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McMoRan Exploration Co. (NYSE: MMR) today reported on the status of its operations following Hurricane Isaac, which impacted Gulf of Mexico operations prior to making landfall on the coast of Louisiana on August 28, 2012. Prior to the storm, McMoRan was engaged in recompletion activities at Davy Jones No. 1 on South Marsh Island Block 230 and in exploratory activities at Blackbeard West No. 2 on Ship Shoal Block 188 and Lineham Creek onshore in Cameron Parish, Louisiana. These rigs, which were secured and evacuated for the storm, sustained no significant damage. Rig crews have been re-mobilized following the evacuation and operations have resumed.

Following the storm, McMoRan also completed initial assessments of the McMoRan-operated producing properties in the Gulf of Mexico and received reports from third-party operators on certain properties, including Flatrock at South Marsh Island Block 212. There was no significant damage to McMoRan’s producing properties resulting from Hurricane Isaac and efforts are under way to re-establish production.

At Davy Jones No. 1, McMoRan has made progress in operations required to test the well and is working expeditiously to conclude testing operations on the first shallow water, sub-salt ultra-deep well on the Gulf of Mexico Shelf. As previously reported McMoRan successfully perforated 165 feet of Wilcox sands in July 2012. Prior to removing the blow out preventer and installing the production tree, McMoRan performed a routine pressure test on the seal system, which indicated that the seal assembly needed to be replaced. Prior to evacuating for the storm, McMoRan successfully suppressed flow in the well, removed the production tubing and cleaned out the wellbore to approximately 27,500 feet. Remaining steps required before flow testing include cleaning out the bottom 900 feet of the hole, installing the seal assembly, packer and production tubing in the hole, removing the blowout preventer and installing the production tree. Operations have resumed following Hurricane Isaac to complete the remaining steps and McMoRan currently expects to conduct a measurable flow test during the month of September 2012. Timing estimates may vary depending on operating conditions in the well, weather and other factors.

As previously reported, McMoRan has drilled two successful ultra-deep sub-salt wells in the Davy Jones field. The Davy Jones No. 1 well logged 200 net feet of pay in multiple Wilcox sands, which were all full to base. The Davy Jones offset appraisal well (Davy Jones No. 2), which is located two and a half miles southwest of Davy Jones No. 1, confirmed 120 net feet of pay in multiple Wilcox sands, indicating continuity across the major structural features of the Davy Jones prospect, and also encountered 192 net feet of potential hydrocarbons in the Tuscaloosa and Lower Cretaceous carbonate sections.

Davy Jones involves a large ultra-deep structure encompassing four OCS lease blocks (20,000 acres). McMoRan is the operator and holds a 63.4 percent working interest and a 50.2 percent net revenue interest in Davy Jones. Other working interest owners in Davy Jones include: Energy XXI (NASDAQ: EXXI) (15.8%), JX Nippon Oil Exploration (Gulf) Limited (12%) and Moncrief Offshore LLC (8.8%).

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 Gulf of Mexico Shelf and onshore in the Gulf Coast area. Additional information about McMoRan is available on its internet website “www.mcmoran.com“.

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Oil and natural gas producer McMoRan Exploration Co said its Gulf of Mexico well is likely to start commercial production shortly after it measures the rate of flow from the well during the week of July 30.

McMoRan shares, which fell as much as 6 percent in early trading, reversed course to gain 8 percent on Tuesday on the New York Stock Exchange. The stock has lost more than a third of its value in the last year.

McMoRan had extended the deadline to complete the flow test at the Davy Jones No. 1 well a couple of times. The company had originally expected to complete the test by end 2011.

Analysts said it was imperative for the company to start commercial production from the well as a majority of its capital expenditure is locked up there.

McMoRan, which holds a 63.4 percent working interest in the 20,000 acres Davy Jones property, had invested about $774.8 million in the area as of Dec. 31.

New Orleans, Louisiana-based McMoRan, which operates some of the deepest wells in the U.S. Gulf of Mexico, reported a bigger-than-expected second-quarter loss as pipeline repairs and shipping delays hurt production.

