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, 1997
Commission File Number: 0-23870
McMoRan Oil & Gas Co.
Incorporated in Delaware 72-1266477
(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, 1997, there were issued and outstanding 14,113,214
shares of the registrant's Common Stock, par value $0.01 per share.
1
McMoRan Oil & Gas Co.
TABLE OF CONTENTS
Page
Part I. Financial Information
Financial Statements:
Condensed Balance Sheets 3
Statements of Operations 4
Statements of Cash Flow 5
Notes to Financial Statements 6
Remarks 7
Report of Independent Public Accountants 8
Management's Discussion and Analysis
of Financial Condition and Results of
Operations 9
Part II. Other Information 14
Signature 15
Exhibit Index E-1
2
McMoRan Oil & Gas Co.
Part I. FINANCIAL INFORMATION
Item 1. Financial Statements.
McMoRan Oil & Gas Co.
CONDENSED BALANCE SHEETS
(Unaudited)
September 30, December 31,
1997 1996
---------- ----------
(In Thousands)
ASSETS
Cash and short-term investments $ 10,132 $ 10,500
Accounts receivable and other 3,797 2,249
---------- ----------
Total current assets 13,929 12,749
Oil and gas properties, net 22,580 18,231
Other assets 454 -
---------- ----------
Total assets $ 36,963 $ 30,980
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Accounts payable and accrued liabilities $ 20,569 $ 9,411
Current portion of production loan 1,618 366
---------- ----------
Total current liabilities 22,187 9,777
Production loan, less current portion 15,851 12,391
Other liabilities 711 566
Stockholders' equity (deficit) (1,786) 8,246
---------- ----------
Total liabilities and stockholders'
equity $ 36,963 $ 30,980
========== ==========
The accompanying notes are an integral part of these financial
statements.
3
McMoRan Oil & Gas Co.
STATEMENTS OF OPERATIONS
(Unaudited)
Three Months Ended Nine Months Ended
September 30, September 30,
------------------------ --------------------------
1997 1996 1997 1996
---------- ---------- ---------- ----------
(In Thousands, Except Per Share Amounts)
Revenues:
Oil and gas sales $ 1,813 $ 510 $ 6,016 $ 1,714
Management fees 875 409 1,693 1,227
---------- ---------- ---------- ----------
Total revenues 2,688 919 7,709 2,941
---------- ---------- ---------- ----------
Costs and expenses:
Production and delivery,
including depreciation
and amortization 2,057 313 7,369 1,115
Exploration
expenses 6,413 2,004 10,510 5,875
General and
administrative
expenses 492 689 1,845 2,073
Gain on sale of oil
and gas property - - (2,289) -
---------- ---------- ---------- ----------
Total costs and
expenses 8,962 3,006 17,435 9,063
---------- ---------- ---------- ----------
Operating loss (6,274) (2,087) (9,726) (6,122)
Interest expense (359) (127) (1,040) (134)
Other income, net 88 66 337 303
---------- ---------- ---------- ----------
Net loss $ (6,545) $ (2,148) $ (10,429) $ (5,953)
========== ========== ========== ==========
Net loss per
share $.(46) $(.15) $.(74) $(.43)
===== ===== ===== =====
Average shares
outstanding 14,101 13,918 14,063 13,873
====== ====== ====== ======
The accompanying notes are an integral part of these financial
statements.
4
McMoRan Oil & Gas Co.
