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McMoRan Exploration Co. Reports Fourth-Quarter/Twelve-Month 2012 Results

Stocks in this article: EXXI MMR

RESERVE UPDATE

Independent reservoir engineers’ preliminary estimates of McMoRan’s proved oil, natural gas and natural gas liquid reserves as of December 31, 2012, were 206.9 Bcfe, compared with 255.8 Bcfe at December 31, 2011. Year-end 2012 reserves reflect positive reserve revisions from certain of McMoRan’s producing properties (principally Flatrock), offset by 2012 production and divestitures. Amounts exclude pending results from ultra-deep activities.

Below is a summary of changes in proved reserves:

  Bcfe
Proved Reserves at 12/31/11 255.8
2012 Production (50.2 )
Divestitures (22.0 )
Net Revisions* 23.3
Proved Reserves at 12/31/12 206.9
* Positive revisions principally from Flatrock (16.6 Bcfe) and West Cameron Block 73 override (2.1 Bcfe).

WEBCAST INFORMATION

A conference call with securities analysts to discuss McMoRan’s fourth-quarter 2012 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, February 15, 2013.

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 forward-looking 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 potential oil and gas discoveries, oil and gas exploration, development and production activities and costs, amounts and timing of capital expenditures, reclamation, indemnification and environmental obligations and costs, the potential for or expectation of successful flow tests, potential quarterly and annual production and flow rates, reserve estimates, projected operating cash flows and liquidity, the potential merger with FCX, the potential MPEH TM project and other statements that are not historical facts. No assurance 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 may have on our results of operations or financial condition. Important factors that may cause actual results to differ materially from those anticipated by forward-looking statements include, but are not limited to, those associated with general economic and business conditions, failure to realize expected value creation from acquired properties, variations in the market demand for, and prices of, oil and natural gas, drilling results, unanticipated fluctuations in flow rates of producing wells due to mechanical or operational issues (including those experienced at wells operated by third parties where we are a participant), changes in oil and natural gas reserve expectations, the potential adoption of new governmental regulations, unanticipated hazards for which we have limited or no insurance coverage, failure of third party partners to fulfill their capital and other commitments, 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, the ability to retain current or future lease acreage rights, access to capital to fund drilling activities, the ability to obtain regulatory approvals and significant project financing for the potential MPEH TM project, the failure to consummate the merger with FCX as well as other general exploration and development risks and hazards and other factors described in Part I, Item 1A. "Risk Factors" included in our Annual Report on Form 10-K for the year ended December 31, 2011 filed with the Securities and Exchange Commission (SEC), as updated by McMoRan’s subsequent filings.

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, we may make changes to our business plans that could or will affect our results. 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 recognized under GAAP. As required by SEC Regulation G, reconciliations of this measure to amounts reported in our consolidated financial statements are included in the supplemental schedules of this press release.

Additional Information about the Proposed Transaction and Where to Find It

In connection with the proposed transaction, the royalty trust formed in connection with the transaction has filed with the SEC a registration statement on Form S-4 that includes a preliminary proxy statement of McMoRan that also constitutes a prospectus of the royalty trust. FCX, the royalty trust and McMoRan also plan to file other relevant documents with the SEC regarding the proposed transaction. INVESTORS ARE URGED TO READ THE PROXY STATEMENT/PROSPECTUS AND OTHER RELEVANT DOCUMENTS FILED WITH THE SEC IF AND WHEN THEY BECOME AVAILABLE, BECAUSE THEY WILL CONTAIN IMPORTANT INFORMATION. You may obtain a free copy of the definitive proxy statement/prospectus (if and when it becomes available) and other relevant documents filed by FCX, the royalty trust and McMoRan with the SEC at the SEC’s website at www.sec.gov . You may also obtain these documents by contacting FCX’s Investor Relations department at (602) 366-8400, or via e-mail at ir@fmi.com ; or by contacting McMoRan’s Investor Relations department at (504) 582-4000, or via email at ir@fmi.com .

