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McMoRan Exploration Co. (MMR)

Q4 2009 Earnings Call

January 19, 2010 10:00 am ET

Executives

Kathleen L. Quirk – Senior Vice President and Treasurer

James R. Moffatt – Co-Chairman

Richard C. Adkerson – Co-Chairman

Analysts

Nicholas Pope - Dahlman Rose & Co.

[Brian Hoosma] – Weiss Multi Strategy

Anne Cameron - J.P. Morgan

Neal Dingmann - Wunderlich Securities, Inc.

Eric Anderson - Hartford Financial Management Inc.

Joan Lapin - Gramercy Capital Management

Presentation

Operator

Ladies and gentlemen, thank you for standing by. Welcome to the McMoRan Exploration fourth quarter conference call. (Operator Instructions)

I would now like to turn the conference over to Miss Kathleen Quirk, Senior Vice President and Treasurer. Please go ahead ma’am.

Kathleen L. Quirk

Thank you. Good morning everyone. Welcome to the McMoRan Exploration fourth quarter 2009 conference call.

Our results were released earlier this morning and a copy of the press release is available on our website at McMoRan.com. Our call today is being broadcast live on the Internet and anyone may listen to the call by accessing our website homepage and clicking on the webcast link for the conference call. We also have several slides to supplement our comments this morning and will be referring to the slides during the call. They are also accessible using the webcast link at McMoRan.com.

In addition to analysts and investors, the financial press has been invited to listen to today’s call and a replay of the webcast will be available on our website later today.

Before we begin our comments I’d 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 start by briefly summarizing our financial results and then turn the call over to Richard and Jim Bob, who will review our recent performance and exploration update. As usual, after our remarks we’ll open the call for questions.

Today McMoRan reported a net loss applicable to common stock of $9.5 million or $0.11 per share for the fourth quarter of 2009. This compares with a net loss applicable to common stock of $314.6 million or $4.46 per share in the fourth quarter of 2008. Our fourth quarter results from continuing operations totaled a loss of $4.7 million including $10.5 million in impairment charges to reduce certain fields to their net carrying value to fair value and $5.9 million in gains for insurance proceeds related to the 2008 hurricane events.

Our fourth quarter 2009 production averaged 209 million cubic feet of natural gas equivalents per day net to McMoRan. That compared to 162 million cubic feet of natural gas equivalents per day in the fourth quarter of 2008. Our production in the fourth quarter of 2009 was slightly below our publicly reported estimates of 215 million a day because of delays in the timing of re-completions originally planned in the fourth quarter that are now expected to be completed in 2010. Our full year 2009 average daily production averaged 202 million a day net to McMoRan.

Our oil and gas revenues for the fourth quarter totaled $128 million as compared to $111.8 million during the fourth quarter of 2008. Our realized gas prices in the fourth quarter of 2009 of $4.70 per Mcf were lower than the year ago period’s average of $6.77 per Mcf. Our realized prices for oil and condensate averaged $75.15 per barrel in the fourth quarter 2009. These were higher than the year ago average of $53.84 per barrel. Our realizations do not take into account gains or loss on derivative contracts. During the fourth quarter of 2009 we financially settled our swap positions of 1.1 bcf of natural gas maturing in the quarter and 45,000 barrels of oil at average prices of $8.97 per Mcf and $71.16 per barrel respectively. We received $4.9 million in cash for these positions and paid just under $200,000 for the oil positions. We also financially settled 0.7 bcf of natural gas put options with a strike price of $6 per Mcf and received $1.5 million in cash for these positions.

Our earnings before interest, taxes, depreciation, depletion and exploration expense totaled $83 million in the fourth quarter and $267 million for the year, and our operating cash flows for the 12 months totaled $131 million, including $45.7 million in the fourth quarter. Our capital expenditures for 2009 totaled $138 million, including just under $25 million in the fourth quarter, and we ended the quarter with cash and cash equivalents of $241 million and no borrowings under our bank credit facility. Our debt at the end of the year totaled $375 million and that includes $75 million in convertible senior notes.

Shares outstanding at the end of the quarter approximated 86 million. Assuming conversion of our remaining 6.75 mandatory convertible preferred stock, our 8% senior convertible preferred stock and our convertible senior debt, we would have approximately 116 million shares outstanding. We also updated our reserves, which Richard will talk more about. And now I’d like to turn the call over to Richard who will provide additional details on our results.

Richard C. Adkerson

Good morning everyone. As we typically do in these calls, I’m going to give a brief overview of the highlights of our results and Jim Bob will be on the call to talk more about the details of our exploration program and our outlook and to answer questions.

Of course this earnings release is highlighted by our significant discovery at Davy Jones which is an ultra-deep project that took some time to get logged but finally got the resistivity logged in January and indicated that this is a major discovery really validates the ultra-deep geological philosophy that we’ve been pursuing, and is a real highlight for our company now and for the future. We’ve also in our deep gas exploration program where we’ve been following this deeper pool concept of drilling wells between 15,000 to 25,000 feet above salt, we’ve had positive drilling results at Blueberry Hill which we will review. Our most significant discovery in that program has been the Flatrock discovery and now we’ve successfully ramped up production from the six productive wells there and they’re producing at a gross rate of over 300 million cubic feet a day.

We’ve also successfully managed the other part of our business and that is our production from our traditional properties as well as the properties we acquired from Newfield in 2007. We’ve managed those operations and our spending to be responsive to the lower natural gas prices during 2008. We enhanced our liquidity position by our June equity offerings. We’ve also collected $25 million in insurance proceeds from the storms which have, over recent years, been delaying our production and we’ll continue to collect additional insurance proceeds as we incur costs for our damaged equipment.

Slide 4 points to Davy Jones, which is a major discovery. It has 135 feet of net pay indicated on logs in four zones in the Wilcox section of the Eocene and Paleocene. This is the sand structure that we were targeting, of course, which has been prolific onshore as well as in the deepwater, and this ties it in to having the ability to access productive sands from the shallow waters of the Gulf of Mexico. Very high quality sands which were of exceptional quality and really encouraging in terms of what this shows for this prospects and our future exploration activities. We will have to flow test this well to confirm that ultimate flow rates from these zones and that will require some time to get the equipment in and have the well completed to flow tests, but this is very encouraging news for our objective in our exploration program and for what we can do in the future.

It’s located as shown on Page 5 in 20 feet of water. We have a 32.7% working interest. You’ll recall that we accessed this well by re-entering a previous well bore, [spudded] in mid-year 2009, have drilled it to just over 28,600 feet now and we have an indicated targeted depth of 29,000 feet to test for the potential of additional Wilcox sands below those already identified by the log. And that will determine where we go in the future.

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