UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
 
FORM 10-Q
 
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 2016
OR
[  ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from
 
to
Commission File Number: 001-11307-01
FCX_LOGOA01A01A03A03.JPG
Freeport-McMoRan Inc.
(Exact name of registrant as specified in its charter)
Delaware
74-2480931
(State or other jurisdiction of
(I.R.S. Employer Identification No.)
incorporation or organization)
 
 
 
333 North Central Avenue
 
Phoenix, AZ
85004-2189
(Address of principal executive offices)
(Zip Code)
(602) 366-8100
(Registrant's telephone number, including area code)
 
 
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
þ Yes  o No

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate website, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).        þ Yes   o No

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer þ          Accelerated filer  o           Non-accelerated filer o          Smaller reporting company o

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
o Yes þ No

On October 31, 2016 , there were issued and outstanding 1,361,688,305 shares of the registrant’s common stock, par value $0.10 per share.


FREEPORT-McMoRan INC.

TABLE OF CONTENTS

 
 
 
Page
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 


2
Table of Contents             

Part I.
FINANCIAL INFORMATION

Item 1.
Financial Statements .

FREEPORT-McMoRan INC.
CONSOLIDATED BALANCE SHEETS (Unaudited)
 
September 30,
2016
 
December 31,
2015
 
(In millions)
ASSETS
 
 
 
Current assets:
 
 
 
Cash and cash equivalents
$
1,108

 
$
195

Trade accounts receivable
788

 
660

Income and other tax receivables
865

 
1,341

Other accounts receivable
97

 
154

Inventories:
 
 
 
Materials and supplies, net
1,348

 
1,594

Mill and leach stockpiles
1,312

 
1,539

Product
1,025

 
1,071

Other current assets
299

 
164

Assets held for sale
4,663

 
744

Total current assets
11,505

 
7,462

Property, plant, equipment and mining development costs, net
23,415

 
24,246

Oil and gas properties, net - full cost method
 
 
 
Subject to amortization, less accumulated amortization and impairment
979

 
2,262

Not subject to amortization
1,644

 
4,831

Long-term mill and leach stockpiles
1,723

 
1,663

Other assets
2,134

 
1,989

Assets held for sale
—

 
4,124

Total assets
$
41,400

 
$
46,577

 
 
 
 
LIABILITIES AND EQUITY
 
 
 
Current liabilities:
 
 
 
Accounts payable and accrued liabilities
$
2,347

 
$
3,255

Current portion of debt
802

 
649

Current portion of environmental and asset retirement obligations
357

 
272

Accrued income taxes
161

 
23

Liabilities held for sale
821

 
108

Total current liabilities
4,488

 
4,307

Long-term debt, less current portion
18,180

 
19,779

Deferred income taxes
3,549

 
3,607

Environmental and asset retirement obligations, less current portion
3,725

 
3,717

Other liabilities
1,618

 
1,641

Liabilities held for sale
—

 
718

Total liabilities
31,560

 
33,769

 
 
 
 
Redeemable noncontrolling interest
774

 
764

 
 
 
 
Equity:
 
 
 
Stockholders’ equity:
 
 
 
Common stock
149

 
137

Capital in excess of par value
25,601

 
24,283

Accumulated deficit
(16,832
)
 
(12,387
)
Accumulated other comprehensive loss
(476
)
 
(503
)
Common stock held in treasury
(3,710
)
 
(3,702
)
Total stockholders’ equity
4,732

 
7,828

Noncontrolling interests
4,334

 
4,216

Total equity
9,066

 
12,044

Total liabilities and equity
$
41,400

 
$
46,577


The accompanying notes are an integral part of these consolidated financial statements.

3
Table of Contents             

FREEPORT-McMoRan INC.
CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited)

 
Three Months Ended
 
Nine Months Ended
 
September 30,
 
September 30,
 
2016
 
2015
 
2016
 
2015
 
(In millions, except per share amounts)
Revenues
$
3,877

 
$
3,382

 
$
10,453

 
$
11,091

Cost of sales:
 
 
 
 
 
 
 
Production and delivery
2,509

 
2,595

 
7,957

 
7,862

Depreciation, depletion and amortization
643

 
823

 
1,937

 
2,522

Impairment of oil and gas properties
239

 
3,652

 
4,317

 
9,442

Metals inventory adjustments
20

 
91

 
27

 
154

Total cost of sales
3,411


7,161


14,238

 
19,980

Selling, general and administrative expenses
110

 
122

 
408

 
421

Mining exploration and research expenses
13

 
26

 
46

 
83

Environmental obligations and shutdown (credits) costs
(3
)
 
37

 
18

 
61

Net gain on sales of assets
(13
)
 
—

 
(762
)
 
(39
)
Total costs and expenses
3,518

 
7,346

 
13,948

 
20,506

Operating income (loss)
359

 
(3,964
)
 
(3,495
)
 
(9,415
)
Interest expense, net
(187
)
 
(157
)
 
(574
)
 
(438
)
Net gain on early extinguishment of debt
15

 
—

 
51

 
—

Other (expense) income, net
(10
)
 
(41
)
 
54

 
2

Income (loss) before income taxes and equity in affiliated companies' net earnings (losses)
177

 
(4,162
)
 
(3,964
)
 
(9,851
)
Benefit from (provision for) income taxes
114

 
349

 
(79
)
 
1,762

Equity in affiliated companies’ net earnings (losses)
1

 
(2
)
 
9

 
(1
)
Net income (loss) from continuing operations
292

 
(3,815
)
 
(4,034
)
 
(8,090
)
Net (loss) income from discontinued operations
(6
)
 
25

 
(191
)
 
95

Net income (loss)
286

 
(3,790
)
 
(4,225
)
 
(7,995
)
Net income attributable to noncontrolling interests:
 
 
 
 
 
 
 
Continuing operations
(37
)
 
(13
)
 
(146
)
 
(61
)
Discontinued operations
(22
)
 
(16
)
 
(44
)
 
(68
)
Preferred dividends attributable to redeemable noncontrolling interest
(10
)
 
(11
)
 
(31
)
 
(31
)
Net income (loss) attributable to common stockholders
$
217

 
$
(3,830
)
 
$
(4,446
)
 
$
(8,155
)
 
 
 
 
 
 
 
 
Basic and diluted net income (loss) per share attributable to common stockholders:
 
 
 
 
 
 
 
Continuing operations
$
0.18

 
$
(3.59
)
 
$
(3.27
)
 
$
(7.80
)
Discontinued operations
(0.02
)
 
0.01

 
(0.18
)
 
0.03

 
$
0.16

 
$
(3.58
)
 
$
(3.45
)
 
$
(7.77
)
 
 
 
 
 
 
 
 
Weighted-average common shares outstanding:
 
 
 
 
 
 
 
Basic
1,346

 
1,071

 
1,289

 
1,050

Diluted
1,351

 
1,071

 
1,289

 
1,050

 
 
 
 
 
 
 
 
Dividends declared per share of common stock
$
—

 
$
0.0500

 
$
—

 
$
0.2605

 
The accompanying notes are an integral part of these consolidated financial statements.


4
Table of Contents             

FREEPORT-McMoRan INC.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS) (Unaudited)

 
 
Three Months Ended
 
Nine Months Ended
 
 
September 30,
 
September 30,
 
 
2016
 
2015
 
2016
 
2015
 
 
(In millions)
Net income (loss)
 
$
286

 
$
(3,790
)
 
$
(4,225
)
 
$
(7,995
)
 
 
 
 
 
 
 
 
 
Other comprehensive income, net of taxes:
 
 
 
 
 
 
 
 
Unrealized gains on securities
 
2

 
—

 
3

 
—

Defined benefit plans:
 
 
 
 
 
 
 
 
Amortization of unrecognized amounts included in net periodic benefit costs
 
11

 
8

 
34

 
24

Foreign exchange (losses) gains
 
(1
)
 
7

 
(11
)
 
12

Other comprehensive income
 
12

 
15

 
26

 
36

 
 
 
 
 
 
 
 
 
Total comprehensive income (loss)
 
298

 
(3,775
)
 
(4,199
)
 
(7,959
)
Total comprehensive income attributable to noncontrolling interests
 
(59
)
 
(30
)
 
(189
)
 
(130
)
Preferred dividends attributable to redeemable noncontrolling interest
 
(10
)
 
(11
)
 
(31
)
 
(31
)
Total comprehensive income (loss) attributable to common stockholders
 
$
229

 
$
(3,816
)
 
$
(4,419
)
 
$
(8,120
)

The accompanying notes are an integral part of these consolidated financial statements.




5
Table of Contents             

FREEPORT-McMoRan INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
 
Nine Months Ended
 
 
September 30,
 
 
2016
 
2015
 
 
(In millions)
 
Cash flow from operating activities:
 
 
 
 
Net loss
$
(4,225
)
 
$
(7,995
)
 
Adjustments to reconcile net loss to net cash provided by operating activities:
 
 
 
 
Depreciation, depletion and amortization
2,017

 
2,717

 
Impairment of oil and gas properties
4,317

 
9,442

 
Non-cash oil and gas drillship settlements
606

 
—

 
Other asset impairments, inventory adjustments, restructuring and other
119

 
104

 
Metals inventory adjustments
27

 
154

 
Net gain on sales of assets
(762
)
 
(39
)
 
Net charges for environmental and asset retirement obligations, including accretion
149

 
174

 
Payments for environmental and asset retirement obligations
(190
)
 
(135
)
 
Net gain on early extinguishment of debt
(51
)
 
—

 
Deferred income taxes
(22
)
 
(1,926
)
 
Estimated loss on disposal of discontinued operations
182

 
—

 
Increase in long-term mill and leach stockpiles
(84
)
 
(183
)
 
Net gains on crude oil derivative contracts
—

 
(87
)
 
Other, net
48

 
40

 
Changes in working capital and other tax payments, excluding amounts from dispositions:
 
 
 
 
Accounts receivable
257

 
990

 
Inventories
251

 
83

 
Other current assets
(120
)
 
(13
)
 
Accounts payable and accrued liabilities
(80
)
 
(150
)
 
Accrued income taxes and changes in other tax payments
155

 
(568
)
 
Net cash provided by operating activities
2,594

 
2,608

 
 
 
 
 
 
Cash flow from investing activities:
 
 
 
 
Capital expenditures:
 
 
 
 
North America copper mines
(87
)
 
(308
)
 
South America
(332
)
 
(1,339
)
 
Indonesia
(715
)
 
(660
)
 
Molybdenum mines
(2
)
 
(10
)
 
United States oil and gas operations
(1,028
)
 
(2,430
)
 
Other
(145
)
 
(308
)
 
Net proceeds from sale of additional interest in Morenci
996

 
—

 
Net proceeds from sales of other assets
410

 
151

 
Other, net
9

 
(37
)
 
Net cash used in investing activities
(894
)
 
(4,941
)
 
 
 
 
 
 
Cash flow from financing activities:
 
 
 
 
Proceeds from debt
3,463

 
6,552

 
Repayments of debt
(4,539
)
 
(4,693
)
 
Net proceeds from sale of common stock
442

 
999

 
Cash dividends and distributions paid:
 
 
 
 
Common stock
(5
)
 
(547
)
 
Noncontrolling interests
(87
)
 
(89
)
 
Stock-based awards net payments, including excess tax benefit
(5
)
 
(8
)
 
Debt financing costs and other, net
(17
)
 
(7
)
 
Net cash (used in) provided by financing activities
(748
)
 
2,207

 
 
 
 
 
 
Net increase (decrease) in cash and cash equivalents
952

 
(126
)
 
(Increase) decrease in cash and cash equivalents in assets held for sale
(39
)
 
42

 
Cash and cash equivalents at beginning of year
195

 
317

 
Cash and cash equivalents at end of period
$
1,108

 
$
233

 
The accompanying notes are an integral part of these consolidated financial statements.

6
Table of Contents             

FREEPORT-McMoRan INC.
CONSOLIDATED STATEMENT OF EQUITY (Unaudited)

 
Stockholders’ Equity
 
 
 
 
 
Common Stock
 
 
 
Accum-ulated Deficit
 
Accumu-
lated
Other Compre-
hensive
Loss
 
Common Stock
Held in Treasury
 
Total
Stock-holders' Equity
 
 
 
 
 
Number
of
Shares
 
At Par
Value
 
Capital in
Excess of
Par Value
 
 
 
Number
of
Shares
 
At
Cost
 
 
Non-
controlling
Interests
 
Total
Equity
 
 
 
 
 
 
 
 
 
 
 
(In millions)
Balance at December 31, 2015
1,374

 
$
137

 
$
24,283

 
$
(12,387
)
 
$
(503
)
 
128

 
$
(3,702
)
 
$
7,828

 
$
4,216

 
$
12,044

Issuance of common stock
114

 
12

 
1,285

 
—

 
—

 
—

 
(3
)
 
1,294

 
—

 
1,294

Exercised and issued stock-based awards
3

 
—

 
—

 
—

 
—

 
—

 
—

 
—

 
—

 
—

Stock-based compensation
—

 
—

 
37

 
—

 
—

 
—

 
—

 
37

 
—

 
37

Reserve on tax benefit for stock-based awards
—

 
—

 
(4
)
 
—

 
—

 
—

 
—

 
(4
)
 
—

 
(4
)
Tender of shares for stock-based awards
—

 
—

 
—

 
—

 
—

 
1

 
(5
)
 
(5
)
 
—

 
(5
)
Dividends on common stock
—

 
—

 
—

 
1

 
—

 
—

 
—

 
1

 
—

 
1

Dividends to noncontrolling interests
—

 
—

 
—

 
—

 
—

 
—

 
—

 
—

 
(66
)
 
(66
)
Changes in noncontrolling interests
—

 
—

 
—

 
—

 
—

 
—

 
—

 
—

 
(5
)
 
(5
)
Net loss attributable to common stockholders
—

 
—

 
—

 
(4,446
)
 
—

 
—

 
—

 
(4,446
)
 
—

 
(4,446
)
Net income attributable to noncontrolling interests, including discontinued operations
—

 
—

 
—

 
—

 
—

 
—

 
—

 
—

 
190

 
190

Other comprehensive income (loss)
—

 
—

 
—

 
—

 
27

 
—

 
—

 
27

 
(1
)
 
26

Balance at September 30, 2016
1,491

 
$
149

 
$
25,601

 
$
(16,832
)
 
$
(476
)
 
129

 
$
(3,710
)
 
$
4,732

 
$
4,334

 
$
9,066

 
The accompanying notes are an integral part of these consolidated financial statements.


7
Table of Contents             

FREEPORT-McMoRan INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

NOTE 1. GENERAL INFORMATION

The accompanying unaudited consolidated financial statements have been prepared in accordance with the instructions to Form 10-Q and do not include all information and disclosures required by generally accepted accounting principles (GAAP) in the United States (U.S.). Therefore, this information should be read in conjunction with Freeport-McMoRan Inc.'s (FCX) consolidated financial statements and notes contained in its annual report on Form 10-K for the year ended December 31, 2015, as recast in the Form 8-K filed on November 9, 2016 , for the presentation of TF Holdings Limited (TFHL) as discontinued operations. The information furnished herein reflects all adjustments that are, in the opinion of management, necessary for a fair statement of the results for the interim periods reported. With the exception of the accounting for discontinued operations, and the oil and gas properties impairment discussed below and the related tax charges to establish a deferred tax valuation allowance (refer to Note 5 ), all such adjustments are, in the opinion of management, of a normal recurring nature. As a result of FCX's second-quarter 2016 agreement to sell its interest in TFHL, FCX has reported TFHL as discontinued operations for all periods presented in the unaudited consolidated financial statements (refer to Note 2). Operating results for the nine -month period ended September 30, 2016 , are not necessarily indicative of the results that may be expected for the year ending December 31, 2016 .

Oil and Gas Properties. Under the U.S. Securities and Exchange Commission's (SEC) full cost accounting rules, FCX reviews the carrying value of its oil and gas properties in the full cost pool for impairment each quarter on a country-by-country basis. Under these rules, capitalized costs of oil and gas properties (net of accumulated depreciation, depletion, amortization and impairment, and related deferred income taxes) for each cost center may not exceed a “ceiling” equal to:
•
the present value, discounted at 10 percent , of estimated future net cash flows from the related proved oil and gas reserves, net of estimated future income taxes; plus
•
the cost of the related unproved properties not being amortized; plus
•
the lower of cost or estimated fair value of the related unproved properties included in the costs being amortized (net of related tax effects).

These rules require that FCX price its future oil and gas production at the twelve-month average of the first-day-of-the-month historical reference prices as adjusted for location and quality differentials. FCX's reference prices are West Texas Intermediate (WTI) for oil and the Henry Hub spot price for natural gas. Such prices are utilized except where different prices are fixed and determinable from applicable contracts for the remaining term of those contracts. The estimated future net cash flows also exclude future cash outflows associated with settling asset retirement obligations included in the net book value of the oil and gas properties. The rules require an impairment if the capitalized costs exceed this “ceiling.”

In addition, following the evaluation of alternatives for the oil and gas business and the then-current limitations and cost of capital available for future drilling, FCX Oil & Gas LLC (FM O&G, a wholly owned subsidiary of FCX formerly known as FCX Oil & Gas Inc.) determined in first-quarter 2016 that the carrying values of certain of its unevaluated properties were impaired. For the first nine months of 2016 , FM O&G transferred $3.2 billion of costs (including $3.1 billion in first-quarter 2016) associated with unevaluated properties to the full cost pool, mostly reflecting impairment of the carrying values of unevaluated properties. Combined with the impact of the reduction in twelve-month historical prices and reserve revisions, net capitalized costs exceeded the related ceiling test limitation under full cost accounting rules, which resulted in the recognition of a $239 million impairment charge in third-quarter 2016 and $4.3 billion for the first nine months of 2016 . The twelve-month average price (using WTI as the reference oil price) was $41.68 per barrel at September 30, 2016 , compared with $43.12 per barrel at June 30, 2016.


8
Table of Contents             

NOTE 2. DISPOSITIONS

Timok. On May 2, 2016 , Freeport Minerals Corporation (FMC), a wholly owned subsidiary of FCX, sold an interest in the Timok exploration project in Serbia to Reservoir Minerals Inc. for consideration of $135 million in cash and contingent consideration of up to $107 million payable to FCX in stages upon achievement of defined development milestones (no amounts are recorded for the contingent consideration as of September 30, 2016 ). As a result of this transaction, FCX recorded a gain of $133 million in second-quarter 2016.

Morenci . On May 31, 2016 , FCX sold a 13 percent undivided interest in its Morenci unincorporated joint venture to Sumitomo Metal Mining Co., Ltd. (SMM) for $1.0 billion in cash. FCX recorded a $576 million gain on the transaction and used losses to offset cash taxes on the transaction. Proceeds from the transaction were used to repay borrowings under FCX's unsecured bank term loan (Term Loan) and revolving credit facility.

The Morenci unincorporated joint venture was owned 85 percent by FCX and 15 percent by Sumitomo Metal Mining Arizona Inc. (Sumitomo). As a result of the transaction, the unincorporated joint venture is owned 72 percent by FCX, 15 percent by Sumitomo and 13 percent by an affiliate that is wholly owned by SMM.

Oil and Gas Operations. On June 17, 2016 , FM O&G sold certain oil and gas royalty interests to Black Stone Minerals, L.P. for cash consideration of $102 million , before closing adjustments. In addition, on July 25, 2016 , FM O&G sold its Haynesville shale assets for cash consideration of $87 million , before closing adjustments. Under the full cost accounting rules, the proceeds from these transactions were recorded as a reduction of capitalized oil and gas properties, with no gain or loss recognition.

On September 12, 2016 , FM O&G entered into an agreement to sell its Deepwater Gulf of Mexico (GOM) properties to Anadarko Petroleum Corporation (Anadarko) for cash consideration of $2.0 billion (before closing adjustments) and up to $150 million in contingent payments. The contingent payments would be received over time as Anadarko realizes future cash flows in connection with FM O&G’s third-party production handling agreement for the Marlin platform. Anadarko will assume future abandonment obligations associated with these properties. The transaction has an effective date of August 1, 2016 , and is expected to close in fourth-quarter 2016 , subject to customary closing conditions. Under the full cost accounting rules, this transaction will require gain (loss) recognition because of its significance to the full cost pool, but the amount is not expected to be material. In accordance with the mandatory prepayment provisions of FCX's Term Loan, one half of the proceeds from this transaction must be applied toward repaying FCX's Term Loan.

In connection with the sale of the Deepwater GOM properties, FM O&G entered into an agreement to amend the terms of the Plains Offshore Operations Inc. (Plains Offshore, a subsidiary of FM O&G) preferred stock that is reported as redeemable noncontrolling interest on FCX's consolidated balance sheets. The amendment provides FM O&G the right to call these securities any time between September 12, 2016, and January 10, 2017, for $582 million . FM O&G expects to exercise this option at the time the Deepwater GOM sale closes. If the option is not exercised, the terms will revert to the original purchase agreement as discussed in Note 2 of FCX's annual report on Form 10-K for the year ended December 31, 2015, as recast in the Form 8-K filed on November 9, 2016 . No other terms of the Plains Offshore preferred stock were changed by this amendment.

On October 14, 2016 , FM O&G entered into an agreement to sell its onshore California oil and gas properties to Sentinel Peak Resources California LLC (Sentinel) for cash consideration of $592 million (before closing adjustments) and contingent consideration of up to $150 million , consisting of $50 million per year for 2018, 2019 and 2020 if the price of Brent crude oil averages $70 per barrel or higher in each of these calendar years. Sentinel will assume future abandonment obligations associated with the properties. The transaction has an effective date of July 1, 2016, and is expected to close in fourth-quarter 2016, subject to customary closing conditions. Under the full cost accounting rules, this transaction will require gain (loss) recognition because of its significance to the full cost pool, but the amount is not expected to be material. In accordance with the mandatory prepayment provisions of FCX's Term Loan, one half of the proceeds from this transaction must be applied toward repaying FCX's Term Loan.


9
Table of Contents             

As part of the terms to sell the onshore California oil and gas properties, FM O&G entered into derivative contracts during October 2016 for a portion of the projected sales of oil from the properties and projected purchases of natural gas. Sentinel will assume these contracts upon completion of the sale. These derivative contracts consist of crude oil swaps and costless collars, and natural gas swaps, none of which were designated as hedges for accounting purposes. The derivatives will be recorded at fair value with the mark-to-market gains and losses recorded in revenues (oil contracts) and production costs (natural gas contracts).
As of October 31, 2016, FM O&G had hedged (i) approximately 72 percent of its forecasted crude oil sales through 2020 with fixed-rate swaps for 19.4 million barrels from November 2016 through December 2020 at a price of $56.04 per barrel and costless collars for 5.2 million barrels from January 2018 through December 2020 at a put price of $50.00 per barrel and a call price of $63.69 per barrel, and (ii) approximately 48 percent of its forecasted natural gas purchases through 2020 with fixed-rate swaps for 28.9 million British thermal units (MMBtu) from November 2016 through December 2020 at a price of $3.1445 per MMBtu related to its onshore California properties that are being sold to Sentinel.

TF Holdings Limited - Discontinued Operations. On May 9, 2016 , FCX entered into a definitive agreement to sell its 70 percent interest in TFHL to China Molybdenum Co., Ltd. (CMOC) for $2.65 billion in cash and contingent consideration of up to $120 million in cash, consisting of $60 million if the average copper price exceeds $3.50 per pound and $60 million if the average cobalt price exceeds $20 per pound, both during calendar years 2018 and 2019 (no amounts were recorded for the contingent consideration as of September 30, 2016). Through its interest in TFHL, FCX has an effective 56 percent interest in Tenke Fungurume Mining S.A. (TFM or Tenke) located in the Democratic Republic of Congo (DRC). The closing of the transaction is currently subject to customary closing conditions, including the resolution of the right of first offer (which expires on November 15, 2016 ) of Lundin Mining Corporation (which holds a 30 percent interest in TFHL), and the parties are working towards a satisfactory resolution in order to complete the transaction in fourth-quarter 2016. In addition, La Générale des Carrières et des Mines (Gécamines), which is wholly owned by the DRC government and holds a 20 percent non-dilutable interest in TFM, recently filed an arbitration proceeding with the International Chamber of Commerce (ICC) International Court of Arbitration challenging the transaction; however, FCX believes that Gécamines’ claims have no legal basis. In accordance with the mandatory prepayment provisions of FCX's Term Loan, one half of the proceeds from this transaction will be applied toward repaying FCX's Term Loan.

In accordance with accounting guidance, FCX has reported the results of operations of TFHL as discontinued operations in the consolidated statements of operations and presented the assets and liabilities of TFHL as held for sale in the consolidated balance sheets for all periods presented. The consolidated statements of comprehensive income (loss) were not impacted by discontinued operations as TFHL did not have any other comprehensive income (loss), and the consolidated statements of cash flows are reported on a combined basis without separately presenting discontinued operations.


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Table of Contents             

The carrying amounts of TFHL's major classes of assets, liabilities and noncontrolling interests, which are presented as held for sale in the consolidated balance sheets, follow (in millions):
 
September 30,
2016
 
December 31, 2015
 
Assets
 
 
 
 
Cash and cash equivalents
$
68

 
$
29

 
Inventories
1,129

 
584

 
Receivables and other current assets
140

 
131

 
Property, plant, equipment and mining development costs, net
3,062

 
—

 
Other assets
250

 
—

 
Total current assets held for sale
$
4,649

a  
$
744

 
 
 
 
 
 
Property, plant, equipment and mining development costs, net
$
—

 
$
3,261

 
Inventories
—

 
608

 
Other assets
—

 
241

 
Total long-term assets held for sale
$
—

 
$
4,110

a  
 
 
 
 
 
Liabilities
 
 
 
 
Accounts payable and accrued liabilities
$
84

 
$
108

 
Deferred income taxes
691

 
—

 
Asset retirement obligations and other liabilities
46

 
—

 
Total current liabilities held for sale
$
821

 
$
108

 
 
 
 
 
 
Deferred income taxes
$
—

 
$
681

 
Asset retirement obligations and other liabilities
—

 
37

 
Total long-term liabilities held for sale
$
—

 
$
718

 
 
 
 
 
 
Noncontrolling interests
$
1,192

 
$
1,178

 
a.
Amount differs from the totals on FCX's consolidated balance sheets because of other assets held for sale.


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Table of Contents             

Net (loss) income from discontinued operations in the consolidated statements of operations consists of the following (in millions):
 
Three Months Ended
 
Nine Months Ended
 
September 30,
 
September 30,
 
2016
 
2015
 
2016
 
2015
Revenues a
$
261

 
$
299

 
$
819

 
$
991

Costs and expenses:
 
 
 
 
 
 
 
Production and delivery costs
248

 
207

 
730

 
637

Depreciation, depletion and amortization
—

b  
65

 
80

b  
195

Interest expense allocated from parent c
12

 
6

 
33

 
20

Other costs and expenses, net
4

 
7

 
10

 
24

(Loss) income before income taxes and estimated loss on disposal
(3
)
 
14

 
(34
)
 
115

Estimated loss on disposal d
(5
)
 
—

 
(182
)
 
—

Net (loss) income before income taxes
(8
)
 
14

 
(216
)
 
115

Benefit from (provision for) income taxes
2

 
11

 
25

 
(20
)
Net (loss) income from discontinued operations
$
(6
)
 
$
25

 
$
(191
)
 
$
95

a.
In accordance with accounting guidance, amounts are net of eliminations of intercompany sales totaling $53 million in third-quarter 2016, $29 million in third-quarter 2015, $125 million for the first nine months of 2016 and $98 million for the first nine months of 2015.
b.
In accordance with accounting guidance, depreciation, depletion and amortization is not recognized subsequent to classification as assets held for sale.
c.
In accordance with accounting guidance, interest associated with FCX's Term Loan that will be required to be repaid as a result of the sale of TFHL has been allocated to discontinued operations.
d.
In accordance with accounting guidance, an estimated loss on disposal was recorded, which will be adjusted through closing of the transaction.

Cash flows from discontinued operations included in the consolidated statements of cash flows follow (in millions):
 
Nine Months Ended
 
September 30,
 
2016
 
2015
Net cash provided by operating activities
$
213

 
$
186

Net cash used in investing activities
(71
)
 
(173
)
Net cash used in financing activities
(103
)
 
(55
)
Increase (decrease) in cash and cash equivalents in assets held for sale
$
39

 
$
(42
)

FCX has also agreed to negotiate exclusively with CMOC (until December 31, 2016) to enter into a definitive agreement to sell its interest in Freeport Cobalt for $100 million and the Kisanfu exploration project in the DRC for $50 million in separate transactions. Freeport Cobalt includes the large-scale cobalt refinery in Kokkola, Finland, and the related sales and marketing business, in which FCX owns an effective 56 percent interest. Kisanfu is a copper and cobalt exploration project, located near Tenke, in which FCX holds a 100 percent interest.

NOTE 3. EARNINGS PER SHARE

FCX’s basic net income (loss) per share attributable to common stockholders was computed by dividing net income (loss) attributable to common stockholders by the weighted-average shares of common stock outstanding during the period. Diluted net income per share of common stock was computed using the most dilutive of (a) the two-class method or (b) the treasury stock method. Under the two-class method, net income is allocated to each class of common stock and participating securities as if all of the earnings for the period had been distributed. FCX’s participating securities consist of vested restricted stock units (RSUs) for which the underlying common shares are not yet issued and entitle holders to non-forfeitable dividends.


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Table of Contents             

A reconciliation of net income (loss) and weighted-average shares of common stock outstanding for purposes of calculating basic and diluted net income (loss) per share follows (in millions, except per share amounts):
 
Three Months Ended
 
Nine Months Ended
 
 
September 30,
 
September 30,
 
 
2016
 
2015
 
2016
 
2015
 
Net income (loss) from continuing operations
$
292

 
$
(3,815
)
 
$
(4,034
)
 
$
(8,090
)
 
Net income from continuing operations attributable to noncontrolling interests
(37
)
 
(13
)
 
(146
)
 
(61
)
 
Preferred dividends on redeemable noncontrolling interest
(10
)
 
(11
)
 
(31
)
 
(31
)
 
Undistributed earnings allocated to participating securities
(3
)
 
(3
)
 
(3
)
 
(3
)
 
Net income (loss) from continuing operations attributable to common stockholders
$
242

 
$
(3,842
)
 
$
(4,214
)
 
$
(8,185
)
 
 
 
 
 
 
 
 
 
 
Net (loss) income from discontinued operations
$
(6
)
 
$
25

 
$
(191
)
 
$
95

 
Net income from discontinued operations attributable to noncontrolling interests
(22
)
 
(16
)
 
(44
)
 
(68
)
 
Net (loss) income from discontinued operations attributable to common stockholders
$
(28
)
 
$
9

 
$
(235
)
 
$
27

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income (loss) attributable to common stockholders
$
214

 
$
(3,833
)
 
$
(4,449
)
 
$
(8,158
)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Basic weighted-average shares of common stock outstanding
1,346

 
1,071

 
1,289

 
1,050

 
Add shares issuable upon exercise or vesting of dilutive stock options and RSUs
5

a  
—

a  
—

a  
—

a  
Diluted weighted-average shares of common stock outstanding
1,351

 
1,071

 
1,289

 
1,050

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Basic and diluted net income (loss) per share attributable to common stockholders:
 
 
 
 
 
 
 
 
Continuing operations
$
0.18

 
$
(3.59
)
 
$
(3.27
)
 
$
(7.80
)
 
Discontinued operations
(0.02
)
 
0.01

 
(0.18
)
 
0.03

 
 
$
0.16

 
$
(3.58
)
 
$
(3.45
)
 
$
(7.77
)
 
a.
Excludes 6 million shares of common stock in third-quarter 2016 , 7 million in third-quarter 2015 , 12 million for the first nine months of 2016 and 10 million for the first nine months of 2015 associated with outstanding stock options with exercise prices less than the average market price of FCX's common stock and RSUs that were anti-dilutive.

Outstanding stock options with exercise prices greater than the average market price of FCX’s common stock during the period are excluded from the computation of diluted net income per share of common stock. Stock options for 46 million shares of common stock were excluded for both the third quarter and first nine months of 2016 , 48 million in third-quarter 2015 and 45 million for the first nine months of 2015 .



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Table of Contents             

NOTE 4. INVENTORIES, INCLUDING LONG-TERM MILL AND LEACH STOCKPILES

The components of inventories follow (in millions):
 
September 30,
2016
 
December 31, 2015
 
Current inventories:
 
 
 
 
Total materials and supplies, net a
$
1,348

 
$
1,594

 
 
 
 
 
 
Mill stockpiles
$
172

 
$
137

 
Leach stockpiles
1,140

 
1,402

 
Total current mill and leach stockpiles
$
1,312

 
$
1,539

 
 
 
 
 
 
Raw materials (primarily concentrate)
$
209

 
$
220

 
Work-in-process
94

 
108

 
Finished goods
722

 
743

 
Total product inventories
$
1,025

 
$
1,071

 
 
 
 
 
 
Long-term inventories:
 
 
 
 
Mill stockpiles
$
580

 
$
480

 
Leach stockpiles
1,143

 
1,183

 
Total long-term mill and leach stockpiles b
$
1,723

 
$
1,663

 
a.
Materials and supplies inventory was net of obsolescence reserves totaling $31 million at September 30, 2016 , and $26 million at December 31, 2015 .
b.
Estimated metals in stockpiles not expected to be recovered within the next 12 months.

FCX recorded charges for adjustments to metals inventory carrying values of $20 million in third-quarter 2016 and $27 million for the first nine months of 2016, primarily for molybdenum because of lower molybdenum prices and higher average inventory costs, and $91 million in third-quarter 2015 and $154 million for the first nine months of 2015, primarily because of lower molybdenum and copper prices (refer to Note 10 for 2015 inventory adjustments by business segment).

NOTE 5. INCOME TAXES

Variations in the relative proportions of jurisdictional income result in fluctuations to FCX's consolidated effective income tax rate. FCX’s consolidated effective income tax rate was (2) percent for the first nine months of 2016 and 18 percent for the first nine months of 2015 . Geographic sources of FCX's benefit from (provision for) income taxes follow (in millions):
 
Three Months Ended
 
Nine Months Ended
 
 
September 30,
 
September 30,
 
 
2016
 
2015
 
2016
 
2015
 
U.S. operations
$
331

 
$
356

 
$
293

 
$
2,020

 
International operations
(217
)
 
(7
)
 
(372
)
 
(258
)
 
Total
$
114

 
$
349

 
$
(79
)
 
$
1,762

 

As a result of the impairment to U.S. oil and gas properties, FCX recorded tax charges of $1.6 billion for the first nine months of 2016 and $2.0 billion for the first nine months of 2015 to establish a valuation allowance primarily against U.S. federal and state deferred tax assets that will not generate a future benefit. In addition, FCX recorded net tax credits of $290 million for the first nine months of 2016 associated with alternative minimum tax credits, changes to valuation allowances and net operating loss carryback claims. Excluding these net charges, FCX's consolidated effective income tax rate was 32 percent for the first nine months of 2016 and 37 percent for the first nine months of 2015 .


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Table of Contents             

As of December 31, 2015 , FCX had determined that undistributed earnings of TFM were reinvested indefinitely and were allocated toward specifically identifiable needs of the local operations. In connection with the announced sale of its interest in TFHL, management concluded that its share of undistributed earnings of TFM were no longer reinvested indefinitely. This change did not have a material impact on FCX's results of operations.

Applicable accounting standards require that FCX estimate an annual effective tax rate and apply that rate to each year-to-date interim period. However, because FCX’s estimated effective income tax rate for 2016 is highly variable ( i.e. , minor changes in FCX’s estimated annual (loss) income would have a significant effect on the consolidated annual effective income tax rate), the actual effective income tax rate for the year-to-date reporting period represents a better estimate of the consolidated annual effective income tax rate. Accordingly, for the nine months ended September 30, 2016 , the actual consolidated effective income tax rate was used to determine FCX’s income tax provision.

NOTE 6. DEBT AND EQUITY

Debt. The components of debt follow (in millions):
 
September 30,
2016
 
December 31, 2015
Term Loan
$
2,448

 
$
3,032

Revolving credit facility
—

 
—

Cerro Verde credit facility
1,612

 
1,781

Cerro Verde shareholder loans
261

 
259

Lines of credit
129

 
442

Senior notes and debentures:
 
 
 
Issued by FCX
11,552

 
11,908

Issued by Freeport-McMoRan Oil & Gas LLC (FM O&G LLC)
2,517

 
2,539

Issued by FMC
359

 
359

Other (including equipment capital leases and other short-term borrowings)
104

 
108

Total debt a
18,982

 
20,428

Less current portion of debt
(802
)
 
(649
)
Long-term debt
$
18,180

 
$
19,779

a.
Includes additions for unamortized fair value adjustments totaling $187 million at September 30, 2016, and $210 million at December 31, 2015, and net reductions for unamortized debt issuance costs and unamortized discounts of $111 million at September 30, 2016, and $129 million at December 31, 2015.

On February 26, 2016 , FCX amended its revolving credit facility and Term Loan. The amendments included (i) modification of the maximum leverage ratio and the minimum interest expense coverage ratio, and (ii) the addition of a springing collateral and guarantee trigger. In addition, the commitment under the revolving credit facility was reduced from $4.0 billion to $3.5 billion , and the mandatory prepayment provision was modified under the Term Loan, which requires one-half of proceeds from asset sales to be applied toward repaying the Term Loan. Refer to Note 18 of FCX's annual report on Form 10-K for the year ended December 31, 2015, as recast in the Form 8-K filed on November 9, 2016 , for further discussion of these amendments.

In second-quarter 2016, FCX prepaid $568 million on the Term Loan with a portion of the proceeds from the sale of the 13 percent undivided interest in Morenci and the interest in the Timok exploration project.

With closed and pending asset sales exceeding the required $3 billion threshold under FCX's revolving credit facility and Term Loan as of June 30, 2016, the springing collateral requirement under these agreements was not triggered on that date. Since the closing of the transactions necessary to reach the $3 billion threshold is not expected to occur until fourth-quarter 2016, FCX was required to pledge its shares in FMC on June 30, 2016, which will be released upon closing of transactions necessary to reach the required threshold. If the required $3 billion threshold for asset sale closings has not been reached by December 31, 2016, the springing collateral requirement will be triggered.


15
Table of Contents             

At September 30, 2016 , there were no borrowings outstanding and $43 million in letters of credit issued under FCX's revolving credit facility, resulting in availability of approximately $3.5 billion , of which approximately $1.5 billion could be used for additional letters of credit.

Early Extinguishment of Debt
During the second and third quarters of 2016, FCX redeemed certain senior notes in exchange for its common stock (refer to the discussion under "Equity" in this note). A summary of these debt extinguishments follows (in millions):
 
Principal Amount
 
Discounts/Deferred Debt Issuance Costs
 
Book Value
 
Redemption Value
 
Gain
3.55% Senior Notes due 2022
$
108

 
$
1

 
$
107

 
$
96

 
$
11

3.875% Senior Notes due 2023
77

 
—

 
77

 
68

 
9

5.40% Senior Notes due 2034
50

 
1

 
49

 
41

 
8

5.450% Senior Notes due 2043
134

 
2

 
132

 
106

 
26

Total
$
369

 
$
4

 
$
365

 
$
311

 
$
54


In addition, FCX recorded a loss on early extinguishment of debt totaling $3 million associated with the modifications to its Term Loan and revolving credit facility in first-quarter 2016.

Interest Expense, Net
Consolidated interest expense from continuing operations (excluding capitalized interest) totaled $211 million in both the third quarter of 2016 and 2015 , $647 million for the first nine months of 2016 and $622 million for the first nine months of 2015 . Capitalized interest added to property, plant, equipment and mining development costs, net, totaled $24 million in third-quarter 2016 , $42 million in third-quarter 2015 , $66 million for the first nine months of 2016 and $134 million for the first nine months of 2015 . Capitalized interest added to oil and gas properties not subject to amortization totaled $12 million in third-quarter 2015 ( none in third-quarter 2016), $7 million for the first nine months of 2016 and $50 million for the first nine months of 2015 .

Equity. In 2015 and through January 5, 2016, FCX generated approximately $2 billion in gross proceeds (proceeds of $1.97 billion net of $20 million of commissions and expenses) through the sale of 210 million shares of common stock ( 206 million shares through December 31, 2015, and 4 million shares (with a value of $32 million ) in January 2016) under its 2015 at-the-market equity programs. At October 31, 2016, FCX has approximately $12 million remaining under these at-the-market equity programs. FCX used the proceeds to repay outstanding indebtedness.

On July 27, 2016 , FCX commenced a new registered at-the-market equity offering of up to $1.5 billion of common stock. Through September 30, 2016, FCX sold 33.5 million shares of its common stock at an average price of $12.39 per share, which generated gross proceeds of $415 million (net proceeds of $411 million after $4 million of commissions and expenses). From October 1, 2016, through November 8, 2016 , FCX sold 26.3 million shares of its common stock at an average price of $11.54 per share, which generated gross proceeds of $304 million (net proceeds of $301 million after $3 million of commissions and expenses). FCX will use the proceeds to repay outstanding indebtedness.

During second-quarter 2016, FCX issued 48 million shares of its common stock (with a value of $540 million , excluding $5 million of commissions paid by FCX) in connection with the settlement of two drilling rig contracts (refer to Note 9 for further discussion).

During second-quarter 2016 and through August 4, 2016, FCX negotiated private exchange transactions exempt from registration under the Securities Act of 1933, as amended, whereby 28 million shares of FCX's common stock were issued (with an aggregate value of $311 million ), in exchange for $369 million principal amount of FCX’s senior notes.



16
Table of Contents             

NOTE 7. FINANCIAL INSTRUMENTS

FCX does not purchase, hold or sell derivative financial instruments unless there is an existing asset or obligation, or it anticipates a future activity that is likely to occur and will result in exposure to market risks, which FCX intends to offset or mitigate. FCX does not enter into any derivative financial instruments for speculative purposes, but has entered into derivative financial instruments in limited instances to achieve specific objectives. These objectives principally relate to managing risks associated with commodity price changes, foreign currency exchange rates and interest rates.

Commodity Contracts.  From time to time, FCX has entered into derivative contracts to hedge the market risk associated with fluctuations in the prices of commodities it purchases and sells. Derivative financial instruments used by FCX to manage its risks do not contain credit risk-related contingent provisions. As of September 30, 2016 , and December 31, 2015 , FCX had no price protection contracts relating to its mine production or future sales of oil and gas. In connection with the agreement to sell FM O&G's onshore California properties, FCX entered into derivative contracts for oil and gas (see Note 2). A discussion of FCX’s derivative contracts and programs, except for the oil and gas derivative contracts discussed in Note 2, follows.

Derivatives Designated as Hedging Instruments – Fair Value Hedges
Copper Futures and Swap Contracts. Some of FCX’s U.S. copper rod customers request a fixed market price instead of the Commodity Exchange Inc. (COMEX), a division of NYMEX, average copper price in the month of shipment. FCX hedges this price exposure in a manner that allows it to receive the COMEX average price in the month of shipment while the customers pay the fixed price they requested. FCX accomplishes this by entering into copper futures or swap contracts. Hedging gains or losses from these copper futures and swap contracts are recorded in revenues. FCX did not have any significant gains or losses during the nine -month periods ended September 30, 2016 and 2015 , resulting from hedge ineffectiveness. At September 30, 2016 , FCX held copper futures and swap contracts that qualified for hedge accounting for 53 million pounds at an average contract price of $2.18  per pound, with maturities through April 2018 .

A summary of gains (losses) recognized in revenues for derivative financial instruments related to commodity contracts that are designated and qualify as fair value hedge transactions, along with the unrealized gains (losses) on the related hedged item follows (in millions):
 
Three Months Ended
 
Nine Months Ended
 
September 30,
 
September 30,
 
2016
 
2015
 
2016
 
2015
Copper futures and swap contracts:
 
 
 
 
 
 
 
Unrealized gains (losses):
 
 
 
 
 
 
 
Derivative financial instruments
$
1

 
$
(2
)
 
$
11

 
$
—

Hedged item – firm sales commitments
(1
)
 
2

 
(11
)
 
—

 
 
 
 
 
 
 
 
Realized losses:
 
 
 
 
 
 
 
Matured derivative financial instruments
—

 
(12
)
 
(8
)
 
(23
)


17
Table of Contents             

Derivatives Not Designated as Hedging Instruments
Embedded Derivatives. As described in Note 1 to FCX's annual report on Form 10-K for the year ended December 31, 2015, as recast in the Form 8-K filed on November 9, 2016 , under “Revenue Recognition,” certain FCX copper concentrate, copper cathode and gold sales contracts provide for provisional pricing primarily based on the London Metal Exchange (LME) copper price or the COMEX copper price and the London Bullion Market Association (London) gold price at the time of shipment as specified in the contract. Similarly, FCX purchases copper under contracts that provide for provisional pricing. FCX applies the normal purchases and normal sales scope exception in accordance with derivatives and hedge accounting guidance to the host sales agreements since the contracts do not allow for net settlement and always result in physical delivery. Sales and purchases with a provisional sales price contain an embedded derivative ( i.e. , the price settlement mechanism is settled after the time of delivery) that is required to be bifurcated from the host contract. The host contract is the sale or purchase of the metals contained in the concentrate or cathode at the then-current LME or COMEX copper price or the London gold price as defined in the contract. Mark-to-market price fluctuations from these embedded derivatives related to continuing operations are recorded through the settlement date and are reflected in revenues for sales contracts and in cost of sales as production and delivery costs for purchase contracts. Mark-to-market price fluctuations associated with embedded derivatives for discontinued operations, which were minimal, are included in discontinued operations for all periods presented in these financial statements.

A summary of FCX’s embedded derivatives at September 30, 2016 , follows:
 
Open Positions
 
Average Price
Per Unit
 
Maturities Through
 
 
Contract
 
Market
 
Embedded derivatives in provisional sales contracts:
 
 
 
 
 
 
 
Copper (millions of pounds)
752

 
$
2.15

 
$
2.21

 
February 2017
Gold (thousands of ounces)
162

 
1,329

 
1,328

 
January 2017
Embedded derivatives in provisional purchase contracts:
 
 
 
 
 
 
 
Copper (millions of pounds)
133

 
2.16

 
2.20

 
January 2017

Crude Oil Contracts. As a result of the acquisition of the oil and gas business, FCX had derivative contracts in 2015 that consisted of crude oil options. These derivatives were not designated as hedging instruments and were recorded at fair value with the mark-to-market gains and losses recorded in revenues. The crude oil options were entered into to protect the realized price of a portion of expected future sales in order to limit the effects of crude oil price decreases. The remaining contracts matured in 2015.

Copper Forward Contracts. Atlantic Copper, FCX's wholly owned smelting and refining unit in Spain, enters into copper forward contracts designed to hedge its copper price risk whenever its physical purchases and sales pricing periods do not match. These economic hedge transactions are intended to hedge against changes in copper prices, with the mark-to-market hedging gains or losses recorded in cost of sales. At September 30, 2016 , Atlantic Copper held net copper forward purchase contracts for 10 million  pounds at an average contract price of $2.17 per pound, with maturities through November 2016 .

Summary of Gains (Losses). A summary of the realized and unrealized gains (losses) recognized in FCX's income (loss) before income taxes and equity in affiliated companies’ net earnings (losses) for commodity contracts that do not qualify as hedge transactions, including embedded derivatives, follows (in millions):
 
Three Months Ended
 
Nine Months Ended
 
September 30,
 
September 30,
 
2016
 
2015
 
2016
 
2015
Embedded derivatives in provisional copper and gold
 
 
 
 
 
 
 
sales contracts a
$
12

 
$
(155
)
 
$
88

 
$
(299
)
Copper forward contracts b
(1
)
 
(8
)
 
4

 
(15
)
Crude oil options a
—

 
29

 
—

 
87

a.
Amounts recorded in revenues. 
b.
Amounts recorded in cost of sales as production and delivery costs.


18
Table of Contents             

Unsettled Derivative Financial Instruments
A summary of the fair values of unsettled commodity derivative financial instruments follows (in millions):
 
 
September 30,
2016
 
December 31, 2015
Commodity Derivative Assets:
 
 
 
 
Derivatives designated as hedging instruments :
 
 
 
 
Copper futures and swap contracts a
 
$
3

 
$
1

Derivatives not designated as hedging instruments :
 
 
 
 
Embedded derivatives in provisional copper and gold
 
 
 
 
sales/purchase contracts
 
47

 
19

Total derivative assets
 
$
50

 
$
20

 
 
 
 
 
Commodity Derivative Liabilities:
 
 
 
 
Derivatives designated as hedging instruments :
 
 
 
 
Copper futures and swap contracts a
 
$
1

 
$
11

Derivatives not designated as hedging instruments :
 
 
 
 
Embedded derivatives in provisional copper and gold
 
 
 
 
sales/purchase contracts
 
9

 
81

Total derivative liabilities
 
$
10

 
$
92

a.
FCX had paid a minimal amount to brokers at September 30, 2016 , and $10 million at December 31, 2015 , for margin requirements (recorded in other current assets).

FCX's commodity contracts have netting arrangements with counterparties with which the right of offset exists, and it is FCX's policy to offset balances by counterparty on its balance sheet. FCX's embedded derivatives on provisional sales/purchases are netted with the corresponding outstanding receivable/payable balances. A summary of these unsettled commodity contracts that are offset in the balance sheet follows (in millions):
 
 
Assets
 
Liabilities
 
 
September 30,
2016
 
December 31, 2015
 
September 30, 2016
 
December 31, 2015
 
 
 
 
 
 
 
 
 
Gross amounts recognized:
 
 
 
 
 
 
 
 
Commodity contracts:
 
 
 
 
 
 
 
 
Embedded derivatives in provisional
 
 
 
 
 
 
 
 
sales/purchase contracts
 
$
47

 
$
19

 
$
9

 
$
81

Copper derivatives
 
3

 
1

 
1

 
11

 
 
50

 
20

 
10

 
92

 
 
 
 
 
 
 
 
 
Less gross amounts of offset:
 
 
 
 
 
 
 
 
Commodity contracts:
 
 
 
 
 
 
 
 
Embedded derivatives in provisional
 
 
 
 
 
 
 
 
sales/purchase contracts
 
1

 
5

 
1

 
5

Copper derivatives
 
1

 
1

 
1

 
1

 
 
2

 
6

 
2

 
6

 
 
 
 
 
 
 
 
 
Net amounts presented in balance sheet:
 
 
 
 
 
 
 
 
Commodity contracts:
 
 
 
 
 
 
 
 
Embedded derivatives in provisional
 
 
 
 
 
 
 
 
sales/purchase contracts
 
46

 
14

 
8

 
76

Copper derivatives
 
2

 
—

 
—

 
10

 
 
$
48

 
$
14

 
$
8

 
$
86

 
 
 
 
 
 
 
 
 
Balance sheet classification:
 
 
 
 
 
 
 
 
Trade accounts receivable
 
$
48

 
$
9

 
$
4

 
$
51

Accounts payable and accrued liabilities
 
—

 
5

 
4

 
35

 
 
$
48

 
$
14

 
$
8

 
$
86



19
Table of Contents             

Credit Risk.  FCX is exposed to credit loss when financial institutions with which FCX has entered into derivative transactions (commodity, foreign exchange and interest rate swaps) are unable to pay. To minimize the risk of such losses, FCX uses counterparties that meet certain credit requirements and periodically reviews the creditworthiness of these counterparties. FCX does not anticipate that any of the counterparties it deals with will default on their obligations. As of September 30, 2016 , the maximum amount of credit exposure associated with derivative transactions was $48 million .

Other Financial Instruments.  Other financial instruments include cash and cash equivalents, accounts receivable, restricted cash, investment securities, legally restricted funds, accounts payable and accrued liabilities, and long-term debt. The carrying value for cash and cash equivalents (which included time deposits of $58 million at September 30, 2016 , and $34 million at December 31, 2015), accounts receivable, restricted cash, and accounts payable and accrued liabilities approximates fair value because of their short-term nature and generally negligible credit losses (refer to Note 8 for the fair values of investment securities, legally restricted funds and long-term debt).

In addition, FCX has contingent liabilities related to the settlement of FM O&G's drilling rig contracts (refer to Note 8 for the fair value and Note 9 for further discussion of these instruments).


20
Table of Contents             

NOTE 8. FAIR VALUE MEASUREMENT

Fair value accounting guidance includes a hierarchy that prioritizes the inputs to valuation techniques used to measure fair value. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1) and the lowest priority to unobservable inputs (Level 3).

FCX recognizes transfers between levels at the end of the reporting period. FCX did not have any significant transfers in or out of Level 1, 2 or 3 for third -quarter 2016 .

Effective January 1, 2016, FCX retrospectively adopted the Accounting Standards Update (ASU) associated with investments for which fair value is measured using the net asset value (NAV) per share as a practical expedient. As a result, investments valued using NAV per share are shown in the tables below in a column separate from the levels within the fair value hierarchy. A summary of the carrying amount and fair value of FCX’s financial instruments, other than cash and cash equivalents, accounts receivable, restricted cash, and accounts payable and accrued liabilities (refer to Note 7 ) follows (in millions):
 
At September 30, 2016
 
Carrying
 
Fair Value
 
Amount
 
Total
 
NAV
 
Level 1
 
Level 2
 
Level 3
Assets
 
 
 
 
 
 
 
 
 
 
 
Investment securities: a,b
 
 
 
 
 
 
 
 
 
 
 
U.S. core fixed income fund at NAV
$
24

 
$
24

 
$
24

 
$
—

 
$
—

 
$
—

Money market funds
22

 
22

 
—

 
22

 
—

 
—

Equity securities
5

 
5

 
—

 
5

 
—

 
—

Total
51

 
51

 
24

 
27

 
—

 
—

 
 
 
 
 
 
 
 
 
 
 
 
Legally restricted funds: a,b,c
 
 
 
 
 
 
 
 
 
 
 
U.S. core fixed income fund at NAV
55

 
55

 
55

 
—

 
—

 
—

Government bonds and notes
37

 
37

 
—

 
—

 
37

 
—

Corporate bonds
32

 
32

 
—

 
—

 
32

 
—

Government mortgage-backed securities
27

 
27

 
—

 
—

 
27

 
—

Asset-backed securities
16

 
16

 
—

 
—

 
16

 
—

Money market funds
13

 
13

 
—

 
13

 
—

 
—

Collateralized mortgage-backed securities
7

 
7

 
—

 
—

 
7

 
—

Municipal bonds
1

 
1

 
—

 
—

 
1

 
—

Total
188

 
188

 
55

 
13

 
120

 
—

 
 
 
 
 
 
 
 
 
 
 
 
Derivatives: a,d
 
 
 
 
 
 
 
 
 
 
 
Embedded derivatives in provisional sales/
 
 
 
 
 
 
 
 
 
 
 
purchase contracts in a gross asset position
47

 
47

 
—

 
—

 
47

 
—

Copper futures and swap contracts
3

 
3

 
—

 
3

 
—

 
—

Total
50

 
50

 
—

 
3

 
47

 
—

 
 
 
 
 
 
 
 
 
 
 
 
Total assets
 
 
$
289

 
$
79

 
$
43

 
$
167

 
$
—

 
 
 
 
 
 
 
 
 
 
 
 
Liabilities
 
 
 
 
 
 
 
 
 
 
 
Derivatives: a,d
 
 
 
 
 
 
 
 
 
 
 
Embedded derivatives in provisional sales/
 
 
 
 
 
 
 
 
 
 
 
purchase contracts in a gross liability position
$
9

 
$
9

 
$
—

 
$
—

 
$
9

 
$
—

Copper futures and swap contracts
1

 
1

 
—

 
—

 
1

 
—

Total
10

 
10

 
—

 
—

 
10

 
—

 
 
 
 
 
 
 
 
 
 
 
 
Contingent consideration for the settlements of
 
 
 
 
 
 
 
 
 
 
 
drilling rig contracts e
18

 
18

 
—

 
—

 
18

 
—

 
 
 
 
 
 
 
 
 
 
 
 
Long-term debt, including current portion f
18,982

 
17,926

 
—

 
—

 
17,926

 
—

 
 
 
 
 
 
 
 
 
 
 
 
Total liabilities
 
 
$
17,954

 
$
—

 
$
—

 
$
17,954

 
$
—




21
Table of Contents             

 
At December 31, 2015
 
Carrying
 
Fair Value
 
Amount
 
Total
 
NAV
 
Level 1
 
Level 2
 
Level 3
Assets
 
 
 
 
 
 
 
 
 
 
 
Investment securities: a,b
 
 
 
 
 
 
 
 
 
 
 
U.S. core fixed income fund at NAV
$
23

 
$
23

 
$
23

 
$
—

 
$
—

 
$
—

Money market funds
21

 
21

 
—

 
21

 
—

 
—

Equity securities
3

 
3

 
—

 
3

 
—

 
—

Total
47

 
47

 
23

 
24

 
—

 
—

 
 
 
 
 
 
 
 
 
 
 
 
Legally restricted funds: a,b,c
 
 
 
 
 
 
 
 
 
 
 
U.S. core fixed income fund at NAV
52

 
52

 
52

 
—

 
—

 
—

Government bonds and notes
37

 
37

 
—

 
—

 
37

 
—

Government mortgage-backed securities
28

 
28

 
—

 
—

 
28

 
—

Corporate bonds
26

 
26

 
—

 
—

 
26

 
—

Asset-backed securities
13

 
13

 
—

 
—

 
13

 
—

Collateralized mortgage-backed securities
7

 
7

 
—

 
—

 
7

 
—

Money market funds
7

 
7

 
—

 
7

 
—

 
—

Municipal bonds
1

 
1

 
—

 
—

 
1

 
—

Total
171

 
171

 
52

 
7

 
112

 
—

 
 
 
 
 
 
 
 
 
 
 
 
Derivatives: a,d
 
 
 
 
 
 
 
 
 
 
 
Embedded derivatives in provisional sales/
 
 
 
 
 
 
 
 
 
 
 
purchase contracts in a gross asset position
19

 
19

 
—

 
—

 
19

 
—

Copper futures and swap contracts
1

 
1

 
—

 
1

 
—

 
—

Total
20

 
20

 
—

 
1

 
19

 
—

 
 
 
 
 
 
 
 
 
 
 
 
Total assets
 
 
$
238

 
$
75

 
$
32

 
$
131

 
$
—

 
 
 
 
 
 
 
 
 
 
 
 
Liabilities
 
 
 
 
 
 
 
 
 
 
 
Derivatives: a,d
 
 
 
 
 
 
 
 
 
 
 
Embedded derivatives in provisional sales/
 
 
 
 
 
 
 
 
 
 
 
purchase contracts in a gross liability position
$
81

 
$
81

 
$
—

 
$
—

 
$
81

 
$
—

Copper futures and swap contracts
11

 
11

 
—

 
7

 
4

 
—

Total
92

 
92

 
—

 
7

 
85

 
—

 
 
 
 
 
 
 
 
 
 
 
 
Long-term debt, including current portion f
20,428

 
13,987

 
—

 
—

 
13,987

 
—

 
 
 
 
 
 
 
 
 
 
 
 
Total liabilities
 
 
$
14,079

 
$
—

 
$
7

 
$
14,072

 
$
—

a.
Recorded at fair value. 
b.
Current portion included in other current assets and long-term portion included in other assets.
c.
Excludes time deposits (which approximated fair value) included in (i) other current assets of $28 million at September 30, 2016 , and December 31, 2015 , and (ii) other assets of $120 million at September 30, 2016 , and $118 million at December 31, 2015 , primarily associated with an assurance bond to support PT Freeport Indonesia's (PT-FI) commitment for smelter development in Indonesia.
d.
Refer to Note 7 for further discussion and balance sheet classifications.
e.
Included in accounts payable and accrued liabilities.
f.
Recorded at cost except for debt assumed in acquisitions, which were recorded at fair value at the respective acquisition dates.


22
Table of Contents             

Valuation Techniques. Money market funds are classified within Level 1 of the fair value hierarchy because they are valued using quoted market prices in active markets.

Equity securities are valued at the closing price reported on the active market on which the individual securities are traded and, as such, are classified within Level 1 of the fair value hierarchy.

Fixed income securities (government securities, corporate bonds, asset-backed securities, collateralized mortgage-backed securities and municipal bonds) are valued using a bid-evaluation price or a mid-evaluation price. A bid-evaluation price is an estimated price at which a dealer would pay for a security. A mid-evaluation price is the average of the estimated price at which a dealer would sell a security and the estimated price at which a dealer would pay for a security. These evaluations are based on quoted prices, if available, or models that use observable inputs and, as such, are classified within Level 2 of the fair value hierarchy.

FCX’s embedded derivatives on provisional copper concentrate, copper cathode and gold purchases and sales are valued using only quoted monthly LME or COMEX copper forward prices and the London gold forward price at each reporting date based on the month of maturity (refer to Note 7 for further discussion); however, FCX's contracts themselves are not traded on an exchange. As a result, these derivatives are classified within Level 2 of the fair value hierarchy.

FCX’s derivative financial instruments for copper futures and swap contracts and copper forward contracts that are traded on the respective exchanges are classified within Level 1 of the fair value hierarchy because they are valued using quoted monthly COMEX or LME prices at each reporting date based on the month of maturity (refer to Note 7 for further discussion). Certain of these contracts are traded on the over-the-counter market and are classified within Level 2 of the fair value hierarchy based on COMEX and LME forward prices.

Contingent liabilities for the settlement of drilling rig contracts (refer to Note 9 for further discussion) are based on the average price forecasts of WTI crude oil over the 12-month period ending June 30, 2017. The fair value is estimated using a Monte Carlo simulation model that uses various observable inputs, including WTI crude oil forward prices, volatilities, discount rate and settlement terms. As a result, these contingent liabilities are classified within Level 2 of the fair value hierarchy.

Long-term debt, including current portion, is valued using available market quotes and, as such, is classified within Level 2 of the fair value hierarchy.

The U.S. core fixed income fund is valued at NAV. The fund strategy seeks total return consisting of income and capital appreciation primarily by investing in a broad range of investment-grade debt securities, including U.S. government obligations, corporate bonds, mortgage-backed securities, asset-backed securities and money market instruments. There are no restrictions on redemptions (usually within one business day of notice).

The techniques described above may produce a fair value calculation that may not be indicative of net realizable value or reflective of future fair values. Furthermore, while FCX believes its valuation techniques are appropriate and consistent with other market participants, the use of different techniques or assumptions to determine fair value of certain financial instruments could result in a different fair value measurement at the reporting date. There have been no changes in the techniques used at September 30, 2016 .
 
 
 
NOTE 9. CONTINGENCIES AND COMMITMENTS

Litigation. During third-quarter 2016, there were no significant updates to previously reported legal proceedings included in Note 12 of FCX's annual report on Form 10-K for the year ended December 31, 2015, as recast in the Form 8-K filed on November 9, 2016 .

Tax and Other Matters
Cerro Verde Royalty Dispute
As reported in Note 12 of FCX’s annual report on Form 10-K for the year ended December 31, 2015, as recast in the Form 8-K filed on November 9, 2016 , SUNAT, the Peru national tax authority, has assessed mining royalties on ore processed by the Cerro Verde concentrator, which commenced operations in late 2006, for the period December 2006 to December 2007 and the years 2008 and 2009. In April 2016, SUNAT issued assessments for the year 2010 and the period January 2011 to September 2011. Cerro Verde has contested the assessments, of which

23
Table of Contents             

the aggregate amount covering the period December 2006 to September 2011 totals $430 million (based on the exchange rate as of September 30, 2016), including estimated accumulated interest and penalties. Additionally, in April 2016, Peru’s Twentieth Contentious Administrative Court, which specializes in taxation matters, rendered its decision upholding the Peru Tax Tribunal’s July 2013 decision affirming SUNAT’s assessments for the period December 2006 through December 2007. On May 2, 2016, Cerro Verde appealed this decision to Peru’s Twentieth Contentious Administrative Court.

SUNAT may make additional assessments for mining royalties and associated penalties and interest for the period from October 2011 through December 2013, which Cerro Verde will contest. As of September 30, 2016, FCX estimates the total exposure associated with these mining royalties for the period from December 2006 through December 2013 approximates $537 million (based on the exchange rate as of September 30, 2016), including estimated accumulated interest and penalties. No amounts have been accrued for these assessments as of September 30, 2016, because Cerro Verde believes its 1998 stability agreement exempts it from these royalties and believes any payments will be recoverable.

Other Peru Tax Matters
There were no significant changes to other Peru tax matters during third-quarter 2016 (refer to Note 12 of FCX’s annual report on Form 10-K for the year ended December 31, 2015 , as recast in the Form 8-K filed on November 9, 2016 , for further discussion of these matters).

Indonesia Tax Matters
The following information includes a discussion of updates to previously reported Indonesia tax matters included in Note 12 of FCX’s annual report on Form 10-K for the year ended December 31, 2015, as recast in the Form 8-K filed on November 9, 2016 .

In December 2009, PT-FI was notified by Indonesian tax authorities that it was obligated to pay value-added taxes on certain goods imported after the year 2000. In December 2014, PT-FI paid $269 million for valued-added taxes for the period from November 2005 through the year 2009 and sought a refund. In March 2016, PT-FI collected a cash refund of $196 million and $38 million was offset against other tax liabilities. The remaining balance of the amount originally paid was reduced by currency exchange and other losses.

Required estimated income tax payments for 2014 significantly exceeded PT-FI’s 2014 reported income tax liability, which resulted in a $284 million overpayment. During second-quarter 2016, the Indonesian tax authorities issued tax assessments for 2014 of $156 million and agreed to refund $128 million associated with income tax overpayments made by PT-FI in 2014. PT-FI filed objections for $152 million of the tax assessments in third-quarter 2016.

PT-FI received assessments from the local regional tax authority in Papua, Indonesia, for additional taxes and penalties related to surface water taxes for the period from January 2011 through August 2016. PT-FI has filed or will file objections to these assessments. The local government of Papua rejected PT-FI’s objections to the assessments related to the period from January 2011 through April 2016, and PT-FI has filed or will file appeals with the Indonesia Tax Court. The aggregate amount of all assessments received through September 30, 2016, including penalties, was 3.0 trillion Indonesian rupiah ( $231 million based on the exchange rate as of September 30, 2016). Additional penalties, which could be significant, may be assessed depending on the outcome of the appeals process. No amounts have been accrued for these assessments as of September 30, 2016, because PT-FI believes its Contract of Work (COW) exempts it from these payments and that it has the right to contest these assessments in the Indonesia Tax Court and ultimately the Indonesia Supreme Court.

Indonesia Mining Contract. There were no significant updates related to PT-FI's COW during third-quarter 2016 (refer to Note 13 of FCX’s annual report on Form 10-K for the year ended December 31, 2015 , as recast in the Form 8-K filed on November 9, 2016 , for further discussion).
In August 2016, PT-FI's export permit was renewed through January 11, 2017 , and the Indonesian government continues to impose a five percent export duty while it reviews PT-FI's smelter development plans. Current regulations published by the Indonesian government prohibit exports of copper concentrate and anode slimes after January 12, 2017. Indonesian government officials have indicated an intent to revise this regulation to protect employment and government revenues. The nature of any potential revisions of the regulation is currently uncertain. PT-FI is actively engaged with Indonesian government officials on this matter.


24
Table of Contents             

Other. During second-quarter 2016, FCX negotiated the termination and settlement of FM O&G's drilling rig contracts with Noble Drilling (U.S.) LLC (Noble) and Rowan Companies plc (Rowan). Under the settlement with Noble, FCX issued 48 million shares of its common stock (representing a value of $540 million ) during second-quarter 2016, and Noble immediately sold these shares. Under the settlement with Rowan, FCX paid $85 million in cash during second-quarter 2016 and FCX paid the remaining $130 million during third-quarter 2016. FCX also agreed to provide contingent payments of up to $75 million to Noble and $30 million to Rowan, depending on the average price of crude oil over the 12-month period ending June 30, 2017. The fair value of these contingent payments totaled $18 million as of September 30, 2016 (refer to Note 8 ). As a result of the settlements, FM O&G was released from a total of $1.1 billion in payment obligations under its three drilling rig contracts.

NOTE 10. BUSINESS SEGMENTS

FCX has organized its continuing mining operations into four primary divisions – North America copper mines, South America mining, Indonesia mining and Molybdenum mines, and operating segments that meet certain thresholds are reportable segments. For oil and gas operations, FCX determines its operating segments on a country-by-country basis. Separately disclosed in the following table are FCX's reportable segments, which include the Morenci, Cerro Verde and Grasberg copper mines, the Rod & Refining operations, the Atlantic Copper Smelting & Refining operation and U.S. Oil & Gas operations.
FCX's reportable segments previously included Africa mining, which consisted of the Tenke mine located in the DRC. As discussed in Note 2, FCX has entered into a definitive agreement to sell its interest in TFHL, and as a result, Tenke has been removed from continuing operations and reported as discontinued operations for all periods presented.
On May 31, 2016, FCX completed the sale of an additional 13 percent undivided interest in the Morenci unincorporated joint venture. As a result, FCX's undivided interest in Morenci was prospectively reduced from 85 percent to 72 percent .    

Intersegment sales between FCX’s mining operations are based on similar arms-length transactions with third parties at the time of the sale. Intersegment sales may not be reflective of the actual prices ultimately realized because of a variety of factors, including additional processing, timing of sales to unaffiliated customers and transportation premiums. In addition, intersegment sales from Tenke to FCX's other consolidated subsidiaries have been eliminated in discontinued operations (refer to Note 2).

FCX defers recognizing profits on sales from its mines to other divisions, including Atlantic Copper (FCX's wholly owned smelter and refinery in Spain) and on 25 percent of PT-FI's sales to PT Smelting (PT-FI's 25 percent -owned smelter and refinery in Indonesia), until final sales to third parties occur. Quarterly variations in ore grades, the timing of intercompany shipments and changes in product prices result in variability in FCX's net deferred profits and quarterly earnings.
FCX allocates certain operating costs, expenses and capital expenditures to its operating divisions and individual segments. However, not all costs and expenses applicable to an operation are allocated. U.S. federal and state income taxes are recorded and managed at the corporate level (included in Corporate, Other & Eliminations), whereas foreign income taxes are recorded and managed at the applicable country level. In addition, most mining exploration and research activities are managed on a consolidated basis, and those costs, along with some selling, general and administrative costs, are not allocated to the operating divisions or individual segments. Accordingly, the following segment information reflects management determinations that may not be indicative of what the actual financial performance of each operating division or segment would be if it was an independent entity.


25
Table of Contents             

Financial Information by Business Segments
(In millions)
Mining Operations
 
 
 
 
 
 
 
 
North America Copper Mines
 
South America
 
Indonesia
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Atlantic
 
Other
 
 
 
 
 
Corporate,
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Molyb-
 
 
 
Copper
 
Mining
 
 
 
U.S.
 
Other
 
 
 
 
 
 
 
 
 
 
Cerro
 
 
 
 
 
 
 
denum
 
Rod &
 
Smelting
 
& Elimi-
 
Total
 
Oil & Gas
 
& Elimi-
 
FCX
 
 
Morenci
 
Other
 
Total
 
Verde
 
Other
 
Total
 
Grasberg
 
Mines
 
Refining
 
& Refining
 
nations
 
Mining
 
Operations
 
nations
 
Total
 
Three Months Ended September 30, 2016
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Revenues:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Unaffiliated customers
$
115

 
$
112

 
$
227

 
$
505

 
$
112

 
$
617

 
$
984

a  
$
—

 
$
930

 
$
445

 
$
247

b  
$
3,450

 
$
427


$
—

 
$
3,877

 
Intersegment
358

 
499

 
857

 
54

 
—

 
54

 
2

 
46

 
7

 
—

 
(966
)
 
—

 
—

 
—

 
—

 
Production and delivery
275

 
458

 
733

 
333

 
91

 
424

 
478

c  
51

 
931

 
416

 
(777
)
 
2,256

 
231

d  
22

d  
2,509

 
Depreciation, depletion and amortization
51

 
78

 
129

 
109

 
25

 
134

 
110

 
15

 
2

 
7

 
19

 
416

 
223

 
4

 
643

 
Impairment of oil and gas properties
—

 
—

 
—

 
—

 
—

 
—

 
—

 
—

 
—

 
—

 
—

 
—

 
238

 
1


239

 
Metals inventory adjustments
—

 
6

 
6

 
—

 
—

 
—

 
—

 
6

 
—

 
—

 
8

 
20

 
—

 
—

 
20

 
Selling, general and administrative expenses
1

 
—

 
1

 
1

 
1

 
2

 
24

 
—

 
—

 
5

 
3

 
35

 
31

 
44

 
110

 
Mining exploration and research expenses
—

 
1

 
1

 
—

 
—

 
—

 
—

 
—

 
—

 
—

 
12

 
13

 
—

 
—

 
13

 
Environmental obligations and
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
shutdown credits
—

 
—

 
—

 
—

 
—

 
—

 
—

 
—

 
—

 
—

 
(3
)
 
(3
)
 
—

 
—

 
(3
)
 
Net loss (gain) on sales of assets
1

 
—

 
1

 
—

 
—

 
—

 
—

 
—

 
—

 
—

 
—

 
1

 
(7
)
 
(7
)
 
(13
)
 
Operating income (loss)
145

 
68

 
213

 
116

 
(5
)
 
111

 
374

 
(26
)
 
4

 
17

 
19

 
712

 
(289
)
 
(64
)
 
359

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Interest expense, net
1

 
—

 
1

 
21

 
—

 
21

 
—

 
—

 
—

 
3

 
21

 
46

 
102

 
39

 
187

 
Provision for (benefit from) income taxes
—

 
—

 
—

 
36

 
(4
)
 
32

 
158

 
—

 
—

 
—

 
—

 
190

 
—

 
(304
)
 
(114
)
 
Total assets at September 30, 2016
2,881

 
4,540

 
7,421

 
9,139

 
1,551

 
10,690

 
9,830

 
1,953

 
238

 
565

 
6,170

e  
36,867

 
3,462

 
1,071

 
41,400

e  
Capital expenditures
6

 
5

 
11

 
38

 
1

 
39

 
256

 
1

 
—

 
5

 
21

e  
333

 
160

 
1

 
494

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Three Months Ended September 30, 2015
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Revenues:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Unaffiliated customers
$
165

 
$
58

 
$
223

 
$
238

 
$
187

 
$
425

 
$
557

a  
$
—

 
$
946

 
$
438

 
$
267

b  
$
2,856

 
$
525

f  
$
1

 
$
3,382

 
Intersegment
332

 
614

 
946

 
13

 
—

 
13

 
52

 
83

 
5

 
1

 
(1,100
)
 
—

 
—

 
—

 
—

 
Production and delivery
357

 
616

c  
973

 
177

 
167

c  
344

 
417

 
83

c  
946

 
410

 
(873
)
c  
2,300

 
293

d  
2

c  
2,595

 
Depreciation, depletion and amortization
51

 
85

 
136

 
57

 
32

 
89

 
90

 
26

 
2

 
10

 
16

 
369

 
450

 
4

 
823

 
Impairment of oil and gas properties
—

 
—

 
—

 
—

 
—

 
—

 
—

 
—

 
—

 
—

 
—

 
—

 
3,480

 
172

g  
3,652

 
Metals inventory adjustments
—

 
55

 
55

 
—

 
—

 
—

 
—

 
3

 
—

 
—

 
33

 
91

 
—

 
—

 
91

 
Selling, general and administrative expenses
1

 
—

 
1

 
1

 
—

 
1

 
24

 
—

 
—

 
4

 
5

 
35

 
37

 
50

 
122

 
Mining exploration and research expenses
—

 
1

 
1

 
—

 
—

 
—

 
—

 
—

 
—

 
—

 
25

 
26

 
—

 
—

 
26

 
Environmental obligations and shutdown costs
—

 
3

 
3

 
—

 
—

 
—

 
—

 
—

 
—

 
—

 
33

 
36

 
—

 
1

 
37

 
Operating income (loss)
88

 
(88
)
 
—

 
16

 
(12
)
 
4

 
78

 
(29
)
 
3

 
15

 
(72
)
 
(1
)
 
(3,735
)
 
(228
)
 
(3,964
)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Interest expense, net
1

 
—

 
1

 
—

 
—

 
—

 
—

 
—

 
—

 
3

 
19

 
23

 
51

 
83

 
157

 
Provision for (benefit from) income taxes
—

 
—

 
—

 
—

 
2

 
2

 
21

 
—

 
—

 
—

 
—

 
23

 
—

 
(372
)
 
(349
)
 
Total assets at September 30, 2015
3,720

 
5,159

 
8,879

 
9,136

 
1,843

 
10,979

 
8,965

 
2,017

 
235

 
699

 
6,426

e  
38,200

 
11,911

 
272

 
50,383

e  
Capital expenditures
61

 
33

 
94

 
421

 
16

 
437

 
222

 
3

 
1

 
10

 
78

e  
845

 
635

h  
47

 
1,527

 
a.
Includes PT-FI’s sales to PT Smelting totaling $348 million in third-quarter 2016 and $61 million in third-quarter 2015 .
b.
Includes revenues from FCX's molybdenum sales company, which includes sales of molybdenum produced by the Molybdenum mines and by certain of the North and South America copper mines.
c.
Third-quarter 2016 includes asset retirement charges of $17 million at Indonesia mining. Third-quarter 2015 includes asset impairment and restructuring charges totaling $75 million at other North America copper mines, and restructuring charges totaling $11 million at other South America copper mines, $2 million at Molybdenum mines, $ 2 million at Other Mining & Eliminations and $ 2 million at Corporate, Other & Eliminations.
d.
Includes net charges for oil and gas operations totaling $50 million in third-quarter 2016 and $21 million in third-quarter 2015 , primarily for idle rig costs, inventory adjustments, asset impairments and other net charges.
e.
Includes (i) assets held for sale totaling $4.7 billion at September 30, 2016 , and $4.9 billion at September 30, 2015 , and (ii) capital expenditures totaling $15 million in third-quarter 2016 and $69 million in third-quarter 2015 associated with discontinued operations. Refer to Note 2 for a summary of the results of discontinued operations.
f.
Includes net mark-to-market gains of $29 million associated with crude oil derivative contracts.
g.
Reflects impairment charges for international oil and gas properties primarily in Morocco.
h.
Excludes international oil and gas capital expenditures totaling $37 million , primarily related to the Morocco oil and gas properties, which are included in Corporate, Other & Eliminations.


