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 September 30, 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 September 30, 2001, there were issued and outstanding
15,877,835 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 10
Report of Independent Public Accountants 10
Management's Discussion and Analysis
of Financial Condition and Results of
Operations 12
Part II. Other Information 21
Signature 22
Exhibit Index E-1
2
McMoRan EXPLORATION CO.
Part I. FINANCIAL INFORMATION
Item 1. Financial Statements.
McMoRan EXPLORATION CO.
CONDENSED BALANCE SHEETS (Unaudited)
September 30, December 31,
2001 2000
----------- ------------
(In Thousands)
ASSETS
Cash and cash equivalents $ - $ 48,906
Accounts receivable 18,899 37,537
Inventories 1,949 11,183
Prepaid expenses 1,310 354
----------- ------------
Total current assets 22,158 97,980
Property, plant and equipment, net 139,648 116,231
Sulphur business assets, net 69,152 72,977
Other assets, including restricted cash of $3.5 million 12,076 12,136
----------- ------------
Total assets $ 243,034 299,324
=========== ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Accounts payable $ 27,011 $ 39,249
Accrued liabilities 28,780 45,933
Borrowings outstanding on sulphur credit facility 58,000 46,000
Current portion of accrued sulphur reclamation costs 232 15,548
Current portion of accrued oil and gas reclamation costs 1,395 -
Other 884 1,274
----------- ------------
Total current liabilities 116,302 148,004
Accrued sulphur reclamation costs 63,689 53,639
Accrued oil and gas reclamation costs 17,692 15,980
Long-term debt 35,000 -
Other long-term liabilities 22,660 22,524
Stockholders' equity (12,309) 59,177
----------- ------------
Total liabilities and stockholders' equity $ 243,034 $ 299,324
=========== ============
The accompanying notes are an integral part of these financial
statements.
3
McMoRan EXPLORATION CO.
STATEMENTS OF OPERATIONS (Unaudited)
Three Months Ended Nine Months Ended
September 30, September 30,
---------------------- ------------------------
2001 2000 2001 2000
--------- --------- ---------- -----------
(In Thousands, Except Per Share Amounts)
Revenues $ 37,209 $ 48,258 $ 112,207 $ 153,611
Costs and expenses:
Production and delivery costs 21,321 38,869 92,729 138,983
Depreciation and amortization 10,993 3,516 21,148 92,276
Exploration expenses 6,707 17,200 54,606 43,346
General and administrative expenses 5,242 5,225 15,903 16,424
Gain on sale of oil and gas
properties - (43,202) - (43,202)
--------- --------- ---------- ----------
Total costs and expenses 44,263 21,608 184,386 247,827
--------- --------- ---------- ----------
Operating income (loss) (7,054) 26,650 (72,179) (94,216)
Interest expense, net (1,345) (1,609) (4,431) (3,985)
Other income, net 41 406 4,447 4,194
--------- --------- ---------- ----------
Income (loss) from operations
before provision for income taxes (8,358) 25,447 72,163) (94,007)
Provision for income taxes (8) - (8) (34,942)
--------- --------- ---------- ----------
Net income (loss) $ (8,366) $ 25,447 $ (72,171) $ (128,949)
========= ========= ========== ==========
Net income (loss) per share of
common stock
Basic $(0.53) $1.61 $(4.55) $(8.92)
====== ===== ====== ======
Diluted $(0.53) $1.60 $(4.55) $(8.92)
====== ===== ====== ======
Average common shares outstanding:
Basic 15,872 15,828 15,862 14,462
====== ====== ====== ======
Diluted 15,872 15,858 15,862 14,462
====== ====== ====== ======
The accompanying notes are an integral part of these financial
statements.
4
McMoRan EXPLORATION CO.
STATEMENTS OF CASH FLOWS (Unaudited)
Nine Months Ended
September 30,
--------------------------
2001 2000
----------- -----------
(In Thousands)
Cash flow from operating activities:
Net loss $ (72,171) $ (128,949)
Adjustments to reconcile net loss to net
cash provided by (used in) operating activities:
Depreciation and amortization 21,148 92,276
Exploration drilling and related expenditures 40,464 23,688
Noncash sulphur inventory write-down 9,974 7,790
Gain on the sale of sulphur assets (553) (2,218)
Gain on sale of oil and gas properties - (43,202)
Change in deferred tax asset - 34,942
Employee-related charges to exit sulphur operations - 7,500
Change in assets and liabilities:
Reclamation and mine shutdown expenditures (12,355) (5,162)
Other 532 (8,198)
(Increase) decrease in working capital:
Accounts receivable 19,765 (4,240)
Accounts payable and accrued liabilities (13,887) (2,535)
Inventories and prepaid expenses (1,527) (2,037)
----------- -----------
Net cash used in operating activities (8,610) (30,345)
----------- -----------
Cash flow from investing activities:
Exploration, development and other capital expenditures (92,300) (31,262)
Proceeds from assuming Homestake's 16.7 percent
interest in Main Pass 2,500 -
Purchase of oil and gas interests - (39,793)
Proceeds from disposition of assets 2,034 75,380
----------- -----------
Net cash (used in) provided by investing activities (87,766) 4,325
----------- -----------
Cash flow from financing activities:
Net proceeds from equity offering - 50,274
Net borrowings on sulphur credit facility 12,000 31,000
Proceeds from long-term debt, net 35,000 -
Purchases of McMoRan common stock - (15,282)
Other 470 (2,105)
----------- -----------
Net cash provided by financing activities 47,470 63,887
----------- -----------
Net (decrease) increase in cash and cash equivalents (48,906) 37,867
Cash and cash equivalents at beginning of year 48,906 -
----------- -----------
Cash and cash equivalents at end of period $ - $ 37,867
=========== ===========
The accompanying notes are an integral part of these financial
statements.
5
McMoRan EXPLORATION CO.
NOTES TO FINANCIAL STATEMENTS
1. SULPHUR SEGMENT DEVELOPMENTS
PROPOSED JOINT VENTURE
In July 2000, McMoRan Exploration Co. (McMoRan) undertook a plan
to exit its sulphur mining operations and to sell its remaining
sulphur transportation, logistics and marketing assets comprising
its recovered sulphur business operations. Sulphur mining
operations ceased at Main Pass Block 299 (Main Pass) on August
31, 2000.
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 the assets comprising the
sulphur transportation and terminaling business of Freeport-
McMoRan Sulphur LLC (Freeport Sulphur), a wholly owned subsidiary
of McMoRan. The letter of intent provides that Savage would own
a 50 percent interest in the joint venture and become its manager
and operator. McMoRan would contribute its sulphur
transportation, logistics and marketing assets to the new joint
venture. The joint venture would operate these assets and would
continue to serve both producers and consumers of sulphur.
McMoRan and Savage are finalizing negotiations of long-term
service agreements representing over 50 percent of the initial
joint venture sulphur handling activities with major U.S. oil
refiners and gas processors to provide off-take security and
market access for their sulphur by-product. Negotiations of
agreements for the remainder of the sulphur handling activities
are expected to be finalized thereafter.
The terms of the letter of intent contemplate Savage
contributing cash to the joint venture. 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 $58 million at September 30, 2001. The
sulphur credit facility was recently amended to extend its
maturity from October 31, 2001 until the earlier of the
completion of the proposed joint venture or January 31, 2002.
The contemplated joint venture transaction 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 would
account for its interest in the joint venture using the equity
method of accounting. The reclamation obligations associated
with McMoRan's former sulphur mining facilities (see below) are
not included in the contemplated joint venture transaction.
