UNITED
STATES
|
||
SECURITIES
AND EXCHANGE COMMISSION
|
||
Washington,
D.C. 20549
|
||
FORM
10-Q
|
||
(Mark
One)
|
||
[X]
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
|
||
For
the quarterly period ended September 30, 2006
|
||
OR
|
||
[
] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
|
||
For
the transition period from
|
To
|
|
Commission
File Number: 001-07791
|
||
McMoRan
Exploration Co.
|
||
(Exact
name of registrant as specified in its
charter)
|
Delaware
|
72-1424200
|
(State
or other jurisdiction of
|
(IRS
Employer Identification No.)
|
incorporation
or organization)
|
|
1615
Poydras Street
|
|
New
Orleans, Louisiana
|
70112
|
(Address
of principal executive offices)
|
(Zip
Code)
|
(504)
582-4000
|
|
(Registrant's
telephone number, including area
code)
|
McMoRan
Exploration Co.
|
|
Page
|
|
Condensed
Consolidated Balance Sheets
(Unaudited)
|
3
|
Consolidated
Statements of Operations
(Unaudited)
|
4
|
Consolidated
Statements of Cash Flow
(Unaudited)
|
5
|
6
|
|
15
|
|
16
|
|
30
|
|
30
|
|
30
|
|
31
|
|
E-1
|
September
30,
|
December
31,
|
|||||
2006
|
2005
|
|||||
(In
Thousands)
|
||||||
ASSETS
|
||||||
Cash
and cash equivalents:
|
||||||
Continuing
operations, includes restricted cash of $0.3 million
|
||||||
at
December 31, 2005
|
$
|
9,463
|
$
|
131,179
|
||
Discontinued
operations, all restricted
|
558
|
1,005
|
||||
Restricted
investments
|
6,038
|
15,155
|
||||
Accounts
receivable
|
44,838
|
36,954
|
||||
Inventories:
|
|
|||||
Materials
and supplies
|
23,303
|
7,026
|
||||
Product
|
1,281
|
954
|
||||
Prepaid
expenses
|
23,293
|
1,348
|
||||
Current
assets from discontinued operations, excluding cash
|
2,553
|
2,550
|
||||
Total
current assets
|
111,327
|
196,171
|
||||
Property,
plant and equipment, net
|
314,354
|
192,397
|
||||
Sulphur
business assets
|
365
|
375
|
||||
Restricted
investments and cash
|
6,010
|
10,475
|
||||
Other
assets
|
5,751
|
8,218
|
||||
Total
assets
|
$
|
437,807
|
$
|
407,636
|
||
LIABILITIES
AND STOCKHOLDERS’ DEFICIT
|
||||||
Accounts
payable
|
$
|
104,822
|
$
|
64,023
|
||
Accrued
liabilities
|
37,790
|
49,192
|
||||
Accrued
interest and dividends payable
|
5,021
|
5,635
|
||||
Current
portion of accrued oil and gas reclamation costs
|
2,212
|
-
|
||||
Current
portion of accrued sulphur reclamation cost
|
3,274
|
4,724
|
||||
Current
liabilities from discontinued operations
|
4,393
|
5,462
|
||||
Total
current liabilities
|
157,512
|
129,036
|
||||
6%
convertible senior notes
|
100,870
|
130,000
|
||||
5¼%
convertible senior notes
|
115,000
|
140,000
|
||||
Senior
secured revolving credit facility
|
5,000
|
-
|
||||
Accrued
oil and gas reclamation costs
|
21,807
|
21,760
|
||||
Accrued
sulphur reclamation costs
|
16,890
|
17,062
|
||||
Contractual
postretirement obligation
|
13,686
|
11,517
|
||||
Other
long-term liabilities
|
16,381
|
15,890
|
||||
Mandatorily
redeemable convertible preferred stock
|
29,012
|
28,961
|
||||
Stockholders'
deficit
|
|
(38,351
|
)
|
|
(86,590
|
)
|
Total
liabilities and stockholders' deficit
|
$
|
437,807
|
$
|
407,636
|
||
Three
Months Ended
|
Nine
Months Ended
|
|||||||||||
September
30,
|
September
30,
|
|||||||||||
2006
|
2005
|
2006
|
2005
|
|||||||||
Revenues:
|
(In
Thousands, Except Per Share Amounts)
|
|||||||||||
Oil
and gas
|
$
|
57,810
|
$
|
41,411
|
$
|
143,527
|
$
|
83,666
|
||||
Service
|
2,605
|
2,854
|
9,964
|
9,218
|
||||||||
Total
revenues
|
60,415
|
44,265
|
153,491
|
92,884
|
||||||||
Costs
and expenses:
|
||||||||||||
Production
and delivery costs
|
17,467
|
12,498
|
39,001
|
20,868
|
||||||||
Depreciation
and amortization
|
26,030
|
6,497
|
44,304
|
19,426
|
||||||||
Exploration
expenses
|
23,399
|
5,831
|
50,776
|
41,864
|
||||||||
General
and administrative expenses
|
4,078
|
5,496
|
16,624
|
15,132
|
||||||||
Start-up
costs for Main Pass Energy Hub™
|
3,160
|
2,692
|
7,911
|
7,577
|
||||||||
Insurance
recovery
|
-
|
-
|
(2,856
|
)
|
(8,900
|
)
|
||||||
Total
costs and expenses
|
|
74,134
|
|
33,014
|
155,760
|
95,967
|
||||||
Operating
(loss) income
|
(13,719
|
)
|
11,251
|
(2,269
|
)
|
(3,083
|
)
|
|||||
Interest
expense
|
(2,694
|
)
|
(4,006
|
)
|
(6,840
|
)
|
(11,887
|
)
|
||||
Other
income (expense), net
|
|
284
|
|
1,527
|
|
(2,315
|
)
|
|
4,547
|
|||
(Loss)
income from continuing operations
|
(16,129
|
)
|
8,772
|
(11,424
|
)
|
(10,423
|
)
|
|||||
Loss
from discontinued operations
|
(2,459
|
)
|
(1,624
|
)
|
(5,752
|
)
|
(3,591
|
)
|
||||
Net
(loss) income
|
(18,588
|
)
|
7,148
|
(17,176
|
)
|
(14,014
|
)
|
|||||
Preferred
dividends and amortization of convertible
|
||||||||||||
preferred
stock issuance costs
|
(404
|
)
|
(402
|
)
|
(1,211
|
)
|
(1,217
|
)
|
||||
Net
(loss) income applicable to common stock
|
$
|
(18,992
|
)
