Exhibit 13


Financial Review      Kerr-McGee Corporation
Contents
Management's Discussion and Analysis.............................20
  Overview.......................................................20
  Operating Environment and Outlook..............................20
  Results of Consolidated Operations.............................21
  Segment Operations.............................................23
  Financial Condition............................................24
  Capital Spending...............................................25
  Market Risks...................................................26
  Environmental Matters..........................................27
  New Accounting Standards.......................................29
Cautionary Statement Concerning
  Forward-Looking Statements.....................................29
Responsibility for Financial Reporting...........................29
Report of Independent Public Accountants.........................30
Consolidated Statement of Income.................................31
Consolidated Statement of Comprehensive Income
  and Stockholders' Equity.......................................32
Consolidated Balance Sheet.......................................33
Consolidated Statement of Cash Flows.............................34
Notes to Financial Statements....................................35
  1.     The Company and Significant Accounting Policies.........35
  2.     Cash Flow Information...................................37
  3.     Inventories.............................................37
  4.     Investments - Equity Affiliates.........................37
  5.     Investments - Other Assets..............................38
  6.     Property, Plant and Equipment...........................38
  7.     Deferred Charges........................................38
  8.     Asset Securitization....................................39
  9.     Acquisitions............................................39
 10.     Accrued Liabilities.....................................39
 11.     Debt....................................................40
 12.     Income Taxes............................................41
 13.     Taxes, Other than Income Taxes..........................42
 14.     Deferred Credits and Reserves - Other...................42
 15.     Commitments.............................................42
 16.     Contingencies...........................................43
 17.     Financial Instruments and Hedging Activities............44
 18.     Merger and Restructuring Charges........................46
 19.     Earnings Per Share......................................46
 20.     Common Stock............................................47
 21.     Other Income............................................47
 22.     Impairment of Long-Lived Assets and Long-Lived
           Assets to Be Disposed Of..............................48
 23.     Employee Stock Option Plans.............................48
 24.     Employee Benefit Plans..................................50
 25.     Employee Stock Ownership Plan...........................52
 26.     Reporting by Business Segments
         and Geographic Locations................................53
 27.     Discontinued Operations.................................55
 28.     Costs Incurred in Crude Oil and
         Natural Gas Activities..................................55
 29.     Results of Operations from Crude Oil
           and Natural Gas Activities............................56
 30.     Capitalized Costs of Crude Oil and
           Natural Gas Activities................................57
 31.     Crude Oil, Condensate, Natural Gas Liquids
           and Natural Gas Net Reserves (Unaudited)..............58
 32.     Standardized Measure of and Reconciliation
           of Changes in Discounted Future
           Net Cash Flows (Unaudited)............................59
 33.     Quarterly Financial Information (Unaudited).............60
Seven-Year Financial Summary.....................................61
Seven-Year Operating Summary.....................................62

Financial Review

Management's Discussion and Analysis

Overview

     Kerr-McGee  Corporation is one of the largest  independent  exploration and
production  companies and titanium dioxide pigment producers in the world. Since
the company  merged with Oryx Energy  Company in February  1999, its assets have
increased approximately 40%, proven oil and natural gas reserves have risen more
than 20%  through  both drill bit success and  acquisitions,  and the  company's
equity production capacity of titanium dioxide pigment has increased 90% through
the  acquisition of plants and minority  interests and the expansion of existing
facilities.

Operating Environment and Outlook

     Kerr-McGee  management  continually monitors events that impact the pricing
of its  products.  The  supply/demand  environment  for oil and  natural gas and
resulting  commodity  prices  dominated  global  headlines  during the winter of
2000-01.  Natural  gas  prices in the U.S.  soared  to more than $9 per  million
British thermal units, a result of  colder-than-normal  temperatures in November
and  December,  a  relatively  low natural gas storage  position at the start of
winter,  and higher  demand to power new  electrical  generation.  The impact of
record drought in the western U.S. has contributed to declines in  hydroelectric
power generation as an alternate power supply. Environmental concerns about coal
and heating oil, once  preferred  fuels for power  generation,  have placed even
more demand on natural gas supplies to power electrical  plants.  Fourth-quarter
2000 natural gas production volumes in the U.S.,  however,  were generally lower
than in the prior year's  quarter,  reflecting a slowdown in production  growth.
This slowdown has been caused by several factors,  but generally is due to fewer
reserves being discovered per well drilled and  technological  advances allowing
for quicker depletion of deposits.
     During 2000,  OPEC  indicated that it intends to keep crude oil supplies at
levels that  support a price of at least $25 per barrel.  Recorded  shipments of
crude oil from  OPEC-member  countries  support this intention.  Consumption has
continued to increase despite higher gasoline prices during 2000 and early 2001,
compared with 1999. The impact of non-OPEC production growth, together with OPEC
quota compliance and Iraq's willingness to produce under sanctions,  may present
the largest risk to a sustained  level of crude oil pricing at a minimum $25 per
barrel level.
     With these  factors in mind,  NYMEX oil prices of $24.50 per barrel and gas
prices of $3.75 per MMBtu were used for 2001  budgeting  and planning  purposes.
Kerr-McGee's  average daily production  volumes of barrels of oil equivalent are
expected  to  remain  essentially  flat in 2001,  compared  with  2000.  Initial
production  from the Leadon  field in the North Sea and Nansen field in the Gulf
of Mexico is expected to come onstream by late 2001,  and the Boomvang  field in
the Gulf of Mexico will begin  production by early 2002.  The company's  average
daily  barrel-of-oil-equivalent  production  volumes are expected to increase by
about 13% in 2002 with these ongoing developments.
     The company is the number three supplier of titanium dioxide pigment (TiO2)
in the world,  with production  capacity almost tripling  between 1997 and early
2001. TiO2 pigment is the world's  preferred  opacifier,  with 80% of the supply
used in coatings and plastics.  The company is one of five that owns proprietary
chloride  technology.  The  chloride  process  produces a pigment  with  optical
properties preferred by the paint and plastics industries. In early 2001, 70% of
the company's pigment production capacity was derived from chloride  technology,
with the  remainder  from sulfate  technology,  which  produces  pigment used in
paper, food products and cosmetics.
     Titanium dioxide is a quality-of-life  product,  in that production follows
general economic trends. At year-end 2000, worldwide pigment inventories were at
normal seasonal levels of about 38 days in inventory. In the first two months of
2001, pricing in the U.S., Europe and Southeast Asia remained stable. Management
is monitoring  conditions to determine  whether the U.S. or worldwide  economies
will soften,  and if so, to what extent.  General economic trends, in particular
Gross  Domestic  Product  growth or reduction,  will translate into increases or
decreases in pigment consumption.
     High natural gas prices  sustained  over the longer term will impact future
titanium dioxide production costs. To combat energy price increases, the company
continues to implement cost reduction and  operational  performance  improvement
initiatives  at all of its  plants.  The  company  has locked in  pricing  for a
significant portion of its U.S. natural gas requirements through mid-2001.
     In February  2001,  the company  decided to cease  production  of manganese
metal at its electrolytic plant in Hamilton, Mississippi.  Approximately 50 jobs
will be eliminated and notices were made to the affected employees.  This action
will not impact the company's titanium dioxide pigment operations in Hamilton.

Results of Consolidated Operations

     Net income (loss) and per-share  amounts for each of the three years in the
period ended December 31, 2000, were as follows:

(Millions of dollars, except per-share amounts)      2000     1999     1998
-----------------------------------------------     -----    -----    -----
Net income (loss)                                   $ 842    $ 142    $ (68)
Income (loss) from continuing operations
  excluding special items                             940      296      (24)
Net income (loss) per share -
  Net income (loss) -
      Basic                                          9.01     1.64     (.78)
      Diluted                                        8.37     1.64     (.78)
  Income (loss) from continuing operations
    excluding special items -
      Basic                                         10.06     3.42     (.28)
      Diluted                                        9.31     3.42     (.28)

     Net income  (loss) was impacted by a number of special items in each of the
years.  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)                                2000     1999     1998
---------------------                               -----    -----    -----
Income (loss) from continuing
  operations excluding special items                $ 940    $ 296    $ (24)
                                                    -----    -----    -----
Special items, net of taxes -
  Asset impairment                                     --       --     (299)
  Merger costs                                         --     (116)      --
  Net provision for environmental
    remediation and restoration of
    inactive sites                                    (59)      --      (26)
  Purchased in-process research
    and development                                   (32)      --       --
  Equity affiliate's full-cost
    ceiling write-down                                 --       --      (27)
  Restructuring                                        --       (1)     (25)
  Chemical plant closings and product
    line discontinuations                             (13)      --       --
  Pending/settled litigation                           (7)     (20)      --
  Transition costs                                     (3)     (14)      --
  Settlement of prior years' income taxes              11        1       41
  Gain on sale of equity interest
    in a chemical plant                                 8       --       --
  Other, net                                           (3)      --       15
                                                    -----    -----    -----
    Total                                             (98)    (150)    (321)
                                                    -----    -----    -----
Discontinued operations, net of taxes                  --       --      277
Change in accounting principle, net of taxes           --       (4)      --
                                                    -----    ------   -----
Net income (loss)                                   $ 842    $  142   $ (68)
                                                    =====    ======   =====

     The 2000  special  items  were both  operating  and  nonoperating  and were
composed  principally  of the  write-off  of purchased  in-process  research and
development  projects and provisions for certain  environmental  costs. In 1999,
special  items  were  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  year's  current  market  value of  certain  of the
company's oil and gas producing fields and certain chemical facilities.
     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.
     Income from continuing operations excluding special items for 2000 was more
than triple the 1999 amount.  The $644 million increase resulted  primarily from
increases in after-tax  operating profit for both the exploration and production
and chemical operations of $588 million and $34 million, respectively, and a $20
million  increase in after-tax  foreign  currency gains.  Income 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.

                                     [GRAPH]
<TABLE>
<CAPTION>

     Sales levels  soared as a result of
increases in oil and  gas prices and oil
and pigment sales volumes.
                                                             Sales
                                                     ----------------------
(Billions of dollars)                                2000     1999     1998
---------------------                                ----     ----     ----
<S>                                                  <C>      <C>      <C>
                                                     $4.1     $2.7     $2.3
</TABLE>

     Sales from continuing operations were $4.1 billion in 2000, $2.7 billion in
1999 and  $2.3  billion  in 1998.  Increased  sales  in 2000  resulted  from the
significantly higher average sales prices for oil (60% increase) and natural gas
(63%  increase),  higher oil sales  volumes  and higher  pigment  sales  volumes
(principally  from the two  pigment  plants  acquired  in the second  quarter of
2000),  partially offset by lower natural gas sales volumes. Sales for 1999 were
higher than in 1998 due to higher  average  sales prices for oil and natural gas
(37% and 12% 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 German and Belgian pigment operations, compared to
nine months in 1998), partially offset by lower electrolytic and forest products
sales volumes and lower European pigment sales prices.
     Costs and operating  expenses totaled $1.3 billion in 2000 and $1.0 billion
in both  1999  and  1998.  The 2000  amount  was  higher  than  the  prior  year
principally due to the operating  costs for the two acquired  pigment plants and
the acquired North Sea operations.

     Following are selling,  general and administrative  expenses for 2000, 1999
and 1998:

(Millions of dollars)                                2000     1999     1998
---------------------                                ----     ----     ----
Selling, general and administrative
  expenses excluding special items                   $293     $264     $264
                                                     ----     ----     ----
Special items -
  Net provision for environmental
    remediation and restoration of
    inactive sites                                     90       --       41
  Pending/settled litigation                            8       30       --
  Transition costs associated with
    the Oryx merger and the purchase
    of two pigment plants                               4       22       --
  Restructuring                                        --       --       36
  Other, net                                           --       --       (3)
                                                     ----     ----     ----
    Total                                             102       52       74
                                                     ----     ----     ----
Selling, general and administrative expenses         $395     $316     $338
                                                     ====     ====     ====

     Selling,  general and  administrative  expenses excluding special items for
2000  increased 11% compared with 1999. The increase was primarily due to higher
transportation  costs, which resulted from higher exploration and production and
chemical  sales  volumes  and the  selling,  general  and  administrative  costs
associated with the purchased pigment operations.  The 1999 selling, general and
administrative  expenses were  unchanged  from 1998 even though  synergies  were
realized from the Oryx merger,  principally  by the  exploration  and production
segment.  The  estimated  selling,   general  and  administrative  synergies  of
approximately $35 million were offset by higher  transportation costs and higher
corporate  charges  primarily  due to  higher  costs  associated  with  improved
employee benefit plans.
     With respect to the special  items in selling,  general and  administrative
expense,  approximately  one-half and  three-quarters  of the net provisions for
environmental  remediation  and  restoration of inactive sites in 2000 and 1998,
respectively,  relate to the removal of low-level radioactive materials from the
company's  inactive  facility and offsite areas in West Chicago,  Illinois.  The
remainder of the provisions relate to numerous smaller sites. The provisions for
pending  or  settled  litigation  are  principally   related  to  facilities  or
properties  no longer  operated or owned by the  company.  Transition  costs are
those  associated with the ongoing business during the time of the pigment plant
acquisitions  in 2000 and the Oryx  merger in 1999.  These costs do not recur in
the following year. Restructuring charges in 1998 were primarily for a voluntary
severance program for the former Oryx U.S.  operations and a work process review
and an organizational restructuring for several Kerr-McGee groups.
     Asset  impairments  totaled  $446  million  in 1998 (see Note 22).  Of this
amount,  $389 million was for  write-downs  associated  with certain oil and gas
fields located in the North Sea, China and United States.  Asset  impairments of
$57 million were 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 2000, 1999 and 1998 were $170 million,  $140 million
and $215  million,  respectively.  The 2000 increase over 1999 was due to higher
dry hole costs,  principally in the North Sea, Algeria,  Thailand and Australia;
higher  geophysical  projects,  primarily  in the  Gulf of  Mexico;  and  higher
amortization  of  nonproducing  leaseholds.  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.
     Taxes,  other than income taxes,  were $122 million in 2000, $85 million in
1999 and $53 million in 1998.  The 2000 and 1999  variances  from the prior year
were both due  principally to severance  taxes, a direct result of the increases
in oil and gas prices.
     In connection  with the company's  second  quarter 2000  acquisition of the
pigment plant in Savannah,  Georgia, certain incomplete research and development
projects were identified and valued as part of the purchase  price.  Since these
projects had no alternative future use to the company,  $32 million was expensed
at the date of acquisition.
     Merger costs  totaling  $163 million were  recognized in 1999 and represent
costs incurred in connection with the Oryx merger,  which 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 18).
     Interest  and debt expense  totaled  $208 million in 2000,  $190 million in
1999 and $157 million in 1998.  The increase in 2000 expense  compared with 1999
was the result of higher average  borrowing levels during the first half of 2000
and  lower  capitalized   interest.   The  1999  increase  resulted  from  lower
capitalized  interest  and  higher  borrowings  related to the costs of the Oryx
merger.
     Other income was as follows for each of the years in the three-year  period
ended December 31, 2000:

(Millions of dollars)                                2000     1999     1998
---------------------                                ----     ----     ----
Other income excluding special items                 $ 65     $ 39     $ 36
                                                     ----     ----     ----
Special items -
  Chemical plant closings and product
    line discontinuations                             (21)      --       --
  Interest income from settlement
    of prior years' income taxes                        3        1       19
  Settlements with insurance carriers                  --       --       12
  Equity affiliate's full-cost ceiling
    write-down                                         --       --      (27)
  Gain on sale of equity interest
    in a chemical plant                                14       --       --
  Other, net                                           (3)      --        3
                                                     ----     ----     ----
    Total                                              (7)       1        7
                                                     ----     ----     ----
Other income                                         $ 58     $ 40     $ 43
                                                     ====     ====     ====

     The higher 2000 other income excluding special items compared with 1999 was
due primarily to increases in foreign currency gains, interest income and income
from unconsolidated affiliates.  Higher foreign currency gains, partially offset
by lower  interest  income,  were the primary  reasons for the  increase in 1999
other income excluding special items compared with the prior year.

Segment Operations

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

(Millions of dollars)                                2000     1999     1998
---------------------                                ----     ----     ----
Operating profit excluding special items -
  Exploration and production                       $1,470   $  562   $   62
                                                   ------   ------   ------
  Chemicals -
    Pigment                                           168      113       89
    Other                                              17       15       26
                                                   ------   ------   ------
      Total Chemicals                                 185      128      115
                                                   ------   ------   ------
        Total                                       1,655      690      177
Special items                                         (41)     (21)    (482)
                                                   ------   ------   ------
Operating profit (loss)                            $1,614   $  669   $ (305)
                                                   ======   ======   ======

                                     [GRAPH]

<TABLE>
<CAPTION>

     Both core businesses contributed to
the increase in record operating profit
in 2000.

