McMoRan has released its 2008 fourth quarter and full-year results, along with an operational update for its ongoing exploration, production and development activities.
FLATROCK FIELD UPDATE
Following the Flatrock discovery in OCS 310 on South Marsh Island Block 212 in July 2007, McMoRan has drilled five additional successful wells in the field.
Four wells are currently producing at a gross rate of approximately 200 MMcfe/d (37.5 MMcfe/d net to McMoRan). Per well rates vary depending on the porosity, permeability, pressures and hydrocarbon column of the reservoir being produced. To date, the primary Rob-L reservoir has achieved the highest gross production rate in the field of over 100 MMcfe/d. The No. 4 well, which tested at a gross production rate of 124 MMcfe/d (23 MMcfe/d net to McMoRan) in October 2008, is currently producing at a gross rate 60 MMcfe/d with a targeted gross rate of approximately 90 MMcfe/d.
The No. 5 development well logged 155 net feet of pay in the Rob-L and Operc sections, including an additional 30 net feet of deeper pay since our November 19, 2008 update. The well is being completed in the Operc section with first production expected in the first quarter of 2009. The Flatrock No. 6 delineation well on South Marsh Island Block 217 commenced on October 28, 2008 and is currently drilling below 16,000 feet towards a total depth of 19,700 feet to evaluate the Operc and possibly to penetrate the upper Gyro sand sections. In January 2008, wireline logs logged 40 net feet of pay in the Rob-L sand section of the No. 6 well.
McMoRan controls approximately 150,000 gross acres in the Tiger Shoal/Mound Point area (OCS 310/Louisiana State Lease 340) and has multiple additional exploration opportunities with significant potential on this large acreage position. McMoRan has a 25.0 percent working interest and an 18.8 percent net revenue interest in Flatrock. Plains Exploration & Production Company holds a 30.0 percent working interest.
McMoRan's exploration strategy has focused (1) on the "deep gas play," drilling to depths of 15,000 to 25,000 feet in the shallow waters of the Gulf of Mexico and Gulf Coast area to target large structures in the Deep Miocene and (2) on the “ultra-deep gas play” below 25,000 feet. McMoRan has three deep gas prospects being drilled currently and is engaged in designing engineering plans for the anticipated completion and production test of the South Timbalier Block 168 ultra-deep well, which is not yet fully evaluated.
The Tom Sauk deep gas exploratory prospect on Louisiana State Lease 340 commenced drilling on August 14, 2008 and is drilling below 17,700 feet towards a proposed total depth of 19,000 feet. McMoRan is in the process of logging the well. Tom Sauk, which is located in less than 10 feet of water, is a deep gas prospect which lies below the significant historical shallow production at Mound Point. McMoRan holds an 18.3 percent working interest and a 14.5 percent net revenue interest in the well. PXP holds a 24.4 percent working interest. McMoRan’s investment in Tom Sauk totaled $6.3 million at December 31, 2008.
The Gladstone East deep gas exploratory prospect on Louisiana State Lease 340 commenced drilling on November 16, 2008 and is drilling below 15,600 feet towards a proposed total depth of 18,050 feet. The well, which is located in less than 10 feet of water approximately 5 miles east of the Flatrock Field, is targeting similar potential Rob-L and Operc sands in the middle-Miocene. The Gladstone East prospect also lies below the significant historical shallow production on the western flank of Mound Point. McMoRan holds a 33.1 percent working interest and a 24.5 percent net revenue interest in the well. PXP holds a 44.1 percent working interest. McMoRan’s investment in Gladstone East totaled $5.6 million at December 31, 2008.
The Ammazzo deep gas exploratory prospect in 25 feet of water commenced drilling on November 22, 2008 and is drilling below 7,900 feet towards a proposed total depth of 24,500 feet. The Ammazzo prospect is targeting one of the largest undrilled deep structures below 15,000 feet on the Shelf of the Gulf of Mexico. It is located on the southern portion of the structural ridge extending from the Flatrock and JB Mountain discoveries (located approximately 16 and 11 miles northnorthwest, respectively), where McMoRan has successfully drilled to productive Rob-L, Operc and Gyro sands in the Middle Miocene. McMoRan is operating the well and holds a 25.9 percent working interest and 21.1 percent net revenue interest. McMoRan's partners, PXP and Energy XXI, hold a 28.1 percent working interest and 16.0 percent working interest, respectively. McMoRan's investment in Ammazzo totaled $5.3 million at December 31, 2008.
McMoRan will continue to review additional drilling opportunities on the flanks of the structure and on other acreage it holds in the ultra-deep trend. The South Timbalier Block 168 well is located on the top of the targeted structure. Seismic data on the prospect indicates the potential for significantly thicker sands on the flanks of the structure as has been confirmed in recent major deepwater discoveries by other companies. Based on information obtained to date from drilling the South Timbalier Block 168 well, McMoRan believes additional drilling on the flanks could result in significant reserve potential.
South Timbalier Block 168 is located in 70 feet of water approximately 115 miles southwest of New Orleans. McMoRan operates the well, which is the deepest well ever drilled below the mud line in the Gulf of Mexico, and owns a 32.3 percent working interest. McMoRan's partners, PXP and Energy XXI, hold a 35 percent working interest and 20 percent working interest, respectively. McMoRan's investment in South Timbalier Block 168 totaled $32.1 million at December 31, 2008. McMoRan is one of the largest acreage holders on the Shelf of the Gulf of Mexico and onshore in the Gulf Coast area with rights to approximately 1.2 million gross acres including 227,000 gross acres associated with the ultra-deep trend.
PRODUCTION AND DEVELOPMENT ACTIVITIES
McMoRan continues to restore production that was shut-in as a result of the September 2008 hurricane events in the Gulf of Mexico. Fourth-quarter 2008 production averaged 162 MMcfe/d net to McMoRan, compared to 295 MMcfe/d in the fourth quarter of 2007. Fourth-quarter 2008 production rates were lower than the October 2008 estimate of 180 MMcfe/d because of delays associated with the availability of third party pipelines and processing facilities following the September 2008 hurricanes and the slower than anticipated ramp up of the Flatrock No. 4 well.
Current production approximates 200 MMcfe/d. An estimated 60 MMcfe/d is being constrained by outages at third party facilities and is expected to be restored by mid-year 2009.
Based on recent information from third party operators of downstream facilities, average daily production is expected to average 190-200 MMcfe/d in the first quarter of 2009 and 220-230 MMcfe/d for the year. These production estimates are dependent on the timing of restoring shut in production from the lack of availability of third party downstream pipelines and facilities damaged by the September 2008 hurricane events and expected production from new wells.
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