The company expects full-year production to be 137 million cubic feet equivalent per day (mmcfe/d), slightly higher than the 135 mmcfe/d it forecast earlier.

Second-quarter loss widened to $75.5 million, or 47 cents per share, from $50.2 million, or 32 cents per share, a year earlier.

Revenue fell 43 percent to $90.3 million.

Analysts on average had expected the company to post a loss of 13 cents per share on revenue of $96.6 million, according to Thomson Reuters I/B/E/S.

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For more than 50 years, folks have been pumping oil and gas out from under theGulf of Mexico.  In recent times people thought the GOM was an exhausted frontier. It’s been several years since Jim Bob Moffett embraced the vision that there were more layers of hydrocarbons to find far deeper below theGulf of Mexico than anyone had looked before.

Amazingly, Moffett’s public spirits never seem to flag as he pursues his vision despite unending challenges. Impatient hot shots like Boone Pickens seem to come and go from MMR. But for Moffett, each problem and delay is just another obstacle to be overcome by his team as they move forward. When asked how he keeps on trucking, his answer is that when this play started, he knew it would not be easy and he expected it to take years. With five successful discoveries under his belt, each believed to hold from 200 to 500 feet of pay, his proof of concept is there.

I have written before about the detractors who at first said nothing was there to be found. Wrong.  Then they said the wells couldn’t be drilled safely. They have been. Now they say they cannot be produced. It is this last stage that is the only missing piece. These negative evaluations all revolved around executing a vision that required doing something that has never been done before: 1. redefining how to read seismic data to look 5 and 6 miles into the earth’s crust. 2. dealing with temperatures over 420 degrees Fahrenheit and 3. controlling pressures that exceed 30,000 lbs.

McMoRan is a small company. It needs partners to complete the job of a massive number of development wells. Now we know the hydrocarbons are there. Next Moffitt must prove his principle that they can be produced very profitably even at depressed gas prices. Then he can command a premium price for what he has discovered either in a joint venture such as Freeport McMoRan Copper and Gold has with Rio Tinto in its mining business in Indonesia or in selling out the whole company.

The same geologic trends discovered in the Gulf of Mexico are now believed to continue right onshore Louisiana. Chevron has invited the group into its well at Lineham Creek in the Rockefeller Preserve because it needs Moffett’s knowledge. MMR and EXXI have both stated publicly that they intend to acquire more leases onshore to augment their huge offshore lease position.  Chevron is watching up close and personal and has been since 1999 when it became interested in Moffett’s prolific Flat Rock play. Rest assured that the other majors are also watching Moffett’s every move.

The ultimate challenge of the Ultra Deep is that equipment used historically in the oil patch has often not been up to the tasks at hand. Even great suppliers like Schlumberger and Cooper Cameron have been challenged to produce tools and supplies that work in extreme conditions. Tools melt, guns misfire or don’t fire at all, and different chemical reactions occur than are expected. Some problems have arisen because this particular well is so tiny at the bottom that there is just no room to work. That makes every day a learning experience.

In the latest problem to solve, zinc bromide standardly used in well completions for years became the culprit. It turns out that in a high pressure, high temperature environment as found at Davy Jones, the zinc bromide acts differently than it usually does and becomes like putty. When it comes into contact with drilling mud, it sets up like cement. That’s just what you don’t need in a small ultra deep well that you need to flow.

All of this has taken time. Time is the enemy of short-term traders who try to execute their option purchases perfectly for a big killing. Instead the time premium has eaten them alive in MMR for months now. Time has not been MMR’s friend either. Remember that a Rowan drilling rig costs $180,000 per day, and you must stop to test the BOP every 7 days.

