Freeport McMoRan Copper & Gold : -McMoRan Reports Second-Quarter and Six-Month 2014 Results

Freeport-McMoRan Inc. (NYSE: FCX):

• Net income attributable to common stock totaled $482 million, $0.46 per share, for second-quarter 2014, compared with net income of $482 million, $0.49 per share, for second-quarter 2013. Net income attributable to common stock for the first six months of 2014 totaled $992 million, $0.95 per share, compared with $1.1 billion, $1.17 per share, for the first six months of 2013.
• Consolidated sales for second-quarter 2014 totaled 968 million pounds of copper, 159 thousand ounces of gold, 25 million pounds of molybdenum and 16.0 million barrels of oil equivalents (MMBOE), compared with second-quarter 2013 sales of 951 million pounds of copper, 173 thousand ounces of gold, 23 million pounds of molybdenum and 5.0 MMBOE (reflecting oil and gas results beginning June 1, 2013).
• Consolidated sales for the year 2014 are expected to approximate 4.1 billion pounds of copper, 1.3 million ounces of gold, 98 million pounds of molybdenum and 58.4 MMBOE, including 1.1 billion pounds of copper, 445 thousand ounces of gold, 23 million pounds of molybdenum and 12.2 MMBOE for third-quarter 2014.
• Average realized prices for second-quarter 2014 were $3.16 per pound for copper (compared with $3.17 per pound for second-quarter 2013), $1,296 per ounce for gold (compared with $1,322 per ounce for second-quarter 2013) and $95.50 per barrel for oil (net of $4.96 per barrel associated with payments on derivative contracts).
• Consolidated unit net cash costs for second-quarter 2014 averaged $1.72 per pound of copper for mining operations (compared with $1.85 per pound of copper for second-quarter 2013) and $19.57 per barrel of oil equivalents (BOE) for oil and gas operations (compared with $16.58 per BOE for June 2013).
• Operating cash flows totaled $1.4 billion (net of $364 million in working capital uses and changes in other tax payments) for second-quarter 2014, and $2.6 billion (net of $777 million in working capital uses and changes in other tax payments) for the first six months of 2014. Based on current sales volume and cost estimates and assuming average prices of $3.25 per pound for copper, $1,300 per ounce for gold, $12 per pound for molybdenum and $110 per barrel for Brent crude oil for the second half of 2014, operating cash flows are expected to approximate $6.8 billion (net of $0.6 billion of working capital uses and changes in other tax payments) for the year 2014.
• Capital expenditures totaled $2.0 billion for second-quarter 2014 and $3.6 billion for the first six months of 2014, including $1.4 billion for major projects at mining operations and $1.5 billion for oil and gas operations. Capital expenditures are expected to approximate $7.6 billion for the year 2014, including $3.2 billion for major projects at mining operations and $3.4 billion for oil and gas operations.
• In June 2014, FCX completed the sale of its Eagle Ford shale assets for $3.1 billion (before closing adjustments) and acquired additional interests in the Deepwater Gulf of Mexico (GOM) for $0.9 billion.
• At June 30, 2014, consolidated cash totaled $1.5 billion and consolidated debt totaled $20.3 billion. On July 23, 2014, FCX redeemed $1.7 billion of the aggregate face amount of senior notes.
• The corporate name changed to Freeport-McMoRan Inc. effective July 14, 2014. The change simplifies the corporate name and better reflects FCX's expanded portfolio of assets.

Freeport-McMoRan Inc. (NYSE: FCX) reported net income attributable to common stock of $482 million, $0.46 per share, for second-quarter 2014, compared with $482 million, $0.49 per share, for second-quarter 2013 and $992 million, $0.95 per share, for the first six months of 2014, compared with $1.1 billion, $1.17 per share, for the first six months of 2013. FCX’s net income attributable to common stock for second-quarter 2014 included charges of $130 million ($0.12 per share) comprised of $68 million for environmental obligations and related litigation charges, $58 million for deferred taxes recorded in connection with the allocation of goodwill to the sale of Eagle Ford and $4 million for net noncash mark-to-market losses on oil and gas derivative contracts. Second-quarter 2013 net income attributable to common stock included net gains of $242 million ($0.25 per share) related to the oil and gas acquisitions, partly offset by net noncash mark-to-market losses on oil and gas derivative contracts.

James R. Moffett, Chairman of the Board; Richard C. Adkerson, Vice Chairman, and FCX President and Chief Executive Officer; and James C. Flores, Vice Chairman, and FM O&G President and Chief Executive Officer, said, "Our second-quarter results reflect continued strong operating performance in our North America, South America and Africa mining operations and from our oil and gas operations, partly offset by the effects of reduced output from Indonesia. We are encouraged by our discussions with the Indonesian government toward reaching a near-term agreement to enable resumption of PT Freeport Indonesia’s copper concentrate exports. During the quarter, we completed a $3.1 billion sale of our Eagle Ford shale assets and acquired additional interests in our Deepwater Gulf of Mexico focus area. We also commenced copper production from our expanded Morenci operation and achieved important progress in our mining and oil and gas development projects to provide future growth in production, cash flows and attractive investment returns. We remain focused on our opportunities to increase value for shareholders through the development of our large resource base, effective management of our operations, prudent capital and balance sheet management, and providing attractive cash returns to shareholders."