STATEMENTS OF CASH FLOW
(Unaudited)
Nine Months Ended
September 30,
------------------------
1997 1996
---------- ----------
(In Thousands)
Cash flow from operating activities:
Net loss $ (10,429) $ (5,953)
Adjustments to reconcile net loss to net
cash provided by
(used in) operating activities:
Depreciation and amortization 6,551 505
Exploration expenses 10,510 5,875
Gain on sale of oil and gas property (2,289) -
Decrease in working capital 5,363 4,635
---------- ----------
Net cash provided by operating activities 9,706 5,062
---------- ----------
Cash flow from investing activities:
Exploration and development expenditures (17,671) (17,971)
Proceeds from sale of oil and gas
interests 2,884 2,059
---------- ----------
Net cash used in investing activities (14,787) (15,912)
---------- ----------
Cash flow from financing activities:
Borrowings under production loan 10,874 8,907
Repayments under production loan (6,161) (623)
---------- ----------
Net cash provided by financing activities 4,713 8,284
---------- ----------
Net decrease in cash and short-term
investments (368) (2,566)
Cash and short-term investments at
beginning of year 10,500 10,323
---------- ----------
Cash and short-term investments at end
of period $ 10,132 $ 7,757
========== ==========
The accompanying notes are an integral part of these financial
statements.
5
McMoRan Oil & Gas Co.
NOTES TO FINANCIAL STATEMENTS
1. PLAN OF RECAPITALIZATION
On October 9, 1997, MOXY commenced a rights offering (the Rights
Offering) pursuant to which it distributed to its stockholders
transferable rights (Rights) to purchase approximately 28.6 million
shares of common stock for a subscription price of $3.50 per share,
or an aggregate of approximately $100 million. Pursuant to a
standby purchase agreement (Standby Commitment), Freeport-McMoRan
Resource Partners, Limited Partnership (FRP) has agreed to purchase
at $3.50 all shares that are offered but not purchased pursuant to
the exercise of Rights. Additionally, FRP also has the option to
purchase additional shares so that if following the Rights Offering
FRP has not acquired 30% of MOXY's outstanding common stock pursuant
to its Standby Commitment, it may acquire at $3.50 up to a 30%
ownership interest in MOXY after giving effect to the Rights
Offering, the Standby Commitment and the exercise of its option. The
Rights Offering is part of a comprehensive plan to recapitalize the
company and enable it to implement an aggregate $200 million multi-
year oil and gas exploration program with FRP (the MOXY/FRP
Exploration Program) to explore and develop prospects, primarily
offshore in the Gulf of Mexico and onshore in the Gulf Coast area.
On August 4, 1997, FRP acquired from affiliates of MCN Energy Group
Inc. (MCN) its 60 percent interest in, and other contractual rights
to, the exploratory drilling program with MOXY (MOXY/MCN Program),
the interests in Vermilion Block 160 and Block 410 producing oil and
gas properties (the MCN Producing Properties), and other exploratory
properties acquired under the MOXY/MCN Program. FRP paid MCN, after
adjustments, $34.0 million for the assets together with $12.4
million for the outstanding indebtedness. MOXY and FRP then amended
the MOXY/MCN Program to extend the program term, include their joint
interests in the seven offshore leases initially awarded to MOXY at
the Central Gulf of Mexico lease sale held in March 1997 and provide
for the conduct of mutually agreed exploration projects until the
earlier of December 31, 1997 or the date of completion of the Rights
Offering. The amendment also provides that FRP will reimburse MOXY
for approximately $290,000 of overhead per month and will continue
to advance funds to MOXY under the MOXY/MCN Program during the
remaining program term. At September 30, 1997 approximately $7.1
million of accounts payable and accrued liabilities for drilling
advances are reflected in the accompanying balance sheet.
Upon completion of the Rights Offering, MOXY will acquire from FRP
its interests in the MCN Producing Properties for $26.0 million,
subject to adjustments for revenues and costs attributable to the
MCN Producing Properties from April 1, 1997 until their acquisition
by MOXY, plus interest from August 4, 1997 at an annual rate equal
to The Chase Manhattan Bank's prime rate plus 2%. MOXY will also
repay to FRP all amounts advanced to MOXY under the MOXY/MCN
Program, which at September 30, 1997, totaled approximately $17.5
million. Thereafter, MOXY will own a 100% interest in the MCN
Producing Properties and MOXY and FRP will establish and dedicate to
the MOXY/FRP Exploration Program all other oil and gas properties
then subject to the MOXY/MCN Program.
