Value Microcaps Junior Energy

[lbas]

MMR- 24.80 +1.90 (up 8%) after a good earnings report. Taking some profits as stock is up over 100% since I mentioned it here 4 months ago.

http://biz.yahoo.com/bw/080417/20080417005624.html?.v=1

McMoRan Exploration Co. Reports First-Quarter 2008 Results
Thursday April 17, 8:03 am ET


NEW ORLEANS--(BUSINESS WIRE)--McMoRan Exploration Co. (NYSE:MMR - News):
HIGHLIGHTS


First-quarter 2008 net income of $32.0 million, $0.46 per fully diluted share, compared with a net loss of $14.9 million, $0.53 per share, in the first quarter of 2007. First quarter 2008 results included a mark-to-market unrealized loss of $41.6 million, $0.49 per fully diluted share, on open oil and gas derivative contracts.
First-quarter 2008 production averaged 294 million cubic feet of natural gas equivalents per day (MMcfe/d) net to McMoRan, compared with first-quarter 2007 average production of 70 MMcfe/d and 295 MMcfe/d in the fourth quarter of 2007.
Continued positive results from the Flatrock field at South Marsh Island Block 212 in the OCS 310/Louisiana State Lease 340 area indicate a major discovery:
Flatrock No. 1 discovery well commenced production on January 28, 2008. Gross production currently approximates 50 MMcfe/d, 12 MMcfe/d net to McMoRan.
Flatrock No. 2 encountered 8 pay sands totaling 289 net feet of pay confirmed by wireline logs in January 2008. Successful production test in April 2008 at a gross rate of 114 MMcfe/d, 21 MMcfe/d net to McMoRan. First production expected in mid-2008.
Flatrock No. 3 encountered 3 pay sands totaling 126 net feet of pay confirmed by wireline logs in February 2008. The well has been sidetracked to 17,100 feet and has a proposed total depth of 18,800 feet.
Flatrock No. 4 well commenced drilling on April 9, 2008 and is currently drilling below 3,500 feet to proposed total depth of 18,500 feet.
Additional wells are being planned in the Flatrock area.
Mound Point East exploratory well on Louisiana State Lease 340 commenced drilling on March 31, 2008. Currently drilling below 7,800 feet to a proposed total depth of 18,050 feet.
The ultra-deep exploratory well at South Timbalier Block 168 was re-entered on March 18, 2008 and is currently drilling below 30,145 feet to evaluate potentially significant Miocene targets.
First-quarter 2008 operating cash flows totaled $172.8 million. Credit facility borrowings were reduced by $111 million during the first quarter of 2008 and totaled $163 million at March 31, 2008.
Completed privately negotiated transactions to induce conversion of approximately $32 million, including $7 million in April 2008, of 6% convertible senior notes into approximately 2.2 million shares of common stock.
Basic shares outstanding approximate 55.6 million and approximately 85.5 million shares assuming conversion of McMoRan’s mandatory convertible preferred stock, outstanding convertible notes and warrants.
Average daily production for 2008 expected to approximate 285 MMcfe/d net to McMoRan, including 285 MMcfe/d in second quarter of 2008. Potential to increase production with further success at Flatrock and other exploration prospects.
Continuing active drilling program on 150,000 gross acreage position on OCS 310/Louisiana State Lease 340 area, including additional wells at Flatrock in 2008.
Capital expenditures for 2008 estimated to approximate $250 million.
McMoRan Exploration Co. (NYSE: MMR - News) today reported net income applicable to common stock of $32.0 million, $0.46 per fully diluted share, for the first quarter of 2008 compared with a net loss applicable to common stock of $14.9 million, $0.53 per share, for the first quarter of 2007. McMoRan's net income from its continuing operations for the first quarter of 2008 totaled $37.2 million, including a loss of $41.6 million, $0.49 per fully diluted share, for non cash mark-to-market charges on McMoRan’s open oil and gas derivative contracts. During the first quarter of 2007, McMoRan’s net loss from continuing operations totaled $16.8 million, including $9.8 million of exploration expense and $2.7 million of start-up costs associated with the Main Pass Energy Hub™ (MPEH™).


