McMoRan Exploration reports fourth-quarter/twelve-month 2012 results

Friday, January 18, 2013
  • Fourth quarter 2012 results include $39.7 million in net gains associated with the sale of two traditional Gulf of Mexico (GOM) property packages.
  • For the year 2012, McMoRan reported a net loss attributable to common stock of $145.6 million, $0.90 per share, compared with $58.8 million, $0.37 per share, for the year 2011.

HIGHLIGHTS

  • On December 5, 2012, McMoRan entered into an agreement whereby Freeport-McMoRan Copper & Gold Inc. (FCX) would acquire McMoRan for per-share consideration consisting of $14.75 in cash and 1.15 units of a royalty trust, which will hold a 5 percent overriding royalty interest in future production from McMoRan’s existing ultra-deep exploration prospects. The transaction, which is subject to McMoRan shareholder approval, is expected to close in the second quarter of 2013.
  • McMoRan currently has two onshore ultra-deep exploration prospects in-progress:

    • Lineham Creek prospect – Encountered positive results above 24,000 feet in November 2012; currently drilling below 26,500 feet to proposed total depth of 29,000 feet to evaluate primary targets.
    • Lomond North prospect in Highlander area – Currently drilling below 13,500 feet with a proposed total depth of 30,000 feet.

  • Ultra-Deep development opportunities include:

    • Blackbeard West No. 2 reached total depth of 25,584 feet in January 2013. Initial completion efforts are expected to focus on the development of laminated sands in the Middle Miocene located at approximately 24,000 feet.
    • Operations to flow test Davy Jones No. 1 are ongoing. Completion and testing of Davy Jones No. 2 expected to commence following review of results from Davy Jones No. 1.
    • Development plans for Blackbeard East and Lafitte are pending approval by the Bureau of Safety and Environmental Enforcement (BSEE).

  • Fourth-quarter 2012 production averaged 119 million cubic feet of natural gas equivalents per day (MMcfe/d) net to McMoRan, and 137 MMcfe/d for the twelve months ended December 31, 2012.
  • Operating cash flows totaled $(28.9) million for the fourth quarter of 2012, including $31.0 million in working capital uses and $28.4 million in abandonment expenditures, and $33.7 million for the twelve months of 2012.
  • Capital expenditures totaled $89.5 million in the fourth quarter of 2012 and $505.1 million for the twelve months of 2012.
  • Cash at December 31, 2012 totaled $114.9 million.
  • In January 2013 completed sale of the Laphroaig field for $80 million. After closing adjustments, the combined cash proceeds from the Laphroaig transaction and the two transactions completed in the fourth quarter of 2012 totaled $135.9 million.
  • Year-end 2012 proved reserves of oil, natural gas and natural gas liquids totaled 206.9 billion cubic feet of natural gas equivalents (Bcfe) based on independent reservoir engineers’ preliminary estimates. Amounts exclude pending results from ultra-deep activities.

McMoRan Exploration Co. (NYSE: MMR) today reported a net loss applicable to common stock of $1.2 million, $0.01 per share, for the fourth quarter of 2012 compared with net income of $28.4 million, $0.16 per share, for the fourth quarter of 2011. Fourth quarter 2012 results include $39.7 million in net gains associated with the sale of two traditional Gulf of Mexico (GOM) property packages. For the year 2012, McMoRan reported a net loss attributable to common stock of $145.6 million, $0.90 per share, compared with $58.8 million, $0.37 per share, for the year 2011.

James R. Moffett and Richard Adkerson, McMoRan’s Co-Chairmen, said, “The geologic data from our drilling results on seven wells associated with the ultra-deep sub-salt trend indicate significant resource potential on the Shelf of the Gulf of Mexico and onshore in the Gulf Coast area. These results, combined with advances in proprietary technologies required to develop and produce these large structures, establish a multi-year program to unlock a significant long-term natural gas resource. Through the proposed acquisition transaction, McMoRan shareholders will receive cash compensation for the value potential of this emerging new trend and an ongoing participation through the distribution of royalty trust units.”

SUMMARY FINANCIAL TABLE*

Fourth Quarter Twelve Months
2012 2011 2012 2011
(In thousands, except per share amounts)
Revenues $ 84,170 $ 121,919 $ 376,888 $ 555,414
Operating income (loss) 10,724 43,189 (91,646 ) 1,368
Income (loss) from continuing operations 10,767 43,385 (97,033 ) (6,604 )
Loss from discontinued operations (1,688 ) (4,642 ) (7,261 ) (9,364 )
Net income (loss) applicable to common stock(a,b,c) (1,207 ) d 28,400 e (145,570 ) d (58,768 ) e
Diluted net income (loss) per share:
Continuing operations

