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Exploration and production company McMoRan Exploration Co. reported mixed third-quarter 2012 results, reflecting better realized oil prices, partially offset by weak natural gas fundamentals and higher operating costs.

The company reported quarterly loss, excluding special items, of 16 cents per share, marginally wider than the Zacks Consensus Estimate of a loss of 15 cents per share.  The result was also much wider than a loss of 6 cents per share recorded in the prior-year quarter.

Total revenue in the quarter was $91.8 million, surpassing our expectation of $85.0 million. The result, however, dropped 33.6% from $138.2 million in the third quarter of 2011, primarily due to a 34.6% decline in oil and natural gas revenue.

Total operating cash flow was $12.1 million, compared with the prior-year figure of $42.3 million.

Production

During the quarter under review, McMoRan’s total production reached 134 million cubic feet equivalent per day (Mcfe/d), down from last year’s 187 Mcfe/d. The effects of unplanned downtime due to Hurricane Isaac impacted the results.

The company’s quarterly natural gas sales volume was 7.7 billion cubic feet (Bcf), down 32.5% year over year. Total oil sales volumes also plunged 20.7% from the corresponding period last year to 534,800 barrels. Sales volume of natural gas liquids (NGLs) were 241,500 barrels, against 292,700 barrels in the third quarter of 2011.

Realized Prices

The average price realized on gas sales decreased 28.8% year over year to $3.12 per thousand cubic feet (Mcf). Average cost per barrel of NGLs also moved down 35.4% from the third quarter of 2011 at $36.42 per barrel. However, average price of oil per barrel increased 2.5% year over year to $103.43.

Financials

During the quarter, McMoRan’s total capital spending was $103.4 million, lower than $145.0 million incurred in the last-year period.

As of September 30, 2012, McMoRan had $191.9 million cash on hand and total debt of $557.1 million, representing a debt-to-capitalization ratio of 25.8%.

Divesture

Early October, McMoRan announced the completion of the disposition of its three Gulf of Mexico Shelf oil and gas assets in the West Delta and Mississippi Canyon regions for $28.0 million.

The company also expects to close the sale of another set of assets in the Eugene Island for $36.8 million in the last quarter of 2012.

Guidance

McMoRan guides 2012 production to average 137 Mcfe/d, while that of the fourth quarter will be approximately 120 Mcfe/d.

Total capital expenditure is projected to be at about $550 million, equally distributed between exploration activity and development purpose.

Recommendation

McMoRan – which jointly owns leases with Chevron Corporation (CVX - Analyst Report) – currently holds a Zacks #2 Rank implying a short-term Buy rating.
 

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