McMoRan Exploration Co., which has built a sizable natural gas-weighted portfolio in the shallow waters of the Gulf of Mexico — and with it sizable drilling costs — saw its share price fall by double digits on Monday after reporting a net loss in 3Q2010 of $25.3 million (minus 26 cents/share). Revenue in the latest quarter fell almost 13% from a year ago to $94.8 million.

McMoRan had one-time charges of $11.3 million in 3Q2010, versus $11.2 million in the year-ago period. Capital expenditures totaled $58.8 million in the quarter.

Average production fell to 146 MMcfe/d net, compared with 215 MMcfe/d a year earlier.

The latest quarterly losses were about half of those in 3Q2009, when the producer had a net loss of $47.5 million (minus 60 cents/share). But investors were unimpressed, selling off more than 11 million shares for the day and reducing McMoRan’s share price from its previous close by 12%, or $2.25/share.

However, during a conference call with analysts Monday the company’s co-chairmen, James R. Moffett and Richard Adkerson, stressed the potential of McMoRan’s prospects, which include several gas-heavy discoveries in the shallow waters of the Outer Continental Shelf.

“In our deep gas exploration program, our traditional play of drilling in the 15,000-25,000-foot depths, we announced on Aug. 3 that we had logged 105 feet of high quality pay sands at our Blueberry Hill sidetrack well,” said Adkerson. “We are now working to get this completed, and we expect initial production early in 2011.

“In our ultra deep exploration program below salt, we have now got three wells in progress — the Davy Jones offset appraisal well, which is drilling ahead; the Blackbeard East well where we’ve had positive drilling data and information below salt; and then on Oct. 3 we spud the third well, the Lafitte prospect. At the Davy Jones discovery well we are procuring equipment.”

The Davy Jones prospect, which covers about 20,000 net acres underwater, “is capable of producing at least 100 MMcf/d,” Moffett told analysts. When asked what the well might be capable of producing over its lifetime, he said the company is modeling 200 Bcf.

“With the stacked sands that we have, as you complete these wells and go from the bottom sand up to the top with those five reservoirs in that well, that is why we think we can recover a couple of 100 Bcf or more. It just depends on how the well bore holds up and the completion strain holds up and the tubing holds up.”

McMoRan now has “a team working on completion activities, and we expect to begin the physical completion in the third quarter of 2011,” Adkerson said.

In the latest quarter McMoRan also made a deal to join with Plains Exploration and Production Co. to develop some offshore gas prospects (see Daily GPI, Sept. 21). McMoRan agreed to issue 51 million shares of stock and pay $75 million in cash, and in return, the company was able to secure about $900 million of new financing.

“We have gotten other approvals that we are pursuing, and we are in the process of scheduling the vote for the shareholders,” Adkerson said of the Plains deal. Once the transaction is cleared by the Securities and Exchange Commission, a shareholder vote would be scheduled. The transaction is expected to close before the end of the year.

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