Freeport-McMoRan Inc. (FCX) Q1 2015 Earnings Report, Transcript and Summary

Ladies and gentlemen, thank you for standing by. Welcome to the Freeport-McMoRan First Quarter Earnings Conference Call. At this time all participants are in a listen-only mode. Later we will conduct a question-and-answer session. [Operator instructions] I would now like to turn the conference over to Ms. Kathleen Quirk, Executive Vice President and Chief Financial Officer. Please go ahead, ma’am.

Thank you and good morning. Welcome to the Freeport-McMoRan first quarter 2015 earnings conference call. Our results were released earlier this morning and a copy of the press release and slides for today’s call are available on our Website at www.fcx.com. Our conference call today is being broadcast live on the internet, anyone may listen to the [Audio Gap] materially. We’d like to refer everyone to the cautionary language included in our press release and presentation materials and to the risk factors described in our Form 10-K and subsequent SEC filings. On the call today are Jim Bob Moffett, our Chairman of the Board; Richard Adkerson, Vice-Chairman and President and Chief Executive Officer; Jim Flores, Vice-Chairman and Freeport-McMoRan Oil & Gas President and Chief Executive Officer with several other senior members of our team in the room today. I’ll start by briefly summarizing our financial results and then will turn the call over to Richard who will begin reviewing our recent performance and outlook in the slide presentation. After our formal remarks, we’ll turn the call over to questions. Today FCX reported a net loss attributable to common stock of 2.5 billion or $2.38 per share for the first quarter of 2015. The loss attributable to common stock included net charges of 2.4 billion or $2.32 per share in the first quarter primarily for the reduction of the carrying value of oil and gas properties pursuant to SEC for cost accounting rules and a related tax charge to establish a deferred tax valuation allowance. Our adjusted net loss attributable to common stock totaled 60 million or $0.06 per share during the quarter. Our copper sales during the quarter totaled ₤960 million that was above the first quarter of last year of ₤871 million. Gold sales totaled 263,000 ounces that was also above the last year first quarter of 187,000 ounces and oil and gas sales totaled 12.5 barrels of oil equivalents in the first quarter. Our realized copper price of $2.72 per pound in the first quarter was below the year ago quarter of $3.14 per pound. Gold prices of 1186 per ounce were below the year ago quarter of roughly $1300 per ounce. FMO&Gs average realized price for crude oil was $56.51 per barrel in the quarter and that included about $12 per barrel of realized cash gains on derivative contracts. Operating cash flows during the quarter totaled 717 million, capital expenditures as we advance our projects totaled 1.9 billion in the quarter. We ended the quarter with total debt of 20.3 billion and consolidated cash of 549 million. As previously reported, we completed amendments to our bank loans during the quarter to provide more flexible financial covenants and to extend maturities under our term loan. At the end of the quarter availability under the revolver approximated 3 billion of undrawn availability and undrawn availability under the Cerro Verde credit facility approximated $1 billion. I’ll now turn the call over to Richard who’ll be referring to the slide materials on our Web site.

Good morning everyone. Before we turn to the slides, I want to look back on our January call when we discussed this year 2015 as being a bridging year as we complete our major copper expansion projects that we started in 2010 and transition to 2016 when we will realize the ongoing benefits of these investments. These projects will generate volumes that will be accompanied by lower cost, lower capital expenditures. All of this adds up to a significant free cash flow generation which will not be dependent on higher copper prices. Now we remain very optimistic about the outlook for the copper markets. We supported by the world’s need for copper and the challenges in developing supplies and maintaining supplies for copper, but we are cognizant of the near term uncertainties and commodity prices so we’re going to continue to be diligence about controlling cost and will remain flexible to respond to market conditions. We’ve already taken a series of actions to respond to these market conditions and to maintain our financial strength as we work through 2015 to future years when our financial metrics are expected to improve dramatically. We’ve made significant progress in our near-in completion of our Brownfield copper development projects. These are among the most attractive in the world. As we complete these projects, we’re positioned to achieve our deleveraging objectives over time, increase cash returns to shareholders and provide exposure to our shareholders to a streak winning commodity markets in the future. Jim’s going to be talking with you about several important milestones completed in our oil and gas business since our acquisitions by FCX in 2013. The combination of our large scale infrastructure in the Gulf with significant available capacity to expand and our strategic lease position and exploration and development inventory together with the experience of our team in our Gulf of Mexico focus area positions us to grow our business, generate attractive investment returns and increase asset values. When we completed the oil and gas acquisitions we established an objective for the business to be self-funding. Today that has been accomplished through cash flows and asset sale. We are now evaluating a range of alternatives to provide supplemental external funding for our oil and gas investments and we will continue to do so. We are going to talk today that among these alternatives we are considering a public listing of minority interest in Freeport-McMoRan Oil & Gas. Publicly trated Freeport-McMoRan Oil & Gas would -- values of our oil and gas assets through a public market evaluation and enable us to expand the financing alternatives for our oil and gas operations on a standalone basis. Subject to market conditions this alternative essentially would be completed in late 2015 following the completion of an SEC review of the required registration statement The following review of our business and its outlook will evidence that we have a strong portfolio of assets with attractive near-term and longer term organic growth options, a dedicated and highly motivated management team and organization to execute these plans and a roadmap for managing our assets and finances as we deliver on our strategy of providing long term values for our shareholders. Turning to Slides, on slide 3, we have a picture of our new annual report for 2014. This report titled Value at our core, talks about the substantial value and our assets, the growing production and cash flow profile, our exposure, to markets with favorable fundamental. It's our financial strength, the way we manage our business in a responsible manner, environment community and social aspects, and an experienced management team that we have In the first quarter, just turning to slide 4, the highlights are, we substantially ramped up our Morenci expansion. We had record quarterly sales at our Tenke Fungurume projects following the completion of our phase II expansion in 2013. The Cerro Verde construction project is on track to become the world's largest copper concentrator facility. We are entering into the phases of the higher ore-grades of Grasberg as we approach completion of our mines planned to complete mining in the open pit. And we set the stage for growth as I mentioned in production with declining future capital expenditures. In the oil and gas business we had positive drilling results. And our Holstein deep facility and Parnell in the Vito basin and at the King, project Green Well high end to the modern facility, this significantly expanded our resource base. We established new production as the Lucius project came on-stream. Dorado, Highlander and our on-shore, the gas project, combining these added we are producing at 25 barrels of equivalents a day by the end of the quarter. And we have an enhanced inventory, a financially attractive development projects and as I mentioned we are advancing plans for external funding for executing this plan to develop these assets. Kathleen reviewed the financial highlights for the quarter in comparison to the first quarter of 2014. Of course we are dealing with lower commodity prices with copper prices being roughly 12% lower and oil prices is half of what they were in the year ago quarter. Other than that our business from the fundamental standpoint operated in an efficient and effective way. Just returned from the annual CESCO Week in Santiago, Chile, that was last week; a lot of commentary there about copper markets. When you step back and look at where we are right now in 2015, the surpluses that had been projected for a number of past years are not developing as they were estimated. Projects have been delayed, production has been interrupted and the market has not moved into a large surplus position. The focus by investors and people involved in the industry has been on China, with China's lower growth rate and uncertainties about its economy, its base has grown significantly. The government is providing economic stimulus and China's need for copper is going to continue to be significant and the key factor in terms of near-term. The U.S. as we evidence, we provide over 40% of the downstream copper for the U.S. markets growing at a moderate rate. Economic stimulus is being applied in Europe and Japan and we're seeing the beginnings of growth in Europe in our business there. The industry continues to face the supply side challenges. We're cognizant and as I mentioned in the near term price uncertainty but we remain very optimistic about the midterm and long term fundamentals of this business. And our company is really positioned to take advantage of that in a very significant way. You can see on slide 7, our operating results for our mining business in the first quarter we continued to be focused on cost management. Our team and leaders of that team are here in the room with me today. They've done a great job in leading our whole organization to focus on cost. We had good cost performance in the quarter. We came in significantly lower than our own internal plans for cost control and our consolidated unit cost guidance with our $0.64 a pound was lower than the guidance we had last quarter and you can see how that operates, how that was reflected in our regional operation. Our growth in production in North America came from Morenci was also good performance as we know and in South America the decline reflects the sale of the Candelaria project, which produced just under a 100 million pounds in first quarter of 2014. Indonesia is a stronger quarter in the first quarter of ’14 when we're dealing with the export ban and as I mentioned Africa operated well and achieved record production for the quarter. Looking forward through 2015, we have been working to get to the point now that we are approaching for several years to be well positioned and take advantage of what we will achieve to the completion of our expansion project. What we will achieve in Indonesia Grasberg as we enter into the final period of mining from the old pit, you can see growing production volumes during the quarter lowering unit cash cost as we move forward in 2015 and lower capital cost as we go beyond 2015. In the 2016 this has been our long term plan and now we are achieving it. At [indiscernible] we are just terrifically excited about what the progress has been made there. Engineering and major procurements are complete. As I mentioned, when we complete this we'll be processing through our concentrate 360,000 tons a day and that will be the world's largest, the construction is on schedule at this point and 70% complete. We're targeting getting it finished in late 2015 and as I said the entire organization as we review this internally is very excited about what we're doing there. This way at 600 million pounds of copper per annum, $4.6 billion was our original estimate and that's where we are today in terms of looking at it. So, it's good to see that we're progressing on a time schedule we set within the capital budget that we set. In Indonesia, we continue to be engaged in active discussions with the government to amend this is -- the government has expressed -- the government officials have expressed the recognition of our need for certainty in terms of our physical terms and our operating rights and we're working cooperatively with the government in how to accomplish this within the government's regulatory framework. A lot of mutual benefits for us, our company and for the country of Indonesia with the operations and Papua, we had a very long term positive partnership. We're working hard to sustain that in an environment of changes in government and expectations and aspirations in Indonesia but this operation is the economic engine for the development of Papua and that something that we share in common with the government of Indonesia and with our own company. It provides significant benefits to the Indonesian economy. As we stand right now all of our rights under our call continued to be applied until we reach a mutually agreeable approach to amending that and these negotiations are taking place. We do have a memorandum of understanding that was extended earlier this year to July 2015 and as part of that in the memorandum of understanding, we're working with partners to advance plan as far the expansion of our Smelter operations we're focused in the Gresik area of East Java where we have the existing Smelter that was developed in the mid 1990, which is Indonesia's only Smelter. At the operations itself we have now completed the access to our massive underground ore bodies. We expect that DMLZ extension of the existing DOZ mine to start up late this year and we're working to develop the underground reserves that lie below the Grasberg open pit. The Grasberg Block Cave mine, which is scheduled to begin ramping up in 2018. Development capital of over $3 billion has been spent, $2.5 billion net to PT Freeport Indonesia and we expect that PTFI share of these costs will average 600 million a year over the next five years and throughout this period we've been able to successfully continue with this underground development. Beyond our existing producing asset our expansion projects the transition of Grasberg to being a fully underground operation we look to the future, our projects where we're not currently committing capital to at this point but they will provide the opportunity for long term growth for our company. They include a very large sulfide resource at our El Abra mine in Northern Chile, this mine will -- this resource would support a major concentrator development projects, currently our operations at El Abra have been SX-EW operations with significant incremental production that would be achieved with that. At this point, we're studying options for getting water power, dealing with tailings and working with our partners to do this in an effective way. In the United States, we're with the lower energy cost here and the productivity of American workers, we have great opportunities for future expansions at our mines in Arizona. At Bagdad there is a large sulfide resource that would allow us to more than double mill capacity at significant amounts of copper and we're doing the initial steps to look at that project including the acquisition of water rights which is a key for that and tailings deposition areas. At our Safford mine, which is in Eastern Arizona near Morenci, we have additional oxide resources that would extend the existing productive facility. That’s in an adjoining Ore body called Lone Star, which is near there and has oxides that could expand that, extend our infrastructure beyond the life of the oxides at Safford and then at both Safford and Lone Star there is a significant sulfide resource for the future. At Tenke Fungurume besides the oxide ore we have the opportunity for further expansion to produce incremental volumes from oxide, that’s depending on getting power. But there is a massive high grade mixed ore and sulfide resource that we're conducting exploration, drilling and doing metallurgical studies that would look for, and looking at how we process it over time. With that report on our minor operations then I'm going to turn the presentation over to Vince who talk about oil and gas business.