On August 27, 1997, Freeport-McMoRan Inc. ("FTX"),the
administrative managing general partner and owner of a 51.6%
interest in FRP, and IMC Global Inc. ("IGL") announced an Agreement
and Plan of Merger dated August 26, 1997, in which FTX and IGL
agree to merge, with IGL as the surviving entity. The proposed
combination, which is subject to several conditions including
approval by the stockholders of both companies, will result in the
acquisition of control by IGL of FTX and, as a result, FRP. The
transaction, if consummated, will not have any impact on the Rights
Offering, the Standby Commitment, the sale of the MCN Producing
Properties to MOXY, or the establishment of the MOXY/FRP Exploration
Program. FTX and IGL have stated that the merger transaction is
expected to be completed by the end of 1997.
6
2. STOCK OPTION PLAN AMENDMENTS
On July 14, 1997 the MOXY Board of Directors approved, subject to
shareholder approval, certain amendments to MOXY's Stock Option Plan
for Non-Employee Directors and Stock Option Plan. These amendments
provided for a grant to non-employee directors of options
exercisable over a four-year period to purchase a total of 105,984
shares and increased the number of options to be granted to non-
employee directors in future periods. The amendments also
authorized additional shares under the Stock Option Plan, and
granted new options exercisable over a four-year period to purchase
a total of 1,954,000 shares to certain officers, employees and
others providing services to MOXY. These amendments provide
appropriate long-term incentive consistent with MOXY's increased
size following the Rights Offering. All options were granted at the
July 14, 1997 market price of $3 5/8. On October 9, 1997, MOXY's
stockholders approved the amendments and option grants. MOXY will
record an aggregate non-cash charge against earnings of
approximately $1.3 million over the four-year exercise period for
the difference between the grant price and market price following
stockholder approval. Additionally, in October 1997 the Board of
Directors approved certain adjustments to the number of shares
granted and exercise prices of previously granted options to reflect
the issuance of Rights under the Rights Offering. These adjustments
will not result in a charge to earnings.
3. NEW ACCOUNTING STANDARDS
In February 1997, the Financial Accounting Standards Board (FASB)
issued Statement of Financial Accounting Standards No. 128 (SFAS
128), "Earnings Per Share," which simplifies the computation of
earnings per share for MOXY. SFAS 128 is effective for financial
statements issued for periods ending after December 15, 1997 and
requires restatement for all prior period earnings per share data
presented. Earnings per share calculated in accordance with SFAS
128 would have been unchanged for the periods presented.
In June 1997, the FASB issued SFAS 130, "Reporting
Comprehensive Income," and SFAS 131, "Disclosures About Segments of
an Enterprise and Related Information." SFAS 130 establishes
standards for the reporting and display of comprehensive income in
the financial statements. Comprehensive income is the total of net
income and all other non-owner changes in equity. SFAS 131 requires
that companies disclose segment data based on how management makes
decisions about allocating resources to segments and measuring their
performance. SFAS 130 and 131 are effective for 1998. Adoption of
these standards is not expected to have an effect on MOXY's
financial statements, financial position or results of operations.
-----------------
Remarks
The information furnished herein should be read in conjunction with
MOXY's financial statements contained in its 1996 Annual Report to
stockholders and included in its 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.
7
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Board of Directors of McMoRan Oil & Gas Co.:
We have reviewed the accompanying condensed balance sheet of McMoRan
Oil & Gas Co. a (Delaware corporation) as of September 30, 1997, and
the related statements of operations for the three-month and nine-
month periods ended September 30, 1997 and 1996 and the statements
of cash flow for the nine-month periods ended September 30, 1997 and
1996. These financial statements are the responsibility of the
company's management.
We conducted our review 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 generally accepted auditing standards, 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 review, 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 generally accepted accounting
principles.
We have previously audited, in accordance with generally accepted
auditing standards, the balance sheet of McMoRan Oil & Gas Co. as of
December 31, 1996 (not presented herein), and, in our report dated
January 21, 1997, we expressed an unqualified opinion on that
statement. In our opinion, the information set forth in the
accompanying condensed balance sheet as of December 31, 1996, is
fairly stated, in all material respects, in relation to the balance
sheet from which it has been derived.
