SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the Quarter Ended September 30, 1996
Commission File Number: 0-23870
McMoRan Oil & Gas Co.
Incorporated in Delaware 72-1266477
(IRS Employer Identification No.)
1615 Poydras Street, New Orleans, Louisiana 70112
Registrant's telephone number, including area code: (504) 582-4000
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the Securities
Exchange Act of 1934 during the preceding 12 months (or for such
shorter period that the registrant was required to file such reports),
and (2) has been subject to such filing requirements for the past 90
days. Yes X No
---
On September 30, 1996, there were issued and outstanding 13,936,815
shares of the registrant's Common Stock, par value $0.01 per share.
<PAGE> 1
MCMORAN OIL & GAS CO.
TABLE OF CONTENTS
Page
Part I. Financial Information
Financial Statements:
Condensed Balance Sheets 3
Statements of Operations 4
Statements of Cash Flow 5
Notes to Financial Statements 6
Remarks 6
Report of Independent Public Accountants 7
Management's Discussion and Analysis
of Financial Condition and
Results of Operations 8
Part II. Other Information 10
Signature 11
Exhibit Index E-1
<PAGE> 2
McMoRan Oil & Gas Co.
Part I. FINANCIAL INFORMATION
Item 1. Financial Statements.
<TABLE>
MCMORAN OIL & GAS CO.
CONDENSED BALANCE SHEETS
(Unaudited)
<CAPTION>
September 30, December 31,
1996 1995
------------- ------------
(In Thousands)
<S> <C> <C>
ASSETS
Cash and short-term investments $ 7,757 $ 10,323
Accounts receivable and other 2,770 1,432
---------- ----------
Total current assets 10,527 11,755
Oil and gas properties, net 17,482 9,878
---------- ----------
Total assets $ 28,009 $ 21,633
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Accounts payable and accrued
liabilities $ 6,530 $ 3,405
Current portion of production loan 341 93
---------- ----------
Total current liabilities 6,871 3,498
Production loan, less current
portion 8,566 530
Other liabilities 543 -
Stockholders' equity 12,029 17,605
---------- ----------
Total liabilities and
stockholders' equity $ 28,009 $ 21,633
========== ==========
</TABLE>
The accompanying notes are an integral part of these financial
statements.
<PAGE> 3
<TABLE>
MCMORAN OIL & GAS CO.
STATEMENTS OF OPERATIONS
(Unaudited)
<CAPTION>
Three Months Nine Months
Ended September 30, Ended September 30,
------------------------ -------------------------
1996 1995 1996 1995
---------- ---------- ---------- ----------
(In Thousands, Except Per Share Amounts)
<S> <C> <C> <C> <C>
Revenues:
Oil and
gas sales $ 510 $ 893 $ 1,714 $ 2,300
Management
fees 409 136 1,227 136
---------- ---------- ---------- ----------
Total
revenues 919 1,029 2,941 2,436
---------- ---------- ---------- ----------
Costs and expenses:
Production
and delivery,
including
depreciation and
amortization 313 797 1,115 2,205
Exploration
expenses 2,004 1,637 5,875 9,656
General and
administrative
expenses 689 1,034 2,073 3,199
---------- ---------- ---------- ----------
Total costs
and expenses 3,006 3,468 9,063 15,060
---------- ---------- ---------- ----------
Operating
loss (2,087) (2,439) (6,122) (12,624)
Interest
expense (127) - (134) -
Other income
(expense), net 66 (182) 303 (12)
---------- ---------- ---------- ----------
Net loss $ (2,148) $ (2,621) $ (5,953) $ (12,636)
========== ========== ========== ==========
Net loss
per share $(.15) $(.19) $(.43) $(.92)
===== ===== ===== =====
Average shares
outstanding 13,918 13,770 13,873 13,770
====== ====== ====== ======
</TABLE>
The accompanying notes are an integral part of these financial
statements.
<PAGE> 4
<TABLE>
MCMORAN OIL & GAS CO.
