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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM 10-K
X ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
----- THE SECURITIES EXCHANGE ACT OF 1934
For the year ended December 31, 1997
Commission file number 1-9164
PHOSPHATE RESOURCE PARTNERS LIMITED PARTNERSHIP
(Exact name of Registrant as specified in its charter)
(Formerly Freeport-McMoRan Resource Partners, Limited Partnership)
Delaware 72-1067072
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
2100 Sanders Road
Northbrook, Illinois 60062
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (847) 272-9200
Securities registered pursuant to Section 12(b) of the Act:
Name of each exchange
Title of each class on which registered
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Depositary Units New York Stock Exchange
Securities registered pursuant to Section 12(g) of the Act: NONE
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days.
Yes X . No .
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Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to
the best of Registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [ ]
The aggregate market value of the Depositary Units held by non-affiliates of
the Registrant was approximately $338,223,977 on March 20, 1998.
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Phosphate Resource Partners Limited Partnership
TABLE OF CONTENTS
Page
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Part I
Items 1. and 2.Business and Properties 1
Overview 1
IMC-Agrico Company 2
Oil and Gas 5
Environmental Matters 6
Relationship Between the Company and IMC 8
Item 3. Legal Proceedings 9
Item 4. Submission of Matters to a Vote of Unitholders 10
Part II
Item 5. Market for Registrant's Common Equity and
Related Unitholder Matters 10
Item 6. Selected Financial Data 12
Item 7. Management's Discussion and Analysis of Results
of Operations and Financial Condition 13
Item 8. Financial Statements and Supplementary Data 21
Item 9. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure 36
Part III
Item 10. Directors and Executive Officers of the Registrant 36
Item 11. Executive Compensation 37
Item 12. Security Ownership of Certain Beneficial Owners
and Management 37
Item 13. Certain Relationships and Related Transactions 38
Part IV
Item 14. Exhibits, Financial Statement Schedules and
Reports on Form 8-K 38
Signatures S-1
Exhibit Index E-1
Index to Financial Statements F-1
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PART I
Items 1. and 2. Business and Properties. (1)
OVERVIEW
(Dollars in millions except per unit amounts)
Phosphate Resource Partners Limited Partnership, formerly Freeport-
McMoRan Resource Partners, Limited Partnership (PLP or Company), through its
joint venture operation in IMC-Agrico Company (IMC-Agrico), is one of the
world's largest and one of the lowest cost producers, marketers and
distributors of phosphate crop nutrients and animal feed ingredients, with
operations in central Florida and on the Mississippi River in Louisiana.
IMC-Agrico's business includes the mining and sale of phosphate rock;
and the producing, marketing and distributing of phosphate crop nutrients and
animal feed ingredients. IMC-Agrico was formed as a joint venture
partnership in July 1993 when PLP and IMC Global Inc. (IMC) contributed their
respective phosphate crop nutrients businesses to IMC-Agrico.
In March 1997 PLP entered into an agreement with McMoRan Oil & Gas Co.
(MOXY), pursuant to which PLP acquired an interest in certain oil and gas
leases previously acquired by MOXY. PLP and MOXY agreed to a multi-year,
aggregate $200.0 million oil and gas exploration program (MOXY Exploration
Program) to explore and develop prospects primarily offshore in the Gulf of
Mexico (Gulf) and onshore in the Gulf Coast area. In December 1997, the MOXY
Exploration Program was expanded to include an additional investor resulting
in the total commitment increasing to $210.0 million. PLP also agreed to
acquire an equity interest in MOXY, and owned 3.9 million shares,
approximately 9.0 percent, of MOXY common stock at December 31, 1997. See
"Oil and Gas," for further detail.
Until December 22, 1997 PLP also owned certain sulphur mining,
transportation, terminaling and marketing assets. These assets included a
58.3 percent interest in the Main Pass 299 sulphur and oil joint venture
(Main Pass Joint Venture), for which PLP served as manager and operator and
in which IMC owned a 25.0 percent interest. On December 22, 1997 Freeport-
McMoRan Inc. (FTX), the former administrative managing general partner and
owner of a 51.6 percent interest in PLP, merged into IMC (FTX Merger). In
connection with the FTX Merger, IMC became administrative managing general
partner of PLP. Immediately prior to the FTX Merger, PLP formed Freeport-
McMoRan Sulphur Inc. (FSC) and contributed certain assets to FSC, including
PLP's interest in the Main Pass Joint Venture, the Culberson sulphur mine in
West Texas and various related sulphur terminaling and transportation assets
in the Gulf Coast area. In connection with the FTX Merger, IMC also
contributed its 25.0 percent interest in the Main Pass Joint Venture to FSC.
PLP immediately thereafter distributed its FSC shares to PLP unitholders,
including FTX. FTX then, in turn, distributed FSC shares to its
stockholders. As a result, the Company does not own any interest in FSC.
Following completion of the FTX Merger, PLP's business operations now
consist of: (i) its administrative joint venture interest in IMC-Agrico; (ii)
its interest in the oil and gas exploration program with MOXY; and (iii)
certain other oil and gas operations. All references herein to PLP or the
Company refer to PLP's business activities as executed through its ownership
interest in IMC-Agrico, its interest in the MOXY Exploration Program and
certain other oil and gas operations.
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The Company is a publicly traded Delaware limited partnership, the
administrative managing general partner of which is IMC. As of December 31,
1997, IMC held partnership units representing an approximate 51.6 percent
interest in PLP, with the remaining interest being publicly owned and traded
on the New York Stock Exchange. See "Relationship Between the Company and
IMC," for further detail.
IMC-Agrico Company
(The amounts included in the IMC-Agrico discussion are shown in total for the
joint venture unless otherwise indicated.)
In July 1993, PLP and IMC contributed to IMC-Agrico their respective
phosphate crop nutrients businesses, including the mining and sale of
phosphate rock and the producing, marketing and distributing of phosphate
crop nutrients. At the time, PLP and IMC were each among the largest and
lowest cost phosphate crop nutrients producers in the world. The formation
of IMC-Agrico has permitted the more efficient use of existing plant capacity
and elimination of duplicative administrative and marketing functions.
IMC, as the administrative managing general partner, is responsible for
the operation of IMC-Agrico, subject to the terms of the partnership
agreement and the direction of the IMC-Agrico policy committee (Committee).
This Committee establishes policies relating to the strategic direction of
IMC-Agrico and assures that its policies are implemented. The Committee has
the sole authority to make certain decisions affecting IMC-Agrico, including
authorizing certain capital expenditures for expansion, incurring certain
indebtedness, approving significant acquisitions and dispositions, and
certain other decisions.
Total revenues for PLP's proportionate interest in IMC-Agrico were
$683.8 million, $781.1 million and $792.6 million for the years ended
December 31, 1997, 1996 and 1995, respectively. IMC-Agrico's operations
consist of its phosphate crop nutrients business (Crop Nutrients) and its
animal feed ingredients business (Feed Ingredients).
Crop Nutrients
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Crop Nutrients is a leading United States miner of phosphate rock, one
of the primary raw materials used in the production of concentrated
phosphates, with 25 million tons of annual capacity. Crop Nutrients is also
a leading United States producer of concentrated phosphates with an annual
capacity of approximately four million tons of phosphoric acid (P2O5). P2O5
is an industry term indicating a product's phosphate content measured
chemically in units of phosphorous pentoxide. Crop Nutrients' concentrated
phosphate products are marketed worldwide to crop nutrient manufacturers,
distributors and retailers.
Crop Nutrients' concentrated phosphate production facilities are located
in central Florida and Louisiana. Its annual capacity represents
approximately 32.0 percent of total United States concentrated phosphate
production capacity and approximately 10.0 percent of world capacity. The
Florida concentrated phosphate facilities consist of three plants: New Wales,
Nichols and South Pierce. The New Wales complex is the largest concentrated
phosphate plant in the world with an estimated annual capacity of 1.8 million
tons of phosphoric acid (P2O5 equivalent). New Wales primarily produces
four forms of concentrated phosphates: diammonium phosphate (DAP),
monoammonium phosphate (MAP), granular triple superphosphate (GTSP) and
merchant grade phosphoric acid. The Nichols facility manufactures phosphoric
acid, DAP and granular MAP (GMAP). The South Pierce plant produces
<PAGE>
phosphoric acid and GTSP. The Louisiana concentrated phosphate facilities
consist of three plants: Uncle Sam, Faustina and Taft. The Uncle Sam plant
produces phosphoric acid which is then shipped to the Faustina and Taft
plants where it is used to produce DAP and GMAP. The Faustina plant
manufactures phosphoric acid, DAP, GMAP, urea and ammonia. The Taft facility
manufactures only DAP. Concentrated phosphate operations are managed to
balance Crop Nutrients' output with customer needs. Crop Nutrients resumed
production at its Taft facility in December 1997 after having been idled
since September 1996. Subsequent to December 31, 1997, Crop Nutrients
suspended phosphoric acid production at its Nichols facility.
Phosphate rock, sulphur and ammonia are the three principal raw
materials used in the production of concentrated phosphates:
Phosphate Rock
All seven of Crop Nutrients' phosphate mines and related mining
operations are located in central Florida. Crop Nutrients extracts phosphate
ore through surface mining after removal of a ten to 50 foot layer of sandy
overburden and then processes the ore at one of its beneficiation plants
where the ore goes through washing, screening, sizing and flotation
procedures designed to separate it from sands, clays and other foreign
materials. Currently, five of Crop Nutrients' phosphate mines are
operational while one has been idle since 1986 and one was idled in June
1997. Crop Nutrients' phosphate rock production volume for the years ended
December 31, 1997, 1996 and 1995 totaled 20.0 million, 22.5 million and 25.0
million tons, respectively. Although Crop Nutrients sells phosphate rock to
other crop nutrient and animal feed ingredient manufacturers, it primarily
uses phosphate rock internally in the production of concentrated phosphates.
Tons used captively, primarily in the manufacture of concentrated phosphates,
totaled 14.1 million, 14.3 million and 14.6 million for the years ended
December 31, 1997, 1996 and 1995, respectively, representing 70.0 percent,
64.0 percent and 58.0 percent, respectively, of total tons produced.
Phosphate rock shipments to customers totaled 4.6 million, 6.5 million and
9.7 million tons for the years ended December 31, 1997, 1996 and 1995,
respectively. Customer shipments have been reduced in order to maximize
relative values of rock and concentrated phosphates by utilizing high-quality
reserves for internal upgrading.
Crop Nutrients estimates its reserves to be 561.0 million tons of
phosphate rock as of December 31, 1997. These reserves are controlled by
Crop Nutrients through ownership, long-term lease, royalty or purchase option
agreements. Reserve grades range from 58.0 percent to 78.0 percent bone
phosphate of lime (BPL), with an average grade of 66.6 percent BPL. BPL is
the standard industry term used to grade the quality of phosphate rock. The
phosphate rock mined by Crop Nutrients in the last three years averaged 65.4
percent BPL, which is typical for phosphate rock mined in Florida during this
period. Crop Nutrients estimates its reserves based upon the performance of
exploration core drilling and technical and economic analyses to determine
that reserves so classified can be economically mined at market prices
estimated to prevail during the next five years.
Crop Nutrients also owns or controls phosphate rock resources in the
southern extension of the central Florida phosphate district. Resources are
mineralized deposits which may be economically recoverable; however,
additional prospect data and analyses, including further geological work,
drilling, permitting and mining feasibility studies, are required before they
may be classified as reserves. Based upon its preliminary analyses of these
resources, Crop Nutrients believes that these mineralized deposits differ in
physical and chemical characteristics from those historically mined by Crop
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Nutrients but are similar to some of the reserves being mined by current
operations. These resources contain estimated recoverable phosphate rock of
approximately 211.0 million tons with an average grade of approximately 64.0
percent BPL. Some of these resources are located in what may be classified
as preservational wetland areas under standards set forth in current county,
state and federal environmental protection laws and regulations.
Sulphur
A significant portion of Crop Nutrients' sulphur requirements is
provided by FSC, under a supply agreement which is based on variable market
prices. In prior years, Crop Nutrients received a significant portion of its
sulphur requirements from the Company's and IMC's Main Pass Joint Venture
interest. In connection with the FTX Merger, both the Company's and IMC's
interests in the Main Pass Joint Venture operations, together with PLP's
other sulphur mining, purchase, transportation, terminaling and sales
operations, were transferred to FSC. Consequently, IMC entered into an
agreement with FSC to supply a certain portion of Crop Nutrients' sulphur
requirements. See Notes 2, 5 and 9 in Part II, Item 8, "Financial Statements
and Supplementary Data," together with Part II, Item 6, "Selected Financial
Data," and Part II, Item 7, "Management's Discussion and Analysis of Results
of Operations and Financial Condition," for further information regarding
PLP's sulphur operations prior to the FTX Merger.
Ammonia
Crop Nutrients' ammonia needs are supplied by its Faustina ammonia
production facility and by world suppliers, primarily under multi-year
contracts. Production from the Faustina plant, which has an estimated annual
capacity of 560,000 tons of anhydrous ammonia, is primarily used internally
to produce DAP, GMAP and urea.
Sales and Marketing
Domestically, Crop Nutrients sells its concentrated phosphates to crop
nutrient manufacturers, distributors and retailers. IMC-Agrico also uses
concentrated phosphates internally for the production of animal feed
ingredients. See "Feed Ingredients," for further detail. Virtually all of
Crop Nutrients' export sales of phosphate crop nutrients are marketed through
the Phosphate Chemicals Export Association (PhosChem), a Webb-Pomerene Act
organization, which IMC administers on behalf of three other member
companies. PhosChem believes that its sales represent approximately 50.0
percent of total United States exports of concentrated phosphates. Outside
of the United States, the countries which account for the largest amount of
Crop Nutrients' sales of concentrated phosphates include China, Japan,
Australia and Thailand. The table below shows Crop Nutrients' shipments of
concentrated phosphates in thousands of dry product tons, primarily DAP.
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<TABLE>
<CAPTION>
1997 1996 1995
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Tons % Tons % Tons %
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<S> <C> <C> <C> <C> <C> <C>
Domestic
Customers 2,065 29% 2,350 32% 2,403 31%
Affiliates 615 9 581 8 683 9
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2,680 38 2,931 40 3,086 40
Export 4,425 62 4,451 60 4,719 60
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Total shipments 7,105 100% 7,382 100% 7,805 100%
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At December 31, 1997, Crop Nutrients had contractual commitments from
non-affiliated customers for the shipment of concentrated phosphates
amounting to approximately 3.1 million tons and phosphate rock amounting to
approximately 5.0 million tons in 1998.
Other
Crop Nutrients also manufactures and markets uranium oxide. Phosphate
rock is the source of uranium oxide, with the uranium content varying from
deposit to deposit. Uranium oxide production facilities are located in
Louisiana and Florida. In Louisiana, Crop Nutrients owns and operates
uranium oxide recovery and processing facilities which are located adjacent
to its Uncle Sam and Faustina concentrated phosphate plants. In 1997, these
facilities recovered 0.9 million pounds of uranium oxide from phosphoric acid
produced at these facilities. Crop Nutrients also owns two uranium oxide
recovery and processing facilities in central Florida, one located adjacent
to its New Wales concentrated phosphate plant and another located adjacent to
a concentrated phosphate plant owned and operated by a subsidiary of CF
Industries, Inc. (CF). The New Wales and CF facilities have been temporarily
idled pending improvement of uranium market conditions.
Competition
Crop Nutrients operates in a highly competitive global market. Among
the competitors in the global phosphate crop nutrient market are domestic and
foreign companies, as well as foreign government-supported producers.
Phosphate crop nutrient producers compete primarily based on price and, to a
lesser extent, product quality and innovation.
Subsequent Event
In January 1998, Crop Nutrients exercised its option under an agreement
with Mississippi Chemical Corporation (MCC) to purchase land in Florida for
$57.0 million. The property, along with land previously purchased from MCC,
contains approximately 62.4 million tons of phosphate rock reserves and 40.3
million tons of resources, and such amounts are included in the respective
estimates as of December 31, 1997.
<PAGE>
Feed Ingredients
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Net sales were $163.5 million for 1997, $154.6 million for 1996 and
$34.2 million for the 1995 partial year. In October 1995, IMC acquired the
animal feed ingredients business of Mallinckrodt Group Inc. and subsequently
contributed it to IMC-Agrico. Feed Ingredients is one of the world's
foremost producers and marketers of phosphate-based animal feed ingredients
with an annual capacity in excess of 700,000 tons. In the first quarter of
1998, Feed Ingredients will start construction on the expansion of its
deflourinated phosphate (Multifos(registered trademark)) capacity at its
manufacturing operation in New Wales, Florida. The project will increase
the annual capacity for Multifos to 200,000 tons and will increase Feed
Ingredients' total annual production to approximately 770,000 tons. Feed
Ingredients supplies phosphate and potassium-based feed ingredients for
poultry and livestock to markets in North America, Latin America and Asia.
The principal production facilities of Feed Ingredients are located adjacent
to, and utilize raw materials from, the concentrated phosphate complex at New
Wales in central Florida.
Feed Ingredients operates in a competitive global market. Major
integrated producers of feed phosphates and feed grade potassium are located
in the United States and Europe. Many smaller producers are located in
emerging markets around the world. Many of these smaller producers are not
manufacturers of phosphoric acid and are required to purchase this raw
material on the open market. Competition in this global market is driven by
quality, service and price.
Employees
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PLP has no employees. At December 31, 1997, IMC-Agrico had
approximately 3,871 employees. The work force consisted of 622 salaried,
3,029 hourly and 220 temporary or part-time employees.
Labor Relations
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IMC-Agrico has three collective bargaining agreements with three
international unions or their affiliated local chapters. At December 31,
1997, approximately 89.0 percent of the hourly work force were covered under
collective bargaining agreements. One agreement, covering 50.0 percent of
the hourly work force, was negotiated during 1997. Resulting wage and
benefit increases were consistent with competitive industry and community
standards. Two agreements covering approximately 39.0 percent of the hourly
work force will expire during 1998. The Company has not experienced a
significant work stoppage in recent years and considers its employee
relations to be good.
Factors Affecting Demand
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PLP's results of operations historically have reflected the effects of
several external factors which are beyond its control and have in the past
produced significant downward and upward swings in operating results.
Revenues are highly dependent upon conditions in the North American
agriculture industry and can be affected by crop failure, changes in
agricultural production practices, government policies and weather.
Furthermore, IMC-Agrico's business is seasonal to the extent United States
farmers and agricultural enterprises purchase more crop nutrient products
during the spring and fall.
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IMC-Agrico's export sales to foreign customers are subject to numerous
risks, including fluctuations in foreign currency exchange rates and
controls, expropriation and other economic, political and regulatory policies
of local governments and laws and policies of the United States affecting
foreign trade and investment. Due to economic and political factors,
customer needs can change dramatically from year to year. While management
does not believe the current economic conditions in Asia will have a material
adverse effect on the Company's results, there can be no assurance that a
continuation of the economic crisis would not have a material impact on sales
to customers in this region.
In 1997, sales of phosphate crop nutrients to China accounted for
approximately 25.0 percent of IMC-Agrico's revenues. No single customer or
group of affiliated customers accounted for more than ten percent of
IMC-Agrico's revenues.
Oil and Gas
MOXY is an independent oil and gas company engaged in the exploration,
development and production of oil and natural gas. MOXY operations are
conducted offshore in the Gulf and onshore in the Gulf Coast area. MOXY
commenced operations in May 1994 following the distribution of all of MOXY's
common stock to the stockholders of FTX in order to carry on substantially
all of the oil and natural gas exploration activities previously conducted by
FTX. MOXY and its predecessors have conducted exploration, development and
production operations offshore in the Gulf and onshore in the Gulf Coast and
other areas for more than 25 years, which have provided MOXY an extensive
geological and geophysical database, and extensive technical and operational
expertise.
During 1996 and 1997, PLP participated with MOXY in the acquisition of
interests in one onshore Louisiana and seven offshore Gulf tracts, with PLP's
related cost totaling approximately $5.5 million. Further, in August 1997
PLP purchased from MCN Energy Group Inc. (MCN), MCN's 60.0 percent interest
in the MOXY/MCN offshore exploration program (MOXY/MCN Program) for a total
of $46.4 million, subject to adjustments for post-closing revenues and
expenses subsequent to April 1, 1997. Such interest included: (i) two
producing oil and gas fields; (ii) an inventory of eight exploration
prospects in the offshore Gulf; and (iii) MOXY's program debt to MCN. PLP
acquired the interest in the producing properties and program debt to MCN as
an accommodation to MOXY, pending completion of a financial restructuring by
MOXY which enabled MOXY to purchase the producing properties and program debt
to MCN from PLP.
In November 1997, MOXY received $92.2 million of net proceeds from the
sale of a total of 28.6 million shares of common stock at $3.50 per share
under a rights offering to existing shareholders (Rights Offering). PLP
purchased 3.9 million of these shares, representing approximately 9.0 percent
of total MOXY shares outstanding, for $13.5 million in fulfillment of its
commitment to purchase any shares relating to unexercised rights from the
Rights Offering (Stand-By Commitment). MOXY used $44.5 million of these
proceeds, after post-closing adjustments, to acquire from PLP the interest in
the producing properties and repay the program debt . In addition, MOXY paid
PLP a $6.0 million fee for acquiring and holding these MOXY/MCN Program
assets until completion of the Rights Offering, for entering into the Stand-
By Commitment and for agreeing to enter into the oil and gas exploration
program with MOXY discussed below.
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MOXY is using the remaining net Rights Offering proceeds to fund a
portion of its share of an aggregate $210.0 million, multi-year oil and gas
exploration program to explore and develop prospects primarily offshore in
the Gulf and onshore in the Gulf Coast region formed upon completion of the
Rights Offering to replace the MOXY/MCN Program. MOXY will manage this
program, selecting all prospects and drilling opportunities, and will serve
as operator. MOXY and PLP contributed their interests in all exploration
properties formerly part of the MOXY/MCN Program and their joint interests in
certain other properties to the MOXY Exploration Program. Under this
program, most exploration expenditures will be shared 56.4 percent by PLP,
37.6 percent by MOXY and 6.0 percent by an individual investor, with all
other costs and revenues shared 47.0 percent by PLP, 48.0 percent by MOXY and
5.0 percent by the individual investor. Exploration expenditures consist of
all costs associated with leasehold acquisition and maintenance, geological
and geophysical studies, seismic surveys, drilling exploratory wells,
overhead reimbursements and all other aspects of identifying prospects and
drilling exploratory wells. PLP and MOXY have received credits against their
program commitment for an aggregate of $8.3 million for certain exploratory
costs. The MOXY Exploration Program will terminate after initial exploration
program expenditures of $210.0 million have been committed or on March 31,
2002, whichever is earlier.
Due to its interest in the MOXY Exploration Program, PLP's results of
operations can be affected by various factors affecting MOXY and the oil and
gas industry.
ENVIRONMENTAL MATTERS
General
As a producer of crop nutrients, the Company is subject to a myriad of
federal, state and local environmental, health and safety laws in the United
States. These standards regulate the management and handling of raw
materials and products, air and water quality, disposal of hazardous and
solid wastes, and post-mining land reclamation. It is the Company's policy
to comply with all applicable environmental, health and safety (EHS)
standards. Through its active EHS management program, the Company is
confident that it generally satisfies these requirements. Nevertheless,
there can be no assurance that unexpected or additional costs, penalties, or
liabilities will not be incurred. Moreover, EHS standards applicable to the
Company's operations, and the industry in general, continue to evolve. Until
implementing regulations have been finalized and definitive regulatory
interpretations have been adopted, it is difficult to ascertain future
compliance obligations or estimate future costs.
The Company has expended, and anticipates that it will continue to
expend, substantial resources, both financial and managerial, to comply with
EHS standards. For 1998, the PLP proportional share of environmental capital
expenditures will total approximately $15.0 million, primarily related to air
permitting and control; ground and surface water protection; solid waste
management and remediation of contamination at current or former operations.
In 1998, the PLP proportional share of additional expenditures for land
reclamation activities will total approximately $11.0 million. Based on
current information, it is the opinion of management that the ultimate
liability arising from EHS matters, taking into account established accruals,
should not have a material adverse effect on the Company's financial
position. However, no assurance can be given that greater-than-anticipated
environmental expenditures will not be required in 1998 or in the future.
<PAGE>
Product Requirements
Recently, various federal, state, and local environmental and public
health agencies have begun evaluating alleged environmental and health
effects that might arise from the handling and use of fertilizer products and
fertilizer additives. Because this evaluation is in its initial stages, it
is unclear whether the evaluation will result in additional federal, state,
or local regulatory requirements that the industry, including the Company,
will be required to meet. Until the results of the initial evaluations have
been completed, the Company cannot estimate the extent of expenditures that
may be necessary to meet additional standards, if any.
Permitting
PLP, through IMC-Agrico, holds numerous environmental and other permits
authorizing operations at each of its facilities. A decision by a government
agency to deny an application for a new or renewed permit, or to revoke or
substantially modify an existing permit, could have a material adverse effect
on the Company's ability to continue operations at the affected facility.
Expansion of operations also is predicated upon securing the necessary
environmental and other permits. In particular, over the next several years,
IMC-Agrico will be undertaking efforts to obtain a number of permits related
to its Florida mining operations. IMC-Agrico signed an agreement with
Consolidated Minerals, Inc. (CMI) for the purchase of real property (Pine
Level) containing approximately 100 million tons of phosphate rock reserves
in Florida. In connection with the purchase, IMC-Agrico has agreed to obtain
all environmental, regulatory and related permits necessary to commence
mining on the property. Successful achievement of such permitting remains to
be accomplished in the next five to eight years. Although the Company,
through IMC-Agrico, has successfully permitted mining properties in Florida,
if permits were denied or if compliance with permit conditions becomes cost
prohibitive, a complete or substantial inability to mine this property may
result and would adversely impact the Company.
Risk Management Planning
Several of the Company's facilities are subject to the Clean Air Act's
Risk Management Planning (RMP) requirements, which mandate that covered
facilities establish comprehensive plans for preventing and responding to
accidental releases to the air. Under RMP, facilities also must present
information to the public about their "worst-case" release scenarios from
regulated processes, the potential effects of such a release on nearby
populations, and the Company's release prevention programs. The Company
continues to implement the required RMP programs on schedule to meet a June
1999 deadline. Costs to complete these planning processes could be
substantial.
Mining Operations
The Company's phosphate mining activities are subject to a number of EHS
standards. In Florida, IMC-Agrico received a number of permits from the U.S.
Army Corps of Engineers (Corps) that authorize phosphate mining in certain
wetland areas. In October 1997, the Company received three notices from the
Corps alleging that the Company had violated its permits. Upon reviewing
these notices, the Company ascertained that it had inadvertently disturbed,
without permits, additional wetlands over which the Corps had asserted
jurisdiction. The Company has had informal discussions with the Corps to
resolve these issues and additional meetings are expected in 1998. Although
<PAGE>
the Company is unable to predict the outcome of these proceedings, it does
not expect that these proceedings will have a material adverse effect on the
Company's financial condition or operations.
Management of Residual Materials
Phosphate mining and processing produce residual materials that must be
managed. Phosphate residuals, consisting primarily of phosphogypsum,
typically are stored in phosphogypsum stack systems. Other phosphate mining
residuals, clay and other tailings, are used in reclamation. PLP has
incurred and will continue to incur significant costs to manage its phosphate
residual materials in accordance with environmental laws, regulations and
permit requirements.
With regard to phosphate processing, Florida law may require IMC-Agrico
to close one or more of its unlined phosphogypsum stacks and/or associated
cooling ponds after March 25, 2001, if the stack system is demonstrated to
cause a violation of Florida's water quality standards. IMC-Agrico has
already filed an application with Florida's Department of Environmental
Protection to close the unlined gypsum stack at its New Wales facility in
central Florida. Closure activities would begin on July 1, 1998 if the plan
is accepted and would cost approximately $1.7 million, net of recorded
accruals, for construction activities over a period of five years. IMC-
Agrico cannot predict at this time whether Florida will require closure of
any of its other stack systems. The costs of any such closures could be
significant.
IMC-Agrico continues to address elevated levels of sulphate and sodium
indicators in groundwater at its New Wales facility. In 1992, elevated
sulphate levels were detected in groundwater beneath an unlined cooling pond.
In response, the Central Florida Regional Planning Council required IMC-
Agrico to plug former recharge wells and either show that groundwater
sulphate levels have returned to acceptable levels or line or relocate the
cooling pond. Recent monitoring data have evidenced an improving trend in
the sulphate and sodium indicator levels. Based on this trend, IMC-Agrico
received a permit to continue operating the cooling pond until July 1998, at
which time the permit must be renewed. If indicators do not reach acceptable
levels, options will be pursued to meet the operating needs of the facility.
The estimated cost to line or relocate the cooling pond, if necessary, is
estimated to be approximately $50.0 million.
Remedial Activities
Many of the Company's currently and formerly owned facilities have been
in operation for many years. The historical use and handling of regulated
substances and crop nutrient products at these facilities by the Company and
predecessor operators has resulted in soil and ground water contamination.
PLP has also purchased facilities that were contaminated by previous owners
through their use and handling of regulated substances.
Spills or other unintended releases of regulated substances have
occurred previously at these facilities, and potentially could occur in the
future, possibly requiring PLP to undertake or fund cleanup efforts. At some
locations, PLP has agreed, pursuant to consent orders with the appropriate
governmental agencies, to undertake certain investigations (which currently
are in progress) to determine whether remedial action may be required to
address contamination.
<PAGE>
Material expenditures may be required by the Company in the future to
remediate the contamination at these current or former sites. The cost of
any remedial actions that ultimately may be required at sites that are
currently under investigation or for which investigations have not been
performed cannot be determined. It is the Company's policy to accrue
environmental investigatory and noncapital remediation costs for identified
sites when (i) litigation has commenced or (ii) a claim or assessment has
been asserted or is probable and the likelihood of an unfavorable outcome is
probable.
The Company believes that, pursuant to several indemnification
agreements, it is entitled to at least partial, and in many instances
complete, indemnification for a portion of the costs that may be expended by
the Company to remedy environmental issues at certain facilities. These
agreements address issues that resulted from activities occurring prior to
the Company's acquisition of facilities or businesses from third parties.
The Company has already received and anticipates receiving amounts pursuant
to the indemnification agreements for certain of its expenses incurred to
date.
Superfund
The Comprehensive Environmental Response Compensation Liability Act
(CERCLA), also known as "Superfund," imposes liability without regard to
fault or to the legality of a party's conduct, on certain categories of
persons that are considered to have contributed to the release of "hazardous
substances" into the environment. Currently, PLP is involved or concluding
involvement at less than ten Superfund sites. At none of these sites alone,
nor in the aggregate, is the Company's liability currently expected to be
material. As more information is obtained regarding the sites and the
potentially responsible parties involved, this expectation could change.
RELATIONSHIP BETWEEN THE COMPANY AND IMC
Management and Ownership
IMC serves as the administrative managing general partner of PLP and
officers of IMC perform all PLP management functions and carry out the
activities of PLP. At December 31, 1997, IMC held partnership interests that
represented an approximate 51.6 percent interest in PLP. As a result of
IMC's position as administrative managing general partner and of its
ownership interest, IMC has the ability to control all matters relating to
the management of the Company, including any determination with respect to
the acquisition or disposition of Company assets, future issuance of
additional debt or other securities of the Company and any distributions
payable in respect of the Company's partnership interests. In addition to
such other obligations as it may assume, IMC has the general duty to act in
good faith and to exercise its rights of control in a manner that is fair and
reasonable to the holders of partnership interests.
In January 1998, PLP announced that it would not make a cash
distribution for the quarter ended December 31, 1997. Total unpaid
distributions due IMC of $431.3 million existed as of this date. PLP's
distributable cash is now shared ratably by PLP's public unitholders and IMC,
except that IMC is entitled to recover its unpaid cash distributions on a
quarterly basis from one half of any excess of future quarterly distributions
over 60 cents per unit for all units.
<PAGE>
Financing Arrangements
Reference is made to the information set forth in Part II, Item 7,
"Management's Discussion and Analysis of Results of Operations and Financial
Condition - Capital Resources and Liquidity - Financing," of this Annual
Report on Form 10-K.
Conflicts of Interest
The nature of the respective businesses of the Company and IMC and its
affiliates may give rise to conflicts of interest between the Company and
IMC. Conflicts could arise, for example, with respect to transactions
involving potential acquisitions of businesses or mineral properties, the
issuance of additional partnership interests, the determination of
distributions to be made by the Company, the allocation of general and
administrative expenses between IMC and the Company and other business
dealings between the Company and IMC and its affiliates. Except in cases
where a different standard may have been provided for, IMC has a general duty
to act in good faith and to exercise rights of control in a manner that is
fair and reasonable to the holders of PLP's partnership interests. In
resolving conflicts of interest, PLP's partnership agreement permits IMC to
consider the relative interest of each party to a potential conflict
situation which, under certain circumstances, could include the interest of
IMC and its other affiliates.
Services Agreement
From January 1, 1996, until the FTX Merger, FM Services Company (FMS), a
former affiliate of FTX, furnished general executive, administrative,
financial, accounting, legal, environmental, insurance, personnel,
engineering, tax, research and development, sales and certain other services
to FTX pursuant to the terms of a services agreement (Services Agreement) in
order to enable FTX to perform its duties as administrative managing general
partner of the Company. The nature and timing of the services provided under
the Services Agreement were similar to those historically provided directly
by FTX to the Company. PLP generally reimbursed FTX, at FTX's cost,
including allocated overhead, for such services on a monthly basis, including
amounts paid by FTX under the Services Agreement and allocated to PLP. Such
costs were allocated among PLP, FTX and certain of FTX's other affiliates
based on direct utilization whenever possible and an allocation formula based
on a combination of the operating income, property, plant and equipment and
capital expenditures of PLP, FTX and such other affiliates.
In connection with the FTX Merger, FMS agreed to provide IMC and its
affiliates certain transition services necessitated by the FTX Merger,
including administrative, financial, accounting, treasury, data retention,
personnel, insurance and risk management pursuant to the terms of a master
services agreement and certain ancillary services agreements (Transition
Services Agreements). Certain of the services being provided to IMC on
behalf of PLP include tax and audit services, accounting and financial
reporting services for the year ended December 31, 1997 and oil and gas
accounting and reporting services. The Transition Services Agreements
generally expire in 1998 and 1999, and it is anticipated that all such
services will be provided by IMC in the future.
<PAGE>
Item 3. Legal Proceedings.(1)
Merger Litigation
- -----------------
In August 1997, five identical class action lawsuits were filed in
Chancery Court in Delaware by unitholders of PLP. Each case named the same
defendants and broadly alleged that FTX and FMRP Inc. (FMRP), an affiliate of
FTX, had breached fiduciary duties owed to the public unitholders of PLP.
IMC was alleged to have aided and abetted these breaches of fiduciary duty.
In November 1997, an amended class action complaint was filed with
respect to all cases. The amended complaint named the same defendants and
raised the same broad allegations of breaches of fiduciary duty against FTX
and FMRP for allegedly favoring the interests of FTX and FTX's common
stockholders in connection with the FTX Merger. The plaintiffs claimed
specifically that, by virtue of the FTX Merger, the public unitholders'
interests in PLP's ownership of IMC-Agrico would become even more subject to
the dominant interest of IMC. The amended complaint seeks certification as a
class action and injunction against the proposed FTX Merger or, in the
alternative, rescissionary damages. The defendants' time to answer or
otherwise plead to the amended complaint has been extended indefinitely by
agreement.
PLP is involved from time to time in various legal proceedings of a
character normally incident to its businesses. PLP believes that its
potential liability in any such pending or threatened proceedings will not
have a material adverse effect on the financial condition or results of
operations of PLP. PLP, through IMC and IMC-Agrico, maintains liability
insurance to cover some, but not all, potential liabilities normally incident
to the ordinary course of its businesses with such coverage limits as
management deems prudent.
Item 4. Submission of Matters to a Vote of Unitholders.
Not applicable.
PART II
Item 5. Market for Registrant's Common Equity and Related Unitholder
Matters.
The Company's partnership units trade on the New York Stock Exchange
(NYSE) under the symbol PLP. The PLP unit price is reported daily in the
financial press under "PLP" in most listings of NYSE securities. At March
20, 1998 the number of holders of record of the partnership's units was
10,562. Under federal law, ownership of PLP units is limited to "United
States citizens." A United States citizen is defined as a person who is
eligible to own interests in federal mineral leases, which generally includes
(i) United States citizens, (ii) domestic entities owned by United States
citizens and (iii) domestic corporations owned by United States citizens
and/or certain foreign persons. The following table sets forth, for the
periods indicated, the range of high and low sales prices, as reported by the
NYSE.
<PAGE>
<TABLE>
<CAPTION>
1997 1996
-------------- ---------------
High Low High Low
------ ------ ------ ------
<S> <C> <C> <C> <C>
First Quarter $18.75 $16.50 $22.75 $18.50
Second Quarter 17.13 14.38 22.00 18.13
Third Quarter 14.81 12.06 21.75 18.50
Fourth Quarter 12.81 8.56 19.25 16.38
</TABLE>
Ownership at December 31, 1997:
<TABLE>
<CAPTION>
Units Percent
<S> <C> <C>
Public unitholders 50,080,645 48.4
----------- -----
IMC 53,385,133 (a) 51.6
----------- -----
103,465,778 100.0
=========== =====
a. Includes 1,036,983 of partnership interests beneficially owned by
IMC.
</TABLE>
Cash distributions declared and paid to public unitholders during 1997
totaled $0.74 per unit. In connection with the February 1992 offering of PLP
units, PLP committed for a five-year period to provide public unitholders a
preferential right to receive quarterly distributions before any
distributions could be made to its administrative managing general partner.
