SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1997
or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from ________________ to ________________
Commission file number 0-23870
McMoRan Oil & Gas Co.
(Exact name of registrant as specified in its charter)
Delaware 72-1266477
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1615 Poydras Street
New Orleans, Louisiana 70112
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (504) 582-4000
Securities registered pursuant to Section 12(b) of the Act:
None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock
Preferred Stock Purchase Rights
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 [ ]
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.[X]
The aggregate market value of the voting stock held by non-
affiliates of the registrant was approximately $133,930,000 on March
16, 1998.
On March 16, 1998, there were issued and outstanding 42,795,538
shares of the registrant's Common Stock, par value $0.01 per share.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the registrant's Proxy Statement submitted to the
registrant's stockholders in connection with the registrant's 1998
Annual Meeting of Stockholders to be held on May 12, 1998 are
incorporated by reference into Part III of this Report.
McMoRan Oil & Gas Co.
Annual Report on Form 10-K for
the Fiscal Year ended December 31, 1997
TABLE OF CONTENTS
Part I Page
----
Items 1. and 2. Business and Properties 1
Item 3. Legal Proceedings 12
Item 4. Submission of Matters to a Vote of Security Holders 12
Executive Officers of the Registrant 12
Part II
Item 5. Market for Registrant's Common Equity and Related
Stockholder Matters 13
Item 6. Selected Financial Data 14
Items 7.and 7A. Management's Discussion and Analysis of Financial
Condition and Results of Operations and Disclosures about
Market Risks 14
Item 8. Financial Statements and Supplementary Data 19
Item 9. Changes in and Disagreements with Accountants on Accounting
and Financial Disclosure 30
Part III.
Item 10. Directors and Executive Officers of the Registrant 30
Item 11. Executive Compensation 30
Item 12. Security Ownership of Certain Beneficial Owners and
Management 30
Item 13. Certain Relationships and Related Transactions 30
Part IV
Item 14. Exhibits, Financial Statement Schedules, and Reports on
Form 8-K 31
Signatures S-1
Exhibit Index E-1
PART I
Items 1 and 2. Business and Properties
OVERVIEW
McMoRan Oil & Gas Co. (the "Company" or "MOXY") is an independent
oil and gas company engaged in the exploration, development and
production of oil and natural gas. The Company's operations are
conducted offshore in the Gulf of Mexico (the"Gulf") and onshore
in the Gulf Coast area. The Company commenced operations in May
1994 following the distribution of all of the Company's common stock
to the stockholders of Freeport-McMoRan Inc. ("FTX") in order to
carry on substantially all of the oil and natural gas exploration
activities previously conducted by FTX. The Company 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 the Company
an extensive geological and geophysical database and extensive
technical and operational expertise.
The Company's business strategy is to create value for its
stockholders through the discovery of oil and gas reserves in its
exploration and development activities. MOXY expects to concentrate
its efforts in selected geographic areas where the Company's
management team has significant exploration experience. The Company
evaluates substantially all of its exploratory prospects with 3-D
seismic surveys prior to drilling. MOXY intends to continue to
generate exploratory prospects and evaluate selected opportunities
to acquire producing oil and gas properties and to maximize its
geological and geophysical experience and expertise by using 3-D
seismic data and other state of the art technology.
In 1995, MOXY entered into an agreement with MCN Energy Group Inc.
("MCN") establishing a $65 million oil and gas exploration and
development program in the offshore Gulf of Mexico area (the
"MOXY/MCN Program"). After considering a range of options, in 1997
MOXY management decided to undertake a $100 million rights offering
(the"Rights Offering") to raise funds that would allow it to recapitalize,
restructure its exploration and development operations and engage in a
significantly expanded and more diversified, multi-year exploratory drilling
program. In November 1997 MOXY completed the Rights Offering,
raising $92.2 million of net proceeds and enabling it to repay all
borrowings under the MOXY/MCN Program, acquire the interest
previously held by MCN in the Vermilion Block 160 and 410 fields and
provide a portion of its share of funding under a newly-formed
exploration program with Phosphate Resource Partners Limited
Partnership ("PLP"), formerly Freeport-McMoRan Resource Partners,
Limited Partnership. See "Oil and Gas Properties" and "Exploration
and Development Programs" below.
OIL AND GAS PROPERTIES
As of March 2, 1998, the Company owned interests in 102 oil and gas
leases in the Gulf and onshore Louisiana and Texas covering
approximately 159,400 gross acres (approximately 53,400 net acres to
the Company). The Company's exploratory drilling has established
estimated proved reserves attributable to the Company's interest in
its leases of approximately 40 billion cubic feet of gas and 463,000
barrels ("Bbls") of condensate as of December 31, 1997 based on a
reserve report prepared by Ryder Scott Company, an independent
petroleum engineering firm ("Ryder Scott").
Proved Properties
* Vermilion Block 160 Field Unit. Gross production from the
field unit averaged 14.8 million cubic feet ("Mmcf") of natural gas
and 537 Bbls of condensate per day during 1997. Production from
three new development wells drilled earlier in 1997 commenced during
the 1997 fourth quarter, increasing the field average gross
production rates as of December 31, 1997 to approximately 53 million
cubic feet (Mmcf) of gas and 1,600 barrels of condensate per day.
During the 1997 fourth quarter MOXY, as operator, drilled and saved
the Vermilion Block 160 #4 sidetrack development well at a location
remote from the existing platform and outside of the field unit
area. The well encountered 106 feet of net gas pay in four sands.
Fabrication of a platform is in progress, and development of these
new reserves is planned for 1998. MOXY has a 58 percent net revenue
interest in the #4 sidetrack well, subject to a 12.7 percent net
profits interest, and a 25.5 percent net revenue interest, subject
to a 2.6 percent net profits interest, in the Vermilion 160 field
unit as a result of final re-determination. The Vermilion Block 160
field is located approximately 155 miles west southwest of New
Orleans, Louisiana in approximately 100 feet of water. The
[Page] 1
Vermilion Block 160 field unit is comprised of portions of four
leases (Vermilion Blocks 143, 144, 159, and 160) totaling 5,625
acres.
* Vermilion Block 410 Field. In late 1996, the operator completed
installation of the production platforms and related facilities and
commenced production from one of two platforms. Production began
from the second platform in February 1997. MOXY has a 37.5 percent
working interest and a 28 percent net revenue interest in this
field. Daily gross production averaged approximately 57 Mmcf of
natural gas during the 1997 fourth quarter. The lease blocks cover a
total of 11,015 acres.
* West Cameron Block 616. During the fourth quarter of 1997,
MOXY, as operator, drilled and saved the West Cameron Block 616 #3
exploratory well. This well encountered a total of 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. In March 1998 MOXY completed
drilling the #5 well, a development well planned 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 #5 well, encountered 190 feet of net gas pay in a different
fault block. The West Cameron Block 616 #5 well encountered three
gas sands not seen in the #2 well and was credited with a total of
324 feet of net gas pay in eight sands. 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. MOXY has a 39 percent net revenue interest in the #3 and
#4 wells and a 37 percent net revenue interest in the #5 well.
Additionally, MOXY initiated drilling an exploratory well on an
offset block, West Cameron 617, during the first quarter of 1998.
MOXY's net revenue interest in this block is 19 percent. West
Cameron Blocks 616 and 617 are located in approximately 300 feet of
water in the Gulf of Mexico, approximately 130 miles offshore
Louisiana. These two blocks total 10,000 acres.
* East Fiddler's Lake/North Bay Junop. MOXY has a 25% working
interest and 18% net revenue interest in approximately 4,229 acres
of leasehold in the East Fiddler's Lake/North Bay Junop prospect
area in Terrebonne Parish, Louisiana, and owns a proprietary 3-D
seismic data survey covering approximately 35,000 acres. Operations
have been conducted by a joint venture owned 50% by the operator,
Phillips Petroleum Company, 25% by PLP and 25% by MOXY. See
"Business and Properties-Exploration and Development Programs." In
the 1997 second quarter, MOXY drilled the North Bay Junop well but
did not encounter commercial hydrocarbons in the primary objective
zones. The well was completed in a shallower zone with
approximately 25 feet of net gas pay. The well began production
during the 1998 first quarter. Because of the complexity of salt
dome geology and potentially limited reservoir size, production
performance will be required to determine the reserve volumes
associated with this completion.
Exploration Properties
MOXY is continually evaluating its current exploration prospects, as
well as others offered by third parties, and will drill those
considered to have the highest potential. Exploratory activities on
prospects during 1997 and early 1998 are summarized below.
* West Cameron Block 492. During the 1997 fourth quarter MOXY's
West Cameron 492 #1 exploratory 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. MOXY, as operator, owns a 19 percent net revenue interest in
this block, which is located in approximately 150 feet of water
offshore in the Gulf of Mexico approximately 110 miles south of Lake
Charles, Louisiana, and encompasses 5,000 acres.
* West Cameron Block 157. In early January 1998 MOXY, as
operator, initiated drilling of the West Cameron Block 157 #1
exploratory well to a proposed total measured depth of approximately
15,000 feet. This well was determined to be unsuccessful in March, 1998
and will be plugged and abandoned. MOXY owns a 38 percent net revenue
interest in this block, which contains 2,170 acres, and in West Cameron
Block 156, which contains 5,000 acres, both of which are located offshore in
the Gulf of
[Page] 2
Mexico approximately 60 miles southwest of Lake Charles, Louisiana in
approximately 30 feet of water.
* Brazos Block A-19. During the 1997 fourth quarter the operator
commenced drilling the Brazos A-19 #2 exploratory well to
a proposed total measured depth of approximately 19,000 feet.
Pursuant to a joint venture agreement MOXY will earn 13.3 percent
net revenue interest, limited in depth, in this block, which
contains 5,760 acres and is located in approximately 135 feet of
water offshore in the Gulf of Mexico approximately 95 miles
southwest of Galveston, Texas. MOXY also owns a 48 percent working
interest and a 39 percent net revenue interest in the adjacent
Brazos Block A-26, which contains 5,760 acres.
* West Cameron Block 503. In April 1997, MOXY sold its interest
in West Cameron Block 503 for $2.9 million, recognizing a $2.3
million gain ($0.12 per share). The proceeds were used to repay
borrowings from MCN.
* Vermilion Block 391/392/408. MOXY has a 14.4 percent
working interest and 11.6 percent net revenue interest in Vermilion
Blocks 392/408 and a 15.3 percent working interest and 12.3 percent
net revenue interest in Vermilion Block 391. The operator drilled an
unsuccessful exploratory well in the third quarter of 1996 on
Vermilion Block 391. MOXY acquired the Vermilion Block 392 lease in
the Central Gulf of Mexico lease sale in 1996 and acquired the
shallow rights on Vermilion Block 408 by trading the deep rights at
Vermilion Block 392. Vermilion Blocks 391/392/408 cover a total of
15,000 acres and are located four miles from the Vermilion Block 410
field, which is approximately 115 miles offshore Louisiana, in
approximately 360 feet of water.
* Lease Sale. MOXY was high bidder on seven tracts at the
Central Gulf of Mexico lease sale held in March 1997 for high bids
totaling $5.5 million. As part of the MOXY Exploration Program the
related acquisition and exploration costs will be shared 37.6
percent by MOXY, 56.4 percent by PLP and 6 percent by an individual
investor (see "Business and Properties-Exploration and Development
Programs").
* Other. During 1997 exploratory drilling on the Eugene Island
Block 19, Vermilion Block 159 and Grand Isle Block 65 prospects
concluded without discovery of commercial hydrocarbons. MOXY has
farmed out the related acreage in Grand Isle Block 65.
Oil and Gas Reserves
Estimates of the Company's total proved developed and proved
undeveloped reserves of oil and gas as of December 31, 1997 by Ryder
Scott were as follows:
Gas (Mmcf) Oil (Bbls)
------------------------ -------------------------
Proved Proved Proved Proved
Developed Undeveloped Developed Undeveloped
--------- ----------- --------- -----------
23,086 17,148 383,000 80,300
The Company's wells at the Vermilion Block 160 field unit field have
limited production history. Estimates of proved undeveloped
reserves that may be developed and produced in the future are based
upon volumetric calculations and upon analogy to similar types of
reserves rather than upon actual production history. Estimates
based on these methods are generally less reliable than those based
on actual production history. Subsequent evaluation of the same
reserves based upon production history will result in variations,
which may be substantial, in the estimated reserves. Further, the
Company's proved undeveloped reserves will require additional
capital to develop and produce. See "Cautionary Statements" below,
and "Management's Discussion and Analysis of Financial Condition and
Results of Operations and Disclosures about Market Risks" included
herein under Items 7 and 7A.
The following table sets forth as of December 31, 1997, the
estimated future net cash flows before income taxes and the present
value of estimated future net cash flows before income taxes,
discounted at 10% per annum, from the production and sale of the
proved developed and undeveloped reserves attributable to the
Company's interest in gas and oil properties as of such date, as
determined by Ryder Scott.
[Page] 3
<TABLE>
<CAPTION>
Proved Proved Total
Developed Undeveloped Proved
--------- ----------- -------
<S> <C> <C> <C>
Estimated future net cash
flows before income taxes (1) $39,253 $20,207 $59,460
Present value of estimated
future net cash flows before
income taxes (1) 33,933 11,690 45,623
</TABLE>
(1) In preparing such estimates, Ryder Scott used prices of $17.60
per barrel of oil and $2.57 per Mcf of gas as of December 31, 1997,
the weighted average prices that the Company estimates it would have
received, assuming production from all of its properties with proved
reserves.
In accordance with applicable requirements of the Securities and
Exchange Commission (the "Commission"), the estimated discounted
future net revenues from estimated proved reserves are based on
prices and costs at fiscal year end. Actual future prices and costs
may be materially higher or lower. See "Cautionary Statements"
below.
In accordance with methodology specified by the Commission, certain
assumptions were applied in the computation of the reserve
evaluation estimates. Under this methodology, future net cash flows
are determined by reducing estimated future gross cash inflows to
the Company for oil and gas sales by the estimated costs to develop
and produce the underlying reserves, including future capital
expenditures, operating costs, transportation costs, net profits
interests, royalty and overriding royalty burdens on certain of the
Company's properties. Future net cash flows were discounted at 10%
per annum to arrive at discounted future net cash flows. The
present value of future net cash flows shown above should not be
construed as the current market value as of December 31, 1997, or
any prior date, of the estimated oil and gas reserves attributable
to the Company's properties. See "Cautionary Statements" below.
The Company is periodically required to file estimates of its oil
and gas reserve data with various governmental regulatory
authorities and agencies. In addition, estimates are from time to
time furnished to governmental agencies in connection with specific
matters pending before such agencies. The basis for reporting
estimates of reserves to these agencies, in some cases, is not
comparable to that furnished above because of the nature of the
various reports required. The major variations include differences
in when such estimates are made, in the definition of reserves, in
the requirements to report in some instances on a gross, net or
total operator basis and in the requirements to report in terms of
smaller geographical units.
Production, Unit Prices and Costs
The following table sets forth certain information regarding the
production volumes of, average sales prices received for and average
production costs for the Company's sale of oil and gas for each of
the years ended December 31, 1997, 1996 and 1995:
<TABLE>
<CAPTION>
1997 1996 1995
--------- ------- ---------
<S> <C> <C> <C>
Net gas production (Mcf) 4,061,000 631,000 1,093,000
Net crude oil and condensate
production (Bbls) 34,000 29,000 45,000
Sales price:
Natural gas (per Mcf) $ 2.62 $ 2.72 $ 1.63
Crude oil and condensate
(per Bbl) $19.19 $22.22 $18.83
Production (lifting) costs
per Mcf equivalent(1) $0.16 $0.75 $0.68
</TABLE>
(1) Production costs were converted to an Mcf equivalent on the
basis of one barrel of oil being equivalent to six Mcf of natural
gas. Production costs exclude all depreciation and amortization
associated with property and equipment. The components of
production costs may vary substantially among wells depending on the
production characteristics of the particular producing formation and
method of recovery employed and other factors, but include charges
under transportation agreements and all lease operating expenses.
____________________
The relationship between the Company's sales prices and its
production (lifting) costs depicted by the table above is not
necessarily indicative of future results of operations expected by
the Company. See "Cautionary Statements" below.
[Page] 4
Acreage
The following table sets forth the oil and gas acreage in which the
Company held an interest as of December 31, 1997:
<TABLE>
<CAPTION>
Developed(1) Undeveloped
---------------- -------------------
Gross(2) Net(3) Gross(2) Net(3)
Acres Acres Acres Acres
------ ------ ------- ------
<S> <C> <C> <C> <C>
Offshore (federal waters) 32,981 12,631 101,787 32,670
Onshore Louisiana and
Texas - - 5,448 1,434
------ ------ ------- ------
Total 32,891 12,631 107,235 34,104
====== ====== ======= ======
</TABLE>
(1) "Developed" acreage includes acreage by lease, unit or offshore
block in which there are one or more producing wells or shut-in
wells capable of commercial production and/or acreage with
established reserves in quantities deemed sufficient to develop.
(2) The term "Gross" refers to acres in which the Company owns a
working interest and/or operating rights.
(3) The term "Net" refers to gross acres multiplied by the
percentage of the working interest and/or operating rights owned
therein.
____________________
Oil and Gas Drilling Activity
The following table sets forth the gross and net number of
productive, dry and total exploratory wells and development wells
that the Company drilled in each of the years ended December 31,
1997, 1996 and 1995:
<TABLE>
<CAPTION>
1997 1996 1995
------------ ------------ ------------
Gross Net Gross Net Gross Net
----- ----- ----- ----- ----- -----
<S> <C> <C> <C> <C> <C> <C>
Exploratory
Productive 4.0 1.251 4.0 0.910 1.0 0.375
Dry 3.0 0.737 4.0 0.948 - -
----- ----- ----- ----- ----- -----
Total 7.0 1.988 8.0 1.858 1.0 0.375
===== ===== ===== ===== ===== =====
Development
Productive 5.0 2.484 - - 5.0 1.875
Dry - - - - - -
----- ----- ----- ----- ----- -----
Total 5.0 2.484 - - 5.0 1.875
===== ===== ===== ===== ===== =====
</TABLE>
Operating Hazards and Insurance
The Company's operations are subject to the usual hazards incident
to the drilling and production of natural gas and crude oil, such as
blowouts, cratering, explosions, uncontrollable flows of oil, gas or
well fluids, fires, pollution, releases of toxic gas and other
environmental hazards and risks. Offshore oil and gas operations
are subject to the additional hazards of marine operations, such as
capsizing, collision and adverse weather and sea conditions. These
hazards can cause personal injury and loss of life, severe damage to
and destruction of property and equipment, environmental damages and
suspension of operations.
Drilling activities are subject to numerous risks, including the
risk that no commercially productive hydrocarbon reserves will be
encountered. The cost of drilling, completing and operating wells
and installing production facilities and pipelines is often
uncertain. The Company's drilling operations may be curtailed,
delayed or canceled as a result of numerous factors, including,
weather conditions, compliance with governmental requirements and
shortages or delays in the delivery of equipment.
The Company maintains insurance of various types that it considers
to be adequate to cover its operations. Such insurance is subject
to deductibles that the Company considers reasonable and not
[Page] 5
excessive. Consistent with insurance coverage generally available
to the industry, the Company's insurance policies do not provide
coverage for losses or liabilities relating to pollution, except for
sudden and accidental occurrences.
Competition
Competition in the oil and gas industry is intense. In seeking to
obtain desirable new leases and exploration prospects, the Company
faces competition from both major and independent oil and gas
companies. Many of these competitors have financial and other
resources substantially in excess of those available to the Company
and may, accordingly, be better positioned to acquire and exploit
prospects, hire personnel and market production. In addition, many
of the Company's larger competitors may be better able to withstand
the effect of changes in factors such as worldwide oil and natural
gas prices and levels of production, the cost and availability of
alternative fuels and the application of government regulations,
which affect demand for the Company's oil and natural gas production
and are beyond the control of the Company.
Marketing
The Company's gas sales are currently made in the "spot market" at
prevailing prices. Prices on the spot market fluctuate with demand.
Crude oil and condensate production is generally sold one month at a
time at prevailing prices.
EXPLORATION AND DEVELOPMENT PROGRAMS
In 1995, MOXY entered into an agreement with MCN that
established the MOXY/MCN Program. Under the MOXY/MCN Program
revenues and costs were shared 60 percent by MCN and 40 percent by
MOXY, with MOXY borrowing its share of costs from MCN. The
Company's 40 percent share of future revenues from the MOXY/MCN
Program was dedicated to repaying the loan amounts which bore
interest at the annual base rate quoted from time to time by the
Chase Manhattan Bank plus 2 percent. The Company's obligation to
repay loans under the MOXY/MCN Program was non-recourse, except to
the properties contributed to and developed under the MOXY/MCN
Program.
In 1997, MOXY management decided to undertake the Rights Offering to
raise funds that would allow it to recapitalize, restructure its exploration
and development operations and engage in a significantly expanded and more
diversified, multi-year exploratory drilling program. In November 1997,
MOXY received net proceeds of $92.2 million from the sale of a total of
28.6 million shares of common stock at $3.50 per share under the terms of
the Rights Offering to existing stockholders. PLP purchased 3.9 million
of these shares, representing approximately 9 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 (the"Stand-By Commitment"). MOXY concurrently used $44.5
million of these proceeds, including $0.8 million of interest costs,
to acquire from PLP certain assets of and repay MOXY's borrowings
under the MOXY/MCN Program. PLP had purchased the assets from, and
repaid the debt due, MCN in August 1997 for an equivalent amount,
before interest costs. The assets consisted of MCN's interest in
the Vermilion Block 160 and 410 oil and gas fields ($24.5 million),
and the debt represented MOXY's borrowings to fund MOXY's share of
program costs ($20.0 million). MOXY paid PLP a $6.0 million Stand-By
Commitment fee for acquiring and holding the MOXY/MCN Program assets
referred to above until completion of the Rights Offering, entering
into the Stand-By Commitment and agreeing to enter into the MOXY
Exploration Program (see below).
MOXY is using the remaining net Rights Offering proceeds to
fund a portion of its share of an aggregate $210 million, multi-year
oil and gas exploration program to explore and develop prospects
primarily offshore in the Gulf of Mexico and onshore in the Gulf
Coast region formed upon completion of the Rights Offering to
replace the MOXY/MCN Program (the"MOXY Exploration Program"). MOXY
manages the program, selecting all prospects and drilling
opportunities, and serves as operator. MOXY and PLP contributed to
the MOXY Exploration Program their interests in all exploration
properties formerly part of the MOXY/MCN Program and their joint
interests in certain other properties. Under this program most
exploration expenditures will be shared 56.4 percent by PLP, 37.6
percent by MOXY and 6 percent by an individual investor who is a
director of MOXY, with all other costs and revenues shared 47
percent by PLP, 48 percent by MOXY and 5 percent by the individual
investor. Exploration costs 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. MOXY and PLP have agreed to apply an
aggregate of $8.3 million of certain exploratory costs against their
program commitment. The MOXY Exploration Program will terminate
after initial exploration program expenditures of $210 million have
been committed or on March
[Page] 6
31, 2002, whichever is earlier.
On December 22, 1997, FTX, the administrative managing general
partner and owner of a 51.6 percent interest in PLP, merged into IMC
Global Inc. ("IGL") (the "Merger"). As a result of the Merger, IGL
acquired control of FTX and PLP and became the administrative
managing partner of PLP. The Merger had no impact on the terms and
conditions of the MOXY Exploration Program.
