Exhibit 99.1
McMoRan EXPLORATION CO.
BALANCE SHEETS
December 31,
----------------------
2000 1999
--------- ---------
(In Thousands)
ASSETS
Current Assets:
Cash and cash equivalents $ 48,906 $ -
Accounts receivable:
Customers 6,414 5,879
Joint interest partners 8,180 483
Other 190 100
Inventories 490 349
Deferred tax asset - 2,571
Net current assets from discontinued
sulphur operations,excluding debt and
accrued reclamation costs 5,943 9,545
Prepaid expenses 80 528
--------- ---------
Total current assets 70,203 19,455
Property, plant and equipment, net (Note 6) 116,231 97,359
Assets of discontinued sulphur operations (Note 3) 72,977 114,254
Deferred tax asset - 32,370
Other assets, including restricted cash of
$3.5 million at December 31, 2000 (Note 6) 12,136 10,791
--------- ---------
Total assets $ 271,547 $ 274,229
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 17,824 $ 9,023
Accrued liabilities 39,581 8,722
Current portion of discontinued sulphur
operations accrued reclamation costs 15,548 3,838
Discontinued sulphur operations debt 46,000 -
Other 1,274 980
--------- ---------
Total current liabilities 120,227 22,563
Accrued oil and gas reclamation costs 15,980 10,976
Discontinued sulphur operations accrued
reclamation costs 53,639 44,150
Long-term debt - 14,000
Other long-term liabilities 22,524 27,469
Stockholders' equity:
Preferred stock, par value $0.01, 50,000,000
shares authorized and unissued - -
Common stock, par value $0.01, 150,000,000
shares authorized,18,138,875 shares and
14,229,904 shares issued and outstanding,
respectively 181 142
Capital in excess of par value of common stock 301,343 249,625
Accumulated deficit (199,750) (68,242)
Common stock held in treasury, 2,295,900 and
1,444,735 shares, at cost, respectively (42,597) (26,454)
--------- ---------
59,177 155,071
--------- ---------
Total liabilities and stockholders' equity $ 271,547 $ 274,229
========= =========
The accompanying notes are an integral part of these financial statements.
McMoRan EXPLORATION CO.
STATEMENTS OF OPERATIONS
Years Ended December 31,
----------------------------------
2000 1999 1998
---------- ------- ---------
(In Thousands,
Except Per Share Amounts)
Revenues $ 58,468 $54,344 $ 21,626
Costs and expenses:
Production and delivery costs 24,631 16,491 4,632
Depreciation and amortization 32,421 30,633 17,160
Exploration expenses 53,975 6,411 14,533
General and administrative expenses 12,984 7,378 4,412
Gain on sale of oil and gas properties (43,212) (2,550) (447)
Insurance settlement gain (23,251) - -
---------- ------- ---------
Total costs and expenses 57,548 58,363 40,290
Operating income (loss) 920 (4,019) (18,664)
Interest expense (3,134) (679) (238)
Other income, net 2,297 396 1,314
---------- ------- ---------
Income (loss) from continuing operations
before provision for income taxes 83 (4,302) (17,588)
Income taxes (provision) benefit (34,942) 1,498 -
---------- ------- ---------
Loss from continuing operations (34,859) (2,804) (17,588)
Discontinued operations:
Income (loss) from discontinued sulphur
operations (plus applicable income
tax provision of $ - in 2000,
$1,569 in 1999 and $- in 1998) (89,149) 2,913 (528)
Loss on disposal of sulphur assets (7,500) - -
---------- ------- ---------
Income (loss) from discontinued sulphur
operations (96,649) 2,913 (528)
---------- ------- ---------
Net income (loss) $ (131,508) $ 109 $ (18,116)
========== ======= =========
Basic and diluted net income (loss)
per share of common stock:
Loss from continuing operations $(2.35) $(0.21) $(1.90)
Income (loss) from discontinued
sulphur operations (6.02) 0.22 (0.06)
Loss on disposal of sulphur assets (0.51) - -
------ ------ ------
Basic and diluted net income (loss) per share $(8.88) $ 0.01 $(1.96)
====== ====== ======
Basic and diluted average shares outstanding 14,806 13,385 9,230
====== ====== =====
The accompanying notes are an integral part of these financial statements.
McMoRan EXPLORATION CO.
STATEMENTS OF CASH FLOW
Years Ended December 31,
---------------------------------
2000 1999 1998
--------- ------- --------
(In Thousands)
Cash flow from operating activities:
Net income (loss) $(131,508) $ 109 $(18,116)
Adjustments to reconcile net income (loss) to
net cash provided by operating activities:
(Income) loss from discontinued sulphur
operations 96,649 (2,913) 528
Depreciation and amortization 32,421 30,633 17,160
Exploration expenses 53,975 6,411 14,533
Gain on sale of oil and gas properties (43,212) (2,550) (447)
Change in deferred tax asset 34,942 (1,510) -
(Increase) decrease in working capital:
Accounts receivable (9,038) (1,186) 11,137
Accounts payable and accrued liabilities 20,151 6,353 (844)
Inventories and prepaid expenses (1,561) 960 (540)
Other (743) 2,038 (1,180)
--------- ------- --------
Net cash provided by continuing operations 52,076 38,345 22,231
Net cash provided by (used in) discontinued
operations (37,122) (2,817) 3,981
--------- ------- --------
Net cash provided by operating activities 14,954 35,528 26,212
--------- ------- --------
Cash flow from investing activities:
Exploration and development and
other expenditures (70,983) (21,913) (46,663)
Purchase of oil and gas interests (39,793) (35,030) (5,037)
Proceeds from disposition of assets 74,719 9,509 450
Cash and cash equivalents acquired
from Freeport Sulphur - - 17,699
Other - (352) (293)
--------- ------- --------
Net cash used in continuing operations (36,057) (47,786) (33,844)
Net cash provided by (used in) discontinued
operations 5,122 5,169 (3,087)
--------- ------- --------
Net cash used in investing activities (30,935) (42,617) (36,931)
--------- ------- --------
Cash flow from financing activities:
Net proceeds from equity offering 50,274 - -
Net borrowing of long-term debt - 14,000 -
Purchases of McMoRan common stock (15,282) (26,367) -
Deferred financing costs and other (2,105) 1,640 (614)
--------- ------- --------
Net cash provided by (used in) continuing
operations 32,887 (10,727) (614)
Net borrowings by discontinued sulphur
operations 32,000 - -
--------- ------- --------
Net cash provided by (used in) financing
activities 64,887 (10,727) (614)
--------- ------- --------
Net increase (decrease) in cash and
cash equivalents 48,906 (17,816) (11,333)
Cash and cash equivalents at beginning of year - 17,816 29,149
--------- ------- --------
Cash and cash equivalents at end of year $ 48,906 $ - $ 17,816
========= ======= ========
Interest paid $ 6,546 $ 783 $ 238
========= ======= ========
Income taxes paid $ - $ 12 $ -
========= ======= ========
The accompanying notes, which include information in Notes 2, 3,
7, 8 and 10 regarding noncash transactions, are an integral part
of these financial statements.
McMoRan EXPLORATION CO.
STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
(In thousands, except share amounts)
Capital in Common
Excess Stock
Preferred Common of Par Held in Accumulated
Stock Stock Value Treasury Deficit Total
------- ------ --------- -------- --------- --------
Balance at January 1, 1998 $ - $ 427 $ 140,506 $ - $ (50,235)$ 90,698
Effective five to one
reverse stock split
resulting from the
Freeport Sulphur
acquisition - (342) 342 - - -
Shares issued to acquire
Freeport Sulphur - 55 105,695 - - 105,750
Stock payments to CLK, stock
option exercises and other,
net of acquisition costs
of $0.9 million - 1 467 - - 468
Net loss - - - - (18,116) (18,116)
------ ------ -------- ------- -------- -------
Balance at December 31, 1998 - 141 247,010 - (68,351) 178,800
Stock payments to CLK, stock
option exercises and other - 1 2,615 - - 2,616
Purchase of 1,444,735 shares
of McMoRan common stock - - - (26,454) - (26,454)
Net income - - - - 109 109
------ ------ -------- ------- -------- -------
Balance at December 31, 1999 - 142 249,625 (26,454) (68,242) 155,071
Shares issued in equity
offering - 38 50,236 - - 50,274
Stock payments to CLK, stock
option exercises and other - 1 1,482 - - 1,483
Purchase of 799,900 shares of
McMoRan common stock - - - (15,196) - (15,196)
Tender of 51,625 shares of
McMoRan common stock to
McMoRan to exercise stock
options - - - (947) - (947)
Net loss - - - - (131,508)(131,508)
------ ------ --------- -------- --------- -------
Balance at December 31, 2000$ - $ 181 $ 301,343 $(42,597)$(199,750) $59,177
====== ====== ========= ======== ========= =======
The accompanying notes are an integral part of these financial statements.
McMoRan EXPLORATION CO.
NOTES TO FINANCIAL STATEMENTS
1. BACKGROUND AND BASIS OF PRESENTATION
Background. McMoRan Exploration Co. (McMoRan), a Delaware
corporation, became a publicly traded entity on November 17, 1998
when McMoRan Oil & Gas Co. and Freeport-McMoRan Sulphur Inc.
(Freeport Sulphur) combined their respective operations (the
Merger). In the Merger, Freeport Sulphur's shareholders received
0.625 McMoRan common shares for each Freeport Sulphur outstanding
common share or a total of 5.5 million McMoRan shares, while
McMoRan Oil & Gas' shareholders received 0.20 McMoRan common
shares for each McMoRan Oil & Gas outstanding common share, or a
total of 8.6 million McMoRan common shares.
Basis of Presentation. The Merger is reflected in the
accompanying financial statements using the purchase method of
accounting, with McMoRan Oil & Gas as the acquiring entity.
Accordingly, these financial statements reflect historical
assets, liabilities, revenues and expenses attributable to
McMoRan Oil & Gas as the predecessor of McMoRan and all
subsequent references to McMoRan for the period prior to the
Merger refer to the oil and gas operations previously conducted
by McMoRan Oil & Gas. Operating results of the acquired assets
are included on and after November 17, 1998. McMoRan's earnings
per share, weighted average shares outstanding and certain stock
option information have been restated to reflect the effective
reverse stock split of McMoRan Oil & Gas' shares resulting from
the Merger. The assets acquired and liabilities assumed from
Freeport Sulphur were recorded at estimated fair values based on
cash flow models and independent appraisals. Effective June 30,
2000, all of the sulphur operations conducted by Freeport Sulphur
have been restated to present the former segment as discontinued
operations (Note 3).
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Consolidation. Investments in joint ventures and
partnerships in which McMoRan owns an undivided interest in the
underlying assets are reflected in the accompanying financial
statements using the proportionate consolidation method in
accordance with standard industry practice.
Use of Estimates. The preparation of McMoRan's financial
statements in conformity with accounting principles generally
accepted in the United States requires management to make
estimates and assumptions that affect the amounts reported in
these financial statements and the accompanying notes. The more
significant estimates include useful lives for depreciation and
amortization, valuation allowances for deferred tax assets,
reclamation and environmental obligations, the carrying value of
assets held for disposal, postretirement and other employee
benefits, and estimates of proved oil and gas reserves and
related future cash flows. Actual results could differ from
those estimates.
Cash and Cash Equivalents. Highly liquid investments purchased
with a maturity of three months or less are considered cash
equivalents (excluding restricted cash, see Note 10).
Inventories. Inventories are stated at the lower of average cost
or market.
Property, Plant and Equipment.
Oil and Gas. McMoRan follows the successful efforts method of
accounting for its oil and gas exploration and development
activities. Geological and geophysical costs and costs of
retaining unproved properties are charged to expense as incurred.
Costs of exploratory wells are capitalized pending determination
of whether they have discovered proved reserves. If proved
reserves are not discovered the related drilling costs are
expensed. Acquisition costs of leases and development activities
are also capitalized. Other exploration costs are charged to
expense as incurred. Depreciation and amortization are
determined on a field-by-field basis using the unit-of-production
method. Gains or losses are included in earnings when properties
are sold.
Other. Other property, plant and equipment are carried at cost
less salvage value and are depreciated on a straight-line basis
over their estimated remaining useful life.
Costs for unproved oil and gas properties are assessed
periodically, and a loss is recognized if the properties are
deemed impaired. When events or circumstances indicate that
proved oil and gas property carrying amounts may not be
recoverable from estimated future cash flows from the property, a
reduction of the carrying amount to fair value is required.
Measurement of the impairment loss is based on the estimated fair
value of the asset. Generally, McMoRan estimates fair value
using valuation techniques such as expected future cash flows.
In the fourth quarter of 2000, because of a reduction of West
Cameron Block 616's estimated oil and gas reserves the net book
value of this field exceeded the related estimated future
undiscounted cash flows. Accordingly, a $14.0 million charge to
depreciation and amortization expense was recognized that reduced
this property's net book value to its estimated fair value. Fair
value was estimated using future undiscounted cash flow from this
field, adjusted to present value using an interest rate
considered appropriate for this asset.
Financial Instruments and Contracts. Based on its assessment of
market conditions, McMoRan may enter into financial contracts to
manage certain risks resulting from fluctuations in oil and
natural gas prices. Costs or premiums and gains or losses on
contracts meeting deferral criteria are recognized with the
hedged transactions. Also, gains or losses are recognized if the
hedged transaction is no longer expected to occur or if deferral
criteria are not met. McMoRan monitors its credit risk on an
ongoing basis and considers this risk to be minimal.
McMoRan has oil forward sales contracts related to its Main
Pass oil production. Gains or losses on these contracts are
recognized with the hedged transaction. McMoRan settled
contracts on 0.3 million barrels of oil at a cost of $2.8 million
during 2000 and 0.1 million barrels at a cost of $0.2 million
during 1999. As of December 31, 2000, McMoRan had contracts to
sell 0.1 million barrels of oil at an average price of $19.00 per
barrel through December 2001. These contracts had a fair value of
approximately $(0.6) million as of December 31, 2000.
In June 1998, the Financial Accounting Standards Board
(FASB) issued Statement of Financial Accounting Standards No.
133, "Accounting for Derivative Instruments and Hedging
Activities" (SFAS 133). SFAS 133, as subsequently amended, is
effective for fiscal years beginning after June 15, 2000 and
establishes accounting and reporting standards requiring that
every derivative instrument (including certain derivative
instruments embedded in other contracts) be recorded in the
balance sheet as either an asset or liability measured at its
fair value. The accounting for changes in the fair value of a
derivative depends on the intended use of the derivative and the
resulting designation.
McMoRan adopted SFAS 133 effective January 1, 2001. Under
SFAS 133, McMoRan has designated its Main Pass oil forward sales
contracts as cash flow hedges, whereby changes in their fair
value will be recognized in other comprehensive income (a
component of stockholders' equity) until settled, when resulting
gains and losses will be recorded in earnings. Upon adoption of
SFAS 133, McMoRan will record the fair value of the oil forward
contracts as a liability with a corresponding amount reflected in
other comprehensive income. The hedge ineffectiveness associated
with these contracts, which is required to be charged to earnings
under SFAS 133 is immaterial.
