McMoRan Sees Loss in 3Q06
McMoRan Exploration Co. (NYSE: MMR) reported a net loss of $18.1 million, $0.64 per share, for the third quarter of 2006 compared with net income of $6.7 million, $0.21 per share, for the third quarter of 2005. McMoRan's net loss from its continuing operations for the third quarter of 2006 totaled $15.3 million, which includes $3.2 million of start-up costs associated with MPEH(TM) and $22.5 million of exploration expense. During the third quarter of 2005, McMoRan's net income from continuing operations totaled $8.8 million, including $2.7 million of MPEH(TM) start-up costs and $5.8 million of exploration expense.
James R. Moffett and Richard C. Adkerson, Co-Chairmen of McMoRan, said, "We continue to pursue large Deep Miocene exploration targets in the shallow waters of the Gulf of Mexico and onshore in South Louisiana with the potential to add meaningful value for shareholders. We are encouraged by the results to date, which have allowed us to expand our production significantly and establish a leadership position in the Deep Miocene trend. We also are advancing our Main Pass Energy Hub(TM) LNG project to create values from the attractive commercial potential of this project."
Since 2004, McMoRan has participated in 12 discoveries on 25 prospects that have been drilled and evaluated, including four discoveries announced in 2006. Four additional prospects are either in progress or not fully evaluated.
The Laphroaig exploratory well in St. Mary Parish, Louisiana commenced drilling on April 8, 2006. The well was recently sidetracked and is currently drilling below 15,500 feet with a planned total depth of 19,000 feet. McMoRan has a 37.5 percent working interest and a 27.8 percent net revenue interest. McMoRan's investment totaled $11.2 million at September 30, 2006.
The Zigler Canal well onshore Vermilion Parish, Louisiana commenced drilling on June 17, 2006. The well is currently drilling below 17,600 feet and has a proposed total depth of 18,500 feet. McMoRan has a 37.5 percent working interest and a 26.8 percent net revenue interest. McMoRan's investment totaled $8.3 million at September 30, 2006.
The Vermilion Block 54 well commenced drilling on August 4, 2006 and was drilled to a total depth of 14,669 feet. The Long Point Deep exploratory well at Louisiana State Lease 18091 in Vermilion Parish commenced drilling on April 27, 2006 and was drilled to a total depth of 21,838 feet. Evaluation determined that the wells did not contain commercial quantities of hydrocarbons. They are being plugged and abandoned. Third-quarter 2006 exploration expense totaled $22.5 million, including $17.6 million associated with the drilling and related costs through September 30, 2006 for the Vermilion Block 54 ($6.1 million) and Long Point Deep ($11.5 million) wells. Fourth-quarter 2006 exploration expense for these two wells is expected to include $2.6 million for costs incurred after September 30, 2006.
McMoRan has received the long-lead time equipment required to test the Blueberry Hill well at Louisiana State Lease 340 in the fourth quarter of 2006. As previously reported, the Blueberry Hill well, which is located five miles east of JB Mountain Deep, encountered four potentially productive hydrocarbon bearing sands below 22,200 feet. Both areas (JB Mountain Deep and Blueberry Hill) demonstrate similar geologic settings and are targeting deep Miocene sands equivalent in age. Information obtained from the testing of the Blueberry Hill well will be incorporated in future plans for the JB Mountain Deep well. McMoRan's investment in Blueberry Hill and JB Mountain Deep totaled $11.6 million and $29.5 million, respectively, at September 30, 2006.
McMoRan expects to commence drilling at least two exploratory prospects during the fourth quarter of 2006, including Hurricane Deep at South Marsh Island Block 217 and Marlin at Grand Isle Block 18. McMoRan currently has rights to approximately 350,000 gross acres and is also actively pursuing opportunities to acquire additional acreage and prospects through farm-in or other arrangements. The spending commitments under McMoRan's exploration venture with a private partner have been met and McMoRan is completing arrangements with an industry partner to participate with McMoRan in specified near-term prospects.
Proposed Net Total Exploration In- Working Revenue Current Vertical Progress Interest Interest Depth Depth Spud Date ---------------------------- -------- -------- --------- ------------- St. Mary Parish, LA "Laphroaig" 37.5% 27.8% 15,800' 19,000' April 8, 2006 ---------------------------- -------- -------- --------- ------------- Onshore Vermilion Parish, LA "Zigler Canal" 37.5% 26.8% 17,600' 18,500' June 17, 2006 ---------------------------- -------- -------- --------- -------------
PRODUCTION AND DEVELOPMENT ACTIVITIES
Third-quarter 2006 production averaged 75 MMcfe/d net to McMoRan, including oil production of 1,840 bbls/d (11 MMcfe/d) from Main Pass Block 299, compared with 41 MMcfe/d, including oil production of 1,800 bbls/d (11 MMcfe/d) from Main Pass Block 299, in the third quarter of 2005. McMoRan initiated production from three wells in the third quarter of 2006 including Dawson Deep, Pecos and King of the Hill. Third quarter 2006 production was adversely impacted by the slower than expected start-up of Liberty Canal and West Cameron Block 43 No. 3 (from third quarter to fourth quarter), an eight day shut-in of Main Pass Block 299 for repairs and lower than expected production from the Hurricane No. 2 well.
In August 2006, initial production commenced at the Pecos well located at West Pecan Island. Recent production rates from the well approximated 10 MMcfe/d (3.6 MMcfe/d net to McMoRan). McMoRan owns a 50 percent working interest and a 36.0 percent net revenue interest in the Pecos discovery well. In August 2006, initial production commenced at the King of the Hill No. 2 well located at High Island Block 131. Recent production rates from the well approximated 24 MMcfe/d (4.8 MMcfe/d net to McMoRan). McMoRan owns a 25.0 percent working interest and a 19.6 percent net revenue interest in the King of the Hill discovery.
