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USA: McMoran Reports Flare from Davy Jones

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McMoRan Exploration Co. announced yesterday continuing progress to flow test the Davy Jones No. 1 well on South Marsh Island Block 230. As previously reported, McMoRan saw positive pressure response from the Wilcox “D” sand which was perforated on March 24, 2012.

On March 26, 2012, McMoRan attempted to perforate the Wilcox “C” sand. As the perforating gun was being removed from the hole, the well began to flow. When the gun was brought to the surface, it was determined that the gun did not fire in the Wilcox “C” sand from what appears to be a simple disconnection of the detonator cord. McMoRan plans to use a new perforating gun to complete the testing of the Wilcox “C” sand.

Currently, the test is ongoing from only the Wilcox “D” sand, which resulted in the flare. The flow from the “D” sand is being affected by considerable debris in the 5 inch liner, from what McMoRan believes to be residual drilling fluid from drilling of the well. Results of a clean flow test, as opposed to the current test hampered by debris, will be announced as further progress is achieved and flow rates are measurable. McMoRan will provide updates as completion operations progress.

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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 (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 GOM Shelf and onshore in the Gulf Coast area.

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A Little Bit Louder Now, Chevron Starts To Shout About Davy Jones And The Ultra Deep

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Joan Lappin, Contributor

I can’t stop hearing that famous Isley Brothers song Shout in my head as I write this post: “A little bit louder now, a little bit LOUDER now, A LITTLE BIT LOUDER NOW.”    About a year ago, speaking at a popular oil and gas conference Chevron tipped its hat to McMoRan’s Jim Bob Moffett and his work in the Gulf of Mexico Shallow Water Ultra Deep (SWUD) play that has been ongoing for more than five years.  That event was truly noteworthy because major oil companies rarely, if ever, acknowledge a little player like MMR as being out front and leading the wave on any important new geological play.  Chevron has recently promoted the Shallow Water Gulf of  Mexico to one of its top three areas of geologic focus around the world.  And it is becoming more vocal about its involvement.

Chevron is no longer whispering. In fact, there is a crescendo building in what CVX is saying about the Gulf of Mexico and what it is doing itself and with partners, both onshore and offshore.  Many MMR watchers know that at 2011 year’s end, Chevron spud a well onshore in Cameron Parish, LA called Lineham Creek. It has a proposed total depth of 29,000 feet targeting the Eocene and Paleocene objectives below the salt weld. This is Chevron’s well in the Rockefeller Preserve, land that was donated to the State of Louisiana years ago. However, the royalty rights on the land were retained and passed to Chevron.

In recent months, Chevron invited MMR to participate in the Lineham well and Moffett agreed as long as his Ultra Deep partners were also included in the project. What’s significant is that giant Chevron wanted MMR to join it in this project as an equal partner. After Moffett made sure his partners were along for the ride:  MMR is participating for 36%, EXXI for 9%, and W.A. “Tex” Moncrief for 5%.  Why? Because MMR now knows more about the SWUD than any other company.  For sure, the view is that perhaps geologically this play extends onshore and not just in the shallow water. This well will explore that concept and is located halfway between (on an east/west axis) Davy Jones and Chevron’s Bear Hump well which has been completed and is now being evaluated. What MMR has mastered over these last few years at Blackbeard West, Blackbeard East, Lafitte, and its Davy Jones’ discoveries is now critical for anyone who is also pursuing bounty in the general area and at the depths below 20,000 feet that have become the new  exploration frontier.

During February, Bobby Ryan, Chevron’s VP of Global Exploration, spoke at another oil and gas conference about their enthusiasm for the SWUD and the work they are doing with MMR.  On page 15 of its presentation, it describes the UltraDeep Gas Play as new play in a mature basin.  Chevron can easily be a player because it already controls major acreage from wells drilled long, long ago and that are still producing to retain the leases. On that same slide, Davy Jones is listed as an exploration discovery. Who knew CVX was a player in DJ?

The transcript contains the following information:

“All eyes are focused on Davy Jones, that McMoRan-operated well, which we’re into a royalty position, is preparing for a test soon, 25,000 pound test equipment. This is a significant environment in the sense of geologically from what we’re typically used to. So we’ll be watching the results of that well. Meanwhile, we’re drilling and just spudded on December 31st, the Lineham Creek well you see onshore Louisiana there. In fact, Bear’s Hump was actually onshore as well.”

If you have ever wondered why the DJ participation percentages never quite added up to 100%, now we know.  Chevron does not have a working interest but it does have a royalty interest in DJ.  In probing, we also learn that somehow in the negotiations that have gone on this year between CVX and MMR, Chevron has also obtained access to the DJ logs and geological evaluations and interpretations which would not normally be available to a royalty interest holder.

Moffett has told us in no uncertain terms that he intends to bring in a partner with very deep pockets to help develop the Ultra Deep play.  He has also told us he plans to follow the model he used for the development of the Grasberg Mine at Freeport Copper and Gold (FCX) years ago.  In that case, Rio Tinto came along for the ride after paying FCX $1.5 billion for which it received ZERO participation in anything that had already been discovered up to that point.  It then paid up for a half participation of what came after.  Perhaps we are in the very early stages in the mating dance between MMR and Chevron.  Don’t expect a rush on that. For sure, Jim Bob won’t do anything until he has proved up exactly what he has so the reserve engineers are happy and he is fully paid for all the hard pioneering work of the last several years.