FCX and McMoRan and their respective directors and executive officers and other members of management and employees may be deemed to be participants in the solicitation of proxies in respect of the proposed transaction. Information about FCX’s directors and executive officers is available in FCX’s proxy statement dated April 27, 2012, for its 2012 Annual Meeting of Stockholders. Information about McMoRan’s directors and executive officers is available in McMoRan’s proxy statement dated April 27, 2012, for its 2012 Annual Meeting of Stockholders. Other information regarding the participants in the proxy solicitation and a description of their direct and indirect interests, by security holdings or otherwise, will be contained in the definitive proxy statement/prospectus and other relevant materials to be filed with the SEC regarding the merger when they become available. Investors should read the definitive proxy statement/prospectus carefully when it becomes available before making any voting or investment decisions. You may obtain free copies of these documents from FCX or McMoRan using the sources indicated above.

This document shall not constitute an offer to sell or the solicitation of an offer to buy any securities, nor shall there be any sale of securities in any jurisdiction in which such offer, solicitation or sale would be unlawful prior to registration or qualification under the securities laws of any such jurisdiction. No offering of securities shall be made except by means of a prospectus meeting the requirements of Section 10 of the U.S. Securities Act of 1933, as amended.

McMoRan EXPLORATION CO.

STATEMENTS OF OPERATIONS (Unaudited)

(In Thousands, Except Per Share Amounts)

 
 

 

Three Months Ended

 

Year Ended

 

December 31,

 

December 31,

 

2012

2011

 

2012

2011
 
Revenues:
Oil and natural gas $ 80,608 $ 118,581 $ 362,995 $ 542,310
Service   3,562   3,338   13,893   13,104
Total revenues 84,170 121,919 376,888 555,414
Costs and expenses:
Production and delivery costs 36,407 45,269 155,141 206,319
Depletion, depreciation and amortization expense a 57,168 59,164 173,817 307,902
Exploration expenses 5,231 2,910 127,994 b 81,742 b
General and administrative expenses 14,217 10,419 52,977 49,471
Insurance recoveries c - (39,058 ) (1,229 ) (91,076 )
Gain on sale of oil and gas properties d (39,654 ) - (40,453 ) (900 )
Main Pass Energy Hub™ costs   77   26   287   588
Total costs and expenses   73,446   78,730   468,534   554,046
Operating income (loss) 10,724 43,189 (91,646 ) 1,368
Interest expense, net e - - - (8,782 )
Loss on debt exchange - - (5,955 ) f -
Other income, net   43   196   568   810
Income (loss) from continuing operations before income taxes 10,767 43,385 (97,033 ) (6,604 )
Income tax expense   -   -   -   -
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) 9,079 38,743 (104,294 ) (15,968 )
Preferred dividends and inducement payments for early
conversion of convertible preferred stock   (10,286 )   (10,343 )   (41,276 )   (42,800 )
Net income (loss) applicable to common stock $ (1,207 ) $ 28,400 $ (145,570 ) $ (58,768 )
 
Basic net income (loss) per share of common stock:
Continuing operations g $(0.00 ) $0.21 $(0.86 ) $(0.31 )
Discontinued operations   (0.01 )   (0.03 )   (0.04 )   (0.06 )
Net income (loss) per share of common stock   $(0.01 )   $0.18   $(0.90 )   $(0.37 )
 
Diluted net income (loss) per share of common stock:
Continuing operations g $(0.00 ) $0.19 $(0.86 ) $(0.31 )
Discontinued operations   (0.01 )   (0.03 )   (0.04 )   (0.06 )
Net income (loss) per share of common stock   $(0.01 )   $0.16   $(0.90 )   $(0.37 )
 
Average common shares outstanding:
Basic   161,928   161,328   161,702   159,216
Diluted   161,928   181,436   161,702   159,216
 

a.

 Includes impairment charges totaling $34.5 million and $46.2 million in the fourth quarter and year ended December 31, 2012, and $9.1 million and $71.1 million in the fourth quarter and year ended December 31, 2011, respectively. Also includes reclamation accrual adjustments for asset retirement obligations associated with certain oil and gas properties totaling approximately $1.3 million and $17.6 million in the fourth quarter and year ended December 31, 2012, respectively and approximately $11.4 million and $57.3 million in the fourth quarter and year ended December 31, 2011, respectively.

b.