Environmental Remediation and Compliance. McMoRan incurs costs
for environmental programs and projects. Expenditures pertaining
to future revenues from operations are capitalized. Expenditures
resulting from the remediation of conditions caused by past
operations that do not contribute to future revenue generation
are charged to expense. Liabilities are recognized for remedial
activities when the efforts are probable and the costs can be
reasonably estimated.
McMoRan's estimated future expenditures to restore its oil
and gas properties and related facilities to a condition that it
believes comply with environmental and other regulations are
accrued over the life of the properties. These future
expenditures are estimated based on current costs, laws and
regulations. At December 31, 2000, McMoRan had $16.0 million in
accrued oil and gas reclamation costs.
Effective June 30, 2000, McMoRan initiated a plan to exit
the sulphur business (Note 3). Accordingly, McMoRan recorded
charges totaling $40.7 million during 2000 to accrue all
remaining estimated reclamation costs related to its sulphur
mines and related facilities. McMoRan has $69.2 million in
discontinued accrued reclamation costs at December 31, 2000,
including $15.5 million in current liabilities. McMoRan's
discontinued sulphur operations' reclamation costs are partially
offset by a $7.3 million receivable, included in "other assets"
representing a third party reimbursement commitment relating to
McMoRan's Caminada sulphur mine.
Reclamation cost estimates are by their nature imprecise and
can be expected to be revised over time because of a number of
factors, including changes in reclamation plans, cost estimates,
governmental regulations, technology and inflation.
Share Repurchase Program. In 1999, McMoRan's Board of Directors
authorized an open market share purchase program for up to two
million shares of its common stock. In March 2000, the Board
authorized the purchase of up to an additional 500,000 shares of
its common stock, increasing the total shares authorized under
the share repurchase program to 2.5 million. As of December 31,
2000, McMoRan had purchased 2,244,635 shares of its common stock
at an average cost of $18.56 per share.
Information about Major Customers. Oil from the Main Pass
facility, which approximated 40 percent of McMoRan's total
revenue during 2000, has been sold exclusively to Amoco
Production Company since the Merger date under a sales contract
which has been extended to June 30, 2001. McMoRan's remaining
oil and gas production is sold to various U.S. purchasers,
including one gas purchaser comprising at least 40 percent of its
total revenue. All of McMoRan's customers are currently located
in the United States.
Earnings Per Share. Basic net income (loss) per share was
calculated by dividing net income (loss) applicable to common
stock by the weighted-average number of common shares outstanding
during the years presented. Diluted net income (loss) per share
was calculated by dividing net income by the weighted-average
number of common shares outstanding during the years presented
plus the net effect of outstanding dilutive options. Stock
options representing approximately 96,000 shares of common stock
in 2000, 266,000 shares of common stock in 1999 and 164,000
shares of common stock in 1998 were considered anti-dilutive
because of these years' net losses and were excluded from the
diluted net loss per share calculation.
Outstanding stock options to purchase approximately 1,274,000
shares of common stock at an average exercise price of $19.74 per
share in 2000, 472,000 shares of common stock at an average
exercise price of $22.15 per share in 1999, and 813,000 shares of
common stock at an average exercise price of $19.31 per share in
1998, were excluded from the diluted net income (loss) per share
calculation because their exercise prices were greater than the
average market price of McMoRan's common shares for the years
presented.
3. DISCONTINUED SULPHUR OPERATIONS
As a result of the Merger, McMoRan acquired Freeport Sulphur, a
business engaged in the purchasing, transporting, terminaling,
processing, and marketing of sulphur and the production of
related oil reserves. Prior to August 31, 2000, Freeport Sulphur
was also engaged in the mining of sulphur. The purchase price
($109.1 million) was based on the market value of Freeport
Sulphur's stock at the time the Merger was announced plus related
transaction costs.
In July 2000, McMoRan undertook a plan to discontinue its
sulphur mining operations and to sell its remaining sulphur
transportation, logistics and marketing assets. Main Pass mine
production ceased on August 31, 2000. McMoRan has retained the
services of Chase Securities Inc. to assist it in the marketing
of its sulphur transportation and marketing assets to third
parties. McMoRan is actively engaged in a process to identify a
buyer of these assets.
During the fourth quarter of 2000, McMoRan signed a letter of
intent for an alternative use of the Main Pass sulphur facility
which is intended to generate cash flow to offset and defer a
significant portion of the long-term reclamation obligations
associated with the facility. This proposed transaction is
subject to negotiation of definitive agreements and obtaining
appropriate regulatory approvals. Additionally, McMoRan sold its
remaining Culberson sulphur mine assets for $3.5 million and its
Grand Isle base facility previously used for offshore logistical
support of its sulphur operations for $1.2 million, resulting in
recognition of gains totaling $4.4 million.
Following is a summary of financial information for McMoRan's
discontinued sulphur operations (in thousands):
For Years Ending December 31,
----------------------------
2000 1999 1998
-------- -------- --------
Revenues $143,309 $189,687 $ 24,276
Income (loss) from discontinued
operations:
Before income taxes $(89,149) $ 4,482 $ (528)
Income tax benefit (provision) - (1,569) -
-------- -------- --------
$(89,149) $ 2,913 $ (528)
======== ======== ========
Estimated loss on disposal $ (7,500) $ - $ -
======== ======== ========
The loss from discontinued operations for 2000 includes
noncash charges totaling $86.0 million to reflect the net
realizable value of the sulphur segment assets and liabilities.
These charges include $20.1 million to write-off the remaining
book value of the Main Pass sulphur mine; $25.2 million for the
writedown of the book value of the mining-related assets,
primarily certain specialized marine equipment used in handling
mined sulphur, to their estimated recoverable values; and $40.7
million for the remaining unaccrued estimated mine reclamation
costs.
As a result of terminating production at Main Pass, certain
sulphur reclamation and mine shutdown costs are expected to be
incurred on an accelerated basis. Accordingly, $15.5 million of
sulphur reclamation costs are reported as current liabilities at
December 31, 2000. During the second half of 2000, McMoRan
incurred a total of $16.3 million of sulphur reclamation costs,
including $13.7 million for the Main Pass mine and related
facilities.
McMoRan's loss on the disposal of its sulphur assets was
estimated to be $7.5 million at the July 2000 measurement date.
The accrual for the loss is comprised of employee-related
charges, including $4.7 million of employee termination charges
and $2.8 million resulting from curtailments of McMoRan's
retirement and post-retirement health and welfare pension plans.
McMoRan anticipates the funding of these costs will occur in
2001.
In connection with the decision to discontinue the sulphur
operations, McMoRan recorded a $34.9 million non- cash charge to
its deferred tax valuation allowance, which eliminated its net
deferred tax asset related primarily to its sulphur
transportation, logistics and marketing business. Accounting
standards require this charge to be included in the loss from
continuing operations as a component of income tax expense.
A significant portion of McMoRan's sulphur is sold to IMC-
Agrico Company (IMC-Agrico), a chemical fertilizer producer
jointly owned by IMC Global and Phosphate Resource Partners,
under a long-term supply contract that extends for as long as IMC-
Agrico has a requirement for sulphur. Sales to IMC-Agrico
totaled 73.1 percent of sulphur sales during 2000, 72.6 percent
of its sulphur sales during 1999 and 68.4 percent of its sulphur
sales for the 1998 period after the Merger. See Note 10
regarding litigation involving the long-term sulphur supply
contract with IMC-Agrico.
