<PAGE> 1
Filed Pursuant to Rule 424(b)(2)
Registration No. 333-95195
PROSPECTUS SUPPLEMENT
(To Prospectus dated February 8, 2000)
3,800,000 SHARES
MCMORAN EXPLORATION CO.
[MCMORAN LOGO] COMMON STOCK
- --------------------------------------------------------------------------------
We are offering 3,800,000 shares of our common stock. Our common stock is traded
under the symbol "MMR" on the New York Stock Exchange. The last reported sale
price of our common stock on the New York Stock Exchange on April 13, 2000 was
$14.00 per share.
SEE "RISK FACTORS" BEGINNING ON PAGE 4 IN THE ACCOMPANYING PROSPECTUS.
<TABLE>
<CAPTION>
PER SHARE TOTAL
--------- -----------
<S> <C> <C>
Initial price to public..................................... $14.00 $53,200,000
Underwriting discount....................................... $ 0.77 $ 2,926,000
Proceeds, before expenses, to McMoRan Exploration Co........ $13.23 $50,274,000
</TABLE>
We have granted the underwriters a 30-day option to purchase up to 570,000
additional shares of common stock on the same terms and conditions as set forth
above to cover overallotments, if any.
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED THESE SECURITIES OR PASSED ON THE
ADEQUACY OR ACCURACY OF THIS PROSPECTUS SUPPLEMENT OR THE ACCOMPANYING
PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
Lehman Brothers, on behalf of the underwriters, expects to deliver the shares on
or about April 19, 2000.
- --------------------------------------------------------------------------------
LEHMAN BROTHERS
HOWARD, WEIL, LABOUISSE, FRIEDRICHS PETRIE PARKMAN & CO.
INCORPORATED
BMO NESBITT BURNS CORP.
CHASE SECURITIES INC.
HIBERNIA SOUTHCOAST CAPITAL, INC.
APRIL 13, 2000
<PAGE> 2
[MAP A -- MMR'S NEAR TERM EXPLORATION PROSPECTS]
[MAP B -- MMR'S EXPLORATION TEAM'S MAJOR FIELD DISCOVERIES]
[MAP C -- GULF OF MEXICO BLOCKS REVIEWED BY MMR]
YOU SHOULD RELY ONLY ON THE INFORMATION CONTAINED OR INCORPORATED BY
REFERENCE IN THIS PROSPECTUS SUPPLEMENT AND THE ATTACHED PROSPECTUS. WE HAVE
NOT, AND THE UNDERWRITERS HAVE NOT, AUTHORIZED ANY OTHER PERSON TO PROVIDE YOU
WITH DIFFERENT INFORMATION. YOU SHOULD NOT RELY ON ANY OTHER REPRESENTATIONS. WE
ARE OFFERING TO SELL, AND SEEKING OFFERS TO BUY, SHARES OF COMMON STOCK ONLY IN
JURISDICTIONS WHERE OFFERS AND SALES ARE PERMITTED. OUR AFFAIRS MAY CHANGE AFTER
THIS PROSPECTUS SUPPLEMENT IS DISTRIBUTED. YOU SHOULD NOT ASSUME THAT THE
INFORMATION IN THIS PROSPECTUS SUPPLEMENT IS ACCURATE AS OF ANY DATE OTHER THAN
THE DATE ON THE FRONT OF THIS DOCUMENT. PERSONS WHO COME INTO POSSESSION OF THIS
PROSPECTUS SUPPLEMENT IN JURISDICTIONS OUTSIDE THE UNITED STATES AND CANADA ARE
REQUIRED TO INFORM THEMSELVES ABOUT AND TO OBSERVE THE RESTRICTIONS OF THAT
JURISDICTION RELATED TO THIS OFFERING AND THE DISTRIBUTION OF THIS PROSPECTUS
SUPPLEMENT.
TABLE OF CONTENTS
PROSPECTUS SUPPLEMENT
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Summary..................................................... S-1
Price Range of Common Stock and Dividend Policy............. S-10
Capitalization.............................................. S-11
Use of Proceeds............................................. S-12
Business.................................................... S-13
Underwriting................................................ S-26
Legal Matters............................................... S-28
Forward-Looking Statements.................................. S-28
PROSPECTUS
The Company................................................. 2
Forward-Looking Statements.................................. 4
Risk Factors................................................ 4
Use of Proceeds............................................. 13
Ratio of Earnings to Fixed Charges.......................... 13
Description of Common Stock................................. 13
Description of Preferred Stock.............................. 18
Description of Depositary Shares............................ 19
Description of Debt Securities.............................. 21
Description of Warrants..................................... 33
Plan of Distribution........................................ 36
Legal Matters............................................... 37
Experts..................................................... 37
Where You Can Find More Information......................... 37
</TABLE>
S-i
<PAGE> 3
[This page intentionally left blank]
<PAGE> 4
SUMMARY
This summary contains basic information about us and our common stock. It
does not contain all the information that is important to you. You should read
the following summary together with the more detailed information and financial
statements and notes to the financial statements contained elsewhere in this
Prospectus Supplement or incorporated by reference into the attached Prospectus,
as described under the heading "Where You Can Find More Information." To fully
understand this offering, you should read all of these documents. Unless we say
otherwise, we assume in this Prospectus Supplement that the underwriters will
not exercise their over-allotment option.
MCMORAN EXPLORATION CO.
We engage in the exploration, development and production of oil and gas
offshore in the Gulf of Mexico and onshore in the Gulf Coast region, and in the
mining, purchasing, transporting, terminaling, processing and marketing of
sulphur.
OUR OIL AND GAS OPERATIONS
We and our predecessors have conducted oil and gas exploration, development
and production operations principally in the Gulf of Mexico and the Gulf Coast
region for more than 25 years with substantially the same team of geologists and
geophysicists. We developed a large, successful exploration and production
program during the 1970s and 1980s, which included significant discoveries
ultimately resulting in gross proved reserves (including interests owned by
others) estimated at approximately 3.0 Tcf of natural gas equivalents (as shown
on Map B on the inside front cover of this Prospectus Supplement). Substantially
all of our oil and gas properties were sold during the late 1980s and early
1990s for approximately $1.3 billion to provide funding for our former parent to
pursue other business opportunities that arose from the discovery of two world
class mineral deposits. We were then spun off from our former parent in 1994 to
rebuild the oil and gas business. At the time of the spin-off, we had a
technical staff with extensive experience in the Gulf and a large seismic data
base, but limited exploration prospects and financial resources. Since the
spin-off, we have built a reserve base of 94.0 Bcfe at December 31, 1999, and
identified a number of attractive exploration targets, several of which we plan
to drill in 2000.
During 1999, we focused on acquiring significant exploration prospects on
the Gulf of Mexico shelf in response to indications from larger oil and gas
companies that they wished to apply more of their own resources to the deeper
waters of the Gulf of Mexico and to foreign prospects. This effort led to
transactions in January 2000 with Texaco Exploration and Production Inc. and
Shell Offshore Inc. that increased significantly the number and quality of
prospects that we can choose to drill, while enabling Texaco and Shell to
maintain an interest in the prospects through either a working or overriding
royalty interest. This offering will provide us with a portion of the capital we
need to explore these prospects. We believe that combining these high quality
prospects with our existing prospects, our experienced explorationists, and our
extensive seismic and geological data base provides us with significant
opportunities to discover meaningful oil and gas reserves. Given our significant
interest in these new prospects and their number and potential size in relation
to our existing asset base, we believe that we now have an enhanced opportunity
to generate shareholder returns through a successful expanded exploration
program.
The Texaco and Shell transactions, along with our existing offshore lease
inventory, give us exploratory rights to approximately 160 blocks covering
approximately 750,000 gross acres, which we believe is among the largest
offshore exploration acreage portfolios held by any independent oil and gas
company operating in the shelf area of the Gulf. We also have an extensive
seismic data base, including 3-D data covering all prospects we expect to drill
in the next twelve months and 2-D data covering a substantial majority of the
lease blocks in the shelf area of the Gulf (as shown on Map A on the inside
cover of this Prospectus Supplement). Over the years, we have reviewed prospects
throughout the Gulf of Mexico shelf region (as shown on Map C on the inside
cover of this Prospectus Supplement). With this combination of technical
expertise, prospects and seismic data, we believe we now have the foundation for
an aggressive, broad-based exploration program.
S-1
<PAGE> 5
For the year ending December 31, 2000, we have budgeted exploration and
development expenditures of approximately $135 million. That amount includes $40
million for lease acquisition, including our $37.6 million purchase of the Shell
leases, and development expenditures of approximately $6 million. We expect the
remaining $89 million to be spent primarily on exploratory drilling, as we
currently plan to commence drilling on 11 prospects in 2000 (see
"Business -- Oil and Gas Operations -- Near-term Exploration Activities"). Our
current plan for 2001 is to maintain a similar level of exploration activity and
develop our exploration successes. Budgeted amounts are subject to change based
on drilling results, availability of capital, supplies, equipment and personnel,
and the continuing evaluation of properties and prospects that may influence our
drilling plans.
In March 2000, we signed a letter of intent with Halliburton Company to
form a strategic alliance that will combine the skills, technologies and
resources of both companies' personnel and technical consultants into an
integrated team that will manage our oil and gas activities. Halliburton's
business units, such as Halliburton Energy Services, Brown & Root Energy
Services and Landmark Graphics Corporation, will offer integrated products and
services to us at market rates, and, to the extent practicable, we will use
Halliburton's services on an exclusive basis. Halliburton will also guarantee up
to $50.0 million in bank borrowings and will have the right to participate in
our development opportunities by providing a portion of the development
financing. The term of the alliance will extend through December 31, 2003. (See
"-- Our proposed transaction with Halliburton.")
At December 31, 1999, we had estimated proved reserves of approximately
62.6 Bcf of natural gas and 5.2 MMBbls of oil and condensate, or an aggregate of
approximately 94.0 Bcfe, with a present value of estimated pre-tax future net
cash flows of $113.2 million. Our 1999 production totaled approximately 14.0 Bcf
of gas and 1.4 MMBbls of oil and condensate or 22.1 Bcfe.
OUR STRENGTHS AND STRATEGY
General. Following the completion of our recent transactions with Texaco
and Shell, we believe we are in a position to pursue an aggressive, broad-based
exploration program. We believe that our strengths are:
- One of the largest shelf exploration acreage portfolios of any
independent operating in the Gulf
- Significant interests in a number of potentially high-impact prospects
that are scheduled to be drilled within the next twelve months
- A relationship with two major oil companies that gives us an opportunity
to drill shelf prospects that we believe they considered to be high
quality, but did not meet their current strategic objectives
- An extensive seismic database, including 3-D data on all prospects in our
current drilling plan
- A strong team of explorationists experienced in the use of structural
geology augmented by 3-D technology
- A proposed strategic alliance with a major provider of exploration and
production equipment, products and services
High quality prospects. We believe that our recent transactions with Texaco
and Shell have given us access to high quality prospects in the Gulf of Mexico
shelf area. Conditions in the U.S. oil and gas industry in recent years have led
to significant changes in strategy by the larger oil and gas companies, which
increasingly require very large discoveries in relation to their existing
reserve base to replace the oil and gas reserves they produce. As a result,
their exploration efforts increasingly have been devoted to areas they believe
have greater potential for very large discoveries. Most recently, they have
focused their exploration activities in the deep water areas of the Gulf of
Mexico and areas outside the U.S., even though they have incurred significant
costs in identifying, evaluating and acquiring shelf leaseholds and in acquiring
and conducting detailed analyses of related geological and geophysical data.
S-2
<PAGE> 6
In response to this shift in strategy, we began seeking opportunities to
acquire the rights to, or otherwise participate in the development of, the
prospect inventory of companies likely to de-emphasize shelf exploration, which
culminated in our transactions with Texaco and Shell. We believe the Texaco and
Shell transactions are unique because of the point in the prospect development
cycle where we acquired our rights to explore the acreage. Typically,
independents like us obtain exploration opportunities from the major oil
companies in acquisitions or farmout arrangements after the company has decided
to discard the prospect because it does not meet internal criteria for further
development, or has drilled an exploratory well that was either unsuccessful or
inconclusive. Our recent transactions with Texaco and Shell afford us the
opportunity to explore prospects that we believe met their criteria for drilling
but ultimately were shared with us because of their changed strategies. In
addition, whereas larger oil and gas companies have previously provided us with
opportunities to participate in single prospects, the Texaco and Shell
transactions provide us with interests in a number of significant acreage
positions. As a result, we believe these transactions provide us with
significant growth opportunities, while Texaco and Shell are able to participate
in any success of the prospects through their retained interests. Lastly, we
believe that the potential size of discoveries, if any, on these prospects could
result in a material increase in our reserves.
Experienced explorationists. We believe that Texaco and Shell entered into
their transactions with us in part because of the capabilities of our
exploration team. Our exploration efforts have been supported for over 25 years
by a group of geophysicists and geologists who are principals in CLK Company,
L.L.C., with which we have an essentially exclusive technical service contract.
The six most senior CLK geologists and geophysicists have been part of our
exploration team for an average of 23 years, and the average experience of CLK's
13 geologists and geophysicists in evaluating prospects in the Gulf of Mexico is
28 years. During the 1970s and 1980s, they were responsible for numerous
discoveries for our company and our predecessors, ultimately resulting in gross
proved reserves (including interests owned by others) estimated at approximately
3.0 Tcfe.
Gulf of Mexico shelf focus. We have focused our operations on the Gulf of
Mexico shelf because we believe this region has significant reserve potential,
substantial available geologic data and an existing infrastructure that helps
reduce finding, development and operating costs. In addition to providing cost
benefits, the existing infrastructure on the shelf reduces the time within which
discoveries can be placed on production. We have extensive exploration and
operational experience in this area. Despite its maturity, we believe the Gulf
of Mexico shelf offers opportunities to make reserve additions that could have a
significant impact on our asset base.
In recent years larger oil and gas companies have begun to rely extensively
on 3-D "bright spot" techniques in analyzing seismic data for potential oil and
gas reserves and in making overall economic assessments of prospects. We believe
reliance on this methodology has contributed to their decisions to shift their
exploration focus to deepwater areas of the Gulf of Mexico and areas outside the
U.S., thus providing us the opportunity to explore attractive prospects on the
Gulf of Mexico shelf. Over the past 25 years we have found significant reserves
using structural geology to predict the presence of hydrocarbons, especially in
deep objectives. The 3-D technology allows us to map structural geology in a
unique way to depths of 20,000 feet. While we will continue to use 3-D bright
spot technology to augment our work, this technology will not be the controlling
factor in our estimate of potential reserves prior to drilling an exploratory
well. We will continue to use structural geology as our principal tool in
attempting to find significant reserves on the Gulf of Mexico shelf.
Strategy. Using our extensive geophysical, technical and operational
expertise, and our newly acquired acreage positions, our strategy is to generate
shareholder returns through an aggressive, broad-based exploration program. In
implementing that strategy, we plan to:
- Identify prospects using 3-D seismic data in combination with our
analysis of subsurface structural geologic data
- Spread our exploration efforts over a significant number of prospects so
that our success is not contingent on the results of any particular
prospect or prospects
S-3
<PAGE> 7
- Discover significant reserves through exploration drilling
- Develop and produce the reserves in an efficient and cost effective
manner or, in certain instances, sell proved reserves to maximize
shareholder value
- Pursue additional opportunities to acquire attractive exploration
prospects, including significant ownership interests in large, active
exploration positions in the Gulf of Mexico and Gulf Coast region
OUR RECENT TRANSACTIONS WITH TEXACO AND SHELL
Effective January 1, 2000, we acquired from Texaco Exploration and
Production Inc. the right to explore and earn assignments of operating rights in
78 offshore oil and gas properties. The properties cover about 361,000 gross
acres and are located in water depths ranging from 10 to 2,600 feet in federal
and state waters offshore Louisiana and Texas, with a majority in water depths
of less than 400 feet. Texaco owns 100% of almost half of the properties and
more than 50% of another quarter of the properties. We have agreed to commit
$110 million for exploration on these properties through June 30, 2003. We have
agreed to spend a minimum of $10 million in 2000, an additional $40 million
through June 30, 2001, an additional $30 million through June 30, 2002 and an
additional $30 million by June 30, 2003. If we drill wells to specified depths
that are capable of producing and commit to install facilities to develop the
oil and gas we discover, we will earn varying interests in the prospects,
depending on the contractual options that Texaco elects. Generally, Texaco can
either elect to retain approximately one-fourth to one-half of the working
interest, or can elect to retain an overriding royalty interest of approximately
10 percent, convertible at Texaco's election after payout (generally, recovery
of our capital investment) to a proportionately reduced 25 percent working
interest. The specific working or overriding royalty interests that Texaco can
elect vary by prospect. We expect to enter into a separate farmout agreement or
sublease for each prospect. Generally, we will be the operator.
On January 14, 2000, we purchased from Shell Offshore Inc. its interest in
55 exploratory leases containing approximately 258,000 gross acres located
primarily offshore Louisiana for a total of $37.6 million in cash. These leases
represent a substantial portion of Shell's remaining inventory of undeveloped
lease acreage in the Gulf of Mexico shelf area offshore Louisiana. Shell
retained a one-twelfth overriding royalty interest in the properties. The leases
expire ratably over the next four years and are located in water depths ranging
from 12 to 2,000 feet, with a majority in water depths of less than 400 feet.
Shell's ownership interests in the leases acquired ranged from 25 to 100
percent, with a substantial majority of the ownership interests being greater
than 50 percent.
Many of the Texaco and Shell prospects were in an advanced stage of
technical analysis when we acquired them, enabling us to quickly select a
variety of attractive drilling opportunities for 2000. That fact, coupled with
the availability of 3-D data on each prospect, gives us a high level of
confidence in the potential of these prospects.
OUR PROPOSED TRANSACTION WITH HALLIBURTON
In March 2000, we signed a letter of intent with Halliburton Company to
form a strategic alliance that will combine the skills, technologies and
resources of Halliburton's employees with those of our personnel and technical
consultants into an integrated team that will manage our oil and gas activities.
Under this alliance, Halliburton's business units, such as Halliburton Energy
Services, Brown & Root Energy Services and Landmark Graphics Corporation, will
provide drilling, completion, production and well control products and related
services to us at market rates, and we will use Halliburton's services on an
exclusive basis to the extent practicable. Halliburton will also guarantee up to
$50.0 million under an amended revolving credit facility that we are currently
negotiating with our banks, and, in connection with the guarantee, we will pay
Halliburton a fee and provide certain security. In addition, each time that we
propose the development of a prospect, Halliburton can elect to fund 20% of the
prospect's exploration and development costs and receive 20% of our working
interest in the prospect before payout and 6% of our working interest after
payout. Exploration costs initially paid by Halliburton will be applied to
reduce both
S-4
<PAGE> 8
the bank loan and the Halliburton guarantee, which will expire on December 31,
2003. The formation of the alliance is subject to certain conditions, including
the negotiation and execution of definitive agreements and our ability to raise
at least $50.0 million from the sale of common equity, which will be satisfied
upon the successful completion of this offering. Thereafter, the continuing
availability of the full guarantee will depend on our ability to raise
additional capital, which must aggregate $75.0 million by December 31, 2000 and
$125.0 million by December 31, 2001, including in each case the proceeds of this
offering. Such capital may be in the form of proceeds or financial commitments
from others with respect to exploration, development or production, or proceeds
from the issuance of subordinated debt or equity securities. To the extent that
we raise less capital by those dates, there will be a dollar-for-dollar
reduction of the guarantee on those dates and an equivalent loan repayment
obligation. The term of the alliance will extend through December 31, 2003. The
specific terms and conditions of the strategic alliance, the amended credit
facility and the guarantee are subject to negotiation and execution of
definitive agreements.
OUR SULPHUR OPERATIONS
Our sulphur operations consist of sulphur services and sulphur mining. Our
sulphur services primarily involve the purchase and resale of sulphur recovered
as a by-product of hydrocarbon refining and processing, and the handling and
transportation of sulphur. We are the largest sulphur supplier in the U.S. and
operate the largest molten sulphur handling system in the world. Our molten
sulphur handling and transportation system includes five sulphur terminals
located across the Gulf Coast and an extensive transportation and distribution
infrastructure. We believe this system is unique and that it would be difficult
to replicate, primarily because of the significant capital cost of replacing the
equipment and the difficulty of obtaining required environmental permits. In
1999, we transported approximately 3.9 million long tons of molten sulphur, or
about 55 percent of U.S. Gulf Coast sulphur consumption. We have the capacity to
transport and terminal up to 6.0 million long tons of sulphur annually. The
profit margins attributable to our sulphur transportation and handling services
generally are not affected by changes in sulphur prices. Our handling and
transportation operations currently have excess capacity, and we are pursuing
opportunities to increase utilization by growing the services segment of our
sulphur business.
Our sulphur mining operations are conducted at our offshore sulphur mine
known as Main Pass, which is located 32 miles offshore Louisiana. We operate and
own an 83.3 percent interest in the mine. We also own an 83.3 percent interest
in oil production operations at Main Pass, where we produce oil from the same
geologic formation from which we mine sulphur. In 1999, we mined approximately
1.6 million long tons of sulphur at our Main Pass mine, which had proved
reserves of 13.7 million long tons of sulphur at December 31, 1999 and has an
estimated reserve life of ten years under currently expected market conditions,
such as sulphur prices, supply and demand conditions on the U.S. Gulf Coast and
mine operating costs.
Our total sales of both mined and recovered sulphur for the year ended
December 31, 1999 represented approximately 30 percent of domestic sulphur
production. Typically, the domestic phosphate fertilizer industry accounts for
approximately 90 percent of our total sulphur sales.
OUR SULPHUR STRATEGY
Our sulphur strategy is to use our leadership position as the largest
transporter and discretionary producer of sulphur in the United States, and the
largest buyer of recovered sulphur produced in the United States, to:
- Provide a reliable source of sulphur to our sulphur-consuming customers
- Provide guaranteed off-take to our sulphur-producing customers
- Increase our recovered sulphur sales and provide other services to
recovered sulphur producers
- Increase utilization of our sulphur handling and transportation system,
which is currently approximately 60 percent utilized
S-5
<PAGE> 9
PRELIMINARY FIRST QUARTER RESULTS
We expect to have a net loss for the first quarter of 2000 of $17.0
million, $1.36 per share. Significant factors contributing to the loss include:
our purchase of a substantial amount of 3-D seismic data and related
expenditures for $6.1 million, which under the successful efforts method of
accounting must be expensed as incurred; the charge to expense of $3.7 million
of the costs associated with the State Tract 210 #6 exploratory well in the
Grass Island prospect; remedial expenses of $1.9 million at Brazos Block A-19;
and interest expense of $1.2 million incurred in connection with increased debt
levels. Most of the remainder of the expected loss is attributable to lower
sulphur market prices, partly offset by reduced sulphur costs. Our first quarter
2000 results of operations could be affected by the results of the Grand Isle
Block 40/41 #8 exploratory well, which is anticipated to reach its total depth
in late April 2000. If the well were to be unsuccessful, the related drilling
costs associated with the well would be charged to expense in the first quarter
2000 results of operations.
HISTORICAL BACKGROUND
Our immediate predecessor, McMoRan Oil & Gas Co., commenced operations in
May 1994 following the distribution of all of its common stock to the
stockholders of Freeport-McMoRan Inc., its former parent company. The purpose of
that transaction was to allow McMoRan Oil & Gas to rebuild, with essentially the
same management and exploration team, the oil and gas exploration business
previously conducted by Freeport-McMoRan Inc. Freeport-McMoRan Inc. and its
predecessors had engaged in oil and gas exploration, development and production
activities since the early 1970s, and during the 1980s it was among the most
active drillers in the Gulf of Mexico. As part of an asset restructuring program
to raise new capital to exploit other significant business opportunities
(primarily the development of a world class copper and gold deposit in Indonesia
and the Main Pass sulphur deposit, both of which were discovered in 1988),
Freeport-McMoRan Inc. sold numerous assets in various transactions during the
late 1980s and early 1990s. These asset sales included the vast majority of its
producing oil and gas properties. Sales proceeds from these properties totaled
approximately $1.3 billion. As a result, although McMoRan Oil & Gas commenced
business in 1994 with an extensive geological and geophysical data base, as well
as extensive technical and operational expertise, it began with only a small
group of exploration prospects and limited financial resources.
Following its separation from Freeport-McMoRan Inc., McMoRan Oil & Gas
pursued a business plan of exploring for and producing oil and gas, primarily in
the Gulf of Mexico and onshore in the Gulf Coast area. Most of those activities
were engaged in through joint ventures. Those ventures resulted in several
promising discoveries that have been or are now being developed, but the scope
of McMoRan's Oil & Gas' exploration activities was constrained by limited access
to capital and limited exposure to exploration prospects.