26
Table of Contents             

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
(In millions)
Mining Operations
 
 
 
 
 
 
 
North America Copper Mines
 
South America
 
Indonesia
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Atlantic
 
Other
 
 
 
 
 
Corporate,
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Molyb-
 
 
 
Copper
 
Mining
 
 
 
U.S.
 
Other
 
 
 
 
 
 
 
 
 
Cerro
 
 
 
 
 
 
 
denum
 
Rod &
 
Smelting
 
& Elimi-
 
Total
 
Oil & Gas
 
& Elimi-
 
FCX
 
Morenci
 
Other
 
Total
 
Verde
 
Other
 
Total
 
Grasberg
 
Mines
 
Refining
 
& Refining
 
nations
 
Mining
 
Operations
 
nations
 
Total
Nine Months Ended September 30, 2016
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Revenues:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Unaffiliated customers
$
356

 
$
211

 
$
567

 
$
1,485

 
$
379

 
$
1,864

 
$
2,014

a  
$
—

 
$
2,820

 
$
1,360

 
$
696

b  
$
9,321

 
$
1,132


$
—

 
$
10,453

Intersegment
1,119

 
1,594

 
2,713

 
155

 
—

 
155

 
59

 
136

 
22

 
3

 
(3,088
)
 
—

 
—

 
—

 
—

Production and delivery
913

 
1,334

 
2,247

 
927

 
313

 
1,240

 
1,228

c  
147

 
2,820

 
1,275

 
(2,562
)
 
6,395

 
1,527

d  
35

d  
7,957

Depreciation, depletion and amortization
170

 
237

 
407

 
319

 
83

 
402

 
284

 
51

 
7

 
22

 
57

 
1,230

 
696

 
11

 
1,937

Impairment of oil and gas properties
—

 
—

 
—

 
—

 
—

 
—

 
—

 
—

 
—

 
—

 
—

 
—

 
4,299

 
18

e  
4,317

Metals inventory adjustments
—

 
6

 
6

 
—

 
—

 
—

 
—

 
12

 
—

 
—

 
9

 
27

 
—

 
—

 
27

Selling, general and administrative expenses
2

 
2

 
4

 
5

 
1

 
6

 
60

 
—

 
—

 
13

 
9

 
92

 
161

f  
155

 
408

Mining exploration and research expenses
—

 
2

 
2

 
—

 
—

 
—

 
—

 
—

 
—

 
—

 
44

 
46

 
—

 
—

 
46

Environmental obligations and shutdown costs
—

 
—

 
—

 
—

 
—

 
—

 
—

 
—

 
—

 
—

 
17

 
17

 
—

 
1

 
18

Net gain on sales of assets
(576
)
 
—

 
(576
)
 
—

 
—

 
—

 
—

 
—

 
—

 
—

 
(172
)
 
(748
)
 
(7
)
 
(7
)
 
(762
)
Operating income (loss)
966

 
224

 
1,190

 
389

 
(18
)
 
371

 
501

 
(74
)
 
15

 
53

 
206

 
2,262

 
(5,544
)
 
(213
)
 
(3,495
)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Interest expense, net
2

 
1

 
3

 
63

 
—

 
63

 
—

 
—

 
—

 
11

 
60

 
137

 
266

 
171

 
574

Provision for (benefit from) income taxes
—

 
—

 
—

 
126

 
(12
)
 
114

 
212

 
—

 
—

 
—

 
—

 
326

 
—

 
(247
)
 
79

Capital expenditures
71

 
16

 
87

 
329

 
3

 
332

 
715

 
2

 
1

 
12

 
84

g  
1,233

 
1,028

h  
48

 
2,309

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Nine Months Ended September 30, 2015
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Revenues:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Unaffiliated customers
$
451

 
$
265

 
$
716

 
$
681

 
$
639

 
$
1,320

 
$
1,969

a  
$
—

 
$
3,097

 
$
1,473

 
$
921

b  
$
9,496

 
$
1,594

i  
$
1

 
$
11,091

Intersegment
1,209

 
1,984

 
3,193

 
64

 
(7
)
j  
57

 
37

 
298

 
20

 
12

 
(3,617
)
 
—

 
—

 
—

 
—

Production and delivery
1,117

 
1,750

c  
2,867

 
540

 
464

c  
1,004

 
1,311

 
247

c  
3,097

 
1,397

 
(2,925
)
c  
6,998

 
857

d  
7

c  
7,862

Depreciation, depletion and amortization
157

 
251

 
408

 
134

 
102

 
236

 
238

 
77

 
7

 
29

 
51

 
1,046

 
1,465

 
11

 
2,522

Impairment of oil and gas properties

—

 
—

 
—

 
—

 
—

 
—

 
—

 
—

 
—

 
—

 
—

 
—

 
9,270

 
172

e  
9,442

Metals inventory adjustments
—

 
66

 
66

 
—

 
—

 
—

 
—

 
6

 
—

 
—

 
82

 
154

 
—

 
—

 
154

Selling, general and administrative expenses
2

 
2

 
4

 
2

 
1

 
3

 
74

 
—

 
—

 
13

 
16

 
110

 
140

 
171

 
421

Mining exploration and research expenses
—

 
6

 
6

 
—

 
—

 
—

 
—

 
—

 
—

 
—

 
77

 
83

 
—

 
—

 
83

Environmental obligations and shutdown costs
—

 
3

 
3

 
—

 
—

 
—

 
—

 
—

 
—

 
—

 
57

 
60

 
—

 
1

 
61

Net gain on sales of assets

—

 
(39
)
 
(39
)
 
—

 
—

 
—

 
—

 
—

 
—

 
—

 
—

 
(39
)
 
—

 
—

 
(39
)
Operating income (loss)
384

 
210

 
594

 
69

 
65

 
134

 
383

 
(32
)
 
13

 
46

 
(54
)
 
1,084

 
(10,138
)
 
(361
)
 
(9,415
)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Interest expense, net
2

 
1

 
3

 
1

 
—

 
1

 
—

 
—

 
—

 
8

 
57

 
69

 
129

 
240

 
438

Provision for (benefit from) income taxes
—

 
—

 
—

 
—

 
32

 
32

 
145

 
—

 
—

 
—

 
—

 
177

 
—

 
(1,939
)
 
(1,762
)
Capital expenditures
224

 
84

 
308

 
1,296

 
43

 
1,339

 
660

 
10

 
2

 
18

 
197

g  
2,534

 
2,430

h  
91

 
5,055

a.
Includes PT-FI's sales to PT Smelting totaling $912 million for the first nine months of 2016 and $704 million for the first nine months of 2015 .
b.
Includes revenues from FCX's molybdenum sales company, which includes sales of molybdenum produced by the Molybdenum mines and by certain of the North and South America copper mines.
c.
The first nine months of 2016 include asset retirement charges of $17 million at Indonesia mining. The first nine months of 2015 includes asset impairment and restructuring charges totaling $75 million at other North America copper mines, and restructuring charges totaling $11 million at other South America copper mines, $2 million at Molybdenum mines, $ 2 million at Other Mining & Eliminations and $ 2 million at Corporate, Other & Eliminations.
d.
Includes charges for oil and gas operations totaling $942 million for the first nine months of 2016 and $59 million for the first nine months of 2015 , primarily for drillship settlement/idle rig costs, inventory adjustments, asset impairments and other net charges.
e.
Reflects impairment charges for international oil and gas properties primarily in Morocco.
f.
Includes $38 million for net restructuring-related charges.
g.
Includes capital expenditures of $70 million for the first nine months of 2016 and $166 million for the first nine months of 2015 associated with discontinued operations. Refer to Note 2 for a summary of the results of discontinued operations.
h.
Excludes international oil and gas capital expenditures totaling $47 million for the first nine months of 2016 and $81 million for the first nine months of 2015 , primarily related to the Morocco oil and gas properties, which are included in Corporate, Other & Eliminations.
i.
Includes net mark-to-market gains of $87 million associated with crude oil derivative contracts.
j.
Reflects net reductions for provisional pricing adjustments to prior period open sales. There were no intersegment sales from El Abra for the first nine months of 2015.

27
Table of Contents             

NOTE 11. GUARANTOR FINANCIAL STATEMENTS

All of the senior notes issued by FCX are fully and unconditionally guaranteed on a senior basis jointly and severally by FM O&G LLC, as guarantor, which is a 100 -percent-owned subsidiary of FM O&G and FCX. The guarantee is an unsecured obligation of the guarantor and ranks equal in right of payment with all existing and future indebtedness of FM O&G LLC, including indebtedness under the revolving credit facility. The guarantee ranks senior in right of payment with all of FM O&G LLC's future subordinated obligations and is effectively subordinated in right of payment to any debt of FM O&G LLC's subsidiaries. The indentures provide that FM O&G LLC's guarantee may be released or terminated for certain obligations under the following circumstances: (i) all or substantially all of the equity interests or assets of FM O&G LLC are sold to a third party; or (ii) FM O&G LLC no longer has any obligations under any FM O&G senior notes or any refinancing thereof and no longer guarantees any obligations of FCX under the revolver, the Term Loan or any other senior debt.

The following condensed consolidating financial information includes information regarding FCX, as issuer, FM O&G LLC, as guarantor, and all other non-guarantor subsidiaries of FCX. Included are the condensed consolidating balance sheets at September 30, 2016 , and December 31, 2015 , and the related condensed consolidating statements of comprehensive (loss) income for the three and nine months ended September 30, 2016 and 2015 , and cash flows for the nine months ended September 30, 2016 and 2015 (in millions), which should be read in conjunction with FCX's notes to the consolidated financial statements.

CONDENSED CONSOLIDATING BALANCE SHEET
September 30, 2016
 
FCX
 
FM O&G LLC
 
Non-guarantor
 
 
 
Consolidated
 
Issuer
 
Guarantor
 
Subsidiaries
 
Eliminations
 
FCX
ASSETS
 
 
 
 
 
 
 
 
 
Current assets, other than assets held for sale
$
320

 
$
2,463

 
$
7,914

 
$
(3,855
)
 
$
6,842

Current assets held for sale
—

 
—

 
4,663

 
—

 
4,663

Property, plant, equipment and mining development costs, net
22

 
52

 
23,339

 
2

 
23,415

Oil and gas properties, net - full cost method:
 
 
 
 
 
 
 
 
 
Subject to amortization, less accumulated amortization and impairments
—

 
266

 
712

 
1

 
979

Not subject to amortization
—

 
406

 
1,237

 
1

 
1,644

Investments in consolidated subsidiaries
20,511

 
—

 
—

 
(20,511
)
 
—

Other assets
891

 
41

 
3,776

 
(851
)
 
3,857

Total assets
$
21,744

 
$
3,228

 
$
41,641

 
$
(25,213
)
 
$
41,400

 
 
 
 
 
 
 
 
 
 
LIABILITIES AND EQUITY
 
 
 
 
 
 
 
 
 
Current liabilities, other than liabilities held for sale
$
2,697

 
$
340

 
$
4,483

 
$
(3,853
)
 
$
3,667

Current liabilities held for sale
—

 
—

 
821

 
—

 
821

Long-term debt, less current portion
13,426

 
7,624

 
11,642

 
(14,512
)
 
18,180

Deferred income taxes
845

a  
—

 
2,704

 
—

 
3,549

Environmental and asset retirement obligations, less current portion
—

 
352

 
3,373

 
—

 
3,725

Investments in consolidated subsidiaries
—

 
828

 
9,267

 
(10,095
)
 
—

Other liabilities
44

 
3,351

 
1,710

 
(3,487
)
 
1,618

Total liabilities
17,012

 
12,495

 
34,000

 
(31,947
)
 
31,560

 
 
 
 
 
 
 
 
 
 
Redeemable noncontrolling interest
—

 
—

 
774

 
—

 
774

 
 
 
 
 
 
 
 
 
 
Equity:
 
 
 
 
 
 
 
 
 
Stockholders' equity
4,732

 
(9,267
)
 
3,108

 
6,159

 
4,732

Noncontrolling interests
—

 
—

 
3,759

 
575

 
4,334

Total equity
4,732

 
(9,267
)
 
6,867

 
6,734

 
9,066

Total liabilities and equity
$
21,744

 
$
3,228

 
$
41,641

 
$
(25,213
)
 
$
41,400

a.
All U.S. related deferred income taxes are recorded at the parent company.

28
Table of Contents             

CONDENSED CONSOLIDATING BALANCE SHEET
December 31, 2015
 
FCX
 
FM O&G LLC
 
Non-guarantor
 
 
 
Consolidated
 
Issuer
 
Guarantor
 
Subsidiaries
 
Eliminations
 
FCX
ASSETS
 
 
 
 
 
 
 
 
 
Current assets, other than assets held for sale
$
181

 
$
3,831

 
$
10,238

 
$
(7,532
)
 
$
6,718

Current assets held for sale
—

 
—

 
744

 
—

 
744

Property, plant, equipment and mining development costs, net
26

 
57

 
24,163

 
—

 
24,246

Oil and gas properties, net - full cost method:
 
 
 
 
 
 
 
 
 
Subject to amortization, less accumulated amortization and impairments
—

 
710

 
1,552

 
—

 
2,262

Not subject to amortization
—

 
1,393

 
3,432

 
6

 
4,831

Investments in consolidated subsidiaries
24,311

 
—

 
—

 
(24,311
)
 
—

Other assets
5,038

 
1,826

 
3,586

 
(6,798
)
 
3,652

Assets held for sale
—

 
—

 
4,124

 
—

 
4,124

Total assets
$
29,556

 
$
7,817

 
$
47,839

 
$
(38,635
)
 
$
46,577

 
 
 
 
 
 
 
 
 
 
LIABILITIES AND EQUITY
 
 
 
 
 
 
 
 
 
Current liabilities, other than liabilities held for sale
$
6,012

 
$
666

 
$
5,047

 
$
(7,526
)
 
$
4,199

Current liabilities held for sale
—

 
—

 
108

 
—

 
108

Long-term debt, less current portion
14,735

 
5,883

 
11,594

 
(12,433
)
 
19,779

Deferred income taxes
941

a  
—

 
2,666

 
—

 
3,607

Environmental and asset retirement obligations, less current portion
—

 
305

 
3,412

 
—

 
3,717

Investment in consolidated subsidiary
—

 
—

 
2,397

 
(2,397
)
 
—

Other liabilities
40

 
3,360

 
1,732

 
(3,491
)
 
1,641

Liabilities held for sale
—

 
—

 
718

 
—

 
718

Total liabilities
21,728

 
10,214

 
27,674

 
(25,847
)
 
33,769

 
 
 
 
 
 
 
 
 
 
Redeemable noncontrolling interest
—

 
—

 
764

 
—

 
764

 
 
 
 
 
 
 
 
 
 
Equity:
 
 
 
 
 
 
 
 
 
Stockholders' equity
7,828

 
(2,397
)
 
15,725

 
(13,328
)
 
7,828

Noncontrolling interests
—

 
—

 
3,676

 
540

 
4,216

Total equity
7,828

 
(2,397
)
 
19,401

 
(12,788
)
 
12,044

Total liabilities and equity
$
29,556

 
$
7,817

 
$
47,839

 
$
(38,635
)
 
$
46,577

a.
All U.S. related deferred income taxes are recorded at the parent company.


29
Table of Contents             

CONDENSED CONSOLIDATING STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

Three Months Ended September 30, 2016
 
 
 
 
 
 
 
 
 
 
FCX
 
FM O&G LLC
 
Non-guarantor
 
 
 
Consolidated
 
Issuer
 
Guarantor
 
Subsidiaries
 
Eliminations
 
FCX
Revenues
$
—

 
$
110

 
$
3,767

 
$
—

 
$
3,877

Total costs and expenses
12

 
266

a  
3,239

a  
1

 
3,518

Operating (loss) income
(12
)
 
(156
)
 
528

 
(1
)
 
359

Interest expense, net
(126
)
 
(18
)
 
(132
)
 
89

 
(187
)
Net gain on early extinguishment of debt
15

 
—

 
—

 
—

 
15

Other income (expense), net
76

 
—

 
(10
)
 
(76
)
 
(10
)
(Loss) income before income taxes and equity in affiliated companies' net (losses) earnings
(47
)
 
(174
)
 
386

 
12

 
177

Benefit from (provision for) income taxes
343

 
(197
)
 
(40
)
 
8

 
114

Equity in affiliated companies' net (losses) earnings
(75
)
 
(218
)
 
(589
)
 
883

 
1

Net income (loss) from continuing operations
221

 
(589
)
 
(243
)
 
903

 
292

Net (loss) income from discontinued operations
(4
)
 
—

 
10

 
(12
)
 
(6
)
Net income (loss)
217

 
(589
)
 
(233
)
 
891

 
286

Net income and preferred dividends attributable to noncontrolling interests:
 
 
 
 
 
 
 
 
 
Continuing operations
—

 
—

 
(24
)
 
(23
)
 
(47
)
Discontinued operations
—

 
—

 
(22
)
 
—

 
(22
)
Net income (loss) attributable to common stockholders
$
217

 
$
(589
)
 
$
(279
)
 
$
868

 
$
217

 
 
 
 
 
 
 
 
 
 
Other comprehensive income (loss)
12

 
—

 
12

 
(12
)
 
12

Total comprehensive income (loss)
$
229

 
$
(589
)
 
$
(267
)
 
$
856

 
$
229

a.
Includes charges totaling $95 million at the FM O&G LLC guarantor and $0.2 billion at the non-guarantor subsidiaries related to impairment of FCX's oil and gas properties pursuant to full cost accounting rules.
 
 
 
 
 
 
 
 
 
 
Nine Months Ended September 30, 2016
 
 
 
 
 
 
 
 
 
 
FCX
 
FM O&G LLC
 
Non-guarantor
 
 
 
Consolidated
 
Issuer
 
Guarantor
 
Subsidiaries
 
Eliminations
 
FCX
Revenues
$
—

 
$
294

 
$
10,159

 
$
—

 
$
10,453

Total costs and expenses
56

 
2,859

a  
11,026

a  
7

 
13,948

Operating loss
(56
)
 
(2,565
)
 
(867
)
 
(7
)
 
(3,495
)
Interest expense, net
(404
)
 
(37
)
 
(370
)
 
237

 
(574
)
Net gain on early extinguishment of debt
51

 
—

 
—

 
—

 
51

Other income (expense), net
197

 
—

 
59

 
(202
)
 
54

(Loss) income before income taxes and equity in affiliated companies' net (losses) earnings
(212
)
 
(2,602
)
 
(1,178
)
 
28

 
(3,964
)
(Provision for) benefit from income taxes
(1,785
)
 
725

 
979

 
2

 
(79
)
Equity in affiliated companies' net (losses) earnings
(2,450
)
 
(3,202
)
 
(5,072
)
 
10,733

 
9

Net (loss) income from continuing operations
(4,447
)
 
(5,079
)
 
(5,271
)
 
10,763

 
(4,034
)
Net income (loss) from discontinued operations
1

 
—

 
(159
)
 
(33
)
 
(191
)
Net (loss) income
(4,446
)
 
(5,079
)
 
(5,430
)
 
10,730

 
(4,225
)
Net income and preferred dividends attributable to noncontrolling interests:
 
 
 
 
 
 
 
 
 
Continuing operations
—

 
—

 
(141
)
 
(36
)
 
(177
)
Discontinued operations
—

 
—

 
(44
)
 
—

 
(44
)
Net (loss) income attributable to common stockholders
$
(4,446
)
 
$
(5,079
)
 
$
(5,615
)
 
$
10,694

 
$
(4,446
)
 
 
 
 
 
 
 
 
 
 
Other comprehensive income (loss)
27

 
—

 
27

 
(27
)
 
27

Total comprehensive (loss) income
$
(4,419
)
 
$
(5,079
)
 
$
(5,588
)
 
$
10,667

 
$
(4,419
)
 
 
 
 
 
 
 
 
 
 
a.
Includes charges totaling $1.5 billion at the FM O&G LLC guarantor and $2.8 billion at the non-guarantor subsidiaries related to impairment of FCX's oil and gas properties pursuant to full cost accounting rules.


30
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CONDENSED CONSOLIDATING STATEMENTS OF COMPREHENSIVE (LOSS) INCOME

Three Months Ended September 30, 2015
 
 
 
 
 
 
 
 
 
 
FCX
 
FM O&G LLC
 
Non-guarantor
 
 
 
Consolidated
 
Issuer
 
Guarantor
 
Subsidiaries
 
Eliminations
 
FCX
Revenues
$
—

 
$
158

 
$
3,224

 
$
—

 
$
3,382

Total costs and expenses
12

 
1,874

a  
5,462

a  
(2
)

7,346

Operating (loss) income
(12
)
 
(1,716
)
 
(2,238
)
 
2

 
(3,964
)
Interest expense, net
(123
)
 
(1
)
 
(72
)
 
39

 
(157
)
Other income (expense), net
31

 
—

 
(36
)
 
(36
)
 
(41
)
(Loss) income before income taxes and equity in affiliated companies' net (losses) earnings
(104
)
 
(1,717
)
 
(2,346
)
 
5

 
(4,162
)
(Provision for) benefit from income taxes
(1,287
)
 
714

 
924

 
(2
)
 
349

Equity in affiliated companies' net (losses) earnings
(2,443
)
 
(2,237
)
 
(2,445
)
 
7,123

 
(2
)
Net (loss) income from continuing operations
(3,834
)
 
(3,240
)
 
(3,867
)
 
7,126

 
(3,815
)
Net income from discontinued operations
4

 
—

 
21

 
—

 
25

Net (loss) income
(3,830
)
 
(3,240
)
 
(3,846
)
 
7,126

 
(3,790
)
Net income and preferred dividends attributable to noncontrolling interests:
 
 
 
 
 
 
 
 
 
Continuing operations
—

 
—

 
(23
)
 
(1
)
 
(24
)
Discontinued operations
—

 
—

 
(16
)
 
—

 
(16
)
Net (loss) income attributable to common stockholders
$
(3,830
)
 
$
(3,240
)
 
$
(3,885
)
 
$
7,125

 
$
(3,830
)
 
 
 
 
 
 
 
 
 
 
Other comprehensive income (loss)
14

 
—

 
14

 
(14
)
 
14

Total comprehensive (loss) income
$
(3,816
)
 
$
(3,240
)
 
$
(3,871
)
 
$
7,111

 
$
(3,816
)
a.
Includes charges totaling $1.7 billion at the FM O&G LLC guarantor and $2.0 billion at the non-guarantor subsidiaries related to impairment of FCX's oil and gas properties pursuant to full cost accounting rules.
 
 
 
 
 
 
 
 
 
 
Nine Months Ended September 30, 2015
 
 
 
 
 
 
 
 
 
 
FCX
 
FM O&G LLC
 
Non-guarantor
 
 
 
Consolidated
 
Issuer
 
Guarantor
 
Subsidiaries
 
Eliminations
 
FCX
Revenues
$
—

 
$
508

 
$
10,583

 
$
—

 
$
11,091

Total costs and expenses
47

 
4,409

a  
16,065

a  
(15
)

20,506

Operating (loss) income
(47
)
 
(3,901
)
 
(5,482
)
 
15

 
(9,415
)
Interest expense, net
(359
)
 
(7
)
 
(182
)
 
110

 
(438
)
Other income (expense), net
187

 
—

 
(85
)
 
(100
)
 
2

(Loss) income before income taxes and equity in affiliated companies' net (losses) earnings
(219
)
 
(3,908
)
 
(5,749
)
 
25

 
(9,851
)
(Provision for) benefit from income taxes
(1,978
)
 
1,504

 
2,246

 
(10
)
 
1,762

Equity in affiliated companies' net (losses) earnings
(5,967
)
 
(6,516
)
 
(8,947
)
 
21,429

 
(1
)
Net (loss) income from continuing operations
(8,164
)
 
(8,920
)
 
(12,450
)
 
21,444

 
(8,090
)
Net income from discontinued operations
9

 
—

 
86

 
—

 
95

Net (loss) income
(8,155
)
 
(8,920
)
 
(12,364
)
 
21,444

 
(7,995
)
Net income and preferred dividends attributable to noncontrolling interests:
 
 
 
 
 
 
 
 
 
Continuing operations
—

 
—

 
(65
)
 
(27
)
 
(92
)
Discontinued operations
—

 
—

 
(68
)
 
—

 
(68
)
Net (loss) income attributable to common stockholders
$
(8,155
)
 
$
(8,920
)
 
$
(12,497
)
 
$
21,417

 
$
(8,155
)
 
 
 
 
 
 
 
 
 
 
Other comprehensive income (loss)
35

 
—

 
35

 
(35
)
 
35

Total comprehensive (loss) income
$
(8,120
)
 
$
(8,920
)
 
$
(12,462
)
 
$
21,382

 
$
(8,120
)
 
 
 
 
 
 
 
 
 
 
a.
Includes charges totaling $3.7 billion at the FM O&G LLC guarantor and $5.7 billion at the non-guarantor subsidiaries related to impairment of FCX's oil and gas properties pursuant to full cost accounting rules.




31
Table of Contents             

CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS
Nine Months Ended September 30, 2016
 
FCX
 
FM O&G LLC
 
Non-guarantor
 
 
 
Consolidated
 
Issuer
 
Guarantor
 
Subsidiaries
 
Eliminations
 
FCX
Cash flow from operating activities:
 
 
 
 
 
 
 
 
 
Net (loss) income
$
(4,446
)
 
$
(5,079
)
 
$
(5,430
)
 
$
10,730

 
$
(4,225
)
Adjustments to reconcile net (loss) income to net cash (used in) provided by operating activities:
 
 
 
 
 
 
 
 
 
Depreciation, depletion and amortization
4

 
146

 
1,882

 
(15
)
 
2,017

Impairment of oil and gas properties
—

 
1,531

 
2,765

 
21

 
4,317

Equity in losses (earnings) of affiliated companies
2,450

 
3,202

 
5,072

 
(10,733
)
 
(9
)
Other, net
(116
)
 
575

 
(424
)
 
(4
)
 
31

Changes in working capital and other tax payments, excluding amounts from dispositions
1,844

 
(669
)
 
(714
)
 
2

 
463

Net cash (used in) provided by operating activities
(264
)
 
(294
)
 
3,151

 
1

 
2,594

 
 
 
 
 
 
 
 
 
 
Cash flow from investing activities:
 
 
 
 
 
 
 
 
 
Capital expenditures
—

 
(497
)
 
(1,814
)
 
2

 
(2,309
)
Intercompany loans
(1,021
)
 
(518
)
 
—

 
1,539

 
—

Dividends from (investments in) consolidated subsidiaries
1,643

 
(41
)
 
124

 
(1,726
)
 
—

Asset sales and other, net
—

 
208

 
1,210

 
(3
)
 
1,415

Net cash provided by (used in) investing activities
622

 
(848
)
 
(480
)
 
(188
)
 
(894
)
 
 
 
 
 
 
 
 
 
 
Cash flow from financing activities:
 
 
 
 
 
 
 
 
 
Proceeds from debt
1,721

 
—

 
1,742

 
—

 
3,463

Repayments of debt
(2,498
)
 
—

 
(2,041
)
 
—

 
(4,539
)
Intercompany loans
—

 
1,223

 
316

 
(1,539
)
 
—

Net proceeds from sale of common stock
442

 
—

 
374

 
(374
)
 
442

Cash dividends and distributions paid, and contributions received, net
(5
)
 
(78
)
 
(2,096
)
 
2,087

 
(92
)
Other, net
(18
)
 
(2
)
 
(15
)
 
13

 
(22
)
Net cash (used in) provided by financing activities
(358
)
 
1,143

 
(1,720
)
 
187

 
(748
)
 
 
 
 
 
 
 
 
 
 
Net increase in cash and cash equivalents
—

 
1

 
951

 
—

 
952

Increase in cash and cash equivalents in assets held for sale
—

 
—

 
(39
)
 
—

 
(39
)
Cash and cash equivalents at beginning of period
—

 
—

 
195

 
—

 
195

Cash and cash equivalents at end of period
$
—

 
$
1

 
$
1,107

 
$
—

 
$
1,108



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CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS
Nine Months Ended September 30, 2015
 
FCX
 
FM O&G LLC
 
Non-guarantor
 
 
 
Consolidated
 
Issuer
 
Guarantor
 
Subsidiaries
 
Eliminations
 
FCX
Cash flow from operating activities:
 
 
 
 
 
 
 
 
 
Net (loss) income
$
(8,155
)
 
$
(8,920
)
 
$
(12,364
)
 
$
21,444

 
$
(7,995
)
Adjustments to reconcile net (loss) income to net cash (used in) provided by operating activities:
 
 
 
 
 
 
 
 
 
Depreciation, depletion and amortization
3

 
303

 
2,474

 
(63
)
 
2,717

Impairment of oil and gas properties
—

 
3,710

 
5,684

 
48

 
9,442

Net gains on crude oil derivative contracts
—

 
(87
)
 
—

 
—

 
(87
)
Equity in losses (earnings) of affiliated companies
5,967

 
6,516

 
8,947

 
(21,429
)
 
1

Other, net
(1,953
)
 
2

 
139

 
—

 
(1,812
)
Changes in working capital and other tax payments
4,001

 
(1,213
)
 
(2,457
)
 
11

 
342

Net cash (used in) provided by operating activities
(137
)
 
311

 
2,423

 
11

 
2,608

 
 
 
 
 
 
 
 
 
 
Cash flow from investing activities:
 
 
 
 
 
 
 
 
 
Capital expenditures
(7
)
 
(959
)
 
(4,079
)
 
(10
)
 
(5,055
)
Intercompany loans
(1,310
)
 
(955
)
 
—


2,265

 
—

Dividends from (investments in) consolidated subsidiaries
693

 
(49
)
 
102

 
(748
)
 
(2
)
Other, net
(21
)
 
(2
)
 
118

 
21

 
116

Net cash (used in) provided by investing activities
(645
)
 
(1,965
)
 
(3,859
)
 
1,528

 
(4,941
)
 
 
 
 
 
 
 
 
 
 
Cash flow from financing activities:
 
 
 
 
 
 
 
 
 
Proceeds from debt
3,893

 
—

 
2,659

 
—

 
6,552

Repayments of debt
(3,550
)
 
—

 
(1,143
)
 
—

 
(4,693
)
Intercompany loans
—

 
1,708

 
557

 
(2,265
)
 
—

Net proceeds from sale of common stock
999

 
—

 
—

 
—

 
999

Cash dividends and distributions paid, and contributions received, net
(547
)
 
(17
)
 
(749
)
 
677

 
(636
)
Other, net
(13
)
 
(37
)
 
(14
)
 
49

 
(15
)
Net cash provided by (used in) financing activities
782

 
1,654

 
1,310

 
(1,539
)
 
2,207

 
 
 
 
 
 
 
 
 
 
Net (decrease) increase in cash and cash equivalents
—

 
—

 
(126
)
 
—

 
(126
)
Decrease in cash and cash equivalents in assets held for sale
—

 
—

 
42

 
—

 
42

Cash and cash equivalents at beginning of period
—

 
1

 
316

 
—

 
317

Cash and cash equivalents at end of period
$
—

 
$
1

 
$
232

 
$
—

 
$
233



33
Table of Contents             

NOTE 12. NEW ACCOUNTING STANDARDS

In May 2015, the Financial Accounting Standards Board (FASB) issued an ASU that removes the requirement to categorize within the fair value hierarchy all investments for which fair value is measured using the NAV per share (or its equivalent) as a practical expedient. FCX adopted this ASU effective January 1, 2016, and the prior period disclosures have been restated to remove these investments from the levels within the fair value hierarchy (refer to Note 8 ).

In January 2016, FASB issued an ASU that amends the current guidance on the classification and measurement of financial instruments. This ASU makes limited changes to existing guidance and amends certain disclosure requirements. For public entities, this ASU is effective for interim and annual periods beginning after December 15, 2017. Early adoption is not permitted, except for the provision on recording fair value changes for financial liabilities under the fair value option. FCX is currently evaluating the impact this ASU will have on its financial reporting and disclosures, but at this time does not expect the adoption of this ASU will have a material impact on its financial statements.
In February 2016, FASB issued an ASU that will require lessees to recognize most leases on the balance sheet. This ASU allows lessees to make an accounting policy election to not recognize a lease asset and liability for leases with a term of 12 months or less and do not have a purchase option that is expected to be exercised. For public entities, this ASU is effective for interim and annual reporting periods beginning after December 15, 2018, with early adoption permitted. This ASU must be applied using the modified retrospective approach for leases that exist or are entered into after the beginning of the earliest comparative period in the financial statements. FCX is currently evaluating the impact this guidance will have on its financial statements.
In March 2016, FASB issued an ASU that simplifies various aspects of the accounting for share-based payment transactions, including the income tax consequences, statutory tax withholding requirements, an accounting policy election for forfeitures and the classification on the statement of cash flows. For public entities, this ASU is effective for interim and annual periods beginning after December 15, 2016, with early adoption permitted. Each of the amendments in this ASU provides specific transition requirements. FCX expects to adopt this ASU effective January 1, 2017, and does not expect adoption to have a material impact on its financial statements.
In June 2016, FASB issued an ASU that changes the impairment model for most financial assets and certain other instruments, and will also require expanded disclosures. For public entities, this ASU is effective for interim and annual reporting periods beginning after December 15, 2019, with early adoption permitted. The provisions of the ASU must be applied as a cumulative-effect adjustment to retained earnings as of the beginning of the first reporting period in which the guidance is effective. FCX is currently evaluating the impact this ASU will have on its financial statements.
NOTE 13. SUBSEQUENT EVENTS

On October 14, 2016 , FM O&G entered into an agreement to sell its onshore California oil and gas properties. Refer to Note 2 for further discussion.

FCX evaluated events after September 30, 2016 , and through the date the consolidated financial statements were issued, and determined any events or transactions occurring during this period that would require recognition or disclosure are appropriately addressed in these consolidated financial statements.


34
Table of Contents             

REVIEW REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

TO THE BOARD OF DIRECTORS AND STOCKHOLDERS OF
FREEPORT-McMoRan INC.

We have reviewed the consolidated balance sheet of Freeport-McMoRan Inc. as of September 30, 2016, and the related consolidated statements of operations and comprehensive income (loss) for the three - and nine -month periods ended September 30, 2016 and 2015 , the consolidated statements of cash flows for the nine -month periods ended September 30, 2016 and 2015 , and the consolidated statement of equity for the nine -month period ended September 30, 2016 . These financial statements are the responsibility of the Company’s management.

We conducted our review in accordance with the standards of the Public Company Accounting Oversight Board (United States). A review of interim financial information consists principally of applying analytical procedures and making inquiries of persons responsible for financial and accounting matters.  It is substantially less in scope than an audit conducted in accordance with the standards of the Public Company Accounting Oversight Board (United States), the objective of which is the expression of an opinion regarding the financial statements taken as a whole. Accordingly, we do not express such an opinion.

Based on our review, we are not aware of any material modifications that should be made to the consolidated financial statements referred to above for them to be in conformity with U.S. generally accepted accounting principles.

We have previously audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidated balance sheet of Freeport-McMoRan Inc. as of December 31, 2015 , and the related consolidated statements of operations, comprehensive (loss) income, cash flows and equity for the year then ended (not presented herein) and we expressed an unqualified audit opinion on those consolidated financial statements in our report dated February 26, 2016, except for Note 2, as to which the date is November 9, 2016. In our opinion, the accompanying consolidated balance sheet of Freeport-McMoRan Inc. as of December 31, 2015, is fairly stated, in all material respects, in relation to the consolidated balance sheet from which it has been derived.
 



/s/ ERNST & YOUNG LLP

Phoenix, Arizona
November 9, 2016

35
Table of Contents             

Item 2.
  Management's Discussion and Analysis of Financial Condition and Results of Operations.

In Management’s Discussion and Analysis of Financial Condition and Results of Operations, "we," "us" and "our" refer to Freeport-McMoRan Inc. (FCX) and its consolidated subsidiaries. You should read this discussion in conjunction with our financial statements, the related Management’s Discussion and Analysis of Financial Condition and Results of Operations and the discussion of our Business and Properties in our annual report on Form 10-K for the year ended December 31, 2015 , filed with the United States (U.S.) Securities and Exchange Commission (SEC), as recast in the Form 8-K filed on November 9, 2016 , for the presentation of TF Holdings Limited (TFHL) as discontinued operations. The results of operations reported and summarized below are not necessarily indicative of future operating results (refer to "Cautionary Statement" for further discussion). References to "Notes" are Notes included in our Notes to Consolidated Financial Statements. Throughout Management's Discussion and Analysis of Financial Condition and Results of Operations, all references to earnings or losses per share are on a diluted basis. Additionally, in accordance with accounting guidelines, TFHL, through which we hold an interest in the Tenke Fungurume (Tenke) mine, is reported as a discontinued operation for all periods presented.

OVERVIEW

We are a premier U.S.-based natural resources company with an industry-leading global portfolio of mineral assets. We are the world's largest publicly traded copper producer. Our portfolio of assets includes the Grasberg minerals district in Indonesia, one of the world's largest copper and gold deposits, and significant mining operations in the Americas, including the large-scale Morenci minerals district in North America and the Cerro Verde operation in South America.

Net income (loss) attributable to common stock totaled $217 million in third-quarter 2016 and $(4.4) billion for the first nine months of 2016, compared with $(3.8) billion in third-quarter 2015 and $(8.2) billion for the first nine months of 2015. The third quarter and first nine months of 2016 , compared with the 2015 periods, benefited from lower charges for the impairment of oil and gas properties and higher copper sales volumes, partly offset by lower copper price realizations. The first nine months of 2016 also reflected net gains on sales of assets, mostly offset by net charges associated with the termination and settlements of drilling rig contracts. Refer to “Consolidated Results” for further discussion.

At September 30, 2016 , we had $1.1 billion in consolidated cash and cash equivalents and $19.0 billion in total debt. We had no borrowings and $3.5 billion available under our $3.5 billion revolving credit facility. Refer to Note 6 for further discussion of debt.

We are taking actions to strengthen our balance sheet through a combination of asset sale transactions, cash flow from operations and capital market transactions. During 2016, we have announced $6.6 billion in asset sale transactions and have received aggregate cash consideration of $1.4 billion. The remaining $5.2 billion in gross proceeds associated with the pending sale of our interest in TFHL and the sales of our Deepwater Gulf of Mexico (GOM) and onshore California oil and gas properties is expected to be received in fourth-quarter 2016. As further discussed in Note 2, we have entered into agreements to sell (i) our Deepwater GOM properties for cash consideration of $2.0 billion (before closing adjustments) and up to $150 million in contingent payments, (ii) our onshore California oil and gas properties for cash consideration of $592 million (before closing adjustments) and up to $150 million of contingent consideration and (iii) our interest in TFHL for $2.65 billion and contingent consideration of up to $120 million. In connection with the sale of the Deepwater GOM properties, Freeport McMoRan Oil & Gas LLC (FM O&G) entered into an agreement to amend the terms of the Plains Offshore Operations Inc. (Plains Offshore) preferred stock to provide FM O&G the option to call these securities for $582 million, which FM O&G expects to exercise at the time the Deepwater GOM sale closes.

In July 2016, we commenced a registered at-the-market offering of up to $1.5 billion of common stock. Through November 8, 2016 , we have sold 59.8 million shares of our common stock for gross proceeds of $719 million ($12.02 per share average price) . Additionally, through August 4, 2016, FCX redeemed $369 million in senior notes (including $101 million in third-quarter 2016) for 28 million shares of its common stock in a series of privately negotiated transactions. Refer to Note 6 for further discussion.

During second-quarter 2016, we terminated contracts for FM O&G's deepwater drillships, and settled aggregate commitments totaling $1.1 billion for $755 million, of which $540 million was funded with shares of our common stock. We also agreed to provide contingent payments of up to $105 million, depending on the average price of crude oil over the 12-month period ending June 30, 2017. Refer to Note 9 for further discussion.

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Table of Contents             

FCX continues to aggressively manage production, exploration and administrative costs and capital spending. With the successful completion of the Cerro Verde expansion and anticipated access to higher grade ore from the Grasberg mine in future quarters, we expect to generate cash flows for debt reduction.

We remain focused on our high-quality portfolio of long-lived copper assets positioned to generate value as market conditions improve. In addition to debt reduction plans, we are pursuing opportunities to create additional value through mine designs that would increase copper reserves, reduce costs and provide opportunities to enhance net present values, and we continue to advance studies for future development of our copper resources, the timing of which will be dependent on market conditions.

OUTLOOK
 
We view the long-term outlook for our business positively, supported by limitations on supplies of copper and by the requirements for copper in the world’s economy. Our financial results vary as a result of fluctuations in market prices, primarily for copper, gold, molybdenum and oil, as well as other factors. World market prices for these commodities have fluctuated historically and are affected by numerous factors beyond our control. Because we cannot control the price of our products, the key measures that management focuses on in operating our business are sales volumes, unit net cash costs for our mining operations, cash production costs per barrel of oil equivalents (BOE) for our oil and gas operations, operating cash flow and capital expenditures.

Projections and other forward-looking statements included in this quarterly report on Form 10-Q assume a resolution with respect to Indonesian regulations prohibiting exports of concentrate and anode slimes after January 12, 2017 (refer to "Operations – Indonesia Mining" for further discussion).

Sales Volumes  
Following are our projected consolidated sales volumes for the year 2016 :
Copper  (millions of recoverable pounds):
 
 
North America copper mines
1,825

 
South America mining
1,325

 
Indonesia mining
1,170

 
Consolidated  - continuing operations
4,320

 
Discontinued operations  - Africa mining
485

 
Total
4,805

 
Gold  (thousands of recoverable ounces)
1,264

 
Molybdenum  (millions of recoverable pounds)
73

a  
Oil Equivalents  (million BOE or MMBOE)
48.1

 
a.
Projected molybdenum sales include 23 million pounds produced by our Molybdenum mines and 50 million pounds produced by our North and South America copper mines.

Consolidated sales volumes for fourth-quarter 2016 (excluding 120 million pounds of copper for Tenke) are expected to approximate 1.2 billion pounds of copper, 590 thousand ounces of gold, 21 million pounds of molybdenum and 11.5 MMBOE. Projected sales volumes are dependent on a number of factors, including operational performance, shipping schedules and the completion of pending asset sale transactions. For other important factors that could cause results to differ materially from projections, refer to "Cautionary Statement" and Part II, Item IA. "Risk Factors."

Mining Unit Net Cash Costs
Assuming average prices of $1,250 per ounce of gold and $7 per pound of molybdenum for fourth-quarter 2016 and achievement of current sales volume and cost estimates, consolidated unit net cash costs (net of by-product credits) for our copper mines (both including and excluding Tenke) are expected to average $1.20 per pound of copper for the year 2016 . The impact of price changes for fourth-quarter 2016 on consolidated unit net cash costs would approximate $0.0075 per pound for each $50 per ounce change in the average price of gold and $0.004 per pound for each $2 per pound change in the average price of molybdenum. Quarterly unit net cash costs vary with fluctuations in sales volumes and realized prices primarily for gold and molybdenum. Refer to “Consolidated Results

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Table of Contents             

– Production and Delivery Costs” for further discussion of consolidated production and delivery costs for our mining operations.

Oil and Gas Cash Production Costs per BOE
Based on current sales volume and cost estimates, cash production costs for our oil and gas operations are expected to approximate $16.00 per BOE for the year 2016 . Refer to “Operations – Oil and Gas” for further discussion of oil and gas production costs.

Consolidated Operating Cash Flow
Our consolidated operating cash flows vary with volumes, prices realized from copper, gold, molybdenum and oil sales, production costs, income taxes, other working capital changes and other factors. Based on current sales volume and cost estimates, and assuming average prices of $2.10 per pound of copper, $1,250 per ounce of gold, $7 per pound of molybdenum and $51 per barrel of Brent crude oil for fourth-quarter 2016 , consolidated operating cash flows are estimated to approximate $3.6 billion for the year 2016 (including $0.3 billion in working capital sources and other tax payments). Projected consolidated operating cash flows for the year 2016 also reflect an estimated income tax provision of $0.5 billion, primarily associated with income from our international mining operations (refer to "Consolidated Results - Income Taxes" for further discussion of our projected income tax rate for the year 2016). The impact of price changes during fourth-quarter 2016 on operating cash flows would approximate $150 million for each $0.10 per pound change in the average price of copper, $20 million for each $50 per ounce change in the average price of gold, $15 million for each $2 per pound change in the average price of molybdenum and $28 million for each $5 per barrel change in the average price of Brent crude oil.

Consolidated Capital Expenditures
Consolidated capital expenditures are expected to approximate $2.8 billion for the year 2016, consisting of $1.6 billion for mining operations (including $1.2 billion for major projects, primarily for the development of underground mines by PT Freeport Indonesia (PT-FI) and for the Cerro Verde expansion, which was completed earlier in the year) and $1.2 billion for oil and gas operations.

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Table of Contents             


MARKETS

Metals
World prices for copper, gold and molybdenum can fluctuate significantly. During the period from January 2006 through October 2016 , the London Metal Exchange (LME) spot copper price varied from a low of $1.26 per pound in 2008 to a record high of $4.60 per pound in 2011; the London Bullion Market Association (London) PM gold price fluctuated from a low of $525 per ounce in 2006 to a record high of $1,895 per ounce in 2011; and the Metals Week Molybdenum Dealer Oxide weekly average price ranged from a low of $4.46 per pound in 2015 to a high of $33.88 per pound in 2008. Copper, gold and molybdenum prices are affected by numerous factors beyond our control as described further in “Risk Factors” contained in Part I, Item 1A. of our annual report on Form 10-K for the year ended December 31, 2015 .

COPPER3Q16GRAPHA01.JPG

This graph presents LME spot copper prices and the combined reported stocks of copper at the LME, Commodity Exchange Inc. (COMEX), a division of the New York Mercantile Exchange (NYMEX), and the Shanghai Futures Exchange from January 2006 through October 2016 . Since mid-2014, copper prices have declined because of concerns about slowing growth rates in China, a stronger U.S. dollar and a broad-based decline in commodity prices. During third-quarter 2016 , LME spot copper prices ranged from a low of $2.07 per pound to a high of $2.25 per pound, averaged $2.16 per pound, and closed at $2.19 per pound on September 30, 2016 . The LME spot copper price was $2.19 per pound on October 31, 2016 .

We believe the underlying long-term fundamentals of the copper business remain positive, supported by the significant role of copper in the global economy and a challenging long-term supply environment attributable to difficulty in replacing output of existing large mines with new production sources. Future copper prices are expected to be volatile and are likely to be influenced by demand from China and emerging markets, as well as economic activity in the U.S. and other industrialized countries, the timing of the development of new supplies of copper, and production levels of mines and copper smelters.

39
Table of Contents             

GOLD3Q16GRAPHA01.JPG

This graph presents London PM gold prices from January 2006 through October 2016 . During third-quarter 2016 , London PM gold prices ranged from a low of $1,308 per ounce to a high of $1,366 per ounce, averaged $1,335 per ounce, and closed at $1,323 per ounce on September 30, 2016 . The London PM gold price was $1,272 per ounce on October 31, 2016 .

MOLY3Q16GRAPHA01.JPG
This graph presents the Metals Week Molybdenum Dealer Oxide weekly average prices from January 2006 through October 2016 . Molybdenum prices have declined since mid-2014 because of weaker demand from global steel and stainless steel producers. During third-quarter 2016 , the weekly average price of molybdenum ranged from a low of $6.41 per pound to a high of $7.55 per pound, averaged $7.04 per pound, and was $6.87 per pound on September 30, 2016 . The Metals Week Molybdenum Dealer Oxide weekly average price was $6.33 per pound on October 31, 2016 .


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Table of Contents             

Oil and Gas
Market prices for crude oil and natural gas can fluctuate significantly. During the period from January 2006 through October 2016 , the Brent crude oil price ranged from a low of $27.88 per barrel in 2016 to a high of $146.08 per barrel in 2008 and the NYMEX natural gas price fluctuated from a low of $1.71 per million British thermal units (MMBtu) in 2016 to a high of $13.11 per MMBtu in 2008. Crude oil and natural gas prices are affected by numerous factors beyond our control as described further in “Risk Factors” contained in Part I, Item 1A. of our annual report on Form 10-K for the year ended December 31, 2015 .

OIL3Q16GRAPHA01.JPG

This graph presents Brent crude oil prices and NYMEX natural gas contract prices from January 2006 through October 2016 . Since mid-2014, oil prices have significantly declined in connection with concerns of global oversupply. During third-quarter 2016 , the Brent crude oil price ranged from a low of $41.80 per barrel to a high of $50.89 per barrel, averaged $46.99 per barrel, and was $49.06 per barrel on September 30, 2016 . The Brent crude oil price was $48.30 per barrel on October 31, 2016 .



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Table of Contents             

CONSOLIDATED RESULTS
 
Three Months Ended September 30,
 
Nine Months Ended September 30,
 
 
2016
 
2015
 
2016
 
2015
 
SUMMARY FINANCIAL DATA  
(in millions, except per share amounts)
 
Revenues a,b
$
3,877

 
$
3,382

c  
$
10,453

 
$
11,091

c  
Operating income (loss) a,d,e,f,g
$
359

h,i  
$
(3,964
)
 
$
(3,495
)
h,i  
$
(9,415
)
i  
Net income (loss) from continuing operations j
$
292

k,l  
$
(3,815
)
 
$
(4,034
)
k,l  
$
(8,090
)
m  
Net (loss) income from discontinued operations n
$
(6
)
 
$
25

 
$
(191
)
 
$
95

 
Net income (loss) attributable to common stock
$
217


$
(3,830
)

$
(4,446
)
 
$
(8,155
)
 
Diluted net income (loss) per share of common stock:
 
 
 
 
 
 
 
 
Continuing operations
$
0.18

 
$
(3.59
)
 
$
(3.27
)
 
$
(7.80
)
 
Discontinued operations
(0.02
)
 
0.01

 
(0.18
)
 
0.03

 
 
$
0.16


$
(3.58
)

$
(3.45
)
 
$
(7.77
)
 
Diluted weighted-average common shares outstanding
1,351

 
1,071

 
1,289

 
1,050

 
Operating cash flows o
$
980


$
822


$
2,594


$
2,608


Capital expenditures
$
494

 
$
1,527

 
$
2,309

 
$
5,055

 
At September 30:
 
 
 
 
 
 
 
 
Cash and cash equivalents
$
1,108

 
$
233

 
$
1,108

 
$
233

 
Total debt, including current portion
$
18,982

 
$
20,698

 
$
18,982

 
$
20,698

 
 
 
 
 
 
 
 
 
 
a. As further detailed in Note 10, following is a summary of revenues and operating income (loss) by operating division (in millions):
 
Three Months Ended September 30,
 
Nine Months Ended September 30,
 
Revenues
2016
 
2015
 
2016
 
2015
 
North America copper mines
$
1,084

 
$
1,169

 
$
3,280

 
$
3,909

 
South America mining
671

 
438

 
2,019

 
1,377

 
Indonesia mining
986

 
609

 
2,073

 
2,006

 
Molybdenum mines
46

 
83

 
136

 
298

 
Rod & Refining
937

 
951

 
2,842

 
3,117

 
Atlantic Copper Smelting & Refining
445

 
439

 
1,363

 
1,485

 
U.S. oil & gas operations
427

 
525

 
1,132

 
1,594

 
Other & eliminations
(719
)
 
(832
)
 
(2,392
)
 
(2,695
)
 
Total revenues
$
3,877

 
$
3,382

 
$
10,453

 
$
11,091

 
 
 
 
 
 
 
 
 
 
Operating income (loss)
 
 
 
 
 
 
 
 
North America copper mines
$
213

 
$
—

 
$
1,190

 
$
594

 
South America mining
111

 
4

 
371

 
134

 
Indonesia mining
374

 
78

 
501

 
383

 
Molybdenum mines
(26
)
 
(29
)
 
(74
)
 
(32
)
 
Rod & Refining
4

 
3

 
15

 
13

 
Atlantic Copper Smelting & Refining
17

 
15

 
53

 
46

 
U.S. oil & gas operations
(289
)
 
(3,735
)
 
(5,544
)
 
(10,138
)
 
Other & eliminations
(45
)
 
(300
)
 
(7
)
 
(415
)
 
Total operating income (loss)
$
359

 
$
(3,964
)
 
$
(3,495
)
 
$
(9,415
)
 
b.
Includes (unfavorable) favorable adjustments to provisionally priced concentrate and cathode copper sales recognized in prior periods totaling $(15) million ( $(7) million to net income attributable to common stock from continuing operations or $(0.01) per share) in third-quarter 2016 , $(117) million ( $(58) million to net loss attributable to common stock from continuing operations or $(0.05) per share) in third-quarter 2015 , $5 million ( $2 million to net loss attributable to common stock from continuing operations or less than $0.01 per share) for the first nine months of 2016 and $(100) million ( $(48) million to net loss attributable to common stock from continuing operations or $(0.05) per share) for the first nine months of 2015 . Refer to “Revenues” for further discussion.
c.
Includes net noncash mark-to-market losses associated with crude oil derivative contracts totaling $74 million ( $46 million to net loss attributable to common stock or $0.04 per share) in third-quarter 2015 and $217 million ( $135 million to net loss attributable to common stock or $0.13 per share) for the first nine months of 2015 .

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Table of Contents             

d.
Includes the following charges to reduce the carrying value of oil and gas properties pursuant to full cost accounting rules (in millions, except per share amounts):
 
Three Months Ended September 30,
 
Nine Months Ended September 30,
 
 
2016
 
2015
 
2016
 
2015
 
Operating income (loss)
$
239

 
$
3,652

 
$
4,317

 
$
9,442

 
Net income (loss) attributable to common stock
$
239

 
$
3,481

 
$
4,317

 
$
7,855

 
Net income (loss) per share of common stock
$
0.18

 
$
3.25

 
$
3.35

 
$
7.48

 
As a result of impairments to oil and gas properties, we recorded tax charges to establish valuation allowances against U.S. federal and state deferred tax assets that are not expected to generate a future benefit, which have been reflected in the after-tax impacts for the impairment of oil and gas properties (refer to “Income Taxes” for these amounts).
e.
Includes net charges at oil and gas operations totaling $50 million ( $50 million to net income attributable to common stock or $0.03 per share) in third-quarter 2016 , $21 million ( $13 million to net loss attributable to common stock or $0.01 per share) in third-quarter 2015 , $942 million ( $942 million to net loss attributable to common stock or $0.73 per share) for the first nine months of 2016 and $59 million ( $37 million to net loss attributable to common stock or $0.04 per share) for the first nine months of 2015 , primarily for drillship settlements/idle rig costs, inventory adjustments and asset impairments. The 2016 periods also include charges for the termination of the Morocco well commitment and the 2015 periods include charges for prior period property tax assessments related to California properties.
f.
Includes charges at mining operations for metals inventory adjustments, asset retirement/impairment and restructuring totaling $40 million ( $40 million to net income attributable to common stock or $0.02 per share) in third-quarter 2016 , $183 million ( $114 million to net loss attributable to common stock or $0.10 per share) in third-quarter 2015 , $44 million ( $44 million to net loss attributable to common stock or $0.03 per share) for the first nine months of 2016 , and $246 million ( $155 million to net loss attributable to common stock or $0.14 per share) for the first nine months of 2015 .
g.
Includes net (credits) charges to environmental obligations and related litigation reserves totaling $(12) million ( $(12) million to net income attributable to common stock or $(0.01) per share) in third-quarter 2016 , $28 million ( $18 million to net loss attributable to common stock or $0.02 per share) in third-quarter 2015 , $(11) million ( $(11) million to net loss attributable to common stock or $(0.01) per share) for the first nine months of 2016 and $36 million ( $23 million to net loss attributable to common stock or $0.02 per share) for the first nine months of 2015 .
h.
Includes net restructuring-related (credits) charges at oil and gas operations totaling $(1) million ( $(1) million to net income attributable to common stock or less than $0.01 per share) in third-quarter 2016 and $38 million ( $38 million to net loss attributable to common stock or $0.03 per share) for the first nine months of 2016 .
i.
Includes net gains on sales of assets totaling $13 million ( $13 million to net income attributable to common stock or $0.01 per share) in third-quarter 2016 and $762 million ( $757 million to net loss attributable to common stock or $0.59 per share) for the first nine months of 2016 , primarily associated with the Morenci and Timok transactions, and $39 million ( $25 million to net loss attributable to common stock or $0.02 per share) for the first nine months of 2015 associated with the sale of our interest in the Luna Energy power facility. Refer to Note 2 for further discussion of the 2016 dispositions.
j.
We defer recognizing profits on intercompany sales until final sales to third parties occur. Refer to "Operations - Smelting & Refining" for a summary of net impacts from changes in these deferrals.
k.
Includes a net gain on early extinguishment of debt of $15 million ( $15 million to net income attributable to common stock or $0.01 per share) in third-quarter 2016 and $51 million ( $51 million to net loss attributable to common stock or $0.04 per share) for the first nine months of 2016 . Refer to Note 6 for further discussion.
l.
Includes net tax credits of $332 million ( $0.24 per share) in third-quarter 2016 and $290 million ( $0.22 per share) for the first nine months of 2016 , primarily associated with alternative minimum tax credits, changes to valuation allowances and net operating loss carryback claims. Refer to Note 5 for further discussion.
m.
Includes a gain of $92 million ( $92 million to net loss attributable to common stock or $0.09 per share) for the first nine months of 2015 related to the proceeds received from insurance carriers and other third parties related to a shareholder derivative litigation settlement.
n.
Net (loss) income from discontinued operations includes charges for (i) allocated interest expense totaling $12 million in third-quarter 2016 , $6 million in third-quarter 2015 , $33 million for the first nine months of 2016 and $20 million for the first nine months of 2015 associated with the portion of the FCX term loan that is required to be repaid as a result of the sale of our interest in TFHL and (ii) an income tax (benefit) provision totaling $(2) million in third-quarter 2016 , $(11) million in third-quarter 2015 , $(25) million for the first nine months of 2016 and $20 million for the first nine months of 2015 . In accordance with accounting guidelines, net (loss) income from discontinued operations includes an estimated loss on disposal totaling $5 million in third-quarter 2016 and $182 million for the first nine months of 2016 , which will be adjusted through closing of the transaction.
o.
Includes net working capital (uses) sources and changes in other tax payments of $(3) million in third-quarter 2016 , $507 million in third-quarter 2015 , $463 million for the first nine months of 2016 and $342 million for the first nine months of 2015 .

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Table of Contents             

 
Three Months Ended September 30,
 
Nine Months Ended September 30,
 
 
2016
 
2015
 
2016
 
2015
 
SUMMARY OPERATING DATA
 
 
 
 
 
 
Copper (millions of recoverable pounds) a
 
 
 
 
 
 
 
 
Production
1,093

 
895

 
3,091

 
2,556

 
Sales, excluding purchases
1,113

 
888

 
3,100

 
2,575

 
Average realized price per pound
$
2.19

 
$
2.39

 
$
2.17

 
$
2.54

 
Site production and delivery costs per pound b
$
1.37

 
$
1.75

 
$
1.42

 
$
1.88

 
Unit net cash costs per pound b
$
1.14

 
$
1.57

 
$
1.28

 
$
1.61

 
Gold (thousands of recoverable ounces)
 
 
 
 
 
 
 
 
Production
308

 
281

 
658

 
907

 
Sales, excluding purchases
317

 
294

 
674

 
909

 
Average realized price per ounce
$
1,327

 
$
1,117

 
$
1,292

 
$
1,149

 
Molybdenum  (millions of recoverable pounds)
 
 
 
 
 
 
 
 
Production
19

 
23

 
58

 
72

 
Sales, excluding purchases
16

 
23

 
52

 
69

 
Average realized price per pound
$
9.14

 
$
7.91

 
$
8.36

 
$
9.21

 
Oil Equivalents
 
 
 
 
 
 
 
 
Sales volumes
 
 
 
 
 
 
 
 
MMBOE
12.0

 
13.8

 
36.6

 
39.4

 
Thousand BOE (MBOE) per day
131

 
150

 
133

 
144

 
Cash operating margin per BOE c
 
 
 
 
 
 
 
 
Realized revenues
$
34.99

 
$
43.00

d  
$
30.50

 
$
45.57

d  
Cash production costs
(15.00
)
 
(18.85
)
 
(15.28
)
 
(19.42
)
 
Cash operating margin
$
19.99

 
$
24.15

 
$
15.22

 
$
26.15

 
a.
Excludes production and sales volumes from the Tenke mine, which is reported as a discontinued operation. Copper sales volumes from Tenke totaled 118 million pounds in third-quarter 2016 , 113 million pounds in third-quarter 2015 , 365 million pounds for the first nine months of 2016 and 350 million pounds for the first nine months of 2015 . Average realized copper prices (including Tenke) were $2.18 per pound in third-quarter 2016 , $2.38 per pound in third-quarter 2015 , $2.16 per pound for the first nine months of 2016 and $2.54 per pound for the first nine months of 2015 . Refer to "Discontinued Operations" for discussion of Tenke's operating results.
b.
Reflects per pound weighted-average production and delivery costs and unit net cash costs (net of by-product credits) for all copper mines (excluding Tenke), before net noncash and other costs. Including Tenke, mining unit net cash costs averaged $1.14 per pound in third-quarter 2016 , $1.52 per pound in third-quarter 2015 , $1.28 per pound for the first nine months of 2016 and $1.56 per pound for the first nine months of 2015 . For reconciliations of per pound unit costs by operating division to production and delivery costs applicable to sales reported in our consolidated financial statements, refer to "Product Revenues and Production Costs."
c.
Cash operating margin for oil and gas operations reflects realized revenues less cash production costs. Cash production costs exclude accretion and other costs. For reconciliations of realized revenues and cash production costs per BOE to revenues and production and delivery costs reported in our consolidated financial statements, refer to "Product Revenues and Production Costs."
d.
Includes realized cash gains on crude oil derivative contracts of $7.44 per BOE in third-quarter 2015 and $7.72 per BOE for the first nine months of 2015 .

Revenues
Consolidated revenues totaled $3.9 billion in third-quarter 2016 and $10.5 billion for the first nine months of 2016 , compared with $3.4 billion in third-quarter 2015 and $11.1 billion for the first nine months of 2015 . Revenues from our mining operations primarily include the sale of copper concentrate, copper cathode, copper rod, gold and molybdenum. During the first nine months of 2016 , our mined copper (excluding volumes from Tenke) was sold 56 percent in concentrate, 22 percent as cathode and 22 percent as rod from North America operations. Revenues from our oil and gas operations include the sale of oil, natural gas and natural gas liquids (NGLs). During the first nine months of 2016 , approximately 90 percent of our oil and gas revenues were from oil and NGLs.


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Table of Contents             


Following is a summary of changes in our consolidated revenues between periods (in millions):
 
Three Months Ended September 30
 
Nine Months Ended September 30
 
 
 
 
Revenues - 2015 period
$
3,382

 
$
11,091

Mining operations:
 
 
 
Higher (lower) sales volumes:
 
 
 
Copper
536

 
1,334

Gold
26

 
(270
)
Molybdenum
(48
)
 
(154
)
(Lower) higher average realized prices:
 
 
 
Copper
(223
)
 
(1,147
)
Gold
67

 
96

Molybdenum
21

 
(45
)
Net adjustments for prior period provisionally priced copper sales
102

 
105

Higher treatment charges
(66
)
 
(127
)
Higher revenues from purchased copper
67

 
44

Higher (lower) Atlantic Copper revenues
6

 
(122
)
Oil and gas operations:
 
 
 
Lower oil sales volumes
(6
)
 
(8
)
Lower oil average realized price, excluding derivative contracts
(39
)
 
(293
)
Net mark-to-market gains on crude oil derivative contracts for 2015 periods
(29
)
 
(87
)
Other, including intercompany eliminations
81

 
36

Revenues - 2016 period
$
3,877

 
$
10,453

 
 
 
 

Mining Operations
Sales Volumes. Consolidated copper sales increased to 1.1 billion pounds in third-quarter 2016 and 3.1 billion pounds for the first nine months of 2016 , compared with 888 million pounds in third-quarter 2015 and 2.6 billion pounds for the first nine months of 2015 , primarily reflecting higher volumes from Cerro Verde and PT Freeport Indonesia (PT-FI).

Consolidated gold sales volumes totaled 317 thousand ounces in third-quarter 2016 , 294 thousand ounces in third-quarter 2015 , 674 thousand ounces for the first nine months of 2016 and 909 thousand ounces for the first nine months of 2015 . Lower gold sales volumes in the first nine months of 2016, compared with the 2015 period, primarily reflects lower ore grades at PT-FI.

Consolidated molybdenum sales volumes decreased to 16 million pounds in third-quarter 2016 and 52 million pounds for the first nine months of 2016 , compared with 23 million pounds in third-quarter 2015 and 69 million pounds for the first nine months of 2015 , primarily reflecting weak demand.

Refer to “Operations” for further discussion of sales volumes at our mining operations.

Metals Realized Prices. Our consolidated revenues can vary significantly as a result of fluctuations in the market prices of copper, gold and molybdenum, and to a lesser extent silver. Third-quarter 2016 average realized prices, compared with third-quarter 2015 , were 8 percent lower for copper, 19 percent higher for gold and 16 percent higher for molybdenum. Average realized prices for the first nine months of 2016 , compared with the first nine months of 2015 , were 15 percent lower for copper, 12 percent higher for gold and 9 percent lower for molybdenum. Refer to "Markets" for further discussion.

Provisionally Priced Copper Sales. Impacts of net adjustments for prior period provisionally priced sales primarily relate to copper sales. Substantially all of our copper concentrate and cathode sales contracts provide final copper pricing in a specified future month (generally one to four months from the shipment date) based primarily on quoted LME monthly average spot copper prices. We receive market prices based on prices in the specified future period, which results in price fluctuations recorded through revenues until the date of settlement. We record revenues and invoice customers at the time of shipment based on then-current LME prices, which results in an embedded derivative on our provisionally priced concentrate and cathode sales that is adjusted to fair value through earnings

45
Table of Contents             

each period, using the period-end forward prices, until final pricing on the date of settlement. To the extent final prices are higher or lower than what was recorded on a provisional basis, an increase or decrease to revenues is recorded each reporting period until the date of final pricing. Accordingly, in times of rising copper prices, our revenues benefit from adjustments to the final pricing of provisionally priced sales pursuant to contracts entered into in prior periods; in times of falling copper prices, the opposite occurs. (Unfavorable) favorable impacts of net adjustments to prior periods' provisionally priced copper sales from continuing operations totaled $(15) million for third-quarter 2016 and $5 million for the first nine months of 2016 , compared with $(117) million for third-quarter 2015 and $(100) million for the first nine months of 2015 .

At September 30, 2016 , we had provisionally priced copper sales at our copper mining operations (excluding Tenke) totaling 521 million pounds of copper (net of intercompany sales and noncontrolling interests) recorded at an average of $2.20 per pound, subject to final pricing over the next several months. We estimate that each $0.05 change in the price realized from the September 30, 2016 , provisional price recorded would have an approximate $17 million effect on 2016 net loss attributable to common stock. The LME spot copper price was $2.19 per pound on October 31, 2016.

Treatment Charges. Revenues from our South America and Indonesia concentrate sales are recorded net of treatment charges. Higher treatment charges for the 2016 periods, compared with the 2015 periods, primarily reflect higher sales volumes from our Cerro Verde and PT-FI mining operations.

Purchased Copper. We purchase copper cathode primarily for processing by our Rod & Refining operations. Purchased copper volumes of 61 million pounds in third-quarter 2016 and 131 million pounds for the first nine months of 2016 were higher than purchased volumes of 28 million pounds in third-quarter 2015 and 92 million pounds for the first nine months of 2015 .

Atlantic Copper Revenues. Atlantic Copper revenues totaled $445 million in third-quarter 2016 , $439 million in third-quarter 2015 , $1.4 billion for the first nine months of 2016 and $1.5 billion for the first nine months of 2015 . Revenues for the 2016 periods, compared with the 2015 periods, reflect lower copper prices and higher sales volumes.

Oil and Gas Operations
Oil Sales Volumes. Oil sales volumes of 9.1 million barrels (MMBbls) in third-quarter 2016 and 26.1 MMBbls for the first nine months of 2016 were lower than oil sales volumes of 9.3 MMBbls in third-quarter 2015 and 26.3 MMBbls for the first nine months of 2015 , primarily reflecting lower volumes from California.

Realized Oil Prices Excluding Derivative Contracts. The average realized price for oil of $40.63 per barrel in third-quarter 2016 was 9 percent lower than our average realized price of $44.85 per barrel in third-quarter 2015 (excluding cash gains on derivative contracts). Our average realized price for oil of $37.11 per barrel for the first nine months of 2016 was 23 percent lower than our average realized price of $48.34 per barrel for the first nine months of 2015 (excluding cash gains on derivative contracts).
Crude Oil Derivative Contracts. During 2015, we had crude oil derivative contracts that were not designated as hedging instruments; accordingly, they were recorded at fair value with the mark-to-market gains and losses recorded in revenues each period. Net mark-to-market gains on crude oil derivative contracts totaled $29 million (consisting of cash gains of $103 million , partly offset by net noncash mark-to-market losses of $74 million ) in third-quarter 2015 and $87 million (consisting of cash gains of $304 million , partly offset by net noncash mark-to-market losses of $217 million ) for the first nine months of 2015 .

Production and Delivery Costs
Consolidated production and delivery costs totaled $2.5 billion in third-quarter 2016 , $2.6 billion in third-quarter 2015 , $8.0 billion for the first nine months of 2016 and $7.9 billion for the first nine months of 2015 . Production and delivery costs for mining operations were $603 million lower for the first nine months of 2016 , compared with the first nine months of 2015 , primarily reflecting the impact of cost reduction initiatives. Production and delivery costs for our U.S. oil and gas operations were $670 million higher for the first nine months of 2016 compared with the first nine months of 2015, primarily reflecting higher charges for drillship settlements/idle rig costs, which totaled $823 million for the first nine months of 2016 and $13 million for the first nine months of 2015 , partly offset by the impact of cost reduction efforts.


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Table of Contents             

Mining Unit Site Production and Delivery Costs. Site production and delivery costs for our copper mining operations primarily include labor, energy and commodity-based inputs, such as sulphuric acid, reagents, liners, tires and explosives. Consolidated unit site production and delivery costs (before net noncash and other costs) for our copper mines (excluding Tenke) totaled $1.37 per pound of copper in third-quarter 2016 and $1.42 per pound for the first nine months of 2016 , compared with $1.75 per pound in third-quarter 2015 and $1.88 per pound for the first nine months of 2015 . Lower consolidated unit site production and delivery costs for the 2016 periods, compared with the 2015 periods, primarily reflect higher volumes and the impact of ongoing cost reduction initiatives. Refer to “Operations – Unit Net Cash Costs” for further discussion of unit net cash costs associated with our operating divisions and to “Product Revenues and Production Costs” for reconciliations of per pound costs by operating division to production and delivery costs applicable to sales reported in our consolidated financial statements.

Oil and Gas Cash Production Costs per BOE. Production costs for our oil and gas operations primarily include costs incurred to operate and maintain wells and related equipment and facilities, such as lease operating expenses, steam gas costs, electricity, production and ad valorem taxes, and gathering and transportation expenses. Lower cash production costs for our oil and gas operations of $15.00 per BOE in third-quarter 2016 and $15.28 per BOE for the first nine months of 2016 , compared with $18.85 per BOE in third-quarter 2015 and $19.42 per BOE for the first nine months of 2015 , primarily reflect ongoing cost reduction efforts. Refer to “Operations - Oil and Gas” for further discussion of cash production costs at our oil and gas operations.

Depreciation, Depletion and Amortization
Depreciation will vary under the unit-of-production (UOP) method as a result of changes in sales volumes and the related UOP rates at our mining and oil and gas operations. Consolidated depreciation, depletion and amortization (DD&A) totaled $643 million in third-quarter 2016 , $823 million in third-quarter 2015 , $1.9 billion for the first nine months of 2016 and $2.5 billion for the first nine months of 2015 . DD&A from mining operations was $47 million higher in third-quarter 2016 and $184 million higher for the first nine months of 2016 , compared with the 2015 periods, primarily reflecting higher copper sales volumes from Cerro Verde and PT-FI. DD&A from U.S. oil and gas operations was $227 million lower in third-quarter 2016 and $769 million lower for the first nine months of 2016 , compared with the 2015 periods, primarily reflecting lower DD&A rates as a result of reduced oil and gas property costs subject to amortization following impairment charges.

Impairment of Oil and Gas Properties
Under full cost accounting rules, a "ceiling test" is conducted each quarter to review the carrying value of oil and gas properties for impairment, which resulted in the recognition of impairment charges totaling $239 million in third-quarter 2016 , $3.7 billion in third-quarter 2015 , $4.3 billion for the first nine months of 2016 and $9.4 billion for the first nine months of 2015 . Refer to Note 1 and "Operations - Oil and Gas" for further discussion.

Selling, General and Administrative Expenses
Consolidated selling, general and administrative expenses totaled $110 million in third-quarter 2016 , $122 million in third-quarter 2015 , $408 million for the first nine months of 2016 and $421 million for the first nine months of 2015 . Selling, general and administrative expenses includes net restructuring-related charges of $38 million for the first nine months of 2016 associated with our oil and gas operations.

Consolidated selling, general and administrative expenses were net of capitalized general and administrative expenses at our oil and gas operations totaling $16 million in third-quarter 2016 , $27 million in third-quarter 2015 , $66 million for the first nine months of 2016 and $97 million for the first nine months of 2015 .

Mining Exploration and Research Expenses
Consolidated exploration and research expenses for our mining operations totaled $13 million in third-quarter 2016 , $26 million in third-quarter 2015 , $46 million for the first nine months of 2016 and $83 million for the first nine months of 2015 . Our mining exploration activities are generally associated with our existing mines focusing on opportunities to expand reserves and resources to support development of additional future production capacity. Exploration results continue to indicate opportunities for significant future potential reserve additions in North and South America. Exploration spending continues to be constrained by market conditions and is expected to approximate $45 million for the year 2016 .

Exploration costs for our oil and gas operations are capitalized to oil and gas properties.


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Environmental Obligations and Shutdown Costs
Environmental obligation costs reflect net revisions to our long-term environmental obligations, which vary from period to period because of changes to environmental laws and regulations, the settlement of environmental matters and/or circumstances affecting our operations that could result in significant changes in our estimates. Shutdown costs include care-and-maintenance costs and any litigation, remediation or related expenditures associated with closed facilities or operations. Net (credits) charges for environmental obligations and shutdown costs from continuing operations totaled $(3) million in third-quarter 2016 , $37 million in third-quarter 2015 , $18 million for the first nine months of 2016 and $61 million for the first nine months of 2015 .

