SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the Quarter Ended September 30, 1999
Commission File Number: 001-07791
McMoRan Exploration Co.
Incorporated in Delaware 72-1424200
(IRS Employer
Identification No.)
1615 Poydras Street, New Orleans, Louisiana 70112
Registrant's telephone number, including area code: (504) 582-4000
Indicate by check mark whether the registrant (1) has filed
all reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 12 months
(or for such shorter period that the registrant was required to
file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X No _
On September 30, 1999, there were issued and outstanding
12,805,338 shares of the registrant's Common Stock, par value
$0.01 per share.
McMoRan EXPLORATION CO.
TABLE OF CONTENTS
Page
Part I. Financial Information
Financial Statements:
Condensed Balance Sheets 3
Statements of Operations 4
Statements of Cash Flow 5
Notes to Financial Statements 6
Remarks 8
Report of Independent Public Accountants 9
Management's Discussion and Analysis
of Financial Condition and Results of
Operations 10
Part II. Other Information 17
Signature 18
Exhibit Index E-1
<PAGE> 2
McMoRan EXPLORATION CO.
Part I. FINANCIAL INFORMATION
Item 1. Financial Statements.
<TABLE>
<CAPTION>
McMoRan EXPLORATION CO.
CONDENSED BALANCE SHEETS (Unaudited)
September 30, December 31,
1999 1998
--------- ----------
(In Thousands)
<S> <C> <C>
ASSETS
Cash and cash equivalents $ 4,472 $ 17,816
Accounts receivable 29,381 32,076
Inventories 18,999 14,915
Deferred tax asset and prepaid expenses 4,661 4,762
--------- ---------
Total current assets 57,513 69,569
Property, plant and equipment, net 165,453 187,137
Deferred tax asset 30,953 31,834
Other assets, including goodwill (net of
accumulated amortization of $504 and
$144, respectively) 29,814 31,848
--------- ---------
Total assets $ 283,733 $ 320,388
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Accounts payable $ 26,777 $ 27,549
Accrued liabilities 7,032 13,895
Current portion of reclamation and mine
shutdown reserves and other 7,861 7,145
--------- ---------
Total current liabilities 41,670 48,589
Reclamation and mine shutdown reserves 52,842 60,047
Other long-term liabilities 32,882 32,952
Stockholders' equity 156,339 178,800
--------- ---------
Total liabilities and stockholders'equity $ 283,733 $ 320,388
========= =========
</TABLE>
The accompanying notes are an integral part of these financial
statements.
<PAGE> 3
McMoRan EXPLORATION CO.
STATEMENTS OF OPERATIONS (Unaudited)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
------------------ --------------------
1999 1998 1999 1998
-------- ------- --------- --------
(In Thousands, Except Per Share Amounts)
<S> <C> <C> <C> <C>
Revenues $ 60,102 $ 4,147 $ 185,502 $ 15,925
Costs and expenses:
Production and delivery costs 48,343 719 143,664 2,530
Depreciation and amortization 8,575 2,921 27,822 13,891
Exploration expenses 1,080 1,577 4,933 13,835
General and administrative expenses 3,532 867 10,639 3,216
(Gain) loss on sale of
oil and gas property 540 (447) (2,550) (447)
-------- ------- --------- --------
Total costs and expenses 62,070 5,637 184,508 33,025
-------- ------- --------- --------
Operating income (loss) (1,968) (1,490) 994 (17,100)
Interest expense (158) - (291) -
Other income, net 171 388 666 1,120
-------- ------- --------- --------
Net income (loss) before
income taxes (1,955) (1,102) 1,369 (15,980)
Income tax (provision) benefit 684 - (487) -
-------- ------- --------- --------
Net income (loss) $ (1,271) $(1,102) $ 882 $(15,980)
======== ======= ========= ========
Net income (loss) per share
of common stock
Basic $(0.10) $(0.13) $0.07 $(1.86)
====== ====== ===== ======
Diluted $(0.10) $(0.13) $0.06 $(1.86)
====== ====== ===== ======
Average shares outstanding
Basic 12,978 8,583 13,578 8,570
====== ===== ====== =====
Diluted 12,978 8,583 13,805 8,570
====== ===== ====== =====
</TABLE>
The accompanying notes are an integral part of these financial
statements.
<PAGE> 4
McMoRan EXPLORATION CO.
STATEMENTS OF CASH FLOW (Unaudited)
<TABLE>
<CAPTION>
Nine Months Ended
September 30,
------------------------
1999 1998
-------- ---------
(In Thousands)
<S> <C> <C>
Cash flow from operating activities:
Net income (loss) $ 882 $ (15,980)
Adjustments to reconcile net income (loss) to net
cash provided by (used in) operating activities:
Depreciation and amortization 27,822 13,891
Exploration expenses 4,933 13,835
Gain on sale of oil and gas property (2,550) (447)
Reclamation and mine shutdown expenditures (5,106) -
Utilization of deferred tax asset 475 -
Change in asset and liabilities, net of effects
of acquisitions:
(Increase) decrease in working capital
Accounts receivable (780) 13,998
Accounts payable and accrued liabilities 57 (3,366)
Inventories and prepaid expense (6,373) (269)
Other 1,058 123
------- --------
Net cash provided by operating activities 20,418 21,785
------- --------
Cash flow from investing activities:
Exploration and development expenditures (25,279) (39,205)
Proceeds from disposition of assets, net 13,892 450
Other 1,609 (293)
------- --------
Net cash used in investing activities (9,778) (39,048)
------- --------
Cash flow from financing activities:
Proceeds from exercise of stock options and other 1,096 (615)
Purchase of MMR common stock (25,080) -
------- --------
Net cash used in financing activities (23,984) (615)
------- --------
Net decrease in cash and cash equivalents (13,344) (17,878)
Cash and cash equivalents at beginning of year 17,816 29,149
------- --------
Cash and cash equivalents at end of period $ 4,472 $ 11,271
======= ========
</TABLE>
The accompanying notes are an integral part of these financial
statements.
<PAGE> 5
McMoRan EXPLORATION CO.
NOTES TO FINANCIAL STATEMENTS
1. BACKGROUND AND BASIS OF PRESENTATION
Background. McMoRan Exploration Co. (MMR), became a publicly
traded entity on November 17, 1998 when McMoRan Oil & Gas Co.
(MOXY) and Freeport-McMoRan Sulphur Inc. (FSC) combined their
respective operations (the Merger). In the Merger, FSC's
shareholders received 0.625 MMR common shares for each FSC
outstanding common share, or a total of 5.5 million MMR shares,
while MOXY's shareholders received 0.20 MMR common shares for
each MOXY outstanding common share, or a total of 8.6 million MMR
common shares.
Basis of Presentation. The Merger is reflected in the
accompanying financial statements using the purchase method of
accounting, with MOXY as the acquiring entity. Accordingly,
financial statements for any period prior to the Merger reflect
the historical assets, liabilities, revenues and expenses
attributable to MOXY as the predecessor of MMR. Operating
results of the acquired assets are included after November 17,
1998. The 1998 earnings per share and weighted average shares
outstanding amounts have been restated to reflect the effective
reverse stock split of MOXY's shares resulting from the Merger.
The assets acquired and liabilities assumed from FSC were
recorded at estimated fair values using independent appraisals
where available. For further discussion on the acquisition of FSC
see "Note 3. Acquisitions," to the Notes to Financial
Statements included in MMR's 1998 Annual Report on
Form 10-K.
2. EARNINGS PER SHARE
The earnings per share (EPS) data for 1998 have been restated to
reflect the effective reverse stock split resulting from the
Merger. Basic net income (loss) per share of common stock was
calculated by dividing net income or net loss applicable to
common stock by the weighted-average number of common shares
outstanding during the periods presented. The diluted net income
(loss) per share was calculated by dividing net income by the
weighted-average number of common shares outstanding during the
periods presented plus outstanding dilutive stock options, which
represented approximately 227,000 shares of common stock during
the nine months ended September 30, 1999. MMR had options
outstanding representing approximately 417,000 and 125,000 shares
of common stock during the three months ended September 30, 1999
and 1998, respectively and 170,000 shares of common stock for the
nine months ended September 30, 1998 that otherwise would have
been included in the calculation of diluted net loss per share,
but were excluded as anti-dilutive considering the losses
incurred during the respective periods.