STATEMENTS OF CASH FLOW
(Unaudited)
<CAPTION>
Nine Months
Ended September 30,
------------------------
1996 1995
---------- ----------
(In Thousands)
<S> <C> <C>
Cash flow from operating activities:
Net loss $ (5,953) $ (12,636)
Adjustments to reconcile net loss to
net cash provided by (used in)
operating activities:
Depreciation and amortization 505 1,371
Exploration expenses 5,875 9,656
Decrease in working capital 4,635 1,185
---------- ----------
Net cash provided by (used in)
operating activities 5,062 (424)
---------- ----------
Cash flow from investing activities:
Exploration and development
expenditures (17,971) (19,007)
Proceeds from joint venture
arrangements - 14,472
Proceeds from sale of oil and
gas interests 2,059 -
---------- ----------
Net cash used in investing
activities (15,912) (4,535)
---------- ----------
Cash flow from financing activities:
Borrowings under production loan 8,907 750
Repayments under production loan (623) -
---------- ----------
Net cash provided by financing
activities 8,284 750
---------- ----------
Net decrease in cash and
short-term investments (2,566) (4,209)
Cash and short-term investments
at beginning of year 10,323 17,331
---------- ----------
Cash and short-term investments
at end of period $ 7,757 $ 13,122
========== ==========
</TABLE>
The accompanying notes are an integral part of these financial
statements.
<PAGE> 5
McMoRan Oil & Gas Co.
NOTES TO FINANCIAL STATEMENTS
1. SALE OF OIL AND GAS LEASEHOLD INTEREST
In June 1996, McMoRan Oil & Gas Co. (MOXY) sold one-half of its 50
percent leasehold interest in a joint venture with Phillips Petroleum
Company, involving a 35,000 acre exploration area in South Louisiana,
to Freeport-McMoRan Resource Partners, Limited Partnership (FRP), an
affiliate of MOXY, for $2.1 million. This amount represented the
reimbursement for certain costs previously incurred by MOXY in
connection with this project area and was recorded as a reduction to
exploration expenses. MOXY sold the interest to FRP on the same
proportionate basis as the sale of an interest to Phillips Petroleum
in 1995.
____________________
Remarks
The information furnished herein should be read in conjunction with
MOXY's financial statements contained in its 1995 Annual Report to
stockholders included in its Annual Report on Form 10-K.
The information furnished herein reflects all adjustments which are,
in the opinion of management, necessary for a fair statement of the
results for the periods. All such adjustments are, in the opinion of
management, of a normal recurring nature.
<PAGE> 6
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Board of Directors of
McMoRan Oil & Gas Co.
We have reviewed the accompanying condensed balance sheet of McMoRan
Oil & Gas Co. a (Delaware corporation) as of September 30, 1996, and
the related statements of operations for the three-month and nine-
month periods ended September 30, 1996 and 1995, and the statement of
cash flow for the nine-month periods ended September 30, 1996 and
1995. These financial statements are the responsibility of the
company's management.
We conducted our review in accordance with standards established by
the American Institute of Certified Public Accountants. A review of
interim financial information consists principally of applying
analytical procedures to financial data and making inquiries of
persons responsible for financial and accounting matters. It is
substantially less in scope than an audit conducted in accordance with
generally accepted auditing standards, the objective of which is the
expression of an opinion regarding the financial statements taken as a
whole. Accordingly, we do not express such an opinion.
Based on our review, we are not aware of any material modifications
that should be made to the financial statements referred to above for
them to be in conformity with generally accepted accounting
principles.
We have previously audited, in accordance with generally accepted
auditing standards, the balance sheet of McMoRan Oil & Gas Co. as of
December 31, 1995 (not presented herein), and, in our report dated
January 23, 1996, we expressed an unqualified opinion on that
statement. In our opinion, the information set forth in the
accompanying condensed balance sheet as of December 31, 1995, is
fairly stated, in all material respects, in relation to the balance
sheet from which it has been derived.
ARTHUR ANDERSEN LLP
New Orleans, Louisiana
October 22, 1996
<PAGE> 7
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations.
OPERATIONAL ACTIVITIES
During the third quarter of 1996, McMoRan Oil & Gas Co. (MOXY) had the
following activity within its exploration and development program with
MCN Corporation (MCN):
* Daily gross production at the Vermilion Block 160 field averaged
14.9 million cubic feet of natural gas and 636 barrels of condensate.
