McMoRan Exploration Co., whose upstream spending has been eaten up by exploration activity in the shallow waters of the Gulf of Mexico (GOM), now expects commercial production from the highly touted Davy Jones natural gas prospect to be in motion late this month.

The Davy Jones discovery well, which some consider to be one of the largest discoveries in decades on the Outer Continental Shelf, was completed in early 2010 in South Marsh Island Block 230 in 20 feet of water to a measured depth of 28,263 feet (see Daily GPI, Jan. 12, 2010). McMoRan Co-Chairman Jim Bob Moffett said then that the structure, which encompassed four OCS lease blocks, might contain estimated 2-4 Tcf of recoverable reserves.

McMoRan operates Davy Jones with a 63.4% working interest and 502.% net revenue stake, with partners Energy XXI (15.8%), JX Nippon Oil Exploration (Gulf) Ltd. (12%) and Moncrief Offshore LLC (8.8%).

The discovery spans 200 miles in shallow water and in Louisiana’s onshore, according to Moffett. Data from five exploratory wells indicates natural gas and oil below the salt weld of geological formations that include the Miocene, Frio, Vicksburg, Upper Eocene, Sparta carbonate, Wilcox, Tuscaloosa and Cretaceous carbonate.

“Our activities to define the ultra-deep subsalt trend have opened up the potential for a major new resource play on the shelf and onshore in the Gulf Coast area,” said Moffett and co-Chairman Richard Adkerson. “We are pleased that the geologic data and results gained to date from each of the five ultra-deep wells we have drilled have validated our geologic model and reduced the exploration risk of this exciting new play.”

The long-delayed flow test on the Davy Jones No. 1 well now is set for the last week of July, said Moffett. Flow tests on the well have been delayed before, however, because of mechanical issues and pipeline blockages. A No. 2 well also is scheduled to be flow tested later this year.

Developing Davy Jones has been a costly and timely chore. At the end of June the company had invested an estimated $905.5 million, including $474.8 million in allocated property acquisition costs. In April executives said exploration results on the prospect had been positive, but workover operations to clear a blockage were continuing after several weeks of delays (see Daily GPI, April 19).

McMoRan plans to submit development plans by the end of September for its shallow water Blackbeard East ultra-deep project on South Timbalier Block 144, as well as the Lafitte project on Eugene Island Block 223 to the Bureau of Safety and Environmental Enforcement.

Pipeline repairs and shipping delays related to Davy Jones slammed second quarter results, which widened to a $75.5 million loss (minus 47 cents/share) from a loss of $50.2 million (minus 32 cents) in the same period a year ago. Revenue plunged 43% to $90.3 million. Wall Street was expecting the company to post a loss of 13 cents/share on revenue of $96.6 million. Full-year output is expected to be 137 MMcfe/d, which is slightly more than 135 MMcfe/d forecast earlier this year.

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