Attached files

file filename
EX-2.1 - EXHIBIT 2.1 - MCMORAN EXPLORATION CO /DE/exhibit2_1.htm
EX-4.1 - EXHIBIT 4.1 - MCMORAN EXPLORATION CO /DE/exhibit4_1.htm
EX-31.2 - EXHIBIT 31.2 - MCMORAN EXPLORATION CO /DE/exhibi31_2.htm
EX-32.1 - EXHIBIT 32.1 - MCMORAN EXPLORATION CO /DE/exhibit32_1.htm
EX-10.1 - EXHIBIT 10.1 - MCMORAN EXPLORATION CO /DE/exhibit10_1.htm
EX-10.3 - EXHIBIT 10.3 - MCMORAN EXPLORATION CO /DE/exhibit10_3.htm
EX-10.4 - EXHIBIT 10.4 - MCMORAN EXPLORATION CO /DE/exhibit10_4.htm
EX-32.2 - EXHIBIT 32.2 - MCMORAN EXPLORATION CO /DE/exhibit32_2.htm
EX-10.2 - EXHIBIT 10.2 - MCMORAN EXPLORATION CO /DE/exhibit10_2.htm
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



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, 2010
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. SYes o No
 
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 (§ 232.405 of this chapter) 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 definition of “large accelerated filer,” “ accelerated filer,” and “smaller reporting company” in Rule 12b-2 of the Exchange Act:
Large accelerated filer  o
Accelerated filer T
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 October 31, 2010, there were issued and outstanding 95,477,937 shares of the registrant’s Common Stock, par value $0.01 per share.

 
 

 



 
McMoRan Exploration Co.
 
 
Page
   
 
   
 
   
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4
   
5
   
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37
   
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E-1



 


 
 

 


 
McMoRan EXPLORATION CO.

   
September 30,
 
December 31,
 
   
2010
 
2009
 
   
(In Thousands)
 
ASSETS
             
Cash and cash equivalents
 
$
180,193
 
$
241,418
 
Accounts receivable
   
72,707
   
79,681
 
Inventories
   
39,277
   
47,818
 
Prepaid expenses
   
23,931
   
14,457
 
Fair value of oil and gas derivative contracts
   
3,114
   
8,693
 
Current assets from discontinued operations, including restricted cash
             
of $470
   
965
   
825
 
Total current assets
   
320,187
   
392,892
 
Property, plant and equipment, net
   
749,391
   
796,223
 
Restricted cash
   
52,718
   
41,677
 
Deferred financing costs and other assets
   
12,946
   
11,931
 
Long-term assets from discontinued operations
   
2,989
   
6,159
 
Total assets
 
$
1,138,231
 
$
1,248,882
 
               
LIABILITIES AND STOCKHOLDERS’ EQUITY
             
Accounts payable
 
$
82,275
 
$
66,544
 
Accrued liabilities
   
91,812
   
51,945
 
Accrued interest and dividends payable
   
17,773
   
8,535
 
Current portion of accrued oil and gas reclamation costs
   
146,661
   
106,791
 
Fair value of oil and gas derivative contracts
   
198
   
1,237
 
Current portion of accrued sulphur reclamation costs (discontinued
             
operations)
   
11,300
   
8,300
 
Current liabilities from discontinued operations
   
2,172
   
1,183
 
Total current liabilities
   
352,191
   
244,535
 
5¼% convertible senior notes
   
74,720
   
74,720
 
11.875% senior notes
   
300,000
   
300,000
 
Accrued oil and gas reclamation costs
   
203,809
   
321,920
 
Other long-term liabilities
   
17,031
   
16,602
 
Accrued sulphur reclamation costs (discontinued operations)
   
15,832
   
19,152
 
Other long-term liabilities from discontinued operations
   
6,149
   
6,145
 
Total liabilities
   
969,732
   
983,074
 
Stockholders' equity
   
168,499
   
265,808
 
Total liabilities and stockholders' equity
 
$
1,138,231
 
$
1,248,882
 
               

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,
 
 
2010
 
2009
 
2010
 
2009
 
 
(In Thousands, Except Per Share Amounts)
 
Revenues:
                       
Oil and natural gas
$
90,778
 
$
105,822
 
$
323,727
 
$
294,969
 
Service
 
4,062
   
3,713
   
11,642
   
8,494
 
Total revenues
 
94,840
   
109,535
   
335,369
   
303,463
 
Costs and expenses:
                       
Production and delivery costs
 
47,071
   
49,087
   
136,295
   
146,933
 
Depletion, depreciation and amortization expense
 
48,588
   
75,980
   
214,720
   
243,347
 
Exploration expenses
 
5,256
   
10,802
   
28,099
   
86,064
 
Gain on oil and gas derivative contracts
 
(942
)
 
(738
)
 
(4,210
)
 
(16,624
)
General and administrative expenses
 
11,148
   
9,621
   
35,267
   
32,983
 
Main Pass Energy Hub costs
 
230
   
297
   
805
   
1,413
 
Insurance recoveries
 
(5,584
)
 
-
   
(14,755
)
 
(18,742
)
Gain on sale of oil and gas property
 
-
   
-
   
(3,455
)
 
-
 
Total costs and expenses
 
105,767
   
145,049
   
392,766
   
475,374
 
Operating loss
 
(10,927
)
 
(35,514
)
 
(57,397
)
 
(171,911
)
Interest expense, net
 
(8,690
)
 
(10,930
)
 
(29,096
)
 
(31,871
)
Other income, net
 
72
   
298
   
177
   
3,470
 
Loss from continuing operations before income taxes
 
(19,545
)
 
(46,146
)
 
(86,316
)
 
(200,312
)
Income tax benefit
 
-
   
177
   
-
   
144
 
Loss from continuing operations
 
(19,545
)
 
(45,969
)
 
(86,316
)
 
(200,168
)
Loss from discontinued operations
 
(1,184
)
 
(1,575
)
 
(4,260
)
 
(5,692
)
Net loss
 
(20,729
)
 
(47,544
)
 
(90,576
)
 
(205,860
)
Preferred dividends and inducement payments for early
                       
conversion of convertible preferred stock
 
(4,524
)
 
(4,388
)
 
(22,583
)
 
(9,925
)
Net loss applicable to common stock
$
(25,253
)
$
(51,932
)
$
(113,159
)
$
(215,785
)
                         
Basic and diluted net loss per share of common
                       
stock:
                       
Continuing operations
 
$(0.25
)
 
$(0.58
)
 
$(1.17
)
 
$(2.76
)
Discontinued operations
 
(0.01
)
 
(0.02
)
 
(0.05
)
 
(0.07
)
Net loss per share of common stock
 
$(0.26
)
 
$(0.60
)
 
$(1.22
)
 
$(2.83
)
                         
Average common shares outstanding:
                       
Basic and diluted
 
95,469
   
86,038
   
92,789
   
76,152
 
 
The accompanying notes are an integral part of these consolidated financial statements.


