SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the Quarter Ended March 31, 2001
Commission File Number: 001-07791
McMoRan Exploration Co.
Incorporated in Delaware 72-1424200
(IRS Employer
Identification No.)
1615 Poydras Street, New Orleans, Louisiana 70112
Registrant's telephone number, including area code:(504)582-4000
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. Yes X No _
On March 31, 2001, there were issued and outstanding 15,854,722
shares of the registrant's Common Stock, par value $0.01 per share.
McMoRan Exploration Co.
TABLE OF CONTENTS
Page
Part I. Financial Information
Financial Statements:
Condensed Balance Sheets 3
Statements of Operations 4
Statements of Cash Flows 5
Notes to Financial Statements 6
Remarks 8
Report of Independent Public Accountants 9
Management's Discussion and Analysis
of Financial Condition and Results of
Operations 10
Part II. Other Information 16
Signature 17
Exhibit Index E-1
2
McMoRan Exploration Co.
Part I. FINANCIAL INFORMATION
Item 1. Financial Statements.
McMoRan EXPLORATION CO.
CONDENSED BALANCE SHEETS (Unaudited)
March 31, December 31,
2001 2000
--------- ----------
(In Thousands)
ASSETS
Cash and cash equivalents $ 9,802 $ 48,906
Accounts receivable 39,469 37,537
Inventories 5,524 11,183
Prepaid expenses 1,654 354
--------- ---------
Total current assets 56,449 97,980
Property, plant and equipment, net 110,336 116,231
Sulphur business assets, net 70,728 72,977
Other assets, including restricted cash
of $3.5 million 12,612 12,136
--------- ---------
Total assets $ 250,125 $ 299,324
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Accounts payable $ 41,884 $ 39,249
Accrued liabilities 38,922 45,933
Borrowings outstanding on sulphur
credit facility 57,000 46,000
Current portion of accrued sulphur
reclamation costs 1,311 15,548
Current portion of accrued oil and gas
reclamation costs 599 -
Other 260 1,274
--------- ---------
Total current liabilities 139,976 148,004
Accrued sulphur reclamation costs 57,860 53,639
Accrued oil and gas reclamation costs 15,561 15,980
Other long-term liabilities 22,480 22,524
Stockholders' equity 14,248 59,177
--------- ---------
Total liabilities and stockholders' equity $ 250,125 $ 299,324
========= =========
The accompanying notes are an integral part of these financial
statements.
3
McMoRan EXPLORATION CO.
STATEMENTS OF OPERATIONS (Unaudited)
Three Months Ended
March 31,
-------------------
2001 2000
-------- --------
(In Thousands, Except
Per Share Amounts)
Revenues $ 43,476 $ 52,884
Costs and expenses:
Production and delivery costs 45,264 42,987
Depreciation and amortization 5,340 9,040
Exploration expenses 35,426 12,044
General and administrative expenses 4,925 4,633
-------- --------
Total costs and expenses 90,955 68,704
-------- --------
Operating loss (47,479) (15,820)
Interest expense (1,626) (1,210)
Other income, net 4,317 26
-------- --------
Net loss $(44,788) $(17,004)
========= ========
Basic and diluted net loss per share
of common stock $(2.83) $(1.36)
====== ======
Basic and diluted average common
shares outstanding 15,851 12,480
====== ======
The accompanying notes are an integral part of these financial
statements.
4
McMoRan EXPLORATION CO.
STATEMENTS OF CASH FLOWS (Unaudited)
Three Months Ended
March 31,
----------------------
2001 2000
--------- ---------
(In Thousands)
Cash flow from operating activities:
Net loss $ (44,788) $ (17,004)
Adjustments to reconcile net loss to net
cash provided by (used in) operating activities:
Depreciation and amortization 5,340 9,040
Exploration drilling and related expenditures 31,103 3,672
Noncash sulphur inventory writedown 5,396 1,687
Change in assets and liabilities:
Reclamation and mine shutdown expenditures (8,098) (1,095)
Other (331) 506
(Increase) decrease in working capital
Accounts receivable 4,422 (3,326)
Accounts payable and accrued liabilities (8,677) 12,342
Inventories and prepaid expenses (1,037) (4,418)
--------- ---------
Net cash provided by (used in) operating
activities (16,670) 1,404
--------- ---------
Cash flow from investing activities:
Exploration, development and other
capital expenditures (34,610) (2,134)
Purchase of oil and gas interests - (38,650)
Proceeds from disposition of assets 1,000 -
--------- ---------
Net cash used in investing activities (33,610) (40,784)
--------- ---------
Cash flow from financing activities:
Net borrowings on sulphur credit facility 11,000 31,202
Proceeds from long-term debt, net - 20,000
Purchase of McMoRan common stock - (11,054)
Other 176 (768)
--------- ---------
Net cash provided by financing activities 11,176 39,380
--------- ---------
Net decrease in cash and cash equivalents (39,104) -
Cash and cash equivalents at beginning of year 48,906 -
--------- ---------
Cash and cash equivalents at end of period $ 9,802 $ -
========= =========
The accompanying notes are an integral part of these financial
statements.
5
McMoRan EXPLORATION CO.
NOTES TO FINANCIAL STATEMENTS
1. DECISION TO EXIT SULPHUR OPERATIONS
In July 2000, McMoRan undertook a plan to exit its sulphur mining
operations and to sell its remaining sulphur transportation,
logistics and marketing assets. Main Pass sulphur 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 (see below).
On February 26, 2001, McMoRan announced it had entered into
a letter of intent with Savage Industries Inc. to form a joint
venture, which would own and operate McMoRan's recovered sulphur
business. The intended terms provide that McMoRan and Savage
would each own a 50 percent interest in the joint venture.
McMoRan would contribute the assets currently comprising its
sulphur transportation, marketing and terminaling business to the
new joint venture. The joint venture would operate these assets
and would continue to serve both producers and consumers of
sulphur. It is expected that the joint venture would enter into
new long-term service agreements with major U.S. oil refiners and
gas processors to provide off-take security and market access
for their sulphur by-product.
The terms of the letter of intent contemplate Savage
contributing cash to the joint venture and becoming its operator.
The joint venture would use the new contracts to be completed
with sulphur producers to secure financing. It is expected that
the joint venture would distribute at least $55 million in cash
to McMoRan at closing of the contemplated transaction. McMoRan
will use the proceeds from the transaction to repay borrowings
under its sulphur credit facility, which totaled $57 million at
March 31, 2001.
The transaction completion is subject to securing joint
venture financing arrangements, completion of definitive
agreements, board approvals and certain other approvals. Upon
formation of the joint venture McMoRan's transportation,
logistics and marketing assets would be contributed to the joint
venture and thus be eliminated from McMoRan's consolidated
balance sheet and McMoRan would account for its interest in the
joint venture using the equity method of accounting. The
reclamation obligations associated with McMoRan's nonoperating
sulphur mining facilities will not be included in the
contemplated joint venture transaction.
For additional information about the proposed joint venture
and the sulphur credit facility see Notes 3 and 9 of the "Notes
To Financial Statements" included in McMoRan's 2000 Annual Report
on Form 10-K. Also refer to "Decision to Exit Sulphur
Operations" and "Capital Resources and Liquidity" included in
Items 7 and 7a "Management's Discussion and Analysis of Financial
Condition and Results of Operations and Disclosures of Market
Risks" also included within McMoRan's 2000 Annual Report on Form
10-K.