The preferential rights of the public unitholders to receive quarterly
distributions up to $0.60 per unit ceased with the distribution for the
quarter ending December 31, 1996, payable on February 15, 1997. Subsequent
cash distributions to public unitholders are determined by available
distributable cash resulting from operations of the partnership and the terms
of the partnership agreement. Distributable cash will be shared ratably by
PLP's public unitholders and IMC, except that IMC will be entitled to receive
the unpaid cash distributions, totaling $431.3 million, from one-half of the
quarterly distributable cash after the payment of $0.60 per unit to all
unitholders. Cash and property distributions paid during 1997 and 1996 are
shown below:
<TABLE>
<CAPTION>
1997
---------------------------------------------------
Distribution
Per Unit Record Date Payment Date
------------------ ------------- ------------
<S> <C> <C> <C>
$ .31 Apr. 30, 1997 May 15, 1997
.33 Jul. 31, 1997 Aug. 15, 1997
.10 Oct. 31, 1997 Nov. 15, 1997
0.1 FSC share (b) Dec. 22, 1997 Dec. 22, 1997
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
1996
------------------------------------------------
Distribution
Per Unit Record Date Payment Date
-------------- ---------------- -----------
<S> <C> <C> <C>
$ .61 Apr. 30, 1996 May 15, 1996
.60 Jul. 31, 1996 Aug. 15, 1996
.60 Oct. 31, 1996 Nov. 15, 1996
.60 Jan. 31, 1997 Feb. 15, 1997
b.The December 22, 1997 distribution was a special distribution made in
connection with the FTX Merger whereby PLP distributed its ownership in
FSC. Each unitholder's basis for each PLP unit requires adjustment as a
result of PLP's distribution of FSC. Further information regarding such
adjustment was included with 1997 unitholder tax information.
</TABLE>
<PAGE>
<TABLE>
Item 6. Selected Financial Data.
<CAPTION>
Years ended December 31,
1997(a) 1996(b) 1995(c) 1994(d) 1993(e)
------- ------- ------- ------- -------
(Financial data in thousands, except per unit amounts)
<S> <C> <C> <C> <C> <C>
FINANCIAL DATA
Revenues $ 842,456 $ 957,034 $ 995,112 $ 765,278 $ 669,160
Operating income (300,442 ) 211,871 194,625 120,618 (210,848 )
(loss)
Net income (loss) (355,035 ) 177,301 161,408 83,966 (246,111 )
Net income (loss) per (3.43 ) 1.71 1.56 .81 (2.37 )
unit
Distributions per
publicly held unit:
Cash 1.34 2.435 2.415 2.40 2.40
Property 1.214 - - - -
Average units 103,466 103,466 103,487 103,683 103,698
outstanding
At December 31:
Property, plant 432,438 919,237 949,131 910,469 970,960
and equipment,
net
Total assets 665,536 1,199,77 1,229,10 1,146,93 1,296,87
8 5 1 3
Long-term debt,
including current 519,808 403,403 384,580 368,951 488,567
portion
Partners' capital (168,358 ) 359,648 404,466 447,660 492,404
(deficit)
OPERATING DATA
Phosphate crop
nutrients-primarily
DAP
Sales (short tons) 3,015,60 3,201,80 3,427,70 3,193,40 3,346,60
0 0 0 0 0
Average realized
price (f)
All phosphate crop $171.82 $181.00 $169.07 $144.13 $110.03
nutrients
DAP 175.83 186.17 175.11 149.32 113.09
Phosphate rock
Sales (short tons) 1,999,70 2,919,10 4,470,40 4,373,40 3,840,30
0 0 0 0 0
Average realized $23.65 $25.60 $22.53 $21.38 $22.02
price (f)
Sulphur
Sales (long tons) (g) 2,836,80 2,900,00 3,049,70 2,087,80 1,973,20
0 0 0 0 0
Oil
Sales (barrels) 1,578,60 1,895,50 2,217,60 2,533,70 3,443,00
0 0 0 0 0
Average realized $18.22 $19.49 $15.82 $13.74 $14.43
price
<PAGE>
a. Includes charges totaling $407.1 million ($3.93 per unit), consisting of
$384.5 million for an impairment assessment of sulphur assets and $22.6
million related to the FTX Merger. Also includes a $14.5 million
extraordinary loss ($0.14 per unit) on early retirement of debt.
b. Includes a gain of $11.9 million ($0.12 per unit) resulting from the
increase in PLP's ownership of IMC-Agrico and a $3.0 million charge ($0.03
per unit) for asset valuations at IMC-Agrico.
c. Includes charges totaling $18.1 million ($0.18 per unit) primarily for
stock appreciation rights costs caused by the significant rise in FTX's
common stock price during the year.
d. Includes a $10.9 million charge ($0.11 per unit) primarily for certain
remediation costs.
e. Includes a net charge of $173.6 million ($1.67 per unit) primarily for
restructuring, asset recoverability and other related charges. Also includes
a $23.7 million cumulative charge ($0.23 per unit) for changes in accounting
principle related to periodic scheduled maintenance costs (turnarounds),
deferred charges and costs of management information systems.
f. Represents average realization f.o.b. plant/mine.
g. Includes internal consumption totaling 795,000 tons, 730,300 tons, 754,400
tons, 739,900 tons and 1,138,800 tons for the years 1997 through 1993,
respectively.
</TABLE>
Item 7. Management's Discussion and Analysis of Results of Operations and
Financial Condition.(1)
OVERVIEW
PLP, through its joint venture operation in IMC-Agrico, is one of the
world's largest and one of the lowest cost producers, marketers and
distributors of phosphate crop nutrients and animal feed ingredients, with
operations in central Florida and on the Mississippi River in Louisiana.
<TABLE>
RESULTS OF OPERATIONS
<CAPTION>
1997(a) 1996(b) 1995(c)
---------- --------- ----------
(In millions)
<S> <C> <C> <C>
Revenues $ 842.5 $ 957.0 $ 995.1
Operating income (loss) (300.4 ) 211.9 194.6
Earnings (loss) (355.0 ) 177.3 161.4
</TABLE>
a. Includes charges totaling $407.1 million ($3.93 per unit), consisting of
$384.5 million for an impairment assessment of sulphur assets and $22.6
million related to the FTX Merger. Also includes a $14.5 million
extraordinary loss ($0.14 per unit) on the early retirement of debt.
b. Includes a gain of $11.9 million resulting from the increase in PLP's
ownership of IMC-Agrico (see Note 3, "IMC-Agrico and MOXY," of Notes to
Financial Statements in Item 8, "Financial Statements and Supplementary
Data," of this Annual Report on Form 10-K for further detail) and a $3.0
million charge for asset valuations at IMC-Agrico.
c. Includes charges totaling $18.1 million primarily for stock appreciation
rights costs caused by the significant rise in FTX's common stock price
during the year.
<PAGE>
1997 Compared With 1996. PLP's operating results for 1997 compared with
1996 were affected by lower average sales realizations and reduced volumes of
concentrated phosphate sales. The 1997 period includes $384.5 million for
sulphur asset impairment charges (see Note 1, "Summary of Significant
Accounting Policies," of Notes to Financial Statements in Item 8, "Financial
Statements and Supplementary Data," of this Annual Report on Form 10-K for
further detail), $22.6 million related to the FTX Merger (see "General and
Administrative Expenses," for further detail), $15.8 million for non-
productive oil and gas exploration costs and a $2.9 million credit for
reimbursement of previously incurred expenses as a result of IMC-Agrico's
participation in a potential phosphate mine and upgrading project in Sri
Lanka, while the 1996 period included an $11.9 million gain from the increase
in PLP's ownership of IMC-Agrico and charges totaling $3.0 million for asset
valuations at IMC-Agrico.
Excluding sulphur asset impairment charges, depreciation, depletion and
amortization for the current year increased $6.1 million from 1996, largely
because of a $5.8 million decrease in adjustments to reduce depreciation
related to the difference between PLP's Current Interest (as defined in the
Partnership Agreement) and Capital Interest (as defined in the Partnership
Agreement) in IMC-Agrico's cash distributions and capital contributions,
respectively (see Note 3, "IMC-Agrico and MOXY," of Notes to Financial
Statements in Item 8, "Financial Statements and Supplementary Data," of this
Annual Report on Form 10-K for further detail), which ended after the 1997
third quarter.
IMC-Agrico
- ----------
PLP's agricultural minerals operations, which principally consist of its
concentrated phosphate and phosphate rock operations and animal feed
ingredients operations conducted through IMC-Agrico (and its sulphur business
prior to the FTX Merger), reported a 1997 operating loss of $244.6 million on
revenues of $813.6 million compared with operating income of $223.9 million
on revenues of $920.0 million for the 1996 period. Significant items
impacting operating income are outlined below (in millions):
<TABLE>
<S> <C>
Operating income - 1996 $ 223.9
Increases (decreases):
Sales volumes (60.1 )
Realizations (39.3 )
Other (7.0 )
Revenue variance (106.4 )
Cost of sales 31.4 a
Sulphur asset impairment charge (384.5 )
Gain on IMC-Agrico investment (11.9 )
General and administrative 2.9
(468.5 )
Operating loss - 1997 $ (244.6 )
</TABLE>
a.Includes the net impact of reductions to depreciation of $24.0 million in
1997 and $29.8 million in 1996, caused by PLP's disproportionate interest
in IMC-Agrico cash distributions (see Note 3, "IMC-Agrico and MOXY," of
Notes to Financial Statements in Item 8, "Financial Statements and
Supplementary Data," of this Annual Report on Form 10-K for further
detail). These adjustments to depreciation ended after the third quarter
of 1997, when PLP received its final disproportionate cash distribution
from IMC-Agrico. In addition, 1996 cost of sales reflects a $3.0 million
asset valuation charge from IMC-Agrico.
<PAGE>
Crop Nutrients
Crop Nutrients' net sales of $1,484.8 million decreased approximately
11.0 percent from $1,661.3 million in 1996. Sales volumes of concentrated
phosphates declined, in the aggregate, one percent, or $45.0 million. The
majority of the decline came from reduced domestic shipments of DAP and GTSP
which declined approximately 17.0 and 11.0 percent, respectively, offset by
increased GMAP volumes of 18.0 percent. The decline in DAP and GTSP volumes
was primarily due to overall weakened demand and a focus on higher-margin
GMAP opportunities. International sales volumes were relatively flat
compared to the prior year as decreased shipments of DAP and GTSP were offset
by increased shipments of GMAP. In addition, average sales realizations of
concentrated phosphates, particularly DAP, decreased five percent which
unfavorably impacted net sales by $49.2 million. Net sales were also
unfavorably impacted $56.7 million due to lower phosphate rock sales volumes
as a result of Crop Nutrients' strategic decision to phase out third-party
sales of phosphate rock. This action is being taken to maximize relative
values of rock and concentrated phosphates by utilizing high-quality reserves
for internal upgrading.
Gross margins declined $112.7 million to $298.7 million from $411.4
million, excluding special one-time charges of $6.9 million, one year ago
primarily due to the lower volumes and prices discussed above. In addition,
gross margins reflect the benefit of a change to market-based acid pricing to
Feed Ingredients.
Feed Ingredients
Net sales of $69.1 million increased 3.2 percent from 1996 due to
slightly higher domestic volumes and prices. A decrease in gross margins was
primarily due to increased costs as a result of a change in the price of acid
purchased from Crop Nutrients.
Sulphur
Sulphur sales volumes through December 22, 1997 were flat compared with
1996, as PLP continued to operate its Main Pass and Culberson mines at
reduced rates. Unit production costs in 1997 increased approximately 12.0
percent from 1996 levels due to higher maintenance costs and natural gas
usage.
Oil and Gas Operations
- ----------------------
Main Pass Joint Venture oil operational highlights are detailed below:
<TABLE>
<CAPTION>
1997 1996
-------- --------
<S> <C> <C>
Sales (barrels) 1,578,600 1,895,500
Average realized price $18.22 $19.49
Operating income (in millions) $2.0 $10.3
</TABLE>
<PAGE>
PLP is significantly expanding its oil and gas activities through the
multi-year, aggregate $210.0 million MOXY Exploration Program and equity
investment with MOXY. Exploration activities during 1997 included the
following:
. West Cameron Block 616/617 - During the fourth quarter of 1997, the West
Cameron Block 616 #3 exploratory well was drilled and saved. This well
encountered a total 426 feet of net gas pay in eight sands. MOXY
subsequently drilled and saved for future production the West Cameron
Block 616 #4 well to develop reserves discovered by the #3 well. PLP has
capitalized a total of $11.2 million of related drilling costs through
December 31, 1997. In early January 1998, MOXY initiated drilling the #5
well, a second development well, to develop the reserves discovered by
the West Cameron Block 616 #2 well. The #2 well, drilled in 1996 and
located approximately one mile southeast of the #3 well, encountered 190
feet of net gas pay in a different fault block. MOXY has acquired a
previously owned platform for use in developing these reserves. First
production is expected to commence during the fourth quarter of 1998.
PLP has a 39.0 percent net revenue interest in the #3 and #4 wells and a
37.0 percent net revenue interest in the #5 well. Additionally, MOXY
plans to drill an exploratory well on an offset block, West Cameron 617,
in early 1998. West Cameron Blocks 616 and 617 are located in
approximately 300 feet of water in the Gulf, approximately 130 miles
offshore Louisiana. These two blocks total 10,000 acres.
. West Cameron Block 492 - During the fourth quarter of 1997 the West
Cameron 492 #1 well discovered 93 feet of net hydrocarbon pay in five
sands. Additionally, the West Cameron 492 #3 well, which was
successfully drilled as a delineation well, encountered 83 feet of net
hydrocarbon pay in two sands, 57 feet of which was in a new sand. Both
wells were saved for future production and further drilling in 1998 is
contemplated on this block. PLP owns a 19.0 percent net revenue interest
in this block, which is located in approximately 150 feet of water
offshore in the Gulf approximately 110 miles south of Lake Charles,
Louisiana and encompasses 5,000 acres. PLP has capitalized a total of
$0.7 million of related drilling costs through December 31, 1997.
. In late 1997 and early 1998 the West Cameron Block 157 #1 and Brazos
Block A-19 #2 exploratory wells commenced drilling. PLP owns 37.0
percent and 13.0 percent net revenue interests in these blocks,
respectively. PLP's share of the estimated costs to reach total depth
(the point at which determination as to whether or not commercial amounts
of hydrocarbons have been discovered) for both of these wells is
approximately $7.0 million, of which $0.6 million was incurred and
capitalized at December 31, 1997. In March 1998, the West Cameron Block
157 #1 well prospect concluded without the discovery of commercial
hydrocarbons, resulting in approximately $3.0 million of the related
drilling costs being expensed by PLP.
. During 1997, exploratory drilling on the Eugene Island Block 19,
Vermilion Block 159 and Grand Isle Block 65 fields and North Bay Junop
prospect concluded without the discovery of commercial hydrocarbons,
resulting in $13.5 million of the related drilling costs being expensed
by PLP.
<PAGE>
1996 Compared With 1995. Operating income for 1996 benefited from higher
average realizations on concentrated phosphates and phosphate rock. Feed
Ingredients, acquired in October 1995 (see Note 9, "Acquisitions," of Notes
to Financial Statements in Item 8, "Financial Statements and Supplementary
Data," of this Annual Report on Form 10-K for further detail), also
contributed to higher operating income. Offsetting the impact of these
positive factors were lower production and sales volumes for concentrated
phosphates and phosphate rock. Results from 1996 included an $11.9 million
gain resulting from the increase in PLP's ownership of IMC-Agrico, $15.3
million lower stock appreciation rights costs allocated from FTX, a $2.5
million charge for oil and gas exploration costs and charges totaling $3.0
million for asset valuations at IMC-Agrico.
Depreciation, depletion and amortization for 1996 decreased $7.8 million
from the 1995 amount. This reduction is attributable primarily to a $3.5
million decrease related to PLP's disproportionate interest in IMC-Agrico
cash distributions (see Note 3, "IMC-Agrico and MOXY," of Notes to Financial
Statements in Item 8, "Financial Statements and Supplementary Data," of this
Annual Report on Form 10-K for further detail) and a $4.4 million decline
from Main Pass Joint Venture oil operations, partially offset by additional
depreciation expense of $2.3 million associated with Feed Ingredients
operations.
IMC-Agrico
- -----------
PLP's agricultural minerals operations reported 1996 operating income of
$223.9 million on revenues of $920.0 million compared with operating income
of $205.9 million on revenues of $960.0 million in 1995. Significant items
impacting operating income are highlighted below (in millions):
<TABLE>
<S> <C>
Operating income - 1995 $ 205.9
------
Increases (decreases):
Sales volumes (97.9 )
Realizations 59.5
Other (1.6 )
------
Revenue variance (40.0 )
Cost of sales 29.9 a
Gain on IMC-Agrico investment 11.9
General and administrative 16.2 b
------
18.0
------
Operating income - 1996 $ 223.9
======
</TABLE>
a.Includes the net impact of reductions to depreciation of $29.8 million in
1996 and $26.3 million in 1995 caused by PLP's disproportionate interest
in IMC-Agrico cash distributions. 1996 cost of sales also reflects a $3.0
million asset valuation charge from IMC-Agrico.
b.General and administrative expenses in 1996 included $10.3 million lower
stock appreciation rights costs.
<PAGE>
Crop Nutrients
Crop Nutrients' net sales for 1996 of $1,661.3 million decreased
approximately three percent as compared to $1,711.6 million for 1995. Lower
phosphate rock volumes in 1996, primarily due to the Company's strategic
decision to phase out export sales and the termination of a domestic sales
contract, unfavorably impacted net sales by $54.5 million compared to 1995.
Higher average concentrated phosphate prices in 1996, compared to 1995,
partially offset the lower phosphate rock volumes. Concentrated phosphate
net sales increased, mainly as a result of strong sales to India, Australia,
Japan, Brazil, Chile and Ecuador. In addition, in December 1996, Crop
Nutrients, through PhosChem, successfully negotiated a first-ever, two-year
concentrated phosphate sales contract with China for calendar years 1997 and
1998.
Gross margins increased $15.9 million, or four percent, to $411.4
million for 1996, before special one-time charges of $6.9 million, as
compared to $395.5 million in 1995. This increase was primarily due to
higher sales realizations for concentrated phosphates discussed above. The
higher margins on concentrated phosphate net sales in 1996, as compared to
1995, more than offset the margins lost to lower phosphate rock sales. The
favorable impact of price improvements, however, was partially offset by
higher phosphate rock production costs, due in large part to higher
electricity, maintenance and fuel costs.
Feed Ingredients
Net sales of $67.0 million increased $52.1 million from 1995 and gross
margins increased primarily due to the inclusion of a full year of results
following the acquisition of Feed Ingredients in October 1995.
Sulphur
Sulphur sales volumes for 1996 were five percent lower than the 1995
level. PLP operated the Main Pass and Culberson mines at reduced rates since
March 1996 in response to lower domestic sulphur sales to United States
phosphate fertilizer producers. Sulphur market prices were negatively
affected by lower demand. Movement of Canadian sulphur to the United States
market fell in tandem with lower prices and Canadian producers' concerns over
anti-dumping actions taken by the United States Department of Commerce. Unit
production costs for 1996 rose slightly from 1995 because of the reduced
production levels and increased energy costs.
Oil and Gas Operations
- ----------------------
Main Pass Joint Venture oil operational highlights are detailed below:
<TABLE>
<CAPTION>
1996 1995
-------- ---------
<S> <C> <C>
Sales (barrels) 1,895,500 2,217,600
Average realized price $19.49 $15.82
Operating income (in millions) $10.3 $1.9 a
a. Included $1.8 million of stock appreciation rights costs.
</TABLE>
<PAGE>
In June 1996 PLP acquired a 25.0 percent leasehold interest in an oil
and gas joint venture to explore a 35,000 acre project area in south
Louisiana. In connection with the acquisition of this interest, PLP
reimbursed MOXY $2.1 million for certain costs previously incurred on the
project area. PLP acquired its interest on the same proportionate basis as
Phillips Petroleum, which has a 50.0 percent leasehold interest in the
project area and is the operator of the joint venture.
General and Administrative Expenses
- -----------------------------------
<TABLE>
<CAPTION>
Years ended December 31, % Increase (Decrease)
------------------------ --------------
1997 1996 1995 1997 1996
---- ---- ---- ---- ----
(In millions)
<S> <C> <C> <C> <C> <C>
General and administrative
expenses $77.0 $55.2 $68.1 39% (19%)
</TABLE>
1997 Compared to 1996
General and administrative expenses for 1997 increased $21.8 million from the
1996 period primarily because of merger-related costs, including retirement
benefits, the acceleration of long-term incentive compensation and other
employee benefits. General and administrative expenses in 1996 reflect a
$2.1 million reduction related to stock appreciation rights.
1996 Compared to 1995
General and administrative expenses for 1996 declined $12.9 million from
1995, primarily because a significant 1995 increase in FTX's stock price
resulted in $15.3 million higher stock appreciation rights costs charged by
FTX. General and administrative costs for 1996 included amounts associated
with the acquired Feed Ingredients operations, whereas 1995 included a $1.2
million charge for the reorganization of IMC-Agrico's marketing function.
PLP's general and administrative expenses include costs incurred on its
behalf which are allocated on a cost-reimbursement basis under a management
services agreement (see "Services Agreement," in Part I, Items 1 and 2,
"Business and Properties - Relationship Between the Company and IMC," and
Note 7, "Pension and Other Employee Benefits," of Notes to Financial
Statements in Item 8, "Financial Statements and Supplementary Data," of this
Annual Report on Form 10-K for further detail).
Year 2000
- ---------
As the millennium approaches, both IMC-Agrico and IMC (as administrative
managing general partner of PLP) have begun to address the Year 2000 issue
and the effect it will have on its information systems. IMC and IMC-Agrico
have completed an assessment of their information systems and are in the
process of developing a Year 2000 conversion plan to address all necessary
code changes, testing and implementation. The information systems conversion
project is planned to be completed by the middle of 1999 at an estimated
total cost to IMC-Agrico of approximately $0.7 million. A significant
portion of these costs are not likely to be incremental costs to IMC-Agrico,
but rather will represent the redeployment of existing information technology
resources.
<PAGE>
In addition, both IMC-Agrico and IMC are starting the process of
assessing the effect the Year 2000 will have on their operations. An
assessment will be made and conversion plan developed to have all
modifications implemented and operational by year-end 1999. The cost of this
project is yet undetermined, but is not expected to be material to PLP.
IMC-Agrico and IMC expect these Year 2000 conversion projects to be
completed on a timely basis. However, there can be no assurance that the
systems of the companies on which their systems rely also will be converted
or that any such failure to convert by another company would not have an
adverse effect on their systems. In 1998, IMC-Agrico and IMC will be
initiating formal communications with all of their significant suppliers and
large customers to determine the extent to which PLP is vulnerable to those
third parties' failures to remediate their own Year 2000 issues.
CAPITAL RESOURCES AND LIQUIDITY
Liquidity and Operating Cash Flow
- ---------------------------------
Net cash provided by operating activities was $103.4 million in 1997,
$251.9 million in 1996 and $284.9 million in 1995. The 1995 period benefited
from working capital reductions achieved by IMC-Agrico and the sale of
receivables (see Note 1, "Summary of Significant Accounting Policies," of
Notes to Financial Statements in Item 8, "Financial Statements and
Supplementary Data," of this Annual Report on Form 10-K for further detail),
while 1997 was impacted by lower earnings before asset impairment charges,
lower IMC-Agrico cash distributions and higher reclamation expenditures.
Excluding the effects of acquisitions in 1997, cash generated from operating
working capital decreased primarily due to increased inventory and receivable
levels. However, the Company's $215.6 million working capital deficit at
December 31, 1997 decreased from positive working capital of $89.1 million at
December 31, 1996, primarily due to the refinancing of PLP's previous long-
term debt with demand notes from IMC, which are classified as short-term.
Net cash used in investing activities increased $31.0 million over the
prior year, primarily due to increased capital expenditures and the
investment in MOXY common stock. Capital expenditures for 1997 were $72.4
million, an increase of $18.8 million over the prior year. See "Capital
Spending," for further detail.
Net cash used in financing activities decreased from $205.5 million in
1996 to $24.7 million in 1997, primarily due to net debt proceeds of $118.1
million in 1997 compared to net debt payments of $131.2 million in 1996,
offset by decreased distributions to PLP partners of $102.6 million and $23.3
million paid to FSC in connection with the FTX Merger.
Capital Spending
- ----------------
Investing cash flows for 1997 include $35.5 million in total oil and gas
exploration and development expenditures, while 1996 included $13.0 million
for a Florida phosphate rock reserve acquisition and 1995 included $46.2
million for the Feed Ingredients acquisition. Based on current estimates,
capital expenditures for 1998 will approximate $110.0 million. (See
"Environmental Matters," in Part I, Items 1 and 2, "Business and Properties,"
of this Annual Report on Form 10-K for a discussion of environmental capital
expenditures which are included in the foregoing estimate.)
<PAGE>
Financing
- ---------
In connection with the FTX Merger, PLP entered into two separate
agreements with IMC (IMC Agreements). One agreement is a variable rate
demand note for $200.0 million, while the other agreement is a 8.75 percent
demand note for $150.0 million. Interest under the IMC Agreements is payable
quarterly.
Immediately following the FTX Merger, PLP utilized the proceeds from the
IMC Agreements (Proceeds) to complete a tender offer for $144.3 million of
its outstanding $150.0 million principal amount of its 8.75 percent senior
subordinated notes (Senior Subordinated Notes) due 2004. Additionally,
utilizing the Proceeds, PLP repaid all outstanding amounts under, and
terminated, its then-outstanding revolving credit agreement. As a result of
both of these transactions, PLP recorded an extraordinary charge of $14.5
million primarily for the redemption premium incurred and the write-off of
previously deferred finance charges.
In December 1997, IMC-Agrico repaid all outstanding amounts under, and
terminated, its then-outstanding revolving credit agreement. IMC-Agrico
simultaneously entered into a variable rate demand note payable to IMC
(IMC-Agrico Facility) for borrowings up to $125.0 million. In addition, IMC
entered into credit facilities with a group of banks which stipulate that IMC
and certain of its subsidiaries may borrow up to $350.0 million under a
revolving credit facility expiring December 1998 and $650.0 million under a
long-term credit facility expiring December 2002, (collectively, IMC Credit
Facilities). The IMC Credit Facilities have a letter of credit subfacility
for up to $100.0 million. Borrowings under the IMC Credit Facilities are
unsecured and bear interest at rates based on LIBOR plus a credit spread. In
addition, the IMC Credit Facilities have certain financial ratio and other
covenants.
Under an agreement with a financial institution, IMC-Agrico Receivables
Company, L.L.C. (IMC-Agrico L.L.C.), a special purpose limited liability
company of which IMC-Agrico is the sole equity owner, may sell, on an ongoing
basis, an undivided percentage interest in a designated pool of receivables,
subject to limited recourse provisions related to the international
receivables, in an amount not to exceed $65.0 million.
At March 20, 1998, the Company had outstanding $302.2 million under its
IMC Agreements, and IMC-Agrico had $97.2 million outstanding under the
IMC-Agrico Facility. Additionally, the Company had outstanding $150.0
million of 7.0 percent senior debentures due 2008.
In January 1998, PLP declared no cash distribution would be payable for
the 1997 fourth quarter. PLP's distributable cash is now shared ratably by
PLP's public unitholders and its administrative managing general partner,
except that the administrative managing general partner will be entitled to
receive unpaid cash distributions from previous quarters ($431.3 million
unpaid at March 20, 1998) from one-half of the quarterly distributable cash
after the payment of 60 cents per unit to all PLP unitholders.
PLP's future distributions will depend on the distributions received from
IMC-Agrico, the cash requirements of its oil and gas exploration activities
(see "Oil and Gas," in Part I, Items 1 and 2, "Business and Properties," of
this Annual Report on Form 10-K for further detail) net of any cash flows
from production or sale of discovered reserves, and the level and methods of
financing its capital expenditure needs, including reclamation and growth
projects. PLP's share of IMC-Agrico cash distributions totaled $19.8 million
<PAGE>
for the fourth quarter which reflects the reduction in PLP's share of cash
distributions from IMC-Agrico effective July 1, 1997 and, thereafter, from
54.4 percent to 41.5 percent. Future distributions from IMC-Agrico will
depend primarily on concentrated phosphate market conditions.
MARKET RISK
PLP is exposed to the impact of interest rate changes and the impact of
fluctuations in the purchase price of natural gas consumed in operations, as
well as changes in the fair value of its financial instruments. PLP
periodically enters into derivatives in order to minimize these risks, but
not for trading purposes.
PLP prepared sensitivity analyses of its derivatives and other financial
instruments assuming the following: (i) a one percentage point adverse change
in interest rates; and (ii) a ten percent adverse change in the purchase cost
of natural gas, all from their levels at December 31, 1997. Holding all
other variables constant, the hypothetical adverse changes would not
materially affect PLP's financial position. These analyses did not consider
the effects of the reduced level of economic activity that could exist in
such an environment and certain other factors. Further, in the event of a
change of such magnitude, management would likely take actions to further
mitigate its exposure to possible changes. However, due to the uncertainty
of the specific actions that would be taken and their possible effects, the
sensitivity analyses assume no changes in PLP's financial structure.
CONTINGENCIES
In October 1996, IMC-Agrico signed an agreement with CMI for the purchase
of real property, Pine Level, containing approximately 100 million tons of
phosphate rock reserves. In connection with the purchase IMC-Agrico has
agreed to obtain all environmental, regulatory and related permits necessary
to commence mining on the property. Within five years from the date of this
agreement, IMC-Agrico is required to provide notice to CMI regarding one of
the following: (i) whether they have obtained the permits necessary to
commence mining any part of the property, (ii) whether they wish to extend
the permitting period for an additional three years or (iii) whether they
wish to decline to extend the permitting period. If the permits necessary to
commence mining the property have been obtained, IMC-Agrico is obligated to
pay CMI an initial royalty payment of $28.9 million. In addition to the
initial royalty payment, IMC-Agrico is required to pay CMI a mining royalty
on phosphate rock mined from the property to the extent the permits are
obtained.
ENVIRONMENTAL
Reference is made to the information set forth in "Environmental
Matters," in Part I, Items 1 and 2, "Business and Properties," of this Annual
Report on Form 10-K.
<PAGE>
Item 8. Financial Statements and Supplementary Data.
Pag
e
Report of Independent Auditors 22
Report of Independent Public Accountants 23
Statement of Operations 24
Balance Sheet 25
Statement of Cash Flow 26
Statement of Changes in Partners' Capital 27
Notes to Financial Statements 28
<PAGE>
REPORT OF INDEPENDENT AUDITORS
TO THE PARTNERS OF PHOSPHATE RESOURCE PARTNERS LIMITED PARTNERSHIP:
We have audited the accompanying balance sheet of Phosphate Resource Partners
Limited Partnership [formerly Freeport-McMoRan Resource Partners, Limited
Partnership] (the Partnership), a Delaware Limited Partnership, as of
December 31, 1997, and the related statements of operations, cash flow and
changes in partners' capital for the year then ended. Our audit also
included the financial statement schedules listed in the Index at Item 14(a)
as of December 31, 1997 and for the year then ended. These financial
statements and schedules are the responsibility of the General Partner's
management. Our responsibility is to express an opinion on these financial
statements based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements.
An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audit provides a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of the Partnership at December
31, 1997, and the results of its operations and its cash flows for the year
ended December 31, 1997, in conformity with generally accepted accounting
principles. Also, in our opinion, the related financial statement schedules,
when considered in relation to the basic financial statements taken as a
whole, present fairly in all material respects the information set forth
therein.
Ernst & Young LLP
Chicago, Illinois
January 26, 1998
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Partners of Phosphate Resource Partners
Limited Partnership:
We have audited the accompanying balance sheet of Phosphate Resource Partners
Limited Partnership, formerly Freeport-McMoRan Resource Partners, Limited
Partnership (the Partnership), a Delaware Limited Partnership, as of December
31, 1996 and the related statements of operations, cash flow and changes in
partners' capital for the years ended December 31, 1996 and 1995. These
financial statements are the responsibility of the General Partner's
management. Our responsibility is to express an opinion on these financial
statements based on our audits. We did not audit the financial statements of
IMC-Agrico Company (the Joint Venture). The Partnership's share of the Joint
Venture constitutes 49 percent of assets as of December 31, 1996 and 82
percent and 80 percent of the Partnership's total revenues for the years
ended December 31, 1996 and 1995, respectively. Those statements were
audited by other auditors whose reports have been furnished to us, and our
opinion, insofar as it relates to the amounts included for the Partnership's
interest in the Joint Venture, is based solely on the reports of the other
auditors. In addition, the 1996 pension and other post-employment and
post-retirement benefits information reflected in Note 7 has been derived
from the audited financial statements of IMC-Agrico MP, Inc. which were
audited by other auditors whose report with respect to those financial
statements has been furnished to us, and our opinion, insofar as it relates
to such information, is based solely on the report of other auditors.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements.
An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits and the reports
of other auditors provide a reasonable basis for our opinion.
In our opinion, based on our audits and the reports of other auditors, the
financial statements referred to above present fairly, in all material
respects, the financial position of the Partnership as of December 31, 1996
and the results of its operations and its cash flow for the years ended
December 31, 1996 and 1995 in conformity with generally accepted accounting
principles.
Arthur Andersen LLP
New Orleans, Louisiana,
January 21, 1997 (except with
respect to Note 7 as to which
the date is January 26, 1998)
<PAGE>
<TABLE>
PHOSPHATE RESOURCE PARTNERS LIMITED PARTNERSHIP
STATEMENT OF OPERATIONS
<CAPTION>
Years Ended December 31,
---------------------------
1997 1996 1995
------ ------ ------
(In thousands, except per unit amounts)
<S> <C> <C> <C>
Revenues $ 842,456 $ 957,034 $ 995,112
Cost of sales:
Production and delivery 622,477 662,373 687,541
Depreciation, depletion and
amortization 43,058 36,985 44,830
Sulphur asset impairment charge 384,500 - -
-------- -------- --------
Total cost of sales 1,050,035 699,358 732,371
Gain on IMC-Agrico investment - (11,917 ) -
Exploration expenses 15,817 2,485 -
General and administrative 77,046 55,237 68,116
expenses -------- -------- --------
Total costs and expenses 1,142,898 745,163 800,487
-------- -------- --------
Operating income (loss) (300,442 ) 211,871 194,625
Interest expense (35,656 ) (33,709 ) (31,518 )
Other expense, net (4,463 ) (861 ) (1,699 )
-------- -------- --------
Earnings (loss) before extraordinary (340,561 ) 177,301 161,408
item
Extraordinary loss on early (14,474 ) - -
retirement of debt -------- -------- --------
Earnings (loss) $ (355,035 ) $ 177,301 $ 161,408
======== ======== ========
Earnings (loss) per unit $ (3.43 ) $1.71 $1.56
======= ===== =====
Average units outstanding 103,466 103,466 103,487
======= ======= =======
Distributions per publicly held
unit:
Cash $1.340 $2.435 $2.415
====== ====== ======
Property $1.214 $ - $ -
====== ====== ======
The accompanying Notes to Financial Statements are an integral part of these
financial statements.
</TABLE>
<PAGE>
<TABLE>
PHOSPHATE RESOURCE PARTNERS LIMITED PARTNERSHIP
BALANCE SHEET
<CAPTION>
December 31,
1997 1996
-------- --------
(In thousands)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 17,439 $ 19,395
Accounts receivable:
Customers 35,683 43,068
Other 11,619 27,530
Inventories:
Products 98,925 106,002
Materials and supplies 27,086 35,156
Prepaid expenses and other 2,401 4,845
------- --------
Total current assets 193,153 235,996
Property, plant and equipment, net 432,438 919,237
Other assets 39,945 44,545
------- --------
Total assets $ 665,536 $1,199,778
======= ========
LIABILITIES AND PARTNERS' CAPITAL
Current liabilities:
Accounts payable and accrued liabilities $ 94,734 $ 146,566
Short-term debt and current maturities of long- 14,285 373
term debt ------- --------
Total current liabilities 109,019 146,939
Long-term debt, less current portion 505,523 403,030
Reclamation and mine shutdown reserves 38,288 96,135
Accrued postretirement benefits and other 181,064 194,026
liabilities
Partners' capital (deficit) (168,358 ) 359,648
------- --------
Total liabilities and partners' capital $ 665,536 $1,199,778
======= ========
</TABLE>
The accompanying Notes to Financial Statements are an integral part of these
financial statements.
<PAGE>
<TABLE>
PHOSPHATE RESOURCE PARTNERS LIMITED PARTNERSHIP
STATEMENT OF CASH FLOW
<CAPTION>
Years Ended December 31,
1997 1996 1995
---- ---- ----
(In thousands)
<S> <C> <C> <C>
Cash flow from operating activities:
Earnings (loss) $(355,035 ) $177,301 $ 161,408
Adjustments to reconcile earnings
(loss) to net cash provided by
operating activities:
Sulphur asset impairment charge
384,500 - -
Depreciation, depletion and
amortization 43,058 36,985 44,830
Gain on IMC-Agrico investment - (11,917 ) -
Oil and gas exploration expenses
15,817 2,485 -
Cash distributions from IMC-Agrico
in excess of interest in capital
34,286 49,354 40,835
Reclamation and mine shutdown (26,568 ) (11,336 ) (10,545 )
expenditures
(Increase) decrease in working
capital, net of effect of
acquisitions:
Accounts receivable (14,779 ) 13,666 (13,252 )
Inventories (16,879 ) (23,405 ) 4,471
Prepaid expenses and other 1,152 (1,191 ) (2,413 )
Accounts payable and accrued
liabilities (4,360 ) 2,696 39,630
Other 42,174 17,295 19,980
------- ------- -------
Net cash provided by operating 103,366 251,933 284,944
activities ------- ------- -------
Cash flow from investing activities:
Capital expenditures (72,383 ) (53,580 ) (39,485 )
Mallinckrodt purchase - - (46,200 )
Other (8,218 ) 4,000 1,906
------- ------- -------
Net cash used in investing (80,601 ) (49,580 ) (83,779 )
activities ------- ------- -------
Cash flow from financing activities:
Distributions to partners (119,556 ) (222,11 ) (202,54 )
9 1
Proceeds from debt 560,528 255,268 648,343
Repayment of debt (442,400 ) (386,44 ) (632,25 )
6 7
Cash transferred to FSC (23,293 ) - -
Purchase of Partnership units - - (2,061 )
Proceeds from sale of notes - 147,831 -
------- ------- -------
Net cash used in financing (24,721 ) (205,46 ) (188,51 )
activities ------- 6 6
------- -------
Net increase (decrease) in cash and (1,956 ) (3,113 ) 12,649
cash equivalents
Cash and cash equivalents at 19,395 22,508 9,859
beginning of year ------- ------- -------
Cash and cash equivalents at end of $ 17,439 $ 19,395 $ 22,508
year ======= ======= =======
Interest paid $ 38,795 $ 28,256 $ 28,997
======= ======= =======
</TABLE>
The accompanying Notes to Financial Statements are an integral part of these
financial statements.