 
4

 

 
McMoRan EXPLORATION CO.

   
Nine Months Ended
 
   
September 30,
 
   
2010
 
2009
 
   
(In Thousands)
 
Cash flow from operating activities:
             
Net loss
 
$
(90,576
)
$
(205,860
)
Adjustments to reconcile net loss to net cash provided by
             
operating activities:
             
Loss from discontinued operations
   
4,260
   
5,692
 
Depletion, depreciation and amortization expense
   
214,720
   
243,347
 
Exploration drilling and related expenditures
   
7,522
   
61,707
 
Compensation expense associated with stock-based awards
   
15,701
   
11,966
 
Amortization of deferred financing costs
   
2,796
   
2,793
 
Change in fair value of oil and gas derivative contracts
   
4,065
   
23,586
 
Reclamation expenditures, net of prepayments by third parties
   
(70,786
)
 
(39,625
)
Increase in restricted cash
   
(11,041
)
 
(11,293
)
Gain on sale of oil and gas property
   
(3,455
)
 
-
 
Other
   
295
   
(316
)
(Increase) decrease in working capital:
             
Accounts receivable
   
16,340
   
32,914
 
Accounts payable and accrued liabilities
   
30,929
   
(14,219
)
Prepaid expenses and inventories
   
(459
)
 
(20,861
)
Net cash provided by continuing operations
   
120,311
   
89,831
 
Net cash used in discontinued operations
   
(606
)
 
(4,373
)
Net cash provided by operating activities
   
119,705
   
85,458
 
               
Cash flow from investing activities:
             
Exploration, development and other capital expenditures
   
(160,259
)
 
(113,375
)
Proceeds from sale of oil and gas property
   
2,920
   
-
 
Net cash used in continuing operations
   
(157,339
)
 
(113,375
)
Net cash from discontinued operations
   
-
   
-
 
Net cash used in investing activities
   
(157,339
)
 
(113,375
)
               
Cash flow from financing activities:
             
Dividends paid and inducement payments on early conversion of
             
convertible preferred stock
   
(23,136
)
 
(9,062
)
Proceeds from exercise of stock options
   
197
   
-
 
Other
   
(652
)
 
-
 
Net proceeds from the sale of common stock
   
-
   
84,929
 
Net proceeds from the sale of 8% convertible perpetual
             
preferred stock
   
-
   
83,228
 
Net cash (used in) provided by continuing operations
   
(23,591
)
 
159,095
 
Net cash from discontinued operations
   
-
   
-
 
Net cash (used in) provided by financing activities
   
(23,591
)
 
159,095
 
Net (decrease) increase in cash and cash equivalents
   
(61,225
)
 
131,178
 
Cash and cash equivalents at beginning of year
   
241,418
   
93,486
 
Cash and cash equivalents at end of period
 
$
180,193
 
$
224,664
 

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 stockholders, 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.  The long-term business objective of Freeport Energy is to maximize the value of the offshore structures used in the former sulphur operations, which may include the pursuit of a multifaceted energy services facility, including the potential development of a liquefied natural gas (LNG) regasification and storage facility at the Main Pass Energy Hub (MPEH) project.  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, 2009 (2009 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.

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

 
September 30,
 
December 31,
 
 
2010
 
2009
 
Senior secured revolving credit facility
$
-
 
$
-
 
11.875% senior notes due November 2014
 
300,000
   
300,000
 
5¼% convertible senior notes due October 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.  The borrowing capacity was $175 million at September 30, 2010.  Although McMoRan had no borrowings outstanding under the credit facility during the quarter ended September 30, 2010, a letter of credit in the amount of $100 million is outstanding under the credit facility to support the reclamation obligations assumed in the 2007 oil and gas property acquisition, reducing the remaining availability under the facility to $75 million (Note 9 of the 2009 Form 10-K).

Availability under the credit facility is subject to a borrowing base, which is determined semi-annually each April and October.  McMoRan’s lenders are currently reviewing the borrowing base in connection with the October redetermination.

Interest expense includes amortization of the credit facility’s deferred financing costs and other facility fees.  During the third quarter and nine months ended September 30, 2010, interest expense on the credit facility totaled $1.5 million and $4.4 million, respectively.  Interest expense on the credit facility totaled $1.5 million and $4.2 million for the third quarter and nine months ended September 30, 2009, respectively.

The credit facility contains covenants and other restrictions customary for oil and gas borrowing base credit facilities.  McMoRan was in compliance with these covenants at September 30, 2010.

 
6

 
 
Fair Value of Debt
The fair value of McMoRan’s 5¼% convertible senior notes due October 2011 (5¼% notes) and 11.875% senior notes due November 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.  The following table provides the estimated fair value of the 5¼% notes and the 11.875% senior notes as of September 30, 2010 and December 31, 2009 (in thousands):

 
September 30,
 
December 31,
 
 
2010
 
2009
 
5¼% convertible senior notes
$
85,827
 
$
70,302
 
11.875% senior notes
 
330,000
   
307,125
 

3.  EARNINGS PER SHARE
Basic net loss per share of common stock has been calculated by dividing the net loss applicable to continuing operations, net loss from discontinued operations and net 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 loss applicable to continuing operations includes preferred stock dividends and early conversion inducement payments.

