Attached files

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EX-15.1 - EXHIBIT 15.1 - MCMORAN EXPLORATION CO /DE/exhibit15_1.htm
EX-31.1 - EXHIBIT 31.1 - MCMORAN EXPLORATION CO /DE/exhibit31_1.htm
EX-32.1 - EXHIBIT 32.1 - MCMORAN EXPLORATION CO /DE/exhibit32_1.htm
EX-31.2 - EXHIBIT 31.2 - MCMORAN EXPLORATION CO /DE/exhibit31_2.htm
EX-32.2 - EXHIBIT 32.2 - MCMORAN EXPLORATION CO /DE/exhibit32_2.htm



UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
 
FORM 10-Q
 
(Mark One)
[X]
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 2009
OR
[  ]
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from
 
To
Commission File Number: 001-07791
 
 
McMoRan Exploration Co.
(Exact name of registrant as specified in its charter)


 
Delaware
72-1424200
(State or other jurisdiction of
incorporation or organization)
(IRS Employer Identification No.)
   
1615 Poydras Street
 
New Orleans, Louisiana
70112
(Address of principal executive offices)
(Zip Code)
 
(504) 582-4000
(Registrant's telephone number, including area code)
 
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. S Yes  oNo
 
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).  oYes oNo
 
      Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer S
Accelerated filer o
Non-accelerated filer o (Do not check if a smaller
Smaller reporting company o
reporting company)
 
 
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act ). oYes S No
 
On September 30, 2009, there were issued and outstanding 86,040,579 shares of the registrant’s Common Stock, par value $0.01 per share.
 

 
 

 


 
McMoRan Exploration Co.
 
 
Page
   
 
   
 
   
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4
   
5
   
6
   
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26
   
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37
   
 
   
37
   
37
   
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39
   
E-1



 
 

 

Financial Statements.

 
McMoRan EXPLORATION CO.

   
September 30,
 
December 31,
 
   
2009
 
2008
 
   
(In Thousands)
 
ASSETS
             
Cash and cash equivalents
 
$
224,664
 
$
93,486
 
Accounts receivable
   
77,652
   
112,684
 
Inventories
   
48,820
   
31,284
 
Prepaid expenses
   
18,147
   
13,819
 
Fair value of oil and gas derivative contracts
   
11,995
   
31,624
 
Current assets from discontinued operations, including restricted cash
             
of $0.5 million
   
1,008
   
516
 
Total current assets
   
382,286
   
283,413
 
Property, plant and equipment, net
   
821,288
   
992,563
 
Restricted cash
   
41,083
   
29,789
 
Deferred financing costs and other assets
   
12,963
   
15,658
 
Fair value of oil and gas derivative contracts
   
1,201
   
5,847
 
Sulphur business assets, net
   
3,002
   
3,012
 
Total assets
 
$
1,261,823
 
$
1,330,282
 
               
LIABILITIES AND STOCKHOLDERS’ EQUITY
             
Accounts payable
 
$
66,370
 
$
77,009
 
Accrued liabilities
   
64,082
   
89,565
 
Accrued interest and dividends payable
   
18,428
   
7,586
 
Current portion of accrued oil and gas reclamation costs
   
108,609
   
103,550
 
Current portion of accrued sulphur reclamation cost
   
5,000
   
785
 
Fair value of oil and gas derivative contracts
   
221
   
-
 
Current liabilities from discontinued operations
   
1,891
   
1,317
 
Total current liabilities
   
264,601
   
279,812
 
5¼% convertible senior notes
   
74,720
   
74,720
 
11.875% senior notes
   
300,000
   
300,000
 
Accrued oil and gas reclamation costs
   
303,050
   
317,651
 
Accrued sulphur reclamation costs
   
19,022
   
22,218
 
Fair value of oil and gas derivative contracts
   
98
   
-
 
Other long-term liabilities
   
20,047
   
20,023
 
Other long-term liabilities from discontinued operations
   
6,964
   
6,835
 
Total liabilities
   
988,502
   
1,021,259
 
Stockholders' equity
   
273,321
   
309,023
 
Total liabilities and stockholders' equity
 
$
1,261,823
 
$
1,330,282
 
               

The accompanying notes are an integral part of these consolidated financial statements.


 
3

 
TABLE OF CONTENTS
McMoRan EXPLORATION CO.

 
Three Months Ended
 
Nine Months Ended
 
 
September 30,
 
September 30,
 
 
2009
 
2008
 
2009
 
2008
 
 
(In Thousands, Except Per Share Amounts)
 
Revenues:
                       
Oil and gas
$
105,822
 
$
282,688
 
$
294,969
 
$
946,955
 
Service
 
3,713
   
2,557
   
8,494
   
9,274
 
Total revenues
 
109,535
   
285,245
   
303,463
   
956,229
 
Costs and expenses:
                       
Production and delivery costs
 
49,087
   
69,923
   
146,933
   
195,074
 
Depletion, depreciation and amortization expense
 
75,980
   
250,124
   
243,347
   
492,457
 
Exploration expenses
 
10,802
   
15,092
   
86,064
   
49,385
 
(Gain) loss on oil and gas derivative contracts
 
(738
)
 
(80,399
)
 
(16,624
)
 
35,607
 
General and administrative expenses
 
9,621
   
10,720
   
32,983
   
37,969
 
Main Pass Energy Hub costs
 
297
   
1,728
   
1,413
   
4,990
 
Insurance recoveries
 
-
   
-
   
(18,742
)
 
(3,391
)
Total costs and expenses
 
145,049
   
267,188
   
475,374
   
812,091
 
Operating income (loss)
 
(35,514
)
 
18,057
   
(171,911
)
 
144,138
 
Interest expense, net
 
(10,930
)
 
(10,870
)
 
(31,871
)
 
(40,501
)
Other income (expense), net
 
298
   
202
   
3,470
   
(2,322
)
Income (loss) from continuing operations before income taxes
 
(46,146
)
 
7,389
   
(200,312
)
 
101,315
 
Income tax benefit (expense)
 
177
   
(1,284
)
 
144
   
(3,149
)
Income (loss) from continuing operations
 
(45,969
)
 
6,105
   
(200,168
)
 
98,166
 
Loss from discontinued operations
 
(1,575
)
 
(1,356
)
 
(5,692
)
 
(2,960
)
Net income (loss)
 
(47,544
)
 
4,749
   
(205,860
)
 
95,206
 
Preferred dividends and inducement payments for early
                       
conversion of preferred stock
 
(4,388
)
 
(10,881
)
 
(9,925
)
 
(19,604
)
Net income (loss) applicable to common stock
$
(51,932
)
$
(6,132
)
$
(215,785
)
$
75,602
 
                         
Basic net income (loss) per share of common stock:
                       
Continuing operations
 
$(0.58
)
 
$(0.08
)
 
$(2.76
)
 
$1.34
 
Discontinued operations
 
(0.02
)
 
(0.02
)
 
(0.07
)
 
(0.05
)
Net income (loss) per share of common stock
 
$(0.60
)
 
$(0.10
)
 
$(2.83
)
 
$1.29
 
                         
Diluted net income (loss) per share of common stock:
                       
Continuing operations
 
$(0.58
)
 
$(0.08
)
 
$(2.76
)
 
$1.17
 
Discontinued operations
 
(0.02
)
 
(0.02
)
 
(0.07
)
 
(0.03
)
Net income (loss) per share of common stock
 
$(0.60
)
 
$(0.10
)
 
$(2.83
)
 
$1.14
 
                         
Average common shares outstanding:
                       
Basic
 
86,038
   
64,446
   
76,152
   
58,617
 
Diluted
 
86,038
   
64,446
   
76,152
   
87,718
 
 
The accompanying notes are an integral part of these consolidated financial statements.


