Incremental acquisitions in the Gulf of Mexico (GOM) weren’t enough to lift McMoRan Exploration Co.’s earnings or production in 2010, but there are signs of a turnaround in 2011, the New Orleans-based operator said last week.
Capital spending is being poured into some of McMoRan’s shallow water discoveries in the GOM, but with no production as of yet, the cash outlays continue to be reflected in the balance sheet.
McMoRan reported a 4Q2010 net loss of $77 million (minus 75 cents/share), versus losses in 4Q2009 of $9.5 million (minus 11 cents). The company has reported eight straight losing quarters; full-year 2010 losses hit $190.1 million (minus $2.00/share), versus 2009’s net losses of $225.3 million (minus $2.87).
“We look forward to a very active year of exploration and development as we continue to define the potential of our prospects on the GOM Shelf,” Co-Chairmen James R. Moffett and Richard Adkerson said in a joint statement. “We are currently drilling high potential exploration wells and progressing efforts to establish initial production from our Davy Jones ultra-deep discovery. The financing completed during 2010 will enable us to build on our success as we work to deliver significant value for shareholders.”
The top executives continued to stress the potential of their deepwater prospects, as they did last October during the company’s 3Q2010 earnings conference call (see NGI, Oct. 25, 2010). The Davy Jones prospect, which covers about 20,000 net acres underwater, “is capable of producing at least 100 MMcf/d,” Moffett then told financial analysts. When asked what the well might be capable of producing over its lifetime, he said the company was modeling 200 Bcf.
McMoRan’s management team last week pointed to some of the same reasons for their optimism. Among other things:
Blackbeard East “is the first hydrocarbon-bearing Frio sand encountered either on the GOM Shelf or in the deepwater offshore Louisiana,” McMoRan’s management team said. “McMoRan is considering down dip drilling opportunities on the flanks of the structure to evaluate this section further. Logging results from the Miocene indicate 178 net feet of hydrocarbons. A 25,000 foot offset appraisal well is planned for 2011 to evaluate these zones further.”
In addition, the producer began drilling the Lafitte ultradeep exploratory well on Oct. 3 and is drilling below 16,100 feet toward a proposed total depth of 29,950 feet. McMoRan also has several shallow water and deep gas exploration activities under way at Laphroaig No. 2, Platte and Hurricane Deep.
McMoRan’s production in the final three months of 2010 averaged 144 MMcfe/d net; full-year output averaged 161 MMcfe/d net. Average daily production in 2010 “is expected to approximate 160 MMcfe/d net to McMoRan, including 175 MMcfe/d in the first quarter of 2011.” Year-end 2010 proved reserves were estimated at 276.1 Bcfe.
The company’s operating cash flow, net of $44.3 million in abandonment costs and $24.6 million in working capital requirements, totaled a minus $21.5 million in 4Q2010. For the year operating cash flow was $98.2 million. Capital expenditures totaled $57 million in the final quarter; the company spent $217.3 million for the year. Cash totaled $905.7 million at year’s end.
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