At first glance, Freeport-McMoRan (NYSE:FCX) reported a rather atrocious quarter after detailing a multi-billion loss due to a huge asset writedown. However, after adjusting for that loss, and despite a horrendous slide in commodity prices, the company actually reported better-than-expected fourth-quarter results before the market opened this morning.

Digging into the numbers
Freeport-McMoRan reported a net loss totaling $4.1 billion, or $3.47 per share for the fourth quarter. However, the bulk of that loss was due to a $3.7 billion impairment charge the company took on its oil and gas assets, as well as a few other additional charges and adjustments. If we adjust for these one-time charges, the company's net loss for the quarter was only $21 million, or $0.02 per share. That's a much lower loss than the consensus estimate of $0.08 per share.

The company was able to surpass expectations by keeping its costs in check, with the company's consolidated unit net cash cost averaging $1.45 per pound for copper and $16.67 per barrel of oil equivalent during the quarter. That was due to lower site production and delivery costs on the mining side, and lower maintenance and repair costs on the oil side. In addition to those lower costs, the company was able to benefit from strong oil hedges, which pushed the company's average realize price per barrel of oil equivalent up by $11.39 to $48.88.

Production volumes were also solid, with the company producing 1.15 billion pounds of copper, 338,000 ounces of gold, 20 million pounds of molybdenum, and 13.2 million barrels of oil equivalent during the quarter. Most of those commodities were right on track with Freeport's prior guidance, however, gold sales were particularly strong and exceeded the company's guidance of 310,000 ounces for the quarter.

What's next for Freeport-McMoRan
While Freeport-McMoRan's results were a bit better than expected, the company still has a lot of work to do. Priority No. 1, according to CEO Richard Adkerson, is a "clear and immediate objective ... to restore Freeport-McMoRan's balance sheet." That will be accomplished through a series of third-party transactions that it expects to work through during the first half of 2016. While the company was short on specifics, it did note in the press release that it is pursing both asset sales and joint venture transactions, and that "several initiatives are currently being advanced, including an evaluation of alternatives for the oil and gas business as well as several transactions involving certain of its mining assets."


Image source: Rowan.

In addition to that, the company is taking further action to reduce costs at its oil and gas business. The company has now decided to defer all exploration and development activities, which will result in it idling all three of the deepwater drillships it has under contract. This impacts its drillship vendors Noble (NYSE:NE) and Rowan (NYSE:RDC), which have these contracts. Noble would bear the brunt of this impact because it supplies two rigs -- Rowan supplies the other rig -- which is a lower dayrate than the two Noble vessels. That said, neither Noble or Rowan will come away empty handed, with Freeport-McMoRan expected to incur idle rig costs totaling $600 million in 2016 and $400 million in 2017 associated with these three rigs.

Given these cost adjustments and the company's new commodity price outlook, Freeport-McMoRan now expects to produce $3.4 billion in cash flow this year at an average copper price of $2 per pound, and an average oil price of $34 per barrel. That will largely match the company's expected capex budget of $3.4 billion for the year.

Investor takeaway
Freeport-McMoRan has worked very hard to reduce its spending to level it with its expected cash flow. That said, the company still has yet to address its debt, which has grown by a net $1.8 billion over the past year. That's expected to change given that the company's primary goal going forward is to reduce its debt, with its aim to make tangible progress over the next six months. It's a goal it must accomplish given that its balance sheet is nearing the breaking point due to persistently weak commodity prices.