News Release Details

FCX Reports Third-Quarter and Nine-Month 2014 Results

10/28/14

PHOENIX--(BUSINESS WIRE)-- Freeport-McMoRan Inc. (NYSE: FCX):

  • Net income attributable to common stock totaled $552 million, $0.53 per share, for third-quarter 2014, compared with net income of $821 million, $0.79 per share, for third-quarter 2013. Net income attributable to common stock for the first nine months of 2014 totaled $1.5 billion, $1.47 per share, compared with $2.0 billion, $1.96 per share, for the first nine months of 2013.
  • Consolidated sales for third-quarter 2014 totaled 1.08 billion pounds of copper, 525 thousand ounces of gold, 22 million pounds of molybdenum and 12.5 million barrels of oil equivalents (MMBOE), compared with third-quarter 2013 sales of 1.04 billion pounds of copper, 305 thousand ounces of gold, 23 million pounds of molybdenum and 16.5 MMBOE.
  • Consolidated sales for the year 2014 are expected to approximate 3.9 billion pounds of copper, 1.2 million ounces of gold, 95 million pounds of molybdenum and 56.2 MMBOE, including 1.0 billion pounds of copper, 350 thousand ounces of gold, 21 million pounds of molybdenum and 11.5 MMBOE for fourth-quarter 2014.
  • Average realized prices for third-quarter 2014 were $3.12 per pound for copper (compared with $3.28 per pound for third-quarter 2013), $1,220 per ounce for gold (compared with $1,329 per ounce for third-quarter 2013) and $88.58 per barrel for oil (compared with $104.33 per barrel for third-quarter 2013).
  • Consolidated unit net cash costs for third-quarter 2014 averaged $1.34 per pound of copper for mining operations (compared with $1.46 per pound for third-quarter 2013) and $20.93 per barrel of oil equivalents (BOE) for oil and gas operations (compared with $16.80 per BOE for third-quarter 2013).
  • Operating cash flows totaled $1.9 billion (including $78 million in working capital sources and changes in other tax payments) for third-quarter 2014 and $4.5 billion (net of $699 million in working capital uses and changes in other tax payments) for the first nine months of 2014. Based on current sales volume and cost estimates and assuming average prices of $3.00 per pound for copper, $1,250 per ounce for gold, $10 per pound for molybdenum and $90 per barrel for Brent crude oil in fourth-quarter 2014, operating cash flows for the year 2014 are expected to approximate $5.8 billion (net of $0.4 billion of working capital uses and changes in other tax payments).
  • Capital expenditures totaled $1.9 billion for third-quarter 2014 and $5.4 billion for the first nine months of 2014, including $2.0 billion for major projects at mining operations and $2.4 billion for oil and gas operations. Capital expenditures are expected to approximate $7.5 billion for the year 2014, including $3.0 billion for major projects at mining operations and $3.4 billion for oil and gas operations.
  • FCX continues to pursue attractive minerals and oil and gas exploration activities which benefit from existing large scale production capacities in proven mining districts and geologic basins. Recent interim drilling results at the 100 percent owned Holstein Deep oil prospect in the Deepwater Gulf of Mexico (GOM) indicate the potential for a large resource that could utilize existing production capacity in the area. In addition, positive exploration drilling targeting large scale sulfide mineralization in the Morenci and Safford/Lone Star mining districts continue to indicate the potential for future long-term growth.
  • At September 30, 2014, consolidated cash totaled $658 million and consolidated debt totaled $19.7 billion. During third-quarter 2014, FCX redeemed $1.7 billion of senior notes with an average interest rate of 6.6 percent. Additionally, on October 15, 2014, FCX redeemed $400 million of the aggregate principal amount of its 8.625% Senior Notes.
  • In October 2014, FCX entered into a definitive agreement to sell its 80 percent ownership interest in the Candelaria and Ojos del Salado copper mining operations and supporting infrastructure to Lundin Mining Corporation (Lundin) for $1.8 billion in cash and contingent consideration of up to $0.2 billion. Excluding contingent consideration, FCX estimates after-tax net proceeds from the transaction will approximate $1.5 billion. The transaction is expected to close by year-end 2014.

Freeport-McMoRan Inc. (NYSE: FCX) reported net income attributable to common stock of $552 million, $0.53 per share, for third-quarter 2014, compared with $821 million, $0.79 per share, for third-quarter 2013 and $1.5 billion, $1.47 per share, for the first nine months of 2014, compared with $2.0 billion, $1.96 per share, for the first nine months of 2013. FCX’s net income attributable to common stock for third-quarter 2014 included net charges of $115 million ($0.11 per share), comprised of charges of $192 million associated with a reduction in the carrying values of oil and gas properties pursuant to full cost accounting rules and $47 million related to changes in Chilean tax rules, partly offset by $76 million for net noncash mark-to-market gains on oil and gas derivative contracts, a gain of $31 million from sales of assets and a gain of $17 million for early extinguishment of debt. Third-quarter 2013 net income attributable to common stock included charges of $98 million ($0.09 per share) for net noncash mark-to-market losses on oil and gas derivative contracts.

James R. Moffett , Chairman of the Board; Richard C. Adkerson , Vice Chairman, and FCX President and Chief Executive Officer; and James C. Flores, Vice Chairman, and FM O&G President and Chief Executive Officer, said, "Our third-quarter results reflect solid operating performance throughout our operations. During the quarter, we achieved important milestones at our expanded Morenci copper operations, progressed construction activities at Cerro Verde and advanced our oil and gas exploration and development activities to support future production growth and investment returns. Results from our Indonesian operations reflect the resumption of concentrate exports in August. As a further step in our debt reduction plan, we reached agreement to sell our mining interests in Candelaria and Ojos del Salado for $1.8 billion in upfront proceeds, bringing gross proceeds from asset sales in 2014 to $4.9 billion. We remain focused on executing our strategy to increase value for shareholders through the development of our large resource base, effective management of our operations, prudent capital and balance sheet management, and providing attractive cash returns to shareholders."

       

SUMMARY FINANCIAL DATA

 
Three Months Ended Nine Months Ended
September 30, September 30,
2014         2013         2014         2013a
(in millions, except per share amounts)

Revenuesb

$ 5,696  

c,d

    $ 6,165   c,d $ 16,203   c,d     $ 15,036   c,d

Operating incomeb

$ 1,132 e,f,g $ 1,707 g $ 3,396 e,f,g $ 3,701 g,h
Net income attributable to common stocki $ 552 c,d,e,f,g,j,k $ 821 c,d,g $ 1,544 c,d,e,f,g,j,k $ 1,951 c,d,g,h,j,l
Diluted net income per share of common stock $ 0.53 c,d,e,f,g,j,k $ 0.79 c,d,g $ 1.47 c,d,e,f,g,j,k $ 1.96 c,d,g,h,j,l
Diluted weighted-average common shares outstanding 1,046 1,043 1,045 993
Operating cash flowsm $ 1,926 $ 1,878 $ 4,513 $ 3,743
Capital expendituresb $ 1,853 $ 1,645 $ 5,415 $ 3,623
At September 30:
Cash and cash equivalents $ 658 $ 2,219 $ 658 $ 2,219
Total debt, including current portion $ 19,737 $ 21,123 $ 19,737 $ 21,123
 

a. Includes the results of FCX Oil & Gas Inc. (FM O&G) beginning June 1, 2013.

b. For segment financial results, refer to the supplemental schedule, "Business Segments," beginning on page XI, which is available on FCX's website, "www.fcx.com."

c. Includes (unfavorable) favorable adjustments to provisionally priced concentrate and cathode copper sales recognized in prior periods totaling $(22) million ($(10) million to net income attributable to common stock or $(0.01) per share) for third-quarter 2014, $73 million ($35 million to net income attributable to common stock or $0.03 per share) for third-quarter 2013, $(118) million ($(65) million to net income attributable to common stock or $(0.06) per share) for the first nine months of 2014 and $(26) million ($(12) million to net income attributable to common stock or $(0.01) per share) for the first nine months of 2013. For further discussion, refer to the supplemental schedule, "Derivative Instruments," beginning on page X, which is available on FCX's website, "www.fcx.com."

d. Includes net noncash mark-to-market gains (losses) associated with crude oil and natural gas derivative contracts totaling $122 million ($76 million to net income attributable to common stock or $0.07 per share) for third-quarter 2014, $(158) million ($(98) million to net income attributable to common stock or $(0.09) per share) for third-quarter 2013, $130 million ($80 million to net income attributable to common stock or $0.08 per share) for the first nine months of 2014 and $(194) million ($(120) million to net income attributable to common stock or $(0.12) per share) for the four-month period from June 1, 2013, to September 30, 2013. For further discussion, refer to the supplemental schedule, "Derivative Instruments," beginning on page X, which is available on FCX's website, "www.fcx.com."

e. The third quarter and first nine months of 2014 include a charge of $308 million ($192 million to net income attributable to common stock or $0.18 per share) to reduce the carrying value of oil and gas properties pursuant to full cost accounting rules.

f. The third quarter and first nine months of 2014 include a gain of $46 million ($31 million to net income attributable to common stock or $0.03 per share) primarily from the sale of a metals injection molding plant.

g. Includes net credits (charges) for adjustments to environmental obligations and related litigation reserves of $1 million ($1 million to net income attributable to common stock or less than $0.01 per share) for third-quarter 2014, $22 million ($14 million to net income attributable to common stock or $0.01 per share) for third-quarter 2013, $(68) million ($(67) million to net income attributable to common stock or $(0.06) per share) for the first nine months of 2014 and $14 million ($7 million to net income attributable to common stock or $0.01 per share) for the first nine months of 2013.

h. The first nine months of 2013 include transaction and related costs totaling $76 million ($47 million to net income attributable to common stock or $0.05 per share) principally associated with FCX's oil and gas acquisitions.

i. FCX defers recognizing profits on intercompany sales until final sales to third parties occur. For a summary of net impacts from changes in these deferrals, refer to the supplemental schedule, "Deferred Profits," on page XI, which is available on FCX's website.

j. Includes net gains (losses) on early extinguishment of debt totaling $58 million ($17 million to net income attributable to common stock or $0.02 per share) in third-quarter 2014 and $63 million ($21 million to net income attributable to common stock or $0.02 per share) for the first nine months of 2014 related to the redemption of senior notes and $(45) million ($(36) million to net income attributable to common stock or $(0.04) per share) for the first nine months of 2013 related to the termination of the acquisition bridge loan facilities.

k. The third quarter and first nine months of 2014 include a tax charge of $54 million ($47 million net of noncontrolling interests or $0.04 per share) related to changes in Chilean tax rules. Additionally, the first nine months of 2014 include a tax charge of $62 million ($0.06 per share) associated with deferred taxes recorded in connection with the allocation of goodwill to the sale of Eagle Ford properties.

l. The first nine months of 2013 include gains associated with the oil and gas acquisitions, including $128 million to net income attributable to common stock or $0.13 per share, related to FCX's preferred stock investment in and the subsequent acquisition of McMoRan Exploration Co., and $183 million to net income attributable to common stock or $0.18 per share associated with net reductions in FCX's deferred tax liabilities and deferred tax asset valuation allowances.

m. Includes net working capital sources (uses) and changes in other tax payments of $78 million for third-quarter 2014, $(294) million for third-quarter 2013, $(699) million for the first nine months of 2014 and $(489) million for the first nine months of 2013.