<PAGE>
<TABLE>
PHOSPHATE RESOURCE PARTNERS LIMITED PARTNERSHIP
STATEMENT OF CHANGES IN PARTNERS' CAPITAL
<CAPTION>
Units Outstanding Partners' Capital
------------------------ ------------------------
General Limited Total General Limited Total
------- ------- ----- ------- ------- -----
(In thousands)
<S> <C> <C> <C> <C> <C> <C>
Balance at January
1, 1995 53,205 50,398 103,603 $229,892 $217,768 $ 447,660
Earnings - - - 83,014 78,394 161,408
Partnership
distributions - - - (81,102 )(121,439 ) (202,541 )
Purchase of
Partnership units
- (137 ) (137 ) (764 ) (1,297 ) (2,061 )
FTX purchase of
Partnership units
117 (117 ) - 443 (443 ) -
Reallocation caused
by dis-
proportionate - - - (23,038 ) 23,038 -
distributions ------ ------ ------ ------ ------ ------
Balance at December
31, 1995
53,322 50,144 103,466 208,445 196,021 404,466
Earnings - - - 91,455 85,846 177,301
Partnership
distributions - - - (100,125 )(121,994 )( 222,119 )
FTX purchase of
Partnership units
63 (63 ) - 224 (224 ) -
Reallocation caused
by dis-
proportionate - - - (14,432 ) 14,432 -
distributions ----- ----- ----- ----- ----- -----
Balance at
December 31, 1996
53,385 50,081 103,466 185,567 174,081 359,648
Loss
- - - (183,187 )(171,848 )( 355,035 )
Partnership
distributions - - - ( 52,448 )( 67,108 )( 119,556 )
Distribution of FSC
shares - - - ( 30,142 )( 28,277 )( 58,419 )
Other 2,582 2,422 5,004
Reallocation
caused by dis-
proportionate - - - (9,239 ) 9,239 -
distributions ----- ----- ----- ----- ----- -----
Balance at December
31, 1997 53,385 50,081 103,466 $(86,867 )$(81,491 )$(168,358 )
===== ===== ===== ===== ===== =====
</TABLE>
The accompanying Notes to Financial Statements are an integral part of these
financial statements.
<PAGE>
PHOSPHATE RESOURCE PARTNERS LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation and Ownership. The financial statements of Phosphate
Resource Partners Limited Partnership (PLP or Company), formerly Freeport-
McMoRan Resource Partners, Limited Partnership, a Delaware limited
partnership, include all majority-owned subsidiaries. Investments in less
than 20 percent-owned affiliates are reflected using the cost method.
Investments in joint ventures and partnerships, including IMC-Agrico Company
(IMC-Agrico) and the McMoRan Oil & Gas Co. (MOXY) Exploration Program (MOXY
Exploration Program) (see Note 3, "IMC-Agrico and MOXY," for further detail),
are reflected using the proportionate consolidation method in accordance with
standard industry practice. The MOXY Exploration Program is proportionately
consolidated at a rate of 56.4 percent of the exploration costs and 47.0
percent of the profits derived from oil and gas producing properties. The
activities of IMC-Agrico include the mining and sale of phosphate rock, and
the production, distribution and sale of concentrated phosphates, animal feed
ingredients, uranium oxide and related products. Through its joint venture
with IMC-Agrico, PLP operates in a single reportable industry segment at
December 31, 1997. All significant intercompany transactions have been
eliminated. Certain prior year amounts have been reclassified to conform to
the current year presentation.
Use of Estimates. Management is required to make estimates and assumptions
that affect the amounts reported in the financial statements and accompanying
notes. Actual results could differ from those estimates.
Cash and Cash Equivalents. Highly liquid investments purchased with a
maturity of three months or less are considered cash equivalents. IMC-
Agrico's cash and cash equivalents are not available to PLP until a
distribution is paid by IMC-Agrico (see Note 3, "IMC-Agrico and MOXY," for
further detail).
Concentration of Credit Risk. Domestically, IMC-Agrico sells it products to
crop nutrient manufacturers, distributors and retailers primarily in the
midwestern and southeastern United States. Internationally, IMC-Agrico's
products are sold primarily through a United States export association. In
1997, sales of phosphate crop nutrients to China accounted for approximately
25.0 percent of IMC-Agrico's net sales. No single customer or group of
affiliated customers accounted for more than ten percent of IMC-Agrico's net
sales.
Accounts Receivable. Under an agreement with a financial institution,
IMC-Agrico Receivables Company, L.L.C. a special purpose limited liability
company of which IMC-Agrico is the sole equity owner, may sell, on an ongoing
basis, an undivided percentage interest in a designated pool of receivables
in an amount not to exceed $65.0 million. Accounts receivable at December
31, 1997 and 1996 were net of $25.5 million and $23.9 million of receivables
sold, respectively.
Inventories. Inventories are valued at the lower of cost or market (net
realizable value). Cost for substantially all inventories is determined on a
cumulative annual-average cost basis.
<PAGE>
Property, Plant and Equipment. Property (including mineral deposits), plant
and equipment are carried at cost. Cost of significant assets includes
capitalized interest incurred during the construction and development period.
Expenditures for replacements and improvements are capitalized; maintenance
and repair expenditures, except for repair and maintenance overhauls
(Turnarounds), are charged to operations when incurred. Expenditures for
Turnarounds are deferred when incurred and amortized into cost of goods sold
on a straight-line basis, generally over an 18-month period. Turnarounds are
large-scale maintenance projects that are performed regularly, usually every
18 to 24 months, on average. Turnarounds are necessary to maintain the
operating capacity and efficiency rates of the production plants. The
deferred portion of the Turnaround expenditures is classified in other assets
in the Balance Sheet.
PLP follows the successful efforts method of accounting for its oil and
gas exploration and development activities. Costs of exploratory wells are
capitalized pending determination of whether the wells find proved reserves.
Cost of leases, productive exploratory wells and development activities are
also capitalized. Other exploration costs are expensed. Depreciation and
amortization is determined on a field-by-field basis using the unit-of-
production method. Gains or losses are included in earnings when properties
are sold.
Depreciation and depletion expenses for mining operations, including
mineral interests, are determined using the unit-of-production method based
on estimates of recoverable reserves. Other asset classes or groups are
depreciated or amortized on a straight-line basis over their estimated useful
lives as follows: buildings, 17 to 45 years; machinery and equipment, three
to 25 years; and leasehold improvements, over the lesser of the remaining
useful life of the asset or the remaining term of the lease.
In 1995, PLP adopted Statement of Financial Accounting Standard (SFAS)
No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-
Lived Assets to Be Disposed of," which requires an assessment of the carrying
value of long-lived assets and a reduction of such carrying value to fair
value when events or changes in circumstances indicate that the carrying
amount may not be recoverable. PLP adopted SFAS No. 121 effective January 1,
1995. As a result of a review of its sulphur assets at September 30, 1997,
PLP concluded that the carrying value of its Main Pass sulphur mine assets
exceeded the undiscounted estimated future net cash flows, such that an
impairment writedown of $375.5 million was required. A similar analysis of
the Culberson, Texas sulphur mine assets, based on a reassessment of
recoverable reserves utilizing recent production history, also indicated an
impairment writedown of $9.0 million was required. Fair values were
determined using discounted estimated future cash flows related to these
assets and the writedowns are included in cost of sales in the Statement of
Operations.
Environmental Remediation and Compliance. PLP's activities include the
mining of phosphate and the manufacturing of crop nutrients. These
operations are subject to extensive federal, state and local environmental
regulations in the United States, including laws related to air and water
quality; management of hazardous and solid wastes; management and handling of
raw materials and products; and the restoration of lands disturbed by mining
and production activities. Expenditures that relate to an existing condition
caused by past operations of PLP or prior land owners, and which do not
contribute to current or future revenue generation, are charged to
operations. Liabilities are recorded for identified sites when: (i)
<PAGE>
litigation has commenced or (ii) a claim or assessment has been asserted or
is probable and the likelihood of an unfavorable outcome is probable.
In 1997, PLP adopted Statement of Position 96-1, "Environmental
Remediation Liabilities," promulgated by the American Institute of Certified
Public Accountants, which provides guidance for the accrual of environmental
remediation costs. Adoption of this statement did not have a material
adverse effect on PLP's financial statements.
Income Taxes. PLP is not a taxable entity; therefore, no income taxes are
reported in its financial statements.
Recently Issued Accounting Standards. In June 1997, SFAS No. 130, "Reporting
Comprehensive Income," was issued. This statement establishes standards of
reporting and display of comprehensive income and its components in a full
set of general purpose financial statements. This statement will be
effective for the Company's year ending December 31, 1998 and requires
restatement of prior periods. Adoption of this statement is not expected to
significantly alter the Company's financial statement presentation.
In June 1997, SFAS No. 131, "Disclosures about Segments of an Enterprise
and Related Information," was issued. This statement changes the way public
companies report segment information in annual financial statements and also
requires those companies to report selected segment information in interim
financial reports to stockholders. This statement will be effective for the
Company's year ending December 31, 1998. Adoption of this statement will
result in additional disclosures.
2. FREEPORT-MCMORAN INC. MERGER
In December 1997, Freeport-McMoRan Inc. (FTX), the administrative managing
general partner and owner of a 51.6 percent interest in PLP, merged into IMC
Global Inc. (IMC), PLP's joint venture partner in IMC-Agrico (FTX Merger).
The FTX Merger resulted in the dissolution of FTX and IMC becoming the
administrative managing general partner of PLP. In connection with the FTX
Merger, PLP's sulphur business and certain oil and gas operations, including
its 58.3 percent interest in the Main Pass 299 sulphur and oil property (Main
Pass), together with IMC's 25.0 percent interest in Main Pass, were
transferred to Freeport-McMoRan Sulphur Inc. (FSC), a newly formed public
entity whose common stock was distributed pro rata to PLP's unitholders,
including FTX. FTX in turn distributed FSC shares received to its
shareholders. Except where otherwise noted, the accounting policies
described above and in the following notes relate to PLP's ongoing
operations, consisting principally of its (i) interest in IMC-Agrico and (ii)
oil and gas exploration activities.
3. IMC-AGRICO AND MOXY
IMC-Agrico. In January 1996, PLP and IMC entered into certain amendments to
the Partnership Agreement. Effective March 1, 1996, there was a shift of
0.85 percent cash interest in IMC-Agrico from IMC to PLP. Effective July 1,
1997, PLP's share of cash distributions decreased to approximately 41.5
percent. IMC-Agrico's assets are not available to PLP until distributions
are paid by IMC-Agrico.
MOXY. At December 31, 1997 FRP owned 3.85 million shares, or approximately
9.0 percent, of the outstanding common shares of MOXY. PLP acquired these
shares as part of a recapitalization plan whereby MOXY raised net proceeds of
$92.2 million in a November 1997 equity offering. The MOXY common stock was
acquired by PLP for $13.5 million at the same price as existing MOXY
shareholders. Proceeds from this offering were used to fund the purchase
<PAGE>
from PLP of two producing oil and gas fields and MOXY's program debt due a
third party under a previous oil and gas exploration program for $44.5
million, after adjustments for post-closing revenues and expenses. No gain
or loss was recognized on this sale, as PLP had purchased these assets for an
equivalent amount, together with an inventory of eight exploration prospects
in the offshore Gulf of Mexico (Gulf) for $5.0 million, from the third party
in August 1997. MOXY will use the remaining proceeds to fund its share of an
aggregate $210.0 million, multi-year oil and gas exploration program to
explore and develop prospects primarily offshore in the Gulf and onshore in
the Gulf Coast area with PLP. PLP and MOXY contributed their interests in
the previous program's exploration properties and their joint interests in
certain other properties to the MOXY Exploration Program. Under this program
most exploration expenditures will be shared 56.4 percent by PLP, 37.6
percent by MOXY and 6.0 percent by an individual investor, with all other
costs and revenues shared 47.0 percent by PLP, 48.0 percent by MOXY and 5.0
percent by the individual investor.
4. PROPERTY, PLANT AND EQUIPMENT
PLP's investment in property, plant and equipment at December 31 is
summarized as follows (in millions):
<TABLE>
<CAPTION>
1997 1996
---- ----
<S> <C> <C>
Land $ 27.3 $ 26.0
Mineral properties and rights 188.5 373.9
Buildings 74.8 690.7
Machinery and equipment 709.6 778.1
Construction in progress 24.5 9.0
------ ------
1,024.7 1,877.7
Accumulated depreciation, (592.3 ) (958.5 )
depletion and amortization ------ ------
Net property, plant and $ 432.4 $ 919.2
equipment ====== ======
</TABLE>
The decline in net property, plant and equipment is primarily related to
(i) the sulphur impairment charge (see Note 1, "Summary of Significant
Accounting Policies," for further detail) and (ii) the spin-off of FSC (see
Note 2, "Freeport-McMoRan Inc. Merger," and Note 5, "Distributions," for
further detail). At December 31, 1997, idle facilities of IMC-Agrico
included three phosphate rock mines, one concentrated phosphate mine and two
uranium oxide extraction and processing facilities. The net book value of
these facilities totaled $11.1 million. In the opinion of management, the
net book value of IMC-Agrico's idle facilities is not in excess of net
realizable value.
5. DISTRIBUTIONS
Cash Distributions. In January 1998, PLP announced that it would not make a
cash distribution for the quarter ended December 31, 1997. PLP's
distributable cash is now shared ratably by PLP's public unitholders and its
administrative managing general partner, except that the administrative
managing general partner will be entitled to receive unpaid cash
distributions from previous quarters ($431.3 million unpaid at March 20,
1998) from one-half of the quarterly distributable cash after the payment of
60 cents per unit to all PLP unitholders.
<PAGE>
Freeport-McMoRan Sulphur Inc. As discussed previously, in December 1997 PLP
distributed common shares of its newly formed, wholly owned subsidiary, FSC,
to PLP's unitholders. The net assets transferred to FSC, excluding IMC's
25.0 percent interest in Main Pass which had a carrying value of $19.1
million, at PLP's historical cost are detailed below (in millions):
<TABLE>
<S> <C>
Cash and cash equivalents $ 23.3
Accounts receivable 34.5
Inventories 31.9
Property, plant and equipment, net 110.5
Other assets 18.2
Current liabilities (35.5 )
Reclamation and mine shutdown reserves (63.2 )
Accrued pension and non-current liabilities (61.3 )
-----
$ 58.4
=====
</TABLE>
6. FINANCING ARRANGEMENTS
<TABLE>
<CAPTION>
December 31,
----------------
1997 1996
------- ------
(In millions)
<S> <C> <C>
Notes payable to IMC $300.1 $ -
Revolving credit agreement, average rate 6.3%
in 1997 and 6.4% in 1996 - 50.0
7.0% Senior Debentures due 2008 150.0 150.0
8.75% Senior Subordinated Notes due 2004 5.7 150.0
IMC-Agrico debt 50.1 53.4
----- -----
505.9 403.4
Less current maturities 0.4 0.4
----- -----
$505.5 $ 403.0
===== =====
</TABLE>
Short-term borrowings were $13.9 million as of December 31, 1997, which
primarily consisted of the portion of the sale of receivables classified as
short-term debt as of December 31, 1997, as required by SFAS No. 125.
The weighted average interest rate on short-term borrowings was 5.9
percent.
In connection with the FTX Merger, PLP entered into two separate
agreements with IMC (IMC Agreements). One agreement is a variable rate
demand note for up to $200.0 million, while the other agreement is a 8.75
percent demand note for up to $150.0 million. Interest under the IMC
Agreements is payable quarterly. On December 31, 1997, approximately $300.1
million, in the aggregate, was outstanding under the IMC Agreements. These
balances have been included in long-term debt on the Balance Sheet.
<PAGE>
Immediately following the FTX Merger, PLP utilized the proceeds from the
IMC Agreements (Proceeds) to complete a tender offer for $144.3 million of
its outstanding $150.0 million principal amount of its 8.75 percent senior
subordinated notes (Senior Subordinated Notes) due 2004. Additionally,
utilizing the Proceeds , PLP repaid all outstanding amounts under, and
terminated, its then-outstanding revolving credit agreement (Credit
Agreement). As a result of both of these transactions, PLP recorded an
extraordinary charge of $14.5 million primarily for the redemption premium
incurred and the write-off of previously deferred finance charges.
In December 1997, IMC-Agrico repaid all outstanding amounts under, and
terminated, its then-outstanding revolving credit agreement. IMC-Agrico
simultaneously entered into a variable rate demand note payable to IMC
(IMC-Agrico Facility) for borrowings up to $125.0 million. On December 31,
1997, $92.9 million was outstanding under the IMC-Agrico Facility. In
addition, IMC entered into credit facilities with a group of banks which
stipulate that IMC and certain of its subsidiaries may borrow up to $350.0
million under a revolving credit facility expiring December 1998 and $650.0
million under a long-term credit facility expiring December 2002,
(collectively, IMC Credit Facilities). The IMC Credit Facilities have a
letter of credit subfacility for up to $100.0 million. Borrowings under the
IMC Credit Facilities are unsecured and bear interest at rates based on
LIBOR. In addition, the IMC Credit Facilities have certain financial ratio
and other covenants.
On December 31, 1997, the estimated fair value of long-term debt described
above was approximately the same as the carrying amount of such debt on the
Balance Sheet. The fair value was calculated in accordance with the
requirements of SFAS No. 107, "Disclosures About the Fair Value of Financial
Instruments," and was estimated by discounting the future cash flows using
rates currently available to PLP for debt instruments with similar terms and
remaining maturities.
Scheduled maturities of long-term debt for each of the five succeeding
years based on the amounts and terms outstanding at December 31, 1997,
excluding amounts outstanding under the IMC Agreements and IMC-Agrico
Facility, are $0.4 million in 1998, $0.5 million in 1999, none in 2000
through 2001 and $166.9 million due in 2002 and thereafter.
7. PENSION AND OTHER EMPLOYEE BENEFITS
Management Services Agreement. Prior to the FTX Merger, FTX furnished
certain management and administrative services to PLP under a management
services agreement. These costs, which included related overhead, totaled
$10.5 million in 1997, $10.0 million in 1996 and $38.9 million in 1995
(including $15.3 million for stock appreciation rights costs resulting from
the rise in FTX's common stock price during the year). In 1996, FM Services
Company (FMS), an entity previously affiliated with FTX, began providing
certain services that were previously provided by FTX on a similar cost-
reimbursement basis, totaling $17.5 million in 1997 and $16.8 million in
1996. IMC and FMS have agreed for certain such services to continue to be
provided to PLP on a cost reimbursement basis. PLP has no employees.
Pensions. Substantially all individuals who perform services for IMC-Agrico
are employed by IMC-Agrico MP, Inc. (MP Co.). This includes former employees
of each Partner who were transferred to MP Co. when IMC-Agrico was formed.
As a result, on July 1, 1993, MP Co. established non-contributory pension
plans that cover substantially all of its employees who perform services for
IMC-Agrico. Benefits are based on a combination of years of service and
compensation levels, depending on the plan. Generally, contributions to the
<PAGE>
plans are made to meet minimum funding requirements of the Employee
Retirement Income Security Act of 1974. The expense related to such plans is
charged by MP Co. to IMC-Agrico. Employees in the United States and Canada
whose pension benefits exceeded Internal Revenue Code limitations are covered
by supplementary non-qualified, unfunded pension plans.
The components of PLP's net pension expense related to the MP Co. plans
for the years ended December 31, computed actuarially, were as follows:
<TABLE>
<CAPTION>
1997 1996 1995
---- ---- ----
(In millions)
<S> <C> <C> <C>
Service cost for benefits earned during the year $ 2.6 $ 2.1 $ 1.7
Interest cost on projected benefit obligation 1.4 1.0 0.7
Return on plan assets (1.7 ) (0.5 ) (0.3 )
Net amortization and deferral 1.8 0.6 0.5
Net curtailment loss 2.1 - -
---- ---- ----
Total pension expense $ 6.2 $ 3.2 $ 2.6
==== ==== ====
</TABLE>
During 1997, MP Co. employees and certain IMC employees who provide
services to IMC-Agrico and PLP, were given the option to remain in the
current pension plan or transfer to a newly created defined contribution
plan, effective January 1, 1998. As a result, under the provisions of SFAS
No. 88, "Accounting for Settlements and Curtailments of Defined Benefit
Pension Plans and for Termination Benefits," PLP recognized a $4.4 million
curtailment loss for the year ended December 31, 1997.
In certain of these plans, the plan assets, (which consist of shares of a
short-intermediate bond fund and a mutual fund) exceed the accumulated
benefit obligations (overfunded plans) and the remainder of the plans, the
accumulated benefit obligations exceed the plan assets (underfunded plans).
The funded status, based on an October 1 measurement date, of the MP Co.'s
pension plans and amounts recognized in PLP's balance sheets as of
December 31 were as follows:
<PAGE>
<TABLE>
<CAPTION>
Overfunded Plans Underfunded Plans
---------------- -----------------
1997 1996 1997 1996
---- ---- ---- ----
(In millions)
<S> <C> <C> <C> <C>
Plans' assets at fair value $ 3.6 $ 2.8 $ 9.4 $ 4.5
Actuarial present value of projected
benefit obligations:
Vested benefits 2.1 1.3 20.9 5.8
Nonvested benefits 0.7 0.5 2.8 1.6
---- ---- ---- ----
Accumulated benefit obligations 2.8 1.8 23.7 7.4
Projected future salary increases 5.5 5.4 5.5 4.3
---- ---- ---- ----
Total projected benefit 8.3 7.2 29.2 11.7
obligations ---- ---- ---- ----
Plans' assets less than projected 4.7 4.4 19.8 7.2
benefit obligations
Items not yet recognized in
earnings:
Unrecognized prior service cost (0.5 ) (1.4 ) (3.0 ) (3.1 )
Unrecognized net gain (loss) (1.9 ) (2.3 ) (1.7 ) (1.7 )
Additional minimum liability - - 2.4 1.9
Fourth quarter contributions - (0.2 ) (0.2 ) (0.3 )
---- ---- ---- ----
Accrued pension liability $ 2.3 $ 0.5 $17.3 $ 4.0
==== ==== ==== ====
</TABLE>
The increase in the accrued pension liability as of December 31, 1997 is
primarily the result of the additional retirement benefits.
<TABLE>
<CAPTION>
1997 1996 1995
<S> <C> <C> <C>
Discount rate 7.5% 7.5% 8.2%
Long-term rate of return on assets 8.5% 8.5% 8.5%
Rate of increase in compensation levels 5.0% 5.0% 5.0%
</TABLE>
MP Co. also has defined contribution pension and investment plans (Plans)
for certain of its employees. Under each of the Plans, participants are
permitted to defer a portion of their compensation whereas MP Co.
contributions to the Plans are based on a percentage of wages earned by the
eligible employees. The expense related to such Plans is charged by MP Co.
to IMC-Agrico. PLP's expense for such Plans totaled $1.6 million, $1.5
million and $2.1 million for the years ended December 31, 1997, 1996 and
1995, respectively.
In addition, certain IMC employees also provide services to IMC-Agrico and
PLP. Such employees are covered by pension plans sponsored by IMC. The cost
of providing such services as well as the related pension expense is charged
to MP Co. and, in turn, to IMC-Agrico. PLP's share of pension expense for
such employees totaled $4.3 million ($2.0 million in 1996 and 1995), of which
$2.3 million represents curtailment loss, for the year ended December 31,
1997.
<PAGE>
Prior to the FTX Merger, certain FTX and FMS employees providing services
to PLP were covered by pension plans sponsored by FTX and FMS. IMC assumed
the FTX plans upon consummation of the FTX Merger. The accumulated benefits
and plan assets were not separately determined. The amounts allocable to PLP
under these plans were not material and are included in the management
services agreement costs disclosed above.
Other Postretirement Benefits. Prior to the FTX Merger, FTX and FMS provided
certain health care and life insurance benefits for retired employees. The
related expense allocated from FTX totaled $4.3 million in 1997 (including
$0.7 million for service cost and $3.6 million in interest for prior period
services), $4.5 million in 1996 (including $1.2 million for service cost and
$5.8 million in interest for prior period services, partially offset by net
amortization and deferral of $2.5 million) and $8.9 million in 1995
(including $1.2 million for service cost and $7.7 million in interest for
prior period services). PLP's share of the FMS plan was not significant for
1997, 1996 or 1995.
MP Co. provides certain health care benefit plans for retired employees.
Certain plans are contributory and certain plans are non-contributory and
contain certain other cost sharing features such as deductibles and
coinsurance. The plans are unfunded. Employees are not vested and such
benefits are subject to change. The expense related to such plans is charged
by MP Co. to IMC-Agrico and PLP's share totaled $0.9 million in 1997, $0.7
million in 1996 and $0.5 million in 1995.
For those employees who provide services to IMC-Agrico but were included
in health care benefit plans of IMC, the cost of providing such benefits is
charged by IMC to MP Co., and in turn, to IMC-Agrico. Postretirement
benefits other than pensions (OPEBS) expense for such employees was
insignificant for the years ended December 31, 1997 and 1996.
The components of the PLP's OPEBS liability, including PLP's share of the
MP Co. OPEBS liability, at December 31 were as follows (in millions):
<TABLE>
<CAPTION>
1997 1996
------ ------
<S> <C> <C>
Retirees $ 114.5 $ 67.9
Fully eligible - 2.3
Not fully eligible 7.0 11.0
----- -----
Total 121.5 81.2
----- -----
Items not yet recognized in earnings:
Unrecognized prior service cost 0.7 1.4
Unrecognized net (loss) gain (1.2 ) 35.6
----- -----
Accrued postretirement benefits liability $ 121.0 $ 118.2
===== =====
</TABLE>
The primary reason for the change in the components of the accrued
postretirement benefits liability as of December 31, 1997 is the result of
the required accounting in accordance with AICPA Accounting Principles Board
Opinion No. 16, "Business Combinations," and FAS No. 106, "Employers'
Accounting for Postretirement Benefits Other Than Pensions," necessitated by
the FTX Merger.
<PAGE>
If the health care trend rate assumptions were increased by one percent,
the accumulated postretirement benefit obligation would increase by 7.5
percent as of December 31, 1997. This would have the effect of a 6.4 percent
increase on OPEBS expense in 1997.
MP Co. also provides benefits such as workers' compensation and
disability to certain former or inactive employees after employment but
before retirement. The plans are unfunded. Employees are not vested and the
plan benefits are subject to change.
8. COMMITMENTS AND CONTINGENCIES
IMC purchases sulphur, natural gas and ammonia from third parties under
contracts extending in some cases, for multiple years. Purchases under these
contracts are generally at prevailing market prices. These contracts
generally range from one to four years. IMC also purchases its sulphur
requirements from FSC under an agreement which extends over the life of the
joint venture. Since the term of the sulphur purchase commitment is
indeterminable, the dollar value of such commitments has been excluded from
the schedule below after the year 2002.
IMC-Agrico leases various types of properties, including buildings and
structures, railcars and various types of equipment through operating leases.
Lease terms generally range from three to five years, although some have
longer terms.
Summarized below is a schedule of IMC-Agrico's future minimum long-term
purchase commitments and lease payments under non-cancelable operating leases
as of December 31, 1997:
<TABLE>
<CAPTION>
Purchase Lease
Commitments Commitments
----------- -----------
<S> <C> <C>
1998 $ 314.0 $ 15.9
1999 262.7 16.0
2000 153.0 16.0
2001 148.9 16.1
2002 148.9 12.7
Subsequent years 16.0
------- -------
$ 1,027.5 $ 92.7
======= =======
</TABLE>
IMC-Agrico's rental expense under non-cancelable operating leases for
1997, 1996 and 1995 amounted $22.8 million, $20.3 million and $16.8 million,
respectively.
IMC-Agrico also sells phosphate rock and concentrated phosphates to
customers and IMC under contracts extending in some cases for multiple years.
Sales under these contracts, except for certain phosphate rock sales which
are at prices based on IMC-Agrico's cost of production, are generally at
prevailing market prices.
<PAGE>
Property Reserves. In October 1996, IMC-Agrico signed an agreement with
Consolidated Minerals, Inc. (CMI) for the purchase of real property (CMI
Agreement) containing approximately 100 million tons of phosphate rock
reserves. In connection with the purchase, IMC-Agrico has agreed to obtain
all environmental, regulatory and related permits necessary to commence
mining on the property.
Within five years from the date of the CMI Agreement, IMC-Agrico is
required to provide notice to CMI regarding one of the following: (i) whether
they have obtained the permits necessary to commence mining any part of the
property, (ii) whether they wish to extend the permitting period for an
additional three years or (iii) whether they wish to decline to extend the
permitting period. If the permits necessary to commence mining the property
are obtained, IMC-Agrico is obligated to pay CMI an Initial Royalty (as
defined in the CMI Agreement) of $28.9 million. In addition to the Initial
Royalty payment, IMC-Agrico is required to pay CMI a mining royalty on
phosphate rock mined from the property to the extent permits are obtained.
Environmental. The historical use and handling of regulated substances and
crop nutrient products in the normal course of the Company's business has
resulted in contamination at facilities presently or previously owned or
operated by the Company. The Company has also purchased facilities that were
contaminated by previous owners through their use and handling of regulated
substances. Spills or other unintended releases of regulated substances have
occurred in the past, and potentially could occur in the future, possibly
requiring the Company to undertake or fund cleanup efforts. The Company
cannot estimate the level of expenditures that may be required in the future
to clean up contamination from the handling of regulated substances or crop
nutrients.
At some locations, the Company has agreed, pursuant to consent orders
with the appropriate governmental agencies, to undertake certain
investigations (which currently are in progress) to determine whether
remedial action may be required to address contamination. The cost of any
remedial actions that ultimately may be required at these sites currently
cannot be determined.
PLP has a third party indemnification for environmental remediation costs
on certain identified sites and the third party has assumed management of
remedial activities and all future expenditures for the indemnified sites.
Based on PLP's review of the potential liabilities and the third party's
financial condition, PLP concluded that it is remote that PLP would have any
future liability at the indemnified sites. PLP believes its exposure on
other sites for which notification has been received will not exceed amounts
accrued and expects that any costs would be incurred over a period of years.
The costs associated with those sites for which notifications have not been
received are uncertain and cannot be estimated at present. However, PLP
believes that these costs, should they be incurred, will not have a material
adverse effect on its operations or financial position.
MOXY Exploration Funding. See Note 3, "IMC-Agrico and MOXY," for detail
related to the MOXY Exploration Program funding requirements.
9. ACQUISITIONS
In 1995, IMC-Agrico acquired the animal feed ingredients business of
Mallinckrodt Group Inc. PLP funded its portion of the purchase price with
borrowings under its Credit Agreement. The purchase price allocation follows
(in millions):
<PAGE>
<TABLE>
<S> <C>
Current assets $19.5
Property, plant and equipment 35.3
Current liabilities (8.6 )
----
Net cash investment $46.2
====
</TABLE>
In 1995, PLP acquired essentially all of the domestic assets of Pennzoil
Company's sulphur division, including the Culberson sulphur mine in west
Texas. Under the terms of the purchase, Pennzoil received quarterly payments
from PLP totaling $2.1 million in 1997, $2.0 million in 1996 and $5.2 million
in 1995. The purchase price allocation follows (in millions):
<TABLE>
<S> <C>
Current assets $ 5.6
Property, plant and equipment 48.9
Current liabilities (7.5 )
Reclamation and mine shutdown (15.2 )
reserves
Accrued long-term liabilities (31.8 )
-----
Net cash investment $ -
=====
</TABLE>
Accrued long-term liabilities included the estimated future installment
payments based on the prevailing sulphur price at the time of acquisition.
In connection with the FTX Merger, these net assets were transferred to, and
the terms of the purchase agreement with Pennzoil were assumed, by FSC. See
Note 2, "Freeport-McMoRan Inc. Merger," for further detail.
10. QUARTERLY FINANCIAL INFORMATION (UNAUDITED)
(In millions, except per unit amounts)
<TABLE>
<CAPTION
Quarter
-----------------------------------
First(a) Second Third(b) Fourth(c) Year(d)
- --------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
1997
Revenues $ 211.8 $ 228.8 $ 196.3 $ 205.6 $ 842.5
Operating income (loss) 38.1 39.6 (357.6 ) (20.5 ) (300.4 )
Earnings (loss) 29.2 30.6 (366.6 ) (48.2 ) (355.0 )
Earnings (loss) per unit 0.28 0.30 (3.54 ) (0.47 ) (3.43 )
- --------------------------------------------------------------------------
<PAGE>
1996
Revenues $ 256.7 $ 242.7 $ 222.5 $ 235.1 $ 957.0
Operating income (loss) 71.5 47.9 46.4 46.1 211.9
Earnings (loss) 62.7 39.5 37.9 37.2 177.3
Earnings (loss) per unit 0.61 0.38 0.37 0.36 1.71
</TABLE>
a. Includes a gain of $11.9 million ($0.12 per unit) in 1996 resulting from
the increase in PLP's ownership of IMC-Agrico and a $3.0 million charge
($0.03 per unit) in 1996 for asset valuations at IMC-Agrico.
b. Includes a $384.5 million charge ($3.72 per unit) in 1997 for an
impairment assessment of sulphur assets.
c. Includes charges in 1997 totaling $22.6 million ($0.22 per unit) related
to the FTX Merger, and an extraordinary charge of $14.5 million ($0.14 per
unit) primarily for redemption premiums associated with the early retirement
of debt.
d. Due to weighted average unit differences, when stated on a quarter and
year-to-date basis, the earnings (loss) per unit for the years ended December
31, 1997 and 1996 do not equal the sum of the respective earnings (loss) per
unit for the four quarters then ended.
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure.
As of December 22, 1997 PLP filed a Current Report on Form 8-K reporting
events under items 1 and 4 thereof, and subsequently on February 5, 1998, PLP
filed an amendment on Form 8-K/A. The event reported under item 1 addressed
the change in control of PLP following the merger of FTX, 51.6 percent owner
and administrative managing general partner of PLP, with IMC as the surviving
entity. As a result, IMC assumed 51.6 percent ownership and became
administrative managing general partner of PLP under the limited partnership
agreement of PLP.
The event reported under item 4 addressed the change in PLP's
independent public accountants. As a result of the FTX Merger, Arthur
Andersen LLP was replaced as the principal independent auditor of PLP by
Ernst & Young LLP effective December 22, 1997. The report of Arthur Andersen
LLP on the financial statements of PLP for the past two years, which
expressed reliance on certain audit work performed by Ernst & Young LLP
relative to PLP's joint venture interest in IMC-Agrico, did not contain an
adverse opinion or a disclaimer of an opinion and was not qualified or
modified as to uncertainty, audit scope or accounting principles. During
PLP's two most recent fiscal years and the interim period ended December 22,
1997, (i), there were no disagreements with Arthur Andersen LLP on any matter
of accounting principles or practices, financial statement disclosure or
auditing scope or procedure and (ii) there were no "reportable events" (as
defined in Rule 304(a) (1) (v) of Regulation S-K).
PART III
Item 10. Directors and Executive Officers of the Registrant.
As a limited partnership PLP has no directors. IMC, as the managing
general partner of PLP, performs comparable functions for PLP. PLP does not
employ any executive officers; however, certain management functions are
provided to PLP by IMC, as administrative managing general partner. These
functions are provided by executive officers and other employees of IMC.
<PAGE>
Section 16(a) Beneficial Ownership Reporting Compliance
Because IMC is the administrative managing general partner of PLP,
certain officers of IMC who perform policy-making functions for PLP are
subject to the reporting requirements of Section 16 of the Exchange Act of
1934, as amended. Initial Statements of Beneficial Ownership on Form 3 were
not timely filed for Messrs. Lynn F. White and Marschall I. Smith (Messrs.
White and Smith did not hold any units of PLP at the time the Form 3s were
required to have been filed.)
Item 11. Executive Compensation.
PLP does not employ any executive officers and no compensation was
provided by PLP to any executive officer for services rendered in any
capacity in 1997. Prior to the FTX Merger, the services of executive
officers of PLP were provided to PLP by FTX as provided in the PLP
partnership agreement, for which PLP reimbursed FTX at its cost, including
allocated overhead. Subsequent to the FTX Merger, IMC provides services to
PLP as provided in the PLP partnership agreement, for which PLP reimburses
IMC at its cost, including allocated overhead. Certain services provided by
IMC, as administrative managing general partner, on behalf of PLP are
provided by executive officers and other employees of IMC. In accordance
with the PLP partnership agreement, IMC is reimbursed on a monthly basis for
expenses incurred on behalf of PLP. Reference is made to the information set
forth in Part I, Items 1 and 2, "Business and Properties - Relationship
between the Company and IMC," of this Annual Report on Form 10-K.
Item 12. Security Ownership of Certain Beneficial Owners and Management.
The following table contains certain information concerning the
beneficial ownership of PLP units as of December 31, 1997 by each person
known by PLP to be the beneficial owner of more than five percent of any
class of PLP equity security, determined in accordance with Rule 13d-3 of the
Securities and Exchange Commission (SEC) and based on information furnished
to PLP by each such person. Unless otherwise indicated, the securities shown
are held with sole voting and investment power.
