McMoRan Exploration Reports a Net Loss in 2Q05

McMoRan Exploration Co. updates Gulf of Mexico operations and provides second quarter and six-month 2005 results.
    HIGHLIGHTS

  --  McMoRan continued active exploration drilling under its $500
      million exploration venture with positive results at Vermilion
      Blocks 16/17 (King Kong) and four wells in progress.

      --  In July 2005, the King Kong discovery well at Vermilion
          Blocks 16/17 reached a total depth of 18,918 feet and
          encountered 14 hydrocarbon bearing sands totaling
          approximately 150 feet of net pay. Completion under way.

      --  Delmonico at Louisiana State Lease 1706, currently
          drilling below 19,500 feet towards a total depth of 20,000
          feet.

      --  West Cameron Block 43 No. 4, currently drilling below
          17,800 feet towards a total depth of 18,500 feet.

      --  JB Mountain Deep at South Marsh Island Block 224 commenced
          on July 14, 2005 and is drilling below 3,300 feet towards
          a total depth of 23,000 feet.

      --  Rig on location at Long Point at Louisiana State Lease
          18090.

  --  Since inception of the exploration venture in 2004, McMoRan
      and its private partner have participated in six discoveries
      on the thirteen prospects that have been drilled and
      evaluated.

  --  McMoRan expects to commence drilling at least seven prospects
      in the second half of 2005, including, JB Mountain Deep, Long
      Point and Cane Ridge at Louisiana State Lease 18055.

  --  McMoRan acquired rights to six high potential deep gas
      exploration prospects on 18,000 acres onshore and in state
      waters in Vermilion Parish, Louisiana from El Paso.

  --  McMoRan's share of production averaged 38 Million cubic feet
      of natural gas equivalents per day (Mmcfe/d) in the second
      quarter of 2005, and 50 Mmcfe/d including approximately 2,000
      barrels of oil per day (bbls/d) from Main Pass Block 299
      compared with 5 Mmcfe/d in the year-ago quarter. Production at
      Main Pass 299 was reinstated on May 6, 2005 at a gross rate of
      approximately 4,000 bbls/d.

  --  Third-quarter 2005 production expected to average 35-40
      Mmcfe/d net to McMoRan, and 52-57 Mmcfe/d including 2,900
      bbls/d for McMoRan's net share of oil production from Main
      Pass Block 299. Two development wells are expected to commence
      drilling in the third quarter of 2005, King Kong No. 2 at
      Vermilion Blocks 16/17 and Hurricane No. 2 at South Marsh
      Island Block 217.

  --  United States Coast Guard (Coast Guard) published a Draft
      Environmental Impact Statement (EIS) for the Main Pass Energy
      Hub(TM) (MPEH(TM)) liquefied natural gas (LNG) port. Based on
      the prescribed timeline for the statutory review period, a
      record of decision on the permit application is expected by
      year-end 2005.

  --  On June 30, 2005, McMoRan had $163 million in unrestricted
      cash.

McMoRan Exploration Co. (NYSE: MMR) reported a net loss of $8.8 million, $0.36 per share, for the second quarter of 2005 compared with a net loss of $11.2 million, $0.65 per share, for the second quarter of 2004. McMoRan's net loss from its continuing operations for the second quarter of 2005 totaled $7.4 million, which includes $2.6 million of start-up costs associated with the MPEH(TM) and $21.0 million of exploration expense. During the second quarter of 2004, McMoRan's net loss from continuing operations totaled $9.1 million, including $1.7 million of MPEH(TM) start-up costs and $10.1 million of exploration expense.

SUMMARY FINANCIAL TABLE(a)
                                   Second Quarter      Six Months
                               ---------------------------------------
                                  2005      2004      2005       2004
                               ---------------------------------------
                              (In thousands, except per share amounts)
----------------------------------------------------------------------
Revenues                       $33,952  $  9,435  $ 48,619  $ 13,545
Operating loss                  (4,747)   (7,594)   (6,863)  (16,672)
Loss from continuing operations (7,420)   (9,137)  (11,724)  (20,264)
Loss from discontinued
 operations                       (938)   (1,692)   (1,967)   (3,409)
Net loss applicable to common
 stock                          (8,762)  (11,239)  (14,506)  (24,495)
Basic and diluted net income
 (loss) per share:
     Continuing operations     $ (0.32) $  (0.55) $  (0.51) $  (1.23)
-------------------------------
     Discontinued operations     (0.04)    (0.10)    (0.08)    (0.20)
     Applicable to common stock$ (0.36) $  (0.65) $  (0.59) $  (1.43)
Basic and diluted average
 shares outstanding             24,615    17,170    24,500    17,102
----------------------------------------------------------------------

 (a)  If any in-progress well or unproved property is determined to
      be non productive prior to the filing of McMoRan's second
      quarter 2005 Form 10-Q, the related drilling costs incurred
      through June 30, 2005 would also be charged to exploration
      expense in the second quarter 2005 financial statements.
      McMoRan's investment in its two in-progress wells totaled $9.9
      million at June 30, 2005.