In his talk on June 13, 2012 at Enercom inLondon, Energy XXI’s CEO John Schiller updated the Ultra Deep play informing investors that the re-perforation of the well is now imminent. That should take about a week to complete. Steps to follow that are the rerunning of the production tubing which should take another week and then the flow testing that will follow. Remember that every 7 days, the USA is requiring new Blow Out Preventer tests, which take two days to complete.  That puts us just about at the end of the quarter for the flow test with production in early July.  Remember that however meekly Davy Jone 1 flowed in its initial flare, it was through poorly perforated holes at the bottom of the well.  All the partners seem to agree that the well is going to be a winner. They have far more information than we do so I’m going with their optimism.

Once it flows, the gas from the Davy Jones production will be sent right off to market as there are pipelines right nearby. But that market is now paying only 2.22 for Natural Gas. The great news is that even at that price MMR can turn a small profit.  (In sharp contrast, the shale fracking plays onshore need $5-7 gas to breakeven.) Schiller also revealed that Rowan’s EXL3 rig, which EXXI was expected to use at Golden Bear and then move to complete Davy Jones 2 will stay with EXXI for more wells. It might not go to work at Davy Jones 2 until after the turn of the year 2013.

So, why has there been a postponement of the completion of DJ2 from the second half of 2012 into next year? Once Davy Jones 1 evolved into such an enormous and expensive science experiment, Moffett tasked his work force with the goal of producing a white paper on the complete history of the well. He wants every aspect of the well development examined with a fine tooth comb: what equipment worked and what failed; what seismic information was correct and what needs refinement in its interpretation; what muds worked and which didn’t; and what tools were effective and which were not. He has asked his team for their very best recommendations going forward.

It is my impression that until that information is gathered and absorbed into procedures to be used at DJ2, Moffett doesn’t want to move forward and risk another $150 million well completion. Instead, he would rather back burner ordering anything for the completion of Davy 2 until all the answers are in. Then, armed with the knowledge gleaned from Davy 1, and the fact that Davy 2 is a much larger diameter hole, completion of Davy 2 should be much faster and much cheaper.

Shareholders are frustrated and so is management. Falling energy prices are afflicting the entire sector. Hopefully proving that these wells can be produced will finally shut down the naysayers. As that Connecticut Texan George H.W. Bush would say: “It’s the vision thing!”  Would you rather have “1000 points of light” or a giant flare in the Louisiana night?  I’m all for vision but first I vote for the flare! Hopefully, we will see it very soon.

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An oil rig off the coast of Vermilion Parish is drilling at an uncharted depth in shallow waters. It promises to be a boon for the Parish.The Davy Jones rig is about 20 miles south of Marsh Island. It can drill more than 29,000 feet in just 10 to 20 feet of water. Because of its success, the southern coastline is now known as the “Ultra Deep Frontier.” 
This rig could help revive Intracoastal City. The community is almost a ghost town, with empty lots and rundown businesses, but back in the 70s, it used to be a hub for the oil industry.

“It was miles and miles of companies, crew boats, work boats, you name it they had it from restaurants to bars,” said Wayne Touchet, Vermilion Parish Police Juror.

Scott Young owns Young Groceries, a full-service grocery store and offshore catering service. His employees spend 4 to 5 hours on the road every day delivering groceries to rigs miles away. 

”We want Intracoastal to be the place to go so we don’t have to spend 4 or 5 hours on the road. We can just go right down the dock and delivery the groceries. Hopefully we can get bigger companies back in this area,” said Young.

Vermilion Parish Police juror Wayne Touchet says the Davy Jones rig could help bring Intracoastal back to life. Since Davy Jones drills in shallow waters– Intracoastal is an ideal place for service companies to provide small vessels needed for shallow waters.

“Since the oil industry moved out of Vermilion Parish we’ve been relying heavily on agricultural to being revenue into our Parish. Now something like this will definitely boast our economy,” said Touchet.

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What really matters now is simple with regard to Davy Jones.  Did the well flow? YES. Did the equipment work? YES.  Did the new perforating guns fire?  NO. Is the well on production? NOT YET!

That’s the succinct summary of the April 9, 2012 conference call in which Jim Bob Moffett laid it all out for those who were listening.  But not many seem to have heard the complete message: most of the equipment worked beautifully and this well wants to flow.  It’s huge for McMoRan and also for the U.S. of A.