4. ACQUISITIONS AND EXPLORATION PROGRAM
In 1997, McMoRan completed a rights offering, in which it sold
approximately 5.7 million shares of its common stock, (as
adjusted for the effects of the Merger, see Note 1) and received
$92.2 million of net proceeds (Rights Offering). In connection
with the Rights Offering, McMoRan, Phosphate Resource Partners
Limited Partnership (Phosphate Resource Partners) and an
individual investor (see Note 5) formed an aggregate $210
million, multi-year oil and gas exploration program to explore
and develop prospects primarily offshore in the Gulf of Mexico
and onshore in the Gulf Coast region (the Exploration Program).
In November 1999, McMoRan purchased Phosphate Resource Partners'
47 percent interest in the Exploration Program for $31.9 million,
net of transaction costs. Phosphate Resource Partners and its
parent IMC Global Inc. also agreed to dismiss with prejudice a
lawsuit against McMoRan (see Note 10). McMoRan currently owns a
95 percent interest in the Exploration Program, with the
individual investor owning the remaining five percent. At
December 31, 2000 an aggregate $207.2 million had been incurred
by the Exploration Program, with the remaining $2.8 million
planned and committed for expenditure during 2001.
Effective January 1, 2000, McMoRan acquired from Texaco
Exploration and Production Inc. (Texaco) the right to explore and
earn assignments of operating rights in 89 unexplored oil and gas
properties. The properties covered about 391,000 gross acres and
are located in water depths ranging from 10 to 2,600 feet in
federal and state waters offshore Louisiana and Texas. McMoRan
has $110 million of exploration expenditures on these properties
to be incurred or committed to by June 30, 2003, with minimum
spending requirements during the interim (see Note 10).
On January 14, 2000, McMoRan purchased from Shell Offshore
Inc. (Shell), a wholly owned subsidiary of Royal Dutch Petroleum
Co., Shell's interest in 55 exploration leases for $37.8 million
after transaction costs and purchase adjustments. The leases
cover approximately 260,000 gross acres and are located in
varying water depths of up to a maximum of approximately 2,000
feet in the offshore Louisiana area. McMoRan funded the purchase
with borrowings under its bank lines of credit (see Note 9).
The following unaudited selected pro forma information
presents the results of operations of McMoRan as if the Merger
and the purchase of Phosphate Resource Partners had occurred on
January 1, 1998. These unaudited pro forma results of operations
have been prepared for informational purposes only and do not
necessarily indicate the results of operations that actually
would have occurred had the acquisitions taken place on these
dates, or which may result in the future.
Years Ended December 31,
------------------------
1999 1998
--------- --------
In Thousands,
except per share data)
Revenue $ 63,789 $ 39,112
Income (loss) from discontinued
sulphur operations 2,913 (3,945)
Net loss (8,620) (47,010)
Basic and diluted net loss per share (0.64) (5.09)
5. TRANSACTIONS WITH AFFILIATES
Management Services. FM Services Company (FM Services) provides
certain management and administrative services to McMoRan
including technical, administrative, accounting, financial, tax
and other services under a management services agreement.
Related amounts charged to McMoRan, which include the actual
costs of these services and related overhead, totaled $12.1
million in 2000, $9.9 million in 1999 and $4.3 million in 1998.
McMoRan owns 45 percent of FM Services. Management believes the
costs for these services do not differ materially from the costs
that would have been incurred had the relevant personnel
providing the services been employed directly by McMoRan.
Phosphate Resource Partners Limited Partnership. In November
1997, Phosphate Resource Partners purchased approximately 5.5
percent or 770,000 of McMoRan's post Merger total shares for
$13.5 million in fulfillment of its commitment to purchase any
shares relating to unexercised rights from the Rights Offering
(the Stand-By Commitment). In August 1997, Phosphate Resource
Partners purchased the ownership interests owned by MCN Energy
Group Inc. in the Vermilion Blocks 160 and 410 oil and gas fields
($24.5 million), and assumed the then outstanding debt owed by
McMoRan under a previous exploration program ($20.0 million).
Upon completion of the Rights Offering, McMoRan reimbursed the
$44.5 million previously paid by Phosphate Resource Partners and
also paid them a $6.0 million fee for the Stand-by Commitment,
for acquiring and holding these assets until completion of the
Rights Offering and for agreeing to enter into the Exploration
Program. In 1999, as part of McMoRan's open market share
repurchase program (see Note 2), McMoRan purchased all of the
shares owned by Phosphate Resource Partners for $12.8 million or
$16.64 per share.
Program Participant. Effective December 15, 1997, Mr. Gerald J.
Ford, an individual investor elected to McMoRan's Board of
Directors in January 1998, became an individual participant in
the Exploration Program (Note 4). Through December 31, 2000, Mr.
Ford has paid $7.3 million for his proportionate share of the
Exploration Program and related development costs incurred, net
of his proportional interest in the proceeds from the sale of
Brazos Block A-19 and Vermilion Block 408.
6. PROPERTY, PLANT AND EQUIPMENT, OTHER ASSETS AND OTHER
LIABILITIES
The components of net property, plant and equipment follow (in
thousands):
December 31,
---------------------
2000 1999
--------- ---------
Oil and gas property, plant
and equipment $ 186,897 $ 137,046
Other 585 793
--------- ---------
187,482 137,839
Accumulated depreciation (71,251) (40,480)
--------- ---------
Property, plant and equipment, net $ 116,231 $ 97,359
========= =========
Capitalized costs associated with exploratory wells in progress
at December 31, 2000 were approximately $20.4 million.
The components of other assets follow (in thousands):
December 31,
---------------------
2000 1999
--------- ---------
Long-term receivable (Note 2) $ 7,317 $ 9,206
Restricted cash (Note 10) 3,500 -
Deferred financing fees 1,094 354
Prepaid pension asset and other 225 1,231
--------- ---------
$ 12,136 $ 10,791
========= =========
The components of other long-term liabilities follow (in
thousands):
December 31,
---------------------
2000 1999
--------- ---------
Retiree medical liability $ 3,923 $ 2,104
Accrued group insurance 3,598 3,830
IMC Global Inc. retiree obligation
(Note 10) 8,788 10,608
Sulphur-related obligation (Note 10) - 9,653
Sulphur-related environmental liability
(Note 10) 3,500 -
Defined benefit pension plan liability 1,982 192
Deferred revenues and other 733 1,082
--------- ---------
$ 22,524 $ 27,469
========= =========
7. EMPLOYEE BENEFITS
Stock Options. Prior to the Merger, both McMoRan Oil & Gas and
Freeport Sulphur had outstanding non-qualified stock options and
McMoRan Oil & Gas had outstanding stock appreciation rights
(collectively, stock-based awards) previously granted under
certain McMoRan Oil & Gas and Freeport Sulphur benefit plans.
Pursuant to the Merger, all outstanding stock-based awards were
cancelled and replaced with McMoRan stock options granted under
the McMoRan Adjusted Stock Award Plan (McMoRan Adjusted Plan).
The McMoRan Adjusted Plan issued stock options on the same
basis as the McMoRan common shares that were distributed to the
former McMoRan Oil & Gas and Freeport Sulphur shareholders upon
consummation of the Merger (see Note 1). Accordingly, for each
McMoRan Oil & Gas and Freeport Sulphur stock-based award
outstanding at the Merger date, McMoRan stock options were
granted in amounts and with exercise prices equal to the previous
McMoRan Oil & Gas and Freeport Sulphur awards, as adjusted to
reflect the Merger. In early 1999, an investor group's
beneficial ownership of McMoRan common stock increased to a level
that exceeded the 20 percent threshold that triggers acceleration
of the vesting periods under the provision of the McMoRan
Adjusted Plan. As a result, all options issued under the McMoRan
Adjusted Plan became fully exercisable.