REGULATION
General
The oil and gas industry is extensively regulated by federal and
state authorities in the United States. Legislation affecting the
oil and gas industry is under constant review and, relevant statutes
are constantly being adopted, expanded or amended. Further,
numerous departments and agencies, both federal and state, have
issued rules and regulations binding on the oil and gas industry and
its individual members, some of which carry substantial penalties
for the failure to comply. The regulatory burden on the oil and gas
industry increases its cost of doing business and, consequently,
affects its profitability.
Exploration, Production and Development
The exploration, production and development operations of the
Company are subject to regulation at both the federal and state
levels. Such regulation requires operators to obtain permits to
drill wells and to meet certain bonding and insurance requirements
in order to drill or operate wells. Such regulation also controls
the location of wells, the method of drilling and casing wells, the
surface use and restoration of properties upon which wells are
drilled and the plugging and abandoning of wells. The Company's
exploration, production and development operations are also subject
to various conservation laws and regulations. These include the
regulation of the size of drilling and spacing units or proration
units, the density of wells that may be drilled, the levels of
production, and the unitization or pooling of oil and gas
properties.
The Company presently has interests in or rights to 34 offshore
leases located in federal waters on the outer continental shelf
("OCS"). Federal leases are administered by the Mineral Management
Service ("MMS"). Individuals and entities must qualify with the
MMS prior to owning and operating any leasehold or right-of-way
interest in federal waters. Such qualification with the MMS
generally involves filing certain documents with the MMS and
obtaining performance bonds. For offshore operations, lessees must
obtain MMS approval for exploration plans and development and
production plans prior to the commencement of such operations. In
addition to permits required from other agencies (such as the Coast
Guard, the Army Corp of Engineers and the Environmental Protection
Agency ("EPA")), lessees must obtain a permit from the MMS prior to
the commencement of drilling. The MMS has promulgated regulations
requiring offshore production facilities located on the OCS to meet
stringent engineering and construction specifications, and has
recently proposed and/or promulgated additional safety-related
regulations concerning the design and operating procedures of OCS
production platforms and pipelines. The MMS also has regulations
restricting the flaring or venting of natural gas, and has proposed
amendments to such regulations that would prohibit the flaring of
liquid hydrocarbons and oil without prior authorization. Similarly,
the MMS has promulgated other regulations governing the plugging and
abandonment of offshore wells and the removal of all production
facilities. To cover the various obligations of an OCS lease, the
MMS generally requires that lessees post substantial bonds or other
acceptable assurances that such obligations will be met. The cost
of such bonds or other security can be substantial and there is no
assurance that bonds or other surety can be obtained in all cases.
Under certain circumstances, the MMS may require all Company
operations on federal leases to be suspended or terminated. Any
such suspension or termination would materially adversely affect the
Company's financial condition and operations.
Environmental
General. The Company's operations are subject to extensive federal,
state and local regulatory requirements relating to environmental
affairs, health, safety and waste management and chemical products.
These laws and regulations require the acquisition of permits before
construction or drilling commences, limit or prohibit construction
and drilling activities on certain lands lying within wilderness or
wetlands and other protected areas and impose substantial
liabilities for pollution resulting from the Company's operations.
Moreover, the recent trend toward stricter standards in
environmental legislation and regulations is likely to continue.
For instance, legislation has been proposed in Congress from time to
time to reclassify oil and gas production wastes as "hazardous
waste." If such legislation were to be enacted, it could have
[Page] 7
a significant impact on the operating costs of the Company, as well as
the oil and gas industry in general. State initiatives to further
regulate the disposal of oil and gas wastes are also pending in
certain states and could have a similar impact on the Company.
Management believes that compliance with current applicable
environmental laws and regulations will not have a material adverse
impact on the Company. The Company believes that its operations are
and will continue to be in substantial compliance with applicable
environmental laws, regulations and ordinances.
It is possible, however, that future developments such as stricter
environmental laws or regulations could adversely affect the
Company's operations. Moreover, some risk of environmental costs
and liabilities is inherent in the Company's operations as it is
with other companies engaged in similar or related businesses, and
there can be no assurance that material costs and liabilities,
including substantial fines or criminal sanctions for violation of
environmental laws and regulations, will not be incurred by the
Company.
Solid Waste. The Company's operations may generate or involve the
transport of both hazardous and nonhazardous solid wastes that are
subject to the requirements of the Federal Resource Conservation and
Recovery Act and comparable state statutes. In addition, the EPA is
presently in the process of developing stricter disposal standards
for nonhazardous waste. Changes in these regulations may result in
additional expenditures or operating expenses by the Company.
Hazardous Substances. The Comprehensive Environmental Response,
Compensation and Liability Act ("CERCLA") and comparable state
statutes, also known as "Superfund" laws, impose liability on
certain classes of persons that contribute to the release of a
"hazardous substance" into the environment. These persons include
the owner or operator of a site, and companies that transport,
dispose of or arrange for the disposal of, the hazardous substances
found at the site. CERCLA also authorizes the EPA, and in some
cases, third parties to take actions in response to threats to the
public health or the environment and to recover their costs from the
responsible classes of persons. Despite the "petroleum exclusion"
of CERCLA that encompasses wastes directly associated with crude oil
and gas production, the Company may generate or transport "hazardous
substances" within the meaning of CERCLA or comparable state
statutes in the course of its ordinary operations. Thus, the Company
may be responsible under CERCLA or the state equivalents for all or
part of the costs required to clean up sites where a release has
occurred.
Air. The Company's operations may also be subject to the Clean Air
Act ("CAA") and comparable state statutes. Amendments to the CAA
were adopted in 1990 and contain provisions that may result in the
gradual imposition of certain pollution control requirements with
respect to air emissions from operations. The EPA has been
developing regulations to implement these requirements. The Company
may be required to incur certain capital expenditures in the next
several years for air pollution control equipment in connection with
maintaining or obtaining operating permits and approvals addressing
other air emission-related issues.
Water. The Federal Water Pollution Control Act ("FWPCA") strictly
regulates the unauthorized discharge of produced waters and other
oil and gas wastes into navigable waters. The FWPCA provides for
civil and criminal penalties for any unauthorized discharges of oil
and other hazardous substances in reportable quantities and imposes
substantial potential liability for the costs of removal,
remediation and damages. Similarly, the Oil Pollution Act of 1990
(the "OPA") imposes liability for the discharge of oil into or upon
navigable waters or adjoining shorelines. Among other things, the
OPA raises liability limits, narrows defenses to liability and
provides more instances in which a responsible party is subject to
unlimited liability. State laws for the control of water pollution
also provide varying civil and criminal penalties and liabilities in
the case of an unauthorized discharge of petroleum or its
derivatives into state waters. Further, the Coastal Zone Management
Act authorizes state implementation and development of programs or
management measures for nonpoint source pollution to restore and
protect coastal waters.
Endangered Species. Several federal laws impose regulations
designed to ensure that endangered or threatened plant and animal
species are not jeopardized and their critical habitats are neither
destroyed nor modified. These laws may restrict the Company's
exploration, development and production operations and impose civil
or criminal penalties for non-compliance.
Safety and Health Regulations
The Company is also subject to laws and regulations concerning
occupational safety and health. It is not anticipated that the
Company will be required in the near future to expend amounts that
are material in the aggregate to the Company's overall operations by
reason of occupational safety and health laws and regulations, but
inasmuch as such laws and regulations are frequently changed, the
Company is
[Page] 8
unable to predict the ultimate cost of compliance.
EMPLOYEES
At March 2, 1998, the Company had 16 employees. All of the
Company's employees are devoted primarily to managerial, land and
geological functions. The Company intends to continue its policy of
limiting its number of permanent employees and, to that end,
generally utilizes the services of independent consultants and
contractors to perform various professional services, particularly
in the areas of construction, design, well site surveillance and
environmental assessment. Field and on-site production operation
services such as pumping, maintenance, dispatching, inspection and
testing, are also generally provided by independent contractors.
Currently, a major portion of the Company's geological and
geophysical services are performed by CLK Company, L.L.C. ("CLK").
Under the Company's exclusive agreement with CLK, the Company pays
CLK an annual fee of $2.2 million, with $0.5 million of this fee
paid in Company common stock, and reimburses CLK's direct expenses
incidental to its work for the Company and for its office space. In
addition, CLK receives a 3% overriding royalty interest on all new
domestic prospects accepted by the Company. For the year ended
December 31, 1997, the Company incurred $3.0 million of expenses
under its agreement with CLK.
Other than those functions performed by the Company's employees and
those provided under third party contracts, since January 1, 1996
numerous services necessary for the business and operations of the
Company, including certain executive, technical, administrative,
accounting, financial, tax and other services, have been performed
by FM Services Company ("FMS"), currently owned 25 percent by MOXY,
pursuant to a services agreement between FMS and the Company (the
"Services Agreement"). Prior to 1996, substantially the same
services were provided by FTX. From September 1995 through
December, 1997 these services were provided for a fixed annual fee
of $1.0 million, subject to annual cost of living increases
beginning in the first quarter of 1997. Prior to September 1995,
such services were provided on a cost reimbursement basis. For the
year ended December 31, 1997, the Company incurred $1.0 million of
expenses under its agreement with FMS. As of January 1, 1998, MOXY
and FMS amended the Services Agreement whereby FMS provides
services on a cost reimbursement basis. The Services Agreement is
terminable by the Company at any time upon 90 days notice.
CAUTIONARY STATEMENTS
This report includes "forward-looking statements" within the meaning
of Section 27A of the Securities Act of 1933 and Section 21E of the
Securities Exchange Act of 1934. Forward-looking statements are all
statements other than statements of historical fact included in this
report, including, without limitation, the statements under the
headings "Business and Properties," "Market for Registrant's Common
Equity and Related Stockholder Matters," and "Management's
Discussion and Analysis of Financial Condition and Results of
Operations and Disclosures about Market Risks" regarding MOXY's
financial position and liquidity, payment of dividends, MOXY's
strategic alternatives, future capital needs, development and
capital expenditures (including the amount and nature thereof), the
drilling of wells, reserve estimates and future net revenues
attributable thereto, business strategies, and other plans and
objectives of management of the Company for future operations and
activities.
Forward-looking statements are based on certain assumptions and
analyses made by the Company in light of its experience and its
perception of historical trends, current conditions, expected future
developments and other factors it believes are appropriate under the
circumstances. These statements are subject to a number of
assumptions, risks and uncertainties, including the risk factors
discussed below and in the Company's other filings with the
Commission, general economic and business conditions, the business
opportunities that may be presented to and pursued by the Company,
changes in law or regulations and other factors, many of which are
beyond the control of the Company. Readers are cautioned that any
such statements are not guarantees of future performance and the
actual results or developments may differ materially from those
projected in the forward-looking statements. All subsequent written
and oral forward-looking statements attributable to MOXY or persons
acting on its behalf are expressly qualified in their entirety by
these cautionary statements. Important factors that could cause
actual results to differ materially from MOXY's expectations
include, among others, the following.
Limited Operating History and
Significant Historical Operating Losses
The Company commenced operations in 1994. In addition, the Company
has only two significant producing fields, which have been on
production for only a limited time, making proved reserves and
levels of future production attributable to these fields less
susceptible to estimation. Also, as a result of the expensing of
non-productive exploratory drilling and related costs from the
Company's exploratory
[Page] 9
program, the Company has incurred significant operating losses to date.
The Company's viability must be considered in light of the risks and
difficulties frequently encountered by companies engaged in the early
stages of their oil and gas exploration, development and production
activities.
Substantial Capital Requirements
The development of the Company's business will continue to require
substantial expenditures. The Company's future financial results
depend on its ability to locate hydrocarbons in commercial
quantities and on the market prices for oil and gas. There can be
no assurance that the Company will achieve or sustain profitability
or positive cash flows from operating activities in the future.
The Company makes, and will continue to make, substantial
capital expenditures for the exploration, development and production
of oil and natural gas reserves and related projects. If the
Company fails to discover significant reserves, experiences
operating difficulties or if oil and gas prices decline and reduce
cash generated from operations, the Company may be required to
obtain additional financing to fund its operations. No assurance
can be given that such financing will be available, and if it is not
available, the Company may be required to curtail its operations.
Volatility of Oil and Gas Prices
The Company's revenues substantially depend on the prevailing
prices for natural gas and, to a lesser extent, oil. In recent
years, natural gas and oil prices and, therefore, the level of
industrywide drilling, exploration, development and production, have
been extremely volatile. Prices are affected by market supply and
demand factors as well as actions of state and local agencies, U.S.
and foreign governments and international cartels. All of these
factors are beyond the control of the Company. Any significant or
extended decline in natural gas and oil prices will have a material
adverse effect on the Company's financial condition and operations
and could impair access to capital.
Exploration and Development Risks
Exploration and development of natural gas and oil involve a high
degree of risk that no commercial production will be obtained or
that the production will be insufficient to recover drilling and
completion costs. The cost of drilling, completing and operating
wells is often uncertain, and cost overruns in offshore operations
can adversely affect the economics of a project. The Company's
drilling operations may be curtailed, delayed or canceled as a
result of numerous factors, including title problems, weather
conditions, compliance with governmental requirements and shortages
or delays in the delivery of equipment. Furthermore, completion of
a well does not ensure a profit on the investment or a recovery of
drilling, completion and operating costs.
Replacement of Reserves
MOXY's future performance depends in part upon its ability to
acquire, find and develop oil and gas reserves that are economically
recoverable. Without successful exploration or development
activities, MOXY's reserves will be depleted. No assurances can be
given that MOXY will be able to find and develop additional reserves
on an economic basis.
MOXY's business is capital intensive and significant operating cash
flow must be reinvested in development or exploration activities in
order for MOXY to maintain its asset base of proved oil and gas
reserves. To the extent cash flow from operations is reduced and
external sources of capital become limited or unavailable, MOXY's
ability to make the necessary capital investments to maintain or
expand its asset base will be impaired. Without such investment,
MOXY's oil and gas reserves will be depleted.
Although the Company currently emphasizes reserve growth through
exploratory drilling, it may make acquisitions form time to time of
producing properties and properties with proved undeveloped
reserves. Evaluation of recoverable reserves of natural gas and
oil, which is an integral part of the property selection process,
depends on evaluation of geological, engineering and production
data, some or all of which may proved to be unreliable or not
indicative of future performance.
Reserves and Future Net Cash Flow
Information relating to proved oil and gas reserves owned by MOXY is
based upon engineering estimates. Reserve engineering is a
subjective process of estimating the recovery from underground
accumulations of oil and natural gas that cannot be measured in an
exact manner, and the accuracy of any reserve estimate is a function
of the quality of available data and of engineering and geological
[Page] 10
interpretation and judgment. Estimates of economically recoverable
oil and gas reserves and of future net cash flows necessarily depend
upon a number of variable factors and assumptions, such as
historical production from the area compared with production from
other producing areas, the assumed effects of governmental
regulations and assumptions concerning future oil and gas prices,
future operating costs, severance and excise taxes, development
costs and workover and remedial costs, all of which may in fact vary
considerably from actual results. Because all reserve estimates are
to some degree speculative, the quantities of oil and natural gas
that are ultimately recovered, production and operation costs, the
amount and timing of future development expenditures and future oil
and natural gas sales prices may all vary from those assumed in
these estimates and such variances may be material. In addition,
different reserve engineers may make different estimates of reserve
quantities and cash flows based upon the same available data. See
"Business and Properties - Reserves."
The present values of estimated future net cash flows referred to in
this report should not be construed as the current market value of
the estimated proved oil and gas reserves attributable to MOXY's
properties. In accordance with applicable requirements of the
Commission, the estimated discounted future net cash flows from
proved reserves are generally based on prices and costs as of the
date of the estimate, while actual future prices and costs may be
materially higher or lower. Actual future net cash flows also will
be affected by factors such as the amount and timing of actual
production, supply and demand for oil and gas, curtailments or
increases in consumption by gas purchasers and changes in
governmental regulations or taxation. The timing of actual future
net cash flows from proved reserves, and thus their actual present
value, will be affected by the timing of the production and the
incurrence of expenses in connection with development and production
of oil and gas properties. In addition, the 10% discount factor,
which is required by the Commission to be used to calculate
discounted future net cash flows for reporting purposes, is not
necessarily the most appropriate discount factor based on interest
rates in effect from time to time and risks associated with the oil
and gas properties owned by MOXY or the oil and gas industry in
general.
Shortages of Supplies and Equipment
The Company's ability to conduct its operations in a timely and cost
effective manner is subject to the availability of oil and gas field
supplies, equipment and service crews. The industry is currently
experiencing a shortage of certain types of drilling rigs and work
boats in the Gulf . This shortage could result in delays in the
Company's operations as well as higher operating and capital costs.
Shortages of other drilling equipment, tubular goods, drilling
service crews and seismic crews could occur from time to time,
further hindering the Company's ability to conduct its operations as
planned.
Operating Hazards; Limited Insurance Coverage
MOXY's operations are subject to hazards and risks inherent in
drilling for and production and transporting natural gas and oil,
such as fires, natural disasters, encountering formations with
abnormal pressures, blowouts, cratering, pipeline ruptures and
spills, any of which can result in environmental pollution, personal
injuries, property damage and substantial losses to MOXY. Moreover,
MOXY's operations in the Gulf are subject to a variety of operating
risks peculiar to the marine environment, such as to hurricanes or
other adverse weather conditions, more extensive governmental
regulation, (including regulations that may, in certain
circumstances, impose strict liability for pollution damage) and
interruption or termination of operations by governmental
authorities based on environmental or other considerations.
MOXY maintains insurance coverage against some, but not all,
potential losses. MOXY's coverages include, but are not limited to,
operator's extra expense, physical damage on certain assets,
employer's liability, comprehensive general liability, automobile,
workers' compensation and loss of production income insurance and
limited coverage for sudden environmental damages. MOXY does not
believe that insurance coverage is available at a reasonable cost
for environmental damages that occur over time or the full
liability that could be caused by sudden environmental damages.
Accordingly, MOXY may be subject to liabilities or may lose
substantial portions of its properties in the event of environmental
damages. The occurrence of an event that is not fully covered by
insurance could have an adverse impact on MOXY's financial condition
and results of operations.
Governmental Regulation
MOXY's operations are affected by political developments and federal
and state laws and regulations. In particular, oil and natural gas
production, operations and economics are or have been affected by
price controls, taxes and other laws relating to the oil and natural
gas industry, by changes in such laws and by changes in
administrative regulations. MOXY cannot predict how existing laws
and regulations may be interpreted by enforcement agencies or court
rulings, whether additional laws and
[Page] 11
regulations will be adopted, or the effect such changes may have on
its business or financial condition.
MOXY's operations are subject to numerous laws and regulations
governing the discharge of materials into the environment or
otherwise relating to environmental protection. These laws and
regulations require the acquisition of a permit before drilling
commences, restrict the types, quantities and concentration of
various substances that can be released into the environment in
connection with drilling and production, limit or prohibit drilling
activities on certain lands lying within wilderness, wetlands and
other protected areas, and impose substantial liabilities for
pollution which might result from MOXY's operations. Moreover, the
recent trend toward stricter standards in environmental legislation
and regulation is likely to continue. Initiatives to further
regulate the disposal of crude oil and natural gas wastes are also
pending in certain states and could have a similar impact. MOXY
could incur substantial costs to comply with environmental laws and
regulations. In addition to compliance costs, government entities
and other third parties may assert substantial liabilities against
owners and operators of oil and gas properties for oil spills,
discharges of hazardous materials, remediation and cleanup costs and
other environmental damages, including damages caused by previous
property owners. The imposition of any such liabilities on MOXY
could have a material adverse effect on MOXY's financial condition
and results of operations.
Competition
MOXY operates in the highly competitive areas of natural gas and oil
production, development and exploration with many other companies,
many of which have significantly greater financial and other
resources than MOXY. Factors affecting MOXY's ability to compete in
the marketplace include the availability of capital, access to
information relating to a property and the standards established by
MOXY for the minimum projected return on investment. MOXY's
competitors include major integrated oil companies and a substantial
number of independent energy companies, many of which may have
substantially larger financial resources, staffs and facilities than
MOXY.
Item 3. Legal Proceedings
Although the Company may from time to time be involved in various
legal proceedings of a character normally incident to the ordinary
course of its business, the Company believes that potential
liability from any such pending or threatened proceedings will not
have a material adverse effect on the financial condition or results
of operations of the Company. The Company maintains liability
insurance to cover some, but not all, of the potential liabilities
normally incident to the ordinary course of its businesses as well
as other insurance coverages customary in its business, with such
coverage limits as management deems prudent.
Item 4. Submission of Matters to a Vote of Security Holders
A Special Meeting of Stockholders of the Company was held on
October 9, 1997, as more fully described in Part II, Item 4 of the
Company's Quarterly Report on Form 10-Q for the quarter ended
September 30, 1997 and incorporated herein by reference.
Executive Officers of the Registrant
Listed below are the names and ages, as of March 2, 1998, of the
present executive officers of the Company together with the
principal positions and offices with the Company held by each. All
officers of the Company serve at the pleasure of the Board of
Directors of the Company.
Name Age Position or Office
---- --- ------------------
James R. Moffett 59 Co-Chairman of the Board
Richard C. Adkerson 51 Co-Chairman of the Board and Chief
Executive Officer
C. Howard Murrish 57 President and Chief Operating Officer
John G. Amato 54 General Counsel
Glenn A. Kleinert 55 Senior Vice President
James H. Lee 40 Senior Vice President
[Page] 12
James R. Moffett has served as Co-Chairman of the Board of the
Company since April 1994. He also serves as Chairman of the Board
and Chief Executive Officer of Freeport-McMoRan Copper & Gold Inc.
("FCX"), as Co-Chairman of the Board of Freeport-McMoRan Sulphur
Inc. ("FSC") and as a director of IMC Global Inc. Mr. Moffett
served as Chairman of the Board of FTX from May 1992 to December
1997 and as President of FTX from May 1992 to April 1993.
Richard C. Adkerson has served as Co-Chairman of the Board and Chief
Executive Officer of the Company since April 1994. Mr. Adkerson is
President, Chief Operating Officer and Chief Financial Officer of
FCX, Chairman of the Board and Chief Executive Officer of FM
Properties ("FMPO"), and Vice Chairman of the Board of FSC. Mr.
Adkerson served as Executive Vice President of FCX from July 1995 to
April 1997 and as Senior Vice President of FCX from February 1994 to
July 1995. He served as Vice Chairman of the Board of FTX from
August 1995 until December 1997 and as Senior Vice President of FTX
from May 1992 to August 1995.
C. Howard Murrish has served as President and Chief Operating
Officer of the Company since September 1994. He was a partner in
CLK until September 1994. He was a Senior Executive Vice President
of the oil and gas division of FTX from 1986 until February 1992.
John G. Amato has served as General Counsel of the Company since
April 1994. Mr. Amato also serves as General Counsel of FMPO and
FSC. Prior to August 1995, Mr. Amato served as General Counsel of
FCX and FTX. Mr. Amato currently provides legal and business
advisory services to FCX under a consulting arrangement.
Glenn A. Kleinert has served as Senior Vice President of the Company
since May 1994. Mr. Kleinert was a Senior Vice President of the oil
and gas division of FTX and held that position from December 1990
until December 1997.
James H. Lee has served as Senior Vice President of the Company
since November 1996. Mr. Lee was a Director of Finance and Business
Development of FTX from August 1993 until December 1997 and a Vice
President of the oil and gas division of FTX from 1994 until
December 1997.