We were created on November 17, 1998 when McMoRan Oil & Gas and
Freeport-McMoRan Sulphur Inc. combined their operations. As a result, McMoRan
Oil & Gas LLC and Freeport-McMoRan Sulphur LLC (Freeport Sulphur), the
successors to those companies, became our wholly owned subsidiaries. For
historical information regarding Freeport Sulphur, see "Business -- Sulphur
Operations -- Background." A principal purpose of the combination was to use
cash flow from Freeport Sulphur as a funding source for the expansion of our
exploration and development program. Although sulphur prices have declined
approximately 20 percent since then, thereby significantly diminishing near-term
cash flow from Freeport Sulphur, we continue to regard Freeport Sulphur as a
source of additional financial resources for our company.
The combination of McMoRan Oil & Gas and Freeport Sulphur was treated for
accounting purposes as a purchase, with McMoRan Oil & Gas as the acquiring
entity. As a result, our financial information for periods prior to the
combination reflect only the historical operations of McMoRan Oil & Gas. The
operations of Freeport Sulphur are included on and after November 17, 1998.
S-6
<PAGE> 10
The address and telephone number of our principal executive offices are:
1615 Poydras Street
New Orleans, Louisiana 70112
(504) 582-4000
THE COMMON STOCK OFFERING
Common stock offered................ 3,800,000 shares(a)
Common stock outstanding after the
offering............................ 15,813,106 shares(a)
Use of proceeds..................... We estimate that we will receive net
proceeds from this offering of $50.3
million, which we intend to use to
pursue our exploration activities. We
intend initially to repay indebtedness
under our existing revolving credit
facilities. The cash flow from our
operations, together with the amounts
that will continue to be available
under our credit facilities, will be
used to fund our planned exploration
and development activities for 2000.
NYSE symbol......................... MMR
- ---------------
(a) Does not include shares that may be issued to the underwriters pursuant to
their over-allotment option and 1,958,986 shares subject to options
outstanding at April 13, 2000. The common stock outstanding after the
closing is based on the shares outstanding at April 13, 2000. If the
underwriters exercise their over-allotment option in full, the total number
of shares of common stock offered will be 4,370,000 and the total number of
outstanding shares of our common stock will be 16,383,106 based on the
shares outstanding at April 13, 2000.
S-7
<PAGE> 11
SUMMARY FINANCIAL AND OPERATING DATA
The following table sets forth our selected audited historical financial
and unaudited operating data for each of the five years in the period ended
December 31, 1999. When McMoRan Oil & Gas and Freeport Sulphur combined their
operations on November 17, 1998, the transaction was accounted for as a
purchase, with McMoRan Oil & Gas as the acquiring entity. Accordingly, the
information presented below for periods prior to November 17, 1998 reflects only
the historical financial and operating data attributable to McMoRan Oil & Gas.
Financial and operating data relating to the assets acquired from Freeport
Sulphur are included on and after November 17, 1998. The information shown in
the table below may not be indicative of our future results. You should read the
information below together with our consolidated financial statements and the
related notes, which are incorporated by reference into the attached Prospectus.
<TABLE>
<CAPTION>
1999 1998 1997 1996 1995
-------- -------- -------- ------- --------
(FINANCIAL DATA IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C>
FINANCIAL DATA
Years ended December 31:
Revenues.............................. $244,031 $ 45,902 $ 13,552 $ 4,070 $ 3,267
Exploration expenses.................. 6,411 14,533 11,966 9,818 11,756
Operating income (loss)............... 111 (19,324) (9,904) (9,883) (14,799)
Net income (loss)..................... 109 (18,116) (10,538) (9,862) (14,635)
Net income (loss) per share
Basic............................... $ 0.01 $ (1.96) $ (2.80) $ (3.55) $ (5.31)
Diluted............................. 0.01 (1.96) (2.80) (3.55) (5.31)
Average shares outstanding
Basic............................... 13,385 9,230 3,769 2,779 2,754
Diluted............................. 13,651 9,230 3,769 2,779 2,754
At December 31:
Working capital....................... $ (3,108) $ 20,980 $ 33,749 $ 2,972 $ 8,257
Property, plant and equipment, net.... 198,532 187,137 57,705 18,231 9,878
Total assets.......................... 301,281 320,388 101,088 30,980 21,633
Debt, including current portion....... 14,000 -- -- 12,757 623
Stockholders' equity.................. 155,071 178,800 90,698 8,246 17,605
OTHER FINANCIAL DATA
Capital expenditures(a)............... $ 29,847 $ 49,750 $ 33,677 $20,678 $ 20,957
EBITDAX(b)............................ 43,581 12,942 12,547 676 (1,518)
OPERATING DATA
Sales volumes:
Gas (MMcf).......................... 14,026 8,634 4,061 631 1,093
Oil (MBbls)......................... 1,354(c) 304(c) 34 29 45
Sulphur (thousand long tons)........ 2,973 387 -- -- --
Average realization:
Gas (per Mcf)....................... $ 2.30 $ 2.14 $ 2.62 $ 2.72 $ 1.63
Oil (per barrel).................... 15.92(c) 10.33(c) 19.19 22.22 18.83
Sulphur (per long ton).............. 63.16 62.40 -- -- --
PROVED OIL & GAS RESERVES
Oil (MBbls)......................... 5,245(d) 3,996(d) 463 168 94
Gas (MMcf).......................... 62,575 58,461 40,234 16,054 8,521
Equivalent (MMcfe).................. 94,045 82,437 43,012 17,062 9,085
</TABLE>
- ---------------
(a) Includes exploration expenses.
(b) EBITDAX represents earnings before interest expense, income taxes,
depletion, amortization and exploration expenses. EBITDAX does not
represent and should not be considered as an alternative to
S-8
<PAGE> 12
net income or cash flow from operations as determined by generally accepted
accounting principles, and EBITDAX does not necessarily indicate whether
cash flow will be sufficient for cash requirements. EBITDAX may not
necessarily be comparable to similarly titled measures reported by other
companies as it is not calculated identically by all companies.
(c) Includes Main Pass oil sales totaling 1,102,600 barrels at an average
realization of $15.50 per barrel during 1999. Main Pass' 1998 oil sales
from November 17 to December 31, 1998 totaled 202,700 barrels, at an
average realization of $8.60 per barrel.
(d) Oil reserves reflect the acquisition of Main Pass oil reserves in November
1998 (3,466 MBbls, or 20.8 Bcfe, at December 31, 1998 and 4,170 MBbls, or
25.0 Bcfe, at December 31, 1999).
SUMMARY SEGMENT DATA
We have two operating segments: (1) oil and gas, and (2) sulphur. Summary
information about our operating segments for 1999 is presented below. For
additional information, see Note 11 to our 1999 audited financial statements and
Management's Discussion and Analysis in our Form 10-K for the year ended
December 31, 1999.
<TABLE>
<CAPTION>
OIL & GAS SULPHUR OTHER TOTAL
--------- -------- ------- --------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
1999
Revenues...................................... $54,344 $189,687 $ -- $244,031
Operating income (loss)....................... (722) 4,130 (3,297) 111
Total assets.................................. 104,743 160,284 36,254(a) 301,281
EBITDAX....................................... 36,322(b) 10,556 (3,297) 43,581(b)
</TABLE>
- ---------------
(a) Represents assets held by the parent company, the most significant of which
include deferred tax assets and certain prepaid pension benefits.
(b) Includes $8,112,000 attributable to oil produced at Main Pass.
S-9
<PAGE> 13
PRICE RANGE OF COMMON STOCK AND DIVIDEND POLICY
Our common stock is traded on the New York Stock Exchange under the symbol
MMR. Our common shares have been trading since November 18, 1998. The following
table sets forth the quarterly high and low sales prices for our common stock as
reported by NYSE for the periods indicated.
<TABLE>
<CAPTION>
STOCK PRICES
-----------------
HIGH LOW
------- -------
<S> <C> <C>
Fiscal Year 1998
Fourth Quarter............................................ $16.000 $13.250
Fiscal Year 1999
First Quarter............................................. 17.000 12.000
Second Quarter............................................ 22.625 14.625
Third Quarter............................................. 21.750 19.500
Fourth Quarter............................................ 25.000 18.875
Fiscal Year 2000
First Quarter............................................. 21.000 17.250
Second Quarter (through April 13, 2000)................... 19.500 14.000
</TABLE>
We have not in the past paid, and do not anticipate paying in the
foreseeable future, cash dividends on our common stock. The decision whether or
not to pay dividends and in what amounts is at the discretion of our Board of
Directors. Freeport Sulphur's credit facility restricts our ability to pay
dividends to shareholders, and McMoRan Oil & Gas' credit facility restricts its
ability to pay dividends to us.
S-10
<PAGE> 14
CAPITALIZATION
The following table sets forth our capitalization (which includes our
consolidated subsidiaries) as of December 31, 1999, and as adjusted to reflect
the sale by us of the common stock and the application of the estimated net
proceeds from such sales as described in "Use of Proceeds."
<TABLE>
<CAPTION>
DECEMBER 31, 1999
----------------------
ACTUAL AS ADJUSTED
-------- -----------
(IN THOUSANDS)
<S> <C> <C>
Long-term debt:
Freeport Sulphur credit facility(a)....................... $ 14,000 $ --
McMoRan Oil & Gas credit facility(a)...................... -- --
-------- --------
Total long-term debt.............................. 14,000 --
-------- --------
Stockholders' equity:
Preferred stock, par value $0.01, 50,000,000 shares
authorized and unissued................................
Common stock, par value $0.01, 150,000,000 shares
authorized; 14,229,904 shares issued and outstanding;
18,029,904 shares as adjusted.......................... 142 180
Capital in excess of par value of common stock............ 249,625 299,861
Accumulated deficit....................................... (68,242) (68,242)
Common stock held in treasury -- 1,444,735 shares, at
cost................................................... (26,454) (26,454)
-------- --------
Total stockholders' equity........................ 155,071 205,345
-------- --------
Total capitalization.............................. $169,071 $205,345
======== ========
</TABLE>
- ---------------
(a) As of April 13, 2000, $41.3 million was drawn on the Freeport Sulphur
credit facility and $20.0 million was drawn on the McMoRan Oil & Gas credit
facility. We are currently negotiating with our banks an amended McMoRan
Oil & Gas credit facility, and we expect that Halliburton, as part of our
strategic alliance, will guarantee up to $50.0 million in borrowings under
the amended credit facility. For additional information, see "Use of
Proceeds" and Note 9 to our audited financial statements included in our
Form 10-K for the year ended December 31, 1999.
S-11
<PAGE> 15
USE OF PROCEEDS
We estimate that we will receive net proceeds from this offering of
approximately $50.3 million. Initially, we intend to use the proceeds to repay
indebtedness under our existing revolving credit facilities. Thereafter, we
expect to use our cash flow from operations, together with amounts available
under our credit facilities, to fund our planned exploration and development
activities for 2000.
Our existing variable rate revolving credit facilities are held by our
operating subsidiaries, Freeport Sulphur and McMoRan Oil & Gas. As of April 13,
2000, outstanding borrowings on these credit facilities totaled $61.3 million.
We borrowed these amounts to fund our lease acquisition from Shell, a portion of
our purchase of Phosphate Resource Partners' 47 percent interest in our $210
million exploration program, exploration expenditures, stock repurchases and
working capital.
As of April 13, 2000, $41.3 million was drawn on the Freeport Sulphur
facility and the weighted average interest rate on these borrowings was 6.41%.
This facility matures on December 12, 2002. As of April 13, 2000, $20.0 million
was drawn on the McMoRan Oil & Gas facility and the weighted average interest
rate on these borrowings was 8.33%. This facility matures on January 14, 2002.
The amounts available under our committed credit facilities are subject to
adjustments for changes in cash flows or periodic borrowing base
redeterminations. We estimate that approximately $50 million will be available
to us under these facilities through the end of this year. However, we estimate
that this amount would increase to approximately $90 million upon completion of
the amendment to the McMoRan Oil & Gas facility in connection with the
Halliburton guarantee.
As part of our strategic alliance with Halliburton, Halliburton will
guarantee up to $50.0 million in borrowings under an amended McMoRan Oil & Gas
facility that we are currently negotiating with our banks. In connection with
the guarantee, we will pay Halliburton a fee and provide certain security. The
loan will be reduced by amounts initially paid to us by Halliburton upon
Halliburton's election to participate in the development of individual
prospects. The terms of the strategic alliance, the amended credit facility and
the guarantee will extend through December 31, 2003. The formation of the
alliance is subject to certain conditions, including our ability to raise
additional capital. The specific terms and conditions of the strategic alliance,
the amended credit facility and the guarantee are subject to negotiation and
execution of definitive agreements. See "Summary -- Our proposed transaction
with Halliburton."
We anticipate that we will require additional capital for our anticipated
2001 exploration and development activities and other exploration opportunities
that may arise. As a result, we are currently exploring additional financing
alternatives, including arrangements with oil and gas industry participants.
S-12
<PAGE> 16
BUSINESS
OIL AND GAS OPERATIONS
BACKGROUND. Our immediate predecessor, McMoRan Oil & Gas Co., commenced
operations in May 1994 following the distribution of all of its common stock to
the stockholders of Freeport-McMoRan Inc., its former parent company. The
purpose of that transaction was to allow McMoRan Oil & Gas to rebuild, with
essentially the same management and exploration team, the oil and gas
exploration business previously conducted by Freeport-McMoRan Inc.
Freeport-McMoRan Inc. and its predecessors had engaged in oil and gas
exploration, development and production activities since the early 1970s, and
during the 1980s it was among the most active drillers in the Gulf of Mexico. As
part of an asset restructuring program to raise new capital to exploit other
significant business opportunities (primarily the development of a world class
copper and gold deposit discovered in Indonesia and the Main Pass sulphur
deposit, both of which were discovered in 1988), Freeport-McMoRan Inc. sold
numerous assets in various transactions during the late 1980s and early 1990s.
These asset sales included the vast majority of its existing oil and gas
producing properties. Sales proceeds from these properties totaled approximately
$1.3 billion. As a result, at the time of the spin-off, we had 10 Bcfe in proved
reserves, no production, a small inventory of exploration prospects, a
significant amount of Gulf of Mexico seismic and well log data, significant
technical and operational expertise and $35 million in cash. In 1995, we and MCN
Energy Group formed a $65 million Gulf of Mexico oil and gas exploration and
development program. By mid-1997, we had discovered and held interests in two
producing fields and had acquired interests in a number of exploratory
prospects. As the program approached the end of its term, we decided to pursue a
larger, multi-year program.
In late 1997, we entered into a $210 million exploration program with
Phosphate Resource Partners Limited Partnership (formerly named Freeport-McMoRan
Resource Partners, Limited Partnership) and an individual investor who is also
on our Board of Directors. Also in late 1997, we completed a rights offering,
raising net proceeds of $92 million. We used a portion of these proceeds to
purchase the interests previously held by MCN Energy Group in the Vermilion
Block 160 and 410 fields and to repay a loan from MCN Energy Group, thereby
ending our agreements with MCN Energy Group. The remaining proceeds were
available to fund operations, including a portion of our obligations under the
new $210 million exploration program. Effective October 1, 1999, we purchased
for $32 million in cash all of Phosphate Resource Partners' interest in the
exploration program and terminated their participation in the program. As a
result, the exploration program is now held approximately 95 percent by us and 5
percent by the individual investor.
CURRENT EXPLORATION PROGRAMS. For a description of our recent transactions
with Texaco, Shell and Halliburton, see "Summary." For a description of our
planned exploration activities, see "-- Near-term Exploration Activities." Our
$210 million exploration program continues to exist, with 95 percent held by us
and five percent held by an individual investor who is also on our Board of
Directors. As of December 31, 1999, approximately $124 million had been expended
under the program. Unless extended, the program will terminate when cumulative
exploration expenditures reach $210 million or on March 31, 2002, whichever is
earlier. Under the program, the individual investor will participate in the
Shell and Texaco prospects that are evaluated during the program's term. To the
extent that those prospects are included in the program, the individual investor
will participate in 5% of our interest in the prospects and will pay 6% of the
related expenses.
OUR EXPLORATION TEAM. Our Gulf of Mexico exploration efforts have been
supported for more than 25 years by an experienced group of geophysicists and
geologists, who are principals in CLK Company, L.L.C. We have a technical
services contract with CLK, under which they provide us with geological and
geophysical services to evaluate prospects in the Gulf of Mexico. The six most
senior CLK geologists and geophysicists have been a part of our exploration team
for an average of 23 years, and the average experience of CLK's 13 geologists
and geophysicists in evaluating prospects in the Gulf of Mexico is 28 years. CLK
has been instrumental in every major field discovery that we and our
predecessors have made in the Gulf of Mexico since our discovery of the
Vermilion Block 25 field in 1977. Together, we
S-13
<PAGE> 17
have been responsible for numerous discoveries over the past 20 years that
ultimately resulted in gross proved reserves (including interests owned by
others) estimated at approximately 3.0 Tcfe. Working closely with our technical
staff and our Co-Chairman James R. Moffett, who is also an experienced
geologist, CLK continues to develop exploration opportunities for us on an
essentially exclusive basis, although they have the right to pursue separately
exploration prospects that we decline to pursue.
We pay CLK an annual retainer of $2.5 million, with $0.5 million of these
fees paid in our common stock, plus certain expenses and an overriding royalty
interest of up to 3 percent in prospects that we accept. For the year ended
December 31, 1999, fees and expenses to CLK totaled $2.7 million.
OIL AND GAS PROPERTIES. As of January 31, 2000, we owned interests in 147
oil and gas leases in the Gulf and onshore Louisiana and Texas covering
approximately 386,000 gross acres (approximately 285,000 acres net to us). Our
estimated proved reserves at December 31, 1999 were approximately 94.0 Bcfe,
consisting of 62.6 Bcf of gas and 5.2 million barrels of crude oil and
condensate. This estimate includes 4.2 million barrels at Main Pass. By
comparison, our estimated proved reserves at December 31, 1998 were
approximately 82.4 Bcfe, consisting of 58.5 Bcf of gas and 4.0 million barrels
of crude oil and condensate. Our estimated proved reserves are based on a
reserve report prepared by Ryder Scott Company, L.P., an independent petroleum
engineering firm. As of December 31, 1999, our proved oil and gas reserves were
located primarily in six fields in the Gulf of Mexico shelf area: (1) Main Pass;
(2) Vermilion Block 160; (3) Vermilion Block 160 BJ-1; (4) Vermilion Block 159
CJ-1; (5) West Cameron Block 616; and (6) Brazos Block A-19.
The table below sets forth approximate information, as of December 31,
1999, with respect to our principal producing properties.
<TABLE>
<CAPTION>
1999 NET NET CUMULATIVE
PRODUCTION PRODUCTION(B)
NET WATER ---------------- ----------------
WORKING REVENUE DEPTH OIL GAS OIL GAS
FIELD, LEASE OR WELL(A) INTEREST INTEREST (IN FEET) (MBBLS) (MMCF) (MBBLS) (MMCF)
- ----------------------- -------- -------- --------- ------- ------ ------- ------
<S> <C> <C> <C> <C> <C> <C> <C>
Main Pass........................ 83.3% 69.5%(c) 210 1,103 -- 19,715 --
Vermilion Block 160 Field Unit... 41.8% 35.8%(c) 100 70 3,017 272 10,900
Vermilion Block 160 BJ-1......... 73.0% 58.4%(c) 100 141 4,957 141 4,957
Vermilion Block 159 CJ-1......... 95.0% 76.3% 90 39 1,260 39 1,260
West Cameron Block 616........... 100.0% 74.7% 300 74 3,882 74 3,882
Brazos Block A-19................ 33.3% 26.4% 135 -- 359 -- 359
</TABLE>
- ---------------
(a) We are the operator on all of these properties, except for Brazos Block
A-19, where Shell is the operator.
(b) From commencement of production through December 31, 1999.
(c) Subject to an approximate net profits interest of 50 percent at Main Pass,
2.6 percent at the Vermilion Block 160 field unit and 12.7 percent at the
Vermilion Block 160 BJ-1 well.
PRINCIPAL PRODUCING PROPERTIES
- MAIN PASS. We acquired the Main Pass oil operations, located on Block
299, as a result of our acquisition of Freeport Sulphur in 1998. This
field began production in 1991 with 18 wells, of which 11 were
horizontally drilled. There are currently 13 wells producing. The field
is located 32 miles offshore Louisiana and covers 1,125 gross acres.
- VERMILION BLOCK 160 FIELD UNIT. We began production from this unit in
1995 with two wells. In 1997, we discovered additional pay sands with
three additional development wells. The field is located 42 miles
offshore Louisiana and covers 5,625 gross acres.
- VERMILION BLOCK 160 BJ-1. In 1997, we drilled the Vermilion 160 BJ #1
well at a location remote from the existing platform and outside the
Vermilion Block 160 field unit. We installed a substructure and
processing facilities in 1998. The facilities were designed to
accommodate
S-14
<PAGE> 18
production from both the Vermilion Block 160 BJ #1 well and the Vermilion
Block 159 CJ #1 well (discussed below). Production from both wells
commenced during January 1999.
- VERMILION BLOCK 159 CJ-1. In 1997, we drilled the Vermilion Block 159 CJ
#1 exploratory well, which resulted in the discovery. We installed a
substructure and deck in 1998. Production commenced in January 1999, as
noted above. The well was re-completed in the fourth quarter of 1999. The
field is located 42 miles offshore Louisiana and covers 3,438 gross
acres.
- WEST CAMERON BLOCK 616. In 1996, we discovered the field with the West
Cameron Block 616 #2 exploratory well. During 1998, we drilled three
development wells and installed an offshore production platform with
facilities. Production commenced from five well completions in March
1999. The field is located 130 miles offshore Louisiana and covers 5,000
gross acres.
- BRAZOS BLOCK A-19. In April 1998, the Brazos Block A-19 JC #1 exploratory
well encountered hydrocarbons in a separate reservoir compartment within
the larger Picaroon Field area, at a depth of 17,500 feet. Development of
the Brazos Block A-19 JC#1 well was completed in the third quarter of
1999. Production commenced in October 1999; however, during a shutdown in
November 1999 the operator detected a pressure buildup in the production
casing. After flowing the well on an emergency basis, production was
halted. Subsequently the operator discovered the existence of significant
damage to the production tubing. Efforts to reestablish production proved
unsuccessful. The operator has temporarily abandoned the well with a
permanent abandonment planned at a future date. A complete analysis of
the failure continues. Prior to the shut-in the well was producing
approximately 84 MMcf per day. The joint venture partners intend to drill
another well, and we currently estimate that the replacement well will
commence production by mid-2001. We will pursue our rights for recovery
of this loss from insurers and others. Our reserve estimates for the
field have not been affected. The field is located 35 miles offshore
Texas and covers 5,760 gross acres. We, along with our partners, have
acquired adjacent leases located at Brazos Blocks A-9 and A-26.
RECENT EXPLORATION ACTIVITIES
We continually evaluate our undeveloped properties, as well as other
exploration prospects offered by third parties, and drill those we consider to
have the highest potential. Our significant exploration and other activities
during 1999 and early 2000 are summarized below. During 1999, we limited our
exploration activities in order to focus on pursuing opportunities that led to
our recent transactions with Texaco and Shell.
- GRASS ISLAND PROSPECT. During the third quarter of 1999, we farmed-in the
Grass Island prospect, located in the shallow onshore waters of Espiritu
Santo Bay, Calhoun County, Texas. We began drilling the State Tract 210
#6 exploratory well on November 1, 1999. The well reached an approximate
total depth of 12,000 feet in December 1999. We have decided not to test
the various sands encountered in the well. As a result, under the terms
of the farmout agreement, our interest in the well will revert to the
farmor, although we will have an option to participate in any subsequent
well. We have charged the drilling costs associated with this well to
expense in the first quarter of 2000.
- VERMILION BLOCK 408. We commenced drilling the Vermilion Block 408 #1
exploratory well in December 1999. The well reached a total depth of
8,000 feet and encountered 167 feet of net oil pay. The well tested at a
flow rate of 3,040 Bbls of oil and 11.1 MMcf of gas per day on a 48 hour
test. Development plans are being considered for this new producing area.
We expect production to commence by the end of 2000. We own a 28.5
percent working interest and a 22.9 percent net revenue interest.
S-15
<PAGE> 19
NEAR-TERM EXPLORATION ACTIVITIES
The table below sets forth approximate information, as of March 29, 2000,
with respect to the exploration prospects upon which we plan to commence
drilling in 2000, followed by a brief description of each prospect.
