McMoRan Remains 'Focused, Optimistic' for Future Ops
McMoRan Exploration reported a net loss applicable to common stock of $21.7 million, $0.23 per share, for the second quarter of 2010 compared with a net loss of $100.6 million, $1.40 per share, for the second quarter of 2009.
- Exploratory Activities:
- Potential hydrocarbon bearing zones at the Blueberry Hill deep gas sidetrack location. Additional drilling and logging will be performed to further evaluate the prospective intervals.
- Offset appraisal well at Davy Jones commenced on April 7, 2010 and is currently drilling below 11,100 feet towards a proposed total depth of 29,950 feet.
- Blackbeard East ultra-deep exploratory well commenced on March 8, 2010 and is currently drilling below 18,400 feet towards a proposed total depth of 29,950 feet.
- Lafitte ultra-deep exploratory well expected to commence drilling in the second half of 2010.
- Deep gas exploratory drilling in the second half of 2010 expected to include the Boudin, Hurricane Deep and Platte prospects.
- Development Activities:
- Completed engineering and design for the completion of the Davy Jones #1 discovery well. The completion and flow test are expected to be performed in the third quarter of 2011.
- Second-quarter 2010 production averaged 165 Million cubic feet of natural gas equivalents per day (MMcfe/d) net to McMoRan, compared with 187 MMcfe/d in the second quarter of 2009.Average daily production for 2010 is expected to approximate 160 MMcfe/d net to McMoRan, including 145 MMcfe/d in the second half of 2010.
- Operating cash flows totaled $11.2 million for the second quarter of 2010 and $91.5 million for the six months ended June 30, 2010.
- Capital expenditures totaled $60.6 million in the second quarter of 2010 and $101.4 million for the six months ended June 30, 2010. McMoRan expects capital expenditures to approximate $240 million for the year.
- Cash at June 30, 2010 totaled $217 million.
James R. Moffett and Richard Adkerson, McMoRan's Co-Chairmen, said, "We remain focused and optimistic on the significant opportunities for McMoRan as we define the potential of our deep and ultra-deep drilling in the shallow waters of the Gulf of Mexico. During the second quarter, we completed important engineering studies which will enable us to complete and test the significant potential of our Davy Jones discovery well. We also advanced drilling of the Davy Jones offset appraisal well and the Blackbeard East ultra-deep well, and encountered positive results in our drilling at the Blueberry Hill deep gas prospect. We look forward to reaching our target objectives in these wells, advancing our development plans at Davy Jones and pursuing our exciting exploration strategy."
PRODUCTION AND DEVELOPMENT ACTIVITIES
Second-quarter 2010 production averaged 165 MMcfe/d net to McMoRan, compared with 187 MMcfe/d in the second quarter of 2009. Production in the second quarter of 2010 was lower than publicly reported estimates in April 2010 of 170 MMcfe/d primarily because of unscheduled downtime for maintenance on pipelines and other facilities. Production is expected to average approximately 145 MMcfe/d in the second half of 2010 and 160 MMcfe/d for the year, lower than the previous estimate of 170 MMcfe/d primarily resulting from the timing of development activities and increased downtime for pipeline and facility maintenance. McMoRan's estimated production rates are dependent on the timing of planned recompletions, production performance and other factors and do not consider possible curtailments caused by storm activity in the Gulf of Mexico.
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. Production from these six Flatrock wells averaged a gross rate of approximately 187 MMcfe/d (35 MMcfe/d net to McMoRan) in the second quarter of 2010. The operator plans to recomplete the #229 & #230 wells in 2010. McMoRan has a 25.0 percent working interest in Flatrock and Plains Exploration & Production Company holds a 30.0 percent working interest.
McMoRan's exploration strategy is focused in the shallow waters (i.e. less than 150 feet of water) of the Gulf of Mexico and Gulf Coast area on the "deep gas play" and on the "ultra-deep gas play." Deep gas prospects target large Miocene age deposits above the salt weld (i.e. listric fault) at depths typically between 15,000 to 25,000 feet. Ultra-deep prospects target objectives typically at depths below 25,000 feet beneath the salt weld in the Miocene and older age sections that have been correlated to those sections that have been productive in deepwater drilling by other industry participants.
McMoRan does not operate in the deepwater Gulf of Mexico; consequently, its exploration activities are not subject to the drilling suspension imposed by the Department of Interior on drilling operations. New regulations and enhanced safety certifications have been issued for all operations in the Gulf of Mexico. McMoRan completed the necessary certifications and is providing required information to secure permits for future drilling.
