McMoRan Exploration Company: Bonanza or White Elephant?

McMoRan Exploration (MMR) is small ($300 million market cap.) exploration and production company that owns or controls interest in some 603 oil and gas leases in the Gulf of Mexico and onshore Louisiana and Texas. Proved oil and natural gas reserves as of December, 2007 totaled 363.9 bcfe (billion cubic feet equivalent).

McMoRan Exploration has its origins in Freeport-McMoRan Copper & Gold Inc.’s (FCX) oil, gas and sulpher operations which were split off in the 1990s. Several board members serve on the boards of both companies.

McMoRan has been engaged in the development of the Main Pass Energy Hub, an offshore Liquid Natural (LNG) gas distribution and storage facility. The hub is intended to function as a port to offload and store LNG.

As of December 31, 2007 the company had $93 million total cash ($1.327 cash per share) and $374 million in debt. Like many energy companies, McMoRan reported a loss the last two quarters of 2008.

Researching the company I found potential negative and positive aspects.

The Negative: It was difficult to find much information on McMoRan’s Main Pass Energy Hub. The mpeh.com website, has lots of pictures, but the most recent update that I could find, under the “Whats New” link at the top of the home page, had a 2008 heading but the latest post was April 4 of 2007 — not very new and not in 2008. Either they have a very poor web people or the site is suffering from profound neglect.

Of course, imported LNG no longer is as important to the US as predicted just a few years back. Significant natural gas reserves have been found domestically in recent years. Current low gas prices (now under $4 per 1000 cubic feet) have to be a negative for LNG activity. The hub site’s home page prominently cautions the project is “subject to significant risks, including determining the feasibility of developing the project, securing significant project financing, and obtaining regulatory approval“. From the photos it looks like a lot may have already been invested in this former sulphur mining site,

I am open to the view that this hub may be a gem, waiting to be uncovered, rather than a white elephant. The company could help with new website updates or press releases concerning the hubs current status.

The positive (maybe): Business Week, in its February 16, 2009 article on Exxon (XOM), mentioned that McMoRan took over a deep, abandoned Exxon well (Blackbeard) and, drilling even deeper, found significant oil deposits. The article says Mr. James R. Moffett, co-chairman of the company, declared that McMoRan “… may have found , between a half-billion and several billion barrels of oil” in Blackbeard.

It is also worth noting that Mr. Moffett on March 4 and 5 of 2009, purchased some $2 million dollars worth of common stock in the company at prices of $3.76 and $3.90 a share (Yahoo Finance). This may explain the recent uptick in stock price.

I would be cautious with McMoRan. It will be interesting to see if the former Blackbeard well is as rich in reserves as Mr. Moffett seemed to think. If so, score one for McMoRan over Exxon. If not, maybe the rumored discovery is just good PR in a down market. I look forward to reading the 2008 annual report to see the latest on the former Exxon well.

Disclosure: Long MMR (for now).

Comments

[Conan the B...:]

Instead of looking at mpeh.com, which I did not know existed, go directly to MMR's home page for press releases.

There are enough on The Terminal and Blackbeard to satisfy the enthusiastic as well as Bears.

With FCX above $100, Moffett was selling FCX and buying MMR, at prices north of $10.

The interest in Blackbeard is very old news, try mid-2008, The Drill rig used is the Rowan Gorilla. I believe the site is in a 200 feet depth area, drilling stopped at the 32,000 foot level for assessment purposes, then was hampered by a few Hurricanes and thereafter by the present situation.

I follow RDC, as well as the other 2 companies which will share in the find to a lesser degree.

The Terminal received both State and Environmental approvals and will cost much less than others of its kind because of the facilities already in place.

I have never been able to pinpoint the role of a "person of interest" who was forced to sell in last years selloff of both FCX and MMR, but he is back with a vengeance, Day.

I do not consider the Chairman of FCX and the Co-chairman of MMR to be just a "board member".

Mar 18 11:01 AM

[Stone Fox C...:]

MMR is intriguing, but as the other posted suggested real the PRs and not the annual report. It may have some extra info, but its usually old news by the time that gets published.

Mar 18 12:42 PM

[Global Warm...:]

We have found huge quantities of natural gas in shale formations that new horizontal drilling techniques have unlocked. The slow economy and the now abundant amount of gas have driven prices down, probably below the cost of new production.

With the overhand of domestic natural gas, which probably won't go away anytime soon, the importation of LNG into the US does not seem to be a viable business. LNG has better markets in other countries that don't have the domestic natural gas resources we have.

Mar 18 02:16 PM

[Conan the B...:]

Global: Cheniere energy(LNG) would like to ship from here to there. These Terminals aren't one way streets.

Mar 18 02:38 PM

[Steve Ward:]

I am familiar with Mr. Moffett since my broker recommended Freeport since 1982. Moffett is an unusual fellow.
His managerment recorsd has been up and down. There are times he has turned a full house into 3 of a kind.
He is more apt to sell ormilk a big project than to try and become an Exxon. Maybe he is smart afte rall.

Mar 18 08:49 PM

[T'bob:]

The news cited on Blackbeard well above is ancient history. McMoran and partners are awaiting fabrication of equipment that will allow testing of the ultradeep well. Time frame ~ 12-15 months from now.

From Press release dated 10-23-08:
"......McMoRan also announced it plans to complete and test the South Timbalier Block 168
No. 1 ultra-deep exploratory well (formerly known as Blackbeard West No. 1). As previously
reported, the well was drilled to a total depth of 32,997 feet in October 2008 and logs indicated four
potential hydrocarbon bearing zones below 30,067 feet that require further evaluation. The well will
be temporarily abandoned while the necessary long-lead time completion equipment is procured for
this anticipated high pressure test. McMoRan will continue to review additional drilling opportunities
on the flanks of the structure and on other acreage it holds in the ultra-deep trend. The South
Timbalier Block 168 well is located on the top of the targeted structure. Seismic data on the prospect
indicates the potential for significantly thicker sands on the flanks of the structure as confirmed in
2 recent major deepwater discoveries. Based on information obtained to date in the South Timbalier
Block 168 well, McMoRan believes additional drilling on the flanks could result in significant reserve
potential.
South Timbalier Block 168 is located in 70 feet of water approximately 115 miles southwest
of New Orleans. McMoRan operates the well, which is the deepest ever drilled below the mud line in
the Gulf of Mexico, and owns a 32.3 percent working interest. McMoRan’s partners, PXP and Energy
XXI (NASDAQ: EXXI), hold a 35 percent working interest and 20 percent working interest,
respectively....."

Mar 18 09:18 PM

[Conan the B...:]

t'bob: Cash strapped, that's what some feel is the case with MMR. It did not stop them from bidding for and acquiring 2 of 3 leases in a US Gulf Lease auction recently.

My personal belief is that they feel sure they have something major. If so, someone will buy them because of the proximity of the find.

Mar 28 12:03 AM