                                            Consolidated Operating Profit (Loss)
                                            ------------------------------------
(Millions of dollars)                                2000     1999     1998
---------------------                               ------    ----   ------
<S>                                                 <C>       <C>    <C>
                                                    $1,614    $669   $(305)
</TABLE>

Exploration and Production

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

(Millions of dollars, except per-unit amounts)       2000     1999     1998
----------------------------------------------       ----     ----     ----
Sales                                              $2,860   $1,784   $1,291
                                                   ======   ======   ======
Operating profit excluding special items           $1,470   $  562   $   62
Special items                                          (3)     (20)    (423)
                                                   ------   ------   ------
Operating profit (loss)                            $1,467   $  542   $ (361)
                                                   ======   ======   ======
Exploration expense                                $  170   $  140   $  215
Net crude oil and condensate produced
  (thousands of barrels per day)                      207      197      172
Average price of crude oil sold
  (per barrel)                                     $27.64   $17.26   $12.58
Natural gas sold (MMcf per day)                       531      580      584
Average price of natural gas sold
  (per Mcf)                                        $ 3.87   $ 2.38   $ 2.13
Average production cost (per barrel)               $ 4.49   $ 3.72   $ 3.91

     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.

Chemicals

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

(Millions of dollars)                                2000     1999     1998
---------------------                                ----     ----     ----
Sales -
  Pigment                                          $1,034     $725     $663
  Other                                               227      234      300
                                                   ------     ----     ----
    Total                                          $1,261     $959     $963
                                                   ======     ====     ====

Operating profit excluding special items -
  Pigment                                          $  168     $113     $ 89
  Other                                                17       15       26
                                                   ------     ----     ----
                                                      185      128      115
Special items -
  Pigment                                             (38)      --      (33)
  Other                                                --       (1)     (26)
                                                   ------     ----     ----
Operating profit                                   $  147     $127     $ 56
                                                   ======     ====     ====
Gross worldwide pigment production
  (thousands of tonnes)                               480      320      284

     Special  items in 2000 include $32 million for the  write-off of in-process
research and  development  projects with the purchase of the Savannah,  Georgia,
pigment  plant and $6 million for the  transition  costs  incurred in connection
with the  purchase of the  Savannah  and Botlek,  Netherlands,  pigment  plants.
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.

     Pigment  - The 43%  increase  in  titanium  dioxide  pigment  sales in 2000
compared with 1999 was primarily due to the additional volumes sold from the two
acquired plants and higher pigment sales volumes at the other plants.  Operating
profit  excluding  special  items in 2000  increased  $55 million  over 1999 due
principally to record pigment sales volumes,  cost-reduction  incentives and the
favorable  impact of euro exchange rates.  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 German and Belgian  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.

     Other - Other chemical  sales and operating  profit for 2000 did not change
significantly  from 1999.  The 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.

Financial Condition

(Millions of dollars)                             2000        1999        1998
---------------------                             ----        ----        ----
Current ratio                                 1.0 to 1    1.4 to 1    0.8 to 1
Total debt                                      $2,425      $2,525      $2,250
Total debt less cash                             2,281       2,258       2,129
Stockholders' equity                            $2,633      $1,492      $1,346
Total debt less cash to
  total capitalization                              46%         60%         61%
Floating-rate debt to total debt                     3%         38%         33%


                                     [GRAPH]

<TABLE>
<CAPTION>

     Net debt to total capitalization is
total  debt less cash  divided  by total
debt less cash plus stockholders' equity.

                                               Net Debt to Total Capitalization
                                               --------------------------------
(Percentages)                                     2000        1999        1998
-------------                                     ----        ----        ----
<S>                                                 <C>         <C>         <C>
                                                    46          60          61

</TABLE>


     Kerr-McGee  operates with a philosophy  that the company's  capital program
and dividends will be paid from cash  generated by  operations.  Debt and equity
transactions are utilized for acquisition opportunities and short-term needs due
to timing of cash  flow.  Additionally,  the  company  defined a goal in 1999 to
reduce its net debt to capitalization to less than 50% over the five-year period
1999-2003.  This goal was  achieved  in 2000 with a year-end  ratio of 46%.  The
improvement  from 60% at December 31, 1999,  was the result of the impact of the
equity increase from 2000 net income as well as lower debt levels.

Cash Flow
     Year-end  cash was $144  million,  a reduction  of $123  million  from $267
million at December 31,  1999.  Operating  activities  provided net cash flow of
$1.8 billion in 2000,  compared with $713 million in 1999. Most of this increase
was due to the  $700  million  rise in net  income,  which  continues  to be the
company's  primary  source of cash.  Additionally,  net cash flow increased $106
million from the company's pigment receivable  securitization  program.  Despite
selling the pigment receivables,  the company's total receivables  increased due
to higher oil sales  volumes and higher oil and natural gas sales prices and the
receivables  associated  with the acquired  Dutch pigment  plant.  The increased
receivables level reduced net cash by $55 million,  and the remaining changes in
working capital and other increased net cash flow by $19 million.

                                    [GRAPH]

<TABLE>
<CAPTION>

Net cash flow from operating activities
more than doubled to almost $1.8 billion.

                                         Net Cash Flow from Operating Activities
                                         ---------------------------------------
 (Millions of dollars)                               2000     1999     1998
 ---------------------                               ----     ----     ----
<S>                                                 <C>        <C>      <C>
                                                    1,771      713      385

</TABLE>

     The company  invested  $774 million in its 2000 capital  program,  plus $53
million in unsuccessful  exploratory  drilling costs.  Capital expenditures were
$231 million  higher than in 1999.  Additionally,  the company used $975 million
for two major acquisitions - the purchase of Repsol S.A.'s North Sea oil and gas
operations and Kemira Oyj's U.S. and Dutch titanium dioxide pigment facilities.
     To finance the  acquisitions,  the company  generated  $950  million in net
proceeds in  February  2000 by issuing  common  stock (7.5  million  shares) and
5-1/4% convertible subordinated debentures due in 2010 ($600 million principal).
Additionally, cash flow was used to pay the company's dividends and reduce debt.
Total  annual  dividends  of $166  million in 2000  increased  approximately  $3
million  per  quarter  with  the  issuance  of the  additional  common  stock in
February. Debt repayments totaled $969 million. Additionally,  debt was impacted
by the noncash  increase of $187 million in carrying value of the company's debt
exchangeable for common stock of Devon Energy  Corporation,  due August 2, 2004.
(The company owns 9,954,000 shares of Devon common stock.)

Liquidity
     The company believes that it has the ability to provide for its operational
needs and its long- and short-term  capital  programs through its operating cash
flows,  borrowing  capacity and ability to raise capital.  At December 31, 2000,
the company had unused lines of credit and  committed  amounts  under  revolving
credit  agreements  totaling  $1.6  billion.  Two  revolving  credit  agreements
consisting  of a five-year  $650  million  facility  and a 364-day  $650 million
facility were signed January 12, 2001. These facilities  replaced five revolving
credit facilities,  which totaled $1.4 billion. Of the two new agreements,  $800
million and $400 million can be used to support  commercial  paper borrowings in
the U.S. and Europe, respectively,  by certain wholly owned subsidiaries and are
guaranteed by the parent  company.  The borrowings can be made in U.S.  dollars,
British pound sterling, euros or local European currencies. The company also has
a $100 million  revolving credit agreement  available to its Chinese  subsidiary
through  March 3, 2003.  In addition,  the company had unused lines of credit of
$61 million at December 31,  2000.  Interest  for each of the  revolving  credit
facilities and lines of credit is payable at varying rates.
     At December 31, 2000, the company  classified $71 million of its short-term
obligations  as long-term  debt.  Final  settlement  of these  commercial  paper
obligations is not expected to occur in 2001. The company has the intent and the
ability, as evidenced by committed credit agreements,  to refinance this debt on
a long-term basis. The company's practice has been to continually  refinance its
commercial paper while maintaining levels believed to be appropriate.
     The company also has available,  to issue and sell, a total of $525 million
remaining  debt  securities,  common or preferred  stock,  or warrants under its
shelf registration with the Securities and Exchange  Commission,  which was last
updated in January 2000. The February stock and convertible  debt offerings were
issued under the updated shelf registration.
     The company entered into two leasing arrangements in 2000 for the financing
of its working  interest  obligations  for the production  platforms and related
equipment for the company-operated Nansen and Boomvang fields in the East Breaks
area of the Gulf of Mexico.  Both arrangements  consist of a synthetic lease for
the  construction  phase,  with the company acting as construction  agent, to be
followed by an operating lease during operations. Under the terms of each of the
synthetic   leases,  a  special  purpose  trust  advances  proceeds  to  finance
construction costs of the platform and related equipment. Upon completion of the
construction  phase, a trust will become the  lessor/owner  of the platforms and
related equipment. These leases provide a tax-efficient method of financing part
of these developments.
     Additionally, the company began an accounts receivable monetization program
in   December   2000  for  its  pigment   business.   Under  the  terms  of  the
credit-insurance-backed  asset  securitization,  up to $180  million of selected
pigment customers' accounts receivable may be sold to a special-purpose  entity,
which results in a cost-efficient financing rate to the company. At December 31,
2000, $106 million had been received from the program.

Capital Spending

Cash capital expenditures are summarized as follows:

(Millions of dollars)                  Est. 2001     2000     1999     1998
---------------------                  ---------     ----     ----     ----
Exploration and production                $1,030     $651     $447     $871
Chemicals                                    200      117       90       92
Other                                         10        6        6       18
                                          ------     ----     ----     ----
                                          $1,240     $774     $543     $981
                                          ======     ====     ====     ====

     Capital  spending,  excluding  acquisitions,  totaled  $2.3  billion in the
three-year  period  ended  December 31, 2000,  and  dividends  paid totaled $390
million in the same three-year  period,  which compares with $2.9 billion of net
cash provided by operating activities during the same period. This is indicative
of the company's  philosophy of providing for its capital programs and dividends
through  internally  generated  funds.  During the past three years, the company
made four major acquisitions, in addition to the merger with Oryx, which further
expanded its global presence - the 1998  acquisitions of Gulf Canada's North Sea
assets and Bayer's  titanium dioxide pigment plants in Germany and Belgium for a
total of $518 million and the 2000  acquisitions  of Repsol S.A.'s North Sea oil
and gas operations and Kemira Oyj's U.S. and Dutch pigment plants for a total of
$975 million.


                                    [GRAPH]

<TABLE>
<CAPTION>

     2001 estimate of capital spending
is a record  $1.2  billion.

                                                 Capital Expenditures
                                          ---------------------------------
                                            2001
(Millions of dollars)                     estimate   2000     1999     1998
---------------------                     --------   ----     ----     ----
<S>                                        <C>        <C>      <C>      <C>
                                           1,240      774      543      981

</TABLE>

    Kerr-McGee has budgeted $1.2 billion for its capital  program in 2001. This
level is the highest in the company's history and represents a 60% increase over
2000.  In  addition,  the  company has  budgeted  $205  million for  exploration
activities.  Successful  exploration and appraisal drilling programs in 1999 and
2000 have led to three major company-operated development projects - Nansen (50%
working  interest) and Boomvang (30% working interest) in the Gulf of Mexico and
the 100%-owned Leadon project in the North Sea. Chemical capital expenditures in
2001 will primarily be directed  toward  improvements  to its pigment  business,
including  upgrades of the  facilities  acquired  in 2000.  The 2001 budget also
includes capital for a 10% capacity  expansion project for the Kwinana,  Western
Australia, titanium dioxide pigment plant to 95,000 tonnes annually.
     Management   anticipates   that  the  2001  capital  program  and  selected
acquisitions  that support the company's  global growth strategy can continue to
be provided through internally generated funds and selective borrowings.

Exploration and Production

     Capital  spending  in  2000  supported  the  company's  global  growth  and
deepwater  focus.  Major  expenditures  were  for  appraisal  and the  start  of
development of the company's  operated Nansen and Boomvang fields in the Gulf of
Mexico in about  3,700 feet of water;  the Quad 9 area of the North  Sea,  which
included  the  appraisal  and start of  development  of the Leadon field and its
satellites,  Birse  and  Glassel,  and  the  Skene  gas  field;  and  successful
exploratory  and  appraisal  drilling  in blocks  04/36 and 05/36 in Bohai  Bay,
offshore China.
     The three major company-operated development projects - Leadon, Nansen, and
Boomvang - as well as the Skene  field and the  Bayu-Undan  project in the Timor
Sea, represent 64% of budgeted 2001 capital projects.

Chemicals

     Eighty-five percent of Chemical's 2000 capital spending was for the pigment
business. Over one-third of the capital was for upgrading facilities of the U.S.
and Dutch  plants  acquired  in the  second  quarter.  Other  expenditures  were
primarily  for   maintenance   capital  items  at  the  pigment   facilities  in
Mississippi, Germany and Australia, and the U.S. electrolytic operations.
     The budget for 2001 is  estimated  to increase  71% to $200  million.  This
includes  funds for the Kwinana,  Western  Australia,  pigment plant  expansion,
various upgrades at the Hamilton  facility,  and continuation of upgrades at the
Savannah and Dutch facilities.
     Additionally,  the 20% minority  interest in the titanium  dioxide  pigment
plants in Uerdingen,  Germany, and Antwerp,  Belgium, was acquired from Bayer AG
in January 2001 for $24 million.

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  17 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.  The
company  intends  to hedge a portion of its cash  flows  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.  Even  though  the  company  sold  certain  of its  pigment
receivables  (including foreign currency receivables) in the December 2000 asset
monetization  program discussed previously in the Liquidity section, the risk of
exchange  rate  changes  remains  with the company  since the  foreign  currency
receivables  were  sold at the  equivalent  dollar  value  at the  date of sale.
Because  the  forward  sales  contracts  qualified  as hedges and  correlate  to
currency  movements,  any gains or losses  resulting  from exchange rate changes
were deferred and recognized as adjustments of the hedged  transaction when they
were settled in cash. See the New Accounting  Standards  section in Management's
Discussion  and Analysis for a discussion  of the effects of adoption of the new
accounting requirements for derivatives.
     Following  are  the  notional  amounts  at  the  contract  exchange  rates,
weighted-average  contractual  exchange  rates and estimated  contract value for
open contracts at year-end 2000 and 1999 to purchase (sell) foreign  currencies.
Contract values are based on the estimated  forward  exchange rates in effect at
year-end. All amounts are U.S. dollar equivalents.

<TABLE>
<CAPTION>

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

<S>                                                           <C>           <C>                       <C>
Open contracts at December 31, 2000 -
  Maturing in 2001 -
    British pound sterling                                    $293             1.4595                 $300
    Australian dollar                                           60              .6168                   54
    Euro                                                        21              .8525                   23
    Euro                                                        (3)            1.1442                   (4)
    German mark                                                 (2)            2.2352                   (2)
    British pound sterling                                      (1)             .6893                   (1)
    Japanese yen                                                (1)          110.7123                   (1)
    New Zealand dollar                                          (1)            2.5045                   (1)
  Maturing in 2002 -
    Australian dollar                                           42              .6156                   38
  Maturing in 2003 -
    Australian dollar                                           18              .5935                   17

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
</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.
No interest  rate hedging  contracts  were  entered  into during the  three-year
period ended December 31, 2000.  Certain interest rate contracts  expired during
1998.
     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 2000. All borrowings are in U.S. dollars.
<TABLE>
<CAPTION>


                                                                                   There-               Fair Value
(Millions of dollars)             2001      2002      2003      2004      2005      after      Total      12/31/00
---------------------             ----      ----      ----      ----      ----      -----      -----      --------
<S>                               <C>       <C>       <C>       <C>       <C>      <C>        <C>           <C>
Fixed-rate debt -
  Principal amount                $175       $36      $116      $678      $162     $1,181     $2,348        $2,558
  Weighted-average
    interest rate                 9.83%     8.85%     8.04%     6.19%     8.10%      6.13%      6.69%
  Variable-rate debt -
    Principal amount                --       $71        --        --        --         --        $71        $   71
  Weighted-average
    interest rate                   --      7.29%       --        --        --         --       7.29%
</TABLE>

     At December 31, 1999,  long-term  debt included  fixed-rate  debt of $1.573
billion (fair value - $1.612 billion) with a  weighted-average  interest rate of
7.40% and $943 million of  variable-rate  debt, which  approximated  fair value,
with a weighted-average interest rate of 6.69%.