Thank you, Richard. Good morning everyone. Before we start, we talked about the ore market commentary, you can see the WTI and Brent curves an HLS curves. Here on the graph the market obviously continues to be volatile as it goes to its price in market discovery of where all the wall ore needs to go and at what price. We see it as continue to be volatile, it was down 50% in the beginning of the first quarter, was up 20% at the end of the first quarter. So, as we bear through that as an assets re- price both in accounting but also in the marketplace. We continue to focus our operations and continue to do good things with the drill bit and fall through with our operating plan. We continue to see the ore market cleaning up if you will. The contango curve is always a positive event future oil prices on the Brent side and we continue to see the oil market under strain going forward as demand has really been the big story here in the first quarter as we seen a lot of gasoline demand here in the U.S. and other parts of the world on the finished product side that we think is going to continue increase as these current oil prices take hold of the marketplace. On Page 14, to put together just a chronological series of highlights from 2013 to 2014 obviously for Freeport-McMoRan Oil & Gas. When it was formed as the combination between PXP and MMR and acquired by Freeport 2013 big adjustment period and the total oil and gas divisions by 174,000 BOE per day. It was a big increase from 2012. Get our hands around all the assets and also the corporate structure of Freeport. It was a big achievement for us in ’13 and put us on a growth path to say how we’re going to develop all these assets and have the right personnel, right equipment, right operating plan going forward was a key part of it. And when we look at our asset review in 2014, we saw what assets might not fit in the next five years for us building value overtime. They were valuable at the time but they were not going to build value overtime and be meaningful to Freeport and the Eagleford shale someone like category which will end up selling it for $3.1 billion and we were able to rotate that about $1.5 billion of that money into some significant assets well overtime like Heidelberg, Lucius and our Vito project we’ll talk about. Then we continued to acquire leases and seismic to put our projects in the best possible position of bringing forward the exemplary results without failure and been able to use the new seismic and additional acreage to add the resources to our existing infrastructure. For 2015 we started seeing results there through with our first production of Lucius development that was a discovery that we discovered in 2009 with Anadarko and it came one netting us between 20,000 barrels a day to 25,000 barrels a day. We’ve successfully drilled wells at Holstein Deep and also King Marlin areas around our existing infrastructure that have validated our seismic and bought big resources there. We’ll show you the Holstein Deep progression of resources that we’ve identified there with additional drilling. And then also on our Vito area they’ve several joint prospects we drilled the first one that Richard’s talked about Power Nap that was successful, so we’re off to a great start there. And you go through – on top of that the Highlander discovery that we announced in ’14, we put in our production here in ’15 and it’s producing quite well down in the lower St. Martin Parish Louisiana and we look forward to talking about developing that further going forward as gas prices rebound. So all in all we’re on the edge where rose spot in oil and gas business and then with the 145 projects outlined on Page 15 that there are about greater than 20 percentage strip in the Deepwater Gulf of Mexico this is all because it’s attached to existing infrastructure or has infrastructure plan that has – it’s very cost efficient in the Vito area but the Keathley Canyon, Green Canyon, Mississippi Canyon is tying back toexisting infrastructure that we own or we have an interest in. And the Vito area the reserves are so large that the returns are going to be excellent from the standpoint of size and the facility that we’re going to build with the operator shale and be in a situation to maximize our economics in that area. So with this deep inventory and so forth what we need to focus is manage our cash flow, manage our capital whether inside or outside going forward to make sure that we achieve the copper objectives of FCX. In the first quarter 2015 Freeport-McMoRan highlights on Page 16 we’ve had continued steady production performance from California. We advanced our Gulf of Mexico growth strategy as I described. The Inboard Lower Tertiary besides the Highlander significant flow test and production at Highlander, we’ve had our Farthest Gate West well as a potential discovery we have completion underway that we hope to have that completed this summer and I’ll talk further about that and we had about $100 million in net ore hedging realizations that helped buffer the volatile prices in the first quarter. And our deepwater Gulf of Mexico progress reports specifically area by area Green Canyon, Mississippi Canyon in the Vito area on Page 17 you can see there’s a lot of busy work going on and as we go through this process I want everybody to understand is that our operations plan and our budget or risk and that’s everybody does that but as our operation plan outperform our risk basically we had an incredible two and half quarters of excellent drilling results and so forth it also de-risk some of the capital and that’s somebody upside moving in our capital budget is strictly because who else who have risked it at 80% success for now, 100% success and so forth it may sound small but the numbers are big and so that puts upside pressure due to the success of all these projects [indiscernible] all of that in the last two quarters. And you can go through the detail here. The big key here and everybody focused on the whole thing deep Great Canyon with the gross resources were initially 75 million barrels and now up to 280 million barrels because of the additional drilling and then the cash flow is going to get out of the Dorado King and KOQB area because of our seismic tie and the success we’ve had there is our Vito area, power discovery which is offset discovery to our victory area, very significant discovery for several reasons, number one obviously its large column of bore that is over extensive, a nice reservoir size, on top of that it is really helped us getting confidence and all the additional projects and the next when we have to drill deeply that we going to nearly move to after we finish our present logging operation at Parnell. And the next page or page 18, you see the overall picture of our assets. We want to focus on hosting deep by like in the Great Canyon Parnell is for us to two highlighted assets that we have. On page 19 the hosting facility, our hosting deep development we’re drilling on the southwest side you can see phase 1 and it is called the Subsi 1, 2 and 3 and then you see the phase 2 development wells in lighter blue and even lighter blue is the phase 3 development and as we go around from the initial three well development that we’ve planned that will add 15,000 barrels per day in 2016 that’s on track and expanding the drilling results could add up to 75,000 barrels a day to by 2020. So this project continue to drill out above the expectations and therefore its budget is going to be expanded. The hosting deep production profile on page 20 given representative if we talk about cash flows and timing for your modeling purposes but it’s a very significant project for the company going forward. On page 21 is our detailed area, Power Nap [ph] discovery the reason I’m seeing the picture you see up in the top left corner of detailed development discovery show operates Power Nap [ph] just at the East of that two red dots is another discovery these are net DOE exposure to Freeport McMoRan oil and gas. And you can see just to the south of Parnell, deep sweep oil to the very depth part of the basin which is kind of separated but the Parnell discovery and then we have our Sun project down for the south east which is 240 million barrel in that project and is about 384 million barrel. All in all, I’ll skip ravioli in detail, it is smaller but it is about a billion barrels of oil net in the company and this is the most significant long term play that the company has in its books today. You can see the extremely thick column at the Alan four stands upper and lower fence in our detail discovery well, it’s a great size and signature it takes all over the mini basin. So, when you pull up the page 22, you look at our plan going forward for the next 10 years. You can see production growing from various 130,000, 140,000 barrels to-date over 600,000 a day. The key about this line that we want to put in there is the estimated reserve, refresh ratio for next five years is 137% by any cost going forward $26 a barrel and $21 a barrel within your model is it all these assets are in hand most of these are all been discovered or have validation within the basin, all of our gas assets in Haynesville and Cretaceous as gas recovered later in this decade. A California assets, specific Green Canyon, the Vito Area, there is no additional exploration, there is no additional outside business acquisitions in this model. This is all what’s in hand. So, just following our playbook, we can increase production at least 3X through our company on the oil side. Now, work talking about right now internally and externally is timing because the assets are there, the equipment is there and so forth and the cost structure is there. When you look at our five year finding cost structure at $26 a barrel and just take our average LOE forecast is about 15 bucks a barrel, it's 18 right now, it's about 50 bucks going forward because our fixed assets have fixed costs and when you have more volumes to you dilute the per barrel cost. Now if you take 26 bucks and 15 bucks is about $41 a barrel and you add $5 corporate cost. You buy $46 a barrel all in cost for oil and gas business. In a $65 to $70 oil market we make a lot of money in this business. There is very little risk because of the risk we're taking and the way we de-risk it with the drill bit, it's very little risk from the execution standpoint because the equipment and platforms are in place. So we're very excited about that and we've been working all internally with everyone here at Freeport to figure out the best way to fund these assets going forward. On page 23, I just want to highlight two different ways to think about our business. #1, the current plan, which is what in our corporate projections of 2015, 2016 and 2017 production volumes and EBITDA's on the top right and then if we're able to bring in additional funding that would accelerate that business and get us up to a production level that would allow us to be self funding in a much faster level. The model is in the lower right hand corner, which is the growth plan assuming additional funding. And what happens here is because of all the wells we drill and so forth we're really talking about how fast we hook them up -- how fast we put the equipment in to bring that production on and so forth. So, for us we're going to be very stingy about it from the standpoint of funding. We've looked for funding sources in the first quarter. We found some that were wrenched in and anticipating or very expensive and we looked around that we found some others that make a lot more sense. And right now, the public sale or public equities for minority interest FMO&G is something that we're working on and we're going to probably have a decision on that here this quarter to where we file a document and getting registrations as Richard said for the summer and look at raise some money in the fall our JV monetization and/or divestitures. Divestitures are they help patch the hole but they don't solve the problems. So, the IPO alternative of Freeport-McMoRan Oil & Gas on page 24 abides that an alternative fund of -- way to fund the business, but the key thing we think it does is highlight the standalone value for oil and gas business. There is a big disconnect between the value of our oil and gas business within Freeport-McMoRan today and the public market perception is stand alone. I guess we have had more success than anybody with the drill bed in the last two years and it's caused more spending but it is also likely reflected in our equity. So the aspect of being able to get that visibility for the Freeport shareholder we think is an important part of it. FCX solely plans to maintain control in majority ownership of the business and the case study is obviously Freeport done as before the FCX IPO, we did it planes with planes exploration, we funded out of PXP – PLX and the best of our IPO that from ARCO in 1994 that really funded their deepwater discovery developments in 1994 when the deepwater was first showing up and which really is a big part of BP portfolio today. The timing might – it is early as late 15 or this market conditions stable we are going to be patient for the standpoint and we'll continue to assess other alternatives and have other discussions in other areas in the interim certainly from that standpoint. Richard, back to you to talk about the 2015 outlook?