Outstanding options to purchase approximately 66,000 and
475,000 shares of common stock at average exercise prices of
$24.82 and $19.16 per share during the third quarter of 1999 and
1998, respectively, and outstanding options to purchase
approximately 781,000 and 66,000 shares of common stock at
average exercise prices of $19.31 and $24.65 for the nine months
ended September 30, 1999 and 1998, respectively, were not
included in the computation of diluted EPS because the exercise
prices were greater than the average market price during the
periods presented.
3. FINANCIAL INSTRUMENTS AND CONTRACTS
Based on its assessment of market conditions MMR may enter
financial contracts to manage certain risks resulting from
fluctuations in commodity prices (oil and natural gas). Costs or
premiums and gains or losses on the contracts, including closed
contracts, are recognized with the hedged transactions. Also,
gains or losses are recognized if the hedged transaction is no
longer expected to occur or if deferral criteria are not met. MMR
monitors its credit risk on an ongoing basis and considers this
risk to be minimal because its contracts are with a financially
strong counterparty.
At September 30, 1999, MMR had outstanding natural gas
option contracts related to its Main Pass sulphur operations and
forward oil sales contracts related to its Main Pass oil
operations. The natural gas purchase contracts were part of a
price protection program that FSC originally entered into in
April 1998. This program involved capping the price of
approximately 75 percent of Main Pass' 1998 natural gas
consumption at $2.175 per million British thermal units (mmbtu)
and granted the supplier the option to put 450,000 mmbtu per
month to FSC at a price of $2.175 mmbtu during 1999. The
contracts do not meet current accounting deferral criteria and
changes in their fair values are recorded in production costs.
As of September 30, 1999, based on quoted futures prices, these
contracts had no value.
<PAGE> 6
FSC also has oil forward sales contracts related to its Main
Pass oil production. Gains or losses on these contracts are
recognized with the hedged transaction. As of September 30, 1999,
FSC had contracts to sell 0.2 million barrels of oil at an
average price of $21.17 per barrel through December 2000. These
contracts had a fair value of approximately $(0.2) million as of
September 30, 1999.
In June 1998, the Financial Accounting Standards Board
(FASB) issued Statement of Financial Accounting Standards 133,
"Accounting for Derivative Instruments and Hedging Activities"
(SFAS 133), which establishes accounting and reporting standards
that every derivative instrument be recorded in the balance sheet
as either an asset or liability measured at its fair value. In
June 1999, the FASB delayed SFAS 133's effective date by one year
to fiscal years beginning after June 15, 2000, with earlier
application permitted. MMR has not determined when it will adopt
SFAS 133; however, adoption is not expected to have a material
impact on its financial position or results of operations.
4. BUSINESS SEGMENTS
MMR has adopted SFAS 131, "Disclosures About Segments of an
Enterprise and Related Information," which requires that
companies disclose segment data based on how management makes
decisions about allocating resources to segments and measuring
their performance. MMR had only one operating segment, Oil and
Gas, until the Merger, when it acquired FSC's sulphur assets.
MMR's oil and gas are produced offshore in the Gulf of Mexico and
currently include MMR's facilities at Vermilion Blocks 160 and
159, West Cameron Block 616 and commencing in October 1999,
Brazos Block A-19. MMR's oil and gas segment also includes the
oil produced at Main Pass 299 from the same geologic formation
containing the deposit's sulphur. Frasch sulphur is produced at
the Main Pass mine located 32 miles offshore Louisiana and was
produced from the Culberson mine in west Texas, until it
permanently ceased production on June 30, 1999. The sulphur
business segment includes purchasing recovered sulphur and the
transporting and terminaling of sulphur, both mined and
purchased, utilizing its extensive logistics network of sulphur
terminaling and transportation assets in the Gulf Coast region.
MMR's segment data for the third quarter and nine months ended
September 30, 1999 are shown below (in thousands).
<TABLE>
<CAPTION>
Eliminations
Sulphur Oil & Gas and Other Total
-------- --------- --------- ---------
<S> <C> <C> <C> <C>
Third Quarter Ended
September 30, 1999
Revenues $ 46,323 $ 13,779 $ - $ 60,102
Production and delivery 43,918 4,425 - 48,343
Depreciation and amortization 1,281 7,294 - 8,575
Exploration expenses - 1,080 - 1,080
General and administrative
expenses 1,850 927 755 3,532
Loss on the sale of property - 540 - 540
--------- --------- --------- ---------
Operating loss (726) (487) (755) (1,968)
Interest expense (149) (9) - (158)
Interest and other income 42 129 - 171
Income tax benefit - - 684 684
--------- --------- --------- ---------
Net loss $ (833) $ (367) $ (71) $ (1,271)
========= ========= ========= =========
Capital expenditures $ 921 $ 2,047a $ - $ 2,968
========= ========= ========= =========
Nine Months Ended
September 30, 1999
Revenues $ 146,797 $ 38,705 $ - $ 185,502
Production and delivery 132,011 11,653 - 143,664
Depreciation and amortization 3,683 24,139 - 27,822
Exploration expenses - 4,933 - 4,933
General and administrative
expenses 5,516 2,639 2,484 10,639
Gain on sale of property - (2,550) - (2,550)
--------- --------- --------- ---------
Operating income (loss) 5,587 (2,109) (2,484) 994
Interest expense (263) (28) - (291)
Interest and other income 306 360 - 666
Income tax provision - (12) (475) (487)
--------- --------- --------- ---------
Net income (loss) $ 5,630 $ (1,789) $ (2,959) $ 882
========= ========= ========= =========
Capital expenditures $ 7,520 $ 17,759a $ - $ 25,279
========= ========= ========= =========
Total assets $ 170,635 $ 75,990 $ 37,108b $ 283,733
========= ========= ========= =========
</TABLE>
<PAGE> 7
(a)Includes oil and gas exploration and development expenditures incurred.
(b)Represents assets held by the parent company, the most significant of which
include MMR's $34.5 million deferred tax assets and $2.0 million of prepaid
pension benefits.
5. SUBSEQUENT EVENT
On November 9, 1999, MMR and Phosphate Resource Partners Limited
Partnership (PLP) entered into an agreement terminating PLP's
participation in the MOXY Exploration Program (Exploration
Program). Under terms of the agreement, effective October 1,
1999, MMR purchased PLP's 47 percent interest in the Exploration
Program, which included three producing oil and gas fields and an
inventory of exploration prospects and leases (the PLP Property
Acquisition). MMR funded the purchase price of $32 million with
available cash and borrowings under its existing credit
facilities (see Note 9 "Commitments and Contingencies" included
in MMR's 1998 Form 10-K for a discussion of MMR's credit
facilities). As a result, MMR now owns a 95 percent interest in
the Exploration Program with an individual investor owning the
remaining five percent. For a discussion of the Exploration
Program refer to Note 4 "Rights Offering and Exploration
Agreements" and "Capital Resources and Liquidity" included in
MMR's 1998 Form 10-K. Additionally, PLP and IMC Global Inc.
(IGL) have dismissed with prejudice their lawsuit against MMR and
four former directors of Freeport-McMoRan Inc., which was merged
into IGL in December 1997 (see Part II-Item 1 "Legal
Proceedings" included elsewhere in this Form 10-Q).
------------------------
Remarks
The information furnished herein should be read in conjunction
with MMR's financial statements contained in its 1998 Annual
Report on Form 10-K. The information furnished herein reflects
all adjustments which are, in the opinion of management,
necessary for a fair statement of the results for the periods.
All such adjustments are, in the opinion of management, of a
normal recurring nature.
<PAGE> 8
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Board of Directors and Stockholders of McMoRan Exploration
Co.:
We have reviewed the accompanying condensed balance sheet of
McMoRan Exploration Co. (a Delaware corporation) as of September
30, 1999, the related statements of operations for the three-
month and nine month periods ended September 30, 1999 and 1998
and the statements of cash flow for the nine month periods ended
September 30, 1999 and 1998. These financial statements are the
responsibility of the company's management.
We conducted our reviews in accordance with standards established
by the American Institute of Certified Public Accountants. A
review of interim financial information consists principally of
applying analytical procedures to financial data and making
inquiries of persons responsible for financial and accounting
matters. It is substantially less in scope than an audit
conducted in accordance with generally accepted auditing
standards, the objective of which is the expression of an opinion
regarding the financial statements taken as a whole.
Accordingly, we do not express such an opinion.
Based on our reviews, we are not aware of any material
modifications that should be made to the financial statements
referred to above for them to be in conformity with generally
accepted accounting principles.