Net Gain on Sales of Assets
Net gain on sales of assets totaled $13 million in third-quarter 2016 and $762 million for the the first nine months of 2016 , primarily associated with the Morenci and Timok transactions (refer to Note 2 for further discussion). Net gain on sales of assets totaled $39 million for the first nine months of 2015 related to the sale of our interest in the Luna Energy power facility.

Interest Expense, Net
Consolidated interest expense (excluding capitalized interest and interest expense allocated to discontinued operations) totaled $211 million in both third-quarter 2016 and 2015 , $647 million for the first nine months of 2016 and $622 million for the first nine months of 2015 . Refer to Note 2 for interest allocated to discontinued operations.

Capitalized interest varies with the level of expenditures for our development projects and average interest rates on our borrowings and totaled $24 million in third-quarter 2016 , $54 million in third-quarter 2015 , $73 million for the first nine months of 2016 and $184 million for the first nine months of 2015 .

Net Gain on Early Extinguishment of Debt
Net gain on early extinguishment of debt totaled $15 million in third-quarter 2016 and $51 million for the first nine months of 2016 , primarily related to the redemption of certain senior notes in exchange for common stock. Refer to Note 6 for further discussion.

Income Taxes
Following is a summary of the approximate amounts used in the calculation of our consolidated income tax benefit
(provision) from continuing operations for the first nine months of 2016 and 2015 (in millions, except percentages):
 
Nine Months Ended September 30,
 
 
2016
 
2015
 
 
Income(Loss) a
 
Effective
Tax Rate
 
Income Tax Benefit (Provision)
 
Income (Loss) a
 
Effective
Tax Rate
 
Income Tax Benefit (Provision)
 
U.S.
$
(616
)
 
47%
 
$
292

b  
$
(1,033
)
c  
42%
 
$
435

 
South America
290

 
39%
 
(114
)
 
76

 
42%
 
(32
)
 
Indonesia
544

 
39%
 
(212
)
 
327

 
44%
 
(145
)
 
Impairment of oil and gas properties
(4,317
)
 
38%
 
1,632

 
(9,442
)
 
37%
 
3,497

 
Valuation allowance, net d
—

 
N/A
 
(1,632
)
 
—

 
N/A
 
(1,910
)
 
Eliminations and other
135

 
N/A
 
(46
)
 
221

 
N/A
 
(70
)
 
Rate adjustment e
—

 
N/A
 
1

 
—

 
N/A
 
(13
)
 
Consolidated FCX
$
(3,964
)
 
(2)%
f  
$
(79
)
 
$
(9,851
)
 
18%
 
$
1,762

 
a.
Represents income (loss) from continuing operations by geographic location before income taxes and equity in affiliated companies’ net earnings (losses).
b.
Includes net tax credits of $290 million for the first nine months of 2016 primarily associated with alternative minimum tax credits, changes to valuation allowances and net operating loss carryback claims. Refer to Note 5 for further discussion.
c.
Includes a gain of $92 million related to net proceeds received from insurance carriers and other third parties related to the shareholder derivative litigation settlement for which there was no related tax provision.
d.
As a result of the impairment to U.S. oil and gas properties, we recorded tax charges to establish valuation allowances against U.S. federal and state deferred tax assets that will not generate a future benefit.
e.
In accordance with applicable accounting rules, we adjust our interim provision for income taxes to equal our consolidated tax rate.

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Table of Contents             

f.
The consolidated effective income tax rate is a function of the combined effective tax rates for the jurisdictions in which we operate. Accordingly, variations in the relative proportions of jurisdictional income result in fluctuations to our consolidated effective income tax rate. Assuming achievement of current sales volume and cost estimates and average prices of $2.10 per pound for copper, $1,250 per ounce for gold, $7 per pound for molybdenum and $51 per barrel of Brent crude oil for fourth-quarter 2016 , we estimate our consolidated effective tax rate related to continuing operations for the year 2016 will approximate 40 percent , excluding U.S. domestic losses.

Net (Loss) Income from Discontinued Operations
In May 2016, we entered into an agreement to sell our interest in TFHL, through which we have an effective 56 percent interest in the Tenke copper and cobalt mining concessions in the Southeast region of the Democratic Republic of Congo (DRC). In accordance with accounting guidelines, the results of Tenke have been reported as discontinued operations for all periods presented. Net (loss) income from discontinued operations totaled $(6) million in third-quarter 2016 , $25 million in third-quarter 2015 , $(191) million for the first nine months of 2016 and $95 million for the first nine months of 2015 . The 2016 periods also include an estimated loss on disposal of $5 million for third-quarter 2016 and $182 million for the first nine months of 2016 , which will be adjusted through closing of the transaction. Refer to Note 2 for a summary of the components of discontinued operations and to "Discontinued Operations" for a discussion of operating results.

OPERATIONS

North America Copper Mines
We operate 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.

We record our undivided joint venture interest in Morenci using the proportionate consolidation method. On May 31, 2016, we completed the sale of an additional 13 percent undivided interest in Morenci for $1.0 billion in cash. As a result of the transaction, our undivided interest in Morenci was prospectively reduced from 85 percent to 72 percent. Refer to Note 2 for further discussion.

The North America copper mines include open-pit mining, sulfide ore concentrating, leaching and solution extraction/electrowinning (SX/EW) operations. A majority of the copper produced at our North America copper mines is cast into copper rod by our Rod & Refining segment. The remainder of our North America copper sales is in the form of copper cathode or copper concentrate, a portion of which is shipped to Atlantic Copper. Molybdenum concentrate and silver are also produced by certain of our North America copper mines.

Operating and Development Activities. We have significant undeveloped reserves and resources in North America and a portfolio of long-term development projects. In the near term, we are deferring development of new projects as a result of current market conditions. Future investments will be undertaken based on the results of economic and technical feasibility studies, and market conditions.

During 2015, we revised plans for our North America copper mines to incorporate reductions in mining rates to reduce operating and capital costs. In addition, we curtailed operations at the Miami and Tyrone mines, and we are operating our Sierrita mine at reduced rates. The revised plans at each of the operations incorporate the impacts of lower energy, acid and other consumables, reduced labor costs and a significant reduction in capital spending plans. These operating plans will continue to be reviewed and additional adjustments will be made as market conditions warrant.


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Table of Contents             

Operating Data. Following is a summary of consolidated operating data for the North America copper mines for the third quarters and first nine months of 2016 and 2015 :
 
Three Months Ended September 30,
 
Nine Months Ended September 30,
 
2016
 
2015
 
2016
 
2015
Operating Data, Net of Joint Venture Interest
 
 
 
 
 
 
 
Copper  
 
 
 
 
 
 
 
Production (millions of recoverable pounds)
455

 
499

 
1,411

 
1,420

Sales (millions of recoverable pounds)
458

 
483

 
1,425

 
1,441

Average realized price per pound
$
2.19

 
$
2.42

 
$
2.18

 
$
2.59

 
 
 
 
 
 
 
 
Molybdenum  
 
 
 
 
 
 
 
Production   (millions of recoverable pounds) a
9

 
9

 
25

 
28

 
 
 
 
 
 
 
 
100% Operating Data
 
 
 
 
 
 
 
SX/EW operations
 
 
 
 
 
 
 
Leach ore placed in stockpiles (metric tons per day)
681,400

 
927,900

 
764,900

 
911,100

Average copper ore grade (percent)
0.31

 
0.27

 
0.32

 
0.26

Copper production (millions of recoverable pounds)
316

 
300

 
921

 
808

 
 
 
 
 
 
 
 
Mill operations
 
 
 
 
 
 
 
Ore milled (metric tons per day)
300,500

 
311,500

 
299,900

 
309,700

Average ore grade (percent):
 
 
 
 
 
 
 
Copper
0.47

 
0.50

 
0.48

 
0.48

Molybdenum
0.03

 
0.03

 
0.03

 
0.03

Copper recovery rate (percent)
87.8

 
85.6

 
86.3

 
85.6

Copper production (millions of recoverable pounds)
216

 
240

 
661

 
728

a.
Refer to "Consolidated Results" for our consolidated molybdenum sales volumes, which includes sales of molybdenum produced at the North America copper mines.

Copper sales volumes from our North America copper mines of 458 million pounds in third-quarter 2016 were less than third-quarter 2015 sales of 483 million pounds, primarily attributable to the May 2016 sale of a portion of our interest in Morenci. Copper sales volumes from our North America mines of 1.43 billion pounds for the first nine months of 2016 were slightly lower than 1.44 billion pounds for the first nine months of 2015 .

Copper sales from North America are expected to approximate 1.8 billion pounds for the year 2016 , compared with 2.0 billion pounds in 2015 .

Unit Net Cash Costs. Unit net cash costs per pound of copper is a measure intended to provide investors with information about the cash-generating capacity of our mining operations expressed on a basis relating to the primary metal product for our respective operations. We use this measure for the same purpose and for monitoring operating performance by our mining operations. This information differs from measures of performance determined in accordance with U.S. GAAP and should not be considered in isolation or as a substitute for measures of performance determined in accordance with U.S. GAAP. This measure is presented by other metals mining companies, although our measure may not be comparable to similarly titled measures reported by other companies.


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Table of Contents             

Gross Profit per Pound of Copper and Molybdenum
The following tables summarize unit net cash costs and gross profit per pound at our North America copper mines for the third quarters and first nine months of 2016 and 2015 . Refer to “Product Revenues and Production Costs” for an explanation of the “by-product” and “co-product” methods and a reconciliation of unit net cash costs per pound to production and delivery costs applicable to sales reported in our consolidated financial statements.
 
Three Months Ended September 30,
 
 
2016
 
2015
 
 
By- Product Method
 
Co-Product Method
 
By- Product Method
 
Co-Product Method
 
 
 
Copper
 
Molyb-
denum a
 
 
Copper
 
Molyb-
denum a
 
Revenues, excluding adjustments
$
2.19

 
$
2.19

 
$
7.39

 
$
2.42

 
$
2.42

 
$
6.18

 
 
 
 
 
 
 
 
 
 
 
 
 
 
Site production and delivery, before net noncash
and other costs shown below
1.44

 
1.34

 
5.51

 
1.68

 
1.59

 
5.51

 
By-product credits
(0.17
)
 
—

 
—

 
(0.12
)
 
—

 
—

 
Treatment charges
0.10

 
0.09

 
—

 
0.12

 
0.11

 
—

 
Unit net cash costs
1.37

 
1.43

 
5.51

 
1.68

 
1.70

 
5.51

 
Depreciation, depletion and amortization
0.28

 
0.26

 
0.70

 
0.28

 
0.27

 
0.51

 
Metals inventory adjustments
0.01

 
0.01

 
—

 
0.11

 
0.11

 
0.14

 
Noncash and other costs, net
0.05

 
0.04

 
0.13

 
0.22

b  
0.21

 
0.19

 
Total unit costs
1.71

 
1.74

 
6.34

 
2.29

 
2.29

 
6.35

 
Revenue adjustments, primarily for pricing
on prior period open sales
—

 
—

 
—

 
(0.12
)
 
(0.12
)
 
—

 
Gross profit (loss) per pound
$
0.48

 
$
0.45

 
$
1.05

 
$
0.01

 
$
0.01

 
$
(0.17
)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Copper sales (millions of recoverable pounds)
457

 
457

 
 
 
483

 
483

 
 
 
Molybdenum sales (millions of recoverable pounds) a
 
 
 
 
9

 
 
 
 
 
9

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Nine Months Ended September 30,
 
 
2016
 
2015
 
 
By- Product Method
 
Co-Product Method
 
By- Product Method
 
Co-Product Method
 
 
 
Copper
 
Molyb-
denum a
 
 
Copper
 
Molyb-
denum a
 
Revenues, excluding adjustments
$
2.18

 
$
2.18

 
$
6.24

 
$
2.59

 
$
2.59

 
$
7.62

 
 
 
 
 
 
 
 
 
 
 
 
 
 
Site production and delivery, before net noncash and other costs shown below
1.41

 
1.34

 
4.86

 
1.76

 
1.65

 
6.01

 
By-product credits
(0.12
)
 
—

 
—

 
(0.15
)
 
—

 
—

 
Treatment charges
0.11

 
0.10

 
—

 
0.12

 
0.12

 
—

 
Unit net cash costs
1.40

 
1.44

 
4.86

 
1.73

 
1.77

 
6.01

 
Depreciation, depletion and amortization
0.29

 
0.27

 
0.61

 
0.28

 
0.27

 
0.56

 
Metals inventory adjustments
—

 
—

 
—

 
0.04

 
0.04

 
0.04

 
Noncash and other costs, net
0.05

 
0.05

 
0.06

 
0.12

b  
0.12

 
0.10

 
Total unit costs
1.74

 
1.76

 
5.53

 
2.17

 
2.20

 
6.71

 
Revenue adjustments, primarily for pricing on prior period open sales
—

 
—

 
—

 
(0.02
)
 
(0.02
)
 
—

 
Gross profit per pound
$
0.44

 
$
0.42

 
$
0.71

 
$
0.40

 
$
0.37

 
$
0.91

 
 
 
 
 
 
 
 
 
 
 
 
 
 
Copper sales (millions of recoverable pounds)
1,421

 
1,421

 
 
 
1,439

 
1,439

 
 
 
Molybdenum sales (millions of recoverable pounds) a
 
 
 
 
25

 
 
 
 
 
28

 
a.
Reflects sales of molybdenum produced by certain of the North America copper mines to our molybdenum sales company at market-based pricing.
b.
Includes $75 million ($0.16 per pound in third-quarter 2015 and $0.05 per pound for the first nine months of 2015) for asset impairment and restructuring charges.

Our North America copper mines have varying cost structures because of differences in ore grades and characteristics, processing costs, by-product credits and other factors. Average unit net cash costs (net of by-product credits) of $1.37 per pound of copper in third-quarter 2016 and $1.40 per pound for the first nine months of 2016 were lower than unit net cash costs of $1.68 per pound in third-quarter 2015 and $1.73 per pound for the first nine months of 2015 , primarily reflecting cost reduction initiatives.

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Table of Contents             


Because certain assets are depreciated on a straight-line basis, North America's average unit depreciation rate may vary with asset additions and the level of copper production and sales.

Average unit net cash costs (net of by-product credits) for our North America copper mines are expected to approximate $1.41 per pound of copper for the year 2016 , based on achievement of current sales volume and cost estimates, and assuming an average molybdenum price of $7 per pound for fourth-quarter 2016 . North America's average unit net cash costs would change by approximately $0.005 per pound for each $2 per pound change in the average price of molybdenum.

South America Mining
We operate two copper mines in South America – Cerro Verde in Peru (in which we own a 53.56 percent interest) and El Abra in Chile (in which we own a 51 percent interest), which are consolidated in our financial statements.

South America mining includes open-pit mining, sulfide ore concentrating, leaching and SX/EW operations. Production from our South America mines is sold as copper concentrate or cathode under long-term contracts. Our South America mines also ship a portion of their copper concentrate inventories to Atlantic Copper. In addition to copper, the Cerro Verde mine produces molybdenum concentrate and silver.

Operating and Development Activities. The Cerro Verde expansion project commenced operations in September 2015 and achieved capacity operating rates during first-quarter 2016. Cerro Verde's expanded operations benefit from its large-scale, long-lived reserves and cost efficiencies. The project expanded the concentrator facilities from 120,000 metric tons of ore per day to 360,000 metric tons of ore per day and is on track to provide incremental annual production of approximately 600 million pounds of copper and 15 million pounds of molybdenum.

During 2015, we revised operating plans for our South America mines, principally to reflect adjustments to our mine plan at El Abra to reduce mining and stacking rates by approximately 50 percent to achieve lower operating and labor costs, defer capital expenditures and extend the life of the existing operations.

We continue 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 depend on technical studies, economic factors and global copper market conditions.


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Table of Contents             

Operating Data. Following is a summary of consolidated operating data for our South America mining operations for the third quarters and first nine months of 2016 and 2015 :
 
Three Months Ended September 30,
 
Nine Months Ended September 30,
 
2016
 
2015
 
2016
 
2015
Copper  
 
 
 
 
 
 
 
Production (millions of recoverable pounds)
317

 
204

 
986

 
585

Sales (millions of recoverable pounds)
323

 
207

 
973

 
585

Average realized price per pound
$
2.19

 
$
2.37

 
$
2.17

 
$
2.52

 
 
 
 
 
 
 
 
Molybdenum  
 
 
 
 
 
 
 
Production (millions of recoverable pounds) a
5

 
1

 
14

 
5

 
 
 
 
 
 
 
 
SX/EW operations
 
 
 
 
 
 
 
Leach ore placed in stockpiles (metric tons per day)
163,000

 
192,300

 
158,100

 
220,800

Average copper ore grade (percent)
0.41

 
0.46

 
0.41

 
0.43

Copper production (millions of recoverable pounds)
78

 
107

 
250

 
330

 
 
 
 
 
 
 
 
Mill operations
 
 
 
 
 
 
 
Ore milled (metric tons per day)
355,300

 
131,200

 
348,900

 
122,400

Average ore grade:
 
 
 
 
 
 
 
Copper (percent)
0.41

 
0.49

 
0.42

 
0.46

Molybdenum (percent)
0.02

 
0.02

 
0.02

 
0.02

Copper recovery rate (percent)
84.4

 
79.2

 
86.1

 
79.0

Copper production (millions of recoverable pounds)
239

 
97

 
736

 
255

a.
Refer to "Consolidated Results" for our consolidated molybdenum sales volumes, which include sales of molybdenum produced at Cerro Verde.

Consolidated copper sales volumes from South America of 323 million pounds in third-quarter 2016 and 973 million pounds for the first nine months of 2016 , were significantly higher than sales of 207 million pounds in third-quarter 2015 and 585 million pounds for the first nine months of 2015 , reflecting Cerro Verde's expanded operations.

Copper sales from South America mines are expected to approximate 1.3 billion pounds of copper for the year 2016 , compared with 871 million pounds in 2015.

Unit Net Cash Costs. Unit net cash costs per pound of copper is a measure intended to provide investors with information about the cash-generating capacity of our mining operations expressed on a basis relating to the primary metal product for our respective operations. We use this measure for the same purpose and for monitoring operating performance by our mining operations. This information differs from measures of performance determined in accordance with U.S. GAAP and should not be considered in isolation or as a substitute for measures of performance determined in accordance with U.S. GAAP. This measure is presented by other metals mining companies, although our measure may not be comparable to similarly titled measures reported by other companies.


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Table of Contents             

Gross Profit per Pound of Copper
The following tables summarize unit net cash costs and gross profit per pound of copper at the South America mining operations for the third quarters and first nine months of 2016 and 2015 . Unit net cash costs per pound of copper are reflected under the by-product and co-product methods as the South America mining operations also had small amounts of molybdenum and silver sales. Refer to “Product Revenues and Production Costs” for an explanation of the “by-product” and “co-product” methods and a reconciliation of unit net cash costs per pound to production and delivery costs applicable to sales reported in our consolidated financial statements.
 
Three Months Ended September 30,
 
 
2016
 
2015
 
 
By-Product
Method
 
Co-Product
Method
 
By-Product
Method
 
Co-Product
Method
 
Revenues, excluding adjustments
$
2.19

 
$
2.19

 
$
2.37

 
$
2.37

 
 
 
 
 
 
 
 
 
 
Site production and delivery, before net noncash
    and other costs shown below
1.27

 
1.20

 
1.54

 
1.50

 
By-product credits
(0.12
)
 
—

 
(0.04
)
 
—

 
Treatment charges
0.24

 
0.24

 
0.18

 
0.18

 
Royalty on metals
0.01

 
—

 
—

 
—

 
Unit net cash costs
1.40

 
1.44

 
1.68

 
1.68

 
Depreciation, depletion and amortization
0.41

 
0.39

 
0.43

 
0.42

 
Noncash and other costs, net
0.01

 
0.01

 
0.10

a  
0.10

 
Total unit costs
1.82

 
1.84

 
2.21

 
2.20

 
Revenue adjustments, primarily for pricing
    on prior period open sales
(0.02
)
 
(0.02
)
 
(0.14
)
 
(0.14
)
 
Gross profit per pound
$
0.35

 
$
0.33

 
$
0.02

 
$
0.03

 
 
 
 
 
 
 
 
 
 
Copper sales (millions of recoverable pounds)
323

 
323

 
207

 
207

 
 
 
 
 
 
 
 
 
 
Nine Months Ended September 30,
 
2016
 
2015
 
By-Product
Method
 
Co-Product
Method
 
By-Product
Method
 
Co-Product
Method
Revenues, excluding adjustments
$
2.17

 
$
2.17

 
$
2.52

 
$
2.52

 
 
 
 
 
 
 
 
Site production and delivery, before net noncash and other costs shown below
1.23

 
1.17

 
1.68

 
1.63

By-product credits
(0.10
)
 
—

 
(0.05
)
 
—

Treatment charges
0.24

 
0.24

 
0.17

 
0.17

Royalty on metals
—

 
—

 
—

 
—

Unit net cash costs
1.37

 
1.41

 
1.80

 
1.80

Depreciation, depletion and amortization
0.41

 
0.39

 
0.40

 
0.39

Noncash and other costs, net
0.02

 
0.02

 
0.04

a  
0.04

Total unit costs
1.80

 
1.82

 
2.24

 
2.23

Revenue adjustments, primarily for pricing on prior period open sales
0.01

 
0.01

 
(0.05
)
 
(0.05
)
Gross profit per pound
$
0.38

 
$
0.36

 
$
0.23

 
$
0.24

 
 
 
 
 
 
 
 
Copper sales (millions of recoverable pounds)
973

 
973

 
585

 
585

a.
Includes restructuring charges totaling $11 million ($0.05 per pound in third-quarter 2015 and $0.02 per pound for the first nine months of 2015 ).

Our South America mines have varying cost structures because of differences in ore grades and characteristics, processing costs, by-product credits and other factors. Average unit net cash costs (net of by-product credits) of $1.40 per pound of copper in third-quarter 2016 and $1.37 per pound for the first nine months of 2016 , were lower than unit net cash costs of $1.68 per pound in third-quarter 2015 and $1.80 per pound for the first nine months of 2015 , primarily reflecting higher copper sales volumes and efficiencies associated with the Cerro Verde expansion and higher by-product credits.

Revenues from Cerro Verde's concentrate sales are recorded net of treatment and refining charges. Accordingly, treatment charges will vary with Cerro Verde's sales volumes and the price of copper.


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Because certain assets are depreciated on a straight-line basis, South America's unit depreciation rate may vary with asset additions and the level of copper production and sales.

Revenue adjustments primarily result from changes in prices on provisionally priced copper sales recognized in prior periods. Refer to “Consolidated Results - Revenues” for further discussion of adjustments to prior period provisionally priced copper sales.

Average unit net cash costs (net of by-product credits) for our South America mining operations are expected to approximate $1.42 per pound of copper for the year 2016 , based on current sales volume and cost estimates, and assuming average prices of $7 per pound of molybdenum for fourth-quarter 2016 .

Indonesia Mining
Indonesia mining includes PT-FI’s Grasberg minerals district, one of the world's largest copper and gold deposits, in Papua, Indonesia. We own 90.64 percent of PT-FI, including 9.36 percent owned through our wholly owned subsidiary, PT Indocopper Investama.

PT-FI proportionately consolidates an unincorporated joint venture with Rio Tinto plc (Rio Tinto), under which Rio Tinto has a 40 percent interest in certain assets and a 40 percent interest through 2021 in production exceeding specified annual amounts of copper, gold and silver. Refer to Note 3 in our annual report on Form 10-K for the year ended December 31, 2015 , for discussion of our joint venture with Rio Tinto.

PT-FI produces copper concentrate that contains significant quantities of gold and silver. Substantially all of PT-FI’s copper concentrate is sold under long-term contracts, and during the first nine months of 2016, approximately half of PT-FI's concentrate production was sold to PT Smelting, its 25-percent-owned smelter and refinery in Gresik, Indonesia.

Regulatory Matters. PT-FI continues to engage with Indonesian government officials regarding its long-term operating rights under its Contract of Work (COW), and its rights to export concentrate without restriction.

In July 2014, PT-FI and the Indonesian government entered into a Memorandum of Understanding, in which subject to concluding an agreement to extend PT-FI's operations beyond 2021 on acceptable terms, PT-FI agreed to construct new smelter capacity in Indonesia and to divest an additional 20.64 percent interest in PT-FI at fair market value. PT-FI also agreed to pay higher royalties and to pay export duties until certain smelter development milestones were met.

In October 2015, the Indonesian government provided a letter of assurance to PT-FI indicating that it would revise regulations allowing it to approve the extension of operations beyond 2021, and provide the same rights and the same level of legal and fiscal certainty provided under its current COW.

In August 2016, PT-FI's export permit was renewed through January 11, 2017. Current regulations published by the Indonesian government prohibit exports of copper concentrate and anode slimes after January 12, 2017. Indonesian government officials have indicated an intent to revise this regulation to protect employment and government revenues. The nature of any potential revisions of the regulation is currently uncertain. PT-FI is actively engaged with Indonesian government officials on this matter. Refer to "Risk Factors" contained in Part II, Item IA. for further discussion.

Operating and Development Activities. PT-FI is currently mining the final phase of the Grasberg open pit, which contains high copper and gold ore grades. PT-FI expects to mine high-grade ore over the next several quarters prior to transitioning to the Grasberg Block Cave underground mine in the first half of 2018.

PT-FI has several projects in progress in the Grasberg minerals district related to the development of its large-scale, long-lived, high-grade underground ore bodies. In aggregate, these underground ore bodies are expected to produce large-scale quantities of copper and gold following the transition from the Grasberg open pit. From 2017 to 2020, estimated aggregate capital spending on these projects is currently expected to average $1.0 billion per year ($0.8 billion per year net to PT-FI). Considering the long-term nature and size of these projects, actual costs could vary from these estimates. In response to market conditions and Indonesian regulatory uncertainty, the timing of these expenditures continues to be reviewed.


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The following provides additional information on the continued development of the Common Infrastructure project, the Grasberg Block Cave underground mine and the Deep Mill Level Zone (DMLZ) ore body that lies below the Deep Ore Zone (DOZ) underground mine. Our current plans and mineral reserves in Indonesia assume that PT-FI will be able to continue to export copper concentrate directly and through PT Smelting after January 12, 2017, and that PT-FI's COW will be extended beyond 2021.

Common Infrastructure and Grasberg Block Cave Mine. In 2004, PT-FI commenced its Common Infrastructure project to provide access to its large undeveloped underground ore bodies located in the Grasberg minerals district through a tunnel system located approximately 400 meters deeper than its existing underground tunnel system. In addition to providing access to our underground ore bodies, the tunnel system will enable PT-FI to conduct future exploration in prospective areas associated with currently identified ore bodies. The tunnel system was completed to the Big Gossan terminal, and the Big Gossan mine was brought into production in 2010. Production from the Big Gossan mine, which is currently suspended, is expected to restart in the first half of 2017 and ramp up to 7,000 metric tons of ore per day in 2022. Development of the DMLZ and Grasberg Block Cave underground mines is advancing using the Common Infrastructure project tunnels as access.

The Grasberg Block Cave underground mine accounts for more than 45 percent of our recoverable proven and probable reserves in Indonesia. Production at the Grasberg Block Cave mine is expected to commence in 2018, following the end of mining of the Grasberg open pit. Targeted production rates once the Grasberg Block Cave mining operation reaches full capacity are expected to approximate 160,000 metric tons of ore per day. As a result of current market conditions, PT-FI is reviewing its operating plans to determine the optimum mine plan for the Grasberg Block Cave.

Aggregate mine development capital for the Grasberg Block Cave mine and associated Common Infrastructure is expected to approximate $6.0 billion (incurred between 2008 and 2022), with PT-FI’s share totaling approximately $5.5 billion . Aggregate project costs totaling $2.6 billion have been incurred through September 30, 2016 ( $416 million during the first nine months of 2016 ).

DMLZ. The DMLZ ore body lies below the DOZ mine at the 2,590-meter elevation and represents the downward continuation of mineralization in the Ertsberg East Skarn system and neighboring Ertsberg porphyry. In September 2015, PT-FI initiated pre-commercial production that represents ore extracted during the development phase for the purpose of obtaining access to the ore body. Targeted production rates once the DMLZ underground mine reaches full capacity are expected to approximate 80,000 metric tons of ore per day in 2021.

Drilling efforts continue to determine the extent of the ore body. Aggregate mine development capital costs for the DMLZ underground mine are expected to approximate $2.6 billion (incurred between 2009 and 2020), with PT-FI’s share totaling approximately $1.6 billion . Aggregate project costs totaling $1.8 billion have been incurred through September 30, 2016 ( $243 million during the first nine months of 2016 ).


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Operating Data. Following is a summary of consolidated operating data for our Indonesia mining operations for the third quarters and first nine months of 2016 and 2015 :
 
Three Months Ended September 30,
 
Nine Months Ended September 30,
 
2016
 
2015
 
2016
 
2015
Operating Data, Net of Joint Venture Interest
 
 
 
 
 
 
 
Copper  
 
 
 
 
 
 
 
Production (millions of recoverable pounds)
321

 
192

 
694

 
551

Sales (millions of recoverable pounds)
332

 
198

 
702

 
549

Average realized price per pound
$
2.20

 
$
2.35

 
$
2.17

 
$
2.45

 
 
 
 
 
 
 
 
Gold  
 
 
 
 
 
 
 
Production (thousands of recoverable ounces)
301

 
272

 
637

 
887

Sales (thousands of recoverable ounces)
307

 
285

 
653

 
891

Average realized price per ounce
$
1,327

 
$
1,117

 
$
1,292

 
$
1,149

 
 
 
 
 
 
 
 
100% Operating Data
 
 
 
 
 
 
 
Ore milled (metric tons per day): a
 
 
 
 
 
 
 
Grasberg open pit
135,600

 
117,300

 
117,200

 
118,400

DOZ underground mine b
35,100

 
40,400

 
38,700

 
44,000

DMLZ underground mine
6,000

 
3,800

 
5,000

 
2,700

Grasberg Block Cave
2,800

 
—

 
2,600

 
—

Big Gossan underground mine
1,000

 
—

 
700

 
—

Total
180,500

 
161,500

 
164,200

 
165,100

Average ore grades:
 
 
 
 
 
 
 
Copper (percent)
1.02

 
0.68

 
0.86

 
0.65

Gold (grams per metric ton)
0.69

 
0.71

 
0.58

 
0.76

Recovery rates (percent):
 
 
 
 
 
 
 
Copper
91.4

 
89.6

 
90.5

 
90.2

Gold
82.7

 
81.1

 
81.4

 
83.1

Production:
 
 
 
 
 
 
 
Copper (millions of recoverable pounds)
327

 
192

 
736

 
551

Gold (thousands of recoverable ounces)
300

 
272

 
664

 
887

a.
Amounts represent the approximate average daily throughput processed at PT-FI’s mill facilities from each producing mine and from development activities that result in metal production.
b.
Ore milled from the DOZ underground mine is expected to ramp up to 60,000 metric tons of ore per day in 2017.

Indonesia's consolidated copper sales of 332 million pounds in third-quarter 2016 and 702 million pounds for the first nine months of 2016 , were higher than sales of 198 million pounds in third-quarter 2015 and 549 million pounds for the first nine months of 2015 , primarily reflecting higher copper ore grades.

Indonesia's gold sales totaled 307 thousand ounces in third-quarter 2016 and 653 thousand ounces for the first nine months of 2016 , compared with 285 thousand ounces in third-quarter 2015 and 891 thousand ounces for the first nine months of 2015 . Lower gold volumes in the first nine months of 2016, compared with the first nine months of 2015, primarily reflect lower ore grades. During third-quarter 2016, PT-FI experienced labor productivity issues and a 10-day work stoppage beginning in late September, which affected the timing of access to higher grade ore and resulted in a deferral of production into future periods.

At the Grasberg mine, the sequencing of mining areas with varying ore grades causes fluctuations in quarterly and annual production of copper and gold. Consolidated sales volumes from our Indonesia mining operations are expected to approximate 1.2 billion pounds of copper and 1.24 million ounces of gold for the year 2016 , compared with 744 million pounds of copper and 1.2 million ounces of gold for the year 2015 . Ore grades are expected to further improve in 2017 because of increased access to higher grade sections of the Grasberg open pit. Indonesia mining's projected sales volumes are dependent on a number of factors, including operational performance, the timing of shipments and approval by the Indonesian government to continue the export of copper concentrate and anode slimes.


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Unit Net Cash Costs. Unit net cash costs per pound of copper is a measure intended to provide investors with information about the cash-generating capacity of our mining operations expressed on a basis relating to the primary metal product for our respective operations. We use this measure for the same purpose and for monitoring operating performance by our mining operations. This information differs from measures of performance determined in accordance with U.S. GAAP and should not be considered in isolation or as a substitute for measures of performance determined in accordance with U.S. GAAP. This measure is presented by other metals mining companies, although our measure may not be comparable to similarly titled measures reported by other companies.

Gross Profit per Pound of Copper and per Ounce of Gold
The following tables summarize the unit net cash costs and gross profit per pound of copper and per ounce of gold at our Indonesia mining operations for the third quarters and first nine months of 2016 and 2015 . Refer to “Product Revenues and Production Costs” for an explanation of “by-product” and “co-product” methods and a reconciliation of unit net cash costs per pound to production and delivery costs applicable to sales reported in our consolidated financial statements.
 
Three Months Ended September 30,
 
2016
 
2015
 
By-Product Method
 
Co-Product Method
 
By-Product Method
 
Co-Product Method
 
 
Copper
 
Gold
 
 
Copper
 
Gold
Revenues, excluding adjustments
$
2.20

 
$
2.20

 
$
1,327

 
$
2.35

 
$
2.35

 
$
1,117

 
 
 
 
 
 
 
 
 
 
 
 
Site production and delivery, before net noncash and other costs shown below
1.37

 
0.86

 
520

 
2.16

 
1.28

 
604

Gold and silver credits
(1.29
)
 
—

 
—

 
(1.59
)
 
—

 
—

Treatment charges
0.27

 
0.17

 
104

 
0.31

 
0.18

 
86

Export duties
0.10

 
0.07

 
39

 
0.17

 
0.10

 
49

Royalty on metals
0.12

 
0.07

 
50

 
0.13

 
0.07

 
35

Unit net cash costs
0.57

 
1.17

 
713

 
1.18

 
1.63

 
774

Depreciation and amortization
0.33

 
0.21

 
125

 
0.45

 
0.27

 
127

Noncash and other costs, net
0.05

a  
0.03

 
19

 
0.02

 
0.01

 
5

Total unit costs
0.95

 
1.41

 
857

 
1.65

 
1.91

 
906

Revenue adjustments, primarily for pricing on prior period open sales
(0.02
)
 
(0.02
)
 
1

 
(0.26
)
 
(0.26
)
 
(38
)
PT Smelting intercompany (loss) profit
(0.03
)
 
(0.02
)
 
(10
)
 
0.08

 
0.05

 
23

Gross profit per pound/ounce
$
1.20

 
$
0.75

 
$
461

 
$
0.52

 
$
0.23

 
$
196

 
 
 
 
 
 
 
 
 
 
 
 
Copper sales (millions of recoverable pounds)
332

 
332

 
 
 
198

 
198

 
 
Gold sales (thousands of recoverable ounces)
 
 
 
 
307

 
 
 
 
 
285


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Table of Contents             

 
 
 
 
 
 
 
 
 
 
 
 
 
Nine Months Ended September 30,
 
2016
 
2015
 
By-Product Method
 
Co-Product Method
 
By-Product Method
 
Co-Product Method
 
 
Copper
 
Gold
 
 
Copper
 
Gold
Revenues, excluding adjustments
$
2.17

 
$
2.17

 
$
1,292

 
$
2.45

 
$
2.45

 
$
1,149

 
 
 
 
 
 
 
 
 
 
 
 
Site production and delivery, before net noncash and other costs shown below
1.70

 
1.08

 
639

 
2.39

 
1.34

 
630

Gold and silver credits
(1.28
)
 
—

 
—

 
(1.93
)
 
—

 
—

Treatment charges
0.29

 
0.18

 
109

 
0.31

 
0.17

 
81

Export duties
0.09

 
0.06

 
34

 
0.16

 
0.10

 
44

Royalty on metals
0.12

 
0.07

 
48

 
0.16

 
0.09

 
41

Unit net cash costs
0.92

 
1.39

 
830

 
1.09

 
1.70

 
796

Depreciation and amortization
0.40

 
0.25

 
152

 
0.43

 
0.24

 
114

Noncash and other costs, net
0.04

a  
0.03

 
16

 
0.04

 
0.02

 
10

Total unit costs
1.36

 
1.67

 
998

 
1.56

 
1.96

 
920

Revenue adjustments, primarily for pricing on prior period open sales
—

 
—

 
25

 
(0.09
)
 
(0.09
)
 
10

PT Smelting intercompany (loss) profit
(0.01
)
 
(0.01
)
 
(4
)
 
0.03

 
0.02

 
9

Gross profit per pound/ounce
$
0.80

 
$
0.49

 
$
315

 
$
0.83

 
$
0.42

 
$
248

 
 
 
 
 
 
 
 
 
 
 
 
Copper sales (millions of recoverable pounds)
702

 
702

 
 
 
549

 
549

 
 
Gold sales (thousands of recoverable ounces)
 
 
 
 
653

 
 
 
 
 
891

a.
Includes asset retirement charges of $17 million ($0.05 per pound in third-quarter 2016 and $0.02 per pound for the first nine months of 2016).

A significant portion of PT-FI's costs are fixed and unit costs vary depending on volumes and other factors. Indonesia's unit net cash costs (including gold and silver credits) of $0.57 per pound of copper in third-quarter 2016 and $0.92 per pound of copper for the first nine months of 2016 , were lower than $1.18 per pound of copper in third-quarter 2015 and $1.09 per pound of copper for the first nine months of 2015 , primarily reflecting higher copper sales volumes, partly offset by lower gold and silver credits.

Treatment charges vary with the volume of metals sold and the price of copper, and royalties vary with the volume of metals sold and the prices of copper and gold.

Export duties were initially set at 7.5 percent in July 2014 and were reduced to 5.0 percent in July 2015 as a result of smelter development progress. Export duties totaled $34 million in third-quarter 2016, $35 million in third-quarter 2015, $63 million for the first nine months of 2016 and $92 million for the first nine months of 2015.

Because certain assets are depreciated on a straight-line basis, PT-FI’s unit depreciation rate varies with the level of copper production and sales.

Revenue adjustments primarily result from changes in prices on provisionally priced copper sales recognized in prior periods. Refer to “Consolidated Results - Revenues” for further discussion of adjustments to prior period provisionally priced copper sales.

PT Smelting intercompany (loss) profit represents the change in the deferral of 25 percent of PT-FI's profit on sales to PT Smelting. Refer to "Operations - Smelting & Refining" for further discussion.

Based on current sales volume and cost estimates, and assuming an average gold price of $1,250 per ounce for fourth-quarter 2016 , unit net cash costs (net of gold and silver credits) for Indonesia mining are expected to approximate $0.62 per pound of copper for the year 2016. Indonesia mining's unit net cash costs for the year 2016 would change by approximately $0.03 per pound for each $50 per ounce change in the average price of gold for fourth-quarter 2016. 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. Anticipated higher ore grades from Grasberg are expected to result in lower unit net cash costs in fourth-quarter 2016 and for the year 2017.




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Table of Contents             

Molybdenum Mines
We have 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 concentrate, which is typically further processed into value-added molybdenum chemical products. The majority of the molybdenum concentrate produced at the Henderson and Climax mines, as well as from our North and South America copper mines, is processed at our own conversion facilities.

Operating and Development Activities. In response to market conditions, the revised plans for our Henderson molybdenum mine incorporate lower operating rates, resulting in an approximate 65 percent reduction in Henderson's annual production volumes. We have also adjusted production plans at our by-product mines, including reduced production at the Sierrita mine. Additionally, we have incorporated changes in the commercial pricing structure for our chemical products to promote continuation of chemical-grade production.

Production from the Molybdenum mines totaled 5 million pounds of molybdenum in third-quarter 2016 and 19 million pounds of molybdenum for the first nine months of 2016 , compared with 13 million pounds of molybdenum in third-quarter 2015 and 39 million pounds of molybdenum for the first nine months of 2015 . Refer to "Consolidated Results" for our consolidated molybdenum operating data, which includes sales of molybdenum produced at our Molybdenum mines, and from our North and South America copper mines, and refer to "Outlook" for projected consolidated molybdenum sales volumes.

Unit Net Cash Costs Per Pound of Molybdenum. Unit net cash costs per pound of molybdenum is a measure intended to provide investors with information about the cash-generating capacity of our mining operations expressed on a basis relating to the primary metal product for our respective operations. We use this measure for the same purpose and for monitoring operating performance by our mining operations. This information differs from measures of performance determined in accordance with U.S. GAAP and should not be considered in isolation or as a substitute for measures of performance determined in accordance with U.S. GAAP. This measure is presented by other metals mining companies, although our measure may not be comparable to similarly titled measures reported by other companies.

Average unit net cash costs for our Molybdenum mines of $10.28 per pound of molybdenum in third-quarter 2016 and $8.39 per pound of molybdenum for the first nine months of 2016 , were higher than average unit net cash costs of $6.93 per pound in third-quarter 2015 and $7.10 for the first nine months of 2015 , primarily reflecting lower volumes. Assuming achievement of current sales volume and cost estimates, we estimate unit net cash costs for the Molybdenum mines to average $8.50 per pound of molybdenum for the year 2016 . Refer to “Product Revenues and Production Costs” for a reconciliation of unit net cash costs per pound to production and delivery costs applicable to sales reported in our consolidated financial statements.

Smelting and Refining
We wholly own and operate a smelter in Arizona (Miami smelter) and a smelter and refinery in Spain (Atlantic Copper). Additionally, PT-FI owns 25 percent of a smelter and refinery in Gresik, Indonesia (PT Smelting). Treatment charges for smelting and refining copper concentrate consist of a base rate per pound of copper and per ounce of gold and are generally fixed. Treatment charges represent a cost to our mining operations and income to Atlantic Copper and PT Smelting. Thus, higher treatment charges benefit our smelter operations and adversely affect our mining operations. Our North America copper mines are less significantly affected by changes in treatment charges because these operations are largely integrated with our Miami smelter. Through this form of downstream integration, we are assured placement of a significant portion of our concentrate production.

Atlantic Copper smelts and refines copper concentrate and markets refined copper and precious metals in slimes. During the first nine months of 2016 , Atlantic Copper's concentrate purchases from our copper mining operations included 11 percent from our North America copper mines, 9 percent from South America mining and 5 percent from Indonesia mining, with the remainder purchased from third parties.

PT-FI's contract with PT Smelting provides for PT-FI to supply 100 percent of the copper concentrate requirements (subject to a minimum or maximum rate) necessary for PT Smelting to produce 205,000 metric tons of copper annually on a priority basis. PT-FI may also sell copper concentrate to PT Smelting at market rates for quantities in excess of 205,000 metric tons of copper annually. During the first nine months of 2016 , PT-FI supplied approximately 90 percent of PT Smelting's concentrate requirements, and PT Smelting processed approximately half of PT-FI's concentrate production.


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Table of Contents             

Refer to "Risk Factors" contained in Part II, Item IA. for information regarding current Indonesian regulations that prohibit the export of anode slimes by PT Smelting after January 12, 2017.

We defer recognizing profits on sales from our mining operations to Atlantic Copper and on 25 percent of PT-FI's sales to PT Smelting until final sales to third parties occur. Changes in these deferrals attributable to variability in intercompany volumes resulted in net additions to net income attributable to common stock of $17 million in third-quarter 2016 , less than $1 million in third-quarter 2015 , $6 million for the first nine months of 2016 and $37 million for the first nine months of 2015 . Our net deferred profits on our inventories at Atlantic Copper and PT Smelting to be recognized in future periods’ net income attributable to common stock from continuing operations totaled $19 million at September 30, 2016 . Quarterly variations in ore grades, the timing of intercompany shipments and changes in product prices will result in variability in our net deferred profits and quarterly earnings.

Oil and Gas
Through our wholly owned oil and gas subsidiary, FM O&G, our principal oil and gas assets include oil production facilities in the Deepwater GOM and in California.

In July 2016, FM O&G completed the sale of its Haynesville shale assets for $87 million (before closing adjustments) and in second-quarter 2016, completed the sale of certain oil and gas royalty interests for $102 million (before closing adjustments). Under full cost accounting rules, the proceeds from these transactions were recorded as a reduction of capitalized oil and gas properties, with no gain or loss recognition.

In September 2016, FM O&G entered into an agreement to sell its Deepwater GOM properties for cash consideration of $2.0 billion (before closing adjustments) and up to $150 million in contingent payments, which would be received over time as the purchaser realizes future cash flows in connection with our third-party production handling agreement for the Marlin platform. The transaction has an effective date of August 1, 2016, and is expected to close in fourth-quarter 2016, subject to customary closing conditions. In connection with the transaction, FM O&G entered into an agreement to amend the terms of the Plains Offshore preferred stock to provide FM O&G the option to call these securities for $582 million , which FM O&G expects to exercise at the time the Deepwater GOM sale closes.

In October 2016, FM O&G entered into an agreement to sell its onshore California oil and gas properties for cash consideration of $592 million (before closing adjustments) and contingent consideration of up to $150 million, consisting of $50 million per year for each of 2018, 2019 and 2020 if the price of Brent crude oil averages $70 per barrel or higher in each of those calendar years. The transaction has an effective date of July 1, 2016, and is expected to close in fourth-quarter 2016, subject to customary closing conditions.

Under full cost accounting rules, the Deepwater GOM and onshore California transactions will require gain or loss recognition because of their significance to the full cost pool, but the amounts are not expected to be material. Refer to Note 2 for further discussion of these oil and gas transactions, including the derivative contracts entered into during October 2016 as part of the sales agreement for the onshore California oil and gas properties.

Impairment of Oil and Gas Properties. As discussed in Note 1, under full cost accounting rules, a "ceiling test" is conducted each quarter to review the carrying value of our oil and gas properties for impairment. The SEC requires the twelve-month average of the first-day-of-the-month historical reference oil price be used in determining the ceiling test limitation. The reference pricing in ceiling test impairment calculations may cause results that do not reflect current market conditions that exist at the end of an accounting period. For example, in periods of increasing oil and gas prices, the use of a twelve-month historical average price in the ceiling test calculation may result in an impairment. Conversely, in times of declining prices, ceiling test calculations may not result in an impairment.

Using West Texas Intermediate (WTI) as the reference oil price, the average price was $41.68 per barrel at September 30, 2016 , compared with $43.12 per barrel at June 30, 2016. Combined with the impact of the reduction in twelve-month historical prices and reserve revisions, net capitalized costs exceeded the related ceiling test limitation under full cost accounting rules, which resulted in the recognition of impairment charges totaling $239 million in third-quarter 2016 and $4.3 billion for the first nine months of 2016 .


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U.S. Oil & Gas Operating Data. Following is summary operating results for the U.S. oil and gas operations for the third quarters and first nine months of 2016 and 2015 :
 
 
Three Months Ended September 30,
 
Nine Months Ended September 30,
 
 
 
2016
 
2015
 
2016
 
2015
 
Sales Volumes
 
 
 
 
 
 
 
 
 
  Oil (MMBbls)
 
9.1

 
9.3

 
26.1

 
26.3

 
  Natural gas (Bcf)
 
13.8

 
22.8

 
52.2

 
68.1

 
NGLs (MMBbls)
 
0.6

 
0.7

 
1.8

 
1.8

 
MMBOE
 
12.0

 
13.8

 
36.6

 
39.4

 
 
 
 
 
 
 
 
 
 
 
Average Realized Prices a
 
 
 
 
 
 
 
 
 
Oil (per barrel)
 
$
40.63

 
$
55.88

b  
$
37.11

 
$
59.92

b  
Natural gas   (per MMBtu)
 
$
2.84

 
$
2.72

 
$
2.24

 
$
2.74

 
NGLs (per barrel)
 
$
17.65

 
$
16.68

 
$
16.85

 
$
19.78

 
 
 
 
 
 
 
 
 
 
 
Gross Loss per BOE
 
 
 
 
 
 
 
 
 
Realized revenues a
 
$
34.99

 
$
43.00

b  
$
30.50

 
$
45.57

b  
Cash production costs a
 
(15.00
)
 
(18.85
)
 
(15.28
)
 
(19.42
)
 
Cash operating margin a
 
19.99

 
24.15

 
15.22

 
26.15

 
Depreciation, depletion and amortization
 
(18.54
)
 
(32.71
)
 
(19.03
)
 
(37.18
)
 
Impairment of oil and gas properties
 
(19.75
)
 
(252.58
)
 
(117.56
)
 
(235.22
)
 
Accretion and other costs c
 
(4.24
)
 
(2.38
)
 
(26.49
)
 
(2.32
)
 
Net noncash mark-to-market losses on derivative contracts
 
—

 
(5.34
)
 
—

 
(5.51
)
 
Other revenues
 
0.46

 
0.49

 
0.45

 
0.39

 
Gross loss
 
$
(22.08
)
 
$
(268.37
)
 
$
(147.41
)
 
$
(253.69
)
 
a.
Cash operating margin for oil and gas operations reflects realized revenues less cash production costs. Cash production costs exclude accretion and other costs. For reconciliations of realized revenues (including average realized prices for oil, natural gas and NGLs) and cash production costs to revenues and production and delivery costs reported in our consolidated financial statements, refer to "Product Revenues and Production Costs."
b.
Includes realized cash gains on crude oil derivative contracts of $11.03 per barrel of oil ( $7.44 per BOE) in third-quarter 2015 and $11.58 per barrel of oil ( $7.72 per BOE) for the first nine months of 2015 .
c.
Includes charges of $2.81 per BOE in third-quarter 2016 and $25.32 per BOE for the first nine months of 2016 , primarily for idle rig/drillship settlements, inventory adjustments and asset impairments and charges of $1.54 per BOE in third-quarter 2015 and $1.48 per BOE for the first nine months of 2015 , primarily for idle rig costs, inventory adjustments and prior period property tax assessments related to the California properties.

FM O&G's average realized price for crude oil was $40.63 per barrel ( 86 percent of the average Brent crude oil price of $46.99 per barrel) in third-quarter 2016 and $37.11 per barrel ( 86 percent of the average Brent crude oil price of $43.17 per barrel) for the first nine months of 2016 .

FM O&G's average realized price for natural gas was $2.84 per MMBtu in third-quarter 2016 , compared to the NYMEX natural gas price average of $2.81 per MMBtu for the July through September 2016 contracts; and $2.24 per MMBtu for the first nine months of 2016 , compared to the NYMEX natural gas price average of $2.28 per MMBtu for the January through September 2016 contracts.

Realized revenues for oil and gas operations of $34.99 per BOE in third-quarter 2016 and $30.50 per BOE for the first nine months of 2016 were lower than realized revenues of $43.00 per BOE in third-quarter 2015 and $45.57 per BOE for the first nine months of 2015, primarily reflecting lower oil prices and the impact of realized cash gains on derivative contracts of $7.44 per BOE in third-quarter 2015 and $7.72 per BOE for the first nine months of 2015.

Cash production costs for oil and gas operations of $15.00 per BOE in third-quarter 2016 and $15.28 per BOE for the first nine months of 2016 were lower than cash production costs of $18.85 per BOE in third-quarter 2015 and $19.42 per BOE for the first nine months of 2015, primarily reflecting ongoing cost reduction efforts. The first nine months of 2016, compared with the 2015 period, also reflects the impact of higher production from the GOM. Based on current sales volume and cost estimates, cash production costs are expected to approximate $16.00 per BOE for the year 2016 .

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Following is a summary of average sales volumes per day by region for oil and gas operations for the third quarters and first nine months of 2016 and 2015 :
 
Three Months Ended September 30,
 
Nine Months Ended September 30,
 
 
2016
 
2015
 
2016
 
2015
 
Sales Volumes (MBOE per day):
 
 
 
 
 
 
 
 
GOM a
92

 
91

 
87

 
82

 
California b
33

 
35

 
32

 
37

 
Haynesville/Madden/Other c
6

 
24

 
14

 
25

 
Total oil and gas operations
131

 
150

 
133

 
144

 
a.
In September 2016, we entered into an agreement to sell the Deepwater GOM properties. This transaction is expected to close in fourth-quarter 2016.
b.
In October 2016, we entered into an agreement to sell the onshore California properties. This transaction is expected to close in fourth-quarter 2016.
c.
In July 2016, we completed the sale of the Haynesville shale assets.

Daily sales volumes averaged 131 MBOE in third-quarter 2016 , including 99 thousand barrels (MBbls) of crude oil, 150 million cubic feet (MMcf) of natural gas and 7 MBbls of NGLs, and 133 MBOE for the first nine months of 2016 , including 95 MBbls of crude oil, 191 MMcf of natural gas and 6 MBbls of NGLs.

Following completion of the Deepwater GOM and onshore California transactions, our portfolio of oil and gas assets would include oil and natural gas production onshore in South Louisiana and on the GOM Shelf, oil production offshore California and natural gas production from the Madden area in Central Wyoming. In third-quarter 2016, these properties produced an average of 7 MBbls of oil and NGLs per day and 74 MMcf of natural gas per day.

Oil and Gas Capital Expenditures . Capital expenditures for our oil and gas operations in third-quarter 2016 totaled $160 million (including $75 million incurred for GOM). Capital expenditures for our oil and gas operations for the first nine months of 2016 totaled $1.0 billion in the U.S. (including $0.6 billion incurred for GOM) and $47 million for international oil and gas properties, primarily associated with Morocco. Capital expenditures for oil and gas operations are estimated to total $1.2 billion for the year 2016 .

DISCONTINUED OPERATIONS

Africa Mining
As further discussed in Note 2 , in May 2016, we entered into an agreement to sell our interest in TFHL, through which we hold an effective 56 percent interest in the Tenke copper and cobalt mining concessions in the Southeast region of the DRC. In accordance with accounting guidelines, the operating results of Africa mining have been separately reported as discontinued operations in our consolidated statements of operations for all periods presented. The closing of the transaction is currently subject to customary closing conditions, including the resolution of the right of first offer (which expires on November 15, 2016) of Lundin Mining Corporation (which holds a 30 percent interest in TFHL), and the parties are working towards a satisfactory resolution in order to complete the transaction in fourth-quarter 2016. In addition, La Générale des Carrières et des Mines (Gécamines), which is wholly owned by the DRC government and holds a 20 percent non-dilutable interest in Tenke Fungurume Mining S.A.) recently filed an arbitration proceeding with the International Chamber of Commerce (ICC) International Court of Arbitration challenging the transaction; however, we believe that Gécamines’ claims have no legal basis.

The Tenke operation includes open-pit mining, leaching and SX/EW operations. Copper production from the Tenke minerals district is sold as copper cathode. In addition to copper, the Tenke minerals district produces cobalt hydroxide.




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Operating Data. Following is a summary of consolidated operating data for our Africa mining operations for the third quarters and first nine months of 2016 and 2015 :
 
Three Months Ended September 30,
 
Nine Months Ended September 30,
 
2016
 
2015
 
2016
 
2015
Copper  (recoverable)
 
 
 
 
 
 
 
Production (millions of pounds)
124

 
108

 
356

 
339

Sales (millions of pounds)
118

 
113

 
365

 
350

Average realized price per pound a
$
2.07

 
$
2.32

 
$
2.07

 
$
2.52

 
 
 
 
 
 
 
 
Cobalt  (contained)
 
 
 
 
 
 
 
Production (millions of pounds)
9

 
9

 
28

 
25

Sales (millions of pounds)
9

 
10

 
29

 
26

Average realized price per pound
$
7.83

 
$
8.96

 
$
7.15

 
$
9.04

 
 
 
 
 
 
 
 
Ore milled (metric tons per day)
15,300

 
14,000

 
15,400

 
14,600

Average ore grades (percent):
 
 
 
 
 
 
 
Copper
4.31

 
4.02

 
4.11

 
4.13

Cobalt
0.43

 
0.43

 
0.45

 
0.41

Copper recovery rate (percent)
93.5

 
94.0

 
93.6

 
94.0

a.
Includes point-of-sale transportation costs as negotiated in customer contracts.

Africa mining's copper sales of 118 million pounds in third-quarter 2016 and 365 million pounds for the first nine months of 2016 , were higher than sales of 113 million pounds in third-quarter 2015 and 350 million pounds for the first nine months of 2015 , primarily reflecting higher mining and milling rates. The third-quarter 2016 also reflects higher copper ore grades.

Africa mining's sales for 2016 are expected to approximate 485 million pounds of copper and 38 million pounds of cobalt, compared with 467 million pounds of copper and 35 million pounds of cobalt for the year 2015 . Africa mining's projected sales for the year 2016 would be impacted by the timing of the completion of the sale of our interest in TFHL.

Unit Net Cash Costs. Unit net cash costs per pound of copper is a measure intended to provide investors with information about the cash-generating capacity of our mining operations expressed on a basis relating to the primary metal product for our respective operations. We use this measure for the same purpose and for monitoring operating performance by our mining operations. This information differs from measures of performance determined in accordance with U.S. GAAP and should not be considered in isolation or as a substitute for measures of performance determined in accordance with U.S. GAAP. This measure is presented by other metals mining companies, although our measure may not be comparable to similarly titled measures reported by other companies.


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Gross Profit per Pound of Copper and Cobalt. The following tables summarize the unit net cash costs and gross profit per pound of copper and cobalt at our Africa mining operations for the third quarters and first nine months of 2016 and 2015 . Refer to “Product Revenues and Production Costs” for an explanation of “by-product” and “co-product” methods and a reconciliation of unit net cash costs per pound to net (loss) income from discontinued operations reported in our consolidated financial statements.
 
Three Months Ended September 30,
 
2016
 
2015
 
By-Product Method
 
Co-Product Method
 
By-Product Method
 
Co-Product Method
 
 
Copper
 
Cobalt
 
 
Copper
 
Cobalt
Revenues, excluding adjustments a
$
2.07

 
$
2.07

 
$
7.83

 
$
2.32

 
$
2.32

 
$
8.96

 
 
 
 
 
 
 
 
 
 
 
 
Site production and delivery, before net noncash and other costs shown below
1.57

 
1.34

 
5.56

 
1.63

 
1.36

 
5.58

Cobalt credits b
(0.46
)
 
—

 
—

 
(0.53
)
 
—

 
—

Royalty on metals
0.05

 
0.04

 
0.14

 
0.05

 
0.04

 
0.15

Unit net cash costs
1.16

 
1.38

 
5.70

 
1.15

 
1.40

 
5.73

Depreciation, depletion and amortization
0.50

 
0.40

 
1.36

 
0.58

 
0.45

 
1.52

Noncash and other costs, net
0.08

 
0.06

 
0.20

 
0.03

 
0.03

 
0.08

Total unit costs
1.74

 
1.84

 
7.26

 
1.76

 
1.88

 
7.33

Revenue adjustments, primarily for pricing on prior period open sales
(0.02
)
 
(0.02
)
 
0.68

 
(0.08
)
 
(0.08
)
 
(0.25
)
Gross profit per pound
$
0.31

 
$
0.21

 
$
1.25

 
$
0.48

 
$
0.36

 
$
1.38

 
 
 
 
 
 
 
 
 
 
 
 
Copper sales (millions of recoverable pounds)
118

 
118

 
 
 
113

 
113

 
 
Cobalt sales (millions of contained pounds)
 
 
 
 
9

 
 
 
 
 
10

 
 
 
 
 
 
 
 
 
 
 
 
 
Nine Months Ended September 30,
 
2016
 
2015
 
By-Product Method
 
Co-Product Method
 
By-Product Method
 
Co-Product Method
 
 
Copper
 
Cobalt
 
 
Copper
 
Cobalt
Revenues, excluding adjustments a
$
2.07

 
$
2.07

 
$
7.15

 
$
2.52

 
$
2.52

 
$
9.04

 
 
 
 
 
 
 
 
 
 
 
 
Site production and delivery, before net noncash and other costs shown below
1.61

 
1.39

 
5.17

 
1.58

 
1.37

 
5.56

Cobalt credits b
(0.39
)
 
—

 
—

 
(0.47
)
 
—

 
—

Royalty on metals
0.05

 
0.04

 
0.12

 
0.06

 
0.04

 
0.15

Unit net cash costs
1.27

 
1.43

 
5.29

 
1.17

 
1.41

 
5.71

Depreciation, depletion and amortization
0.50

 
0.41

 
1.15

 
0.56

 
0.45

 
1.38

Noncash and other costs, net
0.06

 
0.05

 
0.14

 
0.03

 
0.03

 
0.08

Total unit costs
1.83

 
1.89

 
6.58

 
1.76

 
1.89

 
7.17

Revenue adjustments, primarily for pricing on prior period open sales
(0.01
)
 
(0.01
)
 
0.13

 
(0.02
)
 
(0.02
)
 
(0.02
)
Gross profit per pound
$
0.23

 
$
0.17

 
$
0.70

 
$
0.74

 
$
0.61

 
$
1.85

 
 
 
 
 
 
 
 
 
 
 
 
Copper sales (millions of recoverable pounds)
365

 
365

 
 
 
350

 
350

 
 
Cobalt sales (millions of contained pounds)
 
 
 
 
29

 
 
 
 
 
26

a.
Includes point-of-sale transportation costs as negotiated in customer contracts. 
b.
Net of cobalt downstream processing and freight costs.

Unit net cash costs (net of cobalt credits) for Africa mining were $1.16 per pound of copper in third-quarter 2016 , $1.15 per pound of copper in third-quarter 2015 , $1.27 per pound of copper for the first nine months of 2016 and $1.17 per pound of copper for the first nine months of 2015 . The third quarter and first nine-months of 2016, compared with the 2015 periods, reflect lower cobalt credits.

Because certain assets are depreciated on a straight-line basis, Africa mining's unit depreciation rate may vary with the level of copper production and sales.


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Table of Contents             

Based on current sales volume and cost estimates and assuming an average cobalt price of $11 per pound for fourth-quarter 2016 , unit net cash costs (net of cobalt credits) for Africa mining are expected to approximate $1.26 per pound of copper for 2016 .

CAPITAL RESOURCES AND LIQUIDITY

Our operating cash flows vary with prices realized from copper, gold, molybdenum and oil sales, our sales volumes, production costs, income taxes, other working capital changes and other factors. In response to weak market conditions, we have taken actions to enhance our financial position, including significant reductions in capital spending, production curtailments at certain North and South America mines and actions to reduce operating, exploration and administrative costs.

In addition to reducing costs and capital expenditures to maximize cash flows from our global business, we have announced $6.6 billion in asset sale transactions from which we have received aggregate cash consideration of $1.4 billion. The remaining $5.2 billion in gross proceeds associated with the pending sale of our interest in TFHL and the sales of our Deepwater GOM and onshore California oil and gas properties is expected to be received in fourth-quarter 2016. Refer to Note 2 for further discussion of these disposal transactions.

In July 2016, we commenced a new registered at-the-market equity offering of up to $1.5 billion in common stock. Through November 8, 2016 , we have sold 59.8 million shares of our common stock for gross proceeds of $719 million ($12.02 per share average price) .

We remain focused on our high-quality portfolio of long-lived copper assets positioned to generate value as market conditions improve. In addition to debt reduction plans, we are pursuing opportunities to create additional value through mine designs that would increase copper reserves, reduce costs and provide opportunities to enhance net present values, and we continue to advance studies for future development of our copper resources, the timing of which will be dependent on market conditions.

Cash
Following is a summary of the U.S. and international components of consolidated cash and cash equivalents available to the parent company (excluding cash and cash equivalents in assets held for sale of $68 million at September 30, 2016, and $29 million at December 31, 2015), net of noncontrolling interests' share, taxes and other costs (in millions):
 
September 30, 2016
 
December 31, 2015
Cash at domestic companies
$
709

 
$
6

Cash at international operations
399

 
189

Total consolidated cash and cash equivalents
1,108

 
195

Noncontrolling interests’ share
(97
)
 
(36
)
Cash, net of noncontrolling interests’ share
1,011

 
159

Withholding taxes and other
(30
)
 
(11
)
Net cash available
$
981

 
$
148


Cash held at our international operations is generally used to support our foreign operations' capital expenditures, operating expenses, working capital and other tax payments, or other cash needs. Management believes that
sufficient liquidity is available in the U.S. from cash balances and availability from our revolving credit facility and uncommitted lines of credit. We have not elected to permanently reinvest earnings from our foreign subsidiaries, and we have recorded deferred tax liabilities for foreign earnings that are available to be repatriated to the U.S. From time to time, our foreign subsidiaries distribute earnings to the U.S. through dividends that are subject to applicable withholding taxes and noncontrolling interests' share.


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Debt
Following is a summary of our total debt and the related weighted-average interest rates (in billions, except percentages):
 
September 30, 2016
 
December 31, 2015
 
 
 
 
Weighted-
 
 
 
Weighted-
 
 
 
 
Average
 
 
 
Average
 
 
 
 
Interest Rate
 
 
 
Interest Rate
 
FCX Senior Notes
$
11.5

 
3.8%
 
$
11.9

 
3.8
%
 
FCX Term Loan a
2.5

 
3.3%
 
3.0

 
2.2
%
 
FM O&G Senior Notes
2.5

 
6.6%
 
2.5

 
6.6
%
 
Cerro Verde Credit Facility
1.6

 
2.7%
 
1.8

 
2.8
%
 
Other
0.9

 
4.9%
 
1.2

 
3.9
%
 
Total debt
$
19.0

 
4.0%
 
$
20.4

 
3.8
%
 
 
 
 
 
 
 
 
 
 
a. In accordance with the mandatory prepayment provision of the amended Term Loan, 50 percent of the proceeds associated with our pending asset sale transactions must be applied toward repaying the Term Loan.

At September 30, 2016 , we had no borrowings, $43 million in letters of credit issued and availability of $3.5 billion under the FCX revolving credit facility.

Through August 4, 2016, we exchanged $369 million in senior notes (including $101 million during third-quarter 2016) maturing in 2022, 2023, 2034 and 2043 for 28 million shares of our common stock in a series of privately negotiated transactions.

Refer to Note 6 for further discussion of debt.

Operating Activities
We generated consolidated operating cash flows of $2.6 billion (including $463 million in working capital sources and changes in other tax payments) for the first nine months of 2016 and $2.6 billion (including $342 million for working capital sources and changes in other tax payments) for the first nine months of 2015. Lower copper price realizations for the first nine months of 2016 were offset by an increase in working capital sources mostly resulting from lower tax payments from our international mining operations. Additionally, the first nine months of 2015 included tax payments of approximately $0.3 billion associated with our November 2014 sale of Candelaria.

Based on current operating plans, subject to future commodity prices for copper, gold and molybdenum and subject to a favorable resolution of Indonesian regulatory matters, we expect estimated consolidated operating cash flows for the year 2017, plus available cash and availability under our credit facility and uncommitted lines of credit, to be sufficient to fund our budgeted capital expenditures, scheduled debt maturities, noncontrolling interest distributions and other cash requirements for the year. Refer to “Outlook” for further discussion of projected operating cash flows for the year 2016 .

Investing Activities
Capital Expenditures. Capital expenditures, including capitalized interest, totaled $2.3 billion for the first nine months of 2016 , consisting of $1.2 billion for mining operations (including $0.9 billion for major projects) and $1.1 billion for oil and gas operations. Capital expenditures, including capitalized interest, totaled $5.06 billion for the first nine months of 2015 , consisting of $2.5 billion for mining operations (including $1.8 billion for major projects) and $2.5 billion for oil and gas operations. Lower capital expenditures for the first nine months of 2016 , compared with the first nine months of 2015 , primarily reflect a decrease in major mining projects associated with the completion of the Cerro Verde expansion and a decrease in oil and gas activities in Deepwater GOM. Refer to “Outlook” for further discussion of projected capital expenditures for the year 2016.

Dispositions. Net proceeds from asset sales totaled $1.4 billion for the first nine months of 2016 primarily associated with the $1.0 billion sale of an additional 13 percent undivided interest in Morenci, the sale of an interest in the Timok exploration project in Serbia and from oil and gas asset sales, including the Haynesville shale assets and certain oil and gas royalty interests. Refer to Note 2 for further discussion of these transactions.


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Table of Contents             

Financing Activities
Debt Transactions. Net repayments of debt for the first nine months of 2016 primarily reflect $0.6 billion of payments on the Term Loan, $0.2 billion of payments on the Cerro Verde credit facility and $0.2 billion of payments on lines of credit. Refer to Note 6 for further discussion of debt.

Net proceeds from debt for the first nine months of 2015 primarily included net borrowings of $1.1 billion under Cerro Verde's senior unsecured credit facility primarily to fund its expansion project, $0.5 billion under our revolving credit facility and $0.2 billion under our unsecured lines of credit.

Equity Transactions. Net proceeds from the sale of common stock for the first nine months of 2016 and 2015 reflect sales of our common stock under registered at-the-market equity programs (refer to Note 6).

In January 2016, we sold 4 million shares of our common stock (with a value of $32 million ) under our 2015 at-the-market equity programs. In July 2016, we commenced a new registered at-the-market equity offering of up to $1.5 billion of common stock, and through September 30, 2016, we sold 33.5 million shares of our common stock, for gross proceeds of $415 million ( $12.39 per share average price). From October 1, 2016, through November 8, 2016 , we sold 26.3 million shares of our common stock for gross proceeds of $304 million ( $11.54 per share average price).

During third-quarter 2015, we sold 97.5 million shares of common stock under our 2015 at-the-market equity programs, which generated gross proceeds of $1.0 billion .

Dividends. The Board reduced our annual common stock dividend from $1.25 per share to $0.20 per share in March 2015, and subsequently suspended the annual common stock dividend in December 2015. Common stock dividends of $5 million for the first nine months of 2016 relate to accumulated dividends paid for vested stock-based compensation, and common stock dividends of $547 million for the first nine months of 2015 include $115 million for special dividends paid in accordance with the settlement terms of the shareholder derivative litigation. The declaration of dividends is at the discretion of our Board and will depend upon our financial results, cash requirements, future prospects and other factors deemed relevant by our Board. Additionally, in connection with the February 2016 amendment to the revolving credit facility and Term Loan, we are not permitted to pay dividends on our common stock on or prior to March 31, 2017.

Cash dividends and other distributions paid to noncontrolling interests totaled $87 million for the first nine months of 2016 and $89 million for the first nine months of 2015 . These payments will vary based on the cash requirements of the related consolidated subsidiaries.

CONTRACTUAL OBLIGATIONS

As further discussed in Note 9 , during second-quarter 2016, we terminated FM O&G's three drilling rig contracts for cash and common stock representing a value of $755 million (excluding contingent consideration) and settled aggregate commitments totaling $1.1 billion. Additionally, as further discussed in Note 6 , during the first nine months of 2016, we have reduced our December 31, 2015, debt balance by $1.45 billion. There have been no other material changes in our contractual obligations since December 31, 2015 . Refer to Part II, Items 7. and 7A. in our annual report on Form 10-K for the year ended December 31, 2015 , for further information regarding our contractual obligations.

CONTINGENCIES

Environmental and Asset Retirement Obligations
Our current and historical operating activities are subject to stringent laws and regulations governing the protection of the environment. We perform a comprehensive annual review of our environmental and asset retirement obligations and also review changes in facts and circumstances associated with these obligations at least quarterly. There have been no material changes to our environmental and asset retirement obligations since December 31, 2015. Updated cost assumptions, including increases and decreases to cost estimates, changes in the anticipated scope and timing of remediation activities, and settlement of environmental matters may result in additional revisions to certain of our environmental obligations. Refer to Note 12 in our annual report on Form 10-K for the year ended December 31, 2015 , for further information regarding our environmental and asset retirement obligations.


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Table of Contents             

Litigation and Other Contingencies
Other than as discussed in Note 9 , there have been no material changes to our contingencies associated with legal proceedings and other matters since December 31, 2015 . Refer to Note 12 and "Legal Proceedings" contained in Part I, Item 3. of our annual report on Form 10-K for the year ended December 31, 2015 , for further information regarding legal proceedings and other matters.

NEW ACCOUNTING STANDARDS

Refer to Note 12 for discussion of recently issued accounting standards and their impact on our future financial statements and disclosures.

PRODUCT REVENUES AND PRODUCTION COSTS

Mining Product Revenues and Unit Net Cash Cost
Unit net cash costs per pound of copper and molybdenum are measures intended to provide investors with information about the cash-generating capacity of our mining operations expressed on a basis relating to the primary metal product for the respective operations. We use this measure for the same purpose and for monitoring operating performance by our mining operations. This information differs from measures of performance determined in accordance with U.S. GAAP and should not be considered in isolation or as a substitute for measures of performance determined in accordance with U.S. GAAP. This measure is presented by other metals mining companies, although our measures may not be comparable to similarly titled measures reported by other companies.

We present gross profit per pound of copper in the following tables using both a “by-product” method and a “co-product” method. We use the by-product method in our presentation of gross profit per pound of copper because (i) the majority of our revenues are copper revenues, (ii) we mine ore, which contains copper, gold, molybdenum and other metals, (iii) it is not possible to specifically assign all of our costs to revenues from the copper, gold, molybdenum and other metals we produce, (iv) it is the method used to compare mining operations in certain industry publications and (v) it is the method used by our management and our Board to monitor operations. In the co-product method presentations below, shared costs are allocated to the different products based on their relative revenue values, which will vary to the extent our metals sales volumes and realized prices change.

We show revenue adjustments for prior period open sales as a separate line item. Because these adjustments do not result from current period sales, we have reflected these separately from revenues on current period sales. Noncash and other costs consist of items such as stock-based compensation costs, start-up costs, inventory adjustments, long-lived asset retirements/impairments, restructuring and/or unusual charges. They are removed from site production and delivery costs in the calculation of unit net cash costs. As discussed above, gold, molybdenum and other metal revenues at copper mines are reflected as credits against site production and delivery costs in the by-product method. The following schedules for our mining operations are presentations under both the by-product and co-product methods together with reconciliations to amounts reported in our consolidated financial statements.

U.S. Oil and Gas Product Revenues and Cash Production Costs per Unit
Realized revenues and cash production costs per unit are measures intended to provide investors with information about the cash operating margin of our oil and gas operations. We use this measure for the same purpose and for monitoring operating performance by our oil and gas operations. This information differs from measures of performance determined in accordance with U.S. GAAP and should not be considered in isolation or as a substitute for measures of performance determined in accordance with U.S. GAAP. Our measures may not be comparable to similarly titled measures reported by other companies.

Accretion charges for asset retirement obligations and other costs, such as drillship settlements/idle rig costs, inventory write downs and/or unusual charges, are removed from production and delivery costs in the calculation of cash production costs per BOE. Additionally, in the 2015 periods, we had crude oil derivative contracts. We show revenue adjustments from these derivative contracts as separate line items. Because these adjustments did not result from oil and gas sales, gains and losses have been reflected separately from revenues on current period sales. The following schedules include calculations of oil and gas product revenues and cash production costs together with a reconciliation to amounts reported in our consolidated financial statements.