2. EARNINGS PER SHARE
Basic and diluted net loss per share of common stock was
calculated by dividing net loss applicable to common stock by the
weighted-average number of common shares outstanding during the
periods presented. The diluted net loss per share calculation
excluded options representing 82,000 shares of common stock
during the first quarter of 2001 and 309,000 shares of common
stock in the first quarter of 2000 that otherwise would have been
included in the calculation of diluted loss per share but were
excluded as anti-dilutive considering the net loss incurred
during the periods presented.
Outstanding options to purchase 1,841,000 shares of common
stock, at an average exercise price of $18.62 per share during
the first quarter of 2001 and 461,000 shares of common stock, at
an average exercise price of $22.20 per share during the first
quarter of 2000 were not included in the computation of diluted
net loss per share. These options were excluded because their
exercise prices were greater than the average market price during
the periods presented.
3. FINANCIAL CONTRACTS
Effective January 1, 2001, McMoRan adopted Statement of Financial
Accounting Standards 133, "Accounting for Derivative Instruments
and Hedging Activities" (SFAS 133). SFAS 133, as amended,
establishes accounting and reporting standards requiring that
derivative instruments (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
instrument depends on the intended use of the derivative and the
resulting designation.
6
McMoRan's use of financial contracts to manage risks has
been limited. McMoRan's only current contracts involve forward
sales contracts for oil produced at Main Pass in view of the
required production costs at the field. During the first quarter
of 2001, McMoRan settled Main Pass-related oil forward sales
contracts covering 24,000 barrels of oil at a cost of $0.2
million, which reduced McMoRan's oil revenues. At March 31,
2001, McMoRan had remaining Main Pass oil forward sales contracts
for 72,000 barrels of oil, all of which will be settled by
December 31, 2001. The fair value of these oil forward sales
contracts totaled ($0.5) million at March 31, 2001 and they are
recorded in "Accrued liabilities" in the accompanying balance
sheet. McMoRan recorded a total of $35,000 during the first
quarter of 2001 as a reduction in its oil revenues as a result of
hedge ineffectiveness associated with its Main Pass oil forward
sales contracts, including a $27,000 cumulative effect adjustment
to record the ineffectiveness associated with these contracts
upon McMoRan's adoption of SFAS 133 on January 1, 2001. McMoRan
recorded unrealized losses to Accumulated Other Comprehensive
Loss totaling ($0.4) million at March 31, 2001.
McMoRan had no items of other comprehensive income in the
first quarter of 2000. McMoRan's first-quarter 2001 total
comprehensive loss follows (in thousands):
Net loss $(44,788)
Other comprehensive loss:
Cumulative effect loss of change in
accounting principle (492)
Change in unrealized derivatives' fair value (172)
Reclass to earnings 221
--------
Total comprehensive loss $(45,231)
========
4. RATIO OF EARNINGS TO FIXED CHARGES
McMoRan's ratio of earnings to fixed charges calculation resulted
in shortfalls of $3.5 million for the first quarter of 2001 and
$3.2 million for the first quarter of 2000. For this calculation,
earnings consist of income from continuing operations before
income taxes and fixed charges. Fixed charges include interest
and that portion of rent deemed representative of interest.
5. BUSINESS SEGMENTS
McMoRan has two operating segments: "oil and gas" and "sulphur."
McMoRan's oil and gas are produced offshore in the Gulf of
Mexico. The sulphur business segment includes purchasing,
transporting, terminaling, processing and marketing of recovered
sulphur, utilizing its extensive logistics network of sulphur
terminaling and transportation assets in the Gulf Coast region.
Additionally, Frasch sulphur was produced at the Main Pass mine
located 32 miles offshore Louisiana, until August 31, 2000. The
segment data presented below were prepared on the same basis as
the consolidated McMoRan financial statements.
Oil & Gas Sulphur Other Total
--------- --------- ------- ---------
(In Thousands)
First Quarter of 2001
Revenues $ 15,798 $ 27,678 $ - $ 43,476
Production and delivery 9,784 35,480 - 45,264
Depreciation and amortization 3,091 2,249 - 5,340
Exploration expenses 35,426 - - 35,426
General and administrative expenses 2,631 1,409 885 4,925
--------- --------- ------- ---------
Operating loss (35,134) (11,460) (885) (47,479)
Interest expense (268) (1,358) - (1,626)
Other income 336 3,951 30 4,317
--------- --------- ------- ---------
Net loss $ (35,066) $ (8,867) $ (855) $ (44,788)
========= ========= ======= =========
Capital expenditures $ 34,610 $ - $ - $ 34,610
========= ========= ======= =========
Total assets $ 148,308 $ 97,339 $ 4,478 $ 250,125
========= ========= ======= =========
7
Oil & Gas Sulphur Other Total
--------- --------- ------- ---------
(In Thousands)
First Quarter of 2000
Revenues $ 17,005 $ 35,879 $ - $ 52,884
Production and delivery 7,076 35,911 - 42,987
Depreciation and amortization 6,806 2,234 - 9,040
Exploration expenses 12,044 - - 12,044
General and administrative expenses 1,893 1,929 811 4,633
--------- --------- ------- ---------
Operating loss (10,814) (4,195) (811) (15,820)
Interest expense (534) (676) - (1,210)
Other income 16 10 - 26
--------- --------- ------- ---------
Net loss $ (11,332) $ (4,861) $ (811) $ (17,004)
========= ========= ======= =========
Capital expenditures $ 2,099 $ 35 $ - $ 2,134
========= ========= ======= =========
Total assets $ 150,140 $ 160,727 $36,592a $ 347,459
========= ========= ======= =========
(a) Represents assets held by the parent company, the most
significant of which include McMoRan's previously reported
deferred tax assets (which were charged to expense in the second
quarter of 2000) and certain prepaid pension benefits.
6. SUBSEQUENT EVENTS
In late April 2001 McMoRan amended its sulphur credit facility to
extend its maturity through the earlier of the completion of the
proposed joint venture transaction (Note 1) or August 31, 2001.
In connection with the extension of the facility, McMoRan has
agreed to certain fees and an increase of approximately 150 basis
points in the applicable borrowing rate. McMoRan also has agreed
that, if the sulphur facility is not repaid by August 31, 2001,
its oil and gas subsidiary will purchase at fair market value the
Main Pass oil interest held by Freeport Sulphur LLC (Freeport
Sulphur). The related purchase price would be determined based on
an independent engineer's estimate of cash flows from this
field's remaining oil reserves, with the proceeds used to reduce
amounts then outstanding under the sulphur credit facility. For
additional information regarding McMoRan's sulphur facility see
Note 9 "Halliburton Alliance and Long-Term Debt" included in its
2000 Annual Report on Form 10-K.
Also in late April 2001, Homestake Sulphur Company LLC agreed to
transfer its sulphur and oil interests in Main Pass Block 299 to
Freeport Sulphur. Under terms of the approved transaction, upon
consummation Freeport Sulphur will receive $2.5 million in cash and
Homestake's 16.7 percent interest in the Main Pass oil field and
sulphur mine for assuming Homestake's future Main Pass reclamation
obligations associated with the related facilities. There will be
no gain or loss recorded by McMoRan on this transaction.
-----------------
Remarks
The information furnished herein should be read in conjunction
with McMoRan's financial statements contained in its 2000 Annual
Report on Form 10-K. The information furnished herein reflects
all adjustments which are, in the opinion of management,
necessary for a fair statement of the results for the periods.
All such adjustments are, in the opinion of management, of a
normal recurring nature.