We have previously audited, in accordance with generally accepted
auditing standards, the balance sheet of McMoRan Exploration Co.
as of December 31, 1998, and the related statements of
operations, stockholders' equity and cash flow for the year then
ended (not presented herein), and, in our report dated January
19, 1999, we expressed an unqualified opinion on those financial
statements. In our opinion, the information set forth in the
accompanying condensed balance sheet as of December 31, 1998, is
fairly stated, in all material respects, in relation to the
balance sheet from which it has been derived.
/s/ ARTHUR ANDERSEN LLP
New Orleans, Louisiana
October 19, 1999 (except with
respect to Note 5, as to which
the date is November 9, 1999)
<PAGE> 9
Item 2.Management's Discussion and Analysis of Financial
Condition and Results of Operations.
OVERVIEW
McMoRan Exploration Co. (MMR) engages in the exploration,
development and production of oil and gas offshore in the Gulf of
Mexico (Gulf) and onshore in the Gulf Coast region and in the
mining, purchasing, transporting, terminaling and marketing of
sulphur. On November 17, 1998, McMoRan Oil & Gas Co. (MOXY) and
Freeport-McMoRan Sulphur Inc. (FSC) became wholly owned
subsidiaries of MMR (the Merger). The Merger was recorded as a
purchase with MOXY as the acquiring entity (see Note 1). All
following references to MMR for any period prior to the Merger
are to activities or operations originally conducted by MOXY.
MMR and its predecessors have conducted oil and gas
exploration, development and production operations offshore in
the Gulf and onshore in the Gulf Coast region and other areas for
more than 25 years, which has provided it with an extensive
geological and geophysical database and significant technical and
operational expertise. MMR expects to continue to concentrate its
efforts in this selected geographic area where its management
team has significant exploration experience. MMR believes the
opportunities to discover meaningful oil and gas reserves are
significant and that these opportunities can best be achieved
through the use of advanced 3-D seismic technology, applied in
conjunction with selective exploration and acquisition
activities.
The assets acquired from FSC included two operating sulphur
mines: Main Pass 299, located offshore Louisiana in which FSC
owns an 83.3 percent interest and the wholly owned Culberson mine
located in west Texas, which permanently ceased production on
June 30, 1999. Other sulphur assets include five sulphur
terminals located across the Gulf Coast and various marine and
rail transportation assets. MMR also acquired FSC's 83.3 percent
interest in the Main Pass oil operations, which involves
producing oil from the same geologic formation from which sulphur
is produced.
RECENT DEVELOPMENT
On November 9, 1999, MMR and Phosphate Resource Partners Limited
Partnership (PLP) entered into an agreement terminating PLP's
participation in the MOXY Exploration Program (Exploration
Program). Under terms of the agreement, effective October 1,
1999, MMR purchased PLP's 47 percent interest in the Exploration
Program, which included three producing oil and gas fields and an
inventory of exploration prospects and leases (the PLP Property
Acquisition). MMR funded the purchase price of $32 million with
available cash and borrowings under its existing credit
facilities (see Note 9 "Commitments and Contingencies" included
in MMR's 1998 Form 10-K for a discussion of MMR's credit
facilities). As a result, MMR now owns a 95 percent interest in
the Exploration Program with an individual investor owning the
remaining five-percent. For a discussion of the Exploration
Program refer to Note 4 "Rights Offering and Exploration
Agreements" and "Capital Resources and Liquidity" included in
MMR's 1998 Form 10-K. Additionally, PLP and IMC Global Inc.
(IGL) have dismissed with prejudice their lawsuit against MMR and
four former directors of Freeport-McMoRan Inc., which was merged
into IGL in December 1997 (see Part II-Item 1 "Legal
Proceedings" included elsewhere in this Form 10-Q).
OPERATIONAL ACTIVITIES
The following significant operational activities
occurred during the third quarter and into the fourth quarter of
1999.
Oil and Gas
- -----------
. In the PLP Property Acquisition, as discussed in " Recent
Development" above MMR acquired additional net revenue
interests in the Vermilion Block 159, West Cameron Block 616
and Brazos Block A-19 fields of 37.8 percent, 37.7 percent and
13.1 percent, respectively. Based on reported reserve
estimates as of December 31, 1998 prepared by MMR's
independent petroleum engineers, these properties' proved
reserves attributable to PLP's interest totaled approximately
33 billion cubic feet (Bcf) of natural gas and approximately
150,000 barrels (Bbls) of condensate on that date. For the
nine months ending September 30, 1999, production attributable
to PLP's interest in these properties equaled approximately
3.7 Bcf of natural gas and approximately 28,000 Bbls of
condensate. Updated proved reserve estimates as of December
31, 1999 for these fields will be included in amounts reported
in MMR's 1999 Annual Report on Form 10-K. These estimates will
reflect economic and operating conditions as of December 31,
1999, including oil and gas prices, development and production
costs, production experience and other pertinent factors.
<PAGE> 10
. Production and other information from the recently completed
Brazos Block A-19 field will be included in these estimates.
Shell Offshore Inc., as operator, has publicly released
information that this field commenced production on October
16, 1999 and reached an expected peak gross production rate of
87 million cubic feet per day (MMcfd) of natural gas on
November 2, 1999. MMR's net revenue interest in this field now
totals 26.4 percent as a result of the PLP Property
Acquisition. Brazos Block A-19 is located in approximately 135
feet of water, 35 miles offshore Texas.
. MMR anticipates commencing drilling of the Vermilion Block 408
#1 exploratory well in November 1999. The well is expected to
reach total depth of 8,000 feet during the fourth quarter of
1999. MMR has an approximate 14.4 percent working interest
and an 11.6 percent net revenue interest (28.5 percent and 22.9
percent, respectively, following the PLP Acquisition) in the
#1 well, which is located in approximately 380 feet of water,
115 miles offshore Louisiana.
. During the third quarter of 1999, MMR farmed-in the Grass
Island Deep prospect located in the shallow onshore waters of
Espiritu Santo Bay, Calhoun County, Texas and began drilling
the State Tract 210 #6 well on November 1, 1999. The well is
expected to reach total depth of 13,500 feet. The farm-out
agreement establishes a 22 square mile area of mutual interest
around the prospect and grants MMR a license to 22 square
miles of 3-D seismic data. MMR will have an approximate 23.6
percent working interest and a 16.3 percent net revenue
interest (46.6 percent and 32.1 percent, respectively, following
the PLP Acquisition) in the prospect after payout.
. During the third quarter of 1999, MMR and its exploration
partner, Phosphate Resource Partners Limited Partnership
(PLP), sold their aggregate 50 percent working interest in
West Cameron Block 492. Under terms of the sale, MMR and PLP
shared proportionally in the $1.3 million of sales proceeds
and each retained a proportionate overriding royalty interest,
which net to MMR totals 1.5 percent and may increase to 2.5
percent if certain cumulative production volumes are achieved.
MMR recorded an approximate $0.5 million loss as a result of
the sale.
Sulphur
- -------
. MMR permanently ceased production from its Culberson mine in
west Texas on June 30, 1999. Abandonment and salvage
operations are underway and are anticipated to be completed by
the end of 1999. MMR had previously accrued the costs
associated with the closure of the Culberson mine and expects
its closure will have no material impact on the future
earnings of MMR.
. MMR is pursuing a strategy to increase the utilization rates
of its logistical and transportation assets, which currently
approximates 60 percent of their total capacity. These assets
include a unique set of fully permitted assets that include
terminals, rail cars, ocean vessels and barges.
RESULTS OF OPERATIONS
MMR has two operating segments: "oil and gas" and
"sulphur." The oil and gas segment includes the operations of
MOXY, as the predecessor to MMR, as well as the Main Pass oil
operations acquired from FSC in the Merger. The sulphur segment,
which was also acquired in the Merger, currently includes
production from the Main Pass mine, purchases of recovered
sulphur and the transporting and terminaling of both mined and
purchased sulphur. Summary operational data is as follows:
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
--------------------- ----------------------
1999 a 1998 1999 a 1998 b
--------- --------- ---------- ---------
<S> <C> <C> <C> <C>
Sales volumes:
Gas (thousand cubic feet,
or MCF) 3,079,600 1,843,700 10,619,000 6,866,300
Oil (barrels) 291,000 19,000 1,055,600 81,600
Sulphur (long tons) 718,900 - 2,242,500 -
Average realization:
Gas (per MCF) $ 2.65 $ 2.06 $ 2.19 $ 2.17
Oil (per barrel) 19.05 13.05 14.39 14.17
Sulphur (per long ton) 63.72 - 64.82 -
a. Includes operating data of FSC. Main Pass oil operations
contributed approximately 244,100 and 854,400 barrels at
average realizations of $18.66 and $14.01 for the three months
and nine months ended September 30, 1999, respectively.
b. The prior period effects of the re-determination of ownership
interests in Vermilion Block 160 were excluded from the above
table, which would have reduced six-month volumes of gas and
oil by approximately 150,400 MCF and 6,200 barrels,
respectively, and reduced the combined revenues from gas and
oil by approximately $0.5 million.