 
         

SUMMARY OPERATING DATA

 
Three Months Ended Nine Months Ended
September 30, September 30,
2014       2013 2014       2013a
Copper (millions of recoverable pounds)
Production 1,027 1,063 2,906 2,952
Sales, excluding purchases 1,077 1,041 2,916 2,946
Average realized price per pound $ 3.12 $ 3.28 $ 3.14 $ 3.31
Site production and delivery costs per poundb $ 1.91 $ 1.85 $ 1.92 c $ 1.96
Unit net cash costs per poundb $ 1.34 d $ 1.46 $ 1.52 c,d $ 1.62
Gold (thousands of recoverable ounces)
Production 449 327 846 713
Sales, excluding purchases 525 305 871 692
Average realized price per ounce $ 1,220 $ 1,329 $ 1,251 $ 1,395
Molybdenum (millions of recoverable pounds)
Production 24 25 73 71
Sales, excluding purchases 22 23 74 71
Average realized price per pound $ 14.71 $ 11.21 $ 13.01 $ 12.12
Oil Equivalents
Sales volumes:
MMBOE 12.5 16.5 44.7 21.5
Thousand BOE (MBOE) per day 136 179 164 176
Cash operating margin per BOE:e
Realized revenues $ 69.08 $ 80.93 $ 75.04 $ 79.40
Cash production costs 20.93 16.80 19.57 16.76
Cash operating margin $ 48.15 $ 64.13 $ 55.47 $ 62.64
 

a. Includes the results of FM O&G beginning June 1, 2013.

b. Reflects per pound weighted-average production and delivery costs and unit net cash costs (net of by- product credits) for all copper mines, excluding net noncash and other costs. For reconciliations of per pound unit costs by operating division to production and delivery costs applicable to sales reported in FCX's consolidated financial statements, refer to the supplemental schedule, "Product Revenues and Production Costs," beginning on page XIV, which is available on FCX's website, "www.fcx.com."

c. The first nine months of 2014 excludes $0.05 per pound of copper for fixed costs charged directly to cost of sales as a result of the impact of export restrictions on PT Freeport Indonesia's (PT-FI) operating rates.

d. Includes $0.06 per pound of copper in third-quarter 2014 and $0.02 per pound of copper for the first nine months of 2014 for export duties and increased royalty rates at PT-FI.

e. Cash operating margin for oil and gas operations reflects realized revenues less cash production costs. Realized revenues exclude noncash mark-to-market adjustments on derivative contracts, and cash production costs exclude accretion and other costs. For reconciliations of realized revenues and cash production costs per BOE to revenues and production and delivery costs reported in FCX's consolidated financial statements, refer to the supplemental schedule, “Product Revenues and Production Costs,” beginning on page XIV, which is available on FCX's website, “www.fcx.com.”

 

Consolidated Sales Volumes

Third-quarter 2014 consolidated copper sales of 1.08 billion pounds were higher than third-quarter 2013 sales of 1.04 billion pounds, and approximated the July 2014 estimate of 1.07 billion pounds.

Third-quarter 2014 consolidated gold sales of 525 thousand ounces were higher than third-quarter 2013 sales of 305 thousand ounces because of higher ore grades, and higher than the July 2014 estimate of 445 thousand ounces primarily because of higher production and the timing of shipments.

Third-quarter 2014 consolidated molybdenum sales of 22 million pounds were slightly lower than third-quarter 2013 and the July 2014 estimate of 23 million pounds.

Third-quarter 2014 sales from oil and gas operations of 12.5 MMBOE, including 8.6 million barrels (MMBbls) of crude oil, 20.2 billion cubic feet (Bcf) of natural gas and 0.6 MMBbls of natural gas liquids (NGLs), were slightly higher than the July 2014 estimate of 12.2 MMBOE, but were lower than third-quarter 2013 sales of 16.5 MMBOE because of the sale of Eagle Ford properties in June 2014.

Consolidated sales for the year 2014 are expected to approximate 3.9 billion pounds of copper, 1.2 million ounces of gold, 95 million pounds of molybdenum and 56.2 MMBOE, including 1.0 billion pounds of copper, 350 thousand ounces of gold, 21 million pounds of molybdenum and 11.5 MMBOE for fourth-quarter 2014. These sales estimates exclude estimated fourth-quarter 2014 production from the Candelaria and Ojos del Salado mines (totaling approximately 80 million pounds of copper and 25 thousand ounces of gold) because of the pending sale transaction. Refer to page 6 for further discussion of the pending sale transaction.

Consolidated Unit Costs

Mining Unit Net Cash Costs. Consolidated average unit net cash costs (net of by-product credits) for FCX's copper mines of $1.34 per pound of copper in third-quarter 2014 were lower than unit net cash costs of $1.46 per pound in third-quarter 2013 and the July 2014 estimate of $1.44 per pound primarily because of higher by-product credits.

Assuming average prices of $1,250 per ounce of gold and $10 per pound of molybdenum for fourth-quarter 2014 and achievement of current sales volume and cost estimates, consolidated unit net cash costs (net of by-product credits) for copper mines are expected to average $1.52 per pound of copper for the year 2014. Quarterly unit net cash costs vary with fluctuations in sales volumes and average realized prices (primarily gold and molybdenum prices). The impact of price changes for fourth-quarter 2014 on consolidated unit net cash costs would approximate $0.01 per pound for each $50 per ounce change in the average price of gold and $0.005 per pound for each $2 per pound change in the average price of molybdenum.

Oil and Gas Cash Production Costs per BOE. Cash production costs for oil and gas operations of $20.93 per BOE in third-quarter 2014 were higher than cash production costs of $16.80 per BOE in third-quarter 2013, but lower than the July 2014 estimate of $22 per BOE for the second half of 2014. Higher cash production costs per BOE in third-quarter 2014, compared to third-quarter 2013, primarily reflected the sale of lower cost Eagle Ford properties in June 2014 and higher operating costs in California.

Based on current sales volume and cost estimates for fourth-quarter 2014, cash production costs are expected to approximate $21 per BOE for the year 2014 and $24 per BOE for fourth-quarter 2014.

MINING OPERATIONS

North America Copper Mines . FCX operates seven open-pit copper mines in North America - Morenci, Bagdad, Safford, Sierrita and Miami in Arizona, and Chino and Tyrone in New Mexico. All of the North America mining operations are wholly owned, except for Morenci. FCX records its 85 percent joint venture interest in Morenci using the proportionate consolidation method. In addition to copper, molybdenum concentrates are also produced by certain of FCX's North America copper mines.

Operating and Development Activities. FCX has increased production from its North America copper mines in recent years and continues to evaluate a number of opportunities to invest in additional production capacity following positive exploration results. Future investments will be undertaken based on the results of economic and technical feasibility studies and market conditions.

At Morenci, the mill expansion project commenced operations in May 2014 and is expected to reach full rates by year-end 2014. The project targets average incremental annual production of approximately 225 million pounds of copper (an approximate 40 percent increase from 2013) through an increase in milling rates from 50,000 metric tons of ore per day to approximately 115,000 metric tons of ore per day. During third-quarter 2014, Morenci's mill rates averaged 77,900 metric tons per day. At full rates, Morenci's copper production is expected to average over 900 million pounds per year over the next five years.

Construction of the expanded Morenci milling facility is substantially complete. Remaining items include completion of the molybdenum circuit, which would add capacity of approximately 9 million pounds of molybdenum per year, and the construction of an expanded tailings storage facility, which is expected to be completed in 2015. As of September 30, 2014, $1.5 billion had been incurred for this project, with approximately $0.1 billion remaining to be incurred.

Operating Data. Following is summary consolidated operating data for the North America copper mines for the third quarters and first nine months of 2014 and 2013:

    Three Months Ended     Nine Months Ended
September 30, September 30,
  2014       2013   2014       2013  
Copper (millions of recoverable pounds)
Production 423 354 1,203 1,046
Sales 436 363 1,230 1,088
Average realized price per pound $ 3.17 $ 3.27 $ 3.19 $ 3.37
 
Molybdenum (millions of recoverable pounds)
Productiona 8 9 25 26
 
Unit net cash costs per pound of copperb
Site production and delivery, excluding adjustments $ 1.83 $ 2.00 $ 1.86 $ 2.03
By-product credits (0.26 ) (0.24 ) (0.25 ) (0.25 )
Treatment charges 0.11   0.10   0.11   0.10  
Unit net cash costs $ 1.68   $ 1.86   $ 1.72   $ 1.88  
 

a. Refer to summary operating data on page 4 for FCX's consolidated molybdenum sales, which includes sales of molybdenum produced at the North America copper mines.

b. For a reconciliation of unit net cash costs per pound to production and delivery costs applicable to sales reported in FCX's consolidated financial statements, refer to the supplemental schedule, "Product Revenues and Production Costs," beginning on page XIV, which is available on FCX's website, "www.fcx.com."

 

North America's consolidated copper sales volumes of 436 million pounds in third-quarter 2014 were 20 percent higher than third-quarter 2013 sales of 363 million pounds, primarily reflecting higher mining and milling rates at Morenci and higher ore grades at Chino. Copper sales from North America are expected to approximate 1.7 billion pounds for the year 2014, compared with 1.4 billion pounds in 2013. North America copper production is expected to continue to increase for the year 2015 as a result of higher mill rates from the Morenci expansion.

Average unit net cash costs (net of by-product credits) for the North America copper mines of $1.68 per pound of copper in third-quarter 2014 were lower than unit net cash costs of $1.86 per pound in third-quarter 2013, primarily reflecting higher copper sales volumes. Average unit net cash costs (net of by-product credits) for the North America copper mines are expected to approximate $1.73 per pound of copper for the year 2014, based on current sales volume and cost estimates and assuming an average molybdenum price of $10 per pound for fourth-quarter 2014. North America's average unit net cash costs for fourth-quarter 2014 would change by approximately $0.007 per pound for each $2 per pound change in the average price of molybdenum.

South America Mining. FCX operates four copper mines in South America - Cerro Verde in Peru and El Abra, Candelaria and Ojos del Salado in Chile. FCX owns a 53.56 percent interest in Cerro Verde, a 51 percent interest in El Abra, and an 80 percent interest in the Candelaria and Ojos del Salado mining complex. All operations in South America are consolidated in FCX's financial statements. In addition to copper, the Candelaria and Ojos del Salado mines produce gold and silver, and the Cerro Verde mine produces molybdenum concentrates.

In October 2014, FCX entered into a definitive agreement to sell its 80 percent ownership interest in the Candelaria and Ojos del Salado copper mining operations and supporting infrastructure to Lundin for $1.8 billion in cash and contingent consideration of up to $0.2 billion. Contingent consideration is calculated as 5 percent of net copper revenues in any annual period over the next five years when the average copper price exceeds $4.00 per pound. Excluding contingent consideration, FCX estimates after-tax net proceeds from the transaction of approximately $1.5 billion.

As of December 31, 2013, FCX estimated that Candelaria and Ojos del Salado had consolidated recoverable proven and probable reserves totaling 4.0 billion pounds of copper and 1.1 million ounces of gold, determined using a long-term average price of $2.00 per pound for copper and $1,000 per ounce for gold. Consolidated production for the first nine months of 2014 totaled 246 million pounds of copper and 62 thousand ounces of gold.

The transaction has an effective date of June 30, 2014, and is expected to close by year-end 2014, subject to regulatory approvals and customary closing conditions. FCX expects to record an after-tax net gain of approximately $450 million related to the transaction.