McMoRan had a net loss from continuing operations in both the third quarter and nine months ended September 30, 2010 and 2009.  Accordingly, the assumed exercise of stock options, as well as the assumed conversion of McMoRan’s 8% convertible perpetual preferred stock (8% preferred stock), 6¾% mandatorily convertible preferred stock (6¾% 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 these periods.  The excluded share amounts are summarized below (in thousands):

   
Third Quarter
   
Nine Months
 
   
2010
   
2009
   
2010
   
2009
 
Stock options a
   
1,337
     
-
     
1,262
     
-
 
Shares issuable upon assumed
                               
conversion of:
                               
6¾% preferred stock b
   
10,681
     
12,817
     
10,681
     
12,817
 
  8% preferred stock b
   
3,247
     
12,605
     
4,800
     
4,617
 
5¼% notes c
   
4,508
     
4,508
     
4,508
     
4,508
 

a.  
McMoRan uses the treasury stock method to determine total shares related to in-the-money stock options for purposes of its diluted earnings per share calculation. The amount represents stock options with an exercise price less than the average market price for McMoRan’s common stock for the periods presented.
b.  
McMoRan induced conversion of approximately 7,000 shares and 64,200 shares of its 8% preferred stock in the third quarter and nine months ended September 30, 2010, respectively (Note 7). Preferred dividends and inducement payments for the early conversion of shares of McMoRan’s convertible preferred stock totaled $4.5 million and $4.4 million for the quarters ended September 30, 2010 and 2009, respectively, and $22.6 million and $9.9 million for the nine months ended September 30, 2010 and 2009, respectively.  See Note 8 of the 2009 Form 10-K for additional information regarding McMoRan’s 8% and 6¾% preferred stock.
c.  
Net interest expense on the 5¼% notes totaled $0.8 million and $1.0 million during the third quarters of 2010 and 2009, respectively, and $2.7 million and $3.0 million for the nine months ended September 30, 2010 and 2009, respectively. Additional information regarding McMoRan’s 5¼% notes is disclosed in Note 6 of the 2009 Form 10-K.

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:
 
 
 
7

 
 
   
Third Quarter
   
Nine Months
 
   
2010
   
2009
   
2010
   
2009
 
Outstanding options (in thousands)
   
7,814
     
8,457
     
7,821
     
8,457
 
Average exercise price
 
$
16.52
   
$
15.36
   
$
16.52
   
$
15.36
 

4.  DERIVATIVE CONTRACTS
In connection with the 2007 oil and gas property acquisition and related financing (Note 9 of the 2009 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 2009 Form 10-K for McMoRan’s accounting policies regarding derivative contracts.

At September 30, 2010, McMoRan’s outstanding oil and gas derivative contracts (all of which relate to remaining 2010 production) were as follows:

 
Open Swap Positions a
 
Put Options b
 
     
Average
     
Average
 
 
Volumes
 
Swap Price
 
Volumes
 
Floor Price
 
                     
Natural gas positions (million MMbtu)
0.5
 
$
8.61
c
0.3
 
$
6.00
c
                     
Oil positions (thousand bbls)
18
 
$
70.64
d
12
 
$
50.00
d

a.  
Covering the November-December 2010 period.
b.  
Covering the October 2010 period.
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. McMoRan’s realized and unrealized (gains) losses on these contracts were as follows (in thousands):

 
Third Quarter
 
Nine Months
 
 
2010
 
2009
 
2010
 
2009
 
Realized (gain) loss
                       
Gas puts
$
(989
)
$
(5,521
)
$
(989
)
$
(5,521
)
Oil puts
 
92
   
183
   
92
   
183
 
Gas swaps
 
-
   
-
   
(8,134
)
 
(28,887
)
Oil swaps
 
-
   
-
   
756
   
(5,985
)
Total realized gain
 
(897
)
 
(5,338
)
 
(8,275
)
 
(40,210
)
                         
Unrealized (gain) loss
                       
Gas puts
 
583
   
4,568
   
117
   
101
 
Oil puts
 
(89
)
 
(157
)
 
(47
)
 
893
 
Gas swaps
 
(609
)
 
405
   
5,033
   
14,979
 
Oil swaps
 
70
   
(216
)
 
(1,038
)
 
7,613
 
Total unrealized (gain) loss
 
(45
)
 
4,600
   
4,065
   
23,586
 
Gain on oil and gas derivative contracts
$
(942
)
$
(738
)
$
(4,210
)
$
(16,624
)

The original cost of the put options entered into for the 2008-2010 periods 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 is corroborated using quoted market prices and internal valuation model analyses.  McMoRan has classified the fair value measurement of its derivative instruments as
 
 
8

 
 
being derived from Level 2 inputs, as defined under U.S. generally accepted accounting principles (Note 7 of the 2009 Form 10-K).  The following tables provide fair value measurement information for these instruments as of September 30, 2010 and December 31, 2009 (in thousands):

 
September 30, 2010
 
 
Puts
 
Swaps
       
 
Gas
 
Oil
 
Gas
 
Oil
 
Total
 
Current assets
$
614
 
$
-
 
$
2,500
 
$
-
 
$
3,114
 
Current liabilities
 
-
   
-
   
-
   
(198
)
 
(198
)
Fair value of contracts
$
614
 
$
-
 
$
2,500
 
$
(198
)
$
2,916
 

 
December 31, 2009
 
 
Puts
 
Swaps
       
 
Gas
 
Oil
 
Gas
 
Oil
 
Total
 
Current assets
$
1,113
 
$
45
 
$
7,535
 
$
-
 
$
8,693
 
Current liabilities
 
-
   
-
   
-
   
(1,237
)
 
(1,237
)
Fair value of contracts
$
1,113
 
$
45
 
$
7,535
 
$
(1,237
)
$
7,456
 

5.  INCOME TAXES
As of September 30, 2010 and December 31, 2009, McMoRan had approximately $446.7 million and $415.0 million, respectively, of unrecognized tax benefits relating to its reported net losses and other temporary differences from operations.  McMoRan recorded a full valuation allowance against these deferred tax assets (Note 13 of the 2009 Form 10-K).  If future circumstances permit the allowance to be reversed, McMoRan’s effective tax rate would be positively affected in future periods to the extent these deferred tax assets are recognized.