<PAGE> 11
Oil and Gas
MMR's oil and gas revenues increased to $13.8 million and
$38.7 million for the third quarter and nine months ended
September 30, 1999, respectively, from $4.1 million and $15.9
million for the comparable periods in 1998. These increases
primarily reflect the inclusion of oil revenues, totaling $4.6
million and $12.0 million during the third quarter and nine
months ended September 30, 1999, respectively, from Main Pass
299, which was acquired in the Merger. Additionally, oil and gas
revenues for the third quarter and nine months ended September
30, 1999 reflect the increased production volumes associated with
the commencement of operations at the Vermilion Block 160 #4
sidetrack well and the Vermilion Block 159 #3 well during January
1999, and at West Cameron Block 616 during March 1999, together
with the purchase of an additional 10.3 percent net revenue
interest in the Vermilion Block 160 field unit during the first
quarter of 1999. Revenues also increased as a result of higher
average realizations during the third quarter and nine months
ended September 30, 1999 as compared to the same periods last
year. These increases were offset in part by the sale of the
Vermilion Block 410 field in early March 1999.
Depreciation and amortization expense increased to $7.3
million and $24.1 million during the third quarter and nine
months ended September 30, 1999, from $2.9 million and $13.9
million for the comparable periods in 1998. These increases
resulted from the higher production volumes associated with the
commencement of operations discussed above, together with
increased depreciable capitalized costs incurred since the 1998
first quarter. Additionally, during the third quarter of 1999,
MMR's proved reserves associated with West Cameron Block 616 were
adjusted downward on the basis of production performance,
resulting in additional depreciation expense of $0.6 million.
Production and delivery expense totaled $4.4 million and
$11.7 million during the third quarter and nine months ended
September 30, 1999, respectively, compared to $0.7 million and
$2.5 million during the same periods last year. The increases
reflect the higher production volumes associated with the
commencement of operations at the facilities discussed above,
together with $2.2 million and $7.1 million of costs associated
with production from the acquired Main Pass oil facilities during
the respective periods.
MMR's exploration expenses fluctuate from period to period
based on the level, results and costs of exploratory drilling
projects and the volume of and extent to which seismic data are
acquired and interpreted. Exploration expenses during the nine
months ended September 30, 1999 include approximately $1.6
million of exploratory drilling costs primarily associated with
the farm-in of Vermilion Block 162 and the subsequent drilling of
the #5 exploratory well thereon in January 1999. MMR's other
exploration expenses totaled approximately $3.3 million, primarily
for geological and geophysical costs, including the purchase of
seismic data. During the nine months ended September 30, 1998,
MMR expensed $9.5 million of drilling and leasehold costs
associated with four unsuccessful exploratory wells, and other
exploration expenses totaling $4.3 million. MMR has focused its
efforts during 1999 on assessing selective growth opportunities
and did no exploration drilling during the third quarter of 1999.
Exploratory drilling is scheduled for the fourth quarter of 1999
(see Oil and Gas Operational Activities above).
As a result of anticipated future oil and gas exploration
expenditures, MMR may report operating losses in future periods.
Sulphur
As previously stated, MMR acquired its sulphur segment in the
Merger. Accordingly, because pre-acquisition data is not
presented under purchase accounting principles there is no 1998
data to compare 1999 sulphur results of operations.
Sulphur operations had revenues of $46.3 million and $146.8
million during the third quarter and nine months ended September
30, 1999, respectively. MMR's sulphur operations had operating
income of $5.6 million during the nine months ended September 30,
1999 and an operating loss of $0.7 million during the third
quarter of 1999. The operating loss during the third quarter can
be attributed in part to an $4 per ton decrease in the Tampa
market sulphur price. MMR's sulphur revenues are affected by
these market changes in accordance with the terms of its sales
contracts, which generally reflect the changes over periods of
one to as much as three months. Sulphur market fundamentals
continue to suffer from the decrease in demand resulting from
recent production curtailments by major producers of phosphate
<PAGE> 12
fertilizers in response to declining fertilizer demand. In
response to these conditions, the Tampa market price for sulphur
has fallen an additional $5 per ton, effective October 1, 1999.
Sulphur market prices primarily impact MMR's mining operations;
however, changes in sulphur prices generally do not have a
significant effect on margins earned by MMR in marketing and
transporting recovered sulphur. Future sulphur prices will
continue to fluctuate as a result of changes in sulphur market
conditions and can be expected to continue to be weak if current
conditions in the phosphate fertilizer market persist. These
decreases in sulphur prices will impact MMR's near-term cash flow
and may impact the future realizability of MMR's inventory
carrying costs.
MMR sells a significant portion of the sulphur it produces or
purchases to the IMC-Agrico Joint Venture (IMC-Agrico), a
phosphate fertilizer producer, under a long-term supply contract
that extends for as long as IMC-Agrico has a requirement for
sulphur. Sales to IMC-Agrico during the third quarter and nine
months ended September 30, 1999 totaled 54.0 percent and 56.6
percent of MMR's total revenues, respectively, and 70.8 percent
and 72.2 percent of its sulphur sales, respectively. The Sulphur
Supply Agreement contains a provision that requires good faith
renegotiation of the pricing provisions if a party can prove that
fundamental changes in IMC-Agrico's operations or the sulphur and
sulphur transportation markets invalidate certain assumptions and
result in the performance by that party becoming "commercially
impracticable" or "grossly inequitable." In the fourth
quarter of 1998, IMC-Agrico attempted to invoke this contract
provision in an effort to renegotiate the pricing terms of the
Sulphur Supply Agreement. After careful review of the agreement,
IMC-Agrico's operations and the referenced markets, FSC
determined that there is no basis for renegotiation of the
pricing provisions under the terms of the agreement. After
discussions failed to resolve this dispute, FSC filed suit
against IMC-Agrico seeking a judicial declaration that no basis
exists under the agreement for a renegotiation of its pricing
terms.
Homestake Mining Company (Homestake) is MMR's 16.7 percent
partner in the Main Pass mine. Under the Main Pass sulphur joint
operating agreement, Homestake has the right, under certain
conditions, to elect to waive its right to produce its share of
sulphur for one year at a time. In such event, Homestake would be
relieved of its responsibility to pay its share of operating
expenses during that year. Homestake has advised MMR that
Homestake believes it has elected to apply this provision to the
year 2000. MMR is assessing the circumstances regarding whether
conditions necessary for making this election exist, and the
implications of such an election.
Production costs totaled $43.9 million and $132.0 million
during the third quarter and nine months ended September 30,
1999, respectively. During the third quarter of 1999, MMR
implemented an early retirement program for certain Main Pass
employees resulting in $1.9 million of severance related costs,
$1.6 million net to MMR. These costs reduced the MMR prepaid
pension asset. Sulphur's production costs for the nine-months
ended September 30, 1999 benefited from $3.6 million of approved
settlements to-date on its business interruption insurance claim
resulting from the effects Hurricane Georges had on Main Pass'
production. During the first quarter of 1999, MMR's sulphur
operations capitalized approximately $4.6 million of drilling
costs incurred to increase the productive capacity of Main Pass,
which had been temporarily reduced in the second half of 1998 by
Hurricane Georges (see "Capital Resources and Liquidity"
below). Future sulphur drilling costs will be charged to
production costs as incurred. Sulphur depreciation expense
totaled $1.3 million and $3.7 million during the third quarter
and nine months ended September 30, 1999, respectively, including
goodwill amortization totaling $0.2 million and $0.4 million
during the third quarter and nine months ended September 30,
1999, respectively.
Other Financial Results
MMR's general and administrative expenses for the third
quarter and nine months ended September 30, 1999 totaled $3.5
million and $10.6 million, respectively, compared with $0.9
million and $3.2 million for the same periods in 1998. The
increases reflect the FSC operations acquired in the Merger.
Additionally, general and administrative expenses were affected
by severance related costs associated with early retirement
programs, which totaled $0.4 million and $0.8 million during the
third quarter and nine months ended September 30, 1999,
respectively.