|
$
|
6,746
|
$
|
(18,387
|
)
|
$
|
(15,231
|
)
|
|
Basic
net (loss) income per share of common stock:
|
||||||||||||
Continuing
operations
|
$(0.58
|
)
|
$0.34
|
$(0.45
|
)
|
$(0.47
|
)
|
|||||
Discontinued
operations
|
(0.09
|
)
|
(0.07
|
)
|
(0.21
|
)
|
(0.15
|
)
|
||||
Net
(loss) income per share of common stock
|
$(0.67
|
)
|
$0.27
|
$(0.66
|
)
|
$(0.62
|
)
|
|||||
Diluted
net (loss) income per share of common stock:
|
||||||||||||
Continuing
operations
|
$(0.58
|
)
|
$0.25
|
$(0.45
|
)
|
$(0.47
|
)
|
|||||
Discontinued
operations
|
(0.09
|
)
|
(0.04
|
)
|
(0.21
|
)
|
(0.15
|
)
|
||||
Net
(loss) income per share of common stock
|
$(0.67
|
)
|
$0.21
|
$(0.66
|
)
|
$(0.62
|
)
|
|||||
Average
common shares outstanding:
|
||||||||||||
Basic
|
28,302
|
24,654
|
27,805
|
24,553
|
||||||||
Diluted
|
28,302
|
43,173
|
27,805
|
24,553
|
Nine
Months Ended
|
|||||||
September
30,
|
|||||||
2006
|
2005
|
||||||
(In
Thousands)
|
|||||||
Cash
flow from operating activities:
|
|||||||
Net
loss
|
$
|
(17,176
|
)
|
$
|
(14,014
|
)
|
|
Adjustments
to reconcile net loss to net cash provided by operating
activities:
|
|||||||
Loss
from discontinued operations
|
5,752
|
3,591
|
|||||
Depreciation
and amortization
|
44,304
|
19,426
|
|||||
Exploration
drilling and related expenditures
|
32,941
|
31,634
|
|||||
Compensation
expense associated with stock-based awards
|
13,757
|
1,347
|
|||||
Loss
on induced conversion of convertible senior notes
|
4,301
|
-
|
|||||
Reclamation
and mine shutdown expenditures
|
(543
|
)
|
(4
|
)
|
|||
Amortization
of deferred financing costs
|
1,417
|
1,669
|
|||||
Other
|
892
|
(503
|
)
|
||||
(Increase)
decrease in working capital:
|
|||||||
Accounts
receivable
|
6,656
|
5,760
|
|||||
Accounts
payable, accrued liabilities and other
|
16,472
|
20,634
|
|||||
Inventories
|
(16,603
|
)
|
(3,673
|
)
|
|||
Prepaid
expenses
|
(21,947
|
)
|
(1,143
|
)
|
|||
(Increase)
decrease in working capital
|
(15,422
|
)
|
21,578
|
||||
Net
cash provided by continuing operations
|
70,223
|
64,724
|
|||||
Net
cash used in discontinued operations
|
(6,252
|
)
|
(2,532
|
)
|
|||
Net
cash provided by operating activities
|
63,971
|
62,192
|
|||||
Cash
flow from investing activities:
|
|||||||
Exploration,
development and other capital expenditures
|
(202,889
|
)
|
(102,857
|
)
|
|||
Property
insurance reimbursement
|
3,947
|
-
|
|||||
Proceeds
from restricted investments
|
13,463
|
11,475
|
|||||
Proceeds
from sale of property, plant and equipment
|
50
|
-
|
|||||
Increase
in restricted investments
|
(141
|
)
|
(437
|
)
|
|||
Net
cash used in continuing operations
|
|
(185,570
|
)
|
|
(91,819
|
)
|
|
Net
cash activity discontinued operations
|
-
|
-
|
|||||
Net
cash used in investing activities
|
(185,570
|
)
|
(91,819
|
)
|
|||
Cash
flow from financing activities:
|
|||||||
Net
borrowings under senior secured revolving credit facility
|
5,000
|
-
|
|||||
Payments
for induced conversion of convertible senior notes
|
(4,301
|
)
|
-
|
||||
Dividends
paid on convertible preferred stock
|
(1,121
|
)
|
(1,130
|
)
|
|||
Proceeds
from exercise of stock options and other
|
389
|
2,038
|
|||||
Financing
costs
|
|
(531
|
)
|
|
-
|
||
Net
cash (used in) provided by continuing operations
|
|
(564
|
)
|
|
908
|
||
Net
cash activity discontinued operations
|
-
|
-
|
|||||
Net
cash (used in) provided by financing activities
|
(564
|
)
|
908
|
||||
Net
decrease in cash and cash equivalents
|
(122,163
|
)
|
(28,719
|
)
|
|||
Cash
and cash equivalents at beginning of year
|
|
132,184
|
|
204,015
|
|||
Cash
and cash equivalents at end of period
|
10,021
|
175,296
|
|||||
Less
restricted cash from continuing operations
|
-
|
(2,031
|
)
|
||||
Less
restricted cash from discontinued operations
|
(558
|
)
|
(997
|
)
|
|||
Unrestricted
cash and cash equivalents at end of period
|
$
|
9,463
|
$
|
172,268
|
Three
Months Ended
|
Nine
Months Ended
|
||||||||||||
September
30,
|
September
30,
|
||||||||||||
2006
|
2005
|
2006
|
2005
|
||||||||||
Cost
of options awarded to employees (including
|
$
|
1,912
|
$
|
126
|
a
|
$
|
13,174
|
b
|
$
|
735
|
a
|
||
Directors)
|
|||||||||||||
Cost
of options awarded to non-employees and Advisory
|
112
|
80
|
495
|
225
|
|||||||||
Directors
|
|||||||||||||
Cost
of restricted stock units
|
18
|
122
|
88
|
387
|
|||||||||
Total
stock-based compensation cost
|
$
|
2,042
|
$
|
328
|
$
|
13,757
|
$
|
1,347
|
a. |
Reflects
compensation charge resulting from difference between the market
price on
the award date and the market price on the ultimate date of grant
(see
Note 8 of McMoRan’s 2005 Form 10-K). The amortization of the remaining
$1.0 million of compensation costs resulting from these types of
stock
option grants ceased upon adoption of SFAS No.