Number of
PLP Units Percent
Beneficially of
Name and Address of Beneficial Owner Owned Class
- ------------------------------------ ------------ ---------
IMC Global Inc.
2100 Sanders Road
Northbrook, Illinois 60062-6146 53,385,133(1) 51.6%
Vanguard/Windsor Fund, Inc.
Post Office Box 2600
Valley Forge, Pennsylvania 19482-2600 8,973,200(2) 8.7%
Wellington Management Company, LLP
75 State Street
Boston, Massachusetts 02109 8,973,200(3) 8.7%
(1) Consists of 198,234 PLP Depositary Units, 52,149,916 PLP Unit
Equivalents and 1,036,983 of partnership interests.
<PAGE>
(2) Based on the Schedule 13G dated February 13, 1998 that Vanguard/Windsor
Fund, Inc. filed with the SEC. Vanguard/Windsor Fund, Inc. has sole
voting power and shared investment power as to all 8,973,200 units,
consisting solely of PLP Depositary Units.
(3) Based on the Schedule 13G dated February 11, 1998 that Wellington
Management Company, LLP filed with the SEC. Wellington Management
Company, LLP has shared investment power only as to all 8,973,200 units.
Item 13. Certain Relationships and Related Transactions.
Reference is made to the information set forth in Part I, Items 1 and 2,
"Business and Properties - Relationship between the Company and IMC," and to
the information set forth in Item 11, "Executive Compensation," of this
Annual Report on Form 10-K.
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K.
(a)(1). Financial Statements.
--------------------
Reference is made to the Index to Financial Statements appearing on page
F-1 hereof.
(a)(2). Financial Statement Schedules.
-----------------------------
Reference is made to the Index to Financial Statements appearing on page F-
1 hereof.
(a)(3). Exhibits.
--------
Reference is made to the Exhibit Index beginning on page E-1 hereof.
(b). Reports on Form 8-K.
--------------------
During the fourth quarter and through the date of this filing, the
following reports were filed:
A report under Items 1 and 4 Dated December 22, 1997
An amended report under Item 1 Dated February 5, 1998
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 of the Securities Exchange Act
of 1934, the registrant has duly caused this report to be signed on its behalf
by the undersigned, thereunto duly authorized, on March 31, 1998.
PHOSPHATE RESOURCE PARTNERS
LIMITED PARTNERSHIP
By: IMC GLOBAL INC.,
Its Administrative Managing
General Partner
By: /s/Robert E. Fowler, Jr.
-------------------------------------
Robert E. Fowler, Jr.
President and Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities indicated on March 31, 1998.
Signature Title Date
- -------------------------------------------------------------------------
/s/ Robert E. Fowler, Jr. Chief Executive Officer March 31, 1998
- ------------------------- (principal executive officer),
Robert E. Fowler, Jr. President (principal operating
officer) and Director of IMC
Global Inc.
/s/ J. Bradford James Senior Vice President and March 31, 1998
- ------------------------- Chief Financial Officer of
J. Bradford James IMC Global Inc.(principal
financial officer)
/s/ Anne M. Scavone Vice President and Controller March 31, 1998
- ------------------------- of IMC Global Inc. (principal
Anne M. Scavone accounting officer)
/s/ Wendell F. Bueche Director and Chairman of the March 31, 1998
- ------------------------- Board of IMC Global Inc.
Wendell F. Bueche
* Director of IMC Global Inc. March 31, 1998
- -------------------------
Raymond F. Bentele
* Director of IMC Global Inc. March 31, 1998
- -------------------------
Robert W. Bruce III
* Director of IMC Global Inc. March 31, 1998
- -------------------------
Rod F. Dammeyer
<PAGE>
* Director of IMC Global Inc. March 31, 1998
- -------------------------
James M. Davidson
* Director of IMC Global Inc. March 31, 1998
- -------------------------
Rene L. Latiolais
* Director of IMC Global Inc. March 31, 1998
- -------------------------
Harold H. MacKay
* Director of IMC Global Inc. March 31, 1998
- -------------------------
David B. Mathis
* Director of IMC Global Inc. March 31, 1998
- -------------------------
Donald F. Mazankowski
* Director of IMC Global Inc. March 31, 1998
- -------------------------
James R. Moffett
* Director of IMC Global Inc. March 31, 1998
- -------------------------
Thomas H. Roberts, Jr.
* Director of IMC Global Inc. March 31, 1998
- -------------------------
Joseph P. Sullivan
* Director of IMC Global Inc. March 31, 1998
- -------------------------
Richard L. Thomas
* Director of IMC Global Inc. March 31, 1998
- -------------------------
Billie B. Turner
* By: /s/ Marschall I. Smith
----------------------------
Marschall I. Smith
Attorney-in-fact
<PAGE>
<TABLE>
Phosphate Resource Partners Limited Partnership
Exhibit Index
<CAPTION>
Filed with
Exhibit Incorporated Herein Electronic
No. Description By Reference to Submission
- -------------------------------------------------------------------------
<S> <C> <C> <C>
3.1 Amended and Restated Agreement of Exhibit B to the
Limited Partnership of PLP dated as of Prospectus dated May
May 29, 1987 (PLP Partnership 29, 1987 included in
Agreement) among FTX, Freeport PLP's Registration
Phosphate Rock Company and Geysers Statement on Form S-1,
Geothermal Company, as general as amended, as
partners, and Freeport Minerals initially filed with
Company ("FMC"), as general partner the Commission on May
and attorney-in-fact for the limited 29, 1987 (Registration
partners, of PLP. No. 33-13513)
3.2 Amendment to the PLP Partnership Exhibit 3.2 to the 1994
Agreement dated as of December Annual Report on Form
16, 1988 effected by FMC, as 10-K
Administrative Managing General
Partner, and FTX, as General
Partner of PLP.
3.3 Amendment to the PLP Partnership Exhibit 19.2 to the
Agreement dated as of March 29, Company's March 31,
1990 effected by FMC, as 1990 Form 10-Q
Administrative Managing General
Partner, and FTX, as Managing
General Partner, of PLP.
3.4 Amendment to the PLP Partnership Exhibit 19.3 to the
Agreement dated as of April 6, Company's March 31,
1990 effected by FTX, as 1990 Form 10-Q
Administrative Managing General
Partner of PLP.
3.5 Amendment to the PLP Partnership Exhibit 3.3 to the 1991
Agreement dated as of January Annual Report on Form
27, 1992 between FTX, as 10-K
Administrative Managing General
Partner, and FMRP, as Managing
General Partner, of PLP.
3.6 Amendment to the PLP Partnership Exhibit 3.4 to the 1992
Agreement dated as of October Annual Report on Form
14, 1992 between FTX, as 10-K
Administrative Managing General
Partner, and FMRP, as Managing
General Partner, of PLP.
<PAGE>
3.7 Amended and Restated Certificate Exhibit 3.3 to
of Limited Partnership of PLP Company's Registration
dated June 12, 1986 (PLP Statement on Form S-1,
Partnership Certificate). as amended, as
initially filed with
the Commission on June
20, 1986 (Registration
No. 33-5561)
3.8 Amendment dated as of January 9, X
1998 effected by IMC, as
Administrative Managing General
Partner, and FMRP, as Managing
General Partner of PLP.
3.9 Certificate of Amendment to the PLP Exhibit 3.6 to the 1993
Partnership Certificate dated as of Annual Report on Form
January 12, 1989. 10-K
3.10 Certificate of Amendment to the PLP Exhibit 19.1 to the
Partnership Certificate dated as of Company's March 31,
December 29, 1989. 1990 Form 10-Q
3.11 Certificate of Amendment to the Exhibit 19.4 to the
PLP Partnership Certificate Company's March 31,
dated as of April 12, 1990. 1990 Form 10-Q.
3.12 Certificate of Amendment to the X
PLP Partnership Certificate
dated as of January 9, 1998
4.1 Deposit Agreement dated as of Exhibit 28.4 to the
June 27, 1986 ("Deposit Company's Report on
Agreement") among PLP, The Chase Form 8-K dated July 11,
Manhattan Bank, N.A. ("Chase") 1986
and Freeport Minerals Company
("Freeport Minerals"), as
attorney-in-fact of those
limited partners and assignees
holding depositary receipts for
units of limited partnership
interest in PLP ("Depositary
Receipts").
4.2 Resignation dated December 26, Exhibit 4.5 to the 1991
1991 of Chase as Depositary Annual Report on Form
under the Deposit Agreement and 10-K
appointment dated December 27,
1991 of Mellon Bank, N.A.
(Mellon) as successor
Depositary, effective January 1,
1992.
<PAGE>
4.3 Service Agreement dated as of Exhibit 4.6 to the 1991
January 1, 1992 between PLP and Annual Report on Form
Mellon pursuant to which Mellon 10-K
serves as Depositary under the
Deposit Agreement and Custodian
under the Custodial Agreement.
4.4 Amendment to the Deposit Exhibit 4.4 to the 1992
Agreement dated as of November Annual Report on Form
18, 1992 between PLP and Mellon. 10-K
4.5 Form of Depositary Receipt. Exhibit 4.5 to the 1992
Annual Report on Form
10-K.
4.6 Custodial Agreement regarding Exhibit 19.1 to the
the PLP Depositary unit Company's June 30, 1987
Reinvestment Plan among FTX, PLP Form 10-Q
and Chase, effective as of April
1, 1987 (Custodial Agreement).
4.7 PLP Depositary Unit Reinvestment Exhibit 4.4 to the 1991
Plan. Annual Report on Form
10-K
4.8 Subordinated Indenture as of Exhibit 4.11 to the
October 26, 1990 (Subordinated 1993 Annual Report on
Indenture) between PLP and Form 10-K
Manufacturers Hanover Trust
Company (MHTC) as Trustee.
4.9 First Supplemental Indenture Exhibit 4.12 to the
dated as of February 15, 1994 1993 Annual Report on
between PLP and Chemical Bank, Form 10-K
as Successor to MHTC, as
Trustee, to the Subordinated
Indenture providing for the
issuance of $150,000,000 of
aggregate principal amount of 8
3/4% Senior Subordinated Notes
due 2004.
4.10 Form of Senior Indenture (Senior Exhibit 4.1 to the
Indenture) from PLP to Chemical Company's Report on
Bank, as Trustee. Form 8-K dated February
13, 1996
4.11 Form of Supplemental Indenture Exhibit 4.1 to the
dated February 14, 1996 from PLP Company's Report on
to Chemical Bank, as Trustee, to Form 8-K dated February
the Senior Indenture providing 16, 1996
for the issuance of $150,000,000
aggregate principal amount of 7%
Senior Debentures due 2008.
<PAGE>
10.1 Contribution Agreement dated as Exhibit 2.1 to the
of April 5, 1993 between PLP and Company's Report on
IMC (PLP-IMC Contribution Form 8-K dated July 15,
Agreement). 1993
10.2 First Amendment dated as of July Exhibit 2.2 to the
1, 1993 to the PLP-IGL Company's Report on
Contribution Agreement. Form 8-K dated July 15,
1993
10.3 Amended and Restated Partnership Exhibit 10.3 to the
Agreement dated as of May 26, 1995 Annual Report on
1995 among IMC-Agrico GP Form 10-K
Company, Agrico, Limited
Partnership and IMC-Agrico MP
Inc.
10.4 Amendment and Agreement dated as Exhibit 10.1 to the
of January 23, 1996 to the Company's Report on
Amended and Restated Partnership Form 8-K dated February
Agreement dated May 26, 1995 by 13, 1996
and among IMC-Agrico MP, Inc.,
IMC Global Operations, Inc. and
IMC-Agrico Company.
10.5 Amended and Restated Parent Exhibit 10.5 to the
Agreement dated as of May 26, 1995 Annual Report on
1995 among IMC Global Form 10-K
Operations, Inc., PLP, FTX and
IMC-Agrico.
10.6 Participation Agreement: McMoRan X
1997 Exploration Program
(Participation Agreement) dated
April 1, 1997 between PLP and
MOXY.
10.7 Amendment to Participation X
Agreement dated December 15,
1997 between PLP and MOXY.
10.8 Participation Agreement: X
McMoRan 1997 Exploration Program
dated December 15, 1997 between
PLP and MOXY.
10.9 Promissory Demand Note between X
PLP, as borrower, and IMC, as
lender, dated December 22, 1997
in the principal sum of
$200,000,000.
10.10 Promissory Demand Note between X
PLP, as borrower, and IMC, as
lender, dated December 22, 1997
in the principal sum of
$150,000,000.
<PAGE>
12.1 PLP Computation of Ratio of X
Earnings to Fixed Charges.
16 Letter of Arthur Andersen LLP Exhibit 99.2 to the
re: change in certifying Company's Report on
accountants. Form 8-K dated December
22, 1997 and Exhibit
99.2 to the Company's
Report on Form 8-K/A
dated February 5, 1998
21.1 Subsidiaries of the Registrant. X
23.1 Consent of Ernst & Young LLP X
dated March 30, 1998.
23.2 Consent of Arthur Andersen LLP dated
March 30, 1998. X
24.1 Powers of Attorney pursuant to
which this report has been
signed on behalf of certain
directors of IMC Global Inc. X
27.1 PLP Financial Data Schedule. X
99.1 Report of Ernst & Young LLP. X
99.2 Report of Ernst & Young LLP X
<PAGE>
INDEX TO FINANCIAL STATEMENTS
The financial statement schedules listed below should be read in
conjunction with such financial statements contained in PLP's 1997 Annual
Report on Form 10-K.
Page
III-Condensed Financial Information of F-2
Registrant
VIII-Valuation and Qualifying Accounts F-5
Schedules other than those listed above have been omitted since they
are either not required, not applicable or the required information is
included in the financial statements or notes thereto.
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
We have audited, in accordance with generally accepted auditing
standards, the financial statements as of December 31, 1996 and for the
years ended December 31, 1996 and 1995 of Phosphate Resource Partners
Limited Partnership included in this Form 10-K, and have issued our
report thereon dated January 21, 1997. Our audits were made for the
purpose of forming an opinion on those statements taken as a whole. The
schedules listed in the index above are the responsibility of the General
Partner's management and are presented for purposes of complying with the
Securities and Exchange Commission's rules and are not part of the basic
financial statements. The schedules as of December 31, 1996 and for the
years ended December 31, 1996 and 1995 have been subjected to the
auditing procedures applied in the audits of the basic financial
statements and, in our opinion, fairly state in all material respects the
financial data required to be set forth therein in relation to the basic
financial statements taken as a whole.
Arthur Andersen LLP
New Orleans, Louisiana
January 21, 1997
<PAGE>
</TABLE>
<TABLE>
PHOSHATE RESOURCE PARTNERS LIMITED PARTNERSHIP
SCHEDULE III - CONDENSED FINANCIAL INFORMATION OF REGISTRANT
STATEMENT OF OPERATIONS
<CAPTION>
Years Ended December 31,
-------------------------------
1997 1996 1995
-------- -------- --------
(In thousands)
<S> <C> <C> <C>
Revenues $ 158,684 $175,950 $ 202,498
Cost of sales:
Production and delivery 126,613 119,052 119,239
Depreciation, depletion and amortization 33,931 36,203 42,142
Sulphur asset impairment charge 384,500 - -
-------- ------- -------
Total cost of sales 545,044 155,255 161,381
Exploration expenses 15,817 2,485 -
General and administrative expenses 57,365 35,509 50,492
-------- ------- -------
Total costs and expenses 618,226 193,249 211,873
-------- ------- -------
Operating loss (459,542 ) (17,299 ) (9,375 )
Interest expense, net (32,661 ) (31,752 ) (30,138 )
Equity in earnings of IMC-Agrico 154,728 226,002 201,704
Other income (expense), net (3,086 ) 350 (783 )
-------- ------- -------
Earnings (loss) before extraordinary item (340,561 ) 177,301 161,408
Extraordinary loss on early retirement of (14,474 ) - -
debt -------- ------- -------
Earnings (loss) $(355,035 ) $177,301 $ 161,408
-------- ------- -------
The footnotes contained in PLP's Form 10-K for the year ended December
31, 1997, are an integral part of these statements.
</TABLE>
<PAGE>
<TABLE>
PHOSPHATE RESOURCE PARTNERS LIMITED PARTNERSHIP
SCHEDULE III - CONDENSED FINANCIAL INFORMATION OF REGISTRANT
BALANCE SHEET
<CAPTION>
December 31,
1997 1996
----------- ----------
(In thousands)
<S> <C> <C>
ASSETS
Current assets
Cash and cash equivalents $ 9,458 $ 6,372
Accounts receivable:
Customers 160 21,323
Other 5,244 23,606
Inventories:
Products - 21,859
Materials and supplies - 8,214
Prepaid expenses and other 1,151 3,003
-------- ---------
Total current assets 16,013 84,377
Property, plant and equipment, net 21,228 498,830
Investment in IMC-Agrico 378,818 399,603
Investment in MOXY 13,467 -
Other assets 1,362 26,814
-------- ---------
Total assets $ 430,888 $ 1,009,624
======== =========
LIABILITIES AND PARTNERS' CAPITAL
Accounts payable and accrued liabilities $ 28,946 $ 80,748
Long-term debt, less current portion 455,752 350,000
Reclamation and mine shutdown reserves - 53,848
Accrued postretirement benefits and other 114,548 165,380
liabilities
Partners' capital (deficit) (168,358 ) 359,648
-------- ---------
Total liabilities and partners' capital $ 430,888 $ 1,009,624
======== =========
The footnotes contained in PLP's Form 10-K for the year ended December
31, 1997, are an integral part of these statements.
</TABLE>
<PAGE>
<TABLE>
PHOSPHATE RESOURCE PARTNERS LIMITED PARTNERSHIP
SCHEDULE III - CONDENSED FINANCIAL INFORMATION OF REGISTRANT
STATEMENT OF CASH FLOW
<CAPTION>
Years Ended December 31,
----------------------------------
1997 1996 1995
--------- -------- --------
(In thousands)
<S> <C> <C> <C>
Cash flow from operating
activities:
Earnings (loss) $(355,035 ) $ 177,301 $ 161,408
Adjustments to reconcile earnings
(loss) to net cash provided by
operating activities:
Sulphur asset impairment charge 384,500 - -
Depreciation and amortization 33,931 36,203 42,142
Oil and gas exploration expenses 15,817 2,485 -
Equity in earnings of IMC-Agrico (154,728 ) (226,002 ) (201,704 )
Cash distributions received from 187,017 263,083 219,515
IMC-Agrico
(Increase) decrease in working
capital, net of effect of
acquisitions:
Accounts receivable 1,448 (843 ) (16,875 )
Inventories 2,884 1,690 5,353
Prepaid expenses and other 665 (456 ) (2,272 )
Accounts payable and accrued (8,251 ) 6,180 29,590
liabilities
Reclamation and mine shutdown (13,350 ) (5,253 ) (2,065 )
expenditures
Other 3,014 4,473 8,478
------- -------- --------
Net cash provided by operating 97,912 258,861 243,570
activities ------- -------- --------
Cash flow from investing
activities:
Capital expenditures
Oil and gas exploration (35,505 ) (7,189 ) (3,888 )
Sulphur and other (2,284 ) (2,251 ) (9,443 )
Investment in IMC-Agrico (11,000 ) (7,641 ) (46,200 )
Investment in MOXY (8,218 ) - -
Sale of assets and other - 4,000 1,906
------- -------- --------
Net cash used in investing (57,007 ) (13,081 ) (57,625 )
activities ------- -------- --------
Cash flow from financing
activities:
Distributions to partners (119,556 ) (222,119 ) (202,541 )
Proceeds from (repayment of) debt, 105,030 (171,141 ) 16,269
net
Distribution of FSC shares (23,293 ) - -
Purchase of partnership units - - (2,061 )
Proceeds from sale of 7% Senior - 147,831 -
Debentures ------- ------- -------
Net cash used in financing (37,819 ) (245,429 ) (188,333 )
activities
Net increase (decrease) in cash 3,086 351 (2,388 )
and cash equivalents
Cash and cash equivalents at 6,372 6,021 8,409
beginning of year ------- ------- -------
Cash and cash equivalents at end $ 9,458 $ 6,372 $ 6,021
of year ======= ======= =======
The footnotes contained in PLP's Form 10-K for the year ended December
31, 1997, are an integral part of these statements.
</TABLE>
<PAGE>
<TABLE>
PHOSPHATE RESOURCE PARTNERS LIMITED PARTNERSHIP
SCHEDULE VIII - VALUATION AND QUALIFYING ACCOUNTS
for the years ended December 31, 1997, 1996 and 1995
<CAPTION>
Col. A Col. B Col. C Col. D Col. E
-------------- ------- ----------------------- ---------- ---------
Additions
------------------------
Balance at Charged to Charged to Balance at
Beginning Costs and Other Other-Add End of
Description of Period Expenses Accounts (Deduct) Period
------------- --------- --------- ----------- ---------- -------
(In thousands)
<S> <C> <C> <C> <C> <C>
Reclamation and
mine shutdown
reserves:
1997:
Sulphur $ 47,657 $ 9,349 $ 4,767 a $ (61,773 )b $ -
Crop nutrients 42,287 9,503 - (13,502 )c 38,288
Oil & Gas 6,191 2,502 3,726 a (12,419 )b -
------- ------- ------- -------- -------
$ 96,135 $ 21,354 $ 8,493 $ (87,694 )d $ 38,288
======= ======= ======= ======== =======
1996:
Sulphur $ 71,954 $ 3,920 $ - $ (28,217 )e $ 47,657
Crop nutrients 35,931 10,137 - (3,781 ) 42,287
Oil & Gas 4,903 1,288 - - 6,191
------- ------- ------- -------- -------
$112,788 $ 15,345 $ - $ (31,998 )d $ 96,135
======= ======= ======= ======== =======
1995:
Sulphur $ 55,105 $ 2,643 $ - $ 14,206 f $ 71,954
Crop nutrients 37,683 2,785 - (4,537 ) 35,931
Oil & Gas 3,657 1,257 - (11 ) 4,903
------- ------- ------- -------- -------
$ 96,445 $ 6,685 $ - $ 9,658 d $ 112,788
======= ======= ======= ======== =======
a. Relates to the contribution of IMC's 25.0 percent interest in Main
Pass to PLP.
b. Includes a reduction of $63.2 million for sulphur and oil and gas
reserves included in the net assets distributed to FSC. See Note 5,
"Distributions," of Notes to Financial Statements in Part II, Item
8,
"Financial Statements and Supplementary Data," of this Annual Report
on Form 10-K for further detail.
c. Includes a reclassification to short-term payables of $12.0 million.
d. Includes expenditures of $26.6 million in 1997, $11.3 million in
1996 and $10.5 million in 1995.
e. Includes a reclassification to short-term payables of $17.1 million.
<PAGE>
f. Includes $15.2 million of liabilities assumed in connection with the
acquisition of the sulphur assets of Pennzoil Co. See Note 8,
"Commitments and Contingencies," of Notes to Financial Statements in
Part II, Item 9, "Acquisitions," of this Annual Report on Form 10-K
for further detail.
- --------------------------------------
(1) Except for statements of historical fact contained herein, the
statements appearing under Part I, Items 1 and 2, "Business and
Properties," Part I, Item 3, "Legal Proceedings," and Part II, Item 7,
"Management's Discussion and Analysis of Results of Operations and
Financial Condition," presented herein constitute "forward-looking
statements" within the meaning of the Private Securities Litigation
Reform Act of 1995.
Factors that could cause actual results to differ materially from those
expressed or implied by the forward-looking statements include, but are
not limited to, the following: the effect of general business and
economic conditions; conditions in and policies of the agriculture
industry; risks associated with investments and operations in foreign
jurisdictions and any future international expansion, including those
related to economic, political and regulatory policies of local
governments and laws or policies of the United States; changes in
governmental laws and regulations affecting environmental compliance;
taxes and other matters impacting the Company; the risks attendant with
mining operations; the potential impacts of increased competition in the
markets the Company operates within; risks attendant with supply of and
demand for oil and gas; the Company's ability to integrate certain
acquired businesses and realize certain expected acquisition-related
synergies; and the risk factors reported from time to time in the reports
filed by the Company with the Securities and Exchange Commission.
</TABLE>
<PAGE>
EXHIBIT 3.8
AMENDMENT TO
AMENDED AND RESTATED AGREEMENT OF LIMITED PARTNERSHIP OF
FREEPORT-McMoRan RESOURCE PARTNERS, LIMITED PARTNERSHIP
TO CHANGE NAME TO
PHOSPHATE RESOURCE PARTNERS LIMITED PARTNERSHIP
This amendment is to the Amended and Restated Agreement of
Limited Partnership (the "Agreement") which was entered into as of May
29, 1987 by and among Freeport Minerals Company and Geysers Geothermal
Company, as the Managing General Partners, and Freeport-McMoRan Inc. and
Freeport Phosphate Rock Company, as the Special General Partners,
amending and restating the Agreement of Limited Partnership entered into
as of April 17, 1986, as amended by the amendments thereto dated as of
December 16, 1988, March 29, 1990, April 6, 1990, January 27, 1992 and
October 14, 1992.
Unless otherwise specifically defined herein, each term used
herein which is used in the Agreement shall have the meaning assigned to
such term in the Agreement.
1. Effective December 22, 1997, Freeport-McMoRan Inc. ("FTX")
merged with and into IMC Global Inc. ("IMC") (the "Merger"), and IMC
succeeded to FTX's interests, rights and obligations as Administrative
Managing General Partner under the Agreement.
2. As part of the Merger, IMC and FTX agreed to cause the
name of Freeport-McMoRan Resource Partners, Limited Partnership, to be
changed.
3. Section 1.2 of the Agreement is hereby amended and
replaced in its entirety with the following:
"1.2 Name. The name of the Partnership shall be and the
business of the Partnership shall be conducted under the name of
"Phosphate Resource Partners Limited Partnership." The
Partnership's business may be conducted under any other name or
names deemed advisable by the Administrative Managing General
Partner, including the names of either of the Managing General
Partners or any other Affiliate. The Administrative Managing
General Partner in its sole discretion may change the name of the
Partnership at any time and from time to time."
IN WITNESS WHEREOF, IMC Global Inc., as the Administrative
Managing General Partner, and FMRP Inc., as a Managing General Partner,
have executed this amendment as of January 9, 1998.
<PAGE>
IMC GLOBAL INC.,
as Administrative Managing
General Partner
By: /s/ Marschall I. Smith
Name: Marschall I. Smith
Title: Senior Vice President
FMRP INC.,
as Managing General Partner
By: /s/ Marschall I. Smith
Name: Marschall I. Smith
Title: Vice President
<PAGE>
EXHIBIT 3.12
CERTIFICATE OF AMENDMENT
TO
AMENDED AND RESTATED CERTIFICATE
OF LIMITED PARTNERSHIP
OF
FREEPORT-McMoRan RESOURCE PARTNERS, LIMITED PARTNERSHIP
WHEREAS, on April 17, 1986, a Certificate of Limited
Partnership in the name of Freeport-McMoRan Resource Partners, L.P. (the
"Partnership") was filed with the Secretary of State of Delaware (the
"Original Certificate"); and
WHEREAS, on June 13, 1986, an Amended an Restated Certificate
of Limited Partnership changing the name of the Partnership to Freeport-
McMoRan Resource Partners, Limited Partnership was filed with the
Secretary of State of the State of Delaware (the "Amended and Restated
Certificate"); and
WHEREAS, effective January 17, 1989, a Certificate of Amendment
to Amended and Restated Certificate of Limited Partnership reflecting the
withdrawal of Geysers Geothermal Company as a general partner and the
admission of McMoRan Oil & Gas Co., a Delaware corporation, as a new
general partner was filed with the Secretary of State of the State of
Delaware (the "First Certificate of Amendment"); and
WHEREAS, effective January 5, 1990, a Certificate of Amendment
to Amended and Restated Certificate of Limited Partnership reflecting
the withdrawal of Freeport Phosphate Rock Company as a general partner
was filed with the Secretary of State of State of Delaware (the "Second
Certificate of Amendment"); and
WHEREAS, effective April 16, 1990, a Certificate of Amendment
to the Amended and Restated Certificate of Limited Partnership reflecting
that through transfers and merger, the two remaining general partners of
the Partnership were Freeport-McMoRan Inc. a Delaware corporation ("FTX")
and FMRP Inc., a Delaware corporation, was filed with the Secretary of
State of Delaware (the "Third Certificate of Amendment"); and
WHEREAS, effective as of 1:00 p.m. (Eastern Standard Time) on
December 22, 1997, FTX was merged (the "Merger") with an into IMC Global
Inc., a Delaware corporation ("IMC"), pursuant to the Agreement and Plan
of Merger by and between IMC and FTX dated as of August 26, 1997; and
WHEREAS, IMC. has become the Administrative Managing General
Partner and Special General Partner of the Partnership as a result of the
Merger;
<PAGE>
NOW, THEREFORE, pursuant to the provisions of the Delaware
Revised Uniform Limited Partnership Act (the "Delaware Act"), as amended,
the undersigned does hereby make, subscribe and swear to the following
amendments in writing according to the laws of the State of Delaware:
Article I shall be amended as follows:
The name of the limited partnership is "Phosphate Resource
Partners Limited Partnership" (hereinafter referred to as the
"Partnership").
Article IV shall be amended as follows:
The names and addresses of the general partners of the
Partnership are as follows:
IMC Global Inc. 2100 Sanders Road
Northbrook, IL 60062
FMRP Inc. 1209 Orange Street
Wilmington, DE 19801
IN WITNESS WHEREOF, IMC Global Inc., as the Administrative
Managing General Partner and Special General Partner has executed this
amendment as of January 9, 1998.
IMC Global Inc., as Administrative
Managing General Partner and Special
General Partner
BY: ___________________
Rose Marie Williams
Title: Secretary
<PAGE>
PARTICIPATION AGREEMENT
McMoRan 1997 Exploration Program
PAGE
I. DEFINITIONS 4
II. PURPOSE; OPERATIONS 7
2.1 Purpose 7
2.2 McMoRan's Efforts 8
2.3 Operator 9
III. INTERESTS OF THE PARTIES 9
3.1 Sharing of Exploration Expenditures 9
3.2 Ownership Interests 10
IV. EXPLORATION EXPENDITURES 10
4.1 Exploration Expenditures 10
V. ACQUISITION OF LEASEHOLD INTERESTS 13
5.1 Acquisition of Additional Leasehold Interest 13
5.2 Excluded Areas 13
5.3 Obligation 14
VI. EXPLORATION FUND 15
6.1 General 15
6.2 Limitations on McMoRan's Authority to Commit
Exploration Fund 15
6.3 Budget Meetings and Reports 16
VII. SCIENTIFIC STUDIES AND INFORMATION 16
VIII. PROSPECTS 18
8.1 Prospects 18
8.2 Designation of Prospects After Program Term 20
IX. DRILLING OF EXPLORATORY WELLS 20
9.1 During Program Term 20
9.2 After Program Term 22
X. FARMOUT OR PARTICIPATION AGREEMENTS 22
10.1 Participation Agreements 22
10.2 Farmout Agreements 23
10.3 Trade Agreements 24
XI. BURDENS 24
XII. OPERATING AGREEMENT 25
XIII. AREA OF MUTUAL INTEREST 26
13.1 Third Party Area of Mutual Interest
Agreements 26
13.2 Program Area of Mutual Interest Agreement 26
<PAGE>
XIV. OWNERSHIP OF PRODUCTION; GAS BALANCING AGREEMENT 28
14.1 Ownership of Production 28
XV. RELATIONSHIP OF THE PARTIES 29
15.1 Tax Partnerships 29
XVI. BILLINGS; NOTICES 30
XVII. SPECIAL NON-CONSENT ELECTIONS 30
17.1 Casing Point Election - Onshore Prospects 30
17.2 Elections Prior to Platform Installation -
Offshore Prospects 31
17.3 Time Period 31
17.4 Completion Attempt by Participant - Onshore 31
XVIII. PROGRAM TERM 32
18.1 Program Term 32
18.2 Unfunded Prospects 32
XIV. OPERATIONS AFTER PROGRAM TERM 33
19.1 General 33
19.2 Exploratory Wells 33
19.3 Development Expenditures 33
19.4 Provisions Which Do Not Survive the End of
the Program Term 34
XX. CONFIDENTIALITY 34
XXI. INSURANCE 35
21.1 Insurance for Program 35
XXII. RECORD TITLE, ASSIGNMENT 37
22.1 Record Title 37
22.2 Assignment 38
XXIII. SUBSEQUENT INTERESTS 39
XXIV. GENERAL 40
24.1 Records 40
24.2 Access 41
24.3 Claims & Litigation 41
24.4 Good Faith 42
24.5 Governing Law 42
24.6 Failure to Respond 42
24.7 Conflicts 43
25.8 Binding Effect 43
<PAGE>
EXHIBITS
I) PROGRAM OPERATING AGREEMENT (OFFSHORE)
II) PROGRAM OPERATING AGREEMENT (ONSHORE)
III) CERTAIN EXCLUDED AREAS
IV) PROVISIONS CONCERNING TAXATION
<PAGE
PARTICIPATION AGREEMENT
McMoRan 1997 Exploration Program
This Participation Agreement ("the Agreement") is made as of
the 1st day of April, 1997 between McMoRan Oil & Gas Co.
("McMoRan") and Freeport-McMoRan Resources Partners, Limited
Partnership ("Participant").
WITNESSETH:
I.
Definitions
As used in this Agreement, the following terms shall have the
meanings set forth below:
1.1 Affiliate means, with respect to any person, a person that directly
or indirectly through one or more intermediaries, controls or is
controlled by, or is under common control with the person
specified.
1.2 Area of Mutual Interest or AMI means, with respect to any Prospect,
the geographic area more particularly described in Article XIII.
1.3 Casing Point means the point at which determination is made either
to run production string of casing and attempt a completion, or to
abandon the well.
1.4 Committed List means the list described in Paragraph 18.1 hereof.
1.5 Development Expenditures means those charges applicable to each
Prospect which are not Exploration Expenditures.
1.6 Development Well means any well which is not an Exploratory Well.
1.7 Excluded Area means any of the areas described in Paragraph 5.2
hereof.
1.8 Exploration Expenditures means those charges described in Article
IV.
1.9 Exploration Fund means the fund created by McMoRan and Participant
for the acquisition and exploration of Leasehold Interests and the
other purposes of the Exploration Program as more fully described
in Article VI, together with any cash contributions received by the
Program from third parties.
1.10 Exploration Program or Program means the McMoRan operated program
pursuant to which McMoRan and Participant have or will acquire and
explore Prospects in the Exploration Program Area during the
Program Term pursuant to this Agreement.
1.11 Exploratory Well means any well drilled by the Program on an
Onshore Prospect prior to the completion thereon by the Exploration
Program of a well capable of production in Paying Quantities or, as
to an Offshore Prospect, means the first and/or second well drilled
on a Prospect by the Program prior to the first installation
thereon by the Program of a drilling and/or production platform.
<PAGE>
1.12 Initial Leasehold Inventory means those Leasehold Interests
described in Paragraph 2.1 hereof.
1.13 Leasehold Interest means any right, title or interest acquired in,
to and under any oil or gas lease or any other interest in oil or
gas, including, without limitation, contractual rights, which
confer on the holder thereof the right to share, or acquire the
right to share, in the production or the proceeds of production of
oil or gas.
1.14 Leasehold Interest Costs means, with respect to a particular
Leasehold interest, the actual cost incurred by the Program for
acquisition thereof, in each case including, without limitation,
all bonuses, delay rentals, brokerage fees, and outside attorney's
fees.
1.15 Non-Operator means, as to any Leasehold Interest or Prospect, a
working interest owner therein who is not designated to act as
Operator.
1.16 OCS means the outer continental shelf of the Gulf of Mexico under
Federal leasing jurisdiction.
1.17 Offshore Prospect means any Prospect located in the OCS, and/or in
that portion of the Gulf of Mexico under the leasing jurisdiction
of the adjacent states.
1.18 Onshore Prospect means a Prospect located in the Program Area which
is not an Offshore Prospect.
1.19 Operator means, as to any Leasehold Interest or Prospect, the party
hereto designated to manage and supervise the drilling and/or
completion and operation of oil or gas wells thereon.
1.20 Participant means Freeport-McMoRan Resources Partners, Limited
Partnership.
1.21 Paying Quantities means production of oil and/or gas in quantities
sufficient to yield a return in excess of operating cost.
1.22 Program Area means the OCS, and that portion of the Gulf of Mexico
under the leasing jurisdiction of the adjacent states and the
balance of the lower 48 states of the continental United States,
except the Excluded Areas.
1.23 Program Operating Agreement means the Joint Operating Agreement
(Offshore) or the Joint Operating Agreement (Onshore) attached
hereto as Exhibits I and II respectively, depending upon whether
the relevant operation is with respect to an Offshore Prospect or
an Onshore Prospect.
1.24 Program Term means the period beginning on the date hereof and
ending at the end of the Program Term as set forth in Article
XVIII.
1.25 Prospect means an area designated as such pursuant to Paragraph
8.1.
<PAGE>
1.26 Technical Consultants means those geologists and geophysicists and
related personnel working therewith who are hired or retained by
McMoRan as independent consultants some portion of whose efforts
are to develop or evaluate Prospects hereunder.
II.
Purpose; Operations
2.1 Purpose. This Agreement has been entered into to provide
Participant a means of acquiring, exploring and developing oil and gas
Prospects in the Program Area, including but not limited to the
acquisition of the Initial Leasehold Inventory, during the Program Term.
On August 4, 1997, Participant acquired all of the interests of
MCNIC Oil & Gas Properties, Inc. and affiliates ("MCN") in the McMoRan
Participation & Exploration Program Agreement and McMoRan and Participant
entered into an amendment thereto dated the same date (as amended, the
"Prior Program"). McMoRan and Participant thereafter continued the Prior
Program on an interim basis until the date hereof.