 
4

 
TABLE OF CONTENTS
McMoRan EXPLORATION CO.

   
Nine Months Ended
 
   
September 30,
 
   
2009
 
2008
 
   
(In Thousands)
 
Cash flow from operating activities:
             
Net income (loss)
 
$
(205,860
)
$
95,206
 
Adjustments to reconcile net income (loss) to net cash provided by
             
operating activities:
             
Loss from discontinued operations
   
5,692
   
2,960
 
Depletion, depreciation and amortization
   
243,347
   
492,457
 
Exploration drilling and related expenditures, net
   
61,707
   
15,692
 
Compensation expense associated with stock-based awards
   
11,966
   
25,546
 
Amortization of deferred financing costs
   
2,793
   
3,675
 
Change in fair value of oil and gas derivative contracts
   
23,586
   
2,548
 
Loss on induced conversions of convertible senior notes
   
-
   
2,663
 
Reclamation expenditures, net of prepayments by third parties
   
(39,625
)
 
(6,500
)
Increase in restricted cash
   
(11,293
)
 
(11,364
)
Payment to fund terminated pension plan
   
-
   
(2,291
)
Other
   
(316
)
 
83
 
(Increase) decrease in working capital:
             
Accounts receivable
   
32,914
   
18,229
 
Accounts payable and accrued liabilities
   
(14,219
)
 
37,702
 
Prepaid expenses and inventories
   
(20,861
)
 
(35,299
)
Net cash provided by continuing operations
   
89,831
   
641,307
 
Net cash used in discontinued operations
   
(4,373
)
 
(5,144
)
Net cash provided by operating activities
   
85,458
   
636,163
 
               
Cash flow from investing activities:
             
Exploration, development and other capital expenditures
   
(113,375
)
 
(186,904
)
Other
   
-
   
(613
)
Net cash used in continuing operations
   
(113,375
)
 
(187,517
)
Net cash from discontinued operations
   
-
   
-
 
Net cash used in investing activities
   
(113,375
)
 
(187,517
)
               
Cash flow from financing activities:
             
Net proceeds from the sale of common stock
   
84,929
   
-
 
Net proceeds from the sale of 8% convertible perpetual
             
preferred stock
   
83,228
   
-
 
Payments under senior secured revolving credit facility, net
   
-
   
(274,000
)
Dividends and inducement payments on preferred stock
   
(9,062
)
 
(20,883
)
Payments for induced conversion of convertible senior notes
   
-
   
(2,663
)
Proceeds from exercise of stock options and other
   
-
   
4,705
 
Net cash provided by (used in) continuing operations
   
159,095
   
(292,841
)
Net cash from discontinued operations
   
-
   
-
 
Net cash provided by (used in)  financing activities
   
159,095
   
(292,841
)
Net increase in cash and cash equivalents
   
131,178
   
155,805
 
Cash and cash equivalents at beginning of year
   
93,486
   
4,830
 
Cash and cash equivalents at end of period
 
$
224,664
 
$
160,635
 

The accompanying notes are an integral part of these consolidated financial statements.

 
5

 
TABLE OF CONTENTS
McMoRan EXPLORATION CO.

1.  
BASIS OF PRESENTATION
The consolidated financial statements of McMoRan Exploration Co. (McMoRan), a Delaware corporation, are prepared in accordance with U.S. generally accepted accounting principles.  McMoRan’s consolidated financial statements include the accounts of those subsidiaries where McMoRan directly or indirectly has more than 50 percent of the voting rights and where the right to participate in significant management decisions is not shared with other shareholders, including its two wholly owned subsidiaries, McMoRan Oil & Gas LLC (MOXY) and Freeport-McMoRan Energy LLC (Freeport Energy).  MOXY conducts all of McMoRan’s oil and gas operations.  McMoRan’s previously discontinued sulphur operations are presented as discontinued operations and the major classes of assets and liabilities related to its former sulphur business are separately shown for the periods presented.

The accompanying unaudited consolidated financial statements should be read in conjunction with the consolidated financial statements and notes included in McMoRan’s Annual Report on Form 10-K for the year ended December 31, 2008 (2008 Form 10-K). The information furnished herein reflects all adjustments which are, in the opinion of management, necessary for a fair presentation of the results for the periods presented.  All such adjustments are, in the opinion of management, of a normal recurring nature. Certain prior year amounts have been reclassified to conform to the current year presentation, including the presentation of discontinued operations amounts within the statements of cash flow.

2.  LONG-TERM DEBT
McMoRan’s long-term debt is summarized below (in thousands).

 
September 30,
 
December 31,
 
 
2009
 
2008
 
Senior secured revolving credit facility
$
-
 
$
-
 
11.875% senior notes due 2014
 
300,000
   
300,000
 
5¼% convertible senior notes due 2011
 
74,720
   
74,720
 
Total debt
 
374,720
   
374,720
 
Less current maturities
 
-
   
-
 
Long-term debt
$
374,720
 
$
374,720
 

Senior Secured Revolving Credit Facility
McMoRan’s variable rate senior secured revolving credit facility (credit facility) is secured by substantially all of MOXY’s oil and gas properties and matures in August 2012.  Total availability was $235 million at September 30, 2009.

Availability under the credit facility is subject to a borrowing base, which is recalculated semi-annually each April 1 and October 1.  Unused borrowing capacity under the credit facility was $135 million at September 30, 2009.  McMoRan had no borrowings outstanding under the credit facility during the nine months ended September 30, 2009, although a letter of credit in the amount of $100 million remains outstanding under the credit facility to support the reclamation obligations assumed in the 2007 oil and gas property acquisition (see Note 2 of the 2008 Form 10-K).

During the quarter and nine months ended September 30, 2009, interest expense on the credit facility totaled $1.5 million and $4.2 million, respectively, representing amortization expense associated with the credit facility’s related deferred financing costs and other fees.  Interest expense totaled $1.6 million and $10.6 million for the third quarter and nine months ended September 30, 2008, respectively, including $1.4 million and $5.1 million of amortization expense associated with related deferred financing costs and other fees.  The average interest rate on borrowings under the credit facility was 5.0 percent and 5.5 percent during the third quarter and nine months ended September 30, 2008, respectively.