Consolidated Sales Volumes

Second-quarter 2014 consolidated copper sales of 968 million pounds were higher than second-quarter 2013 sales of 951 million pounds, but lower than the April 2014 estimate of 1.1 billion pounds (which assumed resuming PT-FI exports in May). Second-quarter 2014 consolidated gold sales of 159 thousand ounces were lower than second-quarter 2013 sales of 173 thousand ounces and the April 2014 estimate of 320 thousand ounces (which assumed resuming PT-FI exports in May). Lower copper and gold sales volumes, compared to the April 2014 estimates, primarily reflected continued restrictions on concentrate exports from Indonesia. These restrictions resulted in a deferral of approximately 150 million pounds of copper and 240 thousand ounces of gold in second-quarter 2014 and 275 million pounds of copper and 380 thousand ounces of gold for the first six months of 2014.

Second-quarter 2014 consolidated molybdenum sales of 25 million pounds were higher than second-quarter 2013 sales of 23 million pounds and the April 2014 estimate of 24 million pounds.

Second-quarter 2014 sales from oil and gas operations of 16.0 MMBOE, including 11.7 million barrels (MMBbls) of crude oil, 20.3 billion cubic feet (Bcf) of natural gas and 1.0 MMBbls of natural gas liquids (NGLs), were higher than the April 2014 estimate of 15.2 MMBOE primarily reflecting higher production volumes from Eagle Ford and the Deepwater GOM. Second-quarter 2014 volumes included 4.0 MMBOE of sales from the Eagle Ford field through June 19, 2014.

In January 2014, the Indonesian government published regulations regarding exports of minerals, including copper concentrates. The regulations provide that holders of contracts of work with existing processing facilities in Indonesia could continue to export product through January 12, 2017, but established new requirements for the continued export of copper concentrates, including the development of domestic smelter and refining facilities and the imposition of a progressive export duty on copper concentrates. To date, PT-FI has not received authorization from the Indonesian government to export copper concentrate.

The Indonesian government is also seeking to amend PT-FI’s Contract of Work (COW) to incorporate changes pursuant to Indonesia’s 2009 mining law and subsequent regulations. PT-FI and the Indonesian government have developed a Memorandum of Understanding (MOU), expected to be signed imminently, that addresses provisions in PT-FI’s COW related to the size of PT-FI’s concession area, royalties and taxes, domestic processing and refining, divestment, local content, and continuation of operations post-2021. The MOU would enable the immediate resumption of exports. Refer to page 8 for further discussion of these regulatory matters.

Consolidated sales for the year 2014 are expected to approximate 4.1 billion pounds of copper, 1.3 million ounces of gold, 98 million pounds of molybdenum and 58.4 MMBOE, including 1.1 billion pounds of copper, 445 thousand ounces of gold, 23 million pounds of molybdenum and 12.2 MMBOE for third-quarter 2014. These estimates assume resumption of exports from PT-FI beginning in August 2014. To the extent PT-FI is unable to resume exports in August 2014, this would result in a deferral of approximately 50 million pounds of copper and 80 thousand ounces of gold per month.

Consolidated Unit Costs

Mining Unit Net Cash Costs. Consolidated average unit net cash costs (net of by-product credits) for FCX's copper mines of $1.72 per pound of copper in second-quarter 2014 were lower than unit net cash costs of $1.85 per pound in second-quarter 2013 primarily reflecting higher North America sales volumes, but were higher than the April 2014 estimate of $1.58 per pound because of lower sales volumes from Indonesia. Second-quarter 2014 consolidated average unit net cash costs excluded $0.06 per pound of copper for fixed costs charged directly to cost of sales as a result of the impact of export restrictions on PT-FI's operating rates.

Assuming average prices of $1,300 per ounce of gold and $12 per pound of molybdenum for the second half of 2014 and achievement of current sales volume and cost estimates, which assumes the resumption of exports from PT-FI beginning in August 2014, consolidated unit net cash costs (net of by-product credits) for copper mines are expected to average $1.44 per pound of copper in third-quarter 2014 and $1.50 per pound for the year 2014. Quarterly unit net cash costs vary with fluctuations in sales volumes and average realized prices (primarily gold and molybdenum prices). The impact of price changes for the second half of 2014 on consolidated unit net cash costs would approximate $0.013 per pound for each $50 per ounce change in the average price of gold and $0.01 per pound for each $2 per pound change in the average price of molybdenum.

Oil and Gas Cash Production Costs per BOE. Cash production costs for oil and gas operations of $19.57 per BOE in second-quarter 2014 were higher than cash production costs of $16.58 per BOE in June 2013 primarily because of higher operating costs in California. Based on current sales volume and cost estimates for the second half of 2014, cash production costs are expected to approximate $22 per BOE for the second half of 2014 and $20 per BOE for the year 2014.

MINING OPERATIONS

North America Copper Mines. FCX operates seven open-pit copper mines in North America - Morenci, Bagdad, Safford, Sierrita and Miami in Arizona, and Chino and Tyrone in New Mexico. All of the North America mining operations are wholly owned, except for Morenci. FCX records its 85 percent joint venture interest in Morenci using the proportionate consolidation method. In addition to copper, molybdenum concentrates are also produced by certain of FCX's North America copper mines.

Operating and Development Activities. FCX has increased production from its North America copper mines in recent years and continues to evaluate a number of opportunities to invest in additional production capacity following positive exploration results. Future investments will be undertaken based on the results of economic and technical feasibility studies and market conditions.

At Morenci, start-up activities from the expanded mill project began in second-quarter 2014. Commissioning activities commenced in May 2014, with a ramp up to full rates expected to be achieved by year-end 2014. The project targets average incremental annual production of approximately 225 million pounds of copper (an approximate 40 percent increase from 2013) through an increase in milling rates from 50,000 metric tons of ore per day to approximately 115,000 metric tons of ore per day. At full rates, Morenci's copper production is expected to approach 1 billion pounds in 2015, compared with 564 million pounds in 2013.