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  associated  price risks.  Because 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 commodity  hedging  arrangements in 2000
or 1999. All open 1998 contracts were settled during 1999. 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 and its subsidiaries are subject to various  environmental laws
and  regulations.  Under these laws, the company and/or its  subsidiaries are or
may be  required to remove or mitigate  the  effects on the  environment  of the
disposal or release of certain  chemical,  petroleum,  low-level  radioactive or
other  substances at various sites,  including  sites that have been  designated
Superfund sites by the U.S.  Environmental  Protection  Agency (EPA) pursuant to
the Comprehensive  Environmental  Response,  Compensation,  and Liability Act of
1980 (CERCLA), as amended and, which are included on the National Priority List.
At December 31, 2000, the company and/or its subsidiaries  have received notices
that they have been named potentially responsible parties (PRPs) with respect to
12 existing  EPA  Superfund  sites on the  National  Priorities  List (NPL) that
require remediation.  The company and/or its subsidiaries may share liability at
certain of these sites with numerous other PRPs. In addition, the company and/or
its subsidiaries  have executed  consent orders,  operate under licenses or have
reached  agreements  to  perform  or  have  performed  remediation  or  remedial
investigations  and  feasibility  studies on sites not included as EPA Superfund
NPL sites.
     The  company  does not  consider  the number of sites for which it has been
named a PRP to be a  relevant  measure  of  liability.  The  company  and/or its
subsidiaries  are  uncertain  as  to  the  scope  of  their  involvement  in  or
responsibility   for  many  of  the  sites  because  of   continually   changing
environmental laws and regulations;  the nature of the company's businesses; the
possibility of other PRPs; the present state of the law, which imposes joint and
several  liability  on all PRPs under  CERCLA;  and pending  legal  proceedings.
Therefore,  the company is unable to reliably  estimate the potential  liability
and the  timing  of  future  expenditures  that  may  arise  from  many of these
environmental  sites.  Reserves have been  established  for the  remediation and
restoration  of active and inactive sites where it is probable that future costs
will be incurred and the liability is estimable. In 2000, $128 million was added
to the reserve for active and inactive sites,  including  reserve changes of $16
million  relating to acquisitions  and  divestitures.  At December 31, 2000, the
company's reserve for these sites totaled $216 million. In addition, at year-end
2000,  the  company had a reserve of $287  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, $434 million of the
total reserve is classified as a deferred credit,  and the remaining $69 million
is included in current  liabilities.  Management  believes  that  currently  the
company has reserved  adequately  for the  reasonably  estimable  costs of known
environmental contingencies. However, additional reserves may be required in the
future due to the previously noted uncertainties (see Note 16).


     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, 2000, are as follows:

(Millions of dollars)                       2000     1999     1998     Total
---------------------                       ----     ----     ----     -----
Charges to environmental reserves           $116     $121     $109      $346
Recurring expenses                            23       17       13        53
Capital expenditures                          28        5       24        57
                                            ----     ----     ----      ----
         Total                              $167     $143     $146      $456
                                            ====     ====     ====      ====

     The  company  has  not  recorded  in  the  financial  statements  potential
reimbursements  from  governmental  agencies or other third parties,  except for
certain amounts due from the U.S.  government under Title X of the Energy Policy
Act of 1992 (see Notes 14 and 16). The  following  table  reflects the company's
portion of the known estimated costs of investigation and/or remediation that is
probable and estimable.  The table  summarizes EPA Superfund NPL sites where the
company has been notified it is a PRP under CERCLA and other sites for which the
company  believes it had some ongoing  financial  involvement  in  investigation
and/or remediation at year-end 2000.
<TABLE>
<CAPTION>


                                                                                              Total Known                 Total
                                                                                                Estimated          Expenditures
                                                                                                     Cost          Through 2000
                                                                                              -----------          ------------
Location of Site                      Stage of Investigation/Remediation                            (Millions of dollars)
--------------------------------      ----------------------------------                      ---------------------------------
<S>                                   <C>                                                         <C>                      <C>
EPA Superfund sites on National
Priorities List (NPL)
  Milwaukee, Wis.                     Executed consent decree to remediate the site of
                                      a former wood-treating facility.  Initiated groundwater
                                      and soil treatment.                                         $   19                   $ 12

  West Chicago, Ill., four sites      Began cleanup of first site in 1995.  At second site,
  outside the facility                removal work and surface restoration are complete,
                                      and closeout report has been submitted to the EPA.
                                      Two sites are under study (see Note 16).                       108                     95

  7 other sites                       Various stages of investigation/remediation.                    25                     19
                                                                                                    ----                   ----
                                                                                                     152                    126
                                                                                                    ----                   ----
Sites under consent order,
license or agreement not on
EPA Superfund NPL
  West Chicago, Ill., facility        Decommissioning is in progress under State of Illinois
                                      supervision (see Note 16).  Began shipments to a
                                      permanent disposal facility in 1994.                           407                    310

  Cleveland/Cushing, Okla.            Began cleanup in 1996.                                          83                     75

  Henderson, Nev.                     Entered consent agreement in 1999.  Recovery of
                                      perchlorate has been initiated.                                 69                     32
                                                                                                  ------                   ----
                                                                                                     559                    417
                                                                                                  ------                   ----
  Other sites                         Various stages of investigation/remediation.                   291                    243
                                                                                                  ------                   ----
    Total for all sites                                                                           $1,002                   $786
                                                                                                  ======                   ====

</TABLE>


New Accounting Standards

     In June 1998,  the  Financial  Accounting  Standards  Board  (FASB)  issued
Statement  No.  133,   "Accounting   for  Derivative   Instruments  and  Hedging
Activities"  (FAS  133).  The  statement  as  amended  requires   recording  all
derivative  instruments  as  assets  or  liabilities,  measured  at fair  value.
Kerr-McGee adopted this standard on January 1, 2001, by recording the fair value
of all the foreign currency forward contracts discussed  previously under Market
Risks and by separating  and recording the fair value of the options  associated
with the  company's  debt  exchangeable  for stock of Devon  Energy  Corporation
presently  owned by the company.  Also, in accordance  with FAS 133, the company
chose  to  reclassify  85% of the  Devon  shares  owned  to  "trading"  from the
"available for sale" category of investments.  This  reclassification  will mean
that 85% of the stock  investment will be  marked-to-market  through income each
month.  The change in the market value of this portion of the Devon stock should
essentially  offset the change in the value of the options  associated  with the
exchangeable debt.
     The  following  table   summarizes  the  effect  of  the  initial  FAS  133
application  on January 1, 2001.  None of the changes are  reflected in the 2000
financial statements.
<TABLE>
<CAPTION>

                                                                                     Increase (Decrease)
                                                                      ---------------------------------------------------
(Millions of dollars)                                                 Assets     Liabilities     Equity(1)     Net Income
---------------------                                                 ------     -----------     ---------     ----------
<S>                                                                      <C>             <C>        <C>              <C>
Foreign currency forward contracts                                       $ 9             $11        $  (3)           $  1
Designate 85% of Devon stock as trading                                   --              --         (118)            118
Separate the options from the debt and record at fair value               (6)             15           --             (21)
                                                                         ---             ---        -----            ----
                                                                         $ 3             $26        $(121)           $ 98
                                                                         ===             ===        =====            ====
</TABLE>


(1) All of these equity changes will be reflected in Other Comprehensive  Income
in the 2001  Consolidated  Statement of Comprehensive  Income and  Stockholders'
Equity.  The effects of the changes flowing through net income are not reflected
in the equity changes  above.

     In September  2000,  the FASB issued  Statement  No. 140,  "Accounting  for
Transfers and Servicing of Financial Assets and  Extinguishments of Liabilities"
(FAS 140). This statement revises the methods of accounting for  securitizations
and other  transfers of financial  assets  occurring  after March 31, 2001,  and
requires certain additional disclosure for years ending after December 15, 2000.
The  company's  first asset  securitization  occurred  in  December  2000 and is
discussed  in the  Liquidity  section of this  discussion  and in Notes 1 and 8.
Kerr-McGee  believes the application of FAS 140 will have no significant  effect
on the  accounting  for the  current  securitization  program.  The  disclosures
required by FAS 140 are included in Notes 1 and 8.

Cautionary Statement Concerning Forward-Looking Statements

     This Financial  Review contains  forward-looking  statements  regarding the
company's or management's intentions, beliefs or expectations 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,
2000 and 1999, 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,  2000.  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
1998  financial  statements  of Oryx Energy  Company,  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 37 percent of  consolidated
total  revenues  in 1998,  after  restatement  to  reflect  certain  adjustments
necessary  to  conform  accounting  policies  and  presentation.  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, 2000 and 1999,  and the results of their  operations and their cash
flows for each of the three years in the period  ended  December  31,  2000,  in
conformity with accounting principles generally accepted in the United States.

Oklahoma City, Oklahoma,
  February  23, 2001                          ARTHUR ANDERSEN LLP


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

     In our opinion, the accompanying  consolidated balance sheet 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 the year then
ended in conformity with accounting  principles generally accepted in the United
States of America.  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 of America 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
audit provides a reasonable basis for the opinion expressed above.

PricewaterhouseCoopers LLP
Dallas,   Texas
February  26,  1999

<TABLE>

Consolidated Statement of Income
<CAPTION>

(Millions of dollars, except per-share amounts)                2000       1999       1998
-----------------------------------------------              ------     ------     ------
<S>                                                          <C>        <C>        <C>
Sales                                                        $4,121     $2,743     $2,254
                                                             ------     ------     ------
Costs and Expenses
  Costs and operating expenses                                1,269      1,025      1,047
  Selling, general and administrative expenses                  395        316        338
  Depreciation and depletion                                    684        607        561
  Asset impairment                                               --         --        446
  Exploration, including dry holes and
    amortization of undeveloped leases                          170        140        215
  Taxes, other than income taxes                                122         85         53
  Purchased in-process research and development                  32         --         --
  Merger costs                                                   --        163         --
  Interest and debt expense                                     208        190        157
                                                             ------     ------     ------
    Total Costs and Expenses                                  2,880      2,526      2,817
                                                             ------     ------     ------
                                                              1,241        217       (563)
Other Income                                                     58         40         43
                                                             ------     ------     ------
Income (Loss) from Continuing Operations before
  Income Taxes and Change in Accounting Principle             1,299        257       (520)
Taxes on Income                                                (457)      (111)       175
                                                             ------     ------     ------
Income (Loss) from Continuing Operations before Change
  in Accounting Principle                                       842        146       (345)
Income from Discontinued Operations, net of taxes of $156        --         --        277
                                                             ------     ------     ------
Income (Loss) before Change in Accounting Principle             842        146        (68)
Cumulative Effect of Change in Accounting Principle,
  net of taxes of $2                                             --         (4)        --
                                                             ------     ------     ------
Net Income (Loss)                                            $  842     $  142     $  (68)
                                                             ======     ======     ======
Net Income (Loss) per Common Share
  Basic -
    Continuing operations                                    $ 9.01     $ 1.69     $(3.98)
    Discontinued operations                                      --         --       3.20
    Cumulative effect of accounting change                       --       (.05)        --
                                                             ------     ------     ------
      Net income (loss)                                      $ 9.01     $ 1.64     $ (.78)
                                                             ======     ======     ======
  Diluted -
    Continuing operations                                    $ 8.37     $ 1.69     $(3.98)
    Discontinued operations                                      --         --       3.20
    Cumulative effect of accounting change                       --       (.05)        --
                                                             ------     ------     ------
      Net income (loss)                                      $ 8.37     $ 1.64     $ (.78)
                                                             ======     ======     ======

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

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

                                                                            Accumulated
                                                   Capital in                     Other                   Deferred           Total
                           Comprehensive   Common   Excess of   Retained   Comprehensive   Treasury   Compensation   Stockholders'
(Millions of dollars)      Income (Loss)    Stock   Par Value   Earnings   Income (Loss)      Stock      and Other          Equity
---------------------      -------------   ------  ----------   --------   -------------   --------   ------------   -------------
<S>                                 <C>      <C>       <C>         <C>              <C>       <C>            <C>            <C>
Balance December 31, 1997                    $ 93      $1,274      $ 731            $(29)     $(363)         $(148)         $1,558
  Net loss                          $(68)      --          --        (68)             --         --             --             (68)
  Foreign currency trans-
    lation 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 trans-
    lation adjustment                (23)      --          --         --             (23)        --             --             (23)
  Minimum pension
    liability adjustment              25       --          --         --              25         --             --              25
  Shares issued                       --       --           2         --              --         --             --               2
  Dividends declared
    ($1.80 per share)                 --       --          --       (156)             --         --             --            (156)
  Effect of equity
    affiliate's merger                --       --          --         63              --         --             --              63
  Other                               --       --          --         --              --         --             14              14
                                    ----     ----      ------      -----            ----      -----          -----          ------
    Total                           $223
                                    ====
Balance December 31, 1999                      93       1,284        576              45       (388)          (118)          1,492
  Net income                        $842       --          --        842              --         --             --             842
  Unrealized gains on
    securities, net of
    $32 income tax                    60       --          --         --              60         --             --              60
  Foreign currency trans-
    lation adjustment                  3       --          --         --               3         --             --               3
  Minimum pension
    liability adjustment               5       --          --         --               5         --             --               5
  Shares issued                       --        8         375         --              --         --             --             383
  Dividends declared
    ($1.80 per share)                 --       --          --       (170)             --         --             --            (170)
  Other                               --       --           1        (15)             --          5             27              18
                                    ----     ----      ------     ------            ----      -----          ------         ------
    Total                           $910
                                    ====
Balance December 31, 2000                    $101      $1,660     $1,233            $113      $(383)         $ (91)         $2,633
                                             ====      ======     ======            ====      =====          =====          ======

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

<TABLE>

Consolidated Balance Sheet
<CAPTION>

(Millions of dollars)                                       2000          1999
---------------------                                     ------        ------
<S>                                                       <C>           <C>
ASSETS

Current Assets
  Cash                                                    $  144        $  267
  Accounts receivable, net of allowance for doubtful
    accounts of $11 in 2000 and $8 in 1999                   667           501
  Inventories                                                391           281
  Deposits, prepaid expenses and other                       113           112
                                                          ------        ------
      Total Current Assets                                 1,315         1,161
Investments
  Equity affiliates                                           41            59
  Other assets                                               729           467
Property, Plant and Equipment - Net                        5,383         4,085
Deferred Charges                                             198           127
                                                          ------        ------
         Total Assets                                     $7,666        $5,899
                                                          ======        ======

LIABILITIES AND STOCKHOLDERS' EQUITY

Current Liabilities
  Accounts payable                                        $  638        $  404
  Short-term borrowings                                        6             9
  Long-term debt due within one year                         175            20
  Taxes on income                                            190            70
  Taxes, other than income taxes                              25            40
  Accrued liabilities                                        315           297
                                                          ------        ------
         Total Current Liabilities                         1,349           840
                                                          ------        ------

Long-Term Debt                                             2,244         2,496
                                                          ------        ------
Deferred Credits and Reserves
  Income taxes                                               704           401
  Other                                                      736           670
                                                          ------        ------
         Total Deferred Credits and Reserves               1,440         1,071
                                                          ------        ------

Stockholders' Equity
  Common stock, par value $1.00 -
    300,000,000 shares authorized,
    101,417,309 shares issued in 2000
    and 93,494,186 shares issued in 1999                     101            93
  Capital in excess of par value                           1,660         1,284
  Preferred stock purchase rights                              1             1
  Retained earnings                                        1,233           576
  Accumulated other comprehensive income                     113            45
  Common stock in treasury, at cost -
    6,932,790 shares in 2000 and
    7,010,790 shares in 1999                                (383)         (388)
  Deferred compensation                                      (92)         (119)
                                                          ------        ------
         Total Stockholders' Equity                        2,633         1,492
                                                          ------        ------
           Total Liabilities and Stockholders' Equity     $7,666        $5,899
                                                          ======        ======

