Freeport-McMoRan Copper & Gold Inc., which scooped up two significant U.S.-based oil and natural gas operators earlier this year, now is looking at a range of options to reduce some of the debt that came with the buys, including asset sales, joint ventures or even a master limited partnership (MLP), CEO Richard C. Adkerson said Tuesday.
Adkerson and top executives discussed third quarter results for the mining and energy conglomerate during a conference call. The company's profits in the latest period came in above estimates, but it also carries $21 billion debt, much of which was carried with the friendly purchase of Plains Exploration & Production Co. and McMoRan Exploration Co. (see Daily GPI, Dec. 12, 2012). Since the purchase, management has talked of reshaping its vision and selling off assets to better articulate its oil and gas plans (see Daily GPI, July 24).
Adkerson and FM O&G President Jim Flores, who is in charge of the oil and gas operations, clarified the beginnings of the plan for analysts.
"We remain committed to reducing debt, as our board has instructed us to do," said Adkerson. "We are on a target of reducing our debt to a $12 billion level over the next three years," but still continuing a common stock dividend of $1.25/share.
"We have a great set of assets, he said. "We've been looking at a range of alternatives that could include asset sales, a joint venture arrangement, special purpose financing, an MLP involving our oil and gas assets," which he noted of late have done well in the marketplace. "All of them would be looking to advance our debt-reduction target.
"We are in a position where we don't have to do anything. Anything we do to achieve our goals has to enhance shareholder value. It's something we are working on..."
Adkerson declined to detail how large a MLP might be.
"It's a work in progress. We are looking at this as an alternative. It's too early. There's a range of opportunities we could do with MLPs. They have performed so well in the marketplace. There are different types, from midstream infrastructure to upstream prospects...We have a large resource base that gives us opportunities. We are getting advice from people who are experienced in the business..."
The oil and gas division continues to integrate; it didn't become part of Freeport until June, when the purchase was completed. "Execution, execution, execution is where oil and gas is turned on," said Flores.
Today, natural gas prices have tempered most gassy prospects in the U.S. onshore and the shallow waters of the Gulf of Mexico (GOM).
"A small piece of the business is on gas until we get a price recovery some time in the future," said Flores. For now, it's all about oil, with work predominantly in California, the Eagle Ford Shale and in the deepwater of the GOM.
Freeport also is awaiting a number of significant deepwater projects to advance, including the Lucius field that is being operated by Anadarko Petroleum Corp. Initial drilling is to get under way before the end of this year, with first production next year. The Holstein prospect, in which Freeport holds a 23.33% share has gas and oil related to it; it's supposed to begin producing in the second half of 2014.
Net income totaled $821 million (79 cents/share), versus $824 million (86 cents). Income fell in part because of merger expenses. Total capital expenditures, including those for global mining operations, were $1.6 billion, with an estimated $1.5 billion expected to be spent on U.S. oil and gas from June 1 to Dec. 31.
Earnings, revenue and production numbers for the FM O&G division year/year are not comparable.
Realized revenues for oil and gas operations totaled $1.3 billion ($80.93/boe) and cash production costs totaled $277 million ($16.80/boe).
Oil and gas sales volumes were 16.5 million boe in 3Q2013, or 179,000 boe/d. That included 11.5 million bbl of crude oil, 23.6 Bcf of natural gas and 1 million bbl of natural gas liquids. Liquids output was 10% higher than a July estimate of 15 million boe, primarily on strong performance in the Eagle Ford and the deepwater GOM.