PART II
Item 5. Market for Registrant's Common Equity and Related
Stockholder Matters
The Company's Common Stock is listed on the Nasdaq National Market
under the symbol "MOXY." The following table sets forth, for the
periods indicated, the range of high and low closing bid prices, as
reported by the Nasdaq National Market. The quotes represent
"inter-dealer" prices without adjustment or mark-ups, mark-downs or
commissions and may not represent actual transactions.
<TABLE>
<CAPTION>
High Low
-------- ---------
<S> <C> <C>
1997
First Quarter $3 15/16 $2 1/16
Second Quarter 3 13/16 2 5/16
Third Quarter 5 1/2 3 5/16
Fourth Quarter 5 3/4 3
1996
First Quarter $3 3/4 $2 13/16
Second Quarter 3 7/8 2 1/2
Third Quarter 2 15/16 1 3/4
Fourth Quarter 3 1/16 1 1/2
</TABLE>
As of March 23, 1998 there were 10,636 record holders of the
Company's Common Stock.
The Company has not in the past, and does not anticipate in the
future, paying cash dividends on its Common Stock. The Company
currently intends to reinvest its available cash in the
identification, exploration and development of additional oil and
gas properties. The decision whether or not to pay dividends and in
what amounts is solely within the discretion of the Company's Board
of Directors.
[Page] 13
Item 6. Selected Financial Data
The following table sets forth selected historical financial
and operating data for the Company for each of the three years in
the period ended December 31, 1997 and for the period from inception
(May 1994) through December 31, 1994. The historical financial
information is derived from the audited financial statements of the
Company and is not necessarily indicative of future results. The
following data should be read in conjunction with "Management's
Discussion and Analysis of Financial Condition and Results of
Operations" and the Company's historical financial statements and
notes thereto.
<TABLE>
<CAPTION>
1997 1996 1995 1994
---------- -------- ---------- --------
(In thousands, except per share amounts)
<S> <C> <C> <C> <C>
Financial Data
Periods Ended December 31:
Revenues $ 13,552 $ 4,070 $ 3,267 $ 174a
Exploration expenses 11,966 9,818b 11,756 15,518
Operating loss (9,904) (9,883) (14,799) (17,682)
Net loss (10,538) (9,862) (14,635) (15,200)
Net loss per share (0.56) (0.71) (1.06) (1.10)
Average shares
outstanding 18,847 13,895 13,772 13,770
At December 31:
Working capital $ 33,749d $ 2,972 $ 8,257 $ 15,063
Property, plant and
equipment, net 57,705d 18,231 9,878c 17,094
Total assets 101,088d 30,980 21,633c 34,425
Production loan, less current
portion - d 12,391 530 -
Stockholders' equity 90,698d 8,246 17,605 32,157
Operating Data
Production:
Gas (thousand cubic
feet, or Mcf) 4,061,000 631,000 1,093,000 -
Oil (barrels) 34,000 29,000 45,000 -
Average realization:
Gas (per Mcf) $ 2.62 $ 2.72 $ 1.63 $ -
Oil (per barrel) 19.19 22.22 18.83 -
</TABLE>
a. Represents miscellaneous net royalty income; no production
quantities or average realizations shown since amounts are not
meaningful.
b. Includes a reduction of $2.1 million ($0.15 per share)
resulting from reimbursement of previously expensed costs.
c. After giving effect to transfer of property interests to MCN in
connection with formation of MOXY/MCN Program.
d. Reflects net proceeds of Rights Offering, which were used to
purchase producing property interests and repay borrowings, with the
remainder held to fund MOXY Exploration Program commitments.
Items 7 And 7A. Management's Discussion And Analysis Of Financial
Condition And Results Of Operations And Disclosures About Market
Risks
OVERVIEW
MOXY is an independent oil and gas company engaged in the
exploration, development and production of oil and natural gas.
MOXY commenced operations in May 1994 following the distribution of
its common stock to the stockholders of FTX in order to carry on
substantially all of the oil and gas exploration activities
previously conducted by FTX. MOXY and its predecessors have
conducted exploration, development and production operations
offshore in the Gulf of Mexico and onshore in the Gulf Coast region
and other areas for more than 25 years, which have provided MOXY
with an extensive geological and geophysical database and
significant technical and operational expertise. MOXY expects
[Page] 14
to continue to concentrate its efforts in this selected geographic area
where its management team has significant exploration experience.
Management believes the opportunities for MOXY to discover
meaningful oil and gas reserves are significant and that these
opportunities can best be achieved through the use of advanced 3-D
seismic technology, applied in conjunction with a large, long-term
exploration program. In 1995, MOXY entered into an agreement with
MCN that established the MOXY/MCN Program. Under the MOXY/MCN Program
revenues and costs were shared 60 percent by MCN and 40 percent by
MOXY, with MOXY borrowing its share of costs from MCN. In 1997,
MOXY management decided to undertake the Rights Offering to
raise funds that would allow it to recapitalize, restructure its
exploration and development operations and engage in a significantly
expanded and more diversified, multi-year exploratory drilling
program. In November 1997 MOXY completed the Rights Offering,
raising $92.2 million of net proceeds and enabling it to repay all
borrowings under the MOXY/MCN Program, acquire the interest
previously owned by MCN in the Vermilion Block 160 and 410 fields
and provide its share of funding under a newly-formed exploration
program with PLP. See further discussion under "Capital Resources
and Liquidity" and Note 2.
OPERATIONAL ACTIVITIES
The following significant operational activities occurred
during 1997.
* Vermilion Block 160 - Production from three new development
wells commenced during the 1997 fourth quarter, with the field
averaging gross production rates as of December 31, 1997 of
approximately 53 million cubic feet (Mmcf) of gas and 1,600 barrels
of condensate per day. During the 1997 fourth quarter MOXY, as
operator, drilled and saved the Vermilion Block 160 #4 sidetrack
development well at a location remote from the existing platform and
outside of the field unit area. The well encountered 106 feet of net
gas pay in four sands. Fabrication of a platform is in progress,
and development of these new reserves is planned for 1998. MOXY has
a 58 percent net revenue interest in the #4 sidetrack well, subject
to a 12.7 percent net profits interest, and a 25.5 percent net
revenue interest, subject to a 2.6 percent net profits interest, in
the Vermilion 160 field unit as a result of final re-determination.
The Vermilion Block 160 field is located approximately 155 miles
west southwest of New Orleans, Louisiana in approximately 100 feet
of water.
* Vermilion Block 410 - In late 1996, the operator completed
installation of the production platforms and related facilities and
commenced production from one of the two platforms. Production
began from the second platform in February 1997. MOXY has a 28
percent net revenue interest in this field. Daily gross production
averaged approximately 57 Mmcf of natural gas during the 1997 fourth
quarter.
* West Cameron Block 616 - During the fourth quarter of 1997,
MOXY, as operator, drilled and saved the West Cameron Block 616 #3
exploratory well. This well encountered a total of 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. In March 1998 MOXY completed
drilling the #5 well, a development well planned 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 #5 well, encountered 190 feet of net gas pay in a different
fault block. The West Cameron Block 616 #5 well encountered three
gas sands not seen in the #2 well and was credited with a total of
324 feet of net gas pay in eight sands. 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. MOXY has a 39 percent net revenue interest in the #3 and
#4 wells and a 37 percent net revenue interest in the #5 well.
Additionally, MOXY initiated drilling an exploratory well on an
offset block, West Cameron 617, during the first quarter of 1998.
MOXY's net revenue interest in this block is 19 percent. West
Cameron Blocks 616 and 617 are located in approximately 300 feet of
water in the Gulf of Mexico, approximately 130 miles offshore
Louisiana. These two blocks total 10,000 acres.
* West Cameron Block 492 - During the 1997 fourth quarter MOXY's
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
[Page] 15
further drilling in 1998 is contemplated on this block. MOXY owns a 19
percent net revenue interest in this block, which is located in
approximately 150 feet of water offshore in the Gulf of Mexico
approximately 110 miles south of Lake Charles, Louisiana and
encompasses 5,000 acres.
* West Cameron Block 157 - In early January 1998 MOXY initiated
drilling of the West Cameron Block 157 #1 exploratory well to a
proposed total measured depth of approximately 15,000 feet. This well
was determined to unsucessful in March, 1998 and will be plugged and
abandoned. MOXY owns a 38 percent net revenue interest in this block,
which contains 2,170 acres, and in West Cameron Block 156, which
contains 5,000 acres, both of which are located offshore in the Gulf
of Mexico approximately 60 miles southwest of Lake Charles, Louisiana in
approximately 30 feet of water.
* Brazos Block A-19. During the 1997 fourth quarter the operator
commenced drilling the Brazos A-19 #2 exploratory well to a proposed
total measured depth of approximately 19,000 feet. Pursuant to a joint
venture agreement MOXY will earn 13.3 percent net revenue interest,
limited in depth, in this block, which contains 5,760 acres and is
located in approximately 135 feet of water offshore in the Gulf of
Mexico approximately 95 miles southwest of Galveston, Texas. MOXY
also owns a 48 percent working interest and a 39 percent net revenue
interest in the adjacent Brazos Block A-26, which contains 5,760 acres.
* Purchase of Property Interests - In September 1997 MOXY
purchased for $4.5 million cash all of the oil and gas interests
owned by FM Properties Inc. (FMPO), a publicly traded company
affiliated with MOXY because of common management and a common
director. These properties are located in the offshore Gulf of
Mexico and in various onshore areas of the United States. The
acquisition cost of interests in the most significant of three
exploration properties, which together represented $3.0 million of
the total $4.5 million acquisition price, was shared 60 percent by
PLP and 40 percent by MOXY and have been included in the MOXY
Exploration Program. Net oil and gas revenues generated by the
producing properties acquired by MOXY totaled $0.8 million in 1997
(prior to acquisition), $1.4 million in 1996 and $0.6 million in
1995, although a single property which generated $0.7 million of
revenues in 1996 ceased production in the second quarter of 1997.
* West Cameron Block 503 - In April 1997, MOXY sold its interest
in West Cameron Block 503 for $2.9 million, with MOXY recognizing a
$2.3 million gain ($0.12 per share). The proceeds were used to
repay borrowings from MCN.
* Other - During 1997 exploratory drilling on the Eugene Island
Block 19, Vermilion Block 159 and Grand Isle Block 65 fields
concluded without discovery of commercial hydrocarbons, resulting in
$5.2 million of the related costs being charged to earnings.
In the onshore Gulf Coast region MOXY owns a 25 percent
interest in a joint venture with Phillips Petroleum Company
(Phillips), as operator, and PLP which covers a project area in
south Louisiana. In the 1997 second quarter, the North Bay Junop
well was drilled but did not encounter commercial hydrocarbons in
the primary objective zones. The well was completed in a shallower
zone with approximately 25 feet of net gas pay. The well began
production during the 1998 first quarter. Because of the complexity
of salt dome geology and potentially limited reservoir size,
production performance will be required to determine the reserve
volumes associated with this completion.
RESULTS OF OPERATIONS
MOXY reported a net loss of $10.5 million ($0.56 per share) for 1997
compared with losses of $9.9 million ($0.71 per share) for 1996 and
$14.6 million ($1.06 per share) for 1995. As a result of
anticipated future exploration expenditures, MOXY expects to
continue to report operating losses for at least the near future.
1997 Compared to 1996 - Oil and gas sales revenues for 1997
increased nearly four-fold over 1996 due to increased production
from the Vermilion 410 field and, late in 1997, from the Vermilion
Block 160 field. Production from the additional interests in these
fields acquired from PLP in November 1997 also contributed to the
increase. Management fee revenue increased due to different interim
contractual arrangements with PLP prior to MOXY's acquisition of
these additional interests. Production costs and depreciation and
amortization expenses increased consistent with increased production
volumes. In addition, proved reserves at the Vermilion Block 410
field were revised downward in the 1997 second
[Page] 16
quarter based on production experience, resulting in additional
depreciation of $1.0 million being recognized. Exploration expenses,
which fluctuate with the number, cost and results of exploratory
drilling projects and the volume of and extent to which seismic data
is acquired and interpreted, were similar to the prior year level
after considering a $2.1 million reimbursement of previously expensed
costs in 1996. General and administrative expenses were substantially
the same as prior year levels, but are expected to increase, before
reimbursements, as a result of expanded drilling and development
activity. Interest expense increased consistent with increased
borrowings from the production loan before repayment of those
borrowings from Rights Offering proceeds.
1996 Compared to 1995 - Oil and gas sales revenues decreased 11
percent in 1996 from 1995 following the formation of the MOXY/MCN
Program in mid-September 1995, which resulted in 60 percent of
MOXY's revenue interest in the Vermilion Block 160 field being
conveyed to MCN. Production costs and depreciation and amortization
expenses also decreased accordingly. Exploration expenses decreased
from 1995 largely as a result of the significant 1995 acquisition of
3-D seismic survey data covering the project area owned by MOXY's
joint venture with Phillips and PLP. General and administrative
expenses declined 29 percent following cost reduction efforts taken
in the 1995 third quarter, including a reduction in the number of
employees and in the cost of consulting arrangements and
administrative and managerial services (Note 4).
CAPITAL RESOURCES AND LIQUIDITY
Upon completion of the Rights Offering in November 1997, MOXY
realized net proceeds of $92.2 million from the sale of 28.6 million
common shares, of which 3.9 million were purchased by PLP. These
proceeds enabled MOXY to retire all indebtedness previously incurred
under the MOXY/MCN Program ($20.0 million) and acquire from PLP the
interest in the Vermilion Block 160 and Block 410 fields previously
owned by MCN which PLP had acquired in August 1997 to facilitate
completion of the Rights Offering ($24.5 million). The remaining
cash proceeds provided MOXY with the funding necessary to
participate in the multi-year aggregate $210 million MOXY
Exploration Program, in which MOXY manages the exploration and
development of exploratory prospects primarily in the offshore Gulf
of Mexico and onshore in the Gulf Coast region. MOXY will serve as
operator and will select all prospects and drilling opportunities,
with most exploration expenditures to be shared 37.6 percent by
MOXY, 56.4 percent by PLP and 6 percent by an individual investor
who is a director of MOXY. All revenues and other costs will be
shared 48 percent by MOXY, 47 percent by PLP and 5 percent by the
individual investor.
MOXY incurred $33.3 million of cash exploration and development
expenditures during 1997 consisting principally of $6.4 million for
development at Vermilion Block 160, $15.7 million for capitalized
drilling costs, $4.9 million of geological and geophysical costs
charged to expense and $6.3 million in expensed drilling and
leasehold costs. Cash expenditures for 1996 totaled $20.7 million
consisting principally of $7.0 million for development at Vermilion
Block 410, $2.8 million for capitalized drilling costs, $5.7 million
of geological and geophysical costs charged to expense and $5.0
million in expensed drilling and leasehold costs. Cash expenditures
for 1995 totaled $21.0 million and consisted principally of $6.7
million for development at Vermilion Block 410, $1.8 million for
development at Vermilion Block 160 and $9.8 million of geological
and geophysical costs charged to expense. MOXY has committed
expenditures of approximately $22 million out of a total approved
capital budget of $50 millon for 1998 which will be funded by MOXY's
working capital. No payment of dividends to MOXY's stockholders is
presently contemplated.
MOXY has assessed its year 2000 information systems cost issues
and believes its current plans for system upgrades will adequately
address these issues internally at no material cost.
[Page] 17
DISCLOSURES ABOUT MARKET RISKS
MOXY's revenues are derived from the sale of crude oil and natural
gas. MOXY's results of operations and cash flow can vary
significantly with fluctuations in the market prices of these
commodities. At the present time MOXY does not hedge or otherwise
enter into price protection contracts for its principal products.
Based on projected annual sales volumes from both existing producing
properties and those expected to produce later in 1998, a $.10 per
mcf change in the average price realized on natural gas sales would
have an approximate $1.1 million impact on both revenues and results
of operations. A $1 per barrel change in the average price realized
on annual crude oil sales would have an approximate $0.1 million
impact on both revenues and results of operations.
As MOXY has no outstanding debt, conducts all its operations within
the U.S. in U.S. dollars and has no investments in equity
securities, it is currently not subject to interest rate risk,
foreign currency exchange risk or equity price risk.
ENVIRONMENTAL
Through December 31, 1997 MOXY had accrued $0.6 million in
Other Liabilities of the total estimated costs of $3.9 million to
abandon its offshore oil and gas production facilities in accordance
with current regulatory requirements. Although MOXY has no other
known environmental liabilities, increasing emphasis on
environmental matters could result in additional costs, which would
be charged against MOXY's operations in future periods. Present and
future environmental laws and regulations applicable to MOXY's
operations could require substantial capital expenditures or could
adversely affect its operations in other ways that cannot be
accurately predicted at this time.
CAUTIONARY STATEMENTS
Management's Discussion and Analysis of Financial Condition and
Results of Operations and Disclosures about Market Risks contains
forward-looking statements. All statements other than statements
of historical fact included in this report, including, without
limitation, statements regarding plans and objectives of MOXY's
management for future operations and MOXY's exploration and
development activities are forward-looking statements.
Important factors that could cause actual results to differ
materially from MOXY's expectations include, without limitation,
exploratory drilling results, economic and business conditions,
general development risks and hazards and risks inherent with the
production of oil and gas, such as fires, natural disasters,
blowouts and the encountering of formations with abnormal pressures,
changes in laws or regulations and other factors, many of which are
beyond the control of MOXY. Further information regarding these and
other factors that may cause MOXY's future performance to differ
from that projected in the forward-looking statements are described
in more detail under "Cautionary Statements" in Item 1 above.
__________________________
The results of operations reported and summarized above are not
necessarily indicative of future operating results.
[Page] 18
Item 8. Financial Statements and Supplementary Data
REPORT OF MANAGEMENT
McMoRan Oil & Gas Co. (MOXY) is responsible for the preparation
of the financial statements and all other information contained in
this Annual Report. The financial statements have been prepared in
conformity with generally accepted accounting principles and include
amounts that are based on management's informed judgments and
estimates.
MOXY maintains a system of internal accounting controls
designed to provide reasonable assurance at reasonable costs that
assets are safeguarded against loss or unauthorized use, that
transactions are executed in accordance with management's
authorization and that transactions are recorded and summarized
properly. The system is tested and evaluated on a regular basis by
MOXY's internal auditors, Price Waterhouse LLP. In accordance with
generally accepted auditing standards, MOXY's independent public
accountants, Arthur Andersen LLP, have developed an overall
understanding of our accounting and financial controls and have
conducted other tests as they consider necessary to support their
opinion on the financial statements.
The Board of Directors, through its Audit Committee composed
solely of non-employee directors, is responsible for overseeing the
integrity and reliability of MOXY's accounting and financial
reporting practices and the effectiveness of its system of internal
controls. Arthur Andersen LLP and Price Waterhouse LLP meet
regularly with, and have access to, this committee, with and without
management present, to discuss the results of their audit work.
James R. Moffett Richard C. Adkerson
Co-Chairman of the Board Co-Chairman of the Board and
Chief Executive Officer
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
TO THE STOCKHOLDERS AND BOARD OF DIRECTORS OF McMoRan OIL & GAS CO.:
We have audited the accompanying balance sheets of McMoRan Oil
& Gas Co. (a Delaware Corporation) as of December 31, 1997 and 1996
and the related statements of operations, cash flow and changes in
stockholders' equity for each of the three years in the period ended
December 31, 1997. 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
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
McMoRan Oil & Gas Co. as of December 31, 1997 and 1996 and the
results of its operations and its cash flow for each of the three
years in the period ended December 31, 1997 in conformity with
generally accepted accounting principles.
Arthur Andersen LLP
New Orleans, Louisiana
January 20, 1998
[Page] 19
<TABLE>
<CAPTION>
McMoRan OIL & GAS CO.
BALANCE SHEETS
December 31,
------------------------
1997 1996
---------- ----------
(In Thousands)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 29,149 $ 10,500
Accounts receivable:
Oil and gas sales 3,168 1,243
Joint interest participants 10,070 626
Prepaid expenses 828 380
---------- ----------
Total current assets 43,214 12,749
---------- ----------
Property, plant and equipment (successful
efforts method for oil and gas
properties) 68,585 19,514
Less accumulated depreciation and
amortization (10,880) (1,283)
---------- ----------
57,705 18,231
---------- ----------
Other assets 169 -
---------- ----------
Total assets $ 101,088 $ 30,980
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued liabilities:
Trade $ 2,766 $ 980
Joint interest participants 3,037 6,038
Accrued drilling costs and other 3,662 2,393
Current portion of production loan - 366
---------- ----------
Total current liabilities 9,465 9,777
Production loan, less current portion - 12,391
Other liabilities 925 566
Stockholders' equity:
Preferred stock, par value $0.01,
50,000,000 shares authorized
and unissued - -
Common stock, par value $0.01,
150,000,000 shares authorized, 42,740,476
shares and 13,989,317 shares issued and
outstanding, respectively 427 140
Capital in excess of par value of
common stock 140,506 47,803
Accumulated deficit (50,235) (39,697)
---------- ----------
90,698 8,246
---------- ----------
Total liabilities and stockholders'
equity $ 101,088 $ 30,980
========== ==========
</TABLE>
The accompanying notes are an integral part of these financial
statements.
[Page] 20
<TABLE>
<CAPTION>
McMoRan OIL & GAS CO.
STATEMENTS OF OPERATIONS
Years Ended December 31,
---------------------------------
1997 1996 1995
--------- -------- ---------
(In Thousands, Except Per Share Amounts)
<S> <C> <C> <C>
Revenues:
Oil and gas sales $ 11,441 $ 2,434 $ 2,722
Management fees 2,111 1,636 545
--------- -------- ---------
Total revenues 13,552 4,070 3,267
--------- -------- ---------
Costs and expenses:
Production and delivery,
including depreciation and
amortization 11,251 1,500 2,623
Exploration expenses 11,966 9,818 11,756
General and administrative
expenses 2,528 2,635 3,687
Gain on sale of oil and gas
property (2,289) - -
--------- -------- ---------
Total costs and expenses 23,456 13,953 18,066
--------- -------- ---------
Operating loss (9,904) (9,883) (14,799)
Interest expense (1,272) (403) -
Other income, net 638 424 164
--------- -------- ---------
Net loss $ (10,538) $ (9,862) $ (14,635)
========= ======== =========
Net loss per share, with and
without dilution $ (0.56) $ (0.71) $ (1.06)
========= ======== =========
Average shares outstanding 18,847 13,895 13,772
========= ======== =========
</TABLE>
The accompanying notes are an integral part of these financial
statements.
[Page] 21
<TABLE>
<CAPTION>
McMoRan OIL & GAS CO.
STATEMENTS OF CASH FLOW
Years Ended December 31,
------------------------------------
1997 1996 1995
--------- --------- ---------
(In Thousands)
<S> <C> <C> <C>
Cash flow from operating activities:
Net loss $ (10,538) $ (9,862) $ (14,635)
Adjustments to reconcile net loss
to net cash provided by (used in)
operating activities:
Depreciation and amortization 10,071 741 1,525
Exploration expenses 11,966 9,818 11,756
Gain on sale of oil and gas property (2,289) - -
(Increase) decrease in working capital:
Accounts receivable, prepaid expenses
and other (11,831) (988) (1,347)
Accounts payable and accrued
liabilities (1,305) 6,954 1,555
--------- --------- ---------
Net cash provided by (used in) operating
activities (3,926) 6,663 (1,146)
--------- --------- --------
Cash flow from investing activities:
Exploration and development
expenditures (33,263) (20,678) (20,957)
Purchase of producing properties
from PLP and FMPO (26,005) - -
Proceeds from joint venture arrangements,
property sale and other 2,382 2,059 14,472
--------- --------- ---------
Net cash used in investing activities (56,886) (18,619) (6,485)
--------- --------- ---------
Cash flow from financing activities:
Proceeds from Rights Offering, net of
expenses 92,217 - -
Proceeds from production loan 13,520 12,927 750
Payments on production loan (26,276) (794) (127)
--------- --------- ---------
Net cash provided by financing
activities 79,461 12,133 623
--------- --------- ---------
Net increase (decrease) in cash and cash
equivalents 18,649 177 (7,008)
Cash and cash equivalents at beginning of
year 10,500 10,323 17,331
--------- --------- ---------
Cash and cash equivalents at end
of year $ 29,149 $ 10,500 $ 10,323
========= ========= =========
Interest paid $ 1,272 $ 304 $ -
========= ========= =========
</TABLE>
The accompanying notes, which include information in Notes 2, 5 and
6 regarding noncash transactions, are an integral part of these
financial statements.