For additional information about the proposed joint venture
and the sulphur credit facility see Note 7 below, Notes 3 and 9 of
the "Notes To Financial Statements" included in McMoRan's 2000 Annual
Report on Form 10-K, as well as "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 About Market Risks" also
included within McMoRan's 2000 Annual Report on Form 10-K.
MAIN PASS
In June 2001, Homestake Sulphur Company LLC transferred its
sulphur and oil interests in Main Pass to Freeport Sulphur.
Freeport Sulphur received $2.5 million in cash and Homestake's
16.7 percent interest in the Main Pass oil assets and sulphur
mine in return for assuming Homestake's future Main Pass
reclamation obligations associated with the related facilities,
currently estimated to total $7.1 million. The transaction was
treated as a purchase, and 100 percent of Main Pass oil's
operating results subsequent to June 1, 2001, are included in
McMoRan's consolidated financial statements. McMoRan recorded no
gain or loss on the transaction.
Freeport Sulphur has an agreement with Trinity Storage
Services, L.P. (Trinity) to establish a business enterprise
engaged in commercial brine production and the storage of non-
hazardous oilfield wastes at Main Pass. Commercial brine
production has commenced. The use of Main Pass for storage of
non-hazardous oilfield waste is awaiting final Minerals
Management Service (MMS) approval. Trinity anticipates pursuing
other commercial uses of the facilities to support the petroleum
industry. Freeport Sulphur and Trinity have been engaged in
discussions with offshore oil and gas producers, gas storage and
transportation companies, oil and gas service companies and other
energy related companies about other projects involving the use
of the Main Pass facilities.
6
In October 2001, Freeport Sulphur entered into a letter of
intent to sell its sulphur and salt lease and related facilities
located at Main Pass to Trinity. Under the proposed transaction
Trinity would assume responsibility for $12.4 million of Main
Pass' future reclamation and abandonment obligations and Freeport
Sulphur would remain responsible for reclamation and abandonment
obligations in excess of $12.4 million. In addition, Trinity
would provide a surety bond meeting the requirements of the MMS
for its $12.4 million portion of Main Pass' future reclamation
and abandonment obligations (see MMS Bonding Requirement
Settlement below). Freeport Sulphur would retain exclusive
rights to mine and produce sulphur from the lease but would
commit not to interfere with non-sulphur operations undertaken by
Trinity. The letter of intent provides that Freeport Sulphur
would receive 9 percent of future revenues from the future non-
sulphur commercial activities at Main Pass through December 31,
2021. The proposed sale is subject to definitive agreements,
boards of directors and certain other approvals, and there is no
assurance that the proposed transaction will be consummated until
such matters are finalized.
MMS BONDING REQUIREMENT SETTLEMENT
In October 2001, McMoRan and Freeport Sulphur reached an
agreement with the MMS to provide, by February 3, 2002, financial
assurances meeting the MMS' requirements with respect to Freeport
Sulphur's future reclamation obligations for its Main Pass
sulphur and oil facilities. The MMS is requiring financial
assurance of $35 million. Financial assurances can be in the
form of surety bonds, affiliate or third-party guarantees, or
letters of credit. McMoRan and Freeport Sulphur have entered
into a trust agreement with the MMS which imposes certain
obligations if neither McMoRan nor Freeport Sulphur meet the MMS'
financial wherewithal requirements, which are based on historical
financial statements, by February 3, 2002. Under the trust
agreement, McMoRan is required to provide $10 million in non-cash
financial assurances for the Main Pass reclamation obligations by
February 3, 2002. In addition, the trust agreement requires
Freeport Sulphur to provide additional financial assurances of
$24.8 million, which Freeport Sulphur expects to fulfill with
Trinity's $12.4 million surety bond as discussed above, plus
Freeport Sulphur's commitment to make quarterly deposits
aggregating up to $12.4 million over a five-year period, to the
extent the quarterly deposit amounts cannot be otherwise
satisfied by other non-cash financial assurances. Freeport
Sulphur believes it will be able to meet its funding requirements
using proceeds generated from its Main Pass oil operations, which
it would continue to own and operate, and with its 9 percent
share of revenues from the alternative commercial activities of
the Main Pass facilities; however, there is no assurance that
McMoRan's objectives in this regard will be achieved pending the
actual consummation of the transaction described above.
Additionally, the MMS has granted a waiver of its supplemental
bonding requirements relating to the abandonment obligations associated
with the federal offshore leases owned by McMoRan Oil & Gas LLC
(MOXY), McMoRan's wholly owned subsidiary engaged in oil and
gas exploration and production activities.
2. EARNINGS PER SHARE
Basic net income (loss) per share of common stock was calculated
by dividing net income (loss) applicable to common stock by the
weighted-average number of common shares outstanding during the
periods presented. Stock options representing 30,000 shares of
common stock were included in the third quarter of 2000 diluted
net income per share calculation. There were no dilutive stock
options during the third quarter of 2001. Stock options
representing 24,000 shares of common stock for the nine months
ending September 30, 2001 and 129,000 shares of common stock for
the nine months ended September 30, 2000 that otherwise would
have been included in the calculation of diluted net income
(loss) per share were excluded from the calculation because of
the net losses incurred during those periods.
Outstanding stock options excluded from the computation of
diluted net loss per share of common stock because their exercise
prices were greater than the average market price of the common
stock during the period are as follows:
Third Quarter Nine Months
----------------- ------------------
2001 2000 2001 2000
------- ------- ------- --------
Outstanding options (in thousands) 2,468 1,674 2,213 1,289
Average exercise price $ 17.08 $ 18.40 $ 17.76 $ 19.75
3. FINANCIAL INSTRUMENTS AND 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
7
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.
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, which were entered
into considering the required level of production costs at the
field. During the third quarter of 2001, McMoRan settled forward
sales contracts covering 24,000 barrels of oil at a cost of $0.2
million. For the nine months ended September 30, 2001, McMoRan
settled forward sales contracts covering 72,000 barrels of oil at
a cost of $0.6 million. These costs reduced McMoRan's oil
revenues for each of these periods. At September 30, 2001,
McMoRan had remaining forward sales contracts for 24,000 barrels
of oil, all of which will be settled by December 31, 2001. The
fair value of these forward sales contracts, which totaled losses
of $0.2 million at September 30, 2001, are included in
"Accumulated other comprehensive loss" and "Accrued liabilities"
in the accompanying balance sheet. McMoRan recognizes gains and
losses currently for ineffectiveness associated with its forward
sales contracts. These gains and losses were immaterial during
the periods presented.
