McMoRan Exploration Co. (NYSE: MMR):
HIGHLIGHTS
- Completed agreements to acquire
Plains Exploration & Production Company’s (NYSE: PXP) shallow
water Gulf of Mexico (GOM) shelf assets and to issue $900 million
in new equity-linked securities to fund future capital expenditures
associated with McMoRan’s expanded asset base. Closing of the
acquisition and financings is expected by year-end 2010.
- Exploration & Development
Activities:
- Completion and flow test of the Davy
Jones #1 discovery well expected to commence in the third quarter
of 2011.
- Davy Jones offset appraisal well
commenced drilling on April 7, 2010 and is currently drilling below
19,900 feet towards a proposed total depth of 29,950 feet.
- Blackbeard East ultra-deep
exploratory well commenced drilling on March 8, 2010 and is
currently drilling below 26,000 feet towards a proposed total depth
of 29,950 feet. Analysis of the information obtained to date
indicates hydrocarbons in quality reservoir rocks with good
porosity and permeability in the Upper and Middle Miocene below the
salt weld.
- Lafitte ultra-deep exploratory well
commenced drilling on October 3, 2010 and is currently drilling
below 3,300 feet towards a proposed total depth of 29,950
feet.
- Wireline logs at Blueberry Hill
indicated that the deep gas well encountered 105 net feet of
hydrocarbon bearing sands with exceptional porosity in the Miocene.
Completion activities are under way with first production expected
in the first quarter of 2011.
- Near-term drilling includes three
additional exploratory wells at the Boudin, Hurricane Deep and
Platte prospects.
- Third-quarter 2010 production
averaged 146 Million cubic feet of natural gas equivalents per day
(MMcfe/d) net to McMoRan, compared with 215 MMcfe/d in the third
quarter of 2009. Average daily production for 2010 is expected to
approximate 160 MMcfe/d net to McMoRan, including 140 MMcfe/d in
the fourth quarter of 2010.
- Operating cash flows totaled $28.2
million for the third quarter of 2010 and $119.7 million for the
nine months ended September 30, 2010.
- Capital expenditures totaled $58.8
million in the third quarter of 2010 and $160.3 million for the
nine months ended September 30, 2010. McMoRan expects capital
expenditures to approximate $220 million for the year.
- Cash at September 30, 2010 totaled
$180.2 million.
McMoRan Exploration Co. (NYSE: MMR) today reported a net loss
applicable to common stock of $25.3 million, $0.26 per share, for
the third quarter of 2010 compared with a net loss of $51.9
million, $0.60 per share, for the third quarter of 2009.
James R. Moffett and Richard Adkerson, McMoRan’s Co-Chairmen,
said, “This is an exciting time for McMoRan. Our active
drilling and development program and the success of our recent
activities provides confidence as we continue to test the multi-Tcf
potential of our shallow water exploration targets and initiate
production from our discoveries. The information from Blackbeard
East continues to confirm that quality reservoir rocks with good
porosity and permeability exists below the salt weld on the Shelf
of the Gulf of Mexico. The data also confirms that there
will be opportunities below the salt weld to develop production
using conventional equipment and technologies, which enhances the
economics of McMoRan’s high-impact ultra-deep prospect
inventory. We look forward to advancing our in-progress
wells as we continue to build our industry-leading ultra-deep data
base in pursuit of this new frontier. Our recently announced
transaction with PXP and related financings provide the basis for a
multi-year high impact drilling and development program to enable
us to build significant values for shareholders.”
SUMMARY FINANCIAL TABLE*
Third Quarter Nine Months
2010 2009 2010
2009 (In thousands,
except per share amounts) Revenues $ 94,840 $ 109,535
$ 335,369 $ 303,463 Operating loss (10,927 ) (35,514 )
(57,397 ) (171,911 ) Loss from continuing operations (19,545 )
(45,969 ) (86,316 ) (200,168 ) Loss from discontinued operations
(1,184 ) (1,575 ) (4,260 ) (5,692 ) Net loss applicable to common
stock(a,b) (25,253 ) (51,932 ) (113,159 ) (215,785 )
Diluted net loss per
share:
Continuing operations $ (0.25 ) $ (0.58 ) $ (1.17 ) $ (2.76 )
Discontinued operations
(0.01 )
(0.02 ) (0.05 )
(0.07 ) Applicable to common stock $
(0.26 ) $ (0.60 ) $ (1.22 ) $ (2.83 ) Diluted average shares
outstanding 95,469 86,038 92,789 76,152 Operating cash flows(c) $
28,172 $ 31,926 $ 119,705 $ 85,458 EBITDAX(d) $ 40,352 $ 57,142 $
184,092 $ 183,976 Capital expenditures $ 58,823
$ 29,044 $ 160,259 $
113,375 * If any in-progress well or unproved
property is determined to be non-productive or no longer meets the
capitalization requirements under applicable accounting rules after
the date of this release but prior to the filing of McMoRan’s
September 30, 2010 Form 10-Q, the related costs incurred through
September 30, 2010 would be charged to expense in McMoRan’s
third-quarter 2010 financial statements. MMR’s investment in its
seven in-progress or unproved wells totaled $167.6 million at
September 30, 2010, including $63.1 million associated with the
Davy Jones discovery and offset appraisal wells. a. Notable
items impacting the financial results for the 2010 and 2009 periods
are included in the following table:
Third
Quarter Nine Months 2010 2009
2010 2009 (In thousands) Impairment charges(1)
$ (11,322 ) $ (11,224 ) $ (82,024 ) $ (64,769 ) Non-productive
exploration well charges (51 ) (7,338 ) (7,522 ) (61,707 ) Gain on
oil and gas derivative contracts(2) 942 738 4,210 16,624 Insurance
proceeds(3) 5,584 - 14,755 18,742 Charges for inducement of
preferred stock(4) (1,382 ) - (12,150 ) -
(1) Reduction of certain
fields’ net carrying value to fair value based on period-end
pricing and cost assumptions and estimated remaining reserves.
