Bloomberg News

Druckenmiller Bets on Revival of Failed Exxon Well

April 03, 2008

McMoRan Exploration Co. (MMR:US) and an energy firm backed by hedge fund managers Stanley Druckenmiller and Lief Rosenblatt resumed drilling a Gulf of Mexico well abandoned last year by Exxon Mobil (XOM:US) Corp. after a failed bid to bore the world's deepest well.

New Orleans-based McMoRan plans to extend the Blackbeard West well to 31,267 feet (9,530 meters), 1,200 feet beyond the depth reached by Exxon Mobil, the company said today in a statement. Exxon Mobil, the world's biggest energy company, halted the project in August 2006 and handed control to McMoRan a year later.

McMoRan, under pressure to drill at Blackbeard before federal leases that cover the prospect expire in about five months, received $5.5 million from Energy XXI (Bermuda) Ltd. for rights to participate in the re-entry of the well, the statement said. Unless the company took steps to resume work, it may not have been allowed to extend the leases.

Hamilton, Bermuda-based Enegry XXI's biggest investors are Satellite Asset Management LP, a hedge fund founded by former Soros Fund Management managing directors Rosenblatt, Gabriel Nechamkin and Mark Sonnino, and Druckenmiller's Pittsburgh- based Duquesne Capital Management LLC.

Houston-based Plains Exploration & Production Co. paid $9.7 million for similar participation rights, the statement said.

Chevron Record

If McMoRan reaches its target depth at Blackbeard, it will break the Gulf of Mexico depth record set by Chevron Corp. (CVX:US) three years ago at the 30,589-foot Knotty Head well. The deepest well ever drilled anywhere in the world was the Bertha Rogers in Oklahoma which got to 31,441 feet in 1974.

McMoRan rose 18 cents, or 1 percent, to $19.16 in New York Stock Exchange composite trading. The shares increased almost 46 percent this year. Plains climbed 3.5 percent to $56.50.

Rowan Cos.' Gorilla IV rig began drilling on March 18 through cement used to plug the well at 26,650 feet when Exxon Mobil quit the project, the statement said.

Energy companies are expanding the search for natural gas to more remote regions and subterranean depths unreachable with the technology that existed a decade ago as demand rises faster than new production.

U.S. consumption of the fuel is expected to increase by 2.1 percent during the next 10 years, outpacing an estimated 1.8 percent rise in domestic output, according to the Energy Department in Washington.

Rising Demand

Gas futures traded in New York used as benchmarks for U.S. wholesale prices rose 30 percent this year after a 19 percent increase in 2007. Gas has risen fivefold since the 1990s amid soaring demand from electricity generators for an alternative to coal, which creates more greenhouse gases.

Gas is the most widely used U.S. furnace fuel and the third-biggest source of electricity behind coal and nuclear, Energy Department figures showed.

Irving, Texas-based Exxon Mobil and its partners on Blackbeard spent as much as $200 million on the unsuccessful well, according to JP Morgan Securities Inc. estimates.

Exxon Mobil failed to reach its target of 32,000 feet before it halted drilling at Blackbeard. The well terminated at 30,067 feet below the sea floor after pipes and drill bits encountered more pressure and heat than they could bear.

Testing Limits

The well was intended to test the limits of drilling technology by delving into natural-gas deposits locked within rock formations where temperatures can reach 600 degrees Fahrenheit (316 Celsius).

The company's engineers spent 12 months evaluating Blackbeard data before the project was abandoned. McMoRan acquired control of Blackbeard in August as part of its $1.08 billion purchase of 124 oil and gas properties from Newfield Exploration Co. (NFX:US), one of Exxon Mobil's partners in the field.

McMoRan has a market value of about $1 billion, compared with Exxon Mobil's world-leading $474 billion valuation.

To contact the reporters on this story: Joe Carroll in Chicago at jcarroll8@bloomberg.net

To contact the editor responsible for this story: Tony Cox at acox3@bloomberg.net.


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  • XOM
    (Exxon Mobil Corp)
    • $95.78 USD
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