New Orleans-based McMoRan Exploration cashes in on oil prices, new

New Orleans CityBusiness, Jun 16, 2008 by Emilie Bahr

The end of 2007 marked a turning point for McMoRan Exploration Co.

The New Orleans-based energy company ended a two-year earnings skid with a solid fourth quarter and reported profits for the first quarter of 2008. Company officials and analysts pin the positive results on the acquisition of new producing properties last year, strong drilling results and high commodity prices.

Despite a net loss of $63.9 million for the year, McMoRan reported net income of $9.7 million for the final quarter of 2007, the company's first quarter in the black since the second quarter of 2006.

The company's earnings picture looked even better in the first quarter of this year, when McMoRan reported $32 million in net income, compared with a loss of $14.9 million for the same period last year.

"A lot of stuff is coming together well for them," said Richard Tullis, an analyst with Capital One Southcoast in New Orleans. He said McMoRan's stock is outshining other exploration and production companies with the company's stock up 146 percent. MMR shares closed Jan. 2 at $13.38 on the New York Stock Exchange and were up to $32.88 June 2.

McMoRan's August acquisition of Newfield Exploration Co.'s Gulf of Mexico shelf properties is a major reason for the shift, Tullis said.

The acquisition, he said, "really changed the shape of the company."

The $1.1 billion Newfield deal came at an opportune time, Tullis said, with crude oil now trading for nearly double its price a year ago and natural gas up about 50 percent.

The Newfield acquisition presented "an exceptional opportunity to expand the scope of our business, giving us new exploration opportunities as well as producing assets acquired at an attractive rate of return," McMoRan spokesman Bill Collier said.

Collier said the company's first quarter production of 294 million cubic feet of natural gas equivalent per day more than quadrupled the company's first quarter 2007 production of 70 million cubic feet of natural gas equivalent per day. McMoRan reported first quarter 2008 revenue of $295 million, compared with first quarter 2007 revenue of $52 million.

The expanded production afforded by the acquisition, Collier said, "has helped fund our aggressive exploration program and, at the same time, rapidly pay down debt" related to the purchase.

Continuing to stoke the buzz surrounding McMoRan is the Flatrock field at South Marsh Island. The first Flatrock discovery well came online in January with a production rate of about 50 million cubic feet of natural gas equivalent per day.

"Our discovery at the Flatrock No. 1 well in August 2007 is the most significant discovery in our company's recent history," Collier said.

A second well, expected to produce about 100 million cubic feet of natural gas equivalent per day, is slated to come online by late 2008. By the end of the year, Tullis said, Flatrock could be producing 200 million cubic feet of natural gas equivalent per day, with McMoRan netting about a quarter of that production.

"It's a big discovery," Tullis said. "It could be 500 billion cubic feet of natural gas equivalent or more," making it one of the larger Gulf of Mexico shelf discoveries in recent memory.

Also generating excitement for McMoRan is the company's Blackbeard prospect. Drilling operations on the well, formerly operated by ExxonMobil and acquired as part of the Newfield deal, are expected to begin shortly. The ultra-deep well was originally drilled to 30,000 feet before operations were halted because of high- pressure conditions.

"The potential reserves are very large," Tullis said. "This would be even larger potentially than Flatrock. This well should help them to quantify the potential there."