(2) See details of gains on oil and gas derivative contracts
on page I (d). (3) Partial payments for insured losses
related to the September 2008 hurricanes in the GOM. (4) See
details on induced conversions of preferred stock on page I (g).
b. After preferred dividends. c. Includes working
capital sources (uses) of $26.5 million in third-quarter 2010, $7.1
million in third-quarter 2009, $46.8 million in the first nine
months of 2010 and $(2.2) million in the first nine months of 2009.
d. See reconciliation of EBITDAX to net loss applicable to
common stock on page II.
PENDING ACQUISITION OF PXP’s SHALLOW WATER GOM ASSETS &
RELATED FINANCING
On September 20, 2010, McMoRan announced an agreement to acquire
PXP’s shallow water GOM shelf assets for a combination of stock and
cash. Under the terms of the transaction, McMoRan will issue 51
million shares of McMoRan common stock and pay $75 million in cash
to PXP to acquire all of PXP’s interests and exploration rights in
the shallow waters of the shelf of the GOM.
The transaction will increase McMoRan’s scale of operations on
the GOM shelf, consolidate its ownership in core focus areas,
expand its participation in future production from its deep gas and
ultra-deep exploration and development programs and increase
current reserves and production. In addition, McMoRan will continue
to benefit from its positive relationship with PXP through PXP’s
significant shareholding position in McMoRan.
The closing of the acquisition is subject to McMoRan shareholder
approval of the issuance of common stock to PXP, as required by New
York Stock Exchange (NYSE) rules, the completion of financing
transactions, receipt of regulatory approvals and other customary
closing conditions. Early termination of the waiting period under
the Hart Scott Rodino Act was granted in mid October. Preliminary
proxy materials related to the McMoRan shareholder meeting were
filed with the Securities and Exchange Commission (SEC) on October
5, 2010. McMoRan expects to hold the shareholder meeting and close
the acquisition by year-end 2010.
McMoRan also announced that it will privately issue $900 million
in equity-linked securities to fund future capital expenditures
associated with McMoRan’s expanded asset base and for general
corporate purposes. The financing includes $400 million in
investments from institutional investors and $500 million from
Freeport-McMoRan Copper & Gold Inc. (NYSE: FCX).
McMoRan currently has approximately 95.5 million shares of
common stock outstanding. Assuming conversion of McMoRan’s
remaining outstanding 8% Convertible Perpetual Preferred Stock,
5.25% Convertible Debt and 6 3/4% Mandatory Convertible Preferred
Stock, McMoRan would have approximately 114 million common shares
outstanding. Including the effects of the PXP transaction and the
private placement of equity and debt securities on a pro forma
basis, McMoRan would have approximately 221 million common shares
outstanding on a fully converted basis.
PRODUCTION AND DEVELOPMENT ACTIVITIES
Third-quarter 2010 production averaged 146 MMcfe/d net to
McMoRan, compared with 215 MMcfe/d in the third quarter of 2009.
Production is expected to average approximately 140 MMcfe/d in the
fourth quarter of 2010 and 160 MMcfe/d for the year. These
estimates exclude production from the PXP properties, which
averaged 45 MMcfe/d in the third quarter of 2010. McMoRan’s
estimated production rates are dependent on the timing of planned
recompletions, production performance and other factors.
Production from the Flatrock field averaged a gross rate of
approximately 182 MMcfe/d (34 MMcfe/d net to McMoRan) in the third
quarter of 2010. The operator successfully recompleted the #230
well to an up hole zone in the third quarter of 2010 and plans to
recomplete the #229 well in the fourth quarter of 2010. McMoRan
currently owns a 25.0 percent working interest in Flatrock. Upon
completion of the PXP transaction, McMoRan’s working interest in
Flatrock would increase from 25.0 percent to 55.0 percent.