<TABLE>
<CAPTION>
PLANNED
TOTAL
NET WATER DEPTH
FIELD, LEASE WORKING REVENUE DEPTH OF WELL(b) GROSS ESTIMATED
OR WELL INTEREST(a) INTEREST(a) (IN FEET) (IN FEET) ACRES SPUD DATE(c)
- ------------ ----------- ----------- --------- ---------- ------ ------------------
<S> <C> <C> <C> <C> <C> <C>
Eugene Island Block 97... 71.3% 51.3% 22 18,500 5,000 2000(first half)
Garden Banks
Blocks 534/578......... 66.5% 55.3% 2,000 8,000 11,520 2000(first half)
Grand Isle Block 2 and
West Delta Blocks
1/12/13................ 71.3% 48.2% 12 19,000 2,788 2000(first half)
Grand Isle
Blocks 40/41........... 52.3% 42.9% 90 16,500 2,100 2000(first half)
Green Canyon
Block 90............... 80.7% 59.7% 653 8,000 5,760 2000(first half)
Vermilion Blocks
144/145................ 95.0% 76.3% 85 17,500 5,937 2000(first half)
Eugene Island
Blocks 193/208/215..... 53.4% 41.7% 100 17,500 12,500 2000(second half)
Garden Banks
Blocks 581/536/580..... 66.5% 55.3% 2,300 --(b) 17,280 2000(second half)
Garden Banks Blocks
537/538................ 66.5% 55.3% 2,300 --(b) 11,520 2000(second half)
Main Pass
Blocks 86/97........... 71.3% 51.3% 69 9,500 9,989 2000(second half)
Onshore Vermilion
Parish................. 95.0%(d) 67.5%(d) -- 19,000 4,200 2000(second half)
</TABLE>
- ---------------
(a) Except as otherwise indicated, reflects minimum estimated working and net
revenue interests assuming participation elections by others, except
Halliburton (see "Summary -- Our proposed transaction with Halliburton").
(b) Reflects currently planned target total depth, which is subject to change.
Wells to be drilled on Garden Banks Blocks 581/536/580 and Blocks 537/538
may depend on drilling results from Garden Banks Blocks 534/578.
(c) Tentative -- subject to change.
(d) Subject to election by a third party to assume one-half of interests shown.
---------------------
- EUGENE ISLAND BLOCK 97. We have identified a combination bright spot and
structural play on the north portion of a north-south trending structural
ridge. The south end of the ridge located on Eugene Island Block 108 has
produced 178 Bcf and 3.4 MMBbls.
- GARDEN BANKS BLOCKS 534/578, BLOCKS 581/536/580 AND BLOCKS 537/538. We
farmed-in these prospects. The prospects' area extends over multiple
offshore blocks. We plan to drill an exploratory well on Garden Banks
Block 534/578 during the first half of 2000. A large portion of the
potential bright spot reserves lie in the prospect area above 8,000 feet
true vertical depth ("TVD"). Based on the results of this well, we may
elect to drill offset prospects located in the adjacent blocks.
S-16
<PAGE> 20
- GRAND ISLE BLOCK 2 & WEST DELTA BLOCKS 1/12/13. We have identified a
bright spot play that contains stacked amplitudes from 17,000 to 20,000
feet TVD. Analogs nearby are the Queen Bess Island field that produced
262 Bcf and West Delta 17/18 that produced 159 Bcf.
- GRAND ISLE BLOCK 40/41. We farmed-in this prospect. A field shallower
than the objective section in the same fault block geometry as the
prospect has produced 230 Bcf and 58 MMBbls. The lease has existing
infrastructure to place the well into production by the first half of
2001, if commercially recoverable reserves are discovered.
- GREEN CANYON BLOCK 90. The objectives are located in a structurally
higher position to existing producing sands in the adjacent Green Canyon
Block 89 field. Development plans are to potentially sub-sea complete the
discovery well.
- VERMILION BLOCKS 144/145. The well is a deeper pool exploratory test of a
formation below sands that have a cumulative production of 140 Bcfe.
Vermilion Block 144 is directly north of where we drilled the Vermilion
Block 159 CJ#1 well discovery and east of the Vermilion Block 160 unit.
- EUGENE ISLAND BLOCKS 193/208/215. These blocks are within a producing
field that has cumulatively produced 243 Bcf and 64.6 MMBbls. Bright spot
and structural plays have been identified on the north and south flanks
of a salt dome centered in Eugene Island Block 208. We plan to drill the
exploration wells from an existing platform. We recently acquired our
interest in this property for approximately $0.3 million, together with
an abandonment liability of approximately $5.0 million, net to us.
- MAIN PASS BLOCKS 86/97. The prospect targets from 9,500 to 10,500 feet
TVD. These sands are the same stratigraphic intervals that are producing
natural gas and condensate in the adjacent Main Pass Block 162.
- ONSHORE VERMILION SEISMIC OPTION. We entered into a seismic option
covering 4,200 acres near one of the most prolific producing fields
located in the coastal region of Vermilion Parish, Louisiana. This option
allows us to review the geological data and acquire and map the 3-D
seismic data prior to committing to drill an exploratory well. We can
earn from 50% to 75% working interest under certain terms and conditions.
Our objectives occur at depths of 15,500 to 18,500 feet TVD (19,000 feet
measured depth). The prospect is positioned on a significant structural
closure located 2.5 miles west of and separate from a large gas field
that has produced nearly 2 Tcfe.
We are evaluating our current lease inventory and are in the process of
reviewing potential prospects that have lease expiration dates during 2000. This
review process may add new prospects to our 2000 drilling plans, in which case
the anticipated spud dates for some of the prospects described above may change.
OTHER
From time to time we believe we can generate greater returns to
shareholders by selling a property rather than exploring on it or developing it
ourselves. Our significant sales for 1999 are described below.
- VERMILION BLOCK 410 FIELD. In March 1999, we sold our approximate 28
percent net revenue interest in Vermilion Blocks 389, 409 and 410 and
East Cameron Block 162, collectively known as the Vermilion Block 410
field. The sale resulted in our recognition of a $3.0 million gain.
- WEST CAMERON BLOCK 492. During the third quarter of 1999, we and our
partner sold our 25.0 percent working interest in West Cameron Block 492.
We received $0.7 million for our share. We also have a retained 3.0
percent overriding royalty interest, which may increase to 5.0 percent if
certain cumulative production volumes are achieved.
- WEST CAMERON BLOCK 617. In April 1998, we encountered gas pay at the West
Cameron Block 617 #1 exploratory well. We set protective pipe and the
well was temporarily abandoned. We then commenced a second exploratory
well that was unsuccessful and was subsequently plugged and
S-17
<PAGE> 21
abandoned. We and our partners farmed-out this discovery in the first
quarter of 1999. We have a retained net profit interest that will
escalate from approximately 4.8 percent to 14.3 percent, depending upon
certain costs and production volumes.
OIL AND GAS RESERVES. The following table presents our estimated proved
natural gas and oil reserves at December 31, 1999, based on a reserve report
prepared by Ryder Scott Company, L.P., an independent petroleum engineering
firm.
<TABLE>
<CAPTION>
GAS OIL
----------------------- -----------------------
(MMCF) (BARRELS)
PROVED PROVED PROVED PROVED
DEVELOPED UNDEVELOPED DEVELOPED UNDEVELOPED
--------- ----------- --------- -----------
<S> <C> <C> <C> <C>
December 31, 1999....................... 61,630 945 4,499,205 745,726
</TABLE>
Much of our oil and gas reserves as of December 31, 1999 was based on wells
that had limited or no production history. Estimates of proved reserves for
wells with limited or no production history are less reliable than those based
on a long production history. Subsequent evaluation of the same reserves may
result in variations in our estimated reserves, which may be substantial. We
will need additional capital to develop and produce our proved undeveloped
reserves. For additional information, see Note 12 to our audited financial
statements and "Risk Factors" on page 4 of the accompanying Prospectus.
The following table presents, as of the dates indicated, the estimated
future net cash flows before income taxes, and the present value of estimated
future net cash flows before income taxes, from the production and sale of our
proved reserves, as determined by Ryder Scott. Present value is calculated using
a 10 percent per annum discount rate as required by the Securities and Exchange
Commission. In preparing these estimates, Ryder Scott used prices of $22.64 per
barrel of oil and $2.37 per Mcf of gas as of December 31, 1999, which are the
weighted average prices that we estimate we would have received, assuming
production from all of our properties with proved reserves. The oil price
reflects the lower market value associated with sour crude oil reserves produced
at Main Pass.
<TABLE>
<CAPTION>
PROVED PROVED TOTAL
DEVELOPED UNDEVELOPED PROVED
--------- ----------- --------
(IN THOUSANDS)
<S> <C> <C> <C>
At December 31, 1999:
Estimated future net cash flows before income
taxes.......................................... $137,688 $9,456 $147,144
Present value of estimated future net cash flows
before income taxes............................ 106,354 6,809 113,163
</TABLE>
You should not assume that the present value of estimated future net cash
flows shown in the preceding table represents the current market value of our
estimated natural gas and oil reserves as of the date shown or any other date.
For additional information, see Note 12 to our audited financial statements and
"Risk Factors" on page 4 of the accompanying Prospectus.
We are periodically required to file estimates of our oil and gas reserves
with various governmental authorities. In addition, from time to time we furnish
estimates of our reserves to governmental agencies in connection with specific
matters pending before them. The basis for reporting estimates of reserves in
some of these cases is different from the basis used for the estimated reserves
discussed above. Therefore, all reserve estimates may not be comparable. The
major variations include differences in when the estimates are made, in the
definition of reserves, in the requirement to report in some instances on a
gross, net or total operator basis and in the requirements to report in terms of
smaller geographical units.
S-18
<PAGE> 22
PRODUCTION, UNIT PRICES AND COSTS. The following table shows production
volumes, average sales prices and average production costs for our oil and gas
sales for each period indicated. The relationship between our sales prices and
production (lifting) costs depicted by the table is not necessarily indicative
of our future results of operations.
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-------------------------
1999 1998 1997
------- ------ ------
<S> <C> <C> <C>
Net gas production (MMcf)................................. 14,026 8,634 4,061
Net crude oil and condensate production(MBbls)(a)......... 1,354 304 34
Sales prices:
Natural gas (per Mcf)................................... $ 2.30 $ 2.14 $ 2.62
Crude oil and condensate (per Bbl)...................... $ 15.92 $10.33 $19.19
Production (lifting) costs (b)
Per barrel for Main Pass................................ $ 7.88 $ 6.54 --
Per Mcf equivalent for other properties................. $ 0.50 $ 0.36 $ 0.28
</TABLE>
- ---------------
(a) Includes production from the Main Pass oil operations for periods on and
after November 17, 1998, which totaled approximately 202,700 barrels from
November 17, 1998 through December 31, 1998 and 1,102,600 barrels for 1999.
(b) Production costs were converted to an Mcf equivalent on the basis of one
barrel of oil being equivalent to six Mcf of natural gas. Production costs
exclude all depreciation and amortization associated with property and
equipment. The components of production costs may vary substantially among
wells depending on the production characteristics of the particular
producing formation, method of recovery employed, and other factors.
However, production costs include charges under transportation agreements as
well as all lease operating expenses.
ACREAGE. The following table shows the oil and gas acreage in which we held
interests as of January 31, 2000. The table does not include any of the
approximate 391,000 gross acres associated with the Texaco transaction because
we do not and will not own any acreage until we drill wells that are capable of
producing reserves and commit to developing such reserves.
<TABLE>
<CAPTION>
DEVELOPED UNDEVELOPED
---------------- --------------------
GROSS NET GROSS NET
ACRES ACRES ACRES ACRES
------ ------ -------- --------
<S> <C> <C> <C> <C>
Offshore (federal waters)........................... 27,199 15,360 96,536 60,051
Onshore Louisiana and Texas......................... 3,200 2,969 1,365 414
------ ------ -------- --------
Total at December 31, 1999................ 30,399 18,329 97,901 60,465
------ ------ -------- --------
Shell lease acquisition(a):
Offshore (federal waters)........................... -- -- 261,185(b) 208,489(b)
Onshore Louisiana................................... -- -- 2,788 1,987
------ ------ -------- --------
Total lease acquisition................... -- -- 263,973(b) 210,476(b)
------ ------ -------- --------
Total at January 31, 2000................. 30,399 18,329 361,874(b) 270,941(b)
====== ====== ======== ========
</TABLE>
- ---------------
(a) Net acres assumes participation by our partner in our $210 million
exploration program.
(b) Includes the approximate 5,760 gross and 3,648 net acres related to one
lease that was subsequently excluded from the Shell acquisition.
S-19
<PAGE> 23
OIL AND GAS DRILLING ACTIVITY. The following table shows the gross and net
number of productive, dry, in-progress and total exploratory and development
wells that we drilled in each of the periods presented:
<TABLE>
<CAPTION>
1999(A) 1998 1997
------------- ------------- -------------
GROSS NET GROSS NET GROSS NET
----- ----- ----- ----- ----- -----
<S> <C> <C> <C> <C> <C> <C>
EXPLORATORY
Productive...................................... 1 0.285 3 0.888 4 1.251
Dry............................................. 1 0.438 4 1.440 3 0.737
In-progress..................................... 1 0.466 -- -- -- --
-- ----- -- ----- -- -----
Total................................. 3 1.189 7 2.328 7 1.988
== ===== == ===== == =====
DEVELOPMENT
Productive...................................... -- -- 1 0.500 5 2.484
Dry............................................. -- -- -- -- -- --
-- ----- -- ----- -- -----
Total................................. -- -- 1 0.500 5 2.484
== ===== == ===== == =====
</TABLE>
- ---------------
(a) We limited our drilling activity in 1999 in order to focus on pursuing
opportunities that led to the Texaco and Shell transactions discussed above.
MARKETING. We currently sell our natural gas in the spot market at
prevailing prices. Prices on the spot market fluctuate with demand and for other
reasons. We generally sell our crude oil and condensate one month at a time at
prevailing prices. However, since our acquisition of Main Pass we have sold all
of our sour crude oil produced at Main Pass to Amoco Production Company. Our
contract with Amoco has been extended through June 30, 2000. See "Risk Factors"
on page 4 of the accompanying Prospectus.
SULPHUR OPERATIONS
GENERAL. Our sulphur business consists of two principal operations, sulphur
services and sulphur mining:
Sulphur services.
Recovered sulphur purchase and resale operations. We are the largest
sulphur supplier in the U.S. We purchase and resell sulphur recovered as
a by-product of processing natural gas that contains hydrogen sulfide
and refining sour crude oil. For the year ended December 31, 1999,
approximately 53 percent of our sulphur sales were supplied from
recovered sulphur purchases.
Sulphur handling operations. We operate the largest molten sulphur
handling system in the world, which currently transports approximately
55 percent of U.S. Gulf Coast sulphur consumption. We use our system
both to support the movement of our own mined and purchased sulphur and
as a service that we market to recovered sulphur producers and
industrial customers. During 1999, we handled approximately 1.8 million
long tons of mined and 2.1 million long tons of recovered sulphur,
utilizing approximately 60% of our sulphur handling system's annual
capacity of 6.0 million tons.
Sulphur mining. We are the world's largest producer of mined sulphur. We
operate and have an 83.3 percent interest in the Main Pass mine, located 32
miles offshore Louisiana. Homestake Sulphur Company, LLC owns the remaining
16.7 percent interest. See "Risk Factors" on page 4 of the accompanying
Prospectus and "Legal Proceedings" in our Form 10-K for the year ended
December 31, 1999 for information about a contract dispute we are having
with Homestake.
Our total sales of both mined and recovered sulphur were approximately 3.0
million long tons, representing approximately 25 percent of domestic sulphur
consumption, for the year ended December 31, 1999. Typically, the domestic
phosphate fertilizer industry accounts for approximately 90 percent of our
S-20
<PAGE> 24
total sulphur sales. For the year ended December 31, 1999, sales to IMC-Agrico
Company represented 72.6 percent of our sulphur sales and 55.9 percent of our
total revenues. See "Sulphur Sales -- Relationship with IMC Agrico," "Risk
Factors" on page 4 of the accompanying Prospectus and "Legal Proceedings" in our
Form 10-K for the year ended December 31, 1999 for information about a contract
dispute we are having with IMC-Agrico.
BACKGROUND. Our company is the successor to a line of business that has
been conducted by our predecessors since 1912, making us the longest
continuously operating sulphur company in the United States. In December 1997,
Phosphate Resource Partners Limited Partnership (formerly named Freeport-
McMoRan Resource Partners, Limited Partnership) spun off Freeport-McMoRan
Sulphur Inc. in connection with the merger of IMC Global Inc, and
Freeport-McMoRan Inc. At the time of the spin-off, Freeport-McMoRan Inc. was
administrative managing general partner of and the owner of a 51.6 percent
partnership interest in Phosphate Resource Partners. Prior to the spin-off, IMC
Global transferred to Phosphate Resource Partners all of IMC Global's interest
in the Main Pass operations, and Phosphate Resource Partners transferred to
Freeport-McMoRan Sulphur Inc. all of its sulphur operations and its interest in
Main Pass, including the interest transferred to it by IMC Global. Freeport
Sulphur became our subsidiary in November 1998 when our company was formed to
become the parent company of Freeport Sulphur and McMoRan Oil & Gas. We conduct
all of our sulphur operations through our Freeport Sulphur subsidiary.
SULPHUR INDUSTRY. The primary sources of sulphur are recovered sulphur and
sulphur mined from underground deposits. Recovered sulphur is the largest source
of sulphur in the world, representing approximately 93 percent of global
production of sulphur.
Sulphur is used primarily in the manufacture of phosphate fertilizer, with
more than 50 percent of worldwide sulphur consumption, and nearly 90 percent of
U.S. sulphur consumption, being used for that purpose. Approximately four-tenths
of a long ton of sulphur is required to produce one short ton of diammonium
phosphate, the predominant form of phosphate fertilizer. We are highly dependent
on the phosphate fertilizer market, as typically 90 percent of our sulphur
revenues are derived from sales to the domestic phosphate fertilizer industry.
Most domestic phosphate fertilizer is produced in or near Tampa, Florida.
Because sulphur transportation costs are significant, proximity to Tampa is a
significant cost advantage for any sulphur producer. Central Florida is the
largest sulphur consuming region in the world, representing 12 to 13 percent of
global demand.
Historically, the phosphate fertilizer business has been cyclical.
Currently, the market for phosphate fertilizers is soft, which we believe is
primarily the result of three factors: (1) a worldwide oversupply of grain,
which has led to falling grain prices, and decreased demand for fertilizer by
U.S. farmers; (2) an oversupply of fertilizer worldwide; and (3) an anticipated
increase in worldwide fertilizer production capacity from two new plants under
construction in India and Australia. Primarily due to the resulting global price
decreases for phosphate fertilizer, in the fourth quarter of 1999 several
domestic phosphate fertilizer producers announced production curtailments,
including a 20 percent reduction by IMC-Agrico, our principal customer.
Primarily as a result of these factors, Tampa, Florida sulphur prices decreased
$4 per long ton in the third quarter of 1999, $5 per long ton in the fourth
quarter of 1999 and an additional $5 to $57.50 per long ton in the first quarter
of 2000. We continue to believe that the fundamentals of the phosphate
fertilizer business remain sound. These fundamentals include anticipated growth
in world population and increased consumption of meat in many undeveloped
countries, which increases the demand for grain used to feed livestock. We
cannot predict, however, if or when the market for phosphate fertilizers will
recover or the extent of any recovery. See "Risk Factors" on page 4 of the
accompanying Prospectus.
COMPETITION. Recovered sulphur from domestic and foreign sources is the
major source of supply for most sulphur customers and is our major source of
competition. Because recovered sulphur is a by-product of the producer's
refining or processing operations, its cost to producers is low. However, the
costs of handling and transporting sulphur from the point of production to that
of consumption are significant. The recovered sulphur produced domestically is
not sufficient to meet total domestic demand; therefore, mined
S-21
<PAGE> 25
sulphur and imported recovered sulphur, principally from Canada and Mexico,
supply the balance. We estimate that total domestic sulphur consumption in 1999
was 11.8 million long tons, of which domestic mined sulphur accounted for
approximately 14 percent, domestic recovered sulphur accounted for approximately
64 percent, and imported sulphur, primarily from Canada and Mexico, accounted
for approximately 22 percent. Industry studies vary in their forecast of
worldwide sulphur balance; however, it is widely accepted that a surplus
currently exists and will continue into the foreseeable future.
MINED SULPHUR. There are four producers of mined sulphur worldwide, and we
believe we are the only mined sulphur producer serving the U.S. market. We
estimate that our mined sulphur production accounted for approximately 17
percent of domestic, and 4 percent of world, sulphur production during 1999.
DOMESTIC RECOVERED SULPHUR. In the U.S., recovered sulphur is produced by
more than 50 companies at more than 130 refineries and gas treatment plants.
U.S. recovered sulphur producers do not have the ability to store large
inventories of sulphur, so they must move the sulphur to market as it is
produced. Production of recovered sulphur in the U.S. has increased at an
average rate of approximately 230,000 long tons per year for each of the last
three years, and totaled approximately 8.3 million long tons in 1999. We expect
the sulphur content of crude oil feedstocks delivered to U.S. oil refineries to
continue to increase. In addition, as environmental law requirements become more
stringent, we expect more sulphur to be recovered from the refining process.
CANADIAN RECOVERED SULPHUR INVENTORIES. Unlike U.S. producers of recovered
sulphur, Canadian recovered sulphur producers have facilities for storing excess
sulphur production in solid form for unlimited periods of time, and thus can
wait for favorable market conditions to sell this sulphur. Nearly all of the
Western Hemisphere's sulphur inventories currently consist of sulphur stored in
solid form in the province of Alberta in western Canada. During the 1990s, world
sulphur supply exceeded demand, resulting in a build-up of Canadian sulphur
inventories. Estimated Canadian sulphur inventories increased from 11.5 million
long tons at year-end 1998 to 12.5 million long tons at year-end 1999. The
current levels of Canadian sulphur production and inventories limit our
potential to realize significant price increases for our sulphur even if demand
improves. See "Risk Factors" on page 4 of the accompanying Prospectus.
Since the early 1990s, the sulphur price at Tampa, Florida has generally
moved in the range of $55-$75 per long ton. We believe market forces that define
this range will continue for the foreseeable future, absent a major supply
disruption or a substantial increase in demand. On the low end of the price
range, overland freight rates from western Canada to central Florida tend to set
a price floor. On the high end, the amount of supply that can profitably access
the market effectively sets a price cap. Accordingly, depending on prices in the
other foreign markets they supply, Canadian producers can be expected to
increase sulphur shipments to U.S. markets as price levels in the U.S. sulphur
markets rise toward the upper reaches within the $55-$75 per long ton range and
to decrease or stop such shipments as the price moves toward the lower reaches
of this range.
POTENTIAL SULPHUR MELTING PLANT. In the fourth quarter of 1999, three large
phosphate fertilizer producers that are also our principal customers announced
plans to build a solid sulphur handling and melting plant in Tampa, Florida. The
announcement stated that the plant is expected to be operational in mid-2001, to
yield 1.5 million long tons of liquid sulphur its first year and to have a
maximum annual capacity of 2 million long tons. The facility would allow these
customers and potentially others to import solid sulphur. Thus, customers would
have new sources of sulphur supply that, depending on their ultimate costs
compared to our costs, could be more cost-competitive than our sulphur. Solid
sulphur handling is widely recognized as inferior from an environmental
standpoint to molten sulphur handling, which is currently used throughout
Florida. Using current technology, solid sulphur handling typically results in
losses of sulphur dust into surrounding areas. The plant will need to obtain
appropriate permits and meet stringent state and federal environmental law
requirements. Even if the appropriate permits are received and the plant is
constructed, we believe that this type of facility will not be cost competitive,
based on current sulphur costs and current estimates of related transportation,
handling, melting and capital costs.
S-22
<PAGE> 26
We cannot predict when or if the plant will be operational or what impact
it will have, if any, on our sulphur sales, although it could adversely affect
our sulphur sales. We currently have sulphur melting capabilities in Galveston,
Texas and Port Sulphur, Louisiana, and these facilities have all permits
required under current environmental laws. All of our sulphur is currently
handled in molten form; however, we intend to remain competitive in sourcing and
handling sulphur in whatever form is commercially preferable.
SULPHUR SALES.
GENERAL. Substantially all of our sulphur is sold to the phosphate
fertilizer industry for the manufacture of sulphuric acid, which is used to
produce phosphoric acid, a base chemical used in the production of phosphate
fertilizers. Typically, the phosphate fertilizer industry accounts for
approximately 90 percent of our total sulphur sales. The majority of our sulphur
supply contracts, with the exception of our contract with IMC-Agrico Company
(IMC-Agrico) discussed below, are for a term of one year or longer and generally
call for the repricing of sulphur on a quarterly basis. We also process,
transport and market for a fee Homestake's 16.7 percent share of production from
the Main Pass mine. See "Legal Proceedings."
