material
due to the limited  amount of  derivative  and hedging  activities  in which the
company currently engages.

Year 2000 Readiness
     In 1996, the company  established a formal Year 2000 Program  (Program) and
expanded  the  Program  to  include  Oryx  systems  at the time of the merger in
February  1999. The Program was to assess and correct Year 2000 problems in both
information  technology and noninformation  technology systems.  The Program was
organized  into two major  areas:  Business  Systems and  Facilities  Integrity.
Business  Systems  included   replacement   applications   such  as  purchasing,
inventory,  engineering,  financial,  human resources, etc. Facilities Integrity
encompassed  telecommunications,  plant process  controls,  instrumentation  and
embedded  chip  systems  as well  as an  assessment  of  third-party  Year  2000
readiness.  An integral part of the Program was communication with third parties
to assess  the  extent  and  status  of their  Year 2000  efforts.  The  company
contacted key suppliers, customers and partners requesting information regarding
Year 2000 readiness.
     No  significant  Year 2000 failures or events  occurred  within the company
during the 1999 year-end  rollover or during the first two months of 2000. It is
believed  the  readiness  of key  third-party  suppliers  and  partners has been
validated and there will be no future material impact on the company due to Year
2000  problems.  While  there  have been a few Year  2000  problems  related  to
vendor-supplied  items, none was considered  significant to business operations.
There are no  significant,  ongoing  Year 2000  contingencies  related  to major
customers  or  vendors.  Company  spending  patterns  have not  been  materially
affected  by Year 2000  remediation.  Even though  some  information  technology
projects were  postponed,  none was considered  significant.
     As of  December  31,  1999,  total  Program  expenditures  for  the  merged
company's Year 2000 activities were  approximately $53 million from inception to
completion,  which is not  material  to the  company's  consolidated  results of
operations,  financial position or cash flows. The total cost of the Program was
in line with the company's original estimate. Program expenditures were provided
through  internally  generated  funds. No further  significant  expenditures are
expected for Year 2000 activities.

Cautionary Statement Concerning Forward-Looking Statements

               Statements in this  Financial  Review  regarding the company's or
management's intentions,  beliefs or expectations are forward-looking statements
within the meaning of the Securities  Litigation  Reform Act. 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  on the  following
page.

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,
1999 and 1998, 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,  1999.  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 did not audit the
financial  statements of Oryx Energy  Company in 1998 or 1997,  which was merged
into the company  during  1999 in a  transaction  accounted  for as a pooling of
interests,  as  discussed  in Note  1.  Such  statements  are   included  in the
consolidated  financial  statements of Kerr-McGee  Corporation and reflect total
assets and total  revenues of 36 percent  and 37 percent in 1998,  respectively,
and total  revenues of 47 percent in 1997, of the related  consolidated  totals,
after restatement to reflect certain adjustments necessary to conform accounting
policies and  presentation as set forth in Note 23. The financial  statements of
Oryx Energy  Company prior to those  adjustments  were audited by other auditors
whose report has been furnished to us and our opinion,  insofar as it relates to
the amounts  included for Oryx Energy Company,  is based solely on the report of
the other auditors.
     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  and the report of other
auditors  provide a reasonable basis for our opinion.
     In our opinion,  based on our audits and the report of other auditors,  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, 1999 and 1998,  and the results of their  operations and their cash
flows for each of the three years in the period  ended  December  31,  1999,  in
conformity with accounting  principles generally accepted in the United States.

Oklahoma City, Oklahoma,
  February 25, 2000                            ARTHUR ANDERSEN LLP


Report of Independent Accountants

To the Shareholders and Board of Directors, Oryx Energy Company:

     In our opinion, the accompanying consolidated balance sheets of Oryx Energy
Company and its Subsidiaries and the related consolidated  statements of income,
cash flows and changes in shareholders' equity (not presented separately herein)
present fairly, in all material respects, the consolidated financial position of
Oryx  Energy  Company  and its  Subsidiaries  as of  December  31,  1998 and the
consolidated  results of their  operations  and their cash flows for each of the
two years in the period ended  December 31, 1998 in conformity  with  accounting
principles  generally accepted in the United States.  These financial statements
are the  responsibility of the Company's  management;  our  responsibility is to
express an opinion on these  financial  statements in  accordance  with auditing
standards generally accepted in the United States which 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,  assessing the accounting  principles used and significant estimates
made by management and evaluating the overall financial statement  presentation.
We believe that our audits provide a reasonable basis for the opinion  expressed
above.

PricewaterhouseCoopers LLP
Dallas, Texas
February 26, 1999

Consolidated Statement of Income
<TABLE>
<CAPTION>

(Millions of dollars, except per-share amounts                                   1999       1998       1997
----------------------------------------------                                 ------     ------     ------
<S>                                                                            <C>        <C>        <C>
Sales                                                                          $2,696     $2,200     $2,605
                                                                               ------     ------     ------
Costs and Expenses
    Costs and operating expenses                                                1,056      1,053      1,003
    General and administrative expenses                                           238        278        221
    Depreciation and depletion                                                    607        561        545
    Asset impairment                                                               --        446         --
    Exploration, including dry holes and amortization of undeveloped leases       140        215        139
    Taxes, other than income taxes                                                 85         53        103
    Merger costs                                                                  163         --         --
    Interest and debt expense                                                     190        157        141
                                                                               ------     ------     ------
            Total Costs and Expenses                                            2,479      2,763      2,152
                                                                               ------     ------     ------
                                                                                  217       (563)       453
Other Income                                                                       40         43         82
                                                                               ------     ------     ------
Income (Loss) from Continuing Operations before Income Taxes,
    Extraordinary Charge and Change in Accounting Principle                       257       (520)       535
Taxes on Income                                                                  (111)       175       (184)
                                                                               ------     ------     ------

Income (Loss) from Continuing Operations before Extraordinary
    Charge and Change in Accounting Principle                                     146       (345)       351
Income from Discontinued Operations, net of taxes of
    $156 in 1998 and $12 in 1997                                                   --        277         33
                                                                               ------     ------     ------
Income (Loss) before Extraordinary Charge and Change
    in Accounting principle                                                       146        (68)       384
Extraordinary Charge, net of taxes of $1                                           --         --         (2)
Cumulative Effect of Change in Accounting Principle,
    net of taxes                                                                   (4)        --         --
                                                                               ------     ------     ------
Net Income (Loss)                                                              $  142     $  (68)    $  382
                                                                               ======     ======     ======

Net Income (Loss) per Common Share
    Basic -
      Continuing operations                                                    $ 1.69     $(3.98)    $ 4.04
      Discontinued operations                                                      --       3.20        .38
      Extraordinary charge                                                         --         --       (.02)
      Cumulative effect of accounting change                                     (.05)        --         --
                                                                               ------     ------     ------
            Net income (loss)                                                  $ 1.64     $ (.78)    $ 4.40
                                                                               ======     ======     ======

    Diluted -
      Continuing operations                                                    $ 1.69     $(3.98)    $ 4.02
      Discontinued operations                                                      --       3.20        .38
      Extraordinary charge                                                         --         --       (.02)
      Cumulative effect of accounting change                                     (.05)        --         --
                                                                               ------     ------     ------
            Net income (loss)                                                  $ 1.64     $ (.78)    $ 4.38
                                                                               ======     ======     ======
</TABLE>

The accompanying notes are an integral part of this statement.


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

                                                                                       Accumu-
                                                                                         lated
                                                                                         Other
                                          Compre-                                      Compre-                                Total
                                          hensive           Capital in                 hensive                  Deferred     Stock-
                                           Income   Common   Excess of   Retained       Income   Treasury   Compensation   holders'
(Millions of dollars)                      (Loss)    Stock   Par Value   Earnings       (Loss)      Stock      and Other     Equity
---------------------                     -------   ------  ----------   --------      -------   --------   ------------   --------
<S>                                         <C>        <C>      <C>          <C>         <C>        <C>            <C>       <C>
Balance December 31, 1996                              $93      $1,241       $436        $(12)      $(306)         $(173)    $1,279
  Net income                                $382        --          --        382          --          --             --        382
  Unrealized gains on securities,
    net of $1 income tax                       2        --          --         --           2          --             --          2
  Realized gains on securities,
    net of $6 income tax                     (12)       --          --         --         (12)         --             --        (12)
  Appreciation of securities
    donated, net of $1
    income tax                                (2)       --          --         --          (2)         --             --         (2)
  Minimum pension liability
    adjustment                                (5)       --          --         --          (5)         --             --         (5)
  Shares issued                               --        --          33         --          --          --             --         33
  Shares acquired                             --        --          --         --          --         (57)            --        (57)
  Dividends declared
    ($1.80 per share)                         --        --          --        (86)         --          --             --        (86)
  Other                                       --        --          --         (1)         --          --             25         24
                                            ----       ---      ------       ----        ----       -----          -----     ------
    Total                                   $365
                                            ====

Balance December 31, 1997                               93       1,274        731         (29)       (363)          (148)     1,558
  Net loss                                  $(68)       --          --        (68)         --          --             --        (68)
  Foreign currency translation
    adjustment                                (5)       --          --         --          (5)         --             --         (5)
  Minimum pension liability
    adjustment                                (2)       --          --         --          (2)         --             --         (2)
  Shares issued                               --        --           8         --          --          --             --          8
  Shares acquired                             --        --          --         --          --         (25)            --        (25)
  Dividends declared
    ($1.80 per share)                         --        --          --        (86)         --          --             --        (86)
  Effect of equity affiliate's
    merger                                    --        --          --        (51)         --          --             --        (51)
  Other                                       --        --          --          1          --          --             16         17
                                            ----       ---      ------       ----        ----       -----          -----     ------
    Total                                   $(75)
                                            ====

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
                                                       ===      ======       ====        ====       =====          =====     ======
</TABLE>

The accompanying notes are an integral part of this statement.


Consolidated Balance Sheet
<TABLE>
<CAPTION>

(Millions of dollars)                                                       1999            1998
---------------------                                                     ------          ------
<S>                                                                       <C>             <C>
ASSETS

Current Assets
  Cash                                                                    $  267          $  121
  Accounts receivable, net of allowance for doubtful
    accounts of $8 in 1999 and $5 in 1998                                    501             389
  Inventories                                                                281             247
  Deposits, prepaid expenses and other                                       112             120
                                                                          ------          ------
      Total Current Assets                                                 1,161             877
Investments
  Equity affiliates                                                           59             170
  Other   assets                                                             467              87
Property, Plant and Equipment - Net                                        4,085           4,153
Deferred Charges                                                             127             164
                                                                          ------          ------
        Total Assets                                                      $5,899          $5,451
                                                                          ======          ======

LIABILITIES AND STOCKHOLDERS' EQUITY

Current Liabilities
  Accounts payable                                                        $  404          $  385
  Short-term borrowings                                                        9              36
  Long-term debt due within one year                                          20             236
  Taxes on income                                                             70              48
  Taxes, other than income taxes                                              40              11
  Accrued liabilities                                                        297             334
                                                                          ------          ------
      Total Current Liabilities                                              840           1,050
                                                                          ------          ------

Long-Term Debt                                                             2,496           1,978
                                                                          ------          ------
Deferred Credits and Reserves
  Income taxes                                                               401             329
  Other                                                                      670             748
                                                                          ------          ------
      Total Deferred Credits and Reserves                                  1,071           1,077
                                                                          ------          ------

Stockholders' Equity
  Common stock, par value $1.00 - 300,000,000 shares authorized,
    93,494,186 shares issued in 1999 and 93,378,069 shares
    issued in 1998                                                            93              93
  Capital in excess of par value                                           1,284           1,282
  Preferred stock purchase rights                                              1               1
  Retained earnings                                                          576             527
  Accumulated other comprehensive income (loss)                               45             (36)
  Common stock in treasury, at cost - 7,010,790 shares
    in both 1999 and 1998                                                   (388)           (388)
  Deferred compensation                                                     (119)           (133)
                                                                          ------          ------
      Total Stockholders' Equity                                           1,492           1,346
                                                                          ------          ------
        Total Liabilities and Stockholders' Equity                        $5,899          $5,451
                                                                          ======          ======
</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.