Okay, thanks Jim. We want to give you this overview of our assets and make sure that you can sense what our degree of excitement is about the scope of our assets of both our mining business and our oil and gas business. And I want to talk about how this comes together financially for us, as we move forward with our plans for developing them. First of all looking at the near term for 2015 we are looking at sales of 4.2 billion pounds of copper, 1.3 million ounces of gold, 95 million pounds of molybdenum and 52.3 million barrels equivalent of oil, 67% of that is oil. The operating cash flows that would be generated at 275 copper would be 4.4 billion and we’re highly leveraged to copper for the rest of the year $0.10 changes in copper is $250 million. The unit cost is an attractive $1.53 for copper and as Jim said $19 a barrel for oil for this year. Our capital expenditure reflect a $500 million adjustment for our oil and gas business at 6.5 billion as we move forward and you can see as we look beyond 2015 as we go to Slide 26, the volumes increase significantly as we talked about earlier both for copper, gold with support from molybdenum in our oil project where we will be preparing for longer-term growth through our investment activities there. Our copper sales for the quarter will be growing as I mentioned earlier throughout the year and that information is presented on Slide 27. Our 2015 operating estimates for our unit cost for copper shows the effects of the higher volumes with continued cost controls. We’re now looking at projections of $1.53 a pound consolidated for copper and you can see our sales are divided by region. The EBITDA models and cash flow models that we present each quarter presented on Slide 29 as an average for the next for 2016 and 2017. Average EBITDA at various copper prices would go to 1,200 and oil at $70. This approximates the current strip for ’16 and ’17. You can see EBITDA ranging from 250 copper at 8.6 billion to 13.7 billion and 350 and operating cash flows range from 6.6 billion at 250 up to 10.3 billion at 350. The sensitivities for our different commodities and currencies are presented on Slide 30 for your use. Our capital expenditure, plans as they current stand are shown on Slide 31. You can see declining from 7.4 last year to the new estimate 6.5 this year, 5.6 and 5.1 and we’re going to be evaluating these as we go forward but this is what our current plan is as we stand now. We are committed to maintaining financial strength and we have a strong track record for doing that. Our large resource base gives us strong cash flows and we will exercise capital discipline and how we invest for the future with taking significant steps to reduce cost and capital expenditures, increasing volumes, declining CapEx that’s going to help our existing credit metrics and we are advancing plans for external funds as Jim just talked about. We have available liquidity under our FCX revolver and we have a facility at Cerro Verde that together provide us $4 billion of availability at the end of March. So our key priorities as we go forward is to maintain our financial strength, manage our operations and our CapEx to maximize near term cash flows in an uncertain commodity market, but to look forward to this great set of assets that we have for future growth, future value creation we’re really going to be focused on executing our plans for our near term mining projects in our oil and gas investments and to generate values for our large resource base. Before we turn the call over for questions, Jim Bob’s here and he has some comments to be made about our company’s culture and how we’re approaching the current environment based on the successes we’ve had over many years in the past. Jim Bob?