69
Table of Contents             

North America Copper Mines Product Revenues, Production Costs and Unit Net Cash Costs

Three Months Ended September 30, 2016
 
 
 
(In millions)
By-Product
 
Co-Product Method
 
Method
 
Copper
 
Molybdenum a
 
Other b
 
Total
Revenues, excluding adjustments
$
1,002

 
$
1,002

 
$
65

 
$
35

 
$
1,102

Site production and delivery, before net noncash
    and other costs shown below
659

 
610

 
48

 
25

 
683

By-product credits
(76
)
 
—

 
—

 
—

 
—

Treatment charges
45

 
42

 
—

 
3

 
45

Net cash costs
628

 
652

 
48

 
28

 
728

Depreciation, depletion and amortization (DD&A)
127

 
117

 
6

 
4

 
127

Metals inventory adjustments
6

 
6

 
—

 
—

 
6

Noncash and other costs, net
20

 
19

 
1

 
—

 
20

Total costs
781

 
794

 
55

 
32

 
881

Revenue adjustments, primarily for pricing
    on prior period open sales
(3
)
 
(3
)
 
—

 
—

 
(3
)
Gross profit
$
218

 
$
205

 
$
10

 
$
3

 
$
218

 
 
 
 
 
 
 
 
 
 
Copper sales (millions of recoverable pounds)
457

 
457

 
 
 
 
 
 
Molybdenum sales (millions of recoverable pounds) a
 
 
 
 
9

 
 
 
 
 
 
 
 
 
 
 
 
 
 
Gross profit per pound of copper/molybdenum:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Revenues, excluding adjustments
$
2.19

 
$
2.19

 
$
7.39

 
 
 
 
Site production and delivery, before net noncash
    and other costs shown below
1.44

 
1.34

 
5.51

 
 
 
 
By-product credits
(0.17
)
 
—

 
—

 
 
 
 
Treatment charges
0.10

 
0.09

 
—

 
 
 
 
Unit net cash costs
1.37

 
1.43

 
5.51

 
 
 
 
DD&A

0.28

 
0.26

 
0.70

 
 
 
 
Metals inventory adjustments
0.01

 
0.01

 
—

 
 
 
 
Noncash and other costs, net
0.05

 
0.04

 
0.13

 
 
 
 
Total unit costs
1.71

 
1.74

 
6.34

 
 
 
 
Revenue adjustments, primarily for pricing
    on prior period open sales
—

 
—

 
—

 
 
 
 
Gross profit per pound
$
0.48

 
$
0.45

 
$
1.05

 
 
 
 
 
 
 
 
 
 
 
 
 
 
Reconciliation to Amounts Reported
 
 
 
 
 
 
 
 
 
(In millions)
Revenues
 
Production and Delivery
 
DD&A
 
Metals Inventory Adjustments
 
 
Totals presented above
$
1,102

 
$
683

 
$
127

 
$
6

 
 
Treatment charges
—

 
45

 
—

 
—

 
 
Noncash and other costs, net
—

 
20

 
—

 
—

 
 
Revenue adjustments, primarily for pricing
    on prior period open sales
(3
)
 
—

 
—

 
—

 
 
Eliminations and other
(15
)
 
(15
)
 
2

 
—

 
 
North America copper mines
1,084

 
733

 
129

 
6

 
 
Other mining & eliminations c
2,366

 
1,523

 
287

 
14

 
 
Total mining
3,450

 
2,256

 
416

 
20

 
 
U.S. oil & gas operations
427

 
231

 
223

 
—

 
 
Corporate, other & eliminations
—

 
22

 
4

 
—

 
 
As reported in FCX’s consolidated financial statements
$
3,877

 
$
2,509

 
$
643

 
$
20

 
 
a.
Reflects sales of molybdenum produced by certain of the North America copper mines to our molybdenum sales company at market-based pricing.
b.
Includes gold and silver product revenues and production costs.
c.
Represents the combined total for all other mining operations and the related eliminations, as presented in Note 10 .



70
Table of Contents             

Three Months Ended September 30, 2015
 
 
 
(In millions)
By-Product
 
Co-Product Method
 
Method
 
Copper
 
Molybdenum a
 
Other b
 
Total
Revenues, excluding adjustments
$
1,167

 
$
1,167

 
$
56

 
$
29

 
$
1,252

Site production and delivery, before net noncash
    and other costs shown below
810

 
766

 
50

 
21

 
837

By-product credits
(58
)
 
—

 
—

 
—

 
—

Treatment charges
58

 
56

 
—

 
2

 
58

Net cash costs
810

 
822

 
50

 
23

 
895

DD&A

135

 
128

 
4

 
3

 
135

Metal inventory adjustments
55

 
53

 
1

 
1

 
55

Noncash and other costs, net
104

c  
102

 
2

 
—

 
104

Total costs
1,104

 
1,105

 
57

 
27

 
1,189

Revenue adjustments, primarily for pricing
    on prior period open sales
(56
)
 
(56
)
 
—

 
—

 
(56
)
Gross profit (loss)
$
7

 
$
6

 
$
(1
)
 
$
2

 
$
7

 
 
 
 
 
 
 
 
 
 
Copper sales (millions of recoverable pounds)
483

 
483

 
 
 
 
 
 
Molybdenum sales (millions of recoverable pounds) a
 
 
 
9

 
 
 
 
 
 
 
 
 
 
 
 
 
 
Gross profit (loss) per pound of copper/molybdenum:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Revenues, excluding adjustments
$
2.42

 
$
2.42

 
$
6.18

 
 
 
 
Site production and delivery, before net noncash
     and other costs shown below
1.68

 
1.59

 
5.51

 
 
 
 
By-product credits
(0.12
)
 
—

 
—

 
 
 
 
Treatment charges
0.12

 
0.11

 
—

 
 
 
 
Unit net cash costs
1.68

 
1.70

 
5.51

 
 
 
 
DD&A

0.28

 
0.27

 
0.51

 
 
 
 
Metal inventory adjustments
0.11

 
0.11

 
0.14

 
 
 
 
Noncash and other costs, net
0.22

c  
0.21

 
0.19

 
 
 
 
Total unit costs
2.29

 
2.29

 
6.35

 
 
 
 
Revenue adjustments, primarily for pricing
    on prior period open sales
(0.12
)
 
(0.12
)
 
—

 
 
 
 
Gross profit (loss) per pound
$
0.01

 
$
0.01

 
$
(0.17
)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Reconciliation to Amounts Reported
 
 
 
 
 
 
 
 
 
(In millions)
Revenues
 
Production and Delivery
 
DD&A
 
Metals Inventory Adjustments
 
 
Totals presented above
$
1,252

 
$
837

 
$
135

 
$
55

 
 
Treatment charges
—

 
58

 
—

 
—

 
 
Noncash and other costs, net
—

 
104

 
—

 
—

 
 
Revenue adjustments, primarily for pricing
    on prior period open sales
(56
)
 
—

 
—

 
—

 
 
Eliminations and other
(27
)
 
(26
)
 
1

 
—

 
 
North America copper mines
1,169

 
973

 
136

 
55

 
 
Other mining & eliminations d
1,687

 
1,327

 
233

 
36

 
 
Total mining
2,856

 
2,300

 
369

 
91

 
 
U.S. oil & gas operations
525

 
293

 
450

 
—

 
 
Corporate, other & eliminations
1

 
2

 
4

 
—

 
 
As reported in FCX’s consolidated financial statements
$
3,382

 
$
2,595

 
$
823

 
$
91

 
 
 
a.
Reflects sales of molybdenum produced by certain of the North America copper mines to our molybdenum sales company at market-based pricing.
b.
Includes gold and silver product revenues and production costs.
c.
Includes $ 75 million ($0.16 per pound) for impairment and restructuring charges.
d.
Represents the combined total for all other mining operations and the related eliminations, as presented in Note 10 .




71
Table of Contents             

 
 
 
 
 
 
 
 
 
 
Nine Months Ended September 30, 2016
 
 
 
(In millions)
By-Product
 
Co-Product Method
 
Method
 
Copper
 
Molybdenum a
 
Other b
 
Total
Revenues, excluding adjustments
$
3,092

 
$
3,092

 
$
155

 
$
76

 
$
3,323

Site production and delivery, before net noncash
    and other costs shown below
2,008

 
1,904

 
121

 
46

 
2,071

By-product credits
(168
)
 
—

 
—

 
—

 
—

Treatment charges
148

 
142

 
—

 
6

 
148

Net cash costs
1,988

 
2,046

 
121

 
52

 
2,219

DD&A

405

 
381

 
15

 
9

 
405

Metals inventory adjustments
6

 
6

 
—

 
—

 
6

Noncash and other costs, net
68

 
66

 
1

 
1

 
68

Total costs
2,467

 
2,499

 
137

 
62

 
2,698

Revenue adjustments, primarily for pricing
    on prior period open sales
(1
)
 
(1
)
 
—

 
—

 
(1
)
Gross profit
$
624

 
$
592

 
$
18

 
$
14

 
$
624

 
 
 
 
 
 
 
 
 
 
Copper sales (millions of recoverable pounds)
1,421

 
1,421

 
 
 
 
 
 
Molybdenum sales (millions of recoverable pounds) a
 
 
 
 
25

 
 
 
 
 
 
 
 
 
 
 
 
 
 
Gross profit per pound of copper/molybdenum:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Revenues, excluding adjustments
$
2.18

 
$
2.18

 
$
6.24

 
 
 
 
Site production and delivery, before net noncash
 
 
 
 
 
 
 
 
 
and other costs shown below
1.41

 
1.34

 
4.86

 
 
 
 
By-product credits
(0.12
)
 
—

 
—

 
 
 
 
Treatment charges
0.11

 
0.10

 
—

 
 
 
 
Unit net cash costs
1.40

 
1.44

 
4.86

 
 
 
 
DD&A

0.29

 
0.27

 
0.61

 
 
 
 
Metals inventory adjustments
—

 
—

 
—

 
 
 
 
Noncash and other costs, net
0.05

 
0.05

 
0.06

 
 
 
 
Total unit costs
1.74

 
1.76

 
5.53

 
 
 
 
Revenue adjustments, primarily for pricing
 
 
 
 
 
 
 
 
 
on prior period open sales
—

 
—

 
—

 
 
 
 
Gross profit per pound
$
0.44

 
$
0.42

 
$
0.71

 
 
 
 
 
 
 
 
 
 
 
 
 
 
Reconciliation to Amounts Reported
 
 
 
 
 
 
 
 
 
(In millions)
Revenues
 
Production and Delivery
 
DD&A
 
Metals Inventory Adjustments
 
 
Totals presented above
$
3,323

 
$
2,071

 
$
405

 
$
6

 
 
Treatment charges
—

 
148

 
—

 
—

 
 
Noncash and other costs, net
—

 
68

 
—

 
—

 
 
Revenue adjustments, primarily for pricing
    on prior period open sales
(1
)
 
—

 
—

 
—

 
 
Eliminations and other
(42
)
 
(40
)
 
2

 
—

 
 
North America copper mines
3,280

 
2,247

 
407

 
6

 
 
Other mining & eliminations c
6,041

 
4,148

 
823

 
21

 
 
Total mining
9,321

 
6,395

 
1,230

 
27

 
 
U.S. oil & gas operations
1,132

 
1,527

 
696

 
—

 
 
Corporate, other & eliminations
—

 
35

 
11

 
—

 
 
As reported in FCX’s consolidated financial statements
$
10,453

 
$
7,957

 
$
1,937

 
$
27

 
 
a.
Reflects sales of molybdenum produced by certain of the North America copper mines to our molybdenum sales company at market-based pricing.
b.
Includes gold and silver product revenues and production costs.
c.
Represents the combined total for all other mining operations and the related eliminations, as presented in Note 10 .




72
Table of Contents             

 
 
 
 
 
 
 
 
 
 
Nine Months Ended September 30, 2015
 
 
 
(In millions)
By-Product
 
Co-Product Method
 
Method
 
Copper
 
Molybdenum a
 
Other b
 
Total
Revenues, excluding adjustments
$
3,723

 
$
3,723

 
$
218

 
$
83

 
$
4,024

Site production and delivery, before net noncash
    and other costs shown below
2,525

 
2,372

 
172

 
61

 
2,605

By-product credits
(221
)
 
—

 
—

 
—

 
—

Treatment charges
179

 
173

 
—

 
6

 
179

Net cash costs
2,483

 
2,545

 
172

 
67

 
2,784

DD&A

405

 
381

 
16

 
8

 
405

Metals inventory adjustments
66

 
64

 
1

 
1

 
66

Noncash and other costs, net
170

c  
167

 
3

 
—

 
170

Total costs
3,124

 
3,157

 
192

 
76

 
3,425

Revenue adjustments, primarily for pricing
    on prior period open sales
(28
)
 
(28
)
 
—

 
—

 
(28
)
Gross profit
$
571

 
$
538

 
$
26

 
$
7

 
$
571

 
 
 
 
 
 
 
 
 
 
Copper sales (millions of recoverable pounds)
1,439

 
1,439

 
 
 
 
 
 
Molybdenum sales (millions of recoverable pounds) a
 
 
 
 
28

 
 
 
 
 
 
 
 
 
 
 
 
 
 
Gross profit per pound of copper/molybdenum:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Revenues, excluding adjustments
$
2.59

 
$
2.59

 
$
7.62

 
 
 
 
Site production and delivery, before net noncash
 
 
 
 
 
 
 
 
 
and other costs shown below
1.76

 
1.65

 
6.01

 
 
 
 
By-product credits
(0.15
)
 
—

 
—

 
 
 
 
Treatment charges
0.12

 
0.12

 
—

 
 
 
 
Unit net cash costs
1.73

 
1.77

 
6.01

 
 
 
 
DD&A

0.28

 
0.27

 
0.56

 
 
 
 
Metals inventory adjustments
0.04

 
0.04

 
0.04

 
 
 
 
Noncash and other costs, net
0.12

c  
0.12

 
0.10

 
 
 
 
Total unit costs
2.17

 
2.20

 
6.71

 
 
 
 
Revenue adjustments, primarily for pricing
 
 
 
 
 
 
 
 
 
 on prior period open sales
(0.02
)
 
(0.02
)
 
—

 
 
 
 
Gross profit per pound
$
0.40

 
$
0.37

 
$
0.91

 
 
 
 
 
 
 
 
 
 
 
 
 
 
Reconciliation to Amounts Reported
 
 
 
 
 
 
 
 
 
(In millions)
Revenues
 
Production and Delivery
 
DD&A
 
Metals Inventory Adjustments
 
 
Totals presented above
$
4,024

 
$
2,605

 
$
405

 
$
66

 
 
Treatment charges
—

 
179

 
—

 
—

 
 
Noncash and other costs, net
—

 
170

 
—

 
—

 
 
Revenue adjustments, primarily for pricing
    on prior period open sales
(28
)
 
—

 
—

 
—

 
 
Eliminations and other
(87
)
 
(87
)
 
3

 
—

 
 
North America copper mines
3,909

 
2,867

 
408

 
66

 
 
Other mining & eliminations d
5,587

 
4,131

 
638

 
88

 
 
Total mining
9,496

 
6,998

 
1,046

 
154

 
 
U.S. oil & gas operations
1,594

 
857

 
1,465

 
—

 
 
Corporate, other & eliminations
1

 
7

 
11

 
—

 
 
As reported in FCX’s consolidated financial statements
$
11,091

 
$
7,862

 
$
2,522

 
$
154

 
 
a.
Reflects sales of molybdenum produced by certain of the North America copper mines to our molybdenum sales company at market-based pricing.
b.
Includes gold and silver product revenues and production costs.
c.
Includes $ 75 million ($0.05 per pound) for impairment and restructuring charges.
d.
Represents the combined total for all other mining operations and the related eliminations, as presented in Note 10 .


73
Table of Contents             

South America Mining Product Revenues, Production Costs and Unit Net Cash Costs
Three Months Ended September 30, 2016
 
 
 
 
 
 
 
(In millions)
By-Product
 
Co-Product Method
 
Method
 
Copper
 
Other a
 
Total
Revenues, excluding adjustments
$
709

 
$
709

 
$
50

 
$
759

Site production and delivery, before net noncash
    and other costs shown below
409

 
386

 
35

 
421

By-product credits
(38
)
 
—

 
—

 
—

Treatment charges
79

 
79

 
—

 
79

Royalty on metals
2

 
2

 
—

 
2

Net cash costs
452

 
467

 
35

 
502

DD&A

134

 
126

 
8

 
134

Noncash and other costs, net
4

 
3

 
1

 
4

Total costs
590

 
596

 
44

 
640

Revenue adjustments, primarily for pricing
    on prior period open sales
(7
)
 
(7
)
 
—

 
(7
)
Gross profit
$
112

 
$
106

 
$
6

 
$
112

 
 
 
 
 
 
 
 
Copper sales (millions of recoverable pounds)
323

 
323

 
 
 
 
 
 
 
 
 
 
 
 
Gross profit per pound of copper:
 
 
 
 
 
 
 
 
 
 
 
Revenues, excluding adjustments
$
2.19

 
$
2.19

 
 
 
 
Site production and delivery, before net noncash
    and other costs shown below
1.27

 
1.20

 
 
 
 
By-product credits
(0.12
)
 
—

 
 
 
 
Treatment charges
0.24

 
0.24

 
 
 
 
Royalty on metals
0.01

 
—

 
 
 
 
Unit net cash costs
1.40

 
1.44

 
 
 
 
DD&A

0.41

 
0.39

 
 
 
 
Noncash and other costs, net
0.01

 
0.01

 
 
 
 
Total unit costs
1.82

 
1.84

 
 
 
 
Revenue adjustments, primarily for pricing
    on prior period open sales
(0.02
)
 
(0.02
)
 
 
 
 
Gross profit per pound
$
0.35

 
$
0.33

 
 
 
 
 
 
 
 
 
 
 
 
Reconciliation to Amounts Reported
 
 
 
 
 
 
 
(In millions)
Revenues
 
Production and Delivery
 
DD&A
 
 
Totals presented above
$
759

 
$
421

 
$
134

 
 
Treatment charges
(79
)
 
—

 
—

 
 
Royalty on metals
(2
)
 
—

 
—

 
 
Noncash and other costs, net
—

 
4

 
—

 
 
Revenue adjustments, primarily for pricing
    on prior period open sales
(7
)
 
—

 
—

 
 
Eliminations and other
—

 
(1
)
 
—

 
 
South America mining
671

 
424

 
134

 
 
Other mining & eliminations b
2,779

 
1,832

 
282

 
 
Total mining
3,450

 
2,256

 
416

 
 
U.S. oil & gas operations
427

 
231

 
223

 
 
Corporate, other & eliminations
—

 
22

 
4

 
 
As reported in FCX’s consolidated financial statements
$
3,877

 
$
2,509

 
$
643

 
 
 
a.
Includes silver sales of 952 thousand ounces ( $21.72 per ounce average realized price). Also reflects sales of molybdenum produced by Cerro Verde to our molybdenum sales company at market-based pricing.
b.
Represents the combined total for all other mining operations and the related eliminations, as presented in Note 10 .


74
Table of Contents             

Three Months Ended September 30, 2015
 
 
 
 
 
 
 
(In millions)
By-Product
 
Co-Product Method
 
Method
 
Copper
 
Other a
 
Total
Revenues, excluding adjustments
$
491

 
$
491

 
$
13

 
$
504

Site production and delivery, before net noncash
    and other costs shown below
320

 
312

 
13

 
325

By-product credits
(8
)
 
—

 
—

 
—

Treatment charges
36

 
36

 
—

 
36

Royalty on metals
1

 
1

 
—

 
1

Net cash costs
349

 
349

 
13

 
362

DD&A

89

 
87

 
2

 
89

Noncash and other costs, net
21

b  
20

 
1

 
21

Total costs
459

 
456

 
16

 
472

Revenue adjustments, primarily for pricing
    on prior period open sales
(29
)
 
(29
)
 
—

 
(29
)
Gross profit (loss)
$
3

 
$
6

 
$
(3
)
 
$
3

 
 
 
 
 
 
 
 
Copper sales (millions of recoverable pounds)
207

 
207

 
 
 
 
 
 
 
 
 
 
 
 
Gross profit per pound of copper:
 
 
 
 
 
 
 
 
 
 
 
Revenues, excluding adjustments
$
2.37

 
$
2.37

 
 
 
 
Site production and delivery, before net noncash
   and other costs shown below
1.54

 
1.50

 
 
 
 
By-product credits
(0.04
)
 
—

 
 
 
 
Treatment charges
0.18

 
0.18

 
 
 
 
Royalty on metals
—

 
—

 
 
 
 
Unit net cash costs
1.68

 
1.68

 
 
 
 
DD&A

0.43

 
0.42

 
 
 
 
Noncash and other costs, net

0.10

b  
0.10

 
 
 
 
Total unit costs
2.21

 
2.20

 
 
 
 
Revenue adjustments, primarily for pricing
    on prior period open sales
(0.14
)
 
(0.14
)
 
 
 
 
Gross profit per pound
$
0.02

 
$
0.03

 
 
 
 
 
 
 
 
 
 
 
 
Reconciliation to Amounts Reported
 
 
 
 
 
 
 
(In millions)
Revenues
 
Production and Delivery
 
DD&A
 
 
Totals presented above
$
504

 
$
325

 
$
89

 
 
Treatment charges
(36
)
 
—

 
—

 
 
Royalty on metals
(1
)
 
—

 
—

 
 
Noncash and other costs, net

—

 
21

 
—

 
 
Revenue adjustments, primarily for pricing
    on prior period open sales
(29
)
 
—

 
—

 
 
Eliminations and other
—

 
(2
)
 
—

 
 
South America mining
438

 
344

 
89

 
 
Other mining & eliminations c
2,418

 
1,956

 
280

 
 
Total mining
2,856

 
2,300

 
369

 
 
U.S. oil & gas operations
525

 
293

 
450

 
 
Corporate, other & eliminations
1

 
2

 
4

 
 
As reported in FCX’s consolidated financial statements
$
3,382

 
$
2,595

 
$
823

 
 
 
a.
Includes silver sales of 438 thousand ounces ( $13.90 per ounce average realized price). Also reflects sales of molybdenum produced by Cerro Verde to our molybdenum sales company at market-based pricing.
b.
Includes restructuring charges totaling $11 million ($0.05 per pound).
c.
Represents the combined total for all other mining operations and the related eliminations, as presented in Note 10 .

75
Table of Contents             

 
 
 
 
 
 
 
 
Nine Months Ended September 30, 2016
 
 
 
 
 
 
 
(In millions)
By-Product
 
Co-Product Method
 
Method
 
Copper
 
Other a
 
Total
Revenues, excluding adjustments
$
2,115

 
$
2,115

 
$
129

 
$
2,244

Site production and delivery, before net noncash
    and other costs shown below
1,199

 
1,140

 
88

 
1,228

By-product credits
(100
)
 
—

 
—

 
—

Treatment charges
230

 
230

 
—

 
230

Royalty on metals
5

 
5

 
—

 
5

Net cash costs
1,334

 
1,375

 
88

 
1,463

DD&A

401

 
379

 
22

 
401

Noncash and other costs, net
15

 
14

 
1

 
15

Total costs
1,750

 
1,768

 
111

 
1,879

Revenue adjustments, primarily for pricing
    on prior period open sales
9

 
9

 
—

 
9

Gross profit
$
374

 
$
356

 
$
18

 
$
374

 
 
 
 
 
 
 
 
Copper sales (millions of recoverable pounds)
973

 
973

 
 
 
 
 
 
 
 
 
 
 
 
Gross profit per pound of copper:
 
 
 
 
 
 
 
 
 
 
 
Revenues, excluding adjustments
$
2.17

 
$
2.17

 
 
 
 
Site production and delivery, before net noncash
 
 
 
 
 
 
 
and other costs shown below
1.23

 
1.17

 
 
 
 
By-product credits
(0.10
)
 
—

 
 
 
 
Treatment charges
0.24

 
0.24

 
 
 
 
Royalty on metals
—

 
—

 
 
 
 
Unit net cash costs
1.37

 
1.41

 
 
 
 
DD&A

0.41

 
0.39

 
 
 
 
Noncash and other costs, net
0.02

 
0.02

 
 
 
 
Total unit costs
1.80

 
1.82

 
 
 
 
Revenue adjustments, primarily for pricing
 
 
 
 
 
 
 
on prior period open sales
0.01

 
0.01

 
 
 
 
Gross profit per pound
$
0.38

 
$
0.36

 
 
 
 
 
 
 
 
 
 
 
 
Reconciliation to Amounts Reported
 
 
 
 
 
 
 
(In millions)
Revenues
 
Production and Delivery
 
DD&A
 
 
Totals presented above
$
2,244

 
$
1,228

 
$
401

 
 
Treatment charges
(230
)
 
—

 
—

 
 
Royalty on metals
(5
)
 
—

 
—

 
 
Noncash and other costs, net
—

 
15

 
—

 
 
Revenue adjustments, primarily for pricing
    on prior period open sales
9

 
—

 
—

 
 
Eliminations and other
1

 
(3
)
 
1

 
 
South America mining
2,019

 
1,240

 
402

 
 
Other mining & eliminations b
7,302

 
5,155

 
828

 
 
Total mining
9,321

 
6,395

 
1,230

 
 
U.S. oil & gas operations
1,132

 
1,527

 
696

 
 
Corporate, other & eliminations
—

 
35

 
11

 
 
As reported in FCX’s consolidated financial statements
$
10,453

 
$
7,957

 
$
1,937

 
 
a.
Includes silver sales of 2.8 million ounces ( $17.99 per ounce average realized price). Also reflects sales of molybdenum produced by Cerro Verde to our molybdenum sales company at market-based pricing.
b.
Represents the combined total for all other mining operations and the related eliminations, as presented in Note 10 .

76
Table of Contents             

 
 
 
 
 
 
 
 
Nine Months Ended September 30, 2015
 
 
 
 
 
 
 
(In millions)
By-Product
 
Co-Product Method
 
Method
 
Copper
 
Other a
 
Total
Revenues, excluding adjustments
$
1,473

 
$
1,473

 
$
48

 
$
1,521

Site production and delivery, before net noncash
    and other costs shown below
983

 
954

 
46

 
1,000

By-product credits
(31
)
 
—

 
—

 
—

Treatment charges
100

 
100

 
—

 
100

Royalty on metals
2

 
2

 
—

 
2

Net cash costs
1,054

 
1,056

 
46

 
1,102

DD&A

236

 
229

 
7

 
236

Noncash and other costs, net
21

b  
21

 
—

 
21

Total costs
1,311

 
1,306

 
53

 
1,359

Revenue adjustments, primarily for pricing
    on prior period open sales
(29
)
 
(29
)
 
—

 
(29
)
Gross profit (loss)
$
133

 
$
138

 
$
(5
)
 
$
133

 
 
 
 
 
 
 
 
Copper sales (millions of recoverable pounds)
585

 
585

 
 
 
 
 
 
 
 
 
 
 
 
Gross profit per pound of copper:
 
 
 
 
 
 
 
 
 
 
 
Revenues, excluding adjustments
$
2.52

 
$
2.52

 
 
 
 
Site production and delivery, before net noncash
 
 
 
 
 
 
 
and other costs shown below
1.68

 
1.63

 
 
 
 
By-product credits
(0.05
)
 
—

 
 
 
 
Treatment charges
0.17

 
0.17

 
 
 
 
Royalty on metals
—

 
—

 
 
 
 
Unit net cash costs
1.80

 
1.80

 
 
 
 
DD&A

0.40

 
0.39

 
 
 
 
Noncash and other costs, net
0.04

b  
0.04

 
 
 
 
Total unit costs
2.24

 
2.23

 
 
 
 
Revenue adjustments, primarily for pricing
 
 
 
 
 
 
 
on prior period open sales
(0.05
)
 
(0.05
)
 
 
 
 
Gross profit per pound
$
0.23

 
$
0.24

 
 
 
 
 
 
 
 
 
 
 
 
Reconciliation to Amounts Reported
 
 
 
 
 
 
 
(In millions)
Revenues
 
Production and Delivery
 
DD&A
 
 
Totals presented above
$
1,521

 
$
1,000

 
$
236

 
 
Treatment charges
(100
)
 
—

 
—

 
 
Royalty on metals
(2
)
 
—

 
—

 
 
Noncash and other costs, net
—

 
21

 
—

 
 
Revenue adjustments, primarily for pricing
    on prior period open sales
(29
)
 
—

 
—

 
 
Eliminations and other
(13
)
 
(17
)
 
—

 
 
South America mining
1,377

 
1,004

 
236

 
 
Other mining & eliminations c
8,119

 
5,994

 
810

 
 
Total mining
9,496

 
6,998

 
1,046

 
 
U.S. oil & gas operations
1,594

 
857

 
1,465

 
 
Corporate, other & eliminations
1

 
7

 
11

 
 
As reported in FCX’s consolidated financial statements
$
11,091

 
$
7,862

 
$
2,522

 
 
 
a.
Includes silver sales of 1.2 million ounces ( $14.58 per ounce average realized price). Also reflects sales of molybdenum produced by Cerro Verde to our molybdenum sales company at market-based pricing.
b.
Includes restructuring charges totaling $11 million ($0.02 per pound).
c.
Represents the combined total for all other mining operations and the related eliminations, as presented in Note 10 .

 
 
 
 
 
 
 

77
Table of Contents             

Indonesia Mining Product Revenues, Production Costs and Unit Net Cash Costs

Three Months Ended September 30, 2016
 
 
 
(In millions)
By-Product
 
Co-Product Method
 
Method
 
Copper
 
Gold
 
Silver a
 
Total
Revenues, excluding adjustments
$
729

 
$
729

 
$
408

 
$
18

 
$
1,155

Site production and delivery, before net noncash
     and other costs shown below
453

 
286

 
160

 
7

 
453

Gold and silver credits
(427
)
 
—

 
—

 
—

 
—

Treatment charges
90

 
57

 
32

 
1

 
90

Export duties
34

 
21

 
12

 
1

 
34

Royalty on metals
40

 
24

 
15

 
1

 
40

Net cash costs
190

 
388

 
219

 
10

 
617

DD&A

110

 
69

 
39

 
2

 
110

Noncash and other costs, net
16

b  
11

 
5

 
—

 
16

Total costs
316

 
468

 
263

 
12

 
743

Revenue adjustments, primarily for pricing
    on prior period open sales
(6
)
 
(6
)
 
—

 
1

 
(5
)
PT Smelting intercompany loss
(9
)
 
(6
)
 
(3
)
 
—

 
(9
)
Gross profit
$
398

 
$
249

 
$
142

 
$
7

 
$
398

 
 
 
 
 
 
 
 
 
 
Copper sales (millions of recoverable pounds)
332

 
332

 
 
 
 
 
 
Gold sales (thousands of recoverable ounces)
 
 
 
 
307

 
 
 
 
 
 
 
 
 
 
 
 
 
 
Gross profit per pound of copper/per ounce of gold:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Revenues, excluding adjustments
$
2.20

 
$
2.20

 
$
1,327

 
 
 
 
Site production and delivery, before net noncash
     and other costs shown below
1.37

 
0.86

 
520

 
 
 
 
Gold and silver credits
(1.29
)
 
—

 
—

 
 
 
 
Treatment charges
0.27

 
0.17

 
104

 
 
 
 
Export duties
0.10

 
0.07

 
39

 
 
 
 
Royalty on metals
0.12

 
0.07

 
50

 
 
 
 
Unit net cash costs
0.57

 
1.17

 
713

 
 
 
 
DD&A

0.33

 
0.21

 
125

 
 
 
 
Noncash and other costs, net
0.05

b  
0.03

 
19

 
 
 
 
Total unit costs
0.95

 
1.41

 
857

 
 
 
 
Revenue adjustments, primarily for pricing
    on prior period open sales
(0.02
)
 
(0.02
)
 
1

 
 
 
 
PT Smelting intercompany loss
(0.03
)
 
(0.02
)
 
(10
)
 
 
 
 
Gross profit per pound/ounce
$
1.20

 
$
0.75

 
$
461

 
 
 
 
 
 
 
 
 
 
 
 
 
 
Reconciliation to Amounts Reported
 
 
 
 
 
 
 
 
 
(In millions)
Revenues
 
Production and Delivery
 
DD&A
 
 
 
 
Totals presented above
$
1,155

 
$
453

 
$
110

 
 
 
 
Treatment charges
(90
)
 
—

 
—

 
 
 
 
Export duties
(34
)
 
—

 
—

 
 
 
 
Royalty on metals
(40
)
 
—

 
—

 
 
 
 
Noncash and other costs, net
—

 
16

 
—

 
 
 
 
Revenue adjustments, primarily for pricing
    on prior period open sales
(5
)
 
—

 
—

 
 
 
 
PT Smelting intercompany loss
—

 
9

 
—

 
 
 
 
Indonesia mining
986

 
478

 
110

 
 
 
 
Other mining & eliminations c
2,464

 
1,778

 
306

 
 
 
 
Total mining
3,450

 
2,256

 
416

 
 
 
 
U.S. oil & gas operations
427

 
231

 
223

 
 
 
 
Corporate, other & eliminations
—

 
22

 
4

 
 
 
 
As reported in FCX’s consolidated financial statements
$
3,877

 
$
2,509

 
$
643

 
 
 
 
a.
Includes silver sales of 928 thousand ounces ( $18.97 per ounce average realized price).
b.
Includes asset retirement charges of $17 million ($0.05 per pound).
c.
Represents the combined total for all other mining operations and the related eliminations, as presented in Note 10 .
.

78
Table of Contents             


Three Months Ended September 30, 2015
 
 
 
(In millions)
By-Product
 
Co-Product Method
 
Method
 
Copper
 
Gold
 
Silver a
 
Total
Revenues, excluding adjustments
$
466

 
$
466

 
$
319

 
$
8

 
$
793

Site production and delivery, before net noncash
    and other costs shown below
429

 
252

 
173

 
4

 
429

Gold and silver credits
(316
)
 
—

 
—

 
—

 
—

Treatment charges
61

 
36

 
25

 
—

 
61

Export duties
35

 
20

 
14

 
1

 
35

Royalty on metals
25

 
15

 
10

 
—

 
25

Net cash costs
234

 
323

 
222

 
5

 
550

DD&A

90

 
53

 
36

 
1

 
90

Noncash and other costs, net
4

 
2

 
1

 
1

 
4

Total costs
328

 
378

 
259

 
7

 
644

Revenue adjustments, primarily for pricing
    on prior period open sales
(52
)
 
(52
)
 
(11
)
 
—

 
(63
)
PT Smelting intercompany profit
16

 
9

 
7

 
—

 
16

Gross profit
$
102

 
$
45

 
$
56

 
$
1

 
$
102

 
 
 
 
 
 
 
 
 
 
Copper sales (millions of recoverable pounds)
198

 
198

 
 
 
 
 
 
Gold sales (thousands of recoverable ounces)
 
 
 
 
285

 
 
 
 
 
 
 
 
 
 
 
 
 
 
Gross profit per pound of copper/per ounce of gold:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Revenues, excluding adjustments
$
2.35

 
$
2.35

 
$
1,117

 
 
 
 
Site production and delivery, before net noncash
    and other costs shown below
2.16

 
1.28

 
604

 
 
 
 
Gold and silver credits
(1.59
)
 
—

 
—

 
 
 
 
Treatment charges
0.31

 
0.18

 
86

 
 
 
 
Export duties
0.17

 
0.10

 
49

 
 
 
 
Royalty on metals
0.13

 
0.07

 
35

 
 
 
 
Unit net cash costs
1.18

 
1.63

 
774

 
 
 
 
DD&A

0.45

 
0.27

 
127

 
 
 
 
Noncash and other costs, net
0.02

 
0.01

 
5

 
 
 
 
Total unit costs
1.65

 
1.91

 
906

 
 
 
 
Revenue adjustments, primarily for pricing
    on prior period open sales
(0.26
)
 
(0.26
)
 
(38
)
 
 
 
 
PT Smelting intercompany profit
0.08

 
0.05

 
23

 
 
 
 
Gross profit per pound/ounce
$
0.52

 
$
0.23

 
$
196

 
 
 
 
 
 
 
 
 
 
 
 
 
 
Reconciliation to Amounts Reported
 
 
 
 
 
 
 
 
 
(In millions)
Revenues
 
Production and Delivery
 
DD&A
 
 
 
 
Totals presented above
$
793

 
$
429

 
$
90

 
 
 
 
Treatment charges
(61
)
 
—

 
—

 
 
 
 
Export duties
(35
)
 
—

 
—

 
 
 
 
Royalty on metals
(25
)
 
—

 
—

 
 
 
 
Noncash and other costs, net
—

 
4

 
—

 
 
 
 
Revenue adjustments, primarily for pricing
    on prior period open sales
(63
)
 
—

 
—

 
 
 
 
PT Smelting intercompany profit
—

 
(16
)
 
—

 
 
 
 
Indonesia mining
609

 
417

 
90

 
 
 
 
Other mining & eliminations b
2,247

 
1,883

 
279

 
 
 
 
Total mining
2,856

 
2,300

 
369

 
 
 
 
U.S. oil & gas operations
525

 
293

 
450

 
 
 
 
Corporate, other & eliminations
1

 
2

 
4

 
 
 
 
As reported in FCX’s consolidated financial statements
$
3,382

 
$
2,595

 
$
823

 
 
 
 
a.
Includes silver sales of 574 thousand ounces ( $14.37 per ounce average realized price).
b.
Represents the combined total for all other mining operations and the related eliminations, as presented in Note 10 .

79
Table of Contents             

 
 
 
 
 
 
 
 
 
 
Nine Months Ended September 30, 2016
 
 
 
(In millions)
By-Product
 
Co-Product Method
 
Method
 
Copper
 
Gold
 
Silver a
 
Total
Revenues, excluding adjustments
$
1,525

 
$
1,525

 
$
844

 
$
36

 
$
2,405

Site production and delivery, before net noncash
   and other costs shown below
1,190

 
754

 
418

 
18

 
1,190

Gold and silver credits
(897
)
 
—

 
—

 
—

 
—

Treatment charges
202

 
128

 
71

 
3

 
202

Export duties
63

 
40

 
22

 
1

 
63

Royalty on metals
84

 
51

 
32

 
1

 
84

Net cash costs
642

 
973

 
543

 
23

 
1,539

DD&A

284

 
180

 
100

 
4

 
284

Noncash and other costs, net
31

b  
20

 
10

 
1

 
31

Total costs
957

 
1,173

 
653

 
28

 
1,854

Revenue adjustments, primarily for pricing
    on prior period open sales
—

 
—

 
17

 
—

 
17

PT Smelting intercompany loss
(7
)
 
(5
)
 
(2
)
 
—

 
(7
)
Gross profit
$
561

 
$
347

 
$
206

 
$
8

 
$
561

 
 
 
 
 
 
 
 
 
 
Copper sales (millions of recoverable pounds)
702

 
702

 
 
 
 
 
 
Gold sales (thousands of recoverable ounces)
 
 
 
 
653

 
 
 
 
 
 
 
 
 
 
 
 
 
 
Gross profit per pound of copper/per ounce of gold:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Revenues, excluding adjustments
$
2.17

 
$
2.17

 
$
1,292

 
 
 
 
Site production and delivery, before net noncash
 
 
 
 
 
 
 
 
 
and other costs shown below
1.70

 
1.08

 
639

 
 
 
 
Gold and silver credits
(1.28
)
 
—

 
—

 
 
 
 
Treatment charges
0.29

 
0.18

 
109

 
 
 
 
Export duties
0.09

 
0.06

 
34

 
 
 
 
Royalty on metals
0.12

 
0.07

 
48

 
 
 
 
Unit net cash costs
0.92

 
1.39

 
830

 
 
 
 
DD&A

0.40

 
0.25

 
152

 
 
 
 
Noncash and other costs, net
0.04

b  
0.03

 
16

 
 
 
 
Total unit costs
1.36

 
1.67

 
998

 
 
 
 
Revenue adjustments, primarily for pricing
 
 
 
 
 
 
 
 
 
on prior period open sales
—

 
—

 
25

 
 
 
 
PT Smelting intercompany loss
(0.01
)
 
(0.01
)
 
(4
)
 
 
 
 
Gross profit per pound/ounce
$
0.80

 
$
0.49

 
$
315

 
 
 
 
 
 
 
 
 
 
 
 
 
 
Reconciliation to Amounts Reported
 
 
 
 
 
 
 
 
 
(In millions)
Revenues
 
Production and Delivery
 
DD&A
 
 
 
 
Totals presented above
$
2,405

 
$
1,190

 
$
284

 
 
 
 
Treatment charges
(202
)
 
—

 
—

 
 
 
 
Export duties
(63
)
 
—

 
—

 
 
 
 
Royalty on metals
(84
)
 
—

 
—

 
 
 
 
Noncash and other costs, net
—

 
31

 
—

 
 
 
 
Revenue adjustments, primarily for pricing
    on prior period open sales
17

 
—

 
—

 
 
 
 
PT Smelting intercompany loss
—

 
7

 
—

 
 
 
 
Indonesia mining
2,073

 
1,228

 
284

 
 
 
 
Other mining & eliminations c
7,248

 
5,167

 
946

 
 
 
 
Total mining
9,321

 
6,395

 
1,230

 
 
 
 
U.S. oil & gas operations
1,132

 
1,527

 
696

 
 
 
 
Corporate, other & eliminations
—

 
35

 
11

 
 
 
 
As reported in FCX’s consolidated financial statements
$
10,453

 
$
7,957

 
$
1,937

 
 
 
 
a.
Includes silver sales of 2.0 million ounces ( $17.95 per ounce average realized price).
b.
Includes asset retirement charges of $17 million ($0.02 per pound).
c.
Represents the combined total for all other mining operations and the related eliminations, as presented in Note 10 .



80
Table of Contents             

 
 
 
 
 
 
 
 
 
 
Nine Months Ended September 30, 2015
 
 
 
(In millions)
By-Product
 
Co-Product Method
 
Method
 
Copper
 
Gold
 
Silver a
 
Total
Revenues, excluding adjustments
$
1,345

 
$
1,345

 
$
1,024

 
$
24

 
$
2,393

Site production and delivery, before net noncash
    and other costs shown below
1,311

 
736

 
562

 
13

 
1,311

Gold and silver credits
(1,057
)
 
—

 
—

 
—

 
—

Treatment charges
169

 
95

 
72

 
2

 
169

Export duties
92

 
52

 
39

 
1

 
92

Royalty on metals
85

 
48

 
37

 
—

 
85

Net cash costs
600

 
931

 
710

 
16

 
1,657

DD&A

238

 
134

 
102

 
2

 
238

Noncash and other costs, net
19

 
11

 
8

 
—

 
19

Total costs
857

 
1,076

 
820

 
18

 
1,914

Revenue adjustments, primarily for pricing
    on prior period open sales
(50
)
 
(50
)
 
9

 
—

 
(41
)
PT Smelting intercompany profit
19

 
11

 
8

 
—

 
19

Gross profit
$
457

 
$
230

 
$
221

 
$
6

 
$
457

 
 
 
 
 
 
 
 
 
 
Copper sales (millions of recoverable pounds)
549

 
549

 
 
 
 
 
 
Gold sales (thousands of recoverable ounces)
 
 
 
 
891

 
 
 
 
 
 
 
 
 
 
 
 
 
 
Gross profit per pound of copper/per ounce of gold:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Revenues, excluding adjustments
$
2.45

 
$
2.45

 
$
1,149

 
 
 
 
Site production and delivery, before net noncash
 
 
 
 
 
 
 
 
 
and other costs shown below
2.39

 
1.34

 
630

 
 
 
 
Gold and silver credits
(1.93
)
 
—

 
—

 
 
 
 
Treatment charges
0.31

 
0.17

 
81

 
 
 
 
Export duties
0.16

 
0.10

 
44

 
 
 
 
Royalty on metals
0.16

 
0.09

 
41

 
 
 
 
Unit net cash costs
1.09

 
1.70

 
796

 
 
 
 
DD&A

0.43

 
0.24

 
114

 
 
 
 
Noncash and other costs, net
0.04

 
0.02

 
10

 
 
 
 
Total unit costs
1.56

 
1.96

 
920

 
 
 
 
Revenue adjustments, primarily for pricing
 
 
 
 
 
 
 
 
 
on prior period open sales
(0.09
)
 
(0.09
)
 
10

 
 
 
 
PT Smelting intercompany profit
0.03

 
0.02

 
9

 
 
 
 
Gross profit per pound/ounce
$
0.83

 
$
0.42

 
$
248

 
 
 
 
 
 
 
 
 
 
 
 
 
 
Reconciliation to Amounts Reported
 
 
 
 
 
 
 
 
 
(In millions)
Revenues
 
Production and Delivery
 
DD&A
 
 
 
 
Totals presented above
$
2,393

 
$
1,311

 
$
238

 
 
 
 
Treatment charges
(169
)
 
—

 
—

 
 
 
 
Export duties
(92
)
 
—

 
—

 
 
 
 
Royalty on metals
(85
)
 
—

 
—

 
 
 
 
Noncash and other costs, net
—

 
19

 
—

 
 
 
 
Revenue adjustments, primarily for pricing
    on prior period open sales
(41
)
 
—

 
—

 
 
 
 
PT Smelting intercompany profit
—

 
(19
)
 
—

 
 
 
 
Indonesia mining
2,006

 
1,311

 
238

 
 
 
 
Other mining & eliminations b
7,490

 
5,687

 
808

 
 
 
 
Total mining
9,496

 
6,998

 
1,046

 
 
 
 
U.S. oil & gas operations
1,594

 
857

 
1,465

 
 
 
 
Corporate, other & eliminations
1

 
7

 
11

 
 
 
 
As reported in FCX’s consolidated financial statements
$
11,091

 
$
7,862

 
$
2,522

 
 
 
 
a.
Includes silver sales of 1.6 million ounces ( $15.07 per ounce average realized price).
b.
Represents the combined total for all other mining operations and the related eliminations, as presented in Note 10 .


81
Table of Contents             

Molybdenum Mines Product Revenues, Production Costs and Unit Net Cash Costs

(In millions)
Three Months Ended September 30,
 
 
 
 
 
2016
 
2015
 
 
 
 
Revenues, excluding adjustments a
$
51

 
$
94

 
 
 
 
Site production and delivery, before net noncash and other costs shown below
53

 
79

 
 
 
 
Treatment charges and other
5

 
11

 
 
 
 
Net cash costs
58

 
90

 
 
 
 
DD&A

15

 
26

 
 
 
 
Metals inventory adjustments
6

 
3

 
 
 
 
Noncash and other (credits) costs, net
(2
)
 
4

b  
 
 
 
Total costs
77

 
123

 
 
 
 
Gross loss
$
(26
)
 
$
(29
)
 
 
 
 
 
 
 
 
 
 
 
 
Molybdenum sales (millions of recoverable pounds) a
5

 
13

 
 
 
 
 
 
 
 
 
 
 
 
Gross loss per pound of molybdenum:
 
 
 
 
 
 
 
 
 
 
 
 
Revenues, excluding adjustments a
$
9.08

 
$
7.23

 
 
 
 
Site production and delivery, before net noncash and other costs shown below
9.42

 
6.10

 
 
 
 
Treatment charges and other
0.86

 
0.83

 
 
 
 
Unit net cash costs
10.28

 
6.93

 
 
 
 
DD&A

2.63

 
2.00

 
 
 
 
Metals inventory adjustments
1.06

 
0.27

 
 
 
 
Noncash and other (credits) costs, net
(0.29
)
 
0.34

b  
 
 
 
Total unit costs
13.68

 
9.54

 
 
 
 
Gross loss per pound
$
(4.60
)
 
$
(2.31
)
 
 
 
 
 
 
 
 
 
 
 
 
Reconciliation to Amounts Reported
 
 
 
 
 
 
 
(In millions)
 
 
 
 
 
 
 
Three Months Ended September 30, 2016
Revenues
 
Production and Delivery
 
DD&A
 
Metals Inventory Adjustments
Totals presented above
$
51

 
$
53

 
$
15

 
$
6

Treatment charges and other
(5
)
 
—

 
—

 
—

Noncash and other (credits) costs, net
—

 
(2
)
 
—

 
—

Molybdenum mines
46

 
51

 
15

 
6

Other mining & eliminations c
3,404

 
2,205

 
401

 
14

Total mining
3,450

 
2,256

 
416

 
20

U.S. oil & gas operations
427

 
231

 
223

 
—

Corporate, other & eliminations
—

 
22

 
4

 
—

As reported in FCX’s consolidated financial statements
$
3,877

 
$
2,509

 
$
643

 
$
20

 
 
 
 
 
 
 
 
Three Months Ended September 30, 2015
 
 
 
 
 
 
 
Totals presented above
$
94

 
$
79

 
$
26

 
$
3

Treatment charges and other
(11
)
 
—

 
—

 
—

Noncash and other costs, net
—

 
4

 
—

 
—

Molybdenum mines
83

 
83

 
26

 
3

Other mining & eliminations c
2,773

 
2,217

 
343

 
88

Total mining
2,856

 
2,300

 
369

 
91

U.S. oil & gas operations
525

 
293

 
450

 
—

Corporate, other & eliminations
1

 
2

 
4

 
—

As reported in FCX’s consolidated financial statements
$
3,382

 
$
2,595

 
$
823

 
$
91

a.
Reflects sales of the Molybdenum mines' production to our molybdenum sales company at market-based pricing. On a consolidated basis, realizations are based on the actual contract terms for sales to third parties; as a result, our consolidated average realized price per pound of molybdenum will differ from the amounts reported in this table.
b.
Includes restructuring charges totaling $2 million ($0.15 per pound).
c.
Represents the combined total for all other mining operations and the related eliminations, as presented in Note 10 . Also includes amounts associated with our molybdenum sales company, which includes sales of molybdenum produced by the Molybdenum mines and by certain of the North and South America copper mines.


82
Table of Contents             

 
 
 
 
 
 
 
 
(In millions)
Nine Months Ended September 30,
 
 
 
 
 
2016
 
2015
 
 
 
 
Revenues, excluding adjustments a
$
153

 
$
330

 
 
 
 
 
 
 
 
 
 
 
 
Site production and delivery, before net noncash
   and other costs shown below
146

 
240

 
 
 
 
Treatment charges and other
17

 
32

 
 
 
 
Net cash costs
163

 
272

 
 
 
 
DD&A

51

 
77

 
 
 
 
Metals inventory adjustments
12

 
6

 
 
 
 
Noncash and other costs, net
1

 
7

b  
 
 
 
Total costs
227

 
362

 
 
 
 
Gross loss
$
(74
)
 
$
(32
)
 
 
 
 
 
 
 
 
 
 
 
 
Molybdenum sales (millions of recoverable pounds) a
19

 
39

 
 
 
 
 
 
 
 
 
 
 
 
Gross loss per pound of molybdenum:
 
 
 
 
 
 
 
 
 
 
 
 
Revenues, excluding adjustments a
$
7.94

 
$
8.60

 
 
 
 
 
 
 
 
 
 
 
 
Site production and delivery, before net noncash
   and other costs shown below
7.53

 
6.26

 
 
 
 
Treatment charges and other
0.86

 
0.84

 
 
 
 
Unit net cash costs
8.39

 
7.10

 
 
 
 
DD&A

2.65

 
2.00

 
 
 
 
Metals inventory adjustments
0.63

 
0.16

 
 
 
 
Noncash and other costs, net
0.09

 
0.19

b  
 
 
 
Total unit costs
11.76

 
9.45

 
 
 
 
Gross loss per pound
$
(3.82
)
 
$
(0.85
)
 
 
 
 
 
 
 
 
 
 
 
 
Reconciliation to Amounts Reported
 
 
 
 
 
 
 
(In millions)
 
 
 
 
 
 
 
Nine Months Ended September 30, 2016
Revenues
 
Production and Delivery
 
DD&A
 
Metals Inventory Adjustments
Totals presented above
$
153

 
$
146

 
$
51

 
$
12

Treatment charges and other
(17
)
 
—

 
—

 
—

Noncash and other costs, net
—

 
1

 
—

 
—

Molybdenum mines
136

 
147

 
51

 
12

Other mining & eliminations c
9,185

 
6,248

 
1,179

 
15

Total mining
9,321

 
6,395

 
1,230

 
27

U.S. oil & gas operations
1,132

 
1,527

 
696

 
—

Corporate, other & eliminations
—

 
35

 
11

 
—

As reported in FCX’s consolidated financial statements
$
10,453

 
$
7,957

 
$
1,937

 
$
27

 
 
 
 
 
 
 
 
Nine Months Ended September 30, 2015
 
 
 
 
 
 
 
Totals presented above
$
330

 
$
240

 
$
77

 
$
6

Treatment charges and other
(32
)
 
—

 
—

 
—

Noncash and other costs,net
—

 
7

 
—

 
—

Molybdenum mines
298

 
247

 
77

 
6

Other mining & eliminations c
9,198

 
6,751

 
969

 
148

Total mining
9,496

 
6,998

 
1,046

 
154

U.S. oil & gas operations
1,594

 
857

 
1,465

 
—

Corporate, other & eliminations
1

 
7

 
11

 
—

As reported in FCX’s consolidated financial statements
$
11,091

 
$
7,862

 
$
2,522

 
$
154

a.
Reflects sales of the Molybdenum mines' production to our molybdenum sales company at market-based pricing. On a consolidated basis, realizations are based on the actual contract terms for sales to third parties; as a result, our consolidated average realized price per pound of molybdenum will differ from the amounts reported in this table.
b.
Includes restructuring charges totaling $2 million ($0.05 per pound).
c.
Represents the combined total for all other mining operations and the related eliminations, as presented in Note 10 . Also includes amounts associated with our molybdenum sales company, which includes sales of molybdenum produced by the Molybdenum mines and by certain of the North and South America copper mines.



83
Table of Contents             

U.S. Oil & Gas Product Revenues, Cash Production Costs and Realizations

Three Months Ended September 30, 2016
 
 
 
 
 
 
 
 
(In millions)
Oil
 
Natural Gas
 
NGLs
 
Total
 
Oil and gas revenues
$
371

 
$
39

 
$
11

 
$
421

 
Cash production costs
 
 
 
 
 
 
(180
)
 
Cash operating margin
 
 
 
 
 
 
241

 
DD&A

 
 
 
 
 
 
(223
)
 
Impairment of oil and gas properties
 
 
 
 
 
 
(238
)
 
Accretion and other costs
 
 
 
 
 
 
(51
)
a  
Other revenue
 
 
 
 
 
 
6

 
Gross loss
 
 
 
 
 
 
$
(265
)
 
 
 
 
 
 
 
 
 
 
Oil (MMBbls)
9.1

 
 
 
 
 
 
 
Gas (Bcf)
 
 
13.8

 
 
 
 
 
NGLs (MMBbls)
 
 
 
 
0.6

 
 
 
Oil Equivalents (MMBOE)
 
 
 
 
 
 
12.0

 
 
 
 
 
 
 
 
 
 
 
Oil
(per barrel)
 
Natural Gas
(per MMBtu)
 
NGLs
(per barrel)
 
Per BOE
 
Oil and gas revenues
$
40.63

 
$
2.84

 
$
17.65

 
$
34.99

 
Cash production costs
 
 
 
 
 
 
(15.00
)
 
Cash operating margin
 
 
 
 
 
 
19.99

 
DD&A

 
 
 
 
 
 
(18.54
)
 
Impairment of oil and gas properties
 
 
 
 
 
 
(19.75
)
 
Accretion and other costs
 
 
 
 
 
 
(4.24
)
a  
Other revenue
 
 
 
 
 
 
0.46

 
Gross loss
 
 
 
 
 
 
$
(22.08
)
 
 
 
 
 
 
 
 
 
 
Reconciliation to Amounts Reported
(In millions)
Revenues
 
Production and Delivery
 
DD&A
 
Impairment of
Oil and Gas Properties
 
Totals presented above
$
421

 
$
180

 
$
223

 
$
238

 
Accretion and other costs
—

 
51

 
—

 
—

 
Other revenue
6

 
—

 
—

 
—

 
U.S. oil & gas operations
427

 
231

 
223

 
238

 
Total mining b
3,450

 
2,256

 
416

 
—

 
Corporate, other & eliminations
—

 
22

 
4

 
1

 
As reported in FCX's consolidated financial statements
$
3,877

 
$
2,509

 
$
643

 
$
239

 
a.
Includes charges of $33 million ( $2.81 per BOE) primarily for idle rig costs, inventory adjustments and asset impairments.
b.
Represents the combined total for mining operations and the related eliminations, as presented in Note 10 .



84
Table of Contents             

 
 
 
 
 
Three Months Ended September 30, 2015
 
 
 
 
 
 
 
 
(In millions)
Oil
 
 Natural Gas
 
NGLs
 
Total
 
Oil and gas revenues before derivatives
$
416

 
$
62

 
$
12

 
$
490

 
Cash gains on derivative contracts
103

 
—

 
—

 
103

 
Realized revenues
$
519

 
$
62

 
$
12

 
593

 
Cash production costs
 
 
 
 
 
 
(260
)
 
Cash operating margin
 
 
 
 
 
 
333

 
DD&A

 
 
 
 
 
 
(450
)
 
Impairment of oil and gas properties
 
 
 
 
 
 
(3,480
)
 
Accretion and other costs
 
 
 
 
 
 
(33
)
a  
Net noncash mark-to-market losses on derivative contracts
 
 
 
 
 
 
(74
)
 
Other revenue
 
 
 
 
 
 
6

 
Gross loss
 
 
 
 
 
 
$
(3,698
)
 
 
 
 
 
 
 
 
 
 
Oil (MMBbls)
9.3

 
 
 
 
 
 
 
Gas (Bcf)
 
 
22.8

 
 
 
 
 
NGLs (MMBbls)
 
 
 
 
0.7

 
 
 
Oil Equivalents (MMBOE)
 
 
 
 
 
 
13.8

 
 
 
 
 
 
 
 
 
 
 
Oil
 
Natural Gas
 
NGLs
 
 
 
 
(per barrel)
 
(per MMBtu)
 
(per barrel)
 
Per BOE
 
Oil and gas revenues before derivatives
$
44.85

 
$
2.72

 
$
16.68

 
$
35.56

 
Cash gains on derivative contracts
11.03

 
—

 
—

 
7.44

 
Realized revenues
$
55.88

 
$
2.72

 
$
16.68

 
43.00

 
Cash production costs
 
 
 
 
 
 
(18.85
)
 
Cash operating margin
 
 
 
 
 
 
24.15

 
DD&A

 
 
 
 
 
 
(32.71
)
 
Impairment of oil and gas properties
 
 
 
 
 
 
(252.58
)
 
Accretion and other costs
 
 
 
 
 
 
(2.38
)
a  
Net noncash mark-to-market losses on derivative contracts
 
 
 
 
 
 
(5.34
)
 
Other revenue
 
 
 
 
 
 
0.49

 
Gross loss
 
 
 
 
 
 
$
(268.37
)
 
 
 
 
 
 
 
 
 
 
Reconciliation to Amounts Reported
 
(In millions)
Revenues
 
Production and Delivery
 
DD&A
 
Impairment of
Oil and Gas Properties
 
Totals presented above
$
490

 
$
260

 
$
450

 
$
3,480

 
Cash gains on derivative contracts
103

 
—

 
—

 
—

 
Net noncash mark-to-market losses on derivative contracts
(74
)
 
—

 
—

 
—

 
Accretion and other costs
—

 
33

 
—

 
—

 
Other revenue
6

 
—

 
—

 
—

 
U.S. oil & gas operations
525

 
293

 
450

 
3,480

 
Total mining b
2,856

 
2,300

 
369

 
—

 
Corporate, other & eliminations
1

 
2

 
4

 
172

c  
As reported in FCX's consolidated financial statements
$
3,382

 
$
2,595

 
$
823

 
$
3,652

 
 
 
 
 
 
 
 
 
 
a.
Includes charges of $21 million ( $1.54 per BOE) primarily for inventory adjustments and prior period property tax assessments related to California properties.
b.
Represents the combined total for mining operations and the related eliminations, as presented in Note 10 .
c.
Reflects impairment of international oil and gas properties, primarily in Morocco.

85
Table of Contents             

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Nine Months Ended September 30, 2016
 
 
 
 
 
 
(In millions)
Oil
 
Natural Gas
 
NGLs
 
Total
 
Oil and gas revenues
$
968

 
$
117

 
$
30

 
$
1,115

 
Cash production costs
 
 
 
 
 
 
(558
)
 
Cash operating margin
 
 
 
 
 
 
557

 
DD&A

 
 
 
 
 
 
(696
)
 
Impairment of oil and gas properties
 
 
 
 
 
 
(4,299
)
 
Accretion and other costs
 
 
 
 
 
 
(969
)
a  
Other revenue
 
 
 
 
 
 
17

 
Gross loss
 
 
 
 
 
 
$
(5,390
)
 
 
 
 
 
 
 
 
 
 
Oil (MMBbls)
26.1

 
 
 
 
 
 
 
Gas (Bcf)
 
 
52.2

 
 
 
 
 
NGLs (MMBbls)
 
 
 
 
1.8

 
 
 
Oil Equivalents (MMBOE)
 
 
 
 
 
 
36.6

 
 
 
 
 
 
 
 
 
 
 
Oil
(per barrel)
 
Natural Gas
(per MMBtu)
 
NGLs
(per barrel)
 
Per BOE
 
Oil and gas revenues
$
37.11

 
$
2.24

 
$
16.85

 
$
30.50

 
Cash production costs
 
 
 
 
 
 
(15.28
)
 
Cash operating margin
 
 
 
 
 
 
15.22

 
DD&A

 
 
 
 
 
 
(19.03
)
 
Impairment of oil and gas properties
 
 
 
 
 
 
(117.56
)
 
Accretion and other costs
 
 
 
 
 
 
(26.49
)
a  
Other revenue
 
 
 
 
 
 
0.45

 
Gross loss
 
 
 
 
 
 
$
(147.41
)
 
 
 
 
 
 
 
 
 
 
Reconciliation to Amounts Reported
(In millions)
Revenues
 
Production and Delivery
 
DD&A
 
Impairment of
Oil and Gas Properties
 
Totals presented above
$
1,115

 
$
558

 
$
696

 
$
4,299

 
Accretion and other costs
—

 
969

 
—

 
—

 
Other revenue
17

 
—

 
—

 
—

 
U.S. oil & gas operations
1,132

 
1,527

 
696

 
4,299

 
Total mining b
9,321

 
6,395

 
1,230

 
—

 
Corporate, other & eliminations
—

 
35

 
11

 
18

c  
As reported in FCX's consolidated financial statements
$
10,453

 
$
7,957

 
$
1,937

 
$
4,317

 
a.
Includes charges of $925 million ( $25.32 per BOE) primarily for the termination and settlement of drillship contracts, inventory adjustments and asset impairments.
b.
Represents the combined total for mining operations and the related eliminations, as presented in Note 10 .
c.
Reflects impairment of international oil and gas properties primarily in Morocco.



86
Table of Contents             

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Nine Months Ended September 30, 2015
 
 
 
 
 
 
 
 
(In millions)
Oil
 
Natural Gas
 
NGLs
 
Total
 
Oil and gas revenues before derivatives
$
1,269

 
$
187

 
$
36

 
$
1,492

 
Cash gains on derivative contracts
304

 
—

 
—

 
304

 
Realized revenues
$
1,573

 
$
187

 
$
36

 
1,796

 
Cash production costs
 
 
 
 
 
 
(765
)
 
Cash operating margin
 
 
 
 
 
 
1,031

 
DD&A

 
 
 
 
 
 
(1,465
)
 
Impairment of oil and gas properties
 
 
 
 
 
 
(9,270
)
 
Accretion and other costs
 
 
 
 
 
 
(92
)
a  
Net noncash mark-to-market losses on derivative contracts
 
 
 
 
 
 
(217
)
 
Other revenue
 
 
 
 
 
 
15

 
Gross loss
 
 
 
 
 
 
$
(9,998
)
 
 
 
 
 
 
 
 
 
 
Oil (MMBbls)
26.3

 
 
 
 
 
 
 
Gas (Bcf)
 
 
68.1

 
 
 
 
 
NGLs (MMBbls)
 
 
 
 
1.8

 
 
 
Oil Equivalents (MMBOE)
 
 
 
 
 
 
39.4

 
 
 
 
 
 
 
 
 
 
 
Oil
(per barrel)
 
Natural Gas
(per MMBtu)
 
NGLs
(per barrel)
 
Per BOE
 
Oil and gas revenues before derivatives
$
48.34

 
$
2.74

 
$
19.78

 
$
37.85

 
Cash gains on derivative contracts
11.58

 
—

 
—

 
7.72

 
Realized revenues
$
59.92

 
$
2.74

 
$
19.78

 
45.57

 
Cash production costs
 
 
 
 
 
 
(19.42
)
 
Cash operating margin
 
 
 
 
 
 
26.15

 
DD&A

 
 
 
 
 
 
(37.18
)
 
Impairment of oil and gas properties
 
 
 
 
 
 
(235.22
)
 
Accretion and other costs
 
 
 
 
 
 
(2.32
)
a  
Net noncash mark-to-market losses on derivative contracts
 
 
 
 
 
 
(5.51
)
 
Other revenue
 
 
 
 
 
 
0.39

 
Gross loss
 
 
 
 
 
 
$
(253.69
)
 
 
 
 
 
 
 
 
 
 
Reconciliation to Amounts Reported
(In millions)
Revenues
 
Production and Delivery
 
DD&A
 
Impairment of
Oil and Gas Properties
 
Totals presented above
$
1,492

 
$
765

 
$
1,465

 
$
9,270

 
Cash gains on derivative contracts
304

 
—

 
—

 
—

 
Net noncash mark-to-market losses on derivative contracts
(217
)
 
—

 
—

 
—

 
Accretion and other costs
—

 
92

 
—

 
—

 
Other revenue
15

 
—

 
—

 
—

 
U.S. oil & gas operations
1,594

 
857

 
1,465

 
9,270

 
Total mining b
9,496

 
6,998

 
1,046

 
—

 
Corporate, other & eliminations
1

 
7

 
11

 
172

c  
As reported in FCX's consolidated financial statements
$
11,091

 
$
7,862

 
$
2,522

 
$
9,442

 
a.
Includes charges of $59 million ( $1.48 per BOE) primarily for idle rig costs, inventory adjustments and prior period property tax assessments related to California properties.
b.
Represents the combined total for mining operations and the related eliminations, as presented in Note 10 .
c.
Reflects impairment of international oil and gas properties primarily in Morocco.


 
 
 
 
 
 



87
Table of Contents             

Discontinued Operations (Africa Mining): Product Revenues, Production Costs and Unit Net Cash Costs

Three Months Ended September 30, 2016
 
 
 
 
 
 
 
(In millions)
By-Product
 
Co-Product Method
 
Method
 
Copper
 
Cobalt
 
Total
Revenues, excluding adjustments a
$
244

 
$
244

 
$
72

 
$
316

Site production and delivery, before net noncash
    and other costs shown below
186

 
159

 
51

 
210

Cobalt credits b
(54
)
 
—

 
—

 
—

Royalty on metals
6

 
4

 
2

 
6

Net cash costs
138

 
163

 
53

 
216

DD&A

59

 
47

 
12

 
59

Noncash and other costs, net
9

 
7

 
2

 
9

Total costs
206

 
217

 
67

 
284

Revenue adjustments, primarily for pricing
    on prior period open sales
(2
)
 
(2
)
 
6

 
4

Gross profit
$
36

 
$
25

 
$
11

 
$
36

 
 
 
 
 
 
 
 
Copper sales (millions of recoverable pounds)
118

 
118

 
 
 
 
Cobalt sales (millions of contained pounds)
 
 
 
 
9

 
 
 
 
 
 
 
 
 
 
Gross profit per pound of copper/cobalt:
 
 
 
 
 
 
 
 
 
 
 
Revenues, excluding adjustments a
$
2.07

 
$
2.07

 
$
7.83

 
 
Site production and delivery, before net noncash
     and other costs shown below
1.57

 
1.34

 
5.56

 
 
Cobalt credits b
(0.46
)
 
—

 
—

 
 
Royalty on metals
0.05

 
0.04

 
0.14

 
 
Unit net cash costs
1.16

 
1.38

 
5.70

 
 
DD&A

0.50

 
0.40

 
1.36

 
 
Noncash and other costs, net
0.08

 
0.06

 
0.20

 
 
Total unit costs
1.74

 
1.84

 
7.26

 
 
Revenue adjustments, primarily for pricing
    on prior period open sales
(0.02
)
 
(0.02
)
 
0.68

 
 
Gross profit per pound
$
0.31

 
$
0.21

 
$
1.25

 
 
 
 
 
 
 
 
 
 
Reconciliation to Amounts Reported
 
 
 
 
 
 
 
(In millions)
Revenues
 
Production and Delivery
 
DD&A
 
 
Totals presented above
$
316

 
$
210

 
$
59

 
 
Royalty on metals
(6
)
 
—

 
—

 
 
Noncash and other costs, net
—

 
9

 
—

 
 
Revenue adjustments, primarily for pricing
    on prior period open sales
4

 
—

 
—

 
 
Eliminations and other adjustments c
(53
)
 
29

 
(59
)
 
 
Total d
$
261

 
$
248

 
$
—

 
 
a.
Includes point-of-sale transportation costs as negotiated in customer contracts. 
b.
Net of cobalt downstream processing and freight costs.
c.
Reflects adjustments associated with reporting Tenke as discontinued operations, including the elimination of intercompany sales to our consolidated subsidiaries and the impact of discontinuing DD&A.
d.
Refer to Note 2 for a reconciliation of these amounts to net (loss) income from discontinued operations as reported in FCX's consolidated financial statements.
 
 
 





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Table of Contents             

Three Months Ended September 30, 2015
 
 
 
 
 
 
 
(In millions)
By-Product
 
Co-Product Method
 
Method
 
Copper
 
Cobalt
 
Total
Revenues, excluding adjustments a
$
261

 
$
261

 
$
84

 
$
345

Site production and delivery, before net noncash
    and other costs shown below
184

 
153

 
53

 
206

Cobalt credits b
(60
)
 
—

 
—

 
—

Royalty on metals
6

 
5

 
1

 
6

Net cash costs
130

 
158

 
54

 
212

DD&A

65

 
50

 
15

 
65

Noncash and other costs, net
3

 
3

 
—

 
3

Total costs
198

 
211

 
69

 
280

Revenue adjustments, primarily for pricing
    on prior period open sales
(9
)
 
(9
)
 
(2
)
 
(11
)
Gross profit
$
54

 
$
41

 
$
13

 
$
54

 
 
 
 
 
 
 
 
Copper sales (millions of recoverable pounds)
113

 
113

 
 
 
 
Cobalt sales (millions of contained pounds)
 
 
 
 
10

 
 
 
 
 
 
 
 
 
 
Gross profit per pound of copper/cobalt:
 
 
 
 
 
 
 
 
 
 
 
Revenues, excluding adjustments a
$
2.32

 
$
2.32

 
$
8.96

 
 
Site production and delivery, before net noncash
     and other costs shown below
1.63

 
1.36

 
5.58

 
 
Cobalt credits b
(0.53
)
 
—

 
—

 
 
Royalty on metals
0.05

 
0.04

 
0.15

 
 
Unit net cash costs
1.15

 
1.40

 
5.73

 
 
DD&A

0.58

 
0.45

 
1.52

 
 
Noncash and other costs, net
0.03

 
0.03

 
0.08

 
 
Total unit costs
1.76

 
1.88

 
7.33

 
 
Revenue adjustments, primarily for pricing
    on prior period open sales
(0.08
)
 
(0.08
)
 
(0.25
)
 
 
Gross profit per pound
$
0.48

 
$
0.36

 
$
1.38

 
 
 
 
 
 
 
 
 
 
Reconciliation to Amounts Reported
 
 
 
 
 
 
 
(In millions)
Revenues
 
Production and Delivery
 
DD&A
 
 
Totals presented above
$
345

 
$
206

 
$
65

 
 
Royalty on metals
(6
)
 
—

 
—

 
 
Noncash and other costs, net
—

 
3

 
—

 
 
Revenue adjustments, primarily for pricing
    on prior period open sales
(11
)
 
—

 
—

 
 
Eliminations and other adjustments c
(29
)
 
(2
)
 
—

 
 
Total d
$
299

 
$
207

 
$
65

 
 
a.
Includes point-of-sale transportation costs as negotiated in customer contracts. 
b.
Net of cobalt downstream processing and freight costs.
c.
Reflects adjustments associated with reporting Tenke as discontinued operations/assets held for sale, including the elimination of intercompany sales to our consolidated subsidiaries.
d.
Refer to Note 2 for a reconciliation of these amounts to net (loss) income from discontinued operations as reported in FCX's consolidated financial statements.

 
 
 

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Nine Months Ended September 30, 2016
 
 
 
 
 
 
 
 
(In millions)
By-Product
 
Co-Product Method
 
 
Method
 
Copper
 
Cobalt
 
Total
 
Revenues, excluding adjustments a
$
757

 
$
757

 
$
205

 
$
962

 
Site production and delivery, before net noncash
    and other costs shown below
589

 
509

 
148

 
657

 
Cobalt credits b
(141
)
 
—

 
—

 
—

 
Royalty on metals
18

 
14

 
4

 
18

 
Net cash costs
466

 
523

 
152

 
675

 
DD&A

181

 
148

 
33

 
181

 
Noncash and other costs, net
22

 
18

 
4

 
22

 
Total costs
669

 
689

 
189

 
878

 
Revenue adjustments, primarily for pricing
    on prior period open sales
(4
)
 
(4
)
 
4

 
—

 
Gross profit
$
84

 
$
64

 
$
20

 
$
84

 
 
 
 
 
 
 
 
 
 
Copper sales (millions of recoverable pounds)
365

 
365

 
 
 
 
 
Cobalt sales (millions of contained pounds)
 
 
 
 
29

 
 
 
 
 
 
 
 
 
 
 
 
Gross profit per pound of copper/cobalt:
 
 
 
 
 
 
 
 
 
 
 
 
 
Revenues, excluding adjustments a
$
2.07

 
$
2.07

 
$
7.15

 
 
 
Site production and delivery, before net noncash
 
 
 
 
 
 
 
 
and other costs shown below
1.61

 
1.39

 
5.17

 
 
 
Cobalt credits b
(0.39
)
 
—

 
—

 
 
 
Royalty on metals
0.05

 
0.04

 
0.12

 
 
 
Unit net cash costs
1.27

 
1.43

 
5.29

 
 
 
DD&A

0.50

 
0.41

 
1.15

 
 
 
Noncash and other costs, net
0.06

 
0.05

 
0.14

 
 
 
Total unit costs
1.83

 
1.89

 
6.58

 
 
 
Revenue adjustments, primarily for pricing
 
 
 
 
 
 
 
 
on prior period open sales
(0.01
)
 
(0.01
)
 
0.13

 
 
 
Gross profit per pound
$
0.23

 
$
0.17

 
$
0.70

 
 
 
 
 
 
 
 
 
 
 
 
Reconciliation to Amounts Reported
 
 
 
 
 
 
 
 
(In millions)
Revenues
 
Production and Delivery
 
DD&A
 
 
 
Totals presented above
$
962

 
$
657

 
$
181

 
 
 
Royalty on metals
(18
)
 
—

 
—

 
 
 
Noncash and other costs, net
—

 
22

 
—

 
 
 
Revenue adjustments, primarily for pricing
    on prior period open sales
—

 
—

 
—

 
 
 
Eliminations and other adjustments c
(125
)
 
51

 
(101
)
 
 
 
Total d
$
819

 
$
730

 
$
80

 
 
 
a.
Includes point-of-sale transportation costs as negotiated in customer contracts. 
b.
Net of cobalt downstream processing and freight costs.
c.
Reflects adjustments associated with reporting Tenke as discontinued operations, including the elimination of intercompany sales to our consolidated subsidiaries and the impact of discontinuing DD&A.
d.
Refer to Note 2 for a reconciliation of these amounts to net (loss) income from discontinued operations as reported in FCX's consolidated financial statements.
 
 
 


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Nine Months Ended September 30, 2015
 
 
 
 
 
 
 
(In millions)
By-Product
 
Co-Product Method
 
Method
 
Copper
 
Cobalt
 
Total
Revenues, excluding adjustments a
$
883

 
$
883

 
$
234

 
$
1,117

Site production and delivery, before net noncash
    and other costs shown below
553

 
479

 
144

 
623

Cobalt credits b
(164
)
 
—

 
—

 
—

Royalty on metals
21

 
16

 
5

 
21

Net cash costs
410

 
495

 
149

 
644

DD&A

195

 
160

 
35

 
195

Noncash and other costs, net
11

 
9

 
2

 
11

Total costs
616

 
664

 
186

 
850

Revenue adjustments, primarily for pricing
    on prior period open sales
(7
)
 
(7
)
 
—

 
(7
)
Gross profit
$
260

 
$
212

 
$
48

 
$
260

 
 
 
 
 
 
 
 
Copper sales (millions of recoverable pounds)
350

 
350

 
 
 
 
Cobalt sales (millions of contained pounds)
 
 
 
 
26

 
 
 
 
 
 
 
 
 
 
Gross profit per pound of copper/cobalt:
 
 
 
 
 
 
 
 
 
 
 
Revenues, excluding adjustments a
$
2.52

 
$
2.52

 
$
9.04

 
 
Site production and delivery, before net noncash
 
 
 
 
 
 
 
and other costs shown below
1.58

 
1.37

 
5.56

 
 
Cobalt credits b
(0.47
)
 
—

 
—

 
 
Royalty on metals
0.06

 
0.04

 
0.15

 
 
Unit net cash costs
1.17

 
1.41

 
5.71

 
 
DD&A

0.56

 
0.45

 
1.38

 
 
Noncash and other costs, net
0.03

 
0.03

 
0.08

 
 
Total unit costs
1.76

 
1.89

 
7.17

 
 
Revenue adjustments, primarily for pricing
 
 
 
 
 
 
 
on prior period open sales
(0.02
)
 
(0.02
)
 
(0.02
)
 
 
Gross profit per pound
$
0.74

 
$
0.61

 
$
1.85

 
 
 
 
 
 
 
 
 
 
Reconciliation to Amounts Reported
 
 
 
 
 
 
 
(In millions)
Revenues
 
Production and Delivery
 
DD&A
 
 
Totals presented above
$
1,117

 
$
623

 
$
195

 
 
Royalty on metals
(21
)
 
—

 
—

 
 
Noncash and other costs, net
—

 
11

 
—

 
 
Revenue adjustments, primarily for pricing
    on prior period open sales
(7
)
 
—

 
—

 
 
Eliminations and other adjustments c
(98
)
 
3

 
—

 
 
Total d
$
991

 
$
637

 
$
195

 
 
 
a.
Includes point-of-sale transportation costs as negotiated in customer contracts. 
b.
Net of cobalt downstream processing and freight costs.
c.
Reflects adjustments associated with reporting Tenke as discontinued operations/assets held for sale, including the elimination of intercompany sales to our consolidated subsidiaries.
d.
Refer to Note 2 for a reconciliation of these amounts to net (loss) income from discontinued operations as reported in FCX's consolidated financial statements.
 