Consolidated Statement of Cash Flows
<TABLE>
<CAPTION>

(Millions of dollars)                                                             1999      1998      1997
---------------------                                                            -----     -----     -----
<S>                                                                             <C>        <C>      <C>
Cash Flow from Operating Activities
  Net income (loss)                                                             $  142     $ (68)   $  382
  Adjustments to reconcile to net cash provided by operating activities -
    Depreciation, depletion and amortization                                       648       615       593
    Deferred income taxes                                                           --       (98)       31
    Dry hole cost                                                                   43       100        53
    Merger and transition costs                                                    131        --        --
    Asset impairment                                                                --       446        --
    Provision for environmental remediation and restoration of inactive sites       --        41        20
    Gain on sale of coal operations, net of income taxes                            --      (257)       --
    Gain on sale of exploration and production properties                           (2)      (20)       (3)
    Realized gain on available-for-sale securities                                  --        --       (18)
    Retirements and (gain) loss on sale of other assets                             (1)       13        (4)
    Noncash items affecting net income                                              67        13        23
    Changes in current assets and liabilities and other, net of effects
      of operations acquired and sold -
        (Increase) decrease in accounts receivable                                 (56)      164       139
        (Increase) decrease in inventories                                         (34)      (54)       40
        (Increase) decrease in deposits and prepaids                                10       (92)       17
        Decrease in accounts payable and accrued liabilities                      (198)     (103)      (53)
        Increase (decrease) in taxes payable                                        92      (165)       66
        Other                                                                     (129)     (150)     (189)
                                                                                ------     -----    ------
          Net cash provided by operating activities                                713       385     1,097
                                                                                ------     -----    ------

Cash Flow from Investing Activities
  Capital expenditures                                                            (543)     (981)     (836)
  Cash dry hole cost                                                               (33)      (92)      (52)
  Acquisitions                                                                     (78)     (518)       --
  Purchase of long-term investments                                                (39)       (3)      (12)
  Proceeds from sale of long-term investments                                       27        12        13
  Proceeds from sale of discontinued operations                                     --       599        --
  Proceeds from sale of chemical and exploration and production properties           4       150        17
  Proceeds from sale of available-for-sale securities                               --        --        21
  Proceeds from sale of other assets                                                --        11        17
                                                                                ------     -----    ------
          Net cash used in investing activities                                   (662)     (822)     (832)
                                                                                ------     -----    ------

Cash Flow from Financing Activities
  Issuance of long-term debt                                                     1,084       563       390
  Issuance of common stock                                                           4         6        28
  Increase (decrease) in short-term borrowings                                     (27)       11       (12)
  Repayment of long-term debt                                                     (782)      (93)     (464)
  Dividends paid                                                                  (138)      (86)      (85)
  Lease buyout                                                                     (41)       --        --
  Treasury stock purchased                                                          --       (25)      (60)
                                                                                ------     -----    ------
          Net cash provided by (used in) financing activities                      100       376      (203)
                                                                                ------     -----    ------

Effects of Exchange Rate Changes on Cash and Cash Equivalents                       (5)      (10)       --
                                                                                ------     -----    ------

Net Increase (Decrease) in Cash and Cash Equivalents                               146       (71)       62
Cash and Cash Equivalents at Beginning of Year                                     121       192       130
                                                                                ------     -----    ------
Cash and Cash Equivalents at End of Year                                        $  267     $ 121    $  192
                                                                                ======     =====    ======
</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,
Algeria,  Brazil, Gabon, Thailand, Yemen and the Danish sector of the North Sea.
The chemical unit has  operations in the United States,  Australia,  Germany and
Belgium.
     On February 26, 1999, the merger between Kerr-McGee and Oryx Energy Company
(Oryx) was completed.  Oryx was a worldwide  independent oil and gas exploration
and production  company.  Under the merger agreement,  each outstanding share of
Oryx common  stock was  effectively  converted  into the right to receive  0.369
shares of newly  issued  Kerr-McGee  common  stock.  The merger  qualified  as a
tax-free exchange to Oryx's shareholders and has been accounted for as a pooling
of interests.  In the  aggregate,  Kerr-McGee  issued  approximately  39 million
shares of Kerr-McGee  common  stock,  bringing the total shares  outstanding  to
approximately 86 million.  Kerr-McGee's  consolidated  financial statements have
been restated for periods prior to the merger to include the operations of Oryx,
adjusted to conform to Kerr-McGee's accounting policies and presentation.

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.

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.  The company  recorded net foreign currency  transaction  gains of $11
million in 1999. The net foreign currency  transaction  gains and losses in 1998
and 1997 were immaterial.
     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 (Loss) in the Consolidated  Statement of
Comprehensive Income and Stockholders' Equity.

Net Income (Loss) per Common Share
     Basic net income  (loss) 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 is
computed by dividing net income by the weighted-average  number of common shares
and common stock equivalents outstanding for the period.
     The  weighted-average  number of shares  used to  compute  basic net income
(loss) per share was  86,414,373 in 1999,  86,688,026 in 1998 and  86,756,138 in
1997.  After  adding the  dilutive  effect of the  conversion  of options to the
weighted-average  number of  shares  outstanding,  the  shares  used to  compute
diluted net income per share were  86,497,207  in 1999 and  87,113,906  in 1997.
There was no dilution for 1998 since the company incurred a loss from continuing
operations.
     Not included in the  calculation of the  denominator for diluted net income
per share were  2,063,079  and 494,063  employee  stock options  outstanding  at
year-end 1999 and 1997, 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  1,791,646  shares of common stock for issuance to
the  owners  of  its  7-1/2%  Convertible   Subordinated   Debentures  due  2014
(Debentures).  The Debentures are convertible into the company's common stock at
any time prior to maturity at $106.03 per share of common stock.  The conversion
of the Debentures  was not considered for purposes of calculating  income (loss)
per share,  as the impact would have been  antidilutive to net income (loss) per
share for the periods presented.

Cash Equivalents
     The company  considers all  investments  with a maturity of three months or
less to be cash equivalents.  Cash equivalents totaling $156 million in 1999 and
$58 million in 1998 were comprised of time deposits, certificates of deposit and
U.S. government securities.

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
     Oil and Gas - 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.
     Interest  Capitalized  - The company  capitalizes  interest  costs on major
projects  that  require  a  considerable  length of time to  complete.  Interest
capitalized in 1999, 1998 and 1997 was $9 million,  $28 million and $24 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 sales and most crude oil, 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,  1999 and 1998,  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.

Lease Commitments
     The  company  utilizes   various  leased   properties  in  its  operations,
principally for office space and production facilities. Lease rental expense was
$41 million in 1999,  $37 million in 1998 and $39 million in 1997.
     The aggregate minimum annual rentals under  noncancelable  leases in effect
on December 31, 1999, totaled $92 million,  of which $20 million is due in 2000,
$21 million in 2001, $24 million in the period 2002 through 2004 and $27 million
thereafter.

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 Plans
     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."

Futures, Forward and Option Contracts
     The  company  hedges a portion  of its  monetary  assets,  liabilities  and
commitments  denominated  in  foreign  currencies.   Periodically,  the  company
purchases  foreign currency forward contracts to provide funds for operating and
capital expenditure  requirements that will be denominated in foreign currencies
and sells foreign currency forward contracts to convert receivables that will be
paid in foreign  currencies to U.S.  dollars.  Since these contracts  qualify as
hedges and  correlate to currency  movements,  any gain or loss  resulting  from
market  changes is offset by gains or losses on the hedged  receivable,  capital
item or operating cost.
     From time to time the company enters into  arrangements to hedge the impact
of price  fluctuations on anticipated crude oil and natural gas sales.  Gains or
losses on hedging  activities  are  recognized  in oil and gas  revenues  in the
period in which the hedged production is sold.
     The company  periodically  enters into interest rate hedging  agreements to
alter the  floating  rate  portion of its  underlying  debt  portfolio.  Advance
proceeds  received under the agreements are included in deferred credits and are
amortized as offsets to interest and debt expense over the relevant periods. The
differentials  paid or received  during the terms of such agreements are accrued
as interest  rates change and are recorded as  adjustments  to interest and debt
expense.


2. Cash Flow Information

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

(Millions of dollars)                                  1999    1998    1997
---------------------                                  ----    ----    ----
Income tax payments                                    $111    $151    $ 89
Less refunds received                                   (85)    (40)    (37)
                                                       ----    ----    ----
Net income tax payments                                $ 26    $111    $ 52
                                                       ====    ====    ====
Interest payments                                      $191    $180    $163
                                                       ====    ====    ====

     Noncash  transactions not reflected in the  Consolidated  Statement of Cash
Flows  include  capital  expenditures  for  which  payment  will  be made in the
subsequent  year  totaling $28 million,  $43 million and $19 million at year-end
1999,  1998 and 1997,  respectively;  the  revaluation  in 1999 to fair value of
stock owned in a company  previously  accounted  for using the equity  method of
accounting and the  revaluation  to fair value of the debt that is  exchangeable
into the stock of the investee;  transactions  during 1997  associated  with the
assignments  of  interest  of  certain  North  Sea oil and gas  properties;  the
revaluation  of  certain  other  investments  to fair  value;  and  transactions
affecting  deferred  compensation  associated  with the Employee Stock Ownership
Plan in each of the three years (see Notes 18 and 20).

3. Inventories

     Major categories of inventories at year-end 1999 and 1998 are:

(Millions of dollars)                                  1999    1998
---------------------                                  ----    ----
Chemicals and other products                           $212    $185
Materials and supplies                                   67      53
Crude oil                                                 2       9
                                                       ----    ----
  Total                                                $281    $247
                                                       ====    ====

4. Deferred Charges

     Deferred charges are as follows at year-end 1999 and 1998:

(Millions of dollars)                                  1999    1998
---------------------                                  ----    ----
Pension plan prepayments                               $ 79    $101
Unamortized debt issue costs                             18       8
Amounts pending recovery from third parties              10       8
Intangible assets                                         6       8
Nonqualified pension plan deposits                       --      10
Preoperating and startup costs                           --       6
Other                                                    14      23
                                                       ----    ----
  Total                                                $127    $164
                                                       ====    ====

     Effective January 1, 1999, the company began expensing the cost of start-up
activities in accordance with Statement of Position No. 98-5,  "Reporting on the
Costs of Start-Up Activities." The $6 million of unamortized costs at the end of
1998 was recognized in 1999 as the  cumulative  effect of a change in accounting
principle ($4 million after taxes).