Shallow Water, Deep Gas Exploration Activities
The Blueberry Hill #9 STK1, located on Louisiana State Lease 340 in 10 feet of water, commenced drilling on April 26, 2010 and has been drilled to a true vertical depth (TVD) of 23,500 feet (24,279 feet measured depth). Log-while-drilling tools have indicated sands with high resistivity levels below 23,100 feet, which may be the beginning of a hydrocarbon bearing interval. McMoRan is setting a drilling liner above the identified sand section before evaluating the #9 STK1 well with wireline logs to determine the porosity of the identified sands and quantify potential net pay in the well. Because the current well depth is in a resistive sand, additional drilling is required to determine the thickness of the identified sand interval. The Blueberry Hill #9 STK1 has a proposed TVD of 24,000 feet.
The sands identified to date in the #9 STK1 well appear to be of similar age to the sands identified in previous Blueberry Hill wells drilled in 2009. The 2009 wells, located approximately 3,000 feet north of the #9 STK1 well, established hydrocarbons in three different zones between 21,300 feet and 22,500 feet. The data obtained in recent drilling indicates that a sizeable fault appears to separate the original three penetrations in 2009 from the well currently in progress.
McMoRan owns a 42.9 percent working interest and a 29.7 percent net revenue interest in the Blueberry Hill well. PXP holds a 47.9 percent working interest. McMoRan's investment in the Blueberry Hill field totaled $21.5 million at June 30, 2010, including $14.7 million in costs associated with the #9 STK1 well currently in progress.
McMoRan's deep gas exploratory drilling plans in 2010 also include the Boudin, Hurricane Deep and Platte prospects. Boudin is located in 20 feet of water on Eugene Island Block 26. The well has a proposed total depth of 23,050 feet and will test Miocene objectives. McMoRan and PXP each hold a 45 percent working interest in Boudin. Hurricane Deep is located on the southern flank of the Flatrock structure in twelve feet of water on South Marsh Island Block 217. The well has a proposed total depth of 21,750 feet and is targeting the significant Gyro sand encountered in the Hurricane Deep well (No. 226) in 2007 and deeper potential. McMoRan holds a 25 percent working interest and PXP holds a 30 percent working interest in Hurricane Deep. McMoRan's investment in Hurricane Deep totaled $21.9 million at June 30, 2010, and its share of costs to re-drill to 18,450 feet is expected to be covered under its insurance program. Platte, which is located in Vermillion Parish, Louisiana, has a proposed total depth of 18,700 feet.
Shallow Water, Ultra-deep Exploration Activities
The data received to date from ultra-deep drilling on the Shelf confirm McMoRan's geologic modeling, which correlates objective sections on the Shelf below the salt weld (i.e. listric fault) in the Miocene and older age sections to those productive sections seen in deepwater discoveries by other industry participants. In addition to Davy Jones and Blackbeard West, McMoRan has identified 15 ultra-deep prospects in shallow water. McMoRan's ultra-deep drilling plans in 2010 include the Blackbeard East and Lafitte exploratory wells and delineation drilling at Davy Jones. Future plans also include the John Paul Jones prospect located north of Davy Jones.
In February 2010, the Davy Jones discovery well on South Marsh Island Block 230 was drilled to a total depth of 29,000 feet. As reported in January 2010, McMoRan logged 200 net feet of pay in multiple Eocene/Paleocene (Wilcox) sands in the well. In March 2010, a production liner was set and the well was temporarily abandoned until necessary equipment for the completion is available. Flow testing will be required to confirm the ultimate hydrocarbon flow rates from the well. McMoRan completed the well design in the second quarter of 2010 and the long-lead equipment needed to complete, test and produce the well is being procured. The completion and flow test are expected to be performed in the third quarter of 2011.
On April 7, 2010, McMoRan commenced drilling the Davy Jones offset appraisal well on South Marsh Island Block 234, two and a half miles southwest of the discovery well. The well is currently drilling below 11,100 feet towards a proposed total depth of 29,950 feet. The offset appraisal well (Davy Jones #2) is expected to test similar sections up-dip to the discovery well, as well as deeper objectives, including potential additional Wilcox and possibly Cretaceous (Tuscaloosa) sections.