RELATIONSHIP WITH IMC-AGRICO. IMC-Agrico, our largest customer, is a
manufacturer of phosphate fertilizers and the largest purchaser of sulphur in
the world. Pursuant to a sulphur supply agreement, we have agreed to supply and
IMC-Agrico has agreed to purchase approximately 75 percent of IMC-Agrico's
annual sulphur consumption for as long as IMC-Agrico has a requirement for
sulphur. The price per ton for all sulphur delivered under the agreement is
based on the weighted average market price of sulphur delivered by other sources
to IMC-Agrico's New Wales production plant in central Florida, except that we
are entitled to a premium with respect to approximately 40 percent of the
sulphur that we deliver under the agreement. IMC-Agrico also pays a portion of
the freight costs associated with the delivery of sulphur under the agreement.
We are currently involved in a dispute with IMC-Agrico about the pricing terms
of the sulphur supply agreement. See "Legal Proceedings." Although this contract
was entered into at a time when IMC-Agrico was one of our predecessors'
affiliates, our management believes that the terms of the sulphur supply
agreement are no less favorable than terms that could have been negotiated with
an unaffiliated party. In the fourth quarter of 1999 IMC-Agrico announced a 20
percent production curtailment. As a result, IMC-Agrico curtailed its sulphur
purchases from us in the fourth quarter of 1999. We expect that our future
sulphur sales to IMC-Agrico will also be curtailed, at least in the near term.
CUSTOMERS. IMC-Agrico is our single largest sulphur customer, accounting
for approximately 73 percent of our sulphur sales and 56 percent of our total
revenues for the year ended December 31, 1999. Our next four largest customers
represent approximately 21 percent of sulphur sales. These companies represent a
mix of industrial companies and phosphate fertilizer manufacturers.
RECOVERED SULPHUR PURCHASES. We are a major purchaser of recovered sulphur
in the U.S. Our 1999 recovered sulphur purchases totaled approximately 1.6
million long tons. We expect our sulphur purchasing program to increase and
become a more significant component of our sulphur business. We purchase
recovered sulphur principally from oil refineries located along the lower
Mississippi River and in the Louisiana and Texas Gulf Coast regions, and from
gas processing plants in Mississippi and Wyoming.
Our recovered sulphur purchase program provides us with a source of
sulphur, in addition to our mined sulphur, that enables us to meet our sales
contract commitments. Approximately 53 percent of our sulphur sales volumes for
the year ended December 31, 1999 were supplied through recovered sulphur
purchases. We believe that our position as a leading sulphur supplier in the
domestic market, coupled with our extensive sulphur handling capabilities, will
allow us to replace any curtailed mine production with purchased recovered
sulphur; however, there can be no assurance that we will be able to do so.
SULPHUR HANDLING OPERATIONS. We operate the largest molten sulphur handling
system in North America and have the capacity to transport and terminal up to
six million long tons of molten sulphur annually. We use this system to support
the movement of our mined and purchased sulphur, and as a service that we market
to recovered sulphur producers and sulphur consumers. We believe that the
S-23
<PAGE> 27
integration of our sulphur handling business with our mining, purchasing and
marketing operations gives us a synergistic competitive advantage over other
suppliers of similar services. For information on our marine and land
transportation assets and our sulphur terminals, see our Form 10-K for the year
ended December 31, 1999.
SULPHUR MINE OPERATIONS
MAIN PASS. We operate and own an 83.3 percent interest in the only
operating sulphur mine in the U.S., which we refer to as Main Pass. Although
sulphur is one of the most common elements in the earth's crust, discoveries of
sulphur in quantities that can be mined economically are rare. Our Main Pass
sulphur deposit was discovered in 1988 and was the first major sulphur discovery
in North America in over 25 years. We were the first, and remain the only,
company to mine sulphur by melting it with superheated seawater (using what is
referred to as the Frasch mining process), and we are the only company to
successfully operate an offshore sulphur mine. For additional information on our
Main Pass mine, and the Frasch mining process, see our Form 10-K for the year
ended December 31, 1999.
Homestake Sulphur Company, LLC owns the remaining 16.7 percent interest in
the Main Pass mine. We conduct sulphur and oil operations at the mine pursuant
to joint operating agreements with Homestake dated as of May 1, 1988 and June 5,
1990 and a coordination agreement dated as of June 5, 1990, which require
Homestake to pay a portion of the operating expenses of the mine and to pay us a
fee for operating the mine. In addition, we receive a fee from Homestake for
processing, transporting and marketing Homestake's share of the Main Pass
sulphur pursuant to a processing and marketing agreement dated as of June 19,
1990. We are currently involved in a dispute with Homestake relating to these
agreements. See "Legal Proceedings" in our Form 10-K for the year ended December
31, 1999. Production from the Main Pass mine is subject to a royalty of 12.5
percent of net mine revenues that is payable to the Minerals Management Service.
THE CULBERSON MINE. We began operating the Culberson mine, which is located
in west Texas south of the New Mexico border, in January 1995 after acquiring
the mine from Pennzoil. We permanently ceased production at the Culberson mine
on June 30, 1999. As part of our original acquisition of the Culberson mine, we
are required to make quarterly payments to Pennzoil whether or not the Culberson
mine is operational. The amount of these payments varies based on the average
market price of sulphur during a given quarter, which also determines the
assumed volumes of sulphur that would be produced. The payments terminate the
earlier of January 2015 or the quarter in which the cumulative assumed volume of
production exceeds 18.6 million long tons of sulphur. Under this arrangement, we
paid Pennzoil $0.4 million in 1998 for the period following the acquisition of
Freeport Sulphur and $3.1 million in 1999. We estimate that the annual royalty
will be approximately $1.2 million, based on a long-term average sulphur price
of $63.00 per long ton and approximately $0.1 million, based on March 2000
sulphur prices of $57.50 per long ton. These payments could vary materially from
this estimate depending on actual market prices for sulphur. We have a right,
which first became exercisable on January 1, 1999 and is again exercisable on
each subsequent third anniversary of that date, to terminate our obligation to
make further quarterly installment payments in exchange for a lump sum payment
of $65 million less a cumulative inflation adjustment on the date the right is
exercised, but in no event less than $10 million. If we do not exercise our
right on any option date, Pennzoil may, within a defined time period after each
option date, require us to make a single payment of $10 million in exchange for
Pennzoil relinquishing its rights to receive any further payments under the
agreement.
S-24
<PAGE> 28
SULPHUR RESERVES. The table below sets forth our portion of the proved
developed sulphur reserves for our Main Pass mine.
<TABLE>
<CAPTION>
LONG TONS AT
PROVED DEVELOPED RESERVES(a) DECEMBER 31, 1999(b)
- ---------------------------- --------------------
<S> <C>
Main Pass......................................... 13.7 million
</TABLE>
- ---------------
(a) These reserves are considered proved developed based on our extensive
drilling and production experience and current assessment of future market
prices and costs.
(b) Reserves represent long tons of sulphur that are expected to be
commercially recoverable from the host formation. Long tons of sulphur are
calculated in place and a recovery factor, based on the percentage of
residual sulphur expected to be left behind, is applied to calculate the
total estimated recoverable tons.
We recently reduced our proved sulphur reserves at Main Pass from 52.4
million long tons at December 31, 1998 to 13.7 million long tons at December 31,
1999. Although our estimated physically producible sulphur reserves have not
changed, we have reduced our estimates of commercially recoverable reserves
primarily based on our expectations of decreased production rates at the mine,
partially offset by an anticipated decrease in costs. A future increase in
sulphur prices could result in a restoration of the reserves reduced at year-end
1999. See "Risk Factors" on page 4 of the accompanying Prospectus.
RECLAMATION OBLIGATIONS. We must restore our mining and oil and gas
properties and related facilities to a condition that complies with
environmental laws. Estimated future expenditures for these reclamation
obligations are accrued over the estimated life of the properties. We are
required to fund these costs once we permanently close a site. For financial
information about our estimated future abandonment and restoration costs,
including those relating to Main Pass, see "Management's Discussion and
Analysis -- Environmental" in our Form 10-K for the year ended December 31,
1999. For additional information about our reclamation obligations, see
"Business -- Sulphur Operations -- Reclamation Obligations" in our Form 10-K for
the year ended December 31, 1999.
S-25
<PAGE> 29
UNDERWRITING
Under an underwriting agreement, each of the underwriters named below has
agreed to purchase from us the respective number of shares of common stock shown
opposite its name:
<TABLE>
<CAPTION>
NUMBER OF SHARES
UNDERWRITERS ----------------
<S> <C>
Lehman Brothers Inc......................................... 1,899,782
Howard, Weil, Labouisse, Friedrichs Incorporated............ 855,000
Petrie Parkman & Co., Inc................................... 855,000
BMO Nesbitt Burns Corp...................................... 63,406
Chase Securities Inc........................................ 63,406
Hibernia Southcoast Capital, Inc............................ 63,406
---------
Total............................................. 3,800,000
=========
</TABLE>
The underwriting agreement provides that the underwriters' obligations to
purchase shares of the common stock depend on the satisfaction of the conditions
contained in the underwriting agreement, and that if any of the shares of common
stock are purchased by the underwriters, all of the shares of common stock must
be purchased. The conditions contained in the underwriting agreement include the
condition that all the representations and warranties made by us to the
underwriters are true, that there has been no material adverse change in our
condition or in the financial markets and that we deliver to the underwriters
customary closing documents.
The following table shows the underwriting fees to be paid to the
underwriters by us in connection with this offering. These amounts are shown
assuming both no exercise and full exercise of the underwriters' option to
purchase additional shares of common stock. This underwriting fee is the
difference between the initial price to the public and the amount the
underwriters pay to us to purchase the shares from us. On a per share basis, the
underwriting fee is 5.5% of the initial price to public.
<TABLE>
<CAPTION>
NO EXERCISE FULL EXERCISE
----------- -------------
<S> <C> <C>
Per share................................................... $ 0.77 $ 0.77
Total....................................................... $2,926,000 $3,364,900
</TABLE>
We have been advised by the underwriters that the underwriters propose to
offer the common stock directly to the public at the initial price to the public
set forth on the cover page of this Prospectus Supplement and to dealers (who
may include the underwriters) at this initial price to the public less a
concession not in excess of $0.46 per share. The underwriters may allow, and the
dealers may reallow, a concession not in excess of $0.10 per share to certain
brokers and dealers. After the offering, the underwriters may change the
offering price and other selling terms.
We have agreed to indemnify the underwriters against certain liabilities,
including liabilities under the Securities Act of 1933 and liabilities arising
from breaches of representations and warranties contained in the underwriting
agreement, or to contribute to payments that may be required to be made in
respect of these liabilities.
We have granted to the underwriters an option to purchase up to an
aggregate of 570,000 additional shares of common stock at the initial price to
the public less the underwriting discount set forth on the cover page of this
Prospectus Supplement exercisable solely to cover over-allotments, if any. Such
option may be exercised at any time until 30 days after the date of this
Prospectus Supplement. If this option is exercised, each underwriter will be
committed, subject to satisfaction of the conditions specified in the
underwriting agreement, to purchase a number of additional shares of common
stock proportionate to the underwriter's initial commitment as indicated in the
preceding table, and we will be obligated, pursuant to the option, to sell these
shares of common stock to the underwriters.
Until the distribution of the common stock is completed, rules of the
Securities and Exchange Commission may limit the ability of the underwriters and
selling group members to bid for and purchase
S-26
<PAGE> 30
shares of common stock. As an exception to these rules, the underwriters are
permitted to engage in transactions that stabilize the price of the common
stock. These transactions may consist of bids or purchases for the purposes of
pegging, fixing or maintaining the price of the common stock.
The underwriters may create a short position in the common stock in
connection with the offering. This means that they may sell more shares than are
shown on the cover page of this Prospectus. If the underwriters create a short
position, then they may reduce that short position by purchasing common stock in
the open market. The underwriters also may elect to reduce any short position by
exercising all or part of the over-allotment option.
The underwriters also may impose a penalty bid on selling group members.
This means that, if the underwriters purchase shares of common stock in the open
market to reduce their short position or to stabilize the price of the common
stock, they may reclaim the amount of the selling concession from the selling
group members that sold those shares as part of the offering.
In general, purchases of a security for the purpose of stabilization or to
reduce a syndicate short position could cause the price of the security to be
higher than it might otherwise be in the absence of these purchases. The
position of a penalty bid might have an effect on the price of a security to the
extent that it were to discourage resales of the security by purchasers in an
offering.
Neither we nor any of the underwriters makes any representation or
prediction as to the direction or magnitude of any effect that the transactions
described above may have on the price of the common stock. In addition, neither
we nor any of the underwriters makes any representation that the representatives
will engage in these transactions or that these transactions, once commenced,
will not be discontinued without notice.
Any offers in Canada will be made only under an exemption from the
requirements to file a Prospectus or Prospectus Supplement in the relevant
province of Canada in which the sale is made.
This offering is being made pursuant to the provisions of Rule 2710(c)(8)
of the Conduct Rules of the National Association of Securities Dealers, Inc.
because banking affiliates of Chase Securities Inc. and BMO Nesbitt Burns Corp.
are agents of and participants in our bank credit agreements and will receive
more than 10% of the net proceeds of the offering. Some of the underwriters or
their affiliates have from time to time provided investment banking and
financial advisory services to us and our affiliates in the ordinary course of
business, for which they have received customary fees, and they may continue to
do so in the future.
S-27
<PAGE> 31
LEGAL MATTERS
Certain legal matters with respect to the common stock will be passed upon
for us by Jones, Walker, Waechter, Poitevent, Carrere & Denegre, L.L.P., New
Orleans, Louisiana. Certain legal matters in connection with this offering will
be passed upon for the underwriters by Baker Botts L.L.P., Houston, Texas.
FORWARD-LOOKING STATEMENTS
Certain statements made (or incorporated by reference) in this Prospectus
Supplement and accompanying Prospectus that are not historical facts are
intended to be forward-looking statements within the meaning of the safe harbor
provisions of the Private Securities Litigation Reform Act of 1995.
"Forward-looking statements" are all statements other than statements of
historical fact, such as statements regarding drilling potential and results;
anticipated flow rates of producing wells; reserve estimates and depletion
rates; general economic and business conditions; risks and hazards inherent in
the production of oil, natural gas and sulphur; demand and potential demand for
oil and gas and for sulphur; trends in commodity prices; amounts and timing of
capital expenditures and abandonment, closure and reclamation costs; the need
for and availability of financing; our reliance on IMC-Agrico as a customer;
competitive trends; and environmental issues.
We caution you that our forward-looking statements are not guarantees of
future performance, and our actual results may differ materially from those
projected, anticipated or assumed in the forward-looking statements. We
undertake no obligation to publicly update or revise any forward-looking
statements. Important factors that could cause actual results to differ
materially from our expectations include the factors described under the heading
"Risk Factors" in the accompanying Prospectus.
S-28
<PAGE> 32
PROSPECTUS
$300,000,000
McMoRan Exploration Co.
- --------------------------------------------------------------------------------
We may use this Prospectus to offer the following securities for sale:
- Common stock
- Preferred stock
- Depositary shares
- Debt securities
- Warrants
We will provide the specific terms of the securities we are offering in
supplements to this Prospectus. A supplement may also update or change
information contained in this Prospectus. This Prospectus may not be used to
sell securities unless accompanied by a prospectus supplement.
We may sell securities directly to one or more purchasers or to or through
underwriters, dealers or agents. If any underwriters, dealers or agents are
involved in the sale of securities, the accompanying prospectus supplement will
set forth their names, the principal amounts, if any, to be purchased by
underwriters, any applicable fees, commissions or discounts, and the net
proceeds to be received by us.
Our common stock is traded on the New York Stock Exchange under the symbol
"MMR."
YOU SHOULD CAREFULLY CONSIDER THE RISKS DESCRIBED UNDER THE CAPTION
"RISK FACTORS" BEGINNING ON PAGE 4.
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED THESE SECURITIES OR PASSED ON THE
ADEQUACY OR ACCURACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
- --------------------------------------------------------------------------------
The date of this Prospectus is February 8, 2000.
<PAGE> 33
THE COMPANY
We engage in the exploration, development and production of oil and gas
offshore in the Gulf of Mexico and onshore in the Gulf Coast region, and in the
mining, purchasing, transporting, terminaling, processing and marketing of
sulphur.
Oil and gas operations. We (and our predecessors) have conducted oil and
gas exploration, development and production operations principally in the Gulf
of Mexico and the Gulf Coast region for more than 25 years with virtually the
same team of geologists and geophysicists. These operations have provided us
with an extensive geological and geophysical database, as well as significant
technical and operational expertise. We believe there are significant
opportunities to discover meaningful oil and gas reserves in these areas as well
as to acquire oil and gas properties through transactions with larger companies
seeking to divest properties in the Gulf of Mexico continental shelf.
Using our extensive geophysical, technical and operational expertise, our
strategy is to
- acquire large, active exploration positions in the Gulf of Mexico and
Gulf Coast region,
- identify prospects using 3-D seismic data and other state-of-the-art
technology, and
- increase reserves through exploration and development.
As part of our strategy, effective January 1, 2000, we acquired from Texaco
Exploration and Production Inc. the right to explore and earn assignments of
operating rights in 89 oil and gas properties. The properties cover about
391,000 gross acres and are located in water depths ranging from 10 to 2,600
feet in federal and state waters offshore Louisiana and Texas. We have agreed to
commit $110 million for exploration through June 30, 2003. If we drill wells to
specified depths that are capable of producing and commit to install facilities
to develop the oil and gas we discover, we will earn varying interests in the
prospects, depending on the options that Texaco elects. Generally, we will earn
at least a majority of Texaco's working interest in the property, and Texaco can
elect to retain either a working interest or an overriding royalty.
On January 14, 2000, we purchased from Shell Offshore Inc. its interest in
56 exploratory leases containing approximately 260,000 gross acres located
primarily in the Louisiana offshore Gulf of Mexico area for a total of $37.7
million. These leases represent a substantial portion of Shell's remaining
inventory of undeveloped lease acreage in the Louisiana offshore Gulf of Mexico
shelf area. Shell retained an overriding royalty interest in the properties. The
leases are located in water depths up to about 2,000 feet. Shell's ownership
interests in the leases acquired ranged from 25 to 100 percent. Four of the
leases are subject to preferential rights, which if exercised would exclude
these four leases from the purchase and result in a $2.6 million reduction of
the purchase price.
The Texaco and Shell transactions significantly enhance our presence on the
continental shelf of the Gulf of Mexico. These two transactions, along with our
current lease inventory, give us exploratory rights to over 170 blocks covering
approximately 750,000 gross acres. We now have a substantial foundation for an
aggressive exploration program with a broad exploration acreage position in the
Gulf of Mexico.
Sulphur operations. We are the largest sulphur supplier in the U.S. and
operate the largest molten sulphur handling system in the world. Our unique
molten sulphur handling and transportation system includes five sulphur
terminals located across the Gulf Coast and has all permits required by
environmental laws. We own an 83.3 percent interest in an operating sulphur mine
known as Main Pass, located 32 miles offshore Louisiana. We also own an 83.3
percent interest in oil production operations at Main Pass, where we produce oil
from the same geologic formation from which we mine sulphur.
Our sulphur operations consist of sulphur services and sulphur mining. Our
sulphur services primarily involve the purchase and resale of sulphur recovered
as a by-product of hydrocarbon refining and processing, and the handling and
transportation of sulphur. Our sulphur strategy is to
- provide a reliable source of sulphur to our customers,
2
<PAGE> 34
- increase our recovered sulphur sales and provide other value added
services to by-product sulphur producers,
- capitalize on our leadership position as the U.S.'s largest sulphur
transporter, discretionary sulphur producer, buyer of U.S. recovered
sulphur and sulphur supplier, and
- increase utilization of our sulphur handling and transportation system,
which is currently approximately 60 percent utilized.
Combination of McMoRan Oil & Gas and Freeport Sulphur. Our company was
created on November 17, 1998 when McMoRan Oil & Gas Co. and Freeport-McMoRan
Sulphur Inc. combined their operations. As a result, McMoRan Oil & Gas LLC and
Freeport-McMoRan Sulphur LLC (Freeport Sulphur) became our wholly owned
subsidiaries. The transaction was treated for accounting purposes as a purchase,
with McMoRan Oil & Gas as the acquiring entity. As a result, our financial
information for periods prior to the transaction reflect only the historical
operations of McMoRan Oil & Gas. The operations of Freeport Sulphur are included
on and after November 17, 1998. For the year ended December 31, 1999,
approximately 81 percent of our earnings before interest, taxes, depreciation
and amortization, excluding exploration expenses, were from oil and gas
operations and 19 percent were from sulphur operations.
The address and telephone number of our principal executive offices are:
1615 Poydras Street
New Orleans, Louisiana 70112
(504) 582-4000
3
<PAGE> 35
FORWARD-LOOKING STATEMENTS
This Prospectus includes (or incorporates by reference) "forward looking
statements" within the meaning of Section 27A of the Securities Act and Section
21E of the Exchange Act, including statements about our plans, strategies,
expectations, assumptions and prospects. "Forward-looking statements" are all
statements other than statements of historical fact, such as statements
regarding drilling potential and results; anticipated flow rates of producing
wells; reserve estimates and depletion rates; general economic and business
conditions; risks and hazards inherent in the production of oil, natural gas and
sulphur; demand and potential demand for oil and gas and for sulphur; trends in
commodity prices; amounts and timing of capital expenditures and abandonment,
closure and reclamation costs; the need for and availability of financing; our
reliance on IMC-Agrico as a customer; competitive trends; and environmental
issues.
We caution you that our forward-looking statements are not guarantees of
future performance, and our actual results may differ materially from those
projected, anticipated or assumed in the forward-looking statements. We
undertake no obligation to publicly update or revise any forward-looking
statements. Important factors that can cause our actual results to differ
materially from those anticipated in the forward-looking statements include
those described below under "Risk Factors."
RISK FACTORS
In addition to the other information in this Prospectus, you should
carefully consider the following factors in evaluating our company and our
business before purchasing any securities.
FACTORS RELATING TO OUR OIL AND GAS OPERATIONS
THE FUTURE FINANCIAL RESULTS OF OUR OIL AND GAS BUSINESS ARE DIFFICULT TO
FORECAST PRIMARILY BECAUSE THE BUSINESS HAS A LIMITED OPERATING HISTORY AND
THE RESULTS OF OUR EXPLORATION STRATEGY ARE INHERENTLY UNPREDICTABLE.
McMoRan Oil & Gas commenced operations in 1994. We currently have six
fields in production. Much of our oil and gas business is devoted to
exploration, the results of which are inherently unpredictable. We use the
successful efforts accounting method for our oil and gas exploration and
development activities. This method requires us to expense geological and
geophysical costs and the costs of exploration wells as they occur, rather than
capitalize these costs as required by the full cost accounting method. Because
of the timing in incurring exploration costs and realizing revenues from
successful properties, losses may be reported even though exploration activities
may be successful during a reporting period. Accordingly, depending on the
results of our exploration program, we may continue to incur losses as we pursue
significantly expanded exploration activities. We cannot assure you that our oil
and gas operations will achieve or sustain positive earnings or cash flows from
operations in the future.
OUR EXPLORATION AND DEVELOPMENT ACTIVITIES MAY NOT BE COMMERCIALLY SUCCESSFUL.
Oil and natural gas exploration and development involve a high degree of
risk that hydrocarbons will not be found, that they will not be found in
commercial quantities, or that their production will be insufficient to recover
drilling, completion and operating costs. The 3-D seismic data and other
technologies we use do not allow us to know conclusively prior to drilling a
well that oil or gas are present or economically producible. The cost of
drilling, completing and operating a well is often uncertain, especially when
drilling offshore, and cost factors can adversely affect the economics of a
project. Our drilling operations may be curtailed, delayed or canceled as a
result of numerous factors, including (1) unexpected drilling conditions, (2)
unexpected pressure or irregularities in formations, (3) equipment failures or
accidents, (4) title problems, (5) adverse weather conditions, (6) regulatory
requirements and (7) unavailability of equipment or labor. Furthermore,
completion of a well does not guarantee that it will be profitable or even that
it will result in recovery of drilling, completion and operating costs.
4
<PAGE> 36
OUR FUTURE PERFORMANCE DEPENDS ON OUR ABILITY TO ADD RESERVES.
Our future financial performance depends in large part on our ability to
find, develop and produce oil and gas reserves that are economically
recoverable. Without successful exploration and development activities or
reserve acquisitions, our reserves will be depleted. We cannot assure you that
we will be able to find, develop, produce or acquire additional reserves on an
economic basis.