Construction of the new mill is substantially complete. Remaining items include completion of the molybdenum circuit, which would add capacity of approximately 9 million pounds of molybdenum per year, and the construction of an expanded tailings storage facility, which is expected to be completed in 2015.

Operating Data. Following is summary consolidated operating data for the North America copper mines for the second quarters and first six months of 2014 and 2013:

North America's consolidated copper sales volumes of 423 million pounds in second-quarter 2014 were higher than second-quarter 2013 sales of 372 million pounds, primarily reflecting higher milling rates and ore grades at several operating sites. North America's copper production is expected to continue to increase during the second half of 2014 with the ramp up of the Morenci mill expansion project. Copper sales from the North America copper mines are expected to approximate 1.7 billion pounds for the year 2014, compared with 1.4 billion pounds in 2013.

Average unit net cash costs (net of by-product credits) for the North America copper mines of $1.70 per pound of copper in second-quarter 2014 were lower than unit net cash costs of $1.92 per pound in second-quarter 2013, primarily reflecting higher copper sales volumes. Average unit net cash costs (net of by-product credits) for the North America copper mines are expected to approximate $1.74 per pound of copper for the year 2014, based on current sales volume and cost estimates and assuming an average molybdenum price of $12 per pound for the second half of 2014. North America's average unit net cash costs for the second half of 2014 would change by approximately $0.015 per pound for each $2 per pound change in the average price of molybdenum.

South America Mining. FCX operates four copper mines in South America - Cerro Verde in Peru and El Abra, Candelaria and Ojos del Salado in Chile. FCX owns a 53.56 percent interest in Cerro Verde, a 51 percent interest in El Abra, and an 80 percent interest in the Candelaria and Ojos del Salado mining complex. All operations in South America are consolidated in FCX's financial statements. In addition to copper, the Candelaria and Ojos del Salado mines produce gold and silver, and the Cerro Verde mine produces molybdenum concentrates.

Development Activities. Construction activities associated with a large-scale expansion at Cerro Verde are in progress. Detailed project engineering and procurement are substantially complete and construction is advancing on schedule. The project will expand the concentrator facilities from 120,000 metric tons of ore per day to 360,000 metric tons of ore per day and provide incremental annual production of approximately 600 million pounds of copper and 15 million pounds of molybdenum beginning in 2016. As of June 30, 2014, $2.3 billion had been incurred for this project, with approximately $2.3 billion remaining to be incurred.

FCX continues to evaluate a potential large-scale milling operation at El Abra to process additional sulfide material and to achieve higher recoveries. Exploration results in recent years at El Abra indicate a significant sulfide resource, which could potentially support a major mill project. Future investments will be dependent on technical studies, economic factors and global copper market conditions.

Operating Data. Following is summary consolidated operating data for the South America mining operations for the second quarters and first six months of 2014 and 2013:

South America's consolidated copper sales volumes of 310 million pounds in second-quarter 2014 were slightly lower than second-quarter 2013 sales of 315 million pounds, reflecting timing of shipments. Sales from South America mining are expected to approximate 1.2 billion pounds of copper for the year 2014, which are lower than 2013 volumes of 1.3 billion pounds, primarily reflecting lower ore grades at Candelaria and Cerro Verde.

Unit net cash costs (net of by-product credits) for South America mining averaged $1.60 per pound of copper in second-quarter 2014 and $1.54 per pound in second-quarter 2013. Average unit net cash costs (net of by-product credits) for South America mining are expected to approximate $1.59 per pound of copper for the year 2014, based on current sales volume and cost estimates and assuming average prices of $1,300 per ounce of gold and $12 per pound of molybdenum for the second half of 2014.

Indonesia Mining. Through its 90.64 percent owned and consolidated subsidiary PT-FI, FCX's assets include one of the world's largest copper and gold deposits at the Grasberg minerals district in Papua, Indonesia. PT-FI operates a proportionately consolidated joint venture, which produces copper concentrates that contain significant quantities of gold and silver.

Development Activities. PT-FI has several projects in progress in the Grasberg minerals district related to the development of large-scale, long-lived, high-grade underground ore bodies. In aggregate, these underground ore bodies are expected to ramp up over several years to process approximately 240,000 metric tons of ore per day following the transition from the Grasberg open pit, currently anticipated to occur in 2017. Development of the Grasberg Block Cave and Deep Mill Level Zone (DMLZ) underground mines is advancing to enable DMLZ to commence production in 2015 and the Grasberg Block Cave mine to commence production in 2017. Over the next five years, estimated aggregate capital spending on these projects is currently expected to average $0.9 billion per year ($0.7 billion per year net to PT-FI). As a result of changes in Indonesian regulatory policy, PT-FI is engaged in discussions with the Indonesia government regarding the need for legal and fiscal assurance to support its long-term development plans. PT-FI may reduce or defer these activities pending resolution of export restrictions and other Indonesia regulatory matters.

Regulatory Matters. In January 2014, the Indonesian government published regulations providing that holders of contracts of work with existing processing facilities in Indonesia could continue to export product through January 12, 2017, but established new requirements for the continued export of copper concentrates, including the development of domestic smelter and refining facilities and the imposition of a progressive export duty on copper concentrates in the amount of 25 percent in 2014, rising to 60 percent by mid-2016. To date, PT-FI has not received authorization from the Indonesian government to export copper concentrate.