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

<TABLE>
Consolidated Statement of Cash Flows
<CAPTION>

(Millions of dollars)                                                 2000       1999       1998
---------------------                                              -------     ------      -----
<S>                                                                <C>         <C>         <C>
Cash Flow from Operating Activities
  Net income (loss)                                                $   842     $  142      $ (68)
  Adjustments to reconcile to net cash
    provided by operating activities -
      Depreciation, depletion and amortization                         732        648        615
      Deferred income taxes                                             18         --        (98)
      Dry hole cost                                                     54         43        100
      Merger and transition costs                                       --        131         --
      Asset impairment                                                  --         --        446
      Provision for environmental remediation and
        restoration of inactive sites                                   90         --         41
      Gain on sale of coal operations, net of income taxes              --         --       (257)
      Gain on asset retirements and sales                               (6)        (3)        (7)
      Purchased in-process research and development                     32         --         --
      Noncash items affecting net income                                45         67         13
      Changes in current assets and liabilities and other,
        net of effects of operations acquired and sold -
          (Increase) decrease in accounts receivable                   (55)       (56)       164
          Increase in inventories                                      (46)       (34)       (54)
          (Increase) decrease in deposits and prepaids                   3         10        (92)
          Increase (decrease) in accounts payable and
            accrued liabilities                                         60       (198)      (103)
          Increase (decrease) in taxes payable                         137         92       (165)
          Other                                                       (135)      (129)      (150)
                                                                    ------     ------      -----
            Net cash provided by operating activities                1,771        713        385
                                                                    ------     ------      -----
Cash Flow from Investing Activities
  Capital expenditures                                                (774)      (543)      (981)
  Cash dry hole cost                                                   (53)       (33)       (92)
  Acquisitions                                                      (1,018)       (78)      (518)
  Purchase of long-term investments                                    (56)       (39)        (3)
  Proceeds from sale of long-term investments                           35         27         12
  Proceeds from sale of discontinued operations                         --         --        599
  Proceeds from sale of other assets                                    42          4        161
                                                                   -------     ------      -----
            Net cash used in investing activities                   (1,824)      (662)      (822)
                                                                   -------     ------      -----
Cash Flow from Financing Activities
  Issuance of long-term debt                                           677      1,084        563
  Issuance of common stock                                             383          4          6
  Increase (decrease) in short-term borrowings                          (3)       (27)        11
  Repayment of long-term debt                                         (966)      (782)       (93)
  Dividends paid                                                      (166)      (138)       (86)
  Lease buyout                                                          --        (41)        --
  Treasury stock purchased                                              --         --        (25)
                                                                   -------     ------      -----
            Net cash provided by (used in) financing activities        (75)       100        376
                                                                   -------     ------      -----
Effects of Exchange Rate Changes on Cash and Cash  Equivalents           5         (5)       (10)
                                                                   -------     ------      -----
Net Increase (Decrease) in Cash and Cash  Equivalents                 (123)       146        (71)
Cash and Cash Equivalents at Beginning of Year                         267        121        192
                                                                   -------     ------      -----
Cash and Cash Equivalents at End of Year                           $   144     $  267      $ 121
                                                                   =======     ======      =====

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


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 also extend to Australia,  Benin,
Brazil, Gabon,  Morroco,  Canada,  Thailand,  Yemen and the Danish sector of the
North Sea. The chemical  unit has  operations in the United  States,  Australia,
Germany, Belgium and the Netherlands.
     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.   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 $30
million and $11 million in 2000 and 1999, respectively. The net foreign currency
transaction losses in 1998 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.

Cash  Equivalents
     The company  considers all  investments  with a maturity of three months or
less to be cash equivalents.  Cash equivalents  totaling $39 million in 2000 and
$156 million in 1999 were  comprised of time deposits,  certificates  of deposit
and U.S. government securities.

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

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

Property, Plant and Equipment
     Exploration and Production - Exploration expenses, including geological and
geophysical costs, rentals and exploratory dry holes, are charged against income
as incurred.  Costs of  successful  wells and related  production  equipment and
developmental  dry  holes  are  capitalized  and  amortized  by field  using the
unit-of-production method as the oil and gas are produced.
     Undeveloped  acreage  costs are  capitalized  and  amortized  at rates that
provide full  amortization  on  abandonment  of  unproductive  leases.  Costs of
abandoned leases are charged to the accumulated amortization accounts, and costs
of productive leases are transferred to the developed property accounts.
     Other - Property,  plant and  equipment is stated at cost less reserves for
depreciation,  depletion and amortization.  Maintenance and repairs are expensed
as  incurred,  except that costs of  replacements  or renewals  that  improve or
extend the lives of existing  properties are capitalized.  Costs of nonproducing
mineral acreage  surrendered or otherwise  disposed of are charged to expense at
the time of disposition.
     Depreciation  and Depletion - Property,  plant and equipment is depreciated
or  depleted  over  its  estimated  life  by  the   unit-of-production   or  the
straight-line method. Capitalized exploratory drilling and development costs are
amortized using the  unit-of-production  method based on total estimated  proved
developed oil and gas reserves.  Amortization of producing  leasehold,  platform
costs   and   acquisition   costs  of   proved   properties   is  based  on  the
unit-of-production  method using total estimated proved reserves. In arriving at
rates under the  unit-of-production  method,  the quantities of recoverable oil,
gas and other minerals are established  based on estimates made by the company's
geologists and engineers.
     Retirements and Sales - The costs and related  depreciation,  depletion and
amortization  reserves are removed from the respective  accounts upon retirement
or sale of property, plant and equipment. The resulting gain or loss is included
in other income.
     Interest  Capitalized  - The company  capitalizes  interest  costs on major
projects  that  require  a  considerable  length of time to  complete.  Interest
capitalized in 2000,  1999 and 1998 was $5 million,  $9 million and $28 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 and delivered using the entitlements method of accounting and are based
on the company's net working interests.  At December 31, 2000 and 1999, both the
quantity and dollar amount of gas balancing arrangements were immaterial.  Crude
oil sales are  recognized  when  produced and delivered  using the  entitlements
method if a contract exists for the sale of the production.

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

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

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

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.  Because 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.
     In some  prior  years  the  company  has  from  time to time  entered  into
arrangements to hedge the impact of price  fluctuations on anticipated crude oil
and natural gas sales. Gains or losses on such hedging activities are recognized
in oil and gas revenues in the period in which the hedged production is sold.
     In some prior years the company has periodically entered 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.

Shipping and Handling Fees and Costs
     During 2000,  the Emerging  Issues Task Force (EITF) reached a consensus on
EITF Issue No.  00-10,  "Accounting  for Shipping and Handling  Fees and Costs,"
stating that all amounts billed to a customer in a sales transaction  related to
shipping and handling,  if any, represent revenues earned and should be reported
as revenue,  and that the costs incurred by the seller for shipping and handling
should be reported as an expense. During the fourth quarter of 2000, the company
adopted  the   requirements  of  this  EITF  issue  and   reclassified   certain
prior-period  amounts to conform with the current  presentation.  Previously the
company had  reported  certain  shipping  and  handling  costs as a reduction of
revenue,  and  certain  other  costs  billed to  customers  were  reported  as a
reduction in operating  expenses.  The company has classified all costs incurred
for shipping and handling as selling, general and administrative expenses in the
Consolidated  Statement of Income.  These costs totaled $97 million in 2000, $78
million in 1999 and $61 million in 1998.

2.   Cash Flow Information

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

(Millions of dollars)                                2000     1999     1998
---------------------                                ----     ----     ----
Income tax payments                                  $338     $111     $151
Less refunds received                                 (34)     (85)     (40)
                                                     ----     ----     ----
Net income tax payments                              $304     $ 26     $111
                                                     ====     ====     ====

Interest payments                                    $193     $191     $180
                                                     ====     ====     ====

     Noncash   investing   and  financing   activities   not  reflected  in  the
Consolidated Statement of Cash Flows are as follows:


(Millions of dollars)                                2000     1999     1998
---------------------                                ----     ----     ----
Accrued capital expenditures                         $ 96     $ 28     $ 43
Dividends declared but not paid                         4       17       --
Issuance of restricted stock from treasury              5       --       --
Decrease in deferred compensation
  associated with the ESOP                             13       14       10
Increase (decrease) in equity affiliate
  carrying value                                       --       98      (87)
Increase in fair value of the stock
  owned in an investee                                280      118       --
Increase (decrease) in fair value of debt
  exchangeable into stock of an investee              187       (3)      --

3.   Inventories

     Major categories of inventories at year-end 2000 and 1999 are:

(Millions of dollars)                                2000     1999
---------------------                                ----     ----
Chemicals and other products                         $259     $212
Materials and supplies                                129       67
Crude oil and natural gas liquids                       3        2
                                                     ----     ----
  Total                                              $391     $281
                                                     ====     ====


4.   Investments - Equity Affiliates

     At December  31, 2000 and 1999,  investments  in equity  affiliates  are as
follows:

(Millions of dollars)                                2000     1999
---------------------                                ----     ----
Javelina Company                                      $25      $27
National Titanium Dioxide Company Limited              --       18
Other                                                  16       14
                                                      ---      ---
         Total                                        $41      $59
                                                      ===      ===

     In October 2000,  the company sold its 25% equity  interest in the National
Titanium Dioxide Company Limited, a Saudi Arabian pigment operation. The gain on
this sale was $8 million, net of $5 million for income taxes, and is included in
Other Income in the Consolidated Statement of Income.
     Javelina  Company   represents  the  company's   investment  of  40%  in  a
non-exploration and production partnership.
     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)                                2000     1999     1998
---------------------                                ----     ----     ----
Results of operations -
  Net sales(1)                                       $213     $256     $593
  Net income (loss)(2)                                 47       33      (41)
Financial position -
  Current assets                                       45      125
  Property, plant and equipment - net                 113      234
  Total assets                                        158      361
  Current liabilities                                  21       91
  Total liabilities                                    21      144
  Stockholders' equity                                137      217

(1) Includes  net sales to the company of $2 million for 1998. There were no net
    sales to the company in 2000 or 1999.
(2) The  1998  loss  includes  a  full-cost  write-down recorded by Devon Energy
    Corporation, a  former equity affiliate.   The company's proportionate share
    of the write-down was $27 million.

5.   Investments - Other Assets

     Investments  in other assets  consist of the following at December 31, 2000
and 1999:

(Millions of dollars)                                2000     1999
---------------------                                ----     ----
Devon Energy Corporation common stock(1)             $607     $327
Long-term receivables, net of $9 allowance
  for doubtful notes in both 2000 and 1999            107      110
U.S. government obligations                             4       11
Net deferred tax asset                                 --       12
Other                                                  11        7
                                                     ----     ----
         Total                                       $729     $467
                                                     ====     ====

(1) See Note 17.

6.   Property, Plant and Equipment

Fixed assets and related reserves at December 31, 2000 and 1999, are as
follows:
<TABLE>
<CAPTION>
                                                     Reserves for
                                                   Depreciation and
                                 Gross Property       Depletion         Net Property
                               ----------------   -----------------   ---------------
(Millions of dollars)             2000     1999      2000     1999      2000     1999
---------------------          -------  -------    ------   ------    ------   ------
<S>                            <C>      <C>        <C>      <C>       <C>      <C>
Exploration and production     $10,894  $ 9,689    $6,581   $6,245    $4,313   $3,444
Chemicals                        1,736    1,224       721      640     1,015      584
Other                              140      136        85       79        55       57
                               -------  -------    ------   ------    ------   ------
  Total                        $12,770  $11,049    $7,387   $6,964    $5,383   $4,085
                               =======  =======    ======   ======    ======   ======
</TABLE>

7.   Deferred Charges

Deferred charges are as follows at year-end 2000 and 1999:

(Millions of dollars)                                2000     1999
---------------------                                ----     ----
Pension plan prepayments                             $132     $ 79
Unamortized debt issue costs                           27       18
Nonqualified benefit plans deposits                    23       --
Amounts pending recovery from third parties             7       10
Intangible assets - pension plan                       --        6
Other                                                   9       14
                                                     ----     ----
  Total                                              $198     $127
                                                     ====     ====

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

8.   Asset Securitization

     In December 2000, the company began an accounts receivable monetization for
its  pigment  business  through the sale of selected  accounts  receivable  in a
credit-insurance-backed  asset  securitization  program.  The  company  retained
servicing  responsibilities  and  subordinated  interests  and  will  receive  a
servicing  fee of  1.07%  of  the  receivables  sold  for  the  period  of  time
outstanding,  generally 60 to 120 days.  No recourse  obligations  were recorded
since the company has very limited  obligations for any recourse  actions on the
sold  receivables.  The  collection  of the  receivables  is  insured,  and only
receivables  that  qualify for credit  insurance  can be sold.  A portion of the
insurance is reinsured by the company's captive insurance company;  however, the
company  believes that the risk of insurance loss is very low since its bad debt
experience  has  historically  been  insignificant.  The company  also  received
preference stock in the special-purpose  entity equal to 3.5% of the receivables
sold. This preference stock is essentially a retained deposit to provide further
credit enhancements, if needed.
     At the initiation of the monetization program, the company sold receivables
with a value of $115  million  and  recognized  a pretax  loss on the sale of $2
million.  The  loss  was  equal  to the  difference  in the  book  value  of the
receivables  sold  and the  total of cash  and the  fair  value  of the  deposit
retained by the special-purpose entity.  Additional receivables will be sold net
of collections during each month.  During 2000, the company sold $160 million of
its pigment  receivables  resulting in pretax losses of $3 million.  At year-end
2000,  the  outstanding  balance on  receivables  sold totaled $113 million.  No
credit losses or delinquencies occurred on the sold receivables in 2000.

9.   Acquisitions
     In January 2000,  the company  completed the  acquisition  of Repsol S.A.'s
upstream United Kingdom North Sea operations for $555 million. During the second
quarter of 2000, the company finalized the agreements with Kemira Oyj of Finland
to purchase its titanium dioxide pigment  operations in Savannah,  Georgia,  and
Botlek, Netherlands, for $403 million. The acquisitions were accounted for using
the purchase  method of  accounting  for business  combinations.  The results of
operations from the purchased  Repsol assets have been reported in the company's
income  statement  beginning  January 1, 2000.  The Savannah and Botlek  pigment
operating  results  have  been  included  in  the  company's  income  statements
beginning  April 1 and May 1, 2000,  respectively.  The following table provides
selected pro-forma unaudited  information as if the operations had been combined
as of January 1, 1999.

(Millions of dollars) (Unaudited)                    2000     1999
---------------------------------                  ------   ------
Sales                                              $4,211   $3,215
                                                   ======   ======
Net Income                                         $  837   $  183
                                                   ======   ======
Net Income per Common Share
  Basic -
    Income before accounting change                $ 8.97   $ 2.17
    Cumulative effect of accounting change             --     (.05)
                                                   ------   ------
      Net income                                   $ 8.97   $ 2.12
                                                   ======   ======
  Diluted -
    Income before accounting change                $ 8.32   $ 2.17
    Cumulative effect of accounting change             --     (.05)
                                                   ------   ------
      Net income                                   $ 8.32   $ 2.12
                                                   ======   ======


10.  Accrued Liabilities

     Accrued liabilities at year-end 2000 and 1999 are as follows:

(Millions of dollars)                                2000     1999
---------------------                                ----     ----
Interest payable                                     $ 81     $ 72
Employee-related costs and benefits                    75       66
Current environmental reserves                         69       70
Royalties payable                                      28       22
Litigation reserves                                    20       18
Drilling and operating costs                           15       15
Merger reserve(1)                                      10       20
Other                                                  17       14
                                                     ----     ----
  Total                                              $315     $297
                                                     ====     ====

(1) See Note 18.


11.  Debt

Lines  of Credit and  Short-Term  Borrowings
     At year-end 2000, the company had available unused bank lines of credit and
revolving credit facilities of $1.582 billion.  Of this amount, $885 million and
$450 million could 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  2000,  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 2000 and 1999 consisted of notes payable
totaling $6 million (4.94% average  interest rate) and $9 million (4.88% average
interest rate),  respectively.  The notes are denominated in a foreign  currency
and  represent  approximately  6 million  euros and 9 million  euros in 2000 and
1999, respectively.