123R.
|
b. |
Includes
$5.8 million of compensation charges associated with immediately
vested
stock options granted to McMoRan’s Co-Chairmen in lieu of receiving any
cash compensation during 2006. Also includes $1.9 million of compensation
charges related to stock options granted to retiree-eligible employees,
which resulted in one-year’s compensation expense being immediately
recognized at the date of the stock option grant (see “Accounting for
Stock-Based Compensation” above).
|
Three
Months
2005
|
Nine
Months
2005
|
|||||
Net
income (loss) applicable to common stock, as reported
|
$
|
6,746
|
$
|
(15,231
|
)
|
|
Add:
Stock-based employee compensation expense
|
||||||
included
in reported net loss for stock option
|
||||||
conversions
and restricted stock units
|
261
|
1,121
|
||||
Deduct:
Total stock-based employee compensation
|
||||||
expense
determined under fair value-based method
|
||||||
for
all awards
|
(1,461
|
)
|
(9,994
|
)
|
||
Pro
forma net income (loss) applicable to common stock
|
$
|
5,546
|
$
|
(24,104
|
)
|
|
Three
Months
2005
|
Nine
Months
2005
|
|||||
Net
income (loss) per share:
|
||||||
Basic
- as reported
|
$
|
0.27
|
$
|
(0.62
|
)
|
|
Basic
- pro forma
|
$
|
0.22
|
$
|
(0.98
|
)
|
|
Diluted
- as reported
|
$
|
0.21
|
$
|
(0.62
|
)
|
|
Diluted
- pro forma
|
$
|
0.17
|
a
|
$
|
(0.98
|
)
|
Nine
|
||||
Months
|
||||
2005
|
||||
Fair
value (per share) per stock option
|
$
|
11.45
|
||
Risk-free
interest rate
|
4.3
|
%
|
||
Expected
volatility rate
|
61.2
|
%
|
||
Expected
life of options (in years)
|
7
|
Weighted
|
||||||||||
Weighted
|
Average
|
Aggregate
|
||||||||
Number
|
Average
|
Remaining
|
Intrinsic
|
|||||||
Of
|
Exercise
|
Contractual
|
Value
|
|||||||
Options
|
Price
|
Term
(years)
|
($000)
|
|||||||
Balance
at January 1
|
5,845,416
|
$
|
14.57
|
|||||||
Granted
|
1,365,500
|
19.79
|
||||||||
Exercised
|
(26,823
|
)
|
14.52
|
|||||||
Expired/Forfeited
|
(88,102
|
)
|
20.71
|
|||||||
Balance
at September 30
|
7,095,991
|
15.50
|
6.4
|
$
|
20,385
|
|||||
Vested
and exercisable at
|
||||||||||
September
30
|
5,174,572
|
14.74
|
5.7
|
$
|
18,215
|
Three
|
Nine
|
||||||
Months
|
Months
|
||||||
2006
|
2006
|
||||||
Fair
value (per share) of stock option on grant date
|
$
|
10.77
|
$
|
11.85
|
a
|
||
Expected
and weighted average volatility
|
55.5
|
%
|
55.5
|
%
|
|||
Expected
life of options (in years)
|
7
|
7
|
a
|
||||
Risk-free
interest rate
|
4.5
|
%
|
4.5
|
%
|
a. |
Not
included in these amounts are immediately vested stock options (500,000
shares granted to the Co-Chairmen in lieu of any cash compensation
for
2006), having an expected life of six years and a grant date fair
value of
$11.52 per share.
|
Three
Months Ended
|
Nine
Months Ended
|
|||||||||||
September
30,
|
September
30,
|
|||||||||||
2006
|
2005
|
2006
|
2005
|
|||||||||
McMoRan
shares tendered to pay the exercise price
|
||||||||||||
and/or
the minimum required taxes a
|
-
|
-
|
5,424
|
15,768
|
||||||||
Cash
received from stock option exercises
|
$
|
24
|
$
|
44
|
$
|
389
|
$
|
2,038
|
||||
Amounts
McMoRan paid for employee taxes related
|
||||||||||||
to
stock option exercises
|
$
|
-
|
$
|
29
|
$
|
111
|
$
|
336
|
a. |
Under
terms of the related plans, upon exercise of stock options and vesting
of
restricted stock units, employees may tender McMoRan shares to McMoRan
to
pay the exercise price and/or the minimum required
taxes.
|
Third
Quarter
|
Nine
Months
|
|||||||||||||||
2006
|
2005
|
2006
|
2005
|
|||||||||||||
In-the-money
stock options a,b
|
748
|
-
|
c
|
937
|
1,454
|
|||||||||||
Stock
warrants a,d
|
1,781
|
-
|
c
|
1,785
|
1,805
|
|||||||||||
5%
mandatorily redeemable convertible
|
||||||||||||||||
preferred
stock e
|
6,205
|
-
|
c
|
6,205
|
6,214
|
|||||||||||
6%
convertible senior notes f
|
7,079
|
-
|
c
|
7,079
|
9,123
|
|||||||||||
5¼%
convertible senior notes g
|
6,938
|
8,446
|
6,938
|
8,446
|
a. |
McMoRan
uses the treasury stock method to determine the amount of in-the-money
stock options and stock warrants to include in its diluted earnings
per
share calculation.
|
b. |
Represents
stock options with an exercise price less than the average market
price
for McMoRan’s common stock for the periods presented.