Thank you, Richard. As you look on Slide 34, 1981 [indiscernible] [indiscernible] In 1988 year remember we did an IPO of FCX [indiscernible] we had a deposit [indiscernible] we had to rely on our geologic instincts to know that this was a major find and as you know after the drilling that we did, we end up with the largest oil body in the world. Copper, gold and silver. In 1990 we developed gas pipe [indiscernible] how to manage that business which is we had a discovery in the middle of [indiscernible] 13,000 feet and we had already $6 billion [indiscernible] used resource and mortgage, we got gold bond, silver bond and then we made a major change [indiscernible]. I remind everybody that [indiscernible] really set the tone [indiscernible] shareholders [indiscernible] 100% of what they own and we already gave up reserves in the future. When FCX was went off the [indiscernible] $6 billion [indiscernible] acquisition, not only did we created the largest publicly traded copper producer but remember we had the instinct [indiscernible] geologic instincts we were able to drill these [indiscernible] imagine doubling the reserves [indiscernible] so my observations [indiscernible] in the first part [indiscernible] CEO and then and Jim [indiscernible] 2013 [indiscernible] we didn’t have the benefit of [indiscernible] the way we can profile oil and gas prospects we didn’t have the benefit of [indiscernible] we rejected the [indiscernible] in the case of the oil and gas [indiscernible] we got these [indiscernible] that are outlined [indiscernible] information but when you look at the discoveries that Jim has referred to [indiscernible] Power Nap [indiscernible] just offset [indiscernible] discovery was made [indiscernible] so we [indiscernible] oil and gas property in the Eagleford [indiscernible] over $4 billion so we’ve done what we said we intended to do now what we have to do is to take advantage of the [indiscernible] that we have this growth profile which has been the history of our company [indiscernible] complete major projects [indiscernible] challenge but remember we acquired [indiscernible] acquisition platforms [indiscernible] three platforms now with the price drop $150 a barrel you can just imagine that we have a monopoly on the deepwater [indiscernible] platforms [indiscernible] on those assets for several years [indiscernible] happen in [indiscernible] facilities. We had geologic engineering teams working at the best place to put these platforms, so [indiscernible] acquire these in 2013 but today [indiscernible] price drop from $100 a barrel to $50 a barrel [indiscernible] platforms [indiscernible] justify. So lot of the production has been around our platforms aided by Freeport-McMoRan Oil & Gas by third parties who come to our facilities [indiscernible] equity [indiscernible] platform we have about 250,000 barrels capacity and when you compare that [indiscernible] which was of course the first one built in Freeport had a lot of lead time because [indiscernible] some of the engineering [indiscernible] about ten years [indiscernible] about $10 million to put that facility out there. We have about the same capacity [audio-gap] three platforms that we have. So as usual [indiscernible] this history of [indiscernible] geologic engineering big projects so although [indiscernible] just imagine the resources that we [indiscernible] $20 billion [indiscernible] facility [indiscernible] starting to turn around the [indiscernible] which was pointed out [indiscernible] in Asia [indiscernible] export barrel that was not just copper but [indiscernible] complete restructuring of the market [indiscernible] labor union situations there. Nobody was [indiscernible] when copper was $1 but when copper went up to $1 billion we owned up to $3 or $4 [indiscernible] part of the world-wide phenomenon we as I said we found the [indiscernible] copper was less than $1 and gold was $400 an ounce so when you look at where we are today [indiscernible] as I said we completed this 20 billion [indiscernible] expansion [indiscernible] the benefit this major investment we’ve made [indiscernible] PXP MMR acquisition so [indiscernible] company [indiscernible] shows that we successfully managed some of the biggest projects in the world [indiscernible] oil and gas [indiscernible] not only managed from a clinical standpoint but managed it from a financial standpoint so [indiscernible] chance to what we’ve done with our assets we’ve always proven that we know how to manage risk we know how to manage the [indiscernible] projects and no matter how remote they are we are a leader in the industry and with what we’ve put together with our asset base we’re in a position now to really show [indiscernible] of what the [indiscernible] oil and gas [indiscernible]. So this is [indiscernible] whole team here [indiscernible] oil and gas experts [indiscernible]. Thank you.

Thanks Jim Bob. And we’re ready to open up the lines for questions.

Ladies and gentlemen we will now begin the question and answer session. [Operator Instructions] One moment please for our first question. Your first question comes from the line of Tony Rizzuto with Cowen and Company. Please go ahead.

I’ve got a couple of questions here. First of all, I think many people on this line today are surprised to see increase in CapEX especially after the nearly 85% dividend cut and obviously at a time when you’re burning a lot of cash. Having you exhausted all opportunities to cut cost and CapEx elsewhere and if 2015 is the bridge year, why not take on some additional debt here instead of diluting shareholder interest further?

That’s a very complex question. I’ll tell you we have gone through an exercise of looking at our capital cost across our business and coming up with a plan that we believe reflects the objective of limiting cost in the current environment, while protecting our assets and positioning us to take advantage of them over the long-term. So we’ve clearly done that now and we can respond in more details about that Tony. The issue of funding more debt is we started with strong objective which we communicated with the market following both the announcement of the oil and gas deal in December 12 and the closing of the transaction in mid ’13 was that we were going to be focused on reducing our debt because of our belief that the nature of our assets can best the managed and position for growth with the balance sheet that’s strong. We have a strong balance sheet. We are an investment grade rate company and we want to take actions to protect that investment grade rating. We believe that’s important for the credit markets, for the equity markets but also how we manage some of our reclamation obligations where we’re able to use corporate guarantees as an investment grade rated company. So you mix this all together and our view has been that we should take steps not to grow debt, but to position ourselves to reduce debt overtime and then our board make the decision to reduce our dividend for now. We’ve reduced it in 2008 as you recall and as markets recovered we aggressively increased it as the markets changed. My view is that’s what’s going to happen in the future, but we needed to take into account the uncertainties of the near term market conditions, position our company for future growth and for delivering our balance sheet in years beyond 2016. We do not have current plans to issue equity for the parent company. We as Jim talked about this issue of getting highlights on the value of our oil and gas business, the idea of potentially issuing equity at that level, we could see it has benefits both in terms of highlighting those values, but also giving us the opportunity to look at a broader range of funding within that entity as a public entity. So we can see some benefits for it by the nature of doing that it takes time. You have to file registration statement with the SEC, go through review process and for us to have that alternative that filing would be required that doesn’t mean that we would be fully committed to doing it that will be based on our view of all the alternatives we have and how the markets develop as we go forward with one of our fingers in the markets at all place and we’re going to evaluate all alternatives and take the actions that best to our shareholders.

Okay and then again just I switch gears for a moment. Just the production at the couple places. First at the Grass Paver the production was 20% below your January guide or estimate are mainly due to lower mining. So I’m wondering and you kind of indicated that it will prove through the quarter. Could you bring update where you were at quarter’s end in relation to capacity there?

Yes, one of the things to keep in mind is that we are ramping down the mining of waste there, in fact by the end of this year we will essentially have mine all of the waste in the Grass Paver pit, that’s the material that allows us to get to the bottom of the pit and as we go forward we’ll be mining ore and some low grade material that we’re stock piling to provide throughput formula as we ramp up Grass Paver blockage. So for you Tony and those of us who have been following this for a long time, we need to adjust our view of what mining rates are there because that’s not part of the Indonesian government issues or the labor union this is just the normal mine plan. Now we did have a work stoppage that was not a union action during the first quarter and some of the labor issues within our work force continue to be complicated. But that did not last long and by the end of the quarter we are essentially operating on a normal fashion and so that had an impact not only for a very short period of time when we had a work stoppage, but it’s affected the some absenteeism issues, it affects some productivity issue and we’ve been dealing with this labor issues now since 2011. But we now are back to a normal fashion we have negotiations with our unions coming up this year and we have confidence going into that, we got our union contract completed 2 years ago and it’s relative straight forward fashion and we’re building more positive relationships with union. But there are other issues within our work force that we’ll have to continue to deal with. So one is look at where we are with our commandment in the fit with money rates going down and then we are working with some ongoing labor issues that had an impact in the first quarter and we’re going to work hard to minimize that impact and we think we can going forward in the 2015 going in the last 3 quarter.