SUMMARY FINANCIAL TABLE(1)

First Quarter
2008 2007
(In Thousands, Except Per

Share Amounts)

Revenues $ 295,476 $ 51,697
Operating income (loss) 55,825
a
(11,923 )
Operating cash flow 172,816 8,478
Net income (loss) from continuing operations 37,231
a
(16,829 )
Net income (loss) from discontinued operations (856 ) 2,331
Net income (loss) applicable to common stockb
32,009
a
(14,903 )
Diluted net income (loss) per share:

Continuing operations $
0.47
a
$ (0.61 )
Discontinued operations (0.01 ) 0.08
Applicable to common stockb
0.46
a
(0.53 )
Diluted average common shares outstandingc
85,154
d
28,358
a.
Includes McMoRan's loss on its oil and gas derivative contracts totaling $45.2 million, $0.53 per share, reflecting $41.6 million, $0.49 per share, of mark-to-market accounting adjustments on open contracts and $3.6 million, $0.04 per share, in losses realized on settled contracts during the first quarter of 2008.

b.
After preferred dividends.

c.
See Note c on page I.

d.
Assumes full conversion of McMoRan's 6% Convertible Senior Notes, 5 1/4% Convertible Senior Notes, 6.75% Mandatory Convertible Preferred Stock, and the dilutive effect of outstanding stock options and warrants into 31.2 million shares.

(1)
If any in-progress well or unproved property is determined to be non-productive prior to the filing of McMoRan's first-quarter 2008 Form 10-Q, the related costs incurred through March 31, 2008 would be charged to exploration expense in the first quarter 2008 financial statements. McMoRan's investment in its five in-progress or unevaluated wells totaled $70.6 million at March 31, 2008.



James R. Moffett and Richard C. Adkerson, Co-Chairmen of McMoRan, said, “Our first quarter 2008 results reflect strong performance from our producing properties and continued positive drilling results in the Flatrock field. Strong cash flows are enabling us to invest aggressively in our future growth, including commencing drilling at the potentially significant ultra-deep South Timbalier Block 168 No. 1 well, and to strengthen our balance sheet through debt reductions. We are pleased with the results of our deep drilling activities and look forward to advancing this program to build values for shareholders. The theme of our annual report ‘Preparation Meets Opportunity’ reflects our view that we are well-positioned to take advantage of our lease position and significant inventory of high potential prospects.”

EXPLORATION ACTIVITIES

Since 2004, McMoRan has participated in 17 discoveries on 32 prospects drilled and evaluated, including the Flatrock discovery in the third quarter of 2007. Five additional prospects are either in progress or not fully evaluated.

Following the initial discovery at Flatrock on South Marsh Island Block 212 in the OCS 310/Louisiana State Lease 340 area in approximately 10 feet of water, McMoRan continues to pursue opportunities in the area aggressively. Recent results include the commencement of production at Flatrock No. 1 (location “A”) on January 28, 2008, successful delineation wells at Flatrock No. 2 and No. 3 (location “B” and “D”) and a production test of the Flatrock No. 2 well at a gross rate of 114 MMcfe/d. Production can be brought on line quickly using the Tiger Shoal facilities in the immediate area.

The Flatrock No. 3 well, which is targeting additional Operc sands below 17,100 feet, has been sidetracked to 17,100 feet. The well has a proposed total depth of 18,800 feet. The Flatrock No. 4 well (location “C”) commenced drilling on April 9, 2008 at a location 2,750 feet north of the Flatrock No. 1 well and 3,200 feet south-southeast of the Flatrock No. 2 well and is drilling below 3,500 feet to a proposed total depth of 18,500 targeting Rob-L and Operc sands seen in the area.


Following is a status report on activities in the Flatrock area:


Flatrock Wells Total Pay

Intervals
Net Feet

of Pay(1)
Status
No. 1 – “A” location

Discovery Well
8 260 Gross production currently approximates 50 MMcfe/d,~12 MMcfe/d net to McMoRan
No. 2 – “B” location

Delineation Well
8 289 Tested 103 MMcf/d and 1,890 bbls/d gross, 21.4 MMcfe/d net: first production expected mid-2008
No. 3 – “D” location

Delineation Well
3 126 Spud November 6, 2007: drilled to 17,100’ with a proposed total depth of 18,800’

No. 4 – “C” location

Development Well
n/a n/a Spud April 9, 2008: drilling below 3,500’ with a proposed total depth of 18,500’
(1) Confirmed with wireline logs.