McMoRan had no items of other comprehensive income or loss
in 2000. McMoRan's total comprehensive loss for the periods
ended September 30, 2001 follows (in thousands):
Third Nine
Quarter Months
--------- ---------
Net loss $ (8,366) $ (72,171)
Other comprehensive loss:
Cumulative effect of change in accounting principle - (492)
Change in unrealized derivatives' fair value (33) (278)
Reclassification to earnings 174 610
--------- ---------
Total comprehensive loss $ (8,225) $ (72,331)
========= =========
4. 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, using an 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 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)
Third Quarter of 2001
Revenues $ 24,555 $ 12,654 $ - $ 37,209
Production and delivery 9,319 12,002 - 21,321
Depreciation and amortization 10,269 724 - 10,993
Exploration expenses 6,707 - - 5,173
General and administrative expenses 3,068 1,282 892 5,242
--------- -------- --------- ---------
Operating loss (4,808) (1,354) (892) (7,054)
Interest expense, net - (1,345) - (1,345)
Other income 5 8 28 41
Income tax provision (8) - - (8)
--------- -------- --------- ---------
Net loss $ (4,811) $ (2,691) $ (864) $ (8,366)
========= ======== ========= =========
Exploration, development and other
capital expenditures $ 27,802 $ - $ - $ 27,802
========= ======== ========= =========
Total assets $ 151,291 $ 87,525 $ 4,218 $ 243,034
========= ======== ========= =========
8
Oil & Gas Sulphur Other Total
--------- -------- --------- ---------
(In Thousands)
Third Quarter of 2000
Revenues $ 14,238 $ 34,020 $ - $ 48,258
Production and delivery 5,575 33,294 - 38,869
Depreciation and amortization 3,508 8 - 3,516
Exploration expenses 17,200 - - 17,200
General and administrative expenses 2,401 2,180 644 5,225
Gain on sale of oil and gas properties (43,202) - - (43,202)
--------- -------- --------- ---------
Operating income (loss) 28,756 (1,462) (644) 26,650
Interest expense (426) (1,183) - (1,609)
Other income (expense) 409 (3) - 406
Income tax provision - - - -
--------- -------- --------- ---------
Net income (loss) $ 28,739 $ (2,648) $ (644) $ 25,447
========= ======== ========= =========
Exploration, development and other
capital expenditures $ 12,084 $ (7) $ - $ 12,077
========= ======== ========= =========
Total assets $ 160,641 $116,193 $ 4,341 $ 281,175
========= ======== ========= =========
Nine Months Ending September 30, 2001:
Revenues $ 56,446 $ 55,761 $ - $ 112,207
Production and delivery 28,555 64,174 - 92,729
Depreciation and amortization 17,424 3,724 - 21,148
Exploration expenses 54,606 - - 54,606
General and administrative expenses 8,951 4,063 2,889 15,903
--------- -------- --------- ---------
Operating loss (53,090) (16,200) (2,889) (72,179)
Interest expense, net (357) (4,074) - (4,431)
Other income 367 3,986 94 4,447
Income tax provision (8) - - (8)
--------- -------- --------- ---------
Net loss $ (53,088) $(16,288) $ (2,795) $ (72,171)
========= ======== ========= =========
Exploration, development and other
capital expenditures $ 92,300 $ - $ - $ 92,300
========= ======== ========= =========
Nine Months Ending September 30, 2000:
Revenues $ 46,963 $106,648 $ - $ 153,611
Production and delivery 18,270 120,713 - 138,983
Depreciation and amortization 15,848 76,428 - 92,276
Exploration expenses 43,346 - - 43,346
General and administrative expenses 6,406 8,007 2,011 16,424
Gain on sale of oil and gas properties (43,202) - - (43,202)
--------- -------- --------- ---------
Operating income (loss) 6,295 (98,500) (2,011) (94,216)
Interest expense (1,555) (1,183) (1,247) (3,985)
Other income 1,875 2,319 - 4,194
Income tax provision - - (34,942) (34,942)
--------- -------- --------- ---------
Net income (loss) $ 6,615 $(97,364) $ (38,200) $(128,949)
========= ======== ========= =========
Exploration, development and other
capital expenditures $ 31,229 $ 33 $ - $ 31,262
========= ======== ========= =========
a. Includes $1.5 million of nonproductive exploratory well
costs associated with the Louisiana State Lease 340 No. 3 well
that was in progress at September 30, 2001. The well was
subsequently determined to be unsuccessful.
b. Reflects elimination of recorded deferred tax asset based on
changes in estimated future taxable income related to our planned
exit from active participation in the sulphur business.
9
5. RATIO OF EARNINGS TO FIXED CHARGES
McMoRan's ratio of earnings to fixed charges calculation resulted
in shortfalls of $62.1 million during the nine months ended
September 30, 2001 and $84.7 million for the nine months ended
September 30, 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.
6. NEW ACCOUNTING STANDARDS
In July 2001, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 143 "Accounting
for Asset Retirement Obligations," which requires the fair value
of liabilities for asset retirement obligations to be recorded in
the period incurred. The standard is effective for fiscal years
beginning after June 15, 2002, with earlier application
permitted. Upon adoption of the standard, McMoRan will be
required to use a cumulative-effect approach to recognize
transition amounts for any existing asset retirement obligation
liabilities, asset retirement costs and accumulated depreciation.
McMoRan has begun work on identifying and quantifying its asset
retirement obligations in accordance with the new standard, but
it has not completed this analysis or determined when it will
adopt the new rules.
In August 2001, the FASB issued SFAS No. 144, "Accounting for
the Impairment or Disposal of Long-Lived Assets", which
supersedes FASB Statement No. 121, "Accounting for the Impairment
of Long-Lived Assets and for Long-Lived Assets to be Disposed
of". This new statement also supersedes certain aspects of APB
30, "Reporting the Results of Operations-Reporting the Effects of
Disposal of a Segment of a Business, and Extraordinary, Unusual
and Infrequently Occurring Events and Transactions", with regard
to reporting the effects of a disposal of a segment of a business
and will require expected future operating losses from
discontinued operations to be reported in discontinued operations
in the period incurred rather than as of the measurement date as
presently required by APB 30. Additionally, certain dispositions
may now qualify for discontinued operations treatment. The
provisions of this statement are required to be applied for
fiscal years beginning after December 15, 2001 and interim
periods within those fiscal years. McMoRan has not yet
determined what effect, if any, this statement will have on its
financial statements.
7. DEBT MATTERS
The maturity of the sulphur credit facility has been
extended from October 31, 2001 to the earlier of the completion
of the formation of the joint venture (see Note 1) or January 31,
2002. Based on discussions with the members of the bank group in
this facility, further extensions of the maturity date are
unlikely under current circumstances. At maturity, the balance due is
expected to be repaid from the proceeds of the sale of Freeport
Sulphur's assets to the joint venture described in Note 1 or from
other sources of new capital as described below.
The existing oil and gas revolving bank credit facility has
two separate components:
* a guaranteed portion representing initial borrowing capacity
of up to $50 million ($47.7 million of which is currently
available and $42.0 million is outstanding as of November 14, 2001);
and
* $11.25 million (which is available until January 25, 2002).
All of McMoRan's proved oil and gas reserves are pledged as
collateral under the oil and gas credit facility, other than Main
Pass oil, which is pledged as security under the sulphur credit
facility.
Refer to Note 9 "Halliburton Alliance and Long-Term Debt"
included in our 2000 Annual Report on Form 10-K. McMoRan is
required to raise an aggregate $125.0 million of capital by
December 31, 2001 in order to maintain the current $47.7 million
of borrowing availability under the Halliburton guarantee. As of
September 30, 2001 McMoRan has raised approximately $112.0
million towards meeting this requirement. To the extent that
McMoRan does not raise the cumulative $125.0 million by December
31, 2001, the amount available under the Halliburton guarantee
will be reduced. Any loans outstanding in excess of the adjusted
amount would then become due.
McMoRan believes that increased operating cash flows from
the increased oil and gas production associated with its 2000
discoveries and the current availability under its oil and gas
credit facility will be adequate to fund remaining 2001 planned
expenditures. McMoRan is pursuing additional financing
opportunities, including the sale of property interests, sales of
equity or equity-linked securities, various forms of debt
financing and arrangements with third parties to participate in
our exploration and development activities. McMoRan must obtain
additional financial capital to fund its future planned
exploration activities and debt maturities.
10
-----------------
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.
