After making quite an entrance into the oil and gas world a few years ago, Freeport-McMoRan Inc. (FCX) has started the process of pushing its oil and gas subsidiary out as a public company—while still maintaining control.
The company is principally hunting for capital with an IPO of FCX subsidiary Freeport-McMoRan Oil & Gas Inc. But crude prices also mean the company likely won’t retain roughly 860,000 undeveloped acres in the U.S. due to low oil prices as leases expire through 2017.
Built through rapid-fire mergers and acquisitions, Freeport-McMoRan Oil & Gas would trade under the ticker FMOG. A registration statement filed with the Securities and Exchange Commission on June 23 sets up a modest $100 million offering of stock.
In April, parent FCX discussed the possibility of taking the oil and gas company public following the sharp oil price decline. The downturn has scaled back near-term production growth, which will remain limited without additional funding.
Going public “provides alternative form of equity capital to fund O&G business,” the company said in an investor presentation.
The move also highlights the standalone value of its oil and gas business while allowing FCX to maintain control and majority ownership of the business.
FCX’s capex for the oil and gas business is $2.8 billion. At year end, the deepwater U.S. Gulf of Mexico (GoM)-focused producer held 390 million barrels of oil equivalent (boe) of proved reserves with a PV-10 value of $8.1 billion, Baird Energy said in a June 24 report.
In the first quarter, production measured 139,000 boe/d, generating $851.6 million in annualized run-rate EBITDA.
FCX, which depends on its metals trade for most of its revenue, spent roughly the past two years buying and merging its way into an onshore and offshore behemoth.
In two 2013 mergers, Freeport-McMoRan Copper & Gold Inc. acquired Plains Exploration & Production Co. and McMoRan Exploration Co. in transactions worth more than $10 billion.
FCX merged with Plains for $6.9 billion in cash and stock and acquired McMoRan for about $3.4 billion in cash. The company immediately added major U.S. geologic basins, production in California, a then-growing production profile in the Eagle Ford and other assets.
In June 2014, FCX sold its Eagle Ford assets for $3.1 billion and acquired deepwater GoM assets from Apache Corp. (APA) for about $920 million.
At the end of December, FCX owned interests in oil and gas leases covering 2.9 million net acres.
In the SEC filing, the company said 35% of its total U.S. net undeveloped acres are covered by leases that expire from 2015 to 2017 and will probably be abandoned.
“As a result of the decrease in crude oil prices, we anticipate that the majority of expiring acreage will not be retained by drilling operations or other means,” the SEC document said.
Its Morocco permits expire in 2016 but the company has the ability to extend exploration permits through 2019.
FCX has $100 million in net oil hedging realizations. The company also has contracts on 86% of remaining 2015 oil production that provide for a market premium of about $13 per barrel.
At the end of 2014, Freeport-McMoRan Oil & Gas had about 1,312 full-time employees, including 62 geologists, 135 engineers and 35 land professionals. The subsidiary is headquartered in Houston.
Notable Freeport-McMoRan transactions:
- September 2014, Deepwater GoM: Acquired interests in the Vito oil discovery and a significant nearby lease position for $495.5 million;
- June 2014, Eagle Ford Shale: Sold shale assets to a subsidiary of Encana Corp. (ECA) for $3.1 billion before closing adjustments. About $1.3 billion of proceeds placed in a like-kind exchange escrow and used for subsequent investments;
- June 2014, Deepwater GoM: Acquired interests in the Lucius and Heidelberg oil fields and several exploration leases for $918 million; and
- 2013, Plains Exploration & Production and McMoRan acquisitions.
Contact the author, Darren Barbee, at dbarbee@hartenergy.com.
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