Although we are currently emphasizing reserve growth through exploratory
drilling, we may from time to time acquire producing properties and/or
properties with proved undeveloped reserves. Evaluation of recoverable reserves
of oil and natural gas, which is an integral part of the property selection
process, depends on the assessment of geological, engineering and production
data, some or all of which may prove to be unreliable and not indicative of
future performance. Accordingly, we cannot assure you that we will make a profit
or fully recover our cost on any reserves that we purchase.
OUR REVENUES, PROFITS AND GROWTH RATES MAY VARY SIGNIFICANTLY WITH
FLUCTUATIONS IN THE MARKET PRICES OF OIL AND NATURAL GAS.
Approximately $54.3 million of our revenues for the year ended December 31,
1999 were derived from the sale of oil and natural gas. In recent years, oil and
natural gas prices have fluctuated widely. We have no control over the factors
affecting prices, which include the market forces of supply and demand, as well
as the regulatory and political actions of domestic and foreign governments, and
the attempts of international cartels to control or influence prices. Any
significant or extended decline in oil and gas prices will have a material
adverse effect on our profitability, financial condition and operations.
IF WE ARE UNABLE TO GENERATE SUFFICIENT CASH FROM OPERATIONS OR OBTAIN
FINANCING WHEN NEEDED, WE MAY FIND IT NECESSARY TO CURTAIL OUR OPERATIONS.
We must make substantial expenditures to conduct exploratory activities and
to develop oil and gas reserves. We cannot assure you that we will generate
sufficient cash from operations or obtain financing when needed to conduct our
exploration program and develop our properties. Our future cash flow from
operations will depend on our ability to locate and produce hydrocarbons in
commercial quantities and on market prices for oil and gas, among other things.
THE AMOUNT OF OIL AND GAS THAT WE ACTUALLY PRODUCE, AND THE NET CASH FLOW THAT
WE RECEIVE FROM THAT PRODUCTION, MAY DIFFER MATERIALLY FROM THE AMOUNTS
REFLECTED IN OUR RESERVE ESTIMATES.
Our estimates of proved oil and gas reserves reflected in our Form 10-K
reports are based on reserve engineering estimates using Securities and Exchange
Commission (SEC) guidelines. Reserve engineering is a subjective process of
estimating recoveries from underground accumulations of oil and natural gas that
cannot be measured in an exact manner. The accuracy of any reserve estimate
depends on the quality of available data and the application of engineering and
geological interpretation and judgment. Estimates of economically recoverable
reserves and future net cash flows depend on a number of variable factors and
assumptions, such as (1) historical production from the area compared with
production from other producing areas, (2) assumptions concerning future oil and
gas prices, future operating and development costs, workover, remedial and
abandonment costs, severance and excise taxes, and (3) the assumed effects of
government regulation. All of these factors and assumptions are difficult to
predict and may vary considerably from actual results. In addition, different
reserve engineers may make different estimates of reserve quantities and cash
flows based upon varying interpretations of the same available data. Also,
estimates of proved reserves for wells with limited or no production history are
less reliable than those based on actual production history. Subsequent
evaluation of the same reserves may result in variations, which may be
substantial, in our estimated reserves. As a result, all reserve estimates are
inherently imprecise.
You should not construe the estimated present values of future net cash
flows from proved oil and gas reserves incorporated by reference into this
Prospectus as the current market value of our estimated proved oil and gas
reserves. In accordance with applicable SEC requirements, we have estimated the
discounted
5
<PAGE> 37
future net cash flows from proved reserves based on prices and costs generally
prevailing at or near the date of the estimate. Actual future prices and costs
may be materially higher or lower. Future net cash flows also will be affected
by factors such as the actual amount and timing of production, curtailments or
increases in consumption by gas purchasers, and changes in governmental
regulations or taxation. In addition, we have used a 10 percent discount factor,
which the SEC requires all companies to use to calculate discounted future net
cash flows for reporting purposes. That is not necessarily the most appropriate
discount factor to be used in determining market value, since interest rates
vary from time to time, and the risks associated with operating particular oil
and gas properties can vary significantly.
SHORTAGES OF SUPPLIES, EQUIPMENT AND PERSONNEL MAY ADVERSELY AFFECT OUR
OPERATIONS.
Our ability to conduct operations in a timely and cost effective manner
depends on the availability of supplies, equipment and personnel. The offshore
oil and gas industry is cyclical and experiences periodic shortages of drilling
rigs, work boats, tubular goods, supplies and experienced personnel. Shortages
can delay operations and materially increase operating and capital costs.
THE OIL AND GAS EXPLORATION BUSINESS IS VERY COMPETITIVE, AND MOST OF OUR
COMPETITORS ARE LARGER AND FINANCIALLY STRONGER THAN WE ARE.
The business of oil and gas exploration, development and production is
intensely competitive, and we compete with many companies that have
significantly greater financial and other resources than we have. Our
competitors include the major integrated oil companies and a substantial number
of independent exploration companies. We compete with these companies for
property acquisitions, supplies, equipment and labor. These competitors may, for
example, be better able to (1) pay more for exploratory prospects, (2) purchase
a greater number of properties, (3) access less expensive sources of capital,
(4) access more information relating to prospects, (5) develop or buy, and
implement, new technologies, and (6) obtain equipment and supplies on better
terms.
BECAUSE A SIGNIFICANT PART OF OUR RESERVES AND PRODUCTION IS CONCENTRATED IN A
SMALL NUMBER OF OFFSHORE PROPERTIES, ANY PRODUCTION PROBLEMS OR SIGNIFICANT
CHANGES IN RESERVE ESTIMATES RELATED TO ANY ONE OF THOSE PROPERTIES COULD HAVE
A MATERIAL IMPACT ON OUR BUSINESS.
All of our reserves and production come from our six fields in the shallow
waters of the Gulf of Mexico. If mechanical problems, storms or other events
curtailed a substantial portion of this production, our cash flow would be
adversely affected. If the actual reserves associated with these six fields are
less than our estimated reserves, our results of operations and financial
condition could be adversely affected. Our Brazos Block A-19 field commenced
production on October 16, 1999, and during a shutdown on November 15, 1999, the
operator detected a pressure buildup in the production casing and subsequently
found significant damage to the production tubing. The well currently remains
shut-in, and the operator is formulating a plan to restore the well back onto
production. While the estimates of proved reserves for the well remain
unchanged, additional costs will be required to restore production, and revenues
from the well will be delayed.
WE ARE VULNERABLE TO RISKS ASSOCIATED WITH THE GULF OF MEXICO BECAUSE WE
CURRENTLY EXPLORE AND PRODUCE EXCLUSIVELY IN THAT AREA.
We believe that concentrating our activities in the Gulf of Mexico is
advantageous because of our extensive experience operating in that area.
However, this strategy makes us more vulnerable to the risks associated with
operating in that area than those of our competitors with more geographically
diverse operations. These risks include (1) adverse weather conditions, (2)
difficulties securing oil field services, and (3) compliance with regulations.
In addition, production of reserves from reservoirs in the Gulf of Mexico
generally declines more rapidly than from reservoirs in many other producing
regions of the world. This results in recovery of a relatively higher percentage
of reserves from properties in the Gulf of Mexico during the initial years of
production, and, as a result, our reserve replacement needs from new prospects
are greater.
6
<PAGE> 38
WE CANNOT CONTROL THE ACTIVITIES ON PROPERTIES WE DO NOT OPERATE.
Other companies operate some of the properties in which we have an
interest. As a result, we have a limited ability to exercise influence over
operations for these properties or their associated costs. The success and
timing of our drilling and development activities on properties operated by
others therefore depend upon a number of factors outside of our control,
including (1) timing and amount of capital expenditures, (2) the operator's
expertise and financial resources, (3) approval of other participants in
drilling wells, and (4) selection of technology.
FACTORS RELATING TO OUR SULPHUR OPERATIONS
OUR REVENUES, PROFITS AND GROWTH RATES MAY VARY SIGNIFICANTLY WITH
FLUCTUATIONS IN THE MARKET PRICE OF SULPHUR; THE LONG-TERM ECONOMIC
FEASIBILITY OF OUR MAIN PASS SULPHUR MINE MAY BE IMPAIRED IF THERE WERE A
SUSTAINED DECLINE IN SULPHUR PRICES FROM RECENT LEVELS.
Sulphur prices have declined in recent months to the lower range of prices
experienced in the 1990s. As a result, we are currently unable to generate
positive cash flow from our Main Pass sulphur mining operations. In response to
declining prices, we announced on June 30, 1998 that we would permanently
discontinue sulphur production at our Culberson mine, and we discontinued those
operations on June 30, 1999. Although we are currently pursuing cost reductions
at our Main Pass sulphur operations, a sustained decline in the price of sulphur
from recent levels could make continued operation of the mine uneconomical.
Because of the costs associated with closing and re-opening this mine site, we
could decide to operate at Main Pass for some period even if those operations
did not generate positive cash flow. If our Main Pass operations were suspended,
it could be difficult and expensive to subsequently re-open the mine.
WE RELY HEAVILY ON IMC-AGRICO AS A CONTINUING CUSTOMER UNDER THE TERMS OF A
LONG-TERM SULPHUR SUPPLY AGREEMENT, AND WE ARE INVOLVED IN A DISPUTE WITH THEM
ABOUT THE PRICING TERMS OF THAT AGREEMENT.
Approximately 73 percent of sulphur sales for the year ended December 31,
1999 were made to IMC-Agrico under a long-term sulphur supply agreement, and we
expect that sales to IMC-Agrico under that agreement will continue to represent
a substantial percentage of our sulphur sales. Sales of sulphur to IMC-Agrico
are based on market prices and include a premium with respect to approximately
40 percent of the sales. The agreement requires IMC-Agrico to purchase
approximately 75 percent of its annual sulphur consumption from us as long as it
has a requirement for sulphur. The loss of, or a significant decline in, sales
of sulphur to IMC-Agrico could have a material adverse effect on our financial
condition and results of operations.
In the fourth quarter of 1999, several domestic phosphate fertilizer
producers announced production curtailments, including a 20 percent reduction by
IMC-Agrico. These curtailments resulted primarily from global price decreases
for phosphate fertilizers. As a result, IMC-Agrico curtailed its sulphur
purchases from us in the fourth quarter. We expect that our future sulphur sales
to IMC-Agrico will also be curtailed, at least in the near term.
Our sulphur supply agreement with IMC-Agrico 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, we 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, we filed suit against IMC-Agrico
seeking a judicial declaration that no basis exists under the agreement for a
renegotiation of its pricing terms.
7
<PAGE> 39
IN THE FOURTH QUARTER OF 1999, THREE OF OUR MAJOR CUSTOMERS ANNOUNCED PLANS TO
BUILD A SOLID SULPHUR HANDLING AND MELTING FACILITY IN TAMPA, FLORIDA WITH A
DESIGN CAPACITY OF UP TO 2.0 MILLION LONG TONS OF LIQUID SULPHUR ANNUALLY. WE
CANNOT PREDICT WHAT EFFECT, IF ANY, THE FACILITY WOULD HAVE ON OUR SULPHUR
SALES, IF AND WHEN IT BECOMES OPERATIONAL.
The facility would allow these customers and potentially others to import
solid sulphur. Thus, customers would have new sources of sulphur supply that,
depending on its ultimate costs compared to our costs, could be more
cost-competitive than our sulphur. The announcement stated that the plant is not
expected to be operational until mid-2001. Solid sulphur handling is widely
recognized as inferior from an environmental standpoint to molten sulphur
handling, which is currently used throughout Florida. The plant will need to
obtain appropriate permits and meet stringent state and federal environmental
law requirements. If the appropriate permits are received and the plant is
constructed, we believe that, based on current sulphur costs, associated
transportation and handling costs, melting costs and the cost of capital, this
type of facility will not be cost competitive.
We cannot predict when or if the plant will be operational or what impact
it will have, if any, on our sulphur sales, although it is possible that our
sulphur sales could be adversely affected. We currently have solid sulphur
melting capabilities in Galveston, Texas and Port Sulphur, Louisiana, and these
facilities have all permits required under current environmental laws. All of
our sulphur is currently handled in molten form; however, we intend to remain
competitive in sourcing and handling sulphur in whatever form is commercially
preferable.
OUR MINORITY JOINT VENTURE PARTNER IN THE MAIN PASS MINE CLAIMS THAT IT HAS
EXERCISED ITS CONTRACTUAL RIGHT TO ELECT NOT TO RECEIVE ITS SHARE OF SULPHUR
PRODUCED AT THE MINE DURING 2000, NOT TO PAY ITS SHARE OF OPERATING EXPENSES
FOR 2000 AND NOT TO PAY US ANY FEES FOR 2000 UNDER OUR PROCESSING AND
MARKETING AGREEMENT.
Homestake Sulphur Company LLC is our 16.7 percent partner in the Main Pass
mine. Under our agreements with Homestake, Homestake may elect to waive its
right to produce its share of sulphur for one year at a time if conditions
described in the agreements are met. In that event, Homestake would be relieved
of its obligation to pay some of its share of operating expenses during that
year. Homestake claims that it has made this election for 2000 and that, as a
result, it is also not obligated to pay us any fees for 2000 under our
processing and marketing agreement.
We have advised Homestake that in our opinion the conditions precedent to
its right to make the election do not exist. Homestake has filed suit seeking a
declaratory judgment supporting its position and has not paid the first two
monthly installments of its operating expenses for 2000. We believe that the
election, even if effectively made, will not have a material adverse effect on
our financial condition or results of operations, except that we may lose
approximately $500,000 per quarter of operating income from fees in 2000 under
our processing and marketing agreement with Homestake unless we are successful
in the litigation.
THE COMPETITIVE CONDITIONS IN OUR SULPHUR BUSINESS ARE COMPLEX, BOTH IN TERMS
OF FACTORS AFFECTING SUPPLY AND FACTORS AFFECTING DEMAND; SULPHUR PRICES ARE
INFLUENCED BY (1) WORLD AGRICULTURAL CONDITIONS, (2) THE PHOSPHATE FERTILIZER
MARKET, (3) THE RATE OF RECOVERY OF SULPHUR FROM OIL AND NATURAL GAS REFINING,
AND (4) THE HANDLING AND TRANSPORTATION COSTS REQUIRED TO MOVE SULPHUR TO
MARKET.
There are two principal sources of elemental sulphur: (1) mined sulphur and
(2) recovered sulphur, which is a by-product of oil refining and gas processing.
Recovered sulphur from domestic and foreign sources is the major source for most
sulphur customers and is our major source of competition. Because recovered
sulphur is a by-product of the producer's refining or processing operations, its
cost to customers depends in large part on handling and transportation costs.
Production of recovered sulphur in the United States has increased at an average
rate of approximately 150,000 long tons per year for the last three years.
Because the supply of U.S. recovered sulphur alone cannot meet total
domestic demand, mined sulphur, along with imported recovered sulphur obtained
principally from Canada and Mexico, is required
8
<PAGE> 40
to supply the balance. Canadian recovered sulphur producers have facilities for
storing excess sulphur production in solid form for unlimited periods of time,
and thus can wait for favorable market conditions to sell this sulphur. Nearly
all of the Western Hemisphere's sulphur inventories currently consist of sulphur
stored in solid form in the province of Alberta in western Canada.
Since the early 1990s, the sulphur price at Tampa, Florida has generally
moved in the range of $55-$75 per long ton. We believe market forces that define
this range will continue for the foreseeable future, absent a major supply
disruption or a substantial increase in demand. On the low end of the price
range, overland freight rates from western Canada to central Florida tend to set
a price floor. On the high end, the amount of supply that can profitably access
the market effectively sets a price cap. Accordingly, depending on prices in the
other foreign markets they supply, Canadian producers can be expected to
progressively increase sulphur shipments to U.S. markets as price levels in U.S.
sulphur markets rise within the $55-$75 per long ton range.
The principal competitive risks to our ability to mine sulphur profitably
are (1) decreased domestic demand for sulphur, (2) increased production from
domestic recovered sulphur producers, and (3) increases in imported recovered
sulphur, including increases in the rate at which stored sulphur, particularly
in Canada, is released into the market. In addition, the current levels of
Canadian sulphur production and inventories limits our potential to realize
significant price increases for our sulphur even if demand improves.
THE MARKET FOR SULPHUR IS SEASONAL AND CYCLICAL, AND MARKET PRICES FOR SULPHUR
CAN FLUCTUATE WIDELY.
Because the principal use of sulphur is in the manufacture of phosphate
fertilizers, our ability to successfully market our sulphur is materially
dependent on prevailing agricultural conditions and the worldwide demand for
fertilizers. Although phosphate fertilizer sales are fairly constant
month-to-month, seasonal increases occur in the domestic market prior to the
fall and spring planting season. Generally, domestic phosphate fertilizer sales
are at reduced levels after the spring planting season, although the decline in
domestic sales generally coincides with the time when major commercial and
governmental buyers in China, India and Pakistan purchase product for mid-year
delivery in those countries.
Fertilizer sales are also cyclical, as they are influenced by current and
projected grain inventories and prices, quantities of fertilizers imported to
and exported from North America, domestic fertilizer consumption and the
agricultural policies of foreign governments. Currently, the market for
phosphate fertilizers is soft, which we believe is primarily the result of three
factors: (1) a world oversupply of grain, which has led to falling grain prices
and a decreased demand for phosphate fertilizers, (2) an oversupply of
fertilizer worldwide and (3) an anticipated increase in worldwide fertilizer
production capacity from two new plants under construction in India and
Australia. We continue to believe that the long-term fundamentals of the
phosphate fertilizer business remain sound. These fundamentals include expected
growth in world population and increased meat consumption in many undeveloped
countries.
Market prices for sulphur will likely continue to fluctuate. For example,
in 1999 U.S. sulphur prices fluctuated between $62.50 and $71.50 per long ton
and dropped to $57.50 per long ton for the first quarter of 2000. The operating
margins and cash flow from our sulphur business are subject to substantial
fluctuations in response to changes in supply and demand for sulphur, conditions
in the U.S. and international agriculture industry, market uncertainties and
other factors beyond our control. Any significant or extended decline in sulphur
prices will have a material adverse effect on our financial condition and
operations.
OUR SULPHUR MINING OPERATIONS ARE SENSITIVE TO CHANGES IN NATURAL GAS PRICES.
In the year ended December 31, 1999, we sold approximately 14.0 Bcf of
natural gas in our oil and gas operations and consumed approximately 7.6 Bcf of
natural gas in our sulphur mining operations. Natural gas is our most
significant variable cost in operating our sulphur mine. We estimate that a 10
cent increase in natural gas prices would have resulted in a $1.4 million
increase in our gas sales revenue and a $0.8 million increase in our cost of
mining sulphur for the year ended December 31, 1999. A 10 cent
9
<PAGE> 41
decrease in natural gas prices would result in a corresponding decrease in gas
sales revenue and decrease in mining costs.
THE AMOUNT OF SULPHUR THAT WE ACTUALLY PRODUCE MAY DIFFER MATERIALLY FROM THE
AMOUNTS THAT WE EXPECT BASED ON OUR RESERVE ESTIMATES. IN ADDITION, OUR
RESERVE ESTIMATES CAN CHANGE SIGNIFICANTLY BASED ON CHANGES IN THE FACTORS
UNDERLYING THE ASSUMPTIONS WE USE IN DETERMINING THE RESERVES. WE RECENTLY
REDUCED OUR PROVED RESERVES FOR OUR MAIN PASS MINE FROM 52.4 MILLION LONG TONS
AT DECEMBER 31, 1998 TO 13.7 MILLION LONG TONS AT DECEMBER 31, 1999.
Proved reserves are estimated quantities of commercially recoverable
minerals that geological, geophysical and engineering data can demonstrate with
a reasonably high degree of certainty to be recoverable in the future from known
mineral deposits by conventional operating methods. Our estimates of proved
sulphur reserves at Main Pass are based on engineering estimates and assumptions
about future economic and operating conditions. All of our sulphur reserves are
considered physically producible because of our extensive drilling and
production experience. However, reserve engineering is a subjective process of
estimating the recovery from underground accumulations of sulphur that cannot be
measured in an exact manner. The accuracy of any reserve estimate is a function
of the quality of available data and of engineering and geological
interpretation and judgment. In addition, estimates of economically recoverable
reserves depend upon a number of variable factors and assumptions, such as
assumptions concerning future (1) sulphur prices and production rates, (2)
operating and development costs, including natural gas prices, (3) processing,
transportation and handling costs, (4) workover, remedial and abandonment costs,
(5) severance and excise taxes, and (6) government regulation. Variations in
these items can cause reserve estimates to change even in the absence of changes
in assumptions regarding the size or physical characteristics of the reservoirs.
In particular, the sulphur and oil reservoirs at our Main Pass mine are highly
sensitive to product prices and production volumes because of their relatively
high level of fixed production costs.
We recently reduced our proved reserves for our Main Pass mine from 52.4
million long tons at December 31, 1998 to 13.7 million long tons at December 31,
1999. Although our estimated physically producible sulphur reserves have not
changed, we have reduced our estimates of commercially recoverable reserves
primarily based on our expectations of decreased production rates at the mine,
partially offset by an anticipated decrease in costs. These factors have also
caused us to reduce the expected useful life of the mine from 30 years to 10
years. The reduction in the anticipated mine life will require us to accelerate
accruals of our estimated $59.5 million abandonment and reclamation costs for
the mine, resulting in an increase in accruals by approximately $3.0 million per
year. We will be required to fund these costs once we permanently close the
mine. The price of sulphur is a critical factor in the determination of
commercially recoverable reserves. A future increase in sulphur prices could
result in a restoration of the reserves being reduced at year-end 1999.
FACTORS RELATING TO OUR OPERATIONS GENERALLY
OUR HISTORICAL FINANCIAL INFORMATION MAY BE OF LIMITED RELEVANCE BECAUSE OUR
SULPHUR OPERATIONS ARE INCLUDED IN OUR HISTORICAL FINANCIAL INFORMATION ONLY
FOR PERIODS ON AND AFTER NOVEMBER 17, 1998.
Our company was created on November 17, 1998 when McMoRan Oil & Gas Co. and
Freeport-McMoRan Sulphur Inc. combined their operations in a merger. The merger
was treated for accounting purposes as a purchase, with McMoRan Oil & Gas as the
acquiring entity. As a result, our financial information for periods prior to
the merger reflect the historical operations of McMoRan Oil & Gas. The
operations of Freeport Sulphur are included only on and after November 17, 1998.
OFFSHORE OPERATIONS ARE HAZARDOUS, AND THE HAZARDS ARE NOT FULLY INSURABLE.
Our operations are subject to the hazards and risks inherent in drilling
for, producing and transporting sulphur, oil and natural gas. These hazards and
risks include fires, natural disasters, abnormal pressures in formations,
blowouts, cratering, pipeline ruptures and spills. If any of these or similar
events occur, we
10
<PAGE> 42
could incur substantial losses as a result of death, personal injury, property
damage, pollution and lost production. Moreover, our drilling, production and
transportation operations in the Gulf of Mexico are subject to operating risks
peculiar to the marine environment. These risks include hurricanes and other
adverse weather conditions, more extensive governmental regulation (including
regulations that may, in certain circumstances, impose strict liability for
pollution damage) and interruption or termination of operations by governmental
authorities based on environmental, safety or other considerations.
We have in place liability, property damage, business interruption and
other insurance coverages in types and amounts that we consider reasonable and
believe to be customary in our business. This insurance provides protection
against loss from some, but not all, potential liabilities incident to the
ordinary conduct of our business. Our insurance includes coverage for some types
of damages associated with environmental and other liabilities that arise from
sudden, unexpected and unforeseen events, with coverage limits, retentions,
deductibles and other features as we deem appropriate. The occurrence of an
event that is not fully covered by insurance could have a material adverse
effect on our financial condition and results of operations.
OUR OPERATIONS ARE SUBJECT TO EXTENSIVE GOVERNMENTAL REGULATION, COMPLIANCE
WITH WHICH IS VERY EXPENSIVE; CHANGES IN THE REGULATORY ENVIRONMENT CAN OCCUR
AT ANY TIME AND GENERALLY INCREASE OUR COSTS.
Our operations are subject to extensive regulation under federal and state
law, and can be affected materially by political developments and resulting
changes in laws and regulations. The operations and economics of oil and natural
gas exploration, production and development and sulphur production are, or
historically have been, affected by price controls, tax policy and environmental
regulation. We cannot predict how existing laws and regulations may be
interpreted by enforcement agencies or the courts, whether additional laws and
regulations will be adopted, or the effect these changes may have on our
business or financial condition, but changes that have occurred in the past
generally have been more restrictive and have increased our cost of operation.
In particular, our operations are subject to numerous laws and regulations
governing the discharge of materials into the environment or otherwise relating
to environmental protection. These laws and regulations (1) require us to
acquire permits before we begin drilling, (2) restrict the types, quantities and
concentrations of substances that we can release into the environment, (3) limit
or prohibit drilling on some lands lying within wilderness, wetlands and other
protected areas, and (4) impose substantial liabilities for pollution that could
result from our operations. We have incurred, and may in the future incur,
capital expenditures and operating expenses to comply with these laws and
regulations, some of which may be significant. Continued governmental and public
emphasis on environmental issues may result in increased capital and operating
costs in the future, although we cannot predict or quantify the impact of future
laws and regulations or future changes to existing laws and regulations.