|
c. |
Included
in McMoRan’s diluted net income per share calculation (see table below for
a reconciliation of McMoRan’s basic and diluted net income per share
calculations for the third quarter of
2005).
|
d. |
Includes
stock warrants issued in December 2002 (1.74 million shares)
and September
2003 (0.76 million shares). The warrants are exercisable for
McMoRan
common stock at any time over their respective five-year
terms at an exercise price of $5.25 per share. See Note 4 of
McMoRan’s
2005 Form 10-K for additional
information.
|
f. |
The
notes, issued in July 2003, are convertible at the option of the
holder at
any time prior to their maturity on July 2, 2008 into shares of McMoRan
common stock at a conversion price of $14.25 per share. Net interest
expense on the 6% convertible senior notes totaled $1.2 million during
the
third quarter of 2006 and $3.3 million and $6.3 million for the nine-month
periods ended September 30, 2006 and 2005, respectively. For additional
information see Note 5 of McMoRan’s 2005 Form 10-K.
|
g. |
The
notes, issued in October 2004, are convertible at the option of the
holder
at any time prior to their maturity on October 6, 2011 into shares
of
McMoRan common stock at a conversion price of $16.575 per share.
Net
interest expense on the 5¼% convertible senior notes totaled $1.1 million
during the third quarter of 2006, $2.0 million for the third quarter
of
2005 and $2.9 million and $6.1 million for the nine months ended
September
30, 2006 and 2005, respectively. For additional information see Note
5 of
McMoRan’s 2005 Form 10-K.
|
Basic
net income from continuing operations
|
$
|
8,370
|
||
Add:
Preferred dividends from assumed conversion of 5% mandatorily
|
||||
redeemable
convertible preferred stock
|
402
|
|||
Add:
Net interest from assumed conversion of 6% convertible senior
notes
|
2,128
|
|||
Diluted
net income from continuing operations
|
10,900
|
|||
Loss
from discontinued sulphur operations
|
(1,624
|
)
|
||
Diluted
net income applicable to common stock
|
$
|
9,276
|
Weighted
average common shares outstanding for purpose of calculating basic
net
income per share
|
24,654
|
|||
Assumed
exercise of dilutive stock options
|
1,382
|
|||
Assumed
exercise of stock warrants
|
1,800
|
|||
Assumed
conversion of 5% mandatorily redeemable convertible preferred
stock
|
6,214
|
|||
Assumed
conversion of 6% convertible senior notes
|
9,123
|
|||
Weighted
average common shares outstanding
|
||||
for
purposes of calculating diluted net income per share
|
43,173
|
|||
Diluted
net income from continuing operations
|
$0.25
|
|||
Diluted
net loss from discontinued sulphur operations
|
(0.04
|
)
|
||
Diluted
net income per share
|
$
0.21
|
Third
Quarter
|
Nine
Months
|
|||||||||||||||
2006
|
2005
|
2006
|
2005
|
|||||||||||||
Outstanding
options (in thousands)
|
2,133
|
445
|
2,133
|
420
|
||||||||||||
Average
exercise price
|
$
|
19.85
|
$
|
21.54
|
$
|
19.85
|
$
|
21.71
|
Oil
and Natural Gas
|
|||
Asset
retirement obligation at beginning of year
|
$
|
21,760
|
|
Liabilities
settled
|
(543
|
)
|
|
Accretion
expense
|
931
|
||
Incurred
liabilities
|
1,871
|
||
Revision
for changes in estimates
|
-
|
||
Asset
retirement obligations at September 30, 2006
|
$
|
24,019
|
|
Sulphur
|
|||
Asset
retirement obligations at beginning of year:
|
$
|
21,786
|
|
Liabilities
settled
|
(2,666
|
)
|
|
Accretion
expense
|
1,044
|
||
Revision
for changes in estimates
|
-
|
||
Asset
retirement obligation at September 30, 2006
|
$
|
20,164
|
Third
Quarter
|
Nine
Months
|
||||||||||||
2006
|
2005
|
2006
|
2005
|
||||||||||
Interest
cost
|
$
|
17
|
$
|
60
|
$
|
152
|
$
|
143
|
|||||
Service
cost
|
-
|
-
|
-
|
-
|
|||||||||
(Return)
loss on plan assets
|
(28
|
)
|
(30
|
)
|
9
|
(115
|
)
|
||||||
Change
in plan payout assumptions
|
-
|
-
|
-
|
-
|
|||||||||
Net
periodic (benefit)
cost
|
$
|
(11
|
)
|
$
|
30
|
$
|
161
|
$
|
28
|
Working
Interest
|
Net
Revenue
Interest
|
Prospect
Acreage
a
|
Water
Depth
|
Proposed
Total
Depth
b
|
Current
Depth c
|
Spud
Date
|
|
Exploration
In-Progress
|
%
|
%
|
Feet
|
Feet
|
Feet
|
||
St.
Mary Parish, LA
“Laphroaig”
|
37.5
|
27.8
|
2,439
|
<10
|
19,000
|
16,800
|
April
8, 2006
|
Onshore
Vermilion Parish, LA
“Zigler
Canal” d
|
37.5
|
26.8
|
640e
|
n/af
|
14,000g
|
11,800g
|
June
17, 2006
|
Grand
Isle Block 18
“Marlin”
d
|
26.0
|
20.1
|
4,600
|
55
|
16,000
|
4,400
|
October
25, 2006
|
South
Marsh Block 217
“Hurricane
Deep” d
|
25.0
|
17.7
|
7,700
|
12
|
21,500
|
6,000
|
October
26, 2006
|
a. |
Gross
acres encompassing prospect to which we retain exploration
rights.
|
b. |
Planned
target vertical depth, which is subject to
change.
|
c. |
Approximate
total vertical depth of well on November 7,
2006.
|
d. |
Wells
in which we are currently the
operator.
|
e. |
Well
drilling on a 640-acre lease located within an area where we control
approximately 13,000 acres.
|
f. |
Prospect
located onshore Louisiana.
