McMoRan Exploration said its first-quarter 2009 results from continuing operations totaled a loss of $59.5 million, including $39 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 Exploration’s first quarter results also include an $18.1 million mark-to-market realized gain on McMoRan Exploration’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. McMoRan Exploration’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 Exploration’s oil and gas derivative contracts.
James R. Moffett and Richard Adkerson, McMoRan Exploration’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 Exploration, compared with 294 MMcfe/d in the first quarter of 2008. McMoRan Exploration 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 about 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 Exploration’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 Exploration has drilled five additional successful wells in the field. Four wells are currently producing at a gross rate of about 235 MMcfe/d (44 MMcfe/d net to McMoRan Exploration). 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 Exploration expects the gross production rate from the six wells in the field to approximate 335 MMcfe/d, 63 MMcfe/d net to McMoRan Exploration.
McMoRan Exploration controls about 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 Exploration has a 25% working interest and an 18.8% net revenue interest in Flatrock. Plains Exploration & Production Company holds a 30% working interest.
Exploration Activities:
McMoRan Exploration’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 Exploration 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 about 1.2 million gross acres including 227,000 gross acres associated with the ultra-deep trend. McMoRan Exploration 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 Exploration 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 Exploration is operating the well and holds a 25.9% working interest and 21.1% net revenue interest. McMoRan Exploration’s partners, PXP and Energy XXI, hold a 28.1% working interest and 16% working interest, respectively. McMoRan Exploration’s investment in Ammazzo totaled $18.4 million at March 31, 2009. McMoRan Exploration 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 Exploration 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 Exploration has rights to a 50% working interest and a 40.2% net revenue interest in the well. Mariner Energy, Inc. is the operator of the well and holds a 50% working interest. McMoRan Exploration’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 Exploration reentered 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 Exploration 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 Exploration believes could be better developed in a down dip position on the flank of the structure. McMoRan Exploration has a 46.8% working interest and a 32.3% net revenue interest in the well. McMoRan Exploration’s investment in Blueberry Hill totaled $23.6 million at March 31, 2009, substantially all of which was incurred prior to 2008.
