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McMoRan Exploration (MMR)

Q3 2012 Earnings Call

October 19, 2012 10:00 am ET

Executives

Kathleen L. Quirk - Senior Vice President and Treasurer

Richard C. Adkerson - Co-Chairman

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

Analysts

Leon G. Cooperman - Omega Advisors, Inc.

Noel A. Parks - Ladenburg Thalmann & Co. Inc., Research Division

Duane Grubert - Susquehanna Financial Group, LLLP, Research Division

Eric B. Anderson - Hartford Financial Management, Inc.

Joan E. Lappin - Gramercy Capital Management Corp.

Leo P. Mariani - RBC Capital Markets, LLC, Research Division

Richard M. Tullis - Capital One Southcoast, Inc., Research Division

Brian L. Kuzma - Weiss Multi-Strategy Advisers, LLC

Presentation

Operator

Ladies and gentlemen, thank you for standing by. Welcome to the McMoran Exploration 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 L. Quirk

Thank you, and good morning. Welcome to the McMoran Exploration Third Quarter 2012 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 conference call. We have several slides to supplement our comments this morning, and we'll 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, 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, we'd like to remind everyone that today's press release and certain of our comments on the call include forward-looking statements. I'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-chairmen, Jim Bob Moffett and Richard Adkerson.

I'll start by briefly summarizing the financial results and then turn the call over to Richard and Jim Bob, who'll be reviewing our performance and outlook. As usual, after our remarks, we'll open up the call for questions.

Today, McMoran reported a net loss applicable to common stock of $64 million, $0.40 per share, for the third quarter of 2012 compared with a net loss of $9.4 million, $0.06 per share, for the third quarter of 2011. The third quarter 2012 results include noncash charges to exploration resulting from the write-down of leasehold of certain allocated carrying values totaling $37 million from the December 2010 property acquisition, a $6 million noncash loss on the debt exchange associated with the exchange of our 5 1/4% convertible senior notes and a $7.6 million charge to lease operating expenses for unsuccessful work over expenses during the quarter.

Our production during the third quarter 2012 averaged 134 million cubic feet of equivalents per day, net to McMoRan. That compared with our previous guidance of approximately 135 million cubic feet of equivalents per day. Our third quarter 2012 production was affected by downtime associated with Hurricane Isaac, which impacted Gulf of Mexico operations prior to making landfall on the coast of Louisiana in late August.

Our third quarter 2012 oil and gas revenues totaled $88 million. That compared to $134.5 million during the third quarter of 2011. The realized gas prices in the third quarter of 2012 averaged $3.12 per Mcf. That was lower than the year-ago quarter of $4.38 per Mcf, and our realized prices for oil and condensate averaged $103 per barrel in the third quarter of 2012 compared with $101 per barrel in the year-ago period.

Our earnings before interest, taxes and depreciation and exploration expenses, or EBITDAX, totaled $33 million in the third quarter of 2012, and our operating cash flows, which were net of $16.3 million of -- in working capital sources and $20.6 million of abandonment expenditures, totaled $12.1 million for the third quarter of 2012.

We funded capital expenditures totaling of $103 million during the third quarter of 2012 and ended the quarter with $557 million of debt, which included $257 million in convertible securities. We were successful in September of completing an exchange offer of our 5 1/4% notes. We extended the maturity by 1 year. The $68 million of notes, we extended the maturity by 1 year. And the terms of the new notes are identical to the terms of the existing notes except the new notes have a maturity date of October 2013.

We ended the quarter with $192 million in cash. Currently, we have 162 million common shares outstanding. And assuming conversion of our convertible securities, we would have approximately 224 million shares outstanding on a converted basis.

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

Richard C. Adkerson

Good morning, everyone. We're here today. We know there's a lot of focus on the well testing at Davy Jones, and we've got some positive news to report to you on our progress towards moving to get the well tested. But it's important that you see on Page 3 to put this in the context of our overall ultra-deep trend exploration effort, what Jim Bob has called in earlier conference calls our sub-salt franchise. It started with exploration concepts really that we began focusing on almost 12 years ago when we began our deep gas play. And then following our acquisition 5 years ago of Newfield and the access we had to the Blackbeard project, we have now extended our 3D database, getting more geological analysis to tie in these massive structures with production history onshore and into deepwater. We have positive drilling results now from 6 wells. With the granting of our leases from the recent lease sale, we've extended our industry-leading, ultra-deep acreage position and established the acreage around a whole series of very important prospects for us. We've invested heavily to deal with the specialty completion equipment and technologies that are necessary to allow us to produce discoveries from their ultra deep. So we want to give you reports on where we stand with Davy Jones and other projects. But the big picture is, we've got an overall effort now that has tremendous opportunity for our shareholders.

Page -- Slide 4 covers our third quarter's specific highlights. Operations at Davy Jones to flow test this well have progressed with an important way [ph]. We have 3 wells drilling currently in our ultra-deep program, 2 offshore and 1 onshore, which is the first of a series of efforts to extend this to the onshore where we have important -- really significant potential.

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