|
g. |
The
well was recently plugged back and sidetracked after evaluation of
the
deeper objective of the well was determined to be
nonproductive.
|
Working
Interest
|
Net
Revenue
Interest
|
Start-Up
or Expected
Start-Up
Date
|
|
Ship
Shoal Block 296
“Raptor”
A-3 well
|
49.4%
|
34.8%
|
February
12, 2006
|
Ship
Shoal Block 296
“Raptor”
A-4 well
|
49.4%
|
34.8%
|
March
4, 2006
|
Onshore
Vermilion Parish, LA
“Cane
Ridge”
|
37.5%
|
27.5%
|
April
21, 2006
|
Vermilion
Blocks 16/17
“King
Kong No. 3”
|
40.0%
|
29.2%
|
April
27, 2006
|
South
Marsh Island Block 217
“Hurricane
No. 2”
|
27.5%
|
19.4%
|
May
14, 2006
|
Louisiana
State Lease 18090
“Long
Point No. 1”
|
37.5%
|
26.8%
|
May
23, 2006
|
Louisiana
State Lease 18090
“Long
Point No. 2”
|
37.5%
|
26.8%
|
May
27, 2006
|
Garden
Banks Block 625
“Dawson
Deep”
|
30.0%
|
24.0%
|
July
6, 2006
|
West
Pecan Island
“Pecos”
|
50.0%
|
36.0%
|
August
4, 2006
|
High
Island Block 131
“King
of the Hill” No. 2*
|
25.0%
|
19.6%
|
August
22, 2006
|
Onshore
Vermilion Parish
“Liberty
Canal”
|
37.5%
|
27.7%
|
October
2, 2006
|
Working
Interest
|
Net
Revenue
Interest
|
Start-Up
or Expected
Start-Up
Date
|
|
West
Cameron Block 43
“No.
3”*
|
23.4%
|
18.0%
|
Fourth-Quarter
2006
|
South
Marsh Island Block 217
“Hurricane
No. 3”
|
27.5%
|
19.4%
|
Fourth-Quarter
2006
|
Louisiana
State Lease 18350
“Point
Chevreuil”
|
25.0%
|
17.5%
|
Early
2007
|
Louisiana
State Lease 340
“Blueberry
Hill”
|
35.3%
|
24.2%
|
Completion
Pending Fourth-Quarter 2006 Test
|
Three
Months Ended
|
Nine
Months Ended
|
|||||||
September
30,
|
September
30,
|
|||||||
2006
|
2005
|
2006
|
2005
|
|||||
Sales
volumes:
|
||||||||
Gas
(thousand cubic feet, or Mcf)
|
4,397,100
|
2,011,900
|
10,423,600
|
6,187,100
|
||||
Oil
(barrels)a
|
379,100
|
324,400
|
1,015,700
|
521,800
|
||||
Plant
products (equivalent barrels) b
|
70,400
|
42,500
|
105,700
|
78,000
|
||||
Average
realizations:
|
||||||||
Gas
(per Mcf)
|
$
6.51
|
$
10.31
|
$
6.99
|
$
8.26
|
||||
Oil
(per barrel)a
|
65.11
|
57.17
|
62.73
|
54.06
|
a. |
After
being shut-in in September 2004 as a result of damage to a third-party
facility and connecting pipelines caused by Hurricane Ivan, Main
Pass
resumed production in May 2005. Sales volumes from Main Pass totaled
195,800 barrels in the third quarter of 2006 and 598,600 barrels
during
the nine months ended September 30, 2006 compared with 235,000 barrels
in
the third quarter of 2005 and 335,600 barrels during the nine months
ended
September 30, 2005. Main Pass produces sour crude oil, which sells
at a
discount to the price of other crude
oils.
|
b. |
We
received approximately $4.2
million and $6.1 million of revenues associated with plant products
(ethane, propane, butane, etc.) during the third quarter of 2006
and nine
months ending September 30, 2006, respectively, compared with $1.9
million
and $3.3 million of plant product revenues in the comparable periods
last
year.
|
Third
|
Nine
|
|||||
Quarter
|
Months
|
|||||
Oil
and natural gas revenues - prior year period
|
$
|
41,411
|
$
|
83,666
|
||
Increase
in:
|
||||||
Sales
volumes:
|
||||||
Natural
gas
|
24,591
|
35,014
|
||||
Oil
and condensate
|
3,564
|
26,883
|
||||
Price
realizations:
|
||||||
Natural
gas
|
(16,712
|
)
|
(13,299
|
)
|
||
Oil
and condensate
|
2,576
|
8,621
|
||||
Plant
products revenues
|
2,380
|
2,785
|
||||
Other
|
-
|
(143
|
)
|
|||
Oil
and natural gas revenues - current year period
|
$
|
57,810
|
$
|
143,527
|
Third
Quarter
|
Nine
Months
|
|||||||||||
2006
|
2005
|
2006
|
2005
|
|||||||||
Geological
and geophysical
|
$
|
2.8
|
a
|
$
|
2.5
|
$
|
12.2
|
a
|
$
|
5.3
|
||
Nonproductive
exploratory costs, including
|
||||||||||||
related
lease costs
|
18.5
|
b
|
2.7
|
c
|
32.9
|
b,d
|
31.6
|
c,e
|
||||
Other
|
2.1
|
f
|
0.7
|
5.7
|
5.0
|
|||||||
$
|
23.4
|
$
|
5.9
|
$
|
50.8
|
$
|
41.9
|
a. |
Includes
$1.0 million and $7.1 million of compensation costs during the third
quarter and nine months periods associated with outstanding stock-based
awards following adoption of a new accounting standard (see “New
Accounting Standards” below and Note
2).
|
b. |
Includes
nonproductive exploratory drilling and related costs for the wells
at
Vermilion Block 54 ($6.1
|
c. |
Includes
$1.4 million of nonproductive exploratory drilling and related
costs
associated with the well at Louisiana State Lease 1706 incurred
in July
2005 and $1.1 million of drilling costs associated with the well
at
Louisiana State Lease 5097.