5. Investments - Equity Affiliates

     At December  31, 1999 and 1998,  investments  in equity  affiliates  are as
follows:

(Millions of dollars)                                  1999    1998
---------------------                                  ----    ----
Devon Energy Corporation                                $--    $108
Javelina Company                                         27      30
National Titanium Dioxide Company Limited                18      18
Other                                                    14      14
                                                        ---    ----
  Total                                                 $59    $170
                                                        ===    ====

     The company holds 9,954,000 shares of Devon common stock, a publicly traded
oil and gas exploration and production  company.  The company accounted for this
investment  using the equity  method until 1999 when its  ownership  interest of
approximately  20%  fell to  approximately  12% as a  result  of  Devon  issuing
additional common stock in its merger with a third party. The difference between
the  company's  carrying  amount of the  investment  before  the  merger and the
underlying  net book value of the  investment  after the merger was $63 million,
net of deferred tax, and was reflected as a 1999 increase to retained  earnings.
The  company's  investment  in Devon is now  accounted  for at market value (see
Notes 6 and 18).
     Javelina Company and National  Titanium  Dioxide Company Limited  represent
the company's  investment of 40% and 25%,  respectively,  in nonexploration  and
production joint ventures or partnerships.
     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)                                  1999    1998    1997
Results of operations -
  Net sales(1)                                         $256  $  593    $570
  Net income (loss)(2)                                   33     (41)    105

Financial position -
  Current assets                                        125     222
  Property, plant and equipment - net                   234   1,334
  Total assets                                          361   1,582
  Current liabilities                                    91     170
  Total liabilities                                     144     844
  Stockholders' equity                                  217     738

(1) Includes net sales to the company of $2 million and $26 million for 1998 and
1997, respectively. There were no sales to the company in 1999.

(2) The 1998 loss  includes  a  full-cost  write-down  recorded  by  Devon.  The
company's proportionate share of the write-down was $27 million.

6. Investments - Other Assets

     Investments  in other assets  consist of the following at December 31, 1999
and 1998:

(Millions of dollars)                                  1999    1998
---------------------                                  ----    ----
Devon Energy Corporation common stock(1)               $327    $ --
Long-term receivables, net of $9 allowance
  for doubtful notes in both 1999 and 1998              105      41
Net deferred tax asset                                   12      17
U.S. government obligations                              11      17
Patents                                                   7       6
Other                                                     5       6
                                                       ----    ----
  Total                                                $467    $ 87
                                                       ====    ====

(1) See Notes 5 and 18.

7. Property, Plant and Equipment

     Fixed  assets and related  reserves at December  31, 1999 and 1998,  are as
follows:

<TABLE>
<CAPTION>

                                                             Reserves for
                                                           Depreciation and
                                  Gross Property              Depletion         Net Property
                                 ---------------           ----------------     --------------
(Millions of dollars)               1999    1998             1999    1998         1999    1998
---------------------            ------- -------           ------  ------       ------  ------
<S>                              <C>     <C>               <C>     <C>          <C>     <C>
Exploration and production       $ 9,689 $ 9,359           $6,245  $5,837       $3,444  $3,522
Chemicals                          1,224   1,162              640     588          584     574
Other                                136     130               79      73           57      57
                                 ------- -------           ------  ------       ------  ------
  Total                          $11,049 $10,651           $6,964  $6,498       $4,085  $4,153
                                 ======= =======           ======  ======       ======  ======
</TABLE>

8. Debt

Lines of Credit and Short-Term Borrowings
     At year-end 1999, the company had available unused bank lines of credit and
revolving credit facilities of $1,373 million.  Of this amount, $835 million and
$400 million can be used to support  commercial paper borrowing  arrangements of
Kerr-McGee Credit LLC and Kerr-McGee Oil (U.K.) PLC,  respectively.
     The company has arrangements to maintain compensating balances with certain
banks that  provide  credit.  At year-end  1999,  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 1999 consisted of notes payable totaling
$9 million (4.88% average  interest rate).  The notes are denominated in foreign
currency and represent  approximately  361 million  Belgian  francs.  Short-term
borrowings  outstanding  at  year-end  1998  were  made up of  commercial  paper
totaling $28 million (6.37% average  effective  interest rate) and notes payable
totaling $8 million (3.63% average interest rate) or 281 million Belgian francs.

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  1999 and 1998,  debt
totaling  $793  million  and  $717  million,  respectively,  was  classified  as
long-term consistent with this policy.
     Long-term debt consisted of the following at year-end 1999 and 1998.
<TABLE>
<CAPTION>

(Millions of dollars)                                                                   1999            1998
---------------------                                                                 ------          ------
<S>                                                                                   <C>             <C>
Debentures -
  7-1/2% Convertible subordinated debentures, $10 due annually May 15, 2000
    through 2013 and $50 due May 15, 2014                                             $  190          $  200
  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
    $103 in 1999 and $105 in 1998 (14.25% effective rate)                                147             145
  5-1/2% Exchangeable notes due August 2, 2004                                           327              --
  8-1/2% Sinking fund debentures due June 1, 2006                                         --              11
Notes payable -
  10% Notes due April 1, 2001                                                            150             250
  6.625% Notes due October 15, 2007 (6.54% effective rate)                               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
  9.5% Notes due November 1, 1999                                                         --             100
  Variable interest rate revolving credit agreements with banks (6.34% average rate
    at December 31, 1999), $25 due December 4, 2001 and $60 due March 6, 2003             85             598
  Variable interest rate notes due November 1, 2001 (6.7% effective rate)                150              --
  Medium-Term  Notes (9.29%  average  effective  interest  rate at
    December 31, 1999),  $11 due January 2, 2002 and $2 due February 1, 2002              13              28
Commercial paper (6.76% average effective  interest rate at December 31, 1999)           612             119
Euro Commercial  paper (6.54% average effective interest rate at December 31, 1999        96              --
Guaranteed Debt of Employee Stock Ownership Plan 9.61% Notes due in installments
  through January 2, 2005                                                                 43              49
Other                                                                                      3              14
                                                                                      ------          ------
                                                                                       2,516           2,214
Long-term debt due within one year                                                       (20)           (236)
                                                                                      ------          ------
    Total                                                                             $2,496          $1,978
                                                                                      ======          ======
</TABLE>

     Maturities of long-term  debt due after  December 31, 1999, are $20 million
in 2000,  $590 million in 2001, $500 million in 2002, $176 million in 2003, $491
million in 2004 and $739 million thereafter.
     Certain of the company's  long-term  debt  agreements  contain  restrictive
covenants, including a minimum tangible net worth requirement and a minimum cash
flow to fixed charge ratio.  At December 31, 1999, 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 the  Financial
Condition section in Management's Discussion and Analysis.

9. Accrued Liabilities

     Accrued liabilities at year-end 1999 and 1998 are as follows:

(Millions of dollars)                                  1999    1998
---------------------                                  ----    ----
Interest payable                                       $ 72    $ 71
Current environmental reserves                           70      83
Employee-related costs and benefits                      66      59
Royalties payable                                        22      14
Merger reserve(1)                                        20      --
Litigation reserves                                      18      --
Drilling and operating costs                             15      67
Restructuring reserve(1)                                 --      20
Other                                                    14      20
                                                       ----    ----
  Total                                                $297    $334
                                                       ====    ====

(1) See Note 22.

10. Common Stock

     Changes in common stock issued and treasury  stock held for 1999,  1998 and
1997 are as follows:
<TABLE>
<CAPTION>

(Thousands of shares)                                           Common Stock            Treasury Stock
---------------------                                           ------------            --------------
<S>                                                                   <C>                        <C>
Balance December 31, 1996                                             92,601                     5,569
  Exercise of stock options and stock appreciation rights                627                        --
  Issuance of shares for achievement awards                               --                        (2)
  Stock purchase program                                                  --                       867
                                                                      ------                     -----
Balance December 31, 1997                                             93,228                     6,434
  Exercise of stock options and stock appreciation rights                150                        --
  Issuance of shares for achievement awards                               --                        (3)
  Stock purchase program                                                  --                       580
                                                                      ------                     -----
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
                                                                      ======                     =====
</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.
     In mid-1998, the Board of Directors authorized management to purchase up to
$300 million of company common stock over the following  three years. A total of
580,000  shares was acquired at a cost of $25 million before this stock purchase
program was cancelled  because of the merger with Oryx.  The 1995 stock purchase
program was completed in 1997 with a total of 4,829,000  shares of the company's
stock  acquired  in  open-market  transactions  at a cost of $300  million.
     The company has granted  restricted  common shares to certain key employees
under the 1998 Long-Term  Incentive Plan.  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.  The  forfeiture
provisions on the 1999 awards expire on December 1, 2003.
     The company  has had a  stockholders-rights  plan since  1986.  The current
rights plan is dated July 6, 1996,  and replaced the previous  plan prior to its
expiration. Rights were distributed under the original plan as a dividend at the
rate of one right for each share of the company's 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.

11. Contingencies

West Chicago
     In 1973, a wholly owned subsidiary, Kerr-McGee Chemical Corporation, closed
the facility at West Chicago,  Illinois, that processed thorium ores. Kerr-McGee
Chemical  Corporation  now  operates  as  Kerr-McGee  Chemical  LLC  (Chemical).
Operations resulted in some low-level radioactive contamination at the site and,
in 1979,  Chemical filed a plan with the Nuclear Regulatory  Commission (NRC) to
decommission the facility. The NRC transferred  jurisdiction of this site to the
State of  Illinois  (the  State) in 1990.  Following  is the  current  status of
various  matters  associated  with the West Chicago site.
     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 as to the
terms and conditions for completing the final phase of decommissioning work. The
State has indicated approval of this agreement and has issued license amendments
authorizing much of the work.  Chemical expects most of the work to be completed
within four 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.  The
storage fee cannot  exceed $26 million  per year,  and any storage fee  payments
must be reimbursed to Chemical as decommissioning  costs are incurred.  Chemical
has  been  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.
     Offsite Areas - The U.S.  Environmental  Protection Agency (EPA) has listed
four areas in the vicinity of the West Chicago facility on the National Priority
List that the EPA promulgates 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. Two of the four
areas are presently being studied to determine the extent of  contamination  and
the nature of any remedy.  These two are known as the Sewage Treatment Plant and
Kress Creek. The EPA previously issued unilateral  administrative orders for the
other two 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  cleanup  of the two  areas  for  which
unilateral  administrative orders have been issued.  Cleanup at one of the sites
is nearly complete.
     Judicial  Proceedings  - In December  1996, a lawsuit was filed against the
company and Chemical in Illinois  state court on behalf of a purported  class of
present and former West Chicago residents. The lawsuit seeks damages for alleged
diminution in property values and the establishment of a medical monitoring fund
to benefit those allegedly exposed to thorium wastes originating from the former
facility.  The  case was  removed  to  federal  court  and is  being  vigorously
defended.
     Government  Reimbursement - Pursuant to Title X of the Energy Policy Act of
1992  (Title  X),  the U. S.  Department  of Energy 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  United  States
government  contracts.  Title  X was  amended  in 1998 to  increase  the  amount
authorized to $140 million plus inflation adjustments. Through January 31, 2000,
Chemical  has been  reimbursed  approximately  $69 million  under Title X. These
reimbursements are provided by congressional appropriations.

Other Matters
     The company's current and former operations involve management of regulated
materials and are subject to various  environmental laws and regulations.  These
laws and  regulations  will  obligate  the company to clean up various  sites at
which petroleum,  chemicals, low-level radioactive substances or other regulated
materials  have been  disposed  of or  released.  Some of these  sites have been
designated  Superfund sites by the EPA pursuant to CERCLA. The company is also a
party to legal proceedings  involving  environmental  matters pending in various
courts and agencies.  In addition,  the company and/or its subsidiaries are also
parties to a number of other  legal  proceedings  pending  in various  courts or
agencies in which the company  and/or its  subsidiaries  appear as  plaintiff or
defendant.
     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
because of:
     - the difficulty of predicting cleanup  requirements and estimating cleanup
costs;
     - the uncertainty in quantifying  liability under  environmental  laws that
impose joint and several liability on all potentially responsible parties;
     - the continually changing nature of environmental laws and regulations and
the uncertainty inherent in legal matters.
     As of December 31, 1999,  the company has recorded  reserves  totaling $204
million for cleaning up and  remediating  environmental  sites,  reflecting  the
reasonably  estimable  costs for  addressing  these sites.  This  includes  $125
million for the West Chicago sites. Management believes, after consultation with
general  counsel,  that  currently  the  company  has  reserved  adequately  for
contingencies.  However, additions to the reserves may be required as additional
information  is  obtained  that  enables  the  company  to better  estimate  its
liability, including any liability at sites now being studied, though management
cannot now reliably estimate the amount of any future additions to the reserves.
Historical  expenditures at all sites from inception  through December 31, 1999,
total $670 million.