8
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Board of Directors and Stockholders of McMoRan Exploration
Co.:
We have reviewed the accompanying condensed balance sheet of
McMoRan Exploration Co. (a Delaware Corporation) as of March 31,
2001, and the related statements of operations and cash flow for
the three-month periods ended March 31, 2001 and 2000. These
financial statements are the responsibility of the Company's
management.
We conducted our reviews in accordance with standards established
by the American Institute of Certified Public Accountants. A
review of interim financial information consists principally of
applying analytical procedures to financial data and making
inquiries of persons responsible for financial and accounting
matters. It is substantially less in scope than an audit
conducted in accordance with auditing standards generally
accepted in the United States, the objective of which is the
expression of an opinion regarding the financial statements taken
as a whole. Accordingly, we do not express such an opinion.
Based on our reviews, we are not aware of any material
modifications that should be made to the financial statements
referred to above for them to be in conformity with accounting
principles generally accepted in the United States.
We have previously audited, in accordance with auditing standards
generally accepted in the United States, the balance sheet of
McMoRan Exploration Co. as of December 31, 2000, and the related
statements of operations, cash flows and stockholders' equity for
the year then ended (not presented herein), and, in our report
dated March 16, 2001, we expressed an unqualified opinion on
those financial statements. In our opinion, the information set
forth in the accompanying condensed balance sheet as of December
31, 2000, is fairly stated, in all material respects, in relation
to the balance sheet from which it has been derived.
/S/ ARTHUR ANDERSEN LLP
New Orleans, Louisiana
April 19, 2001 (except with
respect to Note 6 as to which
the date is April 30, 2001)
9
Item 2.Management's Discussion and Analysis of Financial Condit
ion and Results of Operations.
OVERVIEW
We engage in the exploration, development and production of
oil and gas offshore in the Gulf of Mexico and onshore in the
Gulf Coast region and in the purchasing, transporting,
terminaling, processing and marketing of recovered sulphur. We
became a publicly traded entity on November 17, 1998 when McMoRan
Oil & Gas Co. and Freeport-McMoRan Sulphur Inc. combined their
operations. As a result, McMoRan Oil & Gas LLC and Freeport-
McMoRan Sulphur LLC (Freeport Sulphur) became our wholly owned
subsidiaries.
OPERATIONAL ACTIVITIES
The following are significant recent operational activities:
Exploration Activities:
Eugene Island Block 97. Drilling of the Eugene Island Block
97 (Thunderbolt) No. 2 exploratory well commenced in February
2001. As previously announced, the well has encountered
approximately 110 feet of net gas pay through a vertical depth
of 14,880 feet. We have logged an additional 50 feet of net
pay at 15,300 feet bringing the total net pay encountered by
this well to approximately 160 feet. The well has reached its
planned total depth of approximately 15,900 feet and protective
casing has been set over a portion of the well. The close
proximity of the No. 2 well to the existing production
facilities will allow it to be put on production quickly. The
Thunderbolt No. 1 well was drilled and evaluated in the fourth
quarter of 2000. This discovery was developed rapidly, with
initial production commencing four months subsequent to its
discovery. The Thunderbolt No. 1 well is currently flowing at
a gross daily rate of approximately 15 million cubic feet of
gas equivalent (Mmcfe/d), 4 Mmcfe/d net to our interest. We
have an approximate 38.0 percent working interest and 27.4
percent net revenue interest in the Thunderbolt prospect, which
is located in 27 feet of water approximately 25 miles offshore
Louisiana. Additional wells are planned at both the
Thunderbolt prospect, and the Hornung prospect at Eugene Island
Block 108, which is south of and adjacent to Block 97.
Louisiana State Lease 340. In October 2000, we commenced
drilling the Louisiana SL 340 #1 well (Mound Point prospect)
under a turnkey drilling contract with a contract depth of
approximately 18,500 feet. The well encountered mechanical
difficulties prior to reaching contract depth and, after
considerable effort to complete drilling of the well, the
turnkey operator terminated the turnkey contract. We were not
responsible for any of the drilling costs for the No. 1 well
since its contract depth was not reached. In February 2001,
drilling commenced on the Mound Point No. 2 exploratory well
under a day-rate contract. The well is currently drilling below
14,500 feet and has a planned total depth of 18,500 feet. The
Mound Point prospect is situated on part of 62,000 acres
previously held by Texaco and is located in less than 10 feet
of water. Existing production facilities located in fields in
the area could accommodate production from this prospect. We
have rights to earn an approximate 30.4 percent working
interest and a 22.8 percent net revenue interest in the unit
for the No. 2 well.
Grand Isle Block 2 and West Delta Blocks 1/12/13. In September
2000, drilling commenced at the West Delta Block 12 No. 1 well
(Intruder-N. Prowler prospect). The well was drilled to a total
depth of approximately 18,800 feet. In mid-February 2001, after
flow testing and evaluating the results of multiple potentially
productive zones within the well, we concluded the well did not
contain commercial quantities of hydrocarbons. The well has
been temporarily abandoned and its permanent abandonment is
planned. Accordingly, we charged $12.1 million of exploratory
drilling and related costs associated with this well to
exploration expense during the first quarter of 2001.
Garden Banks Block 272. In November 2000, we commenced
drilling the Garden Banks Block 272 No. 1 exploratory well
(Crete prospect). In early March 2001, the well reached a
total depth of approximately 22,000 feet and subsequent
evaluations indicated that the well did not contain commercial
quantities of hydrocarbons. The well has been plugged and
abandoned. Accordingly, we recorded a $17.7 million charge to
exploration expense during the first quarter of 2001 for the
well's drilling and related costs. We control approximately
17,280 acres in the Crete area, and are evaluating the data
derived from drilling the No. 1 exploratory well to determine
if future activities on the prospect are warranted.
Lease Sale. We were the high bidder on three leases at the
Minerals Management Service's (MMS) Central Gulf of Mexico
Lease Sale 178-1 held in March 2001. The bids, totaling
$780,000, were for the leases encompassing Eugene Island Block
216, Vermilion Block 208 and South Marsh Island Block 183, all
of which are adjacent to blocks we currently control. Our bid
on Eugene Island Block 216 has
10
been accepted by the MMS and we anticipate the others will be
accepted in the near future. The bids on these lease blocks are
examples of our continued focus of adding to our existing lease
acreage by purchasing, farming-in or participating in leases adjacent
to our existing lease inventory, specifically, where we have identified
large geological structures which are known to contain productive
horizons.
Future Drilling Prospects. We expect to drill exploratory
wells on nine prospects during the remainder of 2001. During
the second quarter, we plan to commence drilling at Viosca
Knoll Block 863, (Marguarita), West Cameron Block 624 (Barite)
and Louisiana SL 340 (Lighthouse-Shallow), where we plan to
drill a 12,500 foot test well. We also expect to commence
drilling the Hornung prospect at Eugene Island Block 108 in the
third quarter of 2001, as noted above. This schedule is
subject to change because of many factors that are beyond our
control, including but not limited to unforeseen rig delays and
adverse weather conditions. Additional prospects may be
included in our near-term exploration plans as we continue to
evaluate our 667,000-acre lease position.
Development Activities:
Eugene Island Block 193. The development of the Eugene Island
Block 193 (North Tern Deep) No. 3 well, discovered in late
December 2000, is proceeding as planned. The production
structure and pipeline have been installed and a rig has been
scheduled for well completion work. Production from this well
will be flowed to the Eugene Island Block 193 "A" platform.
Initial production from the North Tern Deep No. 3 well is
anticipated in June 2001, with current expectations of an
initial gross flow rate approximating 60 Mmcfe/d of gas.