Development Activities. Construction activities associated with a large-scale expansion at Cerro Verde are in progress. Detailed engineering and major procurement activities are complete and construction progress is approaching 40 percent completion. The project will expand the concentrator facilities from 120,000 metric tons of ore per day to 360,000 metric tons of ore per day and provide incremental annual production of approximately 600 million pounds of copper and 15 million pounds of molybdenum beginning in 2016. As of September 30, 2014, $2.7 billion had been incurred for this project, with approximately $1.9 billion remaining to be incurred.

FCX continues to evaluate a potential large-scale milling operation at El Abra to process additional sulfide material and to achieve higher recoveries. Exploration results in recent years at El Abra indicate a significant sulfide resource, which could potentially support a major mill project. Future investments will be dependent on technical studies, economic factors and global copper market conditions.

Operating Data. Following is summary consolidated operating data for the South America mining operations for the third quarters and first nine months of 2014 and 2013:

       
Three Months Ended Nine Months Ended
September 30, September 30,
  2014       2013   2014       2013  
Copper (millions of recoverable pounds)
Production 284 347 898 944
Sales 271 323 888 923
Average realized price per pound $ 3.10 $ 3.30 $ 3.12 $ 3.30
 
Gold (thousands of recoverable ounces)
Production 20 30 62 70
Sales 16 26 59 68
Average realized price per ounce $ 1,234 $ 1,335 $ 1,280 $ 1,415
 
Molybdenum (millions of recoverable pounds)
Productiona 3 4 8 8
 
Unit net cash costs per pound of copperb
Site production and delivery, excluding adjustments $ 1.67 $ 1.49 $ 1.61 $ 1.57
By-product credits (0.23 ) (0.22 ) (0.24 ) (0.25 )
Treatment charges 0.16   0.16   0.17   0.17  
Unit net cash costs $ 1.60   $ 1.43   $ 1.54   $ 1.49  
 

a. Refer to summary operating data on page 4 for FCX's consolidated molybdenum sales, which includes sales of molybdenum produced at Cerro Verde.

b. For a reconciliation of unit net cash costs per pound to production and delivery costs applicable to sales reported in FCX's consolidated financial statements, refer to the supplemental schedule, "Product Revenues and Production Costs," beginning on page XIV, which is available on FCX's website, "www.fcx.com."

 

South America's consolidated copper sales volumes of 271 million pounds in third-quarter 2014 were lower than third-quarter 2013 sales of 323 million pounds, primarily reflecting anticipated lower ore grades at Candelaria and Cerro Verde. Sales from South America mining are expected to approximate 1.1 billion pounds of copper for the year 2014 and exclude estimated fourth-quarter 2014 production from the Candelaria and Ojos del Salado mines (totaling approximately 80 million pounds of copper) because of the pending sale transaction.

Average unit net cash costs (net of by-product credits) for South America mining of $1.60 per pound of copper in third-quarter 2014 were higher than unit net cash costs of $1.43 per pound in third-quarter 2013, primarily reflecting lower sales volumes. Average unit net cash costs (net of by-product credits) for South America mining are expected to approximate $1.56 per pound of copper for the year 2014, based on current sales volume and cost estimates and assuming average prices of $1,250 per ounce of gold and $10 per pound of molybdenum for fourth-quarter 2014.

Indonesia Mining. Through its 90.64 percent owned and consolidated subsidiary PT-FI, FCX's assets include one of the world's largest copper and gold deposits at the Grasberg minerals district in Papua, Indonesia. PT-FI operates a proportionately consolidated joint venture, which produces copper concentrates that contain significant quantities of gold and silver.

Regulatory Matters. On July 25, 2014, PT-FI entered into a Memorandum of Understanding (MOU) with the Indonesian government under which PT-FI and the government agreed to negotiate an amended Contract of Work (COW) to address provisions related to the size of PT-FI’s concession area, royalties and taxes, domestic processing and refining, divestment, local content, and continuation of operations post-2021. Execution of the MOU enabled the resumption of concentrate exports, which had been suspended since January 2014.

Under the MOU, provisions to be addressed in the negotiation of an amended COW include provisions for the development of new copper smelting and refining capacity in Indonesia, provisions for divestment to the Indonesian government and/or Indonesian nationals of up to a 30 percent interest (an additional 20.64 percent interest) in PT-FI at fair value, and continuation of operations from 2022 through 2041. The MOU provides that negotiations for an amended COW will take into consideration PT-FI’s need for assurance of legal and fiscal terms post-2021 for PT-FI to continue with its large-scale investment program for the development of its underground reserves. PT-FI is engaged in discussions with the Indonesian government regarding an amended COW.

Effective with the signing of the MOU, PT-FI provided a $115 million assurance bond to support its commitment for smelter development, agreed to increase royalties to 4.0 percent for copper and 3.75 percent for gold from the previous rates of 3.5 percent for copper and 1.0 percent for gold, and to pay export duties set forth in a new regulation. The Indonesian government revised its January 2014 regulations regarding export duties to incorporate reduced rates for copper concentrate exports for companies engaged in smelter development. The revised regulations provide for duties on copper concentrate exports during smelter development initially at 7.5 percent, declining to 5.0 percent when development progress exceeds 7.5 percent and is eliminated when development progress exceeds 30 percent. During third-quarter 2014, PT-FI paid export duties of $42 million and increased royalties of $20 million.

Under the MOU, no terms of the COW other than those relating to export duties, the smelter bond and royalties described above will be changed until the completion of an amended COW.

Development Activities. PT-FI has several projects in progress in the Grasberg minerals district related to the development of large-scale, long-lived, high-grade underground ore bodies. In aggregate, these underground ore bodies are expected to ramp up over several years to process approximately 240,000 metric tons of ore per day following the transition from the Grasberg open pit, currently anticipated to occur in 2017. Development of the Grasberg Block Cave and Deep Mill Level Zone (DMLZ) underground mines is advancing to enable DMLZ to commence production in 2015 and the Grasberg Block Cave mine to commence production in 2017. Over the next five years, estimated aggregate capital spending on these projects is currently expected to average $0.9 billion per year ($0.7 billion per year net to PT-FI). Considering the long-term nature and size of these projects, actual costs could vary from these estimates. Additionally, PT-FI may reduce or defer these activities pending resolution of negotiations for an amended COW.

Operating Data. Following is summary consolidated operating data for the Indonesia mining operations for the third quarters and first nine months of 2014 and 2013:

       
Three Months Ended Nine Months Ended
September 30, September 30,
  2014     2013   2014     2013  
Copper (millions of recoverable pounds)
Production 203 253 465 611
Sales 258 237 484 593
Average realized price per pound $ 3.05 $ 3.30 $ 3.09 $ 3.27
 
Gold (thousands of recoverable ounces)
Production 426 297 776 640
Sales 505 278 802 620
Average realized price per ounce $ 1,219 $ 1,330 $ 1,248 $ 1,393
 
Unit net cash costs per pound of coppera
Site production and delivery, excluding adjustments $ 2.42 $ 2.30 $ 2.90 b $ 2.74
Gold and silver credits (2.44 ) (1.65 ) (2.16 ) (1.52 )
Treatment charges 0.25 0.23 0.25 0.23
Export duties 0.16 0.09
Royalty on metals 0.21   c 0.11   0.16   c 0.12  
Unit net cash costs $ 0.60   $ 0.99   $ 1.24   $ 1.57  
 

a. For a reconciliation of unit net cash costs per pound to production and delivery costs applicable to sales reported in FCX's consolidated financial statements, refer to the supplemental schedule, "Product Revenues and Production Costs," beginning on page XIV, which is available on FCX's website, "www.fcx.com."

b. Site production and delivery exclude fixed costs charged directly to cost of sales as a result of the impact of export restrictions on PT-FI's operating rates totaling $0.30 per pound of copper for the first nine months of 2014.

c. Includes $0.08 per pound of copper in third-quarter 2014 and $0.04 per pound of copper for the first nine months of 2014 associated with PT-FI's increased royalty rates.

 

Indonesia's third-quarter 2014 sales of 258 million pounds of copper and 505 thousand ounces of gold were higher than third-quarter 2013 sales of 237 million pounds of copper and 278 thousand ounces of gold primarily reflecting higher ore grades.

At the Grasberg mine, the sequencing of mining areas with varying ore grades causes fluctuations in quarterly and annual production of copper and gold. Sales from Indonesia mining are expected to approximate 0.7 billion pounds of copper and 1.15 million ounces of gold for the year 2014, compared with 0.9 billion pounds of copper and 1.1 million ounces of gold for the year 2013. Sales from Indonesia mining are expected to increase through 2016 as PT-FI gains access to higher grade ore.

On September 27, 2014, four Grasberg workers were fatally injured when a haul truck collided with a light vehicle near the Grasberg open pit operations. Operations in the Grasberg open pit were temporarily suspended in order to complete internal and government investigations regarding the accident. On October 13, 2014, Indonesian authorities approved the resumption of operations after issuing recommendations on traffic control procedures which have been implemented by PT-FI. Workforce attendance in several operating areas reflect normal levels. However, a large percentage of Grasberg open pit operators have not reported to their scheduled shifts resulting in reduced production from the open pit during October. These actions conflict with agreed policies and processes in the Collective Labor Agreement (CLA) and PT-FI is working with union leadership regarding this work stoppage to resume normal operations as soon as possible.

On October 27, 2014, PT-FI received notice from union leadership indicating its intention to conduct a 30-day strike beginning on November 6. This action is unlawful and inconsistent with the terms of the CLA. PT-FI will continue to engage in discussions with union leadership and to encourage its workers to follow the terms of its CLA to avoid losses to PT-FI, its workers, the local community and all stakeholders.

A significant portion of PT-FI's costs are fixed and unit costs vary depending on production volumes. Indonesia's unit net cash costs (including gold and silver credits) of $0.60 per pound of copper in third-quarter 2014 were lower than unit net cash costs of $0.99 per pound in third-quarter 2013, primarily reflecting higher gold and silver credits, partly offset by export duties, increased royalty rates and the impact of lower production rates in third-quarter 2014.

Unit net cash costs (net of gold and silver credits) for Indonesia mining are expected to approximate $1.19 per pound of copper for the year 2014, based on current sales volume and cost estimates, and assuming an average gold price of $1,250 per ounce for fourth-quarter 2014. Indonesia mining's projected unit net cash costs would change by approximately $0.05 per pound for each $50 per ounce change in the average price of gold for fourth-quarter 2014. Because of the fixed nature of a large portion of Indonesia's costs, unit costs vary from quarter to quarter depending on copper and gold volumes.

Africa Mining. Through its 56 percent owned and consolidated subsidiary Tenke Fungurume Mining S.A.R.L. (TFM), FCX operates in the Tenke Fungurume (Tenke) minerals district in the Katanga province of the Democratic Republic of Congo (DRC). In addition to copper, the Tenke mine produces cobalt hydroxide.

Operating and Development Activities. TFM completed its second phase expansion project in early 2013, which included increasing mine, mill and processing capacity. FCX continues to engage in exploration activities and metallurgical testing to evaluate the potential of the highly prospective minerals district at Tenke. These analyses are being incorporated in future plans for potential expansions of production capacity. Future expansions are subject to a number of factors, including economic and market conditions, and the business and investment climate in the DRC.