EXPLORATION ACTIVITIES
McMoRan is one of the largest acreage holders on the Shelf of
the GOM and onshore in the Gulf Coast area and has rights to
approximately one million gross acres, including over 200,000 gross
acres associated with the ultra-deep gas play below the salt weld.
McMoRan’s exploration strategy is focused in the shallow waters
(i.e. less than 150 feet of water) of the GOM and Gulf Coast area
on the “deep gas play” and on the “ultra-deep gas play.” Deep gas
prospects target large Miocene age deposits above the salt weld
(i.e. listric fault) at depths typically between 15,000 to 25,000
feet. Ultra-deep prospects target objectives typically at depths
below 25,000 feet beneath the salt weld in the Miocene and older
age sections that have been correlated to those sections that have
been productive in deepwater drilling by other industry
participants.
Shallow Water, Deep Gas Exploration Activities
The Blueberry Hill #9 STK1, located on Louisiana State
Lease 340 in 10 feet of water, commenced drilling on April 26, 2010
and was drilled to a true vertical depth (TVD) of 24,200 feet in
August 2010. As previously reported, wireline logs indicated that
the well encountered 105 net feet of hydrocarbon bearing sands with
exceptional porosity in the Miocene. McMoRan is currently
completing the well and expects to begin production from the well
in the first quarter of 2011.
McMoRan currently owns a 42.9 percent working interest and a
29.7 percent net revenue interest in the Blueberry Hill well. Upon
completion of the PXP transaction, McMoRan would own a 90.8 percent
working interest and a 62.8 percent net revenue interest in
Blueberry Hill. McMoRan’s investment in the Blueberry Hill field
totaled $31.2 million at September 30, 2010, including $24.5
million in costs associated with the #9 STK1 well currently being
completed for production.
The Laphroaig No. 2 well in St. Mary Parish, Louisiana
commenced drilling on September 24, 2010, and is currently drilling
below 13,000 feet with a planned total depth of 20,000 feet. The
well is targeting proven undeveloped reserves identified by the
discovery well as well as additional exploration potential. The
Laphroaig discovery well was drilled in 2007. McMoRan has a 37.3
percent working interest and a 28.5 percent net revenue interest in
the Laphroaig prospect. McMoRan’s investment in the Laphroaig No. 2
well totaled $0.5 million at September 30, 2010.
McMoRan’s near-term deep gas exploratory drilling plans also
include the Boudin, Hurricane Deep and Platte
prospects. Boudin is located in 20 feet of water on Eugene Island
Block 26. The well has a proposed total depth of 23,050 feet and
will test Miocene objectives. McMoRan holds a 37.1 percent working
interest in Boudin and upon completion of the PXP transaction would
hold a 74.2 working interest in Boudin. Hurricane Deep is located
on the southern flank of the Flatrock structure in 12 feet of water
on South Marsh Island Block 217. The well has a proposed total
depth of 20,000 feet and is targeting the significant Gyro sand
encountered in the Hurricane Deep well (No. 226) in 2007. The
location also offers the opportunity to evaluate deeper potential
Gyro zones. McMoRan currently holds a 25 percent working interest
and upon completion of the PXP transaction would hold a 55 percent
working interest in Hurricane Deep. McMoRan’s investment in
Hurricane Deep field totaled $13.3 million at September 30, 2010,
and its share of costs to re-drill to 18,450 feet is expected to be
covered under its insurance program. Platte, which is located in
Vermilion Parish, Louisiana, has a proposed total depth of 18,700
feet. McMoRan holds a 50.0 percent working interest in Platte.
Shallow Water, Ultra-deep Exploration Activities
The data received to date from ultra-deep drilling on the Shelf
confirm McMoRan’s geologic modeling, which correlates objective
sections on the Shelf below the salt weld (i.e. listric fault) in
the Miocene and older age sections to those productive sections
seen in deepwater discoveries by other industry participants.
McMoRan has identified 15 ultra-deep prospects in shallow water,
including Davy Jones, Blackbeard West, Blackbeard East and Lafitte.
McMoRan’s in-progress ultra-deep activities include delineation
drilling at Davy Jones as well as exploratory drilling at
Blackbeard East and Lafitte.
In February 2010, the Davy Jones discovery well on South
Marsh Island Block 230 was drilled to a total depth of 29,000 feet.
As reported in January 2010, McMoRan logged 200 net feet of pay in
multiple Eocene/Paleocene (Wilcox) sands in the well. In March
2010, a production liner was set and the well was temporarily
abandoned to prepare for completion. Completion equipment is being
procured and completion and flow testing activities are expected to
commence in the third quarter of 2011.
On April 7, 2010, McMoRan commenced drilling the Davy Jones
offset appraisal well on South Marsh Island Block 234, two and
a half miles southwest of the Davy Jones discovery well. The well
is currently drilling below 19,900 feet towards a proposed total
depth of 29,950 feet. The offset appraisal well (Davy Jones #2) is
expected to test similar sections up-dip to the discovery well, as
well as deeper objectives, including potential additional Wilcox
and possibly Cretaceous (Tuscaloosa) sections.