McMoRan controls approximately 150,000 gross acres in the Tiger Shoal/Mound Point area (OCS 310/Louisiana State Lease 340) and has multiple additional exploration opportunities with significant potential on this large acreage position. McMoRan has a 25.0 percent working interest and an 18.8 percent net revenue interest in Flatrock.

The Mound Point East exploratory well on Louisiana State Lease 340 commenced drilling on March 31, 2008 and is drilling below 7,800 feet. The well has a proposed total depth of 18,050 feet and will target Operc sands in the middle-Miocene. Mound Point East is located in less than 10 feet of water approximately 10 miles east of the Flatrock field. McMoRan is targeting deep geologic features in the Mound Point area similar to those discovered in the Flatrock field. McMoRan holds a 32.5 percent working interest and a 23.2 percent net revenue interest in the well. Plains Exploration & Production Company (NYSE: PXP - News) holds a 43.4 percent working interest. McMoRan’s investment in Mound Point East totaled $2.2 million at March 31, 2008.

McMoRan re-entered the South Timbalier Block 168 No. 1 wellbore, formerly known as the Blackbeard West No. 1 ultra-deep exploratory well, on March 18, 2008. The Rowan Gorilla IV rig has drilled through cement plugs set by the previous operator. This well is currently being deepened below 30,145 feet to a proposed total depth of 31,267 feet to evaluate potentially significant Miocene targets. McMoRan operates the well and owns a 32.3 percent working interest. McMoRan’s partners, Plains Exploration & Production Company and Energy XXI (NASDAQ: EXXI - News), hold a 35 percent working interest and 20 percent working interest, respectively. McMoRan’s investment in South Timbalier Block 168 No. 1 well totaled $0.5 million at March 31, 2008.

Subject to certain preferential rights held by third parties, McMoRan has also agreed to assign a proportional share of its interest in approximately 425,000 gross acres associated with the ultra-deep trend to PXP and EXXI. In addition to their working interest share of well costs, PXP and EXXI will pay up to $9.7 million and $5.5 million, respectively, for the right to participate in the re-entry of the South Timbalier Block 168 No. 1 well and in the assigned acreage. The Blackbeard West No. 1 well, located in 70 feet of water, was drilled to 30,067 feet by the original operator and its partners but was temporarily abandoned in August 2006 prior to reaching the objective depth.

McMoRan currently has rights to approximately 1.5 million gross acres and is developing plans to participate in the drilling of additional exploratory wells in 2008, including the Tom Sauk and Gladstone prospects on Louisiana State Lease 340, which lie below the significant historical shallow production at Mound Point.

McMoRan was high bidder on seven leases for a total of $1.2 million at the March 2008 Minerals Management Service Outer Continental Shelf Sale 206 for leases in the Central Gulf of Mexico. The leases are South Marsh Island Blocks 21 and 125, Eugene Island Blocks 134 and 155, and Ship Shoal Blocks 212, 184 and 192.

PRODUCTION AND DEVELOPMENT ACTIVITIES

First-quarter 2008 production averaged 294 MMcfe/d net to McMoRan, compared with 70 MMcfe/d in the first quarter of 2007. First-quarter 2008 average production was higher than our previously reported estimate on January 18, 2008 of 270 MMcfe/d because of stronger performance from the properties acquired in August 2007 and from the Flatrock No. 1 well. First production is expected to commence at the Flatrock No. 2 and Cottonwood Point wells in mid-2008. Average daily production for 2008 is expected to approximate 285 MMcfe/day net to McMoRan, including 285 MMcfe/day in the second quarter of 2008. Production estimates for 2008 have increased from previous estimates because of improved performance in the first quarter and recent drilling success in the Flatrock field. Additional success at Flatrock and other exploration prospects could increase future production further.

REVENUES

McMoRan’s first-quarter 2008 oil and gas revenues totaled $291.9 million, compared to $51.4 million during the first quarter of 2007. During the first quarter of 2008, McMoRan’s sales volumes totaled 17.9 Bcf of gas, 1.1 million barrels of oil and condensate and 2.5 Bcfe of plant products, compared to 3.9 Bcf of gas, 344,400 barrels of oil and condensate and 0.4 Bcfe of plant products in the first quarter of 2007. McMoRan’s first-quarter comparable average realizations for gas were $9.06 per thousand cubic feet (Mcf) in 2008 and $7.59 per Mcf in 2007; for oil and condensate McMoRan received an average of $97.40 per barrel in first-quarter 2008 compared to $54.24 per barrel in first-quarter 2007.