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) from continuing operations before
income taxes and extraordinary charge is composed of the following:

(Millions of dollars)                                  1999    1998    1997
---------------------                                  ----    ----    ----
United States                                          $(30)  $(345)   $252
International                                           287    (175)    283
                                                       ----    ----    ----
  Total                                                $257   $(520)   $535
                                                       ====   =====    ====

     The  corporate  tax rate in the United  Kingdom  decreased  to 30% from 31%
effective  April 1, 1999, and decreased to 31% from 33% effective April 1, 1997.
The  deferred  income tax  liability balance was adjusted to reflect the revised
rates, which decreased the international  deferred provision for income taxes by
$10  million in 1998 and $13 million in 1997.  The 1999,  1998 and 1997 taxes on
income from continuing  operations are summarized  below:

(Millions of dollars)                                  1999    1998    1997
---------------------                                  ----    ----    ----
U.S. Federal -
  Current                                              $(38)  $(159)   $  2
  Deferred                                               38      20      84
                                                       ----   -----    ----
                                                         --    (139)     86
                                                       ----   -----    ----
International -
  Current                                               147      18     146
  Deferred                                              (37)    (55)    (52)
                                                       ----   -----    ----
                                                        110     (37)     94
                                                       ----   -----    ----

State                                                     1       1       4
                                                       ----   -----    ----
    Total                                              $111   $(175)   $184
                                                       ====   =====    ====
     At December 31, 1999, the company had foreign operating loss  carryforwards
totaling  $117 million - $9 million that expire in 2001,  $8 million that expire
in 2003, $15 million that expire in 2004 and $85 million that have no expiration
date.  Realization  of  these  operating  loss  carryforwards  is  dependent  on
generating sufficient taxable income.
     The net deferred tax asset, classified as Investments - Other assets in the
Consolidated Balance Sheet, represents the net deferred taxes in certain foreign
jurisdictions.  Although  realization is not assured, the company believes it is
more likely than not that all of the net  deferred  tax asset will be  realized.
Deferred tax  liabilities and assets at December 31, 1999 and 1998, are composed
of the following:

(Millions of dollars)                                  1999    1998
---------------------                                  ----    ----
Net deferred tax liabilities -
  Accelerated depreciation                             $564    $593
  Exploration and development                            34      69
  Undistributed earnings of foreign subsidiaries         28      28
  Postretirement benefits                               (86)    (86)
  AMT credit carryforward                               (60)    (60)
  Foreign operating loss carryforward                   (35)    (28)
  Dismantlement, remediation, restoration
    and other reserves                                  (30)    (79)
  Other                                                 (14)   (108)
                                                       ----    ----
                                                        401     329
                                                       ----    ----
Net deferred tax asset -
  Accelerated depreciation                                5       5
  Foreign operating loss carryforward                   (13)    (14)
  Other                                                  (4)     (8)
                                                       ----    ----
                                                        (12)    (17)
                                                       ----    ----
    Total                                              $389    $312
                                                       ====    ====

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

                                                       1999    1998    1997
                                                       ----    ----    ----
U.S. statutory rate                                    35.0%  (35.0)%  35.0%
  Increases (decreases) resulting from -
    Taxation of foreign operations                      4.8     9.6     3.9
    Adjustment of prior years' accruals                  --     (.4)    (.8)
    Refunds of prior years' income taxes                 --    (5.6)     --
    Adjustment of deferred tax balances
      due to tax rate changes                            --    (2.0)   (2.4)
    Other - net                                         3.3     (.2)   (1.3)
                                                       ----   -----    ----
        Total                                          43.1%  (33.6)%  34.4%
                                                       ====   =====    ====

     The Internal  Revenue  Service has examined the Kerr-McGee  Corporation and
subsidiaries'  pre-merger Federal income tax returns for all years through 1994,
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, 1999, 1998 and 1997, are composed of the
following:

(Millions of dollars)                                  1999    1998    1997
---------------------                                  ----    ----    ----
Production/severance                                    $52     $26    $ 74
Payroll                                                  19      12      11
Property                                                 11      14      15
Other                                                     3       1       3
                                                        ---     ---    ----
  Total                                                 $85     $53    $103
                                                        ===     ===    ====

14. Deferred Credits and Reserves - Other

     Other  deferred  credits and reserves  consist of the following at year-end
1999 and 1998:

(Millions of dollars)                                  1999    1998
---------------------                                  ----    ----
Reserves for site dismantlement,
  remediation and restoration                          $391    $376
Postretirement benefit obligations                      186     269
Minority interest in subsidiary companies                23      39
Other                                                    70      64
                                                       ----    ----
  Total                                                $670    $748
                                                       ====    ====

     The company  provided for  environmental  remediation  and  restoration  of
former plant sites, net of authorized  reimbursements,  during each of the years
1999, 1998 and 1997 as follows:

(Millions of dollars)                                  1999    1998    1997
---------------------                                  ----    ----    ----
Provision, net of authorized reimbursements             $ 3     $47     $18
Reimbursements received                                  15      14      12
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 11).

15. Discontinued Operations

     The company  exited the coal  business in 1998 with the sales of its mining
operations at Galatia,  Illinois,  and Kerr-McGee Coal  Corporation,  which held
Jacobs  Ranch  Mine  in  Wyoming.   The  cash  sales  resulted  in  proceeds  of
approximately  $600 million.  The 1998 gain on the sale was $257 million  ($2.97
per share),  net of $149 million for income taxes. The income from operations of
the discontinued  coal business totaled $20 million ($.23 per share),  net of $7
million for income taxes,  in 1998 and $33 million ($.38 per share),  net of $12
million  in income  taxes,  in 1997.  Revenues  applicable  to the  discontinued
operations totaled $174 million in 1998 and $323 million in 1997.

16. Other Income

     Other  income was as  follows  during  each of the years in the  three-year
period ended December 31, 1999:

(Millions of dollars)                                  1999    1998    1997
---------------------                                  ----    ----    ----
Income (loss) from unconsolidated affiliates            $16    $(12)    $32
Interest                                                 14      38      14
Gain (loss) on foreign currency exchange                 11      (2)      1
Gain on sale of assets                                    3       7       6
Settlements with insurance carriers                      --      12      12
Gain on sale of available-for-sale securities            --      --      18
Other                                                    (4)     --      (1)
                                                        ---    ----     ---
  Total                                                 $40    $ 43     $82
                                                        ===    ====     ===

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

Assets to Be Held and Used
     At  year-end  1998,  certain  oil and gas fields  located in the North Sea,
China and the  United  States and two U.S.  chemical  plants  were  deemed to be
impaired  because the assets were no longer  expected to recover  their net book
values through future cash flows.  Expectations  of future cash flows were lower
than those previously forecasted primarily as a result of weakness in crude oil,
natural gas and certain  chemical  product  prices at the end of 1998.  Downward
reserve revisions were also deemed necessary for certain fields.  The impairment
loss was determined  based on the  difference  between the carrying value of the
assets  and the  present  value of  future  cash  flows or  market  value,  when
appropriate. There was no impairment loss recognized in 1999 or 1997.
     Following  is the  impairment  loss for assets held and used by segment for
the year ended December 31, 1998:

(Millions of dollars)                                  1998
---------------------                                  ----
Exploration and production                             $389
Chemicals - pigment                                      32
Chemicals - other                                        25
                                                       ----
  Total                                                $446
                                                       ====

Assets to Be Disposed Of
     The company  withdrew from the ammonium  perchlorate  business in 1998. The
carrying  value of these assets was  approximately  $9 million.  The gain on the
sale was  immaterial.
     During 1997,  the  company's  exploration  and  production  operating  unit
completed a program to divest a number of crude oil and  natural  gas  producing
properties considered to be nonstrategic.  Most of these properties were located
onshore in the United States;  however, some were located in the Gulf of Mexico,
Canada  and the North  Sea.  Net  gains  recognized  on the sales of  properties
included in the divestiture  program totaled $6 million in 1997. The divestiture
program  properties did not  constitute a material  portion of the company's oil
and gas  production or cash flows from  operations  for 1997.
     Following  are the sales and pretax  income  included  in the  Consolidated
Statement of Income in 1998 and 1997 for assets sold during the two-year  period
ended December 31, 1998.  Any  impairment  loss is included in the pretax income
amounts.  The company had no material  assets held for disposal at year-end 1999
or 1998.

(Millions of dollars)                                  1998    1997
Sales -
  Chemicals - other                                     $11     $30

Income -
  Chemicals - other                                      --       3

18. Financial Instruments and Hedging Activities

Investments in Certain Debt and Equity Securities
     The company has certain investments that are considered to be available for
sale. The company also has debt that is exchangeable  into equity  securities of
an investee that are considered 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 or trading at  December  31,  1999 and 1998.  At December  31, 1999 and
1998,  available-for-sale  securities for which fair value can be determined are
as follows:
<TABLE>
<CAPTION>

                                                           1999                               1998
                                              -----------------------------     -----------------------------
                                                                      Gross                             Gross
                                               Fair              Unrealized      Fair              Unrealized
                                              Value   Cost    Holding Gains     Value   Cost    Holding Gains
                                              -----   ----    -------------     -----   ----    -------------
<S>                                           <C>     <C>              <C>        <C>    <C>              <C>
Equity securities                             $327    $209             $118       $--    $--              $--
U.S. government obligations -
  Maturing within one year                       5       5               --        13     13               --
  Maturing between one year and four years      11      11               --        17     17               --
Exchangeable debt                              327     330                3        --     --               --
                                                                       ----                               ---
    Total                                                              $121                               $--
                                                                       ====                               ===
</TABLE>

     The equity  securities  represent the company's  investment in Devon common
stock that is no longer accounted for under the equity method of accounting (see
Note 5).  The  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  exchangeable  debt represents  5-1/2% notes  exchangeable  into common
stock (DECS) of Devon held by the company. The notes are due August 2, 2004, and
holders of the notes will receive  between  .84746 and one common share of Devon
per DECS, depending on the average trading price of Devon's common stock at that
time, or the cash equivalent of such common stock.  The DECS are carried at fair
value in the Consolidated Balance Sheet as Long-Term Debt (see Note 8).
     The change in unrealized  holding gains,  net of income taxes,  as shown in
accumulated  other  comprehensive  income for the years ended December 31, 1999,
1998 and 1997, is as follows:

(Millions of dollars)                                  1999    1998    1997
---------------------                                  ----    ----    ----
Beginning balance -                                     $--     $--     $12
  Net unrealized holding gains                           79      --       2
  Net realized gains                                     --      --     (12)
  Net appreciation of donated securities                 --      --      (2)
                                                        ---     ---     ---
Ending balance                                          $79     $--     $--
                                                        ===     ===     ===

     During  1997,  the  company  sold  available-for-sale   equity  securities.
Proceeds  from the sales  totaled $21 million in 1997.  The average  cost of the
securities was used in the  determination  of the realized gains,  which totaled
$18 million before income taxes in 1997. Also during 1997, the company donated a
portion of its  available-for-sale  equity  securities to Kerr-McGee  Foundation
Corporation,   a  tax-exempt   entity  whose   purpose  is  to   contribute   to
not-for-profit organizations.  The fair value of these donated shares totaled $3
million in 1997, which included  appreciation of $3 million before income taxes.