In October 2006, initial production commenced at the Liberty Canal well located onshore Vermilion Parish. Recent production rates from the well approximated 21 MMcfe/d (5.8 MMcfe/d net to McMoRan). McMoRan owns a 37.5 percent working interest and a 27.7 percent net revenue interest in the Liberty Canal discovery well.
The Hurricane No. 3 development well commenced drilling on June 14, 2006. The well was drilled to a total depth of 16,000 feet and encountered 45 feet of net hydrocarbon pay over a 180 foot gross interval. The well has been completed and is expected to commence production in the fourth quarter of 2006. McMoRan owns a 27.5 percent working interest and a 19.4 percent net revenue interest in the Hurricane field.
McMoRan's share of fourth quarter 2006 production is expected to average 75-80 MMcfe/d, including production from three additional wells in the fourth quarter of 2006, including Hurricane No. 3, West Cameron Block 43 No. 3 and Liberty Canal. McMoRan also plans to recomplete the Deep Tern C-1 and C-2 and the King Kong No. 2 wells in the fourth quarter. The discovery well at Point Chevreuil in St. Mary's Parish, Louisiana is expected to commence production in early 2007. Following start-up of these wells and planned activities from existing production, McMoRan expects its share of total production to reach 90 MMcfe/d.
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 will own all of the program's interests until the program's aggregate production totals 100 billion cubic feet of natural gas equivalents (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 on this acreage. The wells averaged an aggregate gross rate of 26 MMcfe/d during the third quarter of 2006. One of the wells was shut-in during the quarter and remedial work is being evaluated by the operator.
MAIN PASS ENERGY HUB(TM) UPDATE
In September 2006, the United States Coast Guard (Coast Guard) and the Maritime Administration (MARAD) published an Environmental Assessment (EA) and Draft Finding of No Significant Impact for the MPEH(TM) LNG license application. The Coast Guard issued a public notice on September 19, 2006, establishing a timeline for a record of decision on the project. In September 2006, McMoRan received a letter from the Department of Natural Resources for the State of Louisiana indicating that the proposed facility is consistent with the Louisiana Coastal Resources Program. Public hearings were held during the week of October 2, 2006. Comments on the application, including from the Governors of adjacent coastal states (Louisiana, Mississippi and Alabama), are required by November 20, 2006, and a record of decision would be issued by January 3, 2007. Based on feedback to date, McMoRan expects a positive record of decision.
The MPEH(TM) terminal would be capable of regasifying LNG at a rate of 1 Bcf per day. The use of existing facilities provides significant cost advantages, and the proposed project benefits from its offshore location near established shipping lanes. McMoRan is continuing discussions with potential LNG suppliers as well as gas marketers and consumers in the United States to develop commercial arrangements for the facilities.
McMoRan is also considering investments to develop substantial cavern storage for a pipeline header system that would allow deliveries into U.S. gas markets. Current plans for the MPEH(TM) include 28 Bcf of initial cavern storage capacity and aggregate peak deliverability from the proposed terminal, including deliveries from storage, of up to 2.5 Bcf per day. As previously announced, McMoRan received approval from the Federal Energy Regulatory Commission to bring gas onshore using its proposed 36-inch pipeline into Coden, Alabama.
McMoRan's third-quarter 2006 oil and gas revenues totaled $57.8 million, compared to $41.4 million during the third quarter of 2005. During the third quarter of 2006, McMoRan's sales volumes totaled 4.4 Bcf of gas and 449,500 barrels of oil and condensate, including 195,800 barrels from Main Pass Block 299, compared to 2.0 Bcf of gas and 366,900 barrels of oil and condensate in the third quarter of 2005, including 235,000 barrels from Main Pass Block 299. McMoRan's third-quarter comparable average realizations for gas were $6.51 per thousand cubic feet (Mcf) in 2006 and $10.31 per Mcf in 2005; for oil and condensate, including Main Pass Block 299, McMoRan received an average of $65.11 per barrel in third-quarter 2006 compared to $57.17 per barrel in third-quarter 2005.
CASH AND CASH EQUIVALENTS AND CAPITAL EXPENDITURES
On September 30, 2006, McMoRan had unrestricted cash and cash equivalents of $9.5 million and $5.0 million in borrowings under its credit facility. During the quarter, availability under the credit facility was increased from $55 million to $70 million following a redetermination of the borrowing base. Capital expenditures for the third quarter of 2006 totaled $60.3 million and $202.9 million for the nine-months ended September 30, 2006. McMoRan's capital expenditures included significant development activities in addition to exploration drilling. Capital expenditures are expected to approximate $260 million for the year, including approximately $130 million for exploration expenditures and $130 million for currently identified development costs. Capital spending may change as additional opportunities become available or to fund additional development capital expenditures on successful wells. In addition, McMoRan plans to incur approximately $3 million to advance commercialization of the MPEH(TM) over the remainder of 2006. Additional expenditures for the MPEH(TM) would be required following the receipt of the permit. McMoRan may pursue additional financing for its oil and gas and MPEH(TM) activities.
- McMoRan Touts 'Sizable Reserves' at Sub-Salt, Ultra-Deep Trend (Feb 20)
- McMoRan Preps Davy Jones Well for Fracking Ops (Jan 31)
- McMoRan's Latest Efforts at Davy Jones Site Meet 'Limited Success' (Dec 28)