[Page] 22
<TABLE>
<CAPTION>
McMoRan OIL & GAS CO.
STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
(In Thousands)
Capital in
Excess
Preferred Common of Par Accumulated
Stock Stock Value Deficit Total
--------- ------- -------- --------- --------
<S> <C> <C> <C> <C> <C>
Balance at January
1,1995 $ - $ 138 $ 47,219 $ (15,200) $ 32,157
Stock payment to CLK and
other - - 83 - 83
Net loss - - - (14,635) (14,635)
--------- ------- -------- --------- --------
Balance at December
31, 1995 - 138 47,302 (29,835) 17,605
Stock payment to
CLK and other - 2 501 - 503
Net loss - - - (9,862) (9,862)
--------- ------- -------- --------- --------
Balance at December
31, 1996 $ - $ 140 $ 47,803 $ (39,697) $ 8,246
Shares issued
in Rights Offering - 286 91,931 - 92,217
Stock payment
to CLK and other - 1 77 - 773
Net loss - - - (10,538) (10,538)
--------- ------- -------- --------- --------
Balance at December
31, 1997 $ - $ 427 $140,506 $ (50,235) $ 90,698
========= ======= ======== ========= ========
</TABLE>
The accompanying notes are an integral part of these financial
statements.
[Page] 23
McMoRan OIL & GAS CO.
NOTES TO FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Consolidation. The financial statements of McMoRan Oil &
Gas Co. (MOXY) reflect investments in joint ventures and
partnerships using the proportionate consolidation method in
accordance with standard industry practice. Certain prior year
amounts have been reclassified to conform to the 1997 presentation.
Use of Estimates. The preparation of financial statements in
conformity with generally accepted accounting principles requires
management to make estimates and assumptions that affect the amounts
reported in these financial statements and the accompanying notes.
The more significant estimates include useful lives for depreciation
and amortization, valuation allowances for deferred tax assets and
estimates of proved oil and gas reserves and related future cash
flows. 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.
Property, Plant and Equipment. MOXY 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. Costs 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. Estimated future
expenditures to restore oil and gas properties and related
facilities to a condition that complies with environmental and other
regulations are accrued over the life of the properties. These
expenditures are estimated based on current costs, laws and
regulations. Estimated future abandonment costs total $3.9 million,
of which $0.6 million was accrued at December 31, 1997. These
estimates are by their nature imprecise and can be expected to be
revised over time because of changes in government regulations,
operations, technology and inflation.
Other property, plant and equipment are carried at cost less
salvage value and are depreciated on a straight-line basis over
estimated useful lives of 5 years.
Statement of Financial Accounting Standards No. 121 (SFAS 121)
requires a reduction of the carrying amount of long-lived assets to
fair value when events indicate that the carrying amount may not be
recoverable. Measurement of the impairment loss is based on the
fair value of the asset. Generally, MOXY determines fair value
using valuation techniques such as expected future cash flows.
Since MOXY's adoption of SFAS 121 effective January 1, 1995, no
impairment losses have been incurred.
Financial Instruments. The carrying amounts of receivables, other
current assets and accounts payable reported in the balance sheet
approximate fair value.
Earnings Per Share. In February 1997, the Financial Accounting
Standards Board issued SFAS 128, "Earnings Per Share," which
simplifies the computation of earnings per share (EPS). MOXY
adopted SFAS 128 in the fourth quarter of 1997 and restated prior
years' EPS data as required by SFAS 128.
Net loss per share of common stock was calculated by dividing
net loss applicable to common stock by the weighted-average number
of common shares outstanding during the year. Dilutive stock
options, which represented 626,000 shares in 1997, no shares in 1996
and 36,000 shares in 1995, have been excluded from the calculation
of dilutive EPS as these options would be anti-dilutive considering
the net losses incurred during the years presented.
Options to purchase common stock that were outstanding during
the years presented but are not included as dilutive options above
because the exercise prices were greater than the average market
price of MOXY's common shares totaled 2,139,000 options at an
average exercise price of approximately $3.66 per share in 1997,
867,000 options at an average of approximately $2.45 per share in
1996 and 1,679,000 options at an average of approximately $4.30 per
share in 1995.
[Page] 24
2. RIGHTS OFFERING AND EXPLORATION AGREEMENTS
In November 1997, MOXY received net proceeds of $92.2 million from
the sale of a total of 28.6 million shares of common stock at $3.50
per share under the terms of a rights offering to existing
shareholders (the Rights Offering). Phosphate Resource Partners
Limited Partnership (PLP), formerly Freeport-McMoRan Resource
Partners, Limited Partnership, purchased 3.9 million of these
shares, representing approximately 9 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 (the Stand-By Commitment). MOXY concurrently used $44.5
million of these proceeds, including $0.8 million of interest costs,
to acquire from PLP certain assets of, and repay MOXY's borrowings
under, the exploration program previously formed by MOXY and MCN
Energy Group Inc. (MCN) (the MOXY/MCN Program). PLP purchased the
assets from, and repaid the debt due, MCN in August 1997 for an
equivalent amount, before interest costs, . The assets consisted of
MCN's interest in the Vermilion Block 160 and 410 oil and gas fields
($24.5 million), and the debt represented MOXY's borrowings to fund
its share of program costs ($20.0 million), which bore interest at
prime plus two percent. As MOXY's financial statements only reflect
operating results of these purchased properties since the
acquisition date, the following selected unaudited pro forma
information is provided to present MOXY's results as if both this
acquisition and that described in Note 3 had occurred as of January
1, 1996. The pro forma data are for informational purposes only and
do not necessarily represent results which actually would have
occurred if the acquisition had taken place on this date, nor are
they indicative of future results.
Unaudited Pro Forma Data
<TABLE>
<CAPTION>
1997 1996
------- -------
(In Thousands, except
Per Share Amounts)
<S> <C> <C>
Revenues $23,900 $ 9,046
Net loss (9,340) (8,784)
Net loss per share (.22) (0.21)
</TABLE>
MOXY is using a portion of the remaining net Rights Offering
proceeds to fund its share of an aggregate $210 million, multi-year
oil and gas exploration program to explore and develop prospects
primarily offshore in the Gulf of Mexico and onshore in the Gulf
Coast region (the MOXY Exploration Program) formed upon completion
of the Rights Offering to replace the MOXY/MCN Program. 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 percent by an individual
investor who is a director of MOXY (see Note 3), with all other
costs and revenues shared 47 percent by PLP, 48 percent by MOXY and
5 percent by the individual investor. MOXY paid PLP a $6.0 million
Stand-By Commitment fee for acquiring and holding the MOXY/MCN
Program assets referred to above until completion of the Rights
Offering, entering into the Stand-By Commitment and agreeing to
enter into the MOXY Exploration Program. The fee is reflected in
the accompanying financial statements as a reduction of the Rights
Offering proceeds.
On December 22, 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. (IGL) (the Merger). As
a result of the Merger, IGL acquired control of FTX and PLP and
became the administrative managing partner of PLP. The Merger had
no impact on the terms and conditions of the MOXY Exploration
Program.
In 1995, MOXY and Phillips Petroleum Company (Phillips) entered
into an exploration agreement covering a project area in south
Louisiana. MOXY conveyed one-half of its interest in the area to
Phillips for $3.8 million. In 1996, MOXY sold one-half of its
remaining 50 percent leasehold interest to PLP for $2.1 million.
This payment from PLP represented a reimbursement of previously
expensed exploration costs by MOXY in connection with this project
area and accordingly was recorded as a reduction to exploration
expenses. MOXY sold the interest to PLP on the same proportionate
basis as the prior Phillips sale.
[Page] 25
3. TRANSACTIONS WITH AFFILIATES
Management Services. FTX or its affiliate FM Services Company (FMS)
previously have provided certain management and administrative
services for MOXY. MOXY restructured its services agreement with
FTX during 1995 to provide specified services for an annual fee of
$1.0 million and entered into a similar agreement with FMS in 1996.
Costs of services provided pursuant to these agreements, included in
general and administrative expenses, totaled $1 million in 1997 and
1996 and $1.3 million in 1995. Effective with the Merger, MOXY and
FMS, now 25 percent owned by MOXY, implemented an amended services
agreement whereby FMS provides services on a cost reimbursement
basis. MOXY believes that the above expenses do not (and in the
future will not) differ materially from those costs which would have
been incurred had the relevant personnel providing these services
been employed directly by MOXY.
Property Purchase. In September 1997, MOXY purchased for $4.5
million cash all of the oil and gas interests owned by FM Properties
Inc. (FMPO), a publicly traded company affiliated with MOXY because
of common management and a common director. These properties, which
included three exploration prospects representing $3.0 million of
the purchase price and numerous producing property interests for the
remainder, are located offshore in the Gulf of Mexico and in various
onshore areas of the United States. The acquisition cost of the
most significant exploration property was shared 60 percent by PLP
and 40 percent by MOXY and was included in the MOXY Exploration
Program. Oil and gas revenues generated by the producing properties
acquired by MOXY totaled $0.8 million in 1997 (prior to
acquisition), $1.4 million in 1996 and $0.6 million in 1995,
although a single property which generated $0.7 million of revenues
in 1996 ceased production in the second quarter of 1997.
Program Participant. Effective December 15, 1997 Mr. Gerald J.
Ford, an individual investor elected to MOXY's Board of Directors in
January 1998, became an individual participant in the MOXY
Exploration Program. At December 31, 1997 Mr. Ford has paid $0.6
million for his proportionate share of MOXY Exploration Program
costs incurred.
4. EMPLOYEE BENEFITS
Stock Options. MOXY's Stock Option Plan and Stock Option Plan for
Non-Employee Directors (the Plans) authorize MOXY to grant stock
options to purchase up to approximately 3.6 million shares of MOXY
stock at no less than market value at time of grant. Generally,
stock options are exercisable in 25 percent annual increments
beginning one year from the date of grant and expire 10 years after
the date of grant. A summary of stock options outstanding (including
options to purchase approximately 1.7 million MOXY shares and
approximately 46,000 stock appreciation rights, as adjusted,
originally issued in connection with the 1994 FTX distribution of
MOXY shares) follows:
<TABLE>
<CAPTION>
1997 1996 1995
------------------- ----------------- -----------------
Average Average Average
Number of Option Number of Option Number of Option
Options Price Options Price Options Price
---------- -------- --------- ------- ---------- ------
<S> <C> <C> <C> <C> <C> <C>
Beginning of year 2,139,694 $3.88 2,257,828 $3.92 1,829,867 $4.26
Granted 2,347,732 3.59 24,904 2.54 529,028 2.85
Adjustments 782,244 - -
Exercised (34,661) 3.28 (581) 3.03 - -
Expired/forfeited (128,873) (142,457) 4.33 (101,067) 4.39
---------- --------- ---------
End of year 5,106,136 3.16 2,139,694 3.88 2,257,828 3.92
========== ========= =========
</TABLE>
In July 1997 the MOXY Board of Directors approved, subject to
stockholder approval, certain amendments to the Plans. These
amendments provided for a grant to non-employee directors of options
exercisable over a four-year period to purchase a total of 105,984
shares and increased the number of options to be granted to non-
employee directors in future periods. The amendments also
authorized additional shares under the Stock Option Plan. In July
1997 new options exercisable over a four-year period to purchase a
total of 1,954,000 shares were granted to certain officers,
employees and others providing services to MOXY. All options were
granted at the July 1997 market price of $3.625. MOXY's
stockholders approved the amendments and option grants in October
1997. MOXY will record an aggregate non-cash charge against
earnings of approximately $1.3 million over the four-year exercise
period for the difference between the July 1997 price and the market
price of $4.27 following stockholder approval. Additionally, in
October 1997 the Board of Directors approved certain adjustments to
the number of shares granted and exercise prices of previously
granted options to reflect the issuance of Rights under the Rights
Offering. These adjustments did not result in a charge to earnings.
[Page] 26
At December 31, 1997, options for approximately 246,000 shares
were available for new grants under the Plans. Summary information
of fixed stock options outstanding at December 31, 1997 follows:
<TABLE>
<CAPTION>
Options Outstanding Options Exercisable
------------------------------- --------------------
Weighted Weighted Weighted
Average Average Average
Number Remaining Option Number Option
Range of Exercise Prices of Options Life Price of Options Price
- ------------------------ ---------- ---------- ------- ---------- -------
<S> <C> <C> <C> <C> <C>
$1.46 to $2.11 682,387 7.9 years $2.10 337,857 $2.11
$2.21 to $3.29 1,519,430 4.8 years 2.77 1,089,902 2.92
$3.37 to $4.13 2,858,672 7.9 years 3.62 837,465 3.54
---------- ----------
5,060,489 2,265,224
========== ==========
</TABLE>
MOXY has adopted the disclosure-only provisions of SFAS 123 and
continues to apply APB Opinion No. 25 and related interpretations in
accounting for its stock-based compensation plans. Accordingly, no
compensation cost has been recognized for MOXY's fixed stock option
grants except as discussed above. Had compensation cost for MOXY's
fixed stock option grants been determined based on the fair value at
the grant dates for awards under those plans consistent with SFAS
123, MOXY's pro forma net loss would have been $11.6 million ($ 0.62
per share) in 1997, $10.1 million ($0.73 per share) in 1996 and
$14.7 million ($1.06 per share) in 1995. For the pro forma
computations, the fair values of the fixed option grants were
estimated on the dates of grant using the Black-Scholes option
pricing model. The weighted average fair value for fixed stock
option grants was $2.89 per option in 1997, $1.69 per option in 1996
and $2.15 per option in 1995. The weighted average assumptions used
include a risk-free interest rate of 6.6 percent in 1997 and 1996
and 6.4 percent in 1995, with expected volatility of 67 percent in
1997, 45 percent in 1996 and 60 percent in 1995 and expected lives
of 10 years. The pro forma effects on net income are not
representative of future years because they do not take into
consideration grants made prior to 1995. No other discounts or
restrictions related to vesting or the likelihood of vesting of
fixed stock options were applied.
5. INCOME TAXES
MOXY has $30.2 million of net deferred tax assets as of December 31,
1997 resulting from temporary differences related to MOXY's
exploration activities. MOXY has provided a valuation allowance
equal to these tax assets because of the expectation of incurring
tax losses for at least the near future, resulting in no tax
benefits for the periods presented. The components of MOXY's
deferred taxes follow (in thousands):
<TABLE>
<CAPTION>
December 31,
------------------------
1997 1996
---------- ----------
<S> <C> <C>
Net operating loss carryforwards
(expire 2006-2017) $ 21,559 $ 17,976
Capital losses (expire 1999) 5,511 5,511
Other tax carryforwards 371 303
Oil & gas properties 2,111 2,272
Other 613 453
Less valuation allowance (30,165) (26,515)
---------- ----------
Net deferred tax assets $ - $ -
========== ==========
</TABLE>
6. COMMITMENTS AND CONTINGENCIES
Commitments. MOXY has drilling and related expenditure commitments
of approximately $22 million in 1998. In addition, MOXY has minimum
committed expenditures under a multi-year agreement with a
geophysical services company to purchase 3-D seismic surveys which
totaled $1.5 million at December 31, 1997. MOXY also has a contract
with CLK Company LLC (CLK), a company independently owned by its
employees, to provide geological and geophysical services to MOXY on
an exclusive basis. The contract was amended during 1997 to provide
for an annual retainer fee of $2.2 million ($0.5 million of the
annual fee paid in MOXY common stock, recorded at fair market
value), plus certain expenses and an overriding royalty interest in
prospects accepted by MOXY. Costs of services provided by CLK,
included in exploration expenses, totaled $3.0 million in 1997, $3.1
million in 1996 and $3.5 million in 1995.
[Page] 27
Environmental. Although MOXY has no known environmental liabilities
other than the estimated costs of abandoning its offshore oil and
gas production facilities in accordance with current regulatory
requirements (Note 1), increasing emphasis on environmental matters
could result in additional costs, which would be charged against
MOXY's operations in future periods. Present and future
environmental laws and regulations applicable to MOXY's operations
could require substantial capital expenditures or could adversely
affect its operations in other ways that cannot be accurately
predicted at this time.
7. SUPPLEMENTARY OIL AND GAS INFORMATION
MOXY's oil and gas exploration, development and production
activities are conducted in the offshore Gulf of Mexico and onshore
Gulf Coast areas of the United States. Oil and gas production are
sold to various U.S. purchasers, including one gas purchaser
comprising over 90 percent of total revenues. Supplementary
information presented below is prepared in accordance with
requirements prescribed by SFAS 69.
<TABLE>
<CAPTION>
Oil and Gas Capitalized Costs
Years Ended December 31,
----------------------------
1997 1996
---------- ----------
(In Thousands)
<S> <C> <C>
Unevaluated properties $ 14,856 $ 2,173
Proved properties 53,229 17,341
Less accumulated depreciation
and amortization (10,880) (1,283)
---------- ----------
Net oil and gas properties $ 57,205 $ 18,231
========== ==========
</TABLE>
Costs Incurred in Oil and Gas Property Acquisition, Exploration and
Development Activities.
<TABLE>
<CAPTION>
Years Ended December 31,
-----------------------------------
1997 1996 1995
---------- ---------- --------
(In Thousands)
<S> <C> <C> <C>
Acquisition of properties:
Proved $ 26,005 $ - $ -
Unproved 3,332 2,499 863
Exploration costs 20,137 11,672 13,928
Development costs 9,794 6,507 6,166
---------- ---------- --------
$ 59,268 $ 20,678 $ 20,957
========== ========== ========
</TABLE>
Proved Oil and Gas Reserves (Unaudited). Proved oil and gas
reserves at December 31, 1997, have been estimated by independent
petroleum engineers in accordance with guidelines established by the
Securities and Exchange Commission (SEC). Thus, the following
reserve estimates are based upon existing economic and operating
conditions; they are only estimates and should not be construed as
being exact. MOXY's 1997 proved reserves are located in offshore
United States waters. Oil, including condensate and plant products,
is stated in thousands of barrels and natural gas is in millions of
cubic feet.
[Page] 28
<TABLE>
<CAPTION>
Oil Gas
--------------------- ------------------------
1997 1996 1995 1997 1996 1995
---- ---- ---- ------ ------ ------
<S> <C> <C> <C> <C> <C> <C>
Proved reserves:
Beginning of year 168 94 262 16,054 8,521 9,714
Revisions of previous
estimates 1 31 54 38 1,155 88
Discoveries and
extensions 195 72 - 21,481 7,009 4,999
Production (34) (29) (45) (4,061) (631) (1,093)
Transfer to MCN - - (177) - - (5,187)
Sale of reserves (17) - - (3,307) - -
Purchase of reserves
from PLP 150 - - 10,029 - -
---- ---- ---- ------ ------ ------
End of year 463 168 94 40,234 16,054 8,521
==== ==== ==== ====== ====== ======
Proved developed reserves:
Beginning of year 58 20 7,530 799
==== ==== ==== ====== ====== ======
End of year 383 58 20 23,086 7,530 779
=== ==== ==== ====== ====== ======
</TABLE>
Standardized Measure of Discounted Future Net Cash Flows From Proved
Oil and Gas Reserves (Unaudited).
MOXY's standardized measure of discounted future net cash flows and
changes therein relating to proved oil and gas reserves were
computed using reserve valuations based on regulations prescribed by
the SEC. These regulations provide for the use of current oil and
gas prices (escalated only when known and determinable price changes
are provided by contract and law) in the projection of future net
cash flows.
<TABLE>
<CAPTION>
December 31,
-----------------------
1997 1996
--------- ---------
(In Thousands)
<S> <C> <C>
Future cash flows $ 111,655 $ 66,260
Future costs applicable to future cash flows:
Production costs (20,984) (7,805)
Development and abandonment costs (31,211) (12,874)
--------- ---------
Future net cash flows before income taxes 59,460 45,581
Future income taxes - -
--------- ---------
Future net cash flows 59,460 45,581
Discount for estimated timing of net cash
flows (10% discount rate) (13,837) (10,240)
--------- ---------
$ 45,623 $ 35,341
========= =========
</TABLE>
Because MOXY has sufficient tax deductions and losses to
utilize against estimated future taxable income, in accordance with
SFAS 69 no deductions for future income taxes have been made above.
Changes in Standardized Measure of Discounted Future Net Cash Flows
From Proved Oil and Gas Reserves (Unaudited).
<TABLE>
<CAPTION>
Years Ended December 31,
----------------------------------
1997 1996 1995
--------- --------- --------
(In Thousands)
<S> <C> <C> <C>
Beginning of year $ 35,341 $ 8,330 $ 6,413
Revisions:
Changes in prices (13,869) 12,894 7,815
Accretion of discount 3,534 833 641
Other changes, including revised
estimates of development costs and rates
of production (6,040) (2,863) (3,083)
Discoveries and extensions, less related
costs 15,502 10,837 3,368
Development costs incurred during the year 6,630 6,985 1,750
Revenues, less production costs (10,193) (1,675) (1,589)
Sale of reserves (3,437) - -
Transfer to MCN - - (6,985)
Purchase of reserves from PLP 18,155 - -
--------- --------- -------
End of year $ 45,623 $ 35,341 $ 8,330
========= ========= =======
</TABLE>
[Page] 29
<TABLE>
<CAPTION>
8. QUARTERLY FINANCIAL INFORMATION (UNAUDITED)
Operating Net Net Income
Income Income (Loss)
Revenues (Loss) (Loss) Per Share
---------- -------- --------- --------
(In Thousands, Except Per Share Amounts)
<S> <C> <C> <C> <C>
1997
1st Quarter $ 2,773 $ (2,260) $ (2,489) $(0.18)
2nd Quarter 2,248 (1,192)a (1,395)a (0.10)a
3rd Quarter 2,688 (6,274)b (6,545)b (0.46)b
4th Quarter 5,843 (178) (109) -
---------- -------- ---------
$ 13,552 $ (9,904) $ (10,538) (0.56)
========== ======== =========
1996
1st Quarter $ 1,073 $ (4,453) $ (4,330) $(0.31)
2nd Quarter 949 418c 525c 0.04c
3rd Quarter 919 (2,087) (2,148) (0.15)
4th Quarter 1,129 (3,761) (3,909) (0.28)
---------- -------- ---------
$ 4,070 $ (9,883)d $ (9,862) (0.71)
========== ======== =========
</TABLE>
a. Includes a gain of $2.3 million ($0.16 per share) resulting
from the sale of the West Cameron Block 503 property and $1.0
million ($0.07 per share) of additional depreciation from downward
revisions to reserve estimates for the Vermilion Block 410 property.
b. Includes $3.9 million ($0.21 per share) of non-productive
exploratory drilling costs on the Grand Isle Block 65, Eugene Island
18/19 and Vermilion Block 159 prospects.
c. Includes a reduction to exploration expense of $2.1 million
($0.15 per share) resulting from the reimbursement of previously
expensed costs.
d. Foreign exploration costs totaled $0.4 million in 1996.