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, 1999 and 1998,  the  carrying  amount and  estimated  fair value of
these  instruments  for which fair value can be determined are as follows:
<TABLE>
<CAPTION>

                                                          1999                   1998
                                                --------------------    --------------------
                                                Carrying        Fair    Carrying        Fair
(Millions of dollars)                             Amount       Value      Amount       Value
---------------------                           --------       -----    --------       -----
<S>                                               <C>         <C>         <C>         <C>
Cash and cash equivalents                         $  267      $  267      $  121      $  121
Long-term notes receivable                            26          23           9           9
Long-term receivables                                 72          60          --          --
Contracts to sell foreign currencies                  --           5          --           2
Contracts to purchase foreign currencies              --          98          --         111
Oil and gas price hedging contracts                   --          --           7          22
Short-term borrowings                                  9           9          36          36
Long-term debt, excluding DECS                     2,189       2,228       2,214       2,365
</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 discounted cash
flows. 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. The fair
value of foreign currency forward contracts represents the aggregate replacement
cost based on financial institutions' quotes.

Hedging Activities
     Most of the company's foreign currency contracts are hedges principally for
chemical's  accounts  receivable  generated from titanium  dioxide pigment sales
denominated in foreign currencies,  the operating costs and capital expenditures
of  international  pigment  operations,  and the  operating  costs  and  capital
expenditures  of U.K.  oil and gas  operations.  The  purpose  of these  foreign
currency  hedging  activities  is to protect the company  from the risk that the
functional  currency amounts from sales to foreign  customers and purchases from
foreign  suppliers  could be adversely  affected by changes in foreign  currency
exchange rates. The company recognized net foreign currency hedging losses of $5
million in 1999 and net foreign  currency  hedging  gains of $4 million in 1997.
The net foreign  currency  hedging loss recognized in 1998 was  immaterial.
     Net unrealized  gains on foreign currency  contracts  totaled $2 million at
year-end 1999. Net unrealized  losses on foreign currency  contracts  totaled $7
million at year-end 1998 and $13 million at year-end 1997. The company's foreign
currency contract positions at year-end 1999 and 1998 were as follows:

December 31, 1999 -
     - Contracts  maturing  January 2000 through  December 2002 to purchase $150
million  Australian for $96 million
     - Contracts  maturing  January  through March 2000 to sell various  foreign
currencies (principally European) for $5 million

December 31, 1998 -
     - Contracts  maturing  January 1999 through  December 2000 to purchase $113
million Australian for $77 million and 25 million British pound sterling for $40
million
     - Contracts  maturing  January  through March 1999 to sell various  foreign
currencies  (principally  European) for $2 million

     The  company  has  periodically  used oil or natural  gas futures or collar
contracts to reduce the effect of the price  volatility of crude oil and natural
gas. The futures contracts permitted settlement by delivery of commodities.
     The company did not enter into any hedging arrangements in 1999 and settled
all open 1998 contracts  during the year.  Net hedging gains  recognized in 1999
totaled $28 million.  The effect of the gains was to increase the company's 1999
average  gross  margin for crude oil and natural gas by $.11 per barrel and $.09
per  MCF,   respectively.
     During 1998, the company  entered into hedging  arrangements  for 7 million
barrels of crude oil and 61  billion  cubic  feet of  natural  gas  representing
approximately  11% and 29% of its  worldwide  crude  oil and  natural  gas sales
volumes, respectively. Net hedging gains recognized in 1998 totaled $45 million.
The effect of the gains was to increase the company's  1998 average gross margin
for crude oil and natural gas by $.55 per barrel and $.05 per MCF, respectively.
At year-end  1998,  open crude oil and natural gas  contracts  had an  aggregate
value of $7 million,  and the  unrecognized  gain on the  contracts  totaled $15
million.
     During 1997, the company entered into hedging  arrangements  for 12 million
barrels of crude oil and 75  billion  cubic  feet of  natural  gas  representing
approximately  18% and 30% of its  worldwide  crude  oil and  natural  gas sales
volumes,  respectively.  Net  hedging  losses  recognized  in 1997  totaled  $27
million. The effect of the losses was to reduce the company's 1997 average gross
margin  for  crude  oil and  natural  gas by $.10 per  barrel  and $.08 per MCF,
respectively.  At year-end 1997, open crude oil and natural gas contracts had an
aggregate  value of $2 million,  and the  unrecognized  loss on these  contracts
totaled $7 million.
     Contract amounts do not quantify risk or represent assets or liabilities of
the  company  but are used in the  calculation  of cash  settlements  under  the
contracts.  These financial  instruments  limit the company's  market risks, are
with major  financial  institutions,  expose the company to credit  risks and at
times may be concentrated  with certain  institutions or groups of institutions.
However,  the credit  worthiness of these  institutions is subject to continuing
review, and full performance is anticipated.  Additional  information  regarding
market risk is included in Management's Discussion and Analysis.
     Year-end hedge  positions and activities  during a particular  year are not
necessarily indicative of future activities and results

19. 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)                                               1999        1998      1999         1998
---------------------                                             ------      ------      ----         ----
<S>                                                               <C>         <C>         <C>          <C>
Benefit obligation, beginning of year                             $1,027      $  976      $217         $209
  Service cost                                                        15          16         1            3
  Interest cost                                                       69          66         9           13
  Plan amendments                                                     70          38         4            1
  Net actuarial loss (gain)                                          (15)         15        (2)           8
  Acquisitions                                                        --           6        --           --
  Assumption changes                                                 (50)         --        --           --
  Changes resulting from plan mergers                                 14          --        (7)          --
  Dispositions, curtailments, settlements                             21           5        --           (2)
  Benefits paid                                                     (174)        (95)       (7)         (15)
                                                                  ------         ---      ----         ----
Benefit obligation, end of year                                   $  977      $1,027      $215         $217
                                                                  ======      ======      ====         ====
</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 unfunded  retirement  plans was $42 million and $109 million at December
31, 1999 and 1998, respectively.  Although not considered plan assets, a grantor
trust was  established  from which  payments  for certain of these  supplemental
plans are made.  The trust had a balance of $5 million at year-end  1999 and $10
million at year-end 1998. 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, 1999 and 1998:
<TABLE>
<CAPTION>


                                                                                        Postretirement Health
                                                                    Retirement Plans        and Life Plans
                                                                  ------------------    ---------------------
(Millions of dollars)                                               1999        1998      1999         1998
---------------------                                             ------      ------     -----        -----
<S>                                                               <C>         <C>        <C>          <C>
Fair value of plan assets, beginning of year                      $1,404      $1,138     $  --        $  --
  Actual return on plan assets                                       381         351        --           --
  Employer contribution                                               35          10        --           --
  Changes resulting from plan mergers                                  7          --        --           --
  Benefits paid                                                     (174)        (95)       --           --
                                                                  ------      ------     -----        -----
Fair value of plan assets, end of year                             1,653       1,404        --           --
Benefit obligation                                                  (977)     (1,027)     (215)        (217)
                                                                  ------      ------     -----        -----

Funded status of plans - over (under)                                676         377      (215)        (217)
  Amounts not recognized in the Consolidated Balance Sheet-
    Transition asset                                                  (6)        (13)       --           --
    Prior service costs                                               86          33         5           --
    Net actuarial loss (gain)                                       (704)       (366)       11           18
                                                                  ------      ------     -----        -----
Prepaid expense (accrued liability)                               $   52      $   31     $(199)       $(199)
                                                                  ======      ======     =====        =====
</TABLE>

     Following  is  the   classification  of  the  amounts   recognized  in  the
Consolidated Balance Sheet at December 31, 1999 and 1998:
<TABLE>
<CAPTION>


                                                                                        Postretirement Health
                                                                    Retirement Plans        and Life Plans
                                                                    ----------------    ---------------------
(Millions of dollars)                                               1999        1998      1999         1998
---------------------                                               ----       -----     -----        -----
<S>                                                                 <C>        <C>       <C>          <C>
Prepaid benefits expense                                            $ 79       $ 102     $  --        $  --
Accrued benefit liability                                            (39)       (109)     (199)        (199)
Additional minimum liability -
  Intangible asset                                                     6           7        --           --
  Accumulated other comprehensive income                               6          31        --           --
                                                                    ----       -----     -----        -----
    Total                                                           $ 52       $  31     $(199)       $(199)
                                                                    ====       =====     =====        =====
</TABLE>

     Total costs recognized for employee  retirement and postretirement  benefit
plans for each of the  years  ended  December  31,  1999,  1998 and 1997 were as
follows:
<TABLE>
<CAPTION>


                                                           Retirement Plans        Postretirement Health and Life Plans
                                                           ----------------        ------------------------------------
(Millions of dollars)                                    1999    1998    1997             1999    1998    1997
---------------------                                    ----    ----    ----             ----    ----    ----
<S>                                                      <C>     <C>     <C>               <C>     <C>     <C>
Net periodic cost -
  Service cost                                           $ 15    $ 16    $ 15              $ 1     $ 3     $ 2
  Interest cost                                            69      66      64                9      13      15
  Expected return on plan assets                          (98)    (94)    (84)              --      --      --
  Net amortization -
    Transition asset                                       (6)     (8)     (8)              --      --      --
    Prior service cost                                     12       3       2               --      --      --
    Net actuarial loss (gain)                              (3)      1       1               --      (1)     --
                                                         ----    ----    ----              ---     ---     ---
                                                          (11)    (16)    (10)              10      15      17
Dispositions, curtailments, settlements                    29      26       6               --      (1)     --
                                                         ----    ----    ----              ---     ---     ---
      Total                                              $ 18    $ 10    $ (4)             $10     $14     $17
                                                         ====    ====    ====              ===     ===     ===
</TABLE>


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

                                                  1999       1998       1997
                                             ---------    -------    -------
Discount rate                                5.50-7.75%      6.75%   6.5-7.0%
Expected return on plan assets               6.25-9.5     9.0-9.5    9.0-9.5
Rate of compensation increases                3.0-5.0     4.0-5.0    4.0-5.0

     The  health  care cost trend  rates used to  determine  the  year-end  1999
postretirement  benefit obligation were 7.5% in 2000,  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, 1999,  by $14 million and increase the  aggregate of
the service and interest cost components of net periodic  postretirement expense
for 1999 by $1  million.  A 1%  decrease  in the trend rate for each future year
would reduce the benefit obligation at year-end 1999 by $14 million.  It was not
practical  to  calculate  the effect of the  percent  decrease  on net  periodic
expense in the health care cost trend rate.

20. 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).  Most of the company's  employees are eligible to
participate  in both the ESOP  and the  SIP.  Although  the ESOP and the SIP are
separate  plans,  matching   contributions  to  the  ESOP  are  contingent  upon
participants' contributions to the SIP.
     In 1989,  the ESOP  trust  borrowed  $125  million  from a group of lending
institutions and used the proceeds to purchase approximately 3 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 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.
     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)                                 1999    1998
 ---------------------                                -----   -----
 Participants' accounts                               1,357   1,398
 Loan suspense account                                1,380   1,610

     The shares  allocated to ESOP  participants at December 31, 1999,  included
approximately  51,000 shares released in January 2000, and at December 31, 1998,
included approximately 52,000 shares released in January 1999.
     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 and
CAP-related  expense of $14 million,  $17 million and $13 million in 1999,  1998
and 1997,  respectively.  These amounts include interest expense incurred on the
third-party  ESOP debt of $4  million  in 1999 and $5  million  in both 1998 and
1997. The company  contributed  $18 million,  $16 million and $12 million to the
ESOP and CAP in 1999, 1998 and 1997,  respectively.  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 1999, 1998 and 1997.