CAPITAL RESOURCES AND LIQUIDITY
Operating activities provided net cash of $20.4 million
during the nine months ended September 30, 1999 compared to $21.8
million during the nine months ended September 30, 1998.
Operating cash flows for the nine months ended September 30, 1999
reflect the additional revenues generated primarily by the
sulphur assets acquired in the Merger and from MMR's initial
production from the Vermilion Block 160 #4 sidetrack well, the
<PAGE> 13
Vermilion Block 159 #3 well and West Cameron Block 616. This
increase was offset in part by a $6.7 million increase in sulphur
inventories during 1999 and by the payment of $5.1 million in
mine shutdown and reclamation expenditures. Operating cash flows
during the nine months ended September 30, 1998 benefited from
MMR's significant collection ($14.0 million) of accounts
receivable outstanding at December 31, 1997.
Net cash used in investing activities totaled $9.8 million
for the nine months ended September 30, 1999 compared with $39.0
million during the same period in 1998. During the 1999 period,
MMR incurred $25.3 million of exploration, development and other
capital expenditures. Oil and gas exploration and development
expenditures totaled $17.8 million, which included capitalized
oil and gas drilling costs of $12.9 million primarily associated
with the development of West Cameron Block 616, the Vermilion
Block 160 #4 sidetrack well, the Vermilion Block 159 # 3 well and
Brazos Block A-19, geological and geophysical and other
exploration expenses of $3.3 million and expensed drilling costs
of $1.6 million associated with the Vermilion Block 162 #5
exploratory well. MMR's sulphur operations incurred $7.5 million
of capitalized costs during the nine months ended September 30,
1999 consisting of $4.6 million related to drilling the
replacement wells for those damaged by Hurricane Georges (see
"Results of Operations" above), the approximate $1.8 million
purchase of certain sulphur rail cars that had previously been
leased and $1.1 million of capital improvements at the Galveston
terminal. MMR's sulphur segment received $7.5 million in
connection with an agreement to sell and lease back approximately
270 of its sulphur rail cars. MMR's oil and gas operations had
net proceeds of $6.4 million from the sale of a portion of its
additional net revenue interest purchases in the Vermilion Block
160 field unit and the Vermilion Block 159 #3 well, the sale of
its approximate 28 percent net revenue interest in the Vermilion
Block 410 field during the first quarter of 1999 and its sale of
its interest in West Cameron Block 492 during the third quarter
of 1999. During the nine months ended September 30, 1998, MMR
incurred $26.2 million of capitalized drilling costs primarily
for development of West Cameron Block 616 and the Vermilion Block
160 #4 sidetrack well, $9.5 million in expensed drilling and
leasehold costs associated with four exploratory wells and $3.5
million in geological and geophysical and other exploration
expenses.
Net cash used in financing activities totaled $24.0 million
for the nine months ended September 30, 1999 resulting from MMR's
purchase of shares of its common stock on the open market (see
below), offset in part by stock option exercise proceeds.
Based on current projections, management believes that MMR's
existing cash balances, its expected cash flow from operations
and its bank credit availability will be sufficient to fund its
ongoing working capital requirements, reclamation costs, and
projected capital expenditures for the foreseeable future. MMR
believes that exploration prospects and producing properties are
available through farm-in and/or acquisition transactions and
that it has the capital resources and credit availability to
enable it to pursue selected opportunities. In particular, MMR
has considered and expects to continue to evaluate opportunities
to acquire both proved and unproved oil and gas properties. In
recent months, a number of significant oil and gas producers in
the Gulf have announced strategies to focus their operations in
the Gulf's deep water and on foreign opportunities. MMR's
management had discussions with a number of these producers,
which may provide opportunities for MMR to acquire significant
exploration prospects on the Gulf shelf. Successfully completing
these transactions is dependent on MMR reaching an agreement with
the producers on mutually acceptable terms. Such acquisitions,
if consummated, and the related future exploration drilling
activities would require MMR to use its current bank credit
availability and seek additional sources of financing, including
the possibility of issuing debt or equity securities and new
joint venture arrangements. At September 30, 1999, MMR had no
outstanding debt. MMR borrowed approximately $30 million under
its existing credit facilities primarily in connection with the
PLP Property Acquisition (see Recent Development). Before considering
an expected increase in financing availability associated with the
acquired properties and excluding the effects of additional property
acquistions, if any, MMR's cash and bank credit availability is
expected to fluctuate between $60 million and $70 million during
the remainder of the fourth quarter of 1999.
MMR has received a total of $4.7 million in insurance proceeds
from the business interruption insurance claim filed during the
first quarter of 1999 covering the estimated damages and lost
production from the Main Pass sulphur mine resulting from the
effects of Hurricane Georges in September 1998. MMR recorded the
portion of these proceeds estimated to relate to lost production
prior to the Merger as a purchase price adjustment to goodwill
($(1.1) million) and the remainder as a reduction of production
costs (see Results of Operations, above). MMR anticipates
receiving an additional $0.4 million of business interruption
insurance proceeds and $1.0 million of property damage insurance
proceeds, during the fourth quarter of 1999; however, MMR will
<PAGE> 14
only record this settlement at the time in which it receives a
firm settlement commitment from the insurance underwriter.
In May 1999, MMR's Board of Directors authorized an open
market share purchase program for up to 1 million shares of its
common stock, representing approximately 7 percent of its then
outstanding 14.1 million common shares. In July 1999, the Board
authorized the purchase of up to an additional 1 million shares
of its common stock. MMR had purchased 1,379,935 shares of its
common stock for $25.1 million, an average of $18.18 per share,
through September 30, 1999. These purchased shares included one
transaction with PLP. In this transaction, MMR purchased all
769,535 shares of its common stock owned by PLP for $12.8
million, $16.64 per share. The timing of the purchases is
dependent upon many factors, including the price of MMR's common
stock, MMR's operating results, cash flows and financial
position, and general economic and market conditions. For the
period October 1, 1999 through October 19, 1999, MMR purchased
9,200 shares of its common stock for $0.2 million, an average of
$21.17 per share. As of October 19, 1999 approximately 0.6
million of the total 2 million shares authorized remain available
for purchase.
IMPACT OF YEAR 2000 COMPLIANCE
The Year 2000 (Y2K) issue is the result of computerized
systems being written to store and process the year portion of
dates using two digits rather than four. Date-aware systems,
(i.e., any system or component that performs calculations,
comparisons, sequencing, or other operations involving dates) may
fail or produce erroneous results on or before January 1, 2000
because the year 2000 will be interpreted as the year 1900.
MMR's State of Readiness. MMR has been pursuing a strategy to
ensure all of its significant computer systems will be able to
process dates from and after January 1, 2000, including leap
years, without mission-critical system failure (Y2K Compliance or
Y2K Compliant). Computerized systems are integral to the
operations of MMR, particularly for various engineering systems
used for exploration, reserve, production and modeling functions
as well as for plant and equipment process control at its Gulf of
Mexico production facilities. Certain computerized business
systems and related services are provided by FM Services Company
(FMS), which is responsible for ensuring Y2K Compliance for the
systems it manages. FMS has separately prepared a plan for its
Y2K Compliance. Progress of the Y2K plan is being monitored by
MMR executive management and reported to the Audit Committee of
the MMR Board of Directors. In addition, the independent
accounting firm functioning as MMR's internal auditors is
assisting management in monitoring the progress of the Y2K plan.
Critical components of the plan are complete with the remaining
activities focused on contingency planning. Like other companies,
MMR cannot, however, make Y2K Compliance certifications because
the ability of any organization's systems to operate reliably
after midnight on December 31, 1999 is dependent upon factors
that may be outside the control of, or unknown to, the
organization.
Information Technology (IT) Systems - The bulk of MMR's specific
oil and gas processing is provided through third party software
licensed by MMR. The Y2K Compliant version of this software was
implemented in the fourth quarter of 1998. The remaining
business processing is provided by FMS. FMS has completed Y2K
remediation and testing work for all systems it provides to MMR.
Non-IT Systems - Systems used for exploration, reserve,
production and modeling functions are integral to the operations
of MMR. Y2K remediation and testing work has been completed for
these systems. MMR also utilizes process control systems in the
operation of its offshore facilities. In the fourth quarter of
1998, MMR engaged an engineering firm to complete assessment and
testing of the compliance of these systems. Results from this
work indicate no outstanding issues. MMR contracted with a third
party to conduct a Y2K Compliance review for the Main Pass
process control system. The results of this third-party review
also indicate no significant problems. Recommendations stemming
from this review have been implemented.