MOXY plans to drill an additional development well on this property by
the end of 1996. The MOXY/MCN program has a 28 percent net revenue
interest in this field.
* Installation of the platforms and facilities at the Vermilion
Block 410 field began during the quarter and commencement of
production is anticipated for early 1997 at a rate of 100 million
cubic feet of gas per day. The MOXY/MCN program has a 28 percent net
revenue interest in this field.
* Additional exploratory drilling is anticipated before the end of
the year at West Cameron Block 616, where earlier in 1996 MOXY drilled
a discovery well which encountered several gas bearing zones.
Drilling is also planned on the adjacent West Cameron Block 617 lease
after the completion of a 3-D seismic survey on both blocks during the
first quarter of 1997.
* The Galveston Block 211 field, discovered in early 1996, was
completed during October and production levels are currently being
tested. Initial production rates have been disappointing; production
logs will be run for evaluation purposes and in the event the results are
negative, it is likely that MOXY will recognize an approximate
$1.3 million charge during the fourth quarter.
At MOXY's 25 percent owned exploration joint venture covering
35,000 acres in South Louisiana (Note 1), activity during the current
quarter was as follows:
* MOXY completed its first exploratory well at the East Fiddler's
Lake prospect. Although the well was unsuccessful in discovering
commercial hydrocarbons, the geological data from this well will
assist future drilling activity in the project area.
* Drilling operations began on the North Bay Junop prospect during
the fourth quarter.
* Interpretation of the 3-D seismic survey performed over the
project area continues. Additional leads have been identified which
may develop into potential prospects that could be drilled in the
future.
During the third quarter of 1996, MOXY relinquished its interest
in the Tungkal prospect, a 1.7 million acre concession area in
Indonesia where previous drilling results had not discovered
hydrocarbons in commercial quantities.
RESULTS OF OPERATIONS
MOXY reported a net loss of $2.1 million ($0.15 per share) for the
third quarter of 1996 compared with a net loss of $2.6 million ($0.19
per share) for the 1995 period. For the nine-month periods of 1996
and 1995, MOXY recognized a net loss of $6.0 million ($0.43 per share)
and $12.6 million ($0.92 per share), respectively. MOXY's 1996
revenues consist of its 40 percent share of the MOXY/MCN program's
interest in the Vermilion Block 160 field production and from
administrative fees earned on the MOXY/MCN program. Prior to the
formation of the MOXY/MCN program in September 1995, MOXY reflected
100 percent of its share of production from Vermilion Block 160. The
commencement of production at the Vermilion Block 410 field, discussed
above, will benefit MOXY's operating levels.
Exploration expenses consisted of the following:
Third Quarter Nine Months
--------------- ---------------
1996 1995 1996 1995
------ ------ ------ ------
(In Millions)
Geological and
geophysical $ 1.5 $ 1.6 $ 2.4 $ 8.5
Exploratory drilling
and leasehold costs 0.5 - 3.5 1.2
----- ----- ----- -----
$ 2.0 $ 1.6 $ 5.9 $ 9.7
===== ===== ===== =====
Exploration expense for the nine-month 1996 period includes a
reduction of $2.1 million resulting from the reimbursement of
previously expensed costs in connection with the sale of an interest
in MOXY's North Bay Junop/East Fiddler's Lake project area. As a
result of this sale, the East Fiddler's Lake well did
<PAGE> 8
not require a third-quarter charge to earnings (a $0.3 million
fourth-quarter charge will be recognized). Additionally, the North Bay
Junop well is anticipated to result in MOXY incurring no exploration costs.
General and administrative expenses totaled $0.7 million and $2.1
million for the third-quarter and nine-month 1996 periods,
respectively, compared with $1.0 million and $3.2 million for the 1995
periods. The decline resulted from steps taken in the third quarter
of 1995 to reduce costs.
As a result of anticipated future exploration expenditures, MOXY
expects to continue to report losses for at least the near future.