The Indonesian government is also seeking to amend PT-FI’s COW to incorporate changes pursuant to Indonesia’s 2009 mining law and subsequent regulations. PT-FI and the Indonesian government have developed a MOU, expected to be signed imminently, that addresses provisions in PT-FI’s COW related to the size of PT-FI’s concession area, royalties and taxes, domestic processing and refining, divestment, local content, and continuation of operations post-2021. The MOU would enable the immediate resumption of exports.

Under the MOU, PT-FI would agree to provide a $115 million assurance bond to support its commitment for smelter development, pay reduced export duties that would decline as smelter development progresses and pay increased royalties of 4 percent for copper and 3.75 percent for gold from the current rates of 3.5 percent for copper and 1 percent for gold. The MOU provides that PT-FI and the Indonesian government would commence immediate negotiations for an amended COW. These negotiations will take into consideration the need for assurance of legal and fiscal terms for PT-FI to continue with its large-scale investment program for the development of its reserves.

As a result of the delay in obtaining approvals for 2014 exports, PT-FI has implemented changes to its operations to align its concentrate production with PT Smelting’s operating plans. PT-FI’s milling rate averaged 102,900 metric tons of ore per day in second-quarter 2014 and 110,400 metric tons of ore per day for the first six months of 2014, which is approximately half of normal rates, and resulted in the deferral of approximately 150 million pounds of copper and 240 thousand ounces of gold in second-quarter 2014 and 275 million pounds of copper and 380 thousand ounces of gold for the first six months of 2014.

PT-FI's 2014 production estimates assume resumption of exports beginning in August 2014. In the event that PT-FI is unable to resume normal operations for an extended period, PT-FI intends to implement plans to reduce operating costs, defer capital expenditures and implement workforce reductions.

Operating Data. Following is summary consolidated operating data for the Indonesia mining operations for the second quarters and first six months of 2014 and 2013:

Indonesia's second-quarter 2014 sales of 117 million pounds of copper and 135 thousand ounces of gold were lower than second-quarter 2013 sales of 158 million pounds of copper and 151 thousand ounces of gold, because of lower milling rates as a result of the continued restrictions on concentrate exports from Indonesia, which resulted in the deferral of approximately 150 million pounds of copper and 240 thousand ounces of gold in second-quarter 2014 and 275 million pounds of copper and 380 thousand ounces of gold for the first six months of 2014.

At the Grasberg mine, the sequencing of mining areas with varying ore grades causes fluctuations in quarterly and annual production of copper and gold. Sales from Indonesia mining are expected to approximate 0.7 billion pounds of copper and 1.25 million ounces of gold for the year 2014, compared with 0.9 billion pounds of copper and 1.1 million ounces of gold for the year 2013. These estimates assume resumption of exports from PT-FI beginning in August 2014. To the extent PT-FI is unable to resume exports in August 2014, this will result in a deferral of approximately 50 million pounds of copper and 80 thousand ounces of gold per month. Upon a favorable resolution of the restrictions on exports matter, sales from Indonesia mining are expected to increase through 2016 as PT-FI gains access to higher grade ore.

A significant portion of PT-FI's costs are fixed and unit costs vary depending on production volumes. During the second quarter and first six months of 2014, PT-FI operated at approximately half of normal rates. Indonesia's unit net cash costs (including gold and silver credits) of $2.66 per pound of copper in second-quarter 2014 were lower than unit net cash costs of $2.71 per pound in second-quarter 2013, which was impacted by a temporary production suspension. Indonesia's second-quarter 2014 unit net cash costs excluded $0.48 per pound of copper for fixed costs charged directly to cost of sales as a result of the impact of export restrictions on PT-FI's operating rates.

Unit net cash costs (net of gold and silver credits) for Indonesia mining are expected to approximate $0.96 per pound of copper for the year 2014, based on current sales volume and cost estimates, which assumes the resumption of exports from PT-FI beginning in August 2014, and assuming an average gold price of $1,300 per ounce for the second half of 2014. Indonesia mining's projected unit net cash costs would change by approximately $0.07 per pound for each $50 per ounce change in the average price of gold for the second half of 2014. Because of the fixed nature of a large portion of Indonesia's costs, unit costs vary from quarter to quarter depending on copper and gold volumes.

Africa Mining. Through its 56 percent owned and consolidated subsidiary Tenke Fungurume Mining S.A.R.L. (TFM), FCX operates the Tenke Fungurume (Tenke) minerals district in the Katanga province of the Democratic Republic of Congo (DRC). In addition to copper, the Tenke mine produces cobalt hydroxide.

Operating and Development Activities. TFM completed its second phase expansion project in early 2013, which included increasing mine, mill and processing capacity. The expanded mill's throughput rates averaged 15,200 metric tons per day for second-quarter 2014, compared with the project's design capacity of 14,000 metric tons of ore per day. FCX continues to engage in exploration activities and metallurgical testing to evaluate the potential of the highly prospective minerals district at Tenke. These analyses are being incorporated in future plans for potential expansions of production capacity. Future expansions are subject to a number of factors, including economic and market conditions, and the business and investment climate in the DRC.

Operating Data. Following is summary consolidated operating data for the Africa mining operations for the second quarters and first six months of 2014 and 2013:

TFM's copper sales of 118 million pounds in second-quarter 2014 were higher than second-quarter 2013 copper sales of 106 million pounds, primarily reflecting timing of shipments. TFM's sales are expected to approximate 440 million pounds of copper and 30 million pounds of cobalt for the year 2014, compared with 454 million pounds of copper and 25 million pounds of cobalt for the year 2013.