The credit facility contains covenants and other restrictions customary for oil and gas borrowing base credit facilities; McMoRan is in compliance with all of the terms of the credit facility.

6

 
McMoRan’s lenders are currently completing their semi-annual redetermination of its borrowing base.  The review is expected to be completed in the fourth quarter of 2009.  McMoRan expects its borrowing base will be reduced from the current level, reflecting the impact of year-to-date production and lower natural gas prices assumptions used by the lenders in the assessments.    McMoRan does not expect the redetermination to impact its future plans or operations.

Debt Conversion Transactions
McMoRan’s 6% convertible senior notes matured on July 2, 2008 (6% notes).  During the nine months ended September 30, 2008, McMoRan privately negotiated transactions to induce the conversion of $39.1 million of its 6% notes into approximately 2.75 million shares of its common stock.  McMoRan paid an aggregate $1.0 million in cash to induce these conversions, which is reflected as non-operating expense in the 2008 consolidated statements of operations.  Additionally, $61.7 million of the 6% notes were converted into approximately 4.3 million shares of McMoRan common stock in accordance with the terms of the 6% notes during the nine months ended September 30, 2008 (including the 6% notes converted into shares of common stock upon maturity on July 2, 2008).

During the nine months ended September 30, 2008, McMoRan also privately negotiated transactions to induce the conversion of $40.2 million of its 5¼% convertible senior notes due October 6, 2011 (5¼% notes) into approximately 2.4 million shares of its common stock.  McMoRan paid an aggregate $1.7 million in cash to induce these conversions, which is reflected as a non-operating expense in the 2008 consolidated statements of operations.  The 5¼% notes have a conversion price of $16.575 per share and are callable beginning October 6, 2009 if the closing price of McMoRan’s common stock exceeds 130% of the conversion price for at least 20 trading days in any consecutive 30-day period.

Fair Value of Debt
The fair value of the 5¼% notes and 11.875% senior notes due 2014 (11.875% senior notes) is determined at the end of each reporting period using inputs based upon quoted prices for such instruments in active markets.  At September 30, 2009, the estimated fair value of the 5¼% notes and 11.875% senior notes was $68.7 million and $303.0 million, respectively.

3.  EARNINGS PER SHARE
Basic net income (loss) per share of common stock has been calculated by dividing the net income (loss) applicable to continuing operations, net income (loss) from discontinued operations and net income (loss) applicable to common stock by the weighted-average number of common shares outstanding during the periods presented.  For purposes of the earnings per share computations, the net income (loss) applicable to continuing operations includes preferred stock dividends.

McMoRan had a net loss from continuing operations for the third quarter and nine months ended September 30, 2009 and the third quarter ended September 30, 2008.  Accordingly, the assumed exercise of in-the-money stock options, as well as the assumed conversion of McMoRan’s 6¾% mandatorily convertible preferred stock (6¾% preferred stock), 8% convertible perpetual preferred stock (8% preferred stock) and 5¼% notes, have been excluded from the diluted net loss per share calculations.  These instruments were excluded because they are considered to be anti-dilutive, meaning their inclusion would have decreased the reported net loss per share from continuing operations during the third quarter and nine months ended September 30, 2009 and the third quarter ended September 30, 2008.  The excluded common share equivalent amounts are summarized below (in thousands):

   
Third
 
Nine
 
Third
 
   
Quarter
 
Months
 
Quarter
 
   
2009
 
2008
 
Stock options a, b
 
-
 
-
 
2,947
 
Assumed conversion of 6¾% preferred stock c
 
12,817
 
12,817
 
16,899
 
Assumed conversion of 8% preferred stock d
 
12,605
 
4,617
 
-
 
Assumed conversion of 5¼% convertible senior notes e
 
4,508
 
4,508
 
4,508
 
Assumed conversion of 6% notes f
 
-
 
-
 
66
 

7

 
The table below reconciles McMoRan’s basic net income per share to its diluted net income per share for the nine months ended September 30, 2008 (amounts in thousands, except per share data):

   
Nine
 
   
Months
 
   
2008
 
Net income from continuing operations
 
$
98,166
 
Preferred dividends
   
(19,604
)
Net income from continuing operations applicable to common stock
   
78,562
 
Add:  Preferred dividends from assumed conversion of  6¾% preferred stock
   
19,604
 
Add:  Net interest from assumed conversion of 6% notes
   
1,514
 
Add:  Net interest from assumed conversion of 5¼% notes
   
3,484
 
Diluted net income from continuing operations
   
103,164
 
Loss from discontinued operations
   
(2,960
)
Diluted net income applicable to common stock
 
$
100,204
 
         
Weighted average common shares outstanding for purpose of calculating
       
basic net income per share
   
58,617
 
Assumed exercise of dilutive stock options a, b
   
2,183
 
Assumed exercise of stock warrants a, g
   
368
 
Assumed conversion of 6¾% preferred stock c
   
17,187
 
Assumed conversion of 6% notes f
   
3,520
 
Assumed conversion of 5¼% notes e
   
5,843
 
Weighted average common shares outstanding
       
for purposes of calculating diluted net income per share
   
87,718
 
         
Diluted net income per share from continuing operations
   
$1.17
 
Diluted net loss per share from discontinued operations
   
(0.03
)
Diluted net income per share
   
$1.14
 

a.  
McMoRan uses the treasury stock method to determine total shares related to in-the-money stock options and stock warrants for purposes of its diluted earnings per share calculation.
b.  
Represents stock options with an exercise price less than the average market price for McMoRan’s common stock for the periods presented.
c.  
See Note 10 of the 2008 Form 10-K for information regarding McMoRan’s 6¾% preferred stock.
d.  
Represents the weighted average total equivalent common stock shares assuming conversion of 8% preferred stock (Note 5).  The amount is reduced from the 12.6 million equivalent shares issuable upon conversion to reflect the number of days that the 8% preferred stock was outstanding during the nine months ended September 30, 2009.
e.  
Net interest expense on the 5¼% notes totaled $1.0 million during each of the third quarters of 2009 and 2008, respectively, and $3.0 million and $3.5 million for the nine month periods ended September 30, 2009 and 2008, respectively. Additional information regarding McMoRan’s 5¼% notes is disclosed in Note 8 of the 2008 Form 10-K.
f.  
The 6% notes matured on July 2, 2008.  Net interest expense on the 6% notes totaled $1.5 million for the nine month period ended September 30, 2008.  Additional information regarding McMoRan’s 6% notes is disclosed in Note 8 of the 2008 Form 10-K.
g.  
See Note 6 of the 2008 Form 10-K for additional information regarding the warrants.