Alright, Richard. So strip ratios improve as you go through or should allow more normal or lesser rate of absenteeism. So lower unit cost and the other question I had was on server day and in the text talked about higher repair maintenance expense and higher mining cost. Is that all and preparation for the expansion [Audio Gap]

……based anymore. We are just following our plan. On the way and now we are down to where we’re going to be mining. Since we are after this year or for the mill currently and some low grade material that we stockpiling to provide mill throughput [Audio Gap] when complete mining in the pit and ramping up the underground bucket. So all of that and as I said that’s what we will be doing under any set of circumstances and before I turn it reed I want to, Kathleen give me a good note to follow up on the earlier conversation about delusion. We have the ability to fund the plan that you see under our current revolver which we have $4 billion of availability at the end of the quarter and under the current plan we’ve got to deal with the commodity prices whatever they will be hard prices or lower prices causes us to respond to those but we have the ability to bar temporarily under our credit facility and then if we get in the 2016 and generate cash flows even at today’s prices we see that facility to coming back available to us in full force. So it's -- we don’t have the need to do a -- we don’t have an absolute requirement to do external financing to execute the plan that you see today. We're focused on how to take advantage of these oil and gas assets to provide funding for its opportunities that separate apart from our overall corporate financial plan.

Tony just quickly, it’s already we've brought additional trucks down from our other operations, 10 trucks this year that again is one of the strengths of our company where we could do that with support from other mining operations and our good equipment availabilities. So we're advancing the mining, they are making sure that, that fits in great shape and able to defeat this new big concentrator that is being built on schedule as Richard pointed out. So, we have taken some of the mining equipment to help with the construction of the starter temporarily and again to do all of that and achieve to facility, so it did cause a variance in the first quarter.

If look at where we are today actually we have been spent $20 billion [indiscernible] planning [indiscernible] trying to measure oil and gas, [indiscernible] during the year we saw there is $4.5 billion worth of assets [indiscernible] there is [indiscernible] what we have to do this year we're pushing the right buttons. Thank you -- if I just [indiscernible] stop looking [indiscernible] make sure they were using debt [indiscernible] have in the past[indiscernible] but most importantly the ability for any company imagine a company our size [indiscernible] 20 billion of middle of the expansion [indiscernible]

Your next question comes from the line of Jorge Beristain with Deutsche Bank. Please go ahead.

May be this question is meant for Kathleen, but where are we right now with the carrying value or the book value of your oil and gas assets as of this latest write-down and if you could just give me both the 100% book value and then the net to Freeport.

Okay. Jorge, if you look you can find that on our balance sheet, we've got that details so you can see what the balances were at the end of the quarter compared to where it was at the year end. The full cost accounting rules which we talked about in the past require that we assess the ceiling each quarter. And it's important to keep in mind that that formula we are using approved reserves. So, we've -- as Jim talked about during the comments we have really expanded our resources those haven’t been converted yet into proved reserves and SEC requirements under full cost accounting requires to use a 12 month trailing average for oil and gas prices. So that's why you saw that charge in the fourth quarter and a subsequent charge in the first quarter. The trailing number for oil is roughly $83. So we could have a oil prices stay below that we could have additional charges in the second and third quarter until the 12-month trailing averages is trued up. But you can see here we've got on the balance sheet we’ve got $6.7 billion in the oil and gas property and that’s the -- essentially the proved reserves and then additional 9.7 billion that's not in the full cost ceiling. And that’s the net of depreciation.

This is Jim, just on an operational basis, oil and gas areas like Holstein Deep are deep are detailed base and our high Lander. All those are not in our approved category yet and that’s how we can manage our funding cost at our proved reserves growth from. We have a huge pipeline of projects that will become proved this year and next year and the following year already established.

I’m just trying to sort of get out of ahead of what a book value could look like for this unit at time of IPO and we’ve just run a quick sensitivity if we just hold a Brent crude constant over the next 4 quarters and just kind of see what the trailing 4 quarter historical looks like. It looks like you could still be in for but another 3 billion of rate downs in 2Q maybe a billion and half in 3Q and that’s not including the stock you are proving up that you are mentioning this not in your book value yet. But I’m just trying to get an idea of if those kind of order of magnitudes seem correct you and what kind of book value do you actually see having by 4Q that the present takes?

That looks high to us. If we were to have calculated our full cost sealing test at the end of March using the current strip prices there would have been approximately a $2 billion incremental higher right down at the end of March, SEC rules wouldn’t allow us to do that and because we’ve to use this 12 month average. But if you were to go forward and say the strict prices would be realized over the forward, the numbers would be closure to $2 billion than $3 billion and $3.5 billion.

I’m sure that’s because as you was seeing spot health constant not the forward strip. But that is helpful and then to Jim’s comment earlier, could you give us an order of magnitude of what you think the offset that could be coming against those futures right downs would be by the proving up or the conversion of resources to reserves?

The aspect that is going to be fully engineered and I strictly feel at this point all right that the difference is of having so much of it discovered in the last 2 years and not hit the approved category, the price function, the actual operating function and we push to our capital like we’ve been pushing our capital that slows down the proved booking process. So there is, If I can figure out exactly what capital we have where the external going forward what the acceleration of those developments were and what prices were, I can answer your question lot closure than just saying is a positive trend. I think it’s the best way to talk about it because the inventory is full. It’s just the matter of all those factors and coming together what actually gets booked and what don’t. But the resources are there.

I’m sure you understand this but just to be clear, once you write something down even though prices may come back, you have future reserves, you don’t write it backup under our accounting system. The book value stays there, what higher prices or higher reserves would do and it’s important to note that reserves are function of prices as well. As prices go higher economic limits extend and reserve volumes increasing, lower prices put limits on how much reserves you can add at a particular point in time. But that could tend to offset this $2 billion number we’re talking about. It wouldn’t result and ride up our past right now.

And you are going to see our rate in the oil & gas unit because of the right downs be more critical to our final cost going forward and will be an ad reserve that finding cost which will be beneficial or par with our DDNA rate versus what’s it been at the end of last year was $40 plus and this could be 20S doesn’t the right down I guess going forward.

[indiscernible] when you talk about resources if you look at the map in detail. [indiscernible] resources you see there [indiscernible] drilled and undrilled the important part of that would [indiscernible] All those have been drilled so that number you see going from $75 million to $270 million and have [indiscernible] so we have two kind of resources on these maps. [indiscernible] full cost raised and then its separate, you know we had a green color for resources and red color for reserve. We have lot of in this category right now.

Fully understood and I appreciate the extra color and just lastly Jim on page 22 at the PowerPoint are those projection for the potential tripling of your production based on the assumption that you are self funded or is that assuming extra capital comes into the company.

That’s a lot assuming, extra capital comes in the company. What it does, it will just – if it does and that we self funded ourselves that just means it’s a slower slop and it would extend the peak cap beyond 2025. So everything just shift forward into the future years at the slower pace but we can accelerate with the additional funding that comes in.

Got it. Thank you.

And let me just say everyone these forecast accounting rules are complicated and logical in certain respects in today’s world and so if you have questions call David and he will answer them or he will arrange for our people to walk you through. So, we’ll make sure everybody understands what this is and what it is.

Your next question comes from the line of Brian Yu with Citi. Please go ahead.

Good, thanks. First question is just on oil and gas on page 23 of the presentation where we can see the improvement EBITDA between additional funding versus without additional funding. But I increase – if incorporate the increased CapEx notes under both scenarios are the net number is about a negative 3.9 billion unlevered free cash flow for 2015 and 2017. So, in the context with the impressive IRIs that were laid out on page 15 at the handout. When should the energy business start generating positive free cash on a standalone basis under those assumptions?

It would be at 2017 at a $74 oil price. As the assumptions, so if it’s not – so if oil is not $74 in 2017 it will be in 2018 and setting forth, so functional price and also the production scheduling wise.

Okay. In 2017, there is still about a $400 million sure fall.

At these prices you have to --.

Okay. I guess maybe I can ask you just because at the IRI deal work so specifically a lot higher than what we would typically see for the mining business. I’m just trying to figure out where the disconnect is versus the projections versus the more bottoms up individual project analysis.

Its probably in the snapshot of the three years from the stand point of scheduling what projects are being funded in 2017 that will affect 2018, 2019 productions. So it’s a function of prices and also production schedule out there and when we sold the Eagle Ford and took that big chunk of production out of our production profile still in that whole we can debate a long time when we get it down but sooner we fill it with production and then we start to worry about the price, the simple our model with become and all the way to do that to schedule our wells being hooked up that we drilled already at a faster rate with outside funding. That’s the model and understand your frustration but you imagine trying to put together a static model for you guys with so many moving parts with depending on what capital is coming on the door.

The other thing we have is through this period you see through 2017 we have existing rate contracts that were contracted for couple of years back. What we are seeing is cost coming down and so we’ll be able post 2017 to do more with less cost. So, you’ll see the capital expenditure numbers reflecting longer term reflecting lower cost of rigs and service cost etcetera.