Long-Term Debt
     The company's  policy is to classify  certain  borrowings  under  revolving
credit  facilities and commercial  paper as long-term debt since the company has
the ability under certain revolving credit agreements and the intent to maintain
these  obligations  for longer than one year.  At year-end  2000 and 1999,  debt
totaling $71 million and $793 million, respectively, was classified as long-term
consistent with this policy.
     Long-term debt consisted of the following at year-end 2000 and 1999:
<TABLE>
<CAPTION>


(Millions of dollars)                                                                 2000     1999
---------------------                                                               ------   ------
<S>                                                                                 <C>      <C>
Debentures -
  7-1/2% Convertible subordinated debentures, $10 due annually May 15, 2001
    through 2013 and $50 due May 15, 2014                                           $  180   $  190
  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
    $99 in 2000 and $103 in 1999 (14.25% effective rate)                               151      147
  5-1/4% Convertible subordinated debentures due February 15, 2010                     600       --
Notes payable -
  5-1/2% Exchangeable notes due August 2, 2004                                         514      327
  10% Notes due April 1, 2001                                                          150      150
  6.625% Notes due October 15, 2007                                                    150      150
  8.375% Notes due July 15, 2004                                                       150      150
  8.125% Notes due October 15, 2005                                                    150      150
  8% Notes due October 15, 2003                                                        100      100
  Variable interest rate revolving credit agreements with banks                         --       85
  Variable interest rate notes                                                          --      150
  Medium-Term Notes (9.29% average effective interest rate at December 31, 2000),
    $11 due January 2, 2002 and $2 due February 1, 2002                                 13       13
Commercial paper (7.39% average effective interest rate at December 31, 2000)           50      612
Euro Commercial paper (7.06% average effective interest rate at December 31, 2000)      21       96
Guaranteed Debt of Employee Stock Ownership Plan 9.61% Notes due in installments
  through January 2, 2005                                                               33       43
Other                                                                                    7        3
                                                                                    ------   ------
                                                                                     2,419    2,516
Long-term debt due within one year                                                    (175)     (20)
                                                                                    ------   ------
    Total                                                                           $2,244   $2,496
                                                                                    ======   ======
</TABLE>

     Maturities of long-term  debt due after December 31, 2000, are $175 million
in 2001,  $107 million in 2002, $116 million in 2003, $678 million in 2004, $162
million in 2005 and $1.181 billion thereafter.
     Certain of the company's  long-term  debt  agreements  contain  restrictive
covenants,  including a minimum  tangible  net worth  requirement  and a maximum
total debt to total capitalization  ratio. At December 31, 2000, the company was
in compliance with its debt covenants.
     Additional  information  regarding  the major  changes  in debt  during the
periods  and unused  commitments  for  financing  is  included  in  Management's
Discussion and Analysis.

12.  Income Taxes

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

(Millions of dollars)                                2000     1999     1998
---------------------                              ------     ----    -----
United States                                      $  562    $ (30)   $(345)
International                                         737      287     (175)
                                                   ------    -----    -----
  Total                                            $1,299    $ 257    $(520)
                                                   ======    =====    =====

     The  corporate  income tax rate in Australia  decreased to 30% from 34% for
the year  2001,  and  decreased  to 34% from  36% for the year  2000.  Effective
January 1, 2001, the German corporate income tax rate decreased to 25% from 30%.
The deferred  income tax asset and  liability  balances were adjusted to reflect
these revised rates,  causing a net increase in the 2000 international  deferred
provision for income taxes of $2 million.
     The  corporate  tax rate in the United  Kingdom  decreased  to 30% from 31%
effective April 1, 1999. The deferred income tax liability  balance was adjusted
to  reflect  the  revised  rate,  which  decreased  the  international  deferred
provision for income taxes by $10 million in 1998.
     The 2000,  1999 and 1998 taxes on income  from  continuing  operations  are
summarized below:

(Millions of dollars)                                2000     1999     1998
---------------------                                ----     ----     ----
U.S. Federal -
  Current                                            $105     $(38)   $(159)
  Deferred                                             82       38       20
                                                     ----     ----    -----
                                                      187       --     (139)
                                                     ----     ----    -----
International -
  Current                                             286      147       18
  Deferred                                            (18)     (37)     (55)
                                                     ----     ----    -----
                                                      268      110      (37)
                                                     ----     ----    -----

State                                                   2        1        1
                                                     ----     ----    -----
    Total                                            $457     $111    $(175)
                                                     ====     ====    =====

     At December 31, 2000, the company had foreign operating loss  carryforwards
totaling $49 million - $7 million that expire in 2001, $8 million that expire in
2003,  $11 million that expire in 2004 and $23 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. The deferred tax asset changed to a liability in 2000 as a result
of income in the foreign jurisdictions and the tax rate reductions in Australia.
Deferred tax  liabilities and assets at December 31, 2000 and 1999, are composed
of the following:

(Millions of dollars)                                2000     1999
---------------------                                ----     ----
Net deferred tax liabilities -
  Accelerated depreciation                           $858     $564
  Exploration and development                          31       34
  Undistributed earnings of foreign subsidiaries       28       28
  Postretirement benefits                             (89)     (86)
  AMTcredit carryforward                              (18)     (60)
  Foreign operating loss carryforward                 (18)     (35)
  Dismantlement, remediation, restoration
    and other reserves                                (55)     (30)
  Other                                               (33)     (14)
                                                     ----     ----
                                                      704      401
                                                     ----     ----
Net deferred tax asset -
  Accelerated depreciation                             --        5
  Foreign operating loss carryforward                  --      (13)
  Other                                                --       (4)
                                                     ----     ----
                                                       --      (12)
                                                     ----     ----
   Total                                             $704     $389
                                                     ====     ====


     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.

                                                     2000     1999     1998
                                                     ----     ----     ----
U.S. statutory rate                                  35.0%    35.0%   (35.0)%
  Increases (decreases) resulting from -
    Taxation of foreign operations                     .5      4.8      9.6
    Adjustment of prior years' accruals               (.6)      --      (.4)
    Refunds of prior years' income taxes              (.7)      --     (5.6)
    Adjustment of deferred tax balances
      due to tax rate changes                          .1       --     (2.0)
    Other - net                                        .8      3.3      (.2)
                                                     ----     ----    -----
        Total                                        35.1%    43.1%   (33.6)%
                                                     ====     ====    =====


     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, 2000, 1999 and 1998, are composed of the
following:

(Millions of dollars)                                2000     1999     1998
---------------------                                ----     ----     ----
Production/severance                                 $ 85      $52      $26
Payroll                                                21       19       12
Property                                               13       11       14
Other                                                   3        3        1
                                                     ----      ---      ---
  Total                                              $122      $85      $53
                                                     ====      ===      ===

14.  Deferred Credits and Reserves - Other

     Other  deferred  credits and reserves  consist of the following at year-end
2000 and 1999:

(Millions of dollars)                                         2000     1999
---------------------                                         ----     ----
Reserves for site dismantlement,
  remediation and restoration                                 $434     $391
Postretirement benefit obligations                             185      186
Pension plan liabilities                                        43       20
Minority interest in subsidiary companies                       24       23
Other                                                           50       50
                                                              ----     ----
  Total                                                       $736     $670
                                                              ====     ====

     The company  provided for  environmental  remediation  and  restoration  of
former plant sites, net of authorized  reimbursements,  during each of the years
2000, 1999 and 1998 as follows:

(Millions of dollars)                                2000     1999     1998
---------------------                                ----     ----     ----
Provision, net of authorized reimbursements          $112      $ 3      $47
Reimbursements received                                66       15       14
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 16).

15.  Commitments

Lease Obligations
     Total lease rental expense was $36 million in 2000, $41 million in 1999 and
$37 million in 1998.
     The company has various  commitments under  non-cancelable  operating lease
agreements,  principally  for office space,  production  facilities and drilling
equipment.  The aggregate minimum annual rentals under these leases in effect at
December 31, 2000, totaled $73 million,  of which $18 million is due in 2001, $9
million in 2002,  $22  million in the period 2003  through  2005 and $24 million
thereafter.
     During the second quarter of 2000, the company  entered into a 5-year lease
commitment  with  Kerr-McGee  Nansen  Business  Trust.  The trust was created to
construct  an  independent  spar  production  platform  that will be used in the
development  of the Gulf of Mexico  Nansen  field in which the company has a 50%
working  interest.  The construction of the platform is being financed by a $137
million  synthetic  lease  credit  facility  between  the  trust  and a group of
financial  institutions.  In addition, in the third quarter of 2000, the company
entered into a similar arrangement with Kerr-McGee Boomvang Trust to construct a
platform  to be used in the  development  of the  Boomvang  field in  which  the
company has a 30% working  interest.  The  construction of the platform is being
financed by a $78 million  synthetic lease credit facility between the trust and
a group of  financial  institutions.  After  construction,  the  company and the
trusts  are  committed  to enter into  operating  leases for the use of the spar
platforms. Currently, the company is obligated to make lease payments in amounts
sufficient  to pay  interest  at varying  rates on both of the  financings.  The
payments  for both  obligations  are  expected  to be $10  million in 2002,  $11
million in 2003,  $11  million in 2004,  $13 million in 2005,  and $265  million
thereafter. The future minimum annual rentals due under non-cancelable operating
leases shown above exclude any payments related to these agreements.

Drilling Rig Commitments
     During 1999,  the company  entered into lease  agreements to participate in
the use of various drilling rigs. The exposure with respect to these commitments
ranges  from nil to $177  million,  depending  on partner  participation.  These
agreements extend through 2004.

16.  Contingencies

West Chicago, Illinois
     In 1973, a wholly owned subsidiary,  Kerr-McGee Chemical  Corporation,  now
Kerr-McGee  Chemical  LLC  (Chemical),  closed  the  facility  in West  Chicago,
Illinois,  that processed  thorium ores.  Historical  operations had resulted in
low-level  radioactive  contamination  at the  facility  and in the  surrounding
areas.  In 1979,  Chemical filed a plan with the Nuclear  Regulatory  Commission
(NRC) to decommission  the facility.  In 1990, the NRC transferred  jurisdiction
over the facility to the State of Illinois (the State). Following is the current
status of various matters associated with the closed facility.
     Closed  Facility - In 1994,  Chemical,  the City of West Chicago (the City)
and the State reached agreement on the initial phase of the decommissioning plan
for the closed West Chicago facility,  and Chemical began shipping material from
the site to a licensed permanent disposal facility.
     In February 1997, Chemical executed an agreement with the City covering the
terms and conditions for completing the final phase of decommissioning work. The
State has indicated  approval of the agreement and has issued license amendments
authorizing much of the work.  Chemical expects most of the work to be completed
within the next three years,  leaving  principally only groundwater  remediation
and/or monitoring for subsequent years.
     In 1992, the State enacted legislation imposing an annual storage fee equal
to $2 per cubic foot of byproduct material located at the closed facility, which
cannot  exceed $26 million per year.  Initially,  all storage fee payments  were
reimbursed  to Chemical as  decommissioning  costs were  incurred.  Chemical was
fully reimbursed for all storage fees paid pursuant to this legislation. In June
1997, the legislation was amended to provide that future storage fee obligations
are to be offset against decommissioning costs incurred but not yet reimbursed.
     Vicinity Areas - The United States  Environmental  Protection  Agency (EPA)
has listed four areas in the vicinity of the closed West Chicago facility on the
National  Priority List promulgated by EPA under authority of the  Comprehensive
Environmental Response, Compensation, and Liability Act of 1980 (CERCLA) and has
designated Chemical as a potentially  responsible party in these four areas. Two
of the four  areas  presently  are being  studied  to  determine  the  extent of
contamination  and the  nature of any  remedy.  These two areas are known as the
Sewage  Treatment Plant and Kress Creek.  The scope of the required  cleanup for
these two areas has not been determined.  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 work required
by  the  two  orders.   Chemical  has  completed  the  required  excavation  and
restoration work at the park site, and will be monitoring the site pending final
EPA approval.
     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.  In August  2000,  the court
approved a settlement that resolves the litigation on a class-wide basis.
     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  for
reimbursement to $140 million plus inflation  adjustments.  Through December 31,
2000,  Chemical has been  reimbursed  approximately  $135 million under Title X.
These reimbursements are provided by congressional appropriations.

Other Matters
     The company  and/or its  subsidiaries  are parties to a number of legal and
administrative  proceedings involving environmental and/or other matters pending
in  various  courts or  agencies.  These  include  proceedings  associated  with
facilities  currently or previously owned,  operated or used by the company, its
subsidiaries and/or their predecessors, and include claims for personal injuries
and property  damages.  The company's current and former operations also involve
management of regulated materials and are subject to various  environmental laws
and regulations. These laws and regulations will obligate the company and/or its
subsidiaries   to  clean  up  various   sites  at  which   petroleum  and  other
hydrocarbons, chemicals, low-level radioactive substances and/or other materials
have been  disposed of or  released.  Some of these  sites have been  designated
Superfund sites by EPA pursuant to CERCLA.
     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 estimate  reliably  the amount and timing of all future  expenditures
related to environmental and legal matters and other contingencies because:
     - some sites are in the early stages of investigation,  and other sites may
       be identified in the future;
     - cleanup  requirements  are  difficult to predict at sites where  remedial
       investigations  have not been completed or final  decisions have not been
       made regarding cleanup requirements,  technologies or other factors  that
       bear on cleanup costs;
     - environmental  laws frequently  impose joint and several liability on all
       potentially responsible parties, and it can be difficult to determine the
       number and  financial condition  of other potentially responsible parties
       and their share of responsibility for cleanup costs; and
     - environmental  laws and regulations are continually  changing,  and court
       proceedings are inherently uncertain.
     As of December 31, 2000, the company has reserves totaling $216 million for
cleaning up and  remediating  environmental  sites,  reflecting  the  reasonably
estimable costs for addressing  these sites.  This includes $110 million for the
West Chicago sites.  Cumulative  expenditures at all environmental sites through
December 31, 2000, total $786 million.  Management believes,  after consultation
with general counsel, that currently the company has reserved adequately for the
reasonably estimable costs of contingencies.  However, additions to the reserves
may be required as additional  information  is obtained that enables the company
to better  estimate its  liabilities,  including  liabilities at sites now under
review,  though the company  cannot now  reliably  estimate the amount of future
additions to the reserves.

17.  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,  2000 and 1999.  At December  31, 2000 and
1999,  available-for-sale  securities for which fair value can be determined are
as follows:
<TABLE>
<CAPTION>

                                                2000                             1999
                                   ----------------------------        -----------------------------
                                                          Gross                                Gross
                                                     Unrealized                           Unrealized
                                    Fair                Holding         Fair                 Holding
(Millions of dollars)              Value    Cost    Gain (Loss)        Value    Cost    Gains (Loss)
---------------------              -----    ----    -----------        -----    ----    ------------
<S>                                 <C>     <C>           <C>           <C>     <C>             <C>
Equity securities                   $607    $209          $ 398         $327    $209            $118
U.S. government obligations -
  Maturing within one year             2       2             --            5       5              --
  Maturing between one year
    and four years                     4       4             --           11      11              --
Exchangeable debt                    514     330           (184)         327     330               3
                                                           ----                                 ----
      Total                                                $214                                 $121
                                                           ====                                 ====
</TABLE>

     The equity  securities  represent the company's  investment in Devon Energy
Corporation common stock. 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
exchange  value in the  Consolidated  Balance Sheet as Long-Term  Debt (see Note
11).
     The change in unrealized  holding gains,  net of income taxes,  as shown in
accumulated  other  comprehensive  income for the years ended December 31, 2000,
1999 and 1998, is as follows:

(Millions of dollars)                                2000     1999     1998
---------------------                                ----     ----     ----
Beginning balance -                                  $ 79      $--      $--
  Net unrealized holding gain                          60       79       --
                                                     ----      ---      ---
Ending balance                                       $139      $79      $--
                                                     ====      ===      ===

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, 2000 and 1999,  the  carrying  amount and  estimated  fair value of
these instruments for which fair value can be determined are as follows:

                                                   2000                1999
                                            ----------------    ----------------
                                            Carrying    Fair    Carrying    Fair
(Millions of dollars)                         Amount   Value      Amount   Value
---------------------                       --------   -----    --------   -----
Cash and cash equivalents                     $  144  $  144      $  267  $  267
Long-term notes receivable                        67     146          26      23
Long-term receivables                             33      28          72      60
Contracts to sell foreign currencies              --      (1)         --      --
Contracts to purchase foreign currencies          --      (2)         --       2
Short-term borrowings                              6       6           9       9
Long-term debt, excluding DECS                 1,905   2,115       2,189   2,228

     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 notes'
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 is based on the estimated  forward
exchange rates at December 31 and represents the net gains and losses that would
have been realized if the contracts had been closed out at year-end.

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 $6
million and $5 million in 2000 and 1999, respectively.  The net foreign currency
hedging loss recognized in 1998 was immaterial.
     Net unrealized losses on foreign currency  contracts totaled $3 million and
$7 million at year-end  2000 and 1998,  respectively.  Net  unrealized  gains on
foreign  currency  contracts  totaled $2 million at year-end 1999. The company's
foreign currency contract positions at year-end 2000 and 1999 were as follows:

December 31, 2000 -
     - Contracts  maturing  January 2001 through  December 2003 to purchase $196
       million Australian for $120 million, 201 million British pound sterling
       for $293 million and 25 million euro for $21 million
     - Contracts  maturing  January  through April 2001 to sell various  foreign
       currencies (principally European) for $9 million

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

     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 2000 or 1999 and
settled all open 1998  contracts in 1999.  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.
     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.

