Freeport-McMoRan 2013 Annual Report Download - page 134

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
132 | FREEPORT-McMoRan
Estimated Quantities of Oil and Natural Gas Reserves. The
following table sets forth certain data pertaining to proved, proved
developed and proved undeveloped reserves, all of which are in
the U.S., for the period June 1, 2013, to December 31, 2013.
Oil Gas Total
(MMbls)
a,b
(Bcf)
a
(MMBOE)
a
Proved reserves:
Acquisitions of PXP and MMR 368 626 472
Extensions and discoveries 20 20 24
Revisions of previous estimates 11 (26) 7
Sale of reserves in-place — (3) (1)
Production (29) (55) (38)
Balance at December 31, 2013 370 562 464
Proved developed reserves at
December 31, 2013 236 423 307
Proved undeveloped reserves at
December 31, 2013 134 139 157
a. MMbls = million barrels; Bcf = billion cubic feet; MMBOE = million BOE
b. Included 20 MMBbls of NGL proved reserves, consisting of 14 MMBbls of proved
developed and 6 MMBbls of proved undeveloped at December 31, 2013.
From June 1, 2013, to December 31, 2013, FCX had a total of 24
MMBOE of extensions and discoveries, including 16 MMBOE in the
Eagle Ford shale play resulting from continued successful drilling
that extended and developed FCX’s proved acreage and 5 MMBOE
in the Deepwater GOM, primarily associated with the previously
drilled Holstein Deep development acquired during 2013.
From June 1, 2013, to December 31, 2013, FCX had net positive
revisions of 7 MMBOE consisting of 29 MMBOE primarily
related to improved performance at certain FCX onshore California
and Deepwater GOM properties, partially offset by performance
reductions of 22 MMBOE primarily related to certain other
FCX Deepwater GOM properties and the Haynesville shale play.
From June 1, 2013, to December 31, 2013, FCX sold reserves
in-place totaling 1 MMBOE related to its Panhandle properties.
Standardized Measure. The Standardized Measure (discounted
at 10 percent) from production of proved oil and natural gas
reserves has been developed as of December 31, 2013, in
accordance with SEC guidelines. FCX estimated the quantity of
proved oil and natural gas reserves and the future periods in
which they are expected to be produced based on year-end
economic conditions. Estimates of future net revenues from FCX’s
proved oil and gas properties and the present value thereof were
made using the twelve-month average of the first-day-of-the-
month historical reference prices as adjusted for location and
quality differentials, which are held constant throughout the life of
the oil and gas properties, except where such guidelines permit
alternate treatment, including the use of fixed and determinable
contractual price escalations. Future gross revenues were
ultimately recovered, production and operating costs, the amount
and timing of future development expenditures and future crude
oil and natural gas sales prices may all differ from those assumed
in these estimates. In addition, different reserve engineers may
make different estimates of reserve quantities and cash flows
based upon the same available data. Therefore, the standardized
measure of discounted future net cash flows (Standardized
Measure) shown below represents estimates only and should not
be construed as the current market value of the estimated
reserves attributable to FCX’s oil and gas properties. In this
regard, the information set forth in the following tables includes
revisions of reserve estimates attributable to proved properties
acquired from PXP and MMR, and reflect additional information
from subsequent development activities, production history of
the properties involved and any adjustments in the projected
economic life of such properties resulting from changes in
product prices.
Decreases in the prices of crude oil and natural gas could have
an adverse effect on the carrying value of the proved reserves,
reserve volumes and FCX’s revenues, profitability and cash flows.
FCX’s reference prices for reserve determination are the WTI
spot price for crude oil and the Henry Hub spot price for natural
gas. As of February 14, 2014, the twelve-month average of the
first-day-of-the-month historical reference price for natural gas
has increased from $3.67 per MMBtu at year-end 2013 to $3.89 per
MMBtu, while the comparable price for crude oil has increased
from $96.94 per barrel at year-end 2013 to $97.46 per barrel.
Historically, the market price for California crude oil differs from
the established market indices in the U.S. primarily because of the
higher transportation and refining costs associated with heavy oil.
Recently, however, the market price for California crude oil has
strengthened relative to NYMEX and WTI primarily resulting from
world demand and declining domestic supplies of both Alaskan
and California crude oil. Approximately 40 percent of FCX’s
year-end 2013 oil and natural gas reserve volumes are attributable
to properties in California where differentials to the reference
prices have been volatile as a result of these factors.
The market price for GOM crude oil differs from WTI as a result
of a large portion of FCX’s production being sold under a Heavy
Louisiana Sweet based pricing. Approximately 25 percent of
FCX’s 2013 oil and natural gas reserve volumes are attributable to
properties in the GOM where oil price realizations are generally
higher because of these marketing contracts.