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 September
30, 2001, and the related statements of operations for the three-
month and nine-month periods ended September 30, 2001 and 2000
and the statements of cash flows for the nine-month periods ended
September 30, 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
October 18, 2001 (except
with respect to Note 7, as
to which the date is
November 14, 2001)
11
Item 2. Management's Discussion and Analysis of Financial
Condition 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. At that time, McMoRan Oil & Gas LLC (MOXY) and
Freeport-McMoRan Sulphur LLC (Freeport Sulphur) became our wholly
owned subsidiaries.
OPERATIONAL ACTIVITIES
Following are our recent significant operational activities:
Exploration Activities:
Louisiana State Lease 340. As previously announced in August
2001, the Louisiana SL 340 (Mound Point) No. 2 exploratory well
reached a total depth of 18,704 feet and logged a gross 50-foot
sand interval between 18,560 feet and 18,610 feet, which by
wireline log analysis was interpreted to be a potentially
hydrocarbon-bearing accumulation with no indicated water level.
In addition to this 50-foot interval, the well also encountered
a laminated sand section in an interval from 16,890 feet to
17,275 feet, which log calculations indicate may also contain
hydrocarbons. Production casing has been set and future
testing and completion plans for the well are currently being
finalized. Because the Mound Point prospect is located in 10
feet of water and is located in close proximity to existing
production facilities, future production from the well can be
established quickly. We have a 30.4 percent working interest
and a 22.8 percent net revenue interest in the Mound Point
well.
During development of the completion plans for the Mound
Point well, the related drilling rig was moved approximately 6
miles to the northwest and we commenced drilling the Louisiana
SL 340 (Lighthouse Point) No. 3 exploratory well on August 28,
2001. The Lighthouse Point well reached a total measured
depth of approximately 11,700 feet. The well had a planned
total measured depth of 12,500 feet, but late on the evening of
October 18, 2001, after evaluating log-while-drilling (LWD)
results, we determined the well had not encountered commercial
quantities of hydrocarbons and we ceased drilling. We have
subsequently plugged and abandoned the well. Our share of
drilling and related costs for the Lighthouse Point No. 3 well
will total approximately $2.4 million. Drilling costs incurred
on the well through September 30, 2001, totaling approximately
$1.5 million, were charged to exploration expense in the third
quarter of 2001. Both the Mound Point and Lighthouse Point
prospects are located on a portion of 62,000 acres previously
held by Texaco.
West Cameron Block 624. In August 2001, we announced that the
West Cameron Block 624 (Barite) No.B-3ST exploratory well reached
a total measured depth of 9,900 feet and LWD an interval of
resisitivity between 6,780 feet and 7,080 feet measured depth,
which was interpreted to be a potentially hydrocarbon-bearing
accumulation with no indicated water level. The Barite well was
drilled at an average 75-degree angle and the pay section has a
true vertical thickness of approximately 90 feet at approximately
4,100 feet true vertical depth. As operator, we set production
casing and completed the well. The Barite well, which was
drilled from an existing production platform, will be brought on
production immediately once repairs to a connecting pipeline are
completed. Production is expected to commence in November 2001.
Initial flow tests at the Barite well indicate an expected flow
rate of 5 to 8 million cubic feet of natural gas equivalent per
day (Mmcfe/d). We have a 95 percent working interest and a 66.8
percent net revenue interest in the well which is located in 365
feet of water approximately 130 miles offshore Louisiana.
Eugene Island Block 97. On September 21, 2001, drilling
commenced at the Eugene Island Block 97 (Thunderbolt) No. 3
exploratory well. The well explored zones encountered by the
first two Thunderbolt wells, which have been successfully
developed and are now on production (see below), as well as
additional objectives. The No. 3 well has encountered 5 sand
intervals with approximately 250 net feet of highly resistive
sands indicating potential hydrocarbons by LWD log within a 725
foot section between 14,025 and 14,750 feet true vertical depth
(TVD). Protective casing was set and drilling continued. As of
November 13, 2001, the well has been drilled to total measured
depth of 18,300 feet (16,400 TVD). Because the well is located
in close proximity to existing production facilities (see
"Development Activities" below) the well can be brought on
production quickly. We have an approximate 38 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.
13
Near-Term Exploration Activities. We plan to drill exploratory
wells on eight prospects over the next twelve months. We intend
to commence an exploratory well at South Marsh Island Block 223
(OCS-310 JB Mountain) during the fourth quarter of 2001 or early
2002. We anticipate drilling an exploratory well at the Hornung
prospect, at Eugene Island Block 108, which is south of and
adjacent to Eugene Island Block 97, during the first half of
2002. Additional prospects could also be added as we continue
evaluation of our 560,000-acre lease position, rights to most of
which were obtained from Texaco and Shell at the beginning of
2000. Our planned exploration activities require that we obtain
additional financing (see "Capital Resources and Liquidity").
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, has been completed with initial production
commencing in mid-June 2001. Recent gross production from the
well has approximate 27 Mmcfe/d, 9 Mmcfe/d net to our interest.
In November 2001, the well has been temporarily shut-in for diagnostic
evaluation in response to a small quantity of formation material
flowing into the production tubing . Production is expected to be
restored shortly following remedial work.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. The well is located in 90 feet of water approximately
50 miles offshore Louisiana.
Eugene Island Block 97. The Eugene Island Block 97
(Thunderbolt) No. 1 well was drilled and evaluated in the
fourth quarter of 2000. Initial production commenced
approximately four months subsequent to its discovery. The
Thunderbolt No. 2 well, was drilled and evaluated in the first
quarter of 2001 and commenced initial production in mid-June
approximately three months subsequent to its discovery. Recent
gross production from these wells totals approximately 8
Mmcfe/d, 2 Mmcfe/d net to our interests. See above for
information regarding exploratory drilling of the Thunderbolt
No. 3 well. 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.
Vermilion Blocks 195/196/207, Ship Shoal Block 296 and Main
Pass Blocks 86/97 Initial production commenced at the Ship
Shoal Block 296 (Raptor) No. 1 well in late-June 2001 and from
the Vermilion Block 196 (Lombardi) No. 2 well in early-July
2001. Recent gross production from these wells totals
approximately 59 Mmcfe/d, 28 Mmcfe/d net to our interest.
Development is also planned at the Main Pass Block 86 (Shiner)
No. 1 and 2 wells, with their initial production anticipated in
March 2002. We hold a 61.8 percent working interest and a 43.5
percent net revenue interest in the Raptor prospect, which was
evaluated in July 2000 and is located in 260 feet of water
approximately 62 miles offshore Louisiana. We have a 47.5
percent working interest and a 34.2 percent net revenue
interest in the Lombardi prospect, which was evaluated in
September of 2000 and is located in 115 feet of water
approximately 50 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 evaluated in the
fourth quarter of 2000, and is located in 70 feet of water
approximately 45 miles offshore Louisiana.
Vermilion Block 160. During the second and third quarters of
2001, we performed recompletion activities at the Vermilion Block
160 field unit. Production from the Vermilion Block 160 field
was shut-in during June 2001 while the recompletion activities
were performed. In July 2001 the AJ-3 well was restored to
production at a gross daily flow rate of approximately 18
Mmcfe/d, 7 Mmcfe/d to our net revenue interest. We completed
recompletion activities on the AJ-6 and AJ-3 wells in this field
during the third quarter of 2001. These wells' recent gross
production totals approximately 24 Mmcfe/d, 9 Mmcfe/d net to our
interest. We have an approximate 41.8 percent working interest
and a 35.8 percent net revenue interest in the Vermilion Block
160 field unit, which is located in 100 feet of water, 42 miles
offshore Louisiana. Also during June 2001, our Vermilion Block
160 BJ-1 well ceased production and was temporarily abandoned
while we evaluate alternative remedial activities.
