SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q/A
Amendment No. 1
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the Quarter Ended June 30, 1997
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 June 30, 1997, there were issued and outstanding 14,076,539 shares
of the registrant's Common Stock, par value $0.01 per share.
This Amendment No. 1 to the Quarterly Report on Form 10-Q is being
filed by McMoRan Oil & Gas Co. ("MOXY" or the "Company") to amend the following
items:
Part I. Financial Information
Management's Discussion and Analysis
of Financial Condition and Results of Operations
Signature
McMoRan Oil & Gas Co.
Part I. FINANCIAL INFORMATION
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations.
OVERVIEW
McMoRan Oil & Gas Co. (MOXY) is an independent oil and gas company
engaged in the exploration, development and production of oil and
natural gas. MOXY commenced operations in May 1994 following the
distribution of its common stock to the stockholders of Freeport-
McMoRan Inc. (FTX) in order to carry on substantially all of the oil
and gas exploration activities previously conducted by FTX. MOXY and
its predecessors have conducted exploration, development and
production operations offshore in the Gulf and onshore in the Gulf
Coast and other areas for more than 25 years, which have provided MOXY
with an extensive geological and geophysical database and significant
technical and operational expertise. MOXY expects to continue to
concentrate its efforts in this selected geographic area where its
management team has significant exploration experience.
MOXY's business strategy is to create value for its stockholders
through the discovery of oil and gas reserves in its exploration and
development activities. Management believes that MOXY has significant
opportunities to discover meaningful oil and gas reserves and that
these opportunities can best be achieved through the use of advanced
3-D seismic technology, applied in conjunction with an expanded,
multi-year exploration program. Moreover, MOXY believes that its
recent and continuing acquisitions of 3-D seismic data will continue
to improve its ability to interpret subsurface geology and allow it to
develop a larger inventory of high-quality prospects which it can
pursue at offshore lease sales and through farm-in opportunities
offshore in the Gulf and onshore in the Gulf Coast areas.
CAPITAL RESOURCES AND LIQUIDITY
During 1995, MOXY established joint ventures with affiliates of
MCN Energy Group Inc. (MCN) and Phillips Petroleum Company (Phillips)
which provided MOXY with an inflow of funds. Thus far, MOXY has
interests in two producing fields in the Gulf, the Vermilion Block 160
and Vermilion Block 410 fields (the Producing Properties). MOXY will
have expended essentially all of its capital resources by the end of
1997 on approximately $16 million in currently committed remaining
exploration and development expenditures, including existing
properties Vermilion Block 160, West Cameron Block 616, Grand Isle
Block 65 and Eugene Island Block 19. The primary funding source for
these capital expenditures would have been the MOXY/MCN Program loan.
MOXY believes obtaining sufficient additional capital for any
subsequent exploration or development expenditures on these
properties, as well as for additional exploration opportunities yet to
be specifically identified, is necessary to provide enhanced
opportunity for growth in reserves, production and cash flow. If
additional capital is not obtained, MOXY will be forced to forgo such
growth opportunities, and a significant portion of MOXY's cash flow
will be dedicated to repaying FRP for amounts borrowed by MOXY for
these currently committed expenditures.
In mid-1996, with the pending completion of the exploration
portion of the MOXY/MCN Program, management began evaluating options
to obtain additional long-term funding for its planned exploration and
development activities, including entering into one or more new long-
term exploration joint ventures (MCN later indicated that it did not
wish to enter into the type of multi-year program that MOXY desired)
issuing additional equity or undertaking a business combination with
another entity. MOXY ultimately decided to undertake the Rights
Offering (discussed below), which would allow it to recapitalize, to
restructure its current exploration and development operations, and to
engage in a significantly expanded and more diversified, multi-year
exploratory drilling program.