ARTHUR ANDERSEN LLP
New Orleans, Louisiana,
October 21, 1997
8
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations.
OVERVIEW
McMoRan Oil & Gas Co. (MOXY) is an independent oil and gas company
engaged in the exploration, development and production of oil and
natural gas. MOXY commenced operations in May 1994 following the
distribution of its common stock to the stockholders of Freeport-
McMoRan Inc. (FTX) to conduct substantially all of the oil and gas
exploration activities previously undertaken by FTX. MOXY and its
predecessors have engaged in exploration, development and
production operations offshore in the Gulf and onshore in the Gulf
Coast and other areas for more than 25 years, which have provided
MOXY with an extensive geological and geophysical database and
significant technical and operational expertise. MOXY expects to
continue to concentrate its efforts in this selected geographic area
where its management team has significant experience.
MOXY's business strategy is to create value for its
stockholders through the discovery of oil and gas reserves in its
exploration and development activities. Management believes that
MOXY has significant opportunities to discover meaningful oil and
gas reserves and that these opportunities can best be achieved
through the use of advanced 3-D seismic technology, applied in
conjunction with an expanded, multi-year exploration program.
Moreover, MOXY believes that its recent and continuing acquisitions
of 3-D seismic data will continue to improve its ability to
interpret subsurface geology and allow it to develop a larger
inventory of high-quality prospects which it can pursue at lease
sales and through farm-in opportunities offshore in the Gulf and
onshore in the Gulf Coast area.
CAPITAL RESOURCES AND LIQUIDITY
During 1995, MOXY established the MCN and Phillips joint
ventures which provided MOXY with an inflow of funds. In mid-1996,
with the pending completion of the exploration portion of the
MOXY/MCN Program, management began evaluating options to obtain
additional long-term funding for its planned exploration and
development activities, including entering into one or more new
long-term exploration joint ventures (MCN later indicated that it
did not wish to enter into the type of multi-year program that MOXY
desired), issuing additional equity or undertaking a business
combination with another entity. MOXY ultimately decided to
undertake the Rights Offering (discussed below), which would allow
it to recapitalize, to restructure its current exploration and
development operations, and to engage in a significantly expanded
and more diversified, multi-year exploratory drilling program.
On October 9, 1997, MOXY's shareholders approved the Rights
Offering and related transactions providing for the issuance of
approximately 28.6 million shares of MOXY common stock, estimated to
generate net proceeds of approximately $93 million. These proceeds
will enable MOXY to acquire the MCN Producing Properties from FRP
and to retire all MOXY debt. Furthermore, the remaining cash
proceeds will provide MOXY the funding necessary to participate in
the aggregate $200 million multi-year MOXY/FRP Exploration Program
(discussed below). MOXY thereafter will own a 100% interest in the
MCN Producing Properties, and MOXY and FRP will dedicate to the
MOXY/FRP Exploration Program all other properties that were part of
the MOXY/MCN Program.
MOXY and FRP will establish the MOXY/FRP Exploration Program to
explore and develop exploratory prospects primarily in the Gulf and
onshore in the Gulf Coast area where MOXY has significant
exploration experience and a substantial geological database. MOXY
will manage the program, select all prospects and drilling
opportunities, and serve as operator of the program. MOXY and FRP
will commit $200 million for exploration expenditures under the
program, most of which will be shared 40% by MOXY and 60% by FRP.
All revenues and other costs will be shared equally.
MOXY was awarded seven tracts at the Central Gulf of Mexico
lease sale held in March 1997 with bids totaling $5.5 million. FRP
later acquired an interest in these leases, which will be dedicated
to the MOXY/FRP Exploration Program upon completion of the Rights
Offering.
9
MOXY incurred $17.7 million of cash exploration and development
expenditures during the first nine months of 1997, principally
consisting of $3.5 million for development at Vermilion Blocks 160
and 410, $6.0 million for lease acquisition costs, $4.1 million in
drilling and leasehold costs charged to expense and $3.9 million of
geological and geophysical costs. Exploration expenditures are
expected to increase following the completion of the Rights Offering
and the initiation of the MOXY/FRP Exploration Program.