Your next question comes from the line of David Gagliano with BMO Captial. Please go ahead.

I have two questions related to the capital spending issue and may be you've already covered some of this, but I just -- I still don’t understand. On the oil and gas site CapEx went up by about a billion, obviously volumes went up only 10% on 2017. So my question is actually tied to slide 22. How much of the growth between 2018 and 2020 in oil and gas on slide 22 is now covered or whatever by these updated capital spending plans and how much more CapEx would be needed to get to the 400 billion barrels per day target by 2020. That's my question on the oil and gas side. And then on the copper side, can you -- I missed this. What were the main drivers for the $300 million increase in copper spending since the last conference call.

Well, the second part is -- we don't have. What you focusing on there because we haven’t really…

The capital we're spending in 2015 is 3.7 that’s the same as what it was before. Actually we've taken down CapEx in 2016 and 17 by a total of 300 million, it's 300 million --

I think that we got that one backwards. So that’s helpful. That answers that one. Okay, and then on the oil and gas side?

Kathleen, keep going.

David, the swing areas is, we got two types of capital. You got your drilling capital and capping alluded to the costs are covered down the spread right, I think we have 10% reduction this year. 15%, 20% and the 30% as we have passed 17, reduce the -- some of the drilling costs. Assuming those costs continued to go down. But the other big thing is the timing of the completions and the completion capital. That’s really our variable capital in our budget, our discretionary capital. So I can't emphasize enough the quip to your question is, it's going to be how much we spend early enough to get the production response so we’re self funded with the production versus continue and breed along without the capital, without the capital early because if we're going to slow our program down we could show for the next -- in two years, we could be totally self funding the 17 based on the $75 oil price and ramping up production and close the gap that Brian highlighted. Okay. Or we could spend four years at a slow pace spending us less amount of money and continuing to fund the deficit, you get to the same point. And we have that flexibility and the assets. And that’s where the question of we've been wrestling with here Freeport as to what's the best thing for the shareholders and that’s why we're exploring the external option of the IPO, to accelerate that business so it becomes self funding faster versus the -- versus the longer debt spend at the slower burn.

Okay, is there a way just to give a number on 2018 to 2020 incremental capital needed to get to the 400 million barrels or is that just not --?

The incremental capital is a function of how what, there is some base plan to what we're talking about, the current plan or the high growth plan without high capital.

I am basically talking about the chart on slide 22. How much capital did you need to get to the 400 million barrels of oil a day by 2020?

That would easy thing, be from this what forward it would be as reflected in the numbers here on page 23, it would be the 3.8 billion in 16 and $3.5 billion in 17 on a aide X basis and depending on what's has been it's the delta between that would be the additional capitals. We were projected 2018 through 2020 and be self funding through the EBITA growth. I know __ how that the EBITDA growth and or the EBITDA in 18-20, but it's not a negative number, it’s positive.

Your next question comes from the line of Curt Woodworth with Nomura. Please go ahead.

Jim I wanted if you can address what incremental CapEx would be under the funding scenario, looks like you're looking for about 1.5 billion of incremental spend, in ’16 or ’17 and can you also talk about why you think an IPO would be more preferable to try to structure either JV or a partnership on a project basis.

Well it all depends on what the market -- what market's out there and so forth. Currently, the market that we see is a market that has capital in it from a JV basis, but everybody has got a lot of projects to do and there is not a lot of discretionary capital, those are very expensive. The private equity market is very expensive as well because they re-capital other existing businesses. We’re just looking forward the best former capital. I mean we’ve got a fabulous growth profile in our business. We’ve drilled the well taking the risk. We certainly not going to give them away just because we don’t want to borrow money. Here that’s not purgative. We want to make sure we find the lowest cheapest cost to capital and with the best benefits and the benefits are getting the visibility borrowed by our shareholders to what we’ve achieved and what in the performance of oil & gas business along with what we think is a inexpensive form of equity for Freeport McMoRan in the form of equity at SMLG make some sense. Again like we’re just said we’re studying, we’ve helped that go to this process and right now it looks the most favorable because the industry just issued $8 billion of equity here in the pretty dynamic environment. So right now that’s a very viable into for us and we encourage while allow the investment banks to pursue it.

[indiscernible] these 3 platform that we have that are pushing in you deep water side are the [indiscernible]. You should imagine those as magnets. These people [indiscernible] including our sale. We have a [indiscernible] market for this is we are totaling with people[indiscernible] difference is the [indiscernible] the diamonds if they made a [indiscernible] ] facility [indiscernible]

Okay, thanks. Richard just a question on the need can you comment on kind of how the discussions are going with the MOU and specifically what the plan would be for these sell down of PTFI I understand I think the new mining were acquired some additional 19% to 20% stake reduction with the government having the first right to acquire that, so I’m just curious on where that stands and how do you think that could be resolved actually.

That is one of the points discovered in the MOU and the government has regulations that applied to different types of mining arrangements they have to existing mines so forth with in terms of our working with the government and reconciling our contract of work which requires no divestitures and the governments new regulations. The MOU reflects a mutual agreement that we would increase the current 9.36% interest owned by the government to 30% over the time and as you said the way that would be approached that would be part of the set of points that we would agree to and getting the extension of our rights to operate under except gold. Physical terms is that within the pursued over time in steps. The agreement is that the sales would at fair value and the first step would be offering it to the government we’ve talked about having a piece of that ultimately through a listing on the Indonesian stock exchange and the government officials have expressed positive aspects of that, the province of pop was indicated an aspiration to own symmetry and we do some financial structures to accomplish that. All of this would come in to play as part of reaching a resolution of the long term operating rights that we have but the MOU covers the extent of the future divestiture.

Your next question comes from the line of Oscar Cabrera of Bank of America Merill Lynch. Please go ahead.

Just I wanted to get back to the – in general want to get back to oil and gas question that couple of people asked and if I may, increase your CapEx from 15% to 17% by 1.6 billion with that increase in CapEx will we get to again – slide 22 has approximately 225,000 barrels a day which my math is about 82 million barrels a year of oil equivalent. Can we assume that that’s the figure that you’re looking for in 2018?

Out of the growth plan, yes with additional capital, that’s correct. So, if this is not something that is committed to all the future growth plan, it’s an opportunity for us and we’re going to assessing whether – what we’ve given you in our budget plans that’s part of the presentation is where we are today with our capital spending plans. We have opportunities provided we can get capital through a variety of sources. Cark mentioned the joint venture opportunity with other companies whether there is financing at a property level, whether there is financing available at the entity level. And if we’re able to – possible to get funding on the reasonable basis to pursue the growth plan the chart that you’re referring to as what would be achieved under that plan. If we aren’t able to, if we conclude that the cost of capital is to expensive than we will give you guidance as to how that would work out under our base plan and the opportunities won’t go away, its like the projects we suspended in 2008 in our mining business. Cerro Verde being pursued before that we suspended it. It didn’t go away and now we’re developed it later. So, we have rights to these resources that are long term and we will be managing how we spend money, how we finance that spending in a way that responsive to market conditions, and market conditions are changing as we speak and so we’re going to have our figures on all of these sources of financing and we’ll make decisions and we will advice the market as to what the consequences of those decisions would be as we go forward.

Okay. Maybe if I ask the question this way. On slide 31, you have oil and gas expenditures in 2015, 2016 and 2017 at $2.8 billion, $2.9 billion and $2.9 billion. This compared to the last presentation is $1.6 billion more. So, you presenting in 2017 oil and gas fields of 63 million barrels. So, with additional capital that we increase from last time we talked in the conference call to now will that give you additional production of oil and gas in 2018. I assume so and I’m just trying to assess what’s the level? Is the level the one that you’re showing in slide 22 and I can appreciate that there opportunities.

That’s slide 23, that’s the current plan on top with the current, our current funding that’s reflects on page 31, reflects in the current plan and this what I was talking about. If we continue to put off the completion and hoop up and facilities need to add new production as we drill it, as we – we’ve already drilled it in the last two years than we will not see a show up in the production numbers. Okay? It will in the current plan, their production aren’t going anywhere like we’re just talking about and it will take longer years forward to get all that production. So on a three year outlook you’ll miss some of that production if we raise the additional fund and we’re able to put the wells on that we’ve already drilled on the timely basis then you will see the graphs at the lower portion when gross 1.43 to 2.17 and the additional funding required and our variable funding is the completion dollars which affects the timing and that’s when I think it was David heard whatever I wanted 18 to 20 will tell you where you can see the reflection basically in the current plan we would hit the same 217 of few year further out because of this delay of spending in that funding.