Outstanding stock options excluded from the computation of diluted net income (loss) per share of common stock because their exercise prices were greater than the average market price of McMoRan’s common stock during the periods presented are as follows:

8

 
 
Third Quarter
   
Nine Months
 
   
2009
   
2008
   
2009
   
2008
 
Outstanding options (in thousands)
   
8,457
     
40
     
8,457
     
45
 
Average exercise price
 
$
15.36
   
$
31.92
   
$
15.36
   
$
31.08
 

4.  DERIVATIVE CONTRACTS
In connection with the 2007 oil and gas property acquisition and related financing (see Note 2 of the 2008 Form 10-K), MOXY entered into derivative contracts for a portion of the anticipated production from its proved developed producing oil and gas properties at the time of the acquisition for the years 2008 through 2010. See Note 1 of the 2008 Form 10-K for McMoRan’s accounting policies regarding derivative contracts.

At September 30, 2009, McMoRan’s outstanding oil and gas derivative contracts were as follows:
 
Natural Gas Positions (million MMbtu)
 
 
Open Swap Positions a
 
Put Options b
 
     
Average
     
Average
 
 
Volumes
 
Swap Price c
 
Volumes
 
Floor Price c
 
2009
1.1
 
$
 8.97
 
             0.7
 
$
 6.00
 
2010
             2.6
 
$
 8.63
 
             1.2
 
$
 6.00
 
 
Oil Positions (thousand bbls)
 
 
Open Swap Positions a
 
Put Options b
 
     
Average
     
Average
 
 
Volumes
 
Swap Price d
 
Volumes
 
Floor Price d
 
2009
            45
 
$
 71.16
 
29
 
$
 50.00
 
2010
            118
 
$
 70.89
 
              50
 
$
 50.00
 
                     

a.  
Remaining 2009 swaps cover periods November-December 2009; 2010 swaps cover periods January-June and November-December.
b.  
Remaining 2009 puts cover October 2009; 2010 puts cover periods July-October.
c.  
Price per MMbtu of natural gas.
d.  
Price per barrel of oil.

Because these oil and gas derivative contracts were not designated as hedges for accounting purposes, unrealized (gains) losses representing changes in the related fair values along with realized (gains) losses representing cash settlements are recognized immediately in McMoRan’s operating results at each reporting period.  During the third quarter and nine months ended September 30, 2009 and 2008, McMoRan’s realized and unrealized (gains) losses on these contracts were as follows (in thousands):

 
Third Quarter
 
Nine Months
 
 
2009
 
2008
 
2009
 
2008
 
Realized (gain) loss
                       
Gas puts
$
(5,521
)
$
1,579
 
$
(5,521
)
$
1,579
 
Oil puts
 
183
   
274
   
183
   
274
 
Gas swaps
 
-
   
-
   
(28,887
)
 
10,777
 
Oil swaps
 
-
   
3
   
(5,985
)
 
20,429
 
Total realized (gain) loss
 
(5,338
)
 
1,856
   
(40,210
)
 
33,059
 
                         
Unrealized (gain) loss
                       
Gas puts
 
4,568
   
(2,356
)
 
101
   
(32
)
Oil puts
 
(157
)
 
(357
)
 
893
   
(304
)
Gas swaps
 
405
   
(58,752
)
 
14,979
   
7,048
 
Oil swaps
 
(216
)
 
(20,790
)
 
7,613
   
(4,164
)
Total unrealized (gain) loss
 
4,600
   
(82,255
)
 
23,586
   
2,548
 
(Gain) loss on oil and gas derivative contracts
$
(738
)
$
(80,399
)
$
(16,624
)
$
35,607
 

9

 
The original cost of the put options was $4.6 million.  There was no cost for entering into the swap contracts.  The derivative contracts are reported at fair value on McMoRan’s balance sheets.  The fair value of McMoRan’s swaps and puts is based on transaction counterparty acknowledgments and corroborated based on quoted market prices and internal valuation model analyses.  McMoRan has classified the fair value measurement of its derivative instruments as being derived from Level 2 inputs, as defined under generally accepted accounting principles (see Note 9 of the 2008 Form 10-K).  The following tables provide fair value measurement and classification information for these instruments as of September 30, 2009 and December 31, 2008 (in thousands):

 
September 30, 2009
 
 
Puts
 
Swaps
       
 
Gas
 
Oil
 
Gas
 
Oil
 
Total
 
Current assets
$
2,251
 
$
101
 
$
9,640
 
$
3
 
$
11,995
 
Other assets
 
248
   
35
   
918
   
-
   
1,201
 
Current liabilities
 
-
   
-
   
-
   
(221
)
 
(221
)
Other long-term liabilities
 
-
   
-
   
-
   
(98
)
 
(98
)
Fair value of contracts
$
2,499
 
$
136
 
$
10,558
 
$
(316
)
$
12,877
 

 
December 31, 2008
 
 
Puts
 
Swaps
       
 
Gas
 
Oil
 
Gas
 
Oil
 
Total
 
Current assets
$
2,659
 
$
915
 
$
21,701
 
$
6,349
 
$
31,624
 
Other assets
 
765
   
297
   
3,837
   
948
   
5,847
 
Current liabilities
 
-
   
-
   
-
   
-
   
-
 
Other long-term liabilities
 
-
   
-
   
-
   
-
   
-
 
Fair value of contracts
$
3,424
 
$
1,212
 
$
25,538
 
$
7,297
 
$
37,471
 

5.  COMMON AND CONVERTIBLE PERPETUAL PREFERRED STOCK OFFERINGS
In June 2009, McMoRan completed a public offering of 15.5 million shares of common stock at $5.75 per share and a concurrent public offering of 86,250 shares of 8% convertible perpetual preferred stock with an offering price of $1,000 per share.  The net proceeds from these offerings, after deducting underwriters’ discounts and other expenses, were approximately $168 million.  McMoRan is using the net proceeds from the offerings for general corporate purposes, including funding its capital expenditures.

The 8% preferred stock is recorded at liquidation preference value ($1,000 per share) on the accompanying consolidated balance sheet.  The first quarterly cash dividend was $11.78 per share (reflecting the partial quarter) which was paid on August 15, 2009; subsequent quarterly dividend payments will be $20.00 per share.  The 8% preferred stock is convertible in the aggregate into 12.6 million shares of McMoRan common stock (equivalent to a conversion price of $6.8425 per share), subject to certain anti-dilution adjustments.  Beginning June 15, 2014, McMoRan has the right to redeem shares of the 8% preferred stock by paying cash, McMoRan common stock or any combination thereof for $1,000 per share plus accumulated and unpaid dividends, but only if the trading price of McMoRan’s common stock has exceeded 130% of the initial conversion price for at least 20 trading days within a period of 30 consecutive trading days ending on the trading day before the date McMoRan gives the redemption notice.