Africa mining's unit net cash costs (net of cobalt credits) of $1.18 per pound of copper in second-quarter 2014 were lower than unit net cash costs of $1.23 per pound of copper in second-quarter 2013, primarily reflecting higher cobalt credits. Unit net cash costs (net of cobalt credits) for Africa mining are expected to approximate $1.21 per pound of copper for the year 2014, based on current sales volume and cost estimates and assuming an average cobalt price of $13 per pound for the second half of 2014. Africa mining's projected unit net cash costs would change by approximately $0.045 per pound for each $2 per pound change in the average price of cobalt for the second half of 2014.

Molybdenum Mines. FCX has two wholly owned molybdenum mines in North America - the Henderson underground mine and the Climax open-pit mine, both in Colorado. The Henderson and Climax mines produce high-purity, chemical-grade molybdenum concentrates, which are typically further processed into value-added molybdenum chemical products. The majority of molybdenum concentrates produced at the Henderson and Climax mines, as well as from North and South America copper mines, are processed at FCX's conversion facility.

Operating Data. Following is summary consolidated operating data for the Molybdenum mines for the second quarters and first six months of 2014 and 2013:

Molybdenum prices have improved during the first six months of 2014, resulting from improved demand in the metallurgical sector. FCX continues to monitor market conditions and may make adjustments to its primary molybdenum production as market conditions warrant.

Average unit net cash costs for the Molybdenum mines of $6.47 per pound of molybdenum in second-quarter 2014 were lower than average unit net cash costs of $6.79 per pound in second-quarter 2013, primarily reflecting higher production volumes. Based on current sales volume and cost estimates, unit net cash costs for the Molybdenum mines are expected to average approximately $7.00 per pound of molybdenum for the year 2014.

Mining Exploration Activities. FCX is actively conducting exploration activities near its existing mines with a focus on opportunities to expand reserves and resources to support development of additional future production capacity in the large minerals districts where it currently operates. Exploration results indicate opportunities for significant future reserve additions in North and South America and in the Tenke minerals district. The drilling data in North America continue to indicate the potential for significantly expanded sulfide production.

Exploration spending associated with mining operations is expected to approximate $100 million for the year 2014, compared to $182 million in 2013.

OIL & GAS OPERATIONS

In second-quarter 2013, FCX acquired oil and gas operations by completing the acquisitions of Plains Exploration & Production Company (PXP) and McMoRan Exploration Co. (MMR), collectively FM O&G. FCX's oil and gas operations provide exposure to energy markets with positive fundamentals, strong margins and cash flows, and a large resource base with financially attractive exploration and development investment opportunities. The portfolio of assets includes significant oil production facilities and growth potential in the Deepwater GOM, established oil production facilities onshore and offshore California, large onshore natural gas resources in the Haynesville shale play in Louisiana, natural gas production from the Madden area in central Wyoming, and an industry-leading position in the emerging Inboard Lower Tertiary/Cretaceous natural gas trend located in the shallow waters of the GOM and onshore in South Louisiana. More than 90 percent of FCX's oil and gas revenues are from oil and NGLs.

FM O&G follows the full cost method of accounting whereby all costs associated with oil and gas property acquisition, exploration and development activities are capitalized into cost centers on a country-by-country basis. Capitalized costs, along with estimated future costs to develop proved reserves, are amortized to expense under the unit-of-production method using estimates of proved oil and natural gas reserves. The costs of unproved oil and gas properties are excluded from amortization until the properties are evaluated, at which time the related costs are subject to amortization. Under the full cost accounting rules, a "ceiling test" is conducted each quarter to review the carrying value of the oil and gas properties for impairment.

Sale and Purchase Transactions. On June 20, 2014, FM O&G completed the sale of the Eagle Ford shale assets for cash consideration of $3.1 billion, before closing adjustments from the effective date of April 1, 2014, through the closing date. Under full cost accounting rules, the proceeds from this transaction were accounted for as an adjustment to capitalized costs, with no gain or loss recognition, except for $58 million of deferred taxes recorded in connection with the allocation of goodwill to the sale of Eagle Ford. FM O&G's Eagle Ford interests included approximately 45,500 net acres with estimated net proved reserves of 59 MMBOE and estimated net proved and probable reserves of 69 MMBOE at year-end 2013. FM O&G's second-quarter 2014 results included 4.0 MMBOE of sales volumes from the Eagle Ford field through June 19, 2014.

On June 30, 2014, FM O&G completed the acquisition of interests in the Deepwater GOM, including interests in the Lucius and Heidelberg oil production development projects and several exploration leases, for $0.9 billion. See below for further discussion of these and FM O&G's other Deepwater GOM interests.

The Deepwater GOM acquisition was funded with proceeds from the sale of the Eagle Ford shale assets. The estimated combined after-tax net proceeds from these transactions approximated $1.8 billion, before purchase price adjustments.

Financial and Operating Data. Following is summary financial and operating data for the oil and gas operations for the second quarters and first six months of 2014 and 2013:

FM O&G's realized revenues totaled $1.2 billion ($77.53 per BOE) and cash production costs totaled $314 million ($19.57 per BOE) in second-quarter 2014.

In second-quarter 2014, FM O&G's average realized price for crude oil was $95.50 per barrel, net of $4.96 per barrel associated with payments on derivative contracts. Excluding the impact of derivative contracts, the second-quarter 2014 average realized price for crude oil was $100.46 per barrel (92 percent of the average Brent crude oil price of $109.73 per barrel).