In May 2000, the McMoRan shareholders approved the McMoRan
2000 Stock Incentive Plan (the 2000 Plan). At December 31, 2000,
the 2000 Plan is authorized and has available for grant options
representing up to 600,000 McMoRan shares. In 1998, the McMoRan
Oil & Gas and Freeport Sulphur shareholders approved the McMoRan
1998 stock option plan (the 1998 Plan) in connection with the
Merger. The 1998 Plan is authorized to grant options representing
up to 775,000 McMoRan common shares. McMoRan also adopted the
McMoRan 1998 Stock Option Plan for Non-Employee Directors (the
Director Plan), authorizing McMoRan to grant directors options to
purchase up to 75,000 McMoRan common shares. Generally, stock
options granted are exercisable in 25 percent annual increments
beginning one year from the date of grant and will expire 10
years after the date of grant. Options to purchase 25,000 shares
under the 1998 Plan and 65,000 shares under the Director Plan
were available for new grants as of December 31, 2000.
A summary of stock options outstanding (with prior years'
outstanding McMoRan Oil & Gas options adjusted to reflect the
effective reverse stock split as a result of the Merger) follows:
2000 1999 1998
----------------- ----------------- -----------------
Number Average Number Average Number Average
of Option of Option of Option
Options Price Options Price Options Price
--------- ------- --------- ------- --------- -------
Beginning of year 1,891,113 $ 17.06 1,501,884 $ 16.82 1,021,227 $ 15.80
Granted 165,750 19.16 646,000 17.49 65,500 24.95
Issued to Freeport
Sulphur
optionholders - - - - 464,784 17.87
Exercised (73,239) 13.05 (121,666) 16.16 (19,885) 15.23
Expired/forfeited (81,672) 16.54 (135,105) 17.21 (29,742) 17.70
--------- --------- ---------
End of year 1,901,952 17.42 1,891,113 17.06 1,501,884 16.82
========= ========= =========
Summary information of all stock options outstanding at
December 31, 2000 follows:
Options Outstanding Options Exercisable
--------------------------- -------------------
Weighted Weighted Weighted
Number Average Average Number Average
of Remaining Options of Option
Range of Exercise Prices Options Life Price Options Price
- ----------------------- -------- --------- ------- --------- -------
$10.11 to $15.13 632,610 5.1 years $12.72 395,110 $ 12.03
$15.35 to $22.14 1,214,417 5.9 years 19.51 858,917 18.90
$25.31 54,925 7.0 years 25.31 54,925 25.31
--------- ---------
1,901,952 1,308,952
========= =========
McMoRan has adopted the disclosure-only provisions of SFAS
123, "Accounting for Stock Based Compensation," and continues to
apply Accounting Principles Board Opinion No. 25, "Accounting for
Stock Issued to Employees," and related interpretations in
accounting for its stock-based compensation plans. Accordingly,
no compensation cost has been recognized for McMoRan's stock
option grants. Had compensation cost for McMoRan's stock option
grants been determined based on the fair value at the grant dates
for awards under those plans consistent with SFAS 123, McMoRan's
proforma SFAS 123 results would have increased its net loss by
$1.9 million to $133.4 million ($9.01 per share) in 2000, reduced
its net income by $8.7 million to a net loss of $8.6 million
($0.63 per share) in 1999 and increased its net loss by $3.0
million to $21.1 million ($2.29 per share) in 1998. The proforma
1999 results include approximately $8.0 million of compensation
associated with the accelerated vesting of options granted under
the McMoRan Adjusted Plan. For the proforma computations, the
fair values of the option grants were estimated on the dates of
grant using the Black-Scholes option-pricing model. The weighted
average fair value for stock option grants was $11.50 per option
in 2000, $10.00 per option in 1999, and $7.89 per option in 1998,
as adjusted for the effects of the Merger. The weighted average
assumptions used include a risk-free interest rate of 6.7 percent
in 2000, 5.6 percent in 1999 and 5.3 percent in 1998, with
expected volatility of 35 percent in 2000, 34 percent in 1999 and
47 percent in 1998 and expected lives of 10 years. The proforma
effects on net income (loss) are not representative of future
years because of the potential changes in the factors used in
calculating the Black-Scholes valuation, the timing of option
grants and the effect of the accelerated vesting in 1999. No
other discounts or restrictions related to vesting or the
likelihood of vesting of stock options were applied.
Pension Plans and Other Benefits. Prior to the Merger, McMoRan's
defined benefit plan assets and liabilities and related costs
were immaterial because of McMoRan's limited number of employees.
In connection with the Merger, McMoRan merged its plan with
Freeport Sulphur's defined benefit plan. During 2000, McMoRan
decided to terminated its defined benefit pension plan covering
substantially all its employees and replace this plan with a
defined contribution plan for its employees, as further discussed
below. All participants' account balances in the plan were fully
vested on June 30, 2000 and interest credits will continue to
accrue under the plan until the assets are finally liquidated.
The final distribution will occur once approval is obtained from
the Internal Revenue Service and the Pension Benefit Guaranty
Corporation, which is expected in 2001. McMoRan also provides
certain health care and life insurance benefits (Other Benefits)
to retired employees. In connection with early retirement
programs implemented during 1999 and 2000, McMoRan increased its
benefit obligation by approximately $3.0 million and $1.0
million, respectively, in special termination benefits granted to
retiring employees. McMoRan recognized a $1.5 million
curtailment loss for its Other Benefits as a result of the
substantial reduction in its workforce following its decision to
discontinue its sulphur operations. McMoRan has the right to
modify or terminate these benefits. Information on the McMoRan
plans follows (dollars in thousands):
Pension Benefits Other Benefits
------------------ ----------------
2000 1999 2000 1999
-------- -------- ------- -------
Change in benefit obligation:
Benefit obligation at the beginning
of year $(12,552) $(10,366) $(1,750) $(1,953)
Service cost (329) (782) (87) (104)
Interest cost (879) (783) (189) (128)
Plan amendments - - - (65)
Curtailment loss (1,300)a - (1,495) -
Special termination benefits (1,000) (3,031) (157) -
Actuarial gains (losses) 365 261 (1,082) 492
Benefits paid 5,883 2,149 158 8
-------- -------- ------- -------
Benefit obligation at end of year (9,812) (12,552) (4,602) (1,750)
-------- -------- ------- -------
Change in plan assets:
Fair value of plan assets at
beginning of year 15,635 15,306 - -
Actual return on plan assets 575 2,478 - -
Employer contributions - - 158 8
Benefits paid (5,883) (2,149) (158) (8)
-------- -------- ------- -------
Fair value of plan assets at end
of year 10,327 15,635 - -
-------- -------- ------- -------
Funded status 515 3,083 (4,602) (1,750)
Unrecognized net actuarial(gain)loss (2,497) (2,496) 667 (414)
Unrecognized prior service cost - - 12 60
-------- -------- ------- -------
Prepaid (accrued) benefit cost $ (1,982) $ 587 $(3,923) $(2,104)
======== ======== ======= =======
Weighted-average assumptions (percent):
Discount rate n/a a 8.00 7.5 8.00
Expected return on plan assets n/a a 9.00 - -
Rate of compensation increase n/a a 4.25 - -
a. As discussed above, McMoRan decided to terminate its defined
benefit pension plan, resulting in a $1.3 million curtailment
loss, and ceased accruing benefits on June 30, 2000.