James R. Moffett and Richard C. Adkerson, Co-Chairmen of McMoRan, said, "We are enthusiastic about the opportunities provided by our highly focused exploration program which is exposing shareholders to prospects with significant reserve potential. Our proposed offshore LNG project at MPEH(TM) also represents an attractive business opportunity for our company as we seek to build meaningful values for shareholders."

GULF OF MEXICO EXPLORATION ACTIVITIES

During 2004, McMoRan established a multi-year exploration venture with a private partner with an initial combined commitment of $500 million for future expenditures to acquire and exploit high-potential prospects, primarily Deep Miocene targets in the shallow waters of the Gulf of Mexico and Gulf Coast areas. Since inception of this venture, McMoRan and its private partner have participated in six discoveries on the thirteen prospects that have been drilled and evaluated. Production has commenced on three discoveries and development plans are being pursued for the others. Positive results from the potential discovery at Blueberry Hill would bring McMoRan's success rate to seven out of fourteen prospects. The venture currently has four exploration wells in progress.

The King Kong No. 1 discovery well at Vermilion Blocks 16/17, which commenced drilling on February 20, 2005, has been drilled to a total depth of 18,918 feet and completion efforts are under way. As previously announced, wireline logs have indicated that the well has encountered 14 hydrocarbon bearing sands totaling approximately 150 feet of net pay. Infrastructure in the area would allow production to be brought on line quickly. Following completion activities, McMoRan expects to commence drilling the King Kong No. 2 development well in the third quarter of 2005. McMoRan has a 40.0 percent working interest and a 29.2 percent net revenue interest in the King Kong prospect, which is located in 12 feet of water. McMoRan has rights to approximately 1,850 gross acres in the area.

The Delmonico prospect on Louisiana State Lease 1706 in the Lake Sand Field Area commenced drilling on March 8, 2005, and is currently drilling below 19,500 feet. The Delmonico well has a proposed total depth of 20,000 feet and is located in 9 feet of water. McMoRan has a 25.0 percent working interest and an 18.8 percent net revenue interest in the well. McMoRan has rights to approximately 8,800 gross acres in the Delmonico prospect area. McMoRan's investment in Delmonico totaled $7.5 million at June 30, 2005.

The West Cameron Block 43 No. 4 exploratory well commenced drilling on April 25, 2005, and is currently drilling below 17,800 feet. The No. 4 well, which is located 4,000 feet north of the West Cameron Block 43 No. 3 discovery well, has a planned total depth of 18,500 feet. As previously announced, the No. 3 well reached total depth of 18,800 feet in the first quarter of 2005 and wireline logs indicated that the well encountered three hydrocarbon bearing sands in the lower Miocene with a total gross interval in excess of 100 feet. Development plans for the No. 3 well will be determined following evaluation of the results of the No. 4 well. McMoRan holds a 23.4 percent working interest and a 18.0 percent net revenue interest in the West Cameron Block 43 lease which is located in 30 feet of water, 8 miles offshore. The West Cameron Block 43 lease is eligible for Deep Gas Royalty Relief. McMoRan's investment in West Cameron Block 43 No. 4 totaled well $2.4 million at June 30, 2005.

The JB Mountain Deep exploratory well No. 224 at South Marsh Island Block 224 commenced drilling on July 14, 2005 and is currently drilling below 3,300 feet. The JB Mountain Deep well, which is located on OCS 310 southeast of and adjacent to the JB Mountain discovery at South Marsh Island Block 223, has a planned total depth of 23,000 feet. McMoRan acquired additional rights in the JB Mountain Deep prospect area, which is located offshore Louisiana in 10 feet of water, in 2005; McMoRan controls 5,200 gross acres in the area. This acreage is not included in the JB Mountain/Mound Point program with a third party described below. McMoRan operates the JB Mountain Deep prospect and, if successful, would earn a 27.5 percent working interest and a 19.4 percent net revenue interest. The South Marsh Island Block 224 lease is eligible for Deep Gas Royalty Relief.