In second-quarter 2014, FM O&G's average realized price for natural gas was $4.44 per MMBtu. Excluding the impact of derivative contracts, the average realized price for natural gas was $4.70 per MMBtu in second-quarter 2014, compared to the New York Mercantile Exchange (NYMEX) natural gas price average of $4.67 per MMBtu for the April through June 2014 contracts.

Following is a summary of average oil and gas sales volumes per day by region for the second quarters and first six months of 2014 and 2013:

Daily sales volumes averaged 176 MBOE for second-quarter 2014, including 128 MBbls of crude oil, 223 MMcf of natural gas and 11 MBbls of NGLs. Oil and gas sales volumes are expected to average 142 MBOE per day for the second half of 2014, comprised of 69 percent oil, 27 percent natural gas and 4 percent NGLs. Based on current sales volume and cost estimates for the second half of 2014, cash production costs are expected to approximate $22 per BOE for the second half of 2014, which is higher than the April 2014 estimate primarily reflecting lower estimated volumes because of the sale of the Eagle Ford shale assets.

Operating, Development and Exploration Activities. FCX's oil and gas business has significant proved, probable and possible reserves and a broad range of development opportunities and high-potential exploration prospects. The business is being managed to reinvest its cash flows in projects with attractive rates of returns and risk profiles.

FM O&G has a large, strategic position in the Deepwater GOM with significant current oil production, strong cash margins and existing infrastructure and facilities with excess capacity. These assets, combined with FM O&G’s large leasehold interests in an established geologic basin, provide financially attractive investment opportunities for high-impact growth in oil production and cash margins. Following the sale of the Eagle Ford shale assets on June 20, 2014, FM O&G’s capital allocation strategy is principally focused on exploitation drilling and development opportunities that can be tied back to existing facilities in the Deepwater GOM. Additional oil and gas asset sales may be considered to provide additional funding to accelerate FM O&G’s growth plans in the Deepwater GOM.

Capital expenditures for oil and gas operations approximated $0.9 billion for second-quarter 2014 and $1.5 billion for the first six months of 2014, including $0.8 billion incurred for the Deepwater GOM and $0.3 billion for the Inboard Lower Tertiary/Cretaceous natural gas trend. Capital expenditures for oil and gas operations, which are expected to be funded by FM O&G's operating cash flows and oil and gas asset sales, are projected to approximate $3.4 billion for the year 2014, including $1.8 billion for the Deepwater GOM and $0.7 billion for the Inboard Lower Tertiary/Cretaceous natural gas trend. FM O&G future capital spending estimates may be adjusted to incorporate results from its ongoing drilling activities and follow-on development activities.

Deepwater Gulf of Mexico. Multiple development and exploration opportunities have been identified in the Deepwater GOM that are expected to benefit from tie-back opportunities to available production capacity at the FM O&G operated large-scale Holstein, Marlin and Horn Mountain deepwater production platforms. Operations to pursue these opportunities have commenced and activities are expected to accelerate following the delivery of contracted drill ships over the next 12 months.

The Bureau of Ocean Energy Management (BOEM) has awarded FM O&G all 20 leases from the March 2014 Central Gulf of Mexico Lease Sale 231. The blocks, which range in water depths up to 6,000 feet and cover approximately 106,000 gross acres, are primarily focused on high-impact, drillable targets in the Mississippi Canyon, Atwater Valley and Green Canyon areas, and complement FM O&G’s existing infrastructure and production facilities, as well as add several new exploration plays.

Holstein, in which FM O&G has a 100 percent working interest, is located in Green Canyon and has production facilities capable of producing in excess of 100 MBOE per day. Drilling from the Holstein platform rig commenced in first-quarter 2014. In June 2014, the first sidetrack well commenced production at a rate of approximately 3,600 BOE per day and drilling of the second sidetrack well is under way. Over the 2014 to 2016 period, FM O&G expects to drill five additional sidetrack wells from the Holstein platform following the current sidetrack well. During this period, FM O&G also plans to drill five subsea tie-back wells from contracted drill ships to enhance production volumes from the spar. Near-term tie-back prospects in the Holstein area include Holstein Deep and Copper.

The Holstein Deep development, in which FM O&G has a 100 percent working interest, is located four miles west of the Holstein platform. FM O&G acquired the acreage associated with this development in the 2013 lease sale held by the BOEM. Two successful wells had previously been drilled in recent years and encountered approximately 500 net feet of oil pay. Delineation drilling on this prospect is expected to commence in third-quarter 2014.

The Copper exploration prospect commenced drilling in July 2014 and is currently drilling below 6,800 feet towards a proposed total depth of 14,500 feet. Copper is located southeast of the Holstein field in 4,400 feet of water and is a subsea tie-back opportunity to the Holstein facility. The prospect is a Holstein analog play with Pliocene objectives and FM O&G has a 100 percent working interest.

Development of the Lucius field in Keathley Canyon is on track with first oil production anticipated in the second half of 2014. The geologic results from the six wells drilled since 2009 confirm a significant oil resource. The sanctioned development of Lucius is a subsea development consisting of a truss spar hull located in 7,200 feet of water with a topside daily capacity of 80 MBbls of oil and 450 MMcf of gas. FM O&G has a 25.1 percent working interest in Lucius.