Activity within McMoRan’s stockholders’ equity accounts for the nine months ended September 30, 2009 follows:
 
10

 
 
 
Preferred stock
 
Common stock
 
 
Capital  in excess of par value
 
Accumulated deficit
 
Accumulated
 other comprehensive loss
 
Common stock held in treasury
 
Total Stockholders’ Equity
 
Balance as of January 1, 2009
$
158,934
 
$
730
 
$
971,977
 
$
(776,153
)
$
(22
)
$
(46,443
)
$
309,023
 
Common stock offering,
                                         
   15,547,400 shares issued
 
-
   
155
   
84,774
   
-
   
-
   
-
   
84,929
 
Preferred stock offering,
                                         
   86,250 shares issued
 
86,250
   
-
   
(3,022
)
 
-
   
-
   
-
   
83,228
 
Stock-based compensation
                                         
   expense
 
-
   
-
   
11,966
   
-
   
-
   
-
   
11,966
 
Preferred stock dividends
 
-
   
-
   
(9,925
)
 
-
   
-
   
-
   
(9,925
)
Net loss
 
-
   
-
   
-
   
(205,860
)
 
-
   
-
   
(205,860
)
Stock tendered for taxes
 
-
   
-
   
-
   
-
   
-
   
(10
)
 
(10
)
Other comprehensive loss
 
-
   
-
   
-
   
-
   
(30
)
 
-
   
(30
)
Balance as of September 30, 2009
$
245,184
 
$
885
 
$
1,055,770
 
$
(982,013
)
$
(52
)
$
(46,453
)
$
273,321
 

6.  INCOME TAXES
As of September 30, 2009 and December 31, 2008, McMoRan had approximately $414.8 million and $343.1 million, respectively, of unrecognized tax benefits relating to its reported net losses and other temporary differences from operations.  McMoRan has recorded a full valuation allowance against these deferred tax assets (see Note 14 of the 2008 Form 10-K).  McMoRan’s effective tax rate would be impacted in future periods to the extent these deferred tax assets are recognized. McMoRan will continue to assess whether or not deferred tax assets can be recognized based on operating results and other factors in future periods.  Federal tax regulations impose certain annual limitations on the utilization of net operating losses (NOLs) from prior periods when a defined level of change in ownership of certain shareholders is exceeded.  If a corporation has a statutorily defined change of ownership, its ability to use its existing NOLs could be limited by Section 382 of the Internal Revenue Code depending upon the level of future taxable income generated in a given year and other factors.  McMoRan has determined that such a change of ownership has occurred, which, depending upon the amounts and timing of future taxable income generated, may limit McMoRan’s ability to use its existing NOLs to fully offset taxable income in future periods.

Interest or penalties associated with income taxes are recorded as components of the provision for income taxes, although no such amounts have been recognized in the accompanying financial statements.  Currently, McMoRan’s major taxing jurisdictions are the United States (federal) and Louisiana.  Tax periods open to audit for McMoRan include federal income tax returns subsequent to 2005 and Louisiana income tax returns subsequent to 2004.  NOL amounts prior to this time are also subject to audit.

7. OIL AND GAS ACTIVITIES
Exploratory Wells In-Progress.
McMoRan has investments in three in-progress or unevaluated wells totaling $62.1 million at September 30, 2009, including $18.9 million for the Blueberry Hill sidetrack well, $11.5 million for the Davy Jones prospect and $31.7 million for the South Timbalier Block 168 No. 1 well.   These in-progress and unevaluated wells do not include McMoRan’s investment in the original Blueberry Hill well ($23.3 million at September 30, 2009) which was drilled in 2005 and was assigned proved and probable reserves at that time.

If current or future well assessment, stimulation, or completion efforts are not successful in generating production that will allow McMoRan to recover its investment in any of these wells, McMoRan would be required to write down its investment in such properties to their net realizable value.  See Note 1 of the 2008 Form 10-K for additional information regarding the periodic assessment of potential impairments to McMoRan’s properties.

Oil and Gas Property Impairment Charges.
As also discussed in Note 1 of the 2008 Form 10-K, when events and circumstances indicate that proved oil and gas property carrying amounts might not be fully recoverable from estimated future undiscounted cash flows, a reduction of the carrying amount to estimated fair value is required.  McMoRan estimates the fair value of its properties using estimated future cash flows based on proved and risk-adjusted
 
11

 
probable oil and natural gas reserves supported by independent reserve engineering estimates.  Future cash flows are determined using published forward market prices adjusted for property-specific price basis and energy content differentials, net of estimated future production and development costs, excluding estimated asset retirement and abandonment expenditures.  If the undiscounted cash flows indicate that the property is impaired, McMoRan discounts the future cash flows using a discount factor that considers investors’ expected rates of return for similar types of assets if acquired under current market conditions.  Due to the declines in market prices for oil and natural gas and certain other operational factors that negatively impacted reserve recoverability, McMoRan recorded impairment charges totaling $11.2 million and $64.8 million, respectively, during the third quarter and nine months ended September 30, 2009.  Due to operational factors and the 2008 hurricane activity, McMoRan recorded impairment charges totaling $33.4 million and $40.8 million, respectively, during the third quarter and nine months ended September 30, 2008.  McMoRan considers the fair value measurements used in its impairment evaluations to be derived from Level 3 inputs, as defined under generally accepted accounting principles (Note 1 of the 2008 Form 10-K).

The determination of oil and gas reserve estimates is a subjective process, and the accuracy of any reserve estimate depends on the quality of available data and the application of engineering and geological interpretation and judgment. Estimates of economically recoverable reserves and future net cash flows depend on a number of variable factors and assumptions that are difficult to predict and may vary considerably from actual results.  In particular, reserve estimates for wells with limited or no production history are less reliable than those based on actual production.  Subsequent evaluation of the same reserves may result in variations in estimated reserves and related estimates of future cash flows. These variations may be substantial.  If the capitalized costs of an individual oil and gas property exceed the related estimated future net cash flows, an impairment charge to reduce the capitalized costs to the property’s estimated fair value is required.  For more information regarding the risks associated with the reserve estimation process see Item 1A. “Risk Factors” in the 2008 Form 10-K.

2008 Hurricane Activity.
Hurricanes Gustav and Ike disrupted McMoRan’s Gulf of Mexico operations prior to making landfall on the Louisiana and Texas coasts on September 1, 2008 and September 13, 2008, respectively.  There was no significant damage to McMoRan’s properties resulting from Hurricane Gustav.  However, Hurricane Ike caused significant structural damage to several platforms in which McMoRan had an investment interest.  Since the third quarter of 2008, McMoRan recorded charges totaling in excess of $180 million related to incurred repair costs, property impairments and additional estimated reclamation costs associated with the damaged properties.  While a portion of these costs has been incurred to date, a significant amount of the remaining expenditures, particularly for asset retirement obligations, will be funded by McMoRan over the next several years. McMoRan expects to realize a substantial recovery in future periods under its insurance program for a large portion of these hurricane related costs, reimbursement for which will be received after damage-related expenditures are funded and related claims are approved.  McMoRan received net insurance proceeds of $18.7 million in March 2009, after satisfying its $50 million deductible, as an initial payment associated with certain of its insured hurricane-related losses.   McMoRan recorded $(0.5) million and $14.2 million in the third quarter and nine months ended September 30, 2009, respectively, for hurricane related general repair costs (credits) which are included in production and delivery costs in McMoRan’s consolidated statements of operations.  McMoRan recorded $6.3 million in the third quarter and nine months ended September 30, 2008 for hurricane related general repair costs.