 
 

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CAUTIONARY STATEMENT

Our discussion and analysis contains forward-looking statements in which we discuss factors we believe may affect our 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; debt reduction initiatives, including our ability to complete pending asset sales and the anticipated timing thereof, and to sell additional assets; 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 deferred intercompany profits on earnings; reserve estimates; future dividend payments, and share purchases and sales. 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. Under our term loan and revolving credit facility, as amended, we are not permitted to pay dividends on common stock on or prior to March 31, 2017. The declaration of dividends is at the discretion of our Board of Directors (Board), subject to restrictions under our credit agreements, and will depend on our financial results, cash requirements, future prospects, and other factors deemed relevant by our Board.

We caution readers that forward-looking statements are not guarantees of future performance and actual results may differ materially from those anticipated, projected or assumed in the forward-looking statements. Important factors that can cause our 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, crude oil and natural gas, mine sequencing, production rates, drilling results, potential effects of cost and capital expenditure reductions and production curtailments on financial results and cash flow, the outcome of our debt reduction initiatives, our ability to secure regulatory approvals, satisfy closing conditions and consummate pending asset sales, potential additional oil and gas property impairment charges, potential inventory adjustments, potential impairment of long-lived mining assets, the outcome of ongoing discussions with the Indonesian government regarding PT Freeport Indonesia's (PT-FI) Contract of Work (COW), the potential effects of violence in Indonesia generally and in the province of Papua, the resolution of administrative disputes in the Democratic Republic of Congo, industry risks, regulatory changes, political risks, labor relations, weather- and climate-related risks, environmental risks, litigation results and other factors described in more detail in Part I, Item 1A. “Risk Factors” of our annual report on Form 10-K for the year ended December 31, 2015 , filed with the U.S. Securities and Exchange Commission (SEC) as updated by our subsequent filings with the SEC and Part II, Item 1A. "Risk Factors" in this report. With respect to our operations in Indonesia, such factors include whether PT-FI will be able to continue to export its copper concentrate, or whether PT Smelting (PT-FI's 25 percent-owned Indonesian smelting unit) will be able to export its anode slimes after the January 12, 2017, effective date of regulations prohibiting exports of copper concentrate and anode slimes, including whether and when those regulations may be revised and whether any such revisions would impose conditions or costs on PT-FI not contained in its COW. The inability of PT-FI and PT Smelting to export copper concentrate and anode slimes, respectively, for any extended period of time would lead to the suspension of all of our production in Indonesia.

Investors are cautioned that many of the assumptions upon which our forward-looking statements are based are likely to change after the forward-looking statements are made, including for example commodity prices, which we cannot control, and production volumes and costs, some aspects of which we may not be able to control. Further, we may make changes to our business plans that could affect our results. We caution investors that we do not intend to update forward-looking statements more frequently than quarterly notwithstanding any changes in our assumptions, changes in business plans, actual experience or other changes, and we undertake no obligation to update any forward-looking statements.


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Table of Contents             

Item 3.
Quantitative and Qualitative Disclosures About Market Risk.

There have been no material changes in our market risks during the nine-month period ended September 30, 2016 . For additional information on market risks, refer to “Disclosures About Market Risks” included in Part II, Items 7. and 7A. of our annual report on Form 10-K for the year ended December 31, 2015 . For projected sensitivities of our operating cash flow to changes in commodity prices, refer to “Outlook” in Part I, Item 2. of this quarterly report on Form 10-Q for the period ended September 30, 2016 ; for projected sensitivities of our provisionally priced copper sales and derivative instruments to changes in commodity prices refer to “Consolidated Results – Revenues” in Part I, Item 2. of this quarterly report on Form 10-Q for the period ended September 30, 2016 .

Item 4.
Controls and Procedures.

(a)
Evaluation of disclosure controls and procedures. Our chief executive officer and chief financial officer, with the participation of management, have evaluated the effectiveness of our “disclosure controls and procedures” (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934) as of the end of the period covered by this quarterly report on Form 10-Q. Based on their evaluation, they have concluded that our disclosure controls and procedures are effective as of September 30, 2016 .

(b)
Changes in internal control over financial reporting. There has been no change in our internal control over financial reporting that occurred during the quarter ended September 30, 2016 , that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

Part II.
OTHER INFORMATION

Item 1.
Legal Proceedings.

We are involved in numerous legal proceedings that arise in the ordinary course of our business or that are associated with environmental issues arising from legacy operations conducted over the years by Freeport Minerals Corporation and its affiliates. We are also involved from time to time in other reviews, investigations and proceedings by government agencies, some of which may result in adverse judgments, settlements, fines, penalties, injunctions or other relief.

Management does not believe, based on currently available information, that the outcome of any proceeding reported in Note 9 of this quarterly report on Form 10-Q for the period ended September 30, 2016 , and in Part I, Item 3. “Legal Proceedings” and Note 12 of our annual report on Form 10-K for the year ended December 31, 2015 , will have a material adverse effect on our financial condition; although individual outcomes could be material to our operating results for a particular period, depending on the nature and magnitude of the outcome and the operating results for the period.

Item 1A. Risk Factors.

The risk factor “Because our Grasberg mining operations in Indonesia is a significant operating asset, our business may continue to be adversely affected by political, economic and social uncertainties and security risks in Indonesia” , which was included in our annual report on Form 10-K for the year ended December 31, 2015, is amended to add the following:

PT Freeport Indonesia (PT-FI) produces copper concentrate that contains significant quantities of gold and silver. Substantially all of PT-FI’s copper concentrate is sold under long-term contracts, and during the first nine months of 2016, approximately half of PT-FI’s concentrate production was sold to PT Smelting (PT-FI's 25-percent owned smelter and refinery), which is the only copper smelter in Indonesia.

In August 2016, PT-FI’s export permit was renewed through January 11, 2017. Current regulations published by the Indonesian government prohibit exports of copper concentrate and anode slimes (a by-product of the copper refining process containing metals including gold, produced by PT Smelting) after January 12, 2017. The Indonesian government has indicated it intends to revise these regulations in order to protect employment and government revenues, but we cannot predict whether and when those regulations may be revised or whether any such revisions would impose conditions or costs on PT-FI not contained in its Contract of Work (COW), such as additional royalty payments or export duties, increased smelter development commitments, increased depository

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requirements, or conversion of contracts of work to less favorable licenses under the 2009 mining law framework. PT-FI is actively engaged with Indonesian government officials to resolve this matter.

We also cannot predict whether PT-FI will be able to continue to export its copper concentrate, or whether PT Smelting will be able to export its anode slimes, after January 12, 2017. The inability of PT-FI and PT Smelting to export copper concentrate and anode slimes, respectively, for any extended period of time, would lead to the suspension of all of our production in Indonesia, which would have a material adverse effect on our cash flow, liquidity and profitability, and could result in asset impairments, inventory write downs, difficulty in meeting covenants under our credit facilities, and a significant reduction in our reported mineral reserves.

The initial term of PT-FI’s COW expires in 2021, but the COW explicitly provides that it can be extended for two 10-year periods subject to Indonesian government approval, which cannot be withheld or delayed unreasonably. PT-FI has been engaged in discussions with officials of the Indonesian government since 2012 regarding various provisions of its COW, including extending its term. We cannot predict whether PT-FI will be successful in reaching a satisfactory agreement on the terms of its long-term mining rights. If PT-FI is unable to reach agreement with the Indonesian government on its long-term rights, we may be required to reduce or defer investments in underground development projects, which would have a material adverse effect on our future production, cash flow, liquidity and profitability, and could result in asset impairments, inventory write downs, difficulty in meeting covenants under our credit facilities, and a significant reduction in our reported mineral reserves.

In the event PT-FI is unable to reach a satisfactory resolution of these matters, PT-FI would intend to pursue any and all claims against the Indonesian government for breach of contract through international arbitration.

On October 14, 2016, a new Minister of Energy and Mineral Resources was appointed, the fourth person to hold the office since July 2016. We cannot predict what impact the transition will have on any amendments to existing regulations, or the progress or outcome of PT-FI’s COW negotiations.

The risk factor “Mine closure and reclamation regulations impose substantial costs on our operations, and include requirements that we provide financial assurance supporting those obligations. We also have plugging and abandonment obligations related to our oil and gas properties, and are required to provide bonds or other forms of financial assurance in connection with those operations. Changes in or the failure to comply with these requirements could have a material adverse effect on us” , which was included in our annual report on Form 10-K for the year ended December 31, 2015, is amended to add the following:

With respect to our mining operations, our financial assurance obligations are based principally on state laws that may vary by jurisdiction, depending on how each state regulates land use and groundwater quality. Although Section 108(b) of Comprehensive Environmental Response, Compensation and Liability Act of 1980 (CERCLA) requires the Environmental Protection Agency (EPA) to identify classes of facilities that must establish evidence of financial responsibility, currently there are no financial assurance requirements for active mining operations under CERCLA. In August 2014, several environmental organizations initiated litigation against the EPA to require it to set a schedule for adopting financial assurance regulations under CERCLA governing the hard rock mining industry. The EPA and the environmental organizations reached a joint agreement and submitted it to the U.S. Court of Appeals for the District of Columbia Circuit for approval. Notwithstanding industry objections, the court approved the agreement on January 29, 2016, thereby requiring the EPA to propose financial assurance regulations for the hard rock mining industry by December 1, 2016, and to provide notice of its final action by December 1, 2017. The EPA recently filed a status update with the court confirming that it intended to proceed with promulgation of the proposed rules by December 1, 2016. Based on limited information contained in recent conceptual presentations made by the EPA, the proposed rules, if promulgated as apparently envisioned by the EPA, would result in onerous financial responsibility obligations for our U.S. hard rock mining operations. For instance, the form, cost and availability of financial mechanisms necessary to meet such obligations is uncertain (if they could be met at all). In addition, complying with these obligations could be very costly, harm the international competitiveness of our U.S. hard rock mining operations and have a material adverse effect on our cash flows, operations and profitability.

Except as described above, there have been no material changes to our risk factors during the nine -month period ended September 30, 2016 . For additional information on risk factors, refer to Part I, Item 1A. "Risk Factors" of our annual report on Form 10-K for the year ended December 31, 2015 .


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Table of Contents             

Item 2.
Unregistered Sales of Equity Securities and Use of Proceeds.

(a) We entered into privately negotiated share exchange agreements to exchange certain of our outstanding senior notes for shares of our common stock, plus cash representing accrued and unpaid interest on the senior notes. During the quarter ended September 30, 2016, we issued an aggregate of 8 million shares of common stock and approximately $2 million in cash representing accrued and unpaid interest, in exchange for an aggregate of $101 million in senior notes, consisting of: (i) $23 million aggregate principal amount of our 3.550% Senior Notes due 2022; (ii) $25 million aggregate principal amount of our 3.875% Senior Notes due 2023; and (iii) $53 million aggregate principal amount of our 5.450% Senior Notes due 2043.

The issuance of shares of common stock in the exchange transactions was made in reliance on the exemption from the registration requirements of the Securities Act of 1933, as amended, pursuant to Section 3(a)(9) thereof, as the exchanges were made with existing security holders exclusively in a series of privately negotiated transactions where no commission or other remuneration was paid or given directly or indirectly for soliciting the exchanges.

(c)
The following table sets forth information with respect to shares of our common stock purchased by us during the three months ended September 30, 2016 :
 
Period
 
(a) Total Number
of Shares Purchased
 
(b) Average
Price Paid Per Share
 
(c) Total Number of
Shares Purchased as Part
of Publicly Announced Plans or Programs a
 
(d) Maximum Number
of Shares That May
Yet Be Purchased Under the Plans or Programs a
 
 
July 1-31, 2016
 
—

 
$
—

 
—

 
23,685,500

 
August 1-31, 2016
 
—

 
$
—

 
—

 
23,685,500

 
September 1-30, 2016
 
—

 
$
—

 
—

 
23,685,500

 
Total
 
—

 
$
—

 
—

 
23,685,500

a.
On July 21, 2008, our Board of Directors approved an increase in our open-market share purchase program for up to 30 million shares. There have been no purchases under this program since 2008. This program does not have an expiration date.
 
Item 4.
Mine Safety Disclosures.

The safety and health of all employees is our highest priority. Management believes that safety and health considerations are integral to, and compatible with, all other functions in the organization and that proper safety and health management will enhance production and reduce costs. Our approach towards the safety and health of our workforce is to continuously improve performance through implementing robust management systems and providing adequate training, safety incentive and occupational health programs. The information concerning mine safety violations or other regulatory matters required by Section 1503(a) of the Dodd-Frank Wall Street Reform and Consumer Protection Act and Item 104 of Regulation S-K is included in Exhibit 95.1 to this quarterly report on Form 10-Q.
 
Item 6.
Exhibits.

The exhibits to this report are listed in the Exhibit Index beginning on Page E-1 hereof.


95
Table of Contents             


SIGNATURE

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
 
FREEPORT-McMoRan INC.
 
 
 
 
By:
/s/ C. Donald Whitmire, Jr.
 
 
C. Donald Whitmire, Jr.
 
 
Vice President and
 
 
Controller - Financial Reporting
 
 
(authorized signatory
 
 
and Principal Accounting Officer)



Date:   November 9, 2016

S-1
Table of Contents             

FREEPORT-McMoRan INC.
EXHIBIT INDEX
 
 
Filed
 
Exhibit
 
with this
Incorporated by Reference
Number
Exhibit Title
Form 10-Q
Form
File No.
Date Filed
2.1
Purchase Agreement dated February 15, 2016, between Sumitomo Metal Mining America Inc., Sumitomo Metal Mining Co., Ltd., Freeport-McMoRan Morenci Inc., Freeport Minerals Corporation and FCX.

 
8-K
001-11307-01
2/16/2016
2.2
Stock Purchase Agreement dated May 9, 2016, among CMOC Limited, China Molybdenum Co., Ltd., Phelps Dodge Katanga Corporation and FCX.
 
8-K
001-11307-01
5/9/2016
Purchase and Sale Agreement dated September 12, 2016, between Freeport-McMoRan Oil & Gas LLC, Freeport-McMoRan Exploration & Production LLC, Plains Offshore Operations Inc. and Anadarko US Offshore LLC.

X
 
 
 
3.1
Amended and Restated Certificate of Incorporation of FCX, effective as of June 8, 2016.
 
8-K
001-11307-01
6/9/2016
3.2
Amended and Restated By-Laws of FCX, effective as of June 8, 2016.
 
8-K
001-11307-01
6/9/2016
4.1
Indenture dated as of February 13, 2012, between FCX and U.S. Bank National Association, as Trustee (relating to the 2.15% Senior Notes due 2017, the 3.55% Senior Notes due 2022, the 2.30% Senior Notes due 2017, the 4.00% Senior Notes due 2021, the 4.55% Senior Notes due 2024, and the 5.40% Senior Notes due 2034).
 
8-K
001-11307-01
2/13/2012
4.2
Second Supplemental Indenture dated as of February 13, 2012, between FCX and U.S. Bank National Association, as Trustee (relating to the 2.15% Senior Notes due 2017).
 
8-K
001-11307-01
2/13/2012
4.3
Third Supplemental Indenture dated as of February 13, 2012, between FCX and U.S. Bank National Association, as Trustee (relating to the 3.55% Senior Notes due 2022).
 
8-K
001-11307-01
2/13/2012
4.4
Fourth Supplemental Indenture dated as of May 31, 2013, among FCX, Freeport-McMoRan Oil & Gas LLC and U.S. Bank National Association, as Trustee (relating to the 2.15% Senior Notes due 2017, the 3.55% Senior Notes due 2022, the 2.30% Senior Notes due 2017, the 4.00% Senior Notes due 2021, the 4.55% Senior Notes due 2024, and the 5.40% Senior Notes due 2034).
 
8-K
001-11307-01
6/3/2013
4.5
Fifth Supplemental Indenture dated as of November 14, 2014 among FCX, Freeport-McMoRan Oil & Gas LLC and U.S. Bank National Association, as Trustee (relating to the 2.30% Senior Notes due 2017).
 
8-K
001-11307-01
11/14/2014
4.6
Sixth Supplemental Indenture dated as of November 14, 2014 among FCX, Freeport-McMoRan Oil & Gas LLC and U.S. Bank National Association, as Trustee (relating to the 4.00% Senior Notes due 2021).
 
8-K
001-11307-01
11/14/2014
4.7
Seventh Supplemental Indenture dated as of November 14, 2014 among FCX, Freeport-McMoRan Oil & Gas LLC and U.S. Bank National Association, as (relating to the 4.55% Senior Notes due 2024).
 
8-K
001-11307-01
11/14/2014
4.8
Eighth Supplemental Indenture dated as of November 14, 2014 among FCX, Freeport-McMoRan Oil & Gas LLC and U.S. Bank National Association, as Trustee (relating to the 5.40% Senior Notes due 2034).
 
8-K
001-11307-01
11/14/2014
4.9
Indenture dated as of March 7, 2013, between FCX and U.S. Bank National Association, as Trustee (relating to the 2.375% Senior Notes due 2018, the 3.100% Senior Notes due 2020, the 3.875% Senior Notes due 2023, and the 5.450% Senior Notes due 2043).
 
8-K
001-11307-01
3/7/2013

E-1
Table of Contents             

FREEPORT-McMoRan INC.
EXHIBIT INDEX
 
 
Filed
 
Exhibit
 
with this
Incorporated by Reference
Number
Exhibit Title
Form 10-Q
Form
File No.
Date Filed
4.10
Supplemental Indenture dated as of May 31, 2013, among FCX, Freeport-McMoRan Oil & Gas LLC and U.S. Bank National Association, as Trustee (relating to the 2.375% Senior Notes due 2018, the 3.100% Senior Notes due 2020, the 3.875% Senior Notes due 2023, and the 5.450% Senior Notes due 2043).
 
8-K
001-11307-01
6/3/2013
4.11
Indenture dated as of March 13, 2007, among Plains Exploration & Production Company, the Subsidiary Guarantors parties thereto, and Wells Fargo Bank, N.A., as Trustee (relating to the 6.625% Senior Notes due 2021, the 6.75% Senior Notes due 2022, the 6.125% Senior Notes due 2019, the 6.5% Senior Notes due 2020, and the 6.875% Senior Notes due 2023).
 
8-K
001-31470
3/13/2007
4.12
Twelfth Supplemental Indenture dated as of March 29, 2011 to the Indenture dated as of March 13, 2007, among Plains Exploration & Production Company, the Subsidiary Guarantors parties thereto and Wells Fargo Bank, N.A., as Trustee (relating to the 6.625% Senior Notes due 2021).
 
8-K
001-31470
3/29/2011
4.13
Thirteenth Supplemental Indenture dated as of November 21, 2011 to the Indenture dated as of March 13, 2007, among Plains Exploration & Production Company, the Subsidiary Guarantors parties thereto and Wells Fargo Bank, N.A., as Trustee (relating to the 6.75% Senior Notes due 2022).
 
8-K
001-31470
11/22/2011
4.14
Fourteenth Supplemental Indenture dated as of April 27, 2012 to the Indenture dated as of March 13, 2007, among Plains Exploration & Production Company, the Subsidiary Guarantors parties thereto and Wells Fargo Bank, N.A., as Trustee (relating to the 6.125% Senior Notes due 2019).
 
8-K
001-31470
4/27/2012
4.15
Sixteenth Supplemental Indenture dated as of October 26, 2012 to the Indenture dated as of March 13, 2007, among Plains Exploration & Production Company, the Subsidiary Guarantors parties thereto and Wells Fargo Bank, N.A., as Trustee (relating to the 6.5% Senior Notes due 2020).
 
8-K
001-31470
10/26/2012
4.16
Seventeenth Supplemental Indenture dated as of October 26, 2012 to the Indenture dated as of March 13, 2007, among Plains Exploration & Production Company, the Subsidiary Guarantors parties thereto and Wells Fargo Bank, N.A., as Trustee (relating to the 6.875% Senior Notes due 2023).
 
8-K
001-31470
10/26/2012
4.17
Eighteenth Supplemental Indenture dated as of May 31, 2013 to the Indenture dated as of March 13, 2007, among Freeport-McMoRan Oil & Gas LLC, as Successor Issuer, FCX Oil & Gas Inc., as Co-Issuer, FCX, as Parent Guarantor, Plains Exploration & Production Company, as Original Issuer, and Wells Fargo Bank, N.A., as Trustee (relating to the 6.625% Senior Notes due 2021, the 6.75% Senior Notes due 2022, the 6.125% Senior Notes due 2019, the 6.5% Senior Notes due 2020, and the 6.875% Senior Notes due 2023).
 
8-K
001-11307-01
6/3/2013
 
 
 
 
 
 

E-2
Table of Contents             

FREEPORT-McMoRan INC.
EXHIBIT INDEX
 
 
Filed
 
Exhibit
 
with this
Incorporated by Reference
Number
Exhibit Title
Form 10-Q
Form
File No.
Date Filed
Nineteenth Supplemental Indenture dated as of September 30, 2016 to the Indenture dated as of March 13, 2007, among Freeport-McMoRan Oil & Gas LLC, as Successor Issuer, FCX Oil & Gas Inc., as Co-Issuer, FMSTP Inc., as Additional Co-Issuer, FCX, as Parent Guarantor, and Wells Fargo Bank, N.A., as Trustee (relating to the 6.125% Senior Notes due 2019, the 6.50% Senior Notes due 2020, the 6.625% Senior Notes due 2021, the 6.75% Senior Notes due 2022 and the 6.875% Senior Notes due 2023).
X
 
 
 
4.19
Form of Indenture dated as of September 22, 1997, between Phelps Dodge Corporation and The Chase Manhattan Bank, as Trustee (relating to the 7.125% Senior Notes due 2027, the 9.50% Senior Notes due 2031, and the 6.125% Senior Notes due 2034).
 
S-3
333-36415
9/25/1997
4.20
Form of 7.125% Debenture due November 1, 2027 of Phelps Dodge Corporation issued on November 5, 1997, pursuant to the Indenture dated as of September 22, 1997, between Phelps Dodge Corporation and The Chase Manhattan Bank, as Trustee (relating to the 7.125% Senior Notes due 2027).
 
8-K
01-00082
11/3/1997
4.21
Form of 9.5% Note due June 1, 2031 of Phelps Dodge Corporation issued on May 30, 2001, pursuant to the Indenture dated as of September 22, 1997, between Phelps Dodge Corporation and First Union National Bank, as successor Trustee (relating to the 9.50% Senior Notes due 2031).
 
8-K
01-00082
5/30/2001
4.22
Form of 6.125% Note due March 15, 2034 of Phelps Dodge Corporation issued on March 4, 2004, pursuant to the Indenture dated as of September 22, 1997, between Phelps Dodge Corporation and First Union National Bank, as successor Trustee (relating to the 6.125% Senior Notes due 2034).
 
10-K
01-00082
3/7/2005
4.23
Supplemental Indenture dated as of April 4, 2007 to the Indenture dated as of September 22, 1997, among Phelps Dodge Corporation, as Issuer, Freeport-McMoRan Copper & Gold Inc., as Parent Guarantor, and U.S. Bank National Association, as Trustee (relating to the 7.125% Senior Notes due 2027, the 9.50% Senior Notes due 2031, and the 6.125% Senior Notes due 2034).

 
10-K
001-11307-01
2/26/2016
10.1
Distribution Agreement, dated as of July 27, 2016, by and among FCX, J.P. Morgan Securities LLC, Merrill Lynch, Pierce, Fenner & Smith Incorporated, BBVA Securities Inc., BMO Capital Markets Corp., BNP Paribas Securities Corp., BTIG, LLC, CIBC World Markets Corp., Citigroup Global Markets Inc., HSBC Securities (USA) Inc., Mizuho Securities USA Inc., MUFG Securities Americas Inc., RBC Capital Markets, LLC, Santander Investment Securities Inc., Scotia Capital (USA) Inc., SMBC Nikko Securities America, Inc., TD Securities (USA) LLC and Wells Fargo Securities, LLC.
 
8-K
001-11307-01
7/27/2016
Seventh Amendment dated October 21, 2016, to the Participation Agreement dated as of October 11, 1996, between PT Freeport Indonesia and P.T. Rio Tinto Indonesia.

X
 
 
 
Letter from Ernst & Young LLP regarding unaudited interim financial statements.
X
 
 
 
Certification of Principal Executive Officer pursuant to Rule 13a-14(a)/15d – 14(a).
X
 
 
 

E-3
Table of Contents             

FREEPORT-McMoRan INC.
EXHIBIT INDEX
 
 
Filed
 
Exhibit
 
with this
Incorporated by Reference
Number
Exhibit Title
Form 10-Q
Form
File No.
Date Filed
Certification of Principal Financial Officer pursuant to Rule 13a-14(a)/15d – 14(a).
X
 
 
 
Certification of Principal Executive Officer pursuant to 18 U.S.C. Section 1350.
X
 
 
 
Certification of Principal Financial Officer pursuant to 18 U.S.C Section 1350.
X
 
 
 
Mine Safety and Health Administration Safety Data.
X
 
 
 
101.INS
XBRL Instance Document.
X
 
 
 
101.SCH
XBRL Taxonomy Extension Schema.
X
 
 
 
101.CAL
XBRL Taxonomy Extension Calculation Linkbase.
X
 
 
 
101.DEF
XBRL Taxonomy Extension Definition Linkbase.
X
 
 
 
101.LAB
XBRL Taxonomy Extension Label Linkbase.
X
 
 
 
101.PRE
XBRL Taxonomy Extension Presentation Linkbase.
X
 
 
 
* Indicates management contract or compensatory plan or arrangement.

Note: Certain instruments with respect to long-term debt of FCX have not been filed as exhibits to this Quarterly Report on Form 10-Q since the total amount of securities authorized under any such instrument does not exceed 10 percent of the total assets of FCX and its subsidiaries on a consolidated basis. FCX agrees to furnish a copy of each such instrument upon request of the Securities and Exchange Commission.

E-4
EXECUTION VERSION




PURCHASE AND SALE AGREEMENT
AMONG
FREEPORT-MCMORAN OIL & GAS LLC,
FREEPORT-MCMORAN EXPLORATION & PRODUCTION LLC AND
PLAINS OFFSHORE OPERATIONS INC.
COLLECTIVELY, AS SELLER,
AND
ANADARKO US OFFSHORE LLC
AS PURCHASER,
Dated as of September 12, 2016.
 






TABLE OF CONTENTS
 
 
 
 
 
Page
ARTICLE 1.
PURCHASE AND SALE
1
 
 
 
Section 1.1
Purchase and Sale
1
Section 1.2
Certain Definitions
1
Section 1.3
Effective Time; Proration of Costs and Revenues
11
 
 
 
ARTICLE 2.
PURCHASE PRICE
13
 
 
 
Section 2.1
Purchase Price
13
Section 2.2
Adjustments to Purchase Price
13
Section 2.3
Effect of Purchase Price Adjustments
15
Section 2.4
Additional Purchase Price
15
Section 2.5
Allocated Values
15
Section 2.6
Allocation of Consideration for Tax Purposes
16
Section 2.7
Withholding
16
 
 
 
ARTICLE 3.
TITLE MATTERS
16
 
 
 
Section 3.1
Title
16
Section 3.2
Definition of Defensible Title
17
Section 3.3
Definition of Permitted Encumbrances
17
Section 3.4
Notice of Title Defects; Defect Adjustments
19
Section 3.5
Consents to Assignment and Preferential Rights to Purchase
22
Section 3.6
Casualty or Condemnation Loss
25
 
 
 
ARTICLE 4.
ENVIRONMENTAL DEFECTS
26
 
 
 
Section 4.1
Definition of Environmental Defect
27
Section 4.2
Notice of Environmental Defects; Defect Adjustments
28
 
 
 
ARTICLE 5.
REPRESENTATIONS AND WARRANTIES OF SELLER
30
 
 
 
Section 5.1
Disclaimers
30
Section 5.2
Existence and Qualification
33
Section 5.3
Liability for Brokers’ Fees
35
Section 5.4
Litigation
35
Section 5.5
Taxes and Assessments
35
Section 5.6
Environmental
35
Section 5.7
Outstanding Capital Commitments
36
Section 5.8
Compliance with Laws
36
Section 5.9
Contracts
37
Section 5.10
Payments for Production
39
Section 5.11
Imbalances
39
Section 5.12
Consents and Preferential Purchase Rights
39
Section 5.13
Permits
39
Section 5.14
Wells; Decommissioning Activities
39
Section 5.15
Equipment
40
Section 5.16
Condemnation and Eminent Domain
40

i


Section 5.17
Bankruptcy
40
Section 5.18
Foreign Person
41
Section 5.19
Payout Status
41
Section 5.20
Operation of the Assets
41
Section 5.21
Royalties
41
Section 5.22
Suspense Funds
41
Section 5.23
Bonds and Credit Support
41
Section 5.24
Non-Consent Operations
41
Section 5.25
Assets Complete
41
Section 5.26
Employees
42
Section 5.27
Employee Benefit Plans
42
Section 5.28
Intellectual Property
42
 
 
 
ARTICLE 6.
REPRESENTATIONS AND WARRANTIES OF PURCHASER
43
 
 
 
Section 6.1
Existence and Qualification
43
Section 6.2
Power
43
Section 6.3
Authorization and Enforceability
43
Section 6.4
No Conflicts
43
Section 6.5
Liability for Brokers’ Fees
43
Section 6.6
Consents, Approvals or Waivers
44
Section 6.7
Litigation
44
Section 6.8
Financing
44
Section 6.9
Regulatory
44
Section 6.10
Bankruptcy
44
Section 6.11
SEC Disclosure
44
Section 6.12
Independent Evaluation
45
 
 
 
ARTICLE 7.
COVENANTS OF THE PARTIES
45
 
 
 
Section 7.1
Access
45
Section 7.2
Confidentiality; Public Announcements
46
Section 7.3
Operation of Business
46
Section 7.4
HSR Filings
49
Section 7.5
FCC Filings
49
Section 7.6
Tax Matters
49
Section 7.7
Further Assurances; Recording
51
Section 7.8
Operatorship; Royalties
52
Section 7.9
No Shop
52
Section 7.10
Representations and Warranties
52
Section 7.11
Closing Conditions
52
Section 7.12
Employment Offers to Employees
52
Section 7.13
Employment Terms
53
Section 7.14
Employment Offers to Employees on Leave
54
Section 7.15
Cessation of Participation in Seller’s or its Affiliates’ Benefit Plans
54
Section 7.16
Employee and Benefit Plan Liabilities
55
Section 7.17
Paid Time Off; Vacation
55
Section 7.18
Terminated Employees
55
Section 7.19
Service Credit
56
Section 7.20
Savings Plans
56
Section 7.21
Sole Benefit of Certain Covenants
56

ii


Section 7.22
Removal of Seller Marks
57
Section 7.23
NORM
57
Section 7.24
Decommissioning
57
Section 7.25
POOI Agreements
58
Section 7.26
Amendment of Schedules
58
Section 7.27
Transfer Orders and Letters in Lieu
58
 
 
 
ARTICLE 8.
CONDITIONS TO CLOSING
59
 
 
 
Section 8.1
Conditions of Seller to Closing
59
Section 8.2
Conditions of Purchaser to Closing
60
 
 
 
ARTICLE 9.
CLOSING
61
 
 
 
Section 9.1
Time and Place of Closing
61
Section 9.2
Obligations of Seller at Closing
61
Section 9.3
Obligations of Purchaser at Closing
62
Section 9.4
Closing Payment and Post-Closing Purchase Price Adjustments
63
 
 
 
ARTICLE 10.
TERMINATION
64
 
 
 
Section 10.1
Termination
64
Section 10.2
Effect of Termination
65
 
 
 
ARTICLE 11.
INDEMNIFICATIONS; LIMITATIONS
66
 
 
 
Section 11.1
Assumption of Obligations; Retained Liabilities
66
Section 11.2
Indemnification
67
Section 11.3
Indemnification Actions
68
Section 11.4
Limitation on Actions
71
Section 11.5
Non-Compensatory Damages
72
Section 11.6
Exclusive Remedy and Release
73
Section 11.7
Opportunity for Review
73
Section 11.8
Purchaser’s Knowledge with Respect to Certain Operated Assets
73
 
 
 
ARTICLE 12.
MISCELLANEOUS
73
 
 
 
Section 12.1
Exhibits and Schedules
74
Section 12.2
Expenses
74
Section 12.3
Counterparts
74
Section 12.4
Notices
74
Section 12.5
Sales or Use Tax, Recording Fees and Similar Taxes and Fees
75
Section 12.6
Severability
75
Section 12.7
Replacement of Bonds, Letters of Credit and Guarantees
76
Section 12.8
Records
76
Section 12.9
Governing Law; Jurisdiction; Venue; Jury Waiver
76
Section 12.10
Arbitration
77
Section 12.11
Captions
78
Section 12.12
Waiver; Rights Cumulative
79
Section 12.13
Assignment
79
Section 12.14
Entire Agreement
79

iii


Section 12.15
Amendment
79
Section 12.16
No Third Party Beneficiaries
79
Section 12.17
References
79
Section 12.18
Construction
80
Section 12.19
No Partnership Created
80


iv


EXHIBITS:
 
 
Exhibit A-1
-
Leases and Units; Working Interest; Net Revenue Interest
Exhibit A-2
-
Wells
Exhibit A-3
-
Easement
Exhibit A-4
-
Equipment
Exhibit A-5
-
Certain Real Property
Exhibit B
-
Form of Conveyance
Exhibit C
-
POOI Agreements
Exhibit D
-
Seller Parent Guarantee
Exhibit E
-
Purchaser Parent Guarantee
Exhibit F
-
Form of Consent Request Notice
Exhibit G
-
Form of Preferential Right Notice
Exhibit H
-
Form of Transition Services Agreement
Exhibit I
-
Form of Letter of Attornment – Enterprise
Exhibit J
-
Form of Non-Exclusive Seismic License
 
 
 
SCHEDULES:
 
 
Schedule 1.2(c)(ii)
-
Contracts
Schedule 1.2(n)(xiii)
-
Certain Intellectual Property
Schedule 1.2(n)(xv)
-
Certain Excluded Agreements
Schedule 2.5
-
Allocated Values
Schedule 5.1(f)(i)
-
Seller Knowledge Persons
Schedule 5.1(f)(ii)
-
Purchaser Knowledge Persons
Schedule 5.4
-
Litigation
Schedule 5.5
-
Taxes
Schedule 5.6
-
Environmental
Schedule 5.7
-
Outstanding Capital Commitments
Schedule 5.8
-
Compliance with Laws
Schedule 5.9(a)
-
Material Contracts
Schedule 5.10
-
Payments for Production
Schedule 5.11
-
Imbalances
Schedule 5.12
-
Consents and Preferential Rights
Schedule 5.14
-
Wells; Decommissioning Activities
Schedule 5.19
-
Payout Status
Schedule 5.22
-
Suspense Funds
Schedule 5.23
-
Credit Support
Schedule 5.24
-
Non-Consent Operations
Schedule 5.27
-
Employee Benefit Plans
Schedule 5.28
-
Intellectual Property
Schedule 6.6
-
Purchaser Consents
Schedule 7.3
-
Operation of Business
Schedule 7.9
-
No Shop
Schedule 7.13(c)
-
Seller Severance Plan


v


Index of Defined Terms
 
Defined Term
Section
 
 
Accrued PTO
Section 7.17
Adjusted Purchase Price
Section 2.2
AFEs
Section 5.7
Affiliate
Section 1.2(a)
Agreement
Preamble
Allocable Amount
Section 2.6
Allocated Value
Section 2.5
Allocation Schedule
Section 2.6
Assets
Section 1.2(c)
Asset Taxes
Section 1.2(b)
Assigned Rights
Section 7.6(f)
Assumed Obligations
Section 11.1(a)
BOEM
Section 1.2(d)
BSEE
Section 1.2(e)
Business Day
Section 1.2(f)
Casualty Loss
Section 3.6
Claim Date
Section 3.4(a)
Claim Notice
Section 11.3(c)
Closing
Section 9.1
Closing Date
Section 9.1
Closing Payment
Section 9.4(a)
Code
Section 2.6
Confidentiality Agreement
Section 7.1
Consent
Section 1.2(g)
Consent Request Notice
Section 3.5(a)
Contracts
Section 1.2(c)(ii)
Conveyance
Section 9.2(a)
Customary Post-Closing Consent
Section 1.2(h)
Decision
Section 12.10(e)
Decommissioning
Section 1.2(i)
Defensible Title
Section 3.2
Designated Contract
Section 1.2(j)
Dispute
Section 12.10
DTPA
Section 5.1(d)
Due Inquiry
Section 5.1(g)
Easements
Section 1.2(c)(iii)
Effective Time
Section 1.2(k)
Employee
Section 5.26
Employee List
Section 5.26
Encumbrance
Section 3.2(c)
Environmental Arbitrator
Section 4.2(g)
Environmental Defect
Section 4.1(a)
Environmental Defect Deductible
Section 4.2(e)
Environmental Defect Property
Section 4.2(a)
Environmental Laws
Section 4.1(b)
Equipment
Section 1.2(c)(iv)
ERISA
Section 1.2(l)

vi


ERISA Affiliates
Section 1.2(m)
Exchanging Party
Section 7.6(f)
Execution Date
Preamble
Excluded Assets
Section 1.2(n)
Final Settlement Statement
Section 9.4(b)
FMOG
Preamble
FMEP
Preamble
Fundamental Representations
Section 11.4(f)
GAAP
Section 3.3(e)
Governmental Authority
Section 1.2(o)
Hazardous Substances
Section 4.1(c)
HSR Act
Section 1.2(p)
Hydrocarbons
Section 1.2(q)
Imbalance
Section 1.2(r)
Income Taxes
Section 1.2(s)
Indemnified Party
Section 11.3(a)
Indemnifying Party
Section 11.3(a)
Individual Environmental Threshold
Section 4.2(e)
Individual Title Threshold
Section 3.4(g)(v)
Intellectual Property
Section 1.2(c)(ix)
JIB
Section 1.2(t)
JIB Audit
Section 1.3(g)
JIB Credit
Section 1.2(u)
JIB Expenses
Section 1.2(v)
knowledge
Section 5.1(f)
Lands
Section 1.2(c)(i)
Laws
Section 1.2(w)
Leases
Section 1.2(c)(i)
Leave
Section 5.26
Letter of Attornment
Section 1.2(x)
Liability
Section 1.2(y)
Like-Kind Exchange
Section 7.6(f)
Line Fill
Section 1.2(z)
Management Representative
Section 12.10(a)
Marlin Platform
Section 1.2(aa)
Material Adverse Effect
Section 5.1(h)
Material Contract
Section 5.9
Net Revenue Interest
Section 1.2(bb)
New Plan
Section 7.19
Notice of Arbitration
Section 12.10(b)
Notice of Dispute
Section 12.10(a)
Offer Employees
Section 7.12(b)
Old Plan
Section 7.19
Operating Expenses
Section 1.3(c)
Outside Termination Date
Section 10.1(b)
Party; Parties
Preamble
Permit
Section 1.2(c)(v)
Permitted Encumbrances
Section 3.3
Person
Section 1.2(cc)
POOI
Preamble

vii


POOI Agreements
Section 1.2(dd)
POOI Consent
Section 7.25
Post-Closing Tax Return
Section 7.6(c)
Pre-Closing Tax Return
Section 7.6(c)
Preferential Right
Section 1.2(ee)
Preferential Right Notice
Section 3.5(a)
Preliminary Settlement Statement
Section 9.4(a)
Properties
Section 1.2(c)(iii)
Protected Period
Section 7.13(a)
Purchase Price
Section 2.1
Purchaser
Preamble
Purchaser Bonus Plans
Section 7.13(b)
Purchaser Employment Liabilities
Section 7.16
Purchaser Indemnified Parties
Section 11.2(b)
Purchaser Savings Plan
Section 7.20
Purchaser Severance Plans
Section 7.13(c)
Purchaser Termination Fee
Section 10.2(b)
Records
Section 1.2(c)(xiii)
Real Property
Section 1.2(c)(xii)
REGARDLESS OF FAULT
Section 11.3(b)
Remediate
Section 4.1(d)
Remediation
Section 4.1(d)
Remediation Amount
Section 4.1(e)
Representatives
Section 1.2(ff)
Retained Liabilities
Section 11.1(b)
Seismic Data
Section 1.2(c)(x)
Seller
Preamble
Seller Employment Liabilities
Section 7.16
Seller Indemnified Parties
Section 11.2(a)
Seller Plans
Section 1.2(gg)
Seller Savings Plan
Section 7.20
Seller Taxes
Section 1.2(hh)
Seller Termination Fee
Section 10.2(c)
Straddle Period
Section 1.2(ii)
Suspense Funds
Section 5.22
Tax
Section 1.2(jj)
Tax Return
Section 1.2(kk)
Taxing Authority
Section 1.2(ll)
Third Party
Section 1.2(mm)
Third Party Acquisition
Section 1.2(nn)
Third Party Claim
Section 11.3(c)
Title Arbitrator
Section 3.4(i)
Title Benefit
Section 3.2
Title Benefit Amount
Section 3.4(e)
Title Defect
Section 3.2(c)
Title Defect Deductible
Section 3.4(g)(v)
Title Defect Amount
Section 3.4(d)
Title Defect Property
Section 3.4(a)
Transfer Tax
Section 12.5
Transfer Time
Section 7.12(b)

viii


Transferred Employees
Section 7.12(b)
Transition Period
Section 1.2(oo)
Transition Services Agreement
Section 1.2(pp)
Treasury Regulations
Section 1.2(qq)
Units
Section 1.2(c)(i)
UTPCPL
Section 5.1(d)
Wells
Section 1.2(c)(i)
Willful Breach
Section 1.2(rr)
Working Interest
Section 1.2(ss)




ix


PURCHASE AND SALE AGREEMENT
This Purchase and Sale Agreement (this “ Agreement ”), is dated as of September 12, 2016 (the “ Execution Date ”), by and among Freeport-McMoRan Oil & Gas LLC, a Delaware limited liability company (“ FMOG ”), Freeport-McMoRan Exploration & Production LLC, a Delaware limited liability company (“ FMEP ”), Plains Offshore Operations Inc., a Delaware corporation (“ POOI ,” and together with FMOG and FMEP, collectively, “ Seller ”) and Anadarko US Offshore LLC, a Delaware limited liability company (“ Purchaser ”). Seller and Purchaser are sometimes referred to collectively as the “Parties” and individually as a “Party.”
RECITALS:
WHEREAS, Seller is the owner of certain interests in oil and gas properties located in the Gulf of Mexico that are defined and described herein;
WHEREAS, Seller desires to sell and Purchaser desires to purchase Seller’s right, title and interest in and to those properties and rights on the terms and conditions hereinafter set forth;
WHEREAS, contemporaneously with the execution of this Agreement, Seller has caused Freeport-McMoRan Inc. to execute and deliver to Purchaser a guarantee of all of Seller’s performance and payment obligations under this Agreement (and all documents required to be executed and delivered by Seller at Closing), in form and substance substantially similar to that attached hereto as Exhibit D ; and
WHEREAS, contemporaneously with the execution of this Agreement, Purchaser has caused Anadarko Petroleum Corporation to execute and deliver to Seller a guarantee of all of Purchaser’s performance and payment obligations under this Agreement (and all documents required to be executed and delivered by Purchaser at Closing), in form and substance substantially similar to that attached hereto as Exhibit E .
NOW, THEREFORE, in consideration of the premises and of the mutual promises, representations, warranties, covenants, conditions and agreements contained herein, and for other valuable consideration, the receipt and sufficiency of which is hereby acknowledged, the Parties agree as follows:
ARTICLE 1. PURCHASE AND SALE
Section 1.1      Purchase and Sale . On the Closing Date, but effective as of the Effective Time, on the terms and conditions contained in this Agreement, Seller agrees to sell to Purchaser and Purchaser agrees to purchase, accept and pay for the Assets, provided, however , that the Assets shall not include any of the Excluded Assets and Seller expressly excepts, reserves and retains, unto itself, its Affiliates, successors and assigns, the Excluded Assets.
Section 1.2      Certain Definitions . As used herein:
(a)      “ Affiliate ” means, with respect to any Person, a Person that directly or indirectly controls, is controlled by or is under common control with such Person, with control in

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such context meaning the ability to direct the management or policies of a Person through ownership of voting shares or other securities, pursuant to a written agreement, or otherwise.
(b)      “ Asset Taxes ” means ad valorem, property, excise, severance, production or similar Taxes (including any interest, fine, penalty or additions to Tax imposed by a Governmental Authority in connection with such Taxes) based upon operation or ownership of the Assets or the production of Hydrocarbons therefrom but excluding, for the avoidance of doubt, (a) Income Taxes, and (b) Transfer Taxes.
(c)      “ Assets ” means all of Seller’s right, title, and interest in and to the following:
(i)      (A) All oil and gas leasehold interests in the oil and gas leases described on Exhibit A-1 and any ratifications, extensions and amendments thereof, whether or not the same are described on Exhibit A-1 (collectively, the “ Leases ”), all of the lands covered by the Leases (collectively, the “ Lands ”), and (B) any and all oil, gas, water, carbon dioxide, disposal or injection wells (whether producing, shut-in, temporarily abandoned, plugged and abandoned or otherwise) located on the Leases or Lands or on pooled, communitized or unitized (including any working interest units, governmental units or compulsory units) acreage that includes all or any part of the Leases (the “ Wells ”), including but not limited to those wells more particularly described on Exhibit A-2 , together with all royalty interests, overriding royalty interests, production payments, sliding scale royalty interests, carried interests, options, farmout rights, reversionary interests, net profits interests and other rights to Hydrocarbons in place that are attributable to the Leases, Lands or Wells, together with all pools, units and other rights that arise by operation of Law or otherwise in all properties and lands unitized (including any working interest units, governmental units or compulsory units), communitized or pooled with the Leases, Lands or Wells, including but not limited to those pools or units (including any working interest units, governmental units or compulsory units) more particularly described on Exhibit A-1 (the “ Units ”);
(ii)      To the extent assignable (subject to compliance with Section 3.5 ), all currently existing contracts, agreements and instruments set forth on Schedule 1.2(c)(ii) and all currently existing contracts, agreements and instruments, whether oral or in writing, applicable to the Properties, or the purchase, sale, production, handling, processing or transportation of Hydrocarbons attributable thereto, to the extent that such contracts, agreements and instruments directly relate to the other Assets and/or will be binding on Purchaser after the Closing, including operating agreements, unitization, pooling and communitization agreements, balancing agreements, facilities or equipment leases, participation, exploration or development agreements, declarations and orders, joint venture agreements, farmin and farmout agreements, exchange agreements, transportation agreements, processing agreements, marketing agreements and licensing agreements (“ Contracts ”);
(iii)      To the extent assignable (subject to compliance with Section 3.5 ), all easements, licenses, servitudes, rights-of-way, surface leases and other rights or interests relating to the use or ownership of surface, subsurface or seabed property and structures that are used, or held for use, in connection with the ownership or operation of the Leases, Lands,

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Wells, Units or Equipment, or the production, handling, processing or transportation of Hydrocarbons attributable thereto, including but not limited to those more particularly described on Exhibit A-3 (the “ Easements ” and together with the Leases, Lands, Wells, Real Property, Equipment and Units, the “ Properties ”);
(iv)      All equipment, platforms, wells, machinery, fixtures and other tangible personal and mixed property and improvements, that is located on the Properties or used, or held for use, in connection with the ownership or operation of the Properties or the production, handling, processing or transportation of Hydrocarbons attributable thereto, including (A) all facilities, gathering and processing systems, central processing equipment, platforms and any rigs or similar equipment located on such facilities or platforms or attached thereto, buildings, utility lines, completion workover riser systems, compressors, meters, tanks, pumps, motors, casing, equipment (including spars, trees, pipeline end terminations, jumpers, risers, umbilicals, control assemblies, communication equipment, supervisory control and data acquisition (SCADA) equipment and production handling equipment), machinery and tools and gathering lines, flowlines and pipelines (whether or not in use), and (B) any personal property (including all office furniture, furnishings and equipment, cell phones, mobile devices, communications software, software, computer-related hardware and other hardware, personal property and equipment owned, licensed or used by Seller with respect to the Assets, in each case used primarily by or primarily associated with one or more Transferred Employees) on or attached to such facilities or platforms (the “ Equipment ”), and (C) all buildings affixed to the Real Property, in each case, including but not limited to those more particularly described on Exhibit A-4 ;
(v)      To the extent assignable (subject to compliance with Section 3.5 ), all environmental and other permits, licenses, orders, authorizations, registrations, consents, franchises, and related instruments or rights granted or issued by any Governmental Authority and primarily relating to the ownership, operation or use of the Properties or Equipment (collectively, the “ Permits ”);
(vi)      All Hydrocarbons in and under and which may be produced and saved from or attributable to the Properties from and after the Effective Time, and all rents, issues, profits, proceeds, products, revenues and other income from or attributable thereto, and all liens and security interests in favor of Seller under any Laws or under any Contracts with respect to the sale of such Hydrocarbons, including the security interests granted under applicable Uniform Commercial Code provisions;
(vii)      All Imbalances;
(viii)      All Hydrocarbons stored in tanks as of the Effective Time and all Line Fill;
(ix)      To the extent transferable without payment of a fee or the need to obtain consent (unless such consent is obtained in accordance with Section 3.5 or Purchaser agrees to pay such fee), all domestic and foreign intellectual property and proprietary rights owned, licensed or used by Seller with respect to the Assets, including all: (a) inventions,

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patents, patent applications, and patent disclosures, (b) trademarks, service marks, trade dress, logos, brand names, trade names, domain names, and other indicia of origin, and all applications, registrations, and renewals in connection therewith, and all goodwill associated therewith, (c) works of authorship and other copyrightable works, copyrights, and applications, registrations, and renewals in connection therewith, (d) mask works and registrations and applications therefor, (e) rights in industrial and other protected designs and any registrations and applications therefore, (f) rights in trade secrets, know-how, and confidential business information (including such rights with respect to research and development, know-how, formulae, compositions, manufacturing and production processes and techniques, technical data, designs, drawings, specifications, research records, records of inventions, test information, customer and supplier lists, pricing and cost information, and business and marketing plans), (g) tapes, data and program documentation and all tangible manifestations and technical information relating thereto, and (h) all rights to sue or otherwise recover for past, present and future infringements, misappropriations, dilutions, and other violations of any of the foregoing (collectively, the “ Intellectual Property ”);
(x)      All geological and geophysical data (including all seismic data and reprocessed data) and all logs, in each case to the extent related to the deepwater Gulf of Mexico, and that are (A) owned by Seller or its Affiliates (whether outright or as a result of such data being prepared for the joint account under any applicable joint operating agreement, unit operating agreement or other operating agreement applicable to the Assets), or (B) transferable pursuant to the terms of the Contract giving rise to Seller’s rights in such data without the payment of a fee to any Third Party or the requirement of consent by such Third Party under such Contract (unless (I) Purchaser has separately agreed to pay such fee, (II) if necessary, Purchaser has a valid license from the applicable Third Party to such data, provided that Seller shall use its commercially reasonable efforts to assist Purchaser in obtaining any such license and (III) if applicable, any required Third Party consent has been obtained) (all of the foregoing data that is transferred to Purchaser as part of the Assets, the “ Seismic Data ”);
(xi)      All rights, claims and causes of action to the extent, and only to the extent, that such rights, claims or causes of action are associated with the other Assets as of the Closing and relate to the Assumed Obligations; provided that, at Purchaser’s request, Seller shall use its reasonable efforts to enforce, for the benefit of Purchaser, at Purchaser’s cost and expense, any right, claim or cause of action that would otherwise be transferred hereunder but is not transferable;
(xii)      All real property set forth on Exhibit A-5 (the “ Real Property ”);
(xiii)      Originals (or photocopies where originals are not available) and electronic copies of all files, records, maps, information, and data of Seller or any Affiliate of Seller, whether written or electronically stored, to the extent pertaining to the ownership, operation and use of the other Assets, including: (A) land and title records (including lease files, surveys, land files, title opinions, and title curative documents); (B) well files, well logs, well information, well data bases, production records, monthly platform product and/

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or producer imbalance statements, division order files, abstracts; (C) contract files, operational accounting records, Tax records (other than those relating to Income Taxes or that relate to Seller’s business generally), operational records, environmental, health and safety records, technical records, engineering data and records and production and processing records; (D) Equipment records; (E) all interpretive data, technical evaluations, technical outputs, reserve estimates, and economic estimates with respect to the Assets and (F) except to the extent prohibited by applicable Law, all employment records related to the Transferred Employees (collectively, the “ Records ”).
(d)      “ BOEM ” means and refers to the U.S. Bureau of Ocean Energy Management or any successor agency thereto.
(e)      “ BSEE ” means and refers to the U.S. Bureau of Safety and Environmental Enforcement or any successor agency thereto.
(f)      “ Business Day ” means any day other than a Saturday, a Sunday, or a day on which banks are closed for business in Houston, Texas.
(g)      “ Consent ” means any prohibitions on assignment or requirements to obtain consents from, make any filings with or deliver any notices to, any Third Parties (including any Governmental Authority), in each case, that would be applicable in connection with the transfer of the Assets or the consummation of the transactions contemplated by this Agreement.
(h)      “ Customary Post-Closing Consents ” means the consents and approvals from Governmental Authorities for the assignment of the Assets to Purchaser that are customarily obtained after the assignment of properties similar to the Assets.
(i)      “ Decommissioning ” means all decommissioning, plugging, abandonment, dismantlement and removal activities and obligations with respect to the Properties as are required by Laws, Contracts or Easements associated with the Properties or any Governmental Authority (expressly including such activities described and defined as of the Effective Time and as may be amended thereafter, in 30 Code of Federal Regulations 250.1700 et seq .) and further including all well plugging, replugging and abandonment; dismantlement and removal of all facilities, pipelines and flowlines and other assets of any kind related to or associated with operations or activities conducted on the Properties; and site clearance, site restoration and site remediation and other activities associated therewith.
(j)      “ Designated Contract ” collectively means that certain Deepwater Production Handling and Operating Services Agreement between FMOG, FMEP and LLOG Exploration Offshore, L.L.C., et al, that certain Transportation Agreement for the Crown & Anchor Owners (Host Crude Flowline) between FMOG, FMEP and LLOG Exploration Offshore, L.L.C., et al and that certain Transportation Agreement for the Crown & Anchor Owners (Host Gas Flowline) between FMOG, FMEP and LLOG Exploration Offshore, L.L.C., et al, all dated effective September 9, 2016 and relating to the Marlin Platform and flowlines.

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(k)      “ Effective Time ” means August 1, 2016 at 7:00 a.m. Central Prevailing Time, 2016.
(l)      “ ERISA ” means the Employee Retirement Income Security Act of 1974, as amended.
(m)      “ ERISA Affiliate ” means, with respect to any Person, any trade or business (whether or not incorporated) (i) under common control within the meaning of Section 4001(b)(1) of ERISA with such Person or (ii) which together with such Person is treated as a single employer under Sections 414(b), (c), (m), (n) or (o) of the Code.
(n)      “ Excluded Assets ” means:
(i)      all corporate, financial, and legal records of Seller that relate to Seller’s business generally and not specifically to the Assets or that are subject to legal privilege or require a consent which has not been obtained, all Income Tax records of Seller, all books, records and files that do not relate to the Assets or solely relate to the Excluded Assets;
(ii)      all agreements, documents, records and correspondence relating to the sale of the Assets to Purchaser, or any other potential sale of the Assets;
(iii)      all audit rights arising under any Contracts with respect to the period prior to the Effective Time or related to any Retained Liabilities, except to the extent relating to any Assumed Obligation;
(iv)      Seller’s area-wide bonds, Permits and licenses or other Permits, licenses or authorizations used in the conduct of Seller’s business generally;
(v)      all rights, titles, claims and interests of Seller or any Affiliate of Seller to or under any policy or agreement of insurance or any insurance proceeds;
(vi)      other than any property described in sub-sections (iv), (x), (xi) or (xiii) in the definition of “Assets,” all office furniture, furnishings and equipment, cell phones, mobile devices, communications software, software, computer-related hardware and other hardware, personal property and equipment owned, licensed or used by Seller with respect to the Assets;
(vii)      any Contracts that constitute (A) master services agreements, blanket agreements or similar Contracts or (B) flight service agreements, drilling rig contracts, vessel agreements or similar Contracts;
(viii)      all drilling rigs, aircraft, vehicles and vessels, in each case, whether owned, leased or chartered (excluding any platform rigs that are permanently attached to or affixed to any Equipment);

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(ix)      all counterclaims, cross-claims, offsets or defenses and similar rights (A) to the extent relating to any matters for which Seller has an indemnity obligation pursuant to this Agreement that has not terminated, or (B) to the extent relating to the Retained Liabilities;
(x)      all rights and causes of action arising, occurring or existing in favor of Seller or any of its Affiliates (A) to the extent relating to any of the Retained Liabilities or (B) except to the extent relating to any Assumed Obligation, with respect to any period prior to the Effective Time;
(xi)      any swap, forward, future or derivative transaction or option or other similar hedge Contracts, and all software used for trading, hedging and credit analysis;
(xii)      all claims of Seller or its Affiliates for refunds of or loss carry forwards with respect to (A) Asset Taxes or any other Taxes, in each case, paid by Seller or its Affiliates attributable to any period prior to the Effective Time, (B) Income Taxes paid by Seller or its Affiliates or (C) any Taxes attributable to the Excluded Assets;
(xiii)      all corporate names and business names, and the other Intellectual Property set forth on Schedule 1.2(n)(xiii) ;
(xiv)      all assets owned by McMoRan Exploration LLC or its subsidiaries;
(xv)      the instruments and information technology assets set forth on Schedule 1.2(n)(xv) ; and
(xvi)      any Assets excluded from the transactions contemplated hereby pursuant to the express terms hereof.
(o)      “ Governmental Authority ” means any federal, state, local or foreign government and/or any political subdivision thereof, including departments, courts, commissions, boards, bureaus, ministries, agencies or other instrumentalities, including BOEM and BSEE.
(p)      “ HSR Act ” means the Hart‑Scott‑Rodino Antitrust Improvements Act of 1976, as amended, and the rules and regulations promulgated thereunder.
(q)      “ Hydrocarbons ” means all crude oil, natural gas and other gas, casinghead gas, condensate, distillate, natural gas liquids and other liquid or gaseous hydrocarbons or any combination thereof and all products refined or extracted therefrom, together with all minerals produced in association with these substances.
(r)      “ Imbalance ” means over-production or under-production or over-deliveries or under-deliveries with respect to Hydrocarbons produced from or allocated to the Properties, to the extent subject to an imbalance or make-up obligation, regardless of whether such over-production or under-production or over-deliveries or under-deliveries arise at a platform, wellhead, pipeline, gathering system, plant, transportation, receipt point, delivery point or other location (excluding any imbalances attributable to royalties payable in kind to BOEM or BSEE) and regardless of

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whether the same arises under contract, by operation of Law or otherwise; provided that “Imbalance” does not include any Excluded Assets.
(s)      “ Income Taxes ” means any income tax measured by or imposed on the net income, profits, revenue, capital gains, or similar measure or any franchise or similar tax imposed by a state on a person’s gross or net income and/or capital for the privilege of engaging in business in that state.
(t)      “ JIB ” means any joint interest billing that is issued to, or by, Seller, or any of its successors or assigns under any Contract that constitutes a joint operating agreement or unit operating agreement.
(u)      “ JIB Credit ” means any credit to which Seller or any of its successors or assigns is entitled pursuant to any JIB.
(v)      “ JIB Expenses ” means any cost or expenditure to be discharged by Seller or any of its successors or assigns pursuant to any JIB; provided, however, that for the purposes of this Agreement, including Section 1.3(g) , Asset Taxes shall not be treated as JIB Expenses, and responsibility for such Taxes shall instead be allocated pursuant to Section 7.6(a) of this Agreement.
(w)      “ Laws ” means all laws, statutes, rules, regulations, ordinances, orders, decrees, requirements, judgments, principles of common law, rules or regulations and codes promulgated, issued or enacted by Governmental Authorities.
(x)      “ Letter of Attornment ” means the letter of attornment in substantially the form attached hereto as Exhibit I .
(y)      “ Liabilities ” means any and all claims, demands, suits, causes of actions, regulatory action, payments, charges, judgments, assessments, liabilities, losses, damages, penalties, fines, settlements or costs and expenses (including consequential and indirect damages to the extent incurred to a Third Party), including any attorneys’ fees, costs of investigation, defense, litigation, arbitration or other expenses incurred in connection therewith and including liabilities, costs, losses and damages for personal injury or death, property damage, contractual claims (including contractual indemnity claims), torts, or otherwise.
(z)      “ Line Fill ” means the volume of Hydrocarbons owned by Seller or allocated to Seller (a) which is contained in any gathering lines or pipelines owned by Seller and included in the Assets, to the extent attributable to the respective Property or (b) which is required to be maintained as line fill in any Third Party gathering lines or pipelines.
(aa)      “ Marlin Platform ” means the production platform owned by Seller in Viosca Knoll Block 915, located offshore Louisiana in the Gulf of Mexico.
(bb)      “ Net Revenue Interest ” means, with respect to any Well or Lease, the interest in and to all Hydrocarbons produced, saved and sold from or allocated to such Well or Lease, after

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satisfaction of all royalties, overriding royalties, nonparticipating royalties, net profits interests or other similar burdens on or measured by production of Hydrocarbons.
(cc)      “ Person ” means any individual, corporation, partnership, limited liability company, trust, estate, Governmental Authority or any other entity.
(dd)      “ POOI Agreements ” means the agreements set forth on Exhibit C .
(ee)      “ Preferential Right ” means any (i) preferential purchase rights, rights of first refusal or similar rights or (ii) rights of first offer, tag-along rights, drag-along rights or other similar rights, in each case of clause (i) and (ii) above, that are applicable to the transfer of the Assets in connection with the transactions contemplated hereby.
(ff)      “ Representatives ” means any Party’s Affiliates and their respective officers, employees, agents, accountants, attorneys, investment bankers, consultants and other authorized representatives.
(gg)      “ Seller Plans ” means each “employee benefit plan” as defined in Section 3(3) of ERISA (whether or not covered by ERISA), employment, consulting, severance, change in control or other similar contract, arrangement or policy (written or oral) and each plan, contract, arrangement, program, agreement, understanding or commitment (written or oral) providing for insurance coverage (including any self-insured arrangements), workers’ compensation, disability benefits, supplemental unemployment benefits, severance, retention, change in control, covenants of non-compete or nondisclosure, restrictive covenants, vacation benefits, retirement benefits, life, health, welfare, medical, dental, disability or accident benefits (including any “voluntary employees’ beneficiary association” as defined in Section 501(c)(9) of the Code providing for the same or other benefits), fringe benefits, bonus, or for deferred compensation, profit-sharing bonuses, stock options, stock bonus, stock appreciation rights, phantom stock rights, stock purchases, annual or long-term cash or stock-based incentive compensation, loan or loan guarantee, base pay or other forms of incentive compensation or post-retirement insurance, compensation or benefits and which is sponsored, funded, administered, entered into, maintained, contributed to by Seller or any of its ERISA Affiliates, on behalf of any Employee.
(hh)      “ Seller Taxes ” means (a) all Income Taxes imposed by any Law on Seller, or any of its direct or indirect owners or Affiliates, (b) Asset Taxes allocable to Seller pursuant to Section 7.6(a) (taking into account, and without duplication of, (i) such Asset Taxes effectively borne by Seller as a result of the adjustments to the Purchase Price made pursuant to Sections 2.2 or 9.4 , as applicable, and (ii) any payments made from one Party to the other in respect of Asset Taxes pursuant to Section 7.6(b )), (c) any Taxes imposed on or with respect to the ownership or operation of the Excluded Assets or that are attributable to any asset or business of Seller that is not part of the Assets, and (d) any and all Taxes (other than the Taxes described in clause (a), (b) or (c) of this definition) imposed on or with respect to the ownership or operation of the Assets or the production of Hydrocarbons or the receipt of proceeds therefrom for any Tax period (or portion thereof) ending before the Effective Time; provided, however, that Seller Taxes shall not include (x) any Transfer Taxes and (y) any Taxes resulting from any action or omission of, or transaction entered into by, Purchaser or any of its Affiliates after the Closing.

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(ii)      “ Straddle Period ” means any Tax period beginning before and ending after the Effective Time.
(jj)      “ Tax ” means all taxes, assessments, duties, levies, imposts, or other similar charges imposed by a Governmental Authority, including all income, franchise, profits, capital gains, capital stock, transfer, gross receipts, sales, use, transfer, service, occupation, ad valorem, property, excise, severance, windfall profit, premium, stamp, license, payroll, employment, social security, unemployment, disability, environmental (including taxes under Code Section 59A), alternative minimum, add-on, value-added, withholding (including backup withholding) and other taxes, assessments, duties, levies, imposts or other similar charges of any kind whatsoever (whether payable directly or by withholding and whether or not requiring the filing of a Tax Return), and all estimated taxes, deficiency assessments, additions to tax, additional amounts imposed by any Governmental Authority, penalties and interest.
(kk)      “ Tax Return ” means any report, return, election, document, estimated Tax filing, declaration or other filing required to be provided to any Taxing Authority, including any amendments thereof.
(ll)      “ Taxing Authority ” means, with respect to any Tax, the Governmental Authority that imposes such Tax, and the Governmental Authority (if any) charged with the collection of such Tax.
(mm)      “ Third Party ” means any Person other than a Party to this Agreement or an Affiliate of a Party to this Agreement.
(nn)      “ Third Party Acquisition ” means the occurrence of any acquisition, directly or indirectly, in one or a series of related transactions of the Assets (or any portion thereof) by purchase, oil and gas lease, sublease, merger, tender offer, consolidation, business combination or otherwise by any Person other than Purchaser.
(oo)      “ Transition Period ” means the period of time that coincides with the term of the Transition Services Agreement.
(pp)      “ Transition Services Agreement ” means a transition services agreement between Seller and/or certain of its Affiliates and Purchaser, in substantially the form attached hereto as Exhibit H .
(qq)      “ Treasury Regulations ” means the final, temporary or proposed Treasury Regulations promulgated under the Code, as such regulations may be amended from time to time (including corresponding provisions of succeeding regulations).
(rr)      “ Willful Breach ” means, with respect to any Party, that such Party willfully or intentionally breaches in any material respect (by refusing to perform or taking an action prohibited) any material pre-Closing covenant applicable to such Party or that such Party willfully or intentionally causes any condition to Closing set forth in Article 8 applicable to such Party not to be satisfied. For clarity, if a Party is obligated hereunder to use its commercially reasonable

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efforts to perform an action or to achieve a result, the failure to use such commercially reasonable efforts would constitute a willful and intentional breach of this Agreement; provided that the requirement to use commercially reasonable efforts shall not include a requirement to pay any money or give anything of value to any Third Party.
(ss)      “ Working Interest ” with respect to any Property, means the interest in and to such Property that is burdened with the obligation to bear and pay costs and expenses of maintenance, development and operations on or in connection with such Property, but without regard to the effect of any royalties, overriding royalties, nonparticipating royalties, net profits interests or other similar burdens on or measured by production of Hydrocarbons.
Section 1.3      Effective Time; Proration of Costs and Revenues .
(a)      Possession of the Assets shall be transferred from Seller to Purchaser at the Closing, but certain financial benefits and burdens in respect of the Assets shall be transferred effective as of the Effective Time, as described below.
(b)      Purchaser shall be entitled to all production of Hydrocarbons from or attributable to the Assets on and after the Effective Time (and all products and proceeds attributable thereto), and to all other income, proceeds, receipts and credits earned with respect to the Assets on and after the Effective Time, and shall be responsible for (and entitled to any refunds with respect to) all Operating Expenses incurred on and after the Effective Time. Seller shall be entitled to all production of Hydrocarbons from or attributable to the Assets prior to the Effective Time (and all products and proceeds attributable thereto), and to all other income, proceeds, receipts and credits earned with respect to the Assets prior to the Effective Time, and shall be responsible for (and entitled to any refunds with respect to) all Operating Expenses incurred prior to the Effective Time. “Earned” and “incurred,” as used in this Agreement, shall be interpreted in accordance with United States generally accepted accounting principles (as published by the Financial Accounting Standards Board) and Council of Petroleum Accountants Societies (COPAS) standards.
(c)      “ Operating Expenses ” means all operating expenses (excluding Asset Taxes or any other Taxes), including costs of insurance, capital expenditures incurred in the ownership and operation of the Assets, costs of gathering, treating, processing, compression and transportation, costs of service contracts, costs of idled equipment and overhead costs payable to Third Parties charged to the Assets under the applicable operating agreement or otherwise in the ordinary course of business. Notwithstanding anything herein to the contrary, in no event shall any Retained Liability be considered to be an Operating Expense. For the avoidance of doubt, Operating Expenses shall include operating expenses incurred in association with all existing contracts, agreements and instruments set forth on Schedule 1.2(c)(ii) and any employment-related costs or other Liabilities incurred in connection with the ownership and operation of the Assets (excluding such costs or other Liabilities that are related to Seller’s actual overhead and other general and administrative costs attributable to the Assets).
(d)      For purposes of allocating production (and accounts receivable with respect thereto), under this Section 1.3 , (i) liquid Hydrocarbons shall be deemed to be “from or attributable to” the Assets when they pass through the pipeline flange connecting into the storage facilities on

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the platform located on the Lands or, if there are no such storage facilities, when they pass through the lease automated custody transfer (LACT) meters or similar meters at the point of entry into the pipelines through which they are transported from the Lands, and (ii) gaseous Hydrocarbons shall be deemed to be “from or attributable to” the Assets when they pass through the delivery point sales meters or similar meters at the point of entry into the pipelines through which they are transported from the Lands. Seller shall utilize reasonable interpolative procedures to arrive at an allocation of production when exact meter readings are not available. Seller shall provide to Purchaser, no later than ten (10) Business Days prior to Closing, evidence of all meter readings conducted on or about the Effective Time in connection with the Assets, together with all data necessary to support any estimated allocation, for purposes of establishing the adjustment to the Purchase Price pursuant to Section 2.2 . Taxes (other than Taxes measured by gross proceeds, income, profits or capital gains), surface use fees, insurance premiums and other Operating Expenses that are paid periodically shall be prorated based on the number of days in the applicable period falling before and at or after the Effective Time, except that production, severance and similar Taxes measured by units of production shall be prorated based on the amount of Hydrocarbons actually produced, purchased or sold, as applicable, before, or at and after the Effective Time. In each case, Purchaser shall be responsible for the portion allocated to the period at and after the Effective Time and Seller shall be responsible for the portion allocated to the period before the Effective Time.
(e)      All cash amounts attributable to Operating Expenses that are received or paid prior to Closing shall be accounted for in the Preliminary Settlement Statement or Final Settlement Statement, as applicable. Such amounts that are received or paid after Closing but prior to the date of the Final Settlement Statement shall be accounted for in the Final Settlement Statement. If, after the Parties’ agreement upon the Final Settlement Statement, (i) any Party receives monies belonging to the other pursuant to the terms of this Agreement, including proceeds of production, then such amount shall, within ten (10) Business Days after the end of the month in which such amounts were received, be paid over to the proper Party, (ii) any Party pays monies for Operating Expenses which are the obligation of the other Party pursuant to the terms of this Agreement, then such other Party shall, within ten (10) Business Days after the end of the month in which the applicable invoice and proof of payment of such invoice were received, reimburse the Party which paid such Operating Expenses, (iii) a Party receives an invoice of an expense or obligation which is owed by the other Party pursuant to the terms of this Agreement, such Party receiving the invoice shall promptly forward such invoice to the Party obligated to pay the same, and (iv) an invoice or other evidence of an obligation is received by a Party, which is partially an obligation of both Seller and Purchaser pursuant to the terms of this Agreement, then the Parties shall consult with each other, and each shall promptly pay its portion of such obligation to the obligee.
(f)      Possession of any (i) cash call funds received and held by Seller as operator of the Assets but not expended pursuant to a joint operating agreement prior to Closing, and (ii) other Third Party funds being held by Seller as operator of the Assets shall be credited by Seller to Purchaser at Closing pursuant to Section 2.2(e) .
(g)      JIB Expense and JIB Credit Audit . As soon as reasonably practicable following December 31, 2016, Seller and Purchaser shall, at Purchaser’s sole expense, jointly conduct a joint interest audit in accordance with each applicable joint operating agreement or unit

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operating agreement (the “ JIB Audit ”) with respect to all JIB Expenses actually paid and all JIB Credits actually received, in each case, by Seller, Purchaser or any of their respective Affiliates that are attributable to any JIB for the calendar year of 2016. If a particular operator under a joint operating agreement or unit operating agreement that constitutes a Contract is unable to support a physical audit within this timeframe, a review of activity date information provided by such operator is acceptable. With respect to any JIB Audit exceptions, (i) Seller shall control with respect to any exception attributable to any period prior to the Effective Time, and (ii) Purchaser shall control with respect to any exception attributable to any period from and after the Effective Time. Seller and Purchaser shall use commercially reasonable efforts to cooperate in the conduct of the JIB Audit. If following completion of the JIB Audit, the Parties determine that (A) (1) Seller paid any amount of JIB Expenses attributable to any period on or after the Effective Time, or (2) Purchaser received any JIB Credit attributable to any period prior to the Effective Time, then, in each case, Seller shall be entitled to reimbursement from Purchaser for such amount to the extent no Purchase Price adjustment was effected pursuant to Section 2.2 with respect to such payment of JIB Expenses or (B) (1) Purchaser paid any amount of JIB Expenses attributable to any period prior to the Effective Time, or (2) Seller received any JIB Credit attributable to any period from and after the Effective Time, then, in each case, Purchaser shall be entitled to reimbursement from Seller for such amount to the extent no Purchase Price adjustment was effected pursuant to Section 2.2 with respect to such receipt of JIB Credit. Any such post-JIB Audit reimbursement obligation owed pursuant to this Section 1.3(g) shall be made within five (5) days following completion of the JIB Audit and shall be made by means of a wire transfer of immediately available funds to a bank account designated by the Party receiving such reimbursement. Notwithstanding the foregoing, if, pursuant to the JIB Audit, it is determined that each Party owes a reimbursement amount to the other Party, the Party with the greater reimbursement obligation shall pay to the other Party, a net amount equal to such Party’s reimbursement obligation owed to the other Party reduced by the reimbursement amount owed to such Party. If following the completion of the JIB Audit, either Party disputes whether any JIB Expense or JIB Credit is attributable to any period prior to or after the Effective Time, the dispute shall be resolved by the accounting firm set forth in Section 9.4(b) or if such accounting firm is unable or unwilling to perform its obligations under this Section, such other nationally recognized independent accounting firm as may be accepted by Purchaser and Seller, for review and final determination. Purchaser shall bear the costs and expenses of the JIB Audit. Any payments made pursuant to this Section 1.3(g) shall be deemed to constitute adjustments to the Purchase Price.
ARTICLE 2. PURCHASE PRICE
Section 2.1      Purchase Price . The purchase price for the Assets (the “ Purchase Price ”) shall be Two Billion Dollars ($2,000,000,000), adjusted as provided in Section 2.2 .
Section 2.2      Adjustments to Purchase Price . The Purchase Price shall be adjusted as follows, without duplication:
(a)      Decreased by the aggregate amount of proceeds received by Seller or its Affiliates from the sale of Hydrocarbons which may be produced and saved from or attributable to the Properties from and after the Effective Time (less any (i) royalties, overriding royalties, net profits interests and other similar burdens payable out of the production of Hydrocarbons from the

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Assets or the proceeds thereof which are not included in Operating Expenses and (ii) Asset Taxes and sales, use or similar Taxes imposed in connection therewith);
(b)      Decreased by the aggregate amount of any other proceeds received by Seller or its Affiliates attributable to the Assets with respect to the period at or after the Effective Time;
(c)      Decreased by the amount of all Taxes prorated to Seller in accordance with Section 7.6 but paid or payable by Purchaser;
(d)      To the extent that Seller is overproduced as of the Effective Time with respect to any Imbalance, decreased by an amount equal to $2.97 per mmbtu of natural gas and $40.17 per bbl of oil, or to the extent that Seller is under produced as of the Effective Time with respect to any Imbalance, increased by an amount equal to $2.97 per mmbtu of natural gas and $40.17 per bbl of oil;
(e)      Decreased by the amount of all (i) Suspense Funds, and (ii) other funds held by Seller and its Affiliates pursuant to Section 1.3(f) as of the Closing;
(f)      Increased by the amount of all Operating Expenses attributable to the Assets on and after the Effective Time which are incurred and paid by Seller excluding, however, any amounts deducted pursuant to Section 2.2(a) above;
(g)      Increased by the aggregate amount of proceeds from the sale of Hydrocarbons which may be produced and saved from or attributable to the Properties prior to the Effective Time to the extent received by Purchaser as of or after the Closing (less any (i) royalties, overriding royalties net profits interests and other similar burdens payable out of the production of Hydrocarbons from the Assets or the proceeds thereof which are not included in Operating Expenses and (ii) Asset Taxes and sales, use or similar Taxes imposed in connection therewith);
(h)      Increased by an amount with respect to all Hydrocarbons (a) produced, saved from or attributable to the Properties and stored in tanks as of the Effective Time ( to the extent that the proceeds from the sale of such Hydrocarbons are received by Purchaser as of or after the Closing) and (b) the Line Fill, if any, as of the Effective Time, valued at a price of $2.97 per mmbtu of natural gas and $40.17 per bbl of oil ( in each case, less any (i) royalties, overriding royalties net profits interests and other similar burdens payable out of the production of Hydrocarbons from the Assets or the proceeds thereof which are not included in Operating Expenses and (ii) Asset Taxes and sales, use or similar Taxes imposed in connection therewith) ;
(i)      Decreased by the amount of all Operating Expenses (including JIB Expenses) attributable to the Assets prior to the Effective Time which are due and payable by Seller to Purchaser or any of its Affiliates;
(j)      Increased by the amount of all prepaid expenses attributable to any Asset that are paid by, or on behalf of, Seller and that are attributable to the period of time after the Effective Time, including prepaid utility charges;

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(k)      Increased by the amount of all Taxes prorated to Purchaser in accordance with Section 7.6 but paid or payable by Seller;
(l)      Increased by the amount of any retention bonuses paid or payable by Seller or its Affiliates to the Transferred Employees;
(m)      Increased by Six Hundred Seventy-Five Thousand Dollars ($675,000) per month for the period from the Effective Time through the Closing Date (prorated on a daily basis for any partial month) as an agreed reimbursement in lieu of Seller’s actual overhead and other general and administrative costs attributable to the Assets;
(n)      Decreased in accordance with Section 3.4 ;
(o)      Decreased in accordance with Section 3.5 ;
(p)      Decreased in accordance with Section 3.6 ;
(q)      Decreased in accordance with Section 4.2 ; and
(r)      Increased or decreased, as the case may be, by any other amount expressly provided for in this Agreement or mutually agreed to by the Parties in writing.
The Purchase Price, adjusted as set forth in this Section 2.2 , shall be the “ Adjusted Purchase Price .” On the Closing Date, Purchaser shall pay to Seller in immediately available funds by wire transfer to an account designated by Seller, the Adjusted Purchase Price.
Section 2.3      Effect of Purchase Price Adjustments . The adjustment described in Section 2.2(a) shall serve to satisfy, up to the amount of the adjustment, Purchaser’s entitlement under Section 1.3 to Hydrocarbon production from or attributable to the Assets between the Effective Time and the Closing and to other income, proceeds, receipts and credits earned with respect to the Assets between the Effective Time and the Closing, and Purchaser shall not have any separate rights to receive any production or income, proceeds, receipts and credits with respect to which an adjustment has been made. Similarly, the adjustments described in Section 2.2(f) shall serve to satisfy, up to the amount of the adjustment, Purchaser’s obligation under Section 1.3 to pay Operating Expenses attributable to the ownership and operation of the Assets which are incurred between the Effective Time and the Closing, and Purchaser shall not be separately obligated to pay for any Operating Expenses with respect to which an adjustment has been made.
Section 2.4      Additional Purchase Price . As additional consideration for the transfers contemplated herein, following the Closing, Purchaser shall pay to Seller, on a quarterly basis, an amount equal to 70% of all gross proceeds received by Purchaser and its Affiliates under the Designated Contract in respect of production handling fees, operating expense reimbursement and capacity and infrastructure access fees (but excluding amounts received in reimbursement for capital expenditures and any amounts received that may be reimbursable to any other parties to the Designated Contract), until the total amount paid to Seller pursuant to this Section 2.4 is equal to

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One Hundred Fifty Million Dollars ($150,000,000). Payments will be made with respect to each calendar quarter in arrears, on the fifth Business Day after the expiration of each calendar quarter.
Section 2.5      Allocated Values . The “ Allocated Value ” for any Asset shall equal the portion of the unadjusted Purchase Price allocated to such Asset on Schedule 2.5 , increased or decreased as described in this Agreement. Seller and Purchaser have accepted such Allocated Values for purposes of this Agreement and the transactions contemplated hereby.
Section 2.6      Allocation of Consideration for Tax Purposes . Seller and Purchaser agree that the Purchase Price, as adjusted, and other amounts treated for U.S. federal Income Tax purposes as consideration for a sale transaction (to the extent known at such time) (collectively, the “ Allocable Amount ”) shall be allocated among the various Assets in accordance with Section 1060 of the Internal Revenue Code of 1986, as amended (the “ Code ”), and the Treasury Regulations promulgated thereunder and, to the extent allowed by applicable Laws, in a manner consistent with the Allocated Values. The initial draft of such allocations shall be prepared by Purchaser and shall be provided to Seller no later than 120 days after Closing for Seller’s review (as adjusted pursuant to this Section 2.6 , the “ Allocation Schedule ”). Within thirty (30) days after delivery of Purchaser’s draft Allocation Schedule, Seller shall deliver to Purchaser a written report containing any changes that Seller proposes to be made in such schedule, and Purchaser shall consider such changes in good faith. The Allocation Schedule shall be updated to reflect any adjustments to the Allocable Amount. The allocation of the Allocable Amount shall be reflected on a completed Internal Revenue Service Form 8594 (Asset Acquisition Statement under Section 1060), which Form will be timely filed separately by Seller and Purchaser with the Internal Revenue Service pursuant to the requirements of Section 1060(b) of the Code. Seller and Purchaser agree not to take any position inconsistent with the allocations set forth in the Allocation Schedule unless required by applicable Law or with the consent of the other Party. Each Party shall promptly notify the other in writing upon receipt of notice of any pending or threatened Tax audit or assessment challenging the Allocation Schedule, and neither Party shall agree to any proposed adjustment to the allocation contained in the Allocation Schedule by any Governmental Authority without giving prior written notice to the other Party; provided, that nothing contained herein shall prevent either Party from settling any proposed deficiency or adjustment by any Governmental Authority based upon or arising out of the allocation, and neither Party shall be required to litigate any proposed deficiency or adjustment by any Governmental Authority challenging such allocation.
Section 2.7      Withholding . Except with respect to any Tax imposed with respect to bulk sales, bulk transfer or similar Laws of any jurisdiction that may be applicable with respect to the sale of any or all of the Assets to Purchaser, each Party shall be entitled to deduct and withhold from the consideration otherwise payable to another Party pursuant to this Agreement such amounts as such Party is required to deduct and withhold under the Code or any other Law respecting Taxes, in each case, with respect to the making of such payment. To the extent that amounts are so withheld, such withheld amounts shall be treated for all purposes of this Agreement as having been paid to the Party in respect of whom such deduction and withholding was made.
ARTICLE 3. TITLE MATTERS
Section 3.1      Title .