Halliburton Company has elected to participate in this prospect
under terms of our previously announced alliance. Accordingly,
Halliburton will pay us 20 percent of the McMoRan exploration
program's prospect acquisition, exploration and development
costs and will receive 20 percent of the McMoRan program's
interest until payout and 6 percent thereafter. In mid-April
2001 we received $2.9 million from Halliburton representing its
20 percent share of the McMoRan program's costs incurred
through Halliburton's election date. Pursuant to Halliburton's
election, our net revenue interest in the North Tern Deep
prospect currently totals approximately 33.4 percent until
payout, at which time it will increase to approximately 39.7
percent.
Vermilion Blocks 195/196/197, Ship Shoal Block 296 and Main Pass
Blocks 86/97. Installation of the production facilities at the
Vermilion Block 196 (Lombardi) No. 2 well and at the Ship Shoal
Block 296 (Raptor) No. 1 well have been completed. Development
is also progressing at the Main Pass Block 86 (Shiner) Nos. 1 and
2 wells. We currently anticipate initial production from these
prospects during the third quarter of 2001. We have a 47.5
percent working interest and a 34.2 percent net revenue interest
in the Lombardi prospect, which was discovered in August of 2000
and is located in 115 feet of water approximately 50 miles
offshore Louisiana. We hold a 61.8 percent working interest and
a 43.5 percent net revenue interest in the Raptor prospect, which
was discovered in June 2000 and is located in 260 feet of water
approximately 62 miles offshore Louisiana. We have a 71.3
percent working interest and a 51.3 percent net revenue interest
in the Shiner prospect, which was discovered in the fourth
quarter of 2000, and is located in 70 feet of water approximately
45 miles offshore Louisiana. When all three of these prospects
commence production, we anticipate that the initial gross flow
rates from these fields could approximate 90 Mmcfe/d, 44 Mmcfe/d
net to our interests
The production from these prospects coupled with current
production and the addition of the Thunderbolt and North Tern
Deep prospects, should increase our net daily production
initially to approximately 100 Mmcfe/d. The current expectations
for our average net daily production rates for the remainder of
2001 are approximately 30 Mmcfe/d in the second quarter, 75
Mmcfe/d during the third quarter and averaging approximately 100
Mmcfe/d during the fourth quarter of 2001. In addition, we
expect production from our Main Pass 299 field (see below) to
average approximately 2,500 barrels per day or 15 Mmcfe/d, net to
our interests, for the remainder of 2001.
Main Pass Block 299. The Main Pass field was shut-in during
February 2001 for certain platform and equipment maintenance.
Production from Main Pass was restored in early March 2001.
Gross daily production from the facility averaged 5,500 barrels
per day in April 2001 and is currently producing 4,400 barrels
per day. The field is expected to average a sustained gross
production rate of approximately 5,000 barrels per day, its
approximate producing rate prior to being shut-in, for the
remainder of 2001. We currently have an approximate 69.5 percent
net revenue interest at Main Pass, which is located in 210 feet
of water 32 miles offshore Louisiana. We have agreed to a transfer
of Homestake Sulphur Company LLC's interests in Main Pass (Note 6),
that upon consummation will increase our net revenue interest
to approximately 83.3 percent. The net revenue interest at Main
Pass is subject to a 25 percent overriding royalty interest that is
limited to an approximate 50 percent net profits interest.
11
Eugene Island Blocks 193/208/215. We acquired an interest in
this field from Texaco in early 2000. We subsequently re-
established production from the field during the second quarter
of 2000, which allowed us to maintain the lease and to drill the
North Tern Deep exploratory well discussed above. In the fourth
quarter of 2000, we performed an extensive review of the "B"
platform wells, including a cased-hole log run in the B-2 well,
which indicated four previously unproduced reservoirs between
11,500 and 12,000 feet. In the first quarter of 2000 we
completed certain remedial and recompletion work on the B-1 and
B-2 wells, and the well's gross production currently approximates
10 Mmcfe/d. We hold an approximate 53.4 percent working interest
and 42.9 percent net revenue interest in this prospect, which is
located in 90 feet of water, approximately 50 miles offshore
Louisiana.
RESULTS OF OPERATIONS
We have two operating segments: "oil and gas" and "sulphur."
The oil and gas segment includes all of our oil and gas
operations located in the Gulf of Mexico and Gulf Coast region,
including the oil operations at Main Pass. Our sulphur segment
includes purchasing, transporting, terminaling, processing and
marketing of recovered sulphur, utilizing our extensive logistics
network of sulphur terminaling and transportation assets in the
Gulf Coast region. We also produced Frasch sulphur at the Main
Pass mine until August 31, 2000. As a result of our anticipated
exploration expenditures and the requirements of the successful
efforts accounting method, we are likely to continue to report
operating losses in future periods. Selected summary comparative
data by segment for the first-quarter periods follow:
Three Months Ended
March 31,
-----------------------------
2001 2000
----------- -----------
(Dollars amounts in thousands,
except for realized prices)
FINANCIAL DATA:
Operating income (loss)
Oil and gas $ (35,134) $ (10,814)
Sulphur (11,460) (4,195)
Other (885) (811)
----------- -----------
Total $ (47,479) $ (15,820)
=========== ===========
OPERATING DATA:
Sales Volumes
Gas (thousand cubic feet,
or MCF) 1,655,600 3,513,400
Oil (barrels) a 176,700 321,400
Sulphur (long tons) 508,700 676,300
Average Realization
Gas (per MCF) $ 6.90 $ 2.62
Oil (per barrel)a 23.53 23.88
Sulphur (per long ton) 54.41 52.47
a. Includes sales of sour crude oil from the Main Pass oil
operations. The Main Pass barrels sold totaled approximately
143,400 barrels at an average realization of $22.31 in the first
quarter of 2001 and 264,100 barrels at an average realization of
$22.61 per barrel in the first quarter of 2000.
Oil and Gas Operations
A summary of increases (decreases) in our oil and gas revenues
between the periods follows (in thousands):
First
Quarter
---------
Oil and gas revenues - prior year period $ 17,005
Increase (decrease)
Sales volumes:
Oil (3,455)
Gas (4,867)
Price realizations:
Oil (62)
Gas 7,086
Other 91
---------
Oil and gas revenues - current year period $ 15,798
=========
12
Our first-quarter 2001 oil and gas revenues benefited from a
substantial increase, 164 percent, in average realizations for
gas when compared to prices realized on gas during the first
quarter of 2000. These increases were partially offset by
decreases in sales volumes of oil (45 percent) and gas (53
percent) over sales levels a year ago. The decrease in oil sales
volumes is primarily attributable to the Main Pass oil operations
being shut-in during February 2001 for platform and equipment
maintenance. This decrease in oil sales was partially offset by
oil production from Eugene Island Blocks 193/208/215, which
commenced production in the second quarter of 2000 and where
recent remedial work has been completed (see "Operational
Activities" above). The decrease in gas volumes is primarily
attributed to normal production declines and the depletion of
reserves at the Vermilion Block 159 CJ-1 well.
Production and delivery expense totaled $9.8 million in the
first quarter of 2001 compared to $7.1 million in the first
quarter of 2000. The increase is primarily attributed to the
approximate $1.1 million of costs associated with the Main Pass
oil platform and equipment maintenance performed in February 2001
and $2.8 million of lease workover costs at Eugene Island Blocks
193/208/215 (see "Operational Activities", above). The well
workover costs were partially offset by the lower production
volumes during the first quarter of 2001.