McMoRan held yet another update of its “progress” or perhaps better described as its latest “Problems” report with its Davy Jones #1 Well. No, the well is still not online and producing. Davy is still not yielding up his treasures in profusion but for sure, his grip has been loosened. Judging from some of the reports written after the conference call and recent stock price declines for both MMR and EXXI, most folks missed the important stuff. Believe me, I’m as frustrated as everybody else and blew my cork, too, last week at the lack of new news. Then came the call. Read the transcript if you haven’t. Moffett laid it all out for us if only people were listening. You don’t even have to read between the lines to get the complete picture. If we are frustrated, just think how they must feel.

McMoRan and its partners, Energy XXI, Tex Moncrief and Nippon Oil, have earned the respect of everyone working in the ultra deep Gulf of Mexico, shallow or deep.  Chevron recently invited the group into its Lineham Creek well onshore Louisiana in the Rockefeller Preserve.  Why? Because after spending a giant fortune for a small company, Jim Bob Moffett’s group knows more about the seismic, the challenges of drilling 6 miles below the mudline, and controlling 400+ degree temperatures and 25,000+lb. pressures at the bottom of these drill holes in the ultra deep Gulf of Mexico than anybody else.  Those assets count for a lot even if the stock is being punished in the short term by those who don’t value the long term view.

This project has overturned what had been common knowledge that the Gulf of Mexico was an exhausted basin for hydrocarbon discoveries.  It has extended the limits of how to use and interpret seismic data. It required the invention and manufacture of a whole new level of equipment engineered to safely control and conquer the pressures and the temperatures in this new frontier.  Remember that Exxon Mobil withdrew from its efforts at Blackbeard West. Its fears of another Exxon Valdez and its fears of those very concerns of temperature and pressure caused it to walk away after pouring over $200 million down BBW which this group now controls.  Several years ago now, the MMR group drilled just another 2000 feet at BBW and made a major discovery that started this whole odyssey. If it were easy, XOM would have stayed at the party.

The discovery at Davy Jones 1 well over two years ago has presented all imaginable problems for the team to overcome in the interim.  Many of those problems at DJ have occurred because as a “money saver” the idea was to reenter an old unsuccessful well bore that had already been drilled to 20,000 feet, where nothing was found.  The original hole was never intended to go down to 30,000. The result is that the initial casing diameters weren’t that huge and the bottom of the hole was telescoped down to 3 5/8’’ pipe, smaller than your fist.  There have been unending problems because of that tiny space in which to do just about anything; retrieve a broken tool or run perforating guns to bring the well into production. Rest assured, no small holes will ever be tried again.

This is a huge science experiment.  The money spent here is not just about Davy Jones 1. That’s why the team is intent on this completion and hasn’t walked away. The question about whether Davy Jones 1 can be economic is the wrong one.   DJ1 has become a massive research and development project for the entire Davy Jones Field and the Ultra Deep Gulf of Mexico play which extends far beyond this one well.  Everything learned will be applied to completion of every one of the other wells MMR has already drilled to discoveries and to the future wells still in the planning stages. That includes Davy Jones 2, Blackbeard West and Blackbeard East, Ship Shoal 188 (aka BBW#2), and Lafitte. Each of these wells represents a major discovery of up to 500’ of pay.  The lessons will also apply to Captain Blood and Barbosa, England and onshore prospects, too, waiting in the wings. There will be dozens more wells beyond that.

What Davy has shown so far is that almost all the equipment designed for the well and that took months to build, worked perfectly: Blow Out Preventer, Safety Valves, Lubricators, and so on.  When the well was perforated, it did flow despite only small holes from small guns after the big ones failed to fire. The well was getting up a head of steam that would have cleared the mud out of the hole. If only it hadn’t been interrupted.

The following is a direct quote from the April 9, 2012 transcript of MMR’s investor call to update everyone on Davy Jones.

James R. Moffett:

“the well was flowing but we had to shut in for three hours to
skid the rig back. That was the requirement of our permit.”