Accrued Reclamation Obligations.
For more information regarding McMoRan’s accounting for asset retirement obligations see Notes 1 and 17 of the 2008 Form 10-K.   A summary of changes in McMoRan’s consolidated discounted asset retirement obligations (including both current and long-term obligations) since December 31, 2008 follows (in thousands):

12

 
 
Oil and
     
 
Natural Gas
 
Sulphur
 
Asset retirement obligation at December 31, 2008
$
421,201
 
$
23,003
 
Liabilities settled
 
(36,881
)
 
(482
)
Accretion expense
 
23,398
   
1,501
 
Reclamation costs assumed from third parties
 
842
   
-
 
Incurred liabilities
 
1,608
   
-
 
Revision for changes in estimates
 
1,491
   
-
 
Asset retirement obligations at September 30, 2009
$
411,659
 
$
24,022
 

Inventory.
Product inventories totaled $0.4 million at September 30, 2009 and $1.0 million at December 31, 2008, related to oil production from Main Pass Block 299.  Materials and supplies inventory totaled $48.4 million at September 30, 2009 and $30.3 million at December 31, 2008, and represents the cost of supplies to be used in McMoRan’s drilling activities, primarily drilling pipe and tubulars. A portion of the cost of such inventory will be reimbursed to McMoRan by joint operating partners as future well drilling activity requires the supply of these materials.  As a result of declines in market values related to certain inventory items, McMoRan recorded a valuation allowance of $3.3 million in the nine months ended September 30, 2009 for materials not dedicated to currently planned drilling projects.

Commitments.
In June 2009, McMoRan amended certain of the terms associated with an existing drilling rig lease contract that reduced the lease rate by approximately 20 percent from June 1, 2009 through its remaining term (November 2010), resulting in a remaining contract obligation of approximately $90 million as of June 30, 2009.  McMoRan also entered into an additional contract with the same service provider for the option to lease a drilling rig currently under construction and expected to be completed in early 2010.  The additional contract has a two-year term, expected to commence in early 2010 upon completion of construction and satisfactory delivery of the rig, and its total contract amount of approximately $130 million is expected to be shared with McMoRan’s partners in the deep and ultra deep exploration program.  McMoRan can elect to cancel the additional drilling contract prior to December 31, 2009 by incurring a cancellation fee of $18 million.

8. OTHER MATERS
Interest Cost.
Interest expense capitalized by McMoRan totaled $0.8 million in the third quarter of 2009 and $3.2 million for the nine months ended September 30, 2009.  Capitalized interest totaled $1.0 million in the third quarter of 2008 and $3.8 million for the nine months ended September 30, 2008.

Pension Plan.
During 2000, McMoRan elected to terminate its defined benefit plan (Pension Plan).  McMoRan received notification dated April 14, 2008 that the Internal Revenue Service approved the Pension Plan’s termination and funded the approximate $2.3 million shortfall between the Pension Plan’s obligations and the underlying plan assets in 2009.  McMoRan also provides certain health care and life insurance benefits (Other Benefits Plan) to retired employees.  See Note 13 of the 2008 Form 10K for more information regarding the Pension and Other Benefits Plans.

The components of McMoRan’s net periodic pension expense associated with McMoRan’s Pension Plan for the third quarter and nine months ended September 30, 2009 and 2008 follows (in thousands):

 
Third Quarter
 
Nine Months
 
 
2009
 
2008
 
2009
 
2008
 
Interest cost
$
-
 
$
81
 
$
-
 
$
65
 
Service cost
 
-
   
-
   
-
   
-
 
Return on plan assets
 
-
   
(5
)
 
-
   
(23
)
Change in plan payout assumptions
 
-
   
-
   
-
   
-
 
Net periodic expense
$
-
 
$
76
 
$
-
 
$
42
 

13

 
The components of net periodic expense associated with McMoRan’s Other Benefits plans for the third quarter and nine months ended September 30, 2009 and 2008 follows (in thousands):

 
Third Quarter
 
Nine Months
 
 
2009
 
2008
 
2009
 
2008
 
Service cost
$
13
 
$
7
 
$
38
 
$
20
 
Interest cost
 
72
   
84
   
215
   
251
 
Return on plan assets
 
-
   
-
   
-
   
-
 
Amortization of prior service costs
                       
and actuarial gains
 
(10
)
 
(1
)
 
(30
)
 
(4
)
Net periodic expense
$
75
 
$
90
 
$
223
 
$
267
 

Stock-Based Compensation.
For information regarding McMoRan’s accounting for stock-based awards, see Note 1 of the 2008 Form 10-K.  Compensation cost charged to expense for stock-based awards for the third quarter and nine months ended September 30, 2009 and 2008 follows (in thousands):

 
Third Quarter
   
Nine Months
 
 
2009
 
2008
   
2009
 
2008
 
Cost of options awarded to employees (including
                         
directors) a
$
2,553
 
$
4,329
   
$
11,168
 
$
24,389
 
Cost of options awarded to non-employees
 
143
   
261
     
543
   
991
 
Cost of restricted stock units
 
90
   
81
     
255
   
166
 
Total compensation cost
$
2,786
 
$
4,671
   
$
11,966
 
$
25,546
 

a.  
Includes compensation charges associated with immediately vested stock options totaling $2.9 million and $16.2 million, respectively, for the nine months ended September 30, 2009 and 2008.  These charges included the compensation costs associated with the immediately exercisable options and the compensation costs related to stock options granted to retiree-eligible employees, which resulted in one-year’s compensation expense being immediately recognized at the effective date of the stock option grant.

On February 2, 2009, McMoRan’s Board of Directors granted a total of 1,815,500 stock options to its employees at an exercise price of $6.44 per share, including immediately exercisable options for an aggregate of 445,000 shares.  Options representing 400,000 of these 445,000 shares were issued to McMoRan’s Co-Chairmen in lieu of cash compensation in 2009.  The weighted average option value of the 1,855,500 options granted during the nine months ended September 30, 2009 was $3.98 per option.

As of September 30, 2009, total compensation cost related to unvested, approved stock option awards not yet recognized in earnings was approximately $18.5 million, which is expected to be recognized over a weighted average period of approximately one year.