FINANCING TRANSACTIONS

Since the beginning of 2008, McMoRan has privately negotiated transactions to induce conversion of $32 million, including $7 million in April 2008, of its 6% Convertible Senior Notes due July 2, 2008 into approximately 2.2 million shares of its common stock based on the $14.25 conversion price for the convertible notes. McMoRan paid an aggregate $0.8 million in the transactions, which will be reflected as non operating expense in McMoRan’s statement of operations ($0.7 million was recorded in the first quarter of 2008). After giving effect to these conversions, the remaining principal amount outstanding on McMoRan’s 6% Convertible Senior Notes approximates $69 million and its common shares outstanding total approximately 55.6 million shares. Assuming conversion of McMoRan’s outstanding mandatory convertible preferred stock, convertible notes and warrants, McMoRan would have approximately 85.5 million shares outstanding.

CASH FLOWS, CAPITAL EXPENDITURES AND REVOLVER BORROWINGS

First-quarter 2008 operating cash flows totaled $172.8 million, including $28.7 million in working capital uses. Capital expenditures totaled $51.4 million for the first quarter of 2008. Capital expenditures for 2008 are expected to approximate $250 million, including approximately $90 million in exploration associated with Flatrock and other opportunities and $160 million in development costs. Capital spending may change as additional opportunities become available and to fund additional development capital expenditures on successful wells.

On March 31, 2008, McMoRan had unrestricted cash and cash equivalents of $6.4 million and $163 million in borrowings under its revolving bank credit facility, a reduction of $111 million from December 31, 2007. On March 31, 2008, availability under McMoRan’s revolving bank credit facility was $317 million, after taking into account borrowings and $100 million in letters of credit for abandonment obligations associated with the acquired properties.

DERIVATIVE CONTRACTS

In connection with McMoRan’s oil and gas property acquisition in 2007 McMoRan entered into derivative contracts to hedge a portion of its production during 2008 - 2010 for the periods covering January-June and November-December through a combination of swaps and puts. Following is a schedule of open swap positions:


Natural Gas Positions

(million MMbtu)
Oil Positions

(thousand bbls)






Annual

Volumes
Average

Swap Price
Annual

Volumes
Average

Swap Price

2008 8.8 $ 8.68 379 $ 73.29
2009 7.3 $ 8.97 322 $ 71.82
2010 2.6 $ 8.63 118 $ 70.89



These derivative contracts have not been designated as hedges for accounting purposes. Accordingly, our derivative contracts are subject to mark-to-market fair value adjustments and unrealized gains and losses are recognized immediately in our operating results. McMoRan’s first-quarter 2008 results included a realized cash loss of $3.6 million and an unrealized loss of $41.6 million for mark-to-market accounting adjustments associated with open derivative contracts based on changes in their respective fair market values through March 31, 2008. McMoRan’s fair value net liability after mark-to-market adjustments was $42.2 million at March 31, 2008. We may consider future opportunities to hedge other portions of our production.

MAIN PASS ENERGY HUB™ UPDATE

McMoRan is continuing discussions with potential energy suppliers to develop commercial arrangements for the MPEH™ facilities. As previously reported, MARAD approved McMoRan’s license application for its MPEH™ project in January 2007.

The project’s location near large and liquid U.S. gas markets and the significant potential of the onsite cavern storage provide attractive commercial opportunities for LNG suppliers, natural gas consumers and marketers. The MPEH™ facility, as approved, is expected to be capable of storing 28 Bcf of gas in underground storage caverns, producing natural gas liquids and regasifying LNG at a peak rate of 1.6 Bcf per day.

Prior to commencing construction of the facility, McMoRan expects to enter into commercial arrangements that would enable McMoRan to finance the construction costs of the project.

McMoRan Exploration Co. is an independent public company engaged in the exploration, development and production of oil and natural gas offshore in the Gulf of Mexico and onshore in the Gulf Coast area. McMoRan is also pursuing plans for the development of a multifaceted energy facility at the MEPH™, including the potential development of a facility to receive and process liquefied natural gas and store and distribute natural gas. Additional information about McMoRan and the MPEH™ project is available on its internet website “www.mcmoran.com” and at “www.mpeh.com.”