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 Block 299 (Main Pass). Our
sulphur segment includes purchasing, transporting, terminaling,
processing and marketing of recovered sulphur, using an 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 oil and natural gas exploration expenditures and the
requirements of the successful efforts accounting method to
charge all nonproductive exploratory drilling costs and other
exploration expenditures to expense, we are likely to continue to
14
report operating losses in future periods. Selected summary
comparative data by segment for the third-quarter and nine-month
periods ended September 30, 2001 and 2000 follow:
Third Quarter Nine Months
---------------------- ----------------------
2001 2000 2001 2000
---------- ---------- ---------- ----------
(Dollars in thousands, except for realized prices)
FINANCIAL DATA
Operating income (loss)
Oil and gas $ (4,808) $ 28,756 a $ (53,090) $ 6,295 a
Sulphur 1,354) (1,462) (16,200) (98,500)b
Other (892) (644) (2,889) (2,011)
---------- ---------- ---------- ----------
Total $ (7,054) $ 26,650 $ (72,179) $ (94,216)
========== ========== ========== ==========
OPERATIONAL DATA
Sales volumes:
Gas (thousand cubic feet 4,096,100 1,527,800 7,468,600 7,569,700
or MCF)
Oil (barrels)c 456,200 275,100 957,200 878,500
Plant products (barrels) 81,000 - 81,000 -
Sulphur (long tons) 592,600 637,800 1,544,600 2,010,200
Average realizations:
Gas (per MCF) $ 2.90 $ 4.43 $ 4.21 $ 3.29
Oil (per barrel)c 24.07 26.59 23.84 24.70
Plant products (per barrel) 20.77 - 20.77 -
Sulphur (per long ton) 21.35 52.95 36.09 52.54
a. Includes a $43.2 million gain on the sale of our interests
in Brazos Blocks A-19 and A-26 and Vermilion Block 408.
b. Includes $85.6 million in charges to write off the remaining
book value of the Main Pass sulphur mine, to reduce the carrying
values of its related assets, to record the remaining unaccrued
estimated Main Pass reclamation costs and to accrue certain
sulphur employee-related separation costs.
c. Includes sales of sour crude oil from the Main Pass oil
operations. The Main Pass barrels sold totaled approximately
302,800 barrels at an average realization of $22.75 in the third
quarter of 2001 and 228,200 barrels at an average realization of
$25.45 per barrel in the third quarter of 2000. For the nine-
month periods Main Pass barrels sold totaled approximately
728,400 barrels at an average realization of $22.85 per barrel in
2001 and 714,700 barrels at an average realization of $23.41 per
barrel in 2000.
Oil and Gas Operations
A summary of increases (decreases) in our oil and gas revenues
between the periods follows (in thousands:
Third Nine
Quarter Months
-------- --------
Oil and gas revenues - prior year periods $ 14,238 $ 46,963
Increase (decrease)
Sales volumes:
Oil 4,815 1,944
Gas 11,378 (333)
Price realizations:
Oil (1,150) (823)
Gas (6,267) 6,871
Plant products revenue 1,551 1,682
Other (10) 142
-------- --------
Oil and gas revenues - current year periods $ 24,555 $ 56,446
======== ========
Our oil and gas revenues increased approximately 72 percent
during the third quarter of 2001 compared to revenues for the
third quarter of 2000. Oil and gas revenues increased
approximately 20
15
percent during the nine-month period in 2001
when compared to the same period in 2000. We effectively tripled
our first-half 2001 average net daily production during the third
quarter of 2001 to an average net production rate of
approximately 60 Mmcfe/d (excluding oil produced at Main Pass
299). The corresponding increase in revenues as a result of
increased production was partially offset by lower average
realizations, especially for natural gas, during the comparable
third-quarter periods. Net production during October 2001
averaged slightly less than 60 Mmcfe/d and this rate is
anticipated to be achieved during the remainder of the quarter
following resumption of production at the Eugene Island No. 3
well (North Tern Deep) and the commencement of production at West Cameron
Block 624 (Barite) as described above. Production net to our
interest is anticipated to approximate 65 Mmcfe/d, during the
first quarter of 2002 when production is expected to commence from
our Main Pass Blocks 86/87 (Shiner) property (see "Development Activities"
above). Oil produced at Main Pass is expected to continue at a net
daily average rate of approximately 3,000 barrels of oil per day
during both the fourth quarter of 2001 and first quarter of 2002.
The increase in gas sales volumes during the third quarter
of 2001 reflects the mid-year 2001 commencement of production
from four properties discovered during 2000 (see "Operational
Activities" above). The increase in oil sales volumes during the
third quarter and nine months periods of 2001 over the comparable
periods last year primarily reflects our acquisition of Homestake
Sulphur Company LLC's 16.7 percent interest in the Main Pass
field (see Note 1 and "Capital Resources and Liquidity"). Our
oil sales volumes also benefited from the oil production from
Eugene Island Blocks 193/208/215, which commenced production
during the second quarter of 2001, and three other fields that
commenced production in July 2001 (see "Operational Activities"
above).
Production and delivery expense totaled $9.3 million during
the third quarter of 2001 and $28.6 million for the nine months
ended September 30, 2001 compared with $5.6 million and $18.3
million for the comparable periods in 2000. The increases
primarily reflect our increased production from the four
properties discussed above. Additionally, our production and
delivery costs include $1.3 million in the third quarter of 2001
and $6.3 million for the nine months ended September 30, 2001 for
well workover costs compared with a total of $0.1 million and
$2.6 million for well workover costs during the comparable
periods last year. We performed well workovers at the Vermilion
Block 160 field unit and the Vermilion Block 160 BJ-1 well during
the second and third quarters of 2001 and at Eugene Island Block
193/208/215 during the first quarter of 2001. The well workover
costs during 2000 primarily reflect our efforts to re-establish
production from Eugene Island Blocks 193/208/215 during the
second quarter, as well as efforts to re-establish production
from the Brazos Block A-19 JC No. 1 well in the first quarter of
2000. Production and delivery costs also increased at Main
Pass, both as a result of our acquisition of Homestake's 16.7
percent interest in the field and from higher platform and
equipment repair and maintenance costs, which totaled $1.7
million during the third quarter of 2001 and $3.6 million for the
nine months ended September 30, 2001.
Depreciation and amortization expense totaled $10.3 million
during the third quarter of 2001 and $17.4 million for the nine
months ended September 30, 2001 compared to $3.5 million and
$15.8 million for the comparable periods of 2000. The increases
primarily reflect the substantially higher production volumes
during the third quarter of 2001 compared to the third quarter of
2000, attributable to production from the four properties
discussed above. Our unit-of-production depreciation and
amortization rates are based on estimated proved and proved
developed reserves as required under the successful efforts
accounting method. These rates are revised whenever significant
changes in estimated reserves occur, with such changes applied
prospectively. Oil and gas reserve estimates are inherently
imprecise and are subject to change as new technical information,
including production history, about the properties is obtained.
Because a large proportion of our production during the remainder
of 2001 will be initial production from our recent discoveries,
significant changes in our depreciation rates may occur as
production history is established and evaluated for these
properties.
