Despite an ongoing struggle to clear a blockage on its Davy Jones prospect, considered one of the biggest natural gas discoveries in the Gulf of Mexico’s shallow waters, McMoRan Exploration Co.’s exploration results “remain positive,” the New Orleans-based producer said.
McMoRan identified three new geologic formations below the salt weld at its Blackbeard East and Laffite prospects during 1Q2012, co-chairman Richard Adkerson said during a conference call with analysts Tuesday.
“Where we are today is that we have had success with our geologic model in identifying these major new sub-salt trends, which go over 200-plus miles in the shelf of the Gulf of Mexico and extend onshore in to South Louisiana. We are targeting prospects on very larger sub-salt structures that have multi-Tcf potential,” Adkerson said.
“Drilling these wells has been a process of developing new technology to be able to drill and ultimately produce these wells. And we’ve made very significant advances in drilling where the industry has not drilled before. Success will provide us an opportunity to have a very large low-cost, long-term source of natural gas.”
Workover operations to clear blockage on Davy Jones continue after six weeks of production delays (see Daily GPI, April 10). The ultra-deep structure, which encompasses four lease blocks over 20,000 acres, may contain 2-6 Tcf.
The No. 1 well, on South Marsh Island Block 230, is expected to produce measurable flow rate by the end of June, followed by commercial production shortly thereafter, McMoRan said. Prior to the blockage, the No. 1 well had been scheduled to begin commercial flow at the end of last month. Operations at the No. 2 well have continued unhindered and McMoRan expects to commence completions operations in the second half of this year.
Interior’s Bureau of Safety and Environmental Enforcement issued the final permits for McMoRan’s current operations at Davy Jones earlier this month.
McMoRan operates Davy Jones with a 63.4% working interest and a 50.2% net revenue stake. Other stakeholders are Energy XXI (15.8%), JX Nippon Oil Exploration (Gulf) Ltd. (12%), and Moncrief Offshore LLC (8.8%).
McMoRan’s total gas and oil production averaged 156 MMcfe/d in 1Q2012, compared with 195 MMcfe/d in 1Q2011, and output is expected to average 135 MMcfe/d for the year — up from a previous estimate of 130 MMcfe/d. However, 2012’s output is likely to increase once commercial production is established at Davy Jones, officials said. Sales volumes in 1Q2012 totaled 8.8 Bcf of gas, 610,100 bbl of oil and 1.7 Bcfe of natural gas liquids (NGL). In the year-ago quarter the company sold 11.7 Bcf of gas, 686,700 bbl of oil and 1.7 Bcfe of NGL.
McMoRan reported a 1Q2012 net loss applicable to common stock of $4.9 million (minus 3 cents/share), compared with a loss of $27.6 million (minus 17 cents) in 1Q2011.
The company expects to spend about $500 million on capital expenditures this year, although that amount is “always a function of activities and decisions that we make as we learn about our exploration development activities,” Adkerson said.
McMoRan surprised analysts earlier this year when it reported a profit in the final three months of 2011, propelled by increased natural gas-weighted output and lower operating expenses (see Daily GPI, Jan. 18).
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