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 (state).  Tax periods open to audit for McMoRan include federal income tax returns subsequent to 2006 and Louisiana income tax returns subsequent to 2005.  Net operating loss amounts associated with prior periods are also subject to audit.

6. OIL AND GAS ACTIVITIES
Pending Acquisition of Plains Exploration & Production Company’s Shallow Water Gulf of Mexico Assets & Related Financing Transactions.
On September 20, 2010, McMoRan announced an agreement to acquire Plains Exploration and Production Company’s (PXP) shallow water Gulf of Mexico Shelf assets for a combination of stock and cash.  Under the terms of the transaction, McMoRan will issue 51 million shares of McMoRan common stock and pay $75 million in cash to PXP to acquire all of PXP’s interests and exploration rights in the shallow waters of the shelf of the Gulf of Mexico (Acquisition).   The closing of the acquisition is expected by year-end 2010 and is subject to McMoRan’s stockholder approval of the issuance of common stock to PXP, as required by New York Stock Exchange (NYSE) rules, the completion of financing transactions, receipt of regulatory approvals and other customary closing conditions.
 
 
McMoRan also announced that, upon concurrent completion of the PXP transaction, it will privately issue $900 million in equity-linked securities to fund future capital expenditures associated with McMoRan’s expanded asset base and for general corporate purposes.  The financing includes $200 million of 7-year 4% Convertible Senior Notes, which will be sold to institutional investors (Institutional Investors), and $700 million of 5¾% Convertible Perpetual Preferred Stock, of which $500 million of one series will be sold to Freeport-McMoRan Copper & Gold Inc. (FCX) and $200 million of another series will be sold to the Institutional Investors.  McMoRan is a party to a services agreement with FM Services Company (Services Company), a wholly owned subsidiary of FCX, under which the Services Company provides McMoRan with executive, technical, administrative, accounting, financial, tax and other services pursuant to a fixed fee arrangement.  See Note 15 of the 2009 Form 10-K for more information regarding transactions with the Services Company.
 
The total value (purchase price) of the Acquisition will be determined at the date of closing, and it will be subject to adjustment based on final settlement of certain items.  Based upon the value of
 
 
9

 
 
McMoRan’s common stock as of the day prior to the Acquisition’s September 20, 2010 announcement date ($14.57 per share), the aggregate value of the cash and stock portions of the estimated purchase consideration approximated $820 million.  The effective date of the Acquisition is August 1, 2010.  Changes related to the impact of movements in the trading value of McMoRan’s common stock through the closing date of the Acquisition, and estimated closing adjustments to reflect the August 1, 2010 effective date, including post August 1, 2010 revenues, operating expenses and capital and reclamation expenditures relating to the acquired properties all will be factors in determining the final recorded purchase price.  Because a significant portion of the purchase consideration is comprised of a fixed amount of McMoRan common stock, changes in McMoRan’s common stock value through the date of closing could materially impact the total recorded purchase price.
 
The closings of the financing transactions are conditioned upon concurrent completion of the PXP transaction, our stockholder approval of the issuance of securities to FCX, and other customary closing conditions.  The description of the agreements and information related to the acquisition and issuance of McMoRan equity-linked securities contained in Item 1.01 of McMoRan’s current report on Form 8-K filed with the SEC on September 23, 2010 are incorporated herein by reference.
 
Exploration and Operations.
McMoRan has investments in seven in-progress or unproved properties totaling $167.6 million at September 30, 2010, including, $5.7 million for the Lafitte exploration well, $11.6 million for the Hurricane Deep sidetrack well, $31.5 million for the Blackbeard East well, $31.2 million for the South Timbalier Block 168 No. 1 (Blackbeard West) well, $25.9 million for the Davy Jones offset appraisal well, $37.2 million for the initial Davy Jones well and $24.5 million for the Blueberry Hill exploratory well.

McMoRan currently holds the rights to the Blackbeard West lease under a Suspension of Operations (SOO) agreement with the Bureau of Ocean Energy Management Regulation and Enforcement Agency (BOEMRE), the term of which extends through November 30, 2010.  McMoRan is pursuing a new SOO to provide additional time for McMoRan to complete its assessment and to secure the commercial arrangements necessary to facilitate further development of this property.  While McMoRan believes it is reasonably likely that an extension of time will be obtained, there are no assurances that its efforts will be successful, which could result in McMoRan being required to relinquish its ownership rights in this property.

If current or future well assessment, stimulation, or completion efforts are not successful in generating production that will allow McMoRan to recover all or a portion of its investment in any of the respective wells referenced above, McMoRan may be required to write down its investment in such properties to their estimated fair value.  See Note 1 of the 2009 Form 10-K for additional information regarding the periodic assessment of potential impairments to McMoRan’s properties.

As also discussed in Note 1 of the 2009 Form 10-K, when events and circumstances indicate that proved oil and gas property carrying amounts might not be 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 probable oil and natural gas reserves as estimated by independent reserve engineers as adjusted for current period production.  Future cash flows are determined using published period-end forward market prices adjusted for property-specific price basis differentials, net of estimated future production and development costs and 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 market participants’ expected rates of return for similar type assets if acquired under current market conditions.

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, and these variations may be substantial.  If the capitalized costs of an individual oil and gas property
 
 
10

 
 
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.

McMoRan recorded impairment charges of $11.3 million and $82.0 million, respectively, during the third quarter and nine months ended September 30, 2010 following impairment assessments of the carrying value of its oil and gas properties.  These charges reflect the impact of declines in the market prices of natural gas during the first and third quarters of 2010 and negative reserve revisions resulting from well performance issues encountered at certain properties during the second quarter of 2010.  McMoRan also recorded impairment charges of $11.2 million and $64.8 million, respectively, during the third quarter and nine months ended September 30, 2009.  McMoRan considers the fair value measurements used in its impairment evaluations to be derived from Level 3 inputs.

Since the fourth quarter of 2008, the decline in market prices for oil and natural gas coupled with other operational factors triggered impairment assessments that ultimately resulted in significant impairment charges for several of McMoRan’s oil and gas property investments.  Additional impairment charges may be recorded in future periods if prices weaken further, or if other unforeseen operational issues occur that negatively impact McMoRan’s ability to fully recover its current investments in oil and gas properties.