CAPITAL RESOURCES AND LIQUIDITY
In June 1995, MOXY entered into a joint venture with Phillips
Petroleum Company (Phillips), equally owned by each company, to
explore 35,000 acres in South Louisiana. During the second quarter of
1996, MOXY sold one-half of its 50 percent leasehold interest in this
area (Note 1). In September 1995, MOXY also entered into an agreement
with MCN for MOXY to be the operator of a $65 million exploration and
development program in the offshore Gulf of Mexico area. Revenues and
costs under this program are shared 40 percent by MOXY and 60 percent
by MCN. MCN is funding its 60 percent share of the expenditures and
is loaning funds for MOXY's 40 percent share. At September 30, 1996,
MOXY had $8.9 million of borrowings outstanding from MCN, with an
additional $9.1 million of borrowings available from MCN for past
expenditures. MOXY's share of net revenues from the program
properties, which include the Vermilion Block 160, Vermilion Block 410
and Galveston Block 211 fields, is dedicated to repay outstanding
loans.
These agreements resulted in MOXY receiving a significant inflow
of funds, as well as achieving important reductions to its future
capital commitments, which enabled MOXY to secure funding for its
currently planned exploration and development activities. These
agreements also enable MOXY to assess additional prospects, thereby
increasing its opportunities for success. Management believes the
opportunities for MOXY to discover meaningful oil and gas reserves are
significant. However, MOXY's future viability depends on a number of
factors, primarily the success of its exploration and development
activities, the production of its proved reserves and the prices of
oil and gas, none of which can be assured because of the uncertainties
and risks inherent in oil and gas operations. MOXY's ability to
continue its operations beyond the funding provided by the MCN
program, which will terminate during 1997 unless extended, and its
present working capital is dependent on achieving success in its
operations and securing future funding. No payment of dividends to
MOXY shareholders is presently contemplated.
Management is currently evaluating alternative future sources of
funding, none of which can be considered assured, including the
potential extension of the MOXY/MCN program, entering into one or more
new exploration joint ventures and undertaking a business combination
with another entity.
MOXY incurred $18.0 million of cash exploration and development
expenditures during the first nine months of 1996, principally
consisting of $4.1 million for development at Vermilion Block 410,
$4.7 million for capitalized drilling costs, $3.5 million in expensed
drilling and leasehold costs and $4.5 million of geological and
geophysical costs. MOXY has committed expenditures of approximately
$7.0 million for the remainder of 1996, although MOXY's exploration
and development activities could result in additional expenditures.
_________________________
The results of operations reported and summarized above are not
necessarily indicative of future operating results.
<PAGE> 9
PART II--OTHER INFORMATION
Item 6. Exhibits and Reports on From 8-K.
(a) The exhibits to this report are listed in the Exhibit Index
appearing on page E-1 hereof.
(b) No reports on Form 8-K were filed by the registrant during the
quarter for which this report is filed.
<PAGE> 10
McMoRan Oil & Gas Co.
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf
by the undersigned thereunto duly authorized.
McMoRan Oil & Gas Co.
By:/s/William J. Blackwell
---------------------
William J. Blackwell
Controller
(authorized signatory and
Principal Accounting
Officer)
Date: November 8, 1996
<PAGE> 11
McMoRan OIL & GAS CO.
EXHIBIT INDEX
-------------
Sequentially
Numbered
Number Description Page
- ------ ----------- ----
27.1 Financial Data Schedule
<PAGE> E-1
<TABLE> <S> <C>
<ARTICLE> 5
<CIK> 0000921941
<NAME> MCMORAN OIL & GAS CO.
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> SEP-30-1996
<CASH> 7,757
<SECURITIES> 0
<RECEIVABLES> 882
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 10,527
<PP&E> 18,542
<DEPRECIATION> 1,060
<TOTAL-ASSETS> 28,009
<CURRENT-LIABILITIES> 6,871
<BONDS> 8,566
0
0
<COMMON> 139
<OTHER-SE> 11,890
<TOTAL-LIABILITY-AND-EQUITY> 28,009
<SALES> 2,941
<TOTAL-REVENUES> 2,941
<CGS> 1,115
<TOTAL-COSTS> 1,115
<OTHER-EXPENSES> 5,875
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 134
<INCOME-PRETAX> (5,953)
<INCOME-TAX> 0
<INCOME-CONTINUING> (5,953)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (5,953)
<EPS-PRIMARY> (.43)
<EPS-DILUTED> 0
</TABLE>