If MOXY shareholders approve the Recapitalization Transactions
(as described in Note 1), MOXY expects to raise net proceeds of
approximately $93 million pursuant to the Rights Offering to enable
MOXY to acquire MCN's interest in the Producing Properties and to
retire MOXY's debt incurred in connection with the MOXY/MCN Program
(both of which FRP recently purchased from MCN). Furthermore, the
remaining cash proceeds would provide MOXY with the funding necessary
to participate in the aggregate $200 million multi-year MOXY/FRP
Exploration Program (discussed below). MOXY would retain 100% of the
MOXY/MCN Program's interest in the Producing Properties and would
dedicate the exploration properties which were subject to the MOXY/MCN
Program to the MOXY/FRP Exploration Program.
MOXY and FRP plan to establish, subject to completion of the
Rights Offering, the MOXY/FRP Exploration Program to explore and
develop exploratory prospects primarily in the Gulf and onshore in the
Gulf Coast area where MOXY has significant exploration experience and
a substantial geological database. MOXY would manage the MOXY/FRP
Exploration Program, selecting all prospects and drilling
opportunities, and would serve as operator of the MOXY/FRP Exploration
Program. MOXY and FRP would commit $200 million for exploration
expenditures, most of which would be shared 40% by MOXY and 60% by
FRP. All other costs and revenues would be shared equally. The
MOXY/FRP Exploration Program would include the seven leases recently
purchased by MOXY for $5.5 million at the OCS Lease Sale 166, held in
March 1997 that have been dedicated to the MOXY/MCN Program.
If the stockholders do not approve the Recapitalization
Transactions, the Rights Offering will not be completed and FRP will
retain MCN's interest in the MOXY/MCN Program, which includes MCN's
interest in the Producing Properties and all other exploratory
properties subject to the MOXY/MCN Program. FRP will have the
obligation to fund, and extend credit to MOXY to fund, any exploration
and development costs that may be committed under the amended MOXY/MCN
Program and any other amounts that may be borrowed by MOXY thereunder.
FRP will not be obligated to fund any other exploratory prospects. As
a result, MOXY will be forced to secure alternative sources of
financing to support its current operations and fund any future
exploration and development activities beyond the financing available
under the MOXY/MCN Program ($5.7 million available at June 30, 1997).
Such alternative sources could include additional equity or debt
financing, the sale of all or part of MOXY's assets (MOXY's share of
the net revenues generated from the Producing Properties is dedicated
to repay indebtedness incurred under the MOXY/MCN Program) or other
partnership or joint venture transactions. There can be no assurance
that alternative financing will be available on acceptable terms, if
at all, or that MOXY would be a viable business enterprise.
MOXY incurred $10.3 million of cash exploration and development
expenditures during the first six months of 1997, principally
consisting of $3.4 million for development at Vermilion Blocks 160 and
410, $2.2 million for lease acquisition costs, $1.0 million in
drilling and leasehold costs charged to expense and $3.1 million of
geological and geophysical costs. Exploration expenditures would be
expected to increase following the completion of the Rights Offering
and the initiation of the MOXY/FRP Exploration Program.
OPERATIONAL ACTIVITIES
MOXY's recent exploration activities in the Gulf of Mexico have been
conducted primarily through the MOXY/MCN Program in which MOXY
currently holds a 40% interest. As noted earlier, FRP acquired MCN's
interest in the MOXY/MCN Program in August 1997. Upon successful
completion of the Rights Offering, MOXY would purchase FRP's interest
in the Producing Properties and MOXY and FRP would dedicate all other
oil and gas properties subject to the MOXY/MCN Program to the new
MOXY/FRP Exploration Program. As noted earlier, if the stockholders
do not approve the Recapitalization Transactions, the Rights Offering
will not be completed, and FRP will retain its interest in the MCN
Properties.