Depreciation and amortization expense totaled $3.1 million
in the first quarter of 2001 compared to $6.8 million for the
same period last year. The decrease reflects lower production
volumes and unit-of-production depreciation rates in the first
quarter of 2001 compared to the first quarter of 2000.
Our exploration expenses have increased substantially
because of our expanded exploration activities. Our exploration
expenses will fluctuate in future periods based on the number,
results and costs of our exploratory drilling projects and the
incurrence of geological and geophysical costs, including seismic
data. Summarized exploration expenses are as follows (in
millions):
Three Months Ended
March 31,
------------------
2001 2000
------ ------
Geological and geophysical,
including 3-D seismic purchases $ 4.0 $ 7.8
Dry hole costs, including lease
amortization costs 31.1a 3.7b
Other 0.3 0.5
------ ------
$ 35.4 $ 12.0
====== ======
a. Includes exploratory well drilling and related costs, primarily
associated with the West Delta Block 12 No. 1 and the Garden Banks
Block 272 No. 1 wells.
b. Represents the expensed exploratory well costs associated
with the State Lease 210 No. 6 (Grass Island Prospect).
Sulphur Operations
A summary of the increases (decreases) in our sulphur revenues
between the periods follows (in thousands):
First
Quarter
---------
Sulphur revenues - prior year period $ 35,879
Increase (decrease)
Sales volumes (8,794)
Price realization 987
Other (394)
---------
Sulphur revenues - current year period $ 27,678
=========
Our sulphur revenues decreased by 23 percent during the first
quarter of 2001 when compared with the first quarter of 2000.
This decrease reflects an approximate 25 percent decrease in
sales volumes between the comparable periods, reflecting
significantly reduced demand because of depressed conditions in
the historically cyclical phosphate fertilizer industry, the
principal consumer of sulphur. Several large phosphate
fertilizer producers announced and implemented production
curtailments in late 2000 and early 2001 and the industry is now
operating at approximately two-thirds capacity, a 10-year low.
These curtailments have contributed to the decrease in sulphur
prices that averaged $64.50 per ton in the fourth quarter of
2000. The sulphur price decreased by an average of $7.00 per
ton during
13
the first quarter of 2001 and an additional $15.00 per
ton for the second quarter of 2001, resulting in the current
average sulphur market price of $42.50 per ton in Tampa, Florida.
We sell a significant portion of the sulphur we produce to
IMC-Agrico Company, now known as IMC Phosphate Company (IMC), a
phosphate fertilizer producer, under a long-term supply contract.
Our sales to IMC totaled 58.6 percent of our total revenues and
92.0 percent of our total sulphur sales in the first quarter of
2001 compared to 43.8 percent of our total revenues and 65.2
percent of our total sulphur sales in the first quarter of 2000.
Sales to IMC are based on market prices and include a premium
with respect to approximately 40 percent of the sales. The
agreement requires IMC to purchase approximately 75 percent of
its annual sulphur consumption from us for as long as it has a
requirement for sulphur. We are currently litigating the validity
of certain terms of this contract. See Part II - Item 1 "Legal
Proceedings."
Sulphur production and delivery expense for the first
quarter of 2001 totaled $35.5 million compared to $35.9 million
for the first quarter of 2000. This decrease primarily reflects
the reduced volumes sold during the first quarter of 2001
primarily associated with major U.S. phosphate fertilizer
producers' curtailments of production, including IMC's indefinite
closure of all its Mississippi River region plants. Our first-
quarter 2001 production costs include a $5.4 million charge to
adjust our sulphur inventory to its net realizable value at March
31, 2001, which reflects the sulphur price decreases during the
first half of 2001. Production costs during the first quarter of
2000 included a $1.7 million charge to similarly reduce the
carrying value of our sulphur inventory to its net realizable
value at March 31, 2000.
Depreciation expense totaled $2.2 million during both the
first quarter of 2001 and 2000.
Other
General and administrative expense totaled $4.9 million for
the first quarter of 2001 compared with $4.6 million for the
first quarter of 2000. The increase during the comparable
periods primarily reflects our increasing oil and gas activities
that were partially offset by decreased sulphur costs in
accordance with our plan to discontinue our active participation
in the sulphur business.
Interest expense totaled $1.6 million during the first
quarter of 2001 compared to $1.2 million during the first quarter
of 2000. The increase primarily reflects our increased
borrowings outstanding on our sulphur credit facility, which
totaled $57.0 million at March 31, 2001. Interest expense for
our oil and gas operations during the first quarter of 2001
reflects only the amortization of commitment fees paid on our oil
and gas credit facility.
Other income totaled $4.3 million during the first quarter
of 2001, which primarily reflects the receipt of the remaining
$3.9 million of proceeds associated with the 1990 sale of a
sulphur distillation plant to Iraq.
CAPITAL RESOURCES AND LIQUIDITY
Operating activities used cash of $16.7 million during the
first quarter of 2001 compared to providing cash of $1.4 million
during the first quarter of 2000. The decrease is attributable
primarily to our decreased revenues, Main Pass sulphur mine
reclamation costs of $8.1 million and working capital changes.
Net cash used in investing activities totaled $33.6 million
in the first quarter of 2001 compared with $40.8 million in the
first quarter of 2000. Our exploration and development capital
expenditures totaled $34.6 million during the first quarter of
2001, which includes $31.1 million of expensed exploratory
drilling and related costs primarily associated with the West
Delta Block 12 No. 1 and Garden Banks Block 272 No. 1 exploratory
wells. Other capital expenditures include the costs included in
our remedial operations at West Cameron Block 616 and Eugene
Island Blocks 193/208/215, as well as some initial costs
associated with the development of our 2000 discoveries (see
"Operational Activities" above). We sold one lease during the
first quarter of 2001 for $1.0 million.
Our investing activities during the first quarter of 2000
include $37.8 million of costs associated with the Shell lease
acquisition in January 2000 (see Note 4 "Acquisitions and
Exploration Program" included in our 2000 Annual Report on Form
10-K). Our exploration and development capital expenditures
totaled $2.1 million during the first quarter of 2000, which
included expensed exploratory drilling costs related to the State
Tract 210 No. 6 exploratory well and various re-completion
efforts at our existing producing wells.
14
Financing activities provided cash of $11.2 million during
the first quarter of 2001 compared to $39.4 million during the
first quarter of 2000. The proceeds during the first quarter of
2001 include net borrowings of $11.0 million on the sulphur
credit facility. The amounts provided during the first quarter of
2000 reflect net borrowings totaling $51.2 million under our long-
term revolving bank facilities, partially offset by purchases
($11.1 million) of McMoRan's common stock under our open market
share purchase program and other financing costs. For more
information on our open market share purchase program, see Note 2
"Summary of Significant Accounting Policies" included in our 2000
Annual Report on Form 10-K.
At March 31, 2001, we had cash totaling $9.8 million and
access to the $50 million guaranteed bank facility (see Note
9 "Halliburton Alliance and Long-Term Debt" included in our 2000
Annual Report on Form 10-K). As previously discussed in
"Operational Activities" above, Halliburton has elected to
participate in the North Tern Deep prospect at Eugene Island
Block 193. In mid-April 2001, we received a $2.9 million
reimbursement of a portion of our previously incurred
acquisition, exploration and development costs associated with
the No. 3 well as of Halliburton's election date. In accordance
with the terms included in our $50 million guaranteed credit
facility agreement, the portion of the proceeds that represented
a reimbursement of previously incurred acquisition and
exploration costs ($2.3 million) reduced our availability under
the facility to approximately $47.7 million. Development cost
reimbursements do not reduce our borrowing availability under the
facility. At May 8, 2001 our borrowings outstanding under this
facility totaled $4.0 million. We anticipate that our cash flow
from operations, together with our cash and bank credit
availability, will be adequate to fund our near-term exploration
and development projects.