We know that for a long time, the SWUD detractors have said there is nothing to be found in the Ultra Deep. So much has now been found that viewpoint has become ridiculous. Of course, flowing these wells is still to come.  Another key in the shallow water is that offshore LA there are existing pipelines to carry these new discoveries to market right away. Billions will not have to be spent over future years to accomplish that part of the equation from the deepwater discoveries.   As our country shifts, ever so slowly,  away from coal and nuclear power and toward Natural Gas, nearby infrastructure is a very good thing.

The detractors have also said repeatedly, if this is such a great play, then why aren’t any majors involved?  Well, clearly now there are!  They aren’t just talking about it in whispers any longer.  Chevron is starting to SHOUT about it. It’s about time.   Or as Jim Bob said on a conference call last year: “Hallelujah, Hallelujah!”

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USA: Saratoga, McMoRan in Vermilion 16 Field JV Talks

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Saratoga Resources and McMoRan Oil and Gas LLC (McMoRan) are in advanced talks regarding a potential joint venture on Saratoga’s Long John Silver Prospect at Vermilion 16 field.

While specific terms of the proposed joint venture are still being discussed and subject to confidentiality obligations, Saratoga anticipates contributing its deep rights (approximately 20,000 feet and below) to approximately 4,000 acres and access to Saratoga’s production and pipeline facilities in Vermilion 16 with McMoRan expected to contribute approximately 6,000 acres to the joint venture. The joint venture objective is expected to target ultradeep shelf Lower Tertiary (Wilcox) and Cretaceous objectives at depths of 23,000-30,000 feet subsea. All of the subject acreage is in Louisiana state waters in Vermilion Parish with water depths ranging from 5-10 feet.

The Long John Silver Prospect is situated in one of the main Lower Wilcox depositional fairways that fed McMoRan’s Davey Jones discovery on the Gulf of Mexico Shelf and the Walker Ridge Wilcox discoveries in Gulf of Mexico Deepwater.

Saratoga will retain its existing rights to all shallower objectives in the subject acreage, including all proved, probable and possible reserves, consisting of 8.7 million barrels of oil equivalent (MMBOE) of proved reserves and 18.6 MMBOE of total reserves at January 1, 2011. Additionally, Saratoga will retain the right to process its production from such shallower objectives at Saratoga’s production and pipeline facilities. Saratoga owns and operates a central production facility in Vermilion Block 16 with production capacity of 100 million cubic feet per day and a two mile pipeline to shore. Saratoga intends to continue its current development plans with respect to its shallower reserves in Vermilion 16, including drilling of development wells commencing in the first quarter of 2012.

Saratoga President, Mr. Andy Clifford, said “We are excited at the prospect of partnering with McMoRan in our ultradeep shelf play. McMoRan’s management team, under the visionary leadership of James Moffett, has established its position as a pioneer and the preeminent player in the ultradeep shelf play. We have gained valuable insights into the ultradeep Wilcox play through our involvement in the University of Texas Deep Shelf Consortium and through my years at BHP Billiton, a participant in the original Blackbeard well and a participant in the Cascade and Chinook Wilcox discoveries in Walker Ridge. We believe our Long John Silver Prospect has similar characteristics to recent high profile Wilcox successes, including McMoRan’s highly acclaimed Davey Jones well. Our 3D mapped deep shelf plays in Vermilion 16 and Grand Bay add exciting potential to our ongoing developmental drilling program.”

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USA: McMoRan Encounters More Hydrocarbons at Lafitte Prospect

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McMoRan Exploration Co., a shallow water Gulf of Mexico exploration company, reported yesterday that its Lafitte ultra-deep prospect, which is located on Eugene Island Block 223 in approximately 140 feet of water, has encountered additional hydrocarbons.

The well has been  drilled to a true vertical depth of 29,756 feet and has been logged with wireline logs to 29,740 feet. The wireline log results indicated 56 net feet of hydrocarbon bearing sand over a 58 foot gross interval in the Cris-R section of the Lower  Miocene with good porosity. Flow testing will be required to confirm the ultimate hydrocarbon flow rates from this zone, which was full to base. McMoRan controls approximately 15,000 gross acres in the immediate area of Lafitte.

The new Cris-R sand interval combined with the 115 feet of potential net pay (250 gross feet) announced previously brings the total possible productive net sands to 171 feet in the Lafitte well. 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 westsouthwest of Lafitte and Captain Blood (10,000 gross acres) is located immediately  south of Lafitte.

McMoRan plans to apply for a permit to deepen the Lafitte well to a proposed total depth of 32,000 feet to evaluate deeper Miocene and Oligocene objectives. Lafitte is McMoRan’s third ultra-deep prospect to encounter Miocene age sands below the salt weld on the GOM Shelf. 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 Energy XXI (NASDAQ: EXXI) (18.0%) and Moncrief Offshore  LLC (10.0%).

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.

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