Development of the Heidelberg field in Green Canyon is in progress and production is expected to commence in mid-2016. Heidelberg is a large, high-quality oil development project located in 5,300 feet of water. The hull fabrication for the 80 MBbls of oil per day Lucius-look-alike facility is more than 85 percent complete and the spar is expected to be towed to the GOM later this year. Topsides fabrication is currently more than 25 percent complete. Development drilling is expected to commence in third-quarter 2014 as the first of six development wells are to be drilled through 2016. FM O&G has a 12.5 percent working interest in Heidelberg.

In second-quarter 2014, FM O&G drilled the Tara exploratory prospect, located in Keathley Canyon in 8,700 feet of water, to approximately 20,800 feet. In July 2014, the well was evaluated and determined not to contain commercial quantities of hydrocarbons.

California. FM O&G's California assets benefit from an established oil production base with a stable production profile and access to favorably priced crude markets. Development plans are principally focused on maintaining stable production levels through continued drilling in the long-established producing fields onshore in California. FM O&G’s position in California is located onshore in the San Joaquin Valley and Los Angeles Basin and offshore in the Point Arguello and Point Pedernales fields.

Haynesville. FM O&G has rights to a substantial natural gas resource, located in the Haynesville shale play in North Louisiana. Drilling activities in recent years have been reduced to maximize cash flows in a low natural gas price environment and to benefit from potentially higher future natural gas prices.

Inboard Lower Tertiary/Cretaceous. FM O&G has an industry-leading position in the emerging Inboard Lower Tertiary/Cretaceous natural gas trend, located on the Shelf of the GOM and onshore in South Louisiana. FM O&G has a large onshore and offshore lease acreage position with high-quality prospects and the potential to develop a significant long-term, low-cost source of natural gas. Data from eight wells drilled to date indicate the presence of geologic formations that are analogous to productive formations in the Deepwater GOM and onshore in the Gulf Coast region. The near-term focus is on defining the trend onshore with plans to spud three prospects by year-end 2014. FM O&G is currently completing the Highlander and Blackbeard West No. 2 Inboard Lower Tertiary/Cretaceous exploration prospects and plans to perform production tests on these two wells in 2014.

The Highlander onshore exploratory well, in which FM O&G is the operator and has a 72 percent working interest, located in St. Martin Parish, Louisiana, encountered gas pay in several Wilcox and Cretaceous/Tuscaloosa sands between 24,000 feet and 29,000 feet. As previously reported, the wireline log and core data obtained from the Wilcox and Cretaceous sand packages indicated favorable reservoir characteristics with approximately 150 feet of net pay. The Highlander discovery well is currently in completion operations to test Cretaceous/Tuscaloosa objectives found below the salt weld. Flow testing is anticipated in the second half of 2014. FM O&G has identified multiple exploratory prospects in the Highlander area where it controls rights to approximately 57,000 gross acres.

Completion operations at the Blackbeard West No. 2 well, in which FM O&G has a 69.4 percent working interest, located on Ship Shoal Block 188 are in progress. Other near-term drilling includes the Farthest Gate West exploratory prospect located onshore in Cameron Parish, Louisiana. Farthest Gate West is a Lineham Creek analog prospect with Paleogene objectives and has a proposed total depth of 25,000 feet.

During second-quarter 2014, a flow test was performed on the deepest sand section (Cretaceous/Tuscaloosa) in Davy Jones No. 2, in which FM O&G has a 75 percent working interest. The test of this section, one of two potentially productive intervals in the well, did not result in hydrocarbon production in commercial quantities, and the well was temporarily abandoned. Testing of the remaining sand sections (Wilcox) was deferred until later in 2014 in order to use the completion equipment to accelerate the completion and testing of the Highlander well. The Davy Jones No. 2 flow test provided valuable data, including confirmation of permeability of the sands, which is encouraging in relation to the Tuscaloosa discovery at Highlander and other Inboard Lower Tertiary/Cretaceous prospects.

CASH FLOWS, CASH and DEBT

Operating Cash Flows. FCX generated operating cash flows of $1.4 billion (net of $364 million in working capital uses and changes in other tax payments) for second-quarter 2014 and $2.6 billion (net of $777 million in working capital uses and changes in other tax payments) for the first six months of 2014.

Based on current sales volume and cost estimates and assuming average prices of $3.25 per pound of copper, $1,300 per ounce of gold, $12 per pound of molybdenum and $110 per barrel of Brent crude oil for the second half of 2014, FCX's consolidated operating cash flows are estimated to approximate $6.8 billion (net of $0.6 billion of working capital uses and changes in other tax payments) for the year 2014. The impact of price changes for the second half of 2014 on operating cash flows would approximate $200 million for each $0.10 per pound change in the average price of copper, $40 million for each $50 per ounce change in the average price of gold, $55 million for each $2 per pound change in the average price of molybdenum and $60 million for each $5 per barrel change in the average price of Brent crude oil above $100 per barrel.

Capital Expenditures. Capital expenditures totaled $2.0 billion for second-quarter 2014, including $0.7 billion for major projects at mining operations and $0.9 billion for oil and gas operations, and $3.6 billion for the first six months of 2014, including $1.4 billion for major projects at mining operations and $1.5 billion for oil and gas operations. Capital expenditures are currently expected to approximate $7.6 billion for the year 2014, including $3.2 billion for major projects at mining operations and $3.4 billion for oil and gas operations. Major projects at mining operations for the year 2014 primarily include the expansions at Cerro Verde and Morenci, and underground development activities at Grasberg.