Okay. Thank you. Then in terms of the equity raise or potential equity rise. I’m assuming based on your comments that this will be at the oil and gas business level. How much or have you sort of upto what levels Freeport McMaRan holding company would be willing to dilute of its holding in the oil and gas business.

We are under some restrictions under the securities law about how much we can talk about details part following which duration registration segment and getting SEC review. We can’t say this Freeport McMaRon [indiscernible] a significant majority interest in that FCX would retain a significant majoriy interest in Freeport McMarRon I don’t’ want to guess and the amount of the offering in terms that will dependant on market condition when we’re ready to inter the market and we cannot do that because of the procedure of requirement of the SEC review.

Okay, then lastly just if I may just a comment and a question. So the comment is just I wanted to thank congratulations for the achievements already. I think that’s being remarkable our project and then the question. You have a comment here on your release talking about the MOU in Grasberg and it says no terms of this the COW all that and those relating to expert duties, smelter burn and increase royalties will be changed. Can you clarify that like is the government still trying to increase royalties or change beyond?

Let me clarify that those who are agreed to last summer when we assigned the original MOU. We agreed to increase royalties to the current royalties under the mining law and there is no further adjustments to that, we also agree to put assurity bond of $115 million to demonstrate our seriousness about pursuing the smelter deal. There is no adjustment to that and then we agreed to pay an export duty on a sliding scale. All of that was agreed to in the summer of 2014 and none of those terms were changed when we extended the MOU in January and they are not we’re not being approached for further changes along those lines.

Okay, great. Thanks very much for your answers.

It is Jim, I want to give you a little color on, the questions you asked about the capital less area production and then you said the same for you. We have this platform where keep talking about there have been about $60 billion worth of platform. [indiscernible] production to be increased to these capacity and the interim camp between every [indiscernible] and what we’ve done to date. We now drill well [indiscernible] there are 100 of fees to pay [indiscernible] not guessing because of you want to be resources being drill and [indiscernible]. so we have the platform in there, we have the wells that are getting drill. The question mark is how much money do you spend across the capital. [indiscernible] you get the oil from the well on the platform that’s already been drilled, already in our [indiscernible] paid for [indiscernible] genius is around here. Extraordinary things, but mission impossible is to say what’s the right decision [indiscernible] to date because that’s going to depend on what the price is [indiscernible] so you understand the difference between the risk factor. Platforms are built the well drill and you [indiscernible] when we heard about [indiscernible]

That was just all right. Understood. It’s just coming from doing about 15 years of mining research. Oil and gas is new and we’re just learning about this risk and it looks from a distance it looks that oil and gas and deepwater is lot more riskier than onshore and that’s why we’re trying to establish the parameters to give you the right value for those assets but thank you for your comments.

[Indiscernible] then you got a good teacher and Jim Bob’s the best teacher in oil and gas as you’ve ever heard of.

Your next question comes from the line of Brian MacArthur with UBS. Please go ahead.

My question is coming on [indiscernible] but I just want to go back to the Grasberg capital. You’ve got the five year forecast your share from 700 million to 600 million, but then you make a comment that there’s an additional 300 million a year for the next five years for underground ore handling et cetera. My first question on that is that all yours [indiscernible] to fund some of that?

[Indiscernible] does fund some of that Brian the percentage varies depending on the share of production. And that’s nothing new, those numbers were always in our plan. You see in the CapEx schedules that we will reduce some of the CapEx in 2016 to 2017 that is related to timing of some of those expenditures that we’ve pushed out, but those capital expenditures from no modifications and power upgrades have always been part of our plan.

Right so that’s where it’s soft then it is fairly back-end loaded so a lot of that spending would be if I’m trying to look at things out in ’18 there’ll be much higher numbers out in ’18 as you spent a instead of like 600 million a year you’d be spending closer to $1 billion a year should I think of it that way?

Yes I mean as we do – we’re planning when we need to do these no modifications and highlight handling and power upgrade and we’re going to do it prudently and with an eye on trying to match it up with when we ultimately need it, but yes we’ll have some of those expenditures will be higher in ’18, ’19 timeframe.

And do you need to – so the forecast you’re giving us for those years ‘19 to ‘21 because the production figures have moved around a little bit. Do you need to do that to get to those numbers that you’re talking but i.e., if you don’t do this will production be lower because of some complex metallurgy or something or do you need to do these for sure just to get to those forecast levels?

Yes what we need to do and what we need to do is reflected in our long range plans.

But some of this has been adjusted because the completion of the pit was originally supposed occur into 2016.

Right.

It’s been extended [audio-gap].

…estimates because the effects of worldwide global energy cost and the lower cost of steel and things like that so we have some impact not a huge impact from currency changes so but the basic plan has not changed what we’re going to do little bit of change to when we’re going to do it and some of that on the absolute amount of cost because of the changing global commodity prices.

Great. Thank you very much for that color, that’s helpful.

Let me – this is Jim Bob, let me address [indiscernible] rapid bullets fired around here. [Indiscernible] deepwater and the onshore give me a chance to talk about the Highlander well produced in that the Highlander well which you haven’t been -- we haven’t talked about much in the detail [indiscernible] situation [indiscernible] 28,500 feet is the largest well that’s ever been completed since [indiscernible] if you remember was [indiscernible] and it was such a big part of the Exxon Mobil transaction [audio-gap] 100 million a day [indiscernible] like to move [indiscernible] and the reason why that’s important law low[indiscernible] that can use [indiscernible] and that well probably and some of the wells are producing over 250 BCF and projection production 400 BCF. So we’ve been have a wells for similar to the low [indiscernible] resivor and the structure is [indiscernible] and we are from 30 to 60,000 [indiscernible]. So we have been [indiscernible] 5 years becoming experts at deep drilling and the deep potential and it’s old trend from 200 miles away is [indiscernible] how that put spotted over it. [indiscernible] export terminal is [indiscernible] projects they don’t have to have 5 to 700 million cubic feet of gas per day. [indiscernible] in exploration for gas because more the gas price [indiscernible] exploration. They look up and see the other half 5 to 700 million cubic [indiscernible] per day. And the time when we drill the discovery of 125 million in 1981 and also [indiscernible] had a the reasons on that gulf and [indiscernible] and they were having to provide a contracts with the help of Florida gas. But 300 million a day and they wouldn’t have pay for [indiscernible] the well we drill offset was deregulated natural gas. We sell the gas for $9 NCF. So just to tell you that [indiscernible] have a funny way of turning on you and people make [indiscernible] from image to be able to deliver gas like with your export gas or L&G. [indiscernible] these toward looking the 5 to 700 million cubic gas a day. You better know [indiscernible]

Your next question comes from the line of [indiscernible]. Please go ahead.

Again coming back to the questions around the CapEx, I think a lot of us are still having trouble understanding what the rationality is for increasing your base case CapEx for the oil and gas business by $1.6 billion. [Audio Gap] Thank you.

Again [indiscernible] its timing. The aspect [Audio Gap] of delaying the completions, we increase the CapEx for couple of reasons. I’ll talk about that first of all. The discovery at [indiscernible] the additional drilling there the acceleration of offset exploitation projects like deep [indiscernible] by the operator. Obviously we are going to participate in because of the lowest nature of it and the de-risking by the [indiscernible] as well. Also when we drill our [indiscernible] West we risk them at 25% success or whether it success we have to complete it. We have to add capital in for that. We’ve also taken a delivery of an additional shift called the [indiscernible] relentless here in the later third quarter to drill some development wells around the foreign mountain area to further like our operation to more efficient. We have to shut that platform in for the facility modifications. Those sides of things are making our operation more efficient and they can reservoir the placement more achievable and [indiscernible] of the long-term. You are not seeing it in the first 3 years with dynamic production growth because we are delaying a lot of the completion dollar for those projects because a budget concerns. So the whole exercise on page 23 that everybody struggling with is that if we would spend the money to complete the wells and earlier than what we plan our current plan and we have the capital to do it. We would see those production adjustments in 2017 as for the bottom part of page 23 versus the current plan we have on the top part of the page. Strictly production timing issue and we’re going to get back David [indiscernible] will have some information on 18, 19 and 20 where you’ll see the rest of the production profile. So if we have the additional capital we’re able to accelerate those [indiscernible] not to drilling, not to risk and so forth of drilling wells is strictly hooking them up and the capital involve there then you’ll see the production response within the three year period. But then on the current plan that we have that’s on the prudent finance plan of allocating capital reducing our CapEx company wide, we’re taking a more measured approach bringing that capital forward. And if the Katanga curve and oil curve is correct if we’re in $70 oil market in couple of years, it’s going to be much more beneficial to delay that production coming on because of price going forward. So that’s where the magic happens. That cleared up?

