• Brent three-way collars on 25,000 BOPD for 2013 that have a floor price of $100 per barrel
with a limit of $80 per barrel and a weighted average ceiling price of $124.29 per barrel.
• Brent crude oil put option spread contracts on 20,000 BOPD for 2014 with a floor price of $90
per barrel and a limit of $70 per barrel.
In February 2012, we entered into natural gas swap contracts, at an average price of $4.16 per
MMBtu, on 70,000 MMBtu per day for 2014.
Note 7 — Investment
At December 31, 2011 and 2010, we owned 51.0 million shares of McMoRan Exploration Co.
common stock, approximately 31.6% and 32.4%, respectively, of its common shares outstanding.
McMoRan is a publicly traded oil and gas exploration and production company (New York Stock
Exchange listing MMR) engaged in the exploration, development and production of natural gas and oil
in the United States, specifically offshore in the shallow waters of the Gulf of Mexico Shelf and onshore
in the Gulf Coast area. In December 2010, we acquired the McMoRan common stock and other
consideration in exchange for all of our interests in our U.S. Gulf of Mexico leasehold located in less
than 500 feet of water. See Note 3 – Divestments.
As contemplated by the Agreement and Plan of Merger, we and McMoRan entered into a
registration rights agreement and a stockholder agreement at the closing of the transaction. Under the
terms of the registration rights agreement, McMoRan filed a registration statement covering the
McMoRan shares within 60 days after closing. The registration rights agreement also gives us
piggyback registration rights and demand registration rights under certain circumstances. Under the
terms of the stockholder agreement, McMoRan expanded its board of directors and we have the right
to designate two board members for so long as we own at least 10% of the outstanding shares of
McMoRan. If our ownership falls below 10%, but is at least 5%, we will have the right to designate one
director. The stockholder agreement requires us to refrain from certain activities that could be
undertaken to acquire control of McMoRan and from transferring any McMoRan shares for one year
after closing (subject to certain exceptions). The one year restriction ended on December 30, 2011,
and we may now sell shares of McMoRan common stock pursuant to underwritten offerings, in periodic
sales under the shelf registration statement filed by McMoRan (subject to certain volume limitations),
pursuant to the exercise of piggyback registration rights or as otherwise permitted by applicable law.
Our investment in McMoRan was reclassified from long-term to current assets as the one year
restriction to sell the shares ended on December 30, 2011.
We are deemed to exercise significant influence over the operating and investing policies of
McMoRan but do not have control. We have elected to measure our equity investment in McMoRan at
fair value, and the change in fair value of our investment is recognized as a gain or loss on investment
measured at fair value in our income statement. We believe that using fair value as a measurement
basis for our investment is useful to our investors because our earnings on the investment will be
dependent on the fair value on the date we divest the shares. At December 31, 2011 and 2010, the
McMoRan shares were valued at approximately $611.7 million and $664.3 million, respectively, based
on McMoRan’s closing stock prices of $14.55 and $17.14 on December 31, 2011 and 2010,
respectively, discounted to reflect certain limitations on the marketability of the McMoRan shares.
During the years ended December 31, 2011 and 2010, we recorded unrealized losses of $52.7 million
and $1.6 million, respectively, on our investment.
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