Freeport-McMoRan 2014 Annual Report Download - page 35

MANAGEMENT’S DISCUSSION AND ANALYSIS
33
steel and stainless steel producers. During 2014, the weekly
average price for molybdenum ranged from a low of $8.82 per
pound to a high of $15.00 per pound, averaged $11.41 per pound
and was $9.00 per pound on December 31, 2014. The Metals Week
Molybdenum Dealer Oxide weekly average price was $7.62 per
pound on February 20, 2015.
Oil and Gas. Market prices for crude oil and natural gas can
fluctuate significantly. During the period from January 2005 through
January 2015, the Brent crude oil price ranged from a low of
$36.61 per barrel to a high of $146.08 per barrel in 2008 and the
NYMEX natural gas price fluctuated from a low of $2.04 per
million British thermal units (MMBtu) in 2012 to a high of $13.91
per MMBtu in 2005. Crude oil and natural gas prices are affected
by numerous factors beyond our control as described further in
our “Risk Factors“ contained in Part I, Item 1A of our Form 10-K
for the year ended December 31, 2014.
This graph presents Brent crude oil prices and NYMEX natural gas
contract prices from January 2005 through January 2015. Crude
oil prices reached a record high in July 2008 as economic growth
in emerging economies and the U.S. created high global demand
for oil and lower inventories. By the end of 2008, financial turmoil
in the U.S. contributed to a global economic slowdown and a
decline in many commodity prices. Crude oil prices rebounded
after 2008, supported by a gradually improving global economy
and demand outlook. Since mid-2014, oil prices have significantly
declined associated with global oversupply primarily attributable
to U.S. shale production and increased Brazilian and Libyan
output, coupled with weak economic data in Europe and slowing
Chinese demand. During 2014, the Brent crude oil price ranged
from a low of $57.33 per barrel to a high of $115.06 per barrel,
averaged $99.45 per barrel and was $57.33 per barrel on
December 31, 2014. The Brent crude oil price was $60.22 per
barrel on February 20, 2015.
CRITICAL ACCOUNTING ESTIMATES
Management’s Discussion and Analysis of Financial Condition
and Results of Operations is based on our consolidated financial
statements, which have been prepared in conformity with
generally accepted accounting principles (GAAP) in the U.S. The
preparation of these statements requires that we make estimates
and assumptions that affect the reported amounts of assets,
liabilities, revenues and expenses. We base these estimates on
historical experience and on assumptions that we consider
reasonable under the circumstances; however, reported results
could differ from those based on the current estimates under
different assumptions or conditions. The areas requiring the use
of management’s estimates are also discussed in Note 1 under
the subheading “Use of Estimates.“ Management has reviewed
the following discussion of its development and selection of
critical accounting estimates with the Audit Committee of our
Board of Directors (the Board).
Mineral Reserves. Recoverable proven and probable reserves
are the part of a mineral deposit that can be economically and
legally extracted or produced at the time of the reserve
determination. The determination of reserves involves numerous
uncertainties with respect to the ultimate geology of the ore
bodies, including quantities, grades and recovery rates.
Estimating the quantity and grade of mineral reserves requires us
to determine the size, shape and depth of our ore bodies by
analyzing geological data, such as samplings of drill holes,
tunnels and other underground workings. In addition to the
geology of our mines, assumptions are required to determine the
economic feasibility of mining these reserves, including estimates
of future commodity prices and demand, the mining methods we
use and the related costs incurred to develop and mine our
reserves. Our estimates of recoverable proven and probable
mineral reserves are prepared by and are the responsibility of our
employees. A majority of these estimates are reviewed annually
and verified by independent experts in mining, geology and
reserve determination.
At December 31, 2014, our consolidated estimated recoverable
proven and probable reserves were determined using long-term
average prices of $2.00 per pound for copper (consistent with the
long-term average copper price used since December 31, 2010),
$1,000 per ounce for gold and $10 per pound for molybdenum.
1,500
2005 20092007 2011 2013 2015
$5.00
$4.00
$3.00
$2.00
$4.50
$3.50
$2.50
$1.00
$1.50
$0.50
1,200
900
600
300
Dollars per pound
000s of metric tons
Crude Oil and Natural Gas Prices
Through January 31, 2015
2005 20092007 2011 2013 2015
$160
$120
$80
$40
$140
$100
$60
$20
$16
$12
$8
$4
$14
$10
$6
$2
Brent Oil Prices ($/Bbl)
Natural Gas Price ($/MMBtu)
Brent Crude
NYMEX