OPERATIONAL ACTIVITIES
MOXY's recent exploration activities in the Gulf of Mexico have been
conducted primarily through the MOXY/MCN Program in which MOXY
currently holds a 40% interest. As noted earlier, FRP acquired
MCN's interest in the MOXY/MCN Program in August 1997 and this
program continued with FRP replacing MCN. Upon completion of the
Rights Offering, MOXY will purchase FRP's interest in the MCN
Producing Properties and MOXY and FRP will dedicate all other oil
and gas properties subject to the MOXY/MCN Program to the new
MOXY/FRP Exploration Program.
Recent activities within the MOXY/MCN Program follow:
* During the fourth quarter of 1996, a development well at the
Vermilion Block 160 field discovered new reserves from eight gas
sands with approximately 215 feet of net pay. Drilling on this well
was completed in the first quarter of 1997, discovering an
additional 47 feet of net pay. During the second quarter of 1997, a
second development well to develop the newly discovered reserves
encountered 244 feet of net gas pay from six sands. A third
development well drilled during the third quarter of 1997
encountered seven sands with approximately 170 feet of net gas pay.
Completion of the three new development wells has commenced and
production is expected to begin during the fourth quarter of 1997.
The MOXY/MCN Program has a 28% net revenue interest in this field
unit which is subject to re-determination subsequent to final
development drilling. In addition, the interest in two of the four
blocks within the Vermilion Block 160 field unit is subject to a 30%
net profits interest. Daily gross production at the Vermilion Block
160 field averaged approximately 8 million cubic feet (Mmcf) of
natural gas and 280 barrels of condensate during the third quarter.
* In late December 1996, installation of the production platforms
and related facilities at the Vermilion Block 410 field was
completed and production began from one of the two platforms.
Production began from the second platform in February 1997. The
MOXY/MCN Program has a 28% net revenue interest in this field. Daily
gross production averaged approximately 66 Mmcf of gas during the
third quarter.
* During the third quarter of 1997, the MOXY/MCN Program
initiated drilling of the West Cameron Block 616 #3 exploratory
well. In early October 1997, the well encountered 263 feet of net
gas pay in four sands. MOXY, the operator of the well, believes
that the logged pays in this well indicate commercial quantities of
reserves which can be developed with conventional platform
techniques. MOXY is drilling the well deeper to evaluate additional
objectives. The West Cameron 616 #2 well, drilled in 1996 and
located approximately one mile southeast of the #3 well, encountered
190 feet of net gas pay in a different fault block.
* During the second quarter of 1997, the MOXY/MCN Program
acquired a 50% working interest in Eugene Island Blocks 18/19 from
Shell Offshore Inc. (SOI) in exchange for a 50% interest in the
MOXY/MCN Program's West Cameron Block 492. During the third quarter
of 1997, SOI, as operator, drilled an exploratory well on Eugene
Island Block 19 which did not encounter commercial hydrocarbons.
* In September 1997, MOXY, as operator, plugged and abandoned the
#2 exploratory well at the Vermilion Block 159 prospect. Mechanical
conditions encountered during drilling prevented the well from
reaching all its intended objectives. Based on the geological
information acquired from the well, MOXY is evaluating future
drilling. The MOXY/MCN Program had a 60% working interest in this
well.
* In April 1997, the MOXY/MCN Program sold its interest in West
Cameron Block 503 for $7.2 million ($2.9 million net to MOXY) with
MOXY recognizing a $2.3 million gain. The proceeds were used to
repay borrowings from MCN.
10
* Drilling completed in August 1997 at Grand Isle Block 65 was
unsuccessful in discovering hydrocarbons in commercial quantities.
MOXY plans to farm out its working interest and retain an overriding
royalty.