Davy Jones involves a large ultra-deep structure encompassing four OCS lease blocks (20,000 acres). McMoRan is funding 28.7 percent of the drilling costs and holds a 32.7 percent working interest and 25.9 percent net revenue interest. Other working interest owners in Davy Jones include: PXP (27.7%), Energy XXI (15.8%), Nippon Oil Exploration USA Limited (12%), W.A. "Tex" Moncrief, Jr. (8.8%) and a private investor (3%). McMoRan’s investment in Davy Jones totaled $46.4 million at June 30, 2010, including $13.1 million in costs associated with the offset appraisal well in progress.
The Blackbeard East ultra-deep exploration well commenced drilling on March 8, 2010 and is currently drilling below 18,400 feet. The well, which is located in 80 feet of water on South Timbalier Block 144, has a proposed total depth of 29,950 feet and will target Middle and Deep Miocene objectives seen below 30,000 feet in Blackbeard West, nine miles away, as well as younger Miocene objectives. McMoRan is funding 32.0 percent of the exploratory costs and holds a 38.5 percent working interest and 30.7 percent net revenue interest. Other working interest owners in Blackbeard East include: PXP (31.5%), EXXI (18.0%), W.A. "Tex" Moncrief, Jr. (10.0%) and a private investor (1.6%). McMoRan’s investment in Blackbeard East totaled $19.3 million at June 30, 2010.
The Lafitte ultra-deep exploration well is expected to commence drilling in the second half of 2010. Like Blackbeard East, Lafitte will target Middle and Deep Miocene objectives. Lafitte is located on Eugene Island Block 223 in 140 feet of water.
The information gained from the Blackbeard East and Lafitte wells will enable McMoRan to develop plans for future operations at Blackbeard West. As previously reported, the Blackbeard West ultra-deep exploratory well on South Timbalier Block 168 was drilled to 32,997 feet in 2008. Logs indicated four potential hydrocarbon bearing zones that require further evaluation and the well was temporarily abandoned. In May 2009, the Bureau of Ocean Energy granted McMoRan’s request for a geophysical Suspension of Operations (SOO) to extend its Blackbeard West leases in the Blackbeard area. The SOO is allowing McMoRan to evaluate whether to drill deeper at Blackbeard West, drill an offset location or complete the well to test the existing zones. McMoRan’s investment in the Blackbeard West well totaled $31.3 million at June 30, 2010.
McMoRan's second-quarter 2010 oil and gas revenues totaled $104.1 million, compared to $94.1 million during the second quarter of 2009. During the second quarter of 2010, McMoRan’s sales volumes totaled 9.8 Bcf of gas, 626,400 barrels of oil and condensate and 1.4 Bcfe of plant products, compared to 11.2 Bcf of gas, 751,500 barrels of oil and condensate and 1.3 Bcfe of plant products in the second quarter of 2009. McMoRan's second-quarter comparable average realizations for gas (before hedging) were $4.66 per thousand cubic feet (Mcf) in 2010 and $3.92 per Mcf in 2009; for oil and condensate McMoRan received an average of $76.20 per barrel in second-quarter 2010 compared to $58.24 per barrel in second-quarter 2009.
CASH, LIQUIDITY AND CAPITAL EXPENDITURES
At June 30, 2010, McMoRan had $217 million in cash. Total debt was $375 million at June 30, 2010, including $75 million in 5 1/4% convertible senior notes due in October 2011 with a conversion price of $16.575 per share. McMoRan currently has no amounts borrowed under its $175 million revolving credit facility and $75 million in availability after considering $100 million in outstanding letters of credit.
Capital expenditures totaled $60.6 million for the second quarter of 2010 and $101.4 million for the six-months ended June 30, 2010. Capital expenditures are expected to approximate $240 million for the year, including $170 million in exploration and $70 million in development spending. Capital spending will continue to be driven by opportunities and managed based on market conditions and funded through cash flow from operations, participation by partners in exploration and development projects and potentially, other financings.
Net abandonment expenditures, which include scheduled conventional and hurricane-related work, totaled $24.1 million for the second quarter of 2010 and $41.6 million for the six months ended June 30, 2010. Abandonment expenditures are expected to approximate $130 million in 2010, including $50 million associated with hurricane damage reclamation work for which McMoRan expects reimbursement under its insurance program. Since 2009, McMoRan has recorded gains totaling $33.8 million, including $9.2 million in the second quarter of 2010, associated with insurance recoveries related to the 2008 hurricane events in the Gulf of Mexico and continues to pursue reimbursement of other hurricane-related abandonment costs under its insurance program.
- 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)