Freeport-McMoRan 2014 Annual Report Download - page 139

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
137
NOTE 21. SUPPLEMENTARY OIL AND GAS INFORMATION
(UNAUDITED)
Costs Incurred. A summary of the costs incurred for FCX’s oil and
gas acquisition, exploration and development activities for the
years ended December 31 follows:
2014 2013
a
Property acquisition costs:
Proved properties $ 463 $ 12,205
b
Unproved properties 1,460 11,259
c
Exploration costs 1,482 502
Development costs 1,270 854
$ 4,675 $ 24,820
a. Includes the results of FM O&G beginning June 1, 2013.
b. Includes $12.2 billion from the acquisitions of PXP and MMR.
c. Includes $11.1 billion from the acquisitions of PXP and MMR.
These amounts included changes in AROs of $(27) million in 2014
and $1.1 billion in 2013 (including $1.0 billion assumed in the
acquisitions of PXP and MMR), capitalized general and administrative
expenses of $143 million in 2014 and $67 million in 2013, and
capitalized interest of $88 million in 2014 and $69 million in 2013.
Capitalized Costs. The aggregate capitalized costs subject to
amortization for oil and gas properties and the aggregate related
accumulated amortization as of December 31 follow:
2014 2013
Properties subject to amortization $ 16,547 $ 13,829
Accumulated amortization (7,360)
a
(1,357)
$ 9,187 $ 12,472
a. Includes charges of $3.7 billion to reduce the carrying value of oil and gas properties
pursuant to full cost accounting rules.
The average amortization rate per barrel of oil equivalents (BOE)
was $39.74 in 2014 and $35.54 for the period from June 1, 2013, to
December 31, 2013.
Costs Not Subject to Amortization. A summary of the categories
of costs comprising the amount of unproved properties not
subject to amortization by the year in which such costs were
incurred follows:
December 31, Total 2014 2013
U.S.:
Onshore
Acquisition costs $ 2,303 $ 18 $ 2,285
Exploration costs 121 119 2
Capitalized interest 27 22 5
Offshore
Acquisition costs 7,094 1,413 5,681
Exploration costs 429 387 42
Capitalized interest 75 39 36
International:
Offshore
Acquisition costs 15 — 15
Exploration costs 23 23 —
Capitalized interest — — —
$ 10 , 0 8 7 $ 2 ,021 $ 8,066
FCX expects that 48 percent of the costs not subject to
amortization at December 31, 2014, will be transferred to the
amortization base over the next five years and the majority
of the remainder in the next seven to ten years.
Approximately 35 percent of the total U.S. net undeveloped
acres is covered by leases that expire from 2015 to 2017. As
a result of the decrease in crude oil prices, FCX’s current plans
anticipate that the majority of the expiring acreage will not be
retained by drilling operations or other means. The exploration
permits covering FM O&G’s Morocco acreage expire in 2016;
however, FM O&G has the ability to extend the exploration
permits through 2019. Over 95 percent of the acreage in the
Haynesville shale play in Louisiana is currently held by production
or held by operations, and future plans include drilling or
otherwise extending leases on the remaining acreage.
Results of Operations for Oil and Gas Producing Activities. The
results of operations from oil and gas producing activities for the
year ended December 31, 2014, and the period from June 1, 2013,
to December 31, 2013, presented below exclude non-oil and gas
revenues, general and administrative expenses, goodwill
impairment, interest expense and interest income. Income tax
benefit (expense) was determined by applying the statutory rates
to pre-tax operating results:
Year Ended June 1, 2013, to
December 31, 2014 December 31, 2013
Revenues from oil and gas producing
activities $ 4,710 $ 2,616
Production and delivery costs (1,237) (682)
Depreciation, depletion and amortization (2,265) (1,358)
Impairment of oil and gas properties (3,737) —
Income tax benefit (expense)
(based on FCX’s statutory tax rate) 958 (219)
Results of operations from oil and gas
producing activities $ (1 , 5 71) $ 357
Proved Oil and Natural Gas Reserve Information. The following
information summarizes the net proved reserves of oil (including
condensate and natural gas liquids (NGLs)) and natural gas and
the standardized measure as described below. All of the oil and
natural gas reserves are located in the U.S.
Management believes the reserve estimates presented
herein, in accordance with generally accepted engineering and
evaluation principles consistently applied, are reasonable.
However, there are numerous uncertainties inherent in estimating
quantities and values of proved reserves and in projecting future
rates of production and the amount and timing of development
expenditures, including many factors beyond FCX’s control.
Reserve engineering is a subjective process of estimating the
recovery from underground accumulations of oil and natural gas
that cannot be measured in an exact manner, and the accuracy
of any reserve estimate is a function of the quality of available