The recent trend toward stricter standards in environmental legislation and
regulation is likely to continue. For instance, legislation has been proposed in
Congress from time to time that would reclassify some crude oil and natural gas
exploration and production wastes as "hazardous wastes," which would make the
wastes subject to significantly more stringent handling, disposal and clean-up
requirements. If this or similar legislation is enacted, it could have a
significant impact on our operating costs. Initiatives to further regulate the
disposal of crude oil and natural gas wastes are also pending in some states and
could have a similar impact. In addition to compliance costs, government
entities and other third parties may assert claims for substantial liabilities
against owners and operators of sulphur mining and oil and gas properties for
oil spills, discharges of hazardous materials, remediation and clean-up costs
and other environmental damages, including damages caused by previous property
owners. If such claims arise, we could be held liable in legal proceedings,
which could have a material adverse effect on our financial condition and
results of operations.
Federal legislation (sometimes referred to as "Superfund" legislation)
imposes liability, without regard to fault, for clean-up of waste sites, even
though waste management activities at the site were in compliance with
regulations applicable at the time of disposal. Under the Superfund legislation,
one
11
<PAGE> 43
responsible party may be required to bear more than its proportional share of
clean-up costs if adequate payments cannot be obtained from other responsible
parties. In addition, federal and state regulatory programs and legislation
mandate clean-up of specified wastes at operating sites. Governmental
authorities have the power to enforce compliance with these regulations and
permits, and violators are subject to civil and criminal penalties, including
fines, injunctions or both. Third parties also have the right to pursue legal
actions to enforce compliance. Liability under these laws can be significant and
unpredictable.
We may in the future receive notices from governmental agencies that we are
a potentially responsible party under relevant federal and state environmental
laws, although we are not aware of any pending notices. Some of these sites may
involve significant clean-up costs. The ultimate settlement of liability for the
clean-up of these sites usually occurs many years after the receipt of notices
identifying potentially responsible parties because of the many complex
technical, legal and financial issues associated with site clean-up. We cannot
predict our potential liability for clean-up costs that we may incur in the
future.
The Oil Pollution Act of 1990 (the "OPA") imposes a variety of regulations
on "responsible parties" related to the prevention of oil spills. We could be
materially and adversely affected by the implementation of new, or the
modification of existing, environmental laws or regulations, including
regulations promulgated pursuant to the OPA.
In connection with its spin-off from Phosphate Resource Partners (formerly
named Freeport-McMoRan Resource Partners, Limited Partnership) in December 1997,
Freeport Sulphur assumed responsibility for potential liabilities, including
environmental liabilities, associated with the prior conduct of the businesses
contributed by Phosphate Resource Partners to Freeport Sulphur. Among these are
potential liabilities arising from sulphur mines that were depleted and closed
in the past in accordance with reclamation and environmental laws in effect at
the time, particularly in coastal or marshland areas that have experienced
subsidence or erosion. We believe that we are in compliance with existing laws
regarding these closed operations, and we have implemented controls in some
areas that we believe exceed our legal responsibilities. Nevertheless, it is
possible that new laws or actions by governmental agencies could result in
significant unanticipated additional reclamation costs.
We could also be subject to potential liability for personal injury or
property damage relating to wellheads and other materials at closed mines in
coastal areas that have become exposed through coastal erosion. Although we have
insurance in place to protect against some of these liabilities, we cannot
assure you that this insurance coverage would be sufficient. There can also be
no assurance that our current or future accruals for reclamation costs will be
sufficient to fully cover the costs.
HEDGING OUR PRODUCTION MAY RESULT IN LOSSES.
Our hedging has to date been limited to natural gas option contracts
related to our Main Pass sulphur operations and forward oil sales contracts
related to our Main Pass oil operations. We may in the future enter into these
and other types of hedging arrangements to reduce our exposure to fluctuations
in the market prices of natural gas and oil. Hedging exposes us to risk of
financial loss in some circumstances, including if (1) production is less than
expected, (2) the other party to the contract defaults on its obligations, or
(3) there is a change in the expected differential between the underlying price
in the hedging agreement and actual prices received. In addition, hedging may
limit the benefit we would have otherwise received on a consolidated basis from
increases in the prices for natural gas and oil. Furthermore, if we do not
engage in hedging, we may be more adversely affected by changes in natural gas
and oil prices than our competitors who engage in hedging.
OUR HOLDING COMPANY STRUCTURE MAY LIMIT OUR FINANCIAL FLEXIBILITY.
We conduct our business through wholly owned subsidiaries. As a result, we
depend on the cash flow of our subsidiaries and distributions from them to meet
our financial obligations. Future agreements with lenders to our subsidiaries
may contain restrictions or prohibitions on the payment of dividends by the
subsidiaries to us.
12
<PAGE> 44
USE OF PROCEEDS
Unless we state otherwise in a prospectus supplement, we will use the net
proceeds from the sale of the securities for general corporate purposes, which
may include the repayment of debt, acquisitions, capital expenditures and
working capital.
RATIO OF EARNINGS TO FIXED CHARGES
Our ratio of earnings to fixed charges was as follows for the years and
period indicated:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
- ---------------------------------
1995 1996 1997 1998 1999
- ---- ---- ---- ---- -----
<S> <C> <C> <C> <C>
- --(a) --(a) --(a) --(a) 1.02x
</TABLE>
- ---------------
(a) There were no fixed charges during 1995. During 1996, 1997 and 1998, we
recorded net losses of $9.8 million, $10.5 million and $18.1 million,
respectively. These losses were inadequate to cover our fixed charges of
$0.4 million in 1996, $1.3 million in 1997 and $1.3 million in 1998.
For this calculation, earnings consist of (1) income from continuing
operations before income taxes, (2) minority interests and (3) fixed charges.
Fixed charges include interest and that portion of rent we believe to be
representative of interest. Information for periods prior to November 17, 1998
reflect only the historical operations of McMoRan Oil & Gas Co. The operations
of Freeport Sulphur are included on and after November 17, 1998. See "The
Company."
DESCRIPTION OF COMMON STOCK
GENERAL
As of the date of this Prospectus, our certificate of incorporation
authorized us to issue up to 150,000,000 shares of common stock, par value $0.01
per share and up to 50,000,000 shares of preferred stock, par value $0.01 per
share. As of January 31, 2000, 12,550,603 shares of common stock and no shares
of preferred stock were outstanding. Our common stock is listed on the New York
Stock Exchange under the symbol "MMR."
VOTING RIGHTS
Each holder of our common stock is entitled to one vote for each share of
common stock held of record on all matters as to which stockholders are entitled
to vote. Holders of our common stock may not cumulate votes for the election of
directors.
DIVIDENDS
Subject to any preferences accorded to the holders of our preferred stock,
if and when issued by the board of directors, holders of our common stock are
entitled to dividends at such times and amounts as the board of directors may
determine. We do not intend to pay dividends for the foreseeable future.
OTHER RIGHTS
In the event of a voluntary or involuntary liquidation, dissolution or
winding up of our company, prior to any distributions to the holders of our
common stock, our creditors and the holders of our preferred stock, if any, will
receive any payments to which they are entitled. Subsequent to those payments,
the holders of our common stock will share ratably, according to the number of
shares held by them, in our remaining assets, if any.
13
<PAGE> 45
Shares of our common stock are not redeemable and have no subscription,
conversion or preemptive rights.
PROVISIONS OF OUR CERTIFICATE OF INCORPORATION
Our certificate of incorporation contains provisions that are designed in
part to make it more difficult and time-consuming for a person to obtain control
of our company unless they pay a required value to our stockholders. Some
provisions also are intended to make it more difficult for a person to obtain
control of our board of directors. These provisions reduce the vulnerability of
our company to an unsolicited takeover proposal. On the other hand, these
provisions may have an adverse effect on the ability of stockholders to
influence the governance of our company. You should read our certificate of
incorporation and bylaws for a more complete description of the rights of
holders of our common stock.
Classified Board of Directors. Our certificate of incorporation divides the
members of our board of directors into three classes serving three-year
staggered terms. The classification of directors has the effect of making it
more difficult for our stockholders to change the composition of our board. At
least two annual meetings of stockholders may be required for the stockholders
to change a majority of the directors, whether or not a majority of our
stockholders believes that this change would be desirable.
Supermajority Voting/Fair Price Requirements. Our certificate of
incorporation provides that a supermajority vote of our stockholders and the
approval of our directors as described below are required for:
- any merger, consolidation or share exchange of our company or any of our
subsidiaries with any person or entity, or any affiliate of that person
or entity, who was within the two years prior to the transaction a
beneficial owner of 15% or more of our common stock or any class of our
common stock (an "interested party");
- any sale, lease, transfer, exchange, mortgage, pledge, loan, advance or
other disposition of assets of our company or any of our subsidiaries
having a market value of 5% or more of the total market value of our
company's outstanding common stock or our company's net worth as of the
end of its most recently ended fiscal quarter, whichever is less, in one
or more transactions with or for the benefit of an interested party;
- the adoption of any plan or proposal for liquidation or dissolution of
our company or any of our subsidiaries;
- the issuance or transfer by our company or any of our subsidiaries of
securities having a fair market value of $1 million or more to any
interested party, except for the exercise of warrants or rights to
purchase securities offered pro rata to all holders of our voting stock;
- any recapitalization, reclassification, merger, consolidation or similar
transaction of our company or any of our subsidiaries that would increase
an interested party's voting power in our company or any of our
subsidiaries;
- any loans, advances, guarantees, pledges or other financial assistance or
any tax credits or advantages provided by our company or any of our
subsidiaries to any interested party; or
- any agreement providing for any of the transactions described above.
To effect the transactions described above, the following shareholder and
director approvals are required:
- the vote of the holders of 80% of our outstanding common stock;
- the vote of the holders of 75% of our outstanding common stock, excluding
stock owned by interested parties;
- a majority of our directors currently in office; and
14
<PAGE> 46
- a majority of our directors who are not affiliates of the interested
party and who were members of our board prior to the time the interested
party became an interested party or directors appointed by these board
members.
However, the requirements for approval of our directors and supermajority
vote of our stockholders described above are not applicable if:
- the transactions described above are between our company and any of our
subsidiaries, any person who owned shares of our common stock prior to
the date our certificate of incorporation was first filed with the
Delaware Secretary of State, any of our employee benefit plans, or a
trustee or custodian of one of our employee stock ownership plans or
other benefit plans; or
- our board approves the transaction prior to the time the interested party
becomes an interested party and the vote includes the affirmative vote of
a majority of our directors who are not affiliates of the interested
party and who were members of our board prior to the time the interested
party became the interested party; or
- all of the following conditions are met:
- the aggregate amount of consideration received by our stockholders in
the transaction meet the "fair price" criteria described in our
certificate of incorporation; and
- after an interested party becomes an interested party and prior to the
completion of the transaction:
- our company has not failed to declare or pay dividends on any
outstanding preferred stock
- the interested party has not received benefits (except
proportionately as a stockholder) of any loans, advances or other
financial assistance or tax advantage provided by our company
- our company has not reduced the annual rate of dividends paid on
our common stock, except as necessary to reflect adjustments or
stock splits, and has not failed to increase the annual rate of
dividends to adjust for any recapitalization, reclassification,
reorganization or similar transaction; and
- the interested party has not become the beneficial owner of
additional shares of our voting stock except as part of the
transaction that resulted in the interested party becoming an
interested party or as a result of a pro rata stock dividend.
No Stockholder Action by Written Consent. Under Delaware law, unless a
corporation's certificate of incorporation specifies otherwise, any action that
could be taken by its stockholders at an annual or special meeting may be taken
without a meeting and without notice to or a vote of other stockholders, if a
consent in writing is signed by holders of outstanding stock having voting power
that would be sufficient to take such action at a meeting at which all
outstanding shares were present and voted. Our certificate of incorporation
provides that stockholder action may be taken only at an annual or special
meeting of stockholders. As a result, our stockholders may not act upon any
matter except at a duly called meeting.
Advance Notice of Stockholder Nominations and Stockholder Business. Our
bylaws permit stockholders to nominate a person for election as a director or
bring other matters before a stockholders' meeting only if written notice of an
intent to nominate or bring business before a meeting is given a specified time
in advance of the meeting.
15
<PAGE> 47
Supermajority Voting/Amendments to Certificate of Incorporation. The
affirmative vote of at least 80% of our company's outstanding common stock is
required to amend, alter, change or repeal the provisions in our certificate of
incorporation providing for the following:
- the fair price requirements described above;
- the restriction on shareholder action by written consent;
- limitation of liability and indemnification for officers and directors;
- the supermajority vote required to amend our certificate of
incorporation;
- the amendment of our bylaws. Our bylaws also may be amended by the vote
of a majority of our directors currently in office and a majority vote of
our directors who were members of our board prior to the time an
interested party, as described above, became an interested party;
- the classification of our board of directors; and
- removal of directors and filing vacancies on our board of directors as
described below.
However, the 80% stockholder vote described above will not be required if:
- our directors adopt resolutions amending, altering or repealing the
provisions in our certificate of incorporation described above, and the
vote of directors adopting these resolutions includes:
- a majority of our board of directors; and
- a majority of our board of directors in office prior to the time an
interested party became an interested party or directors appointed by
these directors; and
- the amendment, alteration or repeal of the provisions described above is
approved by the vote of holders of a majority of our outstanding common
stock.
Delaware Section 203. We are subject to Section 203 of the Delaware General
Corporation Law, which imposes a three-year moratorium on the ability of
Delaware corporations to engage in a wide range of specified transactions with
any interested stockholder. An interested stockholder includes, among other
things, any person other than the corporation and its majority-owned
subsidiaries who owns 15% or more of any class or series of stock entitled to
vote generally in the election of directors. However, the moratorium will not
apply if, among other things, the transaction is approved by:
- the corporation's board of directors prior to the date the interested
stockholder became an interested stockholder; or
- the holders of two-thirds of the outstanding shares of each class or
series of stock entitled to vote generally in the election of directors,
not including those shares owned by the interested stockholder.
Removal of Directors; Filling Vacancies on Board of Directors; Size of the
Board. Directors may be removed, with cause, by the vote of 80% of the holders
of all classes of stock entitled to vote at an election of directors, voting
together as a single class. Directors may not be removed without cause by
stockholders. Vacancies in a directorship may be filled only by the vote of a
majority of the remaining directors and a majority of all directors who were
members of our board at the time an interested party became an interested party.
A newly created directorship resulting from an increase in the number of
directors may only be filled by the board. Any director elected to fill a
vacancy on the board serves for the remainder of the full term of the class of
directors in which the new directorship was created or in which the vacancy
occurred. The number of directors is fixed from time to time by the board.
Special Meetings of the Stockholders. Our bylaws provide that special
meetings of stockholders may be called only by either (1) our Chairman,
Co-Chairman or any Vice Chairman of our board of directors,
16
<PAGE> 48
(2) our President and Chief Executive Officer, or (3) by a vote of the majority
of our board of directors. Our stockholders do not have the power to call a
special meeting.
Limitation of Directors' Liability. Our certificate of incorporation
contains provisions eliminating the personal liability of our directors to our
company and our stockholders for monetary damages for breaches of their
fiduciary duties as directors to the fullest extent permitted by Delaware law.
Under Delaware law and our certificate of incorporation, our directors will not
be liable for a breach of his or her duty except for liability for:
- a breach of his or her duty of loyalty to our company or our
stockholders;
- acts or omissions not in good faith or that involve intentional
misconduct or a knowing violation of law;
- dividends or stock repurchases or redemptions that are unlawful under
Delaware law; and
- any transaction from which he or she receives an improper personal
benefit.
These provisions pertain only to breaches of duty by directors as directors
and not in any other corporate capacity, such as officers. In addition, these
provisions limit liability only for breaches of fiduciary duties under Delaware
corporate law and not for violations of other laws such as the federal
securities laws.
As a result of these provisions in our certificate of incorporation, our
stockholders may be unable to recover monetary damages against directors for
actions taken by them that constitute negligence or gross negligence or that are
in violation of their fiduciary duties. However, our stockholders may obtain
injunctive or other equitable relief for these actions. These provisions also
reduce the likelihood of derivative litigation against directors that might have
benefitted our company.
We believe that these provisions are necessary to attract and retain
qualified individuals to serve as our directors. In addition, these provisions
will allow directors to perform their duties in good faith without concern for
monetary liability if a court determines that their conduct was negligent or
grossly negligent.
SHAREHOLDER RIGHTS PLAN
Our board of directors adopted a shareholder rights plan in November 1998.
The rights plan was amended on December 30, 1998. Under the rights plan, we
distributed one preferred stock purchase right to each holder of record of
common stock at the close of business on November 13, 1998. Once exercisable,
each right will entitle stockholders to buy one one-hundredth of a share of
Series A participating cumulative preferred stock, par value $0.01 per share, at
a purchase price of $80 per one one-hundredth of a share of Series A
participating cumulative preferred stock. Prior to the time the rights become
exercisable, the rights will be transferred with our common stock.
The rights do not become exercisable until a person or group acquires 25%
or more of our common stock or announces a tender offer which would result in
that person or group owning 25% or more of our common stock. However, if the
person or group that acquires 25% or more of our common stock agrees to
"standstill" arrangements described in the rights plan, the rights will not
become exercisable until the person or group acquires 35% or more of our common
stock.
Once a person or group acquires 25% or more (or 35% or more under the
conditions described above) of our common stock, each right will entitle its
holder (other than the acquirer) to purchase, for the $80 purchase price, the
number of shares of common stock having a market value of twice the purchase
price. The rights will also entitle holders to purchase shares of an acquirer's
common stock under specified circumstances. In addition, the board may exchange
rights (other than the acquirer's) for shares of our common stock.
Prior to the time a person or group acquires 25% or more (or 35% or more
under the conditions described above) of our common stock, the rights may be
redeemed by our board of directors at a price of
17
<PAGE> 49
$0.01 per right. As long as the rights are redeemable, our board of directors
may amend the rights agreement in any respect. The terms of the rights are set
forth in a rights agreement between us and ChaseMellon Shareholder Services,
L.L.C., as rights agent. The rights expire on November 13, 2008 (unless
extended).
The rights may cause substantial dilution to a person that attempts to
acquire our company, unless the person demands as a condition to the offer that
the rights be redeemed or declared invalid. The rights should not interfere with
any merger or other business combination approved by our board of directors
because our board may redeem the rights as described above. The rights are
intended to encourage any person desiring to acquire a controlling interest in
our company to do so through a transaction negotiated with our board of
directors rather than through a hostile takeover attempt. The rights are
intended to assure that any acquisition of control of our company will be
subject to review by our board to take into account, among other things, the
interests of all of our stockholders.
DESCRIPTION OF PREFERRED STOCK
Each series of preferred stock will have specific terms that we will
describe in a prospectus supplement. The description may not contain all
information that is important to you. The complete terms of the preferred stock
will be contained in our certificate of incorporation and the certificate of
designations relating to the applicable series of the preferred stock. These
documents have been or will be included or incorporated by reference as exhibits
to the registration statement of which this Prospectus is a part. You should
read our certificate of incorporation and the applicable certificate of
designations.
Our certificate of incorporation authorizes us to issue, without
stockholder approval, up to 50,000,000 shares of preferred stock, par value
$0.01 per share. Our board of directors may from time to time authorize us to
issue one or more series of preferred stock and may fix various terms for each
series, including the following:
- voting powers (if any);
- designations;
- preferences;
- relative participating and optional or other rights;
- qualifications; and
- limitations and restrictions.
Thus, our board of directors could authorize us to issue preferred stock with
voting, conversion and other rights that could adversely affect the voting power
and other rights of holders of our common stock or other series of preferred
stock. Also, the issuance of preferred stock could have the effect of delaying,
deferring or preventing a change in control of our company.
The particular terms of any series of preferred stock offered by this
Prospectus will be contained in an amendment to our certificate of incorporation
and described in a prospectus supplement. The applicable prospectus supplement
will describe the following terms of any series of the preferred stock (to the
extent the terms are applicable):
- the specific designation, number of shares, rank and purchase price;
- any liquidation preference per share;
- any redemption, payment or sinking fund provisions;
- any dividend rates (fixed or variable) and the dates on which any
dividends will be payable (or the method by which the rates or dates will
be determined);
- any voting rights;
18
<PAGE> 50
- the commodity, currency, or units based on or relating to commodities,
currencies or composite currencies, in which the preferred stock is
denominated and/or in which payments will or may be payable;
- the methods by which amounts payable in respect of the preferred stock
may be calculated and any commodities, currencies, indices or other
measures relevant to the calculation;
- whether the preferred stock is convertible or exchangeable and, if so,
(1) the securities into which the preferred stock is convertible or
exchangeable,
(2) the terms and conditions upon which conversions or exchanges will be
effected, including the initial conversion or exchange prices or
rates,
(3) the conversion or exchange period, and
(4) any other related provision;
- the place or places where dividends and other payments on the preferred
stock will be payable; and
- any additional voting, dividend, liquidation, redemption, sinking fund or
other rights, preferences, privileges, limitations and restrictions.
As described under "Description of Depositary Shares" below, we may, at our
option, elect to offer depositary shares evidenced by depositary receipts. Each
depositary receipt will represent an interest in a share of a particular series
of preferred stock that we will issue and deposit with a depositary. The
interest represented by the depositary receipt will be described in the
applicable prospectus supplement.
DESCRIPTION OF DEPOSITARY SHARES
We summarize below some of the provisions that will apply to the depositary
shares unless the applicable prospectus supplement provides otherwise. The
summary may not contain all information that is important to you. The complete
terms of the depositary shares will be contained in the depositary receipts and
the deposit agreement relating to the applicable series of preferred stock.
These documents have been or will be included or incorporated by reference as
exhibits to the registration statement of which this Prospectus is a part. You
should read the depositary receipts and the depositary agreement. You should
also read the prospectus supplement, which will contain additional information
and which may update or change some of the information below.
GENERAL
We may, at our option, elect to have shares of preferred stock represented
by depositary shares. The shares of any series of preferred stock underlying the
depositary shares will be deposited under a separate deposit agreement that we
will enter into with a bank or trust company of our choosing. The prospectus
supplement relating to a series of depositary shares will give the name and
address of the depositary. Subject to the terms of the deposit agreement, each
owner of a depositary share will be entitled to all the rights and preferences
of the preferred stock underlying the depositary share in proportion to the
applicable interest in the preferred stock underlying the depositary share.
The depositary shares will be evidenced by depositary receipts issued
pursuant to the deposit agreement. Each depositary share will represent the
applicable interest in a number of shares of a particular series of the
preferred stock described in the applicable prospectus supplement.
Unless otherwise provided in the applicable prospectus supplement, upon
surrender of depositary shares at the office of the depositary and upon payment
of the charges provided in the deposit agreement, a holder of depositary shares
will be entitled to the number of whole shares of preferred stock evidenced by
the surrendered depositary shares.
19
<PAGE> 51
DIVIDENDS AND OTHER DISTRIBUTIONS
The depositary will distribute all cash dividends or other cash
distributions received in respect of the preferred stock to the record holders
of depositary shares representing the preferred stock in proportion to the
number of the depositary shares owned by the holders on the relevant record
date.
In the event of a distribution other than in cash, the depositary will
distribute the property received by it to the record holders of depositary
shares entitled to the property. Alternatively, the depositary may, with our
approval, sell the property and distribute the net proceeds from the sale to the
record holders of depositary shares.
The deposit agreement will also contain provisions relating to the manner
in which any subscription or similar rights we offer to holders of preferred
stock will be made available to holders of depositary shares.
CONVERSION AND EXCHANGE
If any preferred stock underlying depositary shares is convertible or
exchangeable, each record holder of depositary shares will have the right or
obligation to convert or exchange the depositary shares in the manner provided
in the deposit agreement and described in the applicable prospectus supplement.
REDEMPTION
If the preferred stock underlying depositary shares is subject to
redemption, the depositary shares will be redeemed from the redemption proceeds
received by the depositary. The redemption price per depositary share will be
equal to the aggregate redemption price payable with respect to the number of
shares of preferred stock underlying the depositary shares. Whenever we redeem
preferred stock from the depositary, the depositary will redeem as of the same
redemption date a proportionate number of depositary shares representing the
shares of preferred stock that we redeemed. If less than all the depositary
shares are to be redeemed, the depositary shares to be redeemed will be selected
by lot or pro rata as we may determine.