21. Employee Stock Option Plans

     The 1998 Long Term  Incentive  Plan (1998 Plan)  authorizes the issuance of
shares of the company's common stock any time prior to December 31, 2007, 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 2,300,000
shares of the  company's  common stock is authorized to be issued under the 1998
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 all full-time  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) authorized the issuance
of  shares of the  company's  stock  over a 15-year  period 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.  No options could be
granted  under the 1987  Program  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.

     In  connection  with the merger with Oryx (see Note 1),  outstanding  stock
options  under the stock  option  plans  maintained  by Oryx were assumed by the
company. Stock option transactions summarized below include amounts for the 1998
Plan,  the BSOP,  the 1987 Program and the Oryx plans using the merger  exchange
rate of 0.369 for each Oryx share under option.
<TABLE>
<CAPTION>


                                                   1999                          1998                           1997
                                       --------------------------   ---------------------------    ---------------------------
                                                 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        2,783,482            $58.77   2,050,671            $56.84    2,241,136            $54.06
  Options granted                       377,000             46.53   1,105,043             61.97      481,213             68.04
  Options exercised                    (110,521)            42.20    (127,576)            44.34     (580,605)            50.49
  Options surrendered upon exercise
    of stock appreciation rights        (14,000)            45.25      (4,000)            38.06       (5,000)            32.38
  Options forfeited                     (45,929)            60.73     (24,928)            60.26       (6,703)            57.46
  Options expired                      (166,698)            72.95    (215,728)            65.65      (79,370)            93.43
                                      ---------                     ---------                      ---------
Outstanding, end of year              2,823,334             56.78   2,783,482             58.77    2,050,671             56.84
                                      =========                     =========                      =========

Exercisable, end of year              2,003,138             57.63   1,497,753             55.38    1,249,055             53.96
                                      =========                     =========                      =========
</TABLE>

     The following table summarizes information about stock options issued under
the plans  described  above that are outstanding and exercisable at December 31,
1999:
<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>
  142,883 $ 30.00-$ 39.99                    2.8               $ 35.01      142,883            $ 35.01
  625,172   40.00-  49.99                    5.0                 43.98      430,172              45.69
1,035,573   50.00-  59.99                    7.1                 57.00      499,851              56.33
  803,023   60.00-  69.99                    4.7                 65.87      752,886              65.93
  212,639   70.00-  79.99                    5.0                 72.69      173,302              72.51
    2,679   90.00-  99.99                     .9                 97.56        2,679              97.56
    1,365  110.00- 120.00                     .1                119.58        1,365             119.58
---------                                                                 ---------
2,823,334   30.00- 120.00                    5.5                 56.78    2,003,138              57.63
=========                                                                 =========
</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 1999, 1998 and 1997.
     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)        1999    1998    1997
-----------------------------------------------        ----    ----    ----
Net income (loss) -
  As reported                                          $142    $(68)   $382
  Pro forma                                             136     (76)    376

Net income (loss) per share -
  Basic -
    As reported                                        1.64    (.78)   4.40
    Pro forma                                          1.57    (.88)   4.34
  Diluted -
    As reported                                        1.64    (.78)   4.38
    Pro forma                                          1.57    (.88)   4.32

     The fair value of each option granted in 1999,  1998 and 1997 was estimated
as of the date of grant using the  Black-Scholes  option  pricing model with the
following  weighted-average  assumptions.  The use of ranges in prior  years was
necessitated by the Oryx merger.
<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>  <C>    <C>    <C>         <C>    <C>
1999                  5.4%             3.1%                 5.8           25.2%              $11.33
1998            5.0 - 5.4          0 - 3.0             5.8 - 10    17.3 - 30.3        $9.78 - 11.20
1997            6.3 - 7.0          0 - 3.1             5.8 - 10    17.5 - 30.8        11.65 - 14.37
</TABLE>

22. Merger and Restructuring Charges

     In 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. The merger resulted in approximately  550 employees being
terminated during 1999 under an involuntary termination program.
     Oryx  initiated  a  voluntary  severance  program  in  1998,  prior  to the
agreement to merge with Kerr-McGee,  for its U.S.  operations.  The company also
completed a work process review during 1998 which resulted in the elimination of
nonessential   work  processes,   organizational   restructuring   and  employee
reductions in both the operating and staff units.  The programs  resulted in the
notification  of  approximately  260  employees  that their  positions  would be
eliminated.
     During the three-year period ended December 31, 1999, the company accrued a
total of $206 million for the cost of special termination  benefits for retiring
employees  to  be  paid  from  retirement  plan  assets,   future  compensation,
relocation,  transaction  costs related to the merger,  lease  cancellation  and
outplacement.
     The merger  reserve at December  31,  1999,  includes $16 million for costs
associated with an office lease  obligation that has no economic  benefit to the
company but will be paid through the cancellation date in 2001 and the remaining
severance costs, which are expected to be paid and charged to the reserve during
2000. The accruals, expenditures and reserve balances are set forth below:


                                           Merger              Restructuring
                                          Reserve                    Reserve
                                          -------              -------------
(Millions of dollars)                      1999                 1999    1998
---------------------                     -------               ----    ----

Beginning balance                         $  --                 $ 20    $ 12
  Accruals                                  163                    1      40
  Benefits to be paid from
    employee benefit plans                  (31)                  --     (23)
  Payments                                 (126)                 (15)     (9)
  Transfer to merger reserve from
    restructuring reserve and
    other accrued liabilities(1)             14                   (6)     --
                                          -----                 ----    ----
Ending balance                            $  20                 $ --    $ 20
                                          =====                 ====    ====

(1)  In  a   prior   Oryx   reduction   in  force,  a  $6  million  reserve  was
     established for lease cancellation costs on a portion of the Dallas, Texas,
     office space.    Additionally,  Oryx had planned to cancel the remainder of
     the lease and had  established  an accrued  liability of $8 million.  These
     liabilities  were  combined with the 1999 merger  reserve since  Kerr-McGee
     also plans to cancel the lease at the date of the first option to cancel.

23. Merger with Oryx Energy Company

     On February 26, 1999, the merger between Kerr-McGee and Oryx was completed.
The following table provides a reconciliation of sales reported by Kerr-McGee to
the combined amounts presented in the Consolidated Statement of Income:

(Millions of dollars)                                  1999    1998    1997
---------------------                                ------  ------  ------
Sales -
  Pre-Merger -
    Kerr-McGee                                       $  199  $1,396  $1,388
    Oryx                                                103     820   1,197
  Merger reclassifications                               --     (16)     20
  Post-Merger                                         2,394      --      --
                                                     ------  ------  ------
      Total                                          $2,696  $2,200  $2,605
                                                     ======  ======  ======

     Merger reclassifications primarily represent the reclassification of Oryx's
other income to Kerr-McGee's presentation.
     The following  table provides a  reconciliation  of net income  reported by
Kerr-McGee to the combined amounts  presented for the three years ended December
31, 1999, 1998 and 1997:
<TABLE>
<CAPTION>

                             Income (Loss)
                           From Continuing   Discontinued   Extraordinary      Accounting
                                Operations     Operations          Charge          Change      Net Income
(Millions of dollars)       (net of taxes) (net of taxes)  (net of taxes)  (net of taxes)          (Loss)
---------------------       -------------- --------------  --------------  --------------          ------
<S>                                  <C>             <C>              <C>             <C>            <C>
1999 -
  Pre-Merger -
    Kerr-McGee                       $   6           $ --             $--             $(4)           $  2
    Oryx                               (14)            --              --              --             (14)
  Post-Merger                          154             --              --              --             154
                                     -----           ----             ---             ---            ----
      Total                          $ 146           $ --             $--             $(4)           $142
                                     =====           ====             ===             ===            ====

1998 -
  Pre-Merger -
    Kerr-McGee                       $(227)          $277             $--             $--            $ 50
    Oryx                               (95)            --              --              --             (95)
  Merger adjustments                   (23)            --              --              --             (23)
                                     -----           ----             ---             ---            ----
      Total                          $(345)          $277             $--             $--            $(68)
                                     =====           ====             ===             ===            ====

1997 -
  Pre-Merger -
    Kerr-McGee                       $ 161           $ 33             $--             $--            $ 194
    Oryx                               172             --              (2)             --              170
  Merger adjustments                    18             --              --              --               18
                                     -----           ----             ---             ---            -----
      Total                          $ 351           $ 33             $(2)            $--            $ 382
                                     =====           ====             ===             ===            =====
</TABLE>

     The merger  adjustments were to conform accounting policy changes primarily
related to the following:  (1) accounting for postretirement benefits other than
pensions;  (2) different methods for recognizing  Petroleum Revenue Tax for U.K.
operations;  and (3) different  methods of providing for nonproducing  leasehold
cost impairments.


24. 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,  United  Kingdom  sector of the North Sea,  Indonesia,
China,  Kazakhstan  and  Ecuador.  Exploration  efforts  are  also  extended  to
Australia,  Algeria, Brazil, Gabon, Thailand, Yemen and the Danish sector of the
North Sea. The chemical unit  primarily  produces and markets  titanium  dioxide
pigment and has operations in the United States, Australia, Germany and Belgium.
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 an  individually  significant  customer  totaled  $420
million in 1999.  There were no  individually  significant  customers in 1998 or
1997. Sales to subsidiary companies are eliminated as described in Note 1.
<TABLE>
<CAPTION>

(Millions of dollars)                                     1999       1998       1997
---------------------                                   ------     ------     ------
<S>                                                     <C>        <C>        <C>
Sales -
  Exploration and production                            $1,770     $1,267     $1,845
                                                        ------     ------     ------
  Chemicals -
    Pigment                                                700        640        470
    Other                                                  226        293        290
                                                        ------     ------     ------
      Total Chemicals                                      926        933        760
                                                        ------     ------     ------
        Total                                           $2,696     $2,200     $2,605
                                                        ======     ======     ======

Operating profit (loss)(1) -
  Exploration and production                            $  542     $(361)     $  595
                                                        ------     -----      ------
  Chemicals -
    Pigment                                                113         56         49
    Other                                                   14         --         32
                                                        ------     ------     ------
      Total Chemicals                                      127         56         81
                                                        ------     ------     ------
        Total                                           $  669     $ (305)    $  676
                                                        ======     ======     ======

Net operating profit (loss)(1) -
  Exploration and production                            $  338     $ (266)    $  375
                                                        ------     ------     ------
  Chemicals -
    Pigment                                                 73         35         31
    Other                                                    9         --         21
                                                        ------     ------     ------
      Total Chemicals                                       82         35         52
                                                        ------     ------     ------
        Total                                              420       (231)       427
Net interest expense(1)                                   (117)       (77)       (84)
Net nonoperating income (expense)(1)                      (157)       (37)         8
Income from discontinued operations, net of taxes           --        277         33
Extraordinary charge, net of taxes                          --         --         (2)
Cumulative effect of change in accounting principle,
  net of taxes                                              (4)        --         --
                                                        ------     ------     ------
Net income (loss)                                       $  142     $  (68)    $  382
                                                        ======     ======     ======

