McMoRan Exploration's Net Loss Narrows

McMoRan Exploration Co. (NYSE: MMR) reported a net loss of $9.2 million, $0.32 per share, for the fourth quarter of 2006 compared with a net loss of $26.1 million, $1.06 per share, for the fourth quarter of 2005. McMoRan's net loss from its continuing operations for the fourth quarter of 2006 totaled $11.6 million, which includes $17.0 million of exploration expense, an impairment charge of $12.2 million to reduce the net book value of the Minuteman field to its estimated fair value at December 31, 2006 and $2.8 million of start-up costs associated with MPEH(TM). McMoRan's fourth quarter 2006 net loss also included a gain of $11.0 million associated with the formation of a new exploration agreement, net of reimbursements for certain rights to our private partner. During the fourth quarter of 2005, McMoRan's net loss from continuing operations totaled $21.0 million, including $2.2 million of MPEH(TM) start-up costs and $21.9 million of exploration expense.

                                 Fourth Quarter      Twelve Months
                                2006      2005      2006      2005
                              (In thousands, except per share amounts)
Revenues                      $  56,247 $  37,243 $ 209,738 $ 130,127
Operating loss                   (8,598)  (19,290)  (10,867)  (22,373)
Loss from continuing
 operations                     (11,592)  (21,047)  (23,016)  (31,470)
Income (loss) from
 discontinued operations          2,814    (4,651)   (2,938)   (8,242)
Net loss applicable to common
 stock                           (9,182)  (26,101)  (27,569)  (41,332)
Diluted net income (loss) per
     Continuing operations    $   (0.42)$   (0.87)    (0.88)    (1.35)
     Discontinued operations       0.10     (0.19)    (0.11)    (0.33)
     Applicable to common
      stock                   $   (0.32)$   (1.06)    (0.99)    (1.68)
Diluted average shares
 outstanding                     28,307    24,671    27,930    24,583

(1)If any in-progress well or unproved property is determined to be
 non-productive prior to the filing of McMoRan's 2006 Annual Report on
 Form 10-K, the related costs incurred through December 31, 2006 would
 be charged to exploration expense in the fourth quarter 2006
 financial statements. McMoRan's investment in its three in-progress
 wells or unproved properties totaled $54.9 million as of December 31,
 2006. Additionally, McMoRan is currently monitoring its investments
 in the West Cameron Block 43, Cane Ridge and Laphroaig fields, which
 are in start-up/workover operations expected to be completed in the
 near-term. McMoRan's investment in these three properties totaled
 $51.6 million as of December 31, 2006.

James R. Moffett and Richard C. Adkerson, Co-Chairmen of McMoRan, said, "During 2006, we continued to pursue our focused strategy of targeting Deep Miocene exploration prospects while adding to our production from past success. We will continue these efforts during 2007 to expose shareholders to values we believe are available through drilling high impact wells in our focused exploration areas. The receipt of our license application for our MPEH(TM) project in January 2007 was a significant development in our efforts to establish a new LNG gateway. We are positive about the potential for the facility and look forward to establishing commercial arrangements that would provide long-term value to shareholders."


Since 2004, McMoRan has participated in 14 discoveries on 28 prospects that have been drilled and evaluated, including six discoveries in 2006. Three additional prospects are either in progress or not fully evaluated.

The Zigler Canal exploratory well onshore in Vermilion Parish, Louisiana commenced drilling on June 17, 2006 and was sidetracked to a true vertical depth of 13,635 feet (14,792 feet measured depth). In November 2006, the well was evaluated with log while drilling logs, which indicated a potential 30 net feet of hydrocarbon bearing sands over a 125 foot gross interval. Production commenced on December 30, 2006. McMoRan has a 50.0 percent working interest and a 35.75 percent net revenue interest.

The Laphroaig exploratory well in St. Mary Parish, Louisiana commenced drilling on April 8, 2006 and was sidetracked to a true vertical depth of 18,412 feet (19,515 feet measured depth). In December 2006, the well was evaluated with log while drilling logs, which indicated a potential 14 net feet of hydrocarbon bearing sands over a 24 foot gross interval. Commencement of operations is pending a successful production test. McMoRan has a 50.0 percent working interest and a 37.3 percent net revenue interest.