Operating Data. Following is summary consolidated operating data for the Africa mining operations for the third quarters and first nine months of 2014 and 2013:

       
Three Months Ended Nine Months Ended
September 30, September 30,
  2014       2013   2014       2013  
Copper (millions of recoverable pounds)
Production 117 109 340 351
Sales 112 118 314 342
Average realized price per pounda $ 3.11 $ 3.19 $ 3.09 $ 3.22
 
Cobalt (millions of contained pounds)
Production 8 8 22 19
Sales 8 6 23 17
Average realized price per pound $ 9.99 $ 8.57 $ 9.68 $ 8.10
 
Unit net cash costs per pound of copperb
Site production and delivery, excluding adjustments $ 1.61 $ 1.43 $ 1.51 $ 1.43
Cobalt creditsc (0.58 ) (0.27 ) (0.51 ) (0.26 )
Royalty on metals 0.07   0.07   0.07   0.06  
Unit net cash costs $ 1.10   $ 1.23   $ 1.07   $ 1.23  
 

a. Includes point-of-sale transportation costs as negotiated in customer contracts.

b. For a reconciliation of unit net cash costs per pound to production and delivery costs applicable to sales reported in FCX's consolidated financial statements, refer to the supplemental schedule, "Product Revenues and Production Costs," beginning on page XIV, which is available on FCX's website, "www.fcx.com."

c. Net of cobalt downstream processing and freight costs.

 

TFM's copper sales of 112 million pounds in third-quarter 2014 were slightly lower than third-quarter 2013 copper sales of 118 million pounds because of timing of shipments. TFM's sales are expected to approximate 445 million pounds of copper and 30 million pounds of cobalt for the year 2014, compared with 454 million pounds of copper and 25 million pounds of cobalt for the year 2013.

Africa mining's unit net cash costs (net of cobalt credits) of $1.10 per pound of copper in third-quarter 2014 were lower than unit net cash costs of $1.23 per pound of copper in third-quarter 2013, primarily reflecting higher cobalt credits, partly offset by higher site production and delivery costs. Unit net cash costs (net of cobalt credits) for Africa mining are expected to approximate $1.16 per pound of copper for the year 2014, based on current sales volume and cost estimates and assuming an average cobalt price of $13 per pound for fourth-quarter 2014. Africa mining's projected unit net cash costs would change by approximately $0.02 per pound for each $2 per pound change in the average price of cobalt for fourth-quarter 2014.

Molybdenum Mines. FCX has two wholly owned molybdenum mines in North America - the Henderson underground mine and the Climax open-pit mine, both in Colorado. The Henderson and Climax mines produce high-purity, chemical-grade molybdenum concentrates, which are typically further processed into value-added molybdenum chemical products. The majority of molybdenum concentrates produced at the Henderson and Climax mines, as well as from North and South America copper mines, are processed at FCX's conversion facility.

Production from the Molybdenum mines totaled 13 million pounds of molybdenum in third-quarter 2014, compared with 12 million pounds of molybdenum in third-quarter 2013. Refer to summary operating data on page 4 for FCX's consolidated molybdenum sales, which includes sales of molybdenum produced at the molybdenum mines, and from the North and South America copper mines.

Average unit net cash costs for the Molybdenum mines were $7.12 per pound of molybdenum in third-quarter 2014, compared with $7.15 per pound in third-quarter 2013. Based on current sales volume and cost estimates, unit net cash costs for the Molybdenum mines are expected to average approximately $7.00 per pound of molybdenum for the year 2014. For a reconciliation of unit net cash costs per pound to production and delivery costs applicable to sales reported in FCX's consolidated financial statements, refer to the supplemental schedule, "Product Revenues and Production Costs," beginning on page XIV, which is available on FCX's website, "www.fcx.com."

Mining Exploration Activities. FCX is actively conducting exploration activities near its existing mines with a focus on opportunities to expand reserves and resources to support development of additional future production capacity in the large minerals districts where it currently operates. Exploration results continue to indicate opportunities for significant future reserve additions in North and South America and in the Tenke minerals district. The drilling data in North America also continue to indicate the potential for significantly expanded sulfide production. Drilling results and exploration modeling in North America have identified large scale potential sulfide resources in the Morenci and Safford/Lone Star districts, providing a long-term pipeline for future growth in reserves and production capacity in an established minerals district.

Exploration spending associated with mining operations is expected to approximate $100 million for the year 2014, compared to $182 million in 2013.

OIL & GAS OPERATIONS

FCX's oil and gas operations provide exposure to energy markets with favorable long-term fundamentals, strong margins and cash flows, and a large resource base with financially attractive exploration and development investment opportunities. The portfolio of assets includes significant oil production facilities and growth potential in the Deepwater GOM, established oil production facilities onshore and offshore California, large onshore natural gas resources in the Haynesville shale play in Louisiana, natural gas production from the Madden area in central Wyoming, and an industry-leading position in the emerging Inboard Lower Tertiary/Cretaceous natural gas trend located in the shallow waters of the GOM and onshore in South Louisiana. More than 90 percent of FCX's oil and gas revenues are from oil and NGLs.

FM O&G follows the full cost method of accounting whereby all costs associated with oil and gas property acquisition, exploration and development activities are capitalized into cost centers on a country-by-country basis. Capitalized costs, along with estimated future costs to develop proved reserves and asset retirement costs that are not already included in oil and gas properties, net of related salvage value, are amortized to expense under the unit-of-production method using estimates of proved oil and natural gas reserves. The costs of unproved oil and gas properties are excluded from amortization until the properties are evaluated, at which time the related costs are subject to amortization. Under the full cost accounting rules, a "ceiling test" is conducted each quarter to review the carrying value of the oil and gas properties for impairment.

At September 30, 2014, the net capitalized costs with respect to FM O&G's U.S. oil and gas properties exceeded the related ceiling, which resulted in the recognition of an impairment charge of $308 million ($192 million to net income attributable to common stock), reflecting higher capitalized costs and the lower twelve-month average of the first-day-of-the-month historical reference oil price at September 30, 2014. During October 2014, oil prices continued to decline significantly. Continuation of recent oil price declines, increases in capitalized costs subject to amortization and other factors may result in future additional ceiling test impairments.

Financial and Operating Data. Following is summary financial and operating data for the U.S. oil and gas operations for the third quarters and first nine months of 2014 and 2013:

       
Three Months Ended Nine Months Ended
September 30, September 30,
2014       2013   2014a     2013b
Financial Summary (in millions)  
Realized revenuesc $ 867 $ 1,333 $ 3,355 $ 1,705
Less: cash production costsc 263   277   875   360
Cash operating margin $ 604 $ 1,056 $ 2,480 $ 1,345
Capital expenditures $ 908 $ 738 $ 2,392 $ 928
Sales Volumes
Oil (MMBbls) 8.6 11.5 32.1 14.9
Natural gas (Bcf) 20.2 23.5 59.9 31.3
NGLs (MMBbls) 0.6 1.0 2.7 1.3
MMBOE 12.5 16.5 44.7 21.5
Average Realizationsc
Oil (per barrel) $ 88.58 $ 104.33 $ 93.00 $ 102.76
Natural gas (per million British thermal units, or MMBtu) $ 4.02 $ 3.97 $ 4.37 $ 3.94
NGLs (per barrel) $ 39.69 $ 37.16 $ 41.77 $ 36.70
Cash Operating Margin per BOEc
Realized revenues $ 69.08 $ 80.93 $ 75.04 $ 79.40
Less: cash production costs 20.93   16.80   19.57   16.76
Cash operating margin $ 48.15   $ 64.13   $ 55.47   $ 62.64
 

a. Includes results from Eagle Ford through June 19, 2014.

b. Include the results of FM O&G beginning June 1, 2013.

c. Cash operating margin for oil and gas operations reflects realized revenues less cash production costs. Realized revenues exclude noncash mark-to-market adjustments on derivative contracts, and cash production costs exclude accretion and other costs. For reconciliations of realized revenues (including average realizations for oil, natural gas and NGLs) and cash production costs to revenues and production and delivery costs reported in FCX's consolidated financial statements, refer to the supplemental schedule, “Product Revenues and Production Costs,” beginning on page XIV, which is available on FCX's website, “www.fcx.com.”

 

In third-quarter 2014, FM O&G's average realized price for crude oil was $88.58 per barrel, net of $6.77 per barrel associated with payments on derivative contracts. Excluding the impact of derivative contracts, the third-quarter 2014 average realized price for crude oil was $95.35 per barrel (92 percent of the average Brent crude oil price of $103.50 per barrel).

FM O&G has derivative contracts that provide price protection averaging between approximately $70 and $90 per barrel of Brent crude oil for all of its estimated fourth-quarter 2014 oil production and approximately 80 percent of estimated 2015 oil production.

In third-quarter 2014, FM O&G's average realized price for natural gas was $4.02 per MMBtu. Excluding the impact of derivative contracts, the average realized price for natural gas was $4.00 per MMBtu in third-quarter 2014, compared to the New York Mercantile Exchange (NYMEX) natural gas price average of $4.06 per MMBtu for the July through September 2014 contracts.

Realized revenues for oil and gas operations of $69.08 per BOE in third-quarter 2014 were lower than realized revenues of $80.93 per BOE in third-quarter 2013, primarily reflecting lower oil prices (the Brent crude oil average price was $6.09 per barrel lower) and higher realized cash losses on derivative contracts ($58 million, or $4.62 per BOE in third-quarter 2014, compared with $12 million, $0.74 per BOE in third-quarter 2013).

Cash production costs of $20.93 per BOE in third-quarter 2014 were higher than cash production costs of $16.80 per BOE in third-quarter 2013, primarily reflecting the sale of lower cost Eagle Ford properties in June 2014 and higher operating costs in California.

Following is a summary of average oil and gas sales volumes per day by region for the third quarters and first nine months of 2014 and 2013:

       
Three Months Ended Nine Months Ended
September 30, September 30,
Sales Volumes (MBOE per day): 2014     2013   2014     2013a
GOMb 75   73 74   71
California 39 39 39 38
Haynesville/Madden/Other 22 c 21 19 c 22
Eagle Ford   46   32  

d

45
Total oil and gas operations 136 179 164 176
 

a. Reflects the results of FM O&G beginning June 1, 2013.

b. Includes sales from properties on the GOM Shelf and in the Deepwater GOM. Production from the GOM Shelf totaled 14 MBOE per day in third-quarter 2014 (18 percent of the GOM total), 12 MBOE per day for the first nine months of 2014 (17 percent of the GOM total) and 13 MBOE per day (18 percent of the GOM total) for both third quarter 2013 and the four-month period from June 1, 2013, to September 30, 2013.

c. Results include volume adjustments related to Eagle Ford's pre-close sales.

d. FM O&G completed the sale of Eagle Ford on June 20, 2014.

 

Daily sales volumes averaged 136 MBOE for third-quarter 2014, including 93 MBbls of crude oil, 219 MMcf of natural gas and 6 MBbls of NGLs. Oil and gas sales volumes are expected to average 125 MBOE per day for fourth-quarter 2014, comprised of 67 percent oil, 29 percent natural gas and 4 percent NGLs.

Based on current sales volume and cost estimates, cash production costs are expected to approximate $24 per BOE for fourth-quarter 2014.

Fourth-quarter 2014 sales volumes and unit cost estimates reflect downtime for maintenance affecting production rates at Marlin in the Deepwater GOM.