Depreciation, depletion and amortization -
  Exploration and production                            $  578     $  527     $  508
                                                        ------     ------     ------
  Chemicals -
    Pigment                                                 45         49         34
    Other                                                   18         19         21
                                                        ------     ------     ------
      Total Chemicals                                       63         68         55
                                                        ------     ------     ------
  Other                                                      7          6          5
  Discontinued operations                                   --         14         25
                                                        ------     ------     ------
        Total                                           $  648     $  615     $  593
                                                        ======     ======     ======
</TABLE>

(1) Includes special items.  Refer to Management's Discussion and Analysis.
<TABLE>
<CAPTION>

(Millions of dollars)                                     1999       1998       1997
---------------------                                   ------     ------     ------
<S>                                                     <C>        <C>        <C>
Cash capital expenditures -
  Exploration and production                            $  447     $  871     $  708
                                                        ------     ------     ------
  Chemicals -
    Pigment                                                 76         69         64
    Other                                                   14         23         27
                                                        ------     ------     ------
      Total Chemicals                                       90         92         91
                                                        ------     ------     ------
  Other                                                      6          8         10
  Discontinued operations                                   --         10         27
                                                        ------     ------     ------
        Total                                              543        981        836
                                                        ------     ------     ------

Cash exploration expenses -
  Exploration and production -
    Dry hole costs                                          43        100         53
    Amortization of undeveloped leases                      41         40         23
    Other                                                   56         75         63
                                                        ------     ------     ------
      Total exploration expenses                           140        215        139
    Less - Amortization of leases and
      other noncash expenses                               (51)       (42)       (23)
                                                        ------     ------     ------
        Total cash exploration expenses                     89        173        116
                                                        ------     ------     ------
          Total cash capital expenditures
            and cash exploration expenses               $  632     $1,154     $  952
                                                        ======     ======     ======

Identifiable assets -
  Exploration and production                            $4,013     $4,083     $3,924
                                                        ------     ------     ------
  Chemicals -
    Pigment(1)                                             921        863        601
    Other                                                  229        235        274
                                                        ------     ------     ------
      Total Chemicals                                    1,150      1,098        875
                                                        ------     ------     ------
        Total                                            5,163      5,181      4,799
  Corporate and other assets                               736        270        270
  Discontinued operations                                   --         --        270
                                                        ------     ------     ------
        Total                                           $5,899     $5,451     $5,339
                                                        ======     ======     ======

Sales -
  U.S. operations                                       $1,471     $1,311     $1,635
                                                        ------     ------     ------
  International operations -
    North Sea - exploration and production                 752        472        644
    Other - exploration and production                      78         67        105
    Europe - pigment                                       210        163         --
    Australia - pigment                                    185        178        185
    Other - pigment                                         --          9         36
                                                        ------     ------     ------
                                                         1,225        889        970
                                                        ------     ------     ------
      Total                                             $2,696     $2,200     $2,605
                                                        ======     ======     ======

Operating profit (loss)(2) -
  U.S. operations                                       $  364     $ (116)    $  400
                                                        ------     ------     ------
  International operations -
    North Sea - exploration and production                 270       (146)        85
    Other - exploration and production                      --        (85)       178
    Australia - pigment                                     21         19         13
    Europe - pigment                                        14         23         --
                                                        ------     ------     ------
                                                           305       (189)       276
                                                        ------     ------     ------
      Total                                             $  669     $ (305)    $  676
                                                        ======     ======     ======
</TABLE>

(1) Includes net deferred tax asset of $12 million,  $17 million and $22 million
    at December 31, 1999,  1998 and 1997,  respectively  (see Note 12).
(2) Includes special items. Refer to Management's Discussion and Analysis.
<TABLE>
<CAPTION>

(Millions of dollars)                                     1999       1998       1997
---------------------                                   ------     ------     ------
<S>                                                     <C>        <C>        <C>
Net property, plant and equipment -
  U.S. operations                                       $2,106     $2,095     $2,382
                                                        ------     ------     ------
  International operations -
    North Sea - exploration and production               1,547      1,617      1,101
    Other - exploration and production                     219        213        303
    Australia - pigment                                    132        129        133
    Europe - pigment                                        81         99         --
                                                        ------     ------     ------
                                                         1,979      2,058      1,537
                                                        ------     ------     ------
      Total                                             $4,085     $4,153     $3,919
                                                        ======     ======     ======
</TABLE>

25. Subsequent Events

     On January 18, 2000,  the company  completed  the purchase of Repsol S.A.'s
upstream oil and gas  operations in the United  Kingdom  sector of the North Sea
for $555 million. The cash transaction was financed initially through transition
financing,  which will be replaced with the permanent financing discussed below.
Additionally,  on February 14, 2000, the company reached  definitive  agreements
with Kemira Oyj of Finland to purchase its titanium  dioxide pigment  operations
in Savannah, Georgia, and Boltek, the Netherlands, for $403 million.
     To provide financing for these two  acquisitions,  the company completed in
February a public offering of 7.5 million shares of its common stock at $50.0625
per share and a separate offering of $600 million of 5-1/4%, 10-year convertible
subordinated debentures. The conversion price of the debentures is $61.0763.

26. 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, 1999, are reflected in the following table:

                                  Property
                               Acquisition     Exploration     Development
(Millions of dollars)             Costs(1)        Costs(2)        Costs(3)
---------------------          -----------     -----------     -----------
1999 -
  United States                       $ 81            $ 92            $224
  North Sea                             30              18             106
  Other international                    8              32               9
                                      ----            ----            ----
    Total                             $119            $142            $339
                                      ====            ====            ====

1998 -
  United States                       $117            $136            $347
  North Sea                            423              38             311
  Other international                    5              75              29
                                      ----            ----            ----
    Total                             $545            $249            $687
                                      ====            ====            ====

1997 -
  United States                       $ 70            $110            $360
  North Sea                              2              18             146
  Other international                    2              61              50
                                      ----            ----            ----
    Total                             $ 74            $189            $556
                                      ====            ====            ====


(1) Includes $49 million,  $280 million and $11 million  applicable to purchases
    of reserves in place in 1999, 1998 and 1997, 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.

27. 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, 1999, 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>
1999 -
  United States                 $  938        $178      $ 73          $ 97           $316        $ --        $  96           $ 178
  North Sea                        731         231        22            22            205          --           99             152
  Other international               77          23        18            21             15          --            2              (2)
                                ------        ----      ----          ----           ----        ----        -----           -----
    Total crude oil and
      natural gas activities     1,746         432       113           140            536          --          197             328
  Other(2)                          24           6        --            --              1          --            7              10
       --                       ------        ----      ----          ----           ----        ----        -----           -----
        Total                   $1,770        $438      $113          $140           $537        $ --        $ 204           $ 338
                                ======        ====      ====          ====           ====        ====        =====           =====

1998 -
  United States                 $  721        $184      $126          $141           $285        $114        $ (36)          $ (93)
  North Sea                        450         195         7            21            170         160          (20)            (83)
  Other international               67          12         9            52             31         115          (45)           (107)
                                ------        ----      ----          ----           ----        ----        -----           -----
    Total crude oil and
      natural gas activities     1,238         391       142           214            486         389         (101)           (283)
  Other(2)                          29           5         1            --             --          --            6              17
       --                       ------        ----      ----          ----           ----        ----        -----           -----
        Total                   $1,267        $396      $143          $214           $486        $389        $ (95)          $(266)
                                ======        ====      ====          ====           ====        ====        =====           =====

1997 -
  United States                 $1,045        $211      $101          $ 82           $316        $ --        $ 120           $  215
  North Sea                        615         207        11            19            140          --           94              144
  Other international              101          29        12            36             29          --           (6)               1
                                ------        ----      ----          ----           ----        ----        -----           ------
    Total crude oil and
      natural gas activities     1,761         447       124           137            485          --          208              360
  Other(2)                          84          55         2            --             --          --           12               15
       --                       ------        ----      ----          ----           ----        ----        -----           ------
        Total                   $1,845        $502      $126          $137           $485        $ --        $ 220           $  375
                                ======        ====      ====          ====           ====        ====        =====           ======
</TABLE>

(1) Includes  transition and restructuring  charges of $20 million,  $34 million
and $2 million in 1999, 1998 and 1997, respectively (see Note 22).

(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).

                                                       1999    1998    1997
                                                     ------  ------  ------
Average sales price -
  Crude oil (per barrel) -
    United States                                    $16.70  $12.73  $18.34
    North Sea                                         17.88   12.93   18.93
    Other international                               14.34    9.90   15.36
      Average                                         17.15   12.52   18.32

  Natural gas (per MCF) -
    United States                                      2.38    2.09    2.43
    North Sea                                          2.12    2.46    2.44
      Average                                          2.35    2.12    2.43

Production costs -
 (Per barrel of oil equivalent)
    United States                                      2.92    3.23    3.25
    North Sea                                          5.57    5.62    6.25
    Other international                                4.32    1.78    4.33
      Average                                          4.01    3.97    4.27


28. 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 1999 and
1998 are set forth in the table below.

(Millions of dollars)                                            1999      1998
---------------------                                          ------    ------
Capitalized costs -
  Proved properties                                            $9,153    $8,701
  Unproved properties                                             438       583
  Other                                                            98        75
                                                               ------    ------
    Total                                                       9,689     9,359
                                                               ------    ------
Reserves for depreciation, depletion and amortization -
  Proved properties                                             6,100     5,734
  Unproved properties                                             102        69
  Other                                                            43        34
                                                               ------    ------
    Total                                                       6,245     5,837
                                                               ------    ------
      Net capitalized costs                                    $3,444    $3,522
                                                               ======    ======

29. 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.
     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, 1999.

<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(1)      Sea     tional   Total
                                                  ------   -----   --------   -----      ---------    -----   --------   -----
<S>                                                  <C>     <C>        <C>     <C>          <C>        <C>        <C>   <C>
Proved developed and undeveloped reserves -
  Balance December 31, 1996(2)                       251     211        101     563          1,481      197         39   1,717
    Revisions of previous estimates                   12      11          1      24              1       22          3      26
    Purchases of reserves in place                     5      --         --       5             19       --         --      19
    Sales of reserves in place                        --      (1)        --      (1)           (30)      --         --     (30)
    Extensions, discoveries and other additions       28       1          9      38            227       --        214     441
    Production                                       (26)    (30)        (7)    (63)          (235)     (16)        --    (251)
                                                     ---     ---        ---     ---          -----      ---        ---   -----
  Balance December 31, 1997                          270     192        104     566          1,463      203        256   1,922
    Revisions of previous estimates                    6       6        (15)     (3)            (4)       7         13      16
    Purchases of reserves in place                    --      45         --      45              4       46         --      50
    Sales of reserves in place                       (13)     --         --     (13)           (88)      --         --     (88)
    Extensions, discoveries and other additions       14       9         21      44            129        3        103     235
    Production                                       (24)    (32)        (7)    (63)          (197)     (17)        --    (214)
                                                     ---     ---        ---     ---          -----      ---        ---    ----
  Balance December 31, 1998                          253     220        103     576          1,307      242        372    1,921
    Revisions of previous estimates                    5      14          1      20             14        9          5       28
    Purchases of reserves in place                     4       7         --      11             18       36         --       54
    Sales of reserves in place                        (1)     (5)        --      (6)            (1)      --         --       (1)
    Extensions, discoveries and other additions        1      34         13      48            101        2        138      241
    Production                                       (29)    (38)        (5)    (72)          (191)     (23)        --     (214)
                                                     ---     ---        ---     ---          -----      ---        ---   ------
  Balance December 31, 1999                          233     232        112     577          1,248      266        515    2,029
                   === ====                          ===     ===        ===     ===          =====      ===        ===    =====


Proved developed reserves -
    December 31, 1997                                166     115         55     336            919      161         --    1,080
    December 31, 1998                                148     141         38     327            812      163         --      975
    December 31, 1999                                166     167         32     365            837      157         --      994

</TABLE>

(1) 1998 and 1997 U.S. gas volumes have been restated to be consistent  with the
current year's presentation.
(2)  Includes 1 million  barrels of oil and 3 billion  cubic feet of natural gas
held for sale at December 31, 1996 (see Note 17).


