Freeport’s Oil and Gas Earnings Improve Sequentially in 2Q15



Freeport’s oil and gas earnings

Previously, we saw that Freeport-McMoRan’s (FCX) copper unit production costs came down in 2Q15. Freeport expects unit production costs to drop further in the second half of 2015. It expects a reduction in unit production costs in 2016 as well.

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Energy assets

Even though Freeport managed to bring down its unit production costs, it was clearly not enough to offset lower commodity prices that are falling at a much faster pace. In this part of the series, we’ll take a look at the 2Q15 financial performance of Freeport’s energy business.

In 2013, Freeport diversified into the energy exploration (XOP) business. Energy is a key component of Freeport’s portfolio, accounting for ~16% of its 2014 revenues.

ConocoPhillips (COP) and Suncor Energy (SU) are the other leading energy exploration companies. COP currently forms 3.48% of the Energy Select Sector SPDR ETF (XLE). Earnings for energy exploration companies have come under pressure due to the correction in energy prices.

Performance improves sequentially

The above chart shows the financial performance of Freeport’s energy business. Unit production costs in 2Q15 came down compared to 1Q15. Average selling prices also improved compared to the last quarter. The cumulative effect of lower unit costs and higher average selling prices resulted in a 24% rise in cash operating margins.

Sales volume also increased marginally in 2Q15 compared to the previous quarter.

Freeport has filed for an IPO (initial public offering) of its energy business. It’s also looking at other strategic alternatives. We’ll look at these in the coming parts of the series. But, before that, let’s look at some other highlights of Freeport’s 2Q15 financial results.


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