Operating, Development and Exploration Activities. FCX's oil and gas business has significant proved, probable and possible reserves, a broad range of development opportunities and high-potential exploration prospects. The business is being managed to reinvest its cash flows in projects with attractive rates of returns and risk profiles.

FM O&G has a large, strategic position in the Deepwater GOM with significant current oil production, strong cash margins and existing infrastructure and facilities with excess capacity. These assets, combined with FM O&G’s large leasehold interests in an established geologic basin, provide financially attractive investment opportunities for high-impact growth in oil production and cash margins. FM O&G’s capital allocation strategy is principally focused on exploitation drilling and development opportunities that can be tied back to existing facilities. Additional oil and gas asset sales and other transactions may be considered to provide incremental funding to accelerate FM O&G’s growth plans in the Deepwater GOM.

In June 2014, FM O&G completed the sale of the Eagle Ford shale assets for cash consideration of $3.1 billion ($2.6 billion net of taxes and closing adjustments). Approximately $1.3 billion of the proceeds was placed in a like-kind exchange escrow to reinvest in additional oil and gas interests and the remaining net proceeds were used to repay debt. In June 2014, FM O&G completed the acquisition of Deepwater GOM interests for $0.9 billion, including interests in the Lucius and Heidelberg oil fields and several exploration leases, and in September 2014, FM O&G acquired additional Deepwater GOM interests for $0.5 billion, including an 18.67 percent interest in the Vito oil discovery in the Mississippi Canyon area (Blocks 940, 941, 984 and 985) and a significant lease position in the Vito area.

Deepwater Gulf of Mexico. Multiple development and exploration opportunities have been identified in the Deepwater GOM that are expected to benefit from tie-back opportunities to available production capacity at the FM O&G operated large-scale Holstein, Marlin and Horn Mountain deepwater production platforms. Operations to pursue these opportunities have commenced and activities are expected to accelerate following the delivery of additional contracted drillships in late 2014 and mid-year 2015. Production is also expected to benefit from the commencement of production from the Lucius oil field in late 2014, the Heidelberg oil field in 2016 and longer range development in the Vito basin area.

All major construction and installation projects for the development of the Lucius oil field in Keathley Canyon are finished, and the initial six development wells are being completed. Commissioning work is in progress with first oil production from the 80 MBbls of oil per day spar expected to be achieved in fourth-quarter 2014. The geologic results from the six wells drilled since 2009 confirm a significant oil resource. Lucius is a subsea development consisting of a truss spar hull located in 7,200 feet of water. FM O&G has a 25.1 percent working interest in Lucius.

During third-quarter 2014, fabrication work on the Heidelberg spar hull and load-out was completed in Finland. The hull for this 80 MBbls of oil per day Lucius-look-alike facility arrived in Texas in October 2014, and fabrication of the main topsides module is approximately 60 percent complete. Development drilling is underway and the project remains on track for first production in 2016. Heidelberg is a large, high-quality oil development project located in 5,300 feet of water in the Green Canyon area. FM O&G has a 12.5 percent working interest in Heidelberg.

Holstein, in which FM O&G has a 100 percent working interest, is located in Green Canyon and has production facilities capable of producing in excess of 100 MBOE per day. Drilling from the Holstein platform rig commenced in first-quarter 2014. The first sidetrack well commenced production in June 2014 and a second sidetrack well was completed in third-quarter 2014, commencing initial production in October 2014. Combined production from the first two sidetrack wells is expected to total over 4 MBOE per day. Operations to commence the third sidetrack well are under way. FM O&G expects to drill four additional sidetrack wells from the Holstein platform. FM O&G also plans to drill several subsea tie-back wells from contracted drillships to enhance production volumes from the spar.

Delineation drilling for subsalt Miocene objectives on the western flank of the Holstein Deep prospect commenced in third-quarter 2014. In October 2014, interim logging and core results above 28,500 feet from the delineation well indicated 110 net feet of pay with positive reservoir characteristics and good correlation with the discovery well. The delineation well, which is approximately one mile south of the discovery well, is currently drilling below 28,900 feet towards a proposed total depth of 32,000 feet to evaluate the primary objectives. The Holstein Deep development, in which FM O&G has a 100 percent working interest, is located west of the Holstein platform in 3,890 feet of water and is a subsea tie-back opportunity to the Holstein facility. FM O&G acquired the acreage associated with this development in a 2013 lease sale held by the BOEM. Two successful wells with approximately 500 net feet of oil pay had previously been drilled in recent years.

FM O&G drilled two exploration wells at the Copper prospect during third-quarter 2014. The first well encountered multiple hydrocarbon bearing sands in the Pliocene and Miocene totaling approximately 100 feet of net pay. Follow-on drilling at the second location was unsuccessful. FM O&G is currently evaluating future plans for this prospect, which is located southeast of the Holstein field in 4,400 feet of water and is a subsea tie-back opportunity to the Holstein facility. FM O&G has a 100 percent working interest in Copper.

Marlin, in which FM O&G has a 100 percent working interest, is located in Mississippi Canyon and has production facilities capable of producing in excess of 60 MBOE per day. Several tie-back opportunities in the area have been identified. Development drilling at Dorado commenced in October 2014. This multi-well, infill development program will target undrained fault blocks and updip resource potential south of the Marlin facility. FM O&G also plans to commence exploitation drilling at the King M63 prospect in late 2014. King is located south of the Marlin facility in 5,200 feet of water.

FM O&G has an 18.67 percent interest in the Vito oil discovery in the Mississippi Canyon area and a significant lease position in the Vito basin in the Mississippi Canyon and Atwater Valley areas. Vito, a large, deep subsalt Miocene oil discovery made in 2009, is located in approximately 4,000 feet of water and is operated by Shell Offshore Inc. Exploration and appraisal drilling in recent years confirmed a resource in high-quality, subsalt Miocene sands. Development options are under evaluation. The acquired exploration leases in the Vito basin area (with working interests ranging from 50 percent to 100 percent) provide high potential tie-back opportunities and are complementary to FM O&G’s existing lease position in the Mississippi Canyon and Atwater Valley areas.

The Power Nap exploration prospect, in which FM O&G has a 50 percent working interest, commenced drilling in September 2014 towards a proposed total depth of 31,100 feet. The prospect is a Vito analog play. Power Nap is located in the Vito basin in 4,200 feet of water and is operated by Shell Offshore Inc.

Inboard Lower Tertiary/Cretaceous. FM O&G has an industry-leading position in the emerging Inboard Lower Tertiary/Cretaceous natural gas trend, located on the Shelf of the GOM and onshore in South Louisiana. FM O&G has a large onshore and offshore lease acreage position with high-quality prospects and the potential to develop a significant long-term, low-cost source of natural gas. Data from eight wells drilled to date indicate the presence of geologic formations that are analogous to productive formations in the Deepwater GOM and onshore in the Gulf Coast region. The near-term focus is on defining the trend onshore.

The Highlander discovery well is currently being completed to test Cretaceous/Tuscaloosa objectives found below the salt weld and flow testing is anticipated in fourth-quarter 2014. The Highlander onshore exploratory well, in which FM O&G is the operator and has a 72 percent working interest, located in St. Martin Parish, Louisiana, encountered gas pay in several Wilcox and Cretaceous/Tuscaloosa sands between 24,000 feet and 29,000 feet in January 2014. As previously reported, the wireline log and core data obtained from the Wilcox and Cretaceous sand packages indicated favorable reservoir characteristics with approximately 150 feet of net pay. FM O&G has identified multiple exploratory prospects in the Highlander area where it controls rights to more than 60,000 gross acres.

In September and October 2014, flow testing was performed on middle Miocene sand sections in the Blackbeard West No. 2 well on Ship Shoal Block 188, in which FM O&G has a 69.4 percent working interest. During the testing period, the well flowed at a rate of approximately 2,000 barrels of water per day with flowing tubing pressure of approximately 9,000 pounds per square inch. While the well did not result in hydrocarbon production in commercial quantities, this water rate indicates that subsalt sands on the Shelf below 20,000 feet are capable of substantial production rates. Based on the porosity and permeability properties of the sand, FM O&G believes, if the sand had been full to base, the sand could have flowed at a rate of approximately 50 million cubic feet of natural gas per day. The well will be temporarily abandoned while FM O&G evaluates plans to complete and test shallower upper Miocene sands in the well. A rig will be moved to Blackbeard East in fourth-quarter 2014 to complete and test the middle Miocene sands in this well. FM O&G holds a 90 percent working interest in Blackbeard East. FM O&G has completed the Davy Jones No. 2 well and is conducting a flow test of the Wilcox sands. FM O&G holds a 75 percent working interest in Davy Jones.

The Farthest Gate West onshore exploration prospect commenced drilling in October 2014 and is currently drilling below 4,000 feet towards a proposed total depth of 29,000 feet. Farthest Gate West is located onshore in Cameron Parish, Louisiana, and is a Lineham Creek analog prospect with Paleogene objectives. FM O&G is currently reviewing completion options for the Lineham Creek discovery, in which FM O&G has a 36 percent working interest.

California. FM O&G's California assets benefit from an established oil production base with a stable production profile and access to favorably priced crude markets. Development plans are principally focused on maintaining stable production levels through continued drilling in the long-established producing fields onshore in California. FM O&G’s position in California is located onshore in the San Joaquin Valley and Los Angeles Basin and offshore in the Point Arguello and Point Pedernales fields.

Haynesville. FM O&G has rights to a substantial natural gas resource, located in the Haynesville shale play in North Louisiana. Drilling activities in recent years have been reduced to maximize cash flows in a low natural gas price environment and to benefit from potentially higher future natural gas prices.

International Exploration (Morocco). FM O&G has a farm-in arrangement to earn interests in exploration blocks located in the Mazagan permit area offshore Morocco. The exploration area covers 2.2 million gross acres in water depths of 4,500 to 9,900 feet. The prospects include Miocene, Cretaceous and Jurassic targets. FM O&G expects to commence drilling the first well in early 2015.

Oil and Gas Capital Expenditures. Capital expenditures for oil and gas operations totaled $0.9 billion for third-quarter 2014, including $0.5 billion incurred for the Deepwater GOM and $0.2 billion for the Inboard Lower Tertiary/Cretaceous natural gas trend, and $2.4 billion for the first nine months of 2014, including $1.3 billion incurred for the Deepwater GOM and $0.5 billion for the Inboard Lower Tertiary/Cretaceous natural gas trend. Capital expenditures for oil and gas operations, which are expected to be funded by FM O&G's operating cash flows and oil and gas asset sales, are projected to approximate $3.4 billion for the year 2014, including $2.0 billion for the Deepwater GOM and $0.7 billion for the Inboard Lower Tertiary/Cretaceous natural gas trend. FM O&G future capital spending estimates may be adjusted to incorporate results from its ongoing drilling activities and follow-on development activities, and changes in market conditions.

CASH FLOWS, CASH and DEBT

Operating Cash Flows. FCX generated operating cash flows of $1.9 billion (including $78 million in working capital sources and changes in other tax payments) for third-quarter 2014 and $4.5 billion (net of $699 million in working capital uses and changes in other tax payments) for the first nine months of 2014.