     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)


                                     United      North     Other
(Millions of equivalent barrels)   States(1)       Sea     International   Total
--------------------------------   ---------       ---     -------------   -----
December 31, 1997                        514       226               147     887
December 31, 1998                        471       260               165     896
December 31, 1999                        441       276               198     915

(1) 1998 and 1997 U.S. gas volumes have been restated to be consistent  with the
    current year's presentation.

30. 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
on the best information available, the development and production of the oil and
gas reserves may not occur in the periods  assumed.  Actual prices  realized 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>
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
                           =======           ======         ======       ======     ======         ======

1998 -
  United States            $ 4,780           $2,108         $  718       $1,954     $  713         $1,241
  North Sea                  3,121            2,474             82          565        160            405
  Other international        1,499              977            181          341        264             77
                           -------           ------         ------       ------     ------         ------
    Total                  $ 9,400           $5,559         $  981       $2,860     $1,137         $1,723
                           =======           ======         ======       ======     ======         ======

1997 -
  United States            $ 8,006           $2,936         $1,584       $3,486     $1,310         $2,176
  North Sea                  4,026            2,678            282        1,066        356            710
  Other international        2,291            1,471            236          584        283            301
                           -------           ------         ------       ------     ------         ------
    Total                  $14,323           $7,085         $2,102       $5,136     $1,949         $3,187
                           =======           ======         ======       ======     ======         ======

</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)                                                  1999       1998       1997
---------------------                                                ------    -------    -------
<S>                                                                  <C>       <C>        <C>
Net change in sales, transfer prices and production costs            $4,310    $(2,156)   $(3,704)
Changes in estimated future development costs                          (318)      (377)      (283)
Sales and transfers less production costs                            (1,314)      (847)    (1,314)
Purchases of reserves in place                                          117        159         26
Changes due to extensions, discoveries, etc                             592        173        478
Changes due to revisions in quantity estimates                          272         43         81
Changes due to sales of reserves in place                              (104)      (107)        (9)
Current period development costs                                        339        687        556
Accretion of discount                                                   231        437        759
Changes in income taxes                                              (1,414)       693      1,242
Timing and other                                                       (423)      (169)        37
                                                                     ------    -------    -------
  Net change                                                          2,288     (1,464)    (2,131)
Total at beginning of year                                            1,723      3,187      5,318
                                                                     ------    -------    -------
Total at end of year                                                 $4,011    $ 1,723    $ 3,187
                                                                     ======    =======    =======
</TABLE>

31. Quarterly Financial Information (Unaudited)

     A summary of quarterly  consolidated results for 1999 and 1998 is presented
below.  In periods in which  there was a loss from  continuing  operations,  the
conversion  of stock  options was not assumed  since the loss  per-share  amount
would have been lower. Therefore, the quarterly per-share amounts may not add to
the  annual  amounts.   Refer  to  Management's   Discussion  and  Analysis  for
information about special items.

<TABLE>
<CAPTION>

                                                                             Diluted Income (Loss)
                                                                                per Common Share
                                                      Income               -----------------------
                                                   (Loss) from       Net
(Millions of dollars,                  Operating    Continuing    Income    Continuing      Net
except per-share amounts)  Sales   Profit (Loss)    Operations    (Loss)    Operations      Income
------------------------- ------   -------------    ----------    ------    ----------      ------
<S>                       <C>              <C>           <C>      <C>          <C>          <C>
1999 Quarter Ended -
  March 31                $  486           $  49         $(107)   $(111)       $(1.23)      $(1.28)
  June 30                    657             135            45       45           .52          .52
  September 30               753             239            98       98          1.13         1.13
  December 31                800             246           110      110          1.27         1.27
                          ------           -----         -----    -----        ------       ------
    Total                 $2,696           $ 669         $ 146    $ 142        $ 1.69       $ 1.64
                          ======           =====         =====    =====        ======       ======

1998 Quarter Ended -
  March 31                $  507           $  55         $  16    $  24        $  .18       $  .27
  June 30                    601              73            32       83           .36          .95
  September 30               556              11           (68)     150          (.77)        1.73
  December 31                536            (444)         (325)    (325)        (3.75)       (3.74)
                          ------           -----         -----    -----        ------       ------
    Total                 $2,200           $(305)        $(345)   $ (68)       $(3.98)      $ (.78)
                          ======           =====         =====    =====        ======       ======
</TABLE>


     The  company's  common  stock is listed  for  trading on the New York Stock
Exchange  and at  year-end  1999 was  held by  approximately  32,000  Kerr-McGee
stockholders  of record and Oryx 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
                             1999                 1998           per Share
                     -----------------    -----------------    ------------
                        High      Low        High      Low     1999    1998
                     -------   -------    -------   -------    -----   -----
Quarter Ended -
  March 31           41-7/16   28-1/2     73-3/16   55-7/8     $.45    $.45
  June 30            52-1/8    32-1/2     70-1/4    56-5/8      .45     .45
  September 30       60-1/16   49-5/16    60-1/2    38          .45     .45
  December 31        62        52         47-9/16   36-3/16     .45     .45




Six-Year Financial Summary

<TABLE>
<CAPTION>

(Millions of dollars, except per-share amounts)          1999     1998     1997     1996     1995      1994
-----------------------------------------------        ------   ------   ------   ------   ------   -------
<S>                                                    <C>      <C>      <C>      <C>      <C>      <C>
Summary of Net Income (Loss)
Sales                                                  $2,696   $2,200   $2,605   $2,740   $2,419   $ 2,359
                                                       ------   ------   ------   ------   ------   -------
Costs and operating expenses                            2,289    2,606    2,011    2,122    2,305     2,185
Interest and debt expense                                 190      157      141      145      193       211
                                                       ------   ------   ------   ------   ------   -------
  Total costs and expenses                              2,479    2,763    2,152    2,267    2,498     2,396
                                                       ------   ------   ------   ------   ------   -------
                                                          217     (563)     453      473      (79)      (37)
Other income                                               40       43       82      110      147        15
Taxes on income                                          (111)     175     (184)    (225)      42        (9)
                                                       ------   ------   ------   ------   ------   -------
Income (loss) from continuing operations                  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        (4)      --       --       --       --      (948)
                                                       ------   ------   ------   ------   ------   -------
Net income (loss)                                      $  142   $  (68)  $  382   $  414   $  114   $  (936)
                                                       ======   ======   ======   ======   ======   =======

Common Stock Information, per Share
Diluted net income (loss) -
  Continuing operations                                $ 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                 (.05)      --       --       --       --    (10.82)
                                                       ------   ------   ------   ------   ------   -------
    Net income (loss)                                  $ 1.64   $ (.78)  $ 4.38   $ 4.68   $ 1.27   $(10.69)
                                                       ======   ======   ======   ======   ======   =======

Dividends declared                                     $ 1.80   $ 1.80   $ 1.80   $ 1.64   $ 1.55   $  1.52
Stockholders' equity                                    17.19    15.58    17.88    14.59    12.47     12.33
Market high for the year                                62.00    73.19    75.00    74.13    64.00     51.00
Market low for the year                                 28.50    36.19    55.50    55.75    44.00     40.00
Market price at year-end                               $62.00   $38.25   $63.31   $72.00    63.50   $ 46.25
Shares outstanding at year-end (thousands)             86,483   86,367   86,794   87,032   89,613    90,143

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

Cash Flow Information
Net cash provided by operating activities                 713      385    1,097    1,169      728       678
Cash capital expenditures                                 543      981      836      875      745       611
Dividends paid                                            138       86       85       83       79        79
Treasury stock purchased                               $   --   $   25   $   60   $  195   $   45   $    --

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

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


Six-Year Operating Summary
<TABLE>
<CAPTION>

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

Average price of crude oil sold (per barrel) -
    United States                                      $16.70   $12.73   $18.34   $19.45   $15.73   $14.25
    North Sea                                           17.88    12.93    18.93    19.60    16.56    15.33
    Other international                                 14.34     9.90    15.36    15.85    14.70    14.58
      Average                                          $17.15   $12.52   $18.32   $19.18   $16.05   $14.80

Natural gas sales (MMCF per day)                          580      584      685      781      809      872
Average price of natural gas sold (per MCF)            $ 2.35   $ 2.12   $ 2.43   $ 2.10   $ 1.63   $ 1.82

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

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

Undeveloped net acreage (thousands) -
    United States                                       1,560    1,487    1,353    1,099    1,280    1,415
    North Sea                                             861      908      523      560      570      629
    Other international                                19,039   14,716   14,630    4,556    4,031    7,494
                                                       ------   ------   ------   ------   ------   ------
      Total                                            21,460   17,111   16,506    6,215    5,881    9,538
                                                       ======   ======   ======   ======   ======   ======

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

Estimated proved reserves
  (millions of equivalent barrels)                        915      896      886      849      864    1,059

Chemicals
Industrial and specialty chemical sales
  (thousands of tonnes)                                   518      481      443      405      404      346
</TABLE>


Stockholder and Investor Information

Stock Exchange Listing
Kerr-McGee  (KMG) common stock is listed on the New York Stock Exchange and also
is traded on the Boston, Chicago, Pacific and Philadelphia stock exchanges.

Stockholder Assistance
Contact UMB Bank, N.A., of Kansas City, Missouri, toll-free at (877) 860-5820 or
(800) 884-4225 for assistance  with:
- Direct deposit of cash dividends
- Direct stock purchase and dividend reinvestment plan
- Transfer of stock certificates
- Replacement of lost or destroyed stock certificates and dividend checks

Stockholder Information and Publications
Contact the Office of the Corporate  Secretary at (800) STOCK KM  (800-786-2556)
for general information and assistance or to request the company's annual report
on Form 10-K and quarterly  reports on Form 10-Q,  as filed with the  Securities
and Exchange Commission, and the company's annual report to stockholders.

Direct Purchase and Dividend Reinvestment Plan
This plan allows  stockholders to buy Kerr-McGee  common stock directly from the
company and to reinvest  quarterly  dividends in additional  shares. The company
pays all fees and commissions for these services. For a prospectus,  please call
(800) 786-2556.

Investor Information
Richard C. Buterbaugh, Vice President, Investor Relations, is available at (405)
270-3561 to answer  questions  from  stockholders,  security  analysts and other
interested parties.

Transfer Agent and Registrar
UMB Bank, N.A.
Securities Transfer Division
P.O. Box 410064
Kansas City, MO 64141-0064
Toll-free telephone: (877) 860-5820 or (800) 884-4225

Corporate Headquarters
Kerr-McGee Corporation
Kerr-McGee Center
123 Robert S. Kerr Avenue
Oklahoma City, OK 73102

Mailing address:
P.O. Box 25861
Oklahoma City, OK 73125

Telephone: (405) 270-1313

Forward-Looking Information
     Statements  in this annual report  regarding the company's or  management's
intentions,  beliefs or expectations are  forward-looking  statements within the
meaning of the Securities Litigation Reform Act. 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 annual report.