The Hurricane Deep well at South Marsh Island Block 217 commenced drilling on October 26, 2006. The well is currently drilling below 14,800 feet with a planned true vertical depth of 21,500 feet. The Hurricane Deep prospect is located in twelve feet of water in OCS 310, one mile northeast of the Hurricane discovery well which is currently producing. McMoRan controls 7,700 gross acres in this area. McMoRan has a 25.0 percent working interest and a 17.7 percent net revenue interest. McMoRan's investment in Hurricane Deep totaled $8.8 million at December 31, 2006.

Testing of the Blueberry Hill well at Louisiana State Lease 340 is currently in progress. As previously reported, the Blueberry Hill well encountered four potentially productive hydrocarbon bearing sands below 22,200 feet. McMoRan has a 35.3 percent working interest and a 24.2 percent net revenue interest. Information obtained from the testing of the Blueberry Hill well will be incorporated in future plans for the JB Mountain Deep well, as both areas demonstrate similar geologic settings and are targeting deep Miocene sands equivalent in age. McMoRan's investment in Blueberry Hill and JB Mountain Deep totaled $16.5 million and $29.5 million, respectively, at December 31, 2006.

The Marlin exploratory well at Grand Isle Block 18 commenced drilling on October 25, 2006. The well was drilled to a true vertical depth of 16,000 feet (measured depth of 17,596 feet). As previously reported, evaluation of the well determined that it did not contain commercial quantities of hydrocarbons. Fourth-quarter 2006 exploration expense includes $7.0 million for costs incurred through December 31, 2006. Exploration expense in the first-quarter 2007 is expected to include $1.0 million for costs incurred for this well after December 31, 2006.

During the fourth quarter, McMoRan entered into an exploration agreement with Plains Exploration & Production Company whereby PXP will participate in up to nine of McMoRan's Deep Miocene exploratory prospects for approximately 60 percent of McMoRan's interest. Under the agreement, PXP paid McMoRan $20 million for leasehold interests and associated prospects. PXP is participating in the Hurricane Deep prospect at South Marsh Island Block 217 and participated in the Marlin exploratory well described above.

McMoRan expects to commence drilling eight to ten exploratory prospects during 2007 targeting Deep Miocene structures in the shallow waters of the Gulf of Mexico and onshore South Louisiana, including Mound Point South at Louisiana State Lease 340 and potentially Cas at South Timbalier Block 70 in the first quarter. McMoRan currently has exploration rights to approximately 370,000 gross acres and is also actively pursuing opportunities to acquire additional acreage and prospects through farm-in or other arrangements.


Fourth-quarter 2006 production averaged 73 MMcfe/d net to McMoRan, including oil production of 1,900 bbls/d (11.4 MMcfe/d) from Main Pass Block 299, compared with 34 MMcfe/d, including oil production of 1,250 bbls/d (7.5 MMcfe/d) from Main Pass Block 299, in the fourth quarter of 2005. During 2006, McMoRan commenced production from 14 wells, including four wells in the fourth quarter of 2006. During the fourth quarter, production was initiated at Liberty Canal, Hurricane No. 3, Point Chevreuil and Zigler Canal and McMoRan performed successful recompletions at Deep Tern C-1 and C-2 and King Kong No. 2. Fourth quarter 2006 production was adversely impacted by lower than projected production at certain wells and a delay in the start up of the West Cameron Block 43 No. 3 well. McMoRan's share of first quarter 2007 production is expected to average 70-80 MMcfe/d. McMoRan is currently working with the operator to commence production at the West Cameron Block 43 No. 3 well in the first quarter of 2007.


In January 2007, MARAD approved McMoRan's license application for its MPEH(TM) project.

MARAD concluded in the Record of Decision that construction and operation of MPEH(TM) deepwater port will be in the national interest and consistent with national security and other national policy goals and objectives, including energy sufficiency and environmental quality. MARAD also concluded that MPEH(TM) will fill a vital role in meeting national energy requirements for many years to come and that the port's offshore deepwater location will help reduce congestion and enhance safety in receiving LNG cargoes to the U.S.