18.  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.
     During the three-year period ended December 31, 2000, the company accrued a
total of $204 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,  2000,  includes $10 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.  The accruals,
expenditures  and  reserve  balances  for 2000  and  1999  are set  forth in the
following table:

                                                                  Restructuring
                                               Merger Reserve           Reserve
                                               --------------           -------
(Millions of dollars)                           2000     1999              1999
---------------------                           ----     ----              ----
Beginning balance                               $ 20    $  --              $ 20
  Accruals                                        --      163                 1
  Benefits to be paid from
    employee benefit plans                        --      (31)               --
  Payments                                       (10)    (126)              (15)
  Transfer to merger reserve from
    restructuring reserve and
    other accrued liabilities(1)                  --       14                (6)
                                                ----    -----              ----
Ending balance                                  $ 10    $  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.  Addi-  tionally,  Oryx had planned to cancel the  remainder  of the
     lease  and had  established  an  accrued  liability  of $8  million.  These
     liabilities  were com- bined with the 1999 merger reserve since  Kerr-McGee
     also plans to cancel the lease at the date of the first option to cancel.


19.  Earnings Per 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
reflects the  potential  dilution  that could occur if security  interests  were
exercised or converted into common stock.
     The  following  table  sets  forth the  computation  of basic  and  diluted
earnings per share for the years ended December 31, 2000, 1999 and 1998.
<TABLE>
<CAPTION>
                                               2000                             1999                            1998
                                   ----------------------------     ----------------------------       --------------------------
(Millions of dollars, except          Net            Net Income        Net            Net Income        Net             Net Loss
per-share  amounts)                Income    Shares   Per Share     Income    Shares   Per Share       Loss    Shares   Per Share
----------------------------       ------    ------  ----------     ------    ------  ----------       ----    ------   ---------
<S>                                  <C>     <C>          <C>         <C>     <C>          <C>         <C>     <C>          <C>
Basic earnings per share -
   Income (loss) available to
     common stockholders             $842    93,406       $9.01       $142    86,414       $1.64       $(68)   86,688       $(.78)
Diluted  earnings per share -
  Effect of dilutive securities:
    5-1/4% convertible debentures      19     8,720                     --        --                     --        --
    7-1/2% convertible debentures       9     1,697                     --        --                     --        --
    Employee stock options             --       164                     --        83                     --        --
                                     ----   -------       -----       ----    ------       -----       ----   -------       -----
Income (loss) available to common
  stockholders, including
  assumed dilution                   $870   103,987       $8.37       $142    86,497       $1.64       $(68)   86,688       $(.78)
                                     ====   =======       =====       ====    ======       =====       ====    ======       =====
</TABLE>

     Not included in the calculation of the denominator for diluted earnings per
share were  2,113,284  and  2,063,079  employee  stock  options  outstanding  at
year-end 2000 and 1999, respectively.  The inclusion of these options would have
been  antidilutive  since  they  were  not  "in  the  money"  at the  end of the
respective  years. No dilution for 1998 existed  because the company  incurred a
loss from continuing operations.
     The company has reserved 9,823,778 and 1,697,333 shares of common stock for
issuance to the owners of its 5-1/4%  Convertible  Subordinated  Debentures  due
2010 and its 7-1/2% Convertible  Subordinated Debentures due 2014, respectively.
These  debentures are  convertible  into the company's  common stock at any time
prior to maturity at $61.08 per share of common stock for the 5-1/4%  debentures
and  $106.03 per share for the 7-1/2%  debentures.  The 7-1/2%  debentures  were
outstanding prior to 2000, but conversion of these debentures was not considered
for purposes of  calculating  net income per share for the years ended  December
31, 1999 and 1998, as the impact would have been  antidilutive  to net income or
loss per share.

20.  Common Stock
     Changes in common stock issued and treasury  stock held for 2000,  1999 and
1998 are as follows:
<TABLE>
<CAPTION>

(Thousands of shares)                                          Common Stock          Treasury Stock
---------------------                                          ------------          --------------
<S>                                                                  <C>                      <C>
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
  Exercise of stock options and stock appreciation rights               423                      --
  Public offering                                                     7,500                      --
  Issuance of restricted stock                                           --                     (78)
                                                                    -------                   -----
Balance  December 31, 2000                                          101,417                   6,933
                                                                    =======                   =====
</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 company has granted 74,000 and 4,000 shares of restricted  common stock
in 2000  and  1999,  respectively,  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 awards
granted in 2000 lapse one-third per year over a three-year  period  beginning on
January  11,  2003.  The  forfeiture  provisions  on the 1999  awards  expire on
December 1, 2003.
     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.

21.  Other Income

     Other  income was as  follows  during  each of the years in the  three-year
period ended December 31, 2000:

(Millions  of dollars)                               2000     1999     1998
---------  -----------                               ----     ----     ----
Income (loss) from unconsolidated affiliates         $ 23      $16     $(12)
Interest                                               29       14       38
Gain (loss) on foreign currency exchange               30       11       (2)
Gain on sale of assets                                  6        3        7
Plant closing/product line discontinuation            (21)      --       --
Settlements with insurance carriers                    --       --       12
Other                                                  (9)      (4)      --
                                                     ----      ---     ----
  Total                                              $ 58      $40     $ 43
                                                     ====      ===     ====

22.  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 2000 or 1999.
     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. The Chemicals - other segment recorded sales of $11 million
and nil pretax income in the Consolidated Statement of Income in 1998 for assets
sold that year. The company had no material assets held for disposal at year-end
2000, 1999 or 1998.

23.  Employee  Stock  Option  Plans

     The 2000 Long Term  Incentive  Plan (2000 Plan)  authorizes the issuance of
shares of the  company's  common stock any time prior to April 30, 2010,  in the
form of stock options,  restricted stock or long-term  performance  awards.  The
options may be accompanied by stock  appreciation  rights.  A total of 2,500,000
shares of the  company's  common stock is authorized to be issued under the 2000
Plan. No grants had been made under the 2000 Plan as of December 31, 2000.
     In January 1998, the Board of Directors approved a broad-based stock option
plan (BSOP) that  provides for the granting of options to purchase the company's
common stock to full-time  non-bargaining  unit employees,  except  officers.  A
total of 1,500,000  shares of common stock is  authorized to be issued under the
BSOP.
     The 1987 Long Term Incentive  Program (1987 Program) and the 1998 Long term
Incentive  Plan (1998 Plan)  authorized  the issuance of shares of the company's
stock over a 15-year  period and 10-year  period,  respectively,  in the form of
stock  options,  restricted  stock or  long-term  performance  awards.  The 1987
Program was terminated when the stockholders approved the 1998 Plan and the 1998
Plan was  terminated  with the  approval of the 2000 Plan.  No options  could be
granted  under the 1987  Program  or the 1998 Plan  after  that  time,  although
options  and any  accompanying  stock  appreciation  rights  outstanding  may be
exercised prior to their respective expiration dates.
     The company's employee stock options are fixed-price options granted at the
fair  market  value of the  underlying  common  stock on the date of the  grant.
Generally,  one-third  of  each  grant  vests  and  becomes  exercisable  over a
three-year  period  immediately  following  the grant date and  expires 10 years
after the grant date.
     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>

                                                 2000                           1999                           1998
                                     ---------------------------    ---------------------------    ---------------------------
                                                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       2,823,334            $56.78    2,783,482            $58.77    2,050,671            $56.84
  Options granted                      719,550             63.53      377,000             46.53    1,105,043             61.97
  Options exercised                   (426,561)            46.59     (110,521)            42.20     (127,576)            44.34
  Options surrendered upon exercise
    of stock appreciation rights        (7,300)            45.57      (14,000)            45.25       (4,000)            38.06
  Options forfeited                    (46,779)            61.79      (45,929)            60.73      (24,928)            60.26
  Options expired                      (25,639)            72.95     (166,698)            72.95     (215,728)            65.65
                                     ---------                      ---------                      ---------
Outstanding, end of year             3,036,605             59.66    2,823,334             56.78    2,783,482             58.77
                                     =========                      =========                      =========
Exercisable, end of year             2,007,036             59.70    2,003,138             57.63    1,497,753             55.38
                                     =========                      =========                      =========
</TABLE>


     The following table summarizes information about stock options issued under
the plans  described  above that are outstanding and exercisable at December 31,
2000:
<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>
    25,830          $30.00-$39.99                     2.5             $35.61         25,830             $35.61
   442,381           40.00- 49.99                     4.6              43.24        339,045              44.16
   910,188           50.00- 59.99                     6.1              57.12        642,780              57.07
 1,446,873           60.00- 69.99                     6.0              64.76        788,048              65.78
   209,584           70.00- 79.99                     3.4              72.72        209,584              72.72
     1,749           90.00- 99.99                      .1              97.56          1,749              97.56
 ---------                                                                        ---------
 3,036,605           30.00- 99.99                     5.6              59.66      2,007,036              59.70
 =========                                                                        =========
</TABLE>

     Statement  of  Financial  Accounting  Standards  No. 123,  "Accounting  for
Stock-Based   Compensation,"   (FAS  123)  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 2000, 1999 and 1998.
     If compensation expense had been determined in accordance with FAS 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)                       2000        1999        1998
---------------------------                       ----        ----        ----
Net income (loss) -
  As reported                                     $842        $142        $(68)
  Pro forma                                        835         136         (76)
Net income (loss) per share -
  Basic -
    As reported                                   9.01        1.64        (.78)
    Pro forma                                     8.94        1.57        (.88)
Diluted -
    As reported                                   8.37        1.64        (.78)
    Pro forma                                     8.30        1.57        (.88)

     The fair value of each option granted in 2000,  1999 and 1998 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  1998  was
necessitated by the Oryx merger (see Note 1).
<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>
2000               6.6%              3.1%             5.8          31.3%             $19.15
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
</TABLE>


24.  Employee Benefit Plans

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

                                                                          Postretirement Health
                                                 Retirement Plans             and Life Plans
                                               ------------------         ---------------------
(Millions of dollars)                            2000        1999            2000      1999
---------------------                          ------      ------            ----      ----
<S>                                            <C>         <C>               <C>       <C>
Benefit obligation, beginning of year          $  977      $1,027            $215      $217
  Service cost                                     17          15               2         1
  Interest cost                                    72          69              15         9
  Plan amendments                                  (3)         70              --         4
  Net actuarial gain                              (12)        (15)             (8)       (2)
  Acquisitions                                     58          --              21        --
  Foreign exchange rate changes                    (1)         --              --        --
  Assumption changes                               --         (50)             --        --
  Changes resulting from plan mergers              --          14              --        (7)
  Dispositions, curtailments and settlements       --          21              --        --
  Benefits paid                                   (94)       (174)            (15)       (7)
                                               ------      ------            ----      ----
Benefit obligation, end of year                $1,014      $  977            $230      $215
                                               ======      ======            ====      ====
</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 covered  employees at
the plan formula level and to provide senior executives with benefits equal to a
specified percentage of their final average compensation. The benefit obligation
for the U.S and certain foreign  unfunded  retirement  plans was $37 million and
$42 million at December 31, 2000 and 1999, respectively. Although not considered
plan assets,  a grantor trust was established from which payments for certain of
these U.S.  supplemental  plans are made. The trust had a balance of $24 million
at year-end 2000 and $5 million at year-end 1999. 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, 2000 and 1999:

<TABLE>
<CAPTION>

                                                                          Postretirement Health
                                                 Retirement Plans            and Life Plans
                                               ------------------         ---------------------
(Millions of dollars)                            2000        1999            2000      1999
---------------------                          ------      ------           -----     -----
<S>                                            <C>         <C>              <C>       <C>
Fair value of plan assets, beginning of year   $1,653      $1,404           $  --     $  --
  Actual return on plan assets                    (80)        381              --        --
  Employer contribution                            20          35              --        --
  Acquisitions                                     61          --              --        --
  Foreign exchange rate changes                    (2)         --              --        --
  Changes resulting from plan mergers              --           7              --        --
  Benefits paid                                   (94)       (174)             --        --
                                               ------      ------           -----     -----
Fair value of plan assets, end of year          1,558       1,653              --        --
Benefit obligation                             (1,014)       (977)           (230)     (215)
                                               ------      ------           -----     -----
Funded status of plans - over (under)             544         676            (230)     (215)
  Amounts not recognized in the
    Consolidated Balance Sheet -
      Transition asset                             --          (6)             --        --
      Prior service costs                          76          86               4         5
      Net actuarial loss (gain)                  (508)       (704)              3        11
                                               ------      ------           -----     -----
Prepaid expense (accrued liability)            $  112      $   52           $(223)    $(199)
                                               ======      ======           =====     =====
</TABLE>

     Following  is  the   classification  of  the  amounts   recognized  in  the
Consolidated Balance Sheet at December 31, 2000 and 1999:

<TABLE>
<CAPTION>
                                                                           Postretirement Health
                                                  Retirement Plans            and Life Plans
                                                 ------------------        ---------------------
(Millions of dollars)                            2000        1999            2000      1999
---------------------                            ----        ----           -----     -----
<S>                                              <C>         <C>            <C>       <C>
Prepaid benefits expense                         $140        $ 79           $  --     $  --
Accrued benefit liability                         (29)        (39)           (223)     (199)
Additional minimum liability -
  Intangible asset                                 --           6              --        --
  Accumulated other comprehensive income            1           6              --        --
                                                 ----        ----           -----     -----
    Total                                        $112        $ 52           $(223)    $(199)
                                                 ====        ====           =====     =====
</TABLE>

     Total costs recognized for employee  retirement and postretirement  benefit
plans for each of the  years  ended  December  31,  2000,  1999 and 1998 were as
follows:
<TABLE>
<CAPTION>

                                                     Retirement Plans            Postretirement Health and Life Plans
                                              ---------------------------        ------------------------------------
(Millions of dollars)                          2000       1999       1998             2000       1999       1998
---------------------                         -----       ----       ----             ----       ----       ----
<S>                                           <C>         <C>        <C>               <C>        <C>        <C>
Net periodic cost -
  Service cost                                $  17       $ 15       $ 16              $ 2        $ 1        $ 3
  Interest cost                                  72         69         66               15          9         13
  Expected return on plan assets               (111)       (98)       (94)              --         --         --
  Net amortization -
    Transition asset                             (5)        (6)        (8)              --         --         --
    Prior service cost                            8         12          3                1         --         --
    Net actuarial loss (gain)                   (17)        (3)         1               --         --         (1)
                                              -----       ----       ----              ---        ---        ---
                                                (36)       (11)       (16)              18         10         15
Dispositions, curtailments, settlements          --         29         26               --         --         (1)
                                              -----       ----       ----              ---        ---        ---
      Total                                   $ (36)      $ 18       $ 10              $18        $10        $14
                                              =====       ====       ====              ===        ===        ===
</TABLE>

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

                                         2000          1999          1998
                                  -----------   -----------     ---------
Discount rate                     5.50 - 7.75%  5.50 - 7.75%         6.75%
Expected return on plan assets      7.0 - 9.0    6.25 - 9.5     9.0 - 9.5
Rate of compensation increases      3.0 - 5.0     3.0 - 5.0     4.0 - 5.0

     The  health  care cost trend  rates used to  determine  the  year-end  2000
postretirement  benefit obligation was 7.25% in 2001,  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, 2000,  by $24 million and increase the  aggregate of
the service and interest cost components of net periodic  postretirement expense
for 2000 by $2  million.  A 1%  decrease  in the trend rate for each future year
would reduce the benefit obligation at year-end 2000 by $22 million and decrease
the  aggregate of the service and interest  cost  components of the net periodic
postretirement expense for 2000 by $1 million.