In June 2005, McMoRan acquired oil and gas rights from El Paso Production Company, a subsidiary of El Paso Corporation (NYSE: EP - News), covering six deep-gas exploration prospects on approximately 18,000 gross acres onshore and in state waters in Vermilion Parish, Louisiana. McMoRan and its private partner paid El Paso approximately $3.6 million as partial recovery of prospect costs and will fund 100 percent of the drilling costs to casing point in up to six wells. At casing point of each well, El Paso can elect to participate for a 25 percent interest, and McMoRan and its private partner would own a 75 percent working interest (37.5 percent each) and an approximate 54 percent net revenue interest (approximately 27 percent each). A rig is on location preparing to commence drilling the Long Point prospect at Louisiana State Lease 18090. McMoRan also plans to commence drilling the Cane Ridge prospect at Louisiana State Lease 18055 during the third quarter of 2005. Long Point and Cane Ridge have proposed total depths of 20,000 feet and 16,500 feet, respectively.

McMoRan expects to commence drilling seven prospects in the second half of 2005 including JB Mountain Deep, Long Point, and Cane Ridge. McMoRan currently has rights to approximately 280,000 gross acres and continues to identify prospects to be drilled on its exploratory acreage position. McMoRan is also actively pursuing opportunities through its exploration venture to acquire additional acreage and prospects through farm-in or other arrangements.

The Little Bay well on Louisiana State Lease 5097 in Atchafalaya Bay commenced on March 11, 2005, and was drilled to a total depth of 21,550 feet. Evaluation of the drilling results determined that the well did not contain commercial quantities of hydrocarbons and the well was plugged and abandoned. Second-quarter 2005 exploration expenses associated with nonproductive wells totaled $18.5 million, including the nonproductive drilling and related costs for the Little Bay well ($11.0 million) and the Korn well at South Timbalier Blocks 97/98 ($6.9 million).

DRILLING SCHEDULE
                                    Net             Proposed
                         Working  Revenue   Water    Total     Spud
                         Interest Interest  Depth    Depth     Date
------------------------ -------- -------- ------- --------- --------
In-Progress Wells
---------------------------------------------------------------------
Lake Sand Field                                              March 8,
"Delmonico"                 25.0%    18.8%     9'   20,000'    2005
------------------------ -------- -------- ------- --------- --------

                                                             April 25,
West Cameron Block 43(a)    23.4%    18.0%    30'   18,500'    2005
------------------------ -------- -------- ------- --------- --------
South Marsh Island Block
 224                                                         July 14,
"JB Mountain Deep"(a)       27.5%    19.4%    10'   23,000'    2005
------------------------ -------- -------- ------- --------- --------
Louisiana State Lease
 18090                                                         July
"Long Point"                37.5%    26.8%     8'   20,000'    2005
------------------------ -------- -------- ------- --------- --------
Near-Term Wells
---------------------------------------------------------------------
Louisiana State Lease
 18055                                                         July
"Cane Ridge"                37.5%    27.5% Onshore  16,500'    2005
------------------------ -------- -------- ------- --------- --------
Development Wells
---------------------------------------------------------------------
                                                              Third-
Vermilion Blocks 16/17                                        Quarter
"King Kong No. 2"           40.0%    29.2%    12'   13,750'    2005
------------------------ -------- -------- ------- --------- --------
South Marsh Island Block                                      Third-
 217                                                          Quarter
"Hurricane No. 2"           27.5%    19.4%    12'   16,000'    2005
------------------------ -------- -------- ------- --------- --------

 (a)  Depending upon applicability of the Deep Gas Royalty Relief
      eligibility criteria, the leases on which these wells are
      located could be eligible for royalty relief up to 25 Bcf
      under current Minerals Management Service guidelines.
      McMoRan's net revenue interest would increase during the
      royalty relief period for eligible leases.

GULF OF MEXICO PRODUCTION AND DEVELOPMENT ACTIVITIES

Second-quarter 2005 production averaged 38 Mmcfe/d net to McMoRan, and 50 Mmcfe/d including oil production of approximately 2,000 bbls/d from Main Pass Block 299. McMoRan's net production currently approximates 35 Mmcfe/d and 52 Mmcfe/d including approximately 2,900 bbls/d for McMoRan's share of oil production from Main Pass Block 299. Remedial activities to improve production rates on certain wells are planned during the quarter; McMoRan expects net production rates for the third quarter of 2005 to average 35-40 Mmcfe/d, and 52-57 Mmcfe/d including approximately 2,900 bbls/d for McMoRan's share of oil production at Main Pass Block 299.