For more information regarding the risks associated with the declines in the future market prices of oil and natural gas and the other factors that could impact current reserve estimates, see Part I, Item 1A. “Risk Factors” included in the 2009 Form 10-K.

2008 Hurricane Activity.
Hurricanes Gustav and Ike impacted Gulf of Mexico operations prior to making landfall on the Louisiana and Texas coasts in September 2008.  Although there was no significant damage to McMoRan’s properties resulting from Hurricane Gustav, Hurricane Ike caused significant structural damage to several platforms in which McMoRan had an investment interest.  Since the third quarter of 2008, McMoRan has 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 funded to date, a significant amount of the remaining expenditures, particularly for asset retirement obligations, will be funded by McMoRan over the next several years.  Consistent with McMoRan’s claims experience to date, 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 is received after damage-related expenditures are funded and related claims are approved.  McMoRan recognized net insurance proceeds of $5.6 million and $14.8 million, respectively, in the third quarter and nine months ended September 30, 2010.  McMoRan recognized net insurance proceeds of $18.7 million in the nine months ended September 30, 2009 as the initial payment associated with certain of McMoRan’s insured losses resulting from these hurricanes.  Since 2009, McMoRan has recognized net insurance proceeds of $39.3 million related to the 2008 hurricane events in the Gulf of Mexico.

Accrued Reclamation Obligations.
For more information regarding McMoRan’s accounting policies for asset retirement obligations see Notes 1 and 16 of the 2009 Form 10-K.   A summary of changes in McMoRan’s asset retirement obligations (including both current and long-term obligations) since December 31, 2009 follows (in thousands):


 
Oil and
     
 
Natural Gas
 
Sulphur
 
Asset retirement obligation at beginning of year
$
428,711
 
$
27,452
 
Liabilities settled
 
(96,032
)
 
(1,381
)
Accretion expense
 
12,826
   
1,061
 
Reclamation costs assumed from third parties
 
2,613
   
-
 
Incurred liabilities
 
-
   
-
 
Revision for changes in estimates and other
 
2,352
   
-
 
Asset retirement obligations at September 30, 2010
$
350,470
 
$
27,132
 
 
 
 
11

 
 
Inventory.
Product inventories totaled $0.5 million at September 30, 2010 and $0.6 million at December 31, 2009, consisting solely of oil production from Main Pass Block 299.  Materials and supplies inventory totaled $38.8 million at September 30, 2010 and $47.2 million at December 31, 2009, representing the cost of supplies to be used in McMoRan’s drilling activities, primarily drilling pipe and tubulars. These costs will be partially reimbursed by third party participants in wells supplied with these materials.  There were no lower of cost or market adjustments charged to operations with respect to McMoRan’s inventories during the quarter or nine months ended September 30, 2010.  McMoRan charged $3.3 million to operations for inventory lower of cost or market adjustments during the nine months ended September 30, 2009, respectively.

Recent Events in the Gulf of Mexico.
On April 20, 2010, the Deepwater Horizon, an offshore drilling rig located in the deepwater of the Gulf of Mexico, sank following a catastrophic explosion and fire.  This event significantly and adversely disrupted oil and gas exploration activities in the Gulf of Mexico and ultimately resulted in the temporary suspension of all deepwater drilling and exploration activity in the Gulf of Mexico.  The suspension previously imposed by the U.S. government was lifted on October 13, 2010; however, delays in obtaining drilling permits and compliance with new safety regulations could slow activity by Gulf of Mexico operators.  McMoRan has continued to advance its exploration and development activities despite a challenging regulatory environment.

While the suspension did not apply to any of McMoRan’s current operations or prospects, new regulations and enhanced safety certifications have been issued for all operations in the Gulf of Mexico.  McMoRan completed the necessary initial certifications in June 2010 and is providing required information to secure permits for future drilling.  The processing of permits has been slower than previously experienced, and continued delays in obtaining permits from the Department of the Interior could impact the timing of drilling new wells scheduled during the remainder of 2010 and beyond.  McMoRan's in-progress drilling operations, including the wells currently drilling at Davy Jones and Blackbeard East have not been affected.  Additionally, McMoRan was recently successful in obtaining a permit to drill its Lafitte ultra-deep exploratory well and operations have commenced.  Other permits submitted to the Department of the Interior are still under review.

The events described above have heightened the challenges to McMoRan of managing and deploying available resources to ensure that its commitments are effectively managed and met.  McMoRan has significant drilling and other commitments associated with its business strategy.  Although the current operating environment has had no significant impact on McMoRan’s ability to effectively manage its commitments to date, uncertainties associated with McMoRan’s ability to obtain necessary permits could impact future financial results.
 
7. OTHER MATTERS
8% Preferred Stock Conversions.
During the third quarter ended September 30, 2010, McMoRan privately negotiated the induced conversion of approximately 7,000 shares of its 8% preferred stock with a liquidation preference of $7.0 million into approximately 1.0 million shares of McMoRan common stock (at a conversion rate equal to 146.1454 shares of common stock per share of 8% preferred stock).  To induce the early conversions of these shares of 8% preferred stock, McMoRan paid an aggregate of $1.4 million in cash to the holders of these shares which is included as a charge in McMoRan’s consolidated statements of operations within preferred dividends and inducement payments for early conversion of convertible preferred stock.  McMoRan induced conversion of approximately 64,200 shares of its 8% preferred stock with a liquidation preference of $64.2 million into approximately 9.4 million shares of its common stock during the nine months ended September 30, 2010.  McMoRan paid an aggregate of $12.2 million in cash to the holders of these shares during the nine months ended September 30, 2010 to induce the early conversions of these shares. Following these transactions, approximately 22,100 shares of McMoRan’s 8% preferred stock remain outstanding.

