Expanding its Gulf of Mexico exploration efforts sizably, McMoRan Exploration Co. has entered into a three to five year exploration agreement with an undisclosed private exploration and production company, which has committed to spend a minimum of $200 million of exploration funds.

Under the terms of the agreement, the private company will participate for 40% of McMoRan’s position in prospects that it drills during this period. McMoRan said the joint venture will target its exploration prospect inventory outside of its rights to the acreage in JB Mountain/Mound Point area which is currently subject to a separate exploration agreement.

The joint venture said that over the next 12 months it expects to participate in the drilling of 10 to 12 wells, many of which are shallow-water, deep gas targets on the Shelf of the Gulf of Mexico. McMoRan’s current inventory includes 17 prospects outside the JB Mountain/Mound Point area and the company plans to spud at least three of these prospects in the first quarter of 2004. The first three prospects include the Deep Lombardi prospect at Vermilion Block 208, the Deep Tern prospect at Eugene Island Block 193, and the Phoenix prospect at Eugene Island Blocks 212/213.

“We are pleased to announce this exploration arrangement with our new partner and our opportunities to pursue active exploration in the Gulf of Mexico,” said James R. Moffett, co-chairman of McMoRan. “We have identified a series of high potential prospects outside of our JB Mountain/Mound Point area which are available to drill, as we continue to aggressively pursue the potential for this area.”

This new partner is also a participant in the Dawson Deep prospect at Garden Banks Block 625, which currently is drilling below 21,700 feet. Drilling will continue to a measured depth of 23,700 feet to test the deep exploration objectives. McMoRan holds a 30% working interest and a 24% net revenue interest in the well. Kerr-McGee Oil & Gas Corp. operates Dawson Deep and owns a 25% working interest with Nexen Petroleum Offshore USA. Inc. (15%) and Cal Dive International Inc. (10%) owning the remaining interests.

McMoRan also announced that production commenced at the South Marsh Island Block 223 #219 (“JB Mountain No. 2”) development well. This well which was drilled to a total depth of 22,375 feet is currently flowing at approximately 24 MMcfe/d. The South Marsh Island Block 223 #221 (“JB Mountain No. 3”) well commenced drilling on Dec. 15. This development well, which is drilling below 13,000 feet, has a proposed total depth of 21,000 feet and is located approximately one mile south of the original JB Mountain discovery well.

McMoRan is a participant in the exploration program which currently controls approximately 45,000 acres of an approximate 80,000-acre exploratory area, including portions of OCS Lease 310 and portions of the adjoining Louisiana State Lease 340. The program currently holds a 55% working interest and a 38.8% net revenue interest in the JB Mountain prospect and a 30.4% working interest and a 21.6% net revenue interest in the Mound Point Offset prospect.

The operator is funding all of the costs attributable to McMoRan’s interests in four prospects, including the JB Mountain and Mound Point Offset prospects, and will own all of the program’s interests until the program’s aggregate production from the prospects totals 100 Bcfe attributable to the program’s net revenue interest, at which point 50% of the program’s interests would revert to McMoRan.

McMoRan also said that their production test on the Hurricane well deemed it non-commercial. However, the company said geologic data obtained from the well enhances the potential for the Hurricane Upthrown prospect which McMoRan plans to drill later this year.

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