Our exploration expenses are substantial 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 purchases of seismic
data. Summarized exploration expenses are as follows (in millions):
16
Third Quarter Nine Months
--------------- ----------------
2001 2000 2001 2000
----- ------ ------ -------
Geological and geophysical, $ 3.5 $ 4.2 $ 12.9 $ 17.2
including 3-D seismic purchases
Dry hole costs, including lease
amortization costs 3.8 a 12.1 b 40.5 c 23.7 b,c
Other (0.6) 0.9 1.2 2.4
----- ------ ------ -------
$ 6.7 $ 17.2 $ 54.6 $ 43.3
===== ====== ====== =======
a. Includes nonproductive exploratory well costs associated
with the Louisiana State Lease 340 No. 3 well.
b. Includes nonproductive exploratory well costs associated
with the Green Canyon Block 90 No. 1 and Garden Banks Block 580
No. 1 wells.
c. Includes nonproductive 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. Also includes the
nonproductive exploratory well costs associated with the Viosca
Knoll Block 863 No. 1 well and additional plugging and
abandonment costs associated with the Vermilion Block 144 No. 3
well.
d. Includes nonproductive exploratory well costs associated
with the State Tract 210 No. 6 and the Grand Isle Block 40/41 No.
1 wells.
Sulphur Operations
A summary of the increases (decreases) in our sulphur revenues
between the periods follows (in thousands):
Third Nine
Quarter Months
--------- ---------
Sulphur revenues - prior year period $ 34,020 $ 106,648
Increase (decrease)
Sales volumes (2,393) (24,463)
Price realization (18,726) (25,409)
Other (247) (1,016)
--------- ---------
Sulphur revenues - current year period $ 12,654 $ 55,761
========= =========
Our sulphur revenues decreased by 63 percent for the third
quarter of 2001 and 48 percent for the nine months ended
September 30, 2001 when compared to the comparable periods in
2000. The revenue reductions reflect decreases in sales volumes
of 7 percent for the third quarter of 2001 and 23 percent for the
nine months ended September 30, 2001 when compared to the same
periods in 2000, as well as a decrease in our average sulphur
realizations of approximately 60 percent for the third quarter of
2001 and 31 percent for the nine months ended September 30, 2001
when compared to the same periods last year. Sales volumes and
average realizations for sulphur reflect significantly reduced
demand because of depressed conditions in the historically
cyclical phosphate fertilizer industry, the principal consumer of
sulphur. Several large phosphate fertilizer producers
implemented production curtailments in late 2000 and early 2001.
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 has decreased by 57 percent, an average
of $37 per ton during the first half of 2001 to an average
sulphur market price of $27.50 per ton in Tampa, Florida during
the third quarter of 2001. The average sulphur market price in
Tampa, Florida has increased to $32.50 for the fourth quarter of
2001.
We sell a significant portion of the sulphur we purchase 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 31 percent of our total revenues and 92
percent of our total sulphur sales during the third quarter of
2001 and 46 percent of our total revenues and 93 percent of our
total sulphur sales volumes for the nine months ended September
30, 2001. In 2000, sales to IMC totaled 48 percent of our total
revenues and 68 percent of our total sulphur sales volumes during
the third quarter and 49 percent of our total revenues and 71
percent of our total sulphur sales volumes for the nine months
ended September 30, 2000. Sales to IMC are based on market
prices and include a premium with respect to a portion 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. See Part II-Item 1 "Legal
Proceedings" for disclosures regarding current developments in
certain litigation involving our sulphur supply agreement with
IMC.
17
Sulphur production and delivery expense totaled $12.0
million during the third quarter and $64.2 million for the nine
months ended September 30, 2001 compared to $33.3 million and
$120.7 million for the same periods last year. Production and
delivery expenses during the nine months ended September 30, 2000
included $11.5 million of charges associated with our planned
exit from active participation in the sulphur business. These
charges included the writeoff of our sulphur material and
supplies inventory totaling $6.1 million and a $5.4 million
accrual for certain sulphur employee-related separation costs.
The decreases also reflect the reduced volumes sold during the
first half of 2001 as a result of the major U.S. fertilizer
producers' production curtailments, including IMC's closure of
all its Mississippi River region plants. During the third
quarter of 2001, sulphur sales benefited from IMC's decision to
resume production from two of its Louisiana plants in July 2001.
The reductions in production and delivery costs during the first
half of 2001 were partially offset by charges to adjust our
sulphur inventory carrying amount to its net realizable value
which totaled $10.0 million for the nine months ended September
30, 2001 compared with a $1.7 million charge recorded in 2000.
Sulphur depreciation expense totaled $3.7 million for the
nine months ended September 30, 2001 compared with $76.4 million
for the comparable period during 2000. During the second quarter
of 2000, we recorded $72.0 million of depreciation expense
associated with our decision to cease operations at the Main Pass
sulphur mine and for our planned exit from active participation
in the sulphur business. The $72.0 million noncash charge
included a $20.1 million charge to write off the remaining book
value of the Main Pass sulphur mine, a $19.1 million charge to
reduce certain assets used in the handling of mined sulphur to
their net realizable value and a $32.8 million charge to record
the remaining unaccrued estimated reclamation costs associated
with the Main Pass sulphur mine. Sulphur depreciation expense
totaled $0.7 million during the third quarter of 2001.
Other
General and administrative expense totaled $5.2 million for
the third quarter and $15.9 million for the nine months ended
September 30, 2001 compared to $5.2 million for the third quarter
and $16.4 million for the nine months ended September 30, 2000.
Excluding the effects of a $2.1 million second-quarter 2000
accrual for certain sulphur employee-related separation costs,
the increase primarily reflect our increasing oil and gas
activities that were partially offset by decreased sulphur costs
in accordance with our plan to exit active participation in the
sulphur business.
Net interest expense totaled $1.3 million during the third
quarter and $4.4 million for the nine months ended September 30,
2001 compared to $1.6 million during the third quarter and $4.0
million for the nine months ended September 30, 2000.
Capitalized interest (related to oil and gas development
activities) during the third quarter of 2001 totaled $0.6 million
and $0.9 million for the nine months ended September 30, 2001.
There was no interest capitalized during 2000. The increase in
total interest costs during 2001 reflects our increased
borrowings during 2001, which at September 30, 2001 totaled $58.0
million for the sulphur credit facility and $35.0 million on our
oil and gas credit facility (see Note 9 "Halliburton Alliance and
Long-Term Debt" included in our 2000 Annual Report on Form 10-K).
CAPITAL RESOURCES AND LIQUIDITY
COMPARISON OF NINE MONTHS 2001 vs 2000 CASH FLOWS
Operating activities used cash of $8.6 million during the
nine months ended September 30, 2001 compared to a use of cash of
$30.3 million during the nine months ended September 30, 2000.
The change in operating cash flow can be attributed primarily to
the increase in oil and gas revenues, working capital changes and
the impact of sulphur operating results over the prior year,
caused by ceasing sulphur mining operations at Main Pass.
Included in operating cash flows were increases in mine
reclamation costs totaling $12.4 million during the nine months
ended September 30, 2001 compared with $5.2 million during the
comparable period in 2000.
Net cash used in investing activities totaled $87.8 million
for the nine months ended September 30, 2001 compared with cash
provided of $4.3 million for the nine months ended September 30,
2000. Our exploration and development capital expenditures
totaled $92.3 million for the nine months ending September 30,
2001, which includes nonproductive exploratory drilling and
related costs primarily associated with five wells (see "Results
of Operations" above). Capital expenditures during 2001 also
included development costs primarily associated with our recent
discoveries, the costs associated with our in-progress
exploratory wells at Louisiana State Lease 340, Eugene Island
Block 97 and West Cameron Block 624 and their related completion
costs. Other capital expenditures included costs relating to
remedial operations at West Cameron Block 616, Eugene Island
Block 193/208/215 and the Vermilion Block 160 field unit. We
sold one unproved oil and gas lease during the first quarter of
2001 for $1.0
18
million and we sold various sulphur assets for $0.7
million during the second quarter of 2001. In June 2001, we
received $2.5 million from Homestake Sulphur Company LLC
(Homestake) in a transaction associated with Main Pass 299 (see
below).