* During the third quarter of 1997, the MOXY/MCN Program farmed
in a 35% interest in a Gulf of Mexico block located offshore Texas
where the operator plans to commence drilling an exploratory well
during the fourth quarter of 1997.
* The MOXY/MCN Program farmed in a 67.5% working interest,
subject to certain reversions, in a prospect covering approximately
3,610 gross acres in the Atchafalaya Bay located in St. Mary's
Parish, Louisiana. MOXY will operate this prospect and initial
exploratory drilling is expected to commence in the fourth quarter.
* The MOXY/MCN Program was the high bidder on the Brazos Block A-
26 at the Western Gulf of Mexico lease sale held in August 1997.
In the onshore Gulf Coast region MOXY owns a 25% interest in a joint
venture with Phillips and FRP, which covers a project area in south
Louisiana, discussed below:
* In the 1997 second quarter MOXY drilled the North Bay Junop
well but did not encounter commercial hydrocarbons in the primary
objective zones. The well was completed in a shallower zone with
approximately 25 feet of net gas pay. The well was flow tested at a
rate of 5.3 Mmcf of gas and 93 barrels of condensate per day.
Because of the complexity of the salt dome geology and potentially
limited reservoir size, production performance will be required to
determine the reserve volumes associated with this completion. The
joint venture partners are assessing additional prospects in the
area which may result in future exploratory drilling or acquisition
of additional 3-D seismic coverage.
In July 1997, MOXY committed to a one year contract for a jack-up
rig capable of drilling in water depths of up to 150 feet. In
addition, MOXY signed a one-well contract with an option for
additional wells for a jack-up rig capable of drilling in water
depths of up to 350 feet.
In September 1997, MOXY purchased for $4.5 million all of the oil
and gas interests owned by FM Properties Inc. (FMPO), a publicly
traded company which shares common management and a common director
with MOXY. These properties are located in the offshore Gulf of
Mexico and in various onshore areas of the United States. FRP
joined MOXY in the acquisition of interests in three exploration
properties which had no revenues in 1996 and which will be included
in the current exploration program between MOXY and FRP, with MOXY
bearing 40 percent and FRP bearing 60 percent of the $3 million
acquisition price for these properties. As a result, MOXY's net
share of the total $4.5 million acquisition cost paid to FMPO was
$2.7 million and FRP's share was $1.8 million. Oil and gas revenues
generated by the producing properties acquired by MOXY totaled $1.4
million in 1996, although a single property which generated $0.7
million in 1996 ceased production in the second quarter of 1997.
11
RESULTS OF OPERATIONS
Third Quarter Nine Months
------------------------ ------------------------
1997 1996 1997 1996
---------- ---------- ---------- ----------
Revenues (in millions):
Oil and gas sales $ 1.8 $ 0.5 $ 6.0 $ 1.7
Management fees 0.9 0.4 1.7 1.2
---------- ---------- ---------- ----------
$ 2.7 $ 0.9 $ 7.7 $ 2.9
========== ========== ========== ==========
Production quantities:
Gas (Mcf) 750,300 149,700 2,371,300 456,400
Oil (barrels) 2,800 6,800 12,200 22,500
Average realization:
Gas (per Mcf) $2.33 $2.26 $2.40 $2.60
Oil (per barrel) $19.30 $22.74 $21.29 $21.36
MOXY's revenues for the third quarter and nine month periods of
1997 increased significantly over the comparable 1996 period levels
as the MOXY/MCN Program initiated production (primarily natural gas)
in December 1996 from the first of two production platforms at the
Vermilion Block 410 field, with production from the second platform
commencing in February 1997 (see operating statistics above). As
noted earlier, upon completion of the Rights Offering, MOXY will
purchase the MCN Producing Properties from FRP.