Item 9. Changes in and Disagreements with Accountants on Accounting
and Financial Disclosure
Not applicable.
PART III
Item 10. Directors and Executive Officers of the Registrant
The information regarding executive officers required by Item 10 may
be found following Item 4 of this report. Information concerning
the Company's directors required by Item 10 is incorporated by
reference from the Company's definitive proxy statement for its 1998
Annual Meeting of Stockholders.
Item 11. Executive Compensation
Information concerning the compensation of the Company's executives
required by Item 11 is incorporated by reference from the Company's
definitive proxy statement for its 1998 Annual Meeting of
Stockholders.
Item 12. Security Ownership of Certain Beneficial Owners and
Management
Information concerning security ownership of certain beneficial
owners and management required by Item 12 is incorporated by
reference from the Company's definitive proxy statement for its 1998
Annual Meeting of Stockholders.
Item 13. Certain Relationships and Related Transactions
Information concerning certain relationships and related
transactions required by Item 13 is incorporated by reference from
the Company's definitive proxy statement for its 1998 Annual Meeting
of Stockholders.
[Page] 30
PART IV
Item 14. Exhibits, Financial Statement Schedules, and Reports on
Form 8-K
(a)(1). Financial Statements. Reference is made to Item 8 hereof.
(a)(2). Financial Statement Schedules. Schedules have not
been included because they are not required, not applicable or
the information required has been included elsewhere herein.
(a)(3). Exhibits. Reference is made to the Exhibit Index
beginning on page E-1 hereof.
(b). Reports on Form 8-K. During the last quarter of the period
covered by this report the Company filed current reports on Form 8-K
under Item 5 dated as of October 3, 1997 and October 9, 1997.
[Page] 31
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 27, 1998.
McMoRan OIL & GAS Co.
By:/s/ Richard C. Adkerson
-------------------
Richard C. Adkerson
Co-Chairman of the Board 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 the capacities indicated, on March 27, 1998.
* Co-Chairman of the
-------------------- Board and Director
James R. Moffett
/s/ Richard C. Adkerson Co-Chairman of the Board, Chief Executive Officer
----------------------- and Director
Richard C. Adkerson (Principal Executive Officer)
(Principal Financial Officer)
/s/ C.Donald Whitmire
---------------------- Controller - Financial Reporting
C. Donald Whitmire (Principal Accounting Officer)
*
---------------------- Director
Robert A. Day
*
---------------------- Director
Gerald J. Ford
*
---------------------- Director
B.M. Rankin, Jr.
*By: /s/ Richard C. Adkerson
--------------------
Richard C. Adkerson
Attorney-in-Fact
[Page] S-1
McMoRan Oil & Gas Co.
Exhibit Index
Exhibit Number
2.1 Distribution Agreement dated as of
May 1, 1994 between Freeport-
McMoRan Inc. and the Company.
Incorporated by reference to
Exhibit 2.1 to Amendment No. 2 to
Form 10 as filed with the
Commission on May 16, 1994
("Amendment No. 2").
3.1 Amended and Restated Certificate
of Incorporation of the Company.
Incorporated by reference to
Exhibit 3.1 to the Company's
Annual Report for the year ended
December 31, 1994 on Form 10-K
(the "1994 10-K").
3.2 Bylaws of the Company.
Incorporated by reference to
Exhibit 3.2 to the Company's 1994
10-K.
4.1 Form of the Company's Certificate
of Designation of Series A
Participating Cumulative Preferred
Stock. Incorporated by reference
to Exhibit 4.1 to Amendment No. 2.
4.2 Rights Agreement dated as of May
19, 1994 between the Company and
Mellon Securities Trust Company,
as Rights Agent. Incorporated by
reference to Exhibit 4.2 to the
Company's 1994 10-K.
4.3 Amendment No. 1 dated July 14,
1997 to the Rights Agreement dated
as of May 19, 1994 between McMoRan
Oil & Gas Co. and Mellon
Securities Trust Company, as
Rights Agent. Incorporated by
reference to Exhibit 10.7 to the
Company's Current Report on Form
8-K dated as of July 14, 1997 (the
"July 14, 1997 8-K").
10.1 Master Agreement dated July 14,
1997 between McMoRan Oil & Gas Co.
and Freeport-McMoRan Resource
Partners, Limited Partnership, now
named Phosphate Resource Partners
Limited Partnership ("PLP").
Incorporated by reference to
Exhibit 10.1 to the July 14, 1997
8-K.
10.2 Purchase and Sale Agreement dated
July 11, 1997 by and among PLP,
MCNIC Oil & Gas Properties, Inc.,
MCN Investment Corporation and
MOXY. Incorporated by reference
to Exhibit 10.4 to the July 14,
1997 8-K.
10.3 Agreement for Purchase and Sale
dated as of August 1, 1997 between
FM Properties Operating Co. and
McMoRan Oil & Gas Co. incorporated
by reference to Exhibit 10.1 to
the Company's Current Report on
Form 8-K dated as of September 2,
1997.
10.4 Participation Agreement between
McMoRan Oil & Gas Co. and PLP
dated as of April 1, 1997.
10.5 Amendment to Participation
Agreement between McMoRan Oil &
Gas Co. and PLP dated December 15,
1997.
10.6 Participation Agreement between
McMoRan Oil & Gas Co. and Gerald
J. Ford dated as of December 15,
1997.
[Page] E-1
10.7 Amended and Restated Services
Agreement, dated as of December 23,
1997, between FM Services Company
and the Company.
10.8 Exploration Agreement dated as of
June 13, 1995, between MOXY and
Phillips Petroleum Company.
Incorporated by reference to the
Company's Quarterly Report on Form
10-Q for the quarter ending June
30, 1995.
10.9 Exploration Agreement effective
July 1, 1996, between MOXY and
PLP. Incorporated by reference to
the Company's Quarterly Report on
Form 10-Q for the quarter ending
June 30, 1996.
Executive Compensation Plans
and Arrangements
(Exhibits 10.10 through 10.14)
10.10 McMoRan Oil & Gas Co. Adjusted
Stock Award Plan, as amended.
10.11 McMoRan Oil & Gas Co. 1994 Stock
Option Plan, as amended.
10.12 McMoRan Oil & Gas Co. 1994 Stock
Option Plan for Non-Employee
Directors, as amended.
10.13 McMoRan Oil & Gas Co. Performance
Incentive Awards Program, as
amended. Incorporated by
reference to Exhibit 10.5 to the
Company's 1995 10-K.
10.14 Financial Counseling and Tax
Return Preparation and
Certification Program of McMoRan
Oil & Gas Co. Incorporated by
reference to Exhibit 10.6 to the
Company's 1995 10-K.
23.1 Consent of Arthur Andersen LLP.
23.2 Consent of Ryder Scott Company.
24.1 Certified resolution of the Board
of Directors of the Company
authorizing this report to be
signed on behalf of any officer or
director pursuant to a Power of
Attorney.
24.2 Powers of Attorney pursuant to
which this report has been signed
on behalf of certain officers and
directors of the Company.
27.1 Financial Data Schedule.
27.2 Restated Financial Data Schedule.
99.1 Description of matters submitted
to a vote of the Company's
stockholders at a special meeting
held on October 9, 1997.
[Page] E-2
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
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
EXHIBITS
I) PROGRAM OPERATING AGREEMENT (OFFSHORE)
II) PROGRAM OPERATING AGREEMENT (ONSHORE)
III) CERTAIN EXCLUDED AREAS
IV) PROVISIONS CONCERNING TAXATION
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.
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.
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%
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;
(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 Partcipant 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 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.
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 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.
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:
(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.
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.
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.
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 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.
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.
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 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,
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.
(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 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.
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 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.
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.
Exhibit 10.5
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 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.
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 dated 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
Exhibit 10.6
PARTICIPATION AGREEMENT
McMoRan 1997 Exploration Program
PAGE
I. DEFINITIONS 4
II. PURPOSE; OPERATIONS 8
2.1 Purpose 9
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
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
EXHIBITS
I) PROGRAM OPERATING AGREEMENT (OFFSHORE)
II) PROGRAM OPERATING AGREEMENT (ONSHORE)
III) CERTAIN EXCLUDED AREAS
IV) PROVISIONS CONCERNING TAXATION
V) INITIAL LEASEHOLD INVENTORY
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 Gerald J. Ford ("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. 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.
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 Gerald J. Ford.
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.
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
Paragragh 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, Freeport-McMoRan Resource Partners,
Limited Partnership ("FRP") and McMoRan established the McMoRan
1997 Exploration Program pursuant to the Participation Agreement,
a copy of which has been furnished to Participant. Prior to the
effective date hereof, McMoRan and FRP evaluated by drilling
certain of the prospects subject to the Exploration Program and,
effective as of the date hereof, McMoRan and FRP have agreed to
expand the Exploration Program for the remaining term of the
Program by increasing the budget for the Exploration Program and
adding additional participants.
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, $556,343 of which will be reimbursed by
Participant. 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. None of the cost
of drilling the OCS-G 3128 Well #2 on Vermilion Block 159 shall
be charged to the Participant.
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 & All Other Members
of McMoRan Group excluding
Participant
6% 94%
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
5% 95%
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 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.
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;
(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.
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
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;
(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;
(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
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.
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.
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 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.
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.
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 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.
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.
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'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.
(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) McMoRan shall also carry policies of the following
insurance which will name Participant as an additional
insured:
(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.
Participant shall be billed seperately for its pro rata
share of such insurance.
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.
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 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.
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 22, 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
/s/ Gerald J. Ford
--------------
Gerald J. Ford
The remainder of the Exhibits to the Amendment to
Participation Agreement McMoRan Exploration 1997 Exploration
Program between McMoRan Oil & Gas Co. and Gerald J. Ford
dated as of December 15, 1997 have been intentionally
omitted and will be provided upon request.
Exhibit 10.7
AMENDED AND RESTATED
SERVICES AGREEMENT
THIS AMENDED AND RESTATED SERVICES AGREEMENT (this
"Agreement"), dated as of December 23, 1997 by and between FM
Services Company, a Delaware corporation ("FMS"), and McMoRan Oil
& Gas Co., a Delaware corporation ("MOXY").
WHEREAS, FMS and MOXY entered into a Services Agreement
dated as of January 1, 1996 the ("Original Agreement") for the
provision of certain services by FMS for MOXY; and
WHEREAS, FMS and MOXY desire to amend and restate the
Original Agreement and for FMS to continue to furnish MOXY and
its affiliates, as that term is defined in Rule 405 under the
Securities Act of 1933 (collectively, the "MOXY Group"), with
Services, as defined below, to support and complement the
services provided by its officers, employees and other available
resources.
NOW THEREFORE, in consideration of the covenants and
agreements set forth herein, and other good and valuable
consideration, the receipt and sufficiency of which are hereby
acknowledged, the parties hereto agree as follows:
Section 1. Services. During the term of this Agreement
FMS shall furnish the following services (collectively, the
"Services") to the MOXY Group: (a) accounting, treasury and
financial, (b) tax, (c) insurance and risk management (including
the purchase and maintenance on behalf of MOXY of such insurance
as MOXY deems necessary or appropriate), (d) human resources
(including employee benefit services), (e) management information
and system support, (f) governmental relations, (g) community
relations, (h) investor relations, (i) facilities management and
security, (j) business development, (k) executive support, (l)
aviation, (m) contract administration and (n) such other services
as may mutually be agreed upon by the parties hereto. Services
shall be provided directly by FMS or, in the discretion of FMS,
by affiliated or non-affiliated third parties.
Section 2. Administration of Services. FMS shall keep
the appropriate officers and employees of MOXY and other members
of the MOXY Group fully informed and shall cooperate with such
officers and employees with respect to the performance of
Services by FMS. Each member of the MOXY Group shall have
complete and full access to all data, records, files, statements,
invoices, billings and other information generated by or in the
custody of FMS relating to Services provided to such entity.
Section 3. Compensation.
(a) As compensation for the performance of the Services,
MOXY shall reimburse, or cause another member of the MOXY Group
to reimburse, FMS for:
(i) All expenses of the Services incurred by FMS that
are readily identifiable to the MOXY Group, including
personnel related costs (which shall be based upon
department head allocations), facilities related costs
(based upon personnel cost allocations) and aviation costs
("Direct Charges");
(ii) All costs of goods, services or other items
purchased from third parties by FMS for the MOXY Group, to
the extent such costs are paid by FMS ("Third Party
Charges"); and
(iii) The portion of all other expenses incurred by
FMS in connection with providing the Services to the MOXY
Group and similar services to Freeport-McMoRan Copper & Gold
Inc. ("FCX"), Freeport-McMoRan Sulphur Inc. ("FSC") and FM
Properties Inc. ("FMPO") and their respective affiliates as
directed from time to time by the joint written instructions
of MOXY, FCX, FSC and FMPO pursuant to the Stockholder
Agreement of even date herewith among MOXY, FCX, FSC and
FMPO ("Allocated Charges").
(b) FMS shall invoice MOXY by the last day of each month
for all Direct Charges, Third Party Charges and Allocated Charges
incurred for the immediately preceding month. All invoices shall
provide MOXY with an account of all such charges and an
accounting for all Advances, as defined below, during such month.
All amounts shown on each invoice shall be due and payable
within five (5) days of the date of the invoice. In the event of
a dispute as to the propriety of any invoiced amount, MOXY shall
pay, or cause the payment of, all undisputed amounts on each
invoice, but shall be entitled to withhold payment of any amount
in dispute and shall promptly notify FMS of the basis of the
dispute.
(c) MOXY shall advance, or cause the advancement of, funds
to FMS for Direct Charges, Third Party Charges and Allocated
Charges from time to time during the term of this Agreement
(which may be as often as daily) as requested by FMS, such funds
to serve as an advance of the amounts to be invoiced hereunder
(the "Advances").
Section 4. Use of FMS Facilities. FMS shall provide the
MOXY Group with a non-exclusive right to utilize its properties
and facilities, subject to such limitations, if any, as may be
imposed by leases and other agreements and instruments governing
the use of such properties and facilities.
Section 5. Terms of Agreement; Termination. (a) This
Agreement shall commence as of the date first above written and
shall continue in effect until (i) the parties mutually agree in
writing to terminate this Agreement, (ii) 90 days after receipt
by FMS of written notice from MOXY of its request to terminate
this Agreement, or (iii) a Change in Control. A "Change in
Control" shall be deemed to have occurred if any Person or group
(within the meaning of Rule 13d-5 of the SEC as in effect on the
date hereof) shall own directly or indirectly, beneficially or of
record, shares representing 50% or more of the aggregate ordinary
voting power represented by the issued and outstanding capital
stock of MOXY.
(b) Upon termination of this Agreement, MOXY shall be
liable for (i) Direct Charges, Third Party Charges and Allocated
Charges incurred in accordance with Section 3 prior to
termination, (ii) its proportionate share of all costs incurred
by FMS or which FMS is obligated to incur in connection with
providing the Services after termination, because of the
anticipated long-term nature of this Agreement or otherwise, and
(iii) all costs of such termination, whether direct or indirect
and including costs incurred by FMS in connection with the
termination by FMS of obligations entered into in connection with
the Services.
Section 6. Limitation of Liability.
(a) FMS makes no representation or warranty whatsoever,
express or implied, with respect to the Services. In no event
shall FMS be liable to MOXY for (i) any loss, cost or expense
resulting from any act or omission taken at the express direction
of any member of the MOXY Group or (ii) any special, indirect or
consequential damages resulting from any error or omission in the
performance of the Services or from the breach of this Agreement.
(b) Neither FMS nor MOXY shall be liable for any loss or
damage or any nonperformance, partial or whole, under this
Agreement, caused by any strike, labor troubles, riot act of a
public enemy, insurrection, act of God, or any law, rule or
regulation promulgated by any governmental body or agency, or any
demand or requisition of any governmental body or agency, or any
other cause beyond the control of the parties hereto.
Section 7. Confidentiality. FMS will hold and will use
its best efforts to cause its officers, directors, employees and
other agents (collectively, its "Agents") to hold, in confidence,
all confidential documents and information concerning the MOXY
Group furnished to such party in connection with this Agreement,
except to the extent that such information can be shown to have
been (a) previously known by such party on a nonconfidential
basis, (b) in the public domain through no fault of such party or
(c) later lawfully acquired by such party on a nonconfidential
basis from a source other than the MOXY Group; provided that FMS
may disclose such information in connection with this Agreement
to its Agents so long as such persons are informed by FMS of the
confidential nature of such information and are directed by FMS
to keep such information confidential and not to use it for any
purpose other than its intended use. Notwithstanding the
foregoing, FMS or its Agents may disclose such information if (i)
compelled to disclose by judicial or administrative process or by
other requirements of law or (ii) necessary to establish such
party's position in any litigation or any arbitration or other
proceeding based upon or in connection with the subject matter of
this Agreement. Prior to any disclosure pursuant to the
preceding sentence, FMS or its Agent(s) shall give reasonable
prior notice to MOXY of such intended disclosure, and if
requested by MOXY, FMS shall use all reasonable efforts to obtain
a protective order or similar protection for such information and
shall otherwise disclose only such information as is legally
required. If all or any part of the Services are terminated, FMS
will, and will use its best efforts to cause its Agents to,
destroy or deliver to MOXY, upon request, all documents and other
materials, and all copies thereof, containing confidential
information obtained from the MOXY Group in connection with the
Services so terminated.
Section 8. Technology. FMS hereby grants to MOXY a
royalty free, non-exclusive right and license to use (but not to
sublicense outside of the MOXY Group) any and all technology,
whether or not patented, developed by or on behalf of FMS,
relating to the business of MOXY; provided that the license
hereby granted shall not extend to (i) any technology developed
for a person not affiliated with FMS, pursuant to an arrangement
granting such person exclusive rights to such technology, or (ii)
any technology developed after the termination of this Agreement.
Section 9. Dispute Resolution. MOXY and FMS shall use
all reasonable efforts to amicably resolve all disputes arising
under this Agreement. If despite such efforts any matter cannot
be amicably resolved the matter shall be referred to the
Presidents of MOXY and FMS who shall promptly meet for the
purpose of resolving such dispute. If despite such efforts and
meetings the matter remains unresolved, then any affected party
may refer the matter to arbitration for final resolution in
accordance with the commercial rules of the American Arbitration
Association. Any matter submitted to arbitration shall be
decided by a single arbitrator selected by mutual agreement of
the parties (or if the parties cannot agree then such arbitrator
shall be selected by the appropriate official or designee of the
American Arbitration Association). Any such arbitration
proceeding shall be held in New Orleans, Louisiana. Each party
shall bear its own costs and expenses, and the arbitrator's fees
and expenses and the costs and expenses of the proceeding itself
shall be borne by the parties in such proportions as the
arbitrator shall decide. The decision of the arbitrator shall be
final and non-appealable, and may be enforced in any court of
competent jurisdiction.
Section 10. Miscellaneous.
(a) The parties hereto are independent contractors.
Nothing in this Agreement is intended or shall be deemed to
constitute a partnership, agency, franchise or joint venture
relationship between the parties. Neither party shall incur any
debts or make any commitments upon the other, except to the
extent specifically provided herein.
(b) This Agreement constitutes the entire agreement between
the parties hereto with respect to the matters set forth in this
Agreement. This Agreement shall not be amended, modified or
supplemented except by an instrument in writing executed by each
of the parties hereto.
(c) All notices and other communications hereunder shall be
in writing and shall be given by hand delivery, certified or
registered mail, return receipt requested or telecopy
transmission with confirmation of receipt to the address of each
of the parties set forth opposite the signature of such party on
the signature page hereof. All notices and communications shall
be deemed given upon receipt thereof.
(d) This Agreement shall be governed by and construed in
accordance with the internal laws of the State of Louisiana
without the application of any conflicts of laws principles.
(e) This Agreement shall inure to the benefit of and be
binding upon the parties hereto and their respective successors
and assigns. This Agreement shall not be assignable by any party
hereto without the prior written consent of the other party.
IN WITNESS WHEREOF, the parties hereto have executed this
Agreement as of the date first above written.
Address for Notices: FM SERVICES COMPANY
1615 Poydras Street
New Orleans, LA 70112 By: /s/ Michael J. Arnold
Attention: General Counsel Michael J. Arnold
President
Address for Notices: McMoRan OIL & GAS CO.
1615 Poydras Street
New Orleans, LA 70112 By: /s/ Richard C. Adkerson
Attention: General Counsel Richard C. Adkerson
Co-Chairman of the Board and
Chief Executive Officer
Exhibit 10.10
McMoRan OIL & GAS CO.
ADJUSTED STOCK AWARD PLAN
SECTION 1
Purpose. The purpose of the McMoRan Oil & Gas Co.
Adjusted Stock Award Plan (the "Plan") is to provide for the
issuance and administration of certain awards relating to common
stock of the Company issued to employees, officers and directors
of Freeport-McMoRan Inc. ("FTX"), the Company's parent, in
connection with FTX's distribution to FTX stockholders of all of
the common stock of the Company.
SECTION 2
Definitions. As used in the Plan, the following terms
shall have the meanings set forth below:
"Award" shall mean any Option, Limited Right or Stock
Incentive Unit granted under this Plan.
"Award Agreement" shall mean any written agreement,
contract or other instrument or document evidencing any Award,
which may, but need not, be executed or acknowledged by a
Participant.
"Board" shall mean the Board of Directors of the
Company.
"Code" shall mean the Internal Revenue Code of 1986, as
amended from time to time.
"Committee" shall mean a committee of the Board
designated by the Board to administer the Plan and composed of
not fewer than two directors, each of whom, to the extent
necessary to comply with Rule 16b-3 only, is a "non-employee
director" within the meaning of Rule 16b-3 and, to the extent
necessary to comply with Section 162(m) only, is an "outside
director" under Section 162(m). In the absence of such a
designation, "Committee" shall mean the Board.
"Company" shall mean McMoRan Oil & Gas Co.
"Designated Beneficiary" shall mean the beneficiary
designated by the Participant, in a manner determined by the
Committee, to receive the benefits due the Participant under the
Plan in the event of the Participant's death. In the absence of
an effective designation by the Participant, Designated
Beneficiary shall mean the Participant's estate.
"Distribution" shall mean the distribution by FTX of
As amended effective November 5, 1997 all the then outstanding
Shares to the holders of FTX common stock, as described in the
Information Statement.
"Distribution Date" shall mean the Distribution Date,
as disclosed in the Information Statement.
"Eligible Individual" shall mean any present or former
employee, officer or director of FTX who on the Distribution Date
holds an FTX Award.
"Exchange Act" shall mean the Securities Exchange Act
of 1934, as amended from time to time.
"FTX Award" shall mean any of the FTX Options, FTX
Director Options, FTX SARs and FTX SIUs.
"FTX Director Option" shall mean an option to purchase
FTX common stock granted under the FTX 1988 Stock Option Plan for
Non-Employee Directors that is outstanding and unexercised on the
Distribution Date.
"FTX Option" shall mean an option to purchase FTX
common stock granted by FTX to a present or former officer or
employee of FTX that is outstanding and unexercised on the
Distribution Date.
"FTX SAR" shall mean a stock appreciation right granted
to a present or former officer or employee of FTX that is
outstanding and unexercised on the Distribution Date.
"FTX SIU" shall mean a stock incentive unit granted
under the FTX 1992 Stock Incentive Unit Plan that is outstanding
and unexercised on the Distribution Date.