Third Party Risks - As is the case with most oil and gas
exploration companies, MMR relies extensively on third party
contractors for a significant portion of its operating functions.
MMR has completed an assessment of Y2K external risk that may
arise from the failure of critical suppliers and customers to
become Y2K Compliant. This assessment indicates that MMR's
business partners are well aware of the Y2K problem and are
themselves aggressively seeking resolution of any outstanding
issues. MMR's contingency planning is substantially complete.
Testing and revision of contingency plans will continue through
<PAGE> 15
the end of the year. The Y2K risk that could have the largest
potential business impact would probably be a short-term shutdown
of Main Pass sulphur operations caused by a disruption of key
materials from suppliers, especially natural gas. Compliance
statements have been received for critical MMR suppliers,
customers, transportation providers, and business partners, and
MMR will continue to monitor Y2K readiness plans for critical
third parties.
The Costs to Address MMR's Y2K Issues. Expenditures for the
necessary Y2K related modifications will largely be funded by
routine software and hardware maintenance fees paid by MMR or FMS
to the related software providers. Based on current information,
MMR believes that the incremental cost of Y2K Compliance not
covered by routine software and hardware maintenance fees will be
less than $0.3 million, most of which has been incurred. If the
software modifications and conversions referred to above are not
made, or are delayed, the Y2K issue could have a material impact
on MMR's operations. Additionally, current estimates are based on
management's best assessment, which was derived using numerous
assumptions of future events including the continued availability
of certain resources, third party modification plans and other
factors. There can be no assurance that these estimates will be
achieved, and actual results could differ materially from these
plans. There also can be no assurance that the systems of other
companies will be converted on a timely basis or that failure to
convert will not have a material adverse effect on MMR.
The Risks of MMR's Y2K Issues. Based on detailed risk assessment
work conducted thus far, MMR believes the most likely Y2K-related
failures would probably be temporary disruption in certain
materials and services provided by third parties, which would not
be expected to have a material adverse effect on MMR's financial
condition or results of operations. MMR believes that these
third-party risks will be mitigated through close monitoring of
compliance by third parties that are important to its operations.
MMR's Contingency Plans. Although MMR believes the likelihood of
any or all of the above risks occurring to be low, specific
contingency plans to address certain risk areas are substantially
complete. Testing and revision of contingency plans will continue
through the end of the year. These areas include critical
operations, key customers and suppliers, marine transportation
providers, telecommunications providers, banks, utilities, and
other critical infrastructure providers. While there can be no
assurance that MMR will not be materially adversely affected by
Y2K problems, it is committed to ensuring that it is fully Y2K
ready and believes its plans adequately address the above-
mentioned risks.
CAUTIONARY STATEMENT
Management's Discussion and Analysis of Financial Condition
and Results of Operations contain forward-looking statements.
All statements other than statements of historical fact included
in this report, including, without limitation, statements
regarding plans and objectives of MMR's management for future
operations and MMR's exploration and development activities are
forward-looking statements.
Important factors that could cause actual oil and gas
operations results to differ materially from MMR's expectations
include, without limitation, drilling results, unanticipated
fluctuations in flow rates of producing wells, depletion rates,
economic and business conditions, Y2K compliance, general
development risks and hazards and risks inherent with the
production of oil and gas, such as fires, natural disasters,
blowouts and the encountering of formations with abnormal
pressures, changes in laws or regulations and other factors, many
of which are beyond the control of MMR. Important factors that
could affect the future results of MMR's sulphur operations
include without limitation reserve expectations, demand for
sulphur, the availability of financing, the ability to satisfy
future cash obligations and environmental costs, the reliance on
IMC-Agrico as a customer, the seasonality and volatility of
sulphur markets, increased competition in the transportation and
terminaling of sulphur, environmental issues, and the ability to
resolve any Y2K compliance issues. Further information regarding
these and other factors that may cause MMR's future performance
to differ from that projected in the forward-looking statements
are described in more detail under "Cautionary Statements" in
MMR's 1998 Annual Report on Form 10-K.
_________________________
The results of operations reported and summarized above are not
necessarily indicative of future operating results.
<PAGE> 16
PART II--OTHER INFORMATION
Item 1. Legal Proceedings.
IMC Global Inc. and Phosphate Resource Partners Limited
Partnership vs. James R. Moffett, Richard C. Adkerson, B. M.
Rankin, Henry A. Kissinger and McMoRan Oil & Gas Co., Civ. Act.
No. 16387-NC (Del. Ch. filed May 18, 1998). On November 9, 1999,
Phosphate Resource Partners Limited Partnership (PLP) and its
administrative managing general partner, IMC Global Inc. (IGL),
have dismissed with prejudice, this lawsuit against MOXY
and four former directors of Freeport-McMoRan Inc. In connection
with the dismissal of the litigation, effective October 1, 1999,
MMR purchased for $32 million PLP's 47 percent interest in the
MOXY Exploration Program, which includes three producing oil and gas
fields and an inventory of exploration prospects and leases. As a
result, MMR now owns a 95 percent interest in the MOXY Exploration
Program with an individual investor owning the remaining five percent.
Item 6. Exhibits and Reports on Form 8-K.
(a) The exhibits to this report are listed in the Exhibit Index
appearing on page E-1 hereof.
(b) The registrant filed no Current Reports on Form 8-K during the
period covered by this Quarterly Report on Form 10-Q.
<PAGE> 17
McMoRan Exploration Co.
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of
1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned thereunto duly authorized.
McMoRan Exploration Co.
By: /s/ C. Donald Whitmire, Jr.
-----------------------------
C. Donald Whitmire, Jr.
Vice President and Controller-
Financial Reporting
(authorized signatory and
Principal Accounting Officer)
Date: November 12, 1999
<PAGE> 18
McMoRan Exploration Co.
Exhibit Index
Exhibit Number
2.1 Agreement and Plan of Mergers dated
as of August 1, 1998. (Incorporated by reference to
Annex A to MMR's Registration Statement on Form S-4
(Registration No. 333-61171) filed with the SEC on
October 6, 1998 (the MMR S-4)).
3.1 Amended and Restated Certificate of Incorporation of
MMR. (Incorporated by reference to Exhibit 3.1 to
MMR's 1998 Annual Report on Form 10-K (the MMR 1998
Form 10-K).
3.2 By-laws of MMR as amended effective February 11, 1999.
(Incorporated by reference to Exhibit 3.2 to the MMR
1998 Form 10-K).
4.1 Form of Certificate of MMR Common Stock. (Incorporated
by reference to Exhibit 4.1 of the MMR S-4).
4.2 Rights Agreement dated as of November 13, 1998.
(Incorporated by reference to Exhibit 4.2 to MMR 1998
Form 10-K).
4.3 Amendment to Rights Agreement dated December 28, 1998.
(Incorporated by reference to Exhibit 4.3 to MMR 1998
Form 10-K).
4.4 Standstill Agreement dated August 5, 1999 between MMR
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.
10.1 MMR Adjusted Stock Award Plan. (Incorporated by
reference to Exhibit 10.1 of the MMR S-4).
10.2 MMR 1998 Stock Option Plan for Non-Employee Directors.
(Incorporated by reference to Exhibit 10.2 of the MMR
S-4).
10.3 MMR 1998 Stock Option Plan. (Incorporated by reference
to Annex D to the MMR S-4).
10.4 Stock Bonus Plan (Incorporated by reference from MMR's
Registration Statement on Form S-8 (Registration No.
333-67963) filed with the SEC on November 25, 1998.
10.5 Master Agreement dated July 14, 1997 between MOXY and
Freeport-McMoRan Resource Partners, Limited
Partnership, now named Phosphate Resource Partners
Limited Partnership ("PLP"). (Incorporated by
reference to Exhibit 10.1 to the Current Report on Form
8-K filed by MOXY dated July 14, 1997 (the "MOXY July
14, 1997 8-K")).
10.6 Purchase and Sale Agreement dated July 11, 1997 by and
among PLP, MCNIC Oil & Gas Properties, Inc., MCN
Investment Corporation and MOXY. (Incorporated by
reference to Exhibit 10.4 of the MOXY July 14, 1997 8-K).
10.7 Agreement for Purchase and Sale dated as of August 1,
1997 between FM Properties Operating Co. and MOXY.
(Incorporated by reference to Exhibit 10.1 to the
Current Report on Form 8-K filed by MOXY dated as of
September 2, 1997).