At March 31, 2001 borrowings outstanding on the sulphur
credit facility totaled $57.0 million and at May 8, 2001 totaled
$59.0 million. Our sulphur subsidiary, Freeport Sulphur, is the
borrower under this facility, which is secured by substantially
all of the assets of Freeport Sulphur, including its Main Pass
oil interests. McMoRan guarantees this facility and has pledged
its equity ownership in its oil and gas subsidiary to secure the
guarantee. In April 2001, we amended this facility to extend its
maturity from April 30 to August 31, 2001, to provide us with
time to proceed with the proposed sulphur joint venture (see
below). We plan to use the cash proceeds that would be generated
by this transaction to repay the outstanding balance and to
terminate the facility. The amendment also requires us to pay
certain fees and expenses. We have also agreed that should
Freeport Sulphur fail to repay the entire outstanding balance of
the facility at its maturity, it would sell its Main Pass oil
interests to our oil and gas operations at fair value (as
determined by an independent engineer's estimate of future cash
flows from the field's remaining reserves). The proceeds from
that sale would be applied to reduce the outstanding balance on
this facility. This provision is in addition to any other rights
of the lenders, including the right to enforce our guarantee, in
the event of a failure by Freeport Sulphur to repay the entire
debt at maturity.
We anticipate formation of the proposed sulphur joint
venture (see Note 1) by no later than the third quarter of 2001.
The proceeds generated from the transaction would be used to
repay borrowings outstanding under our sulphur credit facility.
Formation of the sulphur joint venture is subject to entering
into new long-term service agreements with major U.S. oil
refiners and natural gas processors and securing financing for
the capital structure of the joint venture, which are in the
process of being negotiated. Additionally, the formation of the
joint venture is subject to completion of definitive agreements,
board approvals and certain other approvals. While progress has
been achieved in addressing the issues involved in creating the
joint venture and securing the related financing, our ability to
complete these transactions depends on continuing progress and,
therefore, involves uncertainties as to its ultimate formation,
its structure and the timing of completion.
We have substantially completed the initial reclamation
phase at the Main Pass sulphur mine, including the plugging and
abandonment of the sulphur wells and removal of the living
quarters and warehouse facility. As a result our plans for
alternative future business use of the Main Pass facilities
(see below), we have revised our Main Pass reclamation plan to
defer the dismantlement and removal of the remaining structures.
In April 2001, we signed an agreement with Trinity Storage
and Schlumberger M-I to establish a business enterprise engaged
in commercial brine production and the disposal of non-hazardous
oilfield waste at Main Pass. Brine production has commenced at
Main Pass. We are awaiting regulatory approval for the use of
Main Pass in the disposal of non-hazardous oilfield waste, which
we anticipate to receive later in 2001. Proceeds generated under
this joint project are expected to fund a significant portion of
the remaining future Main Pass reclamation costs.
15
CAUTIONARY STATEMENT
Management's Discussion and Analysis of Financial Condition
and Results of Operations contain forward-looking statements.
All statements other than statements of historical fact included
in this report, including, without limitation, statements
regarding plans and objectives of our management for future
operations and our exploration and development activities are
forward-looking statements.
Important factors that could cause actual oil and gas
operations results to differ materially from our expectations
include, without limitation, variations in the market prices of
oil and natural gas, drilling results, the availability of
financing, unanticipated fluctuations in flow rates of producing
wells, oil and natural gas reserve expectations; the ability to
satisfy future cash obligations and environmental costs;
depletion rates, economic and business conditions, general
development risks and hazards and risks inherent with the
production of oil and gas, such as fires, natural disasters,
blowouts and the encountering of formations with abnormal
pressures, changes in laws or regulations and other factors, many
of which are beyond our control. Important factors that could
affect the future results of our sulphur operations include
without limitation reserve expectations, demand for sulphur, the
availability of financing, the ability to satisfy future cash
obligations and environmental costs, the reliance on IMC as a
customer, the seasonality and volatility of sulphur markets,
increased competition in the transporting and terminaling of
sulphur, and environmental issues. Further information regarding
these and other factors that may cause our future performance to
differ from that projected in the forward-looking statements are
described in more detail under "Cautionary Statements" in our
2000 Annual Report on Form 10-K.
-------------------------
The results of operations reported and summarized above are not
necessarily indicative of future operating results.
PART II--OTHER INFORMATION
Item 1. Legal Proceedings.
Freeport-McMoRan Sulphur LLC v. IMC-Agrico Company, Civ. Act. No.
462,776 (19th Jud. Dist. Ct. for Parish of East Baton Rouge, La.;
filed July 22, 1999). The sulphur supply agreement between our
subsidiary, Freeport-McMoRan Sulphur LLC (FSC) and IMC-Agrico,
now known as IMC Phosphate Company (IMC), requires good faith
renegotiation of the pricing provisions if a party can prove that
fundamental changes in IMC'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 attempted to invoke this contract provision in an
effort to renegotiate the pricing terms of the agreement. After
careful review of the agreement, IMC's operations and the
referenced markets, we determined that there is no basis for
renegotiation of the pricing provisions of the agreement. After
discussions failed to resolve this dispute, FSC filed suit
against IMC seeking a judicial declaration that no basis exists
under the agreement for a renegotiation of its pricing terms.
On July 25, 2000, IMC filed a supplemental demand alleging
that FSC's suspension of sulphur production at Main Pass and the
proposed sale of FSC's sulphur transportation assets constitute a
statement of intent to breach the sulphur supply agreement. IMC
further alleges that FSC cannot assign the sulphur supply
agreement without IMC's consent. On December 22, 2000, IMC filed
a motion for partial summary judgment with respect to its claim
that FSC cannot assign the sulphur supply agreement without IMC's
consent. The sulphur supply agreement permits assignments under
many circumstances without IMC's consent, including the sale of
all or substantially all of FSC's assets; the agreement also
permits any assignment with IMC's consent. IMC contends that the
sale of FSC's sulphur transportation, logistics and marketing
assets without Main Pass will not be substantially all of FSC's
assets; thus, IMC's consent would be needed to assign the sulphur
supply agreement. On February 1, 2001, FSC filed a response to
IMC's supplemental demand and motion for partial summary judgment
on these issues. In March 2001, the court ruled that the ceasing
of production from Main Pass was not a breach of the sulphur
supply agreement but refused to grant either of the two parties
summary judgment motions relating to the assignment of the
sulphur supply agreement.
On April 10, 2001, IMC requested renegotiation of the terms of
the sulphur supply agreement because of cessation of production
from Main Pass and the proposed joint venture with Savage
Industries Inc. On April 11, 2001, FSC responded to IMC's
request stating that matters raised in IMC's April 10 letter did
not rise to the level required to cause renegotiation of the
terms of the sulphur supply agreement.
16
Daniel W. Krasner v. James R. Moffett; Rene L. Latiolais; J.
Terrell Brown; Thomas D. Clark, Jr.; B.M. Rankin, Jr.; Richard C.