"Information Statement" shall mean the Information
Statement dated May 18, 1994 included in the Registration
Statement on Form 10A-2 filed by the Company under the Exchange
Act with respect to the Shares.
"Limited Right" shall mean any right granted under
Section 8 of the Plan.
"Offer" shall mean any tender offer, exchange offer or
series of purchases or other acquisitions, or any combination of
those transactions, as a result of which any person, or any two
or more persons acting as a group, and all affiliates of such
person or persons, shall own beneficially more than 40% of the
Shares outstanding (exclusive of Shares held in the Company's
treasury or by the Company's Subsidiaries).
"Offer Price" shall mean the highest price per Share
paid in any Offer that is in effect at any time during the period
beginning on the ninetieth day prior to the date on which a
Limited Right is exercised and ending on and including the date
of exercise of such Limited Right. Any securities or property
As amended effective November 5, 1997
that comprise all or a portion of the consideration paid for
Shares in the Offer shall be valued in determining the Offer
Price at the higher of (i) the valuation placed on such
securities or property by the person or persons making such
Offer, or (ii) the valuation, if any, placed on such securities
or property by the Committee or the Board.
"Option" shall mean an Option granted under Section 6
of the Plan.
"Participant" shall mean any Eligible Individual
granted an Award under the Plan.
"Person" shall mean any individual, corporation,
partnership, association, joint-stock company, trust,
unincorporated organization, government or political subdivision
thereof or other entity.
"Rule 16b-3" shall mean Rule 16b-3 promulgated by the
SEC under the Exchange Act, or any successor rule or regulation
thereto as in effect from time to time.
"SEC" shall mean the Securities and Exchange
Commission, including the staff thereof, or any successor
thereto.
"Section 162(m)" shall mean Section 162(m) of the Code
and all regulations promulgated thereunder as in effect from time
to time.
"SIU" shall mean a Stock Incentive Unit.
"Shares" shall mean the shares of common stock, par
value $.01 per share, of the Company (including any attached
Preferred Stock Purchase Rights), and such other securities of
the Company or a Subsidiary as the Committee may from time to
time designate.
"Stock Incentive Unit" shall mean any award of stock
incentive units granted under Section 7 of the Plan.
"Subsidiary" shall mean any corporation or other entity
in which the Company possesses directly or indirectly equity
interests representing at total value of all classes of equity
interests of such corporation or other entity.
SECTION 3
Administration. The Plan shall be administered by the
Committee. Subject to the terms of the Plan and applicable law,
and in addition to other express powers and authorizations
conferred on the Committee by the Plan, the Committee shall have
full power and authority to interpret and administer the Plan and
any instrument or agreement relating to, or Award made under, the
Plan; establish, amend, suspend or waive such rules and
regulations and appoint such agents as it shall deem appropriate
for the proper administration of the Plan; and make any other
determination and take any other action that the Committee deems
necessary or desirable for the administration of the Plan. The
Committee shall have no discretion relating to the timing,
pricing and size of Awards granted under the Plan, which shall be
determined in accordance with the provisions of Sections 6, 7 and
8. Unless otherwise expressly provided in the Plan, all
designations, determinations, interpretations and other decisions
under or with respect to the Plan or any Award shall be within
the sole discretion of the Committee, may be made at any time and
shall be final, conclusive and binding upon all Persons,
including the Company, any Subsidiary, any Participant, any
holder or beneficiary of any Award, any stockholder of the
Company and any Eligible Individual.
SECTION 4
Eligibility. Each Eligible Individual shall be granted
an Award in accordance with the provisions of the Plan.
SECTION 5
(a) Shares Available for Awards. Subject to
adjustment as provided in paragraph 5(b):
(i) Calculation of Number of Shares Available. The
number of Shares with respect to which Awards may be granted
under the Plan shall be such number of Shares as results
from the application of the award formulas set forth in
Sections 6 and 8. Such number of Shares shall not be
reduced by the number of Shares with respect to which SIUs
shall be granted, which shall be determined in accordance
with Section 7. If, after the effective date of the Plan,
an Award granted under the Plan expires or is exercised,
forfeited, canceled or terminated without the delivery of
Shares, then the Shares covered by such Award or to which
such Award relates, or the number of Shares otherwise
counted against the aggregate number of Shares with respect
to which Awards may be granted, to the extent of any such
expiration, exercise, forfeiture, cancellation or
termination, shall not thereafter be available for grants or
Awards under the Plan.
(ii) Sources of Shares Deliverable Under Awards. Any
Shares delivered pursuant to an Award may consist of
authorized and unissued Shares or of treasury Shares,
including Shares held by the Company or a Subsidiary and
acquired in the open market or otherwise obtained by the
Company or a Subsidiary.
(b) Adjustments. In the event that the Committee
determines that any dividend or other distribution (whether in
the form of cash, Shares, Subsidiary securities, other securities
or other property), recapitalization, stock split, reverse stock
split, reorganization, merger, consolidation, split-up, spin-off,
combination, repurchase or exchange of Shares or other securities
of the Company, issuance of warrants or other rights to purchase
Shares or other securities of the Company, or other similar
corporate transaction or event affects the Shares such that an
adjustment is determined by the Committee to be appropriate to
prevent dilution or enlargement of the benefits or potential
benefits intended to be made available under the Plan, then the
Committee may, in its sole discretion and in such manner as it
may deem equitable, adjust any or all of (i) the number and type
of Shares (or other securities or property) subject to
outstanding Awards, and (ii) the grant or exercise price with
respect to any Award or, if deemed appropriate, make provision
for a cash payment to the holder of an outstanding Award;
provided, that the number of Shares subject to any Award
denominated in Shares shall always be a whole number.
SECTION 6
(a) Stock Options. Immediately prior to the
Distribution, each holder of an FTX Option, an FTX SAR or an FTX
Director Option shall receive an Option to purchase such number
of Shares (disregarding any fractional Share) as such holder
would be eligible to receive in the Distribution with respect to
would be eligible to receive in the Distribution with respect to
the number of shares of FTX common stock subject to such FTX
Award if such holder were the owner of record of such FTX shares
on the record date for the Distribution. Except as set forth in
paragraphs 6(b) and 6(c), each such Option shall have the same
remaining term and other terms and conditions (whether such terms
and conditions are contained in the related FTX Award agreement
or in the plan under which such FTX Award was made) and shall be
exercisable to the same extent as the FTX Award from which they
were derived, with such changes and modifications as are
necessary to substitute the Company for FTX as the issuer of the
Option.
(b) Exercise Price. The per Share exercise price of
each Option granted pursuant to paragraph 6(a) shall be the per
share exercise price or grant price of the FTX Award from which
such Option was derived multiplied by a fraction, the numerator
of which is the per Share fair market value of the Shares at the
time of the Distribution, determined as set forth below, and the
denominator of which is the per share fair market value of FTX
common stock at the time of the Distribution, determined as set
forth below. For purposes of this paragraph 6(b), the per Share
fair market value at the time of the Distribution shall be the
weighted average when-issued per Share price of the Shares on the
NASDAQ National Market System on the first trading date on which
the Shares are traded on a when-issued basis on the NASDAQ
National Market System, and the per share fair market value of
FTX common stock at the time of the Distribution shall be the
weighted average per share price of the FTX common stock on the
New York Stock Exchange on such trading date.
(c) Tax-Offset Right Adjustment. Notwithstanding the
foregoing, if the FTX Award from which the Option granted under
this Section 6 derives contained a right to receive a cash
payment upon exercise of such FTX Award related to and intended
to defray the income tax liability associated therewith, the
number of Shares to be subject to the Option, determined
according to the provisions of paragraph 6(a) (without
disregarding fractional Shares), shall be multiplied by 1.6556
and any fractional Share resulting from such adjustment shall be
disregarded. Such adjustment shall not affect the calculation of
the per Share exercise price of the Option as set forth in
paragraph 6(b).
(d) Payment. No Shares shall be delivered pursuant to
any exercise of an Option until payment in full of the option
price therefor is received by the Company. Such payment may be
made in cash, or its equivalent, or, if and to the extent
permitted by the Committee, by applying cash amounts payable by
the Company upon the exercise of such Option or other Awards by
the holder thereof or by exchanging whole Shares owned by such
holder (which are not the subject of any pledge or other security
interest), or by a combination of the foregoing, provided that
the combined value of all cash, cash equivalents, cash amounts so
payable by the Company upon exercises of Awards and the fair
market value of any such whole Shares so tendered to the Company,
valued (in accordance with procedures established by the
Committee) as of the effective date of such exercise, is at least
equal to such option price.
SECTION 7
(a) Stock Incentive Units. Immediately prior to the
Distribution, each holder of an FTX SIU shall receive a Stock
Incentive Unit relating to such number of Shares (disregarding
any fractional Share) as such holder would be eligible to receive
in the Distribution with respect to the number of shares of FTX
common stock to which such FTX SIU relates if such holder were
the owner of record of such FTX shares on the record date for the
Distribution. Except as set forth in paragraphs 7(b) and 7(c),
each such SIU shall have the same remaining term and other terms
and conditions (whether such terms and conditions are contained
in the related FTX SIU agreement or in the plan under which such
FTX SIU was made) and shall be exercisable to the same extent as
the FTX SIU from which they were derived, with such changes and
modifications as are necessary to substitute the Company for FTX
as the issuer of the SIU. The per Share exercise price of each
SIU shall be determined in the same manner as the exercise price
of Options granted pursuant to Section 6, as described in
paragraph 6(b).
(b) A Stock Incentive Unit shall entitle the holder
thereof to receive an amount equal to the excess, if any, of the
fair market value of a Share on the date of exercise of the SIU
over the exercise price. In the event that the SIU is exercised
during a period beginning not earlier than one day after the
expiration date of an Offer and ending not more than ninety days
after the expiration date of such Offer, an SIU shall entitle the
holder thereof to receive upon exercise the higher of (i) the
amount described in the first sentence of this paragraph 7(b) and
(ii) an amount in cash equal to the excess, if any, of the Offer
Price on the date of exercise of the SIU over the exercise price.
SECTION 8
(a) Limited Rights. Each holder of an FTX Option or
FTX SAR shall receive, at the same time as and in tandem with
each Option granted to such holder under Section 6, Limited
Rights equal in number to the number of Shares subject to such
Option with which such Limited Rights are in tandem. Such
Limited Rights shall have a grant price equal to the exercise
price of the Option under Section 6 with which it is in tandem,
and shall in all other respects contain the same terms and
conditions as the agreement pertaining to the FTX Award from
which they derived.
(b) A Limited Right shall entitle the holder thereof
to receive an amount equal to the excess, if any, of the Offer
Price on the date of exercise of the Limited Right over the grant
price. Any Limited Right may be settled in cash, Shares or a
combination of cash and Shares, as determined by the Committee or
the Board at the time of exercise, and shall only be exercisable
during a period beginning not earlier than one day and ending not
more than ninety days after the expiration date of an Offer.
SECTION 9
(a) Amendments to the Plan. The Board may amend,
suspend or terminate the Plan or any portion thereof at any time,
provided that no amendment shall be made without stockholder
approval if such approval is necessary to comply with any tax or
regulatory requirement. Notwithstanding anything to the
contrary contained herein, (i) the Committee may amend the Plan
in such manner as may be necessary for the Plan to conform with
local rules and regulations in any jurisdiction outside the
United States and (ii) any amendment, suspension or termination
made in accordance with this paragraph 9(a) that would adversely
affect a holder's rights under an Award made under the Plan may
not be made without such holder's consent.
(b) Amendments to Awards. The Committee may amend,
modify or terminate any outstanding Award at any time prior to
payment or exercise in any manner not inconsistent with the terms
of the Plan, including without limitation, (i) to change the date
or dates as of which an Award becomes exercisable, or (ii) to
cancel an Award and grant a new Award in substitution therefor
under such different terms and conditions as it determines in its
sole and complete discretion to be appropriate, provided,
however, that any amendment, modification or termination that
would adversely affect a holder's rights under an Award may not
be made without such holder's consent.
(c) Adjustment of Awards Upon the Occurrence of
Certain Unusual or Nonrecurring Events. The Committee is hereby
authorized to make adjustments in the terms and conditions of,
and the criteria included in, Awards in recognition of unusual or
nonrecurring events (including, without limitation, the events
described in paragraph 5(b) hereof) affecting the Company, or the
financial statements of the Company or any Subsidiary, or of
changes in applicable laws, regulations, or accounting
principles, whenever the Committee determines that such
adjustments are appropriate to prevent dilution or enlargement of
the benefits or potential benefits intended to be made available
under the Plan.
(d) Cancellation. Any provision of this Plan or any
Award Agreement to the contrary notwithstanding, the Committee
may cause any Award granted hereunder to be canceled in
consideration of a cash payment or alternative Award made to the
holder of such canceled Award equal in value to such canceled
Award. The determinations of value under this subparagraph shall
be made by the Committee in its sole discretion.
SECTION 10
(a) Award Agreements. Each Award hereunder shall be
evidenced by a writing delivered to the Participant that shall
specify the terms and conditions thereof and any rules applicable
thereto and that shall, in accordance with the provisions of the
Plan, replicate as closely as possible the terms, conditions and
other contractual attributes of the FTX Award from which the
Award is derived, as in effect on the Distribution Date.
(b) Transferability. No Awards granted hereunder may
be transferred, pledged, assigned or otherwise encumbered by a
Participant except: (i) by will; (ii) by the laws of descent and
distribution; (iii) pursuant to a domestic relations order, as
defined in the Code, if permitted by the Committee and so
provided in the Award Agreement or an amendment thereto; or (iv)
as to Options only, if permitted by the Committee and so provided
in the Award Agreement or an amendment thereto, (a) to Immediate
Family Members, (b) to a partnership in which Immediate Family
Members, or entities in which Immediate Family Members are the
owners, members or beneficiaries, as appropriate, are the
partners, (c) to a limited liability company in which Immediate
Family Members, or entities in which Immediate Family Members are
the owners, members or beneficiaries, as appropriate, are the
members, or (d) to a trust for the benefit of Immediate Family
Members; provided, however, that no more than a de minimus
beneficial interest in a partnership, limited liability company
or trust described in (b), (c) or (d) above may be owned by a
person who is not an Immediate Family Member or by an entity that
is not beneficially owned solely by Immediate Family Members.
"Immediate Family Members" shall be defined as the spouse and
natural or adopted children or grandchildren of the Participant
and their spouses. Any attempted assignment, transfer, pledge,
hypothecation or other disposition of Awards, or levy of
attachment or similar process upon Awards not specifically
permitted herein, shall be null and void and without effect. The
designation of a Designated Beneficiary shall not be a violation
of this Section 10(b).
(c) Share Certificates. All certificates for Shares
or other securities delivered under the Plan pursuant to any
Award or the exercise thereof shall be subject to such stop
transfer orders and other restrictions as the Committee may deem
advisable under the Plan or the rules, regulations, and other
requirements of the SEC, any stock exchange upon which such
Shares or other securities are then listed, and any applicable
federal or state laws, and the Committee may cause a legend or
legends to be put on any such certificates to make appropriate
reference to such restrictions.
(d) No Limit on Other Compensation Arrangements.
Nothing contained in the Plan shall prevent the Company from
adopting or continuing in effect other compensation arrangements,
which may, but need not, provide for the grant of options, stock
appreciation rights and other types of Awards provided for
hereunder (subject to stockholder approval of any such
arrangement if approval is required), and such arrangements may
be either generally applicable or applicable only in specific
cases.
(e) No Right to Employment. The grant of an Award
shall not be construed as giving a Participant the right to be
engaged or employed by or retained in the employ of FTX, the
Company or any Subsidiary. FTX, the Company or any Subsidiary
may at any time dismiss a Participant from engagement or
employment, free from any liability or any claim under the Plan,
unless otherwise expressly provided in the Plan or in any Award
Agreement or any agreement relating to the engagement or
employment of the Participant by FTX, the Company or any
Subsidiary.
(f) Governing Law. The validity, construction, and
effect of the Plan, any rules and regulations relating to the
Plan and any Award Agreement shall be determined in accordance
with the laws of the State of Delaware.
(g) Severability. If any provision of the Plan or any
Award is or becomes or is deemed to be invalid, illegal, or
unenforceable in any jurisdiction or as to any Person or Award,
or would disqualify the Plan or any Award under any law deemed
applicable by the Committee, such provision shall be construed or
deemed amended to conform to applicable laws, or if it cannot be
construed or deemed amended without, in the determination of the
Committee, materially altering the intent of the Plan or the
Award, such provision shall be stricken as to such jurisdiction,
Person or Award and the remainder of the Plan and any such Award
shall remain in full force and effect.
(h) No Trust or Fund Created. Neither the Plan nor
any Award shall create or be construed to create a trust or
separate fund of any kind or a fiduciary relationship between the
Company and a Participant or any other Person. To the extent
that any Person acquires a right to receive payments from the
Company pursuant to an Award, such right shall be no greater than
the right of any unsecured general creditor of the Company.
(i) No Fractional Shares. No fractional Shares shall
be issued or delivered pursuant to the Plan or any Award, and the
Committee shall determine, in accordance with the terms of the
Plan, as applicable, whether cash, other securities or other
property shall be paid or transferred in lieu of any fractional
Shares or whether such fractional Shares or any rights thereto
shall be canceled, terminated, or otherwise eliminated.
(j) Headings. Headings are given to the subsections
of the Plan solely as a convenience to facilitate reference.
Such headings shall not be deemed in any way material or relevant
to the construction or interpretation of the Plan or any
provision thereof.
SECTION 11
Effective Date of the Plan. The Plan shall be
effective as of the date of its approval by the stockholder of
the Company.
SECTION 12
Term of the Plan. Subject to paragraph 5(b), no Award
shall be granted under the Plan except the Awards provided for in
Sections 6, 7 and 8. Awards granted hereunder shall continue
until their respective expiration dates, and the authority of the
Committee to administer, interpret, amend, alter, adjust,
suspend, discontinue, or terminate, in accordance with the
provisions of the Plan, any such Award or to waive any conditions
or rights under any such Award shall extend until the latest such
date
Exhibit 10.11
McMoRan OIL & GAS CO.
1994 STOCK OPTION PLAN
SECTION 1
Purpose. The purpose of the McMoRan Oil & Gas Co. 1994
Stock Option Plan (the "Plan") is to motivate and reward key
personnel by giving them a proprietary interest in the Company's
continued success.
SECTION 2
Definitions. As used in the Plan, the following terms
shall have the meanings set forth below:
"Award" shall mean any Option, Stock Appreciation
Right, Limited Right or Other Stock-Based Award.
"Award Agreement" shall mean any written agreement,
contract or other instrument or document evidencing any Award,
which may, but need not, be executed or acknowledged by a
Participant.
"Board" shall mean the Board of Directors of McMoRan
Oil & Gas Co.
"Code" shall mean the Internal Revenue Code of 1986, as
amended from time to time.
"Committee" shall mean a committee of the Board
designated by the Board to administer the Plan and composed of
not fewer than two directors, each of whom, to the extent
necessary to comply with Rule 16b-3 only, is a "non-employee
director" within the meaning of Rule 16b-3 and, to the extent
necessary to comply with Section 162(m) only, is an "outside
director" under Section 162(m). Until otherwise determined by
the Board, the Committee shall be the Corporate Personnel
Committee of the Board.
"Company" shall mean McMoRan Oil & Gas Co.
"Designated Beneficiary" shall mean the beneficiary
designated by the Participant, in a manner determined by the
Committee, to receive the benefits due the Participant under the
Plan in the event of the Participant's death. In the absence of
an effective designation by the Participant, Designated
Beneficiary shall mean the Participant's estate.
"Employee" shall mean (i) any person providing services
as an officer of the Company or a Subsidiary, whether or not
employed by such entity, (ii) any employee of the Company or a
Subsidiary, including any director who is also an employee of the
Company or a Subsidiary, (iii) any officer or employee of an
entity with which the Company has contracted to receive
management services who provides services to the Company or a
Subsidiary through such arrangement and (iv) any person who has
agreed in writing to become a person described in clauses (i),
(ii) or (iii) within not more than 30 days following the date of
grant of such person's first Award under the Plan.
"Exchange Act" shall mean the Securities Exchange Act
of 1934, as amended from time to time.
"Incentive Stock Option" shall mean an option granted
under Section 6 of the Plan that is intended to meet the
requirements of Section 422 of the Code or any successor
provision thereto.
"Limited Right" shall mean any right granted under
Section 8 of the Plan.
"Nonqualified Stock Option" shall mean an option
granted under Section 6 of the Plan that is not intended to be an
Incentive Stock Option.
"Offer" shall mean any tender offer, exchange offer or
series of purchases or other acquisitions, or any combination of
those transactions, as a result of which any person, or any two
or more persons acting as a group, and all affiliates of such
person or persons, shall own beneficially more than 40% of the
Shares outstanding (exclusive of Shares held in the Company's
treasury or by the Company's Subsidiaries).
"Offer Price" shall mean the highest price per Share
paid in any Offer that is in effect at any time during the period
beginning on the ninetieth day prior to the date on which a
Limited Right is exercised and ending on and including the date
of exercise of such Limited Right. Any securities or property
that comprise all or a portion of the consideration paid for
Shares in the Offer shall be valued in determining the Offer
Price at the higher of (i) the valuation placed on such
securities or property by the person or persons making such
Offer, or (ii) the valuation, if any, placed on such securities
or property by the Committee or the Board.
"Option" shall mean an Incentive Stock Option or a
Nonqualified Stock Option.
"Other Stock-Based Award" shall mean any right or award
granted under Section 9 of the Plan.
"Participant" shall mean any Employee granted an Award
under the Plan.
"Person" shall mean any individual, corporation,
partnership, association, joint-stock company, trust,
unincorporated organization, government or political subdivision
thereof or other entity.
"Rule 16b-3" shall mean Rule 16b-3 promulgated by the
SEC under the Exchange Act, or any successor rule or regulation
thereto as in effect from time to time.
"SAR" shall mean any Stock Appreciation Right.
"SEC" shall mean the Securities and Exchange
Commission, including the staff thereof, or any successor
thereto.
"Section 162(m)" shall mean Section 162(m) of the Code
and all regulations promulgated thereunder as in effect from time
to time.
"Shares" shall mean the shares of common stock, par
value $0.01 per share, of McMoRan Oil & Gas Co. (including any
attached Preferred Stock Purchase Rights), and such other
securities of the Company or a Subsidiary as the Committee may
from time to time designate.
"Stock Appreciation Right" shall mean any right granted
under Section 7 of the Plan.
"Subsidiary" shall mean (i) any corporation or other
entity in which the Company possesses directly or indirectly
equity interests representing at least 50% of the total ordinary
voting power or at least 50% of the total value of all classes of
equity interests of such corporation or other entity and (ii) any
other entity in which the Company has a direct or indirect
economic interest that is designated as a Subsidiary by the
Committee.