Davy Jones involves a large ultra-deep structure encompassing
four OCS lease blocks (20,000 acres). McMoRan is funding 28.7
percent of the drilling costs and holds a 32.7 percent working
interest and 25.9 percent net revenue interest. Upon completion of
the PXP transaction, McMoRan would hold a 60.4 percent working
interest and 47.9 percent net revenue interest in Davy Jones. Other
working interest owners in Davy Jones include: Energy XXI (NASDAQ:
EXXI) (15.8%), Nippon Oil Exploration USA Limited (12%), W.A. "Tex"
Moncrief, Jr. (8.8%) and a private investor (3%). McMoRan’s
investment in Davy Jones totaled $63.1 million at September 30,
2010, including $25.9 million in costs associated with the offset
appraisal well in progress.
The Blackbeard East ultra-deep exploration well, located
in 80 feet of water on South Timbalier Block 144, commenced
drilling on March 8, 2010. As previously reported on September 20,
2010, the well encountered several sands below 24,100 feet in the
Middle Miocene as indicated by log-while-drilling tools and mud
logs. Subsequently, McMoRan has deepened the well to 26,000 feet
and has obtained data from wireline logs, side wall cores and
formation tests. Analysis of the information obtained to date
indicates hydrocarbons in quality reservoir rocks with good
porosity and permeability in the Upper and Middle Miocene below the
salt weld. The pressure and temperature data below the salt weld
between 19,500 feet and 24,600 feet indicates that a completion
could utilize conventional equipment and technologies. McMoRan is
continuing to evaluate the data to determine the optimum production
take point for the zones drilled to date and is evaluating
potential offset locations in the Blackbeard East area. McMoRan is
preparing to set a 9 3/8 inch liner at 26,000 feet and deepen the
well to a proposed total depth of 29,950 feet to evaluate deeper
Miocene objectives.
McMoRan is funding 32.0 percent of the costs for Blackbeard East
and holds a 38.5 percent working interest and 30.7 percent net
revenue interest. Upon completion of the PXP transaction, McMoRan
would hold a 70.0 percent working interest and 56.2 percent net
revenue interest in Blackbeard East. Other working interest owners
in Blackbeard East include: EXXI (18.0%), W.A. "Tex" Moncrief, Jr.
(10.0%) and a private investor (2.0%). McMoRan’s investment in the
Blackbeard East well totaled $31.5 million at September 30,
2010.
The Lafitte ultra-deep exploration well commenced
drilling on October 3, 2010 and is currently drilling below 3,300
feet towards a proposed total depth of 29,950 feet. Lafitte is
located on Eugene Island Block 223 in 140 feet of water. The well
is targeting Middle and Deep Miocene objectives below the salt
weld. McMoRan holds a 40.5 percent working interest and 32.8
percent net revenue interest in the prospect. Upon completion of
the PXP transaction, McMoRan would hold a 72.0 percent working
interest and 58.3 percent net revenue interest in Lafitte. Other
working interest owners in Lafitte include: EXXI (18.0%), and W.A.
"Tex" Moncrief, Jr. (10.0%). McMoRan’s investment in the Lafitte
well totaled $5.7 million at September 30, 2010.
The information gained from the Blackbeard East and Lafitte
wells will enable McMoRan to develop plans for future operations at
Blackbeard West. As previously reported, the Blackbeard West
ultra-deep exploratory well on South Timbalier Block 168 was
drilled to 32,997 feet in 2008. Logs indicated four potential
hydrocarbon bearing zones that require further evaluation and the
well was temporarily abandoned. McMoRan is evaluating whether to
drill deeper at Blackbeard West, drill an offset location or
complete the well to test the existing zones. McMoRan holds a 32.3
percent working interest and 26.3 percent net revenue interest in
Blackbeard West. Upon completion of the PXP transaction, McMoRan
would hold a 67.3 percent working interest and 54.8 percent net
revenue interest. McMoRan’s investment in the Blackbeard West well
totaled $31.2 million at September 30, 2010.
REVENUES
McMoRan’s third-quarter 2010 oil and gas revenues totaled $90.8
million, compared to $105.8 million during the third quarter of
2009. During the third quarter of 2010, McMoRan’s sales volumes
totaled 8.8 Bcf of gas, 534,000 barrels of oil and condensate and
1.5 Bcfe of plant products, compared to 13.6 Bcf of gas, 761,600
barrels of oil and condensate and 1.6 Bcfe of plant products in the
third quarter of 2009. McMoRan’s third-quarter comparable average
realizations for gas (before hedging) were $4.61 per thousand cubic
feet (Mcf) in 2010 and $3.39 per Mcf in 2009; for oil and
condensate McMoRan received an average of $75.78 per barrel in
third-quarter 2010 compared to $66.81 per barrel in third-quarter
2009.