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(a)      Seller represents and warrants to Purchaser that Seller’s title to the Leases, Wells and Equipment as of the Effective Time is Defensible Title (as defined in Section 3.2 ).
(b)      The Conveyance shall contain a special warranty of title against every Person lawfully claiming or to claim the Assets or any part thereof by, through and under Seller, but not otherwise, subject to Permitted Encumbrances, but shall otherwise be without warranty of title, express, implied or statutory, except that the Conveyance shall transfer to Purchaser all rights or actions on title warranties given or made by Seller’s predecessors (other than Affiliates of Seller), to the extent Seller may legally transfer such rights.
(c)      This Article 3 and the special warranty of title contained in the Conveyance shall provide Purchaser’s exclusive remedy in respect of Title Defects, and Seller makes no other representation or warranty, express, implied, statutory or otherwise, with respect to Seller’s title to any of the Properties.
(d)      The representation and warranty in Section 3.1(a) shall terminate as of the Claim Date and shall have no further force and effect thereafter, provided there shall be no termination of Purchaser’s or Seller’s rights under Section 3.4 with respect to any bona fide Title Defect or Title Benefit claim properly reported on or before the Claim Date.
Section 3.2      Definition of Defensible Title . As used in this Agreement, the term “ Defensible Title ” means that title to the Assets of Seller which, subject to Permitted Encumbrances:
(a)      entitles Seller to receive throughout the duration of the productive life of any Property not less than the Net Revenue Interest shown in Exhibit A-1 for such Property except decreases in connection with those operations in which Seller may be a nonconsenting co-owner (to the extent permitted by this Agreement), decreases resulting from the establishment or amendment of pools or units (to the extent permitted by this Agreement), and decreases required to allow other working interest owners to make up past underproduction or pipelines to make up past underdeliveries;
(b)      obligates Seller to bear a percentage of the costs and expenses for the maintenance and development of, and operations relating to, each Property not greater than the Working Interest shown in Exhibit A-1 for such Property without increase throughout the productive life of such Property except increases resulting from contribution requirements with respect to defaulting co-owners under applicable operating agreements and increases that are accompanied by at least a proportionate increase in Seller’s Net Revenue Interest in such Property; and
(c)      is free and clear of all Encumbrances other than Permitted Encumbrances.
As used in this Agreement, the term “ Encumbrance ” means any lien, mortgage, pledge, charge, encumbrance, irregularity or other defect (including a discrepancy or error in Net Revenue Interest or Working Interest as set forth in Exhibit A-1 ; but excluding any Environmental Defect), and the term “ Title Defect ” means any Encumbrance, discrepancy or other matter that causes a breach of Seller’s representation and warranty in Section 3.1(a) . As used in this Agreement, the term “ Title Benefit ” shall mean any right, circumstance or condition that, operates to increase the Net Revenue

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Interest of Seller in any Property above that shown on Exhibit A-1 , without causing a greater than proportionate increase in Seller’s Working Interest above that shown in Exhibit A-1 .
Section 3.3      Definition of Permitted Encumbrances . As used herein, the term “ Permitted Encumbrances ” means any or all of the following:
(a)      Lessors’ royalties and any overriding royalties, reversionary interests and other burdens to the extent that they do not, individually or in the aggregate, (i) reduce Seller’s Net Revenue Interests in any Property below that shown in Exhibit A-1 or (ii) increase Seller’s Working Interest in any Property above that shown in Exhibit A-1 without at least a proportionate increase in the Net Revenue Interest;
(b)      All Contracts, to the extent that they do not, individually or in the aggregate, (i) reduce Seller’s Net Revenue Interests in any Property below that shown in Exhibit A-1 or (ii) increase Seller’s Working Interest in any Property above that shown in Exhibit A-1 without at least a proportionate increase in the Net Revenue Interest;
(c)      Preferential Rights and similar contractual provisions;
(d)      Consents with respect to which waivers or consents are obtained by Seller from the appropriate parties prior to the Closing Date or the appropriate time period for asserting the right has expired or which need not be satisfied prior to a transfer or any Assets subject to Consents that are transferred at Closing to Purchaser pursuant to Section 3.5(h) ;
(e)      Liens for current Taxes or assessments not yet delinquent or, if delinquent, being contested in good faith by appropriate actions and for which adequate reserves have been established in accordance with generally accepted accounting principles (“ GAAP ”);
(f)      Materialman’s, mechanic’s, repairman’s, employee’s, contractor’s, operator’s and other similar liens or charges arising in the ordinary course of business for amounts not yet delinquent (including any amounts being withheld as provided by Law);
(g)      All consents to assignment and Customary Post-Closing Consents;
(h)      The terms and conditions of this Agreement or any agreement contemplated to be executed pursuant to this Agreement;
(i)      Rights of reassignment arising upon intention to abandon or release the Leases, or any of them, to the extent that such rights have not been triggered;
(j)      Easements, rights-of-way, servitudes, equipment, pipelines, utility lines, structures and other rights in respect of surface and subsurface operations not involving the extraction of Hydrocarbons which, in each case, do not materially impair the operation or use of the Properties as currently operated and used;
(k)      Liens created under Leases or Contracts or by operation of Law in respect of obligations that are not yet due;

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(l)      All applicable Laws and all rights reserved to or vested in any Governmental Authority: (i) to control or regulate any Property in any manner or to assess Taxes with respect to any Property; (ii) by the terms of any right, power, franchise, grant, license or permit, or by any provision of Law, to terminate such right, power, franchise, grant, license or permit or to purchase, condemn, expropriate or recapture or to designate a purchaser of any Property; (iii) to use such property; or (iv) to enforce any obligations or duties affecting the Properties to any Governmental Authority with respect to any franchise, grant, license or permit, in each case, in a manner which does not (A) individually or in the aggregate, (I) reduce Seller’s Net Revenue Interests in any Property below that shown in Exhibit A-1 or (II) increase Seller’s Working Interest in any Property above that shown in Exhibit A-1 without at least a proportionate increase in the Net Revenue Interest, or (B) materially impair the operation or use of the Properties as currently operated and used;
(m)      Such defects or irregularities in the Working Interests or Net Revenue Interests in the Properties resulting from the failure to file any assignment or other transfer instrument in Seller’s chain of title in the records of any adjoining county or parish, so long as the instrument in question is filed with the BOEM;
(n)      Matters that would otherwise be Title Defects but that Purchaser waives in writing;
(o)      Any Encumbrance on or affecting the Leases which is discharged by Seller at or prior to Closing;
(p)      Imbalances;
(q)      Terms and conditions of Permits affecting the Properties and any other rights reserved to or vested in a Governmental Authority having jurisdiction to control or regulate a Property in any manner whatsoever, and all Laws of such Governmental Authorities, to the extent, individually or in the aggregate, such terms, conditions and rights would not reasonably be expected to (A) (I) reduce Seller’s Net Revenue Interests in any Property below that shown in Exhibit A-1 or (II) increase Seller’s Working Interest in any Property above that shown in Exhibit A-1 without at least a proportionate increase in the Net Revenue Interest, or (B) materially impair the operation or use of the Properties as currently operated and used; and
(r)      Any matters expressly described on Exhibit A-1 .
Section 3.4      Notice of Title Defects; Defect Adjustments .
(a)      To assert a claim with respect to a Title Defect, Purchaser must deliver a claim notice to Seller on or before the date that is no later than forty-five (45) days after the Execution Date (the “ Claim Date ”). Such notice shall be in writing and shall include (i) a description of the alleged Title Defect(s), (ii) the Assets affected (the “ Title Defect Property ”), (iii) the Allocated Values of the applicable Title Defect Property, (iv) the amount by which Purchaser reasonably believes the Allocated Values of those Title Defect Properties are reduced by the alleged Title Defect(s) and (v) such supporting documentation as is in Purchaser’s control or possession and reasonably necessary for Seller to verify the existence of the alleged Title Defect. Subject to Purchaser’s

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rights under the special warranty of title to be included in the Conveyance, Purchaser shall be deemed to have waived any Title Defect of which Seller has not been given notice on or before the Claim Date.
(b)      Seller shall have the right, but not the obligation, to deliver a notice to Purchaser on or before the Claim Date with respect to each matter which, in Seller’s reasonable opinion, constitutes a Title Benefit including (i) a description of the Title Benefit, (ii) the Properties affected, (iii) the Allocated Values of the Properties subject to such Title Benefit and (iv) the amount by which Purchaser reasonably believes the Allocated Value of those Properties is increased by the Title Benefit. Seller shall be deemed to have waived all Title Benefits of which it has not given notice pursuant to this Section 3.4 on or before the Claim Date.
(c)      Seller shall have the right, but not the obligation, to attempt, at its sole cost, to cure or remove on or before the Closing Date any Title Defects of which it has been timely notified by Purchaser.
(d)      Subject to Seller’s continuing right to dispute the existence of a Title Defect or the Title Defect Amount with respect thereto, with respect to each Title Defect Property timely reported under Section 3.4(a) and not cured prior to the Closing Date pursuant to Section 3.4(c) , upon the mutual agreement of the Parties, (i) such Title Defect Property shall be assigned at Closing subject to all such uncured Title Defects and the Purchase Price shall be reduced by an amount for such Title Defect Property as determined pursuant to Section 3.4(g) or Section 3.4(i) (“ Title Defect Amount ”), (ii) such Title Defect Property shall be retained by Seller, in which case, (A) such Assets shall be excluded from the Assets conveyed to Purchaser at Closing, (B) such Assets shall become “Excluded Assets” for all purposes hereunder, and (C) the Purchase Price shall be reduced by the Allocated Values of all such Excluded Assets or (iii) Seller shall indemnify Purchaser against all Third Party Claims resulting from such Title Defect with respect to the applicable Title Defect Property pursuant to an indemnity agreement mutually acceptable to the Parties; provided, that if the Parties are unable to mutually agree to any such remedy, then the Parties shall be deemed to have selected the option in subsection (i) above.
(e)      With respect to any Title Benefits reported under Section 3.4(b) , an amount equal to the increase in the Allocated Value for the Property attributable to the Title Benefit Property relating to such Title Benefit, as determined pursuant to Section 3.4(h)  or Section 3.4(i)  will be the “ Title Benefit Amount ”. The aggregate Title Defect Amounts claimed by Purchaser shall be reduced by an amount equal to the aggregate Title Benefit Amounts (such amounts not to exceed the aggregate Title Defect Amounts) as the sole and exclusive remedy with respect to any such Title Benefits.
(f)      Subject to the special warranty of title contained in the Conveyance, Section 3.4(d) shall, to the fullest extent permitted by applicable Laws, be the exclusive right and remedy of Purchaser with respect to any Title Defect, and Purchaser hereby waives any and all other rights or remedies with respect thereto.
(g)      The Title Defect Amount resulting from a Title Defect shall be determined as follows:

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(i)      if Purchaser and Seller agree on the Title Defect Amount, that amount shall be the Title Defect Amount;
(ii)      if the Title Defect is an Encumbrance which is undisputed and liquidated in amount, then the Title Defect Amount shall be the amount necessary to be paid to remove the Title Defect from the affected Title Defect Property;
(iii)      if the Title Defect represents a discrepancy between (A) the actual Net Revenue Interest for any Property and (B) the Net Revenue Interest stated on Exhibit A-1 for such Property, and there is a proportional decrease of the Working Interest with respect thereto, then the Title Defect Amount shall be the product of the Allocated Value for the affected Title Defect Property multiplied by a fraction, the numerator of which is the decrease between the Net Revenue Interest with respect to such Title Defect Property as stated on Exhibit A-1 and the actual Net Revenue Interest held by Seller with respect to such Title Defect Property and the denominator of which is the Net Revenue Interest stated on Exhibit A-1 , provided that if the Title Defect is not effective or does not affect a Property throughout its entire term, the Title Defect Amount determined under this Section 3.4(g)(iii) shall be reduced accordingly;
(iv)      if the Title Defect represents an Encumbrance of a type not described in subsections (i), (ii) or (iii) above, the Title Defect Amount shall be determined by taking into account the Allocated Value of the Title Defect Property so affected, the portion of the Title Defect Property affected by the Title Defect, the legal effect of the Title Defect, the potential economic effect of the Title Defect over the life of the affected Title Defect Property, the values placed upon the Title Defect by Purchaser and Seller and such other factors as are necessary to make a proper evaluation;
(v)      notwithstanding anything to the contrary in this Article 3 , (A) the aggregate Title Defect Amounts attributable to any given Title Defect Property shall not exceed the lesser of (I) the Allocated Value of such Title Defect Property and (II) the cost to cure such Title Defects and (B) in no event shall there be any adjustments to the Purchase Price or other remedies provided by Seller for any Title Defect Property for which the aggregate Title Defect Amount(s) relating thereto do not exceed Two Hundred Fifty Thousand Dollars ($250,000) (the “ Individual Title Threshold ”), and then only to the extent the (I) aggregate amount of all Title Defect Amounts of all such Title Defects that exceed the Individual Title Threshold, but excluding any Title Defect Amounts attributable to Title Defects cured by Seller prior to Closing, minus (II) the aggregate amount of all Title Benefit Amounts, exceeds Ten Million Dollars ($10,000,000) (the “ Title Defect Deductible ”), after which point any adjustments to the Purchase Price for such Title Defects shall be applicable only with respect to the Title Defect Amounts attributable to such Title Defects that are in excess of the Title Defect Deductible; and
(vi)      the Title Defect Amount with respect to a Title Defect Property shall be determined without duplication of any costs or losses (A) included in another Title Defect Amount hereunder, (B) included in any remedy for a Casualty Loss under Section 3.6 , or

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(C) for which Purchaser otherwise receives credit in the calculation of the Adjusted Purchase Price.
(h)      If Purchaser and Seller agree on the Title Benefit Amount, then that amount shall be the Title Benefit Amount. If Purchaser and Seller do not agree on the Title Benefit Amount, then the Title Benefit Amounts shall be determined by taking into account the Allocated Value of the Property, the portion of such Property affected by such Title Benefit, the legal effect of the Title Benefit, the potential economic effect of the Title Benefit over the life of such Property and such other reasonable factors as are necessary to make a proper evaluation.
(i)      Seller and Purchaser shall attempt to agree on the existence of Title Defects, Title Benefits, any curative matters, all Title Defect Amounts and all Title Benefit Amounts by three (3) Business Days prior to the Closing Date. If Seller and Purchaser are unable to agree by that date, a numerical average of Purchaser’s good faith estimate and Seller’s good faith estimate shall be used to determine the Closing Payment pursuant to Section 9.4(a) and the Title Defects, Title Benefits, curative matters, Title Defect Amounts and Title Benefit Amounts in dispute shall be exclusively and finally resolved by arbitration pursuant to this Section 3.4(i) . During the 10-day period following the Closing Date, Title Defects, Title Benefits, curative matters, Title Defect Amounts and Title Benefit Amounts in dispute shall be submitted to an attorney with at least ten (10) years’ experience in Gulf of Mexico oil and gas titles as selected by mutual agreement of Purchaser and Seller or absent such agreement during the 10-day period, by the Houston, Texas office of the American Arbitration Association (the “ Title Arbitrator ”). The arbitration proceeding shall be held in Houston, Texas and shall be conducted in accordance with the Commercial Arbitration Rules of the American Arbitration Association, to the extent such rules do not conflict with the terms of this Section. The Title Arbitrator’s determination shall be made within 30 days after submission of the matters in dispute and shall be final and binding upon both Parties, without right of appeal. In making his determination, the Title Arbitrator shall be bound by the rules set forth in Sections 3.4(g) and 3.4(h) and may consider such other matters as in the opinion of the Title Arbitrator are necessary or helpful to make a proper determination. Additionally, the Title Arbitrator may consult with and engage disinterested third parties to advise the arbitrator, including title attorneys from other states and petroleum engineers. In no event shall any Title Defect Amount exceed the estimate given by Purchaser in its claim notice delivered in accordance with Section 3.4(a) and in no event shall any Title Benefit Amount exceed the estimate given by Seller, as applicable, in a claim notice delivered in accordance with Section 3.4(b) . The Title Arbitrator shall act as an expert for the limited purpose of determining the existence of any Title Defect or Title Benefit, the effect of any disputed curative matters and the specific disputed Title Defect Amounts and Title Benefit Amounts submitted by either Party and may not award damages, interest or penalties to either Party with respect to any matter. Seller and Purchaser shall each bear its own legal fees and other costs of presenting its case. Each Party shall bear one-half of the costs and expenses of the Title Arbitrator.
Section 3.5      Consents to Assignment and Preferential Rights to Purchase .
(a)      Promptly after the Execution Date, but in no event later than five (5) Business Days after the Execution Date, Seller shall prepare and send (i) notices in form and substance

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substantially similar to that attached hereto as Exhibit F and that have been approved by Purchaser in its reasonable discretion (each a “ Consent Request Notice ”), to the holders of any Consents set forth on Schedule 5.12 in compliance with the terms of such consents and requesting consents to the Conveyance and, to the extent applicable, an express waiver of any provision that would require the assignment of the applicable Asset subject to such Consent to be delayed until after the Closing Date, and (ii) notices in form and substance substantially similar to that attached hereto as Exhibit G and that have been approved by Purchaser in its reasonable discretion (each a “ Preferential Right Notice ”), to the holders of any Preferential Rights set forth on Schedule 5.12 in compliance with the terms of such rights and requesting waivers of such rights. With respect to each Consent (other than a Customary Post-Closing Consent) or Preferential Right that is not set forth on Schedule 5.12 but is discovered by Seller prior to Closing, as soon as reasonably practicable after discovery of any such Preferential Right or Consent, Seller shall prepare and send (A) a Consent Request Notice to the holders of any such Consents in compliance with the terms of such consents and requesting consents to the Conveyance and, to the extent applicable, an express waiver of any provision that would require the assignment of the applicable Asset subject to such Consent to be delayed until after the Closing Date, and (B) a Preferential Right Notice to the holders of any such Preferential Rights in compliance with the terms of such rights and requesting waivers of such rights. Seller shall provide Purchaser with a copy of all notices sent to applicable Preferential Right and Consent holders. Seller shall use commercially reasonable efforts to cause such Consents and waivers of Preferential Rights (or the exercise thereof) required to be requested pursuant to this Section 3.5(a) to be obtained and delivered prior to Closing. Purchaser shall cooperate with Seller in seeking to obtain such Consents and waivers of Preferential Rights, including providing reasonably requested financial and other information, and for the avoidance of doubt Purchaser shall not be permitted to (I) take any action intended to frustrate the receipt of any Consent or waiver or (II) to cause any contract or agreement to become an Excluded Asset by refusing to take assignment thereof or refusing to grant any Consent or waiver.
(b)      Any Preferential Right must be exercised subject to all terms and conditions set forth in this Agreement. The consideration payable under this Agreement for any particular Asset for purposes of Preferential Right notices shall be the Allocated Value for such Asset.
(c)      (i) If any Preferential Right is exercised prior to Closing, or (ii) if prior to the Closing, the time period in which the holder of a Preferential Right has the right to exercise such Preferential Right has not yet expired and such holder has not waived such Preferential Right, then, in each case (A) the Assets subject to such Preferential Right shall be excluded from the Assets to be conveyed to Purchaser at Closing, (B) the Purchase Price shall be adjusted downward by the Allocated Values of the Assets so excluded and (C) subject to Section 3.5(d) , such Assets so excluded shall become Excluded Assets for all purposes hereunder.
(d)      With respect to any Preferential Right described in Section 3.5(c)(i) or Section 3.5(c)(ii) above (i) if for any reason (A) the purchase and sale of the Assets covered by such Preferential Right is not or cannot be consummated with the holder of such Preferential Right in accordance with the instrument under which such Preferential Right arises, or (B) the holder of the Preferential Right is unable to satisfy the conditions to closing contained therein, or (ii) the period in which to exercise such Preferential Right has expired without the exercise thereof, then, in each

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case, Seller shall promptly notify Purchaser and, if less than 180 days have elapsed since the Closing Date, then, within ten (10) Business Days after Purchaser’s receipt of such notice, the Parties shall conduct an additional closing whereby Seller shall sell, assign and convey to Purchaser, and Purchaser shall purchase and accept from Seller, such previously Excluded Assets (1) for the amount by which the Purchase Price was reduced at the initial Closing with respect to such Excluded Assets (subject to any applicable adjustments contained in Section 2.2 with respect to such Excluded Assets and any applicable closing conditions), (2) pursuant to an instrument in substantially the same form as the Conveyance, except the “Closing Date” with respect to any such Excluded Asset shall mean the date of assignment of such Excluded Asset from Seller to Purchaser, and (3) thereafter, such previously Excluded Assets shall become Assets for all purposes hereunder.
(e)      All Assets for which any applicable Preferential Right has been waived, or as to which the period to exercise the applicable Preferential Right has expired without the applicable Preferential Right having been validly exercised, in each case, prior to Closing, shall be transferred to Purchaser at Closing pursuant to the provisions of this Agreement. With respect to any Preferential Right, until the Assets subject to such Preferential Right are transferred to Purchaser pursuant to the provisions of this Agreement, Seller shall control any dispute between Seller and a holder of a Preferential Right with respect to such Preferential Right.
(f)      If Seller fails to obtain a Consent prior to Closing and (i) the failure to obtain such Consent would cause (A) the assignment of the Assets affected thereby to Purchaser to be void or voidable, (B) the termination of (or the right to terminate) a Lease or other Asset under the express terms thereof, or (C) any material Liability to the transferee of such Asset, (ii) the Consent requested by Seller is denied in writing, or (iii) the Consent is required from a Governmental Authority (other than a Customary Post-Closing Consent), (x) the Assets subject to or otherwise affected by such Consent shall be excluded from the Assets to be conveyed to Purchaser at Closing, (y) the Purchase Price shall be adjusted downward by the Allocated Values of the Assets so excluded and (z) subject to Section 3.5(g) , such Assets so excluded shall become Excluded Assets for all purposes hereunder; provided however that, notwithstanding the foregoing, Purchaser may elect, by written notice to Seller prior to Closing, to receive an assignment of such affected Assets (including all Assets subject to or otherwise affected by such Consent), and such Assets shall be assigned to Purchaser at Closing and shall not be Excluded Assets, and Purchaser shall indemnify Seller for all Liabilities arising out of such assignment as if such Liabilities were Assumed Obligations hereunder .
(g)      In the event that any such Consent (with respect to an Asset excluded pursuant to Section 3.5(f) ) that was not obtained prior to Closing is obtained, Seller shall promptly notify Purchaser and, if less than 270 days have elapsed since the Closing Date, then, within ten (10) Business Days after Purchaser’s receipt of such notice, the Parties shall conduct an additional closing whereby Seller shall sell, assign and convey to Purchaser, and Purchaser shall purchase and accept from Seller, such previously Excluded Assets (1) for the amount by which the Purchase Price was reduced at the initial Closing with respect to such Excluded Assets (subject to any applicable adjustments contained in Section 2.2 with respect to such Excluded Assets and any applicable closing conditions), (2) pursuant to an instrument in substantially the same form as the Conveyance, except the “Closing Date” with respect to any such Excluded Asset shall mean the date of assignment

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of such Excluded Asset from Seller to Purchaser, and (3) thereafter, such previously Excluded Assets shall become Assets for all purposes hereunder.
(h)      If Seller fails to obtain a Consent prior to Closing and (i) the failure to obtain such Consent would not cause (A) the assignment of the Asset (or portion thereof) affected thereby to Purchaser to be void or voidable, (B) the termination of (or the right to terminate) a Lease or other Asset under the express terms thereof, or (C) any material Liability to the transferee of such Asset, (ii) such Consent requested by Seller is not denied in writing by the holder thereof, and (iii) such Consent is not required from a Governmental Authority (or is a Customary Post-Closing Consent) then, the Asset (or portion thereof) subject to such un-obtained Consent shall nevertheless be assigned by Seller to Purchaser at Closing as part of the Assets.
(i)      Prior to Closing, Seller shall use its commercially reasonable efforts to obtain all Consents required to be requested pursuant to this Section 3.5 and waivers of all Preferential Rights; in addition, following the Closing, Seller agrees to use its commercially reasonable efforts to cooperate with Purchaser to obtain any Consents and waivers of Preferential Rights that were not obtained prior to Closing, regardless of whether or not the affected Assets were excluded from the transactions at Closing.
(j)      If a Consent has not been obtained prior to Closing and Seller has otherwise complied with the provisions of this Section 3.5 , Purchaser shall have no claim against Seller and Seller shall have no Liability for the failure to obtain such Consent; provided, that, upon the agreement of the Parties, the Parties shall have executed and delivered such instruments and taken such other actions as the Parties may mutually agree to carry out the intent of this Agreement and the transfer of the benefits and burdens of such Assets to Purchaser. Such instruments and actions may include the execution of back-to-back agreements to effect the transfer to Purchaser of the benefits and burdens of such Assets which Seller is obligated to perform and/or is entitled to receive, as applicable (provided that entering into such back-to-back agreements is not impracticable or does not: (x) result in a breach of any obligations under any such Assets, (y) result in a violation of Law or (z) impose a burden on Seller or Purchaser disproportionate to the benefit received by Purchaser under such Asset). In any such back-to-back agreement (whether in writing or otherwise), (i) Seller shall continue to be bound thereby and (ii) (A) Seller shall, without further consideration therefor, pay, assign and remit to Purchaser promptly all monies, rights and other considerations received in respect of such Asset, (B) Seller shall continue to operate the Assets in compliance with Section 7.3 , (C) Seller shall promptly exercise or exploit the beneficial rights and options of Purchaser under such Asset at Purchaser’s request and expense, (D) if and when any such Consent shall be obtained or such an Asset shall otherwise become assignable, Seller shall promptly assign, in a manner consistent with Section 2.1 , its rights and obligations under such Asset to Purchaser and Purchaser shall, without the payment of any further consideration therefor (if the Purchase Price was not reduced at the initial Closing with respect to such Asset) or in exchange for the payment by Purchaser of the amount by which the Purchase Price was reduced at the initial Closing with respect to such Excluded Asset (subject to any applicable adjustments contained in Section 2.2 with respect to such Excluded Asset), assume such rights and obligations, and (E) Purchaser shall perform and discharge fully all of the obligations of Seller thereunder after the Effective Time and indemnify Seller for all Liabilities arising out of such performance by

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Purchaser as if such obligations and Liabilities were Assumed Obligations hereunder; provided, however, Purchaser shall not be required to indemnify Seller to the extent any such Liability arises from, or is attributable to (1) the gross negligence or willful misconduct of any Seller Indemnified Party or (2) Seller’s breach of any provision of this Section 3.5(j) . To the extent that Seller is unable to assign an Asset with respect to which the Parties have elected that this Section 3.5(j) applies, the Parties shall use commercially reasonable efforts to continue to seek the Consent applicable to such Asset until the earlier of (I) the third anniversary of the Closing Date or (II) the date such Asset terminates in accordance with its terms or otherwise at the direction of Purchaser.
Section 3.6      Casualty or Condemnation Loss .
(a)      From the Execution Date until Closing, Seller shall provide written notice to Purchaser of any (i) physical damage to a Well or any Equipment, and any Environmental Defect resulting therefrom or arising in connection therewith, that occurs and (A) is not the result of normal wear and tear, mechanical failure or gradual structural deterioration of materials, equipment, and infrastructure, or reservoir changes or depletion due to normal production (including (1) failures arising or occurring during drilling or completing operations, (2) junked or lost holes, or (3) sidetracking or deviating a well), and (B) is a result of acts of God, fire, explosion, pipeline or gathering line failure, earthquake, hurricane, tropical storm, tropical depression, storm, windstorm or blowout or (ii) any condemnation or other taking related to any Asset that occurs (each, a “ Casualty Loss ”) (provided that Casualty Loss shall not include any physical damage related to Decommissioning and NORM). Such written notice shall be provided promptly upon Seller becoming aware of any Casualty Loss and shall include, to the extent known by Seller at such time, (I) a reasonably detailed description of the events leading to such Casualty Loss, (II) a description of the Equipment and/or Wells affected by such Casualty Loss and (III) Seller’s estimate of the costs to repair or replace the Equipment and/or Wells affected by such Casualty Loss.
(b)      From the Execution Date until Closing, should any Property suffer a Casualty Loss in an amount that exceeds Five Million Dollars ($5,000,000), net to Seller’s interest in the applicable Property, then (subject to Section 8.1 , Section 8.2 and Section 10.1 ) Purchaser shall nevertheless be required to proceed to Closing and Seller may elect by written notice to Purchaser prior to Closing to either (A) require Seller, at Seller’s sole cost, expense and Liability (to the extent Purchaser does not otherwise own an interest in such Property), to repair or restore (or cause to be repaired or restored, including debris and wreck removal to the extent required by applicable Law) any such Property affected by such Casualty Loss to a quality and condition comparable to that existing with respect to such Property immediately before such Casualty Loss, as promptly as reasonably practicable (which work may extend after the Closing Date, so long as Seller is diligently pursuing such repairs or restoration activities but not longer than one hundred eighty (180) Days after the Closing Date unless mutually acceptable to the Parties), (B) reduce the Purchase Price by an amount that would be necessary to repair or restore (or cause to be repaired or restored, including debris and wreck removal to the extent required by applicable Law) any such Property affected by such Casualty Loss to a quality and condition comparable to that existing with respect to such Equipment or Well immediately before such Casualty Loss, or (C) (I) cause the Property affected by such Casualty Loss to be excluded from the Assets to be conveyed to Purchaser at Closing, (II)

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have such excluded Asset (or portion thereof) to be an “Excluded Asset” for all purposes hereunder, and (III) reduce the Purchase Price by the Allocated Value of such Excluded Asset.
(c)      Seller and Purchaser shall attempt to agree on the amount of the costs and expenses associated with Casualty Losses prior to Closing. If Seller and Purchaser are unable to reach an agreement by Closing, then a numerical average of Purchaser’s good faith estimate and Seller’s good faith estimate thereof shall be used at the Closing and either Party may initiate binding arbitration in accordance with Section 4.2(g) within the 10-day period following the Closing Date to resolve the amount of the costs and expenses associated with Casualty Losses.
ARTICLE 4. ENVIRONMENTAL DEFECTS
Section 4.1      Definition of Environmental Defect .
(a)      As used in this Agreement, the term “ Environmental Defect ” means an individual existing condition of an Asset or of the soil, sub-surface, surface waters, groundwaters, sea, seafloor, atmosphere, natural resources or other environmental medium, wherever located, associated with the ownership or operation of an Asset (including the presence or release of waste, Hazardous Substances or Hydrocarbons), that, in each case (i) is not in compliance with (or causes Seller, with respect to an Asset, not to be in compliance with) Environmental Laws or with the terms of the Leases, Easements, Permits or Contracts, (ii) relates to any environmental pollution, contamination, degradation, damage or injury caused by or associated with an Asset for which Remediation or other corrective action is required, or (iii) otherwise requires or would require, if known (A) reporting to a Governmental Authority, and/or (B) investigation or Remediation in accordance with Environmental Laws or under the terms of the Leases, Easements, Permits or Contracts, provided that an “Environmental Defect” shall not include NORM or Decommissioning (except to the extent constituting a violation of Environmental Laws related to on-going or previous Decommissioning activities), and shall not include any condition which would otherwise be an Environmental Defect to the extent such condition affects an Asset operated by Purchaser or one of its Affiliates and (x) such condition arose prior to the Execution Date, or (y) such condition was caused by the gross negligence or willful misconduct of Purchaser or its Affiliates.
(b)      As used in this Agreement, the term “ Environmental Laws ” means all Laws, including common law, and relating to the protection of the environment, natural resources, or threatened or endangered species, pollution, or its impacts on human health or safety, including the following federal statutes (and any regulations promulgated pursuant thereto), all as amended: the Comprehensive Environmental Response, Compensation and Liability Act, the Clean Water Act, the Clean Air Act, the Marine Mammal Protection Act, the Endangered Species Act, the Outer Continental Shelf Lands Act (to the extent related to Hazardous Substances), the Federal Water Pollution Control Act, the Clean Air Act, the Hazardous Materials Transportation Act, the Toxic Substances Control Act, the Oil Pollution Act, the Emergency Planning and Community Right-to-Know Act, the Safe Drinking Water Act and the National Environmental Policy Act and all applicable related Laws of any Governmental Authority having jurisdiction over the property in question addressing pollution or the environment and all regulations implementing the foregoing. The term “Environmental Laws” does not include good or desirable operating practices or standards that may

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be employed or adopted by other oil and gas well operators or recommended by a Governmental Authority.
(c)      As used in this Agreement, the term “ Hazardous Substances ” means any pollutants, contaminants, toxic or hazardous or extremely hazardous substances, materials, wastes, constituents, compounds or chemicals that are regulated by, or may form the basis of Liability under, any Environmental Laws, including NORM and other substances referenced in Section 4.2(h) and any released Hydrocarbons.
(d)      As used in this Agreement, the terms “ Remediation ” or “ Remediate ” mean, with respect to an Environmental Defect, the implementation and completion of any remedial, removal, response, construction, closure, disposal, restoration or other corrective actions, including monitoring, required under Environmental Laws to correct or remove such Environmental Defect or under the terms of the Leases, Easements, Permits or Contracts, using the most cost-effective response that would be selected by a reasonable and prudent operator and that is reasonably expected to appropriately address such requirement.
(e)      As used in this Agreement, the term “ Remediation Amount ” means, with respect to an Environmental Defect the cost of the Remediation of such Environmental Defect, net to Seller’s interest.
Section 4.2      Notice of Environmental Defects; Defect Adjustments .
(a)      To assert a claim associated with any Environmental Defect, Purchaser must deliver a claim notice to Seller on or before the Claim Date. Such notice shall be in writing and shall include (i) a description of the matter constituting the alleged Environmental Defect(s), (ii) the Assets affected (the “ Environmental Defect Property ”), (iii) a calculation of the Remediation Amount that Purchaser asserts is attributable to such alleged Environmental Defect(s), (iv) the Allocated Value of the applicable Environmental Defect Property and (v) such supporting documentation as is in Purchaser’s control or possession and reasonably necessary for Seller to verify the existence of the alleged Environmental Defect. Except as indicated otherwise in Section 4.2(d) , Purchaser shall be deemed to have waived all Environmental Defects of which Seller has not been given notice under this Section 4.2(a) on or before the Claim Date.
(b)      Seller shall have the right, but not the obligation, to attempt, at its sole cost, to Remediate on or before the Closing Date any Environmental Defects of which it has been notified by Purchaser.
(c)      Subject to Seller’s continuing right to dispute the existence of such Environmental Defect and/or the Remediation Amount asserted with respect thereto, with respect to each Environmental Defect Property reported under Section 4.2(a) and not cured prior to the Closing Date pursuant to Section 4.2(b) , such Environmental Defect Property shall, by the mutual agreement of the Parties, either (i) be assigned at Closing subject to all such uncured Environmental Defects and the Purchase Price shall be reduced by an amount for such Environmental Defect Property by the Remediation Amount, or (ii) be retained by Seller, in which case, (A) such Assets shall be excluded from the Assets conveyed to Purchaser at Closing, (B) such Assets shall become

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“Excluded Assets” for all purposes hereunder, and (C) the Purchase Price shall be reduced by the Allocated Values of all such Excluded Assets, provided, that if the Parties are unable to mutually agree to any such remedy, then (I) if the Remediation Amount is less than Fifty Million Dollars ($50,000,000), the Parties shall be deemed to have selected the option in subsection (i) above, or (II) if the Remediation Amount is greater than or equal to Fifty Million Dollars ($50,000,000), the Parties shall be deemed to have selected the option in subsection (ii) above.
(d)      Subject to Section 3.6 , Section 5.6 , Section 5.14 (to the extent, and only to the extent, related to any Wells that are not set forth on Exhibit A-2 ) and Article 11 , Section 4.2(c) shall, to the fullest extent permitted by applicable Laws, be the exclusive right and remedy of Purchaser with respect to Environmental Defects; provided, however , that Purchaser hereby waives any and all rights and remedies, and Seller shall not have any obligations under this Agreement (including under Section 5.6 , Section 5.14 and Article 11 ) with respect to any Environmental Defects or other environmental condition to the extent (i) existing prior to the Claim Date, (ii) Purchaser had knowledge thereof on or prior to the Claim Date, and (iii) not asserted by Purchaser pursuant to the procedures set forth in this Section 4.2 (and, for the avoidance of doubt, Purchaser’s rights and remedies, and Seller’s obligations, for any Environmental Defect or other environmental condition asserted by Purchaser pursuant to the procedures set forth in this Section 4.2 on or prior to the Claim Date shall be limited to those set forth in this Section 4.2 ).
(e)      Notwithstanding anything to the contrary in this Article 4 , in no event shall there be any adjustments to the Purchase Price or other remedies provided by Seller for any Environmental Defect Property for which the aggregate Remediation Amount(s) relating thereto do not exceed Three Hundred Fifty Thousand Dollars ($350,000) (the “ Individual Environmental Threshold ”), and then only to the extent the aggregate amount of all Remediation Amounts of all Environmental Defects that exceed the Individual Environmental Threshold, but excluding any Remediation Amount attributable to any Environmental Defects cured by Seller prior to the Closing, exceeds Ten Million Dollars ($10,000,000) (the “ Environmental Defect Deductible ”), after which point any adjustments to the Purchase Price for such Environmental Defects shall be applicable only with respect to the Remediation Amounts attributable to such Environmental Defects that are in excess of the Environmental Defect Deductible.
(f)      The Remediation Amount with respect to an Environmental Defect Property shall be determined without duplication of any costs or losses (i) included in another Remediation Amount hereunder, (ii) included in any remedy for a Casualty Loss under Section 3.6 , or (iii) for which Purchaser otherwise receives credit in the calculation of the Adjusted Purchase Price.
(g)      Seller and Purchaser shall attempt to agree on the existence of Environmental Defects, any Remediation matters and all Remediation Amounts by three (3) Business Days prior to the Closing Date. If Seller and Purchaser are unable to agree by that date, a numerical average of Purchaser’s good faith estimate and Seller’s good faith estimate shall be used to determine the Closing Payment pursuant to Section 9.4(a) , and the Environmental Defects, Remediation matters and Remediation Amounts in dispute shall be exclusively and finally resolved by arbitration pursuant to this Section 4.2(g) . During the 10-day period following the Closing Date, Environmental Defects,

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Remediation matters and Remediation Amounts in dispute shall be submitted to an environmental consultant with at least ten (10) years’ experience in Gulf of Mexico oil and gas environmental issues as selected by mutual agreement of Purchaser and Seller or absent such agreement during the 10-day period, by the Houston, Texas office of the American Arbitration Association (the “ Environmental Arbitrator ”). The arbitration proceeding shall be held in Houston, Texas and shall be conducted in accordance with the Commercial Arbitration Rules of the American Arbitration Association, to the extent such rules do not conflict with the terms of this Section. The Environmental Arbitrator’s determination shall be made within thirty (30) days after submission of the matters in dispute and shall be final and binding upon both Parties, without right of appeal. In making his determination, the Environmental Arbitrator shall be bound by the rules set forth in Section 4.1 and Section 4.2 and may consider such other matters as in the opinion of the Environmental Arbitrator are necessary or helpful to make a proper determination. Additionally, the Environmental Arbitrator may consult with and engage disinterested third parties to advise the arbitrator, including environmental attorneys from other states and petroleum engineers. In no event shall any Remediation Amount exceed the estimate given by Purchaser in its claim notice delivered in accordance with Section 4.2(a) . The Environmental Arbitrator shall act as an expert for the limited purpose of determining the existence of any Environmental Defect, the effect of any disputed Remediation matters, or the specific disputed Remediation Amounts submitted by either Party and may not award damages, interest or penalties to either Party with respect to any matter. Seller and Purchaser shall each bear its own legal fees and other costs of presenting its case. Each Party shall bear one-half of the costs and expenses of the Environmental Arbitrator.
(h)      NORM, Wastes and Other Substances . Purchaser acknowledges that the Properties have been used for exploration, development, and production of oil and gas and that there may be petroleum, produced water, wastes or other substances or materials located in, on or under the Properties or associated with the Properties. Equipment and sites included in the Properties may contain asbestos, NORM or other Hazardous Substances. NORM may affix or attach itself to the inside of wells, materials and equipment as scale, or in other forms. The wells, materials and equipment located on the Properties or included in the Properties may contain NORM and other wastes or Hazardous Substances. NORM containing material and/or other wastes or Hazardous Substances may have come in contact with various environmental media, including water, soils or sediment. Special procedures may be required for the assessment, remediation, removal, transportation, or disposal of environmental media, wastes, asbestos, NORM and other Hazardous Substances from the Properties.
ARTICLE 5. REPRESENTATIONS AND WARRANTIES OF SELLER
Section 5.1      Disclaimers .
%3. Except as and to the extent expressly set forth in Section 3.1(a) and this Article 5 or in the certificate of Seller to be delivered pursuant to Section 9.2(i) or in the Conveyance, Purchaser acknowledges and agrees that (i) Seller makes no representations or warranties, express or implied, and (ii) Seller expressly disclaims all Liability and responsibility for any representation, warranty, statement or information made or communicated (orally or in writing) to Purchaser or any of its Affiliates, employees, agents, consultants or representatives (including any opinion,

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information, projection or advice that may have been provided to Purchaser by any officer, director, employee, agent, consultant, Representative or advisor of Seller or any of its Affiliates), and Purchaser irrevocably waives (on behalf of itself, its Affiliates and their successors and assigns) any and all Liabilities it or they may have against Seller or its Affiliates associated with the same .
(a)      EXCEPT AS EXPRESSLY REPRESENTED OTHERWISE IN SECTION 3.1(a) OR THIS ARTICLE 5 OR IN THE CERTIFICATE OF SELLER TO BE DELIVERED AT CLOSING PURSUANT TO SECTION 9.2(i) OR IN THE CONVEYANCE, WITHOUT LIMITING THE GENERALITY OF THE FOREGOING, PURCHASER ACKNOWLEDGES AND AGREES THAT SELLER EXPRESSLY DISCLAIMS ANY REPRESENTATION OR WARRANTY, EXPRESS OR IMPLIED, WITH RESPECT TO THE ASSETS, INCLUDING AS TO (i) TITLE TO ANY OF THE ASSETS, (ii) THE CONTENTS, CHARACTER OR NATURE OF ANY DESCRIPTIVE MEMORANDUM, OR ANY REPORT OF ANY PETROLEUM ENGINEERING CONSULTANT, OR ANY GEOLOGICAL OR SEISMIC DATA OR INTERPRETATION, RELATING TO THE ASSETS, (iii) THE QUANTITY, QUALITY OR RECOVERABILITY OF PETROLEUM SUBSTANCES IN OR FROM THE ASSETS, (iv) ANY ESTIMATES OF THE VALUE OF THE ASSETS OR FUTURE REVENUES GENERATED BY THE ASSETS, (v) THE PRODUCTION OF PETROLEUM SUBSTANCES FROM THE ASSETS, OR WHETHER PRODUCTION HAS BEEN CONTINUOUS, OR IN PAYING QUANTITIES, (vi) THE MAINTENANCE, REPAIR, CONDITION, QUALITY, SUITABILITY, DESIGN OR MARKETABILITY OF THE ASSETS, OR (vii) ANY OTHER MATERIALS OR INFORMATION THAT MAY HAVE BEEN MADE AVAILABLE OR COMMUNICATED TO PURCHASER OR ITS AFFILIATES, OR ITS OR THEIR EMPLOYEES, AGENTS, CONSULTANTS, REPRESENTATIVES OR ADVISORS IN CONNECTION WITH THE TRANSACTIONS CONTEMPLATED BY THIS AGREEMENT OR ANY DISCUSSION OR PRESENTATION RELATING THERETO, AND FURTHER DISCLAIMS ANY REPRESENTATION OR WARRANTY, EXPRESS OR IMPLIED, OF MERCHANTABILITY, FITNESS FOR A PARTICULAR PURPOSE OR CONFORMITY TO MODELS OR SAMPLES OF MATERIALS OF ANY EQUIPMENT, IT BEING EXPRESSLY UNDERSTOOD AND AGREED BY THE PARTIES HERETO THAT PURCHASER HAS MADE OR CAUSED TO BE MADE SUCH INSPECTIONS AS PURCHASER DEEMS APPROPRIATE. EXCEPT AS EXPRESSLY REPRESENTED OTHERWISE IN SECTION 3.1(a) OR THIS ARTICLE 5 OR IN THE CERTIFICATE OF SELLER TO BE DELIVERED AT CLOSING PURSUANT TO SECTION 9.2(i) OR IN THE CONVEYANCE OR AS OTHERWISE SET FORTH IN ARTICLE 11 , WITHOUT LIMITING THE GENERALITY OF THE FOREGOING, PURCHASER ACKNOWLEDGES AND AGREES THAT THE ASSETS ARE BEING ASSIGNED AND CONVEYED TO PURCHASER “AS-IS, WHERE-IS,” WITH ALL FAULTS AND DEFECTS IN THEIR PRESENT CONDITION AND STATE OF REPAIR, WITHOUT RECOURSE.
(b)      PURCHASER EXPRESSLY WAIVES THE WARRANTY OF FITNESS FOR INTENDED PURPOSES OR GUARANTEE AGAINST HIDDEN OR LATENT REDHIBITORY VICES UNDER LOUISIANA LAW, INCLUDING LOUISIANA CIVIL CODE ARTICLES 2520 THROUGH 2548, AND THE WARRANTY IMPOSED BY LOUISIANA CIVIL CODE ARTICLE 2475; WAIVES ALL RIGHTS IN REDHIBITION PURSUANT TO

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LOUISIANA CIVIL CODE ARTICLES 2520, ET SEQ.; OR FOR RESTITUTION OR OTHER DIMINUTION OF THE PURCHASE PRICE; ACKNOWLEDGES THAT THIS EXPRESS WAIVER SHALL BE CONSIDERED A MATERIAL AND INTEGRAL PART OF THIS SALE AND THE CONSIDERATION THEREOF; AND ACKNOWLEDGES THAT THIS WAIVER HAS BEEN BROUGHT TO THE ATTENTION OF PURCHASER AND EXPLAINED IN DETAIL AND THAT PURCHASER HAS VOLUNTARILY AND KNOWINGLY CONSENTED TO THIS WAIVER.
(c)      IT IS THE INTENTION OF THE PARTIES THAT PURCHASER'S RIGHTS AND REMEDIES WITH RESPECT TO THIS TRANSACTION AND WITH RESPECT TO ALL ACTS OR PRACTICES OF SELLER, PAST, PRESENT OR FUTURE, IN CONNECTION WITH THIS TRANSACTION SHALL BE GOVERNED BY LEGAL PRINCIPLES OTHER THAN THE TEXAS DECEPTIVE TRADE PRACTICES--CONSUMER PROTECTION ACT, TEX. BUS. & COM. CODE ANN. § 17.41 ET SEQ. (THE “ DTPA ”) OR THE LOUISIANA UNFAIR TRADE PRACTICES AND CONSUMER PROTECTION LAW, LA. R.S. 51:1402, ET SEQ. (THE “ UTPCPL ”). AS SUCH, PURCHASER HEREBY WAIVES THE APPLICABILITY OF THE DTPA AND THE UTPCPL TO THIS TRANSACTION AND ANY AND ALL DUTIES, RIGHTS OR REMEDIES THAT MIGHT BE IMPOSED BY THE DTPA AND/OR THE UTPCPL, WHETHER SUCH DUTIES, RIGHTS AND REMEDIES ARE APPLIED DIRECTLY BY THE DTPA OR THE UTPCPL ITSELF OR INDIRECTLY IN CONNECTION WITH OTHER STATUTES; PROVIDED, HOWEVER, PURCHASER DOES NOT WAIVE § 17.555 OF THE DTPA. PURCHASER ACKNOWLEDGES, REPRESENTS AND WARRANTS THAT IT IS PURCHASING THE GOODS AND/OR SERVICES COVERED BY THIS AGREEMENT FOR COMMERCIAL OR BUSINESS USE; THAT IT HAS ASSETS OF $5 MILLION OR MORE ACCORDING TO ITS MOST RECENT FINANCIAL STATEMENT PREPARED IN ACCORDANCE WITH GENERALLY ACCEPTED ACCOUNTING PRINCIPLES; THAT IT HAS KNOWLEDGE AND EXPERIENCE IN FINANCIAL AND BUSINESS MATTERS THAT ENABLE IT TO EVALUATE THE MERITS AND RISKS OF A TRANSACTION SUCH AS THIS; AND THAT IT IS NOT IN A SIGNIFICANTLY DISPARATE BARGAINING POSITION WITH SELLER.
(d)      The Parties hereby waive compliance with the provisions of any bulk sales, bulk transfer or similar Laws of any jurisdiction that may otherwise be applicable with respect to the sale of any or all of the Assets to Purchaser.
(e)      Any representation (i) “to the knowledge of Seller” or “to Seller’s knowledge” is limited to matters within the actual knowledge (with duty of Due Inquiry) of the Persons listed on Schedule 5.1(f)(i) , or (ii) “to the knowledge of Purchaser” or “to Purchaser’s knowledge” is limited to matters within the actual knowledge (with duty of Due Inquiry) of Persons listed on Schedule 5.1(f)(ii) .
(f)      “ Due Inquiry ” means (i) with respect to any matter relating to any Asset for which such Party or its Affiliates does not serve as operator thereof, reasonable inquiry of the operator of such Assets, and (ii) with respect to any other matter, reasonable inquiry by each Person listed on Schedule 5.1(f)(i) or Schedule 5.1(f)(ii) , as applicable, of such Person’s directly reporting

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subordinate personnel who would be reasonably expected to have knowledge of the relevant subject matter.
(g)      “ Material Adverse Effect ” means any change, effect, event, occurrence, condition or fact (for the purposes of this definition, each, an “event”) (whether foreseeable or not and whether covered by insurance or not) that has had or would be reasonably likely to have, individually or in the aggregate with any other event or events, a material adverse effect (i) on the ownership, operation or financial condition of the Assets, taken as a whole as currently operated as of the Execution Date or (ii) upon the ability of Seller to consummate the transactions contemplated in this Agreement; provided, however, that Material Adverse Effect shall not include such material adverse effects resulting from: (A) entering into this Agreement or the announcement or consummation of the transactions contemplated by this Agreement, including the identity of Purchaser; (B) changes generally affecting the international, national, regional or local general market, economic, financial or political conditions (including changes in commodity prices, fuel supply or transportation markets, or interest rates) in the United States, in the area in which the Properties are located or worldwide, or in the energy industry, provided that such changes do not disproportionately affect the Assets relative to similar assets located in the same region as the Assets; (C) civil unrest, any outbreak or spread of disease or hostilities, terrorist activities or war or any similar disorder; (D) reclassifications or recalculations of reserves in the ordinary course of business; (E) natural declines in well performance, (F) actions taken or omitted to be taken by Seller with the consent of Purchaser pursuant to this Agreement, (G) actions taken as required by this Agreement, (H) changes which are cured in full (including by the payment of money) before the earlier of the Closing or the termination of this Agreement under Article 10 , in each case, without any cost to Purchaser except as provided in this Agreement, (I) changes in the value of Purchaser’s securities resulting from entering into this Agreement or the announcement of the transactions contemplated by this Agreement, (J) changes in Law or the interpretation thereof or changes in GAAP or the interpretation thereof and (K) matters to the extent a purchase price adjustment is provided for under Section 2.2 .
(h)      Subject to the foregoing provisions of this Section 5.1 , and the other terms and conditions of this Agreement, Seller represents and warrants to Purchaser the matters set out in Sections 5.2 through 5.28 .
Section 5.2      Existence and Qualification .
(a)      Organization .
(i)      FMOG is a limited liability company duly organized, validly existing and in good standing under the Laws of the State of Delaware, and is duly qualified to do business as a foreign limited liability company in good standing in each jurisdiction in which it is required to qualify in order to conduct its business, except where the failure to be so qualified would not, individually or in the aggregate, have a Material Adverse Effect. FMOG is qualified under Law to own and operate the Assets owned and/or operated by FMOG, as applicable, and in particular, FMOG is qualified pursuant to the rules and regulations of BOEM and BSEE to own and operate federal oil and gas leases in the Outer Continental Shelf, Gulf of Mexico, and is in good standing with, authorized by and qualified with all

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Governmental Authorities with jurisdiction or cognizance over operations on the Outer Continental Shelf, Gulf of Mexico, to the extent Seller is required by such authorities to so qualify and maintain good standing, except where failure to be so qualified or to be in good standing would not, individually or in the aggregate, have a Material Adverse Effect.
(ii)      FMEP is a limited liability company duly organized, validly existing and in good standing under the Laws of the State of Delaware, and is duly qualified to do business as a foreign limited liability company in good standing in each jurisdiction in which it is required to qualify in order to conduct its business, except where the failure to be so qualified would not, individually or in the aggregate, have a Material Adverse Effect. FMEP is qualified under Law to own and operate the Assets owned and/or operated by FMEP, as applicable, and in particular, FMEP is qualified pursuant to the rules and regulations of BOEM and BSEE to own and operate federal oil and gas leases in the Outer Continental Shelf, Gulf of Mexico, and is in good standing with, authorized by and qualified with all Governmental Authorities with jurisdiction or cognizance over operations on the Outer Continental Shelf, Gulf of Mexico, to the extent Seller is required by such authorities to so qualify and maintain good standing, except where failure to be so qualified or to be in good standing would not, individually or in the aggregate, have a Material Adverse Effect.
(iii)      POOI is a corporation duly organized, validly existing and in good standing under the Laws of the State of Delaware and is duly qualified to do business as a foreign corporation in good standing in each jurisdiction in which it is required to qualify in order to conduct its business, except where the failure to be so qualified would not, individually or in the aggregate, have a Material Adverse Effect. POOI is qualified under Law to own the Assets owned by POOI, and in particular, POOI is qualified pursuant to the rules and regulations of BOEM and BSEE to own federal oil and gas leases in the Outer Continental Shelf, Gulf of Mexico, and is in good standing with, authorized by and qualified with all Governmental Authorities with jurisdiction or cognizance over operations on the Outer Continental Shelf, Gulf of Mexico, to the extent Seller is required by such authorities to so qualify and maintain good standing, except where failure to be so qualified or to be in good standing would not, individually or in the aggregate, have a Material Adverse Effect.
(b)      Power . Each of FMOG, FMEP and POOI has the company or corporate power, as applicable, to enter into and perform this Agreement (and all documents required to be executed and delivered by such Seller at Closing) and to consummate the transactions contemplated by this Agreement (and such documents).
(c)      Authorization and Enforceability . The execution, delivery and performance of this Agreement (and all documents required to be executed and delivered by any Seller at Closing) and the consummation of the transactions contemplated hereby and thereby, have been duly and validly authorized by all necessary corporate and company action on the part of each Seller. This Agreement has been duly executed and delivered by each Seller (and all documents required to be executed and delivered by any Seller at Closing shall be duly executed and delivered by such Seller) and this Agreement constitutes, and at the Closing such documents shall constitute, the valid and binding obligations of each Seller, enforceable in accordance with their terms except as such

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enforceability may be limited by applicable bankruptcy or other similar Laws affecting the rights and remedies of creditors generally as well as to general principles of equity (regardless of whether such enforceability is considered in a proceeding in equity or at Law).
(d)      No Conflicts . The execution, delivery and performance of this Agreement by each Seller, and the consummation of the transactions contemplated by this Agreement shall not (i) violate any provision of the certificate of incorporation, certificate of formation, bylaws or limited liability company agreement of any Seller, (ii) result in any material default (with due notice or lapse of time or both) or the creation of any Encumbrance (other than a Permitted Encumbrance) or give rise to any right of termination, cancellation or acceleration under any material note, bond, mortgage, indenture, license or agreement to which any Seller is a party or by which it or any of the Assets is bound, (iii) violate any judgment, order, ruling, or decree applicable to any Seller as a party in interest or the Assets, or (iv) violate any Laws applicable to any Seller or any of the Assets.
Section 5.3      Liability for Brokers’ Fees . Purchaser (and each of its Affiliates) shall not directly or indirectly have any responsibility, Liability or expense, as a result of undertakings or agreements of Seller or any of its Affiliates, for brokerage fees, finder’s fees, agent’s commissions or other similar forms of compensation to an intermediary in connection with the negotiation, execution or delivery of this Agreement or any agreement or transactions contemplated hereby.
Section 5.4      Litigation . Except as disclosed on Schedule 5.4 , there are no litigation or arbitral proceedings (a) pending or, to Seller’s knowledge, threatened against Seller or its Affiliates relating to Seller’s ownership or Seller’s operation of the Assets, (b) (i) pending or, to Seller’s knowledge, threatened against the Assets operated by Seller or any of its Affiliates or (ii) to Seller’s knowledge, pending or threatened against the Assets operated by any Third Party, or (c) pending or, to Seller’s knowledge, threatened in writing against Seller that would prevent the consummation of the transactions contemplated by this Agreement Except as disclosed on Schedule 5.4 , Seller has not received any notice of any Liability for breach of contract, tort, or violation of Law with respect to Seller’s ownership or operation of any Property.
Section 5.5      Taxes and Assessments .
(a)      Except as set forth on Schedule 5.5 or as relates to Income Taxes: (i) Seller has timely filed or caused to be timely filed all material Tax Returns required to be filed by Seller under applicable Law with respect to Seller’s acquisition, ownership or operation of the Assets that are due on or prior to the Closing Date, and all such Tax Returns are correct and complete in all material respects; (ii) Seller has timely paid or caused to be timely paid all material Taxes relating or applicable to Seller’s acquisition, ownership or operation of the Assets (including ad valorem, property, production, severance and similar Taxes and assessments based on or measured by the ownership of property or the production of Hydrocarbons or the receipt of proceeds therefrom with respect to the Assets) that are or have become due (whether or not shown on any Tax Return), and Seller is not delinquent in the payment of any such Taxes, (iii) there is not currently in effect any extension or waiver of any statute of limitations of any jurisdiction regarding the assessment or collection of any material Tax of Seller relating to Seller’s acquisition, ownership or operation of the Assets; and (iv) there are no administrative or judicial proceedings pending against the Assets

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or against Seller relating to any material Liability for Taxes of Seller with respect to the Assets by any Taxing Authority.
(b)      There are no Encumbrances on any of the Assets for Taxes (other than Permitted Encumbrances).
(c)      No Asset is subject to any Tax partnership agreement or provisions requiring a partnership income Tax return to be filed under Subchapter K of Chapter 1 of Subtitle A of the Code or any similar state statute.
Section 5.6      Environmenta l . Except as set forth on Schedule 5.6 :
(a)      With respect to the ownership and operation of the Properties, Seller has not entered into, and is not subject to, any agreements, consents, orders, decrees, judgments, license or permit conditions or other directives of any Governmental Authority based on any Environmental Laws that are reasonably expected to (i) have an adverse effect in any material respect on current or future exploration or production activities at or in connection with any of the Assets, or (ii) require any material Remediation, corrective action or other change in the present conditions of any of the Assets;
(b)      Seller has not received written notice from any Person of any release or disposal of Hazardous Substances or Hydrocarbons, or any event, condition, circumstance, activity, practice or incident, in each case, concerning any land, facility, asset or Property included in the Assets (including any alleged violation of Law or Permit) that would be reasonably likely to: (i) interfere with or prevent compliance by Seller or the Assets with any Environmental Law or the terms of any Permit issued pursuant thereto; or (ii) give rise to or result in any common Law or other Liability under applicable Environmental Laws (including any Permits issued pursuant to such Environmental Laws) of Seller to any Person with respect to the Assets;
(c)      Seller has made available, or will make available to Purchaser at least three (3) Business Days prior to the Claim Date, true and complete copies of all (i) material reports and studies prepared at the request of Seller or its Affiliates by Third Parties to the extent (A) in Seller’s or its Affiliates’ possession and control and (B) Seller or its applicable Affiliate is permitted to disclose such report or study (following Seller’s use of commercially reasonable efforts to obtain such permission), and (ii) material written notices received by Seller or its Affiliates from Governmental Authorities (including any requests for information under applicable Environmental Laws), in each case of either clause (i) or (ii) hereof, specifically addressing environmental matters related to the ownership, operation or use of the Assets; and
(d)      Except for any matters that Purchaser has claimed as an Environmental Defect pursuant to Section 4.1 , and except for Decommissioning which is addressed in Section 5.14 , to Seller’s knowledge, there are no material uncured violations of any applicable Environmental Laws with respect to the Assets and no material obligations to Remediate conditions upon the Assets under applicable Environmental Law (and no such obligation would arise as a result of notice or lapse of time or both).

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Section 5.7      Outstanding Capital Commitments . Except as disclosed on Schedule 5.7 , as of the Execution Date, there are no outstanding authorization for expenditures (“ AFEs ”) or other commitments to make capital expenditures which are binding on the Assets and which Seller reasonably anticipates will individually require expenditures after the Effective Time in excess of Two Million Dollars ($2,000,000).
Section 5.8      Compliance with Laws . Except with respect to Environmental Laws and except as disclosed on Schedule 5.8 , (a) Seller and each of its Affiliates have materially complied with all applicable Laws related to the ownership of the Assets, and any applicable anti-corruption, anti-money laundering, anti-terrorism and economic sanction and anti-boycott Laws that could reasonably be expected to affect the Assets and (b) the Assets have been operated, developed, maintained, and used, including the production of all Hydrocarbons attributable thereto, in material compliance with all applicable Laws, provided that subsection (b) shall be qualified by Seller’s knowledge with respect to (i) any Assets for which Seller or any of its Affiliates does not serve as the operator thereof, and (ii) the period prior to Seller’s acquisition of such Assets.
Section 5.9      Contracts .
(a)      Schedule 5.9(a)  sets forth all Contracts of the type described below, other than Leases with respect to the Properties (collectively, the “ Material Contracts ”):
(i)      any Contract that can reasonably be expected to result in aggregate payments by Seller or any Affiliate of Seller of more than Two Million Dollars ($2,000,000) during the current or any subsequent calendar year or Ten Million Dollars ($10,000,000) in the aggregate over the term of such Contract;
(ii)      other than the Designated Contract or any Contract that is a Hydrocarbon purchase and sale, transportation, gathering, treating, processing, dedication or similar Contract, any Contract that can reasonably be expected to result in aggregate revenues to Seller or any Affiliate of Seller of more than Two Million Dollars ($2,000,000) during the current or any subsequent calendar year or Ten Million Dollars ($10,000,000) in the aggregate over the term of such Contract;
(iii)      any Contract that is a Hydrocarbon purchase and sale, transportation, gathering, treating, processing, dedication or similar Contract not terminable upon sixty (60) days or less notice;
(iv)      any Contract that is an indenture, mortgage, loan, credit or sale-leaseback, guarantee of any obligation, bonds, letters of credit or similar financial Contract;
(v)      any Contract that constitutes a lease under which Seller or any Affiliate of Seller is the lessor or the lessee of any real or personal property (including Equipment and Real Property, but not including any of the other Properties) which lease (A) cannot be terminated by Seller without penalty upon sixty (60) days or less notice and (B) involves an annual base rental of more than Two Hundred Fifty Thousand Dollars ($250,000);

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(vi)      other than joint operating agreements, any Contract that constitutes a non-competition agreement or any agreement that purports to restrict, limit or prohibit the manner in which, or the locations in which, Seller or any Affiliate of Seller conducts business, including area of mutual interest Contracts;
(vii)      any Contract that contains calls upon or options to purchase production;
(viii)      any Contract that constitutes swap, forward, future or derivative transaction or option or other similar hedge Contracts;
(ix)      any Contract that provides for a power of attorney with respect to the Assets that will not be terminated prior to the Closing Date;
(x)      any Contract that constitutes a development agreement, participation agreement, farmout agreement, partnership agreement, joint venture agreement or similar Contract (other than Tax partnership agreements);
(xi)      any Contracts for the use or sharing of drilling rigs or for the use of Equipment;
(xii)      any Contract (executory or otherwise) to sell, lease, farmout, or otherwise dispose of or encumber any interest in any of the Assets after the Execution Date, other than conventional rights of reassignment arising in connection with Seller’s surrender or release of any of the Assets, to the extent such rights are not currently applicable;
(xiii)      any Contract that constitutes a joint or unit operating agreement;
(xiv)      any Contract for which the primary purpose is to provide for the indemnification of another Person;
(xv)      any Contract (other than the Properties) that would obligate Purchaser to drill additional wells or conduct other material development operations after the Closing;
(xvi)      subject to Section 7.26(b) , to the extent disclosable to Purchaser, any Contract that is related to Seismic Data described in clause (A) of the definition thereof;  
(xvii)      any Contract with any Affiliate of Seller;
(xviii)      any purchase and sale agreements pursuant to which Seller or its Affiliates acquired (directly or indirectly) the Assets that contain indemnity obligations that will be binding on Purchaser following Closing; and
(xix)      any Contract that constitutes an amendment, supplement, or modification in respect of any of the foregoing .
(b)      With respect to the Material Contracts:

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(i)      each of the Material Contracts is in full force and effect;
(ii)      there exists no material default under any Material Contract by Seller or, to Seller’s knowledge, by any other Person that is a party to such Material Contract or Leases;
(iii)      no event has occurred that upon receipt of notice or lapse of time or both would constitute any material default under any such Contract by Seller or, to Seller’s knowledge, any other Person who is a party to such Material Contract or Leases;
(iv)      to the extent material, Seller has not given nor received any unresolved written notice of default, amendment, waiver, price redetermination, market out, curtailment or termination with respect to any Material Contract or Lease; and
(v)      prior to the execution of this Agreement, Seller has made available to Purchaser true and complete copies of each Material Contract and all amendments thereto.
Section 5.10      Payments for Production . Except as set forth on Schedule 5.10 , all proceeds from the sale of Hydrocarbons attributable to Seller’s interest in the Properties are currently being paid in full to Seller (after Tax withholdings or similar deductions required by the terms of the Contracts or applicable Law). Except as set forth in the Material Contracts, Seller is not obligated by virtue of a take or pay payment, advance payment or other similar payment (other than royalties, overriding royalties and similar arrangements established in the Leases or reflected on Exhibit A-1 ), to deliver Hydrocarbons, or proceeds from the sale thereof, attributable to Seller’s interest in the Properties at some future time without receiving payment therefor at or after the time of delivery.
Section 5.11      Imbalances . Except as set forth in Schedule 5.11 , there are no Imbalances associated with the Assets as of the Effective Time.
Section 5.12      Consents and Preferential Purchase Rights . Except as set forth on Schedule 5.12 , no Consents or Preferential Rights are applicable to the transfer of the Assets from Seller to Purchaser or any of the other transactions contemplated by this Agreement, except for compliance with the HSR Act and Customary Post-Closing Consents.
Section 5.13      Permits . The Permits constitute all material permits, licenses, registrations, orders, approvals, variances, waivers and other authorizations required to be obtained from any Governmental Authority for conducting its business with respect to the Assets as presently conducted, including all Permits required to be obtained pursuant to Environmental Laws. Each of the Permits is in full force and effect, there exists no material uncured violations of any Permit by Seller or, to Seller’s knowledge, by any other Person, and no event has occurred that upon receipt of notice or lapse of time or both would constitute a material default under any such Permit by Seller or, to Seller’s knowledge, any other Person. Neither Seller nor any Affiliate of Seller has received any written notice from any Governmental Authority of any violation of any Permit in connection with the ownership and/or operation of the Assets that remains uncured, and there are no proceedings pending or, to Seller’s knowledge, threatened that might result in any material modification,

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revocation, termination or suspension of any Permit or which would require any material corrective or remedial action by Seller or any Affiliate of Seller.
Section 5.14      Wells; Decommissioning Activities . Except as set forth on Schedule 5.14 , Seller represents as follows with respect to the Assets for which Seller acts as operator:
(a)      There are no Wells (A) in respect of which Seller has received an order from any Governmental Authority requiring that such Wells be plugged and abandoned within eighteen (18) months after the Execution Date, other than any such Decommissioning activities that have been completed in all material respects in accordance with applicable Law ; or (B) that are neither in use for purposes of production or injection, nor suspended or temporarily abandoned in accordance with applicable Law, that, in each case, have not been plugged and abandoned and otherwise Decommissioned in all material respects in accordance with applicable Law;
(b)      Seller has not received an order from any Governmental Authority requiring that any Decommissioning activities take place with respect to the Properties within eighteen (18) months after the Execution Date, other than any such Decommissioning activities that have been completed in all material respects in accordance with applicable Law;
(c)      To Seller’s knowledge, all Decommissioning activities conducted with respect to the Assets have been performed in all material respects in accordance with all applicable Leases, the Material Contracts and all applicable Laws;
(d)      There is no Equipment in respect of which Seller has received an order from any Governmental Authority requiring that such Equipment be Decommissioned within eighteen (18) months after the Execution Date, other than any such Decommissioning activities that have been completed in all material respects in accordance with applicable Law ;
(e)      No Well is subject to penalties on allowables after the Effective Time because of overproduction; and
(f)      There are no Wells that were drilled and completed by Seller, or to Seller’s knowledge by any Third Party, outside the limits permitted by all applicable Laws, Permits, Contracts and Leases.
Section 5.15      Equipment . (i) The Wells and Equipment have been maintained in operable repair, working order and operating condition and are suitable for the purposes for which such Wells or Equipment were constructed or obtained or are currently being used, in each case, in all material respects, and (ii) Seller has all material easements, rights of way, licenses and authorization from Governmental Authorities necessary to access, construct, operate, maintain and repair the Wells and Equipment in the ordinary course of business as currently conducted by Seller and in material compliance with all applicable Laws, provided that this Section 5.15 shall be qualified by Seller’s knowledge with respect to any Assets for which Seller or any of its Affiliates does not serve as the operator.