The parties hereto hereby contribute to the Program all of their
rights respecting each of the properties and assets of the Prior Program
excluding only those properties and assets associated with the properties
which are located in an Excluded Area ("Excluded Properties") and the
loan (the "Loan") paid the date hereof due Participant by McMoRan under
said Prior Program. The Leasehold Interests owned by McMoRan and
Participant under the Prior Program, excluding those which are Excluded
Properties, shall be the Initial Leasehold Inventory hereunder. The
costs incurred by McMoRan and Participant with respect to those Leasehold
Interests which are included in the Initial Leasehold Inventory and as to
which Participant acquired its interest from MCN shall be deemed to have
an initial cost as of April 1, 1997 of $8,333,333, $5,000,000 of which
was paid by Participant and $3,333,333 of which was paid by McMoRan,
which amount shall be deemed to have been expended from the Exploration
Fund. All other expenditures under the Prior Program by McMoRan and
Participant together, other than with respect to the Excluded Areas and
the Loan, shall likewise be treated as having been expended from the
Exploration Fund.
2.2 McMoRan Efforts. McMoRan agrees to devote a substantial portion
of its oil and gas exploration effort to the operation and management of
the Program, which shall include all prospects, except those in the
Excluded Areas, acquired and to be acquired by McMoRan during the Program
Term within the Program Area, including but not limited to the Initial
Leasehold Inventory. McMoRan will at all times have a staff adequate in
number, experience and competence to perform its obligations hereunder
and accomplish the purposes of the Exploration Program.
2.3 Operator. McMoRan shall be the overall manager of the Program.
III.
Sharing of Exploration Expenditures
and Interest of the Parties
3.1 Sharing of Exploration Expenditures. Except as other-wise
provided in this Agreement, Exploration Expenditures shall be shared as
follows:
Participant McMoRan
60% 40%
<PAGE>
If more than one Exploratory Well is drilled on a particular Onshore
Prospect, Exploration Expenditures in connection with the drilling of any
second and subsequent Exploratory Well on such particular onshore
Prospect shall not be shared in the percentages set forth in this
Paragraph 3.1 but shall be shared in the percentages set forth in
Paragraph 3.2 hereof; provided, however, if the first Exploratory Well in
such particular Onshore Prospect fails to reach objective depth because
it encounters impenetrable substances, heaving shale, domal material,
salt, excessive salt water flow or other formation or conditions or
develops mechanical difficulty which would render further drilling
impractical and McMoRan elects to drill a substitute for such well, the
cost involved in the drilling of such substitute well shall be shared in
the percentages set forth in this Paragraph 3.1 in the same manner as if
such substitute well were the first Exploratory Well on the particular
Onshore Prospect involved.
3.2 Ownership Interests. Except as otherwise provided in this
Agreement, the ownership of all Leasehold Interest and other properties
and production acquired by the Program shall be shared as follows:
Participant McMoRan
50% 50%
IV.
Exploration Expenditures
4.1 Exploration Expenditures. Subject to the limitations provided
in this Agreement, McMoRan shall be entitled to expend monies for
Exploration Expenditures of the Program on behalf of itself and
Participant without the prior approval of Participant. The term
"Exploration Expenditures" means all actual charges allocable to each
Prospect in accordance with generally accepted industry standards, which
charges are incurred by the Program prior to (i) the completion of the
first Exploratory Well drilled by the Program on an Onshore Prospect that
is completed as a well capable of production in Paying Quantities or (ii)
the plugging, or the temporary abandonment if not plugged, of the first
two Exploratory Wells drilled by the Program on an Offshore Prospect, as
applicable, and such other costs applicable to exploration activities in
the Program Area as are otherwise provided for in this Agreement, which
charges, among others, shall include the following:
(a) The cost of acquisition of all Leasehold Interests in the
Program Area, including but not limited to the Initial Leasehold
Inventory and any Leasehold Interest Costs paid by McMoRan to third party
program operators in connection therewith;
(b) The cost of any geological, geophysical or other scientific,
exploration or engineering work, services or data on the Prospect;
(c) The cost of copies of all seismic records, geological and
geophysical maps and other exploration data and information furnished to
Participant;
(d) Rental and other lease maintenance payments on the Leasehold
Interests;
(e) All necessary independent legal expenses and costs of title
searches and title investigation whether or not Leasehold Interests are
acquired, together with the costs of copies of title opinions and other
title reports furnished to Participant;
<PAGE>
(f) The cost of drilling Exploratory Wells in a Prospect, including
the cost of plugging and abandoning or capping same, if no completion
attempt is made;
(g) Any other expenditures properly chargeable as Exploration
Expenditures under this Agreement, or as may be specified in the
accounting procedure attached to the applicable Program Operating
Agreement and which are attributable to exploration activities, but
excluding all overhead provided for in such Program Operating Agreement
until such time as the Exploration Fund has been fully committed;
(h) Notwithstanding the foregoing, the cost of completing an
Exploratory Well shall not be considered an Exploration Expenditure; and
(i) In addition to the foregoing, McMoRan shall be entitled to
charge as Exploration Expenditures those expenditures that McMoRan incurs
annually for salaries of employees, including but not limited to costs of
benefits programs related thereto, cost of retained consultants,
including but not limited to its Technical Consultants, office rent,
office supplies, insurance and other general and administrative costs
that McMoRan incurs in the conduct of its activities, including but not
limited to costs allocated to MOXY from FM Services Company or its
Affiliates, less a reasonable portion of such costs that McMoRan
allocates to the Excluded Areas. Prior to committing to a material
increase in the aggregate costs contemplated by this subparagraph (i)
McMoRan shall confer with Participant and in good faith consider any
comments or suggestions that Participant may offer in regard to such
contemplated material change.
The term Exploration Expenditures shall also include any of the
foregoing costs incurred by the Program in attempting to locate or
acquire Leasehold Interests in Prospects for the Program in the Program
Area whether or not the Program owns or acquires Leasehold Interest in
such area or subsequently designates a Prospect under Paragraph 8.1 for
such area.
Except as may be expressly provided to the contrary in this
Agreement, all Exploration Expenditures shall be invoiced and accounted
for in accordance with the accounting procedure attached to the Program
Operating Agreement, including the period of time set forth for joint
interest auditing and adjustment.
McMoRan shall further be entitled to reimbursement as an Exploration
Expenditure or as a proper expenditure under the applicable Program
Operating Agreement, as appropriate, from Participant for its share of
reasonable inventories of pipe and equipment (it being the intention of
the parties to keep such inventories at a minimum level consistent with
the needs of the Program).
McMoRan shall not have an obligation to spend a particular portion
of the Program Fund during any Program Year but rather McMoRan shall
commit Exploration Expenditures as the occasion arises to secure
Prospects which McMoRan deems would be appropriate for the Exploration
Program, subject to the provisions of Paragraph 6.1 hereof.
McMoRan agrees to make available its entire geological and
geophysical data base for use in operations under the Program at no cost
to the Participant, except to the extent setforth in the immediately
following sentence. The amounts expended in acquiring seismic data from
<PAGE>
Western Geophysical pursuant to the Licensing Agreement between McMoRan
and Western Geophysical dated November 20, 1996 shall constitute proper
charges to Exploration Expenditures, notwithstanding the fact that some
of the costs incurred pursuant to such agreement were incurred prior to
the beginning of the Program Term, except to the extent that any of such
seismic data so acquired relates to Excluded Areas.
Participant agrees to bear its proportionate part of all Exploration
Expenditures of the Program, subject to the limitations hereinafter set
forth under Article VI.
V.
Acquisition of Leasehold Interests
5.1 Acquisition of Leasehold Interest. On behalf of the Program and
subject to the limitations and guidelines herein set forth, McMoRan shall
evaluate and acquire Leasehold Interests in the Program Area during the
Program Term which it believes to be potentially productive of oil or
gas.
5.2 Excluded Areas. McMoRan and Participant agree that the
following areas ("Excluded Areas") shall not be subject to the terms of
this Agreement unless any such area, or portion thereof, has been
recommended for inclusion herein by McMoRan in writing and Participant
has concurred in writing in that recommendation:
(a) Any Leasehold Interest or prospect lying outside the Program
Area;
(b) Any Leasehold Interest or Prospect which at the time of
acquisition contains proven reserves unless (i) the then proven reserves
do not constitute a material consideration in the acquisition, and (ii)
the primary objective of the acquisition is to explore for oil and gas
other than the then proven reserves;
(c) Those areas identified on attached Exhibit III; and
(d) Any Leasehold Interest or prospect acquired through merger,
acquisition, corporate reorganization or consolidation with or purchase
of substantially all of the assets of an individual, a corporation or a
partnership, provided that the primary purpose of such merger,
acquisition, reorganization, consolidation or purchase is not to acquire
a specific Prospect or Leasehold Interest which otherwise would be
subject to this Agreement; provided, however, if in such an acquisition
McMoRan acquires an inventory of exploratory prospects not associated
with any proven production acquired in such acquisition, McMoRan shall
meet with Participant and, in good faith, attempt to have the exploratory
prospects transferred to the Exploration Program
5.3 Obligation. Subject to the limitations otherwise provided in
this Agreement, Participant agrees to participate for its proportionate
share of Exploration Expenditures as to all Leasehold Interest acquired
or committed to by McMoRan in the Program Area during the Program Term.
Without limiting or altering the effect of the AMI provisions of Article
XIII hereof, from and after the end of the Program Term, McMoRan shall
not be obligated to search for and offer to Participant any interest in
Leasehold Interests within the Program Area.
<PAGE>
VI.
Exploration Fund
6.1 General. The Program shall have a budget of $200,000,000 for
Exploration Expenditures to be incurred or committed during the Program
Term (the "Exploration Fund"). Notwithstanding that the Exploration Fund
is for the entire Program Term, unless McMoRan and Participant agree
otherwise in writing, McMoRan will schedule its activities so that
Exploration Expenditures are not likely to exceed on a cumulative basis
one hundred fifty percent (150%) of $40,000,000 per twelve months period
times the number of twelve months periods that have elapsed since the
Program Term commenced.
6.2 Limitations on McMoRan's Authority to Commit Exploration Fund.
In addition to the other limitations imposed upon McMoRan's authority to
commit Participant hereunder, once the actual and committed Exploration
Expenditures reach the budgeted total, it is understood and agreed that
McMoRan (i) will not undertake any additional drilling commitments on
behalf of the Exploration Program, and (ii) will not acquire any
additional Leasehold Interests on behalf of the Exploration Program.
Additionally, McMoRan shall not make any commitment on behalf of the
Program for the drilling of any well which is anticipated to commence
more than six (6) months after the end of the Program Term.
6.3 Budget Meetings and Reports.
(a) On a quarterly basis, McMoRan shall hold a meeting in McMoRan's
offices with Participant to discuss the contemplated activities of the
Program for the following period. In such meetings, McMoRan shall
advise Participant of the amounts of the Exploration Fund which have been
committed to Prospects on which an Exploratory Well has not yet
commenced. Such advise shall include the name of the Prospect, the
amount of the Exploration Fund anticipated to be spent thereon and the
anticipated commencement date of the Exploratory Well to be drilled
thereon. On a monthly basis, McMoRan shall provide Participant with an
accounting of the Exploration Expenditures of the prior month and Program
Term to date reconciling prior billings and advance billings with
expenditures. McMoRan will promptly advise Participant in writing when
McMoRan reasonably believes that actual and committed Exploration
Expenditures of the Program equal the Exploration Fund and will furnish
reasonable data supporting such conclusion. In addition to the
foregoing, McMoRan will furnish Participant on request and at
Participant's expense any other data or information needed by Participant
to comply with any governmental laws, rules and regulations, including
those promulgated by the Securities and Exchange Commission.
VII.
Scientific Studies and Information
7.1 Scientific Studies and Information. During the Program Term,
McMoRan shall conduct geological, geophysical, engineering and other
scientific studies with respect to the acquisition and/or exploration of
Leasehold Interest ("Scientific Studies") in the Program Area and the
cost thereof shall be Exploration Expenditures.
It is agreed that any seismic records, and other exploration data
(not including any interpretation thereof by McMoRan or its Technical
Consultants) that may be acquired by McMoRan under the terms of this
Agreement shall become and remain the joint property of McMoRan and
<PAGE>
Participant. If McMoRan designates a Prospect under Paragraph 8.1 hereof
affecting such acquired data, McMoRan shall at such time furnish copies
of all such data, upon written request of Participant, including
geological and geophysical maps, to Participant unless McMoRan is
prohibited from furnishing a copy or disclosing it to Participant under
the agreement by which McMoRan acquired such data. Except as otherwise
provided in this Agreement, Participant shall be permitted full access to
such data in McMoRan's offices unless prohibited from doing so under the
agreement by which McMoRan acquires such data. McMoRan shall not be
precluded from entering into data exchange agreements which McMoRan in
good faith believes will benefit the Program and all data acquired
pursuant to any such exchange agreement shall be the joint property of
McMoRan and Participant. During and after the Program Term, McMoRan
shall have the exclusive right to sell any such data which McMoRan in
good faith believes no longer must be kept confidential for the purposes
of the Program and the proceeds of such sale shall be shared by the
Participant and McMoRan on the same basis as the said parties own such
data. At the end of the Program Term, McMoRan shall identify seismic
records and other pertinent acquired data (not including any
interpretation thereof by McMoRan or its Technical Consultants) as to
which Prospects have not been designated during the Program Term and
McMoRan shall, upon written request by Participant, provide it copies of
all or any part of such data, unless prohibited from doing so under the
agreement by which McMoRan acquired such data. Notwithstanding anything
herein to the contrary, Participant shall not have or acquire any
property interest in any interpretations by McMoRan or its Technical
Consultants of any seismic or other exploration data unless and until a
Prospect based thereon has been designated by McMoRan hereunder.
VIII.
Prospects
8.1 Prospects. From time to time McMoRan will obtain information
upon which it can determine and define a particular portion of the
Program Area with sufficient specificity as to be identified as a
Prospect. The term "Prospect" means a contiguous area which can
reasonably be interpreted from geological and/or geophysical data as
encompassing a geological structure, stratigraphic trap or other common
geologic feature which makes its treatment as a single Prospect for oil
and gas production purposes reasonable and some portion of which is
considered prospective for commercial oil or gas production and is
designated as such pursuant to this Article VIII. Based on such
information, McMoRan shall from time to time designate an area as a
Prospect of the Program. The size and configuration of a Prospect, as
well as all details incident thereto, shall be determined by McMoRan.
During the Program Term, McMoRan alone shall determine the time when an
area is designated as a Prospect, whether or not Leasehold Interests have
previously been acquired therein. After the Program Term and in
accordance with Paragraph 8.2 hereof, McMoRan or Participant shall have
the right to designate a Prospect which includes Leasehold Interests
theretofore acquired through the Program. Without the prior consent of
Participant, McMoRan shall not commit to the Program any Prospects which
(1) McMoRan's economic analysis indicates will not have at least a before
taxes rate of return of twenty-five (25) percent, or (2) the water depth
for the first expected platform location is greater than 1,000 feet.
<PAGE>
At the time that McMoRan designates a Prospect it shall furnish to
Participant a land plat showing the approximate outline of the Prospect
and the proposed AMI therefor. Subject to Paragraph 5.2, McMoRan shall
as soon as possible thereafter, upon written request of Participant,
furnish Participant (to the extent not previously furnished) with all
pertinent data then available with respect to the evaluation of such
Prospect for oil or gas development excluding only such data as McMoRan
is prohibited from disclosing by reason of confidentiality agreements
with third parties respecting such data. Such data shall include a land
and geophysical or geological report on such Prospect, including with
respect to the drillsite for the first Exploratory Well proposed to be
drilled thereon, a land plat, farmin, farmout and other trade agreements,
copies of leases, drilling title opinions, assignments, unit designation
agreements, operating agreements and other documents necessary for
Participant to maintain adequate records relative to such Prospect and
operations thereon, together with such of the following, as and when
available, which are applicable to each such Prospect:
(a) An itemized list of all Exploration Expenditures charged to
such Prospect;
(b) An itemized estimate of probable additional costs which may
have to be incurred in connection with such Prospect;
(c) Any other information in McMoRan's possession relevant to an
evaluation of such Prospect, including geological data, including but not
limited to cross-sections, maps, key logs, and geophysical data,
including copies of proprietary reprocessed data, sepias of lines; and
(d) A description of the primary geologic objective and prospective
zone(s) for which the Prospect was acquired.
At the time each such Prospect is designated, McMoRan will
separately allocate to it all Exploration Expenditures theretofore
incurred and properly attributable to such Prospect, including but not
limited to those expenditures made pursuant to Paragraph 4.1 above.
8.2 Designation of Prospects After Program Term. To the extent any
Leasehold Interests acquired by the Program are not included in Prospects
designated by McMoRan on or prior to the end of the Program Term, then
after such date McMoRan or Participant or their respective successors in
interest shall have the right to propose a Prospect at the time that it
proposes an Exploratory Well thereon. The geographic limits of such
Prospect so designated shall meet the criteria set forth in Paragraph 8.1
and the AMI therefor shall be subject to the provisions of Article XIII
hereof.
IX.
Drilling of Exploratory Wells
9.1 During Program Term. During the Program Term, at the same time
as McMoRan designates a Prospect under Paragraph 8.1 above or thereafter
when it commits the Exploration Fund to the drilling of an Exploratory
Well thereon or as soon as possible after McMoRan has received notice
from a third party joint interest owner that it proposes the drilling of
a well thereon, McMoRan shall provide to Participant (if not previously
furnished and requested in writing by Participant) the following
information:
<PAGE>
(a) An AFE for such well both as a dry hole and as a completed
well;
(b) A land plat depicting the Prospect, the proposed AMI for such
Prospect and the Program's Leasehold Interests within the AMI for such
prospect;
(c) A schedule of the Program's Leasehold Interests in the Prospect
AMI;
(d) Maps depicting McMoRan's geological and geophysical
interpretations of the Prospect;
(e) McMoRan's economic analysis of the Prospect's potential and
timing and estimated costs to develop, including description of
facilities to be used, if then known;
(f) Information as to whether any other third party joint interest
owner has elected to join or not to join in the drilling of such well;
(g) The surface location, proposed bottom hole location, proposed
depth and well prognosis including casing program, mud program and
logging program for such well (to the extent available in those cases
where a third party is the operator of the well) and any other
information in McMoRan's possession relevant to an evaluation of such
well; and
(h) Any acreage or cash contribution pledged in support of the
proposed operation.
Beginning with the permitting process for any Exploratory Well
drilled hereunder, and continuing through the drilling and completion,
temporary abandonment or plugging and abandonment for such well, McMoRan
shall provide the following information if requested in writing by
Participant (to the extent available to McMoRan and not previously
furnished):
(a) name of well, name of Prospect, and identification number;
(b) drilling permits, plugging and abandonment permits and
permission to produce;
(c) all daily drilling reports, State completion reports, well
completion schematic diagram, stimulation reports and workover reports;
(d) all core analyses, fluid analyses, PVT. analyses, water sample
analyses;
(e) all pressure survey, DST reports, and pressure buildup or
drawdown data;
(f) all well logs.
<PAGE>
9.2 After Program Term. After the Program Term, McMoRan or
Participant shall have the right to propose the drilling of an
Exploratory Well on any Prospect within which an Exploratory Well could
be drilled consistent with the definition of "Exploratory Well" set out
herein. The terms and provisions of the applicable Program Operating
Agreement shall govern any such proposal.
X.
Farmout or Participation Agreements
10.1 Participation Agreements. During the Program Term, if in the
process of evaluation of a Prospect the data and information lead McMoRan
to the good faith determination that because of the large expenditures
required, the extraordinary risk involved or other facts deemed relevant
by McMoRan, an outside venturer should be obtained in such Prospect,
McMoRan shall have the right to undertake to negotiate an agreement with
a third party to join in the drilling of the Exploratory Well on the
Prospect and thereby acquire a portion of the Exploration Program's
interest in such Prospect; provided, however, that if any such agreement
would reduce the interest of the Exploration Program by more than fifty
percent (50%), McMoRan must obtain the prior approval of Participant.
McMoRan shall give notice to Participant of its intention to negotiate an
agreement with an outside venturer which would reduce the interest of the
Exploration Program by more than fifty percent (50%), stating the time
within which the circumstances require an expression of approval or
disapproval by the Participant. Failure of Participant to disapprove the
proposed negotiation within the stated period of time may be deemed by
McMoRan to be approval by Participant. Any agreement with an outside
venturer shall be on the basis of the outside venturer paying and bearing
not less than the proportionate part of all drilling costs and expenses
of the Exploratory Well attributable to the undivided interest
transferred to such outside venturer, and the interest in the Prospect
transferred to or earned by such outside venturer shall reduce the
respective interests of McMoRan and Participant proportionately. Any
promotion or other consideration received by McMoRan incident to such
agreement with an outside venturer shall be held for the benefit of the
Exploration Program and the Participant shall be entitled to participate
therein in proportion to its interest in the Prospect.
10.2 Farmout Agreements. During the Program Term McMoRan shall have
the right to enter into farmout agreements with unrelated third parties
on such terms as it deems appropriate respecting Leasehold Interests or
portions thereof which are not anticipated to be drilled or committed to
be drilled by the Exploration Program during the Program Term; provided,
however, McMoRan shall keep Participant advised as to any such farmout
proposals or plans and shall honor the request of Participant that its
interest in such Leasehold Interest or Prospect not be farmed out if
Participant advises McMoRan within ten (10) days, or forty-eight (48)
hours if a drilling rig is on location with stand-by rig charges
accumulating, of McMoRan's notice of intention to farmout that it will
participate as to its ownership interest in the drilling of the
anticipated farmout well.
McMoRan shall not farmout any of Participant's Interest in a
Prospect on which the Program has a producing well without the prior
consent of Participant.
<PAGE>
10.3 Trade Agreements. During the Program Term, in connection with
the drilling of an Exploratory Well on a Prospect, McMoRan shall have
complete authority to enter into unit agreements, acreage swap
agreements, bottom hole and dry hole contribution agreements and any
similar agreements with unrelated third parties. The cost or proceeds of
any of the forgoing agreements shall be credited or charged to the
Participants (1) in the proportion that it participated in the drilling
of the affected Exploratory Well, or (2) if the costs relate to the
payment by the Exploratory Program of a dry hole or bottom hole
contribution to a third party, in the proportion that Participant bears
Exploration Expenditures hereunder, and any interest in leases or oil or
gas thus acquired by exchange shall constitute Leasehold Interests
subject hereto and be owned by McMoRan and Participant in proportion to
their ownership interest in such Prospect.
XI.
Burdens
11.1 Burdens. The Leasehold Interests to be acquired by the Program
shall be subject to and McMoRan and Participant each shall bear its
proportionate part of all third party overriding royalties and other
burdens on Leasehold Interest (including subsequently acquired Leasehold
Interests in the Prospect AMI) which McMoRan contracts for incidental to
the acquisition or evaluation of such Leasehold Interests. Participant
acknowledges that McMoRan has heretofore entered into a retainer
agreement with a Technical Consultant and may enter into similar
agreements with others during the Program Term. Without the consent of
Participant, McMoRan agrees not to subject any Leasehold Interest to
overriding royalty burdens to its Technical Consultants which exceed the
amounts deliverable to its current Technical Consultant, CLK Company,
L.L.C.(CLK),under their existing agreement as described in the letter to
Participant dated the date hereof. McMoRan has provided Participant with
a copy of its current consulting agreement with CLK and Participant
agrees that it will bear its proportionate part of the overriding
royalties to which CLK is entitled pursuant to the terms of said
consulting agreement as to any Leasehold Interest acquired hereunder as
well as to any Leasehold Interest that Participant may acquire pursuant
to an AMI agreement subject hereto.
XII.
Operating Agreement
12.1 Operating Agreement. Except as otherwise provided in this
Agreement, all operations on each Prospect will be carried out in
accordance with the provisions of the Program Operating Agreement,
Offshore or Onshore as applicable, with charges and credits to the join
account to be made in accordance therewith, including all overhead as to
the drilling of Development Wells. In the event of conflict between the
terms of the Program Operating Agreement and the terms of this Agreement,
this Agreement shall control. A particular Leasehold Interest or
Prospect may be subject to a different form of operating agreement (third
party) with one or more third parties not related to McMoRan, which
operating agreement (third party) shall apply and control at the time it
becomes effective in the event of conflict therewith and the Program
Operating Agreement. In the event of conflict between such operating
agreement (third party) and this Agreement (other than the Program
Operating
Agreement), this Agreement shall control as between McMoRan and
Participant.
<PAGE>
XIII.
Area of Mutual Interest
13.1 Third Party Area of Mutual Interest Agreements. McMoRan may be
obligated to enter into third party AMI agreements in connection with the
acquisition of additional Prospects for the Program. Participant agrees
to be bound by the provisions of such AMI agreements.
13.2 Program Area of Mutual Interest Agreement. At the time a
Prospect is identified by McMoRan pursuant to Paragraph 8.1 hereof, there
shall be created an Area of Mutual Interest among McMoRan and
Participant. The lands within such Area of Mutual Interest shall include
the involved Prospect and shall be fixed and determined in the following
manner:
(a) McMoRan shall submit to Participant a plat delineating the area
which it determines on a sound geological basis should be considered as
the area which, even though outside the boundaries of the Prospect,
should be considered an area of mutual interest in connection with the
Prospect.
(b) In the event that Participant does not accept the proposed area
of mutual interest, consultation shall be had between McMoRan and
Participant in an effort to fix and determine the area to constitute the
area of mutual interest.
(c) If McMoRan and Participant are able to agree on such area, the
area agreed upon shall constitute the Area of Mutual Interest, or if
agreement cannot be reached, the area of the Leasehold Interests as to a
Prospect all of which is under Federal leasing jurisdiction, or as to any
other Prospect the area within one-half (1/2) mile surrounding the outer
perimeter
of the Prospect, shall constitute the Area of Mutual Interest; provided
however, any such AMI shall not include any portion of an Excluded Area.
The AMI shall be effective so long as any Leasehold Interest in such
AMI is owned by any of the parties or is subject to this Agreement, but
in no event longer than the earlier of (i) December 31, 2006 or (ii) one
(1) year after the plugging and abandoning of an Exploratory Well thereon
unless another Exploratory Well has been commenced thereon or McMoRan and
Participant have agreed to install a drilling and production platform on
such Prospect within such one (1) year period.
Any acquisition of Leasehold Interests within such AMI after the
establishment thereof by McMoRan or Participant shall be made available
to be shared by McMoRan and Participant. Subject to the rights of any
third party under third party AMI agreements as described in Paragraph
13.1, the other party shall have the option to participate in any such
acquisition in the same proportion as such party's then interest in such
Prospect, which option is to be exercised in the following manner: the
acquiring party shall notify each of the other parties of such
acquisition, furnish a copy thereof and such title information as the
acquiring party has, stating the cost of such acquisition and/or
obligations that must be assumed in connection therewith. The other
parties shall have a period of fifteen (15) days with respect to the
interests not related to a drilling well, and forty-eight (48) hours (or
such lesser period as required by the circumstances and stated in the
notice) with respect to interests related to a drilling well after
<PAGE>
receipt of such notice within which to elect and notify the acquiring
party whether or not such party desires to participate in such
acquisition. Failure to respond shall be deemed an election on the part
of such party not to participate in such acquisition. Upon election and
payment to the acquiring party of such other party's share of the cost of
such acquisition and assumption of its share of such obligations, such
other party shall be entitled to an assignment of such party's interest
in such acquisition. The foregoing provision of this paragraph shall not
apply nor shall they alter Participant's obligation to purchase its
proportionate part of any Leasehold Interests acquired by McMoRan
hereunder in those cases where the costs of acquiring such interests are
Exploration Expenditures.
In the event any party does not elect to participate in an interest
tendered to it under this Paragraph 13.2 the participating parties may,
within twenty-four (24) hours after notice thereof, elect to take their
proportionate shares of the non-participating party's interest. Time
periods expressed in this Paragraph 13.2 are inclusive of Saturdays,
Sundays and legal holidays.
The provisions of this Paragraph 13.2 shall not be applicable to
acquisitions by any party hereto of an interest acquired through merger,
corporate reorganization or consolidation with or purchase of all or
substantially all of the assets of a corporation, an individual or a
partnership; provided, however, that the primary purpose of such merger,
corporate reorganization, consolidation or purchase is not to acquire
Leasehold Interests in a specific Prospect which otherwise would be
subject to this Agreement.
XIV.
Ownership of Production
14.1 Ownership of Production. All the oil, gas and casinghead gas
produced for the account of the Leasehold Interests from any well shall
be owned by McMoRan and Participant severally, in proportion to the
respective interests of each therein as set forth in Paragraph 3.2.
above, except as otherwise provided in this Agreement, and subject to the
right, if any, that others may have under the terms of this Agreement or
any operating agreement relating to such well. Anything to the contrary
herein notwithstanding, each party shall at all times have the right to
take in kind or separately dispose of such party's share of the
production from any such well, subject to the provisions of the
applicable Program Operating Agreement. McMoRan shall, however, attempt
to give Participant at least seven (7) days advance written notice of the
anticipated date of first deliveries of any production from a Prospect.
XV.
Relationship of the Parties
15.1 Tax Partnership. This Agreement is not intended and shall not
be considered to create a partnership within the meaning of the federal
common law or under the applicable laws of any state or under the laws of
the state in which any party hereto is incorporated, organized or
conducting business or to create a relationship whereby any of the
parties shall be held liable for the acts, either of omission or
commission, of any other party thereto; provided, however, that in the
event a party should suffer a loss by reason of an unauthorized act of
the other party hereto, the latter shall indemnify and save harmless the
former.
<PAGE>
The parties expressly agree that no party hereto shall be
responsible for the obligations of any other party, each party being
severally responsible only for its obligations arising hereunder and
liable only for its allocated share of the costs and expenses incurred
hereunder. It is not the purpose or intention of this Agreement to
create, and this Agreement should never be construed as creating, a
relationship whereby any of the parties shall be held liable for acts,
either of omission or commission, of any other party hereto.
Notwithstanding the foregoing, each party hereto agrees that this
Agreement creates a partnership for Federal and State income tax
reporting purposes only, which tax partnership shall function and exist
in accordance with the terms and provisions of Exhibit IV attached
hereto. McMoRan agrees to provide to the Participant on a best efforts
basis, by April 30th of each year, any information available to it
relating to operations conducted pursuant to the Program that is
necessary for Participant to prepare Schedule K-1 of its federal income
tax return.
XVI.
Billings; Notices
16.1 Billings; Notices. All billings and notices shall be as
provided in the applicable Program Operating Agreement.
XVII.
Special Non-Consent Elections
17.1 Casing Point Election - Onshore Prospects. At such time as an
Exploratory Well has been drilled to the final total depth on an Onshore
Prospect, McMoRan shall notify Participant that the Casing Point has been
reached on such well, and whether or not McMoRan recommends that an
attempt be made to complete such well. McMoRan shall also furnish, if
requested in writing by Participant, the estimated costs of completing
and equipping the well and plugging and abandoning same if the completion
is unsuccessful, and all well logs, core analyses and other information
in its possession not theretofore furnished relevant to evaluation of a
completion attempt. Within forty-eight (48) hours (inclusive of
Saturday, Sunday and legal holidays) of receipt of such recommendation,
Participant shall advise McMoRan whether or not it desires to participate
in the recommended completion attempt. If McMoRan and Participant agree
to attempt completion, McMoRan shall thereupon be authorized to proceed
with the completion attempt and to charge the cost thereof as a
Development Expenditure; provided, however, the cost of plugging and
abandoning the well shall be charged as an Exploration Expenditure if the
completion attempt is unsuccessful. If Participant does not elect to
participate in such completion attempt, it shall have no further rights
hereunder as to the Prospect involved. If McMoRan recommends abandonment
without a completion attempt, McMoRan shall have the well plugged and
abandoned, charging the cost thereof as an Exploration Expenditure.
Additionally, if Participant does not elect to participate in a second or
subsequent Exploratory Well in a particular Prospect, Participant shall
have no further rights hereunder as to the Prospect involved.
<PAGE>
17.2 Elections Prior to Platform Installation - Offshore Prospects.
If Participant does not elect to participate in (a) the drilling of any
well on an Offshore Prospect proposed by McMoRan to be drilled after the
drilling of the first two (2) Exploratory Wells thereon and prior to the
installation of the first drilling and/or production platform on such
Prospect or (b) Participant does not elect to participate in the
installation of the first drilling and/or production platform on such
Prospect, the Participant shall have no further rights hereunder as to
the Prospect involved.
17.3 Time Periods. Whenever an election right is provided in the
body of this Agreement and no time period for response is stipulated then
the applicable time periods provided in the applicable Program Operating
Agreement shall apply.
17.4 Completion Attempt by Participant - Onshore. If McMoRan does
not recommend the completion of an Onshore Exploratory Well and
Participant advises McMoRan within forty-eight (48) hours (inclusive of
Saturday, Sunday and legal holidays) of the receipt by Participant of
such recommendation from McMoRan that Participant elects to attempt to
complete such well, McMoRan shall undertake the completion thereof, and
any subsequent plugging and abandoning thereof, for the account of
Participant and Participant shall bear all costs, risks and expenses of
such completion attempt and abandonment thereof and Participant agrees to
indemnify and hold McMoRan harmless therefrom. If such completion
attempt is successful McMoRan will assign Participant all of its interest
in the borehole of such well and any production therefrom, but such
assignment shall not confer any additional interest to the Participant in
the balance of the particular Prospect involved.
XVIII.
Program Term
18.1 Program Term. The Program Term shall commence on April 1, 1997
and shall terminate, except for completion of operations which were
theretofore commenced or committed, on the earlier of five (5) years from
the date hereof, or the date that all of the Exploration Fund has been
spent or committed. At the end of the Program Term, McMoRan shall
provide Participant with a list (the "Committed List") of the undrilled
wells, Prospects and farmout agreements as to which it has committed the
Exploration Fund. Once such Committed List has been provided to
Participant, no substitution shall be made by McMoRan without the consent
of Participant.
18.2 Unfunded Prospects. At the same time as McMoRan submits the
Committed List, McMoRan shall also submit a listing of all Prospects
which would have been committed to the Exploration Program except for the
fact that the Exploration Fund had been fully expended and/or committed.
Within fifteen (15) days of receipt of such listing from McMoRan,
Participant will have the option to commit additional funds to the
Exploration Fund for the drilling of the first Exploratory Well on any
such Prospect or Prospects or to advise MOXY that it does not elect to so
commit any such additional funds. If the Participant does so commit, the
drilling of such first Exploratory Well on a Prospect where Participant
commits such additional funds shall be charged as Exploration
Expenditures and shall be deemed included in the Committed List. If the
Participant does not commit such addi-tional funds for a Prospect on such
listing, MOXY shall have the right to acquire Participant's interest in
such Prospect, free of any liens, burdens, or overriding royalties not
<PAGE>
provided for by Article XI hereof, by reimbursing Participant for any
direct costs incurred by Participant in acquiring Leasehold Interests in
such Prospect; if MOXY so reimburses Participant, such Prospect shall be
excluded from this Agreement and Participant shall have no further right
hereunder as to such Prospect.
XIX.
Operations After Program Term
19.1 General. After the Program Term, all Leasehold Interests of the
Program will be subject to the provisions of the applicable Program
Operating Agreement and the provisions of this Agreement except as set
forth in Paragraph 18.2 and this Article XIX. Any Leasehold Interest
which is included in a Prospect on which an Exploratory Well has been
committed as shown on the Committed List shall become subject to this
Article XIX after the drilling of such committed well.
19.2 Exploratory Wells. After the Program Term, McMoRan and/or
Participant shall have the right to propose the drilling of an
Exploratory Well on a Prospect in accordance with Paragraph 9.2 hereof.
19.3 Development Expenditures. All Development Expenditures shall be
borne by the parties according to their interest and
subject to the provisions of the applicable Program Operating Agreement,
whether incurred before or after the Program Term.
19.4 Provisions Which Do Not Survive the End of the Program Term.
From and after the end of the Program Term, McMoRan shall have no right
to commit Participant to any expenditures except in accordance with the
applicable Program Operating Agreement and with respect to the conclusion
of then drilling or committed operations. McMoRan shall have no
obligation thereafter to offer Participant the right to acquire any
Leasehold Interest unless such acquisition is subject to an AMI agreement
with Participant. Further, McMoRan shall have no further right to bind
Participant's interest to any trade agreement except as may be expressly
authorized by Participant.
XX.
Confidentiality.
20.1 Confidentiality. Except to the extent provided to the contrary
hereunder and subject to any agreements with third parties entered into
pursuant to the Program, each party agrees that at all times prior to,
but not after, December 31, 2007, it will take all reasonable steps to
keep secret and confidential and not disclose to any third party,
geological or geophysical data, progress reports or other information
which it may receive as a result of operations carried out under this
Agreement; provided, however, that these restrictions shall not apply to
information which (i) is in, or has entered into, the public domain
without breach of the provisions of this Paragraph 20.1; (ii) is in the
possession of a party receiving same as a result of prior receipt thereof
from another party (not a party to this Agreement) prior to the time of
such receipt under this Agreement, (iii) may lawfully be obtained as a
matter of right by the party receiving same from another source, (iv) is
required to be disclosed by law or the rules of any governmental agency
or an applicable stock exchange, by McMoRan or Participant, or (v) is
furnished to Affiliates, or to bona fide prospective purchasers,
mortgagees, prospective mortgagees, lenders, prospective lenders,
<PAGE>
prospective joint program participants and consultants for evaluation
purposes provided that any person furnished information pursuant to this
clause (v) agrees not to communicate such information to any other party
or to use it for their own benefit in a manner adverse to the interests
of McMoRan and/or Participant. Notwithstanding the foregoing, the
parties recognize that from time to time information (such as logs) may
be acquired by the Program which should not be disclosed to anyone other
than those persons who must have such information. Each party shall take
all reasonable steps to require its employees and consultants to be bound
by the provisions of this paragraph in the same manner as it is bound
hereunder. News releases concerning discoveries or operations of the
Program shall only be made in accordance with guidelines attached to the
applicable Program Operating Agreement, subject to the requirements of
applicable laws and regulations and requirements of applicable stock
exchanges.