Third Quarter Nine Months
------------------------ ------------------------
1997 1996 1997 1996
---------- ---------- ---------- ----------
(in millions, except per share amounts)
Production and delivery,
including depreciation
and amortization $ 2.1 $ 0.3 $ 7.4 $ 1.1
Exploration Expenses:
Geological and
geophysical 1.2 1.5 3.9 2.4
Exploratory drilling
and leasehold costs 5.2 0.5 6.6 3.5a
---------- ---------- ---------- ----------
$ 6.4 $ 2.0 $ 10.5 $ 5.9
========== ========== ========== ==========
Operating loss $ (6.3) $ (2.1) $ (9.7) $ (6.1)
Net loss $ (6.5) $ (2.1) $ (10.4) $ (6.0)
Net loss per share $ (0.46) $ (0.15) $ (0.74) $ (0.43)
a. Includes a $2.1 million reimbursement of previously expensed
costs.
The fluctuations in MOXY's production and delivery costs and
depreciation and amortization expenses are consistent with the
changes in production quantities referenced above. During the
second quarter of 1997, the reserves initially assigned to Vermilion
Block 410 were adjusted downward on the basis of production
experience, and additional depreciation of $1.0 million was
recognized.
MOXY's unsuccessful exploratory drilling and leasehold costs
fluctuate from period to period based on the related drilling
results and the amount of costs involved in the project.
Exploratory drilling and leasehold costs in the nine-month 1996
period include a $2.1 million reimbursement of previously expensed
costs. There were five unsuccessful drilling projects during the
first nine months of 1997 compared with three during the first nine
months of 1996.
Interest expense totaled $1.0 million for the nine-month 1997
period versus $0.1 million for the nine-month 1996 period,
reflecting the increased borrowings from MCN (initiated in mid-1996)
to fund MOXY's share of exploration and development expenditures.
12
As a result of anticipated future exploration expenditures, MOXY
expects to continue to report operating losses for at least the near
future.
ENVIRONMENTAL
Although MOXY has no known environmental liabilities,
increasing emphasis on environmental matters could result in
additional costs, which would be charged against MOXY's operations
in future periods. Present and future environmental laws and
regulations applicable to MOXY's operations could require
substantial capital expenditures or could adversely affect its
operations in other ways that cannot be accurately predicted at this
time.
CAUTIONARY STATEMENT
Management's Discussion and Analysis of Financial Condition and
Results of Operations contains forward-looking statements. All
statements other than statements of historical fact included in this
report, including, without limitation, statements regarding plans
and objectives of MOXY's management for future operations and MOXY's
exploration and development activities are forward-looking
statements.
Important factors that could cause actual results to differ
materially from MOXY's expectations include, without limitation,
exploratory drilling results, 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 the control of MOXY. Further information regarding these and
other factors that may cause MOXY's future performance to differ
from that projected in the forward-looking statements are described
in more detail in MOXY's Form 10-K for the year ended December 31,
1996.
_________________________
The results of operations reported and summarized above are not
necessarily indicative of future operating results.
13
PART II--OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders.
(a) A Special Meeting of Stockholders of the Company was held on
October 9, 1997 (the "Special Meeting"). Proxies were solicited
pursuant to Regulation 14A under the Securities Exchange Act of
1934, as amended.
(b) At the Special Meeting, the stockholders voted on and approved
the proposal to approve a Standby Purchase Agreement between the
Company and Freeport-McMoRan Resource Partners, Limited Partnership
as well as the transactions contemplated thereby as described in the
Company's Proxy Statement dated September 5, 1997. Holders of
9,338,459 shares voted for, holders of 121,586 shares voted against
and holders of 78,716 shares abstained from voting on, such
proposal. There were no broker non-votes with respect to such
proposal.
(c) At the Special Meeting, the stockholders also voted on and
approved the proposal to amend the Company's 1997 Stock Option Plan
for Non-Employee Directors. Holders of 8,470,056 shares voted for,
holders of 878,350 shares voted against and holders of 190,355
shares abstained from voting on, such proposal. There were no
broker non-votes with respect to such proposal.
(d) At the Special Meeting, the stockholders also voted on and
approved the proposal to amend the Company's 1997 Stock Option Plan.
