McMoRan Exploration Co.’s quarterly natural gas and oil production rose significantly compared with a year ago, but the New Orleans-based producer reported a net loss because of exploration expenses and heavy start-up costs associated with its planned Main Pass Energy Hub (MPEH) liquefied natural gas (LNG) project in the Gulf of Mexico (GOM).
The producer last week reported a net loss of $18.1 million (minus 64 cents/share) in 3Q2006, compared with net income of $6.7 million (21 cents) in 3Q2005. The loss from its continuing operations totaled $15.3 million, which included $3.2 million of start-up costs associated with MPEH and $22.5 million of exploration expense. In 3Q2005, McMoRan’s net income from continuing operations totaled $8.8 million, including $2.7 million of MPEH start-up costs and $5.8 million of exploration expense.
McMoRan’s oil and gas revenues in the quarter totaled $57.8 million, compared with $41.4 million in 3Q2005. Sales volumes totaled 4.4 Bcf of gas and 449,500 bbl of oil and condensate, including 195,800 bbl from Main Pass Block 299, compared with 2.0 Bcf of gas and 366,900 bbl of oil and condensate a year ago. Comparable average realizations for gas were $6.51/Mcf in the quarter, compared with $10.31/Mcf in 3Q2005; for oil and condensate, including the GOM Main Pass Block 299, McMoRan received an average of $65.11/bbl, up from $57.17 a year earlier.
Quarterly production averaged 75 MMcfe/d net to McMoRan, including oil production of 1,840 bbls/d (11 MMcfe/d) from Main Pass Block 299, compared with 41 MMcfe/d, including oil production of 1,800 bbls/d (11 MMcfe/d) from the Main Pass Block 299 in 3Q2005. McMoRan initiated production from three wells in 3Q2006. including Dawson Deep, Pecos and King of the Hill.
However, production was adversely impacted by the slower-than-expected start-up of Liberty Canal and West Cameron Block 43 No. 3, which have been moved to 4Q2006. Output also was impacted by an eight-day shut-in of Main Pass Block 299 for repairs and lower-than-expected production from the Hurricane No. 2 well.
In a statement, co-chairmen James R. Moffett and Richard C. Adkerson said McMoRan is continuing “to pursue large Deep Miocene exploration targets in the shallow waters of the Gulf of Mexico and onshore in South Louisiana with the potential to add meaningful value for shareholders. We are encouraged by the results to date, which have allowed us to expand our production significantly and establish a leadership position in the Deep Miocene trend. We also are advancing our Main Pass Energy Hub LNG project to create values from the attractive commercial potential of this project.”
In September, the U.S. Coast Guard and the Maritime Administration (MARAD) published an Environmental Assessment (EA) and Draft Finding of No Significant Impact for McMoRan’s MPEH LNG license application (see NGI, Oct. 2). McMoRan also received a letter from Louisiana’s Department of Natural Resources that indicated the proposed facility is consistent with the Louisiana Coastal Resources Program.
Public hearings on MPEH were held in early October, and comments on the application, including from the governors of adjacent coastal states (Louisiana, Mississippi and Alabama), are required by Nov. 20. A record of decision is expected to be issued by Jan. 3, and “based on feedback to date, McMoRan expects a positive record of decision.”
The MPEH terminal, to be located 16 miles off the Louisiana coast, would be capable of regasifying LNG at a rate of 1 Bcf/d. McMoRan said it is continuing discussions with potential LNG suppliers as well as gas marketers and consumers in the United States to develop commercial arrangements for the facilities.
McMoRan also is “considering investments” to develop substantial cavern storage for a pipeline header system that would allow deliveries into U.S. gas markets. Current plans for the MPEH include 28 Bcf of initial cavern storage capacity and aggregate peak deliverability from the proposed terminal, including deliveries from storage, of up to 2.5 Bcf/d. McMoRan has received approval from the Federal Energy Regulatory Commission to bring gas onshore using its proposed 36-inch pipeline into Coden, AL.
McMoRan expects to begin drilling at least two exploratory prospects in the GOM in 4Q2006, including Hurricane Deep at South Marsh Island Block 217 and Marlin at Grand Isle Block 18. McMoRan currently has rights to 350,000 gross acres and is also actively pursuing opportunities to acquire additional acreage and prospects through farm-in or other arrangements. The spending commitments under McMoRan’s exploration venture with an unnamed private partner have been met, and McMoRan is completing arrangements with an unnamed industry partner to participate in some near-term prospects.
McMoRan’s share of 4Q2006 production is expected to average 75-80 MMcfe/d, including production from three additional wells ramping up, including Hurricane No. 3, West Cameron Block 43 No. 3 and Liberty Canal. McMoRan also plans to recomplete the Deep Tern C-1 and C-2 and the King Kong No. 2 wells in the quarter. The discovery well at Point Chevreuil in St. Mary’s Parish, LA, is expected to commence production in early 2007. Following start-up of these wells and planned activities from existing production, McMoRan expects its share of total production to reach 90 MMcfe/d.
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