The initial health care cost trend rate used for the other
benefits was 6.5 percent in 2000, decreasing ratably annually
until reaching 4.75 percent in 2004. A one-percentage point
increase or decrease in assumed health care cost trend rates
would not have a significant impact on service or interest costs.
The components of net periodic benefit cost for McMoRan's plans
follow (in thousands):
Pension Benefits Other Benefits
--------------------- -------------------
2000 1999 1998 2000 1999 1998
------- ------ ---- ------ ----- ----
Service cost $ 329 $ 782 $ 60 $ 87 $ 104 $ 9
Interest cost 879 783 60 189 128 10
Curtailment loss 1,300 - - 1,540 - -
Special termination benefits - - - 157 - -
Expected return on plan assets (1,124) (1,339) (112) - - -
Amortization of prior service
costs - - - 4 5 -
------- ------ ---- ------ ----- ----
Net periodic benefit cost $ 1,384 $ 226 $ 8 $1,979 $ 237 $ 19
======= ====== ==== ====== ===== ====
McMoRan has an employee savings plan under Section 401(k) of
the Internal Revenue Code. The plan allows eligible employees to
contribute up to 20 percent of their pre-tax compensation,
subject to limitations prescribed by the Internal Revenue Code,
which was $10,000 for both 1998 and 1999 and $10,500 for 2000.
McMoRan matches 100 percent of the first 5 percent of the
employees' contribution, with such matching amounts vesting after
three years of service. As a result of McMoRan's decision to
terminate its defined benefit pension plan effective July 1,
2000, McMoRan fully vested all active Section 401(k) savings plan
participants on June 30, 2000. Subsequently, all new plan
participants will vest in McMoRan's matching contributions upon
three years of service with McMoRan. Additionally, McMoRan
established a defined contribution plan for substantially all its
employees. Under this plan McMoRan contributes amounts to
individual employee accounts totaling either 4 percent or 10
percent of each employee's pay, depending on a combination of
each employee's age and years of service with McMoRan. McMoRan
charged operations for a total of $0.8 million in 2000 and $0.7
million in 1999 for its cost of the Section 401(k) savings plan
and the 2000 cost of the new defined contribution plan. The
matching contribution was immaterial in 1998 because of McMoRan's
limited number of employees. Additionally, McMoRan has other
employee benefit plans, certain of which are related to McMoRan's
performance, which costs are recognized currently in general and
administrative expense.
8. INCOME TAXES
McMoRan accounts for income taxes pursuant to SFAS 109,
"Accounting for Income Taxes." In 1998, McMoRan recorded a $35.0
million net deferred tax asset upon the acquisition of Freeport
Suphur's assets (see Note 3). As a result of McMoRan's decision
to discontinue its sulphur business and after evaluating the
projected operating results from continuing operations, during
2000 McMoRan concluded that a full valuation allowance was
required for its net deferred tax asset resulting in a charge to
income tax expense of $34.9 million. McMoRan has $139.3 million
of net deferred tax assets as of December 31, 2000, resulting
from temporary differences related to McMoRan's exploration and
development activities. McMoRan has provided a valuation
allowance, which includes approximately $45 million associated with
McMoRan's discontinued sulphur operations, for the full amount of
these temporary differences. The components of McMoRan's net deferred
tax asset at December 31, 2000 and 1999 follow (in thousands):
December 31,
----------------------
2000 1999
-------- --------
Net operating loss carryforwards
(expire 2006-2020) $ 54,489 $ 43,871
Property, plant and equipment 42,898 33,907
Reclamation and shutdown reserves 32,887 20,833
Deferred compensation, postretirement
and pension benefits 8,217 3,650
Other 767 3,199
Less valuation allowance (139,258) (70,519)
-------- --------
Net deferred tax asset $ - $ 34,941
======== ========
McMoRan recognized no income tax provision or benefit prior
to 1999. McMoRan's income tax provision totaled $71,000 in 1999,
which included state income taxes of $12,000 and deferred federal
income taxes of $59,000.
Reconciliations of the differences between income taxes computed
at the federal statutory tax rate and the income taxes recorded
follow (dollars in thousands):
2000 1999 1998
----------------- -------------- --------------
Amount Percent Amount Percent Amount Percent
--------- ------- ------- ------ ------ ------
Income taxes
computed at the federal
statutory income tax rate $ (29) (35)% $ 1,505 (35)% $ 6,155 35%
Change in valuation allowance (34,913) ** (525) (12) (6,155 (35)
State taxes and other - - 517 (832) - -
--------- --- ------- ---- ------- ---
Income tax (provision) benefit $ (34,942) ** % $ 1,497 (35)% - - %
========= === ======= ==== ======= ===
** Not meaningful
9. HALLIBURTON ALLIANCE and LONG -TERM DEBT
December 31,
------------------
2000 1999
-------- --------
(In Thousands)
Freeport Sulphur credit facility,
average rate 7.8% in 2000 and
7.5% in 1999 $ 46,000 $ 14,000
McMoRan Oil & Gas credit facility,
average rate 8.3% in 2000 and
8.2% in 1999 - -
Less: current portion (46,000) -
-------- --------
Long-term debt $ - $ 14,000
======== ========
In June 2000, McMoRan consummated an agreement with
Halliburton Company to form a strategic alliance that combines
the skills, technologies and resources of both companies'
personnel and technical consultants into an integrated team to
manage McMoRan's oil and gas activities. Halliburton will
provide products and services to McMoRan at market rates and
McMoRan will use Halliburton's products and services on an
exclusive basis to the extent practicable.
Halliburton has provided a guarantee that provides up to $50
million of borrowings available to McMoRan Oil & Gas under terms
of its amended revolving facility. Under terms of the variable-
rate facility, McMoRan has potential credit availability of up to
$75 million, including the $50 million currently available under
the Halliburton guarantee. The $25 million balance of the
commitment is subject to semi-annual borrowing base re-
determinations based on traditional present value analysis of
McMoRan Oil & Gas' proved reserves. Currently, McMoRan has no
availability under this portion of the commitment; however, the
$25 million of availability could become available in total or in
part upon the bank's evaluation of McMoRan's new discoveries
during 2000 and in the future. Any future amounts available
under the $25 million portion of the commitment cannot be drawn
unless all amounts available under the Halliburton guaranteed
facility are fully drawn.
McMoRan pays Halliburton commitment fees based on amounts
borrowed and available under its portion of the facility. As
security for Halliburton's guarantee, McMoRan has provided a
first priority lien on interests in its producing fields,
excluding Main Pass Oil, and in Ship Shoal Block 296, where it
announced a discovery during the second quarter of 2000.
Halliburton also has the right to elect to participate in
McMoRan's future development opportunities by providing a portion
of the exploration and development costs of each prospect in
which it elects to participate. Amounts paid by Halliburton
representing the reimbursement of exploration costs will be used
to reduce outstanding borrowings and the commitment under the
Halliburton guaranteed portion of the facility. As of December
31, 2000, McMoRan had no borrowings outstanding under this
facility and Halliburton has not elected to participate in any
McMoRan prospects. This facility will mature by December 31,
2003.
