Freeport-McMoRan in deepwater GoM

January 15, 2014

Freeport-McMoRan Copper & Gold (FCX) is one of the world’s largest mining companies, but it is expanding its interests in North American oil and gas. FM O&G has about 1200 Houston-based employees, and has additional offices in California, Louisiana, and Texas.

FCX Executive Vice President and Chief Financial Officer Kathleen L. Quirk gave an update on 11 December at Macquarie Global Metals & Mining Conference, saying the Gulf of Mexico represents about 47% of the FM O&G’s Q3 cash operating margin of US$1.1billion. Other areas are the Eagle Ford shale play (28%), California oil (23%), and Haynesville (2%). About 90% of FM O&G revenues are from oil and natural gas liquids.

Image Caption: Near-term GoM deepwater & ultra-deep exploration prospects.

Image courtesy of Freeport-McMoRan.

FM O&G is an active player in deepwater GoM, with current production of 59,600boe/d in 3Q 2013, Quirk noted. FCX holds about 827,000 gross acres in the deepwater GoM (beyond 500ft water depth), and is involved in twelve deepwater projects, with a risked net resource of 318 MMboe (PV-10 $6 billion).

Operator The company operates three properties: Holstein, in Green Canyon Blocks 644-645 (688 untested); Horn Mountain in Mississippi Canyon Blocks 127 (126-128-171-172 untested); and the Marlin hub, with Dorado in Viosca Knoll Blocks 915-959, King in MC 40-41-84-85- 129, and Mercury in MC 41.

Holstein is produced from a 149ft diameter truss spar, installed in 4300ft water depth in GC Block 645. It has the capacity to produce 113,500 bo/d and 142,300 Mcf/d. Production began in December 2004.

The company is reactivating the Holstein platform rig for drilling in 2014 with production at Holstein Deep expected by early 2017.

Horn Mountain is produced from a 106ft diameter truss spar, installed in 5400ft water depth. It has the capacity to produce 75,000 bo/d and 72,000 Mcf/d. Horn Mountain is in the northeastern corner of Mississippi Canyon, adjacent to King and Mercury developments and to Platinum in southeastern Viosca Knoll. Production from Horn Mountain Alliance is expected in late 2017, followed by Tango and Lion in 2018.

Marlin Hub - Marlin is produced through a dry tree and subsea production system and a tension-leg platform (TLP) installed in 3240ft water depth. It has a capacity of 60,000bo/d and 235,000 Mcf/d. Marlin is directly north of the Dorado development in 4000ft water, Viosca Knoll Block 915, operated by BP.

Freeport-McMoRan holds acreage in two non-operated projects: Lucius, in Keathley Canyon Blocks 874-875-918- 919, and Phobos, in Sigsbee Escarpment Blocks 39 (untested in 40, 83), just south of the southern boundary of Keathley Canyon.

Lucius has a thick Pliocene oil column, with “large upside Miocene potential,” FM O&G says.

Operated by Anadarko, FM O&G touts the project as being on time and on bud- get. The Lucius truss spar was offloaded at Ingleside, Texas, in June 2013. The topsides have a processing capacity of 80,000-120,000 bo/d and 450,000 Mcf/d. First production from the Lucius devel- opment is expected by 2H 2014.

Phobos is a discovery made in April 2013, with 250ft (net) oil in Upper Wilcox, and upside potential in Lower Wilcox. It’s a long-term project, with first oil slated for 2019.

Prospects The company has eight deepwater exploration prospects with risked net reserves of 242 MMboe: Kanzai, in Alaminos Canyon; Zephir, Tara, and a Lucius offset in Keathley Canyon; as well as Tungsten, Copper, Silverfox, and Holstein in Green Canyon.

Ultra-deep Quirk says that Freeport- McMoRan has an “industry-leading” position in the emerging ultra-deep play in coastal Louisiana, from onshore to shelf to deep water, with an extensive inventory of large natural gas prospects. Drilling activities have confirmed the geologic model of the trend spanning 200 miles in shallow waters of the GoM and onshore in the Gulf Coast area.

Deepwater extensions of the Miocene trend are seen at Shenandoah-Kaskida- Tiber, farther out at Tahiti - Mad Dog in Green Canyon, and even further out, at Jack – Cascade in Walker Ridge.

The company plans to complete three ultra-deep wells in 2014:

•Blackbeard West #2 (69.4% WI) targets middle and lower Miocene and upper Oligocene, drilled from 79-ft water depth on the shelf in Ship Shoal Block 188. Production anticipated in early 2015.

•Lineham Creek (36% WI; onshore Cameron Parish); production anticipated in late 2015, early 2016.

•Davy Jones #2, in South Marsh Island (75% WI) is in shallow federal waters on the shelf; testing Wilcox and Tuscaloosa (Upper Cretaceous). Production antici- pated in mid-2016.

Expenses and forecasts Operating costs for the Gulf of Mexico shelf and deepwater were $14/bbl in 2H 2013, based on LLS/NYMEX pricing. Sales included about 57 Mboe/d, including 5 Mboe/d of natural gas liquids, and 84 MMcf/d.

Quirk said the company’s estimated capital expenditures in for oil and gas in 2013 will be US$1.5 billion (June 1-Dec 31), rising to $2.7 billion in 2014, and $2.9 billion in 2015.

The company has the potential to dou- ble its production in the next five years, said FCX President and Chief Executive Officer Richard C. Adkerson at a manage- ment presentation in June 2013. OE