Only one type of new equipment didn’t work as planned. We know that the new  ballistic guns that were to be ignited by a laser-like trigger never fired. Even so, the well was flowing as it should have until the permit required the operator to shut it down and skid the cantilevered rig back away from the production platform.  That three hours clogged the well for now until it is reworked.  We know the perforation was just partial.   So maybe the delay of a month for a corrected completion will be a good thing in the long run in terms of what is ultimately recovered from this well.

Even so,  Moffett went on to share with us:

“we feel comfortable that we had some good penetration, but not complete penetration and that the mobility in the sand once we get this new casing gun perforation through these zones ought to give us what we all have been looking for.”

In the post Macondo environment where both Government regulators and operators themselves are well aware of the potential risks, the original permit required that the rig be skidded back from the production platform and the well head.  To do that the well had to be shut down for three hours.  During that time, the well clogged up.  In the newly issued work over permit, Dept of Energy regulators have agreed that in retrospect shutting in the well was counterproductive. The new permit has no such requirement. Once it starts to flow, it won’t be shut down.

Everybody respects MMR and the job it has done on all aspects of this ongoing project. To date there have been no other discoveries by any other companies in the ultra deep defined as 25,000’ below the mud line.  This is all new ground right down to the seismic interpretation by MMR which has been refined in the last two years.  Everyone is watching.  All the majors are monitoring Jim Bob’s every move.  Chevron is teaming up with them onshore.

The costs of this well are not about Davy Jones 1 and whether or not it will be economic at present depressed gas prices.  Natural Gas is a commodity and all commodities are cyclical. Nat. gas was in the teens when this project was started and not the $2 at which it is presently trading. It won’t be $2 forever as we ship it overseas or prices return to normal in our country.  Davy Jones 1 is about “proof of concept” and ironing out all the kinks.

MMR’s other wells are not being completed until all these mechanical issues are worked through. In a recent presentation, Energy XXI’s CEO John Schiller said: “for sure, we won’t be drilling another small hole like this one ever again.”  That is why Davy Jones 2 is a second half event for 2012.

Once Davy Jones 1 starts to give up all of his bounty, which should be soon now,  there will be few better gas plays you can find in the United States.  If we are lucky enough to have liquids in addition to just gas, all the better. Then, the economics will improve dramatically even with gas at $2 since this play should prove to be the lowest cost gas produced in the entire United States. For sure, it puts shale gas to shame on a cost basis.  And if the United States ever adopted an energy policy that would put clean burning natural gas front and center, it would be the best of all possible worlds.

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Independent petroleum producer McMoRan Exploration Co. says work is under way to begin commercial natural gas production from its Davy Jones No. 1 well off the Louisiana coast.

McMoRan has said the area — consisting of four lease blocks in the shallow-water Gulf of Mexico shelf — could contain 2 to 6 trillion cubic feet of natural gas. The company said a pressure buildup was followed by a gas flare from the well. McMoRan said initial samples indicated the natural gas is high quality.

McMoRan said blockage from drilling fluid has prevented the company from getting a measurable flow rate. Operations are under way to remove tubing from the well and clear drilling fluid to get a flow rate during the second quarter, followed by commercial production soon after that.

The company holds a 63.4 percent working interest and a 50.2 percent net revenue interest in Davy Jones. Other working interest owners include: Energy XXI, with a 15.8 percent stake; JX Nippon Oil Exploration (Gulf) Ltd., with a 12 percent working interest; and Moncrief Offshore LLC, with a 8.8 percent stake.

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Hydraulic perforating equipment malfunctioned during initial attempts to perforate and flow-test the Wilcox F sand at the Davy Jones indicated discovery well on South Marsh Island Block 230 in the Gulf of Mexico, said operator McMoRan Exploration Co., New Orleans.

Meanwhile, McMoRan logged two potential new hydrocarbon-bearing zones in the Upper Eocene section of the Lafitte well with a combined thickness of 65 net ft and fractured limestone in the Sparta interval. And it is drilling two other deep shelf exploratory wells.