10.8 Participation Agreement between MOXY and PLP dated as
of April 1, 1997. (Incorporated by reference to
Exhibit 10.4 to MOXY's Annual Report on Form 10-K for
the fiscal year ended December 31, 1997 (the "MOXY
1997 10-K")).
<PAGE> E-1
10.9 Amendment to Participation Agreement between MOXY and
PLP dated as of December 15, 1997. (Incorporated by
reference to Exhibit 10.5 to the MOXY 1997 10-K).
10.10 Participation Agreement between MOXY
and Gerald J. Ford dated as of December 15, 1997.
(Incorporated by reference to Exhibit 10.6 to the MOXY
1997 10-K).
10.11 Services Agreement dated as of
November 17, 1998 between MMR and FM Services Company.
(Incorporated by reference to Exhibit 10.11 to MMR 1998
Form 10-K).
10.12 Exploration Agreement effective July
1, 1996, between MOXY and PLP. (Incorporated by
reference to Exhibit 10.1 to MOXY's Quarterly Report on
Form 10-Q for the quarter ending June 30, 1996).
10.13 MMR Financial Counseling and Tax
Return Preparation and Certification Program, effective
September 30, 1998. (Incorporated by reference to
Exhibit 10.13 to MMR 1998 Form 10-K).
10.14 Employee Benefits Agreement by and
between Freeport-McMoRan Inc. ("FTX" ) and FSC.
(Incorporated by reference to Exhibit 10.1 to FSC's
Annual Report on Form 10-K for the fiscal year ended
December 31, 1997 (the "FSC 1997 10-K" )).
10.15 Asset Sale Agreement for Main Pass
Block 299 between Freeport-McMoRan Resource Partners,
Limited Partnership ("FRP" ) and Chevron USA, Inc.
dated as of May 2, 1990. (Incorporated by reference to
Exhibit 10.2 to FSC's Registration Statement on Form S-
1 (Registration No. 333-40375) filed with the SEC on
November 17, 1997 (the "FSC S-1" )).
10.16 Main Pass 299 Sulphur and Salt Lease,
effective May 1, 1988. (Incorporated by reference to
Exhibit 10.3 to the FSC S-1).
10.17 Joint Operating Agreement by and
between FRP, IMC-Fertilizer, Inc. and Felmont Oil
Corporation, dated as of June 5, 1990. (Incorporated by
reference to Exhibit 10.4 to the FSC S-1).
10.18 MMR Performance Incentive Awards
Program as amended effective February 1, 1999.
(Incorporated by reference to Exhibit 10.18 to MMR 1998
Form 10-K).
10.19 Joint Operating Agreement by and
between FRP, IMC-Fertilizer, Inc. and Felmont Oil
Corporation, dated as of May 1, 1988. (Incorporated by
reference to Exhibit 10.5 to the FSC S-1).
10.20 Agreement to Coordinate Operating Agreements by
and between FRP, IMC-Fertilizer and Felmont Oil
Corporation, dated as of May 1, 1988. (Incorporated by
reference to Exhibit 10.6 to the FSC S-1).
10.21 Asset Purchase Agreement between FRP
and Pennzoil Company dated as of October 22, 1994 (the
"Asset Purchase Agreement" ). (Incorporated by
reference to Exhibit 10.7 to the FSC S-1).
10.22 Amendment No. 1 to the Asset Purchase
Agreement dated as of January 3, 1995. (Incorporated by
reference to Exhibit 10.8 to the FSC S-1).
10.23 Agreement for Sulphur Supply, as
amended, dated as of July 1, 1993 among FRP, IMC
Fertilizer and IMC-Agrico Company (the "Sulphur Supply
Agreement"). (Incorporated by reference to Exhibit
10.9 to the FSC S-1).
10.24 Side letter with IGL regarding the
Sulphur Supply Agreement. (Incorporated by reference to
Exhibit 10.10 to the FSC S-1).
<PAGE> E-2
10.25 Processing and Marketing Agreement
between the FSC (a division of FRP) and Felmont Oil
Corporation dated as of June 19, 1990 (the "Processing
Agreement"). (Incorporated by reference to Exhibit
10.11 to the FSC S-1).
10.26 Amendment Number 1 to the Processing
Agreement. (Incorporated by reference to Exhibit 10.12
to the FSC S-1).
10.27 Amendment Number 2 to the Processing
Agreement. (Incorporated by reference to Exhibit 10.13
to the FSC S-1).
10.28 Credit Agreement dated as of December
12, 1997 among FSC, as borrower, the financial
institutions party thereto, the Chase Manhattan Bank,
as administrative agent and documentary agent, and
Hibernia National Bank, as co-agent. (Incorporated by
reference to Exhibit 10.15 to the FSC 1997 10-K).
10.29 Amended and Restated Credit Agreement
dated November 17, 1998 among Freeport-McMoRan Sulphur
Inc., as borrower, MMR, as Guarantor and, the financial
institutions party thereto. (Incorporated by reference
to Exhibit 10.29 to MMR 1998 Form 10-K.)
10.30 Letter Agreement dated December 22,
1997 between FMS and Rene L. Latiolais. (Incorporated
by reference to Exhibit 10.19 to FSC 1997 10-K).
10.31 Supplemental Letter Agreement between
FMS and Rene L. Latiolais effective as of January 1,
1999. (Incorporated by reference to Exhibit 10.31 to
MMR 1998 Form 10-K).
10.32 Agreement for Consulting Services
between FTX and B. M. Rankin, Jr. effective as of
January 1, 1991)(assigned to FMS as of January 1,
1996); as amended on December 15, 1997 and on December
7, 1998. (Incorporated by reference to Exhibit 10.32
to MMR 1998 Form 10-K).
10.33 Supplemental Letter Agreement between FMS and Rene' L.
Latiolais effective August 1, 1999.
15.1 Letter dated November 9, 1999 from Arthur Andersen LLP
regarding the unaudited financial statements.
27.1 MMR Financial Data Schedule.
<PAGE> E-3
</TABLE>
Exhibit 4.4
STANDSTILL AGREEMENT
AGREEMENT effective as of August 5, 1999 between McMoRan Exploration Co., a
Delaware corporation (the "Company"), and Alpine Capital, L.P., Robert W.
Bruce III, Algenpar, Inc., J. Taylor Crandall, Susan C. Bruce, Keystone,
Inc., W.R. Cotham, 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 (collectively, the "Stockholder").
ARTICLE 1
Definitions
Section 1.01. Definitions. Unless otherwise specifically defined herein,
each term used herein which is defined in the Rights Agreement (the "Rights
Agreement") dated as of November 13, 1998, as amended, between the Company
and Mellon Securities Trust Company, as Rights Agent, has the meaning
assigned to such term in the Rights Agreement. In addition, the terms
listed below have the following meanings:
"Acquisition Proposal" means any offer or proposal for, or any indication
of interest in, a merger or other business combination involving the
Company or any Subsidiary of the Company or the acquisition of any equity
interest in, or a substantial portion of the assets of, the Company or any
Subsidiary of the Company (other than an offer or proposal which if
consummated would not result in a Person and its Affiliates and Associates
owning in excess of the Threshold Percentage).
"SEC" means the Securities and Exchange Commission.
"Stockholder Group" means the Stockholder and its Affiliates and
Associates.
ARTICLE 2
Covenants of the Stockholder Group
Section 2.01. Certain Actions. Each member of the Stockholder Group will
not, and will not permit any of its Affiliates or Associates to:
(a) make, or take any action to solicit, initiate or encourage, an
Acquisition Proposal;
(b) "solicit", or become a "participant" in any "solicitation" of,
any "proxy" (as such terms are defined in Regulation 14A under the Exchange
Act) or written consent from any holder of Common Stock in connection with
any vote on any matter, or agree or announce its intention to vote with any
Person undertaking a "solicitation" or communicate with or seek to advise
or influence any Person with respect to the voting of any Common Stock (in
each case other than as recommended by the Board of Directors of the
Company);
(c) form, join or in any way participate in a "group" (within the
meaning of Section 13(d)(3) of the Exchange Act) with respect to any Common
Stock (other than with other members of the Stockholder Group);
(d) call or seek to have called any meeting of the stockholders of
the Company; or
(e) instigate or encourage any third party to do any of the
foregoing.