 Includes charges for non-productive well costs and unproven leasehold cost impairments of $93.5 million and $42.3 million for the years ended December 31, 2012 and 2011, respectively.

c.

 Primarily represents McMoRan’s share of insurance reimbursements related to losses incurred from prior hurricane events.

d.

 2012 amounts include $39.7 million of gains on sale of certain Gulf of Mexico oil and gas properties for net cash proceeds of approximately $55.9 million and the assumption of related abandonment obligations recorded in the fourth quarter of 2012.

e.

 Net of interest capitalized to in-progress drilling projects of approximately $14.1 million and $56.5 million in the fourth quarter and year ended December 31, 2012, respectively, and $14.2 million and $47.4 million in the fourth quarter and year ended December 31, 2011, respectively.

f.

 Represents the debt extinguishment accounting loss recorded in September 2012 resulting from McMoRan’s exchange of $67.8 million of its 5¼% convertible senior notes due October 2012 for an equal principal amount of newly issued 5¼% convertible senior notes due October 2013.

g.

 For purposes of the earnings per share computations, the net loss applicable to continuing operations includes preferred stock dividends and conversion inducement payments.

McMoRan EXPLORATION CO.

RECONCILATION 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 income (loss) from continuing operations before other income, net; interest expense, net; income tax expense; Main Pass Energy Hub TM costs; exploration expenses; depletion, depreciation and amortization expense; stock-based compensation charged to general and administrative expenses; insurance recoveries; gain on sale of oil and gas properties; loss on debt exchange; and hurricane damage repairs.  EBITDAX should not be considered by itself or as a substitute for net loss, operating 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 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):

 
Fourth Quarter   Year Ended

December 31,

  2012     2011   2012   2011
Net income (loss) applicable to common stock, as reported $ (1,207 ) $ 28,400 $ (145,570 ) $ (58,768 )

Preferred dividends and inducement payments for early conversion of convertible preferred stock

10,286 10,343 41,276 42,800
Loss from discontinued operations   1,688   4,642   7,261   9,364
Income (loss) from continuing operations, as reported 10,767 43,385 (97,033 ) (6,604 )
 
Other income, net (43 ) (196 ) (568 ) (810 )
Interest expense, net - - - 8,782
Income tax expense - - - -
Main Pass Energy Hub TM costs 77 26 287 588
Exploration expenses 5,231 2,910 127,994 81,742
Depletion, depreciation and amortization expense 57,168 59,164 173,817 307,902

Stock-based compensation charged to general and administrative expenses

1,939 1,486 9,756 9,945
Insurance recoveries - (39,058 ) (1,229 ) (91,076 )
Gain on sale of oil and gas properties (39,654 ) - (40,453 ) (900 )
Loss on debt exchange - - 5,955 -
Hurricane damage repairs and other   1,537   (159 )   1,547   246
EBITDAX $ 37,022 $ 67,558 $ 180,073 $ 309,815

McMoRan EXPLORATION CO.

OPERATING DATA (Unaudited)

   
Fourth Quarter Year Ended December 31,
2012   2011 2012   2011
Sales volumes:
Gas (thousand cubic feet, or Mcf) 7,056,800 10,361,800 31,797,400 45,000,000
Oil (barrels) 456,500 577,000 2,107,300 2,716,900
Natural gas liquids (NGLs, in barrels) 193,100 298,000 965,500 1,154,200
Average realizations:
Gas (per Mcf) $ 3.68 $ 3.57 $ 2.92 $ 4.32
Oil (per barrel) $ 103.61 $ 111.46 $ 107.58 $ 104.45
NGLs (per barrel) $ 37.66 $ 56.90 $ 44.66 $ 54.78

McMoRan EXPLORATION  CO.

