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Freeport considers energy spinoff two years after diversifying
[NEW YORK] Freeport McMoRan Inc is considering spinning off energy assets two years after agreeing to acquire them for US$9 billion as it tries to finance development plans amid lower commodity prices.
The assets were picked up when Phoenix-based Freeport bought McMoRan Exploration Co and Plains Exploration & Production Co, re-entering the energy business after more than a decade. At the time of the deals, crude was trading at over US$80 a barrel. Oil fell to less than US$44 this year, while the price of copper, which Freeport mines, has also dropped.
"The markets have a funny way of turning on you," Jim Bob Moffett, Freeport's 76-year-old cofounder and chairman, said Thursday on the company's earnings conference call.
Freeport said it may hold an initial public offering for a minority stake in the oil and gas business. Doing so would go some way to undoing a diversification into energy that, at the time, was criticised by shareholder BlackRock Inc for being unnecessary. Freeport shares are down 48 per cent since it announced in December 2012 it was buying Plains and McMoRan Exploration.
"If this is the path that Freeport ultimately chooses, it clearly indicates that management's quest to find a strategic investor in its energy business has not worked," Christopher LaFemina, an analyst at Jefferies Group LLC in New York, said in a note.
Freeport is seeking to optimise its funding of the oil and gas projects it's developing, which include wells in the Gulf of Mexico, Chief Executive Officer Richard Adkerson said on Thursday's call.
While the company can afford its plans using cash and a credit facility, reorganizing the corporate structure would give investors a way to calculate the value of its mining and drilling assets separately, said Jim Flores, vice-chairman of Freeport and CEO of the company's energy business.
"The key thing we think it does is highlight the stand- alone value of our oil and gas business," Mr Flores said on the call. "We've had more success than anybody with the drill bit in the last two years. It's not getting reflected in the equity."
Freeport is far from alone in feeling the pressure. Oil companies are cutting more than US$100 billion in spending globally, according to analysts at IHS Inc. Oil prices have tumbled about 50 per cent since June, provoking a wave of cuts to energy investment.
Freeport on Thursday reported its first loss since the global financial crisis. The first-quarter loss excluding one- time items was 6 cents a share, trailing the 5-cent loss estimated on average by 19 analysts.
Sales declined 17 per cent to US$4.15 billion, beating the US$3.99 billion average estimate. The shares fell 2.4 per cent to US$20.07 in New York.
Freeport, the world's second-largest copper producer, also cut its forecast for output of the metal this year to 4.2 billion pounds from 4.3 billion pounds previously.
Production of oil equivalents will be 52.3 million barrels, compared with an earlier forecast of 55.5 million.