SECTION 3
Administration. The Plan shall be administered by the
Committee. Subject to the terms of the Plan and applicable law,
and in addition to other express powers and authorizations
conferred on the Committee by the Plan, the Committee shall have
full power and authority to: (i) designate Participants; (ii)
determine the type or types of Awards to be granted to an
eligible Employee; (iii) determine the number of Shares to be
covered by, or with respect to which payments, rights or other
matters are to be calculated in connection with, Awards; (iv)
determine the terms and conditions of any Award; (v) determine
whether, to what extent, and under what circumstances Awards may
be settled or exercised in cash, whole Shares, other whole
securities, other Awards, other property or other cash amounts
payable by the Company upon the exercise of that or other Awards,
or cancelled, forfeited or suspended and the method or methods by
which Awards may be settled, exercised, cancelled, forfeited or
suspended; (vi) determine whether, to what extent, and under what
circumstances cash, Shares, other securities, other Awards, other
property, and other amounts payable by the Company with respect
to an Award shall be deferred either automatically or at the
election of the holder thereof or of the Committee; (vii)
interpret and administer the Plan and any instrument or agreement
relating to, or Award made under, the Plan; (viii) establish,
amend, suspend or waive such rules and regulations and appoint
such agents as it shall deem appropriate for the proper
administration of the Plan; and (ix) make any other determination
and take any other action that the Committee deems necessary or
desirable for the administration of the Plan. Unless otherwise
expressly provided in the Plan, all designations, determinations,
interpretations and other decisions under or with respect to the
Plan or any Award shall be within the sole discretion of the
Committee, may be made at any time and shall be final, conclusive
and binding upon all Persons, including the Company, any
Subsidiary, any Participant, any holder or beneficiary of any
Award, any stockholder of the Company and any Employee.
SECTION 4
Eligibility. Any Employee who is not a member of the
Committee shall be eligible to be granted an Award.
SECTION 5
(a) Shares Available for Awards. Subject to
adjustment as provided in Section 5(b):
(i) Calculation of Number of Shares Available. The
number of Shares with respect to which Awards may be granted
under the Plan shall be 3,000,000. If, after the effective date
of the Plan, an Award granted under the Plan expires or is
exercised, forfeited, cancelled or terminated without the
delivery of Shares, then the Shares covered by such Award or to
which such Award relates, or the number of Shares otherwise
counted against the aggregate number of Shares with respect to
which Awards may be granted, to the extent of any such
expiration, exercise, forfeiture, cancellation or termination
without the delivery of Shares, shall again be, or shall become,
Shares with respect to which Awards may be granted.
(ii) Substitute Awards. Any Shares delivered by the
Company, any Shares with respect to which Awards are made by the
Company, or any Shares with respect to which the Company becomes
obligated to make Awards, through the assumption of, or in
substitution for, outstanding awards previously granted by an
acquired company or a company with which the Company combines,
shall not be counted against the Shares available for Awards
under the Plan.
(iii) Sources of Shares Deliverable Under Awards. Any
Shares delivered pursuant to an Award may consist of authorized
and unissued Shares or of treasury Shares, including Shares held
by the Company or a Subsidiary and acquired in the open market or
otherwise obtained by the Company or a Subsidiary.
(iv) Individual Limit. Any provision of the Plan to
the contrary notwithstanding, no individual may receive in any
year Awards under the Plan that relate to more than 600,000
Shares.
(b) Adjustments. In the event that the Committee
determines that any dividend or other distribution (whether in
the form of cash, Shares, Subsidiary securities, other securities
or other property), recapitalization, stock split, reverse stock
split, reorganization, merger, consolidation, split-up, spin-off,
combination, repurchase or exchange of Shares or other securities
of the Company, issuance of warrants or other rights to purchase
Shares or other securities of the Company, or other similar
corporate transaction or event affects the Shares such that an
adjustment is determined by the Committee to be appropriate to
prevent dilution or enlargement of the benefits or potential
benefits intended to be made available under the Plan, then the
Committee may, in its sole discretion and in such manner as it
may deem equitable, adjust any or all of (i) the number and type
of Shares (or other securities or property) with respect to which
Awards may be granted, (ii) the number and type of Shares (or
other securities or property) subject to outstanding Awards, and
(iii) the grant or exercise price with respect to any Award or,
if deemed appropriate, make provision for a cash payment to the
holder of an outstanding Award or, if deemed appropriate, adjust
outstanding Awards to provide the rights contemplated by Section
9(b) hereof; provided, in each case, that with respect to Awards
of Incentive Stock Options no such adjustment shall be authorized
to the extent that such authority would cause the Plan to violate
Section 422(b)(1) of the Code or any successor provision thereto
and, with respect to all Awards under the Plan, no such
adjustment shall be authorized to the extent that such authority
would be inconsistent with the requirements for full
deductibility under Section 162(m) of the Code and the
regulations thereunder; and provided further, that the number of
Shares subject to any Award denominated in Shares shall always be
a whole number.
SECTION 6
(a) Stock Options. Subject to the provisions of the
Plan, the Committee shall have sole and complete authority to
determine the Employees to whom Options shall be granted, the
number of Shares to be covered by each Option, the option price
therefor and the conditions and limitations applicable to the
exercise of the Option. The Committee shall have the authority
to grant Incentive Stock Options, Nonqualified Stock Options or
both. In the case of Incentive Stock Options, the terms and
conditions of such grants shall be subject to and comply with
such rules as may be required by Section 422 of the Code, as from
time to time amended, and any implementing regulations. Except
in the case of an Option granted in assumption of or substitution
for an outstanding award of a company acquired by the Company or
with which the Company combines, the exercise price of any Option
granted under this Plan shall not be less than 100% of the fair
market value of the underlying Shares on the date of grant.
(b) Exercise. Each Option shall be exercisable at
such times and subject to such terms and conditions as the
Committee may, in its sole discretion, specify in the applicable
Award Agreement or thereafter, provided, however, that in no
event may any Option granted hereunder be exercisable after the
expiration of 10 years after the date of such grant. The
Committee may impose such conditions with respect to the exercise
of Options, including without limitation, any condition relating
to the application of Federal or state securities laws, as it may
deem necessary or advisable.
(c) Payment. No Shares shall be delivered pursuant to
any exercise of an Option until payment in full of the option
price therefor is received by the Company. Such payment may be
made in cash, or its equivalent, or, if and to the extent
permitted by the Committee, by applying cash amounts payable by
the Company upon the exercise of such Option or other Awards by
the holder thereof or by exchanging whole Shares owned by such
holder (which are not the subject of any pledge or other security
interest), or by a combination of the foregoing, provided that
the combined value of all cash, cash equivalents, cash amounts so
payable by the Company upon exercises of Awards and the fair
market value of any such whole Shares so tendered to the Company,
valued (in accordance with procedures established by the
Committee) as of the effective date of such exercise, is at least
equal to such option price.
SECTION 7
(a) Stock Appreciation Rights. Subject to the
provisions of the Plan, the Committee shall have sole and
complete authority to determine the Employees to whom Stock
Appreciation Rights shall be granted, the number of Shares to be
covered by each Stock Appreciation Right, the grant price thereof
and the conditions and limitations applicable to the exercise
thereof. Stock Appreciation Rights may be granted in tandem with
another Award, in addition to another Award, or freestanding and
unrelated to any other Award. Stock Appreciation Rights granted
in tandem with or in addition to an Option or other Award may be
granted either at the same time as the Option or other Award or
at a later time. Stock Appreciation Rights shall not be
exercisable after the expiration of 10 years after the date of
grant. Except in the case of a Stock Appreciation Right granted
in assumption of or substitution for an outstanding award of a
company acquired by the Company or with which the Company
combines, the grant price of any Stock Appreciation Right granted
under this Plan shall not be less than 100% of the fair market
value of the Shares covered by such Stock Appreciation Right on
the date of grant or, in the case of a Stock Appreciation Right
granted in tandem with a then outstanding Option or other Award,
on the date of grant of such related Option or Award.
(b) A Stock Appreciation Right shall entitle the
holder thereof to receive an amount equal to the excess, if any,
of the fair market value of a Share on the date of exercise of
the Stock Appreciation Right over the grant price. Any Stock
Appreciation Right shall be settled in cash, unless the Committee
shall determine at the time of grant of a Stock Appreciation
Right that it shall or may be settled in cash, Shares or a
combination of cash and Shares.
SECTION 8
(a) Limited Rights. Subject to the provisions of the
Plan, the Committee shall have sole and complete authority to
determine the Employees to whom Limited Rights shall be granted,
the number of Shares to be covered by each Limited Right, the
grant price thereof and the conditions and limitations applicable
to the exercise thereof. Limited Rights may be granted in tandem
with another Award, in addition to another Award, or freestanding
and unrelated to any Award. Limited Rights granted in tandem
with or in addition to an Award may be granted either at the same
time as the Award or at a later time. Limited Rights shall not
be exercisable after the expiration of 10 years after the date of
grant and shall only be exercisable during a period determined at
the time of grant by the Committee beginning not earlier than one
day and ending not more than ninety days after the expiration
date of an Offer. Except in the case of a Limited Right granted
in assumption of or substitution for an outstanding award of a
company acquired by the Company or with which the Company
combines, the grant price of any Limited Right granted under this
Plan shall not be less than 100% of the fair market value of the
Shares covered by such Limited Right on the date of grant or, in
the case of a Limited Right granted in tandem with a then
outstanding Option or other Award, on the date of grant of such
related Option or Award.
(b) A Limited Right shall entitle the holder thereof
to receive an amount equal to the excess, if any, of the Offer
Price on the date of exercise of the Limited Right over the grant
price. Any Limited Right shall be settled in cash, unless the
Committee shall determine at the time of grant of a Limited Right
that it shall or may be settled in cash, Shares or a combination
of cash and Shares.
SECTION 9
(a) Other Stock-Based Awards. The Committee is hereby
authorized to grant to eligible Employees an "Other Stock-Based
Award", which shall consist of an Award, the value of which is
based in whole or in part on the value of Shares, that is not an
instrument or Award specified in Sections 6 through 8 of this
Plan. Other Stock-Based Awards may be awards of Shares or may be
denominated or payable in, valued in whole or in part by
reference to, or otherwise based on or related to, Shares
(including, without limitation, securities convertible or
exchangeable into or exercisable for Shares), as deemed by the
Committee consistent with the purposes of the Plan. The
Committee shall determine the terms and conditions of any such
Other Stock-Based Award. Except in the case of an Other
Stock-Based Award granted in assumption of or in substitution for
an outstanding award of a company acquired by the Company or with
which the Company combines, the price at which securities may be
purchased pursuant to any Other Stock-Based Award granted under
this Plan, or the provision, if any, of any such Award that is
analogous to the purchase or exercise price, shall not be less
than 100% of the fair market value of the securities to which
such Award relates on the date of grant.
(b) Dividend Equivalents. In the sole and complete
discretion of the Committee, an Award, whether made as an Other
Stock-Based Award under this Section 9 or as an Award granted
pursuant to Sections 6 through 8 hereof, may provide the holder
thereof with dividends or dividend equivalents, payable in cash,
Shares, Subsidiary securities, other securities or other property
on a current or deferred basis.
SECTION 10
(a) Amendments to the Plan. The Board may amend,
suspend or terminate the Plan or any portion thereof at any time,
provided that no amendment shall be made without stockholder
approval if such approval is necessary to comply with any tax or
regulatory requirement. Notwithstanding anything to the contrary
contained herein, the Committee may amend the Plan in such manner
as may be necessary for the Plan to conform with local rules and
regulations in any jurisdiction outside the United States.
(b) Amendments to Awards. The Committee may amend,
modify or terminate any outstanding Award with the holder's
consent at any time prior to payment or exercise in any manner
not inconsistent with the terms of the Plan, including without
limitation, (i) to change the date or dates as of which an Award
becomes exercisable, or (ii) to cancel an Award and grant a new
Award in substitution therefor under such different terms and
conditions as it determines in its sole and complete discretion
to be appropriate.
(c) Adjustment of Awards Upon the Occurrence of
Certain Unusual or Nonrecurring Events. The Committee is hereby
authorized to make adjustments in the terms and conditions of,
and the criteria included in, Awards in recognition of unusual or
nonrecurring events (including, without limitation, the events
described in Section 5(b) hereof) affecting the Company, or the
financial statements of the Company or any Subsidiary, or of
changes in applicable laws, regulations, or accounting
principles, whenever the Committee determines that such
adjustments are appropriate to prevent dilution or enlargement of
the benefits or potential benefits intended to be made available
under the Plan.
(d) Cancellation. Any provision of this Plan or any
Award Agreement to the contrary notwithstanding, the Committee
may cause any Award granted hereunder to be cancelled in
consideration of a cash payment or alternative Award made to the
holder of such cancelled Award equal in value to such cancelled
Award. The determinations of value under this subparagraph shall
be made by the Committee in its sole discretion.
SECTION 11
(a) Delegation. Subject to the terms of the Plan and
applicable law, the Committee may delegate to one or more
officers of the Company the authority, subject to such terms and
limitations as the Committee shall determine, to grant Awards to,
or to cancel, modify or waive rights with respect to, or to
alter, discontinue, suspend, or terminate Awards held by,
Employees who are not officers or directors of the Company for
purposes of Section 16 of the Exchange Act, or any successor
section thereto, or who are otherwise not subject to such
Section.
(b) Award Agreements. Each Award hereunder shall be
evidenced by a writing delivered to the Participant that shall
specify the terms and conditions thereof and any rules applicable
thereto, including but not limited to the effect on such Award of
the death, retirement or other termination of employment of the
Participant and the effect thereon, if any, of a change in
control of the Company.
(c) Withholding. A Participant may be required to pay
to the Company, and the Company shall have the right to deduct
from all amounts paid to a Participant (whether under the Plan or
otherwise), any taxes required by law to be paid or withheld in
respect of Awards hereunder to such Participant. The Committee
may provide for additional cash payments to holders of Awards to
defray or offset any tax arising from the grant, vesting,
exercise or payment of any Award.
(d) Transferability. No Awards granted hereunder may
be transferred, pledged, assigned or otherwise encumbered by a
Participant except: (i) by will; (ii) by the laws of descent and
distribution; (iii) pursuant to a domestic relations order, as
defined in the Code, if permitted by the Committee and so
provided in the Award Agreement or an amendment thereto; or (iv)
if permitted by the Committee and so provided in the Award
Agreement or an amendment thereto, Options and Limited Rights
granted in tandem therewith may be transferred or assigned (a) to
Immediate Family Members, (b) to a partnership in which Immediate
Family Members, or entities in which Immediate Family Members are
the owners, members or beneficiaries, as appropriate, are the
partners, (c) to a limited liability company in which Immediate
Family Members, or entities in which Immediate Family Members are
the owners, members or beneficiaries, as appropriate, are the
members, or (d) to a trust for the benefit of Immediate Family
Members; provided, however, that no more than a de minimus
beneficial interest in a partnership, limited liability company
or trust described in (b), (c) or (d) above may be owned by a
person who is not an Immediate Family Member or by an entity that
is not beneficially owned solely by Immediate Family Members.
"Immediate Family Members" shall be defined as the spouse and
natural or adopted children or grandchildren of the Participant
and their spouses. To the extent that an Incentive Stock Option
is permitted to be transferred during the lifetime of the
Participant, it shall be treated thereafter as a Nonqualified
Stock Option. Any attempted assignment, transfer, pledge,
hypothecation or other disposition of Awards, or levy of
attachment or similar process upon Awards not specifically
permitted herein, shall be null and void and without effect. The
designation of a Designated Beneficiary shall not be a violation
of this Section 11(d).
(e) Share Certificates. All certificates for Shares
or other securities delivered under the Plan pursuant to any
Award or the exercise thereof shall be subject to such stop
transfer orders and other restrictions as the Committee may deem
advisable under the Plan or the rules, regulations, and other
requirements of the SEC, any stock exchange upon which such
Shares or other securities are then listed, and any applicable
federal or state laws, and the Committee may cause a legend or
legends to be put on any such certificates to make appropriate
reference to such restrictions.
(f) No Limit on Other Compensation Arrangements.
Nothing contained in the Plan shall prevent the Company from
adopting or continuing in effect other compensation arrangements,
which may, but need not, provide for the grant of options, stock
appreciation rights and other types of Awards provided for
hereunder (subject to stockholder approval of any such
arrangement if approval is required), and such arrangements may
be either generally applicable or applicable only in specific
cases.
(g) No Right to Employment. The grant of an Award
shall not be construed as giving a Participant the right to be
retained in the employ of the Company or any Subsidiary or in the
employ of any other entity providing services to the Company.
The Company or any Subsidiary or any such entity may at any time
dismiss a Participant from employment, free from any liability or
any claim under the Plan, unless otherwise expressly provided in
the Plan or in any Award Agreement. No Employee, Participant or
other person shall have any claim to be granted any Award, and
there is no obligation for uniformity of treatment of Employees,
Participants or holders or beneficiaries of Awards.
(h) Governing Law. The validity, construction, and
effect of the Plan, any rules and regulations relating to the
Plan and any Award Agreement shall be determined in accordance
with the laws of the State of Delaware.
(i) Severability. If any provision of the Plan or any
Award is or becomes or is deemed to be invalid, illegal, or
unenforceable in any jurisdiction or as to any Person or Award,
or would disqualify the Plan or any Award under any law deemed
applicable by the Committee, such provision shall be construed or
deemed amended to conform to applicable laws, or if it cannot be
construed or deemed amended without, in the determination of the
Committee, materially altering the intent of the Plan or the
Award, such provision shall be stricken as to such jurisdiction,
Person or Award and the remainder of the Plan and any such Award
shall remain in full force and effect.
(j) No Trust or Fund Created. Neither the Plan nor
any Award shall create or be construed to create a trust or
separate fund of any kind or a fiduciary relationship between the
Company and a Participant or any other Person. To the extent
that any Person acquires a right to receive payments from the
Company pursuant to an Award, such right shall be no greater than
the right of any unsecured general creditor of the Company.
(k) No Fractional Shares. No fractional Shares shall
be issued or delivered pursuant to the Plan or any Award, and the
Committee shall determine whether cash, other securities or other
property shall be paid or transferred in lieu of any fractional
Shares or whether such fractional Shares or any rights thereto
shall be cancelled, terminated, or otherwise eliminated.
(l) Headings. Headings are given to the subsections
of the Plan solely as a convenience to facilitate reference.
Such headings shall not be deemed in any way material or relevant
to the construction or interpretation of the Plan or any
provision thereof.
SECTION 12
Effective Date of the Plan. The Plan shall be
effective as of the date of its approval by the stockholder of
the Company.
SECTION 13
Term of the Plan. No Award shall be granted under the
Plan after the tenth anniversary of the effective date of the
Plan; however, unless otherwise expressly provided in the Plan or
in an applicable Award Agreement, any Award theretofore granted
may, and the authority of the Committee to amend, alter, adjust,
suspend, discontinue, or terminate any such Award or to waive any
conditions or rights under any such Award shall, extend beyond
such date.
Exhibit 10.12
McMoRan OIL & GAS CO.
1994 STOCK OPTION PLAN FOR NON-EMPLOYEE DIRECTORS
ARTICLE I
PURPOSE OF THE PLAN
The purpose of the 1994 Stock Option Plan for
Non-Employee Directors (the "Plan") is to align more closely the
interests of the non-employee directors of McMoRan Oil & Gas Co.
(the "Company") with that of the Company's stockholders by
providing for the automatic grant to such directors of stock
options ("Options") to purchase Shares (as hereinafter defined),
in accordance with the terms of the Plan.
ARTICLE II
DEFINITIONS
For the purposes of this Plan, the following terms
shall have the meanings indicated:
Board: The Board of Directors of the Company.
Change in Control: A Change in Control shall be deemed
to have occurred if either (a) any person, or any two or more
persons acting as a group, and all affiliates of such person or
persons, shall own beneficially more than 20% of the Common Stock
outstanding (exclusive of shares held in the Company's treasury
or by the Company's Subsidiaries) pursuant to a tender offer,
exchange offer or series of purchases or other acquisitions, or
any combination of those transactions, or (b) there shall be a
change in the composition of the Board at any time within two
years after any tender offer, exchange offer, merger,
consolidation, sale of assets or contested election, or any
combination of those transactions (a "Transaction"), so that (i)
the persons who were directors of the Company immediately before
the first such Transaction cease to constitute a majority of the
Board of Directors of the corporation which shall thereafter be
in control of the companies that were parties to or otherwise
involved in such Transaction, or (ii) the number of persons who
shall thereafter be directors of such corporation shall be fewer
than two-thirds of the number of directors of the Company
immediately prior to such first Transaction. A Change in Control
shall be deemed to take place upon the first to occur of the
events specified in the foregoing clauses (a) and (b).
Code: The Internal Revenue Code of 1986, as amended
from time to time.
Committee: A committee of the Board designated by the
Board to administer the Plan and composed of not fewer than two
directors, each of whom, to the extent necessary to comply with
Rule 16b-3 only, is a "non-employee director" within the meaning
of Rule 16b-3 and, to the extent necessary to comply with Section
162(m) only, is an "outside director" under Section 162(m).
Until otherwise determined by the Board, the Committee shall be
the Corporate Personnel Committee of the Board.
Eligible Director: A director of the Company who is
not, and within the preceding one year has not been, an officer
or an employee of the Company or a Subsidiary, an officer or an
employee of an entity with which the Company has contracted to
receive Management Services, or otherwise eligible for selection
to participate in any plan of the Company or any Subsidiary that
entitles the participants therein to acquire stock, stock options
or stock appreciation rights of the Company or its Subsidiaries.
Exchange Act: The Securities Exchange Act of 1934, as
amended from time to time.
Fair Market Value: The average of the per Share high
and low quoted sale prices on the date in question (or, if there
is no reported sale on such date, on the last preceding date on
which any reported sale occurred) on the principal exchange or
market on which such Shares are quoted.
Option Cancellation Gain: With respect to the
cancellation of an Option pursuant to Section 3 of Article IV
hereof, the excess of the Fair Market Value as of the Option
Cancellation Date (as that term is defined in Section 3 of
Article IV hereof) of all the outstanding Shares covered by such
Option, whether or not then exercisable, over the purchase price
of such Shares under such Option.
Rule 16b-3: Rule 16b-3 promulgated by the SEC under
the Exchange Act, or any successor rule or regulation thereto as
in effect from time to time.
SEC: The Securities and Exchange Commission, including
the staff thereof, or any successor thereto.
Section 162(m): Section 162(m) of the Code and all
regulations promulgated thereunder as in effect from time to
time.
Shares: Shares of common stock, par value $0.01 per
share, of the Company (including any attached Preferred Stock
Purchase Rights).
Subsidiary: Any corporation of which stock
representing at least 50% of the ordinary voting power is owned,
directly or indirectly, by the Company; and any other entity of
which equity securities or interests representing at least 50% of
the ordinary voting power or 50% of the total value of all
classes of equity securities or interests of such entity are
owned, directly or indirectly, by the Company.
ARTICLE III
ADMINISTRATION OF THE PLAN
This Plan shall be administered by the Board. The
Board will interpret this Plan and may from time to time adopt
such rules and regulations for carrying out the terms and
provisions of this Plan as it may deem best; however, the Board
shall have no discretion with respect to the selection of
directors who receive Options, the timing of the grant of
Options, the number of Shares subject to any Options or the
purchase price thereof. Notwithstanding the foregoing, the
Committee shall have the authority to make all determinations
with respect to the transferability of Options in accordance with
Article VIII hereof. All determinations by the Board or the
Committee shall be made by the affirmative vote of a majority of
its respective members, but any determination reduced to writing
and signed by a majority of its respective members shall be fully
as effective as if it had been made by a majority vote at a
meeting duly called and held. Subject to any applicable
provisions of the Company's By-Laws or of this Plan, all
determinations by the Board and the Committee pursuant to the
provisions of this Plan, and all related orders or resolutions of
the Board and the Committee, shall be final, conclusive and
binding on all persons, including the Company and its
stockholders, employees, directors and optionees. In the event
of any conflict or inconsistency between determinations, orders,
resolutions, or other actions of the Committee and the Board
taken in connection with this Plan, the action of the Board shall
control.