XXI.
Insurance
21.1 Insurance for Program. McMoRan shall, at the expense of the
Exploration Program, procure and maintain with responsible companies
insurance in the amounts and covering the risks set forth below:
(a) Worker's Compensation:
Such insurance shall be in full compliance with the law in the
state where the work is to take place and shall contain a
voluntary compensation endorsement and a waiver of subrogation
as to Participant. Where
applicable, coverage shall also be provided to comply with the:
(i) U.S. Longshoremen's and Harbor Worker's
Compensation Act, and the
(ii) Outer Continental Shelf Lands Act.
(b) Employer's Liability:
Such insurance shall have a limit of liability of $500,000 per
accident and shall be endorsed, where applicable, to provide:
(i) Maritime (Amendment to Coverage B), to include
transportation, wages, maintenance and cure.
(ii) A claim "in rem" will be treated as a claim "in
personam".
(iii)A waiver of subrogation as to Participant.
(c) Comprehensive General Liability Insurance:
Such insurance shall have a limit of $1,000,000 per occurrence
and shall be endorsed, where applicable, to provide:
(i) Deletion of the watercraft exclusion.
(ii) Contractual liability coverage.
(iii)That Participant be named as an additional
insured.
(d) Control of Well Insurance in the minimum amount of
$50,000,000 for the total loss, endorsed to name
Participant as an additional insured.
<PAGE>
(e) All vessels owned or chartered by McMoRan shall be
adequately covered by Hull and Protection and Indemnity
Insurance.
(f) No insurance other than as specified above shall be
provided by McMoRan.
(g) McMoRan shall require contractors and subcontractors performing
work for the Program to provide such insurance as deemed
reasonable by McMoRan in relation to the work to be performed
by said contractors or subcontractors.
(h) Upon request, certificates of insurance evidencing the
insurance obtained by McMoRan hereunder shall be furnished to
Participant.
(i) Unless otherwise agreed in writing, McMoRan and
Participant shall separately carry their own policies
of the following insurance:
(i) Where applicable, Blanket Charters' Legal
Liability and Cargo Legal Liability with a limit of
liability of $500,000.
(ii) Umbrella liability Insurance in the amount of
$25,000,000 excess of all primary limits.
(iii) Above insurance coverages including, but not
limited to, any and all deductibles, self-insured
retentions or primary layers, shall contain waivers
of subrogation as to McMoRan and Participant.
XXII.
Record Title, Assignment
22.1 Record Title. For convenience, McMoRan shall initially hold
record title to the Leasehold Interests acquired hereunder; provided
however, upon written request by Participant, McMoRan will, within 120
days following the completion by the Program on an Onshore Prospect of a
well capable of producing in paying quantities, or within 120 days
following the installation of the first drilling and/or production
platform on an Offshore Prospect by the Program, as applicable, execute
and deliver to Participant a recordable assignment of Participant's
interest in all Leasehold Interests in such Prospect, unless Participant
has no further rights hereunder as to a particular Prospect as the result
of a decision not to participate pursuant to Paragraph 17.1, Paragraph
17.2 or Paragraph 18.2, as applicable. In addition, at the end of
Program Term McMoRan shall execute and deliver to Participant a
recordable assignment of Participant's interest in any Leasehold Interest
not included in a Prospect during the Program Term pursuant to any
provision of this Agreement. Such assignment shall warrant title against
all parties claiming by, through or under McMoRan, but not otherwise; but
McMoRan shall assign to Participant, with full right of subrogation, to
the extent so transferable, the benefit of and the right to enforce the
covenants and warranties, if any, which McMoRan is entitled to enforce
with respect to the interest assigned or any part thereof. Each
assignment shall be subject to this Agreement and shall be charged with
and burdened by the proportionate part of the royalties provided for in
each lease covered thereby, any overriding royalty or similar interest
with which such Leasehold Interests are burdened as authorized by
Paragraph 11.1 hereof and any other contracts or agreements with which
<PAGE>
such Leasehold Interests are burdened by McMoRan as expressly authorized
by other provisions of this Agreement and which continue to burden such
Leasehold Interests at the time of such assignment. If, however, there
are restrictions on assignability with respect to a Prospect or Leasehold
Interest prohibiting McMoRan as nominee for the Program from transferring
interests in such Prospect or Leasehold Interest, McMoRan shall continue
to hold record title in its name on behalf of the parties owning
interests therein rather than for the Program, and at the request of such
parties will execute a mutually acceptable nominee agreement.
22.2 Assignment. Except as permitted below, without the prior
written consent of the other party, neither McMoRan nor Participant shall
assign any rights in this Agreement. Until the Program has completed a
well capable of production in Paying Quantities on an Onshore Prospect or
prior to the election provided in Paragraph XVII hereof as to an Offshore
Prospect, or the end of the Program Term, whichever first occurs, no
party hereto may assign its interest in the Leasehold Interests within
said Prospect acquired pursuant to the Program without first obtaining
the consent of the other party hereto (which approval will not be
unreasonable withheld); provided that granting of a lien or security
interest by any party shall not require such consent. The assignees of
any Leasehold Interest acquired pursuant to the Program shall be bound by
all of the assignor's obligations with respect to such Leasehold Interest
as to the interest assigned. Notwithstanding the foregoing, either
Participant or McMoRan without the necessity of obtaining consent may
transfer all or any part of its interests and rights in this Agreement or
in any Prospect to any Affiliate provided that the assigning party shall
remain liable hereunder. Notwithstanding the foregoing, if a Prospect
involves the acquisition of a Leasehold interest from a third party, the
period hereinabove provided for the delivery of assignments shall be
extended, if required, until 60 days following the receipt of an
assignment of interest by McMoRan from such third party; provided
however, in the event that such an assignment requires the approval of a
governmental authority then such period will be extended for 60 days
following the receipt by McMoRan of the required approval from the
governmental authority.
XXIII.
Subsequent Interests
23.1 Subsequent Interest. Except with respect to burdens described
in Paragraph 11.1, or as otherwise provided in this Agreement, a party
who creates any burden against such party's interest in any Leasehold
Interest shall be solely responsible for such burden; and in the event
such party is required, pursuant to other provisions of this Agreement
including the applicable Program Operating Agreement or a third party
operating agreement, to assign its interest in any Leasehold Interest to
any other party, such assignment shall convey and vest title to such
interest in such assignee free and clear of any such burden.
<PAGE>
XXIV.
General
24.1 Records. McMoRan shall maintain complete and accurate records
of all Leasehold Interests acquired and held hereunder, the acquisition
and disposition of all equipment hereunder, and of all expenditures made
hereunder in accordance with generally accepted industry standards.
McMoRan will maintain complete and accurate records of all correspondence
with any operator who may be operating properties in which the parties
hereto have an interest under this Agreement, and will retain a copy of
all statements, bills and other instruments furnished by any such
operator in accordance with generally accepted industry standards. Such
records, together with receipts, vouchers and other supporting evidence
thereof in McMoRan's possession and control, will be available for
inspection, copying and audit by Participant or its duly authorized
representatives on reasonable notice at McMoRan's office during regular
business hours then in effect. Participant's right to audit McMoRan's
records for the purpose of challenging the correctness of any charge made
by McMoRan hereunder shall terminate as provided in the accounting
procedure attached to the Program Operating Agreement. Participant shall
be entitled to join McMoRan in any audit made by McMoRan of the records
of third party operators of properties in which Participant acquired an
interest under this Agreement. At the request of Participant, McMoRan
shall conduct or cause to be conducted an audit of the records of any
such third party operator hereunder, said audit right to be as specified
in such third party agreement including the polling of other non-
operators to determine if they desire to participate, at which time
McMoRan may decline to participate and therefore not bear any cost
related to such audit. In addition, Participant shall have the same
audit rights as held by McMoRan under third party agreements including
the right to elect participation in any audit performed by another non-
operator if McMoRan elects not to participate in such audit and
Participant shall receive copies of all reports of joint venture audits
which are conducted.
24.2 Access. Participant or its duly authorized representative shall
have access at all reasonable times, at its expense and risk, to the
derrick floor of any well being drilled hereunder in which Participant is
participating; and Participant shall have the right to inspect all
materials on hand for the account of the Program and to observe any such
operations conducted hereunder.
24.3 Claims and Litigation. Except as to matters arising with
respect to a particular Prospect after the Program Operating Agreement
has become applicable as to all further operations thereon under the
provisions of this Agreement (as to which the provisions of such Program
Operating Agreement will govern), all investigation, litigation and
settlements in connection with titles, claims and causes of action of
every kind and joint rights and interests of McMoRan and Participant in
the Program Area in connection with the Program shall be carried on,
conducted and defended for and on behalf of McMoRan and Participant.
Each party shall notify the other of any process served upon it in any
such suit or claim. Where a claim has been made or a suit has been filed
against McMoRan or Participant for damages caused by or arising out of
operations the expense of which is charged to the Exploration Fund as
authorized herein, McMoRan shall retain legal counsel to handle the
defense of such suit or claim and notify Participant of the retention of
such legal counsel. The cost of such legal services shall be charged in
the same manner as Exploration Expenditures are charged. Participant
<PAGE>
may, if it so chooses, elect to retain its own legal counsel (at
Participant's expense) to defend its interests in any such suit or claim;
and in such event the claim or suit shall be defended by a committee of
attorneys selected by and representing the separate interests of McMoRan
and Participant (with such party being responsible for the fees and
expenses of its own counsel), with McMoRan's counsel as chairperson. All
settlements of suits and claims shall be subject to the approval of
Participant; except that McMoRan may settle any claim under $100,000
without first receiving Participant's approval, provided the payment is
in complete settlement. The costs and expenses involved in those matters
which are subject to the provisions of this Paragraph 24.3 shall be
shared and borne solely by the parties who participated in such operation
or Leasehold Interest in proportion to their respective participation in
the applicable operation or Leasehold Interest. McMoRan agrees to keep
Participant advised as to claims for which Participant may be partly
responsible hereunder.
24.4 Good Faith. McMoRan and Participant agree to act in good faith
with respect to their respective activities under this Agreement.
24.5 Governing Law. This Agreement and the documents provided for
herein shall be deemed to be governed by, and construed in accordance
with, the laws of the State of Louisiana.
24.6 Failure to Respond. Except as provided in Paragraph 10.1
hereof, whenever under this Agreement (exclusive of the applicable
Program Operating Agreement) Participant is given the right to approve or
disapprove or participate or decline to participate in a proposed
operation or acquisition; failure to respond shall be deemed a response
to disapprove or decline to participate in the proposed operation or
acquisition unless McMoRan is recommending and electing to plug and
abandon a well, in which event failure to respond shall be an election to
plug and abandon.
24.7 Conflicts. Should there be any conflict between the body of
this Agreement and any Exhibit hereto, the provisions contained in the
body of this Agreement shall control.
24.8 Binding Effect. This Agreement shall be binding upon and inure
to the benefit of the parties hereto and their respective successors and
assigns; provided, however, nothing herein contained shall be construed
as permitting an assignment contrary to the terms and provisions of this
Agreement.
<PAGE>
IN WITNESS WHEREOF, this Agreement is executed in multiple copies
each of which shall be deemed to be an original on November 14, 1997 but
effective as of the date first above written.
McMoRan Oil & Gas Co.
By:/s/ Glenn A. Kleinert______
Glenn A. Kleinert
Senior Vice President
Freeport-McMoRan Resource Partners,
Limited Partnership
By: Freeport-McMoRan Inc.,
its Administrative Managing
General Partner
By:/s/ Rene L. Latiolais______
Rene L. Latiolais
President
The remainder of the Exhibits to the Amendment to Participation
Agreement McMoRan 1997 Exploration Program dated as of April 1, 1997
between McMoRan Oil & Gas Co. and Freeport-McMoRan Resource Partners,
Limited Partnership, have been intentionally omitted and will be provided
upon request.
<PAGE>
EXHIBIT 10.7
AMENDMENT TO PARTICIPATION AGREEMENT
MCMORAN 1997 EXPLORATION PROGRAM
This Amending Agreement (the "Amending Agreement") is made as of the
15th day of December, 1997 between McMoRan Oil & Gas Co., ("McMoRan") and
Freeport-McMoRan Resource Partners, Limited Partnership ("Participant").
WITNESSETH:
WHEREAS, McMoRan and Participant entered into the Participation
Agreement for the McMoRan 1997 Exploration Program as of April 1, 1997;
WHEREAS, McMoRan and Participant agree to expand the Program in
certain respects to include additional participants (the "Expanded
Program") effective as of December 15, 1997.
NOW THEREFORE, for and in consideration of the premises and the
respective covenants and agreements contained herein and for good and
valuable consideration, the receipt of which is hereby acknowledged, the
parties hereto, intending to be legally bound, hereby agree as follows:
I.
The Grand Isle 65 Prospect, the Eugene Island 18/19 Prospect, the West
Cameron 616 Prospect and the West Cameron 492 Prospect shall not be
included in the Expanded Program and the interest of McMoRan and the
Participant in such Prospects shall be as set forth in the Program
Agreement, unaffected by this Amending Agreement.
II.
To the extent that other participants have reimbursed McMoRan for a portion
of the Initial Leasehold Inventory, McMoRan will credit Participant with
its proportionate share of such reimbursement.
<PAGE>
III.
Section 6.1 of the Program Agreement is amended to provide that the budget
for the Program as to those properties that are not included in the
Expanded Program shall be $45,000,000, with the $155,000,000 balance of the
original Program budget plus the approximate $10,000,000 commitment of the
new participant to be the total budget of the Expanded Program.
IV.
The parties hereby adopt the Participation Agreement attached hereto as
Exhibit A as the Program Agreement for the Expanded Program effective as of
December 15, 1997.
IN WITNESS WHEREOF, this Agreement is executed in multiple copies,
each of which shall be deemed to be an original on December 19, 1997, but
effective as of the date first above written.
McMoRan Oil & Gas Co.
By: /s/ GLENN A. KLEINERT
Glenn A. Kleinert
Senior Vice President
Freeport-McMoRan Resource Partners,
Limited Partnership
By: Freeport-McMoRan Inc. as
Administrative Managing Partner
By: /s/ ROBERT M. WOHLEBER
Robert M. Wohleber
Senior Vice President
<PAGE>
EXHIBIT 10.8
EXHIBIT A
PARTICIPATION AGREEMENT
McMoRan 1997 Exploration Program
PAGE
I. DEFINITIONS 4
II. PURPOSE; OPERATIONS 8
2.1 Purpose 8
2.2 McMoRan's Efforts 9
2.3 Operator 9
III. INTERESTS OF THE PARTIES 9
3.1 Sharing of Exploration Expenditures 9
3.2 Ownership Interests 10
3.3 McMoRan Group Participation 10
IV. EXPLORATION EXPENDITURES 10
4.1 Exploration Expenditures 10
V. ACQUISITION OF LEASEHOLD INTERESTS 14
5.1 Acquisition of Additional Leasehold Interests 14
5.2 Excluded Areas 14
5.3 Obligation 15
VI. EXPLORATION FUND 15
6.1 General 15
6.2 Limitations on McMoRan's Authority to Commit
Exploration Fund 16
6.3 Budget Meetings and Reports 16
VII. SCIENTIFIC STUDIES AND INFORMATION 17
VIII. PROSPECTS 18
8.1 Prospects 18
8.2 Designation of Prospects After Program Term 20
IX. DRILLING OF EXPLORATORY WELLS 21
9.1 During Program Term 21
9.2 After Program Term 23
X. FARMOUT OR PARTICIPATION AGREEMENTS 23
10.1 Participation Agreements 23
10.2 Farmout Agreements 24
10.3 Trade Agreements 24
XI. BURDENS 25
XII. OPERATING AGREEMENT 26
XIII. AREA OF MUTUAL INTEREST 26
13.1 Third Party Area of Mutual Interest
Agreements 26
13.2 Program Area of Mutual Interest Agreement 27
<PAGE>
XIV. ASSUMPTION OF INTEREST 30
XV. OWNERSHIP OF PRODUCTION; GAS BALANCING AGREEMENT 30
15.1 Ownership of Production 30
XVI. RELATIONSHIP OF THE PARTIES 31
16.1 Tax Partnerships 31
XVII. BILLINGS; NOTICES 32
XVIII. SPECIAL NON-CONSENT ELECTIONS 32
18.1 Casing Point Election - Onshore Prospects 32
18.2 Elections Prior to Platform Installation - Offshore
Prospects 33
18.3 Time Period 33
18.4 Completion Attempt by Participant - Onshore 33
XIX. PROGRAM TERM 34
19.1 Program Term 34
19.2 Unfunded Prospects 34
XX. OPERATIONS AFTER PROGRAM TERM 35
20.1 General 35
20.2 Exploratory Wells 35
20.3 Development Expenditures 35
20.4 Provisions Which Do Not Survive the End of
the Program Term 35
XXI. CONFIDENTIALITY 36
XXII. INSURANCE 37
22.1 Insurance for Program 37
XXIII. RECORD TITLE, ASSIGNMENT 39
23.1 Record Title 39
23.2 Assignment 41
XXIV. SUBSEQUENT INTERESTS 41
XXV. GENERAL 42
25.1 Records 42
25.2 Access 43
25.3 Claims & Litigation 43
25.4 Good Faith 44
25.5 Governing Law 44
25.6 Failure to Respond 44
25.7 Conflicts 45
25.8 Reciprocal Rights 45
25.9 Binding Effect 45
<PAGE>
EXHIBITS
I) PROGRAM OPERATING AGREEMENT (OFFSHORE)
II) PROGRAM OPERATING AGREEMENT (ONSHORE)
III) CERTAIN EXCLUDED AREAS
IV) PROVISIONS CONCERNING TAXATION
V) INITIAL LEASEHOLD INVENTORY
<PAGE>
PARTICIPATION AGREEMENT
McMoRan 1997 Exploration Program
This Participation Agreement ("the Agreement") is made as of the
15th day of December, 1997 between McMoRan Oil & Gas Co. ("McMoRan")
and Freeport-McMoRan Resource Partners, Limited Partnership ("FRP").
WITNESSETH:
I.
Definitions
As used in this Agreement, the following terms shall have the
meanings set forth below:
1.1 Affiliate means, with respect to any person, a person that directly
or indirectly through one or more intermediaries, controls or is
controlled by, or is under common control with the person specified.
With respect to a natural person, the term "Affiliate" shall also
include that person's spouse or anyone related to such person by
first or second degree of consanguinity or affinity and any trust or
partnership beneficially owned by such persons.
1.2 Area of Mutual Interest or AMI means, with respect to any Prospect,
the geographic area more particularly described in Article XIII.
1.3 Casing Point means the point at which determination is made either to
run production string of casing and attempt a completion, or to
abandon the well.
1.4 Committed List means the list described in Paragraph 19.1 hereof.
1.5 Development Expenditures means those charges applicable to each
Prospect which are not Exploration Expenditures.
1.6 Development Well means any well which is not an Exploratory Well.
1.7 Excluded Area means any of the areas described in Paragraph 5.2
hereof.
1.8 Exploration Expenditures means those charges described in Article IV.
1.9 Exploration Fund means the fund created by McMoRan, Participant and
the other members of the McMoRan Group for the acquisition and
exploration of Leasehold Interests and the other purposes of the
Exploration Program as more fully described in Article VI, together
with any cash contributions received by the Program from third
parties.
1.10 Exploration Program or Program means the McMoRan operated program
pursuant to which the McMoRan Group has or will acquire and explore
Prospects in the Program Area during the Program Term pursuant to
this Agreement and the agreement between McMoRan and the other
members of the McMoRan Group.
<PAGE>
1.11 Exploratory Well means any well drilled by the Program on an Onshore
Prospect prior to the completion thereon by the Exploration Program
of a well capable of production in Paying Quantities or, as to an
Offshore Prospect, means the first and/or second well drilled on a
Prospect by the Program prior to the first installation thereon by
the Program of a drilling and/or production platform.
1.12 Initial Leasehold Inventory means those Leasehold Interests described
in Paragraph 2.1 hereof.
1.13 Leasehold Interests means any right, title or interest acquired in,
to and under any oil or gas lease or any other interest in oil or
gas, including, without limitation, contractual rights, which confer
on the holder thereof the right to share, or acquire the right to
share, in the production or the proceeds of production of oil or gas.
1.14 Leasehold Interests Costs means, with respect to a particular
Leasehold Interests, the actual cost incurred by the Program for
acquisition thereof, in each case including, without limitation, all
bonuses, delay rentals, brokerage fees, and outside attorney's fees.
1.15 McMoRan Group means McMoRan, Participant and those other parties
participating through McMoRan on a program type basis in a
significant portion of McMoRan's exploration activities in all or
part of the Program Area.
1.16 Non-Operator means, as to any Leasehold Interests or Prospect, a
working interest owner therein who is not designated to act as
Operator.
1.17 OCS means the outer continental shelf of the Gulf of Mexico under
Federal leasing jurisdiction.
1.18 Offshore Prospect means any Prospect located in the OCS, and/or in
that portion of the Gulf of Mexico under the leasing jurisdiction of
the adjacent states.
1.19 Onshore Prospect means a Prospect located in the Program Area which
is not an Offshore Prospect.
1.20 Operator means, as to any Leasehold Interests or Prospect, the party
hereto designated to manage and supervise the drilling and/or
completion and operation of oil or gas wells thereon.
1.21 Participant means Freeport-McMoRan Resource Partners, Limited
Partnership.
1.22 Paying Quantities means production of oil and/or gas in quantities
sufficient to yield a return in excess of operating cost.
1.23 Program Area means the OCS, and that portion of the Gulf of Mexico
under the leasing jurisdiction of the adjacent states and the balance
of the lower 48 states of the continental United States, except the
Excluded Areas.
<PAGE>
1.24 Program Operating Agreement means the Joint Operating Agreement
(Offshore) or the Joint Operating Agreement (Onshore) attached hereto
as Exhibits I and II respectively, depending upon whether the
relevant operation is with respect to an Offshore Prospect or an
Onshore Prospect.
1.25 Program Term means the period beginning on the date hereof and ending
at the end of the Program Term as set forth in Article XIX.
1.26 Prospect means an area designated as such pursuant to Paragraph 8.1.
1.27 Technical Consultants means those geologists and geophysicists and
related personnel working therewith who are hired or retained by
McMoRan as independent consultants some portion of whose efforts are
to develop or evaluate Prospects hereunder.
II.
Purpose; Operations
2.1 Purpose. This Agreement has been entered into to provide
Participant along with other members of the McMoRan Group a means of
acquiring, exploring and developing oil and gas Prospects in the Program
Area, including but not limited to the acquisition of the Initial Leasehold
Inventory, during the Program Term.
Effective April 1, 1997, FRP and McMoRan established the McMoRan 1997
Exploration Program pursuant to the original Participation Agreement.
Prior to the effective date hereof, McMoRan and FRP evaluated by drilling
certain of the prospects subject to the original Exploration Program and,
effective as of the date hereof, McMoRan and FRP have agreed to expand said
Exploration Program for the remaining term of the Program by increasing the
budget for the Exploration Program and adding an additional participant.
McMoRan, FRP and the additional participant will participate in the
properties and rights of the Program, excluding only those properties and
assets associated with the properties which are located in the Excluded
Areas which exclusions include but are not limited to the prospects that
were evaluated prior to the effective date hereof ("Excluded Properties").
The Leasehold Interests of the Program as of the effective date hereof,
excluding those which are Excluded Properties, shall be the Initial
Leasehold Inventory hereunder, which are identified on Exhibit V hereto.
The Initial Leasehold Inventory shall be deemed to have an actual incurred
cost of $9,272,380. The cost of the Initial Leasehold Inventory set out
above is intended to encompass all of the McMoRan and FRP expenditures
associated with such Leasehold Interests and for cost of leads and other
evaluation activities which have not materialized into a Leasehold
Interests but which are not part of the cost of an Excluded Property, all
of which costs shall be adjusted upon final accounting of such costs.
2.2 McMoRan Efforts. McMoRan agrees to devote a substantial portion
of its oil and gas exploration effort to the operation and management of
the Program, which shall include all prospects, except those in the
Excluded Areas, acquired and to be acquired by McMoRan during the Program
Term within the Program Area, including but not limited to the Initial
Leasehold Inventory. McMoRan will at all times have a staff adequate in
number, experience and competence to perform its obligations hereunder and
accomplish the purposes of the Exploration Program.
<PAGE>
2.3 Operator. McMoRan shall be the overall manager of the Program.
III.
Sharing of Exploration Expenditures
and Interest of the Parties
3.1 Sharing of Exploration Expenditures. Except as other-wise
provided in this Agreement, Exploration Expenditures shall be shared as
follows:
Participant McMoRan & All Other Members of
McMoRan Group excluding Participant
56.4% 43.6%
If more than one Exploratory Well is drilled on a particular Onshore
Prospect, Exploration Expenditures in connection with the drilling of any
second and subsequent Exploratory Well on such particular onshore Prospect
shall not be shared in the percentages set forth in this Paragraph 3.1 but
shall be shared in the percentages set forth in Paragraph 3.2 hereof;
provided, however, if the first Exploratory Well in such particular Onshore
Prospect fails to reach objective depth because it encounters impenetrable
substances, heaving shale, domal material, salt, excessive salt water flow
or other formation or conditions or develops mechanical difficulty which
would render further drilling impractical and McMoRan elects to drill a
substitute for such well, the cost involved in the drilling of such
substitute well shall be shared in the percentages set forth in this
Paragraph 3.1 in the same manner as if such substitute well were the first
Exploratory Well on the particular Onshore Prospect involved.
3.2 Ownership Interests. Except as otherwise provided in this
Agreement, the ownership of all Leasehold Interests and other properties
and production acquired by the Program shall be shared as follows:
Participant McMoRan & All Other Members of
McMoRan Group excluding Participant
47% 53%
3.3 McMoRan Group Participation. Percentages are based upon the total
McMoRan Group, which in many cases is less than the entire working
interest.
IV.
Exploration Expenditures
4.1 Exploration Expenditures. Subject to the limitations provided in
this Agreement, McMoRan shall be entitled to expend monies for Exploration
Expenditures of the Program on behalf of itself and Participant without the
prior approval of Participant. The term "Exploration Expenditures" means
all actual charges allocable to each Prospect established prior to the end
of the Program Term, determined in accordance with generally accepted
industry standards, which charges are incurred by the Program prior to (i)
the completion of the first Exploratory Well drilled by the Program on an
Onshore Prospect that is completed as a well capable of production in
Paying Quantities or (ii) the plugging, or the temporary abandonment if not
plugged, of the first two Exploratory Wells drilled by the Program on an
<PAGE>
Offshore Prospect, as applicable, and such other costs applicable to
exploration activities in the Program Area prior to the expiration of the
Program Term or with respect to Prospects established prior to the end of
the Program Term, which charges, among others, shall include the following:
(a) The cost of acquisition of all Leasehold Interests in the Program
Area, including but not limited to the Initial Leasehold Inventory and any
Leasehold Interests Costs paid by McMoRan to third party program operators
in connection therewith;
(b) The cost of any geological, geophysical or other scientific,
exploration or engineering work, services or data on the Prospect;
(c) The cost of copies of all seismic records, geological and
geophysical maps and other exploration data and information furnished to
Participant;
(d) Rental and other lease maintenance payments on the Leasehold
Interests;
(e) All necessary independent legal expenses and costs of title
searches and title investigation whether or not Leasehold Interests are
acquired, together with the costs of copies of title opinions and other
title reports furnished to Participant;
(f) The cost of drilling Exploratory Wells in a Prospect, including
the cost of plugging and abandoning or capping same, if no completion
attempt is made;
(g) Any other expenditures properly chargeable as Exploration
Expenditures under this Agreement, or as may be specified in the accounting
procedure attached to the applicable Program Operating Agreement and which
are attributable to exploration activities, but excluding all overhead
provided for in such Program Operating Agreement until such time as the
Exploration Fund has been fully committed;
(h) Notwithstanding the foregoing, the cost of completing an
Exploratory Well shall not be considered an Exploration Expenditure; and
(i) In addition to the foregoing, McMoRan shall be entitled to charge
as Exploration Expenditures those expenditures that McMoRan incurs annually
for salaries of employees, including but not limited to costs of benefits
programs related thereto, cost of retained consultants, including but not
limited to its Technical Consultants, office rent, office supplies,
insurance and other general and administrative costs that McMoRan incurs
in the conduct of its activities, including but not limited to costs
allocated to MOXY from FM Services Company or its Affiliates, less a
reasonable portion of such costs that McMoRan allocates to the Excluded
Areas. Prior to committing to a material increase in the aggregate costs
contemplated by this subparagraph (i) McMoRan shall confer with Participant
and in good faith consider any comments or suggestions that Participant may
offer in regard to such contemplated material change. McMoRan shall not be
permitted to charge any items under this subparagraph (i) after the
expenditure of the Program Budget, but will thereafter be entitled to
receive such amounts as may be provided in the applicable Program Operating
Agreement.
<PAGE>
The term Exploration Expenditures shall also include any of the
foregoing costs incurred by the Program in attempting to locate or acquire
Leasehold Interests in Prospects for the Program in the Program Area
whether or not the Program owns or acquires Leasehold Interests in such
area or subsequently designates a Prospect under Paragraph 8.1 for such
area.
Except as may be expressly provided to the contrary in this Agreement,
all Exploration Expenditures shall be invoiced and accounted for in
accordance with the accounting procedure attached to the Program Operating
Agreement, including the period of time set forth for joint interest
auditing and adjustment.
McMoRan shall further be entitled to reimbursement as an Exploration
Expenditure prior to the end of the Program Term, or as a proper
expenditure under the applicable Program Operating Agreement, as
appropriate, from Participant for its share of reasonable inventories of
pipe and equipment (it being the intention of the parties to keep such
inventories at a minimum level consistent with the needs of the Program).
McMoRan shall not have an obligation to spend a particular portion of
the Program Fund during any Program Year but rather McMoRan shall commit
Exploration Expenditures as the occasion arises to secure Prospects which
McMoRan deems would be appropriate for the Exploration Program, subject to
the provisions of Paragraph 6.1 hereof.
McMoRan agrees to make available its entire geological and geophysical
data base for use in operations under the Program at no cost to the
Participant, except to the extent setforth in the immediately following
sentence. The amounts expended in acquiring seismic data from Western
Geophysical pursuant to the Licensing Agreement between McMoRan and Western
Geophysical dated November 20, 1996 shall constitute proper charges to
Exploration Expenditures, notwithstanding the fact that some of the costs
incurred pursuant to such agreement were incurred prior to the beginning of
the Program Term, except to the extent that any of such seismic data so
acquired relates to Excluded Areas.
Participant agrees to bear its proportionate part of all Exploration
Expenditures of the Program, subject to the limitations hereinafter set
forth under Article VI.
V.
Acquisition of Leasehold Interests
5.1 Acquisition of Leasehold Interests. On behalf of the Program and
subject to the limitations and guidelines herein set forth, McMoRan shall
evaluate and acquire Leasehold Interests in the Program Area during the
Program Term which it believes to be potentially productive of oil or gas.
5.2 Excluded Areas. McMoRan and Participant agree that the following
areas ("Excluded Areas") shall not be subject to the terms of this
Agreement unless any such area, or portion thereof, has been recommended
for inclusion herein by McMoRan in writing and Participant has concurred in
writing in that recommendation:
(a) Any Leasehold Interests or prospect lying outside the Program
Area;
<PAGE>
(b) Any Leasehold Interests or Prospect which at the time of
acquisition contains proven reserves unless (i) the then proven reserves do
not constitute a material consideration in the acquisition, and (ii) the
primary objective of the acquisition is to explore for oil and gas other
than the then proven reserves;
(c) Those areas identified on attached Exhibit III; and
(d) Any Leasehold Interests or prospect acquired through merger,
acquisition, corporate reorganization or consolidation with or purchase of
substantially all of the assets of an individual, a corporation or a
partnership, provided that the primary purpose of such merger, acquisition,
reorganization, consolidation or purchase is not to acquire a specific
Prospect or Leasehold Interests which otherwise would be subject to this
Agreement; provided, however, if in such an acquisition McMoRan acquires an
inventory of exploratory prospects not associated with any proven
production acquired in such acquisition, McMoRan shall meet with
Participant and, in good faith, attempt to have the exploratory prospects
transferred to the Exploration Program.
5.3 Obligation. Subject to the limitations otherwise provided in this
Agreement, Participant agrees to participate for its proportionate share of
Exploration Expenditures as to all Leasehold Interests acquired or
committed to by McMoRan in the Program Area during the Program Term.
Without limiting or altering the effect of the AMI provisions of Article
XIII hereof, from and after the end of the Program Term, McMoRan shall not
be obligated to search for and offer to Participant any interest in
Leasehold Interests within the Program Area.
VI.
Exploration Fund
6.1 General. The Program shall have a budget of $165,000,000 for
Exploration Expenditures to be incurred or committed during the Program
Term (the "Exploration Fund"). Notwithstanding that the Exploration Fund
is for the entire Program Term, unless McMoRan and Participant agree
otherwise in writing, McMoRan will schedule its activities so that
Exploration Expenditures are not likely to exceed on a cumulative basis one
hundred fifty percent (150%) of $40,000,000 per twelve months
period times the number of twelve months periods that have elapsed since
the Program Term commenced.
6.2 Limitations on McMoRan's Authority to Commit Exploration Fund. In
addition to the other limitations imposed upon McMoRan's authority to
commit Participant hereunder, once the actual and committed Exploration
Expenditures reach the budgeted total, it is understood and agreed that
McMoRan (i) will not undertake any additional drilling commitments on
behalf of the Exploration Program, and (ii) will not acquire any additional
Leasehold Interests on behalf of the Exploration Program. Additionally,
McMoRan shall not make any commitment on behalf of the Program for the
drilling of any well which is anticipated to commence more than six (6)
months after the end of the Program Term.
<PAGE>
6.3 Budget Meetings and Reports.
(a) On a quarterly basis, McMoRan shall hold a meeting in McMoRan's
offices with Participant to discuss the contemplated activities of the
Program for the following period. In such meetings, McMoRan shall advise
Participant of the amounts of the Exploration Fund which have been
committed to Prospects on which an Exploratory Well has not yet commenced.
Such advise shall include the name of the Prospect, the amount of the
Exploration Fund anticipated to be spent thereon and the anticipated
commencement date of the Exploratory Well to be drilled thereon. On a
monthly basis, McMoRan shall provide Participant with an accounting of the
Exploration Expenditures of the prior month and Program Term to date
reconciling prior billings and advance billings with expenditures. McMoRan
will promptly advise Participant in writing when McMoRan reasonably
believes that actual and committed Exploration Expenditures of the Program
equal the Exploration Fund and will furnish reasonable data supporting such
conclusion. In addition to the foregoing, McMoRan will furnish Participant
on request and at Participant's expense any other data or information
needed by Participant to comply with any governmental laws, rules and
regulations, including those promulgated by the Securities and Exchange
Commission.
VII.
Scientific Studies and Information
7.1 Scientific Studies and Information. During the Program Term,
McMoRan shall conduct geological, geophysical, engineering and other
scientific studies with respect to the acquisition and/or exploration of
Leasehold Interests ("Scientific Studies") in the Program Area and the cost
thereof shall be Exploration Expenditures.
It is agreed that any seismic records, and other exploration data (not
including any interpretation thereof by McMoRan or its Technical
Consultants prior to the time a Prospect based thereon has been designated
by McMoRan hereunder) that may be acquired by McMoRan under the terms of
this Agreement shall become and remain the joint property of McMoRan,
Participant and other members of the McMoRan Group. If McMoRan designates
a Prospect under Paragraph 8.1 hereof affecting such acquired data, McMoRan
shall at such time furnish copies of all such data, upon written request of
Participant, including geological and geophysical maps, to Participant
unless McMoRan is prohibited from furnishing a copy or disclosing it to
Participant under the agreement by which McMoRan acquired such data.
Except as otherwise provided in this Agreement, Participant shall be
permitted full access to such data in McMoRan's offices unless prohibited
from doing so under the agreement by which McMoRan acquires such data.
McMoRan shall not be precluded from entering into data exchange agreements
which McMoRan in good faith believes will benefit the Program and all data
acquired pursuant to any such exchange agreement shall be the joint
property of McMoRan, Participant and other members of the McMoRan Group.
During and after the Program Term, McMoRan shall have the exclusive right
to sell any such data which McMoRan in good faith believes no longer must
be kept confidential for the purposes of the Program and the proceeds of
such sale shall be shared by the Participant, McMoRan and the other members
of the McMoRan Group on the same basis as the said parties own such data.
At the end of the Program Term, McMoRan shall identify seismic records and
other pertinent acquired data (not including any interpretation thereof by
McMoRan or its Technical Consultants) as to which Prospects have not been
<PAGE>
designated during the Program Term and McMoRan shall, upon written request
by Participant, provide it copies of all or any part of such data, unless
prohibited from doing so under the agreement by which McMoRan acquired such
data. Notwithstanding anything herein to the contrary, Participant shall
not have or acquire any property interest in any interpretations by McMoRan
or its Technical Consultants of any seismic or other exploration data
unless and until a Prospect based thereon has been designated by McMoRan
hereunder.
VIII.