Based on current sales volume and cost estimates and assuming average prices of $3.00 per pound of copper, $1,250 per ounce of gold, $10 per pound of molybdenum and $90 per barrel of Brent crude oil for fourth-quarter 2014, FCX's consolidated operating cash flows are estimated to approximate $5.8 billion (net of $0.4 billion of working capital uses and changes in other tax payments) for the year 2014. The impact of price changes during fourth-quarter 2014 on operating cash flows would approximate $90 million for each $0.10 per pound change in the average price of copper, $15 million for each $50 per ounce change in the average price of gold and $18 million for each $2 per pound change in the average price of molybdenum. For Brent crude oil, a $5 per barrel increase above $90 per barrel in fourth-quarter 2014 would improve 2014 operating cash flows by approximately $20 million. After giving effect to derivative contracts, which provide price protection between approximately $70 and $90 per barrel, a $5 per barrel decrease below $90 per barrel in fourth-quarter 2014 would not reduce 2014 operating cash flows.

Capital Expenditures. Capital expenditures totaled $1.9 billion for third-quarter 2014, including $0.6 billion for major projects at mining operations and $0.9 billion for oil and gas operations, and $5.4 billion for the first nine months of 2014, including $2.0 billion for major projects at mining operations and $2.4 billion for oil and gas operations.

Capital expenditures are currently expected to approximate $7.5 billion for the year 2014, including $3.0 billion for major projects at mining operations (primarily for the expansions at Cerro Verde and Morenci, and underground development activities at Grasberg) and $3.4 billion for oil and gas operations.

Capital spending plans will continue to be managed prudently and may be adjusted to reflect market conditions, opportunities or other factors.

Cash. Following is a summary of cash available to the parent company, net of noncontrolling interests' share, taxes and other costs at September 30, 2014 (in millions):

   
Cash at domestic companies $ 61
Cash at international operations 597   a
Total consolidated cash and cash equivalents 658
Less: noncontrolling interests' share (161 )
Cash, net of noncontrolling interests' share 497
Less: withholding taxes and other (41 )
Net cash available $ 456   a
 

a.  Includes $121 million of consolidated cash and cash equivalents at Candelaria and Ojos del Salado ($80 million available to the parent company).

 

Debt. FCX continues to target significant reductions in debt by the end of 2016 using cash flows generated above capital expenditures and other cash requirements. FCX has taken steps to accelerate its deleveraging plans through asset sales and will continue to evaluate its portfolio for potential future monetizations. FCX may also take additional steps to reduce or defer capital spending and other costs in response to market conditions.

       

Following is a summary of total debt and related weighted-average interest rates at September 30, 2014 (in billions, except percentages):

 
Weighted-
Average

Interest Rate

FCX Senior Notes $ 9.5 3.6%
FM O&G Senior Notes 4.6 a 6.9%
FCX Term Loan 3.8 1.7%
Other FCX debt 1.8 2.8%
$ 19.7 3.9%
 

a. On October 15, 2014, FCX redeemed the $400 million principal amount of its 8.625% Senior Notes. Holders received the principal amount together with the redemption premium and accrued and unpaid interest to the redemption date. FCX expects to record a pre-tax gain of $24 million in fourth-quarter 2014 associated with this redemption.

 

In third-quarter 2014, FCX redeemed $1.7 billion of senior notes with an average interest rate of 6.6 percent under the equity clawback provisions of the instruments. As a result of these redemptions, FCX recorded a pre-tax gain on early extinguishment of debt of $58 million in third-quarter 2014. At September 30, 2014, FCX had $1.1 billion of borrowings outstanding and $45 million of letters of credit issued under its revolving credit facility.

FINANCIAL POLICY

FCX has a long-standing tradition of seeking to build shareholder value through investing in projects with attractive rates of return and returning cash to shareholders through common stock dividends and share purchases. FCX paid common stock dividends of $979 million in the first nine months of 2014.

FCX's current annual dividend rate for its common stock is $1.25 per share. On September 24, 2014, FCX's Board of Directors (the Board) declared a regular quarterly dividend of $0.3125 per share, which will be paid on November 3, 2014. The declaration of dividends is at the discretion of the Board and will depend upon FCX's financial results, cash requirements, future prospects and other factors deemed relevant by the Board.

FCX intends to continue to maintain a strong financial position, with a focus on reducing debt while continuing to invest in attractive growth projects and providing cash returns to shareholders. The Board will continue to review FCX's financial policy on an ongoing basis.

WEBCAST INFORMATION

A conference call with securities analysts to discuss FCX's third-quarter 2014 results is scheduled for today at 10:00 a.m. Eastern Time. The conference call will be broadcast on the Internet along with slides. Interested parties may listen to the conference call live and view the slides by accessing "www.fcx.com." A replay of the webcast will be available through Friday, November 21, 2014.

-----------------------------------------------------------------------------------------------------------

FCX is a premier U.S.-based natural resources company with an industry-leading global portfolio of mineral assets, significant oil and gas resources and a growing production profile. FCX is the world's largest publicly traded copper producer.

FCX's portfolio of assets includes the Grasberg minerals district in Indonesia, one of the world's largest copper and gold deposits; significant mining operations in the Americas, including the large-scale Morenci minerals district in North America and the Cerro Verde operation in South America; the Tenke Fungurume minerals district in the DRC; and significant oil and natural gas assets in North America, including reserves in the Deepwater GOM, onshore and offshore California and in the Haynesville shale play, and an industry-leading position in the emerging shallow water Inboard Lower Tertiary/Cretaceous natural gas trend on the Shelf of the GOM and onshore in South Louisiana. Additional information about FCX is available on FCX's website at "www.fcx.com."

Cautionary Statement and Regulation G Disclosure: This press release contains forward-looking statements in which FCX discusses its potential future performance. Forward-looking statements are all statements other than statements of historical facts, such as projections or expectations relating to ore grades and milling rates, production and sales volumes, unit net cash costs, cash production costs per BOE, operating cash flows, capital expenditures, exploration efforts and results, development and production activities and costs, liquidity, tax rates, the impact of copper, gold, molybdenum, cobalt, crude oil and natural gas price changes, the impact of derivative positions, the impact of deferred intercompany profits on earnings, reserve estimates, future dividend payments, debt reduction and share purchases. The words “anticipates,” “may,” “can,” “plans,” “believes,” “estimates,” “expects,” “projects,” "targets," “intends,” “likely,” “will,” “should,” “to be,” ”potential" and any similar expressions are intended to identify those assertions as forward-looking statements. The declaration of dividends is at the discretion of FCX's Board and will depend on FCX's financial results, cash requirements, future prospects, and other factors deemed relevant by the Board.

FCX cautions readers that forward-looking statements are not guarantees of future performance and its actual results may differ materially from those anticipated, projected or assumed in the forward-looking statements. Important factors that can cause FCX's actual results to differ materially from those anticipated in the forward-looking statements include supply of and demand for, and prices of, copper, gold, molybdenum, cobalt, oil and gas, mine sequencing, production rates, industry risks, regulatory changes, political risks, drilling results, the outcome of ongoing discussions with the Indonesian government regarding an amendment to PT-FI's Contract of Work, the potential effects of violence in Indonesia, the ability of the parties to satisfy customary closing conditions and consummate the pending sale of FCX's ownership interests in the Candelaria and Ojos del Salado copper mining operations, the resolution of administrative disputes in the DRC, labor relations, currency translation risks, weather- and climate-related risks, environmental risks, litigation results and other factors described in more detail under the heading “Risk Factors” in FCX's Annual Report on Form 10-K for the year ended December 31, 2013, filed with the U.S. Securities and Exchange Commission (SEC) as updated by FCX's subsequent filings with the SEC.

Investors are cautioned that many of the assumptions on which FCX's forward-looking statements are based are likely to change after its forward-looking statements are made, including for example commodity prices, which FCX cannot control, and production volumes and costs, some aspects of which FCX may or may not be able to control. Further, FCX may make changes to its business plans that could or will affect its results. FCX cautions investors that it does not intend to update forward-looking statements more frequently than quarterly notwithstanding any changes in FCX's assumptions, changes in business plans, actual experience or other changes, and FCX undertakes no obligation to update any forward-looking statements.

This press release also contains certain financial measures such as unit net cash costs per pound of copper and per pound of molybdenum, oil and gas realized revenues, cash production costs and cash operating margin, which are not recognized under generally accepted accounting principles in the U.S. As required by SEC Regulation G, reconciliations of these measures to amounts reported in FCX's consolidated financial statements are in the supplemental schedules of this press release, which are also available on FCX's website, "www.fcx.com."

 
FREEPORT-McMoRan INC.
SELECTED MINING OPERATING DATA
                 
Three Months Ended September 30,
Production Sales

COPPER (millions of recoverable pounds)

2014   2013   2014 2013
(FCX's net interest in %)

North America

Morenci (85%)a 181 137 181 141
Bagdad (100%) 58 56 61 56
Safford (100%) 29 38 33 39
Sierrita (100%) 46 47 50 47
Miami (100%) 15 15 16 16
Chino (100%) 69 36 68 39
Tyrone (100%) 23 24 25 24
Other (100%) 2   1   2 1
Total North America 423   354   436 363
 

South America

Cerro Verde (53.56%) 117 147 118 133
El Abra (51%) 90 81 91 84
Candelaria (80%) 66 107 53 94
Ojos del Salado (80%) 11   12   9 12
Total South America 284   347   271 323
 

Indonesia

Grasberg (90.64%)b 203   253   258 237
 

Africa

Tenke Fungurume (56%) 117   109   112 118
 
Consolidated 1,027   1,063   1,077 1,041
Less noncontrolling interests 184   203   186 198
Net 843   860   891 843
 
Consolidated sales from mines 1,077 1,041
Purchased copper 23 79
Total copper sales, including purchases 1,100 1,120
 
Average realized price per pound $ 3.12 $ 3.28
 

GOLD (thousands of recoverable ounces)

(FCX's net interest in %)
North America (100%) 3 4 1
South America (80%) 20 30 16 26
Indonesia (90.64%)b 426   297   505 278
Consolidated 449   327   525 305
Less noncontrolling interests 44   34   51 31
Net 405   293   474 274
 
Average realized price per ounce $ 1,220 $ 1,329
 

MOLYBDENUM (millions of recoverable pounds)

(FCX's net interest in %)
Henderson (100%) 7 7 N/A N/A
Climax (100%) 6 5 N/A N/A
North America copper mines (100%)a 8 9 N/A N/A
Cerro Verde (53.56%) 3   4   N/A N/A
Consolidated 24   25   22 23
Less noncontrolling interests 1   2   1 1
Net 23   23   21 22
 
Average realized price per pound $ 14.71 $ 11.21
 

COBALT (millions of contained pounds)

(FCX's net interest in %)
Consolidated - Tenke Fungurume (56%) 8   8   8 6
Less noncontrolling interests 4   3   3 3
Net 4   5   5 3
 
Average realized price per pound $ 9.99 $ 8.57
 

a. Amounts are net of Morenci's 15 percent joint venture partner's interest.

b. Amounts are net of Grasberg's joint venture partner's interest, which varies in accordance with the terms of the joint venture agreement.

