The Mound Point Offset well is located six miles northeast of the previously announced JB Mountain discovery. Initial production from the JB Mountain well commenced in June 2003, but sustained rates have yet to be achieved as the operator is taking steps to address start-up issues associated with delivering gas to the pipelines. In addition, production rates will be limited until additional facilities are installed, which is expected to occur in the second half of 2003. The Mound Point Offset well is also approximately one mile from McMoRan's Mound Point #2 well, which encountered hydrocarbons in a stratigraphically older zone than tested in the Mound Point Offset well and flowed at various rates from 10 to 20 million cubic feet per day during January 2002 before mechanical problems required it to be shut-in and temporarily abandoned.
The JB Mountain and Mound Point deep-gas prospects are located in water depths of 10-20 feet in an area where McMoRan has rights to an approximate 80,000-acre area and is a participant in an exploration program which includes portions of OCS 310 and portions of the adjoining Louisiana State Lease 340. The program currently owns 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. As previously reported, under terms of the program, the operator committed to fund all of the costs attributable to McMoRan's interests in four prospects, including the discovery wells at JB Mountain and Mound Point Offset, and will own all of the program's interests until the program's aggregate production from the prospects totals 100 billion cubic feet of gas equivalent (Bcfe) attributable to the program's net revenue interest, at which point 50 percent of the program's interests would revert to McMoRan.
The Mound Point Offset rig is being moved to the JB Mountain Offset well at South Marsh Island Block 223. The rig that was drilling the JB Mountain Offset Prospect has been removed after reaching a depth of 7,800 feet towards a proposed total depth of 22,000 feet.
The operator plans to move a new rig into the field area to drill the Hurricane prospect, located on South Marsh Island Block 217 (which is part of OCS 310) approximately 2 miles northwest of the JB Mountain discovery well. The well, which has a proposed total depth of 16,500 feet, will target intermediate sands seen in the JB Mountain well. McMoRan has recently entered into an agreement with the operator whereby the operator will fund all drilling costs of this exploration well and McMoRan will have an election at total depth to participate for 50 percent of the operator's interest in future activities on this well and the surrounding 9,500 acre area. Under this agreement, if McMoRan joins at total depth, McMoRan would participate in any production from this well immediately. Whether or not McMoRan elects to join at total depth, production will be excluded from the 100 Bcfe sharing arrangement described above. Other than the Hurricane prospect area, all acreage in OCS 310/State Lease 340 area remaining subject to the program will be subject to the agreement whereby the operator funds all exploration and development costs and carries McMoRan for 50 percent of the program's interest until the operator has recovered 100 Bcfe from production. The operator will bear 100 percent of the drilling cost to casing point in the Hurricane exploration well. Elections by other participants may reduce this interest. 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.
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