Prospects
8.1 Prospects. From time to time McMoRan will obtain information upon
which it can determine and define a particular portion of the Program Area
with sufficient specificity as to be identified as a Prospect. The term
"Prospect" means a contiguous area which can reasonably be interpreted from
geological and/or geophysical data as encompassing a geological structure,
stratigraphic trap or other common geologic feature which makes its
treatment as a single Prospect for oil and gas production purposes
reasonable and some portion of which is considered prospective for
commercial oil or gas production and is designated as such pursuant to this
Article VIII. Based on such information, McMoRan shall from time to time
designate an area as a Prospect of the Program. The size and configuration
of a Prospect, as well as all details incident thereto, shall be determined
by McMoRan. During the Program Term, McMoRan alone shall determine the
time when an area is designated as a Prospect, whether or not Leasehold
Interests have previously been acquired therein. After the Program Term
and in accordance with Paragraph 8.2 hereof, any member of the McMoRan
Group shall have the right to designate a Prospect which includes Leasehold
Interests theretofore acquired through the Program. Without the prior
consent of Participant, McMoRan shall not commit to the Program any
Prospects which (1) McMoRan's economic analysis indicates will not have at
least a before taxes rate of return of twenty-five (25) percent, or (2) the
water depth for the first expected platform location is greater than 1,000
feet.
At the time that McMoRan designates a Prospect it shall furnish to
Participant a land plat showing the approximate outline of the Prospect and
the proposed AMI therefor. Subject to Paragraph 5.2, McMoRan shall as soon
as possible thereafter, upon written request of Participant, furnish
Participant (to the extent not previously furnished) with all pertinent
data then available with respect to the evaluation of such Prospect for oil
or gas development excluding only such data as McMoRan is prohibited from
disclosing by reason of confidentiality agreements with third parties
respecting such data. Such data shall include a land and geophysical or
geological report on such Prospect, including with respect to the drillsite
for the first Exploratory Well proposed to be drilled thereon, a land plat,
farmin, farmout and other trade agreements, copies of leases, drilling
title opinions, assignments, unit designation agreements, operating
agreements and other documents necessary for Participant to maintain
adequate records relative to such Prospect and operations thereon, together
with such of the following, as and when available, which are applicable to
each such Prospect:
(a) An itemized list of all Exploration Expenditures charged to such
Prospect;
(b) An itemized estimate of probable additional costs which may have
to be incurred in connection with such Prospect;
<PAGE>
(c) Any other information in McMoRan's possession relevant to an
evaluation of such Prospect, including geological data, including but not
limited to cross-sections, maps, key logs, and geophysical data, including
copies of proprietary reprocessed data, sepias of lines; and
(d) A description of the primary geologic objective and prospective
zone(s) for which the Prospect was acquired.
At the time each such Prospect is designated, McMoRan will separately
allocate to it all Exploration Expenditures thereto-fore incurred and
properly attributable to such Prospect, including but not limited to those
expenditures made pursuant to Paragraph 4.1 above.
8.2 Designation of Prospects After Program Term. To the extent any
Leasehold Interests acquired by the Program are not included in Prospects
designated by McMoRan on or prior to the end of the Program Term, then
after such date any member of the McMoRan Group or their respective
successors in interest shall have the right to propose a Prospect at the
time that it proposes an Exploratory Well thereon. The geographic limits
of such Prospect so designated shall meet the criteria set forth in
Paragraph 8.1 and the AMI therefor shall be subject to the provisions of
Article XIII hereof.
IX.
Drilling of Exploratory Wells
9.1 During Program Term. During the Program Term, at the same time as
McMoRan designates a Prospect under Paragraph 8.1 above or thereafter when
it commits the Exploration Fund to the drilling of an Exploratory Well
thereon or as soon as possible after McMoRan has received notice from a
third party joint interest owner that it proposes the drilling of a well
thereon, McMoRan shall provide to Participant (if not previously furnished
and requested in writing by Participant) the following information:
(a) An AFE for such well both as a dry hole and as a completed well;
(b) A land plat depicting the Prospect, the proposed AMI for such
Prospect and the Program's Leasehold Interests within the AMI for such
prospect;
(c) A schedule of the Program's Leasehold Interests in the Prospect
AMI;
(d) Maps depicting McMoRan's geological and geophysical
interpretations of the Prospect;
(e) McMoRan's economic analysis of the Prospect's potential and
timing and estimated costs to develop, including description of facilities
to be used, if then known;
(f) Information as to whether any other third party joint interest
owner has elected to join or not to join in the drilling of such well;
<PAGE>
(g) The surface location, proposed bottom hole location, proposed
depth and well prognosis including casing program, mud program and logging
program for such well (to the extent available in those cases where a third
party is the operator of the well) and any other information in McMoRan's
possession relevant to an evaluation of such well; and
(h) Any acreage or cash contribution pledged in support of the
proposed operation.
Beginning with the permitting process for any Exploratory Well drilled
hereunder, and continuing through the drilling and completion, temporary
abandonment or plugging and abandonment for such well, McMoRan shall
provide the following information if requested in writing by Participant
(to the extent available to McMoRan and not previously furnished):
(a) name of well, name of Prospect, and identification number;
(b) drilling permits, plugging and abandonment permits and permission
to produce;
(c) all daily drilling reports, State completion reports, well
completion schematic diagram, stimulation reports and workover reports;
(d) all core analyses, fluid analyses, PVT. analyses, water sample
analyses;
(e) all pressure survey, DST reports, and pressure buildup or
drawdown data;
(f) all well logs.
9.2 After Program Term. Subject to Paragraph 19.2 hereof, after the
Program Term, McMoRan or Participant shall have the right to propose the
drilling of an Exploratory Well or a Development Well on any Prospect. The
terms and provisions of the applicable Program Operating Agreement shall
govern any such proposal.
X.
Farmout or Participation Agreements
10.1 Participation Agreements. During the Program Term, if in the
process of evaluation of a Prospect the data and information lead McMoRan
to the good faith determination that because of the large expenditures
required, the extraordinary risk involved or other facts deemed relevant by
McMoRan, an outside venturer should be obtained in such Prospect, McMoRan
shall have the right to undertake to negotiate an agreement with a third
party to join in the drilling of the Exploratory Well on the Prospect and
thereby acquire a portion of the Exploration Program's interest in such
Prospect; provided, however, that if any such agreement would reduce the
interest of the Exploration Program by more than fifty percent (50%),
McMoRan must obtain the prior approval of Participant. McMoRan shall give
notice to Participant of its intention to negotiate an agreement with an
outside venturer which would reduce the interest of the Exploration Program
by more than fifty percent (50%), stating the time within which the
circumstances require an expression of approval or disapproval by the
Participant. Failure of Participant to disapprove the proposed negotiation
within the stated period of time may be deemed by McMoRan to be approval by
<PAGE>
Participant. Any agreement with an outside venturer shall be on the basis
of the outside venturer paying and bearing not less than the proportionate
part of all drilling costs and expenses of the Exploratory Well
attributable to the undivided interest transferred to such outside
venturer, and the interest in the Prospect transferred to or earned by such
outside venturer shall reduce the respective interests of McMoRan and
Participant proportionately. Any promotion or other consideration received
by McMoRan incident to such agreement with an outside venturer shall be
held for the benefit of the Exploration Program and the members of the
McMoRan Group shall be entitled to participate therein in proportion to
their interest in the Prospect. The foregoing provision shall not be
applicable to McMoRan's transaction with other members of the McMoRan Group
so long as the interest of Participant set forth in Article III is
maintained.
10.2 Farmout Agreements. During the Program Term McMoRan shall have
the right to enter into farmout agreements with unrelated third parties on
such terms as it deems appropriate respecting Leasehold Interests or
portions thereof which are not anticipated to be drilled or committed to be
drilled by the Exploration Program during the Program Term; provided,
however, McMoRan shall keep Participant advised as to any such farmout
proposals or plans and shall honor the request of Participant that its
interest in such Leasehold Interests or Prospect not be farmed out if
Participant advises McMoRan within ten (10) days, or forty-eight (48) hours
if a drilling rig is on location with stand-by rig charges accumulating, of
McMoRan's notice of intention to farmout that it will participate as to its
ownership interest in the drilling of the anticipated farmout well.
McMoRan shall not farmout any of Participant's Interest in a Prospect
on which the Program has a producing well without the prior consent of
Participant.
10.3 Trade Agreements. During the Program Term, in connection with the
drilling of an Exploratory Well on a Prospect, McMoRan shall have complete
authority to enter into unit agreements, acreage swap agreements, bottom
hole and dry hole contribution agreements and any similar agreements with
unrelated third parties. The cost or proceeds of any of the forgoing
agreements shall be credited or charged to the members of the McMoRan Group
(1) in the proportion that such parties participated in the drilling of the
affected Exploratory Well, or (2) if the costs relate to the payment by the
Exploratory Program of a dry hole or bottom hole contribution to a third
party, in the proportion that such parties bear Exploration Expenditures
hereunder, and any interest in leases or oil or gas thus acquired by
exchange shall constitute Leasehold Interests subject hereto and be owned
by the members of the McMoRan Group in proportion to their ownership
interest in such Prospect.
<PAGE>
XI.
Burdens
11.1 Burdens. The Leasehold Interests to be acquired by the Program
shall be subject to and McMoRan and Participant each shall bear its
proportionate part of all third party overriding royalties and other
burdens on Leasehold Interests (including subsequently acquired Leasehold
Interests in the Prospect AMI) which McMoRan contracts for incidental to
the acquisition or evaluation of such Leasehold Interests. Participant
acknowledges that McMoRan has heretofore entered into a retainer agreement
with a Technical Consultant and may enter into similar agreements with
others during the Program Term. Without the consent of Participant,
McMoRan agrees not to subject any Leasehold Interests to overriding royalty
burdens to its Technical Consultants which exceed the amounts deliverable
to its current Technical Consultant, CLK Company, L.L.C.(CLK),under their
existing agreement as described in the letter to Participant dated the date
hereof. McMoRan has provided Participant with a copy of its current
consulting agreement with CLK and Participant agrees that it will bear its
proportionate part of the overriding royalties to which CLK is entitled
pursuant to the terms of said consulting agreement as to any Leasehold
Interests acquired hereunder as well as to any Leasehold Interests that
Participant may acquire pursuant to an AMI agreement subject hereto.
XII.
Operating Agreement
12.1 Operating Agreement. Except as otherwise provided in this
Agreement, all operations on each Prospect will be carried out in
accordance with the provisions of the Program Operating Agreement, Offshore
or Onshore as applicable, with charges and credits to the join account to
be made in accordance therewith, including all overhead as to the drilling
of Development Wells. In the event of conflict between the terms of the
Program Operating Agreement and the terms of this Agreement, this Agreement
shall control. A particular Leasehold Interests or Prospect may be subject
to a different form of operating agreement (third party) with one or more
third parties not related to McMoRan, which operating agreement (third
party) shall apply and control at the time it becomes effective in the
event of conflict therewith and the Program Operating Agreement. In the
event of conflict between such operating agreement (third party) and this
Agreement (other than the Program Operating Agreement), this Agreement
shall control as between McMoRan and Participant.
<PAGE>
XIII.
Area of Mutual Interest
13.1 Third Party Area of Mutual Interest Agreements. McMoRan may be
obligated to enter into third party AMI agreements in connection with the
acquisition of additional Prospects for the Program. Participant agrees to
be bound by the provisions of such AMI agreements.
13.2 Program Area of Mutual Interest Agreement. At the time a Prospect
is identified by McMoRan pursuant to Paragraph 8.1 hereof, there shall be
created an Area of Mutual Interest among McMoRan, Participant and the other
members of the McMoRan Group. The lands within such Area of Mutual
Interest shall include the involved Prospect and shall be fixed and
determined in the following manner:
(a) McMoRan shall submit to Participant and the other members of the
McMoRan Group a plat delineating the area which it determines on a sound
geological basis should be considered as the area which, even though
outside the boundaries of the Prospect, should be considered an area of
mutual interest in connection with the Prospect.
(b) In the event that Participant does not accept the proposed area
of mutual interest, consultation shall be had between McMoRan and
Participant and the other members of the McMoRan Group in an effort to fix
and determine the area to constitute the area of mutual interest.
(c) If McMoRan and the other members of the McMoRan Group are able to
agree on such area, the area agreed upon shall constitute the Area of
Mutual Interest, or if agreement cannot be reached, the area of the
Leasehold Interests as to a Prospect all of which is under Federal leasing
jurisdiction, or as to any other Prospect the area within one-half (1/2)
mile surrounding the outer perimeter of the Prospect, shall constitute the
Area of Mutual Interest; provided however, any such AMI shall not include
any portion of an Excluded Area.
The AMI shall be effective so long as any Leasehold Interests in such
AMI is owned by any of the parties or is subject to this Agreement, but in
no event longer than the earlier of (i) December 31, 2006 or (ii) one (1)
year after the plugging and abandoning of an Exploratory Well thereon
unless another Exploratory Well has been commenced thereon or McMoRan
and/or another member(s) of the McMoRan Group have agreed to install a
drilling and production platform on such Prospect within such one (1) year
period.
Any acquisition of Leasehold Interests within such AMI after the
establishment thereof by McMoRan or Participant or any other member of the
McMoRan Group shall be made available to be shared by McMoRan, Participant
and the other members of the McMoRan Group. Subject to the rights of any
third party under third party AMI agreements as described in Paragraph
13.1, each party shall have the option to participate in any such
acquisition in the proportion as such party's then interest in such
Prospect as compared to the total interest of the McMoRan Group, which
option is to be exercised in the following manner: the acquiring party
shall notify each of the other parties of such acquisition, furnish a copy
thereof and such title information as the acquiring party has, stating the
cost of such acquisition and/or obligations that must be assumed in
connection therewith. Each of the other parties shall have a period of
<PAGE>
fifteen (15) days with respect to the interests not related to a drilling
well, and forty-eight (48) hours (or such lesser period as required by the
circumstances and stated in the notice) with respect to interests related
to a drilling well, after receipt of such notice within which to elect and
notify the acquiring party whether or not such party desires to participate
in such acquisition. Failure to respond shall be deemed an election on the
part of such party not to participate in such acquisition. Upon election
and payment to the acquiring party of such other party's share of the cost
of such acquisition and assumption of its share of such obligations, such
other party shall be entitled to an assignment of its pro rata share of
such party's interest in such acquisition. The foregoing provision of this
paragraph shall not apply nor shall they alter Participant's obligation to
purchase its proportionate part of any Leasehold Interests acquired by
McMoRan hereunder in those cases where the costs of acquiring such
interests are Exploration Expenditures.
In the event any party does not elect to participate in an interest
tendered to it under this Paragraph 13.2 the participating parties may,
within twenty-four (24) hours after notice thereof, elect to take their
proportionate shares of the non-participating party's interest. Time
periods expressed in this Paragraph 13.2 are inclusive of Saturdays,
Sundays and legal holidays.
The provisions of this Paragraph 13.2 shall not be applicable to
acquisitions by any party hereto of an interest acquired from any other
member of the McMoRan Group or through merger, corporate reorganization or
consolidation with or purchase of all or substantially all of the assets of
a corporation, an individual or a partnership; provided, however, that the
primary purpose of such merger, corporate reorganization, consolidation or
purchase is not to acquire Leasehold Interests in a specific Prospect which
otherwise would be subject to this Agreement.
McMoRan agrees to furnish Participant with a list of names, addresses,
persons designated to receive notices and the proportional interest of each
of the other members of the McMoRan Group who have a right to participate
in acquisitions made by Participant within an AMI. Additionally, McMoRan
agrees to secure reciprocal obligations in favor of Participant from each
of the other members of the McMoRan Group.
XIV.
Assumption of Interest
14.1 Assumption of Interest. If any member of the McMoRan Group
exercises its right (where it has such right) to decline to participate in
an acquisition of Leasehold Interests, the members of the McMoRan Group
participating therein may, within five (5) days after notice thereof, elect
to take their proportionate share (i.e. in the proportion which the
ownership interest of each such participating party bears to the ownership
interest of all such participating parties) of the non-participating
party's interest. If the participating party(s) do not agree to assume all
of the interest which would have been assumed by the non-participating
party(s), then the acquisition shall not be carried out.
<PAGE>
XV.
Ownership of Production
15.1 Ownership of Production. All the oil, gas and casinghead gas
produced for the account of the Leasehold Interests from any well shall be
owned by McMoRan, Participant and by the other members of the McMoRan Group
severally, in proportion to the respective interests of each therein as set
forth in Paragraph 3.2. above, except as otherwise provided in this
Agreement, and subject to the right, if any, that others may have under the
terms of this Agreement or any operating agreement relating to such well.
Anything to the contrary herein notwithstanding, each party shall at all
times have the right to take in kind or separately dispose of such party's
share of the production from any such well, subject to the provisions of
the applicable Program Operating Agreement. McMoRan shall, however,
attempt to give Participant at least seven (7) days advance written notice
of the anticipated date of first deliveries of any production from a
Prospect.
XVI.
Relationship of the Parties
16.1 Tax Partnership. This Agreement is not intended and shall not be
considered to create a partnership within the meaning of the federal common
law or under the applicable laws of any state or under the laws of the
state in which any party hereto is incorporated, organized or conducting
business or to create a relationship whereby any of the parties shall be
held liable for the acts, either of omission or commission, of any other
party thereto; provided, however, that in the event a party should suffer a
loss by reason of an unauthorized act of the other party hereto, the latter
shall indemnify and save harmless the former.
The parties expressly agree that no party hereto shall be responsible
for the obligations of any other party, each party being severally
responsible only for its obligations arising hereunder and liable only for
its allocated share of the costs and expenses incurred hereunder. It is
not the purpose or intention of this Agreement to create, and this
Agreement should never be construed as creating, a relationship whereby any
of the parties shall be held liable for acts, either of omission or
commission, of any other party hereto. Notwithstanding the foregoing, each
party hereto agrees that this Agreement creates a partnership for Federal
and State income tax reporting purposes only, which tax partnership shall
function and exist in accordance with the terms and provisions of Exhibit
IV attached hereto. McMoRan agrees to provide to the Participant on a best
efforts basis, by April 30th of each year, any information available to it
relating to operations conducted pursuant to the Program that is necessary
for Participant to prepare Schedule K-1 of its federal income tax return.
XVII.
Billings; Notices
17.1 Billings; Notices. All billings and notices shall be as provided
in the applicable Program Operating Agreement.
<PAGE>
XVIII.
Special Non-Consent Elections
18.1 Casing Point Election - Onshore Prospects. At such time as an
Exploratory Well has been drilled to the final total depth on an Onshore
Prospect, McMoRan shall notify Participant that the Casing Point has been
reached on such well, and whether or not McMoRan recommends that an attempt
be made to complete such well. McMoRan shall also furnish, if requested in
writing by Participant, the estimated costs of completing and equipping the
well and plugging and abandoning same if the completion is unsuccessful,
and all well logs, core analyses and other information in its possession
not theretofore furnished relevant to evaluation of a completion attempt.
Within forty-eight (48) hours (inclusive of Saturday, Sunday and legal
holidays) of receipt of such recommendation, Participant shall advise
McMoRan whether or not it desires to participate in the recommended
completion attempt. If McMoRan and Participant agree to attempt completion,
McMoRan shall thereupon be authorized to proceed with the completion
attempt and to charge the cost thereof as a Development Expenditure;
provided, however, the cost of plugging and abandoning the well shall be
charged as an Exploration Expenditure if the completion attempt is
unsuccessful. If Participant does not elect to participate in such
completion attempt, it shall have no further rights hereunder as to the
Prospect involved. If McMoRan recommends abandonment without a completion
attempt, McMoRan shall have the well plugged and abandoned, charging the
cost thereof as an Exploration Expenditure. Additionally, if Participant
does not elect to participate in a second or subsequent Exploratory Well in
a particular Prospect, Participant shall have no further rights hereunder
as to the Prospect involved.
18.2 Elections Prior to Platform Installation - Offshore Prospects. If
Participant does not elect to participate in (a) the drilling of any well
on an Offshore Prospect proposed by McMoRan to be drilled after the
drilling of the first two (2) Exploratory Wells thereon and prior to the
installation of the first drilling and/or production platform on such
Prospect or (b) Participant does not elect to participate in the
installation of the first drilling and/or production platform on such
Prospect, the Participant shall have no further rights hereunder as to the
Prospect involved.
18.3 Time Periods. Whenever an election right is provided in the body
of this Agreement and no time period for response is stipulated then the
applicable time periods provided in the applicable Program Operating
Agreement shall apply.
18.4 Completion Attempt by Participant - Onshore. If McMoRan does not
recommend the completion of an Onshore Exploratory Well and Participant
advises McMoRan within forty-eight (48) hours (inclusive of Saturday,
Sunday and legal holidays) of the receipt by Participant of such
recommendation from McMoRan that Participant elects to attempt to complete
such well, McMoRan shall undertake the completion thereof, and any
subsequent plugging and abandoning thereof, for the account of Participant
and Participant shall bear all costs, risks and expenses of such completion
attempt and abandonment thereof and Participant agrees to indemnify and
hold McMoRan harmless therefrom. If such completion attempt is successful
McMoRan will assign Participant all of its interest in the borehole of such
<PAGE>
well and any production therefrom, but such assignment shall not confer any
additional interest to the Participant in the balance of the particular
Prospect involved.
XIX.
Program Term
19.1 Program Term. The Program Term shall commence on December
15, 1997 and shall terminate, except for completion of operations which
were theretofore commenced or committed, on the earlier of March 31, 2002,
or the date that all of the Exploration Fund has been spent or committed.
At the end of the Program Term, McMoRan shall provide Participant with a
list (the "Committed List") of the undrilled wells, Prospects and farmout
agreements as to which it has committed the Exploration Fund. Once such
Committed List has been provided to Participant, no substitution shall be
made by McMoRan without the consent of Participant.
19.2 Unfunded Prospects. At the same time as McMoRan submits the
Committed List, McMoRan shall also submit a listing of all Prospects which
would have been committed to the Exploration Program except for the fact
that the Exploration Fund had been fully expended and/or committed. Within
fifteen (15) days of receipt of such listing from McMoRan, Participant will
have the option to commit additional funds to the Exploration Fund for the
drilling of the first Exploratory Well on any such Prospect or Prospects or
to advise MOXY that it does not elect to so commit any such additional
funds. If the Participant does so commit, the drilling of such first
Exploratory Well on a Prospect where Participant commits such additional
funds shall be charged as Exploration Expenditures and shall be deemed
included in the Committed List. If the Participant does not commit such
addi-tional funds for a Prospect on such listing, MOXY shall have the right
to acquire Participant's interest in such Prospect, free of any liens,
burdens, or overriding royalties not provided for by Article XI hereof, by
reimbursing Participant for any direct costs incurred by Participant in
acquiring Leasehold Interests in such Prospect; if MOXY so reimburses
Participant, such Prospect shall be excluded from this Agreement and
Participant shall have no further right hereunder as to such Prospect.
XX.
Operations After Program Term
20.1 General. After the Program Term, all Leasehold Interests of the
Program will be subject to the provisions of the applicable Program
Operating Agreement and the provisions of this Agreement except as set
forth in Paragraph 19.2 and this Article XX. Any Leasehold Interests which
is included in a Prospect on which an Exploratory Well has been committed
as shown on the Committed List shall become subject to this Article XX
after the drilling of such committed well.
20.2 Exploratory Wells. After the Program Term, McMoRan and/or
Participant shall have the right to propose the drilling of an Exploratory
Well on a Prospect in accordance with Paragraph 9.2 hereof.
20.3 Development Expenditures. All Development Expenditures shall be
borne by the parties according to their interest and subject to the
provisions of the applicable Program Operating Agreement, whether incurred
before or after the Program Term.
<PAGE>
20.4 Provisions Which Do Not Survive the End of the Program Term. From
and after the end of the Program Term, McMoRan shall have no right to
commit Participant to any expenditures except in accordance with the
applicable Program Operating Agreement and with respect to the conclusion
of then drilling or committed operations. McMoRan shall have no obligation
thereafter to offer Participant the right to acquire any Leasehold
Interests unless such acquisition is subject to an AMI agreement with
Participant. Further, McMoRan shall have no further right to bind
Participant's interest to any trade agreement except as may be expressly
authorized by Participant.
XXI.
Confidentiality.
21.1 Confidentiality. Except to the extent provided to the contrary
hereunder and subject to any agreements with third parties entered into
pursuant to the Program, each party agrees that at all times prior to, but
not after, December 31, 2007, it will take all reasonable steps to keep
secret and confidential and not disclose to any third party, geological or
geophysical data, progress reports or other information which it may
receive as a result of operations carried out under this Agreement;
provided, however, that these restrictions shall not apply to information
which (i) is in, or has entered into, the public domain without breach of
the provisions of this Paragraph 21.1; (ii) is in the possession of a party
receiving same as a result of prior receipt thereof from another party (not
a party to this Agreement) prior to the time of such receipt under this
Agreement, (iii) may lawfully be obtained as a matter of right by the party
receiving same from another source, (iv) is required to be disclosed by law
or the rules of any governmental agency or an applicable stock exchange, by
McMoRan or Participant, or (v) is furnished to Affiliates, or to bona fide
prospective purchasers, mortgagees, prospective mortgagees, lenders,
prospective lenders, prospective joint program participants and consultants
for evaluation purposes provided that any person furnished information
pursuant to this clause (v) agrees not to communicate such information to
any other party or to use it for their own benefit in a manner adverse to
the interests of the McMoRan Group. Notwithstanding the foregoing, the
parties recognize that from time to time information (such as logs) may be
acquired by the Program which should not be disclosed to anyone other than
those persons who must have such information. Each party shall take all
reasonable steps to require its employees and consultants to be bound by
the provisions of this paragraph in the same manner as it is bound
hereunder. News releases concerning discoveries or operations of the
Program shall only be made in accordance with guidelines attached to the
applicable Program Operating Agreement, subject to the requirements of
applicable laws and regulations and requirements of applicable stock
exchanges.
<PAGE>
XXII.
Insurance
22.1 Insurance for Program. McMoRan shall, at the expense of the
Exploration Program, procure and maintain with responsible companies
insurance in the amounts and covering the risks set forth below:
(a) Worker's Compensation:
Such insurance shall be in full compliance with the law in the
state where the work is to take place and shall contain a
voluntary compensation endorsement and a waiver of subrogation as
to Participant. Where applicable, coverage shall also be
provided to comply with the:
(i) U.S. Longshoremen's and Harbor Worker'sCompensation Act, and
the
(ii) Outer Continental Shelf Lands Act.
(b) Employer's Liability:
Such insurance shall have a limit of liability of $500,000 per
accident and shall be endorsed, where applicable, to provide:
(i) Maritime (Amendment to Coverage B), to include
transportation, wages, maintenance and cure.
(ii) A claim "in rem" will be treated as a claim "in personam".
(iii)A waiver of subrogation as to Participant.
(c) Comprehensive General Liability Insurance:
Such insurance shall have a limit of $1,000,000 per occurrence
and shall be endorsed, where applicable, to provide:
(i) Deletion of the watercraft exclusion.
(ii) Contractual liability coverage.
(iii)That Participant be named as an additional insured.
(d) Control of Well Insurance in the minimum amount of
$50,000,000 for the total loss, endorsed to name
Participant as an additional insured.
(e) All vessels owned or chartered by McMoRan shall be adequately
covered by Hull and Protection and Indemnity Insurance.
(f) No insurance other than as specified above shall be provided by
McMoRan.
(g) McMoRan shall require contractors and subcontractors performing
work for the Program to provide such insurance as deemed reasonable by
McMoRan in relation to the work to be performed by said contractors or
subcontractors.
(h) Upon request, certificates of insurance evidencing the insurance
obtained by McMoRan hereunder shall be furnished to Participant.
<PAGE>
(i)Unless otherwise agreed in writing, McMoRan and Participant shall
separately carry their own policies of the following insurance:
(i) Where applicable, Blanket Charters' Legal Liability and Cargo
Legal Liability with a limit of liability of $500,000.
(ii) Umbrella liability Insurance in the amount of$25,000,000
excess of all primary limits.
(iii) Above insurance coverages including, but not limited to, any
and all deductibles, self-insured retentions or primary layers,
shall contain waivers of subrogation as to McMoRan and
Participant.
XXIII.
Record Title, Assignment
23.1 Record Title. For convenience, McMoRan shall initially hold
record title to the Leasehold Interests acquired hereunder; provided
however, upon written request by Participant, McMoRan will, within 120 days
following the completion by the Program on an Onshore Prospect of a well
capable of producing in paying quantities, or within 120 days following the
installation of the first drilling and/or production platform on an
Offshore Prospect by the Program, as applicable, execute and deliver to
Participant a recordable assignment of Participant's interest in all
Leasehold Interests in such Prospect, unless Participant has no further
rights hereunder as to a particular Prospect as the result of a decision
not to participate pursuant to Paragraph 18.1, Paragraph 18.2 or Paragraph
19.2, as applicable. Notwithstanding the foregoing, if a Prospect involves
the acquisition of a Leasehold Interests from a third party, the period
hereinabove provided for the delivery of assignments shall be extended, if
required, until 60 days following the receipt of an assignment of interest
by McMoRan from such third party; provided however, in the event that such
an assignment requires the approval of a governmental authority then such
period will be extended for 60 days following the receipt by McMoRan of the
required approval from the governmental authority. In addition, at the end
of Program Term McMoRan shall execute and deliver to Participant a
recordable assignment of Participant's interest in any other Leasehold
Interests not previously conveyed to Participant during the Program Term
pursuant to any provision of this Agreement. Such assignment shall warrant
title against all parties claiming by, through or under McMoRan, but not
otherwise; but McMoRan shall assign to Participant, with full right of
subrogation, to the extent so transferable, the benefit of and the right to
enforce the covenants and warranties, if any, which McMoRan is entitled to
enforce with respect to the interest assigned or any part thereof. Each
assignment shall be subject to this Agreement and shall be charged with and
burdened by the proportionate part of the royalties provided for in each
lease covered thereby, any overriding royalty or similar interest with
which such Leasehold Interests are burdened as authorized by Paragraph 11.1
hereof and any other contracts or agreements with which such Leasehold
Interests are burdened by McMoRan as expressly authorized by other
provisions of this Agreement and which continue to burden such Leasehold
Interests at the time of such assignment. If, however, there are
restrictions on assignability with respect to a Prospect or Leasehold
Interests prohibiting McMoRan as nominee for the Program from transferring
interests in such Prospect or Leasehold Interests, McMoRan shall continue
to hold record title in its name on behalf of the parties owning interests
therein rather than for the Program, and at the request of such parties
will execute a mutually acceptable nominee agreement.
<PAGE>
23.2 Assignment. Except as permitted below, without the prior written
consent of the other party, neither McMoRan nor Participant shall assign
any rights in this Agreement. Until the Program has completed a well
capable of production in Paying Quantities on an Onshore Prospect or prior
to the election provided in Paragraph XVIII hereof as to an Offshore
Prospect, or the end of the Program Term, whichever first occurs, no party
hereto may assign its interest in the Leasehold Interests within said
Prospect acquired pursuant to the Program without first obtaining the
consent of the other party hereto (which approval will not be unreasonable
withheld); provided that granting of a lien or security interest by any
party shall not require such consent. The assignees of any Leasehold
Interests acquired pursuant to the Program shall be bound by all of the
assignor's obligations with respect to such Leasehold Interests as to the
interest assigned. Notwithstanding the foregoing, either Participant or
McMoRan without the necessity of obtaining consent may transfer all or any
part of its interests and rights in this Agreement or in any Prospect to
any Affiliate provided that the assigning party shall remain liable
hereunder.
XXIV.
Subsequent Interests
24.1 Subsequent Interest. Except with respect to burdens described in
Paragraph 11.1, or as otherwise provided in this Agreement, a party who
creates any burden against such party's interest in any Leasehold Interests
shall be solely responsible for such burden; and in the event such party is
required, pursuant to other provisions of this Agreement including the
applicable Program Operating Agreement or a third party operating
agreement, to assign its interest in any Leasehold Interests to any other
party, such assignment shall convey and vest title to such interest in such
assignee free and clear of any such burden.
XXV.
General
25.1 Records. McMoRan shall maintain complete and accurate records of
all Leasehold Interests acquired and held hereunder, the acquisition and
disposition of all equipment hereunder, and of all expenditures made
hereunder in accordance with generally accepted industry standards.
McMoRan will maintain complete and accurate records of all correspondence
with any operator who may be operating properties in which the parties
hereto have an interest under this Agreement, and will retain a copy of all
statements, bills and other instruments furnished by any such operator in
accordance with generally accepted industry standards. Such records,
together with receipts, vouchers and other supporting evidence thereof in
McMoRan's possession and control, will be available for inspection, copying
and audit by Participant or its duly authorized representatives on
reasonable notice at McMoRan's office during regular business hours then in
effect. Participant's right to audit McMoRan's records for the purpose of
challenging the correctness of any charge made by McMoRan hereunder shall
terminate as provided in the accounting procedure attached to the Program
Operating Agreement. Participant shall be entitled to join McMoRan in any
audit made by McMoRan of the records of third party operators of properties
in which Participant acquired an interest under this Agreement. At the
request of Participant, McMoRan shall conduct or cause to be conducted an
audit of the records of any such third party operator hereunder, said audit
right to be as specified in such third party agreement including the
<PAGE>
polling of other non-operators to determine if they desire to participate,
at which time McMoRan may decline to participate and therefore not bear any
cost related to such audit. In addition, Participant shall have the same
audit rights as held by McMoRan under third party agreements including the
right to elect participation in any audit performed by another non-operator
if McMoRan elects not to participate in such audit and Participant shall
receive copies of all reports of joint venture audits which are conducted.
25.2 Access. Participant or its duly authorized represen-tative shall
have access at all reasonable times, at its expense and risk, to the
derrick floor of any well being drilled hereunder in which Participant is
participating; and Participant shall have the right to inspect all
materials on hand for the account of the Program and to observe any such
operations conducted hereunder.
25.3 Claims and Litigation. Except as to matters arising with respect
to a particular Prospect after the Program Operating Agreement has become
applicable as to all further operations thereon under the provisions of
this Agreement (as to which the provisions of such Program Operating
Agreement will govern), all investigation, litigation and settlements in
connection with titles, claims and causes of action of every kind and joint
rights and interests of the members of the McMoRan Group in the Program
Area in connection with the Program shall be carried on, conducted and
defended for and on behalf of all members of the McMoRan Group involved.
Each party shall notify the others of any process served upon it in any
such suit or claim. Where a claim has been made or a suit has been filed
against McMoRan or Participant or any other member of the McMoRan Group for
damages caused by or arising out of operations the expense of which is
charged to the Exploration Fund as authorized herein, McMoRan shall retain
legal counsel to handle the defense of such suit or claim and notify
Participant and other members of the McMoRan Group involved of the
retention of such legal counsel. The cost of such legal services shall be
charged in the same manner as Exploration Expenditures are charged.
Participant may, if it so chooses, elect to retain its own legal counsel
(at Participant's expense) to defend its interests in any such suit or
claim; and in such event the claim or suit shall be defended by a committee
of attorneys selected by and representing the separate interests of the
respective members of the McMoRan Group (with each member of the McMoRan
Group being responsible for the fees and expenses of its own counsel), with
McMoRan's counsel as chairperson. All settlements of suits and claims
shall be subject to the approval of Participant; except that McMoRan may
settle any claim under $100,000 without first receiving Participant's
approval, provided the payment is in complete settlement. The costs and
expenses involved in those matters which are subject to the provisions of
this Paragraph 25.3 shall be shared and borne solely by the parties who
participated in such operation or Leasehold Interests in proportion to
their respective participation in the applicable operation or Leasehold
Interests. McMoRan agrees to keep Participant advised as to claims for
which Participant may be partly responsible hereunder.
25.4 Good Faith. McMoRan and Participant agree to act in good faith
with respect to their respective activities under this Agreement.
25.5 Governing Law. This Agreement and the documents provided for
herein shall be deemed to be governed by, and construed in accordance with,
the laws of the State of Louisiana.
<PAGE>
25.6 Failure to Respond. Except as provided in Paragraph 10.1 hereof,
whenever under this Agreement (exclusive of the applicable Program
Operating Agreement) Participant is given the right to approve or
disapprove or participate or decline to participate in a proposed operation
or acquisition, failure to respond shall be deemed a response to disapprove
or decline to participate in the proposed operation or acquisition unless
McMoRan is recommending and electing to plug and abandon a well, in which
event failure to respond shall be an election to plug and abandon.
25.7 Conflicts. Should there be any conflict between the body of this
Agreement and any Exhibit hereto, the provisions contained in the body of
this Agreement shall control.
25.8 Reciprocal Rights. All rights granted by Participant in this
Agreement to the other members of the McMoRan Group who are not parties to
this Agreement shall be reciprocal and McMoRan has entered or shall enter
into agreements which shall cause such other members of the McMoRan Group
to grant such reciprocal rights to Participant. To the extent necessary
for Participant and such other members of the McMoRan Group to enforce the
aforesaid reciprocal rights, Participant shall be designated as a third
party beneficiary in such other agreements and such other members of the
McMoRan Group are hereby designated as third party beneficiaries of this
Agreement.
25.9 Binding Effect. This Agreement shall be binding upon and inure to
the benefit of the parties hereto and their respective successors and
assigns; provided, however, nothing herein contained shall be construed as
permitting an assignment contrary to the terms and provisions of this
Agreement.
IN WITNESS WHEREOF, this Agreement is executed in multiple copies each
of which shall be deemed to be an original on December 19, 1997 but
effective as of the date first above written.
McMoRan Oil & Gas Co.
By:__________________________
Glenn A. Kleinert
Senior Vice President
Freeport-McMoRan Resource Partners,
Limited Partnership
By: Freeport-McMoRan Inc.,
its Administrative Managing General
Partner
By:_________________________
Robert M. Wohleber
Senior Vice President
<PAGE>
The remainder of the Exhibits to the Amendment to Participation
Agreement McMoRan 1997 Exploration Program between McMoRan Oil & Gas Co.
and Freeport-McMoRan Resource Partners, Limited Partnership dated as of
December 15, 1997 have been intentionally omitted and will be provided upon
request.