 
                 
FREEPORT-McMoRan INC.
SELECTED MINING OPERATING DATA (continued)
 
Nine Months Ended September 30,
Production Sales

COPPER (millions of recoverable pounds)

2014   2013   2014 2013
(FCX's net interest in %)

North America

Morenci (85%)a 482 411 489 429
Bagdad (100%) 175 157 181 161
Safford (100%) 100 111 107 119
Sierrita (100%) 147 130 150 132
Miami (100%) 44 43 47 45
Chino (100%) 179 119 177 126
Tyrone (100%) 70 71 73 72
Other (100%) 6   4   6 4
Total North America 1,203   1,046   1,230 1,088
 

South America

Cerro Verde (53.56%) 377 405 379 391
El Abra (51%) 275 255 273 256
Candelaria (80%) 209 247 201 240
Ojos del Salado (80%) 37   37   35 36
Total South America 898   944   888 923
 

Indonesia

Grasberg (90.64%)b 465   611   484 593
 

Africa

Tenke Fungurume (56%) 340   351   314 342
 
Consolidated 2,906   2,952   2,916 2,946
Less noncontrolling interests 552   581   541 568
Net 2,354   2,371   2,375 2,378
 
Consolidated sales from mines 2,916 2,946
Purchased copper 89 182
Total copper sales, including purchases 3,005 3,128
 
Average realized price per pound $ 3.14 $ 3.31
 

GOLD (thousands of recoverable ounces)

(FCX's net interest in %)
North America (100%) 8 3 10 4
South America (80%) 62 70 59 68
Indonesia (90.64%)b 776   640   802 620
Consolidated 846   713   871 692
Less noncontrolling interests 85   74   87 71
Net 761   639   784 621
 
Average realized price per ounce $ 1,251 $ 1,395
 

MOLYBDENUM (millions of recoverable pounds)

(FCX's net interest in %)
Henderson (100%) 23 22 N/A N/A
Climax (100%) 17 15 N/A N/A
North America copper mines (100%)a 25 26 N/A N/A
Cerro Verde (53.56%) 8   8   N/A N/A
Consolidated 73   71   74 71
Less noncontrolling interests 4   4   4 3
Net 69   67   70 68
 
Average realized price per pound $ 13.01 $ 12.12
 

COBALT (millions of contained pounds)

(FCX's net interest in %)
Consolidated - Tenke Fungurume (56%) 22   19   23 17
Less noncontrolling interests 10   8   10 8
Net 12   11   13 9
 
Average realized price per pound $ 9.68 $ 8.10
 

a. Amounts are net of Morenci's 15 percent joint venture partner's interest.

b. Amounts are net of Grasberg's joint venture partner's interest, which varies in accordance with the terms of the joint venture agreement.

 
 
FREEPORT-McMoRan INC.
SELECTED MINING OPERATING DATA (continued)
                   
Three Months Ended Nine Months Ended
September 30, September 30,
2014   2013   2014   2013
100% North America Copper Mines

Solution Extraction/Electrowinning (SX/EW) Operations

Leach ore placed in stockpiles (metric tons per day) 1,003,900 993,100 1,010,600 1,015,400
Average copper ore grade (percent) 0.25 0.22 0.25 0.22
Copper production (millions of recoverable pounds) 244 216 707 651
 

Mill Operations

Ore milled (metric tons per day) 278,000 247,400 264,500 246,300
Average ore grades (percent):
Copper 0.44 0.38 0.43 0.39
Molybdenum 0.03 0.03 0.03 0.03
Copper recovery rate (percent) 87.5 86.3 85.5 84.6
Production (millions of recoverable pounds):
Copper 211 163 581 469
Molybdenum 8 9 25 26
 
100% South America Mining

SX/EW Operations

Leach ore placed in stockpiles (metric tons per day) 269,600 287,500 279,300 276,600
Average copper ore grade (percent) 0.50 0.48 0.50 0.49
Copper production (millions of recoverable pounds) 122 110 370 329
 

Mill Operations

Ore milled (metric tons per day) 192,100 189,900 187,700 191,000
Average ore grades:
Copper (percent) 0.50 0.71 0.55 0.62
Gold (grams per metric ton) 0.09 0.14 0.10 0.11
Molybdenum (percent) 0.02 0.03 0.02 0.02
Copper recovery rate (percent) 86.9 90.5 88.6 90.4
Production (recoverable):
Copper (millions of pounds) 162 237 528 615
Gold (thousands of ounces) 20 30 62 70
Molybdenum (millions of pounds) 3 4 8 8
 
100% Indonesia Mining
Ore milled (metric tons per day)a
Grasberg open pit 78,100 149,000 64,900 122,700
DOZ underground mine 57,600 47,600 52,800 45,900
Big Gossan underground mine   1,600   1,200   2,000
Total 135,700   198,200   118,900   170,600
Average ore grades:
Copper (percent) 0.88 0.74 0.78 0.71
Gold (grams per metric ton) 1.28 0.65 0.94 0.57
Recovery rates (percent):
Copper 91.4 89.7 89.9 89.1
Gold 84.6 80.3 81.5 76.3
Production (recoverable):
Copper (millions of pounds) 207 253 476 611
Gold (thousands of ounces) 426 297 777 640
 
100% Africa Mining
Ore milled (metric tons per day) 15,500 14,500 15,100 14,700
Average ore grades (percent):
Copper 4.13 3.94 4.09 4.32
Cobalt 0.33 0.43 0.33 0.36
Copper recovery rate (percent) 91.3 91.6 92.8 91.7
Production (millions of pounds):
Copper (recoverable) 117 109 340 351
Cobalt (contained) 8 8 22 19
 
100% Molybdenum Mines
Ore milled (metric tons per day) 39,300 34,700 41,200 36,500
Average molybdenum ore grade (percent) 0.19 0.20 0.19 0.19
Molybdenum production (millions of recoverable pounds) 13 12 40 37
 

a.  Amounts represent the approximate average daily throughput processed at PT-FI's mill facilities from each producing mine.

 
 
FREEPORT-McMoRan INC.
SELECTED OIL AND GAS OPERATING DATA
             
Three Months Ended September 30,
Sales Volumes Sales per Day
2014   2013   2014       2013  
GULF OF MEXICO (GOM)a  
Oil (thousand barrels or MBbls) 5,018 4,954 55 54
Natural gas (million cubic feet or MMcf) 8,225 7,685 89 84
Natural gas liquids (NGLs, in MBbls) 516 451 5 5
Thousand barrels of oil equivalents (MBOE) 6,905 6,686 75 73
Average realized price per BOEb $ 80.36 $ 89.05
Cash production costs per BOEb $ 15.39 $ 14.00
Capital expenditures (in millions) $

701

c $ 266 c
 
CALIFORNIA
Oil (MBbls) 3,464 3,443 37 37
Natural gas (MMcf) 625 607 7 7
NGLs (MBbls) 47 44 1 d
MBOE 3,615 3,588 39 39
Average realized price per BOEb $ 86.03 $ 98.75
Cash production costs per BOEb $ 37.96 $ 30.22
Capital expenditures (in millions) $ 75 $ 81
 
HAYNESVILLE/MADDEN/OTHER
Oil (MBbls) 128 43 1 1
Natural gas (MMcf) 11,301 11,538 123 125
NGLs (MBbls) 13 14 d d
MBOE 2,024 e 1,980 22 21
Average realized price per BOEb $ 28.92 e $ 22.08
Cash production costs per BOEb $ 9.41 e $ 11.58
Capital expenditures (in millions) $

36

$ 24
 
EAGLE FORDf
Oil (MBbls) 3,070 33
Natural gas (MMcf) 3,713 40
NGLs (MBbls) 521 6
MBOE 4,209 46
Average realized price per BOEb $ $ 83.47
Cash production costs per BOEb $ $ 12.30
Capital expenditures (in millions) $ $ 221
 
TOTAL U.S. OIL AND GAS OPERATIONS
Oil (MBbls) 8,610 11,510 93 125
Natural gas (MMcf) 20,151 23,543 219 256
NGLs (MBbls) 576 1,030 6 11
MBOE 12,544 16,463 136 179
Cash operating margin per BOE:b
Realized revenue $ 69.08 $ 80.93
Cash production costs 20.93   16.80  
Cash operating margin $ 48.15 $ 64.13
Depreciation, depletion and amortization per BOE $ 40.12 g $ 34.15
Capital expenditures (in millions) $ 908 h $ 738 h
 

a. Reflects properties in the Deepwater GOM and on the Shelf, including the Inboard Lower Tertiary/Cretaceous natural gas trend.

b. Cash operating margin for oil and gas operations reflects realized revenues less cash production costs. Realized revenues exclude noncash mark-to-market adjustments on derivative contracts, and cash production costs exclude accretion and other costs. In addition, the derivative contracts for oil and gas operations are managed on a consolidated basis; accordingly, the average realized price per BOE by region does not reflect adjustments for derivative contracts. For reconciliations of average realized price and cash production costs per BOE to revenues and production and delivery costs reported in FCX's consolidated financial statements, refer to the supplemental schedule, “Product Revenues and Production Costs,” beginning on page XIV, which is available on FCX's website, “www.fcx.com.”

c. Includes $187 million in third-quarter 2014 and $86 million in third-quarter 2013 for the Inboard Lower Tertiary/Cretaceous natural gas trend.

d. Rounds to less than 1 MBbl per day.

e. Third-quarter 2014 includes volume adjustments related to Eagle Ford's pre-close sales totaling 113 MBOE; excluding these amounts, average realized price was $24.51 per BOE and cash production costs were $11.55 per BOE.

f. FCX completed the sale of its Eagle Ford shale assets on June 20, 2014.

g. Excludes impairment charges of $308 million ($24.59 per BOE).

h. Consolidated capital expenditures for U.S. oil and gas operations reflect total spending, which is net of accrual and other adjustments totaling $96 million for third-quarter 2014 and $146 million for third-quarter 2013 that are not specifically allocated to the above regions.

 
 
FREEPORT-McMoRan INC.
SELECTED OIL AND GAS OPERATING DATA (continued)
           
Nine Months Ended September 30,
Sales Volumes Sales per Day
2014a 2013b 2014a     2013b
GOMc
Oil (MBbls) 15,081 6,331 55 52
Natural gas (MMcf) 20,801 10,091 76 84
NGLs (MBbls) 1,520 578 6 5
MBOE 20,068 8,591 74 71
Average realized price per BOEd $ 84.99 $ 86.61
Cash production costs per BOEd $ 14.88 $ 14.01
Capital expenditures (in millions) $

1,832

e $ 360 e
 
CALIFORNIA
Oil (MBbls) 10,319 4,528 38 37
Natural gas (MMcf) 1,770 798 7 6
NGLs (MBbls) 130 58

f f
MBOE 10,744 4,719 39 38
Average realized price per BOEd $ 90.70 $ 97.71
Cash production costs per BOEd $ 37.40 $ 30.40
Capital expenditures (in millions) $ 196 $ 110
 
HAYNESVILLE/MADDEN/OTHER
Oil (MBbls) 182 54 1 f
Natural gas (MMcf) 29,952 15,564 110 128
NGLs (MBbls) 24 19 f f
MBOE 5,198 g 2,667 19 22
Average realized price per BOEd $ 28.93 g $ 22.52
Cash production costs per BOEd $ 11.85 g $ 10.38
Capital expenditures (in millions) $

88

$ 31
 
EAGLE FORD
Oil (MBbls) 6,481 3,997 23 33
Natural gas (MMcf) 7,410 4,827 27 40
NGLs (MBbls) 978 690 4 6
MBOE 8,694 5,491 32 45
Average realized price per BOEd $ 81.66 $ 81.95
Cash production costs per BOEd $ 12.97 $ 12.42
Capital expenditures (in millions) $ 232 $ 299
 