ARTICLE IV
STOCK SUBJECT TO THE PLAN
SECTION 1. The Shares to be issued or delivered upon
exercise of Options shall be made available, at the discretion of
the Board, either from the authorized but unissued Shares of the
Company or from Shares reacquired by the Company, including
Shares purchased by the Company in the open market or otherwise
obtained; provided, however, that the Company, at the discretion
of the Board, may, upon exercise of Options granted under this
Plan, cause a Subsidiary to deliver Shares held by such
Subsidiary.
SECTION 2. Subject to the provisions of Section 3 of
this Article IV, the aggregate number of Shares which may be
purchased pursuant to Options shall not exceed 410,000.
SECTION 3. In the event that the Committee determines
that any dividend or other distribution (whether in the form of
cash, Shares, Subsidiary securities, other securities or other
property), recapitalization, stock split, reverse stock split,
reorganization, merger, consolidation, split-up, spin-off,
combination, repurchase or exchange of Shares or other securities
of the Company, issuance of warrants or other rights to purchase
Shares or other securities of the Company, or other similar
corporate transaction or event affects the Shares such that an
adjustment is determined by the Committee to be appropriate to
prevent dilution or enlargement of the benefits or potential
benefits intended to be made available under the Plan, then the
Committee may, in its sole discretion and in such manner as it
may deem equitable, adjust any or all of (i) the number and type
of Shares (or other securities or property) subject to
outstanding Options, and (ii) the grant or exercise price with
respect to any Option or, if deemed appropriate, make provision
for a cash payment to the holder of an outstanding Option;
provided, that the number of Shares subject to any Option
denominated in Shares shall always be a whole number. In the
event the Company is merged or consolidated into or with another
corporation in a transaction in which the Company is not the
survivor, or in the event that substantially all of the Company's
assets are sold to another entity not affiliated with the
Company, any holder of an Option whether or not then exercisable,
shall be entitled to receive (unless the Company shall take such
alternative action as may be necessary to preserve the economic
benefit of the Option for the optionee) on the effective date of
any such transaction (the "Option Cancellation Date"), in
cancellation of such Option, an amount in cash equal to the
Option Cancellation Gain relating thereto, determined as of the
Option Cancellation Date.
ARTICLE V
PURCHASE PRICE OF OPTIONED SHARES
The purchase price per Share under each Option shall be
100% of the Fair Market Value of a Share at the time such Option
is granted, but in no case shall such price be less than the par
value of the Shares subject to such Option.
ARTICLE VI
ELIGIBILITY OF RECIPIENTS
Options will be granted only to individuals who are
Eligible Directors at the time of such grant.
ARTICLE VII
GRANT OF OPTIONS
SECTION 1. Each Option shall constitute a nonqualified
stock option which is not intended to qualify under Section 422
of the Code.
SECTION 2. On June 1, 1994 and June 1 of each
subsequent year through and including 1997, each Eligible
Director, as of each such date, shall be granted an Option to
purchase 1,656 Shares. Each such Option shall become exercisable
with respect to 414 Shares on each of the first, second, third
and fourth anniversaries of the date of grant and may be
exercised by the holder thereof with respect to all or any part
of the Shares comprising each installment as such holder may
elect at any time after such installment becomes exercisable but
no later than the termination date of such Option; provided that
each such Option shall become exercisable in full upon a Change
in Control.
SECTION 3. On July 14, 1997, each Eligible Director,
as of such date, shall be granted an Option to purchase 13,248
Shares. Each such Option shall become exercisable with respect
to 3,312 Shares on each of the first, second, third and fourth
anniversaries of the date of grant and may be exercised by the
holder thereof with respect to all or any part of the Shares
comprising each installment as such holder may elect at any time
after such installment becomes exercisable but no later than the
termination date of such Option; provided that each such Option
shall become exercisable in full upon a Change in Control.
SECTION 4. On June 1, 1998 and June 1 of each
subsequent year through and including 2003, each Eligible
Director, as of each such date, shall be granted an Option to
purchase 5,000 Shares. Each such Option shall become exercisable
with respect to 1,250 Shares on each of the first, second, third
and fourth anniversaries of the date of grant and may be
exercised by the holder thereof with respect to all or any part
of the Shares comprising each installment as such holder may
elect at any time after such installment becomes exercisable but
no later than the termination date of such Option; provided that
each such Option shall become exercisable in full upon a Change
in Control.
SECTION 5. The purchase price of Shares subject to any
Option shall be the Fair Market Value thereof on the respective
date of grant.
ARTICLE VIII
TRANSFERABILITY OF OPTIONS
No Options granted hereunder may be transferred,
pledged, assigned or otherwise encumbered by an optionee except:
(a) by will;
(b) by the laws of descent and distribution; or
(c) if permitted by the Committee and so provided in
the Option or an amendment thereto, (i) pursuant to a
domestic relations order, as defined in the Code, (ii) to
Immediate Family Members, (iii) to a partnership in which
Immediate Family Members, or entities in which Immediate
Family Members are the owners, members or beneficiaries, as
appropriate, are the partners, (iv) to a limited liability
company in which Immediate Family Members, or entities in
which Immediate Family Members are the owners, members or
beneficiaries, as appropriate, are the members, or (v) to a
trust for the benefit of Immediate Family Members; provided,
however, that no more than a de minimus beneficial interest
in a partnership, limited liability company or trust
described in (iii), (iv) or (v) above may be owned by a
person who is not an Immediate Family Member or by an entity
that is not beneficially owned solely by Immediate Family
Members. "Immediate Family Members" shall be defined as the
spouse and natural or adopted children or grandchildren of
the optionee and their spouses.
Any attempted assignment, transfer, pledge, hypothecation or
other disposition of Options, or levy of attachment or similar
process upon Options not specifically permitted herein, shall be
null and void and without effect.
ARTICLE IX
EXERCISE OF OPTIONS
SECTION 1. Each Option shall terminate 10 years after
the date on which it was granted.
SECTION 2. Except in cases provided for in Article X
hereof, each Option may be exercised by the holder thereof only
while the optionee to whom such Option was granted is an Eligible
Director.
SECTION 3. A person electing to exercise an Option or
any portion thereof then exercisable shall give written notice to
the Company of such election and of the number of Shares such
person has elected to purchase, and shall at the time of purchase
tender the full purchase price of such Shares, which tender shall
be made in cash or cash equivalent (which may be such person's
personal check) or in Shares already owned by such person (which
Shares shall be valued for such purpose on the basis of their
Fair Market Value on the date of exercise), or in any combination
thereof. The Company shall have no obligation to deliver Shares
pursuant to the exercise of any Option, in whole or in part,
until such payment in full of the purchase price of such Shares
is received by the Company. No optionee, or legal
representative, legatee, distributee, or assignee of such
optionee shall be or be deemed to be a holder of any Shares
subject to such Option or entitled to any rights of a stockholder
of the Company in respect of any Shares covered by such Option
distributable in connection therewith until such Shares have been
paid for in full and certificates for such Shares have been
issued or delivered by the Company.
SECTION 4. Each Option shall be subject to the
requirement that if at any time the Board shall be advised by
counsel that the listing, registration or qualification of the
Shares subject to such Option upon any securities exchange or
under any state or federal law, or the consent or approval of any
governmental regulatory body, is necessary or desirable as a
condition of, or in connection with, the granting of such Option
or the issue or purchase of Shares thereunder, such Option may
not be exercised in whole or in part unless such listing,
registration, qualification, consent or approval shall have been
effected or obtained free from any conditions not reasonably
acceptable to such counsel for the Board.
SECTION 5. The Company may establish appropriate
procedures to provide for payment or withholding of such income
or other taxes as may be required by law to be paid or withheld
in connection with the exercise of Options, and to ensure that
the Company receives prompt advice concerning the occurrence of
any event which may create, or affect the timing or amount of,
any obligation to pay or withhold any such taxes or which may
make available to the Company any tax deduction resulting from
the occurrence of such event.
ARTICLE X
TERMINATION OF SERVICE
AS AN ELIGIBLE DIRECTOR
SECTION 1. If and when an optionee shall cease to be
an Eligible Director for any reason other than death or
retirement from the Board, all of the Options granted to such
optionee shall be terminated except that any Option, to the
extent then exercisable, may be exercised by the holder thereof
within three months after such optionee ceases to be an Eligible
Director, but not later than the termination date of the Option.
SECTION 2. If and when an optionee shall cease to be
an Eligible Director by reason of the optionee's retirement from
the Board, all of the Options granted to such optionee shall be
terminated except that any Option, to the extent then exercisable
or exercisable within one year thereafter, may be exercised by
the holder thereof within three years after such retirement, but
not later than the termination date of the Option.
SECTION 3. Should an optionee die while serving as an
Eligible Director, all the Options granted to such optionee
shall be terminated, except that any Option to the extent
exercisable by the holder thereof at the time of such death,
together with the unmatured installment (if any) of such Option
which at that time is next scheduled to become exercisable, may
be exercised within one year after the date of such death, but
not later than the termination date of the Option, by the holder
thereof, the optionee's estate, or the person designated in the
optionee's last will and testament, as appropriate.
SECTION 4. Should an optionee die after ceasing to be
an Eligible Director, all of the Options granted to such optionee
shall be terminated, except that any Option, to the extent
exercisable by the holder thereof at the time of such death, may
be exercised within one year after the date of such death, but
not later than the termination date of the Option, by the holder
thereof, the optionee's estate, or the person designated in the
optionee's last will and testament, as appropriate.
ARTICLE XI
AMENDMENTS TO PLAN AND OPTIONS
The Board may at any time terminate or from time to
time amend, modify or suspend this Plan; provided, however, that
no such amendment or modification without the approval of the
stockholders shall:
(a) except pursuant to Section 3 of Article IV,
increase the maximum number (determined as provided in this
Plan) of Shares which may be purchased pursuant to Options,
either individually or in aggregate;
(b) permit the granting of any Option at a purchase
price other than 100% of the Fair Market Value of the Shares
at the time such Option is granted, subject to adjustment
pursuant to Section 3 of Article IV;
(c) permit the exercise of an Option unless the full
purchase price of the Shares as to which the Option is
exercised is paid at the time of exercise;
(d) extend beyond June 1, 2003 the period during which
Options may be granted;
(e) modify in any respect the class of individuals who
constitute Eligible Directors; or
(f) materially increase the benefits accruing to
participants hereunder
Exhibit 23.1
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the incorporation
by reference of our reports included in this Form 10-K, into McMoRan Oil
& Gas Co.'s previously filed Registration Statements (File Nos. 33-82866,
33-99828 and 33-80371).
Arthur Andersen LLP
New Orleans, Louisiana
March 25, 1998
Exhibit 23.2
CONSENT OF INDEPENDENT PETROLEUM ENGINEER
As independent petroleum engineers, we hereby consent to the use of our
name included herein or incorporated by reference in this Form 10-K by
McMoRan Oil & Gas Co. and to the reference to our estimates of reserves
and present value of future net reserves as of December 31, 1997, into
McMoRan Oil & Gas Co.'s previously filed Registration Statements on Form
S-8 (File Nos. 33-82866, 33-80369, 33-80371 and 333-44561).
By:/s/Ryder Scott Company
Petroleum Engineers
RYDER SCOTT COMPANY
PETROLEUM ENGINEERS
Houston, Texas
March 24, 1998
McMoRan OIL & GAS CO.
SECRETARY'S CERTIFICATE
I, Michael C. Kilanowski, Jr., Secretary of Freeport-McMoRan
Copper & Gold Inc. (the "Corporation"), a Delaware corporation,
do hereby certify that the following resolution was duly adopted
by the Board of Directors of the Corporation at a meeting held on
January 31, 1995 esolution has not been amended, modified or
rescinded and is in full force and effect:
RESOLVED, that any report, registration
statement or other form filed on behalf of
this corporation pursuant to the Securities
Exchange Act of 1934, or any amendment to
such report, registration statement or other
form, may be signed on behalf of any director
or officer of this corporation pursuant to a
power of attorney executed by such director
or officer.
IN WITNESS WHEREOF, I have hereunto signed my name and
affixed the seal of the Company on this the 27th day of March,
1998.
(Seal) /s/ Michael C. Kilanowski, Jr.
------------------------------
Michael C. Kilanowski, Jr.
Secretary
Exhibit 24.2
POWER OF ATTORNEY
BE IT KNOWN: That the errsigned, in his capacity or
capacities as aan officer asigned, in his capacity or
capacities as an officer and/or a member of the Board of
Directors of McMoRan Oil & Gas Co., a Delaware corporation (the
"Company"), does hereby make, constitute and appoint RICHARD C.
ADKERSON and C. HOWARD MURRISH, and each of them acting
individually, his true and lawful attorney-in-fact with power to
act without the others and with full power of substitution, to
execute, deliver and file, for and on behalf of him, in his name
and in his capacity or capacities as aforesaid, an Annual Report
of the Company on Form 10-K for the year ended December 31, 1997,
and any amendment or amendments thereto and any other document in
support thereof or supplemental thereto, and the undersigned
hereby grants to said attorneys, and each of them, full power and
authority to do and perform each and every act and thing
whatsoever that said attorney or attorneys may deem necessary or
advisable to carry out fully the intent of the foregoing as the
undersigned might or could do personally or in the capacity or
capacities as aforesaid, hereby ratifying and confirming all acts
and things which said attorney or attorneys may do or cause to
be done by virtue of this Power of Attorney.
EXECUTED this 2nd day of February, 1998.
By:/s/ James R. Moffett
-----------------
James R. Moffett
POWER OF ATTORNEY
BE IT KNOWN: That the undersigned, in his capacity or
capacities as an officer and/or a member of the Board of
Directors of McMoRan Oil & Gas Co., a Delaware corporation (the
"Company"), does hereby make, constitute and appoint JAMES R.
MOFFETT and C. HOWARD MURRISH, and each of them acting
individually, his true and lawful attorney-in-fact with power to
act without the others and with full power of substitution, to
execute, deliver and file, for and on behalf of him, in his name
and in his capacity or capacities as aforesaid, an Annual Report
of the Company on Form 10-K for the year ended December 31, 1997,
and any amendment or amendments thereto and any other document in
support thereof or supplemental thereto, and the undersigned
hereby grants to said attorneys, and each of them, full power and
authority to do and perform each and every act and thing
whatsoever that said attorney or attorneys may deem necessary or
advisable to carry out fully the intent of the foregoing as the
undersigned might or could do personally or in the capacity or
capacities as aforesaid, hereby ratifying and confirming all acts
and things which said attorney or attorneys may do or cause to be
done by virtue of this Power of Attorney.
EXECUTED this 2nd day of February, 1998.
By: /s/ Richard C. Adkerson
--------------------
Richard C. Adkerson
POWER OF ATTORNEY
BE IT KNOWN: That the undersigned, in his capacity or
capacities as an officer and/or a member of the Board of
Directors of McMoRan Oil & Gas Co., a Delaware corporation (the
"Company"), does hereby make, constitute and appoint JAMES R.
MOFFETT, RICHARD C. ADKERSON and C. HOWARD MURRISH, and each of
them acting individually, his true and lawful attorney-in-fact
with power to act without the others and with full power of
substitution, to execute, deliver and file, for and on behalf of
him, in his name and in his capacity or capacities as aforesaid,
an Annual Report of the Company on Form 10-K for the year ended
December 31, 1997, and any amendment or amendments thereto and
any other document in support thereof or supplemental thereto,
and the undersigned hereby grants to said attorneys, and each of
them, full power and authority to do and perform each and every
act and thing whatsoever that said attorney or attorneys may deem
necessary or advisable to carry out fully the intent of the
foregoing as the undersigned might or could do personally or in
the capacity or capacities as aforesaid, hereby ratifying and
confirming all acts and things which said attorney or attorneys
may do or cause to be done by virtue of this Power of Attorney.
EXECUTED this 2nd day of February, 1998.
By: /s/ Robert A. Day
-------------
Robert A. Day
POWER OF ATTORNEY
BE IT KNOWN: That the undersigned, in his capacity or
capacities as an officer and/or a member of the Board of
Directors of McMoRan Oil & Gas Co., a Delaware corporation (the
"Company"), does hereby make, constitute and appoint JAMES R.
MOFFETT, RICHARD C. ADKERSON and C. HOWARD MURRISH, and each of
them acting individually, his true and lawful attorney-in-fact
with power to act without the others and with full power of
substitution, to execute, deliver and file, for and on behalf of
him, in his name and in his capacity or capacities as aforesaid,
an Annual Report of the Company on Form 10-K for the year ended
December 31, 1997, and any amendment or amendments thereto and
any other document in support thereof or supplemental thereto,
and the undersigned hereby grants to said attorneys, and each of
them, full power and authority to do and perform each and every
act and thing whatsoever that said attorney or attorneys may deem
necessary or advisable to carry out fully the intent of the
foregoing as the undersigned might or could do personally or in
the capacity or capacities as aforesaid, hereby ratifying and
confirming all acts and things which said attorney or attorneys
may do or cause to be done by virtue of this Power of Attorney.
EXECUTED this 2nd day of February, 1998.
By: /s/ Gerald J. Ford
--------------
Gerald J. Ford
POWER OF ATTORNEY
BE IT KNOWN: That the undersigned, in his capacity or
capacities as an officer and/or a member of the Board of
Directors of McMoRan Oil & Gas Co., a Delaware corporation (the
"Company"), does hereby make, constitute and appoint JAMES R.
MOFFETT, RICHARD C. ADKERSON and C. HOWARD MURRISH, and each of
them acting individually, his true and lawful attorney-in-fact
with power to act without the others and with full power of
substitution, to execute, deliver and file, for and on behalf of
him, in his name and in his capacity or capacities as aforesaid,
an Annual Report of the Company on Form 10-K for the year ended
December 31, 1997, and any amendment or amendments thereto and
any other document in support thereof or supplemental thereto,
and the undersigned hereby grants to said attorneys, and each of
them, full power and authority to do and perform each and every
act and thing whatsoever that said attorney or attorneys may deem
necessary or advisable to carry out fully the intent of the
foregoing as the undersigned might or could do personally or in
the capacity or capacities as aforesaid, hereby ratifying and
confirming all acts and things which said attorney or attorneys
may do or cause to be done by virtue of this Power of Attorney.
EXECUTED this 2nd day of February, 1998.
By:/s/ B.M. Rankin, Jr.
----------------
B.M. Rankin, Jr.
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from
McMoRan Oil & Gas Co. financial statements at December 31, 1997 and
for the 12 months then ended, and is qualified in its entirety by
reference to such financial statements.The earnings per share (EPS)
data shown below was prepared in accordance with Statement of Financial
Accounting Standard No. 128,"Earnings Per Share," and basic and diluted
EPS have been entered in the place of primary and fully diluted, respectively.
</LEGEND>
<CIK> 0000921941
<NAME> MCMORAN OIL & GAS CO.
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> DEC-31-1997
<CASH> 29,149
<SECURITIES> 0
<RECEIVABLES> 3,168
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 43,214
<PP&E> 68,585
<DEPRECIATION> 10,880
<TOTAL-ASSETS> 101,088
<CURRENT-LIABILITIES> 9,465
<BONDS> 0
0
0
<COMMON> 427
<OTHER-SE> 90,271
<TOTAL-LIABILITY-AND-EQUITY> 101,088
<SALES> 13,552
<TOTAL-REVENUES> 13,552
<CGS> 11,251
<TOTAL-COSTS> 11,251
<OTHER-EXPENSES> 11,966
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,272
<INCOME-PRETAX> (10,538)
<INCOME-TAX> 0
<INCOME-CONTINUING> (10,538)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (10,538)
<EPS-PRIMARY> (.56)
<EPS-DILUTED> (.56)
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
McMoran Oil & Gas Co. adopted Statement of Financial Accounting Standards
No. 128, "Earnings Per Share," (SFAS 128) in the fourth quarter of 1997 and
restated prior years' earnings per share (EPS) data as required by SFAS
128. Presented below are the restated EPS amounts for the years ended
December 31, 1996 and 1995, as well as, the 3-month periods ended March 31,
1997 and 1996, the 6-month period ended June 30, 1997.
</LEGEND>
<S> <C> <C> <C> <C> <C>
<PERIOD-TYPE> YEAR YEAR 3-MOS 3-MOS 6-MOS
<FISCAL-YEAR-END> DEC-31-1996 DEC-31-1995 DEC-31-1997 DEC-31-1996 DEC-31-1997
<PERIOD-END> DEC-31-1996 DEC-31-1995 MAR-31-1997 MAR-31-1996 JUN-30-1997
<CASH> 0 0 0 0 0
<SECURITIES> 0 0 0 0 0
<RECEIVABLES> 0 0 0 0 0
<ALLOWANCES> 0 0 0 0 0
<INVENTORY> 0 0 0 0 0
<CURRENT-ASSETS> 0 0 0 0 0
<PP&E> 0 0 0 0 0
<DEPRECIATION> 0 0 0 0 0
<TOTAL-ASSETS> 0 0 0 0 0
<CURRENT-LIABILITIES> 0 0 0 0 0
<BONDS> 0 0 0 0 0
0 0 0 0 0
0 0 0 0 0
<COMMON> 0 0 0 0 0
<OTHER-SE> 0 0 0 0 0
<TOTAL-LIABILITY-AND-EQUITY> 0 0 0 0 0
<SALES> 0 0 0 0 0
<TOTAL-REVENUES> 0 0 0 0 0
<CGS> 0 0 0 0 0
<TOTAL-COSTS> 0 0 0 0 0
<OTHER-EXPENSES> 0 0 0 0 0
<LOSS-PROVISION> 0 0 0 0 0
<INTEREST-EXPENSE> 0 0 0 0 0
<INCOME-PRETAX> 0 0 0 0 0
<INCOME-TAX> 0 0 0 0 0
<INCOME-CONTINUING> 0 0 0 0 0
<DISCONTINUED> 0 0 0 0 0
<EXTRAORDINARY> 0 0 0 0 0
<CHANGES> 0 0 0 0 0
<NET-INCOME> 0 0 0 0 0
<EPS-PRIMARY> (.71) (1.06) (.18) (.31) (.28)
<EPS-DILUTED> (.71) (1.06) (.18) (.31) (.27)
</TABLE>
Exhibit 99.1
Submission of Matters to a Vote of Security Holders
(a)A Special Meeting of Stockholders of the Company was held
on October 9, 1997 (the "Special Meeting"). Proxies were
solicited pursuant to Regulation 14A under the Securities
Exchange Act of 1934, as amended.
(b)At the Special Meeting, the stockholders voted on and
approved the proposal to approve a Standby Purchase
Agreement between the Company and Freeport-McMoRan
Resource Partners, Limited Partnership as well as the
transactions contemplated thereby as described in the
Company's Proxy Statement dated September 5, 1997.
Holders of 9,338,459 shares voted for, holders of 121,586
shares voted against and holders of 78,716 shares
abstained from voting on, such proposal. There were no
broker non-votes with respect to such proposal.
(c)At the Special Meeting, the stockholders also voted on
and approved the proposal to amend the Company's 1997
Stock Option Plan for Non-Employee Directors. Holders of
8,470,056 shares voted for, holders of 878,350 shares
voted against and holders of 190,355 shares abstained
from voting on, such proposal. There were no broker non-
votes with respect to such proposal.
(d)At the Special Meeting, the stockholders also voted on
and approved the proposal to amend the Company's 1997
Stock Option Plan. Holders of 8,426,732 shares voted
for, holders of 920,444 shares voted against and holders
of 191,585 shares abstained from voting on, such
proposal. There were no broker non-votes with respect to
such proposal.