6¾% Preferred Stock.
McMoRan has 1.6 million shares of its 6¾% preferred stock ($158.9 million liquidation preference) which will automatically convert on November 15, 2010 into between approximately 10.7 million and 12.8 million common shares of McMoRan common stock. The conversion rate depends on the applicable average
 
 
12

 
 
closing market price of McMoRan common stock over the 20-trading-day period beginning on October 14, 2010, and ending on November 10, 2010. If the applicable average closing market price of McMoRan’s common stock is above $14.88, then the conversion rate per $100 face amount of the 6¾% preferred stock will be 6.7204. The conversion rate would be 8.0645 if the applicable average closing market price of our common stock is below $12.40. For average common stock prices greater than or equal to $12.40 and equal to or less than $14.88, the conversion rate will be equal to $100 divided by McMoRan’s average closing common stock price during the 20-trading-day period.  The average closing market price of McMoRan’s common stock from October 14, 2010 through November 8, 2010 was $16.50 per share.

Stockholders’ Equity.
Activity within McMoRan’s stockholders’ equity accounts for the nine months ended September 30, 2010 follows:

 
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, 2010
$
245,184
 
$
885
 
$
1,053,684
 
$
(987,139
)
$
(346
)
$
(46,460
)
$
265,808
 
Stock-based compensation
                                         
   expense
 
-
   
-
   
15,701
   
-
   
-
   
-
   
15,701
 
Preferred stock dividends and
                                         
related costs
 
-
   
-
   
(22,583
)
 
-
   
-
   
-
   
(22,583
)
Preferred stock conversions
 
(64,187
)
 
94
   
64,093
         
-
         
-
 
Stock option exercises
 
-
   
-
   
197
   
-
   
-
   
-
   
197
 
Net loss
 
-
   
-
   
-
   
(90,576
)
 
-
   
-
   
(90,576
)
Stock tendered for taxes
 
-
   
-
   
-
   
-
   
-
   
(21
)
 
(21
)
Other comprehensive loss
 
-
   
-
   
-
   
-
   
(27
)
 
-
   
(27
)
Balance as of September 30, 2010
$
180,997
 
$
979
 
$
1,111,092
 
$
(1,077,715
)
$
(373
)
$
(46,481
)
$
168,499
 

Capitalized Interest.
Interest expense capitalized by McMoRan totaled $3.1 million in the third quarter of 2010 and $6.3 million for the nine months ended September 30, 2010.  Capitalized interest totaled $0.8 million in the third quarter of 2009 and $3.2 million for the nine months ended September 30, 2009.

Pension Plan.
McMoRan provides certain health care and life insurance benefits (Other Benefits) to retired employees.  See Note 12 of the 2009 Form 10-K for more information regarding the Other Benefits plan.  The components of net periodic benefit cost for McMoRan’s Other Benefits plan follows (in thousands):

 
Third Quarter
 
Nine Months
 
 
2010
 
2009
 
2010
 
2009
 
Service cost
$
17
 
$
13
 
$
50
 
$
38
 
Interest cost
 
60
   
72
   
180
   
215
 
Return on plan assets
 
-
   
-
   
-
   
-
 
Amortization of prior service costs
                       
and actuarial gains
 
(9
)
 
(10
)
 
(27
)
 
(30
)
Net periodic benefit expense
$
68
 
$
75
 
$
203
 
$
223
 

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

 
Third Quarter
   
Nine Months
 
 
2010
 
2009
   
2010
 
2009
 
Cost of options awarded to employees (including
                         
directors)
$
2,757
 
$
2,553
   
$
14,704
 
$
11,168
 
Cost of options awarded to non-employees
 
180
   
143
     
690
   
543
 
Cost of restricted stock units
 
107
   
90
     
307
   
255
 
Total compensation cost
$
3,044
 
$
2,786
   
$
15,701
 
$
11,966
 

 
 
13

 
 
On February 1, 2010, McMoRan’s Board of Directors granted a total of 1,766,500 stock options to its employees at an exercise price of $15.73 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 2010.  McMoRan recorded $6.7 million in charges related to immediately vested stock options in the first quarter of 2010.  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.  The weighted average fair value per share of the 1,816,500 options granted during the nine months ended September 30, 2010 was $10.18.
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 on February 2, 2009.  McMoRan recorded $2.9 million in charges related to immediately vested stock options in the first quarter of 2009.  The weighted average fair value per share of the 1,855,500 options granted in the nine months ended September 30, 2009 was $3.98.

As of September 30, 2010, total compensation cost related to unvested, approved stock option awards not yet recognized in earnings was approximately $18.1 million, which is expected to be recognized over a weighted average period of approximately one year.

Comprehensive loss.
McMoRan’s comprehensive loss follows (in thousands):

 
Third Quarter
   
Nine Months
 
 
2010
 
2009
   
2010
 
2009
 
Net loss
$
(25,253
)
$
(51,932
)
 
$
(113,159
)
$
(215,785
)
Other comprehensive loss:
                         
Amortization of previously unrecognized pension
                         
components, net
 
(9
)
 
(10
)
   
(27
)
 
(30
)
Comprehensive loss
$
(25,262
)
$
(51,942
)
 
$
(113,186
)
$
(215,815
)

Subsequent Events Evaluation.
McMoRan evaluated subsequent events for purposes of its September 30, 2010 financial reporting through the date of filing of its quarterly report on Form 10-Q with the Securities and Exchange Commission.

8.  NEW ACCOUNTING STANDARDS
In January 2010, the Financial Accounting Standards Board (FASB) issued guidance which added new requirements for fair value disclosures about transfers into and out of Levels 1 and 2 and separate disclosures about purchases, sales, issuances and settlements relating to Level 3 measurements.  The guidance also clarified existing requirements regarding the level of disaggregation as well as inputs and valuation techniques used to measure fair value.  The guidance is effective for the first reporting period beginning after December 31, 2009, except for the requirement to provide the Level 3 activity of purchases, sales, issuances, and settlements on a gross basis, which will be effective for fiscal years beginning after December 31, 2010.  The adoption of this guidance had no material impact on McMoRan’s fair value disclosures.

