Source: Freeport-McMoRan.

Commodities have gone through tough times lately, and Freeport-McMoRan Copper & Gold's (NYSE:FCX) saving grace for much of the past couple years has been the exposure to the oil and gas industry it got through two key acquisitions in mid-2013. Yet the plunge in oil prices in recent months has turned that exposure into an even larger weight on Freeport-McMoRan's shoulders, and the company's fourth-quarter financial report Tuesday morning demonstrated the magnitude of the declines in energy and other commodities. Let's look at how Freeport-McMoRan closed the year and whether 2015 will be kinder to the commodity giant.

Tolling the damage on Freeport-McMoRan
Freeport-McMoRan's headline numbers looked particularly ugly. Revenue dropped 11% to $5.24 billion, and even those figures were inflated by almost $500 million of mark-to-market gains connected with the company's oil and gas derivative-contract exposure. Without those adjustments, sales would have come in well below what investors had expected. The bottom line was even scarier, with a total net loss of $2.85 billion equating to $2.75 per share for the quarter. That loss erased Freeport's profit from earlier in the year, causing the company to lose money for full-year 2014.

The biggest impact on Freeport's results came from the need to mark down assets to reflect lower prices. The company took a $3.4 billion pre-tax charge in the fourth quarter to comply with SEC requirements that define the maximum value at which oil and gas companies can keep assets on their books without making impairment adjustments. In addition, Freeport wrote down all the goodwill from its energy-related acquisitions, resulting in another $1.7 billion in charges.

Yet Freeport didn't perform well even after allowing for one-time charges. Adjusted earnings per share landed at just $0.25, a dime short of what investors anticipated.

Freeport's Morenci operations. Source: Freeport-McMoRan.

The company's problems weren't limited to energy, as just about every segment looked weak. Copper sales fell almost 15%, with strategic asset sales and sluggishness in its Indonesian operations offsetting stronger performance in North America, and the average price fell more than 10% to $2.95 per pound. Sales of gold fell by more than a quarter as volume and sales prices declined, and molybdenum volume of 21 million pounds was down from 22 million pounds in the previous year. Meanwhile, total production in the energy segment dropped by more than 25% to 12.1 million barrels of oil-equivalent, largely because of Freeport's sale of its Eagle Ford shale assets last June.

Freeport executives remained optimistic, though. The company's press release noted, "During 2014, our organization achieved strong operating performance and project development milestones despite challenging commodity market conditions." Moreover, "[w]ith our high quality portfolio of large scale assets, exposure to markets with favorable long-term fundamentals, and track record for effective management of our operations and balance sheet, we are confident in our ability to generate value for shareholders."

More pain to come?
Yet the scariest proposition for Freeport-McMoran investors is the fact that the company's fourth-quarter losses could be just the beginning. The company noted that because the SEC impairment test uses average prices over the past 12 months, it ended up using a figure of about $95 per barrel to determine its current impairment charges. That means that if oil prices stay at their current levels, Freeport could have to take further writedowns to comply with the rules.

In response, Freeport has moved to cut costs and conserve cash. The company will spend just $6 billion on capital projects in 2015, down from $7.2 billion in 2014. When you add exploration and other cost-containment measures, Freeport expects to save a total of $2 billion this year.

Freeport's Bisbee operations. Source: Freeport-McMoRan.

Yet other potential wild cards still loom for Freeport. The company extended its memorandum of understanding with the Indonesian government until this July as it tries to deal with demands to develop greater smelting capacity in the Asia-Pacific nation. As a result, it boosted the royalties it pays to Indonesia in hope export duties will fall as smelter development progresses. Still, labor issues have plagued the company's Indonesian operations in the past, and future trouble could cause problems large enough to affect Freeport's overall results. Also, in the energy segment, some of Freeport's exploration activity has started to bear fruit, but lower realized prices for any production from energy assets will disappoint those who saw greater opportunity from the company's energy acquisitions in 2013.

With copper, gold, and oil prices all plunging recently, Freeport-McMoRan couldn't be facing a tougher challenge than it is right now. Value investors might be drooling at the prospect of picking a bottom for the commodities industry, but it could take some time for the full impact of plunging commodity prices to play out in Freeport-McMoran's financial results.