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McMoRan Exploration Co. (MMR)

Q1 2010 Earnings Call

April 19, 2010 10:00 am ET

Executives

Kathleen Quirk – Senior Vice President, Treasurer.

Richard Adkerson – Co-Chairman

James Moffett – Co-Chairman

Analysts

Joseph Allman – J.P. Morgan

Nicholas Pope – Dahlman Rose

Neal Dingmann – Wunderlich Securities

Noel Parks – Ladenburg Thalmann

Eric Anderson – Hartford Financial

Richard Tullis – Capital One Southcoast

[Dale Alexander – Darfil Associates]

Joan Lapin – Gramercy Capital Management

Presentation

Operator

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

Kathleen Quirk

Good morning and welcome to the McMoRan Exploration’s first quarter 2010 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 conference call today is being broadcast live on the internet and anyone may listen to the call by accessing our website home page and clicking on the webcast link for the call. We also have several slides to supplement our comments this morning and they are also available using the webcast link on 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 webcast will be available on our website later today.

Before we begin today’s comments, we’d like to remind everyone that today’s press release and certain of our comments on the 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 with me are McMoRan’s Co-Chairman Jim Bob Moffett and Richard Adkerson. I’ll start by briefly summarizing our first quarter financial results and then turn the call over to Richard who will review our recent performance and outlook using the slide materials on our website. After our formal remarks, we’ll open the call for questions.

Today, McMoRan reported net loss applicable to common stock of $66.2 million, $0.74 per share for the first quarter of 2010, which compared with a net loss applicable to common stock of $63.2 million or $0.90 per share for the first quarter of 2009.

Our results in the first quarter of 2010 included a number of items; $57 million in impairment charges recorded to DD&A to reduce the carrying value of certain fields, the most significant of which was our investment in Blueberry Hill where the impairment totaled $40 million. This reflected the completion of an impairment assessment following the decline in prices of natural gas during the first quarter.

We also recorded $4.6 million to exploration expense associated with the cost of Blueberry Hill offset appraisal well incurred through March 31, 2010 below 19,000 feet and $8.9 million in charges associated with our privately negotiated transactions to induce conversion of a portion of our 8% convertible perpetual preferred stock. Our dividend savings associated with the preferred stock inducements total $3.8 million.

Our production in the first quarter averaged 190 million cubic feet of equivalents per day at McMoRan. That compared with 198 million a day in the first quarter of 2009. Our production in the first quarter of 2010 was in line with our revised estimates provided in March 2010, but slightly below publicly reported estimates of 200 million a day in January because of unplanned downtime in certain fields and performance related issues.

Our oil and gas revenues during the first quarter totaled $128.8 million. That compares to $95 million during the first quarter of 2009. Realized prices in the first quarter of 2010 of $5.53 per mfc were higher than the year ago period’s average of $4.88. Realized prices for oil in [time and sap] averaged $76.34. They were significantly higher than last year’s first quarter of just over $40.00.

Our earnings before interest, taxes, depreciation, depletion and exploration expense totaled $84.7 million of 2010 and our operating cash flows totaled $80.3 million, which included $31 million from working capital sources.

Our capital expenditures during the first quarter totaled $40.8 million and we ended the quarter with cash of $268 million and no borrowings under our bank credit facility. Our debt at the end of March totaled $375 million and that includes $75 million in convertible senior notes.

Shares outstanding at the end of the period approximately 93 million and assuming conversion of our remaining mandatory convertible preferred stock, our 8% convertible preferred stock and the 5.75% convertible senior notes, we have approximately 114 million shares outstanding.

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

Richard Adkerson

Good morning, everyone and turning to the slides we recently published our annual report to shareholders. We have a copy of the cover of that annual report on Page 3, and in it, we talk about our strategy of creating value for our shareholders through focus on the shallow waters of the Gulf of Mexico and on the Gulf Coast for deep seated horizons of prospects in areas of where there have been very limited drilling done previously.

Our exploration targets are high potential targets in the area we’ve been working since 2000 drilling from 15,000 to 25,000 feet and now with our recent drilling at Blackbeard and Davy Jones to test the really exciting and new horizons in the ultra deep area.

Our company, led by Jim Bob and his exploration team is uniquely qualified to continue our leadership in the industry of pursuing these new horizons and this whole new frontier on the Gulf of Mexico.

The first quarter was an exciting quarter for our company as we reported the discovery at Davy Jones, and this is really significant and will be driving our exploration activities going forward. Davy Jones is located south Marsh Island block 230. It was drilled to a total depth of 29,000 feet. We logged 200 feet of net play and multiple Eocene, Paleocene sands in the well we have now. During the month of March, set up production liner.

The well is temporarily abandoned as we are working diligently to as quickly as possible get the equipment to complete this well in place so that we can perform a production test and determine what sort of flow rates we’ll be able to achieve with this discovery.

In our deep gas activities, we reported on both Hurricane Deep Sidetrack in the Blueberry Hill offset appraisal well. At the Hurricane Deep Sidetrack, South Marsh Island block 217, we were targeting drilling this well to just above 22,000 feet. The operator encountered an underground flow in the well at approximately 18,450 feet in February. We’re now developing plans to re-drill this well and which our interest was covered by insurance to test this exploration target.

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