Oil production at Main Pass Block 299 resumed on May 6, 2005, following successful modification of existing storage tanks to accommodate transportation of oil production by barge from Main Pass Block 299. Oil production has averaged approximately 4,000 barrels per day since production was restored (3,333 bbls/d net to McMoRan). Net sales for the second quarter were 100,600 barrels (1,100 bbls/d) with approximately 100,000 barrels in inventory at June 30, 2005. McMoRan owns an 83.3 percent net revenue interest in Main Pass Block 299. As previously reported, production was shut-in in September 2004 because of damage from Hurricane Ivan to a third-party offshore terminal facility which provided throughput services for the sale of Main Pass 299 sour crude oil. McMoRan's second quarter 2005 results include net income of $5.7 million for the Main Pass 299 field, including $3.9 million for insurance recovery related to Hurricane Ivan.

In addition to the previously reported reversion of a 26.1 percent net revenue interest in Ship Shoal Block 296 (Raptor), in June 2005 McMoRan reacquired a 25.7 percent net revenue interest in Vermilion Block 196 (Lombardi) and a 38.5 percent net revenue interest in Main Pass Block 86 (Shiner) under terms of a reversionary interest arrangement included in the February 2002 sale of these properties. McMoRan's share of production from these reversionary interests contributed an average of 8.2 Mmcfe/d to McMoRan's second quarter 2005 production. McMoRan is considering additional wells in the Raptor area.

Development plans are being finalized at Dawson Deep on Garden Banks Block 625. As previously reported, the "take point" well encountered hydrocarbon-bearing sands as indicated by more than 100 feet of total vertical thickness of resistivity in the shallow zones. An additional 100 feet of hydrocarbons were logged in the deepest zone. The well was drilled to a total depth of 22,790 feet. McMoRan owns a 30.0 percent working interest and a 24.0 percent net revenue interest in the Dawson Deep prospect. Kerr-McGee owns a 25 percent working interest and is the operator. The Dawson Deep prospect is located on a 5,760 acre block located approximately 150 miles offshore Texas and is adjacent to Kerr-McGee's Gunnison spar facility.

The Blueberry Hill well at Louisiana State Lease 340 reached a total depth of 23,903 feet in the first quarter of 2005. Wireline logs indicated that the well encountered four potentially productive hydrocarbon bearing sands. A 4 1/2 inch production liner was installed and cemented to protect the identified potential pay zones. The drilling rig moved off location while the necessary 20,000-pound per square inch completion equipment for the anticipated high pressure well is procured. Completion and testing of the well will determine future plans for this prospect. The equipment for the completion has been ordered and expected delivery is early 2006. McMoRan operates Blueberry Hill, located seven miles east of the JB Mountain discovery and seven miles south southeast of the Mound Point Offset discovery. McMoRan holds a 35.3 percent working interest and a 24.2 percent net revenue interest in the Blueberry Hill well. McMoRan's investment in Blueberry Hill totaled $10.3 million at June 30, 2005.

The Hurricane No. 2 development well No. 225 at South Marsh Island Block 217 is expected to commence drilling in the third quarter of 2005. This well is located 3,000 feet northwest of the Hurricane Upthrown No. 1 discovery well. McMoRan owns a 27.5 percent working interest and 19.4 percent net revenue interest in the well, which has a planned total depth of 16,000 feet.

The King Kong No. 2 development well at Vermilion Blocks 16/17 is expected to commence drilling in the third quarter of 2005. This well is a direct offset updip to the King Kong No. 1 discovery well. McMoRan owns a 40.0 percent working interest and 29.2 percent net revenue interest in the well, which has a planned total depth of 13,750 feet.

JB MOUNTAIN/MOUND POINT AREA ACTIVITIES

McMoRan is a participant in a program that began in 2002 and includes the JB Mountain and Mound Point Offset discoveries in the OCS 310 and Louisiana State Lease 340 areas, respectively. The program currently holds a 55 percent working interest and a 38.8 percent net revenue interest in the JB Mountain prospect and a 30.4 percent working interest and a 21.6 percent net revenue interest in the Mound Point Offset prospect. Under terms of the program, the third party partner is funding all of the costs attributable to McMoRan's interests in the properties, and will own all of the program's interests until the program's aggregate production totals 100 Bcfe attributable to the program's net revenue interest, at which point 50 percent of the program's interests would revert to McMoRan. All exploration and development costs associated with the program's interest in any future wells is to be funded by the third party partner during the period prior to when McMoRan's potential reversion occurs.