CASH, LIQUIDITY AND CAPITAL EXPENDITURES
At September 30, 2010, McMoRan had $180.2 million in cash. Total
debt was $375 million at September 30, 2010, including $75 million
in 5 1/4% convertible senior notes due in October 2011 with a
conversion price of $16.575 per share. McMoRan currently has no
amounts borrowed under its $175 million revolving credit facility
and $75 million in availability after considering $100 million in
outstanding letters of credit.
Capital expenditures totaled $58.8 million for the third quarter
of 2010 and $160.3 million for the nine-months ended September 30,
2010. Capital expenditures are expected to approximate $220 million
for the year, including $140 million in exploration and $80 million
in development spending.
Net abandonment expenditures, which include scheduled
conventional and hurricane-related work, totaled $29.2 million for
the third quarter of 2010 and $70.8 million for the nine months
ended September 30, 2010. These amounts exclude insurance
reimbursements totaling $5.6 million in the third quarter of 2010
and $14.8 million for the nine months ended September 30, 2010.
Abandonment expenditures are expected to approximate $110 million
in 2010, including $50 million associated with hurricane damage
reclamation work for which McMoRan expects reimbursement under its
insurance program.
A copy of this release is available on McMoRan’s web site at
www.mcmoran.com. A conference call with securities analysts about
third-quarter 2010 results is scheduled for today at 10:00 a.m.
Eastern Time. The conference call will be broadcast on the Internet
along with slides. Interested parties may listen to the conference
call live and view the slides by accessing “www.mcmoran.com”. A
replay of the webcast will be available through Friday, November
19, 2010.
McMoRan Exploration Co. is an independent public company engaged
in the exploration, development and production of natural gas and
oil in the shallow waters of the GOM Shelf and onshore in the Gulf
Coast area. Additional information about McMoRan is available on
its internet website “www.mcmoran.com”.
CAUTIONARY STATEMENT: This press release contains
forward-looking statements that involve a number of assumptions,
risks and uncertainties that could cause actual results to differ
materially from those contained in the forward-looking statements.
We caution readers that those statements are not guarantees of
future performance or exploration and development success, and our
actual exploration experience and future financial results may
differ materially from those anticipated, projected or assumed in
the forward-looking statements. Such forward-looking statements
include, but are not limited to, statements regarding various oil
and gas discoveries, oil and gas exploration, development and
production activities, capital expenditures, reclamation costs,
anticipated and potential production and flow rates, statements
about the potential opportunities and benefits presented by the
proposed property acquisition, including expectations regarding
reserve estimates and production rates, statements about the
proposed financing transactions and other statements that are not
historical facts. No assurances can be given that any of the events
anticipated by the forward-looking statements will transpire or
occur, or if any of them do so, what impact they will have on our
results of operations or financial condition. Important factors
that can cause actual results to differ materially from the results
anticipated by forward-looking statements include, but are not
limited to, those associated with general economic and business
conditions, variations in the market demand for, and prices of, oil
and natural gas, drilling results, unanticipated fluctuations in
flow rates of producing wells, oil and natural gas reserve
expectations, the potential adoption of new governmental
regulations, the ability to satisfy future cash obligations and
environmental costs, adverse conditions, such as high temperatures
and pressure that could lead to mechanical failures or increased
costs, as well as other general exploration and development risks
and hazards, the closing of the property acquisition, the exercise
of preferential rights by third parties, the closing of the
financing transactions, each of which depends on the satisfaction
of various closing conditions, including, but not limited to,
obtaining shareholder approval of the issuances of securities as
required under New York Stock Exchange rules and obtaining
regulatory approvals, and other factors described in more detail in
Part I, Item 1A. "Risk Factors" included in our 2009 Form 10-K, as
updated by our subsequent filings with the SEC. Investors are
cautioned that many of the assumptions upon which our
forward-looking statements are based are likely to change after our
forward-looking statements are made, including for example the
market prices of oil and natural gas, which we cannot control, and
production volumes and costs, some aspects of which we may or may
not be able to control. Further, during the quarter, we may make
changes to our business plans that could or will affect our results
for the quarter. We caution investors that we do not intend to
update our forward-looking statements more frequently than
quarterly, notwithstanding any changes in our assumptions, changes
in our business plans, our actual experience, or other changes, and
we undertake no obligation to update any forward-looking
statements.
This press release contains a financial measure, earnings before
interest, taxes, depreciation, amortization and exploration
expenses (EBITDAX), commonly used in the oil and natural gas
industry but not defined under GAAP. As required by SEC Regulation
G, reconciliations of this measure to amounts reported in McMoRan’s
consolidated financial statements are included in the supplemental
schedules of this press release.