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Section 5.16      Condemnation and Eminent Domain . As of the Execution Date, no action for condemnation or taking under right of eminent domain is, to Seller’s knowledge, pending or threatened with respect to any Asset or portion thereof.
Section 5.17      Bankruptcy . There are no bankruptcy, reorganization or receivership proceedings pending or, to Seller’s knowledge, threatened against Seller or any of its Affiliates.
Section 5.18      Foreign Person . Each of FMEP and FMOG is a disregarded entity within the meaning of Treasury Regulations Section 301.7701-3(a) and is disregarded as separate from FCX Oil & Gas, Inc.. Neither FCX Oil & Gas, Inc. nor POOI is a “foreign person” within the meaning of Section 1445 of the Code, nor an entity disregarded as separate from any other Person within the meaning of Treasury Regulation Section 301.7701-3(a).
Section 5.19      Payout Status . To Seller’s knowledge, Schedule 5.19 contains a list of the status of any “payout” balance, as of the date set forth on such Schedule, for those Wells subject to a reversion or other adjustment at some level of cost recovery or payout (or passage of time or other event other than termination of a Lease by its terms).
Section 5.20      Operation of the Assets . Beginning on the date on which Seller acquired ownership of the relevant Assets, the Assets have been operated in material accordance with good oilfield practices as such are generally practiced with respect to oil and gas assets similar to the Assets, provided that the foregoing shall be qualified by Seller’s knowledge with respect to any Assets for which Seller or any of its Affiliates does not serve as the operator thereof.
Section 5.21      Royalties . Except for the Suspense Funds, Seller has paid in all material respects all royalties, overriding royalties and other burdens on production due by Seller with respect to the Assets from the Effective Time through the month ended prior to the month in which the Closing Date occurs for oil and the month ended two (2) months prior to the month in which the Closing Date occurs for gas and NGLs. Seller has or shall timely file any Form-2014s with respect to royalties due on or through the month in which the Closing Date occurs and shall pay any royalties due and owing on such periods, subject to the purchase price adjustment for any royalties pursuant to Section 2.2 .
Section 5.22      Suspense Funds . Schedule 5.22 lists all proceeds of production and associated penalties and interest in respect of any of the Assets that are payable to Third Parties and are being held in suspense by Seller as of the Execution Date (the “ Suspense Funds ”), a description of the source of such Suspense Funds and the reason they are being held in suspense, and, if known, the name or names of the Third Parties claiming such Suspense Funds or to whom such Suspense Funds may be owed.
Section 5.23      Bonds and Credit Support . Schedule 5.23 lists all bonds, letters of credit and other similar credit support instruments maintained by Seller or any Affiliate of Seller with any Governmental Authority or other Third Party with respect to the Assets.
Section 5.24      Non-Consent Operations . Except as set forth on Schedule 5.24 , Seller has neither elected nor been deemed to have elected to “non-consent,” nor failed to participate in, the

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drilling or reworking of a well, any seismic program or any other operation which would cause Seller or Purchaser to suffer a penalty or lose or forfeit any interests in the Assets under any applicable operating agreement.
Section 5.25      Assets Complete . (a) The Assets owned by FMOG constitute all of FMOG’s interests in deepwater Gulf of Mexico assets, excluding the Excluded Assets. (b) The Assets owned by FMEP and POOI constitute all of FMEP’s and POOI’s interests in Gulf of Mexico assets, excluding the Excluded Assets.
Section 5.26      Employees . Seller will or will cause one of its Affiliates to provide to Purchaser, within five (5) days following the Execution Date, a true and complete list (the “ Employee List ”) of all employees of Seller and its Affiliates who work primarily in the operation of the Assets (whether in the Gulf of Mexico or in an office location) and certain other employees of Seller and its Affiliates who support the operation of the Assets (collectively, the “ Employees ”), including employees who are receiving short-term disability benefits or are on family or medical, medical/long-term disability, administrative or military leave or any other type of leave that entitles the employee to reinstatement upon completion of the leave under the applicable leave policies of Seller or its Affiliates (collectively, “ Leave ”). The Employee List will specify each Employee’s current job title, work location, monthly base salary or hourly base wage, target bonus or other target incentive compensation level, date of hire and number of years credited under Seller Plans, an indication of whether the Employee first started performing services primarily related to the Assets within the six (6) months prior to the Execution Date, full-time, part-time or seasonal status, exempt or non-exempt status under the Fair Labor Standards Act, Leave status, if any, and whether the Employee will provide services on behalf of Seller during the Transition Period under the Transition Services Agreement. Neither Seller nor any of its Affiliates is, with respect to any Employee, party to any collective bargaining, trade union, works council or similar agreement concerning wages, hours, working conditions or the representation of employees and no Employee is subject to or covered by any such agreement with respect to his or her employment with Seller or any of its Affiliates. Neither any Seller nor any of its Affiliates has recognized any trade union or other employee representative body and, to the knowledge of Seller, neither Seller nor any of its Affiliates has experienced any attempt by organized labor to cause Seller or any of its Affiliates to comply with or conform to demands of organized labor with respect to any of the Employees. During the past three (3) years with respect to the Employees, Seller and its Affiliates have not engaged in any material unfair labor practice and there has not been any material employment-related grievance or labor dispute with respect to any Employee and, to the knowledge of Seller, no such grievances or disputes are threatened.
Section 5.27      Employee Benefit Plans . Each material Seller Plan in which an Employee participates is listed on Schedule 5.27 , including any employment agreement with any Employee that provides for severance or notice of termination in excess of thirty days. With respect to each material Seller Plan, Seller has made available to Purchaser summary information concerning the Seller Plans. No Seller Plan is a “multiemployer plan” within the meaning of Section 3(37) of ERISA. The Seller Savings Plan has received a favorable determination letter from the Internal Revenue Service.

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Section 5.28      Intellectual Property . Seller does not own any registered Intellectual Property which would constitute Assets. Except as set forth on Schedule 5.28 , (i) Seller owns and possesses all right, title and interest in and to, or has a valid right to use, all Intellectual Property, (ii) none of Seller or any of its Affiliates is infringing, misappropriating, diluting, or otherwise violating any intellectual property rights of any other Person in connection with their ownership and operation of the Assets, (iii) no actions, suits, litigation, claims, causes of action, demands, or other proceedings are pending or have been threatened during the past three (3) years, alleging any such infringement, misappropriation, dilution or other violation, currently or in the past, by Seller or any of its Affiliates, (iv) no Person is infringing, misappropriating, diluting, or otherwise violating any Intellectual Property and (v) Seller and each of its Affiliates have taken reasonable efforts to maintain and protect all material Intellectual Property.
ARTICLE 6. REPRESENTATIONS AND WARRANTIES OF PURCHASER
Purchaser represents and warrants to Seller the following:
Section 6.1      Existence and Qualification . Purchaser is a limited liability company organized, validly existing and in good standing under the Laws of Delaware; and Purchaser is duly qualified to do business as a foreign limited liability company in good standing in every jurisdiction in which it would be required to qualify in order to own and operate the Assets, except where the failure to be so qualified would not, individually or in the aggregate, have or be reasonably likely to have, individually or in the aggregate, a material adverse effect upon the ability of Purchaser to consummate the transactions contemplated in this Agreement.
Section 6.2      Power . Purchaser has the limited liability company power to enter into and perform this Agreement (and all documents required to be executed and delivered by Purchaser at Closing) and to consummate the transactions contemplated by this Agreement (and such documents).
Section 6.3      Authorization and Enforceability . The execution, delivery and performance of this Agreement (and all documents required to be executed and delivered by Purchaser at Closing), and the performance of the transactions contemplated hereby and thereby, have been duly and validly authorized by all necessary limited liability company action on the part of Purchaser. This Agreement has been duly executed and delivered by Purchaser (and all documents required to be executed and delivered by Purchaser at Closing will be duly executed and delivered by Purchaser) and this Agreement constitutes, and at the Closing such documents will constitute, the valid and binding obligations of Purchaser, enforceable in accordance with their terms except as such enforceability may be limited by applicable bankruptcy or other similar Laws affecting the rights and remedies of creditors generally as well as to general principles of equity (regardless of whether such enforceability is considered in a proceeding in equity or at Law).
Section 6.4      No Conflicts . The execution, delivery and performance of this Agreement by Purchaser, and the consummation of the transactions contemplated by this Agreement will not (i) violate any provision of the certificate of incorporation or bylaws of Purchaser, (ii) result in a material default (with due notice or lapse of time or both) or the creation of any lien or Encumbrance or give rise to any right of termination, cancellation or acceleration under any material note, bond, mortgage, indenture, license or agreement to which Purchaser is a party or by which it is bound,

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(iii) violate any judgment, order, ruling, or regulation applicable to Purchaser as a party in interest, or (iv) violate any Law applicable to Purchaser or any of its assets.
Section 6.5      Liability for Brokers’ Fees . Seller (and each of its Affiliates) shall not directly or indirectly have any responsibility, Liability or expense, as a result of undertakings or agreements of Purchaser or any of its Affiliates, for brokerage fees, finder’s fees, agent’s commissions or other similar forms of compensation to an intermediary in connection with the negotiation, execution or delivery of this Agreement or any agreement or transactions contemplated hereby.
Section 6.6      Consents, Approvals or Waivers . The execution, delivery and performance of this Agreement by Purchaser will not be subject to any Consent, except for compliance with the HSR Act, Customary Post-Closing Consents and as set forth on Schedule 6.6 .
Section 6.7      Litigation . There are no actions, suits or proceedings pending, or to Purchaser’s knowledge, threatened in writing before any Governmental Authority or arbitrator against Purchaser or any subsidiary of Purchaser which are reasonably likely to impair materially Purchaser’s ability to perform its obligations under this Agreement.
Section 6.8      Financing . Purchaser has, or will have at Closing, sufficient cash, available lines of credit or other sources of immediately available funds in United States dollars to enable it to pay the Closing Payment to Seller at the Closing. Purchaser has no reason to believe that any conditions to the receipt of such funds will not be timely satisfied. Availability of funding and financing is not a condition to Purchaser’s obligation to consummate the transactions contemplated by this Agreement
Section 6.9      Regulatory . Purchaser is now, or as of Closing shall be, qualified to own and assume operatorship of federal and state oil, gas and mineral leases in all jurisdictions (including qualifications pursuant to the rules and regulations of BOEM and BSEE to own and operate federal oil and gas leases in the Outer Continental Shelf, Gulf of Mexico) where the Assets are located, and the consummation of the transactions contemplated in this Agreement will not cause Purchaser to be disqualified as such an owner or operator, in each case, except where the failure to be so qualified would not, individually or in the aggregate, have or be reasonably likely to have a material adverse effect upon the ability of Purchaser to consummate the transactions contemplated in this Agreement, including Purchaser’s ability to succeed Seller as operator to such Assets and to secure all required approvals of Governmental Authorities required for such succession. To the extent required by any Laws, Purchaser currently has, or as needed after Closing will have those lease bonds, area-wide bonds, any other surety bonds or other financial security devices as may be required by, and in accordance with, all Laws governing the ownership and operation of such leases, in each case, except where the failure to be so qualified would not, individually or in the aggregate, have or be reasonably likely to have a material adverse effect upon the ability of Purchaser to consummate the transactions contemplated in this Agreement, including Purchaser’s ability to succeed Seller as operator to such Assets and to secure all required approvals of Governmental Authorities required for such succession.

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Section 6.10      Bankruptcy . There are no bankruptcy, reorganization or receivership proceedings pending or, to Purchaser’s knowledge, threatened against Purchaser or any of its Affiliates.
Section 6.11      SEC Disclosure . Purchaser is acquiring the Assets for its own account for use in its trade or business, and not with a view to or for any sale or distribution thereof, nor with any present intention of making a distribution thereof within the meaning of the Securities Act of 1933, as amended, and the rules and regulations thereunder, any applicable state blue sky Laws or other applicable securities Laws.
Section 6.12      Independent Evaluation . Purchaser is sophisticated in the evaluation, purchase, ownership and operation of oil and gas properties, platforms and related facilities similar to the Assets and is capable of making such investigation, inspection, review and evaluation of the Assets as a prudent purchaser would deem appropriate under the circumstances, including with respect to all matters relating to the Assets, their value, operation and suitability. In making its decision to enter into this Agreement and to consummate the transactions contemplated herein, Purchaser (i) has relied or will rely solely on its review of the Assets, the express representations and warranties of Seller contained in this Agreement and the other documents required to be executed and delivered by at Closing, and its own independent investigation and evaluation of the Assets and the advice of its engineers, contractors, geological and geophysical advisors, lawyers, accountants and other professional advisors and not on any comments, statements, reports, projections or other documents or materials provided by or for Seller or its Affiliates or agents, whether before or after execution of this Agreement and (ii) subject to Seller’s compliance with Section 7.1 , has satisfied or will satisfy itself as to the environmental, physical and other condition of, and contractual arrangements affecting, the Assets.
ARTICLE 7. COVENANTS OF THE PARTIES
Section 7.1      Access . Seller will give Purchaser and its Representatives (a) access to the Assets to perform site visits of all Wells and Equipment, (b) access to and the right to copy, at Purchaser’s expense, the Records in Seller’s possession, for the purpose of conducting an investigation of the Assets and (c) access to the appropriate officers and employees of Seller and its Affiliates having responsibility for the respective Assets to provide assistance in connection with the investigation of the Assets, but only to the extent that Seller may do so without violating any obligations to any Third Party and to the extent that Seller has authority to grant such access without breaching any restriction binding on Seller (provided that Seller shall use commercially reasonable efforts to obtain consent or waivers of such requirements from any such Third Parties). Such access by Purchaser shall be limited to Seller’s normal business hours, and Purchaser’s investigation shall be conducted in a manner that does not unreasonably interfere with the operation of the Assets. Purchaser and its Representatives at their option may conduct a Phase I environmental audit of any or all of the Assets, to the extent Seller has authority to permit such an audit, provided that neither Purchaser nor its Representatives shall conduct any boring, testing or sampling on or with respect to the Assets prior to Closing, or to conduct any other invasive activities without the consent of Seller. All such activities by Purchaser shall be subject to any boarding agreements or releases or other agreements required by any operator of the Properties (provided that, with respect to any

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Assets operated by Seller or any of its Affiliates, such boarding agreements shall be provided to Purchaser reasonably promptly upon request), shall be solely for the purpose of evaluating the Assets in connection with consummating the transactions contemplated by this Agreement, and shall be subject to Purchaser’s and its Representatives’ compliance with the applicable operator’s (and/or Seller’s) policies and procedures, in each case to the extent Purchaser and/or its Representatives were made aware of such policies and procedures prior to or upon such access. Purchaser shall be responsible for arranging, at its own cost, transportation to and from any such Properties. All information obtained by Purchaser and its Representatives under this Section shall be subject to the terms of that certain confidentiality agreement between Freeport-McMoRan Inc. and Anadarko Petroleum Corporation dated February 3, 2016, as amended (the “ Confidentiality Agreement ”).
Section 7.2      Confidentiality; Public Announcements .
(a)      Until the Closing, neither Party shall make any press release or other public announcement regarding the existence of this Agreement, the contents hereof or the transactions contemplated hereby without the prior written consent of the other Party, which consent may not be unreasonably withheld; provided, however, the foregoing shall not restrict disclosures by Purchaser or Seller (i) that are required by applicable securities or other Laws or the applicable rules of any stock exchange having jurisdiction over the disclosing Party or its Affiliates, (ii) to Governmental Authorities and Third Parties holding Preferential Rights or rights of Consent that may be applicable to the transactions contemplated by this Agreement, as reasonably necessary to obtain waivers of such Preferential Rights or such Consents, (iii) to any current or potential debtholder or equityholder of either Party, (iv) to any Person owning Seismic Data that requires that Purchaser obtain a license to such Seismic Data or obtain consent to transfer such Seismic Data, or (v) to any insurer or potential insurer of either Party.
(b)      From the Execution Date until the two year anniversary of the Closing Date, Seller shall use commercially reasonable efforts to protect the confidentiality of all geological and geophysical information, trade secrets and other data that is in Seller’s possession or control concerning the Assets and is neither publicly known nor required by Law or any stock exchange to be disclosed.
Section 7.3      Operation of Business . Except (x) for the operations covered by the AFEs and other capital commitments described on Schedule 5.7 or as otherwise set forth on Schedule 7.3 , (y) as expressly consented to in writing by Purchaser, or (z) as required by Law or for emergency operations that are advisable (in Seller’s good faith judgment) to protect life, property or the environment:
(a)      Seller agrees that from and after the Execution Date until Closing, Seller shall (or shall use its commercially reasonable efforts to cause any Third Party operators to):
(i)      operate the Assets (A) as would a reasonable and prudent operator, (B) in the ordinary course of business consistent with past practice, and (C) in accordance with all applicable Laws and the terms of the Leases, Permits, Easements and Contracts;

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(ii)      maintain all Leases, Easements, Permits, bonds, letters of credit or other similar credit support and Contracts in full force and effect and in accordance with the terms of the Leases, Easements, Permits, credit support and the Contracts relating thereto;
(iii)      pay all expenses incurred with respect to the Assets in the ordinary course of business;
(iv)      timely make any and all filings, reports and notices to any Governmental Authorities with respect to the Assets as required to be made by Seller under applicable Law, the Permits, the Easements, the Contracts or the Leases;
(v)      maintain the books of account and records relating to the Assets (including the Records) in the ordinary course of business, in accordance with the usual accounting practices of each such Person;
(vi)      give prompt written notice to Purchaser of any written notice received or given by Seller with respect to any alleged material breach by Seller or other Person of any Lease, Contract or Permit;
(vii)      give prompt written notice to Purchaser of any emergency with respect to the Assets and any related emergency operations;
(viii)      give prompt notice to Purchaser of (A) any written notice of any material damage to or destruction of any of the Assets and (B) any written notice received by Seller or any of its Affiliates of any material claim asserting any breach of contract, tort or violation of Law or any investigation, suit, action or litigation by or before a Governmental Authority, that, in each case, relates to the Assets;
(ix)      furnish Purchaser with copies of all drilling, completion and workover AFEs or forced pooling applications within three (3) days of receipt from Third Parties or generation by Seller or any Affiliate of Seller; and
(x)      cause to be timely paid all rentals, royalties, shut-in royalties, minimum royalties and other payments and perform all other acts that are necessary to maintain Seller’s rights in and to the Leases and Contracts in full force and effect as to the entire areal extent and all depths of the Leases, and to maintain Defensible Title to the Leases until the Closing, and pay timely all costs and expenses incurred by Seller in connection with such Leases and Contract s.
(b)      Seller agrees that from and after the Execution Date until Closing, Seller will not (or shall use its commercially reasonable efforts to cause any Third Party operators not to):
(i)      subject to the provisions of this Section 7.3(b)(i) , propose or agree to participate, or elect not to participate in any operation with respect to the Assets anticipated to cost in excess of Two Million Dollars ($2,000,000) without the prior written consent of Purchaser, provided that (A) with respect to any AFE for an operation to be conducted in

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connection with the Assets that is anticipated to cost in excess of Ten Million Dollars ($10,000,000) per operation, upon receipt of such AFE from Seller, Purchaser shall review and, no later than 48 hours prior to Seller’s deadline to respond to such AFE, respond to Seller in writing with respect to whether it desires to consent or non-consent the operation covered by such AFE; provided that if Purchaser does not timely respond with its election with respect to any such AFE within such 30 day period, then Purchaser shall be deemed to have responded to approve such AFE; and (B) if Purchaser affirmatively elects to non-consent to any such operation, Seller shall not be entitled to consent to such operation;
(ii)      enter into a Contract that if entered into on or prior to the Execution Date, would have been a Material Contract, or amend any Contract that, if amended on or prior to the Execution Date, would have been a Material Contract, as amended;
(iii)      create (or suffer to exist as a result of any action by Seller) any Encumbrance on any of the Assets (except for Permitted Encumbrances);
(iv)      terminate (unless such Material Contract terminates pursuant to its stated terms) or amend the terms of any Material Contract;
(v)      settle any suit or litigation (other than those relating to Retained Liabilities) or waive any claims or rights of value (except those attributable to pre-Effective Time periods), in each case, attributable to the Assets;
(vi)      transfer, sell, mortgage, pledge or dispose of the Assets other than the sale and/or disposal of Hydrocarbons in the ordinary course of business and sales of equipment that is no longer necessary in the operation of the Assets or for which replacement equipment of equal or greater value has been obtained;
(vii)      (A) make, change or revoke any Tax election or method; (B) file any amended Tax Return; (C) enter into any closing agreement; (D) settle or compromise any Tax claim or assessment; or (E) consent to any extension or waiver of the limitation period applicable to any claim or assessment with respect to Taxes; in each case, relating to Asset Taxes;
(viii)      reduce or terminate (or cause to be reduced or terminated or allow to expire without renewal at equivalent or greater amounts of coverage) any insurance coverage now held by Seller or its Affiliates in connection with the Assets;
(ix)      abandon any Well capable of commercial production, or release or abandon all or any part of the Assets capable of commercial production, or release or abandon all or any portion of the Leases;
(x)      terminate (other than for cause), materially change the duties of any Employees or change the compensation of any Employees, other than (A) changes in duties and compensation in connection with promotions in the ordinary course of business consistent with past practice, and (B) changes in compensation that apply generally to

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similarly situated employees of Seller and its Affiliates in the ordinary course of business consistent with past practice and that are generally consistent with Seller’s existing compensation program;
(xi)      voluntarily waive or release any material right with respect to any Asset or relinquish its position as operator of any Asset; or
(xii)      commit to do any of the foregoing .
Section 7.4      HSR Filings . As promptly as practicable and in any event not later than ten (10) Business Days after the Execution Date, each Party shall file with the Federal Trade Commission and the Department of Justice, as applicable, the required notification and report forms under the HSR Act and shall as promptly as practicable furnish any supplemental information or documentary material that may be requested in connection therewith. Each Party shall request, and use its commercially reasonable efforts to obtain, early termination of applicable waiting period under the HSR Act. Purchaser and Seller shall each bear 50% of all filing fees under the HSR Act, and each Party shall bear its own costs for the preparation of any such filing and its other costs associated with compliance with the HSR Act. The Parties shall have the right to review in advance all characterizations of the information relating to this Agreement and the transactions contemplated hereby that appear in any filing made with a Governmental Authority as contemplated herein. Purchaser and Seller agree to respond promptly to any inquiries from Governmental Authorities, including the Department of Justice or the Federal Trade Commission, concerning such filings and to comply in all material respects with the filing requirements of the HSR Act or other applicable Law. Purchaser and Seller shall cooperate with each other and, subject to the terms of the Confidentiality Agreement, shall promptly furnish all information to the other Party that is necessary in connection with Purchaser’s and Seller’s compliance with the HSR Act or other applicable Law. Purchaser and Seller shall keep each other fully apprised with respect to any requests from or communications with Governmental Authorities, including the Department of Justice or the Federal Trade Commission, concerning such filings and shall consult with each other with respect to all responses thereto. Each of Seller and Purchaser shall use its commercially reasonable efforts to take all actions reasonably necessary and appropriate in connection with any HSR Act or other applicable Law filing to consummate the transactions contemplated hereby, provided, however, that in no event will Purchaser or any of its Affiliates be required to agree to any divestiture, transfer or licensing of its properties, assets or businesses, or to the imposition of any limitation on the ability of any of the foregoing to conduct its businesses or to own or exercise control of its assets and properties.
Section 7.5      FCC Filings . Each Party shall prepare, as soon as is practical following the Execution Date, any necessary filings in connection with the transactions contemplated by this Agreement that may be required to be filed by such Party with the Federal Communications Commission. The Parties shall promptly furnish each other with copies of any notices, correspondence or other written communication from the Federal Communications Commission, shall promptly make any appropriate or necessary subsequent or supplemental filings and shall cooperate in the preparation of such filings as is reasonably necessary and appropriate.
Section 7.6      Tax Matters .

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(a)      Seller shall be allocated and bear all Asset Taxes attributable to (i) any Tax period ending prior to the Effective Time and (ii) the portion of any Straddle Period ending immediately prior to the Effective Time. Purchaser shall be allocated and bear all Asset Taxes attributable to (x) any Tax period beginning at or after the Effective Time and (y) the portion of any Straddle Period beginning at the Effective Time. For purposes of determining the allocations described in this Section 7.6(a) , (A) Asset Taxes that are attributable to the severance or production of Hydrocarbons shall be allocated to the period in which the severance or production giving rise to such Asset Taxes occurred, (B) Asset Taxes that are based upon or related to income or receipts or imposed on a transactional basis (other than such Asset Taxes described in clause (A) or (C)), shall be allocated to the period in which the transaction giving rise to such Asset Taxes occurred, and (C) Asset Taxes that are ad valorem, property or other Asset Taxes imposed on a periodic basis pertaining to a Straddle Period shall be allocated between the portion of such Straddle Period ending immediately prior to the Effective Time and the portion of such Straddle Period beginning at the Effective Time by prorating each such Asset Tax based on the number of days in the applicable Straddle Period that occur before the day on which the Effective Time occurs, on the one hand, and the number of days in such Straddle Period that occur on or after the day on which the Effective Time occurs, on the other hand.
(b)      To the extent the actual amount of an Asset Tax is not known at the time an adjustment is to be made with respect to such Asset Tax pursuant to Section 2.2 or Section 9.4 , as applicable, the Parties shall utilize the most recent information available in estimating the amount of such Asset Tax for purposes of such adjustment. To the extent the actual amount of an Asset Tax (or the amount thereof paid or economically borne by a Party) is ultimately determined to be different than the amount (if any) that was taken into account in the Final Settlement Statement as finally determined pursuant to Section 9.4(b) , timely payments will be made from one Party to the other to the extent necessary to cause each Party to bear the amount of such Asset Tax that is allocable to such Party under Section 7.6(a) .
(c)      Seller shall timely file any Tax Return with respect to Asset Taxes due on or before the Closing Date or that otherwise relates solely to periods before the Closing Date (a “ Pre-Closing Tax Return ”) and shall pay any Asset Taxes shown due and owing on such Pre-Closing Tax Return, subject to Seller’s right to reimbursement for any Asset Taxes for which Purchaser is responsible under Section 7.6(a) . From and after the Closing Date, Purchaser shall timely file any Tax Returns with respect to Asset Taxes required to be filed after the Closing Date, including such Tax Returns for any Straddle Period (a “ Post-Closing Tax Return ”), and shall pay any Asset Taxes shown due and owing on such Post-Closing Tax Return, subject to Purchaser’s right to reimbursement for any Asset Taxes for which Seller is responsible under Section 7.6(a) . Purchaser shall file any Post-Closing Tax Return relating to a Straddle Period in a manner consistent with past practice. Within fifteen (15) days prior to filing, Seller shall deliver to Purchaser a draft of any such Pre-Closing Tax Return for Purchaser’s review and approval (which approval will not be unreasonably withheld or delayed). Within fifteen (15) days prior to filing, Purchaser shall deliver to Seller a draft of any such Post-Closing Tax Return for Seller’s review and approval (which approval will not be unreasonably withheld or delayed). The Parties agree that (i) this Section 7.6(c) is intended to solely address the timing and manner in which certain Tax returns relating to Asset Taxes are filed and the Asset Taxes shown thereon are paid to the applicable Taxing Authority, and

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(ii) nothing in this Section 7.6(c) shall be interpreted as altering the manner in which Asset Taxes are allocated to and economically borne by the Parties.
(d)      Seller shall promptly notify Purchaser in writing upon receipt by Seller of notice of any pending or threatened Tax audits or assessments relating to the income, properties or operations of Seller (for the avoidance of doubt, other than pending or threatened Income Tax audits or assessments) of Seller that are reasonably expected to give rise to a lien or Encumbrance on the Assets after the Closing Date. Each of Purchaser and Seller shall promptly notify the other in writing upon receipt of notice of any pending or threatened Tax audit or assessment challenging the Allocation Schedule or that otherwise could give rise to a claim for indemnification hereunder.
(e)      Any payments made to any Party pursuant to Section 1.3(g) , Section 7.6(b) or Article 11 shall constitute an adjustment of the Purchase Price for Tax purposes and shall be treated as such by Purchaser and Seller on their Tax returns to the extent permitted by Law.
(f)      Notwithstanding anything else in this Agreement, each Party shall have the right to structure the transactions contemplated under the terms of this Agreement as a non-simultaneous like-kind exchange pursuant to Section 1031 of the Code, and its implementing Treasury Regulations (a “ Like-Kind Exchange ”). Notwithstanding any other provisions of this Agreement, in connection with effectuating a Like-Kind Exchange, each Party shall have the right, at or prior to the Closing Date or any subsequent closing, to assign all or a portion of its rights under this Agreement (the “ Assigned Rights ”) to a “qualified intermediary” (as that term is defined in Section 1.1031(k)-1(g)(4) of the Treasury Regulations) or to a “qualified exchange accommodation titleholder” (as that term is defined in U.S. Revenue Procedure 2000-37). In the event a Party (in its capacity as an exchanging party, referred to in this Section 7.6(f) as an “ Exchanging Party ”) assigns the Assigned Rights to a “qualified intermediary” pursuant to this Section 7.6(f) , then such Exchanging Party agrees to notify the other Party in writing of such assignment reasonably in advance of the Closing Date. In addition, should a Party choose to effectuate a Like-Kind Exchange, the Parties agree to use reasonable best efforts to cooperate with one another in the completion of such an exchange, including the execution of all documents reasonably necessary to effectuate such a Like-Kind Exchange; provided, however, that (a) the Closing Date shall not be delayed or affected by reason of the Like-Kind Exchange, (b) the Exchanging Party shall effect its Like-Kind Exchange through an assignment of the Assigned Rights to a “qualified intermediary” or to a “qualified exchange accommodation titleholder,” but such assignment shall not release such Exchanging Party from any of its liabilities or obligations under this Agreement and (c) the non-Exchanging Party shall incur no additional unreimbursed costs, expenses, fees or liabilities as a result of or in connection with the exchange requested by the Exchanging Party. Each of Seller and Purchaser hereby acknowledge and agree that any assignment of this Agreement pursuant to this Section 7.6(f) shall not release a Party from, or modify, any of its respective liabilities and obligations (including indemnity obligations to each other) under this Agreement. Neither Party, by its consent to a Like-Kind Exchange, shall be responsible in any way for the Exchanging Party’s compliance with such Like-Kind Exchange.
Section 7.7      Further Assurances; Recording . After Closing, Seller and Purchaser each agrees to take such further actions, to execute, acknowledge and deliver all such further documents,

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and to cooperate with each other, in each case, as may be reasonably requested by the other Party for carrying out the purposes of this Agreement or of any document delivered pursuant to this Agreement or complying with any applicable Law with respect thereto, including with respect to preparation or filing of any financial statement, Tax return or other filing required to be made by any Party or any of their respective Affiliates by any Governmental Authority, stock exchange or under any applicable Law. As soon as reasonably practicable after Closing, Purchaser shall record the Conveyance in the appropriate recording jurisdictions as well as with the appropriate Governmental Authorities, shall make all filings necessary to be made with any Governmental Authority to effectuate the transfer of the Assets and shall provide Seller with copies of all recorded, filed or approved instruments.
Section 7.8      Operatorship; Royalties . With respect to all of the Assets operated by Seller or its Affiliates, Seller shall (and shall cause its Affiliates to) use its commercially reasonable efforts to support Purchaser’s succession of Seller as operator to such Assets, including (a) using commercially reasonable efforts to prepare BOEM designation of operator forms to have Purchaser named as the operator of such Assets, and (b) taking any other action reasonably requested by Purchaser with respect to the transfer of operatorship with respect to such Assets. Purchaser shall timely file any Form 2014s with respect to royalties required to be filed after the Closing Date and shall pay any royalties due and owing on such periods. Notwithstanding anything in this Agreement and the documents to be executed hereunder and the Exhibits and Schedules attached hereto to the contrary, Purchaser shall, within five (5) Business Days of the Closing Date, complete and file all necessary documents to become a designated operator for all Properties for which Seller currently serves as operator.
Section 7.9      No Shop . From and after the Execution Date, Seller shall immediately cease and cause to be terminated any discussions or negotiations with respect to any Third Party Acquisition. Further, except in connection with any Preferential Rights or the contracts set forth on Schedule 7.9 , Seller shall not, and shall not authorize or permit any of its Affiliates or any of its or their respective officers, directors, employees, representatives or agents to, and shall not resolve or propose to, directly or indirectly, (a) encourage, solicit, participate in or initiate discussions, negotiations, inquiries, proposals or offers (including any proposal or offer to their shareholders) with or from or provide any non-public information to any Person or group of Persons concerning any Third Party Acquisition or any inquiry, proposal or offer which may lead to a Third Party Acquisition or (b) waive, terminate, modify or fail to enforce any provision of any contractual “standstill” or similar obligation of any Person. Seller shall not (and shall cause its Affiliates not to) enter into any agreement, letter of intent, memorandum of understanding, agreement in principle, acquisition agreement, merger agreement, option agreement, joint venture agreement, partnership agreement or other agreement constituting or directly related to, or which is reasonably likely to lead to, a Third Party Acquisition or any proposal for a Third Party Acquisition.
Section 7.10      Representations and Warranties . Each Party shall promptly notify the other of any fact or circumstance about which such Party has or obtains knowledge that would make any representation or warranty of such Party materially untrue or incorrect. No such notification (or failure to make any such notification) shall affect the representations or warranties of the Parties or the conditions to their respective obligations hereunder.

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Section 7.11      Closing Conditions . From the Execution Date until the Closing Date, each Party shall use commercially reasonable efforts to satisfy the conditions to the Closing set forth in Article 8 .
Section 7.12      Employment Offers to Employees .
(a)      As soon as reasonably practicable following the Execution Date, Purchaser shall be permitted to meet with and interview the Employees on the Employee List (which meetings may occur more than once and may be with one or more of the Employees), subject to mutually and reasonable agreeable parameters that are intended to minimize disruption to Sellers’ business operations. The Parties shall provide to each other such information as the other Party may reasonably request in writing as is necessary for Purchaser to evaluate the Employees, for the Parties to comply with and implement the terms and conditions of Sections 7.12 through 7.20 and the transactions contemplated by this Agreement.
(b)      Prior to the date ten (10) days following the Closing, Purchaser shall inform Seller of any Employees to whom Purchaser or Purchaser’s Affiliates will make an offer of employment with Purchaser or Purchaser’s Affiliates (“ Offer Employees ”). Such offers (i) shall be in writing, contain terms consistent with Section 7.13 and be consistent in all material respects with applicable Law, (ii) shall be subject to the Closing having occurred and the Employee’s continued employment in the operation of the Assets through the expiration of the Transition Period, and (iii) subject to Section 7.13 , shall be effective as of the expiration of the Transition Period or, if later, the date, an Employee returns from an approved leave of absence (the “ Transfer Time ”). Purchaser covenants that, except as provided in Section 7.15 , Purchaser or Purchaser’s Affiliates shall provide each Offer Employee not less than five (5) days prior to the Transfer Time in which to accept or reject Purchaser’s or Purchaser’s Affiliate’s employment offer. Subject to Purchaser’s material compliance with the terms of this Agreement, Seller shall not offer alternative positions with Seller or its Affiliates to the Offer Employees. All Employees who accept employment with Purchaser or Purchaser’s Affiliate pursuant to the offers described either in this Section 7.12 or in Section 7.13 and become employed by Purchaser or one of its Affiliates are referred to herein as “ Transferred Employees .” Purchaser and Seller intend that the Transferred Employees will have continuous and uninterrupted employment immediately before and immediately after the Transfer Time.
Section 7.13      Employment Terms .
(a)      Purchaser covenants that, for a period of at least twelve (12) months following the expiration of the Transition Period (the “ Protected Period ”), it shall, and shall cause its Affiliates to provide to each Transferred Employee who remains in the employ of Purchaser: (i)  monthly base salary or hourly base wage rate as well as non-scheduled overtime pay rates and target bonus opportunities that, in each case, are no less favorable than monthly base salary or hourly base wage rate as well as non-scheduled overtime pay rates and target bonus opportunities that are provided to similarly situated employees of Purchaser and Purchaser’s Affiliates, (ii) employee benefits that are no less favorable than those provided to similarly situated employees of Purchaser and Purchaser’s Affiliates (excluding retiree medical and defined benefit pension plans (other than cash-balance plans), in each case, if such plans would not be provided to a new hire of Purchaser or

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Purchaser’s Affiliates), and (iii) to the extent currently working in the Gulf of Mexico, a primary work location in the Gulf of Mexico or, if not currently working in the Gulf of Mexico, employment at a location within fifty (50) miles of the employment location set forth in the employment offer referred to in Section 7.12 .
(b)      Purchaser and Seller agree that Seller shall be responsible for the payment of annual bonuses to the Offer Employees in respect of calendar year 2016 and shall determine such annual bonuses in the ordinary course of business consistent with past practice and in a manner that is substantially similar to how annual bonuses are determined for other employees of Seller and its Affiliates. Purchaser covenants that (i) each Transferred Employee shall be eligible to participate in any bonus or other incentive compensation plan or program maintained by Purchaser or its Affiliates for calendar year 2017 (or any later calendar year in which the Transfer Time occurs) (each, a “ Purchaser Bonus Plan ”) on terms and conditions no less favorable than those applicable to similarly situated employees of Purchaser and Purchaser’s Affiliates, and (ii) each Transferred Employee’s bonus or other incentive compensation award under any Purchaser Bonus Plan for calendar year 2017 (or any later calendar year in which the Transfer Time occurs) shall be calculated as if such Transferred Employee had been employed by Purchaser or one of its Affiliates during such full calendar year.
(c)      Purchaser covenants that, if Purchaser or its Affiliates terminate the employment of any Transferred Employee during the Protected Period under circumstances that would have entitled the Transferred Employee to severance under the severance plan provided by Purchaser and its Affiliates to similarly situated employees (the “ Purchaser Severance Plan ”), Purchaser shall pay or provide severance to such terminated employee, subject to the employee’s executing and not revoking a standard release of claims in the form provided to similarly situated employees of Purchaser and its Affiliates (but which form shall not impose additional obligations or limitations upon the employee beyond the release of claims), that is no less favorable in the aggregate than (x) if such termination occurs in the first six months of the Protected Period, the greater of (i) the severance set forth on Schedule 7.13(c) or (ii) the severance to which the Transferred Employee would be entitled under the Purchaser Severance Plan or (y) if such termination occurs in the last six months of the Protected Period, the severance to which the Transferred Employee would be entitled under the Purchaser Severance Plan.
Section 7.14      Employment Offers to Employees on Leave . In relation to offers of employment made prior to the Transfer Time to any Offer Employee who is on an approved leave of absence as of the expiration of the Transition Period, such Offer Employee’s employment with Purchaser or its Affiliate shall commence only at such time as such Employee is ready to return to work (but not sooner than the expiration of the Transition Period), provided, however, that such Employee is ready to return to work within six (6) months after the expiration of the Transition Period. In the event any Offer Employee who was on an approved leave of absence as of the expiration of the Transition Period is not ready to return to work within six (6) months after the expiration of the Transition Period the offer of employment to such Offer Employee shall be null and void. In the event Purchaser makes an offer of employment to an Employee under this Section 7.14 , such Employee shall be considered an Offer Employee for all purposes hereunder and may become a Transferred Employee hereunder, and the provisions of this Article 7 shall apply to any

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such Employee mutatis mutandis effective as of the Employee’s commencement of employment with Purchaser or any of its Affiliates.
Section 7.15      Cessation of Participation in Seller’s or its Affiliates’ Benefit Plans . Except to the extent provided by applicable Law, effective as of their termination date with Seller or its Affiliates, the Transferred Employees shall cease to accrue benefits under any and all Seller Plans.
Section 7.16      Employee and Benefit Plan Liabilities . Except as otherwise provided in Section 2.2(m) , Section 7.16 through Section 7.19 , in the Transition Services Agreement or to the extent considered an Operating Expense, in no event shall (a) Purchaser or any of its Affiliates have or assume any Liability or obligation in respect of, arising out of, relating to or in connection with the employment or engagement of any Employee by Seller or its Affiliates or any Seller Plan (the Liabilities and obligations referred to in this clause (a), subject to the qualifications preceding this clause (a), the “ Seller Employment Liabilities ”) or (b) Seller or any of its Affiliates have or assume any Liability or obligation in respect of, arising out of, relating to or in connection with the employment or engagement of any Employee by Purchaser or any of its Affiliates or any compensation or benefit plan or arrangement of Purchaser or any of its Affiliates (the Liabilities and obligations referred to in this clause (b), subject to the qualifications preceding this clause (b) (b) , the “ Purchaser Employment Liabilities ”).
Section 7.17      Paid Time Off; Vacation . Purchaser shall assume all obligations of Seller and its Affiliates with respect to accrued but unused vacation and paid time off (“ Accrued PTO ”) of each Transferred Employee as of the Transfer Time. Transferred Employees shall be permitted to use their Accrued PTO in a manner consistent with Purchaser policies applicable to similarly situated employees of Purchaser and its Affiliates. Transferred Employees shall be permitted to accrue additional vacation and paid-time-off in accordance with the policies and procedures applicable to similarly situated employees of Purchaser and its Affiliates, as in effect from time to time, except that any such additional vacation and paid-time-off accrual shall be limited to the extent the Accrued PTO assumed by Purchaser exceeds Purchaser’s annual carryover limits.
Section 7.18      Terminated Employees . Within five (5) days after the expiration of the Transition Period, Seller shall provide to Purchaser an anonymized list (which shall include work location) of each employee who primarily provided services at the Assets (other than Transferred Employees) whose employment was terminated by Seller or its Affiliates within the ninety (90) day period prior to the expiration of the Transition Period. During the ninety (90) day period following the expiration of the Transition Period, Purchaser shall notify Seller of the termination of employment of any Transferred Employee within two (2) days following such termination. Purchaser shall be responsible for complying with the Worker Adjustment and Retraining Notification Act and any and all obligations under other applicable Laws requiring notice of plant closings, relocations, mass layoffs, reductions in force or similar actions (and for any failures to so comply), in each case, as a result of any termination of employment of a Transferred Employee by Purchaser or any of its Affiliates on or after to the expiration of the Transition Period (whether such obligations arise solely from terminations following the expiration of the Transition Period or in combination with terminations of employment prior to the expiration of the Transition Period).

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Purchaser shall indemnify and hold harmless Seller and its Affiliates against any and all Liabilities arising in connection with any failure of Purchaser to comply with the requirements of this Section 7.18 . With regard to any employees of Seller who are not Transferred Employees, Seller shall be responsible for complying with the Worker Adjustment and Retraining Notification Act and any and all obligations under other applicable Laws requiring notice of plant closings, relocations, mass layoffs, reductions in force or similar actions (and for any failures to so comply), in each case, as a result of any termination of employment of such employees of Seller who are not Transferred Employees. Seller shall indemnify and hold harmless Purchaser and its Affiliates against any and all Liabilities arising in connection with any failure of Seller to comply with the requirements of this Section 7.18 .
Section 7.19      Service Credit . With respect to any employee benefit plan maintained by Purchaser or any of its Affiliates for the benefit of any Transferred Employee (each, a “ New Plan ”), effective as of the Transfer Time, each Transferred Employee shall be credited with his or her years of service with each Seller and its Affiliates and their respective predecessors before the applicable Transfer Time, to the same extent as such Transferred Employee was entitled, before the applicable Transfer Time, to credit for such service under any similar Seller Plan in which such Transferred Employee participated or was eligible to participate immediately prior to the applicable Transfer Time; provided that the foregoing credit shall not apply to the extent that its application would result in a duplication of benefits for the same period of service. In addition, and without limiting the generality of the foregoing, Purchaser and its Affiliates shall (a) immediately following the applicable Transfer Time, cause each Transferred Employee to be immediately eligible to participate, without any waiting time, in any and all New Plans, (b) immediately following the applicable Transfer Time, cause all pre-existing condition exclusions and actively-at-work requirements in any New Plan providing medical, dental, pharmaceutical and/or vision benefits to any Transferred Employee, to be waived for such employee and his or her covered dependents, unless such conditions would not have been waived under the Seller Plan providing corresponding benefits in which such Transferred Employee participated immediately before the applicable Transfer Time (such plans, collectively, the “ Old Plans ”), and (c) cause any eligible expenses incurred by such Transferred Employee and his or her covered dependents during the portion of the plan year of the Old Plan ending on the date such Transferred Employee’s participation in the corresponding New Plan begins to be taken into account under such New Plan for purposes of satisfying all deductible, coinsurance and maximum out-of-pocket requirements applicable to such Transferred Employee and his or her covered dependents for the applicable plan year as if such amounts had been paid in accordance with such New Plan.
Section 7.20      Savings Plans . As of no later than the applicable Transfer Time, Purchaser or its Affiliates shall sponsor a defined contribution plan (the “ Purchaser Savings Plan ”) as defined under Section 3(34) of ERISA and shall allow each Transferred Employee who was eligible to participate in a corresponding plan with Seller or its Affiliates (the “ Seller Savings Plan ”) as of immediately prior to the applicable Transfer Time to fully participate in such Purchaser Savings Plan. Purchaser shall take the necessary action, including any necessary plan amendments, to cause the Purchaser Savings Plan to permit each Transferred Employee to make rollover contributions of “eligible rollover distributions” (within the meaning of Section 401(a)(31) of the Code) in an amount

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equal to the full account balance distributable, excluding any loans, to such Transferred Employee from the Seller Savings Plan to the Purchaser 401(k) Plan.
Section 7.21      Sole Benefit of Certain Covenants . Sections 7.12 through 7.20 shall be binding upon and inure solely to the benefit of the Parties, and nothing in such Sections, express or implied, shall confer upon any other Person any rights or remedies of any nature whatsoever under or by reason of such Sections. Nothing contained herein, express or implied, shall be construed to establish, amend or modify any benefit plan, program, agreement or arrangement. The Parties acknowledge and agree that the terms set forth in such Sections shall not create any right in any Transferred Employee or any other Person to any continued employment with Purchaser, Seller or any of their respective Affiliates or compensation or benefits of any nature or kind whatsoever.
Section 7.22      Removal of Seller Marks . Purchaser agrees that, no later than ninety (90) Days after the end of the Transition Period, Purchaser shall (a) remove, obliterate, cover or replace, as appropriate, all signs, billboards, containers, drums, advertisements or other media containing any service marks, trade names, trade dress or other indicia of origin of Seller or any other Affiliate of Seller located on or appurtenant to any portion of the Properties, including signs, billboards and advertisements or other media located at offices and facilities related to the Properties; and (b) return to Seller or, at Purchaser’s option, destroy all items and materials, including stationery, letterhead and purchase orders, located at or on the Properties that identify Properties of Seller or of any other Affiliate of Seller, or any of the Properties containing the above described marks and have been located by Seller, or such items shall be destroyed upon location by Purchaser, and Purchaser shall certify such destruction to Seller and in such certification shall agree to promptly destroy any additional materials located in the future. In addition, Purchaser agrees that, no later than ninety (90) Days after the end of the Transition Period, Purchaser shall replace all signs located at or on the Properties that use the above-described marks or any mark confusingly similar thereto, identify Properties of Seller or of any other Affiliate of Seller, or identify Seller or any other Affiliate of Seller as the operator of such Properties.
Section 7.23      NORM . The Properties may currently or have in the past contained NORM, and special procedures associated with assessment, remediation, removal, transportation or disposal of NORM may be necessary. Notwithstanding anything contained in any other provision of this Agreement, if Closing occurs, Purchaser expressly assumes and accepts sole responsibility for and agrees to pay all costs and expenses associated with assessment, remediation, removal, transportation and disposal of NORM associated with the Properties, and may not claim the fact that assessment, remediation, removal, transportation or disposal of NORM are not complete or that additional costs and expenses are required in connection with assessment, remediation, removal, transportation or disposal of NORM as an alleged Environmental Defect or a breach of Seller’s representations and warranties under this Agreement or the basis for any other redress against Seller, and Purchaser (on behalf of itself, its Affiliates and their successors and assigns) irrevocably waives any and all Liabilities against all Seller Indemnified Parties associated with the same .
Section 7.24      Decommissioning . The Properties may contain assets, wells, gathering lines, pipelines and facilities that are currently not in service or have been shut in or temporarily or

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permanently abandoned. Subject to Section 5.14 , but notwithstanding anything else contained in any other provision of this Agreement, if Closing occurs, Purchaser expressly assumes and accepts sole responsibility for and agrees to pay all costs and expenses associated with Decommissioning of the Properties, and may not claim the fact that Decommissioning is not complete or that additional costs and expenses are required in connection with Decommissioning as an alleged Environmental Defect or a breach of Seller’s representations and warranties under this Agreement or the basis for any other redress against any Seller Indemnified Party, and Purchaser (on behalf of itself, its Affiliates and their successors and assigns) irrevocably waives any and all Liabilities against the Seller Indemnified Parties associated with the same.
Section 7.25      POOI Agreements . Prior to the Execution Date, Seller has obtained, and delivered to Purchaser, a written acknowledgement and shareholder consent from each Third Party shareholder of POOI (including preferred shareholders) providing that each such shareholder grants its consent to POOI’s execution of this Agreement and all documents required to be executed and delivered hereunder and the consummation of the transactions contemplated herein and therein in a form that is reasonably satisfactory to Purchaser (the “ POOI Consent ”).  From and after the Execution Date, Seller agrees to fully and timely comply with all obligations arising under such POOI Consent and any of the POOI Agreements in connection with the execution and delivery of this Agreement and all documents required to be executed and delivered hereunder and in connection with the consummation of the transactions contemplated herein and therein.  In addition, Seller shall provide copies to Purchaser of all waivers, certificates or notices relating to POOI issued or obtained between the Execution Date and Closing.
Section 7.26      Amendment of Schedules .
(a)      Purchaser agrees that, with respect to the representations and warranties of Seller contained in this Agreement, Seller shall have the right, exercisable in writing no later than three Business Days prior to the Closing Date, to add, supplement or amend the Schedules to its representations and warranties with respect to any matter arising after the Effective Time and of which Seller did not have knowledge at the Execution Date, or any change in or update to any existing matter after the Execution Date. For purposes of this Agreement, all matters disclosed pursuant to any such addition, supplement or amendment prior to Closing shall be deemed to have been included on the Schedules to Seller’s representations and warranties as of the Execution Date, provided , however , that except with respect to any such additions, supplements or amendments to Schedule 5.4 , Schedule 5.6 or Schedule 5.8 , all matters disclosed pursuant to any such addition, supplement or amendment at or prior to Closing shall be disregarded for purposes of Seller’s indemnification obligations under Article 11 .
(b)      With respect to any Seismic Data that is subject to any Third Party license or other Third Party agreement that prohibits disclosure of the terms of such license or agreement to Purchaser, Seller shall use its commercially reasonable efforts to obtain consent to disclose the terms of such license or agreement to Purchaser and shall be required to update Schedule 5.9 to the extent that any such consent to disclosure is obtained prior to the Closing Date. Notwithstanding the foregoing, Purchaser acknowledges that this provision is not intended to incorporate, and that

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Purchaser will not acquire, any master license agreements or any similar agreement with any Third Parties.
Section 7.27      Transfer Orders and Letters in Lieu . With respect to any Asset, to the extent FMOG or any of its Affiliates provides “Marketing Services” (as such term is defined in the Transition Services Agreement) for such Asset, prior to FMOG or any of its Affiliates ceasing to provide “Marketing Services” (as such term is defined in the Transition Services Agreement) for such Asset and in accordance with the Transition Services Agreement, Seller will deliver duly executed transfer orders or letters in lieu thereof on forms supplied by Purchaser and reasonably acceptable to Seller directing all purchasers of production to make payment to Purchaser of proceeds attributable to production from such Assets from and after the Effective Time, for delivery by Purchaser to the purchasers of production.
ARTICLE 8. CONDITIONS TO CLOSING
Section 8.1      Conditions of Seller to Closing . The obligations of Seller to proceed to consummate the transactions contemplated by this Agreement are subject, at the option of Seller, to the satisfaction on or prior to Closing of each of the following conditions:
(a)      Representations .
(i)      The representations and warranties of Purchaser set forth in Article 6 (disregarding for this purpose any limitation or qualification by “materiality” or “material adverse effect”), other than the Fundamental Representations, shall be true and correct in all respects, as of the Execution Date and as of the Closing Date as though made on and as of the Closing Date (other than representations and warranties that refer to a specified date, which need only be true and correct on and as of such specified date), except to the extent such failures to be true and correct, individually or in the aggregate, have not had, and would not be reasonably likely to have, a material adverse effect upon the ability of Purchaser to consummate the transactions contemplated in this Agreement; and
(ii)      t he Fundamental Representations of Purchaser shall be true and correct in all respects, in each case, as of the Execution Date and as of the Closing Date as though made on and as of the Closing Date (other than representations and warranties that refer to a specified date, which need only be true and correct in all respects on and as of such specified date);
(b)      Performance . Purchaser shall have performed and observed, in all material respects, all covenants and agreements to be performed or observed by it under this Agreement prior to or on the Closing Date;
(c)      No Action . No injunction, order (including any temporary restraining order), award, decree or judgment of any Governmental Authority having appropriate jurisdiction restraining, enjoining or otherwise prohibiting the consummation of or awarding substantial damages associated with the transactions contemplated hereby or the sale of any of the Properties

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has been issued by any Governmental Authority and remains in effect, and no suit, action or other proceeding is pending with respect thereto;
(d)      Closing Deliverables . Purchaser shall have delivered (or be ready, willing and able to deliver at Closing) to Seller the documents and other items required to be delivered by Purchaser under Section 9.3 ;
(e)      HSR Act . Any waiting period applicable to the consummation of the transactions contemplated under the terms of this Agreement under the HSR Act shall have expired or been terminated; and
(f)      Exercise of Purchase Right . The Purchase Right Closing described in Section 2.16 of that certain Stockholders Agreement, dated as of November 17, 2011, by and among POOI, FMOG, PXP Resources LLC, and each Third Party shareholder of POOI (including preferred shareholders), as amended, shall have occurred.
Section 8.2      Conditions of Purchaser to Closing . The obligations of Purchaser to consummate the transactions contemplated by this Agreement are subject, at the option of Purchaser, to the satisfaction on or prior to Closing of each of the following conditions:
(a)      Representations .
(i)      The representations and warranties of Seller set forth in Article 5 (disregarding for this purpose any limitation or qualification by “materiality” or “Material Adverse Effect”), other than the Fundamental Representations, shall be true and correct in all respects, as of the Execution Date and as of the Closing Date as though made on and as of the Closing Date (other than representations and warranties that refer to a specified date, which need only be true and correct on and as of such specified date), except to the extent such failures to be true and correct, individually or in the aggregate, have not had a Material Adverse Effect; and
(ii)      t he Fundamental Representations of Seller shall be true and correct in all respects, in each case, as of the Execution Date and as of the Closing Date as though made on and as of the Closing Date (other than representations and warranties that refer to a specified date, which need only be true and correct in all respects on and as of such specified date);
(b)      Performance . Seller shall have performed and observed, in all material respects, all covenants and agreements to be performed or observed by it under this Agreement prior to or on the Closing Date;
(c)      No Action . No injunction, order (including any temporary restraining order), award, decree or judgment of any Governmental Authority having appropriate jurisdiction restraining, enjoining or otherwise prohibiting the consummation of or awarding substantial damages associated with the transactions contemplated hereby or the sale of any of the Properties

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has been issued by any Governmental Authority and remains in effect, and no suit, action or other proceeding is pending with respect thereto;
(d)      Closing Deliverables . Seller shall have delivered (or be ready, willing and able to deliver at Closing) to Purchaser the documents and other items required to be delivered by Seller under Section 9.2 ;
(e)      HSR Act . Any waiting period applicable to the consummation of the transactions contemplated under the terms of this Agreement under the HSR Act shall have expired or been terminated;
(f)      Title Defects, et al . The sum of (i) all Title Defect Amounts claimed by Purchaser pursuant to Section 3.4 which are, in each case, in excess of the Individual Title Threshold, (ii) Remediation Amounts claimed by Purchaser pursuant to Section 4.2 which are, in each case, in excess of the Individual Environmental Threshold, and (iii) the aggregate reduction in value of all Casualty Losses for which Purchaser is entitled to a remedy pursuant to Section 3.6(b) ; (provided that, if the value of any such Title Defect Amount, Remediation Amount or Casualty Loss is in dispute, then for purposes of Section 8.2(f) , such value shall be as determined by means of averaging the good faith assertions of such amounts by Seller and by Purchaser), shall be less than 20% of the unadjusted Purchase Price; and
(g)      Exercise of Purchase Right . The Purchase Right Closing described in Section 2.16 of that certain Stockholders Agreement, dated as of November 17, 2011, by and among POOI, FMOG, PXP Resources LLC, and each Third Party shareholder of POOI (including preferred shareholders), as amended, shall have occurred.
ARTICLE 9. CLOSING
Section 9.1      Time and Place of Closing . The consummation of the purchase and sale of the Assets as contemplated by this Agreement (the “ Closing ”), shall, unless otherwise agreed to in writing by Purchaser and Seller, take place at the offices of Seller located at 717 Texas Avenue, Suite 2100, Houston, Texas 77002, at 10:00 a.m., local time, on December 12, 2016 or if all conditions in Article 8 required to be satisfied prior to Closing have not yet been satisfied or waived, as soon thereafter as such conditions have been satisfied or waived. The date on which the closing actually occurs is referred to herein as the “ Closing Date .”
Section 9.2      Obligations of Seller at Closing . At the Closing, upon the terms and subject to the conditions of this Agreement, and subject to the simultaneous performance by Purchaser of its obligations pursuant to Section 9.3 , Seller shall deliver or cause to be delivered to Purchaser, among other things, the following:
(a)      duly executed and acknowledged conveyances of the Assets in substantially the form attached hereto as Exhibit B (the “ Conveyance ”), in sufficient duplicate originals to allow recording in all appropriate jurisdictions and offices, together with such other forms of assignments of record title ownership or operating rights or assignment of rights of way with respect to the Assets as may be required by BOEM, BSEE or any other applicable Governmental Authority;

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(b)      duly executed signature page counterpart to any applicable government forms required by BOEM, BSEE and other Governmental Authorities with jurisdiction over the Wells and Equipment, including any designation of operator, designation of applicant and oil spill financial responsibility forms;
(c)      duly executed, acknowledged and witnessed signature page counterparts of all other assignments, filings or notices in such form required by federal or state agencies for the assignment of any federal or state Assets, each in sufficient duplicate originals to facilitate submission and recording in all appropriate jurisdictions;
(d)      duly executed counterparts of the Transition Services Agreement;
(e)      copies of any and all Consents and waivers of Preferential Rights received by Seller prior to the Closing Date;
(f)      evidence reasonably satisfactory to Purchaser that the Purchase Right Closing described in Section 2.16 of that certain Stockholders Agreement, dated as of November 17, 2011, by and among POOI, FMOG, PXP Resources LLC, and each Third Party shareholder of POOI (including preferred shareholders), as amended, has occurred;
(g)      duly executed counterparts of the Letter of Attornment;
(h)      an executed acknowledgment of the Preliminary Settlement Statement;
(i)      a certificate duly executed by an authorized corporate officer of each of FMOG, FMEP and POOI, dated as of the Closing, certifying on behalf of such Seller that the conditions set forth in Sections 8.2(a) and 8.2(b) have been fulfilled;
(j)      a certificate duly executed by the secretary or any assistant secretary of Seller, dated as of the Closing, (i) attaching and certifying on behalf of each of FMOG, FMEP and POOI complete and correct copies of (A) the certificate of incorporation, certificate of formation, limited liability company agreement and the bylaws of such Seller, as applicable, each as in effect as of the Closing, (B) the resolutions of the applicable governing body of such Seller authorizing the execution, delivery, and performance by Seller of this Agreement and the transactions contemplated hereby, and (C) any required approval by the stockholders of Seller of this Agreement and the transactions contemplated hereby and (ii) certifying on behalf of Seller the incumbency of each officer of Seller executing this Agreement or any document delivered in connection with the Closing;
(k)      each of FCX Oil & Gas, Inc. and POOI shall deliver to Purchaser at the Closing a properly executed affidavit prepared in accordance with Treasury Regulations section 1.1445-2(b) certifying such Person’s non-foreign status; and
(l)      any other agreements, instruments and documents which are required by other terms of this Agreement to be executed and/or delivered at the Closing.
Section 9.3      Obligations of Purchaser at Closing . At the Closing, upon the terms and subject to the conditions of this Agreement, and subject to the simultaneous performance by Seller

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of its obligations pursuant to Section 9.2 , Purchaser shall deliver or cause to be delivered to Seller, among other things, the following:
(a)      executed counterparts of the instruments contemplated in Sections 9.2(a) through (h) ;
(b)      a wire transfer of the Closing Payment in same-day funds;
(c)      an executed acknowledgment of the Preliminary Settlement Statement;
(d)      a certificate by an authorized corporate officer of Purchaser, dated as of the Closing, certifying on behalf of Purchaser that the conditions set forth in Sections 8.1(a) and 8.1(b) have been fulfilled;
(e)      evidence that Purchaser is at Closing qualified with BOEM to hold oil and gas leases on the Outer Continental Shelf, and has posted (or is exempt from posting) with BOEM bonds (area-wide, supplemental and/or additional) required by BOEM;
(f)      a certificate duly executed by the secretary or any assistant secretary of Purchaser, dated as of the Closing, (i) attaching and certifying on behalf of Purchaser complete and correct copies of (A) the certificate of conversion and limited liability company agreement of Purchaser, each as in effect as of the Closing, (B) the resolutions of the Board of Directors of Purchaser authorizing the execution, delivery, and performance by Purchaser of this Agreement and the transactions contemplated hereby, and (C) any required approval by the members of Purchaser of this Agreement and the transactions contemplated hereby and (ii) certifying on behalf of Purchaser the incumbency of each officer of Purchaser executing this Agreement or any document delivered in connection with the Closing;
(g)      a non-exclusive license, in substantially the form attached hereto as Exhibit J , to all Seismic Data that is owned by Purchaser or its Affiliates after the Closing and acquired pursuant to this Agreement; and
(h)      any other agreements, instruments and documents which are required by other terms of this Agreement to be executed and/or delivered at the Closing.
Section 9.4      Closing Payment and Post-Closing Purchase Price Adjustments .
(a)      Not later than five (5) Business Days prior to the Closing Date, Seller shall prepare in good faith and deliver to Purchaser, using and based upon the best information available to Seller, a “ Preliminary Settlement Statement ” estimating the Adjusted Purchase Price after giving effect to all Purchase Price adjustments set forth in Section 2.2 and the calculation of the adjustments used to determine such amount, together with (i) all information in Seller’s or its Affiliates’ possession used to make such calculations and (ii) the designation of Seller’s account for the wire transfer of the Adjusted Purchase Price. Within three (3) Business Days of receipt of the Preliminary Settlement Statement, Purchaser will deliver to Seller a written report containing all changes with the explanation therefor that Purchaser proposes to be made to the Preliminary Settlement Statement,

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if any. The Preliminary Settlement Statement, as agreed upon by the Parties, will be used to adjust the Purchase Price at Closing; provided that if the Parties cannot agree on the Preliminary Settlement Statement prior to the Closing, except as set forth in Section 3.4(i) or Section 4.2(g) , the Adjusted Purchase Price for purposes of the Closing shall be amount equal to the average of (x) the estimate of the Adjusted Purchase Price as set forth in Seller’s draft of the Preliminary Settlement Statement and (y) the estimate of the Adjusted Purchase Price as set forth in (or imputed from) Purchaser’s written report delivered pursuant to this Section 9.4(a) (the resulting amount, the “ Closing Payment ”).
(b)      As soon as reasonably practicable after the Closing but not later than the 120th day following the Closing Date, Seller shall prepare in good faith and deliver to Purchaser a “ Final Settlement Statement ” setting forth the final calculation of the Adjusted Purchase Price and showing the calculation of each adjustment, based, to the extent possible on actual credits, charges, receipts and other items before and after the Effective Time, together with all information in Seller’s or its Affiliates’ possession used to make such calculations. As soon as reasonably practicable but not later than the 30th day following receipt of Seller’s statement hereunder, Purchaser shall deliver to Seller a written report containing any changes that Purchaser proposes be made to the Final Settlement Statement. The Parties shall undertake to agree on the final statement of the Adjusted Purchase Price no later than 180 days after the Closing Date. In the event that the parties cannot reach agreement within such period of time, either Party may refer the remaining matters in dispute to PricewaterhouseCoopers LLP, or if PricewaterhouseCoopers LLP is unable or unwilling to perform its obligations under this Section, such other nationally recognized independent accounting firm as may be accepted by Purchaser and Seller, for review and final determination. The accounting firm shall conduct the arbitration proceedings in Houston, Texas in accordance with the Commercial Arbitration Rules of the American Arbitration Association, to the extent such rules do not conflict with the terms of this Section. The accounting firm’s determination shall be made within thirty (30) days after submission of the matters in dispute and shall be final and binding on both Parties, without right of appeal. In determining the proper amount of any adjustment to the Purchase Price, the accounting firm shall not increase the Purchase Price more than the increase proposed by Seller nor decrease the Purchase Price more than the decrease proposed by Purchaser, as applicable. The accounting firm shall act as an expert for the limited purpose of determining the specific disputed matters submitted by either Party and may not award damages or penalties to either Party with respect to any matter. Seller and Purchaser shall each bear its own legal fees and other costs of presenting its case. Each Party shall bear one-half of the costs and expenses of the accounting firm. Within ten (10) days after the earlier of (i) the expiration of Purchaser’s thirty (30) day review period without delivery of any written report or (ii) the date on which the Parties or the accounting firm, as applicable, finally determine the Adjusted Purchase Price, (x) Purchaser shall pay to Seller the amount by which the Adjusted Purchase Price exceeds the Closing Payment or (y) Seller shall pay to Purchaser the amount by which the Closing Payment exceeds the Adjusted Purchase Price, as applicable.
ARTICLE 10. TERMINATION
Section 10.1      Termination . At any time prior to the Closing, this Agreement may be terminated as follows:

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(a)      by the mutual consent of Purchaser and Seller as evidenced in writing signed by Purchaser and Seller;
(b)      by Purchaser, upon written notice to Seller, if any of the conditions to Closing set forth in Section 8.2(c) or Section 8.2(e) have not been satisfied as of January 10, 2017 (the “ Outside Termination Date ”);
(c)      by Seller, upon written notice to Purchaser, if any of the conditions to Closing set forth in Section 8.1(c) or Section 8.1(e) have not been satisfied as of the Outside Termination Date;
(d)      by Purchaser, upon written notice to Seller, if there has been a material breach by Seller of any representation, warranty, covenant or other agreement set forth herein, in each case, that has prevented or, in Purchaser’s good faith estimation, will prevent the satisfaction of any of the conditions to Closing set forth in Section 8.2(a) , Section 8.2(b) or Section 8.2(d) and, if such breach is of a character that it is capable of being cured, such breach has not been cured by Seller on the earlier of (A) the date that is twenty (20) days after receipt of notice thereof from Purchaser or (B) the Outside Termination Date;
(e)      by Seller, upon written notice to Purchaser, if there has been a material breach by of any representation, warranty, covenant or other agreement set forth herein, in each case, that has prevented or, in Seller’s good faith estimation, will prevent the satisfaction of any of the conditions to Closing set forth in Section 8.1(a) , Section 8.1(b) or Section 8.1(d) and, if such breach is of a character that it is capable of being cured, such breach has not been cured by Purchaser on the earlier of (i) the date that is twenty (20) days after receipt of notice thereof from Seller or (ii) the Outside Termination Date; or
(f)      by Purchaser or Seller, upon written notice to the other Party, if the condition to Closing set forth in Section 8.2(f) has not been satisfied as of the targeted Closing Date;
provided, however, that no Party shall have a right to terminate this Agreement pursuant to this Section 10.1 (other than pursuant to Section 10.1(a) or Section 10.1(f) ) if such Party is in material breach of any representation, warranty or covenant contained in this Agreement.
Section 10.2      Effect of Termination .
(a)      If the obligation to close the transactions contemplated by this Agreement is terminated pursuant to any provision of Section 10.1 hereof, then, except for the provisions of Section 5.1 , Section 7.2(a) , this Section 10.2 , Section 11.6 , Article 12 (other than Sections 12.5 , 12.7 , and 12.8 ) and such of the defined terms set forth herein necessary to give context to the surviving provisions, each of which shall survive the termination of this Agreement, this Agreement shall forthwith become void and the Parties shall have no Liability or obligation hereunder.
(b)      If Purchaser is entitled to terminate this Agreement pursuant to Section 10.1  because of (i) the Willful Breach by Seller of this Agreement, or (ii) the failure of Seller to close in the instance where, as of the Outside Termination Date, (A) all of the conditions

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in Section 8.1 (excluding conditions that, by their terms, cannot be satisfied until the Closing) have been satisfied (or waived by Seller), (B) Purchaser is ready, willing and able to perform its obligations under Section 9.3 , and (C) Seller nevertheless elects not to close, then in either such event, Purchaser may elect to either (1) terminate this Agreement, in which event, Purchaser shall be entitled to an amount equal to One Hundred Million Dollars ($100,000,000) as liquidated damages (the “ Purchaser Termination Fee ”), which amount shall be immediately payable by wire transfer in immediately available funds by Seller to Purchaser, or (2) seek all remedies available to Purchaser at Law or in equity, including the enforcement of specific performance of this Agreement. The Parties agree that (x) that Purchaser will suffer damages that are not practicable to ascertain and (y) the foregoing described liquidated damages are reasonable considering all of the circumstances existing as of the Execution Date and constitute the Parties’ good faith estimate of the actual damages reasonably expected to result from such termination of this Agreement by Purchaser. If Purchaser elects to seek specific performance, Purchaser and Seller each agree to waive any requirement for the posting of a bond in connection with any such equitable relief in favor of the other Party. Purchaser may elect to terminate this Agreement and receive liquidated damages as provided in this Section 10.2(b) , even if it first sought specific performance, at any time prior to a final non-appealable order from a court with appropriate jurisdiction enforcing specific performance as provided in this Section 10.2(b) . Notwithstanding anything to the contrary in this Agreement, if the Purchaser Termination Fee shall become due and payable in accordance with this Section 10.2(b) , from and after such termination and payment of the Purchaser Termination Fee pursuant to and in accordance with this Section 10.2(b) , Seller shall have no further Liability of any kind for any reason in connection with this Agreement or the termination contemplated hereby, except in relation to the obligations under the Sections of this Agreement referenced in Section 10.2(a) .
(c)      If Seller is entitled to terminate this Agreement pursuant to Section 10.1  because of (i) the Willful Breach by Purchaser of this Agreement, or (ii) the failure of Purchaser to close in the instance where, as of the Outside Termination Date, (A) all of the conditions in Section 8.2 (excluding conditions that, by their terms, cannot be satisfied until the Closing) have been satisfied (or waived by Purchaser), (B) Seller is ready, willing and able to perform its obligations under Section 9.2 , and (C) Purchaser nevertheless elects not to close, then in either such event, Seller may elect to either (1) terminate this Agreement, in which event, Seller shall be entitled to an amount equal to One Hundred Million Dollars ($100,000,000) as liquidated damages (the “ Seller Termination Fee ”), which amount shall be immediately payable by wire transfer in immediately available funds by Purchaser to Seller, or (2) seek all remedies available to Seller at Law or in equity, including the enforcement of specific performance of this Agreement. The Parties agree that (x) that Seller will suffer damages that are not practicable to ascertain and (y) the foregoing described liquidated damages are reasonable considering all of the circumstances existing as of the Execution Date and constitute the Parties’ good faith estimate of the actual damages reasonably expected to result from such termination of this Agreement by Seller. If Seller elects to seek specific performance, Purchaser and Seller each agree to waive any requirement for the posting of a bond in connection with any such equitable relief in favor of the other Party. Seller may elect to terminate this Agreement and receive liquidated damages as provided in this Section 10.2(c) , even if it first sought specific performance, at any time prior to a final non-appealable order from a court with appropriate jurisdiction enforcing specific performance as provided in this Section 10.2(c) . Notwithstanding anything to the contrary in this Agreement, if the Seller Termination Fee shall become due and

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payable in accordance with this Section 10.2(c) , from and after such termination and payment of the Seller Termination Fee pursuant to and in accordance with this Section 10.2(c) , Purchaser shall have no further Liability of any kind for any reason in connection with this Agreement or the termination contemplated hereby, except in relation to the obligations under the Sections of this Agreement referenced in Section 10.2(a) .
(d)      Subject to the foregoing Section 10.2(b) and Section 10.2(c) , upon the termination of this Agreement neither Party shall have any other Liability or obligation hereunder or otherwise to the other Party with respect to this Agreement or the transactions contemplated by this Agreement.
ARTICLE 11. INDEMNIFICATIONS; LIMITATIONS
Section 11.1      Assumption of Obligations; Retained Liabilities .
(a)      Subject to Purchaser’s rights to indemnity under this Article 11 and Seller’s obligations with respect to pre-Effective Time Operating Expenses pursuant to Section 1.3 , from and after the Closing Date, Purchaser shall assume and hereby agrees to fulfill, perform, pay and discharge (or cause to be fulfilled, performed, paid or discharged) all of the obligations and Liabilities of Seller and Seller’s Affiliates, known or unknown, with respect to the Assets, other than the Retained Liabilities, including all (i) obligations to Decommission any Properties, (ii) all Purchaser Employment Liabilities and (iii) all Third Party Claims relating to preferential purchase rights (all of said obligations and Liabilities, less and except the Retained Liabilities, are referred to herein as the “ Assumed Obligations ”).
(b)      Seller shall retain and hereby agrees to fulfill, perform, pay and discharge (or cause to be fulfilled, performed, paid or discharged) all of the obligations and Liabilities of Seller, known or unknown, with respect to all Liabilities to the extent arising from or attributable to the following, regardless of whether such obligations or Liabilities arose prior to, on or after the Effective Time, except as otherwise specified: (i) the ownership, operation and use of the Excluded Assets, subject to Section 3.5(j) ; (ii) all matters set forth on Schedule 5.4 , Schedule 5.6 or Schedule 5.8 , (iii) all Seller Taxes, (iv) Liabilities arising in connection with property damage (including debris and wreck removal to the extent required by applicable Law), personal injury, illness or death, to the extent arising from or attributable to, the use, ownership or operation of the Assets prior to the Closing Date, (v) Hazardous Substances related or attributable to the Assets that, prior to the Closing Date, were disposed of off-site, (vi) all Seller Employment Liabilities, (vii) all Liabilities or obligations of any kind to any equityholder of POOI to the extent related to, arising out of or otherwise in connection with any of the POOI Agreements (for the avoidance of doubt, not including any obligations of Purchaser to make any payments or perform any covenants expressly contemplated by this Agreement), (viii) to the extent not covered by any other Retained Liability or any Assumed Obligation, all of the obligations and Liabilities of Seller, known or unknown, with respect to the Assets, to the extent, and only to the extent, that such Liabilities arose prior to the Effective Time or are related to any breach, event, occurrence, matter or circumstance that occurred prior to the Effective Time, (ix) the payment of proceeds or other amounts owed to Working Interest, royalty, overriding royalty and other interest owners relating to the Properties

