Freeport-McMoRan Inc. (FCX), which for months has been eyeing strategic options for its U.S.-focused oil and gas business, said Wednesday it has suspended its dividend and is dropping deepwater rigs in the Gulf of Mexico (GOM) to cope with deteriorating market conditions.

Phoenix-based FCX has been stung not only from declining prices for oil and gas, but also for copper, as it’s the world’s largest producer.

The exploration and production (E&P) unit Freeport-McMoRan Oil & Gas (FM O&G) has taken the brunt of the hits to capital expenditures (capex) this year and it will continue to do so, management said. FM O&G capex for the next two years had been set at $2 billion/year, but 2016 spending has been reduced to $1.8 billion, while spending in 2017 has been cut to $1.2 billion. Idled rig costs are included for both budgets.

“As we approach 2016, we are positioning the company for free cash flow generation in a weak commodity price environment and remain focused on actions to reduce debt,” FCX Chairman Jim Bob Moffett and CEO Richard Adkerson said in a joint statement. “Our high quality portfolio of long-lived assets, flexible operating structure and experienced management team provide a solid base to address the current market conditions while maintaining an attractive portfolio of assets positioned for long-term success.”

The E&P unit has a significant portfolio in the deepwater GOM, as well as assets onshore and offshore California and in the Haynesville Shale. It also has a position in the Inboard Lower Tertiary/Cretaceous natural gas trend onshore in South Louisiana.

E&P capex was cut in August, with several investments deferred through 2017 (see Daily GPI, Aug. 5). Three weeks later, more spending reductions were announced (see Daily GPI, Aug. 27). And two months ago, management said it was considering “strategic alternatives” for the E&P business.

“The revised plans, together with initiatives to obtain third-party financing or other strategic alternatives, will be pursued with the goal of achieving funding for oil and gas capital spending within its cash flows and resources,” the executive team said.

While spending is falling, oil and gas production still should increase over the next two years.

“The revised plans incorporate a reduction in rig utilization from three deepwater Gulf of Mexico drillships to one drillship, while increasing production from third quarter 2015 rates of 150,000 boe/d to an average of 159,000 boe/d in 2016 and 2017.”

By late this year and into 2016, eight wells are scheduled to ramp up in the deepwater GOM through tieback drilling operations at the Holstein Deep, Horn Mountain and King projects (see Daily GPI, Sept. 28).

“These projects, combined with other initiatives, are expected to add low cost oil production, enabling cash production costs to decline from $19/boe in 2015 to less than $16/boe in 2016 and 2017,” management said. “Under the revised plans, FM O&G’s cash flows would substantially fund its capital expenditures at $45/bbl of Brent crude oil in 2017.”

FM O&G management also is having “ongoing discussions with its rig vendors and other service providers to obtain reductions in costs and to evaluate opportunities to market idled equipment to third parties.”

Still being evaluated are “alternative courses of action” to improve the corporation’s financial position “and achieve self-funding of its oil and gas business from its cash flows and resources.”

FCX also is reviewing capital projects and costs for its overall mining business. Capex for the mining business in 2016 has been reduced by 25% to $2 billion, from $2.7 billion. Curtailments also are planned at the North America and South America mines.

To preserve cash, the FCX board suspended the annual common stock dividend of 20 cents/share, which is expected to provide about $240 million/year. The board said it would review its financial policy “on an ongoing basis and authorize cash returns to shareholders as market conditions improve.”

Assuming it receives $2.00/pound for copper and $45/bbl for Brent crude oil in 2016, FCX estimated that its consolidated operating cash flow would exceed capex by more than $600 million. Since August, FCX has sold 154.6 million shares of stock, which as of last Friday had generated $1.6 billion gross. About $400 million worth of stock remains available under the equity sale. As of last Friday, FCX had 1.19 billion common shares outstanding.