|
d. |
Includes
nonproductive exploratory well drilling and related costs associated
with
the “Denali” well at South Pass Block 26 ($8.2 million), and the costs
incurred during the first half of 2006 for the “Cabin Creek”
well at West Cameron Block 95 ($2.7 million) and the “Elizabeth” well at
South Marsh Island Block 230 ($2.5
million).
|
e. |
Includes
nonproductive exploratory well costs associated with the wells at
South
Timbalier Blocks 97/98 ($6.9 million), Louisiana State Lease 5097
($12.1
million), Louisiana State Lease 1706 ($8.9 million), Vermilion Blocks
227/228 ($1.3 million), High Island Block 131 No. 1 ($0.3 million),
Mustang Island Block 829 ($0.2 million). Also includes the nonproductive
exploratory well costs associated the deeper zones at the Hurricane No. 1
well at South Marsh Island Block 217 ($0.4 million) and the West
Cameron
Block 43 No. 3 exploratory well ($0.4 million). Amount also includes
the
write-off of approximately $1.5 million of leasehold
costs.
|
f. |
Increase
from 2005 period primarily reflects higher well control insurance
premium
costs.
|
Nine
Months Ended
|
|||||||
September
30,
|
|||||||
2006
|
2005
|
||||||
Continuing
operations
|
|||||||
Operating
|
$
|
70.2
|
$
|
64.7
|
|||
Investing
|
(185.6
|
)
|
(91.8
|
)
|
|||
Financing
|
(0.6
|
)
|
0.9
|
Discontinued
operations
|
|||||||
Operating
|
(6.2
|
)
|
(2.5
|
)
|
|||
Investing
|
-
|
-
|
|||||
Financing
|
-
|
-
|
Total
cash flow
|
|||||||
Operating
|
64.0
|
62.2
|
|||||
Investing
|
(185.6
|
)
|
(91.8
|
)
|
|||
Financing
|
(0.6
|
)
|
0.9
|
Three
Months Ended
|
Nine
Months Ended
|
|||||||||||
September
30,
|
September
30,
|
|||||||||||
2006
|
2005
|
2006
|
2005
|
|||||||||
General
and administrative expenses
|
$
|
932
|
$
|
97
|
$
|
6,184
|
$
|
496
|
||||
Exploration
expenses
|
1,031
|
229
|
7,052
|
845
|
||||||||
Main
Pass Energy Hub start-up costs
|
79
|
2
|
521
|
6
|
||||||||
Total
stock-based compensation cost
|
$
|
2,042
|
$
|
328
|
$
|
13,757
|
$
|
1,347
|
||||
· |
Recognize
in its statements of financial position an asset for a defined
benefit
postretirement plan’s overfunded status or a liability for a plan’s
underfunded status,
|
· |
Measure
a defined benefit postretirement plan’s assets and obligations that
determine its funded status as of the end of the employer’s fiscal year,
and
|
· |
Recognize
changes in the funded status of a defined benefit postretirement
plan in
comprehensive income in the year in which the changes
occur.
|
Third
Quarter
|
Nine
Months
|
|||||||||||
2006
|
2005
|
2006
|
2005
|
|||||||||
Sulphur
retiree costs
|
$
|
392
|
$
|
299
|
$
|
1,327
|
$
|
701
|
||||
Caretaking
costs
|
1,236
|
479
|
1,909
|
922
|
||||||||
Accretion
expense - sulphur
|
||||||||||||
reclamation
obligations
|
348
|
240
|
1,044
|
720
|
||||||||
Insurance
|
15
|
345
|
849
|
529
|
||||||||
General
and administrative, legal and other
|
468
|
261
|
623
|
719
|
||||||||
Loss
from discontinued operations
|
$
|
2,459
|
$
|
1,624
|
$
|
5,752
|
$
|
3,591
|
2.1
|
Agreement
and Plan of Merger dated as of August 1, 1998. (Incorporated by reference
to Annex A to McMoRan’s Registration Statement on Form S-4 (Registration
No. 333-61171) filed with the SEC on October 6, 1998 (the McMoRan
S-4)).
|
3.1
|
Amended
and Restated Certificate of Incorporation of McMoRan. (Incorporated
by
reference to Exhibit 3.1 to McMoRan’s 1998 Annual Report on Form 10-K (the
McMoRan 1998 Form 10-K)).
|
3.2
|
Certificate
of Amendment to the Amended and Restated Certificate of Incorporation
of
McMoRan. (Incorporated by reference to Exhibit 3.2 of McMoRan’s
First-Quarter 2003 Form 10-Q).
|
3.3
|
Amended
and Restated By-Laws of McMoRan as amended effective January 30,
2006.
(Incorporated by reference to Exhibit 3.3 to McMoRan’s Current Report on
Form 8-K dated January 30, 2006 (filed February 3, 2006)).
|
4.1
|
Form
of Certificate of McMoRan Common Stock (Incorporated by reference
to
Exhibit 4.1 of the McMoRan S-4).
|
4.2
|
Rights
Agreement dated as of November 13, 1998. (Incorporated by reference
to
Exhibit 4.2 to McMoRan 1998 Form 10-K).
|
4.3
|
Amendment
to Rights Agreement dated December 28, 1998. (Incorporated by reference
to
Exhibit 4.3 to McMoRan 1998 Form 10-K).
|
4.4
|
Standstill
Agreement dated August 5, 1999 between McMoRan and Alpine Capital,
L.P.,
Robert W. Bruce III, Algenpar, Inc, J. Taylor Crandall, Susan C.
Bruce,
Keystone, Inc., Robert M. Bass, the Anne T. and Robert M. Bass Foundation,
Anne T. Bass and The Robert Bruce Management Company, Inc. Defined
Benefit
Pension Trust. (Incorporated by reference to Exhibit 4.4 to McMoRan’s
Third Quarter 1999 Form 10-Q).
|
4.5
|
Form
of Certificate of McMoRan 5% Convertible Preferred Stock (McMoRan
Preferred Stock). (Incorporated by reference to Exhibit 4.5 to McMoRan’s
Second Quarter 2002 Form 10-Q).
|
4.6
|
Certificate
of Designations of McMoRan Preferred Stock. (Incorporated by reference
to
Exhibit 4.6 to McMoRan’s Third Quarter 2002 Form 10-Q).
|
4.7
|
Warrant
to Purchase Shares of Common Stock of McMoRan dated December 16,
2002.