Holders of 8,426,732 shares voted for, holders of 920,444 shares
voted against and holders of 191,585 shares abstained from voting
on, such proposal. There were no broker non-votes with respect to
such 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 quarter for which this report is filed, the
registrant filed Current Reports on Form 8-K on July 1, 1997,
October 3, 1997 and October 9, 1997 under Item 5, on September 2,
1997 under Item 2 and on July 14, 1997 under Items 2 and 5.
14
McMoRan Oil & Gas 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 Oil & Gas Co.
By: /s/C. Donald Whitmire, Jr.
_________________________
C. Donald Whitmire, Jr.
Controller
(authorized signatory and
Principal Accounting Officer)
Date: November 13, 1997
15
McMoRan OIL & GAS CO.
EXHBIT INDEX
Exhibit
Number
2.1 Distribution Agreement dated as of May 1, 1994 between
Freeport-McMoRan Inc. and the Company. Incorporated by reference
to Exhibit 2.1 to Amendment No. 2 to Form 10 as filed with the
Commission on May 16, 1994 ("Amendment No. 2").
3.1 Amended and Restated Certificate of Incorporation of the
Company. Incorporated by reference to Exhibit 3.1 to the Company's
Annual Report for the year ended December 31, 1994 on Form 10-K (the
"1994 10-K").
3.2 Bylaws of the Company. Incorporated by reference to Exhibit
3.2 to the Company's 1994 10-K.
4.1 Form of the Company's Certificate of Designation of Series A
Participating Cumulative Preferred Stock. Incorporated by reference
to Exhibit 4.1 to Amendment No. 2.
4.2 Rights Agreement dated as of May 19, 1994 between the Company
and Mellon Securities Trust Company, as Rights Agent. Incorporated
by reference to Exhibit 4.2 to the Company's 1994 10-K.
10.1 Master Agreement dated July 14, 1997 between McMoRan Oil & Gas
Co. and Freeport-McMoRan Resource Partners, Limited Partnership.
Incorporated by reference to Exhibit 10.1 to the Company's Current
Report on Form 8-K dated as of July 14, 1997 (the "July 14, 1997 8-
K").
10.2 Standby Purchase Agreement dated July 14, 1997 between McMoRan
Oil & Gas Co. and Freeport-McMoRan Resource Partners, Limited
Partnership. Incorporated by reference to Exhibit 10. 2 to the July
14, 1997 8-K.
10.3 Form of Stockholder Agreement between McMoRan Oil & Gas Co.
and Freeport-McMoRan Resource Partners, Limited Partnership.
Incorporated by reference to Exhibit 10.3 to the July 14, 1997 8-K.
10.4 Purchase and Sale Agreement dated July 11, 1997 by and among
FRP, MCNIC Oil & Gas Properties, Inc., MCN Investment Corporation
and MOXY. Incorporated by reference to Exhibit 10.4 to the July 14,
1997 8-K.
10.5 Form of Participation Agreement between McMoRan Oil & Gas Co.
and Freeport-McMoRan Resource Partners, Limited Partnership.
Incorporated by reference to Exhibit 10.5 to the July 14, 1997 8-K.
10.6 Form of Amendment to the MOXY Participation and Exploration
Program Agreement dated as of July 1, 1995 between McMoRan Oil & Gas
Co., CoEnergy Central Exploration, Inc. and MCN Investment
Corporation. Incorporated by reference to Exhibit 10.6 to the July
14, 1997 8-K.
10.7 Amendment No. 1 dated July 14, 1997 to the Rights Agreement
dated as of May 19, 1994 between McMoRan Oil & Gas Co. and Mellon
Securities Trust Company, as Rights Agent. Incorporated by
reference to Exhibit 10.7 to the July 14, 1997 8-K.
10.8 Agreement for Purchase and Sale dated as of August 1, 1997
between FM Properties Operating Co. and McMoRan Oil & Gas Co.
incorporated by reference to Exhibit 10.1 to the Company's Current
Report on Form 8-K dated as of September 2, 1997.
15.1 Letter dated October 21, 1997 from Arthur Andersen LLP
regarding unaudited interim financial statements.
27.1 Financial Data Schedule.