After the date fixed for redemption, the depositary shares called for
redemption will no longer be deemed to be outstanding and all rights of the
holders of the depositary shares will cease, except the right to receive the
redemption price. Any funds we deposit with the depositary for any depositary
shares which the holders fail to redeem will be returned to us after two years
from the date the funds are deposited.
VOTING
Upon receipt of notice of any meeting or action in lieu of any meeting at
which the holders of any shares of preferred stock underlying the depositary
shares are entitled to vote, the depositary will mail the information contained
in the notice to the record holders of the depositary shares relating to the
preferred stock. Each record holder of the depositary shares on the record date,
which will be the same date as the record date for the preferred stock, will be
entitled to instruct the depositary as to the exercise of the voting rights
pertaining to the number of shares of preferred stock underlying the holder's
depositary shares. The depositary will endeavor, insofar as practicable, to vote
the number of shares of preferred stock underlying the depositary shares in
accordance with these instructions, and we will agree to take all action that
the depositary deems necessary to enable the depositary to do so.
AMENDMENT
The depositary receipt evidencing the depositary shares and any provision
of the deposit agreement may at any time be amended by agreement between us and
the depositary. However, any amendment that materially and adversely alters the
rights of the existing holders of depositary shares will not be effective unless
the amendment has been approved by the record holders of at least a majority of
the depositary shares then outstanding.
20
<PAGE> 52
CHARGES OF DEPOSITARY
We will pay all transfer and other taxes and governmental charges that
arise solely from the existence of the depositary arrangements. We will pay
charges of the depositary in connection with the initial deposit of the
preferred stock and any exchange or redemption of the preferred stock. Holders
of depositary shares will pay all other transfer and other taxes and
governmental charges, and, in addition, any other charges that are expressly
provided in the deposit agreement to be for their accounts.
RESIGNATION AND REMOVAL OF DEPOSITARY
The depositary may resign at any time by delivering to us notice of its
election to do so, and we may at any time remove the depositary. Any resignation
or removal will take effect upon the appointment of a successor depositary and
its acceptance of the appointment. We will appoint the successor depositary
within 60 days after delivery of the notice of resignation or removal.
TERMINATION OF DEPOSIT AGREEMENT
The depositary may terminate, or we may direct the depositary to terminate,
the deposit agreement if 45 days has expired after the depositary has delivered
to us written notice of its election to resign and we have not appointed a
successor depositary. Upon termination of the deposit agreement, the depositary
will discontinue the transfer of depositary receipts, will suspend the
distribution of dividends, and will not give any further notices (other than
notice of the termination) or perform any further acts under the deposit
agreement. However, the depositary will continue to deliver preferred stock
certificates, together with dividends and distributions and the net proceeds of
any sales of property, in exchange for depositary receipts surrendered. Upon our
request, the depositary will deliver to us all books, records, certificates
evidencing preferred stock, depositary receipts and other documents relating to
the deposit agreement.
MISCELLANEOUS
We, or at our option the depositary, will forward to the holders of
depositary shares all reports and communications that we are required to furnish
to the holders of preferred stock.
Neither we nor the depositary will be liable if the depositary is prevented
or delayed by law or any circumstance beyond its control in performing its
obligations under the deposit agreement. Our obligations and those of the
depositary under the deposit agreement will be limited to performance in good
faith of our respective duties under the deposit agreement. Neither we nor the
depositary will be obligated to prosecute or defend any legal proceeding
regarding any depositary share or preferred stock unless satisfactory indemnity
has been furnished. We and the depositary may rely upon written advice of
counsel or accountants. We and the depositary may also rely upon information
provided to us by persons presenting preferred stock for deposit, holders of
depositary shares or other persons we or the depositary believe to be competent.
We and the depositary may also rely upon documents we believe to be genuine.
DESCRIPTION OF DEBT SECURITIES
GENERAL
We may issue debt securities from time to time in one or more series. Debt
securities will be our unsecured obligations and will be designated as:
- senior securities;
- senior subordinated securities; or
- subordinated securities.
Senior securities, senior subordinated securities and subordinated
securities will each be issued under separate indentures we enter into with a
trustee.
21
<PAGE> 53
We have summarized below some of the provisions that will apply to the debt
securities unless the applicable prospectus supplement provides otherwise. The
summary may not contain all information that is important to you. The complete
terms of the debt securities will be contained in the applicable indenture and
note. These documents have been or will be included or incorporated by reference
as exhibits to the registration statement of which this Prospectus is a part.
You should read the indenture and the note. You should also read the prospectus
supplement, which will contain additional information and which may update or
change some of the information below.
A principal difference between the indentures are provisions relating to
subordination. The "subordination" of a series of debt securities is the degree
to which holders of the debt securities are subordinated in right of payment to
our other obligations. The senior securities will rank equally with all of our
other senior unsecured debt. Senior subordinated securities and subordinated
securities will be subordinated in right of payment to the prior payment in full
of the senior securities and our other senior indebtedness. Subordinated
securities will also be subordinated in right of payment to the prior payment in
full of any outstanding senior subordinated securities. The subordination
provisions of the senior subordinated securities and subordinated securities are
discussed in greater detail below under "-- Subordination of Senior Subordinated
Securities and Subordinated Securities."
Unless we state otherwise in the related prospectus supplement, the
indentures will not contain provisions that (1) limit the total amount of debt
that we or any of our subsidiaries may issue or incur, (2) limit our ability or
the ability of any of our subsidiaries to incur secured indebtedness, or (3)
limit our ability or the ability of any of our subsidiaries to pay dividends or
make other distributions or payments. Also, unless we state otherwise in the
related prospectus supplement, the indentures will not contain provisions that
would afford you, as a holder of the debt securities, protection if we were to
undergo a change in control or enter into a highly leveraged transaction,
recapitalization or similar transaction, any of which could adversely affect
your rights as a holder of the debt securities.
We may issue debt securities under each indenture from time to time in
separate series up to the aggregate amount specified in the indenture.
We will describe the specific terms of the series of debt securities being
offered in the related prospectus supplement. These terms will include some or
all of the following:
- the title of the debt securities and whether the debt securities are
senior securities, senior subordinated securities or subordinated
securities;
- any limit on the aggregate principal amount of the debt securities;
- whether the debt securities will be issued as registered debt securities,
bearer debt securities or both, any limitation on issuance of bearer debt
securities and provisions regarding the transfer or exchange of bearer
debt securities;
- whether any of the debt securities are to be issuable as a global
security and whether global securities are to be issued in temporary
global form or permanent global form;
- the person to whom any interest on the debt security will be payable if
other than the person in whose name the debt security is registered on
the record date;
- the date or dates on which the debt securities will mature;
- the rate or rates of interest, if any, that the debt securities will
bear, or the method of calculation of the interest rate or rates;
- the date or dates from which any interest on the debt securities will
accrue, the dates on which any interest will be payable and the record
date for any interest payable on any interest payment date;
- the place or places where the principal of, interest, premium and
additional amounts (if any) on the debt securities will be payable;
22
<PAGE> 54
- whether we will have the right or obligation to redeem or repurchase any
of the debt securities, and the terms applicable to any optional or
mandatory redemption or repurchase;
- the denominations in which the debt securities will be issuable;
- any index or formula used to determine the amount of payments of
principal of and any premium, additional amounts (if any) and interest on
the debt securities;
- the currency or currencies or currency units or composite currencies in
which the principal of and any premium, additional amounts (if any) and
interest on the debt securities will be made (if other than U.S.
dollars);
- if the principal of or any premium, additional amounts (if any) or
interest on the debt securities may be paid in a different currency or
currencies or currency units or composite currencies at our option or the
option of the holder, the currency or currencies or currency units or
composite currencies in which these payments may be made and the terms
and conditions applicable to the payments;
- if other than the principal amount, the portion of the principal amount
of the debt securities that will be payable if there is an acceleration
of the maturity of the debt securities;
- if the debt securities are convertible into other securities, the
conversion price, the period during which the debt securities may be
converted and other terms of conversion;
- any sinking fund provisions applicable to the debt securities;
- the extent to which the provisions described under "-- Certain of Our
Covenants" below will apply to the debt securities, and whether the
indenture includes any additional restrictive covenants for the benefit
of the holders of the debt securities;
- the extent to which the provisions described under "-- Events of Default
with Respect to the Debt Securities" below will apply to the debt
securities, and the extent to which the provisions have been supplemented
or modified;
- the extent to which the provisions described under "-- Defeasance" below
will apply to the debt securities; and
- any other terms of the debt securities not inconsistent with the
provisions of the respective indentures.
Debt securities may bear interest at a fixed rate or a floating rate, or
may not bear interest. Debt securities bearing no interest or interest at a rate
that at the time of issuance is below the prevailing market rate may be sold at
a discount (which may be significant) below their stated principal amount. We
will describe in the related prospectus supplement special United States federal
income tax considerations applicable to any discounted debt securities or to
debt securities issued at par that are treated as having been issued at a
discount for United States federal income tax purposes.
If the purchase price of any of the debt securities is denominated in a
foreign currency or currencies or currency units or composite currencies or if
payments may be made in a foreign currency or currencies or currency units or
composite currencies, we will set forth the general tax considerations with
respect to these debt securities in the related prospectus supplement.
SUBORDINATION OF SENIOR SUBORDINATED SECURITIES AND SUBORDINATED SECURITIES
The indebtedness evidenced by the senior subordinated securities and the
subordinated securities will be subordinated and junior in right of payment to
the extent described in the related indenture to the prior payment in full of
amounts then due on all of our senior indebtedness (as defined below), including
the senior securities. The subordinated securities will also be subordinated and
junior in right of payment to
23
<PAGE> 55
the prior payment in full of all amounts then due on any outstanding senior
subordinated securities. Thus, if you hold senior subordinated securities or
subordinated securities:
- you will not be entitled to receive any payments of principal (or premium
or additional amounts, if any) or interest on your debt securities until
all amounts due have been paid on our senior indebtedness
- in the event of any voluntary or involuntary insolvency or bankruptcy
proceedings, or any receivership, dissolution, winding-up, total or
partial liquidation, reorganization or other similar proceeding; or
- if there is any default with respect to the principal (or premium or
additional amounts, if any) or interest of any of our senior
indebtedness or any acceleration of any of our senior indebtedness;
and
- you will not be entitled to receive assets or money in respect of
payments of principal (or premium or additional amounts, if any) or
interest due on your debt securities in connection with a voluntary or
involuntary receivership, dissolution, winding-up, liquidation,
reorganization, bankruptcy, insolvency or similar proceeding until our
senior indebtedness has been paid in full.
You may, as a result, recover less, ratably, than our other creditors, including
holders of senior indebtedness.
With respect to any series of senior subordinated securities or
subordinated securities, "senior indebtedness" means the principal of (and
premium or additional amounts, if any) and interest on all of our indebtedness
(as defined below), whether outstanding on the date of the related indenture or
created, incurred or assumed after the date of the related indenture, other than
- the indebtedness represented by the senior subordinated securities or
subordinated securities and
- any particular indebtedness that expressly states in its governing terms
(or in our assumption or guarantee) that it is not senior in right of
payment to the senior subordinated securities or the subordinated
securities, as the case may be, or that the indebtedness ranks equal to
or junior to the senior subordinated securities or the subordinated
securities.
Our "indebtedness" includes all of our obligations
- for borrowed money;
- that are evidenced by a bond, debenture, note or similar instrument;
- with respect to letters of credit or similar instruments;
- to pay the deferred purchase price of any property or services (other
than trade payables);
- as lessee under leases we are required to capitalize on our balance sheet
under generally accepted accounting principles;
- any indebtedness of others secured by a lien on our assets, whether or
not we have assumed the indebtedness; and
- any indebtedness of others that we have guaranteed.
Each series of senior subordinated securities will be "senior indebtedness"
with respect to each series of subordinated securities. If this Prospectus is
being delivered in connection with a series of senior subordinated securities or
subordinated securities, we will describe in the accompanying prospectus
supplement or the information incorporated by reference the approximate amount
of senior indebtedness outstanding as of the end of our most recent fiscal
quarter.
24
<PAGE> 56
CONVERTIBLE DEBT SECURITIES
We may issue debt securities from time to time that are convertible into
our common stock, preferred stock or other securities. If you hold convertible
debt securities, you will be permitted at certain times specified in the related
prospectus supplement to convert your debt securities into the other securities
for a specified price. We will describe the conversion price (or the method for
determining the conversion price) and the other terms applicable to conversion
in the related prospectus supplement.
DEBT SECURITIES WITH PAYMENT TERMS TIED TO COMMODITIES, CURRENCIES OR INDICES
We may issue debt securities with payment terms that are calculated by
reference to the value, rate or price of one or more commodities, currencies,
currency units, composite currencies or indices. If you hold these debt
securities, you may receive payments of principal or any premium, additional
amounts (if any) or interest on any payment date that are greater than or less
than the amounts that would otherwise be payable to you, depending upon the
fluctuations in the value, rate or price of the applicable commodity, currency,
currency unit, composite currency or index. We will include in the applicable
prospectus supplement information as to the methods for determining the amount
of principal, premium, additional amounts (if any) or interest payable on any
date, the referenced commodities, currencies, currency units or composite
currencies or indices and additional tax considerations.
FORM, EXCHANGE, REGISTRATION AND TRANSFER OF DEBT SECURITIES
Debt securities are issuable in definitive form as registered debt
securities, as bearer debt securities or both. Unless we state otherwise in the
related prospectus supplement, bearer debt securities will have interest coupons
attached. Debt securities are also issuable in temporary or permanent global
form.
Registered debt securities of any series will be exchangeable for other
registered debt securities of the same series and of a like aggregate principal
amount and tenor of different authorized denominations.
If you hold bearer debt securities of any series, at your option and
subject to the terms of the indenture, you may exchange them (with all unmatured
coupons, except as provided below, and all matured coupons in default) for
registered debt securities of the same series of any authorized denominations
and of a like aggregate principal amount and tenor. Bearer debt securities that
you surrender in exchange for registered debt securities between a record date
and the relevant date for payment of interest must be surrendered without the
coupon relating to that date for payment of interest. Interest accrued as of
that date will not be payable in respect of the registered debt security issued
in exchange for the bearer debt security, but will be payable only to the holder
of the coupon when due in accordance with the terms of the indenture.
You may only present bearer debt securities for exchange at one of our
offices or agencies maintained for that purpose located outside the United
States and referred to in the applicable prospectus supplement. You may present
registered debt securities for registration of transfer at any office or agency
maintained for that purpose. If the debt securities are registered debt
securities, you must execute the form of transfer on the debt security. We will
list the offices or agencies maintained for exchange and registration of
transfer in the related prospectus supplement. You will not be required to pay
any service charge in connection with an exchange or transfer, but you may be
required to pay taxes and other governmental charges. We or our agent will not
effect an exchange or transfer unless we are satisfied, or our agent is
satisfied, with the documents of title and identity of the person making the
request.
In the event of any partial redemption of debt securities, we will not be
required to
- issue, register the transfer of or exchange debt securities of any series
during the period beginning at the opening of business 15 days prior to
the selection of debt securities of that series for redemption and ending
on the close of business on
(1) if debt securities of the series are issued only as registered debt
securities, the day the relevant notice of redemption is mailed and
25
<PAGE> 57
(2) if debt securities of the series are issued as bearer debt
securities, the day of the first publication of the relevant notice
of redemption, except that, if debt securities of the series are
also issued as registered debt securities and there is no
publication, the day the relevant notice of redemption is mailed;
- register the transfer of or exchange any registered debt security, or
portion of any registered debt security, called for redemption, except
the unredeemed portion of any registered debt security being redeemed in
part; or
- exchange any bearer debt security called for redemption, except to
exchange that bearer debt security for a registered debt security of that
series and like tenor which is simultaneously surrendered for redemption.
PAYMENT AND PAYING AGENTS
Unless we state otherwise in the applicable prospectus supplement, payment
of principal of (and any premium), additional amounts (if any) and interest on
bearer debt securities will be payable, subject to any applicable laws and
regulations, in the designated currency, at the offices of the paying agents
outside the United States as we may designate from time to time by check or by
transfer to an account you maintain with a bank located outside the United
States. Unless we state otherwise in the applicable prospectus supplement, to
receive an interest payment with respect to a bearer debt security on a
particular interest payment date you will be required to surrender the related
coupon to the paying agent. No payment with respect to any bearer debt security
will be made at any of our offices or agencies in the United States or by check
mailed to any address in the United States, by transfer to any account
maintained with a bank located in the United States, nor shall any payments be
made in respect of bearer debt securities upon presentation to us or our paying
agents within the United States. Notwithstanding the foregoing, payments of
principal of (and any premium) and interest on bearer debt securities
denominated and payable in U.S. dollars will be made at the office of our paying
agent in the United States, if (but only if) payment of the full amount thereof
in U.S. dollars at all offices or agencies outside the United States is illegal
or effectively precluded by exchange controls or other similar restrictions.
Unless we state otherwise in the applicable prospectus supplement, payment
of principal of (and any premium), additional amounts (if any) and interest on
registered debt securities will be made in the designated currency at the office
of our paying agent or paying agents as we may designate from time to time.
However, we may make payment, at our option, by check mailed to the address of
the person entitled to these payments as the person's address appears on the
records of the security registrar. Unless we state otherwise in the applicable
prospectus supplement, payment of any installment of interest on registered debt
securities will be made to the person in whose name the registered debt security
is registered at the close of business on the record date for the interest.
Unless we state otherwise in the applicable prospectus supplement, the
corporate trust office of the trustee will be designated as a paying agent for
the trustee for payments with respect to debt securities that are issuable
solely as registered debt securities. We will maintain a paying agent outside
the United States for payments with respect to debt securities that are issued
solely as bearer debt securities, or as both registered debt securities and
bearer debt securities. Any paying agents outside the United States and any
other paying agents in the United States we initially designate for the debt
securities will be named in the related prospectus supplement. We may at any
time designate additional paying agents or rescind the designation of any paying
agent or approve a change in the office through which any paying agent acts.
However, if debt securities of a series are issued solely as registered debt
securities, we will be required to maintain a paying agent in each place of
payment for the series. If debt securities of a series are issued as bearer debt
securities, we will be required to maintain
- a paying agent in the United States for payments with respect to any
registered debt securities of the series (and for payments with respect
to bearer debt securities of the series in the circumstances where
payment outside the United States is illegal or effectively precluded,
but not otherwise); and
26
<PAGE> 58
- a paying agent in a place of payment located outside the United States
where debt securities of the series and any related coupons may be
presented and surrendered for payment.
All amounts we pay to a paying agent for the payment of principal of and
any premium, additional amounts (if any) or interest on any debt security which
you hold or with respect to which you hold any coupon that remain unclaimed at
the end of two years after the principal, premium or interest shall have become
due and payable will (subject to applicable escheat laws) be repaid to us, and
you will thereafter have to look only to us for payment.
TEMPORARY GLOBAL SECURITIES
If we so state in the applicable prospectus supplement, all or any portion
of the debt securities of a series that are issuable as bearer debt securities
will initially be represented by one or more temporary global debt securities,
without interest coupons, which will be deposited with a common depository in
London for the Euroclear System ("Euroclear") and CEDEL Bank S.A. ("CEDEL") for
credit to the designated accounts.
On and after the date determined as provided in the temporary global debt
security, the temporary global debt security will be exchangeable for definitive
bearer debt securities, definitive registered debt securities or all or a
portion of a permanent global security, or any combination, as specified in the
applicable prospectus supplement. No bearer debt security delivered in exchange
for a portion of a temporary global debt security will be mailed or otherwise
delivered to any location in the United States in connection with the exchange.
Unless we state otherwise in the applicable prospectus supplement, interest
in respect of any portion of a temporary global debt security payable in respect
of a payment date occurring prior to the issuance of definitive debt securities
or a permanent global subordinated security will be paid to each of Euroclear
and CEDEL with respect to the portion of the temporary global debt security held
for its account.
PERMANENT GLOBAL SECURITIES
If any debt securities of a series are issuable in permanent global form,
we will describe in the applicable prospectus supplement the circumstances, if
any, under which beneficial owners of interests in the permanent global debt
securities may exchange the interests for debt securities of the series and of
like tenor and principal amount in any authorized form and denomination. No
bearer debt security delivered in exchange for a portion of a permanent global
debt security will be mailed or otherwise delivered to any location in the
United States in connection with the exchange. Notwithstanding the foregoing,
unless we state otherwise in an applicable prospectus supplement, if you hold an
interest in a permanent global bearer debt security, you may exchange your
interest in whole (but not in part) at our expense for definitive bearer debt
securities.
BOOK-ENTRY DEBT SECURITIES
The debt securities of a series may be issued in whole or in part in the
form of one or more global securities that will be deposited with, or on behalf
of, a depositary or its nominee identified in the applicable prospectus
supplement. In this case, one or more global securities will be issued in a
denomination or aggregate denominations equal to the portion of the aggregate
principal amount of outstanding debt securities of the series to be represented
by the global security or securities. Unless we state otherwise in the
applicable prospectus supplement, unless and until it is exchanged in whole or
in part for debt securities in registered form, a global security may not be
registered for transfer or exchange except as a whole by the depositary to a
nominee of that depositary or to a successor depositary.
We will describe the specific terms of the depositary arrangement with
respect to any portion of a series of debt securities to be represented by a
global security in the applicable prospectus supplement. We expect that the
following provisions will generally apply.
27
<PAGE> 59
Unless we state otherwise in the applicable prospectus supplement, debt
securities which are to be represented by a global security to be deposited with
or on behalf of a depositary will be represented by a global security registered
in the name of that depositary or its nominee. Upon the issuance of the global
security, and the deposit of the global security with or on behalf of the
depositary, the depositary will credit, on its book-entry registration and
transfer system, the respective principal amounts of the debt securities
represented by the global security to the accounts of institutions that have
accounts with the depositary or its nominee ("participants"). The accounts to be
credited will be designated by the underwriters or agents of the debt securities
or by us, if we offer and sell the debt securities directly. Ownership of
beneficial interests in the global security will be limited to participants or
persons that hold interests through participants. Ownership of beneficial
interests by participants in the global security will be shown on, and the
transfer of that ownership interest will be effected only through, records
maintained by the depositary or its nominee. If you hold a beneficial interest
in a global security through a participant, your ownership interest will be
shown on, and the transfer of your ownership interest will be effected only
through, records maintained by that participant.
The laws of some jurisdictions require that some purchasers of securities
take physical delivery of the securities in certificated form. If you own a
beneficial interest in a global security, these laws may impair your ability to
transfer your beneficial interest.
So long as the depositary for a global security, or its nominee, is the
registered owner of the global security, the depositary or nominee will be
considered the sole owner or holder of the debt securities represented by the
global security for all purposes under the related indenture. Unless we state
otherwise in the applicable prospectus supplement, if you own a beneficial
interest in a global security
- you will not be entitled to have debt securities of the series
represented by the global security registered in your name;
- you will not receive or be entitled to receive physical delivery of debt
securities of the series in certificated form; and
- you will not be considered the holder of the debt securities for any
purposes under the applicable indenture.
Accordingly, if you own a beneficial interest in a global security, you will
have to rely on the procedures of the depositary and, if you are not a
participant, on the procedures of the participant through which you own your
interest, to exercise any of your rights as a holder. We understand that under
existing industry practices, if we request any action of holders or if you
desire to give any notice or take any action you are entitled to give or take
under an indenture, the depositary would authorize the participant through which
you hold your interest to give the notice or take the action, and the
participant would in turn authorize you to give the notice or take the action or
would otherwise act upon your instructions. However, we have no control over the
practices of the depositary or the participants, and there can be no assurance
that these practices will not be changed.
Principal of and any premium, additional amounts and interest on a global
security will be payable in the manner we describe in the applicable prospectus
supplement.
LIMITATIONS ON THE ISSUANCE OF BEARER DEBT SECURITIES
In compliance with United States Federal tax laws and regulations, we will
not offer or sell bearer debt securities (including securities in permanent
global form that are either bearer debt securities or exchangeable for bearer
debt securities) during the "restricted period" specified by the United States
Treasury Regulations within the United States or to United States persons (as
defined below). The "restricted period" is, generally, the first 40 days after
the closing date, and with respect to unsold allotments, until sold. We may,
however, offer or sell bearer debt securities to an office located outside the
United States of a United States financial institution purchasing for its own
account, for resale or for the accounts of customers. We will require the
financial institution to provide a certificate stating that it will
28
<PAGE> 60
comply with laws and regulations relating to the bearer debt securities.
Moreover, the bearer debt securities will not be delivered within the United
States during the restricted period in connection with any sale.
We will require any underwriters and dealers participating in an offering
of bearer debt securities to agree not to offer or sell bearer debt securities
within the United States or to United States persons (other than the persons
described above) during the restricted period, or to deliver bearer debt
securities within the United States during the restricted period in connection
with any sale. We will also require these underwriters and dealers to certify
that they have in effect procedures reasonably designed to ensure that their
employees and agents who are directly engaged in selling the bearer debt
securities are aware of these restrictions.