Adkerson; Robert M. Wohleber; Freeport-McMoRan Sulphur Inc. and
McMoRan Oil & Gas Co., Civ. Act. No. 16729-NC (Del. Ch. filed
Oct. 22, 1998). Gregory J. Sheffield and Moise Katz v. Richard
C. Adkerson, J. Terrell Brown, Thomas D. Clark, Jr., Rene L.
Latiolais, James R. Moffett, B.M. Rankin, Jr., Robert M. Wohleber
and McMoRan Exploration Co., (Court of Chancery of the State of
Delaware, filed December 15, 1998.) These two lawsuits were
consolidated on January 13, 1999. The complaint alleges that
Freeport-McMoRan Sulphur Inc.'s directors breached their
fiduciary duty to Freeport-McMoRan Sulphur Inc.'s stockholders in
connection with the combination of Freeport Sulphur and McMoRan
Oil & Gas. The plaintiffs contend that the transaction was
structured to give preference to McMoRan Oil & Gas stockholders
and failed to recognize the true value of Freeport Sulphur. The
plaintiffs claim that the directors failed to take actions that
were necessary to obtain the true value of Freeport Sulphur such
as auctioning the company to the highest bidder or evaluating
Freeport Sulphur's worth as an acquisition candidate. The
plaintiffs also claim that McMoRan Oil & Gas Co. knowingly aided
and abetted the breaches of fiduciary duty committed by the other
defendants. In January 2001, the court granted the motions to
dismiss for the defendants with 30 days leave for the plaintiffs
to amend. In February 2001, the plaintiffs filed an amended
complaint and the defendants have filed a motion to dismiss. We
believe this suit is without merit and will continue to defend
this action vigorously.
Item 4. Submission of Matters to a Vote of Security Holders.
(a) Our Annual Meeting of Stockholders was held May 3, 2001
(the Annual Meeting). Proxies were solicited pursuant to
Regulation 14A under the Securities Exchange Act of 1934, as
amended.
(b) At the Annual Meeting Richard C. Adkerson, James R.
Moffett and B. M. Rankin, Jr. were elected to serve until the
2004 Annual Meeting of Stockholders. In addition to the
directors elected at the Annual Meeting, the terms of the
following directors continued after the Annual Meeting: Morrison
C. Bethea, Robert A. Day, Gerald J. Ford, H. Devon Graham, Jr.,
Gabrielle K. McDonald and J. Taylor Wharton.
(c) At the Annual Meeting, holders of McMoRan common stock
elected the following directors with the number of votes cast for
or withheld from each nominee as follows:
Name For Withheld
- ------- ------- --------
Richard C. Adkerson 14,181,497 790,116
James R. Moffett 14,165,233 806,380
B. M. Rankin, Jr. 14,178,832 792,781
With respect to the election of the directors, there were no abstentions.
At the Annual Meeting, the stockholders also voted on and
approved a proposal to ratify the appointment of Arthur Andersen
LLP to act as the independent auditors to audit our and our
subsidiaries' financial statements for the year 2001. Holders of
14,555,992 shares voted for, holders of 61,000 shares voted
against and holders of 354,621 shares abstained from voting on,
such proposal.
At the Annual Meeting, the stockholders voted on and
approved a proposal to adopt McMoRan's 2001 Stock Incentive Plan
in the form presented in McMoRan's proxy statement dated March
28, 2001. Holders of 9,062,999 shares voted for, holders of
2,192,736 shares voted against and holders of 76,294 shares
abstained from voting on such proposal. There were broker non-
votes consisting of 3,639,584 shares with respect to the
proposal.
Item 6. Exhibits and Reports on Form 8-K.
(a) The exhibits to this report are listed in the Exhibit Index
appearing on page E-1 hereof.
(b) During the period covered by this Quarterly Report on Form
10-Q the registrant filed the following Current Reports on Form 8-K :
. Reports disclosing events under item 5 dated January 2,
2001, February 26, 2001, March 7, 2001 and April 9, 2001.
. A report disclosing events under items 5 and 7 dated
February 8, 2001.
17
McMoRan Exploration Co.
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of
1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned thereunto duly authorized.
McMoRan Exploration Co.
By: /s/ C. Donald Whitmire, Jr.
-----------------------------
C. Donald Whitmire, Jr.
Vice President and Controller-
Financial Reporting
(authorized signatory and
Principal Accounting Officer)
Date: May 8, 2001
18
McMoRan Exploration Co.
Exhibit Index
Exhibit Number
2.1 Agreement and Plan of Mergers dated as
of August 1, 1998. (Incorporated by reference to Annex
A to McMoRan's Registration Statement on Form S-4
(Registration No. 333-61171) filed with the SEC on
October 6, 1998 (the McMoRan S-4)).
3.1 Amended and Restated Certificate of
Incorporation of McMoRan. (Incorporated by reference
to Exhibit 3.1 to McMoRan's 1998 Annual Report on Form
10-K (the McMoRan 1998 Form 10-K).
3.2 By-laws of McMoRan as amended
effective February 1, 1999. (Incorporated by reference
to Exhibit 3.2 to the McMoRan 1998 Form 10-K).
4.1 Form of Certificate of McMoRan Common
Stock (Incorporated by reference to Exhibit 4.1 of the
McMoRan S-4).
4.2 Rights Agreement dated as of November
13, 1998. (Incorporated by reference to Exhibit 4.2 to
McMoRan 1998 Form 10-K).
4.3 Amendment to Rights Agreement dated
December 28, 1998. (Incorporated by reference to
Exhibit 4.3 to McMoRan 1998 Form 10-K).
4.4 Standstill Agreement dated August 5,1999 between McMoRan and
Alpine Capital, L.P., Robert W. Bruce III, Algenpar, Inc,
J.Taylor Crandall, Susan C. Bruce, Keystone, Inc., Robert M.
Bass, the Anne T. and Robert M. Bass Foundation, Anne T. Bass and
The Robert Bruce Management Company, Inc. Defined Benefit Pension
Trust. (Incorporated by reference to Exhibit 4.4 to McMoRan's
Third Quarter 1999 Form 10-Q).
10.1 Main Pass 299 Sulphur and Salt Lease,
effective May 1, 1988. (Incorporated by reference to
Exhibit 10.3 to Freeport Sulphur's Registration
Statement on Form S-1 (Registration No. 333-40375)
filed with the SEC on November 17, 1997 (the Freeport
Sulphur S-1).
10.2 Joint Operating Agreement by and between Freeport-
McMoRan Resource Partners, IMC-Fertilizer, Inc. and
Felmont Oil Corporation, dated as of May 1, 1988.
(Incorporated by reference to Exhibit 10.5 to the
Freeport Sulphur S-1).
10.3 Agreement to Coordinate Operating Agreements by and
between Freeport-McMoRan Resource Partners,
IMC-Fertilizer and Felmont Oil Corporation, dated as
of May 1, 1988. (Incorporated by reference to Exhibit
10.6 to the Freeport Sulphur S-1).
10.4 Joint Operating Agreement by and
between Freeport-McMoRan Resource Partners,
IMC-Fertilizer, Inc. and Felmont Oil Corporation, dated
as of June 5, 1990. (Incorporated by reference to
Exhibit 10.4 to the Freeport Sulphur S-1)
10.5 Amendment No. 1 to Joint Operating
Agreement dated July 1, 1993 between Freeport McMoRan
Resource Partners, IMC Fertilizer, Inc. and Homestake
Sulphur Company. (Incorporated by reference to Exhibit
10.14 to McMoRan's 1999 Annual Report on Form 10-K (the
McMoRan 1999 Form 10-K)).
10.6 Amendment No. 2 to Joint Operating
Agreement dated November 30, 1993 between Freeport
McMoRan Resource Partners, IMC Fertilizer, Inc. and
Homestake Sulphur Company. (Incorporated by reference
to Exhibit 10.15 in the McMoRan 1999 Form 10-K).