It does to some extent but perhaps can you quantify this $1.6 billion, how much incremental production does that give you say in 2018 versus three months ago forecast?

There’ll be another 30,000 barrels of that. Yes but that’s not the story for you. Let’s take the success we’ve had in the Vito Basin area as an example. I mean we acquired an interest in this area that shows been working on a development plan. Together we show we drilled this Power Nap well that’s had tremendous amount of new information about the geology in that area and it’s a very positive well. It’s leading us now to look to develop to drill another exploration type well called Deep Sleep which will provide us significant information which has been de-risked significantly and has the chance of identifying a huge structure there. The information that we get from Power Nap and Deep Sleep to change the whole idea about how to develop that Vito Basin area. In that case for developing that that’s going to take a number of years because this is a case where we have to put in new production facilities. It’s not tying back to these existing production facilities and so this has similarities to making decision for major mine developers. First have to understand the geology. You have to develop a – you have to come up with a development plan for it. That development plan takes a number of years to put in place so the [indiscernible] that has been added to capital expenditures because of the success at Power Nap and Vito Basin area is going to lead us to spend some more capital to understand what we have, how it should be developed and make decisions on development and so that production is not going to come [indiscernible] for a number of years.

That’s illustrated on Page 22 and 2019 is when Vito area starts producing in 2020 and so that’s going on very fast illustrates exactly what Richard just said.

And we still don’t know because when we drill this Deep Sleep well that may provide us some new insights just to how to develop this whole area. So it’s something that’s unfolding. It takes time and it’s not going to be a question like some of the hook ups that Jim was talking about that have production consequences much quicker, but this is a major-major development project that could be one of the biggest projects in the entire deepwater in the Gulf of Mexico.

Net a billion barrels for the company.

And just one more question on CapEx, how much incremental CapEx should we assume will be spent on the smelter in Indonesia which I assume is not in your guidance here?

It’s not something where capital would be spent of significance until post 2016 because of the permitting time and so forth with that. In order to give you a sense of that the – to think of the smelter project because we come up with an approach of expanding not necessarily expanding making a Bolton type addition to our existing smelter [indiscernible] with partner Mitsubishi being an expenditure on the order of $2 billion with working capital something maybe slightly more than that. And so our plans would be to obtain project type financing for majority of those cost and then there would be the underlying equity that would be funded by partnership structure which we would have the major part of, but we would have other partners coming in, we are negotiating that and so our share of that projects cost would be a portion of the underlying equity for the project financing for majority of that cost in that construction that would be started in late 2016 or in 2017.

Okay and Rio would be responsible for their kind of proportionate share of that as well currently?

Rio I’m not sure if they don’t call knows it Rio is our partner now and their interest in [indiscernible]steps up to 40% both 2021 and so they would have an interest in seeing that we come up with an arrangement for with the government for extending beyond 2021. We are in discussions, we have a great partnership with Rio and we are talking with them about how best to proceed. We don’t have an agreement on that now. But I’m confident we’ll get a one that will be good for all of us.

Okay. But it sounds like you are suggesting that we should not assume that Rio is planning to fund 40% of it or my misunderstanding?

Mitsubishi’s potential partner there is other potential partners out there, you shouldn’t assume that we’re going to fund 60% of it. So we’re at the stage right now working with Japanese construction firm, own construction contract. We are working with the land owner which is in Jason fertilizer operator where we have an additional deal with own land ownership rights and Sophia [indiscernible] up take, we are working to permitting. So there is a lot of work to be going forward. Let’s go back to your original question about capital spending. We’re not looking at $2 billion of capital coming to Freeport. We are looking at a smaller amount coming in over years in the future and we’ll update you as we go forward in getting the details instruction of this project completed.

Let me just make sure that you understand. The change in the export [projected] price last year when no more permission given [indiscernible] for the [indiscernible] et cetera. What is main this is comment. It’s not [indiscernible] it is export. [indiscernible] I mean if you can’t take all from the Indonesia and putting it back to [indiscernible] so that means the Japanese are sitting there with their smelters with no fig. so this is not just a problem for the exporter the matter if the problem is discovered, the complete restructuring of the market. In other words to make is simple everybody assume that this is [indiscernible] and then for 100 years in Japan and other places [indiscernible] with archeology expert without [indiscernible] contract to work and for this negotiation you still [indiscernible] so the smelters don’t have a slam dunk. [indiscernible] we just don’t [indiscernible] there is a problem. [indiscernible] has no minerals on it and yet it has the downstream part of business. So that’s why it’s still [indiscernible] there is going to be fun work because this is not just one guy caught in [hot fire] everybody got the same problem. It’s complete restructuring of how the business is done. Train to concentrate and the smelter.

Our last question comes from the line of Paretosh Misra from Morgan Stanley. Please go ahead.

I had two questions I could ask but one is based on your conversation with the government so far, do you get the sense that they are open to renew your contract sooner than 2019 as long as there is an agreement on other issues like that [indiscernible]?

Yes that’s our mutual objective and we are working towards that and the issue is and you know we are working on that happening this year sooner this year than later and the government officials working on recognize that as well.

And out of the total CapEx this year, how much are you spending at Grasberg including sustained CapEx?

Around 600 million.

The underground capital is in the $800 million range and sustaining is in the few $100 million range.

And actually just one last one. I know you’ve given in the past your some sort of guidance for the cash cost at Grasberg when you built completely underground, can you just remind us what that number is?

Yes well the guidance we’ve given is based on getting the full capacity, so in the earlier years as we’re ramping up it will be higher, but at current oil prices we continue to expect that Grasberg underground will be the lowest cost portfolio and certainly less than $0.50 a pound. So we’re not seeing here it changes in the open pit cost versus underground because of the nature of underground mining and the absence of stripping, so we’ve got a very good cost structure, large scale it will be similar to the track record you’re seeing with Grasberg over the years.

With all of this noise that we’ve had to deal with for the past several years we – none of us here lose sight of just what a fabulous ore body this is. I mean it’s really special in terms of the copper grades and gold grades that you have available through us. The ability to operate large scale block caving operations is spectacular. We’re moving towards having a 250,000 tonne per day concentrator mill filled totally by underground operations and that’s unique in this industry and we’ve shown that we can operate Block Cave scales. Freeport’s been block caving there since early 1980s and our DOZ mine and its predecessors that shallower elevations had years of successful operations, so we have the kind of ore the kind of host rock that allows us to operate at a truly world leading scale to get to this high grade ore and the rates of return on this project are spectacular.

This is Jim Bob again [indiscernible] open pit and in open pit you have [indiscernible] because you can’t just make [indiscernible] underground. When [indiscernible] block caving [indiscernible] surround your ore [indiscernible] Block Cave [indiscernible] Block Cave. You don’t have to do it other ways, so imagine [indiscernible] open pit [indiscernible] with all these [indiscernible] right around [indiscernible] to just sit there and scratch the bottom of this Block Cave [indiscernible] first blast and then [indiscernible] and find a place to put it [indiscernible] enormous part of our [indiscernible] but that’s because you have to build [indiscernible] when you look at that [indiscernible] all that has been there [indiscernible] copper and gold and silver [indiscernible] so that’s why we have the change. It sounds like 100 million people historically thought underground was [indiscernible] changes the whole impression of [indiscernible] but remember you’re operating underground [indiscernible].

And for the industry as a whole underground mining is a lot more expensive, but that’s a unique characteristic of this [indiscernible] ore body is that we are able to mine such large volumes of high grade ore and reduce that unit cost down to depending on diesel fuel and so forth the levels that are and the price of gold levels that are consistent with our historical price cost levels there so, it’s great asset. Listen we appreciate everybody’s participation in I think a record setting length of a conference call, but we had a lot to talk about today. We want to make sure that in the context of these commodity markets and the changes in our plans that you understood what our assets are that we have to work with, what options we have to do, how we’re approaching it. We’re going to have as I said our fingers on all aspects of the markets for commodities and markets for capital that are available to us and we’re going to find the right alternative to go forward and achieve our strategic objectives. Bring value out of these assets being alone.

[Indiscernible] talk about [indiscernible] properties.

All right everyone thanks and follow up questions [indiscernible] is available to be the point guy and we’ll get people to answer them for you.

Ladies and gentlemen that concludes our call for today. Thank you for your participation. You may now disconnect.