McMoRan Reports 1st Quarter Results
McMoRan Exploration Co. has reported a net loss applicable to common stock of $63.2 million, $0.90 per share, for the first quarter of 2009 compared with net income applicable to common stock of $32.0 million, $0.46 per fully diluted share, for the first quarter of 2008.
First-quarter 2009 results from continuing operations totaled a loss of $59.5 million, including $39.0 million, $0.55 per share, in impairment charges for certain fields to reduce their net carrying value to fair value and $16.2 million, $0.23 per share, in charges to exploration expense primarily relating to the Tom Sauk and Gladstone East exploration wells which were determined to be non-commercial in the first quarter of 2009. McMoRan's first quarter results also include an $18.1 million mark-to-market realized gain on McMoRan's oil and gas derivative contracts and an $18.7 million gain associated with its share of the initial payment of insurance proceeds related to the September 2008 hurricanes. Additional insurance proceeds are expected as described below. McMoRan's net income from its continuing operations for the first quarter of 2008 totaled $37.2 million, including an unrealized loss of $41.6 million, $0.49 per fully diluted share, for mark-to-market charges on McMoRan's oil and gas derivative contracts.
James R. Moffett and Richard Adkerson, McMoRan's Co-Chairmen, said, "We continue to focus on opportunities to build asset values through exploring deep prospects in shallow waters on the Shelf of the Gulf of Mexico. Our drilling activities have confirmed that large hydrocarbon bearing structures are present below 15,000 feet on the Gulf of Mexico Shelf. The data we have gained from the South Timbalier Block 168 ultra-deep well drilled below 30,000 feet provides important information that is allowing us to correlate the depositional trends from the onshore and the deepwater to the Shelf. We have multiple high potential deep gas and ultra-deep targets and are developing plans to test these objectives. We will prudently manage our capital expenditures in response to current market conditions while remaining focused on these exciting exploration opportunities."
PRODUCTION AND DEVELOPMENT ACTIVITIES
First-quarter 2009 production averaged 198 MMcfe/d net to McMoRan, compared with 294 MMcfe/d in the first quarter of 2008. McMoRan continues to work to restore production shut-in as a result of the September 2008 hurricanes in the Gulf of Mexico. Current production approximates 200 MMcfe/d and is expected to average approximately 180 MMcfe/d in the second quarter of 2009, which will be affected by downtime at the Flatrock Field for planned facility expansion, maintenance and remediation activities. An estimated 45 MMcfe/d of McMoRan’s production continues to be constrained by outages at third party facilities. Based on recent information from operators of these facilities, daily production is expected to average 215 MMcfe/d for the year. These production estimates are dependent on the timing of restoring downstream pipelines and facilities damaged by the September 2008 hurricanes and production performance from existing wells and new wells being completed.
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 235 MMcfe/d (44 MMcfe/d net to McMoRan). Production from these wells will be temporarily shut in during the second quarter for planned facility expansion, maintenance and remediation activities. Completion efforts are under way at Flatrock Nos. 5 and 6, with first production from both wells expected by mid-year 2009. Following these activities, McMoRan expects the gross production rate from the six wells in the field to approximate 335 MMcfe/d, 63 MMcfe/d net to McMoRan.
McMoRan's exploration strategy is focused 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 on the "ultra-deep gas play" below 25,000 feet.
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. McMoRan has three deep gas prospects in-progress and near term drilling plans include the Sherwood deep gas exploratory prospect on High Island Block 133. McMoRan also continues to evaluate additional ultra-deep opportunities.
The Ammazzo deep gas exploratory prospect in 25 feet of water commenced drilling on November 22, 2008 and is drilling below 21,600 feet towards a proposed total depth of 24,500 feet. 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 $18.4 million at March 31, 2009. McMoRan was high bidder on South Marsh Island Block 256, which is a southern offset to the Ammazzo prospect, at the March 2009 Minerals Management Service Central Gulf of Mexico Lease Sale 208. McMoRan was also high bidder on an ultra-deep lease located on Ship Shoal Block 185.
The Cordage deep gas exploratory prospect commenced drilling on March 18, 2009 and is drilling below 12,200 feet towards a proposed total depth of 19,500 feet. The Cordage prospect, which is located in 50 feet of water on West Cameron Block 207, is targeting Rob-L and Rob-M (Operc) sands in the Middle Miocene. McMoRan has rights to a 50.0 percent working interest and a 40.2 percent net revenue interest in the well. Mariner Energy, Inc. is the operator of the well and holds a 50 percent working interest. McMoRan’s investment in Cordage totaled $3.4 million at March 31, 2009. Upon completion of operations at Cordage, the rig will be moved to the Sherwood prospect on High Island Block 133 to commence exploration drilling activities.
On March 29, 2009, McMoRan reentered an existing wellbore and commenced sidetracking operations at the Blueberry Hill deep gas prospect located on Louisiana State Lease 340 in 10 feet of water. The well has a proposed total depth of 24,000 feet. As previously reported, in February 2005 McMoRan encountered four hydrocarbon bearing sands in the Gyro section below 22,200 feet in the original Blueberry Hill exploratory well. Completion efforts in 2007 were unsuccessful because of blockage above the perforated intervals. The sidetrack currently in-progress is targeting the same Gyro sands, which McMoRan believes could be better developed in a down dip position on the flank of the structure. McMoRan has a 46.8 percent working interest and a 32.3 percent net revenue interest in the well. McMoRan’s investment in Blueberry Hill totaled $23.6 million at March 31, 2009, substantially all of which was incurred prior to 2008.
McMoRan and its partners are continuing engineering planning for the completion and testing of the Blackbeard West ultra-deep exploratory well on South Timbalier Block 168, which is temporarily abandoned and not yet fully evaluated. The geological data below 30,000 feet derived from the Blackbeard West well is being incorporated into McMoRan’s exploration concepts to enhance existing prospects and develop additional ultra-deep opportunities on the Shelf, including potential drilling locations in the Blackbeard area.
McMoRan is operator and owns a 32.3 percent working interest in the Blackbeard West well and PXP and Energy XXI, hold a 35 percent working interest and 20 percent working interest, respectively. McMoRan’s investment in Blackbeard West totaled $31.2 million at March 31, 2009.
McMoRan's first-quarter 2009 oil and gas revenues totaled $95.1 million, compared to $291.9 million during the first quarter of 2008. During the first quarter of 2009, McMoRan's sales volumes totaled 12.2 Bcf of gas, 749,200 barrels of oil and condensate and 1.1 Bcfe of plant products, compared to 17.9 Bcf of gas, 1,089,100 barrels of oil and condensate and 2.5 Bcfe of plant products in the first quarter of 2008. McMoRan's first-quarter comparable average realizations for gas were $4.88 per thousand cubic feet (Mcf) in 2009 and $9.06 per Mcf in 2008; for oil and condensate McMoRan received an average of $40.91 per barrel in first-quarter 2009 compared to $97.40 per barrel in first-quarter 2008.
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