Recent activities within the MOXY/MCN Program follow:
* During the fourth quarter of 1996, a development well at the
Vermilion Block 160 field discovered new reserves from eight gas sands
with approximately 215 feet of net pay. Drilling on this well was
completed in the first quarter of 1997, discovering an additional 47
feet of net gas pay. During the second quarter of 1997, a second
development well to develop the newly discovered reserves encountered
244 feet of net gas pay from six sands. A third development well is
currently drilling. The MOXY/MCN Program has a 28% net revenue
interest in this field which is subject to re-determination subsequent
to final development drilling. In addition, the interest in two of
the four blocks within the Vermilion Block 160 field unit is subject
to a 30% net profits interest. Daily gross production from the field
averaged approximately 10 million cubic feet (Mmcf) of natural gas and
380 barrels of condensate during the second quarter. Production from
the new development wells is expected to commence during the second
half of 1997.
* In late December 1996, installation of the production platforms
and related facilities at the Vermilion Block 410 field was completed
and production began from one of the two platforms. Production
began from the second platform in February 1997. The MOXY/MCN Program has a
28% net revenue interest in this field. Daily gross production
currently totals approximately 65 Mmcf of gas.
* MOXY has contracted for a jack-up drilling rig, which is expected
to be available in the third quarter of 1997, for drilling at West
Cameron Block 616/617. The initial discovery well on West Cameron
Block 616 encountered several gas-bearing zones with a total of 190
feet of net gas pay.
* During the second quarter of 1997, the MOXY/MCN Program acquired
a 50% working interest in Eugene Island Blocks 18/19 from Shell
Offshore Inc. (SOI) in exchange for a 50% working interest in the
MOXY/MCN Program's West Cameron Block 492. SOI, as operator, is
currently drilling an exploratory well on Eugene Island Block 19.
* In July 1997, drilling commenced on the #2 exploratory well at
the MOXY/MCN Program's Vermilion Block 159 prospect. This prospect is
located at a remote location from the existing Vermilion Block 160
field. The MOXY/MCN Program has a 60% working interest and 42.3% net
revenue interest.
* In April 1997, the MOXY/MCN Program sold its interest in West
Cameron Block 503 for $7.2 million ($2.9 million net to MOXY) with
MOXY recognizing a $2.3 million gain. The proceeds were used to repay
borrowings from MCN.
* Drilling completed in August 1997 at Grand Isle Block 65 was
unsuccessful in discovering hydrocarbons in commercial quantities.
MOXY is currently evaluating its alternatives regarding this block.
MOXY's drilling activities in the onshore Gulf Coast region have taken
place through its 25% owned joint venture with Phillips and FRP, which
covers a project area in south Louisiana, as follows:
* In April 1997, MOXY completed drilling of an exploratory well on
the North Bay Junop prospect, the second of two high-risk, high-
potential prospects which have been drilled within the project area.
The well reached total depth but did not encounter commercial
hydrocarbons in the primary objective zones. MOXY completed the well
in a shallower zone with approximately 25 feet of net gas pay. The
well was flow tested at a rate of 5.3 Mmcf of gas and 93 barrels of
condensate per day. Because of the complexity of the salt dome
geology and potentially limited reservoir size, production performance
will be required to determine the reserve volumes associated with this
completion. The joint venture partners are assessing additional
prospects in the area which may result in future exploratory drilling.
Outside of MOXY's joint venture agreements, MOXY committed to a one
year contract for a jack-up rig capable of drilling in water depths of
up to 150 feet. In addition, MOXY signed a one-well contract with an
option for additional wells for a jack-up rig capable of drilling in
water depths of up to 350 feet.
RESULTS OF OPERATIONS
Second Quarter Six Months
------------------------ ------------------------
1997 1996 1997 1996
---------- ---------- ---------- ----------
Revenues (in millions):
Oil and gas sales $ 1.8 $ 0.5 $ 4.2 $ 1.2
Management fees 0.4 0.4 0.8 0.8
---------- ---------- ---------- ----------
$ 2.2 $ 0.9 $ 5.0 $ 2.0
========== ========== ========== ==========
Production quantities:
Gas (Mcf) 828,700 150,900 1,621,000 306,700
Oil (barrels) 3,800 7,400 9,400 15,800
Average realization:
Gas (per Mcf) $2.11 $2.43 $2.44 $2.76
Oil (per barrel) $19.61 $21.44 $21.89 $20.76
MOXY's revenues for the first six months of 1997 increased
significantly over the 1996 period level as the MOXY/MCN Program
initiated production (primarily natural gas) in December 1996 from the
first of two production platforms at the Vermilion Block 410 field,
with production from the second platform commencing in February 1997
(see operating statistics above). As noted earlier, upon completion
of the Rights Offering, MOXY intends to purchase the MCN Producing
Properties from FRP.