10.7 Processing and Marketing Agreement
between the Freeport Sulphur (a division of Freeport-
McMoRan Resource Partners) and Felmont Oil Corporation
dated as of June 19, 1990 (Processing Agreement).
(Incorporated by reference to Exhibit 10.11 to the
Freeport Sulphur S-1).
E-1
10.8 Amendment Number 1 to the Processing
Agreement. (Incorporated by reference to Exhibit 10.12
to the Freeport Sulphur S-1).
10.9 Amendment Number 2 to the Processing
Agreement. (Incorporated by reference to Exhibit 10.13
to the Freeport Sulphur S-1).
10.10 Agreement for Sulphur Supply, as
amended, dated as of July 1, 1993 among Freeport-
McMoRan Resource Partners, IMC Fertilizer and
IMC-Agrico Company (Sulphur Supply Agreement).
(Incorporated by reference to Exhibit 10.9 to the
Freeport Sulphur S-1).
10.11 Side letter with IGL regarding the
Sulphur Supply Agreement. (Incorporated by reference to
Exhibit 10.10 to the Freeport Sulphur S-1).
10.12 Services Agreement dated as of
November 17, 1998 between McMoRan and FM Services
Company. (Incorporated by reference to Exhibit 10.11 to
McMoRan 1998 Form 10-K).
10.13 Participation Agreement between
McMoRan Oil & Gas and Gerald J. Ford dated as of
December 15, 1997 (Incorporated by reference to Exhibit
10.6 to the McMoRan Oil & Gas Co. (MOXY) 1997 10-K).
10.14 Offshore Exploration Agreement dated
December 20, 1999 between Texaco Exploration and
Production Inc. and McMoRan Oil & Gas. (Incorporated by
reference to Exhibit 10.34 in the McMoRan 1999 Form 10-K).
10.15 Participation Agreement dated as of June 15, 2000 but
effective as of March 24, 2000 between McMoRan Oil &
Gas and Halliburton Energy Services, Inc.
(Incorporated by reference to Exhibit 10.34 to
McMoRan's Second-Quarter 2000 Form 10-Q).
10.16 Letter Agreement dated August 22, 2000
between Devon Energy Corporation and Freeport Sulphur.
(Incorporated by reference to Exhibit 10.36 to
McMoRan's Third-Quarter 2000 Form 10-Q).
10.17 Exploration Agreement dated November
14, 2000 between McMoRan Oil & Gas LLC and Samedan Oil
Corporation. (Incorporated by reference to Exhibit
10.17 to McMoRan's 2000 Form 10-K).
10.18 Amended and Restated Credit Agreement
dated November 17, 1998 among Freeport Sulphur, as
borrower, McMoRan, as Guarantor and, the financial
institutions party thereto. (Incorporated by reference
to Exhibit 10.29 to McMoRan 1998 Form 10-K).
10.19 Amendment to the amended and restated
credit facility as of November 17, 1998, dated August
11, 2000 among Freeport Sulphur, as borrower, McMoRan,
as Guarantor and, the financial institutions party
thereto. (Incorporated by reference to Exhibit 10.26
to McMoRan's Third Quarter 2000 Form 10-Q).
10.20 Amendment, dated as of April 16, 2001,
to the Credit Agreement dated as of December 12, 1997,
as amended and restated as of November 17, 1998, as
amended as of January 20, 1999 and as of August 11,
2000, among Freeport Sulphur, as borrower, McMoRan as
Guarantor and, the financial institutions party
thereto.
10.21 Amended and Restated Credit Agreement
dated June 15, 2000 among McMoRan Oil and Gas, as
borrower, Chase Bank of Texas, National Association, as
agent and the Lenders Signatory thereto. (Incorporated
by reference to Exhibit 10.31 to McMoRan's Second-
Quarter 2000 Form 10-Q).
E-2
10.22 Asset Sale Agreement for Main Pass
Block 299 between Freeport-McMoRan Resource Partners,
Limited Partnership (Freeport-McMoRan Resource
Partners) and Chevron USA, Inc. dated as of May 2,
1990. (Incorporated by reference to Exhibit 10.2 to the
Freeport Sulphur S-1).
10.23 Asset Purchase Agreement between
Freeport-McMoRan Resource Partners and Pennzoil Company
dated as of October 22, 1994 (Asset Purchase
Agreement). (Incorporated by reference to Exhibit 10.7
to the Freeport Sulphur S-1).
10.24 Amendment No. 1 to the Asset Purchase
Agreement dated as of January 3, 1995. (Incorporated by
reference to Exhibit 10.8 to the Freeport Sulphur S-1).
10.25 Agreement for Purchase and Sale dated
as of August 1, 1997 between FM Properties Operating
Co. and McMoRan Oil & Gas (Incorporated by reference to
Exhibit 10.1 to the Current Report on Form 8-K filed by
McMoRan Oil & Gas dated as of September 2, 1997).
10.26 Asset Purchase Agreement dated
effective December 1, 1999 between SOI Finance Inc.,
Shell Offshore Inc. and McMoRan Oil & Gas.
(Incorporated by reference to Exhibit 10.33 in the
McMoRan 1999 Form 10-K).
10.27 Employee Benefits Agreement by and
between Freeport-McMoRan Inc. and Freeport Sulphur.
(Incorporated by reference to Exhibit 10.1 to Freeport
Sulphur's Annual Report on Form 10-K for the fiscal
year ended December 31, 1997 (Freeport Sulphur 1997 10-K)).
Executive and Director Compensation Plans and
Arrangements (Exhibits 28 through 36)
10.28 McMoRan Adjusted Stock Award Plan.
(Incorporated by reference to Exhibit 10.1 of the
McMoRan S-4).
10.29 McMoRan 1998 Stock Option Plan.
(Incorporated by reference to Annex D to the McMoRan S-4).
10.30 McMoRan 2000 Stock Incentive Plan.
(Incorporated by reference to Exhibit 10.5 to McMoRan's
Second-Quarter 2000 Form 10-Q).
10.31 Stock Bonus Plan (Incorporated by
reference from McMoRan's Registration Statement on Form
S-8 (Registration No. 333-67963) filed with the SEC on
November 25, 1998.
10.32 McMoRan 1998 Stock Option Plan for Non-
Employee Directors. (Incorporated by reference to
Exhibit 10.2 of the McMoRan S-4).
10.33 McMoRan's Performance Incentive Awards
Program as amended effective February 1, 1999.
(Incorporated by reference to Exhibit 10.18 to
McMoRan's 1998 Form 10-K).
10.34 McMoRan Financial Counseling and Tax Return Preparation
and Certification Program, effective September 30, 1998.
(Incorporated by reference to Exhibit 10.13 to McMoRan's 1998
Form 10-K).
10.35 McMoRan 2001 Stock Bonus Plan.
10.36 Agreement for Consulting Services between Freeport-
McMoRan and B. M. Rankin, Jr. effective as of January
1, 1991)(assigned to FM Services as of January 1,
1996); as amended on December 15, 1997 and on December
7, 1998. (Incorporated by reference to Exhibit 10.32
to McMoRan 1998 Form 10-K).
10.37 Supplemental Agreement between FM Services and B.M.
Rankin, Jr. dated February 5, 2001. (Incorporated by
reference to Exhibit 10.36b to McMoRan's 2000 Form 10-K).
E-3
15.1 Letter dated April 19, 2001 from
Arthur Andersen LLP regarding the unaudited financial
statements.
E-4