In order to expedite the Davy Jones completion, McMoRan elected to move uphole to test another zone using electric-line perforating equipment while it evaluated future operations and plans for the F sand.

The company obtained a positive pressure response upon initial testing of Wilcox D sand, which began on Mar. 24. McMoRan plans to add perforations in the Wilcox C sand to commingle the zones. Results from the flow test will be reported as further progress is achieved.

McMoRan has drilled two successful subsalt wells in Davy Jones field. Davy Jones-1 logged 200 net ft of pay in multiple Wilcox sands that were all full to base. McMoRan expects to commence the completion of the No. 2 well in the second half of 2012.

Davy Jones-2, 2½ miles southwest of Davy Jones-1, confirmed 120 net ft of pay in multiple Wilcox sands, indicating continuity across the major structural features of the Davy Jones prospect, and also encountered 192 net ft of potential hydrocarbons in the Tuscaloosa and Lower Cretaceous carbonate sections.

The Lafitte ultradeep exploratory well in 140 ft of water on Eugene Island Block 223 was spudded Oct. 3, 2010, and has been drilled to a total depth of 34,162 ft.

The newly logged Upper Eocene sands correlate to the Jackson and Yegua sections located onshore Louisiana and are older than the Oligocene Vicksburg interval seen in the Blackbeard East well. These are the first hydrocarbon bearing Upper Eocene sands encountered either on the gulf shelf or in the deepwater offshore Louisiana.

In addition to the new Upper Eocene sands, recent results also indicated that the well encountered 300 ft of fractured limestone in the Sparta interval that has indications of being hydrocarbon-bearing. This interval is equivalent to the Sparta interval seen at Blackbeard East and will require further evaluation and testing.

These results enhance the potential of McMoRan’s other acreage in the Lafitte strategic area, including McMoRan’s Barataria and Captain Blood ultradeep prospects. Barataria, covering 10,000 gross acres, is west-southwest of Lafitte, and Captain Blood, also 10,000 gross acres, is immediately south of Lafitte.

These new Upper Eocene sands and Sparta limestones are in addition to the total possibly productive net 211 ft of sands previously reported in the Lower Miocene including the Cris R and Oligocene (Frio) in the Lafitte well. Flow testing will be required to confirm the potential hydrocarbons and flow rates from these formations. The well will be temporarily abandoned while development options and potential delineation locations are evaluated.

The Blackbeard West-2 ultradeep exploratory well was spudded on Nov. 25, 2011, and has been drilled to 18,200 ft. The well, on Ship Shoal Block 188 in the Blackbeard West unit, targets Miocene-aged sands seen below the salt weld 13 miles east at Blackbeard East and has a proposed total depth of 26,000 ft.

The Lineham Creek exploration prospect onshore in Cameron Parish, La., was spudded on Dec. 31, 2011. Targeting Eocene and Paleocene objectives below the salt weld, the well is drilling below 10,400 ft towards a proposed total depth of 29,000 ft. Chevron USA Inc., operator, has a 50% working interest. McMoRan has 36%, Energy XXI (Bermuda) Ltd. 9%, and W.A. “Tex” Moncrief Jr. 5%.

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McMoRan Exploration Co. MMR -3.96% today updated its ultra-deep exploration and development activities in the shallow waters of the Gulf of Mexico (GOM) Shelf and onshore in the Gulf Coast area, including ongoing completion operations at Davy Jones No. 1, new logging results from Lafitte and in progress operations at Blackbeard West No. 2 and Lineham Creek.

McMoRan announced today that completion efforts to flow test the Davy Jones No. 1 well on South Marsh Island Block 230 are ongoing. During initial attempts to perforate and flow test the Wilcox “F” sand, the hydraulic perforating equipment malfunctioned. In order to expedite the test, McMoRan elected to move up the hole to test another zone using electric-line perforating equipment while future operations and plans for the “F” sand are evaluated. Initial testing of Wilcox “D” sand, which began on March 24, 2012, saw positive pressure response and McMoRan plans to add perforations in the Wilcox “C” sand to comingle the zones. Results from the flow test will be reported as further progress is achieved.