Cash. Following is a summary of cash available to the parent company, net of noncontrolling interests' share, taxes and other costs at June 30, 2014 (in millions):

Debt. FCX continues to target significant reductions in debt by the end of 2016 using cash flows generated above capital expenditures and other cash requirements. FCX has taken steps to accelerate its deleveraging plans through asset sales and will continue to evaluate its portfolio for potential future monetizations. FCX may also take additional steps to reduce or defer capital spending and other costs in response to market conditions. Following is a summary of total debt and related weighted-average interest rates at June 30, 2014 (in billions, except percentages):

On May 30, 2014, FCX amended its revolving credit facility, extending the maturity date by one year, to May 31, 2019, and increased the aggregate principal amount available from $3.0 billion to $4.0 billion. At June 30, 2014, FCX had no borrowings outstanding and $46 million of letters of credit issued under its revolving credit facility.

FINANCIAL POLICY

FCX has a long-standing tradition of seeking to build shareholder value through investing in projects with attractive rates of return and returning cash to shareholders through common stock dividends and share purchases. FCX paid common stock dividends of $653 million in the first six months of 2014.

FCX's current annual dividend rate for its common stock is $1.25 per share. On June 25, 2014, FCX's Board of Directors (the Board) declared a regular quarterly dividend of $0.3125 per share, which will be paid on August 1, 2014. The declaration of dividends is at the discretion of the Board and will depend upon FCX's financial results, cash requirements, future prospects and other factors deemed relevant by the Board.

FCX intends to continue to maintain a strong financial position, with a focus on reducing debt while continuing to invest in attractive growth projects and providing cash returns to shareholders. The Board will continue to review FCX's financial policy on an ongoing basis.

WEBCAST INFORMATION

A conference call with securities analysts to discuss FCX's second-quarter 2014 results is scheduled for today at 10:00 a.m. Eastern Time. The conference call will be broadcast on the Internet along with slides. Interested parties may listen to the conference call live and view the slides by accessing "www.fcx.com." A replay of the webcast will be available through Friday, August 22, 2014.

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FCX is a premier U.S.-based natural resources company with an industry-leading global portfolio of mineral assets, significant oil and gas resources and a growing production profile. FCX is the world's largest publicly traded copper producer.

FCX's portfolio of assets includes the Grasberg minerals district in Indonesia, one of the world's largest copper and gold deposits; significant mining operations in the Americas, including the large-scale Morenci minerals district in North America and the Cerro Verde operation in South America; the Tenke Fungurume minerals district in the DRC; and significant oil and natural gas assets in North America, including reserves in the Deepwater GOM, onshore and offshore California and in the Haynesville shale play, and an industry-leading position in the emerging shallow water Inboard Lower Tertiary/Cretaceous natural gas trend on the Shelf of the GOM and onshore in South Louisiana. Additional information about FCX is available on FCX's website at "www.fcx.com."

Cautionary Statement and Regulation G Disclosure: This press release contains forward-looking statements in which FCX discusses its potential future performance. Forward-looking statements are all statements other than statements of historical facts, such as projections or expectations relating to ore grades and milling rates, production and sales volumes, unit net cash costs, cash production costs per BOE, operating cash flows, capital expenditures, exploration efforts and results, development and production activities and costs, liquidity, tax rates, the impact of copper, gold, molybdenum, cobalt, crude oil and natural gas price changes, the impact of derivative positions, the impact of deferred intercompany profits on earnings, reserve estimates, future dividend payments, debt reduction and share purchases. The words “anticipates,” “may,” “can,” “plans,” “believes,” “estimates,” “expects,” “projects,” "targets," “intends,” “likely,” “will,” “should,” “to be,” ”potential" and any similar expressions are intended to identify those assertions as forward-looking statements. The declaration of dividends is at the discretion of FCX's Board and will depend on FCX's financial results, cash requirements, future prospects, and other factors deemed relevant by the Board.

FCX cautions readers that forward-looking statements are not guarantees of future performance and its actual results may differ materially from those anticipated, projected or assumed in the forward-looking statements. Important factors that can cause FCX's actual results to differ materially from those anticipated in the forward-looking statements include supply of and demand for, and prices of, copper, gold, molybdenum, cobalt, oil and gas, mine sequencing, production rates, industry risks, regulatory changes, political risks, drilling results, the outcome of ongoing discussions with the Indonesian government regarding PT-FI's Contract of Work and the impact of the January 2014 regulations on PT-FI's exports and export duties, the potential effects of violence in Indonesia, the resolution of administrative disputes in the DRC, labor relations, currency translation risks, weather- and climate-related risks, environmental risks, litigation results and other factors described in more detail under the heading “Risk Factors” in FCX's Annual Report on Form 10-K for the year ended December 31, 2013, filed with the U.S. Securities and Exchange Commission (SEC) as updated by FCX's subsequent filings with the SEC.

Investors are cautioned that many of the assumptions on which FCX's forward-looking statements are based are likely to change after its forward-looking statements are made, including for example commodity prices, which FCX cannot control, and production volumes and costs, some aspects of which FCX may or may not be able to control. Further, FCX may make changes to its business plans that could or will affect its results. FCX cautions investors that it does not intend to update forward-looking statements more frequently than quarterly notwithstanding any changes in FCX's assumptions, changes in business plans, actual experience or other changes, and FCX undertakes no obligation to update any forward-looking statements.

This press release also contains certain financial measures such as unit net cash costs per pound of copper and per pound of molybdenum, oil and gas realized revenues, cash production costs and cash operating margin, which are not recognized under generally accepted accounting principles in the U.S. As required by SEC Regulation G, reconciliations of these measures to amounts reported in FCX's consolidated financial statements are in the supplemental schedules of this press release, which are also available on FCX's website, "www.fcx.com."