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McMoRan Exploration (MMR)

Q1 2011 Earnings Call

April 18, 2011 10:00 am ET

Executives

Kathleen Quirk - Senior Vice President and Treasurer

James Moffett - Co-Chairman, Chief Executive Officer and President

Richard Adkerson - Co-Chairman

Analysts

Joan Lappin - Gramercy Capital

Eric Anderson - Analyst

Joseph Allman - JP Morgan Chase & Co

Duane Grubert - Susquehanna Financial Group, LLLP

Noel Parks - Ladenburg Thalmann & Co. Inc.

Presentation

Operator

Ladies and gentlemen, thank you for standing by. Welcome to the McMoRan Exploration First Quarter 2011 Conference Call. [Operator Instructions] I would now like to turn the conference over to Ms. Kathleen Quirk, Senior Vice President and Treasurer. Please go ahead, ma'am.

Kathleen Quirk

Thank you, and welcome to the McMoRan Exploration First Quarter 2011 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 home page and clicking on the webcast link for the conference call. As usual, we have several slides to supplement our comments this morning and will be referring to the slides during the call. The slides are also accessible using the webcast link on mcmoran.com. In addition to analysts and investors, 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 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. We'd like to refer everyone 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-Chairman, Jim Bob Moffett and Richard Adkerson. I'll start by briefly summarizing our financial results and then turn the call over to Richard, who will be reviewing our recent performance and outlook, and then Jim Bob will be providing an exploration update. After our remarks, we'll open up the call for questions.

Today, McMoRan reported net loss applicable to common stock of $27.6 million, $0.17 per share, for the first quarter of 2011 compared with a net loss applicable to common stock of $66.2 million, or $0.74 per share, for the first quarter of 2010. Our first quarter 2011 results included a $21 million impairment charge to reduce certain fields' net carrying value to fair value and $16.4 million in insurance proceeds related to losses -- recovery from losses incurred from the September 2008 hurricane.

Our production in the first quarter averaged 195 million cubic feet of equivalents per day net to McMoRan. That compared with 190 million cubic feet of equivalents a day in the first quarter of 2010. Our production in the first quarter of 2011 was above our reported estimates in January of 175 million cubic feet of equivalents a day because of improved performance at certain fields and lower-than-expected downtime for maintenance.

Our revenues in the first quarter totaled $133.7 million compared to $128.8 million during the first quarter of 2010. Our realized gas prices in the first quarter of 2011 were $4.54 per Mcf compared with the year-ago average of $5.53 per Mcf. And our realized prices for oil averaged $96.76 per barrel in the first quarter of 2011 compared with just over $76 per barrel in the year-ago period.

Our earnings before interest, taxes, depreciation and exploration expense totaled $78.7 million in the first quarter of 2011. And our operating cash flows, which were net of working capital uses of $23 million and net of $22 million in abandonment expenditures totaled $33.5 million in the first quarter of 2011.

Our capital expenditures totaled $96.5 million in the first quarter of 2011. We ended the quarter with total debt of $560 million. That includes $260 million of convertible debt securities. We have $75 million in convertible senior notes due in October 2011 with a conversion price of $16.58 per share and $185.8 million in convertible senior notes due in December 2017 with a conversion price of $16 per share.

We ended the quarter with $837 million in cash. And assuming conversion of McMoRan's remaining outstanding 8% perpetual preferred stock and our convertible debt securities and the convertible perpetual preferred stock, we have approximately 221 million common shares outstanding on a fully converted basis.

I'd now like to turn the call over to Richard, who will be referring to the slide materials on our website.

Richard Adkerson

Good morning, everyone. We have recently distributed our annual report to shareholders and on Slide 3, we have a picture of the cover of that report and the title of it's, "Buried Treasures on the Shelf." For the past 10-plus years, our company has been focused in drilling deep natural gas wells in the shallow waters of the Gulf of Mexico, originally drilling what we call our deep gas play in the 15,000- to 25,000-foot range and for the past 3-plus years, we've been drilling deeper below salt beginning with the Blackbeard project to test ultra-deep prospects. The most significant of those is our Davy Jones project, which is our prime example of a buried treasure. And we're going to give you an update today about where we stand with our programs.

Kathleen reviewed the financial results, these are summarized for you on Slide 4. This quarter, we had a successful production test of one of our deep gas projects, the Laphroaig No. 2 well, in April. Actually, the production test was done in April. We had a gross flow rate of 54 million a day with no water with flowing tubing pressure right at 10,000 PSIs. The results from this flow test will be used to determine the optimal flow rate for the well, and we do expect to begin production in the second quarter of 2011. We have a net revenue interest of just below 30% in this well.

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