25.  Employee Stock Ownership Plan

     In 1989,  the company's  Board of Directors  approved a leveraged  Employee
Stock  Ownership  Plan  (ESOP)  into  which  is  paid  the  company's   matching
contribution  for the employees'  contributions  to the  Kerr-McGee  Corporation
Savings Investment Plan (SIP). Most of the company's U.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  three  million
shares of the  company's  treasury  stock.  The company used the $125 million in
proceeds  from the sale of the stock to acquire  shares of its  common  stock in
open-market  and privately  negotiated  transactions.  In 1996, a portion of the
third-party  borrowings was replaced with a note payable to the company (sponsor
financing).  The  third-party  borrowings  are guaranteed by the company and are
reflected in the Consolidated Balance Sheet as Long-Term Debt, while the sponsor
financing does not appear in the company's balance sheet.
     The 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)                                2000     1999
---------------------                               -----    -----
Participants' accounts                              1,303    1,357
Loan suspense account                               1,114    1,380


     The shares  allocated to ESOP  participants at December 31, 2000,  included
approximately  57,000 shares released in January 2001, and at December 31, 1999,
included approximately 51,000 shares released in January 2000.
     All  ESOP  shares  are  considered  outstanding  for net  income  per-share
calculations. Dividends on ESOP shares are charged to retained earnings.
     Compensation expense is recognized using the cost method and is reduced for
dividends  paid on the  unallocated  ESOP shares.  The company  recognized  ESOP
expense of $11 million in 2000 and ESOP and  CAP-related  expense of $14 million
and $17 million in 1999 and 1998,  respectively.  These amounts include interest
expense  incurred on the third-party ESOP debt of $3 million in 2000, $4 million
in 1999 and $5 million in 1998. The company  contributed $21 million to the ESOP
in 2000 and $25  million  and $23  million to the ESOP and CAP in 1999 and 1998,
respectively.  Included in the contributions  were $12 million,  $17 million and
$21  million  in 2000,  1999 and  1998,  respectively,  used for  principal  and
interest payments on the sponsor  financings.  The cash contributions are net of
$4 million for the dividends paid on the company stock held by the ESOP trust in
each of the years 2000, 1999 and 1998.

26.  Reporting by Business Segments and Geographic Locations

     The company has three  reportable  segments:  oil and gas  exploration  and
production and manufacturing and marketing of titanium dioxide pigment and other
chemicals. The exploration and production unit produces and explores for oil and
gas in the United States, the United Kingdom sector of the North Sea, Indonesia,
China,  Kazakhstan  and Ecuador.  Exploration  efforts also extend to Australia,
Benin, Brazil, Gabon, Morocco,  Canada, Thailand, Yemen and the Danish sector of
the North Sea. The chemical unit primarily produces and markets titanium dioxide
pigment and has operations in the United States, Australia, Germany, Belgium and
the   Netherlands.   Other   chemicals   include  the   company's   electrolytic
manufacturing and marketing  operations and forest products treatment  business.
All of these operations are in the United States.
     Crude  oil  sales to  individually  significant  customers  totaled  $1.407
billion and $420 million in 2000 and 1999,  respectively.  In addition,  natural
gas sales to an individually  significant customer totaled $522 million in 2000.
There were no individually  significant  customers in 1998.  Sales to subsidiary
companies are eliminated as described in Note 1.

(Millions of dollars)                                2000     1999     1998
----------------------                             ------   ------   ------
Sales -
  Exploration and production                       $2,860   $1,784   $1,291
                                                   ------   ------   ------
  Chemicals -
    Pigment                                         1,034      725      663
    Other                                             227      234      300
                                                   ------   ------   ------
      Total Chemicals                               1,261      959      963
                                                   ------   ------   ------
        Total                                      $4,121   $2,743   $2,254
                                                   ======   ======   ======

Operating profit (loss)(1) -
  Exploration and production                       $1,467   $  542   $ (361)
                                                   ------   ------   ------
  Chemicals -
    Pigment                                           130      113       56
    Other                                              17       14       --
                                                   ------   ------   ------
      Total Chemicals                                 147      127       56
                                                   ------   ------   ------
        Total                                      $1,614   $  669   $ (305)
                                                   ======   ======   ======

Net operating profit (loss)(1) -
  Exploration and production                       $  946   $  338   $ (266)
                                                   ------   ------   ------
  Chemicals -
    Pigment                                            70       73       35
    Other                                              11        9       --
                                                   ------   ------   ------
      Total Chemicals                                  81       82       35
                                                   ------   ------   ------
        Total                                       1,027      420     (231)
Net interest expense(1)                              (117)    (117)     (77)
Net nonoperating expense(1)                           (68)    (157)     (37)
Income from discontinued operations,
  net of taxes                                         --       --      277
Cumulative effect of change in accounting
  principle, net of taxes                              --       (4)      --
                                                   ------   -------  ------
Net income (loss)                                  $  842   $   142  $  (68)
                                                   ======   =======  ======

Depreciation, depletion and amortization -
  Exploration and production                       $  632   $  578   $  527
                                                   ------   ------   ------
  Chemicals -
    Pigment                                            71       45       49
    Other                                              21       18       19
                                                   ------   ------   ------
      Total Chemicals                                  92       63       68
                                                   ------   ------   ------
Other                                                   8        7        6
Discontinued operations                                --       --       14
                                                   ------   ------   ------
        Total                                      $  732   $  648   $  615
                                                   ======   ======   ======


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

(Millions of dollars)                                2000     1999     1998
---------------------                              ------   ------   ------
Cash capital expenditures -
  Exploration and production                       $  651   $  447   $  871
                                                   ------   ------   ------
  Chemicals -
    Pigment                                           100       76       69
    Other                                              17       14       23
                                                   ------   ------   ------
      Total Chemicals                                 117       90       92
                                                   ------   ------   ------
  Other                                                 6        6        8
  Discontinued operations                              --       --       10
                                                   ------   ------   ------
        Total                                         774      543      981
                                                   ------   ------   ------

Cash exploration expenses -
  Exploration and production -
    Dry hole costs                                     54       43      100
    Amortization of undeveloped leases                 48       41       40
    Other                                              68       56       75
                                                   ------   ------   ------
      Total exploration expenses                      170      140      215
  Less - Amortization of leases and other
    noncash expenses                                  (49)     (51)     (42)
                                                   ------   ------   ------
        Total cash exploration expenses               121       89      173
                                                   ------   ------   ------
          Total cash capital expenditures
            and cash exploration expenses          $  895   $  632   $1,154
                                                   ======   ======   ======

Identifiable assets -
  Exploration and production                       $5,108   $4,013   $4,083
                                                   ------   ------   ------
  Chemicals -
    Pigment(1)                                      1,415      921      863
    Other                                             228      229      235
                                                   ------   ------   ------
      Total Chemicals                               1,643    1,150    1,098
                                                   ------   ------   ------
        Total                                       6,751    5,163    5,181
  Corporate and other assets                          915      736      270
                                                   ------   ------   ------
        Total                                      $7,666   $5,899   $5,451
                                                   ======   ======   ======

Sales -
  U.S. operations                                  $2,197   $1,499   $1,330
                                                   ------   ------   ------
  International operations -
    North Sea - exploration and production          1,277      752      491
    Other - exploration and production                144       80       69
    Europe - pigment                                  300      223      173
    Australia - pigment                               203      189      182
    Other - pigment                                    --       --        9
                                                   ------   ------   ------
                                                    1,924    1,244      924
                                                   ------   ------   ------
      Total                                        $4,121   $2,743   $2,254
                                                   ======   ======   ======
Operating profit (loss)(2) -
  U.S. operations                                  $  863   $  364   $ (116)
                                                   ------   ------   ------
  International operations -
    North Sea - exploration and production            651      270     (146)
    Other - exploration and production                 29       --      (85)
    Australia - pigment                                38       21       19
    Europe - pigment                                   33       14       23
                                                   ------   ------   ------
                                                      751      305     (189)
                                                   ------   ------   ------
      Total                                        $1,614   $  669   $ (305)
                                                   ======   ======   ======

(1)  Includes  net deferred tax asset of $12 million and $17 million at December
     31,  1999 and  1998,  respectively.  There  was no  deferred  tax  asset at
     December 31, 2000 (see Note 12).
(2)  Includes special items. Refer to Management's Discussion and Analysis.


(Millions of dollars)                                2000     1999     1998
---------------------                              ------   ------   ------
Net property, plant and equipment -
  U.S. operations                                  $2,368   $2,106   $2,095
                                                   ------   ------   ------
  International operations -
    North Sea - exploration and production          2,350    1,547    1,617
    Other - exploration and production                300      219      213
    Australia - pigment                               127      132      129
    Europe - pigment                                  238       81       99
                                                   ------   ------   ------
                                                    3,015    1,979    2,058
                                                   ------   ------   ------
      Total                                        $5,383   $4,085   $4,153
                                                   ======   ======   ======


27.  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.  Revenues  applicable  to the  discontinued
operations totaled $174 million in 1998.

28.  Costs Incurred in Crude Oil and Natural Gas Activities

     Total  expenditures,  both  capitalized  and  expensed,  for  crude oil and
natural gas property acquisition, exploration and development activities for the
three years ended December 31, 2000, are reflected in the following table:

                                    Property
                                 Acquisition      Exploration       Development
(Millions of dollars)               Costs(1)         Costs(2)          Costs(3)
---------------------            -----------      -----------       -----------
2000 -
  United States                         $ 41             $112              $230
  North Sea                              566               53               290
  Other international                     39               57                48
                                        ----             ----              ----
    Total                               $646             $222              $568
                                        ====             ====              ====
1999 -
  United States                         $ 81             $ 92              $224
  North Sea                               30               18               106
  Other international                      8               32                 9
                                        ----             ----              ----
    Total                               $119             $142              $339
                                        ====             ====              ====
1998 -
  United States                         $117             $136              $347
  North Sea                              423               38               311
  Other international                      5               75                29
                                        ----             ----              ----
    Total                               $545             $249              $687
                                        ====             ====              ====

(1)  Includes $561 million, $49 million and $280 million applicable to purchases
     of reserves in place in 2000, 1999 and 1998, respectively.
(2)  Exploration  costs include delay rentals,  exploratory dry holes,  dry hole
     and bottom hole  contributions,  geological and geophysical costs, costs of
     carrying and retaining properties and capital  expenditures,  such as costs
     of drilling and equipping successful exploratory wells.
(3)  Development  costs  include  costs  incurred  to  obtain  access  to proved
     reserves (surveying,  clearing ground,  building roads), to drill and equip
     development  wells,  and  to  acquire,  construct  and  install  production
     facilities and improved  recovery  systems.  Development costs also include
     costs of developmental dry holes.

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

     The results of operations from crude oil and natural gas activities for the
three years ended December 31, 2000, 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>
2000 -
  United States                 $1,436         $198       $ 67          $ 95            $286          $ --        $277        $ 513
  North Sea                      1,264          262         55            26             283            --         219          419
  Other international              143           24         27            49              14            --          21            8
                                ------         ----       ----          ----             ---          ----        ----        -----
    Total crude oil and
      natural gas activities     2,843          484        149           170             583            --         517          940
  Other(2)                          17            6         --            --               1            --           4            6
       --                       ------         ----       ----          ----            ----          ----        ----        -----
        Total                   $2,860         $490       $149          $170            $584          $ --        $521        $ 946
                                ======         ====       ====          ====            ====          ====        ====        =====

1999 -
  United States                 $  950         $178       $ 85          $ 97            $316          $ --         $96        $ 178
  North Sea                        731          199         54            22             205            --          99          152
  Other international               79           23         20            21              15            --           2           (2)
                                ------         ----       ----           ---            ----          ----         ---        -----
    Total crude oil and
      natural gas activities     1,760          400        159           140             536            --         197          328
  Other(2)                          24            6         --            --               1            --           7           10
       --                       ------         ----       ----          ----            ----          ----        ----        -----
        Total                   $1,784         $406       $159          $140            $537          $ --        $204        $ 338
                                ======         ====       ====          ====            ====          ====        ====        =====
1998 -
  United States                 $  724         $184       $129          $141            $285          $114        $(36)       $ (93)
  North Sea                        450          189         32            21             170           160         (20)        (102)
  Other international               69           12         11            52              31           115         (45)        (107)
                                ------         ----       ----          ----            ----          ----        ----        -----
    Total crude oil and
      natural gas activities     1,243          385        172           214             486           389        (101)        (302)
  Other(2)                          48            5          1            --              --            --           6           36
       --                       ------         ----       ----          ----            ----          ----        ----        -----
        Total                   $1,291         $390       $173          $214            $486          $389        $(95)       $(266)
                                ======         ====       ====          ====            ====          ====        ====        =====

(1)  Includes  transition  and  restructuring  charges  of $20  million  and $34
     million in 1999 and 1998, respectively (see Note 18).
(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.
</TABLE>

     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).

                                                     2000     1999     1998
                                                   ------   ------   ------
Average sales price -
  Crude oil (per barrel) -
    United States                                  $27.50   $16.90   $12.78
    North Sea                                       27.92    17.88    12.93
    Other international                             26.13    14.77    10.19
      Average                                       27.64    17.26    12.58

  Natural gas (per Mcf) -
    United States                                    4.11     2.41     2.10
    North Sea                                        2.32     2.12     2.46
      Average                                        3.87     2.38     2.13

Production costs -
  (per barrel of oil equivalent)
     United States                                   3.59     2.92     3.23
     North Sea                                       5.55     4.81     5.44
     Other international                             4.39     4.32     1.78
       Average                                       4.49     3.72     3.91

30.  Capitalized Costs of Crude Oil and Natural Gas Activities

     Capitalized  costs of crude oil and natural gas  activities and the related
reserves for  depreciation,  depletion and  amortization  at the end of 2000 and
1999 are set forth in the table below.

(Millions of dollars)                                         2000     1999
---------------------                                      -------   ------
Capitalized costs -
  Proved properties                                        $10,244   $9,153
  Unproved properties                                          549      438
  Other                                                        101       98
                                                           -------   ------
    Total                                                   10,894    9,689
                                                           -------   ------
Reserves for depreciation, depletion and amortization -
  Proved properties                                          6,413    6,100
  Unproved properties                                          119      102
  Other                                                         49       43
                                                            ------   ------
    Total                                                    6,581    6,245
                                                            ------   ------
      Net capitalized costs                                 $4,313   $3,444
                                                            ======   ======


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


     The  estimates  of proved  reserves  have been  prepared  by the  company's
geologists  and  engineers  in  accordance  with  the  Securities  and  Exchange
Commission  definitions.  Such estimates include reserves on certain  properties
that are partially  undeveloped  and reserves that may be obtained in the future
by improved recovery operations now in operation or for which successful testing
has been  demonstrated.  The  company  has no proved  reserves  attributable  to
long-term  supply  agreements with  governments or consolidated  subsidiaries in
which there are significant minority interests.
     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, 2000.
<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(1)     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, 1997                             271     192        104    567       1,493     203        256    1,952
    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)        (90)     --         --      (90)
    Extensions, discoveries and other additions          14       9         21     44         132       3        103      238
    Production                                          (24)    (32)        (7)   (63)       (202)    (17)        --     (219)
                                                        ---     ---        ---    ---       -----     ---        ---    -----
  Balance December 31, 1998                             254     220        103    577       1,333     242        372    1,947
    Revisions of previous estimates                       5      14          1     20          14       9          5       28
    Purchases of reserves in place                        4       7         --     11          19      36         --       55
    Sales of reserves in place                           (1)     (5)        --     (6)         (1)     --         --       (1)
    Extensions, discoveries and other additions           1      34         13     48         103       2        138      243
    Production                                          (29)    (38)        (5)   (72)       (194)    (23)        --     (217)
                                                        ---     ---        ---    ---       -----     ---        ---    -----
  Balance December 31, 1999                             234     232        112    578       1,274     266        515    2,055
    Revisions of previous estimates                      (9)      7         --     (2)         11      40         --       51
    Purchases of reserves in place                        1      68         --     69          19     173         --      192
    Sales of reserves in place                           (1)     --         --     (1)        (37)     --         --      (37)
    Extensions, discoveries and other additions          30      91         11    132         227      13         20      260
    Production                                          (27)    (43)        (6)   (76)       (169)    (25)        --     (194)
                                                        ---     ---        ---    ---       -----     ---        ---    -----
  Balance December 31, 2000                             228     355        117    700       1,325     467        535    2,327
                   === ====                             ===     ===        ===    ===       =====     ===        ===    =====

Proved developed reserves -
    December 31, 1998                                   148     141         38    327         829     163         --      992
    December 31, 1999                                   166     167         32    365         854     157         --    1,011
    December 31, 2000                                   153     185         27    365         848     150         --      998

(1)  Prior-year  volumes  for U.S.  natural  gas liquids and natural gas volumes
     have been  restated to reflect  Kerr-McGee's  decision to  standardize  its
     worldwide financial reporting gas pressure base to 14.73 psia.
</TABLE>

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

                                                 United     North             Other
(Millions of equivalent barrels)              States(1)       Sea     International      Total
--------------------------------              ---------     -----     -------------      -----
<S>                                                 <C>       <C>               <C>        <C>
December 31, 1998                                   476       260               165        901
December 31, 1999                                   446       276               198        920
December 31, 2000                                   449       433               206      1,088

(1)  Prior-year  volumes  for U.S.  natural  gas liquids and natural gas volumes
     have been  restated to reflect  Kerr-McGee's  decision to  standardize  its
     worldwide financial reporting gas pressure base to 14.73 psia.
</TABLE>