ADDITIONAL INFORMATION: In connection with
the proposed transaction, McMoRan filed a proxy statement with
the SEC on October 5, 2010. INVESTORS AND SECURITY HOLDERS ARE
URGED TO READ THE PROXY STATEMENT AND OTHER DOCUMENTS FILED IN
CONNECTION WITH THE PROPOSED TRANSACTION BECAUSE THEY CONTAIN
IMPORTANT INFORMATION ABOUT THE PROPOSED TRANSACTION. These
materials (and all other documents filed by McMoRan with the
SEC) are available free of charge at www.mcmoran.com.
Investors and security holders may also obtain the proxy statement
and other documents filed with the SEC by McMoRan free of charge at
the SEC's web site, www.sec.gov.
McMoRan's directors and executive officers and other persons may
be deemed, under SEC rules, to be participants in the solicitation
of proxies in connection with the proposed transaction. Information
regarding McMoRan’s directors and officers can be found in its
proxy statement filed with the SEC on March 25, 2010. Additional
information regarding the participants in the proxy solicitation
and a description of their direct and indirect interests in the
transaction, by security holdings or otherwise, is contained in the
proxy statement filed with the SEC.
McMoRan EXPLORATION CO.
STATEMENTS OF OPERATIONS
(Unaudited)
Three Months Ended Nine Months Ended September 30, September
30, 2010 2009 2010 2009 (In Thousands, Except
Per Share Amounts)
Revenues: Oil and natural gas $ 90,778 $
105,822 $ 323,727 $ 294,969 Service 4,062
3,713 11,642 8,494 Total
revenues 94,840 109,535 335,369 303,463
Costs and expenses:
Production and delivery costs a 47,071 49,087 136,295 146,933
Depletion, depreciation and amortization expense b 48,588 75,980
214,720 243,347 Exploration expenses c 5,256 10,802 28,099 86,064
Gain on oil and gas derivative contracts d (942 ) (738 ) (4,210 )
(16,624 ) General and administrative expenses 11,148
e
9,621
35,267
e
32,983 Main Pass Energy Hub™ costs 230 297 805 1,413 Insurance
recoveries f (5,584 ) - (14,755 ) (18,742 ) Gain on sale of oil and
gas property - - (3,455 )
- Total costs and expenses 105,767
145,049 392,766 475,374
Operating loss (10,927 ) (35,514 ) (57,397 ) (171,911 ) Interest
expense, net (8,690 ) (10,930 ) (29,096 ) (31,871 ) Other income,
net 72 298 177
3,470 Loss from continuing operations before income taxes
(19,545 ) (46,146 ) (86,316 ) (200,312 ) Income tax benefit
- 177 - 144 Loss
from continuing operations (19,545 ) (45,969 ) (86,316 ) (200,168 )
Loss from discontinued operations (1,184 )
(1,575 ) (4,260 ) (5,692 ) Net
loss (20,729 ) (47,544 ) (90,576 ) (205,860 )
Preferred dividends and inducement
payments for early conversion of convertible preferred stock
(4,524
)g
(4,388
) (22,583
)g
(9,925 ) Net loss applicable to common stock $
(25,253 ) $ (51,932 ) $ (113,159 ) $ (215,785
)
Basic and diluted net loss per share of common
stock: Continuing operations $ (0.25 ) $ (0.58 ) $ (1.17 ) $
(2.76 ) Discontinued operations (0.01 ) (0.02 )
(0.05 ) (0.07 ) Net loss per share of common stock $
(0.26 ) $ (0.60 ) $ (1.22 ) $ (2.83 )
Average common shares
outstanding: Basic and diluted 95,469
86,038 92,789 76,152 a.
Includes hurricane damage assessment and repair charges
(credits) associated with the September 2008 hurricanes totaling
$1.2 million and $3.9 million in the third quarter and nine months
ended September 30, 2010, respectively, and $(0.5) million and
$14.2 million in the third quarter and nine months ended September
30, 2009, respectively. b. Includes impairment charges totaling
$11.3 million and $82.0 million in the third quarter and nine
months ended September 30, 2010, respectively, and $11.2 million
and $64.8 million in the third quarter and nine months ended
September 30, 2009, respectively. c. Includes non-productive well
costs of $0.1 million and $7.5 million in the third quarter and
nine months ended September 30, 2010, respectively, and $7.3
million and $61.7 million in the third quarter and nine months
ended September 30, 2009, respectively. d. McMoRan’s gain on its
oil and gas derivative contracts include the following (in
thousands): Third Quarter Nine Months 2010
2009 2010 2009 Gain on settled contracts $ (897 ) $
(5,338 ) $ (8,275 ) $ (40,210 ) Mark-to-market (gain) loss
(45 ) 4,600 4,065 23,586 Gain on oil and gas
derivative contracts $ (942 ) $ (738 ) $ (4,210 ) $ (16,624 ) e.
Includes $1.4 million in transaction related costs for the
pending acquisition of certain oil and gas property interests from
Plains Exploration & Production Company. f. Represents
McMoRan’s share of partial payments of insurance reimbursements
related to losses incurred from the September 2008 hurricanes. g.