(Incorporated by reference to Exhibit 4.7 to McMoRan’s 2002 Form
10-K).
|
4.8
|
Warrant
to Purchase Shares of Common Stock of McMoRan dated September 30,
2003.
(Incorporated by reference to Exhibit 4.8 to McMoRan’s 2003 Form
10-K).
|
4.9
|
Registration
Rights Agreement dated December 16, 2002 between McMoRan and K1 USA
Energy
Production Corporation. (Incorporated by reference to Exhibit 4.8
to
McMoRan’s 2002 Form 10-K).
|
4.10
|
Indenture
dated as of July 2, 2003 by and between McMoRan and The Bank of New
York,
as trustee. (Incorporated by reference to Exhibit 4.9 to McMoRan’s Second
Quarter 2003 Form 10-Q).
|
4.11
|
Collateral
Pledge and Security Agreement dated as of July 2, 2003 by and among
McMoRan, as pledgor, The Bank of New York, as trustee, and the Bank
of New
York, as collateral agent. (Incorporated by reference to Exhibit
4.11 to
McMoRan’s Second Quarter 2003 Form 10-Q).
|
4.12
|
Purchase
Agreement dated September 30, 2004, by and among McMoRan Exploration
Co.,
Merrill Lynch & Co., Merrill Lynch, Pierce, Fenner & Smith
Incorporated, and J.P. Morgan Securities Inc. (Incorporated by reference
to Exhibit 99.2 to McMoRan’s Current Report on Form 8-K dated October 6,
2004 (filed October 7, 2004).
|
4.13
|
Indenture
dated October 6, 2004 by and among McMoRan and the Bank of New York,
as
trustee. (Incorporated by reference to Exhibit 99.3 to McMoRan’s Current
Report on Form 8-K dated October 6, 2004 (filed October 7,
2004)).
|
4.14
|
Collateral
Pledge and Security Agreement dated October 6, 2004 by and among
McMoRan,
as pledgor, The Bank of New York, as trustee and the Bank of New
York, as
collateral agent. (Incorporated by reference to Exhibit 99.4 to McMoRan’s
Current Report on Form 8-K dated October 6, 2004 (filed October 7,
2004)).
|
4.15
|
Registration
Rights Agreement dated October 6, 2004 by and among McMoRan, as issuer
and
Merrill Lynch, Pierce, Fenner & Smith Incorporated, J.P. Morgan
Securities Inc. and Jefferies & Company, Inc. as Initial Purchasers.
(Incorporated by reference to Exhibit 99.5 to McMoRan’s Current Report on
Form 8-K dated October 6, 2004 (filed October 7,
2004)).
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10.1
|
Main
Pass 299 Sulphur and Salt Lease, effective May 1, 1988. (Incorporated
by
reference to Exhibit 10.1 to McMoRan’s 2001 Annual Report on Form 10-K
(the McMoRan 2001 Form 10-K)).
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10.2
|
IMC
Global/FSC Agreement dated as of March 29, 2002 among IMC Global
Inc., IMC
Global Phosphate Company, Phosphate Resource Partners Limited Partnership,
IMC Global Phosphates MP Inc., MOXY and McMoRan. (Incorporated by
reference to Exhibit 10.10 to McMoRan’s Second Quarter 2002 Form
10-Q).
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10.3
|
Amended
and Restated Services Agreement dated as of January 1, 2002 between
McMoRan and FM Services Company. (Incorporated by reference to Exhibit
10.3 to McMoRan’s Second Quarter 2003 Form 10-Q).
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10.4
|
Letter
Agreement dated August 22, 2000 between Devon Energy Corporation
and
Freeport Sulphur. (Incorporated by reference to Exhibit 10.36 to
McMoRan’s
Third Quarter 2000 Form 10-Q).
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10.5
|
Asset
Purchase Agreement dated effective December 1, 1999 between SOI Finance
Inc., Shell Offshore Inc. and MOXY. (Incorporated by reference to
Exhibit
10.33 to McMoRan’s 1999 Form 10-K).
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10.6
|
Employee
Benefits Agreement by and between Freeport-McMoRan Inc. and Freeport
Sulphur (Incorporated by reference to Exhibit 10.29 to McMoRan’s 2001 Form
10-K).
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10.7
|
Purchase
and Sales agreement dated January 25, 2002 but effective January
1, 2002
by and between MOXY and Halliburton Energy Services, Inc. (Incorporated
by
reference to Exhibit 10.1 to McMoRan’s Current Report on Form 8-K dated
February 22, 2002).
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10.8
|
Purchase
and Sale Agreement dated as of March 29, 2002 by and among Freeport
Sulphur, McMoRan, MOXY and Gulf Sulphur Services Ltd., LLP. (Incorporated
by reference to Exhibit 10.37 to McMoRan’s First Quarter 2002 Form 10-Q.)
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10.9
|
Purchase
and Sale Agreement dated May 9, 2002 by and between MOXY and El Paso
Production Company. (Incorporated by reference to Exhibit 10.28 to
McMoRan’s Second Quarter 2002 Form 10-Q).
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10.10
|
Amendment
to Purchase and Sale Agreement dated May 22, 2002 by and between
MOXY and
El Paso Production Company. (Incorporated by reference to Exhibit
10.29 to
McMoRan’s Second Quarter 2002 Form 10-Q).
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10.11
|
Master
Agreement dated October 22, 2002 by and among Freeport-McMoRan Sulphur
LLC, K-Mc Venture LLC, K1 USA Energy Production Corporation and McMoRan
(Incorporated by reference to Exhibit 10.18 to McMoRan’s 2002 Form
10-K).