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

     The  standardized  measure  of  future  net  cash  flows  presented  in the
following  table was computed using year-end prices and costs and a 10% discount
factor.  The future income tax expense was computed by applying the  appropriate
year-end  statutory  rates,  with  consideration  of future  tax  rates  already
legislated,  to the  future  pre-tax  net cash  flows  less the tax basis of the
properties  involved.  However, the company cautions that actual future net cash
flows  may vary  considerably  from  these  estimates.  Although  the  company's
estimates of total reserves,  development  costs and production rates were based
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>
2000 -
  United States             $14,825           $3,945          $3,698       $ 7,182      $2,940          $4,242
  North Sea                   9,051            3,625           1,807         3,619       1,312           2,307
  Other international         4,284            1,813             944         1,527         850             677
                            -------           ------          ------       -------      ------          ------
    Total                   $28,160           $9,383          $6,449       $12,328      $5,102          $7,226
                            =======           ======          ======       =======      ======          ======
1999 -
  United States             $ 7,928           $3,332          $1,398       $ 3,198      $1,343          $1,855
  North Sea                   6,146            2,608           1,245         2,293         665           1,628
  Other international         3,693            1,665             783         1,245         717             528
                            -------           ------          ------       -------      ------          ------
    Total                   $17,767           $7,605          $3,426       $ 6,736      $2,725          $4,011
                            =======           ======          ======       =======      ======          ======
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
                            =======           ======          ======       =======      ======          ======
</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)                                             2000      1999      1998
---------------------                                          -------   -------   -------
<S>                                                            <C>       <C>       <C>
Net change in sales, transfer prices and production costs      $ 3,849   $ 4,310   $(2,156)
Changes in estimated future development costs                      (33)     (318)     (377)
Sales and transfers less production costs                       (2,358)   (1,314)     (847)
Purchases of reserves in place                                   1,065       117       159
Changes due to extensions, discoveries, etc.                     1,477       592       173
Changes due to revisions in quantity estimates                      56       272        43
Changes due to sales of reserves in place                         (166)     (104)     (107)
Current period development costs                                   568       339       687
Accretion of discount                                              601       231       437
Changes in income taxes                                         (1,706)   (1,414)      693
Timing and other                                                  (138)     (423)     (169)
                                                               -------   -------   -------
  Net change                                                     3,215     2,288    (1,464)
Total at beginning of year                                       4,011     1,723     3,187
                                                               -------   -------   --------
Total at end of year                                           $ 7,226   $ 4,011   $ 1,723
                                                               =======   =======   ========
</TABLE>

33.  Quarterly Financial Information (Unaudited)

     A summary of quarterly  consolidated results for 2000 and 1999 is presented
below. The 2000 quarterly per-share amounts do not add to the annual amounts due
to the weighted  average effect of stock and convertible  debt issued during the
year.  Refer to  Management's  Discussion  and  Analysis for  information  about
special items.
<TABLE>
<CAPTION>

                                                                                      Diluted Income (Loss)
                                                                                         per Common Share
                                                                                ------------------------------
                                                            Income                     Income
                                                     (Loss) Before       Net    (Loss) Before
(Millions of dollars,                   Operating       Accounting    Income       Accounting             Net
  except per-share amounts)     Sales      Profit           Change    (Loss)           Change    Income (Loss)
---------------------------    ------   ---------    -------------    ------    -------------    -------------
<S>                            <C>         <C>               <C>       <C>             <C>              <C>
2000 Quarter Ended -
  March 31                     $  886      $  328            $ 185     $ 185           $ 1.94           $ 1.94
  June 30                       1,011         334              110       110             1.11             1.11
  September 30                  1,106         459              265       265             2.57             2.57
  December 31                   1,118         493              282       282             2.73             2.73
                               ------      ------            -----     -----           ------           ------
    Total                      $4,121      $1,614            $ 842     $ 842           $ 8.37           $ 8.37
                               ======      ======            =====     =====           ======           ======
1999 Quarter Ended -
  March 31                     $  498      $   51            $(107)    $(111)          $(1.23)          $(1.28)
  June 30                         664         133               45        45              .52              .52
  September 30                    765         239               98        98             1.13             1.13
  December 31                     816         246              110       110             1.27             1.27
                               ------      ------            -----     -----           ------           ------
    Total                      $2,743      $  669            $ 146     $ 142           $ 1.69           $ 1.64
                               ======      ======            =====     =====           ======           ======
</TABLE>

     The  company's  common  stock is listed  for  trading on the New York Stock
Exchange  and at  year-end  2000 was  held by  approximately  30,000  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 are
as follows:

                                  Market Prices
                      ------------------------------------        Dividends
                             2000               1999              per Share
                      ----------------    ----------------      -------------
                        High       Low      High       Low      2000     1999
                      ------    ------    ------    ------      ----     ----
Quarter Ended -
  March 31            $67.94    $39.88    $41.44    $28.50      $.45     $.45
  June 30              62.50     51.13     52.13     32.50       .45      .45
  September 30         68.00     53.13     60.06     49.31       .45      .45
  December 31          71.19     59.00     62.00     52.00       .45      .45

<TABLE>
<CAPTION>

Seven-Year Financial Summary

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

Effective Income Tax Rate                           35.1%     43.1%    (33.6)%    34.4%     38.6%    (61.8)%     40.9%
Common Stock Information, per Share
Diluted net income (loss) -
  Continuing operations                           $  8.37   $ 1.69    $(3.98)   $  4.02   $ 4.05    $ 1.23    $  (.36)
  Discontinued operations                              --       --      3.20        .38      .63       .30        .63
  Extraordinary charge                                 --       --        --       (.02)      --      (.26)      (.14)
  Cumulative effect of accounting change               --     (.05)       --         --       --        --     (10.82)
                                                  -------   ------    ------    -------   ------    ------    -------
    Net income (loss)                             $  8.37   $ 1.64    $ (.78)   $  4.38   $ 4.68    $ 1.27    $(10.69)
                                                  =======   ======    ======    =======   ======    ======    =======
Dividends declared                                $  1.80   $ 1.80    $ 1.80    $  1.80   $ 1.64    $ 1.55      $1.52
Stockholders' equity                                25.01    17.19     15.58      17.88    14.59     12.47      12.33
Market high for the year                            71.19    62.00     73.19      75.00    74.13     64.00      51.00
Market low for the year                             39.88    28.50     36.19      55.50    55.75     44.00      40.00
Market price at year-end                          $ 66.94   $62.00    $38.25    $ 63.31   $72.00    $63.50    $ 46.25
Shares outstanding at year-end (thousands)         94,484   86,483    86,367     86,794   87,032    89,613     90,143
Balance Sheet Information
Working capital                                   $   (34)  $  321    $ (173)   $    --   $  161    $ (106)   $  (254)
Property, plant and equipment - net                 5,383    4,085     4,153      3,919    3,693     3,807      4,497
Total assets                                        7,666    5,899     5,451      5,339    5,194     5,006      5,918
Long-term debt                                      2,244    2,496     1,978      1,736    1,809     1,683      2,219
Total debt                                          2,425    2,525     2,250      1,766    1,849     1,938      2,704
Total debt less cash                                2,281    2,258     2,129      1,574    1,719     1,831      2,612
Stockholders' equity                                2,633    1,492     1,346      1,558    1,279     1,124      1,112
Cash Flow Information
Net cash provided by operating activities           1,771      713       385      1,097    1,169       728        678
Cash capital expenditures                             774      543       981        836      875       745        611
Dividends paid                                        166      138        86         85       83        79         79
Treasury stock purchased                          $    --   $   --    $   25    $    60   $  195    $   45    $    --
Ratios and Percentage
Current ratio                                         1.0      1.4        .8        1.0      1.2        .9         .8
Average price/earnings ratio                          6.6     27.6        NM       14.9     13.9      42.5         NM
Total debt less cash to total capitalization           46%      60%       61%        50%      57%       62%        70%
Employees
Total wages and benefits                          $   333   $  327    $  359    $   367   $  367    $  402    $   422
Number of employees at year-end                     4,426    3,653     4,400      4,792    4,827     5,176      6,724

</TABLE>

<TABLE>
<CAPTION>

Seven-Year Operating Summary
                                                     2000     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                                    73.7     79.3      66.2       70.6     73.8      74.8       73.4
    North Sea                                       117.7    102.9      87.4       83.3     86.5      91.9       88.7
    Other international                              15.3     14.7      18.4       18.1     16.8      17.4       26.4
                                                   ------   ------    ------     ------   ------    ------       ----
      Total                                         206.7    196.9     172.0      172.0    177.1     184.1      188.5
                                                   ======   ======    ======     ======   ======    ======      =====
Average price of crude oil sold (per barrel) -
    United States                                  $27.50   $16.90    $12.78     $18.45   $19.56    $15.78     $14.25
    North Sea                                       27.92    17.88     12.93      18.93    19.60     16.56      15.33
    Other international                             26.13    14.77     10.19      15.50    15.85     14.70      14.58
      Average                                      $27.64   $17.26    $12.58     $18.37   $19.23    $16.07     $14.80
Natural gas sales (MMCF per day)                      531      580       584        685      781       809        872
Average price of natural gas sold (per MCF)        $ 3.87   $ 2.38    $ 2.13     $ 2.44   $ 2.11    $ 1.63     $ 1.82
Net exploratory wells drilled -
    Productive(1)                                    1.25     1.70      4.40       7.65     6.91      4.71      11.61
    Dry                                             10.54     3.75     14.42       7.42     5.52     11.16      13.47
                                                   ------   ------    ------     ------   ------    ------      -----
      Total                                         11.79     5.45     18.82      15.07    12.43     15.87      25.08
                                                   ======   ======    ======     ======   ======    ======      =====
Net development wells drilled -
    Productive                                      47.79    46.23     62.30      95.78   143.33    135.86      69.27
    Dry                                              5.44     5.89      9.00       7.00    13.04     11.95       9.63
                                                   ------   ------    ------     ------   ------    ------       ----
      Total                                         53.23    52.12     71.30     102.78   156.37    147.81      78.90
                                                   ======   ======    ======     ======   ======    ======      =====
Undeveloped net acreage (thousands) -
    United States                                   2,020    1,560     1,487      1,353    1,099     1,280      1,415
    North Sea                                         923      861       908        523      560       570        629
    Other international                            26,078   19,039    14,716     14,630    4,556     4,031      7,494
                                                   ------   ------    ------     ------   ------    ------      -----
      Total                                        29,021   21,460    17,111     16,506    6,215     5,881      9,538
                                                   ======   ======    ======     ======   ======    ======      =====
Developed net acreage (thousands) -
    United States                                     729      796       810        830      871     1,190      1,270
    North Sea                                         115      105       115         70       79        58         68
    Other international                               656      785       612        201      198       207      1,015
                                                   ------   ------    ------     ------   ------    ------      -----
      Total                                         1,500    1,686     1,537      1,101    1,148     1,455      2,353
                                                   ======   ======    ======     ======   ======    ======      =====
Estimated proved reserves
  (millions of equivalent barrels)                  1,088      920       901        892      849       864      1,059
Chemicals
Gross worldwide titanium dioxide
  production (thousands of tonnes)                    480      320       284        168      155       154        148


(1)  The 2000 net well count does not include 15.35 successful net wells drilled
     in 2000 but suspended at the end of the year.
</TABLE>


Glossary of Terms

Acreage:  Land or offshore  area leased or licensed for oil and gas  exploration
and production.

Appraisal drilling:  Drilling carried out following the discovery of a new field
to obtain more information on the physical extent, amount of reserves and likely
production rate.

Articulated  compliant tower: A freestanding,  flexible production facility that
moves or "complies" with wave forces. Kerr-McGee's Baldpate facility in the Gulf
of  Mexico  features  an  articulation  point  that  enhances   flexibility  and
represents an industry "first."

b/d: Barrels of oil per day.

BOE:  Barrels of oil  equivalent.  One barrel of oil equals  6,000 cubic feet of
natural gas.

Chloride  process:  One of two processes for the production of titanium  dioxide
pigment.  This process accounts for about 70% of Kerr-McGee's  worldwide pigment
production capacity.

Condensate:  Hydrocarbon liquids that exist in gaseous form in the reservoir but
condense to liquids as the gas flows to the surface.

Continental  shelf:  The extension of a continental  land mass into the ocean in
relatively shallow water.

Deep water: More than 1,000 feet deep.

Development: Drilling of wells following an oil or gas discovery, and bringing a
field into  production.

Discovery well: An exploratory well that finds a new petroleum  deposit or opens
a new formation in an established field.

Exploitation:  Additional  drilling or  application of new technology to further
extend  production and reserves of an existing field.

Exploratory  well:  A well  drilled  to test  the  presence  of oil or gas in an
undeveloped area.

Floating production,  storage and offloading (FPSO) system: A moored ship-shaped
facility  capable of producing oil from subsea wells and storing and  offloading
the oil into shuttle tankers.  Kerr-McGee's  Gryphon field in the North Sea uses
an FPSO, and a second  company-operated  FPSO is being  outfitted for the Leadon
field.

Gross acres or  production:  The total  number of acres or the total  production
volume  in  which  a  company  owns  an  interest.

Independent:  An oil and gas exploration  and production  company not engaged in
petroleum refining and marketing or "downstream"  operations.  Kerr-McGee became
an independent after selling its refining business in 1995.

MMBtu:  Millions of British thermal units.  One Btu is the amount of heat needed
to raise the temperature of one pound of water by one degree Fahrenheit.

MMcf/d:  Millions of cubic feet of natural gas per day.

Play: A group of prospects  and/or  fields with similar  geologic  histories and
conditions.  The  Atlantic  Margin  deepwater  plays  -  focus  of  Kerr-McGee's
exploration  program - resulted from sandstone  deposition as continental  drift
opened up the Atlantic Ocean basin.  Before drift started,  Morocco was adjacent
to Nova Scotia,  and Brazil next to Gabon,  so similar  geologic  conditions are
expected.

Possible  reserves:  Estimated  quantities of unproved oil and natural gas which
analysis of geological and engineering data suggests could possibly be recovered
but are less  certain  than  probable  reserves.

Probable  reserves:  Estimated  quantities of unproved oil and natural gas which
analysis of geological and engineering  data suggests are likely to be recovered
but do not meet proved criteria.

Prospect:  A specified  location or an area  targeted for leasing and  drilling.
Proved  reserves:  Estimated  quantities of oil and natural gas which geological
and engineering data demonstrate with reasonable  certainty to be recoverable in
future  years  from known  reservoirs  under  existing  economic  and  operating
conditions.

Reservoir: A porous,  permeable sedimentary rock formation containing oil and/or
natural gas,  enclosed or surrounded  by layers of less  permeable or impervious
rock.

Seismic  survey:  Technique for  determining  the structure of underground  rock
formations  by sending  energy waves or sound waves into the earth and recording
the wave  reflections.  Three-dimensional  seismic surveys provide enhanced data
for determining well locations.

Semisubmersible: A floating drilling rig or a floating production facility.

Spar: A deep-floating cylindrical hull. Kerr-McGee operates the industry's first
production spar, which was installed in 1996 in the Neptune field in the Gulf of
Mexico and began production in 1997.

Subsea tree:  Seafloor  installation  of the assembly of valves  through which a
well is produced.

Sulfate process: One of two processes used in the production of titanium dioxide
pigment.

TiO2:  Molecular formula for titanium dioxide pigment.

Titanium  dioxide  pigment:  The  world's  preferred  whitener,   opacifier  and
brightener for paint, coatings,  plastics,  paper and many other products.  This
inorganic white pigment is Kerr-McGee's  major chemical product.

Tonne: Metric ton; 1,000 kilograms or 2,204.62 pounds.

Working interest: A cost-bearing interest in a well expressed as a percentage of
the whole.

Stockholder and Investor Information

Stock Exchange  Listing
Kerr-McGee  common  stock is listed  on the New York  Stock  Exchange  under the
ticker  symbol  KMG 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  toll-free  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.

Information    also    is    available    on   the    company's    website    at
http://www.kerr-mcgee.com,  including  webcasts of conference  calls  discussing
quarterly financial and operating results.

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
Stockholders,   security  analysts  and  other  interested  parties  may  direct
inquiries to Richard C.  Buterbaugh,  Vice President of Investor  Relations,  at
(866) 378-9899 (toll-free).

Transfer Agent and Registrar
UMB Bank, N.A.
Securities Transfer Division
P.O. Box 410064
Kansas City, MO 64141-0064
Toll-free telephones: (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
     This  annual  report  contains  forward-looking  statements  regarding  the
company's or management's intentions, beliefs or expectations 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.