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(including any operational or regulatory reporting), and attributable to the period of time prior to the Effective Time, including any mispayments or allegations of mispayments of such proceeds or amounts attributable to the period of time prior to the Effective Time, (x) disputes related to the proper billing or payment of joint interest billing accounts related to ownership or operation of the Assets prior to the Effective Time, and (xi) fines, penalties and other similar obligations levied by any Governmental Authority with respect to the condition, ownership, use or operation of the Assets prior to the Closing Date (all of said obligations and Liabilities are referred to herein as the “ Retained Liabilities ”); and provided that any Retained Liability that is currently a Liability of one or more of FMOG, FMEP or POOI shall remain a Liability of such entity or entities and shall not be assumed by any other entity or entities (except to the extent covered by the Seller’s parent guarantee delivered in connection herewith).
Section 11.2      Indemnification .
(a)      From and after Closing, Purchaser shall indemnify, defend, and hold harmless Seller and its Affiliates, and all of its and their respective partners, members, directors, officers, managers, employees, attorneys, agents, Representatives, successors and assigns (collectively, “ Seller Indemnified Parties ”) from and against all Liabilities sustained or incurred by any person or entity, or incurred in the investigation or defense of any of the same or in asserting, presenting or enforcing any of their respective rights hereunder arising from, based upon, related to or associated with:
(i)      Purchaser’s breach of any of its covenants or agreements contained this Agreement,
(ii)      any breach of any representation or warranty made by Purchaser contained in this Agreement or in the certificate delivered by Purchaser at Closing pursuant to Section 9.3(d) , and
(iii)      subject to Seller’s indemnification obligations pursuant to sub-section (b) below, the Assumed Obligations,
REGARDLESS OF FAULT.
(b)      From and after Closing, Seller shall indemnify, defend, and hold harmless Purchaser and its Affiliates, and all of its and their respective partners, members, directors, officers, managers, employees, attorneys, agents, Representatives, successors and assigns (collectively, “ Purchaser Indemnified Parties ”) from and against all Liabilities sustained or incurred by any person or entity or incurred in the investigation or defense of any of the same or in asserting, presenting or enforcing any of their respective rights hereunder arising from, based upon, related to or associated with:
(i)      Seller’s breach of any of its covenants or agreements contained this Agreement,

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(ii)      any breach of any representation or warranty made by Seller contained in this Agreement or in the certificate delivered by Seller at Closing pursuant to Section 9.2(i) , and
(iii)      the Retained Liabilities,
REGARDLESS OF FAULT .
(c)      No Indemnified Party other than Seller and Purchaser shall have any rights against either Seller or Purchaser under the terms of this Section 11.2 except as may be exercised on its behalf by Purchaser or Seller.
Section 11.3      Indemnification Actions . All claims for indemnification pursuant to this Agreement shall be asserted and resolved as follows:
(a)      The term “ Indemnifying Party ” when used in connection with particular Liabilities shall mean the Party having an obligation to Indemnify another Party or Person(s) with respect to such Liabilities pursuant to this Agreement, and the term “ Indemnified Party ” when used in connection with particular Liabilities shall mean the Party or Person(s) having the right to be indemnified with respect to such Liabilities by another Party pursuant to this Agreement.
(b)      The term “ REGARDLESS OF FAULT ” MEANS WITHOUT REGARD TO THE CAUSE OR CAUSES OF ANY CLAIM, INCLUDING, EVEN THOUGH A CLAIM IS CAUSED IN WHOLE OR IN PART BY:
(i)      THE NEGLIGENCE (WHETHER SOLE, JOINT, CONCURRENT, COMPARATIVE, CONTRIBUTORY, ACTIVE, PASSIVE, GROSS OR OTHERWISE), WILLFUL MISCONDUCT, STRICT LIABILITY OR OTHER FAULT OF ANY MEMBER OF THE PURCHASER INDEMNIFIED PARTIES, THE SELLER INDEMNIFIED PARTIES, INVITEES AND/OR THIRD PARTIES; AND/OR
(ii)      A PRE-EXISTING DEFECT, WHETHER PATENT OR LATENT, OF THE ASSETS AND/OR EQUIPMENT.
(c)      To make a claim for indemnification pursuant to this Agreement, an Indemnified Party shall notify the Indemnifying Party of its claim under this Section 11.3 , including the specific details of and specific basis under this Agreement for its claim (the “ Claim Notice ”). In the event that the claim for indemnification is based upon a claim by a Third Party against the Indemnified Party (a “ Third Party Claim ”), the Indemnified Party shall provide its Claim Notice promptly after the Indemnified Party has actual knowledge of the Third Party Claim and shall enclose a copy of all papers (if any) served with respect to the Third Party Claim; provided that the failure of any Indemnified Party to give notice of a Third Party Claim as provided in this Section 11.3 shall not relieve the Indemnifying Party of its obligations under this Agreement except to the extent such failure results in insufficient time being available to permit the Indemnifying Party to effectively defend against the Third Party Claim or otherwise materially prejudices the Indemnifying Party’s

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ability to defend against the Third Party Claim. In the event that the claim for indemnification is based upon an inaccuracy or breach of a representation, warranty, covenant or agreement, the Claim Notice shall specify the representation, warranty, covenant or agreement that was inaccurate or breached.
(d)      In the case of a claim for indemnification based upon a Third Party Claim, the Indemnifying Party shall have 30 days from its receipt of the Claim Notice to notify the Indemnified Party whether it admits or denies its liability to defend the Indemnified Party against such Third Party Claim at the sole cost and expense of the Indemnifying Party. The Indemnified Party is authorized, prior to and during such 30 day period (or such shorter period until notification from the Indemnifying Party is received), at the expense of the Indemnifying Party, to file any motion, answer or other pleading that it shall deem necessary or appropriate to protect its interests or those of the Indemnifying Party and that is not prejudicial to the Indemnifying Party.
(e)      If the Indemnifying Party admits its liability to defend the Indemnified Party against a Third Party Claim, it shall have the right and obligation to diligently defend, at its sole cost and expense, such Third Party Claim. The Indemnifying Party shall have full control of such defense and proceedings, including any compromise or settlement thereof. If requested by the Indemnifying Party, the Indemnified Party agrees to cooperate in contesting any Third Party Claim which the Indemnifying Party elects to contest (provided that in no event shall an Indemnified Party be obligated to bring any cross-complaint or counterclaim against any Person). The Indemnified Party may participate in, but not control, at its own expense, any defense or settlement of any Third Party Claim controlled by the Indemnifying Party pursuant to this Section 11.3(e) . An Indemnifying Party shall not, without the written consent of the Indemnified Party, (i) settle any Third Party Claim or consent to the entry of any judgment with respect thereto which does not include an unconditional written release of the Indemnified Party from all Liability in respect of such Third Party Claim or (ii) settle any Third Party Claim or consent to the entry of any judgment with respect thereto in any manner that may materially and adversely affect the Indemnified Party (other than as a result of money damages covered by the indemnity).
(f)      If the Indemnifying Party does not admit its liability or admits its liability to defend the Indemnified Party against the Third Party Claim, but fails to diligently prosecute or settle such Third Party Claim, then the Indemnified Party shall have the right to defend against the Third Party Claim at the sole cost and expense of the Indemnifying Party (to the extent the Indemnified Party is entitled to indemnification hereunder), with counsel of the Indemnified Party’s choosing, subject to the right of the Indemnifying Party to admit its liability and assume the defense of the Third Party Claim at any time prior to settlement or final determination thereof. If the Indemnifying Party has not yet admitted its liability to defend the Indemnified Party against the Third Party Claim, the Indemnified Party shall send written notice to the Indemnifying Party of any proposed settlement and the Indemnifying Party shall have the option for ten (10) days following receipt of such notice to (i) admit in writing its liability to indemnify the Indemnified Party from and against the Liability and consent to such settlement, (ii) if liability is so admitted, reject, in its reasonable judgment, the proposed settlement, or (iii) deny liability. If the Indemnified Party settles any Third Party Claim over the objection of the Indemnifying Party after the Indemnifying Party has timely admitted its obligation in writing and has actually assumed the defense of a Third Party Claim, the Indemnified

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Party shall be deemed to have waived any right to indemnity for such claim. Any failure to respond to such notice by the Indemnified Party shall be deemed to be an election under subsection (i) above. Notwithstanding the other provisions of this Section 11.3 , if the Indemnifying Party disputes its potential liability to the Indemnified Party under this Section 11.3 and if such dispute is resolved in favor of the Indemnifying Party, the Indemnifying Party shall not be required to bear any costs and expenses of the Third Party Claim or the Indemnified Party’s defense pursuant to this Section 11.3 and, to the extent incurred by the Indemnifying Party, such costs and expenses shall be promptly reimbursed by the Indemnified Party.
(g)      In the case of a claim for indemnification not based upon a Third Party Claim, the Indemnifying Party shall have 30 days from its receipt of the Claim Notice to (i) cure the Liabilities complained of, (ii) admit its liability for such Liability or (iii) dispute the claim for such Liabilities. If the Indemnifying Party does not notify the Indemnified Party within such 30 day period that it has cured the Liabilities or that it disputes the claim for such Liabilities, the amount of such Liabilities shall conclusively be deemed a Liability of the Indemnifying Party hereunder.
Section 11.4      Limitation on Actions .
(a)      The representations and warranties (other than the Fundamental Representations) of the Parties in Articles 5 and 6 and the corresponding representations and warranties (other than the Fundamental Representations) given in the certificates delivered at the Closing pursuant to Sections 9.2(i) and 9.3(d) , as applicable, shall survive the Closing for a period of twelve (12) months, provided, however, that notwithstanding anything to the contrary herein, (i) the Fundamental Representations (other than the representations and warranties set forth in Section 5.5 ) and the special warranty of title contained in the Conveyance shall each survive the Closing without time limitation, (ii) the representations and warranties set forth in Section 5.5 shall survive the Closing until the expiration of the relevant statute of limitations, and (iii) the representations and warranties set forth in Sections 5.6 , 5.14 (except to the extent related to any Wells that are not set forth on Exhibit A-2 ) and 5.15 shall survive the Closing for a period of eighteen (18) months. The covenants of the Parties that are required to be performed prior to the Closing shall survive the Closing for a period of twelve (12) months, and all other covenants of the Parties shall survive the Closing until the expiration of the applicable statute of limitations. The remainder of this Agreement shall survive the Closing without time limit except as may otherwise be expressly provided herein. Representations, warranties, covenants, and agreements shall be of no further force and effect after the date of their expiration, provided that there shall be no termination of any bona fide claim asserted pursuant to this Agreement with respect to such a representation, warranty, covenant, or agreement prior to its expiration date.
(b)      The indemnities in Sections 11.2(a)(i) , 11.2(a)(ii) , 11.2(b)(i) and 11.2(b)(ii) shall terminate as of the termination date of each respective representation, warranty, covenant, or agreement that is subject to indemnification, except in each case as to matters for which a specific written claim for indemnity has been delivered to the Indemnifying Party on or before such termination date. The indemnities in Sections 11.2(a)(iii) and Section 11.2(b)(iii) shall continue without time limit, except that (A) the indemnity in Section 11.2(b)(iii) with respect to subsections (viii), (ix) and (x) in the definition of Retained Liabilities in Section 11.1(b) (but only with respect

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to such subsections) shall survive the Closing for a period of twelve (12) months, following which period the Liabilities described in such subsections shall cease to be Retained Liabilities and shall become Assumed Obligations, (B) the indemnity in Section 11.2(b)(iii) with respect to subsection (xi) in the definition of Retained Liabilities in Section 11.1(b) (but only with respect to such subsection) shall survive the Closing for a period of twenty-four (24) months, following which period the Liabilities described in such subsections shall cease to be Retained Liabilities and shall become Assumed Obligations and (C) the indemnity in Section 11.2(b)(iii) with respect to subsection (iii) of the definition of Retained Liabilities in Section 11.1(b) shall survive the Closing until the expiration of the relevant statute of limitations.
(c)      Seller shall not have any liability for any indemnification under Section 11.2(b)(ii) for any Liability with a value of $350,000 or less, net to Seller’s interest (and these types of Liabilities will not be counted in determining whether the $20,000,000 amount described below has been met), and Seller shall have no Liability for any indemnification under Section 11.2(b)(ii) until and unless the aggregate amount of the liability for all such Liabilities for which Claim Notices are delivered by Purchaser (and for which Seller is responsible) exceeds $20,000,000, and then only to the extent such the aggregate Liabilities which are above such $20,000,000 threshold exceed $20,000,000, provided, however, that the indemnities under Section 11.2(b)(ii) for a breach of any Fundamental Representation shall not be limited by the provisions of this Section 11.4(c) .
(d)      Notwithstanding anything to the contrary contained elsewhere in this Agreement, Seller shall not be required to indemnify Purchaser under Section 11.2(b)(i) and Section 11.2(b)(ii) for aggregate Liabilities in excess of 25% of the Purchase Price, provided, however, that the indemnities under Section 11.2(b)(ii) for a breach of any Fundamental Representation shall not be limited by the provisions of this Section 11.4(d) .
(e)      The amount of any Liabilities for which an Indemnified Party is entitled to indemnity under this Article 11 shall be reduced by the amount of insurance proceeds realized by the Indemnified Party or its Affiliates with respect to such Liabilities (net of any collection costs, and excluding the proceeds of any insurance policy issued, reinsured or underwritten by the Indemnified Party or its Affiliates).
(f)      “ Fundamental Representations ” shall mean the representations and warranties set forth in (i) Sections 5.2(a) , 5.2(b) , 5.2(c) , 5.3 , 5.5 , 5.14 (to the extent, and only to the extent, related to any Wells that are not set forth on Exhibit A-2 ), 5.17 , 5.18 and 5.25 and (ii) Sections 6.1 , 6.2 , 6.3 , 6.5 , 6.8 , 6.9 , 6.10 , 6.11 and 6.12 .
(g)      In no event shall any Indemnified Party be entitled to duplicate compensation with respect to the same Liability, loss, cost, expense, claim, award or judgment under more than one provision of this Agreement and the various documents delivered in connection with the Closing, or for which an Indemnified Party received the benefits of an adjustment to the Purchase Price pursuant to Section 2.2 hereof.
(h)      For purposes of this Article 11 , any claim of, and Liability resulting from, any breach or inaccuracy in the representations and warranties under this Agreement and the corresponding representations and warranties given in the certificates to be delivered by Seller at

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Closing pursuant to Section 9.2(i) shall be determined without regard to any materiality qualifiers in or affecting such representations or warranties.
Section 11.5      Non-Compensatory Damages . NONE OF THE PURCHASER INDEMNIFIED PARTIES NOR SELLER INDEMNIFIED PARTIES SHALL BE ENTITLED TO RECOVER FROM THE OTHER PARTY OR SUCH OTHER PARTY’S AFFILIATES ANY INDIRECT, CONSEQUENTIAL, SPECIAL, PUNITIVE, INCIDENTAL, SPECULATIVE OR EXEMPLARY DAMAGES OR DAMAGES FOR LOST PROFITS (WHETHER DIRECT OR INDIRECT) OR LOSS OF BUSINESS OPPORTUNITY OF ANY KIND ARISING UNDER OR IN CONNECTION WITH THIS AGREEMENT OR THE TRANSACTIONS CONTEMPLATED HEREBY, EXCEPT TO THE EXTENT ANY SUCH PARTY SUFFERS SUCH DAMAGES (INCLUDING COSTS OF DEFENSE AND REASONABLE ATTORNEYS' FEES INCURRED IN CONNECTION WITH THE DEFENSE OF SUCH DAMAGES) TO A THIRD PARTY, WHICH DAMAGES (INCLUDING COSTS OF DEFENSE AND REASONABLE ATTORNEYS' FEES INCURRED IN CONNECTION WITH THE DEFENSE OF SUCH DAMAGES) SHALL NOT BE EXCLUDED BY THIS PROVISION AS TO RECOVERY HEREUNDER. SUBJECT TO THE PRECEDING SENTENCE, EACH OF SELLER, ON BEHALF OF ITSELF AND THE SELLER INDEMNIFIED PARTIES, AND PURCHASER, ON BEHALF OF ITSELF AND THE PURCHASER INDEMNIFIED PARTIES, WAIVES ANY RIGHT TO RECOVER INDIRECT, PUNITIVE, SPECIAL, INCIDENTAL, SPECULATIVE, EXEMPLARY AND CONSEQUENTIAL DAMAGES, INCLUDING DAMAGES FOR LOST PROFITS (WHETHER DIRECT OR INDIRECT) OR LOSS OF BUSINESS OPPORTUNITY, ARISING IN CONNECTION WITH OR WITH RESPECT TO THIS AGREEMENT OR THE TRANSACTIONS CONTEMPLATED HEREBY.
Section 11.6      Exclusive Remedy and Release . Except for fraud, the indemnification remedies set forth in this Article 11 and the special warranty of title contained in the Conveyance, shall, from and after the Closing, constitute the sole and exclusive remedies of the Parties with respect to any and all Liabilities relating to the subject matter of this Agreement, including statutory or other claims arising under any Law. In furtherance of the foregoing, the Parties hereby waive and release, from and after the Closing to the fullest extent permitted by Law, any and all rights, Liabilities, and causes of action, with respect to the subject matter of this Agreement, they may have against the other Parties, their respective Affiliates and their respective officers, directors, managers, employees, members, agents, and representatives arising under or based upon any Law. Except for (a) claims made pursuant to the express indemnification provisions of this Article 11 or pursuant to the special warranty of title contained in the Conveyance, and (b) the express rights of Purchaser pursuant to Section 3.4 and Section 4.2 (to the extent any such rights expressly survive the Closing pursuant to their terms), Purchaser, on behalf of the Purchaser Indemnified Parties, and Seller, on behalf of each of the Seller Indemnified Parties, shall be deemed to have waived, to the fullest extent permitted under applicable Law, any right of contribution against such Seller or any of its Affiliates and any and all rights, Liabilities and causes of action it may have against such Seller or any of its Affiliates or Purchaser or any of its Affiliates, respectively, arising under or based on any federal, state or local Law, common Law or otherwise. Notwithstanding the foregoing, nothing in this Section 11.6 shall prevent any Party from seeking injunctive or equitable relief in

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pursuit of its indemnification claims under this Article 11 or to enforce a covenant set forth in this Agreement, or as otherwise contemplated by this Agreement.
Section 11.7      Opportunity for Review . Each Party represents that it has had an adequate opportunity to review all waiver, release, indemnity and defense provisions in this Agreement, including the opportunity to submit the same to legal counsel for review and advice. Based upon the foregoing representation, the Parties agree to the provisions set forth above in this Article 11 .
Section 11.8      Purchaser’s Knowledge with Respect to Certain Operated Assets . Notwithstanding anything in this Agreement to the contrary, Seller shall not have any liability for any indemnification under Section 11.2(b)(ii) for any Liability resulting from the breach or inaccuracy of any representation or warranty related to the operation or condition of the Assets that is qualified with respect to Seller’s knowledge, to the extent that, as of the Execution Date, (a) Purchaser has knowledge of such breach or inaccuracy of such representations and warranties, and (b) the affected Asset is operated by Purchaser or any of Purchaser’s Affiliates.
ARTICLE 12. MISCELLANEOUS
Section 12.1      Exhibits and Schedules . All of the Exhibits and Schedules referred to in this Agreement constitute a part of this Agreement. Each Party to this Agreement and its counsel has received a complete set of Exhibits and Schedules prior to and as of the execution of this Agreement.
Section 12.2      Expenses . Except as provided in Section 12.5 , all expenses incurred by Seller in connection with or related to the authorization, preparation or execution of this Agreement, and the Exhibits and Schedules hereto and thereto, and all other matters related to the Closing, including all fees and expenses of counsel, accountants and financial advisers employed by Seller, shall be borne solely and entirely by Seller, and all such expenses incurred by Purchaser shall be borne solely and entirely by Purchaser.
Section 12.3      Counterparts . This Agreement may be executed in counterparts, each of which shall be deemed an original instrument, but all such counterparts together shall constitute but one agreement. Any signature hereto delivered by a Party by facsimile transmission or other electronic transmission shall be deemed an original signature hereto.
Section 12.4      Notices . All notices and communications required or permitted to be given hereunder shall be in writing and shall be delivered personally, sent by bonded overnight courier, mailed by U.S. Express Mail or by certified or registered United States Mail with all postage fully prepaid or sent by email (provided that delivery of such email is confirmed by written confirmation), addressed to the appropriate Party at the address for such Party shown below:
If to Seller:    Kathleen L. Quirk
Freeport-McMoRan Inc.
333 North Central Avenue
Phoenix, Arizona 85004

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Attention: Executive Vice President, Chief Financial Officer, and Treasurer
Telephone: 602-366-8016
Email: kquirk@fmi.com
and
    
Douglas N. Currault II
333 North Central Avenue
Phoenix, Arizona 85004
Attention: Deputy General Counsel and Corporate Secretary
Telephone: 602-366-8093
Email: dcurraul@fmi.com
With a copy to:    Wachtell, Lipton, Rosen & Katz
51 West 52nd Street
New York, New York 10019
Attention: David E. Shapiro
Telephone: 212-403-1000
Email: DEShapiro@wlrk.com
If to Purchaser:    David A. Janise
General Manager, Gulf of Mexico
Anadarko Petroleum Corporation
1201 Lake Robbins Drive
The Woodlands, Texas 77380
Attention: General Manager, Gulf of Mexico
Telephone: 832-636-3178
Email: David.Janise@anadarko.com
With a copy to:    Amanda M. McMillian
Senior Vice President, General Counsel, Corporate Secretary & Chief Compliance Officer
Anadarko Petroleum Corporation
1201 Lake Robbins Drive
The Woodlands, Texas 77380
Attention: Office of the General Counsel
Telephone: 832-636-7584
Email: Amanda.McMillian@anadarko.com
Any notice or communication given in accordance herewith shall be deemed to have been given when delivered to the addressee in person, or by courier, during normal business hours, or upon actual receipt by the addressee after such notice has either been delivered to an overnight courier or deposited in the United States Mail or sent electronically via email (provided that delivery of

75


such email is confirmed by written confirmation), as the case may be. The Parties may change the addresses to which such notices or communications are to be addressed by giving written notice to the other Party in the manner provided in this Section 12.4 .
Section 12.5      Sales or Use Tax, Recording Fees and Similar Taxes and Fees . Purchaser shall pay 100% of any sales, use, excise, real property transfer or gain, gross receipts, goods and services, registration, capital, documentary, stamp or transfer Taxes, recording fees and similar Taxes and fees incurred and imposed upon, or with respect to, the property transfers or other transactions contemplated hereby (“ Transfer Taxes ”). If such transfers or transactions are exempt from any such Taxes or fees upon the filing of an appropriate certificate or other evidence of exemption, Purchaser will timely furnish to Seller such certificate or evidence. The Parties will reasonably cooperate as may be necessary to establish the applicability of any available Transfer Tax exemption (including, for the avoidance of doubt, any applicable isolated or occasional sale exemption).
Section 12.6      Severability . If any term or other provision of this Agreement is invalid, illegal or incapable of being enforced by any rule of Law or public policy, all other conditions and provisions of this Agreement shall nevertheless remain in full force and effect so long as the economic or legal substance of the transactions contemplated hereby is not affected in any adverse manner to any Party. Upon such determination that any term or other provision is invalid, illegal, or incapable of being enforced, the Parties shall negotiate in good faith to modify this Agreement so as to effect the original intent of the Parties as closely as possible in an acceptable manner to the end that the transactions contemplated hereby are fulfilled to the extent possible.
Section 12.7      Replacement of Bonds, Letters of Credit and Guarantees . The Parties understand that none of the bonds, letters of credit and guarantees, if any, posted by Seller or any of its Affiliates with any Governmental Authority or Third Party and relating to the Assets are to be transferred to Purchaser. On or before Closing, Purchaser shall obtain, or cause to be obtained in the name of Purchaser, replacements for such bonds, letters of credit and guarantees, to the extent such replacements are necessary to permit the cancellation of the bonds, letters of credit and guarantees posted by Seller and such Affiliates or to consummate the transactions contemplated by this Agreement.
Section 12.8      Records Within thirty days of Closing, Seller, at its sole cost and expense, shall deliver or cause to be delivered to Purchaser the Records. Seller may retain copies of any or all of the Records, subject to its obligations under Section 7.2(b) . Purchaser and Seller agree to furnish or cause to be furnished to the other, upon request, as promptly as practicable, such information and assistance relating to the Assets, including access to books and records, as is reasonably necessary for the filing of all Tax returns by Purchaser or Seller, the making of any election relating to Taxes, the preparation for any audit by any Taxing authority and the prosecution or defense of any claim, suit or proceeding relating to any Tax. Purchaser shall retain all Records with respect to Taxes for a period of at least seven (7) years following the Closing Date (or such longer period as the statute of limitations for assessment of such Taxes remains open). Seller shall retain all books and records with respect to Taxes pertaining to the Assets not included in the Records for a period of at least seven (7) years following the Closing Date (or such longer period as the

76


statute of limitations for assessment of such Taxes remains open). Purchaser and Seller shall cooperate fully with each other in the conduct of any audit, litigation or other proceeding relating to Taxes involving the Assets, Allocated Values, or Allocation Schedule.
Section 12.9      Governing Law; Jurisdiction; Venue; Jury Waiver . THIS AGREEMENT AND THE LEGAL RELATIONS AMONG THE PARTIES SHALL BE GOVERNED AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF TEXAS EXCLUDING ANY CONFLICTS OF LAW RULE OR PRINCIPLE THAT MIGHT REFER CONSTRUCTION OF SUCH PROVISIONS TO THE LAWS OF ANOTHER JURISDICTION. SUBJECT TO THE REQUIREMENT THAT ALL DISPUTES UNDER THIS AGREEMENT BE RESOLVED PURSUANT TO THE ARBITRATION PROVISIONS SET FORTH IN SECTION 12.10 , IN ANY ACTION TO ENFORCE ANY ARBITRATION DECISION, EACH OF THE PARTIES HERETO CONSENTS TO THE EXERCISE OF JURISDICTION IN PERSONAM BY THE UNITED STATES FEDERAL DISTRICT COURTS LOCATED IN HOUSTON, TEXAS (OR IF THE FEDERAL DISTRICT COURTS DO NOT HAVE JURISDICTION, THEN THE STATE COURTS IN HOUSTON, TEXAS) FOR ANY SUCH ACTION. ALL SUCH ACTIONS SHALL BE BROUGHT IN THE UNITED STATES FEDERAL DISTRICT COURTS HAVING SITES IN HOUSTON, TEXAS (AND ALL APPELLATE COURTS HAVING JURISDICTION THEREOVER) OR, IF THE FEDERAL COURTS DO NOT HAVE JURISDICTION, THEN THE STATE COURTS IN HOUSTON, TEXAS (AND ALL APPELLATE COURTS HAVING JURISDICTION THEREOVER). EACH PARTY HEREBY IRREVOCABLY CONSENTS TO THE SERVICE OF ANY PAPERS, NOTICES OR PROCESS AT THE ADDRESS SET OUT IN SECTION 12.4 IN CONNECTION WITH ANY SUCH ACTION AND AGREES THAT NOTHING HEREIN WILL AFFECT THE RIGHT OF THE OTHER PARTY TO SERVE ANY SUCH PAPERS, NOTICES OR PROCESS IN ANY OTHER MANNER PERMITTED BY APPLICABLE LAW. EACH PARTY HERETO WAIVES ANY OBJECTION TO LAYING VENUE IN ANY SUCH ACTION IN SUCH COURTS AND WAIVES ANY OBJECTION THAT SUCH COURTS ARE AN INCONVENIENT FORUM OR DO NOT HAVE JURISDICTION OVER SUCH PARTY. EACH PARTY HERETO WAIVES, TO THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW, ANY RIGHT IT MAY HAVE TO A TRIAL BY JURY IN RESPECT OF ANY SUCH ACTION.
Section 12.10      Arbitration . It is agreed, as a severable and independent arbitration agreement separately enforceable from the remainder of this Agreement, that any dispute, controversy, cause of action or claim arising out of or in relation to or in connection with this Agreement, any documents contemplated to be executed hereunder, or the transactions contemplated hereby or thereby, whether sounding in contract, tort, statutory law, at common law, or in equity, including, any dispute as to the construction, validity, interpretation, enforceability or breach of this Agreement (“ Dispute ”), (other than a Dispute arising out of or in relation to or in connection with (i) Section 3.4 , which shall be resolved in accordance with Section 3.4(i) , or Section 3.6 or Section 4.2 , which shall be resolved in accordance with Section 4.2(g) or (ii) the calculation of the Adjusted Purchase Price, which shall be resolved in accordance with Section 9.4(b) ), shall be exclusively and finally resolved by arbitration in accordance with the terms and conditions of this Section 12.10 . This agreement to arbitrate any Dispute shall be binding on and shall inure to the benefit of the Parties and their Affiliates and assigns.

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(b) Pre-Arbitration Procedure . Should a Dispute arise, the Party with the Dispute shall deliver to the other Party a Notice of Dispute with supporting documentation as to the circumstances leading to the Dispute (“ Notice of Dispute ”). The Parties shall then each appoint a management representative (“ Management Representative ”) who is duly authorized to investigate, negotiate, and settle the Dispute. The Management Representative for each Party shall meet and confer as often as they deem reasonably necessary for a period not exceeding thirty (30) Business Days following the delivery of the Notice of Dispute.

(c) Initiation of Arbitration . If the Parties are unable to resolve the Dispute using the procedure set forth in Section 12.10(a) above, the matter shall be submitted to arbitration in accordance with the procedures set forth below. The arbitration shall be initiated by any Party delivering a Notice of Intention to Arbitrate (“ Notice of Arbitration ”) to the other Party and the administrator for the American Arbitration Association.

(d) Arbitration Procedure and Governing Law . The arbitration proceedings shall be conducted in Houston, Texas, United States of America in accordance with the Commercial Arbitration Rules of the American Arbitration Association as in effect on the Execution Date.  The Arbitrator(s) shall apply the governing substantive law of the State of Texas without regard to its conflicts of law principles which may suggest or require the application of the laws of another jurisdiction. The Arbitration shall be conducted in the English language.

(e) Arbitrators . For all Disputes, regardless of the amount of the Dispute, there shall be three neutral Arbitrators. The Arbitrators shall have a minimum of ten (10) years of experience in the oil and gas industry and also have experience or knowledge related to the general subject matter of the Dispute. None of the arbitrators shall have been an employee of either Party to this Agreement or any of its Affiliates within the five (5) year period preceding the arbitration, or have any financial interest in the Dispute. Each Party shall appoint an arbitrator of its choice within twenty (20) days of the submission of the Notice of Arbitration. The Party-appointed arbitrators shall in turn appoint a presiding arbitrator for the tribunal within twenty (20) days following the appointment of the Party-appointed arbitrators. If the Party-appointed arbitrators cannot reach agreement on a presiding arbitrator for the tribunal and/or one Party fails to appoint its Party-appointed arbitrator within the applicable period, the American Arbitration Association shall act as appointing authority to appoint an independent arbitrator with at least ten (10) years’ experience in the oil and gas industry and with at least five (5) years’ experience as an arbitrator. 

(f) Decision and Award . All decisions of the arbitral tribunal shall be by majority vote. The Arbitrators shall promptly determine the claims of the Parties and render a reasoned final decision in writing (“ Decision ”). The Arbitrators will render the Decision within thirty (30) Business Days after any post-arbitration briefing that the Arbitrators may order. The Arbitrators may not, under any circumstances, award indirect, incidental, exemplary, consequential, special or punitive damages.

(g) Appeal . The Decision shall be final and binding on the Parties, without right of appeal; and each Party waives any right it may otherwise have to appeal the Decision. Judgment regarding the Decision may be entered and enforced in court pursuant to Section 12.9 .

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(h) Expenses . Each Party shall pay its own expenses in connection with the arbitration, but the compensation and expenses of the arbitrators shall be borne in such manner as specified in the arbitral award. 

(i) Privilege . Privileges protecting attorney-client communications and attorney work product from compelled disclosure or use in evidence, as recognized by the courts of the State of Texas, shall apply to and be binding in any arbitration proceeding conducted under this Section 12.10 .

(j) Service . Each Party hereby irrevocably consents to the service of any Notice of Arbitration or any other papers, notices or process at the address set out in Section 12.4 in connection with any Dispute and agrees that nothing herein will affect the right of the other Party to serve any such Notice of Arbitration or other papers, notices or process in any other manner permitted by applicable Law.

Section 12.11      Captions . The captions in this Agreement are for convenience only and shall not be considered a part of or affect the construction or interpretation of any provision of this Agreement.
Section 12.12      Waiver; Rights Cumulative . Any of the terms, covenants, representations, warranties or conditions hereof may be waived only by a written instrument executed by or on behalf of the Party waiving compliance. No course of dealing on the part of any Party, or its respective officers, employees, agents or Representatives, and no failure by a Party to exercise any of its rights under this Agreement shall operate as a waiver thereof or affect in any way the right of such Party at a later time to enforce the performance of such provision. No waiver by any Party of any condition, or any breach of any term, covenant, representation or warranty contained in this Agreement, in any one or more instances, shall be deemed to be or construed as a further or continuing waiver of any such condition or breach or a waiver of any other condition or of any breach of any other term, covenant, representation or warranty. The rights of the Parties under this Agreement shall be cumulative, and the exercise or partial exercise of any such right shall not preclude the exercise of any other right.
Section 12.13      Assignment . Except for transfers by Purchaser to Affiliates or as permitted pursuant to Section 7.6(f) , no Party shall assign or otherwise transfer all or any part of this Agreement, nor shall any Party delegate any of its rights or duties hereunder, without the prior written consent of the other Party and any transfer or delegation made without such consent shall be void. Subject to the foregoing, this Agreement shall be binding upon and inure to the benefit of the Parties hereto and their respective successors and assigns.
Section 12.14      Entire Agreement . The Confidentiality Agreement, this Agreement and the documents to be executed hereunder and the Exhibits and Schedules attached hereto constitute the entire agreement between the Parties pertaining to the subject matter hereof, and supersede all prior agreements, understandings, negotiations and discussions, whether oral or written, of the Parties pertaining to the subject matter hereof. In the event of any conflict between the provisions of this

79


Agreement and any of the documents contemplated to be executed hereunder or the Exhibits or Schedules, the provisions of this Agreement shall control.
Section 12.15      Amendment . This Agreement may be amended or modified only by an agreement in writing signed by each of the Parties and expressly identified as an amendment or modification.
Section 12.16      No Third Party Beneficiaries . Nothing in this Agreement shall entitle any Person other than Purchaser and Seller to any claim, cause of action, remedy or right of any kind, except the rights expressly provided to the Persons described in Sections 11.2(a) or 11.2(b) , subject to Section 11.2(c) .
Section 12.17      References .
In this Agreement:
(a)      References to any gender includes a reference to all other genders;
(b)      References to the singular includes the plural, and vice versa;
(c)      Reference to any Article or Section means an Article or Section of this Agreement;
(d)      Reference to any Exhibit or Schedule means an Exhibit or Schedule to this Agreement, all of which are incorporated into and made a part of this Agreement;
(e)      Titles appearing at the beginning of any Articles, Sections, subsections and other subdivisions of this Agreement are for convenience only, do not constitute any part of this Agreement, and shall be disregarded in construing the language hereof;
(f)      All references to “$” or “dollars” shall be deemed references to United States dollars;
(g)      References to any Law or agreement means such Law or agreement as it may be amended from time to time;
(h)      Each accounting term not defined herein, and each accounting term partly defined herein to the extent not defined, will have the meaning given to it under GAAP;
(i)      The Parties agree that provisions in this Agreement in “bold” type and/or capital letters satisfy any requirements of the “express negligence rule” and any other requirements at Law or in equity that provisions be conspicuously marked or highlighted;
(j)      Time is of the essence in this Agreement. If the date specified in this Agreement for giving any notice or taking any action is not a Business Day (or if the period during which any notice is required to be given or any action taken expires on a date which is not a Business Day), then the date for giving such notice or taking such action (and the expiration date of such

80


period during which notice is required to be given or action taken) shall be the next day which is a Business Day;
(k)      Unless expressly provided to the contrary, “hereunder,” “hereof,” “herein” and words of similar import are references to this Agreement as a whole and not any particular Section or other provision of this Agreement; and
(l)      “Include” and “including” shall mean include or including without limiting the generality of the description preceding such term.
Section 12.18      Construction . Each of Seller and Purchaser has had the opportunity to exercise business discretion in relation to the negotiation of the details of the transactions contemplated hereby. This Agreement is the result of arm’s-length negotiations from equal bargaining positions. In the event of any ambiguity in this Agreement, no presumption shall arise based on the identity of the draftsman of this Agreement.
Section 12.19      No Partnership Created . It is not the purpose or intention of this Agreement to create (and it should not be construed as creating) a joint venture, partnership or any type of association, including for U.S. federal Income Tax purposes, and the Parties are not authorized to act as an agent or principal for each other with respect to any matter related hereto. Except for the obligation in Section 7.9 , nothing contained in this Agreement prevents either Purchaser or Seller from engaging in any business or purchasing any asset, whether or not in the vicinity of the Assets or in competition with the business of the other.
[ Remainder of page intentionally blank; signature pages immediately follow ]

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IN WITNESS WHEREOF , this Agreement has been signed by each of the Parties as of the date first above written.

FREEPORT MCMORAN OIL & GAS LLC:

By:
/s/ Kathleen L. Quirk
Name
Kathleen L. Quirk
Title:
Executive Vice President &
 
Chief Financial Officer
 
 




FREEPORT MCMORAN EXPLORATION & PRODUCTION LLC:
    
By:
/s/ Kathleen L. Quirk
Name
Kathleen L. Quirk
Title:
Vice President & Treasurer
 
 
 
 




PLAINS OFFSHORE OPERATIONS INC.:
    
By:
/s/ Kathleen L. Quirk
Name
Kathleen L. Quirk
Title:
Executive Vice President
 
& Treasurer
 
 




    



ANADARKO US OFFSHORE LLC:


    
By:
/s/ Robert G. Gwin
Name
Robert G. Gwin
Title:
Executive Vice President and Chief Financial Officer
 
 
 
 








Exhibit 4.18





FREEPORT-MCMORAN OIL & GAS LLC,
Successor Issuer,
FCX OIL & GAS INC.,
Co-Issuer,
FMSTP INC.,
Additional Co-Issuer,
FREEPORT-MCMORAN INC.,
Parent Guarantor,
and
WELLS FARGO BANK, N.A.,
Trustee
NINETEENTH SUPPLEMENTAL INDENTURE
Dated as of September 30, 2016
To
INDENTURE
Dated as of March 13, 2007






TABLE OF CONTENTS
 
 
 
 
 
PAGE
ARTICLE 1
REPRESENTATIONS OF THE SUCCESSOR ISSUER, THE CO-ISSUER, THE ADDITIONAL CO-ISSUER AND
 THE PARENT GUARANTOR
Section 1.01. Good Standing
2
Section 1.02. Authorization
2
Section 1.03. No Default
2
Section 1.04. Without Consent of Holders
2
 
 
 
ARTICLE 2
ASSUMPTION AND AGREEMENTS
 
 
 
Section 2.01. Assumption of Obligations
2
Section 2.02. Co-Issuer Reaffirmation
2
 
 
 
ARTICLE 3
AMENDMENT OF INDENTURE
 
 
 
Section 3.01. Amendment of Article Nine of the Indenture
2
 
 
 
ARTICLE 4
MISCELLANEOUS
 
 
 
Section 4.01. General References
3
Section 4.02. Effectiveness of Nineteenth Supplemental Indenture
3
Section 4.03. Indenture Remains in Full Force and Effect
3
Section 4.04. Supplemental Indenture Controls
3
Section 4.05. No Recourse Against Others
3
Section 4.06. Notices and Demands
3
Section 4.07. Benefits of Supplemental Indenture
3
Section 4.08. Successors and Assigns
4
Section 4.09. Severability
4
Section 4.10. Governing Law
4
Section 4.11. Counterparts
4
Section 4.12. Headings
4
Section 4.13. Trustee Disclaimer
4


NINETEENTH SUPPLEMENTAL INDENTURE, dated as of September 30, 2016 (this “ Nineteenth Supplemental Indenture ”), by and among FREEPORT-MCMORAN OIL & GAS LLC, a Delaware limited liability company (the “ Successor Issuer ”), FCX OIL & GAS INC., a Delaware corporation and the direct wholly owned subsidiary of the Parent Guarantor (the “ Co-Issuer ” and together with the Successor Issuer, the “ Company ”), FMSTP INC., a Delaware corporation (the “ Additional Co-Issuer ”), FREEPORT-MCMORAN INC., a Delaware corporation (f/k/a Freeport-McMoRan Copper & Gold Inc.) (the “ Parent Guarantor ”) and WELLS FARGO BANK, N.A., a nationally chartered banking association, as trustee under the Indenture referred to below (in such capacity, the “ Trustee ”). All capitalized terms used herein but not otherwise defined herein shall have the respective meanings ascribed to such terms in the Indenture (as defined below).

RECITALS

WHEREAS, Plains Exploration & Production Company, a Delaware corporation, certain subsidiary guarantors thereof and the Trustee have heretofore executed and delivered an indenture, dated as of March 13, 2007 (as amended, supplemented or otherwise modified from time to time, including without limitation pursuant to this Nineteenth Supplemental Indenture, the “ Indenture ”);

WHEREAS, the following series of Securities have been issued pursuant to the Indenture and are outstanding as of the date of this Nineteenth Supplemental Indenture: 6.625% Senior Notes due 2021, 6.75% Senior Notes due 2022, 6.125% Senior Notes due 2019, 6.50% Senior Notes due 2020 and 6.875% Senior Notes due 2023 (collectively, the “ Outstanding Notes ”);

WHEREAS, the Co-Issuer will be converted into a Delaware limited liability company on the date hereof concurrently with the execution of this Nineteenth Supplemental Indenture;

WHEREAS, pursuant to Section 10.18 the Indenture, because an Investment Grade Rating Event has previously occurred, the Company and its Restricted Subsidiaries have ceased to be subject to Sections 10.9, 10.10, 10.11, 10.12, 10.13, 10.15, 10.16 and 8.1(a)(iv) of the Indenture;

WHEREAS, Sections 8.1(a)(i) and 8.1(a)(ii) of the Indenture provide, among other things, that the Co-Issuer may convert into another form of entity if the Person resulting from such conversion is a limited liability company organized or existing under the laws of any state of the United States and certain other conditions are complied with, provided that a corporate co-issuer shall be added to the Indenture by agreements reasonably satisfactory to the Trustee;

WHEREAS, the parties hereto desire to amend the Indenture to evidence the addition of the Additional Co-Issuer as an issuer under the Indenture and the assumption by the Additional Co-Issuer of all the payment obligations under the Securities and the Indenture;

WHEREAS, the parties hereto desire to amend the Indenture to amend Article Nine thereof as provided herein;

WHEREAS, Section 9.1(g) of the Indenture provides, among other things, that, without the consent of any holder of a Security, the Company, the Guarantors and the Trustee may amend or supplement the Indenture, the Securities Guarantees or the Securities to make any change to any provision of the Indenture that does not adversely affect the rights or interests of any Holder of Securities; and

WHEREAS, the Company has requested that the Trustee execute and deliver this Nineteenth Supplemental Indenture pursuant to Section 9.1(g) of the Indenture, and all conditions precedent and requirements necessary to make this Nineteenth Supplemental Indenture a valid and legally binding instrument in accordance with its terms have been complied with, performed and fulfilled, and the execution and delivery hereof have been in all respects duly authorized.

NOW, THEREFORE, in consideration of the foregoing and the mutual agreements, provisions and covenants contained herein, and other good and valuable consideration, the receipt and sufficiency of which are

i


hereby acknowledged, the Successor Issuer, the Co-Issuer, the Additional Co-Issuer, the Parent Guarantor and the Trustee agree as follows:
ARTICLE 1

R EPRESENTATIONS OF THE S UCCESSOR I SSUER , T HE C O -I SSUER , T HE A DDITIONAL C O -I SSUER A ND T HE P ARENT G UARANTOR

Each of the Successor Issuer, the Co-Issuer, the Additional Co-Issuer and the Parent Guarantor represents and warrants to the Trustee, with respect to itself and in each case only to the extent applicable, as follows:

Section 1.01. Good Standing . It is a limited liability company or corporation duly formed or organized, validly existing and, to the extent applicable, in good standing under the laws of its respective state of incorporation or formation as set forth in the preamble hereto.

Section 1.02. Authorization . The execution, delivery and performance by it of this Nineteenth Supplemental Indenture have been authorized and approved by all necessary action on its part.

Section 1.03. No Default . As of the date hereof, no Default or Event of Default exists.

Section 1.04. Without Consent of Holders . This Nineteenth Supplemental Indenture is executed and delivered pursuant to Section 9.1(g) of the Indenture and does not require the consent of any Holder of any Outstanding Notes.

ARTICLE 2
A SSUMPTION AND A GREEMENTS

Section 2.01. Assumption of Obligations . The Additional Co-Issuer hereby agrees, as of the date hereof, to assume, to be bound by and to be jointly and severally liable with the Successor Issuer and Co-Issuer, as a primary obligor and not as a guarantor or surety, with respect to, any and all payment obligations under the Indenture and the Securities on the terms and subject to the conditions set forth in the Indenture.

Section 2.02. Co-Issuer Reaffirmation . Upon being converted into a Delaware limited liability company on the date hereof concurrently with the execution of this Nineteenth Supplemental Indenture, the Co-Issuer hereby reaffirms its obligations under the Securities and the Indenture.

ARTICLE 3
A MENDMENT OF I NDENTURE

With respect to the Outstanding Notes, the Indenture is hereby amended as set forth below in this Article 3; provided, however, that each such amendment shall apply only to the Outstanding Notes and not to any other series of Securities issued under the Indenture.

Section 3.01. Amendment of Article Nine of the Indenture . Article Nine of the Indenture is hereby amended by adding the following text at the end of Article Nine:

“Section 9.7. Without Consent of the Additional Co-Issuer .

Notwithstanding any other provision of this Indenture or of the Securities or, if applicable, the Securities Guarantees, the Company, the Parent Guarantor and the Trustee may amend or supplement the Indenture, the Securities or the Securities Guarantees without the consent of the Additional Co-Issuer to make any change to any provision of the Indenture, the Securities or the Securities Guarantees that does not materially adversely affect the rights or interests of the Additional Co-Issuer. The Additional Co-Issuer shall not be a party to any supplemental indenture after the date hereof unless the Parent Guarantor provides prior written notice to the Trustee.”

1



ARTICLE 4
M ISCELLANEOUS

Section 4.01. General References . Unless otherwise specified or unless the context otherwise requires, (i) all references in this Nineteenth Supplemental Indenture to Articles and Sections refer to the corresponding Articles and Sections of this Nineteenth Supplemental Indenture and (ii) the terms “herein,” “hereof,” “hereunder” and any other word of similar import refers to this Nineteenth Supplemental Indenture.

Section 4.02. Effectiveness of Nineteenth Supplemental Indenture . Upon the effectiveness of this Nineteenth Supplemental Indenture, the Indenture shall be and be deemed to be modified and amended in accordance herewith and the respective rights, limitations of rights, obligations, duties and immunities under the Indenture of the Trustee, the Additional Co-Issuer, the Company and the Holders affected thereby shall hereafter be determined, exercised and enforced hereunder subject in all respects to such modifications and amendments, and all the terms and conditions of this Nineteenth Supplemental Indenture shall be and be deemed to be part of the terms and conditions of the Indenture for any and all purposes.
 
Section 4.03. Indenture Remains in Full Force and Effect . Except as amended and supplemented hereby, all provisions in the Indenture shall remain in full force and effect and are in all respects ratified and confirmed, including without limitation Section 6.7 of the Indenture.

Section 4.04. Supplemental Indenture Controls . If there is any conflict or inconsistency between the Indenture and this Nineteenth Supplemental Indenture, the provisions of this Nineteenth Supplemental Indenture shall control.

Section 4.05. No Recourse Against Others . No past, present or future director, officer, employee, incorporator or shareholder of the Parent Guarantor or any successor of the Parent Guarantor shall have any liability by reason of his, her or its status as such under or upon any obligation, covenant or agreement of the Parent Guarantor contained in this Nineteenth Supplemental Indenture, the Indenture or the Outstanding Notes, or because of any indebtedness evidenced thereby, all such liability being expressly waived and released by the Holders of the Outstanding Notes by their acceptance of the Parent Guarantee and as part of the consideration for the making of the Parent Guarantee.

Section 4.06. Notices and Demands . (a) Any notice, demand, direction, request or other document that is required or permitted by any provision of this Nineteenth Supplemental Indenture or the Indenture to be given or made by the Trustee or by the Holders of any series of Outstanding Notes to or upon the Successor Issuer, the Co-Issuer or the Additional Co-Issuer shall be given or made by postage-prepaid, first-class mail addressed (until another address of the Successor Issuer, the Co-Issuer or the Additional Co-Issuer is filed by the Successor Issuer, the Co-Issuer or the Additional Co-Issuer, as applicable, with the Trustee) c/o Freeport-McMoRan Inc., 333 North Central Avenue, Phoenix, Arizona 85004-2189, Attention: FCX Treasurer. (b) Any notice, demand, direction, request or other document that is required or permitted by any provision of this Nineteenth Supplemental Indenture or the Indenture to be given or made by the Trustee or by the Holders of any series of Outstanding Notes to or upon the Parent Guarantor shall be given or made by postage-prepaid, first-class mail addressed (until another address of the Parent Guarantor is filed by the Parent Guarantor with the Trustee) to Freeport-McMoRan Inc., 333 North Central Avenue, Phoenix, Arizona 85004-2189, Attention: FCX Treasurer. (c) Any notice, demand, direction, request or other document that is required or permitted by any provision of this Nineteenth Supplemental Indenture or the Indenture to be given or made by the Parent Guarantor to or upon the Trustee or the Holders of any series of Outstanding Notes shall be given or made in accordance with Section 1.6 of the Indenture. As of the date of this Nineteenth Supplemental Indenture, the address for any such notice, demand, direction, request or other document to be given or made to or upon the Trustee is 750 N. St. Paul Place, Suite 1750, Dallas, Texas 75201, Attention: Corporate Trust, Municipal and Escrow Services.

Section 4.07. Benefits of Supplemental Indenture . Nothing in this Nineteenth Supplemental Indenture, express or implied, shall give or be construed to give to any Person, other than the parties hereto, any Authenticating Agent, any Paying Agent, any Security Registrar, any successors to the foregoing hereunder and the Holders, any


2


benefit or any legal or equitable right, remedy or claim under the Indenture or this Nineteenth Supplemental Indenture.

Section 4.08. Successors and Assigns . All covenants and agreements in this Nineteenth Supplemental Indenture made by the Successor Issuer, the Co-Issuer, the Additional Co-Issuer, the Parent Guarantor or the Trustee shall bind their respective successors and assigns, whether so expressed or not.

Section 4.09. Severability . If any provision of this Nineteenth Supplemental Indenture shall be invalid, illegal or unenforceable, the validity, legality and enforceability of the remaining provisions hereof shall not in any way be affected or impaired thereby, and no Holder of any series of Outstanding Notes shall have any claim therefor against any party hereto.

Section 4.10. Governing Law . This Nineteenth Supplemental Indenture and the rights and duties of the parties hereunder shall be governed by, and construed in accordance with, the laws of the State of New York (without giving effect to any provision thereof relating to conflicts of laws principles that would apply the laws of another jurisdiction), except to the extent that the Trust Indenture Act is applicable.

Section 4.11. Counterparts . This Nineteenth Supplemental Indenture may be executed in any number of counterparts, each of which shall be an original, with the same effect as if the signatures thereto and hereto were upon the same instrument.

Section 4.12. Headings . The Article and Section headings herein are for convenience only and shall not affect the construction hereof.

Section 4.13. Trustee Disclaimer . The Trustee accepts the amendments of the Indenture effected by this Nineteenth Supplemental Indenture and agrees to execute the trust created by the Indenture as hereby amended, but on the terms and conditions set forth in the Indenture, including the terms and provisions defining and limiting its liabilities and responsibilities in the performance of the trust created by the Indenture as hereby amended, and without limiting the generality of the foregoing, the Trustee shall not be responsible in any manner whatsoever for or with respect to any of the recitals or statements contained herein, all of which recitals or statements are made solely by the Successor Issuer, the Co-Issuer, the Additional Co-Issuer and the Parent Guarantor, as applicable, and the Trustee makes no representation with respect to any such matters. Additionally, the Trustee makes no representations as to the validity or sufficiency of this Nineteenth Supplemental Indenture. For the avoidance of doubt, the Trustee, by executing this Nineteenth Supplemental Indenture in accordance with the terms of the Indenture, does not agree to undertake additional actions nor does it consent to any transaction beyond what is expressly set forth in this Nineteenth Supplemental Indenture, and the Trustee reserves all rights and remedies under the Indenture.

[The remainder of this page is intentionally left blank]


3


IN WITNESS WHEREOF, the parties hereto have caused this Nineteenth Supplemental Indenture to be duly executed as of the day and year first written above.
FREEPORT-MCMORAN OIL & GAS
LLC,
as Successor Issuer
By:
/s/ Kathleen L. Quirk
 
Name: Kathleen L. Quirk
 
  Title: Executive Vice President &
            Chief Financial Officer

FCX OIL & GAS INC.,
as Co-Issuer
By:
/s/ Kathleen L. Quirk
 
Name: Kathleen L. Quirk
 
  Title: Executive Vice President

FMSTP INC.,
as Additional Co-Issuer
By:
/s/ Catherine R. Hardwick
 
Name: Catherine R. Hardwick
 
  Title: President, Treasurer & Secretary

FREEPORT-MCMORAN INC.,
as Parent Guarantor
By:
/s/ Kathleen L. Quirk
 
Name: Kathleen L. Quirk
 
  Title: Executive Vice President, Chief Financial
            Officer & Treasurer

WELLS FARGO BANK, N.A.,
as Trustee
By:
/s/ John C. Stohlmann
 
Name: John C. Stohlmann
 
  Title: Vice President











[Signature Page to Nineteenth Supplemental Indenture]



EXECTUION COPY


THIS SEVENTH AMENDMENT TO PARTICIPATION AGREEMENT is made October 21, 2016.

BETWEEN:

(1)
P.T. FREEPORT INDONESIA, a limited liability company organized under the laws of the Republic of Indonesia and domesticated in the State of Delaware, U.S.A. (“PT-FI”) and

(2)
P.T. RIO TINTO INDONESIA, a limited liability company organized under the laws of the Republic of Indonesia (“PTRTI”),

WHEREAS

(A)
By a Contract of Work dated December 30, 1991 made between The Government of the Republic of Indonesia (the “Government”) and PT-FI, the Government appointed PT-FI as the sole contractor for the Government with respect to the Contract Area, as defined in the Contract of Work, with the sole rights to explore, mine, process, store, transport, market, sell, and dispose of Products, as defined below, in the Contract Area (defined as aforesaid).

(B)
Pursuant to that certain Participation Agreement dated October 11, 1996, between PT-FI and PTRTI, as amended by the First Amendment to Participation Agreement dated April 30, 1999, the Second Amendment to Participation Agreement dated February 22, 2006, the Third Amendment to Participation Agreement dated October 7, 2009, the Fourth Amendment to Participation Agreement dated November 14, 2013, the Fifth Amendment to Participation Agreement dated August 4, 2014, and the Sixth Amendment to Participation Agreement dated September 17, 2015 (as amended and in effect prior to the effectiveness of this Seventh Amendment, the “Participation Agreement”), PT-FI and PTRTI participate in operations under the COW (as defined below) on the terms and conditions set forth therein.

(C)
PT-FI and PTRTI desire to amend the Participation Agreement as hereinafter set forth.

IT IS HEREBY AGREED as follows:

1.
Definitions . In this Seventh Amendment (including the Schedules and Annexes hereto), unless the context otherwise requires, capitalized terms used herein shall have the meanings provided under the Participation Agreement.


Seventh Amendment to Participation Agreement
1


2.
Amendments To Annex A of The Participation Agreement. With effect from January 1, 2014, the Product Schedule is hereby amended so that it comprises the Product Schedule as set forth on the Schedule attached to this Seventh Amendment.

3.
Representations and Warranties . Each Participant hereby represents and warrants to the other Participant as follows:

(a)
The execution, delivery and performance by such Participant of this Seventh Amendment (i) is within such Participant’s corporate powers, (ii) has been duly authorized by all necessary corporate action, (iii) requires no action by or in respect of, or filing with, any governmental body, agency or official, (iv) does not contravene, or constitute a default under, any provision of any applicable law, statute, ordinance, regulation, rule, order or other governmental restriction or of the certificate or articles of incorporation or by-laws of such Participant, (v) does not contravene, or constitute a default under, any agreement, judgment, injunction, order, decree, indenture, contract lease, instrument or other commitment to which such Participant is a party or by which such Participant or any of its assets are bound and (vi) will not result in the creation or imposition of any lien upon any asset of such Participant under any existing indenture, mortgage, deed of trust, loan or loan agreement or other agreement or instrument to which such Participant is a party or by which it or any of its assets may be bound or affected.

(b)
The Participation Agreement, as amended by this Seventh Amendment, is the legal, valid and binding obligation of such Participant, and is enforceable against such Participant in accordance with its terms, subject to bankruptcy, reorganization, insolvency, moratorium or other laws affecting the enforcement of creditors’ rights generally and subject to any limitation acts and to general equitable principles.

4.
Reference to and Effect Upon the Participation Agreement . Upon the execution by both Participants of this Seventh Amendment, each reference in the Participation Agreement to “this Agreement”, “hereunder”, “hereof”, “herein”, or words of like import, shall mean and be a reference to the Participation Agreement, as amended hereby.

5.
Reaffirmation . Each Participant hereby reaffirms to the other that, except as modified hereby, the Participation Agreement remains in full force and effect and has not been otherwise waived, modified or amended. Except as expressly modified hereby, all of the terms and conditions of the Participation Agreement shall remain unaltered and in full force and effect.

6.
Choice of Law . This Seventh Amendment shall be governed by and construed in accordance with the laws of the State of New York.

7.
Counterparts . This Seventh Amendment may be executed in one or more counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument. One or more counterparts of this Seventh Amendment may be delivered by telecopier, and if so delivered shall be deemed to be delivered with the intention that they shall have the same effect as an original counterpart hereof. Any party delivering any such counterpart by telecopy shall promptly forward to the other party an original counterpart hereof.

IN WITNESS WHEREOF, the parties hereby have caused their duly authorized officers to execute and deliver this Seventh Amendment as of the date first above written.


PT FREEPORT INDONESIA

By:
/s/ Robert C. Schroeder    

Its:
Executive Vice President         



P.T. RIO TINTO INDONESIA


By:
/s/ Dr. Greg Sinclair        

Its:
President Director        

Seventh Amendment to Participation Agreement
2


ANNEX A
Product Schedule

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Recovered Metal in Concentrate
Year
 
Copper
 
Gold
 
Silver
 
 
(million lbs)
 
(000's ozs)
 
(000's ozs)
 
 
 
 
 
 
 
1995
 
1,029
 
1,318
 
2,872
1996
 
1,085
 
1,379
 
2,828
1997
 
1,140
 
1,791
 
2,969
1998
 
1,022
 
1,350
 
3,239
1999
 
1,165
 
1,503
 
3,822
2000
 
1,052
 
1,242
 
4,039
2001
 
1,132
 
1,397
 
3,943
2002
 
1,090
 
1,375
 
3,795
2003
 
979
 
1,456
 
3,659
2004
 
874
 
1,377
 
3,077
2005
 
1,146.368
 
1,870
 
4,121
2006
 
1,092.005
 
1,642.69
 
3,934
2007
 
1,099
 
1,631
 
4,045
2008
 
1,110
 
1,198.7
 
4,158
2009
 
1,107
 
2,004.3
 
4,203
2010
 
1,099
 
1,567
 
4,296
2011
 
821
 
1,045
 
3,379
2012
 
720.75
 
888.28
 
2,591.310
2013
 
927.25
 
1,177.036
 
3,867.307
2014
 
633
 
1,161.684
 
2,740.469
2015
 
1,057
 
1,493
 
4,815.915
2016
 
1,044
 
1,529
 
3,768
2017
 
1,008
 
1,589
 
3,359
2018
 
1,008
 
1,589
 
3,359
2019
 
1,024
 
1,589
 
3,396
2020
 
1,027
 
1,593
 
3,405
2021
 
1,071
 
1,510
 
3,764
2022
 
513.627
 
350.31
 
1,128
Total
 
28,076
 
39,616
 
98,573





Seventh Amendment to Participation Agreement
3


Exhibit 15.1

To the Board of Directors and Stockholders of Freeport-McMoRan Inc.:

We are aware of the incorporation by reference in the following Registration Statements:

1)
Registration Statement (Form S-8 No. 333-85803) pertaining to the Freeport-McMoRan Copper & Gold Inc.
1999 Stock Incentive Plan,
2)
Registration Statement (Form S-8 No. 333-105535) pertaining to the Freeport-McMoRan Copper & Gold Inc. 2003 Stock Incentive Plan,
3)
Registration Statement (Form S-8 No. 333-115292) pertaining to the Freeport-McMoRan Copper & Gold Inc. 2004 Director Compensation Plan,
4)
Registration Statement (Form S-8 No. 333-136084) pertaining to the  Freeport-McMoRan Copper & Gold Inc. 2006 Stock Incentive Plan,
5)
Registration Statement (Form S-8 No. 333-141358) pertaining to the Phelps Dodge 2003 Stock Option and Restricted Stock Plan and the Phelps Dodge 1998 Stock Option and Restricted Stock Plan,
6)
Registration Statement (Form S-8 No. 333-147413) pertaining to the Amended and Restated Freeport-McMoRan Copper & Gold Inc. 2006 Stock Incentive Plan,
7)
Registration Statement (Form S-8 No. 333-189047) pertaining to the Plains Exploration & Production Company 2010 Incentive Award Plan; the Plains Exploration & Production 2004 Stock Incentive Plan; the McMoRan Exploration Co. Amended and Restated 2008 Stock Incentive Plan; the McMoRan Exploration Co. 2005 Stock Incentive Plan, as amended and restated; the McMoRan Exploration Co. 2004 Director Compensation Plan, as amended and restated; the McMoRan Exploration Co. 2003 Stock Incentive Plan, as amended and restated; the McMoRan Exploration Co. 2001 Stock Incentive Plan, as amended and restated; the McMoRan Exploration Co. 2000 Stock Incentive Plan, as amended and restated; the McMoRan Exploration Co. 1998 Stock Option Plan, as amended and restated; and the McMoRan Exploration Co. 1998 Stock Option Plan for Non-Employee Directors, as amended and restated;
8)
Registration Statement (Form S-3 No. 333-206257) pertaining to the Freeport-McMoRan Inc. 2015 Automatic Shelf Registration Statement and
9)
Registration Statement (Form S-8 No. 333-212523) pertaining to the Freeport-McMoRan Inc. 2016 Stock Incentive Plan

of our report dated November 9, 2016 relating to the unaudited consolidated interim financial statements of Freeport-McMoRan Inc. that is included in its Form 10-Q for the quarter ended September 30, 2016 .

/s/ ERNST & YOUNG LLP

Phoenix, Arizona
November 9, 2016





Exhibit 31.1
Certification


I, Richard C. Adkerson, certify that:

1.
I have reviewed this quarterly report on Form 10-Q of Freeport-McMoRan Inc.;

2.
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3.
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4.
The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

(a)
Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

(b)
Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

(c)
Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

(d)
Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5.
The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

(a)
All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

(b)
Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.


Dated: November 9, 2016
 
By:          /s/  Richard C. Adkerson
 
Richard C. Adkerson
 
Vice Chairman, President and
 
Chief Executive Officer




Exhibit 31.2
Certification

I, Kathleen L. Quirk, certify that:

1.
I have reviewed this quarterly report on Form 10-Q of Freeport-McMoRan Inc.;

2.
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3.
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4.
The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

(a)
Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

(b)
Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

(c)
Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

(d)
Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5.
The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

(a)
All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

(b)
Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.



Dated: November 9, 2016
 
By:          /s/  Kathleen L. Quirk
 
Kathleen L. Quirk
 
Executive Vice President,
 
Chief Financial Officer and Treasurer




Exhibit 32.1


Certification Pursuant to 18 U.S.C. Section 1350
(Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002)


In connection with the Quarterly Report on Form 10-Q of Freeport-McMoRan Inc. (the “Company”) for the quarter ending September 30, 2016 , as filed with the Securities and Exchange Commission on the date hereof (the “Report”), Richard C. Adkerson, as Vice Chairman, President and Chief Executive Officer of the Company, hereby certifies, pursuant to 18 U.S.C. § 1350, as adopted pursuant to § 906 of the Sarbanes-Oxley Act of 2002, that, to the best of his knowledge:

(1) The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

(2)  The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

Dated: November 9, 2016
 
By:          /s/  Richard C. Adkerson
 
Richard C. Adkerson
 
Vice Chairman, President and
 
Chief Executive Officer

A signed original of this written statement required by Section 906 has been provided to the Company and will be retained by the Company and furnished to the Securities and Exchange Commission or its staff upon request.

This certification shall not be deemed filed by the Company for purposes of § 18 of the Securities Exchange Act of 1934, as amended.





Exhibit 32.2


Certification Pursuant to 18 U.S.C. Section 1350
(Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002)


In connection with the Quarterly Report on Form 10-Q of Freeport-McMoRan Inc.(the “Company”) for the quarter ending September 30, 2016 , as filed with the Securities and Exchange Commission on the date hereof (the “Report”), Kathleen L. Quirk, as Executive Vice President, Chief Financial Officer and Treasurer of the Company, hereby certifies, pursuant to 18 U.S.C. § 1350, as adopted pursuant to § 906 of the Sarbanes-Oxley Act of 2002, that, to the best of her knowledge:

(1) The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

(2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

Dated: November 9, 2016
 
By:          /s/  Kathleen L. Quirk
 
Kathleen L. Quirk
 
Executive Vice President,
 
Chief Financial Officer and Treasurer

A signed original of this written statement required by Section 906 has been provided to the Company and will be retained by the Company and furnished to the Securities and Exchange Commission or its staff upon request.

This certification shall not be deemed filed by the Company for purposes of § 18 of the Securities Exchange Act of 1934, as amended.




Exhibit 95.1

Mine Safety and Health Administration (MSHA) Safety Data

FCX's U.S. mining operations are subject to regulations issued by MSHA under the U.S. Federal Mine Safety and Health Act of 1977 (the Mine Act). MSHA inspects our U.S. mines on a regular basis and issues various citations and orders when it believes a violation has occurred under the Mine Act. Whenever MSHA issues a citation or order, it also generally proposes a civil penalty, or fine, related to the alleged violation. Citations or orders can be contested and appealed, and as part of that process, are often reduced in severity and amount, and are sometimes dismissed. The number of citations, orders and proposed assessments varies depending on the size and type (underground or surface) of the mine, among other factors.

The following disclosures have been provided pursuant to Section 1503(a) of the Dodd-Frank Wall Street Reform and Consumer Protection Act (the Act).

Mine Safety Data . Following provides additional information about references used in the table below to describe the categories of violations, orders or citations issued by MSHA under the Mine Act:

•
Section 104 S&S Citations : Citations issued by MSHA under Section 104(a) of the Mine Act for violations of health or safety standards that could significantly and substantially contribute to a serious injury if left unabated.

•
Section 104(b) Orders : Orders issued under Section 104(b) of the Mine Act, which represent a failure to abate a citation under Section 104(a) within the period prescribed by MSHA. This results in an order of immediate withdrawal from the area of the mine affected by the condition until MSHA determines that the violation has been abated.

•
Section 104(d) Citations and Orders : Citations and orders issued by MSHA under Section 104(d) of the Mine Act for unwarrantable failure to comply with mandatory health or safety standards. These types of violations could significantly and substantially contribute to a serious injury; however, the conditions do not cause imminent danger (refer to discussion of imminent danger orders below).

•
Section 110(b)(2) Violations : Flagrant violations identified by MSHA under Section 110(b)(2) of the Mine Act. The term flagrant with respect to a violation is defined as “a reckless or repeated failure to make reasonable efforts to eliminate a known violation of a mandatory health or safety standard that substantially and proximately caused, or reasonably could have expected to cause, death or serious bodily injury.”

•
Section 107(a) Orders : Orders issued by MSHA under Section 107(a) of the Mine Act for situations in which MSHA determined an imminent danger existed. Orders issued under Section 107(a) of the Mine Act require the operator of the mine to cause all persons (except authorized persons) to be withdrawn from the mine until the imminent danger and the conditions that caused such imminent danger cease to exist.




The following table details the violations, citations and orders issued to us by MSHA during the three months ended September 30, 2016 :

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Potential
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
to Have
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Pattern of
 
Pattern of
 
 
 
 
 
 
 
 
Section
 
 
 
 
 
 
 
 
 
Violations
 
Violation
 
 
 
 
Section
 
Section
 
104(d)
 
Section
 
Section
 
 
 
Mining
 
Under
 
Under
 
 
 
 
104 S&S
 
104(b)
 
Citations
 
110(b)(2)
 
107(a)
 
Proposed
 
Related
 
Section
 
Section
 
 
 
 
Citations
 
Orders
 
and Orders
 
Violations
 
Orders
 
Assessments (2)
 
Fatalities
 
104(e)
 
104(e)
Mine ID (1)
 
Mine or Operation Name
 
(#)
 
(#)
 
(#)
 
(#)
 
(#)
 
($)
 
(#)
 
(yes/no)
 
(yes/no)
0200137
 
Freeport-McMoRan Bagdad Inc. (Bagdad)
 
15

 
—

 
—

 
—

 
—

 
—

 
—

 
No
 
No
2900708
 
Freeport-McMoRan Chino Mines Company (Chino)
 
9

 
—

 
—

 
—

 
—

 
23,847

 
—

 
No
 
No
0200112
 
Freeport-McMoRan Miami Inc (Miami)
 
4

 
—

 
—

 
—

 
—

 
6,212

 
—

 
No
 
No
0200024
 
Freeport-McMoRan Morenci Inc (Morenci)
 
38

 
—

 
—

 
—

 
—

 
152,765

 
—

 
No
 
No
0203131
 
Freeport-McMoRan Safford Inc (Safford)
 
—

 
—

 
—

 
—

 
—

 
—

 
—

 
No
 
No
0200144
 
Freeport-McMoRan Sierrita Inc (Sierrita)
 
2

 
—

 
—

 
—

 
—

 
1,836

 
—

 
No
 
No
2900159
 
Tyrone Mine (Tyrone)
 
1

 
—

 
—

 
—

 
—

 
5,928

 
—

 
No
 
No
0500790
 
Henderson Operations (Henderson)
 
—

 
—

 
—

 
—

 
—

 
—

 
—

 
No
 
No
0502256
 
Climax Mine (Climax)
 
—

 
—

 
—

 
—

 
—

 
—

 
—

 
No
 
No
 
 
Freeport-McMoRan Cobre Mining Company:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
2900725
 
Open Pit & Continental Surf Comp
 
—

 
—

 
—

 
—

 
—

 
—

 
—

 
No
 
No
2900731
 
Continental Mill Complex
 
—

 
—

 
 
 
—

 
—

 
—

 
—

 
No
 
No
0201656
 
Copper Queen Branch
 
—

 
—

 
—

 
—

 
—

 
—

 
—

 
No
 
No
0202579
 
Cyprus Tohono Corporation
 
—

 
—

 
—

 
—

 
—

 
171

 
—

 
No
 
No
0203262
 
Twin Buttes Mine
 
—

 
—

 
—

 
—

 
—

 
—

 
—

 
No
 
No
2902395
 
Chieftain 2100 Screening Plant
 
—

 
—

 
—

 
—

 
—

 
—

 
—

 
No
 
No
0203254
 
Warrior 1800 Screening Plant
 
—

 
—

 
—

 
—

 
—

 
—

 
—

 
No
 
No
(1)
MSHA assigns an identification number to each mine or operation and may or may not assign separate identification numbers to related facilities.
(2)
Amounts represent the total dollar value of proposed assessments received on or before October 31, 2016 , for citations or orders issued by MSHA during the three months ended September 30, 2016 . FCX is currently contesting approximately $40 thousand of these proposed assessments.

Pending Legal Actions . The table below provides a summary of legal actions pending before the Federal Mine Safety and Health Review Commission (the Commission) as well as the aggregate number of legal actions instituted and resolved during the three months ended September 30, 2016 . The Commission is an independent adjudicative agency established by the Mine Act that provides administrative trial and appellate review of legal disputes arising under the Mine Act. These cases may involve, among other questions, challenges by operators to citations, orders and penalties they have received from MSHA, or complaints of discrimination by miners under Section 105 of the Mine Act.




The following provides additional information of the types of proceedings that may be brought before the Commission:
•
Contest Proceedings - A contest proceeding may be filed by an operator to challenge the issuance of a citation or order issued by MSHA.
•
Civil Penalty Proceedings - A civil penalty proceeding may be filed by an operator to challenge a civil penalty MSHA has proposed for a violation contained in a citation or order. FCX does not institute civil penalty proceedings based solely on the assessment amount of proposed penalties. Any initiated adjudications described in the table below address substantive matters of law and policy instituted on conditions that are alleged to be in violation of mandatory standards or the Mine Act.
•
Discrimination Proceedings - Involves a miner's allegation that he or she has suffered adverse employment action because he or she engaged in activity protected under the Mine Act, such as making a safety complaint. Also includes temporary reinstatement proceedings involving cases in which a miner has filed a complaint with MSHA stating that he or she has suffered discrimination and the miner has lost his or her position.
•
Compensation Proceedings - A compensation proceeding may be filed by miners entitled to compensation when a mine is closed by certain closure orders issued by MSHA. The purpose of the proceeding is to determine the amount of compensation, if any, due to miners idled by the orders.
•
Temporary Relief - Applications for temporary relief are applications filed under section 105(b)(2) of the Mine Act for temporary relief from any modification or termination of any order.
•
Appeals - An appeal may be filed by an operator to challenge judges decisions or orders to the commission, including petitions for discretionary review and review by the commission on its own motion.
 
 
Legal Actions Pending at September 30, 2016
 
 
 
 
 
 
 
Contest
 
Civil Penalty
 
Discrimination
 
Compensation
 
Temporary
 
 
 
 
 
Legal Actions
 
Legal Actions
 
 
 
Proceedings
 
Proceedings
 
Proceedings
 
Proceedings
 
Relief
 
Appeals
 
Total
 
Instituted (2)
 
Resolved (3)
 
Mine ID (1)
 
(#)
 
(#)
 
(#)
 
(#)
 
(#)
 
(#)
 
(#)
 
(#)
 
(#)
 
0200137
 
—

 
—

 
—

 
—

 
—

 
—

 
—

 
—

 
—

 
2900708
 
9

 
3

 
—

 
—

 
—

 
—

 
12

 
—

 
—

 
0200112
 
—

 
—

 
—

 
—

 
—

 
—

 
—

 
—

 
—

 
0200024
 
—

 
2

 
—

 
—

 
—

 
—

 
2

 
1

 
4

 
0203131
 
—

 
—

 
—

 
—

 
—

 
—

 
—

 
—

 
—

 
0200144
 
—

 
—

 
—

 
—

 
—

 
—

 
—

 
—

 
—

 
2900159
 
1

 
—

 
—

 
—

 
—

 
—

 
1

 
—

 
—

 
0500790
 
—

 
—

 
—

 
—

 
—

 
—

 
—

 
—

 
—

 
0502256
 
—

 
—

 
—

 
—

 
—

 
—

 
—

 
—

 
—

 
2900725
 
—

 
—

 
—

 
—

 
—

 
—

 
—

 
—

 
—

 
2900731
 
—

 
—

 
—

 
—

 
—

 
—

 
—

 
—

 
—

 
0201656
 
—

 
—

 
—

 
—

 
—

 
—

 
—

 
—

 
—

 
0202579
 
—

 
—

 
—

 
—

 
—

 
—

 
—

 
—

 
—

 
0203262
 
—

 
—

 
—

 
—

 
—

 
—

 
—

 
—

 
—

 
2902395
 
—

 
—

 
—

 
—

 
—

 
—

 
—

 
—

 
—

 
0203254
 
—

 
—

 
—

 
—

 
—

 
—

 
—

 
—

 
—

 
(1)
MSHA assigns an identification number to each mine or operation and may or may not assign separate identification numbers to related facilities. Refer to "Mine Safety Data" table for related mine or operation name.
(2)
Legal actions pending at September 30, 2016 , and legal actions instituted during the three month period are based on the date that a docket number was assigned to the proceeding.
(3)
Legal actions resolved during the three month period are based on the date that the settlement motion resolving disputed matters is filed with the Commission and the matter is effectively closed by MSHA.