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How is Freeport reacting to lower energy prices?


Mar. 17 2015, Updated 12:05 p.m. ET

Lower energy prices

Lower energy prices have negatively impacted energy producers in the United States. US rig count fell sharply over the last couple of months. Rig counts tell you how many rigs are currently active for drilling. The rig count is an indicator of the health of the oil and gas exploration industry.

Energy producers such as ConocoPhillips (COP) have reduced their capital expenditure targets for 2015. Currently, COP forms 4.56% of the Vanguard Energy ETF (VDE).

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Freeport’s strategy

Lower energy prices have prompted a lot of energy companies to rethink their business plans. Freeport-McMoRan (FCX) had significant debt reduction targets for 2016. However, the company has shelved its plan for now.

In the coming parts of this series, we’ll see how Freeport’s debt levels compare to competitors such as Teck Resources (TCK) and Southern Copper Corp. (SCCO).

Freeport has significantly reduced its capital expenditure for the current year. It has reduced its spending targets by $1.5 billion for 2015. Of this amount, $1.2 billion is for Freeport’s energy business, and $0.3 billion is for the mining business, as shown in the above chart. Freeport is also working on reducing its operating costs.

Third-party financing

Freeport is looking at third-party financing for oil and gas exploration. It’s also looking at equity participation from other companies in specific projects. This would help Freeport reduce some of its capital expenditure toward these projects. However, this also means sharing the economic benefits with the third-party partner.

Freeport is also looking at asset sales to reduce its debt levels. However, it faces several challenges in finding prospective buyers for these assets. We’ll look at this in detail in the next part of this series.


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