$
(0.00 ) $
0.19 $
(0.86 ) $
(0.31 )
Discontinued operations
(0.01 ) (0.03 ) (0.04 ) (0.06 )
Applicable to common stock $ (0.01 ) $ 0.16 $ (0.90 ) $ (0.37 )
Diluted average shares outstanding 161,928 181,436 161,702 159,216
Operating cash flows(f) $ (28,878 ) $ 48,535 $ 33,650 $ 227,048
EBITDAX(g) $ 37,022 $ 67,558 $ 180,073 $ 309,815
Capital Expenditures $ 89,505 $ 105,606 $ 505,132 $ 509,494
*
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 2012 Form 10-K, the related costs incurred through December 31, 2012 would be charged to expense in McMoRan’s 2012 financial statements. At December 31, 2012 McMoRan’s total drilling costs for its nine in-progress or unproven wells totaled $1,828.2 million, including $693.5 million in allocated value associated with property acquisitions.
a.
After preferred dividends.
b.
Includes impairment charges totaling $34.5 million in fourth-quarter 2012, $9.1 million in fourth-quarter 2011, $46.2 million in 2012 and $71.1 million in 2011 to reduce certain fields’ net carrying value to fair value. Also includes adjustments for asset retirement obligations associated with certain of McMoRan’s oil and gas properties totaling approximately $1.3 million in the fourth-quarter 2012, $11.4 million in the fourth-quarter 2011, $17.6 million in 2012 and $57.3 million in 2011.
c.
Includes $93.5 million of charges to exploration expense in 2012 primarily resulting from the write-off of allocated carrying value of leasehold interests from the December 2010 property acquisition no longer being pursued as well as the write-off of costs associated with the lease expiration of the Boudin well. Also includes charges to exploration expense totaling $42.3 million in 2011 for non-commercial well costs primarily associated with the Blueberry Hill #9 STK1 well.
d.
Includes gain on sale of oil and gas properties resulting from McMoRan’s completed sale of two traditional GOM shelf oil and gas property packages totaling $39.7 million in the fourth quarter 2012 and $40.5 million in 2012.
e.
Includes McMoRan’s share of insurance reimbursements related to losses incurred from the September 2008 hurricanes totaling $39.1 million in fourth quarter 2011 and $91.1 million in 2011.
f.
Includes reclamation spending of $28.4 million in fourth-quarter 2012, $56.6 million in fourth-quarter 2011, $76.6 million in 2012 and $150.0 million in 2011. Also includes working capital sources/(uses) of $(31.0) million in fourth-quarter 2012, $2.5 million in fourth quarter 2011, $(28.7) million in 2012 and $30.4 million in 2011.
g.
See reconciliation of EBITDAX to net loss applicable to common stock on page III.

PROPOSED TRANSACTION UPDATE

On December 5, 2012, McMoRan entered into an agreement whereby Freeport-McMoRan Copper & Gold Inc. (FCX) would acquire McMoRan for per-share consideration consisting of $14.75 in cash and 1.15 units of a royalty trust, which will hold a 5 percent overriding royalty interest in future production from McMoRan’s existing ultra-deep exploration prospects. In connection with the proposed transaction, Gulf Coast Ultra Deep Royalty Trust, the royalty trust formed, has filed with the Securities and Exchange Commission a registration statement on Form S-4 that includes a preliminary proxy statement of McMoRan that also constitutes a prospectus of the royalty trust. In addition to the transaction requiring McMoRan’s shareholder approval, U.S. antitrust clearance under the Hart-Scott-Rodino Act is also required. On December 26, 2012, the Federal Trade Commission granted early termination of the Hart-Scott-Rodino waiting period. The transaction is expected to close in the second quarter of 2013.

PRODUCTION ACTIVITIES

Fourth-quarter 2012 production averaged 119 MMcfe/d net to McMoRan, compared with 170 MMcfe/d in the fourth quarter of 2011. Production in the fourth quarter of 2012 was in line with McMoRan’s previously reported estimate of 120 MMcfe/d in October 2012. Production is expected to average approximately 100 MMcfe/d in the first quarter of 2013. McMoRan’s estimated production rates are dependent on the timing of planned recompletions, production performance, weather and other factors.

Production from the Flatrock field averaged a gross rate of approximately 94 MMcfe/d (39 MMcfe/d net to McMoRan) in the fourth quarter of 2012, compared with 147 MMcfe/d (60 MMcfe/d net to McMoRan) in the fourth quarter of 2011. Production from Flatrock is expected to be lower in 2013 compared to 2012 as a result of normal declines in currently producing zones. Following depletion of currently producing zones, McMoRan is planning several recompletions to additional pay zones which are expected to increase production in future years. Cumulative 8/8ths production from Flatrock through December 31, 2012 totaled 299 Bcfe and independent reservoir engineers’ preliminary estimates at December 31, 2012 totaled 195 Bcfe (8/8ths), including 40 Bcfe (16.6 Bcfe net to McMoRan) in positive reserve adjustments during 2012 related to favorable production performance. McMoRan owns a 55.0 percent working interest and a 41.3 percent net revenue interest in the Flatrock field.

ULTRA-DEEP EXPLORATION & DEVELOPMENT ACTIVITIES

Since 2008, McMoRan’s drilling activities in the shallow waters of the GOM below the salt weld (i.e. listric fault) have successfully confirmed McMoRan’s geologic model and the highly prospective nature of this emerging geologic trend. The data from seven wells drilled to date indicate the presence below the salt weld of geologic formations including Upper/Middle/Lower Miocene, Frio, Vicksburg, Upper Eocene, Sparta carbonate, Wilcox, Tuscaloosa and Cretaceous carbonate, which have been prolific onshore, in the deepwater GOM and in international locations. The results of these activities indicate the potential for a major new geologic trend spanning 200 miles in the shallow waters of the GOM and onshore in the Gulf Coast area. Further drilling and flow testing will be required to determine the ultimate potential of this new trend.

This article is for information and discussion purposes only and does not form a recommendation to invest or otherwise. The value of an investment may fall. The investments referred to in this article may not be suitable for all investors, and if in doubt, an investor should seek advice from a qualified investment adviser. More

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