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10.12
|
Credit
Agreement dated as of April 19, 2006 among McMoRan Oil & Gas LLC as
borrower, JP Morgan Chase Bank, N.A., as administrative agent,
Toronto-Dominion (Texas) LLC, as syndication agent and the Lenders
Party
Hereto. (Incorporated by reference to Exhibit 10.1 to McMoRan’s Current
Report on Form 8-K dated April 19, 2006).
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Executive
and Director Compensation Plans and Arrangements (Exhibits 10.13
through
10.34).
|
|
10.13
|
McMoRan
Adjusted Stock Award Plan, as amended and restated. (Incorporated
by
reference to Exhibit 10.6 to McMoRan’s Current Report on Form 8-K dated
May 1, 2006 (May 1, 2006 Form 8-K)).
|
10.14
|
McMoRan
1998 Stock Option Plan, as amended and restated. (Incorporated by
reference to Exhibit 10.5 to McMoRan’s May 1, 2006 Form
8-K).
|
10.15
|
McMoRan
1998 Stock Option Plan for Non-Employee Directors. (Incorporated
by
reference to Exhibit 10.14 to McMoRan’s Second Quarter 2005 Form
10-Q).
|
10.16
|
McMoRan
Form of Notice of Grant of Nonqualified Stock Options and Limited
Rights
under the 1998 Stock Option Plan. (Incorporated by reference to Exhibit
10.15 to McMoRan’s Second Quarter 2005 Form 10-Q).
|
10.17
|
McMoRan
2000 Stock Incentive Plan, as amended and restated. (Incorporated
by
reference to Exhibit 10.4 to McMoRan’s May 1, 2006 Form
8-K).
|
10.18
|
McMoRan
Form of Notice of Grant of Nonqualified Stock Options and Limited
Rights
under the 2000 Stock Incentive Plan. (Incorporated by reference to
Exhibit
10.17 to McMoRan’s Second Quarter 2005 Form 10-Q).
|
10.19
|
McMoRan
2001 Stock Incentive Plan, as amended and restated. (Incorporated
by
reference to Exhibit 10.3 to McMoRan’s May 1, 2006 Form
8-K).
|
10.20
|
McMoRan
2003 Stock Incentive Plan, as amended and restated. (Incorporated
by
reference to Exhibit 10.2 to McMoRan’s May 1, 2006 Form
8-K).
|
10.21
|
McMoRan’s
Performance Incentive Awards Program as amended effective February
1,
1999. (Incorporated by reference to Exhibit 10.18 to McMoRan’s 1998 Form
10-K).
|
10.22
|
McMoRan
Form of Notice of Grant of Nonqualified Stock Options and Limited
Rights
under the 2001 Stock Incentive Plan. (Incorporated by reference to
Exhibit
10.21 to McMoRan’s Second Quarter 2005 Form 10-Q).
|
10.23
|
McMoRan
Form of Restricted Stock Unit Agreement Under the 2001 Stock Incentive
Plan. (Incorporated by reference to Exhibit 10.22 to McMoRan’s Second
Quarter 2005 Form
10-Q).
|
10.24
|
McMoRan
Exploration Co. Executive Services Program (Incorporated by reference
to
Exhibit 10.8 to McMoRan’s May 1, 2006 Form 8-K).
|
10.25
|
McMoRan
Form of Notice of Grants of Nonqualified Stock Options and Limited
Rights
under the 2003 Stock Incentive Plan. (Incorporated by reference to
Exhibit
10.24 to McMoRan’s Second Quarter 2005 Form 10-Q).
|
10.26
|
McMoRan
Form of Restricted Stock Unit Agreement Under the 2003 Stock Incentive
Plan. (Incorporated by reference to Exhibit 10.25 to McMoRan’s Second
Quarter 2005 Form
10-Q).
|
10.27
|
McMoRan
2004 Director Compensation Plan. (Incorporated by reference to Exhibit
10.29 to McMoRan’s Second Quarter 2004 Form 10-Q).
|
10.28
|
Form
of Amendment No. 1 to Notice of Grant of Nonqualified Stock Options
under
the 2004 Director Compensation Plan. (Incorporated by reference to
Exhibit
10.7 to McMoRan’s May 1, 2006 Form 8-K).
|
10.29
|
Agreement
for Consulting Services between Freeport-McMoRan Inc. and B. M. Rankin,
Jr. effective as of January 1, 1991)(assigned to FM Services Company
as of
January 1, 1996); as amended on December 15, 1997 and on December
7, 1998.
(Incorporated by reference to Exhibit 10.32 to McMoRan’s 1998 Form
10-K).
|
10.30
|
Supplemental
Letter Agreement between FM Services Company and B.M. Rankin, Jr.
effective as of January 1, 2006. (Incorporated by reference to Exhibit
10.28 to McMoRan’s 2005 Form 10-K).
|
10.31
|
McMoRan
Director Compensation. (Incorporated by reference to Exhibit 10.27
to
McMoRan’s 2004 Form 10-K).
|
10.32
|
McMoRan
Exploration Co. 2005 Stock Incentive Plan. (Incorporated by reference
to
Exhibit 10.1 to McMoRan’s May 1, 2006 Form 8-K).
|
10.33
|
Form
of Notice of Grant of Nonqualified Stock Options under the 2005 Stock
Incentive Plan. (Incorporated by reference to Exhibit 10.2 to McMoRan’s
Current Report on Form 8-K filed May 6, 2005).
|
10.34
|
Form
of Restricted Stock Unit Agreement under the 2005 Stock Incentive
Plan.
(Incorporated by reference to Exhibit 10.3 to McMoRan’s Current Report on
Form 8-K filed May 6, 2005).
|
Letter
dated November 1, 2006 from Ernst & Young LLP regarding unaudited
interim financial statements.
|
|
Certification
of Principal Executive Officer pursuant to Rule
13a-14(a)/15d-14(a).
|
|
Certification
of Principal Financial Officer pursuant to Rule
13a-14(a)/15d-14(a).
|
|
Certification
of Principal Executive Officer pursuant to 18 U.S.C. Section
1350.
|
|
Certification
of Principal Financial Officer pursuant to 18 U.S.C. Section
1350.
|
|