Includes $1.4 million of payments to induce conversion of
approximately 7,000 shares of McMoRan’s 8% convertible perpetual
preferred stock (8% preferred stock) into approximately 1.0 million
shares of common stock in the third quarter ended September 30,
2010 and $12.2 million of payments to induce conversion of
approximately 64,200 shares of 8% preferred stock into
approximately 9.4 million shares of common stock in the nine months
ended September 30, 2010.
McMoRan EXPLORATION CO.
RECONCILIATION OF REPORTED AMOUNTS TO
NON-GAAP ITEMS (Unaudited)
EBITDAX is a financial measure commonly used in the oil and
natural gas industry but is not a recognized accounting term under
accounting principles generally accepted in the United States of
America (GAAP). As defined by McMoRan, EBITDAX reflects the
company’s adjusted oil and gas operating income (loss). EBITDAX is
derived from net loss from continuing operations before other
income, net; interest expense, net; income tax benefit; Main Pass
Energy HubTM costs; exploration expenses; depletion, depreciation
and amortization expense; hurricane repair charges (credits)
included in production and delivery costs; stock-based compensation
charged to general and administrative expenses; insurance
recoveries; gain on sale of oil and gas property; and change in
fair value of oil and gas derivative contracts. EBITDAX should not
be considered by itself or as a substitute for net income (loss),
operating income (loss), cash flows from operating activities or
any other measure of financial performance presented in accordance
with GAAP, or as a measure of McMoRan’s profitability or liquidity.
Because EBITDAX excludes some, but not all, items that affect net
income (loss), the computation of this non-GAAP financial measure
may be different from similar presentations of other companies,
including oil and gas companies in our industry. As a result, the
EBITDAX data presented below may not be comparable to similarly
titled measures of other companies.
McMoRan’s management utilizes both the GAAP and non-GAAP results
presented in this news release to evaluate McMoRan’s performance
and believes that comparative analysis of results are useful to
investors and other internal and external users of our financial
statements in evaluating our operating performance, and such
analysis can be enhanced by excluding the impact of these items to
help investors meaningfully compare our results from period to
period. The following is a reconciliation of reported amounts from
net loss applicable to common stock to EBITDAX (in thousands):
Third Quarter Nine Months
2010 2009 2010
2009 Net loss applicable to common stock, as reported $ (25,253 ) $
(51,932 ) $ (113,159 ) $ (215,785 )
Preferred dividends and inducement
payments for early conversion of convertible preferred stock
4,524 4,388 22,583 9,925 Loss from discontinued operations
1,184 1,575 4,260 5,692 Loss from continuing
operations, as reported (19,545 ) (45,969 ) (86,316 ) (200,168 )
Other income, net (72 ) (298 ) (177 ) (3,470 ) Interest
expense, net 8,690 10,930 29,096 31,871 Income tax benefit - (177 )
- (144 ) Main Pass Energy HubTM costs 230 297 805 1,413 Exploration
expenses 5,256 10,802 28,099 86,064 Depletion, depreciation and
amortization expense 48,588 75,980 214,720 243,347
Hurricane repair charges (credits)
included in production and delivery costs
1,205 (455 ) 3,857 14,221
Stock-based compensation charged to
general and administrative expenses
1,629 1,432 8,153 5,998 Insurance recoveries (5,584 ) - (14,755 )
(18,742 ) Gain on sale of oil and gas property - - (3,455 ) -
Change in fair value of oil and gas derivative contracts (45
) 4,600 4,065 23,586 EBITDAX $ 40,352 $ 57,142
$ 184,092 $ 183,976
McMoRan EXPLORATION CO.
OPERATING DATA (Unaudited)
Third Quarter Nine Months 2010 2009
2010 2009 Sales volumes: Gas (thousand cubic
feet, or Mcf) 8,754,300 13,619,300 29,795,900 36,990,900 Oil
(barrels) 534,000 761,600 1,851,900 2,262,300 Plant products (Mcf
equivalent) a 1,484,700 1,568,300 4,681,300 3,988,100 Average
realizations: Gas (per Mcf) $ 4.61 $ 3.39 $ 4.97 $ 4.04 Oil (per
barrel) 75.78 66.81 76.13 55.39 a. Results include
approximately $9.8 million and $34.3 million of revenues associated
with plant products (ethane, propane, butane, etc.) during the
third quarter and nine months ended September 30, 2010,
respectively. Plant product revenues for the comparable prior year
periods totaled $8.6 million and $19.8 million. One Mcf equivalent
is determined using an estimated energy content differential ratio
of six Mcf of natural gas to one barrel of crude oil, condensate or
natural gas liquids.
McMoRan
EXPLORATION CO.