The amount of availability under the Halliburton guaranteed
portion of the facility is contingent upon McMoRan's raising
additional capital. During 2000, McMoRan raised $75 million of
additional capital to satisfy the Halliburton requirements
through December 31, 2000. McMoRan met these capital requirements
by issuing 3.8 million common shares for $50.2 million in April
2000 and by entering into farm-out agreements for certain of its
exploration prospects. These farm-out agreements, which involve
the participation of third parties in McMoRan's exploration
prospects, will reduce McMoRan's future drilling commitments by
at least $25 million. McMoRan is required to raise a total of
$125 million of capital by December 2001, which requires McMoRan
to raise an approximate $50 million of additional capital in
2001. In the event McMoRan fails to raise the cumulative $125
million by December 31, 2001, the $50 million commitment will be
reduced by the amount of the shortfall and McMoRan will be
required to repay any loans outstanding in excess of the adjusted
commitment amount. McMoRan can meet its obligations with respect
to additional capital through the sale of equity securities,
program interests in its exploration prospects or the sale of
interests in individual exploration prospects.
In addition to the facility discussed above, McMoRan has a
variable rate revolving credit facility that is available to
Freeport Sulphur. On August 11, 2000, Freeport Sulphur amended
its credit facility to provide $64.5 million for use solely in
McMoRan's discontinued sulphur operations. This amended
revolving credit facility is secured by substantially all of the
assets of Freeport Sulphur, including its Main Pass oil
interests, and will mature on the earlier of April 30, 2001 or
the receipt of the net proceeds from the sale of McMoRan's
sulphur transportation, logistics and marketing assets. The
sulphur debt is classified as a current liability in McMoRan's
balance sheet.
10. COMMITMENTS AND CONTINGENCIES
Commitments. At December 31, 2000, McMoRan had committed to
spend $115 million during 2001 on exploration and development
activities. Actual expenditures could be significantly higher
during 2001 as McMoRan continues to evaluate exploration
opportunities on its large acreage position (Note 4). Effective
January 1, 2000, McMoRan entered into an agreement with Texaco
that committed it to expend $110 million on exploration by June
30, 2003 (see Note 4). Under the terms of the agreement McMoRan
exceeded the requirement to spend a minimum of $10 million by
December 31, 2000. As of December 31, 2000, McMoRan is required
to commit to spend an additional $33.6 million through June 30,
2001, an additional $30 million through June 30, 2002 and an
additional $30 million by June 30, 2003. If McMoRan does not
meet this commitment schedule it would be subject to a penalty
payment of 25 percent of the remaining unexpended and uncommitted
minimum amount for the applicable period.
Additionally, McMoRan has a contract with CLK Company
L.L.C., an independently owned company, to provide geological and
geophysical services to McMoRan on an exclusive basis. The
contract provides for an annual retainer fee of $2.5 million
($0.5 million of the annual fee paid in McMoRan common stock,
recorded at fair market value at the time issued), plus certain
expenses and a 3 percent overriding royalty interest in prospects
accepted by McMoRan. Cost of services provided by CLK totaled
$3.1 million in 2000, $2.7 million in 1999 and $2.6 million in
1998.
Long-term Contracts and Operating Leases. McMoRan's minimum
annual contractual charges under non-cancelable long-term
contracts and operating leases total $138.7 million, with $19.3
million in 2001, $15.9 million in 2002, $15.9 million in 2003,
$15.5 million in 2004, $15.0 million in 2005 and $57.2 million
thereafter. Substantially all of these operating lease payments
are associated with McMoRan's lease of an additional tanker to
enhance its sulphur marine transportation services and the
leasing of its previously owned sulphur rail cars. As discussed
in Note 3, McMoRan is currently marketing its sulphur
transportation, logistics and marketing assets and expects that
these leases would likely be assigned to a potential buyer. As a
result, McMoRan's long-term commitments may be substantially less
than these reported amounts.
Other Liabilities. Freeport Sulphur has a liability to IMC
Global Inc. for a portion of IMC Global's postretirement benefits
costs relating to certain retired employees of Freeport Sulphur.
At December 31, 2000 the liability was estimated to total $10.5
million, including $1.7 million in current liabilities. Future
changes to this estimate, because of changes in assumptions or
actual results varying from projected results, will be recorded
in earnings.
During 2000, Freeport Sulphur negotiated a termination of a
sulphur-related obligation owed to Devon Energy Inc. the
successor to Pennzoil Company. Freeport Sulphur had assumed this
obligation in the 1995 purchase of Pennzoil's sulphur division.
Under terms of the sales agreement, Freeport Sulphur was required
to make quarterly payments to Pennzoil based on the average
market price of sulphur for the given quarter. The payments were
scheduled to terminate in 2015. In the third quarter of 2000,
this obligation was terminated. Freeport Sulphur paid $6.0
million to Devon Energy and placed $3.5 million in an escrow
account to fund certain environmental liabilities, associated
with Pennzoil's previous sulphur operations, which Freeport
Sulphur assumed. The restricted escrowed funds, which
approximate McMoRan's estimate of the assumed environmental
liabilities, is classified as a long-term asset and recorded in
"Other assets" in the balance sheet at December 31, 2000.
Litigation. Freeport Sulphur's sulphur supply agreement with IMC-
Agrico requires good faith renegotiation of the pricing
provisions if a party can establish that fundamental changes in
IMC-Agrico's operations or the sulphur and sulphur transportation
markets invalidate certain assumptions and result in the
performance by that party becoming "commercially impracticable"
or "grossly inequitable." In the fourth quarter of 1998, IMC-
Agrico attempted to invoke this contract provision in an effort
to renegotiate the pricing terms of the agreement. After careful
review of the agreement, IMC-Agrico's operations and the
referenced markets, Freeport Sulphur determined that there is no
basis for renegotiation of the pricing provisions of the
agreement. After discussions failed to resolve this dispute,
Freeport Sulphur filed suit against IMC-Agrico seeking a judicial
declaration that no basis exists under the agreement for a
renegotiation of its pricing terms. IMC-Agrico has alleged that
Freeport Sulphur's announced suspension of sulphur production at
Main Pass and Freeport Sulphur's proposed sale of its sulphur
transportation assets constitute a statement of intent to breach
Freeport Sulphur's obligations under the agreement. Freeport
Sulphur intends to pursue vigorously its rights under the
agreement.
IMC Agrico asserted that Freeport Sulphur cannot assign the
sulphur supply contract without IMC-Agrico's consent on the basis
that a sale of Freeport Sulphur's transportation and marketing
assets would not constitute a sale of substantially all of
Freeport Sulphur's assets, a condition IMC-Agrico asserts is
necessary for an assignment without its consent, since the Main
Pass facilities would not be included in the sale. In December
2000, IMC-Agrico filed a motion for summary judgment on this
issue. Freeport Sulphur believes that a sale of the
transportation and marketing assets would constitute
substantially all of Freeport Sulphur's assets because the
reclamation obligations associated with Main Pass result in these
facilities having a negative value and the discontinuation of
sulphur production at Main Pass did not breach the sulphur supply
agreement. Freeport Sulphur and its legal advisors believe all of
IMC-Agrico's claims are without merit.
Environmental. McMoRan has made, and will continue to make,
expenditures for the protection of the environment. McMoRan is
subject to contingencies as a result of environmental laws and
regulations. Present and future environmental laws and
regulations applicable to McMoRan's operations could require
substantial capital expenditures or could adversely affect its
operations in other ways that cannot be predicted at this time.
12. SUPPLEMENTARY OIL AND GAS INFORMATION
McMoRan's oil and gas exploration, development and production
activities are conducted in the offshore Gulf of Mexico and
onshore Gulf Coast areas of the United States. Supplementary
information presented below is prepared in accordance with
requirements prescribed by SFAS 69 " Disclosures about Oil and
Gas Producing Activities."
Oil and Gas Capitalized Costs.