Comprehensive Income (loss).
McMoRan’s comprehensive income (loss) is shown below (in thousands):

 
Third Quarter
   
Nine Months
 
 
2009
 
2008
   
2009
 
2008
 
Net income (loss)
$
(51,932
)
$
(6,132
)
 
$
(215,785
)
$
75,602
 
Other comprehensive income (loss)
                         
Amortization of previously unrecognized pension
                         
components, net
 
(10
)
 
(1
)
   
(30
)
 
(4
)
Comprehensive income (loss)
$
(51,942
)
$
(6,133
)
 
$
(215,815
)
$
75,598
 

9.  NEW ACCOUNTING STANDARDS
In December 2007, the Financial Accounting Standards Board (FASB) issued an accounting standard that requires an acquirer to recognize 100 percent of the fair values of acquired assets, with limited exceptions, even if the acquirer has not acquired 100 percent of its target.  Additionally, contingent consideration arrangements and preacquisition contingencies will be measured at fair value on the acquisition date and
 
14

 
included in the basis of the purchase price.  Transaction costs are expensed as incurred and not considered as part of the fair value of the acquisition; however, acquired research and development are no longer expensed at acquisition, but instead are capitalized as an indefinite-lived intangible asset.  McMoRan adopted this accounting standard on January 1, 2009 with no impact to its financial statements.

In April 2009, the FASB issued accounting guidance that requires assets acquired and liabilities assumed in a business combination that arise from contingencies be recognized at fair value, if the fair value can be determined during the measurement period.  McMoRan adopted this accounting guidance effective June 30, 2009 with no impact to its financial statements.

In March 2008, the FASB issued an accounting standard that requires enhanced disclosure related to derivatives and hedging activities and thereby seeks to improve the transparency of financial reporting.  Entities are required to provide enhanced disclosures relating to: (a) how and why an entity uses derivative instruments; (b) how derivative instruments and related hedge items are accounted for under GAAP; and (c) how derivative instruments and related hedged items affect an entity’s financial position, financial performance, and cash flows. This standard was applied prospectively to all derivative instruments and non-derivative instruments that are designated and qualify as hedging instruments and related hedged items for all financial statements issued for fiscal years and interim periods beginning after November 15, 2008, with early application encouraged. McMoRan adopted this accounting standard on January 1, 2009 and has added certain additional disclosures in its financial statements.

In May 2008, the FASB issued accounting guidance that requires the issuer of certain convertible debt instruments that may be settled in cash (or other assets) on conversion to separately account for the liability (debt) and equity (conversion option) components of the instrument in a manner that reflects the issuer’s nonconvertible debt borrowing rate.  This requires the accretion of the resulting discount on the liability component of the convertible debt, which results in additional interest expense based on McMoRan’s nonconvertible debt borrowing rate.  McMoRan adopted this guidance on January 1, 2009 with no impact to its financial statements due to McMoRan’s instruments’ inability to be settled in cash except for specific circumstances which are not within the scope of this guidance.

In June 2008, the FASB issued accounting guidance to clarify that unvested share-based payment awards with a right to receive non-forfeitable dividends are participating securities.  McMoRan adopted this guidance on January 1, 2009 with no impact to its financial statements as its instruments do not meet the definition of participating securities as defined in the guidance.

In December 2008 the Securities and Exchange Commission (SEC) approved amendments to revise its oil and gas reserve estimation and disclosure requirements. The amendments among other things:
·  
allow the use of new technologies to determine proved reserves;
·  
permit the optional disclosure of probable and possible reserves;
·  
modify the prices used to estimate reserves for SEC disclosure purposes to a 12-month average price instead of a period-end price; and
·  
require that if a third party is primarily responsible for preparing or auditing the reserve estimates, the company make disclosures relating to the independence and qualifications of the third party, including filing as an exhibit any report received from the third party.

The new SEC reserve estimation and disclosure requirements had no impact on McMoRan’s 2009 interim financial statements but will be effective for the disclosures included in McMoRan’s year-end 2009 financial reporting and its 2009 Annual Report on Form 10-K.

In September 2009, the FASB issued an exposure draft to align the reserve calculation and disclosure requirements of generally accepted accounting principles with the new SEC oil and gas reserve estimation and disclosure rules.  As proposed, the exposure draft would be effective for reporting periods ending on or after December 31, 2009.   McMoRan expects that the exposure draft will impact its oil and gas disclosures in its December 31, 2009 financial statements.

In April 2009, the FASB issued accounting guidance that extends the fair value disclosure requirements to interim financial statements of publicly traded companies.  Disclosures of the fair value of all financial instruments (recognized or unrecognized), except for specific listed instruments, is required when practicable to do so.  These fair value disclosures must be presented together with the related
 
 
15

 
carrying amount of the financial instruments in a manner that clearly distinguishes between assets and liabilities and indicates how the carrying amounts relate to amounts reported on the balance sheet.  An entity must also disclose the method(s) and significant assumptions used to estimate the fair value of financial instruments.  McMoRan adopted this accounting guidance on June 30, 2009 with limited impact to its financial statement disclosures.

In May 2009, the FASB issued an accounting standard that establishes general standards of accounting for and disclosure of events that occur after the balance sheet date but before financial statements are issued or are available to be issued. Specifically, this standard provides:
·  
The period after the balance sheet date during which management of a reporting entity should evaluate events or transactions that may occur for potential recognition or disclosure in the financial statements;
·  
The circumstances under which an entity should recognize events or transactions occurring after the balance sheet date in its financial statements; and
·  
The disclosures that an entity should make about events or transactions that occurred after the balance sheet date.

McMoRan adopted this accounting standard on June 30, 2009 with limited impact to its financial statement disclosures. McMoRan has evaluated subsequent events for purposes of its third quarter 2009 financial reporting through November 6, 2009.

10.  GUARANTOR FINANCIAL STATEMENTS
MOXY is an unconditional guarantor of McMoRan’s 11.875% senior notes.  See Notes 8 and 19 of the 2008 Form 10-K for additional information regarding these senior notes and MOXY’s guarantee.

               The following unaudited consolidating financial information includes information regarding McMoRan, as parent, MOXY and its subsidiaries, as guarantors, and Freeport Energy, as the non-guarantor subsidiary.  Included are the condensed consolidating balance sheets at September 30, 2009 and December 31, 2008 and the related condensed consolidating statements of operations and cash flow for the quarter and nine months ended September 30, 2009 and 2008, which should be read in conjunction with the Notes to these condensed consolidated financial statements:

16

 
CONDENSED CONSOLIDATING BALANCE SHEET (UNAUDITED)
September 30, 2009

           
Freeport
     
Consolidated
 
   
Parent
 
MOXY
 
Energy
 
Eliminations
 
McMoRan
 
   
(In Thousands)
 
ASSETS
                               
Current assets:
                               
Cash and cash equivalents
 
$
23
 
$
224,635
 
$
6
 
$
-
 
$
224,664
 
Accounts receivable
   
-
   
77,652
   
-
   
-
   
77,652
 
Inventories
   
-
   
48,820
   
-
   
-
   
48,820
 
Prepaid expenses
   
570
   
17,577
   
-
   
-
   
18,147
 
Fair value of derivative contracts
   
-
   
11,995
   
-
   
-
   
11,995
 
Current assets from discontinued
                               
operations
   
-
   
-
   
1,008
   
-
   
1,008
 
Total current assets
   
593
   
380,679
   
1,014
   
-
   
382,286
 
Property, plant and equipment, net
   
-
   
821,257
   
31
   
-
   
821,288
 
Discontinued sulphur assets
   
-
   
-
   
3,002
   
-
   
3,002
 
Investment in subsidiaries
   
687,257
   
-
   
-
   
(687,257
)
 