Second Quarter Six Months
------------------------ ----------------------
1997 1996 1997 1996
---------- ---------- ----------- -------
Production and (in millions, except per share amounts)
delivery, including
depreciation and
amortization $ 3.4 $ 0.4 $ 5.3 $ 0.8
Exploration Expenses:
Geological and
geophysical 1.6 1.5 3.1 3.0
Exploratory
drilling and
leasehold costs 0.1 (2.1)a 1.0 0.9a
---------- ---------- ---------- ----------
$ 1.7 $ (0.6) $ 4.1 $ 3.9
========== ========== ========== ==========
Operating income
(loss) $ (1.2) $ 0.4 $ (3.5) $ (4.0)
Net income (loss) $ (1.4) $ 0.5 $ (3.9) $ (3.8)
Net income (loss)
per share $ (0.10) $ 0.04 $ (.27) $ (.27)
a. Includes a $2.1 million reimbursement of previously expensed
costs.
The fluctuations in MOXY's production and delivery costs and
depreciation and amortization expenses are consistent with the changes
in production quantities referenced above. During the second quarter
of 1997, the reserves initially assigned to Vermilion Block 410 were
adjusted downward on the basis of production experience, and
additional depreciation of $1.0 million was recognized. Net
capitalized costs of this property approximate its undiscounted
estimated future net cash flows at June 30, 1997.
MOXY's unsuccessful exploratory drilling and leasehold costs
fluctuate from period to period based on the related drilling results
and the amount of costs involved in the project. Exploratory drilling
and leasehold costs involved in the project. Exploratory drilling and
leasehold costs in the 1996 second quarter included a $2.1 million
reimbursement of previously expensed costs. There was one
unsuccessful drilling project during the first six months of 1996 and
one during the first six months of 1997.
Interest expense totaled $0.7 million for the six-month 1997
period versus zero for the six-month 1996 period, reflecting the
increased borrowings from MCN (initiated in mid-1996) to fund MOXY's
share of exploration and development expenditures.
As a result of anticipated future exploration expenditures, MOXY
expects to continue to report operating losses for at least the near
future.
ENVIRONMENTAL
Although MOXY has no known environmental liabilities, increasing
emphasis on environmental matters could result in additional costs,
which would be charged against MOXY's operations in future periods.
Present and future environmental laws and regulations applicable to
MOXY's operations could require substantial capital expenditures or
could adversely affect its operations in other ways that cannot be
accurately predicted at this time.
CAUTIONARY STATEMENT
Management's Discussion and Analysis of Financial Condition and
Results of Operations contains forward-looking statements. All
statements other than statements of historical fact included in this
report, including, without limitation, statements regarding plans and
objectives of MOXY's management for future operations and MOXY's
exploration and development activities are forward-looking statements.
Important factors that could cause actual results to differ
materially from MOXY's expectations include, without limitation,
exploratory drilling results, economic and business conditions,
general development risks and hazards and risks inherent with the
production of oil and gas, such as fires, natural disasters, blowouts
and the encountering of formations with abnormal pressures, changes in
laws or regulations and other factors, many of which are beyond the
control of MOXY. Further information regarding these and other
factors that may cause MOXY's future performance to differ from that
projected in the forward-looking statements are described in more
detail in MOXY's Form 10-K for the year ended December 31, 1996.
_________________________
The results of operations reported and summarized above are not
necessarily indicative of future operating results.
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/C. Donald Whitmire
------------------------
C. Donald Whitmire
Controller
(authorized signatory and
Principal Accounting Officer)
Date: September 24, 1997
