Freeport-McMoRan to acquire oil, gas assets in $20 billion deal
Copper-mining giant Freeport-McMoRan will purchase two oil and gas companies, which could rescue a venture by McMoRan Exploration Co. to drill one of the deepest offshore oil wells on record.
Freeport-McMoRan Copper & Gold Inc., one of the world’s largest copper producers, announced Wednesday it will purchase a pair of oil and gas companies in a deal totaling $20 billion.
The Phoenix-based mining company will pay $3.4 billion in cash to purchase its sister company, McMoRan Exploration Co., which was spun off from Freeport-McMoRan in the 1990s. Also, Plains Exploration, a Houston-based oil and gas company, will be acquired for about $6.9 billion in cash and stock. Freeport-McMoRan will assume an additional $11 billion in debt as part of the deal.
The move is the second attempt at diversification beyond metals for Freeport-McMoRan and a lifeline for McMoRan Exploration, which has been struggling to persuade investors that its clogged, ultra-deep oil well in the Gulf of Mexico will soon come online. McMoRan shares have fallen 46 percent in the past year and dropped 9.7 percent early Monday as the company announced the well was restricted by skin or formation damage.
"The transaction offers significant values to the [McMoRan] and [Plains Exploration] shareholders and will enable [Freeport-McMoRan] to build on these values through a much larger, well capitalized platform," James R. Moffett, chairman of the board of Freeport-McMoRan, said in a statement.
Some see the purchase as a bold move at a time when many companies are cautiously tiptoeing around the fiscal cliff.
"Wednesday’s deals are a clear bet that demand for natural resources around the world will continue to rise," Steve Schaefer wrote in Forbes.
The US Energy Information Administration expects domestic natural gas production to be up nearly 4 percent this year from 2011's record levels. The US is projected to become the world's leading oil producer by 2020, according to the International Energy Agency.
McMoRan stock soared 75 percent and Plains Exploration shares jumped by a quarter in response to the acquisition, but Freeport-McMoRan investors were less impressed.
Freeport-McMoRan will be among only a handful of major miners that have expanded beyond core metals and bulk commodities. Shares of the company's stock fell 15 percent on news of the purchase.
“If you own Freeport-McMoRan, you own it for the gold and copper assets, not for oil and gas,” Kevin Kaiser, an energy analyst with Hedgeye Risk Management, told MarketWatch.
Richard Adkerson, Freeport-McMoRan’s president and CEO, said on a conference call with analysts that the company's goal is to diversify while retaining a strong position in mining, according to Reuters.