There are three producing wells and approximately 13,000 gross acres on Louisiana State Lease 340 and OCS 310 that remain subject to the 100 Bcfe arrangement. McMoRan believes there are further exploration and development opportunities associated with this acreage. The three producing wells in the program averaged an aggregate gross rate of 41 Mmcfe/d during the second quarter of 2005.

MAIN PASS ENERGY MPEH(TM) UPDATE

McMoRan is undertaking to establish a major new offshore LNG import terminal at Main Pass Block 299 and has applied for a license for the proposed project under the Deepwater Port Act. The Deepwater Port Act was amended in 2002 to include natural gas ports to help meet the expected U.S. demand for natural gas by expanding access to worldwide supply sources. In connection with the licensing process, the United States Coast Guard (Coast Guard) and the Maritime Administration recently published a Draft Environmental Impact Statement (EIS) for the MPEH(TM) Deepwater Port License Application, and conducted public meetings this week to allow public comments on the draft EIS. The draft EIS evaluates potential environmental impacts associated with construction and operation of MPEH(TM). Based on the statutory review period outlined in the Deepwater Port Act, a record of decision on the license application is expected by year-end 2005.

The MPEH(TM) terminal would be capable of regasifying LNG at a rate of 1 Billion cubic feet (Bcf) per day. The use of existing facilities provides significant cost advantages and the proposed project's offshore location near established shipping lanes is advantageous. Additional investments are being considered to develop significant on-site cavern storage for natural gas in the large salt dome structure at this site and for pipeline connections to enhance gas delivery from Main Pass to markets in the United States. The proximity of the proposed project to major natural gas markets and the availability of on-site salt dome cavern storage provide a potential opportunity to expand the project beyond a typical LNG receiving facility, creating opportunities for substantial additional values. The proposed design includes 28 Bcf of initial cavern storage availability and aggregate peak deliverability from the proposed terminal, including deliveries from storage, of up to 2.5 Bcf per day.

McMoRan is continuing discussions with potential LNG suppliers in the Atlantic Basin and natural gas consumers in the United States to develop commercial arrangements for the facilities.

REVENUES

McMoRan's second-quarter 2005 oil and gas revenues totaled $30.9 million, compared to $2.9 million during the second quarter of 2004. During the second quarter of 2005, McMoRan's sales volumes totaled 2.8 Bcf of gas and 180,400 barrels of oil and condensate, including 100,600 barrels from Main Pass Block 299 (7 Mmcfe/d), compared to 0.3 Bcf of gas and 11,900 barrels of oil and condensate in the second quarter of 2004. McMoRan's second-quarter comparable average realizations for gas were $7.51 per thousand cubic feet (Mcf) in 2005 and $6.51 per Mcf in 2004; for oil and condensate, excluding Main Pass Block 299, McMoRan received an average of $51.78 per barrel in second-quarter 2005 compared to $38.00 per barrel in second-quarter 2004. McMoRan received an average of $46.52 per barrel for its sour crude oil produced at Main Pass Block 299 during the second quarter of 2005.

CASH AND CASH EQUIVALENTS AND CAPITAL EXPENDITURES

On June 30, 2005, McMoRan had unrestricted cash and cash equivalents of approximately $163 million. Capital expenditures for the first half of 2005 totaled $79.2 million and are expected to total $175 million for the year. Capital expenditures for the remainder of 2005 are expected to approximate $60 million for exploration expenditures and approximately $35 million for currently identified development costs, subject to changes because of timing and other factors. Spending may be increased as additional opportunities become available or to fund additional development capital expenditures on successful wells. In addition, McMoRan plans to incur expenses of approximately $5- $8 million to advance permitting and commercialization of the MPEH(TM) during the remainder of 2005.

McMoRan Exploration Co. is an independent public company engaged in the exploration, development and production of oil and natural gas offshore in the Gulf of Mexico and onshore in the Gulf Coast area. McMoRan is also pursuing plans for the development of the MPEH(TM) which will be used for the receipt and processing of liquefied natural gas and the storage and distribution of natural gas.

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