Section 2.02. Voting Arrangements. To the extent that the Common Stock as
to which the members of the Stockholder Group, taken together, have the
right to vote or direct the vote represents in the aggregate 25% or more of
the Common Stock then outstanding, the members of the Stockholder Group
shall take all necessary action to vote or cause to be voted all of such
shares in excess of 25% of the Common Stock then outstanding in accordance
with the recommendation of the Board of Directors of the Company on all
matters submitted to the stockholders of the Company for their approval.
Each member of the Stockholder Group shall cause all Common Stock owned by
such member of the Stockholder Group or as to which it has the right to
vote or to direct the vote to be represented, in person or by proxy, at all
meetings of holders of Common Stock of which such member of the Stockholder
Group has actual notice, so that such Common Stock may be counted for the
purpose of determining the presence of a quorum at such meetings.
ARTICLE 3
Effectiveness
Section 3.01. Effectiveness. The parties agree that this Agreement shall
be effective at any time that the members of the Stockholder Group
beneficially own 25% or more of the Common Stock then outstanding.
ARTICLE 4
Miscellaneous
Section 4.01. Specific Performance. Each member of the Stockholder Group
agrees that any breach of any provision of this Agreement would irreparably
injure the Company and that money damages would be an inadequate remedy
therefor. Accordingly, such member of the Stockholder Group agrees that
the Company shall be entitled to one or more injunctions enjoining any such
breach and requiring specific performance of this Agreement and consents to
the entry thereof, in addition to any other remedy to which the Company is
entitled at law or in equity.
Section 4.02. Notices. All notices, requests and other communications to
either party hereunder shall be in writing (including telecopy or similar
writing) and shall be given,
if to the Company, to:
McMoRan Exploration Co.
1615 Poydras Street
New Orleans, Louisiana 70112
Attention: Secretary
Fax No.: (504) 582-4491
if to any member of the Stockholder Group, to:
The Robert Bruce Management Co., Inc.
P.O. Box 252
96 Spring Street
South Salem, NY 10590
Attention: Robert W. Bruce III
Fax No.: (914) 763-6079
or such other address or telecopier number as such party may
hereafter specify for the purpose by notice to the other party hereto.
Each such notice, request or other communication shall be effective when
delivered at the address specified in this Section 4.02.
Section 4.03. Amendments; No Waivers. (a) Any provision of this Agreement
may be amended or waived if, and only if, such amendment or waiver is in
writing and signed, in the case of an amendment, by each member of the
Stockholder Group and the Company, or in the case of a waiver, by the party
or parties against whom the waiver is to be effective.
(b) No failure or delay by any party in exercising any right, power
or privilege hereunder shall operate as a waiver thereof nor shall any
single or partial exercise thereof preclude any other or further exercise
thereof or the exercise of any other right, power or privilege. The rights
and remedies herein provided shall be cumulative and not exclusive of any
rights or remedies provided by law.
Section 4.04. Expenses. Except as otherwise provided herein, all costs
and expenses incurred in connection with this Agreement shall be paid by
the party incurring such cost or expense; provided that if the Company
commences litigation in a court of competent jurisdiction against any
member of the Stockholder Group in connection with an alleged breach of
this Agreement by such member of the Stockholder Group and successfully
establishes such a breach in such court, then the members of the
Stockholder Group shall be jointly and severally liable for all out-of-
pocket expenses, including, without limitation, the fees and expenses of
counsel, incurred by the Company in connection with such litigation.
Section 4.05. Counterparts. This Agreement may be signed in any number of
counterparts, each of which shall be an original, with the same effect as
if the signatures thereto and hereto were upon the same instrument.
Section 4.06. Entire Agreement. This Agreement constitutes the entire
agreement between the parties with respect to the subject matter hereof and
supersedes all prior agreements, understandings and negotiations, both
written and oral, between the parties with respect thereto. No
representation, inducement, promise, understanding, condition or warranty
not set forth herein or therein has been made or relied upon by any of the
parties hereto.
Section 4.07. Governing Law. This Agreement shall be governed by and
construed in accordance with the laws of the State of Delaware, regardless
of the laws that might otherwise govern under applicable principles of
conflicts of laws thereof.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed by their respective authorized officers as of the day and
year first above written.
McMoRan EXPLORATION CO.
By:/s/ John G. Amato
--------------------
John G. Amato
General Counsel
ALPINE CAPITAL, L.P.
By:/s/ Robert W. Bruce III
-----------------------
Robert W. Bruce III
Manager
/s/ Robert W. Bruce III
-----------------------
ROBERT W. BRUCE III
ALGENPAR, INC.
By:/s/ J. Taylor Crandall
-----------------------
J. Taylor Crandall
President
/s/ J. Taylor Crandall
---------------------
J. TAYLOR CRANDALL
/s/ Susan C. Bruce
-------------------
SUSAN C. BRUCE
KEYSTONE, INC.
By:/s/ W.R. Cotham
-------------------
W.R. Cotham
Vice President
/s/ W.R.Cotham
--------------------
W.R. COTHAM
Attorney-in-Fact for:
ROBERT M. BASS
THE ANNE T. AND ROBERT M. BASS
FOUNDATION
ANNE T. BASS
THE ROBERT BRUCE MANAGEMENT
COMPANY, INC. DEFINED BENEFIT
PENSION TRUST
By:/s/ Robert W. Bruce III
-----------------------
Robert W. Bruce III
Trustee
Exhibit 10.33
August 4, 1999
Mr. Rene L. Latiolais
2305 Barton Creek Boulevard
Villa 42, Box 3
Austin, TX 78735
Supplemental Agreement to Consulting Agreement
Of January 25, 1999
Dear Rene:
This Supplemental Agreement refers to the Consulting Agreement (The "Agreement")
dated January 25, 1999, between you and FM Services Company (The "Company")
with respect to consulting services you are to provide the Company and its
subsidiaries and corporate affiliates.
By way of this Supplemental Agreement, the Company would like to increase the
consulting fee that the Company will pay to you to $530,000 per year, payable
monthly in arrears in $44,166.66 amounts, effective August 1, 1999.
All other terms and conditions of the Consulting Agreement shall remain
unchanged.
Please confirm that the foregoing correctly sets forth your understanding with
respect to this matter by signing both originals of this Supplemental
Agreement and returning one to me.
Very truly yours,
AGREED TO AND ACCEPTED
By: /s/ Rene L. Latiolais
---------------------
Rene L. Latiolais
Date: August 5, 1999
--------------------
Exhibit 15.1
November 9, 1999
McMoRan Exploration Co.
1615 Poydras St.
New Orleans, LA 70112
Gentlemen:
We are aware that McMoRan Exploration Co. has incorporated by
reference in its Registration Statements (File Nos. 333-
61171, 333-67485, 333-67963 and 001-07791 and McMoRan Oil &
Gas Co.'s Registration Statements File Nos. 33-82866, 33-
80369, 33-80371, 333-44561 and 333-52469) its Form 10-Q for
the quarter ended September 30, 1999, which includes our report
dated October 19, 1999 (except with respect to Note 5, as to
which the date is November 9, 1999) covering the unaudited interim
financial information contained therein. Pursuant to Regulation C
of the Securities Act of 1933 (the Act), this report is not
considered a part of the registration statements prepared or
certified by our firm or a report prepared or certified by
our firm within the meaning of Sections 7 and 11 of the Act.
Very truly yours,
/s/ Arthur Andersen LLP
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the McMoRan
Exploration Co's financial statements at September 30, 1999 and the nine months
then ended, and is qualified in its entirety by reference to such statements.
</LEGEND>
<CIK> 0000064279
<NAME> MCMORAN EXPLORATION CO.
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-END> SEP-30-1999
<CASH> 4,472
<SECURITIES> 0
<RECEIVABLES> 22,925
<ALLOWANCES> 0
<INVENTORY> 18,999
<CURRENT-ASSETS> 57,513
<PP&E> 202,513
<DEPRECIATION> 37,060
<TOTAL-ASSETS> 283,733
<CURRENT-LIABILITIES> 41,670
<BONDS> 0
0
0
<COMMON> 142
<OTHER-SE> 156,197
<TOTAL-LIABILITY-AND-EQUITY> 283,733
<SALES> 185,502
<TOTAL-REVENUES> 185,502
<CGS> 171,486
<TOTAL-COSTS> 171,486
<OTHER-EXPENSES> 4,933
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 291
<INCOME-PRETAX> 1,369
<INCOME-TAX> 487
<INCOME-CONTINUING> 882
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 882
<EPS-BASIC> 0.07
<EPS-DILUTED> 0.06
</TABLE>