9.  GUARANTOR FINANCIAL STATEMENTS
MOXY is an unconditional guarantor of McMoRan’s 11.875% senior notes.  See Notes 6 and 19 of the 2009 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, 2010 and December 31, 2009 and the related condensed consolidating statements of operations and cash flow for the quarter and nine months ended September 30, 2010 and 2009, which should be read in conjunction with the Notes to these condensed consolidated financial statements:
 
 
14

 
CONDENSED CONSOLIDATING BALANCE SHEET (UNAUDITED)
September 30, 2010
           
Freeport
     
Consolidated
 
   
Parent
 
MOXY
 
Energy
 
Eliminations
 
McMoRan
 
   
(In Thousands)
 
ASSETS
                               
Current assets:
                               
Cash and cash equivalents
 
$
1,045
 
$
178,978
 
$
170
 
$
-
 
$
180,193
 
Accounts receivable
   
3
   
72,704
   
-
   
-
   
72,707
 
Inventories
   
-
   
39,277
   
-
   
-
   
39,277
 
Prepaid expenses
   
2,461
   
21,470
   
-
   
-
   
23,931
 
Fair value of derivative contracts
   
-
   
3,114
   
-
   
-
   
3,114
 
Current assets from discontinued
                               
operations
   
-
   
-
   
965
   
-
   
965
 
Total current assets
   
3,509
   
315,543
   
1,135
   
-
   
320,187
 
Property, plant and equipment, net
   
-
   
749,360
   
31
   
-
   
749,391
 
Investment in subsidiaries
   
656,910
   
-
   
-
   
(656,910
)
 
-
 
Amounts due from affiliates
   
-
   
99,309
   
-
   
(99,309
)
 
-
 
Deferred financing costs and other assets
   
8,994
   
56,670
   
-
   
-
   
65,664
 
Discontinued sulphur assets
   
-
   
-
   
2,989
   
-
   
2,989
 
Total assets
 
$
669,413
 
$
1,220,882
 
$
4,155
 
$
(756,219
)
$
1,138,231
 
                                 
LIABILITIES AND STOCKHOLDERS’ EQUITY
                   
Current liabilities:
                               
Accounts payable
 
$
251
 
$
81,504
 
$
520
 
$
-
 
$
82,275
 
Accrued liabilities
   
5,305
   
86,935
   
(428
)
 
-
   
91,812
 
Current portion of oil and gas
                               
accrued reclamation costs
   
-
   
146,661
   
-
   
-
   
146,661
 
Other current liabilities
   
16,942
   
1,029
   
-
   
-
   
17,971
 
Current liabilities from discontinued
                               
operations
   
-
   
-
   
13,472
   
-
   
13,472
 
Total current liabilities
   
22,498
   
316,129
   
13,564
   
-
   
352,191
 
Long-term debt
   
374,720
   
-
   
-
   
-
   
374,720
 
Amounts due to affiliates
   
97,150
   
-
   
2,159
   
(99,309
)
 
-
 
Accrued oil and gas reclamation costs
   
-
   
203,809
   
-
   
-
   
203,809
 
Other long-term liabilities
   
6,546
   
8,870
   
1,615
   
-
   
17,031
 
Long-term liabilities from discontinued
                               
  operations
   
-
   
-
   
21,981
   
-
   
21,981
 
Total liabilities
   
500,914
   
528,808
   
39,319
   
(99,309
)
 
969,732
 
Commitments and contingencies
                               
Stockholders’ equity (deficit)
   
168,499
   
692,074
   
(35,164
)
 
(656,910
)
 
168,499
 
Total liabilities and stockholders’ equity
                               
(deficit)
 
$
669,413
 
$
1,220,882
 
$
4,155
 
$
(756,219
)
$
1,138,231
 


 
15

 
TABLE OF CONTENTS
 
CONDENSED CONSOLIDATING BALANCE SHEET
December 31, 2009

           
Freeport
     
Consolidated
 
   
Parent
 
MOXY
 
Energy
 
Eliminations
 
McMoRan
 
   
(In Thousands)
 
ASSETS
                               
Current assets:
                               
Cash and cash equivalents
 
$
16
 
$
241,400
 
$
2
 
$
-
 
$
241,418
 
Accounts receivable
   
-
   
79,681
   
-
   
-
   
79,681
 
Inventories
   
-
   
47,818
   
-
   
-
   
47,818
 
Prepaid expenses
   
2,919
   
11,538
   
-
   
-
   
14,457
 
Fair value of derivative contracts
   
-
   
8,693
   
-
   
-
   
8,693
 
Current assets from discontinued
                               
operations
   
-
   
-
   
825
   
-
   
825
 
Total current assets
   
2,935
   
389,130
   
827
   
-
   
392,892
 
Property, plant and equipment, net
   
-
   
796,192
   
31
   
-
   
796,223
 
Investment in subsidiaries
   
694,820
   
-
   
-
   
(694,820
)
 
-
 
Amounts due from affiliates
         
53,173
   
-
   
(53,173
)
 
-
 
Deferred financing costs and other assets
   
6,374
   
47,234
   
-
   
-
   
53,608
 
Discontinued sulphur assets
   
-
   
-
   
6,159
   
-
   
6,159
 
Total assets
 
$
704,129
 
$
1,285,729
 
$
7,017
 
$
(747,993
)
$
1,248,882
 
                                 
LIABILITIES AND STOCKHOLDERS’ EQUITY
                   
Current liabilities:
                               
Accounts payable
 
$
188
 
$
66,209
 
$
147
 
$
-
 
$
66,544
 
Accrued liabilities
   
728
   
51,217
         
-
   
51,945
 
Current portion of oil and gas
                               
accrued reclamation costs
   
-
   
106,791
   
-
   
-
   
106,791
 
Other current liabilities
   
7,698
   
2,074
   
-
   
-
   
9,772
 
Current liabilities from discontinued
                               
operations
   
-
   
-
   
9,483
   
-
   
9,483
 
Total current liabilities
   
8,614
   
226,291
   
9,630
   
-
   
244,535
 
Long-term debt
   
374,720
   
-
   
-
   
-
   
374,720
 
Amounts due to affiliates
   
48,977
   
-
   
4,196
   
(53,173
)
 
-
 
Accrued oil and gas reclamation costs
   
-
   
321,920
   
-
   
-
   
321,920
 
Other long-term liabilities
   
6,010
   
8,975
   
1,617
   
-
   
16,602
 
Long-term liabilities from discontinued
                               
  operations
   
-
   
-
   
25,297
   
-
   
25,297
 
Total liabilities
   
438,321
   
557,186
   
40,740
   
(53,173
)
 
