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McMoRan Exploration Co. (MMR)

Q3 2009 Earnings Call

October 19, 2009 10:00 am ET

Executives

Kathleen Quirk - Senior Vice President, Treasurer

Richard C. Adkerson - Co-Chairman

James R. Moffatt - Co-Chairman

Analysts

Joseph Allman - J.P. Morgan

Nicholas Pope - Dahlman Rose

Noel Parks - Ladenburg Thalmann

Eric Anderson - Hartford Financial

Duane Grubert - CRT Capital

Richard Tullis - Capital One South Co.

Sean Laaman - J.P. Morgan

Presentation

Operator

Welcome to the McMoRan Exploration third quarter conference call. (Operator Instructions) I would now like to turn the conference over to Ms. Kathleen Quirk, Senior Vice President and Treasurer.

Kathleen Quirk

Good morning. Welcome to McMoRan Exploration's third quarter 2009 conference call. Our results were released earlier this morning and a copy of the press release is available on our Web site at mcmoran.com.

Our conference call today is being broadcast live on the Internet and anyone may listen to the call by accessing our Web site home page and clicking on the webcast link for the conference call. We also have several slides to supplement our comments this morning, and we will be referring to the slides during the call. They are accessible using the Web cast link at mcmoran.com. In addition to analysts and investors, the financial press has also been invited to listen to today's call, and a replay of the Web cast will be available on our Web site later today.

Before we begin our comments, I would like to remind everyone that today's press release and certain of our comments on this call include forward-looking statements. Please refer to the cautionary language included in our press release and presentation materials and to the risk factors described in our SEC filings.

On the call today are McMoRan's Co-Chairmen, Jim Bob Moffatt and Richard Adkerson. I'll briefly summarize our financial results, and then turn the call over to Richard who will be referring to the presentation on our Web site.

Today McMoRan reported a net loss applicable to common stock of $59.1 million, $0.60 per share, for the third quarter of 2009 compared with a net loss applicable to common stock of $6.1 million, or $0.10 per share, for the third quarter of 2008.

Our third quarter results from continuing operations totaled a loss of $46.0 million, which included $7.3 million in charges to exploration expense for non-production exploration well charges, primarily related to the Sherwood exploration well, which were determined to be non-commercial in the third quarter, an impairment charge of $11.2 million for certain fields to reduce their net carrying value to fair value.

Our third quarter production averaged 215 million cubic feet of natural gas equivalents per day [MMcfe/d] net to McMoRan and our third quarter 2009 oil and gas revenues totaled $106.0 million. That was essentially lower than last year's revenues of $295.0 million because of reduced prices for natural gas and oil.

I realize gas prices in the third quarter were $3.39 per Mcf [thousand cubic feet] were significantly than last year's average of $10.67 per Mcf and I realized oil and condensate prices averaged $66.81 per barrel. That was about 46% lower than the year ago's average of $124.00 per barrel.

Our earnings before interest, taxes, depreciation, and exploration expense, or EBITDAX, totaled $57.0 million in the third quarter of 2009. Year-to-date our EBITDAX was $184.0 million.

Operating cash flows for the third quarter totaled $31.9 million, bringing our year-to-date operating cash flows to $85.5 million.

Capital expenditures during the quarter totaled $29.0 million and for the nine-month period totaled $113.4 million.

We ended the quarter with no borrowings under our credit facility and unrestricted cash of $225.0 million. This was approximately the same level as what we had at the end of June.

We have about 86.0 million shares of common stock outstanding and 111.0 million assuming conversion of our newly-issued 8% convertible preferred perpetual stock and our outstanding 6.75% mandatory convertible preferred stock.

Now, I would like to turn the call over to Richard, who will be referring to the slide presentation materials.

Richard C. Adkerson

We will start with Slide 3 that has the third quarter highlights. Our production for the quarter increased as we were completing the remedial activities. At Flatrock, by far our most significant well where we have six productive wells, two of those wells will continue to have remedial work during the fourth quarter, but we recently added a well that's a very strong producer there.

We also, during the quarter, signed an exploration agreement for ultra-deep activities with W. A. Moncrief, Jr. Those of you who follow the oil and gas industry know that "Tex" Moncrief is a very well-known explorationist and investor and we're pleased to have him as a partner in our programs.

Currently we are drilling two important wells that we will give you the progress on today. Our Blueberry Hill side track well at Louisiana State Lease 340, and the Davy Jones ultra-deep prospect at South Marsh Island's 230. And Jim Bob will be talking about those in a moment.

Slide 4 includes the details of our financial results that Kathleen just reviewed with you.

On Slide 5, as I mentioned, our production in our Flatrock field was up 40% in the third quarter over the second quarter. We have, at this point, brought most of our wells that were affected by the 2008 hurricanes back on stream. We're still about 10.0 million a day short but most of those activities have been completed.

At Flatrock during the third quarter the field had gross production at average 280 MMcfe/d day, 52 MMcfe/d day net to our company. The Number 3 well and Number 4 well, which aggregate were significant producers during the third quarter, are currently shut in and will be brought back on stream before year end with remedial activities to be done.

The production that will be lost during the fourth quarter for that is essentially being offset by the Number 5 well, which was recompleted in the primary Rob-L Sand and began production in September. And so our Flatrock production during the fourth quarter is expected to be essentially flat with that in the third quarter, as is our total production for our company. We are estimating to approximately 215 MMcfe/d a day for the fourth quarter.

Our producing properties are shown on the map on Slide 6 and so you can see the spread of properties that we have on the Shelf of the Gulf of Mexico. You see where South Marsh Island is located just offshore Louisiana and producing at a rate of roughly 280 MMcfe/d a day in the fourth quarter.

Our exploration activities are summarized on Slide 7. The Sherwood well was determined to be non-productive during the quarter. We have seen positive drilling results at the Blueberry Hill Sidetrack. There is a lot to be learned from our drilling in this area and lots of opportunities that we're seeing in the drilling to date that we will be pursuing as we go forward. In the drilling that's gone on in this well, we have seen a 190 foot vertical column of hydrocarbons, really significant fixed sands, and will continue to determine what's the best way to pursue the production of the hydrocarbons that we've seen and the follow-on exploitation development opportunities there.

We are planning to initiate a sidetrack of a prospect at South Marsh Island Block 217, which is just south of the Flatrock field. The Hurricane Deep prospect, we are expecting to begin drilling this well in the fourth quarter and we are going to be targeting very thick gyro sands that we saw in the drilling of the initial well on this prospect, which we will be re-entering and sidetracking.

We re-entered an existing well bore at the end of June on South Marsh Island Rock 230 to test our Davy Jones prospect. We are currently drilling below 25,000 feet and expect to drill to a total depth of 28,000 feet. This is a very interesting well to test our geological analysis of drilling below the salt well to test older than Miocene H sands which have been seen to productive in the deep-water drilling that's been done to date.

At the South Timbalier Block 168 well, the Blackbeard West well, we are going to use the results that we see from the Davy Jones, from a geological analysis standpoint, to give us additional information in deciding where we're going next with this well. The options include deepening the existing well, drilling offset wells, or completing existing zones, but it has significant opportunities from what we've seen to date and what our analysis about this ultra-deep water play is showing us. All of this is leading to what we believe will be other significant opportunities for us.

Read the rest of this transcript for free on seekingalpha.com