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GOM Producer McMoRan Swings to Profit
McMoRan Exploration Co. surprised analysts Tuesday after reporting that it swung to a profit in the final three months of 2011, propelled by increased natural gas-weighted output and lower operating expenses.
The New Orleans-based producer, which has been spending a lot of money on shallow water Gulf of Mexico (GOM) prospects, earned $28.4 million (16 cents/share) in 4Q2011, compared with a loss of $84.3 million (minus 83 cents) in the year-ago period. Total revenues were $121.9 million, versus $99 million in 4Q2010. For the year McMoRan posted a net loss of $58.8 million, compared with a net loss of $197.4 million in 2010.
Total costs and expenses in the latest quarter fell to $78.7 million from $120.6 million in 4Q2010 in part because of lower exploration costs, as well as lower depreciation and amortization expenses.
McMoRan had been expected to report a loss of 13 cents/share in 4Q2011, according to a consensus estimate by Wall Street. Revenues were pegged at $116.54 million.
During a conference call Tuesday CEO Jim Bob Moffett said the company remains enthusiastic about several Outer Continental Shelf prospects in the GOM, which until now have proved an expensive endeavor. The gassy Davy Jones formation, considered one of the biggest discoveries in shallow water, should begin flowing before the end of March, he said.
The Davy Jones discovery, announced two years ago, is in South Marsh Island Block 230 in 20 feet of water; the first well reached a measured depth of 28,263 feet, or about five miles (see Daily GPI, Jan. 12, 2010). The well, logged with pipe-conveyed wireline logs to 28,134 feet, found 135 net feet of gas- and oil-soaked sands in four zones in the Wilcox section of the Eocene/Paleocene trend.
McMoRan operates the prospect and is funding about one-quarter of the exploratory costs with close to one-third of the working interest. Other stakeholders include Energy XXI (15.8%), Plains Exploration & Production Co. (27.7%), Nippon Oil Exploration USA Ltd. (12%) and W.A. “Tex” Moncrief Jr. (8.8%) and an undisclosed investor has the remaining 3%.
“The pending well test at Davy Jones and ongoing near-term drilling results will provide important data as we continue to define the potential for this major new geologic trend,” said Moffett. “Completion activities of the Davy Jones No. 1 discovery well are in an advanced stage with flow testing expected in the first quarter of 2012. Initial production is expected shortly after a successful flow test.” Completion and flow testing of the No. 2 well is expected “in the second half of 2012.”
At its Blackbeard East prospect McMoRan is preparing to log a section below 30,800 feet. Exploration results to date indicate “updip potential in the Miocene,” with 178 net feet of hydrocarbons above 25,000 feet, and “downdip potential in the Oligocene,” or Frio, below 30,000 feet, said Moffett. At Blackbeard West No. 2 the company began drilling in late November and now is below 11,700 feet with a proposed depth of 26,000 feet. The company is targeting Miocene-aged sands at Blackbeard.
Early exploration results at the Lafitte prospect indicate 211 net feet of “possible productive sands, including 56 net feet in the Cris-R section of the Lower Miocene and 40 net feet in the Frio section,” Moffett said. “We are drilling below 32,400 feet to a proposed total depth of 33,000 feet to evaluate Oligocene and potential Eocene objectives.”
Data “continue to support the potential for a major new geologic trend spanning 200 miles on the Gulf of Mexico Shelf,” said Moffett.
McMoRan’s total gas and oil production averaged 170 MMcfe/d in 4Q2011, up from 144 MMcfe/d in the year-ago period. Sales volumes were 10.4 Bcf of gas, 577,000 bbl of oil and 1.8 Bcfe of natural gas liquids (NGL). In the year-ago quarter the company sold 8.2 Bcf of gas, 629,000 bbl of oil and 1.3 Bcfe of NGL.
Excluding output from Davy Jones wells, average daily production is expected to be about 130 MMcfe/d for 2012, which is below average daily production of 187 MMcfe/d in 2011. In the first three months of 2010 McMoRan expects production to be about 155 MMcfe/d. Capital spending this year is set at $500 million, which includes $300 million for exploration and $200 million for development.
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