Freeport-McMoRan Inc., which holds stakes in some of the most promising natural gas developments in the Gulf of Mexico (GOM) is continuing to prowl for a partner to underwrite its domestic exploration subsidiary, but an initial public offering (IPO) also is a possibility this year, management said Thursday.

The Phoenix-based natural resources conglomerate in late 2012 diversified its dependence on copper, gold and other metals by acquiring U.S.-focused McMoRan Exploration Co., an affiliate working mostly in the GOM, and McMoRan's partner Plains Exploration & Production Co., a big onshore operator (see Daily GPI, Dec. 6, 2012). Shareholders balked at the deals, which increased debt almost sixfold. Under pressure, the company began selling some of its U.S. onshore portfolio to concentrate on the offshore opportunities (see Daily GPI, July 25, 2014).

With commodity prices in the tank, the company last year began hunting for a joint venture partner to help defray exploration and production expenses. However, an IPO to sell a minority interest could demonstrate the value of a standalone oil and gas business, management said.

Through oil and gas subsidiary FCX Oil & Gas Inc. (FM O&G), the portfolio includes deepwater GOM blocks, a position in a natural gas-rich area of the shallow infield area of the GOM and onshore Louisiana, as well as production in California, gas resources in the Haynesville Shale in Louisiana and gas production from the Madden area in central Wyoming.

FCX is one of the big stakeholders in several GOM deepwater developments, including Lucius, Heidelberg, Holstein and several developments in Mississippi Canyon. Working in the offshore, however, requires a lot of big investments. During the first quarter, capital expenditures for U.S. operations totaled $1 billion, including $600 million for the deepwater GOM alone and $100 million for the shallow water natural gas trend. FCX generated operating cash flows of $717 million in the quarter.

At the end of March, FCX had $985 million of borrowings outstanding and $44 million in letters of credit issued under its $4 billion revolving credit facility. It also had about $350 million of uncommitted and short-term lines of credit that were unsecured. With prices tanking, FCX is looking for relief.

"Following the recent sharp decline in oil prices, FCX has taken steps to significantly reduce capital spending plans and near-term oil and gas growth initiatives and is evaluating funding opportunities for capital expenditures for its oil and gas business, including consideration of a sale of public equity for a minority interest in FM O&G," management said.

Average realized natural gas prices in 1Q2015 were $2.86/MMBtu. Excluding the impact of derivative contracts ($11.97/bbl), the average realized price for crude oil was $44.54/bbl. To demonstrate how much lower commodity prices have strained the subsidiary, FCX's realized revenues for oil and gas operations in 1Q21015 were $43.71/boe, versus $77.22 in 1Q2014. Cash production costs for oil and gas operations of $20.26/boe were higher than in the year-ago period when they were $18.51.

Daily sales volumes averaged 139,000 boe in the quarter, including 242 MMcf/d of gas, 93,000 b/d of oil and 6,000 b/d of liquids. For 2015, volumes are expected to average higher at 143,000 boe/d, comprised of 67% oil, 29% gas and 4% NGLs.

Capital expenditures are set at $2.8 billion this year, with 85% "expected to be directed to the highest return focus areas in the GOM. Capital expenditures for 2015 have been revised from the previous estimate of $2.3 billion, reflecting increased development drilling and activities following success from first quarter 2015 exploration results."