CONDENSED BALANCE SHEETS (Unaudited)

(In Thousands)

   

December 31,

December 31,

2012 2011
 
ASSETS
Cash and cash equivalents $ 114,867 $ 568,763
Accounts receivable 52,548 72,085
Inventories 28,532 36,274
Prepaid expenses 15,186 9,103
Current assets from discontinued operations, including restricted cash
of $473   2,013   682
Total current assets 213,146 686,907
Property, plant and equipment, net 2,394,522 2,181,926
Restricted cash and other 61,319 61,617
Deferred costs 7,696 8,325
Long-term assets from discontinued operations   439   439
Total assets $ 2,677,122 $ 2,939,214
 
LIABILITIES AND STOCKHOLDERS’ EQUITY
Accounts payable $ 83,937 $ 115,832
Accrued liabilities 131,648 160,822
Accrued interest and dividends payable 14,433 14,448
Current portion of accrued oil and gas reclamation costs 57,336 58,810
5¼% convertible senior notes 67,832 66,223
Current liabilities from discontinued operations, including sulphur reclamation costs 2,328 5,264
Total current liabilities 357,514 421,399
11.875% senior notes 300,000 300,000
4% convertible senior notes 189,470 187,363
Accrued oil and gas reclamation costs 188,245 267,584
Other long-term liabilities 17,204 20,886
Other long-term liabilities from discontinued operations, including sulphur reclamation costs   21,478   19,018
Total liabilities   1,073,911   1,216,250
Stockholders' equity   1,603,211   1,722,964
Total liabilities and stockholders' equity $ 2,677,122 $ 2,939,214

McMoRan EXPLORATION CO.

STATEMENTS OF CASH FLOW (Unaudited)

(In Thousands)

 
Year Ended
December 31,
2012 2011
 
Cash flow from operating activities:
Net loss $ (104,294 ) $ (15,968 )
Adjustments to reconcile net loss to net cash provided by operating activities:
Loss from discontinued operations 7,261 9,364
Depletion, depreciation and amortization expense 173,817 307,902
Exploration drilling and related expenditures 93,506 42,339
Loss on debt exchange 5,955 -
Compensation expense associated with stock-based awards 17,445 18,325
Reclamation expenditures, net (76,615 ) (150,021 )
Increase in restricted cash (5,006 ) (5,012 )
Gain on sale of oil and gas properties (40,453 ) (900 )
Amortization of deferred financing costs and other 68 5,563
(Increase) decrease in working capital:
Accounts receivable 20,821 (22,996 )
Accounts payable and accrued liabilities (59,719 ) 45,944
Prepaid expenses, inventories and other   10,191   7,490
Net cash provided by continuing operations 42,977 242,030
Net cash used in discontinued operations   (9,327 )   (14,982 )
Net cash provided by operating activities   33,650   227,048
 
Cash flow from investing activities:
Exploration, development and other capital expenditures (505,132 ) (509,494 )
Acquisition of oil and gas properties - (9,520 )
Proceeds from sale of oil and gas properties   56,679   900
Net cash used in continuing operations (448,453 ) (518,114 )
Net cash activity from discontinued operations   -   -
Net cash used in investing activities   (448,453 )   (518,114 )
 
Cash flow from financing activities:

 

Dividends paid and inducement payments on early conversion of convertible preferred stock

(41,295 ) (37,951 )
Payment of 5 ¼% convertible senior notes (345 ) (6,543 )
Credit facility refinancing fees - (1,745 )
Debt and equity issuance costs (59 ) (562 )
Proceeds from exercise of stock options and other   2,606   946
Net cash used in continuing operations (39,093 ) (45,855 )
Net cash activity from discontinued operations   -   -
Net cash used in financing activities   (39,093 )   (45,855 )
Net decrease in cash and cash equivalents (453,896 ) (336,921 )
Cash and cash equivalents at beginning of year   568,763   905,684
Cash and cash equivalents at end of period $ 114,867 $ 568,763
 
Supplemental non-cash investing & financing activities:
Issuance of 2.8 million shares of common stock and other non-cash purchase price consideration related to property acquisition $ - $ 39,123




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