CONDENSED BALANCE SHEETS
(Unaudited)
September 30, December 31, 2010 2009 (In Thousands)
ASSETS Cash and cash equivalents $ 180,193 $ 241,418
Accounts receivable 72,707 79,681 Inventories 39,277 47,818 Prepaid
expenses 23,931 14,457 Fair value of oil and gas derivative
contracts 3,114 8,693
Current assets from discontinued
operations, including restricted cash of $470
965 825 Total current assets 320,187 392,892
Property, plant and equipment, net 749,391 796,223 Restricted cash
52,718 41,677 Deferred financing costs and other assets 12,946
11,931 Long-term assets from discontinued operations 2,989
6,159 Total assets $ 1,138,231 $ 1,248,882
LIABILITIES AND STOCKHOLDERS’ EQUITY Accounts payable $
82,275 $ 66,544 Accrued liabilities 91,812 51,945 Accrued interest
and dividends payable 17,773 8,535 Current portion of accrued oil
and gas reclamation costs 146,661 106,791 Fair value of oil and gas
derivative contracts 198 1,237 Current portion of accrued sulphur
reclamation costs (discontinued operations) 11,300 8,300 Current
liabilities from discontinued operations 2,172 1,183 Total current
liabilities 352,191 244,535
5 1/4% convertible senior notes
74,720 74,720 11.875% senior notes 300,000 300,000 Accrued oil and
gas reclamation costs 203,809 321,920 Other long-term liabilities
17,031 16,602 Accrued sulphur reclamation costs (discontinued
operations) 15,832 19,152 Other long-term liabilities from
discontinued operations 6,149 6,145 Total liabilities
969,732 983,074 Stockholders' equity a 168,499
265,808 Total liabilities and stockholders' equity $
1,138,231 $ 1,248,882 a.
Includes 1,589,340 shares of McMoRan's 6
3/4% Mandatory Convertible Preferred Stock (6 3/4% preferred stock)
($158.9 million liquidation preference) which automatically convert
on November 15, 2010, into between approximately 10.7 million and
12.8 million common shares. The conversion rate depends on the
applicable average closing market price of McMoRan's common stock
over the 20-trading-day period beginning on October 14, 2010, and
ending on November 10, 2010. If the applicable average closing
market price of McMoRan's common stock is above $14.88, then the
conversion rate per $100 face amount of the 6 3/4% preferred stock
will be 6.7204. The conversion rate would be 8.0645 if the
applicable average closing market price of McMoRan's common stock
is below $12.40. For average McMoRan common stock prices greater
than or equal to $12.40 and equal to or less than $14.88, the
conversion rate will be equal to $100 divided by McMoRan's average
closing common stock price during the 20-trading-day period. On
October 15, 2010, the closing market price of McMoRan’s common
stock was $18.44 per share.
McMoRan EXPLORATION CO.
STATEMENTS OF CASH FLOWS
(Unaudited)
Nine Months Ended September 30, 2010 2009 (In
Thousands)
Cash flow from operating activities: Net loss $
(90,576 ) $ (205,860 ) Adjustments to reconcile net loss to net
cash provided by operating activities: Loss from discontinued
operations 4,260 5,692 Depletion, depreciation and amortization
expense 214,720 243,347 Exploration drilling and related
expenditures 7,522 61,707 Compensation expense associated with
stock-based awards 15,701 11,966 Amortization of deferred financing
costs 2,796 2,793 Change in fair value of oil and gas derivative
contracts 4,065 23,586 Reclamation expenditures, net of prepayments
by third parties (70,786 ) (39,625 ) Increase in restricted cash
(11,041 ) (11,293 ) Gain on sale of oil and gas property (3,455 ) -
Other 295 (316 ) (Increase) decrease in working capital: Accounts
receivable 16,340 32,914 Accounts payable and accrued liabilities
30,929 (14,219 ) Prepaid expenses and inventories (459 )
(20,861 ) Net cash provided by continuing operations 120,311
89,831 Net cash used in discontinued operations (606 )
(4,373 ) Net cash provided by operating activities
119,705 85,458
Cash flow from investing
activities: Exploration, development and other capital
expenditures (160,259 ) (113,375 ) Proceeds from sale of oil and
gas property 2,920 - Net cash used in continuing
operations (157,339 ) (113,375 ) Net cash activity from
discontinued operations - - Net cash used in
investing activities (157,339 ) (113,375 )
Cash flow from financing activities:
Dividends paid and inducement payments on
early conversion of convertible preferred stock
(23,136 ) (9,062 ) Proceeds from exercise of stock options 197 -
Other
(652 ) - Net proceeds from the sale of common stock - 84,929
Net proceeds from the sale of 8%
convertible perpetual preferred stock
-
83,228 Net cash (used in) provided by continuing operations
(23,591 ) 159,095 Net cash activity from discontinued operations
- - Net cash (used in) provided by financing
activities (23,591 ) 159,095 Net (decrease) increase
in cash and cash equivalents (61,225 ) 131,178 Cash and cash
equivalents at beginning of year 241,418 93,486 Cash
and cash equivalents at end of period $ 180,193 $ 224,664
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