983,074
 
Commitments and contingencies
                               
Stockholders’ equity (deficit)
   
265,808
   
728,543
   
(33,723
)
 
(694,820
)
 
265,808
 
Total liabilities and stockholders’ equity
                               
(deficit)
 
$
704,129
 
$
1,285,729
 
$
7,017
 
$
(747,993
)
$
1,248,882
 

 
 




 
16

 
TABLE OF CONTENTS
CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS (UNAUDITED)
Three Months Ended September 30, 2010

           
Freeport
     
Consolidated
 
   
Parent
 
MOXY
 
Energy
 
Eliminations
 
McMoRan
 
   
(In Thousands)
 
Revenues:
                               
Oil and natural gas
 
$
-
 
$
90,778
 
$
-
 
$
-
 
$
90,778
 
Service
   
-
   
4,062
   
-
   
-
   
4,062
 
Total revenues
   
-
   
94,840
   
-
   
-
   
94,840
 
Costs and expenses:
                               
Production and delivery costs
   
-
   
47,085
   
(14
)
 
-
   
47,071
 
Depletion, depreciation and amortization
                               
expense
   
-
   
48,588
   
-
   
-
   
48,588
 
Exploration expenses
   
-
   
5,256
   
-
   
-
   
5,256
 
Gain on oil and gas derivative contracts
   
-
   
(942
)
 
-
   
-
   
(942
)
General and administrative expenses
   
2,654
   
8,494
   
-
   
-
   
11,148
 
Main Pass Energy HubTM costs
   
-
   
-
   
230
   
-
   
230
 
Insurance recoveries
   
-
   
(5,584
)
 
-
   
-
   
(5,584
)
Gain on sale of oil and gas property
   
-
   
-
   
-
   
-
   
-
 
Total costs and expenses
   
2,654
   
102,897
   
216
   
-
   
105,767
 
Operating loss
   
(2,654
)
 
(8,057
)
 
(216
)
 
-
   
(10,927
)
Interest expense, net
   
(8,670
)
 
(20
)
 
-
   
-
   
(8,690
)
Equity in losses of consolidated
                           
-
 
subsidiaries
   
(9,399
)
 
-
   
-
   
9,399
   
-
 
Other income (expense), net
   
(6
)
 
78
   
-
   
-
   
72
 
Loss from continuing operations before
                               
income taxes
   
(20,729
)
 
(7,999
)
 
(216
)
 
9,399
   
(19,545
)
Income tax benefit
   
-
   
-
   
-
   
-
   
-
 
Loss from continuing operations
   
(20,729
)
 
(7,999
)
 
(216
)
 
9,399
   
(19,545
)
Loss from discontinued operations
   
-
   
-
   
(1,184
)
 
-
   
(1,184
)
Net loss
   
(20,729
)
 
(7,999
)
 
(1,400
)
 
9,399
   
(20,729
)
Preferred dividends and other related
                               
preferred stock costs
   
(4,524
)
 
-
   
-
   
-
   
(4,524
)
Net loss applicable to common stock
 
$
(25,253
)
$
(7,999
)
$
(1,400
)
$
9,399
 
$
(25,253
)
                                 




 
17

 



CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS (UNAUDITED)
Nine Months Ended September 30, 2010

           
Freeport
     
Consolidated
 
   
Parent
 
MOXY
 
Energy
 
Eliminations
 
McMoRan
 
   
(In Thousands)
 
Revenues:
                               
Oil and natural gas
 
$
-
 
$
323,727
 
$
-
 
$
-
 
$
323,727
 
Service
   
-
   
11,642
   
-
   
-
   
11,642
 
Total revenues
   
-
   
335,369
   
-
   
-
   
335,369
 
Costs and expenses:
                               
Production and delivery costs
   
-
   
136,334
   
(39
)
 
-
   
136,295
 
Depletion, depreciation and amortization
                               
expense
   
-
   
214,720
   
-
   
-
   
214,720
 
Exploration expenses
   
-
   
28,099
   
-
   
-
   
28,099
 
Gain on oil and gas derivative contracts
   
-
   
(4,210
)
 
-
   
-
   
(4,210
)
General and administrative expenses
   
5,565
   
29,702
   
-
   
-
   
35,267
 
Main Pass Energy HubTM costs
   
-
   
-
   
805
   
-
   
805
 
Insurance recoveries
   
-
   
(14,755
)
 
-
   
-
   
(14,755
)
Gain on sale of oil and gas property
   
-
   
(3,455
)
 
-
   
-
   
(3,455
)
Total costs and expenses
   
5,565
   
386,435
   
766
   
-
   
392,766
 
Operating loss
   
(5,565
)
 
(51,066
)
 
(766
)
 
-
   
(57,397
)
Interest expense, net
   
(29,076
)
 
(20
)
 
-
   
-
   
(29,096
)
Equity in losses of consolidated
                           
-
 
subsidiaries
   
(55,928
)
 
-
   
-
   
55,928
   
-
 
Other income (expense), net
   
(7
)
 
184
   
-
   
-
   
177
 
Loss from continuing operations before
                               
income taxes
   
(90,576
)
 
(50,902
)
 
(766
)
 
55,928
   
(86,316
)
Income tax benefit
   
-
   
-
   
-
   
-
   
-
 
Loss from continuing operations
   
(90,576
)
 
(50,902
)
 
(766
)
 
55,928
   
(86,316
)
Loss from discontinued operations
   
-
   
-
   
(4,260
)
 
-
   
(4,260
)
Net loss
   
(90,576
)
 
(50,902
)
 
(5,026
)
 
55,928
   
(90,576
)
Preferred dividends and other related
                               
preferred stock costs
   
(22,583
)
 
-
   
-
   
-
   
(22,583
)
Net loss applicable to common stock
 
$
(113,159
)
$
(50,902
)
$
(5,026
)
$
55,928
 
$
(113,159
)
                                 


 
18

 

 
CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS (UNAUDITED)
Three Months Ended September 30, 2009

           
Freeport
     
Consolidated
 
   
Parent
 
MOXY
 
Energy
 
Eliminations
 
McMoRan
 
   
(In Thousands)
 
Revenues:
                               
Oil and natural 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 expense
   
-
   
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