Years Ended
December 31,
--------------------
2000 1999
-------- --------
(In Thousands)
Unevaluated properties, including
drilling in-progress $ 52,365 $ 9,702
Evaluated 134,532 127,344
-------- --------
Subtotal 186,897 137,046
Less accumulated depreciation,
depletion and amortization (70,785) (40,419)
-------- --------
Net oil and gas properties $116,112 $ 96,627
======== ========
Costs Incurred in Oil and Gas Property Acquisition, Exploration
and Development Activities.
Years Ended December 31,
--------------------------------
2000 1999 1998
-------- ------- -------
(In Thousands)
Acquisition of properties:
Proved $ - $34,172 $ 5,037
Unproved 45,838 2,388 103
Exploration costs 106,488 12,000 19,006
Development costs 12,910 10,764 27,554
-------- ------- -------
$165,236 $59,324 $51,700
======== ======= =======
Proved Oil and Gas Reserves (Unaudited). Proved oil and gas
reserves at December 31, 2000 have been estimated by independent
petroleum engineers in accordance with guidelines established by
the Securities and Exchange Commission (SEC), which require such
estimates to be based upon existing economic and operating
conditions. All estimates of oil and gas reserves are inherently
imprecise and subject to change as new technical information
about the properties is obtained. Additionally, SEC regulations
require the use of certain restrictive definitions based on a
concept of "reasonable certainty" in the determination of proved
oil and gas reserves and related cash flows. A substantial
portion of McMoRan's proved reserves as of December 31, 2000 are
represented by new discoveries. The estimates of proved reserves
using the SEC definitions results in limited proved reserves
assigned to new discoveries which have not been delineated by
drilling or placed on production. Consequently, management does
not consider these estimates to be reflective of the ultimate
recoverable volumes attributable to McMoRan's properties, and
cautions against the simplistic use of the reserve quantity and
"standardized measure" information shown below. Substantially
all of McMoRan's proved reserves, including the 3,668,000 barrels
of oil acquired at Main Pass on November 17, 1998, are located in
offshore in the Gulf of Mexico. Oil, including condensate and
plant products, is stated in thousands of barrels and natural gas
is in millions of cubic feet.
Oil Gas
------------------- ----------------------
2000 1999 1998 2000 1999 1998
----- ----- ----- ------ ------ ------
Proved reserves:
Beginning of year 5,245 3,996 463 62,575 58,461 40,234
Revisions of previous estimates 789 1,823 14 (3,782) (1,102) 4,111
Discoveries and extensions 1,388 746 68 35,468 589 18,788
Production (1,152)(1,354) (304) (8,291)(14,026) (8,634)
Sale of reserves (763) (5) - (29,128) (7,112) -
Purchase of reserves - 39 3,755 - 25,765 3,962
----- ----- ----- ------ ------ ------
End of year 5,507 5,245 3,996 56,842 62,575 58,461
===== ===== ===== ====== ====== ======
Proved developed reserves:
Beginning of year 4,499 3,984 383 61,630 39,428 23,086
===== ===== ===== ====== ====== ======
End of year 4,843 4,499 3,984 35,584 61,630 39,428
===== ===== ===== ====== ====== ======
Standardized Measure of Discounted Future Net Cash Flows From
Proved Oil and Gas Reserves (Unaudited).
McMoRan's standardized measure of discounted future net cash
flows and changes therein relating to proved oil and gas reserves
were computed using reserve valuations based on regulations
prescribed by the SEC. These regulations provide for the use of
year-end oil and gas prices in the projection of future net cash
flows.
December 31,
---------------------
2000 1999
--------- --------
(In Thousands)
Future cash inflows $ 725,346a $265,683a
Future costs applicable to future cash flows:
Production costs (107,298) (87,744)
Development and abandonment costs (80,199) (30,795)
--------- --------
Future net cash flows before income taxes 537,849 147,144
Future income taxes (57,553) -
--------- --------
Future net cash flows 480,296 147,144
Discount for estimated timing of
net cash flows (10% discount rate) (82,510) (33,981)
--------- --------
$ 397,786 $113,163
========= ========
a. Includes a reduction of future cash flows of approximately
$0.6 million and $2.1 million at December 31, 2000 and 1999,
respectively, resulting from the hedged positions of Main Pass'
oil, as discussed in Note 1, "Financial Instruments and
Contracts."
Changes in Standardized Measure of Discounted Future Net Cash
Flows From Proved Oil and Gas Reserves (Unaudited).
Years Ended December 31,
----------------------------
2000 1999 1998
-------- -------- --------
(In Thousands)
Beginning of year $113,163 $ 67,451 $ 45,623
Revisions:
Changes in prices 108,313 26,745 (9,128)
Accretion of discount 11,316 6,745 4,562
Other changes, including revised
estimates of development
costs and rates of production (827) (927) 1,029
Discoveries and extensions, less related costs 264,320 6,135 10,273
Development costs incurred during the year 9,056 14,590 24,007
Change in future income taxes (31,350) - -
Revenues, less production costs (33,837) (37,853) (16,994)
Sale of reserves in place (42,368) (5,260) -
Purchase of reserves in place - 35,537 8,079
-------- -------- --------
End of year $397,786 $113,163 $ 67,451
======== ======== ========
13. QUARTERLY FINANCIAL INFORMATION (UNAUDITED)
Net Income
(Loss) per Share
Operating Net ---------------
Revenues Income(Loss) Income(Loss) Basic Diluted
-------- ----------- ----------- ----- -------
(In Thousands, Except Per Share Amounts)
2000
1st Quarter $17,183 $(11,625) $ (17,004) $(1.36) $(1.36)
2nd Quarter 15,720 (12,204) (137,392)a (9.11) (9.11)
3rd Quarter 14,238 28,113 b 25,447 1.61 1.60
4th Quarter 11,505 (3,364)c (2,559) (0.16) (0.16)
------- -------- ---------
$58,646 $ 920 $(131,508) (8.88) (8.88)
======= ======== =========
1999
1st Quarter $11,076 $ (1,327) $ 1,314 $0.09 $ 0.09
2nd Quarter 13,850 (2,024) 839 0.06 0.06
3rd Quarter 13,779 (1,242) (1,271) (0.10) (0.10)
4th Quarter 15,639 574 (773) (0.06) (0.06)
------- -------- ---------
$54,344 $ (4,019) $ 109 0.01 0.01
======= ======== =========
a. Includes charges totaling $78.1 million as a result of
McMoRan's decision to discontinue its sulphur operations. Also
reflects a related $34.9 million income tax provision charge (see
Notes 3 and 8).
b. Includes a $43.2 million gain on the sale of McMoRan's
interests in Brazos Block A-19 ($40.1 million) and Vermilion
Block 408 ($3.1 million).
c. Include a $23.5 million gain from the settlement of
McMoRan's business interruption insurance claim for Brazos Block
A-19.
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
TO THE STOCKHOLDERS AND BOARD OF DIRECTORS OF McMoRan EXPLORATION CO.:
We have audited the accompanying balance sheets of McMoRan
Exploration Co. (a Delaware Corporation) as of December 31, 2000
and 1999 and the related statements of operations, cash flow and
changes in stockholders' equity for each of the three years in
the period ended December 31, 2000. These financial statements
are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with auditing
standards generally accepted in the United States. Those
standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are
free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in
the financial statements. An audit also includes assessing the
accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable
basis for our opinion.
In our opinion, the financial statements referred to above
present fairly, in all material respects, the financial position
of McMoRan Exploration Co. as of December 31, 2000 and 1999 and
the results of its operations and its cash flow for each of the
three years in the period ended December 31, 2000 in conformity
with accounting principles generally accepted in the United
States.
/s/Arthur Andersen LLP
New Orleans, Louisiana
January 19, 2001