As previously reported, McMoRan has drilled two successful sub-salt wells in the Davy Jones field. The Davy Jones No. 1 well logged 200 net feet of pay in multiple Wilcox sands, which were all full to base. The Davy Jones offset appraisal well (Davy Jones No. 2), which is located two and a half miles southwest of Davy Jones No. 1, confirmed 120 net feet of pay in multiple Wilcox sands, indicating continuity across the major structural features of the Davy Jones prospect, and also encountered 192 net feet of potential hydrocarbons in the Tuscaloosa and Lower Cretaceous carbonate sections. McMoRan expects to commence the completion of the No. 2 well in the second half of 2012.

Davy Jones involves a large ultra-deep structure encompassing four OCS lease blocks (20,000 acres). McMoRan is the operator and holds a 63.4 percent working interest and a 50.2 percent net revenue interest in Davy Jones. Other working interest owners in Davy Jones include: Energy XXI EXXI -1.21% (15.8%), JX Nippon Oil Exploration (Gulf) Limited (12%) and Moncrief Offshore LLC (8.8%).

The Lafitte ultra-deep exploration well, which is located on Eugene Island Block 223 in 140 feet of water, commenced drilling on October 3, 2010 and has been drilled to a total depth of 34,162 feet. In March 2012, McMoRan logged two potential new hydrocarbon bearing zones in the Upper Eocene section of the Lafitte well with an aggregate thickness of approximately 65 net feet. These new Upper Eocene sands correlate to the Jackson and Yegua sections located Onshore Louisiana and are older than the Oligocene Vicksburg interval seen in the Blackbeard East well. These are the first hydrocarbon bearing Upper Eocene sands encountered either on the GOM Shelf or in the deepwater offshore Louisiana. In addition to the new Upper Eocene sands, recent results also indicated that the well encountered 300 feet of fractured limestone in the Sparta interval which has indications of being hydrocarbon bearing. This interval is equivalent to the Sparta interval seen at Blackbeard East and will require further evaluation and testing. These results enhance the potential of McMoRan’s other acreage in the Lafitte strategic area, including McMoRan’s Barataria and Captain Blood ultra-deep prospects. Barataria (10,000 gross acres) is located west southwest of Lafitte and Captain Blood (10,000 gross acres) is located immediately south of Lafitte.

These new Upper Eocene sands and Sparta limestones are in addition to the total possible productive net 211 feet of sands previously reported in the Lower Miocene including the Cris R and Oligocene (Frio) in the Lafitte well. Flow testing will be required to confirm the potential hydrocarbons and flow rates from these formations. The well will be temporarily abandoned while development options and potential delineation locations are evaluated. McMoRan holds a 72.0 percent working interest and a 58.3 percent net revenue interest in Lafitte. Other working interest owners in Lafitte include EXXI (18.0%) and Moncrief Offshore LLC (10.0%).

The Blackbeard West No. 2 ultra-deep exploration well commenced drilling on November 25, 2011 and has been drilled to 18,200 feet. The well, which is located on Ship Shoal Block 188 within the Blackbeard West unit, is targeting Miocene aged sands seen below the salt weld approximately 13 miles east at Blackbeard East and has a proposed total depth of 26,000 feet. McMoRan holds a 69.4 percent working interest and a 53.1 percent net revenue interest in Ship Shoal Block 188. Other working interest owners include EXXI (22.9%) and Moncrief Offshore LLC (7.7%).

The Lineham Creek exploration prospect, which is located onshore in Cameron Parish, Louisiana commenced operations on December 31, 2011. The well, which is targeting Eocene and Paleocene objectives below the salt weld, is currently drilling below 10,400 feet towards a proposed total depth of 29,000 feet. Chevron U.S.A Inc., as operator of the well, holds a 50 percent working interest. McMoRan is participating for a 36.0 percent working interest. Other working interest owners include EXXI (9.0%) and W. A. “Tex” Moncrief Jr. (5.0%).

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