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McMoRan Sees Promise in Shallow Water Wells

Deep drilling activities in the shallow waters of the Gulf of Mexico (GOM) continue to show promise and indicate "the potential for large structures" similar to discoveries onshore South Louisiana and in the GOM deepwater, executives with New Orleans-based McMoRan Exploration Co. said Monday.

Offshore drilling expenses on the natural gas-weighted prospects have made a big dent in McMoRan's profits for several quarters, and the first three months of 2011 proved no different. The producer reported a net loss in the first quarter of $27.6 million (minus 17 cents/share), which was less than the year-ago losses of $66.2 million (minus 74 cents).

Co-Chairmen James R. Moffett and Richard Adkerson said in a joint statement the "theme" of McMoRan's 2010 annual report, "Buried Treasures on the Shelf," characterized the company's deep drilling activities and "highlights the significance of this development trend.

"Results to date in our program indicate the potential for large structures, similar to large discoveries onshore South Louisiana and in the deepwater of the Gulf of Mexico."

The McMoRan executive team is confident enough in its prospects that last September it nearly doubled the size of its portfolio in the shallow waters in a transaction with Plains Exploration & Production Co. that at the time was estimated to be worth more than $800 million (see Daily GPI, Sept. 21, 2010).

McMoRan currently is drilling six wells, including the Davy Jones prospect, which may be one of the largest gas discoveries ever in shallow water. Moffett told analysts last October that Davy Jones, which covers around 20,000 net acres underwater, "is capable of producing at least 100 MMcf/d" (see Daily GPI, Oct. 19, 2010).

Davy Jones No. 2, an offset appraisal well, now has been drilled to a true vertical depth (TVD) of 30,546 feet, the producer said. McMoRan is preparing to evaluate the "exploration objectives" with wireline logs in the Cretaceous section below the identified Wilcox pay sands. Completion and flow testing of Davy Jones No. 1, the discovery well, is expected by the end of the year.

Prospective Blackbeard East has been drilled to a TVD of 32,559 feet. The plan now is to go deeper, once a mechanical issue has been resolved, said executives.

"Exploration results to date indicate updip potential in the Miocene (178 net feet of hydrocarbons) above 25,000 feet and downdip potential of the Oligocene (Frio) and Eocene (Sparta) below 30,000," said management. McMoRan last October also ramped up drilling on Lafitte in shallow water and now is drilling "below 20,950 feet toward a proposed total depth of 29,950 feet."

At the Laphroaig No. 2 McMoRan completed a "successful" production test earlier this month at a gross rate of 54 MMcf/d (16 MMcf/d net) (see Daily GPI, April 14). Production is set to begin by the end of June "and results from the production test will be used to determine the optimal flow rate."

McMoRan's production in the first three months of 2011 averaged 195 MMcfe/d net, up from the year-ago output of 190 MMcfe/d. Average production this year is expected to be around 175 MMcfe/d net, including 190 MMcfe/d net in 2Q2011.

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