-
 
Amounts due from affiliates
   
-
   
26,260
   
-
   
(26,260
)
 
-
 
Deferred financing costs and other assets
   
10,031
   
45,216
   
-
   
-
   
55,247
 
Total assets
 
$
697,881
 
$
1,273,412
 
$
4,047
 
$
(713,517
)
$
1,261,823
 
                                 
LIABILITIES AND STOCKHOLDERS’ EQUITY
                   
Current liabilities:
                               
Accounts payable
 
$
247
 
$
65,914
 
$
209
 
$
-
 
$
66,370
 
Accrued liabilities
   
906
   
63,346
   
(170
)
 
-
   
64,082
 
Current portion of oil and gas accrued
                               
reclamation costs
   
-
   
108,609
   
-
   
-
   
108,609
 
Other current liabilities
   
17,585
   
1,064
   
-
   
-
   
18,649
 
Current liabilities from discontinued
                               
operations
   
-
   
-
   
6,891
   
-
   
6,891
 
Total current liabilities
   
18,738
   
238,933
   
6,930
   
-
   
264,601
 
Long-term debt
   
374,720
   
-
   
-
   
-
   
374,720
 
Amounts due to affiliates
   
22,142
   
-
   
4,118
   
(26,260
)
 
-
 
Accrued oil and gas reclamation costs
   
-
   
303,050
   
-
   
-
   
303,050
 
Accrued sulphur reclamation costs
   
-
   
-
   
19,022
   
-
   
19,022
 
Other long-term liabilities
   
8,960
   
9,569
   
8,580
   
-
   
27,109
 
Total liabilities
   
424,560
   
551,552
   
38,650
   
(26,260
)
 
988,502
 
Commitments and contingencies
                               
Stockholders’ equity (deficit)
   
273,321
   
721,860
   
(34,603
)
 
(687,257
)
 
273,321
 
Total liabilities and stockholders’ equity
 
$
697,881
 
$
1,273,412
 
$
4,047
 
$
(713,517
)
$
1,261,823
 


 
17

 
TABLE OF CONTENTS
CONDENSED CONSOLIDATING BALANCE SHEET
December 31, 2008

           
Freeport
     
Consolidated
 
   
Parent
 
MOXY
 
Energy
 
Eliminations
 
McMoRan
 
   
(In Thousands)
 
ASSETS
                               
Current assets:
                               
Cash and cash equivalents
 
$
35
 
$
93,442
 
$
9
 
$
-
 
$
93,486
 
Accounts receivable
   
-
   
112,684
   
-
   
-
   
112,684
 
Inventories
   
-
   
31,284
   
-
   
-
   
31,284
 
Prepaid expenses
   
12,794
   
1,025
   
-
   
-
   
13,819
 
Fair value of derivative contracts
   
-
   
31,624
   
-
   
-
   
31,624
 
Current assets from discontinued
                               
operations
   
-
   
-
   
516
   
-
   
516
 
Total current assets
   
12,829
   
270,059
   
525
   
-
   
283,413
 
Property, plant and equipment, net
   
-
   
992,532
   
31
   
-
   
992,563
 
Discontinued sulphur assets
   
-
   
-
   
3,012
   
-
   
3,012
 
Investment in subsidiaries
   
841,882
   
-
   
-
   
(841,882
)
 
-
 
Amounts due from affiliates
         
168,004
   
-
   
(168,004
)
 
-
 
Deferred financing costs and other assets
   
11,122
   
40,172
   
-
   
-
   
51,294
 
Total assets
 
$
865,833
 
$
1,470,767
 
$
3,568
 
$
(1,009,886
)
$
1,330,282
 
                                 
LIABILITIES AND STOCKHOLDERS’ EQUITY
                   
Current liabilities:
                               
Accounts payable
 
$
512
 
$
76,491
 
$
6
 
$
-
 
$
77,009
 
Accrued liabilities
   
705
   
88,329
   
531
   
-
   
89,565
 
Current portion of oil and gas
                               
accrued reclamation costs
   
-
   
103,550
   
-
   
-
   
103,550
 
Other current liabilities
   
6,835
   
751
   
-
   
-
   
7,586
 
Current liabilities from discontinued
                               
operations
   
-
   
-
   
2,102
   
-
   
2,102
 
Total current liabilities
   
8,052
   
269,121
   
2,639
   
-
   
279,812
 
Long-term debt
   
374,720
   
-
   
-
   
-
   
374,720
 
Amounts due to affiliates
   
165,011
   
-
   
2,993
   
(168,004
)
 
-
 
Accrued oil and gas reclamation costs
   
-
   
317,651
   
-
   
-
   
317,651
 
Accrued sulphur reclamation costs
   
-
   
-
   
22,218
   
-
   
22,218
 
Other long-term liabilities
   
9,027
   
9,380
   
8,451
   
-
   
26,858
 
Total liabilities
   
556,810
   
596,152
   
36,301
   
(168,004
)
 
1,021,259
 
Commitments and contingencies
                               
Stockholders’ equity (deficit)
   
309,023
   
874,615
   
(32,733
)
 
(841,882
)
 
309,023
 
Total liabilities and stockholders’ equity
 
$
865,833
 
$
1,470,767
 
$
3,568
 
$
(1,009,886
)
$
1,330,282
 


 
18

 
TABLE OF CONTENTS
 
CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS (UNAUDITED)
Third Quarter Ended September 30, 2009

           
Freeport
     
Consolidated
 
   
Parent
 
MOXY
 
Energy
 
Eliminations
 
McMoRan
 
   
(In Thousands)
 
Revenues:
                               
Oil and gas
 
$
-
 
$
105,822
 
$
-
 
$
-
 
$
105,822
 
Service
   
-
   
3,713
   
-
   
-
   
3,713
 
Total revenues
   
-
   
109,535
   
-
   
-
   
109,535
 
Costs and expenses:
                               
Production and delivery costs
   
-
   
49,104
   
(17
)
 
-
   
49,087
 
Depletion, depreciation and amortization
   
-
   
75,980
   
-
   
-
   
75,980
 
Exploration expenses
   
-
   
10,802
   
-
   
-
   
10,802
 
Gain on oil and gas derivative contracts
   
-
   
(738
)
 
-
   
-
   
(738
)
General and administrative expenses
   
1,189
   
8,435
   
(3
)
 
-
   
9,621
 
Main Pass Energy Hubcosts
   
-
   
-
   
297
   
-
   
297
 
Insurance recoveries
   
-
   
-
   
-
   
-
   
-
 
Total costs and expenses
   
1,189
   
143,583
   
277
   
-
   
145,049
 
Operating loss
   
(1,189
)
 
(34,048
)
 
(277
)
 
-
   
(35,514
)
Interest expense
   
(10,283
)
 
(647
)
 
-
   
-
   
(10,930
)