In June 2001, Freeport Sulphur acquired Homestake's 16.7
percent interest in Main Pass and assumed their estimated $7.1
million portion of the remaining reclamation obligations at the
Main Pass sulphur mine, related facilities and Main Pass oil
facilities. Main Pass oil's operations relating to this interest
subsequent to June 1, 2001 are included in our operating results.
Our investing activities for the nine months ended September
30, 2000 included $37.8 million of costs associated with the
Shell lease acquisition in January 2000 (see Note 4 "Acquisition
and Exploration Program" included in our 2000 Annual Report on
Form 10-K). Our exploration and development capital expenditures
totaled $31.3 million during the nine months ended September 30,
2000, which included nonproductive exploratory drilling and
related costs associated with the Grand Isle Block 40/41 No. 8 ,
State Tract 210 No. 6, Green Canyon Block 90 No. 1 and Garden
Banks Block 580 No. 1 wells. The remaining capital expenditures
represent various re-completion efforts at existing producing
wells.
Financing activities provided cash of $47.5 million during
the nine months ended September 30, 2001 compared to $63.9
million during the nine months ended September 30, 2000.
Financing proceeds during the 2001 period include $12.0 million
of net borrowings on the sulphur credit facility and $35.0
million of net borrowings under our oil and gas credit facility
(see below). The proceeds during 2000 primarily reflect the
proceeds we received in April 2000 from the completion of an
equity offering in which we sold 3.8 million shares of our common
stock for $14.00 per share. Our net proceeds from the completion
of the equity offering totaled $50.3 million. Cash provided from
financing activities during the nine-month 2000 period also
reflects additional net borrowings of $31.0 million under our
revolving bank credit facilities, offset in part by purchases of
McMoRan's common stock under our stock repurchase program (see
Note 1 "Background and Basis of Presentation-Share Purchase
Program" included in our 2000 Annual Report on Form 10-K) and
other financing costs.
REVOLVING BANK CREDIT FACILITIES
Oil and Gas Credit Facility. Our existing oil and gas
revolving bank credit facility has two separate components:
* a guaranteed portion representing initial borrowing capacity
of up to $50 million ($47.7 million of which is currently available);
and
* $11.25 million (which is available until January 25, 2002)
See Note 9 "Halliburton Alliance and Long-Term Debt" included in
our 2000 Annual Report on Form 10-K. As of November 14, 2001, our
borrowings under our oil and gas facility totaled $42.0 million
and our remaining availability totaled $17.0 million.
All of our oil and gas properties with proved reserves are
pledged as collateral under our oil and gas credit facility,
other than Main Pass oil, which is pledged as security under the
sulphur credit facility as discussed below.
Pursuant to our agreement with Halliburton, Halliburton
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. In accordance with the terms of our 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.
We are required to raise an aggregate $125.0 million of
capital by December 31, 2001 in order to maintain our current
$47.7 million of borrowing availability under the Halliburton
guarantee. As of September 30, 2001 we have raised approximately
$112.0 million towards meeting this requirement. To the extent
that we do not raise the cumulative $125.0 million by December
31, 2001 the amount available under the Halliburton guarantee
will be reduced. Any loans outstanding in excess of the adjusted
amount would then become due.
19
We anticipate that our exploration, development and other
cash capital expenditures during the fourth quarter will total
approximately $25.0 million, most of which have already been
incurred and are included in accounts payable and accrued
liabilities in the accompanying condensed balance sheets. We
believe that increased operating cash flows from the increased
oil and gas production associated with our 2000 discoveries and
the current availability under our oil and gas credit facility
will be adequate to fund our remaining 2001 planned expenditures.
We are pursuing additional financing opportunities, including the
sale of property interests, sales of equity or equity-linked
securities, various forms of debt financing and arrangements with
third parties to participate in our exploration and development
activities. We must obtain additional financial capital to fund
our future planned exploration activities and debt maturities, including
the sulphur credit facility discussed below.
Sulphur Credit Facility. At September 30, 2001, borrowings
on the sulphur credit facility totaled $58.0 million and on
November 14, 2001 totaled $60.0 million. Our current
availability under this facility is $64.2 million. Our sulphur
subsidiary, Freeport Sulphur, is the borrower under this
facility, which is secured by substantially all of its assets,
including its Main Pass oil interests. We guarantee this
facility and have pledged our equity ownership of MOXY to secure
the guarantee.
The maturity of this facility has been extended from October
31, 2001 to the earlier of the completion of the formation of the
joint venture or January 31, 2002. Based on discussions with the
members of the bank group in this facility, a further extension of
the maturity date is unlikely under current circumstances.
PROPOSED SULPHUR JOINT VENTURE
Efforts are ongoing to establish the proposed sulphur joint
venture (see Note 1). Formation of the sulphur joint venture is
subject to entering into new long-term service agreements with a
group of major U.S. oil refiners and natural gas processors,
negotiation of the joint venture agreements, and obtaining
financing for the capital structure of the joint venture, all of
which are in the process of being negotiated. The formation of
the joint venture is also subject to board approvals and certain
other approvals. While a number of factors, including volatility
in sulphur market conditions over the last several months, have
resulted in additional time required to complete the long-term
service agreements, we are concluding negotiations on agreements
comprising over 50 percent of the initial joint venture handling
activities. Efforts are ongoing to complete the remaining
agreements and to complete the transaction by January 31, 2002.
MMS BONDING REQUIREMENT SETTLEMENT
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. The remaining cost of
dismantling and removing the remaining Main Pass sulphur
structures is expected to be deferred for many years, subject to
Minerals Management Service (MMS) approval, as we pursue our
plans discussed below for alternative future use of these
facilities.
Our ability to defer these dismantlement costs is subject to
obtaining approvals from the MMS, which has regulatory authority
to ensure offshore leaseholders fulfill the abandonment and site
clearance obligations related to their properties. The MMS
requires leaseholders to demonstrate financial responsibility for
such obligations by posting a bond or otherwise demonstrating a
defined minimum level of financial capacity, unless the
leaseholder qualifies for an exemption. Prior to July 1, 2001,
the MMS had not required us to post a bond, but instead required
that we, as the parent company of Freeport Sulphur, guarantee the
obligations of Freeport Sulphur to pay these costs. In July
2001, the MMS advised us that they were considering requiring us
or Freeport Sulphur either to post a bond of approximately $35
million, or to enter into other funding arrangements acceptable
to the MMS.
In October 2001, Freeport Sulphur reached an agreement with
the MMS to provide, by February 3, 2002, financial assurances
meeting the MMS' requirements, which can be in the form of surety
bonds, affiliate or third-party guarantees, or letters of credit.
McMoRan and Freeport Sulphur have entered into a trust agreement
with the MMS which imposes certain obligations if neither McMoRan
nor Freeport Sulphur meet the MMS' financial wherewithal
requirements, which are based on historical financial statements,
by February 3, 2002. The obligations under the trust agreement
would require that non-cash financial assurances be provided for
$10 million of Freeport Sulphur's reclamation obligations by
February 3, 2002. In addition, the trust agreement would require
Freeport Sulphur to provide additional financial assurances of
$24.8 million, which Freeport Sulphur expects to fulfill through
a $12.4 million surety bond to be provided by Trinity Storage
Services, L.P. (Trinity) (see below), plus Freeport Sulphur's
commitment to make quarterly deposits aggregating up to $12.4
million over a five-year period, to the extent the quarterly
deposit amounts cannot otherwise be satisfied by other non-cash
financial assurances.