<PAGE>
EXHIBIT 10.9
PROMISSORY DEMAND NOTE
U.S. $200,000,000.00 December 22, 1997
Chicago, Illinois
FOR VALUE RECEIVED, PHOSPHATE RESOURCE PARTNERS LIMITED PARTNERSHIP
(formerly known as Freeport-McMoRan Resource Partners, Limited Partnership,
the "Borrower") promises to pay to the order of IMC GLOBAL INC. ("IMC") on
demand at the principal office of IMC at 2100 Sanders Road, Northbrook, IL
60062-6146, or at such other place as the holder of this Note may from time
to time designate in writing, the principal sum of up to U.S. TWO HUNDRED
MILLION and NO/100 dollars (U.S. $200,000,000.00) or, if less, the amount
advanced by IMC to the Borrower under this Note together with interest on
the principal amount of this Note from time to time outstanding at the
rates and in the manner specified hereinbelow. All payments on this Note
shall be made in lawful money of the United States and in immediately
available and freely transferable funds at the place of payment and shall
be paid no later than 2:00 p.m. (Chicago time) on the date when due,
without set-off or deduction of any kind.
IMC shall record on its books or records the principal amount of each
advance made, all payments of principal and interest and the principal
balances from time to time outstanding. IMC's books and records with
respect to the principal amount due and the amount of interest payable
thereon shall be deemed correct absent manifest error.
Interest shall be computed on the basis of a year of 360 (or 365 or 366, as
the case may be) days and actual days elapsed at a per annum rate equal to
(i) the LIBOR Rate for the Interest Reset Date next preceding the
applicable Interest Payment Date plus (ii) 1.00%, or at such other rate as
prescribed by statute. For purposes of this Note:
"Interest Reset Date" shall mean December 22, 1997, and
thereafter the first day of each January, April, July and October,
commencing with April 1, 1998.
"LIBOR Rate" shall mean the rate per annum as determined by IMC
(rounded upwards, if necessary, to the nearest 1/16th of one percent)
based on the rates at which U.S. Dollar deposits for a period closest
in approximation to ninety (90) days are displayed on page "LIBOR-USD
FIX 3 MONTH" screen of the Bloomburg L.P. service or such other page
as may replace the LIBOR-USD FIX 3 MONTH page on that service for the
purpose of displaying the London interbank offered rates of major
banks as of 11:00 a.m. (London time) two (2) business days prior to
the first day of such interest period (it being understood that if at
least two (2) such rates appear on such page, the rate of interest
will be the arithmetic mean of such displayed rates); provided that in
the event no such rate is shown, the LIBOR Rate shall be the rate per
annum (rounded upwards, if necessary, to the nearest 1/16th of one
percent) based on the rates at which U.S. Dollar deposits for a period
closest in approximation to such interest period are displayed on page
"LIBOR" of the Reuters Monitor Money Rates
<PAGE>
Service or such other page as may replace the LIBOR page on that
service for the purpose of displaying London interbank offered rates
of major banks as of 11:00 a.m. (London time) two (2) Business Days
prior to the first day of such interest period (it being understood
that if at least two (2) such rates appear on such page, the rate will
be the arithmetic mean of such displayed rates); provided further that
in the event fewer than two (2) such rates are displayed, or if no
such rate is relevant, the rate shall be the arithmetic mean of the
rates quoted by major banks in New York City, selected by IMC, at
approximately 11:00 a.m. (New York City time) on the first day of such
interest period to leading European banks for U.S. Dollar deposits for
a period closely approximating such interest period.
Accrued interest shall be payable quarterly on the last day of December,
March, June and September and at maturity, commencing with the first of
such dates to occur after the date hereof, or as the parties hereto may
otherwise agree (each such date, an "Interest Payment Date"). The Borrower
shall, on demand, pay interest (calculated on the basis of a 360-day year
for the actual number of days elapsed) on any overdue principle and on any
other amounts overdue hereunder for each day from the date of payment
thereon was due to the date of actual payment, at a rate per annum equal to
the lesser of (i) the maximum permissible amount under applicable state and
federal usury laws and (ii) 2% above the interest rate applicable to such
amounts immediately prior to the date such overdue amount became due.
Should any payment of principal or interest become due and payable on any
day other than a business day (business day being any day not a Saturday,
Sunday or legal holiday in Chicago, Illinois), the maturity thereof shall
be extended to the next succeeding business day and interest shall continue
to accrue at the applicable rate until such payment is made. The Borrower
hereby expressly waives presentment, demand, protest or notice of any kind
with respect to this Note.
The Borrower represents and warrants that the obligation of the Borrower to
pay principal, interest and all other sums payable under this Note ranks
(and so long as any such obligation remains outstanding hereunder, will
continue to rank) at least pari-passu in all respects with all other
unsecured and unsubordinated loans, debts, guaranties and other obligations
incurred, created, assumed or guaranteed by the Borrower.
The indebtedness evidenced hereby may be prepaid in whole or in part at any
time and from time to time without premium or penalty.
The failure of IMC to exercise any of its rights, powers or remedies
hereunder in any instance shall not constitute a waiver thereof in that or
any other instance and no single or partial exercise by the Bank of any
right, power or remedy shall preclude other or further exercise thereof or
any exercise of any other rights, powers or remedies.
This Note shall be governed and construed in accordance with the laws of
the State of Illinois.
<PAGE>
PHOSPHATE RESOURCE PARTNERS
LIMITED PARTNERSHIP
By: IMC Global Inc., its administrative
managing general partner
By: Eric T. Martinez
Name: Eric T. Martinez
Title: Assistant Treasurer
<PAGE>
Schedule to
Promissory Demand Note Dated December 22, 1997
PHOSPHATE RESOURCE PARTNERS LIMITED PARTNERSHIP
to
IMC GLOBAL INC.
Amount of Unpaid
Amount Principal Interest Maturity Principal
Date of Paid Rate Date Balance Initial
Loan
_________________________________________________________________________
_________________________________________________________________________
_________________________________________________________________________
_________________________________________________________________________
_________________________________________________________________________
_________________________________________________________________________
_________________________________________________________________________
_________________________________________________________________________
_________________________________________________________________________
_________________________________________________________________________
_________________________________________________________________________
_________________________________________________________________________
_________________________________________________________________________
_________________________________________________________________________
_________________________________________________________________________
_________________________________________________________________________
_________________________________________________________________________
_________________________________________________________________________
_________________________________________________________________________
_________________________________________________________________________
_________________________________________________________________________
_________________________________________________________________________
_________________________________________________________________________
_________________________________________________________________________
_________________________________________________________________________
_________________________________________________________________________
_________________________________________________________________________
_________________________________________________________________________
_________________________________________________________________________
<PAGE>
EXHIBIT 10.10
PROMISSORY DEMAND NOTE
U.S. $150,000,000.00 December 22, 1997
Chicago, Illinois
FOR VALUE RECEIVED, PHOSPHATE RESOURCE PARTNERS LIMITED PARTNERSHIP
(formerly known as Freeport-McMoRan Resource Partners, Limited Partnership,
the "Borrower") promises to pay to the order of IMC GLOBAL INC. ("IMC") on
demand at the principal office of IMC at 2100 Sanders Road, Northbrook, IL
60062-6146, or at such other place as the holder of this Note may from time
to time designate in writing, the principal sum of up to U.S. ONE HUNDRED
FIFTY MILLION and NO/100 dollars (U.S. $150,000,000.00) or, if less, the
amount advanced by IMC to the Borrower under this Note together with
interest on the principal amount of this Note from time to time outstanding
at the rates and in the manner specified hereinbelow. All payments on this
Note shall be made in lawful money of the United States and in immediately
available and freely transferable funds at the place of payment and shall
be paid no later than 2:00 p.m. (Chicago time) on the date when due,
without set-off or deduction of any kind.
IMC shall record on its books or records the principal amount of each
advance made, all payments of principal and interest and the principal
balances from time to time outstanding. IMC's books and records with
respect to the principal amount due and the amount of interest payable
thereon shall be deemed correct absent manifest error.
Interest shall be computed on the basis of a year of 360 (or 365 or 366, as
the case may be) days and actual days elapsed at a per annum rate equal to
8.75%, or at such other rate as prescribed by statute.
Accrued interest shall be payable quarterly on the last day of December,
March, June and September and at maturity, commencing with the first of
such dates to occur after the date hereof, or as the parties hereto may
otherwise agree (each such date, an "Interest Payment Date"). The Borrower
shall, on demand, pay interest (calculated on the basis of a 360-day year
for the actual number of days elapsed) on any overdue principle and on any
other amounts overdue hereunder for each day from the date of payment
thereon was due to the date of actual payment, at a rate per annum equal to
the lesser of (i) the maximum permissible amount under applicable state and
federal usury laws and (ii) 2% above the interest rate applicable to such
amounts immediately prior to the date such overdue amount became due.
Should any payment of principal or interest become due and payable on any
day other than a business day (business day being any day not a Saturday,
Sunday or legal holiday in Chicago, Illinois), the maturity thereof shall
be extended to the next succeeding business day and interest shall continue
to accrue at the applicable rate until such payment is made. The Borrower
hereby expressly waives presentment, demand, protest or notice of any kind
with respect to this Note.
<PAGE>
The Borrower represents and warrants that the obligation of the Borrower to
pay principal, interest and all other sums payable under this Note ranks
(and so long as any such obligation remains outstanding hereunder, will
continue to rank) at least pari-passu in all respects with all other
unsecured and unsubordinated loans, debts, guaranties and other obligations
incurred, created, assumed or guaranteed by the Borrower.
The indebtedness evidenced hereby may be prepaid in whole or in part at any
time and from time to time without premium or penalty.
The failure of IMC to exercise any of its rights, powers or remedies
hereunder in any instance shall not constitute a waiver thereof in that or
any other instance and no single or partial exercise by the Bank of any
right, power or remedy shall preclude other or further exercise thereof or
any exercise of any other rights, powers or remedies.
This Note shall be governed and construed in accordance with the laws of
the State of Illinois.
PHOSPHATE RESOURCE PARTNERS
LIMITED PARTNERSHIP
By: IMC Global Inc., its administrative
managing general partner
By:
Name: Eric T. Martinez
Title: Assistant Treasurer
<PAGE>
Schedule to
Promissory Demand Note Dated December 22, 1997
PHOSPHATE RESOURCE PARTNERS LIMITED PARTNERSHIP
to
IMC GLOBAL INC.
Amount of Unpaid
Amount Principal Interest Maturity Principal
Date of Paid Rate Date Balance Initial
Loan
_________________________________________________________________________
_________________________________________________________________________
_________________________________________________________________________
_________________________________________________________________________
_________________________________________________________________________
_________________________________________________________________________
_________________________________________________________________________
_________________________________________________________________________
_________________________________________________________________________
_________________________________________________________________________
_________________________________________________________________________
_________________________________________________________________________
_________________________________________________________________________
_________________________________________________________________________
_________________________________________________________________________
_________________________________________________________________________
_________________________________________________________________________
_________________________________________________________________________
_________________________________________________________________________
_________________________________________________________________________
_________________________________________________________________________
_________________________________________________________________________
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_________________________________________________________________________
_________________________________________________________________________
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_________________________________________________________________________
<TABLE>
Exhibit 12.1
PHOSPHATE RESOURCE PARTNERS LIMITED PARTNERSHIP
Computation of Ratio of Earnings to Fixed Charges
<CAPTION>
Years Ended December 31,
-------------------------------------------------
1993 1994 1995 1996 1997
---- ---- ---- ---- ----
(In thousands)
<S> <C> <C> <C> <C> <C>
Income (loss) from
continuing
operations $(222,411) $ 83,966 $161,408 $177,301 $(340,561)
Add:
Interest expense 12,870 33,519 31,518 33,709 35,656
Rental expense
factor(a) 1,378 3,899 4,011 3,986 6,119
--------- -------- -------- -------- ---------
$(208,163) $121,384 $196,937 $214,996 $(298,786)
========= ======== ======== ======== ========
Interest expense $ 12,870 $ 33,519 $ 31,518 $ 33,709 $ 35,656
Capitalized interest 11,070 - - - -
Rental expense
factor(a) 1,378 3,899 4,011 3,986 6,119
--------- -------- -------- -------- ---------
Fixed charges $ 25,318 $ 37,418 $ 35,529 $ 37,695 $ 41,775
========= ======== ======== ======== =========
Ratio of earnings
to fixed charges(b) c 3.2 5.5 5.7 d
= === === === =
a. Portion of rent deemed representative of an interest factor.
b. For purposes of this calculation, earnings are income from continuing
operations before extraordinary charges and fixed charges. Fixed
charges consist of interest and that portion of rent deemed
representative of interest.
c. Earnings were inadequate to cover fixed charges by $233.5 million.
d. Earnings were inadequate to cover fixed charges by $340.6 million.
</TABLE>
<PAGE>
EXHIBIT 21.1
SUBSIDIARIES OF THE REGISTRANT
Certain of Phosphate Resource Partners Limited Partnership's
subsidiaries are listed below. These subsidiaries are all included in the
Company's consolidated financial statements, and collectively, together
with Phosphate Resource Partners Limited Partnership, account for more than
90 percent of consolidated net sales, earnings (loss) before income taxes,
extraordinary items and cumulative effect of a change in accounting
principal, and total assets.
State of Name Under Which
Organization It Does Business
--------------- ----------------
Agrico Chemical Company Delaware Same
IMC-Agrico Company Delaware Same
IMC-Agrico MP, Inc. Delaware Same
Exhibit 23.1
CONSENT OF ERNST & YOUNG LLP
We consent to the incorporation by reference in the Registration Statement
on Form S-3 No. 33-37441 of Phosphate Resource Partners Limited Partnership
and in the related Prospectus of our report dated January 26, 1998, with
respect to the financial statements and schedules of Phosphate Resource
Partners Limited Partnership included in this Annual Report (Form 10-K) for
the year ended December 31, 1997.
/s/ ERNST & YOUNG LLP
------------------------------------
ERNST & YOUNG LLP
Docket No. 133556
Chicago, Illinois
March 30, 1998
Exhibit 23.2
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the
incorporation by reference of our report included herein in this Form 10-K,
into Phosphate Resource Partners Limited Partnership's previously filed
Registration Statements on Form S-3 (File No. 33-37441).
/s/ ARTHUR ANDERSEN LLP
---------------------------------------
ARTHUR ANDERSEN LLP
New Orleans, Louisiana
March 30, 1998
<PAGE>
EXHIBIT 24.1
POWER OF ATTORNEY
The undersigned, being a Director and/or Officer of IMC Global
Inc., a Delaware corporation (the "Company"), hereby constitutes and
appoints Wendell F. Bueche, Marschall I. Smith and Rose Marie Williams his
or her true and lawful attorneys and agents, each with full power and
authority (acting alone and without the other) to execute and deliver in
the name and on behalf of the undersigned as such Director and/or Officer
of the Company in the Company's capacity as the Administrative Managing
General Partner of Phosphate Resource Partners Limited Partnership, a
Delaware limited partnership (the "Partnership"), the Annual Report of the
Partnership on Form 10-K for the fiscal year ended December 31, 1997 under
the Securities Act of 1933, as amended, and to execute and deliver any and
all amendments to such Annual Report for filing with the Securities and
Exchange Commission; and in connection with the foregoing, to do any and
all acts and things and execute any and all instruments which such
attorneys and agents may deem necessary or advisable to enable the
Partnership to comply with the securities laws of the United States and of
any state or other political subdivision thereof. The undersigned hereby
grants unto such attorneys and agents, and each of them, full power of
substitution and revocation in the premises and hereby ratifies and
confirms all that such attorneys and agents may do or cause to be done by
virtue of these presents.
Dated this 23rd day of March, 1998.
/s/ ROBERT E. FOWLER, JR.
Robert E. Fowler, Jr.
<PAGE>
POWER OF ATTORNEY
The undersigned, being a Director and/or Officer of IMC
Global Inc., a Delaware corporation (the "Company"), hereby constitutes
and appoints Wendell F. Bueche, Marschall I. Smith and Rose Marie
Williams his or her true and lawful attorneys and agents, each with
full power and authority (acting alone and without the other) to
execute and deliver in the name and on behalf of the undersigned as
such Director and/or Officer of the Company in the Company's capacity
as the Administrative Managing General Partner of Phosphate Resource
Partners Limited Partnership, a Delaware limited partnership (the
"Partnership"), the Annual Report of the Partnership on Form 10-K for
the fiscal year ended December 31, 1997 under the Securities Act of
1933, as amended, and to execute and deliver any and all amendments to
such Annual Report for filing with the Securities and Exchange
Commission; and in connection with the foregoing, to do any and all
acts and things and execute any and all instruments which such
attorneys and agents may deem necessary or advisable to enable the
Partnership to comply with the securities laws of the United States and
of any state or other political subdivision thereof. The undersigned
hereby grants unto such attorneys and agents, and each of them, full
power of substitution and revocation in the premises and hereby
ratifies and confirms all that such attorneys and agents may do or
cause to be done by virtue of these presents.
Dated this 23rd day of March, 1998.
/s/ RAYMOND F. BENTELE
Raymond F. Bentele
<PAGE>
POWER OF ATTORNEY
The undersigned, being a Director and/or Officer of IMC
Global Inc., a Delaware corporation (the "Company"), hereby constitutes
and appoints Wendell F. Bueche, Marschall I. Smith and Rose Marie
Williams his or her true and lawful attorneys and agents, each with
full power and authority (acting alone and without the other) to
execute and deliver in the name and on behalf of the undersigned as
such Director and/or Officer of the Company in the Company's capacity
as the Administrative Managing General Partner of Phosphate Resource
Partners Limited Partnership, a Delaware limited partnership (the
"Partnership"), the Annual Report of the Partnership on Form 10-K for
the fiscal year ended December 31, 1997 under the Securities Act of
1933, as amended, and to execute and deliver any and all amendments to
such Annual Report for filing with the Securities and Exchange
Commission; and in connection with the foregoing, to do any and all
acts and things and execute any and all instruments which such
attorneys and agents may deem necessary or advisable to enable the
Partnership to comply with the securities laws of the United States and
of any state or other political subdivision thereof. The undersigned
hereby grants unto such attorneys and agents, and each of them, full
power of substitution and revocation in the premises and hereby
ratifies and confirms all that such attorneys and agents may do or
cause to be done by virtue of these presents.
Dated this 23rd day of March, 1998.
/s/ ROD F. DAMMEYER
Rod F. Dammeyer
<PAGE>
POWER OF ATTORNEY
The undersigned, being a Director and/or Officer of IMC
Global Inc., a Delaware corporation (the "Company"), hereby constitutes
and appoints Wendell F. Bueche, Marschall I. Smith and Rose Marie
Williams his or her true and lawful attorneys and agents, each with
full power and authority (acting alone and without the other) to
execute and deliver in the name and on behalf of the undersigned as
such Director and/or Officer of the Company in the Company's capacity
as the Administrative Managing General Partner of Phosphate Resource
Partners Limited Partnership, a Delaware limited partnership (the
"Partnership"), the Annual Report of the Partnership on Form 10-K for
the fiscal year ended December 31, 1997 under the Securities Act of
1933, as amended, and to execute and deliver any and all amendments to
such Annual Report for filing with the Securities and Exchange
Commission; and in connection with the foregoing, to do any and all
acts and things and execute any and all instruments which such
attorneys and agents may deem necessary or advisable to enable the
Partnership to comply with the securities laws of the United States and
of any state or other political subdivision thereof. The undersigned
hereby grants unto such attorneys and agents, and each of them, full
power of substitution and revocation in the premises and hereby
ratifies and confirms all that such attorneys and agents may do or
cause to be done by virtue of these presents.
Dated this 23rd day of March, 1998.
/s/ JAMES M. DAVIDSON
James M. Davidson
<PAGE>
POWER OF ATTORNEY
The undersigned, being a Director and/or Officer of IMC
Global Inc., a Delaware corporation (the "Company"), hereby constitutes
and appoints Wendell F. Bueche, Marschall I. Smith and Rose Marie
Williams his or her true and lawful attorneys and agents, each with
full power and authority (acting alone and without the other) to
execute and deliver in the name and on behalf of the undersigned as
such Director and/or Officer of the Company in the Company's capacity
as the Administrative Managing General Partner of Phosphate Resource
Partners Limited Partnership, a Delaware limited partnership (the
"Partnership"), the Annual Report of the Partnership on Form 10-K for
the fiscal year ended December 31, 1997 under the Securities Act of
1933, as amended, and to execute and deliver any and all amendments to
such Annual Report for filing with the Securities and Exchange
Commission; and in connection with the foregoing, to do any and all
acts and things and execute any and all instruments which such
attorneys and agents may deem necessary or advisable to enable the
Partnership to comply with the securities laws of the United States and
of any state or other political subdivision thereof. The undersigned
hereby grants unto such attorneys and agents, and each of them, full
power of substitution and revocation in the premises and hereby
ratifies and confirms all that such attorneys and agents may do or
cause to be done by virtue of these presents.
Dated this 23rd day of March, 1998.
/s/ HAROLD H. MACKAY
Harold H. MacKay
<PAGE>
POWER OF ATTORNEY
The undersigned, being a Director and/or Officer of IMC
Global Inc., a Delaware corporation (the "Company"), hereby constitutes
and appoints Wendell F. Bueche, Marschall I. Smith and Rose Marie
Williams his or her true and lawful attorneys and agents, each with
full power and authority (acting alone and without the other) to
execute and deliver in the name and on behalf of the undersigned as
such Director and/or Officer of the Company in the Company's capacity
as the Administrative Managing General Partner of Phosphate Resource
Partners Limited Partnership, a Delaware limited partnership (the
"Partnership"), the Annual Report of the Partnership on Form 10-K for
the fiscal year ended December 31, 1997 under the Securities Act of
1933, as amended, and to execute and deliver any and all amendments to
such Annual Report for filing with the Securities and Exchange
Commission; and in connection with the foregoing, to do any and all
acts and things and execute any and all instruments which such
attorneys and agents may deem necessary or advisable to enable the
Partnership to comply with the securities laws of the United States and
of any state or other political subdivision thereof. The undersigned
hereby grants unto such attorneys and agents, and each of them, full
power of substitution and revocation in the premises and hereby
ratifies and confirms all that such attorneys and agents may do or
cause to be done by virtue of these presents.
Dated this 23rd day of March, 1998.
/s/ DAVID B. MATHIS
David B. Mathis
<PAGE>
POWER OF ATTORNEY
The undersigned, being a Director and/or Officer of IMC
Global Inc., a Delaware corporation (the "Company"), hereby constitutes
and appoints Wendell F. Bueche, Marschall I. Smith and Rose Marie
Williams his or her true and lawful attorneys and agents, each with
full power and authority (acting alone and without the other) to
execute and deliver in the name and on behalf of the undersigned as
such Director and/or Officer of the Company in the Company's capacity
as the Administrative Managing General Partner of Phosphate Resource
Partners Limited Partnership, a Delaware limited partnership (the
"Partnership"), the Annual Report of the Partnership on Form 10-K for
the fiscal year ended December 31, 1997 under the Securities Act of
1933, as amended, and to execute and deliver any and all amendments to
such Annual Report for filing with the Securities and Exchange
Commission; and in connection with the foregoing, to do any and all
acts and things and execute any and all instruments which such
attorneys and agents may deem necessary or advisable to enable the
Partnership to comply with the securities laws of the United States and
of any state or other political subdivision thereof. The undersigned
hereby grants unto such attorneys and agents, and each of them, full
power of substitution and revocation in the premises and hereby
ratifies and confirms all that such attorneys and agents may do or
cause to be done by virtue of these presents.
Dated this 23rd day of March, 1998.
/s/ THOMAS H. ROBERTS, JR.
Thomas H. Roberts, Jr.
<PAGE>
POWER OF ATTORNEY
The undersigned, being a Director and/or Officer of IMC
Global Inc., a Delaware corporation (the "Company"), hereby constitutes
and appoints Wendell F. Bueche, Marschall I. Smith and Rose Marie
Williams his or her true and lawful attorneys and agents, each with
full power and authority (acting alone and without the other) to
execute and deliver in the name and on behalf of the undersigned as
such Director and/or Officer of the Company in the Company's capacity
as the Administrative Managing General Partner of Phosphate Resource
Partners Limited Partnership, a Delaware limited partnership (the
"Partnership"), the Annual Report of the Partnership on Form 10-K for
the fiscal year ended December 31, 1997 under the Securities Act of
1933, as amended, and to execute and deliver any and all amendments to
such Annual Report for filing with the Securities and Exchange
Commission; and in connection with the foregoing, to do any and all
acts and things and execute any and all instruments which such
attorneys and agents may deem necessary or advisable to enable the
Partnership to comply with the securities laws of the United States and
of any state or other political subdivision thereof. The undersigned
hereby grants unto such attorneys and agents, and each of them, full
power of substitution and revocation in the premises and hereby
ratifies and confirms all that such attorneys and agents may do or
cause to be done by virtue of these presents.
Dated this 23rd day of March, 1998.
/s/ JOSEPH P. SULLIVAN
Joseph P. Sullivan
<PAGE>
POWER OF ATTORNEY
The undersigned, being a Director and/or Officer of IMC
Global Inc., a Delaware corporation (the "Company"), hereby constitutes
and appoints Wendell F. Bueche, Marschall I. Smith and Rose Marie
Williams his or her true and lawful attorneys and agents, each with
full power and authority (acting alone and without the other) to
execute and deliver in the name and on behalf of the undersigned as
such Director and/or Officer of the Company in the Company's capacity
as the Administrative Managing General Partner of Phosphate Resource
Partners Limited Partnership, a Delaware limited partnership (the
"Partnership"), the Annual Report of the Partnership on Form 10-K for
the fiscal year ended December 31, 1997 under the Securities Act of
1933, as amended, and to execute and deliver any and all amendments to
such Annual Report for filing with the Securities and Exchange
Commission; and in connection with the foregoing, to do any and all
acts and things and execute any and all instruments which such
attorneys and agents may deem necessary or advisable to enable the
Partnership to comply with the securities laws of the United States and
of any state or other political subdivision thereof. The undersigned
hereby grants unto such attorneys and agents, and each of them, full
power of substitution and revocation in the premises and hereby
ratifies and confirms all that such attorneys and agents may do or
cause to be done by virtue of these presents.
Dated this 23rd day of March, 1998.
/s/ RICHARD L. THOMAS
Richard L. Thomas
<PAGE>
POWER OF ATTORNEY
The undersigned, being a Director and/or Officer of IMC
Global Inc., a Delaware corporation (the "Company"), hereby constitutes
and appoints Wendell F. Bueche, Marschall I. Smith and Rose Marie
Williams his or her true and lawful attorneys and agents, each with
full power and authority (acting alone and without the other) to
execute and deliver in the name and on behalf of the undersigned as
such Director and/or Officer of the Company in the Company's capacity
as the Administrative Managing General Partner of Phosphate Resource
Partners Limited Partnership, a Delaware limited partnership (the
"Partnership"), the Annual Report of the Partnership on Form 10-K for
the fiscal year ended December 31, 1997 under the Securities Act of
1933, as amended, and to execute and deliver any and all amendments to
such Annual Report for filing with the Securities and Exchange
Commission; and in connection with the foregoing, to do any and all
acts and things and execute any and all instruments which such
attorneys and agents may deem necessary or advisable to enable the
Partnership to comply with the securities laws of the United States and
of any state or other political subdivision thereof. The undersigned
hereby grants unto such attorneys and agents, and each of them, full
power of substitution and revocation in the premises and hereby
ratifies and confirms all that such attorneys and agents may do or
cause to be done by virtue of these presents.
Dated this 23rd day of March, 1998.
/s/ BILLIE B. TURNER
Billie B. Turner
<PAGE>
POWER OF ATTORNEY
The undersigned, being a Director and/or Officer of IMC
Global Inc., a Delaware corporation (the "Company"), hereby constitutes
and appoints Wendell F. Bueche, Marschall I. Smith and Rose Marie
Williams his or her true and lawful attorneys and agents, each with
full power and authority (acting alone and without the other) to
execute and deliver in the name and on behalf of the undersigned as
such Director and/or Officer of the Company in the Company's capacity
as the Administrative Managing General Partner of Phosphate Resource
Partners Limited Partnership, a Delaware limited partnership (the
"Partnership"), the Annual Report of the Partnership on Form 10-K for
the fiscal year ended December 31, 1997 under the Securities Act of
1933, as amended, and to execute and deliver any and all amendments to
such Annual Report for filing with the Securities and Exchange
Commission; and in connection with the foregoing, to do any and all
acts and things and execute any and all instruments which such
attorneys and agents may deem necessary or advisable to enable the
Partnership to comply with the securities laws of the United States and
of any state or other political subdivision thereof. The undersigned
hereby grants unto such attorneys and agents, and each of them, full
power of substitution and revocation in the premises and hereby
ratifies and confirms all that such attorneys and agents may do or
cause to be done by virtue of these presents.
Dated this 23rd day of March, 1998.
/s/ J. BRADFORD JAMES
J. Bradford James
<PAGE>
POWER OF ATTORNEY
The undersigned, being a Director and/or Officer of IMC
Global Inc., a Delaware corporation (the "Company"), hereby constitutes
and appoints Wendell F. Bueche, Marschall I. Smith and Rose Marie
Williams his or her true and lawful attorneys and agents, each with
full power and authority (acting alone and without the other) to
execute and deliver in the name and on behalf of the undersigned as
such Director and/or Officer of the Company in the Company's capacity
as the Administrative Managing General Partner of Phosphate Resource
Partners Limited Partnership, a Delaware limited partnership (the
"Partnership"), the Annual Report of the Partnership on Form 10-K for
the fiscal year ended December 31, 1997 under the Securities Act of
1933, as amended, and to execute and deliver any and all amendments to
such Annual Report for filing with the Securities and Exchange
Commission; and in connection with the foregoing, to do any and all
acts and things and execute any and all instruments which such
attorneys and agents may deem necessary or advisable to enable the
Partnership to comply with the securities laws of the United States and
of any state or other political subdivision thereof. The undersigned
hereby grants unto such attorneys and agents, and each of them, full
power of substitution and revocation in the premises and hereby
ratifies and confirms all that such attorneys and agents may do or
cause to be done by virtue of these presents.
Dated this 23rd day of March, 1998.
/s/ ANNE M. SCAVONE
Anne M. Scavone
<PAGE>
POWER OF ATTORNEY
The undersigned, being a Director and/or Officer of IMC
Global Inc., a Delaware corporation (the "Company"), hereby constitutes
and appoints Wendell F. Bueche, Marschall I. Smith and Rose Marie
Williams his or her true and lawful attorneys and agents, each with
full power and authority (acting alone and without the other) to
execute and deliver in the name and on behalf of the undersigned as
such Director and/or Officer of the Company in the Company's capacity
as the Administrative Managing General Partner of Phosphate Resource
Partners Limited Partnership, a Delaware limited partnership (the
"Partnership"), the Annual Report of the Partnership on Form 10-K for
the fiscal year ended December 31, 1997 under the Securities Act of
1933, as amended, and to execute and deliver any and all amendments to
such Annual Report for filing with the Securities and Exchange
Commission; and in connection with the foregoing, to do any and all
acts and things and execute any and all instruments which such
attorneys and agents may deem necessary or advisable to enable the
Partnership to comply with the securities laws of the United States and
of any state or other political subdivision thereof. The undersigned
hereby grants unto such attorneys and agents, and each of them, full
power of substitution and revocation in the premises and hereby
ratifies and confirms all that such attorneys and agents may do or
cause to be done by virtue of these presents.
Dated this 23rd day of March, 1998.
/s/ ROBERT W. BRUCE III
Robert W. Bruce III
<PAGE>
POWER OF ATTORNEY
The undersigned, being a Director and/or Officer of IMC
Global Inc., a Delaware corporation (the "Company"), hereby constitutes
and appoints Wendell F. Bueche, Marschall I. Smith and Rose Marie
Williams his or her true and lawful attorneys and agents, each with
full power and authority (acting alone and without the other) to
execute and deliver in the name and on behalf of the undersigned as
such Director and/or Officer of the Company in the Company's capacity
as the Administrative Managing General Partner of Phosphate Resource
Partners Limited Partnership, a Delaware limited partnership (the
"Partnership"), the Annual Report of the Partnership on Form 10-K for
the fiscal year ended December 31, 1997 under the Securities Act of
1933, as amended, and to execute and deliver any and all amendments to
such Annual Report for filing with the Securities and Exchange
Commission; and in connection with the foregoing, to do any and all
acts and things and execute any and all instruments which such
attorneys and agents may deem necessary or advisable to enable the
Partnership to comply with the securities laws of the United States and
of any state or other political subdivision thereof. The undersigned
hereby grants unto such attorneys and agents, and each of them, full
power of substitution and revocation in the premises and hereby
ratifies and confirms all that such attorneys and agents may do or
cause to be done by virtue of these presents.
Dated this 23rd day of March, 1998.
/s/ RENE L. LATIOLAIS
Rene L. Latiolais
<PAGE>
POWER OF ATTORNEY
The undersigned, being a Director and/or Officer of IMC
Global Inc., a Delaware corporation (the "Company"), hereby constitutes
and appoints Wendell F. Bueche, Marschall I. Smith and Rose Marie
Williams his or her true and lawful attorneys and agents, each with
full power and authority (acting alone and without the other) to
execute and deliver in the name and on behalf of the undersigned as
such Director and/or Officer of the Company in the Company's capacity
as the Administrative Managing General Partner of Phosphate Resource
Partners Limited Partnership, a Delaware limited partnership (the
"Partnership"), the Annual Report of the Partnership on Form 10-K for
the fiscal year ended December 31, 1997 under the Securities Act of
1933, as amended, and to execute and deliver any and all amendments to
such Annual Report for filing with the Securities and Exchange
Commission; and in connection with the foregoing, to do any and all
acts and things and execute any and all instruments which such
attorneys and agents may deem necessary or advisable to enable the
Partnership to comply with the securities laws of the United States and
of any state or other political subdivision thereof. The undersigned
hereby grants unto such attorneys and agents, and each of them, full
power of substitution and revocation in the premises and hereby
ratifies and confirms all that such attorneys and agents may do or
cause to be done by virtue of these presents.
Dated this 23rd day of March, 1998.
/s/ DONALD F. MAZANKOWSKI
Donald F. Mazankowski
<PAGE>
POWER OF ATTORNEY
The undersigned, being a Director and/or Officer of IMC
Global Inc., a Delaware corporation (the "Company"), hereby constitutes
and appoints Wendell F. Bueche, Marschall I. Smith and Rose Marie
Williams his or her true and lawful attorneys and agents, each with
full power and authority (acting alone and without the other) to
execute and deliver in the name and on behalf of the undersigned as
such Director and/or Officer of the Company in the Company's capacity
as the Administrative Managing General Partner of Phosphate Resource
Partners Limited Partnership, a Delaware limited partnership (the
"Partnership"), the Annual Report of the Partnership on Form 10-K for
the fiscal year ended December 31, 1997 under the Securities Act of
1933, as amended, and to execute and deliver any and all amendments to
such Annual Report for filing with the Securities and Exchange
Commission; and in connection with the foregoing, to do any and all
acts and things and execute any and all instruments which such
attorneys and agents may deem necessary or advisable to enable the
Partnership to comply with the securities laws of the United States and
of any state or other political subdivision thereof. The undersigned
hereby grants unto such attorneys and agents, and each of them, full
power of substitution and revocation in the premises and hereby
ratifies and confirms all that such attorneys and agents may do or
cause to be done by virtue of these presents.
Dated this 23rd day of March, 1998.
/s/ JAMES R. MOFFETT
James R. Moffett
<TABLE> <S> <C>
<PAGE>
<S> <C>
<ARTICLE> 5
<MULTIPLIER> 1000
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> DEC-31-1997
<CASH> 1,051
<SECURITIES> 16,387
<RECEIVABLES> 47,302
<ALLOWANCES> 0
<INVENTORY> 126,011
<CURRENT-ASSETS> 193,153
<PP&E> 971,200
<DEPRECIATION> 538,800
<TOTAL-ASSETS> 665,536
<CURRENT-LIABILITIES> 408,704
<BONDS> 205,838
<COMMON> (168,358)
0
0
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 665,536
<SALES> 842,456
<TOTAL-REVENUES> 842,456
<CGS> 1,050,035
<TOTAL-COSTS> 1,142,898
<OTHER-EXPENSES> 4,463
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 35,656
<INCOME-PRETAX> (340,561)
<INCOME-TAX> 0
<INCOME-CONTINUING> (340,561)
<DISCONTINUED> 0
<EXTRAORDINARY> (14,474)
<CHANGES> 0
<NET-INCOME> (355,035)
<EPS-PRIMARY> (3.43)
<EPS-DILUTED> (3.43)
</TABLE>
Exhibit 99.1
Report of Ernst & Young LLP
We have audited the balance sheets of IMC-Agrico Company (a Partnership) as of
December 31, 1996, 1995 and 1994, and June 30, 1996 and 1995 and the related
statements of earnings, changes in partners' capital and cash flows for the six-
month periods ended December 31, 1996, 1995 and 1994, and the year ended June
30, 1996 and 1995 (not presented separately herein). These financial
statements are the responsibility of IMC-Agrico Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of IMC-Agrico Company as of
December 31, 1996, 1995 and 1994, and June 30, 1996 and 1995, and the results
of its operations and its cash flows for the six-month periods ended December
31, 1996, 1995 and 1994 and the years ended June 30, 1996 and 1995 in
accordance with generally accepted accounting principles.
/s/ ERNST & YOUNG LLP
--------------------------------
ERNST & YOUNG LLP
Chicago, Illinois
January 15, 1997
EXHIBIT 99.2
REPORT OF INDEPENDENT AUDITORS
To the Board of Directors and Stockholders
of IMC-Agrico MP, Inc.
We have audited the accompanying balance sheet of IMC-Agrico MP, Inc. as of
December 31, 1996, and the related statement of earnings and cash flows for the
year then ended. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audit provides a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of IMC-Agrico MP, Inc. as of
December 31, 1996, and the results of its operations and its cash flows for the
year then ended in accordance with generally accepted accounting principles.
/s/ ERNST & YOUNG LLP
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ERNST & YOUNG LLP
Chicago, Illinois
January 26, 1998
