Freeport-McMoRan to acquire oil, gas assets in $20 billion deal(Read article summary)
Copper-mining giant Freeport-McMoRan will purchase two oil and gas companies, which could rescue a venture by McMoRan Exploration Co. to drill one of the deepest offshore oil wells on record.
Freeport-McMoRan Copper & Gold Inc., one of the¬†world‚Äôs largest copper producers, announced Wednesday it will purchase a pair of oil and gas companies in a deal totaling $20 billion.
The Phoenix-based mining company will pay¬†$3.4 billion in cash to purchase its¬†sister company,¬†McMoRan Exploration Co., which was spun off from Freeport-McMoRan in the 1990s.¬†Also, Plains Exploration, a¬†Houston-based¬†oil and gas company,¬†will be acquired for about $6.9 billion in cash and stock.¬†Freeport-McMoRan will assume an additional $11 billion in debt as part of the deal.
The move is the second attempt at diversification beyond metals for Freeport-McMoRan and a lifeline for McMoRan Exploration, which has been struggling to persuade investors that its clogged, ultra-deep oil well in the Gulf of Mexico will soon come online. McMoRan¬†shares have fallen¬†46 percent in the past year and dropped 9.7 percent early Monday as the company announced the well was¬†restricted by skin or formation damage.¬†
"The¬†transaction offers significant values to the [McMoRan] and [Plains Exploration] shareholders and will enable [Freeport-McMoRan] to build¬†on these values through a much larger, well capitalized platform,"¬†James R. Moffett, chairman of the board of Freeport-McMoRan, said in a statement.¬†
Some see the purchase as a bold move at a time when many companies are cautiously tiptoeing around the fiscal cliff.
"Wednesday‚Äôs deals are a clear bet that demand for natural resources around the world will continue to rise,"¬†Steve Schaefer wrote in Forbes.¬†
The US Energy Information Administration expects¬†domestic natural gas production to be up nearly 4 percent this year from 2011's record levels.¬†The US is projected to become the world's leading oil producer by 2020, according to the International Energy Agency.
McMoRan stock soared 75 percent and Plains Exploration shares jumped by a quarter in response to the acquisition,¬†but Freeport-McMoRan investors were less impressed.
Freeport-McMoRan will be among only a handful¬†of major miners that have expanded beyond core metals and bulk commodities.¬†Shares of the company's stock fell¬†15 percent on news of the purchase.
‚ÄúIf you own Freeport-McMoRan, you own it for the gold and copper assets, not for oil and gas,‚ÄĚ Kevin Kaiser, an energy analyst with Hedgeye Risk Management, told MarketWatch.
Richard Adkerson, Freeport-McMoRan‚Äôs president and CEO, said on a conference call with analysts that the company's goal is to diversify while retaining a strong position in mining, according to Reuters.