We will not deliver a bearer debt security (other than a temporary global
bearer debt security) in connection with its original issuance or pay interest
on any bearer debt security until we have received the written certification
provided for in the indenture. Each bearer debt security, other than a temporary
global bearer debt security, will bear a legend similar to the following: "Any
United States person who holds this obligation will be subject to limitations
under the United States Federal income tax laws, including the limitations
provided in Sections 165(j) and 1287(a) of the Internal Revenue Code."
As used above, "United States person" means any citizen or resident of the
United States, any corporation, partnership or other entity created or organized
in or under the laws of the United States and any estate or trust the income of
which is subject to United States federal income taxation regardless of its
source, and "United States" means the United States of America (including the
states and the District of Columbia) and its possessions.
CERTAIN OF OUR COVENANTS
Unless we state otherwise in the applicable prospectus supplement, we will
agree under the indentures not to consolidate with or merge into any individual,
corporation, partnership or other entity (each, a "person"), or sell, lease,
convey, transfer or otherwise dispose of all or substantially all of our assets
to any person, or permit any person to consolidate or merge into us or sell,
lease, convey, transfer or otherwise dispose of all or substantially all of its
assets to us unless:
- the person formed by or surviving the consolidation or merger (if not
us), or to which the sale, lease, conveyance, transfer or other
disposition is to be made is a corporation, limited liability company or
partnership organized and existing under the laws of the United States or
any state or the District of Columbia, and the person assumes by
supplemental indenture in a form satisfactory to the trustee all of our
obligations under the indenture;
- immediately after giving effect to the transaction and treating any debt
that becomes an obligation of ours or of any of our subsidiaries as a
result as having been incurred by us or our subsidiary at the time of the
transaction, no default or event of default shall have occurred and be
continuing; and
- we have delivered to the trustee an officer's certificate and opinion of
counsel, each stating that the merger, consolidation, sale or conveyance
and the supplemental indenture, if any, comply with the indenture.
EVENTS OF DEFAULT WITH RESPECT TO THE DEBT SECURITIES
Unless we state otherwise in the applicable prospectus supplement, an
"event of default" is defined under each indenture with respect to debt
securities of any series issued under such indenture as being:
- our default for 30 days in payment of any interest or additional amounts,
if any, on the debt securities of the series or any related coupon;
- our default in payment of any principal on the debt securities of the
series upon maturity or otherwise; provided that, if the default is a
result of the voluntary redemption by the holders of the
29
<PAGE> 61
debt securities, the amount of the default must be in excess of the
dollar amount listed in the indenture (or the equivalent in any other
currency);
- our default, for 60 days after delivery of written notice, in the
observance or performance of any other agreement in the debt securities
of the series or the indenture, other than an agreement included in the
indenture that is not applicable to the debt securities of that series;
- bankruptcy, insolvency or reorganization events relating to us; or
- our failure to pay at maturity, or other default by us which results in
acceleration of, debt in an amount in excess of the dollar amount listed
in the indenture without the debt having been discharged or the
acceleration having been cured, waived, rescinded or annulled for 30 days
after written notice. "Debt" for this purpose means our obligation, or
obligations we have guaranteed or assumed, for borrowed money or
evidenced by bonds, debentures, notes or other similar instruments, other
than non-recourse obligations or the debt securities of the series.
The consequences of an event of default, and the remedies available under
the indenture, will vary depending upon the type of event of default that has
occurred.
Unless we state otherwise in the applicable prospectus supplement, each
indenture will provide that if an event of default has occurred and is
continuing and is due to
- our failure to pay principal, premium or additional amounts, if any, or
interest on, any series of debt securities under the indenture,
- our default in the performance of any agreements applicable to
outstanding debt securities of one or more series issued under the
indenture or
- our failure to pay at maturity, or other default which results in the
acceleration of, any debt in an amount in excess of the dollar amount
listed in the indenture,
then either the trustee or the holders of not less than 25% in principal amount
of the outstanding debt securities of each affected series (each series treated
as a separate class) may declare the principal (or the portion of the principal
that is specified in the terms of the affected debt securities) of all the
affected debt securities and interest accrued to be due and payable immediately.
Unless we state otherwise in the applicable prospectus supplement, each
indenture will provide that if an event of default has occurred and is
continuing and is due to a bankruptcy, insolvency or reorganization event
relating to us, then the principal (or such portion of the principal as is
specified in the terms of the debt securities) of and interest accrued on all
debt securities then outstanding will become due and payable automatically,
without further action by the trustee or the holders.
Under conditions specified in the indenture, the holders of a majority of
the principal amount of the debt securities of each affected series (each series
treated as a separate class) may annul or waive the declarations and past
defaults described above. These holders may not, however, waive a continuing
default in payment of principal of (or premium, if any) or interest on, or in
respect of the conversion of, debt securities.
Each indenture provides that the trustee, subject to the duty of the
trustee during a default to act with the required standard of care, has no
obligation to exercise any right or power granted to it under the indenture at
the request of holders of debt securities unless the holders have indemnified
the trustee. Subject to the provisions in each indenture for the indemnification
of the trustee and other limitations in the indenture, the holders of a majority
in principal amount of the outstanding debt securities of each affected series
issued under the indenture (each series treated as a separate class) may direct
the time, method and place of conducting any proceeding for any remedy available
to the trustee, or exercising any trust or power conferred on the trustee with
respect to the series.
30
<PAGE> 62
If you hold debt securities of any series, you will not be permitted under
the terms of the indenture to institute any action against us in connection with
any default (except actions for payment of overdue principal, premium and
additional amounts, (if any) or interest or to enforce conversion rights (if
any)) unless
- you have given the trustee written notice of the default and its
continuance;
- holders of not less than 25% in principal amount of the debt securities
of each affected series issued under the indenture (each series treated
as a separate class) have made a written request upon the trustee to
institute the action and have offered the trustee reasonable indemnity;
- the trustee has not instituted the action within 60 days of the request;
and
- the trustee has not received directions inconsistent with the written
request by the holders of a majority in principal amount of the
outstanding debt securities of all affected series issued under the
indenture (each series treated as a separate class).
Each indenture contains a covenant requiring us to file annually with the
trustee a certificate of no default or a certificate specifying any default that
exists.
DEFEASANCE PROVISIONS APPLICABLE TO THE DEBT SECURITIES
The following provisions relating to defeasance may be modified in
connection with the issuance of any series of debt securities. We will describe
any modification in the related prospectus supplement.
"Legal" defeasance. Each indenture provides that we may defease and be
discharged from any and all of our non-administrative obligations with respect
to the debt securities of any series which have not already been delivered to
the trustee for cancellation and which have either become due and payable or are
by their terms due and payable within one year (or scheduled for redemption
within one year). We may effect the defeasance by irrevocably depositing with
the trustee money or, in the case of debt securities payable only in U.S.
dollars, U.S. government securities, which through the payment of principal and
interest in accordance with their terms will provide money in an amount we
certify to be sufficient to pay at maturity (or upon redemption) the principal
of (and premium and additional amounts, if any) and interest on the debt
securities.
In addition, we may elect to defease and be discharged from any and all of
our non-administrative obligations with respect to the debt securities of a
series upon our:
- irrevocable deposit with the trustee (or other qualifying trustee), in
trust, money or U.S. government securities in the amounts described in
the immediately preceding paragraph; and
- delivery to the trustee of an opinion of counsel to the effect that due
to an Internal Revenue Service ruling or change in federal income tax
law, holders of the debt securities of the series will not recognize
income, gain or loss for federal income tax purposes, other than with
respect to interest earned on the amounts defeased, as a result of the
defeasance and will be subject to federal income tax as if the defeasance
had not occurred.
"Covenant" defeasance. We may elect to be released from the restrictions
described under "-- Certain of our Covenants" above or, to the extent specified
in connection with the issuance of a series of debt securities, other covenants
applicable to the series of debt securities upon our:
- irrevocable deposit with the trustee (or other qualifying trustee), in
trust, money or U.S. government securities in the amounts described in
the paragraph titled "Legal defeasance"; and
- delivery to the trustee of an opinion of counsel to the effect that
holders of the debt securities of the series will not recognize income,
gain or loss for federal income tax purposes, other than with
31
<PAGE> 63
respect to interest earned on the amounts defeased, as a result of the
defeasance and will be subject to federal income tax as if the defeasance
had not occurred.
If we exercise the "covenant" defeasance option described above and the
debt securities of a series are declared due and payable because of the
occurrence of an event of default other than an event of default related to the
covenants from which we have been released, the amount of money and U.S.
government securities on deposit with the trustee will be sufficient to pay
amounts due on the related series at the time of their stated maturity, but may
not be sufficient to pay amounts due on the debt securities of the series if the
debt securities are accelerated as a result of the event of default.
MODIFICATION OF THE INDENTURE
Unless we state otherwise in the applicable prospectus supplement, each
indenture provides that we and the trustee may enter into supplemental
indentures without the consent of the holders of debt securities to
- secure the debt securities;
- evidence the assumption of our obligations by a successor entity;
- add covenants or events of default for the protection of the holders of
any debt securities;
- establish the form or terms of debt securities of any series;
- provide for uncertificated securities in addition to certificated
securities (so long as the uncertificated securities are in registered
form for tax purposes)
- evidence the acceptance of appointment by a successor trustee;
- cure any ambiguity or correct any inconsistency in the indenture or amend
the indenture in any other manner which we may deem necessary or
desirable, if such action will not adversely affect the interests of the
holders of debt securities; or
- make any change to comply with any requirement of the Securities and
Exchange Commission relating to the qualification of the indenture under
the Trust Indenture Act of 1939.
Unless we state otherwise in the applicable prospectus supplement, each
indenture will also contain provisions permitting us and the trustee to modify
the provisions of the indenture or modify in any manner the rights of the
holders of the debt securities of each such series if we first obtain the
consent of the holders of not less than a majority in principal amount of debt
securities of all series issued under the indenture then outstanding and
affected (voting as a single class). However, we must get the consent of the
holder of each debt security affected to
- extend the final maturity of any debt security;
- reduce the principal amount of any debt security;
- reduce or alter the method of computation of any amount payable in
respect of interest on any debt security;
- extend the time for payment of interest on any debt security;
- reduce or alter the method of computation of any amount payable on
redemption of any debt security
- extend the time for any redemption payment;
- change the currency or currencies or currency units, or composite
currencies in which the principal of, premium or additional amounts, if
any, or interest on any debt security is payable;
- reduce the amount payable upon acceleration of any debt security;
32
<PAGE> 64
- alter specified provisions of the indenture relating to debt securities
that are not denominated in U.S. dollars;
- impair the right to institute suit for the enforcement of any conversion
or any payment on any debt security when due or materially and adversely
affect any conversion rights;
- reduce the percentage in principal amount of debt securities of a series
required to make other modifications to the indenture.
The subordinated indenture may not be amended to alter the subordination of
any outstanding subordinated securities without the consent of each holder of
senior indebtedness then outstanding that would be adversely affected by the
amendment.
THE TRUSTEE
We will include information regarding the trustee under an indenture in any
prospectus supplement relating to the debt securities to be issued under the
indenture. The indentures will provide that in case any event of default shall
occur (and be continuing), the trustee will be required to use the degree of
care and skill of a prudent man in the conduct of his own affairs. The trustee
will be under no obligation to exercise any of its powers under the indentures
at the request of any of the holders of the debt securities, unless the holders
shall have offered the trustee reasonable indemnity against the costs, expenses
and liabilities it might incur. The indentures and provisions of the Trust
Indenture Act incorporated by reference in the indenture contain limitations on
the right of a trustee, should it become a creditor of ours, to obtain payment
of claims or to realize on property received by it in respect of any claims as
security or otherwise.
DESCRIPTION OF WARRANTS
We summarize below some of the provisions that will apply to the warrants
unless the applicable prospectus supplement provides otherwise. The summary may
not contain all information that is important to you. The complete terms of the
warrants will be contained in the applicable warrant certificate and warrant
agreement. These documents have been or will be included or incorporated by
reference as exhibits to the registration statement of which this Prospectus is
a part. You should read the warrant certificate and the warrant agreement. You
should also read the prospectus supplement, which will contain additional
information and which may update or change some of the information below.
GENERAL
We may issue warrants, including warrants to purchase common stock and debt
securities, as well as other types of warrants. We may issue the warrants
independently or together with other securities. The warrants may be attached to
or separate from the other securities. Each series of warrants will be issued
under a separate warrant agreement to be entered into between us and a warrant
agent. The warrant agent will be our agent and will not assume any obligations
to any owner of the warrants.
COMMON STOCK WARRANTS
General. Under the common stock warrant agreement, warrants may be issued
in one or more series. The prospectus supplement and the common stock warrant
agreement relating to any series of warrants will include specific terms of the
warrants. These terms include the following:
- the title and aggregate number of warrants;
- the price or prices at which the common stock warrants will be issued;
- the currency or currencies or currency units or composite currencies in
which the price of the warrants may be payable;
33
<PAGE> 65
- the amount of common stock for which the warrant can be exercised and the
price or the manner of determining the price and currency or other
consideration to purchase the common stock;
- the date on which the right to exercise the warrant begins and the date
on which the right expires;
- if applicable, the minimum or maximum amount of warrants that may be
exercised at any one time;
- if applicable, the designation and terms of the securities with which the
warrants are issued and the number of warrants issued with each other
security;
- any provision dealing with the date on which the warrants and related
securities will be separately transferable;
- any mandatory or optional redemption provision;
- the identity of the common stock warrant agent; and
- any other terms of the warrants.
The warrants will be represented by certificates. The warrants may be
exchanged under the terms outlined in the common stock warrant agreement. We
will not charge any service charges for any transfer or exchange of warrant
certificates, but we may require payment for tax or other governmental charges
in connection with the exchange or transfer. Unless the prospectus supplement
states otherwise, until a common stock warrant is exercised, a holder will not
be entitled to any payments on or have any rights with respect to the common
stock issuable upon exercise of the common stock warrant.
Exercise of Common Stock Warrants. To exercise the warrants, the holder
must provide the common stock warrant agent with the following:
- payment of the exercise price;
- any required information described on the warrant certificates;
- the number of warrants to be exercised;
- an executed and completed warrant certificate; and
- any other items acquired by the common stock warrant agreement.
The common stock warrant agent will issue a new warrant certificate for any
warrants not exercised. Unless the prospectus supplement states otherwise, no
fractional shares will be issued upon exercise of warrants, but we will pay the
cash value of any fractional shares otherwise issuable.
The exercise price and the number of shares of common stock that each
warrant can purchase will be adjusted upon the occurrence of events described in
the common stock warrant agreement, including the issuance of a common stock
dividend or a combination, subdivision or reclassification of common stock.
Unless the prospectus supplement states otherwise, no adjustment will be
required until cumulative adjustments require an adjustment of at least 1%. From
time to time, we may reduce the exercise price as may be provided in the common
stock warrant agreement.
Unless the prospectus supplement states otherwise, if we enter into any
consolidation, merger, or sale or conveyance of our property as an entirety, the
holder of each outstanding warrant will have the right to the kind and amount of
shares of stock, other securities, property or cash receivable by a holder of
the number of shares of common stock into which the warrants were exercisable
immediately prior to the occurrence of the event.
34
<PAGE> 66
Modification of the Common Stock Warrant Agreement. The common stock
warrant agreement will permit us and the common stock warrant agent, without the
consent of the common stock warrant holders, to supplement or amend the
agreement in the following circumstances:
- to cure any ambiguity;
- to correct or supplement any provision which may be defective or
inconsistent with any other provisions; or
- to add new provisions regarding matters or questions that we and the
common stock warrant agent may deem necessary or desirable and which do
not adversely affect the interests of the common stock warrant holders.
DEBT WARRANTS
The applicable prospectus supplement will describe the following terms of
warrants to purchase debt securities:
- the title and aggregate number of the debt warrants;
- the price or prices at which the debt warrants will be issued;
- the currency or currencies or currency units or composite currencies in
which the price of the debt warrants may be payable;
- the designation, aggregate principal amount and terms of the debt
securities purchasable upon exercise of the debt warrants;
- the price at which, and currency or currencies or currency units or
composite currencies in which, the debt securities purchasable upon
exercise of the debt warrants may be purchased;
- the date on which the right to exercise the debt warrants begins and the
date on which the right expires;
- if applicable, the minimum or maximum amount of the debt warrants that
may be exercised at any one time;
- if applicable, the designation and terms of the securities with which the
debt warrants are issued and the number of the debt warrants issued with
each other security;
- if applicable, the date on and after which the debt warrants and the
related other securities will be separately transferable;
- any mandatory or optional redemption provision;
- the identity of the debt securities warrant agent;
- information with respect to book-entry procedures, if any;
- if applicable, a discussion of United States federal income tax
considerations; and
- any other terms of the debt warrants, including terms, procedures and
limitations relating to the exchange and exercise of the debt warrants.
OTHER WARRANTS
We may issue warrants to purchase other securities, including preferred
stock. The applicable prospectus supplement will describe the following terms of
any other warrants:
- the title and aggregate number of the warrants;
- the price or prices at which the warrants will be issued;
35
<PAGE> 67
- the currency or currencies or currency units or composite currencies in
which the price of the warrants may be payable;
- the designation and terms of the preferred stock or other securities
purchasable upon exercise of the warrants;
- the price at which, and the currency or currencies or currency units or
composite currencies in which the securities purchasable upon exercise of
such warrants may be purchased;
- the date on which the right to exercise the warrants begins and the date
on which the right expires;
- if applicable, the minimum or maximum amount of warrants that may be
exercised at any one time;
- if applicable, the designation and terms of the securities with which the
warrants are issued and the number of warrants issued with each other
security;
- if applicable, the date on and after which the warrants and the related
other securities will be separately transferable;
- any mandatory or optional redemption provision;
- the identity of the warrant agent;
- information with respect to book-entry procedures, if any;
- if applicable, a discussion of United States federal income tax
considerations; and
- any other terms of the warrants, including terms, procedures and
limitations relating to the exchange and exercise of the warrants.
PLAN OF DISTRIBUTION
We may sell securities directly to one or more purchasers or to or through
underwriters, dealers or agents. Our prospectus supplement will set forth the
terms of the offering, including the name or names of any underwriters, the
purchase price and proceeds to us from such sale, any underwriting discounts and
other items constituting underwriters' compensation, the initial public offering
price and any discounts or concessions allowed, reallowed or paid to dealers,
and any securities exchanges on which the securities may be listed.
We may distribute our securities from time to time in one or more
transactions at a fixed price or prices (which may be changed), at market prices
prevailing at the time of sale, at prices related to prevailing market prices or
at negotiated prices. Our prospectus supplement will describe the method of
distribution.
If underwriters are used in the sale, the underwriters may acquire the
securities for their own account and may resell them from time to time in one or
more transactions, including negotiated transactions, at a fixed public offering
price or at varying prices determined at the time of sale. Securities may be
offered to the public through underwriting syndicates represented by one or more
managing underwriters or directly by one or more underwriters without a
syndicate. If an underwriting syndicate is used, the managing underwriter or
underwriters will be named in the prospectus supplement. Unless otherwise set
forth in the prospectus supplement, the obligations of the underwriters to
purchase securities will be subject to certain conditions precedent, and the
underwriters will be obligated to purchase all securities offered if any are
purchased. Any initial public offering price and any discounts or concessions
allowed, reallowed or paid to dealers may be changed from time to time.
If a dealer is used in an offering of securities, we may sell the
securities to the dealer, as principal. The dealer may then resell the
securities to the public at varying prices to be determined by the dealer at the
time of sale. The terms of the transaction will be set forth in a prospectus
supplement.
36
<PAGE> 68
Commissions payable by us to any agent involved in the offer or sale of
securities (or the method by which such commissions may be determined) will be
set forth in a prospectus supplement. Unless otherwise indicated in the
prospectus supplement, the agent will be acting on a best efforts basis.
If so indicated in the prospectus supplement, we may authorize
underwriters, dealers or agents to solicit offers by certain specified
institutions to purchase securities from us pursuant to delayed delivery
contracts providing for payment and delivery on a specified date in the future.
These contracts will be subject to the conditions set forth in the prospectus
supplement, and the prospectus supplement will set forth the commission payable
by us for solicitation of the contracts.
Dealers and agents named in a prospectus supplement may be deemed to be
underwriters of the securities within the meaning of the Securities Act.
Underwriters, dealers and agents may be entitled under agreements entered into
with us to indemnification by us against certain civil liabilities, including
liabilities under the Securities Act, or to contribution with respect to
payments that the underwriters, dealers or agents may be required to make.
Underwriters, dealers and agents may be customers of, engage in transactions
with, or perform services for us in the ordinary course of business.
As of the date of this Prospectus, only our common stock is traded on the
New York Stock Exchange. Except for our common stock, each security sold using
this Prospectus will have no established trading market. Any underwriters to
whom securities are sold may make a market in the securities, but will not be
obligated to do so and may discontinue their market making activities at any
time. There can be no assurance that a secondary market will be created for any
of the securities that may be sold using this Prospectus or that any market
created will continue.
LEGAL MATTERS
The validity of the securities will be passed upon for us by Jones, Walker,
Waechter, Poitevent, Carrere & Denegre, L.L.P., New Orleans, Louisiana.
EXPERTS
Our audited financial statements and schedules incorporated in this
Prospectus by reference to our Annual Report on Form 10-K for the year ended
December 31, 1999 have been audited by Arthur Andersen LLP, independent public
accountants, as indicated in their reports contained in the Form 10-K, and are
incorporated in this Prospectus by reference in reliance upon the authority of
Arthur Andersen LLP as experts in accounting and auditing in giving these
reports.
The information included in this Prospectus regarding the quantities of
reserves of our oil and gas properties and the related future cash flows and
present values is based on estimates of the reserves and present values prepared
by Ryder Scott Company, Petroleum Engineers, in reliance upon their authority as
experts in petroleum engineering.
WHERE YOU CAN FIND MORE INFORMATION
We file annual, quarterly and special reports, proxy statements and other
information with the Securities and Exchange Commission (the "SEC"). You can
read and copy that information at the public reference room of the SEC at 450
Fifth Street, NW, Washington, D.C. 20549. You may call the SEC at 1-800-SEC-0330
for more information about the public reference room. The SEC also maintains an
Internet site that contains reports, proxy and information statements and other
information regarding registrants, like us, that file reports with the SEC
electronically. The SEC's Internet address is http://www.sec.gov.
We have filed a registration statement and related exhibits with the SEC
under the Securities Act of 1933. The registration statement contains additional
information about us and our securities. You may read
37
<PAGE> 69
the registration statement and exhibits without charge at the SEC's public
reference room, and you may obtain copies from the SEC at prescribed rates.
The SEC allows us to "incorporate by reference" the information we file
with it, which means that we can disclose important information to you by
referring to documents on file with the SEC. Some information that we currently
have on file is incorporated by reference and is an important part of this
Prospectus. Some information that we file later with the SEC will automatically
update and supersede this information.
We incorporate by reference the following documents that we have filed with
the SEC pursuant to the Securities Exchange Act of 1934:
- Annual Report on Form 10-K for the fiscal year ended December 31, 1999
(filed February 7, 2000);
- Current Reports on Form 8-K dated January 14, 2000 (filed January 20,
2000) and dated January 19, 2000 (filed January 20, 2000); and
- All documents filed by us with the SEC pursuant to Sections 13(a), 13(c),
14 or 15(d) of the Exchange Act after the date of this Prospectus and
prior to the termination of this offering.
At your request, we will provide you with a free copy of any of these
filings (except for exhibits, unless the exhibits are specifically incorporated
by reference into the filing). You may request copies by writing or telephoning
us at:
McMoRan Exploration Co.
1615 Poydras Street
New Orleans, Louisiana 70112
Attention: John G. Amato
(504) 582-4000
YOU SHOULD RELY ONLY ON INFORMATION INCORPORATED BY REFERENCE OR PROVIDED
IN THIS PROSPECTUS AND ANY PROSPECTUS SUPPLEMENT. WE HAVE NOT AUTHORIZED ANYONE
ELSE TO PROVIDE YOU WITH DIFFERENT INFORMATION.
38
<PAGE> 70
3,800,000 SHARES
MCMORAN EXPLORATION CO.
COMMON STOCK
[MCMORAN LOGO]
----------------------------
PROSPECTUS SUPPLEMENT
APRIL 13, 2000
----------------------------
LEHMAN BROTHERS
HOWARD, WEIL, LABOUISSE, FRIEDRICHS
INCORPORATED
PETRIE PARKMAN & CO.
BMO NESBITT BURNS CORP.
CHASE SECURITIES INC.
HIBERNIA SOUTHCOAST CAPITAL, INC.
LOGO