MARAD's approval and issuance of the Deepwater Port license for MPEH(TM) is subject to various terms, criteria and conditions contained in the Record of Decision, including demonstration of financial responsibility, compliance with applicable laws and regulations, environmental monitoring and other customary conditions.

This approval is an important milestone as McMoRan continues to pursue the highly attractive commercial potential for the project. The project's location near large and liquid U.S. gas markets and the significant potential of the onsite cavern storage provide attractive commercial opportunities for LNG suppliers, natural gas consumers and marketers. The MPEH(TM) facility, as approved, will be capable of regasifying LNG at a peak rate of 1.6 Billion cubic feet (Bcf) per day, storing 28 Bcf of natural gas in salt caverns and delivering 3.1 Bcf per day, including gas from storage, of natural gas to the U.S. market.

Unique advantages of the MPEH(TM) project include use of existing offshore structures, onsite natural gas cavern storage capabilities, significant logistical savings associated with the offshore location and premium markets available from its eastern Gulf of Mexico location. These advantages would provide LNG suppliers with a highly attractive netback price and offer U.S. natural gas consumers a reliable source of supply.

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. Prior to commencing construction of the facility, McMoRan expects to enter into commercial arrangements that would enable McMoRan to finance the construction costs of the project, with preliminary estimates of approximately $1 billion (approximately half of which is for pipelines and cavern storage), on favorable terms.


McMoRan's fourth-quarter 2006 oil and gas revenues totaled $53.2 million, compared to $34.5 million during the fourth quarter of 2005. During the fourth quarter of 2006, McMoRan's sales volumes totaled 4.1 Bcf of gas and 437,000 barrels of oil and condensate, including 180,700 barrels from Main Pass Block 299, compared to 1.8 Bcf of gas and 223,300 barrels of oil and condensate in the fourth quarter of 2005, including 100,400 barrels from Main Pass Block 299. McMoRan's fourth-quarter comparable average realizations for gas were $7.20 per thousand cubic feet (Mcf) in 2006 and $12.67 per Mcf in 2005; for oil and condensate, including Main Pass Block 299, McMoRan received an average of $54.46 per barrel in fourth-quarter 2006 compared to $53.16 per barrel in fourth-quarter 2005.


McMoRan produced 23.9 Bcfe in 2006, compared with 13.0 Bcfe in 2005. McMoRan's reserve additions and revisions replaced 75 percent of production during 2006. Independent reservoir engineers' estimates of McMoRan's proved oil and gas reserves as of December 31, 2006 were 75.8 Bcfe, compared with 81.7 Bcfe at December 31, 2005. Independent reservoir engineers' estimates of the present value of future net cash flows before income taxes from the production and sale of McMoRan's estimated proved reserves, determined using a ten percent discount rate and market pricing at the end of 2006 of $61.15 per barrel of oil and $5.64 per MMbtu of natural gas and other assumptions required by the Securities and Exchange Commission, was $270.6 million at December 31, 2006. Using New York Mercantile Exchange forward pricing at December 31, 2006, to determine the present value of the future net cash flows, the present value of estimated proved reserves would approximate $358.1 million.


On December 31, 2006, McMoRan had unrestricted cash and cash equivalents of $17.8 million and $28.8 million in borrowings under its credit facility. Capital expenditures for the fourth quarter of 2006 totaled $49.5 million, and $252.4 million for the twelve-months ended December 31, 2006. McMoRan's capital expenditures included significant development activities in addition to exploration drilling.

Capital expenditures for 2007 are expected to approximate $150 million. Capital spending may change as additional opportunities become available. In addition, McMoRan plans to incur approximately $3 million to advance commercialization of the MPEH(TM) in the first quarter of 2007.

McMoRan is completing arrangements with a group of lenders for a new $100 million 5-year, second lien term loan. The net proceeds of the new term loan, which is expected to close in January 2007, will be used to repay borrowings under the revolving credit facility, for future drilling activities and other corporate purposes. Concurrent with the closing of the new term loan, McMoRan will amend its existing revolving credit facility to allow for the new secured debt and reduce the amount available under the borrowing base from $70 million to $50 million.

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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