Your Fist Is Wider Than The Wellbore at Davy Jones 1

A 4 Inch Fist

 If you want to grasp the challenge of recovering a broken tool near the bottom of McMoRan and Energy XXI�s Davy Jones Gulf of Mexico Shallow Water Ultra Deep well just look at the photo of a typical fist. This one happens to be mine and it measures 4 inches across as you can see on the tape measure.

Now imagine operating a fishing expedition to recover a small part of a broken tool from inside a hole that is even smaller than your fist. The internal diameter of the pipe at Davy Jones 1 is 3 1/2�.  At Davy, the operator is trying to remove part of a broken tool more than five miles below the mud line. Just imagine trying to control this retrieval operation from the rig when the other end of the string is in a tiny hole more than five miles away from you. .  No wonder this is such a delicate operation. 

In case you are asking what a mud motor looks like, we set out in search of an image of one shown below.  The mud  enters  in one end and exits the other under pressure propelling the clean out assembly with a bit on the forward end of it .  This is used in lieu of spinning the entire drill string.   I doubt that this is exactly the design of the tool that failed but it is a typical mud motor.   

 I received the following comments from McMoRan with regard to the image shown:

�During our operation to clean out the DJ hole, the mud motor was screwed into a clean out assembly with a bit on the end (which all together measured about 4� long).  At a depth of about 23,000�, the equipment became lodged in the hole.  We successfully pulled out substantially all of the mud motor, however the small pink piece (on the far right of your picture) broke off.  As a result and as reported on Jan 5, this piece and the approximate 4 foot clean out assembly remained lodged in the hole and that is what we are in the process of retrieving.   So in summary, the entire mud motor was not in the hole when we updated the market Jan 5; just the 4� of clean out assembly and the small piece of the mud motor that broke off.� 

Typical Downhole Mud Motor

There is a huge difference beween trying to retrieve a 4 foot long object from an almost cleaned out wellbore and trying to recover more than 4,000 feet of broken drill string from an uncased hole that has had a major kick.  The delay of several months at Blackbeard East was the result of the operator needing to deal with bent and broken pipe mangled by a kick in the hole. They were successful in recovering 2/3�s of it before pushing the remainder to the bottom of the hole and bypassing it for a short distance before resuming forward drilling to the targeted depth.                         

Remember that down hole operations are conducted in an environment with temperatures in excess of 400 degrees Fahrenheit and at pressures exceeding 20,000 lbs. Therefore, it is not surprising that the mud motor came apart. Over the last two years, logging tools have burned up as MMR and partners are attempting to explore the Ultra Deep frontier. Other measurement sensors have required extensive effort to be made reliable by both Schlumberger and Cooper Cameron. Add mud motors to the future list.  The operation cannot be completed with this flotsam in the wellbore which could pose operational problems if not removed before the well is perforated. 

MMR�s Co-CEO Jim Bob Moffett always says that when there is something to report, we will all hear it from him at the same time.  Message board rumors have been remarkably incorrect in recent weeks as this well is being completed. Often posters that use public message boards are driven by their own concerns over short term option expirations and try to exploit their anonymity for near term personal gain. That can be in either direction with positive or negative comments posted depending on whether the writer owns puts or calls, is long or short this or any other stock.

Tuesday morning, January 17th, 2012 is the scheduled conference call for MMR�s Q4 earnings report. McMoRan is especially generous in answering questions on its quarterly conference calls.  Perhaps by that time, we will have good reports on progress at Davy Jones, as well as Lafitte and Blackbeard East, two other important wells nearing completion of drilling. Separately, I have been assured that the completion procedures for Davy Jones 2 are well underway and this frustrating event at DJ1 is in no way affecting that completion effort set for the second half of 2012.  

Joan E. Lappin CFA          Gramercy Capital Mgt. Corp.