20
Freeport Sulphur believes it will be able
to meet its funding requirements using proceeds generated from its
Main Pass oil operations, which it would continue to own and operate,
and with its portion of any future revenues generated from the
alternative non-sulphur commercial activities at the Main Pass
facilities discussed below.
LETTER OF INTENT TO SELL MAIN PASS 299 SULPHUR FACILITIES
We have an agreement with Trinity to establish a business
enterprise engaged in commercial brine production and the
disposal of non-hazardous oilfield waste at Main Pass.
Commercial brine production has commenced at Main Pass. We are
awaiting final regulatory approval from the MMS for the use of
Main Pass for storage of non-hazardous oilfield waste. Proceeds
generated under this joint project are expected to fund a
significant portion of the remaining future Main Pass reclamation
costs.
In October 2001, Freeport Sulphur entered into a letter of
intent to sell its sulphur and salt lease and related facilities
located at Main Pass to Trinity. Under the proposed transaction
Trinity would assume responsibility for $12.4 million of Main
Pass' future reclamation and abandonment obligations and Freeport
Sulphur would remain responsible for reclamation and abandonment
obligations in excess of the $12.4 million. In addition, Trinity
would provide a surety bond meeting the requirements of the MMS
for its $12.4 million portion of the Main Pass future reclamation
and abandonment obligations (see above). Freeport Sulphur would
retain exclusive rights to mine and produce sulphur from the
lease but would commit not to interfere with non-sulphur
operations undertaken by Trinity. Trinity anticipates pursuing
other commercial uses of the facilities to support the petroleum
industry. Freeport Sulphur and Trinity have been engaged in
discussions with offshore oil and gas producers, gas storage and
transportation companies, oil and gas service companies and other
energy related companies about other projects involving the use
of the Main Pass facilities. Projects under discussion include
the use of Main Pass for logistical support for oil and gas
drilling, oil and gas storage in the Main Pass salt dome and the
possible use of Main Pass as an offshore liquid natural gas (LNG)
facility. The letter of intent provides that Freeport Sulphur
would receive 9 percent of future revenues from Trinity's future
non-sulphur commercial activities through December 31, 2021. When
permitted and fully operating, the commercial activities are
expected to generate royalties of at least $3 to $5 million
annually to Freeport Sulphur which would be available to fund a
significant portion of the remaining future Main Pass reclamation
costs. The proposed sale is subject to definitive agreements,
boards of directors and certain other approvals.
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, our
exploration and development activities and expenses, oil and gas
production and volumes, formation of the sulphur joint venture,
financing activities, MMS approvals and other regulatory issues
and reclamation costs 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 ability to obtain additional
financial capital to fund our operations and debt maturties,
the ability to achieve raising the aggregate $125
million of additional capital by December 31, 2001 in order to
maintain the full amount of Halliburton's guarantee,
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, the ability
to ultimately form the proposed sulphur joint venture, the
ability to obtain substitute financing if the joint venture is
not formed by January 31, 2002, the sale of Main Pass to Trinity,
the ability to conduct commercial activities at Main Pass and generate
royalties, demand for sulphur, the ability to satisfy future cash obligations
and environmental costs including reclamation and abandonment obligations,
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.
21
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
Freeport Sulphur 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 was no basis for renegotiation of the
pricing provisions of the agreement. After discussions failed to
resolve this dispute, Freeport Sulphur filed suit against IMC
seeking a judicial declaration that no basis existed under the
agreement for a renegotiation of its pricing terms.
On July 25, 2000, IMC filed a supplemental demand alleging
that Freeport Sulphur's suspension of sulphur production at Main
Pass and the proposed sale of Freeport Sulphur's transportation
assets constituted a statement of intent to breach the sulphur
supply agreement. IMC further alleged that Freeport Sulphur
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 Freeport Sulphur 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 Freeport Sulphur's assets; the agreement
also permits any assignment with IMC's consent. IMC contends
that the sale of Freeport Sulphur's transportation, logistics
and marketing assets without Main Pass will not be substantially
all of Freeport Sulphur's assets; thus, IMC's consent would be
needed to assign the sulphur supply agreement. On February 1,
2001, Freeport Sulphur 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 July 13, 2001, Freeport Sulphur filed a series of motions
for partial summary judgment and exceptions for prescription and
no cause of action to dismiss on all substantive claims. The
issue of assignability of the sulphur supply agreement, however,
is excluded from these motions and the structure contemplated in
the Savage joint venture is premised on the basis that Freeport
Sulphur would not assign the agreement and would remain the seller
to IMC Phosphate.
On October 15, 2001, the court ruled in favor of Freeport
Sulphur's motions for partial summary judgment. The court found
that IMC presented no facts to support its claims of commercial
impracticability or gross inequity and agreed with Freeport
Sulphur that there is no basis for renegotiation of the contract.
IMC has stated it intends to appeal the court's decision.
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:
* A report disclosing an event under Item 5 dated August 15, 2001.
* A report disclosing events under Item 5 dated August 30, 2001.
22
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: November 14, 2001
23
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).
E-1
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).
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. (Incorporated by
reference to Exhibit 10.20 to McMoRan's First-Quarter 2001
Form 10-Q).
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10.21 Amendment dated as of August 31, 2001, to the Credit
Agreement dated December 31, 1997, as amended and
restated as of November 17, 1998, as amended as of
January 20, 1999, as amended August 11, 2000 and as
amended April 16, 2001, among Freeport Sulphur, as
borrower, McMoRan as Guarantor and, the financial
institutions party thereto. (Incorporated by reference
to Exhibit 10.1 to McMoRan's Form 8-K dated August 30,
2001).
10.22 Amendment dated as of October 31, 2001, to the Credit Agreement
dated December 31, 1997, as amended and restated as of November
17, 1998, as amended as of January 20, 1999, as amended August
11, 2000, as amended April 16, 2001, and as amended August 31,
2001, among Freeport Sulphur, as borrower, McMoRan, as Guarantor
and, the financial institutions party thereto.
10.23 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).
10.24 The Second Amendment and Supplement to Amend and Restate Credit
Agreement dated November 9, 2001, among McMoRan Oil and Gas, as
borrower, The Chase Manhatten Bank (formerly Chase Bank of Texas,
National Association), as agent and the Lenders signatory thereto.
10.25 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).
10.26 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).
10.27 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).
10.28 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).
10.29 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).
10.30 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 31 through 41).
10.31 McMoRan Adjusted Stock Award Plan. (Incorporated by
reference to Exhibit 10.1 of the McMoRan S-4).
10.32 McMoRan 1998 Stock Option Plan. (Incorporated by
reference to Annex D to the McMoRan S-4).
10.33 McMoRan 2000 Stock Incentive Plan. (Incorporated by
E-3
reference to Exhibit 10.5 to McMoRan's Second-Quarter
2000 Form 10-Q).
10.34 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.
10.35 McMoRan 1998 Stock Option Plan for Non-Employee
Directors. (Incorporated by reference to Exhibit 10.2
of the McMoRan S-4).
10.36 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).
10.37 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).
10.38 McMoRan 2001 Stock Bonus Plan. (Incorporated by
reference to Exhibit 10.35 to McMoRan's First-Quarter
2001 Form 10-Q).
10.39 McMoRan 2001 Stock Incentive Plan. (Incorporated by
reference to Exhibit 10.36 to McMoRan's Second-Quarter
2001 Form 10-Q).
10.40 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).
10.41 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).
15.1 Letter dated October 18, 2001 from Arthur Andersen LLP
regarding the unaudited financial statements.
E-4