Freeport-McMoRan Copper & Gold Inc's Big Oil Deal Still Looks Smart

Oil and gas fueled strong cash flow for Freeport-McMoRan Copper & Gold Inc. this quarter.

Jan 23, 2014 at 1:05PM

Fourth-quarter earnings at Freeport-McMoRan Copper & Gold (NYSE:FCX) were tarnished by slumping copper and gold prices. However, one bright spot for the company was its recently acquired oil and gas business. Those deals continue to look smart as it's providing the company with a solid combination of cash flow and growth.

Producing cash today
Since Freeport-McMoRan acquired the oil and gas businesses seven months ago, the combined entity produced $1.8 billion worth of operating cash flow. That's well above the $1.45 billion in capital expenses that Freeport-McMoRan reinvested into the division. That cash flow is being fueled by strong production from oil rich assets in the Gulf of Mexico, California, and the Eagle Ford Shale of Texas.

Production is coming in even stronger than Freeport-McMoRan's own expectations as it was able to exceed its production guidance last quarter. The company had guided to average daily production of 175,000 barrels of oil equivalent, or BOE/d. However, it ended up delivering 181,000 BOE/d thanks in large part to better than expected results from the Eagle Ford Shale.

What's really interesting, here, is that Freeport-McMoRan is taking a different approach than most of its oil and gas peers like Anadarko Petroleum Corporation (NYSE:APC) when it comes to the Eagle Ford Shale. Anadarko Petroleum is using the Eagle Ford Shale to fuel production growth as it continues to drill new wells. It has no plans to slow down as the company sees significant future production growth as even more new wells are drilled. In fact, Anadarko Petroleum has already identified more than 2,500 future drill sites that it expects to drill. While it won't be able to keep up the triple-digit annual production growth pace it has been enjoying, the company's significant future inventory will continue to fuel production growth.

Freeport-McMoRan, on the other hand, is instead using the Eagle Ford to fuel cash flow growth. In fact, despite the oil-fueled growth it has enjoyed in the past, Freeport-McMoRan is reducing its rig count in the Eagle Ford Shale from the eight it had running in the middle of last year down to just two rigs in 2014. While that will cause production to decline, it will boost the company's cash flow that it plans on investing elsewhere, as well as reduce debt.

Producing growth tomorrow
Looking ahead, Freeport-McMoRan still sees a lot of oil-fueled growth in its future. In the near term, that growth will come from the Lucius field in the Gulf of Mexico. Freeport-McMoRan, along with partners Apache Corporation (NYSE:APA), Anadarko Petroleum, and others expect to see the project begin production in the second half of 2014. The peak capacity of the project will be 80,000 barrels of oil and 450 MMcf of natural gas per day. Given that Freeport-McMoRan's stake is 23.3%, the completion of this project will add significant production growth and cash flow for the company next year.

In addition to that, the company should begin to see results from several of its deep natural gas exploration prospects in the shallow waters of the Gulf of Mexico as well as onshore Louisiana. The company sees these emerging opportunities holding high-quality prospects that have the potential to be developed into long-term, low-cost natural gas. What could make these opportunities even more intriguing in the future is the growth of natural gas exports, as these prospects are ideally located in close proximity to many of the proposed export terminals.

Investor takeaway
Copper and gold still carries most of the weight at Freeport-McMoRan. However, the company's move into energy really is paying off. Overall, it has the potential to move the needle in both the short and long term, which will really help given that metal prices remain low. 

One stock you'll want to buy in 2014
There's a huge difference between a good stock and a stock that can make you rich. The Motley Fool's chief investment officer has selected his No. 1 stock for 2014, and it's one of those stocks that could make you rich. You can find out which stock it is in the special free report "The Motley Fool's Top Stock for 2014." Just click here to access the report and find out the name of this under-the-radar company.

Fool contributor Matt DiLallo has no position in any stocks mentioned. The Motley Fool owns shares of Freeport-McMoRan Copper & Gold. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

Money to your ears - A great FREE investing resource for you

The best way to get your regular dose of market and money insights is our suite of free podcasts ... what we like to think of as “binge-worthy finance.”

Feb 1, 2016 at 5:03PM

Whether we're in the midst of earnings season or riding out the market's lulls, you want to know the best strategies for your money.

And you'll want to go beyond the hype of screaming TV personalities, fear-mongering ads, and "analysis" from people who might have your email address ... but no track record of success.

In short, you want a voice of reason you can count on.

A 2015 Business Insider article titled, "11 websites to bookmark if you want to get rich," rated The Motley Fool as the #1 place online to get smarter about investing.

And one of the easiest, most enjoyable, most valuable ways to get your regular dose of market and money insights is our suite of free podcasts ... what we like to think of as "binge-worthy finance."

Whether you make it part of your daily commute or you save up and listen to a handful of episodes for your 50-mile bike rides or long soaks in a bubble bath (or both!), the podcasts make sense of your money.

And unlike so many who want to make the subjects of personal finance and investing complicated and scary, our podcasts are clear, insightful, and (yes, it's true) fun.

Our free suite of podcasts

Motley Fool Money features a team of our analysts discussing the week's top business and investing stories, interviews, and an inside look at the stocks on our radar. The show is also heard weekly on dozens of radio stations across the country.

The hosts of Motley Fool Answers challenge the conventional wisdom on life's biggest financial issues to reveal what you really need to know to make smart money moves.

David Gardner, co-founder of The Motley Fool, is among the most respected and trusted sources on investing. And he's the host of Rule Breaker Investing, in which he shares his insights into today's most innovative and disruptive companies ... and how to profit from them.

Market Foolery is our daily look at stocks in the news, as well as the top business and investing stories.

And Industry Focus offers a deeper dive into a specific industry and the stories making headlines. Healthcare, technology, energy, consumer goods, and other industries take turns in the spotlight.

They're all informative, entertaining, and eminently listenable. Rule Breaker Investing and Answers are timeless, so it's worth going back to and listening from the very start; the other three are focused more on today's events, so listen to the most recent first.

All are available for free at www.fool.com/podcasts.

If you're looking for a friendly voice ... with great advice on how to make the most of your money ... from a business with a lengthy track record of success ... in clear, compelling language ... I encourage you to give a listen to our free podcasts.

Head to www.fool.com/podcasts, give them a spin, and you can subscribe there (at iTunes, Stitcher, or our other partners) if you want to receive them regularly.

It's money to your ears.

 


Compare Brokers