TOTAL U.S. OIL AND GAS OPERATIONS
Oil (MBbls) 32,063 14,910 117 122
Natural gas (MMcf) 59,933 31,280 220 258
NGLs (MBbls) 2,652 1,345 10 11
MBOE 44,704 21,468 164 176
Cash operating margin per BOE:d
Realized revenue $ 75.04 $ 79.40
Cash production costs 19.57   16.76  
Cash operating margin $ 55.47 $ 62.64
Depreciation, depletion and amortization per BOE $ 38.81 h $ 34.07
Capital expenditures (in millions) $ 2,392 i $ 928 i
 

a. Includes the results of Eagle Ford through June 19, 2014.

b. Includes the results of FM O&G beginning June 1, 2013.

c. Reflects properties in the Deepwater GOM and on the Shelf, including the Inboard Lower Tertiary/Cretaceous natural gas trend.

d. Cash operating margin for oil and gas operations reflects realized revenues less cash production costs. Realized revenues exclude noncash mark-to-market adjustments on derivative contracts, and cash production costs exclude accretion and other costs. In addition, the derivative contracts for oil and gas operations are managed on a consolidated basis; accordingly, the average realized price per BOE by region does not reflect adjustments for derivative contracts. For reconciliations of average realized price and cash production costs per BOE to revenues and production and delivery costs reported in FCX's consolidated financial statements, refer to the supplemental schedule, “Product Revenues and Production Costs,” beginning on page XIV, which is available on FCX's website, “www.fcx.com.”

e. Includes $487 million for the first nine months of 2014 and $104 million for the first nine months of 2013 (reflecting the four-month period from June 1, 2013, to September 2013), for the Inboard Lower Tertiary/Cretaceous natural gas trend.

f. Rounds to less than 1 MBbl per day.

g. The first nine months of 2014 includes volume adjustments related to Eagle Ford's pre-close sales totaling 113 MBOE; excluding these amounts, average realized price was $27.27 per BOE and cash production costs were $12.70 per BOE.

h. Excludes impairment charges of $308 million ($6.90 per BOE).

i. Consolidated capital expenditures for U.S. oil and gas operations reflect total spending, which is net of accrual and other adjustments totaling $44 million for the first nine months of 2014 and $128 million for the four-month period from June 1, 2013, to September 2013, that are not specifically allocated to the regions.

FREEPORT-McMoRan INC.
CONSOLIDATED STATEMENTS OF INCOME (Unaudited)
               
Three Months Ended Nine Months Ended
September 30, September 30,
2014   2013   2014   2013a
(In Millions, Except Per Share Amounts)
Revenues $ 5,696 b,c $ 6,165 b,c $ 16,203

b,c

$ 15,036 b,c
Cost of sales:
Production and delivery 3,152 3,332 8,971 8,904
Depreciation, depletion and amortization:
Before impairment of oil and gas properties 945 919 2,924 1,778
Impairment of oil and gas properties 308     308    
Total cost of sales 4,405 4,251 12,203 10,682
Selling, general and administrative expenses 158 158 457 457 d
Mining exploration and research expenses 29 57 93 173
Environmental obligations and shutdown costs 18 (8 ) 100 23
Net gain on sales of assets (46 )   (46 )  
Total costs and expenses 4,564   4,458   12,807   11,335  
Operating income 1,132 1,707 3,396 3,701
Interest expense, net (158 ) e (162 ) e (483 ) e (351 ) e
Net gain (loss) on early extinguishment of debt 58 63 (45 )
Gain on investment in McMoRan Exploration Co. (MMR) 128
Other income, net 23   3   48   13  

Income before income taxes and equity in affiliated companies' net (losses) earnings

1,055 1,548 3,024 3,446
Provision for income taxes (349 ) f (499 ) (1,034 ) f (967 ) g
Equity in affiliated companies' net (losses) earnings (2 ) (1 )   3  
Net income 704 1,048 1,990 2,482
Net income attributable to noncontrolling interests (142 ) (218 ) (416 ) (519 )
Preferred dividends attributable to redeemable noncontrolling interest (10 ) (9 ) (30 ) (12 )
Net income attributable to FCX common stock $ 552   h $ 821   h $ 1,544   h $ 1,951   h
 
Net income per share attributable to FCX common stock:
Basic $ 0.53   $ 0.79   $ 1.48   $ 1.97  
Diluted $ 0.53   $ 0.79   $ 1.47   $ 1.96  
 
Weighted-average common shares outstanding:
Basic 1,039   1,038   1,039   989  
Diluted 1,046   1,043   1,045   993  
 
Dividends declared per share of common stock $ 0.3125   $ 0.3125   $ 0.9375   $ 1.9375  
 

a. Reflects the results of FM O&G beginning June 1, 2013.

b. Includes (unfavorable) favorable adjustments to provisionally priced concentrate and cathode copper sales recognized in prior periods totaling $(22) million ($(10) million to net income attributable to common stock) for third-quarter 2014, $73 million ($35 million to net income attributable to common stock) for third-quarter 2013, $(118) million ($(65) million to net income attributable to common stock) for the first nine months of 2014 and $(26) million ($(12) million to net income attributable to common stock) for the first nine months of 2013.

c. Includes net noncash mark-to-market gains (losses) associated with crude oil and natural gas derivative contracts totaling $122 million ($76 million to net income attributable to common stock) for third-quarter 2014, $(158) million ($(98) million to net income attributable to common stock) for third-quarter 2013, $130 million ($80 million to net income attributable to common stock) for the first nine months of 2014 and $(194) million ($(120) million to net income attributable to common stock) for the four-month period from June 1, 2013 to September 2013.

d. Includes charges totaling $76 million ($47 million to net income attributable to common stock) in the first nine months of 2013 for transaction and related costs principally associated with the oil and gas acquisitions.

e. Consolidated interest expense, excluding capitalized interest, totaled $212 million in third-quarter 2014, $223 million in third-quarter 2013, $661 million for the first nine months of 2014 and $465 million for the first nine months of 2013.

f. Includes a charge of $54 million ($47 million net of noncontrolling interests) in the third quarter and first nine months of 2014 related to changes in Chilean tax rules. Additionally, the first nine months of 2014 includes a charge of $62 million associated with deferred taxes recorded in connection with the allocation of goodwill to the sale of Eagle Ford properties.

g. Includes a gain of $183 million for the first nine months of 2013 associated with net reductions in FCX's deferred tax liabilities and deferred tax asset valuation allowances.

h. FCX defers recognizing profits on intercompany sales until final sales to third parties occur. Changes in these deferrals attributable to variability in intercompany volumes resulted in net (reductions) additions to net income attributable to common stock of $(20) million in third-quarter 2014, $2 million in third-quarter 2013, $36 million for the first nine months of 2014 and $28 million for the first nine months of 2013.

 
FREEPORT-McMoRan INC.
CONDENSED CONSOLIDATED BALANCE SHEETS (Unaudited)
         
September 30, December 31,
2014   2013  
(In Millions)
ASSETS
Current assets:
Cash and cash equivalents $ 658 $ 1,985
Trade accounts receivable 1,514 1,728
Other accounts receivables 793 834
Inventories:
Mill and leach stockpiles 1,967 1,705
Materials and supplies, net 1,943 1,730
Product 1,579 1,583
Other current assets 577   407  
Total current assets 9,031 9,972
Property, plant, equipment and mining development costs, net 26,304 24,042
Oil and gas properties - full cost method:
Subject to amortization, less accumulated amortization 11,306 12,472
Not subject to amortization 11,031 10,887
Long-term mill and leach stockpiles 2,569 2,386
Goodwill 1,717 1,916
Other assets 2,018   1,798  
Total assets $ 63,976   $ 63,473  
 
LIABILITIES AND EQUITY
Current liabilities:
Accounts payable and accrued liabilities $ 3,784 $ 3,708
Current portion of debt 1,762 312
Dividends payable 334 333
Current portion of environmental and asset retirement obligations 310 236
Accrued income taxes 153   184  
Total current liabilities 6,343 4,773
Long-term debt, less current portion 17,975 20,394
Deferred income taxes 7,559 7,410
Environmental and asset retirement obligations, less current portion 3,654 3,259
Other liabilities 1,730   1,690  
Total liabilities 37,261 37,526
 
Redeemable noncontrolling interest 749 716
 
Equity:
FCX stockholders' equity:
Common stock 117 117
Capital in excess of par value 22,248 22,161
Retained earnings 3,306 2,742
Accumulated other comprehensive loss (394 ) (405 )
Common stock held in treasury (3,686 ) (3,681 )
Total FCX stockholders' equity 21,591 20,934
Noncontrolling interests 4,375   4,297  
Total equity 25,966   25,231  
Total liabilities and equity $ 63,976   $ 63,473  
 
FREEPORT-McMoRan INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
   
Nine Months Ended
September 30,
2014       2013  
(In Millions)
Cash flow from operating activities:
Net income $ 1,990 $ 2,482
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation, depletion and amortization before impairment 2,924 1,778
Impairment of oil and gas properties 308
Net losses on crude oil and natural gas derivative contracts 56 205
Gain on investment in MMR (128 )
Net charges for environmental and asset retirement obligations, including accretion 146 98
Payments for environmental and asset retirement obligations (134 ) (166 )
Net (gain) loss on early extinguishment of debt (63 ) 45
Net gain on sales of assets (46 )
Deferred income taxes 107 169
Increase in long-term mill and leach stockpiles (182 ) (348 )
Other, net 106 97

Decreases (increases) in working capital and changes in other tax payments, excluding amounts from acquisitions and dispositions:

Accounts receivable 200 51
Inventories (267 ) (66 )
Other current assets (26 ) 162
Accounts payable and accrued liabilities (379 ) (596 )
Accrued income taxes and other tax payments (227 ) (40 )
Net cash provided by operating activities 4,513   3,743  
 
Cash flow from investing activities:
Capital expenditures:
North America copper mines (815 ) (795 )
South America (1,278 ) (734 )
Indonesia (722 ) (720 )
Africa (100 ) (155 )
Molybdenum mines (45 ) (128 )
U.S. oil and gas operations (2,392 ) (928 )
Other (63 ) (163 )
Acquisition of Deepwater Gulf of Mexico interests (1,421 )
Acquisition of Plains Exploration & Production Company, net of cash acquired (3,465 )
Acquisition of MMR, net of cash acquired (1,628 )
Acquisition of cobalt chemical business, net of cash acquired (348 )
Net proceeds from sale of Eagle Ford shale assets 2,971
Other, net 221   (24 )
Net cash used in investing activities (3,644 ) (9,088 )
 
Cash flow from financing activities:
Proceeds from debt 3,346 11,229
Repayments of debt (4,196 ) (4,816 )
Redemption of MMR preferred stock (227 )
Cash dividends and distributions paid:
Common stock (979 ) (1,957 )
Noncontrolling interests (365 ) (157 )
Contribution from noncontrolling interests 24
Stock-based awards net proceeds (payments) and excess tax benefit 7 (100 )
Debt financing costs and other, net (33 ) (113 )
Net cash (used in) provided by financing activities (2,196 ) 3,859  
 
Net decrease in cash and cash equivalents (1,327 ) (1,486 )
Cash and cash equivalents at beginning of year 1,985   3,705  
Cash and cash equivalents at end of period $ 658   $ 2,219  

Source: Freeport-McMoRan Inc.

Freeport-McMoRan Inc.

Financial Contacts:

Kathleen L. Quirk, 602-366-8016

or

David P. Joint, 504-582-4203

or

Media Contact:

Eric E. Kinneberg, 602-366-7994

Categories: Press Releases